Inventory Reduction Management 6.8.15

5. There are raw materials and other supplies,
parts and components, which enter into the
production process and generally form part
of the product.

7. These are semi finished, work in progress
and partly finished products formed at the
various stages of production.

9. These are complete finished products ready for sales.
It’s the final output of the production process.
They can also be classified as:
Movement inventories
Lot size inventories
Anticipation inventories
Fluctuation inventories

10. Item that are held due to a process
delay while some inventory is moved
from one location to another.

11. Inventory that its result whenever quantity
price discount, shipping costs, set-up costs,
or similar considerations make it more
economical to purchase or produce in larger
lots than are needed for immediate purpose.

12. Excess level of product kept on hand to deal with
uncertainty in customer demand due to seasonal
activity and uncertainty of market trend.

13. Inventory that is carried as a cushion
to protect against forecast error.

15. Maintenance, repairs and operating supplies
which are consumed during the production
process and generally do not form part of the
product itself are referred to as spare part
inventories.

17. Inventory Exists because Supply & Demand
are difficult to synchronize each other
perfectly and its take a periodic of time to
suit material fulfillment operations.

18. By: KEVIN EIKENBERRY

19. •Enable the firm to achieve economics of scale
•Balance up supply and demand to enable specialization in
manufacturing process
•Provide protection from uncertainties in demand and
ordering cycle
•Its act as a buffer between critical interfaces within the
supply chain
•Guarantee a continuous access to all kind of goods when
supplies discontinue
•Ensure required service level compensating delays of
deliveries due to random variations of replenishment lead
time

20. Space Consumed (Warehouse/Storage Area)
Manage Tillage
E.g. Pilferage, Damage, Leakage, Spillage, Shrinkage
Bare/Hold the Cost of Inventory, averagely 30%
of “Annual Stock Value”

21. Inventory Cost

22. Refer to items purchased from vendors based on
unit price
Cost per unit multiplied by the quantities procured
or produced

23. Additional cost incurred whenever we order,
reorder or replenish the inventory.
(externally produce item)
Assigned to entire batch
Transport Cost
Receiving Cost
Paperwork Cost (processing order, payment,
approval)
Organization set-up Cost ( change over,
reconfigure) for internally produce item

24. •Cost accrue due to actual holding of the inventory
over a period of time
•Storage cost
•Service cost
•Administrative cost
•Cost of obsolescence
•Cost of deterioration
•Capital cost (Cost of Goods Sold)

26. The losses which occurred or may occur due to
unavailability of material
Lost of sales/customer
Back ordering (back log)
Disruption cost (break down/down time)
Lost of good will/trust

27. Total Cost
Purchasing Cost = (total units) x (cost per unit)
Ordering Cost = (number of orders) x (cost per order)
Inventory Cost = (average inventory) x (holding cost)
***(Purchasing Cost + Ordering Cost + Inventory Cost)

29. By: SUBRINA

31. •Inventory can be a source of conflict among different managers
in organization because different managers have different roles
to play which involve the use of inventory.
•The conflicting roles of managers must not be allowed to impair
the organization as a whole.
•To overcome this conflict, inventory management should be
everybody’s concern.
•The objective of inventory reduction management is to have the
appropriate amounts of materials in the right place, at the right
time, and at the minimum cost.
•Therefore, inventory decision problem can be solved by using
economic criteria. One of the most important prerequisites is an
understanding of the more relevant costs to inventory system.

32. By: TIMOTHY FERRISS

33. •Based on Pareto Rules (80/20 rules)
•Also known as SIM (Selective Inventory Control Method)
•20% of inventory items account for 80% of total inventory
cost/stock value
•Need to be review frequently according to annual usage
value (MYR)
•The higher the value of the inventory, need the tighter
control

34. •Make the list of all items of inventory.
•Determine the annual volume of usage & money value of
each item.
•Multiply each item’s annual volume by its MYR value.
•Compute each item’s percentage of the total inventory in
terms of annual usage in MYR.
•Select the top 10% of all items which have the highest
MYR percentages & classify them as “A” items.
•Select the next 20% of all items with the next highest MYR
percentages & designate them “B” items.
•The next 70% of all items with the lowest MYR
percentages are “C” items.

35. •Class A (Highest Value)
5 – 15 % of units
70 – 80 % of value
•Class B (Medium Value)
30 % of units
15 % of value
•Class C (Low Value)
50 – 60 % of units
5 – 10 % of value

39. •Helps to exercise selective control.
•Gives rewarding results quickly.
•Helps to point out obsolete stocks easily.
•In case of “A” items careful attention can be paid at
every step such as estimate of requirements, purchase,
safety stock, receipts, inspections, issues, etc. & close
control is maintained.
•In case of “C” items, recording & follow up, etc. may be
dispensed with or combined.
•Helps better planning of inventory control.
•Provides sound basis for allocation of funds & human
resources.

