• Objectives of Inventory Management
• Inventory cost
• Inventory control
• Techniques in inventory management and control
• Perpetual inventory system
• Production planning and control
• Functions of production control
• Production planning
• Steps in production planning
• Production control
The 'inventory' can be defined as stock of items(includes raw materials, in process goods, finished
goods, packaging, & other spares ) in order to meet an unexpected demand / distribution in the future.
The term ‘inventory’ refers to the stockpile of production a firm is offering for sale and the
components that make up the production.
The amount of material, a company has in stock at a specific time is known as inventory or in terms
of money it can be defined as the total capital investment over all the materials stocked in the
company at any specific time.
Inventory may be in the form of,
raw material inventory
in process inventory
finished goods inventory
spare parts inventory
office stationary etc.
PRODUCTION INVENTORY: Special items manufactured to company specification.
MRO INVENTORY :Maintenance, repair & operating supplies which is consumed in
production process. Do not become part of the product.
IN-PROCESS INVENTORY: Semi finished products found at various stages in the
FINISHED GOODS INVENTORY: Complete product ready for shipment.
5. Objectives of Inventory Management
To reduce dependence of one another
To enable each organisation schedule its operation independently of another.
To reduce material handling costs.
Maximize customer service
Flexibility in production scheduling.
To avoid stock out and shortage.
To minimize the possibility of disruption in the production schedule of a firm for want of raw
material, stock and spares.
ensure that materials are available for use in production and production services as and when
ensure that finished goods are available for delivery to customers to fulfil orders
maintain sufficient stock of raw material in period of short supply
control investment in inventories and keep it at an optimum level.
inventory control ensures an adequate supply of material & stores , minimizes stock
out & shortage & avoid costly interruption .
it keeps down the investment in inventory.
Eliminate duplication in ordering / replenishing stocks.
better utilization of available stocks by facilitating inter —dept transfer within a
company a Serves as means for the location and disposition of inactive & obsolete item
provide a consistent and reliable basis for preparing financial statement.
7. Inventory Cost
Cost factors must be considered while taking any decision regarding inventories.
Includes ordering costs , carrying cost, out of stock/shortage cost and set up cost.
1. ORDERING COST:
a) Costs of placing an order with a vendor of material such as preparing a purchase
order(receiving and ordering calls), processing payments(typing costs), transportation, receiving
& inspecting the material.
b) This cost does not depend on or vary on the number ordered.
2. CARRYING COSTS/HOLDING:
a) Costs connected directly with material such as deterioration, pilferage, storage facilities,
b) Financial costs includes taxes, insurance ,handling charges & interest
8. 3. OUT OF STOCK/SHORTAGE COST:
a) Back ordering
b) Lost sales
c) Customers goodwill
4. COST OF ITEM:
Direct cost of item
5. SET UP COST:
It include production charge- equipment change over, report preparation etc.
9. INVENTORY CONTROL
Drug store management is based on principles of inventory control.
Objective of Inventory Control
(i) To supply drug in time.
(ii) To reduce investment in inventories and made effective use of capital investment.
(iii) Efforts are made to procure goods at minimum price without bargaining the quality.
(iv) To avoid stock out and shortage.
(v) Wastage are avoided
10. TECHNIQUES IN INVENTORY
MANAGEMENT AND CONTROL
(i) ABC analysis
(ii) VED analysis
(iv) Lead time
(v) Buffer stock
(i) ABC analysis ABC analysis is an inventory categorization technique. It is a basic tool with a
selective approach for concentration upon the items. As ABC analysis the items are divided into three
"A items" with very tight control and accurate records,
"B items" with less tightly controlled and good records, and
"C items" with the simplest controls possible and minimal records.
12. (ii) VED analysis is an inventory management technique. VED analysis stands for Vital, Essential, and
1.V- Vital Category
“Vital” includes inventory, which is necessary for production or any other process in an organization.
The shortage of items under this category can severely hamper or disrupt the proper functioning of
operations. Hence, continuous checking, evaluation, and replenishment happen for such stocks.
