Inventory Control | Industrial Engineering - Mechanical Engineering PDF Download

Inventory Control

In inventory control our aim is to manage inventory in such a manner that day to day working run smoothly without any delay but at the minimum of cost.

Type of inventory costs

Inventory Control | Industrial Engineering - Mechanical Engineering

  1. Purchase Cost: It is the cost of purchasing inventory it depends upon quantity or bulk purchased.
    Inventory Control | Industrial Engineering - Mechanical Engineering
  2. Ordering Cost:
    Inventory Control | Industrial Engineering - Mechanical Engineering
  3. Set up cost:
    Inventory Control | Industrial Engineering - Mechanical Engineering
  4. Holding or Carrying Cost:
    Inventory Control | Industrial Engineering - Mechanical Engineering
  5. Shortage or Stock out cost:
    Inventory Control | Industrial Engineering - Mechanical Engineering

Types of inventory

  1. Transit or Pipeline: Inventory can’t provide service while in transportation such inventory is called transit inventory.
  2. Buffer or safety stock: It is the reserve stock kept throughout the year and it is held for protecting against the fluctuation in the demand rate and lead time.Inventory Control | Industrial Engineering - Mechanical EngineeringLead Time: It is the time gap between placing an order and inventory on-hand so that it can be used or consumed.
  3. Seasonal Inventory: The demand of the inventory changes with seasons of the year.
  4. Anticipation inventory: The inventory is build-up to meet anticipated demand in the future like big selling forecast, govt. policy change, price hike, strike shut down etc.
  5. Decoupling inventory: It is extra inventory kept between two interdependent operations or workstations and it works as a buffer during breakdown and maintenance.

Characteristic of Inventory Model

  1. Dependent: The demand for these item is directly related or linked to any other item, usually of a higher level of which it becomes a part.
  2. Independent: The demand for this items is not directly related or linked to any other item it is difficult to compute and it is projected with the help of forecasting.

Inventory Control | Industrial Engineering - Mechanical Engineering

Deterministic & Probabilistic

  1. Deterministic: In these model demand rate and lead time remain fixed and constant and therefore we need not to carry safety stock.
  2. Probabilistic: This model represents real-world condition where there is variation and fluctuation in the demand rate and lead time. In this model we need to carry safety stock to prevent stock out.
  3. Notations: D : Annual or yearly demand of inventory (units/year)
    Q : Quantity to be ordered at each order point (units/order)
    N : Number of orders placed in a year (order/year).
    T : Time length of one inventory cycle or time gap between 2 successive order (year/order)
    [same unit]
    C : Cost of purchasing one unit of inventory (Rs/unit)
    C0 : Cost of placing one order (Rs/order)
    Ch : Cost of holding one unit in inventory for one complete year (Rs/unit/year)

Type of Inventory Models

Deterministic Models or Economic Order Quantity or Harris Wilson model or Infinite Rate of Replenishment

Inventory Control | Industrial Engineering - Mechanical Engineering

Inventory Control | Industrial Engineering - Mechanical Engineering

The ordering quantity Q* where holding cost becomes equal to ordering cost and total inventory cost is minimum is known as economic order quantity [EOQ].

only for EOQ

Inventory Control | Industrial Engineering - Mechanical Engineering
Inventory Control | Industrial Engineering - Mechanical Engineering
only for EOQ
When holding cost is given in terms of interest or % it always correspond to unit price of inventory and interest rate should be always yearly.
Ch = i % of C

EOQ with price break or Quantity discount

Inventory Control | Industrial Engineering - Mechanical Engineering

Inventory Control | Industrial Engineering - Mechanical Engineering

In this problem, first we compute feasible EOQ and then total cost is computed at EOQ and next higher order size having price break whenever the total cost comes out to be minimum gives the best order size.

Production or Build up model

Inventory Control | Industrial Engineering - Mechanical Engineering

Q: Quantity to be produced/manufactured in every set up (unit/setup)
C0: (Rs/setup) cost of each set up
tP: production/manufacturing time
P: production/built-up rate
d: demand/consumption rate
Qm = Q(p-d/p)
TVC = Setup cost (S.C.) + Holding cost (H.C.)
S.C. = No. of setup × cost/setup
SC = D/Q x Co
Inventory Control | Industrial Engineering - Mechanical Engineering
Inventory Control | Industrial Engineering - Mechanical Engineering
Production factor > 1

Inventory Control | Industrial Engineering - Mechanical Engineering
case when P→∞
S.C. = H.C.

