DELTA PRODUCTS INC

Delta Products Inc.

Delta Products Inc.

Introduction

There are several reasons for Delta Products Inc to maintain finished goods and supplies as inventory. The inventory can cope with fluctuations in demand, avoid stock breaks, achieve economies of scale, allowing greater production flexibility can be used as a competitive weapon, etc. So if Delta Inc keeps inventories have important benefits associated Why not fill our warehouse inventory? The answers are manifold, but all maintain a common basis: Costs. It can be interpreted that inventory maintenance is not an easy task because of the costs associated with inventory management (Bernard, 1999).

Operations Management provides mathematical models that can cope with in a systematic manner the problem of inventory management. These mathematical models basically fall into 2 categories and depend on the behavior (based on assumptions) about the behavior of demand (Thierauf, 1978). Models are associated with constant demand (EOQ, POQ, EOQ with quantity discounts, etc) and related random demand (associated with a probability function). In this sense EOQ to be the simplest mathematical model and its main features are summarized below.

Discussion and Analysis

The economic order quantity seeks to find the amount of order that minimizes total inventory cost of the company. One of the tools used to determine the optimal amount of request for an inventory item is the model of economic order quantity (EOQ). It takes into account the different financial and operational costs and determines the amount of order to minimize inventory costs of the company (Thierauf, 1978). The model of economic order quantity is based on three fundamental assumptions: the first is that the company knows what is the annual use of items found in inventory, second that the frequency with which the company uses the inventory is not varies with time and finally that orders are placed to replace stocks of inventory are received at the exact moment when inventories are depleted.

Assumptions of EOQ (Economic Order Quantity)

Constant and known demand

A single product

The products are produced or purchased in batches

Each item or order is received in a single shipment

The fixed cost of issuing an order is constant

The lead time (waiting time) is known and constant

No breakdown of stock

No volume discounts

Basic Costs

Among the costs that must be taken into account in the implementation of this model are: Ordering costs: these are the expenditures that include the fixed costs of office to place and receive an order, that is, the cost of preparing a purchase order processing and verification upon delivery (Summers, 1998). These are expressed in terms of costs or costs per order. Inventory maintenance costs, unit variable costs are costs of maintaining an item in the inventory for a given period. Among the most common are storage costs, insurance costs, the costs of deterioration and obsolescence and opportunity costs (Summers, 1998). These are expressed in terms of cost per unit per period. Total costs: It is to be determined by the sum of ordering and inventory maintenance costs. Its objective is to determine the amount of order that ...