Inventory Management
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Transcript of Inventory Management
Inventory Management
INVENTORY
RAW MATERIALS SPARES & CONSUMABALE FINIDHED GOODS
Inventory Control Inventory ControlWare House Management system
Inventory Control
Inventory Control Model
Define optimal inventory norms for item / item categories to ensure minimal changes in production schedules due to material unavailability
• For raw material and production consumables Driven By: -
• Item Categorization
• Lead Time
• Service Level
• Consumption Pattern
Determining the
• Safety stock, ROP
• Min-Max Level determination
Inventory Management
• Item Categorization
• Consumption velocity * Fast, Slow & Non Moving items
* Obsolete Items
• Consumption Value * ABC Classification• Stock Value * XYZ Classification
• Criticality * Insurance and Critical Items
Liquid Oxygen Gas
Avg Consumption:755/daySTDEV=211/day%ge Variation=28%
Bottleneck Item Strategic Items
Routine Items Leverage Items
High
HighLow
Low
Business Impact
Su
pp
ly r
isk
/c
om
ple
xit
y
High Safety stock Medium Safety Stock
Low Safety stockMin-Max Levelfor e.g Al / Ca based
alloys, electrodes
for e.g micro alloys,casting powder
for e.g mill consumables,Maint Consumable, MRO
for e.g ore, pellet,blackrefractory, coke
Inventory Management of Raw Material
• Safety Factor (K):– For bottleneck items as the
spend is low but the market risk is quite high, a high service level (99.9%) will reduce the risk of running out of stock.
– Strategic items can be maintained with medium service level in spite of a high market risk(95%) as these are very closely monitored.
– For leverage items as the market risk is low, low service levels can be defined for calculating the safety stock norms
– For routine items, min-max levels are to be defined which is discussed later in the section
(4) Pricing Factors Analysis
(3) Supply Market Analysis
(2) Identifying Focus Area
(1) Spend Analysis
Business Impact
Supply Risk/ ComplexitiesSupply Risk that impacts on business• Complexity of manufacturing• Procurement experience• Supply market characteristics - Supply market capability - Competition - Entry Barrier - Distance with supply market - Supply chain complexity
Supply Risk/ ComplexitiesSupply Risk that impacts on business• Complexity of manufacturing• Procurement experience• Supply market characteristics - Supply market capability - Competition - Entry Barrier - Distance with supply market - Supply chain complexity
Business Impact:
• Purchasing amount by items, Percentage per entire spend
• Price elasticity
Business Impact:
• Purchasing amount by items, Percentage per entire spend
• Price elasticity
Supply Risk / Complexities
Low
High
Low High
Bottleneck Item Strategic Items
Routine Items Leverage Items
£High costwith lowexposure
High costwith highexposure
Low valueand low
exposure
Low valuewith highexposure
Procurement Portfolio Matrix
Strategic Sourcing• Spend Analysis
– Spend Analysis categorises items based on their business impact and supply risk as shown below. The factors considered for determining business impact and supply risk are as mentioned
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Purchasing Frequency
Purchasing Unit Price
High
High
Low
Low
Items for Concentration ofProcurement Activity
Items for Reducing Effort ofProcurement Activity
•By analyzing Unit price and purchasing frequency, identify the items that should be focused with procurement effort, and the items that should be taken for process simplification through automation.
ProcessProcessSimplificationSimplification
Cost ReductionCost Reduction
Focus
(4) Pricing Factors Analysis
(3) Supply Market Analysis
(2) Identifying Focus Area (1) Spend Analysis
Strategic Sourcing• Identifying Focus Area
– Focus area identification classifies items based on unit price and purchasing frequency so as to identify items for focus of procurement effort and items for simplifying the procurement process.
9Material Lifecycle
Con
tro l
on
pri
cin
g an
d
sup
pli
e s
Low
Start-up Development Mature Phase-out
High
BuyerMarket
Equilibrium
Demand > Supply Demand = Supply Demand < Supply
Supplier Market
(4) Pricing Factors Analysis
(3) Supply Market Analysis
(2) Identifying Focus Area (1) Spend Analysis
Leverage Leverage CompetitionCompetition
CollaborateCollaborate
Focus
Strategic Sourcing• Supply Market Analysis
– Supply market analysis aims to get the overall market perspective for an item into the strategy formulation activity• Alternative supplier existence and demand/supply condition are the key analysis factors• Speed of technology development affects the duration of supplier’s governance of market. When the speed of technology
development is high, supplier’s market governance gets shorter.
