Dissertation Report On Inventory Management

A STUDY ON INVENTORY MANAGEMENT
“A STEP TO ORGANIZATION’S GROWTH”
A Dissertation report submitted to

“Mahendra Institute of Management & Technical
Studies” Bhubaneswar, Odisha.
In partial fulfillment of the requirements for the
award of the degree of
“POST GRADUATE DIPLOMA IN MANAGEMENT”
Submitted By Under the Guidance of

Debasis Ojha Dr. N. Jati
PGDM-715 (Director, Department of PGDM)
Department of PGDM
(MIMTS, Khurda, Bhubaneswar,Odisha -752050)
MAHENDRA INSTITUTE OF MANAGEMENT AND TECHNICAL
STUDIES, AT- PITAPALLI, BHUBANESWAR, DIST. - KHURDA
(ODISHA) – 752050 PHONE: 0674 239 5143
CERTIFICATE
This is to certify that the project entitled “A STUDY ON
INVENTORY MANAGEMENT” has been submitted by Mr. DEBASIS
OJHA (Reg. No. PGDM-715) in partial fulfillment of the
requirements for the award of “Post Graduate Diploma in
Business Management” from Mahendra Institute of
Management & Technical Studies. The result embodied in the
project has not been submitted to any other University or
Institution for the award of any Degree or Diploma.
Internal Guide
Dr. N. Jati
(Director, Department of PGDM)

(ODISHA) – 752050 PHONE: 0674 239 5143
DECLARATION
I hereby declare that the project entitled “A study on Inventory
management” submitted in partial fulfillment of the
requirements for award of the degree of “Post Graduate
Diploma in Business Management” at Mahendra Institute of
Management and Technical studies, affiliated to AICTE,
Delhi, is an authentic work and has not been submitted to any
other University/Institute for award of any degree/diploma.
Yours Sincerely,
Debasis Ojha
(PGDM-715)
PGDM, MIMTS
BHUBANESWAR, ODISHA
(ODISHA) – 752050 PHONE: 0674 239 5143
ACKNOWLEDGEMENT
Firstly I would like to express my immense gratitude towards our

institution Mahendra Institute of Management & Technical
Studies, which created a great platform to attain profound
technical skills in the field of PGDM, thereby fulfilling our most
cherished goal.
I sincerely express my gratitude to the Director as well as my

Internal Guide Dr. N. JATI and for his inspiration and timely
support in successful completion of my wonderful project work.
I convey my thanks to my beloved friends and my faculty who

helped me directly or indirectly in bringing this project
successfully.
Debasis Ojha
(PGDM-715)
PGDM, MIMTS
BHUBANESWAR, ODISHA
MAHENDRA INSTITUTE OF MANAGEMENT & TECHNICAL STUDIES
BHUBANESWAR,KHURDA, ODISHA.
INVENTORY MANAGEMENT
TABLE OF CONTENTS
SUBJECTS PAGE
COVER PAGE --------------------------------------------------------------------------------------------
FRONT PAGE---------------------------------------------------------------------------------------------
CERTIFICATE----------------------------------------------------------------------------------------------
DECLARATION-------------------------------------------------------------------------------------------
ACKNOWLEDGEMENT---------------------------------------------------------------------------------
ABSTRACT-------------------------------------------------------------------------------------------------
TABLE OF CONTENTS-----------------------------------------------------------------------------------
LIST OF FIGURES-----------------------------------------------------------------------------------------
LIST OF TABLES------------------------------------------------------------------------------------------
LIST OF EXAMPLES--------------------------------------------------------------------------------------
LIST OF PROBLEMS--------------------------------------------------------------------------------------
LIST OF GRAPH-------------------------------------------------------------------------------------------
LIST OF ART-----------------------------------------------------------------------------------------------
BODY STRUCTURE OF THE DISSERTATION--------------------------------------------------------
1. CHAPTER-1: ORIENTATION---------------------------------1-14
1.1 Introduction----------------------------------------------------------------------2
1.2 Big trend for inventory management--------------------------------------3-4
1.3 Data analytics--------------------------------------------------------------------5
1.4 Problem statement-------------------------------------------------------------5
1.5 Justification of the study------------------------------------------------------5-6
1.6 Objective of the study---------------------------------------------------------6
1.7 Scope of the study--------------------------------------------------------------7
1.8 Limitation of the study--------------------------------------------------------7
1.9 Major hypothesis---------------------------------------------------------------7-8
1.10 literature of review-----------------------------------------------------------8-12
1.11 Research methodology------------------------------------------------------12-13
1.11.1 Types of research methodology------------------------------------------13-14
1.11.2 Methodology of data collection------------------------------------------14
2. CHAPTER -2: CONCEPTUALIZATION--------------------16-104
2.1 Meaning & definition------------------------------------------------------------16
2.2 Cause of inventory---------------------------------------------------------------17
2.3 Needs for holding inventory---------------------------------------------------17-18
2.4 Inventory management---------------------------------------------------------19
2.5 Importance of inventory management------------------------------------19

2.6 Management strategy ---------------------------------------------------------20
2.7 Factors affecting the inventory management---------------------------21
2.8 Process of inventory management-----------------------------------------22-24
2.9 Steps in inventory management--------------------------------------------25
2.10 Operating cycle for inventory management---------------------------26-28
2.11 Types of inventory------------------------------------------------------------29-32
2.12 Factors affecting inventory-------------------------------------------------33
2.13 Inventory cost------------------------------------------------------------------34-36
2.13.1Definition & meaning--------------------------------------------------------34
2.13.2 Types of Cost-----------------------------------------------------------------35-36
2.14 Symptoms for poor inventory management----------------------------36
2.15 Inventory control---------------------------------------------------------------35 -100
2.15.1 Models for inventory control----------------------------------------------37
1. Model – 1----------------------------------------------------------------------------38
2.15.1.1 EOQ Analysis----------------------------------------------------------------39-42
2.15.1.2 Fixing of stock level--------------------------------------------------------42-45
2.15.1.3 Selective inventory control----------------------------------------------46-58
1. ABC Analysis-------------------------------------------------------------------------46-49
2. VED Analysis-------------------------------------------------------------------------49
3. SDE Analysis-------------------------------------------------------------------------50
4. FSN Analysis-------------------------------------------------------------------------51
5. XYZ Analysis-------------------------------------------------------------------------52
6. HML Analysis------------------------------------------------------------------------52
7. GOLF analysis-----------------------------------------------------------------------53
8. SOS Analysis--------------------------------------------------------------------------53
9. MNG Analysis------------------------------------------------------------------------54
10. Perpetual inventory--------------------------------------------------------------54
11. Periodic inventory----------------------------------------------------------------55
12. Inventory control ratio----------------------------------------------------------56-57
13. Consignment Inventory---------------------------------------------------------57-58
2. Model-2 - ----------------------------------------------------------------------------58-62
2.5.2 Cost analysis---------------------------------------------------------------------58-62
2.15.2.1 FIFO-----------------------------------------------------------------------------59
2.15.2.2 LIFO---------------------------------------------------------------------------59-60
2.15.2.3 Base stock price method--------------------------------------------------60
2.15.2.4 HIFO----------------------------------------------------------------------------60
2.15.2.5 Specific price method------------------------------------------------------60
2.15.2.6 LOFO---------------------------------------------------------------------------60
2.15.2.7 Simple average method---------------------------------------------------61
2.15.2.8 Weight average method--------------------------------------------------61
2.15.2.9 Standard price method----------------------------------------------------61
2.15.2.10 Inflated price method----------------------------------------------------61-62
3. Model – 3 Respondents analysis-----------------------------------------------62-100
2.15.3 Operational management---------------------------------------------------62-75
2.15.3.1 Lean manufacturing--------------------------------------------------------62-66
2.15.3.2 TQM----------------------------------------------------------------------------66-68
2.15.3.3 Six -sigma---------------------------------------------------------------------68-69
2.15.3.4 JIT-------------------------------------------------------------------------------70-73
2.15.3.5 5S---------------------------------------------------------------------------------74
2.15.3.6 KAIZEN--------------------------------------------------------------------------75
2.15.4 Material management--------------------------------------------------------75-84
2.15.4.1 Purchasing----------------------------------------------------------------------76
2.15.4.2 Logistic---------------------------------------------------------------------------76-77
2.15.4.3 SCM-------------------------------------------------------------------------------77-78
2.15.4.4 SRM-------------------------------------------------------------------------------78-79
2.15.4.5 Stores management----------------------------------------------------------80-84
2.15.4.5.1 Receipt & issue of inventories--------------------------------------------80
2.15.4.5.2 Techniques--------------------------------------------------------------------83-84
2.15.5 Marketing & sales ----------------------------------------------------------------82
2.15.5.1 Marketing-------------------------------------------------------------------------84
2.15.5.2 Sales--------------------------------------------------------------------------------84
2.15.6 Maintenance overview----------------------------------------------------------85-86
2.15.7 Management System-------------------------------------------------------------86-98
2.15.7.1 Process-1--------------------------------------------------------------------------88
2.15.7.2 Process-2--------------------------------------------------------------------------89-90
2.15.7.2.1 MRP------------------------------------------------------------------------------89-90
2.15.7.2.2 MRPII----------------------------------------------------------------------------90-91
2.15.7.3 ERP---------------------------------------------------------------------------------92-93
2.15.7.4 SAP---------------------------------------------------------------------------------94-95
2.15.7.5 Integrated management system flow-------------------------------------96
2.15.7.6 Overall inventory management system in an organization----------97
2.15.7.7 Some others management system software----------------------------98
2.15.8 Customer relationship management-----------------------------------------99-101
2.15.8.1 Customer satisfaction----------------------------------------------------------99
2.15.8.2 Reason for customer satisfaction-------------------------------------------99
2.15.8.3 Customer feed -back-----------------------------------------------------------99
2.15.8.4 Customer fee-back tools------------------------------------------------------100
2.15.8.5 Steps for customer satisfaction----------------------------------------------100
2.15.8.6 Customer satisfaction survey-------------------------------------------------100
2.16 Audit process of inventory---------------------------------------------------------101
2.17 Key responsibilities of inventory manager-------------------------------------102
2.18 KPI in inventory management--------------------------------------------------103-104
2.18.1 KPI service level------------------------------------------------------------------------104
CHAPTER – 3: DATA ANALYSIS & INTERPRETATION-----106-124
3.1 Types of inventories-------------------------------------------------------------106-107
3.2 Turn-over ratio--------------------------------------------------------------------108
3.3 ABC Analysis-----------------------------------------------------------------------109-110
3.4 Inventory holding days----------------------------------------------------------110
3.5 EOQ Analysis-----------------------------------------------------------------------111-112
3.6 Respondents analysis------------------------------------------------------------112-113
3.7 Case study of TOYOTA-----------------------------------------------------------114-123
3.8 Test of hypothesis-----------------------------------------------------------------124
CAHPTER -4: CULMINATION----------------------------------126-133
4.1 Summary-----------------------------------------------------------------------------------126
4.2 Research findings & discussion------------------------------------------------------127-128
4.3 Research suggestion--------------------------------------------------------------------128-131
4.4 Contribution of the study---------------------------------------------------------------131
4.5 Scope of further study-------------------------------------------------------------------132
4.6 Conclusion-----------------------------------------------------------------------------------133
5. Bibliography----------------------------------------------------------------------------------134
6. Questionnaires----------------------------------------------------------------------------135-137
LIST OF TABLES
SUBJECTS PAGE
1. Table – 1 Types of inventory demands---------------------------18
2. Table – 2 Types of inventory----------------------------------------30-31
3. Table – 3 Formula for inventory cost-----------------------------36
4. Table – 4 Formula for EOQ analysis-------------------------------39
5. Table – 5 Formula for stock level----------------------------------43-44
6. Table – 6 ABC analysis------------------------------------------------46
7. Table – 7 JIT at TOYOTA----------------------------------------------73
8. Table – 8 SRM maturity model-------------------------------------79
9. Table – 9 Receipt of inventory from store----------------------80
10. Table – 10 Store ledgers--------------------------------------------81
11. Table – 11 Materials return note---------------------------------82
12. Table – 12 Materials transfer note-------------------------------82
13. Table – 13 KPI for inventory--------------------------------------103-104
14. Table – 14 Types of inventory data analysis------------------106
15. Table – 15 Inventory turnover ratio analyses----------------108
16. Table – 16 ABC data interpretation-----------------------------109
17. Table – 17 Inventory holding days data analysis------------110
18. Table – 18 EOQ data analysis-------------------------------------111
19. Table – 19 Respondents data analysis--------------------------112
20. Table – 20 Case study of BOM of bearings at TOYOTA-----114-115
21. Table – 21 WIP in case study--------------------------------------115
22. Table – 22 Loss of utilization of resources---------------------116
23. Table – 23 WIP Inventory after analysis------------------------119
24. Table – 24 Month wise inventory level-------------------------122
25. Table – 25 T-test------------------------------------------------------124
26. Table – 26 Compare table of consumption at RKL-----------129
LIST OF FIGURES
SUBJECTS PAGE
1. Figure – 1 Types of research methodology-----------------------14
2. Figure – 2 Inventory process-----------------------------------------22
3. Figure – 3 Inventory process-----------------------------------------23
4. Figure – 4 Inventory management with OM---------------------23
5. Figure – 5 Steps for inventory control----------------------------25
6. Figure – 6 Perpetual & periodic system---------------------------55
7. Figure – 7 Consignment inventory----------------------------------58
8. Figure – 8 MUDA, MURI & MURA-----------------------------------64-65
9. Figure – 9 TQM Scope---------------------------------------------------67
10. Figure – 10 JIT at TOYOTA------------------------------------------72
11. Figure – 11 Logistic management---------------------------------77
12. Figure – 12 SCM function--------------------------------------------78
13. Figure – 13 TPM Pillars-----------------------------------------------86
14. Figure – 14 MRP system---------------------------------------------89
15. Figure – 15 MRP-II-----------------------------------------------------91
16. Figure – 16 ERP---------------------------------------------------------92
17. Figure – 17 ERP Model------------------------------------------------93
18. Figure – 18 SAP Process----------------------------------------------95
19. Figure – 19 Integrated management system-------------------96
20. Figure – 20 Management process system-----------------------97
LIST OF GRAPHS
SUBJECTS PAGE
1. Graph – 1 Types of inventory----------------------------------------103
2. Graph – 2 Turnover ratio----------------------------------------------105
3. Graph – 3 ABC analysis-------------------------------------------------107
4. Graph – 4 Inventory holding days-----------------------------------107
5. Graph – 5 EOQ analysis------------------------------------------------108
6. Graph – 6 Respondents analysis-------------------------------------110
7. Graph – 7 WIP outer ring-----------------------------------------------113
8. Graph – 8 WIP inner ring-----------------------------------------------113
9. Graph – 9 Loss of utilization-------------------------------------------115
10. Graph – 10 Loss of utilization--------------------------------------115
11. Graph – 11 Calculation of inventory level-----------------------117
12. Graph – 12 WIP--------------------------------------------------------119
13. Graph – 13 Improved inventory-----------------------------------120
LIST OF ARTS
SUBJECTS PAGE
1. Art – 1 Cause of inventory--------------------------------------------17
2. Art – 2 Importance of inventory management-----------------19
3. Art – 3 Strategy of inventory management---------------------20
4. Art – 4 Factors affecting inventory management--------------21
5. Art – 5 Steps in inventory management--------------------------25
6. Art – 6 Operating cycle------------------------------------------------26
7. Art – 7 Phases of operating cycle-----------------------------------28
8. Art – 8 Types of inventory--------------------------------------------29
9. Art – 9 Factors affecting inventory---------------------------------33
10. Art – 10 Factors affecting inventory cost---------------------35
11. Art – 11 Models of inventory control--------------------------37
12. Art – 12 Model-1-------------------------------------------------------38

13. Art – 13 Model-2-------------------------------------------------------58
14. Art – 14 Model-3-------------------------------------------------------62
15. Art – 15 Model-4-------------------------------------------------------64
16. Art – 16 Tools for TQM-----------------------------------------------68
17. Art – 17 DMAIC---------------------------------------------------------69
18. Art – 18 DMADC--------------------------------------------------------69
19. Art – 19 JIT---------------------------------------------------------------70
20. Art – 20 5S---------------------------------------------------------------74
21. Art – 21 Types of maintenance------------------------------------85
22. Art – 22 Types of management system-------------------------87
23. Art – 23 Process-------------------------------------------------------88
24. Art – 24 Inventory management software---------------------98
25. Art – 25 Steps for customer satisfaction------------------------100
26. Art – 26 Audit of inventory-----------------------------------------101
27. Art – 27 Responsibilities of inventory manager---------------102
28. Art – 28 Thumb rules for inventory-------------------------------131
LIST OF EXAMPLES
SUBJECTS PAGE
1. Example – 1 Operating cycle----------------------------------------27-28
2. Example – 2 WIP--------------------------------------------------------31
3. Example – 3 Safety stock---------------------------------------------32
4. Example – 4 FG----------------------------------------------------------32
5. Example – 5 Inventory cost------------------------------------------34
6. Example – 6 EOQ-------------------------------------------------------40
7. Example – 7 Fixing stock level--------------------------------------44-45
8. Example – 8 ROP-------------------------------------------------------45
9. Example – 9 ABC analysis--------------------------------------------47-49
10. Example – 10 FSN analysis--------------------------------------------51

11. Example – 11 Turnover ratio----------------------------------------56-57
12. Example – 12 FIFO & LIFO--------------------------------------------59-60
13. Example – 13 Inflated price method--------------------------------62
LIST OF FORMULES
SUBJECTS PAGE
1. Formula – 1 Operating cycle--------------------------------------------26
2. Formula – 2 Operating cycle--------------------------------------------27
3. Formula – 3 RM-------------------------------------------------------------30
4. Formula – 4 WIP------------------------------------------------------------30
5. Formula – 5 FG--------------------------------------------------------------30
6. Formula – 6 In-transit-----------------------------------------------------30
7. Formula – 7 SS---------------------------------------------------------------31
8. Formula – 8 Cycle stock---------------------------------------------------31
9. Formula – 9 Costing--------------------------------------------------------34
10. Formula – 10 & 11 stock turnover ratio--------------------------56
11. Formula – 12 Simple average method----------------------------61
12. Formula – 13 Weight average method---------------------------61
BODY STRUCTURE OF THE STUDY
CHAPTER – 1
ORIENTATAION
CHAPTER -3 CHAPTER - 2
DATA ANALYSIS & CONCEPTUALIZATION
INTERPRETATION
CHAPTER -4
CULMINATION
BIBLOGRAPHY
APPENDIX
ABSTRACT
Inventories are raw materials, work-in-process goods and completely finished

goods that are considered to be the portion of business’s assets that are ready
or will be ready for sale. Formulating a suitable inventory model is one of the
major concerns for an industry. Firstly, the purpose of the empirical part of the
study is to analyze the inventory balances of surveyed companies and
secondly, to explore the dependence between companies’ level of inventory and
profitability expressed in terms of return on assets. Thirdly, the aim of the
theoretical research is to explore the cost and benefits from changes in the
inventory level as well as to define variables that determine net savings from
changes in inventory level. An optimal inventory level should be based on
consideration of incremental profitability resulting from increased
merchandise with the opportunity cost of carrying higher inventory balances.
The results will provide a model equation for calculating net savings from
changes in inventory level as well as a new mathematical optimization model.
With this model a company can consider net earnings from changes in
inventory level and establish the optimal inventory level as well as improve
profitability.
Keywords: EOQ, ROP, SS, ABC ANALYSIS, JIT, SAP, ERP, FIFO
1.1 INTRODUCTION
1.2 BIG TREND FOR INVENTORY MANAGEMENT
1.3 DATA ANALYTICS
1.4 PROBLEM STATEMENT
CHAPTER – 1 1.5 JUSTIFICATION OF THE STUDY
ORIENATAION 1.6 OBJECTIVE OF THE STUDY
1.7 SCOPE OF THE STUDY
1.8 LIMITATION OF THE STUDY
1.9 MAJOR HYPOTHESIS
1.10 LITERATURE REVEIEW
1.11 RESEARCH METHODOLOGY
1
DEBASIS OJHA (PGDM-715)
ORIENTATION
1.1 INTRODUCTION
Current manufacturing paradigm demands high productivity and the company s

ability to respond to unstable market settings. For most of the industries, high
competition led ways to optimize the manufacturing processes and structure their
own inventory management plans accordingly. Inventory management is
managing the parts or stocks of materials in any form inside the plant and
stabilizing the flow of materials considering the variability in demand. It is very
important that the inventory plans are structured in such a way that they
accommodate variability in demand especially when the company deals with
multiple products. Inventory management starts from receiving of orders,
procurement of materials for manufacturing or processing until it reaches the
customer as a finished product. Even stocked up finished goods are to be managed
inside the facility along with the unprocessed materials. So it becomes important
to frame an overall plan that considers all materials to be stocked up inside the
facility.
Inventory management plans will lead to categorizing

parts that comprise to a complete product and helps in deciding the amount of
inventory for each part that is stocked at any given time.
Inventory management also facilitates a plant to decide the

release and order intake dates of raw materials and finished parts considering the
demand of the product and allotment of space for stocking materials inside the
available facility.
The Inventory Management system and the Inventory

Control Process provides information to efficiently manage the flow of materials,
effectively utilize people and equipment, coordinate internal activities, and
communicate with customers.
2
1.2 BIG TRENDS FOR INVENTORY MANAGEMENT

Right now is a great time to be alive, isn t it? I mean, we have so much technology
that makes life easier and reduces the amount of time it takes to perform simple,
mundane tasks. I think it s good to step back every now and then and think about
things we take for granted and acknowledge how good life is because of them.
One of those things I d like to talk about right now is inventory management
software. While many companies still aren t taking advantage of it to the fullest,
ones that are using it can easily forget how hard it was to manage inventory
without it. So let s go through a brief history of inventory management to see
what amazing invention inventory management software truly is.
IN THE BEGINNING
I suppose inventory management was first invented by Adam when he named all
the animals or by Noah when he counted the clean and unclean beasts for the Ark.
But for the sake of brevity, we ll jump ahead to modern times.
Before the Industrial Revolution, merchants basically had to write down all of the
products they sold every day. Then they had to order more products based on their
hand-written notes and their gut feelings. This was an incredibly inefficient and
inaccurate way of doing business.
HOLE-Y BREAKTHROUGH, BATMAN!

