Inventory & Stock Management - Session 2

This presentation is all about managing and maintaining inventory

1. INVENTORY MANAGEMENT
Session 2
Types of Inventory
Inventory Management -Functions
Need & Importance
Disadvantages

3. Inventory is generally categorized as :
•Raw Materials
•Work-in-Progress
•Finished Goods
RawMaterialsInventoryareunprocessedmaterialsusedtoproduceagood.Eg.flour,wood,crudeoil,sugar
cane,grains,cotton,jute,coir,etc.
Work-in-ProgressInventoryisthepartially/semifinishedgoods,whichisfurthertobeprocessedorwaiting
forcompletionandresale.Work-in-Progressinventoryisotherwiseknownasinventoryontheproduction
floor.Eg.Sparepartsandhardwarecomponentsforelectronicappliancesandfurnitureandvehicles,pizza
base,halfcookedfood,batter,etc.
FinishedGoodsInventoryareproductsthathavecompletedproductionandarereadyforsaleandarefor
directconsumptionwhichdoesn’tneedfurthermoreprocessing.Retailerstypicallyrefertothisinventoryas
‘Merchandise’.
5 Basic Types of Inventory :
•Raw materials
•Work-in-Progress (WIP
•Finished goods
•Maintenance, Repair & Operations Supplies
(MRO)
•Packing Materials
TYPES OF INVENTORY

4. MRO(Maintenance,RepairandOperatingSupply)Inventoryareusedforfreeflowinproductionandplant
maintenanceandcanbeitemssuchasmaintenancesupplies,spareparts,andconsumablesusedintheproduction
process.Eg.oils,lubricants,gloves,safetygears&equipments,fireextinguishers,spanner,screwdriver,hammer&
nails,etc.
PackingMaterialsInventoryincludesanyitemsthebusinessusedtopacktheproductsyousell.Twotypes–
PrimaryPacking&TertiaryPacking.Eg.Cardboards,gunnybags,plasticsheets,cartons,crates,bubblewrap,
thermacolsheetsandballs,etc.
LabellingMaterialsInventoryalsoapartofpackinginventory.

5. Buffer Inventory
Also called Buffer Stock or Safety Stock.
Buffer Inventory is used to reduce the incidence of stock-out situations in sales and thus provide better customer
service.
Anticipation Inventory
Businesses purposely keep more inventory than needed to meet current demands.
Cycle Inventory
Cycle stock / working stock / operations stock are the turns over inventory, as new items replace older ones that are
sold.
DecouplingInventory
A‘decoupled’inventoryconsistsofinventorystocksetasideintheeventofaslowdownorstoppageinproduction.
Service Inventory
Refers to how much service a business can provide in a given period. Eg.A hotel with 10 rooms, for
example, has a service inventory of 70 one-night stays in each week.

6. Transit Inventory / Pipeline Inventory
Refers to the goods or supplies that has already been shipped from the supplier’s warehouse but not yet delivered
to the buyer.
DeadInventory/DeadStock
Itsatermusedtodescribemerchandisethatwasneversoldtoorusedbyconsumersbeforebeingremovedfrom
sale,usuallybecauseitwasoutdated.
TheoreticalInventory/BookInventory
Theleastamountofstockacompanyneedstocompleteaprocesswithoutwaiting.Itstheminimumamountof
inventoryacompanyneedstoperformitsbusiness.
ExcessInventory
Thiscanbeanygoodsorrawmaterialsthatareunused.Ifexcessmaterialisunusableinanotherproductor
campaign,itmaybecomedeadinventoryorobsoleteinventory.

7. NEED / IMPORTANCE OF INVENTORY
* To Even out Supply Chain Imbalances
* To Ensure High Speed and Zero Defect Supply Chains
*ToConsolidateProductsasperCustomerorLocation
Result–IncreasedCustomerSatisfactionandReduced
TransportationCost
* To Achieve Economies of Scale
Meaning -saving in costs gained by an increased level of
production
*ToStoretheExcessProduces.
Reason–firmsproducelargebatchesofgoodstomake
fulluseofcapacitytoreducefixedcosts
* To Reduce Response Time to Market
Result –Lead Time is minimized
Value Added Processing
* To Achieve Postponement Strategy
Result –firms produce only generic products
*ToEaseInventoryManagementasAggregate
Forecastingismoreaccurate
* To carry out Pricing and Labeling Activities instead of
doing at Point-of-Sale
*ToStockpiletheproductsneededfornextseason
Reason–Replenishmentwillbelowduringoffseason

8. FUNCTIONS IN INVENTORY MANAGEMENT
oMarket Study: procuring raw materials in the best possible way
oOrdering: of finished products from a vendor or raw materials
oHandling: tracking incoming items or materials, including quantity, type, etc.
oStoring: products or materials must be safely kept in a safe, yet easily accessible environment, such as
an on-site warehouse
oProcessing or Selling: turning the raw materials into finished products or selling ready-made products
from other suppliers to customers, either B2B or B2C.
DISADVANTAGES
Over stocking
Dead stock / obsolete stock
Occupies Space
Need for a Warehouse
Damage / Accidents