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Sr.No
1. 2. 3. 4. 5. 6.
Name
PANKAJ GHARANYA ABBAS SAYED MUSTAQEEM NAVRANGE MUKESH DYNMA MANOJ ABRAHAM AZAR HASHMI
Roll no
2117 2153 2141 2111 2139 2122
Group no. 8
Under The Guidance Of: Prof. Viju Navare
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FUNCTIONS OF INVENTORY
One reason organizations maintain inventory is that it is rarely possible to predict sales levels, demand and usage patterns exactly. In such situations, inventory serves as a buffer against uncertain and fluctuating demand and keeps a supply of items available in case items are needed by the organization or its customers. The many functions that inventories perform can be summarized as follows: a) Smoothing out irregularities in supply: Inventories provide a buffer to overcome the problems of uncertainties I supplies such as delayed deliveries and supply of short quantities by vendors as against the promised delivery schedules and quantities. Also, the customer demand for the goods may increase suddenly which affects the ability of the manufacturer to meet the customer demand. In such cases also, an inventory of finished goods held in the warehouses will act as a buffer against the uncertainties in demand. Thus, inventories fill the gap between supply and demand. b) Buying or producing in lots or batches: When the demand for an item does not justify its continued production throughout the year, it is produced in batches or lots on an intermittent basis. During the time when the item is not being produced, demands are met from the inventory which is accumulated by batch production.
c) To meet seasonal or cyclical demand: Companies will produce items at a constant production rate more than the demand rate in order to meet the seasonal demand occurring at a later period for which the production capacity is insufficient. d) To take advantage of price discounts while buying items: A company will often purchases large amounts of inventory to take advantage of price discounts, as a hedge against anticipated price increases in the future. e) To maintain continuity to operations in production process: Many companies find it necessary to maintain in-process inventories at different stages in a manufacturing process to provide independence between operations and to avoid work stoppages or delays and to continue production smoothly if there are temporary machine breakdowns or other work stoppages.
FACTORS CONTROL
INFLUENCING
INVENTORY
MANAGEMENT
AND
Several factors influence inventory management and control. The principle effects of this factor are reflected most strongly on the levels of inventories and the degree of control, planned in the inventory control system. The factors include type of product, type of manufacture, volume of output and others. Type of Product Among the factors influencing inventory management and control, the type of product is fundamental. If the material used in the manufacture of the product has a high unit value when purchased, a much closer control is usually in order. Jewelers are much more careful of their stocks of diamonds then are with display cases full of low- priced costume jewelry this same principle hold manufacturing also.
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If the material used in the product is in short supply or is rationed by the government, this may influence the purchase of this material and it stock maintained. Type of Manufacture Beside type of product, types of manufacture also influence inventory management and control. Where continuous manufacture is employed the rate of production is the key factor. Here inventory control is of major importance and in reality controls the production of the product. The economic advantage of this type of manufacture is the uninterrupted operation of the machines and assembly lines in the plant. It is a major offence on the part of the inventory personnel to have the plant shut down for the lack of material. Volume of Production The volume of product to be made as represented by the rate of production may have little effect on the complexity of the inventory problem. Literally, millions of brass bases for lights bulbs manufactured each month involving the control of only two principle item of raw material inventory. On the other hand manufacturer of a large locomotive involves the planning and control of thousands of items of inventory. Both the inventory problems and the difficulty of controlling production increase in difficulty of controlling production increase in difficulty with the number of components parts of the product and not with quantity of products to be made.
7. It facilitates cost accounting activities by providing a means for allocating material costs to products, departments or other operating accounts. 8. It enables management to make cost and consumption comparisons between operations and periods. 9. It serves as a means for the location and disposition of inactive and obsolete items of stores. 10. Perpetual inventory values provide a consistent and reliable basis for preparing rapt restatements.
Step1. Determination of Optimum Inventory Levels Determination of inventory that an organization should hold is a significant but difficult step. Too much of inventory results in locking up of working capital a company by increased cost (but reduce ordering cost). Excess inventories, however, guarantee uninterrupted supply of materials and components, to meet production schedule and finished goods to meet customers demand. Too less of inventory releases working capital for alternative uses and reduces carrying cost and increase ordering cost. But there is a risk of stock out of costs A few suggestions may be offered which might help to overcome this problem. The trend of sales must be watched closely and inventories adjusted in advance of the change in rate of production as determined by actual sales. Hence, inventory management must plan for the review of the stock often.
