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Project on Inventory Management System

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    DEC9ARATION 

    I Sumit Soi, student of Si--im M)i.)! Ui/e+*ity, hereby

    declare that the project work titled “A STUDY ON INVENTORY 

    MANAGEMENT IN COMPANY ” which is submitted to Sikkim

    Manipal University in partial fulllment of the re!uirements for the

    de"ree of Master of #usiness $dministration, is a record of ori"inal

    research work done by me under the "uidance of, D+ P+)*2)t

    S2)+m) of %ans Info&ech, that this is "enuine and has not been

    submitted elsewhere for any other de"ree or diploma'

    ()$*+ $li"arh

    Sumit Soni

    -$&+

    ./)) 0/ 12322145

    6

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    ACNO;9EDGEMENT

    I have prepared this study paper for the “A Study o I/eto+y

    M))

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    INDE=

    S+ No To.i7 P)

    3 M$0$?+M+0& /< I0%+0&/.: 5

    = */0*+(& /< I0%+0&/.: M$0$?+M+0& 5

    > /#;+*&I%+S /< I0%+0&/.: M$0$?+M+0& 45 &:(+S /< I0%+0&/.: 11

    4 0++- &/ 9/)-I0? I0%+0&/.I+S 16

    12

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    INTRODUCTION TO T0E STUDY Inventory is the business lar"est asset 'It is stock of item used in

    business' Inventory represent one of most important asset that

    most businesses posses, because the turnover of the inventory

    represents one of the primary sources of revenue "eneration and

    subse!uent earnin"s for the companyDs shareholder and owners'

    Inventory is very vital to every company that is without inventory

    no company would survive' Inventory is meant for EprotectionD

    and for EeconomyD in cost'

    @eepin" inventory of suFcient stock will help to face lead time

    component, demand and supply Guctuation and any unforeseen

    circumstance in the procurement of materials' &hou"h to have

    inventory is must, inventory is such a thin" that will pile up and

    creep into the area of prots to turn them as losses and can put

    the company in red' It is therefore, necessary to have *ontrol over

    inventory to save the company from pilin" up inventories and to

    avoid losses' #etter said than done, is the word that suits

    inventory *ontrol'

     &he mana"ement of inventory is a key concern of all business' If a

    companyHs inventory level is too low, it risks delays in fulllin" its

    customerDs orders' If the inventory is too hi"h, it is tyin" up

    dollars that can be better used in other areas' It also risks

    obsolescence and spoila"e' Successful businesses keep their

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    inventory turns hi"h, but also keep their service level at or above

    the industry standard'

    Inventory is a stock of "oods re!uired by an or"ani7ation for its

    successful operation' Inventory refers to materials procured,

    stored and used for day to day functionin" of the whole

    or"ani7ation' Inventory is directly related to production and

    marketin" department, still the nance department has to play a

    vital role in the mana"ement of inventory' &he purpose of 

    inventory mana"ement is to keep stock in such a way that there

    is no overstockin" or under stockin"'Inventory is one of the most epensive assets of many companies

    representin" as much as 32J of total invested capital' Inventory

    *ontrol relates to a set of policies and procedure by which an

    industry determines which materials it will hold in stock and the

    !uality of each that it will carry in stock'

    Inventory is the lar"est item in the current assets cate"ory and

    must be accurately counted and valued at the end of each

    accountin" period to determine a companyDs prot or loss' So the

    mana"ement of inventory is important' Inventory mana"ement is

    the process of eFciently overseein" the constant Gow of units

    into and out of an eistin" inventory'

    Inventory mana"ement is a very important function that

    determines the health of the supply chain as well as the impacts

    the nancial health of balance sheet' +very or"ani7ation

    constantly strives to maintain optimum inventory to meet its

    =

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    re!uirements and avoid over or under inventory that can impact

    the nancial "ures'

    OBJECTIVE O1 T0E STUDY 

    Inventories constitute the principal item in the workin" capital of 

    the majority of tradin" and industrial companies' In inventory, we

    include raw materials, nished "oods, work in pro"ress, supplies

    and other accessories' &o maintain the continuity in the

    operations of business enterprise, a minimum stock of inventory

    re!uired'

    9owever, the physical control of inventory is the operatin"

    responsibility of stores superintendent and nancial personnel

    have nothin" to do about it but the nancial control of these

    inventories in all lines of activity in which they comprise a

    substantial part of the current assets is a fre!uent problem in the

    mana"ement of workin" capital' Mana"ement of inventory isdesi"ned to re"ulate the volume of investment in "oods on hand,

    the types of "oods carried in stock to meet the needs of 

    production and sales while at the same time, the investment in

    them is to kept at a reasonable level'

    NEED 1OR T0E STUDY Inventories perform certain basic functions which are of crucial

    importance in the rmDs production and marketin" strate"ies'

    +Kective *ontrol over the utili7ation of materials has much

    bearin" on prot and here is an attempt to study the

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    mana"ement of materials' &his study helps the company to

    detect and evaluate its own stren"th and weakness and also "ive

    recommendation for the better inventory mana"ement'

    Aithout inventory mana"ement it would be diFcult for any

    company to maintain *ontrol and be able to handle the needs of 

    customers' Inventories are necessary for a rm to operate

    eFciently and almost all business transactions involve the

    delivery of a product or services in echan"e of currency'

    SCOPE O1 T0E STUDY 

    Inventory is the major element in the workin" capital of any

    tradin" and manufacturin" concern' &he scope of the present

    study etends to ensure proper inventory mana"ement and cost

    *ontrol' It provides a "uideline for the mana"ement of the

    materials of the company and helps to introduce necessary

    chan"es as and where re!uired'

     &he scope of inventory mana"ement concerns the ne line

    between replenishment lead time, carryin" cost of inventory,

    asset mana"ement, inventory forecastin", !uality mana"ement,

    replenishment, returns and defective "oods and demand

    forecastin"' #alancin" these competin" re!uirements lead to

    optimal inventory levels, which is an on"oin" process as thebusiness need shift and react to the wider environment

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    MANAGEMENT O1 INVENTORY 

    Inventories constitute the principal item in the workin" capital of 

    the majority of tradin" and industrial companies' In inventory, we

    include raw materials, nished "oods, workLinLpro"ress, supplies

    and other accessories' &o maintain the continuity in the operations

    of business enterprise, a minimum stock of inventory re!uired'

    9owever, the physical control of inventory is the operatin"

    responsibility of stores superintendent and nancial personnel have

    nothin" to do about it but the nancial control of these inventories

    in all lines of activity in which they comprise a substantial part of 

    the current assets is a fre!uent problem in the mana"ement of 

    workin" capital' Mana"ement of inventory is desi"ned to re"ulate

    the volume of investment in "oods on hand, the types of "oods

    carried in stock to meet the needs of production'

    CONCEPT O1 INVENTORY MANAGEMENT &he term inventory mana"ement is used in two waysL unit control

    and value control' (roduction and purchase oFcials use this word in

    term unit control whereas in accountin" this word is used in term of 

    value control' $s investment in inventory represents in many cases,

    one of the lar"est asset items of business enterprises particularly

    those en"a"ed in manufacturin", wholesale trade and retail trade'Sometimes the cost of material used in production surpasses the

    wa"es and production overheads' 9ence, the proper mana"ement

    and control of capital invested in the inventory should be the prime

    responsibility of accountin" department because resources invested

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    in inventory are not earnin" a return for the company' .ather, on

    the other hand, they are costin" the rm money both in terms of 

    capital costs bein" incurred and loss of opportunity income that is

    bein" fore"one'

    OBJECTIVES O1 INVENTORY MANAGEMENT

     &he basic mana"erial objectives of inventory control are twoLfold

    rst, the avoidance overLinvestment or underLinvestment in

    inventories and second, to provide the ri"ht !uantity of standard

    raw material to the production department at the ri"ht time' In

    brief, the objectives of inventory control may be summari7ed as

    follows

    A O.e+)ti< Ob>e7ti/e*:

    6#8 E*u+i< A/)i!)bi!ity o, M)te+i)!*:  &here should be a

    continuous availability of all types of raw materials in the

    factory so that the production may not be help up wants of 

    any material' $ minimum !uantity of each material should

    be held in store to permit production to move on schedule'

    6?8 A/oid)7e o, Abo+m)! ;)*t)

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    )eaka"e, theft, embe77lements of raw material and spoila"e

    of material due to rust, bust should be avoided'

    648 P+omotio o, M)u,)7tu+i< E@7ie7y: If the ri"ht type

    of raw material is available to the manufacturin"

    departments at the ri"ht time, their manufacturin" eFciency

    is also increased' &heir motivation level rises and morale is

    improved'

    6$8 A/oid)7e o, Out o, Sto7- D)e7ti/e*:

