)

Inventory is the idle resource of an enterprise.

A certain amount of inventory is essential for smooth running of an organization.

Inventory control technique is used to strike a balance between operations and demand.

Raw material and spares

Work in process

Finished goods inventory

Total inventory cost = purchasing cost + Set up cost + Holding cost + Shortage cost

Purchasing cost

Set up cost

Holding cost

Shortage cost

Holding (or carrying) costs. Costs for capital, taxes, insurance, etc. (Dealing with storage and handling)

Setup (or production change) costs. (manufacturing) Costs for arranging specific equipment setups, etc.

Ordering costs (services & manufacturing) Costs of someone placing an order, etc.

Shortage (backordering) costs. Costs of canceling an order, customer goodwill, etc.

ABC (AFTER BETTER CONTROL) ANALYSISA-items are small in quantity but high in price.

B-moderate in quantity and moderate in price.

C-are required in high quantity but low price.

Class Item No.

Percentage

Value in Million Rupees

Percentage

A 136 4.2 3.12 73.7B 531 16.8 0.92 21.8C 2509 79.0 0.19 4.5

Total 100.0 4.23 100.0

HMLThese items are listed out in the descendingorder of unit- high, medium, low volume.VEDIt stands for vital, essential and desirable. It ismostly done in spare parts.GOLFThese items are imported which are

channelizedthrough the state trading corporations.

FSNThe pattern of issue from store. Fast

moving,slow moving, near moving.SDE In this items are classified on the basis of

scaresitems ,difficult to get, easy to get the

product.

EOQ (economic order quality)Economic order quality deals when the cost

ofprocurement and handling of inventory are

atoptimum level and total cost is minimum.

QUALITY

COST

INVENTORY

AnnualHolding

CostTotal Annual Cost =

AnnualPurchase

Cost

AnnualOrdering

Cost+ +

SQ

DH

QDCTC

2

A little bit of calculus…

H

DSEOQ

2

TC = Total annual costD = DemandC = Cost per unitQ = Order quantityS = Cost of placing an order or setup costH = Annual holding and storage cost per unit

of inventory