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IS 10400 (1992): Glossary of terms in inventory control

[MSD 4: Management and Productivity]

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( Reaffirmed 2005 )

Indian Standard

GLOSSARY OF TERMS IN
INVENTORY CONTROL
(First Revision )

UDC 6587873 : 0014

BUREAU
MANAK

OP

BHAVAN,

BIS 1992

INDIAN
9 BAHADUR

NEW DELHI
December

1992

STANDARDS
SHAH ZAFAR

MARG

110002
Price Group 2

Management

and Productivity

Sectional

Committee,

MSD 4

FO_REWORD
This Indian Standard ( First Revision ) was adopted
draft finalized by the Management
and Productivity
Management
and Systems Division Council.
This standard

was first published

by the Bureau of Indian

Standards,
after the
Sectional Committee had been approved by the

in 1983.

Organizations
in developing economies generally tend to have excessive inventories
at all stages,
namely, finished goods, goods in transit, in-process inventories,
pre-use inventories,
and inventories
awaiting disposal being surplus/obsolete.
Inventory control is a function ~of materials
management
which helps in optimizing
stocks consistent
with requirements.
This glossary

is intended

to minimize

The terms defined in this standard

materials management.

confusion

by rationalizing

are to be linked

existing

with the terms

terms and their meanings.

defined

for

other

functions

of

IS 10400 : 1992

Indian Standard
GLOSSARY OF TERMS IN
INVENTORY
CONTROL
( First Revision )
3.1.3 Stores in Transit

1 SCOPE
1.1 This standard
relating to inventory
2 BASIC

gives
defiuitions
control.

of

terms

Stock that has left the premises

but has not reached the buyer.

of the

supplier,

3.2 Work-in-Progress

TERMS

2.1 Inventory
Inventory
refers to the stock on hand at a given
point of time ( a tangible asset which can be seen,
weighed or counted ). It refers to the stock in
hand and work-in-progress.
In the most general
The financial
sense, inventory is an idle resource.
expression is inventory
in number of days.

Partly manufactured/processed
material
awaiting
further
manufacturing/processing
between
two
operations and are in the process of being tfabricated or assembled into finished
products,
including materials
lying with sub-contractors
and
material lying in shop floor for further
processing
or assembly.
3.3 Finished Goods

2.2 Inventory Control

A functional
activity the objective of which is to
minimize the total costs of maintainitrg
inventories
and of acquiring
them in order to render the
stipulated
level of service.
This term is also
referred to as stock control.

The complete units and the assemblies

carried
in
stock ready for delivery to customers or for transfer to other plants or for own use.
Generally,
they are items that have been produced
by the
organization,
although
they may include
complete items purchased for resale.

2.3 Inventory Management

3.4 Maintenance,
(MRO)

That aspect of the overall management

implements
and
that
determines
policies.
2.4 Inventory

function
inventory

Policy

A definitive statement
regarding
the philosophy
of inventory
management;
a policy stating
when
to procure and how much to procure,
usually
to
ensure that the sum of all costs associated
with
Criteria
the inventory process will be minimized.
other than cost are also sometimes
used,
for
example, goodwill etc.
3 INVENTORY

3.4.1

3.4.2

Expense Items

Frequently
used items of small unit [value and
also small aggregate consumption
value. Generally
very limited control
is called for issue of such
items, for example,
cleaning
agent, pencil, pins,
etc.

CLASSIFICATION
3.4.3

Raw Materials

Basic materials
for processing/conversion
into
finished goods, for example,
pig-iron,
coke, lime
stone, iron ore, MS rods, PVC resin, paper, etc.
3.1.2

Consumables

Materials which are required for use in the process but are not the inputs
for finished goods,
like coolants,
lubricants,
cleaning
materials,
solders, fluxes, etc.

3.1 Incoming Materials

3.1.1

Repair and Operating Supplies

Insurance Spares

Spares of items of prohibitive

high
stock-out
costs but likely to be rarely required
during
the
normal working life of the machine,
equipment,
assembly or any other thing of which the spare
forms a part, for example, tail stock of a lathe
machine.

Bought-out Components

3.4.4

manufactured/fabricated
by
the
Items
not
organization
but used with or without
further
processing and/or packing the finished product.

