1、,Inventory Management,INVENTORY MANAGEMENT,06 July 2012,KLE College of Pharmacy, Nipani.,1,Prof. Dr. Basavaraj K. Nanjwade M. Pharm., Ph.D Department of Pharmaceutics KLE University College of Pharmacy BELGAUM-590010, Karnataka, India. Cell No.: 0091 9742431000 E-mail: ,OVERVIEW,Introduction Objecti
2、ves Opposing Views of Inventory Nature of Inventory Factors Affecting Inventory Costs in Inventory Inventory Categories - Special Considerations,Inventory Management,06 July 2012,KLE College of Pharmacy, Nipani.,2,Overview (Contd),Departments of Inventory Management Functions of Inventory Selective
3、Inventory Control Reorder Quantity Methods And EOQ Reorder Time Methods References,Inventory Management,06 July 2012,KLE College of Pharmacy, Nipani.,3,Inventory Management,INTRODUCTION,06 July 2012,KLE College of Pharmacy, Nipani.,4,INTRODUCTION,Definition: Scientific method of finding out how much
4、 stock should be maintained in order to meet the production demands and be able to provide right type of material at right time, in right quantities and at competitive prices.,Inventory Management,06 July 2012,KLE College of Pharmacy, Nipani.,5,Introduction (Contd),Inventory is actually money, which
5、 is available in the shape of materials (raw materials, in-process and finished products), equipment, storage space, work-time etc.,Input Material Management department,Inventory (money) Goods in stores Work-in-progress Finished products Equipment etc.,Output Production department,Basic inventory mo
6、del,Inventory Management,06 July 2012,6,Introduction (Contd),Inventory control is concerned with achieving an optimum balance between two competing objectives. Minimizing the investment in inventory. Maximizing the service levels to customers and its operating departments.,Inventory Management,06 Ju
7、ly 2012,KLE College of Pharmacy, Nipani.,7,Inventory Management,OBJECTIVES,06 July 2012,KLE College of Pharmacy, Nipani.,8,OBJECTIVES,The specific objectives of inventory management are as follow: Utilizing of scare resources (capital) and investment judiciously. Keeping the production on as on-goin
8、g basis. Preventing idleness of men, machine and morale.,Inventory Management,06 July 2012,KLE College of Pharmacy, Nipani.,9,Objectives (Contd),d) Avoiding risk of loss of life (moral & social). e) Reducing administrative workload. f) Giving satisfaction to customers in terms of quality-care, compe
9、titive price and prompt delivery. g) Inducing confidence in customers and to create trust and faith.,Inventory Management,06 July 2012,KLE College of Pharmacy, Nipani.,10,Inventory Management,OPPOSING VIEWS OF INVENTORY,06 July 2012,KLE College of Pharmacy, Nipani.,11,Why We Want to Hold Inventories
10、?Why We Do Not Want to Hold Inventories?,OPPOSING VIEWS OF INVENTORY,Inventory Management,06 July 2012,KLE College of Pharmacy, Nipani.,12,Why We Want to Hold Inventories?,Improve customer service. Reduce certain costs such as ordering costs stock out costs acquisition costs start-up quality costs C
11、ontribute to the efficient and effective operation of the production system.,Inventory Management,06 July 2012,KLE College of Pharmacy, Nipani.,13,Why We Want to Hold Inventories?,Finished Goods Essential in produce-to-stock positioning strategies Necessary in level aggregate capacity plans Products
12、 can be displayed to customers Work-in-Process Necessary in process-focused production May reduce material-handling & production costs Raw Material Suppliers may produce/ship materials in batches Quantity discounts and freight/handling, $ savings,Inventory Management,06 July 2012,KLE College of Phar
13、macy, Nipani.,14,Certain costs increase such as carrying costs cost of customer responsiveness cost of coordinating production cost of diluted return on investment reduced-capacity costs large-lot quality cost cost of production problems,Why We Do Not Want to Hold Inventories?,Inventory Management,0
14、6 July 2012,KLE College of Pharmacy, Nipani.,15,Inventory Management,NATURE OF INVENTORY,06 July 2012,KLE College of Pharmacy, Nipani.,16,NATURE OF INVENTORY,Two Fundamental Inventory DecisionsIndependent Demand Inventory SystemsDependent Demand Inventory SystemsInventory Costs,Inventory Management,
15、06 July 2012,KLE College of Pharmacy, Nipani.,17,Two Fundamental Inventory Decisions,How much to order of each material?When to place the orders?,Inventory Management,06 July 2012,KLE College of Pharmacy, Nipani.,18,Independent Demand Inventory Systems,Demand for an item is independent of the demand
16、 for any other item in inventory.Finished goods inventory is an example.Demands are estimated from forecasts and/or customer orders.,Inventory Management,06 July 2012,KLE College of Pharmacy, Nipani.,19,Dependent Demand Inventory Systems,Demand of item depends on the demands for other items.For exam
