1. What is Inventory?
Inventory is a detailed list of those movable items which are necessary to manufacture a product and to maintain the equipment and machinery in good working order. The quantity and the value of every item is also mentioned in the list.
2. What is Inventory Control?
Inventory control is concerned with achieving an optimum balance between two competing objectives. The objectives are:
(i)To minimize investment in inventory.
(ii) To maximize the service levels to the firm’s customers and its own operating departments.
3. Write the classification of Inventory.
Inventory may be classified as follows:
I. Raw inventories. They include, raw material and semi-finished products supplied by another firm and which are raw items for the present industry.
II. In-process inventories. They are semi-finished goods at various stages of manufacturing cycle.
III. Finished inventories. They are the finished goods lying in stock rooms and waiting dispatch. IV. Indirect inventories. They include lubricants and other items (like spare parts) needed for
proper operation, repair and maintenance during manufacturing cycle.
4. What are the advantages of having a good control over the inventories?
A good control over the inventories offers the following Advantages (a) One does not face shortage of materials.
(b) Materials of good quality and procured in time minimizes defects in finished goods. (c) Delays in production schedules are avoided.
5. What is ABC analysis?
As the size of the industry increases, the number of items to be purchased and then to be taken care of also increases. Purchase and control of all items at a time and in bulk much before their use, irrespective of their usage value, price procurement problems, blocks and involves a lot of money and man hours, and is therefore uneconomical.
ABC analysis helps segregating the items from one another and tells how much valued the item is and controlling it to what extent is in the interest of the organization.
6. What are A items in ABC analysis?
A-items are high valued but are limited or few in number. They need careful and close inventory control. Minimum and maximum limits, and reorder point is set for A items. Such items should be thought of in advance and purchased well in time. A detailed record of their receipt and issues should be kept, and proper handling and storage facilities should be provided for them.
7. What are B items in ABC analysis?
B-items are medium valued and their number lies. In between A and C-items. Such items need moderate control. They are more important than C-items. They are purchased on the basis of past requirements, a record of receipts and issues is kept and a procurement order is placed as soon as the quantity touches reorder point. These items being comparatively less costly, a safety stock of up to 3 months may be kept, whereas it needs a stock of fortnight or so in case of A items. B-items also require careful storage and handling.
8. What are C items in ABC analysis?
C-items are low valued, but maximum numbered items.
These items do not need any control, rather controlling them is uneconomical. These are the least important items like clips, all pins, washers, runner bands, etc. They are generally procured just before they finish. No expediting is necessary, no records are normally kept and a safety stock of 3 months or even more can be purchased at an instant. Future requirements of such items are never calculated and a two bin system is sufficient to hint procurement.
C-items generally account for 10 to 5% of the total inventory cost and they constitute about 75% of the total items.
9. What are the types of inventory models? Types of inventory models
1. Simple EOQ model,
2. EOQ model with stock outs allowed, 3. Inventory models under risk.
10. What is Reorder Point?
Reorder Point indicates that it is high time to initiate a purchase order and if not done so the inventory may exhaust, and even reserve stock utilized before the new material arrives.
11. What is MRP II?
Manufacturing Resource Planning (MRP-II) is an integrated information system that synchronize all aspects of the business. MRP-II system coordinates sales, purchasing, manufacturing, finance and engineering by adopting a focal production plan and by using one unified data base to plan and update the activities in all the systems.
12. What is lot size inventory?
Lot size inventory refers to producing and storing at the rate higher than the current consumption rate. The production in lots is going to help the advantages of price discounts for quantities purchased in bulk and fewer set-ups and, hence, the lower set-up cost.
13. What is Fluctuation inventory?
Fluctuation inventories have to be carried for the reason that sales and production times for the product cannot be always predicted with accuracy. There are variations in demand and lead times required to manufacture items. Thus, there is a need for reserve stock or safety stock to account for the fluctuations in demand and lead time.
14. What is Purchase cost?
Purchase (or Production) cost: The value of an item is its unit purchasing (production) cost. This
15. What is Capital cost?
Capital cost: The amount invested in an item, (capital cost) is an amount of capital not available
for other purchases. If the money were invested somewhere else, a return on the investment is expected. A charge to inventory expenses is made to account for this unreceived return. The amount of the charge reflects the percentage return expected from other investment.
