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11. Reasons to Aold Inventory 0 Meet variations in customer demand @ Meet une4pected

demand @ %moot seasonal or cyclical demand 0 Pricing related @ Temporary price

discounts @ Aedge against price increases @ Ta(e advantage o 7uantity discounts 0 Process

& supply surprises @ Internal D upsets in parts o or our on processes @ ,4ternal D delays in

incoming goods. 9mar

12. !$Eective o Inventory Management 0 To maintain a optimum si6e o inventory or

eicient and smoot production and sales operations 0 To maintain a minimum investment

in inventories to ma4imi6e te proita$ility 0 Te / Rs ,ort sould $e made to place an

order at te rigt time it rigt source to ac7uire te rigt 7uantity at te rigt price and

rigt 7uality. 9mar

1'. n ,ective Inventory Management %ould 0 ,nsure a continuous supply o ra

materials to acilitate uninterrupted production 0 Maintain suicient stoc(s o ra materials

in periods o sort supply and anticipate price canges 0 Maintain suicient inised goods

inventory or smoot sales operation3 and eicient customer service 0 Minimi6e te carrying

cost and time 0 Control investment in inventories and (eep it at an optimum level. 9mar

1. n !ptimum Inventory +evel Involves Tree Types o Costs !rdering costsH Carrying

costsH 0 uotation or tendering 0 "areousing or storage 0 Re7uisitioning 0 Aandling 0

!rder placing 0 Clerical and sta 0 Transportation 0 Insurance 0 Receiving3 inspecting

and storing 0 Interest 0 uality control 0 #eterioration3 srin(age3 0 Clerical and sta

evaporation and o$solescence %toc(Hout cost 0 Ta4es 0 +oss o sale 0 Cost o capital 0

Failure to meet delivery commitments. 9mar

1/. #angers o !verHinvestment 0 9nnecessary tieHup o irm s und and loss o proit D

involves opportunity cost 0 ,4cessive carrying cost 0 Ris( o li7uidityH diicult to convert

into cas 0 Pysical deterioration o inventories ile in storage due to misandling and

improper storage acilities. 9mar

15. #angers o 9nderHinvestment 0 Production oldHups D loss o la$or ours 0 Failure to

meet delivery commitments 0 Customers may sit to competitors ic ill amount to a

permanent loss to te irm 0 May aect te goodill and image o te irm. 9mar

1:. Ma4imum %toc( +evel uantity o inventory a$ove ic sould not $e alloed to $e

(ept. Tis 7uantity is i4ed (eeping in vie te disadvantages o overstoc(ing; Factors to $e

considered 0 mount o capital availa$le. 0 Godon space availa$le. 0 Possi$ility o loss.

0 Cost o maintaining stores; 0 +i(ely luctuation in prices; 0 %easonal nature o supply o

material; 0 Restriction imposed $y Govt.;. 9mar 0 Possi$ility o cange in asion and

a$it.

1. Minimum %toc( +evel 0 Tis represents te 7uantity $elo ic stoc(s sould not $e

alloed to all . 0 Te level is i4ed or all items o stores and te olloing actors are ta(en

into account 1.+ead timeH 2. Rate o consumption o te material during te lead time..

9mar

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must $e counted to prevent loss $eteen te areouse and te point o sale. 0 ,ven

samples sould $e recorded3 ma(ing te salesperson responsi$le or te goods until tey are

returned to te storage acility. 0 Records sould $e processed 7uic(ly3 at least in te same

day tat te itdraal o stoc( occurred.. 9mar

2/. Managing ,mployees 0 *uyers are te employees o ma(e stoc( purcases or your

company. Reard systems sould $e set in place tat encourage ig levels o customer

service and return on investment or te product lines te $uyer manages. 0 "areouse

employees sould $e educated on te costs o improper inventory management. *e sure tey

understand tat te loer your proit margin3 te more sales must $e generated to ma(e up

or te lost goods. Incentive programs can elp employees (eep tis in perspective. "en

tey see a dierence in teir paycec(s rom poor inventory management3 tey are more

li(ely to ta(e precautions to prevent srin(age. 0 ,ac stoc( item in your areouse or $ac(

room sould ave its on procedures or replenising te supply. Find te $est suppliers and

storage location or eac and record tis inormation in oicial. 9mar procedures tat caneasily $e accessed $y your employees.

25. Contd 0 Inventory management sould $e a part o your overall strategic $usiness

plan. 0 s te $usiness climate evolves toards a green economy3 $usinesses are loo(ing or

ays to leverage tis trend as part o te J$ig pictureL. 0 Tis can mean reevaluating your

supply cain and coosing products tat are environmentally sound. 0 It can also mean

putting in place recycling procedures or pac(aging or oter materials. 0 In tis ay3

inventory management is more tan a means to control costs; it $ecomes a ay to promote

your $usiness.. 9mar

2:. "ater Tan( nalogy or Inventory Inventory +evel %upply Rate *uers #emand

Inventory +evel Rate rom %upply Rate. 9mar #emand Rate

2. *ullip eect #emand inormation is distorted as it moves aay rom te endHuse

customer. Aiger saety stoc( inventories to are stored to compensate. 9mar

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'2. Reasons !T To Aold Inventory 0 Carrying cost @ Financially calcula$le 0 Ta(es up

valua$le actory space @ ,specially or inHprocess inventory 0 Inventory covers up

Jpro$lemsL @ Tat are $est e4posed and solved #river or increasing inventory turns

