Inventory Management

Dr. Najam Akber

Degree in Mechanical Engineering from NED

university, Karachi.
Served as a Maintenance Engineer in Al-Karam Textile
Mills, Karachi.
Briefly worked for Hinopak as a trainee engineer in
Karachi.
Served as a Production Engineer in Siemens Pakistan,
Karachi.
Served as an Assistant Manager in NDC, Islamabad.
MSc. Degree in Programmes and Project Management
from Univerisity of Warwick, UK (worked with Airbus
UK on the final research project).
One year research experience in the filed of
Leadership for Innovation in University of Bath, UK.
PhD degree in Manufacturing engineering
management from Loughborough University, UK.
Conducted a 10 weeks long case study in Rolls Royce,
UK.
Presented papers in UK, Sweden and Spain.
Serving currently as Manager Technical in NDC,
Islamabad

Publications
1. Anjum, N.A., Harding, J.A., Young, R.I.M. and Case, K., 2012, Manufacturability verification through feature based ontological
product models. Proceedings of the Institution of Mechanical Engineers, Part B: Journal of Engineering Manufacture, vol. 226 no.
6, pp 1086-1098
2. Anjum, N.A., Harding, J.A., Young, R.I.M. and Case, K., 2012, Mediation of foundation ontology based knowledge sources.
Computers in Industry, vol. 63, no. 5, pp 433 - 442
3. Anjum, N.A., Harding, J.A., Young, R.I.M, Case, K, Usman, Z., Changoora, N., 2012, Verification of Knowledge Shared across Design
and Manufacture Using a Foundation Ontology., International Journal of Production Research, [First review received in December
2012 with good comments and a few proposed changes]
4. Changoora, N., Gunendran, G., Young, R.I.M, Usman, Z., Anjum, N.A, Palmer, C., Harding, J.A, Case, K., and Cutting-Decelle, A.-F.,
2011. Extending product lifecycle management for manufacturing knowledge sharing. Proceedings of the Institution of Mechanical
Engineers, Part B: Journal of Engineering Manufacture [Submitted for review since September 2011].
5. Changoora, N., Gunendran, G., Young, R.I.M, Usman, Z., Anjum, N.A, Palmer, C., Harding, J.A, Case, K., and Cutting-Decelle, A.-F.,
2011A model-driven ontology approach for manufacturing system interoperability and knowledge sharing., Computers in Industry
[Submitted for review since May 2011]
6. Anjum, N.A., Harding, J.A. and Young, R.I.M., 2011. Shape feature based ontological engineering product models. In:
3rd International IFIP Working Conference on Enterprise Interoperability (IWEI). Stockholm, Sweden. March 23-24.
7. Young, R.I.M, Chungoora, N., Usman, Z., Anjum, N.A, Gunendran, G., Palmer, C., Harding, J.A, Case, K. and Cutting-Decelle, A.-F.,
2011. Reference ontologies for manufacturing based ecosystems. In: 3rd International IFIP Working Conference on Enterprise
Interoperability (IWEI). Stockholm, Sweden. March 23-24.
8. Anjum, N.A., Harding, J.A. and Young, R.I.M., 2010. Cross domain knowledge verification: Verifying knowledge in foundation
based domain ontologies. In: Proceedings of the International Conference on Knowledge Engineering and Ontology Development
(KEOD) Valencia, Spain. October 25-28.
9. Anjum, N.A., Harding, J.A., Young, R.I.M. and Case, K., 2010. Gap analysis of ontology mapping tools and techniques. In:
Popplewell, K., Harding, J.A, Poler, R. and Chalmeta, R., eds. Enterprise interoperability IV: Making the Internet of the future for
the future of enterprise Proceedings of the 6th International Conference on Interoperability for Enterprise Software and
Applications (I-ESA). Coventry, UK. April 14-15. pp. 303-312. DOI: 10.1007/978-1-84996-257-5_28.
10. Young, R.I.M, Chungoora, N., Usman, Z., Anjum, N.A, Gunendran, G., Palmer, C., Harding, J.A, Case, K. and Cutting-Decelle, A.-F.,
2010. An exploration of foundation ontologies and verification methods for manufacturing knowledge sharing. In: Workshop on
Interoperability for Enterprise Software and Applications (I-ESA). Coventry, UK: University of Coventry. April 13.

Course Introduction
48
16
75%
?
?
25%
40%
15%
20%

Credit Hours
Weeks
Minimum attendance required
Quizzes
Home Assignments
Marks account for the Midterm Exams
Marks account for the Final Exam
Marks account for the Quizzes
Marks account for group activities and final
project

What is wrong with this map?

