Scribd
Upload
32 views12 pages

Inventory Management

Uploaded by

Irfan Sanadi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
32 views12 pages

Inventory Management

Uploaded by

Irfan Sanadi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 12

Meaning & Types of Inventory

The inventory is used to represent the aggregate of those items


of tangible assets which are –
• Held for sale in ordinary course of the business.
• In process of production for such sale.
• To be currently consumed in the production of goods or
services to be available for sale
COMPONENTS OR FORMS OF INVENTORY

• Raw Materials
• Work in Process
• Finished Goods
• Stores and spares
INVENTORY MANAGEMENT

Meaning : Inventory management is the entire process of managing


inventories from raw materials to finished products.

• Definition: Inventory management is an approach for keeping track of


the flow of inventory. It starts right from the procurement of goods and
its warehousing and continues to the outflow of the raw material or stock
to reach the manufacturing units or to the market, respectively. The
process can be carried out manually or by using an automated system.
OBJECTIVES OF INVENTORY MANAGEMENT

1. To ensure continuous supply of materials spares and finished goods


so that production should not suffer at any time and the customer’s
demand should also be met.
2. To avoid both overstocking and under-stocking of inventory.
3. To maintain investment in inventories at the optimum level as
required by the operational and sales activities.
4. To keep materials cost under control so that they contribute in
reducing cost of production and overall cost.
5. To eliminate duplication in ordering or replenishing stocks. This is
possible with the help of centralizing purchases.
6. To minimize losses through deterioration, wastages and damages.
7. To ensure right quality goods at reasonable prices. Suitable quality
standards will ensure proper quality stocks. The price analysis, the
cost analysis and value analysis will ensure payment of proper
prices.
MOTIVES FOR HOLDING INVENTORY

• Transaction Motive.
• Precautionary Motives.
• Speculative Motive.
COST OF HOLDING INVENTORY

• Ordering Cost (fixed cost incurred Placing an Order till the


receipt of inventory)
 Cost of transportation
 Cost of uploading and unloading
 Cost of reminders to the supplier
 Cost of inspecting and receiving
 Administration cost
• Carrying Cost ( Cost incurred for holding an item in inventory
for specified time period)
 cost of storing like Maintenance of building, Building
Insurance ,Warehouse Charges etc.
 Cost of capital ( interest on fund blocked in inventories)
 Cost of obsolescence and deterioration
 Cost of maintaining staff.
COST OF HOLDING INVENTORY

Capital Costs:
 Interest on Money Invested in inventory.
 Interest on Money Invested in Land and Building to hold inventory.
 Interest on Money Invested in inventory holding and control equipment.

Storage Space Cost


 Rent on building
 Taxes and insurance on building
 Depreciation on building
 Cost of maintenance and repairs.
 Utility charges
 Salaries of security and maintenance personnel.
COST OF HOLDING INVENTORY

Inventory service Costs


 Clerical Expenses in Keeping records
 Labour cost in handling and maintaining records.

Handling Equipment Costs


 Depreciation on equipment
 Fuel expenses
 Cost of Maintaince and repairs.

Inventory Risk Costs


 Obsolescence of inventory
 Insurance on inventory
 Physical deterioration of inventory
 Loses from pilferage
CLASSIFICATION OF INVENTORY

• Based on Function:
– Raw Materials:
– Work-in-Progress (WIP):
– Finished Goods:
• Based on Value:
– High-Value Inventory: Items with high monetary value, often requiring
special handling or security measures.
– Low-Value Inventory:
• Based on Demand Variability:
– Seasonal Inventory:
– Non-seasonal Inventory:
• Based on Lead Time:
– Cycle Inventory
– Safety Stock
– Anticipation Inventory:
CLASSIFICATION OF INVENTORY
• Based on Ownership:
– Owned Inventory:
– Consignment Inventory:
• Based on Demand Priority:
– Critical Inventory:
– Non-critical Inventory:
• Based on Shelf Life:
– Perishable Inventory:
– Non-perishable Inventory:
• Based on ABC Analysis:
– A-Class Inventory:
– B-Class Inventory:
– C-Class Inventory:
Factors affecting inventory control policy

• Business Objectives: maximizing profits, minimizing costs, or achieving


high customer service levels, shape the inventory control policies.
• Demand Variability
• Lead Time:
• Cost Considerations:
• Technology and Systems:
• Supplier Relationships: The reliability, lead times, and flexibility of
suppliers impact inventory control policies.
• Market Dynamics: External factors such as competition, market trends, and
economic conditions influence inventory control policies.
• Regulatory Requirements:
• Product Characteristics: such as perishability, seasonality, and value,
influence inventory control policies.
• Risk Management:
• Customer Service Requirements:
• Performance Metrics: Key performance indicators (KPIs)
TOOLS AND TECHNIQUES OF INVENTORY MANAGEMENT

• Determination of stock levels


• Fixing of Economic Ordering Quantity.
• Perpetual Inventory System.
• ABC Analysis.
• Just in Time Approach
• Material Inventory Turnover Ratio
Other Techniques
• VED Analysis
• FSA Analysis
• HML Analysis
• SDE Analysis

You might also like