What is inventory? 3 categories of Inventory *raw material *work-in-progress *finished goods significance of inventory management? Just In Time Concept (JIT) objectives of inventory management 2 objectives categories *Operating objectives: *Financial obectives Holding excess inventory lead to the ff. consequences Factors affecting the level of inventory 1. Nature of business 2. Inventory turnover 3. Nature of type product 4. Economies of Production 5. Inventory Costs 6. Financial Position 7. Period of operating cycle 8. Attitude of Management Inventory Control it is a stock pile of the product a firm is offering for sale and the components that make up the product unfinished items which go in the production process semi-finished goods which are not 100% finished but some work is done goods which are 100% done and ready for sale it is esential in every organization to ensure smooth running of the production process, to reduce the ordering cost of inventory, to avoid opportunity los on sales, to reduce the overall price inventory strategy companies employ to increase efficiency and decrease waste by receiving goods only as they are needed in the production process to maintain inventory at an appropriate level to avoid excess or shortage of inventory related to operatng activities of the business (purchase, sales, production) -to ensure better customer service -avoiding of stock out danger -to minimize risks and losses incurred due to shortage of inventory -to minimize inventory costs -economy in purchase loss of liquidity increase in holding costs deterioration in inventory NB, IT, NTP, EP, IC, FP, POC,AM level of inventory will depend upon the nature of business (retail, wholesale, manufacturing, trading etc. ) amount of inventory which gets sold and the frequency of its sale product sold by the bus. may be perishable or a durable product scale on which production is done also affects of inventory held more amout of inventory is held, more will be the operating cost of holding inventory credit terms of the supplier is rigid and credit period is very short. Then accdg to the financial situation of the business, the invetory has to be held. if the operating cycle is long, then the money realization from the sale of inventory will also take a long duration attitude and philosophy of top management may support zero inventory concept or believe in maintaining huge inventory level process of ensuring that appropriate amount of stock are maintained by a business 2 techniques: MODERN AND TRADITIONAL 2 techniques: MODERN AND TRADITIONAL *Modern Technique a. EOQ (Economic Order Quantity) b. Re-order Point -Lead Time -Usage Rate -Safety Stock Formulae: c. Fixing Stock Level- techniques which are evolved through a scientific process optimal size of an order for replenishing an inventory -formula method: total cost= purchasecost + carrying cost + order cost -graphic method: intersection point at w/c the inventory carrying cost and the ordering cost meet is EOQ that level of inventory at which an order should be placed for replenishing the current stock of inventory time gap between placing the order and actually received the order rate of consumption of raw material per day Usage Rate= Total Annual Consumption ÷ No. of Days in a year minimum quantity of inventory Re-order Point= Maximum Usage x Maximum Re-order Period Safety Stock= usage Rate x days of safety necessary to avoid increased cost on account of high inventory levels Maximum and Minimum levels are fixed -availability of ample storage space -re-order level -average rate of consumption of material * Danger level- level below minimum stock level -easy and quick sources of supply -causes for failure of regular supplies d. selective inventory control ABC Analysis VED Analysis SDE Analysis FSN Analysis Traditional Techniquea. Inventory control ratiosb. two bin system- c. perpetual inventory system- inventories are analyzed with respect to their value. 3 categories are created namely A, B, and C Vital, Essential & Desirable. Highest control= vital items, medium control= essential items, Least control= Desirable Scarce, Difficult & Easy. HC= Scarce items, MC= Difficult items, LC= Easy items Fast Moving, Slow moving, non moving. HC= fast moving items, mc= slow moving items, lc= non moving items techniques which are prevalent before the evolution of the modern techniques -derived with the working practice and are based on experience ratios related to inventory are calculated and further used as a measure of control Stock turnover= cost of goods sold ÷ average stock all the inventory items are restored in 2 separate bins -first bin, a sufficient amount of inventory is kept to meet the current requirement over a designated period of time -2nd bin, a safety stock is maintained for use during lead time method of recording stores balance after each receipt and each issue to facilitate regular checking of inventory bin cards d. periodic order systemUnit 2 inventory cost ABC Analysis purpose of ABC analysis *directly or indirectly purpose The Pareto Principle *attaching bin cards with bins *continuous stock taking to compare the actual stock cards attached to every bin in which the details regarding the quantity of material received, issued and balance left I that bin is recorded hand to hand. stock levels of all types of inventories held, are reviewed after a fixed time interval cost associated with the inventory including the purchase cost,ordering cost and the holding cost used to define an inventory categorization method used in materials management to exercise selective inventory control. *classification is based on their cost hc and costly items= A, moderate control= B, lc= C provide basis for material management processes and helps to define how stock is to be managed Significant reduction in investment in inventory. Protection against stock outs. Increase in profits. critical few is separated from the trivial many. also known as the 80/20 rule. It says that 20% of the impactful items should fall into ‘A’ classification