Balanced Inventory means to balance between the demand and supply.
The reorder level is the point at which stock of a particular item has diminished to a point where it needs to be replenished.
Reorder Point = Lead Time x Demand per Day + Safety Level of Stock
3. Fill Rate:
Fill rate is a common tool to measure the customer service performance of inventory The fill rate means that by 4% of requested units were unavailable when ordered by the customer
4. Dead Stock:
Dead stock refers to items for which no demand has been registered for some specified period of time.
5. Bill of Materials:
A bill of materials (BOM) is a list of the raw materials, sub-assemblies, intermediate assemblies, sub-components, components parts and the quantities of each needed to manufacture an end product
6. Obsolescence Cost:
The Obsolescence Cost is the difference between the original cost of the unit and its salvage value or the original selling price and the reduced selling price.
To build only what customers demand when they demand, JIT manufacturing needs a scheduling system that can immediately and clearly communicate the demands of the customer to the delivery system. The Kanban system does this. Kanban is a Japanese word meaning “Card” and these cards are the means of communicating within, to and from a work centre. No parts can be moved, produced or used without an appropriate Kanban.
It was Vilfredo Pareto, an Italian engineer sociologist, economist and philosopher who observed a phenomenon that 80% of something be shared among just 20% of its participants and thus he developed the 80:20 rule.
It can be observed, in a shop that only 20% of overall products generate 80% of the turnover.
This is where the 80:20 rule came into existence in logistics.
To avoid the wastage of labour force and time, it is necessary to redesign the position of the products for picking in the warehouse and to make pick locations smaller so as to access more different products in shorter travel distances, thus avoiding the wastage of labour and time.
APPROACHES TO INVENTORY MANAGEMENT 1. JIT I:-
JIT strengthens the organization competitiveness by reducing wastes and wastes and improving quantity and efficiency. Various types of wastes are reduced:
i. Transportations Cost get reduced.
ii. Processing Time does not happen.
iii. Inventory level decreases
2. JIT II :-
a. JIT II is a customer – supplier partnership concept pioneered at a Bose Corporation and now practiced by many companies and their suppliers.
3. Vendor Managed Inventory / Continuous Replenish Strategy:
It is the responsibility of the supplier to maintain customer’s inventory within the stipulated stock levels.
EDI (Electronic data interchange) finalizes the delivery details and communicates them to the customer in advance.
4. Quick Response:
When a retailer places an order for replenishment, the supplier with the help of EDI (Electronic data interchange) finalizes the delivery details and communicates then to the customer in advance
5. Automatic or profile Replenishment or AR:
AR enables the supplier to anticipate the customer’s requirement in advance to make replenishment.
ABC analysis analyses the items in stock from the perspective of cost but in running business, other considerations also play important roles. One such consideration is stock risk.
TYPES OF INVENTORY:
In Transit Inventories/Pipeline Inventories:
In – Transit inventories are items that are en route from one location to another.
They are not available for sale or shipment until after they arrive at the destination.
Selective control can be divided into 8 types as per table:
|ABC Analysis||Usage value (i.e. consumption per|
|period x price per unit)|
|HML analysis High-medium-Low||Unit price (i.e. it doesn’t take|
|consumption into account)|
|VED analysis Vital-Essential-||Critically of the item (i.e. loss of|
|SDE analysis (Scarce-Difficult-Easy)||Procurement difficulties|
|GOLF analysis (Government||Source of procurement|
|SOS analysis (Seasonal-OFF-||Seasonality|
|FSN analysis (Fast-slow-Non||Issue from stores|
|XYZ analysis||Inventory investment|
1. ABC ANALYSIS:
It is also called as PARETO’S LAW in the name who developed this technique.
ABC analysis underlines a very important principle ‘vital few verses trivial many.
Statistics reveal that just a few number of item account for bulk of annual expenditure on materials. These few items are called ‘A’ items
2. HML ANALYSIS
H-M-L Analysis uses price criteria.
3. VED Analysis
VED analysis represents classification of items based on criticality.
The analysis classifies the items into three groups called Vital, Essential and desirable.
4. SDE ANALYSIS
SDE analysis is based on problems of procurement which basically means.
SDE analysis classifies the items into three groups called Scarce’, ‘Difficult’ and Easy.
5. G-NG-LF-ANALYSIS / GOLF ANALYSIS
The G-NG-LF analysis (or GOLF analysis) is based on the nature if the suppliers, which determine quality, items of payment, continuity or otherwise of supply and administrative work involved.
6. S-OS ANALYSIS
S-OS analysis is based on seasonality or otherwise of the items.
7. F-S-N ANALYSIS
F-S-N analysis is based on the consumption figures of the items
The items under this analysis are classified into three groups: F (Fast moving), S (Slow moving) and N ( Non moving)
8. X-Y-Z ANALYSIS
X-Y-Z Analysis is based on value of the stocks on hand (i.e. inventory investment). Item whose inventory values are high are called X items while those whose inventory values are low are called Z items, Y items are those, which have moderate inventory stocks.
The Formula of EOQ
EOQ ACo / Ci
A= annual demand
C= cost per unit
Co= cost of order placing
i = inventory carrying cost
Fixed Order Quantity Vs Fixed Order Interval System
|Fixed order quantity system (Q – system||Periodic Review Inventory System (also|
|of inventory or perpetual inventory||known as P-system or Fixed order Interval|
|system or re-order point system or two||System or replenishment inventory|
|bin system.)||system or the order cycle system.)|
|In Q system, the order quantity is fixed.||In P system, the review period is fixed.|
|The review period is variable.||The order quantity is variable.|
MRP I is a computer based production and inventory control system (soft ware) that tries to minimize stocks while maintaining adequate materials for production process.
MRP II MRP I is updated and expanded to include financial and marketing and
DISTINGUISH BETWEEN MRP AND DRP
|Guiding factor||Guided by master production schedules||Guided by customer demand|
|Control of the firm||Under the control of the firm||Not under the control of the firm|
|Demand situation||Operates in dependant demand||Operates in independent demand|
|Area of operation||From Raw materials to finished goods||From Finished goods to Customer.|
|Stage of functioning||Controls inventory until manufacturing||Controls and coordinates inventory|
|and assembly is complete.||after manufacturing and assembly|
|of finished goods.|
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