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Inventory Management
Inventory Management
Definition of inventories, inventory analysis and inventory catalog. Inventory management in India. Classification of inventories, forces creating various hypes of inventories, safety stock. Cost associated with inventories. Types of selective inventory control and advantages of selective control. ABC analysis. EOQ. MRP. P & Q systems.
Definition of inventories, inventory analysis and inventory catalog. Inventory management in India. Classification of inventories, forces creating various hypes of inventories, safety stock. Cost associated with inventories. Types of selective inventory control and advantages of selective control. ABC analysis. EOQ. MRP. P & Q systems.
Inventories
1.Production Inventories 2.MRO Inventories 3.In-Process inventories 4.Finished goods inventories.
Inventory Analysis
Inventory planning and subsequent control of an inventory is accomplished on the basis of knowledge about each of the individual items and the finished products of which each is a part.
Inventory Catalogue
1.it serves as a medium of communication 2. an inventory catalogue accrues to the inventory control operation it self.
Functions of inventories.
It makes possible smooth and efficient operation of a manufacturing organization by decoupling individual segments of total operation. 1.Purchased part inventories 2.Inventories of parts and components 3.Finished goods inventories
Definition of inventories, inventory analysis and inventory catalog. Inventory management in India. Classification of inventories, forces creating various hypes of inventories, safety stock. Cost associated with inventories. Types of selective inventory control and advantages of selective control. ABC analysis. EOQ. MRP. P & Q systems.
Definition of inventories, inventory analysis and inventory catalog. Inventory management in India. Classification of inventories, forces creating various hypes of inventories, safety stock. Cost associated with inventories. Types of selective inventory control and advantages of selective control. ABC analysis. EOQ. MRP. P & Q systems.
Inventory may be defined as sum of value of raw materials, fuels and lubricants, spare parts, maintenance consumables, semi possessed materials & finished goods at any given point of time. These resources are called idle resources since they are idle they are kept in the stores.
These resources are maintained for operational smoothness. The size of inventory depends on internal lead time, suppliers lead time, vendors relation and availability of raw materials. Finished goods inventory are maintained to ensure free flowing supply of goods to customers.
Two factors which affect inventories are:1. Accuracy & detail of final forecast.
Peculiarities in India
It operates in sellers market for purchase of goods. Indian industry tends to stress a lot on machine utilization. In India, inventory control technique do not run under free availability of goods
Definition of inventories, inventory analysis and inventory catalog. Inventory management in India. Classification of inventories, forces creating various hypes of inventories, safety stock. Cost associated with inventories. Types of selective inventory control and advantages of selective control. ABC analysis. EOQ. MRP. P & Q systems.
Definition of inventories, inventory analysis and inventory catalog. Inventory management in India. Classification of inventories, forces creating various hypes of inventories, safety stock. Cost associated with inventories. Types of selective inventory control and advantages of selective control. ABC analysis. EOQ. MRP. P & Q systems.
Classification of Inventories
Production Inventory MRO Inventory (Maintenance Repair Operating Supplies) In-process Inventory Finished Goods Inventory
Type of Inventory
Safety Stocks Cycle Stocks In-transit Work in Process Seasonal Stocks Decoupling Stocks
Forecasting: How much do we need? when will we need it? Replenishment: How much should we order? When should we order? Inventory control: How much do we have on hand? How much do we have on order? How much have we sold?
Definition of inventories, inventory analysis and inventory catalog. Inventory management in India. Classification of inventories, forces creating various hypes of inventories, safety stock. Cost associated with inventories. Types of selective inventory control and advantages of selective control. ABC analysis. EOQ. MRP. P & Q systems.
Definition of inventories, inventory analysis and inventory catalog. Inventory management in India. Classification of inventories, forces creating various hypes of inventories, safety stock. Cost associated with inventories. Types of selective inventory control and advantages of selective control. ABC analysis. EOQ. MRP. P & Q systems.
CARRYING COSTS
ACQUISITION COSTS
CARRYING COSTS
Carrying material in inventory is expensive. The annual cost of carrying a production inventory averaged approximately 25% of the value of the inventory.
CARRYING COSTS
1 Opportunity cost of invested funds
2 Insurance costs 3 Property taxes
12 20 %
24% 13%
4 Storage costs
5 Obsolescence and deterioration
Total carrying costs
1-3%
4 10 %
20 40 %
A n n u a l c o s t s
CC
AC
0 Inventory level (or order/delivery quantity)
Relationship of inventory-related costs to inventory level (AC = acquisition costs; CC = carrying costs)
(carrying cost / year) = (average inventory value) x (inv. Carrying cost as a % of inv. value)
(carrying cost / year) = (average inventory in units) x (material unit cost) x (inv. Carrying cost as a % of inv. value)
CC =
QxCxI 2
Where CC = carrying cost/yr for the material in question Q = order or delivery quantity for the material, in units C = delivery unit cost of the material I = inventory carrying cost for the material, expressed as a % of the inventory value
Acquisition costs
1. A certain portion of wages and operating expenses of such departments as purchase and supply, production control, receiving etc. 2. The cost of supplies such as engineering drawings, envelopes, stationery, and forms of purchasing etc. 3. The cost of services such as computer time, telephone, fax etc.