Luckily, in 1889 a man named Herman Hollerith invented the first punch card that
could be read by machines. By feeding sheets of paper that have little holes in
specific places; people could record complex data for a variety of purposes from
census taking to clocking in and out of work. This was basically the precursor to
computers that can read data in tiny microchips. And Hollerith s company even
went on to form the world s first computer company, IBM.
Harvard University took Hollerith s idea in the 1930s and created a punch card
system for businesses. Companies could tell which products were being ordered
and also record some inventory and sales data based on punch cards customers
would fill out for catalog items. Unfortunately, Harvard s order management
system cost too much and was too slow to keep up with rising business challenges.
3
THE BEST, BAR NONE
In the 1960s, a group of retailers (mostly grocery stores, at first) got together and
came up with a new method for tracking inventory: the modern barcode. There
were several competing types of barcodes before they were standardized with the
Universal Product Code (UPC) in 1974. It s still the most-used barcode in the
United States today.
As computers become more efficient and cheaper, UPCs grew in
popularity. In the mid-1990s, companies started experimenting with inventory
management software that would record data as products were scanned in and
out of warehouses. The technology evolved into a comprehensive inventory
management solution by the early 2000s. And now, even small and midsize
businesses can find affordable inventory management software to meet their
needs.
Inventory management software has been decades (even
hundreds of years) in the making. And now that it s here, you should definitely
take advantage of it to make sure your business doesn t become history.
In 2018, there will be a total changing of order management,

creating new trends for Inventory Management in 2018. In E-commerce, to be
effective, order management will continue to require significant enterprise system
enablement, innovative orchestration algorithms, and tight integration across
platforms. E-commerce platforms will also join the change, for example Magento
release new patch for Magento 2 extensions to keep up to date with the new
trends.
This type of dynamics order management will require end-to-end

visibility, collaboration across fulfillment processes, real-time data automation
among different companies, and integration among multiple systems. That's why
this convergence of processes and systems need to rely on digital technology.
4
1.3 DATA ANALYTICS

The latest trend in inventory management is always the use of data analytics.
Digital technology helps make the use of advanced analytics easier. A company
will have access and visibility into more useful data about the efficiency of
inventory management. These analytical insights can help automatically identify
best practice improvements. It can also help predict what actions that a business
needs to make.
1.4 PROBLEM STATEMENT

A study of inventory management is undertaken in order to know the inventory
Process, inventory control model, inventory management system and its effect on
the position of the company to assess the profitability of the company. Inventory a
double edged sword is usually an asset of an organization, if not used properly it
will become liability. It is therefore absolutely very important to manage
inventories efficiently and effectively in order to overcome unnecessary
investment. So, in this my thesis (basic research), To identify the
problems/challenges involved in the Inventory Management process & techniques
endeavored by a company to encounter the customer demand &satisfaction
level.
1.5 JUSTIFICATION OF THE STUDY

Inventories represent more than 50% of total investment cost of an organization.
It was also a potential source of waste that needs to be reviewed regularly and
closely reviewed through various processes building insight about the financial
growing step of a company.
 So, from the review & study of various thesis reports, I noted that the
methodologies previous studies employed did not adequately explain the
various processes/techniques
 It may be noted that new methodology/techniques/process in other field of
studies may contradict the existing knowledge about the phenomenon and
offer fresh insight which you may offer to select the process you want to apply.
5
 It may be found that the way of the problem and its associated concepts with
respect to theory were approached and defined were not properly explained
with the help of some little examples.
 It may be draw a notice that there is no such co–relational analysis of various
departments dealing with inventories.
I justify that the study not only fulfills the partial requirement for the award of the
post graduate diploma in management but also serve as a basis for further
research in the field of inventory management and its control & useful for students
1.6 OBJECTIVE OF THE STUDY
 To study about the ordering levels for the important components of inventory.
 To understand and measure economic order quantity for the selected raw
material items.
 To analyze its inventory management methods with the help of ABC analysis,
VED analysis etc.
 To evaluate the inventory management practices.
 To study the tools and techniques of inventory management adopted.
 To study the inventory control measures in inventory management.
 To study the demand forecast of inventory management.
 To study how ABC analysis and JIT is implemented in inventory management.
 To determine the stock level in inventory management.
 To identify problems related to inventory management and to find out suitable
measures to overcome them.
 To study the methods of valuation.
 To study the inventory management procedure.
 To make a comparative study of inventory management in last 5 years using
ratio analysis technique.
6
1.7 SCOPE OF THE STUDY

 The research would highlight the comparative position of a company by using
various inventory control tools like ABC, FIFO, VED, JIT etc.
 The research would enumerate the financial health of a company by using
EOQ, ROP, and SS. Inventories tools for calculating the cost involved in goods &
ordering plan for replenishment.
 This study pleasing to the eye on the manager s roles & responsibilities for
inventory management.

 This study gives the brief information about the inventory management.
 The study as do e y usi g a ual epo ts, i e to y a ual…et .
1.8 LIMITATIONS OF THE STUDY

 Detail study about all the material was not possible because of time limit.
 Some of the information was not possible through data collection.
 Study was confined only to the selected components in the stores department
 The information, which was needed, could not be made public by the
organization.
 The finding and suggestion cannot be generalized.
1.9 MAJOR HYPOTHESIS

In the light of the objective the following, null and alternate hypothesis have been
developed for this study.
Null hypothesis, H :μ = μ ; the e is o sig ifi a e i pa t of i e to y
Whe e μ & μ are average of population mean (inventory).
Alte ate hypothesis, H : μ ≠μ the e is sig ifi a t i pa t of i e to y
Note: Hypothesis is a proposed explanation made on the basis of limited evidence

as a starting point for further investigation.
7
In my research, for accepting or rejecting the null hypothesis we can use various
test as
 Z-Test
 T-Test
 CHI-Test
NULL HYPOTHESIS – Statement about the value of a population parameter &
states about there is no relation between two variables as sales & inventory.
ALTERNATE HYPOTHESIS – Statement that is accepted if evidence proves null
hypothesis to be false & state there is statistical significant between two variables.
Here variables, sales-depended & Inventory independent.
1.10 LITERATURE REVIEW

Success of any organization depends upon the 6m s
 Money
 Manpower
 Machine
 Market
 Materials
 Management
Materials are the pivotal importance not less than other M s problems have their
root in the materials affect the efficiency of men, machine, money & marketing
decisions of the firms & thus become the grave concern of the management at all
levels. If there are too much of materials problems like ideal funds lied up in
excessive inventory shortage & obsolesces difficulties, market pressure would
arise. Thus importance of inventory management is realized.
A number of studies have been done in the field of inventory management by
various researchers. 0Some of them are given below-
 According to Lieberman, Marvin B; Demeester, Lieven (1999) in his article titled

Inventory reduction and productivity growth: Linkages in the Japanese
8
automotive industry published in Management Science has said that JIT

production suggests a causal link between work-in-progress inventory and
manufacturing productivity. Such a connection has been described in numerous
case studies but never tested statistically. Historical data for 52 Japanese
automotive companies are used to evaluate the inventory-productivity
relationship. It is found that firms increased their productivity rank during
periods of substantial inventory reduction. More detailed tests suggest that
inventory reductions stimulated gains in productivity.
 Moon, Ilkyeong (2001) The authors Moon & Ilkyeong published their paper in
Interfaces titled Inventory Management and Production Planning and
Scheduling which is the third version of Decision Techniques for Stock Control
and Manufacturing Preparing released in 1979 and 1985. Bob Pyke became a
coauthor for this version and performed a key part in composing significant up-
dates of several sections, such as those on supply-chain management, multi-
echelon stocks, just in time, and ERP (enterprise source planning). In addition,
the writers have included worksheet applications for each section as additional
components to improve the audience and usefulness for learners in business
applications, and for experts.
 As per the authors Jackson, Duncan (2004), TradeBeam and Global exchange
Services Partner to Provide Collaborative Inventory Management and
Interoperability for Automotive Industry , in Business Wire says that
TradeBeam is a Global Trade Management software and services company
providing solutions that streamline global trading processes for enterprises and
their partners. TradeBeam's solutions provide import and export 18 Nandini
Ravichandran compliance, inventory management, shipment tracking, supply
chain event management and global trade finance solutions such as open
account and letter of credit management. TradeBeam has over 3000 customers
with users in over 100 countries worldwide.
9
 Krishna, L Sivarama; Janardhan, G Ranga; Rao, C S P (2009) in their article

Web Integrated Decision Support System for Machine Scheduling and
Inventory Management , was published in IUP Journal of Operations
Management tells about stock management symbolizes the process of
managing stocks of completed products, semi-finished products and raw
elements by a company so as to reduce the total stock cost. The first level
contains the development of a organizing program with make span
minimization as the primary objective. The second level contains the
development of the stock management program and creating it with the
organizing program. The third level contains creating the program web
permitted, so that it provides the flexibility of assigned creating choices to your
selection makers.
 According to Snehalgavi (2010) in her article titled It Outsourcing in Indian

Automobile Industry in Business & Economy says Outsourcing is the act of
delegating an organization s internal activities and to some extent the right to
decisions to the third party (service vendors) as per specified in the contract.
Outsourcing is a tool, in which the vendor is responsible for certain jobs
outsourced by a company, in return of a price for the goods or service provided
by it. This option is exercised majorly because to cut operation costs of a
company and focus on its core competencies. It is basically a contract between
two companies or concern in which one is getting its business process
outsourced from another company offering such services.
 According to Martin, Benjamin Robert (2010) in his article titled Findlay

Automotive group selects first look for pre- owned inventory management
needs , in PR Newswire With 15 brands including Toyota, Honda, Chevrolet,
Cadillac, Saturn, Land Rover, Saab and Volkswagen, Findlay will utilize the First
10
Look product suite to guarantee the right balance between pre-owned

inventory and demand, and ensure that trades are given the best appraisals. In
addition to the inventory management tool, and trade analyzer, Findlay will
use the First Look Search Engine to allow its dealers to instantly search more
than 30 online marketplaces to identify the best vehicles that meet that
dealerships pre-owned inventory needs.
 As per Koumanakos, Dimitrios P. (2008) in Business Wire titled Hitachi

Automotive Improves Efficiency and Inventory Control with Geac's System 21
says that Hitachi America, Ltd. has streamlined production, reduced accounting
costs and improved supply chain management using Geac's System21 software
solution. Hitachi Automotive implemented three System21 modules in 1998 -
financials, manufacturing, and customer service and logistics - across its three
locations in Kentucky, Detroit and Los Angeles. In September 2002, the
company will renew its maintenance contract with Geac(R) for three years.
 According to Cachon, Gérard P; Olivares, Marcelo (2010), Drivers of Finished-

Goods Inventory in the U.S. Automobile Industry , in Management Science says
Automobile manufacturers in the U.S. supply chain exhibit significant
differences in their days of supply of finished vehicles. The objective in this
research is to measure for this industry the effect of several factors on
inventory holdings. We find that two factors, the number of dealerships in a
manufacturer's distribution network and a manufacturer's production
flexibility, explain essentially all of the difference in finished-goods inventory
between Toyota and three other manufacturers: Chrysler, Ford, and General
Motors.
 Sper Moozakis, Chuck (2001), Honda Automates Web Financing -- Network
will let dealers apply for funds online and will eventually support inventory
management in Internet Week says that financing unit of American Honda
Motor Co. next month will begin rolling out its Dealer Financial Information
11
Network (DFIN), a Web system that will help its 3,000 dealers obtain financing
for inventory in real time. Currently, dealers purchasing inventory from Honda
need to apply for financing through American Honda Finance Corp. or another
bank. Typically, approvals take several days.
 According to the aticle Study of vendor-managed inventory practices in Indian

industries by Borade, Atul B; Bansod, Satish V. (2010) in Journal of
Manufacturing Technology Management says that in the global economy,
vendor-managed inventory (VMI) is gradually becoming an important element
of supply chain management strategy of organizations. Recently, Indian
industries, both large and small, have started adopting VMI for their supply
chains. The purpose of this paper is to investigate apparent differences among
large and small industries in terms of objectives, drivers, obstacles and impacts
of VMI in Indian context. A survey was conducted to examine organizational
objectives, strategic drivers, obstacles and affected operations pursuant to VMI
adoption.
 According to Matson, Jack E; Matson, Jessica O (2007), in Just-in-time

implementation issues among automotive suppliers in the southern USA
published in Supply Chain Management speaks that Purpose - The purpose of
this paper is to provide insight into the major supply chain issues of the
automotive manufacturing industry in the southern USA.
Design/methodology/approach - This paper is based on the results of a survey
of automotive suppliers in Tennessee and Alabama. The survey focused on
supply chain issues and demographics, specifically on 20 JIT-related problems
and 100 company characteristics. Findings - Identifies the extent of JIT
implementation in Tennessee's and Alabama's growing automotive industry
and the general characteristics of the companies that use JIT.
12
1.11 RESEARCH METHODOLOGY

Research methodology is the way to systematically solve the research problems.
Objective of the research methodology is to study about the various processes
involved in inventory control & analyze the inventory cost for the followings-
 Raw materials inventory
 Work in progress inventory
 Finished goods inventory
 EOQ,ROP,SS & Sales turnover ratio
 Respondents effect on inventory control.
1.11.1 TYPES OF RESEARCH METHODOLOGY
1. BASIC RESEARCH: This research is conducted largely for the enhancement of
knowledge, and is research which does not have immediate commercial potential.
The main motivation here is to expand man's knowledge, not to create or invent
something.
2. APPLIED RESEARCH: Applied research is designed to solve practical problems of
the modern world, rather than to acquire knowledge for knowledge's sake.
3. Problem oriented research: Research is done by industry apex body for sorting
out problems faced by all the companies.
4. PROBLEM SOLVING: problem solving research is to discover some solution for
some pressing practical problem.
5. QUANTITAIVE RESEARCH: This research is based on numeric figures or
numbers. Quantitative research aims to measure the quantity or amount and
compares it with past records and tries to project for future period.
6. QUALITATIVE RESEARCH: Qualitative research is collecting, analyzing and
interpreting data by observing what people do and say. Qualitative research refers
to the meanings, definitions, characteristics, symbols, metaphors, and description
of things. Qualitative research is much more subjective and uses very different
methods of collecting information, mainly individual, in-depth interviews and
focus groups.
Here I used both quantitative & qualitative research in my thesis on inventory
management.
13
FIGURE-1
TYPES OF RESEARCH METHODOLOGY
1.11.2 METHODOLOGY OF DATA COLLECTION

1. PRIMARY DATA
The primary data is collected by personal interviews with officials.
2. SECONDARY DATA
The secondary data has been collected through Files, annual reports, text book,
internet & company website. In my thesis report the data has been inculpated on
the basis of secondary data. The analysis carried out may be called as basic
research & not applied research.
14
2.1 MEANING & DEFINATION
2.2 CAUSE OF INVENTORY
2.3 NEED FOR HOLDING INVENTORIES
2.4 INVENTORY MANAGEMENT
2.5 IMPORTANCE OF INVENTORY

MANAGEMENT
2.6 MANAGEMENT STRATEGY FOR
INVENTORY
2.7 FACTORS AFFECTING THE INVENTORY
MANAGEMENT
2.8 PROCESS OF INVENTORY MANAGMENET
2.9 STEPS IN INVENTORY MANAGEMENT
2.10 OPERATING CYCLE FOR INVENTORY

CHAPTER -2 MANAGEMENT
2.11 TYPES OF INVENTORY

CONCEPTUALIZATION
2.12 FACTORS AFFECTING INVENTORY
2.13 INVENTORY COST
2.14 SYMPTOS FOR POOR INVENTORY

MANAGEMENT
2.15 INVENTORY CONTROL
2.16 AUDIT PROCESS OF INVENTORY
2.17 KEY RESPONSIBILITES OF INVENTORY

MANAGER
2.18 KPI IN INVENTORY MANAGEMENT
15
CONCEPTUALIZATION
2.1 MEANING & DEFINITION

Inventory (American English) or stock (British English) is the goods and materials
that a business holds for the ultimate goal of resale (or repair).
Inventory is an idle stock of physical goods that contain
economic value, and are held in various forms by an organization in its custody
awaiting packing, processing, transformation, use or sale in a future point of
time.
Any organization which is into production, trading, sale and
service of a product will necessarily hold stock of various physical resources to aid
in future consumption and sale. While inventory is a necessary evil of any such
business, it may be noted that the organizations hold inventories for various
reasons, which include speculative purposes, functional purposes, physical
necessities etc.
The word inventory has been defined in many ways, as
indicated in the literature. Three definitions have been chosen which seem to be
more appropriate to the topic developed in this dissertation. Inventories are
stockpiles of raw materials, suppliers, components, work in process, and finished
goods that appear at numerous points throughout a firm s production and
logistics channel (Ballou 2004:326).
According to Chase, Jacobs and Aquilano (2004:545),

inventory is the stock of any item or resource used in an organization. An
inventory system is the set of policies and controls that monitor levels of
inventory and determine what levels should be maintained, when stock should be
replenished, and how large orders should be.
16
2.2 CAUSES OF INVENTORY

ART-1
• Excessive Demand Variability.

