3. Teaching and Learning Objectives
At the end of the class students will be able to
Define inventory control
List the objectives of inventory control
Enlist benefits of inventory control
Explain the methods Inventory control
Discuss the Inventory control techniques
Enumerate the steps in successful Inventory
control
4. Introduction
Inventory Control is the process by which
inventory is measured and regulated according
to predetermined norms such as economic lot
size for order or production, safety stock,
minimum level, maximum level, order level etc.
5. Definition
Inventory control is defined as a scientific
method of finding out how much stock should be
maintained in order to meet the production,
demands & be able to provide right type of
material at right time, in right quantities & at
competitive prices,..
6. Objectives of Inventory Control
• Supply the materials in time
• Give maximum customer service
• Reduce or minimize
• investment in inventories
• shortage of stock
• Minimize idle time by avoiding stock outs and
shortages.
• Meet unforeseen future demand.
• Minimize the losses
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.
8. Core Concept of Inventory Control
Physical control of materials.
Preservation of materials.
Minimization of obsolescence .
Reconciliation of stocks with
book figures
9. Types of Inventory
Official Inventory
Materials lying in the main stores and being
accounted for, but have not been issued to the
user units.
e.g Medical and Surgical items ,dressings, linens,
X ray supplies, laboratrary items etc
10. Unofficial Inventory
The materials have been issued to the user units like the
dispensary, CSSD , Laundry , wards, OPD etc .
In case of forecasting or demand estimation these items
are not taken into consideration, so it is called as un
official inventory.
11. Major Activities of Inventory Control
Planning
and
procurement
Receiving
and
inspection
Storing
and
issuing
Coding of the
received
inventories
Recording
Physical
verification
Follow up
Material
standardization
and substitution
12. Selective Inventory Control Techniques
ABC analysis
VED analysis
SDE analysis
HML analysis
FSN analysis
GOLF
Visual inventory control
Two bin system
Max – Min Approach
13. ABC Analysis
In this method used to classify a business
stock items into three categories – A, B and C,
based on their value to the business used by top
level management
“Always Better Control”
CLASS A: High value items
CLASS B: Medium value items
CLASS C: Low value items
14. Class A: High value items
More costly & valuable items
Large investment but not many (vital few)
Need more clear & careful control
Ordered frequently but less in size
Top inventory staff should have control on
materials.
15. Cont…
Class B: Medium value items
Average usage
Less important than A
But costly enough to have attention
Cannot be overlooked but lesser degree of
control
Class C: low value items
Stored at operative place where people can
help themselves without formality
Loose control
16. Pareto’s Rule
80/20 rule is one of the most helpful
concept in inventory management,
also known as Pareto Principle.
This rule suggests that 20 percent of
input will account for 80 percent of
outcome or results.
17. Cont…
• Several items cannot compute
• Shortage of critical items
• Does not take into account variation
• Ignores market condition, availability etc
• Class C- shortage
• More chance of deterioration
Limitations
18. VED Analysis
Depending on their criticality, and their value in
the operation of the hospital, most of the items
are classified, as Vital, Essential, and
Desirable .
19. Example
Vital items-Absence or shortage of items for short
period can seriously hamper the work of the hospital
E.g. Adrenaline injection.
Essential items - shortage or absence cannot be
tolerated for more than a day E.g. Transfusion
fluids.
Desirable items- which are definitely needed, but
the work can continue even without them.
E.g.Aspirin, vitamins.
20. HML Analysis
In this case, instead of the consumption value of
items, their unit value is considered for
classification.
Cost per item (per unit) is considered for this
analysis .
High cost Medium cost Low cost
21. Example
H - Unit value > 1000
(Sanctioned by higher
officials)
M - Unit value
100 to 1000
L - Unit value
< 100
22. SDE Analysis
Based upon the availability position of an item.
Scare items
Difficult items
Easily available items
25. • Government suppliers: Transactions with
these suppliers involve long clerical
processing and the lead time will be long.
• Ordinary suppliers: The quality and
continuity of supply is good.
26. CON’T
Local suppliers: From whom cash purchases are
generally made. They are usually in the market
areas of cities.
Foreign suppliers: Foreign suppliers will involve
heavy clerical work—starting with government
clearance, e.G. Obtaining an import license for
customs clearance before the foreign source of
supply is contracted.
27. Visual Inventory Control
It is a basic inventory management system by
looking at the stock we can determine when the
actual stock is needed.
28. Minimum Stock
It refers to the minimum quantity of
a particular item of material that
must be kept in the stores at all
times.
The fixation of this level acts as a
safety measure and hence, it is
also known as ‘Safety Stock‘ or
‘Buffer Stock‘.
29. Maximum Stock
This is the pre determined
limit beyond which the
stock of an item should not
be allowed to go in normal
course.
30. Two Bin System
Perpetual inventory system where the
stock of each item is held in two bins
one larger bin contains sufficient stock to
meet the demands during the interval
between the arrival of a order and
placing of a next order.
other bin containing stocks large
enough to satisfy probable demands
during the period of replenishment.
32. Economic order quantity
It prescribes the size of the order at which the
ordering cost and inventory carrying cost will be
minimum.
33. Eight steps for successful Inventory
Management System
Setting of “
par levels”
First-In First-Out
(FIFO)
Manager
relationship
Contingency
planning
Regular auditing
Prioritize with ABC
Accurate forecastin
g & Dropshipping
34. Setting of “ par levels”
Setting of “ par
levels” Par levels are the minimum amount of product that must be
on hand at all times.
36. Manager Relationship
• Important to have a strong
relationship with the suppliers will
ensure the successful inventory
management
37. Core concept of Inventory Control
Contingency Planning
is a course of action designed to help an organization respond effectively to
a significant future event or situation that may or may not happen.
38. Prioritize with ABC
Prioritize
with ABC
High-value
products with
a low frequency
of sales
Moderate value
products with
a moderate
frequency of sales
Low-value
products with a high
frequency of sales
39. Accurate forecasting- Predicting the
Demand
Trends in the
market
Last year’s
sales during
the same
week
This year's
growth rate
Guaranteed
sales from
contracts and
subscriptions
Seasonality
and the
overall
economy
Upcoming
promotions
40. Dropshipping
• It is a retail fulfillment method where a
store doesn't keep the products,
• Instead it purchases the item from a third
party and shipped directly to the
customer.
41. Conclusion
Inventory management has to do with
keeping accurate records of goods that are
ready for utilization also it is an important
management tool which will be very useful in
getting the right quality & right quantity of
supplies at right time for proper management.