Inventory Management

Inventory Management

INVENTORY

RAW MATERIALS SPARES & CONSUMABALE FINIDHED GOODS

Inventory Control Inventory ControlWare House Management system

Inventory Control

Inventory Control Model

Define optimal inventory norms for item / item categories to ensure minimal changes in production schedules due to material unavailability

• For raw material and production consumables Driven By: -

• Item Categorization

• Lead Time

• Service Level

• Consumption Pattern

Determining the

• Safety stock, ROP

• Min-Max Level determination

Inventory Management

• Item Categorization

• Consumption velocity * Fast, Slow & Non Moving items

* Obsolete Items

• Consumption Value * ABC Classification• Stock Value * XYZ Classification

• Criticality * Insurance and Critical Items

Liquid Oxygen Gas

Avg Consumption:755/daySTDEV=211/day%ge Variation=28%

Bottleneck Item Strategic Items

Routine Items Leverage Items

High

HighLow

Low

Business Impact

Su

pp

ly r

isk

/c

om

ple

xit

y

High Safety stock Medium Safety Stock

Low Safety stockMin-Max Levelfor e.g Al / Ca based

alloys, electrodes

for e.g micro alloys,casting powder

for e.g mill consumables,Maint Consumable, MRO

for e.g ore, pellet,blackrefractory, coke

Inventory Management of Raw Material

• Safety Factor (K):– For bottleneck items as the

spend is low but the market risk is quite high, a high service level (99.9%) will reduce the risk of running out of stock.

– Strategic items can be maintained with medium service level in spite of a high market risk(95%) as these are very closely monitored.

– For leverage items as the market risk is low, low service levels can be defined for calculating the safety stock norms

– For routine items, min-max levels are to be defined which is discussed later in the section

(4) Pricing Factors Analysis

(3) Supply Market Analysis

(2) Identifying Focus Area

(1) Spend Analysis

Business Impact

Supply Risk/ ComplexitiesSupply Risk that impacts on business• Complexity of manufacturing• Procurement experience• Supply market characteristics - Supply market capability - Competition - Entry Barrier - Distance with supply market - Supply chain complexity

Supply Risk/ ComplexitiesSupply Risk that impacts on business• Complexity of manufacturing• Procurement experience• Supply market characteristics - Supply market capability - Competition - Entry Barrier - Distance with supply market - Supply chain complexity

Business Impact:

• Purchasing amount by items, Percentage per entire spend

• Price elasticity

Business Impact:

• Purchasing amount by items, Percentage per entire spend

• Price elasticity

Supply Risk / Complexities

Low

High

Low High



£High costwith lowexposure

High costwith highexposure

Low valueand low

exposure

Low valuewith highexposure

Procurement Portfolio Matrix

Strategic Sourcing• Spend Analysis

– Spend Analysis categorises items based on their business impact and supply risk as shown below. The factors considered for determining business impact and supply risk are as mentioned

8

Purchasing Frequency

Purchasing Unit Price

High

High

Low

Low

Items for Concentration ofProcurement Activity

Items for Reducing Effort ofProcurement Activity

•By analyzing Unit price and purchasing frequency, identify the items that should be focused with procurement effort, and the items that should be taken for process simplification through automation.

ProcessProcessSimplificationSimplification

Cost ReductionCost Reduction

Focus



(2) Identifying Focus Area (1) Spend Analysis

Strategic Sourcing• Identifying Focus Area

– Focus area identification classifies items based on unit price and purchasing frequency so as to identify items for focus of procurement effort and items for simplifying the procurement process.

9Material Lifecycle

Con

tro l

on

pri

cin

g an

d

sup

pli

e s

Low

Start-up Development Mature Phase-out

High

BuyerMarket

Equilibrium

Demand > Supply Demand = Supply Demand < Supply

Supplier Market




Leverage Leverage CompetitionCompetition

CollaborateCollaborate

Focus

Strategic Sourcing• Supply Market Analysis

– Supply market analysis aims to get the overall market perspective for an item into the strategy formulation activity• Alternative supplier existence and demand/supply condition are the key analysis factors• Speed of technology development affects the duration of supplier’s governance of market. When the speed of technology

development is high, supplier’s market governance gets shorter.