If any of such inventories are unavailable, the entire production chain may stop.
2. E- Essential category
These are very important for any organization because they may lead to a stoppage of production or
hamper some other process. But the loss due to their unavailability may be temporary, or it might be
possible to repair the stock item or part.The management should ensure optimum availability and
maintenance of inventory under the “Essential” category too.
3. D- Desirable Category
The desirable category of inventory is the least important among the three, and their unavailability may
result in minor stoppages in production or other processes. Moreover, the easy replenishment of such
shortages is possible in a short duration of time.
13. (iii) EOQ is the quantity of materials to be ordered at one time, which minimizes the cost.
The correct quantity to buy is the quantity at which the ordering cost and inventory cost is
Economic order quantity (EOQ) is the ideal order quantity a company should purchase to
minimize inventory costs such as holding costs, shortage costs, and order costs. The formula
assumes that demand, ordering, and holding costs all remain constant. Formula and Calculation
of Economic Order Quantity (EOQ)
14. The goal of the EOQ formula is to identify the optimal number of product units to order. If achieved, a
company can minimize its costs for buying, delivery, and storing units. The EOQ formula can be
modified to determine different production levels or order intervals, and corporations with large
supply chains and high variable costs use an algorithm in their computer software to determine EOQ.
(iv) Lead time
The lead time is the sum of the supply delay and the reordering delay. The lead time is the applicable
duration to calculate the lead demand, the safety stock or the reorder point through a direct quantile
The longer the lead time, the higher the total inventory level or the larger is the safety stock,
resulting in excess of investment in inventories. As far as possible efforts should be made to decrease
the lead time for effective inventory control.
15. (V) Buffer stock
Buffer stock is used in emergency to meet the unforeseen demands. In other words it refers to minimum
quantity of a particular item which must be kept in the stores of all time. Buffer stocks can be calculated
using the following formula ;
Buffer stocks= (Maximum consumption rate / day average- consumption rate / day)X lead time
Buffer stocks needs following factors to be taken into consideration like;
(i) Lead time
(ii) Nature of item and rate of consumption
(iii) Availability of substitutes
(iv) Re-order level
(v) Stock out cost
16. PERPETUAL INVENTORY SYSTEM
The method of recording the store balance after every receipt and issue to facilitate regular
checking and to prevent closing down for stock taking.
It comprises of :
1. Bin Card
2. Store ledger
3. Continuous stock taking
17. Bin Card
Is a document maintained by the store keeper in his store
It serves the purpose of ready reference.
It shows quantity of each material received, issued and in stock.
18. Store Ledger
It is kept in the accounting department.
Generally maintained in form of loose leaf cards, so that they can be easily
removed and inserted.
19. CONTINUOUS STOCK TAKING
Only a limited no. of items are verified on a day.
Selection of the item should be such that each item gets checked at least a certain
no. of times in a year, and checking is evenly distributed during the period.
21. PRODUCTION and PLANNING CONTROL
Production Planning is a managerial function which is mainly concerned with the
following important issues:
What production facilities are required?
How these production facilities should be laid down in the space available for
How they should be used to produce the desired products at the desired rate of
Broadly speaking, production planning is concerned with two main aspects:
(i) routing or planning work tasks
(ii) layout or spatial relationship between the resources. Production planning is dynamic
in nature and always remains in fluid state as plans may have to be changed according to
the changes in circumstances.
22. Production control is a mechanism to monitor the execution of the plans. It has several
Making sure that production operations are started at planned places and planned times.
Observing progress of the operations and recording it properly.
Analysing the recorded data with the plans and measuring the deviations.
Taking immediate corrective actions to minimize the negative impact of deviations from
Feeding back the recorded information to the planning section in order to improve
23. PRODUCTION: Transformation of raw materials to finished goods
PRODUCTION MANAGEMENT: Application of management principles to the process of
production in an industry to produce desired goods in economical manner by co-ordinating the
efforts of men, material & machine.
