AN ANALYSIS ON INVENTORY MANAGEMENT AT WHIRLPOOL OF INDIA LIMITED, PUDUCHERRY
SUMMER PROJECT REPORT Submitted by R.GOPAL REGISTER NO: 27348312 Under the Guidance of Mrs. R. HEMALATHA, MBA., Faculty, Department of Management Studies
in partial fullfilment for the award of the degree of
MASTER OF BUSINESS ADMINISTRATION
DEPARTMENT OF MANAGEMENT STUDIES
SRI MANAKULA VINAYAGAR ENGINEERING COLLEGE PONDICHERRY UNIVERSITY PUDUCHERRY
SRI MANAKULA VINAYAGAR ENGINEERING COLLEGE MADAGADIPET, PUDUCHERRY
DEPARTMENT OF MANAGEMENT STUDIES
This to certify that the project work entitled “AN ANALYSIS ON INVENTORY MANAGEMENT AT WHIRLPOOL OF INDIA LIMITED, PUDUCHERRY” is a bonafide work done by R.GOPAL [REGISTER NO: 27348312] in partial fulfilment of the requirement for the award of Master of Business Administration by Pondicherry University during the academic year 2007 – 2008.
HEAD OF DEPARTMENT
Submitted for Viva-Voce Examination held on
First and foremost, I thank the God for his substantial blessing and mercy at all stages in the completion of the project. I take this opportunity to express my deep sense of gratitude to SHRI N.KESAVAN, Founder Chairman, SHRI M.DHANASEKARAN, Managing Director and S.V.SUGUMARAN, Vice-Chairman of our college for their good wishes for this project. I of my project. I extend the immense gratitude to the Head of the Department MR. S.JAYAKUMAR for his motivation, inspiration, and encouragement for the completion for my project. The valuable and unflinching requital support in this Endeavor express my immense gratitude to our Principal SHRI
DR. V.S.K.VENKATACHALAPATHY for his support and encouragement for the completion
MRS. R.HEMALATHA my internal guide, Department of Management Studies whose assistance was immeasurable to the completion of this project. I am sincerely thankful to MR. N.RAMESH, Finance Manager, Whirlpool of India Limited (WOIL) for his help and support throughout the project. I extend my thanks to MR. K.VIJAY GANESH, Manager of Materials Planning for his help. I extend my sincere thanks and my deep sense of gratitude to MR. L.GANESH KUMAR, Deputy Manager-Material Planning for his kind assistance and MR. R.VISHNU PRATAP, Executive-Finance, who were also my External Guides. I would also like to thank all the staff of the organization for helping me directly and indirectly to conclude this work. Last, but not the least, my heart felt gratitude to my parents, relatives and my friends for their constant encouragement, support, help and valuable advice to make this project a success.
It serves as a link between production and distribution processes.
. One of the main areas of the project is the analysis part. goods in process and finished goods all represent various forms of inventory. The investment in inventories constitutes the most significant part of current assets/working capital in most of the undertakings. The purpose of inventory management is to ensure availability of materials in sufficient quantity as and when required and also to minimise investment in inventories. a considerable amount of funds is required to be committed to them. Each type represents money tied up until the inventory leaves the company as purchased products. it is very essential to have proper control and management of inventories. Achievements and also the need for study. Data analysis & Interpretation. Thus.ABSTRACT
Every organization needs inventory for smooth running of its activities. It is therefore absolutely imperative to manage inventories efficiently and effectively in order to avoid unnecessary investments. where the data are analysed & interpreted. The study starts with an introduction to inventory management. A firm neglecting the management of inventories will be jeopardizing its long run profitability and may fail ultimately. review of literature and objectives are set out for the study. Findings and Suggestions of the study follow. The reduction in excessive inventories carries a favorable impact on the company’s profitability. its Vision & Mission. limitations & scope for further study were discussed. Some of the tools used in inventory are regarding to: Economic Order Quantity Safety Stock ABC Analysis FSN Analysis Trend Analysis and Inventory Turnover Ratio. Because of the large size of the inventories maintained by firms. And then conclusions. Company’s profile. Raw materials. to find out how the inventories were managed. Research methodology.
CHAPTER LIST OF TABLES LIST OF CHARTS INTRODUCTION I PROFILE OF THE COMPANY NEED FOR THE STUDY II III IV V REVIEW OF LITERATURE OBJECTIVES OF THE STUDY RESEARCH METHODOLOGY DATA ANALYSIS AND INTERPRETATION FINDINGS OF THE STUDY. SUGGESTION AND RECOMMENDATIONS VII CONCLUSION LIMITATIONS OF THE STUDY SCOPE FOR THE FUTHER STUDY BIBILIOGRAPHY 1 2 15 16 31 32 34 49 51 52 TITLES PAGE NO.
53 54 55
LIST OF TABLES
NAME OF THE CHART ABC ANALYSIS FSN ANALYSIS TREND OF INVENTORY
PAGE NO.1 220.127.116.11.1 5.1 5.5.1 18.104.22.168 5.1
NAME OF THE TABLE ECONOMIC ORDER QUANTITY SAFETY STOCK ABC ANALYSIS FSN ANALYSIS CALCULATION OF INVENTORY TREND INVENTORIES PERCENTAGE INVENTORIES TURNOVER RATIO & VELOCITY
PAGE NO.3.5. 34 37 41 44 45 46 48
LIST OF CHARTS
CHART NO. 5.1 5.1 5.3. 5.TABLE NO. 41 44 47
exactly when it is needed. which is kept in hands for smooth and efficient running of future affairs of an organization at the minimum cost of funds blocked in inventories. inventory control focus on material control. In manufacturing since the focus is on physical product.1 INTRODUCTION
Inventory control is vitally important to almost every type of business. The fundamental reason for carrying inventory is that it is physically impossible and economically impractical for each stock item to arrive exactly where it is needed. whether product or service oriented.
1. Inventory control touches almost every facets if operations. which provide an assessment of the organization’s inventory. Inventory management is the integrated functioning of an organization dealing with supply of materials and allied activities in order to achieve the maximum co-ordination and optimum expenditure on materials. It is comprised of a series of processes. A proper balance must be struck to maintain proper inventory with the minimum financial impact on the customer. “Inventory” means physical stock of goods. An Inventory Management System is an essential element in an organization. Inventory control is the most important function of inventory management and it forms the nerve center in any inventory management organization.1. Inventory control is the activities that maintain stock keeping items at desired levels.2 PROFILE OF THE COMPANY
Crolls. Mexico. Acros and Consul. United States. Laden.
1. etc. The year 2000 has been a bad year for the industry as the overall growth was flat. The company manufactures in 13 countries on 4 continents namely :-.Canada.2. Small Kitchen Appliances. Kitchen Aid. Argentina. The refrigerators registered a flat growth. Braotemp.
Whirlpool of India Limited.1 WHIRLPOOL CORPORATION Whirlpool Corporation is the world’s leading manufacturer and marketer of major home appliances. ($12 billion).2 WHIRLPOOL CORPORATION TODAY
.2. US. Germany. Room airconditioners. Refrigerators. which drives. Roebuck and company of many major home appliances marketed under the Kenmore brand names. Ignis. Bauknects. Brazil. Whirlpool is also the principal supplier to Searo. China and India and markets products in more than 170 countries under major Brands (26 including Affiliates) names such as Whirlpool. a leading global consumer durable player. a fully owned by Whirlpool Inc. Washing Machines. The growth in the consumer durable industry has slowed down due to lack of demand. Head quartered at Benton Harbour. washing machines saw a negative growth while the air conditioner segment performed well exhibiting a growth rate of 20%.. Whirlpool Corporation is the world’s leading manufacturer and marketer of major home appliances. Sweden. Whirlpool Corporation has a management system called WES (Worldwide Excellence System) and a value to aged performance system called HPC (High Performance Culture). Italy. France. Cookers. Roper.A. The company has diversified its product range into Air Conditioners and Microwave Ovens. Micro-wave Ovens. Freezers. Estate. Dish-washers.S. Inglis. U. Michigan. Whirlpool of India limited manufactures and markets refrigerators and washing machines. Dryer.1. are the actions and initiatives of unit. South Africa. Slovakia.
