1. 12 - 1© 2011 Pearson Education, Inc. publishing as Prentice Hall
12 Inventory
Management
Shajer ali
Mekal ahsan
M.Tahir
Adeel yousaf
Fahad kabir
Ahmed Fawad

2. 12 - 2© 2011 Pearson Education, Inc. publishing as Prentice Hall
Inventory ManagementInventory Management
The objective of inventoryThe objective of inventory
management is to strike a balancemanagement is to strike a balance
between inventory investment andbetween inventory investment and
customer servicecustomer service

3. 12 - 3© 2011 Pearson Education, Inc. publishing as Prentice Hall
Importance of InventoryImportance of Inventory
 One of the most expensive assets
of many companies representing as
much as 50% of total invested
capital
 Operations managers must balance
inventory investment and customer
service

4. 12 - 4© 2011 Pearson Education, Inc. publishing as Prentice Hall
Functions of InventoryFunctions of Inventory
1. To decouple or separate various
parts of the production process
2. To decouple the firm from
fluctuations in demand and
provide a stock of goods that will
provide a selection for customers
3. To take advantage of quantity
discounts
4. To hedge against inflation

5. 12 - 5© 2011 Pearson Education, Inc. publishing as Prentice Hall
Types of InventoryTypes of Inventory
 Raw material
 Purchased but not processed
 Work-in-process
 Undergone some change but not completed
 A function of cycle time for a product
 Maintenance/repair/operating (MRO)
 Necessary to keep machinery and
processes productive
 Finished goods
 Completed product awaiting shipment

6. 12 - 6© 2011 Pearson Education, Inc. publishing as Prentice Hall
The Material Flow CycleThe Material Flow Cycle
Figure 12.1
Input Wait for Wait to Move Wait in queue Setup Run Output
inspection be moved time for operator time time
Cycle time
95% 5%

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Managing InventoryManaging Inventory
1. How inventory items can be
classified
2. How accurate inventory records
can be maintained

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ABC AnalysisABC Analysis
 Divides inventory into three classes
based on annual dollar volume
 Class A - high annual dollar volume
 Class B - medium annual dollar
volume
 Class C - low annual dollar volume
 Used to establish policies that
focus on the few critical parts and
not the many trivial ones

9. 12 - 9© 2011 Pearson Education, Inc. publishing as Prentice Hall
C Items
ABC AnalysisABC Analysis
A Items
B Items
Percentofannualdollarusage
80 –
70 –
60 –
50 –
40 –
30 –
20 –
10 –
0 – | | | | | | | | | |
10 20 30 40 50 60 70 80 90 100
Percent of inventory items
Figure 12.2

10. 12 - 10
VED Analysis
 Vital
 Essential
 Desirable

11. 12 - 11© 2011 Pearson Education, Inc. publishing as Prentice Hall
Independent VersusIndependent Versus
Dependent DemandDependent Demand
 Independent demandIndependent demand - the
demand for item is independent
of the demand for any other
item in inventory
 Dependent demandDependent demand - the
demand for item is dependent
upon the demand for some
other item in the inventory