Part 4: Inventory Management We've outlined several tools and techniques that have been used in business to improve organizational efficiency and effectiveness. One key component of this strategy is sound inventory management and applying inventory models that help managers make better inventory decisions to reduce waste and costs. 4.A Inventory Management - EOQ Model Items purchased from a vendor cost $20 each, and the forecast for next year's demand is 1,000 units. If it costs $5 every time an order is placed for more units and the storage cost is $4 per unit per year a What quantity should be ordered each time? b. What is the total ordering cost for a year? C. What is the total storage cost for a year? d. What is the total inventory cost per year? Briefly describe the likely impact of these calculations on efficiency and effectiveness. Is inventory an asset or a liability? When should it be considered waste? 4.B Inventory Management - Price-Break Model Copper Inc. (CI) is a Tier 1 supplier to various industries that use components made from copper metal in their final products Manufacturers of desktop computers and electronic devices are its primary customers Cl orders a relatively small number of different raw sheet metal products in very large quantities. The purchasing department is trying to establish an ordering policy that will minimize total costs while meeting the needs of the business. One of the highest volume items it purchases comes in precut sheets direct from the copper processor. Forecasts based on historical data indicate that CI will need to purchase 200,000 sheets of this product on an annual basis. The copper producer has a minimum order quantity of 1,000 sheets, and offers a sliding price scale based on the quantity in each order, as follows Order Quantity Unit Price 1-9,999 $2.35 10,000-29,999 $2.20 30,000+ $2.15 The purchasing department estimates that it costs $300 to process each order, and CI has an inventory carrying cost equal to 15 percent of the value of inventory. Based on this information, use the price-break model to determine an optimal order quantity. Briefly describe the likely impact of these calculations on efficiency and effectiveness. Is inventory an asset or a liability? When should it be considered waste? Is it always appropriate to order more in order to get a lower per unit price?