MIS in Inventory

Management
 CADETS
1) Tushar Mali
2) Pavan Borade
3) Sachin Patil
4) Hemant Patil
5) Abhijeet Patil
6)Pramod Kokane
7) Viroj Satvi
8) Ganesh Jaiswal
 What is MIS?
• Management Information Systems (MIS) is
the term given to the discipline focused
on the integration of computer systems
with the aims and objectives on an
organization.
• Provides information support for decision
making in the organization.
• MIS is an integrated system of man and
machine for providing the information to
support the operation .
• MIS is defined as a computer based
information system.
 Objective of MIS
• MIS combines tech with business to get
people the information they need to do their
jobs better/faster/smarter.
• An 'MIS' is a planned system of the
collecting, processing, storing and
disseminating data in the form of information
needed to carry out the functions of
management.
• MIS gives information to professionals work
as system analysts, project managers,
systems administrators, etc., communicating
directly with staff and management across
the organization.
 Inventory Mangement
• Inventories are idle resources
maintained in various forms
– Raw material
– Purchase & manufactured parts
– Sub asssemblies
– Finished products

• Inventories representing as sizable

investments in a logistic system.
 Types of Inventory

Work in
process

Vendors
Raw Work in FinishedCustomer
Materials process goods
Work in
process
 Five Categories of Stocks

1. Pipeline stock(in process stock)

• Only way to reduce that to design better method of
distribution.
• Design a pipeline system which are lesser lengths,
lesser diameter & then your inventory stored is smaller.
• Can be reduced by only design.

2. Cycle Stock
• Batch production owing to – economic of scale,
technological requirements
• Not consuming at same rate, so stock is accumulating.
 Contd…
3. Seasonal stocks
• Time varying requirements of an item
• Sugar factory – sugar cane is stored in
large quantity because in certain season it
is not available.
4. Safety stock
• Uncertainties in Supply and demand & in
lead time.
• Vendor require time to place order.
 Contd...
5. Stock held for other reasons
• Decoupling stages of production.
• Price, quantity & discounts.
• Speculation.
e.g. Trading of share
 Inventory related costs

1. Procurement cost

2. Costs associated with existence of

inventories- Holding cost

3. Costs associated with stock outs –

stock out cost
 Procurement Cost
• Consists of –cost of goods & ordering
cost of goods.
• Cost /Order generally fixed not depend
on ordering quantity.
• Also procurement cost includes-
1.Administrative cost
2.Handling cost
3.Transportation
4. Inspection of arrivals
 Holding Cost
• Situation occurs supply exceeds demand.
• It includes
1.storage and handling
2.Interest on tied up capitals
3.Property taxes
4.Insurance
5.Spoilage
6.Obsolescence
7.pilferage
 Shortage Costs
• Situation occurs when demand
exceeds supply
• It includes
1.Additional costs of special order
2.Backorder if possible
3.Loss of customer goodwill
4.Lost sales
Selective Inventory controls
• In large number there are
significant few
insignificant many PARETO’S LAW
• Typical organization deal with large no.
of items .
• Maruti Udyog no. of item easily goes to
30000, Booing no. of spare parts turn
into billion.
 Depending Upon Rankings
1. Value (Annual demand & unit price)
ABC Analysis (Always Better Control)
depending upon the cost of item.
2. Criticality(Vital, Essential, Desirable )
Not very expensive item but vital item
e.g. item of few cost vital in engine assembly
3.Usage frequency(FSN Analysis)
Fast moving, Slow moving & Not moving items
categorization is done.
 ABC Analysis
Item no. Avg. no of units in Avg. cost per
Inventory unit(Rs)
1 20000 60.80
2 10000 102.40
3 32000 11.00
4 28000 10.28
5 60000 3.40
6 30000 3.00
7 20000 1.3
 Implementation
Item Units % of total Unit Total cost % of total
cost(Rs) (Rs)
(1) (2) (3) (4) (5) (6)
1 20000 10 60.80 1216000 38.00
2 10000 5 102.40 1024000 32.00
3 32000 16 11.00 352000 11.00
4 28000 14 10.28 288000 9.00
5 60000 30 3.40 204000 6.38
6 30000 15 3.00 90000 2.80
7 20000 10 1.30 26000 0.82
Total 200000 100 3200000 100
 EOQ
• Economic order quantity defined as that
level of inventory order that minimizes
the total cost associated with inventory
management.
• EOQ= Sqrt of (2AB/C)
where A= annual usage of inventory.
B=Buying cost per order.
C=carrying cost per order.
 EOQ Inventory Order Cycle
Demand
Order qty, Q
rate
Inventory
Level

