InventoryManagement .1 OVERVIEW Introduction ObjectivesOpposing Views of Inventory Nature of Inventory Factors Affecting Inventory Costs in Inventory Inventory Categories - Special Considerations InventoryManagement 20132 Overview (Contd) Departments of Inventory Management Functions of Inventory Selective Inventory Control Reorder Quantity Methods And EOQ Reorder Time Methods References InventoryManagement 3 InventoryManagement INTRODUCTION 4 INTRODUCTION Definition:Scientific method of finding out how much stockshouldbemaintainedinorderto meet the production demands and be able toproviderighttypeofmaterialatright time,inrightquantitiesandatcompetitive prices. InventoryManagement 5 Introduction (Contd) Inventoryisactuallymoney,whichis availableintheshapeofmaterials(raw materials,in-processandfinished products),equipment,storagespace, work-time etc. InputMaterial Managementdepartment Inventory (money) Goods in stores Work-in-progress Finished products Equipment etc. Output Production department Basic inventory model InventoryManagement 6 Introduction (Contd) Inventorycontrolisconcernedwith achievinganoptimumbalancebetween two competing objectives. 1) Minimizing the investment in inventory. 2) Maximizingtheservicelevelsto customersanditsoperating departments. InventoryManagement 7 InventoryManagement OBJECTIVES 8 OBJECTIVESThespecificobjectivesofinventory management are as follow: a) Utilizingofscareresources(capital)and investment judiciously. b) Keepingtheproductiononason-going basis. c) Preventingidlenessofmen,machine and morale. InventoryManagement . 9 Objectives (Contd)d)Avoiding risk of loss of life (moral & social). e)Reducing administrative workload. f) Giving satisfaction to customers in terms ofquality-care,competitivepriceand prompt delivery. g)Inducing confidence in customers and to create trust and faith. InventoryManagement 201310 Why We Want to Hold Inventories? Why We Do Not Want to Hold Inventories? OPPOSING VIEWS OF INVENTORY InventoryManagement 201311 Why We Want to Hold Inventories? Improve customer service. Reduce certain costs such as ordering costs stock out costs acquisition costs start-up quality costs Contributetotheefficientandeffective operation of the production system. InventoryManagement 2013 . 12 Why We Want to Hold Inventories? Finished Goods Essential in produce-to-stock positioning strategies Necessary in level aggregate capacity plans Products can be displayed to customers Work-in-Process Necessary in process-focused production May reduce material-handling & production costs Raw Material Suppliers may produce/ship materials in batches Quantity discounts and freight/handling, $$ savings InventoryManagement 201313 Certain costs increase such as carrying costs cost of customer responsiveness cost of coordinating production cost of diluted return on investment reduced-capacity costs large-lot quality cost cost of production problems Why We Do Not Want to Hold Inventories? InventoryManagement 201314 InventoryManagement NATURE OF INVENTORY 2013 . 15 NATURE OF INVENTORY Two Fundamental Inventory Decisions Independent Demand Inventory Systems Dependent Demand Inventory Systems Inventory Costs InventoryManagement 201316 Two Fundamental Inventory Decisions How much to order of each material? When to place the orders? InventoryManagement 2013 . 