Inventory manage ashok

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SEMINAR ON INVENTORY MANAGEMENT Presented to Narendra C Asst. professor Dept. of pharmaceutics VIPS Presented by Ashok kumar V 1 M.Pharm Dept. of pharmaceutics VIPS

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There are several terms like MAX QUANTITY- It is upper limit of inventory in stores. MIN QUANTITY- It is lower limit of inventory in stores. STANDARD ORDER- It is the diff b/n max & min quantities. STOCK HOLDING- It is buffer stock , should available to avoid breakdown of production level. REORDER-PT- It is time to initiate purchase order.

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LEAD TIME- Time lapse b/n placement of order & receipt of items including approval by quality control dept . Reasons for lead- time – Internal- External-Internal INTERNAL- Raising purchase requisition, inquiries, tenders, quotations, tender receipts, Scrutiny & approval order to suppliers. EXTERNAL- Suppliers makes goods ready transportation & clearing. INTERNAL- receiving of goods at store ,taking stock inspection for quality & quantity ready for issue to production.

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STOCKOUTS- Running out of stock. Causes for stock outs– Internal- Faulty planning, poor control, improper records, shortage of funds, poor follow up, strikes. External- Faulty selection of transportation, change in market situations & demand, floods, strikes, fire. Implications of stock outs- Loss of sales & customers. Loss of good will & image. Decreased use of machines & decreased productivity. Increased inter-departmental conflict. Loss of morale Emergency purchase at high costs. So it is necessary to maintain adequate buffer stocks.

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SAFETY STOCKS- Difference b/n reorder level quantity & avg lead-time demand. Advantages- Allow continuous prodn even after lead-time has lapsed. Uncertain consumption & fluctuating demands can be absorbed. Errors in sales can be absorbed. Back orders can be kept to a minimum. Best level of customer service can be ensured. Guide lines- Safety stock maintained for some materials A - items – 15 days B - items – 30 days C - items – 60 days Vital items Scarce items Fast moving items

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Calculations- SAFETY STOCKS = ( CURRENT LEAD TIME – NORMAL LEAD TIME ) X AVG CONSUMPTION RATE---(1). Eqn(1) applicable when lead times are fixed. Safety stocks maintained on desired customer service level. If 99% service level - more safety stocks should be maintained. If 90% service level - less safety stocks maintained. Safety stock = K x б Where, K = a constant Б = std deviation. The value of ‘K’ depends on service level required.

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Value K depends on K Service level 1 84.0% 2 97.5% Service levels are applied when there is a random demand. Expressed in MAD (mean absolute deviation) / std deviation. For Poisson distribution Safety stock = K x Avg. consumption during lead-time Reserve /safety stock = MAD x Safety factor expressed in units. Order pt stock = weekly fore cast + safety stock.

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Calculation of safety stock If weekly forecast is 500, MAD is 200 units and If 98% service is desired, desired factor is 2.56 Safety stock = MAD X safety factor (m.d) = 200 X 2.56 = 512 units Order pt stock= Weekly forecast + safety stock = 500+512 =1012 units

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REORDER TIME METHOD- Calculated based on past experience on fixed lead-times. Intuitive method Systematic want-book system Fixed interval system S&S method Statistical inventory control/ reorder point. Statistical inventory control/ reorder point. Quantity & delivery date are separately predicted using statistics for each items based on past data. Assumptions in this system: Usage of items is random. Demand during lead-time is random. Depletion of inventory is gradual. Avg. inventory is equal to one half of order quantity. Lead time is predetermined.

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Reorder point = Reserve stock + anticipated demand during lead-time Disadvantages It predicts quantity & delivery date for each items separately. It is independent of other items used in production. It is applied where demand for finished products is independent. 5 10 15 20 25 30 15 30 45 Quantity delivery Max inventory level L Avg.inventory level Min inventory level Order pt. Safety Stock Time in weeks I N V N T O R Y 1 0 0 0 U N I T S

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MODERN INVENTORY MANAGEMENT SYSTEM- Materials requirement planning (MRP)- MRP is computational technique, converts master – schedule file of prodn in detailed schedule for the materials & components used in prodn. Determines quantity of materials & date on which these are needed for each phase of prodn. Advantages 1. Helpful when sudden change in demand in market / sudden change in quantity. 2. Effective method for minimizing unnecessary inventory investment. 3. Machine & material management can be planned in a better manner & greater productivity achieved.

