A PROJECT REPORT ON

“ INVENTORY MANAGEMENT SYSTAM
IN”

A SYNOPSIS SUBMITTED TO MAHAMAYA TECHNICAL UNIVERSITY NOIDA AWAR OF DEGREE OF MASTER OF BUSINESS ADMINISTRATION

(2011-2013) SUBMITTED TO:
MBA DEPARTMENT VIRA COLLEGE OF ENG.

SUBMITTED BY
Mr. Ankur Gauta MBA !r" S# R$%% N$.: &&'&((''')

VIRA COLLEGE OF ENGINEERING
1

BIJNOR DECLARATION

I am Ankur Gauta

student of VIRA COLLEGE OF ENGINEERING BI*NOR

here by solemnly declare that the project titled “INVENTORY MANAGEMENT
SYSTAM IN COCA COLA ” is the outcome of my own efforts

research is conducted

by me and finally report has been Submitted to:- Mr. V+,-$r Ra./an0-+ Facult o! Vi"a Colle#e o! e$#i$ee"i$# drawn by my own creati!ity and s"ills only and the same has not submitted to any other or#ani$ation% institution or uni!ersity in order to #et any other de#ree&

DATE11.. Gauta S# R$%% N$.: PLACE1.. &&'&((''')

Mr.Ankur MBA !r"

2

AC%NO&LE'GEMENT
Presentin# a project of this type is an arduous tas"% demandin# a lot of time& I cannot in full measure appreciate and ac"nowled#ement the "indness shown and help e'tended by !arious persons in this endea!or& I will remember all of them with #ratitude& (y sincere than"s are also due to Mr. V+,-$r Ra./an0-+ Facult o! Vi"a Colle#e o! e$#i$ee"i$# (i)$o" for their si#nificant help e'tended for the successful completion of the project& I hi#hly the help I #ot from them in pro!idin# me and lot of information re#ardin# the functionin# of this or#ani$ation& I am always beholden to my )od% for always bein# with me and showin# me the ri#ht ways% my family% for always doin# fa!ors to me and my friends and collea#ues consistently helped with encoura#ement and criticism throu#hout the project wor"% for always liftin# my si#hts to hi#her !ision% raisin# my personality beyond normal limitation and for reali$in# me my stren#ths and potential% as I did not always welcome her e'hortation% *try a#ain+ you can do better&, -ut this project owes a #reat deal to it . and so do I&

Mr.Ankur Gauta S# &&'&((''') MBA !r" R$%% N$.:

3

ualified as & . ! got an opportunity to do training with a "inancial company ! undertake the training to study “ INVENTORY MANAGEMENT SYSTAM IN COCA COLA" #his study discusses on the various aspects of $tudy human relationship management and its importance in retailing. #he study is based on uestionnaire survey results of %ompany #he study concentrates on the concept of "inance management it is correct to my knowledge. Every individual who is doing management studies has to go this phase of practical study before he/she considers himself/herself fully potential managers.PREFACE No professional curriculum is considered complete without work experience.

CONTENTS • E'ecuti!e summary • Objecti!e of the study • Company profile • Company objecti!e • Product ran#e • In!entory mana#ement • Research methodolo#y • /indin#s • 0ata analysis • 1imitations • Conclusions • -iblio#raphy ' .

E*EC+TIVE S+MMARY 2ith the on#oin# re!olution in electronic and communication where Inno!ations are ta"in# at the blin" of eye+ it is impossible to "eep the pace with the emer#in# trends& E'cellence is an attitude that that whole of human race is born with& It is the en!ironment that ma"es sure that whether the result of this attitude is !isible or otherwise& A 2ell planned% properly e'ecuted and e!aluated Industrial trainin# helps a lot in inculcatin# a professional attitude& It pro!ides a lin"a#e between the student and industry to de!elop an awareness of industrial approach to problem sol!in#% based on a broad understandin# of process and mode of In!entory of or#ani$ation& 0urin# this period% the student #ets the real e'perience for wor"in# in the actual Industry en!ironment& (ost of the theoretical "nowled#e that has been #ained durin# the course of their studies is put to test here& Apart from this the student #ets an opportunity to learn the latest technolo#y % which is immensely helps in them in buildin# their career & I had the opportunity to ha!e a real e'perience on many !entures% which increased my sphere of "nowled#e to #reat e'tent& I #ot a chance to learn #oes to or#ani$ation& many new technolo#ies and was also interfaced to many instruments& And all this credit ( .

O(.ECTIVES OF T-E ST+'Y  To assess the si#nificance of the in!entory mana#ement&  To "now the le!el of in!entory to be "ept&  To "now the amount of in!estment in in!entory& ) .

MISSION AND VISION OF COMPANY * .

The company and its subsidiaries in nearly 200 countries around the world manufacture and over 2 0 other company soft drin! brands.000 people around the world$ %ocal business is authori&ed to bottle and sell company soft drin!s with in the local boundaries and under condition that ensure the highest standards of quality and uniformity. "y contract with the Coca Cola Company and its local subsidiaries. To inspire moments of optimism… through our brands and our actions. + . To creat value and make difference… everywhere we engage. body and spirit. Georgia. which employs nearly #.Mission To refresh the world… In mind. customer profitability satisfaction. Vision “To create a world class selling organization and a culture of operating excellence to continually improve consumer experience. employee capability and company The Coca Cola Company is the world leading manufacturer and distributor of non alcoholic beverage concentrates and syrups. with world head quarters in Atlanta.

-mprovement at every time . a new brand named Pepsi Cola in the year *551.o in *55. /is! diversification 0. +rofitability 2. since no remedy was present at that time4 it was a big question for American people. . -nnovation satisfy the customer 1. 2mploy's satisfaction HISTORY OF SOFT DRINK The history of soft drin!s began with the end of the last century. . -ts history dates bac! to civil war in 3* . 7ohn +aimwarlion who lives in Antonica made a drin! and registered it as T/28C9 :-82 C.COMPANY’s OBJECTIVE Company's mission must be turned in to special ob(ectives for each level of management ob(ective are) in a system !nown as management by ob(ectives the most common *. -n the beginning this drin! was made with mi<ture of cocaine and alcohol but later on it is named as Coco Cola. 6r.%A. 1. At that time people were suffering from many diseases.ales growth . -ncrease mar!et share #.A in *300. +roblem at that time was how to cure all these disease.. .

-n the year *311 Coca Cola left -ndian mar!et and this brought in an opportunity for various -ndian companies to show their caliber.0. A soft drin! name double. There was another company named pure drin!. %td. . which introduced the soft drin! named Campa Cola along with arrange and %emon flavors. +reviously there was no competition in the -ndia soft mar!et but with all companies coming in the -ndian mar!et a huge competition was place with college advertisement. Coca Cola in India# 11 . Another company 6ohan mea!ins also came up with a soft drin! named 6ary ? +uch up. "efore Coco Cola entered the country to dominate the scene in *3.had been introduced by a company 6orden "a!ers. 9owever before this they had introduced Cola pepine which was withdraw in face of tough competition from Coca Cola.HISTORY OF COCA COLA COMPANY Indian His o!"# Around *3#5 the first branded soft drin! in the -ndian mar!et. Coca Cola also come bac! in the year *33 . "ut in the year *355 +epsi was given permission to sell drin!s in the -ndian mar!et by the Government of -ndia. This soft drin! was named as Gold . was the first -ndian company to introduce a lemon soft drin! this drin! was !nown as %im!a and it was introduce a lemon soft drin! this drin! was !nown as %imca and it was introduced in *310.pot. 7ust after this many more companies entered the soft drin! mar!et. +arle 2<ports +vt.print. At this time a new soft drin! was introduced by +arle products and this was color. This drin! was introduce with a mighty saying =happy days are here again> as if happy days went away with Coca Cola. 6c @owell came with thrillA +ush and .

-t is also said to be a tribute to the countless number of consumers who drin! Coca Cola. as it is called is location in Atlanta.The coca cola company entered -ndia in early *3. Banpur and @elhi. Coca Cola come bac! in the year *3 after liberali&ation and was launched at Agra with the slogan =. who was a druggist in Atlanta. Calcutta. a doctor by the name of 7ohan . over one hundred years after the soft drin! was invested. The full credit must go to Coca Cola for ma!ing soft drin!s popular in -ndian by end *311. Coca Cola had captured more than #. -ts tribute to the drin! is because it is so popular that it is now served daily in nearly two hundred countries. 9aving the museum location in Atlanta is fitting because long before any one had ever heard of coca cola. @r. -t setup four bottling plants at "ombay.tythe +em. the Coca Cola Company opened up a museum li!e building which was "reton. +emberton used Afri!a. as were negligible companies in the -ndia mar!et therefore Coca Cola did not faced much competition and they were accepted in -ndian mar!et more easily. Coca Cola (oined hands with +arle and to enter -ndia after *1 years by stri!ing a #0 million deal with +arle.0. The :orld of Coca Cola. percent of mar!et share in -ndia then Coca Cola left -ndian following public regulations the company was required to indianite or operation come to an end in 7uly *311. mi<ed up his own concoction of medicinal system in 6ay in the year of *550. 12 .0. Coc! almost made a clear sweep and made its good as =To become all time all occasion drin! not a special treat beverage> -n the year of *330. The brand was accepted by all age Group. Georgia right amidst the tourist district. At the time +arle was the leader in the soft drin! mar!et and had more than 00 percent of the total shore in soft drin!.ld wave have come to -ndian again>. designed to be tribute to its famous soft drin! product. -n *3.