It can be calculated as follows: (acquisition cost/year) = (no of orders placed/yr) x (acquisition cost per order)
AC = U/Q x A
Where, AC = acquisition cost /year for the material in question U = expected annual usage of the material Q = order or delivery quantity for the material A = acquisition cost/order or per delivery for the material.
Definition of inventories, inventory analysis and inventory catalog. Inventory management in India. Classification of inventories, forces creating various hypes of inventories, safety stock. Cost associated with inventories. Types of selective inventory control and advantages of selective control. ABC analysis. EOQ. MRP. P & Q systems.
Definition of inventories, inventory analysis and inventory catalog. Inventory management in India. Classification of inventories, forces creating various hypes of inventories, safety stock. Cost associated with inventories. Types of selective inventory control and advantages of selective control. ABC analysis. EOQ. MRP. P & Q systems.
Sr No. 1)
2)
XYZ analysis
3)
VED analysis
machines &
equipments. 4) FSN analysis Consumption pattern of the items To control obsolescence.
Sr No. 5)
6)
SDE analysis
strategies.
7) SOS analysis Nature of supplies & seasonality Procurement & holding stratergy for seasonal term. 8) GOLF analysis Source of supply of material Procurement strategy.
Helps the material manager to exercise selective control and focus attention only on few vital items. Able to control inventories and thereby achieve management objectives. Results in proper inventory analysis & obsolete stocks are pinpointed. Results in reduced administrative costs & improve inventory turnover. Powerful approach in the direction of cost reduction as it is helps to control items with selective approach.
Definition of inventories, inventory analysis and inventory catalog. Inventory management in India. Classification of inventories, forces creating various hypes of inventories, safety stock. Cost associated with inventories. Types of selective inventory control and advantages of selective control. ABC analysis. EOQ. MRP. P & Q systems.
Definition of inventories, inventory analysis and inventory catalog. Inventory management in India. Classification of inventories, forces creating various hypes of inventories, safety stock. Cost associated with inventories. Types of selective inventory control and advantages of selective control. ABC analysis. EOQ. MRP. P & Q systems.
ABC Analysis
What is ABC analysis?
ABC analysis is a basic analytical management tool which enables top management to place the effort where the results will be greatest. The techniques tries to analyze the distribution of any characteristic by money value of importance in order to determine its priority.
The mechanics of classifying the items into A, B and C categories is described here:
1. 2. 3. 4. 5. CALCULATE SORT PREPARE A LIST COMPUTE A RUNNING TOTAL COMPUTE AND PRINT
C 100 u m 90 u l a 75 t i v e
%
v a l u e
0
A 10
B 30
C 100
Cumulative % number
1
2 3
1,000
Total inventory
250
125
Rs 8,125
Exhibit 2 Item no 1 2 3 Annual consumption value (Rs) 60,000 4,000 1,000 No of orders 8 3 1 Value per order 7500 133 1000 Average inventory 3750 667 500 Rs 4,917
Total inventory
Music 3D Analysis
Consumption Value Delivery Time Criticality
HLC&LLT critical
HLC&SLT
critical
Definition of inventories, inventory analysis and inventory catalog. Inventory management in India. Classification of inventories, forces creating various hypes of inventories, safety stock. Cost associated with inventories. Types of selective inventory control and advantages of selective control. ABC analysis. EOQ. MRP. P & Q systems.
Definition of inventories, inventory analysis and inventory catalog. Inventory management in India. Classification of inventories, forces creating various hypes of inventories, safety stock. Cost associated with inventories. Types of selective inventory control and advantages of selective control. ABC analysis. EOQ. MRP. P & Q systems.
TC
HERE:
EOQ = Economic ordering quantity
TC = Total Cost
COST ICC
HERE : A = Annual Demand ; Co = Cost of ordering ; Q = EOQ ; i = Cost per unit ; Cc = Cost of carrying or ICC
PROBLEMS ON EOQ
1. Annual Demand = 20,000 units Ordering Cost = Rs. 100 ICC = 20 % Unit Price = Rs. 20 EOQ = 2 x A x Co I x Cc 2 x 20,000 x 100 20 x 0.20
A.
EOQ =
2.
