Inventory control and techniques, Summaries of Operational Research

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Inventory Control Models/ Techniques

Mohit Khoria

Inventory Control:

• Inventory control is defined as the process of maintaining company’s stock at op^9 mum level to meet customers demand with minimum inventory costs.
• Inventory control helps in con^9 nuity of supplies during crisis and shortages.
• Inventory control maintain balance between out of stock and overstock.
• Maintain company’s stock to meet customer demands.
• To minimise inventory costs (holding cost, ordering cost, shortage cost).
• To ensure con^9 nuity of produc^9 on & distribu^9 on.

ABC Analysis (Always Be.er Control)

• ABC analysis is an inventory control technique used for categorisa^9 on or classifica^9 on of inventory based on inventory’s value, sales, demand and profitability.
• Inventory is classified or categories into three classes:^ Class A, Class B, Class C.
• ABC analysis helps to iden^9 fy most cri^9 cal items for^ financial success of a company.
• High value items are priori^9 sed for their management.
• In any inventory, there are ‘significant few’ and ‘insignificant many’ in any large group. Class A - Highly important material Class B - Moderately important material Class C - Least important material

ABC Analysis (Always Be.er Control) Class A - Most important items, 70% value 10% in numbers. Needs high control and high accuracy of records to handle this class of inventory. Class B - Mid-level category, moderately important items, 20% value 20% in numbers. Moderate control and moderate accuracy of records to handle the inventory. Class C - Least important items, 10% value 70% in numbers. They are more in numbers but less valuable. Less aGen 9 on and less control is need for this type of inventory.

FSN (Fast Slow Non moving) Fast Moving - High turnover/ high frequency of usage. Con 9 nuous control and regular monitoring is required. (More frequency - Good control) Slow Moving - Items having low turnover or frequency of usage. Periodic monitoring is required. (Less frequency - Normal control) Non Moving - Dead stock, total loss. Need disposal to create space for new inventory. (No frequency - No control) Based on frequency of usage of materials

HML (High Medium Low cost) High Cost - High cost items are grouped this category. Con 9 nuous control and regular monitoring is required. (High cost - More control) Medium Cost - Items having medium cost are grouped in this category. Periodic monitoring is required. (Medium cost - Medium control) Low Cost - Items having medium cost are grouped in this category. These items needs less aGen 9 on. (Low cost - Low control) Based on cost per unit

XYZ Analysis X - Very li@le varia:on - Constant, non-changing usage over 9 me. Only slight requirements fluctua 9 on. Y - Some varia:on - Not constant, characterised by seasonal fluctua 9 ons. Z - The most varia:on - Usage can strongly fluctuate or occur in random instances. Based on the variability of demand

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