Inventory management
Part I: Stocks, what are we talking about?
Stock can simply be defined as an approvision ofitems awaiting consumption. A stock is alive and varies
frequently, it comes from a difference in throughput between an incoming flow and an outgoing flow.
Managing a stock means ensuring that it is constantly able to meet customer demands. Proper
management of a stock must meet, under economic conditions, this requirement.
Before going on, we first focus on the difference between stock and work-in-progress: Stocks include all
PMs, supplies, waste, semi-finished products, finished products, commercial packaging that are the
property of the company. The En-cours are the articles that are being transformed and localized in
general within theworkshop.
We also emphasize the difference between the management unit and the purchasing unit: management
unit corresponds to the unit of delivery of products during their use in manufacturing, in parallel, the
purchasing unit is defined by the supplier
Inventory management is a problem faced by many companies. Indeed, good stock management is
essential to ensure the sustainability ofthe latter, because of its non-negligible impact on its cash flow.
The goal of inventory management is to ensure a balance between low storage cost and high response
capacity to customers.
Types de Stocks
Stocks de Stock de
Stocks de Stock
Produits finis / Stocks d'encours Stock d'outils Fournitures ou de
Matiere Premiere Maintenance
semi-finis consommables
How is a stock useful?
It serves first of all to counter the shortage
It can be constituted for speculative purposes
Ensure regular consumption of a product even if its production is irregular.
Benefit from discounts
Protect yourself against different types of hazards
What are the disadvantages of stock?
Perishable nature of certain products
Presence of unsold goods
Risk of rupture
Basically, the stock serves as a regulator between deliveries and uses that are made according to
different rhythms. Malheureusely everything is paid for, including the services rendered by the
, stocks. On can say that any stock exceeding what is strictly necessary to play this role of regulator
would be useless, and even a source of expenses spentin pure loss. Despite the disadvantages,a
stock is useful and renders services.
Part II: What is inventory management?
It now appears that, despite its disadvantages, a stock is useful, if not indispensable; but it is expensive
and should be well managed to use it as efficiently as possible. Of course, any stock that is built up for a
purpose other than that which is strictly apparent from its definition or in pursuit of economic
management would not fall within the scope of stock management. We should only have a stock if we
cannot economically adjust the flow of deliveries to the flow of consumption.
Stocks bear three kinds of costs. The costs of placing an order(launch, acquisition) are related to the
constitution and renewal of the stock and are added to the purchase price of the items. The costs of
possession (storage) of the stock, inherent in the very existence of a stock, will increase the prices at
the exit of the store. The out-of-stock costs caused by the fact that the stock can no longer meet the
demand. To achieve good inventory management, it is the total of these three categories of costs that
must be minimized.
It is therefore a question of minimizing the total of all costs. But, if we know how to define the
acquisition costs and the costs of possession well enough, we can only estimate them; as for the costs of
out of stock, they remain totally unknown. In addition, stock management is to appreciate these three
categories of expenses for each of the items in the stock. For this purpose, Wilson's method is used.
Wilson's model: is inspired by a simple logic:
By reducing the number of orders placed over a period, we reduce the overall cost of placing
orders.
On the other hand, it is possible to limit and maintain the quantities of the managed stock at an
acceptable level, simply by renewing it on a more regular basis.
We are faced with two contradictory objectives. On the one hand we want to reduce the number of
orders, on the other hand the maintenance and regular renewal of stock causes an increase in the
number of orders. Wilson proposes a mathematical formula and a graphical method that make it
possible to obtain for a given number of orders and an average stock, a lowest inventory
management cost (the optimal cost).
Wilson's formula is based on a simplifying mathematical model in which demand is considered
stable without taking into account price changes, the risk of disruptions and variations over time in
order and launch costs. Hence the formula of the
2∗𝐶𝑙 ∗𝐷
economic quantity is:𝑄𝑒 = √
𝑝∗𝑡
N.B: The model is based on multiple assumptions:
The demand is known with certainty and is
constant
The unit purchase price is constant
Part I: Stocks, what are we talking about?
