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INVENTORY MANAGEMENTSUBMITTED BY:AKASH KUMARWhat is Inventory Management?

Inventory management is all about specifying the size and placement of stocked goods.

It is required at different locations within a facility or within multiple locations of a supply network to protect the regular and planned course of production against the random disturbance of running out of materials or goods.

Inventory management also concerns with carrying costs of inventory, asset management, inventory forecasting, inventory valuation, inventory visibility, future inventory price forecasting, physical inventory, available physical space for inventory. Types of InventoriesRaw materialWork in progressWork in progressWork in progressWork in progressFinished goodsCustomerVIDEOCONCustomerTrack inventoryTo look after the amount of inventory i.e. stock coming into the business.

How much to order?To specify units of inventory to be used by organization.

When to order? Specify the duration of getting the inventory.

Tasks in Inventory ManagementINVENTORY MODELKey questions:How often to review?When to place an order?How much to order?How much stock to keep?OrdersSupplyOn-handinventoryOrdering costsHolding costsStocks & Stock LevelsMinimum Level It is the minimum stock to be maintained for smooth production.Maximum Level It is the level of stock, beyond which a firm should not maintain the stock.Reorder Level The stock level at which an order should be placed.Safety Stock Stock for usage at normal rate during the extension of lead time.Cycle stock- It is the average amount of inventory a business needs to meet customer demand between the times it orders more inventory from suppliers.Buffer Stock Normal lead time consumption.reasons for keeping stock

To preserve the Inventory management, collection of stock should be in solid state. Here are some reasons for firms to keep the stock,

Time The time lags present in the supply chain, from supplier to user at every stage, requires that you maintain certain amounts of inventory to use in this lead time.

VariationsInventory is to be maintained for consumption during 'variations in lead time'.

Reasons for keeping stock contd.UncertaintyInventories are maintained as buffers to meet uncertainties in demand, supply and movements of goods.

Economies of scaleIdeal condition of "one unit at a time at a place, where a user needs it, when he needs it" principle tends to incur lots of costs in terms of logistics. So bulk buying, movement and storing brings in economies of scale, thus inventory.

Types of Inventory CostsOrdering (purchasing) costsInventory carrying (holding) costsOut of stock/shortage costsOther costsOrdering CostsIt is the cost of ordering the item and securing its supply. Includes-Expenses from raising the indentPurchase requisition by user department till the execution of orderReceipt and inspection of material

Inventory Carrying CostsCosts incurred for holding the volume of inventory and measured as a percentage of unit cost of an item.It includes-Capital costObsolescence costDeterioration costTaxes on inventoryInsurance costStorage & handling cost

Out-of-Stock CostsIt is the loss which occurs or which may occur due to non availability of material.It includes-Break down/delay in productionBack orderingLost salesLoss of service to customers, loss of goodwill, loss due to lagging behind the competitors, etc. Other CostsCapacity CostsOver-time paymentsLay-offs & idle timeSet-up CostsMachine set-upStart-up scrap generated from getting a production run startedOver-stocking Costs

Inventory control:Inventory control is the means by which materials of the correct quality and in correct quantity are made available as and when required with due regard to economic in storage and ordering cost. Hear the desired level of inventory can neither be high or low because high level inventory will lead to increase in carrying cost while low level of inventory will lead to increase in ordering cost.Objectives of Inventory Control To meet unforeseen future demand due to variation in forecast figures and actual figures.To average out demand fluctuations due to seasonal or cyclic variations.To meet the customer requirement timely, effectively, efficiently, smoothly and satisfactorily.To smoothen the production process.To gain economy of production or purchase in lots.To reduce loss due to changes in prices of inventory items.

To meet the time lag for transportation of goods.To meet the technological constraints of production/process.To balance various costs of inventory such as order cost or set up cost and inventory carrying cost.To balance the stock out cost/opportunity cost due to loss of sales against the costs of inventory.To minimize losses due to deterioration, obsolescence, damage, pilferage etc. Objectives of Inventory Control Major activities of inventory controlPlanning the inventories;Procurement of inventories;Receiving and inspection of inventories;Storing and issuing the inventories;Recording the receipt and issues of inventories.Physical verification of inventories;Material standardization and substitution. Benefits of Inventory Control Ensures an adequate supply of materialsMinimizes inventory costsFacilitates purchasing economiesEliminates duplication in orderingBetter utilization of available stocksProvides a check against the loss of materialsFacilitates cost accounting activitiesEnables management in cost comparisonLocates & disposes inactive & obsolete store itemsConsistent & reliable basis for financial statements

Inventory Planning and Control

For maintaining the right balance between high and low inventory to minimize costScope of inventory control:SCOPE OF INVENTORY CONTROLDetermination of inventory policies.Determining various stock levelsDetermining economic order sizeSafety or buffer stockDetermining lead timeExamining the work of inventory policySTORAGE LOCATION IN VIDEOCON

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