Post on 09-Apr-2018
8/7/2019 Inventory Management at TELCON
1/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 1
INVENTORY MANAGEMENT
1. INTRODUCTION
DEFINITION AND MEANING
Inventory is a list of goods and materials, or those goods and materials themselves, held
available in stock by a business. Inventory are held in order to manage and hide from the
customer the fact that manufacture/supply delay is longer than delivery delay, and also to
ease the effect of imperfections in the manufacturing process that lower production
efficiencies if production capacity stands idle for lack of materials.
The reasons for keeping stock
All these stock reasons can apply to any owner or product stage.
Buffer stock is held in individual workstations against the possibility that the upstream
workstation may be a little delayed in providing the nex t item for processing. Whilst some
processes carry very large buffer stocks, Toyota moved to one (or a few items) and has now
moved to eliminate this stock type.
Safety stock is held against process or machine failure in the hope/belief that the failure c an
be repaired before the stock runs out. This type of stock can be eliminated by programmes
like Total Productive Maintenance
Overproduction is held because the forecast and the actual sales did not match. Making to
order and JIT eliminates this stock type.
Lot delay stock is held because a part of the process is designed to work on a batch basis
whilst only processing items individually. Therefore each item of the lot must wait for the
whole lot to be processed before moving to the next workstation. This can be eliminated by
single piece working or a lot size of one.
8/7/2019 Inventory Management at TELCON
2/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 2
Demand fluctuation stock is held where production capacity is unable to flex with demand.
Therefore a stock is built in times of lower utilization to be supplied to customers when
demand exceeds production capacity. This can be eliminated by increasing the flexibility and
capacity of a production line or reduced by moving to item level load balancing.
Line balance stock is held because different sub-processes in a line work at different rates.
Therefore stock will accumulate after a fast sub-process or before a large lot size sub-
process. Line balancing will eliminate this stock type.
Changeover stock is held after a sub-process that has a long setup or change -over time. This
stock is then used while that change-over is happening. This stock can be eliminated by toolslike SMED.
Where these stocks contain the same or similar items it is often the work practice to hold all
these stocks mixed together before or after the sub-process to which they relate. This
'reduces' costs. Because they are mixed -up together there is no visual reminder to operators
of the adjacent sub-processes or line management of the stock which is due to a particular
cause and should be a particular individual's responsibility with inevitable consequences.
Some plants have centralized stock holding across sub-processes which makes the situation
even more acute.
The basis of Inventory accounting
Inventory needs to be accounted where it is held across accounting period boundaries since
generally expenses should be matched against the results of that expense within the same
period. When processes were simple and short then inventories were small but with more
complex processes then inventories became larger and significant valued items on the
balance sheet. This need to value unsold and incomplete goods has driven many new
behaviors into management practise. Perhaps most significant of these are the complexities
of fixed cost recovery, transfer pricing, and the separation of direct from indirect costs. This,
supposedly, precluded "anticipating income" or "declaring dividends out of capital". It is one
of the intangible benefits of Lean and the TPS that process times shorten and stock levels
8/7/2019 Inventory Management at TELCON
3/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 3
decline to the point where the importance of this activity is hugely reduced and therefore
effort, especially managerial, to achieve it can be minimized.
LIFO V/S FIFO
When a dealer sells goods from inventory, the value of the inventory reduces by the cost of
goods sold (Cog sold). This is simple where the Cog has not varied across those held in stock
but where it has then an agreed method must be derived. For commodity items that one
cannot track individually, accountants must choose a method that fits the nature of the sale.
Two popular methods exist: FIFO and LIFO accounting (first in - first out, last in - first out).
FIFO regards the first unit that arrived in inventory the first one sold. LIFO considers the last
unit arriving in inventory as the first one sold. Which method an accountant selects can have
a significant effect on net income and book value and, in turn, on taxation. Using LIFO
accounting for inventory, a company generally re ports lower net income and lower book
value due to the effects of inflation. This generally results in lower taxation. Due to LIFO's
potential to skew inventory value, UK GAAP and IAS have effectively banned LIFO inventory
accounting.
SUPPLY CHAIN MANAGEMENT
A supply chain is a network of facilities and distribution options that performs the functions
of procurement of materials, transformation of these materials into intermediate and
finished products, and the distribution of these finished products to custom ers. Supply
chains exist in both service and manufacturing organizations, although the complexity of the
chain may vary greatly from industry to industry and firm to firm.
Supply chain management is typically viewed to lie between fully vertically
integrated firms, where the entire material flow is owned by a single firm and those whereeach channel member operates independently. Therefore coordination between the various
players in the chain is key in its effective management. Cooper and Ellram [1993] compare
supply chain management to a well-balanced and well-practiced relay team. Such a team is
more competitive when each player knows how to be positioned for the hand-off. The
8/7/2019 Inventory Management at TELCON
4/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 4
relationships are the strongest between players who directly pass the baton ( stick), but the
entire team needs to make a coordinated effort to win the race.
Below is an example of a very simple supply chain for a single product, where raw
material is procured from vendors, transformed into finished goods in a single step, and
then transported to distribution centers, and ultimately, customers. Realistic supply chains
have multiple end products with shared components, facilities and capacities. The flow of
materials is not always along an arborescent network, various modes of transportation may
be considered, and the bill of materials for the end items may be both deep and large.
To simplify the concept, supply chain management can be defined as a loop: it starts
with the customer and ends with the customer. All materials, finished products,
information, and even all transactions flow through the loop. However, supply chain
management can be a very difficult task because in the reality, the supply chain is a complex
and dynamic network of facilities and organizations with diffe rent, conflicting objectives.
Supply chains exist in both service and manufacturing organizations, although the
complexity of the chain may vary greatly from industry to industry and firm to firm.
Unlike commercial manufacturing supplies, services such as clinical supplies planning
are very dynamic and can often have last minute changes. Availability of patient kit when
patient arrives at investigator site is very important for clinical trial success. This results in
overproduction of drug products to take care of last minute change in demand. R&D
manufacturing is very expensive and overproduction of patient kits adds significant cost to
the total cost of clinical trials. An integrated supply chain can reduce the overproduction of
drug products by efficient demand management, planning, and inventory management.
8/7/2019 Inventory Management at TELCON
5/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 5
Traditionally, marketing, distribution, planning, manufacturing, and the purchasing
organizations along the supply chain operated independently. These organizations have
their own objectives and these are often conflicting. Marketing's objective of high customer
service and maximum sales dollars conflict with manufacturing and distribution goals. Many
manufacturing operations are designed to maximize throughput and lower costs with little
consideration for the impact on inventory levels and distribution capabilities. Purchasing
contracts are often negotiated with very little information beyond historical buying
patterns. The result of these factors is that there is not a single, integrated plan for the
organization---there were as many plans as businesses. Clearly, there is a need for a
mechanism through which these different functions can be integrated together. Supply
chain management is a strategy through which such integration can be achieved.
Supply Chain Management (SCM) is the process of planning, implementing, and controlling
the operations of the supply chain with the purpose to satisfy customer requirements as
efficiently as possible. Supply chain management spans all movement and storage of raw
materials, work-in-process inventory, and finished goods from point -of-origin to point-of-
consumption.
According to the Council of Supply Chain Management Professionals (CSCMP),
a professional association that developed a definition in 2004, Supply Chain Management
encompasses the planning and management of all activities involved in sourcing and
procurement, conversion, and all logistics management activities. Importantly, it also
includes coordination and collaboration with channel partners, which can be suppliers,
intermediaries, third-party service providers, and customers. In essence, Supply Chain
Management integrates supply and demand management within and across companies.
