Inventory management


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Inventory managementmanagementPresentations By Rajendran Ananda Krishnan,

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Inventory management

  1. 1. Inventory Management Rajendran Ananda Krishnan ettythings
  2. 2. Inventory ManagementInventory- Any idle resource that could be put to some future use.Inventory- A stock or store of goodsinventory includes raw material, work-in-process, finished goods andstores and spares.Institute of Chartered Accountants of India defines inventory in AS2as“Inventories as an assets held - For sale in the ordinary course of business - In the process of production for such sale - In the form of materials and supplies to be consumed in the production process or in rendering services. ettythings
  3. 3. Types of inventoryTypes of inventory1. Seasonal Inventory2. Decoupling inventory3. Pipe-line Inventory4. Cyclic Inventory5. Safety StockOthersRaw Materials InventoryWork in Progress InventoryFinished Goods Inventory ettythings
  4. 4. Inventory Management and controlInventory Management involves the “Development andadministration of polices , systems and procedures which willminimize total costs relative to inventory decisions and relatedfunctions such as customer service requirements ,productionscheduling , purchasing and traffic” . ettythings
  5. 5. Inventory control Techniques1. Always better control (ABC) classification.2. Vital, essential and desirable (VED) classification.3. Fast moving, slow moving and non-moving (FSN).4. Economic order quantity (EOQ). ettythings
  6. 6. Inventory Cost Inventory costs includes ordering cost plus carrying costs.1. Ordering Costs2. Carrying Costs Capital Costs Storage Space Costs Inventory Service Costs Handling-equipment Costs Inventory Risk Costs3. Out-of-stock Costs or Shortage Cost ettythings
  7. 7. Economic Order Quantity EOQ is the optimal order size at which the total annual cost is the least. It is used to identify a fixed order size that will minimize the sum of the inventory carrying cost and ordering cost. Assumptions of the basic inventory modelOnly one product is involvedAnnual demand requirements knownDemand is even throughout the yearLead time does not varyEach order is received in a single deliveryThere are no quantity discounts ettythings
  8. 8. Economic Order Quantity Graphic Presentation of EQQ ettythings
  9. 9. The Inventory Cycle Profile of Inventory Level Over Time Q UsageQuantity rateon handReorderpoint Receive Place order Receive order order Safety Stock Place Receive order order Lead time Time ettythings
  10. 10. Safety Stock Safety Stock - Stock that is held in excess of expected demand due to variable demand rate and/or lead time. To meet the uncertainty demand , an additional quantity , known assafety stock is keptHigher the uncertainty in demand- Higher safety stock ettythings
  11. 11. Safety Stock Quantity Maximum probable demand during lead time Expected demand during lead timeROP Safety stock LT Time ettythings
  12. 12. Reorder PointReorder Point - When the quantity on hand of an item drops to predetermined amount, the item is reorderedDeterminants of the Reorder PointThe rate of demandThe lead timeDemand and/or lead time variabilityStock out risk (safety stock) ettythings
  13. 13. Quantity Discounts• Quantity Discounts are price reductions for large orders offered to customers to induce them to buy in large quantitiesExample- A Chicago surgical supply company publishes the price list for gauge strips Order Quantity Price per box 1 to 44 $ 2.00 45 t0 69 $1.70 70 or more $ 1.40The buyer’s goal with quantity discounts is to select the order quantity that will minimizeTC= Carrying cost + Ordering cost+ Purchasing cost ettythings
  14. 14. Key Inventory Terms• Lead time: time interval between ordering and receiving the order• Holding (carrying) costs: cost to carry an item in inventory for a length of time, usually a year• Ordering costs: costs of ordering and receiving inventory• Shortage costs: costs when demand exceeds supply ettythings