(BZU)

Department of Business Administration BAHADUR Sub-Campus Layyah

MBA 2009-12, SEMESTER 5 FINAL REPORT DISTRIBUTION MANAGEMENT

SUBMITTED TO: MR. MUJEEB SARFRAZ

STUDENTS GROUP
1. Akhtar Hussain Chughtai

(MB(MB(MB(MB-09-

09-22) 2. Muhammad Ihsan ul Haq 09-02) 3. Nadeem Akhtar 09-25) 4. Muhammad Rashid 41)

Dated: January 02, 2012

IN THE NAME OF ALLAH THE MOST MERCIFUL AND THE MOST BENEFICIENT

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Acknowledgements
We are very thankful to Almighty Allah Who has given us wisdom and power to learn and seek. All praises and admirations to

Almighty

Allah Who is the creator of every thing.

Thanks also to Hazrat Muhammad (PBUH) Who is source of knowledge and leadership for all mankind forever. We are also very thankful to our beloved teacher Mr. Mujeeb Sarfaraz, who is prompting us towards professionalism. Tons of thanks for his valuable support and consistent guidance.
Akhtar Hussain Chughtai Muhammad Ihsan ul Haq Nadeem Akhtar Muhammad Rashid

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Dedication
This Report Is Dedicated To

Who are always a source of love, affection and inspiration for us.
Whose love and prayers always accompanied us and guide us like a shining star whenever we were in darkness and enable us to reach this stage.

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TABLE OF CONTENTS
1) Introduction 2) Inventory in supply chain 3) Definitions & concepts 4) Purpose of inventory 5) Types of inventory 6) Inventory management techniques 7) Other techniques 8) Five S 9) Conclusion 10) References 06 09 10 12 14 19 23 28 29 30

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Introduction
The word inventory simply means the goods and services that businesses hold in stock. There are, however, several different categories or types of inventory. The first is called materials and components. This usually consists of the essential items needed to create or make a finished product, such as gears for a bicycle, microchips for a computer, or screens and tubes for a television set. The second type of inventory is called WIP, or work in progress inventory. This refers to items that are partially completed, but are not the entire finished product. They are on their way to becoming whole items but are not quite their yet. The third and most common form of inventory is called finished goods. These are the final products that are ready to be purchased by customers and consumers. Finished goods can range from cakes to furniture to vehicles. Most people think of the finished goods as being part of an inventory stock, but the parts that create them are held accountable in inventory as well. Management is an individual or a group of individuals that accept responsibilities to run an organisation. They Plan, Organise, Direct and Control all the essential activities of the organisation. Management does not do the work themselves. They motivate others to do the work and co-ordinate (i.e. bring together) all the work for achieving the objectives of the organisation. Management brings together all Six Ms i.e. Men and Women, Money, Machines, Materials, Methods and Markets. They use these resources for achieving the objectives of the organisation such as high sales, maximum profits, business expansion, etc.

Inventory management is the process of efficiently overseeing the constant flow of units into and out of an existing inventory. This process usually involves controlling the transfer in of units in order to prevent the inventory from becoming too high, or dwindling to levels that could put the operation of the company into jeopardy. Competent inventory management also seeks to control the costs associated with the inventory, both from the perspective of the total value of the goods included and the tax burden generated by the cumulative value of the inventory.

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INVENTORY MANAGEMENT

Inventory management includes a company's activities to acquire, dispose, and control of inventories that are necessary for the attainment of a company's objectives. The management of inventories concerns the flow to, within, and from the company and the balance between shortages and excesses in an uncertain environment (Tersin, 1988). According to McPharson (1987, p360), in apparel manufacturing, "inventory management systems are designed to obtain concise and accurate information for control and planning of planned goods, issues, cuts, projections, WIP and finished goods." Inventory management has been a concern for academics as well as practitioners, in that overall investment in inventory accounts for relatively large part of a company's assets. Inventory may account for 20 to 40% of total assets (Tersin, 1988; Verwijmeren, Vlist, & Donselaar, 1996). Inventories tie up money, and success or failure in inventory management impacts a company's financial status. Having too much inventory can be as problematic as having too little inventory. Too much inventory requires unnecessary costs related to issues of storage, markdowns and obsolescence, while 7|Page