40. •Proper standardization & codification of inventory
items needed.
•Considers only money value of items & neglects
the importance of items for the production process
or assembly or functioning.
•Periodic review becomes difficult if only ABC
analysis is recalled.
•When other important factors make it obligatory
to concentrate on “C” items more, the purpose of
ABC analysis is defeated.

41. By: W. EDWARDS DEMING

42. Stock classification based on consumption level
X – 60% of total stock value (highest accumulative)
Y – 30% of total stock value (medium accumulative)
Z – 10% of total stock value (lowest accumulative)
Immediate view of which items are expensive to
hold.

43. ITEM
TOTAL VALUE
(MYR)
% OF TOTAL
VALUE
1548D 255.75 24.45
580M 253.50 24.24
PV200 273.75 26.17
78163 4CJ3J 68.00 6.50
762E4 4CJ2A 45.00 4.30
765C2 4CJ0A 45.50 4.35
67813 BZ030 32.50 3.11
62589 BZ020 37.50 3.59
62213 BZ060 34.50 3.30

44. By: ALBERT EINSTEIN

45. Fast Moving Stock (F) – Daily, weekly, monthly
movement
Slow Moving Stock (S) – Quarterly, half yearly,
yearly movement
Non-Moving Stock (N) – Non-movement > 1 years

46. •Date of receipt or last date of issue, whichever is later, is taken to determine
the number of months which have lapsed since the last transaction.
•The items are usually grouped in periods of 12 months.
•The items exceeding > 15 times of issuance during the period are “F” items.
•The items < 15 times of issuance issues during the period, are “S” items.
•If there are no issuance of an item during the period of 12 months, it is “N”
item.

•For y.o.y (year on year) trend analysis, the issuance of items in the past 2 or
3 years are considered.
•The period of consideration and the limiting number of issuance vary from
organization to organization.

47. ITEM
AMOUNT
(MYR)
LAST
MOVEMENT
PERIOD OF
MOVEMENT CATEGORY
SUNSTAR 556
(250kg/drum) 238,149 08-Jun-15 < 2 Months F
7315WP 155,000 08-Jun-15 < 2 Months F
7317P 209,475 08-Jun-15 < 2 Months F
SUNSTAR 1577 85,000 19-May-15 < 6 Months S
PW 930104 70,000 26-Jan-15 < 6 Months S
PW 930169 60,000 26-Jan-15 < 6 Months S
ROVSKI 7310 30,000 18-Nov-14 > 6 Months N
1MS(HM)-
WHITE 12,000 10-Sep-14 > 6 Months N
OROTEX 6020 9,000 17-May-13 > 6 Months N

48. Classification is based on the pattern of
issues from stores and is useful in controlling
obsolescence.
It helps to avoid investments in non-moving
or slow items. It is also useful in facilitating
timely control.

49. By: THOMAS KUHN

50. •Only consider the Criticality of Parts (timing(T) &
quantity(Q)) and not on the value of stock (Cost).
•Vital – Stocks that are important and must be used
daily, weekly, or monthly. (Primary)
•Essential – Stocks that are required to be used as
supporting material. (Secondary)
•Desirable – Stocks used for special purpose or
occasion for enhancement but not a must.
(Additional/Unnecessary)

51. VED analysis can be better used with
ABC analysis in the following pattern:
Category “V” items “E” items “D” items
“A” items Constant control &
regular follow up
Moderate stocks Nil stocks
“B” items Moderate stocksModerate stocks Low stocks
“C” items High stocks Moderate stocksVery low stocks

53. By: DALAI LAMA

54. WHY
REDUCING
INVENTORY
HOLDING DAYS
???
SPACE
STOCK
SPEED
＄CASH
FLOW
SERVICE

55. Just In Time (JIT)
Quick Response (QR)
Efficient Consumer Response (ECR)
Vendor Managed Inventory (VMI)
Co-Managed Inventory (CMI)
Collaborative Planning, Forecasting and
Replenishment (CPFR)
H-M-L Analysis (High, Medium, Low value)
S-D-E Analysis (Scarce, Difficult, Easy produce)
S-O-S Analysis (Seasonal, Off Seasonal items)
G-O-L-F Analysis (Government, Open market, Local,
Foreign source of supply)

56. By: Les Brown

57. Presented by: Lim Yau Mee
Prepared by: Lim Song Yew