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Operations Management - Transportation / Assignment & Inventory Management

Types of Inventory - Inventory Management

   Posted On :  23.06.2018 05:29 am

Based on the reasons, for which the inventory is accumulated, it can be classified into the following categories.

Types of Inventory
Based on the reasons, for which the inventory is accumulated, it can be classified into the following categories.

Cycle Stock

A lot size or batch size is that quantity ‘a stage of supply chain’ either produces or purchases at any given point of time. A firm, which sells 5 personal computers per day normally, would stock/order for 50/100 personal computers. The firm is holding an average stock of 10 days or 20 days. Cycle Inventory is the average inventory builds up in the supply chain. A stage of supply chain purchases or produces more than the demand for the product; the concept of cycle inventory is in picture.

The role of cycle inventory would be used well if we know some idea about ‘Average Flow Time’.

Hence, the Average flow time for the computer firm is 10 days. (100/2*5 = 100/10)
Therefore the larger cycle inventory will result in the longer lag time between purchases/production to sales, which would in turn affect the working capital requirements of the firm.

Raw Material Inventory

The raw material inventory is a relative term to the industry/ application of the component/spare/parts/material. For an automobile manufacturer, even the Tyres /mirrors constitute the raw material inventory, which are finished goods inventory of the respective firms which manufacture these components.

 A sugar factory with crushing capacity of 75 MT sugarcane operating at 100% capacity utilization, would require holding at least 75 MT of sugarcane on any day. If the policy is to keep at least 10days requirements, then they have to hold 750MT on any time.
A seasonal nature of raw material may force the firm to keep the inventory at certain levels. Some occasion it will be beneficial for the firm to purchase in bulk quantity.

Work – in – Progress Inventory

A passenger car manufacturer if takes 5 days to roll out a car from the production run, the value addition in every day is kept as a WIP inventory. The gearbox which is the fulcrum of cars normally purchased/ produced in larger quantities so as to avoid any shortfalls or unexpected breakdown in that systems. In general WIP Inventory is held at various stages for smooth and efficient flow of operations.

Finished Goods Inventory

The finished goods inventory is held at various stages of the supply chain. For example, the production lot, which is just then produced, will be kept for packaging/transportation to warehouses or Carrying & Forwarding Agents, the Dealers/stockiest are carrying inventory to meet the requirement, the wholesalers and retailers carrying certain amount of products to meet the demand.
Sometimes, the company policy may state such as ‘you have to hold atleast 2.5 weeks of inventory at any point of time’ etc. On the other occasions such as taking advantages of price reductions or making use of new sales promotional schemes, which may push the demand curve higher, the inventory is kept at various levels across the spectrum.

In transit Inventories

For example, if we consider the Passenger car giant, Maruti Udyog Limited, which is getting Gear Boxes from Suzuki Motor Corporation, Japan, at any point of time, the gear boxes, that are en route, forms the ‘In transit Inventories’ for MUL. Again depends upon the application, the ‘In transit Inventory’ may be Raw material or WIP or Finished goods.

A Study by bar-coding authority EAN India limited, roughly Rs.5000/- Crore of goods of the FMCG products are always in transit, which is equivalent to one eighth of the FMCG industry’s produce 3. 

Tags : Operations Management - Transportation / Assignment & Inventory Management
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