Inventory Project @ Lanco

8/10/2019 Inventory Project @ Lanco

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INVENTORY MANAGEMENT

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EXECUTIVE SUMMARY

INTRODUCTION TO INVENTORY:

Inventory in wider sense, is defined as any idle resource of an enterprise It is a

p!ysical stoc" of #oods "ept dept for t!e purpose of future affairs T!e ter$ is #enerally

used to indicate raw $aterials in process, finis!ed products, pac"in#, spares and ot!ers %

stoc"ed in order to $eet e&pected de$and or distri'ution in t!e future T!ou#! inventory of

$aterials is an idle resource %it is not $eant for i$$ediate use % it is al$ost essential to

$aintain so$e inventories for t!e s$oot! functionin# of an enterprise

Definition of inventory management:-

Inventory is a list for #oods and $aterials, or t!ose #oods and $aterials t!e$selves,

!eld availa'le in stoc" 'y a 'usiness It is also used for a list of t!e contents of a !ouse!old

and for a list for testa$entary purposes of t!e possessions of so$eone w!o !as died

TYPES O INVENTORY CONTRO!:

A"C

#M!

VED

SN

TRO-"IN

EO$

MAXIMUM-MINIMUM

O"%ECTIVES O T#E STUDY

To study a'out inventory $ana#e$ent of (AN)O IN+TRY (T

To $aintain raw $aterial classification for 'etter control

To su##est a 'etter inventory $aintain cost

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SCOPE O T#E STUDY

T!is study !as 'een conducted in (anco industry (td , ri"ala!asti T!e study

see"s to find out t!e factors used in Inventory Mana#e$ent To conduct t!is researc! t!e

researc!er !as analy.ed t!e state$ents, led#ers, and ot!er 'oo"s of accounts of t!e concern

T!e data collected !as 'een analy.ed and t!e researc!er !as arrived on findin#s w!ic! !ave

proved it wort! to "now a'out t!e areas of Inventory Mana#e$ent

!IMITATIONS O T#E STUDY

T!e infor$ation used is pri$arily fro$ !istorical annual reports to t!e pu'lic and

t!e sa$e does not indicate t!e current situation of t!e fir$

etailed analysis could not 'e carried for t!e pro/ect wor" 'ecause of t!e li$ited

ti$e span

ince financial $atters are sensitive in nature t!e sa$e could not 'e ac0uired easily

INDIN&S

It was found t!at t!e co$pany is $anufacturin# sa$e raw1$aterial as per A2)

)lassification as 3A4 )lass ite$s 324 class ite$s and 3c4 class ite$s

2asically co$pany was runnin# on t!e 'asis of /o' wor" so, inventory $ana#e$ent

is not #iven t!at $uc! i$portance

Even carryin# cost is loo"in# !i#! ie, 5678 w!ic! constant for 9 years as it !ad

#reater i$pact on inventory $aintenance cost

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SU&&ESTIONS

As per $y pro/ect report I su##ested li"e t!is,

As co$pany converted into own sales it s!ould !ave its own inventory policy w!ic!

can produce 'etter results 'y $ini$i.in# costs it $a&i$u$

T!e co$pany s!ould ai$ for ri#!t a person t!at are to 'e recruited w!ic! $ini$i.es

inventory $aintenance cost

T!e co$pany !as to i$ple$ent :;IT< =/ust in ti$e policy> w!ic! literally reducesinventory cost

CONC!USION

T!e co$pany 'y strictly followin# inventory $ana#e$ent tec!ni0ues li"e EO?,

A2) analysis can increase its profits 2y supplyin# t!e finis!ed products at reasona'le

prices to t!e custo$ers and t!us increase its period of e&istence in t!e $ar"et T!e

co$pany inventory position is up to so$e e&tent satisfactory

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INDUSTRY PROI!E

One cannot si$ply t!in" of econo$ic develop$ent wit!out t!e #rowt! of t!e )e$ent

Industry )e$ent one of t!e 'asic ele$ents for settin# up stora#e and !ealt! infrastructure

plays a crucial role in econo$ic develop$ent of a country

avin# $ore t!en a !undred and fifty years of !istory it !ad 'een used e&tensively

construction of anyt!in# fro$ of 'uildin# to pro/ects As suc! ce$ent consu$ption $ay 'e

considered as one of t!e yardstic"s in scalin# econo$y It is core sector industry and a rise in

t!e price of ce$ent is 'ound to !ave inflationary effects on ot!er industries wit! in t!e

econo$y

India is t!e second lar#est ce$ent producin# country after )!ina T!e industry is

c!aracteri.ed 'y a !i#! de#ree of fra#$entation t!at !as creator intense co$petitive pressure

on price reali.ations pread across len#t! and 'reat! of t!e country t!ere are -5B lar#e plants

'elon#in# to 7C co$panies of around -@7 Million Tones =MT> as Marc! 5BB5

T!e industry was totally decontrolled in Marc! -DD and deli censed in ;uly -DD-

leadin# to a rapid increase in installed capacity fro$ C-77 Million Tones per annu$ in -DD1

DB to -B757 Million Tones per annu$ in -DDC1D6 Today ce$ent ran"s a$on# t!e to five

industries in ter$s of t!eir contri'ution to t!e union e&cise duty

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)e$ent $anufacturin# involves !atin# a $i&ture of li$estone and clay Fartial fusion

occurs and lu$ps called clin"er are for$ed T!e clin"er is $i&ed wit! little a$ount of #ypsu$

to #ive ordinary Fortland Fortland )e$ent =OF)>, $i&in# t!is wit! 'last furnace sla# or !us"

yields Fortland la# )e$ent =F)> and Fortland Fo..olonna )e$ent =FF)> T!e producin#

capacities of are, FF) and F2 are 6B, - and -- percent respectively T!e $anufacturin#

process !as also c!an#ed fro$ t!e inefficient wet process to t!e $ore efficient dry process 68

of t!e total capacity is of dry process and -@8 is not

)e$ent consu$ption #rowt! is !i#!ly correlated to t!e GF #rowt! and serves and a

leadin# Indicator More industrial activities and #reater purc!asin# power $eans $ore asset

for$ation and t!us $ore consu$ption of ce$ent

INDUSTRY STRUCTURE

T!e total world production of ce$ent if to 'e around -9BB MT Asia is t!e lar#est

consu$er followed 'y Europe H t!e A$erica India4s installed capacity and production for

-DDC1D6 was -B757 Million Tones Fer annu$ H 6C55 includin# $ini and w!ite sector it!

@ MT $ore already 'eco$in# operational t!is year and anot!er @ MT to 'e added, t!ere will

'e 76 lar#e ce$ent co$panies wit! --9 plants and an installed capacity of -BD Million Tones

per annu$

2efore -DD- t!e Govern$ent uses to 'e t!e 'i##est consu$er of ce$ent accountin# for

al$ost 9B81978 ince t!en its s!are !as 'een co$in# down and now stands at a'out @B8

A'out @68 is esti$ated ta"en up 'y t!e retail se#$ent

T!e ce$ent sector is relatively insulated fro$ international trade 2ein# a very 'ul"y

ite$, International Trade is very li$ited and only 'etween nei#!'orin# states Alt!ou#! India

!as 'een consistently e&portin# ce$ent in t!e volu$e of e&ports too" a 'eatin# after t!e

sout!ern Asian crises ro$ a pea" of 5CMT -DD1DD ce$ent e&ports fro$ India !ave slid

down to 5BCMT in -DD1DD

it! t!e e&pected !u#e de$and in t!e Asian countries t!e future India 'ein# a

convenient country for t!e e&port oriented activities and wit! t!e c!eaper la'our t!ere are $any

ce$ent co$panies enterin# India

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)e$ent is preferred as 'uildin# $aterial in India It is used e&tensively in !ouse !old

and industrial construction Earlier #overn$ent sector used to consu$e 7B8 of t!e ce$ent

sold in India, 'ut in t!e last decade it s!are !as co$e down to @78 rural areas consu$e less

5@8 of t!e total ce$ent Availa'ility of c!eaper 'uildin# $aterial for t!e nonper$anent

structure affects t!e rural de$and

T!e 'ud#et #ave su'stantial incentives to private sector construction co$panies

On#oin# li'erali.ation will lead to an increase in industrial activities and infrastructure

develop$ent so it is !oped t!at Indian ce$ent industry s!all 'oo$ a#ain in near future T!e

National !i#!way Act to allow private toll collection and identified pro/ects, 'rid#e,

e&pressways for private construction

MAR'ETIN&:

)e$ent 'ein# a co$$odity ite$ !as low $ar#ins and its 'ul"y nature ensures t!at t!e

supply is deter$ined 'y t!e econo$ical transportation distance, t!is led to t!e for$ation of

re#ional $ar"ets, estern, Nort!ern, out!ern and eastern And t!e concentration of

li$estone deposits in a few states !as a led to t!e concentration of li$estone t!e for$ation ofce$ent plant clusters at seven locations avin# surpassed t!e period of s!orta#e and

ac!ievin# !i#! #rowt! in capacity, i$plyin# sprin#in# up $any plants, t!e industry is #ettin#

co$petitive ence t!e necessary and need for coordinated $ar"etin# efforts

T!e surplus ce$ent t!at e$er#ed towards end of t!e -DB4s necessitated t!e Indian

ce$ent industry to develop $ar"etin# strate#ies and loo" for new areas of ce$ent usa#e On

suc! are identified was t!e coast of concrete roads

ince -D t!e ce$ent $anufacturers association !as propa#ated t!e idea of concrete

roads t!rou#! a series of se$inars, wor"s!ops and deli'erations at decision1$a"in# levels at

'ot! state and central #overn$ents discussion wit! $etropolitan aut!orities and ot!er involved

in road 'uildin# activities As a result t!e el!i % Matura road is under construction T!e city

of 2o$'ay !as already co$pleted construction of one1t!ird of its @7B "$ arterial roads wit!

concrete

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More concrete roads and li"ely to 'e 'uilt in India 'ot! in t!e private and #overn$ent

sectors includin# toll roads and e&press !i#!ways T!e #overn$ent !as recently as"ed for

private participation includin# forei#n invest$ent for t!e construction of toll roads, so$e

w!ic! are li"ely to 'e concrete

T!e incentives offered to private 'uilders include a #uarantee of $ini$u$ reasona'le

rate of return on t!eir invest$ents, increase de't e0uity ratio up to -BB8 forei#n e0uity

participation develop$ent of service and rest areas alon# t!e road E&pressways 'etween

2o$'ay % Nasi", 2o$'ay % Fune, 2an#alore % Mysore and 2o$'ay % Vadodara are so$e of

t!e roads identified

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()* COMPANY PROI!E

ESTA"!IS#MENT:

