INVENTORY MANAGEMENT

1. INVENTORY MANAGEMENT • Inventory • Refers to all the goods and materials held in an organization for sale or use • Or • It refers materials in a supply chain or in a segment of a supply chain, expressed in quantities, locations or values.

2. Cont… • Inventory and its management are related to both materials management (MM) and physical distribution management(PDM) • MM and PDM together constitute logistics management i.e. the process of managing both the movement and storage of goods and materials from their source to the point of ultimate consumption.

3. Reasons for keeping inventory • 1.It enables an organization to reduce the risk to supplier failure or uncertainty. Protections against contingencies e..g strikes, transport breakdown due to flood, crop failure and other similar factors is required. Due to this safety and buffer stocks are kept to take care of such occurrences. • 2.It enables an organization to meet unexpected demands or demands for customization of products

4. Cont………. • 3.Ensure rapid replenishment of items in constant demand such as maintenance supplies and office stationary. • 4.Hedge against anticipated shortage and price increases especially in times of high inflation more as a deliberate policy of speculation. • 5.Take advantage of lots of purchase quantity i.e. price and quantity discounts.

5. Cont…. • 6-It enables an organization to protect itself against lead time uncertainty e.g. where suppliers replenishment and lead times are not known with certainty in such cases an investment in safety service is to be maintained at acceptable levels.

6. Aims of inventory management • 1.Provide both internal and external customers with the required service levels in terms of quality and order rate fill. • 2.Ascertain present and future requirements for all types of inventory to avoid over- stocking while avoiding bottle necks in production. • 3.Keep costs to a minimum level by variety reduction, economical lot sizes and analysis of costs incurred in obtaining and carrying inventories • 4.Provide upstream and down stream inventory visibility in the supply chain.

7. Inventory classifications • Classifications will vary according to the particular undertaking Manufacturing enterprise – • Raw materials • Components and sub- assemblies • Consumables • Finished goods

8. cont….. Supply chain usage – primary inventory e.graw materials. W.I.P, components and sub- assemblies and Finished goods Support inventories e.g MRO (maintenance, repair and operating )items

9. Scope of inventory management • Demand management • Forecasting future demand requirements • Managing items with difficult supply and demand patterns • Reviewing safety stock levels • Implementing lean inventory policies e..g JIT • Developing cost effective systems and procedures relating to ordering procurement and budgeting of supplies • Ensuring safety and scarcity of supplies • Appropriate disposal of scrap, surplus and obsolete items

10. Tools of inventory management 1.ABC Analysis • Classifies inventory into 3 groups • Class A items- Items that merit close day-to-day control because of their budgeting importance e..g bread, milk, vegetables etc • Class C items – items that account for only a small portion of spending .Require a year or more before purchasing them again e..g water taps. • Class B items- set of items intermediate between class A and C .Regularly reviewed.

11. 2. BAR CODING • Accelerate flow of products and information Benefits • Faster data entry • Greater accuracy • Reduced labor cost • Better decision making • Faster access to information • Greater responsiveness to customers and suppliers.

12. 3.RADIO FREQUENCY INDETIFICATION ( RFID) • A silicon chip carrying an identification number and antenna able to transmit the number to a reading device Benefits • Line of sight tags reduce manual handling ;cost • Range tags can be read over a very long range • Bulk read tags can be read in a short space of time • Durable compared to barcodes • Accommodates updating; read/write tags

13. Cont.. Limitations of RFID • RFID tags more expensive than bar coder • Electrical interference, radio frequency communication • Security, Rogue individuals writing false information • Metal radio waves distorted by metal • Radio waves may absorb moisture in the product. 4.SOFTWARE PROGRAMS • Maintaining supplier and customer database • Create picking lists and receipts • Provide instantaneous stock balances and automatic re-ordering • Bar code reading • Implement JIT technique etc.

14. The economics of Inventory 1.Acquisition costs • Ordering costs – Preliminary costs e..g vendor selection, negotiation Placement costs e..g order preparation , stationery Post placement costs e..g materials inspection, payment of invoices Ordering costs depends on; • Complexity of the order and seniority of staff involved • Whether order preparation is manual / computerized • Repeat order or initial order

15. 2. Holding costs i)Cost proportional to value of the inventory • Financial costs e.g. interest on capital • Cost of insurance • Losses in value ;deterioration, obsolescence, pilfering ii)Cost proportional to the physical characteristics of inventory • Storage costs – light, rent • Labour costs – handling ,inspection • clerical costs- record ,documentation

16. 3. Cost of stock –outs • Loss of production output • Cost of idle time and fixed over heads • Cost of actions taken to deal with stock out e.g. switch production ,substitute materials • Loss of customer goodwill

17. Inventory Performance Measures a)Lead times – Time taken to obtain or supply a requirement from the time a need is ascertained to the time the need is satisfied. b)Service levels– Number of times the item is provided on demand Number of times the item ahs been demanded c)Rate of stock turn- Number of times a stock item has been sold and replaced in a given period. Sales / issues Average Inventory d)Stock outs- Expressed as a percentage of the total stock population during a given period.

18. Cont… e)Stock coverage– Number of days the current stock of a stock keeping unit (SKU) will last if sales or usage continues at the anticipated rate. Current quantity in stock Anticipated future daily rate of usage or sales