Inventory Management System

Presented By:Dipankar Pandey Rameshwar Srivastava

Objective of Inventory Management

To maintain a optimum size of inventory for efficient and

smooth production and sales operations

To maintain 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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Definitions
Inventory-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- 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 orders should be

Nature of Inventories
Raw Materials Work-in-progress Finished Goods Supplies

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Reasons To Hold Inventory

Meet variations in customer demand.

Pricing related.
Process & supply surprises.
Internal External

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An effective inventory management should

Ensure a continuous supply of raw materials to facilitate

uninterrupted production Maintain sufficient stocks of raw materials in periods of short supply and anticipate price changes Maintain sufficient finished goods inventory for smooth sales operation, and efficient customer service Minimize the carrying cost and time Control investment in inventories and keep it at an optimum level

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An optimum inventory level involves three types of costs

Ordering costs: Quotation or tendering Requisitioning Order placing Transportation Receiving, inspecting and storing Quality control Clerical and staff Stock-out cost Loss of sale Failure to meet delivery commitments
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Carrying costs: Warehousing or storage Handling Clerical and staff Insurance Interest Deterioration,shrinkage, evaporation and obsolescence Taxes Cost of capital

Dangers of Over investment

Unnecessary tie-up of firms fund and loss of profit

involves opportunity cost Excessive carrying cost Risk of liquidity- difficult to convert into cash Physical deterioration of inventories while in storage due to mishandling and improper storage facilities

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Functions of Inventory Management

-Track inventory How much to order When to order

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Classification of inventory
ABC Classification
HML Classification XYZ Classification

VED Classification
FSN Classification SDF Classification GOLF Classification SOS Classification

Basic EOQ Model

Assumption Seasonal fluctuation in demand are ruled out Zero lead time Time lapsed between purchase order and inventory usage Cost of placing an order and receiving are same and independent of the units ordered Annual cost of carrying the inventory is constant Total inventory cost = Ordering cost + carrying cost

EOQ Three Approaches

Trial and Error method Order-formula approach Graphical approach

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EOQ & Re-order point

EOQ gives answer to question

How much to Order Re-order point gives answer to question when to order
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Extension of basic EOQ model

This model can be extended to include quantity

discounts, were simple calculation for quantity discount is added.

Non zero lead time time Non zero lead

Extension of basic EOQ model

Non zero lead time If the lead time is n then procurement must be

done prior to n days, i.e. T-n as shown in the figure

Inventory management under uncertainty

Option price model. 2. Risk adjusted discount cash flow (DFC) Model 3. Dynamic inventory model
1.

Emerging trends in inventory management

Entering into log term contract at a fixed price to

reduce uncertainties Just-in-time Kanbans Japanese technique (Only produce when demand comes) Internet based ordering system Supply chain management Vendor development Investment in plant and machinery

THANK YOU