    6#8 E7oomy i .u+72)*i

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    6?8 Re)*o)b!e P+i7e: Ahile purchasin" materials, it is to be

    seen that ri"ht !uality of material is purchased at reasonably

    low price' Buality is not to be sacriced at the cost of lower

    price' &he material purchased should be of the !uality alone

    which is needed'

    648 O.timum I/e*ti< )d E@7iet U*e o, 7).it)!:  &he

    basic aim of inventory control from the nancial point of view

    is the optimum level of investment in inventories' &here

    should be no ecessive investment in stock, etc' Investment

    in inventories must not tie up funds that could be used inother activities' &he determination of maimum and

    minimum level of stock attempt in this direction'

    TYPES O1 INVENTORY 

      Mo/emet i/eto+ie*

    Movement inventories also called as transit or pipelineinventory' (ipeline inventory eist because material cannot be

    transported instantaneously between point of supply and point

    of demand'

      Bue+ i/eto+ie*

    #uKer inventory also called as safety inventory' Its purpose is

    to compensate for unepected Guctuations in supply anddemand as well as unpredictable events such as poor delivery

    reliability or poor !uality of supplierDs products' ?enerally

    hi"her the level of buKer inventory, the better the rmDs

    customer service'

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      Cy7!e i/eto+y

    It is held for the reason that one or more sta"es in the process

    cannot supply all the items it produces simultaneously' &his

    type of inventory result from the need to produce products in

    batches and amount of it depends on volume decisions'

      De7ou.!i< i/eto+y

    Inventory is used to allow work centers or processes to operate

    relatively independently' Ahen such inventory are held even if 

    a machine breaks down the work would not stop

    • Ati7i.)tio i/eto+y &his type of inventory is accumulated to cope up with epected

    future demand or interruption in supply' It is a way for

    manufacturers to maintain consistent operations when the

    demand for the product is low'

    NEED TO 0O9DING INVENTORIES

    Maintainin" inventories involves tyin" up of the companyDs funds

    and incurrence of stora"e and handlin" cost' If it is epensive to

    maintain inventories, why do companies hold inventoriesN &here

    are those "eneral motives for holdin" inventories

      T+)*)7tio moti/e

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    $ccordin" to this s motive, an enterprise maintains inventories

    to avoid bottlenecks in its production and sales' #y maintainin"

    inventories, the business ensures that production is not

    interrupted for want of raw materials, on the other hand and

    sales also are not aKected on account of nonLavailability of 

    nished "oods, on the other'

      P+e7)utio)+y moti/e

    Inventories are also held with a motive to have a cushion

    a"ainst unpredicted business' &here may be sudden and

    unepected spurt in demand for nished "oods at times'Similarly, there may be unforeseen slump in the supply of raw

    materials at a time' In both cases, a prudent business world

    surely likes to have some cushion to "uard a"ainst the risk for

    such unpredictable chan"es'

     

    S.e7u!)ti/e moti/e

    $n enterprise may also hold inventories to take the advanta"eof price Guctuation' Suppose, if the prices of raw materials are

    to increase rather steeply the enterprise would like to hold

    more inventories than re!uired at lower prices'

    1ACTORS IN19UENCING INVENTORY 

     &he inventory mana"ement of an or"ani7ation has an impact onthe whole system'

    “9ow much to buy at onetime” and “when to by this !uantity”'

     &his two fundamental thin"s on which inventory *ontrol depends'

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    Many factors "overn these fundamental thin"s' &he prime factors

    that "overn these two fundamental thin"s are

    • .e!uirements

    Buality in stock or on stock• )ead time

    • /bsolesce

    ADVANTAGES O1 INVENTORY CONTRO9

    9ere are the followin" advanta"es of inventory controlL

    • .eduction in investment in inventory'

    • (roper and eFcient use of raw materials'• 0o bottleneck in production'

    • Improvement in production and sales'

    • +Fcient and optimum use of physical as well as nancial

    resources'

    • /rderin" cost can be reduced if a rm places a few lar"e orders

    in place of numerous small orders'

    Maintenance of ade!uate inventories reduces the setLup costassociated with each production run'

    RIS AND COST ASSOCIATED ;IT0

    INVENTORIES

    9oldin" of Inventories epose the rm to a number of risks and

    costs'M)>o+ +i*-* )+e )* ,o!!o*3

    6)8 P+i7e de7!ie &hey may be due to increase in market supply

    of the product, introduction of a new competitive product,

    priceLcut by the competitors etc'

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    6b8 P+odu7t dete+io+)tio: &his may due to holdin" a product

    for too lon" a period or improper stora"e conditions'

    678 Ob*o!e*7e7e: &his may due to chan"e in customerDs taste,

    new production techni!ue, improvements in product desi"n,

    specications etc'

    T2e Co*t* o, 2o!di< i/eto+ie* )+e )* ,o!!o*3

    6)8 M)te+i)! Co*t: &his include the cost of purchasin" the "oods,

    transportation and handlin" char"es less any discount allowedby the supplier of "oods'

    6b8  O+de+i< Co*t: &his includes the variables cost associated

    with placin" an order for the "oods' &he fewer the orders, the

    lower will be the orderin" costs for the rm'

    678 C)++yi< Co*t: &his includes the epenses for storin" and

    handlin" the "oods' It comprises stora"e costs, insurance

    costs, spoila"e costs, cost of funds tied up in inventories etc'

    ESSENTIA9 O1 INVENTORY CONTRO9 SYSTEM

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    code number and it must be classied in suitable "roup or

    subLdivisions' $#* analysis of material is very helpful in this

    contet'

    6?8 St)d)+di)tio )d *im.!i7)tio o,  

    i/eto+ie*:  In order to facilitate inventory control, the

    inventory line should be simplied' It refers to the

    elimination of ecess types and si7es of items' Simplication

    leads to reduction in classication of inventories and its

    carryin" costs' Standardi7ation, on the other hand, refers to

    the ation of standards of raw material to be purchased andspecication of the components and tools to be used'

    648 Setti< t2e M)Fimum )d Miimum !imit*

    ,o+ e)72 .)+t o, i/eto+y: &he third step in this process

    is to set the maimum and minimum limits of each item of 

    the inventory' It avoids the chances of overLinvestment as

    well as runnin" a short of any item durin" the cost of 

    producin"' .eorderin" point should also be ed beforehand'

    6$8 E7oomi7 O+de+ u)tity: It is also a basic

    inventory problem to determine the !uantity as how much to

    order at a time' In determinin" the +/B, the problem is one

    to set a balance between two opposite costs, namely,

    orderin" costs and carryin" costs' &his !uantity should be

    ed beforehand'

    6&8 AdeHu)te *to+)

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    SuFcient stora"e area and proper handlin" facilities should

    be or"ani7ed'

    68 AdeHu)te Re.o+t* )d Re7o+d*:  Inventory

    control re!uires the maintenance of ade!uate inventory

    record and reports' %arious inventory records must contain

    information to meet the needs of purchasin", production,

    sales and nancial staK' &he typical information re!uired

    about any class of inventory may be relatin" to !uantity on

    hand, location, !uantities in transit, unit cost, code for each

    item of inventory, reorder point, safety level etc' Statementsforms and inventory records should be so desi"ned that the

    clerical cost of maintainin" these records must be kept a

    minimum'

    658 Ite!!i

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    departments have diKerent outlook and objects in inventory

    mana"ement but nancial mana"er has to coordinate them

    all'

    6'8 Bud

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    S.e7i7  1)7to+*:  &hese factors are directly related with

    investment in stock'

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    68 Time 1)7to+: &he lead time of raw material time token in

    production process and sale of product also inGuence

    investment in inventories' )on"er the period, hi"her will be

    the investment in inventories'

    658 9o) 1)7i!itie*:  If raw materials are purchased on credit or

    loan from the bank or other nancial institution can be

    obtained on the security of raw material, lesser investment

    would be re!uired' In the absence of such loan facility, hi"her

    investment would be re!uired'

    6(8 P+i7e 9e/e! 1!u7tu)tio*: If there are epectations of pricerise in future then raw materials may be store in hi"h

    !uantity and so more investment would be re!uired' /n the

    contrary, if the prices of raw materials are epected to "o

    down in future, then comparatively lesser investment would

    be re!uired'

    INVENTORY CONTRO9 TEC0NIUES

    Inventory is bein" maintained as a cushion in supply of materials

    for continuous production without causin" stock out situation' &his

    cushion should not be suicidal to any or"ani7ation' &he followin"

    scientic techni!ues and methods are bein" used in control of 

    inventory'

    1' Inventory Mana"ement &echni!ues6' Standardi7ation8' Selective Inventory *ontrol' ;ust In &ime3' (erpetual Inventory System=' Inventory &urnover .atio

    61

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    # INVENTORY MANAGEMENT TEC0NIUES

    I ECONOMIC ORDER UANTITY:3

    If the rm is buyin" raw materials, it has to decide lots inwhich it has to be purchased on replenishment' If the rm is

    plannin" a production run, the issue is how much production

    to schedule' &hese problems are called order !uantity

    problems and the task of the rm is to determine the

    optimum or economic order !uantity'6)8 O+de+i< 7o*t

     &he term orderin" cost is used in case of raw materials andincludes the entire cost of ac!uirin" raw materials'

    6b8 C)++yi< 7o*t :*ost incurred for maintainin" a "iven level of inventory is

    called carryin" cost'

    +conomic /rder Buantity is "iven by the formula

    EO √ 2  AO /C   

    $nd the cost of inventory is "iven by formula

    Tot)! 7o*t o, i/eto+y O 6A F P8 6A F 8KEO 6EO F C8K

    ?