Step2. Determination of Degree of Control The second aspect of inventory management is too decided just how much control is needed to realize the objectives of inventory management. The difficulties are best overcome by classification of inventory on the basis of value. Popularly called the ABC classification, this approach is useful in deciding the degree of control. A class items are high in value but low in quantity, C class inventories are the opposite of A group, i.e., high in quantity and low in value. In between are the B groups stocks which are more or less equal in quantity and value proportion to the total inventory. Tight control is exercise on A category items through accurate records of receipts and issues and by coordination of incoming shipments with production requirements. On the other hand, C class items may simply ordered in large quantities covering several months need, no record being made of their issue to manufacturing. More stock is simply requested when the existing stock reaches a reorder point. The B class items received not so tight control, but are not neglected either. Step3. Planning and Design of the Inventory System An inventory system provides the organizational restructure and the operating policies for maintaining and controlling goods to be inventoried. The system is responsible for ordering and receipts of goods, timing the order placement and keeping track of what has been ordered, how much, and from whom. Further, the system must provide follow up to enable the answering such question as: Has the vendor received the order? Has it been shipped? Are the items correct? Is the procedure established for reordering or returning undesirable merchandise?
Mix- minimum system Two bin system ABC ANALYSIS One of the widely used techniques for control of inventories is the ABC (Always better control) analysis. The objective of ABC control is to vary the expenses associated with maintaining appropriate control according to the potential savings associated with proper level of such control. For example, an item having an inventory cost of Rs. 1000000 such as sheet steel, has a much greater potential for savings expenses related to maintaining inventories than an item with a cost of Rs.100 the ABC approach is a means of categorizing inventory items into three classes A, B and C according to the potential amount to be controlled. Once inventory is classified, we have a firm base for deciding where we will put our effort. Logically, we expect to maintain strong controls over the A items talking what ever special actions needed to maintain availability of these items and hold stocks at the lowest possible level consistent with meeting demands. At the other end of the scale, we cannot afford the expense of rigid controls, frequent ordering, expediting, etc. because of the low amounts in this area. Thus, with the C group we may maintain somewhat higher safety stocks, order more months of supply; expect lower levels of customer service, or all the three. It is for this selective approach, ABC analysis is often called the selective Inventory Control Method (SIM). Extending paretos principle to inventory, it is always possible and necessary to separate vital few from trivial many of the stock items for their effective control. Separating vital few from trivial many is what is precisely done in ABC analysis. Paretos principle was brought to the attention of people concerned with inventory management by H. Ford Dickie, who applied paretos law inventory and developed the general concept of ABC analysis. Like so many ideas, however it has not been completely understood. Many people refer to the ABC system or the ABC technique. The idea of distribution of value for inventory stratification is neither a system nor a technique; it is a fundamental management principle with universal application potential. Advantage of ABC Analysis This approach helps the materials manager to exercise selective control and focus attention on A category items. By controlling the inventory of A category items, the total inventory costs can be considerably reduced. Usually, fixed order quantity syst em or Q system of inventory control is used for A category items advising the supplier to follow staggered supplies (i.e. EOQ is ordered and the supplier is asked to supply fraction of EOQ on weekly basis to match the consumption rate). For B category items the fixed order cycle system on P system is used without appreciably increasing the average inventory value. For C category
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items two-bin system is used wherein the annual requirement of the item is ordered in one or two lots and the quantity received is distributed into two bins-bin number one keeping the reorder level inventory and bin number two keeping he balance quantity. The item is consumed from bin number two and once it becomes empty, the repeat order is placed for the annual or six months requirement. Item is issued from the first bin till the supply is received. Limitations of ABC Analysis i. ii. iii. iv. To be fully effective, it should be carried out with standardization and codification. Importance is given to an item based only on its annual consumption in value and not on its criticality for the production. It should be reviewed periodically so that changes in prices and consumption are taken into account. It does not apply to dependent demand inventory which is controlled by Material Requirement Planning (MRP) system.
