A scientific system which indicates:
1. What to order
2. When to order
3. How much to order
4. How much to stock
whenever required and wherever required
inventory control results in optimal balance
WHAT IS INVENTORY: WHAT IS INVENTORY: - -
Inventory is an idle resource which is usable and has value. Inventory is an idle resource which is usable and has value. It may be men, money, materials, plant acquisition, spares and It may be men, money, materials, plant acquisition, spares and other stocked to meet future demand.
Inventory control is necessary to ensure. Inventory control is necessary to ensure. (a) Uninterrupted supply of materials. (a) Uninterrupted supply of materials. (b) Optimal stock. (Not too much, not too little) (b) Optimal stock. (Not too much, not too little) (c) Adequate controls over materials un (c) Adequate controls over materials un- -used, used used, used. .
Inventory control is concerned with achieving an optimum balance between two conflicting objectives. The objectives are –
1) To minimize investment in inventory.
2) To maximize the service levels.
Inventory is classified as follows:
a) Raw Materials
b) Work in progress
c) Finished goods
d) Spare parts/ consumables
ABC Analysis - based on annual consumption. ANNUAL USAGE COST VED Analysis - criticality for production.
SDE Analysis - availability.
HML Analysis - weight / cost permit.
FSN Analysis - consumption rate.
The important methods are:-
1. ABC Analysis (Always Better Control)
2. VED “ (Vital, Essential, Desirable)
3. FSN “ (Fast, Slow moving and Non-moving)
4. SDE “ (Scarce, Difficult, Easy)
5. HML “ (High, Medium, Low)
Classify the items on the basis of importance and the technique of grouping is called as ABC analysis.
This analysis prepared and checked weekly or monthly.
2. VED ANALYSIS ( 2. VED ANALYSIS ((Vital, Essential, Desirable): ): This classification is applicable only for spare parts. This classification is applicable only for spare parts. It based on the price, availability etc., It based on the price, availability etc., For For V V items, a reasonable large volume of stocks might items, a reasonable large volume of stocks might be necessary, while for be necessary, while for D D items, no Stocks are, perhaps, items, no Stocks are, perhaps, required be kept. required be kept.
For For V V items of items of A A classification a close control should be classification a close control should be kept on stock levels, but if it is a kept on stock levels, but if it is a C C items, than large items, than large quantities mat be stored.
Based on critical value & shortage cost of an item
It is a subjective analysis.
Items are classified into:
Shortage cannot be tolerated.
Shortage can be tolerated for a short period.
Shortage will not adversely affect, but may be using more resources. These must be strictly Scrutinized
CATEGORY 1 - NEEDS CLOSE MONITORING & CONTROL
CATEGORY 2- MODERATE CONTROL.
CATEGORY 3- NO NEED FOR CONTROL
The VED analysis is used generally for spare parts. The requirements and urgency of spare parts is different from that of materials. From point of view of material it is classified into three categories
V - Vital
B - Essential
D - Desirable
Vital categories of the items are those for the want of which the production Come to stop. For exp. Power in the factory.
Essential group of items are those items because of non availability of which the stock out cost is very high.
Desirable group of items are those items because of non availability of which there is no immediate loss of production and stock cost is very less and it may cause minor disruption in the production for short time .