Unit -2

Linear Programming:

This is a constrained optimization technique, which optimize some criterion within some constraints. In

Linear programming the objective function (profit, loss or return on investment) and constraints are

linear. There are different methods available to solve linear programming.

Inventory Models:

Inventory model make a decisions that minimize total inventory cost. This model successfully reduces

the total cost of purchasing, carrying, and out of stock inventory.

Simulation:

Simulation is a procedure that studies a problem by creating a model of the process involved in the

problem and then through a series of organized trials and error solutions attempt to determine the best

solution. Some times this is a difficult/time consuming procedure. Simulation is used when actual

experimentation is not feasible or solution of model is not possible.

Non-linear Programming:

This is used when the objective function and the constraints are not linear in nature. Linear relationships

may be applied to approximate non-linear constraints but limited to some range, because
approximation

becomes poorer as the range is extended. Thus, the non-linear programming is used to determine the

approximation in which a solution lies and then the solution is obtained using linear methods.

Dynamic Programming:

Dynamic programming is a method of analyzing multistage decision processes. In this each elementary

decision depends on those preceding decisions and as well as external factors.

Integer Programming:

If one or more variables of the problem take integral values only then dynamic programming method is

used. For example number or motor in an organization, number of passenger in an aircraft, number of

generators in a power generating plant, etc.

Markov Process:

Markov process permits to predict changes over time information about the behavior of a system is

known. This is used in decision making in situations where the various states are defined. The

probability from one state to another state is known and depends on the current state and is
independent of how we have arrived at that particular state.

Network Scheduling:

This technique is used extensively to plan, schedule, and monitor large projects (for example computer

system installation, R & D design, construction, maintenance, etc.). The aim of this technique is

minimize trouble spots (such as delays, interruption, production bottlenecks, etc.) by identifying the

critical factors. The different activities and their relationships of the entire project are represented

diagrammatically with the help of networks and arrows, which is used for identifying critical activities

and path. There are two main types of technique in network scheduling, they are:

Program Evaluation and Review Technique (PERT) – is used when activities time is not known

accurately/ only probabilistic estimate of time is available.

Critical Path Method (CPM) – is used when activities time is know accurately

Integer Programming: is a technique, which ensures only integral values of variables in the problem.

Dynamic Programming: is a technique, which is used to analyze multistage decision process.

Linear Programming: is a technique, which optimizes linear objective function under limited

constraints.

Inventory Model: these are the models used to minimize total inventory costs.

Optimization: Means maximization or minimization

Introduction to Linear Programming

Linear Programming is a special and versatile technique which can be applied to a variety of

management problems viz. Advertising, Distribution, Investment, Production, Refinery Operations, and

Transportation analysis. The linear programming is useful not only in industry and business but also in

non-profit sectors such as Education, Government, Hospital, and Libraries. The linear programming

method is applicable in problems characterized by the presence of decision variables. The objective

function and the constraints can be expressed as linear functions of the decision variables. The

decision variables represent quantities that are, in some sense, controllable inputs to the system being

modeled. An objective function represents some principal objective criterion or goal that measures the

effectiveness of the system such as maximizing profits or productivity, or minimizing cost or

consumption. There is always some practical limitation on the availability of resources viz. man,

material, machine, or time for the system. These constraints are expressed as linear equations involving

the decision variables. Solving a linear programming problem means determining actual values of the

decision variables that optimize the objective function subject to the limitation imposed by the

constraints.

The main important feature of linear programming model is the presence of linearity in the

problem. The use of linear programming model arises in a wide variety of applications. Some model

may not be strictly linear, but can be made linear by applying appropriate mathematical
transformations.

Still some applications are not at all linear, but can be effectively approximated by linear models. The

ease with which linear programming models can usually be solved makes an attractive means of dealing

with otherwise intractable nonlinear models.

Linear Programming Problem Formulation

The linear programming problem formulation is illustrated through a product mix problem. The product

mix problem occurs in an industry where it is possible to manufacture a variety of products. A product
has a certain margin of profit per unit, and uses a common pool of limited resources. In this case the

linear programming technique identifies the products combination which will maximize the profit

subject to the availability of limited resource constraints.

TRANSPORTATION PROBLEMS

A special class of linear programming problem is Transportation Problem, where the objective is to

minimize the cost of distributing a product from a number of sources (e.g. factories) to a number of

destinations (e.g. warehouses) while satisfying both the supply limits and the demand requirement.

Because of the special structure of the Transportation Problem the Simplex Method of solving is

unsuitable for the Transportation Problem. The model assumes that the distributing cost on a given rout

is directly proportional to the number of units distributed on that route. Generally, the transportation

model can be extended to areas other than the direct transportation of a commodity, including among

others, inventory control, employment scheduling, and personnel assignment.