17 Independent Demand Inventory Systems Demandforanitemisindependentofthe demand for any other item in inventory. Finished goods inventory is an example. Demandsareestimatedfromforecasts and/or customer orders. InventoryManagement 2013.18 Dependent Demand Inventory Systems Demand of item depends on the demands for other items. Forexample,thedemandforraw materials and components. Thesystemsusedtomanagethese inventories are different. InventoryManagement 201319 Independent Demand A BC DE D F Dependent Demand Independent demand is uncertain. Dependent demand is certain. InventoryManagement 201320 Inventory Costs Costsassociatedwithorderingtoomuch (represented by carrying costs). Costsassociatedwithorderingtoolittle (represented by ordering costs). Thesecostsareopposingcosts,i.e.,as one increases the other decreases.InventoryManagement 2013.21 Inventory Costs (continued) Thesumofthetwocostsisthetotalstocking cost(TSC). When plotted against order quantity, the TSC decreasestoaminimumcostandthen increases. This cost behavior is the basis for answering the first fundamental question: how much to order. InventoryManagement 201322 Balancing Carrying against Ordering Costs 16Annual Cost ($) Annual Cost ($)Order Quantity Order QuantityMinimum MinimumTotal Annual Total AnnualStocking Costs Stocking CostsAnnual AnnualCarrying Costs Carrying CostsAnnual AnnualOrdering Costs Ordering CostsTotal Annual Total AnnualStocking Costs Stocking CostsSmaller Smaller Larger LargerLowerLowerHigherHigherEOQ EOQInventoryManagement 201323 InventoryManagement FACTORS AFFECTING INVENTORY 201324 Manufacturerequiresrelativelylongprocess cycle-time. Procurement of materials has a long lead-time. Demandforfinishedproductsissometimes seasonal and prone fluctuation. Materialcostsareaffectedbyfluctuationsin demandandsubsequentlybyfluctuationsin manufacturing. FACTORS INFLUENCING INVENTORY InventoryManagement 201325 InventoryManagement COSTS IN INVENTORY 2013.26 COSTS IN INVENTORY InventoryManagement Inventory costs may vary from 28 to 32% ofthetotalcost.Apartfrommaterial costs,severalothercostsarealso involved in inventory. These are given as below: Ordering Costs Holding Costs/ Carrying Costs Stock Out Costs 201327 Stationary Clerical and processing, salaries/rentals Postage Processing of bills Staff work in expedition /receiving/ inspection and documentation Ordering Costs InventoryManagement 201328 Holding/Carrying Costs Storage space (rent/depreciation) Property tax on warehousing Insurance Deterioration/Obsolescence Material handling and maintenance, equipment Stock taking, security and documentation Capital blocked (interest/opportunity cost) Quality control InventoryManagement 201329 Loss of business/ profit/ market/ advise Additional expenditure due to urgency of purchases a) telegraph / telephone charges b) purchase at premium c) air transport charges Loss of labor hours Stock out Costs InventoryManagement 201330 INVENTORY CATEGORIES SPECIAL CONSIDERATION InventoryManagement 201331 INVENTORY CATEGORIES SPECIAL CONSIDERATIONS Raw materials & purchased parts Partially completed goods calledwork in progress Finished-goods inventories (manufacturing firms)or merchandise(retail stores) InventoryManagement 201332 Replacement parts, tools, & supplies Goods-in-transit to warehouses or customers INVENTORY CATEGORIES SPECIAL CONSIDERATIONSInventoryManagement 201333 InventoryManagement Departments of Inventory Management 201334 FUNCTIONS OF INVENTORY InventoryManagement 201335 201336 FUNCTIONS OF INVENTORY To meet anticipated demand. To smoothen production requirements. To decouple operations. InventoryManagement SUPPLYPROCESS PRODUCTS DEMAND INVENTORY PRODUCTS DEMAND DEMAND PROCESS 2013.37 Functions Of Inventory (Contd) To protect against stock-outs. To take advantage of order cycles. To help hedge against price increases. To permit operations. To take advantage of quantity discounts. InventoryManagement 2013.38 InventoryManagement SELECTIVE INVENTORY CONTROL 201339 Selective Inventory Control is defined as a process of classifying items into different categories,therebydirectingappropriate attentiontothematerialsinthecontextof