MANAGEMENT CONCEPTS

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INVENTORY MANAGEMENT

Jobin JosephNo : 115

DEFINITION OF INVENTORY MANAGEMENT

Inventory is a list for goods and materials, or

those goods and materials themselves, held

available in stock by a business.

A stock of items held to meet future demand.

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INTRODUCTION

The meaning of inventory is stock of goods.

In accounting language it may include:

Raw material

They are required to carry out production activities

successively

Meaning of inventory

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Work-in-progress

It is a stage of stocks between raw material & finished goods.

Consumables

These are needed to smoothen the process of production

Finished goods

These are the goods which are ready for the consumers

Spares

Form a part of inventory

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PURPOSE/ BENEFITS OF HOLDING INVENTORIES

� Transaction Motive :- To facilitate Continuous

Production.

Speculative Motive :- For taking advantage of price fluctuations, saving in re-ordering costs and quantity discounts, etc.

Precaution Motive :- For meeting unpredictable changes in demand and supplies of materials

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INVENTORY MANAGEMENT

An efficient system of inventory management will determine.

What to purchase

How much to purchase

From where to purchase

Where to storeJobin Joseph

OBJECTIVES OF INVENTORY MANAGEMENT

To ensure continuous supply of raw material, spares and finished goods.

To avoid both over stocking and under stocking of inventory.

To maintain investments in inventories at optimum level.

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To eliminate duplications in orders.

To keep material cost under control.

To minimize losses through wastage and damages.

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Tools of inventory management

Stock Levels

Safety Stocks

Ordering System of Inventory

Determination of EOQ

ABC Analysis

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VED Analysis

Inventory Turnover Ratio

Aging Schedule of Inventories

Classification & Codification on Inventories

Inventory Reports

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Techniques of inventory management

Determination of stock level

Minimum level = reordering level-(normal consumption * normal reordering period )

Maximum level = reordering level+ reordering quantity + (minimum consumption * minimum reordering period )

Danger level = consumption * maximum reorder periodJobin Joseph

Cntd..

Determination safety stocks:

Safety stock is a barrier to meet some surprising increase in usage.

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TWO COST ARE INVOLVED IN DITERMINATION

1.Opportunity cost of stock outs

2.Carrying cost

Inventory Turn Over Ratio = Cost of good sold/Average inventry at cost

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Economic Order Quantity

EOQ is the size of the portion to be purchased which is economically viable

EOQ is made up of 2 parts

1. Ordering cost-These cost are associated with the purchasing or ordering of the material

2. Carrying cost- these are the cost for holding the inventories

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A-B-C ANALYSIS:

The materials are divided into three categories via, A, B&C

Group A

 

Under this almost 10% of the items contribute to70% of value of consumption.

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Group B

Under this category 20% of the items contribute about 20% of value of consumption.

Group C

Under this category about 70% of items of material contribute only 10% of value of consumption.

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VED ANALYSIS

The VED analysis is used generally for spare parts.

The requirements and urgency of spare parts is different from that of materials.

Spare parts are classified as vital(V),essential(E),desirable(D)

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INVENTORY REPORTS

The management is kept informed with the latest

stock position of different items by preparing

periodical inventory reports. On the basis of these

reports management takes corrective action

wherever necessary.

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THANK YOU

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