INVENTORY MANAGEME NT

By

sujith.m & jithin mohan. p

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Meaning and kinds of inventories

inventories are the stock of goods kept in business and meant either for sale or for consumption in the production process. It includes : Raw materials Work in progress Finished goods
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Need /purpose of holding inventories

Transaction motive Precautionary motive Speculative motive

Benefits :

Avoiding loss of sales Availing quantity discount

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Reducing ordering costs

Risk and cost of holding inventories

Risk of price decline Risk of obsolescence Risk of deterioration Capital costs Storage and handling costs

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Inventory management

Inventory management simply refers to management of inventory. It can be defined as the overall way a company manages its inventory and its control system to manage the benefit of carrying inventory against cost.. It aims to manage inventory efficiently and effectively..
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To ensure continuous supply of materials , spares and finished goods so that production may not be held up for want of supply of materials. To avoid over stocking and under stocking of inventories. To avoid wastage like theft , pilferage , leakage, spoilage etc.. To promote manufacturing efficiency and 5/15/12 promote execution of orders to

Objectives of Inventory Management

Ctd..

To maintain inventories at optimum level keeping in view the operational requirements. To eliminate duplication in ordering or replenishing stock. To have optimum investment in inventories, thus ensuring efficient use of capital. To purchase raw materials in bulk to avail quantity discount and to take 5/15/12 advantage of favorable market

Techniques Of Inventory Manangement Order cycling system

Two bin system ABC analysis Stock or inventory turnover Min max plan Kardex system JIT inventory system
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Order cycling system

It is a technique of inventory control in which inventory of materials is reviewed periodically, like 30, 60 or 90 days. If in the course of periodic review it is observed that stock level of an item is not sufficient to meet its consumption , an order is placed to replenish its supply.

The objectives is to maintain the inventory to a desired level.. 5/15/12

Two Bin System

Two bin system is commonly used when material are relatively inexpensive or non essential. Under this system , two bins are maintained- smaller or larger.

In the smaller bin , the minimum quantity is kept and the remaining quantity is kept in the larger bin. The quantity in the smaller bin is not issued as larger bin has materials .. 5/15/12

ABC Analysis

ABC analysis is known as always better control or control according to values or proportional parts value analysis

ABC , analysis is a technique of inventory control which is aimed at directing control activities to such of categories of material as demand particular attention, It is also known as selective method of control For 5/15/12

Stock or inventory turnover

In The words oh Kohler . Inventory turnover is defined as a ratio which measures the number of times a firms average inventory is sold during a year.

Inventory turnover = cost of materials consumed/

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Min Max Plan

It is one of the oldest methods of inventory control. Under this system , minimum level and maximum level for every material are fixed . The minimum level serves as the re-order point. As soon as the stock of material comes down to minimum level , order is placed for that quantity of material which will bring the stock to the max level., it is very 5/15/12 simple to operate and easy to

Economic Order Quantity (EOQ)

EOQ

Optimal quantity that will minimize total inventory costs

D = demand in units per year C = holding cost in dollars/unit/year S = cost of placing an order in dollars Q = order quantity in units 5/15/12

Fixing stock levels

Quantitative limit which is something standard that does not permit to exceed the limits

Maximum level Minimum level Re-order level Average stock level

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Maximum level

Indicates the maximum quantity of an item of inventory which can be held in store at any time Maximum level=(re-orde level + reorder quantity) minimum consumption rate * minimum re order period)

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Minimum level

Minimum level indicates the quantity balance of an item of inventory which must be maintained in hand at all times Minimum level = re order level (normal usage rate * normal re order period )

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Reorder level

Level where the stock level reaches a stage indicating the replenishment of the stock as there is always a gap between placing an order and actually getting the stock Re order level = maximum usage rate* maximum reorder period

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Average stock level

There are basically two stock Minimum stock Maximum /reorder quantity has to be considered Average stock level = (maximum stock level + minimum stock level)/2

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VED Analysis

Inventory items are grouped into vital, essential and desirable Vital items items of inventory whose inaddequate supply may substantially damage the productive activities essential items whose non availability can not be tolerated for few hours or one day and the cost of 5/15/12 production lost is high

Desirable items which do not have any immedite impact on production , hence these may or may not be maintained Thus , VED analysis does not consider the utility of the inventory items on the basis of value but on their impact on the production
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JIT

Just in Time Inventory is the minimum inventory that is necessary to keep a system perfectly running. With just in time (JIT) inventory, The exact amount of items arrive at the moment they are needed, Not a minute before OR not a minute after.

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To achieve JIT inventory, Managers should Reduce the Variability Caused by some Internal and External Factors. (Goldratts boys scout example Apply the pace of the slowest boy). Existence of Inventory hides the variability Most variability is caused by 5/15/12 tolerating waste (inventory).

The variability is influenced by both internal and external factors

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THANK YOU

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