This document discusses inventory management techniques for businesses. It covers the need to balance inventory levels to ensure continuous production while minimizing costs. It describes different inventory control methods like ABC analysis, economic order quantity models, order points, and safety stock. It also lists the various costs of holding too much or too little inventory such as carrying costs, opportunity costs, and risks of price changes or obsolescence.

1. Inventory Management

2. In this chapter… Need and Importance of Inventory Management… Inventory Management Techniques… Order quantity – EOQ Model… Order Point… Safety Stock… Selective Inventory Controls… ABC Analysis…

3. Inventory… The aggregate of raw materials; work-in-process; finished goods and stores and spares. Components are: Raw Materials. WIP Finished Products. Stores & Spares.

4. Transaction motive Precautionary motive Speculative motive Motives of Holding Inventory…

5. Objectives… Ensure continuous supply of materials Facilitate interrupted production Maintain optimum stock of inventory Minimize inventory cost

6. Need for Balanced Investment in Inventory… Consequences of Excessive Investment in Inventory Block of funds Loss of liquidity Mishandling of inventory Increases carrying cost Physical deterioration Consequences of inadequate investment in Innovation Disturbs production Unable to deliver goods on delivery date Loss of customers

7. Costs of holding Inventory… Ordering Costs : The fixed clerical cost of placing and receiving an inventory order Carrying Costs : The variable costs per unit of holding an item in inventory for a period

8. Risk of Holding Inventory… Price decline Product deterioration Product obsolescence

9. Tools of Inventory Control… ABC analysis EOQ Order point problem Two-bin technique VED classification HML classification SDE classification FSN classification JIT technique