Inventory Management on Homag Machinery RNSIT, DEPARTMENT OF MBA AND RESEARCH CENTER. Page 1 INTRODUCTION ABOUT PROJECT: 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 further point of time. Any organization which is into production, trading, sale and service of a product will necessarily hold stock of various stock of various physical resources to aid in future consumption and sale. Different Types of Inventory Components that make up the product. In other words, inventory is composed of assets that will be showed in future in the normal course of the business operations. The assets which firms store as inventory in anticipation of need are: Raw materials Work in process (Semi Finished goods) Finished goods The raw material inventory contains item that are purchased by the firm from other and are converted into finished goods through the manufacturing (production) process. They are an important input of the final product. The working process inventory consists of items currently being used in the production process. They are normally semi-finished goods that are at various stages of production in a multi stage production process. A finished goods represented final or completed products which are available for sale .The inventory of such goods consists of items that have been produced but are yet to be sold. TOPIC CHOOSEN FOR THE STUDY: A study on “INVENTORY MANAGEMENT IN HOMAG MACHINERY BANGALORE PRIVATE LIMITED”
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Inventory Management on Homag Machinery
RNSIT, DEPARTMENT OF MBA AND RESEARCH CENTER. Page 1
INTRODUCTION ABOUT PROJECT:
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 further point of time.
Any organization which is into production, trading, sale and service of a product will
necessarily hold stock of various stock of various physical resources to aid in future
consumption and sale.
Different Types of Inventory
Components that make up the product. In other words, inventory is composed of
assets that will be showed in future in the normal course of the business operations.
The assets which firms store as inventory in anticipation of need are:
Raw materials
Work in process (Semi Finished goods)
Finished goods
The raw material inventory contains item that are purchased by the firm from other
and are converted into finished goods through the manufacturing (production)
process. They are an important input of the final product. The working process
inventory consists of items currently being used in the production process.
They are normally semi-finished goods that are at various stages of production in a
multi stage production process. A finished goods represented final or completed
products which are available for sale .The inventory of such goods consists of items
that have been produced but are yet to be sold.
TOPIC CHOOSEN FOR THE STUDY:
A study on “INVENTORY MANAGEMENT IN HOMAG MACHINERY
BANGALORE PRIVATE LIMITED”
Inventory Management on Homag Machinery
RNSIT, DEPARTMENT OF MBA AND RESEARCH CENTER. Page 2
NEED FOR STUDY:
Inventories perform certain basic functions which are of crucial importance in the
firm’s production and marketing strategies. Effective Control over the utilization of
materials has much bearing on profit and here is an attempt to study the management
of materials. This study helps the company to detect and evaluate its own strength and
weakness and also give recommendation for the better inventory management.
Without inventory management it would be difficult for any company to maintain
Control and be able to handle the needs of customers. Inventories are necessary for a
firm to operate efficiently and almost all business transactions involve the delivery of
a product or services in exchange of currency.
OBJECTIVES OF STUDY:
Finance is a very important aspect in every product/service manufacturing concern. A
study on this subject would be done with the following objectives:
• To assess inventory management position and methods fallowed by the
company.
• To determine the financial control by studying existing system of inventory
management.
• 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,
FSN Analysis etc.
SCOPE OF THE STUDY:
This study is an attempt to study the organization as a whole and to study the different
department in detail, to get the detailed knowledge about an organization from
different aspects and to study the function of different department which constitutes
the organization.
So the attempt can make to suggest effective changes in that the organization to
achieve its objectives and the different department contribute effectively towards the
Inventory Management on Homag Machinery
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achievement of this organization goals. This study provides a wide scope for the
student to gain an insight into the practical aspects of a working of an organization.
METHODOLOGY ADOPTED:
Methodology study consists of collection of primary and secondary data, followed by
analysis and interpretation of collected data by using various tools such as ratio, bar
charts, pie charts etc
1. PRIMARY DATA:
Primary data is collected through interaction with the staff of accounting and
inventory and finance department
2. SECONDARY DATA:
The secondary data includes the information collected through following
sources:Books and Journals, Magazines, annual reports and company’s website.
RESEARCH DESIGN:
The study was descriptive in nature. The attempt was made to evaluate the
performance of the company, for ascertaining the inventory management, the methods
and techniques used in Homag
LITERATURE REVIEW
1 Rajeev NarayanaPillai was presented in Indian Institute of Science (INDIA)
In ISSN: 20138423 emphasizes on Inventory management performance in machine
tool and Objective was stated that to understand IM practices, inventory cost and
related issues in SMEs. And To probe the factors that influence inventory cost and
ITR in SMEs. Has investigated that SMEs in inventory intensive manufacturing
industries are likely to be aware of the need and importance of IM practices. Our
study with reference to machine tools SMEs in Bangalore has indicated that these
SMEs without exception are indeed aware of the importance of IM practices.
However, when it comes to practice, almost one fourth of them did not pursue any
kind of IM practice.
This is primarily due to lack of motivation as well as lack of perception of immediate
Inventory Management on Homag Machinery
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financial gains. Thus modern IM practices are only confined to a minority even in the
inventory intensive machine tools manufacturing industry. Their subsequent analysis
brought out that those which pursued better IM practices also resorted to more
frequent stock verification as well as raw material ordering.
