Inventory Management Chandan

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ACCMAN INSTITUTE OF MANAGEMENT

Project on Inventory

Management[Type the document subtitle]SUBMITTED BY: MOHD.ARISH


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INVENTORY MANAGEMENT

Inventory is a list for goods and materials, or those goods and materials themselves, heldavailable in stock by a business. It is also used for a list of the contents of a household and for a

list for testamentary purposes of the possessions of someone who has died. In accountinginventory is considered an assets.

Inventory management is primarily about specifying the size and placement of stocked goods.

Inventory management is required at different locations within a facility or within multiplelocations of a supply network to protect the regular and planned course of production against the

random disturbance of running out of materials or goods.

The scope of inventory management also concerns the fine lines between replenishment leadtime, carrying costs of inventory, asset management, inventory forecasting, inventory valuation,

inventory visibility, future inventory price forecasting, physical inventory, available physical

space for inventory, quality management, replenishment, returns and defective goods anddemand forecasting.

Other definitions of inventory management

An inventory can be defined as a stock of goods which is held for the purpose of futureproduction or sales. The stock of goods may be kept in the following forms:

1. Raw Materials2. Partly finished goods

3. Finished goods4. Spare parts etc.


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The objective of an inventory problem is to minimize the total (actual or expected) cost or tomaximize (actual or expected) profit.

Involves a retailer seeking to acquire and maintain a proper merchandise assortment while

ordering, shipping, handling, and related costs are kept in check.

Systems and processes that identify inventory requirements, set targets, provide replenishmenttechniques and report actual and projected inventory status.

Handles all functions related to the tracking and management of material. This would include the

monitoring of material moved into and out of stockroom locations and the reconciling of theinventory balances. Also may include ABC analysis, lot tracking, cycle counting support etc.

Management of the inventories, with the primary objective of determining. Controlling stock

levels within the physical distribution function to balance the need for product availabilityagainst the need for minimizing stock holding and handling costs. See inventory proportionality.

TYPES OF INVENTORY

o Raw materials

o Purchased parts and supplieso Labor

o In-process (partially completed) products (WIP work in progress)

o Component parts

o Tools, machinery, and equipment

o Finished goods etc.

The reasons for keeping stock

There are three basic reasons for keeping an inventory:

o Time - The time lags present in the supply chain, from supplier to user at every stage,

requires that you maintain certain amount of inventory to use in this "lead time"

o Uncertainty - Inventories are maintained as buffers to meet uncertainties in demand,supply and movements of goods.

o E

conomies of scale - Ideal condition of "one unit at a time at a place where user needs it,when he needs it" principle tends to incur lots of costs in terms of logistics. So bulkbuying, movement and storing brings in economies of scale, thus inventory.


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All these stock reasons can apply to any owner or product stage.

Buffer stock is held in individual workstations against the possibility that the upstreamworkstation may be a little delayed in long setup or change-over time. This stock is then used

while that change-over is happening. This stock can be eliminated by tools like SMED

These classifications apply along the whole Supply chain not just within a facility or plant.

Advantages:

o The economics of production with the large run sizes.

o The smooth and efficient running of the business.

o The economics in transportation.o The advantage of price discounts by bulk purchasing.

o Faster and adequate service to the customers and,o Profit from speculation in the market where price are expected to rise.

Disadvantages:o Ware house rent.o Interest on invested capital.

o Physical handling.

o Accounting.

o Depreciation and determination.

Strategic inventory analysis


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VARIABLE IN AN INVENTORY PROBLEM

The variables associated with the inventory problems are classified into two categories.

a. The Controlled variablesb. The uncontrolled variables

The Controlled variable -

1. The quantity acquired By purchase, production, or some other means. The decisionmaker may have a control over the production or purchase level.

2. The frequency of timing of acquisition The decision maker may have control over

how often or when the inventory should be replenished.

3. The stage of completion of stocked items The decision maker may have a controlover the stage at which the unfinished items be held so that there is no delay in supplying

customers.

The uncontrolled variables

The variables that may not be controlled in an inventory problem are divisible into costvariables and others.

Cost Variables (or the costs) involved in Inventory Problems:

The main cost variables involved in inventory problems are as follows:

Holding or storage cost The costs associated with the storage of the inventory until it

is or used are known as the holding or storage costs. This cost is directly proportional tothe various components of the holding costs are as follows:

1. Handling costs Which include the cost of labour, transportation charges etc.

2. Rent of the space or interest and the cost of depreciation on owned space.3. Cost of the staff to keep records.

4. Insurance and taxes.

5. Interest on the money locked for inventory.6. Deterioration cost etc. Which arises in the case of fashion items or items that changes

chemically during storage such as medicines, foods etc.

