Inventory Control

 MRP is a technique of determining the
requirement for raw material components,&

spare parts etc required for manufacturing
products. if delivery date of product is known
then everything can be planned very easily
like time required or quality of material
required etc.
 No. of items already in the inventory
(inventory status).
 No. of finished goods to be produced in the
near future using these items.
 No.of units of the item required for
manufacturing a single unit of the finished
product.
 BILL OF MATERIAL
 MASTER PRODUCTION SCHEDULE.
 INVENTORY STATUS.
 Bill of material is a document which tells us
about an item’s product structure,showing
the sequence in which components are
assembled & their required numbers.it also
contain detailes about the workstations at
which the items is assembled.
 An aggregate production plan tells us how
many units of a product have to be
manufactured in the coming 6-18months on
a weekly or monthly basis.
 It tells us about the status of the inventory of an
items at present,or in a given interval of time in the
coming future.this includes scheduled receipts of
units of items in the interval of time as a result of
orders placed in the recent past to suppliers.the
inventory status files also contain details about the
suppliers of the items,the lead time taken by him to
supply the item,& the size of each order to be placed
to him.
 Planned orders report
 Orders release report
 Order changes report
 This report gives information about planned
orders to be released on some future date
during a given interval of time. it is helpful in
preparing for the funds required for the
payments to the suppliers in the future
according to the dates & order sizes.
 This report gives the information about
planned orders to be released on the present
date.it helps the purchse manager to release
purchase order to the suppliers.
 Open order are those which have been placed
in the past,& the suppliers of the items is
preparing for these suppliers to be made to
the company.during the lead time the MPS of
the company may fluctuate.
 Appropriate use of material so that less
wastage is incurred.
 Availability of material at right time.
 Optimum utilization of working capital.
 More efficiency,more productivity.
 No delay in the delievery of products.
 Efficient working of production.
 Saving in the form of time & money.
 Minimize the cost of production.
 Continues flow of control.
 Seasonal Inventory
 Decoupling Inventory
 Cyclic Inventory
 Pipe line Inventory
 Safety Stock
 Seasonal Inventory:- Organizations carry
inventory to meet fluctuations in demand
arising out of seasonality. In order to meet
the demand, inventory build up happens
during non-peak periods.
 Decoupling Inventory:- Manufacturing

systems typically involve a series of
production and assembly workstations. One
way to simplify the production planning and
control problem is to decouple successive
stages using inventory at some intermediate
points.
 Cyclic Inventory:- It is customary for organizations to
order inventory in repeated cycles and consume them
over time. Each cycle begins with replenishment and
ends with complete depletion of the inventory.
 Pipeline Inventory:- It pertains to the level of inventory

that organizations carry in the long run due to non-zero
lead time for order, transport and receipt of material
from the suppliers.
 Safety Stock:- Organizations also have additional

investment in inventory to buffer against uncertainties
in demand and supply of raw material and components.
In order to improve the availability to meet uncertain
demand, an additional quantity, known as safety stock.
There are several costs associated with
inventory planning and control. These costs
could be classified under three broad
categories.
 Inventory Carrying Cost

 Cost Of Ordering
 Cost Of Shortages
 Inventory Carrying Cost:- ICC includes cost of stores and
warehousing and administrative costs. The other ICC
includes insurance costs, cost of obsolescence, damages
and wastage. The components of ICC exert considerable
pressure on an organization to keep inventory to low
levels.
 Cost Of Ordering:- Organizations perform a series of

tasks related to ordering material. These includes search
and identification of appropriate sources of supply, price
negotiation, contracting and purchase order generation,
follow-up and receipt of material. All these involve
manpower, resources and time that could be classified
under cost of ordering.
 Cost of Shortages:- Despite careful planning, it is likely

that organizations run out of stock. It also introduces
additional costs arising out of pushing the order back and
rescheduling the production system to accommodate
these changes. All these form part of cost of shortage.
Let us consider a situation in which the demand for
an item is continuous and is known with certainty.
Since demand is known, we exclude the possibility
of having shortages. Better inventory control
requires that we answer the “how much” and
“when” questions by balancing the total costs of
carrying inventory and ordering.
TC(Q)= Q Cc D C 0
2 Q
When the total cost is minimum, we obtain the
most Economic Order Quantity(EOQ).
Organizations employ some methods to manage
and control inventory.
◦ Continuous Review (Q) System
◦ The Periodic Review (P) System
 Continuous Review (Q) System

Organizations widely use a continuous
review system called a two-bin system. In
operation, the available inventory is stocked in
two bins, first in a smaller bin and the balance in
a larger bin. As the material in consumed, the
larger bin is emptied first. As soon as the larger
bin is empty, an order is placed with a supplier
for a predetermined quantity, Q, and until the
material arrives in the stores, the smaller bin is
consumed.
 The Periodic Review (P) System
An alternative model for inventory
control, known as periodic review system,
operates differently from the Q system. In a
periodic review system, the inventory level in
the system is reviewed at fixed intervals of
time. Therefore, these systems are also
known as fixed order interval systems.
In P system, the two decisions
“when” and “how much” are made in a
different fashion compared to the Q system.
Managing inventory is an issue pertaining to a
large no and variety of items. Organizations,
therefore, devise suitable ways of categorising
the items and adopt mechanisms that have
variable levels of control on the different
categories of items.
ABC Classification :- The ABC classification of
inventories is based on the cost (or value) of
items consumed. Very high value items are “A”
class items and may require tighter control.
Medium value items are categorised as “B” class
and the low value items as “C” class.
 On the basis of unit cost of the item(XYZ classification)
a) High unit cost (X Class item)
b) Medium unit cost (Y Class item)
c) Low unit cost (Z Class item)
 On the basis of movement of inventory(FSN classification)
a) Fast moving
b) Slow moving
c) Non-moving
 On the basis of criticality of items(VED classification)
a) Vital
b) Essential
c) Desirable
 On the basis of sources of supply
a) Imported
b) Indigenous( National suppliers)
c) Indigenous( Local suppliers)

Inventory Control

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Inventory Control

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 MRP is a technique of determining the

requirement for raw material components,&

 Decoupling Inventory:- Manufacturing

 Pipeline Inventory:- It pertains to the level of inventory

 Safety Stock:- Organizations also have additional

 Inventory Carrying Cost

 Cost Of Ordering:- Organizations perform a series of

 Cost of Shortages:- Despite careful planning, it is likely

 Continuous Review (Q) System

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