|
|
|
|
Inventory Terminology
|
Inventory
management , over the period has acquired a sound status in
the arena of business management. It has a body of knowledge
besides it is having its own language. Various terms have got
into use that are explained here too :
|
Terminology used in Inventory management / control :
Maximum Limit : When devising a suitable Inventory model
,the Maximum limit establishes the upper limit to which the
stock of an inventory item shall be allowed.
Minimum Limit : It is the lower limit to which the
stock can be allowed to fall in course of replenishment of
the stock of an item. Normally, this is taken to be the
safety stock also. |
|
|
Safety Stock : This is the stock that is maintained
to counter the variation in demand of an item during the
replenishment lead time.
Demand or Usage: Replenishment of stock and usage of an
item is an ongoing phenomenon in inventory control. Demand
thus is the rate of usage of an item. Over a period
of time demand is considered to be stable. However , demand
can be seasonal or cyclical in nature depending upon an
item's nature. |
|
|
Expressed in
terms of consumption per unit of time, demand or usage of an
item is the average quantity of an item consumed in a
particular period of time. Often D is expressed as average
consumption per month and is assumed to be a stable one.
Lead Time (LT) : It is the total time taken from the day
procurement action has been initiated to the day the stock
is replenished. Lead Time has two components viz. Internal
Lead time and External Lead time. Internal Lead time is the
time taken between raising the materials requisition request
and placing |
|
the order. External Lead time is the time taken
between placement of an order to actual receipt of the
item.
Thus,
Total Lead time (LT) = Internal Lead time + External Lead
time.
Maximum Limit (MaxL) : While drawing the Inventory
policy, MaxL is the desired highest level to which an
item's inventory can be maintained.
Minimum Limit (MinL) : It is that limit on the lower side
for an inventory item to which |
|
|
|
the level can go down and by which the stock is to be
replenished.
Reorder Level (ROL) : This is the level at which if the
stock of an item falls , in course of its consumption,
fresh replenishment action is initiated by way of
raising the Materials procurement requisition or
Indent.
Review Period (RP) : This is the time period defined for
an item or a group of similar inventory items, during
which a review on whether to raise procurement
requisition or not is done. Often ,it decides the
number of
procurement requisitions to be raised during the period
|
| |
|
|
|
|
|
|
|
|
|
