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CHAPTER 1

INVENTROY CONTROL

INTRODUCTION

Inventory is a term that has been explained in various ways by various scholars, Inventories are stocks of the product a company is manufacturing for sale and components that make up the product. They are raw materials, work-in progress and finished goods and they constitute various forms of inventory in a manufacturing firm. Business motives are to produce, sell and make profit. Inventories are playing vital role in every business whether industrial unit are trading organization. Inventories are very broad term and include the elements whose values are always very high, in any industrial unit. Inventory constitutes major parts, approximately 40% to 80% of gross working capital depending upon the nature and size if the industrial unit. Inventory can be any form which consists of raw material, consumables, and spares, work in process, finished goods. Inventories are the stocks of materials or finished goods which a company keeps in anticipation of demand or consumption.

Consequently, there is the need for the firms to undertake effective inventory control with the aims of:

a. Ensuring a continuous supply of materials to facilitate

b. Maintaining sufficient stocks of raw materials in periods of short supply and anticipate price changes.

c. Minimizing the carrying cost and time. Virtually every company has one form of inventory or the other. The levels of these forms of inventories of a firm depend on the nature of its business- manufacturing, merchandizing or servicing.

Inventory Control

Inventory control involves the procurement, care and disposition of materials. There are three kinds of inventory that are of concern to managers:

• Raw materials, • In-process or semi-finished goods, • Finished goods.

If a manager effectively controls these three types of inventory, capital can be released that may be tied up in unnecessary inventory, production control can be improved and can protect against obsolescence, deterioration and/or theft,

The reasons for inventory control are:

• Helps balance the stock as to value, size, color, style, and price line in proportion to demand or sales trends.

• Help plan the winners as well as move slow sellers • Helps secure the best rate of stock turnover for each item.

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• Helps reduce expenses and markdowns. • Helps maintain a business reputation for always having new, fresh merchandise in wanted

sizes and colors.

Three major approaches can be used for inventory control in any type and size of operation. The actual system selected will depend upon the type of operation, the amount of goods.

The Eyeball System

This is the standard inventory control system for the vast majority of small retail and many small manufacturing operations and is very simple in application. The key manager stands in the middle of the store or manufacturing area and looks around. If he or she happens to notice that some items are out of stock, they are reordered. In retailing, the difficulty with the eyeball system is that a particularly good item may be out of stock for sometime before anyone notices. Throughout the time it is out of stock, sales are being lost on it. Similarly, in a small manufacturing operation, low stocks of some particularly critical item may not be noticed until there are none left. Then production suffers until the supply of that part can be replenished. Such unsystematic but simple retailers and manufacturers to their inherent disadvantage.

Reserve Stock (or Brown Bag) System

This approach is much more systematic than the eyeball system. It involves keeping a reserve stock of items aside, often literally in a brown bag placed at the rear of the stock bin or storage area. When the last unit of open inventory is used, the brown bag of reserve stock is opened and the new supplies it contains are placed in the bin as open stock. At this time, a reorder is immediately placed. If the reserve stock quantity has been calculated properly, the new shipment should arrive just as the last of the reserve stock is being used.

In order to calculate the proper reserve stock quantity, it is necessary to know the rate of product usage and the order cycle delivery time. Thus, if the rate of product units sold is 100 units per week and the order cycle delivery time is two weeks, the appropriate reserve stock would consist of 200 units (I00u x 2w). This is fine as long as the two-week cycle holds. If the order cycle is extended, the reserve stock quantities must be increased. When the new order arrives, the reserve stock amount is packaged again and placed at the rear of the storage area.

This is a very simple system to operate and one that is highly effective for virtually any type of organization. The variations on the reserve stock system merely involve the management of the reserve stock itself. Larger items may remain in inventory but be cordoned off in some way to indicate that it is the reserve stock and should trigger a reorder.

Perpetual Inventory Systems

Various types of perpetual inventory systems include manual, card-oriented, and computer- operated systems. In computer-operated systems, a programmed instruction referred to commonly as a trigger, automatically transmits an order to the appropriate vendor once supplies fall below a prescribed level. The purpose of each of the three types of perpetual inventory approaches is to tally either the unit use or the dollar use (or both) of different items and product lines. This information

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will serve to help avoid stock-outs and to maintain a constant evaluation of the sales of different product lines to see where the emphasis should be placed for both selling and buying.

Stock Control

A stock control system should keep you aware of the quantity of each kind of merchandise on hand. An effective system will provide you with a guide for what, when, and how much to buy of each style, color, size, price and brand. It will reduce the number of lost sales resulting from being out of stock of merchandise in popular demand. The system will also locate slow selling articles and help indicate changes in customer preferences. The size of your establishment and the number of people employed are determining factors in devising an effective stock control plan. Can you keep control by observation? Should you use on-hand/on-order/sold records? Detachable ticket stubs? Checklists? And/or physical inventory? If so, how often?

