invenory managmnt

7/31/2019 invenory managmnt

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INVENTORY MANAGEMENT

Bysujith.m

&

jithin mohan. p


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Meaning and kinds of inventories

inventories are the stock of goods kept in

business and meant either for sale or for

consumption in the production process.

It includes :

Raw materials

Work in progress Finished goods


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Need /purpose of holding inventories

Transaction motive

Precautionary motive

Speculative motive

Benefits :

Avoiding loss of sales

Availing quantity discount

Reducing ordering costs

Smooth running of business


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Risk and cost of holding inventories

Risk of price decline

Risk of obsolescence

Risk of deterioration Capital costs

Storage and handling costs


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Inventory management

Inventory management simply refers to

management of inventory. It can be defined as

the overall way a company manages its

inventory and its control system to manage

the benefit of carrying inventory against cost..

It aims to manage inventory efficiently and

effectively..


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Objectives of Inventory Management

To ensure continuous supply of materials , sparesand finished goods so that production may not beheld up for want of supply of materials.

To avoid over stocking and under stocking ofinventories.

To avoid wastage like theft , pilferage , leakage,spoilage etc..

To promote manufacturing efficiency andpromote execution of orders to ensure betterservice to customers.

ctd..


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Ctd.. To maintain inventories at optimum level keeping in

view the operational requirements.

To eliminate duplication in ordering or replenishing

stock.

To have optimum investment in inventories, thus

ensuring efficient use of capital.

To purchase raw materials in bulk to avail quantity

discount and to take advantage of favorable marketconditions.

To ensure supply of raw materials at a reasonable

price without sacrificing the quantity.


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Techniques Of Inventory

Manangement

Order cycling system Two bin system

ABC analysis

Stock or inventory turnover Min max plan

Kardex system

JIT inventory system

VED analysis

Economic order quantity

Fixation of various stock levels


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Order cycling system

It is a technique of inventory control in whichinventory of materials is reviewed periodically,like 30, 60 or 90 days. If in the course of

periodic review it is observed that stock levelof an item is not sufficient to meet itsconsumption , an order is placed to replenishits supply.

The objectives is to maintain the inventory to adesired level..


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Two Bin System

Two bin system is commonly used when

material are relatively inexpensive or non

essential. Under this system , two bins are

maintained- smaller or larger.

In the smaller bin , the minimum quantity is

kept and the remaining quantity is kept in the

larger bin. The quantity in the smaller bin is notissued as larger bin has materials ..


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ABC Analysis

ABC analysis is known as always better control orcontrol according to values or proportional partsvalue analysis

ABC , analysis is a technique of inventory controlwhich is aimed at directing control activities to suchof categories of material as demand particularattention, It is also known as selective method of

control For effective and proper control all itemsof stores should be classified on the basis ofinvestment involved . A , B & C.


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Stock or inventory turnover

In The words oh Kohler . Inventory turnover isdefined as a ratio which measures the numberof times a firms average inventory is soldduring a year.

Inventory turnover =

cost of materials consumed/ Averagestock of materials


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Min Max Plan

It is one of the oldest methods of inventorycontrol. Under this system , minimum level andmaximum level for every material are fixed . The

minimum level serves as the re-order point. Assoon as the stock of material comes down tominimum level , order is placed for that quantityof material which will bring the stock to the max

level., it is very simple to operate and easy tounderstand.


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Economic Order Quantity (EOQ)

EOQ

Optimal quantity that will minimize totalinventory costs

D = demand in units per year

C = holding cost in dollars/unit/yearS = cost of placing an order in dollarsQ = order quantity in units


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Fixing stock levels

Quantitative limit which is something

standard that does not permit to exceed the

limits

Maximum level

Minimum level

Re-order level

Average stock level


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Maximum level

Indicates the maximum quantity of an item of

inventory which can be held in store at any

time

Maximum level=(re-orde level + re-order

quantity) minimum consumption rate *

minimum re order period)


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Minimum level

Minimum level indicates the quantity balance

of an item of inventory which must be

maintained in hand at all times

Minimum level = reorder level (normal

usage rate * normal reorder period )


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Reorder level

Level where the stock level reaches a stage

indicating the replenishment of the stock as

there is always a gap between placing an

order and actually getting the stock

Re order level = maximum usage rate*

maximum reorder period


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Average stock level

There are basically two stock

Minimum stock

Maximum /reorder quantity has to beconsidered

Average stock level = (maximum stock level +

minimum stock level)/2


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VED Analysis

Inventory items are grouped into vital,

essential and desirable

Vital items items of inventory whose

inaddequate supply may substantially damage

the productive activities

essential items whose non availability can

not be tolerated for few hours or one day and

the cost of production lost is high


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Desirable items which do not have any

immedite impact on production , hence these

may or may not be maintained

Thus , VED analysis does not consider the

utility of the inventory items on the basis of

value but on their impact on the production


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JIT

Just in Time Inventory is the minimum

inventory that is necessary to keep a system

perfectly running.

With just in time (JIT) inventory, The exact

amount of items arrive at the moment they

are needed, Not a minute before OR not a

minute after.


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Ctd..

To achieve JIT inventory, Managers should Reduce

the VariabilityCaused by some Internal and

External Factors. (Goldratts boys scout example

Apply the pace of the slowest boy). Existence of Inventory hides the variability

Most variability is caused by tolerating waste

(inventory). The variability is influenced by both internal and

external factors


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Inventory systems


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Periodic inventory system

Periodic inventory system defined as the method of recordinginventory at the end of the accounting year after making a physicalverification of the quantity in hand .

Following steps are taken to ascertain the value of inventory

Individual items of the inventory are taken by one by one and

weighted , measured or counted All items are listed , priced and added so as to get the figure of

inventory

It is very simple and does not need various records to bemaintained

and some disadvantages are it involves stoppage of businessoperations for a number of days till stock taking is complete, it doesnot provide the information regarding inventory in hand on acontinuous basis


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Perpetual inventory system

It is defined as the system of recording inventory aftereach receipt and issue. Under this system , stock registersare regularly maintained . Stock registers give the balanceof inventory at any time desired.

Some of the advantages are it does not require stoppageof business operations for inventory valuation ,Discrepancies are easily located and , thus , correctiveactions can be taken promptly , The system facilitatesinventory control and avoids over investments in

inventories through continuous stock taking And some of the disadvantages are it requires elaborate

organization and records , it is an expensive system


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Tools of perpetual inventory system

Bin card

Stores ledger

Continuous stock-taking


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Bin card

Bin means container , rack , space or shelf

where goods are stored by the storekeeper .

To each bin a card is attached to show the

stock position of the bin , It is known as bincard. It may defined as a quantitative record

which shows information relating to the

physical movement of material ,i.e. receipt ,issue and balance of materials minimum levels

, maximum level ordering level etc..


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Stores ledger

Stores ledger is akin to bin card . Stores ledger

may be defined as a record which shows

information relating to movements of

material in quantity as well as in value i.e.receipts issues and closing balances of

materials at a particular point of time . Stores

ledger is one of the basic records for materialaccounting. For each kind and class of

material, a stores ledger is maintained .


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Continuous stock taking

It may defined as a process of physical

verifications of each and every item of stores a

number of times of each year . The times of

stores are verified by counting , weighting ormeasuring and compared with bin card

balances.


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invenory managmnt