Inventory Caps Project

Proposed & Presented by; Mudasser Khan Bungish

 Definitions: 

1.      Daily Average Movement is the same as average sales per day, calculated by dividing the sum of Item fulfillments in any period of time by the total number of days in the same period.

2.      Safety Stock in Quantity is the least level of stock and we cannot go below than this level at any cost. Also know as buffer stock. In our example it is stock for 15 days in Pcs/Qty.

3.      Re-order Level Quantity is the level of current stock where if we will not place an order with supplier then we will not be able to keep even buffer/safety stock till the new stock arrives.

4.      Upper Inventory Cap helps us to order that optimum level which will not let the stock to exceed from a particular level

Note: Above stated calculation can be seen in the report “Test-Inventory Cap Report for 90 Days”

5.     Maximum Permissible Qty is the total quantity of current stock and new orders to control the maximum stock level anytime in our warehouse

6.     Lead Time is the total time required to arrange the shipment from placing order till it arrives in W.H

7.     Maximum Allowed Stock in Days is as per management’s instructions.

Inventory Caps Project

 Let’s Suppose:  

a) Sum of Item Fulfilment in Qty for 90 Days = 90 Pcs

b) Safety Stock in Days = 15 Days

c) Lead Time in Days = 45 Days

d) Maximum Permissible Quantity in Days = 120 Days

e) Pending or Open Purchase Order placed with Supplier = 0 Qty

f) New Ordering Qty what not yet placed with supplier = 19 pcs

Inventory Caps Project

 Formulas: 

1.    Daily Average Movement  = Sum of Item Fulfilment (for 30,60,90 Days)           No. of Days (30,60,90)

 

2.    Safety Stock in Quantity = Daily Average Movement * Safety Stock in Days

    Daily Average Movement: = 90 Pcs = 1 Pc 90 Days

 

    Safety Stock in Quantity = 1 Pc * 15 Days = 15 Pcs

3.    Re-order Level Quantity       = (Lead Time in Days * Daily Average Movement ) + Safety Stock Qty

    Re-order Level Quantity = (45 Days* 1 Pc) + 15 Pcs = 60 Pcs

4.    Upper Inventory Cap Qty = Daily Average Movement * Max Permissible Qty in Days

     Upper Inventory Cap Qty = 1 Pc * 120 Days = 120 Pcs

Inventory Caps Project

Inventory Caps Project

Reminders/Notifications; If below conditions do not fulfilled

1.    Always Upper Inventory Cap Qty ≥ (Current Stock + Pending/Open P.O + New Ordering Qty )

     Upper Inventory Cap Qty, 120 Pcs ≥ (100 Pcs + O Pcs + 19 Pcs)

If we increase new ordering Quantity from 19 Pcs to 20 Pcs, then reminder/notification will be received

2.   Always Re-Order Level Qty ≤ (Current Stock + Pending/Open P.O)

     Re-Order Level Qty, 60 Pcs ≤ (100 Pcs + O Pcs)

If current stock reduced from 100 Pcs to 60 Pcs, then reminder/notification will be received

3.   Always Current Stock ≥ Safety Stock in Qty

     Current Stock in Pcs ≥ (15 Pcs)

If current stock reduced to 15 Pcs, then reminder/notification will be received

Inventory Caps Project

Current Stock, 100 Pcs

Reorder Level, 60 Pcs

Safety Stock, 15 Pcs

Present Day

After 40 Days

Just before reaching the Stock

After Stock arrives in W.H

After replenishment Current Stock is 75 Pcs (60+15)Which is Maximum Stock Allowed to be have in W.H

At the time Order Placed

Re Order Quantity Model

Maximum Inventory Cap Stock for 120 Days which is 120 Pcs

Virtual Stock Level

Inventory Caps Project

“Next move towards value addition”