Inventory planning and management

1. Inventory planning and management Chapter 5

2. Inventory management Inventory- stock of items held to meet future demand Level of inventory- investment is minimum and chances of stock out is also minimum

3. Inventory costs Second largest cost in distribution Add as much as 40% in extra cost per year to the value of goods being stored

4. Types of inventory Cycle stock In transit stock Safety stock Speculative stock Dead stock

5. 1. Cycle stock Inventory required to meet basic demand under conditions of certainty- transition inventory

6. 2. In transit stock Goods undergoing movement between fixed stock points such as warehouses

7. 3. Safety stock Buffer inventory

8. 4. Speculative stock Inventory in excess of normal requirements Objective is to increase profitability

9. 5. Dead stock No demand registered for a specified period of time

10. Reasons for holding inventory Catering to the needs of the customer during sales fluctuations To provide assurance on availability To store in advance Flexible raw material scheduling To suit variations in production scheduling To take advantage of favorable raw material price To manufacture material in economic run sizes

11. Adverse effects of inventories Risk or product obsolescence and losses due to depreciation Technological advances and product innovation hampered Risk of damage of goods Long delay between the creation of an item and its use

12. Costs associated with inventory Procurement costs Inventory carrying costs Out of stock costs Over stock costs

13. 1. Procurement costs include Cost of order processing Cost of placing order includes cost of transmitting the order to supplier Cost of transportation Cost of material handling

14. 2. Inventory carrying costs- major component of total distribution costs- it includes Capital costs Insurance and taxation costs Obsolescence and deterioration costs Storage costs

15. 3. Out of stock costs Lost sales cost Back order cost

16. 4. Over stock costs Static inventory Dynamic inventory

17. Overall costs of stock Unit cost Re-order cost Holding cost Shortage cost

18. Most common costing methods FIFO LIFO Average cost

19. Doubts?