Introduction on Inventory Control

1. Dr. T. Anitha
Assistant Professor of Mathematics (SF)
V.V.Vanniaperumal College for Women
Virudhunagar

2.  The term inventory means any stock of direct or indirect material
stored in order to meet the expected and unexpected demand in the
future.
 The term is generally used to indicate
raw materials
semi finished products
finished products

3. 1. Movement inventories

4. 2. Buffer Inventories

6. 3. Anticipation inventories

10. 5. Lot-Size Inventories

11. A manufacturing firm carries inventories because of the
following major reasons:
To ensure of an adequate supply of items to
customers and avoids the shortages as far as possible
at the minimum cost.
To reduce the risk of loss due to the changes in
prices of items stocked at the time of making the stock.
To take advantages of quantity discounts on bulk
purchases.
To carry buffer stocks (reserve stocks) in case of
delayed deliveries by the suppliers.

12. To help in minimizing the loss due to
deterioration, damages of goods.
To make use of available capital and/or storage space in
a most effective way and avoids an unnecessary
expenditure on high inventories.
To utilize the benefits of price fluctuations.
To satisfy other business constraints, such as
(i) Supplier's condition of minimum quantity.
(ii) Government regulations.
(iii) Seasonal availability.

13. Inventory is the process of deciding what and how much
of various items are to be kept in stock. The objective of
inventory control is to reduce investment in inventories and
ensuring that production process does not suffer at the same time.
To attain various objectives in an inventory control situation, there
are two
questions to be answered:
(i) how much to order? That is what is the optimum quantity
of an item that should be ordered.
(ii) When should the order be placed?
THE INVENTORY DECISIONS

14. The answer to the first question deterrmine the economic
order quantity (EOQ) by minimizing the total inventory
cost, which is given by
Purchase Cost + Set-up Cost (Ordering Cost) +
Carrying Cost + Shortage Cost
When price discounts are not offered, the purchase cost
remains constant and is independent of the
quantity purchased. The total varitable inventory cost is,
then, given by
Ordering Cost+ Carrying Cost+ Shortage Cost

15. The answer to the second question (when to order) depends
on the type of inventory system with which we are
dealing.
lt the system requires periodic review (e.g. every month or
year), the time for receiving a new order coincides with
the start of each period.
Altematively, if the system is based on
continuous review, new order are placed when the
inventory level drops to a pre-specified level, called the
reorder point.

16. A fundamental objective of a good inventory control system is to
determine “what to order” "how
much to order”, “when to order”, and “how much to carry in
stock” so as to gain economy purchasing, storing, manufacturing
and selling. These fundamental objectives may be amplified into
the following objectives:
Service to the customers.
Effective use of capital.
Continuity of productive operations.
Reduction of administrative work load.
Economy in purchasing.
Minimization of risk obsolescence and deterioration.
Up-to-date accurate records.
OBJECTIVES OF SCIENTIFIC INVENTORY
CONTROL

17. Various costs associated with inventory control are classified as
follows:
COSTS ASSOCIATED WITH INVENTORIES
 Sef-up cost.
Ordering cost.
Purchase (or production cost).
Carrying (or holding) cost.
Shortage (or stock out) cost.
Salvage cost (or selling price).
Revenue cost.

18. Demand.
Lead time.
Order cycle.
(a) Continuous review.
(b) Periodic review
Stock replenishment.
Inventory turnover.
Standardisation.
FACTORS AFFECTING INVENTORY CONTROL
Besides the costs that determine the profitability, other factors which play an
important role in the study of inventory control are the following: