Inventory Management

presented by:
Kritika chhatwal
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
Inventory
Def. - A physical resource that a firm holds in
stock with the intent of selling it or
transforming it into a more valuable state.
Raw Materials
Works-in-Process
Finished Goods
Maintenance, Repair and Operating (MRO)
 Inventory Positions in the
Supply Chain

Raw Works
Materials Finished Finished
in Goods Goods
Process in Field
 Nature of Inventory
Quality - inventory can be a buffer against poor
quality; conversely, low inventory levels may force
high quality
Speed - location of inventory has gigantic effect on
speed
Flexibility - location, level of anticipatory inventory
both have effects
Cost - direct: purchasing, delivery, manufacturing
indirect: holding, stockout.
HR systems may promote this-3 year postings
 Objectives
To maintain a large size of inventories
of raw material and work in progress for
efficient and smooth production & of
finished goods for uninterrupted sales.
To maintain a minimum investment in
inventories to maximize profitability.
Need To Hold Inventory:
Transacation Motive
Precautionary Motive
Speculative Motive
Zero Inventory?
Reducing amounts of raw materials and
purchased parts and subassemblies by
having suppliers deliver them directly.

Reducing the amount of works-in process

by using just-in-time production.

Reducing the amount of finished goods by

shipping to markets as soon as possible.
Reasons for Inventories
Improve customer service
Economies of purchasing
Economies of production
Transportation savings
Hedge against future
Unplanned shocks (labor strikes, natural
disasters, surges in demand, etc.)
To maintain independence of supply chain
Inventory and Value

Quality
Speed
Flexibility
Cost
Design of Inventory Mgmt.
Systems:
1)ECONOMIC ORDER QUALITY (EOQ)
EOQ minimizes the sum of holding and setup costs. It involves
two types of costs:
a)Ordering costs
b)Carrying costs
2)REORDER POINT
The reorder point is that inventory level at which an order should
be placed to replenish the inventory.To determine the recorder
point under certainity we should know:
a)Lead time
b)Average usage
Carrying costs
Requisitioning
Order placing
Transportation
Receiving ,inspecting ,storing
Clerical & staff
Ordering costs
Warehousing
Handling
Insurance
Deterioration
Clerical & staff
Some of Inventory Costs
Procurement costs
Out-of-stock costs
Procurement Costs
Order processing
Shipping
Handling
Purchasing
manufacturing
Out-of-Stock Costs
Lost sales cost
Back-order cost
Inventory control systems:
ABC system
JIT system
Out sourcing system
Computerised system
Response based system
ABC inventory control systems

A Items: very tight control, complete and

accurate records, frequent review
B Items: less tightly controlled, good
records, regular review
C Items: simplest controls possible, minimal
records, large inventories, periodic review
and reorder
JIT (just in time) inventory control system

In JIT system eliminates the necessity of

carrying large inventories, & thus saves
carrying & other related costs.
This system requires perfect understanding &
coordination b/w the manufactures and
suppliers.
The JIT system complements the TQM.
OUTSOURCING inventory control system

It is a system of buying parts and

components from the outsides rather
than manufacturing them internally.
For eg. Tata motors
COMPUTERISED inventory control system
It enables a company to easily track large
items of inventories. It is an automatic
system of counting inventories, recording
withdrawals and revising the balance.
The information of the buyers and sellers are
linked to each other.
RESPONSED BASED inventory control System
Replenishment, production, or purchases of stock are
made only when it has been signaled that there is a
need for product downstream
requires shorter order cycle time, often more
frequent, lower volume orders
determine stock requirements to meet only most
immediate planning period (usually about 3 weeks)
Objectives of Inventory Control system
1) Maximize the level of customer service by
avoiding under stocking.
2) Promote efficiency in production and
purchasing by minimizing the cost of
providing an adequate level of customer
service.
Anticipatory Inventory Control
determine requirements by forecasting
demand for the next production run or
purchase
establish current on-hand quantities
add appropriate safety stock based on
desired stock availability levels and
uncertainty demand levels
determine how much new production or
purchase needed (total needed - on-hand)
THANKYOU