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INVENTORY MANAGEMENT

INVENTORY MANAGEMENT

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INVENTORY MANAGEMENT

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  1. INVENTORY MANAGEMENT Objectives: To minimise costs associated with stocks. Involves: 1) Involves fixation of maximum / minimum levels. 2) Determining size of Inventory 3) Decision on issues/receipts and inspection procedures

  2. INVENTORY MANAGEMENT Involves:- 4) Determining Economic Order quantity 5) Providing proper storage facilities 6) Keeping check over obsolescences 7) Ensuring control over movement of inventories.

  3. INVENTORY MANAGEMENT MANAGEMENT OF INVENTORIES INVOLVES A TRADE OFF BETWEEN THE CARRYING COSTS AND THE COST OF REDUCTION IN SALES DUE TO NON-AVAILABILITY OF INVENTORIES.

  4. INVENTORY MANAGEMENT EFFECT OF HIGH LEVEL OF INVENTORY • Interest costs • Storage costs/losses • Obsolescence • Cost of record keeping

  5. INVENTORY MANAGEMENT EFFECT OF LOW LEVEL OF INVENTORY • bottle-neck in production • Under utilisation • Lesser sales • Increased overheads.

  6. INVENTORY MANAGEMENT NEED TO HOLD:- • Inflation • Scarcity • Transaction motive

  7. INVENTORY MANAGEMENT COSTS INVOLVED:- • Ordering Cost- Clerical costs of preparing a purchase order, receiving delivery of goods and paying invoices. • Holding/carrying Costs:- Loss of interest on investment, cost of insurance /taxes, cost of storage, loss on breakage and obsolescence.

  8. INVENTORY MANAGEMENT COSTS INVOLVED:- 3) Shortage/stock out cost:- production stoppage costs, loss of future sales.

  9. INVENTORY MANAGEMENT Determining optimum Stock level involves a trade –off between Ordering Costs and Carrying Costs. Optimum order size is termed as EOQ

  10. Inventory Management ECONOMIC ORDER QUANTITY It is the most favourable/optimum quantity of stock which can be ideally purchased each time most economically, resulting in minimum total annual costs of the item.

  11. INVENTORY LEVELS MAXIMUM LEVEL: Ordering Level + Reorder quantity • (Min. consumption x minimum lead time) MINIMUM LEVEL: Ordering Level – (Normal usage x normal lead time)

  12. Inventory Levels RE-ORDER LEVEL: Minimum Level + Average lead time x average rate of consumption OR Maximum Usage x Maximum lead time OR Re-order Period x Maximum Usage

  13. Inventory Control Methods • (1) A B C Analysis ( Value of Usage) • Category % items % value • A 15 80 (tight) • B 35 15 (formal) • C 50 5 (relaxed)

  14. Inventory Control Methods • (2) Pareto Analysis ( 80 : 20 rule) • 20% of stocks represent 80% of turnover value • Useful for both Inventory & Receivable Mgmt.

  15. Inventory Control Methods • (3) VED Analysis • V= Vital Items • E= Essential items for efficient run • D= Desirable items- less fatigue/more efficiency

  16. Inventory Control Methods • (4) FNSD Analysis ( Usage rate) • F= fast moving • N=normal moving • S=slow moving • D=Dead stock- no furthered demand

  17. Inventory Control Methods • (5) J I T Inventory • Not planned/ forecast but NEED. • Demand Push / Supply Pull)

  18. Inventory Valuations- Issue Pricing • LIFO • FIFO • Simple Average • Weighted Average