Academic literature on the topic 'Inventory carrying costs'

The inventory carrying cost has been assumed uniform for all products in an organization or a warehouse. This assumption is not valid for a diversified range of items in an organization or warehouse. This paper tested this hypothesis of variations in inventory holding costs in a warehouse in two industries based on the physical nature and the price of products. It is found that organizations with a wide variety of products need to calculate the inventory holding cost for each item (SKU) rather than using an average percentage cost of inventory. Inventory holding costs of items in two different organizations were calculated based on the various factors, including the actual cost of space due to the voluminous nature of the items with their existing inventory policies. A variation in inventory holding costs for each item was observed. The variation was small for an organization with homogeneous input costs, and it was large for a multi-product organization. The overall savings in the inventory holding cost due to adjusting the inventory policies through this methodology was found to be about 3%, which is significant for a big organization. This analysis will affect the decision the determining inventory carrying cost, inventory policies (e.g., stocking levels), and pricing policies (e.g., quantity discounts) for retail organizations.

A manufacturer leases rail cars to transport raw material from the supplier to the factory. The manufacturer must balance the costs of leasing rail cars versus stockouts (leading to plant closings) and inventory carrying costs. Using a model of circular queues and a simulation, the cost implications of leasing different numbers of rail cars are analyzed. It is concluded that stockout costs exceed the cost of excess inventory and capacity in the logistics system.

Achieving uninterrupted production, increasing profitability and productivity, protection against stock-outs, and improving customer service levels have been the major benefits of holding inventory. Maintaining inventory levels beyond a certain limit is, however, an undesirable phenomenon. While practitioners and researchers are aiming at minimum possible cost of inventory, many small business owners in India still fail to appreciate fully the true costs of carrying inventory. In this context the present study examines a case of the lock manufacturing industry in the Aligarh district of the state Uttar Pradesh. The investigations reveal that lock manufacturing units, by-and-large, are either unaware of even the fundamental techniques of inventory management or do not practice them for one reason or the other. The case attempts to illustrate how SMEs can reduce their inventory costs, and hence improve profitability, through the application of basic models of inventory management.

Vendor Managed Inventory (VMI) is a centralized link between suppliers and customers that enables faster, less complex transactions without creating individual lines of communication for every business relationship. The current scenario necessitates the effective integration of forecasting with VMI to maintain its efficient inventory level with less safety stock. Concerning the above, this paper proposes a Forecast Driven Vendor Managed Inventory Model (FDVMI) in which a suitable forecasting model, which has minimum error and which satisfies Tracking Signal, is selected to predict the demand. The operational control and performance parameters are estimated for the partners under VMI mode of operation. The proposed model is analyzed with a case problem of M/s Nerolac stock point, Madurai with all performance parameters. The analysis reveals that the adaptation of FDVMI guarantees tangible benefits such as increase in buyer profit, vendor profit, decrease in sales price and contract price and intangible benefits such as reduced inventory, replenishments and stock outs. However, the validity of the results depends on the various factors such as sales-demand relationship, order and carrying costs of vendor and buyer in the Existing Operation (EO), combined order and carrying costs of vendor in VMI system and so on.

We analyze a continuous review inventory model with the marginal carrying cost of a unit of inventory given by an increasing function of its shelf age and the marginal delay cost of a backlogged demand unit by an increasing function of its delay duration. We show that, under a minor restriction, an (r, q)-policy is optimal when the demand process is a renewal process, and a state dependent (r, q)-policy is optimal when the demand is a Markov-modulated renewal process. We also derive various monotonicity properties for the optimal policy parameters r* and r* + q*.

Inappropriate inventory control policies and its incorrect implementation can cause improper operation and uncompetitive advantage of organization logistic operation in the market. Therefore, analysis inventory control policies are important to be understood, including carrying cost, ordering cost, warehouse renting cost, and buying cost. In this research, Economic Order Quantity (EOQ) problem in fuzzy condition is reviewed in two different situations. The first model concerned to costs (carrying cost, ordering cost, warehouse renting cost and buying cost), which is considered as triangular fuzzy numbers. The second model was in addition to inventory the cost system, in which annual demand is also reviewed as fuzzy numbers. In each model, graded mean integration representation (GMIR) deffuzification was used for parameters deffuzification. Then, the final objective from this analysis was to obtain economic quantity formula through derivation.

