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

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

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

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

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.

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

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

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.

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

By: KEVIN EIKENBERRY

• 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

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”

Inventory Cost

Refer to items purchased from vendors based on unit price

Cost per unit multiplied by the quantities procured or produced

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

• 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)

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

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)

By: SUBRINA

• 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.

By: TIMOTHY FERRISS

• 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

• 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.

• 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

• 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.

• 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.

By: W. EDWARDS DEMING

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.

ITEM TOTAL VALUE (MYR)

% OF TOTAL VALUE

1548D 255.75 24.45580M 253.50 24.24PV200 273.75 26.1778163 4CJ3J 68.00 6.50762E4 4CJ2A 45.00 4.30765C2 4CJ0A 45.50 4.3567813 BZ030 32.50 3.1162589 BZ020 37.50 3.5962213 BZ060 34.50 3.30

By: ALBERT EINSTEIN

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

• 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.

ITEMAMOUNT

(MYR)

LAST MOVEMEN

T

PERIOD OF MOVEMEN

T CATEGORYSUNSTAR 556 (250kg/drum) 238,149 08-Jun-15 < 2 Months F7315WP 155,000 08-Jun-15 < 2 Months F7317P 209,475 08-Jun-15 < 2 Months FSUNSTAR 1577 85,000 19-May-15 < 6 Months SPW 930104 70,000 26-Jan-15 < 6 Months SPW 930169 60,000 26-Jan-15 < 6 Months SROVSKI 7310 30,000 18-Nov-14 > 6 Months N1MS(HM)-WHITE 12,000 10-Sep-14 > 6 Months NOROTEX 6020 9,000 17-May-13 > 6 Months N

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.

By: THOMAS KUHN

• 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)

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 stocks Moderate stocks Low stocks

“C” items High stocks Moderate stocks Very low stocks

By: DALAI LAMA

WHYREDUCING INVENTORY

HOLDING DAYS ???

SPACE

STOCK

SPEED

＄ CASH FLOW

SERVICE

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)

By: Les Brown

Presented by: Lim Yau MeePrepared by: Lim Song Yew