8/7/2019 Inventory Management at TELCON
6/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 6
According to Cohen & Lee (1988)
Supply Chain Management is The network of organizations that are having linkages, both
upstream and downstream, in different processes and activities that produces and delivers
the value in form of products and services in the hands of ultimate consumer. Thus a shirt
manufacturer is a part of supply chain that extends up stream through the weaves of fabrics
to the spinners and the manufacturers of fibers, and down stream through distributions and
retailers to the final consumer. Though each of these organizations are dependent on each
other yet traditionally do not closely cooperate with eac h other. An integrated supply chain
management streamlines processes and increases profitability by delivering the right
product to the right place, at the right time, and at the lowest possible cost.
According to Ganeshan & Harrison (2001)
Supply Chain Management is a systems approach to managing the entire flow of
information, materials, and services from raw materials suppliers through factories and
warehouses to the end customer.
Supply chain event management (abbreviated as SCEM) is a consideration of all possible
occurring events and factors that can cause a disruption in a supply chain. With SCEM
possible scenarios can be created and solutions can be planned.
Some experts distinguish supply chain management and logistics management,
while others consider the terms to be interchangeable. From the point of view of an
enterprise, the scope of supply chain management is usually bounded on the supply side
by your supplier's suppliers and on the customer side by your customer's customers.
Supply chain management is also a cate gory of software products.
8/7/2019 Inventory Management at TELCON
7/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 7
3. OBJECTIVES AND NEED OF SUPPLY CHAIN MANAGEMENTTraditionally, marketing, distribution, planning, manufacturing, and the purchasing
organizations along the supply chain operated independently. These organizations have
their own objectives and these are often conflicting.
Marketing's objective of high customer service and maximum sales dollars conflict with
manufacturing and distribution goals. Many manufacturing operations are designed to
maximize throughput and lower costs with little consideration for the impact on inventory
levels and distribution capabilities. Purchasing contracts are often negotiated with very little
information beyond historical buying patterns.
The result of these factors is that there is not a single, integrated plan for the
organization---there were as many plans as businesses. Clearly, there is a need for a
mechanism through which these different functions can be integrated together. Supply
chain management is a strategy through which such integration can be achieved.
Moreover, shortened product life cycles, increased competition, and heightened
expectations of customers have forced many leading edge companies to move from physical
logistic management towards more advanced supply chain management. Additionally, in
recent years it has become clear that many companies have reduced their manufacturing
costs as much as it is practically possible. Therefore, in many cases, the only possible way to
further reduce costs and lead times is with effective supply chain management.
8/7/2019 Inventory Management at TELCON
8/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 8
In addition to cost reduction, the supply chain management approach also facilitates
customer service improvements. It enables the management of:
inventories,transportation systems andwhole distribution networks
so that organizations are able to meet or even exceed their customers' expectations.
The major objective of supply chain management is to reduce or eliminate the
buffers of inventory that exists between originations in chain through the sharing of
information on demand and current stock levels.
Broadly, an organization needs an efficient and proper supply chain management
system so that the following strategic and competitive areas can be used to their full
advantage if a supply chain management system is properly implemented.
1. Fulfillment of raw materials:
Ensuring the right quantity of parts for production or products for sale arrive at the
right time. This is enabled through efficient communication, ensuring that orders are placed
with the appropriate amount of time available to be filled. The supply chain management
system also allows a company to constantly see what is on stock and making sure that the
right quantities are ordered to replace stock.
2. Logistics:
The cost of transporting materials as low as possible consistent with safe and reliable
delivery. Here the supply chain management system enables a company to have constant
contact with its distribution team, which could consist of trucks, trains, or any other mode
of transportation. The system can allow the company to track where the required materials
are at all times. As well, it may be cost effective to share transportation costs with a partner
8/7/2019 Inventory Management at TELCON
9/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 9
company if shipments are not large enough to fill a whole truck and this again, allows the
company to make this decision.
3. Smooth Production:
Ensuring production lines function smoothly because high -quality parts are available
when needed. Production can run smoothly as a result of fulfillment and logistics being
implemented correctly. If the correct quantity is not ordered and delivered at the requested
time, production will be halted, but having an effective supply chain management system in
place will ensure that production can always run smoothly without delays due to ordering
and transportation.
4. Increase in Revenue & profit:
Ensuring no sales is lost because shelves are empty. Managing the supply chain
improves a company flexibility to respond to unforeseen changes in demand and supply.
Because of this, a company has the ability to produce goods at lower prices and distribute
them to consumers quicker then companies without supply chain management thus
increasing the overall profit.
5. Reduction in Costs:
Keeping the cost of purchased parts and products at acceptable levels. Supply chain
management reduces costs by increasing inventory turnover on the shop floor and in the
warehouse controlling the quality of goods thus reducing internal and external failure costs
and working with suppliers to produce the most cost efficient means of manufacturing a
product.
6. Mutual Success:
Among supply chain partners ensures mutual success. Collaborative planning,
forecasting and replenishment (CPFR) is a longer-term commitment, joint work on quality,
8/7/2019 Inventory Management at TELCON
10/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 10
and support by the buyer of the suppliers managerial, technological, and capacity
development. This relationship allows a company to have access to current, reliable
information, obtain lower inventory levels, cut lead times, enhance product quality, improve
forecasting accuracy and ultimately improve customer service and overall profits. The
suppliers also benefit from the cooperative relationship through increased buyer input from
suggestions on improving the quality and costs and though shared savings. Consumers can
benefit as well through higher quality goods provided at a lower cost.
8/7/2019 Inventory Management at TELCON
11/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 11
ABOUT THE COMPANY:
Telco Construction Equipment Company (TELCON) has set global benchmark in the
manufacturing heavy equipment for the construction, earthmoving & mining industries,
while playing a significant role in realizing Indias infrastructure dreams.
The company manufactures construction equipment that is used in major infrastructure
projects in India. It has a market leader for the past 5 years, de spite the tough competition.
It has revolutionized the Indian construction equipment industry, with the introduction of
the V-series of hydraulic excavators. The company has an extensive customer base era
includes government & institutional buyers, and con tractors. The company was the
countrys first construction equipment manufacture to receive the International
Organization of Standardization (ISO) 9001 certification.
Telcon's facilities are located in Dharwad in Karnataka and Jamshedpur inJharkhand, are
strategic locations with proximity to the markets of the respective products manufactured in
each.
8/7/2019 Inventory Management at TELCON
12/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 12
4. ACTIVITIES/FUNCTIONS OF SCM IN TELCON
Supply chain management is a cross-functional approach to managing the
movement of raw materials into an organization and the movement of finished goods out of
the organization toward the end-consumer. As corporations strive to focus on core
competencies and become more flexible, they have reduced their ownership of raw
materials sources and distribution channels. These functions are increasingly being
outsourced to other corporations that can perform the activities better or more cost
effectively. The effect has been to increase the number of companies involved in satisfying
consumer demand, while reducing management control of daily logistics operations. Less
control and more supply chain partners led to the creation of supply chain management
concepts. The purpose of supply chain management is to improve trust and collaboration
among supply chain partners, thus improving inventory visibility and improving inventory
velocity.
Several models have been proposed for understanding the activities required
managing material movements across organizational and functional boundaries. SCOR is a
supply chain management model promoted by the Supply-Chain Council. Another model is
the SCM Model proposed by the Global Supply Chain Forum (GSCF). Supply chain activities
can be grouped into strategic, tactical, and operational levels of activities.
(a) Strategic:-Strategic network optimization, including the number, location, and size of
warehouses, distribution centers and facilities.
Strategic partnership with suppliers, distributors, and customers, creatingcommunication channels for critical information and operational improv ements such
as cross docking, direct shipping, and third -party logistics.
8/7/2019 Inventory Management at TELCON
13/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 13
Products design coordination, so that new and existing products can be optimallyintegrated into the supply chain.
Information Technology infrastructure, to support supply chain operations.Where to make and what to make or buy decisions.
(b) Tactical:-Sourcing contracts and other purchasing decisions.
Production decisions, including contracting, locations, scheduling, and planningprocess definition.
Inventory decisions, including quantity, location, and quality of inventory.Transportation strategy, including frequency, routes, and contracting.