"y the nest year. The first year in *550. the pharmacy made C fountain drin! which mi<ed some of the Coca Cola syrup with plain water.tats. @r. it has been said that a customer came in to the pharmacy one day complaining or a headache. 9e as!ed for a glass of Coca Cola to be made with carbonate water instead of plain water and the carbonate version of soft drin! was the born. The year of *3#0. the famous soft drin! was bottled in forty countries. 9aiti and "urma in later years. True or not. The 9onduras. "ermunda. Candlar. Dive years latter. 6e<ico. man by the name of Asa G. @r. +harmacy in town. The result was C thic! caramel colored syrup. -taly. came up with the name of Coca Cola for the syrup from the names of its two basic ingredients. which are both strong stimulation in his potion. had acquired total control of the Coca Cola became a patented product in the Enited . "ottling operations were soon started in 9awall the ne<t year. though because in the year of *300. 13 .tates for long. Coca Cola popularly would not stay with in the Enited . Coca Cola was bottled in Cuba and in +anama. "elgium. Colombia. +emberton poured some of the Coca Cola syrup in to a (ug and too! it to 7acobs. then in the +hilipines. @r.Bola 8ut e<tracts and Cola leaves. /obinson. Drance. +emberton's +artner. +emberton sold twenty five gallons of his syrup which earned him total revenue of (ust fifty dollars. because of his poor health condition. The purpose of the potion was to be an effective tonic which would help a person's brain and naves function better. he began to sell of his company. The drin! sold to customer for a nic!el a glass. a boo! !eeper by the name of Dram 6.

COMPANY $OA%S 1& .

To continuously increase their own share of percentage in soft drin!s. To satisfy the consumers needs through better quality of product. To satisfy the consumer needs through better quality of product.T&e co'pan" (oals a!e# To earn the ma<imum profit. To maintain quality of product best distribution system. 1' .

INTROD)CTION OF PROD)CT B!and P!o*ile# The company has si< brand and all them are manufacture at the "/-8@AFA8 ". E+ 1( .CA C. T9E6.%A 2. 2ach of the brands has its own flavors and contents.TT%2/. 9aving many profiles the customers vary the different segment of customer prefer different flavor. The brands of Coca Cola are named as following *.. C.

:AT2/J B-8%2K ? ". 6AAIA *0. 7o chahe ho (aye coca cola en(oy T&+'s )p .. %-6CA . POP)%AR P)NCH%INES OF COCA CO%A PROD)CTS Coca Cola Thanda mutlab coca cola. @asna Gha&iabad.B2 5.H 3. ./A8G2G66+. DA8TA A++%2 1. @-2T C.8ACEA These are bottled at 9industan Coca Cola "everage +vt %td. 1) .. 6-8ET2 6A-@ +/26-E8 .+/-T2 #.want my thunder. DA8TA 0.

.Thums Ep taste the thunder Fan a Buch bhi ho sa!ta hai.prite bu(haye only pyaas. Kaari dosti. ba!i all ba!was 1* . 6asti !a apna taste %i'ca Ta!e it easy. %ime n' lemoni lim!a Maa. taa&a maa&a Sp!i @i!hawe pe mat (ao apni a!al lagao.a "ottle me aam maa&a hai naam.

ES OF INVENTORY Raw materials3 The purchased items or e'tracted materials that are transformed into components or products& Components3 Parts or subassemblies used in buildin# the final product& 2or"4in4process 52IP63 Any item that is in some sta#e of completion in the manufacturin# process& /inished #oods3 Completed products that will be deli!ered to customers& 0istribution in!entory3 /inished #oods and spare parts that are at !arious points in the distribution system& 1+ .TY.

.(aintenance% repair% and operational In!entory 5(RO6 in!entory 5often called supplies63 Items that are used in manufacturin# but do not become part of the finished product& 2.

IN'E.EN'ENT 'EMAN' INVENTORY 7ome in!entory items can be classified as independent demand items% and some can be classified as dependent demand items& 2hile we need to ma"e the timin# and si$in# decisions for all in!entory items% we must be careful in the manner in which we ma"e those decisions for these two types of items& Independent demand in!entory item3 In!entory item whose demand is not related to 5or dependent upon6 some hi#her le!el item& 0emand for such items is usually thou#ht of as forecasted demand& Independent demand in!entory items are usually thou#ht of as finished products& 0ependent demand in!entory item3 In!entory item whose demand is related to 5or dependent upon6 some hi#her le!el item& 0emand for such items is usually thou#ht of as deri!ed demand& 0ependent demand in!entory items are usually thou#ht of as the materials% parts% components% and assemblies that ma"e up the finished product& 21 .EN'ENT VS/ 'E.

REASONS FOR MAINTAINING INVENTORY Anticipation In!entory or 7easonal In!entory3 In!entory are often built in anticipation of future demand% planned promotional pro#rams% seasonal demand fluctuations% plant shutdowns% !acations% etc& /luctuation In!entory or 7afety 7toc"3 In!entory is sometimes carried to protect a#ainst unpredictable or une'pected !ariations in demand& 1ot47i$e In!entory or Cycle 7toc"3 In!entory is fre8uently bou#ht or produced in e'cess of what is immediately needed in order to ta"e ad!anta#e of lower unit costs or 8uantity discounts& Transportation or Pipeline In!entory3 In!entory is used to fill the pipeline as products are in transit in the distribution networ"& 7peculati!e or 9ed#e In!entory3 In!entory can be carried to protect a#ainst some future e!ent% such as a scarcity in supply% price increase% disruption in supply% stri"e% etc& (aintenance% Repair% and Operatin# 5(RO6 In!entory3 In!entories of some items 5such as maintenance supplies% spare parts% lubricants% cleanin# compounds% and office supplies6 are used to support #eneral operations In!entory and maintenance& 22 .

6 percenta#e of orders that are shipped on schedule% 5<6 the percenta#e of line items that are shipped on schedule% 5=6 the percenta#e of dollar !olume that is shipped on schedule% and 5>6 idle time due to material and component shorta#e& The first three measures focus on ser!ice to e'ternal customers% while the fourth applies to internal customer ser!ice& Achie!e cost4efficient operations In!entory& In!entories can facility cost4efficient operations In!entory in se!eral ways& In!entories can pro!ide a buffer between operations In!entory so that each phase of the transformation process can continue to operate e!en when output rates differ& In!entories also allow a company to maintain a le!el wor"force throu#hout the year e!en when there is seasonal demand for the company:s output& -y buildin# lar#e production lots of items% companies are able to spread some fi'ed costs o!er a lar#er number of units% thereby decreasin# the unit cost of each item& /inally% lar#e purchases of in!entory mi#ht 8ualify for 8uantity discounts% which will also reduce the unit cost of each item& (inimi$e in!entory in!estment& As a company achie!es lower amounts of money tied up in in!entory% that company:s o!erall cost structure will impro!e% as will its profitability& A common measure used to determine how well a company is mana#in# its in!entory in!estment 5i&e&% how 8uic"ly it is #ettin# its in!entories out of the system and into the hands of the customers6 is in!entory turno!er In!entory% which is a In!entory of the annual cost of #oods sold to the a!era#e in!entory le!el in dollars& 23 .ECTIVES OF INVENTORY MANAGEMENT There are three main objecti!es of in!entory mana#ement% as follows3 Pro!ide the desired le!el of customer ser!ice& Customer ser!ice refers to a company:s ability to satisfy the needs of its customers& There are se!eral ways to measure the le!el of customer ser!ice% such as3 5.O(.

(ASIC INVENTORY 'ECISIONS There are two basic decisions that must be made for e!ery item that is maintained in in!entory& These decisions ha!e to do with the timin# of orders for the item and the si$e of orders for the item& -asic In!entory 0ecisions 9ow much? 1ot si$in# decision 2hen? 1ot timin# decision 0etermination of the 0etermination of the 8uantity to be ordered& timin# for the orders& 2& .

RELEVANT INVENTORY COSTS Rele!ant In!entory Costs Item Costs 0irect cost for #ettin# cost an for item& Purchase outside orders% 9oldin# Costs Costs associated with carryin# items in!entory& in Orderin# Costs /i'ed with an 5either costs placin# order a 7horta#e Costs Costs associated with in!entory not to ha!in# enou#h associated 2' .

