Inventory Management

Managing Inventory for Profit Maximisation Anand Subramaniam

Key points ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

[object Object],Overall Objective of Inventory Mngt.

[object Object],[object Object],[object Object],[object Object],Types of Inventory

Inventory Classifications Inventory Process stage Demand Type Number & Value Other Raw Material WIP Finished Goods Independent Dependent A Items B Items C Items Maintenance Repair Overhaul .

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Inventory Management Objectives

What are the functions of Inventory? ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Decisions to Make

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Inventory Controls

[object Object],[object Object],[object Object],[object Object],Why inventory controls are important?

[object Object],[object Object],[object Object],[object Object],Effect of inventory errors on Financials STOCK-HOLDERS’ EQUITY Merchandise Inventory Cost of Merchandise Sold ASSETS COSTS & EXPENSES Net Income REVENUES LIABILITIES

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Inventory Management Challenges

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Inventory Terms

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Does your current system tell you…..

[object Object],[object Object],[object Object],[object Object],[object Object],Does your current system also…..

Manufacturing Suitability Process Discrete Make to Stock Consumer Packaged Goods Batch Food Products Pharmaceuticals Oil & Gas Process Repetitive Electronic Components Configurable Products Make to Order Assemble to Order Personal Computers Automotive Components Aerospace Project Engineer to Order Custom Products & Equipment

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Other Wait Time Move Time Queue Time Setup Time Run Time Input Cycle Time Output Material Flow Cycle - Details

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Help answer the inventory planning questions! Inventory Models

[object Object],[object Object],[object Object],Inventory Costs

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Holding / Carrying Costs

[object Object],Purchase Order Description Qty. Microwave 1 Order quantity Why Holding Costs Increases? Purchase Order Description Qty. Microwave 1000 Order quantity

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Inventory Holding Costs (Example)

[object Object],[object Object],[object Object],[object Object],Order Costs

[object Object],[object Object],Why Order Costs Decreases? Purchase Order Description Qty. Microwave 1 Purchase Order Description Qty. Microwave 1 Purchase Order Description Qty. Microwave 1 Purchase Order Description Qty. Microwave 1 1 Order (Postage $ 0.33) 1000 Orders (Postage $330) Order quantity Purchase Order Description Qty . Microwave 1000

[object Object],[object Object],[object Object],Setup Costs

[object Object],[object Object],[object Object],[object Object],[object Object],Why EOQ?

[object Object],[object Object],[object Object],[object Object],Economic Order Quantity - EOQ costs carrying too much inventory costs carrying too little inventory ,[object Object],[object Object],[object Object]

A = The annual usage in units S = The overhead cost of placing one order C = The unit cost i = The carrying cost rate What is the formula for EOQ? What do the terms mean? Calculating EOQ EOQ iC AS 2 

C O S T ORDER QUANTITY E.O.Q . ORDER PLACEMENT/ SETUP COST STOCK HOLDING COST Economic Batch Quantity

When do we place the inventory order? What is the formula? ,[object Object],[object Object],Minimum Quantity Calculation Minimum Quantity = Average lead time in days x Average daily sales + Safety Stock

TIME S T O C K L E V E L SAFETY STOCK LEVEL (SS) MQ LT USAGE ( U) = 10 UNITS / DAY LEAD TIME ( LT) = 5 DAYS SAFETY STOCK (SS) = 20 UNITS Minimum Quantity (MQ) = SS + ( LT x U ) = 20 + ( 5 X 10 ) = 70 UNITS MQ = user defined 20 40 70 Minimum Quantity - Example

[object Object],[object Object],[object Object],When to Reorder with EOQ Policy

[object Object],[object Object],[object Object],Safety Stock & Safety Lead Times

[object Object],[object Object],[object Object],Safety Stock Reasons - Components

LT Time Expected demand during lead time Maximum probable demand during lead time MQ Quantity Safety stock Determining Safety Stock

[object Object],[object Object],[object Object],Safety Stock Challenges

EOQ MQ Safety Stock Inventory (Units) 3 days 6 days 9 days 12 days Average Lead Time (3 days) MQ with Safety Stock EOQ, Minimum, Safety Stock Levels

[object Object],[object Object],[object Object],[object Object],Inventory Counting Systems

[object Object],[object Object],[object Object],Cycle Counting Systems

[object Object],[object Object],[object Object],[object Object],[object Object],Advantage of Cycle Counting

[object Object],[object Object],[object Object],[object Object],Annual $ volume of items A B C High Low Few Many Number of Items ABC Classification Systems

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],ABC Analysis – Basis & Policy

% of Inventory Items Classifying Items as ABC 0 20 40 60 80 100 0 50 100 % Annual $ Usage A B C Class % $ Vol % Items A 80 15 B 15 30 C 5 55

[object Object],[object Object],[object Object],[object Object],Recap

Inventory Management

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Inventory Management