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ABOUT INVENTORY
Inventory means a list compiled for some formal purpose, such as the details of an
estate going to probate, or the contents of a house let furnished. This remains the
prime meaning in British English. In the USA and Canada the term has developed
from a list of goods and materials to the goods and materials themselves,
especially those held available in stock by a business; and this has become the
primary meaning of the term in North American English, equivalent to the term
"stock" in British English. In accounting, inventory or stock is considered an asset.
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INVENTORY MANAGEMENT
Effective inventory management is all about knowing what is on hand, where
it is in use, and how much finished product results.
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.
Balancing the various tasks of inventory management means paying attention to
three key aspects of any inventory. The first aspect has to do with time. In terms of
materials acquired for inclusion in the total inventory, this means understanding
how long it takes for a supplier to process an order and execute a delivery.
Inventory management also demands that a solid understanding of how long it will
take for those materials to transfer out of the inventory be established. Knowing
these two important lead times makes it possible to know when to place an order
and how many units must be ordered to keep production running smoothly.
Calculating what is known as buffer stock is also key to effective inventory
management. Essentially, buffer stock is additional units above and beyond the
minimum number required to maintain production levels. For example, the
manager may determine that it would be a good idea to keep one or two extra units
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of a given machine part on hand, just in case an emergency situation arises or one
of the units proves to be defective once installed. Creating this cushion or buffer
helps to minimize the chance for production to be interrupted due to a lack of
essential parts in the operation supply inventory.
Inventory management is not limited to documenting the delivery of raw materials
and the movement of those materials into operational process. The movement of
those materials as they go through the various stages of the operation is also
important. Typically known as a goods or work in progress inventory, tracking
materials as they are used to create finished goods also helps to identify the need
to adjust ordering amounts before the raw materials inventory gets dangerously
low or is inflated to an unfavorable level.
Finally, inventory management has to do with keeping accurate records of finished
goods that are ready for shipment. This often means posting the production of
newly completed goods to the inventory totals as well as subtracting the most
recent shipments of finished goods to buyers. When the company has a return
policy in place, there is usually a sub-category contained in the finished goods
inventory to account for any returned goods that are reclassified as refurbished or
second grade quality. Accurately maintaining figures on the finished goods
inventory makes it possible to quickly convey information to sales personnel as to
what is available and ready for shipment at any given time.
In addition to maintaining control of the volume and movement of various
inventories, inventory management also makes it possible to prepare accurate
records that are used for accessing any taxes due on each inventory type. Without
precise data regarding unit volumes within each phase of the overall operation, the
company cannot accurately calculate the tax amounts. This could lead to
underpaying the taxes due and possibly incurring stiff penalties in the event of an
independent audit.
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Inventory management is primarily about specifying the shape and percentage of
stocked goods. It is required at different locations within a facility or within many
locations of a supply network to proceed the regular and planned course of
production and stock of materials.
The scope of inventory management concerns the fine lines between
replenishment lead time, carrying costs of inventory, asset management, inventory
forecasting, inventory valuation, inventory visibility, future inventory price
forecasting, physical inventory, available physical space for inventory, quality
management, replenishment, returns and defective goods and demand
forecasting.Balancing these competing requirements leads to optimal inventory
levels, which is an on-going process as the business needs shift and react to the
wider environment.
Inventory management involves a retailer seeking to acquire and maintain a proper
merchandise assortment while ordering, shipping, handling, and related costs are
kept in check. It also involves systems and processes that identify inventory
requirements, set targets, provide replenishment techniques, report actual and
projected inventory status and handles all functions related to the tracking and
management of material. This would include the monitoring of material moved
into and out of stockroom locations and the reconciling of the inventory balances.
Also may include ABC analysis, lot tracking, cycle counting support etc.
Management of the inventories, with the primary objective of
determining/controlling stock levels within the physical distribution function to
balance the need for product availability against the need for minimizing stock
holding and handling costs.
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SOME COMMON COMPONENTS OF AN INVENTORY
MANAGEMENT SYSTEM
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NEED FOR INVENTORY MANAGEMNET
Inventory is a necessary evil that every organization would have to maintain for various purposes.
Optimum inventory management is the goal of every inventory planner. Over inventory or under
inventory both cause financial impact and health of the business as well as effect business opportunities.
Inventory holding is resorted to by organizations as hedge against various external and internal factors,
as precaution, as opportunity, as a need and for speculative purposes.
Reasons why organizations maintain Raw Material Inventory:-
Most of the organizations have raw material inventory warehouses attached to the production facilities
where raw materials, consumables and packing materials are stored and issue for production on JIT
basis. The reasons for holding inventories can vary from case to case basis.
1. Meet variation in Production DemandProduction plan changes in response to the sales, estimates, orders and
stocking patterns. Accordingly the demand for raw material supply for
production varies with the product plan in terms of specific SKU as well as
batch quantities.
Holding inventories at a nearby warehouse helps issue the required quantity
and item to production just in time.
2. Cater to Cyclical and Seasonal DemandMarket demand and supplies are seasonal depending upon various factors
like seasons; festivals etc and past sales data help companies to anticipate a
huge surge of demand in the market well in advance. Accordingly they
stock up raw materials and hold inventories to be able to increase
production and rush supplies to the market to meet the increased demand.
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3. Economies of Scale in ProcurementBuying raw materials in larger lot and holding inventory is found to be
cheaper for the company than buying frequent small lots. In such cases one
buys in bulk and holds inventories at the plant warehouse.
4. Take advantage of Price Increase and Quantity Discounts
If there is a price increase expected few months down the line due to
changes in demand and supply in the national or international market,
impact of taxes and budgets etc, the company’s tend to buy raw materials in
advance and hold stocks as a hedge against increased costs.
Companies resort to buying in bulk and holding raw material inventories to
take advantage of the quantity discounts offered by the supplier. In such
cases the savings on account of the discount enjoyed would be substantially
higher that of inventory carrying cost.
5. Reduce Transit Cost and Transit TimesIn case of raw materials being imported from a foreign country or from a
far away vendor within the country, one can save a lot in terms of
transportation cost buy buying in bulk and transporting as a container load
or a full truck load. Part shipments can be costlier.
In terms of transit time too, transit time for full container shipment or a full
truck load is direct and faster unlike part shipment load where the freight
forwarder waits for other loads to fill the container which can take several
weeks.
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There could be a lot of factors resulting in shipping delays and
transportation too, which can hamper the supply chain forcing companies to
hold safety stock of raw material inventories.
6. Long Lead and High demand items need to be held in InventoryOften raw material supplies from vendors have long lead running into
several months. Coupled with this if the particular item is in high demand
and short supply one can expect disruption of supplies. In such cases it is
safer to hold inventories and have control.
All these stock reasons can apply to any owner or product stage.