    Ahere, $O $nnual *onsumption Pin unitsQ

    /O /rderin" cost per order Pin .sQ

    *O *arryin" cost per unit Pin .sQ

    (O (rice per unit Pin .sQ

    II Reo+de+ Poit

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     &he reorder point is that inventory level at which an order

    should be placed to replenish the inventory '&o determine

    reorder point

    PaQ )ead time is the time normally taken in replenishin"inventory after the order has been placed'

    PbQ $vera"e usa"ePcQ +conomic order !uantity

    III S),ety *to7-  &he demand for material may Guctuate from day to day' &he

    actual delivery time may be diKerent from the normal lead time' If 

    the actual usa"e increases or the delivery of inventory is delayedthe rm can face problem of stock out, which can be costly' So, in

    order to "uard a"ainst the stock out the rm may maintain a

    safety Stock'

    ? STANDARDILATION :Standardi7ation is very essential to control the inventory, as by

    standardi7ation reduction in variety of materials is possible' $nd

    because of the reduction in variety the advanta"es are low cost,

    low inventory, less stora"e stocks, conservation of materials,

    variety reduction, less paper work, easily follow up with suppliers,

    less number of orders' &he importance of this eld has been reco"ni7ed since the days of 

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    4 SE9ECTIVE INVENTORY CONTRO9 MANAGEMENT$ny manufacturin" or"ani7ation consumes few thousand items of 

    stores' $ hi"h de"ree of control of inventories of each item would,

    therefore neither be practical considerin" the work involved, nor

    worthwhile since all items are not of e!ual importance' 9ence it is

    desirable to classify or "roup items to control commensurate with

    importance' &his is the principle of selective control as applied to

    inventories and the techni!ue of "roupin" is termed as selective

    techni!ue'

    Selective inventory means variation in the methods of inventorycontrol from item to item and this diKerentiation should be on

    selective basis by classication' $ company has to stock

    thousands of items of raw materials, standard parts, stores and

    spares, sub contract items, tools, stationary etc' &o have better

    control over the inventoryR stock on hand, selective inventory

    control techni!ue should be used in isolationR or in conjunction'

     &hus, selective control means selectin" the area of control so that

    re!uired objective is achieved as early as possible without any

    lost of time due to takin" care of full area• Minimum loss of ener"y and eKorts'

    • $t maimum cost without loss of time'

     &here are followin" selective control techni!ues

    • $#* $nalysis

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    $#* $nalysis is a selective control techni!ue which is re!uired to

    be applied when we want to control value of consumption of the

    items in .upees obviously when we want to control value of the

    consumption of the material we must select those materials

    where consumption is very hi"h'

    In any company manufacturin", there are number of items which

    are consumed or traded it may run into thousands' It is found

    after number of studies for diKerent companies that

    %alue of  

    consumption of  items Pvalue in .s Q

    0o' of items ?rade

    >2J of consumption 12J of no' of items $62J of consumption 13J of no' of items #12J of consumption >3J of no' of items *

    A item* these are those items which are found hardly 3J 12J

    but their consumption may amount >2J >3J of the total money

    spend on materials'

    B item* these are those items which are "enerally 12J 13J of 

    the total items and their consumption amounts to 12J 13J of the

    money spend on the materials'

    C item* these are lar"er number of items which are cheap and

    inepensive and hence insi"nicant' &hey are lar"e in number of 

    runnin" into hardly 3J 12J of the total money spends on the

    materials'

    A C!)** Item*

    60i

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    /)!ue8 /)!ue8%ery strict control Moderate control )ose control0o safety stocks or

    very low safety

    stocks

    )ow Safety stocks 9i"h safety stocks

    Maimum follow up

    and epeditin"

    (eriodic follow up

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     &hus, stores department whoDs concerned with the movin" of 

    items would like to know and classify that the items are storin" in

    the cate"ories

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    since their consumption may not be fre!uent and their value may

    not be hi"h'

    78 =YL ANA9YSIS

     &his type of analysis is carried out from the point of view of value

    of balance stocks lyin" in the stores from time to time and

    classies all the items as "iven below'

    = item* are those items whose value of balance stocks lyin" in

    the stock is very hi"h'

    Y item* are those items whose value of balance stock ismoderate'

    L item* are those items whose value of balance stock lyin" in

    the stocks is very low'

    $fter knowin" this type of classication and their items can be

    taken to control the situation as shown belowo

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    stocks can be reduced' &hus proper inventory control

    procedures can be developed on the basis of T:C analysis'

     &hus proper selective control methods should be selected to

    control the materials and prevent from facin" loss, takin"

    advanta"e and knowin" what eactly is to be done'

    d8VED ANA9YSIS

    VED ))!y*i* is carried out to control situation, which are critical'

    Ahen applied to material in %+- analysis we try to identify

    material accordin" to their criticality to the production, whichmeans the material, without which the production will come to

    stop and so on from this point of view material classied in three

    cate"oriesL

    %L %ital

    +L +ssential

    -L -esirable

    %ital cate"ories of the items are those items for the want of which

    the production will come to stop'

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    e80M9 ANA9YSIS

     &his analysis, analysis the material accordin" to their prices and

    then classies them as 9 item or M item or ) items'

    9 stands for hi"h price,

    M stands for medium price and

    ) stands for low price'

    Since price is more concerned of purchase department mostly

    purchase department people analyses the material accordin" to

    9M) analysis'

    9M) analysis must be carried out from any one of the followin"objectives or some of the objective as the case may be

    • Ahen it is desire that purchasin" responsibility should be

    dele"ated to ri"ht level of people'

    • Ahen it is desired to evolve purchasin" policies then also 9M)

    analysis is carried out i'e' whether to purchase in eact

    !uantities as re!uired or to purchase in +/B or purchase only

    when absolutely necessary'

    • Ahen the objective is to keep control over consumption at the

    department level then authori7ation to draw materials from the

    stores will be "iven to hi"h level 9 item, low level for ) items

    and medium level for M items'

    • Ahen it is desired to decide fre!uency of stock takin" then very

    fre!uently 9 cate"ory, very rarely ) cate"ory and avera"ely M

    cate"ory'

    • Ahen it is desired to arran"e security arran"ements for the

    items, then 9 items under lock and key, ) items keep open on

    the shop Goor and under supervision for M items'

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    $ JUST IN TIME INVENTORY SYSTEM

    @eepin" in view the enormous carryin" cost of inventory in the

    stores and "o downs, manufactures and merchandisers are askin"

    for more fre!uent deliveries with shorter purchase order lead

    times from their suppliers' &oday or"ani7ations are becomin"

    more and more interested in "ettin" potential "ains from makin"

    smaller and more fre!uent purchase orders' In other words, they

    are becomin" interested in just in time purchasin" system' ;ust in

    time purchasin" P;I&Q is the purchasin" of material or "oods in

    such a way that delivery of purchased items is assured beforetheir use or demand'

     ;ust in time purchasin" reco"ni7es too much carryin" costs

    associated with holdin" hi"h inventory levels' &herefore, it

    advocates developin" "ood relations with suppliers and makin"

    timely purchases from proven suppliers who can make ready

    delivery of "oods available as and when need arises' +/B model

    assumes a constant order !uantity whereas ;I& purchasin" policy

    advocates a diKerent !uantity for each order if demand

    Guctuates'+/B lays emphasis on orderin" costs to include

    purchase costs !uality costs and stock out' ;ust in time purchasin"

    takes into consideration all these costs and move outside the

    assumptions of the +/B model'

    $dvanta"es of ;I& purchasin"

    1' Investment in inventory is reduced because more fre!uent

    purchase orders of small !uantities are made'

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    6' *arryin" cost is reduced as a result of low investment in

    inventory'8' $ reduction in the number of suppliers to be dealt with is

    possible' /nly proven suppliers who can "ive !uick delivery of !uality "oods are "iven purchase orders' $s a result of this

    reduction in ne"otiation time is possible' &he use of lon" run

    contracts with some suppliers with minimal paper work

    involved is possible'' Buality costs such as inspection cost of incomin" materials or

