Presentation on:

Inventory Management

ARUN MOHAN YADAV

PGDM ‘A’
ROLL NO.- 22
 CONCEPT OF INVENTORY
MANAGEMENT

The term ‘inventory management’ is used in two ways

unit control and value control.Production and purchase
officials use this word in term of unit control whereas in
accounting this word is used in term of value
control.Investment in inventory represents the one of the
largest asset item of business enterprises particularly
those engaged in manufacturing ,wholesale trade and
retail trade.
 IMPORTANCE OF INVENTORY
CONTROL
A proper inventory control lowers down the cost of
production and improves the profitability of the
enterprise. Here are certain specific advantages
of inventory control :
1) reduction in investment in inventory
2) proper and efficient use of raw material
3) improvement in production and sales
4) efficient and optimum use of physical as well
as finacial resources.
 TECHNIQUES OF INVENTORTY
CONTROL
In managing inventories the firm’s objective should
be in consonance with the wealth maximization
principle.To achieve this the firm should
determine the optimum level of investment in
inventory . To deal with the problems of
inventory management effectively, it becomes
necessary to be conversant with the different
techniques of inventory control.
 TECHNIQUES OF INVENTORY
CONTROL
1) INVENTORY LEVEL TECHNIQUE
2)ECONOMIC ORDER QUANTITY
 INVENTORY LEVEL TECHNIQUE

The main objective of stock control is to determine

and maintain the optimum level of stock so that
there is neither shortage of any material nor any
unnecessary investment in inventory, for this
purpose determination of maximum and minimum
limits of inventory and ordering level is necessary.
2) R.O.L.= maximum usage rate × maximum lead
time
2) Maximum level = reorder level +reorder quantity –
( min.usage rate × min.lead time
3) Minimum level = reorder level – ( normal usage
rate × normal lead time)
 ECONOMIC ORDER QUANTITY

• A strategic factor in inventory control is

computing the optimum size of a normal
purchase order. It is the quantity of inventory
which can be reasonably ordered at a time and
purchased economically.It is also known as
standard order quantity or economic lot size.

• E.O.Q. = √2 R.Cp
Ch
• Q- Two materials x and y are used as follows
Normal Usage 50 units per week
Minimum Usage 25 units per week

Maximum Usage 75 units per week

Re-order period X : 4 To 6 week
Y : 2 To 4 week
Re-order quantity X : 300 units
Y : 500 units
calculate 1) re-order level ,min. level , max. level,
average inventory level.
Q- Calculate the E.O.Q.from the following
information:
consumption of material per annum
10000 kg
order placing cost per order Rs 50
cost per Kg of raw material Rs 2
storage cost 8% on
avg.inventory