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Project Report On Inventory Management
Project Report On Inventory Management
to both the value-based EOQ model and value-based POQ model may be seen in this article.
Inventory management decisions are complex. Excess cash tied up in inventory burdens the
enterprise with high costs of inventory service and opportunity costs. By contrast, higher
inventory stock helps increase income from sales because customers have greater flexibility in
making purchasing decisions and the firm decrease risk of unplanned break of production.
Although problems connected with optimal economic order quantity and production order
quantity remain, we conclude that value-based modifications implied by these two models will
help managers make better value-creating decisions in inventory management.
INTRODUCTION OF INVENTORY
Inventories constitute the most significant part of current assets of a large majority of companies in
India. On an average, inventories are approximately 60% of current assets in public limited
companies in India. Because of the large size of inventories maintained by firms, a considerable
amount of feuds is required to be committed to them. It is therefore, absolutely imperative to mnage
inventories efficiently and efficiently in order to avoid unnecessary investment. A firm neglecting the
management of inventories will be jeopardizing its long run profitability and may fail ultimately. It is
possible for fore a company to reduce its levels of inventories to a considerable degree e.g. 10 to 20
percent, without any adverse effect on production and sales, by using simple inventory planning and
control techniques. The reduction in excessive inventory carries a favourable impact on a companys
profitability.
MEANING OF INVENTORY:Inventory is the physical stoke of goods maintained in an organization for its smooth sunning. In
accounting language it may mean stock of finished goods only. In a manufacturing concern, it
may includes raw materials, work-in-progress and stores etc. In the form of materials or supplies
to be consumed in the production process or in the rendering of services.
In brief, Inventory is unconsumed or unsold goods purchased or manufactured.
NATURE OF INVENTORIES :-
Inventories are stock of the product a company is manufacturing for sale and
components that make up the product. The various forms in which inventory exist in a
manufacturing company are raw materials, work in progress and finished goods.
RAW MATERIALS:Raw materials are those inputs that are converted into finished product though
the manufacturing process. Raw materials inventories are those units which have been
purchased and stored for future productions.
WORK IN PROGRESS:These inventories are semi manufactured products. They represent products that need
more work before they become finished products for sales.
PACKAGING MATERIAL:Packaging material includes those items which are used for packaging of
perfumery product i.e. cap of the bottle, pump, coller,liver, box etc.
FINISHED GOODS:Finished goods inventories are those completely manufactured products which
are ready for sale. Stock of raw materials and work in progress facilitate production. While stock
of finished goods is required for smooth marketing operation. Thus, inventories serve as a link
between the production and consumption of goods.
The levels of four kinds of inventories for a firm depend on the nature of its
business. A manufacturing firm will have substantially high levels of all three kinds of
inventories, while a retail or wholesale firm will have a very high and no raw material and work
in progress inventories. Within manufacturing firms, there will be differences. Large heavy
engineering companies produce long production cycle products, therefore they carry large
inventories. On the other hand, inventories of a consumer product company will not be large,
because of short production cycle and fast turn over.
INVENTORY MANAGEMENT
As the cost of logistics increases the manufacturers are looking to inventory management as a
way to control costs. Inventory is a term used to describe unsold goods held for sale or raw
materials awaiting manufacture. These items may be on the shelves of a store, in the backroom
or in a warehouse mile away from the point of sale. In the case of manufacturing, they are
typically kept at the factory. Any goods needed to keep things running beyond the next few hours
are considered inventory.
"Inventory" to many small business owners is one of the more visible and tangible aspects of
doing business. Raw materials, goods in process and finished goods all represent various forms
of inventory. Each type represents money tied up until the inventory leaves the company as
purchased products. Likewise, merchandise stocks in a retail store contribute to profits only
when their sale puts money into the cash register.
In a literal sense, inventory refers to stocks of anything necessary to do business. These stocks
represent a large portion of the business investment and must be well managed in order to
maximize profits. In fact, many small businesses cannot absorb the types of losses arising from
poor inventory management. Unless inventories are controlled, they are unreliable, inefficient
and costly.
