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OPERATIONAL 
RESEARCH 
INVENTORY 
CONTROL 
SUBMITTED 
TO: 
Dr. Jyoti Badge 
SUBMITTED BY: 
Swati Joshi 
3rd Sem. 
M.F.M. NIFT 
Bhopal
INVENTORY 
CONTROL
INVENTORY 
The word inventory means a physical 
stock of material or goods or 
commodities or other economic 
resources that are stored or reserved or 
kept in stock or in hand for smooth and 
efficient running of future affairs of an 
organization at the minimum cost of 
funds or capital blocked in the form of 
materials or goods (Inventories). 
“ 
”
INVENTORY 
“ CONTROL 
The function of directing the movement of 
goods through the entire manufacturing 
cycle from the requisitioning of raw 
materials to the inventory of finished goods 
in an orderly manner to meet the 
objectives of maximum customer ” 
service 
with minimum investment and efficient (low 
cost) plant operation is termed as inventory 
control.
Inventory valuation involves two 
process 
 Determination of quality of 
each type of inventory held. 
 Assignment of the values 
of the 
units items of inventory
Objectives of Inventory Control 
The objective of controlling the inventories is to enable the 
materials manager to place and order at right time with the right 
source at right price to purchase right quantity. 
• To meet unforeseen future demand due to 
variation in forecast figures and actual 
figures. 
• To average out demand fluctuations due to 
seasonal or cyclic variations. 
• To meet the customer requirement timely, 
effectively, efficiently, smoothly and 
satisfactorily. 
• To smoothen the production process. 
• To facilitate intermittent production of 
several products on the same facility. 
• To gain economy of production or purchase

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Inventory control

  • 1. OPERATIONAL RESEARCH INVENTORY CONTROL SUBMITTED TO: Dr. Jyoti Badge SUBMITTED BY: Swati Joshi 3rd Sem. M.F.M. NIFT Bhopal
  • 3. INVENTORY The word inventory means a physical stock of material or goods or commodities or other economic resources that are stored or reserved or kept in stock or in hand for smooth and efficient running of future affairs of an organization at the minimum cost of funds or capital blocked in the form of materials or goods (Inventories). “ ”
  • 4. INVENTORY “ CONTROL The function of directing the movement of goods through the entire manufacturing cycle from the requisitioning of raw materials to the inventory of finished goods in an orderly manner to meet the objectives of maximum customer ” service with minimum investment and efficient (low cost) plant operation is termed as inventory control.
  • 5. Inventory valuation involves two process  Determination of quality of each type of inventory held.  Assignment of the values of the units items of inventory
  • 6. Objectives of Inventory Control The objective of controlling the inventories is to enable the materials manager to place and order at right time with the right source at right price to purchase right quantity. • To meet unforeseen future demand due to variation in forecast figures and actual figures. • To average out demand fluctuations due to seasonal or cyclic variations. • To meet the customer requirement timely, effectively, efficiently, smoothly and satisfactorily. • To smoothen the production process. • To facilitate intermittent production of several products on the same facility. • To gain economy of production or purchase
  • 7. • To reduce loss due to changes in prices of inventory items. • To meet the time lag for transportation of goods. • To meet the technological constraints of production/process. • To balance various costs of inventory such as order cost or set up cost and inventory carrying cost. • To balance the stock out cost/opportunity cost due to loss of sales against the costs of inventory. • To minimize losses due to deterioration, obsolescence, damage, pilferage etc. • To stabilize employment and improve lab our relations by inventory of human resources and machine efforts.
  • 8. CLASSIFICATION OF INVENTORIES Direct inventories Inventories those play direct role during manufacture or which can be identified on the product Indirect inventories Inventories those which are required for manufacturing but not as a part of production or cannot be identified on the product
  • 9. DIRECT INVENTORIES Raw material inventories: The inventory of raw materials is the materials used in the manufacture of product and can be identified on the product. In inventory control manager can concentrate on the (a) Bulk purchase of materials to save the investment, (b) To meet the changes in production rate, (c) To plan for buffer stock or safety stock to serve against the delay in delivery of inventory against orders placed and also against seasonal fluctuations. Work-in -process inventories or in process inventories: These inventories are of semi-finished type, which are accumulated between operations or facilities. These inventories serves the following purpose: (a) Provide economical lot production, (b)Cater to the variety of products, (c) Replacement of wastages, (d) To maintain uniform production even if sales varies.
