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Inventory Management Essentials Guide

This document defines inventory and its types, and discusses inventory management. It begins by defining inventory as physical resources held for sale or transformation, including raw materials, works-in-process, finished goods, and MRO items. Reasons for holding inventory are then outlined, such as improving customer service and hedging against future uncertainties. The objectives and processes of inventory management are described, such as determining optimal inventory levels by balancing costs and benefits. Methods for tracking inventory levels and orders are also reviewed, including stock cards and books. Finally, the costs associated with inventory are defined as ordering costs, carrying costs, and out-of-stock costs.

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6 views15 pages

Inventory Management Essentials Guide

This document defines inventory and its types, and discusses inventory management. It begins by defining inventory as physical resources held for sale or transformation, including raw materials, works-in-process, finished goods, and MRO items. Reasons for holding inventory are then outlined, such as improving customer service and hedging against future uncertainties. The objectives and processes of inventory management are described, such as determining optimal inventory levels by balancing costs and benefits. Methods for tracking inventory levels and orders are also reviewed, including stock cards and books. Finally, the costs associated with inventory are defined as ordering costs, carrying costs, and out-of-stock costs.

Uploaded by

TANUJ
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd

Inventory Management I

Definitions
 Inventory-A physical resource that a firm
holds in stock with the intent of selling it or
transforming it into a more valuable state.
 In other words Inventory is composed of
assets that will be sold in future in the normal
course of business operations.
Types of Inventory
 Raw Materials
 Works-in-Process
 Finished Goods
 Maintenance, Repair and Operating (MRO)
Reasons for Inventories
 Improve customer service
 Economies of Scale: Ideal condition of "one unit at a
time at a place where a user needs it, when he needs it"
principle tends to incur lots of costs in terms of logistics.
 Transportation savings
 Hedge against future
 Unplanned shocks (labor strikes, natural
disasters, surges in demand, etc.)
Inventory Management
 Properly maintaining adequate stocks to
ensure uninterrupted production, sales
or service.
 Policies, procedures,
and techniques employed in maintaining
the optimum number or amount of each
inventory item. 
Objectives of Inventory Mgmt.
 To minimize investment in inventory.
 To meet a demand for the product by
efficiently organizing the production and
sales operation.

Optimum level of Inventory should be determined on


the basis of the trade off between cost and benefits
associated with the levels of inventory.
Inventory Management
Involves Knowing…
 What and how much stock you have
 When to order fresh supplies
 What and how much has been ordered,
when it was ordered
 Where all supplies are stored
 When and how much fresh stock was
received, and by whom

7
Inventory Management
Involves Doing…
 Performing a “stock count”
 Maintaining proper inventory records
 Determining when to re-order
 Determining how much to re-order
 Placing orders properly
 Inspecting delivery of new orders
 Ensuring proper storage of inventory
8
Stock Card: An Example
 Item Name: __________ Unit: ___________
 Manufacturer: ________________________
 Minimum Stock (Re-Order Level): ___________
Received Issued Quantity Quantity
Date *Balance Lot # Signature
From to Received Issued

9
Stock Book: An Example
Item Qty Date Qty Date Lot # Expiry
Name (units) Requested Received Received Date
Requested

10
Inventory Holding Cost
 Ordering Cost: is the fixed cost of
placing and receiving an inventory
order.
 Carrying Cost: are the variables costs

per unit of holding an item in inventory


for a specified time period.
 Stock-out Cost

Total Cost(T.C.) = O.C. + C.C.


Ordering Costs
 They are generally fixed per order
placed, irrespective of the amount of
the order.
 The larger the inventory the fewer are
the acquisitions and the smaller or
lower the ordering cost.
Carrying Costs
 Capital (opportunity) costs: Interest
 Inventory risk costs:- price decline, fire.
 Space costs, Tax, Depreciation,
Insurance, maintenance of the building
 Inventory serving cost such labour
handling cost.
Out-of-Stock Costs
 Internal Shortage result in idle
resource.
 External Shortage result in back order
cost.
Thank you

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