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Inventory Management: By: Ankit Kumar (49) Akhilesh V. Sharma (51) Sahil Imtiaz Ali

This document discusses inventory management. It defines inventory and explains its purpose is to hold physical resources that a firm intends to sell or further process. There are different types of inventories like raw materials, work-in-process, and finished goods. Inventory is classified based on whether demand is dependent on production or independent customer demand. Effective inventory management considers costs of carrying inventory, ordering inventory, and potential shortages. Systems like continuous review and periodic review are used to manage inventory levels. The ABC classification method sorts inventory into A, B, and C categories based on consumption value to focus control efforts most efficiently.

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19 views

Inventory Management: By: Ankit Kumar (49) Akhilesh V. Sharma (51) Sahil Imtiaz Ali

This document discusses inventory management. It defines inventory and explains its purpose is to hold physical resources that a firm intends to sell or further process. There are different types of inventories like raw materials, work-in-process, and finished goods. Inventory is classified based on whether demand is dependent on production or independent customer demand. Effective inventory management considers costs of carrying inventory, ordering inventory, and potential shortages. Systems like continuous review and periodic review are used to manage inventory levels. The ABC classification method sorts inventory into A, B, and C categories based on consumption value to focus control efforts most efficiently.

Uploaded by

ankit kumar dwivedi
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© © All Rights Reserved
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INVENTORY MANAGEMENT

By : Ankit Kumar (49)


Akhilesh V. Sharma (51)
Sahil Imtiaz Ali ()
What is inventory?
A physical resource that a
firm holds in stock with
the intent of selling it or
transforming it into a
more valuable state.

Purpose of inventory
management
• How many units to order?
• when to order? discount
Types of Inventories
Raw materials

Purchased parts and supplies

Finished Goods

Work-in-process (partially completed products )

Items being transported

Tools and equipment


Nature of Inventories

Raw Materials – Basic inputs that are converted into finished product
through the manufacturing process

Work-in-progress – Semi-manufactured products need some more works


before they become finished goods for sale

Finished Goods – Completely manufactured products ready for sale

Supplies – Office and plant materials not directly enter production but are
necessary for production process and do not involve significant investment.
Two Forms of Demand

Dependent Independent
(not used by customer directly)
• Demand for items used by
• Demand for items used to external customers
produce final products
• Cars, computers, and
• Tires stored at a plant are houses are examples of
an example of a dependent independent demand
demand item inventory
Inventory and Quality Management

Customers usually perceive quality service as


availability of goods when they want them

Inventory must be sufficient to provide high-


quality customer service
Inventory Costs

Carrying cost

• cost of holding an item in inventory

Ordering cost

• cost of replenishing inventory

Shortage cost

• temporary or permanent loss of sales when


demand cannot be met
Inventory Control Systems

• constant amount ordered


Continuous system
(fixed-order-quantity)
when inventory declines
to predetermined level

Periodic system • order placed for variable


amount after fixed
(fixed-time-period)
passage of time
Classifying Inventory Items
ABC Classification (Pareto Principle)

In any Retail organization there are large numbers of


inventories to be maintained. It is not practical to have
very stringent inventory control system for each & every
item. So with the modus of having an effective Purchase
& stores control we implement ABC Inventory
Classification model Known as Always Better Control
(ABC) based upon Pareto rule ( 80/20 rule)
ABC Analysis
Divides inventory into three classes based on
Consumption Value
Consumption Value = (Unit price of an item) (No. of units consumed per annum)

 Class A - High Consumption Value


 Class B - Medium Consumption Value
 Class C - Low Consumption Value
ABC Analysis
A Items
80 –
% of Consumption Value

70 –
60 –
50 –
40 –
30 –
20 – B Items
10 – C Items
| | | | | | | | | |

10 20 30 40 50 60 70 80 90 100
% of inventory items
Inventory Management Policy
A Items:
very tight control, complete and accurate records, frequent review via EOQ model.

B Items:
less tightly controlled, good records, regular review

C Items:
simplest controls possible, minimal records, large inventories, periodic review and reorder

Some time with the view of doing Lean inventory management


Within ABC category VED ( Vital , essential & desirable factor) is introduced with the
view of further having effective control of inventory on the basis if its being critical.

V (Vital) is the inventory where neither Substitute nor Variation Gap is allowed .
E (Essential) is the inventory which allows either of the one to be changed
D (Desirable ) is the one which can have variation in both of the parameters
References:
• Cox, James F., III, and John H. Blackstone, Jr. APICS
Dictionary. 9th ed. Falls Church VA: American Production and
Inventory Control Society, 1998.
• Anupindi, Ravi, et al. Managing Business Process Flows:
Principles of Operations Management. 2nd ed. Upper Saddle
River, NJ: Pearson Prentice Hall, 2004.
• Meredith, Jack R., and Scott M. Shafer. Operations
Management for MBAs. 2nd ed. New York: John Wiley & Sons
Inc., 2002.
• Stevenson, William J. Production/Operations
Management. 8th ed. Boston: Irwin/McGraw-Hill, 2005.
Thank You

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