17、ple, the demand for raw materials and components.The systems used to manage these inventories are different.,Inventory Management,06 July 2012,KLE College of Pharmacy, Nipani.,20,Inventory Management,06 July 2012,KLE College of Pharmacy, Nipani.,21,Inventory Costs,Costs associated with ordering too
18、much (represented by carrying costs).Costs associated with ordering too little (represented by ordering costs).These costs are opposing costs, i.e., as one increases the other decreases.,Inventory Management,06 July 2012,KLE College of Pharmacy, Nipani.,22,Inventory Costs (continued),The sum of the
19、two costs is the total stocking cost (TSC).When plotted against order quantity, the TSC decreases to a minimum cost and then increases.This cost behavior is the basis for answering the first fundamental question: how much to order.,Inventory Management,06 July 2012,KLE College of Pharmacy, Nipani.,2
20、3,Balancing Carrying against Ordering Costs,Inventory Management,06 July 2012,KLE College of Pharmacy, Nipani.,24,Inventory Management,FACTORS AFFECTING INVENTORY,06 July 2012,KLE College of Pharmacy, Nipani.,25,Manufacture requires relatively long process cycle-time. Procurement of materials has a
21、long lead-time. Demand for finished products is sometimes seasonal and prone fluctuation. Material costs are affected by fluctuations in demand and subsequently by fluctuations in manufacturing.,FACTORS INFLUENCING INVENTORY,Inventory Management,06 July 2012,KLE College of Pharmacy, Nipani.,26,Inven
22、tory Management,COSTS IN INVENTORY,06 July 2012,KLE College of Pharmacy, Nipani.,27,COSTS IN INVENTORY,Inventory Management,Inventory costs may vary from 28 to 32% of the total cost. Apart from material costs, several other costs are also involved in inventory. These are given as below: Ordering Cos
23、ts Holding Costs/ Carrying Costs Stock Out Costs,06 July 2012,KLE College of Pharmacy, Nipani.,28,Stationary Clerical and processing, salaries/rentals Postage Processing of bills Staff work in expedition /receiving/ inspection and documentation,Ordering Costs,Inventory Management,06 July 2012,KLE Co
24、llege of Pharmacy, Nipani.,29,Holding/Carrying Costs,Storage space (rent/depreciation) Property tax on warehousing Insurance Deterioration/Obsolescence Material handling and maintenance, equipment Stock taking, security and documentation Capital blocked (interest/opportunity cost) Quality control,In
25、ventory Management,06 July 2012,KLE College of Pharmacy, Nipani.,30,Loss of business/ profit/ market/ advise Additional expenditure due to urgency of purchasesa) telegraph / telephone chargesb) purchase at premiumc) air transport charges Loss of labor hours,Stock out Costs,Inventory Management,06 Ju
26、ly 2012,KLE College of Pharmacy, Nipani.,31,INVENTORY CATEGORIES SPECIAL CONSIDERATION,Inventory Management,06 July 2012,KLE College of Pharmacy, Nipani.,32,INVENTORY CATEGORIES SPECIAL CONSIDERATIONS,Raw materials & purchased parts Partially completed goods called work in progress Finished-goods in
27、ventories (manufacturing firms) or merchandise (retail stores),Inventory Management,06 July 2012,KLE College of Pharmacy, Nipani.,33,Replacement parts, tools, & supplies Goods-in-transit to warehouses or customers,INVENTORY CATEGORIES SPECIAL CONSIDERATIONS,Inventory Management,06 July 2012,KLE Coll
28、ege of Pharmacy, Nipani.,34,Inventory Management,Departments of Inventory Management,06 July 2012,KLE College of Pharmacy, Nipani.,35,FUNCTIONS OF INVENTORY,Inventory Management,06 July 2012,KLE College of Pharmacy, Nipani.,36,06 July 2012,KLE College of Pharmacy, Nipani.,37,FUNCTIONS OF INVENTORY,F
29、UNCTIONS OF INVENTORY,To meet anticipated demand. To smoothen production requirements. To decouple operations.,Inventory Management,SUPPLY PROCESS,PRODUCTS,DEMAND,INVENTORY,PRODUCTS,DEMAND,DEMAND PROCESS,06 July 2012,KLE College of Pharmacy, Nipani.,38,Functions Of Inventory (Contd),To protect again
30、st stock-outs. To take advantage of order cycles. To help hedge against price increases. To permit operations. To take advantage of quantity discounts.,Inventory Management,06 July 2012,KLE College of Pharmacy, Nipani.,39,Inventory Management,SELECTIVE INVENTORY CONTROL,06 July 2012,KLE College of P
31、harmacy, Nipani.,40,Selective Inventory Control is defined as a process of classifying items into different categories, thereby directing appropriate attention to the materials in the context of companys viability.,SELECTIVE INVENTORY CONTROL,Inventory Management,06 July 2012,KLE College of Pharmacy
32、, Nipani.,41,Classification of Materials for Inventory Control,06 July 2012,KLE College of Pharmacy, Nipani.,42,ABC Classification System,Classifying inventory according to annual value of consumption of the items.A - very importantB - mod. importantC - least important,Inventory Management,06 July 2