(anco #roup is a fast #rowin# and leadin# Indian Industrial #roup, w!ic! !as 'la.ed a

trial of success in )ivil En#ineerin#, Fi# Iron, )e$ent, urface Transport,

!ippin# ervices and ot!er areas of industrial activity V)ontractors eaways !ippin#

ervices li$ited Jala!asti )astin#s (i$ited and (anco teels li$ited Are all frontline

co$panies in t!eir respective field of activity

MKs (anco erro (i$ited, producin# Fi# Iron, was esta'lis!ed in t!e year -DD@ on ;une

Dt! at Rac!a#unneri =Vill>, ri"ala!asti =Mandal>, )!itoor =istrict>, AF It was rena$ed as

MKs (anco Industries (i$ited On t!e - epte$'er -DD9, w!en t!e Mana#e$ent started t!e

production of ce$ent T!e ce$ent unit wit! state of t!e art vertical s!aft "iln well 0ualified

personnel producin# Fortland la# )e$ent T!e annual capacity of t!e ce$ent plant is DBBBB

tones

(anco Industries li$ited is presently at internal assess$ent sta#e of IO DBB5

certification for its $anufacturin# process

!OCATION O T#E P!ANT:

(anco Industries li$ited is located in 'etween Tirupati and ri"ala!asti wit! @B"$ and

-B "$ distance respectively

(ocation of t!e plant at t!is place ie, at Rac!a#unneri Villa#e of )!ittoor istrict, AF

!avin# t!e followin# advanta#es

)!eap availa'ility of re0uired land

T!ere is $ore water resource

T!e distances 'etween t!e !ar'or and present wor" spot is less

Fro&i$ity to t!e raw $aterials

Fro&i$ity to t!e $ar"etin#

To !ave financial su'sidy

Nearer to t!e railway sidin#s

ell connected to t!e road, rail and port

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Availa'ility of la'our at c!eaper rate

CURRENT OPERATIONS:

Fresently co$pany is $anufacturin# 7@ #rades, ordinary Fortland, Fortland )e$ent

=OF)> wit! 'rand :(AN)O due to low settin# ti$e

@ uperior 0uality of t!e ce$ent resultin# in a 'etter overall finis!

9 tron#er 'ondin# wit! a##re#ates

7 ull stren#t! !ad #iven to any construction =Fi# Iron>

A (anco industry is i$portin# co"e fro$ c!ina ;apan and Australia 'ecause t!ere is

scarcity of pri$e coo"in# coal, w!ic! is t!e raw $aterial for producin# co"eT!e co"e, w!ic! is

i$ported, co$es to )!ennai port, w!ic! is appro&i$ately -BB"$ away fro$ t!e site And fro$

t!ere it is 'rou#!t to t!e site And also flu&es, w!ic! are re0uired to produce Fi# Iron li"e

(i$estone, olo$ic, ?uart.ite and Man#anese, are availa'le in near 'y districts

P!ANTS UNDER T#E &ROUP

T!e Fi# Iron Flant and (anco )e$ent plant are t!e two plants, w!ic! are presently

under t!e na$e of MKs(anco Industries (i$ited and (anco )onstruction (i$ited is t!e sister

of concern of it

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ADMINISTRATION:

T!e #eneral ad$inistration of t!e co$pany is carried out 'y t!e Mana#in# irector, and

General Mana#ers of inance, )o$$ercial, Operations, Materials, Furc!ase, u$an Resource

and Ad$inistration

T!e )!air$an and Mana#in# irectors are !oldin# overall control on ad$inistration in

all aspects, wit! t!e !elp of Vice1Fresident and ot!er General Mana#ers T!e 'oard consists of

five $e$'ers as irectors, Vice1)!air$an, a Mana#in# irector and a )o$pany ecretary

T!e na$e (AN)O !as 'een derived fro$ t!e pro$oter of t!e pro$oter of t!e Group

!ri (a#adapati A$arappa Naidu T!e (anco Group is a diversified $ulti faced con#lo$erate

wit! t!e 'usiness interests in Fi# Iron, )e$ent, Fower, Graded )astin#s, pun pipes,

Infor$ation Tec!nolo#y and Infrastructure evelop$ent

T!e (anco Group is pro$oted 'y Youn# Tec!nolo#y wit! e&ceptional entrepreneur

s"ills wit! a $ission and a #reat vision and t!e top a#enda to put t!e #roup on t!e Glo'al

)orporate $ay 'e durin# t!e ne&t -B years

!ANCO INDUSTRIES !IMITED

Esta'lis!ed in t!e year -DD@ An IO DBB5 )o$pany, it !ad set up a state of t!e art,

inte#rated $anufacturin# facility for Fi# Iron t!rou#! $ini1'last furnace route confor$in# to

t!e latest international tec!nolo#y wit! initial capacity of -,BB,BBB TFA Its 0uality products of

G % Grade Fi# Iron are 'ein# supplied to foundries in t!e out! As a forward inte#ration, it

!as utili.ed t!e sla# produced in t!e Fi# Iron $anufacturin# process to install t!e ce$ent plant

wit! a capacity of DB,BBB TFA T!e uninterrupted power re0uire$ent for t!e ener#y intensive

plant is 'ein# $et t!rou#! a 57 M co1#eneration power plant ue to serve co$petition and

survival, co$pany !as increased t!e production capacity fro$ DB,BBB TFA to -, 7B,BBB TFA

fro$ 5BB@

!OCATION

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(anco Industries (i$ited is a rural 'ased factory sprawlin# over $any areas of land

wit! deep resources and con#enial soil It is located in Rac!a#unneri Villa#e near Tirupat!i

Nearly 7B8 of t!e consu$ption of electrical power is supplied 'y AFE2, Govern$ent of

And!ra Frades! and ot!er 7B8 of power is $aintained 'y t!e co$pany owned G sets and

power plants ince it is rural area la'our potential is availa'le and also co$pany is en/oyin#

t!e su'sides fro$ tate Govern$ent

T!e (anco Group is a diversified $ultifaced on#lo $erale, wit! 'usiness interests in Fi#

Iron, )e$ent, Fower Graded )astin#s, pun pipes, Real Estate evelop$ent, Infor$ation

Tec!nolo#y a past fro$ infrastructure us develop$ent pro$oted 'y entrepreneurial s"ills and

t!e a#enda to put t!e #roup on t!e #lo'al corporate $ap durin# t!e ne&t -B years

!ANCO 'A!A#ASTI CASTIN&S !IMITED +merge, it. !an/o In,01trie1 !imite,2

Esta'lis!ed in -DD6 and strate#ically located in close pro&i$ity to t!e $ini 'last furnace

of t!e Fi# Iron Flant, it !as a clear econo$ic $ilea#e over ot!er castin# sites T!e $olten fro$

t!e 'last furnace is directly used as a 'asic raw $aterial to produce #raded castin#s, cast iron

pipes and uctile iron spun pipes wit! a capacity of CB,BBB TFA, w!ic! will 'e #radually

e&panded to $eet t!rou#! -B M captive power plants To e$er#e to $eet t!e necessities and

t!e self1sufficiency, it was decided to en!ance t!e production capacity fro$ CB,BBB TFA to

DB,BBB TFA fro$ 5BB@

INTRODUCTIONO#R PO!ICY:

T!e (anco Group is a diversified $ulti faced con#lo$erate wit! t!e 'usiness interests

in Fi# Iron, )e$ent, pun pipes, )o"e Oven and -5M Fower plant Flant located

Rac!a#unneri Villa#e near ri"ala!ast!i

PI& IRON DIVISION:

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Esta'lis!ed in t!e year of -DD@ An IO1DBB5 )o$pany, wit! a state of t!e art,

inte#rated $anufacturin# facility for Fi# Iron t!rou#! Mini 2last urnace route confor$in# to

t!e latest international tec!nolo#y wit! initial capacity of -,BB,BBB TFA and su'se0uently

e&panded and $oderni.ed and $oderni.ed to -67 (TFA Its 0uality develop$ent products of

G1Grade Fi# Iron are 'ein# supplied to foundries in t!e out!ern India T!e uninterrupted

power re0uire$ent for t!e ener#y intensive plant is 'ein# $et t!rou#! a 57 M )o1

Generation Fower Flant

CEMENT DIVISION

Esta'lis!ed in t!e year of -DDC t!e 'asic raw $aterial is sla#, produced in t!e pi#

Iron $anufacturin# process to install t!e )e$ent Flant wit! a capacity of DB,BBB TFA

SPUN PIPE DIVISION

Esta'lis!ed in -DD6 and strate#ically located in close pro&i$ity to t!e Mini 2last

urnace of t!e Fi# Iron Flant, It !as a clear econo$ic $ilea#e over ot!er castin# sites T!e

$olten $etal fro$ t!e 2last urnace is directly used as 'asic raw $aterial to produce

Graded )astin#s, )ast Iron Fipes and uctile Iron Fipes wit! a capacity of DB,BBB TFA

CO'E OVEN P!ANT

Esta'lis!ed in 5BB7 t!e 'asic raw $aterials for t!e $ini 'last furnace, t!e )o"e

Oven Flant capacity of DBBB TFM

PO3ERP!ANT

It !as proposed to set up a Fower Flant of -5 M Fower Flant will 'e set up in t!e

e&istin# land of )o"e Oven Flant aste !eat of flue #as fro$ co"e oven will 'e utili.ed in

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waste !eat recovery 2oiler to produce stea$ tea$ produced in t!e a'ove process will 'e

utili.ed to run on TG et for #eneratin# power

Fower #enerated fro$ t!e Fower Flant will 'e used for in % !ouse consu$ption and 'alance

power will 'e fed into t!e AFE2 #rid

IDENTITY CARD

All t!e e$ployees are issued wit! an identity card, w!ic! !as a p!oto#rap!, na$e H

e$ployee no duly si#ned 'ot! 'y t!e e$ployee and t!e )o$petent Aut!ority

Every e$ployee !as to display t!e identity card w!ile !eKs!e is on duty T!eir

ad$ission into t!e pre$ises can 'e denied 'y t!e security, if t!ey are found not wearin# t!e

identity card

UNIORM4 S#OES 5 PROTECTIVE E$UIPMENT:

All t!e e$ployees w!o are on t!e re#ular rolls of t!e )o$pany are issued two pairs

of unifor$ and one pair of s!oes All t!e e$ployees are e&pected to co$e to t!eir duties in

unifor$

T!e e$ployees wor"in# in t!e plant operations are provided wit! !el$ets and

safety s!oes ependin# on t!e nature of wor", it is o'li#atory on t!e part of e$ployee to

draw t!e re0uired safety appliances li"e #loves, #o##les, respirators, and earplu#s etc fro$

t!e stores t!rou#! safety depart$ent and use t!e$ ailure to do so s!all attract appropriate

actio

3OR'IN& DAYS 5 TIMIN&S:

ince ours is a continuous process industry t!e factory s!all run continuously for 59 !rs

on all t!e days t!rou#! out t!e years T!erefore, t!ree s!ifts are run wit! duration of !rs and

t!e wee"ly !oliday s!all 'e on sta##ered $anner unday is a nor$al wee"ly !oliday for non1

tec!nical personnel =Ad$inistrative staff> T!e ot!er e$ployees are specifically infor$ed a'out

t!eir wee"ly off days

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TIMIN&S

T!e s!ifts and General s!ift ti$in#s are as stated 'elowL

ATTENDANCE 5 PUNCTUA!ITY:

All t!e e$ployees are e&pected to co$e for duty re#ularly and well in ti$e to

$aintain t!e punctualityT!e e$ployee at t!e ti$e of entry and e&it !as to punc! t!e card or

si#n in t!e re#ister t!at is "ept at t!e Ti$e Office

A"SENTEEISM

All t!e e$ployees are e&pected to 'e punctual and re#ular for t!e duty T!e leave rules

#ive enou#! provision to avail t!e$ on a planned $anner and also for e&i#encies In case if t!e

e$ployee does not report for wor" and a'sents !i$K!er wit!out per$ission of inti$ation, t!en

t!e $ana#e$ent s!all initiate appropriate disciplinary action a#ainst t!e e$ployee T!is will

ulti$ately, affect !is perfor$ance and in t!e Evaluation syste$s

()( PRODUCT PROI!E:

(anco industries are $anufacturin# t!e followin# products in it4s #roup of co$panies

F+N FIFE

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S)NO S#IT TIMIN&S

B- A CBB TO -9BB

B5 2 -9BB TO 55BB

B@ ) 55BB TO BCBB

B9 GENERA( 1 - BB TO -C@B

B7 GENERA( 1 5 DBB TO -6@B


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FIG IRON

)EMENT

FOER

)OJE OVEN

SPUN PIPES:-

Fre1analy.ed li0uid $etal fro$ 2last urnace is ta"en in to Induction urnace T!e

$etal is super!eated to a te$perature of a'out -75B o ) and ad/usted for c!e$ical co$position

'y addition of teel crap and erro ilicon T!e ad/usted $etal is ta"en into a converter for

treat$ent to convert into G iron T!e ad/usted fro$ converter is transferred to pinnin#

Mac!ines t!rou#! ladles T!e $etal is poured to unlined water1cooled $etallic $oulds t!rou#!

a runner T!e $ould is "ept at a sli#!tly inclined position and rotated at !i#! speed T!e

unifor$ flow of $etal and unifor$ travel of t!e $ould is ensured t!rou#! flow control valves

to ac!ieve t!e unifor$ity in t!e t!ic"ness ue to t!e centrifu#al force t!e $etal is !eld a#ainst

t!e $ould wall and t!e solidification of $etal ta"es place due to water1coolin# of $ould T!e

pipe cast t!rou#! a'ove process "nown as E(VA Frocess is !eat1treated to ac!ieve t!e

re0uisite p!ysical properties and $icrostructure After !eat treat$ent t!e pipes are coatede&ternally wit! inc and t!en t!e pipes are finis!ed 'efore testin# t!e$ wit! !ydrostatic

pressure T!e tested pipes are lined internally wit! ce$ent and t!en cured in t!e strea$

c!a$'er T!e lined pipes are #round and was!ed wit! water 'efore sendin# t!e$ for 'itu$en

paintin# T!e pipes are pre!eated 'efore 'itu$en coatin# on e&ternal surface T!e coated pipes

are sent to dispatc! yard after $ar"in#

PI& IRON:-

:2losso$in# of a fiery 'ud< e&clai$ed r !an"ar ayal !ar$a, t!e t!en Fresident

of India w!ile inau#uratin# t!e Fi# Iron Flant of (AN)O Industries (i$ited in epte$'er

-DD9 And t!e 'ud !as indeed 'losso$ed

)o$$issioned in a record ti$e of -- $ont!s, (AN)O Industries (i$ited, a DB,BBB

tones per annu$ Fi# Iron Flant, surpassed its rated capacity /ust after two years of

co$$issionin# (ater it transfor$ed t!e sla#1a waste 'y1product, into productive la# )e$ent

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wit! settin#1up of )e$ent Flant T!e Fi# Iron Flant capacity was up#raded to -,7B,BBB tones

per annu$ in t!e year 5BB@

:!at represented t!e finest facet of India Ps yout!ful tec!no1entrepreneurial stren#t!

!as today evolved to 'eco$e t!e future of #rowt! of Indian 'usiness1 turnin# co$petition into

partners!ip< T!ese words of r !an"ar ayal !ar$a, su$s up t!e sa#a of (AN)O

Industries (i$ited w!ic! !as turned -5 years

SA!IENT EATURES:

Vir#in li0uid $etal fro$ Mini 2last urnace is $ade availa'le to uctile Iron Fipe

Flant

Ener#y conservation t!rou#! direct usa#e of li0uid $etal fro$ Mini 2last urnace in

uctile Iron Fipe Flant

2last furnace #as #enerated is used -BB8 in 2last pre1!eatin#, power #eneration and

(adle !eatin# areas

Frocess water is recycled after treat$ent

)aptive power #eneration wit! M2 #ases

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CEMENT:-

(anco )e$ent is t!e result of a uni0ue 'lend of sla# and clin"er wit! t!e followin#

destructive c!aracteristics

Fro#ressively increasin# later sta#e stren#t!

-BB8 no lea"a#e H no !oney co$'in# on application

(ow !eat of !ydration, very low pore volu$e in concrete, !i#! i$per$ea'ility, resultin#

in structures of !i#! stren#t! H lon# life

)rac" free structure H walls, result of low t!er$al stresses and a'sence of differential

volu$e c!an#e

uper resistance to sulp!ate in concrete, resultant low corrosion, less al"ali a##re#ate

reaction, and final outco$e of lon# lastin# super finis! surfaces

East wor"a'ility wit! !i#! concentration of fines

PO3ER:-

(anco Industries (i$ited =(I(> !as installed a -5M captive power plant =)FF> w!ose input

would 'e .ot a1te ga1e1 fro$ non1recovery type )o"e Oven as source of ener#y to #enerate

electricity of 6D5 M+ annually

CPP a06i7iarie1 7i8e

ater Treat$ent Flant

)oolin# Tower H coolin# water syste$

G ets % 5 & CBBJVA

)o$pressors1 5 Nos

ot Gas a$pers=9 nos> wit! coolin# syste$

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Co8e OVEN:-

(anco Industries (i$ited is en#a#ed in $anufacturin# of t!e ductile iron pipes $anufactured

t!rou#! a spinnin# process fro$ -DDD, wit! a capacity of -,BB,BBB tonsKyear To $eet t!e pipe

plant re0uire$ent of !ot $etal (anco operates a $ini 'last furnace wit! a capacity of -,C7,BBB

tonsKyear

Freviously, (anco use to i$port co"e fro$ ;apan and )!ina to $eet t!e re0uire$ent of

t!e $ini 'last furnace 'ut t!en due to t!e steep rise in t!e co"e prices in t!e international

$ar"et it was very difficult to $aintain t!e cost of !at $etal produced

T!us it was decided to install a co"e $anufacturin# facility to $eet t!e in1!ouse co"e

re0uire$ents T!e co$pany was attracted 'y t!e low cost of t!e non1recovery type of co"e

ovens wit! its easy co$pliance wit! t!e pollution control nor$s wit!out any $a/or

invest$ents Now t!e co$pany operates a co"e oven plant wit! a set of C ovens 'ased on t!e

as#upta Tec!nolo#y T!e plant was co$$issioned in May 5BB7 and is producin# to t!e rated

capacity of -,57,BBB TonsKyear

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INTRODUCTION

) S0997y C.ain:

T.e 10997y /.ain i1 t.e 9ro/e11 of moving goo,1 from t.e

/01tomer or,er t.ro0g. t.e ra materia71 1tage4 10997y4 9ro,0/tion an,

,i1tri;0tion of 9ro,0/t1 to t.e /01tomer) needed 'etter $ana#e$ent

T!e co$pany did not fallow and scientific inventory $ana#e$ent syste$ 'efore

5BB7 and !ence t!ere a rise a need to devise a syste$ w!ic! could considera'ly reduce t!e

cost and t!us constitutin# towards profita'ility

Every fir$ $ust $aintain ade0uate inventory for its s$oot! runnin# of t!e 'usinessand to #ive t!e co$petition and 'usiness for t!at purpose $aintenance of ade0uate

inventory is $ust

To facilities s$oot! production and sales operations

To face t!e ris" of variation in de$and and supply

To face t!e price c!an#es in inventory and 0uantity discounts

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REVIE3 O !ITERATURE

T!is c!apter e&plains t!e $eanin# of inventory, classification of inventory, $eanin#

of inventory1control and $et!ods used to control inventory

INTRODUCTION TO INVENTORY:

Inventory in wider sense, is defined as any idle resource of an enterprise It is a

p!ysical stoc" of #oods "ept dept for t!e purpose of future affairs T!e ter$ is #enerally

used to indicate raw $aterials in process, finis!ed products, pac"in#, spares and ot!ers %

stoc"ed in order to $eet e&pected de$and or distri'ution in t!e future T!ou#! inventory of

$aterials is an idle resource %it is not $eant for i$$ediate use % it is al$ost essential to

$aintain so$e inventories for t!e s$oot! functionin# of an enterprise

or e&a$ple, let us consider an enterprise t!at !as no inventory of $aterials at all

!en t!is enterprise receives a sales order, it will !ave to order out t!e raw $aterial

re0uired to co$plete t!e order, wait till t!ese arrive and t!en start production T!is would

"eep t!e custo$ers invaria'ly to wait too lon# for t!e delivery of t!e #oods ordered

A$on# ot!er disadvanta#es of not $aintainin# t!e inventories, t!e enterprise $ay !ave To

purc!ase t!e raw $aterials at very !i#! prices 'ecause of piece1$eal 'uyin#L t!e

production costs would also 'e !i#! 'ecause of not 'ein# to ta"e advanta#e of 'atc!in# t!e

load on $anufacturin# s!ops would vary fro$ period dependin# upon t!e orders on !and

t!e co$pany $any not 'e a'le to provide ade0uate custo$er service in t!e $atter of

co$pletion, waitin# and price

Definition of inventory management:-

Inventory is a list for #oods and $aterials, or t!ose #oods and $aterials

t!e$selves, !eld availa'le in stoc" 'y a 'usiness It is also used for a list of t!e

contents of a !ouse!old and for a list for testa$entary purposes of t!e

possessions of so$eone w!o !as died

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T!e for$al $ana#e$ent of t!e ti$in# and 0uantities of #oods to 'e ordered and

stoc"ed 'y an or#ani.ation in order t!at de$and can always 'e satisfied wit!out

e&cess e&penditure

Treats inventories, as S(oc"ed, up capitalS Inventory $easured 'y rupee value

constitutes t!e $a/or ele$ent in t!e Sor"in# )apitalS =appro&i$ately CB8 of

current assets>

- %o.n #am9ton

PPGood inventory $ana#e$ent is not!in# 'ut #ood financial $ana#e$entPS

- S)C)'UC#A!

