The document provides information on various inventory control methods and techniques, including ABC analysis, economic order quantity (EOQ) model, safety stocks, and reorder point. ABC analysis involves classifying inventory items into categories A, B, and C based on criteria like usage and value, with category A items involving the largest investments and requiring the most control. The EOQ model helps determine the optimal order quantity to minimize total ordering and carrying costs. Safety stocks are maintained to avoid stock-outs, and the reorder point is the level at which a fresh order should be placed based on factors like daily usage and lead time.
A project on inventory management. The necessity of effective inventory management is being increasingly realized in industrial and non-industrial organization both in India and abroad. This realization has come about because of increasing complexity of the task of managers and administrators. In most organization, the problem of effective inventory control is now viewed as the most critical problem with changes in social climate. While these can be great assets to the organizations, they become problems if the organization is not able to manage inventory properly.
Liquidity and profitability are the two vital aspects of corporate business. Any business cannot run without these two. A firm may run without profits for sometime; but with no liquidity, the firm cannot run their business. That is why management of inventory is an integral part of corporate planning in business life.
The proper inventory control system leads to an optimum utilization of resources. Idle materials are of a financial burden to the organization. Thus proper, inventory management directly assists in efficient functioning of the company. S.L. Goel says “takecare of the forest, the tree will take care of itself”, it should be the main motto of an inventory controller.
In inventory management, various methods and techniques can be adopted to control the inventory like, prompt maintenance of registrars, proper raw material arrangement, and fixation of various control levels and application of inventory control techniques and bin card system etc, which are relevant for inventory control in stores department.
Inventory management will help an organization in dealing with the supply of the raw materials and other activity in order to achieve the maximum co-ordination and optimum expenditure on materials to increase the profits of the firm. CLA‟s inventory control system is chosen for the study; by the investigator is no expectation in view of growing significance of the efficient control of inventories. Hence, the researcher was prompted to take up this topic.
A project on inventory management. The necessity of effective inventory management is being increasingly realized in industrial and non-industrial organization both in India and abroad. This realization has come about because of increasing complexity of the task of managers and administrators. In most organization, the problem of effective inventory control is now viewed as the most critical problem with changes in social climate. While these can be great assets to the organizations, they become problems if the organization is not able to manage inventory properly.
Liquidity and profitability are the two vital aspects of corporate business. Any business cannot run without these two. A firm may run without profits for sometime; but with no liquidity, the firm cannot run their business. That is why management of inventory is an integral part of corporate planning in business life.
The proper inventory control system leads to an optimum utilization of resources. Idle materials are of a financial burden to the organization. Thus proper, inventory management directly assists in efficient functioning of the company. S.L. Goel says “takecare of the forest, the tree will take care of itself”, it should be the main motto of an inventory controller.
In inventory management, various methods and techniques can be adopted to control the inventory like, prompt maintenance of registrars, proper raw material arrangement, and fixation of various control levels and application of inventory control techniques and bin card system etc, which are relevant for inventory control in stores department.
Inventory management will help an organization in dealing with the supply of the raw materials and other activity in order to achieve the maximum co-ordination and optimum expenditure on materials to increase the profits of the firm. CLA‟s inventory control system is chosen for the study; by the investigator is no expectation in view of growing significance of the efficient control of inventories. Hence, the researcher was prompted to take up this topic.
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Inventory Management in hospitals is plagued by inefficient processes, high-cost systems that don't support key business needs, and hard-to-change relationships between supply chain leaders and nursing. This presentation suggests 10 ideas to help supply chain business leaders improve inventory management within their hospital.
Inventory management system is a computer-based system for tracking inventory levels, orders, sales and deliveries. It can also be used in the manufacturing industry to create a work order, bill of materials and other production-related documents.
Hi Friends
This is supa bouy
I am a mentor, Friend for all Management Aspirants, Any query related to anything in Management, Do write me @ supabuoy@gmail.com.
I will try to assist the best way I can.
Cheers to lyf…!!!
Supa Bouy
Inventory Management in hospitals is plagued by inefficient processes, high-cost systems that don't support key business needs, and hard-to-change relationships between supply chain leaders and nursing. This presentation suggests 10 ideas to help supply chain business leaders improve inventory management within their hospital.