33、012,KLE College of Pharmacy, Nipani.,43,ABC Classification System (Contd),When a large number of items are involved, relatively few items account for a major part of activity, based on annual value of consumption of items.It is based on the principles of vital few and trivial many.,Inventory Managem
34、ent,06 July 2012,KLE College of Pharmacy, Nipani.,44,ABC Classification System (Contd),A-items : 15% of the items are of the highest value and their inventory accounts for 70% of the total. B-items : 20% of the items are of the intermediate value and their inventory accounts for 20% of the total. C-
35、items : 65%(remaining) of the items are lowest value and their inventory accounts for the relatively small balance, i.e., 10%.,Inventory Management,06 July 2012,KLE College of Pharmacy, Nipani.,45,All items used in an industry are identified. All items are listed as per their value. The number of it
36、ems are counted and categorized as high-, medium- and low-value. The percentage of high-, medium- and low- valued items are determined.,Procedure for classification,Inventory Management,06 July 2012,KLE College of Pharmacy, Nipani.,46,Inventory Counting Systems,Periodic System Physical count of item
37、s made at periodic intervals. Perpetual Inventory System System that keeps track of removals from inventory continuously, thus monitoring current levels of each item.,Inventory Management,06 July 2012,KLE College of Pharmacy, Nipani.,47,Inventory Counting Systems (Contd),Two-Bin System - Two contain
38、ers of inventory; reorder when the first is empty. Universal Bar Code - Bar code printed on a label that has information about the item to which it is attached.,Inventory Management,06 July 2012,KLE College of Pharmacy, Nipani.,48,Inventory Management,Pareto curve,06 July 2012,KLE College of Pharmac
39、y, Nipani.,49,Based on the critical nature of items.Applicable to spare parts of equipment, as they do not follow a predictable demand pattern.Very important in hospital pharmacy.,V-E-D Classification,Inventory Management,06 July 2012,KLE College of Pharmacy, Nipani.,50,V-E-D Classification (Contd),
40、V-Vital : Items without which the activities will come to a halt. E-Essential : Items which are likely to cause disruption of the normal activity. D-Desirable : In the absence of which the hospital work does not get hampered.,Inventory Management,06 July 2012,KLE College of Pharmacy, Nipani.,51,H-M-
41、L Classification,Based on the unit value (in rupees) of items. Similar to A-B-C analysisH-HighM-MediumL -Low,Inventory Management,06 July 2012,KLE College of Pharmacy, Nipani.,52,F-S-N Classification,Takes into account the distribution and handling patterns of items from stores. Important when obsol
42、escence is to be controlled.F Fast moving S Slow movingN Non moving,Inventory Management,06 July 2012,KLE College of Pharmacy, Nipani.,53,S-D-E Classification,Based on the lead-time analysis and availability.S Scarce : longer lead timeD Difficult : long lead timeE Easy : reasonable lead time,Invento
43、ry Management,06 July 2012,KLE College of Pharmacy, Nipani.,54,S-O-S Classification,S-O-S :Seasonal- Off- Seasonal Some items are seasonal in nature and hence require special purchasing and stocking strategies. EOQ formula cannot be applied in these cases. Inventories at the time of procurement will
44、 be extremely high.,Inventory Management,06 July 2012,KLE College of Pharmacy, Nipani.,55,G-O-L-F Classification,G-O-L-F stands for:G GovernmentO OrdinaryL LocalF Foreign,Inventory Management,06 July 2012,KLE College of Pharmacy, Nipani.,56,X-Y-Z Classification,Based on the value of inventory stored
45、. If the values are high, special efforts should be made to reduce them.This exercise can be done once a year.,Inventory Management,06 July 2012,KLE College of Pharmacy, Nipani.,57,REORDER QUANTITY METHODS AND EOQ,Inventory Management,06 July 2012,KLE College of Pharmacy, Nipani.,58,Reorder Quantity
46、 Methods,Reorder Quantity is the quantity of items to be ordered so as to continue production without any interruptions in the future.Some of the methods employed in the calculation of reorder quantity are described below:,Inventory Management,06 July 2012,KLE College of Pharmacy, Nipani.,59,Reorder
47、 Quantity Methods (Contd),Fixed Quantity SystemOpen access bin systemTwo-bin system,Inventory Management,06 July 2012,KLE College of Pharmacy, Nipani.,60,The reorder quantity is a fixed one. Time for order varies. When stock level drops to reorder level, then order is placed. Calculated using EOQ fo
48、rmula.Reorder level quantity (ROL or reorder point)= safety stock + (usage rate + lead-time),Fixed Quantity System,Inventory Management,06 July 2012,KLE College of Pharmacy, Nipani.,61,Bin is filled with items to maximum level. Open bins are kept at places nearer to the production lines. Operators use items without making a record. Items are replenished at fixed timings. This system is used for nuts and bolts. Eliminates unnecessary paper work and saves time.,
