MBA Project

TABLE SHOWING STOCK TURN OVER RATIO OF THE COMPANY FOR THE 5 YEARS

A STUDY ON INVENTORY MANAGEMENT

COMPAMY PROFILE:

INTRODUCTION

Indias first Public Sector Unit (PSU) ITI ltd was established in 1948. Ever since, as a pioneering venture in the field of telecommunications, it has contributed to 50% of the Present national telecomm network. With state-of-the-art manufacturing facilities spread across six locations and a county wide network of marketing/service outlets, the Company offers a complete range of telecomm products and total solutions covering the whole spectrum of switching, transmission, access and subscriber premises Equipment. ITI joined the league of world class vendors of global system for mobile (GSM) technology with the inauguration of mobile equipment manufacturing facilities at its mankapur and raibareli plants in 2005-06. This ushered in a new era of indigenous mobile equipment production in the country. These two facilities supply more than nine million lines per annum to both domestic as well as export markets.

The company is consolidating its diversification into information and communication Technology (ICT) to hone its competitive edge in the convergence market by deploying its rich telecom expertise and vast infrastructure. Network management systems, Encryption and networking solutions for internet connectivity are some of the major Initiatives taken by the company. Secure communications is the companys forte with a proven record of engineering strategic communication networks for Indias Defense Forces. Extensive in house R&D work is devoted towards specialized areas of encryption NMS, IT and access products to provide complete customized solutions to various customers.

ITI LTD AT BANGALORE PLANTStarting with assembling imported parts of telephone and switching exchanges in 1948, the Bangalore plant blossomed into a self contained manufacturing facility having all infrastructural Changes, then progressed to crossbar type exchanges and electronic era with manufacture of Electronic switches in

Collaboration with M/S CITR ALCATEl, FRANCE and also indigenously Developed C-DOT switches. In late 1990s as the cellular and mobile technology revolutionized

The telecomm world, Bangalore plant went for CDMA WLL technology in collaboration with M/S LG, KOREA. It also introduced in the year 2002-2003 as a manufacture of CDMA200-IX, The latest technology in switching was been taken up with the collaboration with ZTE,a global Mobile communication leader from china.

The telephonic instruments developed grew from assembly of imported parts to complete Manufacture and assembly of various types of instruments. From rotary dial phones with lot of Mechanical part we are now in manufacture of PCs Decadic/pulse, DTMF and switch able

Phones. The latest additions to these include ISDN, CLID, IP PHONES & MOBILE PHONES.A separate division takes care of specific needs of Defense communication. The equipments and Are designed, developed and manufactured to rigid specifications for defense needs like magneto Phones, head gear set, sound powered phones, (navy) & dedicated phones for air force, field Telephones model 5 band for army etc. transmission equipment for defense include VST,TST ADM,MUX,DATASWITCH, DIG.M/W

On the quality front, the entire Bangalore plant Is certified for ISO 9001-2000.the Bangalore Plant has in line with companys image as a total solution provider, taken up TURNKEY projects Like CIVICON for the ministry of home affairs and ASCON & CARNATION for the army. Other measures on diversification include manufacture of PCs marketing our space capacities In SMT, CTR, environment protection & chemical / metallurgical testing labs, quality assurance Related consultancy etc.

It has been the constant endeavor of Bangalore plant to accept and face the challenges of changes in technology, customer preferences, and economic scenario and reposition itself to continue to retain the leadership in telecomm equipment manufacturing in the country. Today having Equipment that go to make up the communication network like CDMA-WLL,COREDECT, FWTs INFOKIOSKS, ISDN and IP PHONES etc, as also handling of major installation and Commissioning of all related facilities.

NATURE OF THE BUSINESS CARRIED:

Manufacturing of telephones. Defense Products like secrecy & encryption. Railways-SCADA & PCM-MUXs. Police & internal Security. Bharat sanchar nigam limited (BSNL) using the products like OCB and SMPS. Indian space research organization (ISRO).

Mahanagar telephone nigam limited(MTNL)VISION MISSION AND CORE VALUES

VISION:

Enhance shareholder value and will move up the value chain by expanding Knowledge-based and service based businesses while simultaneously leverage over manufacturing business.