too little results in stockouts or disrupted production. Besides, long-run production associated with a high level of inventory conceals production problems (e.g., quality), which can damage a company's long term performance (Vergin, 1998). Therefore, the primary goal of inventory management has been to maximize a company's profitability by minimizing the cost tied up with inventory and at the same time meeting the customer service requirements (Lambert, Stock, & Ellram, 1998). Decisions on Production and Inventory Management Many authors have proposed factors which management should consider for better inventory management. Branam (1984) specifically emphasized the importance of in-plant throughput time reduction because throughput time is the ultimate constraint on inventory turnover ratio (inventory turnover ratio = annual cost of goods sold/average on hand inventory), which is one of the major performance indicators in inventory management. The author's interpretation of the in-plant throughput time is the time span from the point of raw material receipt to final assembly. Tersine (1988) pointed out the factors for better inventory management as better forecasting, improved transportation, improved communication, improved technology, better scheduling, and standardization. Pachura (1998) suggested that management should start the process of improving inventory management by determining the manufacturing type, benchmarking the inventory control performance, validating strategy (i.e., make-to-order, make-to-stock, build-to-forecast), determining underlying causes through the use of an operational review, and implementing corrective action. Higginson and Alam (1997) suggested specific techniques for inventory management by focusing on cycle time. 1. Maintaining a wide assortment of stock -- but not spreading the rapidly moving ones too thin; 2. ! Increasing inventory turnover -- but not sacrificing the service level; 3. ! Keeping stock low -- but not sacrificing service or performance. 4. ! Obtaining lower prices by making volume purchases -- but not ending up with slowmoving inventory; and 5. ! Having an adequate inventory on hand -- but not getting caught with obsolete items.

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INVENTORY MANAGEMENT IN THE SUPPLY CHAIN

Inventory management is one aspect of SCM. The main goal of SCM is to better manage inventory throughout the chain via improved information flow aimed at improved customer service, higher product variety, and lower costs (Lawrence & Varma, 1999; Vergin, 1998). Verwijmeren, Vlist, and Donselaar (1996) used the term "Networked Inventory Management" (p.16) for the inventory aspect of SCM. The efficiency of SCM can be measured by inventory performance such as the speed of inventory passing through the chain and the load of inventory throughout the chain (Jones & Riley, 1985). Inventory of various forms from raw materials through WIP to finished goods is fed into the chain from suppliers, production, and subsequently distribution centers to customers (Alber & Walker, 1997). This flow of inventory requires responsibilities of channel members for the planning, acquisition, storage, movement, and control of materials and final products (Tersine, 1988). High levels of inventory are found when the chain members less communicates due to lack of information sharing between chain members and inefficiency of SCM. Manufacturers, the main interest of this study, have the most difficult and complex inventory problem as they deal with raw material acquisition, transformation of the material into final finished goods, and movement to the customer. These consecutive activities require manufacturers to control production scheduling and timing that are not easily accomplished due to uncertainties in supplier performance, manufacturing process, and customer demand. Manufacturers could not reduce their buffer stocks without trusting in their partnerships and sharing forecasting information on actual demand at retail level because of the "bullwhip effect"(Nahmias, 1997, p.791), which means the effect of retail sales fluctuation grows larger as it traverses to upstream chain members. More customer requirements for broader product coverage and greater delivery capabilities escalate manufacturers' problem in production process complexity and forecasting of future demand.

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Definitions and concepts

In this section, general concepts in inventory management will be described and explained. The main sources of uncertainty where inventory management has to deal with are

Demand:
The demand for items may fluctuate from day to day (due to stochastic behavior at retailers, due to variations in the production plan in a manufacturing environment), from month to month (due to a seasonal pattern) and during the lifetime of a product (an upward trend in the beginning, a downward trend towards the end);

