Inventory Control

     The item is either stocked for sale or they are in process of manufacturing or they are in the form of material that is yet to be utilized.

    "Inventory is the lifeblood of a Production System"

    The stock of material, intended for future requirements.


Types of Inventory

1. Finished goods or Final assemblies

2. Semi-Finished goods or Sub-assemblies

3. Raw material or components


Types of Inventory analysis

1. ABC analysis (class A, class B, class C)

2. VED analysis (Vital, Essential, Desirable)

3. SDE analysis (Scare, Difficult, Easily Available)

4. HML analysis (High, Medium, Low cost)

5. FSN analysis (Fast, Slow, Non-moving items)


Important Cost Associated with Inventories

1. Capital cost/ Opportunity cost

    It is an amount of capital not available for other purchases.

    If this money is invested Somewhere else, a return on the investment is expected.

2. Ordering cost/ Replenishment cost

    It is the cost of ordering to get an item into inventory. 

    It is directly proportional to the amount of orders.

3. Inventory Carrying/ Holding cost

    This cost occurs due to holding a given level of inventory and cost increases indirectly proportional to the amount of holding and period of holding in stock.

4. Percentage holding

    It is the sum of percentage handling, percentage locked-up capital interest percentage insurance, percentage pilferage, etc.

5. Shortage cost

    When there is demand but an item is not available in stock, the cost occurs due to stock out is called shortage cost.


Reason for Inventory

1. Uncertainty

  • Demand Uncertainty
  • Supply Uncertainty
  • Inhouse Uncertainty 

2. Continuity

    Production must be continuous even when the demand is varying continuously.

    eg. Desert coolers, Ac, winter clothes, Firecrackers, etc.

3. Economic factor

    Availability in the market 

    Discount on bulk purchases


Problems due to excess inventory

i) Storage problem

ii) Working Capital is blocked

iii) Depreciation







        


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