The management of maintenance spares has frequently been treated as part of the management of the total inventory in production-oriented organizations. In this article it is suggested that maintenance spares should be grouped into four categories: non-stock, usage stock, project stock and insurance stock. Rather than using a common inventory control approach to all spares, different techniques should be applied to each category. Developments in reliability-centred maintenance will result in less reliance on forecasting maintenance spares requirements, thereby permitting a higher service level without an increase in inventory carrying costs.

The capacity to maintain stability in a system relies on the components which make up the system. This study explores the relationship between component-level resilience and system-level resilience with the aim of identifying policies which foster system-level resilience in situations where existing incentives might undermine it. We use an abstract model of interacting specialized resource users and producers which can be parameterized to represent specific real systems. We want to understand how features, such as stockpiles, influence system versus component resilience. Systems are subject to perturbations of varying intensity and frequency. For our study, we create a simplified economy in which an inventory carrying cost is imposed to incentivize smaller inventories and examine how components with varying inventory levels compete in environments subject to periods of resource scarcity. The results show that policies requiring larger inventories foster higher component-level resilience but do not foster higher system-level resilience. Inventory carrying costs reduce production efficiency as inventory sizes increase. JIT inventory strategies improve production efficiency but do not afford any buffer against future uncertainty of resource availability.

Master of Agribusiness
Department of Agricultural Economics
Allen M. Featherstone
The Agriculture Equipment Manufacturing industry is a $42 billion dollar industry in the United States. The Agricultural Equipment industry is very competitive across all market segments, especially in the less than 100 horsepower category (<100hp). This tractor category consists of 4 sub categories: <20hp, 20-40hp, 40-60hp, and 60-100hp. The <100hp tractor segment accounted for 170,547 of the 207,833 tractors that were sold during the 2014 year. Compared to the over 100 horsepower category (100+hp) that has fewer competitors, the <100hp segment is more competitive with more manufacturers competing for market share. Company XYZ is a full line manufacturer of agricultural equipment, harvesters, and construction equipment. Company XYZ lost some ground in market share due to the increased competition from new entrants into the market place as well as established manufacturers increasing their presence. To be more competitive, Company XYZ is looking at industry best practices to see how they can increase market share. One of these practices is a terms bank. A terms bank allows a dealer to stockpile unused months of terms to be used at a later date on tractors with expired terms. This minimizes financial risk for dealers to stock inventory. The cost to stock inventory is a large expense that dealers must carefully manage. One of the biggest costs of stocking inventory is the interest paid for tractors that have exhausted their interest free terms. A terms bank may lower the amount of interest that a dealer pays. It also lowers the cost to stock inventory and allows the dealership to manage and reduce these costs and risks. Evaluating the factors associated with stocking inventory, especially interest rate, will help manage inventory costs and stocking levels. This thesis uses regression analyses to analyze the costs of stocking units and the effect it has on dealership revenues. A regression analysis will test the hypothesis that lowering the interest portion of the cost of stocking inventory will increase sales. Data were gathered for dealership groups in the Western United States on a monthly basis for the years 2008 – 2014. The results supported the hypothesis that lowering the interest rate at dealerships was positively correlated with revenues. The reduced interest cost lowers the carrying cost of inventory and point to a terms bank being an effective tool for increasing Company XYZ’s market share.