BUILDING CUSTOMER LOYALTY WORLDWIDE Whirlpool Corporation arrived in the new century and millennium as the world’s leading
manufacturer and marketer of major home appliances. IMPROVING FUNCTION AND PERFORMANCE At Whirlpool Corporation. To sustain the productivity savings that is being achieved by our operations. More than ever before. Today.3 (a) HISTORY OF WASHING MACHINE
. Whirlpool’s global platform provides our operations with resources and capabilities no other manufacturer can match and with brands that consumers trust. Their commitment to quality begins in the concept stages and continues throughout the lifetime of the appliance. Whirlpool Corporation employees and brands are connecting with customers in ways that will last a lifetime. They want our brands to be the brands customers trust in every home … everywhere. Whirlpool has introduced unique product innovations to consumers worldwide. The company’s global information technology organization provides Internet tools that cut the complexity and costs of doing business for Whirlpool and its trade partners. Inspired by their bold innovations and designs. they have embedded their Operational Excellence Process . increasing numbers of customers around the globe are trusting Whirlpool to make their lives easier.
1. They take pride in the quality of appliances to market and manufacture. which began in 1999. Based on the continuing success of the company’s global innovation process. They are constantly seeking out new and unique ways to improve the function. They are committed to building products that consumers around the world can depend on to meet their daily needs.based on Six-Sigma and lean manufacturing skills and capabilities . Whirlpool’s unique global platform allows the company to transfer key innovations and processes across regions and brands.2. performance and sustainability of our products.within each of their worldwide manufacturing facilities.
having applied for a patent in the same year. the first microchip-controlled automatic washing machines were produced. however it was still hand powered. Hamilton Smith patented the rotary washing machine. Michigan. The first washing machines designed for use in the home. and the result was that society's expectations for cleanliness went up. which removed and washed away dirt from clothes. In 1978. reaching 913. more attention was paid to electrical safety. This machine had many of the features that are incorporated into modern machines. Bendix introduced the first automatic washing machine in 1937. Several manufacturers even produced semi-automatic machines. William Blackstone of Indiana built a birthday present for his wife. In 1874. the drum made King's machine resemble a modern machine. A large number of US manufacturers introduced competing automatic machines (mainly of the top loading type in the late 1940’s early 1950s. production of Europe's first automatic washing machines started. It was a machine. for which a patent was issued on Aug. In 1951. Washer design improved markedly during the 1930s. to produce electric motor-driven wringer washers. The earliest washing "machine" was the scrub board invented in 1797. General Electric introduced the first top loading automatic also in 1947.000 units in 1928.
. where the ashes containing the fat of sacrificial animals was used as soap. James King patented the first washing machine to use a drum in 1851. the mechanism was now enclosed within a cabinet. The Hurley Machine Company of Chicago.Ancient peoples cleaned their clothes by pounding them on rocks or rubbing them with abrasive sands and washing the dirt away in local streams. The machine was a drum type with a galvanized tub and an electric motor. Alva J. In 1858. Illinois introduced the first electric-powered washing machine (the Thor) in 1908. Joseph. American. to replace the dangerous power wringers of the day. Evidence of ancient washing soap was found at Sapo Hill in Rome. spin dryers were introduced. founded in St. where the user had to intervene at one or two points in the wash cycle. US electric washing machine sales increased after World War I. The main reason why so many people bought the washing machine was because it saved people lots of time in domestic tasks. 9. Fisher was the inventor. 1910. The Whirlpool Corporation started in 1911 as the Upton Machine Co..
Roebuck & Co. it is claimed. the British inventor James Dyson launched a type of washing machine with two cylinders rotating in opposite directions. helped by the low price of the Rolls Razor washers. however. electric washing machines did not become popular until the 1950s.
. which. wringer-type machines. 1929 Upton Machine Company merged with Nineteen Hundred Washer Company of New York.
1. reduces the wash time and produces cleaner results. The early electric washers were single tub. 1916 First order of washers was sold to Sears. automatic washing machines being extremely expensive.' 1958: the Company moved out of country for the first time and invested in Brazilian appliance market through purchase of equity in Multibras S. It included two product lines one each was distributed through Sears and Nineteen Hundred. 1957: The Company was rechristened as ' The Whirlpool Corporation. During the 1960s. twin tub machines briefly became very popular. In the late 1990s.A.3 (b) HISTORY OF WHIRLPOOL 1911 Louis Upton founded the Upton Machine in this year to produce motor-driven wringer washers. this machine is not currently in production. 1948: First 'Whirlpool' brand automatic washer with dual distribution was introduced.2.In the UK. In the same year the company's revenues crossed the legendary $1 Billion mark for the first time. 1968: The Elisha Gray II Research & Engineering Center was completed in Benton Harbor.
1987: Whirlpool tied-up with Sundaram Clayton Ltd. was realized in the same year. merged together to form Whirlpool of India Ltd. 1998: This year gave birth to a new company vision that says. The vision to globalize 'Whirlpool Corp'. Passion & Performance. 1978: Within a decade company doubled its feat of $1 Billion mark and reached the $2 billion revenue level. Netherlands and Belgium 1995: Whirlpool Corp. 1990: Company established joint venture with Matsushita Electric Company of Japan to produce vacuum cleaners for the North American market.V. The DC manufacturing facility of Kelvinator India was also acquired. acquired majority of stake in the TVS Whirlpool Ltd."
. which is a TQM program dedicated to exceeding customer expectations.V. and Kelvinator India Ltd.Philips of Netherlands called Whirlpool Europe B. 1989: This was a historic year since the revenues catapulted to heights of over $6 Billion mark. Also. 1986: The 'Kitchen Aid' division of Hobart Corporation was purchased. 1991: The Company introduced and committed globally to its Worldwide Excellence System. "Every Home Everywhere with Pride. was formed to manufacture and market appliances in Europe. Ireland. 1993: First time Whirlpool became the No. of India to form TVS Whirlpool Ltd.1 stand-alone brand in UK. 1996: Whirlpool Washing Machines Ltd. the joint venture with N.
It also achieved the No.2 million appliances. 2003: A new mission statement of "Everybody creating loyal customers for life" was adopted. soared to $10. 2002: The Aircon range was successfully launched and the Whirlpool of India acquired 6% market share. 2006: Whirlpool Corporation acquires Maytag and become the Worlds largest white goods company. 1999: Whirlpool of India crossed the milestone of 1 million sales of appliances.1 position in DC & FA. 2001: Whirlpool India registered profit & sold 1.4 BOARD OF DIRECTORS
.5 Billion. The revenues of Whirlpool Corp.2. 2002: The ' Whirlpool Strategic Architecture ' was launched as a framework to achieve the vision.
everywhere. Performance Will create the world’s best home appliances. They will be leaders in home appliances.6 CORE COMPETENCIES
. Their goal is a Whirlpool product in every home. which all others start to emulate.• • • • • • •
Dalton Nigel Garrick D‘Silva (Chairman) Raj Jain (Managing Director) Robert Lawrence Mink SS Raman K.2. which makes Life easier and more enjoyable for all people.V.5 (a) WHIRLPOOL VISION STATEMENT Every Home… Everywhere. Passion.2. 1. They will achieve this by creating: Pride in their work and each other Passion for creating unmatched customer loyalty for their brands Performance results that excite & reward global investors with superior returns They will bring this dream to life through the power of unique global & their Outstanding people… working together… everywhere.5 (b) WHIRLPOOL MISSION STATEMENT The mission of the corporate is that the demand of their selves so as to care their customers and they will serve with pride in every home and bring prosperity to their investors and customers. They are prepared to change the standards of their industry and be the Envy of their competitors.2. Chandrasekaran SJ Scarff Anand Bhatia
1. With Pride.
how we add value. and utilization of knowledge using critical thought and planned experimentation helps us achieve operational excellence. and what the drivers of brand loyalty are.•
Innovation: Unique and compelling solutions valued by our customers and aligned to our brands create competitive advantage and differentiated shareholder value. with our endeavor always being to provide unique solutions for the customer. We show empathy for customers and seek to resolve their problems by creating consistent customer touch-points.
