PREPNDINP

NETWORK MEMBER

University Foundation of the Andean Area

ILUMNG
University Foundation of the Andean Area
Faculty of Economic and Financial Administrative Sciences
Specialization in Financial Management
Working Capital Management

Axis Number 2:

Formulation, execution and evaluation of the inventory strategy

Presented by:

Jose Manuel Cuartas Londono

Andrea Marcela Forero Mora
Jesica Juleiny Romero Diaz
Cristian Javier Rocha Quiroga

Presented to:

Cesar Augusto Vásquez Orozco

Bogotá DC, July 8, 2019

 PARAMETER AMOUNT
Demand 1050 Unit/year
Storage cost (Ca 1.2 Annual
Order Cost (Cp) 38 per unit
Unit Cost (Cu) 30 per unit
Order management cycle 8 days
days a year 250 days

Calculation of optimal Q.
Q= √ 2*7,875,000*1.2/38 * 250
Q= 47.08 Units

Calculation of number of orders

per year.
D (Total Demand)
Q (Economic Lot of the order)

#P 22.30 Units

1050 Unit/year
#P 47.08

Calculation of number of orders per month.

Number of annual orders
#P 12 months

#P Units
 ANALYSIS

It is ideal for each organization to know the optimal quantity and the point to
place orders, avoiding lack of quantities for its operation.

The economic order quantity EOQ is useful in terms of reducing the

company's operating costs.

With a demand presented for the year of 1050 Units/year, it is recommended

to place a total of EOQ 47 annual orders to find the balance point between
order costs and maintenance costs.
 PIGMENTS AND DYES COMPANY
PARAMETER AMOUNT
Demand (D) 70,000 gallons/year
Order Cost (Cp) $230,000
Storage Cost (Ca) $10,000 gallon/year
Order Management Cycle 20 days
days a year 365 days

Economic Order Quantity (EOQ) or Optimal Q

Optimal Q= 4((2*D*Cp)/Cd)

Q Optimal 1,794.44 gallons

Point of order

Order Point = Daily Consumption or Demand * Order Management Cycle

Consumption or Daily Demand 191.78 gallons/day

Point of order 3,835.62 gallons
 ANALYSIS
The Economic Order Quantity (EOQ) is the fundamental model for inventory control, and is
based on finding the point at which the costs of ordering a product and the costs of keeping
it in inventory are equal. In the case of the Pigments and Colorants Company, said optimal
order point is 1,704.44 gallons.

The economic order quantity model has certain defects that are directly attributable to the
assumptions on which it is based, among the most notable are: - The assumption of a
constant rate of utilization and instantaneous renewal of stock is quite dubious.
-Most companies maintain buffer stocks as a safeguard for an unexpected increase in
demand or slow deliveries.
-It is very difficult to know in advance the annual demand for items.

For the Pigments and Dyes Company, the order management cycle, that is, the delivery
time of the suppliers that supply it, is 20 days, therefore, when the inventory reaches
3,835.62 gallons, an urgent request must be made. new order for 70,000 gallons (the order
will be placed on day 345).

Because the reorder point is the number of items that a process needs to satisfy its demand
while waiting for the arrival of new products, this minimum level represents the lower stock
limit from which the inventory should not be lowered; That is, it refers to a minimum stock
that allows companies to continue meeting their internal or external demand.
 PARAMETERS
d 2300000annual liters
EITHER 2000 /liters daily
C.U. 1.05 /Liters
L.T. 45days
CP 1500/ order
AC 0.30 / liters
Ac 1.64 (service level 95%)
ds 360
 DEVELOPMENT
Calculation of the size of the laf2OCP/
Qopt=(Ca*Cu))
Qopt = 155403 liters
x
Calculation of safety inventory.
IS = AC*Q*VLT+VLT*(D/360)

IS = 64861 liters
Order point calculation

PP = IS+(LT*D/360)

PP = 352361 liters

Calculation of maximum existence

QMAX = QOPT+IS

QMAX = 220264 liters

Calculation of average existence

Ǭ= IS+(QOPT/2)

Ǭ= 142562 liters

Calculation of the replenishment cycle.

NE QMAX*(360/D)

NE 34.5 34.5Days
 ANALYSIS
There are many aspects that must be considered and numerous
measures that must be taken for a company's stock to run perfectly.
Without a doubt, the time and cost of any operation are vital for the
economic and organizational development of a company, which is
why inventories are considered one of the most efficient tools to
measure the control and performance of any business in progress.

By applying indicators to inventories, it allows the company to have

management and knowledge of the supply to customers, avoiding
stock outages. As reflected, the company cannot supply its orders,
which does not allow it to meet its goals. It is recommended to
increase the size of the purchasing lot and reduce the order
management cycle.