INVENTORY

MANAGEMENT

PRESENTED BY :
MALVIKA BT 11
PRAGNESH BT
01 SAHELI BT 2
TASVIRUL BT 12
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ROAD MAP
1.)
2.)
3.)
4.)
5.)
6.)
7.)

INVENTORY
TYPES
ABC ANALYSIS
HML ANALYSIS
FSN ANALYSIS
SDE ANALYSIS
MAKE & BUY DECISION
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ROUTE
1.)
2.)
3.)
4.)
5.)
6.)
7.)

INVENTORY
TYPES
ABC ANALYSIS
HML ANALYSIS
FSN ANALYSIS
SDE ANALYSIS
MAKE & BUY DECISION

Inventory can be defined as 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 is 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 the orders
should be.

Inventory is material that the firm obtains in

advance of need, holds until it is needed, and
then used, consumes or incorporates into a
product, sells, or otherwise disposes it off.

A business inventory is temporary in nature.

It includes stock of any kind like fuel and

lubricants, spare parts and semi-processed
materials to be stored for future use mainly in
the process of production or it can be known as
the ideal resource of any kind having some
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ROUTE
1.)
2.)
3.)
4.)
5.)
6.)
7.)

INVENTORY
TYPES
ABC ANALYSIS
HML ANALYSIS
FSN ANALYSIS
SDE ANALYSIS
MAKE & BUY DECISION
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There are many types of inventory.

The form of inventories depends upon the
type of concern.
They are :
*Raw Materials
*Works-in-Process
*Finished Goods
*Maintenance, Repair and Operating (MRO))

Raw Material : There are raw materials and

other supplies, parts and components, which
enter into the product during the production
process and generally form part of the
product.
WIP : These are semi finished goods and
partly finished products formed at the
various stages of production.

Finished Goods : These are complete finished

products ready for sales.
In a manufacturing unit, they are the final
output of the production process.

MRO : Maintenance, repairs and operating

supplies which are consumed during the
production process and generally do not form
part of the product itself are referred to as spare
part inventories.

OBJECTIVES OF
INVENTORY
*
*
*
*
*
*

Improve customer service.

Economies of purchasing.
Economies of production.
Transportation savings.
Hedge against future.
Unplanned shocks (labor strikes, natural
disasters, surges in demand, etc.)
* To maintain independence of supply chain..

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IMPORTANCE OF INVENTORY
MANAGEMENT IN PRODUCTION

* Ensures a continuous supply of raw materials

to facilitate uninterrupted production.
* Maintains an optimum size of inventory for
efficient and smooth production and sales
operations.
* Maintains sufficient stock of raw materials in periods
of short supply.

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* Maintains a minimum investment in

inventories to maximize the profitability.

* Effort should be made to place an order at

the right time with right source to acquire
the right quantity at the right price and
right quality.

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ABC Classification
A Items: very tight control,
complete and accurate records,
frequent review.
B Items: less tightly controlled,
good records, regular review.
C Items: simplest controls
possible, minimal records, large
inventories, periodic review and
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In most of the cases 10 to 20 % of the

inventory account for 70 to 80% of the
annual activity.

A typical manufacturing operation shows

that the top 15% of the line items, in terms
of annual rupees usage, represent 80% of
total annual rupees usage i.e. A items.

Next 15% of items reflect 15% of annual

rupees i.e. B items.

Next 70% accounts only for 5% usage i.e. C

items.
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Another recommended breakdown of ABC

classes:

"A" approximately 10% of items or 66.6%

of value.
2. "B" approximately 20% of items or 23.3%
of value.
3. "C" approximately 70% of items or 10.1%
of value.
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ADVANTAGES
ADVANTAGES
Helps to exercise selective control.
Gives rewarding results quickly.
Helps to point out obsolete stocks
easily.
In case of A items careful attention
can be paid at every step such as
estimate of requirements, purchase,
safety stock, receipts, inspections,
issues, etc. & close control is maintained.
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 In case of C items, recording &

follow up, etc. may be dispensed

with or combined.
Helps better planning of
inventory control.
Provides sound basis for
allocation of funds & human
resources.

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DISADVANTAGES
Proper standardization & codification of
inventory items needed.
Considers only money value of items &
neglects the importance of items for the
production process or assembly or
functioning.
Periodic review becomes difficult if only
ABC analysis is recalled.
When other important factors make it
obligatory to concentrate on C items

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ROUTE
1.)
2.)
3.)
4.)
5.)
6.)
7.)

INVENTORY
TYPES
ABC ANALYSIS
HML ANALYSIS
FSN ANALYSIS
SDE ANALYSIS
MAKE & BUY DECISION
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HML
The High, medium and Low (HML) classification
follows the same procedure as is adopted in
ABC classification.
Only difference is that in (HML) High, Medium
and low, the classification unit value is the
criterion and not the annual consumption
value.
The items of inventory should be listed in the
descending order of unit value and it is up to
the management to fix limits for three
categories.