Inventory management simply means the methods you use to organize, store and replace
inventory, to keep an adequate supply of goods while minimizing costs. Each location where
goods are kept will require different methods of inventory management. Keeping an inventory, or
stock of goods, is a necessity in retail. Customers often prefer to physically touch what they are
considering purchasing, so you must have items on hand. In addition, most customers prefer to
have it now, rather than wait for something to be ordered from a distributor. Every minute that is
spent down because the supply of raw materials was interrupted costs the company unplanned
expenses
2. Systems and processes that identify inventory requirements, set targets, provide
replenishment techniques and report actual and projected inventory status.
3. Handles all functions related to the tracking and management of material. This would
include the monitoring of material moved into and out of stockroom locations and the
reconciling of the inventory balances. Also may include ABC analysis, lot tracking, cycle
counting support etc.
DEFINITIONS OF INVENTORY
1. Inventory: goods that businesses intend to sell to their customers or raw materials or inprocess items that will be converted into salable goods
2. Inventory is the stock of idle resources which has economic value and is maintained to
fulfill the present and future needs of an organization
3. In Manufacturing Organization : Inventory can be as raw
I
IMPORTANCE OF INVENTORY
Inventory represents one of the most important assets that most businesses possess, because the
turnover
of
of
Possessing a high amount of inventory for long periods of time is not usually good for
a business because of inventory
storage,
obsolescence
and
spoilage
costs.
However,
possessing too little inventory isn't good either, because the business runs the risk of losing out
on potential sales and potential market share as well.
A.
(1)
Operating Objectives:
Ensuring Availability of Materials: There 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. A minimum quantity of each material should be held in store to permit production
to move on schedule.
(2)
(3)
(4)
be made continuously available to the management so that they can do planning for
procurement of raw material. It maintains the inventories at the optimum level keeping in
view the operational requirements. It also avoids the out of stock danger.
(5) Better Service to Customers: Sufficient stock of finished goods must be maintained to match
reasonable demand of the customers for prompt execution of their orders.
(6)Highlighting slow moving and obsolete items of materials.
(7) Designing poorer organization for inventory management: Clear cut accountability should
be fixed at various levels of organization.
B. Financial Objectives:
(1)
economies in purchasing also. Every attempt has to make to effect economy in purchasing
through quantity and taking advantage to favorable markets.
(2)
Reasonable Price: While purchasing materials, it is to be seen that right quality of material
is purchased at reasonably low price. Quality is not to be sacrificed at the cost of lower price.
The material purchased should be of the quality alone which is needed.
(3) Optimum Investing and Efficient Use of capital: The basic aim of inventory control from
the financial point of view is the optimum level of investment in inventories. There should be
no excessive investment in stock, etc. Investment in inventories must not tie up funds that
could be used in other activities. The determination of maximum and minimum level of stock
attempt in this direction.
they see a difference in their paychecks from poor inventory management, they are more likely
to take precautions to prevent shrinkage.
Each stock item in your warehouse or back room should have its own procedures for
replenishing the supply. Find the best suppliers and storage location for each and record this
information in official procedures that can easily be accessed by your employees.
Inventory management should be a part of your overall strategic business plan. As the business
climate evolves towards a green economy, businesses are looking for ways to leverage this trend
as part of the big picture. This can mean re-evaluating your supply chain and choosing
products that are environmentally sound. It can also mean putting in place recycling procedures
for packaging or other materials. In this way, inventory management is more than a means to
control costs; it becomes a way to promote your business.
Successful inventory management involves balancing the costs of inventory with the benefits of
inventory. Many small business owners fail to appreciate fully the true costs of carrying
inventory, which include not only direct costs of storage, insurance and taxes, but also the cost of
money tied up in inventory. This fine line between keeping too much inventory and not enough is
not the manager's only concern. Others include:
Maintaining a wide assortment of stock -- but not spreading the rapidly moving ones too
thin;
Increasing inventory turnover -- but not sacrificing the service level;
Keeping stock low -- but not sacrificing service or performance.