Lead time:
The total time that elapses between the reorder instant and the instant when goods are ready for use or sale. It consists of the handling time at the supplier (the time required for order picking, packing, and loading), the shipping time from the supplier to the stocking point and the handling time at the stocking point (the time required for unloading, unpacking, and placing on the shelf). When the goods still have to be produced after the reorder instant, it also includes the production time and possibly a set-up time for the production run. In the practical situation of uncertain (stochastic) demand and non negligible lead times stock out occurrences cannot be completely avoided. For customers arriving when an item is out of stock, two cases are often distinguished: 1. Any demand is backordered and the backlog is filled as soon as a replenishment is delivered; customers are willing to wait if it is difficult to obtain the item elsewhere; 2. Any demand is lost; customers go elsewhere to buy the item or give up the intention of buying the item .For some items, part of the demand may be backlogged and part may be lost. The distinction between the two extreme cases becomes less important when stockouts occur more rarely.
The three most important questions to be answered by an inventory policy are

1. When to review stocks?

A distinction is made between periodic review policies where stocks are reviewed at fixed time intervals, the review periods; continuous review policies where stocks are reviewed after each transaction.

2. When to order?
A distinction is made between { periodic review policies where orders can only be placed at the periodic review instants; { continuous review policies which use reorder points in inventory positions.

3. What to order?
A distinction is made between { policies with a fixed order quantity; { policies with a fixed order-up-to level. Next, we will discuss costs that may play a role when ordering and storing goods:

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Ordering cost;
The fixed cost of placing an order; this cost includes the cost of paperwork and accounting associated with an order which is independent of the size of an order; if the item is made internally rather than ordered from an external supplier, this cost is often called set-up cost and includes the cost of labor, material and idle time associated with setting up and shutting down a machine for a production run; if goods are ordered from another location within the same company, this cost may include internal shipping cost.

Purchasing cost:
The variable cost associated with purchasing a single unit of a good; this cost often includes variable labor cost, variable overhead cost and raw material cost associated with producing of handling a single unit; if goods are ordered from an external supplier, it also includes shipping cost; the external supplier may want to stimulate larger orders to save on shipping cost by ordering quantity discounts, these cost only depend on the inventory policy in case of quantity discounts or lost sales.

Holding cost:
The variable cost of holding a single unit of a good on stock during a unit time period; this cost often includes variable opportunity cost incurred by investing capital in inventory, storage cost, insurance cost, and cost due to possible theft, obsolescence, breakage and spoilage; the opportunity cost is often assumed to be a certain percentage, the so called carrying charge, of the purchasing cost; the carrying charge is strongly related to the interest rate.

Handling cost:
The cost associated to the handling of goods in a warehouse; as far as this cost is proportional to the number of items handled it does not influence the minimization of the total inventory cost if all demand is satisfied; as far as this cost is proportional to the number of orders handled it can be incorporated in the ordering cost; this cost is important in the design and control of warehouses.

Shipping cost:
The cost associated to the transport of goods from one stocking point to another; in case of an external supplier, the shipping cost is often included in the purchasing cost.

Stockout cost:
In case of backlog of demand it is the extra cost associated to the administration and later delivery of goods; in case of lost sales it is the opportunity cost of lost profit on unsatisfied demand; in all cases, it may include a penalty cost for loss of future goodwill; it 11 | P a g e

may also include extra cost for rush orders or overtime work; in many cases, stockout costs are difficult to assess and are therefore replaced by service level constraints (see below).

Management cost:
The cost incurred by keeping track of inventory levels and by computing order quantities; this cost is usually not included in inventory models but should form an incentive to choose for inventory policies that are simple to implement. In the stochastic demand models the following two service level constraints will be considered:

Inventory on hand:
The number of units actually present at the stocking point; it is also called the physical Stock. this quantity plays a role in determining holding costs; Net inventory (net stock): the inventory on hand minus the amount of backlog; this quantity can take positive and negative values;

Inventory position:
The net stock plus the number of units on order but not yet delivered; this quantity is required for determining a reorder instant;

Safety stock:
The average inventory position just before a delivery instant; this quantity is used as a protection against uncertainty in demand and against other irregularities like breakage and pilferage; it is related to the service level constraint or the cost of stockouts or losses.

