Inventory Control & Management

INTRODUCTION

 Inventory-A physical resource that a firm holds in stock

with the intent of selling it or transforming it into a more
valuable state.

 Inventory System- A set of policies and controls that

monitors levels of inventory and determines what levels
should be maintained, when stock should be replenished,
and how large orders should be placed.
 Items carried in inventory can be

 Raw materials
 Purchased parts
 Components
 Subassemblies
 Work-in-process
 Finished goods
 Reasons for keeping Inventories

 To stabilise production
 To take advantage of price discounts
 To meet the demand during the
replenishment period
 To prevent loss of orders(sales)
 To keep pace with changing market
conditions
 Objectives and Benefits

Inventory control aims at keeping track of

inventories. In other words, inventories of
good quality and right quantities should be
made available to different departments as
and when they needed.
COSTS ASSOCIATED WITH INVENTORY

 Purchase (or Production) cost

 Capital cost
 Ordering cost
 Inventory carrying costs (holding
costs)
 Shortage cost
 Inventory Planning and Control

For maintaining the right balance between high

and low inventory to minimize cost
 Inventory Control Decisions

Decisions:
 How much to order?
 When to order?
ECONOMIC ORDER QUANTITY

Annual Cost ($)

Higher

Minimum
Total Annual
Stocking Costs
Total Annual
Stocking Costs
Annual
Carrying Costs
Lower

Annual
Ordering Costs
Order Quantity
Smaller EOQ Larger
16
 TYPES OF INVENTORY MODELS

 Simple EOQ model

 EOQ model with stock outs
allowed
 Inventory model under risk
Simple EOQ model
EOQ model with stock outs allowed
Inventory model under risk
 SELECTIVE CONTROL OF INVENTORY

 Selective control refers to the variation in method of

control from item to item on some selective basis.
Many criteria used for this purpose are
 Based on the cost of product
 Lead time
 Usage rate
 Procurement difficulties, criticality, frequency of
usage
SELECTIVE CONTROL OF INVENTORY

 ABC analysis
 VED Analysis
 Material requirements planning (MRP)
 CONCLUSIONS

 Careful classification of your inventory, and

continuing analysis of those classifications, can play
a vital role in maintaining cost at the efficient levels
you have established as your goals

 Inventory control is a constant requirement of doing

business successfully.
Thank you