Purpose – To analyze the impact on total cost by inventory control methods under the influence of seasonal demand. The purpose will be answered with following research questions: What inventory control methods can be used when there is seasonal demand? What is the impact of inventory control methods on total cost under the influence of seasonal demand? Method – The study was conducted as a case study and the empirical data was collected through interviews and document study. Both of these contributed to the basis for the analysis and for the calculations in the test of the study. Literature study was conducted and included theories for inventory control methods to answer the first research question, as well as formulas for the methods used to answer the second research question. Findings – It appears from the study, the inventory control methods that can be used when there is seasonal demand and during current planning environment is periodic ordering system and cycle service method. These have been tested further in the study. Seasonal index was considered an important method since it dimensions demand which to a high degree regulate the inventory levels and thereby the result of the inventory control methods. Further the study compares none theoretical inventory control methods and theoretical inventory control methods impact on total cost. It is shown that carrying costs, as a part of total cost, can be reduced by 25% during the peak season and 62% during off-season. This without changing the deliverability. Alternatively, the deliverability can be increased by 10% by using inventory control methods without increasing the total cost of the inventory. Implications – The theoretical contribution of the study is that it has increased the knowledge concerning inventory control methods when there is seasonal demand, and the possible results they might bring. The empirical contribution of the study is that companies can use the study as an indication of the economic benefits and motivation for implementing theoretical inventory control methods. Limitations – The tested inventory control methods did not alter the ordering cost, which to a high degree can have an impact on the total cost. The study also shows a possible impact on the inventory control during the current planning environment. If the planning environment changes, the result of the study can be different.

Dissertação de mestrado integrado em Engenharia e Gestão Industrial
Nesta dissertação aborda-se o caso real de um problema de transportes de longa distância entre vários fornecedores e uma empresa eletrónica do ramo automóvel. Em particular pretende-se minimizar custos tendo em conta os modos de transporte viáveis – aéreo e marítimo. Este problema foi tratado de duas formas: o cálculo direto dos custos envolvidos por fornecedor para as alternativas existentes e o desenvolvimento e implementação de um modelo de otimização. Relativamente à primeira, analisou-se todo o processo de importação do mercado asiático e as respetivas variáveis envolvidas. Tendo em conta a grande probabilidade de existir uma má seleção de serviço de transporte para diversos fornecedores e a complexidade que uma análise do género implica, construiu-se uma ferramenta informática de cálculo que avalia o balanço entre custos de transporte e custos de posse de inventários e que permite uma obtenção de resultados de forma expedita e de simples utilização. Como principais benefícios, este recurso possibilita um acompanhamento mais próximo das variações dos custos de transporte e uma maior capacidade para detetar casos em que seja necessária a alteração do modo, permitindo acelerar esse processo. A segunda forma de abordar o problema baseia-se num modelo de programação inteira mista que tem como pedra basilar o problema clássico de transportes, ao qual acrescenta a dimensão de tempo, o escalonamento dos diferentes envios e contabiliza tanto custos de transporte como custos de posse de inventários em trânsito. O objetivo passa pela minimização dos custos totais, selecionando o modo de transporte mais adequado para cada fornecedor. A principal diferença entre os dois métodos propostos tem que ver com a sua abrangência. Enquanto que a aplicação informática calcula os custos de transporte para cada fornecedor, o modelo de otimização considera o universo de fornecedores como um todo e faz o seu escalonamento de acordo com a procura. Ambos os métodos foram implementados, estando o primeiro em utilização pelas pessoas envolvidas na gestão de transportes da empresa onde o trabalho foi realizado.
This dissertation addresses the real case of a long distance transportation problem between several suppliers and an electronics company of the automotive business. It intends to minimize costs taking into account the reliable modes of transport – aerial and maritime. This problem was tackled by two fronts: the direct calculation of costs related to the suppliers for the existing alternatives and the development and implementation of an optimization model. Regarding the first front, the importation process from the Asian market in the company and their variables were analyzed. Due to the great possibility of a bad choice on the transportation service for several suppliers and the complexity involved in an analysis for such purpose, it was built a calculation tool that evaluates the trade-off between transportation costs and inventory carrying costs. This tool allows attaining results in a simple and fast manner. As main benefits, this resource allows to closer follow the variation of the transportation costs and quickly detect cases where transport service change is necessary, fastening this process. The second way to approach this problem is based on a mixed integer-programming model, which is based on the classical transportation problem added with time dimensioning, different transportation modes available, scheduling of the envoys and count both transportation and in-transit inventory costs. The goal is to minimize total costs by selecting the proper mode of transport for each one of a group of suppliers. The main difference between both methods is their comprehensiveness. While the first tool calculates transportation costs for each supplier, the optimization model considers all suppliers and schedules the transportation according to their demand. Both methods were implemented, being the first already in use by the staff of the transport management department of the company where the project was developed.

