Inventory Management

Presented by: Monica Caayohan

-methods that are used
for organizing, holding
and replenishment of
stock.

-refers to the
process of ordering,
storing, and using a
company's inventory.
 Inventory Management
-is all about having the right inventory
at the right quantity, in the right
place, at the right time, and at the
right cost.
 Nature of Inventories

Raw Work-in-
Materials progress

Finished
Supplies
goods
 Nature of Inventories
1.RAW MATERIAL 2.WORK-IN-PROGRESS
Basic inputs that are Semi-manufactured products
converted into finished need some more works
product through the before they become finished
manufacturing process goods for sale.

3.FINISHED GOODS 4.SUPPLIES

Completely manufactured Office and plant cleaning
products ready for sale materials not directly enter
production but are necessary
for production process and
do not involve significant
Transaction Motive
to facilitate Continuous
Production.

Speculative Motive
for taking advantage of price
fluctuations, saving in re-
ordering costs and quantity
discounts, etc.
Precaution Motive Purpose of
for meeting unpredictable
changes in demand and holding
supplies of materials
Inventories
Inventory •Service Setting stocking levels so that there is only a
specified probability of running out of stock
Management objectives

Objectives •Cost objectives

Balancing conflicting costs to find the most
economical replenishment quantities and timing
 • Inventory control involves managing the inventory that
is already in the warehouse, stockroom or store. That is
knowing, what products are "out there", have much you
have each item and where it is. It means having
accurate , complete and timely inventory transactions
Effective record and avoiding differences between accounting and
real inventory levels
Inventory
• Inventory Management involves determining, how to
Manageme order products and how much to order as well as
identifying the most effective source of supply for each
nt item in each stocking location. Inventory management
includes all activities of planning, forecasting and
replenishment. The main purpose of inventory
management is minimization differences between
customers demand and availability of items. These
differences have caused by three factors: customers
demand fluctuations, suppliers delivery time fluctuations
and inventory control
 Types of inventories
Cycle stock

In-transit inventories / pipeline stock

Safety or buffer stock

Speculative stock

Seasonal stock

Dead stock
 Type of Inventories
Cycle stock
inventories for satisfying usual
(predicted) demand between
replenishments (receiving new
ordered quantities)
Safety or buffer
held in excess of cycle stock because of
stock
uncertainty in demand or lead time.
Amount depends on extent of demand
fluctuation, replenishment lead time and
planned availability level for customers.
Makes the majority of inventory in the
typical logistic system
Seasonal stock
form of speculative stock that
involves accumulation of inventory
before a seasonal period begins (or
ends – in agriculture)
In-transit inventories /
pipeline stock
items that are en route from one
location to another. They may be
considered part of cycle stock even they
are not available for sale or shipment
until after they arrive at the destination.
Speculative stock
held in excess of cycle stock because of
uncertainty in demand or lead time.
Amount depends on extent of demand
fluctuation, replenishment lead time and
planned availability level for customers.
Makes the majority of inventory in the
typical logistic system
Dead stock
items for which no demand has
been registered for some specified
period of time (obsolete products,
demand season ended, etc)
 • SKU is an individual
product that differs from
other product some way.
Stock- The difference could be in
keeping unit size, color, brand, model,
package, function or some
/item other relevant
characteristic or
combination of these.
Each SKU has its own
unique identification code
(product code) in
inventory accounting
system and it is counted
and stored separately from
other items
 • Backordering – the quantity requested by the
customer is placed on a separate order called a
backorder and the special order is filled as soon
as the product is available from internal or
external source. In some cases the backorder is
shipped directly from its original source to the
customer
Three
possible • Substitution – occur when a
product acceptable for the
responses customer is substituted for the
to stock- product that is not available.

out
• Lost sales – occurs when
unsatisfied client annuls the
order. Common in retail
situations
Average
Inventory
Inventory replenishment

Inventory • What is the demand?

