Session 2

We have covered: EOQ,THEORY,PRACTICAL CALCULATIONS,COND

FOR EOQ,LIMITATIONS OF EOQ.TYPES OF ANALYSIS,TREATMENT
REQUIRED WHILE STOCKING A B & C GOODS.

TODAY

Factors influencing inventory.-inventory costs.

•LEAD TIME
•RELEVANT COSTS
•SERVICE LEVELS
•OBSOLETE INVENTORY
•SCRAP
LEAD TIME IS DEFINED AS THE TIME THAT ELAPSES BETWEEN
RECOGNITION OF NEED TO ITS FULFILLMENT.

 FORECAST THE REQUIREMENT

CALCULATE THE VARIETY IN THE REQUIREMENT
SELECTION OF SOURCE OF SUPPLY
NEGOTIATION OF RATES
ANNUAL/MONTHLY/TRADE OFF ORDERING
FOLLOW UP
RECEIVE MATERIALS
INSPECTION OF MATERIALS
WAREHOUSING
PRESERVATION
ORDER PICKING &KITTING
PAYMENT

A SIMPLIFICATION OF THE ABOVE WOULD BE

CYCLE TIME CATEGORY SPLIT UP.
 INTERNAL LEAD TIME

EXTERNAL LEAD TIME

TRANSPORTATION LEAD TIME

INSPECTION LEAD TIME.

INTERNAL LEAD TIME:
•Identification of need
•Negotiate terms & conditions and rates considering…..
•Place order with the right source
•Obtain confirmed acceptance of order
EXTERNAL LEAD TIME:
•REGULAR FOLLOW UP
•DESPATCH OF GOODS FROM SUPPLIER’S
FACTORY.
TRANSPORTATION LEAD TIME:
•FROM DESPATCH TO RECEIPT OF THE
PURCHASER.
INSPECTIONLEAD TIME:
•INSPECTION TIME.
 EFFECTS OF INVENTORIES ON BUSNIESS.

• when companies have too little inventory and run out of stock, manufacturing
efficiencies and customer relation are bound to be effected.

• stock outs of essential material means interruption in production and hence cost
factor is raised.

•If stock outs are high even the most patient customer of finished products will
look elsewhere.

•Situation is almost bad if we carry too much inventory. cost will so high that we may
not be able to make profits on the business as money is tied up in inventories.

•Conflicts arise between high inventory turnover and continuity of supply.

The efficiency of any inventory control policy is indicated by the service it

offers to potential customers in terms of providing stock when needed.
 Maximum stock level:
Stock levels
The maximum qty of stock that can be held at one time.
c ons um ption per m onth(in nos )1 00
w e buy 300nos every 3 m onths
Max
300
Re-order
150
Min Jan
100 April
On Jan 1st fresh stocks have arrived. On 31st march stock will be zero. On
April 1st 300 items will arrive again.after placing order 45 days are
required to deliver. This means fresh schedule must be given on 15th feb.
On 15th feb stock of that particular item will be 150 nos.t these 150 nos
will last for 45 days and is called “LEAD TIME CONSUMPTION”.
Stock level 150 nos is referred to as “RE-ORDER LEVEL”.IN THE ABOVE
CASE MAX LEVEL IS 300 AND MIN LEVEL IS ZERO.
 Minimum stock level: is the level of stocks when fresh supply
Is expected to arrive.
In the example cited wehas decided
That we will keep a buffer stock of 100nos.
Then one months consumption is buffer stock.

Max level is 400, min level is 100 and reorder qty is 250.

Deficiency level:is the level between physical stock/sap stock

And orders in hand.
Exhaust bin level:is the stock out level.
Buffer stock: is the insurance stock to care of exceptional
Conditions.
Danger warning level:is a situation that is a point of no-return
i.e stock out is inevitable if delay occurs.
Re-order level: is the reorder point order
 Weakness of max-min system:

Stock levels are arbitrary figures set as we do not have the attitude to study and
Aptitude to apply inventory levels of individual items.

Reorder points are not revisted for both models of buying

Bin cards and system updation does not take place as per norm.

The max and min concept has a weakness and works well when
Lead time and lead time consumption can be accurately predicted.
Inventory control
Essence of control is finding the answers to:
Should a component/item be stocked(necessity)
If yes,when should we order it?(time)
How much should we order?(quantity)
 Methods of controlling stock levels

Perpetual review system

Periodic review system

 Perpetual review system
When the stock level reaches a predetermined level a fixed quantity
Is ordered . This system is more suited for C and low B items

Periodic review system

When the review is done on specific dates say 1st of every month
And one calculates the consumption rate,requirement,stock
Levels,order qty to reach max level.

Difference between the two systems.

In perpetual review system the time interval between order will vary
And quantity will be constant In the periodic review system time in-
terval will be constant and quantity will vary.
Limitations of perpetual review system. Q-system
In many cases we order a group of items and mismatch occurs bcos the re-order
Quantity for individual items is constant.

The system is insensitive to any changes in the demand and may result in freq
Changes in reordering.

A constant review for all items is needed.

Limitations of periodic review system. P-system

Inventory costs are not explicitly considered in the system.

It is often not possible to meet min packaged qty.

System will be sensitive only to recent consumption pattern.

Frequent ordering for small quantities cannot be avoided.

Thank you

Feed back.