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Inventory

The document discusses inventory management techniques. It defines inventory as stock of goods including raw materials, work in progress, consumables, finished goods, and spares. An efficient inventory management system determines what to purchase, how much, from where, and where to store. Techniques discussed include determining stock levels, safety stocks, economic order quantity, ABC analysis for categorizing inventory importance, VED analysis for spare parts, inventory reports, ordering systems, lead times, and calculating the inventory turnover ratio.

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3K views13 pages

Inventory

The document discusses inventory management techniques. It defines inventory as stock of goods including raw materials, work in progress, consumables, finished goods, and spares. An efficient inventory management system determines what to purchase, how much, from where, and where to store. Techniques discussed include determining stock levels, safety stocks, economic order quantity, ABC analysis for categorizing inventory importance, VED analysis for spare parts, inventory reports, ordering systems, lead times, and calculating the inventory turnover ratio.

Uploaded by

Aditya
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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INVENTORY

MANAGEMENT

PRESENTED BY:
RICHA MAHAJAN
INTRODUCTION
 MENING OF INVENTORY
 The meaning of inventory is ‘stock of goods’.In
accounting language it may include:
 (a)RAW MATERIAL:They are required to carry out
production acivities uninterruptedly.
 (b)WORK-IN-PROGRESS:It is a stage of stocks
between raw material & finished goods.
 (c)CONSUMABLES:These are needed to smoothen
the process of production.
 (d)FINISHED GOODS:These are the goods which
are ready for the consumers.
 (e)SPARES:Form a part of inventory.
Inventory management

 An efficient system of inventory


management will determine
 (a) what to purchase
 (b)how much to purchase
 (c)from where to purchase
 (d) where to store
NEEDS OF INVENTORY
MANAGEMENT
 TO ENSURE CONTINUOUS SUPPLY OF RAW
MATERIAL, SPARES AND FINISHED GOODS.
 TO AVOID BOTH OVERSTOCKING AND
UNDERSTOCKING OF INVENTRY.
 TO MAINTAIN INVESTMENTS IN INVENTRIES AT
OPTIMUM LEVEL.
 TO KEEP MATERIAL COSTUNDER CONTROL.
 TO ELIMINATE DUPLICATION IN ORDERING OR
REPLENISHING STOCKS.
 TO MINIMIZE LOSSES THROUGH WASTAGE
AND DAMAGES .
 TO FACILITATES FINISHING OF DATA.
TECHNIQUES OF INVENTRY
MANAGEMENT
 DETERMINATION OF STOCK LEVEL:
(a)MINIMUM LEVEL=RERDERING LEVEL-
(NORMAL CONSUMPTION * NORMAL
REORDERING PERIOD )

(b)MAXIMUM LEVEL=REORDERING
LEVEL+ REORDERING QUANTITY –
(MINIMUM CONSUMPTION * MINIMUM
REORDERING PERIOD )

(C) DANGER LEVEL=CONSUMPTION *


MAXIMUM REORDER PRIOD
 DETERMINATION SAFETY
STOCKS:
 Safety stock is a buffer to meet some
unanticipated increase in usage.
 TWO COST ARE INVOLVED IN THE
DETERMINATION
1.OPPORTUNITY COST OF STOCK OUTS
2.CARRYING COST
 INVENTORY TURNOVER RATIO:
 INVENTORY TURNOVER RATIO=COST
OF GOOD SOLD /AVERAGE INVENTRY
AT COST
 ECONOMIC ORDER
QUANTITY:
 Economic order quantity is the size of the
lot to be purchased which is economically
viable.
 EOQ IS MADE UP OF TWO PARTS :

1.ORDERING COST:These cost are


associated with the purchasing or ordering
of materials.
2.CARRYING COST:These are the costs for
holding the inventories.
 A-B-C ANALYSIS:
 The materials are divided into three categories viz,
A ,B &C
 CATEGORY-A:
 Under this almost 10% of the items contribute to
70% of value of consumption.
 CATEGORY-B:
 Under this category 20% of the items contribute
about 20% of value of consumption.
 CATEGORY-C:
 Under this category about 70% of items of material
contribute only 10% of value of consumption.
 VED ANALYSIS:
 The VED analysis is used generally for spare
parts.The requirements and urgency of spare parts
is different from that of materials.spare parts are
classified as vital(V),essential(E),desirable(D).
 VITAL SPARE PARTS:
 These are must for running the concern smoothly.
 ESSENTIAL SPARE PARTS:
 Necessory but stock kept at low figures.
 DESIRABLE SPARE PARTS:
 May be avoided at times.
 INVENTORY REPORTS:
 The management is kept informed
with the latest stock position of
different items by preparing
periodical inventory reports.on the
basis of these reports management
takes corrective action wherever
necessary.
 ORDERING SYSTEMS OF
INVENTORY:
 There are three prevalent systems of
ordering and a concern can choose any
one of these:
 (a)Fixed order quantity system generally known as
economic order quantity system.
 (b)Fixed period order system or periodic re-ordering
system or periodic review systems.
 (c)Single order and scheduled part delivery system.
 LEAD TIME:
 Lead time is the period that elapses
between the recognition of a need
and its fulfilment.There is a direct
relationship between lead time and
inventories.
 Lead time has two components:
 (a)administrative lead time
 (b)delivery lead time
 INVENTORY TURNOVER
RATIO
 Inventory turnover ratio=cost of good
sold*average inventory at cost
 or
=net sales*(average inventory)

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