The Key Inventory

1. Lead time: Time interval between ordering and receiving the order.
2. Holding (carrying) costs: Cost to carry an item in inventory for a length of time,
usually a Year
Costs include Interest, insurance, taxes, depreciation, obsolescence, deterioration, pilf
erages,breakage,warehousing costs and Opportunity costs. Holding (carrying) costs:
Holding costs are stated in two ways
a. Percentage of unit price or
b. Rupee
3. Ordering costs: Costs of ordering and receiving inventory. These are the
actual costs that vary with the actual placement of the order.
4. Shortage costs: Costs when demand exceeds supply
Nature and Importance of Inventory
Inventories are necessary for a firm to operate efficiently and almost all business transactions
involve the delivery of a product or service in exchange for currency. For this reason,
inventory management is a very important part of core operations activities. Most retail
businesses and wholesale organizations acquire most of their revenue through the sale of
merchandise (inventory). In order for business and supply chains to run effectively, and
efficiently they must meet all the listed requirements for effective inventory management.
Some of the main concerns are the level of customer service and the cost of ordering, storing,
and carrying inventory. Therefore, in order to be a successful and profitable company,
inventory management must be managed wisely.
There are certain requirements that must be taken into consideration during the inventory
management process. These requirements are: keep track of the inventory, have a reliable
forecast of demand, knowledge of lead times and lead time variability, reliable estimates of
inventory holding costs, ordering costs, and shortage costs, and have a classification system
for inventory items.
Different types of Inventory:
1.
2.
3.
4.
5.

Raw materials and purchased parts

Work in process (WIP)
Finished goods inventories or merchandise
Maintenance and repairs (MRO) inventory
Goods-in-transit to warehouses or customers (pipeline inventory)

Some important Functions of inventories include

1. To meet anticipated customer demand (to meet the anticipation stocks, average demand)

2. To smooth production requirements (create seasonal inventories to meet seasonal demand)

3. To decouple operations (eliminate sources of disruptions)
4. To protect against stock-outs (hold safety stocks to prevent the risk of shortages)
5. To take advantage of order cycles (buys more quantities than immediate requirements cycle stock, periodic orders, or order cycles)
6. to hedge against price increases (purchase large order to hedge future price increase or
implement volume discount)
7. To permit operations (Little's Law: the average amount of inventory in a system is equal to
the product of the average demand rate and the average time a unit is in the system)
8. To take advantage of quantity discounts (supplies may give discount on large orders)

For company's management, the most important reasons for having an inventory
management system is to:
Track existing inventory
Know what quantity will be needed
Know when these items will be needed
Know how much items will cost

There are two types of inventory control used- Perpetual and Periodic.
In a perpetual inventory system (usually used in supermarkets or department stores),
a continuous flow of inventory count is tracked using a point of sale (POS) check out system.
This system is perfect for companies to manage what is sold and reorder when a reorder point
is reached. Another advantage of this system is its ability to account for shrinkage (theft) and
inventory turnover. The periodic system (used in smaller retailers) is used to take a physical
count of inventory at periodic intervals to replenish the inventory. This system would be most
beneficial for companies that do not have products with UPC or bar codes, such as nuts and
bolts and are purchased in large quantities at a time. In this case, someone on a line would
monitor the level of the bin and notify a manager when an order would need to be placed.

Economic Order Quantity Models

The order size that minimizes annual costs ( 3 types)
1) Basic economic order quantity model (EOQ)
Used to identify a fixed order size that will minimize the sum of the annual costs of holding
inventory and ordering inventory
Assumptions:
1. Only one product involved
2. Annual demand requirements are known
3. Demand is spread evenly throughout the year so that the demand rate is reasonably
constant
4. Lead time does not vary
5. Each order is received in a single delivery
6. There are no quantity discounts
2) Economic production quantity model (EPQ)
The batch mode of production is widely used in production; the reason for this is that
capacity to produce a part exceeds the parts usage or demand rate ( the larger the run size,
the fewer the number of runs needed and, hence, the lower the annual setup cost; as long as
production continues, inventory will continue to grow; (see formulas below)
Assumptions:
1. Only one item is involved
2. Annual demand is known
3. Has a constant usage rate
4. Usage occurs continually, but production occurs periodically
5. The production rate is constant
6. Lead time does not vary
7. There are no quantity discounts
3) Quantity discount model

Price reductions for large orders offered to customers to induce them to buy in large
quantities; If quantity discounts are offered, the buyer must weigh the potential benefits of
reduced purchase price and fewer orders that will result from buying in large quantities
against the increase in carrying costs caused by higher average inventories; The buyers goal
is to select the order quantity that will minimize total cost (see total cost formula below).