Shortage or Stockout or Back order

Inventory Control | Industrial Engineering - Mechanical Engineering

Inventory Control | Industrial Engineering - Mechanical Engineering
Annual SC = S2/2Q.Cb

Inventory Control | Industrial Engineering - Mechanical Engineering
Inventory Control | Industrial Engineering - Mechanical Engineering
Inventory Control | Industrial Engineering - Mechanical Engineering
Inventory Control | Industrial Engineering - Mechanical Engineering
Inventory Control | Industrial Engineering - Mechanical Engineering

Probabilistic Models

Inventory Control | Industrial Engineering - Mechanical EngineeringRe-order level = Average demand during LT (ADDLT) + Safety Stock (SS)
Qavg = Q/2 + SS 

Service Level Model


This model is preferred when the different cost factor involved with inventory are not known exactly it is based upon probability theory and amount of safety stock is kept according to level of service management wants to active.
Service Level = Number of units Supplied without delay/total number of units demanded
When the demand during lead time may be approximated by a normal distribution with certain avg. and std. deviation (s), then re-order level is given by,
ROL =  Inventory Control | Industrial Engineering - Mechanical Engineering+ Zσ

Inventory Control | Industrial Engineering - Mechanical Engineering

Inventory Classification and Control

1. ABC Control (Always better control)

  • In ABC control, inventory items are classified into A,B & C category depending upon their usage value.
  • It is based on Pareto law or 80 – 20 law.

Inventory Control | Industrial Engineering - Mechanical Engineering

2. VED (Vital essential & desirable)

  • Inventory is classified on the basis of importance of inventory for the production system.

3. HML (High Medium & Law)

  • Inventory are classified on the basis of unit price of inventory.

4. SDE (Source difficult & Easy)

  • Inventory are classified on the basis of availability of inventory for the production system.
  • e.g. Nuclear power plant
The document Inventory Control | Industrial Engineering - Mechanical Engineering is a part of the Mechanical Engineering Course Industrial Engineering.
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FAQs on Inventory Control - Industrial Engineering - Mechanical Engineering

1. What is inventory control in mechanical engineering?
Ans. Inventory control in mechanical engineering refers to the systematic management of raw materials, components, and finished products used in manufacturing processes. It involves monitoring and tracking the flow of inventory, ensuring optimal stock levels, and minimizing costs while meeting production demands.
2. Why is inventory control important in mechanical engineering?
Ans. Inventory control is crucial in mechanical engineering for several reasons. It helps prevent stockouts and production delays by maintaining adequate inventory levels. It also minimizes excess inventory, reducing carrying costs and the risk of obsolescence. Effective inventory control ensures smooth production operations, improves cash flow, and enhances customer satisfaction.
3. What are the common challenges in inventory control for mechanical engineering companies?
Ans. Mechanical engineering companies often face challenges in inventory control, including forecasting demand accurately, managing lead times, and minimizing stockouts and overstocks. Other issues may include coordinating with suppliers, optimizing storage space, and dealing with unpredictable market conditions. Efficient inventory management systems and techniques can help overcome these challenges.
4. What are some inventory control techniques used in mechanical engineering?
Ans. Various inventory control techniques are employed in mechanical engineering, such as Economic Order Quantity (EOQ), Just-in-Time (JIT) inventory management, ABC analysis, and Material Requirements Planning (MRP). These techniques help optimize inventory levels, reduce costs, and improve overall operational efficiency.
5. How can technology aid in inventory control for mechanical engineering companies?
Ans. Technology plays a vital role in modern inventory control for mechanical engineering companies. Advanced software systems, such as Enterprise Resource Planning (ERP) and Warehouse Management Systems (WMS), enable real-time monitoring, demand forecasting, automated ordering, and inventory tracking. This technology streamlines processes, enhances accuracy, and facilitates data-driven decision-making for effective inventory control.
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