Stock can simply be defined as an approvision ofitems awaiting consumption. A stock is alive and varies
frequently, it comes from a difference in throughput between an incoming flow and an outgoing flow.
Managing a stock means ensuring that it is constantly able to meet customer demands. Proper
management of a stock must meet, under economic conditions, this requirement.
Before going on, we first focus on the difference between stock and work-in-progress: Stocks include all
PMs, supplies, waste, semi-finished products, finished products, commercial packaging that are the
property of the company. The En-cours are the articles that are being transformed and localized in
general within theworkshop.
We also emphasize the difference between the management unit and the purchasing unit: management
unit corresponds to the unit of delivery of products during their use in manufacturing, in parallel, the
purchasing unit is defined by the supplier
Inventory management is a problem faced by many companies. Indeed, good stock management is
essential to ensure the sustainability ofthe latter, because of its non-negligible impact on its cash flow.
The goal of inventory management is to ensure a balance between low storage cost and high response
capacity to customers.
Types de Stocks
Stocks de Stock de
Stocks de Stock
Produits finis / Stocks d'encours Stock d'outils Fournitures ou de
Matiere Premiere Maintenance
semi-finis consommables
How is a stock useful?
It serves first of all to counter the shortage
It can be constituted for speculative purposes
Ensure regular consumption of a product even if its production is irregular.
Benefit from discounts
Protect yourself against different types of hazards
What are the disadvantages of stock?
Perishable nature of certain products
Presence of unsold goods
Risk of rupture
Basically, the stock serves as a regulator between deliveries and uses that are made according to
different rhythms. Malheureusely everything is paid for, including the services rendered by the
, stocks. On can say that any stock exceeding what is strictly necessary to play this role of regulator
would be useless, and even a source of expenses spentin pure loss. Despite the disadvantages,a
stock is useful and renders services.
Part II: What is inventory management?
It now appears that, despite its disadvantages, a stock is useful, if not indispensable; but it is expensive
and should be well managed to use it as efficiently as possible. Of course, any stock that is built up for a
purpose other than that which is strictly apparent from its definition or in pursuit of economic
management would not fall within the scope of stock management. We should only have a stock if we
cannot economically adjust the flow of deliveries to the flow of consumption.
Stocks bear three kinds of costs. The costs of placing an order(launch, acquisition) are related to the
constitution and renewal of the stock and are added to the purchase price of the items. The costs of
possession (storage) of the stock, inherent in the very existence of a stock, will increase the prices at
the exit of the store. The out-of-stock costs caused by the fact that the stock can no longer meet the
demand. To achieve good inventory management, it is the total of these three categories of costs that
must be minimized.
It is therefore a question of minimizing the total of all costs. But, if we know how to define the
acquisition costs and the costs of possession well enough, we can only estimate them; as for the costs of
out of stock, they remain totally unknown. In addition, stock management is to appreciate these three
categories of expenses for each of the items in the stock. For this purpose, Wilson's method is used.
Wilson's model: is inspired by a simple logic:
By reducing the number of orders placed over a period, we reduce the overall cost of placing
orders.
On the other hand, it is possible to limit and maintain the quantities of the managed stock at an
acceptable level, simply by renewing it on a more regular basis.
We are faced with two contradictory objectives. On the one hand we want to reduce the number of
orders, on the other hand the maintenance and regular renewal of stock causes an increase in the
number of orders. Wilson proposes a mathematical formula and a graphical method that make it
possible to obtain for a given number of orders and an average stock, a lowest inventory
management cost (the optimal cost).
Wilson's formula is based on a simplifying mathematical model in which demand is considered
stable without taking into account price changes, the risk of disruptions and variations over time in
order and launch costs. Hence the formula of the
2∗𝐶𝑙 ∗𝐷
economic quantity is:𝑄𝑒 = √
𝑝∗𝑡
N.B: The model is based on multiple assumptions:
The demand is known with certainty and is
constant
The unit purchase price is constant
