INVENTORY
MANAGEMENT
BARBETS | BSA-2A
INVENTORIES
INTRODUCTION
Classes of
Inventories and
Importance of
Inventory
Management
01
MANAGING
INVENTORIES
Ways of Managing
Inventories and
Different Types of
Inventory Costs –
Order Costs
02
CARRYING
COSTS
Its components,
and Trade-off of
the Carrying and
Ordering Costs
03
EOQ
Economic Order
Quantity and
Optimal Number of
Orders
04
TABLE OF CONTENTS
CARRYING/ORDERING
COSTS RELATIONSHIP
Carrying and Ordering
Cost Relationship, Re-
order Point, and Safety
Stock
05
DETERMINING
SAFETY STOCK
Maximum Usage
Basis and Frequency
Distribution Basis
06
JIT AND LEAN
PRODUCTION
Just-In-Time
Inventory and
Lean Production
07
TABLE OF CONTENTS
INVENTORIES
INTRODUCTION
01
Classes of Inventories
and Importance of
Inventory Management
INVENTORIES
●Inventories, as defined by PAS 2, are “assets which are held for sale in the
ordinary course of business, in the process of production for such sale, or in
the form of materials or supplies to be consumed in the production process or
in the rendering of services.”
●Inventory takes as much as 50% of total invested capital. To many firms,
inventory is considered as one of the most expensive and vital assets.
●In order to minimize costs, firms reduce inventory levels. However, this may
lead to inventory shortages, called stock-outs, which can cause consumers’
dissatisfaction. Thus, firms must keep the equilibrium of low and high inventory
levels.
CLASSES OF INVENTORIES
It consists of purchased items or extracted
materials to be used in the production of
goods or products. It avoids delay of
production in the event of a delay in shipment.
RAW MATERIALS INVENTORY
It consists of partially finished goods around
the plant that require additional work. The
purpose of this inventory is to uncouple the
various operations in the production process.
WORK–IN-PROCESS INVENTORY
It consists of completely manufactured goods
that are yet to be sold. The purpose of finished
goods inventory is to separate the production
and sales function
FINISHED GOODS INVENTORY
Theses materials regularly used by the
company but do not form part of the finished
goods sold. Though supplies are part of the
firm’s inventory, this does not meet the
general category of an inventory.
SUPPLIES
IMPORTANCE OF INVENTORY MGMT
DECOUPLING
FUNCTION
It separates
manufacturing processes
STORING
RESOURCES
It stores goods
especially those that
IRREGULAR SUPPLY
AND DEMAND
It helps firms decide
regarding the quantity
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