Quality Management

Quality management (QM) is a systematic approach to ensuring that an organization’s products

or services consistently meet or exceed customer expectations. It involves planning, controlling,
and improving processes to achieve high standards of performance, reliability, and customer
satisfaction.

Core Components of Quality Management

1. Quality Planning
This is the process of identifying quality standards relevant to the project and determining how
to meet them. By determining the necessary processes and resources to meet quality
standards.

2. Quality Control (QC)

QC involves the operational techniques and activities used to fulfill quality requirements. It
includes monitoring specific project results to determine if they comply with relevant quality
standards and identifying ways to eliminate causes of unsatisfactory performance.

3. Quality Assurance (QA)

QA is the systematic process of checking to see whether a product or service being developed
meets specified requirements. It focuses on preventing defects by ensuring proper processes
are followed during production or service delivery.

4. Quality Improvement
it refers to continuous effort to enhance product quality, service quality, and process
effectiveness. Quality improvement initiatives use various tools to identify and eliminate
inefficiencies or defects.

Tools and Techniques for Total quality management / Quality Management

1. Pareto Analysis (80/20 Rule)
Pareto Analysis is a decision-making tool that helps identify the most significant problems or
causes in a process. It is based on the principle that 80% of problems are often caused by 20%
of the factors. This technique is used to prioritize issues so that efforts can focus on the areas
with the greatest impact on quality.

2. Fishbone Diagram (Ishikawa)

The Fishbone Diagram, also known as the Ishikawa or Cause-and-Effect Diagram, is used to
identify, organize, and display the possible causes of a specific problem. It helps teams
systematically analyze the root causes by categorizing them into areas such as people,
methods, materials, machines, measurements, and environment.

3. Control Charts
Control Charts are graphical tools used to monitor how a process changes over time. By
plotting data points against control limits, they help identify variations that are within expected
ranges (common causes) and those that signal a problem (special causes), ensuring the
process stays under control.

4. Cause-and-Effect Matrix
The Cause-and-Effect Matrix is a prioritization tool that links process inputs (causes) to outputs
(effects) to identify which factors most influence quality. It uses numerical scoring to evaluate
the strength of the relationship between inputs and outputs, helping teams focus on the most
critical areas for improvement.

5. Statistical Process Control (SPC)

Statistical Process Control is a method of using statistical techniques, such as control charts, to
monitor and control a process. It helps identify variations in the process that may lead to
defects, allowing for early detection and prevention of quality issues.

6. Benchmarking
Benchmarking is the process of comparing an organization’s processes, performance, or
products with those of industry leaders or best practices. It helps identify performance gaps and
opportunities for improvement by learning from others who excel in specific areas.

7. Kaizen (Continuous Improvement)

Kaizen is a Japanese concept that focuses on continuous, incremental improvement involving
everyone in the organization. It encourages employees at all levels to contribute ideas for
improving processes, reducing waste, and enhancing efficiency and quality.

8. Audits and Inspections

Audits and Inspections are systematic evaluations of processes, products, or systems to
ensure compliance with quality standards and requirements. They help identify areas of non-
conformance, risks, and opportunities for corrective or preventive actions.

9. Six Sigma
Six Sigma is a data-driven methodology focused on reducing process variation and eliminating
defects. It uses statistical tools and the DMAIC (Define, Measure, Analyze, Improve, Control)
framework to improve process performance and achieve near-perfect quality.

types of quality management systems (QMS) :

1. ISO 9000: A set of international standards that outline the criteria for a quality
management system. It focuses on meeting customer needs and regulatory
requirements while improving overall performance.

2. ISO 14000: This standard provides guidelines for environmental management, ensuring
organizations minimize their environmental impact. It's aimed at helping organizations
comply with environmental laws and regulations.

3. Six Sigma: A methodology that focuses on improving quality by identifying and

eliminating defects or variations in processes. It uses statistical methods and data-driven
decision-making to achieve near-perfect quality.
 4. Total Productive Maintenance (TPM): A system aimed at improving equipment
effectiveness by involving all employees in maintenance activities. It focuses on reducing
downtime, increasing productivity, and preventing equipment failures.

5. Lean Management: A management philosophy that focuses on reducing waste,

improving efficiency, and adding value to the customer. It emphasizes streamlining
processes and removing unnecessary steps to maximize resource utilization.

6. Kaizen: A continuous improvement strategy where employees at all levels are

encouraged to suggest small, incremental changes that lead to long-term quality
improvements.

