abhijeet alte - inventory management

INVENTORY MANAGEMENT : 

INVENTORY MANAGEMENT By Abhijeet Alte Abhi Alte

CONCEPT : 

CONCEPT “Inventory is an idle material resource of an enterprise awaiting future sales, use, or transformation” “Inventory is the stock of any item or resource used in an organization and can include: raw materials, finished products, component parts, supplies, and work-in-process” Abhi Alte

TYPES : 

TYPES Abhi Alte

PURPOSES OF INVENTORY : 

PURPOSES OF INVENTORY 1. To maintain independence of operations 2. To meet variation in product demand 3. To allow flexibility in production scheduling 4. To provide a safeguard for variation in raw material delivery time Abhi Alte

According to Tersine,1994: : 

According to Tersine,1994: As per the utility, inventory can be categorized as per the following: Working /Cycle/Lot size stock Average amount of inventory to get the benefits of minimum ordering & holding costs, quantity discounts and or favourable freight rates. Safety Stock stock held to protect against uncertainties of demand & supply. Abhi Alte

Slide 6: 

Anticipation Stock Holding high level inventory to meet the peak seasonal demand, erratic requirements, or inconsistency in the production capacity. Pipeline Stock/ work in Process Inventory Goods in transit from manufacturer to be delivered to a customer Decoupling Stock Inventory accumulated between the various departments’ activities Abhi Alte

Slide 7: 

Psychic Stock Window display of an inventory in order to stimulate demand Abhi Alte

Why CHECK Inventory?? : 

Why CHECK Inventory?? Abhi Alte

Elements of Inventory Costs : 

Elements of Inventory Costs PROCUREMENT COST CARRYING COST STOCK-OUT COST Abhi Alte

Inventory Procurement Cost : 

Inventory Procurement Cost Includes: Cost of order processing i.e. use of stationary and services, cost of staff etc. Cost of transmission of an order i.e. cost of postage & follow-up messages through telephone, fax, etc. Cost of Transportation i.e. freight, transit insurance, protective packaging, etc. Cost of Invoice Pricing i.e. checking, approval, book entries & payment procedures. Cost of Goods receiving, handling, inspecting and entry in the stock register/computer. Cost of final feeding of data in Logisitcs information system Abhi Alte

Inventory Carrying Cost : 

Inventory Carrying Cost Includes: Space rent for the storage of goods Cost of working Capital locked in the inventory Cost of insurance of goods Cost of spoilage in the quality of goods in storage, breakages in handling Cost of deterioration due to passes of time and change in weather Cost of obsolescence of goods or depriciation Abhi Alte

Stock-out Cost : 

Stock-out Cost Internal shortages due to Lost production Delay in completion date External shortages resulting in Back order cost Loss of potential sale thus loss of present profit Future profit cost due to loss of corporate image Abhi Alte

TOTAL INVENTORY COSTS : 

Procurement Costs Carrying Costs Order Quantity (Q) COST of Stocking a Material TOTAL INVENTORY COSTS Stock-out Costs Abhi Alte

Inventory Management : 

Inventory Management OBJECTIVE: Analyze and attend two major issues; Order Quantity (EOQ) & Re-Order Points (RP) Abhi Alte

1. Model –I (Basic EOQ) : 

1. Model –I (Basic EOQ) Assumptions: Annual Demand, Carrying Cost, & ordering cost for a material can be estimated. Average inventory level for a material is half of order quantity, i.e. there is no safety stock. Stock-out, customer responsiveness and other cost having no effect. Quantity discount does not exist. Abhi Alte

Basic Fixed-Order Quantity (EOQ) Model Formula : 

Basic Fixed-Order Quantity (EOQ) Model Formula Total Annual = Cost Annual Ordering Cost Annual Carrying Cost + TC=Total annual cost D =Demand Q =Order quantity S =Cost of placing an order or setup cost C=Annual carrying cost per unit of inventory per year Abhi Alte

Slide 17: 

Total order quantity should be minimum to get the optimal quantity, thus, Abhi Alte

Determination of Reorder Point : 

Determination of Reorder Point Reorder point, R = DT D = Average Daily Demand T = Average Replenishment Cycle time Abhi Alte

Basic Fixed-Order Quantity Model and Reorder Point Behavior : 

Basic Fixed-Order Quantity Model and Reorder Point Behavior Abhi Alte