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4. Its a new and sophisticated, mature approach in inventory control management. 5. Ensures improved customer service. 6. New soln to an old problem i.e., having stock always on hand when needed and holding excess inventory is avoided. MRP is satisfactory tech & attracting more users. Disadvantages 1. Procurement cost are high, as each batch is processed separately. 2. Close monitoring of materials stocks is essential. 3. Highly dependantant on computer technology.

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STRUCTURE OF MRP Master Production Schedule file Sales forecasts Service parts requirement Customer order Engineering changes MRP Processor Output Reports Bill of Materials file Inventory transaction Inventory Record file

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2. Manufacturing resource planning (MRPII) Refers to strategic financial planning as well as prodn planning. MRP was originally developed for planning material order. MRPII is both for production planning & scheduling with MRP done by computer systems with sophisticated software packages. 3. Just - in- time (JIT)- Approach capable of eliciting instant response to demand without need for any overstocking for future demands. It is an approach of receiving materials, transforming them into parts, converting into subassemblies, assemblies & finally finished products for sale, all activities done just in time.

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Advantages- Employees are better motivated to produce better quality products. The level of buffer stocks can be reduced. Buying additional stock is not required, Fewer stock rooms are sufficient & material handling needs are less. Hencebetter service can be provided to customers.

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Needs of JIT- System was developed for repetitive prodn & producing large volumes of batches. It is essential to have high quality materials for production. JIT requires proper motivation to achieve desired goal. Motivation is considered 3 categories Motivation for control Motivation for involvement Motivation for improvement

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Evaluation of inventory performance Inventory adds to the overall cost without in any way creating the value. This cost need to be eliminated. However it is impossible to eliminate these costs, in the context of uncertainty of supplies. Norms for inventories E.g.- raw materials, consumables & components FIFO-(first-in-first-out method) LIFO- (last-in - first-out method) For goods in transit CIF ( cost, insurance, freight) value is utilized.

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Inventory turn over ratio (TO) / Stock turn rate (STR) show relationship of inventories reported in rupees to amt of goods that are produced. To / STR = Inventory Cost of goods Avg inventory / month are obtained by adding up all month - end inventory figures & dividing by 12.

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Significance Indicates how many times working capital has turned over (in terms of inventory). Different turnover ratios Mfg- materials - Inventory as number of days of consumption. = Actual inventory of mfg materials X 365 Total consumption of year Work – in process (WIP) - Inventory in terms of days of production at production at prodn cost = Actual work in process inventory X 365 Prodn at product cost for year

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Finished goods –inventory in days of sales at cost Actual finished goods inventory X 365 Total yearly sales at cost for year Overall inventory turn over ratio Cost of goods sold Avg inventory at cost Raw materials inventory Annual consumption of raw materials Avg raw materials inventory

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Weeks inventory of raw materials on hand Raw materials inventory Weekly consumption of raw materials Weeks inventory of finished goods on hand Finished goods inventory Weekly sale of finished goods Weeks raw materials on order Raw materials on order Weekly consumption of raw materials

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Avg. age of raw materials in inventory Avg raw materials inventory at cost Avg daily purchase of raw materials 99 Avg. age of finished goods inventory Avg finished goods inventory at cost Avg cost of goods manufactured / day Other inventory ratios a) Service level ratio: No of demands met in time X 100 Total no. of demands received

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b) Stock out index No of items not met in time X 100 Total no. of items received c) Inventory carrying cost index Total cost of holding inventories X 100 Avg. value of inventory d) Spare parts index Value of spare parts inventory X 100 Value of capital goods

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The primary purpose of evaluation- Inventory control can be exercised day- to- day basis. It is necessary for dept of management & top management to exercise their time, effort & energy critically to appraise inventory performance.

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Inventory control is essential due to various problems within company Faulty forecasting Orders on unrealistic supplier Wrong transportation models Delays in imports Machinery imbalances Poor maintenance Stores not informed of obsolescence machinery. It is necessary to identify causes, aimed to prevent all kinds of wastes, Whatever their nature may be & wherever they may occur.

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REFERENCECES Pharmaceutical and production management by C.V.S.Subramanyam. Internet

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