Buffer stock is held in individual workstations against the possibility that
the upstream workstation may be a little delayed in long setup or change over
time. This stock is then used while that changeover is happening. This stock
can be eliminated by tools like .
These classifications apply along the whole Supply chain, not just within a
facility or plant.
Where these stocks contain the same or similar items, it is often the work practice
to hold all these stocks mixed together before or after the sub-process to which
they relate. This 'reduces' costs. Because they are mixed up together there is no
visual reminder to operators of the adjacent
sub-processes or line management of the stock, which is due to a particular cause
and should be a particular individual's responsibility with inevitable consequences.
Some plants have centralized stock holding across sub-processes, which makes the
situation even more acute.
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SPECIAL TERMS USED IN DEALING WITH INVENTORY
STOCK OUT(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.
Stockout 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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TYPOLOGY
1. Buffer/safety stock
2. Cycle stock (Used in batch processes, it is the available inventory,
excluding buffer stock)
3. De-coupling (Buffer stock held between the machines in a single process
which serves as a buffer for the next one allowing smooth flow of work
instead of waiting the previous or next machine in the same process)
4. Anticipation stock (Building up extra stock for periods of increased demand
- e.g. ice cream for summer)
5. Pipeline stock (Goods still in transit or in the process of distribution - have
left the factory but not arrived at the customer yet)
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INVENTORY EXAMPLES
While accountants often discuss inventory in terms of goods for sale,
organizations - manufacturers, service-providers and not-for-profits - also have
inventories (fixtures, furniture, supplies, ...) that they do not intend to sell.
Manufacturers', distributors', and wholesalers' inventory tends to cluster
in warehouses. Retailers' inventory may exist in a warehouse or in a shop or store
accessible to customers. Inventories not intended for sale to customers or
to clients may be held in any premises an organization uses. Stock ties up cash
and, if uncontrolled, it will be impossible to know the actual level of stocks and
therefore impossible to control them.
While the reasons for holding stock were covered earlier, most manufacturing
organizations usually divide their "goods for sale" inventory into:
Raw materials - materials and components scheduled for use in making a
product.
Work in process, WIP - materials and components that have begun their
transformation to finished goods.
Finished goods - goods ready for sale to customers.
Goods for resale - returned goods that are salable.
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For example:MANUFACTURING
A canned food manufacturer's materials inventory includes the ingredients to form
the foods to be canned, empty cans and their lids (or coils of steel or aluminum for
constructing those components), labels, and anything else (solder, glue, ...) that
will form part of a finished can. The firm's work in process includes those
materials from the time of release to the work floor until they become complete
and ready for sale to wholesale or retail customers. This may be vats of prepared
food, filled cans not yet labeled or sub-assemblies of food components. It may also
include finished cans that are not yet packaged into cartons or pallets. Its finished
good inventory consists of all the filled and labeled cans of food in its warehouse
that it has manufactured and wishes to sell to food distributors (wholesalers), to
grocery stores (retailers), and even perhaps to consumers through arrangements
like factory stores and outlet centers.
Examples of case studies are very revealing, and consistently show that the
improvement of inventory management has two parts: the capability of the
organisation to manage inventory, and the way in which it chooses to do so. For
example, a company may wish to install a complex inventory system, but unless
there is a good understanding of the role of inventory and its parameters, and an
effective business process to support that, the system cannot bring the necessary
benefits to the organisation in isolation.
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PRINCIPLE OF INVENTORY PROPORTIONALITY
Inventory proportionality is the goal of demand-driven inventory management.
The PRIMARY optimal outcome is to have the same number of days' (or hours',
etc.) worth of inventory on hand across all products so that the time of run out of
all products would be simultaneous. In such a case, there is no "excess inventory,"
that is, inventory that would be left over of another product when the first product
runs out. Excess inventory is sub-optimal because the money spent to obtain it
could have been utilized better elsewhere, i.e. to the product that just ran out.
The SECONDARY goal of inventory proportionality is inventory minimization.
By integrating accurate demand forecasting with inventory management,
replenishment inventories can be scheduled to arrive just in time to replenish the
product destined to run out first, while at the same time balancing out the
inventory supply of all products to make their inventories more proportional, and
thereby closer to achieving the primary goal. Accurate demand forecasting also
allows the desired inventory proportions to be dynamic by determining expected
sales out into the future; this allows for inventory to be in proportion to expected
short-term sales or consumption rather than to past averages, a much more
accurate and optimal outcome.
Integrating demand forecasting into inventory management in this way also allows
for the prediction of the "can fit" point when inventory storage is limited on a per-
product basis.
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APPLICATIONS
The technique of inventory proportionality is most appropriate for inventories that
remain unseen by the consumer. As opposed to "keep full" systems where a retail
consumer would like to see full shelves of the product they are buying so as not to
think they are buying something old, unwanted or stale; and differentiated from
the "trigger point" systems where product is reordered when it hits a certain level;
inventory proportionality is used effectively by just-in-time manufacturing
processes and retail applications where the product is hidden from view.
One early example of inventory proportionality used in a retail application in the
United States is for motor fuel. Motor fuel (e.g. gasoline) is generally stored in
underground storage tanks. The motorists do not know whether they are buying
gasoline off the top or bottom of the tank, nor need they care. Additionally, these
storage tanks have a maximum capacity and cannot be overfilled. Finally, the
product is expensive. Inventory proportionality is used to balance the inventories
of the different grades of motor fuel, each stored in dedicated tanks, in proportion
to the sales of each grade. Excess inventory is not seen or valued by the consumer,
so it is simply cash sunk (literally) into the ground. Inventory proportionality
minimizes the amount of excess inventory carried in underground storage tanks.
This application for motor fuel was first developed and implemented by Petrolsoft
Corporation in 1990 for Chevron Products Company. Most major oil companies
use such systems today.
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HIGH LEVEL INVENTORY MANAGEMENT
High-level financial inventory has these two basic formulas, which relate to the
accounting period:
1. cost of goods available = Cost of Beginning Inventory at the start of the
period + inventory purchases within the period + cost of production within
the period
2. cost of goods sold= Cost of goods available − cost of ending inventory at
the end of the period
The benefit of these formulae is that the first absorbs all overheads of
production and raw material costs into a value of inventory for reporting.
The second formula then creates the new start point for the next period and
gives a figure to be subtracted from the sales price to determine some form
of sales-margin figure.
Manufacturing management is more interested in inventory turnover
ratio or average days to sell inventory since it tells them something about relative
inventory levels.
Inventory turnover ratio (also known as inventory turns) = cost of goods
sold / Average Inventory = Cost of Goods Sold / ((Beginning Inventory +
Ending Inventory) / 2)
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and its inverse
Average Days to Sell Inventory = Number of Days a Year / Inventory
Turnover Ratio = 365 days a year / Inventory Turnover Ratio
This ratio estimates how many times the inventory turns over a year. This
number tells how much cash/goods are tied up waiting for the process and
is a critical measure of process reliability and effectiveness. So a factory
with two inventory turns has six months stock on hand, which is generally
not a good figure (depending upon the industry), whereas a factory that
moves from six turns to twelve turns has probably improved effectiveness
by 100%. This improvement will have some negative results in the
financial reporting, since the 'value' now stored in the factory as inventory
is reduced.