replenishmen • What is currently available for satisfying
demand?
t means • What is on order (but not received yet)?
answering • What will need to be ordered?
the following • When will orders need to be released?
• How much should be ordered?
questions :
 Periodic review system
Majority of
inventory
replenishmen
t methods are
the variations Reorder point system
of following
three
theoretical
basic models: Time phased order point system
Periodic
review
system

a system in which an item’s

inventory position is reviewed
periodically rather than
continuously.
Reorder Point
System
• is the inventory unit quantity on hand that triggers
the purchase of a predetermined amount of
replenishment inventory. If the purchasing process
and supplier fulfillment work as planned, the reorder
point should result in the replenishment inventory
arriving just as the last of the on-hand inventory is
used up. The result is no interruption in production
and fulfillment activities, while minimizing the total
amount of inventory on hand.
Time phased order point system
TPOP is computerized management tool that plans inventory needs in priority sequenced,
time phased manner to meet customers and forecast demand as it occurs.

This technique is at the heart of MRP and DRP systems used for the control manufacturing
and distribution channel inventories.

Main advantage – inventory actions are triggered by matching supply with anticipated demand as it occurs
in time. At the point where demand exceeds the supply, the system will alert inventory planner to order
the item according to predetermined lot size and to have it available at the anticipated date on which
stock-out will occur.

In addition, each time when TPOP is generated, the system will resequence demand
and supply relationships and suggest a new set of required order actions for the order
planner
 MRP indicates:
 The types of material and the quantity that
has to be purchased from outside, taking
into account current inventory levels
MRP-
material  The types of materials that need to be
manufactured internally and in what quantity,
requirement taking into account current inventory levels
s planning
At what time to place these orders, either by
purchasing outside or for manufacturing
inside.
 The total
• Material cost (landed cost). the purchase
price of product plus freight and any other
charges that are related to specific shipment.
cost is Or manufacturing cost in production.
• Ordering cost. Cost of issuing, receiving and
Product the sum paying on a vendor. These are costs
associated ordering frequency, not with
total cost
of three quantity ordered
• Inventory carrying or holding cost. Cost of
elements maintaining inventory in warehouse before it
is sold, transferred or otherwise used. These

: are costs associated with quantity ordered,

not with ordering frequency.
 • Lost sales cost – when customer faced
with an out of stock situation, chooses
There are to withdraw request for product.
Unearned profit from given sale +
Out of two kinds possible negative effects on future sales.
• Back order cost – when customer
stock
costs
of out of decides to wait in out of stock situation.
stock The sale is not lost, only delayed, but it
incurs backorder processing costs and
costs: additional transportation and handling
costs (if backorder is processed and
delivered as separate shipment
Economic
Order
Quantity
the ideal order quantity a
company should purchase for
its inventory given a set cost
of production, a certain
demand rate, and other
variables. This is done to
minimize inventory holding
costs and order-related costs.
Inventory position
• On-hand inventory. Quantity
that inventory system shows as
being physically in stock. This
value should never negative. This
is the starting point for the
replenishment calculation
• On-order inventory is replenishment
stock that has been ordered but has not
yet been received. Although the
inventory position calculation considers
on-order inventory as if it were on hand,
this stock should not be allocated to
open customer orders or existing
backorders within the replenishment
lead time
• Available inventory is found by
subtracting from on hand inventory all
order demand quantities, whether
allocated or unallocated. The balance
remaining is the quantity available to
immediately satisfy new customer
demands. This value can be negative, if
open customer orders exceed onhand
inventory
• Inventory position – value that is
determined for given item by subtracting
the inventory requirements generated
by open customer and interbranch
transfer orders, allocated (committed)
and backorders from the total on-hand
stock and expected on-order inventory.
Case Study
 BOEING (UK)
Unrivaled Accuracy: RGIS Pilots Inventory Program for
UK CH-47 Chinook
 SUMMARY
RGIS, the global leader in providing inventory services was
challenged by Boeing, the world’s leader in aerospace to
develop an inventory program for the Chinook helicopters of
the Royal Air Force (RAF) in Great Britain. Boeing needed to
validate the number and associated value of the in-stock parts.

