INVENTORY MANAGEMENT

Successful inventory management involves balancing the costs of inventory with the benefits of inventory. There are many costs of carrying inventory, which include not only direct costs of storage, insurance and taxes, but also the cost of money tied up in inventory. This fine line between keeping too much inventory and not enough is not the manager's only concern. Others include: -Maintaining a wide assortment of stock -- but not spreading the rapidly moving ones too thin; -Increasing inventory turnover -- but not sacrificing the service level; -Keeping stock low -- but not sacrificing service or performance. -Obtaining lower prices by making volume purchases -- but not ending up with slow-moving inventory; and -Having an adequate inventory on hand -- but not getting caught with obsolete items.

There are four types of inventoried1) Production Inventories: Raw materials, parts and components, which enter the firms product in the production process. 2) MRO Inventories: Maintenance, repair and operating supplies which are consumed in the production process, but will not be a part of the product 3) In-process inventoried: Semi- finished goods found at various stages in production operations 4) Finished goods inventories: Inventories ready for shipment.

Costs related to inventory 1. Ordering Costs A. Cost of placing order from vendor B. Cost of ordering from plant 2. A. B. C. D. E. F. G. Carrying costs Costs connected directly with material Financial costs Capital Costs Storage Space costs Inventory Service costs Handling Equipment costa Inventory risk costs

3. Out-of-stock costs A. Back ordering B. Lost Sales 4. Capacity Costs A. Overtime costs when capacity is too small B. Lay off and idle time when capacity is too large In order to avoid all these costs, efficient management of the inventory is necessary. In order to manage our inventory we would like to use the Fixed Order Period System or P System In this system, a fixed quantity is ordered whenever the stock reaches a re-order point. It is estimated that the size of the inventory in stock is enough to produce 6,000 pairs, and our current weekly production is 3000 pairs. So an order will be placed for raw materials every 7 days. It is estimated that it would take 3 to 4 days for the delivery of raw materials from suppliers. This decision is related to the Production Inventory. MRO inventory must be ordered twice a week as the regular maintenance and check up happens with the same frequency. Oiling etc. takes place almost regularly so proper care must be taken regarding those inventories. In Process inventories are very minimal as the process is designed in such a way that every product gets assembled and is ready to be packed as per the requirement. So at the end of the day there may be around 20 to 50 units of in process inventory as the daily production will be approx. 500 pairs. Finished goods inventories will be 500 pairs a day but will be dispatched as per order. As this is a very novel product, it is expected to have a finished product inventory of maximum 50 pairs at the end of the week as only 3000 pairs are getting manufactured and there is an expected higher demand of such type of product in the market. We will be taking the steps stated above for managing our inventory. But more efficient techniques of managing inventory are the MRP and the just-in-time techniques. But these need a very detailed knowledge and high experience about the whole production and supply chain, which comes through experience. We are a new startup so we plan to start with inventory management and then adopt MRP and just-in-time techniques.