INVENTORY CONTROL & ECONOMIC ORDER QUANTITY

INVENTORY Inventory is defined as the list of movable goods which help directly or indirectly in the production of goods for sale. It is an investment by the firm in the form of tools, gauges, supplies, raw materials etc.

CLASSIFICATION OF INVENTORY Direct Inventory Indirect Inventory

DIRECT INVENTORIES Inventories which play a direct role in the manufacture of a product and become and integral part of the finished product are called direct inventories. Raw Materials Work-In-Progress Purchased Parts Finished Goods

INDIRECT INVENTORIES Indirect Inventories are those materials which help the raw materials to get converted into the finished products, but do not become an integral part of the finished product.

NEED FOR INVENTORY To ensure against delays in deliveries. To allow for possible increase in output Maintain smooth and efficient production flow. To keep better customer relations. To take advantage of quantity discounts. To utilize to advantage price fluctuations. To ensure against scarcity of demand in the market.

INVENTORY CONTROL Inventory Control means making the desired item of required quality and in required quantity, available to various departments when needed. Too much inventory creates a problem of their storage, huge investment and maintenance of stored items from deterioration, pilferage etc. Low Inventory levels leads to chances of stoppage of production, increase in overheads and disruption in production schedules and delivery promises. Need to find the optimum level.

DETERMINING INVENTORY LEVEL Order Quantity Lead Time Safety Stock Reorder Point

INVENTORY COSTS Purchase costs Ordering costs Inventory carrying cost Shortage cost

ECONOMIC ORDER QUANTITY