ME LECTURE 1
461 # 09
INVENTO
RY
DR. MD. SANAUL Department of Mechanical Engineering
RABBI PROFESSOR Chittagong University of Engineering & Technology
Learning
2 outcomes
• What is inventory? Definition and
concept.
• Inventory types.
• Function of inventory.
• ABC inventory analysis
• Problem solving on ABC analysis.
• DIY.
• Objectives and benefits of inventory
• Q/A.
Introduct
3 ion
An Inventory consists of usable but idle
resources such as men, machine,
materials or money.
When the resources involved is material,
the inventory is also called ‘stock’.
Inventories represent those items which
are either stocked for sale or they are in
the process of manufacturing or they
are in the form of materials, which are yet
to be utilized.
An effective control on inventory is a
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Forms of Inventory
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Raw materials –purchased items or extracted
materials transformed into components or products
Components –parts or subassemblies used in final
product
Work-in-process –items in process throughout the
plant
Functions of
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Inventory
To stabilize production.
To take advantage of price
discounts.
To meet the demand during
the replenishment period.
To prevent loss of orders
(sales).
To keep pace with changing
Inventory Control
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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).
ABC Inventory
8 Analysis
ABC Inventory
9 Analysis
ABC Inventory
10 Analysis
A-item: Very tight control, the
items being of high value. The
control need be exercised at higher
level of authority.
B-item: Moderate control, the
items being of moderate value.
The control need be exercised at
middle level of authority.
C-item: The items being of low
value, the control can be exercised
at gross level of authority.
Q. Annual number of units sold (per
item) x cost per unit
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1. List the products in descending
order based on their annual
consumption value
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2. Total up the number of units sold
and the annual consumption value.
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3. Calculate the cumulative percentage of items
sold and cumulative percentage of the annual
consumption values using the totals.
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4. Determine the thresholds for splitting the data into A, B
and C categories. The threshold for determining the ABC
split will be unique to your company and your product mix,
but typically it’s close to 80% / 15% / 5%.
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Proble
m:
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Solutio
n:
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Objectives of Inventory
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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.
3. Efficient purchasing, storing,
consumption and accounting for
Objectives of Inventory
19
Control
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
Benefits of Inventory
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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
Bill of Materials
21 (BOM)
Inventory Models
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Thank You