The presentation gives an idea as to how the Inventory management should be done in a TPS stores. It can be refereed to any stores. It is a part of Stores management.

1. INVENTORY MANAGEMENT
By
Manohar Tatwawadi
9372167165
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2. INVENTORY
• GENERAL MEANING OF INVENTORY
• Inventory can be referred to as sum of the
value of raw materials, fuels and lubricants,
spares parts and maintenance consumables
stock at any given point of time.
• Inventories are primarily maintained for
operational smoothness.
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3. INVENTORY CONTROL
If inventories are raised to very high level;
• Ensures steady & uninterrupted power generation.
• Ensures timely repairs & maintenance due to
availability of sufficient spares.
• Increased Reliability and thereby availability of
machines.
• Down time of machines is curtailed,
• In turn results into saving in fuel cost & generation
loss.
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4. INVENTORY CONTROL
If the inventories are too little;
• The generation units go out of Fuel stock.
• Sometime units have to be withdrawn for
shortage of coal & other raw materials
• The maintenance & timely repair of machines will
not be possible.
• May cause the machines to run in unhealthy
condition resulting into multifold damages in
machine & high maintenance cost at a later stage.
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5. INVENTORY CONTROL OBJECTIVES
• Inventories block the precious capital.
• Inventories generate storage cost.
• Inventories may become obsolete in storage.
• These reasons demand minimum inventory
investment.
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6. INVENTORY CONTROL OBJECTIVES
• Interruption in generation raises cost.
• Overall costs are kept low by stable
generation, which is possible by having
optimum (Just Sufficient) inventories.
Thus inventory control is required to keep
balance among these competing objectives.
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7. INVENTORY CONTROL TOOLS
• ABC / VED / FSN Analysis
• Economic Order Quantity
• Perpetual inventory system
• Review of Slow & Non-moving items
• Use of Control ratios
• Setting of various levels
• Use of material budgeting
• Establishing effective purchase procedure.
These methods are applied for the Inventory
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8. ABC/VED/FSN Analysis
• ABC Analysis:
Classify the spares as per Value
A = High Value, B = Medium Value & C = Low Value
• VED Analysis:
Classify spares as per requirement
V= Vital, E = Essential, D = Desirable
• FSN Analysis:
Classify spares as per movement
F = Fast Moving, S = Slow Moving, N = Non-Moving
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9. SPARES & CONSUMABLES
• Vital category should be allotted to such spares
which need to be procured immediately on
consumption without referring to minimum levels.
Whatever quantity consumed is to be procured
immediately.
• Essential category of spares are those which are
required to be maintained on the basis of minimum
level.
• Desirable category of spares are those which are
included due to occasional use during some repair
works but not generally required to maintain.
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10. CONSUMABLES
• Vital category should be allotted to such consumable items
due to which the regular works can be held up. These
category can be developed from specific application wise
minimum requirement from sections. For example, special
welding rods of specific make, Rubber Gaskets for
Generator, Gasket for steam turbine, Special Gland Packing
etc. These items are to be recouped strictly on MINIMUM
level.
• Essential category includes those other consumables which
are required to be maintained on the basis of minimum
level & to be recouped by TENDER Enquiry Procedure.
• Desirable category of spares are those which are included
due to occasional use but not included in our list of regular
consumables/ T&P.
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11. EOQ… Economic Order Quantity
• The first step is to assess the total requirement
during year.
• Once the yearly requirement is decided, next
decision is when to procure i.e. scheduling of
purchases.
• There are various constraints like fund flow, exact
time of requirement, fluctuation in price, cost of
storage, risk in storage, possibility of damages or
becoming obsolete by the time it is used, some items
of chemical in nature may be changed. Hence we can
not purchase whole of the quantity at once.
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12. EOQ… Economic Order Quantity
To avoid this,
• If we segregate the procurement and arrange these
items as and when required basis, there may be
shortage of item due to failure of timely delivery by
supplier, the exact item may not be available in market
when we need it, the cost may be high at the time of
procurement.
• As such, we have to balance both the possibilities to
plan the best procurement plan.
• Every item involves the definite process for arriving at
the economic order quantity for such items.
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13. ECONOMIC ORDER QUANTITY
Multiperiod model – The Economic Order Quantity
• Demand is known and deterministic: D units/year
• We have a known ordering cost, S
• Annual holding cost of average inventory is H per unit
• Purchasing cost C per unit
Supplier O&M
Demand
Stores
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14. What is the optimal quantity to order?
Total Cost = Purchasing Cost + Ordering Cost + Inventory Cost
Purchasing Cost = (total units) x (cost per unit)
Ordering Cost = (number of orders) x (cost per order)
Inventory Cost = (average inventory) x (holding cost)
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15. Finding the optimal quantity to order…
Let’s say we decide to order in batches of Q…
Number of
periods will be
D
Q
Time
Total Time
Period over which demand for Q has occurred
Q
Inventory position
The average
inventory for each
period is…
Q
2
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16. Finding the optimal quantity to order…
Purchasing cost = D x C
Inventory cost =
Ordering cost =
D
Q
x S
Q
2
x H
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17. So what is the total cost?
TC = D C + +
In order now to find the optimal quantity we need to optimize the total cost
with respect to the decision variable (the variable we control)
Which one is
the decision
variable?
D
Q
S
Q
2
H
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18. What is the main insight from EOQ?
There is a tradeoff between holding costs and ordering costs
Order Quantity (Q*)
Cost
Total cost
Holding costs
Ordering costs
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19. Economic Order Quantity - EOQ
Q* =
2SD
H
Example:
Assume a Plant Store that faces demand for 5,000 Rubber Gaskets per year, and that it
costs Rs. 1,500 to have the material shipped to the stores. Holding cost/Stores Cost is
estimated at Rs. 5 per Gasket per year. How many times should the Section order, and
what should be the order size?
1732
5
)000,5)(500,1(2*
Q No & 3 Times
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20. Time
Inventory
Order
Quantity
Q
Lead Time
If delivery is not instantaneous, but there is a lead
time L:
When to order? How much to order?
Place Order Receive
Material
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21. ROP = LxD
Receive
order
Time
Inventory
Order
Quantity
Q
Place
order
Lead Time
Reorder
Point
(ROP)
If demand is known exactly, place an order when
inventory equals demand during lead time.
D: demand per period
L: Lead time in periods
Q: When shall we order?
A: When inventory = ROP
Q: How much shall we order?
A: Q = EOQ
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22. Perpetual Inventory System
• In this method, when the material is issued
from the stores for actual use, the
measurements of balance quantity are tallied
with the actual records to assure of the actual
stock available.
• This is also called as FIFO. (First in first out).
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23. Slow & Non Moving Items
• Review of slow & Non-moving items :
• The slow & non-moving items are in fact the
liability in the form of investment of the
capital in these items.
• Therefore periodical review of the necessity of
stocking such items is required as an inventory
control tool.
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24. Inventory Tools
Use of Control Ratios :
• This technique is very much useful to control the inventory
level and compare it with inventory level of other similar
power station. For example, say for Coal Mills at one TPS,
we have average inventory stock of Rs.2 Crores and the
consumption in that year is only 20 lacs. It means, we have
average 10 % usage of our inventory stock.
• This factor can be compared with similar factor for similar
coal mills at other power station.
• Within the power station such factors can be fixed by TOP
management on the basis of failure rate & importance of
individual auxiliary in our generating process.
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25. Inventory Tools
• Setting various levels :
• The minimum level, maximum level and
reorder level shall be set and fixed for every
item.
• These levels are to be fixed by definite
procedures and reviewed periodically /
continuously for appropriate change.
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