The Purpose of Inventory

So why do you need inventory? As discussed in a just-in-time manufacturing environment, inventory is considered waste. However, in environments where an organization suffers from poor cash flow or lacks strong control over (i)electronic information transfer among all departments and all significant suppliers, (ii) lead times, and (iii) quality of materials received, inventory plays important roles. Some of the more important reasons for obtaining and holding inventory are: Predictability:

In order to engage in capacity planning and production scheduling, you need to control how much raw material, parts, and subassemblies you process at a given time. Inventory buffers what you need from what you process.
Fluctuations in demand:

A supply of inventory on hand is protection: You dont always know how much you are likely to need at any given time, but you still need to satisfy customer or production demand 12 | P a g e

on time. If you can see how customers are acting in the supply chain, surprises in fluctuations in demand are held to a minimum.
Unreliability of supply:

Inventory protects you from unreliable suppliers or when an item is scarce and it is difficult to ensure a steady supply. Whenever possible unreliable suppliers should be rehabilitated through discussions or they should be replaced. Rehabilitation can be accomplished through master purchase orders with timed product releases, price or term penalties for nonperformance, better verbal and electronic communications between the parties, etc. This will result in a lowering of your on-hand inventory needs.
Price protection:

Buying quantities of inventory at appropriate times helps avoid the impact of cost inflation. Note that contracting to assure a price does not require actually taking delivery at the time of purchase. Many suppliers prefer to deliver periodically rather than to ship an entire years supply of a particular stock keeping unit ( SKU) at one time. (Note: The acronym SKU, standing for stock keeping unit, is a common term in the inventory world. It generally stands for a specific identifying numeric or alpha-numeric identifier for a specific item.)
Quantity discounts:

Often bulk discounts are available if you buy in large rather than in small quantities.
Lower ordering costs:

If you buy a larger quantity of an item less frequently, the ordering costs are less than buying smaller quantities over and over again. (The costs of holding the item for a longer period of time, however, will be greater.). In order to hold down ordering costs and to lock in favorable pricing, many organizations issue blanket purchase orders coupled with periodic release and receiving dates of the SKUs called for.

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TYPES OF INVENTORIES
I. MATERIAL INVENTORIES :-

A raw material or feedstock is something that is acted upon or used by or by human labor or industry, for use as the basis to create some product or structure. Often the term is used to denote material that came from nature and is in an unprocessed or minimally processed state. Latex, iron ore, logs, and crude oil, would be examples. The use of raw material by other species other than the human includes twigs and found objects as used by birds to make nests.

WORK IN PROCESS INVENTORIES:-

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Work in process or in-process inventory includes the set at large of unfinished items for products in a production process. These items are not yet completed but either just being fabricated or waiting in a queue for further processing or in a buffer storage. The term is used in production and supply chain management.

. .SPARE PARTS INVENTORIES:-

Maintenance, repair and operating supplies which are consumed during the production process and generally do not form part of the product itself are referred to as spare part inventories.

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. FINISHED INVENTORIES:-

Finished goods are goods that have completed the manufacturing process and ready for sale or distributed to the end user. In manufacturing unit they are the final output of the production process. They may also be functionally classified as 1. Movement inventories 2. 3. 4. Lot size inventories Anticipation inventories Fluctuation inventories

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Consumables: These are the materials which are needed to smoothen the process of production. Consumables may be classified acc. to their consumption and criticality

Top Ten Reduction Practices

Conduct periodic reviews 65% Analyze usage and lead times 50% Reduce safety stocks 42% Use ABC approach (80/20 rule) 37% Improve cycle counting 37% Shift ownership to suppliers 34% Re-determine order quantities 31% Improve forecast of A and B items 23% Give schedules to suppliers 22% Implement new inventory software 21%

Inventory Control Records

Inventory control records are essential to making buy-and-sell decisions. Some companies control their stock by taking physical inventories at regular intervals, monthly or quarterly. Others use a dollar inventory record that gives a rough idea of what the inventory may be from day to day in terms of dollars. If your stock is made up of thousands of items, as it is for a convenience type store, dollar control may be more 17 | P a g e

practical than physical control. However, even with this method, an inventory count must be taken periodically to verify the levels of inventory by item.
Perpetual inventory control records