MISSION:

To establish leadership in manufacturing and supply of new technology telecomm Products and also to retain status of top turnkey solution provider.

To be the leader in the domestic market and an important global players in voice, Data and image communication by providing total solution to customers, on core Competencies to enter new business areasQUALITY POLICY OF ITIITI is committed to providing products and services of consistent quality that will Lead to customer delight.ITI will maintain leadership in the market with competitive prices and professional Excellence through: Implementation of sound quality management system.

Continuous innovation.

Continual improvement in every activity.

ENVIRONMENT POLICY:

ITI Limited Bangalore plant engaged in the manufacturing and supply of telecommunication products, terminal equipments, IT products and providing telecomm solutions, recognize the total impact of our operations in the environment. Compliance to legal and statutory improvement to preserve environment aspects

Prevention of pollution of environment it is water, air, soil.

Minimizing waste and conversation of natural resources.

Control of significant impact of our activities on environment.

Establishing and reviewing periodically environment objectives and targets.

PRODUCT / SERVICES PROFILE

Product Division in Indian telephone industries:

Telephone Division:

This division undertakes the production of telephones in ITI. The telephone Division assembles different modes of telephones. This division manufactures

Around 5 lakhs telephones every year.

Transmission Division:

This division undertakes manufacturing of microwave equipment satellite Communication equipment, optical fiber equipment and defense products

Access Product Division Switching

Transmission

Defense

Access products

Rural

Terminal/subscriber end products

Information technology

Microelectronic & software

Other products

PRODUCTSTYPES

SWITCHINGLarge Switches

Medium Switches

Small switches

TRANSMISSIONMicrowaves

Satellite

ACCESSWireless in Local Loops(WLL)

Digital Loop Carrier(DLC)

Pair Gain

TERMINAL EQUIPMENTTelephones

ISDN Products

Video Conferencing

MICRO ELECTRONICSApplication Specific Integrated

Circuits (ASICs)

IT PRODUCTSComputer Telephony Integration(CTI)

DEFENSESCP VSAT

Military EPABX 128 Ports

OTHER PRODUCTSBank Mechanizing Products

Fire Alarm

SERVICES OFFERED

Turnkey project including installation

commission telecomm equipment

Customized software development

Development of ASICs

Repair of PCSs

V-SAT service licensable by department of

Telecommunication (DOT) government of India.

OTHER EQUIPMENTS:

Pulse coded modulation equipment Ground control equipment for defense Equipment for railways electrification Electronic measuring instrumentTelemetry & Telecomm control equipmentGEOGRAPHICAL LOCATION OF THE ITI

ITI is consisting 700 acre of land Bangalore plant.

VARIOUS UNITS OF ITI LTD IN INDIA NAINI UNIT

This plant was setup in 1971 for the manufacture of transmission equipment the major Products are optic fiber system of both PDH & SHD and telephone instruments of various Types. It has an R&D center and modern facilities for assembly and testing with surface Mount technology. Environment lab, mental parts manufacturing facilities and PCB plant Are part of the modern infrastructure.RAEBARELI Raebareli manufacturing unit was setup in 1973 and boasts a world class infrastructure. Presently this unit manufactures GSM network equipment and CDMA handsets. ITI Raebareli has taken a leap tp enter broad band equipment G-PON and WIMAX. This Unit in indias first telecomm equipment manufacturer to conduct field of G-PON technology In India, and is all set to roll out indias first lot of G-PON equipment.

MANKAPUR UNITMankapur unit was established in 1983. The plant manufacture large digital switches & digital Trunk exchange in technical collaboration with MIS ALCATEL the unit also products state-Of the art technology of BTS (based trans receiver stations for GSOY). A lean and highly productive plant by virtue of its structure has the most modern facility for PCB Manufacturing assembly and automatic testing facilities with SMT line environment test labs.