PRODUCTION PLANNING: It is a technique which helps in planning & scheduling the work in
the manufacturing plant to obtain the desired quality of products with optimum efficiency & at
PRODUCTION CONTROL: It ensures that the work is being done according to the plan
This phase includes a sequence of ideas to perform a task in an orderly manner by the utilization of
available manufacturing facilities.
24. Objectives of production planning
Minimize costs / maximize profits
Maximize customer service
Minimize inventory investment
Minimize changes in production rates
Minimize changes in work-force levels
Maximize the utilization of plant and equipment
Planning is required to produce economical products with in time
To avoid difficulties in production and marketing of products
Planning is needed for meeting and changing economic social conditions seasonal
demands and marketing fluctuations
In case of series of operations are involved in the production of a product then planning
will improves the efficiency and effectiveness.
25. FUNCTIONS OF PRODUCTION CONTROL
• Production function encompasses the activities of procurement, allocation and utilization of
resources. The main objective of production function is to produce the goods and services
demanded by the customers in the most efficient and economical way.
• Therefore efficient management of the production function is of utmost importance in order to
achieve this objective.
Architecture of Control System
27. Continuous production
• It involves in the
uninterrupted flow of
materials into methods
and machines to produce
standardised products in
• Mainly materials are
handled by automatic
• Eg. Large volume
• It involves in the
interrupted flow of
materials into methods
and machines to produce
finished small quantity
• Expertise workers and
machines are handle the
• Eg. Capsule, tablets,
30. Process Planning
Process planning can be defined as the preparation of detailed plans for the
process required to manufacture a product as each manufacturing process consists
of numerous operations.
PROCESS PLANNING REQUIRES
Quantity of work to be done
Sequence of operations to be performed
Time required for each operation
Availability of manufacturing facilities
31. Steps involved in process planning
32. a) PROCESS SELECTION:
The operations selected for a particular process should be most economical
Should satisfy the product specifications
Selection mainly depends upon quality, quantity, time period & machines available
b) SELECTION OF RAW MATERIALS:
Should meet quality standards
Should show chemical compatibility
33. c) SELECTION OF MACHINERY PARTS:
selection of machinery attachments like inspection gauges, jigs, etc., is necessary for the
smooth functioning of machines. This helps in reducing the costs & duration of production &
results in high output.
d) PROCESS LAYOUT:
It describes every step of operation as well as the sequence in which each operation is to be
e) TIME SETUP & STANDARD OPERATION TIME:
They should be established to complete the production within the time.
Process planning should be clearly summarized in documents such as operation & route sheets.
Routing is the process of determining the sequence of operations to be carried out
Determines the path for flow of work right from the selection of raw materials until the
completion of production of finished goods.
Routing is summarized in route sheets. Prepared sheets are then dispatched to the production
Route sheets summarizes processes like
Description of operations
Sequence of operations
Type of machinery
Scheduling concerns with time element. It refers to the time frame of all production activities
therefore scheduling is also known as time phase of loading
To reduce the time of production
To ensure that the products can be delivered before the due date
Loading is the relationship between load and capacity at work place. It gives the information
about number of machines, available, their speed, capacity, capability. It helps to determine
work load and actual capacity of production.
37. Production control
Production control is the comparison between planning output and output achieved.
STEPS INVOLVED IN PRODUCTION CONTROL
Dispatching Follow up
It is the process of issuing orders & instructions to a particular operating section of
industry to start the processing of a given job on an assigned machine in accordance with
the previously planned sequence & time as detailed in route sheets & schedule charts
Movement of materials to different work stations, movement of work from one operation
to another & supervision of work comes under this category.
39. Follow up
It includes delays or deviations from the production plans
It helps to reveal the defects in
Misunderstanding of orders
40. Cost Control
The total cost for the production of goods is determined & is compared with standard
cost to calculate the deviations as well as to follow corrective action.
It can be controlled by
41. Quality control
It helps to avoid & detects the defects in production process & isolation of
defective finished goods
Finished products are inspected to ensure their acceptable quality
Quality control techniques
Statistical quality control