are most practical for big-ticket items. With such items it is quite suitable to hand count the starting inventory, maintain a card for each item or group of items, and reduce the item count each time a unit is sold or transferred out of inventory. Periodic physical counts are taken to verify the accuracy of the inventory card. Out-of-stock sheets, sometimes called want sheets, notify the buyer that it is time to reorder an item. Experience with the rate of turnover of an item will help indicate the level of inventory at which the unit should be reordered to make sure that the new merchandise arrives before the stock is totally exhausted. Open-to-buy records help to prevent ordering more than is needed to meet demand or to stay within a budget. These records adjust your order rate to the sales rate. They provide a running account of the dollar amount that may be bought without departing significantly from the pre- established inventory levels. An open-to-buy record is related to the inventory budget. It is the difference between what has been budgeted and what has been spent. Each time a sale is made, open-tobuy is increased (inventory is reduced). Each time merchandise is purchased; open-to-buy is reduced (inventory is increased). The net effect is to help maintain a balance among product lies within the business, and to keep the business from getting overloaded in one particular area. Purchase order files keep track of what has been ordered and the status or expected receipt date of materials. It is convenient to maintain these files by using a copy of each purchase order that is written. Notations can be added or merchandise needs updated directly on the copy of the purchase order with respect to changes in price or delivery dates. Supplier files are valuable references on suppliers and can be very helpful in negotiating price, delivery and terms. Extra copies of purchase orders can be used to create these files, organized alphabetically by supplier, and can provide a fast way to determine how much business is done with each vendor. Purchase order copies also serve to document ordering habits and procedures and so may be used to help reveal and/or resolve future potential problems. Returned goods files provide a continuous record of merchandise that has been returned to suppliers. They should indicate amounts, dates and reasons for the returns. This information is useful in controlling debits, credits and quality Issues.

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Price books, maintained in alphabetical order according to supplier, provide a record of purchase prices, selling prices, markdowns, and markups. It is important to keep this record completely up to date in order to be able to access the latest price and profit information on materials purchased for resale.

Inventory Management Techniques

Inventory is maintained as a cushion in soppy of material for continuous production without causing stock out situation .This cushion should not be suicidal to any organization. The following techniques are being use for controlling the inventory 1. Inventory Management Technique 2. Perceptual Inventory system 3. Selective Control Techniques 4. Inventory turnover Ratios 5. Classification and Codification of inventories Inventory Management Techniques 1. Economic Order Quantity: This model includes two costs: Ordering Costs Carrying Costs Ordering Costs: These are the costs which are associated with the purchasing or ordering of materials. These costs include: 1. Costs of staff posted for ordering of goods. 2. Expenses incurred on transportation of goods purchased. 3. Inspection costs of incoming materials 4. Cost of stationery, typing, postage, telephone charges etc. These costs are called buying costs and will arise only when some purchases are made .The ordering costs are totaled up for the year and then divided by the number of orders placed each year . Carrying Costs : These are the costs for holding the inventories . These costs will not be incurred of inventories are not carried. These costs include: 19 | P a g e EOQ is the point at which the ordering costs and carrying costs are equal. this is the quantity of material which can be purchased at minimum costs.

1. The cost of capital invested in inventories. An interest will be paid on the amount of capital locked-up in inventories. 2. Cost of storage which could have been used for other purposes. 3. Insurance cost. 4. Cost of spoilage in handling of materials. The ordering costs and carrying costs has reverse relationship .the ordering cost goes up with the increase in number of orders placed. On the other hand carrying costs go down per unit with the increase in number of units purchased and stored. Assumptions of EOQ: 1. The supply of goods is satisfactory. The goods can be purchased as and when they are needed. 2. The quantity of be purchased by the concern is certain. 3. The prices of goods are stable. It results to stabilize carrying costs . Total cost of inventory = (A x P)+(A xO)/EOQ+(EOQ x C)/2 Where A= Annual consumption in units O= Ordering Cost per unit P= Price per unit C=carrying cost per unit 2. Selective control techniques Selective control means selecting the area of control so that required objective is achieved as early as possible without any lost of time due to taking care of full area Minimum lost of energy At minimum cost without loss of time

There are following selective Techniques A.B.C Analysis V E D analysis XYZ analysis ABC Analysis Indicators that classifies a material as an A,B or C part according to its consumption value .The classification process is known as the ABC analysis. The three indictors have the following meanings: 20 | P a g e

