INVENTORY MANAGEMENT INVENTORY MANAGEMENT WITH SPECIAL EMPHASIS ON VARIOUS TECHNIQUES OF INVENTORY CONTROL A training report submitted in partial fulfillment of the requirement for the degree Of BATCHELORS OF BUSINESS ADMINISTRATION (2007-2010) Submitted by: DEEPAK AGGARWAL ROLL.NO. 3901 1
This is an complete project on inventory management made with partial fulfillment of my graduation. if any one needs help making project report related to inventory management can go through this project, In order to get idea about how to prepare a project report in an proper manner.
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
INVENTORY MANAGEMENT
INVENTORY MANAGEMENTWITH SPECIAL EMPHASIS ON VARIOUS TECHNIQUES OF
INVENTORY CONTROL
A training report submitted in partial fulfillment of the requirement for the degree
Of
BATCHELORS OF BUSINESS
ADMINISTRATION
(2007-2010)
Submitted by:
DEEPAK AGGARWAL
ROLL.NO. 3901
MULTANI MAL MODI COLLEGE
P A T I A L A
1
INVENTORY MANAGEMENT
ACKNOWLEDGEMENT
I consider it pleasant privilege to express my heartiest gratitude and indebtedness to those who
have assisted me towards the completion of my project report. The project wouldn’t have seen
the light of day without the help and guidance of many people I take an opportunity to convey
my deepest gratitude to all those individuals.
My first words of thanks go to Mr. Jadish Rao (General Manager) & Mr. Munish Kaushal
(Manager Finance & IT) for giving me the opportunity to work on this project.
I feel highly obliged and indebted to my learned guide Mr. Rixon Singla, Mr. Sunil Sharma,
For preparing the proposals under the different conditions following steps have been taken: -
Firstly check that according to the unit value in which category the item is falling.
See that according to the consumption value which category is best suited to the item.
Then out of the two put the items in the upper category.
For example: -
Item Code Per unit value Consumption value
S30028 754.51 22492.71Proposed Category
C B
According to Unit value it should fall in ‘C’ category but according to Consumption value it should fall in ‘B’ category.
Therefore, it will fall in ‘B’ category.
Item code Per unit value Consumption valueS92314 6824.45 6827.23Proposed Category A B According to Unit value it should fall in ‘A’ category but according to Consumption value it should fall in ‘B’ category.
35
INVENTORY MANAGEMENT
Therefore, it will fall in ‘A’ category.
Proposal for the year 2009
In the year 2009, this proposal is prepared to recategorise the inventory according to the current inventory
Stock, taking into consideration the changes in the unit value and the consumption value of the inventory.
The results of the proposal for the year April 2008-March 2009 are as follows:-
PROPOSAL (1): As per Unit Value Rs. 6000 & Consumption Value Rs. 60000 (ANNEXURE 1)
1. According to No. of Items
Category Proposed No. of items % of items
A 269 10.88%
B 455 18.41%
C 1748 70.71%
TOTAL 2472 100
36
INVENTORY MANAGEMENT
2. According to Consumption Value
Category Consumption Value %A 44745851.09 82.35%B 5985626.63 11.02%C 3607747.29 6.63%
TOTAL 54339225.01 100
No. of items
37
INVENTORY MANAGEMENT
Existing status of inventory as on March 2009
Existing criteria: Per Unit Value Rs. 5000 & Consumption Value Rs.50000
1. According to No. of items
CategoryExisting No. of items %
A 297 12.01%B 581 23.50%C 1594 64.49%
TOTAL 2472 100
General store items cat. A, B, C (VALUES)
Category
Val
ue
in
Per
cen
tag
e
38
INVENTORY MANAGEMENT
2. According to Consumption ValueCategory
ConsumptionValue %
A 44147223 81.29%B 5818917.82 10.7%C 4373084.19 8.05%
TOTAL 54339225.01 100
No
. of
Item
sV
alu
e in
P
erc
enta
ge
39
INVENTORY MANAGEMENT
PROPOSAL 1:CHANGES FROM THE EXISTING CATEGORY
Thus the exercise has lead to movement of 10.88% of total inventory to “A” category
as against 12.01% in the existing status with the little difference in the percentage of
items in the said category. Also there is movement of almost 18.41% & 70.71% of
total inventory to “B” & “C” categories as against 23.5% & 64.49% respectively in
the existing situation.
