Page 13 - PowerPoint Presentation

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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