ASSIGNMENT PROBLEM:

The Assignment Problem can define as follows:

Given n facilities, n jobs and the effectiveness of each facility to each job, here the problem is to assign

each facility to one and only one job so that the measure of effectiveness if optimized. Here the

optimization means Maximized or Minimized. There are many management problems has a assignment

problem structure. For example, the head of the department may have 6 people available for
assignment and 6 jobs to fill. Here the head may like to know which job should be assigned to which
person so that all tasks can be accomplished in the shortest time possible. Another example a container
company may

have an empty container in each of the location 1, 2,3,4,5 and requires an empty container in each of
the

locations 6, 7, 8,9,10. It would like to ascertain the assignments of containers to various locations so as

to minimize the total distance. The third example here is, a marketing set up by making an estimate of

sales performance for different salesmen as well as for different cities one could assign a particular

salesman to a particular city with a view to maximize the overall sales.

Note that with n facilities and n jobs there are n! possible assignments. The simplest way of

finding an optimum assignment is to write all the n! possible arrangements, evaluate their total cost and

select the assignment with minimum cost. Bust this method leads to a calculation problem of formidable

size even when the value of n is moderate. For n=10 the possible number of arrangements is 3268800.
 Unit-3

INVENTORY MANAGEMENT

Simply inventory is a stock of physical assets. The physical assets have some economic value, which

can be either in the form of material, men or money. Inventory is also called as an idle resource as long

as it is not utilized. Inventory may be regarded as those goods which are procured, stored and used for

day to day functioning of the organization.

Inventory can be in the form of physical resource such as raw materials, semi-finished goods

used in the process of production, finished goods which are ready for delivery to the consumers, human

resources, or financial resources such as working capital etc.

Inventories means measures of power and wealth of a nation or of an individual during centuries

ago. That is a business man or a nation’s wealth and power were assessed in terms of grammes of gold,

heads of cattle, quintals of rice etc.

In recent past, inventories mean measure of business failure. Therefore, businessmen have

started to put more emphasis on the liquidity of assets as inventories, until fast turnover has become a

goal to be pursues for its own sake.

Today inventories are viewed as a large potential risk rather than as a measure of wealth due to

the fast developments and changes in product life. The concept of inventories at present has
necessitated

the use of scientific techniques in the inventory management called as inventory control.

Thus, inventory control is the technique of maintaining stock items at desired levels. In other

words, inventory control is the means by which material of the correct quality and quantity is made

available as and when it is needed with due regard to economy in the holding cost, ordering costs, setup

costs, production costs, purchase costs and working capital.

Inventory Management answers two questions viz. How much to order? and when to order?
Management scientist insisting that the inventory is an very essential requirement. Why? This is

illustrated in the next section with the help of materials conversion process diagram.

Inventory is classified as idle possessions that possess economic value but still it is very essential to
maintain inventory for different kind of manufacturing units, retailers, factories and enterprises.
Generally, it is a vital constituent of the investment collection of any generative organization.
Approximately up to 60% of the yearly production budget is used up on material and other inventories.
It cannot be overstressed that better inventory management would constantly develop organizational
productivity, decrease costs, and contribute to responsible use of scarce capital.

Other than raw materials, other forms of inventory include in-process, supplies, components, and
finished goods inventory. The most important aim of inventory management is to decide how much
resources or inputs are to be arranged and when to order so as to reduce production cost, while
conforming to the essential requirements.

Due to ranging abnormality of the production inventory, no specific inventory model has general
relevance to the whole variant inventory situations. As a result, a range of inventory models have
appeared which address specific inventory problems.

Deterministic and Probabilistic Methods

The classic inventory model is generally used either to forecast optimum inventory or to evaluate two or
more inventory systems. Two fundamental techniques are generally employed by industries to develop
inventory reserve estimates and they are the deterministic and probabilistic methods. The deterministic
method concedes a single best estimation of inventory reserves grounded on recognized engineering,
geological, and economic information. The probabilistic method employs the known economic,
geologica,l and engineering data to produce a collection of approximate stock reserve quantities and
their related probabilities. Each inventory reserve categorization gives a signal of the prospect of revival.

The advantage of a probabilistic approach lies in the fact that by using values lying within a bandwidth
and modeled by a defined distribution density, the reality can be modeled better than by using
deterministic figures.

