Inventory Management and Control

Inventory Management and Control

1. Is the supervision of non-capitalized assets (inventory) and stock items. It should strike the balance between too much inventory and too little.

   • • Maximize customer service • Maximize efficiency in purchasing and in production • Minimize inventory investment • Maximize “PROFIT”
   • • Minimize the possibilities for description in the production schedule of a firm • The keep down capital investment in inventories
   • • Space • Damage • Labor • Maintenance • Scrap • Obsolescence • Deterioration • Movement
   • • Raw Material : Used to produced partial or finish products • WIP (Work in process): Items are considered to be WIP during the time that raw material is being converted in a finished product • Finish Good: Product ready to be sold.
   • The primary functions of inventory, is to use marketing and production to increase profitability.

2. Inventory Planning

   • it´s about determining the optimum levels of inventory; both for today and the future.
     • It must help to match the high levels needs with what is possible at the detail item level.

3. Inventory Control

   • It is a critical and essential part of inventory management. is about managing the integrity of the stock. In this phase, date accuracy is essential.
     • It’s a planned approach of determining what to order, when to order, how to order and how much to stock, so that cost associated with buying and storing are optimal
       • Economic order quantity (EOQ)
         • Determining how much to order
           • The only variables costs are “cost of placing an order” and cost for holding the inventory
             • EOQ=√((2 x A x Cp)/Ch)
       • Reorder Point (ROP)
         • When to order
           • • It is the minimum level of inventory at wich a new order must be placed
             • ROP = Average usage per unit X L/T + S.S
       • Safety Stock (S.S)
         • Is the stock hold by a company in excess of its requirement for the lead time.
           • S.S = (Maximum daily usage – Average daily usage) X L/T
             • L / T = Time which a supplier takes in supplying material.
   • Two major questions/decisions we need to make when controlling inventory
     • • How much to order?
     • • When to order?

4. Inventory Balancing

   • It´s basically requires to manage the success of the inventory plan in a daily or weekly basis. As mentioned before it´s about supply/ demand management.