INVENTORY MANAGEMENT

SUBMITTED BY
AMOL NANAVARE- 01 AKASH KHOJE- 11 ATUL KULTE- 13 PRASHANT KARAD- 10 MAHESH TORANE-24

INTRODUCTION AND MEANING

Inventory management is determines the health of the supply chain. the impacts the financial health of the balance sheet. Every organization constantly strives to maintain optimum inventory to be able to meet its requirements and avoid over or under inventory that can impact the financial figures

DEFINING INVENTORY:
All organizations engaged in production or sale of products hold inventory in one form or other. Inventory can be in complete state or incomplete state. Inventory is held to facilitate future consumption, sale or further processing/value addition. All inventoried resources have economic value and can be considered as assets of the organization.

EXAMPLES OF INVENTORY
Raw

materials: Work in Progress or WIP Finished Goods: Goods for resale Transportation The logistics or distribution chain Wholesaling Retailing

INVENTORY MANAGEMENT
Inventory

management is primarily about specifying the shape and percentage of stocked goods. a retailer seeking to acquire and maintain a proper merchandise It involves systems and processes that identify inventory requirements, set targets, provide replenishment techniques, report actual and projected inventory status, handles all functions related to the tracking and management of material.

OBJECTIVE OF INVENTORY MANAGEMENT

OBJECTIVE OF INVENTORY MANAGEMENT

COSTS

BALANCING MINIMUM & MAXIMUM LEVEL OF INVENTORY

BENEFITS

TRADE OFF

THE REASONS FOR KEEPING STOCK:

Time

- "lead time." Uncertainty Economies of scale - "one unit at a time at a place where a user needs it, when he needs it" Demand fluctuation stock Overproduction Safety stock

THE FORMULAS

Cost of Goods Sold = Cost of Goods - Cost of Ending Inventory (at the end of this period) Cost of Goods = Cost of Beginning Inventory (at the start of this period)+ Inventory Purchases (within this period)+ Cost of Production (within this period) Inventory Turn Over Ratio (or Inventory turns) = Cost of Goods Sold/Average Inventory

METHODS FOR INVENTORY MANAGEMENT

Weighted Average

Cost Specific Identification FIFO and LIFO Moving-Average Cost

METHODS OF INVENTORY CONTROL

ABC System: The firm has to be selective in its approach to control its investment in various items of inventory. Three categories: high value but small in number moderate value and size relatively small value items and require simple control

ADVANTAGES OF ABC ANALYSIS:

controls

on costly elements

maintaining

stocks at optimum level it reduces the clerical costs to effective cost control.

leading

TWO BIN SYSTEM:

The two bin system is used to establish a connection between the order and reorder procedures. uneven supply of stock and odd consumption is not very healthy. Such unevenness is sorted The first stock (bin 1), is the larger of the two and is used up between the times periods that lasts from purchase of stock till the reorder. . The second stock (bin 2), can be used from the time when the reorder is placed till the order is actually received.

JUST IN TIME
JIT, is an inventory system that works to reduce the amount of inventory that a company will have on hand. purchases inventory only a few days before it is needed for sale or manufacturing. able to introduce new technologies and advancements to the market faster major drawback - delay in the supply chain can break up production, delivery get halt.

ECONOMIC ORDER QUANTITY

EOQ refers to the optimal order size that will result in the lowest ordering and carrying costs for an item of inventory based on its expected usage. EOQ model answers the following: What should be the quantity ordered for each replenishment of stock? How many orders are to be placed in a year to ensure effective inventory Management?

Example Economic order Quantity

A firm is a planning its annual consumption its annual requirements are 12000 units carrying cost per unit is rs.10 and its ordering cost per unit is rs. 40. The firm can order inventory various lots such as 12000; 6000; 4000; 3000; 2000; 1500; 1200; 1000; 500; 300; 200; 100. Which of this quantity is the economic order quantity? Find using.

EOQ= EOQ= Economic Order Quantity = Quantity of unit purchased or required in a year = Cost of placing an order = Cost of carrying one unit. EOQ= = =309.8 units

ECONOMIC ORDER QUANTITY

y Total Cost C O S T

EOQ Carrying Cost L

Cost of Order

Size Of Order

ROLE OF INVENTORY ACCOUNTING

Make

better decisions. Finance should also be providing the information, analysis and advice to enable the organizations service managers to operate effectively. This goes beyond the traditional preoccupation with budgets how much have we spent so far, how much do we have left to spend? It is about helping the organization to better understand its own performance.