Obtaining lower prices by making volume purchases -- but not ending up with slow-
Inventory consists of the goods and materials that a retail business holds for sale or a
manufacturer keeps in raw materials for production. Inventory control is a means for maintaining
the right level of supply and reducing loss to goods or materials before they become a finished
product or are sold to the consumer.
Inventory control is one of the greatest factors in a companys success or failure. This part of the
supply chain has a great impact on the companys ability to manufacture goods for sale or to
deliver customer satisfaction on orders of finished products. Proper inventory control will
balance the customers need to secure products quickly with the business need to control
warehousing costs. To manage inventory effectively, a business must have a firm understanding
of demand, and cost of inventory.
INVENTORY COSTS
There are three main types of cost in inventory. There are the costs to carry standard inventories
and safety stock. Ordering and setup costs come into play as well. Finally, there are shortfall
costs. A good inventory control system will balance carrying costs against shortfall costs.
SAFETY STOCK
Safety stock is comprised of the goods needed to be kept on hand to satisfy consumer demand.
Because demand is constantly in flux, optimizing the Safety Stock levels is a challenge.
However, demand fluctuations do not wholly dictate a companys ability to keep the right supply
on hand most of the time. Companies can use statistical calculations to determine probabilities in
demand.
ORDERING COSTS
Ordering costs have to do with placing orders, receiving and stowage. Transportation and invoice
processing are also included. Information technology has proven itself useful in reducing these
costs in many industries. If the business is in manufacturing, then to production setup costs are
considered instead.
CYCLICAL COUNTING
Many companies prefer to count inventory on a cyclical basis to avoid the need for shutting
down operations while stock is counted. This means that a particular section of the warehouse or
plant is counted physically at particular times, rather than counting all inventory at once. While
this method may be less accurate than counting the whole, it is much more cost effective.
Cyclical counting is preferred because it allows for operations to continue while inventory is
taken. If not for this practice, a business would have to shut down while counts were taken, often
requiring the hire of a third party or use of overtime employees. Cyclical counting usually
utilizes the ABC rule, but there are other variations of this method that can be used. The ABC
rule specifies that tracking 20 percent of inventory will control 80 percent of the cost to store the
goods. Therefore, businesses concentrate more on the top 20 percent and counter other goods
less frequently. Items are categorized based on three levels:
Warehouse staff can now schedule counting of inventories based on these categories. The A
category is counted on a regular basis while B and C categories are counted only once a
month or once a quarter.
FIFO
FIFO operates under the assumption that the first product that is put into inventory is also the
first sold. An example of this in action can be made when we assume that a widget seller
acquires 200 units on Monday for Rs.1.00 per unit. The next day, he spots a good deal and gets
500 more for Rs.75 per unit. When valuing inventory under the FIFO method, the sale of 300
units on Wednesday would create a cost of goods sold of Rs.275. That is, 200 units at Rs1.00
each and 100 units at Rs.75 each. In this way, the first 200 units on the income statement were
valued higher. The remaining 400 widgets would be valued at Rs.75 each on the balance sheet in
ending inventory.
LIFO
LIFO assumes instead that the last unit to reach inventory is the first sold. Using the same
example, the income statement and balance sheet would instead show a cost of goods sold of
Rs.225 for the 300 units sold. The ending inventory on the balance sheet would be valued at
Rs.350 in assets. When this method is used on older inventories, the companys balance sheet
can be greatly skewed. Consider the company that carries a large quantity of merchandise over a
period of 10 years. This accounting method is now using 10-year-old information to value its
assets.
WEIGHTED AVERAGE
Average Cost works out a weighted average for the cost of goods sold. It takes an average cost
for all units available for sale during the accounting period and uses that as a basis for the cost of
goods sold. To site our example again, we would calculate the cost of goods sold at [(200 x Rs.1)
+ (500 x Rs.75)]/700, or Rs.821 each. The remaining 400 units would also be valued at this rate
on the balance sheet in ending inventory.
SPECIFIC IDENTIFICATION
A less commonly used, but important method to valuation is called specific identification. This
method is used for high-end items that are more easily tracked. In some cases, this method can
be used for more common items, but less value is realized from this accounting method is such
cases. This is because powerful and detailed tracking software is required to employ specific
identification on large numbers of goods.