Benchmarking of all operations against competitors and implementation of bestpractices throughout the ent erprise.
(c) Operational:-Daily production and distribution planning, including all nodes in the supply chain.
Production scheduling for each manufacturing facility in the supply chain (minute byminute).
Demand planning and forecasting, coordinating the demand forecast of allcustomers and sharing the forecast with all suppliers.
Sourcing planning, including current inventory and forecast demand, in collaborationwith all suppliers. Inbound operations, including transportation from suppliers and
receiving inventory.
8/7/2019 Inventory Management at TELCON
14/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 14
Production operations, including the consumption of materials and flow of finishedgoods.
Outbound operations, including all fulfillment activities and transportation tocustomers.
Order promising, accounting for all constraints in the supply chain, including allsuppliers, manufacturing facilities, distribution centers, and other customers.
Performance tracking of all activities.
INTEGRATED SUPPLY CHAIN MANAGEMENT
An integrated supply chain management streamlines processes and increases
profitability by delivering the right product to the right place, at the right time, and at the
lowest possible cost. Unlike commercial manufacturing supplies, clinical supplies planning is
very dynamic and can often have last minute changes. Availability of patient kit when
patient arrives at investigator site is very important for clinical trial success.
This results in overproduction of drug products to take care of last minute change in
demand. R&D manufacturing is very expensive and overproduction of patient kits adds
significant cost to the total cost of clinical trials.
An integrated supply chain can reduce the overproduction of drug products by
efficient demand management, planning, and inventory management. Implementation of
ERP system (such as SAP) in R&D can have major ROI by an efficient supply and inventory
management system and also by reducing overproduction.
8/7/2019 Inventory Management at TELCON
15/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 15
HowIntegration Is AchievedIn Supply Chain?
Stage 1:
Complete functional independence where each business function such as production or
purchasing does its own thing in complete isolation from other business function. For
instance, production function seeking to optimize its unit cost of manufacture by long
production runs with out regard for build up of finished goods inventory and advance
impact it will have on the warehousing as well as working capital.
Stage 2:
Companies recognize the need of limited integration between adjacent functions such as
distribution and inventory management or purchasing and material control.
Stage 3:
A natural extension of stage two, leading to establishment and implementation of end - to-
end integration. A concept of linkage and coordination is achieved.
STAGE 4:
The linkage achieved in stage three is extended upstream to suppliers and down stream to
customers. It represents true supply chain integration. This concept is also called co-
managed inventory (CMI).
Force of supply chain management is on trust and cooperation and the recognition that is
properly managed the whole cane be greater then the sum of its part.
Inventory Decisions:
These refer to means by which inventories are managed. Inventories exist at every
stage of the supply chain as either raw material, semi-finished or finished goods. They can
also be in-process between locations. Their primary purpose to buffer against any
uncertainty that might exist in the supply chain. Since holding of inventories can cost
8/7/2019 Inventory Management at TELCON
16/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 16
anywhere between 20 to 40 percent of their value, their efficient management is critical in
supply chain operations. It is long term in the sense that top management sets goals.
However, most researchers have approached the management of inventory from short term
perspective. These include deployment strategies (push versus pull), control policies --- the
determination of the optimal levels of order quantities and reorder points, and setting
safety stock levels, at each stocking location. These levels are critical, since they are primary
determinants of customer service levels.
8/7/2019 Inventory Management at TELCON
17/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 17
5.INVENTORY CONTROL
MANAGEMENT
Inventory database
An important component of inventory planning involves access to an inventory database. Itis a structured framework that contains the information needed to effectively manage all
items of inventory, from raw materials to finished goods. This information includes the
classification and amount of inventories, demand for the items, cost to the firm for each
item, ordering costs, carrying costs and other data.
The task of inventory planning can be highly complex. At the same time it rests on
fundamental principles. In doing so we must understand and determine the optimal lot size
that has to be ordered. The EOQ (economic order quantity) refers to the optimal order size
that will result in the lowest total of order and carrying costs and ordering costs. By
calculating the economic order quantity th e firm attempts to determine the order size that
will minimize the total inventory costs. In examination of the two curves reveals that the
carrying cost curve is linear i.e. more the inventory held in any period, greater will be the
cost of holding it. Or dering cost curve on the other hand is different. The ordering costs
decrease with an increase in order sizes. The point where the holding cost curve i.e. the
carrying cost curve and the ordering cost curve meet, represent the least total cost which is
incidentally the economic order quantity or optimum quantity.
PRODUCTIVITY
In the industries there will be a competitor who will be a low cost producer and will have
greater sales volume in that sector. This is partly due to economies of scale, which enable
fixed costs to spread over a greater volume but more particularly to the impact of the
experience curve.
It is possible to identify and predict improvements in the rate of output of workers as they
become more skilled in the processes and tasks on which t hey work. Bruce Henderson
extended this concept by demonstrating that all costs, not just production costs, would
decline at a given rate as volume increased. This cost decline applies only to value added,
i.e. costs other than bought in supplies. Traditionally it has been suggested that the main
8/7/2019 Inventory Management at TELCON
18/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 18
route to cost reduction was by gaining greater sales volume and there can be no doubt
about the close linkage between relative market share and relative costs. However it must
also be recognized that logistics management can provide a multitude of ways to increase
efficiency and productivity and hence contribute significantly to reduced unit costs.
In todays more turbulent environment there is no longer any possibility of manufacturing
and marketing acting independently of each other. It is now generally accepted that the
need to understand and meet customer requirements is a prerequisite for survival. At the
same time, in the search for improved cost competitiveness, manufacturing management
has been the subject of massive renaissance. The last decade has seen the rapid
introduction of flexible manufacturing systems, of new approaches to inventory based on
materials requirement planning (MRP) and just in time (JIT) methods, a sustained emphasis
on quality.
Equally there has been a growing recognition of the critical role that procurement plays in
creating and sustaining competitive advantage as part of an integrated logistics process.
In this scheme of things, logistics is therefore essentially an integrative conce pt that seeks to
develop a system wide view of the firm. It is fundamentally a planning concept that seeks to
create a framework through which the needs of the manufacturing strategy and plan, which
in turn link into a strategy and plan for procurement.
Inventory Flow:
The management of logistics is concerned with the movement and storage of materials and
finished products. Logistical operations start with the initial shipment of a material or
component part from a supplier and are finalized when a manufactured or processed
product is delivered to a customer. From the initial purchase of a material or component,
the logistical process adds value. By moving inventory when and where needed. Thus the
material gains value at each step. For a large manufacturer, logistical operations may consist
of thousands of movements, which ultimately culminate in the delivery of the product to an
industrial user, wholesaler, dealer or customer. Similarly for a retailer, logistical operations
may commence with the procurement of products for resale and may terminate with
consumer pickup or delivery.
8/7/2019 Inventory Management at TELCON
19/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 19
The significant point is that regardless of the size or type of the enterprise, logistics is useful
and requires continuous management attention.
INVENTORY- related costs
Inventory carrying cost (ICC):
Tax
Storage
Capital
Insurance
Obsolescence
Ordering:
Communication
Processing, including material
handling and packaging
Update activities, including
receiving and date-processing
BASIC INVENTORY DECISIONS
There are two basic decisions that must be made for every item that is maintained in
inventory. These decisions have to do with the timing of orders for the item and the size of
orders for the item.
8/7/2019 Inventory Management at TELCON
20/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 20
Basic Inventory Decisions
How much? When?
Lot sizing decision
Determination of the quantity
to be ordered.
Lot timing decision
Determination of the timing
for the orders.
RELEVANT INVENTORY COSTS
Relevant Inventory Costs
Item Costs Holding Costs Ordering Costs Shortage CostsDirect cost for
getting an item.
Purchase cost for
outside orders,
manufacturing cost
for internal orders.
Costs associated
with carrying items
in inventory.
Storage and other
related costs.
