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INVENTORY

Factors Determine The Level Of Safety Stock:

i. There is uncertainty in the demand level or lead time for the product;
it serves as an insurance against stock outs.

ii. Lack of Inventory If companies do not want to be in a situation where
customer demand is not met, then the amount of safety stock that must
be retained by the company should be improved to avoid losing sales.

iii. Inventory carrying costs if companies have to pay a high carrying
cost, then the total safety stock should be reduced. With these
reductions, will lower the average inventory and inventory carrying
costs can be further reduced.

CALCULATION RELATED TO INVENTORY

1 Total Inventory cost (TIC)

TIC = TCC + TOC

** TCC – TOTAL CARRYING COST, TOC – TOTAL ORDER COST

DETERMINATION OF TOTAL CARRYING STOCK (TCC)

TCC is dependent on the average stock, the percentage of cost savings and
price for the stock. In other words, the calculation of the TCC are as follows:

TCC = C X P X A

C = the percentage of cost savings

P = purchase price of the stock

A = the average stock