Customer Excellence: Excelling the customer expectation from the company. be passionate about our brands and customer loyalty and provide a positive voice for our brands. its brands. This information is gathered from the customer's data base history.2. drive actions based on customer insights. The three steps are: Know a customer. how to treat them. This way we are better able to customize products for them and recommend the right product to solve problems. Being a customer is important to share customer knowledge and insights. Serve a customer.
1. Be a customer.
Operational Excellence (OPEX): A methodology for solving problems & continuous improvement of products & processes through pursuit. acquisition.7 PRODUCTION MANUFACTURING FACILITIES IN INDIA
. products and services are a three-step process.
Knowing a customer helps us know who our customers are.
leading to an improved market share.
. Whirlpool’s focus at this plan in on manufacturing refrigerators that are made to suit Indian conditions and requirements. Estate. Constant feedback from consumers has resulted in improved product quality and styling.000 units to 8.2. It has been designed in accordance with the ecological and environmental criteria that have become such a concern in today’s scenario the world over.50. Kitchen Aid.Whirlpool has invested heavily in its manufacturing facilities in India. 300 crore plant built to exacting world-class standards. manufacturers semi automatic and automatic washers. Roper. • PUDUCHERRY The washer’s facility at Puducherry on the East coast. Pune will set the standards as one of the world’s front runners in environmental sensitive and eco-friendly manufacturing units. Infusion of technology and up gradation of machinery along with streamlining of processed has enhanced the plant capacity from 7. This unit was awarded the coveted ISO 9001 certification in 1994 and ISO 14001 certification in 1996. while matching Whirlpool global quality standard. this Rs. • RANJANGAON A state of art gallery for the manufacturers of the Global No Frost refrigerator at Ranjangaon near Pune. • FARIDABAD The refrigerator facilitated at Faridabad in Haryana manufactures direct cool.8 WHIRLPOOL BRANDS North American Brands United States : Whirlpool. the one under the construction at Ranjangaon. Refrigerators ranging from 165 liters to 310 liters.000 units annually.00. 1. Gladiator. underlines Whirlpool’s commitments to India. While the factories in Faridabad and Pondicherry have been upgraded to meet the exacting world class standard of Whirlpool.
Food Processors. Compressors. Washers. Acros. Kitchen Aid. Michigan USA. Refrigerators (Built-in. Side-by-Side). Hot-water Dispensers. Dryers. Principal Products Built-in Ovens. Asia Pacific. Microwave Ovens.9 WHIRLPOOL OF INDIA LIMITED – PUDUCHERRY Whirlpool of India Limited is a fully owned company by Whirlpool Corporation. Principal Products Freezers.
Washers. Gas and Electric Ranges. Juicers. HVAC. Dryers. Washers (Front and Top Loading).2. freezers. Dishwashers. Dishwashers. Freezers (Upright and Chest). Room Air Conditioners. Washing Machines. Coffee Makers. Canada and Mexico. Whirlpool Corporation is the worlds leading manufacturers and marketer of home appliances. Room Air Conditioners. 1. Inglis. Scrolls.Canada Mexico Principal Products Air
Purifiers. Trash Compactors. washers.
Ovens. Built-in and Surface Units).
Dehumidifiers. Microwave Ovens. Refrigerators. Hot Water Heaters. Kitchen Aid Products Blenders. Combis and Side-by-Side). Cookers (Gas and Electric.
Dryers. Hand Mixers. Freestanding. Stand Mixers. Freezers. Dish Washers. USA Head quarters at Benton Harbor. Toasters. Primary Markets Served Europe. Micro Ovens. Primary Markets Served United States. Ranges (Gas and Electric. Supermatic. Middle East. Whirlpool.
Puducherry was the first manufacturing venture of the Whirlpool Corporation. It has also been cleared for “S” mark certification from Japanese Quality standards for Exports to Japan after our facility approval. washer unit has a total of 11 departments comprising of 220 employees on the whole. This unit is located on a 100 acre sprawling area manufacturing automatic and semi automatic washing machine.Refrigerators.10 CLASSIFICATION OF WASHING MACHINE Semi Automatic Whitemagic H 70 | 7 kg Whitemagic S 70 | 7 kg Whitemagic Super-Soak | 6.2 Kg Whitemagic S60-Buzz | 6 Kg Whitemagic SI 60 | 6. the world’s largest manufacturer of home appliances. Cookers. In 1987. Microwave Ovens.5 Kg Sensation EM | 6.2 Kg Whitemagic E 65 | 6. Out of which 67 is management executives and rest 153 are production operators. a TVS group companies and was named as TVS Whirlpool Limited. USA.In WOIL. Room Air Conditioners.2 Kg Fully Automatic H 65 | 6 Kg F-65 | 6 Kg FP 65 | 6 Kg FP 60 DLX | 6 Kg FP Splash | 5 Kg Horizontal Axis Sensation EX | 6.2. The various departments in the company are Administration Department Finance Department Human Resource Department Materials Department Production Department Medical Department Stores Department Plant Maintenance Department (PMD) Regional Technology Center (RTC) Process Engineering Development (PED) Quality Assurance Department (QAD)
1. this unit was formed as a joint venture with M/s Sundaram Clayton limited.5 Kg
. This unit is certified ISO 9001 facility by UL. etc. washer unit. Small kitchen Appliances. Whirlpool of India limited. Freezers.
By end-1999.2. Whirlpool has also achieved immense brand equity in the Indian market.11 ACHIEVEMENTS
Whirlpool came to India on the crest of a long trail of achievements and has since furthered this record. Its products are customized to the local standards and different needs of each of these markets. but the Whirlpool in refrigerators and washing machines in 2003. Its rivals have adopted the new practices. it also became the largest exporter of home appliances from India. the Indian operations of Whirlpool are a very important
Whirlpool was again the first to come out with a Combimatic – a single tub semi-automatic washing machine that did away with the hassle of shifting clothes from one tub to another. Italy and the US. A couple of years later. CENTER MANAGER HUMAN RESOURCE MANAGER S6 S5
brand stands out to the extent that authoritative surveys reported it to be the most preferred brand
Whirlpool of India exports to more than 50 high-value markets in Asia and other parts of
the world as well.2. The company has set up a highly equipped product development centre in Pune.
MANAGING DIRECTOR GENERAL MANAGER – Plant Operations REGIONAL TECH.1. which provides global design services to three other Whirlpool research and development facilities based in Brazil.
PROCESS ENGINEERING DEVEOLOPMENT MANAGER
. (Millward Brown Brand Track). Indeed.
1. Whirlpool has successfully established new rules of marketing and branding in the home-market sector. everywhere".12 Company is shown by a flat Organization Structure as below:
contributor to its global vision of "Being in every home. In the course of this growth and development. Whirlpool became the largest selling appliance brand in the country. These qualities of Whirlpool are exemplified in its Indian sales as well. In washer products.
S1. The investment in inventories constitutes the most significant part of current assets/working capital in most of the undertakings.1. to give findings and suggestions by adopting and analyzing different inventory control techniques. S2. I took this Inventory Management as a topic for my project. It serves as a link between production and distribution processes. Thus. So. --------.3 NEED FOR THE STUDY
Every organization needs inventory for smooth running of its activities. it is very essential to have proper control and management of inventories. in order to understand the nature of inventory management of the organization. S8 = Departmental Staff
. The purpose of inventory management is to ensure availability of materials in sufficient quantity as and when required and also to minimise investment in inventories.