While these accounting measures of inventory are very useful because of their
simplicity, they are also fraught with the danger of their own assumptions.
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FINISHED GOODS INVENTORY
All Manufacturing and Marketing Companies hold Finished Goods inventories in
various locations and all through FG Supply Chain. While finished Goods move
through the supply chain from the point of manufacturing until it reaches the end
customer, depending upon the sales and delivery model, the inventories may be
owned and held by the company or by intermediaries associated with the sales
channels such as traders, trading partners, stockiest, distributors and dealers, C &
F Agents etc.
Why and when do Organizations hold Finished Goods Inventories ?
1. Markets and Supply Chain Design Organizations carry out detailed analysis of the markets both at national as
well as international global levels and work out the Supply Chain strategy with the
help of SCM strategists as to the ideal location for setting up production facilities,
the network of and number of warehouses required to reach products to the
markets within and outside the country as well as the mode or transportation,
inventory holding plan, transit times and order management lead times etc,
keeping in mind the most important parameter being, to achieve Customer
Satisfaction and Demand Fulfillment.
2. Production Strategy necessitates Inventory holdingThe blue print of the entire Production strategy is dependant upon the
marketing strategy. Accordingly organizations produce based on marketing
orders. The production is planned based on Build to stock or Build to Order
strategies.
While Build to Order strategy is manufactured against specific orders and
does not warrant holding of stocks other than in transit stocking, Build to
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Stock production gets inventoried at various central and forward locations
to be able to cater to the market demands.
3. Market penetrationMarketing departments of companies frequently run branding and sales
promotion campaigns to increase brand awareness and demand generation.
Aggressive market penetration strategy depends upon ready availability of
inventory of all products at nearest warehousing location so that product
can be made available at short notice - in terms of number of hours lead
time, at all sales locations through out the state and city.
Any non-availability of stock at the point of sale counter will lead to dip in
market demand and sales. Hence holding inventories becomes a necessity.
4. Market Size, location and supply designSupply chain design takes into account the location of market, market size,
demand pattern and the transit lead time required to reach stocks to the
market and determine optimum inventory holding locations and network to
be able to hold inventories at national, regional and local levels and achieve
two major objectives. The first objective would be to ensure correct product
stock is available to service the market. Secondly stocks are held in places
where it is required and avoid unwanted stock build up.
5. Transportation and Physical BarriersMarket location and the physical terrain of the market coupled with the
local trucking and transportation network often demand inventory holding
at nearest locations. Hilly regions for example may require longer lead-time
to service. All kinds of vehicles may not be available and one may have to
hire dedicated containerized vehicles of huge capacities. In such cases the
will have to have an inventory holding plan for such markets.
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Far away market locations means longer lead times and transportation
delays. Inventory holding policy will take into account these factors to
work out the plan.
6. Local tax and other Govt. RulesIn many countries where GST is not implemented, regional state tax rules
apply and vary from state to state. Accordingly while one state may offer a
tax rebate for a particular set of product category, another state may charge
higher local taxes and lower inter state taxes. In such cases the demand for
product from the neighboring state may increase than from the local state.
Accordingly inventory holding would have to be planned to cater to the
market fluctuation.
While in case of exports from the country of origin into another market
situated in another country, one needs to take into account the rules
regarding import and customs duties to decide optimum inventories to be
held en route or at destination.
7. Production lead timesFG inventory holding becomes necessary in cases where the lead-time for
production is long. Sudden market demand or opportunities in such cases
require FG inventories to be built up and supplies to be effected.
8. Speculative gainCompanies always keep a watch on the economy, annual state budget,
financial environment and international environment and are able to foresee
and estimate situations, which can have an impact on their business and
sales.
In cases where they are able to estimate a increase in industry prices, taxes
or other levies which will result in an overall price increase, they tend to
buy and hold huge stocks of raw materials at current prices. They also hold
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up finished stock in warehouses in anticipation of a impending sale price
increase. All such moves cause companies to hold inventories at various
stages.
9. Avoid Certain CostsFinally organizations hold FG inventories to satisfy customer demand, to
reduce sales management and ordering costs, stock out costs and reduce
transportation costs and lead times.
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WHY AND WHEN TO AVOID HOLDING INVENTORIES
Every business organization that is engaged in manufacturing, trading or dealing with salable
products holds inventories in one form another. Inventory is held in the form of raw materials
or in the form of salable goods. Since every unit of inventoried item has an economic value
and is itemized in the books of account of the company, inventory can be considered to be an
asset of the company.
Inventory Management is a critical function performed by planners to balance the inventory
holding so as to ensure that optimum inventory levels are maintained. Any excess inventory
will result in incremental costs of maintaining inventory and affects the financials of the
company as it blocks working capital. Under inventory on the other hand can seriously hamper
the market share. Any customer order that is not fulfilled due to a stock out is not at all a good
sign. Therefore the responsibility of striking a fine balance in holding lean inventory calls for
smart planning and continuous monitoring of the inventory levels coupled with quick
decision-making .
Due to the above factors all organizations generally tend to avoid holding
inventories except at certain times.
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Inventory Buildup Can be a Sign of Hidden Problems
It has been noticed that inventory build up in process and manufacturing industries
is often a sign of hidden problems, which lie underneath and are not visible at the
surface level. In other words one can say that to cover up inefficiencies in the
internal systems, people build up inventories as safety stocks.
Stock build up can occur as a solution to cover up supplier inefficiencies. If the
vendors are not reliable and the flow of raw materials cannot be ensured, there
results a trend to hold buffer inventories in the form of raw materials or semi
manufactured Work in Process inventories.
In other cases inventory build up can happen due to bad quality. The inventory
cost increase and resultant inventory storage cost can be attributed to cost of
quality. If the production is not consistent with quality, the goods produced will
get rejected leading to an increase in rejected inventory. Secondly, to make up for
the loss due to quality rejection, one would have to increase production and hold
finished goods inventory.
In other cases production delays can lead to build up of inventories too. Production
delays can be attributed to varied reasons such as bad design of the product,
production layout inefficiencies, production stoppage due to breakdowns, Lengthy
process times etc. Besides these causes, there could be many other problems
related to people and management resulting in slackness on the shop floor, which
can add to inventory holding at various stages.
Such inventory build-ups not only block the working capital and increase un
necessary cost of maintaining and storing the inventories, but also hide the
problems which can cause serious threat to the business. Management should be
watchful to identify any such inventory buildups and investigate into the root
cause and solve such problems.