Fixed costs
associated with
placing an order
(either a purchase
cost for outside
orders, or a setup
cost for internal
orders).
Costs associated
with not having
enough inventory
to meet demand.
8/7/2019 Inventory Management at TELCON
21/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 21
EOQ:
The EOQ can be calculated with the help of a mathematical formula. Following assumptions
are implied in the calculation:
1. Constant or uniform demand- although the EOQ model assumes constant demand,
demand may vary from day to day. If demand is not known in advance - the model must be
modified through the inclusion of safe stock.
2. Constant unit price- the EOQ model assumes that the purchase price per unit of material
will remain unaltered irrespective of the order offered by the suppliers to include variable
costs resulting from quantity discounts, the total co sts in the EOQ model can be redefined.
3. Constant carrying costs- unit carrying costs may very substantially as the size of the
inventory rises, perhaps decreasing because of economies of scale or storage efficiency or
increasing as storage space runs out and new warehouses have to be rented.
4. Constant ordering cost- this assumption is generally valid. However any violation in this
respect can be accommodated by modifying the EOQ model in a manner similar to the one
used for variable unit price.
5. Instantaneous delivery- if delivery is not instantaneous, which is generally the case; the
original EOQ model must be modified through the inclusion of a safe stock.
6. Independent orders- if multiple orders result in cost saving by reducing paper work and
the transportation cost, the original EOQ model must be further modified. While this
modification is somewhat complicated, special EOQ models have been developed to deal
with it.
These assumptions have been pointed out to illustrate the limitations of the bas ic EOQ
model and the ways in which it can be easily modified to compensate for them.
The formula for the EOQ model is:
2 M Co
S Cc
Where M = is the annual demand
8/7/2019 Inventory Management at TELCON
22/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 22
Co is the cost of ordering
Cc is the inventory carrying cost
S = is the unit price of an item.
Limitations of the EOQ formula-
1. Erratic changes usages- the formula presumes the usage of materials is both predictable
and evenly distributed. When this is not the case, the formula becomes useless.
2. Faulty basic information- order cost varies from commodity to commodity and the
carrying cost can vary with the companys opportunity cost of capital. Thus the assumption
that the ordering cost and the carrying cost remains constant is faulty and hence EOQ
calculations are not correct.
3. Costly calculations: the calculation required to find out EOQ is extremely time consuming.
More elaborate formulae are even more expensive. In many cases, the cost of estimating
the cost of possession and acquisition and calculating EOQ exceeds the savings made by
buying that quantity.
4. No formula is a substitute for common sense - sometimes the EOQ may suggest that we
order a particular commodity every week (six-year supply) based on the assumption that we
need it at the same rate for the next six years. However we have to order it in the quantities
according to our judgment. Some items can be ordered every week; some can be ordered
monthly, depends on how feasible it is for the firm.
5. EOQ ordering must be tempered with judgment- Sometimes guidelines provide a conflict
in ordering. Where an order strategy conflicts with an operational goal, order strategy
restrictions should be developed to permit honoring the goal.
Quantity discounts: In the EOQ analysis, it has been assumed that material prices and
transportation costs were constant factors for the range of order quantities considered. In
practice, some situations occur in which the delivered unit cost of a material decreases
significantly if a slightly larger quantity than the originally computed EOQ is purchase d.
Quantity discounts, freight rate schedules and price increases may create such situations.
These additional variables can also be included in the formula.
Cost of carrying inventory:
Carrying material in inventory is expensive. A number of studies indic ated that the annual
cost of carrying a production inventory averaged approximately 25% of the value of the
8/7/2019 Inventory Management at TELCON
23/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 23
inventory. The escalating and volatile cost of money has escalated the annual inventory
carrying cost to a figure between 25% - 35% of the value of the inventory. The following five
elements make up this cost:
1) Opportunity cost (12% -20%)
2) Insurance cost (2% 4%)
3) Property taxes (1% - 3%)
4) Storage costs (1%- 3%)
5) Obsolescence and deterioration (4% - 10%)
Total carrying cost (20% - 40%)
Let us briefly look into these costs:
Opportunity cost of invested funds
When a firm uses money to buy production material and keeps it in the inventory, it simply
has this much less cash to spend for other purposes. Money invested in external securities
or in productive equipment earns a return for the company. Thus it is logical to charge all
money invested in inventory an amount equal to that it could earn elsewhere in the
company. This is the opportunity cost associated with inventory investment.
Insurance cost
Most firms insure the assets against possible losses from fire and other forms of damage.
Property taxes
This is levied on the assessed value of a firms assets, the greater the inventory value, the
greater the asset value and consequently the higher the firms tax bill.
Storage costs
The warehouse is depreciated every year over the length of its life. This cost can be charged
against the inventory occupying the space.
Obsolescence and deterioration
In most inventory operations, a certain percenta ge of the stock spoils, is damaged, is
pilfered, or eventually becomes obsolete. A certain number always takes place even if they
8/7/2019 Inventory Management at TELCON
24/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 24
are handled with utmost care.
Generally speaking, this group of carrying costs rises and falls nearly proportionately to the
rise and fall of the inventory level.
Calculations:
TMX 20
MATERIAL
ORDERED 2005-6
DEMAND
ORDER
COST HOLDING
ARM 30 22 1200 1.048809
BUCKET 30 22 1200 1.048809
ECU 30 22 600 1.48324
CRANK 30 22 8000 0.406202
ENGINE BLOCK 30 22 4650 0.532795
2006-07
ARM 30 23 1200 1.072381
BUCKET 30 23 1200 1.072381
ECU 30 23 600 1.516575
CRANK 30 23 8000 0.415331
ENGINE BLOCK 30 23 4650 0.54477
2007-08
ARM 30 24 1200 1.095445BUCKET 30 24 1200 1.095445
ECU 30 24 600 1.549193
CRANK 30 24 8000 0.424264
ENGINE BLOCK 30 24 4650 0.556487
2008-09
ARM 30 25 1200 1.118034
BUCKET 30 25 1200 1.118034
ECU 30 25 600 1.581139
CRANK 30 25 8000 0.433013
ENGINE BLOCK 30 25 4650 0.567962
2009-10
ARM 30 27 1200 1.161895
BUCKET 30 27 1200 1.161895
ECU 30 27 600 1.643168
CRANK 30 27 8000 0.45
ENGINE BLOCK 30 27 4650 0.590243
8/7/2019 Inventory Management at TELCON
25/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 25
ANALYSIS
Even with all the production orders remaining constant for this particular type
of the machines due to the varying order costs the EOQ falls down varying
between .5 to 3 which depends on the various machine parts which is a basic
challenge for most of the Material managers who have to make decisions
based on this model. The company follows ordering all the materials on a
single schedule for a period of 3months based on the order flow in the
production line with the help of SAP module which is production planning. The
company considers all the effective inventory models to be best fit only on the
papers.
8/7/2019 Inventory Management at TELCON
26/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 26
EX 40
EX40
MATERIAL
ORDERED 2005-6
DEMAND
ORDER
COST HOLDING
ARM 40 22 1200 1.21106
BUCKET 40 22 1200 1.21106
ECU 45 22 600 1.81659
CRANK 50 22 8000 0.524404
ENGINE BLOCK 60 22 4650 0.7534872006-07
ARM 40 23 1200 1.238278
BUCKET 40 23 1200 1.238278
ECU 45 23 600 1.857418
CRANK 50 23 8000 0.53619
ENGINE BLOCK 60 23 4650 0.770421
2007-08
ARM 40 24 1200 1.264911
BUCKET 40 24 1200 1.264911
ECU 45 24 600 1.897367
CRANK 50 24 8000 0.547723
ENGINE BLOCK 60 24 4650 0.786991
2008-09
ARM 40 25 1200 1.290994
BUCKET 40 25 1200 1.290994
ECU 45 25 600 1.936492
CRANK 50 25 8000 0.559017
ENGINE BLOCK 60 25 4650 0.803219
2009-10
ARM 40 27 1200 1.341641
BUCKET 40 27 1200 1.341641
ECU 45 27 600 2.012461
CRANK 50 27 8000 0.580948
ENGINE BLOCK 60 27 4650 0.83473
8/7/2019 Inventory Management at TELCON
27/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 27
ANALYSIS
Even with all the production orders remaining constant for this particular type
of the machines due to the varying order costs the EOQ falls down varying
between .5 to 3 which depends on the various machine parts which is a basic
challenge for most of the Material managers who have to make decisions
based on this model. The company follows ordering all the materials on a
single schedule for a period of 3months based on the order flow in the
production line with the help of SAP module which is production pla nning. The
company considers all the effective inventory models to be best fit only on the
papers.