PALAKKAD UNITThis plant was set up in 1976, as the nations first Electronic Switching System Manufacturing unit, to manufacture large digital switches and digital trunk exchanges, in Collaboration with ALCATEl. Today, they are the leading switching equipment Manufacturers for the national telecomm network with a capacity of producing over One million lines of fixed line switches per annum. Over the years; they have diversified into various other products and solutions.ITI limited, palakkad aims to become a product Independent manufacturing line as well for providing total turnkey solutions, in meeting the demands of the telecom industry, worldwide.

SRINAGAR UNIT This plant was setup in 1969 with 5 employees as an ancillary to Bangalore complex for the Supply of components parts (initially different kinds of braided cords) to the main plant. In the year 1981, the status of plant was upgraded to that of a manufacturing plant for the Manufacture of telephone instruments with an installed capacity of 1 lakh telephone Instruments.

INTERNATIONAL PRESENCE AND EXPORTS:ITI has exported products such as ADPCM,C-DOT MBM / SBM Switches SMPS Power Plant, VRLA batteries, CDMA WLL Equipments, FWTs, DG Sets, shelters, towers, MW Radios, Rural Exchanges, telephones of different types, spare cards for E-10B exchanges Single channel VHF Radio, multi Access rural radio (Analog and digital both) and ASICs To countries in Afghanistan, Asia,Africa and Europe. Besides various projects in India, ITI Has successfully executed turnkey projects overseas.

OWNERSHIP PATTERN:

ITI is a public sector company where government provides 50% of share to the shareholders. It welcomes co-operation in the areas of Joint venture (Indian sitcom ltd..,ITI communications ltd., Fibcom ltd)Transfer of technology from one country to other country Consultancy Training to be provided to the people(buyer and seller)Turnkey projectsIntegrated logistics supportExternal cable plantCOMPETITORS INFORMATION:

1. AT & T: The world premier provider of voice and data communications.2. Bosch: One of the Europes leading vendors in the field of telecommunications.3. Apple electronics: An Italian company, where value added network systems services Have always represented the core business.4. Cosmat: the leading provider of global service satellite and digital networking Services to multinational enterprise.5. Infornet: Infornet Services Corporation is a single source service of global.6. Kenwood: Kenwood is refining key technologies that will give rise to dramatic Innovation in home audio and car electronic equipment.7. Mitsubishi electronic: with more than 75years of experience in providers and Independent software vendors (ISV) to develop the solution that service quickly Reliable and cost effective.8. Motorola: it is the global leader in providing integrated communication solutions and embedded electronic solution.INFRASTRUCTURAL FACILITIES:

In house research and development

Network system unit capable of undertaking turnkey jobs

Self contained component evaluation centre

Fully automated assembly lines

In circuit tester (ICT)

Modern chemical, metallurgical labs

Mechanical fabrication/machine shops with modern CNC machines

Moldings & die casting

Fully fledged state of the art tool rooms

SMT (surface mount technology)

Environment testing

Component approval center approved by BSNL

PCB manufacturing facilities

Mechanical fabrication/ machine shops with modern CNC machines and finishing shop

ACHIEVEMENTS/AWARDS:

The national safety awards were presented to ITI mankapur and raebareli plants for the Performance year 2008

Three plants of ITI (Raebareli, palakkad and Bangalore) have won the national safety Awards for outstanding performance in industrial safety for year 2004.

Energy conservation award: ITI mankapur plant which saved energy to the tone of Rs.384`lakhs during the last 3 years has won the national energy conservation award 2004.

Mankapur chapter of the institute of electronics & telecommunications engineering (IETE) has won the second best center award for providing quality education to rural students at cheaper costs.

ITI has received the prestigious ISO 9001-2000 certificate for its excellence in product Quality.

ITI has also won award for its project ASCON

ITI won the third prize in fifth annual quality circle convention 1991. ITI quality circle has won many awards for their competing performance.

Confederation of India industry 10 state level quality circle competition awards ITI Won first prize in the year 1997-98.