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An inventory build up at the raw material side as well as the finished goods side
gives cause for worry to the finance controllers. Any non moving inventory is a
cause for concern because it not only blocks up the funds of the organization but
the incremental cost of holding the inventory keeps increasing over a period of
time and effect the bottom line figures.
More importantly inventory over a period of time is susceptible to loss, theft,
pilferage and shrinkage. It can also become obsolete and deteriorate over a period
of time if not used within the shelf life.
Hence inventory levels are always on the radar of not only finance controllers, but
of the top management as well.
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INVENTORY CONTROL LEVELS
While production/stores managers may use any number of levels of inventory for
control purposes, there are three primary control levels: the reorder level,
minimum level and maximum level. When inventory reaches these levels, a
manager of the department would know what action to take, i.e. when to order/
stop ordering and how many units to order at a particular time.
1. REORDER LEVEL:-
The reorder level, as its name suggests, determines the level of inventory at
which the stores/purchase department should order new stocks of raw materials to
replenish supplies to the optimum level. The reorder level is the product of the
maximum usage and the maximum lead time, represented by the formula:
Reorder level = Maximum usage x Maximum lead time
Where the maximum usage refers to the highest rate of consumption of the raw
material and the maximum lead time is the longest possible time it takes between
placing an order with suppliers and receiving the goods from the suppliers.
Managers should acquire this information from previous dealings.
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2. MINIMUM LEVEL:-
The minimum level, also known as buffer stock, represents the lowest level at
which inventory could reach, without handicapping production or causing a
stockout. Unlike the reorder level, the minimum level serves as a red flag for
managers. Stock which falls below this level can result in emergency or rush
orders and incur other stockout costs—apart from increasing the ordering costs.
The minimum level is based on the following formula:
Minimum level = Reorder level – (average usage x average lead time)
Therefore, if the reorder level is not given, you must calculate it before you
determine the minimum level. Where maximum and minimum usage figures and
lead times are given, you must work out the median of both and substitute the
results into the formula.
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3. MAXIMUM LEVEL:-
The maximum level is indicative of a wasteful level of stock holding. At this
point, the holding cost would skyrocket, stores might be near capacity level or in
case of some raw materials, and inventory might soon exceed safe or acceptable
levels. Use the following formula to calculate the maximum level:
Maximum level = Reorder level + reorder quantity – (minimum lead time x
minimum usage)
To visualize inventory levels, think of the reorder level as being sandwiched
between the minimum and maximum inventory levels. The minimum level is the
lowest acceptable inventory level, below which stockouts are possible. The
maximum level guards against wastage while the reorder level just determines
when the stores department should make a new order.
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ECONOMIC ORDER QUANTITY
Economic order quantity is the level of inventory that minimizes total inventory
holding costs and ordering costs. It is one of the oldest classical production
scheduling models. The framework used to determine this order quantity is also
known as Wilson EOQ Model or Wilson Formula. The model was developed by
F. W. Harris in 1913, but R. H. Wilson, a consultant who applied it extensively, is
given credit for his in-depth analysis.
EOQ applies only when demand for a product is constant over the year and each
new order is delivered in full when inventory reaches zero. There is a fixed cost
for each order placed, regardless of the number of units ordered. There is also a
cost for each unit held in storage, sometimes expressed as a percentage of the
purchase cost of the item.
We want to determine the optimal number of units to order so that we minimize
the total cost associated with the purchase, delivery and storage of the product.
The required parameters to the solution are the total demand for the year, the
purchase cost for each item, the fixed cost to place the order and the storage cost
for each item per year. Note that the number of times an order is placed will also
affect the total cost, though this number can be determined from the other
parameters.
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UNDERELYING ASSSUMPTIONS:-
1. The ordering cost is constant.
2. The rate of demand is constant
3. The lead time is fixed.
4. The purchase price of the item is constant i.e. no discount is available
5. The replenishment is made instantaneously, the whole batch is delivered at
once.
EOQ is the quantity to order, so that ordering cost + carrying cost finds its
minimum. (A common misunderstanding is that the formula tries to find when
these are equal.)
VARIABLES:-
(i) Q = order quantity
(ii) Q * = optimal order quantity
(iii) D = annual demand quantity of the product
(iv) P = purchase cost per unit
(v) S = fixed cost per order (not per unit, in addition to unit cost)
(vi) H = annual holding cost per unit (also known as carrying cost or storage
cost) (warehouse space, refrigeration, insurance, etc. usually not related to the
unit cost ).
TOTAL COST FUNCTION:-
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The single-item EOQ formula finds the minimum point of the following cost
function:
Total Cost = purchase cost + ordering cost + holding cost
- Purchase cost: This is the variable cost of goods: purchase unit price × annual
demand quantity. This is P×D
- Ordering cost: This is the cost of placing orders: each order has a fixed cost S,
and we need to order D/Q times per year. This is S × D/Q
- Holding cost: the average quantity in stock (between fully replenished and
empty) is Q/2, so this cost is H × Q/2
.
To determine the minimum point of the total cost curve, set the ordering cost equal
to the holding cost:
Solving for Q gives Q* (the optimal order quantity):
Therefore: .
Q* is independent of P; it is a function of only S, D, H.
31
INVENTORY CONTROL SYSTEM
INVENTORY AUDITS AND CYCLE CONTROL
Any inventory of Raw materials, finished goods as well as Intermediate in process inventory
has an economic value and is considered an asset in the books of the company. Accordingly
any asset needs to be managed to ensure it is maintained properly and is stored in secure
environment to avoid pilferage, loss or thefts etc.
Inventory control assumes significance on account of many factors:-
First of all inventory of raw materials as well as finished goods can run in thousands of SKU
varieties.
Secondly inventory can be in one location or spread over many locations.
Thirdly inventory may be with the company or may be under the custody of a third party logistics
provider. These factors necessitate inventory maintenance mechanisms to be devised to ensure
inventory control.Inventory control is also required as an operational process requirement.
Inventory is has two different dimensions to it. On one level it is physical and
32
involves physical transactions and movement of inventory. While on the other hand, inventory
is recognizable by the book stock and the system stocks maintained. This necessitates inventory
control mechanism to be implemented to ensure the book stocks and the physical stocks match
at all times.
Inventory control is exercised through inventory audits and cycle counts. An
inventory audit essentially comprises of auditing the books stocks and transactions
and matching physical stocks with the book stock.
Cycle counts: Cycle count refers to the process of counting inventory items
available in physical locations. Depending upon the nature of inventory, number
of transactions and the value of items, cycle count can be carried on periodically or
perpetually.
1. Daily Cycle Count: Normally where the number of SKUs is very high
coupled with high n umber of transactions and through put, daily cycle
count is initiated, where in a certain percentage of locations or SKUs are
counted on daily basis and physical stock is compared with system stock.
