SUBMITTED BY

AMOL NANAVARE- 01AKASH KHOJE- 11ATUL KULTE- 13PRASHANT KARAD- 10MAHESH TORANE-24

INVENTORY MANAGEMENT

INTRODUCTION AND MEANING

Inventory management is determines the health of the supply chain.

the impacts the financial health of the balance sheet. Every organization constantly strives to maintain

optimum inventory to be able to meet its requirements and avoid over or under inventory that can impact the financial figures

DEFINING INVENTORY:

All organizations engaged in production or sale of products hold inventory in one form or other.

Inventory can be in complete state or incomplete state. Inventory is held to facilitate future consumption, sale or

further processing/value addition. All inventoried resources have economic value and can be

considered as assets of the organization.

EXAMPLES OF INVENTORY

Raw materials: Work in Progress or WIP Finished Goods: Goods for resale Transportation The logistics or distribution chain Wholesaling Retailing

INVENTORY MANAGEMENT

Inventory management is primarily about specifying the shape and percentage of stocked goods.

a retailer seeking to acquire and maintain a proper merchandise

It involves systems and processes that identify inventory requirements,

set targets, provide replenishment techniques, report actual and projected inventory status,

handles all functions related to the tracking and management of material.

OBJECTIVE OF INVENTORY MANAGEMENT

OBJECTIVE OF INVENTORY MANAGEMENT

BALANCING MINIMUM & MAXIMUM LEVEL OF

INVENTORYBENEFITSCOSTS

TRADE OFF

THE REASONS FOR KEEPING STOCK:

Time - "lead time." Uncertainty Economies of scale - "one unit at a

time at a place where a user needs it, when he needs it"

Demand fluctuation stockOverproduction Safety stock

THE FORMULAS Cost of Goods Sold = Cost of Goods - Cost of Ending Inventory

(at the end of this period)  

Cost of Goods = Cost of Beginning Inventory (at the start of this period)+ Inventory Purchases (within this period)+ Cost of Production (within this period)

Inventory Turn Over Ratio (or Inventory turns) = Cost of Goods Sold/Average Inventory

METHODS FOR INVENTORY MANAGEMENT

Weighted Average CostSpecific IdentificationFIFO and LIFOMoving-Average Cost

METHODS OF INVENTORY CONTROL

ABC System: The firm has to be selective in its approach

to control its investment in various items of inventory.

Three categories: high value but small in number moderate value and size relatively small value items and require

simple control

ADVANTAGES OF ABC ANALYSIS:

controls on costly elements

maintaining stocks at optimum level it reduces the clerical costs

leading to effective cost control.

TWO BIN SYSTEM:

The two bin system is used to establish a connection between the order and reorder procedures.

uneven supply of stock and odd consumption is not very healthy. Such unevenness is sorted

The first stock (bin 1), is the larger of the two and is used up between the times periods that lasts from purchase of stock till the reorder.

. The second stock (bin 2), can be used from the time when the reorder is placed till the order is actually received.

JUST IN TIME

JIT, is an inventory system that works to reduce the amount of inventory that a company will have on hand.

purchases inventory only a few days before it is needed for sale or manufacturing.

able to introduce new technologies and advancements to the market faster

major drawback - delay in the supply chain can break up production, delivery get halt.

ECONOMIC ORDER QUANTITY

EOQ refers to the optimal order size that will result in the lowest ordering and carrying costs for an item of inventory based on its expected usage.

EOQ model answers the following: What should be the quantity ordered for

each replenishment of stock? How many orders are to be placed in a year

to ensure effective inventory Management?

Example Economic order Quantity

A firm is a planning its annual consumption its annual requirements are 12000 units carrying cost per unit is rs.10 and its ordering cost per unit is rs. 40. The firm can order inventory various lots such as 12000; 6000; 4000; 3000; 2000; 1500; 1200; 1000; 500; 300; 200; 100. Which of this quantity is the economic order quantity? Find using.

EOQ= EOQ= Economic Order Quantity = Quantity of unit purchased or required in a year = Cost of placing an order = Cost of carrying one unit. EOQ= = =309.8 units

ECONOMIC ORDER QUANTITY y Total Cost

C O EOQ S Carrying Cost T L

Cost of Order Size Of Order x

ROLE OF INVENTORY ACCOUNTING

Make better decisions. Finance should also be providing the

information, analysis and advice to enable the organization’s service managers to operate effectively.

This goes beyond the traditional preoccupation with budgets

how much have we spent so far, how much do we have left to spend? It is about helping the organization to

better understand its own performance.