Basic Information about managing the Inventory

1. INVENTORY MANAGEMENT
PRESENTED BY:
YASH MODI

2. WHAT IS INVENTORY MANAGEMENT?
• INVENTORY MANAGEMENT IS THE CONTROL OF SUPPLY LEVELS OF RAW
MATERIALS AND GOODS THROUGH THE USE OF STRATEGIES AND TECHNIQUES
USED TO MINIMIZE INVENTORY LEVELS.
• THESE STRATEGIES ARE DESIGNED TO:
- REDUCE THE AMOUNT OF INVENTORY SITTING IDLE PRIOR TO USE OR
TRANSPORT.
- MAKE INVENTORY LEVELS RESPONSIVE TO PRODUCTION/DEMAND.
- MINIMIZE THE NUMBER OF TIMES INVENTORY NEEDS TO BE HANDLED.

3. WHY IS THIS IMPORTANT ?
• ORGANIZATIONS MANAGE INVENTORY, SUCH AS RAW MATERIALS, COMPONENTS
OR FINISHED GOODS, AS INPUTS AND OUTPUTS OF THEIR FORWARD SUPPLY
CHAIN.
• THIS IS A PRIMARY ACTIVITY OF THEIR GLOBAL VALUE CHAIN.
• INVENTORY MANAGEMENT SYSTEMS INFORM PROCUREMENT PROCESSES, AND
INPUTS AND OUTPUTS NEED TO BE HELD IN BALANCE IN ORDER TO MEET
CUSTOMER DEMAND.
• INVENTORY CAN REFER TO INPUTS, OUTPUTS AND WORK-IN-PROGRESS.

4. INVENTORY MANAGEMENT: TYPES OF
INVENTORY
.
Raw
Material
Finished
Product
Work in Progress
(WIP)
Consumables
Service, Repair,
Replacement
Items used to
produce the
finished product
Product ready
for sale and
consumption
Items in the
process of being
converted,
processed,
assembled or
manufactured
Items used for
maintaining the
integrity and
functioning of
the plant or
operation
After-market
items used to
maintain the
functioning of
existing goods
Service
Inventory
Pipeline
Inventory
Contingency
Inventory
Safety
Stock
Efficient
Procurement
Inventory
Inventory to
ensure
reasonable
delivery time
Product in
transit between
manufacturer
and customer
sites
Inventory to
ensure against
unusual and
catastrophic
events
Inventory to
ensure adequate
supply until
arrival of new
stock
Inventory for
special
opportunities to
procure supplies
at low cost

5. • A COMMON APPROACH TO ESTABLISHING OPTIMAL INVENTORY LEVELS IS BASED
ON PARETO’S LAW, WHICH PROPOSES THAT WITHIN ANY GIVEN POPULATION OF
THINGS, AROUND 20 PERCENT OF THE TOTAL ITEMS WILL HOLD 80 PERCENT OF
THE TOTAL VALUE.
• WHEN APPLIED TO INVENTORY, THIS WILL MEAN THAT 20 PERCENT OF THE
ITEMS HELD WILL HOLD 80 PERCENT OF THE TOTAL VALUE FOR THE COMPANY.
INVENTORY MANAGEMENT: INVENTORY
ANALYSIS

6. Based on…
ABC Consumption value
A-class items move out of inventory faster, and
should be placed near ‘point in use’.
VED
Opportunity costs
of shortages
Inventory items classified as Vital, Essential or
Desirable.
FSN
Frequency of
demand
Fast moving = high demand; Slow moving =
infrequent demand; Non-moving = dead stock
GOLF Source of supply
Government controlled; Outside vendor; Local
vendor; Foreign
XYZ
Value of inventory
held for disposal
Waste or dead stock
HML Unit cost
Used to identify alternatives to high-cost
components
INVENTORY MANAGEMENT: INVENTORY
ANALYSIS

