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    Inventory Management: Excel Books FINANCIAL MANAGEMENT, Dr. Sudhindra Bhat

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    Inventory Management: Excel Books FINANCIAL MANAGEMENT, Dr. Sudhindra Bhat

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    pdamodar2007
    552 views11 pages

    Original Title

    Chapter 19-Inventory Mangement

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    © Attribution Non-Commercial (BY-NC)

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    Copyright:

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    Download as ppt, pdf, or txt
    552 views11 pages

    Inventory Management: Excel Books FINANCIAL MANAGEMENT, Dr. Sudhindra Bhat

    Uploaded by

    pdamodar2007

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 11

    2 N D INVENTORY

    MANAGEMENT

    Chapter

    19
    INVENTORY MANAGEMENT

    Copyright © 2008, Dr Sudhindra Bhat

    19 – 1 FINANCIAL MANAGEMENT, Dr. Sudhindra Bhat Excel Books


    2 N D INVENTORY
    MANAGEMENT

    LEARNING OBJECTIVES

     Define inventory management

     List out components of inventory

     Explain the motives for holding inventory

     Identify the areas, objectives and need for balanced investment in inventory

     Highlight costs, risks and benefits of holding inventory

     Explain the techniques of inventory management

    Copyright © 2008, Dr Sudhindra Bhat

    19 – 2 FINANCIAL MANAGEMENT, Dr. Sudhindra Bhat Excel Books


    2 N D INVENTORY
    MANAGEMENT

    Inventory Management Motives


     The Transaction Motive: Transaction motive includes production of goods and
    sale of goods. Transaction motive facilitates uninterrupted production and
    delivery of order at a given time (right time).

     The Precautionary Motive: This motive necessitates the holding of inventories


    for unexpected changes in demand and supply factors.

     The Speculative Motive: This compels to hold some inventories to take the
    advantage of changes in prices and getting quantity discounts.

    Copyright © 2008, Dr Sudhindra Bhat

    19 – 3 FINANCIAL MANAGEMENT, Dr. Sudhindra Bhat Excel Books


    2 N D INVENTORY
    MANAGEMENT

    Objectives of Inventory Management

     Ensure a continuous supply of raw materials to facilitate uninterrupted production


     Maintain sufficient stock of raw materials in periods of short supply and anticipate
    price changes
     Maintain sufficient finished goods inventory for smooth sales operations and
    efficient customer service
     Minimise the inventory costs
     Control inventory investment by maintaining optimum inventory

    Copyright © 2008, Dr Sudhindra Bhat

    19 – 4 FINANCIAL MANAGEMENT, Dr. Sudhindra Bhat Excel Books


    2 N D INVENTORY
    MANAGEMENT

    Nature of Inventory
     Stocks of manufactured products and the material that make up the product.
     Components:
     raw materials
     work-in-process
     finished goods
     stores and spares (supplies)
     consumables

    Copyright © 2008, Dr Sudhindra Bhat

    19 – 5 FINANCIAL MANAGEMENT, Dr. Sudhindra Bhat Excel Books


    2 N D INVENTORY
    MANAGEMENT

    Need for Inventories


     Transaction motive
     Precautionary motive
     Speculative motive

    Copyright © 2008, Dr Sudhindra Bhat

    19 – 6 FINANCIAL MANAGEMENT, Dr. Sudhindra Bhat Excel Books


    2 N D INVENTORY
    MANAGEMENT

    Inventory Investment Analysis

     Estimation of incremental operating profit


     Estimation of incremental investment in inventory
     Estimation of the incremental rate of return (IRR)
     Comparison of the incremental rate of return with the required rate of return (RRR)
     Optimum inventory:

    IRR = RRR

    Copyright © 2008, Dr Sudhindra Bhat

    19 – 7 FINANCIAL MANAGEMENT, Dr. Sudhindra Bhat Excel Books


    2 N D INVENTORY
    MANAGEMENT

    Tools and Techniques of Inventory


    Management / Control
    (1). ABC Analysis

    (2). Economic Order Quantity (EOQ)

    (3). Order Point Problem.

    (4). Two-Bin Technique

    (5). VED Classification

    (6). HML Classification

    (7). SDE Classification

    (8). FSN Classification

    (9). Order Cycling System

    (10). Just in Time (JIT)

    Copyright © 2008, Dr Sudhindra Bhat

    19 – 8 FINANCIAL MANAGEMENT, Dr. Sudhindra Bhat Excel Books


    2 N D INVENTORY
    MANAGEMENT

    Selective Inventory Control


     ABC analysis
     classify inventory into three categories according to value

     control by importance and exception: maximum attention to “A” items

    Copyright © 2008, Dr Sudhindra Bhat

    19 – 9 FINANCIAL MANAGEMENT, Dr. Sudhindra Bhat Excel Books


    2 N D INVENTORY
    MANAGEMENT

    Inventory Management Techniques

     Economic order quantity (EOQ)


     ordering costs: requisitioning, order placing, transportation, receiving, inspecting
    and storing, administration
     carrying costs: warehousing, handling, clerical and staff, insurance, depreciation
    and obsolescence
     ordering and carrying costs trade-off:

    2AO
    EOQ =
    c

    Copyright © 2008, Dr Sudhindra Bhat

    19 – 10 FINANCIAL MANAGEMENT, Dr. Sudhindra Bhat Excel Books


    2 N D INVENTORY
    MANAGEMENT

    Inventory Management Process

     Explicitly state the inventory policy


     Create an inventory monitoring cell
     Management group for controlling purchases
     Periodic meetings between purchase, materials planning and production
    executives
     Monthly reviews of total inventory at plant/corporate level
     Dovetail inventory control to the total budgeting system
     Identify critical inventory items for closer scrutiny

    Copyright © 2008, Dr Sudhindra Bhat

    19 – 11 FINANCIAL MANAGEMENT, Dr. Sudhindra Bhat Excel Books

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