Types of Inventory 1.Raw material •Purchased but not processed 2.Work-in-process (WIP) •Undergone some change but not completed •A function of cycle time for a product 3.Maintenance/repair/operating (MRO) •Necessary to keep machinery and processes productive •The need and timing for maintenance and repair are unknown. 4.Finished goods Completed product awaiting shipment Inventory Management systems: –How inventory items can be classified? oABC Analysis –How accurate inventory records can be maintained? oRecord Accuracy oCycle Counting ABC analysis Inventory application of the Pareto Principle “There are a critical few and a trivial many” •Divides on-hand inventory into three classes based on annual ******** volume (A, B, and C) •Used to establish policies that focus on the few critical parts (expensive items) and not the many trivial ones (inexpensive items) •To determine annual ******** volume: Annual demand X Cost per unit oClass A - high annual ******** volume 70-80% oClass B - medium annual ******** volume 15- 25% oClass C - low annual ******** volume 5% Policies employed may include oMore emphasis on supplier development for A items oTighter physical inventory control for A items and the accuracy of inventory record for A Items should be verified more frequently. oMore care in forecasting A items Record Accuracy •Good inventory polices are meaningless if management does not know what inventory is on hand. •Accurate records are a critical ingredient in production and inventory systems •Allows organization to focus on what is needed •Necessary to make precise decisions about ordering, scheduling, and shipping •Incoming and outgoing record keeping must be accurate •Stockrooms should be secure Cycle Counting •Records must be verified through a continuing ******it even if they are accurate. (Cycle Counting) •Most companies perform annual physical inventories –Shutting down the facility –Done by inexperience workers –Items are counted, records are verified, and inaccuracies are documented. –Inaccuracies traced and appropriate remedial action taken to ensure the integrity of the inventory system Often used with ABC analysis to determine cycle oA items ? Once a month oB items ? Once a quarter oC items ? Once every 6 months Cycle Counting •Has several advantages oEliminates shutdowns and interruptions for annual physical inventories oEliminates annual inventory adjustment oTrained personnel ******it inventory accuracy oAllows causes of errors to be identified and corrected oMaintains accurate inventory records Control of Service Inventories •Some service sectors have inventory. • Can be a critical component of profitability •Losses may come from shrinkage or pilferage •Shrinkage: Retail inventory that is uncounted for between receipt and sale. It occurs from damage and theft as well as from sloppy paperwork. •Pilferage: A small amount of theft Applicable techniques to ensure the accuracy of inventory : –Good Personnel selection, training, and discipline –Tight control of incoming shipment –Effective control of all goods leaving the facility.