category and accordingly the other categories may be determined. Criteria for ABC classification "A" Category "B" Category "C" Category Steps for Classification of Items -items generally represent approximately 15%-20% of an overall inventory by quantity, but represent 80% of the value of an inventory. -high value items and are extremely important. -Very strict control is kept -Accurate records need to be maintained -items represent 30%-35% of inventory items by item type, and about 15% of the value. -intermediary value items -generally be managed through period inventory and should be managed with a formal inventory system. -Proper records should be maintained -items represent 50% of actual items but only 5% of the inventory value. -low value items and are marginally important -organizations can afford a relatively relaxed inventory process surrounding these -Minimum possible records should be maintained in the simplest form Identify the objective for ABC analysis. Collect data related to the inventory under analysis Rank the inventory in decreasing order of their cost. Calculate the cumulative impact for all inventory items Draw a curve of percentage items and percentage value. Mark the limits bifurcating the three classes as A, B and C rationally. Applications of ABC Analysis **** Difference bet. A, B, and C -highlights specific items on which efforts can be concentrated profitably -provides a sound basis on which the allocation of funds and time is done -helps in identifying the inventory items for potential consignment or vendor stocking. ABC analysis suggests that inventories of an organization are not of equal value and so different policies and treatment should be given in order to minimize the efforts and time as well as maximize the profits through savings in cost. Unit 3 Logistics Logistics Management objectives of logistic management 7 R’s of logistics (Pr.Cu.Q.Co.Pl.T.Cos) activities under logistic management (i) Network Design ND (ii) Order Processing OP (iii) Procurement Pr (iv) Material Handling MH (v) Inventory Management IM (vi) Packaging and Labelling PL (vii) Warehousing (viii) Transportation Types of Logistics *Inbound Logistics *outbound Logistics different types of logistics a. Business Logistics Wh Tr management of the flow of things between the point of origin and the point of consumption in order to meet requirements of customers or corporations. part of supply chain management that plans, implements, and controls the efficient, effective forward,and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customer's requirements. -provide the right product with the right quality at the right time in the right place at the right price to the ultimate customer. - offer best service to the consumers. -reduce the cost of operations and maximize the profits. -maintain transparency in operations. Right Product, Right Customer, Right Quantity, Right Condition, Right Place, Right Time, Right Cost required to determine the number and location of manufacturing plants, warehouses, material handling equipment’s etc. on which logistical efficiency depends. processing includes activities for receiving, handling and recording of orders. related to obtaining materials from suppliers. support manufacturing, by providing timely supplies of qualitative materials, at the lowest possible cost. involves activities such as handling raw-materials, parts, semi-finished and finished goods into and out of the manufacturing plant, warehouses and transportation terminals. involves enclosing a product into suitable packets or containers, for convenient handling of the product. putting identification marks on the package of the product creates time utility by storing goods from the time of production till the time they reaches to the ultimate consumers. logistical activity which creates place utility refers to movement of goods and raw materials from suppliers to the company (procurement of material, handling, storage and transportation) movement of finished goods from your company to customers. (concerned with the collection, maintenance, and distribution or delivery to the final consumer) part of the supply chain process that plans, implements and controls the efficient flow b. Military Logistics c. Event Logistics d. Service Logistics e. International logistics: f. 3PL or Third Party Logistics g. 4PL or Fourth Party Logistics Supply Chain Supply Chain Management and storage of goods and services from point of origin to point of use or consumption. design and integration of all aspects of support for the operational capability of the military forces as well as the reliability and efficiency of the equipments used by them. network of activities, facilities and personnel required to organize, schedule and deploy the resources for an event are referred as event logistics. activities related to acquisition, scheduling and management of the facilities, personnel and material with the objective to support and sustain a service operation or business are termed as service logistics. known as Global Logistics, focuses on how to manage and control overseas activities effectively as a single business unit. refers to the outsourcing of logistics activities, ranging from a specific task to broader activities serving the whole supply chain such as inventory management, order processing and consulting. concept proposed by Accenture Ltd in 1996. party who works on behalf of client to finalise the contract negotiations and management of performance of 3PL providers including the design of the whole supply chain network and controlling the routine operations performed by them. network of all the individuals, organizations,resources, activities and technology involved in the creation and sale of a product, from the delivery of source materials from the supplier to the manufacturer,through to its eventual delivery to the end user. series of interconnected activities related to the transformation and movement of raw material to the finished goods till it reaches to the end user.
