Kurdistan Regional Government-Iraq

Ministry of Higher Education and Scientific Research

Soran University
Faculty of Law, Political Science and Management
Business Management Department
2 nd Stage

Inventories

Prepared by: Supervised by:

Avin Sediq Jameel DR. Bahzad Taher
Sozdar Qasim Tofeeq

2021-2022
Table of Contents

Abstract..........................................................................................................................................1
1. Introduction..................................................................................................................................2
2. Literature Review........................................................................................................................3
3. Method.........................................................................................................................................6
4. Result...........................................................................................................................................8
5. Discussion....................................................................................................................................9
6. Reference...................................................................................................................................11
7. Table and Figures......................................................................................................................12

2
 Abstract

Inventories are the substances stored either waiting for processing or experiencing
processing and in some cases for future delivery. Inventories are handled both as advantages and
evil. As they are like cash positioned in a drawer, assets tied up in investments, incurring costs
for the care of the stored material and additionally issue to spoilage and obsolescence there have
been a spate of packages developed through industries, all aimed at decreasing stock levels and
increasing efficiency on the save floor. Nevertheless, they do have tremendous purposes like
steady supply of enter required for production, less replenishment and may additionally reduce
ordering expenses due to the fact of economies of scale. Finished items inventories furnish for
higher client service. So formulating a suitable inventory model is one of the essential issues for
an industry. Again thinking about reliability of any process is an important style in the
contemporary lookup activities. Inventory fashions ought to be both deterministic and
probabilistic and both of which have to account for the reliability of the related production
process. This paper discusses the important works in the discipline of inventory modeling pushed
by using reliability considerations which degrees from the very establishing to cutting-edge
works just posted

Keywords: Inventory Management, Survival, Working Capital, EOQ, EPQ.

3
1. Introduction

Inventory is the accounting of items, aspect components and uncooked materials that a
organization either makes use of in manufacturing or sells. Inventory is the inventory of any item
a business enterprise keeps, be it a bodily product or a service, to be used in the company's
output. Inventories are idle sources tying up a company's capital that ought to have been put to
extra worthwhile use. However, the lack of synchronization in the production device makes
conserving inventory a necessity. It is as a consequence no shock to find many managers regard
inventories as a crucial evil. Representing a sizeable component of the complete property of a
business, inventories are used to serve a range of the features chief amongst which are: (i)
coordinating operations. (ii) smoothing production. (ii) achieving economies of scale. and (iv)
improving patron service. Two matters are very vital for any stock models: when to order and
how a good deal to order and the latter is termed as financial order quantity. Traditional
procedures to the problem of identifying economic ordering

portions for specific fashions of stock have constantly assumed implicitly that items produced
are of perfect. Product quality, however, is not continually perfect, and is normally a feature of
the reliability of the manufacturing process. When the manufacturing procedure is in a precise
condition, items produced can also be of excessive or perfect quality. As time goes on, the
system may additionally deteriorate because of the items produced may additionally include
defectives or items might also have substandard quality. The relationship between production lot
measurement and the excellent of the product may accordingly be significant. A larger lot
measurement requires a longer manufacturing cycle, and for this reason is extra likely to
incorporate faultier items. This paper addresses the literature evaluates of monetary relationships
of lot size, quality, set-up and keeping costs, demand rate, deterioration (reliability) of the
manufacturing process. The paper additionally discusses how one of a kind troubles have an
effect on the overall value and quite a number strategy to explore the most fulfilling result.
Specifically, the hassle of identifying financial production quantities with imperfect
manufacturing methods is analyzed. A manufacturing system may also go from an “in-control”
state to the “out-of-control” nation whilst producing a lot. At the commencing of the
manufacturing of the subsequent lot, we expect that the procedure is restored returned to the “in-
control” state. This may want to be due to renovation measures, which are section of the set-up

4
of the manufacturing process. In different words, the setup cost of production consists of the fee
of restoring the computing device to the “good” state. Evidently, the amount of effort spent in
this restoration, or set-up stage, may impact the price of deterioration of the production manner
whilst it is producing the lot. The shift in performance of the system is assumed to take location
at a random factor in time after manufacturing has begun. Once the production process is in an
“out-of- control” state, it is assumed that a proportion of the gadgets produced are defective. The
technique reliability depends on a outstanding range of elements such as production technology,
computing device capability, jigs and fixtures, work methods, use of on-line monitoring devices,
skill level of the operating personnel and inspection, protection and replacement policies. Higher
reliability capacity products with applicable quality are greater consistently produced with the
aid of the process; thereby decreasing the fees of scrap and remodel of substandard products,
wasted substances and labor hours. However, high reliability can be executed with full-size
capital investment, which increases the price of pastime and the depreciation of the production
process. In one of a kind fashions such as economic order extent (EOQ), economic production
quantity (EPQ) and stochastic model, researchers encompass the results of reliability every now
and then with other concerns and on occasion by myself and then formulating the value feature
based on it and resolve the resulted fashions with different techniques.