MEANIN& O INVENTORY:

T!e dictionary $eanin# of t!e word inventory is detailed list of $ova'le #ood


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INIS#ED &OODS:

inis!ed #oods are t!ose w!ic! are ready for sale

INVENTORY MANA&EMENTInventory $ana#e$ent involves t!e control of assets 'ein# produced for t!e

purpose of sale in t!e nor$al course of t!e co$pany4s operations Inventories include raw

$aterials inventory, wor" in process inventory and finis!ed #ood inventory T!e #oal of

effective inventory $ana#e$ent is to $ini$i.e t!e total costs direct and indirect t!ose are

associated wit! !oldin# inventories owever, t!e i$portance of inventory $ana#e$ent to

t!e co$pany depends upon t!e e&tent of invest$ent in t!e inventory o$e c!aracteristic of

inventory in t!e 'road content of wor"in# capital $ana#e$ent areL

A CURRENT ASSETSL

It is assu$ed t!at inventories will 'e converted to cas! in t!e current accountin#

cycle-95 (evel of (i0uidityL Inventories are as first sta#e in cas! cycle or t!e $ost

products t!is description is accurate

!i0i,ity !ag1 :

Inventories are tied to t!e fir$4s pool of wor"in# capital in a process t!at involves

t!ere specific la#s, na$ely

Creation !ag:

In $ost cases, inventories are purc!ased on credit, an account paya'le !en t!e

raw $aterials are processed in t!e factory, t!e cas! to pay production e&penses istransferred to future ti$es !et!er $anufactured or purc!ased t!e fir$ will !old

inventories for sa$e ti$e period 'efore pay$ents is $ade T!is li0uidity la# offers a

'enefits to t!e fir$

1torage !ag:

Once #oods are availa'le for resale, t!ey will not 'e i$$ediately converted into

cas!, t!us t!e fir$ will usually pay suppliers, wor"ers and over!ead e&penses 'efore t!e#oods are actually sold T!is la# represents a cost to t!e fir$

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1a7e !ag:

Once #oods !ave 'een sold, t!ey nor$ally do not create cas! i$$ediately Most

sales occur on credit and 'eco$e accounts receiva'le T!e fir$ $ust wait to collect itsreceiva'le T!is la# also represents a cost to t!e fir$

/ir/07ating a/tivity:

Inventories are in a rotatin# pattern wit! ot!er current assets T!ey #et converted

into receiva'les w!ic! #enerate cas! invested a#ain in inventory to continue t!e operatin#

cycle

ty9e1 of inventory:

Inventory can 'e classified into five 'asic types on t!e 'asic of t!eir production

T!ese various types of inventories cannot 'e identified and se#re#ated wit!in t!e

or#ani.ationL A suc! types will not 'e represented in all or#ani.ation T!ese five types are

as follows

MANA&EMENT INVENTORY:T!ese are needed 'ecause of t!e ti$e re0uired to $ove stoc"s fro$ one place to

anot!er

!OT SIE INVENTORY:

T!ese are result of 'uyin# $aterials in 0ualities lar#er t!an t!e i$$ediately

re0uire$ents, wit! a view to $ini$i.in# cost of transportation, 'uyin#, receipt and

!andlin# and to o'tainin# 0uantity discount

!UCTUATION INVENTORY:

T!ese are carried to ensure ready suppliers to consu$er even w!en t!ese are

irre#ular and unpredicta'le fluctuation in t!eir de$and

ANTICPATION INVENTORY:

T!ese are usually $aintained to $eet a predicta'le 'ut c!an#in# pattern offuture de$and

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CYC!E INVENTORY:

T!ese result fro$ $ana#e$ent atte$pt to $ini$i.e t!e total cost of carryin# and

orderin# inventory T!ey arise fro$ ordinary in 'atc!es or lots, rat!er fro$ needed'asis

PURPOSE O INVENTORIES:

T!e overall #oal of inventory $ana#e$ent is to feed t!e production wit! ri#!t

0uantity of raw $aterials wit! ri#!t 0uality at ri#!t ti$e T!e purpose of !oldin#

inventories is to allow t!e fir$ to separate t!e processes of purc!asin#, $anufacturin# and

$ar"etin# of its pri$ary products T!e #oal is to ac!ieve efficiencies in areas w!ere costsare involved and to ac!ieve sales at co$petitive prices in t!e $ar"et place it! in t!is

'oard state$ent of purpose we can identify specific 'enefits t!at accrue fro$ !oldin#

inventories

Avoi,ing !o1t Sa7e1

it!out #oods in !and w!ic! are ready to sold, $ost fir$s would lose 'usiness In$ost cases, a fir$ $ust 'e prepared to deliver #oods on de$and

&aining $0antity Di1/o0nt1

In return for $a"in# 'ul" purc!ases, $any suppliers will reduce t!e price of

supplies and co$ponent parts T!e willin#ness to place lar#e orders allow fir$ to ac!ieve

discounts on re#ular prices T!ese discounts will reduce t!e cost of #oods sold and increase

t!e profits earned on a sale

Re,0/ing Or,er Co1t1Eac! ti$e places an order, it incurs certain e&penses or$s !ave to 'e co$pleted

approvals !ave to 'e o'tained and #oods t!at arrive $ust 'e accepted, inspected and

counted (ater an invoice $ust 'e processed and pay$ent $ade Eac! of t!ese costs will 'e

very wit! t!e nu$'er of orders placed 2y placin# fewer orders, t!e fir$ will pay less to

process eac! ot!er

A/.ieving Effi/ient Pro,0/tion R0n1

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Eac! ti$e a fir$ sets up wor"ers and $ac!ines to produce an it, start up costs are

incurred T!is are t!en a'sor'ed !as production 'ein#s, t!e lon#er t!e runs t!e s$aller t!e

cost of 'ein# production t!e #oods

Re,0/ing t.e ri18 of 9ro,0/tion 1.ortage1Manufacturin# fir$4s fre0uency produce #oods wit! !undreds even t!ousands of

co$ponents If any of t!ese are $issin# t!e entire production operation can !alted, wit!

conse0uent e&penses To avoid starin# a producin# run and t!en discoverin# t!e s!orta#e of

a vital raw $aterials or ot!er co$ponent, t!e fir$ can $aintain lar#er t!an needed

inventories

T!ese 'enefits arise 'ecause inventories provide a 'uffer 'etween purc!asin#

producin# and $ar"etin# of #oods Raw $aterials and ot!er inventory ite$s can 'e

purc!ased at appropriate ti$es and in proper a$ounts $anufacturin# process can occur in

sufficiently lon# production runs and wit! pre1planned sc!edules to ac!ieve efficiently and

econo$ics T!e sale force can respond to custo$er needs and de$ands 'ased on e&istin#

finis!ed #oods To allow eac! area to function effectively inventory separates t!e t!ree

functional areas and facilitates t!e interaction a$on# t!e$

REASONS OR CARYIN& INVENTORIES:

T!e need of $ana#e$ent to $a"e decisions re#ardin# arises 'ecause of alternative

courses of action =stratifies> availa'le to any fir$ or or#ani.ation T!us a set a decision %

rules are sou#!t w!ic! satisfy an o'/ective 'y t!e fir$ policy ence it 'eco$es essential

for an enterprise =fir$> to !ave inventory 'ecause of t!e followin# reasons

- It !elps in s$oot! and efficient runnin# of 'usiness

5 It provides ade0uate service to custo$ers

@ It reduces t!e possi'ility of duplicatin# of orders

9 It !elps in $aintainin# econo$y 'y a'sor'in# so$e of fluctuation w!en t!e de$and

for an ite$ fluctuates or is seasonal

7 It !elps in $ini$i.in# t!e loss due to deterioration, o'solescence, da$a#e or

pilfera#e etc

C It acts as a 'uffer stoc" w!en raw $aterials are received late and s!op re/ections are

too $any

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6 Ta"es advanta#e of price discounts 'y 'ul" purc!asin#

It reduces t!e cost of product 'ecause of an added advanta#e of 'atc!in# and lon#,

uninterrupted production runs

D It i$proves t!e $anpower, e0uip$ent and facility utili.ation 'y 'etter plannin# and

sc!edulin#

T!rou#! t!e inventories are essential and provide an alternative to

productionKpurc!ase in future, t!ey also $ean loc"in#1 up capital of an enterprise

Maintenance of inventories also costs $oney 'y way of e&penses on stores, e0uip$ent,

personnel, insurance etc t!us e&cess inventories are undesira'le T!is calls for controllin#

t!e inventories in t!e $ost profita'le way

NEED TO #O!D INVENTORY:

Maintainin# inventories involves tyin# up of t!e co$pany4s funds and in currency

of stora#e and !andlin# costs T!ere are t!ree #eneral $otives for !oldin# inventories

TRANSACTION MOTIVE:

E$p!asi.es t!e need to $aintain inventories to facilitate s$oot! t!e production and

sales operations

PRECAUTIONARY MOTIVE:

It necessitates !oldin# of inventories to #uard a#ainst t!e ris" of unpredicta'le

c!an#es in de$and and supply forces and ot!er factors

SPECU!ATIVE MOTIVE:

It influences t!e decision to increase or reduce inventory levels to ta"e advanta#e of

price fluctuations

MA%OR DAN&ERS O OVER INVESTMENT INVENTORIES:

- +nnecessary tie up of t!e funds and loss of profits

5 E&cessive carryin# cost

@ T!e ris" of li0uidity

T#E CONSE$UENCES O UNDER INVESTMENT IN INVENTORIES:

- Froduction !old1ups

5 ailure to $eet delivery co$$it$ents inade0uate raw $aterials

@ or"1in1process will result in fre0uency in production interrupts

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AN EICIENT INVENTORY MAN&EMENT S#OU!D:

- Ensure a continuous supply of raw $aterials to facilitate uninterrupted production

5 Maintain sufficient finis!ed #oods inventory for s$oot! sales operation and

efficient custo$er service

@ Mini$i.e t!e carryin# cost of ti$e

9 )ontrol invest$ent in inventories and "eep it at an opti$u$ level

OT#ER ACTORS INVO!VED IN INVENTORY ANA!YSIS:

DEMAND:

e$and is t!e nu$'er of units re0uired per period and $ay 'e eit!er "nown e&actly

or "nown e&actly or "nown in ter$s of pro'a'ilities or 'e co$pletely un"nown urt!er if

t!e de$and is "nown, it $ay 'e eit!er fi&ed or varia'le per unit ti$e Fro'le$s in w!ic!