=inised goods> and lean productionKOust in time or or( in process. 9mar

''. Inventory Aides Pro$lems *ad #esign +engty Poor %etups uality Macine Ineicient

9nrelia$le *rea(don +ayout %upplier. 9mar

'. To ,4pose Pro$lems Reduce Inventory +evels *ad #esign +engty Poor %etups uality

Macine Ineicient 9nrelia$le *rea(don +ayout %upplier. 9mar

'/. Remove %ources o Pro$lems and Repeat te Process Poor uality +engty %etups *ad

Macine #esign Ineicient 9nrelia$le *rea(don +ayout %upplier. 9mar

'5. Inventory Cost %tructures 0 !rdering =or setup> cost 0 Carrying =or olding> cost @ Cost

o capital @ Cost o storage @ Cost o o$solescence3 deterioration3 and loss 0 %toc( out cost 0Item costs3 sipping costs and oter cost su$Eect to volume discounts. 9mar

':. Typical Inventory Carrying Costs Costs as Q o Inventory Balue Aousing cost @ *uilding

rent or depreciation 5Q @ *uilding operating cost ='Q H 1?Q> @ Ta4es on $uilding @ Insurance

Material andling costs @ ,7uipment3 lease3 or depreciation 'Q @ Poer =1Q H Q> @

,7uipment operating cost 'Q Manpoer cost rom e4tra andling and supervision ='Q H /Q>

Investment costs @ *orroing costs 1?Q @ Ta4es on inventory =5Q H 2Q> @ Insurance on

inventory Pilerage3 scrap3 and o$solescence /Q =2Q H 1?Q>. 9mar !verall carrying cost

=1/Q H /?Q>

'. Inventory Management %ystems 0 Functions o Inventory Management D Trac(

inventory D Ao muc to order D "en to order 0 Prioriti6ation 0 Inventory Management

pproac D ,! D Continuous K Periodic. 9mar

' and total usage in dollars o

eac item. 0 Classiication o items as 3 *3 or C oten $ased on volume. 0 Purpose set

priorities or management attention.. 9mar

?. *C Prioriti6ation 0 S items 2?Q o %89s3 ?Q o Balue 0 S* items '? Q o

%89s3 1/Q o Balue 0 SC items /? Q o %89s3 /Q o Balue 0 Tree classes is ar$itrary;

could $e any num$er. 0 Percents are appro4imate. 0 #anger Money use may not relect

importance o any given %89). 9mar

1. nnual 9sage o Items $y #ollar Balue Percentage o nnual 9sage in Total #ollar Item

9nits 9nit Cost #ollar 9sage 9sage 1 /3??? 1./? :3/?? 2.

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/.?Q ?.?Q ?.?Q ' 5 < 2 1 1? / : Item o. Percentage o Total #ollar 9sage Cumulative

Percentage. 9mar

'. *C Classiication 0 Class @ 2? Q o Inventory @ ? Q o value 0 Class * @ '? Q o

Inventory @ 1/ Q o value 0 Class C @ /? Q o Inventory @ / Q o value. 9mar

. *C nalysis ,4ample 1?? UClass C UClass *

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/'. ReHorder Point ,4ample #emand V 1?3??? ydsKyear #aily demand V 1?3??? K '5/ V 2:.

ydsKday +ead time V + V 1? days R V #X+ V =2:.>=1?> V 2: yds =usually can neglect issues

o or(ing days vs ee(ends3 etc.> #ont orget to convert to consistent time units). 9mar

/. ,! %ummary Ao muc to order- @ V s7rt=2#%KiC> "en to order- @ R V #+.

9mar

//. Inventory Control %ystems 0 Continuous system =i4edHorderH 7uantity> @ constant

amount ordered en inventory declines to predetermined level 0 Periodic system =i4edH

timeHperiod> @ order placed or varia$le amount ater i4ed passage o time. 9mar

/5. uantity #iscounts Model 0 Price per unit decreases as order 7uantity increases Co #

Cc TC V U U P# 2 ere P V per unit price o te item # V annual demand. 9mar

/:. uantity #iscounts Model !R#,R %IY, PRIC, ? H 1?? D 1

2??U 5 =d2> TC =d1 V > TC =d2 V 5 > Inventory cost => Carrying cost !rdering cost=d1 > V 1?? opt =d2 > V 2??. 9mar

/. uantity #iscounts Model 9TITN PRIC, Co V 23/?? 1 H < 13?? Cc V 1=2??> opt V V V :2./ PCs Cc 1

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Inventory 1 2 ' / 5 : < 1? 11 12 1' 1 1/ 15 1: 1 1< 2? 21 22 2' 2 2/ 25 2: 2 2 0 Generally calculated as %alesK Inventory 0 Aoever it may

also $e calculated as Cost o goods soldK verage Inventory. 9mar

5:. Reduce your inventory !"))) 0 Tings you can do to ree up some cas rigt no 0

dEust saety stoc( 0 Reduce saety lead time 0 Cut P! 7uantities in al and dou$le te

num$er o receipts 0 Implement supplier (an$an =its not tat ard> 0 Re$alance your 3 *3

C items and cut $ac( on te C s 0 Put Purcasing on a strict diet D limit montly spend to

1K1? o te annual plan 0 Revise te annual plan to relect current reality 0 %uppliers areungry3 so loc( in sorter lead times 0 +i7uidate your slo moving stoc( ave a %ale 0

Reduce production lot si6es. 9mar

5. Tan( Nou. 9mar