INSTITUTE –University School of

Business
DEPARTMENT -Management
M.B.A
Logistics & Supply Chain Management 20BAT-641

Lecture – 5 : Inventory Management

UNIT-1: DISCOVER . LEARN . EMPOWER

Introduction to
Supply Chain
Management
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 Evolution of Supply Chain Management

Course Objective Course Outcome

CO Title Level CO Title Level
Number Number
CO1 At the completion of this course, the Understand CO1 Design competition strategies, Understand
student should be able to   including costing, pricing, product  
understand the concepts related to differentiation, and market
SCM. . environment according to the
natures of products and the
CO2 Students will be able to design and Apply structures of the markets.
study performance of supply  
networks and processes in different CO2 Understand the links between Apply
business contexts production costs and the economic  
models of supply.
2

CO3 To understand the global supply CO3 Understand how different degrees of Analyze
Analyze
chains & risks thereof competition in a market affect
pricing and output
 Topic – 5
Inventory Management

Source : oracle.com
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 Inventory
Management
 What is Inventory?

A physical resource that a firm holds in stock with

the intent of selling it or transforming it into a more

valuable state.
 Types of Inventory

There are 5 Basic types of inventories.

They are raw materials, work-in-progress, finished goods, packing material,

and MRO supplies.

Inventories are also classified as merchandise and manufacturing inventory.

Other such classifications on various bases are goods in transit, buffer

stock, anticipatory stock

Different Types on Inventory

Source : Wilson Perumal 7

 Merchandise Inventory

It is the inventory of trading goods held by the

trader.

Typically, retailers and wholesalers are the
only businesses with merchandise inventory.

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 Manufacturing Inventory

It is the inventory for manufacturing and selling of goods. A

list of the goods, parts or materials required to perform the
manufacturing process in stock and available for use. To be
fully effective, this list should be continually updated so that it
matches current and projected production needs.

Based on the value addition or stage of completion, the

manufacturing inventories are further classified into 3 types of
inventory – Raw Material, Work-In-Progress, and Finished
Goods.

Another type is MRO inventories which are to support the

whole manufacturing and administrating operation.
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 Raw Materials

These are the materials or goods purchased by the manufacturer.

The manufacturing process is applied to the raw material to

produce desired finished goods.

The business importance of raw material as an inventory is mainly

to protect any interruption in production planning.

Other reasons can be availing price discount on bulk purchases,

guard against market shortage situation, etc.

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 Work In Progress
These are the partly processed raw materials lying
on the production floor. They may or may not be
saleable.

These are also called semi-finished goods.

It is unavoidable inventory which will be created in

almost any manufacturing business.

This level of this inventory should be kept as low as

possible.

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 Finished Goods
These are the final products after manufacturing process on
raw materials.

They are sold in the market.

There are two kinds of manufacturing industries.

One, where the product is first manufactured and then sold.

Second, where the order is received first and then it is

manufactured as per specifications.

In the first one, it is inevitable to keep finished goods

inventory whereas it can be avoided in the second one.
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 Packing Material
Packing material is the inventory used for packing of
goods.

It can be primary packing and secondary packing.

Primary packing is the packing without which the

goods are not usable.

Secondary packing is the packing done for

convenient transportation of goods.

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 MRO Goods
MRO stands for maintenance, repair, and operating supplies.

They are also called as consumables in various parts of the

world.

They are like a support function.

Maintenance and repairs goods like bearings, lubricating oil,

bolt, nuts etc are used in the machinery used for production.

Operating supplies mean the stationery etc used for

operating the business.

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 Goods In Transit
Under normal conditions, a business transports raw
materials, WIP, finished goods etc from one site to other for
various purpose like sales, purchase, further processing etc.

Due to long distances, the inventory stays on the way for

days, weeks and even months depending on distances.

These are called Inventory / Goods in Transit. Goods in

transit may consist of any type of basic inventories.

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 Buffer Inventory
Buffer inventory is the inventory kept or purchased for the
purpose of meeting future uncertainties.

Also known as safety stock, it is the amount of inventory

besides the current inventory requirement.

The benefit is smooth business flow and customer

satisfaction and disadvantage is the carrying cost of
inventory.

Raw material as buffer stock is kept for achieving nonstop

production and finished goods for delivering any size, any
type of order by the customer.
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 Anticipatory Stock
Based on the past experiences, a businessman is able to
foresee the future trends of the market and takes certain
decisions based on that.

Expecting a price rise, a spurt in demand etc some

businessman invests money in stocking those goods.

Such kind of inventory is known as anticipatory stock. It is

normally the raw materials or finished goods and this strategy
is executed by traders.

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 Resources

1. Essentials of Supply Chain Management (Essentials

Series) Paperback – Import, 12 August 2011 by Michael
H. Hugo

2. Principles and Practice of Supply Chain

Management Hardcover – Import, 3 June 2019
By Judy Dickens

3. Supply chain design and management: Strategic and

tactical perspectives by Manish Govil and Jean-Marie
Proth
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 Homework

What are the key issues in Supply Chain Management?

Explain in detail.

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 Blackboard
Assessment Pattern

Components HT-1 HT-2 Assignment Surprise Business GD Forum Attendance Scaled

Test Quiz Marks

Max. Marks 10 10 6 4 4 4 2 40

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THANK YOU

For queries
Email:
shipra.e8909@cumail.in

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