de$and is "nown and fi&ed are called deter$inistic pro'le$s w!ereas t!ose pro'le$s in

w!ic! de$and is assu$ed to 'e rando$ varia'les are called stoc!astic or pro'a'ilistic

pro'le$s

!EAD TIME:

T!e ti$e #ap 'etween placin# of an order and its actual arrival in t!e inventory of

an ite$ de$ands upon t!e len#t! of its lead ti$e T!e lon#er t!e lead ti$e t!e !i#!er is t!e

avera#e inventory (ead ti$e !as two co$ponents na$ely

- Ad$inistrative lead ti$e1fro$ initiation of procure$ent action until t!e placin# of

an order elivery leads ti$e1placin# of an order until t!e delivery of t!e ordered

$aterials

ORDER CYC!E:

T!e ti$e period 'etween place$ents of two successive orders is referred to an order

cycle T!ey $ay 'e placed on t!e 'asis of t!e followin# two types of inventory review

syste$s

STOC' !EVE!S

or efficient $aterial control and to avoid overstoc"in# and under sto"in# of

$aterials, an i$portant re0uire$ent is to decide upon various levels of $aterials t!ese

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levels are $a&i$u$ level, $ini$u$ level and re1order level 2y $a"in# action on t!e

'asis of t!ese levels, eac! ite$ of $aterial will auto$atically 'e !eld wit! in appropriate

li$its of control T!ese levels are not per$anent 'ut need revision accordin# to t!e c!an#es

in t!e factors w!ic! deter$ine t!ese levels

a/tor1:

T!e followin# factors !elp in t!e fi&ation of t!ese levels

Rate of consu$ption of $aterials

(ead t!e ti$e, ie, ti$e la#

tora#e capacity

Availa'ility of funds invest$ent in inventories

)ost of stora#e

Ris" of loss due to deterioration t!eft fire etc

easonal factors1 certain $aterials are c!eaply availa'le durin# certain seasons

luctuations in $ar"et prices

Insurance costs Ma&i$u$ (evelL

T!e $a&i$u$ stoc" level is t!at 0uantity of $aterials a'ove w!ic! t!e stoc" of any

ite$ s!ould not #enerally 'e allowed to #o up T!is $a&i$u$ level $ay 'e e&ceedin# in

certain special cases or instance, if a particular lot is purc!ased at a reasona'ly low price,

t!e $a&i$u$ level is crossed T!is level is fi&ed after ta"in# into account suc! factors asL

- Rate of consu$ption of $aterial

5 A$ount of capital needed and availa'le@ tora#e space availa'le

9 Incidence of insurance costs w!ic! $ay 'e i$portant for so$e $aterials

7 )osts of storin# a'ove nor$al stoc"

C Ris" of o'solescence and deterioration and

6 Re1order 0uantity

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Danger !eve7:

It is t!at level 'elow w!ic! stoc" not 'e allowed to e&cept under e$er#ency

conditions !en stoc" reac!es t!is level ur#ent action for purc!ases is initiated an#er

level Avera#e consu$ption *Ma&i$u$ re1order period for e$er#ency purc!ases

an#er level is 'elow t!e $ini$u$ level 2ut so$e fir$s prefer to fi& t!e dan#er

level a'ove t!e $ini$u$ level and 'elow t!e re1order level owever fi&in# dan#er level

'elow t!e $ini$u$ level is $eant for ta"in# corrective action w!ere as fi&in# it a'ove t!e

$ini$u$ level is for preventive action

T!e for$ula for co$putin# $a&i$u$ level is followsL

Ma&i$u$ level Re1order level Re1order 0uantity1=Mini$u$ )onsu$ption* Mini$u$

re1order period>

Minim0m !eve7:

T!e $ini$u$ level is t!at level of stoc" 'elow it s!ould 'e nor$ally 'e allowed to

fall T!is is essentially a safety stoc" and will not nor$ally 'e touc!ed In case of nay ite$

fallin# 'elow t!is level, t!ere is dan#er of stoppa#e in production and, t!erefore,

$ana#e$ent s!ould #ive top priority to t!e ac0uisition of new supplies T!is level is fi&ed

after t!e consideration if t!e followin# factors

- Rate of consu$ption, and

5 T!e ti$e re0uired under top priority to ac0uire enou#! supplies to avoid a stoppa#e

in production

Mini$u$ (evel Re1order level % =Nor$al )onsu$ption* Nor$al reorder period>

Re-or,er !eve7:

T!is is t!at level of $aterials at w!ic! a new order for $aterials is to 'e placed In

ot!er words t!is is t!e level at w!ic! a purc!ase re0uisition is $ade out T!is level will 'e

fi&ed so$ew!ere 'etween $a&i$u$ and $ini$u$ levels 2y re1orderin# w!en stoc"s fall

to t!is level, t!en in t!e nor$al course of events new supplies will 'e received /ust 'efore

t!e $ini$u$ level is reac!ed It is fi&ed after t!e consideration of t!e followin# factors

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- Rate of consu$ption

5 Mini$u$ level

@ elivery ti$e

9 Variation in delivery ti$e

Re1order level =Ma&i$u$ )onsu$ption * Ma&i$u$ re1order period>

Average 1to/8 7eve7:

Avera#e stoc" level Mini$u$ level =-K5 of Re1order 0uantity>

Avera#e stoc" level 1 =-K5>*=Mini$u$ level Ma&i$u$ level>

MET#ODS O MATERIA!S ISSUE:

IRST IN IRST OUT +IO2:

T!e $aterials w!ic! are received first are issued first and t!erefore t!ere flow of

cost of $aterials s!ould also 'e in t!e sa$e order Issues are priced at t!e sa$e 'asis until

t!e first 'atc! received is used up after w!ic! t!e price of t!e ne&t 'atc! received 'eco$es

t!e issue price +pon t!is 'atc! 'ein# fully used for pricin# and so on In ot!er words, t!e

$aterials issued are priced at t!e oldest cost price listed in t!e store led#e account and

conse0uently t!e $aterials in !and are valued at t!e price of t!e latest purc!ase In

A$arRa/a 'atteries t!ey are irst in irst Out $et!od for issuin# of raw $aterials fro$

stores to t!e productionK$anufacturin# unit

!AST IN IRST OUT +!IO2:

T!e latest receipts of $aterials are issued first for production and t!e earlier receipts

are issued last It uses t!e price of t!e last 'atc! received for al t!e issues until all units

fro$ t!is 'atc! !ave 'een issued after witc! t!e price of t!e previous 'atc! received

'eco$es t!e issue price +sually !owever, a new delivery is received 'efore t!e first 'atc!

in fully used, in w!ic! case t!e new delivery price 'eco$es t!e last in price and is used forpricin# issues until eit!er t!e 'atc! e&!austed or a new delivery is received

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#IEST IN IRST OUT +#IO2:

In t!is $et!od, issues are always valued at t!e !i#!est price of t!e receipt T!is rate

continues eit!er until t!e $aterial at t!at !i#! price is e&!austed, after w!ic! t!e ne&t

!i#!est price is used a until a new 'atc! of $aterials is received at a rate w!ic! is !i#!er

t!an t!e previous !i#! rate )losin# stoc" under t!is $et!od airwaves re$ains at t!e

$ini$u$ cost T!is $et!ods !owever !as not 'een widely adopted

C!ASSIICATIO O INVENTORY:

)lassification of inventory is t!e first step of deter$ine opti$u$ inventory levels

As already seen one way to classify t!e$ as raw $aterials, $ac!inery spares, se$i

finis!ed, wor" in pro#ress and finis!ed #oods Anot!er ways to classify eac! of t!e a'ove

as A2), VE etc,

TYPES O INVENTORY CONTRO!:

A"C

#M!

VED

SN

TRO-"IN

SIDE

EO$

MAXIMUM-MINIMUM

MEANIN& O INVENTORY CONTRO!:

Inventory control is a syste$, w!ic! ensures t!e provisions of t!e re0uired 0uality

of inventories of re0uired 0uality at t!e re0uired ti$e wit! t!e $ini$u$ a$ount

invest$ent T!us t!e function of inventory control is to o'tain t!e $a&i$u$ inventory turn

over wit! sufficient stoc" to $eet all re0uire$ents

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NEED TO #O!D INVENTORY CONTRO!:

e$and inventories !ave a tendency to #row 'eyond econo$ic li$its, tie1up funds

and increase t!e cost of $aintenance or carryin# cost Non1availa'ility of inventory involves cost of stoc" outs, reorderin# costs and

additional transit cost

)entral core idea for $aterial $ana#e$ent is inventory control

To $ini$i.e t!e loc"in# of funds or wor"in# capital co$$it$ents

To deter$ine t!e wor"in# capital operatin# cycle is essential

ependin# upon t!e operatin# cycle t!e co$pany re0uire$ents for loc"ed up funds

will follow T!e len#t! of operatin# cycle depends upon t!e nature of 'usiness, production

policies, $anufacturin# process, ter$s of purc!ase and conditions of sales and de$and

PURPOSE O INVENTORY CONTRO!:

T!e need of controllin# inventory is e&pressed as 'elow

- To i$prove custo$er services

5 Fer$its purc!ase and transaction econo$ics

@ Transportation econo$ics

9 ed#e a#ainst price fluctuations

7 Froduction econo$ics

C ed#e a#ainst de$and uncertainties

6 Frotects a#ainst de$and and lead ti$e uncertainties

ACTORS IN!UCIN& INVENTORY CONTRO!:

To control t!e inventory

- ow $uc! to 'uy at one ti$eQ5 !en top 'uy t!is 0uantityQ

ollowin# four funda$entals factors #overn for t!ese 0uestions

Re0uire$ents 'rea" down ti$e wise

?uantity in stoc" or on order

Frocure$ent ti$e or lead ti$e

O'solescence

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ACTORS TO "E CONSIDERED 3#EN ESTA"!IS#IN&T#E CONTRO!

