The document discusses various inventory control techniques including ABC analysis, VED analysis, and fixed order quantity systems. It describes how inventory turnover ratio is calculated and what it indicates about how quickly a company is selling and replacing stock. Classification methods for materials in inventory and concepts like reorder point are also covered.

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Presented By
Dr. Niraj Chaudahri
Assistant Professor,
Sanjivani College of Engineering ,
Dept.of MBA,
Kopargaon
1
Sanjivani College of Engineering, Kopargaon
Department of MBA
www.sanjivanimba.org.in
203- Operation Management
Topic :- Inventory Control

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Inventory control
• Inventory control is the process of keeping the right
number of parts and products in stock to avoid
shortages, overstocks, and other costly problems.
• By using inventory control, you are able to protect
against making rash decisions and you also avoid the
pain and expense that come from overstocking on
inventory
• inventory control helps you maintain control over
your inventory levels so that you make the best use
of your resources and avoid product spoilage and
obsolescence

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Classification of Materials in Inventory
1. ABC
2. VED
3. HML
4. FSN
5. GOLF
6. SOS

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ABC Analysis

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VED

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HML

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FSN

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GOLF

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SOS

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Inventory turnover ratio
• Inventory turnover indicates the rate at which a
company sells and replaces its stock of goods during a
particular period. The inventory turnover ratio formula
is the cost of goods sold divided by the average
inventory for the same period.
• Inventory turnover is the rate at which a company
replaces inventory in a given period due to sales.
Calculating inventory turnover helps businesses make
better pricing, manufacturing, marketing, and
purchasing decisions

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Fixed Order Quantity
• The Fixed Order Quantity is the inventory control
system, wherein the maximum and minimum
inventory levels are fixed, and maximum and fixed
amount of inventory can be replenished at a time
when the inventory level reaches the auto set
reorder point or the minimum stock level
• The Fixed Order Quantity system is followed by many
firms since it helps to reduce the reorder mistakes,
manage the storage capacity efficiently and prevent
the unnecessary blockage of funds

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Periodic Review inventory
• The periodic inventory system uses an
occasional physical count to measure the level
of inventory and the cost of goods sold
(COGS).
• Periodic inventory accounting systems are
normally better suited to small businesses,
while businesses with high sales volume and
multiple retail outlets (like grocery stores or
pharmacies) need perpetual inventory
systems.

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The reorder point (ROP)
• The reorder point (ROP) is the minimum
inventory or stock level for a specific
product that triggers the reordering of more
inventory when reached. When calculating
the reorder points for, the lead time it will
take to replenish inventory is factored in to
ensure inventory levels don't reach zero.