Distribution Management

1. INVENTORY CONTROL
Distribution Management
7th Semester B.B.A.
By
Navin Raj Saroj
M.B.A. (Marketing)

2. INVENTORY
Inventory is the raw materials, component parts,
work-in-process, or finished products that are held
at a location in the supply chain.
Inventories of raw materials or finished products are
maintained primarily to bridge the gap between
availability and demand.

3. CONCEPT OF INVENTORY CONTROL
Inventory control is the technique of maintaining the
size of the inventory at some desired level keeping in
view the best economic interest of an organization.
Inventory Control is the process by which inventory is
measured and regulated according to predetermined
norms such as economic lot size for order or
production, safety stock, minimum level, maximum
level, order level etc.
Inventory control pertains primarily to the
administration of established policies, systems &
procedures in order to reduce the inventory cost.

4. WHY CARRY INVENTORY?
 Support production requirements
 Support operational requirements
 Maximize customer service – ensure availability
when needed – protect against uncertainty
 Hedges against market place uncertainty
 Take advantage of order quantity discounts

5. FUNCTIONS OF INVENTORY
The inventory of a product serves following functions:
(i) Geographical Specialization: There is specialization in the
production of goods at one location and consumption at
another. Often, these two locations are at a great distance
from one another, and a specific location often specializes
in the production of a particular product.
(ii) Specialization of Production & Consumption Centre:
Each product is manufactured in large economic
quantities. It has also to be distributed in economic lots in
order to attain the highest levels of efficiency. The
consumption of goods may not be simultaneous with
their production. Goods, therefore, have to be stored in
some quantities.

6. (iii) Balancing Supply and Demand: The demand for a
product may exist at a certain time in large quantities.
Production may, therefore, have to be undertaken
much earlier and for long periods, and well in advance
of the actual consumption period.
(iv) Periodic Variations: Often, a product is consumed
in large quantities at one time and smaller quantities at
another. There may be daily, weekly, monthly or
seasonal variations. The balance of the production in
any lean period has to be stored. The storage of goods
therefore, enables one to meet the uneven demand.
FUNCTIONS OF INVENTORY cont…

7. OBJECTIVES OF INVENTORY CONTROL
• To meet unforeseen future demand due to variation in forecast figures
and actual figures.
• To average out demand fluctuations due to seasonal or cyclic variations.
• To meet the customer requirement timely, effectively, efficiently,
smoothly and satisfactorily.
• To smoothen the production process.
• To gain economy of production or purchase in lots.
• To reduce loss due to changes in prices of inventory items.
• To meet the time lag for transportation of goods.
• To balance various costs of inventory such as order cost or set up cost
and inventory carrying cost.
• To minimize losses due to deterioration, obsolescence, damage, pilferage
etc.

8. TYPES OF INVENTORY
There are two types of Inventory associated with Distribution:
1. Location Inventories: These are combine stocks of raw
materials and finished products and work in process. The
level of each, and the combination of Inventory Levels,
must be determined to minimize the overall cost. These
inventories are maintained to meet the seasonal
variations.
2. Transit Inventories: These are the materials in transition or
in the pipe line and include the raw materials in the transit
from the vendor’s depot to the manufacturing centre, and
finished products on the move from the production centre
to the consumption centre.

9. ROLE OF INVENTORY CONTROL IN PHYSICAL
DISTRIBUTION
In order to make good decisions on Inventory Policy
and Control. It is essential to examine the demand
pattern, the particulars of the products and the
characteristics of the inventory. Following are the
Important role of Inventory:
(i) Inventory Control: Inventory items deserve
careful attention with more upto-date and accurate
records for the determination of order quantities
and priority.

10. (ii) Price Control: It is possible to secure the
maximum benefits by concentrating on price and
the possibilities of price discounts of Inventory
items which involve a major Involvement.
(iii) Consumption Control: By focusing attention on
Inventory items and by a day-to-day monitoring of
the pattern of consumption. It may be possible to
cut down or reduce the usage of one or more of
Inventory Items.
ROLE OF INVENTORY CONTROL IN PHYSICAL
DISTRIBUTION Cont…

11. (iV) Economic Order Quality (EOQ): Inventory carrying costs are
dependent on the ordered quantities, If a large order quantity is
obtained annual demand, a large number of orders may be placed
so that each time only a small quantity is received from the vendor.
The economic order quantity may be derived as follows:
ROLE OF INVENTORY CONTROL IN PHYSICAL
DISTRIBUTION Cont…
Q=Quantity order per economic order,
P= Price per unit,
D= Total Demand Per year,
LT= Lead time for procurement
S= ordering cost per order,
ATL Average Inventory level,
R = Reorder point,
I = percentage of Inventory or Unit
cost
C = Cost per Unit
Thus,
The numbers of orders per year = D/Q
Total Order Cost = (D×S)/Q
Average Inventory Level = Q/2
Inventory Carrying Cost = ICQ /2
The total cost (TC), including carrying
cost and Inventory cost is
TC = (DS/Q) + (ICQ/2)

