inventory management ppt
TRANSCRIPT
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INVENTORY MANAGEMENT
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Seminar taken by
Jagan. P Suresh Rao vijayKumar. A Vinoth. G
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INTRODUCTION
MEANING OF INVENTORY:
The meaning of inventory is ‘stock of goods’. In
accounting language it may include:
1.RAW MATERIAL: They are required to carry out
production activities uninterruptedly.
2.WORK-IN-PROGRESS: It is a stage of stocks between
raw material & finished goods.
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3.CONSUMABLES: These are needed to smoothen
the process of production.
4.FINISHED GOODS: These are the goods which
are ready for the consumers.
5.SPARES: Form a part of inventory.
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Purpose/ Benefits of Holding Inventories
• Transaction Motive – to facilitate
Continuous Production.
• Speculative Motive – for taking advantage
of price fluctuations, saving in re-ordering
costs and quantity discounts, etc.
• Precaution Motive – for meeting
unpredictable changes in demand and
supplies of materials
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Inventory Management
• An efficient system of inventory management will determine
What to purchaseHow much to purchaseFrom where to purchase Where to store
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Objectives Of Inventory Management
To ensure continuous supply of raw material, spares
and finished goods.
To avoid both overstocking and under stocking of
inventory.
To maintain investments in inventories at optimum
level.
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OBJECTIVES OF INVENTORY MANAGEMENT(cntd…)
To eliminate duplications in orders
To keep material cost under control.
To minimize losses through wastage and damages .
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Tools of Inventory Management
1. Stock Levels
2. Safety Stocks
3. Ordering System of Inventory
4. Determination of EOQ
5. ABC Analysis
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6.VED Analysis
7.Inventory Turnover Ratio
8.Aging Schedule of Inventories
9.Classification & Codification on
Inventories
10.Inventory Reports
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Techniques of inventory management
Determination of stock level:
Minimum level=rerdering level-(normal consumption * normal reordering period )
Maximum level=reordering level+ reordering quantity – (minimum consumption * minimum reordering period )
Danger level=consumption * maximum reorder period
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Determination safety stocks:
Safety stock is a buffer to meet some unanticipated
increase in usage.
TWO COST ARE INVOLVED IN THE DETERMINATION
1.OPPORTUNITY COST OF STOCK OUTS
2.CARRYING COST
INVENTORY TURNOVER RATIO:
INVENTORY TURNOVER RATIO=COST OF GOOD
SOLD /AVERAGE INVENTRY AT COST
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Economic Order Quantity:
Economic order quantity is the size of the lot to be
purchased which is economically viable.
EOQ IS MADE UP OF TWO PARTS :
1.ORDERING COST: These cost are associated with the
purchasing or ordering of materials.
2.CARRYING COST: These are the costs for holding the
inventories.
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A-B-C ANALYSIS:
The materials are divided into three categories viz,
A ,B &C
Group-A:
Under this almost 10% of the items contribute to
70% of value of consumption.
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Group-B:
Under this category 20% of the items contribute
about 20% of value of consumption.
Group-C:
Under this category about 70% of items of
material contribute only 10% of value of
consumption.
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VED ANALYSIS:
The VED analysis is used generally for spare parts. The
requirements and urgency of spare parts is different
from that of materials. Spare parts are classified as
vital(V),essential(E),desirable(D).
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VITAL SPARE PARTS:
These are must for running the concern smoothly.
ESSENTIAL SPARE PARTS:
Necessary but stock kept at low figures.
DESIRABLE SPARE PARTS:
May be avoided at times.
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INVENTORY REPORTS:
The management is kept informed with
the latest stock position of different
items by preparing periodical inventory
reports. on the basis of these reports
management takes corrective action
wherever necessary.
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ORDERING SYSTEMS OF INVENTORY:
There are three prevalent systems of ordering
and a concern can choose any one of these:
1.Fixed order quantity system generally known as
economic order quantity system.
2.Fixed period order system or periodic re-ordering
system or periodic review systems.
3.Single order and scheduled part delivery system.
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LEAD TIME:
Lead time is the period that elapses between the
recognition of a need and its fulfillment. There is a
direct relationship between lead time and inventories.
Lead time has two components:
1.administrative lead time
2.delivery lead time
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INVENTORY TURNOVER RATIO
Inventory turnover ratio=cost of good
sold*average inventory at cost or
=net sales*(average inventory)
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Valuation of Inventory
FIFO LIFO Average Price Method Base Stock Standard Price & Market Price