With the observation method (the eyeball system), unless the people using it have an unusually sharp sense of quantity and sales patterns, it is difficult to keep a satisfactory check on merchandise depletion. It means that you record shortages of goods or reorders as the need for them occurs to you. Without a better checking system, orders may only be placed at the time of the salesman's regular visit, regardless of when they are actually needed. Although it may be the simplest system, it also can often result in lost sales or production delays. Detachable stubs or tickets placed on merchandise provide a good means of control. The stubs, containing information identifying the articles, are removed at the time the items are sold. The accumulated stubs are then posted regularly to the perpetual inventory system by hand or through the use of an optical scanner.

A checklist, often provided by wholesalers, is another counting tool. The checklist provides space to record the items carried, the selling price, cost price, and minimum quantities to be ordered of each. It also contains a column in which to note whether the stock on hand is sufficient and when to reorder. This is another very simple device that provides the level of information required to make knowledgeable decisions about effective inventory management.

Smaller operations today, except for the very smallest, are using some form of a perpetual online system to record the movement of inventories into and out of their facilities. In a retail operation, the clerk at the register merely scans the ticket with a reader, and the system shows the current price and removes the item from the inventory control system. A similar process occurs in a manufacturing operation, except that the "sale" is actually a transfer of the inventory from control to production. This is a particularly critical system in a large operation such as a grocery store where they regularly maintain 12,000 plus items. Often a vendor will provide on-site or computerized assistance needed to help their smaller customers maintain a good understanding of their own inventory levels and so keep them in balance

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,

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dollar control may be more 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-to-buy 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.

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.

Controlling Inventory

Controlling inventory does not have to be an onerous or complex proposition. It is a process and thoughtful inventory management. There are no hard and fast rules to abide by, but some extremely useful guidelines to help your thinking about the subject. A five step process has been designed that

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will help any business bring this potential problem under control to think systematically thorough the process and allow the business to make the most efficient use possible of the resources represented. The final decisions, of course, must be the result of good judgment, and not the product of a mechanical set of formulas.

STEP 1: Inventory Planning

Inventory control requires inventory planning. Inventory refers to more than the goods on hand in the retail operation, service business, or manufacturing facility. It also represents goods that must be in transit for arrival after the goods in the store or plant are sold or used. An ideal inventory control system would arrange for the arrival of new goods at the same moment the last item has been sold or used. The economic order quantity, or base orders, depends upon the amount of cash (or credit) available to invest in inventories, the number of units that qualify for a quantity discount from the manufacturer, and the amount of time goods spend in shipment.

STEP 2: Establish order cycles

If demand can be predicted for the product or if demand can be measured on a regular basis, regular ordering quantities can be setup that takes into consideration the most economic relationships among the costs of preparing an order, the aggregate shipping costs, and the economic order cost. When demand is regular, it is possible to program regular ordering levels so that stock-outs will be avoided and costs will be minimized. If it is known that every so many weeks or months a certain quantity of goods will be sold at a steady pace, then replacements should be scheduled to arrive with equal regularity. Time should be spent developing a system tailored to the needs of each business. It is useful to focus on items whose costs justify such control, recognizing that in some cases control efforts may cost more the items worth. At the same time, it is also necessary to include low return items that are critical to the overall sales effort.

If the business experiences seasonal cycles, it is important to recognize the demands that will be placed on suppliers as well as other sellers.

A given firm must recognize that if it begins to run out of product in the middle of a busy season, other sellers are also beginning to run out and are looking for more goods. The problem is compounded in that the producer may have already switched over to next season’s production and so is not interested in (or probably even capable of) filling any further orders for the current selling season. Production resources are likely to already be allocated to filling orders for the next selling season. Changes in this momentum would be extremely costly for both the supplier and the customer.

On the other hand, because suppliers have problems with inventory control, just as sellers do, they may be interested in making deals to induce customers to purchase inventories off-season, usually at substantial savings. They want to shift the carrying costs of purchase and storage from the seller to the buyer. Thus, there are seasonal implications to inventory control as well, both positive and negative. The point is that these seasonable implications must be built into the planning process in order to support an effective inventory management system.

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STEP 3: Balance Inventory Levels

Efficient or inefficient management of merchandise inventory by a firm is a major factor between healthy profits and operating at a loss. There are both market-related and budget-related issues that must be dealt with in terms of coming up with an ideal inventory balance:

• Is the inventory correct for the market being served?

• Does the inventory have the proper turnover?

• What is the ideal inventory for a typical retailer or wholesaler in this business?

To answer the last question first, the ideal inventory is the inventory that does not lose profitable sales and can still justify the investment in each part of its whole.

