Inventory control

S.Kacker, IHM, Mumbai

INVENTORY/ STOCK

Inventory are of various forms

Raw materials Finished goods Work in progress Tools Spares

Zero inventory is not possibleElectricity – Zero inventory


DEFINATIONInventory control is defined as safe guarding of company’s property in the form of inventory & maintaining at the optimum level considering the operating requirements and financial resources of business.


AIMTo achieve maximum efficiency in management of inventory

IMPORTANCE

Cost of materials constitutes a large proportion of product cost, hence for economy.


OBJECTIVES

Effective use of capital

Service to the customer

Promotion of manufacturing

efficiency

Minimizing risk of loss through

obsolescence


OBJECTIVES

Avoidance of out of stock danger

Economy in purchasing

Storage of inventory

Minimize the loss to price

fluctuation


TECHNIQUES

Proper purchase procedures

Proper storage system

Physical inventory system

Perpetual inventory system

Economic order quantity


TECHNIQUES

Level settings

ABC analysis

System of Budgets

Review of slow & non moving items

Forecasting of sales

Production schedules


Review of items

Fast moving items

Slow moving items

Dormant items

Obsolete items


EFFECTS OF HIGH INVENTORY

Locking up of capital

More storage space

High insurance charges

High taxes

Greater handling & distribution

costs


EFFECTS OF HIGH INVENTORY

Increase in record keeping

Deterioration in quality

Chances of pilferage, theft

Evaporation or shrinkage


EFFECTS OF LOW INVENTORY

Production stopages

Idle machine capacity

Burden of fixed overhead

Failure to deliver as per schedule


REQUIREMENT OF INVENTORY CONTROL

Proper co-ordination & co-operation

from various depts.

Centralized purchasing

Planning of material requirements

Classification of materials and its

SPS


REQUIREMENT OF INVENTORY CONTROL

Efficient book control and storage

Issue system and records

Perpetual inventory

Levels of stock

Audits


PHYSICAL INVENTORY

STOCK TAKING

The process of taking into account the inventory that is actually present and comparing with the book value, the requisitions, the receipts and finding out the capital tied up.

Actual Stock in hand.


OBJECTIVE OFTAKING STOCK

To determine the value of goods held

in stock

To compare the value of goods actually

in stores with Book value

List slow moving items

To compare usage with sales to access

cost percentage


OBJECTIVE OFTAKING STOCK

Check against loss and pilferage

To determine the rate of stock turnover

RST= Cost of food consumed

Average Inventory

Average inventory = Opening stock + Closing Stock

2


POINTS TO REMEMBER BEFORE STOCK TAKING

Have the control sheets ready with

the opening stock

Enter all purchases on the fresh

stock sheet

Total all issues


POINTS TO REMEMBER BEFORE STOCK TAKING

Add all purchases to open stock and

deduct all issues

Make sure no issues are made till

stock taking is complete

Plan and time the stock taking

efficiently S.Kacker, IHM, Mumbai

POINTS TO REMEMBER DURING STOCK TAKING

Ensure that all places are

known where stock is stored

Check for reasons of dead stock

Record every detail


POINTS TO REMEMBER DURING STOCK TAKING

Use accurate weighing scales &

measures to achieve right figures

Check that closing stock is not

greater than opening stock +

purchase issuesS.Kacker, IHM, Mumbai

POINTS TO REMEMBER AFTER STOCK TAKING

Work systematically specially the calculations

When multiplying unit by unit price ensure that you have the correct unit price

Apply FIFO principles to stock

If any result is incorrect verify through Order sheets.


PERPETUAL INVENTORY SYSTEM

A system of records maintained by

controlling department which reflects the

physical movement of raw materials and

their current balances.

It ascertains balance after every receipt

and issue of the materials through stock

records.S.Kacker, IHM, Mumbai

ADVANTAGES OF PERPETUAL INVENTORY

• It is not necessary to stop production

to carry out stock-taking.

• The long & costly stock-taking is

avoided.

• Discrepancies are detected easily &

quickly

• Bin cards & stock ledgers give ready

figures S.Kacker, IHM, Mumbai

ADVANTAGES OF PERPETUAL INVENTORY

• It helps in preparation of final

accounts even at short notice

• Stock levels can be revised from time to

time in order to avoid under or over

stocking.

• Obsolescence can be avoided

Capital investments can be under control.

DISCREPANCIES IN INVENTORYAvoidable Causes• Clerical error in making records

• Pilferage, theft

• Placing of stores in wrong bins

• Careless materials handling

• Short or excess issue due to wrong

method or negligence

• Mistake in identifying items.S.Kacker, IHM, Mumbai

DISCREPANCIES IN INVENTORY

Un Avoidable Causes

• Evaporation, shrinkage etc

• Loss due to breaking the bulk or cutting

to sizes

• Loss on account of fire

• Loss due to approximation

METHODS OFINEVNTORY CONTROL

• Open store rooms

• Bin cards

• Dual bins

• Store ledger


OPEN STORE

Stores are kept openNo individual responsibleProblem of theft & shortages

BIN CARD

Bin tags/ Stock cardQuantitative record of receipts, issues, balancesHung on shelves/ Bin


