OPERATIONAL

RESEARCHINVENTORY

CONTROL

SUBMITTED

TO:

Dr. Jyoti Badge

SUBMITTED BY:

Swati Joshi

3rd Sem.

M.F.M. NIFT

Bhopal

INVENTORY

CONTROL

The word inventory means a physicalstock of material or goods orcommodities or other economicresources that are stored or reserved orkept in stock or in hand for smooth andefficient running of future affairs of anorganization at the minimum cost offunds or capital blocked in the form ofmaterials or goods (Inventories).

INVENTORY

“

”

The function of directing the movement ofgoods through the entire manufacturingcycle from the requisitioning of rawmaterials to the inventory of finished goodsin an orderly manner to meet theobjectives of maximum customer servicewith minimum investment and efficient (lowcost) plant operation is termed as inventorycontrol.

INVENTORY

CONTROL“

”

Inventory valuation involves two

process

Determination of quality of

each type of inventory held.

Assignment of the values

of the

units items of inventory

Objectives of Inventory Control

• To meet unforeseen future demand due to

variation in forecast figures and actual

figures.

• To average out demand fluctuations due to

seasonal or cyclic variations.

• To meet the customer requirement timely,

effectively, efficiently, smoothly and

satisfactorily.

• To smoothen the production process.

• To facilitate intermittent production of

several products on the same facility.

• To gain economy of production or purchase

The objective of controlling the inventories is to enable the

materials manager to place and order at right time with the right

source at right price to purchase right quantity.

• To reduce loss due to changes in prices

of inventory items.

• To meet the time lag for transportation of

goods.

• To meet the technological constraints of

production/process.

• To balance various costs of inventory

such as order cost or set up cost and

inventory carrying cost.

• To balance the stock out cost/opportunity

cost due to loss of sales against the costs

of inventory.

• To minimize losses due to deterioration,

obsolescence, damage, pilferage etc.

• To stabilize employment and improve lab

our relations by inventory of humanresources and machine efforts.

CLASSIFICATION OF

INVENTORIESDirect inventories

Inventories those play direct role

during manufacture or which can be

identified on the product

Indirect inventories

Inventories those which are required

for manufacturing but not as a part

of production or cannot be identified

on the product

DIRECT

INVENTORIESRaw material inventories:

The inventory of raw materials is the materials used in the manufacture

of product and can be identified on the product.

In inventory control manager can concentrate on the

(a)Bulk purchase of materials to save the investment,

(b)To meet the changes in production rate,

(c) To plan for buffer stock or safety stock to serve against the delay in

delivery of inventory against orders placed and also against

seasonal fluctuations.Work-in -process inventories or in process inventories:

These inventories are of semi-finished type, which are accumulated

between operations or facilities.

These inventories serves the following purpose:

(a)Provide economical lot production,

(b)Cater to the variety of products,

(c) Replacement of wastages,

(d)To maintain uniform production even if sales varies.

Finished goods inventories:

After finishing the production process and packing, the finished

products are stocked in stock room. These are known as finished

goods inventory.

These are maintained to:

(a) To ensure the adequate supply to the customers,

(b) To allow stabilization of the production level and

(c) To help sales promotion programme.

Spare parts inventories: Any product sold to the customer, will be

subjected to wear and tear due to usage and the customer has to

replace the worn-out part. Hence the manufacturers always calculate

the life of the various components of his product and try to supply the

spare components to the market to help after sales service.

The use of such spare parts inventory is:

(a) To provide after sales service to the customer,

(b) To utilize the product fully and economically by the customer.

Scrap or waste inventory: While processing the materials, we may

come across certain wastages and certain bad components (scrap),

which are of no use. These may be used by some other industries as

raw material. These are to be collected and kept in a place away from

INDIRECT INVENTORIES

Inventories or materials like oils, grease, lubricants, cotton

waste and such other materials are required during the

production process. But we cannot identify them on the

product. These are known as indirect inventories

Inventories may also be classified

depending their nature of use. They are:

Fluctuation Inventories: These inventories are carried out to safeguard the

fluctuation in demand, non-delivery of material in time due to extended lead-time.

These are some times called as Safety stock or reserves. In real world inventory

situations, the material may not be received in time as expected due to trouble in

transport system or some times, the demand for a certain material may increase

unexpectedly. To safeguard such situations, safety stocks are maintained. The

level of this stock will fluctuate depending on the demand and lead-time etc.

Anticipation inventory: When there is an indication that the demand for

company’s product is going to be increased in the coming season, a large stock

of material is stored in anticipation. Some times in anticipation of raising prices,

the material is stocked. Such inventories, which are stocked in anticipation of

raising demand or raising rises, are known as anticipation inventories.

Lot size inventory or Cycle inventories: This situation happens in batch

production system. In this system products are produced in economic batch

quantities. It some time happens that the materials are procured in quantities

larger than the economic quantities to meet the fluctuation in demand. In such

cases the excess materials are stocked, which are known as lot size or cycle

inventories.

Transportation Inventories: When

an item is ordered and purchased they

are to be received from the supplier, who

is at a far of distance. The materials are

shipped or loaded to a transport vehicle

and it will be in the vehicle until it is

delivered to the receiver. Similarly, when

a finished product is sent to the

customer by a transport vehicle it cannot

be used by the purchaser until he

receives it. Such inventories, which are

in transit, are known as Transportation

inventories.

Decoupling inventories: These

inventories are stocked in the

manufacturing plant as a precaution, in

case the semi finished from one

Scope of inventory control:

SCOPE OF INVENTORY

CONTROL

Determination of inventory

policies.Determining various stock

levels

Determining economic order size

Safety or buffer stock

Determining lead time

Examining the work of inventory

policy

Benefits of Inventory Control

• Ensures an adequate supply of materials

• Minimizes inventory costs

• Facilitates purchasing economies

• Eliminates duplication in ordering

• Better utilization of available stocks

• Provides a check against the loss of materials

• Facilitates cost accounting activities

• Enables management in cost comparison

• Locates & disposes inactive & obsolete store items

• Consistent & reliable basis for financial statements

• A careful materials manager may take advantage of price

discounts and make bulk purchase at the same time he can keep

the inventory cost at minimum.

• It enables a manager to select a proper transportation mode to

reduce the cost of transportation.

• Avoids the chances of duplicate ordering.

• It avoids losses due to deterioration and obsolescence etc.

• Causes of surplus stock may be controlled or totally avoided.

• Proper inventory control will ensure the availability of the required

material in required quantity at required time with the minimum

inventory cost.

INVENTORY CONTROL SYSTEMS

There are various methods of controlling inventory. In this section, let

us consider some of the important methods of controlling the inventory.

They are listed below:

(a) p - System or Fixed Period System, (

(b) b) q - System or Fixed quantity system, These are also known as

perpetual inventory control Systems.

(c) pq - System,

(d) ABC Analysis,

(e) VED Analysis,

(f) XYZ Analysis,

(g) FNSD analysis,

(h) Economic Order Quantity. (In manufacturing models, this is known

as Economic Batch Quantity.)

THANK YOU