Inventry Mgmt

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    BY: Chanchal Agarwal

    INVENTORY

    MANAGEMENT

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    INTRODUCTION

    MEANING OF INVENTORY:

    The meaning of inventory is s tock 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 purchase

    How much to purchase

    From where to purchaseWhere 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=reordering 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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    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 asvital(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 preparingperiodical inventory reports. on the basis of these

    reports management takes corrective action

    wherever necessary.

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