1 Inventory Control & Introduction to SCM Pradip Singh Assistant Professor AITM Varanasi

What Is Inventory? Stock of items kept to meet future demand Inventory control is the process of maintaining sufficient inventory level to meet customer needs, keeping in mind the cost of carrying inventory to determine an appropriate inventory level.

Objectives of Inventory Control Services to customers Continuity of productive operations Effective use of capital Economy in buying Reduction of risk of loss Allow flexibility Reduction in surplus stock

Types of Inventory Direct Inventories:- Raw materials Work-in-process (partially completed) products (WIP) Finished goods Indirect Inventories Maintenance, repair and Operating Inventories

Holding, Ordering, and Setup Costs  Holding costs - the costs of holding or “carrying” inventory over time  Ordering costs - the costs of placing an order and receiving goods  Setup costs - cost to prepare a machine or process for manufacturing an order  Stock out Cost- The cost that is associated with the loss of demand when the stocks have been depleted.

Basic EOQ Model 1.Demand is known, constant, and independent 2.Lead time is known and constant 3.Receipt of inventory is instantaneous and complete 4.Quantity discounts are not possible 5.Only variable costs are setup and holding 6.Stock outs can be completely avoided Important assumptions

Functions of Inventory 1.To decouple or separate various parts of the production process 2.To decouple the firm from fluctuations in demand and provide a stock of goods that will provide a selection for customers 3.To take advantage of quantity discounts 4.To hedge against inflation

The Material Flow Cycle InputWait forWait toMoveWait in queueSetupRunOutput inspectionbe movedtimefor operatortimetime Cycle time 95%5%

Inventory Management  How inventory items can be classified  How accurate inventory records can be maintained

ABC Analysis  Divides inventory into three classes based on annual rupee volume  Class A - high annual rupee volume  Class B - medium annual rupee volume  Class C - low annual rupee volume  Used to establish policies that focus on the few critical parts and not the many trivial ones

ABC Analysis A Items B Items C Items Percent of annual rupee usage – – – – – – – – 0 0 – |||||||||| Percent of inventory items

What is SCM? Supply chain management (SCM) is the process of planning, implementing, and controlling the operations of the supply chain with the purpose to satisfy customer requirements as efficiently as possible. 12

Definition…  The term supply chain management was coined by consultant Keith Oliver, of strategy consulting firm Booz Allen Hamilton in  In essence, Supply Chain Management integrates supply and demand management within and across companies.  Supply chain management and logistics, are used interchangeably  Supply chain management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-origin to point-of-consumption. 13

14 3 Major Flows in Supply Chain  Goods flow  Get materials from suppliers  Distribute products to retailers & customers  Information flow  Order information: Price & Quantity  Money flow  Get money from customers  Pay money to suppliers 14

What Is Supply Chain Management? 15

16 Main links of supply chain 16

17 Supply Chain Decisions  Production -  what? When? Where?  Inventory -  how much?  Location –  Where should manufacturing, distributions facilities be located?  Transportation –  How will we get goods from “A” to “B”? 17

18 Linear Supply Chain Communication 18

19 Why SCM? 19

20 Benefits of SCM Faster responses to supply and demand changes Increased customer satisfaction Regulatory compliance Improved cash flow Higher margins 20

Thank You