7. GMP (Good Manufacturing Practices): Regulations and guidelines that provide

minimum requirements to ensure that products are consistently high in quality,
particularly in the pharmaceutical and food industries.

8. Just-In-Time (JIT): A production and inventory management strategy that minimizes

inventory levels and reduces waste by producing goods only when they are needed in
the production process. It helps in improving efficiency and responsiveness.

Benefits of Total quality management/ Quality Management

● Improved customer satisfaction
● Reduced waste and costs
● Better compliance with regulations
● Increased employee engagement
● Continuous improvement culture
● Improves reputation
● Competitive advantage
● Increased profitability

Challenges in total quality management/ Quality Management

● Resistance to change
● Lack of employee involvement
● Inadequate resources
● Poor leadership commitment
● Ineffective communication
● Difficulty in measuring quality
● High implementation costs

Total Quality Management (TQM)

Total Quality Management (TQM) is a management approach focused on continuous

improvement of processes, products, and services to emphasizing quality in every department
and at every level. To achieve customer satisfaction and organizational efficiency.
Features / elements/ Principles of TQM/ quality management
1. Customer Focus
The primary goal is to meet and exceed customer expectations.
Delivering more value improves customer satisfaction, increases repeat business, enhances
service, and strengthens brand reputation.

2. Compliance with Regulations

Aligning with international and industry-specific quality standards enhances credibility and trust.
Ensuring compliance with legal and regulatory requirements reduces risks and liabilities.

3. Quality Culture and Professional Development

Leadership plays a key role in setting direction and creating a quality-driven work environment.
A strong quality culture ensures consistency and long-term improvement.

4. Engagement of People
Employees and stakeholders should be actively involved in quality initiatives.
Empowering people with the right skills and knowledge helps reduce risks and improve overall
performance.

5. Evidence-Based Decision Making

Quality decisions should be based on data and analysis rather than assumptions.
This approach enhances efficiency, performance evaluation, and risk management.

6. Relationship Management
Strong relationships with customers, suppliers, and stakeholders help improve quality.
Effective collaboration increases the ability to deliver value and enhance organizational
success.

7. Process Approach
Focusing on optimizing processes leads to improved efficiency and better quality outcomes.
Identifying and eliminating inefficiencies reduces waste and enhances productivity.

8. Continuous Improvement
A commitment to continuous improvement helps businesses adapt to changing market
demands.
Implementing small, incremental changes enhances overall quality and efficiency.
Regularly reviewing and updating processes ensures long-term sustainability.

9. Risk-Based Thinking
Identifying and addressing potential risks in processes prevents quality issues before they
occur.
Proactive risk management improves reliability and minimizes operational disruptions.
Implementing preventive measures ensures compliance with quality standards.

Implementation Steps in TQM

1. Gain top management commitment
Ensure leadership is fully committed to quality and sets an example for the rest of the
 organization.

2. Define quality objectives

Establish a clear measurable goals for quality improvement aligned with organizational
values.

3. Train employees on TQM tools

Educate all staff on TQM concepts, methods, and tools to build a shared understanding
and capability.

4. Identify processes for improvement

Focus on the most critical processes that affect product or service quality and customer
satisfaction.

5. Use data to monitor and analyze performance

Collect and analyze data to understand current performance, identify problems, and
track progress.

6. Encourage employee participation

Promote a culture where everyone is involved in quality improvement and works
collaboratively.

7. Review progress and adjust

Regularly assess the effectiveness of TQM efforts and make necessary adjustments to
stay on track.

Cost of Quality (COQ)

It refers to the total cost incurred by an organization to ensure that its products or services meet
quality standards. It includes both the cost of achieving good quality and the cost resulting from
not achieving it.

Categories of Cost of Quality

A. Prevention Costs

Costs for the activities that prevent defects before they occur. Eg: training,process improvement

B. Appraisal Costs

These are costs related to measuring and monitoring activities to detect defects. Eg: quality audits

C. Internal Failure Costs

Costs arising from defects found before the product reaches the customer. Eg: Rework or repair

D. External Failure Costs

Costs incurred when defects are found after the product reaches the customer. Eg:Warranty
claims, Product returns,Complaint handling

Importance of Cost of Quality (CoQ)

1. Improves Profitability: Reducing failure costs (internal and external) leads to lower
total costs and increased profits.
2. Enhances Customer Satisfaction: Fewer defects and better quality result in happier
customers, repeat business, and positive word-of-mouth.
3. Identifies Improvement Opportunities: CoQ analysis helps pinpoint areas where
quality improvements can reduce costs and boost efficiency.
4. Supports Decision-Making: Provides data-driven insights for investing in prevention
and appraisal activities.
5. Reduces Waste: Helps eliminate unnecessary rework, scrap, and warranty costs,
supporting lean and sustainable operations.
6. Improves Competitive Advantage: High-quality products with fewer failures improve a
company's reputation and market position.
7. Ensures Compliance
Helps meet industry standards and regulatory requirements by maintaining consistent
quality levels.
8. Boosts Employee Engagement: Involving employees in quality initiatives improves
ownership, morale, and a shared commitment to excellence.