This chapter examined how the use of technology in inventory control impacts organizational performance since inventory is the most valued asset of an organization. From the summary of this study, it can be concluded that the adoption of technology as RFID in inventory management leads to improve the organizational performance in both financial and customer responsiveness. In the business performance, RFID could improve the organizational performance in terms of reducing inventory carrying costs on the warehouse, such as lowering the expiring cost of the product stocked, increasing space in a warehouse, avoiding exceed inventory, and decreasing labor costs. Moreover, from the perspective of customer service, the adoption of RFID could increase customer responsiveness in terms of reducing stock out risk, increasing the accuracy of product delivery, and increasing the interaction between customers with the organization.

The pharmaceutical industry quite broadly encompasses a large and varied number of logistics and supply chain activities. The industry, as a whole, relies on some standard benchmarking indicators such as months of on-hand inventory and inventory turns; however, the existing metrics do not allow for idiosyncrasies of the industry or provide adequately detailed insight into the key factors that make a pharmaceutical supply chain excellence. Over 75% of the markup on pharmaceutical products takes place at the manufacturer. This causes inventory-carrying costs to increase dramatically once the distribution segments of the supply chain purchase the product. Wholesalers and large pharmacy chains suffer high carrying costs on the final product. Inside pharmaceutical supply chains, companies must also face issues of product expiration and limited shelf lives. Seasonal and short shelf life products such as flu vaccines leave companies without the opportunity to redistribute or reallocate product in order to meet demand.

Classical Oil Country Tubular Goods (OCTG) procurement approach has been practiced in the indus-try with the typical process of setting a quantity level of tubulars ahead of the drilling project, includ-ing contingencies, and delivery to a storage location close to the drilling site. The total cost of owner-ship for a drilling campaign can be reduced in the range of 10-30% related to tubulars across the en-tire supply chain. In recent decades, the strategy of OCTG supply has seen an improvement resulting in significant cost savings by employing the integrated tubular supply chain management. Such method integrates the demand and supply planning of OCTG of several wells in a drilling project and synergize the infor-mation between the pipes manufacturer and drilling operators to optimize the deliveries, minimizing inventory levels and safety stocks. While the capital cost of carrying the inventory of OCTG can be reduced by avoiding the procurement of substantial volume upfront for the entire project, several hidden costs by carrying this inventory can also be minimized. These include storage costs, maintenance costs, and costs associated to stock obsolescence. Digital technologies also simplify the tasks related to the traceability of the tubulars since the release of the pipes from the manufacturing facility to the rig floor. Health, Safety, and Environmental (HSE) risks associated to pipe movements on the rig can be minimized. Pipe-by-pipe traceability provides pipes’ history and their properties on demand. Digitalization of the process has proven to simplify back end administrative tasks. The paper reviews the OCTG supply methods and lays out tangible improvement factors by employ-ing an alternative scheme as discussed in the paper. It also provides an insight on potential cost savings based on the observed and calculated experiences from several operations in the Asia Pacific region.