Category No. of items (E) % of items (E) No. of items (P) % of items (P)
Category
40
INVENTORY MANAGEMENT
A297 12.01% 269 10.88%
B 581 23.5% 455 18.41%
C 1594 64.49% 1748 70.71%
TOTAL 2472 100 2472 100
PROPOSAL 1:CHANGES FROM THE EXISTING CATEGORY
On the same way, as per the proposal consumption value of near about 82% of total
inventory shift to “A” category as against 64.49% in the existing status with the little
difference in the percentage of items in the said category. Movement in the “B” & “C”
category is almost 11.01% & 6.60% as against 23.5% & 12.01% respectively in the
existing category.
CategoryExistingConsumption %
Proposed Consumption %
A 44147223 64.49% 44745851.09 82.30%
Category
No
. o
f It
em s
41
INVENTORY MANAGEMENT
B 5818917.82 23.5% 5985626.63 11.01%C 4373084.19 12.01% 3607747.29 6.60%
TOTAL 54339225.01 100 54339225.01 100
PROPOSAL 1:CHANGES FROM THE EXISTING CATEGORY
CONCLUSION: The Existing criteria applied in stores is correct as it follows the ‘pareto principle’ it
shows that maximum consumption of minimum no. of items comes under ‘A’ category and minimum
consumption value items with maximum no. of items falls under ‘C’ category. But some changes are
required in the same as shown above i.e. some items are required to move between all the three
categories.
IMPLEMENTATION OF THE PROPOSAL
For actual implementation of the selected proposal again some analysis is carried on.
Category
Val
ue
in
Per
cen
tag
e
42
INVENTORY MANAGEMENT
Physical verification:
First of all physical verification of the whole inventory is done. Under this each and every item of the
inventory is verified with the books. For this purpose concerned person goes to the stores and does the
verification.
Current Year’s Consumption:
After the physical verification all inventory is again checked with the current year’s consumption. If in
case of any particular item .the current year’s consumption changes corresponding to the previous year’s
consumption then it can be proposed in another category, then that proposal is acceptable.
For instance:
Item Code: S05013
Consumption in fin. year ending March 2007 Current Category 49527.62 BConsumption in fin. year ending March 2008 Proposed Category 53054.09 A
In this way all the items are analyzed and a final report is prepared.
ADVANTAGES OF ABC ANALYSIS
A strict control is exercised on the items, which represent a high percentage of the material costs .
Managerial time is spent on ‘A’ items whereas clerical staff with least managerial supervision can
handle ‘C’ items and sometimes ‘B’ items. Equal attention to all the items of stores is not desirable
43
INVENTORY MANAGEMENT
because it will not be a cost effective option for the firm. Concentrating on all the items of stores is
likely to have a defused effect on all the items, irrespective of the value of
consumption.Therefore,ABC analysis should be followed to give due attention to the items, which
they deserve, keeping in view their value of consumption.
Investment in inventory is reduced to the minimum possible level because a reasonable quantity of
’A’ items representing a significant portion of the materials costs is purchased.
To reduce investment in materials, close control of ‘A’ items contributes much more than close
control of ‘C’ items.
Storage cost is reduced, as a reasonable quantity of materials, which account for high percentage
of value of consumption, will be maintained in the stores.
With the introduction of the ABC analysis, management time is saved because attention is
required to be paid only to some of the items rather than on all items
It becomes possible to concentrate all effort in areas, which need genuine efforts.
It is most effective and economical method as it is based on selective approach.
It helps in placing the orders, deciding the quantity of purchase, safety stock, etc., thus saving the
enterprise from unnecessary stock-cuts or surpluses and their resultant consequences. This may be
well shown by an example where average inventory is one-half of the order quantity:
Category Annual consumption No. of Orders Average Working Inventory
A Rs. 3,00,000 4 37500 B Rs. 30,000 4 3750 C Rs. 3,000 4 375
TOTAL Rs. 3,33,000 12 41625
44
INVENTORY MANAGEMENT
Keeping the same no. of orders per year, viz., 12 inventories, can reduced by 39% merely by segregating items according to their usage value as shown below:
Category Annual consumption No. of Orders Average Working Inventory
A Rs. 3,00,000 8 18750 B Rs. 30,000 3 5000 C Rs. 3,000 1 1500
TOTAL Rs. 3,33,000 12 25250
OTHER BENEFITS:
Complexity reduction
Optimum utilization of time
Reduction in operating expenses
Reduction in stock outs
Reduction in refusals
Quantity discounts
FSN CLASSIFICATION
ABC Classification is on the basis of consumption value of an item and does not give any importance to
the criticality of the item and therefore, only ABC Classification is not adequate. Classification done on
the basis on the movement of the items in the storehouse is known as FSN, where the items are classified
as fast moving (F),slow moving(S) and non-moving(N),items .This classification is done on the basis of
consumption pattern of the items under analysis. This analysis is useful in case of obsolete items. Previous
45
INVENTORY MANAGEMENT
year issues is a guiding factor for FSN analysis previous two years issues are taken into consideration for
a decision whether the items stocked in storehouse are fast moving ,slow moving or non moving.