    "oods, scraps and rework costs are reduced because ;I&

    purchasin" assures !uick and fre!uent delivers of small si7e

    orders which results in low level of inventories causin"

    minimum possible wasta"e' &herefore, ;I& purchasin" is

    fre!uently applied by or"ani7ations dealin" in perishable

    "oods'& PERPETUA9 INVENTORY SYSTEM

     &he *hartered Institute of Mana"ement $ccountants, )ondon,

    denes the perpetual inventory as “a system of records

    maintained by the controllin" department, which reGects the

    physical movements of stocks and their current balance”' #ind

    cards and the stores led"er help the movements of the stock on

    the receipts and in maintainin" this system as they make a record

    of to physical movements of the stock on the receipts and issues

    of the materials and also reGect the balance in the stores' &hus, it

    is a system of ascertainin" balance after every receipt and issue

    of every material throu"h stock record to facilitate re"ular

    checkin" and to avoid closin" down the rm for stocktakin"' &o

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    ensure the accuracy of perpetual inventory records Pi'e' #ind card

    and stores led"erQ, physical verication of the stores is made by

    #ind cards and store led"er may diKer from the actual balance of 

    stock as ascertained by physical verication' It may be done to

    the followin" avoidable and unavoidable causes'

    INVENTORY TURNOVER RATE TEC0NIUE

    /ne important techni!ue of inventory control is to use inventory

    turnover ratios' &hese ratios are calculated to assess the

    eFciency in use of inventories'

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    PiQ A/e+)

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    in this study deals with the importance and necessity for

    inventory mana"ement in an or"ani7ation'

     Inventory mana"ement can help business to be more protable

    by lowerin" their cost of "oods sold and by increasin" sales'

    Inventory mana"ement is re!uired at diKerent locations of a

    supply network to protect the re"ular and planned course of 

    production a"ainst the random disturbance of runnin" out of 

    materials or "oods''

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    companies' Inventory mana"ement can help make it so that a

    company has the eact inventory needed' 0o more, no less'

    Inventory mana"ement is also an eKective way to keep track of 

    eactly what products a company has'

    • P2i!i. S!)te+ 6?%%58 in his article PI/eto+y M))

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    either producin" only when you actually have an order P;I&Q or

    by achievin" more accurate demand projections'• +perts ar"ue that inventory levels should decline markedly as

    a result of the implementation of improved inventorymana"ement systems such as ;I&' $ paper by R)>)

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    • Ad)m J 1ei in his article Bui!di< ) 9e) Su..!y C2)i

    6?%%8  said that “there is a widely held, but inaccurate,

    perception that new technolo"ies have led directly to declines

    in the inventoryLtoLsales ratio, an important indicator of “buKer

    inventory” in the supply chain ' in theory, information

    technolo"yLbased supply chain practices such as justLinL

    timeP;I&Q inventory mana"ement, warehouse automation, and

    the introduction of bar codes should have allowed companies

    to improve their mana"ement of orders and stockpiles of 

    materials'• B+u7e D C)!de!! 6?%%'8 has mentioned some benets of 

    $#* $nalysis in his article T2e Beet* o, ABC A)!y*i* ,o+

    I/eto+y Redu7tio' Usin" the”$#*” concept to analy7e

    *ontrol inventory investment and turns is the simplest and

    most eFcient method' Most inventories are made up of 

    hundreds and possibly thousands of individual items necessary

    to manufacture a companyDs products'

    • A*2)t2)..) P+odu7tio* )d O.e+)tio* M))

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    •  Ju2i Go)!e* in his article I/eto+y Cot+o! 6#'''8  says

    inventory mana"ement is makin" sure that items are available

    when customers call for it, but not too much stock , so that

    inventory turnover "oals are met'• B)+di) in A77outi< Ad 1i)7e 1o+ M))2J with an increasin" trend durin" the

    period of study'

    •  J)i in his book T2e ;o+-i< o, Sto7- EF72)

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    the structure of inventory reveals that there was overstockin"

    with re"ards to each and every component overstockin" with

    re"ards to each and every component of inventory in the

    undertakin"s selected for study'• Mo2) Reddy in M))

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    forms of increased revenue and prots, positive employee

    atmosphere, and an overall increase of customer satisfaction'• ML B)b)i )d Y D)!!e+y IESM 6M)y ?%%&8 the literature

    dealin" with inventory mana"ement policies is very rich andhas "rown fast durin" the last year they classify these policies

    into 6 approaches accordin" to the type of demand

    information' In the rst approach the policies suppose that

    there is no advance demand information and the decisions are

    made in real time usin" the inventory depletion'

    RESEARC0 MET0ODO9OGY 

    INTRODUCTION

    .esearch is a systemati7ed eKort to "ain new knowled"e'

    .esearch is an art of scientic investi"ation' $ccordin" to *liKord

    woody, .esearch comprises, denin" and redenin" problems,

    formulation hypothesis of su""estion solution, collectin",

    or"ani7in" and evaluatin" to determine whether they t the

    formulation hypothesis'

    $ research is the systematic investi"ation into and study of 

    materials and sources in order to establish facts and reach new

    conclusion'

    RESEARC0 DESIGN

     &he research desi"n used as analysis in nature of analytical' $

    research desi"n is the determination and statement of "eneral

    research approach or strate"y adopted for a particular project'

    1

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    It is the heart of plannin"' &he research desi"n adopted for the

    study is analytical in nature' It is the specication of methods and

    procedures for ac!uirin" the information needed' &he research

    desi"n used in the study is descriptive research'

    DATA CO99ECTION

     &he source which are used mainly on secondary sources of data

    which is collected from the audited books of accounts of 

    or"ani7ation, annual reports and nancial statements prepared

    and published by the concern ;ournals , books and websites havebeen referred to have an overview about the company'

    TOO9S USED

    o

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    • $ccuracy and correctness of tools like ratio analysis is

    depends upon the accuracy of published accounts'

    •  &he time available for the study was another constrainin"

    factor'

    •  &he inventory mana"ement of or"ani7ation is limited to the

    etent of information made available throu"h published

    documents and personnel discussion'

    OBJECTIVES O1 INVENTORY CONTRO9 IN

    ORGANILATION

     &he main objectives of Inventory control are

     &o reduce capital locked up'

     &o ensure that production does not suKer

     &o ensure that sale of nished "oods is not aKected

     &o avoid wide Guctuations in production'

     &o study the Inventory Mana"ement the several of interview

    techni!ues dependin" on the situations were followed'

    -iscussions were carried out with various personnel of the

    company to study the followin" 8 broad areas'

    $' (U.*9$S+ */0&./)

    #' S&/.$?+ */0&./)

    *' A$.+9/US+ S:S&+M W (./*+-U.+

    8

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     &o study the above a relationship and link was sou"ht between

    theory and practice' $n evaluation was done to each sta"e and

    su""estions were also made to improve the eistin" Inventory

    control system' 

    A PURC0ASE CONTRO9

    I Pu+72)*e De.)+tmet3

     &he prime responsibility of (urchase -epartment is to arran"e

    supply of various raw materials, consumables, spare parts etc' to

    the plant for the production purpose and to the other

    departments for maintenance and operation purpose' &he

    materials should be procured at the ri"ht prices from ri"ht source

    of supply'

    II Pu+72)*e P+o7edu+e3

     &he followin" are some of the essential steps in this re"ard'

    6)8 Re*.o*ibi!ity ,o+ Pu+72)*e* 3 1u7tio*

    $ll purchase functions shall be the responsibility of the Materials

    Mana"er posted in the plant' &he purchase functions in other

    oFces shall be handled by one sin"le oFce

    nominatedRdesi"nated for the purpose' &he indenters from

    various departments should refrain from issuin" in!uiries, invitin"bids enterin" into correspondence or ne"otiation with

    vendorsRcontractors' $ll re!uisitions for purchase duly processed

    in accordance with the procedure laid down, hereinafter should be

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    forwarded to Materials Mana"erR-esi"nated oFcer for necessary

    action'

    6b8 Re

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    re!uisition for purchase should be completed in all respects with

    re"ard to

    • -escription of the materialRe!uipmentRscope of work'

    • Material of constructionRspecication

    •  &emperatureR(ressureRStandard if anywhere applicable'

    • Buantity and unit of measurement'

    • -ate when delivery of materialRservices is re!uired'

    • 0ame of vendor in case of the item is of proprietary nature'

    • +stimated value and bud"et head'

    • Ahether item is a stock itemRnonLstock item'

     &he re!uisition for purchase of materials which have been

    declared as “stockLitem” will be raised by the stores -epartment

    after the !uantity in stock has reached the “.eLorder level” as

    determined for the respective items'

    Such re!uisition amon"st other particulars should also indicate

    the “minimum”, “maimum” and “reLorder level” the date on

    which last supply was received and the avera"e consumption per

    month since last purchase'