ABC Classification System

An important aspect of Inventory Management is that items held in inventory are not of equal
importance in terms of rupees invested, profit potential, sales or usage volume.
ABC Classification System controls inventories by dividing items into 3 groups A, B and C
respectively.
1. Group A consists of High Rupee (Monetary) Value, which account for a small portion
about 10% of the total inventory usage.
2. Group B consists of Medium Rupee (Monetary) Value, which account for about 20%
of the total inventory usage.
3. Group C consists of Low Rupee (Monetary) Value, which account for a large portion
about 70% of the total inventory usage.
4. The level of control reflects cost benefit concerns.
5. Group A items are reviewed on a regular basis.
6. Group B items are reviewed at a less frequency than Group A
items but more than Group C items.
7. Group C items are not reviewed and order is placed directly.

Waste Minimization
The policy and process to have the waste minimization means to reduce the production of
waste at society and individual level. The wider part of the aim, which is remarked as waste
reduction, is often understood as waste hierarchy.

Effective processes and policies occupy the hierarchy for waste the top. This term is strongly
taken with all the efforts made to have the minimized used of energy and resources. When we
speak for waste minimization, we know that fewer materials are utilized to manufacture
products at industrial level consequently, lesser waste is produced. The waste minimization is
not an easy task to comprehend rather extensive knowledge is there waiting to be revealed.
The major sources for waste differ from location to location and country to country. Like in
United Kingdom the major source for waste are industries, then agriculture and construction
sites. The waste coming from houses makes a very small portion. The chief reason for the
production of waste depends upon the requirements in the supply chain. For instance, a
company, which is handling any product, can persist that the product must be packed with
particular packing equipment.
At Industrial Level:
At industrial level if they use effective processes for manufacturing products with enhanced
materials it is likely to reduce waste production. Since waste minimization has been
introduced, innovative and commercially successful products are utilized as replacements.
This term waste management is a great benefit for not only industry but also the
environment.
Waste minimization never comes free of cost and investment is required. This investment is
remunerated by savings but it is known fact that if a portion is processed for waste reduction
then it is possible that other portion may get in to the excessive production of waste.
Government is putting forward incentives for waste reduction and focus on the benefits for
environment over the adoption of strategies for waste reduction.
Following is mentioned the list for the waste reduction or minimization process:

Optimization of resources: waste reduction at individual and institutional level goes

side by side with the utilization of raw materials.

Using again the Scrap Material: this is the process in which individual and industry
reuse the waste material as soon as it is produced. This keeps it from becoming a
waste material.

Quality control improvement and process monitoring: this technique is to ensure

that products produced are kept from rejection and this is increased by the inspection
of frequency and monitoring points inspection.

Exchanging Waste: this is the technique in which the waste product, which comes
out of a process, becomes a raw material for another process. This is another way for
reducing waste.

Point of use from ship: to maintain and making deliveries for the raw materials to be
used with the manufacturing process, at the point of assembly with fewer packages
and wrappings can save from the waste production.

Design of products:
At the design, stage for any product waste minimization along with resource maximization
can be achieved. Achievement can be done by reduction of the amount of components used in
the production. This not only saves from the waste minimization at this stage but also later at
due to it being less complex makes way for the recycling. In some cases when it is better to
have raw materials, volume cut down for the production of a product so in place the amount
of the volume for toxic materials is reduced.
The intended use for fitting:
The product, which is produced to be used once, must be designed to meet the use it is
intended for. This formula is specifically applied to the materials for packaging, which
requires being more reliable to keep products from damages.
Durability:
Improving product durability is another way to have waste reduced.
At household level:
Household waste refers to all the waste which is produced at house level due to use of
products and resources utilized in homes. Waste minimization is however, difficult to have at
household and individual level. Still there are some points where waste reduction can be
started off.

For instance, apposite sizes and amounts must be chosen while shopping household products.
As if a person buys a large container of paint for small decorating purpose would not only
generate waste but also money goes wasted as well.
At house level, the waste minimization often is accompanied by the style of living. It merely
is waste production activity to buy new products when you have already useable but older
products.
Another way for having household waste reduction is to go through home composting by
which turning garden and kitchen with the compost. However, when it comes to the
recyclable waste then suggested method is not to have them reduced.
Individual can have waste production reduced by buying lesser products and if bought then
buying such products that come in longer lives. Broken and damaged products can be
mended and repaired to minimize waste and walking is better option to cut fuel use in car.
Pull Apart:
Packaging Recycling Classification system generally has its bases on the balance for the
recyclable and non-recyclables. This ratio is used to conclude the grading system and a
survey with a pressure concept. This system was invented and put forward by Michael Butter
from England in year 2005. This system is under operation freely. This system makes use of
environment and consumers top most importance and looks around for packaging
modification and recycling. This system lets the public to pullApart the package and then
decides which part must go where. They decide which part of the waste is recyclable and
which is not. Surveys have shown that out of mass of waste only 3 percent is capable for
recycling while, other 30 percent is good and remaining part if good for nothing.