Sources of Learning
Books & Literature (including e-learning)

Linkedin groups
Inventory Management Professionals
Inventory & Asset Management Network
Automotive Inventory Management
Group discussions

Industrial visits
On job experience

Recommended Books
Essentials of inventory management (2003) by Max Muller,
published by American Management Association
Inventory Management Explained: A focus on Forecasting, Lot
Sizing, Safety Stock, and Ordering Systems (2009) by David J.
Piasecki, published by Ops Publishing
Operations Management Body of
Knowledge (OMBOK) by American
Production & Inventory Control
Society (APICS)
Operations & Production
Management books

Rules of the Game

Maximum 10 minutes allowed for late arrivals after
that attendance will not be marked
Why classrooms?
Three levels of discourse in the class
The bookish knowledge
Tea hers e perie e
Stude ts e perie e

Participation in group activities

Questions are encouraged

Stude ts I troductio

Groups Formation

Some fun
before we
start
You are a farmer taking a fox (or a wolf), a chicken (or a goose)
and a sack of grain to market (don't ask why you're taking a
fox to market) and you come across a river. The only way
across the river is by a small boat, which can only hold at most
you and one of the three items. Left unsupervised, the chicken
will eat the grain or the fox will eat the chicken (however, the
fox won't try to eat the grain, nor will the fox or the chicken
wander off). What's the quickest way to get everything across
the river?

Some fun
before we
start
Solution
1.
2.
3.
4.
5.
6.
7.

Take the chicken across

Come back with the boat empty besides yourself
Take the grain (or the fox) across
Take the chicken back
Take the fox (or the grain) across leaving the chicken there
Come back with the boat empty besides yourself
Take the chicken across

Some fun
before we
start
Learning points:
1. There are limitations in keeping, carrying and holding
items in businesses.
2. For staying profitable, investment has to be made in doing
some extra work for making sure that the organizational
assets are safe and provide the necessary functions when
needed.
3. This extra work is I ve tory Ma age e t .

Course Outline
1.
2.
3.
4.
5.
6.
7.

Inventory management basics

Tools of the trade
Forecasting
Safety stock
Order quantities / lot sizes
Ordering systems
Material / manufacturing / distribution resource
planning
8. Measurements & analysis

Fundamental question of IM

When to order?
&
How much to order?

The ulti ate ai

is

Part 01

Inventory Management Basics

Part 01: Inventory Management Basics

What is Inventory?
1. A complete list of the things that are in a place
2. An itemized list of current assets
3. The quantity of goods or materials on hand
4. A quantity of merchandise or goods held in stock
5. I e tor is listed as a asset o fir s ala e sheet
and consists of the stocks or items needed to maintain
production, support activities such as maintenance and
repair, and provide customer service.
(OMBOK APICS)

How about man hours?

Part 01: Inventory Management Basics

In what tangible forms does inventory exist?

1

Raw materials
Consumables
5

2
Finished
product

Work-in-process
(WIP)

Service & Repair

(S&R) items

Part 01: Inventory Management Basics

Some important terminologies

Pipeline (transit) inventory

Cycle stock
Anticipation stock
Decoupling
Safety stock
Hedging
Obsolescence
SKU

Part 01: Inventory Management Basics

Case Studies

Part 01: Inventory Management Basics

Case Study I
Virgin cola was launched in 1994 starting from Great Britain
It attempted to compete with Coca Cola
Coca Cola sent a 747 full of its employees assigned to buy all
Virgin cola stock available in the market
This sudden vanishing of Virgin Cola from the market
disturbed the supply and demand cycle and the existing
customer base was destroyed

Part 01: Inventory Management Basics

Case Study II
Ericsson was once one of the leading mobile handset manufacturers of its time
Philips used to supply a certain cell phone component to Ericsson and Nokia
In March 2000 a fire broke out in Philips plant destroying all the stocks and
production equipment
The initial estimate of repair was one week but it took 6 weeks in the end
Nokia did t ha e a ig sto k a aila le of these hips ut Eri sso ere
complacent as they had a stock of almost 4 weeks available
Nokia were operating with a small inventory and therefore searched for
alternatives and found some
Eri sso aited for Philips ut si e the suppl did t start for a o th, the ra
out of stocks and the balance of product supply and revenue generation was
disturbed
Ericsson had to be rescued by Flextronics and since then it is called Sony Ericsson

Part 01: Inventory Management Basics

Is inventory good or bad?

