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  • 8/6/2019 Inventory Management-nishi Kantr


  • 8/6/2019 Inventory Management-nishi Kantr




    Inventory is a list of goods and materials , or those goods and materials themselves, held

    available in stock by a business . Inventory are held in order to manage and hide from the

    customer the fact that manufacture/supply delay is longer than delivery delay, and also to

    ease the effect of imperfections in the manufacturing process that lower production

    efficiencies if production capacity stands idle for lack of materials.

    The reasons for keeping stock

    All these stock reasons can apply to any owner or product stage.

    Buffer stock is held in individual workstations against the possibility that the upstream

    workstation may be a little delayed in providing the next item for processing. Whilst some

    processes carry very large buffer stocks, Toyota moved to one (or a few items) and has now

    moved to eliminate this stock type.

    Safety stock is held against process or machine failure in the hope/belief that the failure can

    be repaired before the stock runs out. This type of stock can be eliminated by programmes

    like Total Productive Maintenance

    Overproduction is held because the forecast and the actual sales did not match. Making to

    order and JIT eliminates this stock type.

    Lot delay stock is held because a part of the process is designed to work on a batch basis

    whilst only processing items individually. Therefore each item of the lot must wait for the

    whole lot to be processed before moving to the next workstation. This can be eliminated by

    single piece working or a lot size of one.

  • 8/6/2019 Inventory Management-nishi Kantr


    Demand fluctuation stock is held where production capacity is unable to flex with demand.

    Therefore a stock is built in times of lower utilisation to be supplied to customers when

    demand exceeds production capacity. This can be eliminated by increasing the flexibility and

    capacity of a production line or reduced by moving to item level load balancing.

    Line balance stock is held because different sub-processes in a line work at different rates.

    Therefore stock will accumulate after a fast sub-process or before a large lot size sub-process.

    Line balancing will eliminate this stock type.

    Changeover stock is held after a sub-process that has a long setup or change-over time. This

    stock is then used while that change-over is happening. This stock can be eliminated by tools

    like SMED .

    Where these stocks contain the same or similar items it is often the work practice to hold all

    these stocks mixed together before or after the sub-process to which they relate. This 'reduces'

    costs. Because they are mixed-up together there is no visual reminder to operators of the

    adjacent sub-processes or line management of the stock which is due to a particular cause and

    should be a particular individual's responsibility with inevitable consequences. Some plants

    have centralized stock holding across sub-processes which makes the situation even more


    The basis of Inventory accounting

    Inventory needs to be accounted where it is held across accounting period boundaries since

    generally expenses should be matched against the results of that expense within the same

    period. When processes were simple and short then inventories were small but with more

    complex processes then inventories became larger and significant valued items on the balance

    sheet. This need to value unsold and incomplete goods has driven many new behaviours into

    management practise. Perhaps most significant of these are the complexities of fixed cost

    recovery, transfer pricing, and the separation of direct from indirect costs. This, supposedly,

    precluded "anticipating income" or "declaring dividends out of capital". It is one of the

    intangible benefits of Lean and the TPS that process times shorten and stock levels decline to

    the point where the importance of this activity is hugely reduced and therefore effort,

    especially managerial, to achieve it can be minimized.

  • 8/6/2019 Inventory Management-nishi Kantr



    To save the cost by efficient Inventory Management.

    Sub- Objective:

    What are the different types of Stocks

    How Supply Chain Management is helpful in managing the Inventory

    Roll of logistics department in Inventory Management

    How Inventory is different from Logistics


    To start with extensive study of Inventory Management literature and its various applications.

    The literature of Inventory Management sourced from magazines, eBooks, industry article

    and educational websites. Taking lead from literature review we look into depth to explore

    the possibility of its application in industries. Hereby we analyse its role, scope and its



  • 8/6/2019 Inventory Management-nishi Kantr


    Literature review:

    Traditionally, marketing, distribution, planning, manufacturing, and the purchasing

    organizations along the supply chain operated independently. These organizations have their

    own objectives and these are often conflicting.

    Marketing's objective of high customer service and maximum sales dollars conflict with

    manufacturing and distribution goals. Many manufacturing operations are designed tomaximize throughput and lower costs with little consideration for the impact on inventory

    levels and distribution capabilities. Purchasing contracts are often negotiated with very little

    information beyond historical buying patterns.

    The result of these factors is that there is not a single, integrated plan for the

    organization---there were as many plans as businesses. Clearly, there is a need for a

    mechanism through which these different functions can be integrated together. Supply chainmanagement is a strategy through which such integration can be achieved.

    Moreover, shortened product life cycles, increased competition, and heightened

    expectations of customers have forced many leading edge companies to move from physical

    logistic management towards more advanced supply chain management. Additionally, in

    recent years it has become clear that many companies have reduced their manufacturing costs

    as much as it is practically possible. Therefore, in many cases, the only possible way to

    further reduce costs and lead times is with effective supply chain management.

    In addition to cost reduction, the supply chain management approach also facilitates

    customer service improvements. It enables the management of:


    transportation systems and

    whole distribution networks


  • 8/6/2019 Inventory Management-nishi Kantr


    so that organizations are able to meet or even exceed their customers' expectations.


    A supply chain is a network of facilities and distribution options that performs the functions

    of procurement of materials, transformation of these materials into intermediate and finished

    products, and the distribution of these finished products to customers. Supply chains exist in

    both service and manufacturing organizations, although the complexity of the chain may vary

    greatly from industry to industry and firm to firm.

    Supply chain management is typically viewed to lie between fully vertically

    integrated firms, where the entire material flow is owned by a single firm and those where

    each channel member operates independently. Therefore coordination between the various

    players in the chain is key in its effective management. Cooper and Ellram [1993] compare

    supply chain management to a well-balanced and well-practiced relay team. Such a team is

    more competitive when each player knows how to be positioned for the hand-off. The

    relationships are the strongest between players who directly pass the baton (stick), but the

    entire team needs to make a coordinated effort to win the race.

    Below is an example of a very simple supply chain for a single product, where raw

    material is procured from vendors, transformed into finished goods in a single step, and then

    transported to distribution centers, and ultimately, customers. Realistic supply chains have

    multiple end products with shared components, facilities and capacities. The flow of

    materials is not always along an arborescent network, various modes of transportation may be

    considered, and the bill of materials for the end items may be both deep and large.


  • 8/6/2019 Inventory Management-nishi Kantr


    To simplify the concept, supply chain management can be defined as a loop: it starts

    with the customer and e

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