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Strategic Sourcing• Pricing Factor Analysis
– Pricing factor analysis aims to bring in the price behaviour of an item in the overall strategy formulation
Price Volatility
High
Low
Items with volatile price
Items with potential price change
Items withStablePrice
• Price volatility determines the kind of focus required for different group of items
Reduce RiskReduce Risk
Contracts/ Contracts/ RelationshipsRelationships
Import dependenceLow High
Focus
(4) Pricing Factors Analysis
(3) Supply Market Analysis
(2) Identifying Focus Area (1) Spend Analysis
Strategic Sourcing• The spend analysis has been done for selected items and is as shown below
– The selected items contribute 95% of the total procurement spend is done for the following items The spend analysis for selected items is as shown below
Low
High
Business ImpactLow High
Lump Ore
Dolomite
Pellets
Limestone
Quartzite
Met Coke
Su
pp
ly r
isk
/ co
mp
lex
itie
s
Oxygen
Back up rolls
Graphite Electrode (450/610)
LDO
Ca Al Fe wireFeMn LC
HSD / HFHSD
Nitrogen
Lancing Pipes
Tools and Tackles
Mill Consumables
Oils and Lubricants
Starting Powder
Temp Tips
Ferro NiobiumMould Copper Plates
Casting powder DT 25
MRO
Samplers
SEN
Laddle Shroud
Monoblock Stopper rod
Refractories
Al Cube
Ca Al Fe wireFurnace oil
FeMn HC/ MC
Argon
Silico Manganese
Straps
Spares
INR 1.5 Crores
INR 5.5 Crores
INR 98 Crores
INR 12 Crores
Bottleneck Item Strategic Items
Routine Items Leverage Items
High
HighLow
Low
Business Impact
Su
pp
ly r
isk
/ co
mp
lexi
ties
Ensure Continuity of Supply&
Reduce Risk
Leverage Competition to
reduce cost and risk
Maximize Efficiency,Minimize transaction
and control cost
Strategic Sourcing• Spend analysis is the basis of strategy formulation exercise and
provides broad guidelines for strategy formulation as mentioned below.
Inventory Management Approach
• Inventory Control– Min-Max Stock level determined for critical item– SS,ROP
• Inventory Review– Continuous review system made for critical, Insurance and Expirable
items
• Waste Management (Identification Of Obsolete items and disposable plan)
• Inventory Planner
• Reasonable estimates of
– Holding (or carrying) costs.• Costs for storage, handling, insurance, etc.
– Setup (or production change) costs.• Costs for arranging specific equipment setups, etc.
– Ordering costs.• Costs of someone placing an order, etc.
– Shortage costs.• Costs of not having enough.
Inventory Management Systems
Five categories of stocks
• Pipeline stock – (in process stock, in transit stock)
• CYCLE stocks – (batch production owing to
- economies of scale - technological requirements)
• SEASONAL stocks – ( time varying requirements of an item)
• SAFETY stocks – (supply and demand uncertainties, lead time
uncertainties)
• Stocks held for OTHER REASONS – decoupling stages of production– price, quantity discounts– speculation)
Inventory Management Strategy
Inventory Management Plan
• Planning based on Production Scheduling & Maintenance Plan: -
– Monthly (Rolling Plan) - Focus on Exercising Budgetary Control depending on planned maintenance & production.
– Annual – Business Plan – Focus on Comprehensive Maintenance and Production Plan.
Inventory Management Review
• Review based upon Inventory Cost, TO Ratio & Business Impact.
• Monthly review: Focus area – Identification of FSN Data.– Elimination of Non-Moving / Obsolete Items & review of Insurance Items.– Discuss negative performance and their resolution steps with support
from Process Owners– Establish Escalation Points– Review and action plan by Waste Management Committee.
ABC,FSN , VED & COMBINED MATRIX
Based upon the Consumption, Lead time variance & Service Level
Safety Stock+Average Lead time
Based up on the optization of Holding Cost, Odering Cost & Consumption
Contineous/ Periodic Review
ITEM CATEGORIZATION
SAFETY STOCK CALCULATION
REODERING POINT
EOQ( Economic Oder Quantity)
Review
Inventory Management New Initiatives
INVENTORY MANAGEMENT
Materials Managed at Stores……• FIFO• BIN SYSTEM• Tracking of Material through BAR CODING.• Tracking of expirable items.