inventory control techniques
DESCRIPTION
TRANSCRIPT
INVENTORY CONTROL
TECHNIQUES……..
INVENTORY CONTROL TECHNIQUES :OPERATIONAL ASPECT OPERATIONAL ASPECT OF THE INVENTORY MGTOF THE INVENTORY MGT
REALISE THE OBJECTIVE REALISE THE OBJECTIVE OF INVENTORY MGT OF INVENTORY MGT &CONTROL.&CONTROL.
ALL DEPENDS ON THE
CONVIENIENCE OF THE FIRM TO
ADOPT ANY OF
THE TECHNIQUES
Most commonly used techniques………
ABC ANALYSIS…….….. ALWAYS bETTER CONTROL.ALSO KNOWN AS PVA( ( AND SIM
TECHNIQUE(SELECTIVE INVENTORY CONTROL)DIVIDES INVENTORY INTO THREE
CATEGORIES-A,B AND C ……ON THE BASIS OF THEIR ANNUAL CONSUMPTION VALUE….!!!
objective= is to vary expenses associated with mantaining appropriate control.
THIS IDEA HAS DRWAN FROM VILFREDO PARETO ,an italian economist…
it categorises the inventory into a,b,c classes
acc to the potential amount to be control.After classifieng…..
the firm decide where to put efforts.. mainly strong control on a items.
Moderate control on B ITEMSLOOSE CONTROL ON C ITEMS.
Procedure for abc analysis:
1. List each invenotry item with number 2. Determine the annual volume of usage
and rupee value of usage.3. Multiply each item of annual volume
usage with rupee volume,4. Calculate each item’s percentatge of
total inventory on terms of the usage.5. Categorize===== “A “ to 10% of all
ites with high %6. “B”20% of all items with high %7. “c” rest of all 70% of all the items
Example:Inventory item
Annual use (iin rs
% of total inventory usage
classification
1 3000 1.33
2 4000 1.77
3 6000 2.66
4 2000 0.88
5 10,000 4.44 B
6 18,000 8 A
7 5000 2.22
8 12000 5.33 B
9 1000 0.44
10 2000 0.88
Total 10 items
Total=2,25,000
REST ALL ARE IN C CATEGORRY
ITEMS IN A ITEMS IN B ITEMS IN C
ITEM NUMBER 6
•VERY STRICT CONTROL•HANDLED BY SENIOR•MAXIMUM EFFORTS TO REDUCE LEAD TIME•ACCURATE FORECAST•NO SAFETY STOCK•WEEKLY CONTROL STATEMENTS
5 AND 8 NUMBER ITEM
1. MODERATE CONTROL
2. LOW SAFETY3. ORDER ONCE IN 3
MONTH4. QUATERLY
REVIEW5. MODERATE
EFFORTS6. ESTIMATE BASED
ON PAST DATA
ITEM NUMBER=.1,2,3,4,7,9,10
1.LOOSE CONTROL2.HIGH SAFETY STOCK3.BULK ORDERING CAN BE MADE4 ROUGH ESTIMATE5 REVIEW ANUALLY,QUATERLY6 MINNMUM EFFORTS
2.EOQ MODEL (ECONOMIC ORDER QUANTITY)
WHAT SHOULD BE THE SIZE OF WHAT SHOULD BE THE SIZE OF ORDER???????ORDER???????
TECHNIQUE SOLVE THE PROBLEM OF TECHNIQUE SOLVE THE PROBLEM OF THE MATERIAL MANAGER…!!!THE MATERIAL MANAGER…!!!
CARRYING COST+ ORDERING COSTA MATERIAL MANAGER TORN BETWEEN
THE KEEEPING LOW INVENTORY BY ORDERING IN SMALL QUANTITY AND
BY DESIRE TO REDUCE COST BY BUYING LARGE QUANTITY…
PROCEDURE FOR CONSTRUCTIN THE MODEL:
1. DELEVELOP A FUNCTIONAL RELATIONSHIP B/W THE VARIABLES OF INTEREST AND MEASURE THE EFFECTIVENESS,,,BY THIS:
TOTAL COST=ANNUAL PURCHASE COST+ANNUAL ORDERING COST+ANNUAL HOLDING COST
TC=DC+D*S/Q+Q*H/2WHERE:TC=TOTAL COST,D=DEMAND,C=PURCHASE COST
PER UNIT,Q=QUANTITY TO BE ORDER,S=COST OF PLACING AN ORDER,H=HOLDING COST PER UNIT OF AVRG INVENTORY
I=COST OF CARRYING INVENTORY AS PERCENTAGE.
2. CALCULATE ORDER QUANTITY,Q,FOR WHICH TC IS MINIMUM,(TOTAL COST IS MINIMUM AT THE POINT WHERE ORDERING COST AND CARRYING COST MEETS. OR EQUAL.
DS/Q= QH/2
EOQ OR
WHERE
D= DEMAND,
S=COST OF PLACING AN ORDER,
H= COST OF PLACING AN ORDER
LETS REPRESENT EOQ GRAPHICALLY……!!—A POINT WHERE CARRYING COST CURVE AND
ORDERING COST MEET REPRSENT THE LEAST TOTAL COST WHICH INCIDENTALLY THE ECONOMIC ORDER QUANTITY….
ASSUMPTIONS OF EOQ MODEL:
WEAKNESSES OF EOQ ERRATIC USAGESCOSTLY CALCULATIONFAULTY BASIC INFORMATIONEOQ ORDERING MUST BE TEMPERED WITH
JUDGEMENTNO FORMULAE IS SUBSTITUTE FOR
COMMONSENSE.
3)Order point problem(reorder level)
At what level shoud the order be placed??? if inventory level is high -------block the
capital….!!!If the level is toooooo low--------disturb
production…..!!!So……. Efficient mgt of inventory NEEDS to
maintain optimum inventory level…!Where there is no stock out and cost are
minimum…!!!!
now…the Different stock levels:
1. Minimum level:--- need to be maintained for smooth production.
how to fix min level?????? first need to know… lead time…(taken to receive the
delivery aftr placing order wwith suplier.,,,). Consumption rate (based on past
experience & production plan) material nature…(requirement of
material=whaethr for special or regular production)
Formula for calculating minmimum stock level=
re order level-(normal usage*avrg delivery time)
2.Re-order level: Is the level of stock at which the order
should be placed. For replenish the current stock .
Lies btwn minimum stock level and maximum stock level.
Lead time avrg daily usage reorder point.
(above is on asumption that the usage is consistent and lead time is fixed))))
3.Maximum level: level of stock beyond which the firm should
not maintain the stock. stock Beyond maximum level is called
overstocking.Serves as a safety marginExcess inventory cause.. high cost..!! blocks firms capital fundsMaximum stock level= reorder level+ re order
quantity - ((minimum usage *minimum delivery time))
Safety stock-Prediction of avrg daily usage.& lead time
is difficult……No doubt…. The raw material varies…. Day
to day…!!!!!Re order point= lead time* avrg
usage+safety stock
Average stock level:Average stock level:
(minimum level + stock (minimum level + stock level)/ 2level)/ 2