INVENTORY MANAGEMENT

SUBMITTED BY: ANUJ AGARWAL RAJEEV SHARMA

INVENTORY MEANS…
All the materials , parts, suppliers, expenses and in process or finished products recorded on the books by an organization and kept in its stocks, warehouses or plant for some period of time.

INVENTORY MANAGEMENT  A proper planning of purchasing of raw material handling storing and recording is to be considered by the inventory management. .  Inventory management is the technique of maintaining the size of the inventory at some desired level keeping in view the best economic interest of an organization.

WHY WE WANT TO HOLD INVENTORIES  Raw Material  Suppliers may produce/ship materials in batches  Quantity discounts and freight/handling $$ savings Work-in-Process  Necessary in process-focused production  May reduce material-handling & production costs Finished Goods  Essential in produce-to-stock positioning strategies  Necessary in level aggregate capacity plans  Products can be displayed to customers   .

Determine the optimum level of inventory investment To ensure a continuous supply of raw materials to facilitate uninterrupted production Maintain sufficient stocks of raw material in period of short supply and anticipate price changes .OBJECTIVES 1. 3. OF INVENTORY MANAGEMENT 2.

CONT… 4. 6. 5. To maintain a minimum investment in inventories to maximizes profitability Minimise the carrying cost and time Maintain sufficient finished goods inventory for smooth sales operation and efficient customer service .

ADVANTAGES Cost saving Warehousing organization Updated data Time saving Reduce liability .

DISADVANTAGE Expensive Complexity .

METHOD/TECHNIQUES  DETERMINATION OF ECONOMIC ORDER QUANTITY A.C ANALYSIS  .B.

EOQ is the point at which inventory carrying cost equal to order cost. In purchasing any material it also referred as optimum or standard ordering quantity.  .  Determining an optimum level two types of cost ordering cost and carrying cost is necessary.  It refers to the size of the orders which gives maximum economy .ECONOMIC ORDER QUANTITY  EOQ is the quantity of material which can be purchased at minimum cost.

ORDERING COST It is the cost of placing an order and securing the supplies it varies from time to time depending on the ordered place and the no.  Cost of stationery .  Most frequently orders are placed and fewers the quantity purchased the greater will be ordering cost and vice-versa. telephone charges etc. postage. of items required.  . typing .

insurance premium etc. .  Cost of storage which could have been used for other purposes.  It includes interest on investment .CARRYING COST  These cost are basically use for holding the inventories. maintainence cost . store keeping cost .  Insurance cost  Cost of spoilage in handling of materials.

EOQ COST MODEL Annual cost Slope = 0 Minimum total cost CcQ Carrying Cost = 2 Total Cost CoD Ordering Cost = Q Optimal order EOQ Order Quantity. Q .

ASSUMPTIONS OF BASIC EOQ MODEL Demand is known with certainty and is constant over time  No shortages are allowed  Lead time for the receipt of orders is constant  Order quantity is received all at once  .

EOQ FORMULA EOQ = √2AB CS A = ANNUAL CONSUMPTION IN RUPEES B = ORDERING PLACE COST PER ORDER C = INVENTORY CARRYING COST PRE UNIT S = ORDERING COST PER ORDER .

. Consumption of materials per annum: 10000 kg Ordering placing cost per order : Rs 50 Cost per kg.NUMERICAL OF EOQ Calculating the economic order quantity from the following information. of raw materials : Rs 2 Storage cost : 8% on Averageinventory 1. Also state the number of orders to be placed in a year.

SOLUTION EOQ = √2AB CS  A= 10000  B= 50  C= 2  S= 8%  EOQ = √2AB CS =√62.500 Kg No. of orders to be placed in a year = Total consumption materials per annum EOQ  .50.000 = 2.

 = 10000 2500 = 4 Orders per year .

ABC ANALYSIS It is efficient control of stores requires greater in case of costlier items .

CLASSIFYING INVENTORY ITEMS  ABC Classification (Pareto Principle)  A Items: very tight control. periodic review and reorder . good records. frequent review  B Items: less tightly controlled. complete and accurate records. large inventories. minimal records. regular review  C Items: simplest controls possible.

CONTINUED…. Item A Quality Costlier Quantity order Less Checking Regular system to see that there is no overstocking as well as that there is no danger of production being interrupted for unwanted material. Position being viewed in each month Order in large quantity so that cost can be avoided B C Less costlier Economical Order may be on review basis. Larger .

ABC CLASSIFICATION OF INVENTORY ITEMS Percentage of dollar volume 110 100 90 80 70 60 50 40 30 20 10 0 A B C Percentage of inventory items (SKUs) .

ABC ANALYSIS Typical observations A small percentage of the items (Class A) make up a large percentage of the inventory value A large percentage of the items (Class C) make up a small percentage of the inventory value These classifications determine how much attention should be given to controlling the inventory of different items  Class A • • 5 – 15 % of units 70 – 80 % of value  Class B • • 30 % of units 15 % of value 50 – 60 % of units 5 – 10 % of value  Class C • • .

THANK YOU .

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