INVENTORY & INVENTORY MANAGEMENT

G.Josephin Dyna 12MD032

What is Inventory?
The raw materials, work-in-process goods and completely finished goods that are considered to be the portion of a business's assets that are ready or will be ready for sale. Inventory represents one of the most important assets that most businesses possess, because the turnover of inventory represents one of the primary sources of revenue generation and subsequent earnings for the company's shareholders/owners.

Functions of Inventory
1. To decouple or separate various parts of the production process 2. To decouple the firm from fluctuations in demand and provide a stock of goods that will provide a selection for customers 3. To take advantage of quantity discounts

4. To hedge against inflation and upward price changes

Types of Inventory
Raw material (RM)
Purchased but not processed

Work-in-progress (WIP)
Undergone some change but not completed A function of cycle time for a product

Maintenance/repair/operating supply (MRO)

Necessary to keep machinery and processes productive

Finished goods (FG)

Completed product awaiting shipment

Material Flow Cycle

Other Input Wait Time Move Time Queu e Time Setup Time Run Time Output

Cycle Time

1 Run time: Job is at machine and being worked on 2 Setup time: Job is at the work station, and the work station is being "setup." 3 Queue time: Job is where it should be, but is not being processed because other work precedes it. 4 Move time: The time a job spends in transit 5 Wait time: When one process is finished, but the job is waiting to be moved to the next work area. 6 Other: "Just-in-case" inventory.

Inventory Management
Inventory management may be defined as a scientific method of finding out how much stock should be maintained in order to meet the production demand and be able to provide right type of material at right time in right quantity at competitive price.

Advantages of Inventory Management

Inventory management increases profitability. It helps in accurate Planning It improves cash flow. It improves decision-making. It increases customer satisfaction. It helps in better warehouse organization. It helps business to make better use of its resources, both human and technological. Employee efficiency.

ABC ANALYSIS
Divides inventory into three classes based on annual dollar volume
Class A - high annual dollar volume Class B - medium annual dollar volume Class C - low annual dollar volume

Used to establish policies that focus on the few critical parts and not the many trivial ones Basis is usually annual $ volume
$ volume = Annual demand x Unit cost

Example :80 70 60 50 40 30 20 10 0 A Items B Items | | | | 10 20 30 40

Percent of annual dollar usage

C Items
| | | | | |

50

60

70

80

90 100

Percent of inventory items

Cycle counting
Physically counting a sample of total inventory on a regular basis Used often with ABC classification Advantages:
Eliminates shutdown and interruption of production necessary for annual physical inventories Eliminates annual inventory adjustments Maintains accurate inventory records

Inventory Costs
Holding costs - associated with holding or carrying inventory over time; e.g. obsolescence, insurance, extra staffing, interest, pilferage, damage, warehousing, etc. Ordering costs - associated with costs of placing order and receiving goods; eg. Supplies, forms, order processing, clerical support, etc. Setup costs - cost to prepare a machine or process for manufacturing an order; e.g. cleanup costs, re-tooling costs, adjustment costs, etc.

Inventory Models
Fixed order-quantity models Economic order quantity Production order quantity Quantity discount Probabilistic models Fixed order-period models

Conclusion
Inventory management is essential to maintain large size inventory for effective & smooth production. Economizing the efforts and cost are involved. Vendor development is an important criteria. Maintain the quality of finished product as per GMP guide lines has to be considered.