Recycling
Recycling is the process for converting used materials in to new products for the prevention
of producing waste. This leads to the lessened consumption of fresh material for the
production of new material, reduction of use of energy, reduction of air pollution and water
pollution. This process it the contributor for less requirement for disposing off waste and
filling in landfills and requiring incinerations. Recycling has taken humanity out of the risk
for the production of the green house gases at landfill sites. This process is the key factor,

which is used in the modern techniques for waste management and is the third participant for
3Rs i.e. Reduce, Reuse and Recycle of the waste hierarchy.
A number of materials are included with the list for recyclable products like glass, plastic,
paper, textiles, metals and electronics. The materials, which are capable for being recycled
are either picked from the curbside or taken to the center, as collections. They are then sorted
out and reprocessed and are given new shapes as new products.
If we speak strictly then it is very right to say that recycling a material is a way for
transforming in to absolutely new and fresh product. Therefore, if you have some sort of
plastic say LED then it could be recycled and can be transformed in to new product for reuse.
Salvage is another form of recycling, a sort of recycling which is done with the complex
materials making them completely new.
Recycling critics are of the view that it uses more resources as it seemed to save, especially
when it is authorization by government.
Analysis of cost-benefit
Over the economical efficiency of recycling there has been a debate. Monetary benefits have
been observed by municipalities over the recycling of products. Technical university of
Denmark has conducted a study, which says that almost eighty-three percent of recycling
cases the most effective one is done with the household products. However, another study by
another institution has found that incineration was the best way to dispose of drink
containers.
The economical efficiency and fiscal efficiency are taken as separate entities. Analysis of
economy for recycling includes externalities as called by economists. This means that they
contribute towards the benefits to the individual level way out from the transactions
conducted at private level. The recycling is generally, ignored in business as far as the tax and
other things matter. For this and other reasons advocacy is done for the popularity and
conduction of recycling. Almost all the authorities are in favor for recycling for not only
environmental impacts but also for economical well-being. Note here recycling is more
profitable in the densely populated areas.
It must be mentioned here that there are a number of requirements, which require to be met
for the economical feasibility and effectiveness over environment. The first thing out of such
requirements is a constant and adequate supply of recyclables, An up and running system for

extracting recyclables out of waste stream, a locally located factory to process recyclables
and

high

demand

for

recycling.

A number of economists are of the view that there must be an adequate involvement of
government in recycling projects.
Recyclate trading
A number of countries are conducting their trading over the unprocessed recyclates. Such
countries have however complained that the recyclate that are sold to another countries do not
have directed fate, they may end up in going to landfills of the country other than being
recycled. A report is evident that almost fifty to eighty percent of computers in America that
are meant to be recycled never got recycled.
Legislation
Supply
A very crucial part for material to be recycled and recycling is the constant supply of
recyclates to the program. Therefore for this purpose three options as per decided by
legislative are there for supply.
The first option Mandatory Collection is the set of laws that have their target set for the cities
to aim for the collected recyclates. This law get the city bound to produce certain amount of
recyclates with in given period. The city then plans to give out the required amount.
The second option is Deposit in the container legislation that compels the authorities to
refund a special amount in currency at each return of recyclates. The strategy is to put a
special price on the recyclable container. This container at return can refund that added price
to the product for its container. This strategy is however has gained much fame and is the
most successful.
The third and the last option is the Ban Refuse, this option says that the refusal or dumping
off for some materials is ban such as old batteries, oil, garden waste and tires. This result in
proper disposal for the ban materials and thus economical profit is gained.

