Just a collection of details from experience and search in web.

3. ◦ This presentation is just a compilation of details expressed
by experts in the field and compilation of details from the
web / Google Search / Network.
◦ This presentation is just to re-fresh, Supply Chain Fraternity
on this subject (inventory)

6.  In the Western World Inventory is always seen as Asset
 Inventory was considered as hedge against uncertainties.
 To make up for wrong forecasts, set up times, machine
breakdowns or quality problems, inventory was considered
“JUST- IN- CASE” inventory.

7. ◦ Nations food reserve
◦ Water reservoirs (dams / lakes / river)
◦ Nations defense forces (fighter planes, warships, army)
◦ Nations natural resources (minerals etc.,)
◦ Finished Goods, To meet customer demand
◦ Competitive environment, Powerful business promotion tool
(if controlled and monitored)
◦ Inventory is life-blood of any supply chain

8.  In Japan inventory is seen as liability
 Just in Time – philosophy considered - inventory as an excuse
for bad management performance

9.  Inventory Carrying Cost of Inventory is highly influencing
factor in business profitability.
 Inventory Carrying Cost include
◦ Employee Cost
◦ Opportunity Cost
◦ Cost of Capital
◦ Risk of obsolescence

10. Although the Japanese approach has merit, it is still believed that inventories are
inevitable. Listening to the “Just-in-Time” proponents, one might get that
impression that business can run without inventory. However this is not true. Only
under hypothetical conditions where every production facility in a supply chain
has an infinite production capacity, can supply chain work without inventory.
Otherwise one always needs Finished Goods Inventory, one will always carry
Work-in-Process, and one will need Raw Material inventories. Businesses, which
demand Just-in-Time deliveries from their suppliers, tend to forget that these
suppliers usually need some inventory to react to the customers’ demand.
Although collaborative planning can reduce inventory levels considerably
throughout the supply chain, inflexibility in production capacity (capacity
constraints) will result in certain inventories. So in general that production
environments cannot operate without stock

11.  Nature
◦ Seasonal
◦ Geographical
 Non unit flow
◦ Various process with varied process time
 High Volume Productions with intensive automation
 Conflicting objectives even within a single firm
◦ Marketing/Sales wants: more FGI inventory, fast
delivery, many package types, special
wishes/promotions
◦ Production wants: bigger batch size, depots at
factory, latest ship date, decrease changeovers,
stable production plan
◦ Distribution wants: full truckload, low depot costs, low
distribution costs, small # of SKUs, stable distribution
plan

12.  Sun light available in Day
 Dams / Water Reservoir gets filled up during Rain
Season
 Demand for wool cloth in Winter
 Cotton grown in Egypt
 Coffee grown in Brazil
 Bauxites (aluminium ore) available in Brazil, Russia,
Australia and India
 Lead available in China & Australia
 Diamonds available in Africa

13.  In Engineering Industries various processes are with varied process
time. Heat Treatment and Surface finishing process such as painting /
plating / anodizing requires bulk quantities.
 Even various machining process like milling, turning, grinding etc., are
with different cycle time of manufacturing.
 Natural Gases / Petroleum Products can be transported in bulk
containers
Lead Mine Production in Europe – 200MT
Lead Metal Production in Europe – 1500MT
There is a gap of 1300MT, which need to be procured from rest of the
world in varying lots.

14. High Inventory Leads to
•Risk of obsolescence
•deterioration
•Theft
•Occupying more storage space
•Poor turn over ratio
Hence, having optimum stock level is important.

15.  Stocks in the form of raw materials and finished goods
often represent a significant investment.

16.  The business needs enough stocks to satisfy customer
demands in terms of volume, range and delivery lead
times.

17. High stock levels increase the risk of
Obsolescence
Deterioration
& Theft
• Hence business should aim for high stock turnover with
systematic ordering in line with economic batch
quantities.

