INVENTORY MANAGEMENT Objectives: To minimise costs associated with stocks. Involves: 1)Involves fixation of maximum / minimum levels. 2) Determining size.

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INVENTORY MANAGEMENT Objectives: To minimise costs associated with stocks. Involves: 1)Involves fixation of maximum / minimum levels. 2) Determining size of Inventory 3) Decision on issues/receipts and inspection procedures

INVENTORY MANAGEMENT Involves:- 4) Determining Economic Order quantity 5) Providing proper storage facilities 6) Keeping check over obsolescences 7) Ensuring control over movement of inventories.

INVENTORY MANAGEMENT MANAGEMENT OF INVENTORIES INVOLVES A TRADE OFF BETWEEN THE CARRYING COSTS AND THE COST OF REDUCTION IN SALES DUE TO NON-AVAILABILITY OF INVENTORIES.

INVENTORY MANAGEMENT EFFECT OF HIGH LEVEL OF INVENTORY a)Interest costs b)Storage costs/losses c)Obsolescence d)Cost of record keeping

INVENTORY MANAGEMENT EFFECT OF LOW LEVEL OF INVENTORY a)bottle-neck in production b)Under utilisation c)Lesser sales d)Increased overheads.

INVENTORY MANAGEMENT NEED TO HOLD:- a)Inflation b)Scarcity c)Transaction motive

INVENTORY MANAGEMENT COSTS INVOLVED:- 1.Ordering Cost- Clerical costs of preparing a purchase order, receiving delivery of goods and paying invoices. 2.Holding/carrying Costs:- Loss of interest on investment, cost of insurance /taxes, cost of storage, loss on breakage and obsolescence.

INVENTORY MANAGEMENT COSTS INVOLVED:- 3)Shortage/stock out cost:- production stoppage costs, loss of future sales.

INVENTORY MANAGEMENT Determining optimum Stock level involves a trade –off between Ordering Costs and Carrying Costs. Optimum order size is termed as EOQ

Inventory Management ECONOMIC ORDER QUANTITY It is the most favourable/optimum quantity of stock which can be ideally purchased each time most economically, resulting in minimum total annual costs of the item.

INVENTORY LEVELS MAXIMUM LEVEL: Ordering Level + Reorder quantity -(Min. consumption x minimum lead time) MINIMUM LEVEL: Ordering Level – (Normal usage x normal lead time)

Inventory Levels RE-ORDER LEVEL: Minimum Level + Average lead time x average rate of consumption OR Maximum Usage x Maximum lead time OR Re-order Period x Maximum Usage

Inventory Control Methods (1)A B C Analysis ( Value of Usage) Category% items% value A1580 (tight) B3515 (formal) C50 5 (relaxed)

Inventory Control Methods (2) Pareto Analysis ( 80 : 20 rule) 20% of stocks represent 80% of turnover value Useful for both Inventory & Receivable Mgmt.

Inventory Control Methods (3) VED Analysis V= Vital Items E= Essential items for efficient run D= Desirable items- less fatigue/more efficiency

Inventory Control Methods (4) FNSD Analysis ( Usage rate) F= fast moving N=normal moving S=slow moving D=Dead stock- no furthered demand

Inventory Control Methods ( 5) J I T Inventory Not planned/ forecast but NEED. Demand Push / Supply Pull)

Inventory Valuations- Issue Pricing LIFO FIFO Simple Average Weighted Average