An inventory that is not compatible with the firm’s market will lose profitable sales. Customers who cannot find the items they desire in one store or from one supplier are forced to go to a competitor. Customer will be especially irritated if the item out of stock is one they would normally expect to find from such a supplier. Repeated experiences of this type will motivate customers to become regular customers of competitors.

STEP 4: Review Stocks

Items sitting on the shelf as obsolete inventory are simply dead capital. Keeping inventory up to date and devoid of obsolete merchandise is another critical aspect of good inventory control. This is particularly important with style merchandise, but it is important with any merchandise that is turning at a lower rate than the average stock turns for that particular business. One of the important principles newer sellers frequently find difficult is the need to mark down merchandise that is not moving well.

Markups are usually highest when a new style first comes out. As the style fades, efficient sellers gradually begin to mark it down to avoid being stuck with large inventories, thus keeping inventory capital working. They will begin to mark down their inventory, take less gross margin, and return the funds to working capital rather than have their investment stand on the shelves as obsolete merchandise. Markdowns are an important part of the working capital cycle. Even though the margins on markdown sales are lower, turning these items into cash allows you to purchase other, more current goods, where you can make the margin you desire.

Keeping an inventory fresh and up to date requires constant attention by any organization, large or small. Style merchandise should be disposed of before the style fades. Fad merchandise must have its inventory levels kept in line with the passing fancy. Obsolete merchandise usually must be sold at less than normal markup or even as loss leaders where it is priced more competitively. Loss leader pricing strategies can also serve to attract more' consumer traffic for the business thus creating opportunities to sell other merchandise as well as well as the obsolete items. Technologically obsolete merchandise should normally be removed from inventory at any cost.

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Stock turnover is really the way businesses make money. It is not so much the profit per unit of sale that makes money for the business, but sales on a regular basis over time that eventually results in profitability. The stock turnover rate is the rate at which the average inventory is replaced or turned over, throughout a pre-defined standard operating period, typically one year. It is generally seen as the multiple that sales represent of the average inventory for a given period of time.

Turnover averages are available for virtually any industry or business maintaining inventories and having sales. These figures act as an efficient and effective benchmark with which to compare the business in question, in order to determine its effectiveness relative to its capital investment. Too frequent inventory turns can be as great a potential problem as too few. Too frequent inventory turns may indicate the business is trying to overwork a limited capital base, and may carry with it the attendant costs of stock-outs and unhappy and lost customers.

Stock turns or turnover is the number of times the "average" inventory of a given product is sold annually. It is an important concept because it helps to determine what the inventory level should be to achieve or support the sales levels predicted or desired. Inventory turnover is computed by dividing the volume of goods sold by the average inventory. Stock turns or inventory turnover can be calculated by the following equations:

If the inventory is recorded at cost, stock turn equals cost of goods sold divided by the average inventory. If the inventory is recorded at sales value, stock turn is equal to sales divided by average inventory. Stock turns four times a year on the average for many businesses. Jewellery stores are slow, with two turns a year, and grocery stores may go up to 45 turns a year.

If the dollar value of a particular inventory compares favourably with the industry average, but the turnover of the inventory is less than the industry average, a further analysis of that inventory is needed. Is it too heavy in some areas? Are there reasons that suggest more inventories are needed in certain categories? Are there conditions peculiar to that particular firm? The point is that all markets are not uniform and circumstances may be found that will justify a variation from average figures.

Stock Turn = Cost of Goods Sold / Average Inventory at cost

Stock Turn = Sales / Average Inventory at Sales Value

In the accumulation of comparative data for any particular type of firm, a wide variation will be found for most significant statistical comparisons. Averages are just that, and often most firms in the group are somewhat different from that result. Nevertheless, they serve as very useful guides for the adequacy of industry turnover, and for other ratios as well. The important thing for each firm is to know how the firm compares with the averages and to deter- mine whether deviations from the averages are to its benefit or disadvantage.

STEP 5: Follow-up and Control

Periodic reviews of the inventory to detect slow-moving or obsolete stock and to identify fast sellers are essential for proper inventory management. Taking regular and periodic inventories must be more than just totalling the costs. Any clerk can do the work of recording an inventory. However, it is the responsibility of key management to study the figures and review the items themselves in order

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to make correct decisions about the disposal, replacement, or discontinuance of different segments of the inventory base.

Just as an airline cannot make money with its airplanes on the ground, a firm cannot earn a profit in the absence of sales of goods. Keeping the inventory attractive to customers is a prime prerequisite for healthy sales. Again, the seller's inventory is usually his largest investment. It will earn profits in direct proportion to the effort and skill applied in its management.

