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INVENTORY MANAGEMENT

PRESENTED BY :MALVIKA BT 11PRAGNESH BT

01 SAHELI BT 2TASVIRUL BT 12

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ROAD MAP

1.) INVENTORY2.) TYPES3.) ABC ANALYSIS4.) HML ANALYSIS5.) FSN ANALYSIS6.) SDE ANALYSIS7.) MAKE & BUY DECISION

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ROUTE

1.) INVENTORY2.) TYPES3.) ABC ANALYSIS4.) HML ANALYSIS5.) FSN ANALYSIS6.) SDE ANALYSIS7.) MAKE & BUY DECISION

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Inventory can be defined as a physical resource that a firm holds in stock with the intent of selling it or transforming it into a more valuable state.

Inventory System is a set of policies and controls that monitors levels of inventory and determines what levels should be maintained, when stock should be replenished, and how large the orders should be.

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Inventory is material that the firm obtains in advance of need, holds until it is needed, and then used, consumes or incorporates into a product, sells, or otherwise disposes it off.

A business inventory is temporary in nature.

It includes stock of any kind like fuel and lubricants, spare parts and semi-processed materials to be stored for future use mainly in the process of production or it can be known as the ideal resource of any kind having some economic values.

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ROUTE

1.) INVENTORY2.) TYPES3.) ABC ANALYSIS4.) HML ANALYSIS5.) FSN ANALYSIS6.) SDE ANALYSIS7.) MAKE & BUY DECISION

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There are many types of inventory.

The form of inventories depends upon the type of concern.

They are :

*Raw Materials*Works-in-Process *Finished Goods*Maintenance, Repair and Operating (MRO))

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Raw Material : There are raw materials and other supplies, parts and components, which enter into the product during the production process and generally form part of the product.

WIP : These are semi finished goods and partly finished products formed at the various stages of production.

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Finished Goods : These are complete finished products ready for sales. In a manufacturing unit, they are the final output of the production process.

MRO : Maintenance, repairs and operating supplies which are consumed during the production process and generally do not form part of the product itself are referred to as spare part inventories.

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* Improve customer service.* Economies of purchasing.* Economies of production.* Transportation savings.* Hedge against future.* Unplanned shocks (labor strikes, natural

disasters, surges in demand, etc.)* To maintain independence of supply chain..

OBJECTIVES OF INVENTORY

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* Ensures a continuous supply of raw materials to facilitate uninterrupted production.

* Maintains an optimum size of inventory for efficient and smooth production and sales operations.

* Maintains sufficient stock of raw materials in periods of short supply.

IMPORTANCE OF INVENTORY MANAGEMENT IN PRODUCTION

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* Maintains a minimum investment in inventories to maximize the profitability.

* Effort should be made to place an order at the right time with right source to acquire the right quantity at the right price and right quality.

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ABC Classification

A Items: very tight control, complete and accurate records, frequent review.

B Items: less tightly controlled, good records, regular review.

C Items: simplest controls possible, minimal records, large inventories, periodic review and reorder.

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In most of the cases 10 to 20 % of the inventory account for 70 to 80% of the annual activity.

• A typical manufacturing operation shows that the top 15% of the line items, in terms of annual rupees usage, represent 80% of total annual rupees usage i.e. A items.

• Next 15% of items reflect 15% of annual rupees i.e. B items.

• Next 70% accounts only for 5% usage i.e. C items.

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Another recommended breakdown of ABC classes:

•"A" approximately 10% of items or 66.6% of value.

2. "B" approximately 20% of items or 23.3% of value.

3. "C" approximately 70% of items or 10.1% of value.

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Helps to exercise selective control.

Gives rewarding results quickly.

Helps to point out obsolete stocks easily.

In case of “A” items careful attention can be paid at every step such as estimate of requirements, purchase, safety stock, receipts, inspections, issues, etc. & close control is maintained.

ADVANTAGESADVANTAGES

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In case of “C” items, recording & follow up, etc. may be dispensed with or combined.

Helps better planning of inventory control.

Provides sound basis for allocation of funds & human resources.

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Proper standardization & codification of inventory items needed.

Considers only money value of items & neglects the importance of items for the production process or assembly or functioning.

Periodic review becomes difficult if only ABC analysis is recalled.

When other important factors make it obligatory to concentrate on “C” items more, the purpose of ABC analysis is defeated.

DISADVANTAGES

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ROUTE

1.) INVENTORY2.) TYPES3.) ABC ANALYSIS4.) HML ANALYSIS5.) FSN ANALYSIS6.) SDE ANALYSIS7.) MAKE & BUY DECISION

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HMLThe High, medium and Low (HML) classification follows the same procedure as is adopted in ABC classification.Only difference is that in (HML) High, Medium and low, the classification unit value is the criterion and not the annual consumption value.