(E-AVIOR OF COSTS FOR 'IFFERENT INVENTORY 'ECISIONS 2hen assessin# the cost effecti!eness of an in!entory policy% it is helpful to measure the total in!entory costs that will be incurred durin# some reference period of time& (ost fre8uently% that time inter!al used for comparin# costs is one year& O!er that span of time% there will be a certain need% or demand% or re8uirement for each in!entory item& In that conte't% the followin# describes how the annual costs in each of the four cate#ories will !ary with chan#es in the in!entory lot si$in# decision& Item costs3 9ow the per unit item cost is measured depends upon whether the item is one that is obtained from an e'ternal source of supply% or is one that is manufactured internally& /or items that are ordered from e'ternal sources% the per unit item cost is predominantly the purchase price paid for the item& On some occasions this cost may also include some additional char#es% li"e inbound transportation cost% duties% or insurance& /or items that are obtained from internal sources% the per unit item cost is composed of the labor and material costs that went into its production% and any factory o!erhead that mi#ht be allocated to the item& In many instances the item cost is a constant% and is not affected by the lot si$in# decision& In those cases% the total annual item cost will be unaffected by the order si$e& Re#ardless of the order si$e 5which impacts how many times we choose to order that item o!er the course of the year6% our total annual ac8uisitions will e8ual the total annual need& Ac8uirin# that total number of units at the constant cost per unit will yield the same total annual cost& 5This situation would be somewhat different if we introduced the possibility of 8uantity discounts& 2e will consider that later&6 9oldin# costs 5also called carryin# costs63 Any items that are held in in!entory will incur a cost for their stora#e& This cost will be comprised of a !ariety of components& One ob!ious cost would be the cost of the stora#e facility 5warehouse space char#es and utility char#es% cost of material handlers and material handlin# e8uipment in the warehouse6& In addition to that% there are some other% more subtle e'penses that add 2( .

to the holdin# cost& These include such thin#s as insurance on the held in!entory+ ta'es on the held in!entory+ dama#e to% theft of% In!entory of% or obsolescence of the held items& The order si$e decision impacts the a!era#e le!el of in!entory that must be carried& If smaller 8uantities are ordered% on a!era#e there will be fewer units bein# held in in!entory% resultin# in lower annual in!entory holdin# costs& If lar#er 8uantities are ordered% on a!era#e there will be more units bein# held in in!entory% resultin# in hi#her annual in!entory holdin# costs& Orderin# costs3 Any time in!entory items are ordered% there is a fi'ed cost associated with placin# that order& 2hen items are ordered from an outside source of supply% that cost reflects the cost of the clerical wor" to prepare% release% monitor% and recei!e the order& This cost is considered to be constant re#ardless of the si$e of the order& 2hen items are to be manufactured internally% the order cost reflects the setup costs necessary to prepare the e8uipment for the manufacture of that order& Once a#ain% this cost is constant re#ardless of how many items are e!entually manufactured in the batch& If one increases the si$e of the orders for a particular in!entory item% fewer of those orders will ha!e to be placed durin# the course of the year% hence the total annual cost of placin# orders will decline& 7horta#e costs3 Companies incur shorta#e costs whene!er demand for an item e'ceeds the a!ailable in!entory& These shorta#e costs can manifest themsel!es in the form of lost sales% loss of #ood will% customer irritation% bac"order and e'peditin# char#es% etc& Companies are less li"ely to e'perience shorta#es if they ha!e hi#h le!els of in!entory% and are more li"ely to e'perience shorta#es if they ha!e low le!els of in!entory& The order si$e decision directly impacts the a!era#e le!el of in!entory& 1ar#er orders mean more in!entory is bein# ac8uired than is immediately needed% so the e'cess will #o into in!entory& 9ence% smaller order 8uantities lead to lower le!els of in!entory% and correspondin#ly a hi#her li"elihood of shorta#es and their associated shorta#e costs& 1ar#er order 8uantities lead to hi#her le!els of in!entory% and correspondin#ly a lower li"elihood of shorta#es and their associated 2) .

costs& The bottom line is this3 lar#er order si$es will lead to lower annual shorta#e costs& 2* .

& 0emand for the item is "nown and constant& <& 1ead time is "nown and constant& 51ead time is the amount of time that elapses between when the order is placed and when it is recei!ed&6 =& The cost of all units ordered is the same% re#ardless of the 8uantity ordered 5no 8uantity discounts6& >& Orderin# costs are "nown and constant 5the cost to place an order is always the same% re#ardless of the 8uantity ordered6& A& 2hen an order is recei!ed% all the items ordered arri!e at once 5instantaneous replenishment6& B& 7ince there is certainty with respect to the demand rate and the lead time% orders can be timed to arri!e just when we would ha!e run out& Conse8uently the model assumes that there will be no shorta#es& -ased on the abo!e assumptions% there are only two costs that will !ary with chan#es in the order 8uantity% 5.6 the total annual orderin# cost and 5<6 the total annual holdin# cost& 7horta#e cost can be i#nored because of assumption B& /urthermore% since the cost per unit of all items ordered is the same% the total annual item cost will be a constant and will not be affected by the order 8uantity& 2+ .CLASSIC ECONOMIC OR'ER 0+ANTITY 1EO02 MO'EL The EO@ model is a techni8ue for determinin# the best answers to the how much and when 8uestions& It is based on the premise that there is an optimal order si$e that will yield the lowest possible !alue of the total in!entory cost& There are se!eral assumptions re#ardin# the beha!ior of the in!entory item that are central to the de!elopment of the model EO0 a33um4tio$3: .

EO0 3 mbol3: 0C annual demand 5units per year6 7 C cost per order 5dollars per order6 9 C holdin# cost per unit per year 5dollars to carry one unit in in!entory for one year6 @ C order 8uantity 3. .

CLASSIC ECONOMIC OR'ER 0+ANTITY 1EO02 MO'EL 2e saw on the pre!ious pa#e that the only costs that need to be considered for the EO@ model are the total annual orderin# costs and the total annual holdin# costs& These can be 8uantified as follows3 A$$ual O"de"i$# Co3t The annual cost of orderin# is simply the number of orders placed per year times the cost of placin# an order& The number of orders placed per year is a function of the order si$e& -i##er orders means fewer orders per year% while smaller orders means more orders per year& In #eneral% the number of orders placed per year will be the total annual demand di!ided by the si$e of the orders& In short% Total Annual Orderin# Cost C 50D@67 A$$ual -oldi$# Co3t The annual cost of holdin# in!entory is a bit tric"ier& If there was a constant le!el of in!entory in the warehouse throu#hout the year% we could simply multiply that constant in!entory le!el by the cost to carry a unit in in!entory for a year& Enfortunately the in!entory le!el is not constant throu#hout the year% but is instead constantly chan#in#& It is at its ma'imum !alue 5which is the order 8uantity% @6 when a new batch arri!es% then steadily declines to $ero& Just when that in!entory is depleted% a new order is recei!ed% thereby immediately sendin# the in!entory le!el bac" to its ma'imum !alue 5@6& This pattern continues throu#hout% with the in!entory le!el fluctuatin# between @ and $ero& To #et a handle on the holdin# cost we are incurrin#% we can use the a!era#e in!entory le!el throu#hout the year 5which is @D<6& The cost of carryin# those fluctuatin# in!entory le!els is e8ui!alent to the cost that would be incurred if we had maintained that a!era#e in!entory le!el continuously and steadily throu#hout the year& That cost would ha!e been e8ual to 31 .

the a!era#e in!entory le!el times the cost to carry a unit in in!entory for a year& In short% Total Annual 9oldin# Cost C 5@D<6 9 Total A$$ual Co3t The total annual rele!ant in!entory cost would be the sum of the annual orderin# cost and annual holdin# cost% or TC C 50D@67 F 5@D<69 This is the annual in!entory cost associated with any order si$e% @& 32 .

CLASSIC ECONOMIC OR'ER 0+ANTITY 1EO02 MO'EL At this point we are not interested in any old @ !alue& 2e want to find the optimal @ 5the EO@% which is the order si$e that results in the lowest annual cost6& This can be found usin# a little calculus 5ta"e a deri!ati!e of the total cost e8uation with respect to @% set this e8ual to $ero% then sol!e for @6& /or those whose calculus is a little rusty% there is another option& The uni8ue characteristics of the orderin# cost line and the holdin# cost line on a #raph are such that the optimal order si$e will occur where the annual orderin# cost is e8ual to the annual holdin# cost& EO@ occurs when3 50D@67 C 5@D<69 a little al#ebra clean4up on this e8uation yields the followin#3 @< C 5<076D9 And finally @ C G<07D9 5This optimal !alue for @ is what we call the EO@6 33 .

H%HHH units per year Orderin# cost 576 C IJA per order 9oldin# cost 596 C IB per unit per year 3& .AHH Total annual in!entory cost C I=HHH Time between the placement of orders C .H%HHHD<AH C >H units per day6 Results of computations3 EO@ C AHH units Number of orders placed per year C <H A!era#e in!entory le!el C <AH units Annual orderin# cost C I.AHH Annual holdin# cost C I.H%HHH units per year Orderin# cost 576 C IJA per order 9oldin# cost 596 C IB per unit per year 1ead time C A days The company operates <AH days per year 5hence% daily demand C .E/O/0 ILL+STIRATION IVENTORY Annual demand 506 C .<&A days SOME O(SERVATIONS A(O+T O+R EO0 ILL+STINVENTORYN Gi5e$ data Annual demand 506 C .

<&A days Ob3e"5atio$ 67 3' .AHH Total annual in!entory cost C I=HHH Time between the placement of orders C .AHH Annual holdin# cost C I.1ead time C A days The company operates <AH days per year 5hence% daily demand C .H%HHHD<AH C >H units per day6 Re3ult3 o! com4utatio$3 EO@ C AHH units Number of orders placed per year C <H A!era#e in!entory le!el C <AH units Annual orderin# cost C I.