By the end of the month all of the stocks would have been covered once in
cycle count.
Inventory system throws up a count list based on an analysis of the
movements of fast moving SKUs along with other attributes like value etc.
In some of the system, inventory controllers can set up the attributes for
each cycle count.
2. Quarterly & Half Yearly Cycle Counts: End of the sales quarter or
end of half yearly sales, finished goods and spare parts are normally
covered under inventory audit and a 100% cycle count is carried out.
33
3. Wall to Wall Cycle Count: End of financial year and closing of books
entails doing wall to wall cycle count of all stocks lying in all locations and
tallying with books of account. This is a mandatory audit requirement and
until stock figures are reconciled, certified by auditors and published, New
Year books of accounts cannot be started a fresh.
How the audit process works ?
Except for daily cycle counts, all other cycle counts entail counting hundred
percent of all the stocks by stopping all transactions during the counting period.
System transactions are also frozen until the count is completed.
Inventory system throws up count list with SKU number, description and location
number. The operator goes to the location, checks the SKU, counts the qty
available and updates the list, which is then fed into the system. The system
reconciles the physical quantity with system quantity and throws up discrepancy
report, which is further worked upon to tally and adjust inventory.
34
ABOUT TOP 10 ITEMS INVENTORY REGION PATIALA
S.NO ITEMS DESCRIPTION OPEN.
STOCK
FROM
WAREHOUSE
CLOSING
STOCK
1 Drop Wire 3829 25060 8011
2 Line Jack (Secondary) 90 200 78
3 Line Cord Both Side RJ3 250 126
4 Retainer 0 1200 450
5 Hook-Retainer 0 1200 450
6 Wall Ring 0 400 238
7 Drive Bolt 40 400 204
8 Cable Tie 8mm 64 400 0
9 Clip With Nails-Small 0 7000 1988
10 Clip with Nail-Big (Black)-
Wall Fixture 86 1250 963
35
INTRODUCTION TO HFCL INFOTEL LTD
36
At QUADRANT TELEVENTURES LTD (formerly known as HFCL
Infotel Ltd), all our energies are focused on realizing our vision - 'To be the most
admired telecommunication and infotainment service brand through
innovation and excellence'.
QUADRANT TELEVENTURES LTD Launches its Telecom
services in Punjab in october 2000, With a Brand Name CONNECT.Then in
januaary 2001 QTL Launches its internet services.
QTL Use optical fibre cable for helping in making calls….and all
other telecom operators as if.. Vodafone,Videocon,docomo,airtel use the optical
fibre cable (OFC) , and pay huge to QTL for using its optical fibre cable. Then in
February 2001 it Launch its Limited mobility CDMA services and in July 2004
launches Braodband data Services.
CONNECT brings you the best Broadband Products and Services in the market.
Come connect with Connect Broadband and experience the super fast Broadband
connection.
COMPANY PROFILE
37
QUADRANT TELEVENTURES LTD (formerly known as HFCL
Infotel Ltd) is a "Total Telecom Solutions Provider" offering Fixed Line
telephony (Telephone Services), Mobile telephony, Broadband Services,
Customized Data Services and Value Added Services.
QTL provides a world class telecom experience when it comes to
technology, products, customer services, Launched in Punjab in the year 2000
under the Connect brand name. Infotel has set up state-of-the-art networks with
coverage in over 200 towns of Punjab with an extensive optical fiber network
coverage of over 4,000 km. Today, Infotel is one of Punjab's leading private sector
telecommunication service providers with an aggregate customer base of 5,10,263
as on 31st Dec 09.
QTL Broadband network supports interactive multi media services, and can
handle high quality content, high speed internet access and a large number of
interactive applications including B2B and B2C e-commerce.
38
QTL supports a wide Public Call Office (PCO) network across the state of
Punjab & Chandigarh. Now with over 45,000 PCOs, QTL is deemed to have the
largest PCO network in India among all private fixedline services operator in a
single circle.
The Average Revenue per Line (ARPL) for Infotel is among the highest
in the country. There is a clear focus on acquiring quality subscribers through well
planned rollouts and focused revenues in marketing strategy.
INDUSTRY STRUCTURE
39
HFCL Infotel Ltd (“Infotel” or “the Company”) is a Unified Access Services
Licensee in Punjab Telecom Circle comprising of state of Punjab, Union Territory
of Chandigarh and Panchkula town in the state of Haryana.The Company had
commenced its operations in September 2000 as a fixed line service provider
under
the brand name “CONNECT”. Subsequently, the Company had launched
Broadband and CDMA Mobile services. In September 2007, the Company had
undertaken expansion of its CDMA mobile services covering key cities / towns in
Punjab, under the brand name of “PING”. As at March 31, 2009, the Company
had 550,502 telephony customers, including fixedline - 1,82,860 customers,
CDMA mobile - 298,740 customers and Broadband - 68,902 customers.The
Company with its extensive optic fiber cable network of over 3800 kms, provides
services in over 150 cities / towns covering 52 of the 55 Short Distance Charging
Areas (“SDCA”) of Punjab Telecom Circle, as defined by the Department of
Telecommunications,Government of India.Key Business and Financial highlights
for the financial year are: With a growth of 31.70% during FY 2008-09, the
Broadband customer base has been increased to 68,902 During FY 2008-09
CDMA mobile customer base has gone up by 28.34% taking the base to 2,98,740
There has been a drop of 16.83% in the Fixed Voice Subscriber Base which stands
at 1,82,860 as on March 31, 2009.During FY 2008-09, the Company generated
gross revenue of Rs. 2249.56 million, which is lower by 10.01% as compared to
previous year.This resulted in a drop in Operating Profit (EBIDTA) to 191.12
million i.e. a drop by 26.87% as compared to the previous year.
The Telecommunication Services sector operates in a licensed and regulated
environment. The sector can be classified in terms of segments for which the
40
Government of India (GOI) issues licenses: Access Operators Offering Fixed
Line and Mobile Services.National Long Distance Operators Inter-linking
access operators.International Long Distance Operators connecting the domestic
operators (access and national long distance) with operators in other countries.
Other Value-added Services Providers Internet Access Services including Internet
Telephony, VSAT based services, Radio Paging Services, Public Mobile Radio
Trunking Services, Global Mobile Personal Communications Services through
Satellite.The GOI is empowered to decide on the policies that govern the
Telecommunication Services Sector and issue licenses to the private sector
players. The Government plays these roles through the Department of
Telecommunications (DOT) and the Telecom Commission, both functioning
under the Ministry of Communications and Information Technology.The
Telecommunications Regulatory Authority of India (TRAI), an autonomous body
with quasi-judicial powers to regulate the Telecommunications Services was
established in early 1997. The Act governing the establishment and role of TRAI
was amended in 2000,pursuant to which TRAI’s powers to adjudicate disputes
have been vested in the Telecom Disputes SettlementAppellate Tribunal
(TDSAT).