• Supplier Unreliability.
• Too Many Warehouses.
• Decline in customer order.
• Poor quality & improper quantity of items
CAUSES OF purchased.
• Poor tracking system.
• Poor inventory management
INVENTORY • Poor SCM & LOGISTIC system
2.3 NEED TO HOLD INVENTORIES

Martin and miller identified three general motives for holding inventories in an
organization.
1 TRANSACTION MOTIVE
This refers to the need of maintaining inventory to facilitate smooth production
and sales operations.
2 PRECAUTIONARY MOTIVES
Precautionary motive for holding inventory is to provide a safeguard when then
actual level of activity is differ than anticipated. This inventory serves when there
is an unpredictable change in the demand and supply forces.
17
3 SPECULATIVE MOTIVES
This motive influences the decision to increase or decrease the levels of inventory
to take the advantage of price fluctuations.
In this motive, there are different types of demand as listed below-
TYPES OF INVENTORY DEMAND

TABLE-1
TYPES EXPLANATION
Deals with products that have a significant
PERPETUAL DEMAND
demand for a very long period of time.
May involve products that are demanded at
SEASONAL DEMAND certain period of the year or require accurate
forecasting the level of demand that will occur
This type of demand will occur due to drastically
environment or lifestyle change. It is quite
difficult to predict quite accurately of the
LUMPY DEMAND
coming demand trend. Close monitoring of the
erratic or lumpy demand with slow response in
product replenishment
This is more of a planned preparation. Demand
will decline and excessive inventories can be
worked out slowly. The focus of the planning is
TERMINATING DEMAND when and how much should be stocked during
each period (week, month or year) with
preparation towards the termination period
specified.
The demand for this category of products is derived

from the final consumer market. How much and
DERIVED DEMAND when to order or produce can be accurately
determined from monitoring the demand for
finished products.
18
2.4 INVENTORY MANAGEMENT

Inventory management is a component of supply chain management that involves
supervising non-capitalized assets, or inventory, and stock items. Specifically,
inventory management supervises the flow of goods from manufacturers to
warehouses and from these facilities to point of sale. Thus, inventory
management hinges on detailed records of products or parts as they enter and
leave warehouses and points of sale.
Effective inventory management is essential for ensuring a
business has enough stock on hand to meet customer demand. If inventory
management is not handled properly it can result in a business either losing
money on potential sales that can t be filled or wasting money by stocking too
much inventory. An inventory management system can help prevent these
mistakes.
2.5 IMPORTANCE OF INVENTORY MANAGMENT
ART-2
19
2.6 STRATEGY OF INVENTORY MANAGEMENT

The right strategy ensures access to the right products, and it also helps control
costs associated with buying and storing goods.
There are three management strategies that need to be used in organization.
ART-3
PULL STRATEGY HYBRID STRATEGY

PUSH STRATEGY This model is also known
simply relies upon the ability
The push inventory model to order or make products as as a lean inventory
depends on excellent forecasting; strategy—companies rely
they are requested by
products are either heavily on forecasting
customers. and constantly adjust
manufactured or ordered in
advance to meet anticipated inventory levels based on
demand. actual sales.
20
2.7 FACTORS AFFECTING INVENTORY MANAGEMENT
ART-4 Managemnt
Technology
(Inventory
solution system)
Financial
Internal
Factors
Product Type &

trcking solution
Fcators Lead Time
Customer
External Supplier
Economic
climate
Maket
competition Local
environment
change
21
2.8 PROCESS OF INVENTORY MANAGEMNET

The process involved in goods going in or coming out of a firm's inventory. It
generally includes receiving, temporary storage, labeling and storage, withdrawal,
issue, and movement of the item through work-in-process routine. It also involves
tracking the item's movement at various stages and maintaining records of those
events and their effects.
FIGURE-2
22
FIGURE-3
FIGUR-4 HOW INVENTORY MANAGEMENT

FITS THE OPERATIONS MANAGEMENT PHILOSOPHY
Operations as a Competitive
Weapon
Operations Strategy
Project Management
Process Strategy
Process Analysis
Process Performance and Quality Supply Chain Strategy
Constraint Management Location
Process Layout Inventory Management
Lean Systems Forecasting
Sales and Operations Planning
Resource Planning
Scheduling
23
FIGURE -5 DETAILS STEPS OF INVENTORY CONTROL
24
2.9 STEPS IN INVENTORY MANAGEMENT
ART-5
STEP-1 Assess
inventory and
supply costs.
STEP-2 Decide
what
processes can
be automated.
STEP- 3
Evaluate
supplier
performance
STEP-4
Categorize
your inventory
STEP-5 Set
category
goals.
STEP-6
Prioritize
changes.
•STEP-8
STEP-7 Get an Establish an
outside inventory
opinion. management
policy.
25
2.10 OPERATING CYCLE FOR INVENTORY MANAGEMENT

Operating cycle is the number of days a company takes in converting its
inventories in cash. It equals the time taken in selling inventories plus the time
taken in recovering cash from customers. It is called operating cycle because this
process of producing/purchasing inventories, selling them, recovering cash from
customers, using that cash to purchase/produce inventories and so on is repeated
as long as the company is in operations.
Operating cycle is a measure of the operating efficiency
and working capital of a company.
ART-6
Cash
Raw
Debtors
materials
Work in
Sale progresss
Finished
goods
FORMULA - 1
Operating Cycle = Days' Sales of Inventory + Days Sales Outstanding
Note: 1 Where day s sales of inventory = the average number of days in which a
company sells its inventory.
26
Note: 2
Day s sales outstanding on the other hand, are the period in which receivables are
realized in cash.
FORMULA – 2(An alternate expanded formula for operating cycle)
Operating Cycle = 365/purchases × Average Inventories +365/credit sales ×

Average Accounts receivable
EXAMPLE - 1
Walmart Stores, Find its operating cycle assuming all sales are (a) cash sales and
(b) credit sales. You can use cost of revenue as approximate figure for purchases
(i.e. no need to adjust it for changes in inventories).
Revenue 469,162
Cost of revenue 352,488
Inventories as at 31 January 2013 43,803
Inventories as at 31 January 2012 40,714
Average inventories 42,259
Accounts receivable as at 31 January 2013 6,768
Accounts receivable as at 31 January 2012 5,937
Average accounts receivable 6,353
SOLUTION
PART- A
Days taken in converting inventories to accounts receivable
= 365/352,488×42,259 = 43.75
Since there is no credit sales, time taken in recovering cash from accounts
receivable is zero. Customers pay cash right away.
Operating cycle is 43.75 days and this represents the time taken in selling
inventories.
27
PART – B
There is no change in days taken in converting inventories to accounts receivable.
Days taken in converting receivables to cash = 365/469,162×6,353 = 4.92
Operating cycle = days taken in selling + days taken in recovering cash
= 43.75 + 4.92 = 48.68
2.10.1PHASES OF OPERATING CYCLE
The operating cycle of manufacturing company has three phases namely
1. Acquisition of resources
2. Manufacturing products
3. Sale of product
ART-7
•In this first phase operating

Phase-1 Acquisition of cycle, include phases of raw
materials, fuel & power
resources etc.,which are totally required
or manufacturing product
•operating cycle includes

Phase-2 Manufacturing conversion of raw material in
to work-inprogress
products •the work in progress is
converted into finished goods.
Phaes -3 Sale of •operating cycle may sale the

product either for credit is
product made to customers.
28
2.11 TYPES OF INVENTORY

ART – 8
Raw materials
Work in progres
Finished Goods
Transit Inventory
Buffer Inventory
Cycle
inventory
Anticipation
Inventory
29
TABLE-2
TYPES DESCRIPTION CALCULATION

Raw materials inventory is the inventory of FORMULA-3
materials waiting to go into production. These are
components of our product that have been
purchased to make our product Material used in production
1. Direct Raw Materials: Directly used in =beginning inventory +
Raw Materials production. Example: steel plate used for materials purchased –
manufacturing cylinder. ending inventory
2. Indirectly used in production. Example – oil
used for running the bending machine for
cylinder manufacturing.
Goods in process or in-process inventory are a FORMULA-4
company's partially finished goods waiting for
completion and eventual sale or the value of these
items. These items are either just being fabricated or WIP =raw materials +labor
waiting for further processing in a queue or a buffer cost + overhead cost
WIP Inventory
storage. WIP refers to raw materials, labor and
overhead costs incurred for products that are at
various stages of the production process.
Finished goods are goods that have been completed FORMULA-5

by the manufacturing process, or purchased in a Finished goods= (cost of
Finished goods completed form, but which have not yet been sold to goods manufactured-cost of
inventory customers. Goods that have been purchased in goods sold) +Previous
completed form are known as merchandise. finished goods inventory
value.
FORMULA-6
In-transit inventories are items that are in route Annual in-transit inventory
In-transit inventories.
from one location to another. cost = (annual in-transit
inventory level in units) x
(average value per unit of
inventory) x (the cost of
carrying in-transit inventory
expressed as a percentage of
investment in in-transit
inventory)
30
Safety or Buffer stock Safety stock is the stock held by a company in excess
of its requirement for the lead time. Companies hold FORMULA -7
safety stock to guard against stock-out. (Maximum usages-average
usages) x lead time
Cycle stock is the amount of inventory that is

planned to be used during a given period. The period FORMULA-8
Cycle stock. is often defined as the time between orders (for raw EOQ(Economic order
materials), or the time between production cycles quantity)/2
(for work in process and finished goods).
Anticipation inventory or stock is excess levels of
Anticipation Inventory product kept on hand to deal with uncertainty in
customer demand.
EXAMPLE: 2(WIP)
Clothing Company has the following costs during the month:

Cotton knit fabric added to production: $45,000
Sewing machine operators wages: $30,000
Electricity to run the machines, cool the factory, and light the factory: $2,000
Factory manager s salary: $3,000
Elastic and thread used in making the garments: $1,500
Insurance on the factory: $200
CEO s salary: $40,000
Wages for the accounting department: $22,000
Advertising: $3,000
Depreciation on the sewing machines: $2,100
By how much will the Work-in-Process Inventory account increase as a result of
these costs?
SOLUTION
45000+30000+2000+3000+1500+200+2100=83800
31
EXAMPLE: 3(SAFETY STOCK)

ABC Ltd. is engaged in production of tires. It purchases rims from DEL Ltd. an
external supplier. DEL Ltd. takes 10 days in manufacturing and delivering an order.
ABC's requires 10,000 units of rims. Its ordering cost is $1,000 per order and its
carrying costs are $3 per unit per year. The maximum usage per day could be 50
per day. Calculate economic order quantity, reorder level and safety stock.
SOLUTION
EOQ = √ (2 × Annual Demand × Ordering Cost per Unit / Carrying Cost Per Unit)
=7745
Maximum daily usage is 50 units
Average daily usage is 10000/365=27.4
Safety Stock = (50-27.4) × 10 = 226 units.
Reorder Level = Safety Stock + Average Daily Usage × Lead Time
Reorder Level = 226 units + 27.4 units × 10 = 500 units.
EXAMPLE: 4(FG)
At the end of last year, Jen s Candles had 800 finished candles in stock. Candles
cost $2 each to produce. Calculate FG.
SOLUTION
Previous finished goods inventory value = 800 x $2 = $1600
FG = (cost of goods manufactured-cost of goods sold) +Previous finished goods
inventory value.
During the year, Jen s Candles manufactured 1000 candles and sold 600 candles.
Cost of goods manufactured = 1000 x $2 = $2000
Cost of goods sold = 600 x $2 = $1200
FG = ($2000 - $1200) + 1600 = $2400
32
2.12 FACTORS AFFECTING INVENTORY
ART-9
Inventory Nature of
turnover business
Nature of
Economics of
type of
production
product
Financial Inventory
position costs
Period of Requirement
operating of
cycle customers
Supply
cahin & Attitude of
logistic management
system
Inventory Supplier
cost performance
33
2.13 INVENTORY COST
2.13.1 DEFINITION & EXPLANATION

The cost of goods expressed usually as a percentage of the inventory value, it
includes capital, warehousing, depreciation, insurance, taxation, obsolescence,
and shrinkage costs.
FORMULA - 9
The inventory cost formula, summing total cost of inventory, is often referred to as
inventory carrying rate.
Inventory Carrying Rate = (Inventory Costs / Inventory Value) + Opportunity Cost
(as a percentage) + Insurance (as a percentage) + Taxes (as a percentage)
EXAMPLE: 5
If a company s product cost as below, calculate inventory carrying cost

Inventory Costs = $5,000
Inventory Value = $50,000
Opportunity Cost = 10%
Insurance = 4%
Taxes = 7%
Inventory Carrying Rate = ($5,000 / $50,000) + 10% + 4% + 7% = 10% + 10% + 4% +

7% = 31%
34
2.13.2 TYPES OF COST

According to Gourdin (2001:62-63), there are three types of costs that must be
considered in setting inventory levels.
ART-10
Ordering costs are the expenses incurred to create

and process an order to a supplier.
Ordering Cost
EX: 1. Cost to prepare a purchase requsition

2. Cost to process supplier invoice
TYPES OF INVENTORY COST
carrying cost of inventory or holding cost refers to

the total cost of holding inventory. This includes
warehousing costs such as rent, utilities and
Carrying Cost salaries, financial costs such as opportunity cost,
and inventory costs related to perishability,
shrinkage (leakage) and insurance.
It is also called as hidden cost.the stock out is the

situation when the firm is not having unit of items
Shortage or stock out Cost
in store but there is a demand of that items either
& Cost of Replenishment
by customers or production departments.it means
firm faces a situation of lost sales or back order.
35
TABLE-3
DESCRIPTION FORMULAS EXPLANATION
Nos of orders × Cost

Ordering Cost
per order
(c+t+w+(s-r1)+(o- C-capital, t-taxes, w-ware house,
Carrying Cost r2)/Average annual s-scrap, o-obsolescence, r-recovery
inventory cost. cost
(ndos×auspd×ppu)+cc where ndos-no of days out of stock,
auspd-average unit sold per day,
Stock Out Cost
ppu-price per unit ,cc-cost of
consequences
2.14 SYMPTOMS OF POOR INVENTORY MANAGEMENT
A certain number of symptoms allow discovering poor inventory management.
Lambert and Stock (2001:254-255) mention the following elements in order to
diagnose poor inventory management:
 Increasing number of back orders.
 Increasing dollar investment in inventory with back orders remaining constant.
 High customer turnover rate.
 Increasing number of orders cancelled.
 Periodic lack of sufficient storage- space.
 Wide variance in inventory turnover among distribution centers and among
major inventory items.
 Deteriorating relationships with intermediaries as typified by dealer
cancellations and declaring orders.
 Large quantities of obsolete items.
 Poor TQM & logistics process
 Poor inventory management software.
2.15 INVENTORY CONTROL
Inventory control, also known as stock control, involves regulating and maximizing
your company s profits. Everything is accounted for at any given time.
Inventory control involves warehouse management. This includes:
 Keeping track of the stock that is already in the warehouse.
 This includes knowing what products are being stocked and how much of a
particular item is available.
36
2.15.1MODELS FOR INVENTORY CONTROL

ART-11
MODEL-1ANALYSIS
POINT OF VIEW
MODEL-2 COST
ANALYSIS POINT OF
VIEW
MANAGEMENT
STRATEGY TO
CUSTOMER
SATISFACTION
MODEL-3
RESPONDENTS POINT
OF VIEW
MODEL-4 MANAGEMENT
SYSTEMS POINT OF VIEW
37
ART-12
INVENTORY CONTROL
1.MODEL-1
Selective
Economic Inventory
Order Fixing Re-Order Control Periodic Perpetual Inventory
Quantity Stock Point (ROP)
Levels Order Inventory Control
(EOQ) System Ratios
System
consignment
inventory
SDE
VED Analysis ABC Analysis FSN Analysis HML GOLF SOS XYZ
Analysis
RESULT - CUSTOMER
SATISFACTION
38
2.15.1.1 ECONOMIC ORDER QUANTITY (EOQ)

The economic order quantity is the optimum quantity of goods to be purchased at
one time in order to minimize the annual total costs of ordering and carrying or
holding items in inventory.
Economic order quantity can be calculated from any of the following two
methods:
1. Formula Method
2. Graphic Method
3. Trail & Error Approach
FORMULA METHOD:
It is also known as SQUARE ROOT FORMULA or WILSON FORMULA as given
below:
TABLE - 4
EOQ = √ RO/C Where, EOQ =
EOQ Economic Order
Quantity
R/EOQ R = Annual
Requirement or
NO OF ORDERS
consumption in
units
TIME GAP BETWEEN No. of days in a year/No. of orders O = Ordering Cost
TWO ORDERS per order
Purchase Cost + Carrying Cost + Order Cost C = Carrying Cost
TOTAL COST
= (R x Unit Price) + (EOQ/2 x C) + (R/EOQ x O) per unit per year
AVERAGE EOQ / 2
INVENTORY
AVERAGE ANNUAL (average inventory) x (C)
CARRYING COST
39
EXAMPLE - 6
A company makes bicycles. It produces 450 bicycles a month. It buys the tires for
bicycles from a supplier at a cost of $20 per tire. The company s inventory carrying
cost is estimated to be 15% of cost and the ordering is $50 per order. Calculate the
A. EOQ B. What is the number of orders per year? C. Compute the average annual
ordering cost. D. Compute the average inventory. E. What is the average annual
carrying cost?
SOULTION
In this problem: R = annual demand

So, R = (2 tires per bicycle) x (450 bicycles per month) x (12 months in a year) =
10,800 tires
O = ordering cost = $50 per order
C= carrying cost = (15%) x ($20 per unit) = $ 3.00 per unit per year
A. EOQ = √ { (2 x 10,800 x $50) / $3 = 600 tires
The company should order about 600 tires each time it places an order.
B. What is the number of orders per year?
Number of orders per year = R / EOQ = 10,800 / 600 = 18 orders per year
C. Compute the average annual ordering cost.
Average annual ordering cost = (18 orders per year) x ($50 per order) = $900 per
year
D. Compute the average inventory
Average inventory = EOQ / 2 = 600 / 2 = 300 tires
E. What is the average annual carrying cost?
Average annual carrying cost = (average inventory) x (C) = (300 tires) x ( $3) =
$900 per year
40
GRAPHIC METHOD
Under this method, ordering costs, carrying costs and total inventory costs
according to different lot sizes are plotted on the graph. The intersection point at
which the inventory carrying cost and the ordering cost meet, is the economic
order quantity. At this point the total cost line is also minimum.
Assumptions: The following assumptions are made:

 The rate of consumption of inventory is assumed to be constant.
 Costs will not change over time.
 Lead time is assumed to be known and constant.
 Per order cost, carrying cost and unit price are constant.
 Carrying or holding costs are proportionate to the value of stock held.
 Ordering cost varies proportionately with the price
TRAIL & ERROR APPROACH
If annual requirements are known and steady usage of inventory is assumed an
analytical approach of inventory cost analysis can be used to determine the EOQ.
While determining the EOQ by trial and error technique, the following steps are to
be taken;
 Determining the total costs for each lot size chosen.
 Selecting the ordering quantity which minimizes total costs.
41
ADVANTAGES
Constant or uniform demand: The demand or usage is even through-out the
period Known demand or usage:
 Demand or usage for a given period is known i.e. deterministic
 Constant unit price: Per unit price of material does not change and is constant
irrespective of the order size
 Constant Carrying Costs: The cost of carrying is a fixed percentage of the
average value of inventory
 Constant ordering cost: Cost per order is constant whatever be the size of the
order
2.15.1.2 FIXING STOCK LEVELS
Stock level should be maintained in a certain level so that the demand can be
fulfilled without keeping extra & under-stocking of materials. It refers just to
midpoint between minimum stock level & maximum stock level. The maximum &
minimum stock levels are fixed after considering the following factors:
 Availability of ample storage space.
 Lead time involved i.e. time required in receiving the goods ordered.
 Availability of working capital to meet the routine expenses.
 Average rate of consumption of material
 Cost of storage and insurance of inventory.
 Risk of obsolescence and deterioration of the inventory.
 Economy in prices such as making bulk purchases during period of low prices.
 Re-order level.
 Nature of material
 Cost of the material
1. REORDER LEVEL
Reorder level (or reorder point) is the inventory level at which a company would
place a new order or start a new manufacturing run. The determination of re-
order point depends upon the lea time, usage rate and safety stock. These terms
are explained below:
42
1. Lead Time: Lead time refers to the time gap between placing the order and
actually receiving the items ordered.
2. Usage Rate: It refers to the rate of consumption of raw material per day.
Usage Rate = Total annual consumption / No. of days in a year
4. Safety Stock: It is the minimum quantity of inventory which a firm decides to
maintain always to protect itself against the risk and losses likely to occur due
to stoppage in production and loss of sale, due to non- availability of inventory.
2. DANGER LEVEL
Danger level refers to the level below the minimum stock level. The following
factors should be considered to determine the danger level:
 Causes for failure of regular supplies
 Easy and quick sources of supply
 Rescheduling of work- order in the light of such exigencies
 Quickest means of transportation
 Emergency period of procurement
TABLE – 5

(ROL + ROQ) – (Minimum Usage x Minimum ROL – Re Order Level
MAXIMUM LEVEL Re Order Period) or Maximum Level = Safety
Stock + EOQ
Re-order level – (Normal Usage Rate x ROQ – Re Order Quantity
Or EOQ
Normal Re-order
MINIMUM LEVEL
period) = Re Order Level – (Normal Usage x
Average Re Order Period)
AVERAGE STOCK (Maximum level + Minimum level) / 2
LEVEL or(Minimum level + 1/2 Re- order Quantity)
Maximum rate of consumption × Maximum
REORDER LEVEL OR
reorder period. Alternatively, it will be =
ORDERING LEVEL
safety stock + lead time consumption
LEAD TIME Annual consumption -s- 360) × lead time
CONSUMPTION
43
Minimum rate of consumption x Emergency

DANGER LEVEL delivery period or Maximum rate of
consumption x Emergency delivery period
Total annual consumption / No. of days in a
USAGE RATE
year
(Lead Time x Usage Rate) + Safety Stock or
RE ORDER POINT Maximum usage x Maximum Re Order
Period
EXAMPLE - 7
Two components A & B are used as follows:

Normal Usage 120 per week each
Minimum Usage 60 per week each
Maximum Usage 180 per week each
Re-ordering quantity A- 2000; B-3200
Re-ordered period B- 6 to 10 weeks; B-4 to 8 weeks
For each component, calculate:
Re-ordering level; (b) Minimum level; (c) Maximum level; (d) Average stock level
Also on the difference in the levels for the two components, comment briefly.
SOLUTION:
(A) Re-ordering level = Maximum usage* maximum re-order period
A = 180*10 = 1800 units
B = 180*8 = 1440 units
Re-order level of B is lower because against 10 weeks of re-order period for A, re-
order period for B is 8 weeks.
44
(B) Minimum level = Re-ordering level-(Normal usage*Normal re-order period)

Normal Re-order period is to be taken as the average re-order period
A = 1800-(120*8) = 840 units
B = 1440-(120*6) = 720 units.
Because of its lower re-ordering level, minimum level for B is lower.
(C) Maximum level = Re-ordering level +Re-ordering quantity-(Minimum
usage*minimum re-order period)
A = 1800+2000-(60*6) = 3440 units
B = 1440+3200-(60*4) = 4400 units.
Because of its higher re-order quantity, maximum level for B is higher.
(D) Average stock level= (Minimum level+ Maximum level)/2
A = (840+3440)/2 = 2140 units
B = (720+4400)/2 = 2560 units.
EXAMPLE – 8
ABC Ltd. is a retailer of footwear. It sells 500 units of one of a famous brand daily.
Its supplier takes a week to deliver the order.
The inventory manager should place an order before the inventories drop below
3,500 units (500 units of daily usage multiplied with 7 days of lead time) in order
to avoid a stock-out.
45
2.15.1.3 SELECTIVE INVENTORY CONTROL
Controlling all inventories in the stock is a very difficult task especially where huge
inventories are maintained of variety of items. In such circumstances, following
smart techniques for managing and controlling the different types of inventories
held are as follows...
1. ABC ANALYSIS
ABC analysis may be defined as a technique where inventories are analyzed with
respect to their value so that costly items are given greater attention and care by
the management. Three categories are created namely A, B and C. Following table
represents the approximate classification of items along with their value and
quantity.
TABLE-6
ADVANTAGES The advantages of ABC analysis are as follows:
 Reduction in investment
 Strict control
 Minimum storage cost
 Saving in time
 Economy
46
DISADVANTAGE
 The classification of the materials into different groups may lead to extra cost.
Hence, it may not be suitable for small organization.
EXAMPLE 9
A producer of consumer goods wants to analyses its product range. The goal of
this analysis is to evaluate which product is of particular importance and which
products are less important. The management has decided to use the annual
consumption value as the key figure to assess the product range. An ABC
analysis shall be conducted.
Therefore we have to collect the raw data first:
Annual consumption Annual consumption

Product Price per unit
(in units per item) value
1 1.480 6,10 9.028,00
2 1.680 0,15 252,00
3 10.120 0,20 2.024,00
4 3.520 0,40 1.408,00
5 3.830 9,50 36.385,00
6 4.368 0,25 1.092,00
7 4.180 0,45 1.881,00
8 3.590 0,90 3.231,00
9 4.820 0,70 3.374,00
10 6.000 0,02 120,00
11 1.900 1,01 1.919,00
12 2.980 4,20 12.516,00
13 1.050 0,30 315,00
14 1.100 0,44 484,00
15 710 31,60 22.436,00
16 4.700 0,38 1.786,00
47
Cumulative Cumulative
Annual
Price Annual ratio of ratio of
consumption Product
Product per consumption annual consumption
(in units per group
unit value consumption value [%]
item)
[%]
5 3.830 9,50 36.385,00 6,84% 37,03%
15 710 31,60 22.436,00 8,10% 59,87%

A
12 2.980 4,20 12.516,00 13,42% 72,61%
1 1.480 6,10 9.028,00 16,06% 81,80%
9 4.820 0,70 3.374,00 24,67% 85,23%
8 3.590 0,90 3.231,00 31,07% 88,52%
3 10.120 0,20 2.024,00 49,14% 90,58% B
11 1.900 1,01 1.919,00 52,53% 92,53%
7 4.180 0,45 1.881,00 59,99% 94,45%
16 4.700 0,38 1.786,00 68,38% 96,26%
4 3.520 0,40 1.408,00 74,66% 97,70%
6 4.368 0,25 1.092,00 82,46% 98,81% C
14 1.100 0,44 484,00 84,42% 99,30%
13 1.050 0,30 315,00 86,29% 99,62%
48
2 1.680 0,15 252,00 89,29% 99,88%
10 6.000 0,02 120,00 100,00% 100,00%
2. VED ANALYSES
VED Analysis attempts to classify the items used into three broad categories,
namely
 Vital
 Essential
 Desirable.
The analysis classifies items on the basis of their criticality for the industry or
company.
VITAL: Vital category items are those items without which the production
activities or any other activity of the company, would come to a halt, or at least be
drastically affected.
I.e. Gear box assembly without bearing
ESSENTIAL: Essential items are those items whose stock – out cost is very high for
the company.
I.e. Gear box assembly, gears are very costly
DESIRABLE: Desirable items are those items whose stock-out or shortage causes
only a minor disruption for a short duration in the production schedule. The cost
incurred is very nominal.
I.e. Gear box assembly, fasteners for fastening housing
49
3. SDE ANALYSIS
S-D-E stands for Scarce, Difficult and Easy. It attempts to classify items on the
basis of its availability or procurement such as-
 Its non-availability.
 How scarce it is.
 Does it have a longer lead time?
 Where is the geographical location of the suppliers of the item, i.e. close by,
or very far away?
 How reliable (or unreliable), after the suppliers of the item, etc.
SCARCE: These are generally short in supply, or are channelized through
government agencies. If the company feels that a lot of time as well as
expenditure are involved in procuring these items, it would be advisable for the
company to procure these items, say once a year.
I.e. Import of high precision machining machine like SKODA from JAPAN
DIFFICULT: These items are available indigenously, but are difficult to procure.
Difficult categorization also includes those items which are procured from far off
places and whose suppliers cannot be relied upon. Sometimes it may happen that
certain items are difficult to manufacture and further, there may be only one or
two companies who manufacture this item. In order to procure such items in time
for production, the manufacturers may have to be given an order well in advance.
Such items are also classified under difficult Category.
I.e. manufacturing of stainless steel coil like JSL or special cast iron crack
resistance electrodes
EASY: As the name suggests, these items are easily and readily available. They
include all those items that are produced according to commercial standards,
items which are able to be procured locally without any difficulty, etc.
I.e. Purchasing of E7018 electrode as it is easily available at all vendors.
50
4. FSN ANALYSIS
By doing FSN analysis materials can be classified based on their movement from
inventory for a specified period. Items are classified based on consumption and
average stay in the inventory.
F – Fast Moving
S- Slow Moving
N- Non moving
Sometimes the terms FNS is also being used, where
F – Fast Moving
N- Normal Moving
S- Slow Moving
There following steps in doing the FSN analysis
 Calculation of average stay and the consumption rate of the material in
warehouse
 FSN Classification of materials based on average stay in the inventory
 FSN Classification of the material based on consumption rate
 Finally classifying based on above FSN analysis.
EXAMPLE – 10 (Item code of a company details)
51
5. HML ANALYSIS
H-M-L analysis is similar to ABC analysis except the difference that instead of
Annual Inventory Turnover , cost per unit criterion is used.
The items under this analysis are classified based on their unit prices. They are
categorized in three groups, which are as follows
H-High Price Items
M-Medium Price Items
L-Low Price Items
I.e. In a gear box assembly, gear is high price items, housings are medium price
& paints are low price items
Objectives of HML Analysis
 Determine the frequency of stock verification
 To keep control over the consumption at the department level
 To evolve buying policy, to control purchase
 To delegate the authority to different buyer
 Determine the frequency of stock verification
 To keep control over the consumption at the department level
 To evolve buying policy, to control purchase
 To delegate the authority to different buyer
6. XYZ ANALYSIS
XYZ analysis has a correlation with ABC analysis, only the difference is that instead
of annual consumption and price per unit, the inventory value is considered.
Usually XYZ analysis is used in conjunction with either ABC analysis or HML
analysis.
X- High inventory value
Y-Moderate inventory value
Z -Low inventory value
52
7. GOLF ANALYSIS
The GOLF classification of inventory items is done considering the nature of

suppliers. As the source of supply of different items are different, with a view to
determining the lead time, order quantities, safety stock and terms of purchase
and payment. Here, under this classification:
G = Government controlled supplies
O = Open market supplies
L = Local supplies
F = Foreign market supplies.
I.e. In railway coach assembly, BBSR railway workshop –G, Body manufacturing –
O, Fasteners – L, Precision air suspension – F
8. S – OS ANALYSIS
S – OS analysis is based on seasonality of the items and it classifies the items into
two groups
 S (seasonal)
 OS (Off Seasonal).
The analysis identifies items, which are:
 Seasonal and are available only for a limited period. I.e. agriculture produce
like raw mangoes, raw materials for cigarette and paper industries, etc. are
available for a limited time and therefore such items are procured to last the
full year.
 Seasonal but are available throughout the year. Their prices, however, are
lower during the harvest time. The quantity of such items requires to be fixed
after comparing the cost savings due to lower prices if purchased during
season against higher cost of carrying inventories if purchased throughout the
year.
 Non – seasonal items whose quantity is decided on different considerations.
53
9. M – N – G ANALYSIS
M – N – G analysis based on stock turnover rate and it classifies the items into
 M (Moving items)
 N (Non – moving items)
 G (Ghost items).
M (moving items) is those items which are consumed from time to time.
I.e. Issue of various inserts for machining in machine shop
N (Non – moving items) are those, which are not consumed in the last one year.
I.e. A fabricated fixture for clamping of jobs in machine shop
G (Ghost items) is those items, which had nil balance, both in the beginning and at
the end of the financial year, and there were no transactions (receipt or issues)
during the year.
I.e. Equipment manufactured without issue of any materials from store
10. PERPETUAL INVENTORY SYSTEM
Perpetual inventory system is defined as the method of recording stores balance
after each receipt and each issue to facilitate regular checking of inventory. It is
also known as continuous stock checking. The application of perpetual inventory
control system involves –
 Attaching bin cards with bins.
 Continuous stocks counting to compare the actual stock.
Through perpetual inventory system; purchased value of each merchandise and
detail sales information are recorded.
Bin cards refers to the cards attached to every bin in which the details regarding
the quantity of material received, issued and balance left in that bin is recorded
hand to hand. Under this system, statement of material, follow up actions,
monitoring etc. can be smoothly carried out.
54
11. PERIODIC ORDER SYSTEM

Under this system, the stock levels of all types of inventories are reviewed after a
fixed time interval. Time interval may be weekly, fortnightly, monthly, quarterly
etc. depending upon the criticality of the item. Critical items may require a short
review cycle and on the other hand, lower cost and non-moving items may require
long review cycle. Therefore, for different items different time intervals should be
used. After the review, the items which are less than the required level, order is
placed to replenish their exhausted level.
The above said techniques basically deal with store issue
system used in an organization by the management for tracking all issued,
received & reject items for controlling the inventory. The all activity comes under
store & issue departments.
The system or processes of issuing items are illustrated in
respondent’s roles in inventory control.
FIGUR-6
55
12. INVENTORY CONTROL RATIOS

It is a tool to evaluate the liquidity of company s inventory. It measures how many
time a company has sold and replaced its inventory during a certain period of
time.
FORMULA-10
Stock Turnover = Cost of goods sold / Average inventory
Average inventory is used instead of ending inventory because many companies

merchandise fluctuates greatly throughout the year. For instance, a company
might purchase a large quantity of merchandise January 1 and sell that for the
rest of the year. By December almost the entire inventory is sold and the ending
balance does not accurately reflect the company s actual inventory during the
year.
If cost of goods sold is unknown, the net sales figure can be
used as numerator and if the opening balance of inventory is unknown, closing
balance can be used as denominator. For example if both cost of goods sold and
opening inventory are not given in the problem, the formula would be written as
follows:
FORMULA-11
Inventory turnover ratio = Sales / Inventory
Cost of goods sold = sales-profit
Average selling period= 365/inventory turnover ratio
EXAMPLE - 11
Compute the inventory turnover ratio and average selling period from the
following data of a trading company:
Sales: $75,000
Gross profit: $35,000
Opening inventory: $9,000
Closing inventory: $7,000
56
SOLUTION:
As we know that inventory turnover ratio =cost of goods sold/average inventory
Average inventory = (Opening inventory + closing inventory)/2
= (9000+7000)/2
= 8000
Cost of goods sold=sale-profit=75000+35000=40000
Inventory turn ratio =40000/8000=5times
Average selling period = 365/Inventory turnover ratio=365/5=73times
So, a company takes 73days to sell the average inventory.
13. CONSIGNMENT INVENTORY
Consignment inventory is a supply chain management strategy in which you store
the goods in the business unit without paying the supplier until after the goods are
consumed. Because the supplier owns consigned stock until you consume it,
stocking your warehouse with items on consignment enables you to reduce the
inventory carrying costs and defer payment for liabilities. It involves in two stages
as below
CONSIGNED PURCHASES INVENTORY: To store supplier-owned stock in your
organization's warehouse, distribution center, manufacturing facility, or other
location.
VENDOR MANAGED INVENTORY: To store your inventory stock in a customer's
warehouse, distribution center, manufacturing facility, or other location.
This kind of details are given later chapter as respondent s role in inventory
control.
57
FIGURE -7
ART-13
MODEL-2 COST ANALYSIS
COST PRICES: DELIVERED FROM COST PRICES NOTIONAL PRICES
FIFO (First in First out) Simple average price Standard price
LIFO (Last in first out) Weighted average price Inflated price
Periodic weighted average

Base stock price Re- use price
price
HIFO (highest in first out) Periodic simple average price Replacement price
Moving weighted average

Specific price
price
LOFO(lowest in first out) Moving simple average price
58
2.15.2 COST ANALYSIS MODEL
2.15.2.1 FIRST IN FIRST OUT (FIFO)

FIFO refers first-In, First-Out. FIFO is a cost flow assumption, where the oldest cost
of an item in inventory will be removed first when one of those items is sold. This
oldest cost will then be reported on the income statement as part of the cost of
goods sold. FIFO will be reported on the balance sheet.
2.15.2.2 LAST IN FIRST OUT (LIFO)

This refers to last in first out. Some organization uses this inventory control
technique to sell the highest value of inventory in first which was purchased lastly.
EXAMPLE - 12
Ornamental works began January with 45units of iron inventory that cost $ 24
each. During January the company completed the following inventories
transactions.
month Transaction units Units cost Unit sale price

3 sale 35 $ 51
8 purchase 70 $ 32
21 sale 65 73
30 purchase 25 47
Calculate company inventor record using FIFO inventory costing method
SOLUTION
FIFO stands for first in first out. So we have calculated all the transaction
accordingly from beginning inventories to sales.
month Goods purchased Cost of goods sold Inventory

balance
January 3 Beginning 45 ×$ 24=$1080
inventory
January 3 35×$ 24=$ 840 10×$ 24=$240
59
January 8 70×$ 32=$ 2240 10×$ 24=$240

70×$ 32=$ 2240
January 21 10×$ 24=$240 15×$ 32=$ 480
55×$ 32=$ 1760
January 30 25×$ 47=$ 1175 25×$ 47=1175
15×$ 32=$ 480
The closing stock = (Beginning inventory + purchased) – sale
= (1080+2240+1175) - (840+240+1760)= $ 1655
Cost of goods sold = $ 2840
Total sales are = (35*51+65*73) = $ 6530
Profit =sales – cost of goods sold = $ 3690
2.15.2.3 BASE STOCK PRICE
The minimum inventory a company needs in order to maintain operations without
some interruption. Companies, especially retailers, strive to maintain at least their
base stock at all times. In this model inventory is refilled one unit at a time and
demand is random. If there is only one replenishment, then the problem can be
solved with the newsvendor model
2.15.2.4 HIFO
It refers to highest in first out. Highest purchase price in the stock will be
consumed first or in other words will be sent out to production hall at first place.
The term HIFO is most often used in logistics and transportation, warehouse
management, production logistics or accounting.
2.15.2.5 SPECIFIC PRICE METHOD
Under this method, each item sold and each item remaining in the inventory is
identified & physical count has been carried out for finding exact figure for all
inventories. The cost of specific items that are sold during a period is included in
the cost of goods sold for that period and the cost of specific items remaining on
hand at the end of a period is included in the ending inventory of that period.
2.15.2.6 LOFO
It stands lowest in first out. It means that first the reserves or material with low
purchase price are consumed. LOFO method is mostly used in logistics and
transportation, warehouse management, production logistics, requirements
management, and the inventory pricing and management.
60
2.15.2.7 SIMPLE AVERAGE METHOD

