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Inventory Management - PPT

This document defines inventory and inventory systems. It then discusses the different categories of inventory including cycle stock, safety stock, pipeline stock, decoupling stock, dead stock, and anticipation stock. It also discusses the different costs associated with inventory like ordering costs, carrying costs, and shortage costs. Ordering costs depend on how much is ordered and how often. Carrying costs include storage costs and cost of capital.

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Muneeb Khan
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7K views

Inventory Management - PPT

This document defines inventory and inventory systems. It then discusses the different categories of inventory including cycle stock, safety stock, pipeline stock, decoupling stock, dead stock, and anticipation stock. It also discusses the different costs associated with inventory like ordering costs, carrying costs, and shortage costs. Ordering costs depend on how much is ordered and how often. Carrying costs include storage costs and cost of capital.

Uploaded by

Muneeb Khan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Definitions:

 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

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The Material Flow Cycle
Cycle time

95% 5%

Input Wait for Wait to Move Wait in queue Setup Run Output
inspection be moved time for operator time time

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Inventory Management

 How inventory items can be classified?

 How accurate inventory records can be


maintained?

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Why hold inventory?
• Improve customer service

• Transportation savings

• Hedge against future

• Unplanned shocks (labor strikes, natural disasters, surges in

demand, etc.)

• To maintain independence of supply chain

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Categories of
Cycle stock Inventory Safety stock

Anticipation Pipeline
inventory stock

Dead stock

Decoupling stock

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1. Cycle Stock :
Because of the economies of scale involved in production and
transportation it makes sense to produce and transport goods in

batches. The is called as cycle stock. 2. Safety stock :


It is a safeguard against the uncertainties of demand and
supply.

3.Pipe line stock:


Since production and transportation activities take certain finite
time, firms need to carry pipeline or in transit stock. Pipeline stock
consist of good usually being worked upon (WIP) or being moved from
one location to another in the chain ( In transit Inventory).

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4. Decoupling Stock:

Since it is not possible to carry out supply chain operation with


just one decision maker, the entire supply chain is usually divided into
various decision making unit, the demarcation of decision making unit
take place at both organizational and departmental boundaries, so it
is not uncommon for organizational to hold large inventories at
organizational as well as departmental level. This becomes decoupling
inventories. So that flexibility at each level can be made

5. Dead Stock:

It refers to that part of the stock , that remain dormant or non


moved over a long period of time .

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It consist of stock accumulated in advance of expected peak in sales or to take care of
some special event that does not occur on regular basis.
6. Anticipation Stock :

It is of two types
1. Seasonal Stock
2. Speculation Stock

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Inventory Costs

Inventory costs are basically categorized into three headings:

1- Ordering Cost
2- Carrying Cost
3- Shortage or stock out Cost & Cost of Replenishment

a. Cost of Loss, pilferage, shrinkage and obsolescence etc.


b. Cost of Logistics
c. Sales Discounts, Volume discounts and other related costs.
Ordering Cost

Cost of procurement and inbound logistics costs form a part of Ordering Cost.
Ordering Cost is dependent and varies based on two factors - The cost of
ordering excess and the Cost of ordering too less.

Both these factors move in opposite directions to each other. Ordering excess
quantity will result in carrying cost of inventory. Where as ordering less will
result in increase of replenishment cost and ordering costs.

Thus, How Much to Order and When to Order questions are important.

How much to order is determined by arriving at the Economic Order Quantity or


EOQ.
Carrying Cost

Inventory storage and maintenance involves various types of costs namely:

a. Inventory Storage Cost


b. Cost of Capital

inventory management and process involves extensive use of Building, Material Handling
Equipments, IT Software applications and Hardware Equipments coupled managed by
Operations and Management Staff resources.
Inventory Storage Cost
Inventory storage costs typically include Cost of Building Rental and facility
maintenance and related costs. Cost of Material Handling Equipments, IT
Hardware and applications, including cost of purchase, depreciation or rental or
lease as the case may be. Further costs include operational costs, consumables,
communication costs and utilities, besides the cost of human resources employed
in operations as well as management.

Cost of Capital
Includes the costs of investments, interest on working capital, taxes on inventory
paid, insurance costs and other costs associate with legal liabilities.
Inventory Storage Cost
Inventory storage costs typically include Cost of Building Rental and facility
maintenance and related costs. Cost of Material Handling Equipments, IT
Hardware and applications, including cost of purchase, depreciation or rental or
lease as the case may be. Further costs include operational costs, consumables,
communication costs and utilities, besides the cost of human resources employed
in operations as well as management.

Cost of Capital
Includes the costs of investments, interest on working capital, taxes on inventory
paid, insurance costs and other costs associate with legal liabilities.

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