Inventory Management

INVENTORY

SPARES &
RAW MATERIALS CONSUMABALE
FINIDHED GOODS

Inventory Control Inventory Control Inventory Control

Ware House
Management system
 Inventory Control Model
Define optimal inventory norms for item / item categories to ensure minimal changes in
production schedules due to material unavailability

• For raw material and production consumables Driven By: -

• Item Categorization

• Lead Time

• Service Level

• Consumption Pattern

Determining the

• Safety stock, ROP

• Min-Max Level determination

Inventory Management
• Item Categorization
• Consumption velocity
* Fast, Slow & Non Moving items
* Obsolete Items
• Consumption Value
* ABC Classification
• Stock Value
* XYZ Classification
• Criticality
* Insurance and Critical Items
 Avg Consumption:755/day
STDEV=211/day
Liquid Oxygen Gas %ge Variation=28%
 Inventory Management of Raw
Material

• Safety Factor (K): High Bottleneck Item Strategic Items

– For bottleneck items
as the spend is low High Safety stock Medium Safety Stock
but the market risk is for e.g micro alloys,
quite high, a high for e.g ore, pellet,black
casting powder
Supply risk /
complexity
service level (99.9%) refractory, coke
will reduce the risk of
running out of stock. Routine Items Leverage Items
– Strategic items can
be maintained with
medium service level
in spite of a high Min-Max Level Low Safety stock
market risk(95%) as for e.g Al / Ca based
these are very closely for e.g mill consumables,
Low Maint Consumable, MRO alloys, electrodes
monitored.
– For leverage items Business Impact
Low High
as the market risk is
low, low service levels
can be defined for
calculating the safety
stock norms
– For routine items,
min-max levels are to
be defined which is
discussed later in the
 Strategic Sourcing
• Spend Analysis
– Spend Analysis categorises items based on their business
impact and supply risk as shown below. The factors
considered for determining business impact and supply
risk are as mentioned
(2) Identifying Focus (3) Supply (4) Pricing
(1) Spend Analysis
Area Market Analysis Factors Analysis

Supply Risk/ Complexities Procurement Portfolio Matrix

 Supply Risk that impacts on business
• Complexity of manufacturing High Bottleneck Item Strategic Items
• Procurement experience Low value High cost
• Supply market characteristics with high with high
exposure exposure
- Supply market capability
- Competition
- Entry Barrier
Supply Risk /
- Distance with supply market Complexities
Routine Items Leverage Items
- Supply chain complexity
Low value High cost
and low
exposure
with low
exposure
£
Business Impact:
Low
• Purchasing amount by items, High
Low
Percentage per entire spend
• Price elasticity Business Impact
 Strategic Sourcing
• Identifying Focus Area
– Focus area identification classifies items based on unit price and purchasing
frequency so as to identify items for focus of procurement effort and items for
simplifying the procurement process.

(3) Supply (4) Pricing

(1) Spend Analysis (2) Identifying Focus Area
Market Analysis Factors Analysis

• By analyzing Unit price and purchasing frequency, identify the items that should be
focused with procurement effort, and the items that should be taken for process
simplification through automation. Focus
Items for Concentration of
High Procurement Activity Cost Reduction

Purchasing
Unit Price

Items for Reducing Effort of

Procurement Activity
Process
Low
Simplification
Low Purchasing Frequency High
8
 Strategic Sourcing
• Supply Market Analysis
– Supply market analysis aims to get the overall market perspective for an item
into the strategy formulation activity
• Alternative supplier existence and demand/supply condition are the key analysis factors
• Speed of technology development affects the duration of supplier’s governance of
market. When the speed of technology development is high, supplier’s market
governance gets shorter.
(3) Supply (4) Pricing
(1) Spend Analysis (2) Identifying Focus Area
Market Analysis Factors Analysis

Low
Focus
Control on pricing and supplies

Supplier Collaborate
Market

Equilibrium

Buyer Leverage
Market Competition

High Demand > Supply Demand = Supply Demand < Supply

Start-up Development Mature Phase-out
Material Lifecycle
9
 Strategic Sourcing
• Pricing Factor Analysis
– Pricing factor analysis aims to bring in the price behaviour of an item in the
overall strategy formulation