ISO 9000
ISO 9000 is a set of international standards for quality management that help organizations
make sure their products and services consistently meet customer expectations and
regulations.
It provides a framework for organizations to ensure consistent quality in products and services,
emphasizing customer satisfaction, process efficiency, and continuous improvement.

📋 Features of ISO 9000 (Quality Management Standard)

1. Focus on Quality Management: Helps organizations consistently deliver good products
and services.
2. Customer Satisfaction: Aims to meet customer needs and improve satisfaction.
3. Process Approach: Focuses on managing and improving processes rather than just
results.
4. Continuous Improvement: Encourages ongoing improvement in quality and processes.
5. Documented System: Requires clear documentation of quality policies, procedures,
and records.
6. Support from top level management: Requires active involvement and support from
top management.
7. Employee Involvement: Engages employees at all levels to contribute to quality.
8. International Standard: Recognized and used globally across industries.
 9. Evidence-Based Decision Making: Decisions are made using data and facts, not
assumptions.

Benefits/ objectives of ISO 9000

● Improved product and service quality

● Increased customer satisfaction
● Enhanced operational efficiency
● Better decision-making
● Greater employee engagement
● Improved risk management
● Competitive advantage
● Continuous improvement culture

ISO 14000
ISO 14000 is a set of international standards that help organizations protect the environment,
follow environmental laws, and improve their environmental performance.

It provides organizations with frameworks to manage their environmental responsibilities

effectively to minimize negative environmental impacts and improve sustainability.

🌿 ISO 14000 Features (Environmental Management Standard)

1. Focus on the Environment: Helps companies reduce harm to the environment.
2. Voluntary: Not forced by law—companies choose to follow it.
3. International Standard: Used by organizations all over the world.
4. Improves Environmental Performance: Encourages better use of resources, less
waste, and pollution control.
5. Applies to All Types of Organizations: Big or small, public or private, in any industry.
6. Continuous Improvement: Focuses on regularly reviewing and improving
environmental efforts.
7. Legal Compliance: Helps organizations follow environmental laws and regulations.
8. Risk Management: Identifies and reduces environmental risks.
9. Boosts Reputation: Shows customers and the public that the company cares about the
environment.

Benefits/ objectives of ISO 14000

● Environmental Management
● Compliance with regulations
● Waste Reduction
● Improved Corporate Image
● Risk Management
● Stakeholder Engagement
● Continuous Improvement
● Promote Sustainable Development
Differences between ISO 14000 and ISO 9000

1. Purpose:

○ ISO 14000 focuses on managing and improving the environmental impact of an

organization.
○ ISO 9000 focuses on managing and improving the quality of products and
services.
2. Main Goal:

○ ISO 14000 aims to reduce pollution and ensure environmental protection.

○ ISO 9000 aims to ensure consistent product/service quality and customer
satisfaction.
3. Focus Area:

○ ISO 14000 deals with environmental issues like waste, emissions, and
resource use.
○ ISO 9000 deals with quality processes like production, design, and customer
feedback.
4. System Type:

○ ISO 14000 requires an Environmental Management System (EMS).

○ ISO 9000 requires a Quality Management System (QMS).
5. Scope:

○ ISO 14000 covers environmental policies, pollution control, and legal

environmental compliance.
○ ISO 9000 covers quality policies, process control, and customer requirements.
6. Benefits:

○ ISO 14000 improves a company’s environmental reputation and helps meet

environmental laws.
○ ISO 9000 improves a company’s product quality, customer trust, and
efficiency.
7. Users:

○ ISO 14000 is used by organizations wanting to reduce their environmental

footprint.
○ ISO 9000 is used by organizations wanting to improve quality management.
8. Examples of Application:

○ ISO 14000 applies to things like reducing waste, managing emissions, and
saving resources.
○ ISO 9000 applies to standardizing production, reducing defects, and improving
customer service.