Mile stone: 1948 First public sector enterprise to be in post independent India. With assembly of 25000 telephone instruments and equal number of exchange lines in technical collaboration with automatic telephone and electric company of England

corporate status as joint stock company

components manufacture plant at srinagar ( j & k )

1973 Telephone instrument plant in Naini.

1994 Manufacturing setup established at Delhi for SDH transmission

systems through joint venture company PIBCON

The name changed to ITI ltd with new corporate identity

Turnover crossed Rs.1500cr ( US $ 350) 1996 Entered into V-SAT services

1997 release of 40000 lines exchange to DOT

1998 ITI terms around after set back to economy VLSI 11 one micro FAB facility inaugurated at Bangalore plant, ISO 9000 accreditation process completed for plants.

1999 ITI Alcatel, new technology agreement signed all time high physical production performance.

2000 Manufacture of well equipment with collaboration of MS lucent USA 2001 Production of latest switching exchange equipment CSN- MM version.

2003 The company completed BSNL, GSM, phase one orders and bagged phase to order of 682KL valuing Rs.74.5 crore joint venturing FIBCOM India limited achieved a sale turnover, including other of Rs.42 crores and recorded a net profit of Rs.12 crores

2004 Winning of top turn key services of company.

ISO 9000 accreditation process completed for all plants.

All time high physical production performance.

2006 winners of voice and data 100 top telecom turnkey service company.FUTURE GROWTH & PROSPECTS:The domestic requirement of telecom products projected in the 11th plan document is a total of US $ 72.8 billion or about Rs. 327600 cr. The e-governance initiatives of the government envisage a capital investment of Rs 23000 cr.

National ID card, USO infrastructure, comprehensive security for railways are some of the mega projects of the government moving with the times ITI has addressed many opportunities in telecom and IT with acquisition of emerging telecom and IT technologies from renowned technology partners.

ITI is exploring setting up of data center in its different units (other than Bangalore) to encash huge market potential in the area of secured data storing.

The estimated value of the project allocated to BSNL, Network for Spectrum (NFS) by Ministry of communication for release of spectrum for defense is Rs 10000 crore. ITI is also trying to get orders for this project.

ITI is contemplating to be a significant contributor to the Government ambitious solar mission (Jawaharlal Nehru solar mission) ITI has plant to manufacture solar power equipment and fuel cell

power systems for rural sites, which will help for better penetration of mobile communication into rural areas where availability of power is a major constraint.

Formation of Joint Venture Companies (JVCS) with equity participation of 51% to 74% by the strategic partners who are Global manufactures and balance equity by the Government with an ambitious goal providing 100 million broadband connections in the next 3 to 5 years.

ITI has also made for ways into the area of IT with implementation of major turnkey projects for Campus network for institutions Secure state-of-the-art networks for defense Smart cards for students and staff Rajiv Gandhi University for health science ITI has proposed a state wide wireless network Bihar police for which order is expected.

FUTURE OUTLOOK; Communication for defense

Turnkey projects like NFS, NOFN etc

Smart card products

Data centre applications

Solar , LED lighting system

ORGANIZATION STRUCTURE OF ITI LTD

INVENTORY MANAGEMANT IN ITI

PLANNING

It is the brain of management. A manager must plan before he can organize, staff, direct or control because planning sets all other functions into action. It can be seen as the basic function of management.

Planning is part of business. It is difficult to think of business without planning. It provides a framework within which the different functions of management are undertaken.

In ITI, there are separate departments for the purpose of planning in each and every stage. It may be a production line or it may relate to the stores or for the purchase of materials etc.

By taking the planning procedures into consideration it involves four departments.

1. methods

2. purchase department

3. production department

4. stores department

Once the design work is completed by the methods department it would be sent to the purchase department and they assign the work order. Firstly they are assigned to the stores department to find out whether the materials are available in the stores or not. If the materials are not available in stores then the purchasing department will take necessary action to purchase the material.

PURCHASE PROCEDURES

Before purchasing any material from the supplier some procedures has to be followed.

The use department will place the purchase requisition when there is no stock of materials. This purchase requisition sent to the stock control department to clear the dormant. Finally they will decide as to what is the actual requirement.

After deciding, purchase requisition is the sent to the vendor development cell. In the vendor development cell information regarding the suppliers is maintained and is given a rating to customers. To calculate vendor rating, the flowing information from the customer profile are taken.