DUAL BINS

Two stocks are keptOne for useSecond in emergencies Safety stock

STOCK LEDGERS

Stock Registers


GENERAL PROBLEMS

Spoilage of merchandise-Natural spoilage-Spoilage register

Estimating value of merchandise-Finished products-Leftovers

Goods in process-Partially used items-Partially processed

Sold at lower priceS.Kacker, IHM, Mumbai

SR NO

NAME OF THE ITEM

CODE NO

BIN NO

STORES BALANCES SHORTAGE SURPLUS ADJUSTMENTSPHYSICAL BIN

CARDSTORES LEDGER

STORES VERIFICATION SHEETDATE OF VERIFICATION:

STOCK TAKING REPORTTo,_____________________Date: Period:

Purchases Rate of Stock turnoverPerishablesNon PerishablesRemarksSlow moving itemsObsolete itemDormant Items

Monthly F & B Cost Statement for the period ending

STOCK LEVELSFactors helping in fixation of these levelsRate of consumptionLead timeStorage capacityAvailability of funds for investment in inventoriesCost of storageRisk of loss due to deteriorations, theft, fire,etc.Seasonal factorsFluctuations in market pricesInsurance cost


TYPES OF STOCK LEVELS

1.Maximum level

Max level =(Reorder level + Reorder Qty) – ( Min consumption X Min Reorder Period)

2.Minimum level or Safety level

Min level= (Reorder level) - (Normal consumption X Normal Reorder Period)


3. Reorder level

Reorder level= (Max Consumption X Max Reorder Period)

4. Danger level

TYPES OF STOCK LEVELS


EXAMPLEReorder Qty = 3600unitsMax Consumption=900units/weekMin Consumption=300units/weekNormal Consumption=600units/weekReorder Period=3week min orLead time= 4 week normal 5 week maxCalculate:1.Reorder level2. Min level3. Max level


SOLUTION

1.Reorder Level = (Max Consumption* Max Reorder Period) 900 *5 = 4500 units

2. Minimum Stock Level= (Reorder Level)- (Normal Consumption * Normal Reorder Period) 4500-(600*4)=2100units

3. Maximum Stock Level= (Reorder Level+ Reorder Qty)-(Min Consumption * Min Reorder Period) = (4500 +3600)-(300*3) = 7200units.


ABC ANALYSISAnalytical Method

Concentration on items where more attention

is needed.

Small number of items represent bulk money.

Large number of items represent small

portion of money.

High degree of control small number of

items.


STOCK IS CLASSIFIED INTO THREE CATEGORIES

GROUP A– Small number of items of high

value.

GROUP B- Relatively less important

GROUP C- large number of items of low

value


CLASSIFICATION CLASSIFIATION A10 % of store items It contributes 70% of total inventory.

CLASSICATION B20% of store itemsIt contributes 20 – 25% of the total store inventory.

CLASSIFICATION C70% of the store items.It contributes of 10% of the share in the total inventory.


ABC AnalysisSTEPS OF CLASSIFYING THE ITEMS:

Calculate the rupee annual issue of

each item.

Sort all items in descending order.

Prepare a list from this showing the

units issued, unit price total price.


ABC AnalysisSTEPS OF CLASSIFYING THE ITEMS:

Top 5%-10% of top number account

70% of consumption value (A)

Next 15 %to20% of items accounts

20% of consumption value(B)

The balance amount of the items account

10% of consumption value (C)


PURPOSE OF ABC ANALYSIS ‘A’CLASS OFITEMS:(High Consumption Value)

• Very strict control

• Frequent ordering (weekly)

• Maximum follow up

• Rigorous value analysis

• Accurate forecasts in material planning


• Minimum waste, obsolete & surplus

(review regularly)

• No safety stock or very low

• Weekly control statements

• Individual costing

• Min lead time

• Handled by senior staff


‘B’ CLASS OF ITEMS: (Moderate Consumption Value)

• Moderate control

• Ordering once in three months

• Periodic follow up

• Moderate value analysis

• Forecast based on past dates & present

plans


• Quantity control over surplus

• Low safety stock

• Monthly control reports

• Small group costing

• Moderate lead time

• Handled by middle level staff


‘C’CLASS OF ITEMS:(Low Consumption Value)

• Loose control

• Bulk ordering once in 6 months

• Follow up once in a while

• Minimum value analysis

• Rough estimates


• Annual review over surplus or obsolete

stock

• High safety stock

• Yearly control reports (Bi annually)

• Big group costing

• Max lead time

• Can be fully delegated

‘C’CLASS OF ITEMS:(Low Consumption Value)


Category No of items % of Total no of items

Value Rs % of Total value

Average Value

A 75 6 70,000 70 933

B 375 30 20,000 20 53

C 800 64 10,000 10 12

1,250 100 1,00,000

ABC Analysis

ADVANTAGES

1.Closer and strict control on major value

2.Investment in inventory is utilized

properly

3.Saving in stock carrying cost

4.Helps in maintaining safety stock of C

category of items

5.Control helps in high stock turnover

rate


Inventory control

Documents

Transcript of Inventory control