5
2. Literature Review

In today’s world every business tries to strike a balance in inventory between what is wanted and
what is demanded, considering the foremost element of price cutting/reduction. This manage is
known as Inventory management or inventory control. Inventory is basically property (goods and
materials) which are stock of any business. Inventory administration focus on the potential of the
inventory, the location in which it is placed so that one can use it when needed, the grant chain
management of the uncooked substances and goods. Inventory administration deals with the
demand forecasting, asset management of the raw substances and goods, inventory lift cost,
forecast, pricing of goods, validation of goods, to forecast the demand of future. This helps the
top stage manager to understand and coordinate with the furnish chain administration or
production management, and quality management. (Anon., 29 sep 2021)

Minimizing inventory investments

Most enterprise try to minimize the money related with inventory so as to improve profitability
of the company. This is measured the use of stock turnover ratio.

(Measures how shortly the stock is getting out of gadget to the consumer).
Its intended using method- Sales / inventory or cost of goods sold / regular inventory [1]
Efficient inventory control
Efficient stock control consists of how the stock are scheduled properly, no delays between
sniffing of raw substances and goods. The quantity of uncooked substances determines the staff
and different factors. Every organization will incur fixed fee and vertical cost. There ought to be
a stability between the fixed price and variable cost.

Before going to increase Economic Order Quantity (EOQ) model, a complete understanding of
stock management is necessary. In this chapter the notion of stock management, stock
management process, inventory classification and cost, drug management in hospital, demand
forecasting and inventory manage model are introduced. Inventory administration and manage
performs a vital role in the procedures of corporations involved in distribution. Their magnitude
is more relevant in intervals of shortages, sluggish financial boom and high pastime rates.

6
Inventory manipulate involves choices over how much and when to order as well as how tons’
inventory. Report: in these days’ world inventory management system are practiced by using the
use of computerized system. The pc machine can integrate the administration of inventory,
information, and cost. By combining stock and value facts provide a large array of file and
evaluation for the generation. Example of stock management file includes: inventory fame
report, buy fashion report, demand analysis document and object movement report. Inventory
administration have special dreams one of them is to meet a reasonable stability between
maintaining cost, ordering value and shortage cost (Quick et al., 1997). Types of inventory value
involved in drug management (Quick et al., 1997 and Carrol, 1998). Inventory keeping cost: The
expenses of holding or “carrying” stock over time. Which includes; housing charges (including
rent, taxes, and insurance), cloth coping with expenses (equipment rent or depreciation, power,
working cost), space, obsolescence and labor fee Economic order quantity offers with issues like
the amount of inventory to be furnished on the depletion of stock, the planning of production. So
the association has hooked up the financial lot size. Ordering price differ in accordance to the
orders placed. The clerical and the staff expenses continue to be the same as long as they are
dedicated costs. On the other hand, if the quantity of the order increases, the clerical and body of
workers expenses may additionally increase. If the volume is decreased the clerical and the staff
force can be used in other departments for this reason the fee can be covered to the ordering cost.
As the ordering expenses is proportionate with the variety of orders positioned a massive
inventory helps in reducing the order price as the range of orders reduce. Safety stock: the actual
shipping time would possibly fluctuate from the normal lead time. If there is an enlarge in true
utilization or extend in shipping of inventory it may also prove to be highly-priced for the
company so in order to protect themselves from such mishaps, they can preserve a security or
back-up inventory

RAW MATERIALS: The materials that are used in a conversion process of manufacturing to
convert them into partly or completely finished goods. These items include commodities or
materials extracted by the firm or its subsidiaries. They can also be bought by the firm. A
partially completed item may be considered as finished goods by the supplier, but this could also
be the raw material of the purchaser. Some examples of raw materials include

7
WORK IN PROCESS: This includes all the materials, components, assemblies, subassemblies,
etc. which are being incorporated into the system. They include all the materials from the start
till they are ready and are awaiting inspection before they form the completed product.

FINISHED GOODS: Finished goods are those which have gone through the entire process of
manufacturing and are completely ready to be sold to customers. Finished goods inventory is the
collection of completed products. Finished goods also mandatorily have to pass all tests and inspections
before they are sold to either retailers, distributors or directly to customers. Typically, a manufacturer has
a good stock of raw materials, work in process and finished products. A retailer or wholesaler has a big
collection of finished goods ready to be sold.

