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SCM 6 Inventory Planning & Control

The document discusses inventory planning and control, explaining that companies must maintain inventory to account for intermittent demand, lead times, and other uncertainties. It describes different inventory models like economic order quantity and just-in-time, and notes that proper inventory planning is important for supply chain management while reducing holding costs.

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28 views

SCM 6 Inventory Planning & Control

The document discusses inventory planning and control, explaining that companies must maintain inventory to account for intermittent demand, lead times, and other uncertainties. It describes different inventory models like economic order quantity and just-in-time, and notes that proper inventory planning is important for supply chain management while reducing holding costs.

Uploaded by

HIDDEN Life OF 【शैलेष】
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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SCM & GLOBAL LOGISTICS

INVENTORY PLANNING & CONTROL


CONTINUOUS & INTERMITTANT DEMAND
The demand for a particular may be continuous( For an
assembly line operation) or it may be intermittent due to any of
the following reasons:
a) Product is of seasonal nature with varying degrees of
demand
b) Product demand is for spare parts to be used in repairs
c) Product demand is for warranty items needed for urgent
repairs
d) Customer is using the parts for his own usage (unrelated to
the intended design/operation)
e) Batch production system is being used
SCM & GLOBAL LOGISTICS
CONCEPT OF INVENTORY
Due to intermittent and sudden demand of the product, a
company has to maintain sufficient stock of items. This is
known as inventory.
In a normal situation also, some inventory is needed due to:
 Lead time requirement of secondary suppliers
 Time required for transportation
 Unforeseen delays at suppliers level and transportation
 High cost of transportation for limited quantity
Hence a manufacturer needs to maintain a certain quantity
of inventory which may be :
SCM & GLOBAL LOGISTICS
INVENTORY PLANNING
Hence a manufacturer needs to maintain a certain quantity
of inventory which may be :
 Seasonal
 Cyclic
 Pipeline
 Safety
 Emergency orders related
In all the cases basic premise is to avoid “STOCK OUT”
situation at all costs
SCM & GLOBAL LOGISTICS
INVENTORY CONTROL
To control the inventory various ordering methods are used
such as :
A. FOIS ( Fixed Order Interval System )
B. FOQS (Fixed Order Quantity System )
C. ORS ( Operational Replenishment System ) Two bin
system is an example
D. EOQ ( Economic Order Quantity )
E. JIT ( Just In Time)
SCM & GLOBAL LOGISTICS
INVENTORY COSTS
Inventory costs are of different natures such as :
I. Ordering cost : Cost involved in preparation, Raising a
purchase order etc
II. Carrying cost :This is a major cost, due to blockage of funds,
requiring to pay interest
III. Shortage cost : This is due to the losses incurred on account
non availability of a certain item, causing operational delays
in whole operation. In addition there is an estimated cost
due to loss of reputation, customer dissatisfaction etc
Due to this all companies have concept of “safety stock”
meaning a minimum level below which a stock should not be
allowed to go down
SCM & GLOBAL LOGISTICS
EOQ MODEL
Most of the reputed companies follow EOQ or “ Economic
Order Quantity” model.
Economic Order Quantity depend on :
 Criticality nature of the item
 Lot size usually available
 Time needed for production
 Time needed for Transportation
 Safety stock level
There are various formulae and algorithms available, based
on various weightages assigned to different variables
SCM & GLOBAL LOGISTICS
EOQ WITH DISCOUNTS
Most of the leading firms used to have their own algorithm for
“EOQ”
However, big firms can negotiate substantial discounts from
suppliers due to their bargaining power on account of:
I. Large quantity of orders
II. Assurance to buy minimum bulk quantities in a
prescribed period (Financial year)
III. Assured payments usually linked to supply schedules
IV. Image boost for the buyer to get associated with the
firm’s name
Hence these firms have a different “EOQ” based on discounts
SCM & GLOBAL LOGISTICS
“ JUST IN TIME (JIT)”
However, most of the modern firms( especially linked to Japan) now
a days follow, a system called “ Just in Time “
The main features of JIT are :
1. There are no separate procurement orders placed with
suppliers
2. All the activities are linked to the MASTER PRODUCTION
SCHEDULE
3. Al suppliers send their parts to the production location on a
regular basis [One day before or same day]
4. Effectively there is no storage/Inventory at the production end
THE BEST EXAMPLE OF THIS, IS THE SYSTEM FOLLOWED BY “MSIL”
SCM & GLOBAL LOGISTICS
INVENTORY CONTROL
Inventory constitutes a major part of any Supply chain and
Logistics system.
Proper planning of Inventory ensures a smooth supply
during all operations, at the same time reducing holding
costs.
Major cost of inventory is on account of :
A. Space needed store the items
B. Moving the stocks inside the store (To follow “FIFO”)
C. Amount of money blocked for holding the stocks
SCM & GLOBAL LOGISTICS
INVENTORY CONTROL
There are many ways dedicated to controlling the inventory
at its optimum level.
Some of the principles are Pereto analysis, ABC analysis
based on cost of parts and storage cost etc
ABC analysis consists of dividing the total items in three
categories :
A. Essential & Vital
B. Important
C. Others
Special attention is given to managing “ A “ & “B “ category
items
SCM & GLOBAL LOGISTICS
INVENTORY TURN RATIOS
Total Turnover of inventory in a fixed period (usually one
year) divided by average cost of inventory is referred as
‘Inventory Turn Ratio’
Earlier an Inventory Turn Ratio between 4and 5 was
considered healthy.
However, with the new system of “JUST IN TIME” , the
average inventory can be brought to virtually nil.
This brings the Inventory cost to zero (‘Negative Inventory’)
can be seen , in case of MSIL, in India
SCM & GLOBAL LOGISTICS
SCM & GLOBAL LOGISTICS

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