Inventory quantities must be organized and measured carefully. Minimum stocks must be assured to prevent stock-outs or the lack of product. At the same time, they must be balanced against excessive inventory because of carrying costs. In larger retail organizations and in many manufacturing operations, purchasing has evolved as a distinct new and separate phase of management to achieve the dual objective of higher turnover and lower investment. If this type of strategy is to be utilized, however, extremely careful attention and constant review must be built into the management system in order to avoid getting caught short by unexpected changes in the larger business environment.

1.1 NEED FOR INVENTORY CONTROL

“Uncontrolled Inventory Is the Industry’s Cancer” is the well-known slogan. If the inventories are not controlled effectively it will create many problems in the industry. So there is a need for every company to control its inventory in all stages.

1.1.1 Effect of control at raw material

Since, cost of raw material consists of more than 25% of the cost of production in any industry, it requires constant control. The adverse control of raw material leads to stock outs. Losses in materials are wastage and consequent to which the cost of production will be increased. Thereby chances of incurring losses are more. So, the necessary control of raw material at the initial is very essential to minimize the losses. Thereby non interruption of continuous production is possible.

1.1.2 Effect of control at finished goods

• If the finished goods are not controlled properly it will lead to excess stock which leads to High incident of stock holding price

• Drop in margin through price reduction• Pilferage or damage consequence to long storage

1.1.3 Effect of uncontrolled of other inventories

• If spares are not controlled, it will lead to production held up • If the machine gets obsolescence, over stocking of spares inventory will lead to high

inventory level.

Hence the non availability of a single material, which contributes production, not even 1% will create critical situation, which may stop the production or finished goods movement in any industry. For example, the non availability of cotton or paper cones will stop dispatch of finished goods .in this case, its percentage in terms of value is negligible but its worthies high with regards to marketability of materials.

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From, the financial point of view inventory is the single largest asset in the balance sheet in many manufacturing companies. Inventory accounts for a substantial portion blocking the major portion of the working capital. So, it is absolutely necessary rather a must, to control the inventory for not only effective management of working capital but also for smooth production and to cut the cost of interest so as to sustain and survive in business especially in today’s era of cutthroat competition. Thus managing inventory into an optimum level is all the more important which result in cost reduction, efficient use of working capital and improved earnings.

In today’s Industrial climate, multinational corporations are entering into all fields of Business that too, in auto industries. This Situation leads to heavy Competition among the Industries in the same field.

Their Main expectations are

• Quality• Prompt delivery• Competitive Price

All The above needs, Free flow Of Material and Working capital. Free flow of materials can be achieved through proper control and managing of inventories. So, I have selected the topic of inventory control and management as my project particularly in an auto ancillary unit like IPPL Ltd. Major contribution from this project work will result in reduced percentage of holding inventories, utilization of limited resources and overall improvement in control of inventories by application of scientific inventory control the system like economic order quantity, fixing reorder level, ABC analysis and safety stock level.

1.2 CONCEPTS OF INVENTORY

INVENTORY

Inventory can be broadly defined as the stock of goods, commodities or other economic resources that are stored or reserved at any given period for future production or for meeting future demands.

CLASSIFICATION OF INVENTORY

Inventory may divided into 2 classes depends on nature and purpose and from industry to industry.

1.2.1 Direct Inventories

It includes those items which play a direct role in the manufacturing and become an integral part of finished goods. The direct inventories are as follows.

a) Raw Material Inventories

i) Enables production rate charge

ii) To provide economical bulk purchasing

iii) For seasonal fluctuations

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b) Work in Process Inventories

i) To establish economical lot of production

ii) To late the inventory of products

c) Finished Goods Inventories

i) To allow stabilization of the level of production

ii) For sales protection

1.2.2 Indirect Inventories

Indirect inventories include those items which are necessary for manufacturing but do not become component of the finished goods production, such as lubricants, grease, oil, petrol, stationeries, and maintenance materials.

STORAGE FOR INVENTORY

If the company was to produce certain percentage of whole years output within in shorter time, they would need to tremendous labour and materials. So they need lot of materials with in shorter period. The goods they can get only from material inventory instead, they may produce in slower schedule and stock them as inventory. Some type of organization may carry inventory to ensure promptly delivery to customers.

Inventory Decisions

The important decision that every company has to take regarding inventory is order the right quantity at right time with minimum cost. Right quantity means how much quantity to be ordered keeping in view the demand, supply and cost aspect.

The time of order will be considered on the basis of lead time, carrying cost, consumption level and working capital positions.

1.3 OBJECTIVES OF INVENTORY CONTROL

Inventory control is a highly significant function because it consist substantial portion of total current asset of a firm.

1.3.1 To minimize the investment in inventories: The main objective of a system of inventory control is minimizing the capital blocked in the inventories. The capital required to carry inventories costs money and holding asset in the form of inventories results in decreased liquidity.

