inventory flow final

7/31/2019 Inventory Flow Final

1/46

Inventory Control


2/46

Inventory System Defined.

Types of Inventory.

Trade off Between Inventory and Servicelevel

Inventory control across the supply chain. Inventory Management in JIT

Inventory Accuracy.

Symptoms of poor Inventory Management.

Inventory Costs.

Independent vs. Dependent Demand

Evaluation of Inventory Management

Topics Covered


3/46

Inventory System

Inventory is the stock of any item orresource used in an organization andcan include: raw materials, finishedproducts, component parts, supplies,and work-in-process

An inventory system is the set ofpolicies and controls that monitor levelsof inventory and determines what levelsshould be maintained, when stockshould be replenished, and how largeorders should be


4/46

Purposes of Inventory

1. To maintain independence ofoperations

2. To meet variation in product demand

3. To allow flexibility in productionscheduling

4. To provide a safeguard for variation inraw material delivery time

5. To take advantage of economicpurchase-order size


5/46

Types-Nature of Materials

Production Inventories.

MRO Inventories.

In-Process Inventories.

Finished-goods Inventories.


6/46

Types-Use of Material

Transaction Inventory.

Speculative Inventory.

Precautionary Inventory


7/46

Functional Classification of Inventory.

Working stock

Safety stock

Anticipation stock.

Decoupling stock

Psychic stock


8/46

Trade off Between Inventory and Servicelevel


9/46

Inventory control across the supplychain.

Always Better Control (ABC)Analysis.

VED Classification.

FSN Analysis.

Barcoding.

Radio Frequencyidentification(RFID).


10/46

Always Better Control (ABC) Analysis

This technique divides inventory intothree categories A, B & C based on theirannual consumption value.

It is also known as Selective InventoryControl Method (SIM)

This method is a means of categorizinginventory items according to the potentialamount to be controlled.

ABC analysis has universal applicationfor fields requiring selective control.


11/46

Advantages of ABC Analysis

Helps to exercise selective control

Gives rewarding results quickly

Helps to point out obsolete stocks easily.

In case of A items careful attention can

be paid at every step such as estimate ofrequirements, purchase, safety stock,receipts, inspections, issues, etc. & closecontrol is maintained.


12/46

In case of C items, recording &follow up, etc. may be dispensedwith or combined.

Helps better planning of inventorycontrol

Provides sound basis for allocationof funds & human resources.


13/46

Disadvantages of ABC Analysis

Proper standardization & codification ofinventory items needed.

Considers only money value of items &neglects the importance of items for the

production process or assembly orfunctioning.

Periodic review becomes difficult if onlyABC analysis is recalled.

When other important factors make itobligatory to concentrate on C itemsmore, the purpose of ABC analysis is

defeated.


14/46

VED Classification

VED: Vital, Essential & Desirable

classification

VED classification is based on the

criticality of the inventories.

Vital items Its shortage may cause

havoc & stop the work in organization.

They are stocked adequately to ensure

smooth operation.


15/46

Essential items - Here, reasonable risk

can be taken. If 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 work because they can

be easily purchased from the market as

& when needed. They may be stocked

very low or not stocked.


16/46

It is useful in capital intensiveindustries, transport industries, etc.

VED analysis can be better used withABC analysis in the following pattern:

Category V items E items D items

A items Constant control& regular follow

upModerate stocks Nil stocks

B items Moderate stocks Moderate stocks Low stocks

C items High stocks Moderate stocks Very low stocks


17/46

FSN Analysis

FSN: Fast moving, slow moving & non

moving Classification is based on the pattern of

issues from stores & is useful in

controlling obsolescence. Date of receipt or last date of issue,

whichever is later, is taken to determinethe no. of months which have lapsed

since the last transaction.


18/46

The items are usually grouped in periodsof 12 months.

It helps to avoid investments in non

moving or slow items. It is also useful infacilitating timely control.

For analysis, the issues of items in pasttwo or three years are considered.

If there are no issues of an item duringthe period, it is N item.


19/46

Then up to certain limit, say 10-15 issuesin the period, the item is S item

The items exceeding such limit of no. of

issues during the period are F items. The period of consideration & the limiting

number of issues vary from organizationto organization.


20/46

Barcoding

Invented in 1950s, barcodes accelerate the flowof products and information throughoutbusiness.

EPOS system verifies, checks and chargestansaction provides instant reports.

Production application for barcoding

Counting raw Material and finished goods.

Lot tracking. Production reporting Automatic warehouse application picking

and shipping

Identification of production bottlenecks

Package tracking.


21/46

Barcoding provides the followinf benefits.

Faster data entry.

Greater accuracy.

Reduce Labor cost.

Elimination of cost over or understocking.

Faster access to information.

The ability to automate warehouse.

Greater responsiveness to customer andsupplier


22/46

Radio Frequency Identification

An RFID contains a silicon chip thatcarriers an identification no. and anantenna able to transmit the no. to

reading device.


23/46

Advantages of RFID

Line of sight.

Range

Bulk Read

Selectivity.

Durability.

