Introduction
Using inventory control models, mathematical methods are utilized to manage and optimize inventory levels. These mathematical methods have proven effective in managing and optimizing inventory levels, and inventory control models have been developed to balance the costs associated with maintaining inventory and the costs associated with stockouts and missed sales. This post will discuss three different inventory control models and their motivating elements.
Inventory Control Models and Motivating Elements
Economic Order Quantity
One of the first and most popular inventory control models is the Economic Order Quantity (EOQ) model. It is employed to establish the ideal order quantity that lowers the overall cost of stock (Kehinde et al., 2020). The driving factors for the EOQ model are ordering costs, holding costs, and demand variability.
Ordering costs include costs associated with placing an order, such as processing, transportation, and paperwork. Holding costs include costs associated with holding inventory, such as storage, insurance, and taxes—examples of companies that use this model are McDonald’s Corporation and Coca-Cola.
Just-In-Time
Second, the Just-In-Time (JIT) model is a lean inventory control system that aims to minimize inventory levels by producing and delivering products just in time to meet customer demand (Kehinde et al., 2020). The driving factors for the JIT model are lead time, setup time, and production efficiency. Lead time is the time it takes to receive an order from a supplier, whereas setup time is the time it takes to set up the production line for a new product. Apple Inc and Kellogg’s are examples of companies that use the JIT model.
ABC Analysis
Third, the ABC Analysis is a method for classifying inventory into three groups based on its worth and significance. The categories are A, B, and C, with A items being the most critical and C items being the least important (Kehinde et al., 2020). The driving factors for the ABC Analysis are the value of the inventory and the frequency of usage. Companies that use the ABC analysis model include the famous Amazon retail market and clothes brand H&M.
Conclusion
In conclusion, inventory control models are essential for managing and optimizing inventory levels. The three models discussed in this essay, EOQ, JIT, and ABC Analysis, have different driving factors, but all aim to balance the cost of holding inventory against the cost of stockouts and lost sales. Businesses can use these models to improve inventory management, reduce costs, and improve customer satisfaction.
Reference
Kehinde Busola, E., Ogunnaike Olaleke, O., & Adegbuyi, O. (2020). Analysis of inventory management practices for optimal economic performance using ABC and EOQ models. International Journal of Management (IJM), 11(7), 835–848. Web.