RISING PRICES
When prices are rising, using FIFO will show a greater value on the balance sheet, thereby
increasing tax liabilities but also improving credit scores and the ability to borrow cash for
ongoing operations. Older inventory is being used to determine the cost of goods sold and newer
inventory is being used to report assets. LIFO decreases the value on the income statement, but
can reduce the level of depreciation you are able to take on assets. This is good for taxes but bad
for borrowing. Industries most likely to adopt LIFO are department stores and food retailers. The
method is rarely used in defences.
Inventories are equivalent to cash and they make up an important of the total cost.
It is essential that inventory should be properly safeguarded and correctly accounted.
Proper control of inventory can make a substantial contribution to the efficiency of a
bussiness. The success of a business concern largely depends upon efficient purchasing,
storage, consumption and accounting.
Inventory plays a vital role in study of inventory
management in bulk so I selected the SFP Sons pvt.ltd.
STATEMENT OF PROBLEM
The current system in the company under inventory management system which doesnt
specify the safety stock which leads to scare for stocks at emergency.
The data are not properly updated at the end of each days work. Proper data
security system is not provided. Annual maintenance contract is not provided.
Records are not maintained properly.
INDUSTRY PROFILE
The perfume industry in India has come of age. From a cottage industry it has become fullfledged industry in the last two decades. The industry is growing at 125 percent annually. The
growth is attributed to an increase in disposable income.
WITH GLOBALIZATION, liberalization and the IT revolution, living standards of the Indians
have increased manifold. The demand for fashionable products has increased too. That is why;
all global players are eyeing the subcontinent for business purpose. The illegal flow of lifestyle
products confirm the great demand for these products in India. The affinity of the Indians for
foreign goods also compels the indigenous manufacturers to tie-up with international brands to
tap this segment of people.
The fragrances industry is big business, very big business. It includes much more than retail sales
of fragrances. Related industries such as chemical companies supply the chemicals and the
fragrances are made from it. Most fragrances chemicals are synthesized from petroleum
products. Some companies formulate fragrances and flavours for other companies. Marketing
and advertising are used to create and promote the image of a fragrance.
The perfume industry, basically, was just a cottage industry some two decades ago. But now, due
to the huge demand among the people, it has blossomed into a full-fledged industry. Recently,
Alcome Perfumes and Cosmetics, declared a plan to set up a Rs. 100 crore green field perfume
plant in and around Noida Special Economic Zone.
The domestic perfume market is estimated to be worth Rs.300 crore and is growing at around
125 percent annually. The forecast is that it may grow at a rate of 200 percent in the coming
years, with fast changing consumer behaviour and habits.
Geneva-base International Fragrance association has estimated that the global perfume market is
worth $ 40 billion, out of which the mass market has a 70 percent share. In this, India, China has
a considerable share.
With the growing demand for fragrance, the Indian perfume companies are planning to change
their strategies by utilizing their resources mainly for the domestic market and a meager portion
for exports. Apart from that these that these companies are also planning a multiple marketing
and distribution strategy to foray into a market with huge potential. The potential is immense as
the middle class is growing rapidly and disposable incomes are increasing.
Feb 17, 1991 - Written in collaboration with Patricia Bayer, the book includes chapters on
Rene Lalique's life, the development of the perfume industry, the history of the Lalique company,
and collecting tips. An appendix provides information on dating bottles by the signature .
6. 1999
Dec 9, 1999 - of newly fragrances remain on the shelf after a year of launching," says
international director for Antonio PUIG perfumes, Eugeni Majo. cosmetics industry is a dynamic
one. it's competitive and only companies that manage to create an product that differs from the
rest will remain"
7. 2000
Jun 20, 2000 - Halifax's eight-year-old "No Scents" policy is creating a big stink in the
perfume industry. Representatives from the American and Canadian perfume industry were in
Halifax Tuesday to launch a counter attack ad campaign as a way of stopping the campaign from
spreading.
