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parts & components directly used in production MRO Inventory Maintenance, Repair & Operating supplies, not directly used in production (eg: consumables, spare parts, packing material) In-process Inventory or Work in Process (WIP) Inventory semi finished products Finished Goods Inventory all final products
Description
Annual Consumption (of at least past 3 years) Names of Suppliers (of at least past 3 years) Average life of the item Stock of the item
Classification of Inventory
1) ABC Analysis
2) XYZ Analysis
3) VED Analysis 4) FSN Analysis 5) PQR Classification 6) SDE Classification 7) GOLF Classification 8) SOS Classification 9) HML Classification
of inventory Divides inventory into three categories A, B & C based on their annual consumption value. A category represent 70-80% of total inventory costs, but they account for only 15% of total inventory items. B category represent 15-25% of total value, and they account for 30% of total inventory items. Category C represent only the 5% of total volume, but they include as many as 50-60% of total inventory items..
ABC Analysis
VED Analysis
VED: Vital, Essential & Desirable classification VED classification is based on the criticality of the
inventories.
Vital items Its shortage may cause havoc & stop the
not available, the plant does not stop; but the efficiency of operations is adversely affected due to expediting expenses. They should be sufficiently stocked to ensure regular flow of work.
Desirable items Its non availability does not stop the
XYZ Analysis
XYZ analysis is more used in relation of the
customer demand for FG (finished goods). Annual stock value of items (bulk versus weight) is taken into account X is high demand or stock value, Y medium demand, Z very low or exporadic demand
FSN Analysis
Classification is based on the pattern of issues from stores & is useful in controlling obsolescence, based on 1) Average stay of the item in Inventory and 2) Consumption rate of the item. 3 categories Fast moving items shorter stay in warehouse Slow moving items Non moving items long stay in warehouse
PQR Classification
Based on shelf life of an item (time for which an
item displays its complete characteristics) P low shelf life, more attention Q medium R high shelf life, least attention
SDE Classification
Based upon the availability of items and is very useful in the context of scarcity of supply. S refers to scarce items, generally imported, and those which are in short supply. D refers to difficult items which are available indigenously but are difficult items to procure. E refers to items which are easy to acquire and which are available in the local markets.
GOLF Classification
Based on source of an item G Government special procedures for procurement, more lead time O Open Market large number of suppliers L Local emergency procurement F Foreign sources more paperwork and lead time
SOS Classification
Based on the time of availability
HML Classification
Based on unit price of material
H High
M Medium L Low
and useful only in small companies Through stock levels Minimum Level It is the minimum stock to be maintained for smooth production. Reorder Level The stock level at which an order should be placed. Stocks are just sufficient to meet the demands during one lead time before reaching min. level Danger / Warning level Level at which stocks are just sufficient to meet the demands during one lead time getting exhausted. It is lower than reorder level. Safety / Buffer Stock Level (Amber zone) Stock for usage at normal rate during the extension of lead time or fluctuations in supply Stockout level (Red zone) No material left in stock
fixed regular intervals and small safety stock is maintained. Fixed order quantity system When stock reaches re-order level, a fixed quantity (usually the EOQ) is ordered. Assumptions:
Demand for the product is constant Lead time is constant Price per unit is constant Inventory carrying cost is based on average inventory Ordering costs are constant per order All demands for the product will be satisfied (no back orders) Two-bin system stocks in two bins lower bin contains reorder level stock and upper bin contains difference between max. stock & reorder stock levels. Three-bin system modification of two-bin system where lower bin is split to two one contains reorder level and the other contains safety stock
TC DC
Q D H S 2 Q
EOQ
2 DS H
TC = Total annual cost D = Demand (annual) C = Cost per unit Q = Order quantity S = Cost of placing order/setup cost H = Annual holding and storage cost per unit of inventory
Fixed interval order system Hybrid system, P-system, Periodic Reorder or Cyclic order system
Inventory position is reviewed at fixed time
periods. If the inventory level is found to be above a preset reorder point, no action is taken. If the inventory level is at or below the reorder point, the analyst orders a variable quantity equal to Q=MX Where M Max. stock level X - current quantity on hand and on order. The reorder quantity therefore varies from one review period to the next.
operations that produce the same basic product in large quantities day after day. individual items are stored on the production line near the point of use. Review of material stock daily & imbalances reported
Variable order Variable interval Perpetual inventory system, Optional Replenishment system
In such systems, stock levels are reviewed on a
periodic basis, but orders are placed only when inventories have fallen to a predetermined reorder level. At that time, an order is placed to replenish inventories to the level that is sufficient for buffer stocks plus the expected requirements for one cycle, as in the periodic system.