CONNECT BROADBAND
41
Connect Broadband is powered by a DSL- Digital Subscribers Line, a modern,
secure and reliable technology. DSL connection makes accessing the internet
incredibly fast and convenient, up to 50 times faster than dial-up connection. It
also allows carrying very heavy files over the internet in a flash.
CONNECT Broadband gives you an internet connection with faster and unlimited
downloads & always on with its greater bandwidth. It is compatible with video
chat, non stop games, live streaming of TV channels and movie & music
downloads.
ABOUT DSL BROADBAND
Broadband Service of Connect is powered by DSL technology.
DSL provides lightning-fast speed, secure Internet access and can be delivered to
homes and to business premises. It is delivered through a regular telephone line,
data rates can vary from 128Kbps to 8Mbps depending on the type and cost of the
service subscribed.
Digital Subscriber Line (DSL)
DSL technology provides instant Internet and network access at speeds up to 50
times faster than a 28.8Kbps modem on a standard analog phone line. There are no
dial-up delays, no irritating busy signals.
With DSL Internet Service you can instantly download graphics, heavy files, large
documents, software, photos, email attachments, and much more. It is very apt
for real-time interactive multimedia, broadcast quality video, distance learning,
42
and video-on-demand. Since DSL Internet Service sends data and voice over the
same line, you can talk on the phone while you are online.
With DSL Broadband you are connected instantly and you don't have to dial in for
connectivity. Just turn on your PC, open a browser, and you're ready to surf. DSL
has the ability to carry additional phone lines and entertainment services using the
same pair of wires.
High-speed Internet access through DSL changes your Internet experience
completely.
INDIA--Internet usage in the country is growing at a slow, but steady
pace, and is poised for bigger growth if access services are more affordable.
According to a recent survey by online research firm Juxt Consult, the
overall Internet population in urban India has grown a healthy 28 percent between
April 2006 and April 2007. The country's online user population currently stands
at 30.3 million, at a penetration rate of some 3 percent. Among urban Indians, the
penetration rate increases to about 9 percent.
"Since the base is small, the growth rate of 28 percent is not spectacular,"
said Sanjay Tiwari, director and co-founder of Juxt Consult, in a phone interview
with ZDNet Asia.
QUADRANT TELEVENTURES LTD (formerly known as
HFCL Infotel Ltd) is one of Punjab's leading private sector providers of
43
telecommunication services with more then 5,10,263 customers as on 31st Dec
2009. This customer base covers Fixed-line telephony, Fixed wireless phone,
Mobile telephony and Broadband services.
CONNECT FACT SHEET
Connect has positioned itself as a 'Total Telecommunication Solution
Provider' and offers a complete portfolio of telecom services along with a host of
value added services.
44
Life is static without telecommunication. It is one of the fastest growing
services in the world. In household, business even in individual life
telecommunication plays crucial role.
The purpose of my project entitled “Analysis of marketing strategy
and customer satisfaction with HFCL Infotel Ltd. services in comparison to its
competitors in Chandigarh”. The approach used for achieving this object is
questionnaires and market surveys. The research design adopted was descriptive
research design. Sampling technique used was probability and non-probability sam
pling. Sample is taken from the area of Chandigarh.
Major findings of this project are HFCL Infotel Ltd. is holding its
2nd position in the market of Chandigarh in coming years it will be considered as
the market leader because it gain the satisfaction level of people with its services.
A great success judging from the responses of HFCL Infotel Ltd.
customers. They are really satisfied as HFCL Infotel Ltd. meet their expectations
by offering quality products and services at cheapest prices.
It is recommended that the company still need to work upon customer care
and behavior of the marketing personnel. Liberal policy and credit policy against
some customers must be relaxed, also technology cell of the company must be
upgraded.
QTL stars its CDMA services with the PING only in Punjab. But after
sometime it converts it into the VIDEOCON MOBILE SERVICES, but its also a
CDMA connection . But now a days GSM services are getting more preferences
so that’s why QUADRANT TELEVENTURES LTD recently converted all the
CDMA connections into GSM OF VIDEOCON MOBILE SERVICES.
45
ABOUT OFFICES OF HFCL INFOTEL LTD
Registered Office:-
The registered office of Quadrant Televentures Ltd ( Formerly
known as HFCL infotel Ltd) is in Aurangabad,maharashtra,INDIA.
46
Head Office:-
The head office of Quadrant Televentures Ltd ( Formerly known as
HFCL infotel Ltd) is in Industrial area,phase 7, mohali,punjab.
47
BATHINDA
JALANDHAR
AMRITSAR
PATIALA
LUDHIANA
CHANDIGARH
OFFICES OF
QTL
IN PUNJAB
48
BILL SERVICES
QUADRANT TELEVENTURES LTD has its payment points in different
areas for the ease of customers, so that they can deposit their bills easily whether
in cash or through cheque.
QUADRANT TELEVENTURES LTD bill deparment provide three main
facilities for the ease of customers..these are as follows:-
Pay Bills Online
Get Details Of Bill Over Emails
View last three bills.
QUADRANT TELEVENTURES LTD also provide a valuable service related to
bills is E-BILLs. To get that e-bills one just have to fill a online form, only.
The main features of E-BILLS are:-
E-Bill allows you to view your bill without any postal or other delays and
helps in Green revolution.
Once you opt for E Bill services, your paper bills will be discontinued after
2 Bills.
49
The E-bill due date is the same as your current bill.
ABOUT OTHER SERVICES
As we know QUADRANT TELEVENTURES LTD has six branches in all over
Punjab. Each branch has its many LSA’s (LOCAL SERVICE AGENT). LSA’s
serving for the company by dealing with the customers.
For dealing with customers they need products of the CONNECT.So main
branches have lots of stock or inventory of different products.