!EVE!S:

Avera#e consu$ption or production re0uire$ents Reorderin# periods1t!e ti$e 'etween raisin# an order and receivin# delivery of

#oods

tora#e space availa'le

Mar"et conditions

(i"ely life of stoc"1'earin# in $ind t!e possi'ility of loss t!rou#! deter$ination or

o'solescence and

T!e cost of placin# orders includin# #eneratin# and c!ec"in# t!e necessary paper

wor" as well as p!ysical c!ec"in# and !andlin# procures

T!e "ey issue for a 'usiness is to identify t!e fast and slow $overs wit! t!e

o'/ectives of esta'lis!in# opti$u$ stoc" levels for eac! cate#ory and, t!erefore $ini$i.e

t!e cas! tied up in stoc"s )ontrol policies s!ould include desi#natin# responsi'ility for

raisin# and aut!ori.in# orders, si#nin# delivery notes and aut!ori.in# pay$ent of invoices

Store1 +or Materia72 Re/or,1

T!e 'in cards an t!e stores led#er are t!e two i$portant stores records t!at are

#enerally "ept for $a"in# a record of t!e various ite$s of stores

=a> "in Car,)A 'in card $a"es a recode of t!e receipt and issue of $aterial and is

"ept for eac! ite$ of stores carried ?uantity of stores received is entered in t!e receipt

colu$n and t!e 0uantity of stores issued is recorded in t!e issue colu$n of t!e 'in card

and a 'alance of t!e 0uantity of stores is ta"en after every receipt or issue, so t!at t!e

'alance at any ti$e can readily seen T!ese cards are $aintained 'y t!e store"eeper andt!e store"eeper is answera'le for any difference 'etween t!e p!ysical stoc" and t!e

'alance s!own in t!e 'in card T!ese cards are used not only for recordin# receipts and

issues of stores 'ut also assist t!e store"eeper to control t!e stoc" or eac! ite$ of

stores, $ini$u$ 0uantity, $a&i$u$ 0uantity and orderin# 0uantity are stated on t!e

card 2y seein# t!e 'in card, t!e store"eeper can send t!e $aterial re0uisition for t!e

purc!ase of $aterial in ti$e

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A 'in card is also "nown a 'in ta# or stoc" card and is usually !un# up or placed in

s!elf, rac" or 'in w!ere t!e $aterial !as 'een "ept 2in cards can also 'e in t!e for$ of

loose s!eets w!ic! can 'e $aintained in a led#er "ept in t!e stores

+;2Do0;7e "in Sy1tem) o$e concerns divide t!e 'in, rac" or s!elf =w!ere $aterial !as

'een "ept> in two parts, na$ely, t!e s$aller part to store t!e 0uantity e0ual to t!e $ini$u$

0uality and t!e ot!er part to store t!e re$ainin# 0uantity T!e 0uantity in t!e s$aller part is

not issued so lon# as t!e 0uantity is availa'le in t!e ot!er part T!is syste$ !elps in

e&ercisin# stores control in an effective way as it facilitates p!ysical verification and

services as a si#nal w!en it 'eco$es necessary to use t!e 0uantity "ept in t!e s$aller part

='> Store1 !e,ger) T!is led#er is "ept in t!e costin# depart$ent and is identical

it! t!e 'in card e&cept t!at receipts, issues and 'alances are s!own alon# wit! t!eir

$oney values T!is contains an account for every ite$ of stores and $a"es a record of t!e

receipts, issues and t!e 'alances, 'ot! in 0uantity and value

"in Car, v1) Store1 !e,ger) T!e difference 'etween a 'in card and t!e stores led#er can

'e su$$ari.ed as followsL

Bin Card Stores Ledger

- A record of 0uantities only

5 Maintained 'y t!e store"eeper

@ Nor$ally posted /ust 'efore

t!e transaction ta"es place

9 Eac! transaction is

individually posted

- A record of 'ot! 0uantities and

values

5 Maintained 'y t!e )ostin#

depart$ent

@ Always posted after t!e transaction

ta"es place9 Transactions $ay 'e su$$ari.ed

INVENTORY ANA!YSIS MET#ODS:

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A"C ANA!USIS:

T!is analysis is 'ased on t!e annual consu$ption value and on t!e Fareto4s (aw

+nder t!is analysis all ite$s in stores are classifies into t!ree $ain cate#ories4 A, 2 and )

-B8 of t!e total nu$'er of ite$s account for a'out 6B8 of t!e total consu$ption valueT!ese ite$s are called :A< class ite$s 5B8 of t!e total nu$'er of ite$s count for a'out

5B8 of t!e total consu$ption value t!ese ite$s are called :2< class ite$s T!e rea$in#

nu$'er of ite$s account for t!e 'alance -B8 of t!e total issue value, t!ese ite$s are called

:)< class ite$s

V#P C!ASSIICATION:

T!is analysis is 'ased on criticality of inventories It is used to deter$ine t!e

dricality of an ite$ and its effect on production and ot!er services It is specially used for

classification of spare parts If a part is vital, it is #iven 3V classification, if it is essential,

t!en it is #iven 3E4 classification and if it is not essential, t!e part is #iven 34 classification

or 3V ite$s, a and lar#e stoc" of inventory is #enerally $aintained, t!ese ite$s !ave

i$$ediate effect on production and $ore attention paid for t!ese ite$s

#M! C!ASSIICATION:

T!e i#! Mediu$ and (ow =M(> classification follows t!e sa$e procedure as is

adopted in A2) classification Only difference is t!at in M(, t!e classification unit value

is t!e criterion and not t!e annual consu$ption value T!e ite$s of inventory s!ould 'e

listed in t!e descendin# order of unit value and it is up on t!e $ana#e$ent to fi& li$its for

t!ree cate#ories or e&a$ple, t!e $ana#e$ent $ay decide t!at all units wit! value of

Rs5BBB and a'ove will 'e ite$s, Rs-BBB to Rs5BBB M ite$s and less t!an Rs-BBB, (

ite$s

SDE C!ASSIICATION:

T!e E analysis is 'ased upon t!e availa'ility of ite$s and is very useful in t!e

conte&t of scarcity of supply In t!is analysis :< refers to 3scare4 ite$s, #enerally

i$ported, and t!ose w!ic! are in s!ort supply :< refers to difficult ite$s w!ic! are

availa'le indi#enously 'ut are difficult ite$s to procure Ite$s w!ic! !ave to co$e fro$

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distant places or for w!ic! relia'le suppliers are difficult to co$e 'y fall into 34 cate#ory

:(< refers to ite$s w!ic! are easy to ac0uire and w!ic! are availa'le in t!e local $ar"ets

T!e E classification, 'ased on pro'le$s faced in procure$ent, is vital to t!e lead

ti$e analysis and in decidin# on purc!asin# strate#ies

SN ANA!YSIS:

N stands for fast $ovin# slow $ovin# and non1$ovin# ere, classification is

'ased on t!e pattern of issue fro$ and is useful in controllin# o'solescence

To carry out an N analysis, t!e date of receipt or t!e last date of issue, w!ic!ever

is later, is ta"en to deter$ine t!e nu$'er of $ont!s, w!ic! !ave lapsed since t!e last

transaction T!e ite$s are usually #rouped in periods of -5 $ont!s

N analysis is !elpful in identifyin# active ite$s w!ic! need to 'e received

re#ularly and surplus ite$s w!ic! !ave to 'e e&a$ined furt!er Non1$ovin# ite$s $ay 'e

e&a$ined furt!er and t!eir disposal can 'e considered

V-E-D Ana7y1i1

T!e VE analysis is used #enerally for spare parts T!e re0uire$ents and ur#ently

of spare parts is different fro$ t!at of $aterials A121) analysis $ay not 'e properly usedfor spare parts T!e de$and for spare depends up on t!e perfor$ance of t!e plant and

$ac!inery pares parts are classified as Vital, Essential and esira'les T!e Vital spares

are a $ust for runnin# t!e concern s$oot!ly and t!ese $ust 'e stored ade0uately T!e non

availa'ility of vital spares will cause pro'le$s in t!e concern T!e non1availa'ility of vital

spares is also necessary 'ut t!eir stoc"s $ay 'e "ept at low fi#ures T!e stoc"in# of type

of spares $ay 'e avoided at ite$s

If t!e lead ti$e of t!ese spare parts less, t!en stoc"in# of t!ese spares can 'e

avoided T!e classification of spares under t!ree cate#ories is an i$portant decision A

wron# classification of any spare will create difficulties for production depart$ent T!e

classification of spares s!ould 'e left to t!e tec!nical staff 'ecause t!ey "now t!e need,

ur#ency and use of t!ese spares

ECONOMIC ORDER $UANTITY:

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T!e inventory pro'le$s in w!ic! de$and is assu$ed to 'e fi&ed and co$pleted

predeter$ined are usually referred to as t!e EO? of lot si.e It is also ter$ed as re1order

0uantity !en t!e si.e of order increases, t!e orderin# cost will decrease w!ereas t!e

inventory carryin# costs will increase T!us in t!e production process t!ese are two

opposite costs, one encoura#es t!e increase in t!e order si.e and t!e ot!er discoura#es

EO? is t!at si.e of w!ic! $ini$i.es total cost of carryin# inventory and cost of orderin#

!ere annual de$and

oldin# )ost

Orderin# )ost

INVENTORY COSTS

Various costs associated wit! inventory control are often classified as followsL

SET-UP COST:

T!is is t!e cost associated wit! t!e settin# up of $ac!inery 'efore startin#

procedustion et up cost is #enerally assu$ed to 'e independent of t!e 0uantity ordered for

or produced

ORDERIN& COST:

T!is is a cost associated wit! orderin# of raw $aterial for production purpose

Advertise$ents, consu$ption of stationery and posta#e, telep!one c!ar#es, tele#ra$s, rent

for space used 'y t!e purc!asin# depart$ent, travelin# e&penditures incurred etc,

constitutes t!e orderin# cost

PURC#ASE COST or PRODUCTION COST:

T!e cost of purc!asin# or producin# a unit of ite$s is "nown as purc!ase or

production cost T!e purc!ase price will 'eco$e i$portant w!en 0uantity discounts are

allowed for purc!ases a'ove a certain 0uantity

CARYIN& OR #O!DIN& COST:

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T!e carryin# cost is associated wit! carryin# inventory T!is cost #enerally includes

t!e cost suc! as rent for space used for stora#e, interest on t!e $oney loc"ed up, insurance

of stored e0uip$ent production, ta"es, depreciation of e0uip$ent and furniture used etc

STORA&&E or STOC' OUT COST:

T!e penalty cost for runnin# out of stoc" =ie, w!en an ite$ cannot 'e supplied on

t!e custo$er4s de$and> is "nown as s!orta#e cost

REVENUR COST:

!en it is assu$ed t!at 'ot! t!e price and t!e de$and of t!e product are not under

control of t!e or#ani.ation t!e revenue fro$ t!e sales of independent of t!e co$pany4s

inventory policy and $ay 'e ne#lected e&pected for t!e situation w!en t!e or#ani.ation

cannot $eet t!e de$and and t!e sale is lost T!erefore, t!e revenue cost $ay or $ay not 'e

included in t!e study of inventory policy

UNDER STOC8IN& COST:

T!e cost incurred w!en an ite$ is out of stoc" It includes t!e cost of lost

production durin# t!e period of stoc" out t!e e&tra cost per unit w!ic! $i#!t !ave to paid

for an e$er#ency purc!ase

OVER STOC'IN& COST:

It is not!in# 'ut t!e difference 'etween purc!ase price and scrap price T!is cost is

t!e inventory carry cost for a specific period of ti$e

MINIMUM F MAXIMUM TEC#I$UE:

T!e $ini$u$1$a&i$u$ syste$ is often used in connection wit! $anual inventory

control syste$s T!e $ini$u$ 0uantity is esta'lis!ed in t!e sa$e way as any re1order

point T!e $a&i$u$ is t!e $ini$u$ 0uantity plus t!e opti$u$ lot1si.e In practice, a

re0uisition is initiated w!en a wit!drawal reduces t!e inventory 'elow t!e $ini$u$ level,

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and t!e order 0uantity is t!e $a&i$u$ $inus t!e inventory status after t!e wit!drawal If

t!e final wit!drawal reduces t!e stoc" level su'stantially 'elow t!e $ini$u$ level, t!e

order 0uantity will 'e !i#!er t!an t!e calculated EO? T!e effectiveness of a $ini$u$1

$a&i$u$ syste$ is deter$ined 'y t!e $et!od and precision wit! w!ic! t!e $ini$u$ and

$a&i$u$ para$eters are esta'lis!ed

T3O-"IN SYSTEM:

One of t!e oldest syste$s of inventory control is t!e 'in syste$ w!ic! is $ainly

adopted to control :)< #roup inventories In t!e two1'in syste$, stoc" of eac! ite$ is

separated in two 'ins One 'in contains stoc", /ust enou#! to last fro$ t!e date a new order

is placed until it is received in inventory T!e ot!er 'in contains a 0uantity of stoc", enou#!

to satisfy pro'a'le de$and durin# t!e period of replenis!$ent To start wit!, t!e stoc" is

issued fro$ t!e first 'in !en t!e first 'in is e$pty, an order for replenis!$ent is placed,

and t!e stoc" in t!e second 'in is utili.ed until t!e ordered $aterial is received

uc! a $et!ods is appropriate to ideal conditions in w!ic! t!e rate of consu$ption

is fairly constant and for ite$s, t!e lead ti$e of w!ic! is fairly esta'lis!ed and re#ular

Alt!ou#! t!e syste$ itself possesses a !i#! de#ree of auto$acy, in practice, we

need to allow for variations in t!e rate of consu$ption as well as lead ti$e owever, for

suc! a syste$, t!e $ost desira'le 0uantity to re1order is t!e EO? ince t!e 0uantity to re1

order is fi&ed in advance initiation of replenis!$ent action can 'e dele#ated to t!e lower

lever staff and t!ere is need to ta"e p!ysical count of inventory levels

A"CANA!YSIS

T!e A2) $et!od is an analytical $et!od of stoc" control, w!ic! ai$s at

concentrative efforts on t!ose ite$s w!ere attention is needed $ost It is 'ased on t!e

pre$ise t!at a s$all nu$'er of t!e ite$s in inventory $ay typically represent t!e 'ul"

$oney value of t!e total $aterials used in production process

!ile a relatively lar#e nu$'er of ite$s $ay represent a s$all portion of t!e

$oney value of stores used and t!at s$all nu$'er of ite$s s!ould 'e su'/ect to t!e #reatest

de#ree of continuous control +nder t!is syste$, t!e $aterials stoc"ed $ay 'e classified

into a nu$'er of cate#ories accordin# to t!eir i$portance ie, t!eir value and fre0uency of

replenis!$ent durin# a period T!e first cate#ory, we $ay call it t!e #roup of 3an4 ite$s,

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$ay consist of only a s$all percenta#e of total ite$s !andled 'ut its co$'ined value $ay

'e a lar#e portion of t!e total stoc" value

T!e second cate#ory, na$in# it as #roup of 324 ite$s, $ay 'e relatively less

i$portant In t!e t!ird cate#ory consistin# of 3)4 ite$s, all t!e re$ainin# ite$s of stoc"

$ay 'e included w!ic! are 0uit lar#e in nu$'er 'ut t!eir value is not !i#!

Categorie1 of A"C ana7y1i1

In A2) analysis t!e ite$s are classified in t!ree $ain cate#ories 'ased on t!eir

respective consu$ption value

=) Category GAH item1:

T!e ite$s, w!ic! are $ost costly and classified as 3A4 nearly -B8 of t!e total

nu$'er of ite$s stored will account for 6B8 of total value of all ite$s stoc"ed

*) Category G"H item1:

T!e ite$s !avin# avera#e consu$ption value are classified as 324 nearly 5B8 of

total value tatistical sa$plin# is #eneral useful to control t!e$

() Category GCH item1:

T!e ite$s !avin# low consu$ption value are put in cate#ory :)< nearly 6B8 of

total nu$'er as ite$s will account for -B8 total value Generally t!ese ite$s are slow and

non1$ovin# ite$s in t!e stores, w!ic! are fre0uently used for production process 'ut wit!$ore 0uality

ADVANTA&ES O A"C ANA!YSIS:

)loser and stricter control on t!ose ite$s t!at represent a $a/or portion of total

stoc" value

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Invest$ent in inventory can 'e re#ulated and funds can 'e utili.ed in t!e 'est

possi'le $anner

avin# in stoc"s carryin# costs

elps in $aintainin# enou#! safety stoc" for :)< cate#ory of ite$s

cientific and selective control !elps in t!e $aintenance of !i#! stoc" turnover

rate

C!ASSIICATION AND CODIICATION:

C7a11ifi/ation of materia71:

Materials of si$ilar nature are suita'ly classified in $a/or #roups T!ese #roups are

furt!er classified into a nu$'er of su' #roups for e&a$ple soap, lu'ricatin# oil, cotton

waste, etc, $ay 'e classified as tools, raw $aterials li"e $etals can 'e classified into

3ferrous4 and 3non1ferrous4 $etals etc

Co,ifi/ation of materia71:

Generally classification and codification #o to#et!er codification is t!e producer of

assi#nin# distinctive sy$'ols for eac! ite$ of store uc! sy$'ols $ay 'e nu$eric oralp!a'etical of t!e two T!ese sy$'ols are "nown as codes T!us eac! $aterial is "nown

'y a code in addition its own na$e

ADVANTA&ES O CODIICATION

)odification !as t!e followin# advanta#es

A$'i#uity in description is avoided

(en#t! in description is $ini$i.ed

)odification is essential in $ec!ani.ed accountin#

)odes also ensure secrecy

Eac! ite$ of stores is easily identified particularly w!ere t!e sa$e ite$ is "nown 'y

$ore t!an one na$e

STOC' !EVE!S

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or effective $aterial control and to avoid over stoc"in# and under stoc"in# of

$aterials, an i$portant re0uire$ent is to decide upon various levels of $aterials t!ese

levels are $a&i$u$ level, $ini$u$ level and re1order level 2y ta"in# action on t!e 'asis

of t!ese levels Eac! ite$ of $aterial will auto$atically 'e !eld wit! in appropriate li$it of

control T!ese levels are not per$anent 'ut need revision accordin# to t!e c!an#es in t!e

factors, w!ic! deter$ine t!ese levels

a/tor1:

T!e followin# factors !elp in t!e fi&ation of t!ese levelsL

- Rate of consu$ption of $aterials

5 (ead t!e ti$e, ie, ti$e la#

@ tora#e capacity

9 Availa'ility of funds for invest$ent in inventories

7 )ost of stora#e

C Ris" of loss due to deterioration t!eft, fire etc

6 easonal factors % certain $aterials are c!eaply availa'le durin# certain seasons

luctuations in $ar"et price

D Insurance costs

MAXIMUM !EVE!

T!e $a&i$u$ stoc" level is t!at 0uantity of $aterials a'ove w!ic! t!e stoc" of any

ite$ s!ould not #enerally 'e allowed to #o up T!is $a&i$u$ level $ay 'e e&ceed in

certain special cases or instance, if a particular lot I purc!ased at a reasona'ly low price,

t!e $a&i$u$ level $ay 'e crossed T!is level is fi&ed after ta"in# into account suc!

factors asL

- Rate of consu$ption of $aterial

5 A$ount of capital needed and availa'le

@ tora#e space availa'le

9 Incidence of insurance costs w!ic! $ay 'e i$portant for so$e $aterials

7 )osts of o'solescence and deterioration and

C Re1order 0uantity

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T!e for$ula for co$putin# $a&i$u$ level is as follows

Ma&i$u$ level Re1order level Re1order 0uantity % =Mini$u$

)onsu$ption * Mini$u$ re1order period>

MINIMUM !EVE!T!e $ini$u$ level is t!at level of stoc" 'elow w!ic! is s!ould not nor$ally 'e

allowed to fall T!is is essentially a safety stoc" and will not nor$ally 'e touc!ed in case of

any ite$ fallin# 'elow t!is level, t!ere is a dan#er of stoppa#e in production and, t!erefore,

$ana#e$ent s!ould #ive top priority to t!e ac0uisition of new supplies T!is level is fi&ed

after t!e consideration of t!e followin# factors

- Rate of consu$ption and

5 T!e ti$e re0uired under top priority condition to ac0uire enou#! supplies to avoid a

stoppa#e in production

or$ula for co$putin# $ini$u$ level is as follows

Mini$u$ level Re1order level % =Nor$al consu$ption *Nor$al re1order Feriod >

Or,ering 7eve7 +or2 re F or,er 7eve7:-

T!is is t!at level of $aterials at w!ic! a new order for $aterial is to 'e placed In

ot!er words t!is is t!e level at w!ic! a purc!ase re0uisition is $ade out T!is level will 'e

fi&ed so$ew!ere 'etween $a&i$u$ and $ini$u$ levels 2y re1orderin# w!en stoc"s fall

to t!is level, t!en, in t!e nor$al course of events, new supplies will 'e received /ust 'efore

t!e $ini$u$ level is reac!ed It is fi&ed after t!e consideration Rate of consu$ption

- Mini$u$ level5 elivery ti$e and

@ Variation in delivery ti$e

orm07a for /om90ting Or,ering 7eve7 +or2 re F or,er 7eve7 i1 a1 fo77o1

Re1order level =$a&i$u$ consu$ption * $a&i$u$ re1order period>

Average 1to/8 7eve7:-

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T!is is co$puted wit! t!e !elp of t!e followin# for$ula

Avera#e stoc" level $ini$u$ level U of re1order 0uantity =Or>

Avera#e stoc" level $ini$u$ level $a&i$u$ level

5

Danger 7eve7

It is t!at level 'elow w!ic! stoc" s!ould not 'e allowed to fall e&cept under

e$er#ency conditions !en stoc" reac!es t!is level ur#ent action for purc!ases is

initiated

or$ula for co$putin# dan#er level

an#er level avera#e consu$ption * $a&i$u$ re % order period for e$er#ency

purc!ase

ECONOMIC ORDER $UANTITY +EO$2: T!e econo$ic order 0uantity is t!at inventory level, w!ic! $ini$i.es t!e total of

orderin# costs and carryin# costs

It is t!e 0uestion, !ow $uc! to order t!e 0uantity w!en inventory is replenis!ed If

t!e fir$ 'uyin# raw $aterials, t!is is to purc!ase t!e 0uantity of eac! replenis!$ent and if

it !as to plan for production run, it is !ow $uc! production to sc!edule It $ay 'e solved

t!rou#! EO?

