Control of inventories is one important aspect of inventory management. For controlling inventories, two basic methods are applied and they are known as Just In Time Inventory Control (JIT) and ABC analysis.
Just In Time Inventory Control
This method was originally formulated by Taichi Okno of Japan. It plainly suggests that the company should keep a minimum degree of stock or inventory and depend on providers to supply materials and constituents “just in time” for satisfying its fabrication necessities.
This is in opposition to the conventional inventory management methods that require a sound degree of safety stock for offering a sensible safeguard from fluctuations in provisions and usage.
The conventional system for inventory management is sometimes known as “just in case’ method. On the basis of conceptualization, the JIT inventory method is quite demanding in nature.
Nevertheless, it is not easy to use simply due to the reason that it takes into consideration a substantial variation in the entire management and manufacturing arrangement. It necessitates the following among other things:
A sound and reliable association with the raw material providers whose locations are not so far from the production plants
A dependable conveyance infrastructure
Comfortable and convenient material availability with the help of sufficient number of doors, as well as closely situated warehouse locations and docks for the purpose of dovetailing the supplies that are coming in according to the requirements of the assembly line.
For finding out the impact on the average inventory level by Just In Time Inventory Method, the following formula may be utilized. This formula focuses on the average inventory according to the EOQ (Economic Order Quantity) model.
Average Inventory = (√2FU/PC)/2 + Safety Stock
According to the Just In Time Inventory Method, a combined attempt is carried out for diminishing the ordering cost (in the above mentioned formula, F), as well as the safety stock with the help of forming a firm and extensive association with the supplier. Consequentially, both the elements on the right hand side of the formula go down. This suggests that the average inventory level is smaller.
In case of the majority of inventories, a low percentage of articles answers for a highly considerable utilization (according to the monetary value of yearly usage) and a huge percentage of articles explains for a quite little consumption (according to the monetary value of yearly usage). ABC analysis has been formulated on the basis of experimental and real life observations. It essentially recommends a chosen path for inventory control and this requires a higher focus of activities on inventory articles that explain for the majority of consumption value. This path necessitates categorizing of inventories into three all-inclusive classes and they are the following:
The first category exemplifies the most significant articles and they commonly comprise of 15%-25% of inventory articles and are responsible for 60%-75% of yearly consumption value.
The second category interprets the articles that have moderate significance and usually they comprise of 20%-30% of inventory articles and are responsible for 20%-30% of yearly consumption value.
The third category stands for those articles that have the lowest significance and usually they comprise of 40%-60% of inventory articles and are responsible for 10%-15% of yearly consumption value.
Last Updated on : 27th June 2013