This document discusses various methods of inventory control, including ABC analysis, VED analysis, FSN classification, SDE classification, HML classification, economic order quantity, lead time method, buffer stock, and SOS classification. It defines each method and explains how inventory items are categorized and classified in order to determine appropriate inventory levels and control strategies. The overall goal of inventory control is to maintain an optimal level of inventory to meet demand while minimizing costs.

1. METHODS OF
INVENTORY CONTROL
ARATHY R NATH
5th year pharmD

2. 10/14/2018 XIDAS, INVENTORY CONTROL 2
Inventory means…
All the materials , parts, suppliers, expenses and in
process or finished products recorded on the books by an
organization and kept in its stocks, warehouses or plant
for some period of time.

3. TYPES OF INVENTORIES
• Raw materials
• Purchased parts and supplies
• Finished goods
• Work- in- process
• Items being transported
• Tools and equipment

4. 10/14/2018 XIDAS, INVENTORY CONTROL 4
Definition of inventory control
Inventory control is the technique of maintaining the size
of the inventory at some desired level keeping in view the
best economic interest of an organization.

5. Objectives of Inventory Control
• To meet unforeseen future demand due to variation in
forecast figures and actual figures.
• To average out demand fluctuations due to seasonal or
cyclic variations.
• To meet the customer requirement timely, effectively,
efficiently, smoothly and satisfactorily.
• To smoothen the production process.
• To facilitate intermittent production of several products
on the same facility.
• To gain economy of production or purchase in lots.

6. • To reduce loss due to changes in prices of
inventory items.
• To meet the time lag for transportation of goods.
• To meet the technological constraints of
production/process.
• To balance various costs of inventory such as order
cost or set up cost and inventory carrying cost.
• To balance the stock out cost/opportunity cost due
to loss of sales against the costs of inventory.
• To minimize losses due to deterioration,
obsolescence, damage, pilferage etc.
• To stabilize employment and improve labour
relations by inventory of human resources and
machine efforts.

7. Benefits of Inventory Control
• Ensures an adequate supply of materials
• Minimizes inventory costs
• Facilitates purchasing economies
• Eliminates duplication in ordering
• Better utilization of available stocks
• Provides a check against the loss of materials
• Facilitates cost accounting activities
• Enables management in cost comparison
• Locates & disposes inactive & obsolete store items
• Consistent & reliable basis for financial statements

8. Functions of Inventory Control
 To assess the material requirement methodically and
to obtain the materials and supplies in the required
quantity at the lowest cost at the proper time to
maintain operational efficiency.
 To keep the inventories as low as possible consistent
with market conditions.
 To minimize stock out situations that result in cash
purchases at uneconomical rates.
 To forecast market and economic conditions of
supply for availability of material.
 To maintain proper records.

9. Inventory control Techniques
1. ABC Method
2. VED Analysis
3. Lead Time
4. E.O.Q
5. Buffer stock
6. FSN classification
7. HML classification
8. SDE classification
9. SOS classification

10. ABC Method
• All ways Better Control Method
• Also known as stock control according to value
method.
• All the medicines are divided in to three categories
such as A, B, C based on the cost.
• A category items are costly items.
• B items are medium cost
• C items are cheap

11. Group % Of items % Of Costs
A
B
C
8
25
67
75
20
5

12. Procedure for ABC Analysis
• Make the list of all items of inventory.
• Determine the annual volume of usage & money value of each item.
• Multiply each item’s annual volume by its rupee value.
• Compute each item’s percentage of the total inventory in terms of
annual usage in rupees.
• Select the top 10% of all items which have the highest rupee
percentages & classify them as “A” items.
• Select the next 20% of all items with the next highest rupee
percentages & designate them “B” items.
• The next 70% of all items with the lowest rupee percentages are “C”
items.

13. 1 .Abc analysis (Always bettercontrol)
A ITEMS B ITEMS C ITEMS
10% of total
inventory
20% 70%
Consumes 70% of
total budget
20% 10%
Strict control Moderate control loose control
Requires no safety
stocks
Requires low safety
stocks
Requires high safety
stocks
Maximum follow up Periodic follow up close follow up
Handled by senior
officers
middle management any official of the
management
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14. Advantages of ABC Analysis
• Helps to exercise selective control
• Gives rewarding results quickly
• Helps to point out obsolete stocks easily.
• In case of “A” items careful attention can be paid at every
step such as estimate of requirements, purchase, safety
stock, receipts, inspections, issues, etc. & close control is
maintained.
• In case of “C” items, recording & follow up, etc. may be
dispensed with or combined.
• Helps better planning of inventory control
• Provides sound basis for allocation of funds & human
resources.

