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Inventory management

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  1. Introduction
  2. Chapter 1
    1. Meaning and definition of inventory
    2. The principal type of inventories are
    3. Need for inventories
    4. Advantages of holding inventory
    5. Avoiding loss of sales
    6. Availing quantity discounts
    7. Reducing ordering costs
    8. Achieving efficient production runs
    9. Functions of inventories
  3. Chapter 2
    1. Management of inventory theory and analysis
    2. Definition of inventory:
    3. Importance of inventory management
    4. Objectives of inventory management
    5. What is 'inventory management'?
    6. Inventory control
    7. Inventory control techniques
    8. Economic order quantity
    9. Approaches of EOQ
    10. Reorder point:
    11. ABC analysis
    12. XYZ analysis
  4. Other analysis methods
    1. IUC analysis
    2. VED analysis
    3. FSN analysis
  5. Safety stock
  6. Methods of inventory costing/pricing of meterial issued
    1. First in first out
    2. Average cost method
    3. Last in first out
    4. Specific identification / actual cost method
    5. Base stock prices method
    6. Standard price method
    7. Replacement / market price method
  7. Bibliography

Any stock that a firm keeps to meet its future requirement of production and sales is called ?INVENTORY?. The basic reason for holding inventory is to keep up to the production activities unhampered. It is neither physically possible nor economically justifiable to wait for the stock to arrive at the time when they are actually required. Therefore, keeping of inventory is a must for the efficient working of a business unit.

Raw materials represent goods kept by a manufacturing firm prior to their being utilized in the production process. Supplies generally include tools and consumables which are consumed in the production of goods and services.

Goods in process represent the semi-finished goods; they include those materials that have been committed to production process but have not yet been converted into finished goods.

Finished goods are completed goods awaiting sale in a manufacturing concern; they are the final output of the production process.

The nature of inventory depends upon the type of activity carried on. In the case of a manufacturing unit, inventory will generally include all types of inventories mentioned above, while in the case of a trading concern, it will comprise only finished goods or stock-in-trade owned by it for sale to customers in the normal course of business. Inventory needs proper control as it is one of the largest assets of a business.

[...] Another important question pertaining to efficient inventory management is, when should the order to procure inventory be placed? This aspect of inventory management is covered under the order point problem. The reorder point is started in terms of the level of inventory at which an order should be placed for replenishing the current stock of inventory. In other words, recorder point may be defined as that level of inventory when a fresh order should be placed with the suppliers for procuring additional inventory equal to the economic order quantity. [...]


[...] All decisions about spares are based on the financial cost of inventory on such spares and the costs that may arise due to their non-availability. NEED FOR INVENTORIES: What purpose is served by inventories? Before we answer this question, a distinction may be drawn between ?process or movement' inventories and ?organization' inventories. Process or movement inventories are required because it takes time to complete a process or operation and to move product from one stage to another. The average quantity of such inventories would be equal to; Average output of the process X Time required for the process. [...]


[...] Slowest-turning An ABC analysis is taken as the mechanism whereby our attention can be focused on the study of product inventory levels. It also means ?Always Better Control?, Inventory control should be preceded by a value analysis. A very effective as well as economical inventory level should be based on the ABC analysis. In a process industry, number of moving spares will be very less compared to items which are not being consumed. The spares which are having consumption in financial year are called D class item. [...]

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