INVENTORY
• An Inventory consists of usable but idle resources such as men,
machines, materials, or money.
• The inventory is called ‘stock’ when the resources involved are
material.
• Inventories represent items that are stocked for sale, in the
process of manufacturing, or in the form of materials that are yet
to be utilized.
Why needed?
Effective inventory control is necessary for the smooth and efficient
running of the production cycle with the least interruptions.
Forms of Inventory
Raw materials purchased items or extracted materials
transformed into components or products
Components parts or subassemblies used in the final
product
Work-in-process items in process throughout the plant
Finished goods products sold to customers
Distribution inventory finished goods in the distribution system
Functions of Inventory
1. To stabilize production.
2. To take advantage of price discounts.
3. To meet the demand during the replenishment period.
4. To prevent loss of orders (sales).
5. To keep pace with changing market conditions.
Inventory Control
Inventory control deals with two problems:
• When should an order be placed? (Order level)
• How much should be ordered? (Order quantity)
Objectives of Inventory Control
• To ensure an adequate supply of products to customers and avoid
shortages as far as possible.
• To make sure that the financial investment in inventories is
minimal.
• Efficient purchasing, storing, consumption and accounting for
materials is an important objective.
• To maintain a timely record of inventories of all the items and to
maintain the stock within the desired limits.
• To ensure timely action for replenishment.
• To provide a reserve stock for variations in lead times of delivery
of materials.
Benefits of Inventory Control
• Improvement in customer relationships because of the timely
delivery of goods and services.
• Smooth and uninterrupted production and, hence, no stock out.
• Efficient utilization of working capital.
Helps in minimizing loss due to deterioration, obsolescence damage,
and pilferage.
• Economy in purchasing.
ABC Inventory analysis
A-Item:
▪ Very tight control
▪ the items being of high value
▪ The control needs to be exercised at a higher level of authority
B-Item:
▪ Moderate control
▪ the items being of moderate value
▪ Control needs to be exercised at the middle level of authority
C-Item:
▪ The items being of low value
▪ the control can be exercised at the gross root level of authority,
i.e., by respective user department managers.
Inventory model
Independent Demand: Items like A are driven by demand from outside
sources, meaning their demand is independent.
Examples:
▪ customer demand
▪ demand for repair and maintenance
▪ demand for production varying with the market,
Dependent Demand: Items like B, C, D, and E depend on the demand for
other items. For example, to produce item A, you might need parts B, C,
and D.
Example: four tires for a car, or 400 tires required for producing 100 cars.