One of the vital objectives of a firm is to manage inventories efficiently in accordance with the
shareholders. Optimum utilization of the inventories aids to achieve that objective, as well as
reap profit. The inventories which are controlled efficiently make the firm flexible and avoid
disasters like running out of stock and pilling up of unnecessary stock which increases the level
of investment and does not bring the firm profit. The following questions help to manage the
inventories properly.

3. Method

The 4 foremost ways to account for inventory are the precise identification, first in first out, last
in first out, and weighted average methods. As background, inventory includes the uncooked
materials, work-in-process, and finished goods that a enterprise has on hand for its own
manufacturing procedures or for sale to customers. Inventory is viewed an asset, so the
accountant must persistently use a legitimate method for assigning prices to inventory in order to
report it as an asset.

The inventory is not a minor issue, due to the fact the accounting method used to create a
valuation has a direct bearing on the amount of fee charged to the fee of goods offered in an
accounting period, and therefore on the amount of profits earned. The fundamental method for
deciding the fee of items bought in an accounting length is:

Beginning inventory + Purchases - Ending inventory = Cost of goods sold

8
Thus, the cost of goods sold is largely based on the cost assigned to ending inventory, which
brings us back to the accounting method used to do so. There are several possible inventory
costing methods, which are noted below.

Specific Identification Method

Under this approach, you separately track the cost of each item in inventory, and charge the
specific cost of an item to the cost of goods sold when you sell the specific item to which that
cost has been assigned. This approach requires a massive amount of data tracking, so it is only
usable for very high-cost, unique items, such as automobiles or works of art. It is not a viable
method in most other situations.

Cost Layering Methods

When you buy inventory from suppliers, the price tends to change over time, so you end up with
a group of the same item in stock, but with some units costing more than others. As you sell
items from stock, you have to decide on a policy of whether to charge items to the cost of goods
sold that were presumably bought first, or bought last, or based on an average of the costs of all
items in stock. Your choice of a policy will result in using either the first in first out method
(FIFO), the last in first out method (LIFO), or the weighted average method. The following
bullet points explain each concept:

First in, first out method. Under the FIFO method, you are assuming that objects offered
first are also used or sold first, which additionally potential that the objects nevertheless in
stock are the latest ones. This policy intently matches the proper movement of inventory in
most companies, and so is preferable really from a theoretical perspective. In durations of
rising fees (which is most of the time in most economies), assuming that the earliest units
offered are the first ones used additionally means that the least steeply-priced devices are
charged to the cost of goods offered first. Last in, first out method. Under the LIFO method,
you are assuming that gadgets bought final are bought first, which also skill that the gadgets
still in inventory are the oldest ones. This coverage does now not follow the natural flow of
inventory in most companies; in fact, the method is banned under International Financial
Reporting Standards. In durations of rising prices, assuming that the closing devices offered
are the first ones used additionally skill that the value of items offered tends to be higher,

9
which therefore leads to a lower amount of working earnings, and fewer earnings taxes paid.
There tend to be more inventory layers than below the FIFO method, due to the fact that the
oldest layers may additionally no longer be flushed out for years. Weighted average method.
Under the weighted average method, there is only one inventory layer, in view that the cost
of any new stock purchases is rolled into the fee of any current stock to derive a new
weighted common cost, which in flip is adjusted once more as extra inventory is purchased.

Both the FIFO and LIFO methods require the use of stock layers, under which you have a
separate price for each cluster of stock gadgets that have been purchased at a particular
price. This requires a big amount of tracking in a database, so each technique work first-
class if inventory is tracked in a laptop system. (Anon., 17 feb 2022)

4. Result

The correctness of inventory is reported in three ways: NET accuracy, gross accuracy, and
operational accuracy. The most frequent reporting tool, net accuracy, takes the average of your
(+) gains and (-) losses. To determine your outcomes, gross accuracy looks at the overall
variances.

If your organization has inventory, annual physical inventory counts, cycle counts, or a
combination of the two are almost certainly (or at least strongly encouraged). Inventory is
frequently a company's largest consumer capital, thus keeping correct records is critical. It's easy
to become overwhelmed and perplexed when there are so many alternatives for reporting
inventory count results. Let's have a look at the various counting and reporting methods and what
they mean.

