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Om Singh
9-2 Inventory Management
Contents
• Aims , Staffing of Store room.
• Facilities and Equipments
• Storage and System
• Location of Storage
• Types of store received
• Inventory
• Objectives
• Methods
• Level of Techniques
• Perpetual Inventory
• Monthly Inventory
• Pricing of Commodities
• Comparison of Physical Inventory
9-3 Inventory Management
Learning Objectives
After studying this topic you will be able to :-
• Storing and Storage Practice.
• Location of Storage and Modern equipments in Storage.
• Explain the purpose and procedures for taking inventory .
• Objectives of inventory
• Explain the ways to assign costs to units of food in industry.
• Compute the daily cost of food sold
• Explain book inventory and actual inventory.
• Understand the formula for calculating cost of food consumed.
• Difference between periodic and perpetual inventory.
• Importance of inventories in hotel industry
• Various types of inventories used in hotel industry.
9-4 Inventory Management
Pre- Requisite
Conditions
• Temperature
• Storage containers:
• Staples (airtight, insect-proof); – Perishables (packed to maintain
original quality); - Fresh Fish (packed in ice); - Cooked foods &
open cans (stainless steel containers)
• Shelving:
• Perishables (slatted shelving)
• Non perishables (solid steel shelving)
• Cleanliness: daily sweeping and cleaning
9-8
Factors Involved in Arrangement of
Inventory Management
Foods
• Availability according to use
• Most frequently used items closest to entrance
• Fixing definite location
• Each item always found in the same location
• Separate facilities for storage of different classes of
foods
• Rotation of stock
• Older quantities of food used before newer deliveries
• First-in, first-out method of stock rotation
9-9 Inventory Management
• Maximizes security
Dry Storage
Refrigerated Storage
Freezer Storage
Location
Rotation of stock
Availability
• Location of storage facilities
• Security
9-20 Inventory Management
Inventory
Controls
9-21 Inventory Management
A Dependent Demand
B(4) C(2)
Types of Inventories
• Raw materials & purchased parts
• Partially completed goods called
work in progress
• Finished-goods inventories
• (manufacturing firms)
or merchandise
(retail stores)
9-23 Inventory Management
Functions of Inventory
• Periodic System
Physical count of items made at periodic
intervals
• Perpetual Inventory System
System that keeps track
of removals from inventory
continuously, thus
monitoring
current levels of
each item
9-29 Inventory Management
Low C
Few Many
Number of Items
9-32 Inventory Management
Cycle Counting
Inventory Valuation—LIFO
Last-In, First-Out
• Cost of products most recently added to inventory
(last-in) are the costs assigned when products are
issued (first-out).
• Cost-of-sales figures more accurately reflect
replacement costs.
• During times of inflation, LIFO tends to create a lower
total inventory value because most recent costs are
first issued and most recent costs are typically higher
than products purchased in the past.
9-34 Inventory Management
Inventory Valuation—FIFO
First-In, First-Out
• Oldest costs in inventory are “issued” or assigned
first.
• During times of inflation, FIFO tends to create a
higher total inventory value because the more recently
purchased products with typically the higher costs
remain in inventory.
• Inventory valuation affects food costs, taxes, and
profitability.
9-35 Inventory Management
Reorder
point
Time
Receive Place Receive Place Receive
order order order order order
Lead time
9-38 Inventory Management
Total Cost
Annual Annual
Total cost = carrying + ordering
cost cost
Q + DS
TC = H
2 Q
9-39 Inventory Management
2 Q
Ordering Costs
Order Quantity
QO (optimal order quantity)
(Q)
9-40 Inventory Management
• No quantity discounts
9-44 Inventory Management
2DS p
Q0 =
H p− u
9-45 Inventory Management
Q + DS + PD
TC = H
2 Q
9-46 Inventory Management
TC without PD
PD
0 EOQ Quantity
9-47 Total Cost with Constant Carrying
Inventory Management
Costs
Figure 9.9
TCa
Total Cost
TCb
Decreasing
TCc Price
CC a,b,c
OC
EOQ Quantity
9-48 Inventory Management
Safety Stock
Figure 9.12
Quantity
Expected demand
during lead time
ROP
Reorder Point
Figure 9.13
Service level
Risk of
a stockout
Probability of
no stockout
ROP Quantity
Expected
demand Safety
stock
0 z z-scale
9-52 Inventory Management
Fixed-Order-Interval Model
Fixed-Interval Benefits
Fixed-Interval Disadvantages
Operations Strategy
• Wise strategy
• Reduce lot sizes
• Reduce safety stock
9-58 Inventory Management
Excersice
• Why is perpetual inventory not generally recommended for
the food in the storeroom ?
• Explain the term LIFO and FIFO What do you considered to
be the advantages and dis-advantages of using each of these
methods?
• Explain the difference between Periodic and Perpetual
Inventory ?
• Why a inventory is important for a food and beverage
operation ?
• How a management use inventory as a tool for smooth and
healthy operation
9-59 Inventory Management
Reference
• Management and Cost Control – by- Jagmohan
Negi , Page no :136- 160 , 190 – 211
• Cost control and system Management –by-
Charles Levinson Page no: 109 – 206
• F&B Management – by Bernard Davis – Page
No : 136 - 146