Before selecting RGIS to handle the project, Boeing searched

for a third- party inventory company and considered proposals
from ten suppliers. After presenting bids and methodology
presentations, RGIS was awarded this prestigious contract.
 SUMMARY
RGIS was selected for a number of reasons, including:
• Excellent track record in accurate and consistent data-gathering techniques
across multiple sites
• Proven scheduling flexibility
• Effectiveness in working with multiple project partners
• Employee integrity
• Efficient project coordination and data reconciliation abilities

At the end of the inventory process, Boeing, the RAF, and the British Ministry
of Defence (MOD) used the data collected and validated by RGIS to negotiate
the transfer of the Chinook Helicopter parts from the RAF to Boeing. RGIS
provided an inventory program that helped Boeing reduce their costs and
improve their processes.
CHALLENGES:
-In May of 2006, Boeing formally commenced work on the “Through
Life Customer Support” programme for the Royal Air Force’s (RAF’s)
fleet of Chinook helicopters. -Boeing had previously manufactured
and sold the Chinook helicopters and parts to the RAF.
-Prior to the awarding of this maintenance contract to Boeing, the
RAF maintained these helicopters in-house and managed the tracking
of parts in stock with two inventory systems.
-The value of the parts varies from a few pence to over £1,000,000
per item.
-The parts are located on RAF/MOD installations in the U.K. and
around the world.
CHALLENGES:
-The information had to be viewed separately,
consolidated, and then reported globally back to
Boeing and the MOD.
-Parts in stock are assigned a designated location
within a base.
-For security reasons, an individual stock item may
have several locations within a base.
-This meant there was no central view of which
parts were at which base, or at what location(s) on a
base a part was stored. 
SOLUTION:
-RGIS staff members worked with Boeing,
RAF/MOD, and DARA to complete this project.
-RGIS provided auditors along with managers and
operations support personnel working across five
U.K. bases.
-The RGIS program was divided in three steps:
 The RGIS Process Pre-Inventory
The RGIS Process Inventory
 The RGIS Process Post-Inventory
The RGIS Process  Pre-
Inventory:
• RGIS worked with Boeing in a tight schedule window, to accomplish
the inventory in one week less than was initially required. 
•Scheduling challenges included the following:
>The very limited availability of RAF/MOD and DARA staff, who were
required to assist with locating and opening some parts containers
>The requirement that the same part had to be counted in all locations
around the world at one time
>Part counting had to be completed in a specified four-hour window or
else that count would be invalidated in other locations.
>RGIS created a custom inventory programme to facilitate the many
and varied streams of information that were required
The RGIS Process 
Inventory:
•RGIS captured and reconciled the data at the five U.K.
bases.
•Parts were categorized according to class and condition
and whether the item was removed from an aircraft for
repair.
•Counts were compared to the quantities on record in the
RAF databases
•Variance reports were generated in real time.
•Items showing discrepancies were recounted.
•Fully reconciled data had to be made available twice daily.
The RGIS Process  Post-
Inventory:
•RGIS provided Boeing with a consolidated file showing
the global position of each parts line captured compared
to the quantity expected at the time the item was counted.
•Interim reports and final information were provided on
the secure Boeing website for ease of access by those with
permission to view the data.
•Boeing and the MOD were able to obtain an accurate
inventory count
•They could more readily identify where they would have
an urgent and immediate need for parts.
BENEFITS:
•RGIS provided an accurate, reliable and efficient inventory
resulting in improved product availability and process
improvements for the future.
•Excellent track record in accurate and consistent data-gathering
techniques across multiple sites
•Proven scheduling flexibility
•Effectiveness in working with multiple project partners
•Efficient project coordination and data reconciliation abilities
•Employee integrity
•RGIS provided an inventory program that helped Boeing reduce
their costs and improve their processes. 
Resources:
https://www.vkok.ee/logontrain/wp-content/uploads/
2014/03/Riga-3-july-2014.pdf
https://www.slideshare.net/JamesHead1/boeing-case
-study-altlr4papproval-310108
https://www.youtube.com/watch?v=L6kd6JBBk_4&t
=5s
https://www.youtube.com/watch?v=A88uoWbxG2M