The items of inventory should be listed in the descending order of unit value and it is up to the management to fix limits for three categories.

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For example,

The management may decide:

All units with unit value of Rs. 2000 and above will be H items,

Rs.1000 to 2000 will be M items

and less than Rs.1000 will be L items.

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The HML analysis is useful for:

* keeping control over consumption at departmental levels,

* for deciding the frequency of physical verification and

* for controlling purchases.

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OBJECTIVES OF HML ANALYSIS

* Determine the frequency of stock verification.

* To keep control over the consumption at the department level.

* To evolve buying policy, to control purchase.

* To delegate the authority to different buyer.

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ROUTE

1.) INVENTORY2.) TYPES3.) ABC ANALYSIS4.) HML ANALYSIS5.) FSN ANALYSIS6.) SDE ANALYSIS7.) MAKE & BUY DECISION

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* Based on the consumption pattern to

combat obsolete items. * Classification depends on the pattern of issues from stores.

F – Fast moving S – Slow moving N – Non Moving

FSN

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Date of receipt or last date of issue, whichever is later, is taken to determine the no. of months which have lapsed since the last transaction.

The items are usually grouped in periods of 12 months.

It helps to avoid investments in non moving or slow items.

It is also useful in facilitating timely control.

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For analysis, the issues of items in past two or three years are considered.

If there are no issues of an item during the period, it is “N” item.

Then up to certain limit, say 10-15 issues in the period, the item is “S” item.

The items exceeding such limit of no. of issues during the period are “F” items.

The period of consideration & the limiting number of issues vary from organization to organization..

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ROUTE

1.) INVENTORY2.) TYPES3.) ABC ANALYSIS4.) HML ANALYSIS5.) FSN ANALYSIS6.) SDE ANALYSIS7.) MAKE & BUY DECISION

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SDEThe SDE analysis is based upon the availability of items and is very useful in the context of scarcity of supply.

* S refers to scarce items, generally imported, and those which are in short supply.

* D refers to difficult items, which are available indigenously but are difficult items to procure.

* E refers to items which are easy to acquire and which are available in the local markets.

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* These are generally short in supply or are channelized through government agencies.

* If the company feels that a lot of time as well as expenditure is involved in procuring these items, it would be advisable for the company to procure these items, say once a year.

SCARCE

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* These items are available indigenously, but are difficult to procure.

* “Difficult” categorization also includes those items which are procured from far off places and whose suppliers cannot be relied upon.

* Sometimes it may happen that certain items are difficult to manufacture and further, there may be only one or two companies who manufacture this item.

DIFFICULT

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* As the name suggests, these items are easily and readily available.

* They include all those items that are produced according to commercial standards, items which are available to be procured locally without any difficulty, etc.

EASY

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ROUTE

1.) INVENTORY2.) TYPES3.) ABC ANALYSIS4.) HML ANALYSIS5.) FSN ANALYSIS6.) SDE ANALYSIS7.) MAKE & BUY DECISION

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Definition of ‘Make-Or-Buy Decision’

oIt is the act of choosing between manufacturing a product in-house or purchasing it from an external supplier.

oIn a make-or-buy decision, the two most important factors to consider are cost and availability of production capacity.

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• Factors that may influence a firm's decision to buy a part rather than produce it internally includes:

-- lack of in-house expertise.

-- small volume requirements.

-- desire for multiple sourcing.

-- the fact that the item may not be critical to its strategy.

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• Similarly, factors that may tilt a firm towards making an item in-house include :

o-- existing idle production capacity.

-- better quality control.

o-- proprietary technology that needs to be protected.

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If the decision is small in nature and has less impact on the business, then even one person can make the decision.

The person can consider the pros and cons between making and buying and finally arrive at a decision.

When it comes to larger and high impact decisions, usually organizations follow a standard method to arrive at a decision.

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This method can be divided into four main stages as below :

Preparation.

Data collection. Data analysis.

Feedback.

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8.) CONCLUSION

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It is important to keep in mind there are several different functions of inventory management:

-- raw inventory, meaning the raw goods the company must keep on hand for production;

-- work in progress inventory which includes any of the goods that are in the production process; and

-- finished goods inventory or the products that are ready to ship to customers. Without inventory management it would be difficult for any company to maintain control and be able to handle the needs of their customers.

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http://www.southernfulfillment.com/articles/order-fulfillment/inventory-management/the_importance_of_inventory_management

REFERENCES

en.wikipedia.org/wiki/Inventory

www.barcodesinc.com › Articles

www.investopedia.com/

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