A-important part , high consumption value B-less important , medium consumption value C-relatively unimportant part , low consumption value The ABC classification process is an analysis of a range of items, such as finished products or customers into three categories: A - outstandingly important; B - of average importance; C relatively unimportant as a basis for a control scheme. Each category can and sometimes should be handled in a different way, with more attention being devoted to category A, less to B, and less to C. Usually this means that the firm monitors A items very closely but can check on B and C items on a periodic basis (for example, monthly for B items and quarterly for C items). The third element is the most difficult to measure and is often handled by establishing a "service level" policy, e. g, certain percentage of demand will be met from stock without delay. The ABC classification system is to grouping items according to annual sales volume, in an attempt to identify the small number of items that will account for most of the sales volume and that are the most important ones to control for effective inventory management. Class A B C XYZ analysis This type of analysis is carried out form the point of view of balance of value stocks lying in the stock from time to time and classifies all the items as given below. X items are those items whose value of balance stocks lying in the stock are vary high. Y items are those items whose value of balance stocks is moderate Z items are those items whose value of balance stocks lying in the stock is low. After knowing this type of classification and their items can be taken to control the inventory as below: 1. From security point of view high value items must be stored and kept order lock and key .Items should be kept in such a way that they are always under supervision 2. From inventory point of view we must know why there is high inventory for X items. We should review inventory control procedure for each and every item because stock should be maintained to take acre of lead time consumption and also to provide as safety stocks. For high value items lying in the stores we should 21 | P a g e No. of Items (%) 10 20 70 Value Of items (%) 70 20 10

review the reasons for long lead time as well as demand variations and see whether safety stocks can be reduced. Thus proper inventory control procedures can be developed on the basis of XYZ analysis. VED Analysis The VED analysis is used generally for spare parts. The requirements and urgency of spare parts is different from that of materials. From point of view of material it is classified into three categories V - Vital B - Essential D - Desirable Vital categories of the items are those for the want of which the production Come to stop. For exp. Power in the factory. Essential group of items are those items because of non availability of which the stock out cost is very high. Desirable group of items are those items because of non availability of which there is no immediate loss of production and stock cost is very less and it may cause minor disruption in the production for short time. 3. Inventory Turnover Ratio: Inventory turnover ratios are calculated to indicate whether inventories have been used efficiently or not. The purpose is to ensure the blocking of only required minimum funds in inventory. The Inventory turnover ratio ia also known as stock velocity. Inventory Turnover Ratio= Cost of goods sold Average Inventory at cost

Others Important Things

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SUCCESSFUL INVENTORY MANAGEMENT

Successful inventory management involves balancing the costs of inventory with the benefits of inventory. Many small business owners fail to appreciate fully the true costs of carrying inventory, which include not only direct costs of storage, insurance and taxes, but also the cost of money tied up in inventory. This fine line between keeping too much inventory and not enough is not the manager's only concern. Others include: ! Maintaining a wide assortment of stock -- but not spreading the rapidly moving ones too thin; ! Increasing inventory turnover -- but not sacrificing the service level; ! Keeping stock low -- but not sacrificing service or performance. ! Obtaining lower prices by making volume purchases -- but not ending up with slow-moving inventory; and ! Having an adequate inventory on hand -- but not getting caught with obsolete items. The degree of success in addressing these concerns is easier to gauge for some than for others. For example, computing the inventory turnover ratio is a simple measure of managerial performance. This value gives a rough guideline by which managers can set goals and evaluate performance, but it must be realized that the turnover rate varies with the function of inventory, the type of business and how the ratio is calculated (whether on sales or cost of goods sold). Average inventory turnover ratios for individual industries can be obtained from trade associations. THE PURCHASING PLAN One of the most important aspects of inventory control is to have the items in stock at the moment they are needed. This includes going into the market to buy the goods early enough to ensure delivery at the proper time. Thus, buying requires advance planning to determine inventory needs for each time period and then making the commitments without procrastination. For retailers, planning ahead is very crucial. Since they offer new items for sale months before the actual calendar date for the beginning of the new season, it is imperative that buying plans be formulated early enough to allow for intelligent buying without any last minute panic purchases. The main reason for this early offering for sale of new items is that the retailer regards the calendar date for the beginning of the new season as the merchandise date for the end of the old season. For example, many retailers view March 21 as the end of the spring season, June 21 as the end of summer and December 21 as the end of winter. Part of your purchasing plan must include accounting for the depletion of the inventory. Before a decision can be made as to the level of inventory to order, you must determine how long the inventory you have in stock will last. For instance, a retail firm must formulate a plan to ensure the sale of the greatest number of units. Likewise, a manufacturing business must formulate a plan to ensure enough inventory is on hand for production of a finished product.

