1. INVENTORY MANAGEMENT

2. Definition of inventories, inventory analysis and inventory catalog.
Inventory management in India.
Classification of inventories, forces creating various hypes of inventories, safety stock.
Cost associated with inventories.
Types of selective inventory control and advantages of selective control.
ABC analysis.
EOQ.
MRP.
P & Q systems.

3. Definition of inventories, inventory analysis and inventory catalog.
Inventory management in India.
Classification of inventories, forces creating various hypes of inventories, safety stock.
Cost associated with inventories.
Types of selective inventory control and advantages of selective control.
ABC analysis.
EOQ.
MRP.
P & Q systems.

4. Definition of Inventory management
It is the sum of value of raw materials, fuels and lubricants, spare parts, maintenance consumables, semi processed and finished goods.
Inventories
1.Production Inventories
2.MRO Inventories
3.In-Process inventories
4.Finished goods inventories.

5. Inventory Analysis Inventory Catalogue
Inventory planning and subsequent control of an inventory is accomplished on the basis of knowledge about each of the individual items and the finished products of which each is a part.
Inventory Catalogue
1.it serves as a medium of communication
2. an inventory catalogue accrues to the inventory control operation it self.

6. Functions of inventories.
It makes possible smooth and efficient operation of a manufacturing organization by decoupling individual segments of total operation.
1.Purchased part inventories
2.Inventories of parts and components
3.Finished goods inventories

7. Definition of inventories, inventory analysis and inventory catalog.
Inventory management in India.
Classification of inventories, forces creating various hypes of inventories, safety stock.
Cost associated with inventories.
Types of selective inventory control and advantages of selective control.
ABC analysis.
EOQ.
MRP.
P & Q systems.

8. Definition of inventories, inventory analysis and inventory catalog.
Inventory management in India.
Classification of inventories, forces creating various hypes of inventories, safety stock.
Cost associated with inventories.
Types of selective inventory control and advantages of selective control.
ABC analysis.
EOQ.
MRP.
P & Q systems.

9. Inventory Management in India

10. Inventory may be defined as sum of value of raw materials, fuels and lubricants, spare parts, maintenance consumables, semi possessed materials & finished goods at any given point of time.
These resources are called idle resources since they are idle they are kept in the stores.

11. These resources are maintained for operational smoothness.
The size of inventory depends on internal lead time, suppliers lead time, vendors relation and availability of raw materials.
Finished goods inventory are maintained to ensure free flowing supply of goods to customers.

12. Two factors which affect inventories are:-
Accuracy & detail of final forecast.
Availability of storage space.

13. Norms for inventory
The department set up monetary limits for investment in inventories.
They have to allocate the investments to various items and ensure smooth operations of the company.
While setting the norms involvement of people making the norms is desirable.
Departments like finance, production are included.

14. Peculiarities in India
It operates in sellers market for purchase of goods.
Indian industry tends to stress a lot on machine utilization.
In India, inventory control technique do not run under “ free availability” of goods

15. Definition of inventories, inventory analysis and inventory catalog.
Inventory management in India.
Classification of inventories, forces creating various hypes of inventories, safety stock.
Cost associated with inventories.
Types of selective inventory control and advantages of selective control.
ABC analysis.
EOQ.
MRP.
P & Q systems.

16. Definition of inventories, inventory analysis and inventory catalog.
Inventory management in India.
Classification of inventories, forces creating various hypes of inventories, safety stock.
Cost associated with inventories.
Types of selective inventory control and advantages of selective control.
ABC analysis.
EOQ.
MRP.
P & Q systems.

17. Classification of Inventories
Production Inventory
MRO Inventory (Maintenance Repair Operating Supplies)
In-process Inventory
Finished Goods Inventory

18. Forces Creating Various Types of Inventory
Creating Forces
Type of Inventory
Uncertainties
Batch / Lot Size Economics
Time Transportation
Time-processing
Seasonality
Varying activity rates
Safety Stocks
Cycle Stocks
In-transit
Work in Process
Seasonal Stocks
Decoupling Stocks

19. Three Components of Inventory Management
Forecasting: How much do we need?
when will we need it?
Replenishment: How much should we order? When should we order?
Inventory control: How much do we have on hand? How much do we have on order? How much have we sold?