8.2001
Nov 23, 2001 - hitherto unknown insights into the use of perfumes through the ages and
learn that "the history of perfume is often intertwined with the history ... But, it was the Arabs
who linked "the past and present of the perfume industry", says the portal. "The process of
extracting oils from flowers.
9.2002
Apr 11, 2002 - Scented oils and perfumes were stored in elaborate and beautiful pots and
jars throughout Egyptian history. ... "Never before has a series of exhibitions in Egypt and abroad
been devoted to a single industry, which has resulted in such a wide range of artistic and
utilitarian objects,"
10.2004
Sep 22, 2004 - It was a scent that changed the American position in the perfume
industry. Women across this nation began to forsake all of the costly and well- ... She offered her
vast store of perfume knowledge and its history with great generosity.
COMPANY PROFILE
SOMABHAI FULABHAI PATEL (SFP)
SFP Sons (India) Pvt. Ltd established in 1992 is one of the leading manufacturers of
Perfumes and cosmetics in India. SFP is located in Special Economic Zone, Chennai and was
Formerly known as S. F. Patel & Sons (India).SFP manufactures wide range of over 1000+
products under its own brands 'Ahsan', 'Tara', 'Taibah', 'Malaki', 'Salaam', 'Silent Valley' and
'Crazy Moments'. These products are widely available in more than 20 countries. Product
range includes Attars (concentrated perfume oils), Spray Perfumes (EDT, EDP, colognes and
body mists), Perfume Gels, Creams and Gels for Hair and body, Cleansing lotion, Shower
Gels, Shampoos, Hair Oil and Talcum powders.
SFP is a ISO 9001 certified company and is committed to manufacture quality products.
All products manufactured are skin friendly and abide by all international standards laid
down by governing bodies like IFRA, FDA et al.
SFP factory is spread over 100,000 sq. ft area and
employees over 400+ people. It houses a well equipped R & D laboratory and highly
qualified team to develop and manufacture high quality products. It has a sound
infrastructure and modern facilities which helps every activity and product of SFP fulfill its
brand promise and mantra
MANAGEMENT
SFP was started by its present Managing Director Mr. Dinesh S. Patel an entrepreneur with
dream and vision to make SFP a globally leading Company in perfumes and Cosmetics industry.
He believes hard work, commitment and passion combined can enrich every individual's life.
R & D Lab
SFP has well equipped laboratory and research section, equipped to carry out in-house
development and testing required as per laid down standards. Latest GC, refract meters, SG
meter, Ph meters, Viscometers and other Instruments are manned by trained personnel.SFP is
committed to quality through its strict quality control methods. Using latest technology every
component and product are tested as per international standards at all stages of manufacturing to
ensure high quality perfumes and cosmetics.
BLENDING
SFP also blends some of its
Own fragrances. It has 8 nos
of blending tanks of capacity
1 ton with cooling lines.
It has DM Water plant and a
RO water plant. SFP has two
tanks for alcohol storage which can hold 50000 liters.
COSMETIC MANUFACTURING
Cosmetic products manufacturing is done is well
equipped modern facilities. This plant has oil phase
vessel, water phase vessel and a main homogenizing
vessel of capacity 1 ton. SFP also has
50 liter plant to cater to smaller needs
DISTILLATION
WAREHOUSE
The newly constructed ware house has area of over
20000 sq. ft and is well arranged to monitor and
move material with ease. All products are bar-coded
for efficient identification. SFP is well connected by
road, sea and air to have excellent supply chain.
TRAINING
SFP Training Centre provides trainings to all its employees on regular basis. The training is
totally based on skill and personality development to drive individuals and the company forward.
SHOWROOM
The showroom within the factory premises
displays a range of products. It also displays
packaging material components. Here customers
can select items of their choice for their markets.
Credentials of SFP
Raad voor accreditatie, Netherland has licensed SFP Sons (India) Pvt. Ltd and listed
in the bureaus register of licensees of Quality management system certification in
respect of the products and services in accordance with ISO 9001:2008 and also ISO
machine.
Alcohol(perfumery grade) storage tanks
Quality control laboratory with advanced GC machine and relevant testing
apparatuses.
Well-equipped in built R&D centre.