Six Sigma
Six Sigma is a quality management method used by businesses to improve their processes by
reducing defects and ensuring consistency..

it uses statistical tools and techniques and the DMAIC (Define, Measure, Analyze, Improve,
Control) to identify and eliminate process inefficiencies and achieve near-perfect quality.

Features of six sigma:

1.Focus on Quality: Targets near-perfect quality by reducing defects to a maximum of 3.4 per
million opportunities (DPMO).
2. DMAIC Framework: Uses a structured five-phase approach—Define, Measure, Analyze,
Improve, Control—to solve problems and optimize processes.
3. Data-Driven Decision Making: Relies on statistical analysis to identify root causes of issues
and validate improvements.
4. Process Improvement: Emphasizes minimizing variability and enhancing efficiency in
business processes.
5. Customer- centric: Prioritizes meeting customer requirements and improving satisfaction.
6.. Continuous Improvement: Promotes ongoing refinement of processes to sustain gains
and drive long-term success.
7.. Cost Reduction: Aims to lower costs by eliminating waste and inefficiencies.
8. Effective Communication: Transparent and regular communication is vital. Teams must
clearly understand goals, progress, and challenges to align efforts.

9. Training and Education: Six Sigma relies on structured training (Yellow Belt, Green Belt,
Black Belt, etc.) to equip team members with the necessary skills and knowledge.

10. Root Cause Elimination: Six Sigma aims to fix problems at the root level, not just treat
symptoms. Tools like the 5 Whys and Fishbone diagrams help identify true causes.

Benefits/ Objectives of Six Sigma

1. Improved Quality
2. Reduced Defects
3. Increased Customer Satisfaction
4. Enhanced Efficiency
5. Data-Driven Decision Making
6. Improved Employee Involvement
7. Higher Profitability
8. Competitive Advantage
9. Risk Management
10. Continuous Improvement Culture

Materials Management

Materials management is the process of planning, organizing, and controlling the flow of
materials from thier purchasing to storage to usage in production. It ensure that the right
materials are available at the right time, in the right quantity, and at the right cost to support
manufacturing or operations smoothly.

functions/ components of materials management

1. Procurement: Sourcing, purchasing, and negotiating with suppliers to acquire materials

at optimal cost and quality.
2. Inventory Control: Managing stock levels to ensure availability without overstocking,
minimizing costs and waste.
3. Storage and Warehousing: Organizing and maintaining materials in safe, accessible
conditions to prevent damage or loss.
4. Transportation and Logistics: Coordinating the movement of materials within the
organization and to external destinations efficiently.
5. Demand Forecasting and Planning: Predicting material requirements based on
production schedules and market demand to align supply.
6. Supplier Relationship Management: Building and maintaining partnerships with
suppliers for reliable supply chains.
7. Quality Control: Ensuring materials meet required standards and specifications before
use.
8. Waste Management: Reducing material waste through efficient usage and recycling
where applicable.

Advantages/objectives of Materials Management

● Improved Supplier Relationships
● Better Quality Control
● Increased Profitability
● Reduced Waste
● Improved Customer Satisfaction
● Availability of Materials
● Inventory Control
● Cost Reduction
● Timely Delivery

Techniques of Materials Management:

7. Kanban System
8. Lead Time Analysis

Challenges in Materials Management

● Inaccurate Demand Forecasting
● Inventory Overstock or Stockouts
● Supplier Reliability Issues
● Poor Inventory Visibility
● Long Lead Times
● High Inventory Holding Costs
● Regulatory Compliance Issues
Purchase Function
The purchasing function ensures that the right materials, in the right quantity and quality, are
procured from the right supplier at the right time and at the right cost

Purchase Functions

● Identifying Needs: Determining the requirements for goods/services from various

departments.
● Supplier Selection: Finding and evaluating vendors for quality, cost, reliability, and
delivery time.
● Negotiation: Discussing terms like price, delivery schedule, and payment conditions.
● Order Placement: Issuing Purchase Orders (PO) to selected suppliers.
● Follow-Up: Monitoring the status of the order to ensure timely delivery.
● Receiving Goods and inspection: Coordinating with stores or inspection for checking
the quantity and quality upon delivery.
● Payment Processing: Ensuring invoices match the PO and goods received for timely
vendor payment.
● Record Maintenance: Keeping records of purchases, suppliers, and contracts for audit
and future reference.
● Vendor Management: Evaluating and maintaining relationships with suppliers.