. It is also called the idle resource of a company.1 MEANING OF INVENTORY Inventory generally refers to the materials in stock.CHAPTER-II REVIEW OF LITERATURE
2. Inventories represent those items which are either stocked for sale or they are in the process of manufacturing or they are in the form of materials which are yet to be utilized.
Work-in-process inventory (WIP). Maintenance. To take advantage of price discounts. Inventory is a detailed list of those movable items which are necessary to manufacture a product and to maintain the equipment and machinery in good working order. Bought out parts. Scrap Material.4 MOTIVES OF HOLDING INVENTORIES
. 2. Finished goods inventories. Goods in transit.
2. Tools inventory. To keep pace with changing market conditions. To prevent loss of orders. Miscellaneous inventory. Goods for resale.2 TYPES OF INVENTORIES A manufacturing firm generally carries the following types of inventories: • • • • • • • • • • Raw Materials. To meet the demand during the replenishment period.3 REASONS FOR HOLDING INVENTORY • • • • • To stabilize production.
2. repair and operating stores.It also refers to the stockpile of the products a firm would sell in future in the normal course of business operations and the components that make up the product.
Capital cost.. Shortage cost. Ordering cost.6 INVENTORY CONTROL The main objective of inventory control is to achieve maximum efficiency in production & sales with minimum investment in inventory. saving in re-ordering costs and quantity discounts etc. when to order and how much to order and how much to stock. no stock out.
2. Inventory control is a planned approach of determining what to order. Economy in purchasing. Smooth and uninterrupted production and hence.7 BENEFITS OF INVENTORY CONTROL The benefits of inventory control are: • • • • Improvement in customers’ relationship because of the timely delivery of goods and services. so that costs associated with buying and storing are optimal without interrupting production and sales. Carrying cost..• • •
The Transaction Motive which facilitates continuous production and timely execution of sales orders.5 COSTS ASSOCIATED WITH INVENTORY • • • • • Production cost. The Precautionary Motive which necessities the holding of inventories for meeting the unpredictable changes in demand and supplies of materials.
. 2. The Speculative Motive which induces to keep inventories for taking advantage of price fluctuations.
2. Efficient utilization of working capital.
Eliminating the possibility of duplicate ordering. Inventory is reduced through sales and scrapping. The demand may be either deterministic or probabilistic in nature. Order cycle: The time period between two successive orders is called order cycle.8 PRINCIPLES OF INVENTORY CONTROL • • • • Inventory is only created by spending money for materials and the labour and overhead to process the materials.9 INVENTORY CONTROL – TERMINOLOGY Demand: It is the number of items required per unit of time. It is exercised through people with varying experiences and judgment rules & procedures establish a base from which the individuals can make evaluation and decision. not absolute. Management policies which are designed to effectively balance size and variety of inventory with cost of carrying that inventory are the greatest factor in determining inventory investment. Records do not produce control. Accurate sales & production schedule forecasts are essential for efficient purchasing.
2. Controlling inventory is accomplished through scheduling production. Control is comparative & relative.
. inventory control can become predictable and properly related to production and sales activity. • With the consistent practices being followed.
2. • • • Forecasts help determine when to order materials. handing & investment in inventory.
This implies that the procurement cost will be high. The right quantity to be ordered is one that strikes a balance between the two opposition costs. It is the stock or inventory needed to account for delays in materials supply and to account for sudden increase in demand due to rush orders. Lead time: The length of time between placing an order and receipts of items is called lead time. Inventory turnover: If the company maintains inventories equal to 3 months consumption.e. The quantity to be purchased should neither be small nor big because costs of buying and carrying materials are very high. This is the quantity of materials which can be purchased at
. It means that inventory turnover is 4 times a year i.11 ECONOMIC ORDER QUANTITY MEANING A decision about how much to order has great significance in inventory management. the entire inventory is used up and replaced 4 times a year. Safety stock: It is also called buffer stock or minimum stock.. The two costs are diametrically opposite to each other. Economic order quantity is the size of the lot to be purchased which is economically viable.10 INVENTORY COST RELATIONSHIPS There are two major cost associated with inventory. if the quantity ordered per order is small. 2. Procurement cost and carrying cost. This quantity is referred to as “Economic Order Quantity”. 2. Annual procurement cost varies with the numbers of orders. if the item is procured frequently in small lots. The annual procurement cost is directly proportional to the quantity in stock. The inventory carrying cost decreases.
In determining economic order quantity it is assumed that cost of managing inventory is made up solely of two parts i. ordering cost and carrying cost. Generally economic order quantity is the point at which inventory carrying costs are equal to order costs. The cost relationships are shown in below figure. In actual practical situations.12 SAFETY STOCK MEANING The economic order quantity formula is developed based on assumption that the demand is known and certain and that the lead time is constant and does not vary.e. FORMULA FOR CALCULATING ECONOMIC ORDER QUANTITY (EOQ)
Economic Order Quantity
Annual Total Cost Annual Inventory Carrying Cost Annual Ordering Cost Q* Economic Order Quantity Order Quantity
2. The total forecasted demand may be more or less than actual demand and the lead time may vary from
..minimum costs. there is an uncertainty with respect to the both demand as well as lead time.
if it is low. reserve stocks or buffer stocks. it locks up the capital and there is a possibility of risk of obsolescence. In order to minimize the effect of uncertainty due to demand and the lead time. When the variation in lead time is predominant. a firm maintains safety stock. The safety stock is defined as “the additional stock of material to be maintained in order to meet the unanticipated increase in demand arising out of uncontrollable factors”. the safety stock can be computed as: Safety Stock = (Maximum Lead time. On the other hand.estimated time.Normal Lead time) * Demand
. it is possible to determine the level of safety stock to be maintained. Because it is difficult to predict the exact amount of safety stock to be maintained. by using statistical methods and simulation. DETERMINATION OF SAFETY STOCK
If the level of safety stock is maintained is high. In simple it is tells about which is used to protect against uncertainties. there is a risk of stock out because of which there may be stoppage of production.
13 ABC ANALYSIS
.The service level of inventory thus depends upon the level safety stocks. Sometimes higher service levels are not desirable as they result in increase in costs. hence. Using past date regarding the demand and lead time data.
2. reliability of suppliers and service level desired by management. higher service level. fixing up a safety stock level is critical. thus. Large the safety stocks. there is a lesser risk of stock out and. safety stock can be determined with accuracy.
Tight control on Moderate control stock levels 2. Statistics reveal that just a few items account for bulk of the annual consumption of the materials. Individual posting in Individual
.MEANING The inventory of an organization generally consists of thousands of items with varying prices. Continuous effort to Moderate efforts reduce lead time ADVANTAGES Minimum efforts control Monthly control Quarterly control Medium Less frequently Large Bulk ordering Collective posting C Class (Low Value) Less control
4. These few items are called A class items which hold the key to business. ABC analysis thus tends to segregate the items into three categories A. The concept applied to inventory is called as ABC analysis. Ordered frequently stores 5.B & C on the basis of their values. The categorization is made to pay right attention and control demanded by items. Low safety stock 3. usage rate and lead time.
FEATURES OF ABC ANALYSIS A Class (High Value) B Class (Moderate Value) 1. ABC analysis is a basic analytical tool which enables management to concentrate its efforts where results will be greater. The other items known as B & C which are numerous in number but their contribution is less significant. It is neither desirable nor possible to pay equal attention of all items. Weekly reports 6.
becomes an effective management control tool.• • • •
This approach helps the manager to exercise selective control & focus his attention only on a few items.14 FSN ANALYSIS All the items in the inventory are not required at the same frequency. saves time and effort and results in better planning and control and increased inventory turnover.
2. the materials manager is able to show the results within a short period of time. non moving items. tries to focus and direct the effort based on the merit of the items and. some occasionally and some very rarely. FSN analysis classifies items into fast moving. thus.