Read/Write.


24/46

Limitation

Cost.

Moisture.

Metal Radio.

Electrical Interference.

Accuracy.

Overcompensation. Security.


25/46

1-25

JIT(Just In Time)

Akshay S Bhave


26/46

Defination

Just-in-time (JIT) is defined in the APICSdictionary as a philosophy ofmanufacturing based on plannedelimination of all waste and on continuous

improvement of productivity Its a long-term approach to process

improvement. It uses timeliness as a leverto lower costs, improve quality and

improve responsiveness. In simpler words, JIT delivers the right

items at right time in the right amounts

JIT di i l OM


27/46

JIT versus a traditional OMphilosophy

TraditionalGoal: maximize production by minimizing disruptionsManagement Assumption: we can sell what we makeManufacturing Objectives:

Spread resources evenly: line balancing

Decouple operations: line pacing and extensive scheduling Dependable and efficient operations: automation and forecasting

JITGoal: Produce salable goods as quickly and efficiently as possible

Management Assumption: we make what we can sellManufacturing Objectives:

Clean up the workplace (5Ss) Flow manufacturing: GT/CM and cross training Level production with visual control: JIT, kanban, SPC Manpower reduction


28/46

Key elements of JIT

1. Stabilize and level the inventory withuniform plant loading

2. Reduce or eliminate setup times3. Reduce lot sizes4. Reduce lead times5. Preventive maintenance6. Flexible work force

7. Require supplier quality assurance andimplement a zero defects qualityprogram

8. Small lot (single unit) conveyance


29/46

Role of Inventory Reduction

Inventory = Lead Time (less is better)

Inventory hides problems


30/46

5S

Seiri: Proper arrangement (sort through and sortout, identify what you need, discard what you donot need)

Seiton: Orderliness (assign a separate location forall essential items)

Seiso: Cleanliness (keep the workplace spotlessat all times)

Seiketsu: Cleanup (maintain equipment and tools) Shitsuke: Discipline (stick to the rules

scrupulously)


31/46


32/46

Inventory Flow


33/46

When to use

JIT is a suitable production system when:

have steady production of clearly definedstandard products

a reasonable number of units made

a high value product

have flexible working practices and a disciplinedworkforce

short setup times on machines

quality can be assured, e.g. zero defects eitherthough good working practices or though a costpenalty

Availabilit of nearb su liers and bu ers


34/46

Benefits better quality products quality the responsibility of every worker, not just quality

control inspectors

reduced scrap and rework reduced cycle times

lower setup times smoother production flow

less inventory, of raw materials, work-in-progress andfinished goods

cost savings higher productivity higher worker participation more skilled workforce, able and wiling to switch roles reduced space requirements

improved relationships with suppliers


35/46

Push Production Systems

make to stock

production decisions are based on

forecasts of demand

appropriate when uncertainty aboutdemand is low

generally not compatible with JIT


36/46

Pull Production Systems

Make to order

work is triggered by order fromexternal customer, or internalcustomer (e.g. last station in

line) generally compatible with JIT


37/46

Push & Pull Supply Chains

Just as individual firms can implementpush or pull operations, entire supply

chains can be Push

Pull

Push-Pull Hybrid

Some components are push, others pull


38/46

INVENTORY ACCURACY

Meaning

Causes of Inventory inaccuracy

Auditing inventory records Periodic (annual) inventory

Cycle counting


39/46

Inventory Models

Mathematical equation or formula that helps afirm in determining the economic order quantity,and the frequency of ordering, to keep goods orservices flowing to the customer withoutinterruption or delay.

Types of models

Deterministic modelStochastic Inventory Models


40/46

EOQ model

Monetary unit lot size

Non instantaneous Receipt Model Periodic review system/Periodic order

quantity model

Continuous Review model


41/46

INVENTORY ACCURACY

Meaning

Causes of Inventory inaccuracy

Importance of inventory accuracy Auditing inventory records

Periodic (annual) inventory

Cycle counting


42/46

Evaluation of inventory performance.

Financial evaluation

Inventory turnover ratio

Methods of evaluating inventory

FIFO

LIFO

Average cost

Standard cost


43/46

Symptoms of poor Inventory Management

Increasing number of backorders

Increasing cancelled orders

Increasing numbers of returns High customer turnover rate

Large number of obsolete items

Periodic lack of storage space

W R d I L l


44/46

Ways to Reduce Inventory Levels

Lead-time analysis

Delivery-time analysis

Eliminate low turnover items

Eliminate obsolete items

Analysis of package size

Analysis of discount structure

vendors/suppliers


45/46

Examine returned goodsprocedures

Measurement of fill rate by stock-keeping unit (SKU)

Analysis of customer demand

Improve forecasting

Improve Electronic data interchangewith


46/46

Inventory Costs

Holding (or carrying) costs Costs for storage, handling,

insurance, etc Setup (or production change) costs

Costs for arranging specificequipment setups, etc

Ordering costs Costs of someone placing an order,

etc Shortage costs

Costs of canceling an order, etc

inventory flow final

Documents