Inventory Management
Inventory Management
Inventory Management
MANAGEMENT
By Rohit Dhiman
Assistant Professor
Uttaranchal University,UIM
WHAT IS INVENTORY?
A physical resource that a firm holds in stock with
the intent of selling it or transforming it into a
more valuable state.
Purpose of inventory management
How many units to order?
when to order?
TYPES OF INVENTORIES
Raw materials
Purchased parts and supplies Finished Goods
Work-in-process (partially completed products )
Items being transported Tools and equipment
NATURE OF INVENTORIES RAW
MATERIALS
Basic inputs that are converted into finished
product through the manufacturing process Work-
in-progress – Semi-manufactured products need
some more works before they become finished
goods for sale Finished Goods – Completely
manufactured products ready for sale Supplies –
Office and plant materials not directly enter
production but are necessary for production
process and do not involve significant investment.
INVENTORY AND SUPPLY CHAIN
MANAGEMENT BULLWHIP EFFECT
Demand information is distorted as it moves away
from the end-use customer(forecast) • higher
safety stock inventories are stored to compensate
Seasonal or cyclical demand Sale of umbrella ,
dominos sale in weekend Inventory provides
independence from vendors Take advantage of
price discounts Inventory provides independence
between stages and avoids work stoppages WIP
inventories
TWO FORMS OF DEMAND DEPENDENT
(NOT USED BY CUSTOMER DIRECTLY) •
Demand for items used to produce final products
• Tires stored at a plant are an example of a
dependent demand item Independent • Demand for
items used by external customers
• Cars, computers, and houses are examples of
independent demand inventory
CONTD:
Inventory and Quality Management
Customers usually perceive quality service as
availability of goods when they want them
Inventory must be sufficient to provide high
quality customer service
INVENTORY COSTS CARRYING
COST
cost of holding an item in inventory Ordering
cost
• Cost of replenishing inventory Shortage
cost
• Temporary or permanent loss of sales when
demand cannot be met
INVENTORY MANAGEMENT
Inventory management is a systematic approach to sourcing, storing, and
selling inventory—both raw materials (components) and finished goods
(products).In business terms, inventory management means the right
stock, at the right levels, in the right place, at the right time, and at the
right cost as well as price.
Inventory management refers to the process of ordering, storing and
using a company's inventory. This includes the management of raw
materials, components and finished products, as well as warehousing
and processing such items.
For companies with complex supply chains and manufacturing
processes, balancing the risks of inventory gluts and shortages is
especially difficult. To achieve these balances, firms have developed two
major methods for inventory management:
OBJECTIVES OF INVENTORY
MANAGMENT
To ensure a continuous supply of materials and
stock so that production should not suffer at the
time of customers demand.
To avoid both overstocking and under-stocking of
inventory.
To maintain the availability of materials whenever
and wherever required in enough quantity.
To maintain minimum working capital as required
for operational and sales activities.
To optimize various costs indulged with inventories
like purchase cost, carrying a cost, storage cost,
etc.
To keep material cost under control as they
contribute to reducing the cost of production.
To eliminate duplication in ordering stocks.
To minimize loss through deterioration, pilferage,
wastages, and damages.
To ensure everlasting inventory control so that
materials shown in stock ledgers should be
physically lying in the warehouse.
To ensure the quality of goods at reasonable prices.
To facilitate furnishing of data for short and
long-term planning with a controlled
inventory.
To supply the required material
continuously.
To maintain a systematic record of
inventory.
To make stability in price.
TECHNIQUES OF THE INVENTORY
MANAGEMENT SYSTEM