In a leading biscuit manufacturing organization, the annual demand for corrugated boxes is 20,000. The cost of placing an order is Rs. 100 and the inventory carrying cost is 20 per cent. The price per box is Rs. 10. The supplier offers 1 per cent discount if 4,000 corrugated boxes or more are purchased and 3.5% discount if 10,000 units or more are purchased. What should be the ordering quantity and would you accept the discount?
EOQ = 2 x A x Co I x Cc 2 x 20,000 x 100 10 x 0.20
A.
EOQ =
Number of orders placed in the year = 20,000 1414 = 14.14 orders 1 ) 1% for 4,000 Savings - Inventory Carrying Cost (ICC) Savings = Discount + Cost of ordering Discount = 1 x 20,000 x 10 100 = Rs. 2,000 Cost of ordering = [14.14 (20,000/4,000)] x 100 = Rs. 914 Savings = Rs. (2,000 + 914) = Rs. 2,914 Inventory Carrying Cost (ICC) = ( 4,000- 1,414/2) x 10 x0.20 = Rs. 2,586 Rs. (2,914 - 2,586) = Rs. 328 Accept the offer
2) 3.5% for 10,000 Savings - Inventory Carrying Cost (ICC) Savings = Discount + Cost of ordering Discount = 3.5 x 20,000 x 10 100 = Rs. 8,000 Cost of ordering = [14.14 (20,000/10,000)] x 100 = Rs. 1214 Savings = Rs. (7,000 + 1214) = Rs. 8,214 Inventory Carrying Cost (ICC) = ( 10,000- 1,414/2) x 10 x0.20 = Rs. 8,586 Rs. (8,214 - 8,586) = - (Rs. 372) Reject the offer
LIMITATIONS OF EOQ
Definition of inventories, inventory analysis and inventory catalog. Inventory management in India. Classification of inventories, forces creating various hypes of inventories, safety stock. Cost associated with inventories. Types of selective inventory control and advantages of selective control. ABC analysis. EOQ. MRP. P & Q systems.
Definition of inventories, inventory analysis and inventory catalog. Inventory management in India. Classification of inventories, forces creating various hypes of inventories, safety stock. Cost associated with inventories. Types of selective inventory control and advantages of selective control. ABC analysis. EOQ. MRP. P & Q systems.
1. Release production and purchase orders. 2. Ensure availability of materials, components and products. 3. Maintain minimum levels.
Elements of MRP
MRP system
Master Production schedule
Primary outputs
Planning reports Performance reports
Secondary outputs
Exception reports
inputs
outputs
Definition of inventories, inventory analysis and inventory catalog. Inventory management in India. Classification of inventories, forces creating various hypes of inventories, safety stock. Cost associated with inventories. Types of selective inventory control and advantages of selective control. ABC analysis. EOQ. MRP. P & Q systems.
Definition of inventories, inventory analysis and inventory catalog. Inventory management in India. Classification of inventories, forces creating various hypes of inventories, safety stock. Cost associated with inventories. Types of selective inventory control and advantages of selective control. ABC analysis. EOQ. MRP. P & Q systems.
P - SYSTEM
Fixed Order Period System Not Suitable for A Class Items Extremely Useful for B & C Class Items Desired Inventory Level = Buffer stock + Safety stock + Reserve stock
Q- SYSTEM
Fixed Order Quantity System Re-order point determined by Buffer stock, Reserve stock & Safety stock Suitable for A Class Items Requires continuous review of inventory
Buffer Stock:
average lead-time
Reserve Stock:
Variations in demand during average lead time are known as reserve stock depend on service level
Safety Stock:
Average demand obtained through multiplying average demand for maximum delay & probability of delay
Annual demand = 20,000 units; Standard deviation of demand per week = 50 units; Price per unit = Rs.10; Ordering cost = Rs.100; Inventory carrying cost = 20%; Average lead time = 4 weeks; Maximum delay =3 weeks; Probability of delay = 0.31; Service level = 95%(1.64)
Solution: Q System
Safety Stock = 20,000 *3 *0.31 52 = 358 units Re-order point = 1540+164+358 = 2062 units Solution: P System Review period = EOQ *52 weeks M = 1414 * 52 weeks 20000 = 3.7 weeks
Buffer Stock = 20,000 * 8 = 3080 units 52 Reserve Stock = 8 *50 *1.64 = 230 units Safety Stock = 20,000 *3 * 0.31 = 358 units 52 Desired Inventory Level = 3080 + 230 + 358 = 3668 units
Definition of inventories, inventory analysis and inventory catalog. Inventory management in India. Classification of inventories, forces creating various hypes of inventories, safety stock. Cost associated with inventories. Types of selective inventory control and advantages of selective control. ABC analysis. EOQ. MRP. P & Q systems.