12. (V) Safety Stock Maintenance: In order to overcome
the problem of stock-out, extra inventory is held by a
manufacturer or a supplier. A high safety stock raises
the inventory carrying costs but reduces stock–out
costs.
(VI) Demand Analysis: Inventory control offers rough
guidelines for determining which items should be
classified as items of high, low and moderate volume
for the purposes of stocking in various distribution
centers. i.e. Variable consumption or demand, Variable
lead time, Normal lead time
ROLE OF INVENTORY CONTROL IN PHYSICAL
DISTRIBUTION Cont…

13. Inventory policy and control decisions necessitate a
consideration of the relevant costs which are;
INVENTORY RELATED COSTS
Unit Costs
Order Quantity

14. • Unit Cost: Basic value of the item carried
• Ordering Costs: Generating and sending a material releasing
transport, any other acquisition costs
• Carrying Costs: Capital storage, spoilage, breakages,
obsolescence of goods or depreciation.
• Procurement Costs: Postage and follow up, Staff, executive time
spent on processing, cost of receiving, handling, inspecting etc.
• Out-of-stock costs: the out-of-stock position occurs when
demand is normal but ordered goods are received late or when
there is a sudden spurt in the demand for goods, or a
combination of all these circumstances. The customer may
switch brands and patronize a competitor not only temporarily
but for all times to come, and, correspondingly, sales may be lost
for ever in future.
INVENTORY RELATED COSTS Cont..

15. FACTORS INFLUENCING INVENTORY LEVEL
• Target service level parameters
• Lot sizing practices
• Safety stock and safety time conservations
• Volume discounts and purchase arrangements
• Seasonal build up needs

16. TECHNIQUE OF INVENTORY CONTROL
 Continuous review:
 Safety stocks and forecasting methods
 Excess and obsolete inventory
 Part simplification and re-design
 On-site supplier managed inventory
 Use of supply chain inventory management systems,
material requirement planning, distribution
requirement planning etc.
 Automated inventory tracking systems
 Supplier – buyer cycle-time reduction

17. INVENTORY DECISIONS
Inventory decisions are made on the basis of an analysis
of the patterns of consumption or distribution i.e. ABC
Analysis
ABC analysis is a systematic study of the common
phenomenon in almost every organisation that a few
items of inventory account for most of the costs. A rule-
of-method indicates that 20% of the inventory items
represents 80% of the costs. The ABC analysis
establishes in real terms that actual percentage of the
inventory of high-value items and the percentage they
represent of the total cost of inventory.
TECHNIQUE OF INVENTORY CONTROL
Cont…..

18. The ABC analysis helps
the physical distribution
management to exercise
selective control and
focus attention on a few
items which are
expensive and form the
bulk of investment while
this increase his
effectiveness in
inventory control. It also
helps for Inventory
Control, price control,
Consumption control
etc.
TECHNIQUE OF INVENTORY CONTROL Cont…..
S. No. Product
Code
Monthl
y Cons.
units
Unit
Price
(Rs.)
Monthl
y Cons.
Value
(Rs.)
Rank
1 P-100 90 10 900 6
2 P-102 5 210 1050 4
3 P-106 5 200 1000 5
4 P-108 10 400 4000 2
5 P-110 7 500 3500 3
6 P-105 3 1700 5100 1
Products with values

19. TECHNIQUE OF INVENTORY CONTROL Cont…..
S. No. Rank Product
code
Monthly
Consumpti
on Value
Percentag
e of Tot
Value
Cummulati
ve
Percentage
Classification of
product As per ABC
Analysis
1 1 P-105 5100 32.80 32.80
A
2 2 P-108 4000 25.72 58.52
A
3 3 P-110 3500 22.51 81.03
A
4 4 P-102 1050 6.75 87.78
B
5 5 P-106 1000 6.43 94.21 B
6 6 P-100 900 5.79 100
C
Products with Descending order or Value

20.  Traditional Inventory Control: Keeping an eye on the
principles of inventory control, mental approximation are
arrived at. For example, instead of working out the actual
consumption rates and other variables. The actual time for
delivery is not worked out to any level of accuracy.
 Computerization: computerization of inventory offers a
number of advantages because of the very nature of the
computerization process in general. A number of pre-
requisites are required to be satisfied for computerization.
 Processing: the computerization process requires a
thorough understanding of the existing manual system. It
helps to allocate the required manpower for the service.
Notification about the inventory which needs to issued at
first.
COMPUTERISATION OF INVENTORY

21. THANK YOU