1. Quality rating

2. Delivery rating

3. service rating

These information are maintained by the vendor development cell on the basis of vendor rating, the committee will then decide from whom to procure the material; it is in case when supplier are same.

If the materials which is for the user department is not in stock with the regular supplier then they would go in for tabulation to know what is the best for the company, for this they will prepare a sheet known as a Tabulation Sheet after which the purchase order will be raised by purchase department.

After receiving the purchase order, the supplier will then dispatch the goods according to the purchase order. Terms and conditions are followed and payment are made accordingly. Inward goods department will receive the goods to the inspection department once the goods are entered into the factory premises. After inspection, an IGA document should be prepared and a copy must

be sent along with. The person who is in charge of the stores will verify and receive the goods. Another copy of IGA document will be sent to all the sections to verify and pass the invoice for payment. After verification, the voucher will be sent to the cash/finance section to issue the cheque to the supplier.

OBJECTIVES OF PURCHASE FUNCTION1. To know the materials requirement of all department in advance.

2. To supply right type of material at the night time.

3. To ensure the best negotiated price from the supplier.

4. To ensure the right quality of incoming materials.

5. Vendor relation.

BASIC PRICNIPLES OF PURCHASING1. Procurement of material when it is required to maintain the buffer stock (i.e. safety stock)

2. Optimal Quality determination.

3. Procurement at lowest price possible.

4. To buy the material only from the competent vendors with proven track record in respect to quality, price, delivery & after sales service in case of capital goods.

STORES MANAGEMENT

The term stores is a very wide term and includes raw materials, component parts. Tools, maintenance materials, consumable stores, W.I.P, finished goods etc. The investment in materials constitute a major portion of current asset, so there should be a separate stores department to exorcise stores control. Materials to become cash on the sale of finished products represent an equivalent and well-equipped stores department to exercise an effective material control.

WORK PROCEDURE

After inspection from purchase materials department, the materials are then taken to the stores department. The stores will receive the materials only with relevant document such as IGA, material transfer Note, stores Return Note, Delivery Ticket and SSU.

VERIFICATION

The stores personnel will check mid tally physically the material received Vis--vis the detail given on the document for correctness of code Quantity, packing, acceptance by IGI etc, endorse the receipt on the relevant delivery document & distribute the copies as per the respective delivery document.

Preservation or storage is another aspect of stores management with proper management and co-ordination storage can contribute to effective operations.

THE DUTIES AND RESPONSIBILITEIS OF A STORE KEEPER OR STORE INCHARGER

The effective and efficient stores management is under dire hand of storekeeper with regard to stores management, certain duties have to be performed by him. They may be listed as follows:

Receiving the stocks correctly.

Entering all receipt regularly in the bin cards.

Keeping every item of stores in its allotted bin.

Ensuring that materials are issued only to those which are present and are duly signed on the requisition note and that the quantitys issued are recorded in bin card.

Requisitioning from the purchase dept, when there is any need of further stock.

Checking the bin card balances with the physical quantities in the bins.

Preventing un-authorised persons from entering into the stores etc.

ORGANISATION OF STORES IN ITI

The stores organization is responsible for the proper functioning of all the stores in a division/unit o as to provide satisfactory levels of service to the production departments. Central stores with sub-stores in ITI divisions are situated at a distance from the central stores. In order to keep the transportation costs and handling charges to the minimum, sub-stores are situated near production department. For each item of materials, a quantity is determined and this is kept in stock in the sub-stores in the beginning of any period. At the end of a period the store keeper of each sub-store will send a requisition to the central store the quantity of the material consumed to bring the stock up to the predetermined quantity. This system of stores is also known as the imprest system of stores control.

CONDIFICATION OF STORES

All items of stores, whether purchased or manufactured are given different code numbers. These code numbers are recorded in all stores documentation an this is especially important when the documents are being processed on the computer. The code numbers uniquely identifies the item and prevents the same item from being stored in more than one location under slightly different descriptions.

TYPES OF STORES IN ITI

Stores in ITI are broadly classified into two

i) Production stores

ii) Non-production stores

PRODUCTION STORES

Raw materials stores

Bank stores

Condenses

Frame work stores

Moulding stores

Relay stores

Telephone stores

Switch stores etc.