     &he re!uisition for purchase of “nonLstock” items will be invariably

    rooted throu"h the StoreDs -epartment which will endorse on the

    re!uisition, the availabilityRnonLavailability' In case the item is

    available, the !uantity there of be indicated on the purchase

    re!uisition so that the !uantity to be purchased can be adjusted

    by the Materials Mana"er in consultation with the indenter'

    =

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     &he re!uisition for purchase of capital items award of *ivil Aork,

    erection contracts, contracts for repairs to plant and machinery

    and e!uipment handlin" and transportation of materials,

    repairRservicin" of e!uipment hirin" of casual labors' Selection of 

    contractors for repairRmaintenance of township and plant

    buildin"s, mechanical, electrical, isolation, provision of other

    services and paintin" jobs on schedule of rate valid for one year

    will be sent directly to the Materials Mana"er after the same are

    approved by the competent authority'

    $ll re!uisitions for purchase of materials or for award of work asdescribed above will be raised by the respective departments'

     &he -epartment Mana"er would ensure that the purchase

    re!uisitions must indicate

    •  &he bud"et provision' P&his will be checked by

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    issue a report by the 13th of the followin" month listin" out the

    re!uisitions received durin" the previous month and their current

    status and mail the same to the respective Indentin"

    -epartments' $ copy of these reports will be put to the ?eneral

    Mana"er for his information' &he Indentin" -epartments will

    review the report from the (urchase -epartment and shall ensure

    that the missin" re!uisitions are traced and are handed over to

    the (urchase -epartment promptly'

    6e8 EHui+ie*KI/it)tio to Bid/n receipt of the re!uisitions from the various departments,

    en!uiries are issued by the (urchase -epartment as per the

    procedure detailed below

    • +n!uiries to be issued in the prescribed (erforma'

    • +n!uiry document is suitably modied to conform to the

    materialRservices proposed to be procured'• +n!uiry document describes in detail the description of the

    materialRservices the technical specications etc'

    •  &he delivery time and the various "eneral and special terms

    and conditions "overnin" the purchaseRwork'

     &he idea in prescribin" the minimum number of vendors to whom

    en!uiries to be issued and bids to be obtained is to create a

    healthy competition amon"st the bidders, so that society is able

    to procure materials and services at the most economical price'

    /pen tenders are invited for selectin" contractors for performin"

    maintenance work, relatin" to civil, mechanical electrical and

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    instrumentation work a"ainst a rate contract PS/.Q which will be

    renewable every year' (ress tenders for selectin" such contractors

    will be advertised in one of local +n"lish and another in local

    lan"ua"e paper which has a "ood circulation where fabrication of 

    e!uipment or major repairs to plant and machinery are involved,

    the en!uiry Goated to all the major fabricationRrepair shops for

    determinin" the number andRor mode of en!uiry to be issued the

    re!uisition is evaluated on the basis of last purchase order or the

    present estimated market value of the materialRe!uipment

    whichever is more'0otwithstandin" the for"oin", invitation of bids by press tender

    will not be necessary in respect of

    1Q (urchase of proprietary items

    6Q Items, the prices of which are ed by the ?overnment'

    8Q Items, the import of purchase of which is canali7ed throu"h a

    ?overnment -epartment or public sector undertakin" and

    Q Items, standardi7ed for particular brandRmake'

    3Q 9owever, all purchases of proprietary items and such other

    items the prices of which are ed by the ?overnment will

    re!uire prior approval of the Mana"in" -irectorR+ecutive

    *ommitteeR#oard of -irector if the value of such purchase

    eceeds the dele"ated authority of the ?eneral

    Mana"erR?roup Mana"er'

     &he competent authority, if he is satised may waive the

    advertisement of tenders for such purchases, the value of which

    does not eceed the power dele"ated to him for makin"

    4

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    purchases' &he ?eneral Mana"erR?roup Mana"ers will obtain prior

    approval of +'-'RMana"in" -irector for waivin" advertisement of 

    tenders where the purchase eceeds his dele"ated authority' &he

    ?eneral Mana"erR?roup Mana"ers may however waive

    advertisement of tenders in ecess of their dele"ated authority of 

    the purchase is re!uired to be made to meet an emer"ency in the

    plant' In such cases post facto approval of the Mana"in" -irector

    may be obtained later' 0ormally, such waivers may be resorted to

    in the case of purchase of proprietary items or to cater to an

    emer"ency in the plant whenever the competent authority waivesadvertisement in the press for invitin" bids, reasons are recorded

    in writin"' $ monthly report on such waivers is submitted to the

    Mana"in" -irector for his information by 13th of the followin"

    month' 0I) report should also be submitted in case there was no

    waiver durin" the precedin" month'

    If the tender proposal to be advertised is for a work which

    involves desi"n and en"ineerin" amon"st other thin"s' It would

    be preferable if the bids are invited in two parts vi7' PaQ &echnical

    and commercial unpriced bid and PbQ (riced bid' &he date of 

    openin" the priced bid is ed later than unpriced bid'

    6,8 Time A!!oed ,o+ Submi**io o, Bid*

    0ormally 6L8 weeks time is "iven to the vendors for submittin"

    their bids' In case of en!uiries for en"ineerin" civil and fabrication

    works where calculation is involve and it is not feasible to obtain

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    the bids early' &he time limit for submission of bids may be

    increased to four weeks'

    #idders are advice to indicate on the envelopes containin" the

    bid, the en!uiry number, the date and time of openin" the bid'

     &he bids shall be addressed to Materials Mana"er or such other

    oFcer nominated to perform purchase functions'

    +tension in due date may be done in consultation with indentin"

    department, if inade!uateRno response to en!uiry'

    6

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     &he bids received a"ainst the open tender are opened on the date

    and the time stipulated in the tender document as under

    • $ll advertised bids to be opened publicly'

    • #ids not advertised PpublishedQ but where estimated value is

    more than .s'3 lakh bids should also be opened publicly'

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    is opened' In case any bidder wants to reviseRalter the bid, he can

    do so and submit the chan"es in the price in a closed envelope

    before the due date' &he commercial bid alon" with any revision

    is opened on the appointed day and time in the presence of 

    bidders who wish to be present'

    6i8 9)te I/)!id )d U*o!i7ited Bid*

    $ll bids received after the openin" of bids are treated as X)ateL

    bidsD and will be i"nored' $ll late bids are returned to bidders unL

    opened' #ids which are not accompanied by the prescribedearnest money deposit will be treated as XInvalid #idsD and will be

    endorsed as such' &he tender documents stipulate that earnest

    money can be deposited either in cash or by a #ank -raft or in

    form of #ank ?uarantee in the prescribed (erforma attached to

    the tender document' XUnsolicited #idsD are not considered not be

    opened and even thou"h they may be the lowest will not be

    entertained'

    6>8 uot)tio Com.)+i*o St)temet 6CS8

    $fter the tenders are opened a Buotation comparison statement

    PB*SQ is prepared by the (urchase -epartment' $ll the bids

    received are listed in the B*S' InLvalid bids are listed in a

    separate statement and attached to the B*S' &he B*S is checked

    by an oFcial of the (urchase -epartment Pnot below "rade X0DQ

    and both the persons who prepared and checked the B*S will si"n

    the same'

    38

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     &he bids conformin" to the specications and lowest in value will

    be rated in the B*S, as lowest P)1Q' Second lowest P)6Q, third

    lowest P)8Q' $fter the B*S has been checked and rated the

    (urchase -epartment In char"e forwards the same alon" with

    bids in ori"inal to the Indentin" -epartment for the review of the

    bids and makin" recommendations for (urchase'

     &he review of B*S and selection of successful bidder is done

    throu"h a &ender *ommittee' &he ?eneral Mana"erR?roup

    Mana"er nominates a &ender *ommittee consistin" of a

    representative from IndenterDs -epartment, (urchase -epartmentand

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    the specications is not accepted'

    6m8 Ne

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    can be enlar"ed beyond the lowest four bidders in the followin"

    circumstances

    1Q If the work to be awarded is intended to be split and

    awarded to more than one contractor'

    6Q If a rin" is suspected and the ne"otiation with the initial four

    lowest bidders do not yield satisfactory results'

    8Q If hi"her bids are in very close proimity of the two lowest

    bids and any chan"e in !uantities can chan"e the ratin" of 

    the bidders'

    If a sin"le bid is received a"ainst the open en!uiry' &he same canbe accepted if the rates are considered reasonable' /therwise,

    ne"otiations are held with the bidder and a decision taken either

    to accept the sin"le bid or to resort to reLtender'

    If a sin"le bid is received a"ainst a limited en!uiry normally it is

    rejected and reLtenderin" resorted to' 9owever, the competent

    authority, if he is satised that it would be in the interest of 

    /r"ani7ation, to accept the sin"le bid received' 9e may do so and

    record reason in writin"'' Such bid is accepted on the

    recommendations of the &ender *ommittee and concurrence of 

    the

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    Ahile placin" the repeat order, it should be ensured that there

    has been no downLward trend in prices since the ori"inal order

    was placed' .epeat orders shall be placed with the concurrence of 

    the nance department and approval of the competent authority'

     &he authority competent to approve repeat orders will be the

    same which approved the ori"inal order'

    6H8 1o!!o3U. o, Pu+72)*e O+de+*

     &he (urchase -epartment shall receive all the mail from the

    vendors and shall reply to them in consultation with otherdepartments whenever necessary'

     &he purchase department shall keep Indentin" -epartment

    informed of the status throu"h periodicalRmonthly reports'

     &he (urchase -epartment shall be responsible for followin" up of 

    the purchase orderRcontract with vendors and transporters until

    the material is received and accepted at the plantRstores'

    6+8 I*.e7tio o, M)te+i)!