H%HHH units C I.H%HHH& Our total annual in!entory cost would then be I.The total annual in!entory cost of I=HHH includes only the annual orderin# cost and the annual holdin# cost& 2e were able to i#nore the shorta#e cost because all of the certainty in our assumptions led to a Kno shorta#eK situation& 2e also i#nored the total annual item cost% since it was a hori$ontal line that had no impact on the optimal si$e of our orders& 9owe!er% we will still ha!e to pay for those .&HH per unit& This would ma"e the total annual purchase cost I.H%HHH C I.<&A days& 2e projected that we would run out on days .AHH F I.&HH per unit ' .H%HHH items that were ordered o!er the course of the year% so that annual purchase cost will contribute to the total of our in!entory related costs 5orderin# F holdin# F item cost6& 1etLs assume for dement ration In!entory purposes that the item purchase price is I .AHH F I.=%HHH& SOME O(SERVATIONS A(O+T O+R EO0 ILL+STINVENTORYN Ob3e"5atio$ 68 2e disco!ered that our order 8uantity of AHH units would lead to replenishment e!ery .<&A% <A% =J&A% AH% B<&A% JA% etc& 2ith a A day lead time% we were smart enou#h to order A days in ad!ance of when we would run out% which had us placin# orders on days J&A% <H% =<&A% >A% AJ&A% JH% etc& 2e only ha!e to watch the calendar to "eep trac" of when those order instants arise so that we can place the orders& An alternati!e to watchin# the calendar would be to watch the in!entory le!els& Recall that the a!era#e daily demand for this item is >H units per day& This means that at the moment we place an order% we ha!e just enou#h in!entory to co!er the demand that will occur durin# the A day lead time& The demand durin# the A day lead time is A days ' >H units per day C <HH units& 7o% all we ha!e to do is "eep our eyes on our in!entory le!el% and when it reaches <HH units% that is the si#nal that it is time to reorder& This le!el of in!entory that tri##ers a reorder is called the reorder point 5R6& 3( .

#ime 3) .!nventory ..evel - 2.

ROAC-ES Continuous re!iew system3 This approach maintains a constant order si$e% but allows the time between the placements of orders to !ary& This method of monitorin# in!entory is sometimes referred to as a perpetual re!iew method% a fi'ed 8uantity system% and a two4bin system& 2hen the in!entory is depleted to the reorder point% a replenishment order is placed& The si$e of that order is the economic order 8uantity for that item& This type of system pro!ides closer control o!er in!entory items since the in!entory le!els are under perpetual scrutiny& Periodic re!iew system3 This approach maintains a constant time between the placements of orders% but allows the order si$e to !ary& This method of monitorin# in!entory is sometimes referred to as a fi'ed inter!al system or fi'ed period system& It only re8uires that in!entory le!els be chec"ed at fi'ed periods of time& The amount that is ordered at a particular time point is the difference between the current in!entory le!el and a predetermined tar#et in!entory le!el 5also called an order up to le!el6& If demand has been low durin# the prior time inter!al% in!entory le!els will be relati!ely hi#h% and the amount to be ordered will be relati!ely low& If demand has been hi#h durin# the prior time inter!al% in!entory le!els will ha!e been depleted to low le!els% and the amount to be ordered will be hi#her& (in4ma' system3 This approach allows both the order si$e and the time between the placements of orders to !ary& This method of monitorin# in!entory is sometimes referred to as an optional replenishment system& It is a hybrid system that combines elements of both the continuous re!iew system and the periodic re!iew system& It is similar to the periodic re!iew system in that it only chec"s in!entory le!els at fi'ed inter!als of time% and it has a tar#et in!entory le!el& 9owe!er% when one of those re!iew periods arises the system does not automatically place an order& An order is only placed if the si$e of the order would be sufficient to warrant placin# the order& This determination is made by incorporatin# the reorder point concept from the 3* ..INVENTORY MONITORING A.

continuous re!iew system& At the re!iew period the in!entory le!el on hand is compared to a reorder point for the item& If in!entory has not fallen below the reorder point% no order is placed& 9owe!er% if the in!entory le!el has dropped below the reorder point% an order is placed& The si$e of the order is the difference between the in!entory on hand and the tar#et in!entory le!el&

3+

INVENTORY OF SAFETY STOC% 'ETERMINATION 'ata: A!era#e daily demand C AH units per day Operatin# year contains =HH days of operation In!entory 50 C ;A%HHH units per year6 Orderin# cost 7 C I= per order 9oldin# cost 9 C I; per unit per year 1ead time C ; day Computations3 EO@ 5from EO@ formula6 C =HH units per order Resultin# number of orders per year C AH orders per year Reorder point C AH units 5the a!era#e number of units demanded durin# the ; day lead time6 Additional 0ata 0emand is not always a constant AH units per day& There is !ariability in daily demand accordin# to the followin# table of demands and probabilities3 0aily 0emand Probability ;H &H; <H &H> =H &HA >H &< AH &> BH &< JH &HA MH &H> NH &H;

2hich su##ests that if you waited until you had AH units left in in!entory before placin# an order for =HH more units% you would be O&O& if the demand durin# the ; day lead time was ;H% <H% =H% >H% or AH? 9owe!er% if the demand durin# the ; day lead time was BH% JH% MH% or NH you would ha!e had a shorta#e& The si$e of the shorta#e would depend upon how many units were demanded durin# the lead time%
&,

but the ma'imum possible shorta#e would ha!e been >H units 5if demand was the lar#est possible !alue of NH6& Pou can pre!ent shorta#es by pro!idin# safety stoc" when there is uncertainty in demand& 57afety stoc" can be !iewed as a cushion placed at the bottom of the saw tooth #raph of in!entory fluctuations o!er time&6 If you wanted to #uarantee that you would ne!er ha!e a shorta#e in this situation% you would need >H units of safety stoc" at the bottom of the #raph to Kdip intoK if demand spi"ed to hi#her than a!era#e !alues& -ut% addin# >H units of safety stoc" really mean that you ha!e ele!ated your reorder point& Pou are not waitin# until there are only AH units in in!entory to place your order& Pou are orderin# when there are NH units in in!entory& 5And% of course% NH units is sufficient to co!er the worst case scenario for this problem&6

-O& M+C- SAFETY STOC% IS A..RO.RIATE9

&1

7er!ice le!el3 The probability that demand durin# lead time will not e'ceed the in!entory on hand when the order is placed& In the pre!ious illustration In!entory% it was su##ested that you mi#ht pro!ide >H units of safety stoc"& If you had done so% you would ne!er e'perience a shorta#e& Pou would ha!e achie!ed a ser!ice le!el of .HHQ& This mi#ht not be a desirable solution for this problem& 2e are carryin# a relati!ely hi#h amount of safety stoc"% and there is a !ery low probability that lead time demand will actually #o as hi#h as NH units 5only a .H units short& -ut% since you had enou#h in!entories to co!er NNQ of the demands that mi#ht ha!e occurred% you achie!ed a NNQ ser!ice le!el& (any people mi#ht opt for this policy% for it will reduce the a!era#e annual le!el of in!entory carried 5i&e&% reduce holdin# costs6 and run only a sli#ht ris" of incurrin# a shorta#e cost& Others mi#ht be e!en more a##ressi!e% and opt for an e!en lower ser!ice le!el& 2e could ha!e achie!ed a NAQ ser!ice le!el with a reorder point of JH 5only <H units of safety stoc"6& 2eL!e lowered our in!entory holdin# costs e!en further% but e'posed oursel!es to e!en more shorta#e cost ris"& 2hile the ser!ice le!el concept is a widely used measure of protection a#ainst shorta#es% it can be a bit misleadin#% as the ne't illustration of In!entory will show& INVENTORY OF S-ORTAGES &IT.A GIVEN SERVICE LEVEL &2 .Q chance6& If you had chosen to carry only =H units of safety stoc" 5order when in!entory drops to MH units6% you will be fine if lead time demand is anythin# up to and includin# MH units& If lead time demand turns out to be NH 5there is a .Q chance of that6% you will come up .

H <H =H Probability &H.Continuin# with the pre!ious illustration of In!entory% assume that mana#ement has made a policy decision that the company will achie!e a NHQ ser!ice le!el 5reorder point C BH units6& 7ome incorrectly assume that this means . &H> &HA &< &> &< &HA &H> &H.&B Total e'pected !alue of shorta#e per order cycle &3 .H <H =H >H AH BH JH MH NH R of units short H H H H H H .HQ we will come up short& 1etLs loo" at the e'pected shorta#e on any #i!en order cycle3 In!entory Policy3 7er!ice le!el C NHQ% Reorder point C BH units 1ead time demand . E'pected !alue of shorta#e H H H H H H &A &M &= .HQ of demand will be unsatisfied& Thin#s arenLt really that bad& The NHQ ser!ice le!el really means that on NHQ of the order cycles we will ha!e enou#h to satisfy demand% but on .

D< a percent of our annual demand #oes unfilled6& Another way to loo" at this is NN&>JQ of our annual demand is met& This is a lot better soundin# than the NHQ ser!ice le!el mi#ht ha!e led us to belie!e& && .This means that the a!era#e shorta#e per order cycle will be .&B units& This means the total e'pected shorta#e for the full year will be AH ' .&B units& 5Of course% we will ne!er be short .H units% <H units% or =H units& The .&B units on any order cycle& /or any order cycle% we will be short either H units% .&B% or MH units of demand per year that we cannot satisfy& This is MH units out of a total annual demand of .AHHH or &HHA= of our demand that #oes unsatisfied& This con!erts to a percenta#e of only &A=Q 5a little more than .A%HHH units% will ha!e us orderin# AH times per year& On each of those AH order cycles we ha!e an e'pected shorta#e of .A%HHH units% which is MHD.&B reflects the lon# run a!era#e per cycle6& )o bac" a few pa#es and refresh yoursel!es on the calculations for the data of this problem& Order si$e 5the calculated EO@6 is =HH units& This order si$e% coupled with the annual demand of .

