Inventory Control & Management

INTRODUCTION

Inventory-A physical resource that a firm holds in stock with the intent of selling it or transforming it into a more valuable state.

Inventory System- A set of policies and controls that monitors levels of inventory and determines what levels should be maintained, when stock should be replenished, and how large orders should be placed.

Items carried in inventory can be

Raw materials Purchased parts Components Subassemblies Work-in-process Finished goods

Reasons for keeping Inventories 

To stabilise productionTo take advantage of price discounts

To meet the demand during the replenishment period

To prevent loss of orders(sales)To keep pace with changing market conditions

Objectives and Benefits

Inventory control aims at keeping track of inventories. In other words, inventories of good quality and right quantities should be made available to different departments as and when they needed.

COSTS ASSOCIATED WITH INVENTORY 

Purchase (or Production) costCapital costOrdering costInventory carrying costs (holding costs)

Shortage cost

Inventory Planning and Control

For maintaining the right balance between high and low inventory to minimize cost

Inventory Control Decisions

Decisions: How much to order? When to order?

ECONOMIC ORDER QUANTITY

16

Annual Cost ($)

Order Quantity

MinimumTotal Annual

Stocking Costs

AnnualCarrying Costs

AnnualOrdering Costs

Total AnnualStocking Costs

Smaller Larger

Low

er

Hig

her

EOQ

TYPES OF INVENTORY MODELS

Simple EOQ modelEOQ model with stock outs allowed

Inventory model under risk

Simple EOQ model

EOQ model with stock outs allowed

Inventory model under risk

SELECTIVE CONTROL OF INVENTORY

Selective control refers to the variation in method of control from item to item on some selective basis. Many criteria used for this purpose are

Based on the cost of product Lead timeUsage rateProcurement difficulties, criticality, frequency

of usage

SELECTIVE CONTROL OF INVENTORY

ABC analysis VED AnalysisMaterial requirements planning (MRP)

CONCLUSIONS

Careful classification of your inventory, and continuing analysis of those classifications, can play a vital role in maintaining cost at the efficient levels you have established as your goals

Inventory control is a constant requirement of doing business successfully.

Thank you