Inventory Control Techniques

Inventory Basics:

• Inventory = Stocked materials acting as a buffer between supply and demand.
• Effective control is vital for smooth production with minimal interruptions.
• Objective: Balance inventory investment and customer service.
• Inventory can be a significant asset (up to 50% of invested capital).

Four Functions of Inventory:

1. Demand Fluctuation Buffer: Accommodate variations in customer demand.
2. Decouple Processes: Separate production from supplier issues.
3. Quantity Discounts: Leverage bulk purchase benefits.
4. Inflation Hedge: Protect against rising prices.

Types of Inventory:

1. Raw Material: Purchased but unprocessed.
2. Work-in-Process (WIP): Partially completed goods.
3. MRO: Maintenance, Repair, Operating supplies.
4. Finished Goods: Completed items awaiting shipment.

Inventory Control Techniques:

Categorize items for tailored control.

1. ABC: By value/consumption (A=high, B=medium, C=low).
2. HML: By unit price (High, Medium, Low).
3. VED: By criticality (Vital, Essential, Desirable).
4. FSN: By consumption rate (Fast, Slow, Non-moving).
5. SDE: By acquisition ease (Scarce, Difficult, Easily available).
6. GOLF: By source (Govt., Ordinary, Local, Foreign).
7. SOS: By supply pattern (Seasonal, Off-seasonal).
8. XYZ: By demand variability (X=low, Y=moderate, Z=high).