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All the materials , parts, suppliers, expenses and in process or finished products recorded on the books by an organization and kept in its stocks, warehouses or plant for some period of time.

Type of Inventory Reason for holding the Inventory

(1) Raw materials

To reap the price advantage available on seasonal raw materials.

(2) Work in progress To balance the production flow.

(3) Ready made components When the components are bought rather than made.

(4) Scraps They are disposal of in bulk.

(5) Finished Goods Lying in stock rooms and waiting dispatches

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Protection against fluctuations in demand; Better use of men, machines and material; Protection against fluctuations in output; Control of stock volume; Control of stock distribution.

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Planning the inventories; Procurement of inventories; Receiving and inspection of inventories; Storing and issuing the inventories; Recording the receipt and issues of

inventories. Physical verification of inventories; Follow-up function ; Material standardization and substitution.

Executive decide two basic issues while dealing with inventories; (a) How much of an item to order when the inventory of that item is to be replenished. (b) When to replenish the inventory of that item. By definition, inventory facilitate production or satisfy customer demands. Inventory system is a set of policies and controls which monitors and determines the levels of inventory. Inventory conventionally include raw materials, work-in-progress, components parts, supplies and finished goods. Operations is a transformation process in which the inputs are raw materials and output is the finished goods.

Suppliers Raw materials Finished good.

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Production Work-in-progress

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Inventory levelSupply rate Deman

d rate

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Deciding the maximum- minimum limits of inventory;

Determination of Reorder point; Determination of reorder quantity; Perpetual inventory control; ABC analysis; Method of control through turn over.

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Quantity of inventory above which should not be allowed to be kept. This quantity is fixed keeping in view the disadvantages of overstocking;

Factors to be considered: Amount of capital available. Godown space available. Possibility of loss.

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Cost of maintaining stores; Likely fluctuation in prices; Seasonal nature of supply of material; Restriction imposed by Govt.; Possibility of change in fashion and habit.

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This represents the quantity below which stocks should not be allowed to fall .

The level is fixed for all items of stores and the following factors are taken into account:

1.Lead time- 2. Rate of consumption of the material during

the lead time.

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It is the point at which if stock of the material in store approaches, the store keeper should initiate the purchase requisition for fresh supply of material.

This level is fixed some where between maximum and minimum level.

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It is also known as standard order quantity , optimum quantity or economic lot size.

By definition economic order quantity is that size of order for which the total cost is minimum.

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It is efficient control of stores requires greater in case of costlier items.

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Item Item Quality Quality Quantity orderQuantity order Checking Checking

AA CostlierCostlier LessLess Regular system to see Regular system to see that there is no that there is no overstocking as well as overstocking as well as that there is no danger that there is no danger of production being of production being interrupted for interrupted for unwanted material. unwanted material.

BB Less costlier Less costlier Order may be on Order may be on review basis. review basis.

Position being viewed Position being viewed in each monthin each month

CC Economical Economical Larger Larger Order in large quantity Order in large quantity so that cost can be so that cost can be avoidedavoided

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Stores ledger, stores control, cards or bin cards are properly maintained ;

Quantity balance store shown in the store ledger; stock control and bin cards are reconciled;

Exploring the cause of discrepancies if any physical balances and book balances.

Economic order quantity (EOQ) is the order quantity of inventory that minimizes the total cost of inventory management.

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ASSUMPTIONS:- ASSUMPTIONS:-

Deterministic demand;Replenishment rate is finite;Consumption rate is constant;Lead time is constant;No shortage is allowed;There is no discount on bulk purchase; 

LEAD TIME – It is time period between placement of order and delivery of order.

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Data required to make calculations are –

RC (Reorder Cost)HC (Holding Cost)D (Demand)P (Procurement Rate)UC (Unit Cost)

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Sr.No.

Drugs UC (Rs)

Quantity

D HC (Rs)

RC (Rs)

P

1 50% Dextrose 30.60 500 ml 240

600 6808.8

500

2 Chlorpheniramine

60.00 1 Tab 60 600 3460.8

150

3 Paracetamol 04.00 1 Tab 480

600 1776.0

1000

4 Ranitidine 29.00 1 Tab 180

600 4921.2

450

5 Soframycin 23.64 30gm 120

600 2640.0

300

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Sr.No

Drug Qo To VCo TCo

1 50% Dextrose 103 1.693 31932.066 39276.066

2 Chlorpheniramine 34 1.728 12217.868 15817.868

3 Paracetamol 74 1.497 23030.461 24870.461

4 Ranitidine 71 1.591 25235.001 30455.001

5 Soframycin 42 1.560 20433.581 23270.381

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At Economic Order Condition the shopkeeper must order 103 units of 50% Dextrose Solution, 34 units of Chlorpheniramine, 74 units of Paracetamol, 71 units of Ranitidine and 42 units of Soframycin. So that it would fulfill the demand of customer’s and successfully maintain its inventory.

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It means how many times a company’s inventory is sold and replaced (finished product)

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Inventory ratio (Raw material)-

The value of material consumed during a period

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Average value of inventory during that period

High ratio = fast moving stock

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