EO$ INVO!VES T3O TYPES O COSTS:

CARRYIN& COST

ORDERIN& COST

ORDERIN& COST:

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Orderin# cost is referred to as t!e cost of placin# an order and securin# t!e supplies

Orderin# cost depends upon t!e nu$'er of orders placed and a nu$'er of ite$s ordered at

a ti$e i#!er will 'e t!e orderin# cost w!en fre0uent orders are placed i$ilarly, lesser

t!e ordered 0uantity, !i#!er t!e orderin# cost

CARRYIN& COST:

)arryin# cost or !oldin# cost refers to t!e cost of "eepin# t!e $aterials w!ic!

includes capital cost, cost of stora#e and cost of deterioration and redundancy (ar#er t!e

volu$e of inventory, !i#!er t!e inventory carryin# cost and vice versa

EO? or an ite$ is arrived on t!e followin# assu$ptions

e$and is continuous at a constant rate

T!e process continues infinity

No constraints are i$posed on 0uantities ordered, stora#e capacity, 'ud#et etc,

Replenis!$ent is instantaneous

All cost are ti$e invariant

No s!orta#es are allowed

?uantity discounts are not availa'le

EO$ for an item i1 arrive, ;y t.e fo77oing form07a:

EO?

3.ere

EO$ E/onomi/order 0uantity

AC Annual consu$ption of an ite$

Co )ost of orderin# an order

C. )ost of carryin# one unitKyear

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MET#ODS O PRICIN& MATERIA! ISSUES:-

=) IRST IN IRST OUT +IO>L1

T!is $et!od operates under t!e assu$ption t!at t!e $aterials w!ic! are received

first are issued first and t!erefore, t!ere flow of cost of $aterials s!ould also 'e in t!e sa$e

order Issues are priced at t!e sa$e 'asis until t!e first 'atc! received is used up after w!ic!

t!e price of t!e ne&t 'atc! received 'eco$es t!e issue price +pon t!is 'atc! 'ein# fully

used, t!e price of t!e still ne&t 'atc! is used for pricin# and so on In ot!er words, t!e

$aterials issued are issued are priced at t!e oldest cost price listed in t!e store led#er

account and conse0uently t!e $aterial in !and are valued at t!e price of t!e latest

purc!ases

*) !AST IN IRST OUT +!IO2:-

T!is $et!od operates on t!e assu$ption t!at t!e latest receipts of $aterials are

issued first for production and t!e earlier receipts are issued last, ie, in t!e reverse order to

IO It uses t!e price of t!e last 'atc! received of all issue until all units fro$ t!is 'atc!

!ave 'een issued after w!ic! t!e price of t!e previous 'atc! received 'eco$es t!e issue

price +sually !owever, a new delivery is received 'efore t!e first 'atc! is fully used, in

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w!ic! case t!e new delivery price 'eco$es t!e 3last in4 price and is used for pricin# issues

until eit!er t!e 'atc! is e&!austed or a new delivery is received

() #IEST IN IRST OUT +#IO2:-In t!is $et!od, issues are always valued at t!e !i#!est price of t!e receipt T!is rate

continues eit!er until t!e $aterial at t!at !i#! price is e&!austed, after w!ic! t!e ne&t

!i#!est price is used or until a new 'atc! of $aterials is received at a rate w!ic! is !i#!er

t!an t!e previous !i#! rate )losin# stoc" under t!is $et!od always re$ains at t!e

$ini$u$ cost T!is $et!od, !owever, !as not 'een widely adopted

O"%ECTIVES O T#E STUDY

To study a'out inventory $ana#e$ent of (AN)O IN+TRY (T

To $aintain raw $aterial classification for 'etter control

To su##est a 'etter inventory $aintain cost

To solve t!e pro'le$ of inventory

To $aintain proper inventory levels

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SCOPE O T#E STUDY

T!is study !as 'een conducted in (anco industry (td, ri"ala!asti T!e study see"s

to find out t!e factors used in Inventory Mana#e$ent To conduct t!is researc! t!e

researc!er !as analy.ed t!e state$ents, led#ers, and ot!er 'oo"s of accounts of t!e concern

T!e data collected !as 'een analy.ed and t!e researc!er !as arrived on findin#s w!ic! !ave

proved it wort! to "now a'out t!e areas of Inventory Mana#e$ent

As t!e study focuses an identifyin# t!e present potential of t!e co$pany4s Inventory

$et!ods and ai$s at identifyin# t!e 'est set of Inventory $et!ods to 'e carried to i$prove

t!e co$pany3s policy I deter$inin# t!eir Inventory levels

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!IMITATIONS O T#E STUDY

T!e infor$ation used is pri$arily fro$ !istorical annual reports to t!e pu'lic and

t!e sa$e does not indicate t!e current situation of t!e fir$

etailed analysis could not 'e carried for t!e pro/ect wor" 'ecause of t!e li$ited

ti$e span


Current year (2013-2014) data was not provided by LANCO N!"#$%&

L$!'

T!e infor$ation used in pri$arily fro$ !istorical annual report to t!e pu'lic and t!e

sa$e does not indicate t!e current situation of t!e fir$


Ti$e at study is less to $a"e a de tailed analysis

T!e study is confined t!e details of four years =5B-@ to 5B-9>

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RESEARC# MET#ODO!O&Y

Researc! $et!odolo#y is t!e way to syste$atically solve t!e researc! pro'le$s

T!is study on inventory $ana#e$ent is an analytical study T!e study of researc! is

e&ploratory researc! 2ecause t!e facts and infor$ation t!at is readily availa'le are 'ein#

used to $a"e critical evaluation of inventory $ana#e$ent

RESEARC# DESI&N

Researc! desi#n in purely and si$ply t!e fra$ewor" or plan for a study t!at #uides

t!e collection and analysis of t!e data T!e function of researc!er is to ensure t!at t!e

re0uired data are accurate and econo$ical also

An analytical researc! tec!ni0ue was adopted in t!e pro/ect Generally, analytical

tec!ni0ues are desi#ned to analy.e so$et!in# and it collects data for a definite and certain

purpose T!e pro/ect $ainly focuses on t!e critical assess$ent of t!e inventory

$ana#e$ent of inte#ral coac! factory and deals wit! $anufacturin# accounts analysis, and

inventory control

DATA CO!!ECTION:

ources of data include 'ot! pri$ary and secondary data

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PRIMARY DATA:

Fri$ary data refers to t!e infor$ation o'tained first !and for t!e specific purpose

Fri$ary data collected t!rou#! wit! officials

SECONDARY DATAL

T!e secondary data are collected fro$ annual reports, $anufacturin# accounts

state$ents, depart$ent $anuals, 'roc!ures and ot!er printed $aterials issued 'y t!e

co$pany

SAMP!IN& DESI&N:

ata collected fro$ all t!e availa'le sources will 'e ta'ulated, analy.ed, interpreted

and supported wit! relevant c!arts, ta'les, #rap!s, etc, w!ere ever necessary and

su##estions arisin# t!ereof will also 'e listed in t!e pro/ect

PERIOD O STUDY:

T!e study period covers t!e inventory $ana#e$ent of inte#ral coac! factory durin#

t!e t!ree year period co$$encin#

Avai7a;i7ity of ;a7an/e 1.eet) +Ann0a7 re9ort12

5BBD15B-B

5B-B15B--

5B--15B-5

5B-515B-@

5B-@15B-9

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****************************************************************************

Ta;7e-=

Page C-

S) No DESCRIPTION $UANTITY

+ton12

RATE

+R12

CONSUMP

TION

+ton12

- FO(YFROFY(ENE

)OFO(YMER=RA

1MF1B@7>

5,D5,C@6 C6@B -D9,C7,65C

5 (EA ANTIMONY

=@-> A((OY

@,@@5,D7- CD-C 5@B,7B,DD7

@ -557 )OFFER

IRE

B,B@@ @-5@ @B,7--,B59

9 RE)Y)(E FF)F

FE((ETE=OTER

TAN 2H>

579,-@C 9-5@ -B,96C,D5D

7 ANTIMONY

TRIOIE=INT

ARRG>

5,7-B 5D7B ,57@,7@7

C E)O12ROMIE 77,D9D -@D9 -B,5D-,5DB

6 R+NNER )RAF1

FF) 2(A)J

-CC,BD7 7BB @B,967

5B5$$)OFFER

(AT

55,5D- @DBD9 ,6-9,@C

D FO(Y

)OR2ONATE

REIN=ENOY>

@7,959 @59C7 --,7BB,9B5

-B 7Bs0$$ elasto$eric

'lac" colour sccc

-9,@9B 5C6-- @,@B,56


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****************************************************************************

ANNUA! DEMAND OR +*J=*-*J=(2

Ta;7e -*

Page C5


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****************************************************************************


+ton12

RATE

+R12

CONSUM

PTION

+ton12

= FO(YFROFY(ENE

)OFO(YMER=RA1

MF1B@7>

5,65,-D9 C67 -,6,-@,7D

6

* (EA ANTIMONY

=@-> A((OY

9,67,5D- @D @D,6-,D55

( -557 )OFFER IRE 6C,@65 @6@C9 5,7@C,BBB

? RE)Y)(E FF)F

FE((ETE=OTER

TAN 2H>

5,-D,-BB 77BB -5,B7B,9D

@ ANTIMONY

TRIOIE=INTAR

RG>

5,BD @-D5B ,DC,59

E)O12ROMIE 7C,-D -@97 -B,6B5,D@B

B R+NNER )RAF1

FF) 2(A)J

CC,-@B 7BB 9,79C,7@B

5B5$$)OFFER

(AT

-@,BBC @DBD9 9,@6B,569

K FO(Y )OR2ONATE

REIN=ENOY>

-6,6-5 @59C7 @,D6D,B69

=J 7Bs0$$ elasto$eric

'lac" colour sccc

D,6B9 5C6-- @,7D9,DDD

ANNUA! DEMAND OR *J==-*J=*

Ta;7e -(

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****************************************************************************


+ton12

RATE

+R12

CONSUMPTIO

N

+ton12

- FO(YFROFY(ENE

)OFO(YMER=RA1

MF1B@7>

5,77,-5 C6B5 -,67,9@,DD6

5 (EA ANTIMONY

=@-> A((OY

9,-7,B @57 @,9,6,7--

@ -557 )OFFER IRE CC,5C @65@9 5,9D,CD,BBB

9 RE)Y)(E FF)F

FE((ETE=OTER

TAN 2H>

-,D-,6-@ 79 -,B7,99,C6

7 ANTIMONYTRIOIE=INTAR

RG>

59,7C @-- 6,96,65-

C E)O12ROMIE 9D,-6@ -DB- D@,C7,BC@

6 R+NNER )RAF1

Inventory Project @ Lanco

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