16. What is Ordering cost?
Ordering cost: It is also known by the name procurement cost or replenishment cost or acquisition
cost. Cost of ordering is the amount of money expended to get an item into inventory. This takes into account all the costs incurred from calling the quotations to the point at which the items are taken to stock.
17. What is Inventory carrying cost?
Inventory carrying costs (holding costs): These are the costs associated with holding a given level
of inventory on hand and this cost vary in direct proportion to the amount of holding and period of holding the stock in stores.
18. What is Shortage cost?
Shortage cost: When there is a demand for the product and the item needed is not in stock, then
we incur a shortage cost or cost associated with stock out.
19. What is Order cycle?
The time period between two successive orders is called order cycle.
20. What is Lead Time?
The length of time between two successive orders is called order cycle.
21. What is Safety stock?
It is also called buffer stock or minimum stock. It is the stock or inventory needed to account for delays in materials supply and to account for sudden increase in demand due to rush orders.
22. What is inventory turn over?
If the company maintains inventories equal to 3 months consumption. It means that inventory turnover is 4 times a year, i.e., the entire inventory is used up and replaced 4 times a year.
23. What is Reorder level?
It is the point at which the replenishment action is initiated. When the stock level reaches R.O.L., the order is placed for the item.
24. What is Reorder Quantity?
This is the quantity of material (items) to be ordered at the re-order level. Normally this quantity equals the economic order quantity.
25. State the characteristics of Fixed order quantity system.
The characteristics of this system are:
(i)Re-order quantity is fixed and normally it equals Economic order quantity (EOQ). (ii) Depending upon the demand, the time interval of ordering varies.
(iii) Replenishment action is initiated when stock level falls to Re-order level (ROL). (iv) Safety stock is maintained to account for increase in demand during lead time.
26. What are the advantages of ABC analysis? Advantages of ABC Analysis
This approach helps the manager to exercise selective control and focus his attention only on a few items.
By exercising strict control on A class items, the materials manager is able to show the results within a short period of time. It results in reduced clerical costs, saves time and effort and results in better planning and control and increased inventory turnover. ABC analysis, thus, tries to focus and direct the effort based on the merit of the items and, thus, becomes an effective management control tool.
27. Define Enterprise Resource Planning (ERP).
Enterprise Resource Planning (ERP) is an extremely powerful tool, which provides seamless information system to support the various functional business modules of an enterprise.
28. What are the benefits of ERP?
The benefits of ERP include,
1. Reduction of procurement lead time. 2. On time delivery of goods and services
3. Reduction in cycle time from receipt of order to delivery of goods. 4. Improved resource utilization.
29. What are the factors to be considered while evaluating ERP software?
Some of important points that are kept in mind in evaluating ERP software are: 1. Functional fit with the company’s business processes.
2. Degree of integration between various components of ERP systems. 3. Flexibility and scalability.
4. User friendliness.
5. Ability to support multi-site planning and control.
30. What is JIT?
JIT is viewed as a “Production methodology which aims to improve overall productivity through elimination of waste and which leads to improved quality”.
31. What are the benefits of JIT?
The benefits are:
1. Production Cost: is greatly reduced due to reduction of manufacturing cycle time, reduction of waste and inventories and elimination of non-value-added operations.
2. Quality: is improved because of continuous quality improvement programmes.
3. Design: Due to fast response to engineering change, alternative designs can be quickly brought on the shop floor.
32. What is Kanban System?
The Kanban system is a physical control system consisting of cards and containers. In the two cards Kanban system, two types of cards are used. The production card (P-card) authorizes the work centers to make on standard container of a particular part specified on the card. The second type of one container of the specified part from a particular work center to another work, center as specified on the card. Since these cards are continually reused, they are issued only when the production of an item is to be started or changed significantly.
33. What is Total Quality Control?
Total Quality Control refers to the achievement and improvement in quality in a JIT company, which involve every department and each employee in the company. All employees should seek ways to serve the final customer better so that the company can remain competitive.