20. Dependent and Independent Demand

21. Costs relevant for Inventory Decision
Holding Costs : Capital costs, inventory service costs, storage space and risk costs.
Shortage Costs: Penalty for not having inventory available when required.
Acquisition Costs: Cost to order and acquire inventory.
Control System Costs: Cost of administrating systems needed to manage inventory levels.

22. Definition of inventories, inventory analysis and inventory catalog.
Inventory management in India.
Classification of inventories, forces creating various hypes of inventories, safety stock.
Cost associated with inventories.
Types of selective inventory control and advantages of selective control.
ABC analysis.
EOQ.
MRP.
P & Q systems.

23. Definition of inventories, inventory analysis and inventory catalog.
Inventory management in India.
Classification of inventories, forces creating various hypes of inventories, safety stock.
Cost associated with inventories.
Types of selective inventory control and advantages of selective control.
ABC analysis.
EOQ.
MRP.
P & Q systems.

24. COSTS ASSOCIATED WITH INVENTORIES
CARRYING COSTS
ACQUISITION COSTS

25. CARRYING COSTS Carrying material in inventory is expensive.
The annual cost of carrying a production inventory averaged approximately 25% of the value of the inventory.

26. CARRYING COSTS Opportunity cost of invested funds 12 – 20 %
Insurance costs – 4 %
Property taxes 1 – 3 %
Storage costs %
Obsolescence and deterioration 4 – 10 %
Total carrying costs – 40 %

27. Annual cos t s CC AC
Inventory level (or order/delivery quantity)
Relationship of inventory-related costs to inventory level (AC = acquisition costs; CC = carrying costs)

28. (carrying cost / year) = (average inventory value) x (inv
(carrying cost / year) = (average inventory value) x (inv. Carrying cost as a % of inv. value)
(carrying cost / year) = (average inventory in units) x (material unit cost) x (inv. Carrying cost as a % of inv. value)
CC = Q x C x I 2
Where CC = carrying cost/yr for the material in question
Q = order or delivery quantity for the material, in units
C = delivery unit cost of the material
I = inventory carrying cost for the material, expressed as
a % of the inventory value

29. The cost of services such as computer time, telephone, fax etc.
Acquisition costs
A certain portion of wages and operating expenses of such departments as purchase and supply, production control, receiving etc.
The cost of supplies such as engineering drawings, envelopes, stationery, and forms of purchasing etc.
The cost of services such as computer time, telephone, fax etc.

30. AC = U/Q x A It can be calculated as follows:
(acquisition cost/year) = (no of orders placed/yr) x (acquisition cost per order)
AC = U/Q x A
Where, AC = acquisition cost /year for the material in
question
U = expected annual usage of the material
Q = order or delivery quantity for the material
A = acquisition cost/order or per delivery for
the material.

31. Definition of inventories, inventory analysis and inventory catalog.
Inventory management in India.
Classification of inventories, forces creating various hypes of inventories, safety stock.
Cost associated with inventories.
Types of selective inventory control and advantages of selective control.
ABC analysis.
EOQ.
MRP.
P & Q systems.

32. Definition of inventories, inventory analysis and inventory catalog.
Inventory management in India.
Classification of inventories, forces creating various hypes of inventories, safety stock.
Cost associated with inventories.
Types of selective inventory control and advantages of selective control.
ABC analysis.
EOQ.
MRP.
P & Q systems.

33. Sr No. Type of Control Criteria Application
1) ABC analysis Annual Consumption value of To control inventory
the item of raw material
& WIP inventory
XYZ analysis Inventory value of items in To review the
stores actual inventories
their uses, etc. at
scheduled intervals.
VED analysis Criticality of the item To determine the
stocking level of
spare parts for
machines &
equipments.
FSN analysis Consumption pattern of the To control
items obsolescence.

34. Sr No. Type of Control Criteria Application
HML analysis Unit price of the item To control the
purchases & to
develop vendors.
SDE analysis Purchasing problem Lead time analysis
in regard to availability & purchasing
strategies.
SOS analysis Nature of supplies & Procurement &
seasonality holding stratergy
for seasonal term.
8) GOLF analysis Source of supply of Procurement material strategy.

