inventory mgt

1. INVENTORY MANAGEMENT
By : Dr Ajit Kumar BansalBy : Dr Ajit Kumar Bansal
Dean Deptt of Management Studies,Dean Deptt of Management Studies,
E Max Group of Instituions, AmbalaE Max Group of Instituions, Ambala

7. The Transaction Motive
The Precautionary Motive
The Speculative Motive
Continuous supply, Avoiding Over &
Under stocking
Avoid losses thru deterioration,pilferage,
wastage & damages

12. DemandDemand
raterate
TimeTime
LeadLead
timetime
LeadLead
timetime
OrderOrder
placedplaced
OrderOrder
placedplaced
OrderOrder
receiptreceipt
OrderOrder
receiptreceipt
InventoryLevelInventoryLevel
Reorder point,Reorder point, RR
Order quantity,Order quantity, QQ
00

13. CCoo - cost of placing order- cost of placing order DD - annual demand- annual demand
CCcc - annual per-unit carrying cost- annual per-unit carrying cost QQ - order quantity- order quantity
2CoD
Cc
Qopt =

14. Order Quantity,Order Quantity, QQ
AnnualAnnual
cost ($)cost ($) Total CostTotal Cost
Carrying Cost =Carrying Cost =
CCccQQ
22
Slope = 0Slope = 0
MinimumMinimum
total costtotal cost
Optimal orderOptimal order
QQoptopt
Ordering Cost =Ordering Cost =
CCooDD
QQ

16. RR == dLdL

17. ReorderReorder
point,point, RR
QQ
LTLT
TimeTime
LTLT
InventorylevelInventorylevel
00
Safety Stock

19. ABC Analysis
Divides inventory into three classes based on
Consumption Value
Consumption Value = (Unit price of an item) (No. of units consumed per annum)
 Class A - High Consumption Value
 Class B - Medium Consumption Value
 Class C - Low Consumption Value

20. C Items
ABC Analysis
A Items
B Items
%ofConsumptionValue
80 –
70 –
60 –
50 –
40 –
30 –
20 –
10–
| | | | | | | | | |
10 20 30 40 50 60 70 80 90 100
% of inventory items

21. Perpetual Inventory System
Just in time Approach Inventory
Control System-Toyota introduced in
Japan in 1950s, followed by US
compnanies in 80s
Inventory Turnover Ratio:
COGS/Average Inventory at Cost

22. Inventory Turnover Ratio:
COGS/Average Inventory at Cost

23. Some time with the view of doing Lean inventory management
Within ABC category VED ( Vital , essential & desirable factor) is introduced with the
view of further having effective control of inventory on the basis if its being critical.
V (Vital) is the inventory where neither Substitute nor Variation Gap is allowed .
E (Essential) is the inventory which allows either of the one to be changed
D (Desirable ) is the one which can have variation in both of the parameters