The combined cycle power plants operating in Japan are normally provided with two or more gas turbines and spare parts in quantities as required by the number of gas turbine units in operation. Since the quantity of hot gas path parts installed in a gas turbine is massive, the parts required for a gas turbine are arranged in groups so as to simplify the control of parts inventory. These parts groups are replaced and repaired at each inspection. Furthermore, since the costs of hot gas path parts are very high, using the parts efficiently and implementing measuring to prolong the life of the parts are very important. Detailed parts rotation schedules are prepared to properly rotate the spare parts groups. In doing so, the length of service life, quantity of spare parts, schedules for using the parts for several years to come, and time required for maintenance and repairs must be taken into consideration. Special characteristics of respective power plants such as plans for prolonging the service life of parts and various costs must be taken into consideration. Since it is difficult to prepare the schedules for rotating parts automatically, skilled workers are carrying out most of work manually at present. Against such a backdrop, the authors have developed the “Management Support System for Gas Turbine Hot Gas Path Parts”. This system can be used to reduce the maintenance and repair costs by optimizing parts rotation schedules. The basic concepts of the development are as follows. 1) Some parts can be shared among plural number of power plants with the gas turbines of the same model. A user freely sets models of the gas turbines, categorization of parts, and numbers of the parts dealt with. 2) The unit of the part management is done based on not groups but serial numbers. Moreover, replacing parts is enabled. 3) The program is modulated according to the functions. Addition, change, and deletion of these functions are facilitated. The total system is developed platform-free.

Abstract People with disabilities often struggle with mobility issues, so there is a strong desire for devices such as powerchairs, which can provide more freedom. Currently, wheelchair demand in the US is increasing due to an upsurge in the elderly population. Often electric powerchairs suitable for outdoor use are extremely expensive, cannot be used indoors, and are not covered by medical insurance. In this project, these problems are addressed through the design of a chair which is suitable for both rough outdoor terrain and indoor use. This project is based on a request for a powerchair which our client’s son, who has cerebral palsy, can use on family trips in outdoor environments including grass, gravel, and sand. A photo of a previous nonfunctional prototype was provided to the team as a reference, and a full redesign was performed to resolve the problems identified. Before proceeding with the design, various sources were consulted to gain a thorough understanding of currently available technology and design methods. Many different adjustment methods and features were considered, including an adjustable frame, tracks, and a lifting system for curb mounting. The overall design selected is a welded sheet metal frame with wheels, and it was determined that the chair should have an adjustable wheelbase width to provide both outdoor stability and indoor maneuverability. Key considerations for the design include battery life, motor torque, maximum load, seat size, door width, and cost. The final specifications are based on the needs of the client, Kevin Sample, as well as an analysis of the wider consumer market. The width adjustment design uses an axle above the driving wheels, which are connected to it by sliding sleeves. Automatic adjustment is accomplished using a linear actuator. The drive wheels are large and run at low pressure to surmount obstacles and damp vibrations. Differential steering combined with rear caster wheels gives the chair a small turning radius, and its length is comparable to that of standard manual wheelchairs. The seat can be easily removed to access the battery and control system or to load the chair into a vehicle. A joystick is used to control the speed and direction of the chair, while a separate momentary switch is used for the linear actuator. Throughout the modeling process, stress analysis was performed using simulations in Inventor. Any necessary adjustments were made to ensure that none of the parts will fail, considering both failure theory and fatigue. Various grades of aluminum were selected for the majority of the manufactured parts, due to their corrosion resistance and light weight. The device is currently in the prototype manufacturing stage. If it is later marketed, a curb mounting device may also be included; this was decided against mainly due to cost and time restrictions. Space has also been left for a carrying basket, which will likely be added to the first prototype. The initial goal is to produce a single chair for our client, although the design may later be submitted for Medicare and ADA approval.

