Financial Management

1. Inventory management
By,
Meenu James
Nicey Meria Abraham
Niji Stephen
Nipin Paulose

2.  Inventory or stock means to the goods
and materials that a business holds for
the ultimate goals to have a purpose
of resale
 Inventory management is a discipline
and primarily about specifying the
shape and placement of stocked In
goods.
Inventory

3.  Raw Materials : Raw materials are basic
input that are converted into finished
products through the manufacturing
process. Raw material inventories are
those units which have been purchased and
stored for future productions.
 Work-in-process : This inventories are semi-
manufactured products . They represent
products that need more work before they
become finished products for sale.
Nature of Inventories

4.  Finished goods : finished goods
inventories are those completely
manufactured products which are
ready for sale.

5. Meet variations in production demand
 Cater to cyclical and seasonal demand
 Economies of scale in procurement
 Take advantage of price increase and
quality discounts
 Reduce transit cost and transit times
 Long lead and high demand items need
to be held in inventory.
Need to hold Inventories

6. 1. To keep inventory at sufficiently high level to
perform production and sales activities smoothly
2. To minimize investment in inventory at minimum
level to maximize profitability
Other objectives:
 To minimize carrying cost of inventory
 To keep investment in inventory at optimum level
 To minimize inventory ordering costs
 To make arrangements for sale of slow moving
items
 To reduce the losses of theft , wastages etc.
Objectives of inventory
management

7. Economic order Quantity ( EOQ)
The economic order quantity is that
inventory level that minimizes the total
of ordering and carrying cost.
• Ordering cost
• Carrying cost

8. Methods to determine EOQ
 Trial and error method
 Order formula approach
 Graphic approach

9. ABC inventory control system
ABC ( Always Better Control ) is a method
used to have an effective control over
inventories.
It is also known as control by importance and
exception ( CIE ) or proportional value
analysis
( PVA )

10. Steps in implementing ABC
analysis
1. Classify the items of inventories based on
their units and the unit price
2. Determine the total value of each item by
multiplying the no of items with unit price
3. Rank the items based on their total value
4. Compute the % of total value of each item
to total value of all items

11. Steps continued…
5. Compute the percentage of total value of
each item to total value of all items
6. Cumulate the percentages of items
7. Combine items and categorize them as
A,B,C etc.

12. Benefits
 It ensures control over costly items
 Stock is maintained at optimum level
 It ensures reduction in storage expenses
 It helps in maintaining enough safety stock
for C category items