Discuss in your groups

Inventory Management
Dr. Najam Akber

Part 01: Inventory Management Basics

Part 01: Inventory Management Basics

Advantages of keeping inventory

Increases predictability
Caters for fluctuations in demand
Counters for unreliable supplier
Saves money on purchase of large quantities
Saves money on purchase at a suitable point
in time
Saves ordering costs

Part 01: Inventory Management Basics

Disadvantages of keeping inventory

Money is engaged
Space is wasted
Extra labor is required to:
Receive & check,
store,
account for,
retrieve and deliver inventory

Stored items may get damaged, deteriorated

or stolen

Part 01: Inventory Management Basics

Decoupling Possibilities
Suppliers

Allows procurement time to prepare purchase orders,

place orders, and control timing and modes of
delivery. Protects against uncertainties in lead times.

Provides time to plan and produce items while

Procurement
procurement is interacting with suppliers. Prevents
(purchasing)
downtime and allows for a continuous flow.

Procurement
(purchasing)

Production

Production

Provides marketing with product to sell while

production is producing items for future sale.

Marketing

Provides distribution with the product marketing has

sold. Immediate customer satisfaction.

Distribution

Offers the intermediary items to deliver to the

consumer/end user

Intermediary

Distribution

Satisfies the consumer/end user with product while it

Intermediary is waiting for deliveries from the intermediary.

Marketing

Consumer /
End user

Part 01: Inventory Management Basics

So what is Inventory
Management then?
The actions taken to minimize the possibility of disruption
in the production schedule of a firm for want of raw
material, stock and spares at a minimum cost is called
inventory management.

Part 01: Inventory Management Basics

So what is Inventory
Management then?
When to order?
&
How much to order?

Part 01: Inventory Management Basics

Inventory Management Tasks

Forecasting
Calculating safety stock
Lot sizing
Ordering / Replenishment
Transactional control
Inventory analysis

Part 01: Inventory Management Basics

The PDCA cycle

Part 01: Inventory Management Basics

Inventory planning and control

Planning on What
Inventory to
Stock and How to
Acquire It

Forecasting
Parts/Product
Demand

Feedback
Measurements
to Revise Plans and
Forecasts

Controlling
Inventory
Levels

Part 01: Inventory Management Basics

Inventory planning and control

Part 01: Inventory Management Basics

Game Brief
1. You are managing a plant for manufacturing empty plastic bottles for a
water filtration company.
2. Your maximum plant capacity is 2 million bottles per month
3. You have to deal with three different suppliers as follows:
i.
Fantastic plastic The raw plastic supplier
ii. Lovely labels The label supplying company
iii. Comfy caps The bottle caps supplier
4. These suppliers have their weaknesses which means that they deliver on
time most of the time but things may go awry some times
5. Although not essential but you may want to keep some inventory levels at
every step of the supply chain just to deal with unpredictable
contingencies
6. The game will have maximum five rounds unless all the groups go
bankrupt

Part 01: Inventory Management Basics

Game Brief
7. Use the following layout as the supply chain of your company
100 PKR per Kg

0.2 PKR per unit

0.2 PKR per unit

Negligible value

Raw plastic

Labels

Caps

Packaging Material

Bottle
Production

Labeling

Capping

3 PKR per unit

0.3 PKR per unit

0.3 PKR per unit

Packing
Included in Fixed Costs

(Including the material cost of

15 gm per unit)

8. Although the demand of bottles by the filtration company will be random,

the demand curve for 2013 can be used for production planning

Part 01: Inventory Management Basics

Demand of Bottles in 2013

3.5

Number of Bottles in Millions

2.5

1.5

0.5

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Part 01: Inventory Management Basics

Game Brief
9.
10.
11.
12.

You have a capital of 12 million PKR in the beginning

You can take a loan from the bank with service charges of 5% per annum
Fixed costs for the running of supply chain is 0.1 million PKR per month
You may select the following roles:
i.

A CEO to approve all decisions

ii.

A finance officer to look after the money matters

iii.

A production manager to take care of raw material requirement and demand

fulfillment

iv.

A store / inventory manager to keep an eye on the stocks level

v.

A procurement manager to place orders

13. Work out the cash requirement for fulfilling the yearly demand. Use the
calculator provided
14. Production capacity of the plant cannot be increased
15. Inventory cannot be sold

Part 01: Inventory Management Basics

Lets Start
Orders for March 2014
1.6 million units of bottles to be delivered

Part 01: Inventory Management Basics

Timeout

CEOs present their figures

Part 01: Inventory Management Basics

Lets Continue
Orders for April 2014
1.9 million units of bottles to be delivered

Part 01: Inventory Management Basics

Ooops..
Lovely labels have a fire broken out in their plant
which has left the plant dysfunctional for at least
two weeks. They will therefore only be able to
deliver 1 million units of bottle caps this month

Part 01: Inventory Management Basics

Timeout

CEOs present their figures