8/7/2019 Inventory Management at TELCON
28/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 28
TJD V
TJD V
MATERIAL
ORDERED 2005-6
DEMAND
ORDER
COST HOLDINGARM 3000 22 1200 10.48809
BUCKET 4800 22 1200 13.2665
ECU 7200 22 600 22.97825
CRANK 11000 22 8000 7.778175
ENGINE BLOCK 14000 22 4650 11.5097
2006-07
ARM 3000 23 1200 10.72381
BUCKET 4800 23 1200 13.56466
ECU 7200 23 600 23.49468
CRANK 11000 23 8000 7.952987
ENGINE BLOCK 14000 23 4650 11.76837
2007-08
ARM 3000 24 1200 10.95445
BUCKET 4800 24 1200 13.85641
ECU 7200 24 600 24
CRANK 11000 24 8000 8.124038
ENGINE BLOCK 14000 24 4650 12.02149
2008-09
ARM 3000 25 1200 11.18034
BUCKET 4800 25 1200 14.14214
ECU 7200 25 600 24.4949CRANK 11000 25 8000 8.291562
ENGINE BLOCK 14000 25 4650 12.26938
2009-10
ARM 3000 27 1200 11.61895
BUCKET 4800 27 1200 14.69694
ECU 7200 27 600 25.45584
CRANK 11000 27 8000 8.616844
8/7/2019 Inventory Management at TELCON
29/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 29
ENGINE BLOCK 14000 27 4650 12.75071
ANALYSIS
Even with all the production orders remaining constant for this particular type
of the machines due to the varying order costs the EOQ falls down varying
between .5 to 3 which depends on the various machine parts which is a basic
challenge for most of the Material managers who have to make decisions
based on this model. The company follows ordering all the materials on a
single schedule for a period of 3months based on the order flow in the
production line with the help of SAP module which is prod uction planning. The
company considers all the effective inventory models to be best fit only on thepapers.
8/7/2019 Inventory Management at TELCON
30/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 30
EX200
EX200
MATERIAL
ORDERED 2005-6
DEMAND
ORDER
COST HOLDING
ARM 1900 22 1200 8.346656
BUCKET 2300 22 1200 9.183318
ECU 2900 22 600 14.5831
CRANK 3850 22 8000 4.60163
ENGINE BLOCK 4800 22 4650 6.739388
2006-07
ARM 1900 23 1200 8.534245
BUCKET 2300 23 1200 9.389711
ECU 2900 23 600 14.91085
CRANK 3850 23 8000 4.70505
ENGINE BLOCK 4800 23 4650 6.890854
2007-08
ARM 1900 24 1200 8.717798
BUCKET 2300 24 1200 9.591663ECU 2900 24 600 15.23155
CRANK 3850 24 8000 4.806246
ENGINE BLOCK 4800 24 4650 7.039062
2008-09
ARM 1900 25 1200 8.897565
BUCKET 2300 25 1200 9.78945
ECU 2900 25 600 15.54563
CRANK 3850 25 8000 4.905354
ENGINE BLOCK 4800 25 4650 7.184212
2009-10
ARM 1900 27 1200 9.246621
BUCKET 2300 27 1200 10.17349
ECU 2900 27 600 16.15549
CRANK 3850 27 8000 5.097794
ENGINE BLOCK 4800 27 4650 7.466052
8/7/2019 Inventory Management at TELCON
31/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 31
ANALYSIS
Even with all the production orders remaining constant for this particular type
of the machines due to the varying order costs the EOQ falls down varying
between .5 to 3 which depends on the various machine parts which is a basic
challenge for most of the Material managers who have to make decisionsbased on this model. The company follows ordering all the materials on a
single schedule for a period of 3months based on the order flow in the
production line with the help of SAP module which is production pla nning. The
company considers all the effective inventory models to be best fit only on the
papers.
8/7/2019 Inventory Management at TELCON
32/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 32
The ABC Classification:
Indicators that classifies a material as an A,B or C part according to its consumption value
.The classification process is known as the ABC analysis.
The three indictors have the following meanings:
A-important part , high consumption value
B-less important , medium consumption value
C-relatively unimportant part , low consumption value
The ABC classification system is to grouping items according to annual sales volume, in an
attempt to identify the small number of items that will account for most of the sales volume
and that are the most important ones to control for effective inventory management.
Reorder Point: The inventory level R in which an order is placed where R = D.L, D = demand
rate (demand rate period (day, week, etc), and L = lead time.
Safety Stock: Remaining inventory between the times that an order is placed and when new
stock is received. If there are not enough inventories then a shortage may occur.
Safety stock is a hedge against running out of inventory. It is an extra inventory to take care
on unexpected events. It is often called buffer stock. The absence of invent ory is called a
shortage.
ABC Inventory Classification
The ABC classification process is an analysis of a range of items, such as finished products or
customers into three categories: A - outstandingly important; B - of average importance; C -
relatively unimportant as a basis for a control scheme. Each category can and sometimes
should be handled in a different way, with more attention being devoted to category A, less
to B, and less to C.Inventory Control Application: The ABC classification system is to grouping items according
to annual sales volume, in an attempt to identify the small number of items that will
account for most of the sales volume and that are the most important ones to control for
effective inventory management.
Break-even analysis depends on the following variables:
8/7/2019 Inventory Management at TELCON
33/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 33
1. Selling Price per Unit: The amount of money charged to the customer for each unitof a product or service.
2. Total Fixed Costs: The sum of all costs required to produce the first unit of a product.This amount does not vary as production increases or decreases, until new capital
expenditures are needed.
3. Variable Unit Cost: Costs that vary directly with the production of one additionalunit.
Total Variable Cost The product of expected unit sales and variable unit cost, i.e., expected
unit sales times the variable unit cost.
4. Forecasted Net Profit: Total revenue minus total cost. Enter Zero (0) if you wish tofind out the number of units that must be sold in order to produce a profit of zero
(but will recover all associated costs)
Break-Even Point in TELCON: Number of units that must be sold in order to produce a profit
of zero (but will recover all associated costs). In other wo rds, the break-even point is the
point at which your product stops costing you money to produce and sell, and starts to
generate a profit for your company.
where:
Q = Break-even Point, i.e., Units of production (Q),
FC = Fixed Costs,
VC = Variable Costs per Unit
UP = Unit Price
Therefore,
Break-Even Point Q = Fixed Cost / (Unit Price - Variable Unit Cost)
Stock control and inventory
Stock control, otherwise known as inventory control, is used to show how much stock youhave at any one time, and how you keep track of it.
It applies to every item you use to produce a product or service, from raw materials to
finished goods. It covers stock at every stage of the production process, from purchase and
delivery to using and re-ordering the stock.
8/7/2019 Inventory Management at TELCON
34/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 34
Efficient stock control allows you to have the right amount of stock in the right place at the
right time. It ensures that capital is not tied up unnecessarily, and protects production if
problems arise with the supply chain.
Supply chain vendor management inventory:
Allows supply chain partners to share critical order, demand and inventory information in
real-time and uses both integrated and web based applications to reduce administration
costs, shortening cycle times and help lower inventory lev els. Our unique, managed supply
hub requires little upfront investment, yet quickly starts delivering high performance in real
time
Inventory Control Overview
Normal Inventory
As it sounds, this type of inventory item will be used for the majority of your parts. It will
correctly track the inventory received and sold on a first in first out basis, will handle cost of
sales, and will warn you when you're out of stock.
