Inventory Models

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  INVENTORY MODELS  ã One of the basic functions of management is to employ capital efficiently so as to yield the maximum returns. This is known as Return on Capital Employed  (ROIC). ã This can be done in either of two ways or by both, i.e .  – Increasing fixed asset productivity  – Increasing current asset productivity   The importance of materials management / inventory control arises from the fact that materials account for 60 to 65 percent of the sales value of a product, that is to say, from every rupee of the sales revenue, 65 paisa are spent on materials. Hence, small change in material costs can result in large sums of money saved or lost. Inventory control should, therefore, be considered as a function of prime importance for our industrial economy.  65% 15% 20% Sales Revenue Spent MaterialsWages & SalariesOverheads By careful financial analysis, it is shown that a 5% reduction in material costs will result in increased profits equivalent to a 36% increase in sales. Inventory control provides tools and techniques, to reduce/control the materials cost substantially.
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