     &he (urchase -epartment shall *oLordinate with other

    departments and arran"es inspection of materials at vendorDs

    shops prior to dispatch wherever stipulated in the purchase order'

    Inspection of materials in other cases shall be carried out on

    receipt of materials at plant siteRstores only those materials

    cleared by the inspection as conformin" to purchase order

    specications will only be taken on char"e in stores' &he person

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    inspectin" the material will si"n on the XStores .eceipt %oucherD

    in taken of havin" inspected and accepted the material'

    6*8 D)m)e7ted M)te+i)!*

     &he Stores -epartment shall be responsible for sendin" suitable

    intimations to the

    • %endor for materials rejected if the same do not conform to

    the specications mentioned in the purchase order'

    • %endor and Insurance *ompany for material received short

    or dama"ed'

    • Ahere the delivery oKered by the vendor was eLworks the

    intimation for dama"edRshort receipt of materials will be sent

    only to the Insurance *ompany' &he intimation to vendor and

    the Insurance company for material received short or

    dama"ed or rejected should sent as early as possible after

    the material is inspected but in any case not later than aweek from the date of their receipt at plantRsite' $ copy of 

    the intimation issued by the Store -epartment will be

    endorsed to

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    supplied by him' &he (urchase -epartment shall evolve a suitable

    system so that suitable communication is issued to the vendor

    until the replacement supply is received or !uantity short

    delivered is made "ood by him'

    6t8 I*u+)7e C!)im

     &he $ccounts -epartment on receipt of a copy of the letter issued

    by Stores -epartment make and entry in a re"ister maintained for

    the purpose and shall lod"e suitable insurance claims' &he

    $ccounts -epartment shall coLordinate with other departmentswherever necessary and collects the details of materials and

    other costs as may be re!uired for preferrin" a claim'

    6u8 C)*2 Pu+72)*e

    *ash purchases or materials should be avoided as far as possible'

    *ash purchases should be resorted to only meet the plantDs

    emer"encies or where it would not be economical to call for

    !uotations owin" to the small value of purchases'

     &he ?eneral Mana"erR?roup Mana"er may, however, consider

    keepin" a suitable amount as Imperest fund with the (urchase

    -epartment, Maintenance -epartment and $dministration

    -epartment to enable them to make cash purchase of items to

    meet the ur"ent dayLtoLday needs of the plant'

    6/8 B)- Gu)+)tee*

    =2

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     &he

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    $ suitable system should be introduced by the

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    P3.i

    "

    htQ

    .i

    "h

    tt ime

    . i"

    h tBu

    a li ty

    . i"

    h tSo

    u r

    ces

    .i

    "ht(r ice

    . i"

    h tBua

    n ti ty

    si"nicant that eFciency of any or"ani7ation is contin"ent upon

    havin" the ri"ht material of ri"ht !uality or ri"ht place in the ri"ht

    !uantity at the ri"ht time and place'

     

    & R ,o+ bette+ Pu+72)*e 6M)te+i)!8 Cot+o!3

     &he eistin" purchase procedure "ives fair chances of competition

    to all the vendors' It leaves no room for malpractices or favoritism

    of employees i'e' nobody obli"e any one out of way' It is not very

    ri"id' In time of ur"ency of re!uirement, necessary deviations are

    approved by competent authority so as to avoid stoppa"e of 

    work' &he procedure is based on democratic way of workin"'

    ?ood su""estions to improve eFciency are always considered'

    %arious annual rate contract runnin" contracts are entered for

    re"ular consumable items, like oil and lubricants, stationery,

    chemicals, medicines, printin" job etc' &his is reducin" the

    repetitive job times and money of company'

    =8

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    #ut there are shortcomin"s also, which are evaluated takin" into

    consideration the ve essentials of purchase functions are as

    follows

    (urchase time

    (urchase !uantity

    (urchase !uality

    (urchase price and

    Source of supply

    6i8Pu+72)*e time

     &he purchase time indicates the leadLtime i'e' time taken to

    physically receive the material from the date of its indent'

     &o nd out the lead time ve cases diKerent items have been

    studied randomly, and analy7ed its fact which indicates that by

    followin" the eistin" procedure, the administrative lead time is

    lon" = to> months Pin some cases onlyQ, while suppliers lead time

    is also about normally 6 to 8 months'

    6ii8 Pu+72)*e Hu)!ity )d Hu)tity

    It has been observed that the !uantity of material is bein"

    purchased considerin" = to 16 months consumption that means

    no economic order !uantity has been ed for diKerent types of 

    material' -ue to the eistin" system

    *ompany is incurrin" cost of carryin" Inventory interest of capital

    rent etc' *ompany is also incurrin" losses due to the depreciation

    in !uantity, depreciation in !uality and obsolesce of materials

    durin" stora"e'

    =

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    *ompany is also incurrin" avoidable ependiture such as holdin"

    up keep of surplus material, nancial losses due to fall in the price

    of materials, etra ependiture on ecess of materials re!uired'

    It is su""ested that before takin" nal decision economic order

    !uantity should be determined for each item and order should be

    placed accordin"ly'

     &he determination of economic order !uantity techni!ues has

    been discussed on succeedin" pa"es'

    6ii8 Pu+72)*e P+i7e &he price of each item is bein" compared with supplierDs

    !uotations considerin" the !uality of material to be supplied'

    $lthou"h, purchase department should keep itself informed of the

    price trends, with the help of market reports, trade papers and

     journals, report by purchase a"ainst and sales representative of 

    the suppliers, published catalo"ue and price list'

    6iii8 Sou+7e o, *u..!y

     &he selection of a particular supplier is made after invitin"

    tenders from possible source of supply' &here are four types of 

    tenders commonly used, which areL

    Sin"le tender

    )imited tender

    /pen tender

    ?lobal tender

    =3

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     &he tender received are opened on the date and time stipulated

    and compared to select a nal vendors, considerin" !uality,

    delivery after sales services etc' which indicates that ri"ht source

    is selected, only thin" taken in to consideration is to maintain

    cordial relations with suppliers'

    B STORAGE CONTRO9

    Me)i< o, Sto+e “Place for all & all are at their places” 

    9ere in above sentence “all” is mean as “MaterialLInventoryL

    Stock”

    Sto+e De.)+tmet3

    In a manufacturin" unit or in any or"ani7ation, stores are

    constructed accordin" to the needs of the or"ani7ation and

    materials to be stored in the stores'

    # Re7ei.t Se7tio

    .eceipt store usually function as part of the stores and it is

    manned dependin" upon si7e of the industry and compleity of 

    the materials to be handled'

      Re7ei.t P+o7edu+e*

    $ll incomin" "oods must be received in receipt section and after

    makin" necessary documentation and paper work "oods should

    be delivered for its custody or other destination' -urin" that

    period same shall be identied and kept in separate specied

    place to prevent any misplacementRpilfer"e or mi up'

    ==

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      Ve+i7)tio o, u)tity

    (acked materials are opened and veried with challan or bills

    accompanied with the lost and the same is matched with ('/' and

    also ('/ is pro"ressed simultaneously'

      D)i!y Re7ei.t Re.o+t

    $ report indicatin" XS.%D reference of all the individual

    consi"nments on daily basis are bein" circulated to the purchase

    sectionRindenterRuser for mana"ement information of its arrival

    and arran"in" inspection of the same thereof'

      I*.e7tio )d Di*7+e.)7y Re.o+t

    In order to ensure !uality for all the incomin" material with the

    help of skill, personnelDs, material is oKered for inspection' &he

    normal methods used are by visual, by touch, by smell, by

    comparison, by actual testin", )aboratory methods L ISI test etc'

     &his is to determine the acceptability of the article received' Itemrejected in inspection and observation re"ardin" any deviation in

    !uantityRcondition is recorded separately in a re"ister called

    “M$&+.I$)S +T*+(&I/0 .+?IS&+.”, all this informationDs also

    simultaneously sent to the purchase indenter and the supplier

    throu"h a report' It is called “M$&+.I$) +T*+(&I/0 .+(/.&”' &he

    custody of rejected items remains with receipt section till it is

    disposed of as per the instruction of purchaser, indenter and

    lookin" to its status of payment respectively' &he action for

    disposal may be one out of the details as under

    aQ Items to be returned to the supplierRInsurance company'