Non-Inventory Type
This is used for selling things that are not really inventory item s. For example, you could be
selling warranty, but because you don't have warranty in a box to sell, and you'll never run
out of stock, you won't need to keep inventory control on it. As well, there is no cost of sale
adjustments with non-stock items. The system will not calculate how much you paid for the
item, and therefore will not try to remove that value from inventory in the general ledger. If
you are selling something that does cost you money, you will have to handle these details
manually.
Labor Parts
You (probably) don't have technicians hanging from hooks in your back room, so like non -
inventory items, the system will not try to remove them from inventory when you sell a
labor item. The two differences between Non -Inventory items an Labor items are that you
can optionally have the system ask you for the technician code that did the work so that you
8/7/2019 Inventory Management at TELCON
35/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 35
can print reports showing who did what work. As well, the system will optionally ask for a
comment to explain what was done so that the description of t he service work can be
printed on the invoice.
Note too that you can optionally keep track of how much time was spent and how much
time was billed for on a per job basis. At the end of the month, you can then print technician
productivity reports to compa re total time spent compared to billable hours. In the
automotive industry, some mechanics can do the work faster than is what is billed because
the billing is based on industry standards.
Consignment Items
Consignments can be used to keep track of inventory that you don't own, but at the time
you sell it, you must pay for it. You'll be able to generate several reports, including a list of
inventory that is on consignment but not sold and a list of inventory sold on consignment,
but not yet paid for.
Floor Plan Inventory
Floor planning is very similar to consignment, except that you take possession and own the
inventory when you receive it, but you don't have to pay for it until it's sold, or until it's
been in the store for a negotiated period of time. H owever, you do own the inventory and
do have to pay for it sometime.
Some floor planning companies want the ability to check the inventory serial number by
serial number for the larger items, and others may just want to count the number of each
model number on hand. Regardless, Windward System Five can handle it.
On the accounts payable side, you will be able to keep track of who you owe the money too
(Floor Planning Company) and who you actually bought the inventory from (Supplier) and
generate proper histories of each.
Tire Inventory
8/7/2019 Inventory Management at TELCON
36/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 36
Windward System Five has the ability to sort and categorize tires by their size, aspect ratio
and rim size. In addition, you will also be able to search for the tires by just entering in some
of the search criteria and having the system bring up a window of all matches.
When the list brings up a list of tires that can all fit the vehicle, the system can sort the list to
show the items with the highest quantity in stock at the top of the list and the i tems that are
out of stock at the bottom of the list. This will help you sell what you actually have to sell
instead of creating special orders.
Product Inventory
Products are items such as vehicles that you might service or repair after selling them to the
customer. That is, they are an item in the database that can be sold, and when sold, are
automatically added to the customer's list of products that can be worked on.
Examples are vehicles, trucks, recreational vehicles, fridges, air conditioners, and chainsaws.
The system will let you keep additional information on these products, such as make, model,
year, and other comments, and will also be able to list all the work or repairs performed
between two dates.
Windward System Five can also track whole goods such as recreational vehicles by keeping
track of the cost of the item before the sale, add ones and pre -delivery inspection items. In
addition, the system can generate a "wash out" report one level deep to show the costs and
income associated with the trade in.
Serialized Inventory
Those items that need to be tracked by their serial numbers can be marked as serialized
inventory. For example, fridges, stoves, computers, and chainsaws might all be serialized.
Note that if you plan on servicing these items in the future and keeping track of all work you
do on them, they should be entered as products instead of serial numbers.
8/7/2019 Inventory Management at TELCON
37/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 37
TYPES OF INVENTORY
Several different types of inventories are conducted, depending upon the type of
materiel involved and type of information needed. Bulkhead-to-Bulkhead Inventory
A bulkhead-to-bulkhead inventory is a physical count of all stock materiel within the
ship or within a specific storeroom. . A bulkhead-to-bulkhead inventory of a specific
storeroom is taken when a random sampling inventory of that storeroom fails to
meet the inventory accuracy rate of 90 percent when directed as a result of a supply
management inspection (SMI). It is also taken when directed by the commanding
officer or when circumstances clearly indicate that it is essential to effective inventory
control.
Specific Commodity Inventory
The specific commodity inventory is a physical count of all items under the same
cognizance symbol, FSC, or that support the same operational function, such as-
boat spares, electron tubes, boiler tubes, or fire brick. This inventory is taken under the
same conditions as a bulkhead- to-bulkhead inventory; however, prior knowledge of
specific stock numbers and item location is required to conduct a specific commodity
inventory
Special Materiel Inventory
A special materiel inventory requires the physical count of all items that, because of
their physical characteristics, costs, mission essentiality, and criticality, are specifically
designated for separate identification and inventory control. Special materiel
inventories include, but are not limited to, stocked items designated as classified or
hazardous. Special materiel inventories also include controlled equipage and
presentation silver
8/7/2019 Inventory Management at TELCON
38/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 38
Advantage Inventory Control
The Inventory Control gives you the ability to handle your inventory your way. As one of the
most flexible and comprehensive modules in the Advantage, you can choose the level of
control that best suits your specific business needs. Your inventory can be valued on a LIFO,
FIFO or Average cost basis. You can choose to use parts explosions, serialized inventory,
parts allocations, vendors, warehouses and an audit trail. The system can also track the
quantity sold for each item for the last 12 months and, using this data, provides a sal es
analysis report to help you better manage your stock. Financing is aided by the serialized
aged report that shows which serialized items have been in your inventory the longest and
how much you have outstanding. Pricing can be standardized by rounding t o a given factor
or by being set to a specific suffix. With the Below Minimum report, reordering stock is
automatic and accurate. Inventory Control is a stand alone module that can also be
integrated with Purchase Orders, Point of Sale, Billing/Order Entry , Job Cost, Time Billing
and Quick Sale.
21character alphanumeric item number field
Lookup on item number, item description (21 characters) and group (15 character) fields
Tracks serialized items
Allows for superseded, preceded and substitute items
Unlimited additional descriptions can be added to items
Handles markup and gross profit cost basis
Can automatically update item pricing and discounts
Handles core pricing
Produces a reorder report based on minimum stock quantities
Tracks unlimited vendors per item and recommends a best vendor
Tracks allocations including explosion allocations
Up to 254 discounts per item, including quantity break discounts
Unit conversions can be defined for each item for both buying and selling quantities
Allows for warehouse transfers and other quantity adjustments
Set up special sale dates for item discounting
8/7/2019 Inventory Management at TELCON
39/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 39
Produces physical inventory forms
Imports physical inventory and received quantities from data collected with hand -held
computers
Provides up to 255 levels of parts explosion to allow you to identify all components of your
assembled stock
Automatically updates cost and price on explosion items based on subassembly changes
Reports the best and worst selling items in each of eight different categor ies
Tracks items by location or quantity in multiple warehouses
Can automatically generate items based on a template item
Utilizes Rapid Entry to facilitate entry of item data
Disadvantages:
conveyor needs to be slightly declined for carton movement (one way);
may require addition of powered booster units in some applications;
cannot be used for inter-floor movement except for down travel;
goods need to be manually pushed when horizontal;
no positive control over moving carton;
produces line pressure when accumulating.
Require efficiency of land
We propose a method for valuing new, recoverable, and recovered assemblies (products,
components, parts, etc.) in production systems with reverse logistics. Values of assemblie s
influence their opportunity holding cost rates and are hence essential for comparing
inventory strategies in average cost models. We argue that the proposed method is 'correct'
from a discounted cash flow (DCF) point of view. We refer to some previous re sults on
valuing assemblies in systems without disassembly of returned products that seem to
confirm this. Furthermore, we test the method for a specific example with disassembly of
8/7/2019 Inventory Management at TELCON
40/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 40
returned products. The simulation results indicate that the method indeed leads to (nearly)
DCF optimal inventory strategies.
