Inventory:

Why Required?

To keep down the production costs

To accommodate variations in demand
To take account of variable supply (lead) times
Buying costs (EOQ)
To take advantage of quantity discounts
To account for seasonal fluctuations
To allow for price fluctuations
For smooth running of production and distribution
To provide customers with prompt service
To minimize production down time

Inventory & its management:

What is inventory?
A current asset
Stocks from raw material to finished goods
Express purpose of being converted & sold to customer

Types of Stock-holding / inventory:

Raw materials & components

Packaging material
W-i-p
Finished goods / products
Pipeline stocks
General stores
Spare parts: 1) Consumables, 2) Rotables or repairables

Inventory Costs:
Inventory costs are one of the major logistics cost for many manufacturing & retail
companies, which could be a major portion of the Total Logistics Cost
Mainly of two types (+1):
Inventory holding costCapital cost: The actual financing cost of the physical stocks, almost always the
largest of the different elements of inventory costs.
Service Cost: The cost of stock management including insurance
Storage Cost: The cost of storage, handling associated warehousing costs
Risk Cost: Consisting of pilferage, damage, deterioration & obsolescence of stocks

Re-order or setup Cost:

The reorder cost refers to the cost of actually placing an order regardless of the size
of the order
The setup cost refers to the additional cost that may be incurred if the goods are
produced specifically from the company

Shortage or Stock out cost:

The cost of not satisfying a customers order on time. Lost profits due too lost
sales.
Inventory Replenishment

ECONOMIC LOT SIZE

The main principle of the EOQ is to balance the holding costs along with the
ordering costs to arrive at the time & quantity of re-ordering.

Assumptions of the EOQ model :

It is a deterministic model:
Demand for the product is known with certainty & applied at a constant rate.
Each order is delivered with zero lead time
Stock outs do not occur
Other factors:
Seasonality, promotion cycles, etc

CHANNELS OF DISTRIBUTUIONS:
ManufacturerC&FA/Agent/Super-StktDistributor/Wholeseller/Stockist
Dealer/RetailerConsumer/Customer

COMMISSION FOR A C&FA:

1) Cost + Commission: Cost of warehouse of minimum area
2) Fixed Commission

CHANNELS OF DISTRIBUTION
Channel Objectives:
To make the product readily available to the targeted market

 To enhance the prospect of sales: in a B2C setting, the product should be

visible, accessible & attractively displayed
To achieve co-operation with regard to any relevant distribution factors :
order sizes, product handling, delivery schedules, etc.
To achieve a given level of service
To minimize logistics & total costs
To receive fast & accurate feedback for information

CHANNEL CHARACTERISTICS:
Market Characteristics: The size, spread & density of the market has to bbe
considered
Product characteristics: High value , precious, complex / conceptual, time
sensitive / perishable, special handling (frozen, glass, flammable, etc.)
Competitive characteristics: Category based. Along side or exclusive v/s
own stores
Company Resources: Most important. The distribution channel opted should
be feasible
STOCK HOLDING POLICY
Number of layers/ tiers/ Distribution centres along the channel will determine the
stock holding policy of the company
Direct: Full vehicle loads, usually to customers in B2B/ Institutions/
Government
Echelons/ Multi tiers: Usually in mass distribution FMCG type/ Cons.
Durables
Mixed: Very common, based on the demand characteristics