INVENTORY MANAGEMENTAnd its TECHNIQUES

Presented byAffan Ali

Inventory

The dictionary meaning of Inventory is STOCK OF GOODS.

The word inventory is understood differently by various authors. In accounting it may mean stock of finished goods only.

In a manufacturing concern, it may include raw materials, work in progress and stores, etc.

In Retail, the amount of stock present in a retail outlet and ready to be distributed.

Inventory ManagementInventory Management is a Science

primarily about specifying the shape and percentage of stocked goods.

A proper planning of purchasing, storing, and accounting should form a part of inventory management.

An efficient system of inventory management will determine:

1)What to purchase

2) How much to purchase

3)From where to purchase.

4)Where to Store.

The purpose of inventory management is to keep the stock in such a way that neither there is over- stocking nor under- stocking.

Inventory

Management techniques

Several techniques of inventory are in use and it depends on the convenience of the firm to

adopt any of the techniques.

1) Economic Order

QuantityEOQ is a quantity of inventory which can reasonably be ordered economically at time.

In determining this point, ordering costs and Carrying Costs are taken into consideration.

Ordering costs are basically the cost of placing an order.

Carrying cost includes costs of storage facilities and loss of value through physical deterioration, cost of obsolescence.

The balancing point is known as Economic Order Quantity.

2) ABC Analysis

Under this the inventory is classified into 3 categories viz. A B and C. These categories are based upon the inventory value and cost significance .

Items of High value and small in no. are termed as A.Items of moderate value and moderate in no. are termed as B.Items of small value and large in no. are in category C

It means Always Better Control

The cost of each item is multiplied by the no. used in a given period and then these items are tabulated in descending numeric value order.

3) VED AnalysisIn this, the items are classified on the basis of their criticality to the production process or other services.

In this classification of materials, V stands for Vital items without which the production process would come to standstill.

E denotes Essential items whose stock out would adversely affect the efficiency of the production system. Their non availability might cause temporary losses.

The D items are the Desirable items which are

Required but do not immediately cause a loss of production.

The VED analysis is done mainly in respect of spare parts.

4) Just In Time It is a philosophy that focuses attention on eliminating waste by purchasing or manufacturing just enough of the right items just in time.

It is a Japanese management philosophy applied in manufacturing which involves having the right items of the right quality and quantity in the right place and at the right time.

It involves having products arrive as soon as the customers order them.

5) Inventory TurnoverThis ratio is computed by dividing the cost of goods sold by the average inventory.

Stock Turnover Ratio= Cost of goods soldAverage inventory

It is way of measuring how many times a business use inventory in a given time period.

Business use inventory turnover to assess competitiveness, project profits , and generally figure out how well they are doing in their industry.

6) Inventory Control of Spares

Stores and Spares term which commonly covers all kinds of supplies necessary to keep production equipment operating.

The firm should keep each and every component of stores and spares to a reasonable level.

Stores and Spares inventory turnover:

Annual Consumption of Stores and Spares Stores and spares inventory

7) Stock keeping unitEvery product at the store has a unique

code. This code helps in identification and tracking of the products at the retail store.

The retailer feeds each and every SKU in the master computer and can easily track the product in the stock just by entering the SKU no.

8) Stock ReviewIt is a regular analysis of stock versus projected future needs. This can be done through a manual review of stock or by using inventory software.

“One of the great responsibility that I have is to manage

my assets wisely so that they create

value”Alice Walton