DR Atif Shahzad Engg Management Lecture Inventory Management

Dr.
Atif Shahzad
_____________________
BE, MECHANICAL ENGINEERING
UNIVERSITY OF ENGINEERING & TECHNOLOGY, TAXILA, PAKISTAN, 2000
MCS, SOFTWARE ENGINEERING

SZABIST,, ISLAMABAD, PAKISTAN, 2003
MS, AUTOMATION & PRODUCTION SYSTEMS

ECOLE CENTRALE DE NANTES, NANTES, FRANCE, 2007
PhD, AUTOMATION & APPLIED INFORMATICS

UNIVERSITE DE NANTES, NANTES, FRANCE, 2011
EMAIL: atifshahzad@Gmail.com
TEL: +92-333-5219846, +92-51-5179755
LINKEDIN: pk.linkedin.com/in/dratifshahzad
ENGINEERING
MANAGEMENT
TODAY’S LECTURE
Inventory Management
Inventory Management
17–3
• refers to the materials in stock.

• is also called the idle resource of an
enterprise.
• represent those items which are
either stocked for sale or they are
Inventory in the process of manufacturing or
they are in the form of materials,
which are yet to be utilized
Dr. Atif Shahzad
Reasons for Keeping Inventories
17–4
To stabilise production
To take advantage of price discounts
To meet the demand during the replenishment period
To prevent loss of orders (sales)
To keep pace with changing market conditions

Dr. Atif Shahzad
Miscellaneous
Inventory Management To prevent loss of orders (sales)
17–5 Miscellaneous
• The demand for an item fluctuates because of the

number of factors, e.g., seasonality, production
schedule etc.
• The inventories (raw materials and components)
should be made available to the production as per
the demand failing which results in stock out and
stabilise the production stoppage takes place for want of
materials.
production • Hence, the inventory is kept to take care of this
fluctuation so that the production is smooth.
Dr. Atif Shahzad
• Usually the manufacturers offer

discount for bulk buying and to
gain this price advantage the
materials are bought in bulk even
though it is not required
take advantage immediately.
of price discounts • Thus, inventory is maintained to
gain economy in purchasing.
Dr. Atif Shahzad
• The lead time for procurement of

materials depends upon many
factors like location of the source,
demand supply condition, etc.
meet the demand • So inventory is maintained to meet
during the the demand during the
replenishment period procurement (replenishment)
period.
Dr. Atif Shahzad
• One has to meet the delivery

schedules at 100 per cent service
level, means they cannot afford to
miss the delivery schedule which
prevent loss of may result in loss of sales.
orders (sales) • To avoid the organizations have to
maintain inventory.
Dr. Atif Shahzad
• The organizations have to

anticipate the changing
market sentiments and they
have to stock materials in
keep pace with anticipation of non-
changing market
conditions availability of materials or
sudden increase in prices.
Dr. Atif Shahzad
• Sometimes the
organizations have to
stock materials due to
other reasons like
Miscellaneous suppliers minimum
quantity condition etc
Dr. Atif Shahzad
Inventory Control
 planned approach of determining

¤ what to order,
¤ when to order,
¤ how much to order and
¤ how much to stock
so that costs associated with buying and

storing are optimal without interrupting
production and sales.
Dr. Atif Shahzad
Inventory Control
 Inventory control basically deals with two problems:
When should an How much should

order be placed? be ordered?
(Order level) (Order quantity)
Dr. Atif Shahzad
Objectives of Inventory Control
17–13
To ensure adequate supply of products to customer and avoid shortages as far as possible.
To make sure that the financial investment in inventories is minimum (i.e., to see that the working capital is blocked to
the minimum possible extent).
Efficient purchasing, storing, consumption and accounting for materials is an important objective.
To maintain timely record of inventories of all the items and to maintain the stock within the desired limits.
To ensure timely action for replenishment.
To provide a reserve stock for variations in lead times of delivery of materials.

Dr. Atif Shahzad
To provide a scientific base for both short-term and long-term planning of materials.
Benefits of Inventory Control
17–14
Improvement in customer’s relationship because of the timely delivery of goods and

service.
Smooth and uninterrupted production and, hence, no stock out.
Efficient utilisation of working capital. Helps in minimising loss due to deterioration,

obsolescence damage and pilferage.
Economy in purchasing.
Eliminates the possibility of duplicate ordering.

Dr. Atif Shahzad
Techniques of Inventory Control
ABC HML VED

analysis analysis analysis
FSN SDE GOLF

SOS
analysis
Dr. Atif Shahzad
ABC HML VED
FSN SDE GOLF

Techniques of Inventory Control SOS

analysis
ABC In any Retail organization there are large

numbers of inventories to be maintained.
analysis
It is not practical to have very stringent

inventory control system for each & every
item.
So with the modus of having an effective

Purchase& stores control we implement ABC
Inventory Classification model Known as
Always Better Control (ABC) based upon
Pareto rule ( 80/20 rule)
Dr. Atif Shahzad
ABC HML VED
FSN SDE GOLF


analysis
ABC Class A - High

analysis Consumption Value
Class B - Medium
Consumption Value
Divides inventory into
three classes based on Class C - Low
Consumption Value Consumption Value
Dr. Atif Shahzad
Consumption Value = (Unit price of an item) (No. of

units consumed per annum)
ABC HML VED
FSN SDE GOLF


analysis
ABC Class A - High

analysis Consumption Value
Class B - Medium
Consumption Value
Divides inventory into
three classes based on Class C - Low
Consumption Value Consumption Value
Dr. Atif Shahzad
Consumption Value = (Unit price of an item) (No. of

