ITM - Inventory Management.ppt

8/10/2019 ITM - Inventory Management.ppt

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INVENTORY

MANAGEMENT



Inventory is technically an asset, but is indirectly taxing

on the profitability of the firm.

Hence, besides various activities associated with lean

supply chain, Corporation across the world are always

finding ways & techniques to reduce inventories.

With latest IT tools & communication technology, it has

become comparatively easy to size & control this single

largest Cost spinner in supply Chain.



INVENTORY – AN ASSET OR LIABILITY?

Inventory generally constitutes the Second largest item after fixedasset in financial balance sheet of the Manufacturing Company.

It seems that there is no disadvantage in carrying excess inventory,However, investments in inventory carry cost.

Reduction in inventory will reduce inventory handling andcarrying cost & benefits of inventory reduction will be reflected interms of increase in profit margin & return on investment (ROI).

Today, inventory investment is viewed as a supply chain Cost

Driver rather than a material asset.

Lean Supply Chain operating on MRP, DRP & JIT are preferredto ensure maximum inventory turn (Ratio of sales to average levelof Inventory).



Inventory Decisions

These refer to means by which inventories are

managed.

Inventories exist at every state of the supply chain aseither raw materials, Semi-finished or finished goods.They can also be in-process between locations.

Inventory primary purpose is to buffer against anyuncertainty that might exist in the supply chain. Sinceholding of inventories can cost anywhere between 20to 40 percent of their value.

Efficient management of Inventory is critical in supplychain operations. Therefore, top managementconsiderer it as one of the strategy for managingoperations effectively.



Inventory Decisions…..

However, most researchers have approached the

management of inventory from an operational

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.



Sr.

No.Company

Sales

turnover Rs.

Crore

RM &

ComponentsWIP F.G.

Total

Inventaries

1Larsen & Toubro Ltd.

31/03/2002

791710.13

0.12

685.66

(8.66)

24.33

(0.32

720.48

(9.10)

2Hindustan Lever Ltd.

31/12/200110972

510.14

(4.65)

47.72

(0.43)

577.11

(5.26)

1134.98

(10.34)

3Ranbaxy Labortories Ltd.

31/12/20012164

181.78

(8.39)

62.3

(2.88)

180.72

(8.35)

424.85

(19.62)

4Sterlite Industries Ltd.

30/06/20013093

45.64

(1.47)

194.29

(6.28)

17.05

(0.55)

256.93

(8.33)

Source : Annual Reports & Stock Exchange Directory

TABLE I : INVENTORY AS % OF SALES



Not only do external Customers make demands on inventories, internal

customers like top management & manufacturing, finance & distribution

department have different expectations as shown below.

FINANCE DEPARTMENT

• Low Inventory levels

• Low cost of operations

• Higher inventory turn

SALES & MARKETING

• Quick delivery

• No stock outs

•

Variety & Volumes•Frequent & Small Deliveries

MANUFACTURING

• Less varieties

• Economic batch quantity

• Quick off-take

• No rejection & Cancellation

TOP MANAGEMENT

• High Inventory Turnover

• Low operating cost

• Excellent Customer service

Inventory

Expectations

Inventory management is both an Art & Science & is concerned with Right level of Inventory

Trade off between Customer service & Inventory cost Liability or an Asset



COST RELATED TO INVENTORIES

INVENTORY COST

CARRYING COST

ORDERING COST

WARE HOUSING COST

DAMAGE, PILFERAGE,OBSOLESCENCE COST

EXCHANGE RATE DIFFERENCE

I

N

V

E

N

T

O

R

Y

R

E

L

A

T

ED

C

O

S

T



INVENTORY CONTROLS

The phenomenon of variability in customer demand, if not

conveyed properly or if conveyed with distortions, as it travels

upstream in supply chain, is called “Bull whip effect”.

It causes either stock outs or inventory pile ups in distribution

logistic chain.

Using latest inventory control techniques supported by efficient &

effective information flow system, the disturbance in supply chain

can be minimised.

Commonly used techniques :

ABC Analysis (Related to annual usage cost of a particular

item. VED Analysis (Vital, Essential & Desirable status of inventory

items).

SAP Analysis (Scare, Available & Plenty).

FSN Analysis (Fast, Slow & Normal analysis of consumption

pattern.


http://slidepdf.com/reader/full/itm-inventory-managementppt 11/13COST RELATED TO INVENTORIES

Continuous Review

Product as needed

High safety stock

Low order Qty.

Continuous Review

Produce as per need.

Low safety stock

Low order Qty.

Periodic Review High safety stock

High order Qty.

Periodic Review Low safety stock

High order Qty.

V E D

Critically of Item

A

B

C

High

Consumption

Value

Low



INVENTORY MODEL : SELECTION VARIABLES

GOALS

• Cost• Profit

•Service

TYPE

• Purchase• Process

•Transit

PROBLES

When?Where?

How Much?

STRATEGY

• Make to order

• Make to Stock• Mass Customising

• FMS

ENVIRONMENT

• Technology

• Products segment

INVENTORY MODEL



INVENTORY CONTROLS

The modern approach to control inventories is focused on the following factors :

Flow :

This is concerned with movement of product from supplier to work centre to

ultimate Customer.

Flexibility :This is concerned with Customer satisfaction and optimising stock levels.

Balancing :

This is concerned with Customer satisfaction and optimising stock levels.

Integration :

This is concerned with both forward and backward integration to meet objective

of lower inventory carrying cost and enhanced Customer satisfaction. (MRP,

DRP & JIT).

ITM - Inventory Management.ppt

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