1. Inventory Management
System
Job Thomas
#8, MBA (PT)

2. Word meaning
Inventory = stock at a particular
location
 classification of inventory
• raw materials,
• work-in-progress,
• finished goods and
• MRO (Maintenance, Repairs and
Operating supplies)

3. Overview of development
 CARDEX (bin card)
system
 MM (material
management)
module in ERP
 WMS (warehouses
management
system) in ERP
 RF tags IDs

4. Inventory decision rule

5. Q,R policy
Fixed quantity, variable time
Q
Q
T1 T2

6. S,T policy
Variable quantity, Fixed time
Q3
Q1 Q2

7. S,R policy
Variable quantity, variable time

8. INVENTORY CLASSIFICATIONS
 ABC Classifications
 High, Medium and Low (HML)
Classifications
 Vital, essential and Desirable (VED)
Classifications
 Scare, Difficult and Easy to obtain (SDE)
Classifications
 Fast moving. Slow moving and Non-
moving (FSN) Classification
 Multi-criteria classification

9. ABC Classification
100
C
80 B
Total Value ($)
N $
A 10% 70%
60
B 20% 20%
C 70% 10%
40 A
20
0
100
200
300
400
500
600
0
700
800
900
1000
Number of items (N)
Classification based on relative importance

10. Risk of inventory in ABC
classification

11. Controlling based on ABC inventory
classification
Control A B C
Ordering Very careful Normal Simple
control and accurate
Type of Very Good None or
inventory accurate simple
control
Cycle 6-12 times 3-4 times 1-2 times
counting per year per year per year
frequency
Priority High priority Normal Low priority
control priority

13. High, Medium and Low (HML)
classification
 The items of the inventory are to be
listed in the descending order of the
unit value.
 The HML analysis is useful for
keeping control over consumption at
departmental levels, for deciding the
frequency of physical verification,
and for controlling purchases

14. Vital, Essential and Desirable
(VED) Classifications.
 based on criticality of the items and
its effect on other production
 For V items, a large stock of
inventory is generally maintained,
while for D items, minimum stock is
enough

15. Scarce, Difficult and Easy to obtain
(SDE)
 availability of items
 vital to lead time analysis of
procurement

16. Fast-moving. Slow moving and
Non-moving (FSN) Classification
 classification is based on the pattern
of issues from stores
 In and out date of items are
evaluated.
 The items are usually grouped in
periods of 12 months

17. Multi-criteria Classification
Item Value Lead Criticality Substitut Total
(w1=0.2) time (w3=0.4) able (w=1.0)
(w2=0.2) (w4=0.2)
101 A B C C B
(100) (50) (10) (10) (36)
102 B A B B A
(50) (100) (50) (50) (60)
103 B B A C A
(50) (50) (100) (10) (62)
104 C C B A B
(10) (10) (50) (100) (44)
105 C A C C C
(10) (100) (10) (10) (28)

18. INVENTORY MODELS
 Deterministic models
• Economic Order Quantity (EOQ) model
• Sensitivity analysis
• A price-break Model
 Probabilistic Inventory models
• Single-period inventory models
• A fixed order quantity model
• A fixed time period model

19. Inventory fluctuations as a function
of time
IDEAL
ACTUAL

20. Economic Order Quantity (EOQ)
model

21. Economic Order Quantity (EOQ)
model

22. Economic Order Quantity (EOQ)
model
Economic order quantity
= (2 x setup cost x demand rate/
carrying cost)^0.5
 Limitation of the economic order
quantity model is that the demands
remain constant throughout the year.
It is also necessary that the
inventory be delivered in full when
the inventory levels reach zero

23. Re-order points and lead time

24. Safety stock in inventory
management

25. Sensitivity analysis

26. Production inventory model

27. Backorder inventory models

28. Price-break Model

29. EOQ Model with Price Breaks
 Incremental units: discount is
applied to the additional units
beyond the breakpoint
 All units: discount is applied to all
units beyond the certain level of
order

30. EOQ Model with Price Breaks
Total annual
cost
$3.2 /unit
$2.9 /unit
$2.8 /unit
Feasible cost
Order quantity

31. Single period inventory model
 Order seasonal
 The Newsboy Problem:

32. Fixed order quantity model
 Item must have a reasonable stable usage
 Lead time should not have radical variation
 Supplier should be able to accept
irregularly timed and unscheduled orders

33. Fixed time period model

34. VENDOR MANAGED INVENTORY
(VMI)
 the vendor (the Manufacturer) manages
the inventory of the distributor.
 manufacturer has access to the
distributor’s inventory data used for
generating purchase orders
 The manufacturer reviews this information
and decides when it is appropriate to
generate a Purchase Order
symbiotic relationship

35. INVENTORY ON WHEELS
 freight on board (FOB)
 Rule of ownership
• FOB shipping point. If the shipment is
designated as freight on board (FOB)
shipping point, ownership transfers to
the buyer as soon as the shipment
departs the seller.
• FOB destination. If the shipment is
designated as freight on board (FOB)
destination, ownership transfers to the
buyer as soon as the shipment arrives at
the buyer.

36. Thank you for your kind attention