35. Advantages of selective control system
Helps the material manager to exercise selective control and focus attention only on few vital items.
Able to control inventories and thereby achieve management objectives.
Results in proper inventory analysis & obsolete stocks are pinpointed.
Results in reduced administrative costs & improve inventory turnover.
Powerful approach in the direction of cost reduction as it is helps to control items with selective approach.

36. Definition of inventories, inventory analysis and inventory catalog.
Inventory management in India.
Classification of inventories, forces creating various hypes of inventories, safety stock.
Cost associated with inventories.
Types of selective inventory control and advantages of selective control.
ABC analysis.
EOQ.
MRP.
P & Q systems.

37. Definition of inventories, inventory analysis and inventory catalog.
Inventory management in India.
Classification of inventories, forces creating various hypes of inventories, safety stock.
Cost associated with inventories.
Types of selective inventory control and advantages of selective control.
ABC analysis.
EOQ.
MRP.
P & Q systems.

38. ABC Analysis What is ABC analysis?
ABC analysis is a basic analytical management tool which enables top management to place the effort where the results will be greatest.
The techniques tries to analyze the distribution of any characteristic by money value of importance in order to determine it’s priority.

39. ADVANTAGES OF ABC ANALYSIS
This approach helps the material manager to exercise selective control and focus his attention only on few items when he is confronted with lakhs of stores items.
By concentrating on ‘A’ class items, the material manager is able to control inventories and is able to show ‘Visible’ results in a short span of life.
By controlling the ‘A’ items, and doing a proper inventory analysis, obsolete stocks are automatically pinpointed.

40. MECHANICS OF ABC ANALYSIS
The mechanics of classifying the items into ‘A’, ‘B’ and ‘C’ categories is described here:
CALCULATE
SORT
PREPARE A LIST
COMPUTE A RUNNING TOTAL
COMPUTE AND PRINT

41. Cumulat ive
% value
100 90 75 C A B
100 10 30
Cumulative % number

42. Basic principles of ABC analysis are:
The analysis does not depend upon the unit cost of the items but only on its annual consumption value.
It does not depend on the importance of the item.
The limits of ABC categorization are not uniform but will depend upon the size of the undertaking, its inventory as well as the number of items controlled.

43. PURPOSE OF ABC ANALYSIS

44. A items: High consumption value
Very strict control
No safety stocks
Frequent ordering or weekly deliveries
Weekly control statements
Maximum follow-up and expediting
Rigorous value analysis
As many sources as possible for each item
Accurate forecasts in material planning
Minimisation of waste, obsolete and surplus
Individual postings
Central purchasing and storage
Maximum efforts to reduce lead time
Must be handled by senior officers

45. B items: moderate value
Moderate control
Low safety stocks
Once in three months
Monthly control report
Periodic follow-up
Moderate value analysis
Two or more reliable sources
Estimates based on past data on present plans
Quarterly control over surplus and obsolete items
Small group postings
Combination purchasing
Moderate
Can be handled by middle management

46. C items : low consumption value
Loose control
High safety stock
Bulk ordering once in six months
Quarterly control reports
Follow-up and expediting in exceptional cases
Minimum value analysis
Two reliable sources for each other item
Rough estimates for planning
Annual review over surplus and obsolete material
Group positioning
Decentralized purchasing
Minimum clerical efforts
Can be fully delegated

47. Objectives of ABC analysis
Exhibit 1
Item no
Annual consumption value (Rs)
No of orders
Value per order
Average inventory 1 2 3
60,000
4,000
1,000 4
15,000
1,000
250
7,500
500
125
Total inventory
Rs 8,125
Exhibit 2
Annual consumption value (Rs)
Value per order
Average inventory
Item no
No of orders
60,000
4,000
1,000 8 3 1
7500
133
1000 1 2 3
3750
667
500
Rs 4,917
Total inventory

48. Limitations of ABC analysis
ABC analysis is based on grading the items according to the importance of the performance of an item, that is V.E.D.- Vital Essential and Desirable- analysis. Some times, through negligible in monetary value, may be vital for running the plant, and constant attention is needed.

