Numerouno Academy of Banking & International Business (Nabib)

NumeroUno Academy of Banking
&
International Business
(NABIB)
www.numerounoacademy.com
Define Inventory
Inventory is an idle stock of physical goods that contain economic value, and are held
in various forms by an organization in its custody awaiting packing, processing,
transformation, use or sale in a future point of time.
• All organizations engaged in production or sale of products hold inventory in one

form or other.
• Inventory can be in complete state or incomplete state.
• Inventory is held to facilitate future consumption, sale or further processing/value
addition.
• All inventoried resources have economic value and can be considered as assets of
the organization.
Types of Inventory
Types of Inventory (Function)
Input Inventory
• Raw Materials
• Consumables required for processing. Eg : Fuel, Stationary, Bolts & Nuts etc. required in
manufacturing
• Maintenance Items
• Packing Materials
• Local purchased Items required for production
Process Inventory
• Work in Process
• Semi Finished Production in various stages, lying with various departments like
Production, WIP Stores, QC, Final Assembly, Paint Shop, Packing, Outbound Store etc.
• Production Waste and Scrap
• Rejections and Defectives
Output Inventory
• Finished Goods
• Finished Goods at Distribution Centers through out Supply Chain
• Finished Goods in transit
• Finished Goods with Stockiest and Dealers
• Spare Parts Stocks & Bought Out items
• Defectives, Rejects and Sales Returns
• Repaired Stock and Parts
• Sales Promotion & Sample Stocks
Inventory
Why and When do companies hold Input Inventory
➢ Meet variation in Production Demand
➢ Cater to Cyclical and Seasonal Demand
➢ Economies of Scale in Procurement
➢ Take advantage of Price Increase and Quantity Discount
➢ Reduce Transit Cost and Transit Times
➢ Long Lead and High demand items need to be held in Inventory
Inventory
Why and When do companies hold Process Inventory
➢ Sign of Inefficiencies in production

➢ Lead time
➢ Inefficient processes
➢ Poor layout
➢ Breakdown
➢ Lengthy processes
➢ Poor People Management
➢ Supplier inefficiencies
➢ Bad quality/increase rejections
Inventory
Why and When do companies hold Output Inventory
➢ Markets and Supply chain design
➢ Production strategy – Build to stock/Build to order
➢ Market Penetration
➢ Market size, location and supply design
➢ Transportation and Physical barriers
➢ Long Production time
➢ Speculative gain
Types of Inventory (Demand Pattern)
Independent Demand
An inventory of an item is said to be falling into the category of independent demand when
the demand for such an item is not dependent upon the demand for another item.
Finished goods Items, which are ordered by External Customers or manufactured for stock
and sale, are called independent demand items.
Independent demands for inventories are based on confirmed Customer orders, forecasts,
estimates and past historical data.
Types of Inventory (Demand Pattern)
Dependent Demand
If the demand for inventory of an item is dependent upon another item, such demands are
categorized as dependent demand.
Raw materials and component inventories are dependent upon the demand for Finished
Goods and hence can be called as Dependent demand inventories.
Inventory Costs
1.Ordering Cost
2.Carrying Cost
1. Inventory Storage
2. Cost of Capital
3.Shortage or stock out Cost & Cost of Replenishment
4.Cost of Loss, pilferage, shrinkage and obsolescence etc.
5.Cost of Logistics
6.Sales Discounts, Volume discounts and other related costs.
Inventory Costs
Inventory Classification – Raw Materials
A Category Items Comprise 20% of SKU & Contribute to 80% of money spend.
B Category Items Comprise 30% of SKU & Contribute to 15% of money spend.
C Category Items Comprise 50% of SKU & Contribute to 5% of money spend.
Advantages :
This kind of categorization of inventory helps one manage the entire volume and assign
relative priority to the right category
Disadvantages:
• Inventory Classification does not reflect the frequency of movement of SKU and hence
can mislead controllers.
• B & C Categories can often get neglected and pile in huge stocks or susceptible to loss,
pilferage, slackness in record control etc.
Inventory Classification – Raw Materials
Inventory Classification – FG
Export SKU – Stock Keeping Unit
Domestic SKU like:

