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Have no text to check? haven't any text to check? Click "Select Samples".4.1 TOOLS AND
TECHNIQUES OF INVENTORY MANAGEMENT
A proper internal control not solely helps in resolution the acute downside of liquidity however

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also will increase profit and causes substantial reduction within the assets of the
concern.
The following ar the vital tools and techniques of inventory management and
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control.
4.1.1 Determination of stock levels:
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Carrying of an excessive amount of and insufficient of inventory is prejudicious to the firm. If the
inventory level is just too very little, the firm can face frequent stock outs involving significant
ordering price and if the inventory level is just too high it'll be spare holdup of
capital. AN economical inventory management needs that a firm ought to maintain AN
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optimum level of inventory wherever inventory prices ar the minimum and at a similar
time there's no stock out which can lead to loss or sale or shortage of production
Minimum stock level:
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It represents the amount below its stock of any item mustn't be allowed to
fall.
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Lead time: A buying firm needs someday to method the order and
time is additionally needed by the activity firm to execute the order. The time in
processing the order so death penalty it's called time interval.
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Rate of Consumption: it's the typical consumption of materials within the

factory. the speed of consumption are going to be selected the idea of past
experience and production plans.
Nature of fabrics: the character of material conjointly affects the minimum level.
If a fabric is needed solely against the special orders of the client then
minimum stock won't be needed for such material. Minimum stock level
can be calculated with the assistance of following formula.
Minimum stock level = rearrangement level (Normal consumption x
Normal reorder period)
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Re ordering Level:
When the amount of materials reaches at an exact figure then recent order is shipped to urge
materials once more. The order is shipped before the materials reach minimum stock level. Re
ordering level is mounted between minimum levels to most level.
Maximum Level:
It is the amount of materials on the far side that a firm mustn't exceeds its stocks. If the
quantity exceeds most level limit then it'll be over stocking. Overstocking can
mean interference of a lot of assets, extra space for storing the materials, more
wastage of materials and a lot of possibilities of losses from degeneration
Danger Stock Level:
It is mounted below minimum stock level. The danger stock level indicates emergency of
stock position and urgency of getting recent provide at any price.
Danger Stock level = Average rate of consumption x emergency
delivery time.
Average Stock Level:
This stock level indicates the typical stock control by the priority.
2. Determination of Safety Stocks:
Safety stock could be a buffer to fulfill some unforeseen increase in usage. The demand
for materials could fluctuate and delivery of inventory might also be delayed in such a

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situation the firm is facing a haul of stock out.
In order to guard against the stock out arising out of usage fluctuations, firms

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usually maintain some margin of safety stocks.
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Two prices ar concerned within the determination of this stock that's cost of
stock outs and also the carrying prices.

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If a firm maintains low level of safety frequent stock outs can occur ensuing
into the larger chance prices. On the opposite hand, the larger amount of safety
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stocks involves carrying prices.
Safety Stock = (Maximum Lead time- traditional Lead time) * Demand
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FIGURE 2
3) Economic Order amount (EOQ):
The quantity of fabric to be ordered at just one occasion is thought as economic
ordering amount.This amount is mounted in such a fashion on minimize the price
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of ordering and carrying prices.

Total price material = Acquisition price + price + Carrying prices + Ordering price.
Carrying Cost:
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It is the price of holding the materials within the store.

Ordering Cost:
It is the price of putting orders for the acquisition of materials.
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EOQ is calculated with the assistance of the subsequent formula

EOQ = 2CO / I
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Where C = Consumption of the fabric in units throughout the year

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O = Ordering price
I = carrying charge or Interest payment on the capital.
FIGURE 3
4) A B C Analysis: (Always higher management analysis):
Under A B C Analysis. The materials ar divided into three classes viz., A, B
and C.
Almost 100% of the things contribute to seventieth of import of consumption and this
category is named A class.
About 2 hundredth of the things contribute regarding 2 hundredth of import of class C covers
about seventieth of things of materials that contribute solely 100% of import of
consumption
.
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5) VED Analysis: (Vitally Essential Desire)
The VED analysis is employed usually for spare components. Spare components classified as very
important (V),
Essential (E) and fascinating (D).
The very important spares ar should|a requirement} for running the priority swimmingly and these
must be keep
adequately. The E forms of spares are necessary however their stocks could also be unbroken at
low figures. The stocking of D kind spares could also be avoided sometimes. If the time interval of
these spares is a smaller amount, then stocking of those spares is avoided.
6) Inventory Turnover ratio:
Inventory turnover ratios ar calculated to point whether or not inventories are used
efficiently or not. The inventory turnover quantitative relation conjointly called stock rate is often
calculated as sales / average inventory of price of products oversubscribed / average inventory.
Inventory conversion amount might also be calculated to search out the typical time taken for

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clearing the stocks. Symbolically.

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