49. Music – 3D Analysis
Consumption Value
Delivery Time
Criticality

50. High Level Consumption
Low Level Consumption
Long Lead Time
HLC&LLT
critical
non-critical
LLC&LLT
Short Lead Time
HLC&SLT
LLC&SLT

51. Definition of inventories, inventory analysis and inventory catalog.
Inventory management in India.
Classification of inventories, forces creating various hypes of inventories, safety stock.
Cost associated with inventories.
Types of selective inventory control and advantages of selective control.
ABC analysis.
EOQ.
MRP.
P & Q systems.

52. Definition of inventories, inventory analysis and inventory catalog.
Inventory management in India.
Classification of inventories, forces creating various hypes of inventories, safety stock.
Cost associated with inventories.
Types of selective inventory control and advantages of selective control.
ABC analysis.
EOQ.
MRP.
P & Q systems.

53. ECONOMIC ORDERING QUANTITY(EOQ)
INTRODUCTION
EOQ can be defined as that quantity which should be ordered during the lead time so that it becomes economic to order and the inventory carrying cost becomes minimum.
When ordering quantity is less than EOQ, ordering cost will increase.
When ordering quantity is more than EOQ, inventory carrying cost will increase
Thus, EOQ refers to the quantity in which the ordering cost is equal to the holding cost (Inventory carrying cost)

54. GRAPHICAL DERIVATION OF EOQY TC
HERE:
EOQ = Economic ordering quantity TC = Total Cost
COST ICC ICC = Inventory Carrying Cost
OC = Ordering Cost OC
O EOQ X
ORDER QUANTITY

55. DERIVATION OF EOQ FORMULAE
Annual Ordering Cost = Annual Inventory Carrying Cost
A x Co = Q x i x Cc Q
Solving for ‘Q’
Q x Q = x A x Co
i x Cc
Q = x A x Co
HERE : A = Annual Demand ; Co = Cost of ordering ; Q = EOQ ;
i = Cost per unit ; Cc = Cost of carrying or ICC

56. PROBLEMS ON EOQ Annual Demand = 20,000 units Ordering Cost = Rs. 100
ICC = 20 %
Unit Price = Rs. 20
EOQ = 2 x A x Co
I x Cc
EOQ = x 20,000 x 100
20 x 0.20
EOQ = 1,000 units

57. In a leading biscuit manufacturing organization, the annual demand for corrugated boxes is 20,000. The cost of placing an order is Rs. 100 and the inventory carrying cost is 20 per cent. The price per box is Rs. 10. The supplier offers 1 per cent discount if 4,000 corrugated boxes or more are purchased and 3.5% discount if 10,000 units or more are purchased. What should be the ordering quantity and would you accept the discount? A.
EOQ = 2 x A x Co
I x Cc
EOQ = x 20,000 x 100
10 x 0.20
EOQ = 1,414 units

58. Number of orders placed in the year = 20,000
1414
= orders
1 ) 1% for 4,000
Savings - Inventory Carrying Cost (ICC)
Savings = Discount + Cost of ordering
Discount = x 20,000 x 10
100
= Rs. 2,000
Cost of ordering = [14.14 – (20,000/4,000)] x 100
= Rs. 914
Savings = Rs. (2, )
= Rs. 2,914
Inventory Carrying Cost (ICC) = ( 4,000- 1,414/2) x 10 x0.20
= Rs. 2,586
Rs. (2, ,586) = Rs. 328
Accept the offer

59. 2) 3.5% for 10,000
Savings - Inventory Carrying Cost (ICC)
Savings = Discount + Cost of ordering
Discount = x 20,000 x 10
100
= Rs. 8,000
Cost of ordering = [14.14 – (20,000/10,000)] x 100
= Rs. 1214
Savings = Rs. (7, )
= Rs. 8,214
Inventory Carrying Cost (ICC) = ( 10,000- 1,414/2) x 10 x0.20
= Rs. 8,586
Rs. (8, ,586) = - (Rs. 372)
Reject the offer

60. Not suitable when annual demand fluctuates widely.
LIMITATIONS OF EOQ
Not suitable when annual demand fluctuates widely.
Not suitable when cost per unit fluctuates widely.