Spares

A duplicate kept or carried in reserve of an item

or of a sub-assembly
or component
thereof,
for
example, fan belt, stepany, etc.
1

IS 10400 : -199z
4 INVENTORY

5.2 Average Iuventory

ANALYSIS

4.1 A B C Analysis
The technique
used to classify items into three
classes A, B and C based on annual
usage value.
Class A covers about 10 percent of the items with
highest annual
usage value which in aggregate
generally account for over 70 percent of the total
annual Gage value of all items.
Class C! covers
about 70 percent of the items which account
for
up to 10 percent of the total annual
usage value.
The
remaining
about
20 percent
items
are
classified as class B.
4.2 F S N Analysis
The technique used to classify items into three
classes in the descending-order
of their frequency
of issue from stores in terms of the number
of
transactions
made per unit time.
Here, F stands
for fast moving,
S for slow moving and N for
non-moving
items.

The average level of inventory

during
the period
under consideration.
For an accounting
order,
it is worked out as the sum of 12 consecutive
monthly averag,c inventory values divided by 12.
5.3 Consumption
Actual

Rate

consumption

of an item per unit of time.

5.4 Economic Order Quantity

The quantity
ordered at one
ordering costs
term optimum
The EOQ may
equation:

( EOQ )

of a product
which
should
be
time so as to minimize the sum of
The
and inventory carrying
costs.
lot size is also used sometimes.
be calculated
from the following

EOQ =

2AS
cI

where

4.3 H M L Analysis

A=

Annual

The technique used to classify items into three

classes in the descending
order of their unit cost.
Here, H stands for high, M for medium
and L
for low unit cost items.

s=

Ordering

I=

Inventory carrying cost as a fraction

the average inventory,
md

c=

consumption

in units,

Cost in rupees per order,

of

Unit cost

4.4 S D E Analysis

NOTES

The technique used to classify items into three

classes in the descending
order
of ease of
availability
with which supplies can be obtained.
Here, S stands for scarce, D stands far difficult
and E stands for easily available items.

1 Sometimes the ordering costs includes only those

components
of costs which vary directly with the
increase in thr: number of orders and the inventory
carrying cost includes only those constituents
of costs
which very directly with the increase in average
inventory cost. The EOQ so calculated,
does not
change significantly from the above value and may be
used for the purpose of inventory control.

4.5 V E D Analysis

2 If A is taken as annual consumption

value, the
EOQ in terms of value is then calculated as follows:

The technique used to classify items into three

classes in the descending order of their criticality
for the organizations,
performance
as a whole.
The criticality may be either technical or environmental.
Here, V stands for vital items in the
absence of which the stock out costs would be
very high, E for essential
and D for desirable
items.

EOQ ( Value ) =

5.5 Inventory Carrying Cost

The cast of holding
inventories.
The
major
constituents
are the costs of capital locked up in
form of inventories,
deterioration,
obsolescence,
space, personnel,
insurance,
security
and other
related costs.
This is usually
represented
as a
percentage.

4.6 X Y Z Analysis
The technique similar to ABC analysis,
but the
basis is actual stock position
at the time
of
analysis.
If the stock values are very high, they
are classified as X-class ( over 70 percent of stock
value ) and need special efforts to reduce the
inventory level.
Y-class and Z-class items have
medium stock and low stock values respectively.
5 REPLENISHMENT

J-

2AS
1

5.6 Lead Time ( -LT )

The actual or expected time between initiation
and fulfilment of an indent.
The LT consists
of
several sub-LTs, such as suppliers/manufacturing
LT, transportation
LT, administrative
LT.
Some
of the sub-LTs constitute
the external
LTs and
some constitute the internal LT.

SYSTEM

5.1 Annual Usage

5.7 Maximum
Number of units of an item consumed during
accounting
year.
This term is also
used
denote the value of such usage.

the
to

Level

The sum of the safety stock and consumption

during lead time and review period of an item.
2

IS 10400:1992
5.8 Ordering

where

Cost

R = Rate of consumption,
L = Maximum lead time, and

The cost incurred

in placement
of a purchase
order from the time demand
is received in the
purchase department
to the time Items are taken
in the stores ledger and includes
salaries,
freight,
insurance,
handling, clearing, forwarding,
inspecIt is expressed
tion and other incidental
charges.
as rupees per order.