NON-PRODUCTION STORES

Building stores

General stores

Wood stores

Chemical stores

Plant stores

Stationery stores etc.

STORE RECORDS

It is maintained on the perpetual inventory system where receipts, issues and balances are recorded for each item soon after the transactions takes place. The following perpetual inventory records are maintained manually when the inventory transactions are not processed on the computer.

BIN CARDIt is maintained in respect of each item in the stores for recording receipts issues and balance, after each transaction.

QUANTITY RECORDS

It is in respect of production, the stock control section of the planning department keeps items.

VALUE LEDGER CARDS

The accounts department in respect of each item in each store maintains the value ledger cards. The value of these items are changed to appropriate expense heads at the time of purchase. Such stores are: research stores, medical stores, transport stores etc.

STORES DOCUMENTS USED IN ITI

11.Receipt document

Delivery ticketsProduction

ShopTo record delivery of manufactured items to stores.

12.Stores return noteProduction shop & other Depts.For recording the, returns to stores of excess material both direct and indirect

13.Inward goods adviseInward goods Departments T record receipt of materials supplied by social organizations.

14.Material transferPlanning For recording the receipt of material from other store.

15.Delivery ChallansPlanningTo record the recipient of material supplied by social organizations.

16.Sales Return receipt note SKRNInward goods DepartmentRecords the return of goods by customers to whom such goods were sold.

17.Issues Documents.

Store requisitionAll production/ non production department Used for drawing materials from stores for production revenue or capital orders loan or for other purposes.

18.Exchange notes planningTo draw good components sub-assemblies from stores in return for items found defective on the assembly line etc.

19.Shipping requisitionPlanning on the advice of salesFor drawing materials from production stores to be shipped to customers.

20.Material transfer notes (issue)PlanningTo record the transfer of material from one store to another

21.Sales RequisitionSales DeptFor drawing material from sales stores to be shipped to customers

22.Stock correction withdrawal advisePlanningTo withdraw material from stores for rectification and return.

INWARD GOODS

It is the department, which receive raw materials from outside. The goods are checked through a document called IGA, one of the IGA copy will be sent to inspection and if approved would be sent to the stores.

PLANNINGIn this document, the material requirement are planned and prepared by the stores requisition against the shop orders. This department prepares the material transfer note for transfer of stores to other division of units.

PRODUCTION SHOP

Here, sub-assembled goods and final products are produced. For producing the goods, they firstly receive the materials from stores and start producing. If any surplus then occurs they retain the product to the store with a stores return note, after producing the final or sub-assembled products, they are returned to stores with a delivery ticket.

INSPECTION PRODUCTION

Each and every material that is purchased or manufactured is inspected in the department. If any defect in the material is found they would issue an exchange note for defection parts to the stores and issue the stock correction withdrawal advice for stock correction.

STORES

From the IGA department they receive the materials and store the material in a proper way. By receiving SR (Stores requisition) from the planning department against the shop order, the stores will distribute the materials to production shop. After producing the sub-assembly or finished goods by the production shop, it will then go to the stores with a DT (Delivery Ticket). Each copy of the SR, MTN & DT will be sent to the material accounts to value and sent to the costing.

SOURCES OF STORES

Sources

Purchasers

Manufactures

The sources of stores can be classified into 2

PURCHASES

Purchased material with purchase from outsiders. These materials may be either raw-materials or semi manufactured items.

MANUFACTURERS

Manufactured items will be manufactured by purchasing raw-materials or, semi-manufactured items. Finished goods of one industry may be the raw-material for another.

These are the major sources of stores in ITI Limited.

FLOW OF MATERIALS

It is the continuous flow of materials from one store to another store/assembly shop. If the materials are to be moved, them the stores play a vital role. After the final stage of components, the product will then be moved to the stores. In next process, this component is required; so they have to move the materials to the stores requisition from the stores. Stores will act as a mediator between one process to another. If stores do not exist, then the flow of material becomes very difficult and disturbed not only for the flow of material but also in controlling the inventory.