ITEMS DESCRIPTION
50
Drop Wire
Line Jack (Secondry)
Line Cord Both Side RJ-11
COIL CORD - OFF WHITE
COIL CORD - BLACK
Steel Tape
Steel Buckle
Pole Bracket
Pole Rings
Retainer
Hook-Retainer
Wall Ring
Wall Angle Ring
Drive Bolt
Cable Tie 8mm
Clip With Nails-Small
Clip with Nail-Big (Black)-Wall Fixture
Plastic Plug 10mmx40mm - Expandable
Tape Polyester
SLEEVE PVC 2MM
Pipe PVC- 20 mm Dia
Iron Angle 5 Feet
Sticker-Fault
Screw Wooden
Bend PVC -20mm
51
Cordect
Battery-CPM
ALM -FRS
CPM-FRS
Patch cord CAT5 15Mtr CorDect FRS
Patch cord CAT5 25Mtr CorDect FRS
Patch cord CAT5 40Mtr CorDect FRS
Ancher Fastner - FRS
G.I Pipe-2 Meter - FRS
G.I Pipe-1 Meter - FRS
Routers & Accessories
Router-Huawei-MT800
ROUTER ADSL 2+ SINGLE PORT,COSUN
ROUTER ADSL-500T
ADAPTOR FOR ADSL ROUTER D-LINK 500T
Router D-Link 502 T
Adaptor D-Link 502 T
Router ADSL-ASCOM
Adaptor-ADSL-ASCOM
ROUTER ADSL SINGLE PORT T&W
ADAPTOR-ADSL SINGLE PORT T&W
ROUTER WI-FI ADSL (3COM)
ADAPTOR-WI-FI ADSL (3COM)
ROUTER WI-FI ADSL (D-LINK)
ADAPTOR-WI-FI ADSL (D-LINK)
52
ROUTER D-LINK G604T
ADAPTOR-D-LINK G604T
Router ADSL Primatel single port
Adaptor-ADSL Primatel Single Port
Router ADSL-DB 108-Atrie
Adaptor-ADSL Router Atrie DB108
Router Wi-Fi ADSL P-660HW-T1V2 (Zyxel)
Adaptor-WI-FI ADSL P-660HW-T1V2 (Zyxel)
ADSL2+ 4Port Wifi Router ,Primatel
Adaptor ADSL2+4Port Wifi Router,Primatel
Splitter ADSL2+4Port Wifi Router,Prima
ADSL POTS Splitter
RJ 45 I/O for DATA (DSL Cable)
WLL ACCESSORIES
Antenna - 9 Dbi Patch Panel
Battery Lead FWT Motorola
Battery Lead FWT Hyundai
Patch Cable 15mtr PPA
Patch Cable 25mtr PPA
Patch Cable 40mtr PPA
Standard Telephones
Telephone Caller ID Phone-China(New)
Telephone Caller ID Phone-China(Old)
Telephone-Emarald BHF-103(New)
Telephone-Emarald BHF-103(Old)
53
Telephone-Fairtel FT-892 Clip Phone (New)
Telephone-Fairtel FT-892 Clip Phone (Old)
Machine-Coin Collection
FWT Huawei
FWT Huawei ETS-1200 (New)
FWT Huawei ETS-1200 (Old)
Antenna FWT Huawei ETS-1200
Adapter FWT Huawei ETS-1200
Battery FWT Huawei ETS-1200
FWT Hyundai
FWT-HYUNDAI(HWT-110/120)(New)
FWT-HYUNDAI(HWT-110/120)(Old)
Antenna FWT Hyundai HT-110
Adapter FWT HYUNDAI (110/120)
Battery-FWT Hyundai HT-110
FWT-ZTE
FWT-ZTE(New)
FWT-ZTE(Old)
Antenna-FWT-Zte
Adaptor -FWT ZTE
Battery FWT ZTE
FWT - LG
FWT - LG (New)
FWT - LG (Old)
Antenna FWT-LG
54
Adaptor - FWT LG
Battery - FWT LG
FWT - Motorola
FWT - Motorola (New)
FWT - Motorola (Old)
Antenna-Fwt Motorola
Adaptor -FWT Motorola
Battery- FWT Motorola
FWP-ZTE (WP826A)
FWP-ZTE (WP826A)(New)
FWP-ZTE (WP826A)(Old)
Antenna-FWP-ZTE
Adaptor -FWP ZTE
Battery FWP ZTE
FWP HUAWEI
FWP HUAWEI ETS 2200 (New)
FWP HUAWEI ETS 2200 (Old)
Antenna FWPs Huawei ETS-2200
Adapter FWP Huawei ETS-2200
Battery FWPs Huawei ETS-2200
FWP-Airtone 800
FWP JINPENG AIRTONE 800 (New)
FWP JINPENG AIRTONE 800 (Old)
Antenna FWP Jinpeng Airtone 800
Adapter FWP Jinpeng Airtone 800
Battery FWP Jinpeng Airtone 800
55
FWP Huawei ETS - 2288
FWP HUAWEI ETS-2288 (New)
FWP HUAWEI ETS-2288 (Old)
ANTENNA FWP ETS 2288
ADAPTOR FWP ETS-2288
Battery FWP ETS-2288
DATA CABLE FOR FWPS HUAWEI
FWP-ZTE (WP836H)
FWP-ZTE (WP836H)(New)
FWP-ZTE (WP836H)(Old)
ANTENNA FWP WP 836H-ZTE
ADAPTOR FWP WP 836H-ZTE
BATTERY FWP WP 836H-ZTE
Data Cable USB Port-FWP-WP 836H -ZTE
DATA CABLE COM PORT FWP WP 836H -ZTE
FWP- ZTE (WP 822A)
FWP-WP 822A Voice and SMS-ZTE
Adapter- WP 822A ZTE
Antenna-WP 822A ZTE
Battery-WP 822A ZTE
FWP-ETS 2225- Huawei
FWP-ETS 2225- Huawei (New)
FWP-ETS 2225- Huawei (Old)
Adaptor FWP/D-ETS 2225/2252
Battery FWP/D-ETS 2225/2252
Antenna FWP/D-ETS 2225/2252
56
FWD-ETS 2252+- Huawei
FWD-ETS 2252+- Huawei (New)
FWD-ETS 2252+- Huawei (Old)
Adaptor FWP/D-ETS 2252
Battery FWP/D-ETS 2252
Antenna FWP/D-ETS 2252
PROGRAMMING/DATA CABLE-FWP-ETS 2252+
OBJECTIVE OF STUDY
57
HFCL INFOTEL LTD Plays a important role in communication services in
Punjab after BSNL. I have selected this topic of INVENTORY MANAGEMENT
AND CONTROL SYSTEM in HFCL INFOTEL LTD because the inventories
constitute the most significant part of current assets in QUADRANT
TELEVENTURES LTD.
RATIONALE BEHIND THIS STUDY :
Inventory Management is the topic of considerable and widespread
interests. In today’s cut throat competition it is very much essential that the
resources of any organization be properly utilized. Inventories constitute the most
significant part of current assets of a large majority of companies. On an average
inventories are approximately 60% of current assets in public limited companies in
India.
Because of large size of inventories maintained by organization, a
considerable amount of funds is required to be committed in them. Accordingly
accomplishment of wealth maximization calls for efficient and effective
management of inventory.
CHAPTER 2
RESEARCH METHODOLOGY
58
Meaning Research:
Research is defined as “a scientific and systematic search for pertinent information
on a specific topic”. Research is an art of scientific investigation. Research is a
systematized effort to gain now knowledge. It is a careful investigation or inquiry
especially through search for new facts in any branch of knowledge. Research is
an academic activity and this term should be used in a technical sense. Research
comprises defining and redefining problems, formulating hypothesis or suggested
solutions. Making deductions and reaching conclusions to determine whether they
if the formulating hypothesis. Research is thus, an original contribution to the
existing stock of knowledge making for its advancement. The search for
knowledge through objective and systematic method of finding solutions to a
problem is research.