There are other statistical formulae which may be

used if wide uncertainty
both in demand and lead
time is predicted.

5.9 Periodic

5.13 Stock Out

Review System

Under this system, certain

number
of items are
reviewed
for ordering
at fixed intervals
called
This is also called P system.
review period.
It is calculated
as
Optimum

Review

Period

288 S
ACT

5.9.1 Periodic Review System with Variable Order

Quantity
Under this system, an order of quantity
equal to
the difference
between
the maximum
level and
the quantity
at hand is placed at the time of
review.
5.9.2 Periodic
Quantity

Review System with Fixed

Order

Under this system, an order equal to a fixed

quantity,
i.e., EOQ is placed at the time of review
if the quantity at hand is below the reordering
limit.
If the quantity
at hand is above
the
reordering
limit, no order is placed.
Reordering

Limit

= Safety Stock + Consumption during lead time +

Consumption
during half
review period

1 = Normal

Non-availability
indented for.

lead time

of materials

or products

that

are

5.14 Stock Out Cost

The total costs incurred
due to non-availability
of a particular
material or product when needed.
In the case of finished goods, this includes
customers, goodwill and/or the net profit lost. Stockouts of in-process and the pre-use materials
may
result in stock-outs of the finished
goods besides
the costs of under-utilized
capacity.
5.15 Two-Bin

System

A type of reorder level system in which inventory

is carried in two bins, one is called service bin
and the other one is called working
bin.
A
replenishment
quantity
is ordered
when
the
working
bin is empty.
When
the supply
is
received the service bin is refilled first and the
excess is put into the working bin.
This term is
also sometimes used to describe any fixed order
system even when physical
bins do not exist.
This method is usually
adopted
for low annual
usage value ( AUV ) items.
6 STORES

PRICING

SYSTEM

6.1 FIFO ( First-in First-out )

5.10 Re-ordering

Level ( ROL )

In this method, the costs of material

ferred to the item in chronological
receipt.

The sum of the safety stock and the consumption

during normal lead time.
It represents
the stock
level at which action is initiated
to re-order
the
item.
5.11 Re-ordering

6.2 LIFO

Stock/Buffer

6.3 Standard

Pricing

transorder

System

A method of valuation
by which items are priced
at a predetermined
standard rate for a predetermined period.

Stock

The inventory kept to provide

protection
against
the fluctuations
in demand and in lead time or
fulfilling cycle time.
Buffer stock is a synonym
for safety stock.
Sometimes
it is also called
minimum
level.
In case the demand
remains
almost steady the safety stock may be calculated
as:
Safety Stock = R ( L -

( Last-in First-out )

In this method, the costs of material

are
ferred to the item in reverse chronological
of receipt.

Level System

In this case, an order is placed for the quantity

equal to the economic order quantity
as soon as
the stock level reaches re-ordering
level.
This is
also sometimes called fixed order system.
5.12 Safet)

are transorder
of

6.4 Weighted Average Method

This method consists of recalculating
an average
price each time a new consignment
is received
at
a new price.
Both the quantities
and prices are
considered
for calculation,
since
the
prices
fluctuate and the order quantities
vary.

1)
3

IS 10400:1992
7 OTHER

7.11 Obsolete

TERMS

7.1 Bin Card

Inventory

Inventory which has lost its usefulness

or worth
to the current possessor as a result of changing
over to different and/or more economical products,
or change in technology.

It is perpetual inventory record card which gives

a continuous
account
of the incoming
material,
The
outgoing material and the balance on hand.
card is normally
tagged to the bin where the
material is stored or filled in at a central place in
stores with the actual location of the corresponding material clearly marked on it.

The expected
period of time during
which an
item when stored in the specified manner
will
retain its quality/performance.

7.2 Catalogue

7.13 Stores Requisition

A systematic
list of items
description,
price, etc.

giving

part

number,

7.12 Shelf Life

Authorization
usually
in a prescribed
the stores for issue of material.