15. Disadvantages of ABC Analysis
• Proper standardization & codification of inventory items
needed.
• Considers only money value of items & neglects the
importance of items for the production process or
assembly or functioning.
• Periodic review becomes difficult if only ABC analysis is
recalled.
• When other important factors make it obligatory to
concentrate on “C” items more, the purpose of ABC
analysis is defeated.

16. II .Ved analysis
V - Vital
E - Essential
D - Desirable
 Utility and essentiality of the item are the dominating factors.
16

17. • VED analysis is based on the importance of the item and
its effect on functioning and efficiency of a hospital.
• Vital drugs (v) : whose absence (NO STOCK)cannot be
tolerated even for a single day.
• Essential drugs (E): those drugs without which a hospital
can function but may affect the quality of service to some
extent but not to serious extent.
• Desirable drugs (D):those whose absence will not affect
the functioning of hospital and it can be managed at lower
level managers

18. • It is useful in capital intensive industries,
transport industries, etc.
• VED analysis can be better used with ABC
analysis in the following pattern:
Category “V” items “E” items “D” items
“A” items Constant control
& regular follow
up
Moderate stocks Nil stocks
“B” items Moderate stocks Moderate stocks Low stocks
“C” items High stocks Moderate stocks Very low stocks

19. FSN Analysis
• FSN: Fast moving, slow moving & non moving
• Classification is based on the pattern of issues from
stores & is useful in controlling obsolescence.
• Date of receipt or last date of issue, whichever is later, is
taken to determine the no. of months which have lapsed
since the last transaction.
• The items are usually grouped in periods of 12 months.
• It helps to avoid investments in non moving or slow items.
It is also useful in facilitating timely control.

20. • For analysis, the issues of items in past two or three
years are considered.
• If there are no issues of an item during the period, it
is “N” item.
• Then up to certain limit, say 10-15 issues in the
period, the item is “S” item
• The items exceeding such limit of no. of issues
during the period are “F” items.
• The period of consideration & the limiting number of
issues vary from organization to organization.

21. Sde classification
S – Scarce
D - Difficult To get or procure
E - Easy
 classification is based on lead time
(LEAD TIME :time taken between the placing of order and
receipt of drugs to the department,)
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22. • `S`refers to scarce items which are know to be in short
supply because of various reasons.
• `D` items are of difficult items which may bedifficult to
obtain in adequate quantity or quality immediately.
• `E` items are items which are easily available and no
difficulty is experienced in purchase and procurement

23. Hml classification
 classification based on weight of the items.
H – HEAVY WEIGHT
M – MEDIUM WEIGHT
L - LIGHT WEIGHT
Advantage :
useful in the storage and display of items in the stores.
23

24. V E D
H defibrilator X-ray machine Air curtain
M Ventilator Electric cautry USG machine
L Oxygen regulator Patient trolly Electronic bp ap

25. Safety stock(buffer stock)
• Minimum level of inventory to cover unforeseen and uncalled
for situation
or
Minimum quantity of particular item that should be kept in
store at all the times
• Protect against variation in demand and procurement period
• Used in emergencies

26. Factors affecting stock
• Uncertainty in demand
• Uncertainty in lead time
• Degree of insurance at for an item
• Nature of item and rate of consumption
• Size of batch
• Availability of substituent's

27. It can be determined by
Buffer stock = [m-a] n
a – avg. consumption /day
n – lead time

28. EOQ( economic order quantity)
EOQ (Economic Order Quantity)
One of the best known models for inventory control
is the economic order quantity (EOQ). The purpose of this
model is to answer two important questions:
• When should an item be reordered (resulting in
procurement cost)? and
• What quantity should be ordered (resulting in carrying or
holding cost)? Thus the model can be used to determine
how much inventory needs to be carried to meet demand.

29. • . The formula for calculating EOQ is:
EOQ = 2*D*PC
ICC*UC
Where,
D = annual demand (in units)
PC = procurement cost (cost to place one order)
ICC = inventory carrying cost (as % of unit cost)
UC = unit costs

30. LEAD TIME METHOD
• It is the time taken between the placing of order and
receipt of drugs to the department. The longer the lead
time, the larger is the safety stock, resulting in excess of
investment in inventories. As far as possible efforts should
be made to decrease the lead time for effective inventory
control.

31. SOS CLASSIFICATION
• Sos analysis is based on seasonality of items and it
classifies all the items into two categories, `seasonal` and
`off seasonal`.
This analysis helps in :
 Identifying the items that are available only during a
limited period of the year.
 Identifying the items that are seasonal but available
throughout theyear however their costs in offseason are
relatively high