This paper presents the history of and current status of a U.S. DOT and NASA sponsored program designed to demonstrate the feasibility of using a small-unmanned airborne data acquisition system (ADAS) for traffic surveillance, monitoring, and management. ADAS is ideally suited for application in monitoring traffic flow, traffic congestion, and supporting ITS assets. GeoData Systems (GDS), Inc., with principal offices at 10565 Lee Highway, Suite 100, Fairfax, VA 22030 has developed a revolutionary new class of airborne data acquisition systems. In this effort, GDS has teamed with traffic experts DBR & Associates; P.O. Box 12300 Burke, VA. The GDS ADAS has a gross takeoff weight of less than 55 lbs, which includes both the airframe and sensors. It is capable of sustained flight for periods in excess of two hours while carrying a sensor payload of up to 20 lbs. ADAS has nine interchangeable sensor platforms under development to include a hyper-spectral visible-near-IR sensor, a multi-spectral visible near-IR mid-IR sensor, a synthetic aperture radar (SAR) sensor, and a highly flexible high-resolution real-time video sensor. The GDS high-resolution real-time video sensor is ideally suited for traffic monitoring and other highway monitoring applications. The ADAS platform is capable of flying under a combination of pre-programmed Differential Global Positioning Satellite (DGPS) based navigation and manual direct ground control. The ADAS is being fully tested and is planned for use in several DOD base-monitoring studies this year. It should be noted that the ADAS has several levels of backup systems, which allows for a safe descent to the ground via parachute in a worst-case scenario. The system and any liability resulting from its use are fully insured by a major provider. The use of ADAS in traffic surveillance, monitoring, and management is unique and, as far as can be ascertained, has not been used in an official capacity in this way. Because of its ability to collect traffic data, survey traffic conditions, and collect highway inventory and environmental data in a cost-effective manner, and because every metropolitan area needs to collect at least some traffic data, the potential payoff from applying the ADAS is significant. The estimated potential payoff resulting from the use of the ADAS was calculated by taking into consideration information from a recent study conducted for the Federal Highway Administration by the Volpe National Transportation Systems Center1. Using a reported average amount of funds expended annually for traffic data collection by transportation agencies in metropolitan areas with a population of over 200,000 and taking into consideration the estimated budget for staff involved in data collection, it is calculated that transportation agencies in an average metropolitan area spend approximately $5 million per year in traffic data collection. The ADAS can play a cost-saving role in about half of all data collection procedures and can reduce the total cost by 20 percent. Nationally, this could produce an annual savings of $75 million. An additional area where the ADAS can play a useful role is in incident management. It is well documented that more than half of the traffic congestion in the U.S. is caused by incidents, and the problem is getting worse: The percentage of congestion due to incidents is estimated to increase to 70 percent by the year 20053. The Federal Highway Administration further estimates that incident-related traffic congestion will cost the U.S. more than $75 billion in the year 2005, mainly due to lost time and wasted fuel. Comprehensive, accurate surveillance of major incidents will result in a more effective overall response. It can facilitate the process of completing police documentation of incidents, which further reduce their duration. A recent study4 showed that a 23-minute reduction in average incident duration in the Atlanta area saved $45 million in one year. The ADAS is able to provide real time overhead video feeds of an incident and the surrounding traffic situation. In addition, the ADAS can record the incident on video, capturing especially those incidents that are not within the visibility range of any CCTV system, therefore reducing the recording burden of police officers. The valuable role that airborne real-time video can play has been recognized by transportation agencies: The Virginia Department of Transportation (VDOT) has commented enthusiastically on this approach: “…VDOT definitely supports the use of an Unmanned Airborne Sensor for traffic management during a highway incident.” In addition, the Director of the Center for Advanced Transportation Technology of the University of Maryland also has responded positively, writing that, “A project which evaluates the effectiveness of an unmanned airborne data acquisition system in monitoring traffic flow seems to be a step in the right direction toward identifying appropriate and cost-effective remote sensing applications.” Further, in a recent study conducted by the Virginia Transportation Research Council in cooperation with the Federal Highway Administration, researchers concluded that: “the air video reduces the time and personnel needed to acquire data from the field. Further, aerial video may facilitate an objective evaluation of a jurisdiction’s incident response procedures. Finally, aerial video may allow a transportation agency to adopt a proactive approach to traffic management by identifying and evaluating potential problems before they occur. Specifically, problems include the use of residential neighborhoods to bypass congested arterials and heavily used facilities needing snow removal.” Our project is demonstrating how the ADAS can be used in traffic surveillance monitoring and management. The study team is using input from transportation agencies at the state and local level to fine-tune the design of the ADAS application and the analysis and evaluation of the results. Areas where the ADAS can be applied effectively and efficiently are being identified. When completed, the end product of this effort will be a document that will indicate when it is cost-effective to use ADAS relative to other possible methods of data collection and analysis.