18. Good Stock Control minimizes the risk either holding
too much or too low of stocks

20.  ABC Analysis / Paretto Analysis
 Standardization
 Uniform Codification – popularly used for on-line sales
 Multi Echelon Inventory
 JIT / Kanban
 Product Mix
 Networking / Better Communication
 Serviceability (Repairs)
 Logistics Solutions

21.  Developed by Mr.Vilfredo Pareto, Italian Economist
 Vital Few, Trivial Many
 Classic way of giving importance to High
Value (in terms of consumption) and thus
controlling inventory levels.

22.  Reduction in varieties
 Better availability
 Serviceability
 Reduced cost of procurement
 Shorter Lead time
 Less Inventory

23.  To have delivery centre close to the customer
 Avoid / Manage “Bull Whip” effect
 To look at inventory as whole instead of looking individually at every
delivery centre

24. Demand flow
Supplier Manufacturer RetailerDistributor
Product
flow

25. Timely, accurate information flow
Supplier Manufacture Distributor Retainer
Smooth, continual
product flow matched
to demand

26.  Kanban: A Japanese term. The actual term means "signal".
 It is one of the primary tools of JIT system.
 It signals a cycle of replenishment for production and materials.
 It maintains an orderly and efficient flow of materials throughout the
entire manufacturing process.
 It is usually a printed card that contains specific information such as part
name, description, quantity, etc.
 Japanese philosophy – “JUST IN TIME” Inventory

27.  Having right product mix will ensure inventory levels at
controllable levels.

28.  Today with on-line sales through various platforms important to
uniform codes / part numbers for the products to monitor
stock levels.

29.  An important element that cannot be ignored to-day.
 Entering into 4th
industrial revolution, Digitalization and
Communication Networking highly Essential
 Information technology and ERP Systems should be used
extensively so that stock at different places are exchanged
and utilized.

30.  Providing good service (minor repairs) / providing knowledge on
right use of products will reduce panic with customer and thus
reduces warranty replacements.
 With increased on-line sales products need to be installed through
service centers in a short period to avoid returns.

31.  Shorter Lead time by Logistics provides customer confidence on
getting materials on right time.
 This avoids extra ordering / canceling.
 Right selection of freight carrier is an important exercise.
 Between the countries and within the country Natural Gas / LPG pipe
lines are laid for continuous flow of materials and with lesser cost
(Initial investment is high).

33.  Measuring Inventory levels can be compared to measuring the
blood pressure of a supply chain.
 Inventory is measured in standard measurable units
◦ Reservoir Level – 100 feet / 30 Metres
◦ Food Stock - Wheat – 50 million tons
◦ ABC India Stock – Rs.150 million

34. • Inventory Turnover: how often the company replenishes
inventory. High value of inventory turnover means that the
inventory was not sitting around a long time.
• Weeks of Supply: how many weeks worth of inventory does
the company have on hand. High value of weeks of supply
means that the firm has a lot of inventory sitting around.

35.  Inventory is evaluated by its consumption value
◦ Reservoir will provide water for 15 days / for 10 million
hectare land
◦ Food reserve sufficient for 9 months / 1mn persons
◦ ABC India inventory will take care of 2 months invoice
value.

38.  What it is:
This ratio tells how often a business' inventory turns over during the course
of the year. Because inventories are the least liquid form of asset, a high
inventory turnover ratio is generally positive. On the other hand, an
unusually high ratio compared to the average for your industry could
mean a business is losing sales because of inadequate stock on hand.
 When to use it:
If your business has significant assets tied up in inventory, tracking your
turnover is critical to successful financial planning. If inventory is turning too
slowly, it could indicate that it may be hampering your cash flow. Because
this ratio judges annual inventory turns, it is usually conducted once a year.
 The formula:
Cost of goods sold divided by the average value of inventory.

39.  Raw Material Stores inventory is expressed as DOC (Days Of
Consumption for production)
 Stores Inventory = Stock Value on a given date / Stock Value
required for making one day production

40.  Finished Products Stores inventory is expressed as DOS
(Days Of Sales)
 Finished Products Stores Inventory = Stock Value on a
given date / Sales (Invoices Value) Value Per Day.

41. Thank You