Subhro Mondal Dme 1

MODERN INSTITUTE OF
ENGINEERING & TECHNOLOGY
Name – Subhro Mondal

Department – Mechanical
Year – 3rd
Roll No – 26900721037
Topic - Inventory Management
Subject code – [HM-HU 601]
CONTENT
 Introduction
 Forms of Demand
 Forms of Inventories
 Classification of Inventories Cost
 Inventory Control
 Objectives of Inventory Control
 References
INTRODUCTION
Inventory is material that the firm obtains in advance of

need, holds until it is needed, and then used, consumes,
incorporates into a product, sells, or otherwise disposes
it of. A business inventory is temporary in nature.
Inventories are 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.
Inventory valuation involves two process
 Determination of quality of each type of inventory

held.
 Assignment of the values of the

units items of inventory
Two Forms of Demand
 Dependent
 Demand for items used to produce final products
 Tires stored at a Goodyear plant are an example of a dependent demand item
 Independent
 Demand for items used by external customers
 Cars, appliances, computers, and houses are examples of independent demand
inventory
Forms of inventories
There are many types of inventory. The
form of inventories depends upon the type
of concern. All types of inventory do not
require same treatment and therefore
policy with regard to each may also differ.
Raw material inventories:
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.
WORK IN PROCESS INVENTORIES:

These are semi finished, work in progress and partly finished
products formed at the various stages of production.
M.R.O INVENTORIES / SPARE PART
INVENTORIES:
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.
FINISHED INVENTORIES:
These are complete finished products ready for sales. In a
manufacturing unit, they are the
final output of the production process.
They can also be classified as:-
• Movement inventories
• Lot size inventories
• Anticipation inventories
• Fluctuation inventories
Cycle stock and safety stock
CYCLE STOCK AND SAFETY STOCK
ON
HAND
INVENTORY
Classification of
inventories cost:
Inventories’ cost are traditionally

categorized into four basic types:
Purchase cost:
For items that are purchased from outside the firms, this is
usually the unit price that the firm pays to its vendor. As an item
moves through the logistics system of the firms, it purchase cost
in the inventory analysis should reflect its fully landed cost, by
which is meant the cost to acquire and moves the item to that
point in the system.
ORDERING COST:
In addition to the per unit purchase cost, there is usually an additional
cost which is incurred whenever we order, reorder or replenish the
inventory. If we produce items internally then there will be an
organization set up cost. This happens because we have to shut down the
manufacturing line and change over, reconfigure the line to make a
specific item.
This is the cost involved with processing the order, involving paying the
bill, auditing, and so forth.
HOLDING COST:
The cost that accrue due to the actual holding of the inventory over a time
period. Many different kinds of cost can be considered as holding cost. The
key characteristics of holding cost varies with the amount of inventory
being held and the time that the inventory is held. The holding cost can
further be classified as follows:
• Storage cost
• Service cost
• Risk cost
•Capital cost.
SHORTAGE COST:
When a demand arises which cannot be satisfied from available inventory

an inventory shortage occurs. Purchase, ordering and holding cost can be
thought of as the cost of having inventories, while shortage cost result for
not having inventory, or for not having enough inventory at the right place
at the right time
Four specific case where shortage cost may
exist are:
 Back orders
 Lost sales
 Lost customer cost
 Disruption cost
Inventory control:
 Inventory control is the means by which materials of the correct quality and
in correct quantity are made available as and when required with due regard
to economic in storage and ordering cost. Hear the desired level of inventory
can neither be high or low because high level inventory will lead to increase
in carrying cost while low level of inventory will lead to increase in ordering
cost
The activities of inventory control
normally include the following:
• Determination of the limits of the inventories to be held.
• Determination of inventory policies.
• Selling out of investments pattern and its regulations as per

individual and collective requirements.
• Follow up to examine the work of inventory policy and

effect change as and when needed.
Scope of inventory control:
SCOPE OF INVENTORY CONTROL
Determination Determining Determining

of inventory economic order size lead time
policies. Examining
the work of
Determining inventory
various Safety or
policy
stock levels buffer stock
Objectives of inventory control:
• To ensure smooth flow of stock.
• To provide for required quality of materials.
•To control investments in stock.
• Protection against fluctuating demand.
• Protection against fluctuations in output.
• Minimization of risk and uncertainty.
• Risk of obsolescence.
•Minimization of material cost.

References
 www.google.com
 www.wikipedia.com
 www.studymafia.org
 www.pptplanet.com
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MODERN INSTITUTE OF

ENGINEERING & TECHNOLOGY

Name – Subhro Mondal

Inventory is material that the firm obtains in advance of

Inventories are stock of any kind like fuel and lubricants,

 Determination of quality of each type of inventory

 Assignment of the values of the

There are raw materials and other supplies, parts and

WORK IN PROCESS INVENTORIES:

CYCLE STOCK AND SAFETY STOCK

Inventories’ cost are traditionally

When a demand arises which cannot be satisfied from available inventory

 Lost customer cost

• Determination of inventory policies.

• Selling out of investments pattern and its regulations as per

• Follow up to examine the work of inventory policy and

SCOPE OF INVENTORY CONTROL

Determination Determining Determining

• To provide for required quality of materials.

•To control investments in stock.

• Protection against fluctuating demand.

• Protection against fluctuations in output.

• Minimization of risk and uncertainty.

•Minimization of material cost.

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