Operational Management - Managing Inventory & JIT

Presented by :
Agnes Kartika
Achmad Sarifuddin
Azmi Umaymah

The Importance Of Inventory :
 The Definition Of Inventory
 The Function Of Inventory
 The Types Of Inventory
Managing Inventory :
 ABC Analysis
 Record Accuracy
 Cycle Counting
 Control Of Service Inventory

Inventory is to maintain a balance between
purchases and production, in order to fulfill
the stock of goods in accordance with the
results of the production sold.

The objective of inventory management is to
strike a balance between
inventory investment
and
customer service.

All organizations have some type of
inventory planning and control system.
Example :
 A hospital has methods to control blood
supplies and pharmaceticals.
 A bank has methods to control it’s inventory
of cash.

1. To decouple or separate various parts of the
production process
2. To decouple the firm from fluctuations in
demand and provide a stock of goods that
will provide a selection for customers
3. To take advantage of quantity discounts
4. To hedge against inflation

Raw Material
Work In
Process
Maintenance/Repair
/Operating
Finished Goods
Inventory
• Purchased but not processed
• Undergone some change but not
completed
• A function of cycle time for a product
• Necessary to keep machinery and
processes productive
• Completed product awaiting shipment

ABC analysis is a method for dividing
on hand inventory into three
classifications based on annual dollar
volume.

ABC Calculation
(1) (2) (3) (4) (5) (6) (7)
ITEM
STOCK
NUMBER
PERCEN
T OF
NUMBER
OF ITEMS
STOCKE
D
ANNUAL
VOLUME
(UNITS) x
UNIT
COST =
ANNUAL
DOLLAR
VOLUME
PERCENT
OF
ANNUAL
DOLLAR
VOLUME
CLAS
S
#10286 20% 1,000 $ 90.00 $ 90,000 38.8% A
#11526 500 154.00 77,000 33.2% A
#12760 1,550 17.00 26,350 11.3% B
#10867 30% 350 42.86 15,001 6.4% B
#10500 1,000 12.50 12,500 5.4% B
#12572 600 $ 14.17 $ 8,502 3.7% C
#14075 2,000 .60 1,200 .5% C
#01036 50% 100 8.50 850 .4% C
#01307 1,200 .42 504 .2% C
#10572 250 .60 150 .1% C
8,550 $232,057 100.0%
5%
23%
72%

 Accuracy of records is a critical ingredient in
production and inventory systems.
 Record accuracy allows organizations to focus on
those items that are needed.
Only when an organization can determine
accurately what is on hand can it make precise
decisions about ordering, schedulling
and shipping.

 Cycle Counting is a continuing reconciliation of
inventory with inventory records.
 Cycle counting uses inventory classification
developed through ABC analysis.
Cycle counting has several advantages :
1. Trained personnel audit inventory accuracy
2. Allows causes of errors to be identified and
corrected
3. Maintains accurate inventory records

5,000 items in inventory.
(500 A items, 1,750 B items and 2,750 C items)
Policy is to count :
A items every month (20 working days),
B items every quarter (60 days),
and C items every six months (120 days)
Item
Class Quantity Cycle Counting Policy
Number of Items
Counted per Day
A 500 Each month 500/20 = 25/day
B 1,750 Each quarter 1,750/60 = 29/day
C 2,750 Every 6 months 2,750/120 = 23/day
77/day

 Can be a critical component of profitability
 Losses may come from shrinkage or pilferage
Applicable techniques include :
1.Good personnel selection, training, and discipline
2.Tight control of incoming shipments
3.Effective control of all goods leaving the facility

Operational Management - Managing Inventory & JIT

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