1.3.2 To ensure that the value of material consumed to minimum: To ensure this objective there should be proper control of materials from the placing of orders with supplies fill the materials have been efficiently utilized in production. Efficient purchasing, storage, consumption and accounting for materials are an important objective of inventory control.

1.3.3 To provide scientific control: To provide scientific base for short term and long term planning of inventory requirements.

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1.3.4 To protect from losses: The inventories storage from pilferage, theft, wastage, damage and unauthorized use.

1.3.5 To reduce surplus stock: reducing of surplus stock is one of the essential requirements of effective inventory control. Inventory controls critically examines excessive stock and take appropriate measures to bring down stock to a reasonable level and then by reduce investment. Inventory control takes timely action for replenishment. It also provides a safe guard for variations in raw material delivery time or lead time.

Benefits of inventory control

• Scientific systems of inventory control reduce inventory anywhere between 15% to 60%. An inventory reduction of Rs.10 lakhs may be equivalent to recurring saving of Rs. 2 lakhs

• Inventory consumes an adequate supply of items to customs and avoids the shortages as for as possible.

• Makes use of available capital in a most effective way.• Protect from the risk of loss due to the charges in prices of items stocked.

1.4 IMPORTANT CONCEPT IN INVENTORY CONTROL

1.4.1 Carrying or holding Inventory cost

These costs are associated with holding a given level of inventory on hand and vary with the level and length of time inventory is held.

Factors contributing carrying costs are

Ordering costs

Costs related of acquisition of purchased items are those of getting an item into company’s inventory or stores. This is a fixed cost per lot and variable cost per item.

Factors contributing ordering cost will be

• Requisitioning• Order placing• Transportation• Receiving inspection• Clerical staff expenses• Stock out costs

If the actual usage increase or the delivery is delayed, the firm can face the problem of stock out. These are penalty cost associated with either a delay in meeting the demand due to storage of stock. It results in production loss, idle time loss, loss of customer goodwill.

Demand

It is the item required over a particular unit of time. The demand may be fixed or variable unit of time. These are called static and dynamic demands.

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Order cycle

The time period between placements of two successive orders is refried to as an order cycle.

Fixed order quantity or two bin system

The record of the level is checked and order record will be placed after reacting a specific point. This is known as fixed quantity or two bin system of inventory.

Periodic review system

Inventory levels are reviewed at fixed time intervals and then orders are placed at such intervals.

Lead time

When an order is placed it may be received immediately or it may take some time before it is received. The time between ordering a replenishment of an item and actually the item into inventory is referred to as lead time.

Maximum stock

A stock level selected as the maximum desirable which is used as an indicator to show when stocks have rises too high.

Safety stock

This is an additional stock needed than expected demand that may arise during lead time.

Reorder level

The point fixed between maximum and minimum stock levels at which time it is essential to initiate purchase requisition and manufacturing requisition for fresh supplies of the material.

Reorder quantity

This is the quantity of the replacement order

Economic order quantity

Economic order quantity is the one for which the aggregate of the costs of ordering the inventory and the costs of carrying the inventory is at minimum.

OBJECTIVE OF THE STUDY

Primary Objective

To the project is analysed the inventory levels with special reference to the company.

Secondary Objective

• To study the existing function of the inventory control.• To study the various categories of the inventory.• To know actual consumption and cost

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• To set the target level for the future

Provide protection against the uncertainty of supply and demand.

SCOPE OF THE STUDY

• It Identifies ways to maintain accurate Inventory• It develops policies for both the continuous review and the periodic review of inventory

control system• It distinguishes the different type of inventory and knows how to manage their quantities • Savings can be increased which is used for satisfaction of working capital needs.

LIMITATIONS OF THE STUDY

• The study is limited to five years.• The relationship and accuracy of calculation depend on the information found in the annual

report only.• Only one company has taken for this project• Secondary data alone used in the project

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REVIEW OF LITERATURE

According to S.C.Sharma (operation research inventory control and queuing theory) as define “an idle resource of an kind provided such a resources has economic value”

According to Colin David lewis (demand forecasting and Inventory control) as define “Inventory control is the science based art of controlling the amount of Inventory (or stock) held, in various forms, wit in the organization to meet the demand placed up on the business economically. To control the amount of inventory, it is clearly necessary to forecast the level of future demand, where such demand can be regarded as essentially either independent or dependent”

According to Syen Axsater (Inventory Control) as define, “Advances in information technology have drastically changed the possibilities to apply efficient inventory control techiniques, furthermore, the recent progress in research has resulted in new and more general methods that can reduce the supply chain cast substantially”

According to max muller ( Essentials of inventory management) as defined “ Inventory can be as simple as a bottle of glass cleaner used as part of a buildings custodial program or as complex as a mix of raw materials and sub assembling used as part of a manufacturing process.”