A form of the identification

of reference
which
serves the dual purpose of establishing
in a systematic manner the unique and complete
identity
of an individual
item and/or
bringing
out its
It may consist of
similarity with other products.
a brief and systematic
combination
of letters,
numerals
and/or
symbols.
A systematic
code
used in conjunction
with a key for decoding
and
assisting identification
of an item will enable its
characteristics
to be known.

A place designated
7.14.1

A place
inventory.
7.14.2

7.14.4

Turn-Over

or

by the average

7.15.2

Quarantine

for

goods

keeping

finished

goods

keeping

inventories

Stores
for

Perpetual

Stock

of

VeriJication

Annual Stock

Taking

7.16 Stock Verification

at a time.

-Requirement

designated

Stock verification
wherein
once in a year.
Normally
of the financial year.

7.9 Lumpy Demand

7.10 Material

in-process

Stockverification
wherein inventory
is checked
continuously
rather than once a year.
Normally,
it may be taken when an item reaches its reorder
level or when new stock is received or on regular
basis, usually more frequently
for high value or
fast moving
items and less frequently
forl.low
value or slow moving items.

( JIT )

in lumps

keeping

who

JIT is an integrated
system of managing
the flow
of resources in such a manner
that the resources
reach the user at the time of use.

Demand

for

A process of physically
verifying
inventory
in
order to check whether the actual quantities
tally
with the documented
figures.
This is also called
stock verification.

Ratio
divided

material

7.15 Stock Taking

7.15.1

sales turn-over

7.8 Just-in-Time

organization

raw

Store

A place designated
disputed items.

7.6 Indentor
The person, department
raises the indent.

keeping

Finished Goods Store

A written intimation
acknowledging/certifying
the
receipt of materials.
It is also called materials
receipt note ( MR Note ).

A prescribed form describing the indentors

requirements of inventory items ( see also 7.13 ).

for

A place designated
inventory.
7.14.3

inventories.

Store

designated

In-process

A place
inventory.

7.5 Indent

for keeping

Raw Material

7.4 Goods Received Note ( GR Note )

The annual
inventory.

to

7.14 Stores

7.3 Codification

7.7 Inventory

form

inventory
it is taken

Report

is checked
at the end

( SVR )

A report filled in by the stock verihers at the time

of stock varification.
It indicates
variations,
if
any, between the physical
stock and the ledger
record.

Planning

It is a technique
which uses the bill of material to
explode the master schedule for products
or end
items to develop a plan for production
or procurement of components
or materials
needed to support the master schedule.
It uses the bill of
material, lead time, lot sizing rules and inventory
availability
information.

7.17 Surplus

Inventory

When the quantity of an item in stock is more

than the predetermined
maximum
level,
the
excess holding is surplus inventory.
4

Standard Mark
The use of the Stahdard
Mark is governed
by the provisions of the Bureau qf Indian
Standards Act, 1986 and the Rules and ~Regulations made thereunder.
The Standard Mark on
products covered by an Indian Standard conveys the assurance that they have been produced
to comply with the requirements
of that standard under a well defined system of inspection,
testing and quality control which is devised and supervised
by BIS and operated
by the
producer.
Standard
marked products
are also continuously
checked by BIS for conformity
Details of conditions
under which a licence for the
to that standard as a further safeguard.
use of the Standard
Mark may be granted to manufacturers
or producers may be obtained
from the Bureau of Indian Standards.

Bureau of Indian Standards

BIS is a statutory institution
established under the Bureau of Indian Standards Act, 1986 to promote
harmonious
development
of the activities of standardization.
marking and quality certification
of goods
and attending to connected matters in the country.
Copyright
No part of these publications
may be reproduced
in
BIS has the copyright of all its publications:,
any form without
the prior permission
in writing of BIS. This does not preclude the free use, in the
course of implementing
the standard,
of necessary details,
such as symbols and sizes, type or grade
designations.
Enquiries
relating to copyright be.addressed
to the Director ( Publications
). B-IS.
Revision of Indian Standards

:
lndian
Standards
are reviewed
periodically
and revised, when necessary and amendments,
if any, are
issued from time to time.
Users of Indian
Standards
should ascertain
that they are in possession
of
Comments
on this Indian
Standard
may be sent to BIS giving the
the latest amendments
or edition,
following reference :
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4(2)

Amendments
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Issued Since

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Date of lssue

No.

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