Inventory Management

INVENTORY MANAGEMENT

Presented by Amit Jaglan Manish Vats Neeraj Bala Sakshi Vats

Overvie w ØInventory & Inventory management ØPurpose of inventory ØOpposing views of inventories ØNature of Inventories ØInventory Systems ØInventory Classifications Models ØConclusion

Invento ry commodities, or other economic resources stock of goods, held by a firm at a particular time for their future production requirements and for their future demands.

Inventory Management assists organizations in minimizing their inventory cost without compromising on their ability to respond quickly to customer demand.

INVENTORY MANAGEMANT AND SUPPLY CHAIN MANAGEMENT

Inventory management

is concerned with the planning, implementation and control of the movement of physical objects and associated information in general.

supply chain management focuses on the ultimate customer, who creates the demand, which in turn supports the existence of the supply chain to provide the customer with the product.

 Raw

TYPES OF INVENTORY

material  Semi finished goods  Finished goods

Purpose of inventory

Smooth production  Better service to customers  Protection against Business uncertainties  Quantity discounts advantage 

Opposing Views of Inventory • Why We Want to Hold Inventories • Why We Not Want to Hold Inventories

Why We Want to Hold Inventories

 Improve

customer service  Reduce certain costs  Contribute to the efficient and effective operation of the production system Visibility & Intelligence

Why We Do Not Want to Hold Inventories

 Certain costs increase such as carrying costs cost of diluted return on investment capacity costs large-lot quality cost cost of production problems

Nature of Inventory  Two Fundamental Inventory Decisions  Independent

Demand Inventory Systems  Dependent Demand Inventory Systems  Inventory Costs

Two Fundamental Inventory Decisions  How

much to order of each material when orders are placed with either outside suppliers or production departments within organizations  When to place the orders

Independent Demand Inventory Systems  Demand

for an item carried in inventory is independent of the demand for any other item in inventory  Finished goods inventory is an example  Demands are estimated from forecasts and/or customer orders

Dependent Demand Inventory Systems  Items

whose demand depends on the demands for other items  For example, the demand for raw materials and components can be calculated from the demand for finished goods  The systems used to manage these inventories are different from those used to manage independent demand items

Independent Vs. Dependant Demand Independent Demand Dependent Demand

A

(components)

C(2)

B(4)

D(2)

E(1)

D(3)

F(2)

Inventory Costs  Purchase Cost  Carrying

Cost  Ordering Cost  Stock-out Cost

Inventory Systems  Single

period Inventory System  Multi- period Inventory System • Fixed order quantity system(Q-system) • Fixed order period system(p-system)

IDLE STATE Waiting for demand

IDLE STATE Waiting for demand DEMAND OCCURS Units withdrawn from inventory or back ordered

COMPUTIVE INVENTORY POSITION Position=on hand +on order-back order

Is position p reorder point

no

yes Issue an order for exactly Q units

DEMAND OCCURS Units withdrawn from inventory no

Has review time arrived

yes

COMPUTIVE INVENTORY POSITION Position=on hand +on order-back order

Compute order quantity to bring inventory upto required level

Issue an order for number of units needed

Balancing Carrying against Ordering Cost Annual Cost ($) Higher

Minimum Total Annual Stocking Costs

Lower

Total Annual Stocking Costs Annual Carrying Annual Ordering Costs Smaller

EOQ

Larger

Order Quantity

Inventory classification model  ABC

classification  VED Classification  FSND Classification

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