Purchase Procedure steps

1. Purchase Requisition: Internal departments raise a formal request for needed items.
2. Approval: The requisition is reviewed and approved by authorized personnel.
3. Supplier Identification: The purchase department identifies potential vendors
(sometimes via tenders or quotations).
4. Quotation Evaluation: Vendors submit bids/quotations; evaluation is done based on
price, quality, and terms.
5. Purchase Order (PO): A formal order is issued to the selected vendor.
6. Order Follow-Up: The buyer follows up with the supplier to confirm order status.
7. Receiving & Inspection: Upon arrival, items are checked for quantity and quality by
stores/QA teams.
8. Invoice Verification: Cross-checking supplier invoice with PO and delivery note.
9. Payment: Finance processes payment as per the agreed terms.
10. Record Keeping: All documents are filed and stored for reference and audits.

Inventory Management
Inventory management means that part of financial management where opimum level of raw
materials, work-in-progiess, finished goods, consumables, spares, are maintained so that
regular supply of material is assured for continuous flow of production and other activities.

inventory includes
i. Rawmaterials:

ii. Work-in-progress:

iii. Finished goods:

iv. Consumables and spares:

Objectives of Inventory Management

1. Regular supply of materials: Proper inventory management assures regular supply of

materials, so that, there will be smooth flow of production and other activities.

2. Minimising investment in inventories: Effective inventory management helps to

minimise investment in inventories by maintaining only optimum level of inventories.

3. Minimising the losses of inventories: By employing suitable techniques like ABC

Analysis, VED Analysis, FSN Analysis, etc. losses due to wastages, damages, pilferage,
etc. can be minimised.

4. Quality output: By maintaining quality materials and assuring supply of such materials
to production, without any deterioration in quality of such supplies, the qualiy of finished
product will be maintained.

5. Helps in inventory planning and control techniques: Effective inventory

management provides data for formulating inventory planning and control techoiques.

6. Reduced cost of production: The ultimate aim of inventory managecment is et control

and cost reduction of materials supplied. Effective inventory mauagemenn helps to
reduce and control cost of materials.

Techniques and Tools of Inventory Managerment/ Techniques of Materials Management/

Inventory management classification

I. ABC Analysis.( Always Better Control technique)

An inventory control technique classifies materials into three categories based on their value
and quantity The stores are categoriseod into A, B and C

It is based on the principle that more care and conitrol are necessary for cosly materials.

‘A' category materials require greater care and control, 'B' category requires normal care and
attention but 'C' category materials require comparatively less care.

Category A: High-value items with low volume; require strict control and close monitoring.

Category B: Medium-value items with moderate volume; need normal control.

Category C: Low-value items with high volume; require minimal control.

Advantages of ABC Analysis

1. More attention on costly items:
2. Less atention to less costly items:
3. Reduction in investment:
4. Strict control:
5. Increased Customer Satisfaction:
6. Cost Efficiency
7. Improved Inventory Management:
8. Cost Efficiency

II. VED Analysis( Vital Essential and Desirable Analysis)

VED analysis is an inventory management technique used to categorize inventory items based
on their criticality to the production process.It is mainly intended for control of equipments and
spare parts.

On the basis of the relaive importance, spare parts may be classified into 3 categories

- **Vital (V):** Items that are critical to operations whose non-availabiliy may lend to stoppage of
production. These require strict control, high stock levels, and constant monitoring (e.g., key
machine components).

- **Essential (E):** Items that are important but not critical; their absence for a small period
cause delays or inefficiencies. beyond which producion will be stoped and thus these items are
essential. Moderate control and stock levels are needed (e.g., spare parts for maintenance).

- **Desirable (D):** Items that are useful but not essential; their absence has minimal impact on
operations. but their absence for certain days may not lead to stoppage of production. These
require minimal control and lower stock levels (e.g., office supplies).

III. FSN Analysis (Fast-moving, Slow-moving, and Non-moving)

FSN Analysis is an inventory management technique used to categorize inventory items based
on their consumption rate and movement within the inventory. This method helps businesses
optimize stock levels, reduce holding costs, and improve inventory control by prioritizing
resources based on how quickly items are used or sold.

i. Fast moving items:

These are the materials which are very rapidly consumed, so that the stocks are to be
replenished very frequently.

ii. Slow moving items:

These are materials which are not frequently required for consumption moderate consumption
rates and slower turnover

iii. Non-moving items:

Non moving are the items of stock which are not moving currently, but its movement is
expected in future.it very low or no consumption currently
IV. Just-In-Time Inventory (JIT) System

Just-In-Time (JIT) inventory is a technique of inventory control where materials and goods are
ordered and received only as needed for production or sales, minimizing storage costs and
waste.JIT refers to Just-In-Time purchasing of materials, JIT producing of goods and JIT
delivering of materials and finished goods.

