INVENTORY CONTROL.

Introduction, Different inventory control techniques and other relatin ter!s.

Introduction
Inventory

!eans all the !aterials, "arts, su""lies, equi"!ents, tools and in "rocess or finished "roducts, recorded and #e"t in or ani$ation for so!e "eriod ti!e. Inventory is essential "art of every or ani$ation%&usiness%'anufacturin unit.

Definitions.
Inventory

is a list of na!es, quantities and %or !onetary values of all or any rou" of ite!s. Inventory is a detailed list of those !ova&le ite!s (hich are necessary to !anufacture a "roduct and to !aintain the equi"!ent and !achinery in ood (or#in order. The quantity and value of every ite! is also !entioned in the list.

Definitions.
Inventories

are "iles of ra( !aterials and finished oods in (arehouse. )ll the !aterials, "arts and in*"rocess or finished "roducts recorded on the &oo#s &y an or anisation and #e"t in its stores, (arehouses and "lants are #no(n as inventories.

Characteristics% I!"ortance.
Inventories serves as cushions to a&sor& shoc#s. ,. Inventory for any or anisation is necessary evil. -. Inventories are result of !any interrelated decisions and "olicies of an or anisation. .. Inventory "rovides "roduction econo!y
+.

Inventory Classification
,. -. .. 0. 1.

Classification of inventory accordin to functions is as follo(s, Transit Inventories. Cycle Inventories. /uffer Inventories. Decou"lin Inventories. Inventory as "er the nature of ite!s.

Inventory Control
Inventory

control #ee"s trac# of inventories. TOO '2C3, TOO LITTLE or /)DLY /)L)NCED inventory is avoided as everythin has a cost. Too !uch, leads to undue carryin char es in for! of ta4es, insurance, stora e, o&solescence, de"reciation and undue &loc#a e of ca"ital.

Inventory Control
Too

little, involves frequent orderin , loss of quantity discounts, hi her trans"ortation costs, it !ay not fulfill the future%e!er ency require!ent. In today5s dyna!ic (orld, situations are chan in fast. Too little !ay &eco!e too !uch very fast. To !aintain the &alance of too !uch and too little is critical tas# and can &e done &y i!"le!entin inventory control.

Definitions of Inventory Control.

Inventory

control is a system of ordering based on the maintenance of stock in a store using a re-order rule based on stock levels. control is concerned with various items stocked at predetermined level or within some safety limits.

Inventory

Definitions of Inventory Control.

Stock control is often said to be an exercise in the art of compromise balancing the conflicting needs of
1. . #.

Economical Production. !uick "elivery and $ow inventory value.

6actors )ffectin .

,. -. .. 0.

The decision on inventory leads an i!"act on the (hole or ani$ation. The nu!&er of factors can &e divided in the follo(in cate ories. Characteristic of 'anufacturin 7yste! )!ount of 8rotection a ainst shorta es Or ani$ational factors Other factors.

6actors )ffectin .

Characteristic of Manufacturing system

The nature of "roduction "rocess, "roduction "lannin , "lant layout have an effect on inventory "olicy.
+. ,. -. .. 0.

De ree of s"eciali$ation of "roduct. 8rocess Ca"a&ility and fle4i&ility. 8roduction ca"acity and stora e. 9uality reqts., shelf*life, o&solescence. Nature of "roduction syste!.

6actors )ffectin .

Amount of protection against shortage

Due to fluctuation in de!and of the "roduct, there should &e "rotection at su""ly end. /uffer stoc#s hel"s to do achieve this. +. Chan e in si$e and frequency of orders. ,. 2n"redicta&ility of sales. -. 7tructure of distri&ution "attern. .. Costs associated (ith failure to !eet de!and 0. )ccuracy of de!and forecast.

6actors )ffectin .
1.

Organizational Factors:

These are certain factors, (hich are related

to "olicies, traditions and environ!ent of or . +. Or ani$ational structure. ,. )!ount of ca"ital availa&le for stoc#. -. Rate of return on ca"ital on the o""ortunity cost. .. 7tora e and (arehousin "olicies.

6actors )ffectin .
1.

Other factors.

These are related to overall environ!ent of

or ani$ations in the s"ecific re ion. +. Inflation. ,. 7tri#e situations. -. :ars, or so!e other natural cala!ities li#e floods, earthqua#es, etc. .. Differences &et(een in"ut and out"ut.