Inventory management system is a computer-based system for tracking inventory levels, orders, sales and deliveries. It can also be used in the manufacturing industry to create a work order, bill of materials and other production-related documents.
INVENTORY MANAGEMENT
TECHNIQUES OF INVENTORY CONTROL
ECONOMIC ORDERING QUANTITY (EOQ)
Maximum Stock Level
Minimum Stock Level
Danger Level
ABC ANALYSIS FOR VALUE OF ITEMS
Perpetual Inventory System
H.M.L. Classification
F S N Analysis
V.E.D. Classification
Just in Time (JIT)
Inventory Turnover Ratio
WORKING CAPITAL MANAGEMENT
RECEIVABLES MANAGEMENT
COSTS OF MAINTAINING RECEIVABLES
BENEFITS OF MAINTAINING RECEIVABLES
FACTORS AFFECTING THE SIZE OF RECEIVABLES
CREDIT PERIOD
OPTIMUM SIZE OF RECEIVABLES
DETERMINANTS OF CREDIT POLICY
OPTIMUM CREDIT POLICY
Credit standards
Credit terms
CREDIT EVALUATION
1 Module 4 Some Common applications Table o co.docxjeremylockett77
1
Module 4: Some Common applications
Table o content
1- Inventory System Simulation
2- The M-N Inventory System
3- Machine reliability study
4- Evaluation of integral
5 - Simulation of hitting a Target
Case I: Inventory system simulation.
Introduction.
The Inventory management is one of the crucial aspects for any manufacturing firm and well known
topic in both corporate and academic world. Inventory management involves a set of decisions that aim
at matching existing demand with the supply of products and materials over space and time in order to
achieve profitable operations. An inventory is considered as one of the major assets of a business and it
represents an investment that is tied up until the item is sold or used in the production of an item. It costs
money to store, track and insure inventory. Inventories that are not well managed can create significant
financial problems for a business, whether the problem results in an inventory glut or an inventory
shortage. Proper management of inventories would help to utilize capital more effectively.
Why Is Inventory Control Important?
If your business requires maintaining an inventory, you might sometimes feel like you're walking a
tightrope. Not having enough inventory means you run the risk of losing sales, while having too much
inventory is costly in more ways than one. That's why having an efficient inventory control system is so
important.
Avoiding Stock-outs.
One of the worst things you can do in business is to turn away customers -- people who are ready to give
you their money -- because you've run out of the item they want. "Stock outs" not only cost you money
from missed sales, they can also make you lose customers for good, as people resolve to take their
business somewhere that can satisfy their needs. An efficient inventory control system tracks how much
product you have in stock and forecasts how long your supplies will last based on sales activity. This
allows you to place orders far enough ahead of time to prevent stock-outs.
Overstock Hazards
When inventory isn't managed well, you can also wind up with overstock -- too much of certain items.
Overstock comes with its own set of problems. The longer an item sits unsold in inventory, the greater
the chance it will never sell at all, meaning you'll have to write it off, or at least discount it deeply.
Products go out of style or become obsolete. Perishable items spoil. Items that linger in storage get
damaged or stolen. And excessive inventory has to be stored, counted and handled, which can add
ongoing costs.
2
Working Capital Issues
Inventory is expensive to acquire. When you pay, say, $15 for an item from a supplier, you do so with
the expectation that you will soon sell the item for a higher price, allowing you to recoup the cost plus
some profit. As long as the item sits on the shelf, though, its value is locked up in in ...
Inventory management is art of planning, organising and controlling the storage and flow of material in the organisation.
It includes various techniques like Economic Order Quantity, reorder point, minimum level, maximum level etc.
Economic Order Quantity (EOQ) is the order quantity that minimizes total inventory costs. Total Inventory Costs Budgetary techniques for inventory planning
2. A-B-C. System of inventory control
3. Economic Order Quantity (E.O.Q.) i.e., how much to purchase at one time economically
4. VED Analysis
5. Perpetual inventory system and the system of store verification
6. Fixation of Stock Level
7. Control Ratios
Materials Management
Understand the role of materials management industries.
