inventory ankit dubey

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INVENTORY MANAGEMENT

Made By :- ANKIT DUBEY



INVENTORY

´ Inventory-A physical resource that a firm holds

in stock with the intent of selling it or

transforming it into a more valuable state.

´ Inventory Management- A set of policies and

controls that monitors levels of inventory and

determines what levels should be maintained,

when stock should be replenished, and how

large orders should be



INVENTORY CLASSIFICATION BY FLOWS

´ Raw Material ² Purchased Items Received But Not Issued to Production

& Include Component Parts/ Sub-assemblies etc.

´ Work-In-Process (WIP) - Raw Materials Issued to Production Being Processed/

Waiting for Next stage in Processing

´ Finished Goods ² End Product of the Production Process Ready for Sale Held at

Factory/ Central Warehouse

´ Distribution Inventories ² Stocked in Various points in the Distribution System

´ Maintenance, Repair & Operational Supplies (MRO) ² Items that Support the

Production Process But Do Not Become Part of Product ² Hand Tools/

Machine Spares/ Lubricants/ Cleaning Supplies

Work in

process

Work in

process

Finished

goods

Raw

Materials

Work in

process

CustomerVendors



THE MATERIAL FLOW CYCLETHE MATERIAL FLOW CYCLE

InputInput Wait forWait for Wait toWait to MoveMove Wait in queueWait in queue SetupSetup RunRun OutputOutputinspectioninspection be movedbe moved timetime for operatorfor operator timetime timetime

Cycle timeCycle time

95%95% 5%5%



INVENTORY AND SUPPLY CHAIN

MANAGEMENT´ Bullwhip effect«Demand information is distorted as it moves away

from the end-use customer«Higher safety stock inventories to are stored to

compensate´ Seasonal or cyclical demand

Demand that varies cyclically over time, usually inresponse to some effect of season or business cycle.Demand for electricity and Christmas ornaments is

seasonally cyclical; demand for housing is affected bythe effects of the business cycle upon interest rates.

Copyright 2006 John Wiley & Sons, Inc.

12-5



TWO FORMS OF DEMAND


12-6

DependentDependentDemand for items used to produce finalDemand for items used to produce final

productsproducts

Tires stored at a Goodyear plant are an

example of a dependent demand item

IndependentIndependentDemand for items used by externalDemand for items used by external

customerscustomers

Cars, appliances, computers, and housesare examples of independent demand

inventory



INVENTORY AND QUALITY

MANAGEMENT

´ Customers usually perceive quality service as

availability of goods they want when they want

them

´ Inventory must be sufficient to provide high-

quality customer service in given time.


12-7



INVENTORY CLASSIFICATION B Y FUNCTIONS

Anticipation Inventory In Anticipation of Future Demand Ahead of Peak Selling Season/ Sales

Promotion/ Vacation Shutdown/ Threat of Strike

Fluctuation Inventory (Safety Stock)

To Cover Random Unpredictable Fluctuations in Supply/ Demand/ Lead Time

Safety Stock/ Buffer Stock/ Reserve Stock Prevents Disruption in Manufacturing/

Deliveries To Customers Due To Stock Out Resulting from Un-Anticipated Delays

Lot-Size Inventory (Cycle Stock)

Purchased/ Manufactured Quantities Greater Than Immediate Need Create Cycle Stock

To Take Advantage Of Quantity Discounts/ Reduce Shipping/ Set Up Costs

When Making/ Purchasing of Items at Same Rate These Will Be Used/ Sold

Cycle Stock is Portion of Inventory That Depletes Gradually as Customer OrderComes in and is Replenished Cyclically When Suppliers· Orders Delivered

Maintenance, Repair & Operating Supplies (MRO)

Items that Support the Production Process But Do Not Become Part of Product ²

Hand Tools/ Machine Spares/ Lubricants/ Cleaning Compounds/ Pencils/ Erasers



INVENTORY CLASSIFICATION B Y FUNCTIONS

Transportation Inventory (Pipeline/ Movement Inventory)

Inventory in Transit Created as Time Required to Move Inventory from Plant To Distribution Centre/

Customer

Transit Inventory Not Dependent on Shipment Size But on Transit Time-T in Days

& Annual Demand-A in Units

Average Annual Inventory in Transit, I=TA/ 365 in Units

Reduction in Annual Average Transit Inventory Possible by Reducing

Transportation Time

Hedge Inventory Inventory Procured To Take Benefit of Low Prices When Supply More Than

