INVENTORY MANAGEMENT –

ROLE IN COMPETITIVE STRATEGY

10/8/2019 1/12Dr.PS,DoMS, WHM, II unit

OBJECTIVES OF INVENTORY MANAGEMENT

o Improve Customer ServiceEc

The main objectives of inventory managementare operational and financial. The operationalobjectives mean that the materials and sparesshould be available in sufficient quantity so thatwork is not disrupted for want of inventory. Thefinancial objective means that investments ininventories should not remain idle and minimumworking capital should be locked in it. Thefollowing are the objectives of inventorymanagement:10/8/2019 2/12Dr.PS,DoMS, WHM, II unit

• Effective Inventory management requires an effective control system for inventories. A proper inventory control not only helps in solving the acute problem of liquidity but also increases profits and causes substantial reduction in the working capital of the concern.

10/8/2019 3/12Dr.PS,DoMS, WHM, II unit

Tools and Techniques of inventory management and control

10/8/2019 4/12Dr.PS,DoMS, WHM, II unit

Inventory Management Techniques

StockReview

Just InTime

ABCAnalysis

EOQModel

10/8/2019 5/12Dr.PS,DoMS, WHM, II unit

Inventory control Techniques

A

B

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B: important

C: marginally important

< Always better control (ABC)

classification >

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10/8/2019 6/12Dr.PS,DoMS, WHM, II unit

Inventory Control Techniques

<The EOQ Model>

Assumptions

ConstantDemand Rate

Known

Costs

Outright

orders

No Allowed

Stock-out

10/8/2019 7/12Dr.PS,DoMS, WHM, II unit

Inventory control Techniques<The EOQ Model>

Q = Number of pieces per order Q* = Optimal number of pieces per order (EOQ)

S = Setup or ordering cost foreach order H = Holding or carrying cost per unit per year

D = Annual demand in units for the inventory item

Annual Holding Cost = (Number of orders placed per-year)*(Setup or order cost per

order)

= { Average inventory level } { Holding cost per unit per year}

= {Q/2 } ( H )10/8/2019 8/12Dr.PS,DoMS, WHM, II unit

Annual Setup Cost = (Number of orders placed per-year)*(Setup or order cost per order)

= { Annual demand / Number of units in each order } { Setup or order cost per order }

= { D/Q } ( S )

Inventory control Techniques

< The EOQ Model >

Q = Number of pieces per order Q* = Optimal number of pieces per order (EOQ)

S = Setup or ordering cost foreach order H = Holding or carrying cost per unit per year

D = Annual demand in units for the inventory item

10/8/2019 9/12Dr.PS,DoMS, WHM, II unit

Optimal order quantity is found when annual setup cost equals annual holding cost

{Q/2 } ( H ) = = { D/Q } ( S )

Q* = √2DS/H

< The EOQ Model >

• Q = Number of pieces per order

• S = Setup or ordering cost for each order

• Q* = Optimal number of pieces per order (EOQ)

• H = Holding or carrying cost per unit per year D =

Annual demand in units for the inventory item

10/8/2019 10/12Dr.PS,DoMS, WHM, II unit

(hides problems)

Unreliable CapacityVendors

Scrap Imbalances

Lowering Inventory /Reduces Waste

inventory level

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10/8/2019 11Dr.PS,DoMS, WHM, II unit

THANK YOU

10/8/2019 12/12Dr.PS,DoMS, WHM, II unit