Inventory management

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Inventory managementmanagementPresentations By Rajendran Ananda Krishnan, https://www.facebook.com/ialwaysthinkprettythings

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Inventory management

  1. 1. Inventory Management Rajendran Ananda Krishnan https://www.facebook.com/ialwaysthinkpr 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. https://www.facebook.com/ialwaysthinkpr 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 https://www.facebook.com/ialwaysthinkpr 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” . https://www.facebook.com/ialwaysthinkpr 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). https://www.facebook.com/ialwaysthinkpr 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 https://www.facebook.com/ialwaysthinkpr 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 https://www.facebook.com/ialwaysthinkpr ettythings
  8. 8. Economic Order Quantity Graphic Presentation of EQQ https://www.facebook.com/ialwaysthinkpr 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 https://www.facebook.com/ialwaysthinkpr 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 https://www.facebook.com/ialwaysthinkpr ettythings
  11. 11. Safety Stock Quantity Maximum probable demand during lead time Expected demand during lead timeROP Safety stock LT Time https://www.facebook.com/ialwaysthinkpr 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) https://www.facebook.com/ialwaysthinkpr 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 https://www.facebook.com/ialwaysthinkpr 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 https://www.facebook.com/ialwaysthinkpr ettythings

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