Study brought out that two important dimensions of IM are inventory cost per sales
and ITR. Those SMEs which could achieve better IM should be able to achieve lower
inventory cost per sales as well as higher ITR. If that is so those SMEs which Pursue
modern inventory practices should be able to achieve lower inventory cost per sales
and higher ITR. Our study brought out that this has indeed been the case in the
context of machine tool SMEs. Their final analysis brought out clearly that better IM
practices have a positive influence whereas inventory cost per sales has a negative
influence on ITR. All these enable us to infer that it is appropriate to encourage SMEs
to adopt better IM practices because that would enable them to achieve lower
inventory cost per sales and higher ITRs.
2. Rajeev Paper was presented in Department of Management Studies, Indian
Instituteof Science, Bangalore in Vol. 3 (2008) No. 4, pp. 312-320. Emphasize on
Do inventory management practices affect economic performance? An empirical
evaluation of the machine tool SMEs in Bangalore And the objective was stated
that to analyze the importance of material and hence IM in SMEs. And To probe the
relationship between IM and economic performance.
They concede that this paper aimed at analyzing the importance of inventory as an
input in the production process. Con-sequent, the role of IM in improving the
economic performance of SMEs is probed from an economic perspective. The
estimated production functions confirmed this with beta coefficients of inventory cost
ranking first amongst all the inputs. All the economic performance indicators adopted,
seem to have a positive
and significant association with IM performance in the SMEs. On the whole, it
appears that SMEs which are IM-efficient are also likely to perform better on the
economic front and experience higher ‘returns to scale’. Therefore, the SMEs must
aim at enhancing their efficiency of inventory use, as it is expected to be associated
with multiple benefits.
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3. Scott Grant Eckert was paper presented in doctorate in Business
Administration (DBA) at the College of Business and Information Technology at
Argosy University.
In Journal of business and public policy (ISNN 1936-9794) was emphasize on
inventory management and effects on customer satisfaction and objective was
stated that to analyze the importance of inventory They concluded that
When studying inventory management, there is a need to further study these variables,
“customer needs, vendor partnerships, technology, data integrity, and performance
measurements” (Lee &Kleiner, 2001, p. 40) and their affects on inventory
management. In customer satisfaction, there may need to be further study on customer
satisfaction surveys and their effectiveness. Also, a further study of the effects of new
technologies applications such as RFID will have on the inventory management
process in relations to customer satisfaction. Finally, it is worth stating that all the
small business is opted to keep the inventory management system as they saw how it
improved their customer service.
4. Mr. Krishna Murthy was presented in International Journal of Research in
Business Management (IJRBM) Vol. 1, Issue 1, June 2013, 19-26 emphasizes on
THE IMPACT OF INVENTORY CONTROL ON COST AND
PROFITABILITY was objective was stated that to determine the method to
measure and determine the level of inventory by EOQ to explain the true cost for
handling and storing of inventory and they conclude that Inventory control definitely
gives impact to the cost and profitability for an organization. Therefore, we must
identify the type of inventory in our warehouse, whether they are good, bad or ugly in
term of profitability and dead or slow-moving inventory in term of duration of
stocking. We need to liquidate those unwanted inventory to maximize our investment.
In addition, we need to understand the cost of carrying the inventory such as storage,
Insurance, tax, damage and obsolescent in order to minimize the cost incurred. On top
of this, we need to perform Cycle counting for inventory accurately and make sure the
computerized inventory system presents the report in the way we want for
management decision. On the other hand, we need to determine the inventory turns
required to meet the return of investment and forecast of profit. A concept of adjusted
margin has to be introduced to reflect a more accurate calculation of actual inflow of
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money in the business. Some cases in the personal Computer Industries are presented
to give examples of the impact of inventory.
Last but not the least, the future trends of Applying Internet, EDI, and virtue based
inventory and specialized industrial village are briefly described to give an
Understanding of latest development.
5 MsParimala Devi was presented in “A Case Study of Bharat Heavy Plates and
Vessels Limited, Vishakhapatnam.” Vol. 2, Issue 1, August 2011, 69-76
emphasizes on Management in Public Sector Heavy Engineering Industry.
Objective was stated that emphasis on the problems faced by materials management
department in BHPV Limited. She did a comparative study of inventory management
practices of BHPV with the public sector heavy engineering units. And then she
concluded that the researcher observed that frequent changes taking place in materials
management adversely affects the smooth functioning of materials management.
She also observed that the number of items in the inventories on the increase and she
suggested that enforcing strict control on the delegation of powers should curb it. For
determination of the appropriate quantity to be procured and minimum capital without
any delay in the production is of importance, in satisfying the conflicting interests.