Under this method all individual purchases prices are added & then divided by the
numbers of items to find out the simple average cost.
FORMULA-12
Average price = p +p +p ……..
N
P = price
N = number of unit of price
Closing stock = number of units × average price.
2.15.2.8 WEIGHT AVERAGE METHOD

The weighted average cost method is most commonly used in manufacturing
businesses where inventories are piled or mixed together and cannot be
differentiated, such as chemicals, oils, etc.
FORMULA – 13
Cost of goods available for sale /the number of units available for sale
In this calculation, the cost of goods available for sale is the sum of beginning
inventory and net purchases.
Weighted average rate = pq + p1q1+p2q2+p3q3
If q, q1, q2, & q3 are the quantities in stocks on a day with p, p1, p2 & p3 as the
corresponding purchases
2.15.2.9 STANDARD PRICE

A uniform price that is pre-established for services or goods that is based on cost
of replacement, historical prices or the analysis of it competitive market position.
2.15.2.10 INFLATED PRICE METHOD

There are some materials which are subjected to natural wastage.
 Material lost due to loading and unloading
 Timber lost due to seasoning. In such cases, the materials are issued at an
inflated price (a price higher than the actual cost) so as to recover the cost of
natural wastage of materials from the production.
In this way, the total cost of the material is recovered from the production.
61
EXAMPLE - 13
If 100 tons of coal are purchased at Rs 75 per ton and if it is expected that 5 tons
of coal will be lost due to loading and unloading.
The inflated issue price in this case will be Rs 78.95 (i.e. 100 x Rs 75/95) per ton.
With the actual issue of 95 tons of coal the actual cost of Rs 7,500 (100 tones
purchased @ Rs 75 per tonne) will be recovered from production (95 tonnes @ Rs
7 78.95).
ART-14
MODEL – 3 RESPONDENTS ANALYSIS
CUSTOMER
OPERATIONAL MATERIALS MARKETING MANAGEMENT
SERVICE MAINTENANCE
MANAGEMENT MANAGEMENT &SALES SYSTEM
MANAGEMENT
•LEAN •PURCHASE •MARKETING •CUSTOMER •MRP •TPM

MANUFACTUR •SCM •SALES SATISFACTION •MRP -II •PM
ING •LOGISTIC EVALUATION •ERP •CM
•STORES •SAP
•VENDOR
MANAGEME
NT
2.15.3 OPERATIONAL MANAGEMENT

2.15.3.1 LEAN MANUFACTURING
1. MEANING
Lean is a continuous improvement philosophy which is Synonymous with Kaizen or
the Toyota Production System.
In brief, lean management seeks to implement business processes that achieve
high quality, safety and worker morale, whilst reducing cost and shortening lead
times.
2. DEFINITION
Lean is the set of "tools" that assist in the identification and steady elimination of
waste
So, The Seven Wastes which has been reduced by lean manufacturing are:
So what do we mean by waste? Here we are referring to any expenditure of
resources that doesn t add value for the customer. In lean manufacturing there
are generally considered to be seven types of waste.
62
 Over-production against plan

 Waiting time of operators and machines
 Unnecessary transportation
 Waste in the process itself
 Excess stock of material and components
 Non value-adding motion
 Defects in quality
3. TOOLS USED IN LEAN NMANUFACTURING FOR WASTE ELIMINATION
 5S
 Andon
 Bottleneck Analysis
 Continuous Flow
 Gemba (The Real Place)
 Heijunka (Level Scheduling)
 Hoshin Kanri (Policy Deployment)
 Jidoka (Autonomation)
 Just-In-Time (JIT)
 Kaizen (Continuous Improvement)
 Kanban (Pull System)
 KPIs (Key Performance Indicators)
 Muda (Waste)
 Overall Equipment Effectiveness (OEE)
 PDCA (Plan, Do, Check, Act)
 Poka-Yoke (Error Proofing)
 Root Cause Analysis
 Single-Minute Exchange of Dies (SMED)
 Six Big Losses
 SMART Goals
 Standardized Work
 Takt Time
 Total Productive Maintenance (TPM)
 Value Stream Mapping
 Visual Factory
63
ART – 15(LEAN FRAME WORK)
MUDA - It refers to
physical waste
MURA - It is the waste due Waste

to unevenness or Elimination
inconsistency
MURI - It is the wast of

over burden
REASON FOR MUDA, MURI & MURA
FIGURE-8
64
65
As lean manufacturing is the combination of various methods, I elaborate some of

most useful techniques in my thesis as these are mostly used in much
organization.
2.15.3.2 TQM PROCESS FOR INVENTORY CONTROL

1. MEANING
To improve inventory control, you have to evaluate key processes and apply total
quality management principles to them. Once you are familiar with TQM, you can
use it to identify problems in inventory control and implement solutions while
improving the efficiency of your operations.
Total quality management (TQM) is a key driver of customer satisfaction and
business success. This is often achieved by incorporating detailed standards into
the management and productive processes. There is now a globally recognized
organization, The International Organization for Standardization that provides
standards and guidelines relating to processes that drive the production of quality
outputs like ISO 2002-2008 & "ISO 9000".
2. DEFINITION
TOTAL QUALITY MANAGEMENT
It is the combination of
 Total – everything
 Quality – degree of excellence
 Management – art, act or way of organizing, controlling, planning, directing to
achieve certain goals
3.EFFECT OF TQM (QUALITY IMPROVEMENT)
Improve Quality (Product/Service)
Increase Productivity (less rejects, faster job)
Lower Costs and Higher Profit
Business Growth, Competitive, Jobs, Investment
66
4.SCOPE OF TQM
FIGURE -9
67
5.CATEGORIES OF TQM
Total Quality management can be divided into four categories:
 Plan
 Do
 Check
 Act
Also referrers to as PDCA cycle.
6. QUALITY MANAGEMENT TOOLS

Quality Management tools help employees identify the common problems which
are occurring repeatedly and also their root causes.
ART- 16
The Cause
Pareto Scatter
Check List and Effect Histogram Graphs
Chart Diagram
Diagram
2.15.3.3 SIXSIGMA
MEANING
Six sigma is a business management strategy which aims at improving the quality
of processes by minimizing and eventually removing the errors and variations. The
concept of Six Sigma was introduced by Motorola in 1986, but was popularized by
Jack Welch who incorporated the strategy in his business processes at General
Electric. Six Sigma ensures superior quality of products by removing the defects in
the processes and systems
 Six-Sigma is a relatively newer concept than Total Quality Management but not
exactly its replacement
 The main focus of Total quality management is to maintain existing quality
standards whereas Six Sigma primarily focuses on making small necessary
changes in the processes and systems to ensure high quality
 Six-Sigma focuses on improving quality by minimizing and eventually
eliminating defects from the system
68
1. SIX SIGMA METHODS:

 DMAIC
 DMADV
ART-17
DMAIC
C - Control
I - Improve the
the current processes
A - Analyze processes so that
the data based on they do not
the research lead to
M- defects
Measure and analysis
and find done in the
out the previous
D- stage.
Define key points
the of the
Problem current
process
ART – 18
DMADC
V - Verify various
processes and finally
D - Design details
and processes. implement the same
A - Analyze and develop high
level alternatives to ensure
superior quality.
M - Measure and identify
parameters that are
important for quality
D -Design strategies and
processes which ensure hundred
percent customer satisfaction.
69
2.15.3.4 JUST IN TIME (JIT)

1. HISTORY
Harber et al .(in Biggart and Gargeya 2002:1) mention that the just-in-time (JIT)
production system (as the Toyota Production System) was introduced by Shigeo
Shing and Taichi Ohno at the Toyota Motor plant in the mid-1970. JIT production
is called by many names:
 zero inventory production system (ZIPS)
 Minimum inventory production system (MIPS)
 Kanban production
 kaizen production
 Stockless production, pull-through
 Production and quick response (QR) inventory systems.
2. CONCEPT
Just in Time (JIT) is the policy used to eliminate the waste due to over production &
is a management philosophy that calls for the production of what the customer
wants, when they want it, in the quantities requested, where they want it, without
it being delayed in inventory.
3.PRINCIPLES
ART-19
Elimination of
watse
Continious quality
improvement
Implementation of
process
Defect free
Encouragement of
worker participations
70
4. BASIC TENETS OF JIT

A successful JIT system is based upon the following key concepts:
 QUALITY
With JIT, the customer must receive high quality goods. With a JIT system, poor
quality means the production line stops or there are no extra items to replace
the poor ones.
 VENDORS AS PARTNERS.
Generally, firms using JIT rely on fewer vendors rather than more. Purchases are
concentrated with a limited number of suppliers in order to give the buyer
leverage with respect to quality and service. Purchasers also include vendors in
the planning process, sharing information regarding sales and production
forecasts so that vendors then have a clear idea of what their customers need.
 VENDOR CO-LOCATION WITH CUSTOMER.
Ideally, suppliers should be located in close proximity to their customers. As the
distance between vendors and buyers increases, so does the opportunity for
system disruption and stock-outs. In order to minimize this risk, customers often
demand that vendor facilities be co-located on the same site or at least in the
same geographical era as their own.
5. ADVANTAGES OF JIT INVENTORY
There are a multitude of improvements related to JIT inventory, particularly in
relation to reduced cash requirements and the ease with which manufacturing
problems can be uncovered. Advantages of JIT inventory include:
 WORKING CAPITAL. JIT inventory is designed to be exceedingly low, so the
investment in working capital is minimized.
 OBSOLETE INVENTORY. Since inventory levels are so low, there is little risk of
having much obsolete inventory.
 DEFECTS. With so little inventory on hand, defective inventory items are easier
to identify and correct, resulting in lower scrap costs.
71
 PROCESS TIME. A thoroughly implemented JIT system should shorten the

amount of time required to manufacture products, which may decrease the
quoted lead times given to customers placing orders.
 ENGINEERING CHANGE ORDERS. It is much easier to implement engineering
change orders to existing products, because there are few existing stocks of
raw materials to draw down before you can implement changes to a product.
6.DISADVANTAGES OF JIT INVENTORY
SHORTAGES. Low JIT inventory levels make it more likely that any problem in the
supplier pipeline will lead to a shortage that will stop production. This risk can be
mitigated through the use of expensive overnight delivery services when shortages
occur.
7. JIT AT TOYOTA
FIGURE - 10
72
TABLE - 7
1. In which inventory costs are minimized by

having the parts required arrive at their point
of use only as they are needed
HEIUNKA - LEVELLING THE FLOW
2. With heijunka a process is designed to
switch products easily, producing what is
needed when it is needed, and relying on
production.
Eliminate the various waste
ELIMINATION OF WASTE – MUDA
1. Takt time" is the rate at which you need to
TAKT TIME – THE HEARTBEAT OF complete the production process in order to
PRODUCTION meet customer demand.
2.T =T/D Where T= Time require to complete
the job, D = Demand of customer
This means only a minimum stock of
components is held in the assembly area.
KANBAN CARD Before stocks need replenishing, a kanban
card instruction from the operator ensures a
just-in-time delivery
The master production schedule expresses
PRODUCTION SCHEDULE (MPS). how much of each item is wanted and when it
is wanted
It is also known as bill of material records
(BOM), contain information on every item or
assembly required to produce end items.
THE PRODUCT STRUCTURE
Information on each item, such as part
RECORDS
number, description, quantity per assembly,
next higher assembly, lead times, and
quantity per end item, must be available
It contains the status of all items in inventory,
THE INVENTORY STATUS RECORDS including on hand inventory and scheduled
receipts.
73
2.15.3.5 5S
1.MEANINING
5S represents Japanese words that describe the steps of a workplace organization

process. English equivalent words are shown in parenthesis
 Seiri (Sort)
 Seiton (Straighten, Set)
 Seiso (Shine, Sweep)
 Seiketsu (Standardize)
 Shitsuke (Sustain)
ART-20
Sort (seiri) –
Distinguishing
between necessary
and unnecessary
things, and getting
rid of what you do
Sustain (shitsuke) – not need
Implementing Straighten (seiton) – The
behaviors and habits practice of orderly
to maintain the storage so the right item
established standards can be picked efficiently
over the long term, (without waste) at the
and making the right time, easy to access
5S
workplace for everyone. A place for
organization the key everything and
to managing the everything in its place.
process for success
Shine (seiso) – Create a

clean worksite without
Standardize (seiketsu)
garbage, dirt and dust,
– Setting up
so problems can be
standards for a neat,
more easily identified
clean, workplace
(leaks, spills, excess,
damage, etc)
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2.15.3.6 KAIZEN
1. MEANING
KAI = CHANGE + ZEN = GOOD CHANGE FOR THE BETTER"
Kaizen = Continuous Improvement ...by Everybody! Every day! Everywhere! Kaizen
is the practice of continuous improvement. Kaizen was originally introduced to the
West by Masaaki Imai in his book Kaizen: The Key to Japan s Competitive Success
in 1986. Today kaizen is recognized worldwide as an important pillar of an
organization s long-term competitive strategy. Kaizen is continuous improvement
that is based on certain guiding principles:
 Good processes bring good results
 Go see for yourself to grasp the current situation
 Speak with data, manage by facts
 Take action to contain and correct root causes of problems
 Work as a team
 One of the most notable features of kaizen is that big results come from many
small changes accumulated over time.
2.15.4 MATERIALS MANAGEMENT
1.MEANING
Material management is an approach for planning, organizing, and controlling all
those activities principally concerned with the flow of materials into an
organization.
The fundamental objectives of the Materials Management function, often called
the famous 5 Rs of Materials Management, are acquisition of materials and
services:
 Of the right quality
 In the right quantity
 At the right time
 From the right source
 At the right price
2.THE FUNCTIONS OF MATERIAL MANAGEMENT ARE AS FOLLOWS:
 Material Planning and Programming
 Store Keeping
 Inventory Control
 Quality Control and Inspection
 Material Handling & Disposal of Surplus, Obsolete and Scrap stock
75
These are the following branches of materials management.
2.15.4.1 PURCHASING
1.MEANING
The activities carried out of acquiring goods or services to accomplish the goals of
an organization.
The major objectives of purchasing are to
 Maintain the quality and value of a company's products
 Minimize cash tied-up in inventory
 Maintain the flow of inputs to maintain the flow of outputs
 Strengthen the organization's competitive position.
2. FUNCTION
 Development and review of the product specification
 Receipt and processing of requisitions
 Making purchase order & release ofPO
 Advertising for bids
 Bid evaluation
 Award of supply contracts
 Inspection of good received and their appropriate storage and release.
2.15.4.2 LOGISTIC
1.MEANING
Logistics is used more broadly to refer to the process of coordinating and moving
resources – people, materials, inventory, and equipment – from one location to
storage at the desired destination within the organization.
The latest Logistics Cost and Service Report published by Establish Inc./Herbert
W. Davis and Company, indicates that, while total logistics costs as a percent of
sales are falling and most individual companies have succeeded in reducing
inventory levels; total logistics costs per hundredweight are increasing, and
inventory costs as a percent of total logistics cost are increasing.
76
2.LOGISTICS COMPONENTS
The management of logistics can involve some or all of the following business
functions, including:
 Inbound transportation
 Outbound transportation
 Fleet management
 Warehousing
 Materials handling
 Order fulfillment
 Inventory management
 Demand planning
FIGURE - 11
2.15.4.3 SCUPPLY CHAIN MANAGEMENT

1.MEANING : Supply & demand balanced by SCM. In an organization SCM plays a
vital role for controlling the inventory as involved in moving of various materials in
of cooperation with various departments & also with end customers.
A supply chain is a global network used to deliver products and services from raw
materials to end customers through an engineered flow of information, physical
distribution, and cash.
77
2.INVENTORY CONTROL TECHNIQUE BY SCM

 Cross-dock Customer Shipments
 Transfer Instead of Purchase
 Merge-In-Transit
 Use Vendor-Managed Inventory (VMI) and Vendor Stocking Programs (VSP)
FIGURE – 12
2.15.4.4 SUPPLIER RELATIONSHIP OR VENDOR RELATIONSHIP

1. MEANING: Supplier relationship management (SRM) is the discipline of
strategically planning for, and managing, all interactions with third party
organizations that supply goods and/or services to an organization in order to
maximize the value of those interactions. In practice, SRM entails creating closer,
more collaborative relationships with key suppliers in order to uncover and realize
new value and reduce risk of failure & fulfill the demand & replenishment the
stock as per requirement.
78
2. SRM MATURITY MODEL
TABLE – 8
ATTRIBUTE MINIMAL INVOLVED MEDIUM ADVANCED

Suppliers One or two A few select Few strategic;
major ones ones — More preferred;
important Many
and/or transactional
problem ones
Who Engages Buyer Procurement Procurement Procurement Procurement
with the Supplier and one or and one or and and stakeholder
two others two others stakeholder team
(i.e., (i.e., team
engineering) engineering)
ad hoc ad hoc
Oversight Measure Manage Develop the
supplier
Price/Cost/Value Price Landed cost Total cost to Total cost to Total value to
Concepts operations the company customer
Measurements Detailed Mix of means Supplier
measures and ends measures self
reported to measures and corrects in
buyer real-time
Expected Comply with Improve self Develop self and
Performance requirements us
Effective Traditional Supplier Category
relationship
Management Sourcing and Management Management
Approaches buying and collaboration
3.THE STEPS IN SRM
 SUPPLIER SEGMENTATION - Map suppliers against profitability and risk
exposure.
 SUPPLIER STRATEGY DEVELOPMENT - Distribute internal resources and plans
to meet business needs.
 SUPPLIER STRATEGY EXECUTION
79
2.15.4.5 STORES MANAGEMENT

1. MEANING
It basically involved in the process of keeping track of incoming, out coming &
reject materials with coordination of different department. The process as below
2.15.4.5.1 RECEIPT AND ISSUE OF INVENTORIES

1. RECEIPT INVENTORIES IN TO STORE:
After incoming materials have been examined and approved they are passed on
to the appropriate stores together with the goods received note. Articles are
inspected and passed and on the stores in the usual way. In order to keep the
accounting procedure uniform, it is desirable that a goods received note be
prepared for these articles also, the store keeper than places the inventory in
appropriate bin or shelf and make necessary entries in the receipt column of the
Bin Card.
TABLE - 9
BIN CARD
DESCRIPTION: MAXIMUM LEVEL:

MATERIAL CODE: MINIMUM LEVEL:
LOCATION CODE: ORDERING LEVEL:
BIN NO: ORDERING QUANTITY:
STORES LEDGER NO: UNITS:
ISSUES BALANCE AUDIT
Date Goods received Qty Date Requisition Qty Qty Date

