PM Module -4
Inventory Management
• Meaning
• Objectives of inventory
• Types of inventory
• Functions of IMS/ Inventory Controls
• Inventory Control Technique – ABC, VED, FNS, SDE
Inventory or stock refers to the materials that a business holds for the purpose of
production hence sales.
Inventory Management - Activities employed in maintaining the optimum
number/amount of each inventory items.
Concept Of Inventory Management
• Inventory Management is a process of controlling and overseeing the flow of
goods or services from their origin to the final destination.
• It allows businesses to keep track of important details, such as stock levels,
item costs and other associated data.
• By actively managing inventories on a regular basis, companies are able to
ensure that they have the right amount of goods in stock at any given time.
• In addition, inventory management can help to reduce overhead costs by
eliminating excess items and preventing stockouts.
It is an essential component of successful business operations, allowing
organizations to maximize efficiency and stay ahead of their competition.
Objectives of inventory management system
• 1. To meet predicted demand.
• 2. To minimize the risk of under and over stocking of material:
• 3. To protect against stock-outs.
• 4. To take advantage of quantity discounts.
• 5. To maintain systematic record of all the inventory.
• 6. To maintain order cycles (Period between placing of one set of orders and the
next.)
• 7. To minimize carrying cost of inventory.
Types of Inventories
1. Production Inventories.
2. MRO inventories.
3. In-Process Inventories.
4. Finished goods Inventories
[Link] Inventories.
• Production Inventories are the inventories which is directly used in a
product in production process.
• Raw materials.
• Parts
• Components.
Either these inventories manufactured by the company or purchased from out
side,
[Link] inventories
• MRO – Maintenance , Repair, Operations.
• These inventories do not become a part of product but helps in maintaining
repairing and operating.
• Ex- lubricants oil, soap, cleaning cloths, machine repairing parts- spammer,
screw driver ect.
[Link] process Inventories.
• These are the semi-finished product and later used in the production.
• EX- job work of any shape, half-finished parts/ components.
[Link] goods Inventories
• These are the completed products ready for Shipment or sale.
• Ex- Bike , Home appliances, Shirts, etc.
Example of Garments Manufacturing
• Production Inventories. – Cloths, Buttons, threads, packing materials etc.
• MRO inventories – Lubricants used for Machines, tool box, scissors,
• In-Process Inventories. – Half-finished cloths without stitch-button-ironing.
• Finished goods Inventories. – Shirts, trousers.
Functions of inventory management
Managing the raw materials - materials and components used to make
a product.
Managing the stock of goods produced- finished goods ready for sales
Managing the goods for resale - returned goods that can be resold
Manage purchasing and receiving of all types of inventory.
Minimizes inventory costs. (Purchasing, Transit, Storing cost)
Setting up re-order points for each inventory. (When and How much)
Managing the Lead time and Order cycle for all the product
Inventory Control Techniques-
1. ABC (Always Better Control)
2. VED Analysis (Vital, Essential, Desirable)
3. FSN Analysis (Fast, Slow moving and Non-moving)
4. SDE Analysis (Scarce, Difficult, Easy)
Techniques in Inventory Control
• ABC analysis – Cost based.
• VED Analysis - Criticality of an item
• FSN analysis – Moving of Items
• SDE analysis – Availability of items
[Link] Analysis
• ABC analysis is the analysis of the store items based on cost criteria.
• The cost of each item is multiplied by the number used in a given period
and then these items are tabulated in descending numerical value order.
• It will be seen that first 10% of items approximately account for 70%, the
next 20% for 20% of value and the last 70% account for 10% of value.
• It has been seen that a large number of items consume only a small
percentage of resources and vice- versa.
• A – Items represent the high cost centre, B items represent the immediate
cost centres, and C- items represent low cost centres.
Distribution of ABC class
ABC class Number of items Total amount required
A 10％ 70％
B 20％ 20％
C 70％ 10％
Total 100％ 100％
[Link] Analysis()
• The VED analysis is done to determine the criticality of an item and its
effect on production and other services.
• It is specially used for classification of spare parts.
• If a part is vital it is given ‘V’ classification,
• if it is essential, then it is given ‘E’ classification and if it is not so
essential(Desirable) then part is given ‘D’ classification.
• For ‘V’ items, a large stock of inventory is generally maintained, while for
‘D’ items, minimum stock is enough.
3. FSN Analysis:
• Classification based on Frequency of Issues/Use:-
• F, S & N stand for Fast moving, Slow moving and Non moving items.
• This form of classification identifies the items frequently issued, less
frequently issued for use and the items which are not issued for longer
period, say, 1 years.
• For instance, the items can be classified as follows:
Fast Moving (F) = Items that are frequently issued say for daily.
Slow Moving (S) = Items that are issued/Used for every wee\month.
Non-Moving (N) = Items that are not issued\used for more than
3Months
• This classification helps spare parts management in establishing most
suitable stores layout by locating all the fast moving items near the
Production Line to reduce the material handling.
• Non-Moving items are kept apart from the production line as they are
rarely used.
[Link] analysis
• The SDE analysis is based upon the availability of items and is very useful in
the context of scarcity of supply.
• In this analysis, ‘S’ refers to ‘scarce’ items, generally imported, and those
which are in short supply.
• ‘D’ refers to difficult items which are available indigenously but are difficult
items to procure/get. Items which have to come from distant places or for
which reliable suppliers are available.
• ‘E’ refers to items which are easy to acquire and which are available in the
local markets.