Packaging
In TELCON, with its large product volumes, High margins and fierce competition, is
constantly seeking efficiency improvements in its supply chain. The grocery retail industry
uses an immense amount of packaging and is directly affected by packaging logistics
activities. There is, therefore, a potential for efficiency improvements in the grocery retail
supply chain through the integration and development of new systems of packaging and
logistics. Packaging handling is identified as one of the main activities that has a strong
impact on the overall logistical cost of chain. This research article investigates packaging
handling evaluation methods and discusses how these are employed to benefit t he industry
from the industry, have been used to evaluate packaging and logistics activities. This work,
together with a literature review, was used to identify the need for evaluative methods and
the present availability of such methods. The results indicated a lack of sufficient and usable
packaging handling evaluation methods in today's grocery and packaging industry especially
from a logistical point of view. The paper also highlights the lack of systematization among
the few methods used and discusses how these can be used to build a systematic and
multifunctional evaluation model in order to utilize the information from different studies to
build a knowledge base for the future
Vendor-Managed Inventory
TELCON is a leading global manufacturer, focused on delivering operational services to high -
tech companies, needed to take advantage of vendor-managed inventory (VMI)
postponement and optimal fulfillment solutions to stay competitive in its low -margin
manufacturing marketplace. Its objective was to find ways to reduce inventory redundancy,
improve customer responsiveness by reduced cycle times and simplify supplier
management and procurement administration. The manufacturer also needed to augment
8/7/2019 Inventory Management at TELCON
41/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 41
existing infrastructure, while reducing investments in a dditional personnel, facilities and
systems Vendor Managed Inventory (VMI)
Vendor Managed Inventory supports the efficient flow of materials into the market.
Working closely with you and your suppliers, we automate the forecast management
process with Web-based software that enables the flow of supply to more accurately mirror
store and even shelf-level demand.
Move your inventory in and out of our distribution centers and manage demand planning.
We can store and stage product for replenishment at o ur often freeing or limited store
rooms. We provide forecast visibility, comparing actual demand against DC -on-hand, store-
on-hand and in-transit inventory. When store or inventory falls below pre -determined
levels, auto alerts are sent to you and your supplier to prompt replenishment.
Advanced Shipping Notices (ASNs) provide detail on in -transit inventory from suppliers so
you have visibility to inventory deeper into the supply chain. This allows for confident
commitment to orders based on this inbound f low.
Postpone inventory ownership until shipment to your site. Once your inventory is moved to
the we work with your suppliers to transition inventory ownership until demand occurs.
Perform value-added services, allowing you to more efficiently manage th e flow of goods
into manufacturing or directly to market.
8/7/2019 Inventory Management at TELCON
42/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 42
6. WAREHOUSE
A warehouse is a commercial building for storage of goods. Warehouses are used by
manufacturers, importers, exporters, wholesalers, transport businesses, customs, etc. They
are usually large plain buildings in industrial areas of cities and towns. They come equipped
with loading docks to load and unload trucks; or sometimes are loaded directly from
railways, airports, or seaports. They also often have cranes and forklifts for moving goods,
which are usually placed on ISO standard pallets loaded into pallet racks.
Some warehouses are completely automated, with no workers working inside. The pallets
and product are moved with a system of automated conveyors and automated storage and
retrieval machines coordinated by programmable logic controllers and computers running
logistics automation software. These systems are often installed in refrigerated warehouses
where temperatures are kept very cold to keep the product from spoiling, and also where
land is expensive, as automated storage systems can use vertical space efficiently. These
high-bay storage areas are often more than 10 meters high, with some over 20 meters high.
The direction and tracking of materials in the warehouse is coordinated by the WMS, or
Warehouse Management System, a database driven computer program. The WMS is used
by logistics personnel to improve the efficiency of the warehouse by directing putaways and
to maintain accurate inventory by recording warehouse transactions.
Traditional warehousing has been declining since the last decades of the 20th century with
the gradual introduction of Just In Time (JIT) techniques designed to improve the return on
investment of a business by reducing in-process inventory. The JIT system promotes the
delivery of product directly from the factory to the retail merchant, or from parts
manufacturers directly to a large scale factory such as an automobile assembly plant,
without the use of warehouses. However, with the gradual implementation of offshore
outsourcing and offshoring in about the same time period, the distance between the
manufacturer and the retailer (or the parts manufacturer and the industrial plant) grew
considerably in many domains, necessitating at least one warehouse per country or per
region in any typical supply chain for a given range of products.
8/7/2019 Inventory Management at TELCON
43/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 43
Recent developments in marketing have also led to the development of warehouse -style
retail stores with extremely high ceilings where decorative shelving is replaced by tall heavy
duty industrial racks, with the items ready fo r sale being placed in the bottom parts of the
racks and the crated or palletized and wrapped inventory items being usually placed in the
top parts. In this way the same building is used both as a retail store and a warehouse.
TELCON has only one centralized warehouse in Nagpur Maharashtra
8/7/2019 Inventory Management at TELCON
44/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 44
7. TRANSPORTATION
Transport or transportation is the movement of people and goods from one place to
another. The term is derived from the Latin trans ("across") andportare ("to carry").
Industries which have the business of providing equipment, actual transport, transport of
people or goods and services used in transport of goods or people make up a large broad
and important sector of most national economies, and are collectively referred to as
transport industries.
MODES OF TRANSPORT USED FOR TRANFER OF INVENTORY IN TELCON
Air transport
Rail transport
Road transport, including human-powered transport such as walking and cycling
Ship transport
8/7/2019 Inventory Management at TELCON
45/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 45
Transport is a major use of energy, and transport burns most of the world's petroleum.
Transportation accounts for 2/3 of all U.S. petroleum consumption.[3]
The transportation sector generates 82 percent of carbon monoxide and 56 percent of NOx
emissions and over one-quarter of total US greenhouse gas emissions.[4]
Hydrocarbon fuels
also produce carbon dioxide, a greenhouse gas widely thought to be the chief cause of
global climate change, and petroleum-powered engines, especially inefficient ones, create
air pollution, including nitrous oxides and particulates (soot). Although vehicles in developed
countries have been getting cleaner because of environmental regulations, this has been
offset by an increase in the number of vehicles and more use of each vehicle.
Other environmental impacts of transport systems include traffic congestion and
automobile-oriented urban sprawl, which can consume natural habitat and agricultural
lands.
Toxic runoff from roads and parking lots that can also pollute water supplies and aquatic
ecosystems.
Alternative propulsion can reduce pollution. Low pollution fuels may have a reduced carbon
content, and thereby contribute less in the way of carbon dioxide emissions, and generally
have reduced sulfur, since sulfur exhaust is a cause of acid rain. The most popular low-
pollution fuels at this time are biofuels: gasoline-ethanol blends and biodiesel. Hydrogen is
an even lower-pollution fuel that produces no carbon dioxide, but producing and storing it
economically is currently not feasible. Plug-in hybrids are energy-efficient vehicles that are
going to be in the mass -production.
Another strategy is to make vehicles more efficient, which reduces pollution and waste by
reducing the energy use. Electric vehicles use efficient electric motors, but their range is
limited by either the extent of the electric transmission system or by the storage capacity of
batteries. Electrified public transport generally uses overhead wires or third rails to transmit
electricity to vehicles, and is used for both rail and bus transport. Battery electric vehicles
store their electric fuel onboard in a battery pack. Another method is to generate energy
using fuel cells, which may eventually be two to five times as efficient as the internal
8/7/2019 Inventory Management at TELCON
46/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 46
combustion engines currently used in most vehicles. Another effective method is to
streamline ground vehicles, which spend up to 75% of their energy on air -resistance, and to
reduce their weight. Regenerative braking is possible in all electric vehicles and recaptures
the energy normally lost to braking, and is becoming common in rail vehicles. In internal
combustion automobiles and buses, regenerative braking is not possible, unless electric
vehicle components are also a part of the powertrain, these are called hybrid electric
vehicles.