SKUS for Institution Sales
SKUS for Channel Sale
SKUS for Direct Delivery
SKUS for Sales to Govt., Defense and NGO and other projects
After Market SKU - Spare parts and Accessories ( SKUS, which are manufactured to supply
to Spares Market through Dealer Network.)
Fast Moving, Slow Moving & Non-Moving Stock
Bought Out Items SKU Category
Stock on Hold
Scrap & Obsolete
Stock Keeping Unit
•What Is a Stock Keeping Unit?
•A stock-keeping unit (SKU) is a scannable bar code, most often seen printed on product
labels in a retail store. The label allows vendors to automatically track the movement of
inventory. The SKU is composed of an alphanumeric combination of eight-or-so characters.
The characters are a code that track the price, product details, and the manufacturer.
•Understanding Stock Keeping Units (SKUs)

•SKUs are used by stores, catalogs, e-commerce vendors, service providers, warehouses, and
product fulfillment centers to track inventory levels. Scannable SKUs and a POS system
mean that it is easy for managers to determine which products need to be restocked. When
a customer buys an item at the point-of-sale (POS), the SKU is scanned and the POS system
automatically removes the item from the inventory as well as recording other data such as
the sale price. SKUs should not be confused with model numbers, although businesses may
embed model numbers within SKUs.
•By adding SKUs to every product, store owners can easily track the quantity of available
products. Owners can create threshold limits to let them know when new purchase orders
must be made.
Stock Keeping Unit
Inventory Control - Need
Inventory of raw materials as well as finished goods can run in thousands of SKU varieties
Inventory can be in one location or spread over many locations
Inventory may be with the company or may be under the custody of a third party logistics
provider.
Inventory control is also required as an operational process requirement
Inventory control is needed to ensure the book stocks and the physical stocks match at all
times.
Inventory control is required to have visibility through the supply chain process including
transit inventory
Inventory Control
Inventory Control - How
Inventory control is exercised through Inventory audits and cycle counts. An inventory
audit essentially comprises of auditing the books stocks and transactions and matching
physical stocks with the book stock
Cycle Counts : Cycle count refers to the process of counting inventory items available in
physical locations. Depending upon the nature of inventory, number of transactions and the
value of items, cycle count can be carried on periodically or perpetually.
Daily , Quarterly or Half Yearly, Wall to Wall
Inventory Audit
Inventory system gives the count list with SKU number, description and location number.
The operator goes to the location, checks the SKU, counts the qty available and updates the
list, which is then fed into the system.
The system reconciles the physical quantity with system quantity and throws up
discrepancy report, which is further worked upon to tally and adjust inventory.
Types of Inventory control
Types of Inventory control
Inventory Inefficiencies - Factors
➢ Inventory management function is dependant upon physical operations involving
multiple locations and agencies and processes. The inter dependence upon transactions
which are sequential and parallel, renders inventory susceptible to inefficiencies
occurring in operations, transactions, and documentation over a period of time.
➢ The Inventory Management system setup and process defined in the system are not user
friendly and cumbersome
➢ The Inventory Management system process is not developed based on the business
process requirement.
➢ Outsourced Inventory management to a third party service provider, creates more

complications.
➢ Company’s poor Inventory strategy and out look
What is Inventory Management
➢ Study of data on movement of inventory
➢ Demand pattern,
➢ Supply cycles,
➢ Sales cycles
➢ Continuous analysis and management of inventory items to target lean inventory
Factors affecting Inventory Management

➢ Unskilled Labour and Staff
➢ In adequate SOP, Training and emphasis on processes compliance
Inventory Management Concepts
JIT – Just in Time
VMI- Vendor Managed Inventory
ECR – Efficient Customer Response
Kanban
MRP – Material Resource Planning/Enterprise Resource Planning
JIC – Just in Case
Cross Docking and Drop shipping
EOQ – Economic Order Quantity
VED – Vital Essential Desirable
Backordering
What is Vendor Management
•Vendor management is the multi-stage process of initiating and developing relationships with
providers of goods and services that company Manufacturer/Trader/ Service Provider needs
for day-to-day operations and the fulfillment of its mission
•Vendor management helps organizations to control costs, reduce risks related to vendors,
ensure great service and derive sufficient value from vendors over time.
Vendor Management Process
Vendor Management - Stages
1. Determine and Define –
• What does your business want the vendor to provide?
• What are the short-term goals of working with a vendor who can supply the goods?
• What are the long-term goals of working with a vendor who can supply the goods?
• How frequently does the vendor need to supply goods?
• What’s your business’ budget?
• Are there any other important factors to take into consideration before sourcing vendors?
2. Search Appropriate vendors