Government-permission Demand

Legislation has not just done for the purpose of constant supply of recyclates in fact it is also
done for the purpose of increasing and maintaining the demand of materials. For this purpose,
four methods are decided by legislation:

Minimum Recycled content Mandates

Rates of Utilization

Policies of Procurement

Labeling for recycled Products

First two options i.e. Minimum recycled content mandates and rate utilization play their part
in direct increase of the demand by pressurizing the manufacturers to enlist recycling with
their operations. First option is effective for specifying some percentage of the products to be
recycled, the second option is the flexible one, and it permits the producers to meet the targets
for recycling as is set by supply legislation.
The third option for increasing the demand is called procurement Policies that is introduced
by the government by its own power of purchase subsequently increasing the demand.
The fourth and the last legislative option for increasing the demand are labeling the recycled
products. This is done at the time any product is produced that can be processed in future as
recyclate. There is a mark to be placed with the container or the product to educate the
consumer that this is recyclate and it must be put aside in the recycle bin.
Processing
Collecting Recyclates
There are number of systems working to have the collection of recyclates conducted out of
the waste stream. These systems found their implementation with the public content and
governments ease. The three main categories through which collection is conducted are:

Drop-off Centers

Buy-Back Centers

Curbside collection

Drop-off Centers:

These centers have requirement for the producer to have the recyclates carried to some
central location and this is achieved through installation and mobile collection that is later
taken to the plant for reprocessing.
Buy-Back Centers:
These centers are quite different from Drop-off centers as they have the requirement to buy
only cleaned and washed products.
Curbside Collection:
This sort of collection is very much different from above defined systems. This differs mostly
on the location where they were cleaned and sorted. The main categories, which are used to
have the explored and looked out are the mixed waste collection, source separation and
commingled recyclables. This collection and sorted out waste is generally picked up by the
WCV.
Sorting recyclates:
The facility where recyclates are delivered is known as Central Collection Facility. Here
commingled recyclates are delivered which are then sorted out. This sorting out is not a
single stepped procedure rather a series is followed for the separation and sorting out the
recyclates. A number of the steps involved with the sorting out involve automated processing
while some steps include manual processing.
With the very first step of the sorting out of the recyclates is their removal from the vehicle.
The unloaded material is then spread over a conveyor belt. Bulky recyclates like plastic bags
and cardboards are removed manually at this stage.
Automated machines then come in to action and they separate the recyclates from different
classes judging them by weight. Heavier recyclate from same class are also separated from
lighter ones. This separation is also done manually but some facilities today have adopted
automatic separation at this stage. The bulk of separated recyclates is then passed through the
chamber where spectroscopic scanner differentiates between the types of each class.
Metals are separated with help of stronger magnets and non-iron compounds are ejected out.
Glass is sorted out with hand and is differentiated based on its color.

Recyclables
There is a long list for materials, which have capacity to be recycled, and so, different
techniques are applicable to these recyclates.
Concrete and Aggregates: demolishing sites are big sources for producing concrete, which
for its recycling is thrown in to the crushing machines. Crushing machine has this concrete
crushed in to smaller pieces and this recycled material is later used as gravel at new sites. The
recycled concrete can also be used for producing new concrete.
Batteries: there is a huge variation in the sizes and composition of batteries, this aspect
makes them extremely difficult to have recycled. They, before undergoing recycling process
must be sorted out in to their sizes and kinds. Then individual size and kind account for the
processing for the sake of recycling. Batteries also have a harmful impact as they have
hazardous composition so they require special care for their handling.
Biodegradable waste: composting can be done to recycle organic waste. This waste includes
green waste.
Clothing: Clothing material can be recycled by two methods i.e. swapping and consignment.
Disassembly and reclamation of electronics: the direct disposal of electronics is banned
because it can prove hazardous therefore, every electronic device gets recycled. The recycling
of this waste is conducted in huge Electronic waste recycling plant.
Ferrous materials: these materials make up the biggest part of the recyclables and could be
processed repeatedly. They are separated from bulk by magnets and are treated with high heat
at electric arc furnace or at BOF.
Non-ferrous Metals: these materials are also recyclable and the most known is the
aluminum. These metals are shredded and crushed in to small pieces and then compacted in
to bales, which later is taken to the industry for reproducing products.
Glass: glass recyclables are collected at the curbside and is taken to the collection facility
where it is separated depending upon its color. This collected glass is then taken to the
recycling plant and before it goes through the process, it is cleaned out from impurities.
Paper: this portion of recyclables is recycled by processing it by its reduction in to pulp and
then mixing it with fresh pulp. Then the process for papermaking follows.

Plastic: this process is initiated at the time when collection for recyclable plastic is done.
Once the sorts of plastic are sorted out, they are taken to plants. At plants, they are first
washed off and then shredded in to pieces, which with further processing convert it in to
granules. These granules are then processed to give out new products.
Textiles: the textile material is composed of biodegradable and synthetic plastics. Therefore,
they have different ways for processing. One thing to be mentioned here that the cloth which
is in good condition is sorted out for reusing as it is and is sold or given as charity to the
developing countries. The other worst conditioned textile material is recycled.