Inventory Management By PERUMALSAMY M 16MF06

Definition Inventory management or Inventory Control is one of the techniques of Materials Management which helps the management to improve the productivity of capital by reducing the material costs, preventing the large amounts of capital being locked up for long periods, and improving the capital turn over ratio

Objectives Of Inventory Control To reduce investment in inventories and made effective use of capital investments. To avoid stock out and shortages. Wastages are avoided. Inventory management is essential to maintain a large size inventory for efficient and smooth production and also for sales operation.

Benefits of Inventory Control Ensures an adequate supply of materials Minimizes inventory costs Facilitates purchasing economies Eliminates duplication in ordering Better utilization of available stocks Provides a check against the loss of materials Facilitates cost accounting activities

To protect against stock-outs Enables management in cost comparison Locates & disposes inactive & obsolete store items Consistent & reliable basis for financial statements

Elements Of Inventory Management Raw materials Purchased parts In process products Component parts Tool, machinery and equipment

Classification Of Inventories Direct inventories Raw material inventories Work-in -process inventories Finished goods inventories Spare parts inventories Scrap or waste

Indirect Inventories Fluctuation Inventories Anticipation inventory Lot size inventory Transportation Inventories Decoupling inventories

Inventory Control Systems An inventory system controls the level of inventory by determining how much to order. 1.Continuous Inventory Systems 2. Periodic Inventory Systems

Continuous Inventory Systems Whenever the inventory on hand decreases to a predetermined level, referred to as the reorder point, a new order is placed to refill the stock of inventory A positive feature of a continuous system is that the inventory level is continuously monitored, so management always knows the inventory status. Continuous inventory systems often incorporate information technology tools to improve the speed and accuracy of data entry.

Periodic Inventory Systems In a periodic inventory system, the inventory on hand is counted at specific time intervals. After the inventory in stock is determined, an order is placed for an amount that will bring inventory back up to a desired level. Less direct control

Types Of Inventory Control ABC Analysis VED Analysis FSN Analysis XYZ Analysis SDE Analysis

ABC Analysis In this technique the materials are divided into 3 groups. A,B,C according to the cost of the materials and money value. A items - A few costly items come under this category these items require proper storage and handling, overstock is avoided. B items - These are neither costly nor cheap. C items - Cheaper in cost. It is also known as Selective Inventory Control Method (SIM).

Procedure for ABC Analysis Make the list of all items of inventory. Determine the annual volume of usage & money value of each item. Multiply each item’s annual volume by its rupee value. Compute each item’s percentage of the total inventory in terms of annual usage in rupees.

Select the top 10% of all items which have the highest rupee percentages & classify them as “A” items. Select the next 30% of all items with the next highest rupee percentages & designate them “B” items. The next 60% of all items with the lowest rupee percentages are “C” items.

ABC Classification  Class A 5 – 15 % of units 70 – 80 % of value  Class B 30 % of units 15 % of value  Class C 50 – 60 % of units 5 – 10 % of value

VED Analysis VITAL DRUGS – Such drugs are categorised as vital whose absence (no stock) cannot be tolerated even for a single day. That means in their absence the work of hospital patient care to come standstill. ESSENTIAL Drugs – These are the drugs without which a hospital can function but may affect the quality of service to some extent. DESIRABLE Drugs - These are the drugs whose absence will not affect the functioning of hospital patient care.

The motive of this system is to reduce investment in inventories. The drugs which are fast moving, ie which are in great demand should be stocked more than drugs slow moving demanded The drugs which are rarely demanded should be stocked in minimum quantity.

References Russell, Roberta S., and Bernard W. Taylor III. Operations Management. 4 rd Edition.