Note No. (units) Note No (units (units
80
2.ISSUE OF MATERIAL FROM STORES

The storekeeper issue materials on receipt of proper authorized document usually
called a materials requisition or a specification of material. Material requisition is
a document which authorities and records the issue of materials for use.
Requisition is normally prepared in triplicate: the department receiving the goods
retains one copy and the other two copies are handed over to hand over to the
storekeeper. He keeps one along with him and enters on the issue sides of the
appropriate bin card & transactions are noted in stores ledger.
3.STORES LEDGER:
The stores ledger which is usually a loose leaf or card type , contains an account
for each class of materials their ledger is kept in the cost department and contains
such information as well facilitate the ascertainment of all details relating to the
materials in the minimum of time.
TABLE -10
STORES LEDGER ACCOUNT
FORM NO: FOLIO:
MATERIALS: MAXIMUM LEVEL:
GRADE: MINIMUM LEVEL:
UNITS: ORDERING LEVEL:
CODE NO: RECEIVE LEVEL:
Date CSRV/STDNO. MIR NO Production Receipts Date Sign

Order &Issue
No./Section Qty Qty Balance
In Out
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4. MATERIALS RETURNED TO STORE

Where materials are issued in excess of requirement the excess quantity is return
to the stories together with materials return note. So that the value of these items
will liaise to concerned department for further processing.
TABLE - 11
MATERIAL RETURN NOTE
FROM NO: NOTE NO:

DEPARTMENT: DATE:
JOB NO:
ORDER NO:
Qty. Description Code No. Office Use only Remarks
Approved Returned Returned Rate Amount
By By No
Store Cost Priced

ledger no officer No by
5. TRANSFER OF MATERIALS
Transfer of materials form one job to another is prohibited unless the detail is
adequately recorded on the materials Transfer note. Such transfer is permissible
only where an urgent order has to be made and work started on urgent order by
higher level approval.
TABLE - 12
MATERIAL TRANSFER NOTE
NOTE NO: DATE: JOB NO: ORDER NO:
FROM: TO:
DEPARTMENT: DEPARTMENT:
Qut. Description Code No. Office use only Remarks

Rate Amount
Approved Issued Received BY Cost Officer Priced
BY Ref.NO BY
All these four notes including stores ledger and bin card are major for inventory
management which are valued and checked for every quarterly of half yearly or
annual
82
2.15.4.2 TECHNIQUES
1. TWO BIN SYSTEM
Fewer than two bin systems, all the inventory items are stored in two separate
bins. Bin means container of any size. In the first bin, a sufficient amount of
inventory is kept to meet the current requirement over a designated period of
time. In the second bin, a safety stock is maintained for use during lead time.
When the stock of first bin is completely used, an order for further stock is
immediately placed. The material in second bin is then consumed to meet stock
needs until the new order is received. On receipt of new order, the stock used from
the second bin is restored and the balance is put in the first bin. Therefore,
depletion of inventory in the first bin provides an automatic signal to re-order.
Thus, this technique is traditional yet logical and can be used by illiterate workers
also without using any formula.
Material from supplier

Empty of material
Full of materials Safety stock
(BIN-1) (BIN-2) ROP
(Reorder level (when materials being used, material will be reordered)
2. THREE BIN SYSTEM

The Three-Bin System is like a two-bin system, wherein the third bin of
inventory is reserved with the supplier. In other words, a manufacturing firm
keeps a stock of inventory in two bins, and at the same time, the supplier of the
inventory will keep one bin reserved at his location.
The Three-bin is built on the concept of Kanban system, a system used by the
Japanese manufacturers, who regulate the supply of the components through
the use of a card, displaying the set of specifications and instructions. This card
is shown by the work centers when they wish to draw inventory from the
supply bins.
83
All the three bins, one at the shop floor, another at the back store and the third
bin at the supplier s location are well equipped with a Kanban card, to track the
movement of inventory.
Once the inventory is used from the bin placed on the shop floor, it gets
replenished from the bin stored back store. Later the bin in the back store is
sent to the supplier to get it replenished from the inventory reserved with the
supplier. Then, the supplier will manufacture more inventories to fill the empty
bin placed with him.
Thus, the three-bin system is followed to have a secured flow of inventories
throughout the production of the finished goods.
2.15.5 MARKETING & SALES
2.15.5.1 MARKETING
The marketing department plays an important role in the inventory control as
follows
1. DEMAND PLANNING
 Understand the Demand for our Products
 Understand what Demand Planning is and how Forecasting Fits into the
Process
 Understand how the Demand Planning and Forecasting Tie into system.
2. CUSTOMER RELATIONSHIP MANAGEMENT (CRM)
Customer relationship management is the process of communicating with
customers throughout the various stages of the purchasing process, and this
includes people who have already bought from you. It is significantly easier to hold
on to an existing customer than it is to find new ones, but doing this requires all
elements of the marketing mix to be run well. For example, it s no use sending out
a beautifully produced customer magazine if your customer service is dreadful or
the product breaks easily.
2.15.5.2 SALES
A sales department is the direct link between a company s product or service and
its customers. Sales department control the marketing in relation to customer s
priority & requirement in case of multiple orders. So that proper panning can be
done to purchasing & manufacturing of goods as per demand.
84
2.15.6 MAINTENANACE OVERVIEW

1.MEANING:The technical meaning of maintenance involves operational and
functional checks, servicing, repairing or replacing of necessary devices,
equipment, machinery, building infrastructure, and supporting utilities in
industrial, business, governmental, and residential installations.
So, there are various maintenance procedures which help to control the inventory
items of spare parts to production growth.
ART- 21
TPM- No break down, No waste,

No slow running, No accident
Routine Maintenance: Predictive Maintenance

Planned Routine maintenance is techniques are designed to
Maintenance such activities as cleaning, help determine the condition
dusting, lubricating, of in-service equipment in
checkup of important parts order to predict when
such as battery. maintenance should be
performed
Preventive maintenance is a
schedule of planned maintenance
actions aimed at the prevention
of breakdowns and failures.
Scheduled Maintenance:
Scheduled maintenance is a
maintenance activity
undertaken on equipments as
per a plan of action, which gives
the sequence in which various
Corrective Maintenance: jobs would be attended.
Corrective maintenance
consists of the action(s) taken
to restore a failed system to
operational status
85
FIGURE - 13
2.15.7MANAGEMENT SYSTEM/BUSINESS INFORMATION

1. MEANING Inventory management systems track goods through the entire
supply chain or the portion of it a business operates in. That covers everything
from production to retail, warehousing to shipping, and all the movements of
stock and parts. Practically, it means a business can see all the small moving parts
of its operations, allowing it to make better decisions and investments.
2. BENEFITS
 Provides an automated warehouse.
 Provides effective inventory control.
 Helps prioritize your needs.
 Keeps data and amounts accurate.
86
3.TYPES ART – 22
PROCESS-1
INVENTORY
MANAGEMENT
SYSTEM TYPE
PROCESS-2
• Barcode
PROCESS - 2
• RFID
• Manually • MRP
• MRP2
• BAAN & ORACLE
MANUFACTURING
• ERP
• SAP
PROCESS-1
87
2.15.7.1 PROCESS -1 ART – 23
MANUALLY
Abusiness having few product,keeping their inventory track through manually.Employees
enter the numbers in a spreadsheet. Using the appropriate spreadsheet formulas, they can
deter i e if they ha e e ough aterials for the eek or if she’ll eed to purchase ore.
Barcode
Barcode technology facilitates the movement of inventory within the confines of the
warehouse (from one location to another) or from the supplier to the warehouse (receiving)
and from the warehouse to the customer (picking, packing and shipping).When a barcode gets
read at the point-of-sale, inventory sales data are immediately read to a broader system that
ai tai s usage statistics. The co pa y’s purchasi g depart e t uses these data to ake
buying decisions based on sales and existing inventory levels.
RFID
o ce a i e tory ite ’s tag is read, the o e e t data are tra s itted to the co pa y’s
inventory management software.
88
2.15.7.2 PROCESS – 2
2.15.7.2.1MATERIAL REQUIREMENT PLANNING (MRP)
1. HISTORY
In 1964, as a response to the Toyota Manufacturing Program, Joseph Orlicky
developed material requirements planning (MRP). The first company to use MRP
was Black & Decker in 1964. By 1975, MRP was implemented in 700 companies.
This number had grown to about 8,000 by 1981.
2. CONCEPT
Material requirements planning (MRP) involved in activities as production
planning, scheduling, and inventory control system used to manage
manufacturing processes in an organization.
The three major inputs of an MRP system are the
 Master production schedule
 The product structure records
 The inventory status records.
 Production schedule (MPS).
FIGURE -14
89
An MRP system is intended to simultaneously meet three objectives:

 Ensure materials are available for production and products are available for
delivery to customers.
 Maintain the lowest possible material and product levels in store
 Plan manufacturing activities, delivery schedules and purchasing activities.
2.15.7.2.2 MANUFACTURING RESOURCE PLANNING -II

1. BACK GROUND
MRPII evolved from the earliest commercial database management package
developed by Gene Thomas at IBM in the 1960s. The original structure was called
BOMP (bill-of-materials processor), which evolved in the next generation into a
more generalized tool called DBOMP (Database Organization and Maintenance
Program). These were run on mainframes, such as IBM/360.
In the 1980s, manufacturers developed systems for calculating the resource
requirements of a production run based on sales forecasts. In order to calculate
the raw materials needed to produce products and to schedule the purchase of
those materials along with the machine and labor time needed, production
managers recognized that they would need to use computer and software
technology to manage the information. Originally, manufacturing operations built
custom software programs that ran on mainframes.
2. CONCEPT
MRPII is concerned with the coordination of the entire manufacturing production,
including materials, finance, and human relations.
3. IMPORTANCE
1. FOR MANUFACTURING FUNCTION:
 Better control in inventory
2. FOR FINANCIAL & COSTING FUNCTION:
 Accurate inventory costing
 Reduce working capital for inventory
3. FOR DESIGNING & ENGINEERING FUNCTION :
 Providing better quality job to customer through better quality control.
90
4.PROCESS FIGURE - 15
91
2.15.7.3 ERP (ENTERPRISE RESOURCE PLANNING)

1. MEANING Enterprise resource planning (ERP) is business process management
software that allows an organization to use a system of integrated applications to
manage the business in details of production, material planning, procurement,
manufacturing planning & inventory control and automate many back office
functions related to technology, services and human resources.
FIGURE – 16
2.CO-ORDINATION
92
FIGURE – 17
93
2.15.7.4 SAP
1. BACKGROUND
SAP is the fourth largest software company in the world. It founded in & around by
1972by five IBM engineers Hopp, Wellenreuther, Hector,Tschria & plattner.
SAP stands for systems, applications & products inn data processing. The SAP R/3
system is a business software package designed to integrate all areas of business.
It provides end to end solution for financial, logistic, procurement, manufacturing
distribution etc.
2. SAP FUNCTIONAL MODULE

 FICO- Finance & control
 PP- Production planning
 MM- Materials management
 SD – Sales & distribution
 HR- Human resources
 CRM- Customer relationship management
3.LATESTS SAP VERSION

 SAP R/1, R/2, R/3
 My SAP Business suit
 SAP ERP
 SAP Industry solution
 SAP X Apps
 SAP solution manager
4.ADVATAGES
 Reduced loss of revenue due to items being out-of-stock.
 Reduction in distribution costs.
 Reduction in freight costs.
94
5.PROCESS
FIGURE -18
95
2.15.7.5 OVERVIEW OF AN INTEGRATED INVENTORY MANAGEMENT SYSTEM

FIGURE – 1 9
Use ’s make e uests fo e sou ce s
(Either hardware, software, or fixed
assets such as office furniture). To
Inventory Management
ensure accuracy of Inventory, all
Process Flow
requests must be via system connected
terminal.
USER
USER
Inventory Management
Financial Management
Inventory Control
Managemnt Financial profile of inventory is
Inventory of asse ts is provided to Financial
controlled by the Inventory Management, who recommend
Control Manager. Enterprise purchasing techniques that
design agreements are will result in discounts (i.e.,
validated by this person, Volume Purchase Agreements,
who also ensure s that all Repository Reports Reportsor specific vendors).
asset guideline s are
adhered to.
Hardware,Softwar,
Fixed Assets,by
Location All reports deemed
and Criticality necessary to support
system and informational
requests.
96
2.15.7.6 MANAGEMENT SYSTEM OF AN ORGANIZATION

FIGURE - 20
97
2.15.7.7 SOME OTHER INVENTORY MANAGEMENT SOFTWARE SYSTEM
ART- 24
TECHNOLOGY DYNAMIC TECHNOLOGY INVENTORY TECHNOLOGY
Zoho Inventory is an
Offering the industrys only Easily track all inventory in
online application concurrent planning solution, your store and warehouse
that enables you to Kinaxis is helping organizations with Inventory Track. Track
manage orders and around the world revolutionize stock level and get
inventory. With multi- their supply chain planning. automatic restocking
Kinaxis RapidResponse, our notification. Scan
channel selling, manufacturer barcodes or
shipping integrations cloud-based supply chain
produce barcode labels
management software,
and powerful connects your data, processes
directly from Inventory
inventory control, you Track. Track stock level of
and people into a single your inventory Receive
can now optimize harmonious environment. With automatic restock
your inventory and a consolidated view of the notification Use existing
order management, entire supply chain, you can items labels or print your
right from purchase plan expected performance, own Manage inventory
monitor progress and respond information records View
to packing, to to disconnects when reality hits. activity logs and reports
payments.
98
2.15.8 CUSTOMER RELATIONSHIP

Inventory management is more than simply moving and organizing inventory
efficiently. It is also about keeping your customers happy. It includes all of the big
and small pieces involved in the logistics of keeping inventory moving into the
warehouse and out of the warehouse at an ideal pace. It means always having
enough parts and products on hand at all times to meet and even exceed your
customers expectations while avoiding having too many items on hand because
that can lead to increased carrying costs, inefficient use of warehouse space, and
even product spoilage and obsolescence if you are not careful.
Customer service is the way you treat your customers, and inventory management
is how you maintain the right items, right quality & right quantity in your stores
and warehouses in order to treat your customer s right.
2.15.8.1 CUSTOMER SATISFACTION
 Customer is always right – in Japan customer is King
 Customer expectations constantly changing – 10 years ago acceptable, now
not anymore!
 Delighting customers (Kano Model)
 Satisfaction is a function of total experience with organization
 Need to continually examine the quality systems and
 practices to be responsive to ever – changing needs,
 requirements and expectations – Retain and Win new customers
2.15.8.2 ISSUES FOR CUSTOMER SATISFACTION
Checklist for both internal and external customers
 Who are my customers?
 What do they need?
 What are their measures and expectations?
 Does my product/service exceed their expectations?
 How do I satisfy their needs?
 What corrective action is necessary?
2.15.8.3 CUSTOMER FEEDBACK
 Discover customer dissatisfaction
 Discover priorities of quality, price, delivery
 Compare performance with competitors
 Identify customer s needs
99
2.15.8.4 CUSTOMER FEEDBACK TOOLS/METHOD

 Warranty cards/Questionnaire
 Telephone/Mail Surveys
 Focus Groups
 Customer Complaints
 Customer Satisfaction Index
2.15.8.5 STEPS FOR CUSTOMER SATISFACTION
Knowing
• Respond to Messages
custo ers’ Promptly & Keep Your
requirements Clients Informed
Fulfilli g custo ers’ •Have a Clearly-
requirements on Defined Customer
quality attributes as Service Policy
much as possible
Investigating where
the service performed
is satisfactory to
customers and where it
is not
Taking appropriate action
•In time &
to correct or improve
safely deliver
service in cases where
of product
quality is poor
Built a
CRM
system
Keeping stock to
meet customer
demand
Doing
Customer
survey
2.15.8.6 CUSTOMER SATISFACTION SURVEY

 To assess the level of customer satisfaction with a particular product, service or
experience.
 To check if customer service issues are handled properly and in a timely
manner.
 To check if there is a growing market trend that needs to be addressed.
 To check any problems with product quality.
 To find out any problems with shipping or delivery.
100
KEY POINT - From my thesis report I suggest an organization to arrange these

types of customer relationship management, customer satisfaction survey &
building the customer satisfaction software for keeping actual data & tracks in
order to bring the kind thought to modify the customer dissatisfaction.
2.16 AUDIT OF INVENTORIES

1. MEANING If your company records its inventory as an asset, and it undergoes
an annual audit, then the auditors will be conducting an audit of your inventory.
Given the massive size of some inventories, they may engage in quite a large
number of inventory audit procedures before they are comfortable that the
valuation you have stated for the inventory asset is reasonable. Here are some of
the inventory audit procedures that they may follow.
2. STEPS ART - 26
Test item costs

Observe the physical inventory count
Cutoff analysis
Reconcile the inventory count to the
general ledger
Test inventory in transit
Review freight costs.
Test for lower of cost or market.
Finished goods cost analysis
Direct labor analysis.
Overhead analysis.
Work-in-process testing
Inventory allowances
Inventory ownership.
Inventory layers.
101
2.17 KEY RESPONSIBILITIES OF AN INVENTORY MANAGER
ART - 27
Evaluate Prepare Purchase New

Track Inventory
Suppliers Documentation Inventory
• Inventory • They must • The inventory • Overall, the
managers have accurately manager must inventory
the important record the have a manager is
responsibility quality, constant responsible for
of finding a quantity, type, knowledge of ensuring your
supplier who style, and any what inventory organization
will provide other is left and what has the right
your company characteristics is running low. amount of
with the goods of the In the event stock to meet
needed to inventory so inventory is customer needs
operate and be your company low, he or she and also to
profitable has a clear must mange avoid
• an inventory understanding ordering with overstocking
manager needs of what is and coordination of items; which
to be aware of is t a aila le purchase ties up cash
other available department and creates
suppliers in the more from the storage issues.
area who may appropriate
be willing to supplier and
provide your negotiate
business with pricing and a
materials at a timeline for
better cost. delivery.
102
2.18 KEY PERFORMANCE INDICATOR (KPI) IN INVENTORY MANAGEMENT

A Key Performance Indicator (KPI) in inventory management may be defined as
information associated with a target (objective) in order to provide an assessment
of the performance in relation to the target, the target being defined within the
scope of an overall strategy. Such assessment should be associated with
(modulated by) the resource variables (human and technical)
Some examples of performance indicator associated to inventory management
are as follows:
TABLE - 13
PERFORMANCE INDICATOR DETAILS/COMMENTS
Value of stock at the end of the month. May be
Value of stock
detailed in stock per Division or per class of
equipment.
Value of surplus stock Value of surplus stock at the end of the month.
Number of surplus items Number of surplus items at the end of the month.
Value of obsolete stock Value of obsolete stock at the end of the month.
Number of obsolete items Number of obsolete items at the end of the month.
Number of stock items Number of stock items at the end of the month.
Number of created stock items Number of stock items created during the month.
Number of reviewed/analyzed items (generating

Number of reviewed/analyzed items
possible changes to management parameters)
during the month.
Number of removed stock items
Number of stock items removed during the month.
Stock at third parties (Number of items

Stock at third parties (Number of items and value)
and value)
at the end of the month.
Reception in stock (Number of Reception in stock (Number of movements and

movements and items, and value) items, and value) during the month.
Exits from stock (Number of movements Exits from stock (Number of movements and
and items, and value) items, and value) during the month.
103
Return to stock (Number of movements Returns to stock (Number of movements and

and items, and value) items, and value) during the month.
Number of inventoried items Number of inventoried items during the month.
Consumption value Consumption value during the month.