3. Classification of Vendors
– Customer Facing
– High Volume
– High Switching Cost
– vendor availability
– Criticality of service
Vendor Management - Stages
4. Request for Proposals – Service requirements, Quality standards, NDA, Time Frame,
Track record
5. Shortlisting – Review proposal, request Demo, Decide, Award contract
• Does the supplier have enough capacity to handle the order?
• Do they have a good reputation and track record?
• Does the supplier ensure consistent service?
• Can the supplier prove that they’re a stable business?
• Who is their main point of contact, and does it seem like they’ll communicate effectively?
6. Negotiation – Terms and Conditions and Payment Terms
7. Onboarding the Vendor
8. Evaluate Vendor Performance
9. Maintain and Manage Multiple Vendor Relationship
• Communicate.
• Offer lead time.
• Refer vendors to colleagues.
• Make payments on time
10.Renew/Renegotiate/Terminate/ Replace
Benefits of Vendor Management
•Reduce Spend
•More efficient operations
•Strengthened Vendor relations
•Better Customer service
•Mitigates risks
•Enhances performance
•Improves rate negotiation
•Builds loyalty
•Protects your brand
•Saves time
Best Practices for Effective Vendor Management
➢ Plan and Choose the right vendor
➢ Negotiate Professionally
➢ Define expectations clearly
➢ Set realistic deadlines
➢ Be aware of risks
➢ Foster Good Relationship with Your Vendors
➢ Engage Your Vendors in Your Business
➢ Systemized the Vendors and Contracts
➢ Regulatory of Performance Measurement
➢ Do Not Hesitate to Stop Collaborating
Vendor Management
What is Kaizen and 5 S
➢ Kaizen is a Japanese word which means “continuous improvement of processes and functions of an
organization through change”
➢ 5S is a systematic form of visual management utilizing everything from floor tape to operations
manuals. It is not just about cleanliness or organization; it is also about maximizing efficiency and
profit. 5S is a framework that emphasizes the use of a specific mindset and tools to create efficiency
and value. It involves observing, analyzing, collaborating, and searching for waste and also involves
the practice of removing waste.
➢ The purpose of 5S is to make a workplace function better by making it an easier place to work. This
occurs by making spaces make sense; tools and materials are placed in logical locations based on
who needs them, how frequently they're needed, etc. Spaces are cleaned regularly. Cleaning and
organization become habits. When used correctly, 5S ultimately makes processes safer and more
efficient.
What does Five S Stand For
Five S
1. SEIRI - SEIRI stands for Sort Out. According to Seiri, employees should sort out and organize things
well. Label the items as “Necessary”, ”Critical”, ”Most Important”, “Not needed now”, “Useless and so
on. Throw what all is useless. Keep aside what all is not needed at the moment. Items which are
critical and most important should be kept at a safe place.
2. SEITION - Seition means to Organize. Research says that employees waste half of their precious
time searching for items and important documents. Every item should have its own space and must
be kept at its place only.
3. SEISO - The word “SEISO” means shine the workplace. The workplace ought to be kept clean. De-
clutter your workstation. Necessary documents should be kept in proper folders and files. Use
cabinets and drawers to store your items.
4. SEIKETSU-SEIKETSU refers to Standardization. Every organization needs to have certain standard
rules and set policies to ensure superior quality.
5. SHITSUKE or Self Discipline - Employees need to respect organization’s policies and adhere to
rules and regulations. Self discipline is essential. Do not attend office in casuals. Follow work
procedures and do not forget to carry your identity cards to work. It gives you a sense of pride and
respect for the organization.
Kaizen and 5 S
Step Name Japanese term Explanation
1. Sort -Seiri (tidiness) - Remove unnecessary items from each area
2. Set In Order - Seiton (orderliness) - Organize and identify storage for efficient use
3. Shine - Seiso (cleanliness) - Clean and inspect each area regularly
4. Standardize - Seiketsu (standardization) - Incorporate 5S into standard operating