Simply described, inventory accuracy is a comparison of the physical count with the system's
estimate of what's on hand or in a place. As previously said, it is critical that your organization
does a yearly physical count, cycle counts, or both. A perpetual counting system in which a tiny
subset of inventory at a certain area is counted on a specific day is known as cycle counting. An
annual physical count is when all SKUs are counted in a short period of time. It is usually done
once a year. Many businesses choose to count both annually and on a regular basis. This helps
them to keep a close eye on inventory fluctuations and keep accounting records up to date.
(Anon., march 11 2015)

10
Figure 1

5. Discussion

The short answer is that higher inventories do not provide an advantage in any of the nine
competitive priority categories. The important point is that firms must have the “right amount” of
inventory to meet their competitive priorities. The only relevant costs considered in this chapter
are ordering costs, holding costs, and stock out costs. In the economic order quantity (EOQ)
model, costs of placing replenishment orders tradeoff against the costs of holding inventory.
Under the assumptions of the EOQ, average inventory is one-half of the order quantity. The
number of orders placed per year varies inversely with order quantity. When we consider stock
out costs, an additional inventory (safety stock), is held to trade-off costs of poor customer
service or costs for expediting shipments from unreliable suppliers. In the lean systems chapter,
we see order quantities (lot sizes) that are much smaller than the “ideal” suggested by the EOQ
model. As a result, lean systems average inventory is also much lower. Are there some other
relevant costs of holding inventory that we have not considered in the EOQ model? If there are,
a firm that ignores these costs will make the wrong inventory decisions. These wrong decisions
will make the firm less competitive. Let’s examine the relationships between inventory and the
nine competitive priorities discussed in the operations strategy chapter. We compare
competitor’s H and L. They are similar in all respects except H maintains much higher inventory
than does L.
11
1) Low-cost operations. Costs include materials, scrap, labor, and equipment capacity that are
wasted when products are defective. When a process drifts out of control, competitor H’s large
lot sizes tend to result in large quantities of defectives. The EOQ does not consider the cost of
defectives, and erroneously assumes that setup costs are constant. Small lots cause frequent
setups, but the cost per setup decreases due to the learning curve. Competitor L will enjoy
competitive advantages with lower setup, materials, labor, equipment, and inventory holding
costs.

2) Top quality. Superior features, durability, safety, and convenience result from improved
designs. High inventories force competitor H to choose between scrapping obsolete designs or
delaying introduction of product improvements until the old inventory is consumed. In either
case, L gains a competitive advantage. (Anon., n.d.)

3) Consistent quality. Consistency in conforming to design specifications requires consistency

in supplied materials, setups, and processes. Small lots made frequently tend to increase
consistency. Again, advantage goes to L.

4) Delivery speed. Large lots take longer to produce than small lots. A customer will wait less
time for competitor L to set up and produce orders made in small batches.
Inventory is a beneficial tool for the teacher to song key and doubtful points from small team
discussions. Instructors can use these key or uncertain points as topics for the massive crew
discussion.

All of the items in the inventory want to be maintained until it is time for their usage, so it
additionally consists of the storage and document keeping of the stock. So if a product requires
being stored at a positive temperature in order to hold its quality, any movements to ensure that
that takes place would be a part of inventory manipulate in the administration process. It may
additionally encompass purging ancient inventory, such as items that are broken or really no
longer needed. All movements in inventory control, however, want to be accounted for just like
the stock itself. Inventory management identifies exactly what these objects are and the
frequency in which they are used--therefore how often elements need to be replenish. When used
correctly, demand forecasting can help forestall such components from jogging out by using
placing up a buying cycle that coincides with these points of high demand. Inventory requires

12
that whatever inventory you have been monitored. You cannot do tons of something involving
your inventory if you have no clear thought of what you have. Taking the time to carefully reveal
your stock can assist make it feasible to manipulate it and make sure the continued fine of the
items. Active monitoring can be substantial and even a bit overwhelming, depending on the
dimension of your inventory. However, there are a few matters that can make the procedure
easier.

13
6.Example of inventory:

14
6. Reference

https://ukdiss.com/litreview/literature-review-on-inventory-management-with-practical-
examples.php (Anon., 29 sep 2021)

https://www.bartleby.com/essay/Literature-Review-On-Inventory-Management-PCFQ3L7AJU

https://www.accountingtools.com/articles/accounting-inventory-methods (Anon., 17 feb 2022)

https://www.google.com/url?sa=i&url=https%3A%2F%2Ffanyv88.com%3A443%2Fhttps%2Fstudylib.net%2Fdoc
%2F8184992%2F12-inventory- (Anon., n.d.)

http://www.pbd.com/blog/inventory-results (Anon., march 11 2015)

15
7. Table and Figures

Number Figure Page

1 Type of inventory 9
2 Example of inventory 12

16