OPERATIONS MANAGEMENT II

UNIT 1. AGGREGATE PLANNING

TEACHER
JUAN CARLOS REYES VELÁZQUEZ

PRESENTS
LESLY RUBI VARGAS ESLAVA
LUIS ANGEL RODRIGUEZ GAYOSSO

ACTIVITY:
ANALYSIS, GRAPHIC AND TEXTUAL DESCRIPTION OF ABC OF INVENTORIES
 INVENTORIES

The inventory is the set of goods or items that companies have.

for trading, allowing the purchase and sale or manufacturing before sale,
in a given economic period. Inventories are part of the group of
current assets of any organization.

It is one of the largest assets existing in a company, and it appears

reflected in both the balance sheet and the income statement: In the
Balance sheet, inventory is often the largest current asset. In the
income statement, the ending inventory is deducted from the cost of goods
available for sale, determining the cost of goods sold
for a certain period of time.

They are tangible goods that are held for sale in the ordinary course of business.
or to be consumed in the production of goods or services for their subsequent
Marketing. The inventories include, in addition to raw materials,
products in process and finished products or goods for sale, the
materials, spare parts, and accessories to be consumed in production of
goods manufactured for sale or in the provision of services; packaging and
packaging.

The foundation of any commercial enterprise is the buying and selling of goods and services;
This is where the importance of inventory management by the same comes from.
Both physical and accounting management will allow the company to maintain control.
promptly, as well as knowing at the end of the period of its activity, a
reliable state of the company's economic situation.

The inventory has the fundamental purpose of supplying the company with
necessary materials for its continuous and regular development, that is, the
Inventory plays a vital role for consistent and coherent functioning within the
production process and thus meet the demand.

TYPES OF INVENTORIES

Inventories are important for manufacturers in general, it varies.

widely among the different industry groups. The composition of this part
The asset consists of a wide variety of items, and that is why they have been classified.
de acuerdo a su utilización en los siguientes tipos:
 Raw material inventories

Understand the basic or main elements that go into the preparation of

product. A variety of items (raw materials) participate in all industrial activities.
first) and materials, which will undergo a process to ultimately obtain a
finished or completed article. To the materials that are mainly involved in
the production is considered "Raw Material", since its use is made in
sufficiently important quantities of the finished product. The matter
first, it is that or those articles subjected to a manufacturing process that to the
final will become a finished product.

Work in Progress Inventory:

The inventory of work in progress consists of all items or elements

that are used in the current production process. That is to say, they are products
partially finished goods that are at an intermediate stage of production
and to which direct labor and inherent indirect costs were applied
production process at a given moment.

One of the characteristics of work-in-progress inventory is that it goes

increasing the value as it is transformed from raw material into the
finished product as a consequence of the production process.

Finished Goods Inventory:

Understand these, the articles transferred by the production department to

finished goods warehouse due to these; having reached their degree of
total termination and that at the time of the physical inventory taking they are found
still in the warehouses, that is, those that have not yet been sold. The level of
finished goods inventory will depend directly on sales, it is
saying its level is determined by demand.

Inventarios de Materiales y Suministros

The inventory of materials and supplies includes:

Secondary raw materials, their specifications vary according to the type of

industry, an example; for the brewing industry it is: salts for treatment of
water.
• Consumer goods intended for use in the operation of the industry,
among these consumer products, the most important are those intended for
the operations, and they are made up of fuels and lubricants, these in the
industry is of great relevance.

• The articles and materials for the repair and maintenance of machinery and
operating devices, the repair articles due to their large volume need to be
adequately controlled, their existence varies in relation to their
needs.

Safety Inventory

This type of inventory is used to prevent interruptions in the

provisioning caused by delivery delays or by the increase
unexpected demand during a restocking period, the importance
of the same is linked to the service level, the fluctuation of demand and the
variation of delivery delays.

TYPES OF COSTS

In general, there are three types of costs associated with inventory activity: costs
of inventory maintenance, order costs, and shortage costs.
. INVENTORY MAINTENANCE COSTS:
If a company has 3000 identical items in its inventory and each one costs them
it costs $8, so this company has $24000 reserved in inventory.
In other words, by maintaining that inventory, the company is
renouncing the opportunity to make other investments (this is known as
opportunity cost.
There are also other inventory maintenance costs, such as compensation.
for damaged items, losses or thefts, insurance, storage and requirements
special handling.
. ORDER COSTS:

Every time a company places an order to replenish its inventories,

incurs in an order cost.
This cost is independent of the order quantity, it is related to the
amount of time spent preparing documentation and managing accounting
corresponding to the presentation of the order, and it is a direct function of the cost
of the involved personnel.
 . COSTS OF SHORTAGES:

A shortage means that the company has run out of inventory. In most
of technical applications, the missing term refers to a phenomenon more
specific, consists of orders arriving after the inventory has been
sold out.
This cost could include the lost profits from not making the sale or
for delays in delivery, and also discounts for several other factors
intangibles, such as the cost that would imply the possible loss of customers and the
discredit of a bad record of poor service brings with it.
ABC CLASSIFICATION

It is known that in each operation only a small percentage of things

takes up most of the activity, as the well-known 80-20 rule states.
the activity of a warehouse is not an exception to the rule.

Based on this idea, the ABC analysis classifies materials according to the
importance they have within the warehouse, giving them a classification from A to
reduced number of articles with greater importance due to high cost or the large
activity they represent, B for moderately important and C for the rest of
the materials that represent a low percentage of the total investment of
inventory or what represents low turnover.