HQ .H Annual Esa#e <A%HHH A%HHH .H%HHH Item Number B J . < = > A B J M N . Annual I Esa#e IJHH%HHH I.<A%HHH IJA%HHH Q of Items .H I< IA I.H IA I.%HHH .HQ <HQ =HQ &' Cumulati!e A-C Q of Salue ClassT JH M<&A NH A A - Salue JH .-O& M+C.A%HHH .H%HHH >%HHH JH%HHH <A%HHH A%HHH =%HHH <%HHH Salue Per Enit I= I> I.H%HHH <H%HHH <H%HHH JHH%HHH .HQ .<A%HHH A%HHH . IA IA Annual 0ollar Esa#e JA%HHH <H%HHH .<&A J&A .CONTROL9 A(C ANALYSIS In!entory Item Number .HQ Cumulati!e Q of Q of Items .

&A .< > A N = .6 will be desi#nated as a .HH C C C C C C C T2hen classifyin# the items as A% -% or C items% it can be somewhat subjecti!e as to where the lines are drawn& 2ith the unrealistically small In!entory abo!e% the first <HQ of the in!entory items constitute M<&AQ of the in!entory !alue% so these items 5Items B and J6 will be desi#nated as A items& On the other e'treme% JHQ of the items constitute only .HQ .HQ of the items constitute J&A Q of the in!entory !alue% so this item 5Item . .HHQ < < < . &A N< N> NB NJ&A NM&A NN&A .%HHH%HH H .HQ of the in!entory !alue% so these items 5Items <% >% A% N% =% .H%HHH IA%HHH I.HQ .H%HHH I.H M Total I<H%HHH I<H%HHH I<H%HHH I.H% and M6 will be desi#nated as C items& /inally% .HQ >HQ AHQ BHQ JHQ MHQ NHQ .HQ .HQ .HQ .HQ .item& The purpose of the A-C classification was to separate the Kimportant fewK from the Ktri!ial manyK so that the appropriate le!el of control can be assi#ned to each item& A items need the ti#htest de#ree of control% while C items do not need !ery close scrutiny& &( .A%HHH I.

A(C CLASSIFICATION OF ITEMS %umulative / of 0alue 1./ INVENTORY MANAGEMENT &) ../ %umulative / of !tems 1..

4To facilitates smooth production and sales operation In!entory 5transaction moti!e6& <4To #uards a#ainst the ris" of unpredictable chan#es in usa#e rate and deli!ery time 5precautionary moti!e6& =4 To ma"e ad!anta#e of price fluctuations 5speculati!e moti!e6& &* .HQ to <HQ% without any ad!erse effect on production and sales% by usin# in!entory plannin# and control techni8ues& The reduction in Ue'cessi!e: in!entories carries a fa!orable impact on a company:s profitability& There are at least three moti!es for holdin# in!entories3 .I$t"oductio$ In!entories constitute most si#nificant part of current assets% in most of the companies in India& To maintain a lar#e si$e of in!entory% a considerable amount of fund is re8uired& It is% therefore% absolutely imperati!e to mana#e in!entories efficiently and effecti!ely in order to a!oid unnecessary in!estment& A firm ne#lectin# the mana#ement of in!entories will be jeopardi$in# its lon#4run profitability and may fail ultimately& It is possible for a company to reduce its le!els of in!entories to a considerable de#ree% e&#&.

eti$# eco$omi3t3 e=ami$ed a#"icultu"al a$d i$du3t"ial ma". 2s the study of marketing became more prevalent throughout the 2.eti$# acti5it : t:e commodit > t:e i$3titutio$> a$d t:e !u$ctio$/ Commodit a$al 3i3 3tudie3 t:e ?a 3 i$ ?:ic: a 4"oduct o" 4"oduct #"ou4 i3 b"ou#:t to ma".eti$# di3ci4li$e :ad it3 o"i#i$3 i$ t:e ea"l 8<t: ce$tu" a3 a$ o!!34"i$# o! eco$omic3/ Eco$omic 3cie$ce :ad $e#lected t:e "ole o! middleme$ a$d t:e "ole o! !u$ctio$3 ot:e" t:a$ 4"ice i$ t:e dete"mi$atio$ o! dema$d le5el3 a$d c:a"acte"i3tic3/ Ea"l ma".> !o" e=am4le> t"ace3 t:e ?a 3 i$ ?:ic: mil.et3 !o" co$3ume" 4u"c:a3e/ "or example1 any marketing effort must ensure that the product is transported from the supplier to the customer.et3 a$d de3c"ibed t:em i$ #"eate" detail t:a$ t:e cla33ical eco$omi3t3/ T:i3 e=ami$atio$ "e3ulted i$ t:e de5elo4me$t o! t:"ee a44"oac:e3 to t:e a$al 3i3 o! ma". 2ll these institutions perform the same function. 5arketing concepts and techni ues later moved into the industrial6goods sector and subse uently into the services sector. !t soon became apparent that organi4ations and individuals market not only goods and services but also ideas 7social marketing81 places 7location marketing81 personalities 7celebrity marketing81 events 7event marketing81 and even the organi4ations themselves 7public relations8. i3 collected at i$di5idual dai" !a"m3> t"a$34o"ted to a$d 4"oce33ed at local dai" coo4e"ati5e3> a$d 3:i44ed to #"oce"3 a$d 3u4e"ma".th century1 large companies3 particularly mass consumer manufacturers3began to recogni4e the importance of market research1 better product design1 effective distribution1 and sustained communication with consumers in the success of their brands.et/ A commodit a$al 3i3 o! mil. &+ .T-# #/$%/+n2 "+03+4%+n# $5 ark#t+n2: T:e ma". !n some industries1 a truck1 while in others it may be done by mail1 facsimile1 television signal1 or airline may handle this transportation function.

8.rocess to achieve the '. =owever1 marketing activity is more pronounced under conditions of goods surpluses than goods shortages. #hose who make up the marketing department may include brand and product managers1 marketing researchers1 sales representatives1 advertising and promotion managers1 pricing specialists1 and customer service personnel. #he marketing process is divided into a strategic and a tactical phase. #he strategic phase has three components3segmentation1 targeting1 and positioning 7$#. !n this respect1 marketing is a uni ue and separate entity. Evaluating1 controlling1 and revising the marketing .R$%# $5 ark#t+n2: 2s marketing developed1 it took a variety of forms. !n contrast1 when there are more goods and services than consumers need or want1 companies must work harder to convince customers to exchange with them. #he organi4ation must distinguish among different groups of customers in the market 7segmentation81 choose which group7s8 it can serve effectively 7targeting81 and communicate the central benefit it offers to that group 7positioning8. 9et1 in addition to promotion1 marketing includes a much broader set of functions1 including product development1 packaging1 pricing1 distribution1 and customer service. !t was noted above that marketing can be viewed as a set of functions in the sense that certain activities are traditionally associated with the exchange process. +678 $r t-# “9 P08: : Pr$"u3t7 Pr+3#7 P%a3# an" promotion. . 2 common but incorrect view is that selling and advertising are the only marketing activities. 2s a managerial process1 marketing is the way in which an organi4ation determines its best opportunities in the marketplace1 given its ob:ectives and resources. #he marketing process includes designing and implementing various tactics1 commonly referred to as the “ ark#t+n2 organi4ation<s ob:ectives follow the marketing mix !t is the process by which a society organi4es and distributes its resources to meet the material needs of its citi4ens. 5any organi4ations and businesses assign responsibility for these marketing functions to a specific group of individuals within the organi4ation. >hen goods are in short supply1 consumers are usually so desirous of goods that the exchange process does not re uire significant promotion or facilitation.

T-# ark#t+n2 4r$3#00: #he marketing process consists of four elements? strategic marketing analysis1 marketing6mix planning1 marketing implementation1 and marketing control. !t is more likely that larger organi4ations will serve the larger market segments 7mass marketing8 and ignores niches. Because of such variables1 an automobile company must identify the different preference groups1 or segments1 of customers and decide which group7s8 they can target profitably. 2s a result1 smaller companies typically emerge that are intimately familiar with a particular niche and speciali4e in serving its needs. "urthermore1 some individuals may wish to meet their personal transportation needs with something other than an automobile1 such as a motorcycle1 a bicycle1 or a bus or other form of public transportation.0+08 Mark#t 0#2 #nt0: #he aim of marketing in profit6oriented organi4ations is to meet needs profitably. No single automobile can satisfy all these needs in a superior fashionA compromises have to be made. %ompanies must therefore first define which needs3and whose needs3they can satisfy. "or example1 the personal transportation market consists of people who put different values on an automobile@s cost1 speed1 safety1 status1 and styling. “Strat#2+3 ark#t+n2 ana%. "or example1 a bank may speciali4e in serving the investment needs of not only senior citi4ens but also senior citi4ens with high incomes and perhaps even those with particular investment preferences. 2 niche is defined as a small target group that has special re uirements. '1 . Mark#t n+3-#0: $egments can be divided into even smaller groups1 called sub segments or niches.

