Inventory Management

1. INVENTORY MANAGEMENT

2. What is inventory and Management?
• Is a company’s good on-hand.
• Detailed list of all items in stock.
• An act of managing something.

3. Inventory Management:
• All activities involved in maintaining the
inventory at a level that results desired level of
customer service and costs.

4. Inventory Models:
• Independent Demand- finished goods.
• Dependent Demand- components of finished
products

5. Different Kinds of Inventory:
• Raw materials- goods which have been
purchased and stored for future productions.
• WIP (work-in-process)- partially completed
goods.
• Finished Goods- goods after production process
is complete. In case of retailers/wholesalers,
finished goods are referred to as merchandise
inventories.

6. We maintain inventory to:
• meet anticipated customer demand
• smooth production requirements
• decouple operations
• protect against stockouts
• take advantage of order cycles
• hedge against price increases
• permit operations
• take advantage of quantity discount

7. Objectives of Inventory Control
1. Making Adequate Availability of Inventories:
to ensure the availability of inventories as per
requirements all the times. This is because both shortage
and surplus of inventories prove costly to the organization.
2. Minimizing Costs and Investments in Inventories: to
minimize both costs as well as volume of investment in
inventories in the organization. This is achieved mainly by
ensuring required volume of inventories in the
organization all the times.

8. Objectives of Inventory Control
• The overall objective of inventory management
is to achieve satisfactory level of customer
service while keeping inventory costs within
reasonable bounds. The decision maker will then
try to achieve a balance in stocking.
• Two Fundamental decisions:
Timing
Size of order

9. Measuring the effectiveness of
inventory management
• Customer Satisfaction- by measuring the
number and quantity of backorders and guest
complaint.
• Inventory turnover- Ratio of average cost of
goods sold to average inventory investment.

10. Requirements for Effective Inventory
Management:
• A system to keep track of the inventory on
hand and on order.
• A reliable forecast of demand.
• Knowledge of lead time and lead time
variability.
• Reasonable estimates of inventory holding
costs, ordering costs, and shortage costs.
• Classification System for inventory items.

11. Inventory Counting System
• Periodic system - is the physical count of
items in inventory is made at periodic intervals
(e.g., weekly, monthly) in order to decide how
much to order of each item.
• Perpetual inventory system- (also known as
a continual system) keeps track of removals
from inventory on a continuous basis, so the
system can provide information on the current
level of inventory for each item.

12. Inventory Counting System
• Two-bin system – this system uses two
containers for inventory. Items are withdrawn
from the first bin until its contents are
exhausted. It is then time to reorder.

13. Inventory Counting System
• Point-of-sale (POS) systems- electronically
record actual sales. Knowledge of actual sales
can greatly enhance forecasting and inventory
management: By relaying information about
actual demand in real time, these systems enable
management to make any necessary changes to
restocking decisions.
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