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Operational Management

Submitted By :
1. Foqia Tariq (6512/s14)
2. Samia Javed (6515/s14)
3. Nadia Shafiq (6534/s14)
4. Fatima Sultan (6533/s14)
Fatima sultan
Inventory Planning
&
Control
Inventory Planning
The process of determining the optimal quantity and timing
of Inventory for the purpose of aligning it
with sales and production capacity .

Inventory planning has direct impact a company's cash flow


and profit margins especially for smaller businesses that rely upon
a quick turnover of goods or materials.
Objectives of
Inventory Planning

customer satisfaction
Forecasting Needs

Controlling Costs
Successful Storage
Inventory planning
Advantages disadvantages
You know your stock levels. It can waste a lot of effort if not
You can conduct stock rotation. implemented and maintained correctly.
You can optimize and reduce stock of It doesnt replace incompetent
items that dont move that quickly. management.
You can move you quick moving items
to the front thereby speeding up It can be very expensive and the return
picking. on investment can take a long time.
Types of inventory
Seasonal inventory
Decoupling inventory
Cyclic inventory
Pipeline inventory
Safety stock
Seasonal inventory
Components, material, or goods kept at hand to meet
seasonal fluctuations in demand or to meet the shortfall caused by
erratic production. Also called anticipation inventory, build stock,
seasonal inventory, or seasonal stock.

Decoupling inventory
In manufacturing concern, plant and machinery should always
keep running. The act of stopping machinery, costs to the
entrepreneur in terms of additional set up costs, repairs, idle
time depreciation, damages, trial runs etc.
Cyclic inventory
It is a type of inventory accumulated due to ordering in
lots or sizes to avoid carrying the cost of inventory. In
other words, it is the inventory to balance the carrying
cost and holding cost for optimizing the inventory
ordering cost as suggested by Economic Order Quantity
Pipeline inventory
(EOQ).
also known as pipeline stock is used to refer
to those goods that have left firms
Buffer inventory warehouse but are still in company's
distribution chain as they are yet to be
Buffer inventory is the inventory kept or purchased for the bought by ultimate consumers
purpose of meeting future uncertainties. Also known as
safety stock, it is the amount of inventory besides the
current inventory requirement
Foqia tariq
Inventory Costs
Types of Inventory Costs:
Ordering (purchasing) costs
Inventory carrying (holding) costs

Out of stock/shortage costs


ORDERING COSTS

It is the cost of ordering the item and securing its supply.


Includes-
Expenses from raising the indent
Purchase requisition by user department till the execution of order
Receipt and inspection of material
Inventory Carrying Costs
Costs incurred for holding the volume of inventory and measured as a percentage
of unit cost of an item.
It includes-
Capital cost
Obsolescence cost
Deterioration cost
Taxes on inventory
Insurance cost
Storage & handling cost
Out-of-Stock Costs
It is the loss which occurs or which may occur due to non availability of
material.
It includes-
Break down/delay in production
Back ordering
Lost sales
Loss of service to customers, loss of goodwill, loss due to lagging behind the
competitors, etc
Inventory Models
EOQ or Fixed Order Quantity system is the technique of ordering materials
whenever stock reaches the reorder point.
Economic order quality deals when the cost of procurement and handling of
inventory are at optimum level and total cost is minimum.
In this technique, the order quantity is larger than a single periods ne
requirement so that ordering costs & holding costs balance out.
Inventory Control
Inventory Control is the
supervision of supply,
storage and accessibility
of items in order to
ensure an adequate
supply without excessive
oversupply.
Nadia shafiq
Objectives of inventory control
Protection against fluctuations in demand
Better use of men, material & machines
Protection against fluctuations in output
Control of stock volume
Control of stock distribution
Major activities of inventory control
Planning the inventories
Procurement of inventories
Receiving and inspecting the inventories
Storing and issuing the inventory
Recording the receipt and issues of inventories
Physical verification of inventories
Follow-up function
Material standardisation and substitution
Selection control of inventory

ABC classification
ABC analysis (Inventory)

ABC analysis is an inventory categorization method which consists in


dividing items into three categories (A, B, C): A being the most valuable
items, C being the least valuable ones.
A-items are goods which annual consumption value is the
highest. The top 70-80% of the annual consumption value of the
company .
B-items are the interclass items, with a medium consumption
value. Those 15-25% of annual consumption value .

C-items are, on the contrary, items with the lowest consumption


value. The lower 5% of the annual consumption.
Purpose of inventory
To maintain independency of operation
To meet variation in product demand
To allow flexibility in product scheduling
To provide a safeguard for variation in raw material delivery time
To take advantages of economic purchase order size
Samia javed
Independent Demand

Dependent Demand
Independent Demand Dependent Demand

Independent demands for If the demand for inventory of


inventories are based on an item is dependent upon
confirmed Customer orders, another item, such demands are
forecasts, estimates and past categorized as dependent
historical data. demand.
Inventory
System
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
Single Period Inventory Models
A single period inventory model is used to identify the amount of inventory
to purchase given a perishable good or single opportunity to purchase.
The amount of the single order is based on balancing the cost of over- and
under-estimating demand. This is a very common problem in areas such as:
Overbooking of airline seats or hotel rooms
Ordering of fashion items
Any type of one-time order (t-shirts for a sporting event)
Other issues in inventory planning and control

In practice, inventory control system vary from theoretical formulation in


many ways moreover there is a lack of understanding of certain critical
issues that influence inventory management.
Serious drawback inventory control system in practice is that they are tend to
aloof from reality.

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