INVENTORY CONTROLL
INVENTORY
CONTROL OR MANAGEMENT
Inventory
control is a planned approach of determining what to order, when to order and
how much to order and how much to stock so that costs associated with buying
and storing are optimal without interrupting production and sales. Inventory
control basically deals with two problems: (i) When should an order be placed? (Order level), and (ii) How much should be ordered? (Order
quantity).
Objectives of
Inventory Control
1. To ensure
adequate supply of products to customer and avoid shortages as far as possible.
2. To make sure
that the financial investment in inventories is minimum (i.e., to see that the working capital
is blocked to the minimum possible extent).
3. Efficient
purchasing, storing, consumption and accounting for materials is an important
objective.
4. To maintain
timely record of inventories of all the items and to maintain the stock within
the desired limits
5. To ensure
timely action for replenishment.
6. To provide a
reserve stock for variations in lead times of delivery of materials.
7. To provide a
scientific base for both short-term and long-term planning of materials.
Benefits of
Inventory Control
It is an
established fact that through the practice of scientific inventory control,
following are the benefits of inventory control:
1. Improvement
in customer’s relationship because of the timely delivery of goods and service.
2. Smooth and
uninterrupted production and, hence, no stock out.
3. Efficient
utilization of working capital. Helps in minimizing loss due to deterioration,
obsolescence damage and pilferage.
4. Economy in
purchasing.
5. Eliminates
the possibility of duplicate ordering.
Inventory costs
1. Ordering
costs
1)Cost of
Placing an Order with a vendor of materials
2)Preparing a
purchase order
3)Processing
Payments
4)Receiving and
inspection materials
2.Carrying costs
ü Direct
material cost
ü Financial cost
– Tax ,insurance, storage
ü Capital Cost
ü Storage space
cost
ü Handling
–equipment cost
ü Inventory
service cost
Basic Terms
•
Maximum
stock level
•
Minimum
stock level
•
Re-order
Level
•
Safety
Stock ( Buffer Stock)
Maximum stock
level
This is maximum stock, which a
company can hold for a particular item.
Minimum stock
level
This is the
quantity that should be carried by the company so that the production is not
affected before the next delivery arrives.
Re-order Level
This is the point when the stocks
below the minimum level .
Safety Stock (
Buffer Stock)
• Safety stock
can be defined as the amount of inventory carried in addition to the expected
demand
• The safety
stock must be optimum.
Inventory Control Techniques
— EOQ
— ABC Analysis
— VED Analysis
— HML
Classification
— SDE
— FSN
— Max-minimum
system
— MRP
— JIT
1. Economic
order Quantity (EOQ)
Economic order
quantity is the technique which solves the problem of the materials manager.
EOQ or optimum quantity is the order size at which the total cost, comprising
ordering cost and carrying cost is least.
2. Always Better
Control ( ABC)
— – Widely used
techniques for control of inventories.
— – The objective
of ABC control is to vary the expenses associated with maintaining appropriate
control according to the potential savings associated with a proper level of
such control.
3. VED Analysis
— V – Vital
— E - Essential
— D - Desirable
VED analysis is
done to determine the criticality of an item and its effect on production and
other services.
Specially used
for the classification of spare parts If a part is vital ,it is given ‘V’
Classification, If it is essential ‘E’ Classification, if it is not essential
‘D’ classification
4. HML
— – High, medium
,low classification
— – Same procedure
as ABC
— – Item of
inventory will listed in the descending order and based on ,management
discretion classification will be done
— – Useful for
keeping control over consumption at department levels, for deciding the
frequency of physical verification and for controlling purchases
5. SDE
– Based on
availability of items
– S refers to
scarce items, D refers to difficult items and E refers to easy to acquire
– Vital to lead
time analysis and on purchasing strategies
6. FSN Analysis
Fast moving,
Slow moving ,Non-moving
Ø Classification
based on pattern of issues from stores and useful in controlling obsolescence
Ø FSN analysis
helpful in identifying active items which need to be reviewed regularly and
surplus items
7. Minimum –
Maximum Technique
l Connected with
manual inventory control systems
l Minimum
quantity is established in the same way as any reorder point.
l Maximum is the
minimum quantity plus the optimum lot size
8. Just-in-Time
Just-in-Time --
An approach to inventory management and control in which inventories are
acquired and inserted in production at the exact times they are needed.
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