The document discusses various aspects of inventory management including types of inventory, key activities involved, analysis methods like ABC analysis and Kraljic matrix, and policies for different inventory classes. It explains determining reorder points and economic order quantities using models that consider factors like demand rate, lead time, safety stock and ordering/carrying costs. The importance of accurate record keeping through tools like stock cards and books is also highlighted.

1. INVENTORY MANAGEMENT By: Mubarak Al-Mansouri

2. OPTIMAL USE OF KEY RESOURCES STORES AND SPARES INVENTORY

3. KEY BUSINESS RESOURCES (5 ‘M’s TO BE MANAGED) Men Materials Machine Money Minute (Time)

4. Inventory Management Means… Properly maintaining adequate stocks to ensure uninterrupted service

5. Inventory (Types) : Production inventories : that enter the firm’s product in the production process such as Raw Materials, Consumable Stores, Spares etc MRO inventories : Maintenance, Repair and operating supplies which are consumed in the production process but which don’t become part of the product (lubricating oil, soap, Bought out standard parts, Components and sub-assemblies,Tools,measuring Instruments)

6. Inventory (Types) : In-process inventories : Semi-finished products found at different stages of production Finished goods inventories : Completed products ready for shipment

7. Inventory Management Involves Knowing… What and how much stock you have When to order fresh supplies What and how much has been ordered, when it was ordered Where all supplies are stored When and how much fresh stock was received, and by whom

8. Inventory Management Involves Doing… Kraljic Purchasing Portfolio Analysis ABC / Pareto Analysis Determining when to re-order Determining when to re-order Economic Order Quantity and Inventory Costs Performing a “stock count” Maintaining proper inventory records

9. Kraljic’s supply matrix Low Spending High High Supply risk Low Bottleneck items *Supplier’s technology critical *Difficult to substitute *Unique requirements Critical items *Unique specifications *Supplier’s technology critical *Difficult to substitute *Unique specifications Non-critical items *Many suppliers available *Easy-to-find substitute products Leverage items *Large volume purchases *can find substitutes *many suppliers available

10. ABC Classification Class A 5 – 15 % of units 70 – 80 % of value Class B 30 % of units 15 % of value Class C 50 – 60 % of units 5 – 10 % of value

11. ABC Classification: Example 1 $ 60 90 2 350 40 3 30 130 4 80 60 5 30 100 6 20 180 7 10 170 8 320 50 9 510 60 10 20 120 PART UNIT COST ANNUAL USAGE

12. ABC Classification: Example (cont.) Example 10.1 1 $ 60 90 2 350 40 3 30 130 4 80 60 5 30 100 6 20 180 7 10 170 8 320 50 9 510 60 10 20 120 PART UNIT COST ANNUAL USAGE TOTAL % OF TOTAL % OF TOTAL PART VALUE VALUE QUANTITY % CUMMULATIVE 9 $30,600 35.9 6.0 6.0 8 16,000 18.7 5.0 11.0 2 14,000 16.4 4.0 15.0 1 5,400 6.3 9.0 24.0 4 4,800 5.6 6.0 30.0 3 3,900 4.6 10.0 40.0 6 3,600 4.2 18.0 58.0 5 3,000 3.5 13.0 71.0 10 2,400 2.8 12.0 83.0 7 1,700 2.0 17.0 100.0 $85,400 A B C % OF TOTAL % OF TOTAL CLASS ITEMS VALUE QUANTITY A 9, 8, 2 71.0 15.0 B 1, 4, 3 16.5 25.0 C 6, 5, 10, 7 12.5 60.0

13. Determine How Much to Re-order Maximum usage – number of Items used in a given time period Safety Stock : The minimum number of items you must have on hand at all items Economic Order – the number of items that should reordered at Quantity (EOQ) one time , usually based on a vendor’s price for particular quantity ordered. Lead Time (Days) : The amount of Time between ordering and delivery Re-order the point at which items should be reordered so that their quantity does not fall below the safety stock during the lead time.

14. Determine How Much to Re-order Demand rate Time Lead time Lead time Order placed Order placed Order receipt Order receipt Inventory Level Reorder point, R Order quantity, Q 0

15. Determine When to Re-order Reorder point, R Q LT Time LT Inventory level 0 Safety Stock

16. Continuous Review

17. Periodic Review

18. Assumptions of Basic EOQ Model Demand is known with certainty and is constant over time No shortages are allowed Lead time for the receipt of orders is constant Order quantity is received all at once

19. EOQ Cost Model Order Quantity, Q Annual cost ($) Total Cost Carrying Cost = C c Q 2 Slope = 0 Minimum total cost Optimal order Q opt Ordering Cost = C o D Q

20. Perform a “Stock Count” All stock must be accounted for. Everything that comes in and goes out must be recorded. What is it? Physically counting each item in the inventory When is it done? In the beginning of each month recommended Who does it? A designated person

21. Maintain Proper Inventory Records Stock Card Simple, heavyweight cards Kept for each item in stock Stock Book or Computer Record Contains listing of all items in the warehouse Update monthly after physical count Use information from stock cards

22. Stock Card: An Example Item Name: __________ Unit: ___________ Manufacturer: ________________________ Minimum Stock (Re-Order Level): ___________ Date Received From Issued to Quantity Received Quantity Issued *Balance Lot # Signature

23. Stock Book: An Example Item Name Qty (units) Requested Date Requested Qty Received Date Received Lot # Expiry Date

24. Suggested Policy Guidelines for A,B & C classes of item A items (High) B items (Moderate) C items (Low ) Very strict control Moderate Control Loose control No or very low safety stock Low safety stock High safety stock Phase delivery (Weekly) Once in 3 months Once in 6 months Weekly control report Monthly control report Quarterly report Maximum follow up Periodic follow up Exceptional

25. Suggested Policy Guidelines for A,B & C classes of item A items (High) B items (Moderate cons. Val) C items (Low ) As many sources as possible Two or more reliable Two reliable Accurate forecasts Estimates on past data Rough estimate Central purchasing / storage Combination purchasing Decentralised Max. efforts to control LT Moderate Min. clerical efforts To be handled by Sr. Officers Middle level Can be delegated

26. Summary What does inventory management mean? What information is recorded in inventory record-keeping? How do you determine minimum stock level? How do you determine proper full inventory level?

27. Key Messages Maintain an adequate inventory at all time to ensure uninterrupted service. Don’t let any item run out before re-order. Never order more than your storage space can hold. Never order more supplies than you can use before they are expired. All items in the inventory must be accounted for and recorded. Always inspect new shipment before accepting.