DEFINATIONS In order to understand the concept of inventory terms are used for managing inventory at a logistical facility, let

us first view the definitions: 

Inventory level is the actual inventory quantity held at a logistical facility at a particular point of time.  Cycle inventory or base stock refers to the inventory quantity held in stock due to the replenishment time required in the ordering process.  Replenishment time or lead-time is the time elapsed between order placement and order receipt for an inventory item. In case inventory is to be replenished by manufacturing, this is the time elapsed between the work order issue for manufacturing and the completion of manufacturing.  Safety stock or buffer stock inventory is the inventory held due the differences in demand and supply rate of material at each stage in-between supplier, purchase, manufacture, distribution, and customer to avoid stock outs at each stage.  Average inventory is the calculated average of the inventory quantity held at a logistical facility over a period of time.  Reorder point is the pre-decided inventory level, which is reached by a falling inventory level during utilization of inventory, at which point an order is placed for replenishing the inventory in order to avoid a stock out.  Order quantity is the inventory quantity, which is ordered for replenishing depleting inventory.  VED Analysis:  µV¶ stands for vital, µE¶ for essential, µD¶ for desirable. This classification is usually applied for spare parts to be stocked for maintenance of machines and equipments based on the criticality of the spare parts. The stocking policy is based on the criticality of the items. The vital spare parts are known as capital or insurance spares. The inventory policy is to keep at least one number of the vital spare irrespective of the long lead-time required for procurement. Essential spare parts are those whose non-availability may not adversely affect production. Such spare parts may be available from many sources within the country and the procurement lead time many not be long. Hence, a low inventory of

essential spare parts is held. if not available. . The desirable spare parts are those. which. can be manufactured by the maintenance department or may be procured from local suppliers and hence no stock is held usually.

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