A Study of Inventory Management System CASE STUDY

A Study of Inventory Management System
Case Study 2
(M.ABDUL AHADU 17BME063)
INTRODUCTION
Inventory management is a challenging problem area in supply chain
management. Companies need to have inventories in warehouses in order to fulfil
customer demand, meanwhile these inventories have holding costs and this is
frozen fund that can be lost. Therefore, the task of inventory management is to find
the quantity of inventories that will fulfil the demand, avoiding overstocks. This
paper presents a case study for the steel manufacturing industry (Small Scale
Industry) on inventory management. The relationship between the inventory
management and company performance was determined based on inventory days
and return on asset (ROA) analysis. The research found that company X had a few
inventory problems such as unorganized inventory arrangement, large amount of
inventory days / no cycle counting and no accurate records balance due to
unskilled workers. The study also proved that there was a significant relationship
between return on asset (ROA) and inventory days. This paper also provides
recommendation to the company and for further research.
CASE STUDY
Inventory is the supply of raw materials, partially finished goods called work-in-
progress and finished goods, an organization maintains to meet its operational
needs. It represents a sizeable investment and a potential source of waste that needs
to be carefully controlled. Inventory is defined as a stock of goods that is
maintained by a business in anticipation of some future demand. The quantity to
which inventory must fall in order to signal that an order must be placed to
replenish an item. Using an extension of a standard inventory-dependent demand
model provide a convenient characterization of products that require early
replenishment. The optimal cycle time is largely governed by the conventional
trade-off between ordering and holding costs, whereas the reorder point relates to a
promotions-oriented cost-benefit perspective. The optimal policy yields
significantly higher profits than cost-based inventory policies, underscoring the
importance of profit-driven inventory management. To work towards perfect order
metrics, there has to be aggressive inventory management, restructuring supply
chain operations, and updating standards to the perfect standard. When updating
the metrics, this would include the cases shipped vs. the orders on-time delivery,
data synchronization, damages and unusable products, days in supply, the ordering
time cycle, and shelf level of service.
Cost of Goods Sold/Average Value of Inventory

Stock Levels
a. During 2011-2012
The company requires 2889 units of billets/blooms to manufacture of steel for the
year 2011-12.EOQ is 490.66~
490 units. The company makes safety stock equal to 30 day requirement and the
normal lead time is 10-20 days. The
company works for 300days in a year.
Reorder level = lead time*Average usage+ safety stock
3340.56
4350.35
3230.81
2347.86
454.24
673.37 607.65
396.53
7.35 6.46 5.32 5.92
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
2011 2012 2013 2014
Inventory Turnover Ratio
COST OF GOODS SOLD AVG VALUE OF INVENTORY INVENTORY TURN
OVER RATIO
YEAR COST OF GOODS
SOLD
AVG VALUE OF
INVENTORY
INVENTORY
TURN OVER
RATIO
2011 3340.56 454.24 7.35
2012 4350.35 673.37 6.46
2013 3230.81 607.65 5.32
2014 2347.86 396.53 5.92
A Study of Inventory Management System Case Study
= (10*9.63) + 288.9
= 385.2
Safety stock = usage * period of safety stock/ total working days in a year
= 2889*30/300
= 288.9
Average usage = usage/total working days in a year
= 2889/300
= 9.63
Minimum stock level = re-order level – (Average usage * Average lead time)
= 385.2– (9.63* 10+20/2)
= 240.8
Maximum stock level = re-order level + re-ordering quantity-
(Minimum usage * minimum lead time)
= 385.2+490-(9.63*10)
= 875.2-96.3
= 778.9
Danger level = Average usage * Maximum re-order period for emergency
purchases
= 9.63*20
= 192.6
Average stock level = ½(Minimum stock level + Maximum stock level)
= 240.8+778.9/2
= 509.85
XIV. Stock Levels
During 2012-2013
year 2012-13.EOQ is
553.429~554 units. The company makes safety stock equal to 30 day requirement
and the normal lead time is 10-20
days. The company works for 300days in a year.
Reorder level = lead time*Average usage+ safety stock
= (10*12) + 359.6
= 478.6~480
Safety stock = usage * period of safety stock/ total working days in a year
= 3596*30/300
= 359.6~360
Average usage = usage/total working days in a year
= 3596/300
= 11.9~12
Minimum stock level = re-order level – (Average usage * Average lead time)
= 480 – (12* 10+20/2)
= 300
Maximum stock level = re-order level + re-ordering quantity-
1188
*Corresponding Author: Nazar Sohail
Article History: Received: April 19, 2018, Accepted: May 22, 2018
= 480+554-(12*10)
= 914
Danger level = Average usage * Maximum re-order period for emergency
purchases
= 12*20
= 240
Average stock level = ½(Minimum stock level + Maximum stock level)
= 300+914/2
= 607
XV. Stock Levels
a. During 2013-2014
year 2013-14.EOQ is 392
units. The company makes safety stock equal to 30 day requirement and the
normal lead time is 10-20 days. The
company works for 300days in a year.
i. Reorder level = lead time*Average usage+ safety stock
= (10*7) + 206.6
= 276.6
ii. Safety stock = usage * period of safety stock/ total working days in a year
= 2066*30/300
= 206.6
iii. Average usage = usage/total working days in a year
= 2066/300
= 6.88~7
iv. Minimum stock level = re-order level – (Average usage * Average lead time)
= 276.6– (7* 10+20/2)
= 171.6
v. Maximum stock level = re-order level + re-ordering quantity-
= 276.6+392-(7*10)
= 598.6
vi. Danger level = Average usage * Maximum re-order period for emergency
purchases
= 7*20
= 140
vii. Average stock level = ½(Minimum stock level + Maximum stock level)
= 171.6+598.6/2
= 385.1~385
COCLUSION
Inventory management has to do with keeping precise records of finished
goods that are ready for shipment. This
often means posting the production of newly completed goods to the inventory
totals as well as subtracting the most
recent shipments of finished goods to buyers. When the company has a return
policy in place, there is usually a subcategory contained in the finished goods
inventory to account for any returned goods that are reclassified or second
grade quality.
Accurately maintaining figures on the finished goods inventory makes it possible
to quickly convey information
to sales personnel as to what is available and ready for shipment at any given time.
The ROI of Inventory management will be seen in the forms of increased revenue
and profits, positive employee
atmosphere, and on overall increase of customer satisfaction. The next step of the
present research will be the
application of achieved results of demand forecasts, safety stock and reorder points
into simulation software in order
to achieve more accurate results.

A Study of Inventory Management System CASE STUDY

Uploaded by

Copyright:

Available Formats

A Study of Inventory Management System CASE STUDY

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

A Study of Inventory Management System CASE STUDY

Uploaded by

Copyright:

Available Formats

A Study of Inventory Management System

Cost of Goods Sold/Average Value of Inventory

You might also like