Inventory Mgt Final.

8/10/2019 Inventory Mgt Final.

1/35


2/35

Definitions 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 System- A set of policies andcontrols that monitors levels of inventory anddetermines what levels should be maintained,when stock should be replenished, and howlarge orders should be


3/35

Inventory

Def.

Works-in-Process

Finished Goods

Maintenance, Repair and Operating (MRO)

Raw Materials

in order to meet an unexpected demand ordistribution in the future..


4/35

Inventory Positions in the

Supply Chain

Raw

Materials

Works

in

Process

Finished

Goods

Finished

Goods

in Field


5/35

Inventory Costs Ordering costs

Carrying costs

Out-of-stock costs

Capacity Costs


6/35

Ordering Costs

Costs of placing an order with a vendorof materials

Preparing a purchase orderProcessing payments

Receiving and inspecting the material

Ordering from the plant

Machine set-up

Start up scrap getting a production run

started.


7/35

Carrying Costs Costs connected directly with materials

Obsolescence

Deterioration

Financial Costs

TaxesInsurance

Storage

Interest


8/35

Out-of-Stock Costs Lost sales cost

Back-order cost


9/35

Capacity Costs Overtime payments when capacity is

too small.

Lay-offs and idle time when capacity istoo large.


10/35

Objectives of Inventory

Control Ensure a continuous supply raw

materials and supplies to facilitate

uninterrupted production

Maintain sufficient-finished goods for

smooth sales operation and efficient

customer service.


11/35

Inventories permit the procurement of

raw materials in economic lot size aswell as processing of these raw materialinto finished goods is the most

economical quantity known aseconomic lot size.

Reduce dependencies of one anotherand enable, the organisation to scheduleits operations independently of another


12/35

Inventory management helps to reduce

material handling costs.

It helps to utilize people and equipment

reasonably.

It facilitates product display and service

to customers.


13/35

Process of Inventory

management and Control

Step 1- Determination of optimuminventory levels and procedures of theirreview and adjustment.


14/35

Step 2- Determination of the degreeof control that is required for the best

results.


15/35

Step 3- Planning and design of theinventory control systems.


16/35

Step 4- Planning of the inventory controlorganisation.


17/35

Inventory control

techniques

Inventory control techniques represent

the operational aspect of inventory

management.

Several techniques of inventory control

are in use & it depends on the

convenience of the firm to adopt any ofthe techniques.


18/35

The techniques most commonly

used are the following:-ABC analysis

EOQ

VED classification HML classification

SDE

FSN

SOS


19/35

Always better control ABC)

ABC approach is a means of categorizinginventory items into three classes (A,B,C)according to the potential amount to be

controlled.

ABC analysis often called the Selectiveinventory technique.


20/35

Procedure of ABC analysis1. List each item carried in inventory by

number.

2. Determine the annual value of usage& rupee value of each item.

3. Multiply each items annual value of

usage by its rupee value.4. Compute each item s percentage of

the total inventory.


21/35

5. Select the top 10% of all the itemswhich have the highest rupee %s &

classify them as A items.6. Select the next 20% of all items with

the next highest rupee %s &

designate them B items.7. The next 70 % of all items with the

lowest rupee %s are C items.


22/35

Economic Order Quantity EOQ)

Economic order quantity is the level of

inventory order of which inventory costis minimum.

Optimum quantity is the order size atwhich the total cost, comprisingordering cost & plus carrying cost isleast.


23/35

Assumptions:- Demand for the product is constant &

uniform throughout the period.

Lead time is constant. Price per unit of the product is

constant.

Ordering costs are constant.All demands of the product will be

satisfy.


24/35

Terms used in EOQ Minimum level

Lead time

Reorder level

Maximum level


25/35


26/35

Example:-A unit of material X costs Rs 100 &

yearly consumption is 25000 units.

Cost of placing an order is Rs. 10 &storage cost is 10 % per annum. FindEOQ?


27/35

Weaknesses of EOQ technique Erratic usages

Faulty basic information

Costly calculations

EOQ ordering must be tempered withjudgment.


28/35

VED ClassificationVED stands for vital, essential &

desirable.

VED analysis is used primarily to havecontrol of spare parts.

The spare parts can be divided intothree categories-vital, essential,

desirable.


29/35

In the first category such valuable partsare included, the non availability of

which even for a short time can causestoppage of production for long time.

In the second category, those spareparts are included,the absence of whichcant be tolerated for more than some

hours.


30/35

Those spare parts the absence of whichis bearable for a week & will not lead to

stoppage of production are known asdesirable parts.


31/35


32/35

SDE classification SDE divide units based on availability i.e

Scares, Difficulty , Easy.

Scarce means items which are inshort supply.

Difficulty means items which aredifficult to procure or which are comefrom distant places.

Easy refers to those items which are

easily to acquire.


33/35

FSN classification FSN stands forFast moving, Slow

moving, Not moving.

Here classification is based on patternof issues from stores & is useful in

controlling obselence.


34/35

SOS classification SOS stands for Seasonal & Off Seasonal

classification.

It may be advantageous to buyseasonal items at low prices & keep

inventory or buy at high price during offseason.


35/35

THANKYOU

Inventory Mgt Final.

Documents

Transcript of Inventory Mgt Final.