Objective Of Inventory management

1. Objective Of Inventory
Management
Power Point presentation
Prepared By
Md. Nazmul Huda
Roll No.-1650185134
EMBA – 8th Batch

2. Inventory Management
The objective of inventory management is to strike a
balance between inventory investment and
customer service
Nature Of Inventories:
– Raw materials
– Finished products
– Component parts
– Supplies
– Work in process

3. Importance of Inventory
 One of the most expensive assets of
many companies representing as much
as 50% of total invested capital
 Operations managers must balance
inventory investment and customer
service

4. Types of Inventory
 Raw material
 Purchased but not processed
 Work-in-process
 Undergone some change but not completed
 A function of cycle time for a product
 Maintenance/repair/operating (MRO)
 Necessary to keep machinery and processes productive
 Finished goods
 Completed product awaiting shipment

5. 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

6. The Material Flow Cycle
Input Wait for Wait to Move Wait in queue Setup Run Output
inspection be moved time for operator time time
Cycle time
95% 5%

7. Objectives of Inventory Management
Provide desired customer service level
• Customer service is the ability to satisfy
customer requirements
– Percentage of orders shipped on schedule
– Percentage of line items shipped on schedule
– Percentage of $ volume shipped on schedule
– Idle time due to material and component shortages

8. Objectives of Inventory Management
Provide for cost-efficient operations:
– Buffer stock for smooth production flow
– Maintain a level work force
– Allowing longer production runs & quantity discounts
• Minimum inventory investments:
– Inventory turnover
– Weeks, days, or hours of supply

9. Objectives of Inventory Management
• Provide acceptable level of customer service
(on-time delivery)
• Allow cost-efficient operations
• Minimize inventory investment

10. Inventory Management Objectives
• Good inventory management is a careful balancing act between
stock availability and the cost of holding inventory.
• Service objectives
– Setting stocking levels so that there is only a specified probability of
running out of stock
• Cost objectives
– Balancing conflicting costs to find the most economical replenishment
quantities and timing
Customer Service,
i.e., Stock Availability
Inventory Holding costs