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In summary, the purchasing plan details: ! When commitments should be placed; ! When the first delivery should be received; ! When the inventory should be peaked; ! When reorders should no longer be placed; and ! When the item should no longer be in stock. Well planned purchases affect the price, delivery and availability of products for sale. CONTROLLING YOUR INVENTORY To maintain an in-stock position of wanted items and to dispose of unwanted items, it is necessary to establish adequate controls over inventory on order and inventory in stock. There are several proven methods for inventory control. They are listed below, from simplest to most complex. ! Visual control enables the manager to examine the inventory visually to determine if additional inventory is required. In very small businesses where this method is used, records may not be needed at all or only for slow moving or expensive items. ! Tickler control enables the manager to physically count a small portion of the inventory each day so that each segment of the inventory is counted every so many days on a regular basis. ! Click sheet control enables the manager to record the item as it is used on a sheet of paper. Such information is then used for reorder purposes. ! Stub control (used by retailers) enables the manager to retain a portion of the price ticket when the item is sold. The manager can then use the stub to record the item that was sold. As a business grows, it may find a need for a more sophisticated and technical form of inventory control. Today, the use of computer systems to control inventory is far more feasible for small business than ever before, both through the widespread existence of computer service organizations and the decreasing cost of small-sized computers. Often the justification for such a computer-based system is enhanced by the fact that company accounting and billing procedures can also be handled on the computer. ! Point-of-sale terminals relay information on each item used or sold. The manager receives information printouts at regular intervals for review and action. ! Off-line point-of-sale terminals relay information directly to the supplier's computer who uses the information to ship additional items automatically to the buyer/inventory manager. The final method for inventory control is done by an outside agency. A manufacturer's representative visits the large retailer on a scheduled basis, takes the stock count and writes the reorder. Unwanted merchandise is removed from stock and returned to the manufacturer through a predetermined, authorized procedure. A principal goal for many of the methods described above is to determine the minimum possible annual cost of ordering and stocking each item. Two major control values are used: 1) the order quantity, that is, the size and frequency of orders; and 2) the reorder point, that is, the minimum stock level at which additional quantities are ordered. The Economic Order Quantity (EOQ) formula is one widely used method of computing the minimum annual cost for ordering and stocking each item. The EOQ computation takes into account the cost of placing an order, the annual sales rate, the 24 | P a g e

unit cost, and the cost of carrying inventory. Many books on management practices describe the EOQ model in detail. TIPS FOR BETTER INVENTORY MANAGEMENT At time of delivery ! Verify count -- Make sure you are receiving as many cartons as are listed on the delivery receipt. ! Carefully examine each carton for visible damage -- If damage is visible, note it on the delivery receipt and have the driver sign your copy. ! After delivery, immediately open all cartons and inspect for merchandise damage. When damage is discovered ! Retain damaged items -- All damaged materials must be held at the point received. ! Call carrier to report damage and request inspection. ! Confirm call in writing--This is not mandatory but it is one way to protect yourself. Carrier inspection of damaged items ! Have all damaged items in the receiving area -- Make certain the damaged items have not moved from the receiving area prior to inspection by carrier. ! After carrier/inspector prepares damage report, carefully read before signing. After inspection

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! Keep damaged materials -- Damaged materials should not be used or disposed of without permission by the carrier. ! Do not return damaged items without written authorization from shipper/supplier.

4. Perceptual Inventory System The chartered Institute of Management Accountants, London, defines the perceptual inventory a system of records maintained by controlling department, which reflects the physical movements of stocks and their current balance . Bind cards add the stores ledger help the movements of the stock on the receipts and in maintaining this system as they make a record of to physical movements of the stocks on the receipts and issues of material and also reflect the balance in the stores. Thus it is a system of ascertaining balance after every receipt and issue of material through stock record to facilitate regular checking and to avoid closing down the firm for stocktaking. to ensure the accuracy of perceptual inventory records physical verification of the stores is made by bin cards and stores ledger may differ from the actual balance of stock as ascertained by the physical verification .

