Inventory Management Of

Inventory Management Of

Steel

Introduction
Inventory consists of Raw materials Work in progress Finished goods Inventory in transit
Benefits of holding inventory a) Benefits in production b) Benefits in purchase c) Benefits in sales

Objectives of inventory management

To provide adequate inventory for the firms requirement in

the process of work

To minimize firms investment in inventory To ensure smooth flow of materials in production & sales

operations

Costs & Benefits of Inventory

Methods of Inventory Management

Economic Order Quantity

Assumptions in EOQ method

The firm can forecast accurately its annual requirement Usage of inventory is steady

There is no time gap between ordering & the supply of inventory

Only two types of costs are considered: ordering cost &

inventory carrying cost Both costs are constant for the given inventory level

Calculation of EOQ

TC = P*D + (D*S)/Q + (H*Q)/2

Q = (2*D*S)/H where, TC = total cost P = purchase cost per unit D = annual demand of the raw material S = fixed cost per order H = annual holding cost

Limitations
a) Accurate forecast of annual requirement difficult.
b) No time gap between ordering & supplying of raw materials

assumed, which may not be the case. c) Demand for a product may not be uniform throughout the year. d) EOQ of manufacturing firm may not be economical for the supplier. e) Better discounts may be offered by the supplier for placing orders higher than EOQ.

Other methods of Inventory Management

Just In Time (JIT) ABC analysis High, Medium, Low (HML) classifications Vital, Essential, Desirable (VED) Classifications Scarce, Difficulty, Easy (SDE) Classifications Fast moving, Slow moving, Non moving (FSN) Analysis Seasonal & Off Seasonal (SOS) Analysis XYZ Analysis Government, Open market, Local & Foreign source

(GOLF) Analysis

Inventory Management of Tata Steel

Amount : Rs. In Lakhs

Graph Showing Consumption & Stock of Raw Materials

Amount : Rs. In Lakhs

Work In Progress (WIP)

 Product line of TATA STEEL includes long tubes,semis,hot

rods, cold rods and galvanized tubes. Tubes division uses Just In-Time purchase system . A look at the chart indicates though in the last four years sales has remained same or decreased , the stock of raw material has increased. This is due to the fact that price of raw material has increased but company is not able to increase the price due to stiff competition. Increase in inventory may also be due to wrong estimation of orders. The chart of WIP shows that both cost of goods produced and WIP have increased during the period. work in progress holding period also has gone up which the company must look into.

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