28-06-2016, 05:29 PM
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Abstract
In times of economic slow-down, cutting costs is the major strategy used by the companies. There is a need to track the performance of each product in terms of demand to determine how much to order and when to order. The parameters that are required to answer these questions are economic order quantity (EOQ) and the re-order point. The annual cost of each product is obtained to determine the best deal for the invoices received for the product. This project implemented a mobile inventory management system in PDA and tracks the performance of each product using a web application. This will help the decision makers to initiate accurate re-order and make forecast and demand of the product at any point of time.
1. Introduction
Stock items to be delivered exactly when needed are impractical. Therefore it is necessary to establish inventory policies concerning when to replenish and how much to replenish. The costs that are relevant are procurement cost, cost of the item, carrying cost and order cost. There is no need to keep buffer stock when demand and lead times are known. This helps in minimizing the cost of the inventory [1].
The major objective of the project is to implement a mobile inventory system in a PDA, update the product and invoice details obtained from the PDA into server database, set and calculate parameters required to determine economic order quantity of the product, re-order point and the annual cost of the product.
The following sections discuss about the problem at hand, requirements of the project, design of the system, the methodology used to implement the system, validation and conclusion.
2. Problem Statement
The inventory management requires to answers two basic questions: how much and when to order to be cost effective. The agents of the system identified are the sourcing manager who places the order, the vendor who provides the invoice for the product, the inventory personnel who updates the system and the planner who determines an inventory policy and displays the results. The Economic Order Quantity can determine the minimum quantity that needs to be ordered every re-order point. “EOQ is essentially an accounting formula that determines the point at which the combination of order costs and inventory carrying costs are the least.” [2]. Forecasted annual usage, order cost and carrying cost are used to determine the Economic Order Quantity. “Order cost is the sum of the fixed costs that are incurred each time an item is ordered” [2]. “Carrying cost is primarily made up of the costs associated with the inventory investment and storage cost.” [2]. There is a need to compare different vendor invoices; the annual cost of each product needs to be calculated to determine the best deal. The Annual cost is determined by annual usage, order quantity, order cost, carrying cost and safety stock. [2]. Safety stock is the minimum inventory required to be kept in the warehouse. The simplified method to find the safety stock is half the lead- time. Lead-time is the time taken from when the product was ordered to the time it required to reach the warehouse. The Reorder point is the sum of lead-time demand and the safety stock. Lead-time demand is “forecasted demand during the lead-time period” [3].These parameters were used to answer how much and when to order the product. The next section discuss about the sample calculation used to determine these parameters discussed above.
2.1 Parameters and Formulae
The parameter that needs to be calculated is economic order quantity, annual inventory cost and re-order point of the product
a. Economic Order Quantity (EOQ):
Economic Order Quantity is minimum cost order quantity.
EOQ = Sqrt( (2xDemandx Order Cost) / Carry Cost)
Lead-Time is the time required for the ordered products to reach the inventory.
Lead-Time demand = Demand / Day x Lead-Time
Safety Stock is the minimum stock required to be in the inventory.
Safety Stock = ’dtLead Time Demand)
b. Total Annual Cost:
Total Annual Cost incurred for the product:
Demand / Order Quantity + V2 (EOQ) + Safety Stock x Order Cost x Annual Carrying Cost
c. Re-order Point
Re-order Point is the point at which the product has to be ordered in-order for it to reach the inventory before the minimum number product remaining is equal to the number of safety stock.
Re-order Point = Lead-time Demand + Safety Stock
3. Project Requirement
Figure 1: Use case Specification
The project was aimed at building a mobile inventory management system. The customers of the software could be a company that produces a product and requires product parts to be bought from a vendor. The manager is required to place an order to the vendor and provide product details like the name of the product, product id, description of the product, the name of the manufacturer and quantity of the product. The vendor provided an invoice, which would then be approved by the manager. The invoice would contain the cost of the product, the transportation cost and the lead-time that will be taken for the product to reach the inventory. The inventory personal needs to update the quantity present in the inventory at all times. The following section deals with use case specification for each of these agents. These use cases specified in the figure 1 define the acceptance criteria for the system.
3.1 Use Case 1
This use case was proposed for the sourcing manager. It requires the system to provide interface for adding product details and placing the order to the vendor using a PDA. The functions required are ability to update and delete the product, store in a local database and be able to upload the data to the server.
3.2 Use Case 2
This use case was proposed for the inventory manager. It requires providing the functionality of order quantity and order date update for each product. The system requires storing the changes to the local database in the PDA and upload to the details to the server.
3.3 Use Case 3
This use case was proposed for the vendor. It requires providing functionalities to download the ordered products and be able to upload invoice details to the server.
3.4 Use Case 4
This use case was proposed for the inventory policy planner. It requires functionalities to set parameters namely, annual demand, order cost and carrying cost. Based on these set parameters economic order quantity, re-order point and annual cost needs to be determined. The results need to project product details stored from the updates from the sourcing manager, inventory manager and vendor in the form of a table and a graph showing the updates of the order quantity and order dates from the inventory manager indicating the safety stock and re-order point.