Effective Inventory Management Techniques for Manufacturing Industry

This article discusses effective inventory management techniques for the manufacturing industry. It covers ABC analysis, Pareto principle, and other methods for managing costly, hazardous, and volatile inventories. The article also provides recommendations for resource planning and spare parts management. Course code, course name, and college/university are not mentioned.

Running head: MANUFACTURING
Manufacturing
Name of the Student:
Name of the university:
Authors Note:

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Table of Contents
Answer to subsection (1) of B 1......................................................................................................2
Answer to Sub section (ii) of B1:....................................................................................................5
Answer to Sub section (iii) of B1:...................................................................................................6
Reference.........................................................................................................................................9

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Answer to subsection (1) of B 1
The management of inventory is a critical task that involves tracking the flow of goods to
and from the inventory. In the ABC analysis of the inventory management, the products are
classified based on the importance and value. This concept of inventory management is obtained
from the 80/20 rule of Pareto principle. The Pareto Principle states that not all the items of the
inventory are of the same value (Wild 2017). Hence, the items of the inventory are classified into
three categories A, B and C. The most valuable items are classified under class A, the items of
moderate importance are calcified as Class B and class C contains least valuable items that only
have little contribution to revenue. The ABC analysis of inventory management helps the
manager in monitoring and prioritizing items of inventory.
calculations for ABC Analysis and Pareto principle
Items of Inventory Quantity Percentage Cost per unit Total Cost Percentage
Material 1 200 0.41% 500 100000 2.90%
Material 2 80 0.16% 1800 144000 4.18%
Material 3 320 0.65% 120 38400 1.11%
Material 4 2500 5.08% 250 625000 18.14%
Material 5 2000 4.07% 50 100000 2.90%
Material 6 10000 20.33% 10 100000 2.90%
Material 7 5000 10.16% 1.5 7500 0.22%
Material 8 1000 2.03% 100 100000 2.90%
Material 9 100 0.20% 500 50000 1.45%
Material 10 6000 12.20% 80 480000 13.93%
Material 11 12000 24.39% 50 600000 17.42%
Material 12 10000 20.33% 110 1100000 31.93%
Total 49200 100% 3444900 100%

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Material 12
Material 4
Material 11
Material 10
Material 2
Material 1
Material 5
Material 6
Material 8
Material 9
Material 3
Material 7
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
Material Inventory
In ABC Analysis, the inventories are classified based on values. In the current case the
ABC classification made based on values are provided below:
 Class A: Material 12,14,,11 and 10;
 Class B: Material 2, 1, 5, 6 and 8.
 Class C: Material 9, 3 and 7.
The material resource planning involves development of strategy for maintaining adequate
inventory so that the production is not hampered. This can be ensured if adequate inventory level
is maintained for frequently used items. The table showing most frequently used items are
provided below:
Items of Inventory Quantity Percentage Cumulative
Material 11 12000 24.39% 12000
Material 6 10000 20.33% 22000
Material 12 10000 20.33% 32000
Material 10 6000 12.20% 38000
Material 7 5000 10.16% 43000

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Material 4 2500 5.08% 45500
Material 5 2000 4.07% 47500
Material 8 1000 2.03% 48500
Material 3 320 0.65% 48820
Material 1 200 0.41% 49020
Material 9 100 0.20% 49120
Material 2 80 0.16% 49200
Material
11 Material
6 Material
12 Material
10 Material
7 Material
4 Material
5 Material
8 Material
3 Material
1 Material
9 Material
2
0
2000
4000
6000
8000
10000
12000
14000
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
Pareto diagram
Series1 Series2
Therefore based on the above figure the recommendation for resource planning as per
Pareto principle is that the company should maintain adequate inventory level for material 11, 12
and 16. It is because these materials are the most frequently used items and if adequate level of
this materials are maintained then 80% risk will reduce.

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Answer to Sub section (ii) of B1:
a) In order to ensure effective management of stock of costly inventories it is necessary to
implement a recognised stock keeping method and stick to it faithfully. In general, there
are broadly to ways of managing an inventory one is manual system and the other one is
using systems to do the work (Christopher 2016).
As the given nature of the inventory is very costly, the following steps have to be taken:
1) An inventory management system has to be implemented in the organisation for the
purpose.
2) Listing of all the products available has to be done and corresponding names have to be
given to them classifying them into certain groups and sub-groups. Irrespective of the
type of inventories, all of them must be covered under the groups and the sub-groups
(Gallino et al. 2016).
3) The grouping must be done according to the types of inventories. For e.g. if the company
require three different kinds of milk like soya milk, low fat and whole instead of grouping
them up as milk it should create or assign names to each variety of them (Ravinder and
Misra 2014).
4) For counting of the inventory, the systems implemented must contain different rows for
different groups of items and then the quantity should be recorded corresponding to them.
b) In order to manage the buffer stock of hazardous commodity the following measures and
actions can be implemented:
1) Minimising the exposures:

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For the purpose of minimisation of exposure, the employees must take special protective
measures. For example using of globes or protective wears while handling them. If any
opportunity presents itself, the organisation must endeavour to substitute the inventory with
something safer or less hazardous (Wisner et al. 2014).
2) Respecting the risks:
The risks associated with the inventory needs to be addressed, understood and
communicated to the employees properly. It is necessary for making sure that the people
handling the same do not under estimate the risk involved (Holweg et al. 2018).
3) Implementation of proper control measures:
The risks associated with the handling of the hazardous material has to be mitigated by use of
engineering control systems, availability of personal protective equipment and other related
administrative measures. The staffs have to be properly trained so that they are able to comply
with the organisational requirements as well as with the regulatory requirements.
Answer to Sub section (iii) of B1:
a) In order to manage the stock of volatile materials certain considerations and steps have to
be taken by the management. They are as follows:
1) Maintaining of Just in time stock:
This refers to the process of maintaining and acquiring of inventory just when it is needed and
avoid storing it in large quantities. An effort has to be made by the management to obtain such
suppliers of inventories who are capable of providing quick delivery of stocks as per the
requirement of the organisation (Ehie and Gilliland 2016).

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2) Proper management or planning of demand of the inventory. Estimates using
scientific methods have to be made by the management beforehand in order to
ascertain the peak seasons in which the requirement of the inventory is the most.
Similarly, the periods in which the demand for the inventory is the lowest (Rushton et
al. 2014).
3) Installation of mechanism that will prevent normal wastage of the material by
delivering the material directly to the production line. It must be ensured that the
movement of the inventory in case of volatile materials must be minimal before using
it up in the production process.
b) Equipment spare parts in the factory:
Spare parts from an important part of the production process specially while dealing with big
machinery. In case the organisation fails to locate the spare parts it will not be able to operate the
machinery required for production and consequently it will lose huge revenue (Devika et al.
2016). The ways management can manage inventory are as follows:
a) Different sections must be created for different kind of inventories belonging to
different kind of machineries. This will help the management to locate the inventories
and grasp information about their present condition and availability (Richards and
Grinsted 2016).
b) The spare parts should be properly and uniquely coded. The codes should be cross-
referenced with the machinery it belongs to. In case of any change in the status of the
machinery, the management will simultaneously get the information about its
corresponding spare parts (Heizer 2016).

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c) The inventory must be updated with the machinery it belongs to. In case the
machinery is changed, the system should indicate the code number for the
corresponding spare parts that need to be replaced with the new one (Mahadevan
2015).

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Reference
Christopher, M., 2016. Logistics & supply chain management. Pearson UK.
Devika, K., Jafarian, A., Hassanzadeh, A. and Khodaverdi, R., 2016. Optimizing of bullwhip
effect and net stock amplification in three-echelon supply chains using evolutionary multi-
objective metaheuristics. Annals of Operations Research, 242(2), pp.457-487.
Ehie, I.C. and Gilliland, D.L., 2016. Use of quality management tools to analyse delivery
exceptions in the motor carrier industry: a case study. International Journal of Productivity and
Quality Management, 19(1), pp.1-20.
Gallino, S., Moreno, A. and Stamatopoulos, I., 2016. Channel integration, sales dispersion, and
inventory management. Management Science, 63(9), pp.2813-2831.
Heizer, J., 2016. Operations Management, 11/e. Pearson Education India.
Holweg, M., Davies, J., De Meyer, A. and Schmenner, R., 2018. Process Theory: The Principles
of Operations Management. Oxford University Press.
Mahadevan, B., 2015. Operations management: Theory and practice. Pearson Education India.
Ravinder, H. and Misra, R.B., 2014. ABC analysis for inventory management: Bridging the gap
between research and classroom. American Journal of Business Education (Online), 7(3), p.257.
Richards, G. and Grinsted, S., 2016. The Logistics and Supply Chain Toolkit: Over 100 Tools
and Guides for Supply Chain, Transport, Warehousing and Inventory Management. Kogan Page
Publishers.

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Rushton, A., Croucher, P. and Baker, P., 2014. The handbook of logistics and distribution
management: Understanding the supply chain. Kogan Page Publishers.
Wild, T., 2017. Best practice in inventory management. Routledge.
Wisner, J.D., Tan, K.C. and Leong, G.K., 2014. Principles of supply chain management: A
balanced approach. Cengage Learning.