"urthermore1 although the company may communicate a particular position1 customers may perceive a different image of the company as a result of their actual experiences with the company@s product or through word of mouth.Mark#t+n2 t$ +n"+/+"ua%0: 2 growing number of companies are now trying to serve Csegments of one. Even mass marketing companies1 particularly large retailers and catalog houses1 compile comprehensive data on individual customers and are able to customi4e their offerings and communications. &.D $ome products may be positioned as CoutstandingD in two or more ways. Pr$"u3t: : '2 . #actical marketing involves creating a marketing mix of four components product1 price1 and place1 promotion3that fulfills the strategy for the targeted set of customer needs. #his is understandable1 for instance1 with large industrial companies that have only a few ma:or customers.D #hey attempt to adapt their offer and communication to each individual customer. Mark#t+n2: +6 4%ann+n2: =aving developed a strategy1 a company must then decide which tactics will be most effective in achieving strategy goals. P$0+t+$n+n2: 2 key step in marketing strategy1 known as positioning1 involves creating and communicating a message that clearly establishes the company or brand in relation to competitors. "or example1 #he Boeing %ompany 7Enited $tates8 designs its )&) planes differently for each ma:or customer1 such as Enited 2irlines1 !nc. =owever1 claiming superiority along several dimensions may hurt company<s credibility because consumers will not believe that any one offering can excel in all dimensions. $erving individual customers is increasingly possible with the advent of database marketing1 through which individual customer characteristics and purchase histories are retained in company information systems.1 or 2merican 2irlines1 !nc. #hus1 0olvo 2ktiebolaget 7$weden8 has positioned its automobile as the Csafest1D and Faimler6Ben4 2G 7Germany81 manufacturer of 5ercedes6Ben4 vehicles1 has positioned its car as the best Cengineered.

#his is in contrast to past practice1 when engineers designed a product based on their own preferences1 interests1 or expertise and then expected marketers to find as many customers as possible to buy this product.ete"3 $o? 34eci! e=actl t:e t 4e3 o! 4ac. #his constant replacement of existing products with new or altered products has significant conse uences for professional marketers.Product development: #he first marketing6mix element is the product1 which refers to the Hffering or group of offerings that will be made available to customers. Before assembling a product1 the marketer@s role is to communicate customer desires to the engineers who design the product or service.eti$# o! a 4"oduct/ .a#i$# i$ 3ome i$3ta$ce3 ma be a3 3im4le a3 cu3tome"3 i$ F"a$ce ca"" i$# lo$# loa5e3 o! u$?"a44ed b"ead o" 3mall 4"oduce deale"3 i$ Ital ?"a44i$# 5e#etable3 i$ $e?34a4e"3 o" 4laci$# t:em i$ cu3tome"3@ 3t"i$# ba#3/ I$ mo3t i$du3t"ialiAed cou$t"ie3> :o?e5e"> t:e 4ac. #he development of new products involves all aspects of a business3production1 finance1 research and development1 and even personnel administration and public relations. 2s economies develop1 the range of products available tends to expand1 and the products themselves change.ac.a#i$# t:at ?ill be mo3t a44eali$# to 4"o34ecti5e cu3tome"3/ '3 . !n the case of a physical product1 such as a car1 a company will gather information about the features and benefits desired by a target market. !n traditional economies1 the goods produced and consumed often remain the same from one generation to the next3including food1 clothing1 and housing.ac.a#i$# o! me"c:a$di3e :a3 become a ma)o" 4a"t o! t:e 3elli$# e!!o"t> a3 ma". %ontemporary thinking calls for products to be designed based on customer input and not solely on engineers@ ideas.a#i$# a$d b"a$di$# a"e al3o 3ub3ta$tial com4o$e$t3 i$ t:e ma". !n contemporary industriali4ed societies1 products1 like people1 go through life cycles? birth1 growth1 maturity1 and decline. Packaging and branding: .

But1 even if the manufacturer could price its cars competitively with economy cars1 it might not do so1 knowing that the lower price might communicate lower uality. Hrdinarily companies determine a price by gauging the uality or performance level of the offer and then selecting a price that reflects how the market values its level of uality.Mark#t+n2 a 0#r/+3# 4r$"u3t: #he same general marketing approach about the product applies to the development of service offerings as well. "or example1 a health maintenance organi4ation 7=5H8 must design a contract for its members that describes which medical procedures will be covered1 how much physician choice will be available1 how out6of6town medical costs will be handled1 and so forth. <. !. Pr+3# #he second marketing6mix element is price. Hn the other hand1 in order to gain market share1 some companies have moved to Cmore for the sameD or Cthe same for lessD pricing1 which means offering prices that are consistently lower than those of their competitors. #his kind of discount pricing has caused firms in such industries as airlines and pharmaceuticals 7which used to charge a price premium based on their past brand strength and reputation8 to significantly reevaluate their marketing strategies. !n creating a successful service mix1 the =5H must choose features that are preferred and expected by target customers1 or the service will not be valued in the marketplace. =owever1 marketers also are aware that price can send a message to a customer about the product@s presumed uality level. 2 5ercedes6Ben4 vehicle is generally considered to be a high6 uality automobile1 and it therefore can command a high price in the marketplace. P%a3#: : '& .

romotion1 the fourth marketing6mix element1 consists of several methods of communicating with and influencing customers. minutes. A"/#rt+0+n2: 2dvertising includes all forms of paid1 no personal communication and promotion of products1 services1 or ideas by a specified sponsor.e3 it3 4"oduct3 ea3il acce33ible b e$3u"i$# t:at t:e a"e i$ 3to"e3 t:at a"e !"eBue$ted b t:o3e i$ t:e ta"#et ma". Sa%#0 5$r3#: $ales representatives are the most expensive means of promotion1 because they re uire income1 expenses1 and supplementary benefits.lace> o" ?:e"e t:e 4"oduct i3 made a5ailable> i3 t:e t:i"d eleme$t o! t:e ma".. #heir ability to personali4e the promotion process makes salespeople most effective at selling complex goods1 big6ticket items1 and highly personal goods3 for example1 those related to religion or insurance. $ome companies have successfully reduced their sales6force costs by replacing certain functions 7for example1 finding new customers8 with less expensive methods 7such as direct mail and telemarketing8.et3/ ( u3i$# t:i3 c:a$$el> a !ood ma$u!actu"e" ma.3> ?:ic: i$ tu"$ e3tabli3: "elatio$3:i43 ?it: 4a"ticula" cu3tome"3/ 9. Pr$ $t+$n: : .e3 it3 i$5e3tme$t 4"oduct3 a5ailable b e$li3ti$# t:e a33i3ta$ce o! b"o.eti$# mi= a$d i3 mo3t commo$l "e!e""ed to a3 di3t"ibutio$/ &:e$ a 4"oduct mo5e3 alo$# it3 4at: !"om 4"oduce" to co$3ume"> it i3 3aid to be !ollo?i$# a c:a$$el o! di3t"ibutio$/ Fo" e=am4le> t:e c:a$$el o! di3t"ibutio$ !o" ma$ !ood 4"oduct3 i$clude3 !ood-4"oce33i$# 4la$t3> ?a"e:ou3e3> ?:ole3ale"3> a$d 3u4e"ma". 2dvertisements typically consist of a picture1 a headline1 information about the product1 and occasionally a response coupon. '' . $alespeople are trained to make presentations1 answer ob:ections1 gain commitments to purchase1 and manage account growth.et/ I$ a$ot:e" e=am4le> a mutual !u$d3 o"#a$iAatio$ ma.e"a#e :ou3e3 a$d ba$. #he ma:or tools are sales force1 advertising1 sales promotion1 and public relations. 2dvertising appears in such media as print 7newspapers1 maga4ines1 billboards1 flyers8 or broadcast 7radio1 television8. Broadcast advertisements consist of an audio or video narrative that can range from short 1'6second spots to longer segments known as infomercials1 which generally last 3. or (.

?it: $e?3 a$d i$!o"matio$ media to e$3u"e a44"o4"iate co5e"a#e o! t:e com4a$ @3 acti5itie3 a$d 4"oduct3/ .%+3 r#%at+$n0: .ublic "elatio$3 34eciali3t3 c"eate 4ublicit b a""a$#i$# 4"e33 co$!e"e$ce3> co$te3t3> meeti$#3> a$d ot:e" e5e$t3 t:at ?ill d"a? atte$tio$ to a com4a$ @3 4"oduct3 o" 3e"5ice3/ A$ot:e" 4ublic "elatio$3 "e34o$3ibilit i3 c"i3i3 ma$a#eme$tCt:at i3> :a$dli$# 3ituatio$3 i$ ?:ic: 4ublic a?a"e$e33 o! a 4a"ticula" i33ue ma d"amaticall a$d $e#ati5el im4act t:e com4a$ @3 abilit to ac:ie5e it3 #oal3/ Fo" e=am4le> ?:e$ it ?a3 di3co5e"ed t:at a :a"m!ul c:emical> Sou"ce .e""ie" 34a". $ales promotions often attract brand switchers 7those who are not loyal to a specific brand8 who are looking primarily for low price and good value. #his is due to a number of factors within companies1 including an increased sophistication in sales promotion techni ues and greater pressure to increase sales.Sa%#0 4r$ $t+$n: >hile advertising presents a reason to buy a product1 sales promotion offers a short6term incentive to purchase.e""ie"> mi#:t :a5e tai$ted 3ome bottle3 o! .ublic "elatio$3> i$ co$t"a3t to ad5e"ti3i$# a$d 3ale3 4"omotio$> #e$e"all i$5ol5e le33 comme"cialiAed mode3 o! commu$icatio$/ It3 4"ima" 4u"4o3e i3 to di33emi$ate i$!o"matio$ a$d o4i$io$ to #"ou43 a$d i$di5idual3 ?:o :a5e a$ actual o" 4ote$tial im4act o$ a com4a$ @3 abilit to ac:ie5e it3 ob)ecti5e3/ I$ additio$> 4ublic "elatio$3 34eciali3t3 a"e "e34o$3ible !o" mo$ito"i$# t:e3e i$di5idual3 a$d #"ou43 a$d !o" mai$tai$i$# #ood "elatio$3:i43 ?it: t:em/ O$e o! t:ei" .e""ie" ?it: tai$ted ?ate"/ Mark#t+n2 + 4%# #ntat+$n: '( .li$# ?ate" SA@3 4ublic "elatio$3 team :ad to e$3u"e t:at t:e #e$e"al co$3umi$# 4ublic did $ot t:e"ea!te" automaticall a33ociate . 2lternatively1 in markets where brands are uite dissimilar1 sales promotions can alter market shares more permanently.e acti5itie3 i3 to ?o".th century. Pu. #hus1 especially in markets where brands are highly similar1 sales promotions can cause a short6term increase in sales but little permanent gain in market share. #he use of promotions has risen considerably during the late 2. $everal market factors also have fostered this increase1 including a rise in the number of brands 7especially similar ones8 and a decrease in the efficiency of traditional advertising due to increasingly fractionated consumer markets.

