This presentation helps viewers to get an idea about the concept of inventory management

1. INVENTORY
MANAGEMENT
by
Dr.K.P.Malathi Shiri
Inventory = raw material work-
in -progress + finished goods

2. Fundamentals of Inventory
Management
 Maintaining sufficient stock levels for
uninterrupted production schedule.
 Maintaining sufficient supply of finished goods
for unaffected sales.
 Minimising the total cost of inventory
maintenance.

3. Motives for holding Inventory
 Transaction Motive – to match the time lag between
demand and supply of raw materials.
 Precautionary Motive – to hold inventory against
unpredictable risks like strike, short supply, power cuts,
lengthy import procedures
 Speculative Motive – to benefit from quantity
discounts due to bulk purchasing or anticipated price
hikes

4. Benefits of holding inventory
 Avoiding loss of sales
 Trade discounts
 Reducing ordering costs
 Uninterrupted production
 Reducing the risks of production shortages

5. Risks of holding excessive
inventory
 Price decline
 Obsolescence
 Increased Costs of purchase, ordering and
carrying
 Quality costs like cost of replacing products after
shipment; cost of defective parts; cost of vendor
development, and inspection costs

6. Objective of Inventory
Management
 To determine the optimum level of inventory, by
considering the costs:-
 Carrying cost – is the cost per unit of
holding/maintaining raw material/WIP/FG
(a) Storage costs – the cost of storing one unit of
raw material by the firm.
(eg) rent of space occupied; air-conditioning costs;
insurance costs; warehousing and handling costs;
cost of pilferage

7. Contd….
 (b) Cost of financing
It includes funds used to purchase/ production
of inventory, including any explicit costs like
interest on borrowings.
Total carrying cost is variable and varies
with the level of inventory carried.

8. Techniques of Inventory
Management
 EOQ Model which is based on the following
assumptions:-
 The usage rate is even throughout the year
 There is no time gap between placing an
order and getting its supply
 The cost per order and cost of carrying
inventory are fixed
 The only 2 costs involved are the cost of
carrying the inventory and ordering costs.

9. ABC Analysis (Always Better
Control)
 Category A – 10% of the items covering 75% of
the value
 Category B – Lies between A and C - 20% items
representing 15% of the value
 Category C – large number of items of small
value – 70% of the items covering 10% of the
value

10. Merits of ABC Analysis
 Better control on costly items
 Helps to control the Stock Turnover Ratio
between 6 to 12 times in a year.
 Inventory maintained at optimum level
 Storage costs are reduced

11. Contd…
 Determination of Stock Levels – like
 re-order level
 Minimum level
 Maximum level
 Average level
 EOQ
 Danger level

12. JIT (Just in Time) System
 Minimises stock holding
 Creates a good rapport with the suppliers
 Results in savings in cost and investment
 Reduces the clerical costs of recording stores

13. VED ANALYSIS
 Vital- stock out costs very high
 Essential – stock out can be managed for a
few hours only- cost of loss is high
 Desirable - will not lead to production
stoppage- can hold up to a week

14. FSN ANALYSIS
 Classification based on material consumption
 Also based on inventory turnover
 Fast moving
 Slow moving
 Non- moving

15. Others
 Min Max Method
 Perpetual Inventory System
 Bin card and Stores Ledger updated
 Continuous stock verification with Bin Card
 Reconciliation of discrepancies
 Remedial measures
 Stock records corrected

16. Others
 Automatic Order System – done with the
help of technology to fix an “Order Point
Quantity”.
 Input –Output Ratio
Input –output Ratio = Input in units/ output in
units x 100 (answer will be in %)