(3) Supply (4) Pricing

(1) Spend Analysis (2) Identifying Focus Area
Market Analysis Factors Analysis

• Price volatility determines the kind of focus required for different group of items
High
Focus

Items with
volatile price Reduce Risk
Price
Volatility
Items with
Items with potential
Stable Contracts/
price
Price Relationships
change
Low
Low High
Import dependence

10
 Strategic Sourcing
• The spend analysis has been done for selected items and is as shown below
– The selected items contribute 95% of the total procurement spend is done for the following items The
spend analysis for selected items is as shown below

Met Coke
High INR
Mould Copper Ferro Niobium 98 Crores
INR Plates
1.5 Crores SEN Lump Ore

Monoblock Stopper rod

Pellets
Laddle Shroud Back up rolls
Starting
Powder
Refractories Oxygen
Casting powder DT 25
complexities
Supply risk /

Mill Nitrogen
Limestone
Consumables Argon
Samplers
Graphite Electrode (450/610)
Lancing Pipes Quartzite INR
INR Dolomite
FeMn HC/ MC FeMn LC 12 Crores
5.5 Crores
Spares Ca Al Fe wire
HSD / HFHSD
Silico Manganese Furnace oil Ca Al Fe wire

Tools and Tackles Temp Tips

Al Cube
MRO
LDO
Oils and Lubricants
Straps
Low
Low High
Business Impact
 Strategic Sourcing
• Spend analysis is the basis of strategy formulation
exercise and provides broad guidelines for strategy
formulation as mentioned below.
High Bottleneck Item Strategic Items

Ensure Continuity of Supply

&
complexities
Supply risk /

Reduce Risk

Routine Items Leverage Items

Maximize Efficiency, Leverage

Minimize transaction Competition to
and control cost reduce cost and risk
Low

Low Business Impact High

 Inventory Management
Approach
• Inventory Control
– Min-Max Stock level determined for critical item
– SS,ROP
• Inventory Review
– Continuous review system made for critical, Insurance
and Expirable items

• Waste Management (Identification Of Obsolete items and

disposable plan)

• Inventory Planner
 Inventory Management Systems

• Reasonable estimates of

– Holding (or carrying) costs.

• Costs for storage, handling, insurance,
etc.
– Setup (or production change) costs.
• Costs for arranging specific equipment
setups, etc.
– Ordering costs.
• Costs of someone placing an order, etc.
– Shortage costs.
• Costs of not having enough.
 Five categories of stocks

• Pipeline stock
– (in process stock, in transit stock)
• CYCLE stocks
– (batch production owing to
- economies of scale
- technological requirements)

• SEASONAL stocks
– ( time varying requirements of an item)
• SAFETY stocks
– (supply and demand uncertainties, lead time
uncertainties)
• Stocks held for OTHER REASONS
– decoupling stages of production
– price, quantity discounts
– speculation)
Inventory Management
Strategy
 Inventory Management
Plan
• Planning based on Production Scheduling &
Maintenance Plan: -

– Monthly (Rolling Plan) - Focus on Exercising

Budgetary Control depending on planned maintenance &
production.

– Annual – Business Plan – Focus on

Comprehensive Maintenance and Production Plan.
 Inventory Management
Review

• Review based upon Inventory Cost, TO Ratio &

Business Impact.
• Monthly review: Focus area
– Identification of FSN Data.
– Elimination of Non-Moving / Obsolete Items & review of Insurance Ite
.
– Discuss negative performance and their resolution steps
with support from Process Owners
– Establish Escalation Points
– Review and action plan by Waste Management Committee.
 Inventory Management
New Initiatives

Contineous/ Periodic Review Review

EOQ
Based up on the optization of Holding
( Economic Oder Quantity)
Cost, Odering Cost & Consumption
Safety Stock+Average Lead time
REODERING POINT

Based upon the Consumption, Lead time variance & Service Level
SAFETY STOCK CALCULATION

ABC,FSN , VED & ITEM CATEGORIZATION

COMBINED MATRIX
 INVENTORY MANAGEMENT
Materials Managed at Stores……
• FIFO
• BIN SYSTEM
• Tracking of Material through BAR
CODING.
• Tracking of expirable items.