FUNCTIONS OF INVENTORIES
 BASICALLY INVENTORIES ARE IDLE RESOURCES
MAINTAINED IN VARIOUS FORMS.
 RAW MATERIALS
 PURCHAS...
FIVE CATEGORIES OF STOCK
 PIPE LINE STOCK (in process stock, in transit stock): it
can be reduced only by improved design...
INVENTORY RELATED COSTS
 PROCUREMENT COSTS:(cost per order is generally
fixed and not dependant on order quantity)
 COST...
PROCUREMENT COSTS
 Procurement costs cost of goods
cost per order is generally fixed
(not dependent on order quantity) or...
INVENTORY HOLDING COSTS
 COSTS ASSOCIATED WITH EXISTENCE OF
INVENTORIES:( supply exceeds demand):
cost/unit/unit time
iC
...
STORAGE COSTS
• COSTS ASSOCIATED WITH STOCK OUTS: (demand
exceeds supply)
(cost/unit) or (cost/unit/unit time)
 Additiona...
SELECTIVE INVENTORY CONTROL
 In a large number there are
 Significant few
 Insignificant many PARETO’S LAW
 Typical or...
Objective of ABC analysis
rationalization of ordering policies:
Equal treatment to all:
Annual
consumption
value(rs)
No: o...
Preferential treatment on the basis
of ABC analysis
Annual
consumption
value(rs)
No: of orders Value per
order
Average
inv...
Determination of reorder point
Policy implications of selective
inventory control
Basic inventory principles
Basic inventory principles
Upcoming SlideShare
Loading in …5
×

Basic inventory principles

768 views

Published on

Published in: Business, Economy & Finance
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
768
On SlideShare
0
From Embeds
0
Number of Embeds
2
Actions
Shares
0
Downloads
30
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Basic inventory principles

  1. 1. FUNCTIONS OF INVENTORIES  BASICALLY INVENTORIES ARE IDLE RESOURCES MAINTAINED IN VARIOUS FORMS.  RAW MATERIALS  PURCHASED AND MANUFACTURED PARTS  SUB ASSEMBLIES  FINISHED PRODUCTS Since inventories represent a sizable investment in a logistic system, we must be aware of the functions they perform.
  2. 2. FIVE CATEGORIES OF STOCK  PIPE LINE STOCK (in process stock, in transit stock): it can be reduced only by improved design of the system.  CYCLE STOCKS (batch production owing to - economies of scale - technological requirements ) • SEASONAL STOCK(time varying requirements of an item) • SAFETY STOCK (supply and demand un certainties, lead time un certainties) • STOCKS HELD FOR OTHER REASONS (-decoupling stages of production, price, quantity discounts and speculation) -
  3. 3. INVENTORY RELATED COSTS  PROCUREMENT COSTS:(cost per order is generally fixed and not dependant on order quantity)  COSTS ASSOCIATED WITH EXISTENCE OF INVENTORIES:( supply exceeds demand): cost/unit/unit time iC inventory carrying cost rate • COSTS ASSOCIATED WITH STOCK OUTS: (demand exceeds supply) (cost/unit) or (cost/unit/unit time)
  4. 4. PROCUREMENT COSTS  Procurement costs cost of goods cost per order is generally fixed (not dependent on order quantity) ordering cost - Administrative component - Handling - Transportation - Inspection of arrivals
  5. 5. INVENTORY HOLDING COSTS  COSTS ASSOCIATED WITH EXISTENCE OF INVENTORIES:( supply exceeds demand): cost/unit/unit time iC inventory carrying cost rate -storage and handling -interest on tied up capital -property taxes -insurance -spoilage -obsolescence -pilferage
  6. 6. STORAGE COSTS • COSTS ASSOCIATED WITH STOCK OUTS: (demand exceeds supply) (cost/unit) or (cost/unit/unit time)  Additional costs of special order  Back order if possible  Loss of customer goodwill  Lost sales
  7. 7. SELECTIVE INVENTORY CONTROL  In a large number there are  Significant few  Insignificant many PARETO’S LAW  Typical organizations deal with a large variety of stocked items (10000-100000 is not uncommon) Depending on rankings of Value (∑(annual demand * unit price))=ABC analysis (Always Better Control) Criticality (Vital , Essential, Desirable)= VED analysis Usage frequency= FSN analysis  SUITABLE POLICIES CAN BE CHOSEN BASED ON PRODUCT CHARACTERISTICS
  8. 8. Objective of ABC analysis rationalization of ordering policies: Equal treatment to all: Annual consumption value(rs) No: of orders Value per order Average inventory 1 60000 4 15000 7500 2 4000 4 1000 500 3 1000 4 250 125 Total inventory=8125
  9. 9. Preferential treatment on the basis of ABC analysis Annual consumption value(rs) No: of orders Value per order Average inventory 1 60000 8 7500 3750 2 4000 3 1333 667 3 1000 1 1000 500 Total inventory=4917
  10. 10. Determination of reorder point
  11. 11. Policy implications of selective inventory control

×