For it, she gave some solutions like SIM(selective inventory management) which
consists of Pareto analysis (ABC analysis), criticality analysis (VED
analysis),movement analysis (FSN analysis) and availability analysis (SED, GOLF,
SOS etc.).She further highlighted the deficiencies of the management and they are as
follows. Adoption of inventory control methods like classification, codification, and
standardization, variety reduction, value analysis, ABC analysis is not systematically
implemented. Economic order quantity was not adopted. Vender rating techniques
and value analysis were not followed. Materials management manuals were not even
prepared in BHPV. Buying cost or inventory carrying cost of materials was not
worked out systematically. Computerization was not extensively done. So far, a good
number of research studies were conducted by different researchers in different
institutions in universities and they tried to cover all the aspects of materials
management in both public sector and private sector industrial units located
throughout the country.
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6.Rama Krishna Rao B., in his thesis ‘Materials Management in Heavy
Engineering Industry’ a case study of Bharat Heavy Plate & Vessels Limited
(BHPV), Visakhapatnam in 1979, he has evaluated the performance of materials
management in BHPV and identified some problems pertaining to materials
management in BHPV in particular and heavy engineering industry in general. The
method of investigation involves documentary evidence and survey of expert opinion.
He has evaluated the existing purchase systems and lead-time involved in
procurement of materials and suggested that the long lead-time should be reduced.
His study pinpointed the excess inventory in terms of number of months cost of
production in all the engineering units. He also highlighted some of the problems in
the area of materials management such as delay on the part of customers in supplying
their own materials, existence and disposal of surplus and non-moving items,
excessive lead time and excessive dependence on imports. He also found that the
administrative and procurement lead times of the company are on the higher side due
to the peculiar nature of the industry.
He suggested the liberalized purchase procedures, increasing financial powers to the
personnel, opening up of liaison offices in various countries to reduce the lead-time.
In comparison with the BPE norms, the inventory levels of various stores items in
BHPV and the overall inventory accumulation in Heavy Engineering Group was
relatively higher and he suggested for drastic reduction in the inventory levels.
LIMITATIONS OF THE STUDY:
This study has purely for academic purpose
This study involves levels of inventory constraints
The study is limited to extent of inventory information.
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INDUSTRY PROFILE AND COMPANY PROFILE:
A. INDUSTRY PROFILE
India is in 13th
position in machinery manufacturing industry across globe.
Manufacturing holds a key position in the Indian economy, accounting for nearly 16
per cent of real GDP in FY12 and employing about 12.0 per cent of India’s labor
force. Growth in the sector has been matching the strong pace in overall GDP growth
over the past few years. For example, while real GDP expanded at a CAGR of 8.4 per
cent over FY05-FY12, growth in the manufacturing sector was marginally higher at
around 8.5 per cent over the same period. Consequently, its share in the economy has
marginally increased during this time – to 15.4 per cent from 15.3 per cent. Growth
however has remained below that of services.
Origin of machinery manufacturing industry in India:
The industrial revolution in different parts of the world can be visualized as waves , as
first proposed by Nikolai Kondratieff, a Russian economist in 1920s . The first wave
started in 18th century England with inventions related to the textile industry, steam
engine and printing. The second wave s tar ted in 19th century America and
comprised of rapid developments related to automobile, railroad and telephones. The
third wave in 20th century was led by Japan, which focused on electronics and
automation.
Machine was brought by British’s during Second World War for defense production.
Though the earliest evidence of manufacturing activities in Indian subcontinent is
found in the remains of the Harappa civilization (4000- 3000 BC
Historical Perspective:
The Machine Tools industry in India dates back to the Second World War. Due to
non-availability of imported machine tools, a few British owned general engineering
firms took up their manufacture in India. This was followed by the start of
industrialization in a series of five-year plans.
The process of planning in the economy resulted in a second phase of machine tools
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manufacturing with public sector investment in machine tools (HMT Ltd. 1953).
These two initial phases of development of the Indian machine tools industry saw the
production of general purpose machine tools most of which were produced under
technical assistance from foreign Collaborators (Oerlikon, Louden, Ward, Herbert,
Jones & Shipman, etc.).
The 1960s marked the third phase of the machine tools industry. During this phase,
the range of products witnessed rapid growth and various types of machine tools
including SPMs were manufactured. (Multi spindle Automats, Gear Cutting
Machines, SPMs, Broaching Machines, Presses, etc.).The Fourth Phase began in the
mid 1980s which saw the entry of Japanese machine tools makers in the Indian
market through licensing arrangements (Mori-Seiki, Mitsubishi, Hitachi-seiki,
NachiFuji-Koshi, Murata, etc.). At this point of time, the Indian machine tools
industry had the following characteristics:
Blanket Import Substitution The policy regime compelled broad
(“Self Sufficiency”) range import substitution regardless of
Costs
Encourage Transfer of Firms were in a hurry to replace
Product Technology imported machine tools and imported
Technology regardless of market size.
The technology of simpler machines
were copied by the smaller domestic
Firms.
Over Diversification As a result, the industry produced a
broad range of machine tools on a
small scale
Market Structure A small number of bigger firms
imported technology employed for
design and production; excessive in-
house production, poor subcontracting,
Poor domestic transfer of technology.
The fifth and current phase began in the early nineties after the liberalization of the
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Indian economy. With market share of the bigger companies expanding and the public
sector giants shrinking and those of the smaller companies rising, in-house design