MINIMUM-MAXIMUM TECHNIQUE The minimum-maximum system is often used in connection with manual inventory control system. The minimum quantity is established in the same way as any re-order point. The maximum is the minimum quantity plus the optimum lot size. In practice, a requisition is initiated when a withdrawal reduces the inventory below the minimum level, the order quantity is the maximum minus the inventory status after the withdrawn reduce the stock level substantially below the minimum level, the order quantity will be longer than the calculated EOQ. The effectiveness of a minimum-maximum system is determined by the method and precision with which the minimum and maximum parameters are established. If these parameters are based upon arbitrary judgments with the limited factual basis, the system will be limited in its effectiveness. If the minimum are based on an objective rational basis, the system can be very effective. TWO-BIN TECHNIQUE Once of the oldest system of inventory control is the two-bin system which is mainly adopted to control C group inventories. In the two-bin system, stock of each item is separated into two-bins. One bin contains stock, just enough to last from the date a new order is placed until it is received in inventory. The other bin contains a quantity of stock enough to satisfy probable demand during the period of replenishment is placed, and the stock in the second bin is utilized until the ordered material is received.
Such a method is appropriate to ideal conditions in which rate of consumption is fairly constant and for items lead time of which is fairly established and regular. Although the system itself possesses a high degree of automacy, in practice, we need to allow for variations in the rate of consumption as well as lead time. A possible disadvantage of the system in some case is the requirement of additional storage facilities and perhaps some practical difficulty in keeping the two stocks properly separated.
V-E-D ANALYSIS V stands for vital, E for essential and D for desirable. This classification is usually applied for spare parts to be stocked for maintenance of machines and equipments based on the criticality of the spare parts. The vital spare parts are those which can cause stoppage of the plant if not available. Usually such spare parts are known as capital or insurance spares. The inventory policy is to keep at least one number of the vital spare irrespective of its value. Also, spare parts to be supplied by foreign manufactures are treated as vital spares because of the long lead time required for procurement. Essential spare parts are those whose non-availability may not adversely affect production. Such spare parts may be available from many sources within the country and the procurement lead time may not be long. The desirable spare parts are those which if not available can be manufactured by the maintenance department or may be procured from local suppliers and hence no stock is held usually.
F-S-N ANALYSIS It stands for Fast-moving, Slow-moving and Non-moving items. It is based on past consumption pattern. Items which are usually drawn from stores frequently are classified as fast moving items; Items which are drawn only once or twice a year are classified as slow moving items not at all drawn for the past two years are classified as non-moving items. F-S-N analysis is useful to control obsolescence of raw materials, components, tools and spare parts.
H-M-L ANALYSIS This stands for High value, medium value and low value items on unit price of the item. For instance, a firm may decide to categories items having unit price of the item. For instance, firm may decide to categories items having unit price more than Rs. 5000 as H items. From Rs. 1000 to 5000 as M items and below Rs. 1000 as L items. On the basis, materials management may delegate authority to various levels of purchase officers/mangers to authorize and sign purchase orders. Also, for high value items, alternative source of supplier are developed.
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Objectives of MRP
The objectives of material requirements planning in operations management are: 1. To improve customer service by meeting delivery schedules promised and shortening delivery lead times. 2. To reduce inventory costs by reducing inventory levels. 3. To improve plant operating efficiency by better use of productive resources.
MANUFACTURING RESOURCES PLANING OR MRP-II When the capabilities of closed-loop MRP are extended to integrate financial, accounting, personnel, engineering and marketing information along with the production planning and control activities of basic MRP system, the resulting broad-based resource coordination system is known as manufacturing resource planning or MRPII. MRPII is the heart of corporate management information system for many companies, as it provides information about inventory investment levels, plant expansion needs and work force requirements, that is useful for coordinating marketing, financial, engineering and manufacturing efforts to achieve the companys overall business plans.
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Demings 14 Points on Quality Management, a core concept on implementing total quality management, is a set of management practices to help companies increase their quality and productivity. 1. 2. 3. 4. 5. 6. 7. 8. 9. Create constancy of purpose for improving products and services. Adopt the new philosophy. Cease dependence on inspection to achieve quality. End the practice of awarding business on price alone; instead, minimize total cost by working with a single supplier. Improve constantly and forever every process for planning, production and service. Institute training on the job. Adopt and institute leadership. Drive out fear. Break down barriers between staff areas.
10. Eliminate slogans, exhortations and targets for the workforce. 11. Eliminate numerical quotas for the workforce and numerical goals for management. 12. Remove barriers that rob people of pride of workmanship, and eliminate the annual rating or merit system. 13. Institute a vigorous program of education and self-improvement for everyone. 14. Put everybody in the company to work accomplishing the transformation.
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