It aims for efficiency by aligning inventory levels closely with demand, reducing excess stock
and associated expenses.

V. Economic Ordering Quantity (EOQ)

Economic ordering quantity is a formula used to determine the optimal order size that
minimizes total inventory costs, balancing ordering costs (e.g., shipping, handling) and holding
costs (e.g., storage, spoilage). The goal is to find the most cost-effective quantity to order at one
time.

Ordering costs
Ordering cost is the cost of placing one order at a time to purchase a particular material. It
includes all the costs for getting an item into the firm’s inventory.

Inventory Carrying Cost (Carrying Cost)

Carrying cost is the cost incurred on carrying or storing or maintaining inventory in the store.

VI HML analysis,

HML or High, Medium, Low analysis, is an inventory management technique that categorizes
inventory items based on their unit price or cost. It divides items into three groups:

High (H): Expensive items with high unit costs, typically 10-15% of total items but a significant
portion of inventory value. These require careful monitoring and procurement to minimize capital
tie-up.

Medium (M): Items with moderate unit costs, usually 20-25% of items, needing balanced
control.

Low (L): Inexpensive items, often 60-70% of items, with lower financial impact, allowing bulk
purchasing to reduce costs.

VII, SDE analysis

SDE analysis is an inventory management technique that classifies inventory items based on
their availability, procurement difficulty, and lead time. It stands for Scarce, Difficult, Easy and
helps optimize inventory control by categorizing items as follows:
Scarce (S): Items that are hard to procure, often imported, or have limited suppliers. These
require long lead times and special attention to avoid stockouts. Examples: imported
components, specialized raw materials.

Difficult (D): Items with moderate procurement challenges, such as those requiring specific
suppliers or longer lead times but not as critical as scarce items. Examples: custom-made parts,
items with seasonal availability.

Easy (E): Items readily available in the market with short lead times and multiple suppliers.
These can be procured quickly and in bulk. Examples: standard tools, common raw materials.

Stock levels of materials

Material control aims to maintain optimal stock levels—low enough to reduce costs but sufficient
to prevent production delays. Five key stock levels are:

1. Minimum Stock Level (Safety Stock):

The lowest quantity to be maintained to avoid production stoppages.

2. Maximum Stock Level:

The highest quantity that should not be exceeded to avoid overstocking costs.

3. Reorder Stock Level:

The level at which a new order is placed to replenish (fill up) stock before it drops below
the minimum level.

4. Average Stock Level:

The mean of the maximum and minimum stock levels, representing typical inventory
held.

5. Danger Level:
A critical level below the minimum, requiring urgent procurement to avoid production
stoppages.

6. Buffer Stock (Safety Stock): Extra stock kept to avoid the risk of stock-out due to
unexpected demand or supply delays.

Reorder Period (Lead Time)

Reorder period is the time between placing a purchase order and receiving the materials. It is
also known as lead time and can be measured in days, weeks, or months. Types include:

● Minimum Reorder Period: Shortest possible time to receive supplies.

● Maximum Reorder Period: Longest expected time to receive supplies.
● Normal Reorder Period: Average or typical time required for delivery.
Inventory control systems
Inventory control systems are methods businesses use to manage, track, and organize
inventory levels, orders, sales, and deliveries to ensure the right amount of stock is available
when needed. The two main types are:

perpetual inventory system, inventory is updated continuously in real time. Each purchase
and sale is recorded immediately through software or point-of-sale systems, offering accurate
and up-to-date inventory levels at all times. This system is ideal for larger or tech-driven
businesses but requires investment in technology and infrastructure. For example, when a
product is sold, the system automatically deducts it from inventory.

periodic inventory system updates inventory only at specific intervals, usually at the end of an
accounting period. Physical counts are taken to assess inventory levels, and transactions are
not tracked continuously. This method is simpler and more cost-effective but less accurate and
is often used by smaller businesses. For instance, a retail store may count its inventory monthly
to calculate cost of goods sold and determine stock levels.

Just-In-Time Inventory (JIT) System

Just-In-Time (JIT) inventory is a technique of inventory control where materials and goods are
ordered and received only as needed for production or sales, minimizing storage costs and
waste.JIT refers to Just-In-Time purchasing of materials, JIT producing of goods and JIT
delivering of materials and finished goods.

It aims for efficiency by aligning inventory levels closely with demand, reducing excess stock
and associated expenses.