. thus. ABC analysis. By exercising strict control on A class items. slow moving. Some are required regularly. It results in reducer clerical costs.
can be ascertained. it is constitute the most significant part of the current assets of a large majority of companies in India. the number of days for which the average inventory is held.16 A STUDY ON INVENTORY MANAGEMENT BY RAMYA In this review Miss. and prevent over-stocking of slow moving items. A higher turnover rate indicates that the material in question is a fast moving one. Net sales Inventory turnover ratio = Avg. on the other hand. inventory No. On that basis. Raw materials.2. attempt may be made to reduce the amount of capital locked up. For instance. Stock turnover is measured in terms of the ratio of the value of materials consumed to the average inventory during the period. the numerator may be materials consumed. it is possible to know which is fast moving & which is slow moving. cost of goods sold or net sales. Comparing the no. the ratio differs from industry to industry. indicates over-investment and locking up of working capital on undesirable items. who as done the project about Inventories at WOIL. the ratio indicates the number of times the average inventory is consumed and replenished. of days in a yeat by turnover ratio.
. of days in a year Inventory velocity = Inventory turnover ratio 2. Inventory turnover ratio may be calculated in different ways by changing the numerator. goods in process and finished goods all represent various forms of inventory. RAMYA. A low turnover rate. By diving no. days in the case of two different materials.15 INVENTORY TURNOVER RATIO
Kohler defines inventory turnover as “a ratio which measures the number of times a firm’s average inventory is sold during a year”. but keeping the same denominator. Based on any one of these.
flexibility. who as done the project about A report Inventory at WOIL. an Inventory Management System is an essential element in an organization. After finishing analysis he compares between the Suggested norms and Existing norms. and cost). WOLFE BAGBY explains inventory as Managing inventory to Meet Profit Goals. 2. One of the most critical and time-consuming aspects of manufacturing is managing the tasks of maintaining sufficient amounts of materials on hand at all times. In this project he made an analysis for Export Oriented Units (EOU) and fixing norms for Coffee Maker.17 A REPORT ON INVENTORY MANAGEMENT BY VIJAYARAMAN In this review Mr.Each type represents money tied up until the inventory leaves the company as purchased products. It is therefore absolutely imperative to manage inventories efficiently and effectively in order to avoid unnecessary investments. Grind Mill & Micro Oven.18 INVENTORY AS MANAGING INVENTORY BY WOLFE BAGBY In this review Mr. VIJAYARAMAN . and this is the primary consideration of the Operations Management System. He also made an analysis of Washing Machine and their norms for different classification of Washers at WOIL. The Inventory Management System also aids the organization in achieving its goals and objectives with the primary focus on adding value for the customers. with many tools and techniques available to help managers run their processes as effectively as possible. For the analysis part. He also classified EOU’s & Washers products with ABC Classification. Finally he used correlation with Statistical Tools. ABC analysis was carried out.R. Inventory management is possibly one of the richest areas of operations management. Avoid excessive
. Shortening the cash cycle. avoiding inventory shortage. a considerable amount of funds is required to be committed to them. It is comprised of a series of processes which provide an assessment of the organization’s inventory. 2. The management of inventory adds value for customers (quality. One of the main areas of the project is the analysis part where the data obtained from the existing study is been utilized. Because of the large size of the inventories maintained by firms. There by the inventory to be kept for the production of each model was also arrived at. The norms were fixed for each of the inventory part taken into account for the project. speed. Coffee Grinder.
discerning eye on changes in supply and demand.carrying costs for unused inventory. Avoiding inventory shortage Most manufacturers recognize that supplier inventories are important. which means simultaneously scrutinizing external factors that might affect supply and demand. One obvious way to take precautions for avoiding inventory shortage is by using more than one vendor in particular areas of the supply chain. Avoid excessive carrying costs for unused inventory
. especially when loyal employees who want to work on behalf of the company’s goals support it. This means negative impact in more ways than one. Even though more stock means higher total costs. This. production and deliveries in near real-time synchronization with the latest network inventory. The Web-based nature of an inventory management system allows Electronic data interchange of projected demand and vendor requirements are transmitted throughout the distribution network. in turn. forecast and actual demand information. keeps the networks. Shortening the cash conversion cycle Much of this can be accomplished when manufacturers update their scheduling systems. advanced inventory management software is nothing without a strong internal supply chain. For starters. the alternative is often too little stock which tends to put the brakes on operations. Still. it helps to know what this means for a company. Improving profitability by decreasing cash conversion. Getting smart about inventory When a manufacturing firm works to gain greater control over management of its inventory. JIT. maximizing a manufacturer’s cash flow and profitability includes keeping a watchful. Another way to shorten the cash conversion cycle is to have clear channels of communication with vendors.
But. Manufacturers can now meet their customers’ demand without incurring the costs and burdens that come from stocking excess inventory. Essentially. Much of this effort deals with building collaborative relationships with suppliers to the point where most inventory-related matters can be worked out. The closer they get to carry zero inventories. One vital measurement for determining how effectively a manufacturer’s inventory management system is operating is referred to as inventory turnover. it measures how efficiently inventory moves through the organization. has brought inventory management systems to a new level. vendor
. In fact. considering the variables faced by the manufacturer. Gaining better control over accounts receivables policies is another popularly reported approach for using inventory to improve profitability. American manufacturers have strived for improved inventory management systems. the closer they get to reach the manufacturing efficiency. Depending upon the nature of business. Features such as effective forecasting. a large number of manufacturers enjoy significant savings and better performance by choosing the approach to inventory reduction that works best for them. This isn’t to say that manufacturing firms will be eliminating warehousing anytime soon. Such thinking. Give someone else the responsibility for moving inventory so it doesn’t cost the manufacturer as much to hold onto it Improving profitability by decreasing cash conversion Boosting financial performance is another benefit that comes from better inventory management. early or on-time payment discounts can be the incentive for moving inventory faster. combined with today’s available technology. Consignment inventory is another way to save inventory costs.Most companies need to reduce inventory in whatever way seems most reasonable. JIT For years. In fact. manufacturing executives are told never to underestimate the importance of inventory turns. it is important to note that drastic reductions in inventory costs are available to most any company that wants better control.
Essentially. These features enable manufacturers to seek to manage inventory as a financial investment. in this topic he explained about two parts.
. Next he determines Safety Stock (SS). this section can serve as a starting point for inventory managers. The first half part of this article covers how to find what inventory levels should be. This should be intuitive because safety is what you have when your shipment arrives and when the order arrives (EOQ) it gets added to the safety stock. On average you should have the SS amount when you receive shipments. The First thing he determines the ideal inventory levels is a material's Economic Order Quantity (EOQ). Between these two average minimum and maximum values lies your long-term average inventory.19 A STUDY ON INVENTORY MANAGEMENT BY CHARLES ATKINSON In this review Mr. and the second half covers how to evaluate it. CHARLES ATKINSON explains inventory as inventory management topics. he explains average inventory levels. Part II: How to Assess (evaluate) Inventory Levels? Average Inventory can be calculated by Simplistic Method. as well as a method for putting more money in their pockets. This is the amount that you should have remaining when the EOQ arrives. Average Inventory Levels Part I: How to Optimize Average Inventory Levels? In this part. 2. This is the amount one should be ordering when you place orders.management and data management control make it possible for manufacturers to achieve a much higher rate of efficiency.. It is clear that average minimum and maximum level because you might not receive the EOQ exactly when you planned to and therefore may have more or less. it provides a brief description for how optimal inventory levels for materials are kept.
Most methods of accounting take the beginning inventory of a period. add it to the ending inventory of a period. This essentially provides the mathematical average for a given month. Avg. and divide by 2. Inventory = (Beginning Inventory + Ending Inventory)/2
. Inventory = (Beginning Inventory+ (Beginning Inventory + Units Produced-Units Sold))/2 Or more simply: Avg.
. To identify inventory requirement of the company for the next year. To classify the various components based on its value and movements.
SECONDARY OBJECTIVE • • • • To identify optimum level of inventory which minimizes the cost. To identify the safety stock level for various components.CHAPTER-III OBJECTIVES OF THE STUDY
PRIMARY OBJECTIVE • To analyse the efficiency of Inventory Management of Whirlpool of India Ltd.