8/7/2019 Inventory Management at TELCON
47/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 47
8. DISTRIBUTION
Distribution is one of the 4 aspects of marketing. A distributor is the middleman between
the manufacturer and retailer. After a product is manufactured it is typically shipped (and
usually sold) to a distributor. The distributor then sells the product to retailers or customers.
The other three parts of the marketing mix are product management, pricing, and
promotion.
Traditionally, distribution has been seen as dealing with logistics: how to get the product or
service to the customer. It must answer questions such as:
Should the product be sold through a retailer?
Should the product be distributed through wholesale?
Should multi-level marketing channels be used?
How long should the channel be (how many members)?
Where should the product or service be available?
When should the product or service be available?
Should distribution be exclusive, selective or intensive?
Who should control the channel (referred to as the channel captain)?
Should channel relationships be informal or contractual?
Should channel members share advertising (referred to as co-op ads)?
Should electronic methods of distribution be used?
Are there physical distribution and logistical issues to deal with?
8/7/2019 Inventory Management at TELCON
48/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 48
What will it cost to keep an inventory of products on store shelves and in channel
warehouses (referred to asfilling the pipeline)?
THE DISTRIBUTION CHANNEL
Frequently there may be a chain of intermediaries, each passing the product down the chain
to the next organization, before it finally reaches the consumer or end -user. This process is
known as the 'distribution chain' or the 'channel.' Each of the elements in these chains will
have their own specific needs, which the producer must take into account, along with those
of the all-important end-user.
A number of alternate 'channels' of distribution may be available:
Selling direct, such as via mail order, Internet and telephone sales
Agent, who typically sells direct on behalf of the producer
Distributor (also called wholesaler), who sells to retailers
Retailer (also called dealer or reseller), who sells to end customers
Advertisement typically used for consumption goods
Distribution channels may not be restricted to physical products alone. They may be just as
important for moving a service from producer to consumer in certain sectors, since both
direct and indirect channels may be used. Hotels, for example, may sell their services
(typically rooms) directly or through travel agents, tour operators, airlines, tourist boards,
centralized reservation systems, etc.
There have also been some innovations in the distribution of services. For example, there
has been an increase in franchising and in rental services - the latter offering anything from
televisions through tools. There has also been some evidence of service integration, with
services linking together, particularly in the travel and tourism sectors. For example, links
now exist between airlines, hotels and car rental services. In addition, there has bee n a
8/7/2019 Inventory Management at TELCON
49/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 49
significant increase in retail outlets for the service sector. Outlets such as estate agencies
and building society offices are crowding out traditional grocers from major shopping areas..
CHANNEL MEMBERS
Distribution channels can thus have a number of levels. Kotler defined the simplest level,
that of direct contact with no intermediaries involved, as the 'zero -level' channel.
The next level, the 'one-level' channel, features just one intermediary; in consumer goods a
retailer, for industrial goods a d istributor, say. In small markets (such as small countries) it is
practical to reach the whole market using just one- and zero-level channels.
In large markets (such as larger countries) a second level, a wholesaler for example, is now
mainly used to extend distribution to the large number of small, neighborhood retailers.
In Japan the chain of distribution is often complex and further levels are used, even for the
simplest of consumer goods.
Many of the marketing principles and techniques which are applied to the external
customers of an organization can be just as effectively applied to each subsidiary's, or each
department's, 'internal' customers.
In some parts of certain organizations this may in fact be formalized, as goods are
transferred between separate parts of the organization at a `transfer price'. To all intents
and purposes, with the possible exception of the pricing mechanism itself, this process can
and should be viewed as a normal buyer -seller relationship. The fact that this is a captive
market, resulting in a monopoly price', should not discourage the participants from
employing marketing techniques.
Less obvious, but just as practical, is the use of `marketing' by service and administrative
departments; to optimize their contribution to the ir `customers' (the rest of the
organization in general, and those parts of it which deal directly with them in particular). In
all of this, the lessons of the non -profit organizations, in dealing with their clients, offer a
very useful parallel.
8/7/2019 Inventory Management at TELCON
50/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 50
CHANNEL MANAGEMENT
The channel decision is very important. In theory at least, there is a form of trade -off: the
cost of using intermediaries to achieve wider distribution is supposedly lower. Indeed, most
consumer goods manufacturers could never justify the cost of selling direct to their
consumers, except by mail order. In practice, if the producer is large enough, the use of
intermediaries (particularly at the agent and wholesaler level) can sometimes cost more
than going direct.
Many of the theoretical arguments about channels therefore revolve around cost. On the
other hand, most of the practical decisions are concerned with control of the consumer. Thesmall company has no alternative but to use intermediaries, often several layers of them,
but large companies 'do' have the choice.
However, many suppliers seem to assume that once their product has been sold into the
channel, into the beginning of the distribution chain, their job is finished. Yet that
distribution chain is merely assuming a part of the supplier 's responsibility; and, if he has
any aspirations to be market-oriented, his job should really be extended to managing, albeit
very indirectly, all the processes involved in that chain, until the product or service arrives
with the end-user. This may involve a number of decisions on the part of the supplier:
Channel membership
Channel motivation
Monitoring and managing channels
Good Distribution Practice or GDP deals with the guidelines for the proper distribution of
medicinal products for human use. GDP is a quality warranty system, which includes
requirements for purchase, receiving, storage and export of drugs, intended for human
consumption.
8/7/2019 Inventory Management at TELCON
51/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 51
GDP regulates the division and movement of pharmaceutical products from the premises of
the manufacturer of medicinal products, or another central point, to the end user th ereof,
or to an intermediate point by means of various transport methods, via various storage
and/or health establishments.
8/7/2019 Inventory Management at TELCON
52/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 52
8/7/2019 Inventory Management at TELCON
53/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 53
10. CONCLUSION
Logistics is the art and science of managing and controlling the flow of goods, energy,
information and other resources like products, services, and people, from the source of
production to the marketplace. It is difficult or nearly impossible to accomplish any
international trading, global export/import processes, international repositioning of raw
materials/products and manufacturing without a professional logistical support. It involves
the integration of information, transportation, inventory, warehousing, material handling,
and packaging. The operating responsibility of logistics is the geographical repositioning of
raw materials, work in proce ss, and finished inventories where required at the lowest cost
possible.
Inventory is a list of goods and materials, or those goods and materials themselves, held
available in stock by a business. Inventory are held in order to manage and hide from the
customer the fact that manufacture/supply delay is longer than delivery delay, and also to
ease the effect of imperfections in the manufacturing process that lower production
efficiencies if production capacity stands idle for lack o f materials.
FINALLY I CONCLUDE THAT TELCON HAS THE BEST INVENTORY CONTROL MEASURES THEY
HAVE BACK UP FOR EVERYTHING WE LEARNT
y HOW INVENTORY IS MANAGEDy WHAT IS ROLE OF TRANSPORTy WHAT IS ROLE OF PACKAGINGy ROLE OF SUPPLY CHAIN IN INEVNTORYy ROLE OF LOGISTICS DEPARTMENT IN INVENTORY
8/7/2019 Inventory Management at TELCON
54/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
OPERATIONS RESAERCH 54
THEY CAN STILL UPGRADE MORE BY CONCENTRATING MORE ON
JUST IN TIME
MAKE BUY IMPORT
PRICE FIXING
COST ACCOUNTING
COST REDUCTION TECHNIQUES LIKE
VALUE ENGINEERING
STANDARDIZATION
AND OTHER TRANSPORTATIONS PROBLEMS
8/7/2019 Inventory Management at TELCON
55/55
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE
12. BIBLIOGRAPHY
WWW.GOOGLE.COM
WWW.TELCON.CO.IN