Page 15 - PowerPoint Presentation
P. 15
MANAGEMENT OF WORKING CAPITAL
The management of inventory
• Ordering cost = cost per order x (annual demand / order
quantity)
• Re-order point = (average lead time x average daily usage) +
safety stock
• How many items are left in inventory when the next order is placed.
• Total cost of inventory = acquisition cost + ordering cost +
holding cost
NB: If discounts for bulk purchases are available, it may be
cheaper to buy inventory in larger order sizes so as to obtain
the discounts.
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