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RESEARCH METHODOLOGY

Research Methodology refers to search of knowledge. One can also define research methodology as a scientific and systematic search for required information on a specific topic. The word research methodology comes from the work “ advance learners dictionary” meaning of research as a careful investigation or inquiry especially through research for new facts in my branch of knowledge for example some author have define research methodology as systematized effort to gain new knowledge.

RESEARCH DESIGN

A Research design is the program that guides the investigation in the process of collecting, analysing and interpreting observations. In this project, study is based on descriptive research design.

SOURCES OF DATA

The data have been collected from the secondary sources. Secondary data studies whole company records which the project work has been done. In addition, a number of reference books, journals and reports were also used to formulate the theoretical model for the study. And some information was also drawn from the websites.

Tools used in analysis

In order to analyse the inventory control position of the company for ABC analysis, Economic Order Quantity, FSN analysis and HML analyses was followed in excel and Spreadsheet.

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CHAPTER – 2

COMPANY PROFILE

RMCL started the manufacture of mechanised cleaning equipment in the early 1990s through a techno-financial collaboration with Hako Werke, Germany. The alliance became one of the most successful in the Indian industry.

Today, in India, RMCL is the largest manufacturer and exporter of cleaning equipment. A state of the art manufacturing facility and a comprehensive marketing and After Sales Service network, enabled the company to deliver optimum solutions for customer’s cleaning needs. Products from RMCL are built around eco friendly concepts and comply with international quality and safety norms

Today, RMCL has grown into a leader in the Indian cleaning equipment manufacturing industry and has a significant market presence in the world market. Its domain expertise spans design, development and manufacture of cleaning equipment. Strategic alliances have strengthened its presence and broadened the scope of its product offerings. RMCL is also the exclusive representative in India for several well known and specialised manufacturers of cleaning equipment across the world.

The company derives its strength from an experienced talent repository, comprising experts in technology, product design and development, research, manufacturing and marketing.

Group companies

Roots Industries India Ltd

The flagship company of the group is the largest manufacturer of electric horns in India and one among the largest manufacturing companies in the world.

Roots Auto Products Pvt Ltd

RAPPL is the country’s largest supplier of air horns with a sizeable market share of close to 50%.

Roots Precision Products Pvt Ltd

RPP is one of the most sought after solution providers for a variety of precision products in the country.

Roots Cast P Ltd

This division of Roots caters to specialised Alumnium / Zinc pressure die casting and has proven expertise in tool design, manufacturing, die casting, machining and surface finishing.

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Roots Polycraft Ltd

This division was established in 1988 to manufacture precision injection moulding components and has established itself as a trusted solutions provider to discerning customer organisations.

Products

The RMCL product stable comprises of comprehensive cleaning solutions for a wide variety of industrial, commercial and domestic cleaning requirements. In India, all products are backed by a wide network of After Sales Service centres. Products from RMCL are backed by critical research and design insights to suit specific Indian conditions and reflect international styling.

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NEW LAUNCH

ROOTSSCRUB RB800

Roots Multiclean Ltd, the trailblazer in modern mechanized cleaning solutions in India, is proud to launch the all new RootsScrub RB800 Ride-on Scrubber? Indigenously developed versatile & robust scrubber-drier with soft touch controls and choice of battery, makes your cleaning experience a pleasure. Ideal for Shop Floors, Shopping Malls, Airports, Railway Stations and other large area application.

• Compact design & construction, absolute manoeuvrability • Choice of high traction batteries with running hours from 3 to more than 5 hrs • Soft-touch control panel, well laid and easy to reach • Large tanks for uninterrupted cleaning performance Change of brush & squeege lips needs

no tools • In-built fault diagnostic system, reverse alarm, head lamp and large anti-skid wheels • Variety of brushes for various applications; brush release by foot, no tools required • Area performance up to 5200 sq.mts/hr.

QUALITY

RMCL has been quick to adapt to evolving technology and quality compliances. Accreditations include:• First cleaning equipment manufacturer to comply to ISO 9001-2000 – QMS• First cleaning equipment manufacturer to gain ISO 14001-2004 – EMS (Environmental Management System)• First cleaning equipment manufacturer to be certified with ISO 18001-2007 - OHSAS (OccupationalHealth&Safety)All products are aligned to match different global standards including CE/ CB/GS/EMS/Ctuv

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Quality Policy

First cleaning equipment manufacturer for ISO 9001-2000 - QMS

First cleaning equipment manufacturer for ISO 18001-2007 - OHSAS(Occupational Health & Safety)

System Certification

First cleaning equipment manufacturer for ISO 9001-2000 - QMS

First cleaning equipment manufacturer for ISO 14001-2004 - EMS(Environmental Management System)