Design and development department which consistently create packaging design
which customers purpose and also innovates new designs and present to them.
The company has warehouse having a large space and materials handling equipments
and forklift.
The plant has 12 filling lines and a capacity of 1, 20,000 bottles per shift.
All the activities of company are done in the world class software SAP business 1.
.HUMAN RESOURCE
While implementing the above activities it is ensured that personnel are made aware
of the relevance and important of their activities considering this an integral requirement for
their contribution towards achievement of quality objectives.
Records of education, training, skill & experience are maintained as long as the
employee is in service roll in SFP.
Manpower in SFP
Every department has a highly experienced and qualified team. Company has around 250
skilled workers. The company has 120 experienced hands in the line of sales and marketing
team. The company has a fully equipped training hall which accommodates 50 persons at a
time and regular training programs are held at different levels. The training is totally based on
skill and personality development to drive individuals and the company forward
ORGANISATIONAL CHART
HEAD STORE
TOP
LEVEL
MANAGEING
DIRECTOR
HEAD
MIDDE
WORKS
L
LEVEL
LOW
LEVE
HEAD F&P
L
HEAD
FORMULATION
HEAD QA
MANAGEME
NT
REPRESENTA
TIVE
HEAD
PURCHASE
HEAD
COMMERCIAL
HEAD
TRAINING
MARKETING
SFP has organized tie-up in Dubai to fee the market in U.A.E. and distribution of the
premium attars to African countries like, Sudan, Egypt,
Somalia, Nigeria, Ghana, Uganda, Zambia, South Africa, Libya, Algeria, Mauritania,
morocco, Chad, and Cameroon.
In Saudi Arabia the company is having distribution tie-ups in Jeddah, Riyadh, Mecca,
Medina, etc.
Also the company is having distribution outlets in Kuwait, Muscat, Bahrain, Doha-Qatar,
Lebanon, Jordan, Syria, Iran, Iraq, and Afghanistan.
The company is also having export market in Sri Lanka, Singapore, Malaysia, Indonesia,
Thailand, Myanmar and Bangladesh.
In the west the company is having market in Atlanta, New York, New Jersey, Chicago,
Las Angeles, London, Spain, and France.
In India there are 750 distributors throughout the country.
PRODUCT PROFILE
Different Brands Manufactured by SFP :
OBJECTIVE OF STUDY:Primary objective:To analyze that the existing inventory management system in SFP
SONS India pvt.ltd.
Secondary objective:1. To verify the mismatch between the order and receipt of mate
2. To find out the impact of inventory on working capital.
3. To find out minimum stock level, how much stock should be order.
LITERATURE REVIEW
3) Machine
4) Market
5) Material
6) Management
6. Author:-Silver, Edward A
Dec22, 2002
(Article from production and inventory management journal)
This article considers the context of a population of items for
which the assumption underlying the EOQ derivation holds reasonably well.
However as is frequently the cash in practices there is an aggregate constraint that
applies to the population as a whole. Two common forms of constraints are:
1) the existence of budget to be allocated among the stocks of the items and
2) a purchasing production facility having the capability to process at most a certain
number of replenishment per year. Because of the constraint the individual
replenishment quantities cannot be selected independently.
7. Author:- Charles Atkinson
(A study on inventory management)
In the study by Mr. Charles Atkinson, he explained the inventory
management and assessment of inventory levels. As per this study inventory management
need to address two issue
Part I. How to optimize average inventory levels.
Part II. How to assess (evaluate) inventory levels.
This study tells about what the manager should do and not to do, and
how much amount should be order in one placed orders. Average inventory can be
calculated by simplistic method.
Average inventory = beginning inventory +end inv./2
8. Author:-Delaunay C , Sahin E,
2007.
RESEARCH METHODOGY
organization. SFP invests about 40% of total assets inventory should be analyzed their
records.
The analysis of inventory according to their data is available in the company. The data
collection of inventory for analysis is by the direct store department. I went to the all inventories
as raw material, work in progress inventory, finished goods inventory by the proper observation
of datas of the company.
The particular method for data collection used direct interview with assistants and
telephone interview with friends to known about annual investment of inventories and other
important data.