5. Classification and codification of inventories The inventories of a manufacturing concern may consist of raw material, work in process, finished goods, spares, consumables stocks etc. for proper recording and control of inventory, proper classification of various types of items is essential. The inventories should first be classified and then code numbers should be assigned for their identification. The identification of short names is useful for inventory management not only for large concerns but also for small concerns. The inventories should be classified either acc. to their use and their nature. Special terms used in dealing with inventory Stock Keeping Unit (SKU) is a unique combination of all the components that are assembled into the purchasable item. Therefore, any change in the packaging or product is a new SKU. This level of detailed specification assists in managing inventory. Stock out means running out of the inventory of an SKU. "New old stock" (sometimes abbreviated NOS) is a term used in business to refer to merchandise being offered for sale that was manufactured long ago but that has never been used. Such merchandise may not be produced anymore, and the new old stock may represent the only market source of a particular item at the present time.

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 JIT For years, American manufacturers have strived for improved inventory management systems. The closer they get to carry zero inventories, the closer they get to reach the manufacturing efficiency. Such thinking, combined with todays available technology, has brought inventory management systems to a new level. Manufacturers can now meet their customers demand without incurring the costs and burdens that come from stocking excess inventory. Features such as effective forecasting, vendor management and data management control make it possible for manufacturers to achieve a much higher rate of efficiency. These features enable manufacturers to seek to manage inventory as a financial investment, as well as a method for putting more money in their pockets. There are seven types of waste JIT systems strive to eliminate: Overproductionproducing more than needed. Wasted money, effort, space, etc. Waiting timedecreases productivity and efficiency. Transportationdouble and even triple handling of an item from one storage position to another. Processing what are the interfaces between parties, de-partments, you, and your suppliers? The fewer and faster the better. Inventorystock simply sitting around does no one any good. Motionreduce motions such as those involved in looking for materials. Defectsdefective goods not only cost money directly,

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Five Ss
Seiri > Sort: remove unnecessary materials and tools Seiton > Simplify: neatly arrange tools and materials Seiso > Sweep: conduct a cleanup campaign Seiketsu > Standardize: perform the above three Ss at frequent intervals (daily) Shitsuke > Selfdiscipline: make a habit of always following the first four Ss

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CONCLUSION
A better inventory management will surely be helpful in solving the problems the company is facing with respect to inventory and will pave way for reducing the huge investment or blocking of money in inventory. From the analysis we can conclude that the Company can follow the Economic Order Quantity (EOQ) for optimum purchase and it can maintain safety stock for its components in order to avoid stock-out conditions & help in continuous production flow. This would reduce the cost and enhance the profit. Also there should be tight control exercised on stock levels based on ABC analysis & maintain high percentage in fast moving items in inventories as per on FSN analysis for efficient running of the inventory. Since the inventory Turnover ratio shows the increasing trend, there will be more demand for the products in the future periods. If they could properly implement and follow the norms and techniques of inventory management, they can enhance the profit with minimum cost.

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References
Arnold, J. R. Tony and Stephen N. Chapman. Introduction to Materials Management, fourth edition. Upper Saddle River, NJ: Prentice Hall, 2001. Bernard, Paul. Integrated Inventory Management. New York, NY: John Wiley & Sons, Inc., 1999. Brooks, Roger B. and Larry W. Wilson. Inventory Record Accuracy: Unleashing the Power of Cycle Counting. New York, NY: John Wiley & Sons, Inc., 1995. Collins, David Jarrett and Nancy Nasuti Whipple. Using Bar Coding: Why Its Taking Over, second edition. Duxbury, MA: Data Capture Institute, 1994. Cullinane, Thomas P., James A. Tompkins, and Jerry D. Smith. How to Plan and Manage Warehouse Operations, second edition. Watertown, MA: American Management Association, 1994. Delaney, Patrick R., James R. Adler, Barry J. Epstein, and Michael F. Foran. GAAP 98: Interpretation and Application of Generally Accepted Accounting Pricinples 1998. New York, NY: John Wiley & Sons, Inc., 1998. Eisen, Peter J. Accounting the Easy Way, third edition. New York, NY: Barrons Educational Series, Inc., 1995. Feld, William M. Lean Manufacturing: Tools, Techniques, and How to Use Them. Boca Raton, FL: The St. Lucie Press/APICS Series on Resource Management, 2001.

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