INTRODUCTION Inventory-A physical resource that a firm holds in stock with the intent of selling it or transforming it into a more valuable state. Inventory System- A set of policies and controls that monitors levels of inventory and determines what levels should be maintained, when stock should be replenished, and how large orders should be placed.
Items carried in inventory can be Raw materials Purchased parts Components Subassemblies Work-in-process Finished goods
Reasons for keeping Inventories To stabilise production To take advantage of price discounts To meet the demand during the replenishment period To prevent loss of orders(sales) To keep pace with changing market conditions
Objectives and BenefitsInventory control aims at keeping track of inventories. In other words, inventories of good quality and right quantities should be made available to different departments as and when they needed.
COSTS ASSOCIATED WITH INVENTORY Purchase (or Production) cost Capital cost Ordering cost Inventory carrying costs (holding costs) Shortage cost
Inventory Planning and ControlFor maintaining the right balance between highand low inventory to minimize cost
Inventory Control DecisionsDecisions: How much to order? When to order?
ECONOMIC ORDER QUANTITY Annual Cost ($) Higher Minimum Total Annual Stocking Costs Total Annual Stocking Costs Annual Carrying Costs Lower Annual Ordering Costs Order Quantity Smaller EOQ Larger 16
TYPES OF INVENTORY MODELS Simple EOQ model EOQ model with stock outs allowed Inventory model under risk
SELECTIVE CONTROL OF INVENTORY Selective control refers to the variation in method of control from item to item on some selective basis. Many criteria used for this purpose are Based on the cost of product Lead time Usage rate Procurement difficulties, criticality, frequency of usage
SELECTIVE CONTROL OF INVENTORY ABC analysis VED Analysis Material requirements planning (MRP)
CONCLUSIONS Careful classification of your inventory, and continuing analysis of those classifications, can play a vital role in maintaining cost at the efficient levels you have established as your goals Inventory control is a constant requirement of doing business successfully.