Inventory Management

In this chapter… Need and Importance of Inventory Management… Inventory Management Techniques… Order quantity – EOQ Model… Order Point… Safety Stock… Selective Inventory Controls… ABC Analysis…

Inventory… The aggregate of raw materials; work-in-

process; finished goods and stores and spares. Components are:

Raw Materials. WIP Finished Products. Stores & Spares.

Transaction motive Precautionary motive Speculative motive

Motives of Holding Inventory…

Objectives… Ensure continuous supply of materials Facilitate interrupted production Maintain optimum stock of inventory Minimize inventory cost

Need for Balanced Investment in Inventory…Consequences of Excessive Investment in Inventory

Block of funds Loss of liquidity Mishandling of inventory Increases carrying cost Physical deterioration

Consequences of inadequate investment in Innovation Disturbs production Unable to deliver goods on delivery date Loss of customers

Costs of holding Inventory…

Ordering Costs: The fixed clerical cost of placing and receiving an inventory order

Carrying Costs: The variable costs per unit of holding an item in inventory for a period

Risk of Holding Inventory… Price decline Product deterioration Product obsolescence

Tools of Inventory Control… ABC analysis EOQ Order point problem Two-bin technique VED classification HML classification SDE classification FSN classification JIT technique