Advantages of JIT Inventory System:

1. Reduces Inventory Holding Costs

○By minimizing on-hand inventory, JIT lowers costs related to warehousing,

insurance, and obsolescence.
2. Minimizes Waste

○JIT helps eliminate overproduction and excess stock, reducing material waste
and spoilage.
3. Improves Cash Flow

○
Less capital is tied up in inventory, freeing up funds for other business needs or
investments.
4. Enhances Production Efficiency

○ Promotes streamlined operations with better coordination between production

and demand.
5. Increases Responsiveness to Market Demand
 ○Enables businesses to quickly adjust production levels based on real-time
demand, improving customer satisfaction.
6. Encourages Strong Supplier Relationships

○
Requires close coordination with suppliers, often leading to stronger, more
reliable partnerships.
7. Supports Continuous Improvement (Kaizen)

○ JIT is often implemented alongside lean manufacturing and Kaizen practices,

promoting ongoing operational improvements.

Disadvantages of JIT Inventory System:

1. High Dependency on Suppliers

○Delays or disruptions from suppliers can halt production since there is little to no
buffer stock.
2. Requires Accurate Demand Forecasting

○Inaccurate forecasts can lead to stockouts or underproduction, affecting

customer service.
3. Vulnerable to Supply Chain Disruptions

○ Events like natural disasters, strikes, or transport issues can severely impact
operations due to lack of inventory reserves.
4. Limited Flexibility for Sudden Demand Spikes

○JIT systems struggle to quickly respond to unexpected surges in customer

demand.
5. Implementation Can Be Complex and Costly

○Transitioning to JIT requires changes to procurement, production scheduling, and

supplier management, often involving high initial costs.
6. May Increase Ordering Frequency

○ Smaller, more frequent orders can lead to higher transaction or administrative

costs.
7. Not Ideal for All Industries

○ Industries with unpredictable demand, long lead times, or unreliable suppliers

may find JIT impractical.

Economic Ordering Quantity (EOQ)

Economic ordering quantity is a formula used to determine the optimal order size that
minimizes total inventory costs, balancing ordering costs (e.g., shipping, handling) and holding
costs (e.g., storage, spoilage). The goal is to find the most cost-effective quantity to order at one
time.
Components of eoq

Ordering costs
Ordering cost is the cost of placing one order at a time to purchase a particular material. It
includes all the costs for getting an item into the firm’s inventory.

Inventory Carrying Cost (Carrying Cost)

Carrying cost is the cost incurred on carrying or storing or maintaining inventory in the store.

Demand (Annual Demand):

The total quantity of inventory required over a period (typically a year). In the EOQ model,
demand is assumed to be constant and known.

Advantages of EOQ:

1. Minimizes Total Inventory Costs

○EOQ optimally balances ordering and holding costs, reducing overall inventory
expenses.
2. Improves Inventory Efficiency

○ Helps maintain appropriate stock levels, reducing excess inventory and

stockouts.
3. Simplifies Ordering Decisions

○
Provides a clear formula to determine how much to order and when, streamlining
procurement.
4. Enhances Cash Flow

○ By avoiding overstocking, EOQ frees up capital for other business operations.

5. Reduces Waste and Obsolescence

○
Encourages ordering only what is needed, lowering the risk of products
becoming obsolete or expired.
6. Supports Better Forecasting

○Requires careful analysis of demand and cost data, encouraging more accurate
demand planning.
7. Enables Automation in Inventory Systems

○ EOQ can be integrated into inventory management software for automated

reordering and better stock tracking.

Disadvantages of EOQ:
 1. Assumes Constant Demand

○
The model is based on a fixed demand rate, which may not reflect real-world
fluctuations.
2. Assumes Constant Lead Time

○EOQ calculations expect a fixed lead time, which can be unreliable due to
supplier delays or shipping issues.
3. Ignores Bulk Purchase Discounts

○It does not consider discounts for ordering larger quantities, which may
sometimes be more economical.
4. Requires Accurate Input Data

○Inaccuracies in estimating demand, ordering cost, or holding cost can lead to

incorrect order quantities.
5. Not Suitable for Perishable Goods

○EOQ is less effective for items with short shelf lives, as holding them longer
increases spoilage risk.
6. May Not Adapt Well to Market Changes

○In dynamic markets, EOQ can become outdated quickly if not regularly reviewed
and adjusted.
7. Doesn’t Consider Storage Constraints

○ The model assumes infinite storage capacity, which might not align with physical
warehouse limitations.