Ty"es of inventory analysis.

,. -. .. 0. 1.

Different or ani$ations follo( different inventory analysis or inventory control syste!. 7o!e of the! are; )/C analysis. 3'L VED 7DE 67N.

)/C )nalysis.
ABC

(Always Better Control) It is &ased on the conce"t, <Thic# on the &est and Thin on the Rest.= The o&>ective of )/C control is to vary the e4"enses associated (ith !aintainin a""ro"riate control accordin to the "otential savin s associated (ith a "ro"er level of such control. It is one of the (idely used techniques of inventory control.

)/C )nalysis.

The )/C a""roach is a !eans of cate ori$in inventory ite!s into three classes ?)5 , ?/5 and ?C5, accordin to the "otential a!ount to &e controlled. 6or this, annual consu!"tion value is calculated &y, )nnual 2sa e Value @ )nnual Require!ent A 8er 2nit Cost. The ite!s of inventory are then cate ori$ed under Ite!s functionally critical, no !atter ho( little they cost. Ite!s i!"ortant &ecause their usa e value is hi h. Ite!s havin avera e usa e value. Ite!s havin lo( usa e value.

)/C )nalysis.

The following procedure is suggested for developing an ABC analysis:

,. -. .. 0.

List each ite! carried in inventory &y nu!&er or so!e other desi nation. Deter!ine the annual volu!e of usa e and ru"ee value of each ite!. 'ulti"ly each ite!5s annual volu!e of usa e &y its ru"ee value. Co!"ute each ite!5s "ercenta e of the total inventory in ter!s of annual usa e in ru"ees.

)/C )nalysis.

Procedure (CONTD..

-.

..

0.

7elect the to" +BC of all ite!s (hich have the hi hest ru"ee "ercenta es and classify the! as ?)5 ite!s. 7elect the ne4t ,BC of all ite!s (ith the ne4t hi hest ru"ee "ercenta es and desi nate the! as ?/5 ite!s. The ne4t DBC of all ite!s (ith the lo(est ru"ee "ercenta es are ?C5 ite!s.

3'L )nalysis.
The

3'L classification follo(s the sa!e "rocedure as is ado"ted in )/C classification.

3

@ 3IE3; ' @ 'EDI2'; L @ LO:.

Only

difference is that in 3'L, the classification unit value is the criterion and not the annual consu!"tion value.

3'L )nalysis.
The

ite!s of inventory should &e listed in the descendin order of unit value and it is u" to the !ana e!ent to fi4 li!its for three cate ories. 6or e4a!"les, the !ana e!ent !ay decide that all units (ith unit value of Rs. ,BBB and a&ove (ill &e ?35 ite!s, Rs. +BBB to ,BBB ?'5 ite!s and less than Rs. +BBB ?L5 ite!s.

VED Classification.
VED

Classification :hile in )/C, classification inventories are classified on the &asis of their consu!"tion value and in 3'L analysis the unit value is the &asis, criticality of inventories is the &asis VED classification. The VED analysis is done to deter!ine the criticality of an ite! and its effect on "roduction and other services. It is s"ecially used for classification of s"are "arts.

VED Classification.
VED

Classification

V@ Vital; E@ Essential; D@ Desira&le.

F

If a "art is vital it is iven ?V5 classification, if it is essential, then it is iven ?E5 classification and if it is not so essential, the "art is iven ?D5 classification. 6or ?V5 ite!s, a lar e stoc# of inventory is enerally !aintained, (hile for ?D5 ite!s, !ini!u! stoc# is enou h.

67N Classification
!" Analysis 3ere, classification is &ased on the "attern of issues fro! stores and is useful in controllin o&solescence. 6 @ 6ast !ovin 7 @ 7lo( 'ovin ; N @ Non 'ovin .

67N Classification.
To

carry out an 67N analysis, the date of recei"t or the last date of issue, (hichever is later, is ta#en to deter!ine the nu!&er of !onths, (hich have la"sed since the last transaction. The ite!s are usually rou"ed in "eriods of +, !onths. 67N analysis is hel"ful in identifyin active ite!s (hich need to &e revie(ed re ularly and sur"lus ite!s (hich have to &e e4a!ined further. Non*!ovin ite!s !ay &e e4a!ined further and their dis"osal can &e considered.