Fast moving:-Items being issued more than 15 times a year may be placed in ‘F’ category. Certainly such
analysis and limits of issue vary from one organization to another organization.
Slow moving:-Items up to a certain limit say 10-15 issues in a year may be classified as ‘S’ items.
Non-moving:-If there is no issues of a particular item during the past few years, naturally they will be
classified as ‘Zero issue items’ and under this method of analysis these items will be classified as ‘N’
items.
In GSK items, under FSN categorizing is done on the following criteria :-
Fast moving:-The items which are very frequently moved in one year are included in the fast moving
category.
Slow moving:-The items which are moved from stores for a period of one and a half year.
Non-moving:-The items which are not issued from stores for more than three years.
In GSK Inventory’s FSN categorization of items in stores for the month of April 2008 in which 61 lacs
value items are of non moving nature which are not moved within a period of three years and 110 lacs
value are of slow moving which is moved within a period of one and a half year.
Category Inventory (Lacs) Percentage (%)
Non Moving Inventory 60.66 35.57
Slow Moving Inventory 109.87 64.43
46
INVENTORY MANAGEMENT
Total 170.5 100
FINDINGS AND SUGESSTIONS
After conducting a deep study on the whole process of the ABC Recategorisation, I found certain facts
regarding the ABC analysis which are as follows: -
FINDINGS:
Many items are there in the stores, which although lying in general stores but don’t have any category
in spite of having consumption value.
Some items have no consumption value but their minimum quantity is more than twice.
Some modern techniques of inventory management like JIT, VED etc., which can help in reducing
investment in inventory, is absent.
Items, which are written off in the books, are lying in the stores and in any year if again their need
arises they are written back in the books.
47
INVENTORY MANAGEMENT
.
SUGESSTIONS:
All the general store inventory items should be recategorized especially those, which have the
consumption value during the year.
Company should have to go for some other controlling techniques like VED, JIT etc.
The items, which don’t fall under any category, should be treated separately.
CONCLUSION
From the thorough assessment of my study on “INVENTORY MANAGEMENT” I Concluded that
Controlling techniques relating to the general inventory in GSK are developed with the objective of
ensuring that the inventory will be controlled in an effective manner, without having any loss to the
inventory.
The study of Recategorisation of the general store inventory of GSK is conducting for the purpose of
knowing the actual status of the inventory in the stores. First Recategorisation was done in the year 1999
and after that it was conducted during the year 2005. From this study I conclude that any technique
remains effective only when if it is carried on regularly means at proper time. This study reveals that
through the ABC analysis, effective control can be exercised on the inventory. Items, which have more
importance to the company, those come under strict control. But all the items should have been
categorized specially those, which have consumption value during the year. No doubt their criteria of
recategorisation is appropriate but still some changes are required in it i.e. some movements of general
stores items are required between three categories.
48
INVENTORY MANAGEMENT
At last I would like to say that there is proper control of inventory in the organization. Inventory
management is done at par. Proper accounts & records are maintained of each and every item, better
techniques are applied. 5S technique is implemented fully in GSK.
BIBLIOGRAPHY
SECONDARY DATA:
ANNUAL REPORT OF THE COMPANY
BOOKS
GUPTA SHASHI K., SHARMA R.K., FINANCIAL MANAGEMENT, Kalyani Publishers,
Edition 2005, pp 10.41-10.54
JAIN S.P., NARANG K.L. & DHINGRA T.R., COST ACCOUNTING-Principles and
Practices, 1974, pp 8-25
CHANDRA PRASANA, FINANCIAL MANAGEMENT- THEORY & PRACTICE, Tata Mc-
Grew Hill, New Delhi, 4th edition, 2004.
SHARMA K.R., QUANTITATIVE TECHNIQUES AND OPERATIONS RESEARCH,