    =>

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    bQ Items accepted later with some deviation and or reduction in

    price with or without rectication'

    cQ Item is scraped and or destroyed'

      C!)im ,o+ 9o**Kd)m)

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    physical checkin"' )ocation and preservation of material received

    from the receipt section'

     &he material preserved here is issued to the user department

    throu"h SI% PStore Issue %oucherQ' 9ere M(. PMaterial (urchase

    .e!uisitionQ is prepared only for stock items which are then sent

    to the (urchase -epartment throu"h Stores -epartment for the

    stock items M(. is made keepin" the .eLorder level while

    proceedin"'

    9e)d TimeIn all or"ani7ation there is a time "ap between the demands

    Pindentin"Q and the fulllment i'e' supply of materials' &his nite

    time interval between the cycle of indentin" and actual

    procurement of material is called lead time or lead period' )eadL

    time has direct impact on inventory levels' )on"er the lead times

    hi"her the inventories'

    S),ety Sto7- 

    If the leadLtime and the consumption durin" the lead time are

    known with certainty' &here would be no need of providin" any

    buKer stock or safety stock' In practice, however, there are

    variations in both leadLtime as well as lead time consumption and

    hence it is usual to provide for buKer stock' &he safety stock is

    calculated based on an analysis of the variation in )eadLtime

    consumption'

    =4

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    Stores are like a bank which holds materials which are valuable

    assets and it should, therefore, be planned properly' Its location

    should be decided at the time of ori"inal plant layLout' .aw

    materials, packin" materials, imported components, etc'

    eclusively re!uired by the plant are to be stored in the vicinity'

    4 Di*.o*)! Se7tio

     &he word meanin" of disposal is, disposin" of, "ettin" rid of, sell

    etc' +tc' In our daily life, we are disposin" of household "oods for

    various reasons and well aware of the terminolo"y' In industry,the disposal is of mainly followin" types

    • Surplus

    • ScrapRwaste

      Su+.!u*

    Surplus is usually dened as “ecess of rmDs operational

    re!uirements”' &he industrial surpluses are due to mistakes in

    over procurement' Aasteful production process and ineFciency in

    "eneral'

     &he surpluses also result from the ineFcient use of production

    machinery, carelessness and poor purchasin"' &he least costly

    method of controllin" surplus is its elimination at the source' &his

    is why eKective value analysis pro"rammes which eliminate

    surpluses before they occur are so protable'

    >2

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    Ideti7)tio*

     &he identication of surplus stocks can be done by makin" a"e

    and consumption analysis' &his is a simple statement showin" of stock held and issues made durin" the last few years i'e' 8 to 3

    years if no issue has been made at all of the items for the past

    say 8 years, it is a case nonLmovin" items' If 6222 pieces are in

    stock, and in last ve years only =, 1, 82, 83 0os' 9ave been

    issued it will reveal a case of surplus stockin" or slow movin"'

    Such an analysis will throw up cases of slow movin" and nonL

    movin" items from which surplus and obsolete stocks can be

    identied Rcodied from such analysis one can also know the time

    from which the material has been in stora"e'

    It will also be desirable to nd out what recent chan"es which

    have taken place in production or operation and what char"es are

    imminent from this information it can be determined what major

    items, spares are likely to become obsolete and surplus' &hese

    can also be considered while reviewin" alon" with slow movin"

    and nonLmovin" items'

    $fter sortin" of items, nd list should be made showin" particulars

    of all items to be disposed oK and nally written oK' In public

    sector or"ani7ations a *ommittee consistin" of representative

    each from technical, nance, stores, purchase is set up to make

    nal list which is approved by chief eecutive or a senior member

    of the mana"ement'

     &he followin" information usually appears

    >1

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    Y *ode 0umber of each item

    Y -escription

    Y Buantity in stock

    Y Buantity to be retained

    Y Buantity to be disposed oK 

    Y /ri"inal book value of !uantity in stock

    Y .ecommended #ook value of Buantity to be retained

    Y .ecommended #ook value of Buantity to be disposed oK,

    amount to be

    Aritten oK'

      S7+).K;)*te

     &his terms applies to unusable material whose value is only in

    terms of its materials content, be it metal, paper or cloth' &he

    scrap industry is a very bi" industry in India' Merely because all

    scrap can be reLcycled to produce materials of utility and "reater

    value' Aaste papers are used to produce cardboards and other

    packin" paper' Steel scrap is melted and reLrolled' Aaste oil are

    puried and converted to en"ine oil with ori"inal specications' It

    is impossible to eliminate scrapRwaste from industry but can be

    minimi7ed by intelli"ent plannin" and controls'

    Ahen material has been declared surplus and reserve price ed'

    Usually the followin" methods of disposal are followed

    • *irculation within the company

    • .eturn to suppliers

    >6

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    • Sellin" to other rms

    • Sellin" to dealers and bookers

    • Sellin" to employees

    • Sellin" by auction

    • -isposal throu"h presses tender

    • -isposal throu"h limited tender in!uiry'

    C ;ARE0OUSE SYSTEM AND PROCEDURE

     &he control of materials while in stora"e is aKected throu"h whatis known as the perpetual Inventory' &hus two main functions of 

    the perpetual Inventory system have been studied which are

    • .eceipt and issue system

    • Maintenance of store records

    T2e S7o.e-

     &he procedure comes in to operation immediately on receipt of 

    dispatched documents or dispatched intimation in the stores and

    covers on the activities, i'e' clearance, delivery, inspection, stock

    char"in" and preservation, issue and return of materials by the

    user PIndenterQ and ends after strikin" out balance from the stock

    card and delivery of documents %IC' S.%'SI%', to the account

    department'

    RECEIPT SYSTEM

    >8

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     &he system for receipt starts even before the time when the

    material actually reached the plant, when purchase order is

    planned a copy is sent to the stores indicatin" !uantity and

    approimate delivery date' &hese are arran"ed in chronolo"ical

    order so that any time the volume of receipt can be estimated'

     &his also helps in plannin" labor contracts when unloadin"

    activities eceed a particular limit' &his is the rst step in the

    store system'

    Suppliers, once they dispatch the "oods, normally send and

    advice note, dispatch note to the stores' &his provides information

    on the date of dispatch, carrier details, description consi"nment

    and value' &his is sent in advance so that !uick and easy

    clearance may be done' /n receipt of consi"nments, the store

    personnel check the consi"nment and tally the material with

    supplierDs delivery note R challans alon" with relevant documents,

    the material is visually checked for any apparent dama"e ordiscrepancy' $ppropriate remarks R endorsement is made

    accordin"ly on the delivery notes R challans in case of 

    discrepancies on deviation bein" found in the suppliers received'

    Material received a"ainst the delivery notes R challans will be

    checked with the relevant purchase orders details mentioned in

    the challans R delivery notes and packin" notes received with the

    consi"nment' Store receipt voucher is prepared in seven copies

    for item found in an order' &he material is than paid up for

    inspection, items nally accepted is physically handed over to the

    custody stores or project departments and their

    >

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    acknowled"ement obtained in the appropriate columns of the

    receipt notes'

    INSPECTION

    In eercisin" control on the !uality of incomin" materials

    inspection plays an important role' Materials purchased in India

    and abroad are inspected accordin" specications, prescribed

    tests, drawin"s, approved samples etc as stipulated in the

    purchase order' &o inspect diKerent types of materials followin"

    inspection methods are used'

    I*.e7tio by t2i+d .)+ty:

    Such a"encies are +I) cloyed re"ister, I#. etc' acceptance of 

    material is based on the certicates and reports of these

    a"encies'

    I*.e7tio by ideti< de.)+tmet*:

    $t vendors premises durin" manufacture of materials or before

    dispatch of the same the concerned oFcers of indenters carry out

    such inspection'

    M)te+i)!* te*t 7e+ti7)te*:

     &he material may be inspected and accepted based on the

    manufactures test certicates' Materials are inspected and

    >3

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    accepted by carryin" out chemical, electrical or mechanical test

    either of the project site or throu"h the reco"ni7ed lab as

    stipulated in the purchase order' Some materials like shop, cotton,

    waste, phenol etc are accepted by visual inspection' (roprietary

    nature of materials are accepted by either visual inspection or

    carryin" necessary tests whenever re!uired' Materials are also

    accepted after ascertainin" the !uality as per samples on

    stipulated in the order'

    ISSUE SYSTEM:

     &he issue system relates to function of issue card and Inventory

    control section of stores' It covers all material stocked by the

    @.I#9*/ stores and all bulk and raw materials directly stored by

    the users' It be"ins with the preparation of issue voucher and

    ends with their submission to accounts departments'

    GENERA9 AUT0ORITY AND RESPONSIBI9ITY:

     &he authority for receipt and stora"e of all the materials is

    centrali7ed in the store department accepts medicines and

    stationary' Issue will be made only on receipt or presentation of 

    authori7ed re!uisition'

    Stores department is responsible to provide material Pthrou"h

    stores issue voucherQ to the authori7ed re!uisition on demand, all

    material declared as stock items and contained in the store

    >=

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    catalo"ue as the desired and the !uantities re!uested for

    immediate use by them'

    UANTITY O1 ISSUE:

    In respect of consumable stores and such other materials as are

    re!uired  frequent  or at odd hours, the issue is made in lar"e

    !uantities to reduce electrical work and to ensure ready

    availability of materials at si"ht place when re!uired' &he !uantity

    issued is for 13 days consumption' &he entire issued !uantity is

    charred in full to the re!uisition cost center thou"h all of its not

    actually used or consumed immediately' In case an item stocked

    as a set it is issued as a set not in parts'

    PERPETUA9 INVENTORY SYSTEM:

    ?enerally or"ani7ations have the followin" perpetual Inventorysystem, which comprises

    • *arde system

    • Stores led"er and

    • (hysical stock verication

    Because of Computerization (MIS) Cardex & Stores Ledger systems

    are not used no!

