Welcome to our Presentation

A presentation
On
Inventory & Inventory Management

Observed by,
Sujon Chandra Paul,
Chairman,
Dept. of AIS,
University of Barisal
 Group members

Name Roll Number

Md.Alamin shaikh 13 AIS 072
Jiasmin 13 AIS 075
Shamim Miah 13 AIS 001
Md. Robiul Islam 12 AIS 055
Nirodh Paul 13 AIS 063
Amina Akter 13 AIS 061
Md. Shamim Islam 13 AIS 058
Shawon Kumar Kundu 12 AIS 069
Tandra Halder 13 AIS 064
Rahima khatun Rupa 13 AIS 037
Md. Zebon Hossain 13 AIS 046
What is Inventory?
 Inventory Management-
objectives

 Minimize investments in inventory

 Meet the demand for products by
efficiently organizing the production &
sales operations
Types of Inventory
Classification of Inventories Cost.

Purchase Cost
Ordering Cost

Holding Cost

Shortage Cost
 RISK OF HOLDING
INVENTORY
 Price decline

 Product Deterioration

 Product Obsolescence
Functions of Inventory
1. To decouple or separate various parts of
the production process.

2. To decouple the firm from fluctuations in

demand and provide a stock of goods that
will provide a selection for customers.

3. To take advantage of quantity discounts.

4. To hedge against inflation.
Inventory management refers to the process of
ordering, storing and using a company's inventory:
raw materials, components and finished products.
Objective of Inventory Management

How inventory items can be classified.

How accurate inventory records can be maintained.
 What if we over react?
 Unnecessary tying down of firm’s
funds and loss of profit.
 Excessive carrying costs.
 Risk of liquidity- difficult to convert
into cash.
 Physical deterioration of inventories
while in storage due to mishandling
and improper storage facilities.
 What if one is too cool!

 Production hold-ups – loss of labor hours.

 Failure to meet delivery commitments.
 Customers may shift to competitors
which will amount to a permanent loss to
the firm.
 May affect the goodwill and image of the
firm.
Inventory Control Systems
Inventory control is the means by which materials of the
correct quality and in correct quantity are made available
as and when required with due regard to economic in
storage and ordering cost.
Objectives of inventory control

• To ensure smooth flow of stock.

• To provide for required quality of materials.
• To control investments in stock.
• Protection against fluctuating demand.
• Protection against fluctuations in output.
• Minimization of risk and uncertainty.
• Risk of obsolescence.
• Minimization of material cost.
Scope of inventory control

 Determination of inventory policies.

 Determining various stock levels
 Determining economic order size
 Safety or buffer stock
 Determining lead time
 Examining the work of inventory policy
 ABC Analysis
CATEGOR NO. OF ITEM MANAGEMEN
Y ITEMS(%) VALUE(%) T
CONTROL
A 15 70 (HIGHEST) MAXIMUM

B 30 20(MODERATE MODERATE
)

C 55 10(LEAST) MINIMUM

TOTAL 100 100

 JUST-IN-TIME (JIT) INVENTORY CONTROL

• The JIT control system implies that the firm should

maintain a minimal level of inventory and rely on
suppliers to provide parts and components ‘just-in-time’
to meet its assembly requirements.

• JIT also known as Zero Inventory Production

Systems(ZIPS), Zero Inventories(ZIN), Materials as
Needed(MAN), or Neck of Time(N0T)
EOQ is the order quantity that minimizes the
total holding cost  and ordering cost.
 Economic Order Quantity - EOQ
2SD
Q =
*

Example:
Assume a car dealer that faces demand for 5,000 cars per year, and that
it costs $15,000 to have the cars shipped to the dealership. Holding cost
is estimated at $500 per car per year. How many times should the
dealer order, and what should be the order size?

* 2(15,000)(5,000)
Q   548
500
Assumptions of Basic EOQ Model

1. Only one product is involved.

2. Annual demand requirement is known.
3. Demand is spread evenly throughout the years
so that the demand rate is seasonally
constant.
4. Lead time does not vary.
5. Each order is received in a single delivery.
6. There are no quantity discounts.
Production Quantity Model
EPQ:
EPQ is the quantity of a product that should be
manufactured in a single batch so as to minimize
the total cost that includes setup costs for the
machines and inventory holding costs.
Assumptions of Production Quantity
Model

1. Only one item is involved.

2. Annual demand is known.
3. The usage rate is constant.
4. Usage occurs continually, but production occurs
periodically.
5. The production rate is constant.
6. Lead time does not vary.
7. There are no quantity discounts.
Quantity Discounts
Price per unit decreases as order quantity
increases is called as quantity discounts.
Order cycle
Order cycle time refers to the time period
between placing of one order and the next
order.
6 components of order cycle

1. Order preparation & transmittal.

2. Order receipt & order quantity.
3. Order processing.
4. Warehouse picking & packing.
5. Order transportation.
6. Customer delivery & unloading.
Reorder Point is the Level of inventory at
which a new order is placed.
R = dL
Where •d = demand rate per period
•L = lead time
The time required to purchase, produce,
or assemble an item.

For production – the sum of the order,

wait, move, setup, store, and run times.

For purchased items –the time between

the recognition of a need and the
availability of the item for production.
Material Requirement Planning
(MRP)
 MRP is a dynamic system.
 Facilitates replanning when changes occur.
 System nervousness can result from too many
changes many changes.
 Time fences put limits on replanning.
 Pegging links each item to its parent allowing
effective analysis of changes.
Benefits of MRP
1. Better response to customer orders Better
response to customer orders
2. Faster response to market changes.
3. Improved utilization of facilities and labor.
4. Reduced inventory levels
Enterprise Resource Planning
(ERP)
An extension of the MRP system to tie in customers and
suppliers is called Enterprise Resource Planning. It also
coordinates business from supplier evaluation to
customer invoicing.

ERP also:
1. Allows automation and integration of many business
processes.
2. Shares common data bases and business practices
3. Produces information in real time.
Advantages of ERP Systems

1. Provides integration of the supply chain,

production, and administration.
2. Creates commonality of databases.
3. Can incorporate improved best processes.
4. Increases communication and collaboration
between business units and sites.
5. Has an off-the-shelf software database.
6. May provide a strategic advantage.
Disadvantages of ERP Systems

1. ERP is very expensive to purchase and to customize.

2. Implementation may require major changes in the
company and its processes.
3. It is so complex.
4. Involves an ongoing, possibly never completed, process
for implementation.
5 Expertise is limited with ongoing staffing problems.
 Any
questions?