By

Aditya Agrawal
Meaning
‘ the term inventory includes materials- raw, in
process, finished packaging, spares and others stocked
in order to meet an unexpected demand or distribution
in the future’.
Inventory includes the following category of items:
 Production inventories
 MRO inventories
 In-process inventories
 Finished goods inventories.
Objectives
The primary objective is to ensure continuous supply of
raw materials and facilitate uninterrupted production.
Since manufacturing or processing takes time, there is
need for finished goods inventory.
Obtaining a reasonable utilization of people and
equipments.
It is desirable from economic considerations, to process
or schedule material in lots.
Inventories are held to facilitate product display and to
service customers.
Maintain sufficient goods for smooth sales operation
and efficient customer service.
Inventory costs
It includes the following-
 Ordering costs-
 Preparing a purchase order
 Processing payments
 Receiving and inspecting the material.
 Carrying costs-
 Obsolescence
 Deterioration
 Storage space costs
 Handling- equipment costs
 Out of stock costs
Benefits
It ensures an adequate supply of raw materials, stores,
etc. minimize stock-outs, shortages and avoid
interruptions in operations.

It keeps down investment in inventories, carrying costs

and obsolescence.

It facilitates purchasing economies.

It avoids duplication in ordering or replenishing stocks.

It provides a check against the loss of materials.

Process
1. Determination of optimum inventory levels.
2. Determination of degree of control.
3. Planning and designing of inventory system.
 ‘Q’ system.
 ‘P’ system.
4. Planning of the inventory control organization.
Control Techniques
ABC analysis.

VED classification.

FSN analysis.
Inventory Models
EOQ- it is the order size at which the total cost,
comprising ordering cost plus carrying cost is the least.
Assumptions-
 Demand for the product is constant and uniform during
the period.
 Lead time is constant.
 Price per unit of product is constant.
 Ordering costs are constant.
 Inventory holding costs are based on average inventory.
Some other terms-

 Minimum level.

 Maximum level.

 Safety stock.