This ppt is about what is Inventory management and a case study on NANDYALA CEMENT BRICKS(Small scale Industry). And here we used EOQ and ABC analysis techniques.
2. INVENTORY
• Importance of INVENTORY in estimating working capital.
Net Working Capital Current Assets Current Liabilities
Inventories constitute about 50 to 60 % of Current Assets.
• Components of Inventory.
Raw materials
Work-in-Progress
Stock of goods
• Classification of Inventories depends on nature of Business.
Eg: Steel in Steel industry, Steel in Automobile Industry
3. OBJECTIVES OF INVENTORY MANAGEMENT
•To anticipate customers demand.
•To maintain a large size of inventory for uninterrupted
production and smooth sales operation.
•To minimize Ordering cost and Carrying cost of inventory.
•To keep investment in inventory at optimum level.
4. TECHNIQUES
•ABC(Always Better Control) Analysis
Inventories are categorized into 3 types based on
consumption value.
Priority is given to Inventories based on category.
•EOQ(Economic Order Quantity)
Determines size or quantity in which inventory should be
acquired.
Decision is taken to minimize carrying and ordering costs.
5. ABC analysis
• ABC analysis or SIM analysis is for categorizing inventory items into
three classes A, B and C:
• A being the most valuable items,
• C being the least valuable ones.
• B being the moderate value items which lies between A and C
• The top 70-80% of the annual consumption value of the company
typically accounts for only 10-20% of total inventory items.
• B-items are with medium consumption value. 15-25% of annual
consumption value which accounts for 30% of total inventory items.
• C-items are with the lowest consumption value. The lower 5% of the
annual consumption value which accounts for 50% of total inventory
items.
6. A items B items C items
Very strict control Moderate control Loose control
No safety stocks(or very low) Low safety stock High safety stock
Frequent ordering or weekly deliveries Once in 3 months Bulk ordering once in 6 months
Weekly control statements Monthly control statements Quarterly reports
Maximum follow-up Periodic follow-ups Follow up in exceptional cases
Rigorous value analysis Moderate value analysis Minimum value analysis
As many sources as possible for each
item
Two or more reliable sources Two sources for each item
Accurate forecast in material planning Estimate based on past data Rough estimates for planning
Minimization of waste obsolete and
surplus
Quarterly control over surplus and
obsolete items
Annual review over surplus and obsolete
materials
7. PROCEDURE FOR DEVELOPING ABC ANALYSIS
• Determine the annual volume of usage and rupee value of each item.
• Multiply each items annual volume of usage by its rupee value.
• Compute each items percentage of the total inventory in terms of
annual usage in rupees.
• Select top 10 percent highest rupee percentages and classify under A
items.
• Select next 20 percent under B items.
• The next 70 percent of items with lowest percentages are C items.
9. ECONOMIC ORDER QUANTITY
• EOQ is level of inventory at which the total costs of ordering and
holding are minimum.
• EOQ helps managers to take decisions on order quantity, Re-order
point and minimum stock level.
• Assumptions:
• The annual consumption of raw material is certain.
• The rate of consumption is steady over time.
• The ordering and carrying costs are constant over the range of
inventory levels.
• No stock-outs are allowed.
11. To maintain minimum stock level
•Lead Time
Time to receive the delivery or procurement time of inventory.
•Re-order Point
Level of inventory at which an order should be placed to replenish the
current stock of inventory.
Re-order point = Lead time X Average usage + Safety stock
•Safety Stock
Safety stock is used to avoid stock out in case of contingency
12.
13. NANDyala CEMENT BRICKS - A CASE STUDY
Company Name Nandyala Cement Bricks
Owner N. Muni Kumar
Location Vedanthapuram,
Tirupati Rural.
No. of Workers 20
Per Brick cost 15 rupees
Monthly Sales 4,00,000 rupees
14. EOQ For cement
Annual demand = 10,000 units
Carrying cost =(Wages to watchman + Electricity)
= 200/per day + 300/per month
= Rs.75,600 = Rs.4/- per unit
Ordering cost = Rs.32 per unit
= 400
15. Sl.no. Material Price Units Half-yearly Consumption
(in Rupees)
Class
1 Dust 50/kg 20000 100000 A
2 Cement 380/pack 200 76000 B
3 Gypsum 200/pack 180 36000 C
4 Sand 3000/load 10 30000 C
5 Fly ash 1800/load 6 10800 C
Table for ABC Analysis
16. CONCLUSION
•This research has found Dust is consider high among the
inventory.
•Management can expand go-down for storing inventory.
•The sales and marketing department of the firm should pay
closer attention to inventory usage.
•Inventory problems can cause business failures .
•Inventory management techniques helps to determine the
safety stock and minimum stock level.
•By this management can take measures to invest in inventory
to an optimum.
17. Presented by
C. Rani
MBA, M.A.(Psy)
Assistant Professor.
Vijayakumar P
B.Tech, MBA(NET,SET), M.Com(IOB)
Assistant Professor.