PERIOD OF STUDY:
The study was conducted in a period between January 2010 to April 2010 during which
the researcher studied the companys relationship with dealers and distributors and obtained their
view.
In analysis of inventory of SFP, We collect the data by the different sources. We collect the
primary and secondary data.
SECONDARY DATA
The secondary data are those data that are already in presence for specific
purpose, we use the secondary data about inventory to look old records of the company .For
the daily information about the items are show the MRN, ledger register and daily issue slip
of materials, the purchase register and other documentary evidence used for the findings.
In the analysis of inventory, the secondary data provided is not sufficient then we collected
primary data.
PRIMARY DATA
Primary data or fresh data are those data that are originated very first time
with the help of primary data we formulated the research objectives. Primary data are the
accurate, attainable, reliable and useful data.
1. Inventory control techniques used by the company
2. Inventory systems as perpetual and periodic systems.
3. Stock levels etc.
4. Companys website
In managing inventories, the firms objective should be in consonance with the wealth
maximization principle. To achieve this, the firm should determine the optimum level of
investment in inventory. To deal with the problems of inventory management effectively, it
(2)
Maximum stock Limit: This represents the quantity of inventory above which it should
not be allowed to be kept. The main object of fixing this limit is to ensure that unnecessary
working capital is not blocked in stores. The quantity is fixed keeping in view the
disadvantages of overstocking.
RE-ORDERING LEVEL (ORDERING LEVEL)
It is the point at which if the stock of the material in stores reaches, the storekeeper should
initiate the purchase requisition for fresh supply of material. This level is fixed somewhere
between maximum and minimum level is such a way that the difference of quantity of the
material between the reordering level and the minimum level will be sufficient to meet
requirements of production up to the time of fresh supply of the material. It is fixed after
taking into consideration the following factors:
ABC ANALYSIS:
ABC Analysis is a basic analytical management tool which enables top
management to place the effort where the result will be greatest. This technique,
popularly known as always better control or the alphabetical approach, has universal
One of the major inventory management problems to be resolved is how much inventory should be
added when inventory is replenished. If the firm is buying raw materials, it has to decide lost in
which it has to be purchased on replenishment. If the firm is planning a production run, the issue is
how much production to schedule (or how much to make). These problems are called order
quantity problems, and the task of the firm is to determine the optimum or economic order quantity
(or economic lot size). Determining an optimum inventory level involves two type of costs: (a)
ordering costs and (b) carrying costs: The economic order quantity is that inventory level that
minimize the total of ordering and carrying costs.
VED ANALYSIS:
The VED analysis is used generally for spare parts. The requirement and urgency of spare parts is
different from that of materials. A-B-C analysis may not be properly used for spare parts. The
demand for spares depends upon the performance of the plant and machinery. Spare parts are
classified as: Vital (V), Essential (E) and Desirable (D). The vital spares are a must for running the
concern smoothly and these must be stored adequately. The non-availability of vital spares will cause
havoc in the concern. The E types of spares are also necessary but their stocks may be kept at low
figures. The stocking of D types of spares may be avoided at times. If the lead time of these spares is
less, then stocking of these spares can be avoided.
The classification of spares under three categories is an important decision. A wrong classification of
any spare will create difficulties for production department. The classification of spares should be
left to the technical staff because they know the need, urgency and use of these spares.
world. In a JIT system material or the manufactured components and part arrive to the
manufacturing sites or stores just few hours before they are put to use. The delivery of material is
synchronized with the manufacturing cycle and speed. JIT system eliminates the necessity of
carrying large inventories, and thus, saves carrying and other related costs of manufacturer. The
system requires perfect understanding and coordination between the manufacturer and supplier
in terms of the timing of delivery and quality of the material. Poor quality material or
complements could halt the production. The JIT inventory system complements the total quality
management (TQM). The success of the system depends on how well a company manages its
suppliers. The system puts tremendous pressure on suppliers. They will have to develop adequate
system and procedures to satisfactory meet the needs of manufacturers
INVENTORY TURNOVER RATIO: (ITR)
In accounting, the Inventory turnover is an equation that measures the number of times
inventory is sold or used over in a period such as a year. The equation equals the cost of
goods sold divided by the average inventory. Inventory turnover is also known as
inventory turns, stock turn, stock turns, turns, and stock turnover.