First cleaning equipment manufacturer for ISO 18001-2007 - OHSAS(Occupational Health & Safety)

Product Certification

Our products are CE / CB / GS / EMC / cTUVus certified First cleaning equipment manufacturer for ISO 9001-2000

- QMS Product Certification First cleaning equipment manufacturer for ISO 14001-

2004 - EMS(Environmental Management System)

First cleaning equipment manufacturer for ISO 18001-2007 - OHSAS(Occupational Health & Safety)

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RESEARCH & DEVELOPMENT

ROOT MULTICLEAN has emerged over the years as a strong engineering company, recognizing the importance of Research and Development. This has lead to the significant investments towards R&D facilities. ROOTS ENGINEERING RESEARCH CENTRE (ERC) is a central facility that caters to the entire Roots Group of Companies in the areas of Product Development, Tool Development and Facilities Development.

Research activities are being carried out constantly to provide state-of-the art products which meet global standards. Innovation and intelligence meet to cater to the challenges we face in the cleaning industry.

Advanced state-of-the-art softwares like CAD/CAM etc. are extensively made use of for product design and development activities. Our team of trained and experienced Engineers work through the year for designing world class products, meeting global market needs as well their safety standards.

Industries

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PARTNERS

RMCL partners with several brands in different world markets and it exclusively represents these brands in India are:

Hako,GermanyMulticleaners

Minuteman / Powerboss, USA Sweepers and Scrubbers

Soteco, ItalyWet and Dry Vacuum Cleaners

TTS, ItalyCompact Janitorial trolleys

Delfin, ItalyWide range of extra heavy duty industrial vacuums.

Cleanfix, SwitzerlandSingle Disc Scrubbers

Schwarze, AustraliaTruck Mounted Sweepers

Capitani, Italy Steam Cleaners

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PRODUCTS

Manufacturing

FLIPPER+

Hand pushed sweeping machine with un-equal sweeping performance. Sturdy, rust-free, light-weight, roto-mould self collecting dirt hopper. Incorporated with new innovative anti-wrap technology.

HAMSTER 600/700/780

Extremely economical, better performance and easy to operate on all types of floors and carpet areas. Battery or Petrol driven. Easily negotiates door sills and other obstacles.

HAKO JONAS 900/980

Economical, extremely manoeuvrable, robust, compact ride on vacuum sweeper. Ergonomically optimized workplace and directly steered front wheel drive. Petrol or battery driven.

POWEROSS SW/6XV

Robust construction with wet sweep bypass. Multi level 280 litres, high dump Hopper with RTR system. 8.56 sq.mts filtering area. Efficient and effective direct throw sweeping method.

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POWERBOSS SW/9XR

Highly durable, robust, power sweeper with hydraulic drive system. Single panel filter of area 10.22 sq.mts 620 litres high dump hopper with RTR system up to 1624 mm height.

GAIA

Compact design for a multi-purpose cleaner combining steam and vacuum action. 3 levels of steam regulation and 5 levels of suction control to allow perfect and deep cleaning.

UNILUX

Its 130° maximum temperature allows through hygiene. The filler cap is provided with a safety valve.

DELFIN MISTRAL SERIES

Compact, silent, sturdy and easy to handle. Large surface filter provides high resistance against clogging. Specific filters are available on request for fine/toxic dust.

DELFIN DM SERIES

Built completely in epoxy coated steel. Simultaneous suction of dusty, liquid and solid material, with no need of taking out or changing the filter.

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DELFIN ZEFIRO 50/75/101

Compact vacuum for round the clock duty. Suitable for suction of most different materials in most industrial fields.

Hospitality

FLIPPER+

Hand pushed sweeping machine with un-equal sweeping performance. Sturdy, rust-free, light-weight, roto-mould self collecting dirt hopper. Incorporated with new innovative anti-wrap technology.

HAMSTER 600/700/780

Extremely economical, better performance and easy to operate on all types of floors and carpet areas. Battery or Petrol driven. Easily negotiates door sills and other obstacles.

HAKO JONAS 900/980

Economical, extremely manoeuvrable, robust, compact ride on vacuum sweeper. Ergonomically optimized workplace and directly steered front wheel drive. Petrol or batstery driven.

SOTECO MEC SERIES

Perfectly designed for all professional and industrial applications. Designed for both wet and dry applications. The machine comes with single, dual and triple motors.

