PIS Stores Managment Inventory Control Synopsis)

7/31/2019 PIS Stores Managment Inventory Control Synopsis)

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Providing SolutionsIs our PASSION

Stores & Inventory Management

By:-S K SHARMA,Chief Mentor,

Pinnacle Innovative SolutionsFormer National Prsident,

Indian Institute of Materials Management


Stores ?

Inventories are stored in stores and

warehouses for extended period . warehouse is functioning like distribution

centre.

Stores perform these functions by storing:-

Raw material & spares,

B.O.component & work in process (WIP).

semi-finished inventory and finishedinventories.


Receipt Store

To receive, unload, unpack and physicalcounting of the material coming from outside.

generate its incoming document and to arrangeinspection of material.

Check that material is supplied by vendor as perPurchase order.

To ensure proper condition of the material andaccurate quantities received matching with theinvoice quantity


Contd:-

To take steps to find insurance claim in casematerial is received in damage/ shortage

/breakage / leakage and pilferage

To ensure that copies of invoice to availCENVAT under excise and VAT amount areproperly received

Identify the goods with appropriate stock numberof your company and identification tag should betide with the consignment


Contd.-

Shifting of accepted material to main

store/concerned store or user point.

Shifting of rejected material to rejection

store for rework or dispatch to vendors.


Stores Management

Placing the items in store in such a way that theycan be found readily and correctly as and whenrequired.

Minimize the total physical efforts to reduce the

cost of moving the goods into and out of storage. Proper and update accounting. To ensure proper measures to preserve the

material Provide timely customer service.


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Stores

Dispatch of finished goods to customers.

Picking and packing the material. Goods are brought together and checking for

omission or errors.

Updating the order records.

To ensure optimum usage of the space.

Effective use of labor and material handlingequipment


Preservation

stores to ensure materials is not deteriorated

and must maintain their true value andproperties for fulfilling the specific purposes.

Deterioration means decrease in the value ofthe material to meet the quality specificationrequired for a particular purpose.


Contd.-

FIRST IN, FIRST OUTFIFO principle must be followedfor the materials having shelf life, while issuing/consuming the materials.

Last in first out LIFO is to follow only in those itemswhere goods received first may have longer shelf life

Do not disturb the original packaging received from thesupplier

Provide adequate ventilation Do not store any thing on the floor Cover stocks in the open by tarpaulins


Issues

Ask for the material requisition slip and register the same.

Check the requisition whether it is sign by an authorized person. Store person should have list of authorized person along with their

designation and specimen signatures.

Check the stock no., description department code no. unit ofmeasure etc.

Does the quantity is matching with the requirement given by the userdepartment.

Check from the computer the availability of the stock Issue the material and fill up the quantity in the issue column and

record the same in the computer for update the balances.


Issues

Handover the material to indenter or his authorizedagent and take his signature.

As per the company requirement, please arrange thedelivery of issued material to the users point in time.

If required quantity is not available in part or full, thenfollow up with purchase or inform the indenter.

While issuing the material, implement first in first out(FIFO) First expiry , first out (FEFO).

If material is to be dispatched then ensure properpackaging, documentation and transportation.


Receipts given by differentmodes of transport

Mode of Transport Receipt Documents

Rail Railway Receipt (RR)

Truck LCV,HCV Goods receipt (GR) By Air. Air Way Bill (AWB)

By Ship Bill of Lading (B/L)


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Records

Stock Ledger

Price Ledger Stock Card/Bin Card

Unmet requirement Register

Stock variances record

Extra issue/wastage record

Record for Non-moving, slow moving andobsolete items


Physical verification

stocks are treated as cash and it is obligatory on the part of stores toensure that what ever the stock are appearing in stock ledger mustmatch with the physical quantities lying in the stock against thatparticular number.

Objectives: Essential for accurate balance sheet purposes Effective planning and replenishment of inventories.

To ensure that materials is matching with the description andspecification as shown in the stock record.

To find any fraud thrift of loss or loss or even to see the possibilitythere of or material is damaged, broken or spoiled during storage.

To find out weakness in the system and to suggest improvements.

To know any unit of All discrepancies found must be investigated,explained and accounted for.


Stock Verification

1. Periodic stock taking:

Advantages of Periodical Stock Verification:-

It is simple, and suitable to small warehouse.

It gives accurate value of closing stocks on halfyearly or yearly closing.

No extra staff is required.


Disadvantages

not suitable for medium or large storehouse whereinventory verification can not be completed in one or twodays.

Work can not be suspended for longer period tocomplete the exercise.

Since variations are known at the end of the year,detailed reconciliation is not possible.

Preparation of final accounts and balance sheet is

delayed.


Perpetual stock verification

Verification of stocks is done through out

the year as per a pre determined plan ofaction.


Advantages

Work can be independently carried out by stores/material audit department through out the year withoutstopping the production.

Reconciliation with regard to discrepancies are spread

over the year and hence detailed analysis is possible

Final accounts can be prepared expeditiously

No need to close the stores operations for verification ofstocks


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Disadvantages

Some times there are chances for wrong

verification due to store transactions aretaking place at the time of inventory.

Actual stock balances are not available onthe closing day of financial year.


Reconciliation & finalization ofaccounts

Discrepancies, if any, must be discussed withstores so that any omission may be rectified.

Major discrepancies may require re-verification. Left out discrepancies should bereported to top management for approval forstock adjustment.

After the approval, the stock records can becorrected.


Stores ManagementDifference between Obsolescence,Surplus and Scrap:

1.Obsolescence: Not Usable.

2.Surplus: Not being used.

