abc analysis or selective inventory control(sic)
DESCRIPTION
DEFINITIONThe 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 beIT CONSISTS OF:1.2. 3.4.5. 6.Raw materials Work in progrTRANSCRIPT
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. Raw materials
2. Work in progress
3. Maintenance materials
4. Processed and semi processed materials
5. Oils, fuels and lubricants
6. 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. ABC Analysis
2. Two Bin System
3. Max-Mini System
4. FSN/VED Analysis
5. 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 NO OF ITEMS IN
USE(%)
VALUE(%)
A 20 80
B 30 15
C 50 5
TOTAL 100 100
THE TWO-BIN SYSTEM
RULE 1: Order should be placed.
RULE 2: Amount of quantity to be covered.
Use till Bin No 1 Is empty. Use Bin No 2 when Bin No 1 is empty.
ASSUMPTION: Consumption rate is constant.
BIN NO 1 BIN NO 2
MAX MINI SYSTEM
Minimum & Maximum level are fixed.
There are two basic control systems:
1. Periodic review system.
2. 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. Maximum level
ii. Minimum level
iii. Order level or Re-order level.
iv. 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 company’s 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)