7. Single period
ordering
Balancing trade-off associated with insufficient order and
ordering too much when supplies are purchased one time
Static inventory
When inventory requires constant instantaneous replenishments;
assumes no shortages
Replenishment
models
Ordering is based on demand. Different models require different
levels of inventory monitoring. For example: labour, fixed
replenishment, continuous review, periodic review
Economic order
quantity
A means to determine how much to order while minimizing
holding, ordering or set up costs
Visual inventory
model
Visual cues, such as bins with level lines, indicate when
inventory needs to be replaced
System Definition
INVENTORY MANAGEMENT: INVENTORY
MODELS

8. • ABC ANALYSIS CONTROL MEASURES APPLY DIFFERENT
CONTROLS FOR EACH CLASSIFICATION TO IMPROVE
INVENTORY COST PERFORMANCE.
• HOWEVER, MARGINS AND THE IMPACT OF STOCK-OUTS ARE
ALSO FACTORED INTO THE CONSUMPTION AND VALUE BASED
CLASSIFICATION:
INVENTORY MANAGEMENT: INVENTORY
CONTROL TECHNICS

9. • A-ITEMS: ITEMS THAT SHOULD HAVE TIGHT INVENTORY CONTROLS WITH
SECURED STORAGE AREAS AND FREQUENT MONITORING OF FORECASTS,
DEMAND REQUIREMENTS, ORDER QUANTITIES, SAFETY STOCKS AND CYCLE
COUNTS. THEY REQUIRE A DAILY OR WEEKLY REORDERING SCHEDULE, AND
AVOIDING STOCK-OUTS IS A PRIORITY.
INVENTORY MANAGEMENT: INVENTORY
CONTROL TECHNICS

10. • B-ITEMS: ITEMS THAT HAVE THE SAME CONTROLS AS A-ITEMS, BUT WITH LESS
MONITORING. THIS INTERMEDIATE STATUS BETWEEN A AND C REQUIRES SOME
MONITORING AS B-ITEM CLASSIFICATION MAY CHANGE TOWARDS A-CLASS
ITEMS OR DOWNWARDS TO C-CLASS ITEMS. THIS POTENTIAL FOR CHANGE IN
COSTS MUST BE MONITORED AND ACTED UPON TO OPTIMIZE INVENTORY COST
PERFORMANCE.
INVENTORY MANAGEMENT: INVENTORY
CONTROL TECHNICS

11. • C-ITEMS: ITEMS THAT ARE LESS IN DEMAND AND ARE LOW COST, SO
REORDERING OCCURS LESS FREQUENTLY AND INVENTORY LEVELS ARE KEPT LOW,
TO THE POINT OF REORDERING ONLY WHEN THE ITEM IS USED. THIS STOCK-OUT
SITUATION IS MORE ACCEPTABLE BECAUSE OF THE LOW DEMAND AND HIGHER
RISK OF EXCESSIVE INVENTORY COSTS. C-ITEMS TYPICALLY HAVE THE SIMPLEST
CONTROLS.
INVENTORY MANAGEMENT: INVENTORY
CONTROL TECHNICS

12. THREE QUESTIONS A COMPANY HAVE TO
DERIVE FOR INVENTORY MANAGEMENT
• WHAT TO ORDER?
• WHEN TO ORDER?
• HOW MUCH TO ORDER

13. WHAT TO ORDER?
• DETERMINE WHICH SKU A COMPANY HAS TO ORDER FROM THEIR SUPPLIERS.
IT CONSISTS OF;
1. PARTS
2. WIP PRODUCTS
3. OUTSOURCED PRODUCTS, SUPPLIES ,MACHINERY & EQUIPMENTS
4. OTHERS

14. WHEN TO AND HOW MUCH TO ORDER?
• IN ORDER TO KNOW AT WHAT TIME, WE SHOULD ORDER A SKU FROM OUR SUPPLIERS.
1. ECONOMIC ORDER QUANTITY(EOQ=Q=QUANTITY)
2. DISCOUNTED EOQ
3. RE-ORDER POINT(ROP)
TO REMOVE THIS WE NEED; LEAD TIME, BUFFER STOCK, DEMAND FORECAST, ORDER COST,
CARRYING OR HOLDING COST
SIR DIDN’T TAUGHT US THIS PART IN DETAIL; SO, FORGET ABOUT IT.

15. THANK YOU