Inventory Control & Management

Duties of Store-keeper
• To plan the stores, to put the space available to its
maximum use
• To keep record of materials and their costs
• To receive requisitions for material, check it and if
found correct, issue the material and make entries in
required registers
• To check the balance of items from time to time and
see that desired quantities are available
• Send information to store officer whenever existing
storage of any item is likely to be exhausted
• To prevent leakage, theft, wastage and deterioration
• To see that material is issued only against written
requisition
• To hand over the issued material outside the store to
prevent theft and disturbances and not to permit
everybody to go inside the store
 Inventory

• Detailed list of those movable items which are

necessary to manufacture a product and to
maintain the equipment and machinery in
good working order
• The quantity and the value of every item is
also mentioned in the list
 Items carried in inventory can be
1. Raw inventories: raw materials, semi-finished
products supplied by another firm
2. In-process inventories: semi-finished goods at
various stages of manufacturing cycle
3. Finished inventories: finished goods lying in stock
rooms and waiting dispatch
4. Indirect inventories: lubricants, spare parts etc.
needed for proper operation, repair and
maintenance during manufacturing
 Reasons for keeping Inventories
• To stabilise production
• To take advantage of price discounts
• To meet the demand during the replenishment
period
• To prevent loss of orders(sales)
• To keep pace with changing market conditions
Inventory control:
• Scientific method of finding out how much stock
should be maintained in order to meet the
production demands and be able to provide right
type of material at right time in the right
quantities and at competitive prices
• This includes knowing what products are being
stocked and how much of a particular item a
distributor has available.
• It’s also about knowing exactly where each
product is located in the warehouse, ensuring
that all inventory remains in great condition
Inventory management:
• The activities of forecasting and product
replenishment.
• It determines when to order products, how
much to order and the most effective source of
supply for each item in the warehouse.
• Two alternative procedures:
1. Order point system: items are restocked when
inventory levels become low, appropriate to
control finished and indirect inventories
2. Material requirement planning (MRP): plan
and control manufacturing inventories,
appropriate to control raw and in-process
inventories
 ABC Analysis

segregates inventory into three classes based on

Consumption Value and need of control

Consumption/ Inventory Value = (Unit price of an item) (No. of units consumed per annum)

 Class A - High Consumption Value

 Class B - Medium Consumption Value
 Class C - Low Consumption Value
 Pareto analysis
• Pareto Analysis is a
statistical technique in
decision-making used for
the selection of a limited
number of tasks that
produce significant overall
effect. It uses the Pareto
Principle (also known as the
80/20 rule) the idea that by
doing 20% of the work you
can generate 80% of the
benefit of doing the entire
job.
 Procedural steps
1. Identify all the items used in an industry
2. List all the items as per their value
3. Count the number of high valued, medium
valued and low valued items
4. Find the percentage of high, medium and low
valued items
5. A graph can be plotted between %of items
on X-axis and %of total inventory cost/value
on Y-axis
 ABC Analysis
Percent of Percent of
Item Number of Annual Annual Annual
Stock Items Volume Unit Consump consumpti
Number Stocked (units) x Cost = tion value on value Class
#10286 20% 1,000 $ 90.00 $ 90,000 38.8% A
72%
#11526 500 154.00 77,000 33.2% A

#12760 1,550 17.00 26,350 11.3% B

#10867 30% 350 42.86 15,001 6.4% 23% B

#10500 1,000 12.50 12,500 5.4% B

#12572 600 $ 14.17 $ 8,502 3.7% C

#14075 2,000 .60 1,200 .5% C

#01036 50% 100 8.50 850 .4% 5% C

#01307 1,200 .42 504 .2% C

#10572 250 .60 150 .1% C

8,550 $232,057 100.0%

Important quantity standards for
inventory control
1. Maximum inventory: upper limit of inventory
and represents the largest quantity which in
the interest of economy should generally be
kept in stores
2. Minimum inventory: lower limit of inventory
and represents a reserve margin of safety to
be used in emergency case. When
requirement have been abnormal it is
intended that there must always be at least
this quantity available in store
3. Standard order: quantity to be purchased at
any time. Repeat orders are always for this
amount until revised
4. Ordering point: quantity required to ensure
against exhaustion of the supply during the
interval between placement of an order and
delivery. When balance fall to this level, it is
an indication that a new purchase order must
be placed
5. Lead time: time taken by the stock to reach
from reorder point to minimum stock level