Intern ational I nstit ute Of Planning & Managemen t

Operation Research

Inventory Control

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introduction

Inventory means all the materials, parts,

supplies, equipments, tools and in
process or finished products, recorded
and kept in organization for some period
time.
Inventories are piles of raw materials
and finished goods in warehouse.

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Definition of inventory control

Inventory control is a system of ordering

based on the maintenance of stock in a
store using a re-order rule based on
stock levels.

Inventory control is concerned with

various items stocked at pre-determined
level or within some safety limits.

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Objective of inventory control

Service to customer.
Effective use of capital.
Economy in purchasing.
Continuity of productive operation.

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Costs associated with inventories

Set up cost
Ordering cost
Purchase cost
Carrying cost
Shortage cost
Salvage cost
Revenue cost

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classification

Classification of inventory according to

functions is as follows,
2. Transit Inventories.
3. Cycle Inventories.
4. Buffer Inventories.
5. Decoupling Inventories.
6. Inventory as per the nature of items

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Types of inventory analysis.

Different organizations follow different

inventory analysis or inventory control system.
Some of them are:

3. ABC
4. HML
5. VED
6. FSN.
7. SDE
8. XYZ
9. GOLF
10. SOS

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ABC analysis

It is based on the concept, “Thick on the

best and Thin on the Rest.”
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.
It is one of the widely used techniques
of inventory control.

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Hml analysis

The HML classification follows the same

procedure as is adopted in ABC
classification.
H = HIGH;
M = MEDIUM;
L = LOW.
Only difference is that in HML, the
classification unit value is the criterion
and not the annual consumption value.

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 Ved analysis

VED Classification
V= Vital;
E= Essential;
D= Desirable.
• If a part is vital it is given ‘V’ classification, if it
is essential, then it is given ‘E’ classification
and if it is not so essential, the part is given
‘D’ classification.
• For ‘V’ items, a large stock of inventory is
generally maintained, while for ‘D’ items,
minimum stock is enough.
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Fsn analysis

Here, classification is based on the

pattern of issues from stores and is
useful in controlling obsolescence.
F = Fast moving
S = Slow Moving;
N = Non Moving.

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Sde analysis

This method is used to those items

which are scarce in availability.
• S = Scarce
• D = Difficult
• E = Easily

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Xyz analysis

It is based on closing inventory of

different items.
• X = Items with High Investment
• Y = Items whose value is nor too high
nor low
• Z = Items with Low Investment

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Golf analysis

Items categorized based on the source

of supply

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Sos analysis

Seasonal, Off seasonal items.

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Concept of economic order quantity

EOQ is the size of order which minimizes

total cost of carrying inventories and
cost of ordering.
EOQ is the fixed quantity of materials for
which the order is to be placed each
time.

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Graph Of eoq

Total
Annual Cost
Costs
Carrying Cost

Ordering Cost

Quantity Q

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 Economic order quantity

It is calculated by using a formula which

takes into consideration the:
• Annual demand for the item [R]
• Cost of placing one order [S]
• Cost of one unit of item [C] and
• Number of units to be carried [I]
Q = 2RS / IC

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Problem related to eoq

Problem of EOQ Simple.docx

Problem of EOQ.docx

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Thank you

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