el to be bette" allocated> becau3e di!!e"e$ce3 amo$# 4"omotio$ tool3 become mo"e e=4licit/ ') .Com4a$ie3 :a5e t 4icall :i"ed di!!e"e$t a#e$cie3 to :el4 i$ t:e de5elo4me$t o! ad5e"ti3i$#> 3ale3 4"omotio$> a$d 4ublicit idea3/ -o?e5e"> t:i3 o!te$ "e3ult3 i$ a lac. o! coo"di$atio$ bet?ee$ eleme$t3 o! t:e 4"omotio$ mi=/ &:e$ com4o$e$t3 o! t:e mi= a"e $ot all i$ :a"mo$ > a co$!u3i$# me33a#e ma be 3e$t to co$3ume"3/ Fo" e=am4le> a 4"i$t ad5e"ti3eme$t !o" a$ automobile ma em4:a3iAe t:e ca"@3 e=clu3i5it a$d lu=u" > ?:ile a tele5i3io$ ad5e"ti3eme$t ma 3t"e33 "ebate3 a$d 3ale3> cla3:i$# ?it: t:i3 ima#e o! e=clu3i5it / Alte"$ati5el > b i$te#"ati$# t:e ma".eti$# eleme$t3> a com4a$ ca$ mo"e e!!icie$tl utiliAe it3 "e3ou"ce3/ I$3tead o! i$di5iduall ma$a#i$# !ou" o" !i5e di!!e"e$t 4"omotio$ 4"oce33e3> t:e com4a$ ma$a#e3 o$l o$e/ I$ additio$> 4"omotio$ e=4e$ditu"e3 a"e li.

na +3 #r3# #t3. But it is necessary to reali4e1 as powerfully argued by Gary =amel1 C>e stand on the threshold of a new age J the age of revolution.. 2n impetus through increasing integration of the productive process1 rapid technological advances1 splashing of legal I institutional barriers to global trade I a smother flow of global capital. T=$ r$a"0 "+/#r2#" +n a =$$"7 an" I T$$k t-# $n# %#00 tra/#%#" . @ T-# N#= D+0#?u+%+. In"+an .1 the doubling time is estimated to be slashed to )( days.#.ank+n2 0#3t$r -a0 a"$4t#" +nn$/at+$n0 . #he uickening of change 7#able 181 however1 caused discontinuity I ripples of concern on the boardrooms.2. $uch contextual changes recd.r+a: Everything in business is always in flux I flow. 2 strong momentum and apparent inevitability of globali4ation strongly suggest an accentuation of the pace of development.u3: Full T:"ottle A:ead: In3r#a0+n2 kn$=%#"2# a $n2 0$3+#t+#0 +0 5$r3+n2 t-# . .7 An" t-at -a0 a"# a%% t-# "+55#r#n3#. T-# 3$ 4#t+t+$n7 t#3-n$%$2.rospects for continued escalation of change are awesome? the world<s knowledge based now doubles every eight years1 but by 2. '* . I 4$rtant "+ #n0+$n0 $5 3-an2# ar# ark#t7 3u0t$ #r07 an.ank0 t$ a"$4t +nt#rnat+$na% .. > 0$3+#t. ". Engel<s stressed1 Ce uilibrium is inseparable from motion I all e uilibrium is relative I temporaryD.an a33#nt $n +nn$/at+$na% tran05$r at+$n.Need to . Bank0 0-$u%" 5$3u0 . 4 R$.u0+n#00.$n" t#3-n$%$2+#0 an" 2#$2ra4-+#0 t$ a33#%#rat# 2r$=t-.#rt Fr$0t !t is %ustomary to describe the unfolding world as of unprecedented change1 of a whirlwind of ideas1 of explosive growth of since6based technology. D+03$nt+nu+t.ut 0t+%% 0$ # $r# ar# n##"#" %+k# r+0k ana2# #nt7 #:3$ n#= 2a # r#?u+r#0 n#= 0trat#2+#0 =+t.#0t 4ra3t+3#0 t$ r# a+n +n .

TABLE &: DIMESIONS OF CHANGES I 4a3t $n Bu0+n#00 Change Mark#t0 . 6 Knowing IEnderstanding their needs. S$3+#t. 6 "ulfilling %ustomer<s -e uirements. Femanding -ights 6 Governance %orporate 6 %oncern for social '+ .ocal to Global : !nvestments in !dentifying I $ervicing New markets Cu0t$ #r0 2cceptance to delight : . 6 %onsolidating I %onvergence. Gradual change to 6 !nnovational uantum %hange $hareholders #ransparency.istening to %onsumers. C$ 4#t+t+$n 6 !ncreased %ompetition 6 $hortage to surplus Economy 6 $ uee4e in margins leading to cost cuttings. T#3-n$%$2.

istening to %onsumers. Gradual change to 6 !nnovational uantum %hange $hareholders #ransparency. 6 "ulfilling %ustomer<s -e uirements. . T#3-n$%$2.ocal to Global : !nvestments in !dentifying I $ervicing New markets Cu0t$ #r0 2cceptance to delight : . I 4a3t $n Bu0+n#00 Change Mark#t0 . (. C$ 4#t+t+$n 6 !ncreased %ompetition 6 $hortage to surplus Economy 6 $ uee4e in margins leading to cost cuttings. 6 %onsolidating I %onvergence.Hbligations. 6 Knowing IEnderstanding their needs.

"urther the blistering pace of change uickly renders existing strategies obsolete necessitating fre uent course corrections.S$3+#t. Fespite the multi6layered any multi6dimensional aspect of ubi uitous change1 most organi4ation still disconcertingly confine themselves to incremental improvement I innovation without trying to alter the rules of the game1 bring about breakthrough innovation. 2n urgent policy appraisal is1 therefore1 impulses in banks by radical and discontinuous innovative measures for enhanced performance in this turbulent era. #his is reflected by the fact that though agglomeration I the location of innovative activities are closely related1 important sectoral clusters like textiles 7#riupur81 diamond6cutting 7$urat81 hosiery 7. =istorically1 %hanges in society have always been preceded by the flow of ideas1 which provide the cutting Edge of development. >hile the debate over innovation in the world of business has raged for long1 innovation has now rapidly emerged as a critical lament of the growth strategy. !n contemplating the challenges1 the approaches of those enterprise1 which successfully weathered the challenges of this volatile era1 shows that innovation is not only power but also the key to sustained economic success. (1 . Femanding -ights 6 Governance %orporate 6 %oncern for social Hbligations.udhiana81 call centers 7Gurgoan81 auto6companies I automobiles 7%hennai81 with the notable exception of banglore 7!#8 are largely confined to incremental innovations. >hat is prognostically alarming is that most companies in the given industry or market tend to follow the same unwritten rules for conducting business with limited deviations from de facto strategies.

But innovation is particularly important for banking I finance companies..$n" T#3-n$%$2+#0 an" G#$2ra4-+#0:B #raditionally1 innovation has been defined with focus on traditional concepts of industry research I development I the commerciali4ation of new products and/or process technologies.#.AT-# Inn$/at+$n I 4#rat+/# @ A33#%#rat+n2 Gr$=t. %ompelling I incontrovertible cross6country evidence prove that successful innovation is crucial to the competitive edge of all businesses. Hrgani4ational ethos needs to stress innovation as a key driver of growth that surprises I delights the customer with new1 differentiated I relevant benefits. !nnovation1 which transcends invention1 represents the point of convergence of invention I insight. #he history of the growth of financial development1 as indeed of all other development1 is intertwined with the growth of innovation. But the definition of innovation as Cacceptance of I readiness to change across the organi4ation1 dedication to continuous improvement processes1 willingness to experiment and explore novel ways1 building new relationship I alliance1 establishing new approaches to markets1 channels1 customers1 pricing strategies I new I varied approaches to organi4ation1 measurement and performance measurementD is generally a acceptable. (2 . #his is not a clichL but defining characteristics of the modern cooperate saga.

