SS2 Third Term Further Mathematics Lesson Note – Inventory Model

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WEEK FIVE

INVENTORY MODEL

CONTENT

(a) Concept of inventory

(b) Definitions of important terms in inventory: Holding list, Demand, Ordering list etc.

(c) Computation of optimal quantity (EOQ model).

SUB TOPIC: CONCEPT OF INVENTORY

Inventory is the idle resources of any organization or enterprise. It is the physical stock of goods that are kept for future use. Inventory may take the form of raw materials, spare parts, machinery, equipment, unfinished goods, men and money.

In short, we can define inventory as a list of all things in a place. We have many types of inventories but the major types include the following three that we are going to talk about;

Transportation inventory: is the type of inventory where items from various production centers are taking to different distribution centers as well as customers.

Buffer inventory: is when you keep some stock of goods to meet the uncertainty demand and supply.

Anticipatory inventory: is another inventory that occurs when someone is expecting something to happen. It is the stock of goods that are maintained in anticipation of future demand.

There are many reasons for keeping inventories, the reasons are as follows:

1. They promote smooth and efficient running of the enterprise.
2. They act as buffer stocks due to late arrivals of raw materials and too many shop rejections.
3. They help to maintain the economy by absorbing the uncertainties due to seasonal or fluctuations in demand of items.
4. They help in minimizing losses that may be due to damage, out modeless or depreciation
5. They promote bulk purchases by taking advantages of price discounts.
6. They help to provide sufficient services to customers.

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