procedures
5. Sustain - Shitsuke (discipline)- Assign responsibility, track progress, and continue the
cycle
Kaizen and 5 S – Step 1
• Step 1: Sort
The first step in the 5S process is Sort, or “seiri,” which translates to “tidiness.” The goal of
the Sort step is to eliminate clutter and clear up space by removing things that don’t belong
in the area.
Clearing the Work Area

• For this step, take a close look at the items, tools, and materials in a work area. Items that
are necessary or useful for the work being done in that space should be kept there.
Everything else should be removed.
• Some of those removed items will need to be thrown away or recycled. Other items might
belong to another work process or location; they should be returned to their “homes.”
However, you might find some items that you aren’t sure about.
Red-Tagging Unknown Items

If you find an item that you can’t identify, or that has uncertain ownership, it’s time to use a
red tag. “Red-Tagging” temporarily attaches a highly-visible tag to the item, which notes
where it was found and when. Then, red-tagged items from all work areas are collected in a
single location: a “lost and found” for tools, materials, and equipment
Reassigning Tagged Items
Items may wait in the red tag collection area for a long time. In that case, the original work
area (where that item came from) doesn’t seem to need it anymore. It may be useful
elsewhere, though.
In one common approach, items may be left in the red tag collection space for thirty days.
After that, any supervisor may claim the item for their own work area. If nobody wants it
after another week, the item can be removed from the facility entirely. Sell it, recycle it, or
throw it away.
If an item will definitely be needed by the company, but isn’t needed right now, it might be
best to store it for later. Before putting anything into storage, be sure it will actually be
needed again. Have a specific plan for getting that item out of storage again, at a specific
time. Don’t store things “just in case” without good cause, and keep track of what’s been
stored.
Step 2: Set In Order
The second step, Set In Order, was originally called “seiton,” which translates to
“orderliness.” A variety of names have been used in English: “Systematic Organization,”
“Straightening Out,” and “Simplify,” for example. No matter what it’s called, the goal of this
step is to organize the work area. Each item should be easy to find, use, and return: a place
for everything, and everything in its place.
Building a 5S Map
A 5S map is a diagram or floor plan that

provides an overview of a work area,
process, or station. It provides a visual
reference to show where the tools, supplies,
workers, and travel paths are, and how they
relate to each other. A good map may also
include a description of the work that
happens in the area shown.
Tools that are used frequently should be stored near the place they are used. Spare
equipment, supplies, and other tools that are used less often can be kept in a central
location, where multiple teams can share them.
Communicating the Plan

Once storage locations are assigned, each storage area should be labeled. Label the outside
of cabinet doors to help workers quickly identify what’s inside each one. Then, label any
interior shelves to show where different supplies belong. The same ideas extend to rack
labels, bins, and other storage systems.
Many facilities use a “shadow board” for tool storage, to ensure that each tool is easy to put
back in its correct storage place. With this approach, a label matching the shape and size of
the tool is placed where that tool belongs. Workers can immediately spot where each item
belongs, and know at a glance if the item is there or not. No more time wasted looking
through drawers and bins.
Organization can extend to the floor, too. Work areas, movement lanes, and storage for
supplies and finished products can all be marked with floor marking tape.
Kaizen and 5 S - Step 3
Step 3: Shine
The third step of 5S is Shine, or “seiso,” which means “cleanliness.” While the first and
second steps cleared up space and arranged the area for efficiency, this step attacks the dirt
and grime that inevitably builds up underneath the clutter, and works to keep it from
coming back.
Routine Cleaning
Shine moves far beyond just pushing a broom around every now and then. It involves
regular cleaning of every part of the work area — often a daily wipe-down, and a more
thorough cleaning each week.
Importantly, the Shine step is not meant to be a job for the maintenance or janitorial staff.
Each worker should clean their own work area, and the equipment they use.
This approach has several benefits:
• Workers who are familiar with the area will quickly notice any problems that arise
• Hazards or difficult situations will be understood and accounted for
• Items that are out of place or missing will be recognized
• Workers will tend to keep their own workspaces cleaner during normal operations
Shine as Preventative Maintenance
Keeping work areas clean will have many advantages. One important advantage is that it’s
easy to spot leaks, cracks, or misalignments. If the people keeping the area clean are the
same people who work there regularly, they will be quick to recognize any of these
problems.
Leaving those problems unnoticed and unresolved could result in equipment failure, safety
hazards, and loss of productivity. With the constant cleaning and inspections used in the
Shine step of 5S, the system can feed into a preventative maintenance program. This way, 5S
can extend the working life of equipment and help reduce emergency downtime.
Step 4: Standardize
The first three steps of 5S cover the basics of clearing, organizing, and cleaning a work
space; on their own, those steps will provide short-term benefits. The fourth step is
Standardize, or “seiketsu,” which simply means standardization. By writing down what is
being done, where, and by whom, you can incorporate the new practices into normal work
procedure. This paves the way for long-term change.
The Power of Writing Things Down

