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Presented by:Pankaj Dadral
Inventory is a physical resource that a firm holds in stock with the intent of selling it or transforming it into a more valuable state.
Inventory System is a set of policies and controls that monitors levels of inventory and determines what levels should be maintained, when stock should be replenished, and how large orders should be.
There are many items in a departmental store, which are sold to customers and purchased from suppliers. An order is placed by the customer-required details , which are listed below:
• Item name
• Delivery time
The order processing executes, look up the stock of each item available or not then order is fulfilled by the management of departmental store. The system periodically checks the store stock of each item if it is found below the reorder level then purchase order is placed to the supplier for that item, if the supplier is not able to supply whole order then rest of quantity is supplied by another supplier.
After fulfilled the formalities, a bill is generated by the system and send to the customer.
Item details are maintained by the management and this whole process is done manually. Our work area is to automate the above process and to generate more efficient system.
1.1 TYPES OF INVENTORY
Following are the 5 possible ways of inventory control
Raw materials – In this type of inventory raw material is bought from the producer ,followed by processing to get finished products for sale in the market . For eg. Pencil manufacturing industry requires wood and graphite as raw materials
Purchased parts and supplies – In this type of inventory finished products are bought from the manufacturer and sold to the customers. For eg. Any General Store sells the products it buys from its manufacturers .
Work-in-process (partially completed) products (WIP) – In this type of inventory partially processed products are further modified and sold . For eg. Steel industry buys the cast iron to further process it and improve.
Items being transported – In this type of system products are transferred from one location to another . For eg. Any Courier firm
Tools and equipment – In this type of system
INVENTORY CONTROL SYSTEMS
Inventory Control is broadly classified into 2 main systems –
Continuous system (fixed-order-quantity)
Constant amount ordered when inventory declines to predetermined level
Periodic system (fixed-time-period)
Order is placed for variable amount after fixed passage of time
TYPES OF DEMAND
Inventory system encounters the following 2 types of demand –
Demand for items used to produce final products
Tires stored at a Goodyear plant are an example of a dependent demand item
Demand for items used by external customers
Cars, appliances, computers, and houses are examples of independent demand inventory
DISADVANTAGES OF OLD SYSTEM
As we know the manual processing is quite tedious, time
consuming, less accurate in comparison to computerized processing.
The present system is not is exception consultant encountering all the above problems.
It is very tedious.
All information is not placed separately.
Lot of paper work.
Slow data processing.
Not user-friendly environment.
Difficult to find records due to poor file management.
ADVANTAGES OF NEW SYSTEM
In new computerized system we tried to give these facilities
Ensures an adequate supply of materials
Minimizes inventory costs
Facilitates purchasing economies
Eliminates duplication in ordering
Better utilization of available stocks
Provides a check against the loss of materials
Facilitates cost accounting activities
Enables management in cost comparison
Locates & disposes inactive & obsolete store items
Consistent & reliable basis for financial statements
Balance in Inventory Levels
Replenish Point is level of inventory at which order is placed
The company replenishes its stock using mainly 2 methods
o In this system a mimimum stock is always maintained (called the Safety Stock) and as the stock goes below a certain level ( called the Reorder Point ) the system places the order.
o As depicted by the graph below
MANUAL Replenishment –In this system the store manager places the order as per the observed demand and seasonal availability. For eg. Vegetables,fruits,etc
o This method is based on anticipation and idea ,hence it may lead to big profits or in some cases huge loss.
• Improve customer service – As the system is automated customers shall have less of problems and more of help when the shop.
• Economies of purchasing- As the purchase system of the store is planned it becomes economical ,planned and systematic ;with minimum possibilities of wasteage.
• Economies of production – Here any product being processed is done more systematically.
• Transportation savings – As the purchase order is well planned, transportation cost is minimal or optimized.
• Hedge against future – Stock is always maintained to deal against future problems in supply if any.
• Unplanned shocks (labor strikes, natural disasters, surges in demand, etc.)- The stock maintained shall always be helpful in any case encountered above.
• To maintain independence of supply chain – System which is automated is a well planned and a flourishing system in itself.
• Maximize the level of customer service by avoiding understocking.
• Promote efficiency in production and purchasing by minimizing the cost of providing an adequate level of customer service.
• To meet unforeseen future demand due to variation in forecast figures and actual figures.
• To average out demand fluctuations due to seasonal or cyclic variations.
• To meet the customer requirement timely, effectively, efficiently, smoothly and satisfactorily.
• To smoothen the production process.
• To facilitate intermittent production of several products on the same facility.
• To gain economy of production or purchase in lots.
• To reduce loss due to changes in prices of inventory items.
• To meet the time lag for transportation of goods.
• To balance costs of inventory such as order cost or set up cost and inventory carrying cost.
• To balance the stock out cost/opportunity cost due to loss of sales against the costs of inventory.
• To minimize losses due to deterioration, obsolescence, damage, pilferage etc