Inventory Control Techniques

1. Topic : Inventory Control Techniques

2.  Inventory control may be defined as “the systematic
control over the procurement, storage and usage of
materials.
 According to L.V Fine, “the planning and
scheduling of materials used in manufacturing
process. it is possible to exercise control over the
three types of inventories recognized by the
accountant as raw-materials, work-in-progress and
finished goods”.

3. INVENTORY CONTROL TECHNIQUES
 MOST COMMONLY USED TECHNIQUE
EOQ
ABC
VED
XYZ
VMI
SAFTY
STOCK
SOS
JIT
FSN

4. ABC Analysis
• In materials management, the ABC analysis (or Selective
Inventory Control) is an inventory categorization technique.
• ABC analysis divides an inventory into three categories- "A
items" with very tight control and accurate records, "B items"
with less tightly controlled and good records, and "C items"
with the simplest controls possible and minimal records.
• ABC analysis provides a mechanism for identifying items that
will have a significant impact on overall inventory cost

5. • 'A' items are very important for an organization. Because
of the high value of these 'A' items, frequent value
analysis is required.
• 'B' items are important, but of course less important than
'A' items and more important than 'C' items. Therefore 'B'
items are intergroup items.
• 'C' items are marginally important

6. Advantages:
• Level of control
• Careful accounting
• Safety stock

7. Disadvantages :
• Listing and calculation is difficult
• There could be some excess stock of C-category items
leading to deterioration
• Some B-category items could be vital, hence needing more
alternation

8. Example of ABC class are
‘A’ items – 20% of the items accounts for 70% of the
annual consumption value of the items.
‘B’ items - 30% of the items accounts for 25% of the
annual consumption value of the items.
‘C’ items - 50% of the items accounts for 5% of the annual
consumption value of the items.
Another recommended breakdown of ABC classes:
"A" approximately 10% of items or 66.6% of value
"B" approximately 20% of items or 23.3% of value
"C" approximately 70% of items or 10.1% of value

9. VED Analysis
 It is one of the inventory management techniques.
 In VED analysis, the items are classified on the
basis of their criticality to the production process
or other services.
 In VED classification of materials,
V stands for – Vital items
E stands for - Essential items
D stands for – Desirable items

10.  Vital items are those without which the
production process would come to a standstill.
 Essential items are those whose stock out
would adversely affect the efficiency of the
production system i.e. temporary losses or
dislocation of production.
 Desirable items which are required but do not
immediately cause a loss of production.

11.  In FSN analysis, items are classified according to their
rate of consumption. The items are classified broadly into
three groups: F – means Fast moving, S – means Slow
moving, N – means Non-moving.
 The items considered to be “active” may be reviewed
regularly on more frequent basis.
 Items whose stocks at hand are higher as compared to their
rates of consumption.
 Non-moving items whose consumption is “nil” or almost
insignificant
FSN Analysis

12. EXAMPLE
 The items are shown in the following
table in a retail store like spencers the
monthly demand in term of unit
percentile classify into FSN analysis .
Component
code
Description Monthly demand
(UNITS)
001 Rice , Wheat 900
002 FRUITS 300
003 VEGITABLE
S
700
004 SUGAR 500
005 ORGANIC
PRODUCTS
100

13. FSN ANALYSIS
ITEMS UNITS PERCENTILE
NO OF UNITS/TOTAL
CUMMULATIVE
PERCENTILE
1 900 36% 36%
2 300 12% 48%
3 700 28% 76%
4 500 20% 96%
5 100 4% 100%
6 2000 - -
Items (1,3) Comes Under Fast Moving, (2,4,5) are is
Slow Moving And(6) Is Non- Moving.

14. THANK YOU