Research Design:
A research design is defined as the specific methods and procedures for acquiring
the information needed. It is a plant or organizing framework for doing the study
and collecting the data. Designing a research plan requires decisions all the data
sources, research approaches, research instruments, sampling plan and contact
methods.
Research design is mainly of following types:
1. Exploratory research
59
2. Descriptive research
3. Casual research
Exploratory Research:
The major purposes of exploratory studies are the identification of problems, the
more precise formulation of problems and the formulations of new alternative
courses of action. The design of exploratory studies is characterized by a great
amount of flexibility and ad-hoc veracity.
Descriptive Studies:
Descriptive research in contrast to exploratory research is marked by the prior
formulation of specific research questions. The investigator already knows a
substantial amount about the research problem. Perhaps as a result of an
exploratory study, before the project is initiated. Descriptive research is also
characterized by a preplanned and structured design.
Casual or Experimental Design:
60
A casual design investigates the cause and effect relationships between two or
more variables. The hypothesis is tested and the experiment is done. There are
following types of casual designs:
I. After only design.
II. Before after design.
III. Before after with control group design.
IV. Four groups, six studies design
After only with control group design.
V. Consumer panel design
Exposit factor design.
61
RESEARCH METHODOLOGY TO BE USED FOR CARRYING
OUT THE STUDY :-
Both primary and secondary data will be used in this study.
A) Primary Data:-
i. I will personally interact with senior officers, colleagues
and staff of stores and purchase departments.
ii. Observing the present Inventory procurement Budget and
Control System adopted by budget section of Finance and
Accounts department.
iii. Personal interviews with the senior officers of Management
& Technical Departments.
B) Secondary Data:-
i. Detailed study of the existing inventory control system.
ii. Study of the purchase manual of QTL.
iii. Study of the stores manual of QTL.
iv. Study of the various books related in the field.
62
v. Study of the sources data required for inventory
management profit & loss, balance sheet and other
schedules of the balance sheet.
C) Contribution from the study:-
The main contribution from my study Will be the optimum utilization of Funds
invested in the inventory. After this study I will be in a position to pinpoint the
shortcomings in the management of inventory.
63
CHAPTER 3
ANALYSIS & INTERPRETATION OF DATA
MARKET VALUATION:-
Basically, In Quadrant Televentures ltd inventory is valued at cost or net
realisable value whichever is low. In this company FIRST IN FIRST OUT
METHOD (FIFO) is used for the market valuation of stock.
FIRST IN FIRST OUT METHOD (FIFO):-
FIFO is an acronym for First In, First Out, an abstraction in ways of organizing
and manipulation of data relative to time and prioritization. With the help of this
company get following advantages:
The main advantage of FIFO method to the qtl is that it is simple to
understand and easy to operate.
It is a logical method because it takes into consideration the normal
procedure of utilizing first those materials which are received first. Materials are
issued in order of purchases, so materials received first are utilized first.
Under this method, materials are issued at the purchase price; so the cost of
jobs or work orders is correctly ascertained so far as cost of materials is concerned.
Thus, the method recovers the cost price of the materials.
This method is useful when prices are falling.
Closing stock of materials will be valued at the market price as the closing
stock under this method would consist of recent purchase of materials.
This method is also useful when transactions are not too many and prices of
materials are fairly steady.
64
INVENTORY TURNOVER
he Inventory turnover is a measure of the number of times inventory is sold or
used in a time period such as a year. The equation for inventory turnover equals
the cost of goods sold divided by the average inventory. Inventory turnover is also
known as inventory turns, stockturn, stock turns, turns, and stock turnover.
Inventory turnover equation:-
The formula for inventory turnover:
The formula for average inventory:
Alternatively, the average days to sell the inventory may also be calculated as
follows:
65
PRACTICAL OF INVENTORY TURNOVER OF QTL
Inventory of qtl of 2008-2009:
Year 2008 2009
Inventory Nil Rs. 9,733,780
Cost of good sold of qtl of 2009 :
Rs. 1300
Average inventory = nil + 9,733,780 ÷ 2
= Rs 4,866,890
Inventory turnover = Rs1,300 ÷ Rs 4,866,890
= 0.000267 times
Inventory Turnover in 2008 - 2009 Is 0.000267 TIMES.
66
Inventory of QTL of 2009- 2010:
Year 1st april 2009 31st march 2010
Inventory Rs 9,733,780 Rs 6,379,914
Cost of good sold of qtl of 2010:-
= Rs. 14,699,140
Average inventory= Rs. 9,733,780 + Rs6,379,914÷ 2
= Rs.16,113,694÷ 2
= Rs.8,056,847
INVENTORY TURNOVER = Rs.14,699,140 ÷ Rs.8,056,847
= 1.82 times
Inventory Turnover in 2009-2010 Is 1.82 TIMES
67
Inventory Management of QTL doing following to manage inventory:
(a) The management has conducted physical verification of inventory of network
maintenance consumables at reasonable intervals during the year.
(b) The procedures of physical verification of inventory followed by the
management are reasonable and adequate in relation to the size of the Company
and the nature of its business.
(c) The Company is maintaining proper records of inventory and no material
discrepancies.
68
CHAPTER 4
FINDING AND CONCLUSIONS
From the above finding and analysis various inferences can be drawn out which are as follows:
In the above analysis we find out that the inventory turnover of QTL in 2008-2009 is less than the inventory turnover in 2009-2010.
A low turnover rate may point to overstocking, obsolescence, or deficiencies in the
product line or marketing effort. However, in some instances a low rate may be
appropriate, such as where higher inventory levels occur in anticipation of rapidly
rising prices or shortages.
But, a high turnover rate may indicate inadequate inventory levels of the company,
which may lead to a loss in business.
In the NUTSHELL, the company has a moderate position, as earlier we
describe that QTL Uses FIFO method which is easy to use. So, it takes into
consideration the normal procedure of utilizing first those materials which are
received first. Materials are issued in order of purchases, so materials received first
are utilized first. Closing stock of materials will be valued at the market price as
the closing stock under this method would consist of recent purchase of materials
69
CHAPTER 5
SUGGESTIONS
From the personal observations and the above analysis various suggestions
are:
There are so many methods to valuation of the stock but the company only uses
FIFO method, which is not always give accurate results. Due to lack of accuracy
company may suggest to follow other methods of inventory valuation as of
LIFO( last in first out) etc..
Company should Use better & high tech methods of advertising, so that more &
more subscriber attract towards Connect and to provide more better services. So
that the company attracts new customers and not suffer from competitors
like bsnl .
70
BIBLOGRAPHY
Internet:-
www. infotelconnect.com
www.moneycontrol.com
71
APPENDIX
72
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