Deterministic models of inventory control are used to determine the optimal inventory of a single item
when demand is mostly largely obscure. Under this model inventory is built up at a constant rate to
meet a determined, or accepted, demand. For instance a contract is received in January for 100 model
trains and the delivery to be completed by November/holiday shopping. Since the deadline is 10 months
so the trains can be produced at a rate of ten per month.

Also stochastic one-item models can be used for inventory control. Such models are used when demand
is not known. Stochastic models are more realistic, and thus more relevant, since they regard the cost of
shortfalls, the cost of arranging and the cost of stacking away, and attempt to formulate an optimal
inventory plan.


What is Deterministic and Probabilistic inventory control?

To value it better, let us imagine deterministic and probabilistic conditions.

A deterministic circumstance is one in which the system parameters can be ascertained precisely. This is
also known as a situation of sureness since it is realized that whatever are ascertained, things are sure to
occur the same way. Also the information about the system under thought should be whole so that the
parameters can be determined with confidence. But this kind of system rarely exists, and it is for sure
that some uncertainty is always associated with the system.

Deterministic optimization models presume the state of affairs to be deterministic and consequently
render the numerical model to optimize on system arguments. Since it conceives the system to be
deterministic, it automatically means that one has full information about the system.

Probabilistic situation is also known as a situation of uncertainty. Although this is present everywhere,
the vagueness always makes us comfortless. So people keep attempting to lessen uncertainty.

Probabilistic inventory prototypes consisting of probabilistic demand and supply are more suitable in
many real circumstances. But, such models also create larger trouble in analysis and often become
uncontrollable.
SOFTWARE APPLICATIONS

Inventory models and inventory management software are used for tracking inventory levels,
orders, sales and deliveries.[1] It can also be used in the manufacturingindustry to create a work
order, bill of materials and other production-related documents. Companies use inventory
management software to avoid product overstock and outages. It is a tool for organizing
inventory data that before was generally stored in hard-copy form or in spreadsheets.

Reorder Point[edit]
Should inventory reach a specific threshold, a company's inventory management system can be
programmed to tell managers to reorder that product. This helps companies avoid running out of
products or tying up too much capital in inventory.

Asset tracking[edit]

When a product is in a warehouse or store, it can be tracked via its barcode and/or other tracking
criteria, such as serial number, lot number or revision number. Systems. for Business, Encyclopedia of
Business, 2nd ed. Nowadays, inventory management software often utilizes barcode, radio-frequency
identification(RFID), and/or wireless tracking technology.

Service management[edit]

Companies that are primarily service-oriented rather than product-oriented can use inventory
management software to track the cost of the materials they use to provide services, such as cleaning
supplies. This way, they can attach prices to their services that reflect the total cost of performing them.

Product identification[edit]

Barcodes are often the means whereby data on products and orders are inputted into inventory
management software. A barcode reader is used to read barcodes and look up information on the
products they represent. Radio-frequency identification (RFID) tags and wireless methods of product
identification are also growing in popularity.

Modern inventory software programs may use QR codes or NFC tags to identify inventory items and
smartphones as scanners.[citation needed] This method provides an option for small businesses to track
inventory using barcode scanning without a need to purchase expensive scanning hardware.[citation needed]

Inventory optimization[edit]

A fully automated demand forecasting and inventory optimization system to attain key inventory
optimization metrics such as:

 Reorder point: the number of units that should trigger a replenishment order[citation needed]

 Order quantity: the number of units that should be reordered, based on the reorder point, stock
on hand and stock on order[citation needed]

 Lead demand: the number of units that will be sold during the lead time[citation needed]

 Stock cover: the number of days left before a stockout if no reorder is made[citation needed]

 Accuracy: the expected accuracy of the forecasts[citation needed]

Advantages of ERP inventory management software[edit]
There are several advantages to using inventory management software in a business setting.

Cost savings[edit]
A company's inventory represents one of its largest investments, along with its workforce and
locations. Inventory management software helps companies cut expenses by minimizing the amount
of unnecessary parts and products in storage. It also helps companies keep lost sales to a minimum
by having enough stock on hand to meet demand.

Increased efficiency[edit]
Inventory management software often allows for automation of many inventory-related tasks. For
example, software can automatically collect data, conduct calculations, and create records. This not
only results in time savings, cost savings, but also increases business efficiency.

