inventory control valuation

INVENTORY CONTROL

Presented by:

Kenneth Chinweikpe Amadi

CONTENTS

W

hat is Inventory

W

hat is Inventory Management

T

ypes of Inventory Control Valuation

08/04/23 2kenfscott.Inc

WHAT IS INVENTORY

T

he goods and Materials that a business holds for the purpose of resale

T

hey are assets of a firm

T

hey are stock of goods

I

t is a usable resources which is physical and tangible

I

t is a complete list of items such as property, goods in stock, or the contents

of a building.


oI

nventory include such things as the

following; Raw Materials Work in Progress Finished products or spare parts And other indirect material


INVENTORY MANAGEMENTT

he activities employed in maintaining the optimum number or amount

of each inventory items

A

lso means maintaining adequate supply of something to meet the

expected demand pattern subject to budgeting considerations

Inventory constitute the largest components of current issues in many

organization hence poor management will lead to business failures,

wastage of capital and resources


TECHNIQUES OF INVENTORY CONTROL VALUATION

A

BC Analysis

V

ED classification Analysis

F

SN Analysis

X

YZ Analysis

E

OQ Models

H

ML

S

DE and Golf classifications


ABC ANALYSISU

nderlines a very important principle of “vital few, trivial Many”

U

sed in Materials Management

A

lso Known as Selective Inventory Control

P

rovides mechanism for identifying items that will have significant impact on

overall inventory cost

I

t suggest that inventory of an organization are not of equal value


S

egregate all items of inventory into three categories A,B,C;

A

- items constitute the top 15% of items in the inventory and accounts for over

80% of the total rupee value

B

- items constitute about 35% of inventory items and accounts for 15% rupee

value

C

- items constitute about 50% of inventory items but amounts to only 5% of

rupee value

S

o ABC analysis can be considered as “Think of the best and thin out the rest”.


VED ANALYSISV

ED is based on the criticality of an item

U

sed generally for spare parts and can be extended to material handling

T

he requirements and urgency of spare parts is different from that of

materials. The parts are classified as;• V(Vital)• E(Essential)• D(Desirable)


• Vital items are items without which a system cannot function.

V

ital Parts are;• Very critical• Have high opportunity• Cost of shortage• Must be available in stock whenever needed

E

ssential items are items that are also needed by the

system, there unavailability does not affect the

functioning of the system per say but reduce the

quality of services provided.


E

ssential items are;• Quite critical• Have substantial opportunity cost of shortage• Should be available in stock by and large.

D

esirable items are items whose unavailability will

not affect the functioning of the system.

D

esirable items are;• Have no serious consequence on the system• Can be stocked.


FSN ANALYSIS

T

his analysis is based on the rate of consumption of

items.

I

t places items in three categories• Fast Moving(F)• Slow Moving(S)• Non Moving(N)


F

or Fast Moving Items(F), fast moving consumer goods like the

everyday items used falls in this category example, biscuits,

milk or diary products, vegetables, confectioneries, etc.

F

or Slow Moving Items(S), items that are not used everyday,

not required every time fall in this category, example, Non

perishable items.

F

or Non Moving Items(N), machine and equipment used in

production falls in this category


XYZ ANALYSIS

T

his analysis is based on the value of stocks on hand.

I

t tends to analyze items also in three categories

I

tems whose inventory value are high is labeled (X)

I

tems whose inventory values are low are labeled (Y)

I

tems which have moderate inventory stock or value are labeled (Z)


X

- items have constant consumption.• Fluctuations In stock and value is rare

Y

-items have stronger fluctuation in consumption• Usually for trend-moderate or seasonal reasons

Z

- items have completely irregular consumption• Hence will also have irregular stock


EOQ MODELT

his is by far one of the oldest classical production and inventory

management models

E

OQ is the order quantity that minimizes total inventory holding cost

and ordering cost.

I

t is applied only when demand for a product is constant over the year

and each new order is delivered in full when inventory reaches zero.


E

OQ is based on the following assumptions;• Constant Demand• Constant Unit Price• Constant Carrying Cost• Constant Ordering Cost• Instantaneous Delivery• Independent Orders etc.


E

OQ answers questions like• What to order• When to order• How frequently to order

E

OQ can be calculated using

EOQ=√(2Co/Ch)

R=dL

W

here:• Co=Ordering Cost• Ch=Holding Cost• d=demand rate per period• L=lead time• R=recorder time which Is the level of inventory at which a new order is placed.


ADVANTAGES OF INVENTORY CONTROL

R

educe certain costs such as• Ordering cost• Transportation cost• Handling cost

A

dvantage of Quantity Discount

H

edge against inflation and price increases

P

rotection against delivery variations

E

nhanced efficiency of organization


REFERENCES

O

perations Management Lecture Notes by Ms. Divya Gupta

P

roduction And Operations Management • S.A Chunawalla• D.R Patel

I

nventory Control by Dr. Sukhwant Singh• http://www.authorstream.com/Presentation/drsukhwant-488922-inventory-

control/

I

nventory Management by Dr. Neeraj Chitkara• http://www.authorstream.com/Presentation/chitkara-1497318-inventory-manag

ement/


http://www.authorstream.com/Presentation/chitkara-1497318-inventory-management/



ANY

QUESTIONS?


Thank You


inventory control valuation

Business

items of inventory

vital items

ssential items

theeveryday items

c items

inventory hat

total inventory

inventory values