Rotation of stock (in consumption months). May
Rotation of stock
be detailed per Division or per class of equipment.
Number of stock shortages (Number Number of stock shortages (Number of items)
of items) during the month.
Number and value (in stock) of items sold during
Number and value of sold items
the month.
Returns from stock item sales
Monthly returns from stock item sales.
2.18.1 INVENTORY KPI: SERVICE LEVEL

Service Level KPI is to measure the level of service performed by Inventory or Stock
Control in fulfilling their customer (user) requirement.
It is reflected by the percentage of quantity or value fulfilled toward total quantity
or value requested (demand) during the period of reporting.
FORMULA – 14
Service Level in Qty = (Total qty fulfilled / Total qty requested) * 100 %
Service Level in Value = (Total value of qty fulfilled / Total value of qty requested) * 100 %
The higher the service level, the more satisfied the user/customer will be. It could
be also ensured that the operation will not be disturbed due to the shortage of
supporting materials.
To increase the service Level, you may increase your inventory parameter. It
means that your stock level will be increased. Of course, with such a high stock
level will automatically affect the inventory turnover. You'll have huge capital lay
down on your stock. So the Challenge for the Inventory Control is how to optimize
the inventory management to satisfy their customer as good as possible with, of
course, in an efficient cost.
104
3.1 TYPES OF INVENTORIES(RM, WIP, FG)
3.2 TURN OVER RATIO
3.3 ABC ANALYSIS
3.4 INVENTORY HOLDING DAYS

CHAPTER -3
DATA ANALYSIS & 3.5 EOQ ANALYSIS
INTERPRETATAION
3.6 RESPONDETS ANALYSIS
3.7 CASE STUDY
3.8 TEST OF HYPOTHESIS
105
DATA ANALYSIS & INTERPRETATAION

3. DEFINITION
Quantitative data was analyzed by using computer programs like Microsoft excel,
tables, pie charts and graphs from secondary data.
(A Study has been carried out on Inventory Management with relevant data of
SAIL LTD)
3.1 TYPES OF INVENTORIES TABLE- 14
TYPES OF INVENTORY & ITS VALUE (IN MILLIONS)
TYPES OF INVENTORY
FISCAL
Raw Work-in Finished Spare Parts Total
YEAR
materials Process Goods &Stores Amount
Amount % Amount % Amount % Amount %
2001-02 26.98 7.1 35.8 9.42 26.22 6.9 292 76.84 380
2002-03 33.86 8.54 42.52 10.72 24.3 6.13 295.75 74.6 396
2003-04 58.29 12.61 58.68 12.7 55.8 12.07 290.2 62.78 462.2
2004-05 93.32 19.92 50.88 10.31 43.4 8.8 305.8 62 493.2
Total 212.45 48.17 187.88 43.15 149.72 33.9 1183.8 276.2 1731
GRAPH - 1
350
300
250
200 2001-02
AMOUNT
150
2002-03
100
2003-04
50 2004-05
0
Raw materials Work-in Process Finished Goods Spare Parts
&Stores
TYPES OF INVENTORY
106
INTERPRETATION
POINT -1
 From the above table & graph I found that there are 3types of inventory in SAIL
LTD. The materials consumption in the industry is erratic.
 The raw material inventory is gradually increasing & at the year of 2004-05 it is
found 93.32 million which is very high rather than other year& the plant
consumption is only 19%
 So, from the above analysis I expect that the SAIL LTD has not adopted any
inventory control technique to control the raw material purchasing & there is
no sound purchase policy.
 The stochastic trend of material figures during the study period indicate that
the industry was not using modern procurement techniques like properly
maintained stock level, practice of safety stock and economic order quantity.
POINT-2
 Similarly, the size of Work-In Process (WIP) inventory and percentage of WIP to
total inventory are in increasing trend throughout the study period. It was Rs.
35.8 million in year 2001-02 and at the end of study period (2004-05) became
Rs. 50.88 million. The average value of work-in- process inventory was Rs.
46.97 million.
 I expect the SAIL LTD has not prioritized the manufacturing schedule as per the
customer demand & no production control techniques, TQM have not been
implemented, so that the cause of resultant may be rejection of product due to
quality issue.
POINT-3
 The figure of finished goods inventory was Rs. 26.22 million in 2001-02 and
became Rs. 55.8 million & 43.4 in 2003-04 & 2004-05. The percentage of
finished goods inventory to total inventory was also in increasing trend which
was 6.9% in 2001-02 and 8.88 in 2004-05.
 I expect there is no such forecasting of market demand & no sound marketing
policy in SAIL LTD.
POINT-4
 From the above table & graph I found that out of total inventory cost, spare
parts & stores items cost are high. During the study, at the beginning of year
stock found Rs292 million in the year of 2001-02 & it is gradually increasing
and found Rs 305.2million in the year 2004-05.
107
3.2 TURN OVER RATIO TABLE - 15
INVENTORY TURNOVER RATIO ON THE BASIS OF SALES (RS. IN MILLIONS)
YEAR SALES INVENTORY TURN OVER RATIO QUICK FORMULA

2001-02 398.6 236.56 1.685
2002-03 416.05 251.71 1.653 SALES/INVENTORY
2003-04 655.4 254.52 2.575
2004-05 658.72 239.56 2.749
Mean 2.1655
GRAPH - 2
3 2001-02
2002-03
2
TURNOVER RATIO
2003-04
1 2004-05
0
YEAR
INTERPRETATION
 The inventory turnover ratio measures the number of times inventory has been
turned over (sold and replaced) during the year.
 From the above table & graph I found that for the year of 2001-02, the turn
over ration with respect to sales of SAIL LTD was 1.65 times & then it fell at
little bit in 2002-03 & then gradually increased form the said year to our study
year of 2004-05 is 2.749 times it means the company growing up in respect to
financial profit.
108
3.3 ABC ANALYSIS

TABLE – 16
TEMS CODE DESCRIPTION

H1 Iron Ore
J1 Flux
J2 Coke
J3 Dolomite
K1 Sulphur
K2 Manganese
INTERPRETATION
 From the above data & graph, I found that stock items H1 and J1 together
control almost 90% share of the total sales value and hence have been
classified as Group A.
 J2 and J3 command 8.44% of the share in total sales value whereas K1 and K2
command a meager 2.26% of the total sales value. Hence, they have been
categorized as Class B and Class C respectively.
 Class A items represent 22.5% of the total stock units and generate 89.30% of
the revenue
 Class B items constitute 32.5% of the total stock units and generate 8.44% of
the revenue.
 Class C items make up for 45% – the biggest share of the total stock units but
their share in total revenue generation is mere 2.26%.
109
ON THE BASIS OF RATE

GRAPH – 3
2% ABC CATEGORY
A B C D
0%
9%
89%
3.4 COST BASED INVENTORY TYPES HOLDING DAYS

TABLE- 17
TYPES AVG. INVENTORY IN HOLDING DAYS %
MILLIONS
RM 74089 17.15
WIP 12095 37.44
FG 12530 45.00
STORES & SPARES 9143.39 0.40
GRAPH - 4
100000
50000 AVG. INVENTORY IN MILLIONS

HOLDING DAYS %
0
RM AVG. INVENTORY IN MILLIONS
WIP FG
STORES & SPARES
INTERPRETATION
 From above data I found that WIP & FG inventory holding days in terms of % is
high 37.44 & 45.00%
110
3.5 EOQ ANALYSIS TABLE - 18

EOQ ANALYSIS COST(IN DOLLAR)
ORDERI
STOCK TOTAL COST
AVERAGE NG
NOS OF AVERA CARRYING PER
STOCK COST(N
ORDER GE COST(10% ANNUM(CA
ORDER VALUE(A OS OF
YEAR PER STOCK OF RRYING EOQ
SIZE VG.STOC ORDERS
ANNU (ORDER AVERAGE COST
K × UNIT × COST
M SIZE/2) STOCK +ORDERING
PRICE) PER
VALUE) COST)
ORDER)
2001-02 1 24000 12000 72000 7200 50 7250 0.11
2002-03 2 12000 6000 36000 3600 100 3700 0.33
2003-04 4 6000 3000 18000 1800 200 2000 0.94
2004-05 6 4000 2000 12000 1200 300 1500 1.73
The SAIL LTD estimated usages per annum is 2400units,price per units charged by
supplier is $6 and ordering cost /order is $50
GRAPH - 5
80000
70000
60000
50000
40000
30000
20000
12000
2001-02
10000 4000
6 2000 1200 300 1500 2002-03
0
2003-04
2004-05
111
INTERPRETATION
 From the above table & graph I found that as per the demand of products, the
total cost of SAIL LTD varies. From the starting year of 2001-02, the total cost
of product was $7250 & during the study year of 2004-05 it is found as $1500.
 It can be seen from the above table that, with the increase in ordered size ,
stock carrying costs also increases & with the decrease in ordered size, the
stock carrying costs decreases; while with the increase in ordered size, ordering
cost decreases & with the decrease in quantity ordered, ordering cost
increases. Thus when the ordered quantity is 400 units, the total costs are the
lowest at $ 1200. Thus economic order quantity is 1.73units.
 The same EOQ value is very much essential for company to calculate the
reorder point i.e. when to place the order to supplier for replenishment of items
& also buffer stock so that the customer demands can be easily achieved to
avoid seasonal fluctuation of demand.
3.6 RESPONDENTS ANALYSIS

TABLE – 19
RESPONDENTS DEALING WITH INVENTORY MANAGEMENT
REPONDENTS DEGREE OF %
CUSTOMER SERVICE 35
LOGISTIC 20
SUPPLY CHAIN MANAGEMENT 15
MARKETING & SALES 12
MATERIAL MANAGEMENT 10
OTHERS 8
MEAN 16.66
112
GRAPH - 6
REPONDETNS
CUSTOMER SATISFACTION LOGISTIC SUPPLY CHAIN MANAGEMENT
MARKETING & SALES MATERIAL MANAGEMENT OTHERS
8%
10%
35%
12%
15%
20%
INTERPRETATION
 Looking at table & graph it is clearly indicated that 35 % of respondents are
addressing the customer service.20% involved in materials movement in the
organization through logistic only & 15% dealing with packaging,
transportation & warehousing for movement of materials from in house to
customer.
 10% found in material management for purchasing materials in right time,
with right price & with right place to full fill the assembly the components & it
also involved for vendor management principle for in time delivery with quality
terms.
 8% involved in others department that dealing with site engineer, deign section
.All the respondents are dealing with customer satisfaction
113
3.7 CASE STUDIES

CASE OF TOYOTA COMPANY USING JIT TECHNIQUE
THE CASE HAS BEEN TAKEN INTO CONSIDERATION OF INVENTORY SYSTEM & THE
PROCESSIMPLEMENTED BY TOYOTA IN DATA ANALYSIS & INTERPRETATION.
PROBLEM IDENTIFICATION
The problem of 10 to 15% rise in WIP inventory for JC 8037 Cylindrical type of
Bearing.
STUDY OF EXISTING PROCESS FOR THE SELECTED BEARING
The detailed study of the existing processes was undertaken to quantify the exact
rise of WIP, the cause and solution to remove the bottleneck. And moreover to
control raw materials, bought out components and finished goods of various
bearings.
These types of bearings are
 JC 8037
 JC 8038
For study of the process Bill of Material (BOM) is very important, So that actual
data can be figured out. The following shows the BOM for the above mentioned
components.
In our research we are taking 01no of bearing for data analysis. I.e JC8037
TABLE - 20
BOM FOR THE SELECTED BEARINGS
BEARING DESCRIPTION COMPONENT DESCRIPTION COMPONENT QTY
JC8037 6X12LPROLERS-CRB 1.000

1.000
JC 8037 INNER RINGSCRB
JC8037 CRB MACHINED 14
CAGESSTEEL (Drg. No. 3CA-196)
JC8037 OUTER RINGSCRB
114
COMPONENTS OF JC 8037/8038 DESCRIPTION

TYPE BEARING
This figure shows varies components

for the JC 8037. Outer ring, cage and
needles are the components for this
type of bearing. Cage and needles are
produced in the interplant and outer
ring is manufactured inhouse. So for
outer ring we need to give operation
Cage
scheduling for which we must know
Roller Elements the material flow.
Outer Ring
Note: JC = Jeau Circumferential (Gap between

1st and Last
Needle).
TABLE -21
WIP INVENTORY FOR SELECTED COMPONENTS
MONTH-WISE INVENTORY DAYS OF WIP ON SHOP FLOOR
Month JC 8037 Outer JC 8037 Inner
June 8.10 8.01
July 8.15 8.25
August 8.14 9.98
September 8.05 8.95
Oct 8.20 1023
Nov 7.90 8.95
Dec 8.15 8.93
Jan 8.01 8.64
115
GRAPH -7
GRAPH -8
TABLE -22
116
PROPOSED METHOD
Proposed method is controlling inventory by Toyota KANBAN methodology. Inventory

will be kept in control according to monthly plan with keen control of KANBAN
methodology.
USE OF KANBAN SYSTEM
When using Kanban discipline, a workstation has a fixed number of Kanbans (literally
cards in Japanese) to use in requesting work from upstream sources.
Once an item arrives, the requesting Kanban is attached to the work unit until it leaves
the work station. At that time, the work station can use the Kanban to request more
items from upstream sources. This is referred to as a Kanban discipline by Mitra and
Mitrani .Kanban discipline constitutes a—flexible system that promotes close
coordination among workstations in repetitive manufacturing. The goal of the Kanban
system is to achieve a total invisible conveyor system connecting all the external and
internal processes. The number of Kanbans at a workstation determines its output
buffer size.
ASSUMPTIONS AND CONDITIONS

The following assumptions are used for all models:
 There is a single class (type) of items.
 The first workstation never waits for material on which to work (an unlimited
availability of raw materials).
 The last workstation never waits for demand (there is unlimited finished goods
storage capability).
 There is a single machine per workstation.
 There is no transportation time between workstations.
Demand on average must be bigger than or equal to the average throughput
117
GRAPH -9
GRAPH -10
118
MATHEMATICAL MODEL FORMULATION LOGIC

The main assumption here is daily attainment for the TG is 3500 components
TABLE - 23
 On 1st day WIP is 3438 at FG and 3536 at TG. Then total inventory is 37974 as
shown in the last column of the row.
 On 2nd day, in TG column it shows the 3555 because 3500 components the TG
operation is completed on 1st day. So total inventory is now (13555 + 8000 + 22000)
= 33555. So on the 3rd day at ODG operation remaining components are (11438 –
3438) = 8000 only.
 On 3rd day, in ODG operation it shows the 8000 components which is less than the
safety stock. Then we need to increase the safety stock for that we need to do HT
operation for the components. That means we need to do 30000 components HT on
that day. Now inventory is (3595 + 8000 +14000 = 25495)
 On 4th day, there is no problem because at FG there are less components and
normal daily at track grinding components which are greater than the safety
inventory level.
 On 5th day at FG we have only 3500 components which is less than the safety
 Inventory level. Therefore we need to do 8000 components ODG operation on that
day.
 On 6th day, there is no problem because at ODG 8000 FG 8000 components required
for next day operation is being produced.
 On 7th day, there is 3500 components which is less than the safety inventory level.
So it is necessary to do another 8000 ODG operation to fulfill the lack of safety
inventory level.
119
GRAPH -11
CALCULATION OF BUFFER STOCK/ INVENTORY LEVELS

The question of how many kanbans to use is a basic issue in tuning a kanban system. If
your factory makes products using mostly standard, repeated operations, the number
of kanbans can be determined using the formula
K = DR * RT * + α /NC
where,
DR = Daily Requirement (parts/day)
RT = Replenishment Time (days)
α= Safety fa to
NC = Number of parts per container
I e to y Le el = [Daily P odu tio Re ui e e t * +α ]
The number of kanbans you need dependent on the number of pallets or containers and
their capacity. Lead times, safety margins or buffer inventory, and transportation time
for kanban retrieval are also important factors. Several questions must be answered
when deciding the number of kanban to use.
INVENTORY LEVEL
Inventory level is very important in between the process. That is also called as safety
stock level which is calculated as below
120
I e to y Le el = [Daily P odu tio Re ui e e t * +α ]

Daily Production requirement for JC 8037
Outer Ring = 4000 components
According to monthly plan
If safety fa to α= ,
Inventory level for
JC Oute Ri g = DR * + α = 4000 * (1 + 1) = 8000.
This inventory or safety stock keeping in between the process that is just before the TG
and ODG operation. Here it is to recognize that reverse process of maintaining
inventory as safety stock level between intermediate departments.
Tomorrows stock requirements only will be prepared today and today s requirement is
only prepared yesterday. Here that is major principle of material flow on shop floor.
 I e to y Le el = [Daily P odu tio Re ui e e t * Reple ish e t ti e * + α ]
 Daily P odu tio e ui e e t fo JC = 5 / ≈
 Daily e . fo JC = If safety fa to α= ,
Inventory level for JC 8037(RT = 7 days, lot size = 2000, batch size = 6000)
= DR * RT* + α
= 2000 * 7 * (1 + 1)
= 28000
α= , ea s safety stock for one day
IMPLEMENTATION PHASE
ACTION PLAN
 To Decide Kanban Methodology
 Monitoring Phase to ensure application of JIT
STEPS AT MONITORING PHASE
 Daily production fulfillments according to Monthly plan
 Attend daily Production Meeting
 Update Current status of Notice Board
 Attend breakdown and know the root cause
 Calculation of WIP inventory at starting of every month.
RESULTS
After implementation of in Toyota Production system TPS, the process was monitored
rigorously and the following results are achieved.
REDUCTION OF WIP INVENTORY WITH SAME OUTPUT
After implementation of Toyota Production system TPS, WIP Inventory reduced by
121
 15% for the component of the JC 8037 Outer Ring.