  • 10. Finished goods inventories: After finishing the production process and packing, the finished products are stocked in stock room. These are known as finished goods inventory. These are maintained to: (a) To ensure the adequate supply to the customers, (b) To allow stabilization of the production level and (c) To help sales promotion programme. Spare parts inventories: Any product sold to the customer, will be subjected to wear and tear due to usage and the customer has to replace the worn-out part. Hence the manufacturers always calculate the life of the various components of his product and try to supply the spare components to the market to help after sales service. The use of such spare parts inventory is: (a) To provide after sales service to the customer, (b) To utilize the product fully and economically by the customer. Scrap or waste inventory: While processing the materials, we may come across certain wastages and certain bad components (scrap), which are of no use. These may be used by some other industries as raw material. These are to be collected and kept in a place away from
  • 11. INDIRECT INVENTORIES Inventories or materials like oils, grease, lubricants, cotton waste and such other materials are required during the production process. But we cannot identify them on the product. These are known as indirect inventories
  • 12. Inventories may also be classified depending their nature of use. They are: Fluctuation Inventories: These inventories are carried out to safeguard the fluctuation in demand, non-delivery of material in time due to extended lead-time. These are some times called as Safety stock or reserves. In real world inventory situations, the material may not be received in time as expected due to trouble in transport system or some times, the demand for a certain material may increase unexpectedly. To safeguard such situations, safety stocks are maintained. The level of this stock will fluctuate depending on the demand and lead-time etc. Anticipation inventory: When there is an indication that the demand for company’s product is going to be increased in the coming season, a large stock of material is stored in anticipation. Some times in anticipation of raising prices, the material is stocked. Such inventories, which are stocked in anticipation of raising demand or raising rises, are known as anticipation inventories. Lot size inventory or Cycle inventories: This situation happens in batch production system. In this system products are produced in economic batch quantities. It some time happens that the materials are procured in quantities larger than the economic quantities to meet the fluctuation in demand. In such cases the excess materials are stocked, which are known as lot size or cycle inventories.
  • 13. Transportation Inventories: When an item is ordered and purchased they are to be received from the supplier, who is at a far of distance. The materials are shipped or loaded to a transport vehicle and it will be in the vehicle until it is delivered to the receiver. Similarly, when a finished product is sent to the customer by a transport vehicle it cannot be used by the purchaser until he receives it. Such inventories, which are in transit, are known as Transportation inventories. Decoupling inventories: These inventories are stocked in the manufacturing plant as a precaution, in
  • 14. Scope of inventory control: SCOPE OF INVENTORY CONTROL Determination of inventory policies. Determining various stock levels Determining economic order size Safety or buffer stock Determining lead time Examining the work of inventory policy
  • 15. Benefits of Inventory Control • Ensures an adequate supply of materials • Minimizes inventory costs • Facilitates purchasing economies • Eliminates duplication in ordering • Better utilization of available stocks • Provides a check against the loss of materials • Facilitates cost accounting activities • Enables management in cost comparison • Locates & disposes inactive & obsolete store items • Consistent & reliable basis for financial statements
  • 16. • A careful materials manager may take advantage of price discounts and make bulk purchase at the same time he can keep the inventory cost at minimum. • It enables a manager to select a proper transportation mode to reduce the cost of transportation. • Avoids the chances of duplicate ordering. • It avoids losses due to deterioration and obsolescence etc. • Causes of surplus stock may be controlled or totally avoided. • Proper inventory control will ensure the availability of the required material in required quantity at required time with the minimum inventory cost.
  • 17. INVENTORY CONTROL SYSTEMS There are various methods of controlling inventory. In this section, let us consider some of the important methods of controlling the inventory. They are listed below: (a) p - System or Fixed Period System, ( (b) b) q - System or Fixed quantity system, These are also known as perpetual inventory control Systems. (c) pq - System, (d) ABC Analysis, (e) VED Analysis, (f) XYZ Analysis, (g) FNSD analysis, (h) Economic Order Quantity. (In manufacturing models, this is known as Economic Batch Quantity.)