Data are collected through personal interviews and discussion with FinanceExecutive. 3. which researcher has to use facts or information already available.2 RESEARCH DESIGN The research design used in this project is Analytical in nature the procedure using. 2002-2007
. 2.Deputy Manager.CHAPTER-IV RESEARCH METHODOLOGY
4. Data are collected through personal interviews and discussion with Material Planning.
4. and analyze these to make a critical evaluation of the performance.
past six years viz.3 DATA COLLECTION Primary Sources 1. 2. Books and journals pertaining to the topic.1 RESEARCH Research is a process in which the researcher wish to find out the end result for a given problem and thus the solution helps in future course of action. The research has been defined as “A careful investigation or enquiry especially through search for new facts in branch of knowledge”
4. The data are collected from the annual reports maintained by the company for the Data are collected from the company’s website. Secondary Sources 1..
4.4 TOOLS USED IN THE ANALYSIS • • • • • • Economic Order Quantity. Safety Stock. ABC Analysis. FSN Analysis. Linear Regression method. Inventory turnover ratios.
4.5 PERIOD OF STUDY The period of the study at Whirlpool of India Limited, Puducherry is for one month.
CHAPTER-V DATA ANALYSIS AND INTERPRETATION
5.1 ECONOMIC ORDER QUANTITY (EOQ) MEANING Economic Order Quantity is the Inventory management technique for determining optimum order quantity which is the one that minimises the total of its order and carrying costs. TABLE 5.1.1 ECONOMIC ORDER QUANTITY
Sl. No. No. of No. of order units Ordered per year
5.43 2.78 39.05 31.88 50.41 4.20 4.97 2.14 1.24 7.62 5.39 2.60 2.60 11.43
Demand Per year
Re-Order Carrying Cost/ Cost/unit order /year
12,200 6,200 1,700 1,700 1,700 1,700 1,700 4,700 6,200 6,200 6,200 6,200 6,200 6,200 2 2 36 36 36 2 2 2 2 2 2 2 2 18
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14.
Bearing - Ball Sealed – 6006 3,60,000 Bearing - Ball Sealed 6205 - Swift 48,000 Drive assly - NBO - China (Agitator) - 2 pin drive 1,44,000 Drive assly - ECO Dlx NBO - China (Impeller) 96,000 Driven Pulley - NBO China (Same pulley) 2,40,000 Wash timer - Eco Dlx (Ningbo) - With buzzer (S60) 30,000 Wash timer - Eco Dlx (Ningbo) - Without buzzer (SI 60) 42,000 Heater (WW) Heater (Chandini) Pig tail connector-3.0 Pig tail connector-3.8 Seal drive tube - Swift Seal tub support - Swift WW Motor - Welling 21,600 9,600 3,60,000 1,80,000 42,000 42,000 90,000
66,272.17 30,000 17,251.09 3,687.82 3,011.09 4,760.95 7,141.43 8,449.85 10,075.71 7,714.92 4,000 12,000 8,000 20,000 2,500 3,500 1,800 800
47,244.05 30,000 33,406.59 15,000 16,136.91 16,136.91 7,874.01 3,500 3,500 7,500
15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40.
Splash Motor Motor - Jeamo Clamp tub Suspension Spring Assly FLT 70 (Fimstud) Door Lock - High End Door Lock, Low End, FLT70 Ball Bearing-Outer, FLT70 Ball Bearing-Inner, FLT70 Heating Element , High/Mid End,FLT70 Heater Low end Pressostat, FLT70 Timer T2-EC6018-FLT Water Distribution Actuator, FLT70 Nut Push In, FLT70 Heater Clip,FLT70 Bellow, FLT70 Shock Absorber Assy, FLT70 Universal Motor Assy, Mid&High End,FLT70 Motor Low end Window Glass,FLT70 Drain Pump, FLT On / Off Switch Low end (Push button switch) Thermostat Variable, Low End, FLT70 Poly V Belt,FLT70 Tub Sealing, FLT70 SS Coil
42,000 3,00,000 66,600 7,200 1,800 1,800 3,600 3,600 1,800 1,800 3,600 1,800 1,800 21,600 3,600 3,600 7,200 1,800 1,800 3,600 1,800 1,800 1,800 1,800 3,600 2,40,000
6,200 65,200 10,100 10,000 15,400 15,400 8,400 8,400 8,400 8,400 8,400 8,900 7,900 16,400 7,750 84,300 9,800 49,200 57,200 23,100 20,100 7,700 8,500 1,700 1,700 52,200
18 18 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 18 18 18 2 2 2 2 2 18
7.81 6.44 2.57 0.85 0.34 0.34 0.65 0.65 0.46 0.46 0.65 0.45 0.48 1.15 0.68 0.21 0.86 0.57 0.53 1.18 0.30 0.48 0.46 1.03 1.46 6.43
46,619.02 25,000 25,935.69 8,485.28 5,264.98 5,264.98 5,499.09 5,499.09 3,888.44 3,888.44 5,499.09 4,002.50 3,770.94 18,821.26 5,282.05 17,420.68 8,400.00 3,136.88 3,382.31 3,039.74 6,014.98 3,722.90 3,911.52 1,749.29 2,473.86 5,550 600 150 150 300 300 150 150 300 150 150 1,800 300 300 600 150 150 300 150 150 150 150 300
It is understood that the company is not following EOQ for purchasing the materials & therefore the inventory management is not satisfactory.ANALYSIS & INTERPRETATION : In the above table the EOQ & the no. of orders purchased per year for various components are calculated. of unit purchased. of units of each component purchased in the organization.
. It is found that. The calculated EOQ is compared with the no. there is a variation in the EOQ & no.
10.27 0.60.Ball Sealed .8 Seal drive tube – Swift Seal tub support – Swift WW Motor – Welling Splash Motor Motor . 4.40.166 0.Eco Dlx (Ningbo) .NBO .166 0.27 0.600 9.
Bearing .166 0.166 0.246.Eco Dlx (Ningbo) .166 0. 17.000 18. 8.000 21. 15.960 30.000 42.China (Same pulley) Wash timer .166 0.Ball Sealed – 6006 Bearing .6205 – Swift Drive assly .2
.60. 6. Lead Normal Safety Time Lead Time Demand Stock
0.4 748. 5.27 0. 3.27 0.166 0.000 42.166 0.166 0.0 Pig tail connector-3.120 4.ECO Dlx .200 1.27 0. 7. 12.600 3. No.NBO .166 3.800 6.368 4.China (Impeller) Driven Pulley .27 0.166 0.27 0.2 pin drive Drive assly .27 0.27 0.27 0.368 2.440 1.926.4 998.44.720 42.000 42.27 0. 11. 16. Table 5.
1.000 37.000 90.000 4.440 48.166 0.166 0. 18.166 0.984
2.360 4. 14.2.27 0.27 0.27 0.27 0.166 0.992
1. 19.China (Agitator) .000 37.Without buzzer (SI 60) Heater (WW) Heater (Chandini) Pig tail connector-3.368
3.27 0.27 0.166 0.High End
Max.27 0.000 4.000 24.166 0.368 9.166 0.NBO .5.200 66. 2.00. 13.With buzzer (S60) Wash timer .000 31.600 7.80.Jeamo Clamp tub Suspension Spring Assly FLT 70 (Fimstud) Door Lock .976 96.000 14.27 0.2 SAFETY STOCK
MEANING Safety stocks are the minimum additional inventory which serve as a safety margin to meet an unanticipated increase in usage resulting from an unusually high demand and an uncontrollable late receipt of incoming inventory.8 187. 9.166 0.4
3.1 Safety stock
22.27 0.27 0. FLT70 Shock Absorber Assy.FLT70 Bellow.800 1.27 0. 33. FLT70 Ball Bearing-Inner.4 748. FLT On / Off Switch Low end (Push button switch) Thermostat Variable.27
0.166 0. FLT70 Ball Bearing-Outer.4
2. 31.800 1. 39. High/Mid End. Low End.27 0.2 187.600 7.600 1.800 3.20.8 187. FLT70 SS Coil
0. FLT70 Universal Motor Assy.27 0.27 0.166 0. FLT70 Heater Clip.40.166 0.27 0.166 0. we can able to determine how much the company can hold the inventory in reserve stock per annum.4 187.2 374.800 3.FLT70 Motor Low end Window Glass.166 0.2 374.800 1.800 3. Low End.27 0. 30.600 3. 28. 24.27 0. Actual demand is given for each component for a period of 1 year and the lead-time is calculated at a maximum of 100 days & normal of 60 days and these were converted into per annum.27 0.800 3. safety stock for the various components calculated are shown.27 0. 27.27 0.166 0. So.2 187.600 3. 34.800 1.FLT70 Drain Pump.27 0.166 0.166 0.4 187.166 0. 32.166 0.166 0. 21.