 12% for the component of the JC 8037 Inner Ring.
 5.35% for the component of the JC 8037 Outer Ring.
 6.6% for the component of the JC 8037 Inner Ring.
Following Table shows the comparison of average of six months WIP inventory before
implementation and average of three months WIP inventory after implementation.
TABLE - 24
GRAPH - 12
122
GRAPH - 13
CONCLUSION
 Mathematical model generates schedule for today considering yesterday s production,
no excessive inventory is generated.
 Simple and effective, easy to recognize the material flow on shop floor First in First Out
 (FIFO) terminology has been proved best for Finished Goods inventory reduction.
 WIP inventory reduced by 15% for the JC 8037 Outer Ring of Cylindrical variety.
o 12% for the JC 8037 Inner Ring of Cylindrical variety,
o 32% for the JC 8038/33B variety of Bearings.
 Loss of resources man, machine utilization reduced by:
o 7.1% for the JC 8037 Outer Ring of Cylindrical variety,

o 6.5% for the JC 8037 Inner Ring of Cylindrical variety,
 Process flow has resulted in drastic reduction in inventory levels and has facilitated a
smooth flow of operations due to its online supply chain and shop floor execution
communication capability.
 In summary, time-advantaged companies enjoy one or more of the following benefits,
relative to their peers: increased productivity; pricing flexibility; reduced risks; reduced costs
and increased response capability
123
TEST OF HYPOTHESIS
In this study I have to prove the two statements.
1. Null hypothesis-H0
2. Alternative hypothesis- H1
H0- Stands for there is no significant relation between two variables like
independent & dependent variable.
Here
Sales- Dependent variable
Inventory-Independent variable
H1 – Stands for statistical significant in two variables.
Study Analysis: There is no impact of inventory management on sales turnover
ratio of SAIL LTD IS STEEL MANUFACTURING COMPANY Company.
So I have used t-test for accepting hypothesis as number of population is less than
30.I.e. n<30.
Student t- test of the Mean Value and Standard Deviation of the HYZ
Company Sales Turnover Ratio (2001-2 to 2004-05)
TABLE -25
MEASURES SALES INVENTORY SIGNIFICANT LEVEL
X̅ 532.19 245.6325
σ 125 7.6
STANDARD ERROR 62.5 3.8 5%
t- VALUE 4.557
DF 16
Here I found that the calculated t –value is greater than the t critical value.
As we know that from the theory, if t calculated value is greater than equal to t
critical value, then null hypothesis is rejected.
DF (Degree of freedom.n1+n2-2) = 16
T-CRITICAL VALUE = 2.120 at 95% confidence level.
So I reject null hypothesis & accept alternative hypothesis. There is significant
relation between sales & inventory which affect the SAIL LTD sales turnover ratio.
124
4. SUMMARY
4.1 RESEARCH FINDINS & DISUSSION
CHAPTER-4 4.2 RESEARCH SUGGESTION
CULMINATION 4.3 CONTRIBUTION OF STUDY
4.4 SCOPE OF FURTHER STUDY
4.5 CONCLUSION
125
CULMINATION
4. 1 SUMMARY
From above the theory & research I found that, Products are manufactured to be
sold or consumed at the market. Literature witnesses nowadays that the customer
is the focal point of all decisions and actions in any business organizations. The
relationship product-customer is of great importance in business environment.
That s why; manufacturing industries use demand forecasting tools referring to
making estimations about future customer demand using historical data and
other information. Proper demand forecasting gives businesses valuable
information about their potential in their current market and other markets so
that managers can make informed decisions about pricing, business growth
strategies, and market potential.
The aim of this chapter was to present the research

methodology followed in order to attain the objectives of this dissertation. In light
of the above, it is of great importance to mention that more emphasis was placed
on inventory management models and customer service users. A questionnaire
was developed (under the inspiration of internal guide guideline of MIMTS for
creating questionnaires) in order to collect data for empirical phase. This enabled
to capture some perceptions on inventory management and customer service
management. The data analysis has been prepared using t-test for accepting or
rejecting the hypothesis.
Various inventory techniques as ABC, FIFO, EOQ,

ROP, SS, BS are used in SAIL LTD to control their inventory & respondents as
logistic, SCM, design, marketing, material management contribution showed to
move their inventory. Inventory control is entirely being influenced by
management policy & synchronization of all his departments along with outsider
working for him. EOQ is key tolls illustrated how determine the cost of goods to
help the company in finical point of view.
126
4.2 RESEARCH FINDINGS AND DISCUSSIONS
FINDINGS
 During the first four years i.e. in Financial Year 2001-02 to 2004-2005. During
the above four years the inventory level increased in terms of spare & stores
part in Rs 1183.8million at 276.2.
 The Inventory Turnover Ratio increased from 1.625 to 2.749 with an average of
2.1655. This is considered as satisfactory financial position as compare to
starting year.
 As per BAC analysis, the A items cover 90%. So the management has to make
close monitoring of these items as first moving.
 Company using EOQ model for evaluating the total cost of a product. As result
of which ROP, SS can be addressed to maintain the proper stock &
replenishment to meet the customer demand.
 Form respondents analysis, I marked as 35% & 20% in means of lack of
customers service & poor logistic management. This creates a result of more
inventories.
 There is no particular method has been followed for valuing the particular type
of inventories. Fast Moving stocks. Slow Moving stocks. Seasonal stocks. Vital
Items.
DISCUSSION
 There may be chance of excess materials purchasing, no TPM model, no MRP
process & no perfect tracking method (ERP/SAP) & missing of JIT techniques.
 The company may implement the JIT techniques & control the inventory as first
moving of costly items in focusing customer demands. Implementation of EOQ,
ROT & SS analysis method.
 The company used ABC techniques for easily finding of costly items & to
evaluate the holding period of these items to reducing the carrying cost.
 There may not be sufficient demand of products as they have been being
manufactured & also may lack of TQM & lack of customer relationship to
satisfy the customer.
 In a company, these techniques are very useful for a manager to decide when
to order, how to order & how much to order & evaluate the lead time for
replenishment.
127
 If we take calculated inventories as our target inventories, lot of savings might

have been achieved. Knowing the total consumption budget and calculating
the closing inventory, we may calculate the purchase budget as:
"Calculated Closing Inventory + Consumption Budget - Opening Inventory
Similarly the production plan may be drawn as:
"Calculated Closing Inventory + Sales Plan-Opening Inventory"(FG).
Now the aggregate purchase plan and production plan may then be judiciously
broken down into departmental plans or periodic plans. At the control stage
also, since real time controls are possible now with computers, inventory levels
can be maintained at desired levels. At the item level OR models may be used
in determining reorder level or economic order quantities.
 The control over the above inventories is exercised in the plants by different
agencies. While, Raw materials stores and spares are controlled by operation/
maintenance/purchase, the finished and semi-finished goods are controlled by
marketing and also to certain extent by operations.
 There should be a strong logistic department & customer service department
to review the customer satisfaction level by collecting the historical data &
keeping theses track for further processing.
4.3RESEARCH SUGGESTION
 The determination of ideal inventory nay helps us in one more area also. If we
calculate the consumption budget, the inventory at the end of the year nay
also to be forecasted and effective control measures can be established, since
the targets are then known in absolute term.
 In the context of stores and spares, standardization plays a very vital role for
inventory management. The following areas of standardization are very useful
for inventory control of stock items:-
o Specification
o Variety reduction
It has come to the light that due to ambiguity in specification, wrong materials are
procured which unnecessarily leads to increase of non- moving items. Problems in
specification may be divided into 3 groups:
o Faulty specification
o Over specification
o under specification
128
 Variety reduction can help in reducing inventory for both spares and general
stores.
 An area, where standardization may help in reducing inventory is by converting
the manufacturer part number to proper specification.
 It is very often heard that in steel plants a good number of non-moving items,
known as are "Risk Insurance spares" are being kept at the plant right from
installation. This was one of the reasons for carrying high inventory. It is true
that in a continuously running plant a number of vital spares have to be kept in
stock. It may not be possible to predict when such spare parts would be
consumed, or whether these would be consumed at all during the life time of
the equipment. So I suggest using VED analysis & also FSN technique for these
issues.
 During 1972 Rourkela Steel Plant made a study of the consumption norms of
their spare parts and developed the consumption norms (11) given in table -26
TABLE- 26
CONSUMPTION NORMS AS PERCESNTAGE OF INVESTMENT VALUE
Item Annual consumption as
% of Investment value
1. Coke oven machinery 3.0% Hech.
2. By-Product Machinery 2.0%
3. Iron & Steel Machinery 2.5%
4. Hot Rolling Hills H/c 3.5%
5. Cold Rolling Hills H/c
6. Spl.process Hills H/c 2.0%
7. Turbo-machinery 3. O%
8. Mobile Equipment 6.O%
9. Workshop b/c tools 5. O%
10. Electrical machinery 2.O%
11. EOT Cranes 2.5X% (Mech,& Elect.)
They concluded that total amount of consumption as percentage of investment
purchase value of Mechanical & Electrical Equipment should be within 3X
annually. They also concluded that F.O.B component of spare parts
consumption is to be limited to maximum of input component of investment.
These components to be gradually reduced by instituting successful import
129
substitution efforts .Every steel plant may evolve its own norms by analyzing
the past 5 year s actuals for each of the machine groups.
 Under the ABC analysis, the management must have more control on A items
than that on B & C items, because A class constitutes more of higher values.
There should not be tight control exercised on stock levels, to avoid
deterioration. This is done through maintaining low safety stock levels,
continuous check on schedules & ordered. Frequently in inventories, in order to
avoid over investment of working capital.
 The company has to keep the master data in SAP /ERP portal or any other
inventory management software being timely updated so as there are no
unmatched sets and excess of the unwanted buying of the same time of
material parts.
 The inventory turnover ratio indicates whether investment in inventory is
within proper limit. It also measures how quickly inventory is sold. It requires
maintaining a high turnover ratio than lower ratio. A high turnover ratio
implies that good inventory management and timely the inventories are being
replenished, also reflects efficient business activities.
 The management of the plant should incorporate TQM (Total Quality
Management), particularly in all departments of production to ensure better
sales and reduce the inventory of finished products.
 As I found more inventory in Spare & store items, I suggest the SAIL LTD is to
use JIT techniques, implementation of TPM, and various store issues items &
return process for strengthening the store issuing process.
 I recommend to build a customer service software to creating more focus on
customer demand & customer concerned.
 A strong logistic method needs to develop to meet the customer demand as per
the timely requirement.
 Train the professional towards the organizations mission, vision & target as
customer is our god.
 Suggest implementing a material resource planning, material manufacturing
planning & vendor relationship management adhere the best procurement
practice.
 Inventory management requires the cooperation, involvement and
participation of several departments like production, maintenance, sales,
design, purchase, stores, inspection, traffic, finance and accounts etc. Without
130
unreserved backing and support of the top management and without suitable
status and recognition for inventory management function, the required active
cooperation, involvement and participation do not easily be forthcoming from
the entire department.
 The training program should be provided to the all employees creating more
awareness about inventory.
 Suggest to Implementation of a periodical customer service survey
 I suggest to use the basic thumb rules as forecast+ demand+ cost analysis
techniques + inventory control method = Growth in organization.
4.4 CONTRIBUTION BY THE STUDY

In my thesis report, I incorporated the various inventory management software
system to control & tracking the flow of material from every direction to a single
point that is meet the customer demand & increase the level of customer
satisfaction.
I made a new thumb rule for inventory control that may be used.
ART -28
131
4.5SCOPE OF FURTHER STUDY
 It would be very interesting to conduct another study within the same area of
research, with the incorporation of more industries and the more departments,
which will give more integrated result to the topic and better utility to the
consultants and management.
 A further study will be carried out in details on other models like VED, FIFO, FSN
analysis etc. on SAIL. by using more hypothesis testing techniques to evaluate
the precision process.
 A further study will be carried out on accounting & financial implication on
inventory cost.
 A further study will be done in details as factors affecting the RM, WIP, and FG
& SS.
 The further study will bring more attention on the manufacturing process,
design & standardization helps in inventory control.
 The study focuses on data & information collected through books & internet.
While, it could be of interest to conduct a study on more areas of work and
including the lower level employees, senior level employees, suppliers & major
customers of an organization which gives more comprehensive understanding
and over view of the inventory management system.
 Here the study concentrates only the inventory control model scenario. While
a comparative study of latest inventory management systems & software
technology would be an interesting study to analyses the regional variations in
models & actual what system does.
 A study will be done in future that how internal & external factors affecting the
inventories to implement hassle free process.
132
4.6 CONCLUSION
The optimal management of company s inventories is a fundamental problem and

its solution would have a direct influence on the efficiency of business and the
position of a company in a market. The fundamental aim of solving this problem is
a continuous and complete satisfying of demand on the one hand, with minimum
opportunity costs of carrying inventory and holding costs on the other. We
analyzed inventory levels expressed in terms of financial ratios along with
dependence between inventory levels and profitability and we also analyzed
changes in inventory policy as an important activity in management of inventory.
An optimization model has been designed on the basis of the analysis results of
this activity.
An optimal inventory level should be based on

consideration of incremental profitability resulting from increased merchandise
with the opportunity cost of carrying higher inventory balances. Major findings
include a new mathematical model for calculating net savings from changes in
inventory policy and demonstration of no statistically significant association
between inventory levels and profitability. The contribution of this paper is to
model all the relationships between independent variables which determine net
savings from changes in inventory policy as a dependent variable. The
optimization model can be used as a tool to consider changes in inventory policy
and to make optimum use of inventories in order to achieve a maximum return at
an acceptable level of risk.
133
5. BIBLOGRAPHY
Reference websites:
 www.wikipedia.com
 www.managementstudy.com
 www.toyota.com
 www.google.com
 www.slideshare.com
Reference Books:
 Bowersox, Supply Chain Logistics Management, McGraw Hill Education
India.
 Slater Phillip, Smart Inventory Solutions, Industrial Press.
 Michael Chirchir et al, Fundamentals of Inventory Management, LAP
Lambert Academic.
 Catherine Milner & Geoff Relph, Inventory Management: Advanced
Methods for Managing Inventory within Business Systems, Kogan Page.
 Bose Chandra D., Inventory Management, PHI Learning.
 Jhamb L.C., Inventory Management, Everest Publishing House.
 Wild Tony, Best Practice in Inventory Management, John Wiley.
 Granville Emmett, Excellence in Inventory Management, Cambridge
Academic.
 B.K. Mishra, Theory and Practice of Inventory Management , Akashdeep
Publishing House, New Delhi 1989.
 Bhatia Jawaharlal Inventory management in Textile Mill in Delhi, Panjab,
Rajasthan Unpublished Ph. D. Thesis Submitted in Delhi University, 1986.
 James W. Prichard & Robert H. Eagle, Modern Inventory Management
John Wiley and Sons, Inc, New York, 1965.
 James W. Prichard and Robert H Eagle, Modern Inventory Management,
John Wiley and Sons, New York, 1965.
 Martin K. Starr and Miller, Inventory Management Prentice Hall of India
Pvt. Ltd.
 Munish, Inventory Management in India, A Study of Selected Companies-
Ph.D dissertation submitted to the Delhi University, 1986.
134
6. QUESTIONNAIRE
Question was designed to help identify risk factors that could result in errors,
fraud, irregularities and/or illegal acts. When the question is answered NO , the
risk factor identified should be considered when analyzing the department s
operations, and the completed questionnaire should be forwarded to Financial
Controls.
QUESTIONNAIRE PART-A
SUPPLIERS
A. What type of materials do you supply?
B. Typical process to place an order by a customer? (I.e. visit the store, phone)
C. Once the order is placed, how it is processed?
D. Do you use any computers to process the orders?
E. Who monitors the process?
F. Do you use any technology (i.e. bar codes, EDI, RFID) for inventory control?
G. What happens if you don't have the quantity required by the customer?
H. Do you have many customers asking the price matching?
I. Do you do JIT delivery?
J. How effective is your delivery in terms of time and quality?
K. What are the major problems that you can identify in the system?
(I.e. delivery times, quantities, relations with customers)
QUESTIONNAIRE PART-B
STORAGE PROCESS
A. Where are the materials stored?
B. How do you keep track of materials installed/remaining? Tie with the stock
requisition question Inventory?
C. Who manages the on-site inventory?
D. Does the distributor provide an on-site truck?
E. Does the supplier provide inventory management?
F. Based on what you schedule a materials release?
MATERIALS HANDLING
A. What are the major difficulties when handling material on-site?
B. Who is in charge of the materials handling plan and procedures?
C. Based on what you move materials to the site?
D. How often do you move materials to the site?
135
QUESTIONNAIRE PART - C
A. Do you have a classification for materials? Can you provide examples?
 Bulk
 Engineered
 Fabricated
B. Problems associated with the ordering process?
 Loss of order
 Fax not received
 Too many papers to fill out
 Not a good definition of what is wanted
 Poor communication with supplier
 Vague stated requirements
 Materials not available
C. Who follows up the order and makes sure that the materials will be
On site when needed?
D. What are the procedures used to evaluate potential suppliers?
 Forms
 Experience of supplier
 Reputation
 Previously worked with the supplier
 Supplier revolution technique
E. Quality is specified in the specifications for a particular project. In order for
approval of the work, the contractor has to meet the quality requirements
specified. How are quality issues specified to the supplier?
 Copy of specifications
 Orally
F. Sometimes when materials arrive to the site, they are not exactly what you
order or don't meet the requirements specified. What are the typical
problems associated with quality issues?
 No supplier Quality Assurances
 Materials don't meet the required quality
G. Typical problems associated with inspection procedures
 Procedures not followed
 Non-conforming items not identified
 Non-conforming items not isolated
136
H. Do you keep inventory on site? If you do keep inventory, which materials are
the most likely in your onsite inventory? Which materials will never be in
your inventory on site?
I. How adequate are procedures for storage material on site?
J. Different things can happen to materials once it is stored on site due to
weather, human factors, etc. What are the typical problems that you can
associate with stored material?
 Not adequate space for storage
 Theft
 Corrosion
 Deterioration
 Keeping track of material
 Re-handling of materials
 Storage of materials
 Loss of Materials
 Theft
 Damaging
K. Do you use a computer in your company for material ordering, material
tracking?
L. How effective is the computer system used for materials ordering, tracking?
M. Recently several electronic devices have been developed for materials
tracking and inventory control. Among these devices bar codes are included.
Do you use any technology for inventory control on site?
N. What are the problems associated with technologies used for materials
management?
137

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A STUDY ON INVENTORY MANAGEMENT

“A STEP TO ORGANIZATION’S GROWTH”

A Dissertation report submitted to

Submitted By Under the Guidance of

(Director, Department of PGDM)

Firstly I would like to express my immense gratitude towards our

I sincerely express my gratitude to the Director as well as my

I convey my thanks to my beloved friends and my faculty who

2.5 Importance of inventory management------------------------------------19

12. Art – 12 Model-1-------------------------------------------------------38

10. Example – 10 FSN analysis--------------------------------------------51

BODY STRUCTURE OF THE STUDY

Inventories are raw materials, work-in-process goods and completely finished

1.2 BIG TREND FOR INVENTORY MANAGEMENT

1.3 DATA ANALYTICS

1.4 PROBLEM STATEMENT

CHAPTER – 1 1.5 JUSTIFICATION OF THE STUDY

ORIENATAION 1.6 OBJECTIVE OF THE STUDY

1.7 SCOPE OF THE STUDY

1.8 LIMITATION OF THE STUDY

1.9 MAJOR HYPOTHESIS

1.10 LITERATURE REVEIEW

1.11 RESEARCH METHODOLOGY

Current manufacturing paradigm demands high productivity and the company s

Inventory management plans will lead to categorizing

Inventory management also facilitates a plant to decide the

The Inventory Management system and the Inventory

1.2 BIG TRENDS FOR INVENTORY MANAGEMENT

HOLE-Y BREAKTHROUGH, BATMAN!

THE BEST, BAR NONE

In 2018, there will be a total changing of order management,

This type of dynamics order management will require end-to-end

1.3 DATA ANALYTICS

1.4 PROBLEM STATEMENT

1.5 JUSTIFICATION OF THE STUDY

1.6 OBJECTIVE OF THE STUDY

1.7 SCOPE OF THE STUDY

1.8 LIMITATIONS OF THE STUDY

1.9 MAJOR HYPOTHESIS

Note: Hypothesis is a proposed explanation made on the basis of limited evidence

1.10 LITERATURE REVIEW

 According to Lieberman, Marvin B; Demeester, Lieven (1999) in his article titled

automotive industry published in Management Science has said that JIT

 Krishna, L Sivarama; Janardhan, G Ranga; Rao, C S P (2009) in their article

 According to Snehalgavi (2010) in her article titled It Outsourcing in Indian

 According to Martin, Benjamin Robert (2010) in his article titled Findlay

Look product suite to guarantee the right balance between pre-owned

 As per Koumanakos, Dimitrios P. (2008) in Business Wire titled Hitachi

 According to Cachon, Gérard P; Olivares, Marcelo (2010), Drivers of Finished-

 According to the aticle Study of vendor-managed inventory practices in Indian

 According to Matson, Jack E; Matson, Jessica O (2007), in Just-in-time

1.11 RESEARCH METHODOLOGY

1.11.2 METHODOLOGY OF DATA COLLECTION

2.1 MEANING & DEFINATION

2.2 CAUSE OF INVENTORY

2.3 NEED FOR HOLDING INVENTORIES

2.4 INVENTORY MANAGEMENT

2.5 IMPORTANCE OF INVENTORY

2.8 PROCESS OF INVENTORY MANAGMENET

2.9 STEPS IN INVENTORY MANAGEMENT

2.10 OPERATING CYCLE FOR INVENTORY

2.11 TYPES OF INVENTORY

2.12 FACTORS AFFECTING INVENTORY