TELEPHONE DIVISION This division produces telephones, Telephones specially used for defence. These phones have high resistance capacity that should be suitable to any place for e.g. snow areas, water places, summer land etc. the Raw-materials which are required for the manufacture of telephones will first enter into the stores department. From Tile stores it will precede to the concerned stores, then it will be processed in the sub-assembly. After sub-assembling the product, it will return to the stores. The product will then go to the main assembly shop to be processed and finally sent to the department for shipment.

INVENTORY IN ITI COVERS

1. Value of raw- material and production stores

2. Value of non-production stores

3. W.I.P Production

4. W.I.P installation

5. Finished goods

6. Tools and gauges (if treated as stores)

7. Advances paid for materials in transit

INVENTORY CONTROL TECHNIQUES

Inventory control techniques are employed by the inventory control organization within the framework of one of the basic inventory models. Different business concerns may apply different inventory control techniques to meet specific requirement and circumstances. It all depends on the convenience of the firm to adopt any of the technique. In ITI, ABC analysis is followed

ABC ANALYSIS (ALWAYS BETTER CONTROL) ANALYSIS

One of the widely used techniques for control of inventories is ABC analysis. The ABC approach is a means of categorizing inventory items into three classes i.e. A,B & C according to the potential amount to be controlled.

Once inventory is classified we have a firm base for deciding where we will put our efforts, logically, we expect to maintain strong controls over the A items taking whatever special action needed to maintain availability of these items and hold stocks at the lowest possible levels consistent with meeting demands. At the other end of the scale, we cannot afford the expense of rigid controls frequent ordering, expediting etc., because of the low amounts in this area. Thus with C group we may maintain some what higher safety.

Stocks order more months of supply expect low levels of customer service, or all of the three. It is for this selective approach. ABC analysis is often called the selective inventory control method (SIM). Once ABC analysis has been taken the following board policy the headlines can be established in respect of each category.

A itemsB itemsC items

Very strict ControlModerate controlLoose control

Frequent ordering or weeklyOnce in three monthsBulk ordering once in six months

Weekly control statement Monthly control statement Quarterly reports

Maximum follow-up expediting Periodic follow upFollow-up in exceptional cases

Rigorous value analysis Moderate value analysis Minimum value analysis

Accurate forecast materials planningEstimates based past dataRough estimate

Minimization of obsolete & surplusQuarterly viewAnnual review

Central purchasing and storage Combination purchasesDecentralization

Minimum efforts to reduce lead timeModerate Minimum efforts

To be handled by senior effortsTo be handled by middle Can be fully delegated

The following are the ABC classification of inventory of production and non-production items.

1. A CLASS

About 10 percent of the items by numbers accounting for 70 percent of the value for the preceding year falls in A class.

2. B CLASS

Another 20 percent of items by numbers accounting for 20 percent of the consumption by value falls into B class items.

3. C CLASS

The remaining 70 percent of the items by numbers accounting for 10 percent of consumption by value fall into C class items.

NORMS ON INVENTORY HOLDING 1. A Class items: imported- 2 months of annual requirements.

2. B Class items: indigenous 1 months of annual requirements.

3. C Class items: indigenous 6 months annual requirements.

IIWork in-progress:1.5 month of production

IIIFinished goods:1 month of sales

1. SHOP ORDER

A directive to the works department to make products and parts. If given details of shop order number, quality, code of the product and parts, to be made and the list of components required to make those products.

2. WORK ORDER

It is the written instruction from the sales department to the production-planning department. The order has then to be processed. This document indicates consign details work order number, purchase order number, delivery schedule, type of order and code of the product.

3. SALES ORDER

Sales department gets order from customers, they will release work order of the same. This work order will be given to production shop along with the delivery schedule.

As work order is for a project of a product that consists assemblies, sub-assemblies. Shop orders are released to have control of the inventory control, materials can be drawn from the stores against the respective shop orders only, once this project is completed, shop orders are closed & materials should not be drawn against the closed shop orders.

