INVENTORY MANAGEMENT SYSTEM
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An inventory can be defined as a stock of goods which is held for the purpose of future production or sales. The stock of goods may be kept in the following forms:
Partly finished goods
Spare parts etc.
1. A stock of items held to meet future demand
2. Inventory is a list for goods and materials, or those goods and materials themselves, held available in stock by a business.
Variables in an Inventory Problem:
The variables associated with the inventory problems are classified into two categories.
a. The Controlled variables
b. The uncontrolled variables
a) The variables that may be controlled, separately or in combination are following:
1. The quantity acquired – By purchase, production, or some other means. The decision maker may have a control over the production or purchase level.
2. The frequency of timing of acquisition – The decision maker may have control over how often or when the inventory should be replenished.
3. The stage of completion of stocked items – The decision maker may have a control over the stage at which the unfinished items be held so that there is no delay in supplying customers.
b) The uncontrolled variables – The variable that may not be controlled in an inventory problem are divisible into cost variables and others.
1. Inventory management is the branch of business management concerned with planning and controlling inventories.
2. Inventory is stock of items held to meet future demand.
3. It deals with two basic questions:
• How much to order
• When to order?
Types of Inventory:
1. Raw Material
2. Work in progress
3. Finished Goods
Nature of Inventories
1. Raw Materials – Basic inputs that are converted into finished product through the manufacturing process.
2. Work-in-progress – Semi-manufactured products need some more work before they become finished goods for sale.
3. Finished Goods – Completely manufactured products ready for sale.
4. Supplies – Office and plant cleaning materials not directly enter production but are necessary for production process and do not involve significant investment.
Reasons To Hold Inventory
1. Meet variations in customer demand:
o Meet unexpected demand
o Smooth seasonal or cyclical demand
2. Pricing related:
o Temporary price discounts
o Hedge against price increases
o Take advantage of quantity discounts
3. Process & supply surprises
o Internal – upsets in parts of or our own processes
o External – delays in incoming goods.
Objective of Inventory Management
1. To maintain a optimum size of inventory for efficient and smooth production and sales operations.
2. To maintain a minimum investment in inventories to maximize the profitability.