Ch 9

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ch 9

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Ch 9

  1. 1. Inventory Management
  2. 2. In this chapter… <ul><li>Need and Importance of Inventory Management… </li></ul><ul><li>Inventory Management Techniques… </li></ul><ul><li>Order quantity – EOQ Model… </li></ul><ul><li>Order Point… </li></ul><ul><li>Safety Stock… </li></ul><ul><li>Selective Inventory Controls… </li></ul><ul><li>ABC Analysis… </li></ul>
  3. 3. Inventory… <ul><li>The aggregate of raw materials; work-in-process; finished goods and stores and spares. </li></ul><ul><li>Components are: </li></ul><ul><ul><li>Raw Materials. </li></ul></ul><ul><ul><li>WIP </li></ul></ul><ul><ul><li>Finished Products. </li></ul></ul><ul><ul><li>Stores & Spares. </li></ul></ul>
  4. 4. <ul><li>Transaction motive </li></ul><ul><li>Precautionary motive </li></ul><ul><li>Speculative motive </li></ul>Motives of Holding Inventory…
  5. 5. Objectives… <ul><li>Ensure continuous supply of materials </li></ul><ul><li>Facilitate interrupted production </li></ul><ul><li>Maintain optimum stock of inventory </li></ul><ul><li>Minimize inventory cost </li></ul>
  6. 6. Need for Balanced Investment in Inventory… <ul><li>Consequences of Excessive Investment in Inventory </li></ul><ul><ul><li>Block of funds </li></ul></ul><ul><ul><li>Loss of liquidity </li></ul></ul><ul><ul><li>Mishandling of inventory </li></ul></ul><ul><ul><li>Increases carrying cost </li></ul></ul><ul><ul><li>Physical deterioration </li></ul></ul><ul><li>Consequences of inadequate investment in Innovation </li></ul><ul><ul><li>Disturbs production </li></ul></ul><ul><ul><li>Unable to deliver goods on delivery date </li></ul></ul><ul><ul><li>Loss of customers </li></ul></ul>
  7. 7. Costs of holding Inventory… <ul><li>Ordering Costs : The fixed clerical cost of placing and receiving an inventory order </li></ul><ul><li>Carrying Costs : The variable costs per unit of holding an item in inventory for a period </li></ul>
  8. 8. Risk of Holding Inventory… <ul><li>Price decline </li></ul><ul><li>Product deterioration </li></ul><ul><li>Product obsolescence </li></ul>
  9. 9. Tools of Inventory Control… <ul><li>ABC analysis </li></ul><ul><li>EOQ </li></ul><ul><li>Order point problem </li></ul><ul><li>Two-bin technique </li></ul><ul><li>VED classification </li></ul><ul><li>HML classification </li></ul><ul><li>SDE classification </li></ul><ul><li>FSN classification </li></ul><ul><li>JIT technique </li></ul>

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