     

    CARDE= SYSTEM

    >>

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     &o maintain the !uantitative records of receipt and issues and

    closin" balances of items of stock a carde system is followed'

    Stores department is doin" all the !uantitative accountin" of 

    materials'

      STORES 9EDGER

    5

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    placin" orders' So that the determine Inventory level can be

    maintained even of spoila"e, dama"es and obsolescence takes

    place'

    1INANCIA9 MANAGERS RO9E IN INVENTORY 

    MANAGEMENT

    Inventory represents a lar"e investment by manufacturin"

    concern therefore, "reat emphasis must be placed on its eFcient

    mana"ement' &hou"h, the operative responsibility for Inventory

    mana"ement lies with the inventory mana"er, the nancial

    mana"er must also be concerned with all types of inventoriesL

    raw materials, workLinLpro"ress and nished "oods' 9e must

    monitor Inventory levels and see that only an optimum amount is

    invested in Inventory' 9e should be familiar with the Inventory

    control techni!ues and ensure that Inventory is mana"ed well'

     9e should try to resolve the conGictin" view points of all the

    departments in order to have eFcient inventory mana"ement' 9e

    has to act as a careful inspector levels' 9e should introduce the

    policies which reduce the lead time, re"ulate usa"e and thus,

    minimi7e safety stock' $ll these techni!ues of Inventory

    mana"ement lead to the "oal of wealth maimi7ation'

    VA9UATION O1 INVENTORIES

    OBJECTIVE3

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    $ primary issue in accountin" for inventories is the determination

    of the value at which inventories are carried in the nancial

    statements until the related revenues are reco"ni7ed' &his

    statement deals with the determination of such value, includin"

    the ascertainment of cost of inventories and any writeLdown

    thereof to net reali7able value'

    1' &his statement should be applied in accountin" for inventories

    other than

    PrQ AorkLinLpro"ress arisin" under construction contacts,

    includin" directly related service contracts'

    PsQ AorkLinLpro"ress arisin" in the ordinary course of business of 

    service providers'

    PtQ Shares, debentures and other nancial instruments held as

    stockLinLtrade'

    PuQ (roducerDs inventories of livestock, a"ricultural and forest

    products and mineral oils, ores and "ases to the etent that

    they are measured at net reali7able value in accordance with

    well established practices in those industries'

    6' &he inventories referred are measured at net reali7able value

    at certain sta"es of production' &his occurs, for eample, when

    a"ricultural crops have been harvested or mineral oils, ores and

    "ases have been etracted and sale is assured under a forward

    contract or a "overnment "uarantee or when a homo"enous

    market eists and there is a ne"li"ible risk of failure to sell'

    52

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     &hese Inventories are ecluded from the scope of this

    statement'

    DE1INITIONS

     &he followin" terms are used in this statement with the meanin"s

    specied

    Inventories are assets

    PaQ 9eld for sale in the ordinary course of business'

    PbQ In the process of production for such sale, or

    PcQ In the form of materials or supplies to be consumed in the

    production

    process or in the renderin" of services'

    # Inventories encompass "oods purchased and held for resale,

    for eample, merchandise purchased by a retailer and held for

    resale, computer software held for resale, or land and otherproperty held for resale' Inventories also encompass nished

    "oods produced, or workLinLpro"ress bein" produced, by the

    enterprise and include materials, maintenance supplies,

    consumables and loose tools awaitin" use in the production

    process' Inventories do not include machinery spares which can

    be used only in connection with an item of ed asset and

    whose use is epected to be irre"ular such machinery spares

    are accounted for in accordance with $ccountin" Standard P$SQ

    12, $ccountin" for

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    ?' Inventories should be valued at lower of cost net reali7able

    value'

    4 Co*t o, I/eto+ie*

     &he cost of inventories should comprise all costs of purchase,

    costs of conversion and other costs incurred in brin"in" the

    inventories to their present location and condition'

    $ Co*t* o, Pu+72)*e

     &he costs of purchase consist of the purchase price includin"duties and taes Pother than those subse!uently recoverable by

    the enterprise from the tain" authoritiesQ, frei"ht, inwards and

    other ependiture directly attributable to the ac!uisition' &rade

    discounts, rebates, duty drawbacks and other similar items are

    deducted in determinin" the costs of purchase'

    & Co*t* o, Co/e+*io

     &he costs of conversion of inventories include costs directly

    related to the units of production, such as direct labor' &hey also

    include a systematic allocation of ed and variable production

    overheads that are incurred in convertin" materials into nished

    "oods'

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    costs of production that vary directly, or nearly with the volume of 

    production such as indirect materials and indirect labor'

    5  &he allocation of ed production overheads for purpose of 

    their inclusion in the costs of conversion is on based on the

    normal capacity of the production facilities' 0ormal capacity is the

    production epected to be achieved on an avera"e over a number

    of periods or seasons under normal circumstances, takin" into

    account the loss of capacity resultin" from planned maintenance'

     &he actual level of production may be used if it approimatesnormal capacity' &he amount of ed production overheads

    allocated to each unit of production is not increased as a

    conse!uence of low production or idle plant' Unallocated

    overheads are reco"ni7ed as an epense in the period in which

    they are incurred' In periods of abnormally hi"h production, the

    amount of ed production overheads allocated to each unit of 

    production is decreased so that inventories are not measured

    above cost' %ariable production overheads are assi"ned to each

    unit of production on the basis of the actual use of the production

    facilities'

    (' $ production process may result in more than one product

    bein" produced simultaneously' &his is the case, for eample,

    when joint products are produced or when there is a main product

    and a byL product' Ahen the costs of conversion of each product

    are not separately identiable, they are allocated between the

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    products on a rational and consistent basis' &he allocation may be

    based, for eample, on the relative sales value of each product

    either at the sta"e in the production process when the products

    become separately identiable, or at the completion of 

    production' Most byL products as well as scrap or waste materials,

    by their nature, are immaterial' Ahen this is the case, they are

    often measured at net reali7able value and this value is deducted

    from the cost of the main product' $s a result, the carryin"

    amount of the main product is not materially diKerent from its

    cost'

    ' /ther costs are included in the costs of inventories only to the

    etent that they are incurred in brin"in" the inventories to their

    present location and condition'

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    reco"ni7e them as epenses in the period in which they are

    incurred' +amples of such costs are

    a' $bnormal amounts of wasted materials, labor, or other

    production costs'

    b' Stora"e costs, unless those costs are necessary in the

    production process prior to a further production sta"e'

    c' $dministrative overheads that do not contribute to brin"in" the

    inventories to their present location and condition, and

    d' Sellin" and distribution costs'

    #?  &he cost of inventories of items that are not ordinarily

    interchan"eable and "oods or services produced and se"re"ated

    for specic projects should be assi"ned by specic identication

    of their individual costs'

    #4' Specic identication of cost means that specic costs are

    attributed to identify items of inventory' &his is an appropriate

    treatment for items that are se"re"ated for a specic project,

    re"ardless of whether they have been purchased or produced'

    9owever, when there are lar"e numbers of items of inventory

    which are ordinarily interchan"eable, specic identication of 

    costs is inappropriate since, in such circumstances, an enterprise

    could obtain predetermined eKects on the net prot or loss for the

    period by selectin" a particular method of ascertainin" the items

    that remain in inventories'

    53

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    #$  &he cost of inventories, other than those dealt with in

    para"raph 11, should be assi"ned by usin" the rstLin, rstLout

    P

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    # &echni!ues for the measurement of the cost of inventories,

    such as the standard cost method or the retail method, may be

    used for convenience if the results approimate the actual cost'

    Standard costs take into account normal levels of consu