Warehouse organization[edit]

Inventory management software can help distributors, wholesalers, manufacturers and retailers
optimize their warehouses. If certain products are often sold together or are more popular than
others, those products can be grouped together or placed near the delivery area to speed up the
process of picking.
By 2018, 66% of warehouses "are poised to undergo a seismic shift, moving from still prevalent pen
and paper processes to automated and mechanized inventory solutions. With these new automated
processes, cycle counts will be performed more often and with less effort, increasing inventory
visibility, and leading to more accurate fulfillment, fewer out of stock situations and fewer lost sales.
More confidence in inventory accuracy will lead to a new focus on optimizing mix, expanding a
selection and accelerating inventory turns."[5]

Updated data[edit]
Up-to-date, real-time data on inventory conditions and levels is another advantage inventory
management software gives companies. Company executives can usually access the software
through a mobile device, laptop or PC to check current inventory numbers. This automatic updating
of inventory records allows businesses to make informed decisions.[6]

Data security[edit]
With the aid of restricted user rights, company managers can allow many employees to assist in
inventory management. They can grant employees enough information access to receive products,
make orders, transfer products and do other tasks without compromising company security. This can
speed up the inventory management process and save managers' time.

Insight into trends[edit]

Tracking where products are stocked, which suppliers they come from, and the length of time they
are stored is made possible with inventory management software. By analysing such data,
companies can control inventory levels and maximize the use of warehouse space. Furthermore,
firms are more prepared for the demands and supplies of the market, especially during special
circumstances such as a peak season on a particular month. Through the reports generated by the
inventory management software, firms are also able to gather important data that may be put in a
model for it to be analyzed.[citation needed]
Disadvantages of ERP inventory management software[edit]
The main disadvantages of inventory management software are its cost and complexity.

Expense[edit]
Cost can be a major disadvantage of inventory management software. Many large companies use
inventory management software, but small businesses can find it difficult to afford it. Barcode
readers and other hardware can compound this problem by adding even more cost to companies.
The advantage of allowing multiple employees to perform inventory management tasks is tempered
by the cost of additional barcode readers. Use of smartphones as QR code readers has been a way
that smaller companies avoid the high expense of custom hardware for inventory management.

Complexity[edit]
Inventory management software is not necessarily simple or easy to learn. A company's
management team must dedicate a certain amount of time to learning a new system, including both
software and hardware, in order to put it to use. Most inventory management software
includes training manuals and other information available to users. Despite its apparent complexity,
inventory management software offers a degree of stability to companies. For example, if an IT
employee in charge of the system leaves the company, a replacement can be comparatively
inexpensive to train compared to if the company used multiple programs to store inventory data.

Benefits of cloud inventory management software[edit]

The main benefits of a cloud inventory management software include:

Real-time tracking of inventory[edit]

For startups and SMBs, tracking inventory in real time is very important. Not only can business
owners track and collect data but also generate reports. At the same time, entrepreneurs can access
cloud-based inventory data from a wide range of internet-enabled devices, including smartphones,
tablets, laptops, as well as traditional desktop PCs. In addition, users do not have to be inside
business premises to use web-based inventory program and can access the inventory software
while on the road.

Cut down hardware expenses[edit]

Because the software resides in the cloud, business owners do not have to purchase and maintain
expensive hardware. Instead, SMBs and startups can direct capital and profits towards expanding
the business to reach a wider audience. Cloud-based solutions also eliminate the need to hire a
large IT workforce. The service provider will take care of maintaining the inventory software.

Fast deployment[edit]
Deploying web based inventory software is quite easy. All business owners have to do is sign up for
a monthly or yearly subscription and start using the inventory management software via the internet.
Such flexibility allows businesses to scale up relatively quickly without spending a large amount of
money.

Easy integration[edit]
Cloud inventory management software allows business owners to integrate with their existing
systems with ease. For example, business owners can integrate the inventory software with their
eCommerce store or cloud-based accounting software. The rise in popularity of 3rd party
marketplaces, such as Amazon, eBay and Shopify, prompted cloud-based inventory management
companies to include the integration of such sites with the rest of a business owner's retail business,
allowing one to view and control stock across all channels.[7]

Enhanced Efficiency[edit]
Cloud inventory systems increase efficiency in a number of ways. One is real-time inventory
monitoring. A single change can replicate itself company-wide instantaneously. As a result,
businesses can have greater confidence in the accuracy of the information in the system, and
management can more easily track the flow of supplies and products – and generate reports. In
addition, cloud-based solutions offer greater accessibility.

Improved Coordination[edit]
Cloud inventory programs also allow departments within a company to work together more
efficiently. Department A can pull information about Department B's inventory directly from the
software without needing to contact Department B's staff for the information. This inter-departmental
communication also makes it easier to know when to restock and which customer orders have been
shipped, etc. Operations can run more smoothly and efficiently, enhancing customer experience.
Accurate inventory information can also have a huge impact on a company's bottom line. It allows
you to see where the bottlenecks and workflow issues are – and to calculate break-even points as
well as profit margins.