3.Scrap: generated out of process


Waste Control

Resources are limited.

Consumption is on increase.

Storage space is a constraint.

Money blocked in Non Productive

Assets.


Reasons for Obsolescence:

1.Development of New Technology.

2.Design Change

3.Adoption of standardization/VarietyReduction.

4.Rationalization.

5.Wrong Forecasts


Reasons for Obsolescence

1.Fear of stoppage of line

2.Lack of Confidence in Suppliers.3.Imported Machinery spares and lead time.

4.Insurance requirements.


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Remedies for Obsolescence

Cross functional teams for:

1.Design change/process changes.2.Develop reliable suppliers.

3.Market Information updates.

4.Disposal at fastest pace.


Waste Generation Over Specifications: Excess

scrap

Under Specifications: Excessrejections

Wrong Buying.

Spillage/Wastage inTransportation.

Misuse.

Inadequate Storage Facilities.

Wrong Material Handling


Reasons/Remedies

Technical and Managerial.

Proper Analysis.

Proper Action plan

Effective Implementation.

Regular Monitoring.

Timely MIS.


Obsolescence and WasteControl

Disposing, salvaging and Utilization of

scrap is an art by itself and no amount oftheoretical inputs can replace a man whohas the innate knack of converting

WEALTH FROM WASTE


Inventory Management



Inventory is one of themost expensive assets

of many companies.

It represents as muchas 50% to 80% of totalinvested capital.


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Inventory is any stored resource that is used to

satisfy a current or future need. Raw materials, work-in-process, and finished

goods are examples of inventory.

(1) how much to order (or produce), and (2)when to order (or produce).


Basic Functions of Inventory

1. If product demand is high in summer, a firmmight produce during winter. (Decoupling).

2. Inventory can be a hedge against pricechanges and inflation.

3. Another use of inventory is to take advantageof quantity discounts (when buying).

(Many suppliers offer discounts for largeorders)


ABC Analysis

ABC analysis divides on-hand inventory

into three classifications on the basis ofannual consumption value.

The idea is to focus resources on thecritical few and not on the trivial many.


ABC Analysis

Class A items are those on which theannual dollar volume is high.

They represent 70-80% of total inventory

costs, but they account for only 15% oftotal inventory items.


ABC Analysis

Class B items are those on which annualdollar volume is medium.

They represent 15-25% of total dollar

value, and they account for 30% of totalinventory items on the average.


ABC Analysis

Class C items are low value volume items.

They represent only the 5% of total value

volume, but they include as many as 50-

60% of total inventory items.


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ABC Analysis


ABC Analysis

Some of the Inventory Management Policies that

may be based on ABC analysis include: a) Class A items should have tighter inventory

control.

b) Class A items may be stored in a more securearea.

c) Forecasting Class A items may warrant morecare.


Cycle Counting of Inventory

Cycle counting uses inventory classificationsdeveloped by ABC analysis.

That is:

Class A items are counted frequently, perhapsonce a month.

Class B items are counted less frequently,perhaps once a quarter.

Class C items are counted perhaps once everysix months.


Selective Control

V.E.D.

FSN

SOS

GOLF

XYZ


Just-in-Time Inventory

Just in Time

Inventory is theminimuminventory that is

necessary tokeep a system

perfectly running.



With just in time (JIT) inventory, The

exact amount of items arrive at themoment they are needed, Not aminute before OR not a minute after.


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To achieve JIT inventory, Managers

should Reduce the VariabilityCaused bysome Internal and External Factors.

(Goldratts boys scout example Applythe pace of the slowest boy).

Existence of Inventory hides the variability.What causes variability?


Holding, Ordering and Set-up Costs

Set-up costis the cost to prepare a

machine for manufacturing an order. Set-up cost is highly correlated with set-up

time.


Holding, Ordering and Set-up Costs

Machines that traditionally have taken long

hours to set up Are Now being set up inless than a minute by employing FMSs orCIM systems.

Reducing set up times is an excellent wayto Reduce Inventory.


Inventory Models

Demand for an item is either dependent on

the demand for other items or it isindependent.

For example, demand for refrigerator isindependent of the demand for cars.

But, demand for auto tyres is certainlydependent on the demand of cars.


Inventory Models

Independent Demand Situation.

In the independent demand situation, we

should be interested in answering:

a) When to place an order for an item, and

b) how much of an item to order.


Inventory Models

There are Four Basic Independent

Demand Inventory Models:

1) Economic Order Quantity (EOP) Model

(the most known model).

2) Production Order Quantity Model.

3) Back order inventory model.

4) Quantity discount model.


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Economic Order Quantity(EOQ) Model

EOQ model makes a number of

assumptions:1-) Demand is known and constant.

2-) Lead time (the time between placement

of order and receipt of the order) isconstant and known.



3-) Orders arrive in one batch at a time, and they

arrive in one point in time.4-) Quantity discounts are not possible.

5-) The costs include only setup cost (or orderingcost when buying) and holding cost.

6-) Orders are always placed at the right times.Therefore, stock outs (or shortages) can becompletely avoided.



With these assumptions, the graphic of

inventory usage over time is as follows:


Inventory Control Techniques

Pull/Push

Milk run

VMI

Quick Response (Q.R.)

Information sharing & SRM


Material Control Techniques

RATIO ANALYSIS

Gross profit Ratio =

Inventory Turnover Ratio =

No. of consumption days =

Operating Ratio =

x100Sales

G.P.

StockAV.SoldGoodsofCost

I.T.R.

daysWorkingAV.

x100Sales

CostTotal