units consumed per annum)
ABC HML VED
FSN SDE GOLF


analysis
ABC
analysis
Dr. Atif Shahzad
ABC HML VED
FSN SDE GOLF


analysis
ABC
analysis
Dr. Atif Shahzad
ABC HML VED
FSN SDE GOLF


analysis
ABC
analysis
Dr. Atif Shahzad
ABC HML VED
FSN SDE GOLF


analysis
ABC
analysis
the classification of existing inventory is based on
annual
consumption and the annual value of the items.
Hence we obtain the quantity of inventory item
consumed during the year and multiply it by unit cost

to obtain annual usage cost.
Dr. Atif Shahzad
The items are then arranged in the descending order

of such annual usage cost.
ABC HML VED
FSN SDE GOLF


analysis
ABC
analysis
Dr. Atif Shahzad
ABC HML VED
FSN SDE GOLF


analysis
ABC
analysis
Dr. Atif Shahzad
ABC HML VED
FSN SDE GOLF


analysis
A-Item: Very tight control, the items

ABC being of high value. The control need
be exercised at higher level of
analysis authority.
B-Item: Moderate control, the items

being of moderate value. The control
need be exercised at middle level of
authority.
C-Item: The items being of low value,

the control can be exercised at gross
root level of authority, i.e., by
respective user department managers.
Dr. Atif Shahzad
 A company manufactures a line of ten items. The usage and unit
cost are shown in the following table, along with the annual
dollar usage. The latter is obtained by multiplying the unit usage
QUIZ by the unit cost.
¤ Calculate the annual dollar usage for each item.
¤ List the items according to their annual dollar usage.
¤ Calculate the cumulative annual dollar usage and the
cumulative percentage of items.
¤ Group items into an A, B, C classification.
Dr. Atif Shahzad
 A company manufactures a line of ten items. The usage and unit
cost are shown in the following table, along with the annual
dollar usage. The latter is obtained by multiplying the unit usage
QUIZ by the unit cost.
¤ Calculate the annual dollar usage for each item.
¤ List the items according to their annual dollar usage.
¤ Calculate the cumulative annual dollar usage and the
cumulative percentage of items.
¤ Group items into an A, B, C classification.
Dr. Atif Shahzad
ABC HML VED
FSN SDE GOLF


analysis
HML
analysis
classification of They are classified

existing inventory is as high price,
based on unit price medium price and
of the items. low cost items.
Dr. Atif Shahzad
ABC HML VED
FSN SDE GOLF


analysis
VED
analysis
classification of
They are classified as
existing inventory is
vital, essential and
based on criticality
desirable items.
of the items.
It is mainly used in
Dr. Atif Shahzad
spareparts inventory.
ABC HML VED
FSN SDE GOLF


analysis
FSN
analysis
In this analysis, the

classification of existing They are classified as fast
inventory is based moving, slow moving and
consumption of the non-moving items.
items.
Dr. Atif Shahzad
ABC HML VED
FSN SDE GOLF


analysis
SDE
analysis
the classification of
based on the items.
Dr. Atif Shahzad
ABC HML VED
FSN SDE GOLF


analysis
GOLF
analysis
They are classified as

classification of existing Government supply,
inventory is based ordinarily available, local
sources of the items. availability and foreign
source of supply items.
Dr. Atif Shahzad
ABC HML VED
FSN SDE GOLF


analysis
SOS
analysis
the classification of
They are classified
as seasonal and off-
based nature of
seasonal items.
supply of items.
Dr. Atif Shahzad
QUESTIONS
THANK YOU FOR YOUR INTEREST

DR Atif Shahzad Engg Management Lecture Inventory Management

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Dr.

MCS, SOFTWARE ENGINEERING

MS, AUTOMATION & PRODUCTION SYSTEMS

PhD, AUTOMATION & APPLIED INFORMATICS

TEL: +92-333-5219846, +92-51-5179755

• refers to the materials in stock.

To take advantage of price discounts

To meet the demand during the replenishment period

To prevent loss of orders (sales)

To keep pace with changing market conditions

To take advantage of price discounts

To meet the demand during the replenishment period

Inventory Management To prevent loss of orders (sales)

To keep pace with changing market conditions

• The demand for an item fluctuates because of the

To take advantage of price discounts

To meet the demand during the replenishment period

Inventory Management To prevent loss of orders (sales)

To keep pace with changing market conditions

• Usually the manufacturers offer

To take advantage of price discounts

To meet the demand during the replenishment period

Inventory Management To prevent loss of orders (sales)

To keep pace with changing market conditions

• The lead time for procurement of

To take advantage of price discounts

To meet the demand during the replenishment period

Inventory Management To prevent loss of orders (sales)

To keep pace with changing market conditions

• One has to meet the delivery

To take advantage of price discounts

To meet the demand during the replenishment period

Inventory Management To prevent loss of orders (sales)

To keep pace with changing market conditions

• The organizations have to

To take advantage of price discounts

To meet the demand during the replenishment period

Inventory Management To prevent loss of orders (sales)

To keep pace with changing market conditions

 planned approach of determining

¤ how much to order and

¤ how much to stock

so that costs associated with buying and

When should an How much should

To ensure timely action for replenishment.

To provide a reserve stock for variations in lead times of delivery of materials.

Improvement in customer’s relationship because of the timely delivery of goods and

Smooth and uninterrupted production and, hence, no stock out.

Efficient utilisation of working capital. Helps in minimising loss due to deterioration,

Eliminates the possibility of duplicate ordering.

ABC HML VED

FSN SDE GOLF

FSN SDE GOLF

Techniques of Inventory Control SOS

ABC In any Retail organization there are large

It is not practical to have very stringent

So with the modus of having an effective

FSN SDE GOLF

Techniques of Inventory Control SOS

ABC Class A - High

Consumption Value = (Unit price of an item) (No. of

FSN SDE GOLF

Techniques of Inventory Control SOS