companys viability. SELECTIVE INVENTORY CONTROL InventoryManagement 2013.40 ClassificationCriteria A-B-CAnnual value of consumption of the items V-E-DCritical nature of the components with respect to products. H-M-LUnit price of material F-S-NIssue from stores S-D-EPurchasing problems in regard to availability S-O-SSeasonality G-O-L-FChannel for procuring the material X-Y-ZInventory value of items stored Classification of Materials forInventory Control 201341 ABC Classification System Classifyinginventoryaccordingtoannual value of consumption of the items. A - very important B - mod. important C - least important Annual$ value of items A B C High Low Few Many Number of Items InventoryManagement 201342 ABC Classification System (Contd) Whenalargenumberofitemsare involved, relatively few items account for a majorpartofactivity,basedonannual value of consumption of items. Itisbasedontheprinciplesofvitalfew and trivial many. InventoryManagement 201343 ABC Classification System (Contd) A-items:15%oftheitemsareofthe highest value and their inventory accounts for 70% of the total. B-items:20%oftheitemsareofthe intermediatevalueandtheirinventory accounts for 20% of the total. C-items : 65%(remaining) of the items are lowestvalueandtheirinventoryaccounts for the relatively small balance, i.e., 10%. InventoryManagement 201344 All items used in an industry are identified. All items are listed as per their value. Thenumberofitemsarecountedand categorizedashigh-,medium-andlow-value. Thepercentageofhigh-,medium-and low- valued items are determined. Procedure for classification InventoryManagement 2013.45 Inventory Counting Systems Periodic System Physical count of items made at periodic intervals. Perpetual Inventory SystemSystem that keeps track of removals from inventorycontinuously,thusmonitoring current levels of each item. InventoryManagement 2013.46 Inventory Counting Systems(Contd) Two-BinSystem-Twocontainersof inventory; reorder when the first is empty. Universal Bar Code - Bar codeprinted on a label that has information about the itemto which it is attached. 214800232087768 InventoryManagement 2013 . 47 InventoryManagement Pareto curve 201348 Based on the critical nature of items. Applicable to spare parts of equipment, as theydonotfollowapredictabledemand pattern. Very important in hospital pharmacy. V-E-D Classification InventoryManagement 2013.49 V-E-D Classification (Contd) V-Vital : Items without which theactivities will come to a halt. E-Essential : Items which are likely tocause disruption of thenormal activity. D-Desirable : Intheabsenceofwhichthe hospitalworkdoesnotget hampered. InventoryManagement 201350 H-M-L Classification Based on the unit value (in rupees) of items. Similar to A-B-C analysis H-High M-Medium L -Low InventoryManagement 201351 F-S-N Classification Takesintoaccountthedistributionand handling patterns of items from stores. Importantwhenobsolescenceistobe controlled. F Fast moving S Slow moving N Non moving InventoryManagement 201352 S-D-E Classification Basedonthelead-timeanalysisand availability. S Scarce: longer lead time D Difficult : long lead time E Easy: reasonable lead time InventoryManagement 201353 S-O-S Classification S-O-S :Seasonal- Off- Seasonal Someitemsareseasonalinnatureand hencerequirespecialpurchasingand stocking strategies. EOQformulacannotbeappliedinthese cases. Inventories at the time of procurement will be extremely high. InventoryManagement 2013 . 54 G-O-L-F Classification G-O-L-F stands for: G Government O Ordinary L Local F Foreign InventoryManagement 201355 X-Y-Z Classification Based on the value of inventory stored. Ifthevaluesarehigh,specialefforts should be made to reduce them. This exercise can be done once a year. InventoryManagement 201356 REORDERQUANTITY METHODS AND EOQ InventoryManagement 2013 . 