4.1 Explain the importance of materials management in Industry
4.2 Know Functions of Materials Management
4.3 Derive expression for inventory control.
4.4 Explain ABC analysis
4.5 Define safety stock
4.6 Define reorder level
4.7 Derive an expression for economic ordering quantity
4.8 Know the functions of Stores Management
4.9 Explain types of store layouts
4.10 List out stores records
4.11 Explain the Bin card
4.12 Describe Cardex method
4.13 Explain general purchasing procedures
4.14 Explain tendering, E-tendering and E-procurement procedures
4.15 List out purchase records
4.16 Know the applications of RFID (Radio Frequency Identification De
4.17 Understand the applications of RFID in material management
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Methods and techniques of inventory control | business management
1. !! Business Management IdeasBusiness Management Ideas
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Methods and
Techniques of
Inventory Control
| Business
Management
Article shared by :
ADVERTISEMENTS:
Read this article to learn about
the advance method and
techniques of inventory control:
ABC analysis, EOQ model, safety
stocks and the reorder point!
2. Inventories occupy the most prominent
position in the working capital
structure of manufacturing and
distributive business enterprises.
Image Courtesy : http://img.docstoccdn.com/thumb
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For example, on an average inventories
are approximately 60 per cent of the
current assets in public limited
companies in India.
Inventory Control is a science- based
art of ensuring that sufficient inventory
is held by an organization to meet both
its internal and external demand
commitments economically. Gopalan
and Sandhilya are of the opinion that
uncontrolled inventory can become an
organization’s cancer. ”Managing the
3. level of investment in inventory is like
maintaining the level of water in a
bathtub with an open drain. The water
is flowing out continuously. If water is
let in too slowly, the tub is soon empty.
If water is let in too fast, the tub
overflows. Like the water in the tub,
the particular items in inventory keep
changing, but the level may stay the
same. The basic financial problems are
to determine the proper level of
investment in inventory and to decide
how much inventory must be acquired
during each period to maintain the
level.”
In fact, stock management is
essentially the production manager’s
concern. The finance manager’s
interest is simply that the stock balance
which results is an investment that
needs financing. Thus, the finance
manager should expect to be handed
an optimal stock figure by the
production manager.
ADVERTISEMENTS:
4. The financial manager is a kind of
watch-dog over other functional areas
in conformity with the goal of wealth
and profit maximization. The top level
management should, therefore, keep a
bird’s eye view over inventory with the
principle of “neither too much nor too
little” by cost-benefit analysis.
The momentous decisions faced by
management are how much to order
when to order, what safety stocks to
keep, and what stock-out probabilities
and levels are acceptable. The major
production oriented methods and
techniques of inventory control for
managing inventories efficiently are:
the ABC analysis, the EOQ model,
safety stocks, and the re-order point.
Methods and Techniques of
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5. Inventory Control
1. ABC analysis:
The basic work in this always better
control analysis is the classification
and identification of different types of
inventories, for determining the degree
of control required for each. In many
firms it is found that they have stocks
which are used at very different rates.
So items are classified under three
broad categories A, B and C, on the
basis of usage, bulk, value, size,
durability, utility, availability,
criticality etc.; and should be
controlled with due weightage to
differential characteristics.
The items included in group A involve
largest investments and the inventory
control should be most severe to these
items. C group consists of inventory
items which involve relatively small
investments although the number of
items remains large. These items
deserve minimum attention of control.
In B group that items are included
which are neither of A nor C. This
method can be explained by the
following exhibit.
7. From the figure it can be observed that
there are comparatively few items in A
but they constitute a large proportion
of the total rupee value; B items are in
the intermediate range and C items are
numerous but inexpensive.
The purpose behind the ‘distribution
by value’ analysis is ‘Always Better
Control’. Donald G. Hall recommends
that different attitudes shall be adopted
in inventory management—aggressive
for class A items, active for class B
items and loose for class C items; and
that each category should be given the
attention as deserves. R.S. Chadda
recommends the following order for
selective control:
A Items B Items C Items
1. Control Tight Moderate Loose
2.
Requirements
Exact Exact Estimated
3. Postings Individual Individual Group
8. 4. Check Close Some Little
5. Expediting Regular Some None
6. Safety
Stocks
Low Medium Large
(Adapted from P.V. Kulkarni, Financial
Management—A Conceptual
Approach).