ABC Analysis.( Always Better Control technique)

An inventory control technique classifies materials into three categories based on their value
and quantity The stores are categoriseod into A, B and C

It is based on the principle that more care and conitrol are necessary for cosly materials.

‘A' category materials require greater care and control, 'B' category requires normal care and
attention but 'C' category materials require comparatively less care.

Category A: High-value items with low volume; require strict control and close monitoring.

Category B: Medium-value items with moderate volume; need normal control.

Category C: Low-value items with high volume; require minimal control.

Kanban System
Kanban system, as an inventory control system, is a lean manufacturing and inventory
management method that optimizes the flow of materials and work-in-progress (WIP) by using
visual signals to trigger production or replenishment only when needed, it aims to reduce waste,
improve efficiency, and ensure just-in-time (JIT) delivery of goods or services.

Advantages of Kanban
● Reduces Inventory Costs: Minimizes excess stock and carrying costs.
● Improves Efficiency: Aligns production closely with demand, reducing waste.
● Enhances Flexibility: Quick response to changes in customer demand.
● Simplifies Inventory Management: Visual signals make it easy to track stock levels.
● Promotes Continuous Improvement: Highlights bottlenecks and inefficiencies.

Disadvantages of Kanban
● Requires Stable Demand: Works best when demand is relatively predictable.
● Vulnerable to Supply Disruptions: Minimal inventory means less buffer for delays.
● Implementation Complexity: Needs cultural shift and discipline across teams.
● Limited Scalability: Can be challenging in very large or complex supply chains.
● Dependency on Reliable Suppliers: Delays can halt production since inventory is
minimal.

6. Stores Management:
Store management involves the efficient control of store operations including the handling,
storage, and movement of goods to ensure availability, accuracy, and cost-effectiveness

Store management involves overseeing the day-to-day operations of a retail store to ensure
smooth functioning, customer satisfaction, and profitability. It includes managing staff, inventory,
sales, customer service, and the overall store environment.

Reorder Point (ROP)

The Reorder Point (ROP) is a critical inventory management metric that indicates the inventory
level at which a new order should be placed to replenish stock before it runs out. It ensures that
businesses maintain sufficient inventory to meet demand without overstocking. Below are key
notes on the Reorder Point:

factors influencing Reorder Point (ROP):

1. Demand Rate
The average rate at which inventory is consumed directly affects ROP. Higher demand
 means inventory depletes faster, requiring a higher reorder point to prevent stockouts.

2. Lead Time
The time between placing and receiving an order is critical. Longer lead times increase
the ROP since more inventory is needed to cover the waiting period.

3. Safety Stock
Safety stock is a buffer against uncertainties in demand or supply. Including it in ROP
helps reduce the risk of stockouts during fluctuations or delays.

4. Service Level Requirements

Higher service level targets (e.g., 95% stock availability) require a higher ROP to ensure
product availability and meet customer expectations, often increasing safety stock.

5. Demand Variability
Fluctuating or unpredictable demand raises the need for more safety stock within the
ROP to ensure supply continuity during demand spikes.

6. Lead Time Variability

Inconsistent supplier delivery times necessitate a higher ROP to account for delays and
maintain uninterrupted operations.

7. Inventory Review Frequency

Frequent inventory checks allow for more accurate and lower ROPs. Infrequent reviews
may require higher ROPs to account for potential blind spots.

8. Supplier Reliability
Reliable suppliers with consistent lead times allow for lower ROPs. Unreliable suppliers
may force businesses to increase ROP as a precaution.

9. Stockout Costs
If the cost of running out of stock is high (e.g., lost sales, production halts), companies
raise the ROP to minimize the likelihood of stockouts.

10. Storage Constraints

Limited storage space can restrict inventory levels, forcing lower ROPs even if demand
or risk would suggest otherwise, balancing availability with capacity.

Service level
Service Level refers to the ability of a business to meet customer demand and expectations
effectively, usually by having the right products or services available at the right time. It is often
expressed as a percentage that represents the fulfillment rate of customer orders or requests.

Factors Affecting Service Level

Inventory availability: Stock on hand and reorder policies.

Supplier reliability: Consistent delivery times and quality.

Staff training and availability: Ability to handle customer requests efficiently.

Process efficiency: Speed and accuracy of order processing

Technology: POS systems, inventory management software, CRM tools.-

Importance of Service Level

Customer satisfaction and loyalty: Meeting expectations keeps customers returning.

Sales and revenue: Avoid lost sales due to stockouts or slow service.

Competitive advantage: Higher service levels can differentiate your store.

Operational efficiency: Optimizing resources while maintaining service standards.