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For example,
The management may decide:
All units with unit value of Rs. 2000 and
above will be H items,
Rs.1000 to 2000 will be M items
and less than Rs.1000 will be L items.

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The HML analysis is useful for:

* keeping control over consumption at
departmental levels,
* for deciding the frequency of physical
verification and
* for controlling purchases.

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OBJECTIVES OF HML ANALYSIS

* Determine the frequency of stock

verification.
* To keep control over the consumption at
the department level.
* To evolve buying policy, to control
purchase.
* To delegate the authority to different

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ROUTE
1.)
2.)
3.)
4.)
5.)
6.)
7.)

INVENTORY
TYPES
ABC ANALYSIS
HML ANALYSIS
FSN ANALYSIS
SDE ANALYSIS
MAKE & BUY DECISION
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FSN
* Based on the consumption pattern
to
combat obsolete items.
* Classification depends on the
pattern of issues from stores.
F Fast moving
S Slow moving
N Non Moving
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Date of receipt or last date of

issue, whichever is later, is taken
to determine the no. of months
which have lapsed since the last
transaction.
The items are usually grouped
in periods of 12 months.
It helps to avoid investments in
non moving or slow items.
It is also useful in facilitating
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For analysis, the issues of items in past two

or three years are considered.
If there are no issues of an item during the
period, it is N item.
Then up to certain limit, say 10-15 issues in
the period, the item is S item.
The items exceeding such limit of no. of
issues during the period are F items.
The period of consideration & the limiting
number of issues vary from organization to
organization..
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ROUTE
1.)
2.)
3.)
4.)
5.)
6.)
7.)

INVENTORY
TYPES
ABC ANALYSIS
HML ANALYSIS
FSN ANALYSIS
SDE ANALYSIS
MAKE & BUY DECISION
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SDE
The SDE analysis is based upon the
availability of items and is very useful in
the context of scarcity of supply.
* S refers to scarce items, generally
imported, and those which are in short
supply.
* D refers to difficult items, which are
available indigenously but are difficult
items to procure.
* E refers to items which are easy to
acquire and which are available in the
local markets.

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SCARCE
* These are generally short in supply or
are channelized through government
agencies.
* If the company feels that a lot of time as
well as expenditure is involved in
procuring these items, it would be
advisable for the company to procure
these items, say once a year.
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DIFFICULT
* These items are available indigenously, but
are difficult to procure.
* Difficult categorization also includes those
items which are procured from far off places
and whose suppliers cannot be relied upon.
* Sometimes it may happen that certain items
are difficult to manufacture and further, there
may be only one or two companies who
manufacture this item.

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EASY

* As the name suggests, these items are

easily and readily available.
* They include all those items that are
produced according to commercial
standards, items which are available to be
procured locally without any difficulty, etc.

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ROUTE
1.)
2.)
3.)
4.)
5.)
6.)
7.)

INVENTORY
TYPES
ABC ANALYSIS
HML ANALYSIS
FSN ANALYSIS
SDE ANALYSIS
MAKE & BUY DECISION
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Definition of Make-Or-Buy
Decision
oIt is the act of choosing between
manufacturing a product in-house or
purchasing it from an external supplier.

oIn a make-or-buy decision, the two most

important factors to consider are cost and
availability of production capacity.

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 Factors that may influence a firm's

decision to buy a part rather than
produce it internally includes:
-- lack of in-house expertise.
-- small volume requirements.
-- desire for multiple sourcing.
-- the fact that the item may not be
critical to its strategy.
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 Similarly, factors that may tilt a firm

towards making an item in-house
include :
o-- existing idle production capacity.
-- better quality control.
o-- proprietary technology that needs to
be protected.

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 If the decision is small in nature and has less

impact on the business, then even one person
can make the decision.
The person can consider the pros and cons
between making and buying and finally arrive at
a decision.

When it comes to larger and high impact

decisions, usually organizations follow a standard
method to arrive at a decision.

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This method can be divided into four main

stages as below :
Preparation.
Data collection.
Data analysis.
Feedback.

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8.) CONCLUSION
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 It is important to keep in mind there are

several different functions of inventory
management:
-- raw inventory, meaning the raw goods the
company must keep on hand for production;
-- work in progress inventory which includes any
of the goods that are in the production process;
and
-- finished goods inventory or the products that

Without
inventory
management it would be
are
ready to
ship to customers.
difficult for any company to maintain control and
be able to handle the needs of their customers.
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REFERENCES
http://www.southernfulfillment.com/articles/order
-fulfillment/inventorymanagement/the_importance_of_inventory_mana
gement
en.wikipedia.org/wiki/Inventory
www.barcodesinc.com Articles
www.investopedia.com/

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