2. Economic order quantity
model:
ADVERTISEMENTS:
The basic decision in an economic
order quantity (EOQ) procedure is to
determine the amount of stock to be
ordered, at a particular time so that the
total of ordering and carrying costs
9. may be reduced to a minimum point. A
firm should place optimum orders and
neither too large nor to small. The EOQ
is the level of inventory order that
minimizes the total cost associated
with inventory. The EOQ model is
based on following four assumptions:
(i) A firm has a steady and known
demand of D units each period for a
particular input.
(ii) The firm consumes the input at a
uniform rate.
ADVERTISEMENTS:
(iii) The costs of carrying stocks are a
constant amount C per unit per period.
(iv) The costs of ordering more inputs
are a fixed amount O per order. Orders
10. are delivered instantly.
A useful formula for calculating the
optimum order quantity is:
EOQ = √2DO/ C
ADVERTISEMENTS:
To show how we might use the formula
consider exhibit III in which a firm has
an annual inventory requirement of
10,000 units. The accounting costs
associated with placing an order with
the supplier come to Rs. 200 per order
and the carrying costs of holding stocks
are expected to be Rs. 4 per unit.
Hence, D=10,000 units
0=Rs. 200
C=Rs. 4
11. ADVERTISEMENTS:
EOQ = √2 x 10,000 x 200/ 4
= √10,00.000
= 1,000 units
Therefore, 1000 units should be
ordered every 37 days.
The EOQ model is very simple one and
its assumptions will be unrealistic in
many applications, in practice orders
are not delivered instantly. The
assumption of a constant usage of
inventory and known annual demand
are of doubtful validity.
3. Minimum Safety Stocks:
To avoid stock-outs firms maintain
safety stocks of inventory. The safety
12. stock is the minimum level of inventory
desired for an item given the expected
usage rate and the expected time to
receive an order. If an order is placed
when the inventory reaches 12,000
units instead of 10,000 units, the
additional 2,000 units constitute a
safety stock.
The manager expects to have 2,000
units in stock when the new order
arrives at the scheduled time. The
safety stock protects as a safe-guard
against stock-outs ‘position due to
unanticipated increase in usage
resulting from an unusually high
demand and/or an uncontrollable late
delivery of inventories.
The increase in the amount of
inventory held as safety stock reduces
the chances of stock-out and therefore,
reduces stock-out costs over the long-
run. The level of inventory investment
is, however increased by the amount of
safety stock. The optimum level of
safety stock is determined by the trade-
off between the stock-out and the
carrying costs.
Thus the best level of safety stock for a
13. given item depends on stock-out costs,
variability of usage rates and delivery
times. The safety stock level is the
multiplication of the average demand
during a period of the maximum delay
and the probability of its occurrence.
If the usage rate and delivery time or
lead time can be forecasted with a high
degree of accuracy and if the cost of
stock-out is estimated to be small, then
little or no safety stock will needed. If
the circumstances are not so
favourable, then the significant
investment in safety stock will be
desirable.
4. Re-order point:
In addition to set EOQ, the inventory
management must know when to place
the order for avoiding the stock-out
position. Especially in the Indian
context where there is a considerable
time lag between placing the order and
actual receipt of the inventory,
determining the re-order point (ROP)
is momentous as well as intricate. The
ROP may be defined as that level of
inventory at which a fresh order should
be placed to the suppliers for
14. replenishing the current stock.
The ROP is calculated as the lead time
X daily usage. The lead time is the time
lag between raising an order and the
goods being delivered. For example, if
the normal daily usage of materials is
100 units and it takes 30 days for the
supplier to deliver the goods, then an
order must be sent out when the stock
level reaches 3,000 units. If safety
stocks are held then re-order level
should be: safety stock+ (lead time x
daily usage).
Another method of ordering is the ‘two
bin’ and ‘three bin systems. These
involve putting a quantity equal to the
re-order level in a separate bag or bin
which is sealed or put in a separate
location; the rest of the stock is
withdrawn as needed with no record of
individual usage being kept.
Opening the sealed bin, however, gives
the indication for a replenishment
order. This method is cheap as it does
not entail continuous, monitoring and
is easy to understand—it has therefore
gained a fair amount of acceptance.
There are also other types of system in
15. use known as ‘the ‘min-max’ or ‘S-s’
‘method. However, an organization will
have to take care of the lead time with
sufficient initial stock and then follow
it up regularly with EOQ cycles.
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Related Articles:
Derivation of EOQ Formula | Inventory
Control | Materials Management
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