57 Reorder Quantity Methods Reorder Quantity is the quantity of items to beorderedsoastocontinueproduction without any interruptions in the future. Someofthemethodsemployedinthe calculationofreorderquantityare described below: InventoryManagement 201358 Reorder Quantity Methods (Contd) Fixed Quantity System Open access bin system Two-bin system InventoryManagement 201359 . The reorder quantity is a fixed one. Time for order varies. Whenstockleveldropstoreorderlevel,then order is placed. Calculated using EOQ formula. Reorder level quantity (ROL or reorder point)= safety stock + (usage rate + lead-time) Fixed Quantity System InventoryManagement 2013.60 Bin is filled with items to maximum level. Openbinsarekeptatplacesnearertothe production lines. Operators use items without making a record. Items are replenished at fixed timings. This system is used for nuts and bolts. Eliminatesunnecessarypaperworkandsaves time. Open access bin system InventoryManagement 201361 Two bins are kept having items at different level. Whenfirstbinisexhausted,itindicates reorder. Secondbinisareservestockandused during lead-time period. Two-bin system InventoryManagement 201362 EOQ What is EOQ? EOQ = mathematical device for arriving at the purchase quantity of an item that will minimize the cost. total cost = holding costs + ordering costs InventoryManagement 201363 EOQ (Contd) SoWhat does that mean? Basically,EOQhelpsyouidentifythe mosteconomicalwaytoreplenishyour inventory by showing you the best order quantity. InventoryManagement 201364 EOQ System Behavior of Economic Order Quantity (EOQ) Systems Determining Order Quantities Determining Order Points InventoryManagement 201365 Behavior of EOQ Systems Asdemandfortheinventorieditem occurs, the inventory level drops. When the inventory level drops to a critical point, the order point, the ordering process is triggered. The amount ordered each time an order is placed is fixed or constant. InventoryManagement 2013.66 Behavior of EOQ Systems When the ordered quantity is received, the inventory level increases. Anapplicationofthistypesystemisthe two-bin system. Aperpetualinventoryaccountingsystem isusuallyassociatedwiththistypeof system. InventoryManagement 2013.67 Determining Order Quantities Basic EOQ EOQ for Production Lots EOQ with Quantity Discounts InventoryManagement 201368 Typical assumptions made Model I:Basic EOQ Only one product is involved. Annual demand requirements known. Demand is even throughout the year. Lead time does not vary. Each order is received in a single delivery. There are no quantity discounts. InventoryManagement 201369 Annualdemand(D),carryingcost(C)and ordering cost (S) can be estimated. Averageinventorylevelisthefixedorder quantity (Q) divided by 2 which implies no safety stock orders are received all at once Assumptions InventoryManagement 2013.70 Assumptions demand occurs at a uniform rate no inventory when an order arrives stock-out,customerresponsiveness,and other costs are inconsequential acquisitioncostisfixed,i.e.,noquantity discounts InventoryManagement 201371 Assumptions Annualcarryingcost=(averageinventory level) x (carrying cost) = (Q/2)C Annualorderingcost=(averagenumber ofordersperyear)x(orderingcost)= (D/Q)S InventoryManagement 201372 Total Cost Annual carrying cost Annual ordering cost Total cost=+ Q 2 HD Q S TC=+ InventoryManagement 201373 EOQ Equation Total annual stocking cost (TSC) = annual carryingcost+annualorderingcost= (Q/2)C + (D/Q)S TheorderquantitywheretheTSCisata minimum(EOQ)canbefoundusing calculus(takethefirstderivative,setit equal to zero and solve for Q) InventoryManagement 201374 How does it