itm - inventory management.ppt
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8/10/2019 ITM - Inventory Management.ppt
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INVENTORY
MANAGEMENT
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Inventory is technically an asset, but is indirectly taxing
on the profitability of the firm.
Hence, besides various activities associated with lean
supply chain, Corporation across the world are always
finding ways & techniques to reduce inventories.
With latest IT tools & communication technology, it has
become comparatively easy to size & control this single
largest Cost spinner in supply Chain.
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INVENTORY – AN ASSET OR LIABILITY?
Inventory generally constitutes the Second largest item after fixedasset in financial balance sheet of the Manufacturing Company.
It seems that there is no disadvantage in carrying excess inventory,However, investments in inventory carry cost.
Reduction in inventory will reduce inventory handling andcarrying cost & benefits of inventory reduction will be reflected interms of increase in profit margin & return on investment (ROI).
Today, inventory investment is viewed as a supply chain Cost
Driver rather than a material asset.
Lean Supply Chain operating on MRP, DRP & JIT are preferredto ensure maximum inventory turn (Ratio of sales to average levelof Inventory).
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Inventory Decisions
These refer to means by which inventories are
managed.
Inventories exist at every state of the supply chain aseither raw materials, Semi-finished or finished goods.They can also be in-process between locations.
Inventory primary purpose is to buffer against anyuncertainty that might exist in the supply chain. Sinceholding of inventories can cost anywhere between 20to 40 percent of their value.
Efficient management of Inventory is critical in supplychain operations. Therefore, top managementconsiderer it as one of the strategy for managingoperations effectively.
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Inventory Decisions…..
However, most researchers have approached the
management of inventory from an operational
perspective. These include deployment strategies (push
versus pull), control policies --- the determination of
the optimal levels of order quantities and reorder
points, and setting safety stock levels, at each stocking
location. These levels are critical, since they are primary determinants of customer service levels.
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Sr.
No.Company
Sales
turnover Rs.
Crore
RM &
ComponentsWIP F.G.
Total
Inventaries
1Larsen & Toubro Ltd.
31/03/2002
791710.13
0.12
685.66
(8.66)
24.33
(0.32
720.48
(9.10)
2Hindustan Lever Ltd.
31/12/200110972
510.14
(4.65)
47.72
(0.43)
577.11
(5.26)
1134.98
(10.34)
3Ranbaxy Labortories Ltd.
31/12/20012164
181.78
(8.39)
62.3
(2.88)
180.72
(8.35)
424.85
(19.62)
4Sterlite Industries Ltd.
30/06/20013093
45.64
(1.47)
194.29
(6.28)
17.05
(0.55)
256.93
(8.33)
Source : Annual Reports & Stock Exchange Directory
TABLE I : INVENTORY AS % OF SALES
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Not only do external Customers make demands on inventories, internal
customers like top management & manufacturing, finance & distribution
department have different expectations as shown below.
FINANCE DEPARTMENT
• Low Inventory levels
• Low cost of operations
• Higher inventory turn
SALES & MARKETING
• Quick delivery
• No stock outs
•
Variety & Volumes•Frequent & Small Deliveries
MANUFACTURING
• Less varieties
• Economic batch quantity
• Quick off-take
• No rejection & Cancellation
TOP MANAGEMENT
• High Inventory Turnover
• Low operating cost
• Excellent Customer service
Inventory
Expectations
Inventory management is both an Art & Science & is concerned with Right level of Inventory
Trade off between Customer service & Inventory cost Liability or an Asset
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COST RELATED TO INVENTORIES
INVENTORY COST
CARRYING COST
ORDERING COST
WARE HOUSING COST
DAMAGE, PILFERAGE,OBSOLESCENCE COST
EXCHANGE RATE DIFFERENCE
I
N
V
E
N
T
O
R
Y
R
E
L
A
T
ED
C
O
S
T
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INVENTORY CONTROLS
The phenomenon of variability in customer demand, if not
conveyed properly or if conveyed with distortions, as it travels
upstream in supply chain, is called “Bull whip effect”.
It causes either stock outs or inventory pile ups in distribution
logistic chain.
Using latest inventory control techniques supported by efficient &
effective information flow system, the disturbance in supply chain
can be minimised.
Commonly used techniques :
ABC Analysis (Related to annual usage cost of a particular
item. VED Analysis (Vital, Essential & Desirable status of inventory
items).
SAP Analysis (Scare, Available & Plenty).
FSN Analysis (Fast, Slow & Normal analysis of consumption
pattern.
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Continuous Review
Product as needed
High safety stock
Low order Qty.
Continuous Review
Produce as per need.
Low safety stock
Low order Qty.
Periodic Review High safety stock
High order Qty.
Periodic Review Low safety stock
High order Qty.
V E D
Critically of Item
A
B
C
High
Consumption
Value
Low
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INVENTORY MODEL : SELECTION VARIABLES
GOALS
• Cost• Profit
•Service
TYPE
• Purchase• Process
•Transit
PROBLES
When?Where?
How Much?
STRATEGY
• Make to order
• Make to Stock• Mass Customising
• FMS
ENVIRONMENT
• Technology
• Products segment
INVENTORY MODEL
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INVENTORY CONTROLS
The modern approach to control inventories is focused on the following factors :
Flow :
This is concerned with movement of product from supplier to work centre to
ultimate Customer.
Flexibility :This is concerned with Customer satisfaction and optimising stock levels.
Balancing :
This is concerned with Customer satisfaction and optimising stock levels.
Integration :
This is concerned with both forward and backward integration to meet objective
of lower inventory carrying cost and enhanced Customer satisfaction. (MRP,
DRP & JIT).