Set up (or replacement or ordering) costs This is the cost associated with the placing

of an order for purchasing goods, or it is the cost of setting a machine before it startsproduction. This cost may depend on the quantity of goods purchased because of price

breaks or quantity discounts.


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Besides these cost variables there are other variables that may not be

controlled in an inventory problem

1. DemandDemand is the number of items required per period which is not necessarilyequal to the amount sold as some demand may go unfulfilled because of storage or

delays.

The demand may be of two types:

(i) Deterministic Demands If the number of items required (i.e. demand) in a subsequentperiod of time is known exactly then such demand are called deterministic demands.

(ii) Non deterministic Demands If the demands over a subsequent period of time are not

known with certainty then such demands are called non deterministic or probabilisticdemands.

2 Lead Time The time gap between the time of placing an order or the starting of theproduction and the time of arrival or delivery of goods to the inventory is called LeadTime. Also the time gap between the time of demand and the time of filling the demand

from the inventory is called lead time. If this time is known (constant) and not zero thenone may order in advance by an amount of time equal to the lead time. If it is a variable

i.e., known only probabilistically than the question of when to order is difficult.

3 Amount Delivered The supply of goods may be instantaneous or spread over a periodof time.

FIT INVENTORY


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Classification and Categories of Inventory Models:

The inventory problems (models) may be defined in to two categories.

1. Deterministic Models These are inventory models in which demand is assumed to

be fixed for a subsequent period of time.

2. Probabilistic Models These are the inventory models in which the demand is arandom variable having a known probabilistic distribution. Here the future demand is

determined by collecting data from the past experience.

Some general notations used in inventory models:

We shall use the following general notations in inventory models:

I = The cost of carrying one rupee in inventory for a unit time.C1 = Holding cost per unit time.

C2 = Storage cost per unit time.C3 = Set up cost per production run.

q = Lot size per production run. (i.e. The quantity produced per production run)r = Demand rate.

K = Production rate.C = Average total cost per unit time.

t = Time interval between two consecutive replenishments of inventory.z = Order level or stock level.

L = lead time.q*, t*, z* = Optimal values of q, t, z respectively for which the cost C is minimum.

Deterministic models:

Economic Lot size Model: The most common inventory problem faced by industry concerns thesituation where stock levels are replenished with time and then are replenished by the arrival of

new item. The situation is given in the following economic lot size models. The inventoryproblems in which the demand is assumed to be fixed and completely predetermined are known

as the Economic Lot Size Problem orEconomic Order Quantity (EOQ) Problem.


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Model I:

Economic Lot Size Model with Uniform Rate ofDemand Infinite Production Rate and having noShortages

To determine an economic lot size formula and the minimum average costs under the followingassumptions.

(i) Demand is uniform at the rate of r units per unit time.(ii) Production is instantaneous. (Production rate is infinite).

(iii) Lead time is zero.(iv) C1 = Holding cost per unit time.

(v) C3 = Set up cost per production run.(vi) Shortage costs are not allowed.

Solution:

Let q be the units of quantity produced (or ordered) per production run at interval of time t.

The situation in inventory can be illustrated as under


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Model II:

Economic Lot Size Model with Different Rate ofDemand in Different Production Cycles,

Infinite ProductionR

ate and having no Shortages

To derive Economic Lot Size formula and the minimum average cost under the same

assumptions as in mode I except that the demand rates are different in different productioncycles.

Solution:Let q be the units of quantity produced per production run

Model III:

Economic Lot Size Model with Uniform Rate ofDemand, Finite Rate ofReplenishment and

having no Shortages.To derive Economic Lot Size formula and the minimum average cost under the same

assumptions as in mode I except that the replenishment rate (i.e., the production rate is finite).

Solution:Let K > r be the number of items produced per unit time.

If q is the number of items produced per production run then the production will continue for atime t1 = q/K.

And the time of one complete production run (i.e. The interval between runs) t = q/r(Since r is demand rate and no shortage is allowed).

q


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The situation can be illustrated as follows:


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BLOOD BANK INVENTORY MANAGEMENT

Medical resources of any community are its system of blood banking facilities.

Blood collected from human donors at one time, place processed, stored and ultimately

provided for transfusion to hospital patients.

Blood bank organized loose regional system.

Hospital in such system generally acquire portion of a portion of their blood supply

from one or more common central blood bank and one or more donor services the

hospitals typically interact with each other only in frequently time of emergency .

MOST COMMAN PROBLEM

Short supply at the same time

Sudden stock out (High demand)

Blood bank inventory systems make a this very complex task

Both supply and demand are probabilistic.

No availability of right group of right time.

Blood is perishable, the legal lifetime being 21 days in most areas.

Costly.


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PROCESS OF BLOOD DISPOSE


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REFRENCESS

y GOOGLE

y EVERETT E. ADAM, JR. RONALD J. EBERT

y TAHA


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Inventory Management Chandan

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