REASONS FOR INVENTORY BUILD UP IN ITI

The reasons for the build up of inventory/dormancy are as follows:

Item left over due to discontinuation of a product

Abandonment of project/product.

Change in design for improvement due to field problems.

Quality problem on components and some subsequent banning of approved sources.

Extra coverage upto 10 percent on various items while ordering.

Projected annual requirement being generally more than consumption.

INVENTOURY VALUATION

Inventory valuation is done foe two items:

1. Purchase items

2. Manufactured items.

1. PURCHASED ITEMS

The purchase items can be valued at different methods. They are:

First in First out (FIFO)

Last in First out (LIFO)

Weighted Average

Simple Average

Periodic Weighted Average

Periodic Simple Average etc,

In ITI., the purchase items are valued at Weighted average rate method.

Under Weighted Average Method, process is calculated by taking into account both quantity and value of materials in stock. The weighted average price is calculated at the time of each receipt by dividing the total amount of values by the total quantity.

2. MANUFACTURED ITEMS

The manufactured items are valued at production cost.

The production cost is evaluated as follows:

The production cost: material cost + labour cost + overhead cost.

1. Bill of material for equipment / assemblies.

2. Process sheet for component with this information, the materials cost is worked out.

The labour cost: labour hour X sub-acerage rate.

The overhead: over labour cost, overhead percentage is added to work out the overhead value.

DORMANT ITEMS IN ITI

Dormant items are those which are not required for the current production and not required further, due to production discontinuation / absence of market of a product / change in design.

Dormant items are different from scrap items. The dormant items can be classified into 3 groups.

i. D1 items (Dormant-1)

Items in the stock as on 31st march of a financial year in respect of which there were no issues during the preceding one year.

ii. D2 items (Dormant-2)

Those items for which there was no issues during the

Preceding 2years or more.

iii. D3 items (Dormant-3)

Those items which are of slow moving. Items in which the stock is more than the previous year consumption. The list of dormant items under the above 3 categories are prepared and these are reviewed by the review Committee in the Planning Department. The committee after satisfying itself, will have no further use in any of the division/units of ITI, they will declare the item as dormant.

REASONS FOR DORMANT

1. Cancellation of orders from Customers. After placing an order by the customer, the manufacturing process will start immediately over a period of time, if the customers cancels the previous order and places a new one for the same items (i.e., by changing small items like colour, design etc.) the product manufactured earlier will be then be forced to be dormant.2. Minimum order Quantity (MOQ)

when placing an order, it should be restricted to the minimum. The standard minimum quantity by the supplier will be fixed. The purchase must be made such that, there is no further order placed in short period for a certain period.

Ex: If we require 150 NOs of X component, the MOQ may be 200. the purchase must be made for 200 numbers only. But not less than 200. the balance of 50 will then be dormant.

3. Change in Technology Now-a-days with the growing of new technologies, the products are coming out with less and good performance. Therefore, the manufactured goods or material are purchased for main assembly, earlier for the production having old technology will become dormant.

Ex: Before 70s and 80s the telephone instrument were heavier, bigger in size, more costly, but now, the technology improved, the telephone are very light in weight, less cost therefore the materials which were used earlier has become dormant.

DISPOSAL OF DORMANT AND SLOW MOVING ITEMS

Dormant and slow moving items should be disposed as early as possible. The longer the material remains in the stock, the lesser will be its market value. A standing committee appointed by the plant head should decide the disposal of dormant items.

The following steps may be taken before disposal of the surplus and dormant Inventory.

1. The list should be circulated to all divisions and plants so

that they may meet the requirements of their items without resorting to fresh purchase.

2. The dormant items may be separated physically from active stock and stored separately in a store identified for disposal.

3. The committee on dormant and surplus items should explore the following possibilities.

Examine the PRs of production divisions and in for the concerned planning section on the availability, if any of the items required by them in the dormant stores.

Manufacture certain sub-assemblies of products that could be sold.

Separate raw-material from manufactured position so that the raw material may be sold.

Activity participation in the quotes that may be arranged through various disposal agencies like material stock exchange etc.

Small value manufactured items that cannot be sold as such, may be scrapped and sold through metal trading corporation.

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