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ANALYSIS

INVENTORY ANALYSIS

INVENTORY TURNOVER RATIO:

Inventory Turnover Ratio = Net sale/Inventory

= 1.03/29.14 (Rs in Crores)

= 3.53 (Rs in Crores)

USING INVENTORY TURNOVER TO CALCULATE AVERAGE DAY TO SELL A PRODUCT:

Average day to sell a product = Number of days a year/ Inventory Turnover Ratio

= 365/3.53

= 103.39 (Rs in Crores)

INVENTORY AS A PERCENTAGE OF TOTAL ASSETS:

Inventory as a % of total asset = Inventory/ Total Asset * 100

= 29.14/ 66.01 * 100

= 44.14 (Rs in Crores)

INVENTORY AS A PERCENTAGE OF SALES:

Inventory as a % of sales = Inventory/ Net Sale

= 29.14 / 1.03 * 100

= 2829.12 ( Rs in Crores)

Operating cycle analysis

Operating cycle is one of the important factors in determining the working capital of a concern. Inventories are playing major role in operating cycle. The level of current assets needed for a business significantly depends upon the length of the operating cycle. The longer the operating cycle, the larger will be a company’s requirements for funds for various stages of the operating cycle.

The length of operating cycle of a business is influenced by,

1. Nature of business.

2. Production policies.

3. Terms of purchase and sale.

4. Transportation bottlenecks.

5. Business cycle fluctuations.

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Inventories constitute 90% of the working capital in many organizations. Hence, managing the working capital is synonymous with controlling inventories.

1) Consumption of Raw Material

= opening stock of raw material + purchase – closing stock of raw material

= 4.88 + 28.37 – 8.87 (Rs in lacs)

=24.38 (Rs in lacs)

Daily rate of consumption in 365 days per year,

= 24.38 / 365

= 0.066 times

Average stock of raw material

= opening raw material + closing raw material/ 2

= 4.88 + 24.38/2

=14.63 (Rs in lacs)

Average number of raw material in stock

= 14.63/0.66

= 22 days

2) Raw material to Finished Goods

Value of finished goods manufactured during the year

= Opening work in process + Raw material consumed + Manufacturing exp – closing work in process

= 39.11 + 26.45 + 5.71 – 40.58

= 30.69 (Rs in lacs)

Average value of production per day = 30.69 / 365

= 0.084 (Rs in lacs)

Average stock of work in process

= opening work in process + closing work in process /2

= 39.11 + 40.58/2

= 39.845 (Rs in lacs)

Hence average consumption period = 39.845 / 0.84 = 47 days

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3) Average period of finished goods held in stores

Opening finished goods + cost of finished goods during the year + distribution expenses – closing finished goods

= 1.47 + 39.27 + 14.88 – 1.08

= 54.54(Rs in lacs)

Value of finished goods sold/day = 54.54 / 365 days = 0.14

Average stock of finished goods is = 1.47 + 1.08/2

= 1.27 (Rs in lacs)

Average period for which finished goods have remained in stores

= 1.27 / 0.14

= 9 days

Techniques of selective inventory control

1) ABC analysis (Always Better Control): This analysis is based on values of consumption.

2) HML analysis (High, Medium, and Low): this analysis is based on volume.

3) FSND analysis (fast moving, slow moving, non-moving, dead): this base on consumption pattern of the component.

4) SDE analysis (scarce, difficult, and easy): this based on problems faced in procurement.

5) VED analysis (vssital, essential, and desirable): this based on critically of the component

6) XYZ analysis: this based on value of item in storage.

ABC analysis

ABC analysis classifies inventory items in three categories based on their values. Always better control is its real meaning. Items of high value but small in number are classified as “A” item, which would be under a strict control. Moderate value and size are classified as “B” items and the management should pay reasonable attention. Small value items would require simple control. The values also relatively low in this type of items.

Advantages of ABC Analysis:

1. Facilitates selective control and thereby saves time.

2. Eliminates lot of unnecessary paper work.

3. Facilities control over usage of stores materials which ultimately results in cost and there by inventory control.

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Limitations of ABC Analysis

i) Low value purchases frequently require more items and thereby reduce the time available for value analysis, vendor investigation.

ii) Classifications of items should be reviewed and updated periodically otherwise the very approach of control may be defected.

SELECTIVE INVENTORY CONTROL TOOL

The company pays its attention only “A” class items of raw material analysis for it’s over all inventory system. But the company is in a situation to group its important inventories in ABC analysis.

Procedure of ABC analysis

Actual inventory usage basis

ABC analysis on ‘actual inventory holding’ Basis with the following steps

i) Determine the period in respect if which the usage is to be computed.

ii) Determine the actual consumption value of selected period

iii) Average the items in descending order – placing first the item having the highest value. ature class Annual value % of annual value

Codification of Materials

Identification or codification of material is essential for every material manager. This may be helpful to stores personnel in carrying out their operation speedily & effectively.

Merits of codification

In order to avoid multiplication of item, to facilitate easy location a proper codification is to be evolved so as to obtain they following benefits.

1) To avoid long and unwieldy description

2) To present duplication

3) To standardize the items

4) To reduce varieties

5) To have efficient purchasing dept

6) To assure production as planned and as required.

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