Writing down the decisions that you make in your 5S program will help ensure that your
work doesn’t just disappear. You are writing the standards for your facility, and you can
change them to fit new information or new business needs.
Tools for Standardizing
Once you’ve made decisions on how to change your work practices, those decisions need to
be communicated to workers. This communication is a key part of the Standardize step.
Common tools for this process include:
5S checklists – Listing the individual steps of a process makes it easy for workers to follow
that process completely. It also provides a simple auditing tool to check progress later on.
Job cycle charts – Identify each task to be performed in a work area, and decide on a
schedule or frequency for each of those tasks. Then, assign responsibility to a particular
worker (or job duty). The resulting chart can be posted visibly to resolve questions and
promote accountability.
Procedure labels and signs – Provide operating instructions, cleaning steps, and
preventative maintenance procedures right where that information will be needed.
Step 5: Sustain
The fifth step of a 5S program is Sustain, or “shitsuke,” which literally means “discipline.”
The idea here is continuing commitment. It’s important to follow through on the decisions
that you’ve made — and continually return to the earlier steps of 5S, in an ongoing cycle.
Never “Once and Done”

The 5S approach was never meant to be a one-time event, but an ongoing cycle. This is key,
because early successes in 5S can open the way for problems. If open space becomes
available in the Sort step, but afterward, tools and materials are allowed to gradually fill in
that space without any organization, the end result can be an even bigger mess. The solution
is to apply the ideas of 5S over and over, as a routine part of normal work. That’s why
Sustain is so important.
• Sustaining a 5S program can mean different things in different workplaces, but there are
some elements that are common in successful programs.
• Management support – Without visible commitment from managers, the 5S processes
won’t stick around. Supervisors and managers should be involved in auditing the 5S
work processes, and getting feedback from workers. They also need to provide the tools,
training, and time for workers to get their jobs done right.
• Department tours – Bringing teams from one department to visit other departments
will help familiarize the entire workforce with the processes of your facility. This type of
“cross pollination” helps to spread good ideas, and inspires people to come up with new
ways to improve the 5S implementation.
• Updated training – As time passes, there may be changes in your workplace, such as
new equipment, new products, or new work rules. When this happens, revise your 5S
work standards to accommodate those changes, and provide training on the new
standards.
• Progress audits – The standards that are created in the 5S program should provide
specific and measurable goals. Checking on those goals with a periodic audit can provide
important information and guidance. Where is 5S working well? Where are teams falling
behind?
• Performance evaluations – Once you know your goals are reasonable, make
performance part of each employee evaluation. When teams and individuals perform
well, celebrate it, and post overall results so each team can see how they compare to the
rest of the facility.
Kaizen and 5 S – A Sixth S for safety
When it comes to lean manufacturing and workplace improvement, 5S is one of the most
widely known and used lean tools. It’s no surprise: 5S can increase workplace efficiency,
reduce costs, and improve quality. But with many lean programs, it’s easy to focus only on
those goals, and lose sight of the human factor.
Worker safety is critical. That’s why many facilities add another step to the 5S cycle, calling
the result “6S” — with Safety.
Unlike the first five steps, Safety is not a sequential step. It must be considered during each
of the other steps. During the Sort phase, for example, you might decide that a given tool is
obsolete because a newer version is safer to use. Likewise, during the Standardize step,
work procedures need to be standardized to improve workplace safety, not just efficiency.
Choosing to implement 6S, instead of the standard 5S program, can help improve
workplace organization and efficiency, while also making the workplace safer.
Benefits of a 5S program
• Better time usage - Getting rid of unwanted materials and organizing the important
tools and supplies will eliminate clutter and confusion. Workers spend less time finding
and retrieving what they need, and can be more productive instead.
• Less wasted space – Eliminating unnecessary material stockpiles and consolidating tool
storage will clear up room for more useful applications. Every square foot of floor space
has a cost, and getting the most out of that investment will maximize your facility’s
profitability.
• Reduced injury rates – Organizing work areas for efficiency and ease of use will reduce
the movements needed for workers to do their jobs. Removing clutter and routinely
cleaning up spills will eliminate trip hazards. As a result, workers will experience less
fatigue and fewer injuries.
Benefits of a 5S program
• Reduced equipment downtime – When tools and equipment are kept clean, routinely
inspected, and used in a standardized way, preventative maintenance is much easier, and
major failures can often be prevented entirely.
• Improved consistency and quality – Standardizing work processes will reduce