The procurement of inventory is totally depends on order/demand. In first step they get
the order from customer then they write a form that form called indent form by hand writing.
After getting order they will send the order to purchase department for buying of Raw
Material and Packaging material. Every time that causes the delay of delivery of goods to the
customer. After receiving the raw materials from supplier they check the quality, because quality
is more important for them. In whole production process 4-5 times they will check the quality
and after that quality check seal on product.
They are using FIFO method for delivery of good to the customers. First In First Out
(FIFO) means first order should deliver first and after that continue process. It is good way of
delivery that make the customer satisfied. Every inspection about available stock is on SAP
every one can know how much stock is available, and how much order should be placed. For
every order they keep the numbers for identification.
Warehouse arrangement
There is separate warehouse for keeping the different types of inventory like
Raw material, packaging material, semi finished good and finished good. Raw materials
includes the perfumery liquid, arranging of these things they have rack and rack numbers, and
unique code number for each and every liquid for identification. For talcum powder raw material
are the talc powder which they kept in plastic bags in production unit itself.
Packaging material include box, cap color, neck etc. which require after
filling the product in bottles. Finished goods and packaging material they are keeping in same
warehouse left side finished good and right side packaging material. Finished good order wise
and packaging material how to find easily.
Each and every data maintained in systems so it is very easy to get the information.
SCOPE OF STUDY
LIMITATION OF STUDY
It consumes more time and requires lots of expenditure. More time is needed to do
this study.
Study is based on secondary data only.
The quality of inventory is not compared in analysis.
The analysis is based on figures present in the internal records only.
The study is based on two year reports given by marketing and finance
department that has its own limitation.
FINDINGS
2.4.
By ABC Analysis we can say that there is a little difference between A B & C class items
2010.
The percentage of finished goods, semi finished good, packaging material from total
There is good relationship between company and their distributors, vendors and sales
executives.
SUGGESTIONS
There can be a system where in periodical review (twice in a month) of inventory could
be carried out so that the inventory can be kept under control.
There should be periodical review of movement of items so that any non moving
items can be identified and suitable action can be done.
At present the company is maintaining zero safety stock for all items, if the safety
stock is maintained for important items, delay in production can be eliminated and orders
can be supplied in time which will result in a better credibility in both international and
domestic market.
It has been predicted that if company is planning to achieve more sale it may require huge
amount of inventory in future. So the company has to arrange capital to meet future
requirement.
It is suggested that they can have close monitoring of receipts and issue for A
class items in order to have control of inventory.
To increase the inventory turnover ratio by increasing the sales level and maintaining
the required level of inventory.
To maintain the Re-order level, Min-stock level and Economic order quantity
company should consider the demand of the product.
There is one warehouse for keeping the finished good and packaging material and
packaging material are not arranged in good manner so it should be in order wise.
CONCLUSION
Inventory control is exercise when you order an item. If you do a poor job then everything after
is inventory correction
GORDON GRAHAM
Inventory is the physical asset of a company that can create problem if there is shortage, while in
production and also if its in excess even after production. Inventory is constantly changing as
quantities are sold and replenished.
Hence it can be understood that efficient inventory management can take the company to new
heights and inefficient inventory management can ruin the company.
Company is highly concentrated on domestic market, it increase the market level of company
because trend of domestic market is changing.
The study on Inventory management in SFP Sons (India) Pvt. Ltd about A BC analysis for items
is predicting future inventory requirements etc.
From the study it is predicted that future sales have to be achieved and inventory level have to be
maintained.
ABC Analysis was carried out to identify the fast moving and important items.
The company has to periodically review the inventory to avoid production loss.
The results of the study can be further extended for future research.
BIBLIOGRAPHY
WWW.INVENTORY .COM
WWW.INVESTOPEDIA.COM
WWW.WISEGEEK.COM
www.mbaguys.net