10

Strategic Sourcing• Pricing Factor Analysis

– Pricing factor analysis aims to bring in the price behaviour of an item in the overall strategy formulation

Price Volatility

High

Low

Items with volatile price

Items with potential price change

Items withStablePrice

• Price volatility determines the kind of focus required for different group of items

Reduce RiskReduce Risk

Contracts/ Contracts/ RelationshipsRelationships

Import dependenceLow High

Focus




Strategic Sourcing• The spend analysis has been done for selected items and is as shown below

– The selected items contribute 95% of the total procurement spend is done for the following items The spend analysis for selected items is as shown below

Low

High

Business ImpactLow High

Lump Ore

Dolomite

Pellets

Limestone

Quartzite

Met Coke

Su

pp

ly r

isk

/ co

mp

lex

itie

s

Oxygen

Back up rolls

Graphite Electrode (450/610)

LDO

Ca Al Fe wireFeMn LC

HSD / HFHSD

Nitrogen

Lancing Pipes

Tools and Tackles

Mill Consumables

Oils and Lubricants

Starting Powder

Temp Tips

Ferro NiobiumMould Copper Plates

Casting powder DT 25

MRO

Samplers

SEN

Laddle Shroud

Monoblock Stopper rod

Refractories

Al Cube

Ca Al Fe wireFurnace oil

FeMn HC/ MC

Argon

Silico Manganese

Straps

Spares

INR 1.5 Crores

INR 5.5 Crores

INR 98 Crores

INR 12 Crores



High

HighLow

Low

Business Impact

Su

pp

ly r

isk

/ co

mp

lexi

ties

Ensure Continuity of Supply&

Reduce Risk

Leverage Competition to

reduce cost and risk

Maximize Efficiency,Minimize transaction

and control cost

Strategic Sourcing• Spend analysis is the basis of strategy formulation exercise and

provides broad guidelines for strategy formulation as mentioned below.

Inventory Management Approach

• Inventory Control– Min-Max Stock level determined for critical item– SS,ROP

• Inventory Review– Continuous review system made for critical, Insurance and Expirable

items

• Waste Management (Identification Of Obsolete items and disposable plan)

• Inventory Planner

• Reasonable estimates of

– Holding (or carrying) costs.• Costs for storage, handling, insurance, etc.

– Setup (or production change) costs.• Costs for arranging specific equipment setups, etc.

– Ordering costs.• Costs of someone placing an order, etc.

– Shortage costs.• Costs of not having enough.

Inventory Management Systems

Five categories of stocks

• Pipeline stock – (in process stock, in transit stock)

• CYCLE stocks – (batch production owing to

- economies of scale - technological requirements)

• SEASONAL stocks – ( time varying requirements of an item)

• SAFETY stocks – (supply and demand uncertainties, lead time

uncertainties)

• Stocks held for OTHER REASONS – decoupling stages of production– price, quantity discounts– speculation)

Inventory Management Strategy

Inventory Management Plan

• Planning based on Production Scheduling & Maintenance Plan: -

– Monthly (Rolling Plan) - Focus on Exercising Budgetary Control depending on planned maintenance & production.

– Annual – Business Plan – Focus on Comprehensive Maintenance and Production Plan.

Inventory Management Review

• Review based upon Inventory Cost, TO Ratio & Business Impact.

• Monthly review: Focus area – Identification of FSN Data.– Elimination of Non-Moving / Obsolete Items & review of Insurance Items.– Discuss negative performance and their resolution steps with support

from Process Owners– Establish Escalation Points– Review and action plan by Waste Management Committee.

ABC,FSN , VED & COMBINED MATRIX

Based upon the Consumption, Lead time variance & Service Level

Safety Stock+Average Lead time

Based up on the optization of Holding Cost, Odering Cost & Consumption

Contineous/ Periodic Review

ITEM CATEGORIZATION

SAFETY STOCK CALCULATION

REODERING POINT

EOQ( Economic Oder Quantity)

Review

Inventory Management New Initiatives

INVENTORY MANAGEMENT

Materials Managed at Stores……• FIFO• BIN SYSTEM• Tracking of Material through BAR CODING.• Tracking of expirable items.

Documents

Inventory Management