ANALYSIS & INTERPRETATION : In the above table.800 21.27 0.2 187. 38.
. FLT70 Nut Push In. 37.246.4 374.600 1.166 0.4 374.600 1. Mid & High End.166 0. FLT70 Timer T2-EC6018-FLT Water Distribution Actuator.2 2.2 187.166 0.2 374.FLT70 Heater Low end Pressostat.166 0.27 0.27 0.166 0.600 3. FLT70 Heating Element . 23. FLT70 Poly V Belt. 35.27 0. from calculation of safety stock.800 1.166
1. 40.27 0.2 187.27 0.166 0.000 24.FLT70 Tub Sealing. 29.800 1.166 0.2 374.200 1.27 0.600
187.2 187.4 374.166 0. 25. 26.4 187. 36.166 0.
5.Welling Splash Motor Motor . FLT70 Bellow. FLT70 Universal Motor Assy.3 ABC ANALYSIS
MEANING The ABC system is a widely used classification technique to identify various items of inventory for purposes of inventory control.2 pin drive Drive assly .China (Impeller) Wash timer . the various items are classified into 3 categories: (1) A.NBO . (2) C. FLT70 Thermostat Variable. Low End. A Class (High Value) Drive assly .Eco Dlx (Ningbo) .With buzzer (S60) Heater (WW) Heater (Chandini) WW Motor .FLT70 Motor Low end Window Glass.NBO . Mid & High End.China (Agitator) . with relatively small investments but fairly large number of items and (3) B. C requires minimum attention and B deserves less attention than A but more than C. which stands mid-way between category A & C. consisting of items with the large investment. High/Mid End.ECO Dlx .FLT70 Drain Pump.FLT70 Heater Low end Timer T2-EC6018-FLT Water Distribution Actuator. On the basis of unit cost involved. FLT
. Category A needs the most rigorous control.Jeamo Heating Element.
6006 Bearing .B Class (Moderate Value) Bearing . FLT70 Ball Bearing-Inner.6205 . FLT70
.FLT70 Tub Sealing.NBO .0 Pig tail connector-3.Swift Wash timer .Without buzzer (SI 60) Door Lock .FLT70
C Class (Low Value) Driven Pulley .High End Door Lock.Ball Sealed . FLT70 Shock Absorber Assy.Ball Sealed .Swift Seal tub support .8 Clamp tub Suspension Spring Assly FLT 70 (Fimstud) Nut Push In. FLT70 Ball Bearing-Outer.China (Same pulley) Pig tail connector-3. FLT70 Seal drive tube . Low End.Swift Pressostat. FLT70 Heater Clip.Eco Dlx (Ningbo) . FLT70 On / Off Switch Low end (Push button switch) SS Coil Poly V Belt.
It is good that the company maintains its inventories based on its value using controlling techniques.25-100 constitutes 35% of total components and C classes are those whose unit value is less than Rs. B & C classes using ABC analysis techniques based on unit value.100 and constitutes 45% of total components.Table 5.3.1 ABC ANALYSIS Categories A B C Total Total No. Items in Classes 18 14 8 40 Percentage 45 35 20 100
ANALYSIS & INTERPRETATION : The above table shows the classification of various components as A. B classes are those whose unit value is between Rs. Chart 5.1 ABC Analysis
50 45 40 35 30 25 20 15 10 5 0 A B C 45 35 20
.3. From the classification A classes are those whose unit value is more than Rs.25 constitutes 30% of total components.
Welling Splash Motor Motor .4 FSN ANALYSIS MEANING All the items in the inventory are not required at the same frequency.ECO Dlx .Eco Dlx ( Ningbo ) .6006 Bearing .Eco Dlx ( Ningbo ) .Ball Sealed . Slow moving and Non-moving.Ball Sealed . FSN classifies items into Fast moving.Swift Drive assly .Without buzzer ( SI 60 ) Heater ( WW ) Heater ( Chandini ) Pig tail connector-3.
FAST MOVING ITEMS Bearing . Some are required regularly.China ( Agitator ) .With buzzer ( S60 ) Wash timer .8 Seal drive tube .0 Pig tail connector-3.6205 .Swift Seal tub support .5.NBO .NBO .2 pin drive Drive assly . some occasionally and some very rarely.China ( Same pulley ) Wash timer .NBO .Swift WW Motor .China ( Impeller ) Driven Pulley .Jeamo SS Coil
FLT70 Heater Low end Pressostat. Low End. FLT70 Ball Bearing-Outer.FLT70 Drain Pump. Mid & High End. FLT70 Nut Push In.FLT70 Bellow. FLT On / Off Switch Low end ( Push button switch ) Thermostat Variable.High End Door Lock.SLOW MOVING ITEMS Clamp tub Suspension Spring Assly FLT 70 ( Fimstud) Door Lock . FLT70 Timer T2-EC6018-FLT Water Distribution Actuator.FLT70 Motor Low end Window Glass.FLT70 Tub Sealing. High/Mid End. FLT70 Heater Clip. FLT70 Universal Motor Assy. FLT70 Ball Bearing-Inner. Low End. FLT70 Poly V Belt. FLT70 Shock Absorber Assy. FLT70 Heating Element . FLT7023 17
1 FSN ANALYSIS Categories F S N Total ANALYSIS & INTERPRETATION : In the above table shows the classification of various components as FSN items using FSN analysis techniques based on movements. there is no Non-moving items. According to data given. It is not good as the company maintains low percentage in moving items. Chart 5. From the classification F items are those which moves fastly and constitutes 43% of total components.1 FSN Analysis Total No.4. S items are those which moves slowly constitutes 57% of total components and N items are those which doesn’t move (Non-moving items).4.Table 5. items in Classes 17 23 0 40 Percentage 43 57 0 100
60 50 40 30 20 10 0 F S N
03.591/5 = 14.300 0 17.5.991.014 73.991.213 34.61.03.64.913
x = Σx/n = 0/5 = 0 y = Σy/n = 73.1 CALCULATION OF INVENTORY TREND YEAR (x) 2003 2004 2005 2006 2007 Inventories (Rs.2 = 25. from an independent variable X.17.5 TREND ANALYSIS MEANING Regression means dependence and involves estimating the values of a dependent variable Y.79.82.3 10-5*0
b = Σxy – n x y
Σx2.68.66. b = Σxy – n x y
Σx22.214.171.124 17.58.03.37.58.300 20.nx
y = a + bx
a = y – b x = 14. Y = a + bx Where a= y – b x.85.68.nx 2
Table 5.3 * 0 = 14.5 * 0 * 73.118.028 25.61.514 126.96.36.199.77.22.01.) Y 188.8.131.52.60.45.550 184.108.40.206.17.85.2
.028 -220.127.116.11.591 X X=x-2005 -2 -1 0 1 2 0 X2 4 1 0 1 4 10 XY (Rs) -18.50.01.5.2 – 2.913.77.591 =2.
