UNIT III VEHICLES PARTS, SUPPLY MANAGEMENT AND BUDGET

Inventory: Inventory is a stock of any item or resource used in an organization and it may be held for use or sell in later time. It is a usable and idle stock possessing an economical value. Types of inventory: Broadly, inventory can be divided in two types, viz. 1. Direct inventory: These are inventory items which are directly involved in the manufacturing process and become part of the final product. This can be further categorized in following types: (i) Raw material: Input into the production system which is worked upon, modified or transformed into finished product. (ii) Work in process: These are inventories held up between processes and they are still in the process of production. (iii) Semi-finished: It is half finished goods waiting for production or assembly processes. (iv) Finished goods: The final products those are available for sales and distribution. 2. Indirect inventory: These are the inventories which do not become part of the final product but are necessary for production of the final product. Ex: Grease, tools, oils, etc.

Advantages of inventory: (i) (ii) It helps in smooth & continuous running of the production system. To meet variation in product demand: If the demand for the product is known precisely, it may be possible to produce the product to exactly meet the demand. Usually, however, demand is not completely known, and a safety or buffer stock must be maintained to absorb variation. To provide a safeguard for variation in raw material delivery time: When material is ordered from a vendor, delays can occur for a variety of reasons: a normal variation in shipping time, a shortage of material at the vendors plant causing backlogs, an unexpected strike at the vendors plant or at one of the shipping companies, a lost order, or a shipment of incorrect or defective material. Bulk purchasing may give quantity discount. To provide better service to customer.

(iii)

(iv) (v)

Classification of inventory: 1. Transit or pipeline or movement or transportation inventory: This can be simply thought of as inventory that is being moved from one location to another. Typically it is from factory to a stocking-point distribution centre as close to the end customer as

possible. A pipeline inventory also represents the finished goods of the supplier. The time the inventory spends in the pipeline has an impact on the lead times and inventory levels. 2. Safety stock or Buffer stock: is used to protect against the fluctuations in demand and supply. It makes up inventory held to buffer against fluctuations in forecast, changes in a customers order, or late shipment from a supplier. 3. Anticipation inventory: These are built up due to anticipated demand in future like big selling forecast, strike, plant shutdown etc. 4. Seasonal inventory: These are kept to meet the future demand of a product due to seasonal variation.

Inventory costs: In making any decision that affects inventory size, the following costs must be considered1. Purchase cost: It is the nominal cost or cost of purchasing inventory and is normally considered during quantity discount. Purchase cost = price per unitquantity purchased 2. Ordering cost: These costs refer to the managerial and clerical costs to prepare the purchase or production order. Ordering costs include all the details, such as counting items and calculating order quantities. The costs associated with maintaining the system needed to track orders are also included in ordering costs. Ordering cost= No. of ordersordering cost per order 3. Set-up cost: When the units are produced within the system, it is called set-up cost. It refers to the cost associated in bringing production system into play. 4. Holding or carrying cost: This broad category includes the costs for storage facilities, handling, insurance, pilferage, breakage, obsolescence, depreciation, taxes, and the opportunity cost of capital. Obviously, high holding costs tend to favour low inventory levels and frequent replenishment. It is directly proportional to the amount of inventory and the time over which it is held. 5. Shortage or stock out cost: When the stock of an item is depleted, an order for that item must either wait until the stock is replenished or be cancelled. When the demand is not met and the order is cancelled, this is referred to as a stock out. Shortage cost= No. of unit shortshortage cost per unit Inventory control: In inventory management some items are very important and given special care, while other few are very less important and are not given much attention. It means all items of inventory cannot and need not the control with equal attention. Management for this reason gives different items different priority for their control and management. Following are few of them: 1. ABC (Always better control) control: Most inventory control situations involve so many items that it is not practical to give thorough treatment to each item. To get around this problem, the ABC inventory classification scheme divides inventory items into three groupings based on their annual usage value in monetary term i.e. inventory items are classified into A, B and C category depending upon their consumption value.

Category A B C

Annual usage value (%) 50-60 30-40 10-20

Annual consumption (%) 10-20 30-40 50-60

2. VED (Vital, essential and desirable) analysis: This classification is on the basis of criticality of inventory item for the production system. 3. SDE (Scarce, difficult & easily available) analysis: Here classification is based on the basis of easiness or difficulty of availability of inventory items.