DEFINITION

The ordinary dictionary meaning of inventory is a list of goods an estate contains. 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

IT CONSISTS OF:
1.
2. 3.

4.
5. 6.

Raw materials Work in progress Maintenance materials Processed and semi processed materials Oils, fuels and lubricants Finished and semi-finished goods

THE NEED FOR INVENTORY

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 CONTROL
It refers to a planned method of purchasing and storing the materials at the lowest possible cost without affecting the production and distribution schedule Inventory control system must be closely coordinated with other planning and control activities, such as, planning, capital budgeting, sales forecasting, production scheduling and control.

THE TECHNIQUES
1. 2. 3. 4. 5.

ABC Analysis Two Bin System Max-Mini System FSN/VED Analysis Kardex System

ABC ANALYSIS OR SELECTIVE INVENTORY CONTROL(SIC)

Main Idea: Where the money lies. Rule of 80-20 relationship holds good. Items are graded as A or B or C on the basis of their value in the descending order. Frequency to renew.
CLASS A B C TOTAL NO OF ITEMS IN USE(%) 20 30 50 100 VALUE(%) 80 15 5 100

THE TWO-BIN SYSTEM

RULE 1: Order should be placed. RULE 2: Amount of quantity to be covered.

BIN NO 1 BIN NO 2

Use till Bin No 1 Is empty. Use Bin No 2 when Bin No 1 is empty.

ASSUMPTION: Consumption rate is constant.

MAX MINI SYSTEM

1. 2.

Minimum & Maximum level are fixed. There are two basic control systems: Periodic review system. Fixed order quantity system.

WEAKNESS OF MAX MINI SYSTEM

Stock levels are fixed at lower levels. Re-order points and safety levels once fixed are not frequently changed. Delay in postings makes the record useless.

ANALYSIS
i.

ii.
iii. iv.

Maximum level Minimum level Order level or Re-order level. Order quantity

ABC Analysis VED Analysis KARDEX System Advantages

ABC Analysis

Inventory in industry price, usage, lead time. Basic analytic tool - enables management to concentrate on its efforts. Segregate items in 3 categories on basis of annual usage: A-class items B-class items. C-class items.

A B C Class items

A class items: 5-10% items, Cost 70-75%, require rigid and strict control, stocked in small quantities, frequently procured and in small quantities, inventory kept at minimum. B class items: 10-15% items, Cost 10-15%, intermediate items, control structure. C class items: 70-80% items, Cost 5-10%, ordered in bulk, infrequent procurement.

VED Analysis

Analysis carried out to identify critical items. I.e. stress more on importance than on value. Service level determined + inventory is planned. Classification based on criticality. Analysis classifies into 3 categories: V - Vital. E - Essential. D - Desirable.

V-E-D Analysis

Vital items : unavailability leads to stop of production. Essential items : stock out costs are very high. Desirable items : may not cause immediate production stoppage, stock out cost are nominal. To reduce inventory cost + total inv. size down Inventories are again classified into: Slow moving Fast moving Non moving

KARDEX System
In this system cards are vertically arranged in a metallic tray and kept in Kardex Cabinets. The cards known as stock control cards are of different types. In this card arrangement the card should correspond to classification and identification numbers already alloted in previous processes.

Advantages

MAKES JIT POSSIBLE

J.I.T.- just in time Solid inventory control system keeping in mind the company sales. Suppliers provide supplies Just In Time to be made into Products and products produced Just In Time to meet orders.

LOWERS CASH FLOW PRESSURES

Guessing the inventory is no smart business Efficient procurement deals with ordering right amount of inventory, at right time, without carrying excess items to warehouse. Such system reduces unnecessary cash stocked up in warehousing

Advantages

FEWER MISSED SALES OPPORTUNITIES

Lack of inventory control may lead to shortage of inventories too. Leading to which the company wont be able to meet the desired sales target. Having inventory in place may eliminate this issue increasing the companys goodwill and reputation.

AWARNESS OF DISCREPANCIES
With proper inventory control it is easy to compare physical inventory counts. If there is discrepancy the management will know it immediately. Software glitches, mislabeling, employee mistakes can be known quickly.

PRESENTED BY: DHAVAL MEHTA (66) NITESH ROY (52) RAHUL SHITOLE (53)