77.= 14.213 18.104.22.168 (3) =22.214.171.124 + 126.96.36.199.20 100
ANALYSIS & INTERPRETATION : In the above table shows the percentage of inventories increases from 9.9188.8.131.52.184.108.40.206 which is again in the increasing trend. This infers that the inventory requirement is increasing in the future period also.991.2 + 2.100
Table 220.127.116.11 Therefore inventory for the year 2008 will be approximately Rs.37.17.17. =18.104.22.168.100 22.214.171.124.17.118.40 18.514 8.550 126.96.36.199.3 x The forecast of inventory for the year 2008 is computed by substituting x = 2008 in the above equation.2 INVENTORIES PERCENTAGE Years 2003 2004 2005 2006 2007 2008 TOTAL Inventories 9.61.65 9.9 =22.60.991.2 + 188.8.131.52.118.2 + 2.2 + 2.17.2 + 184.108.40.206.991.10 in the year 2003-2007.991.15 21. It shows satisfactory position of inventories as it implies increasing production & demand for the product.3 x =220.127.116.110 20.118.10 23.118.50.
.118.60.973.11.3 (x-2005) =14.77.65 to 18.691 Percentage 9.50 18.092.014 22. the inventory for the year 2008 is expected to be 23.3 (2008-2005) =14.50.
2 TREND OF INVENTORY
25 20 15 10 5 0 2003 2004 2005 2006 2007 2008
Inventory (Rs.40.1 Inventories Turnover Ratio & Velocity Year 2003 2004 2005 2006 2007 Net Sales (Rs.613 Ratio 1.30. 4.80: 1 0.e. This shows that the inventories are easily converted into sales within the shortest period i.28.80 times.6 INVENTORIES TURNOVER RATIO MEANING This ratio is calculated to consider the adequacy of the quantum of capital and its justification for investing in inventory.5: 1 Velocity (in Days) 250 203 456 125 81
ANALYSIS & INTERPRETATION : In the above table shows inventory turnover ratio for the past years.18.104.22.168. This ratio reveals the number of times finished stock is turned over during a given a accounting period.5 in the year 2003 to 2007.381 17. A firm must have reasonable stock in comparison to sales.669 11. It is the ratio of net sales and the average inventory.) 12.73.
.09.53.407 14.220 Avg.06.134 16.80: 1 2. This ratio helps the financial manager to evaluate inventory policy.30. Whereas in the velocity of inventories shows less in 2007 as compared to 2003 which is 81 days in 2007 and 250 days in 2003 except in the year 2005 which is 456 days.46 to 4.581 55.5 by investing rupee one in the stock in 2007.74.52.11. The formula for the ratio is Net sales Avg. The ratio is showing increasing trend from1. except in the year 2005 which shows only 0.71.571 79.5.) 8.42.371 8.43.925 18.46: 1 1.6.92: 1 4. Inventory
Table 5.05.92. the company was able to sell Rs.
S items are those which moves slowly constitutes 57% of total components and N items are those which doesn’t move (Non-moving items). B classes are those whose unit value is between Rs.25 constitutes 30% of total components. So.1 FINDINGS OF THE STUDY
It is found that. It is not good as the company maintains low percentage in fast moving items in compared to Slow moving inventories based on movements using controlling techniques. It is good that the company maintains its inventories based on its value using controlling techniques.
. According to data given. It is understood that the company is not following EOQ for purchasing the materials. From calculation of safety stock. From the calculation it shows. that the percentage of inventoried increases from 9. the inventory for the year 2008 is expected to be 23. This indicates increasing efficiency of the management. the inventory management is not satisfactory. there is no Non-moving items. of unit purchased. From the classification A classes are those whose unit value is more than Rs. there is a variation in the EOQ & no.25-100 constitutes 35% of total components and C classes are those whose unit value is less than Rs.100 and constitutes 45% of total components.65 to 18. we can able to determine how much the company can hold the inventory in reserve stock per annum. From the classification F items are those which moves fastly and constitutes 43% of total components.10 in the year 2003-2007.CHAPTER-VI 6.20 which is again in the increasing trend.
e.46 to 4. Whereas in the velocity of inventories shows less in 2007 as compared to 2003 which is 81 days in 2007 and 250 days in 2003 except in the year 2005 which is 456 days. 4.80 times.5 by investing rupee one in the stock in 2007. This shows that the inventories are easily converted into sales within the shortest period i. except in the year 2005 which shows only 0. The ratio is showing increasing trend from1. the company was able to sell Rs.5 in the year 2003 to 2007.
It also measures how quickly inventory is sold.2 SUGGESTIONS AND RECOMMENDATIONS
According to EOQ. The inventory turnover ratio indicates whether investment in inventory is within proper limit or not. as the company does not follow EOQ for its purchasing. because A class constitutes more(45%) of higher values. The past data shows increase in inventory the company is also expecting more inventories for future period i. There should be tight control exercised on stock levels. This is done through maintaining low safety stock. Under ABC analysis. the management must have more control on A than B&C. in order to avoid over investment of working capital. 2008. This will reduce the cost & help to enhance the profit of the company. continuous check on schedules & ordered frequently in inventories. It requires to maintain a high turnover ratio than lower ratio. to avoid deterioration. A high ratio implies that good inventory management and it also reflects efficient business activities. the company can be adjusted to order materials. The company must not go to the Non-moving items as far as possible. The company is required to maintain safety stock for its components in order to avoid stock-out conditions & help in continuous production flow.
.e. because there will be unnecessary blocking of working capital.6. This would hinder the other activities of the organization. The management is required to maintain the same inventory trend in the forth coming year also.
. they can enhance the profit with minimum cost. From the analysis we can conclude that the Company can follow the Economic Order Quantity (EOQ) for optimum purchase and it can maintain safety stock for its components in order to avoid stock-out conditions & help in continuous production flow. This would reduce the cost and enhance the profit. Since the inventory Turnover ratio shows the increasing trend. Also there should be tight control exercised on stock levels based on ABC analysis & maintain high percentage in fast moving items in inventories as per on FSN analysis for efficient running of the inventory. there will be more demand for the products in the future periods.CHAPTER-VII CONCLUSION
A better inventory management will surely be helpful in solving the problems the company is facing with respect to inventory and will pave way for reducing the huge investment or blocking of money in inventory. If they could properly implement and follow the norms and techniques of inventory management.
As such application of the formula often becomes a difficult and complicated matter. Puducherry. Rate of consumption varies in many cases.
.1 LIMITATIONS OF THE STUDY
• • • The entire analysis applies only to Whirlpool India Ltd. The study takes into account only the quantitative data and the qualitative aspects were not taken into account. The assumption made in the EOQ and Safety stock formulas restrict the use of the formula. • ABC analysis is not one time exercise and items are to be reviewed and recategorised periodically. requirements of inventory items are not accurately predictable. lead time.CHAPTER-VIII 8. unit cost. In practice.
when to order and how much to order.
. It helps the company what items goods are categorized.2 SCOPE FOR THE FURTHER STUDY
• • • • • To give plan to the company what to order.8. It helps to develop the policies for the executives in inventory. It is useful for deciding operating policy & volume of inventory. Project helps to deal with forecasting in inventory.
Lall Nigam I.N.inventorymanagementreview.C.S. Bagavathi “Management Accounting” S Chand & Co. Pillai V.com www.org/2005/06/safety_stock www.inventorymanagementreview.M.org/justintime/index www.inventorymanagementreview.P.whirlpoolindia.inventorymanagementreview. WEB SITES
www. R. B. Jain “Cost Accounting” Prentice hall Of India Private Ltd. Martand Telsang “Industrial Engineering & Production Management” S Chand & Co. Iyengar “Cost & Management Accounting” Sultan Chand & Sons. Paneerselvam “Operations Research” Prentice hall Of India Private Ltd.BIBLIOGRAPHY
M Y Khan P K Jain “Financial Management” 4th edition Tata McGraw Hill. R.org/inventory_basics/index www.org/inventory_control/index