Determine how much to stock

1. Employ The Economic Order Quantity Model

This is an easiest model which helps the manager to find out the optimum quantity of stock to order so like to maintain total costs at a minimum.  The major costs of inventory are as:

• Shortage costs
• Ordering or set up costs
• Holding or carrying costs

To find out the economic order quantity the given formula may be employed as:

EOQ = √(2DCO/Ch)

Whereas: D is the annual demand or knits

        And Co is the cost of creating one order

        And Ch is the holding cost per unit per annum   

2. Employ Pareto Analysis

Into three classes items are classified as given as:

Class A: These are high cost, high usage and fast moving items. They are little accounting for only twenty percent (20%) of the net number of items yet account for eighty percent (80%) of the net inventory budget.

Class B: These are type of medium moving goods. They account for fifteen percent (15%) of the net number of the budget

Class C: These are type of slow moving low value items. They are very various accounting for sixty percent (65%) of the net number of items and only five percent (5%) of the net inventory budget.