work? Total annual holding cost = (Q/2)H Total annual ordering cost = (D/Q)S EOQ: Set (Q/2)H = (D/Q)S and solve for Q InventoryManagement 201375 Solve for Q algebraically (Q/2)H = (D/Q)S Q2 = 2DS/H Q = square root of (2DS/H) = EOQ Q =2DSH=2( Annual Demand )(Order or Setup Cost )Annual Holding CostOPTInventoryManagement 2013KLE College of Pharmacy, Nipani.76 (optimal order quantity) Annual Cost Order Quantity(Q) Holding Costs The Total-Cost Curve is U-Shaped TCQHDQS = +2Ordering Costs Cost Minimization Goal InventoryManagement 201377 Minimum Total Cost Thetotalcostcurvereachesitsminimum wherethecarryingandorderingcostsare equal. InventoryManagement 2013.78 Definition of EOQ Components H = annual holding cost for one unit of inventory S = cost of placing an order, regardless of size P = price per unit d = demand per period D = annual demand L = lead time Q = Order quantity (this is what we are solving for) InventoryManagement 201379 Example:Basic EOQ ZartexCo.producesfertilizertosellto wholesalers.One raw material calcium nitrate ispurchasedfromanearbysupplierat$22.50 perton.Zartexestimatesitwillneed5,750,000 tons of calcium nitrate next year. The annual carrying cost for this material is 40% oftheacquisitioncost,andtheorderingcostis $595. InventoryManagement 201380 Example:Basic EOQ a) Whatisthemosteconomicalorder quantity? b) How many orders will be placed per year? c)Howmuchtimewillelapsebetween orders? InventoryManagement 2013KLE College of Pharmacy, Nipani.81 Example:Basic EOQ Economical Order Quantity (EOQ) D = 5,750,000 tons/year C = .40(22.50) = $9.00/ton/year S = $595/order =27,573.135tons per order EOQ =2DS/CEOQ =2(5,750,000)(595)/9.00InventoryManagement 201382 Example:Basic EOQ Total Annual Stocking Cost (TSC) TSC = (Q/2)C + (D/Q)S = (27,573.135/2)(9.00) + (5,750,000/27,573.135)(595) = 124,079.11 + 124,079.11 =$248,158.22 Note: Total Carrying Cost equals Total Ordering Cost InventoryManagement 2013KLE College of Pharmacy, Nipani.83 Example:Basic EOQ Number of Orders Per Year = D/Q= 5,750,000/27,573.135= 208.5 orders/year Time Between Orders = Q/D = 1/208.5 = .004796 years/order = .004796(365 days/year) = 1.75 days/order Note: This is the inverse of the formula above. InventoryManagement 201384 Model II:EOQ for Production Lots Usedtodeterminetheordersize, production lot. DiffersfromModelIbecauseordersare assumedtobesuppliedorproducedata uniform rate (p) rather than the order being received all at once. InventoryManagement 201385 Model II:EOQ for Production Lots Itisalsoassumedthatthesupplyrate,p,is greater than the demand rate, d Thechangeinmaximuminventorylevelrequires modification of the TSC equation TSC = (Q/2)[(p-d)/p]C + (D/Q)S The optimization results in ((

d ppCDS 2= EOQInventoryManagement 201386 Example:EOQ for Production Lots HighlandElectricCo.buyscoalfrom CedarCreekCoalCo.togenerate electricity.CCCCcansupplycoalatthe rateof3,500tonsperdayfor$10.50per ton.HECusesthecoalatarateof800 tonsperdayandoperates365daysper year. InventoryManagement 201387 Example:EOQ for Production Lots HECsannualcarryingcostforcoalis 20%oftheacquisitioncost,andthe ordering cost is $5,000. a) Whatistheeconomicalproductionlot size? b)WhatisHECsmaximuminventorylevel for coal? InventoryManagement 201388 Example:EOQ for Production Lots Economical Production Lot Size d = 800 tons/day;D = 365(800) = 292,000tons/year p = 3,500 tons/day S = $5,000/order., C = .20(10.50)= $2.10/ton/year =42,455.5tons per order EOQ =(2DS/C)[p/(p-d)]EOQ =2(292,000)(5,000)/2.10[3,500/(3,500-800)]InventoryManagement 201389 Example:EOQ for Production Lots Total Annual Stocking Cost (TSC) TSC = (Q/2)((p-d)/p)C + (D/Q)S = (42,455.5/2)((3,500-800)/3,500)(2.10) + (292,000/42,455.5)(5,000) = 34,388.95 + 34,388.95 = $68,777.90 Note: Total Carrying Cost equals Total Ordering Cost InventoryManagement 201390 Model III:EOQ with Quantity Discounts Lowerunitpriceonlargerquantities ordered. Thisispresentedasapriceordiscount schedule,i.e.,acertainunitpriceovera certain order quantity range ThismodeldiffersfromModelIbecause the acquisition cost (ac) may vary with the quantityordered,i.e.,itisnotnecessarily constant. InventoryManagement 201391 Model III:EOQ with Quantity Discounts Underthiscondition,acquisitioncost becomes an incremental cost and must be consideredinthedeterminationofthe EOQ Thetotalannualmaterialcosts(TMC)= Totalannualstockingcosts(TSC)+ annual acquisition cost TSC = (Q/2)C + (D/Q)S + (D)ac InventoryManagement 201392 Model III:EOQ with Quantity Discounts To find the EOQ, the following procedure is used: 1. Compute the EOQ using the lowest acquisition cost. IftheresultingEOQisfeasible(thequantitycan bepurchasedattheacquisitioncostused),this quantity is optimal and you are finished. If the resulting EOQ is not feasible, go to Step 2 2. Identify the next higher acquisition cost.InventoryManagement 201393 Model III:EOQ with Quantity Discounts 3. Compute the EOQ using the acquisition cost fromStep 2. If the resulting EOQ is feasible, go to Step 4. Otherwise, go to Step 2. 4.ComputetheTMCforthefeasibleEOQ(justfoundin Step 3) and its corresponding acquisition cost. 5. Compute the TMC for each of the lower acquisition costs using the minimum allowed order quantity for each cost. 6. The quantity with the lowest TMC is optimal. InventoryManagement 2013.94 Example:EOQ with Quantity Discounts A-1AutoPartshasaregionaltyrewarehousein Atlanta.Onepopulartyre,theXRX75,has estimated demand of 25,000 next year.It costs A-1 $100 to place an order for the tyres, and the annual carryingcostis30%oftheacquisitioncost.The supplier quotes these prices for the tire: Q ac 1 499 $21.60 500 999 20.95 1,000 +20.90 InventoryManagement 201395 Example:EOQ with Quantity Discounts Economical Order Quantity This quantity is not feasible, so try ac = $20.95 This quantity is feasible, so there is no reason to try ac = $21.60

i iEOQ=2DS/C3EOQ=2(25,000)100/(.3(20.90)= 893.002EOQ=2(25,000)100/(.3(20.95)= 891.93InventoryManagement 201396 Example:EOQ with Quantity Discounts Compare Total Annual Material Costs (TMCs) TMC = (Q/2)C + (D/Q)S + (D)ac Compute TMC for Q = 891.93 and ac = $20.95 TMC2 = (891.93/2)(.3)(20.95) +(25,000/891.93)100 + (25,000)20.95 = 2,802.89 + 2,802.91 + 523,750 = $529,355.80 InventoryManagement 201397 Example:EOQ with Quantity Discounts Compute TMC for Q = 1,000 and ac = $20.90 TMC3 = (1,000/2)(.3)(20.90) +(25,000/1,000)100 + (25,000)20.90 = 3,135.00 + 2,500.00 + 522,500 = $528,135.00(lower than TMC2)

The EOQ is 1,000 tyres at an acquisition cost of $20.90. InventoryManagement 201398 When to Reorder with EOQ Ordering ReorderPoint-Whenthequantityon handofanitemdropstothisamount,the item is reordered. Safety Stock - Stock that is held in excess ofexpecteddemandduetovariable demand rate and/or lead time. ServiceLevel-Probabilitythatdemand will not exceed supply during lead time. InventoryManagement 2013KLE College of Pharmacy, Nipani.99 Determinants of the Reorder Point The rate of demand The lead time Demand and/or lead time variability Stock-out risk (safety stock) InventoryManagement 2013100 Safety Stock LT Time Expected demand during lead time Maximum probable demand during lead time ROP Quantity Safety stock Safety stock reduces risk of Stock-out during lead time InventoryManagement 2013101 InventoryManagement REORDER TIME METHODS 2013102 InventoryManagement Reorder Point Methods Intuitive methods Systemic want-book system Fixed interval system S and S method (Variable interval and variable quantity) Single order and scheduled part delivery 2013103 InventoryManagement Reorder Point Methods Intuitive method -want-bookismaintainedwhereinitemsarerecorded. -whennumberofunitsinstockreachesto determined point order is placed. 