An important point is to know which materials are of the greatest importance.

inside a warehouse, since there are many materials inside it
they manage but not everyone has the same value or importance. In reality, if a
the company would like to strictly control each of its stored items,
It would be practically impossible due to the high cost that this represents.

The ABC classification can be of three types:

. Classification by unit cost

. Inventory value classification

. Classification by usage and value

Example:

Perform the ABC classification, considering the following items:

Investment article in $/year
o

1 1200

2 1400

3 1758

4 2534

5 1300

6 900

First, the percentages are calculated:

$
inversions denperido
year
articulon=
$
∑ investment inyearfrom a period

Article investment in $/year

%
o

1 1200 13.20%

2 1400 15.40%

3 1758 19.34%

4 2534 27.87%

5 1300 14.30%

6 900 9.90%

Total 9092

Later, the data will need to be arranged in decreasing order.

according to the percentages
Investment article in $/year
% Classification
o n

4 2534 27.87% A

3 1758 19.34% B

2 1400 15.40% B

5 1300 14.30% B

1 1200 13.20% C

6 900 9.90% C

To carry out this analysis, we used a list of the unit prices of each.
artículo y se analizó el consumo de cada artículo durante el periodo de un año.

Subsequently, it is sorted in decreasing order. The first 27.87% of article 4

belongs to classification A (it had already been mentioned that it was 20%, but not
you can say that only 20% is classification A and the rest is not), the last 23.10% of
the articles belong to classification C which are articles 1 and 6. The rest of
the items belong to classification B.

In order to graph it, the accumulated % needs to be calculated.

Investment article in $/year % % Accumulated

4 2534 27.87% 27.87%

3 1758 19.34% 47.21%

2 1400 15.40% 62.60%

5 1300 14.30% 76.90%

1 1200 13.20% 90.10%

6 900 9.90% 100.00%

The purpose of this analysis was to provide a basis to know which articles will be addressed.
to dedicate more investment and more attention from the staff in this way
to maintain efficient control of the materials without increasing the cost that this represents.

Type A items must be subject to constant monitoring and be very

attentive to the frequency with which they must be acquired. Type B items require
less control than type A and more control than type C, it is recommended
establish maximums and minimums. Type C materials require a limited
supervision, the control is minimal and can even be done through a stock of
security.

Inventory Management

An inventory is the existence of goods maintained for use or sale in the

future. Inventory management consists of keeping these available.
goods at the time of requiring their use or sale, based on policies that allow
decide when and how much to restock the inventory.

Inventory management focuses on four basic aspects:

Number of units that must be produced at a given time.

2) When should the inventory take place.

3) Which items in the inventory deserve special attention?

 4) Can we protect ourselves from changes in the costs of items in
inventory?

Inventory management consists of providing the inventories that are

they require to maintain operations at the lowest possible cost.

The objective of inventory management has two aspects that are

they oppose:

On one hand, it is necessary to minimize inventory investment, since

The resources that are not allocated for that purpose can be invested in others.
acceptable projects that otherwise could not be financed.

On the other hand, it is necessary to ensure that the company has inventory.
enough to meet the demand when it arises and for that
the production and sales operations run without obstacles.

Both aspects of the object are conflicting, as reducing the inventory

minimize the investment, but there is a risk of not being able to meet the demand
from the company's operations. If there are large amounts of inventory,
the chances of not being able to meet the demand decrease and
interrupt production and sales operations, but it also increases the
investment.

The inventory allows for time savings since neither production nor delivery can
to be instantaneous, there must be product availability to which one can
quickly resort so that the actual sale does not have to wait until
I completed the production process.

The fact of effectively controlling inventory has its advantages and

disadvantages. The main advantage is that the company can meet the
demands of their customers more quickly. And as disadvantages, they can be
mention:

. It generally involves a high cost (storage, handling and

performance).
. Danger of obsolescence.

Inventory management then aims to reconcile or balance

the following objectives:

. Maximize customer service.

 . Maximize the efficiency of purchasing and production units
. Minimize inventory investment

The ABC classification

It is a method for grouping items into 3 classes regarding total monetary value.
in order to identify those articles that have the greatest impact on the
inventory costs. Solve, which item from a large number of items
different needs to be checked more closely? In reality, it is common
to request hundreds and thousands of different items, such as: Medicines for
a pharmacy, supplies for a university, etc.
In such cases, tracking thousands of items can often require
excessive resources of time and work. The ABC classification is suitable in such cases.
situations as it allows to identify which of the various articles are the most
important; according to the costs involved.
Categories:
1) Class A Articles - Represent the largest proportion of the total global value.
monetary. It needs a thorough and careful inventory.
2) Class B Articles.- They are the majority of the articles; whose total value
monetary is small compared to that of class A. The inventory.
these articles do not require much care; their variation is not significant
effect on total costs.
3) Class C Articles.- They are not as important as those of class A, but
are more significant than those of class B.
Inventory models help us reduce the costs generated by having
raw material or items that serve to carry out some process. They help us to
determine the moment when an order should be placed and the quantity of
product that should be ordered.

In my opinion, inventory models are very useful in order management and

in the control of the products that are being required so that the processes do not
stop. By using an inventory model we can manage
better way to manage resources and reduce the costs of maintaining high levels of
inventory.