m MRP is a technique of determining the

requirement for raw material components,& spare

parts etc required for manufacturing products. if
delivery date of product is known then everything
can be planned very easily like time required or
quality of material required etc.
m Ro. of items already in the inventory (inventory
status).
m Ro. of finished goods to be produced in the near
future using these items.
m Ro.of units of the item required for manufacturing
a single unit of the finished product.
m


OF MATER A

m MASTER PRODUCT OR SCHEDU
E.
m RERTORY STATUS.
m
ill of material is a document which tells us about
an item¶s product structure,showing the sequence
in which components are assembled & their
required numbers.it also contain detailes about the
workstations at which the items is assembled.
m An aggregate production plan tells us how many
units of a product have to be manufactured in the
coming 6-18months on a weekly or monthly basis.
m t tells us about the status of the inventory of an items at
present,or in a given interval of time in the coming
future.this includes scheduled receipts of units of items in
the interval of time as a result of orders placed in the recent
past to suppliers.the inventory status files also contain
details about the suppliers of the items,the lead time taken
by him to supply the item,& the size of each order to be
placed to him.
m Planned orders report
m Orders release report
m Order changes report
m This report gives information about planned orders
to be released on some future date during a given
interval of time. it is helpful in preparing for the
funds required for the payments to the suppliers in
the future according to the dates & order sizes.
m This report gives the information about planned
orders to be released on the present date.it helps
the purchse manager to release purchase order to
the suppliers.
m Open order are those which have been placed in
the past,& the suppliers of the items is preparing
for these suppliers to be made to the
company.during the lead time the MPS of the
company may fluctuate.
m Appropriate use of material so that less wastage is
incurred.
m Availability of material at right time.
m Optimum utilization of working capital.
m More efficiency,more productivity.
m Ro delay in the delievery of products.
m Efficient working of production.
m Saving in the form of time & money.
m Minimize the cost of production.
m Continues flow of control.
 Seasonal nventory
 Decoupling nventory
 Cyclic nventory
 Pipe line nventory
 Safety Stock
m Seasonal InventoryŒ- Organizations carry
inventory to meet fluctuations in demand arising
out of seasonality. n order to meet the demand,
inventory build up happens during non-peak
periods.

m =ecoupling InventoryŒ- Manufacturing systems

typically involve a series of production and
assembly workstations. One way to simplify the
production planning and control problem is to
decouple successive stages using inventory at
some intermediate points.
m ïyclic InventoryŒ- t is customary for organizations to order
inventory in repeated cycles and consume them over time.
Each cycle begins with replenishment and ends with complete
depletion of the inventory.

m ëipeline InventoryŒ- t pertains to the level of inventory that

organizations carry in the long run due to non-zero lead time
for order, transport and receipt of material from the suppliers.

m Safety StockŒ- Organizations also have additional

investment in inventory to buffer against uncertainties in
demand and supply of raw material and components. n order
to improve the availability to meet uncertain demand, an
additional quantity, known as safety stock.
There are several costs associated with inventory
planning and control. These costs could be
classified under three broad categories.

 nventory Carrying Cost

 Cost Of Ordering
 Cost Of Shortages
m Inventory ïarrying ïostŒ- Iïï includes cost of stores and
warehousing and administrative costs. The other Iïï includes
insurance costs, cost of obsolescence, damages and wastage.
The components of Iïï exert considerable pressure on an
organization to keep inventory to low levels.

m ïost Of OrderingŒ- Organizations perform a series of tasks

related to ordering material. These includes search and
identification of appropriate sources of supply, price negotiation,
contracting and purchase order generation, follow-up and receipt
of material. All these involve manpower, resources and time that
could be classified under cost of ordering.

m ïost of ShortagesŒ- Despite careful planning, it is likely that

organizations run out of stock. t also introduces additional costs
arising out of pushing the order back and rescheduling the
production system to accommodate these changes. All these
form part of cost of shortage.

et us consider a situation in which the demand for an
item is continuous and is known with certainty. Since
demand is known, we exclude the possibility of having
shortages.
etter inventory control requires that we
answer the ³how much´ and ³when´ questions by
balancing the total costs of carrying inventory and
ordering.

TC(Q)= Q Cc D C 0

2 Q
When the total cost is minimum, we obtain the most
Economic Order Quantity(EOQ).
Organizations employ some methods to manage and
control inventory.
- Continuous Review (Q) System
- The Periodic Review (P) System

m ïontinuous Review (Q) System

Organizations widely use a continuous review
system called a two-bin system. n operation, the
available inventory is stocked in two bins, first in a
smaller bin and the balance in a larger bin. As the
material in consumed, the larger bin is emptied first.
As soon as the larger bin is empty, an order is placed
with a supplier for a predetermined quantity, Q, and
until the material arrives in the stores, the smaller bin
is consumed.
m he ëeriodic Review (ë) System
An alternative model for inventory
control, known as periodic review system,
operates differently from the Q system. n a
periodic review system, the inventory level in the
system is reviewed at fixed intervals of time.
Therefore, these systems are also known as fixed
order interval systems.
n P system, the two decisions
³when´ and ³how much´ are made in a different
fashion compared to the Q system.
Managing inventory is an issue pertaining to a large
no and variety of items. Organizations, therefore,
devise suitable ways of categorising the items and
adopt mechanisms that have variable levels of
control on the different categories of items.
ï ïlassification Œ- The A
C classification of
inventories is based on the cost (or value) of items
consumed. ery high value items are ³A´ class items
and may require tighter control. Medium value items
are categorised as ³
´ class and the low value items
as ³C´ class.
m On the basis of unit cost of the item(XYZ classification)
a) High unit cost (X Class item)
b) Medium unit cost (Y Class item)
c)
ow unit cost (Z Class item)
m On the basis of movement of inventory(FSR classification)
a) Fast moving
b) Slow moving
c) Ron-moving
m On the basis of criticality of items(ED classification)
a) ital
b) Essential
c) Desirable
m On the basis of sources of supply
a) mported
b) ndigenous( Rational suppliers)
c) ndigenous(
ocal suppliers)