Professional Documents
Culture Documents
Inventory Management
Objectives of Inventories
The primary objective of inventory management is to ensure continuous supply of raw materials and facilitate uninterrupted production. Obtaining a reasonable utilisation of people and equipment is one of the reasons for holding inventories.
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Inventory costs Ordering Costs Carrying Cost Out-of-stock Cost Capacity costs
Ordering Costs
Cost of placing a order with the vendor of materials
Preparing a purchase order Processing payments Receiving and inspecting the material
Carrying Costs
Cost connected directly with materials
Obsolescence Deterioration Pilferage
Financial costs
Inventory risks costs
Taxes
Insurance
Storage
Interest
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Capacity Costs
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ABC
Always Better Control Analysis The objective of ABC :
Vary the expenses associated with maintaining appropriate control.
ABC Analysis
% of total annual usage
Determine the annual volume of usage and rupee value of each item
A B
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Item A Very Strict Control Very low safety stocks Frequent ordering Control statementsweekly follow up and expediting - Maximum value analysis - Rigorous As many sources as possible Accurate forecast Minimisation of waste review 15 days Individual postings Central purchasing and storage Maximum efforts to reduce lead time Handled by senior officers
Item B Moderate control Low safety stock Ordering 3 months Control statement monthly Follow up periodic Value analysis Moderate Reliable sources 2 or more Estimate based on past data Quarterly review Small group posting Combination purchases Moderate efforts to reduce lead time Handled by middle management
Item C Loose Control High safety stock Bulk Ordering 6 months Control statement Quarterly Follow up in exceptional cases Value analysis Minimum Reliable sources 2 Rough Estimates Annual review Group posting Decentralised purchases Minimum efforts to reduce lead time Can be fully delegated
VED Classifications
Desirable Essential
Vital
VED
FSN
EOQ
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EOQ
Q = optimum quantity or EOQ D = Annual demand S = cost of placing a order or Ordering cost H = Holding or carrying cost per unit of average inventory per annum Carrying cost per unit = price per unit X Carrying cost (%)
Materials Management
Materials Management
Materials Management is simply the process by which an organization is supplied with the goods and services that it needs to achieve its objectives of buying, storage and movement of materials. Materials Management is related to planning, procuring, storing and providing the appropriate material of right quality, right quantity at right place in the right time.
Procurement Activities
Materials specifications Value Analysis Supply market research Negotiation Buying Quality Assurance Transportation inbound
Inventory Decisions
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Purchasing
The act of buying a item at a price Is a managerial activity which goes beyond the simple act of buying, and included the planning and policy activities covering a wide range of related and complementary activities
Purchasing
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Obtaining technical information and advice Receiving sales presentation Establishing specifications Scheduling orders and deliveries Inspecting Specifying delivery methods and routing Expediting
Accounting Purchasing and market research Inventory and warehousing policy Forward buying and hedging policies and procedures Construction contracting Service contracts and agreements Sale of scrap, salvage and surplus Purchasing for employees
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Contracting for machine and equipment Development of specifications Quantitities or timing on planning deliveries Transportation and traffic Development of specifications Customs Other functions
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Purchasing cycle
Recognition of need Oder Acknowledgement Follow up and expediting
Vendor Rating
Factors that affecting rating: Price Discounts received Maintenance of specifications Promptness of delivery Freight and delivery charges Installation costs Service Financial position Market information cooperation Management competence Credit terms Disposition of rejects Employee training Adjustment policies Cost reduction suggestions Inventory plans
Description of need
Selection of source
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Categorical Plan
Personnel from various divisions maintain informal evaluation records For each major supplier each person prepares a list of performance factors, which are important to him. Each supplier is assigned an overall group evaluation preferred/neutral/unsatisfactory
Categorical Plan The weighted point plan Critical incidents method Checklist system
Determine suppliers performance number Multiply each factor weight by performance number Total to get suppliers final rating.
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Checklist system
Buyers checklist to evaluating vendors:
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Ethics in Purchasing
Reliability Technical capabilities After-sae service Availability Buying convenience Sales Assistance
Internal Ethics
External Ethics
Code of Ethics
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