Inventory

Management &
Control.
What is Inventory?

The inventory means aggregate of those items of tangible personal property

which: -

 are held for sale in ordinary course of business.

 are in process of production for such sales.

 are to be currently consumed in the production of goods or services to be

available for sale.
Types of Inventory

 Raw materials: The inventory you use to make your finished goods

 Work-in-progress: Essentially, unfinished goods — inventory that is part-

way through the manufacturing process

 Finished goods: The products you sell to your customers

 MRO goods: MRO stands for maintenance, repair and operating. This is
the inventory you use to support the manufacturing process.
Work Flow of Procurement
Indents Received from Department/Floor

Item Available at STORE ?

Issue to Department/Floor
Procurement Approval Obtained

Procured through Tender or selected Supplier

Material Received, inspected and Stored

Inventory life cycle G a te I n

General/ Construction
Bond
Sub Store Store

Construction
Floor Issue
Site

Leftover
Store

Dispose
Off

G a te O u t
What is Inventory Management?
Inventory management manages the process of ordering, storing and using inventory, both at the
level of the raw materials used as well as finished goods. Inventory management helps businesses
identify which stock to order, how much to order and when.

Inventory management manages the process of-

 Ordering
 Storing
 Using inventory

Purpose of Inventory Management-

 Which Stock to Order

 How Much to Order
 When to Order
What is Inventory Control?

Inventory control is-

 how you manage the stock you currently have in storage.

 This involves knowing your stock inside and out — how much is
available, where it is and what condition it is in.

 It’s also about ensuring that you are storing stock efficiently, keeping
inventory costs down and minimizing the time spent counting and
controlling inventory.
What are inventory costs?

Inventory cost are-

 Ordering Cost.

 Holding/Carrying Cost

 Shortage Cost
Ordering Cost.

This is the expense incurred in creating and processing an order to a supplier.

Examples of ordering costs are:

 Cost to prepare a purchase requisition or purchase order

 Transportation costs
 Time spent finding suppliers and expediting orders
 Receipt of inwards goods, unloading, inspection and transfer.
 Cost to process the supplier invoice related to an order
 Cost to prepare and issue a payment to the supplier
Carrying/Holding Cost.

Carrying cost is the amount that a business spends on holding inventory over
a period of time. It is the cost of owning, storing, and keeping the items in
stock.

 Capital cost

 Inventory service cost

 Inventory risk cost

 Storage space cost

Shortage Cost.

Shortage costs are those costs that are incurred when a business runs out of
stock, including:

 Time lost when raw materials are not available

 Cost of shrinkage, pilferage and obsolescence
 Idle employees
 Emergency shipments costs
 Customer loyalty and reputation
2 fundamental inventory management formulas

 The Economic Order Quantity (EOQ) formula

 The reorder point formula

The Economic Order Quantity (EOQ)
It’s important to buy the right amount of inventory stock, neither too little, nor
too much. You use the EOQ formula to determine the optimal order quantity
that minimizes the costs of ordering, receiving and holding inventory.

EOQ = √(2OQ/C)

Where
 O is the Ordering Cost
 Q is the Quantity demand (your quantity need per year)
 C is the Carrying/holding cost per year per unit
Example:
Suppose a company has an annual demand of 2500 units. The per-unit cost is
200. The total cost to place one order is 200. According to the calculations, the
carrying costs of the company are 12% of the per-unit cost.

It is required to find the Economic Order Quantity.

Re-Order Point (ROP)
Reorder point is the level of stock in your inventory that triggers you to
reorder that product. It’s the minimum amount of stock for an item a business
has before replenishment is needed to meet customer demands.

ROP = (Average Daily Sales X Average Delivery Lead Time) + Safety Stock

Safety Stock= (Maximum Daily sales X Maximum Delivery Time) –

(Average Daily Sales X Average Delivery Lead Time)
Example:

ROP = (Average Daily Sales X Average Safety Stock= (Maximum Daily sales X Maximum
Delivery Lead Time) + Safety Stock Delivery Time) – (Average Daily
Sales X Average Delivery Lead Time)
= (5 X 15) + 44 = (7 X 17) - (5 X 15)
= 119 Pcs = (119 – 75)
= 44 Pcs
THANK YOU