61. Definition of inventories, inventory analysis and inventory catalog.
Inventory management in India.
Classification of inventories, forces creating various hypes of inventories, safety stock.
Cost associated with inventories.
Types of selective inventory control and advantages of selective control.
ABC analysis.
EOQ.
MRP.
P & Q systems.

62. Definition of inventories, inventory analysis and inventory catalog.
Inventory management in India.
Classification of inventories, forces creating various hypes of inventories, safety stock.
Cost associated with inventories.
Types of selective inventory control and advantages of selective control.
ABC analysis.
EOQ.
MRP.
P & Q systems.

63. Materials Requirement Planning (MRP)
MRP is a computer based control system that determines how much of each material, any inventory item with a unique part / number, should be purchased or produced in each time period to support the master production schedule (MPS)
- ( Newman, 1994)

64. MRP is, by necessity, a computer based system which is designed to:
Release production and purchase orders.
Ensure availability of materials, components and products.
Maintain minimum levels.

65. Major objectives of MRP are:
Improve customer service.
Reduce inventory costs.
Enhancing operating efficiency.

66. Elements of MRP

67. MRP system inputs outputs Inventory Orders/ forecast Transaction
of service parts
Inventory
Transaction
data
Changes to plan
Orders
Inventory status
file
Planned order
schedule
MRP
system
Primary outputs
Master
Production
schedule
Planning reports
Secondary outputs
Performance
reports
Bill of
Material
file
MRP computer programme
Exception reports
inputs
outputs

68. Definition of inventories, inventory analysis and inventory catalog.
Inventory management in India.
Classification of inventories, forces creating various hypes of inventories, safety stock.
Cost associated with inventories.
Types of selective inventory control and advantages of selective control.
ABC analysis.
EOQ.
MRP.
P & Q systems.

69. Definition of inventories, inventory analysis and inventory catalog.
Inventory management in India.
Classification of inventories, forces creating various hypes of inventories, safety stock.
Cost associated with inventories.
Types of selective inventory control and advantages of selective control.
ABC analysis.
EOQ.
MRP.
P & Q systems.

70. P - SYSTEM Fixed Order Period System Not Suitable for ‘A’ Class Items
Extremely Useful for ‘B’ & ‘C’ Class Items
Desired Inventory Level = Buffer stock + Safety stock + Reserve stock

71. Q- SYSTEM Fixed Order Quantity System
Re-order point determined by Buffer stock, Reserve stock & Safety stock
Suitable for ‘A’ Class Items
Requires continuous review of inventory

72. Buffer Stock: Average demand during average lead-time Reserve Stock: Variations in demand during average lead time are known as reserve stock depend on service level Safety Stock: Average demand obtained through multiplying average demand for maximum delay & probability of delay

73. Annual demand = 20,000 units; Standard deviation of demand per week = 50 units; Price per unit = Rs.10; Ordering cost = Rs.100; Inventory carrying cost = 20%; Average lead time = 4 weeks; Maximum delay =3 weeks; Probability of delay = 0.31; Service level = 95%(1.64)

74. Solution: ‘Q’ System Order quantity = EOQ s*Cc = 2 * 20,000 *100
= * 20,000 *100
10 * 0.20
= 1414 units
Re-order point = Buffer Stock + Reserve Stock Safety Stock
Buffer Stock = * 4 = units 52
Reserve Stock = 4*50*100 = 164 units
2*M*Co

75. Safety Stock = 20,000 *3 *0.31 52
= 358 units
Re-order point =
= 2062 units
Solution: ‘P’ System
Review period = EOQ *52 weeks M
= 1414 * 52 weeks
20000
= 3.7 weeks

76. Buffer Stock = 20,000 * 8 = 3080 units 52
Reserve Stock = 8 *50 *1.64 = 230 units
Safety Stock = 20,000 *3 * 0.31 = 358 units
Desired Inventory Level =
= 3668 units

77. Definition of inventories, inventory analysis and inventory catalog.
Inventory management in India.
Classification of inventories, forces creating various hypes of inventories, safety stock.
Cost associated with inventories.
Types of selective inventory control and advantages of selective control.
ABC analysis.
EOQ.
MRP.
P & Q systems.