INVENTORY MANAGEMENT

SUBMITTED BY: ANUJ AGARWAL RAJEEV SHARMA

INVENTORY MEANS
All the materials , parts, suppliers, expenses and in process or finished products recorded on the books by an organization and kept in its stocks, warehouses or plant for some period of time.

INVENTORY MANAGEMENT
A proper

planning of purchasing of raw material handling storing and recording is to be considered by the inventory management. Inventory management is the technique of maintaining the size of the inventory at some desired level keeping in view the best economic interest of an organization.

WHY WE WANT TO HOLD INVENTORIES

Raw Material Suppliers may produce/ship materials in batches Quantity discounts and freight/handling $$ savings Work-in-Process Necessary in process-focused production May reduce material-handling & production costs Finished Goods Essential in produce-to-stock positioning strategies Necessary in level aggregate capacity plans Products can be displayed to customers

OBJECTIVES
1.

OF INVENTORY MANAGEMENT

2.

3.

Determine the optimum level of inventory investment To ensure a continuous supply of raw materials to facilitate uninterrupted production Maintain sufficient stocks of raw material in period of short supply and anticipate price changes

CONT
4.

5. 6.

To maintain a minimum investment in inventories to maximizes profitability Minimise the carrying cost and time Maintain sufficient finished goods inventory for smooth sales operation and efficient customer service

ADVANTAGES
Cost

saving Warehousing organization Updated data Time saving Reduce liability

DISADVANTAGE

Expensive Complexity

METHOD/TECHNIQUES

DETERMINATION OF ECONOMIC ORDER QUANTITY A.B.C ANALYSIS

ECONOMIC ORDER QUANTITY

EOQ is the quantity of material which can be purchased at minimum cost. EOQ is the point at which inventory carrying cost equal to order cost.

It refers to the size of the orders which gives maximum economy . In purchasing any material it also referred as optimum or standard ordering quantity. Determining an optimum level two types of cost ordering cost and carrying cost is necessary.

ORDERING COST
It is the cost of placing an order and securing the supplies it varies from time to time depending on the ordered place and the no. of items required. Most frequently orders are placed and fewers the quantity purchased the greater will be ordering cost and vice-versa. Cost of stationery , typing , postage, telephone charges etc.

CARRYING COST
These

cost are basically use for holding the inventories. It includes interest on investment , store keeping cost , maintainence cost , insurance premium etc. Cost of storage which could have been used for other purposes. Insurance cost Cost of spoilage in handling of materials.

EOQ COST MODEL

Annual cost Slope = 0 Minimum total cost CcQ Carrying Cost = 2

Total Cost

CoD Ordering Cost = Q Optimal order EOQ Order Quantity, Q

ASSUMPTIONS OF BASIC EOQ MODEL

Demand is known with certainty and is constant over time No shortages are allowed Lead time for the receipt of orders is constant Order quantity is received all at once

EOQ FORMULA
EOQ =

2AB CS

A = ANNUAL CONSUMPTION IN RUPEES B = ORDERING PLACE COST PER ORDER C = INVENTORY CARRYING COST PRE UNIT S = ORDERING COST PER ORDER

NUMERICAL OF EOQ
Calculating the economic order quantity from the following information. Also state the number of orders to be placed in a year. Consumption of materials per annum: 10000 kg Ordering placing cost per order : Rs 50 Cost per kg. of raw materials : Rs 2 Storage cost : 8% on Averageinventory
1.

SOLUTION
EOQ = 2AB CS A= 10000 B= 50 C= 2 S= 8% EOQ = 2AB CS =62,50,000 = 2,500 Kg No. of orders to be placed in a year = Total consumption materials per annum EOQ

= 10000 2500

= 4 Orders per year

ABC ANALYSIS

It

is efficient control of stores requires greater in case of costlier items

CLASSIFYING INVENTORY ITEMS

ABC

Classification (Pareto Principle) 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

CONTINUED.
Item A Quality Costlier Quantity order Less Checking Regular system to see that there is no overstocking as well as that there is no danger of production being interrupted for unwanted material. Position being viewed in each month Order in large quantity so that cost can be avoided

B C

Less costlier Economical

Order may be on review basis. Larger

ABC CLASSIFICATION OF INVENTORY ITEMS

Percentage of dollar volume

110 100 90 80 70 60 50 40 30 20 10 0

Percentage of inventory items (SKUs)

ABC ANALYSIS
Typical observations
A small percentage of the items (Class A) make up a large percentage of the inventory value A large percentage of the items (Class C) make up a small percentage of the inventory value These classifications determine how much attention should be given to controlling the inventory of different items

Class A
5 15 % of units 70 80 % of value

Class B
30 % of units 15 % of value
50 60 % of units 5 10 % of value

Class C

THANK YOU