Demand in Global Markets

Such Products Normally are Minerals/ Grains/ Animal Products



INVENTORY MANAGEMENT OBJECTIVES

´ Maximizing Customer Service

´ Maximizing the Efficiency of Purchasing and

Production´ Minimizing Inventory Investment

´ Maximizing Profit



INVENTORY COSTS

Or dering Cost:-´ Clerical costs of preparing purchase orders

´ Some spent finding suppliers and expediting orders

´ Transportation costs

´ Receiving costs (E.g. unloading and inspection)

Holding Costs :-

´ Costs of storage space (E.g. warehouse depreciation)

´ Security

´ Insurance´ Forgone interest on working capital tied up in inventory

´ Deterioration, theft, spoilage, or obsolescence



Shor ta g e Costs:-

´́ Temporary or permanent loss of sales when demand cannot beTemporary or permanent loss of sales when demand cannot be

metmet

´ Disrupted production when raw materials are unavailable :

Idle workers

Extra machinery setups

´ Lost sales resulting in dissatisfied customers

´ Loss of quantity discounts on purchases



what is Inventory Control?

It is planning, ordering and scheduling of material.

Right quantity of material available at right time.

Systematic control over purchasing, storing and using of material.

FUNCTIONS OF INVENTORY CONTROL:-

´ Effective use of financial resources.

´ Protection against all material losses

´ Proper calculation of cost of production.

´ Keep the ball of production bouncing.

´ Economies in purchasing.

´ Eliminates redundant inventory.´ Keeping prompt delivery to the customers



TECHNIQUES IN SELECTIVE

INVENTORY CONTROL

ABC

VED

HML

FSN

XYZ

SOS

SDE

GOLF



ABC

1. ABC Analysis (Always Better Control):-

´ Classify the items on the basis of importance and the

technique of grouping is called as ABC analysis.

´ To provide maximum overall protection against the stockouts for a given investment in safety stock.

´ This analysis prepared and checked weekly or monthly.

Category % of items %of value

A (High Cost) 10 70B (Medium Cost) 20 20

C (Low Cost) 70 10



HML(HIGH,MEDIUM,LOW)

´ HML analysis is similar to ABC analysis, butonly price criterion is used.

´ The items are classified into three groups which

are called high , medium ,low.

´ For example management may decide that allitems of unit price above Rs 3000 will be of ¶H·,

those between 300 to 3000 are ¶M· , thosehaving unit price below Rs 300 will be ¶L·category



GOLF(GOVT,ORDINARY,LOCAL,FOREI

GN)

´ GOLF analysis is based on nature of the supplierwhich determine quality , delivery ,

lead time , payment terms , continuity of supply

and administration work involved.G group covers procurement from governmentsupplier

O group covers procurement from non-governmentsupplier

L group from Local supplier

F group from foreign supplier



XYZ

´ X YZ is based on the value of closing stock of

inventory

´

Items whose inventory values are high arecalled X

´ Y as moderate inventory

´ Z as low inventory



SOS(SEASONAL,OFF-SEASONAL)

´ SOS divides items into two classes Seasonal &

Off-seasonal

´

As far as possible procurement must be madeduring harvesting when the price is low.

´ Off-season purchase could be a costly affair

unless the supplier is in position to offer off-

season discount eg onFans,regarments,coolers



FSN(FAST,SLOW,NON-MOVING)

´ Classifies items on the basis of their rate of

consumption in the company.

´

High value non-moving items are a liability´ Low value fast moving items should kept in

ample quantities



VED(VITAL,ESSENCIAL,DESIRABLE)

´ VED analysis represents classification of itemsbased on criticality.

´ Criticality means how a machine is important to

production.

´ The analysis classifies the items into threegroups called vital , essential & desirable.

´ Vital category encompasses those items which,if not made available, being the production to ahalt ,causing heavy losses



´ Essential group includes items whose stock-out

cost is very high because it reduce production.

´

Desirable group comprises items which do notcause noticeable loss of production or their

stock-out entails nominal expenditure and

causes minor disruptions.



SDE(SCARCE,DIFFICULT,EASY)

´ SDE classifies items into three groups called scarce,difficult & easy and focuses on ease of procurement asthe criterion.

´ Scarce group includes items of which dearth , are

imported or obtained through canalizing agencies of thegovernment.

´ Difficult items includes those items which are availableindigenously but are not easy to procure due to exoticraw material being used.

´ Easy category are produced on mass-scale , locallyavailable ,absence of string specifications and are easyto produce.

inventory ankit dubey

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