ave = Q/2

Reorder point, R

0 Lead Lead Time

time time
As Q increases, average Order Order Order Order
inventory level
increases, but number of Placed Received Placed Received
orders placed decreases
 Reorder
• Reorder point define as the level of inventory
when fresh order should be placed with the
supplier.
• Reorder point=
Lead time in days x avg. daily usage of inventory.
• Lead time is time normally taken in receiving
delivery after placing orders with suppliers.
Total Cost of Inventory – EOQ
Model
 Saftey Stock
• Saftey stock implies extra inventories
that can be drawn down when actual
lead time or usage rates are greater
than expected.
• Saftey stock involves two types of costs
1.Stock out cost
2.Carrying cost
 Water Tank Analogy for
Inventory

Inventory Level
Supply Rate

Inventory Level

Demand Rate
 Independent and Dependent
Demand Inventory
• Independent demand
– items demanded by external customers
(Kitchen Tables)
• Dependent demand
– items used to produce final products
(table top, legs, hardware, paint, etc.)
– Demand determined once we know the
type and number of final products
 Independent vs. Dependent
Demand

Independent Demand
(finished goods and spare parts)

A Dependent Demand
(components)

B(4) C(2)

D(2) E(1) D(3) F(2)

 Objective of Inventory
Management System
An inventory management system consists of a set of
rules & procedures that allow
• For routine decision on when & how much to order of each
item needed in the manufacture or procurement process.
• Which call attention to the non routine situation the rule
do not cover &
• Which provide managers with the necessary information
to make this decisions effectively.
 Contd..
• The objective of a well designed
procedure should be the
minimization of the cost incurred in
the inventory system, attaining at
the same time the customer service
level specified by the company
policy.
 Inventory Management
Systems
• Basic subsystems or modules
I. Transactions & file management
module
II.Decision rules module
III.System integrated module
IV.System management interaction &
evaluation module
 Transactions & file
management module
• Book keeping of inventory control
-Entry, auditing, control & processing of
Inventory transactions
• Necessity
1.Available stock (on hand & on order)
2.Customer order status
3.Cost of items
4.Delivery lead times
5.Source of acquisition
6.Ordering restrictions
• Development- mainly the area of data processing
 Decision rules module

• This is concerned with the fundamental components of

inventory planning & control procedures aimed at
answering when & how much to order of each item to
maintain inventories at the right level.
• A forward looking system should includes forecasting
capabilities saftey stocks (to account for unavoidable
accuracies) decision rules are needed to gurantee some
desired level of customer service.
 Contd..
• A class item - Use EOQ & continuous
monitoring.
• B class item – Order in lots of 3 months
demand of stock at hand is less
than ROP.
• C class item – Order in lots of 6 months
demand if stock on hand is less
than ROP.
 System integrated module

• Decision Rules –Distinct inventory policies

• The various items being controlled
depending on their inherent characteristics
require specific degree of management
attention & service levels that can be
achieved by using some appropriate stock
policy.
 System management
interaction & evaluation
module
• Intended to provide management
with such information as to permit
evaluation
• Evaluation of operating performance
• Identify problem areas
• Allow for management selection of
policy variables (System Parameters)
 Conclusion
• Inventory is necessary evil.
• Nature of inventory related costs.
• Principles of selective inventory management .
• Ordering rules & reorder point determination.
• Policy implication of selective inventory
management.
• Featured computerized inventory management.
• Relevance independent vs dependent demand
system.