2013KLE College of Pharmacy, Nipani.104 InventoryManagement Reorder Point Methods Systematic want-book system -Wantbookismaintainedforeachproduct andeach major wholesaler. -Acardisattachedtoeachproductwhich containsinformationregardingminimum quantities,maximumquantities,numberat which the order is to be placed. - Applicable to small pharmacies. 2013105 InventoryManagement Reorder Point Methods Fixed Interval System - Items are ordered at regular intervals - Quantity to be procured varies depending on the stock falling down from maximum stock level. Maximum stock level = safety stock + consumption rate(review period + lead-time) 2013106 InventoryManagement Reorder Point Methods S and S method - Here maximum stock and reorder levels are predetermined. - If the quantity is found to be less than the reorder level, order is placed. - Not a good system. 2013.107 InventoryManagement Reorder Point Methods Single order and scheduled part delivery -Annualrequirementsareincludedina singlecontractwithinstructionstodeliver in specified times. -Idealforitemswhichareusedinsmall quantities, but at regular rate of usage. 2013KLE College of Pharmacy, Nipani.108 InventoryManagement Mostcompaniesusestatisticalinventory or reorder point system. Basedonthepastdata,quantityand deliverydateareseparatelypredicted using statistics for each item. Statistical Inventory Control or Reorder Point 2013109 InventoryManagement Assumptions - Usage of the items is random. - Demand during lead-time is random. - Depletion of inventory is gradual. - Average inventory is equal to one-half ofthe order quantity. - Lead-time is pre-determined. ROP = reserve stock + anticipated demand during lead-time Reorder Point 2013KLE College of Pharmacy, Nipani.110 The Inventory Cycle Profile of Inventory Level Over Time Quantity on hand Q Receiveorder Place order Receive order Place order Receive order Lead time Reorder point Usagerate Time InventoryManagement Safety Stock 2013.111 InventoryManagement Predictsthequantityanddeliverydateforeach item separately. Applied where demand is independent. EXAMPLE:1,000kgofarawmaterialis consumedinFebruaryandfurtherthismaterial isnotneededuntilJune.Sincetheorderpoint systemdictatesimmediatereplenishment,a largeinventorymayresultthoughitisnotfor immediate use. Disadvantages of Statistical Inventory Control 2013KLE College of Pharmacy, Nipani.112 InventoryManagement Methods followed for production FIFO: First In First Out UndertheFIFOmethod,thecostsofitems sold in the current period are considered to be the earliest costs in inventory prior to the sale.

2013113 InventoryManagement RECENT TRENDS AGAINST INFLATION LIFO: Last In First Out 2013.114 InventoryManagement Study of deterministic models to understand the basics. Demand assumed to be stable and no possibility given to adapt the order size No consideration of unpredictable demand (stochastic models) Inventory Management often a political decision Cost estimation based on historical, average value. CONCLUSION 2013115 InventoryManagement 1) C.V.S.SUBRAMANYAM;PRODUCTION MANAGEMENTINPHARMACEUTICALPRODUCTIONANDMANAGEMENT,VALLABH PRAKASHAN, Pg No.292-312. 2) LEONLACHMAN,HERBERTLIEBERMAN,JOSEPH KANIG;INVENTORYMANAGEMENTINTHE THEORYANDPRACTISEOFINDUSTRIAL PHARMACY,3rdEDITION,VARGHESE PUBLICATION, Pg No. 747-759. 3) http://en.wikipedia.org/wiki/Inventory_management. REFERENCES 2013KLE College of Pharmacy, Nipani.116 InventoryManagement EVERYTHING IS DIFFICULT IF YOU CRY, EVERYTHING IS EASY IF YOU TRY. 2013117