Inventory
Inventory is an idle material resource of an enterprise awaiting future sales, use, or transformation
Inventory is the stock of any item or resource used in an organization and can include: raw materials, finished products, component parts, supplies, and work-in-process”
PURPOSES OF INVENTORY
1. To maintain independence of operations
2. To meet variation in product demand
3. To allow flexibility in production scheduling
4. To provide a safeguard for variation in raw material delivery time
As per the utility, inventory can be categorized as per the following:
Working /Cycle/Lot size stock Average amount of inventory to get the benefits of minimum ordering & holding costs, quantity discounts and or favourable freight rates.
Safety Stock stock held to protect against uncertainties of demand & supply.
Anticipation Stock Holding high level inventory to meet the peak seasonal demand, erratic requirements, or inconsistency in the production capacity.
Pipeline Stock/ work in Process Inventory goods in transit from manufacturer to be delivered to a customer
Decoupling Stock Inventory accumulated between the various departments’ activities
Psychic Stock Window display of an inventory in order to stimulate demand
Why CHECK Inventory??
Too Much Inventory : Holding charges, obsolence, space
, depriction working capital
and Too less Inventory : Too frequent ordering, more transportation cost,loss of quantity discount.
Elements of Inventory Costs
PROCUREMENT COSTIncludes:
Cost of order processing i.e. use of stationary and services, cost of staff etc.
Cost of transmission of an order i.e. cost of postage & follow-up messages through telephone, fax, etc.
Cost of Transportation i.e. freight, transit insurance, protective packaging, etc.
Cost of Invoice Pricing i.e. checking, approval, book entries & payment procedures.
Cost of Goods receiving, handling, inspecting and entry in the stock register/computer.
Cost of final feeding of data in Logisitcs information system
CARRYING COSTIncludes:
Space rent for the storage of goods
Cost of working Capital locked in the inventory
Cost of insurance of goods
Cost of spoilage in the quality
of goods in storage, breakages in handling
Cost of deterioration due to passes of time and change in weather
Cost of obsolescence of goods or depriciation
STOCK-OUT COST
Internal shortages due to
Lost production
Delay in completion date
External shortages resulting in
Back order cost
Loss of potential sale thus loss of present profit
Future profit cost due to loss of corporate image
Inventory is the stock of any item or resource used in an organization and can include: raw materials, finished products, component parts, supplies, and work-in-process”
PURPOSES OF INVENTORY
1. To maintain independence of operations
2. To meet variation in product demand
3. To allow flexibility in production scheduling
4. To provide a safeguard for variation in raw material delivery time
As per the utility, inventory can be categorized as per the following:
Working /Cycle/Lot size stock Average amount of inventory to get the benefits of minimum ordering & holding costs, quantity discounts and or favourable freight rates.
Safety Stock stock held to protect against uncertainties of demand & supply.
Anticipation Stock Holding high level inventory to meet the peak seasonal demand, erratic requirements, or inconsistency in the production capacity.
Pipeline Stock/ work in Process Inventory goods in transit from manufacturer to be delivered to a customer
Decoupling Stock Inventory accumulated between the various departments’ activities
Psychic Stock Window display of an inventory in order to stimulate demand
Why CHECK Inventory??
Too Much Inventory : Holding charges, obsolence, space
, depriction working capital
and Too less Inventory : Too frequent ordering, more transportation cost,loss of quantity discount.
Elements of Inventory Costs
PROCUREMENT COSTIncludes:
Cost of order processing i.e. use of stationary and services, cost of staff etc.
Cost of transmission of an order i.e. cost of postage & follow-up messages through telephone, fax, etc.
Cost of Transportation i.e. freight, transit insurance, protective packaging, etc.
Cost of Invoice Pricing i.e. checking, approval, book entries & payment procedures.
Cost of Goods receiving, handling, inspecting and entry in the stock register/computer.
Cost of final feeding of data in Logisitcs information system
CARRYING COSTIncludes:
Space rent for the storage of goods
Cost of working Capital locked in the inventory
Cost of insurance of goods
Cost of spoilage in the quality
of goods in storage, breakages in handling
Cost of deterioration due to passes of time and change in weather
Cost of obsolescence of goods or depriciation
STOCK-OUT COST
Internal shortages due to
Lost production
Delay in completion date
External shortages resulting in
Back order cost
Loss of potential sale thus loss of present profit
Future profit cost due to loss of corporate image
