2DefinitionsInventory-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
3InventoryDef. - A physical resource that a firm holds in stock with the intent of selling it or transforming it into a more valuable state.Raw MaterialsWorks-in-ProcessFinished GoodsMaintenance, Repair and Operating (MRO)
4Inventory Positions in the Supply Chain RawMaterialsWorksinProcessFinishedGoodsFinishedGoodsin Field
5Nature of InventoryQuality - inventory can be a “buffer” against poor quality; conversely, low inventory levels may force high qualitySpeed - location of inventory has gigantic effect on speedFlexibility - location, level of anticipatory inventory both have effectsCost - direct: purchasing, delivery, manufacturingindirect: holding, stockout.HR systems may promote this-3 year postings
6ObjectivesTo maintain a large size of inventories of raw material and work in progress for efficient and smooth production & of finished goods for uninterrupted sales.To maintain a minimum investment in inventories to maximize profitability.
7Need To Hold Inventory: Transacation MotivePrecautionary MotiveSpeculative Motive
8Zero Inventory?Reducing amounts of raw materials and purchased parts and subassemblies by having suppliers deliver them directly.Reducing the amount of works-in process by using just-in-time production.Reducing the amount of finished goods by shipping to markets as soon as possible.
9Reasons for Inventories Improve customer serviceEconomies of purchasingEconomies of productionTransportation savingsHedge against futureUnplanned shocks (labor strikes, natural disasters, surges in demand, etc.)To maintain independence of supply chain
11Design of Inventory Mgmt. Systems: 1)ECONOMIC ORDER QUALITY (EOQ)EOQ minimizes the sum of holding and setup costs. It involves two types of costs:a)Ordering costsb)Carrying costs2)REORDER POINTThe reorder point is that inventory level at which an order should be placed to replenish the inventory.To determine the recorder point under certainity we should know:a)Lead timeb)Average usage
17Inventory control systems: ABC systemJIT systemOut sourcing systemComputerised systemResponse based system
18ABC inventory control systems A Items: very tight control, complete and accurate records, frequent reviewB Items: less tightly controlled, good records, regular reviewC Items: simplest controls possible, minimal records, large inventories, periodic review and reorder
19JIT (just in time) inventory control system In JIT system eliminates the necessity of carrying large inventories, & thus saves carrying & other related costs.This system requires perfect understanding & coordination b/w the manufactures and suppliers.The JIT system complements the TQM.
20OUTSOURCING inventory control system It is a system of buying parts and components from the outsides rather than manufacturing them internally.For eg. Tata motors
21COMPUTERISED inventory control system It enables a company to easily track large items of inventories. It is an automatic system of counting inventories, recording withdrawals and revising the balance.The information of the buyers and sellers are linked to each other.
22RESPONSED BASED inventory control System Replenishment, production, or purchases of stock are made only when it has been signaled that there is a need for product downstreamrequires shorter order cycle time, often more frequent, lower volume ordersdetermine stock requirements to meet only most immediate planning period (usually about 3 weeks)
23Objectives of Inventory Control system 1) Maximize the level of customer service by avoiding under stocking.2) Promote efficiency in production and purchasing by minimizing the cost of providing an adequate level of customer service.
24Anticipatory Inventory Control determine requirements by forecasting demand for the next production run or purchaseestablish current on-hand quantitiesadd appropriate safety stock based on desired stock availability levels and uncertainty demand levelsdetermine how much new production or purchase needed (total needed - on-hand)