Inventory Management

Suppliers —> Manufacturing

Inventory for raw Materials

Manufacturing to Market

Finished Goods

The objective of inventory management is to

strike a balance between inventory investment and customer service

The MAIN objective of inventory management is to maintain the required inventory to

run the production and sales process smoothly

Inventory Investment

Money paid to purchase raw materials, Money for equipment, Storage,

Relationship btw having enough inventory and customer service (The balance)

The more/bigger inventory on hand, the more positive customers are (their demand)

Pros of big Inventory System

More responsive to customer

Con of Big Inventory System

Storage Costs, more labors, more equipment

Inventory is one of the most expensive assets of many companies representing

50% of total invested capital

Operations managers must balance inventory investment and customer service by maintaining the

required inventory to run the production and sales process smoothly

Types of Inventory

Raw materials, WIP, Maintenance/repair/operating(MRO), Finished Goods

Raw Materials

Any items used to manufacture components or finished products

Purchased but not processed

WIP

Undergone some change but not completed

Function of cycle time for a product

MRO

Necessary to keep machinery and processes productive (To support and facilitate the production of finished goods)

Cycle time is the

Time starting when operation begins to the point of time when operation ends

ABC analysis is an

inventory management technique

ABC analysis determines the

value of inventory items based on their importance to the business

ABC is a method used for

Inventory management and prioritizing items based on their importance

Three classes based on annual dollar volume

Class A, B, C

Class A includes

a small % of items (10%-20%) that contributes to a significant portion (70-80%) of the overall value or usage. These are the most IMPORTANT and High value items that require close monitoring and management

Class B are of

moderate importance. They represent a medium % (30%) that contribute to a moderate portion (15%) of the overall value or usage. Items need regular monitoring but not as intensively as Category A items.

Class C includes

A large % of items (50%) that contribute to a small protion (5%) of the overall value. These are low-value or low-importance items that require less attention and management

ABC analysis policy 1

More emphasis on supplier development for A items

ABC analysis policy 2

Tighter physical inventory control for A items

ABC analysis policy 3

More care in forecasting A items

ABove 70%

Class A

Above 23%

Class B

Below 5%

Class C

What are the parameters

% of Annual cost and Annual $