The document discusses inventory, inventory control, and various techniques used for inventory classification and control. It defines inventory as raw materials, work in progress, and finished goods held for future use. The objective of inventory is to ensure continuous supply of goods at reasonable cost. Some key inventory classification techniques discussed include ABC analysis, which classifies inventory based on annual usage value, and FSND analysis, which classifies based on consumption patterns. The document also provides examples of companies that have implemented inventory classification and control techniques.

2. WHAT IS INVENTORY?
Inventory refers to stock of raw materials , work in
progress and finished goods
Can be stored for future use.
Inventory possess value.
Objective of inventory is to ensure continuous supply of
goods at reasonable cost.

3. NEEDS OF INVENTORY
To make bulk purchase and get advantage of discount
To maintain customer service level
To maintain continuous flow of supply through supply
chain
To achieve economy of scale in transportation

4. WHAT IS INVENTORY CONTROL
Its planning, ordering and scheduling of raw materials
Right quality of raw materials available at right time
Systematic control over purchasing, storing and using of
material.

5. FUNCTIONS OF INVENTORY CONTROL
Effective use of financial resources
Protection against all material losses
Proper calculation of cost of production
Keep the ball of production bouncing
Economies in purchasing
Eliminates redundant inventory
Keeping prompt delivery to the customers

6. SCOPE OF INVENTORY CONTROL
Formulation of relevant policies
Determining economic order quantity
Determining lead time
Minimization of material-handling and
storage cost
Ascertaining Safety Stock

7. MAIN TECHNIQUES IN SELECTIVE
INVENTORY CONTROL
 ABC Analysis
 GOLF Analysis
 SOS Analysis
 HML Analysis
 SDE Analysis
 FSND Analysis

8. CLASSIFICATION OF INVENTORY
Classification Full form Criterion employed
ABC Analysis Always Better Control Usage Value (i.e.
Consumption per period x
price per unit)
GOLF Analysis Govt, ordinary, local,
foreign
Source procurement
SOS Analysis Seasonal off seasonal Seasonality
HML Analysis High Medium Low Unit Price i.e. does not
take consumption into
account
FSND Analysis Fast, slow, non-monetary,
material demands
Issues from store
SDE Analysis Scarce, difficult, easy Procurement difficulties

9. Hml ANALYSIS
The cost per item (per piece) is considered for this analysis. High cost items (H),
Medium Cost items (M) and Low Cost item (L) help in bringing controls over
consumption at the departmental level.
Uses and application
•To assess storage & Security
Requirements
•High priced items in cupboards e.g.
bearings, worm wheels
•To keep control over consumption at
the departmental head level
•Authority to indents of High & Medium
priced items to departmental head after
careful scrutiny
•To determine the frequency of stock
verification
•checking frequency: more for high
priced items and less for L category
•To evolve buying policies to control
purchases
•Excess supply: Not accepted in case of
H & M category, Acceptable in case of L
category
•To delegate authorities to different
buyers to make petty cash purchase
•H & M by senior & L by junior buyers

10. FSN ANALYSIS :
 This analysis is to help control obsolescence and is based on the
consumption pattern of the items.
 The items are analyzed to be classified as Fast-moving (F), Slow-
moving (s)and Non-moving (N) items. The Non-moving items
(usually not consumed over a period of two years) are of great
importance. Scrutiny of non-moving items is to be made to determine
whether they could be used or be disposed off.
 The fast and slow-moving classifications help in arrangement of
stock in stores and their distribution and handling methods.

11. SDE ANALYSIS
 This analysis is based on spares availability of an item –
 S - refers to Scarce Items, especially imported and those which are very
much in short supply.
 D - are Difficult items which are procurable in market but not easily
available. For example, items which have to come from far off cities or
where there is not much competition in market or where good quality
supplies are difficult to get or to be procured.
 E - refers to Easy items – Items are those which are easily available; mostly
local items.
 It is normally advantageous to consider A, V & S items for selective control

12. SOS ANALYSIS
 SOS analysis is based on seasonality of items and it classifies all the items
into two categories „Seasonal „And „Off seasonal „
The analysis helps in:
 Identifying items that are available only during a limited period of the year
.For e.g. Raw mangoes are only available only during a summers
 Identifying items that are seasonal but available throughout the year
however their costs in offseason are relatively high.
 SOS analysis can be selected when we want to determine the seasonality of
items and the right season for procuring them.

13. ABC ANALYSIS
Classifying inventory according to annual value of
consumption of the items
A - very important
 B - mod. important
 C - least important
Annual
$ value
of items
A
B
C
High
Low
Few Many
Number of Items

14. Cont..
When a large number of items are involved, relatively few
items account for a major part of activity, based on annual
value of consumption of items.
It is based on the principles of ‘vital few and trivial many’.

15. A-items : 15% of the items are of the highest value and their
inventory accounts for 70% of the total.
B-items : 20% of the items are of the intermediate value and
their inventory accounts for 20% of the total.
C-items : 65%(remaining) of the items are lowest value and
their inventory accounts for the relatively small
balance, i.e.10%.

16. Develop class “A” suppliers more
Purchasing dpt makes maximum efforts to expeditade and
delivery of these items
The stock is maintained say in at least once in 15 days
POLICIES FOR A

17. POLICIES FOR B
Order quantities, re-order stocks and safety stocks should
be fixed and revised for B items say once in 4-6 months
Should be ordered less frequently in comparison to A
items

18. POLICIES FOR C
Large quantities can be bought as the cost involved will
be least
Paper work is reduced if the stock is maintained and
ordered once or twice in a year
The source of their supply can be based on their reliability

20. ADVANTAGES
Control
Cost
Improved service
warehousing

21.  Control: Stocking a better mix of right inventory
allows a company to control over- supply and under-
supply of important SKUs
 Cost: Once the company has decided which items fall
into ABC category it can establish cost reduction
initiatives at SKUs level.

22. Cont ...
 Improved Service: Improvement in customer service
level and order fulfilment.
 ABC analysis provides a company information to
stock the right mix of inventory.
 Warehousing: ABC inventory extends to warehouse
management as well
 Companies utilizing ABC analysis in the warehouse
give priority space to faster moving SKUs

23. APOLLO HOSPITALS
 The basic principle of inventory control used by
Apollo hospitals is ABC based on cost criteria
 Based on ABC matrix, the method that they use is
economic analysis of drug expenditure of prised
vocabulary of medical stores (PVMS)

24.  Out of 493 drugs in PVMS section 1, only 325 were
being used in reference hospital. The total cost of
drugs used was rupees 55,23,503
 Out of these 325 drugs 47 (14.4%) drugs were
category A consuming 70% of total expenditure
 73 (22.46%) drugs were category B consuming 20%
of the expenditure
 Rest 205 drugs (63.7) were category C drugs
consuming only 10% of the expenditure

25. IMPLEMENTED
 Midland Bank Group
 British Aerospace
 Swiss Automobile Association
 London Underground
 Gardner Merchant Vending Services
 Dervo Inc- Division of Johnson and Johnson