Though every department has a responsibility towards Inventory Management, this multi-pronged part in a business often necessitates engagement of an expert – Inventory Manager. An Inventory Manager is responsible for overall monitoring, coordination with every department, initiating necessary steps and controlling inventory which can be of various categories and types depending on their treatment and purposes.
Inventory management is a collective responsibility. However, it cannot be managed well unless there is one person designated to monitor, coordinate, initiate and control. He may be called as inventory controller or inventory manager. Let us look at key tasks for this manager.
Key tasks for inventory manager:
- Regularly monitor level and value of inventories as consumables, raw material, WIP and FG
- Ensure FIFO is followed
- The safe method of storing inventories
- Special care for inventories like oil, inflammable liquids, chemicals etc.
- Close monitoring and labeling of inventories that have fixed shelf-life
- To decide on where to hold inventory and how much in the supply chain
- Salvaging dead inventories periodically
- Verification of physical inventories against system periodically
- Cycle count of inventory
- Report regularly to management on status and plan to control
- To work towards the target set by the management
- To drive colleagues of other function like purchase, logistics, and procurement to manage inventory
Inventory manager typically reports supplying chain in-charge person.
Categories of Inventory
Categorization helps to manage inventory better. The person responsible for each category may be different. The treatment to manage inventory of each category is different.
A) Production Inventory
This includes raw materials which will be processed further inside the company and other one bought from direct off shelf or made by supplier specific to our drawings. The latter is called as direct bought out components.
Inventory size of production material is influenced by two factors-
Internal factors: Criticality of the item, quality, value of items especially with strategic materials like tungsten, gold, silver and so on, lead time of procurement, lead time of manufacture, a method of manufacture……
External factors: Supplier lead time for manufacture, raw material availability in the market, seasonality, government policies which may affect imports and transportation.
B) Work in Progress (WIP) Inventory
These items are semi-finished and waiting for the next operation lying either in shop floor or in store. It could also be semi-finished components or sub-assemblies which have been produced in one economic production batch and kept in storage for finishing operation or final assembly.
C) Finished Goods Inventory
These items are ready for despatch. These could have been produced based on the specific order from the customer or in anticipation of the order.
D) MRO Inventory
MRO stands for Maintenance, Repair and Operating supplies. This includes consumables, spare parts, and packing materials.
Consumables are usually off the shelf items and used by more than one department. The inventory level is fixed by experience. Consumables include items like lubricating oils, cotton wastes, stationery etc. Some of the items could be hazardous and perishable.
Spare parts can be classified as capital spares, rotatable spares, and maintenance spares. Capital Spares are held as a contingency against breakdown whereas rotatable spares are interchanged. For example, the pump is kept as rotatable spare where one is sent for servicing or repairanother one would be used. Maintenance spares include items used during maintaining and overhauling of a machine or equipment. For example, oil seals, gaskets, O-rings etc. Packing here meant as indirect material used in final packing.
E) Scrap
Scrap can be because of the production process, through quality rejection, end of shelf life,effect of cleaning process or obsolescence. It is important to account the scrap and dispose periodically.
Types of Inventory
Depending on the type of consumption and purpose, following types of inventory comes up. The key question in inventory management is why should we keep inventory and how much? Based on the answer proactive measures can be introduced to control inventory at a specific level.
- Cycle inventory
When the consumption of Inventory is almost uniform, half of the lot size of the order is taken as cycle inventory. This inventory represents average inventory in the
supply chain. Buyer tends to keep cycle inventory higher to get the advantage of the discount that may come with higher quantity buying. Bringing down cycle inventory will lower blockage of working capital. Toyota tries to keep few hours of cycle inventory.
- Speculative/hedge inventory
Here inventory is kept with a purpose. It could be anticipated price increase of the item, to exploit an opportunity or likely shortage of raw material in future.
- Safety inventory
This is kept to satisfy the demand that exceeds forecasted figure. When the lead time of supply like that of import is more or when the reliability of supply and lead time is low, then also safety stock is kept.
- Seasonal inventory
It is stocked to match the seasonal demand for the product. For example, sweets for a festival in the year, raincoat in the rainy season.
- In-transit inventory
This is in between shipping locations. It is also called as pipeline inventory. The level of inventory here depends on the lead-time of transit and lead-time of supplies.
- Anticipation inventory
This inventory is maintained in anticipation of the strike, flood, factors that may have an influence on demand. This could be a risk mitigation measure.
The author P S Satish is Mentor, Capability Developer and he trained thousands of engineers across the country. Mastered in Technology from IIT, Satish heads Bangalore based Saraswati Industrial Service, with 30 years of Industrial experience is serving engineering Industries in the area of capability development (purchase, quality & soft skills), consulting and mentoring. The focus is on overall improvement of the company for 3C-Competitiveness, Core-competency, Customer satisfaction. You can reach him at gotopssatish@gmail.com; Mob: 9845043202
