Manufacturing Systems

1. MANAGEMENT
OF
MANUFACTURING SYSTEMS
VANISHRI KORNU
MBA/45016/19
MT 407

2. WHAT IS INVENTORY?
All the materials, parts, suppliers,
expenses and in process or finished
products recorded on the books by an
organisation and kept in its stocks,
warehouses or plant for some period of
time.

3. WHAT IS 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
organisation.

4. TYPES OF INVENTORY REASONS FOR HOLDING THE
INVENTORY
1) Raw materials To reap the price advantage
available on season raw materials
2) Work in progress To balance the production flow
3) Ready made components When the components are bought
rather than made.
4) Scraps The are disposal of in bulk
5) Finished Goods Lying in stock rooms and waiting
dispatches

5. OBJECTIVES OF INVENTORY
CONTROL
Protection against fluctuations in
demand
Control of stock distribution.
Control of stock volume;
Protection against fluctuations in
output
Better use of men, Machines and
material

6. MAJOR ACTIVITIES OF
INVENTORY CONTROL
Planning the
inventories;
Procurement of
inventories
Receiving and
inspection of
inventories
Storing and
issuing the
inventories;
Recording the
receipt and
issues of
inventories.
Physical
verification of
inventories;
Follow-up
function;
Material
standardization
and substitution

7. INVENTORY CONTROL
TECHNIQUES
 Inventory control techniques represent
the operational aspects of inventory
management and help realise the
objectives of inventory management and
control.

8. COMMONLY
USED
TECHNIQUES
Vital, Essential
And
Desirable(VED)
Classification
Always Better
Control(ABC)
Analysis
High, Medium
Or Low(HML)
Classification
Scarce, difficult
And Easy To
Obtain(SDE)
Fast Moving,
Slow Moving
And Non-
moving(FSN)
Economic
Order
Quantity(EOQ)
Max-minimum
System
Two-bin
System

9. ABC ANALYSIS
 ABC approach is a means of categorising
inventory items into three classes ‘A’, ‘B’,
‘C’ according to the potential amount to be
controlled.
 The inspiration behind the ABC analysis
has been drawn from Vilfredo Pareto, an
Italian economist and sociologist. He says
“its always possible and necessary to
separate “vital few” from “trivial many” of
the stock items for their effective control.

10. PROCEDURE OF ABC
ANALYSIS
1. List each item carried in inventory by number or some
other designation.
2. Determine the annual volume of usage and rupee value
of each item.
3. Multiply each item’s annual volume of usage by its rupee
value.
4. Compute each item’s percentage of the total inventory in
terms of annual usage in rupees.
5. Select the next 10% of all items which have the highest
rupee percentages and classify as ‘A’ items.
6. Select the next 20% of all items which have the highest
rupee percentages and classify as ‘B’ items.
7. Select the next 70% of all items which have the lowest
rupee percentages are ‘C’ items.

11. ‘A’ ITEMS ‘B’ ITEMS ‘C’ ITEMS
1) Very strict control 1) Moderate control 1) Loose control
2) No safety stocks(or
very low)
2) Low safety stocks 2) High safety stocks
3) Frequent ordering or
weekly deliveries
3) Once in 3 months 3) Bulk ordering once in
6 months
4) Accurate forecasts
in material
planning.
4) Estimates based on
past data
4) Rough estimates
5) To be handled by
senior
management.
5) To be handled by
middle management.
5) Can be fully
delegated

12. BASIS OF CLASSIFICATION USES
HML
CLASSIFICATION
The only difference is that unit
value is the criterion and not
the annual consumption value
It is useful for keeping
control over consumption
at departmental levels
and for controlling
purchases.
VED
CLASSIFICATION
The inventories are classified
on the basis for vital, essential
and desirable categorisation
Its done to determine the
criticality of an item and
its effect on production
and other services.
SDE
CLASSIFICATION
Its based on the availability of
items and is very useful in the
context of scarcity of supply.
Its based on problems
faced in procurement, is
vital to lead time analysis
and which are available
in the local markets.
FSN ANALYSIS
The classification is based on
the pattern of issues from
stores and is useful in
controlling obsolescence.
Its helpful in identifying
active items which need
to be reviewed regularly
and surplus items which
have to be examined
further.

13. BASIS OF CLASSIFICATION USES
XYZ Analysis It is based on the value of
inventory of materials actually
held in stores at a given time.
It helps to control
average inventory
value of focusing
efforts to reduce the
inventory of ‘X’ items.
MAXIMUM-MINIMUM
TECHNIQUE
It is established in the same
way as the re-order point. The
maximum is the minimum
quantity plus the optimum lot
size.
Its used in connection
with manual inventory
control systems.
TWO-BIN TECHNIQUE The stock of each item is
separated in two bins. One bin
contains stock, just enough to
last from the date a new order
is placed until it is received in
inventory. The other contains
stock enough to satisfy
probable demand during the
period.
It’s appropriate to ideal
conditions in which
rate of consumption is
fairly constant and for
items lead time of
which is fairly
established and
regular.

14. ECONOMIC ORDER
QUANTITY
It is the technique which solves the
problem of the materials manager. It is the
order size at which the total cost,
comprising ordering cost plus carrying
cost, is the least.

15. GRAPHICAL PRESENTATION
OF EOQ
 Graphing the two costs,
carrying cost and ordering
cost show exactly, where the
total cost curve is at its lowest
point.
 An examination of the two
curves reveals that the
carrying cost curve is linear,
the more the inventory held
the greater will be the cost of
holding it. Ordering in small
quantities means more
acquisition and higher
ordering costs and vice-versa
TC
CARRYING COST
ORDERING COST
EOQ
ORDER QUANTITY SIZE
COST(Rs.)

16. ASSUMPTIONS OF EOQ
 Demand for the product is constant and
uniform throughout the period.
 Lead time(time from ordering to receipt)
constant.
 Price per unit of product is constant.
 Inventory holding cost is based on average
inventory.
 Ordering cost are constant.
 All demands for the product will be
satisfied(no back orders are allowed)

17. TOTAL
PURCHASE
COST
ANNUAL
HOLDING
COST
ANNUAL
ORDERING
COST
TOTAL
ANNUAL
COST
TC=DC+D*S/Q+Q*H/2
D*S/Q=Q*H/2
DS=Q2 *H/2
2DS=Q2 *H
Q2 =2DS/H
Q= √2DS/H
TC=Total Cost
D=Annual Demand
C= Purchase cost per unit
Q=Quantity to be ordered
S= Cost of holding an order
H=Holding cost per unit of
average inventory
I= Cost of carrying
inventory as percentage

18. THANK
YOU