variations and mistakes. By eliminating faults and failures, overall productivity can be
dramatically improved.
• Heightened employee morale – When 5S principles are used effectively, workers see
that their input is valued, and their performance is recognized. This creates an
environment where workers can feel pride in their work, and take an interest in
improving their company.
Muda Mura and Muri
Thank You

Numerouno Academy of Banking & International Business (Nabib)

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• All organizations engaged in production or sale of products hold inventory in one

• Local purchased Items required for production

• Production Waste and Scrap

• Rejections and Defectives

• Finished Goods at Distribution Centers through out Supply Chain

• Finished Goods in transit

• Finished Goods with Stockiest and Dealers

• Spare Parts Stocks & Bought Out items

• Defectives, Rejects and Sales Returns

• Repaired Stock and Parts

• Sales Promotion & Sample Stocks

➢ Meet variation in Production Demand

➢ Cater to Cyclical and Seasonal Demand

➢ Economies of Scale in Procurement

➢ Take advantage of Price Increase and Quantity Discount

➢ Reduce Transit Cost and Transit Times

➢ Long Lead and High demand items need to be held in Inventory

➢ Sign of Inefficiencies in production

➢ Bad quality/increase rejections

➢ Markets and Supply chain design

➢ Production strategy – Build to stock/Build to order

➢ Market size, location and supply design

➢ Transportation and Physical barriers

➢ Long Production time

3.Shortage or stock out Cost & Cost of Replenishment

4.Cost of Loss, pilferage, shrinkage and obsolescence etc.

6.Sales Discounts, Volume discounts and other related costs.

Domestic SKU like:

Fast Moving, Slow Moving & Non-Moving Stock

Bought Out Items SKU Category

Scrap & Obsolete

•Understanding Stock Keeping Units (SKUs)

Inventory can be in one location or spread over many locations

Inventory control is also required as an operational process requirement

Daily , Quarterly or Half Yearly, Wall to Wall

➢ Outsourced Inventory management to a third party service provider, creates more

➢ Company’s poor Inventory strategy and out look

Factors affecting Inventory Management

VMI- Vendor Managed Inventory

ECR – Efficient Customer Response

MRP – Material Resource Planning/Enterprise Resource Planning

JIC – Just in Case

Cross Docking and Drop shipping

EOQ – Economic Order Quantity

VED – Vital Essential Desirable

2. Search Appropriate vendors

3. Shine - Seiso (cleanliness) - Clean and inspect each area regularly

4. Standardize - Seiketsu (standardization) - Incorporate 5S into standard operating

Clearing the Work Area

Red-Tagging Unknown Items

A 5S map is a diagram or floor plan that

Communicating the Plan

The Power of Writing Things Down

Never “Once and Done”

• Improved consistency and quality – Standardizing work processes will reduce

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