I$$o5atio$ i3 t:e .i$# i3 mo5i$# 4"e3e$tl i$dicate3 t:at t:e 4"e5aili$# com4etitio$ ?ill lead to co$3olidatio$ a$d co$5e"#e$ce/ Small 4la e"3 ?ill eit:e" :a5e to !o"#e a me"#e" to become bi# 4la e"3 o" el3e t:e ?ill be eit:e" e=ti$#ui3:ed o" 3?allo?ed b la"#e" 4la e"3 i$ t:e ea"3 to come/ T:e 4"e33u"e ?ill eBuall be mo"e o$ t:e e=i3ti$# la"#e 4la e"3 to "etai$ t:ei" lead o5e" ot:e"3/ T:i3 eme"#i$# 3ce$a"io ?a""a$t3 i$$o5ati5e a44"oac: b ba$.i$# )ob3 a"e out 3ou"ce> t:a$.3 to automatio$ made 4o33ible b tec:$olo# / 'i"ect 3elli$# a#e$t3 a"e acti5el e$#a#ed b mo3t o! t:e !o"ei#$ a$d $e? #e$e"atio$ (3 .i$# i3 4o33ible o$l ?:e$ ?e :a5e i$$o5ati5e 4eo4le i$ ba$.i$#/ Mo"eo5e"> i$$o5ati5e idea3 o! 3uc: 4eo4le :a5e to be :ea"d at t:e "i#:t time b t:e "i#:t 4eo4le/ O$l t:e$ t:e $eeded e$cou"a#eme$t a$d 3u44o"t i3 #i5e$ to co$5e"t 3uc: i$$o5ati5e idea3 i$ "ealit / I$ t:e 4a3t> a #e$e"atio$ #a4 i3 co$3ide"ed to be ?it: a 34a$ o! at lea3t 7< ea"3/ &:e"ea3 ?it: t:e im4"o5eme$t i$ t:e tec:$olo# !ollo?ed b i$te#"atio$ o! 4eo4le a$d 4lace3 ac"o33 t:e ?o"ld o$ accou$t o! "e5olutio$a" c:a$#e3 i$ i$!o"matio$ a$d commu$icatio$/ T:e e$ti"e ?o"ld :a3 become 5i"tuall a 3mall #lobal 5illa#e/ Si$ce all o"#a$iAatio$3 a$d 4eo4le u3e tec:$olo#ie3> ?e !i$d t:at a $e? #e$e"atio$ o! tec:$o 3a55 4eo4le eme"#i$# i$ a 5e" 3:o"t 34a$ o! D ea"3 i$ e5e" 34:e"e o! acti5it i$!u3i$# d $ami3m a$d c"eati5it leadi$# to 3e5e"al i$$o5atio$3/ Globall > u3a#e o! tec:$olo# i3 5e" e=te$3i5e i$ t:e !i$a$cial 3ecto" o! ?:ic: ba$.eti$# o"#a$iAatio$/ &e !i$d mo3t o! t:e "outi$e3 ba$.ee$ o$ 4"e3e"5i$# t:ei" bottom li$e3/ T:e di"ectio$ i$ ?:ic: t:e I$dia$ ba$.i$# !u$ctio$3 to a 5e" a##"e33i5e !i$a$cial ma".i$# 3ecto" i3 a$ i$te#"al 4a"t/ I$dia$ !i$a$cial 3ecto" :a3 made "a4id 3t"ide3 i$ late 7EF<3 a$d ea"l 7EE<3 4ic.e to 3ucce33 !o" a$ acti5it / I$$o5atio$ ba$.i$# u4 mome$tum ?it: t:e ad5e$t o! 873t ce$tu" / Libe"aliAatio$ o! t:e I$dia$ eco$om :a3 4"o5ided 3co4e to t:e ba$.i$# 3ecto" to "eo"ie$t it3 !ocu3 b 3:i!ti$# !"om de5elo4me$tal "ole obli#ated mo3tl b 3ocio-4olitical co$3ide"atio$3 i$to 4"o!e33io$al !i$a$cial a#e$cie3 .3 to .i$# i3 t:e"e!o"e $ot a$ e=ce4tio$/ I$$o5atio$ ba$.i$#/ T:e t"e$d i3 t:e ma)o" 3:i!t !"om "outi$e ba$.“SURVIVAL IS THE MOTHER OF INNIVATION8 *-an"s can pro!ide inno!ation products and ser!ices to their corporate and retail customers only when creati!e people are in place alon# with latest technolo#y& 7uch people mi#ht pro!ide inno!ati!e ideas to customers and ban"s& -y con!ertin# there acceptable ideas into reality% ban"s can #et an ed#e to compete effecti!ely in the #lobal !illa#e& Indian ban"in# is also chan#in# its shape rapidly by adoptin# inno!ati!e technolo#y% products and ser!ices&.ee4 t:em3el5e3 3aili$# i$ t:e 3ea o! com4etitio$/ No ?o$de" ?e !i$d a 5e" i$te"e3ti$# t"e$d i$ t:e "ece$t 4a3t i$ t:e I$dia$ ba$.

b"a$c:e3 to co$duct t:ei" "outi$e ba$.e" bet?ee$ t:e builde"3 a$d 3ala"ied 4eo4le a$d (& . o! I$dia i3 made 4o33ible b t:e tec:$olo# > lea5i$# t:e "outi$e audit ?o".eti$# all t:e ba$.3 :a5e to be i$$o5ati5e to mai$tai$ t:ei" b"a$d 5alue3/ Fe? ba$.i$# acti5it / ATM3 o! t:e la"#e" ba$. !o"?a"d to 3ubmi33io$ o! comme"cial docume$t3 b t:e t"ade i$du3t" t:"ou#: E'I i$ t:e $ea" !utu"e/ O$ce t:i3 i3 do$e> t:e $eed !o" t:e bu3i$e33 3e#me$t to 4e"3o$all 5i3it t:e ba$.i$# o4e"atio$3> t:e E'I ?:e$ #ai$3 mome$tum ?ill "educe t:e de4e$de$ce o! co"4o"ate cu3tome"3 o$ t:e ba$.3 collecti5el / Small 4la e"3 i$ ATM3 a"e al3o t" i$# to be a 4a"t o! t:i3 3:a"ed $et?o". ma$a#eme$t 4"o!e33io$al3 ?:o ?ill be "eBui"ed i$ 5ie? o! t:e im4e$di$# im4leme$tatio$ o! t:e (a3leII $o"m3 ?:ic: attac:e3 3i#$i!ica$t to a33e33me$t a$d ma$a#eme$t o! "i3.3 ca$ al3o eBuall loo.3 i$ t:e 4"e4a"atio$ o! docume$tatio$ a$d e$:a$ci$# t:e le5el3 o! automatio$/ T:i3 al3o !acilitate3 3ta$da"diAatio$ i$ docume$tatio$ ?it: u$i!o"mit / T:i3 ?ill al3o e$3u"e 3ubmi33io$ o! 3uc: 3ta$da"d data i$ elect"o$ic !o"m a$d 3ca$$i$# t:e 4: 3ical docume$t3 ?:e"e "eBui"ed/ I$ t:e lo$# "u$> t:i3 e$able3 e-comme"ce to #ai$ mome$tum/ T:e"e!o"e> ba$.eti$# a##"e33i5el !o" "etail bu3i$e33 loa$3 b t i$# u4 ?it: a 3elect-"e4uted builde"3 a$d co$ducti$# "oad 3:o?3 i$ I$dia a$d ab"oad to lu"e t:e 3ala"ied 4eo4le a$d 4"o!e33io$al3/ T:i3 "ole i3 i$te"mediatio$ o! t:e ba$.i$# 34eciali3t3 alo$# ?it: "i3.3 i$ t:e lo$# "u$ u$de" t:e"e di"ect 4a "ole3 ?ill o$l be e=4e"t3 at 3e$io" le5el3 i$ ma". 4"oce33 a$d "a4id tec:$olo#ical de5elo4me$t3> a :o3t o! cu3tome" !"ie$dl ba$. b"a$c:e3 i$ a 3imila" !a3:io$/ T:e3e de5elo4me$t3 ta.3/ &it: t:e automatio$ o! t:e "outi$e ?o". !acto"3 i$ ba$.i$# 4lace mai$l o$ accou$t o! automatio$ ?ill "educe t:e di!!e"e$tiatio$ i$ t:e 3e"5ice deli5e" 3 3tem3> a3 t:e a"e mo3tl 3ta$da"diAed/ T:e"e!o"e> ba$.4"i5ate 3ecto" ba$.3 a"e eit:e" !ull out 3ou"ced b t:e i$di5idual ba$.3 o" :a$ded o5e" to a$ auto$omou3 a#e$c b mo3t o! t:e ba$.3 !o" ma".3 :a5e al"ead 3ta"ted ma". b"a$c:e3 to 3ubmit t:e docume$t3 ?ill be elimi$ated/ &:e$ ATM3 o$ o$e 3ide :a5e "educe t:e de4e$d3 o! i$di5idual3 cu3tome"3 o$ t:e ba$. ?it: "e#a"d to clea"i$# o4e"atio$3> Re3e"5e (a$.3 b Re3e"5e (a$. to t:e co$ce"$ed i$te"$al audit de4a"tme$t3 o! t:e i$di5idual ba$.i$# 4"oduct3 ?it: !le=ibilit a"e $o? a5ailable to o$e a$d all/ Fe? de4a"tme$t3 o! t:e #o5e"$me$t 1e/#/ cu3tom3> i$come ta=> ce$t"al e=ci3e> comme"cial ta=e3 a$d 3ale3 ta=2 :a5e al"ead i$itiated t:e 4"oce33 o! E'I 1Elect"o$ic 'ata I$te"!ace2 t:e"e b "educi$# t:e ma$ual ta3. o! I$dia :a3 al"ead i$itiated t:e "eBui"ed 3te43 to #"aduall di34e$3e ?it: t:e 4: 3ical 4"e3e$tatio$ o! c:Bue3 a$d "e4lace t:e 3ame ?it: elect"o$ic clea"i$# i$ ma)o" citie3/ Simila"l t:e audit a$d i$34ectio$ o! t:e com4ute"iAed b"a$c:e3 i3 $o? bei$# do$e i$ ma$ ca3e3 b t"a$3!e" o! data !ile3 to t:e 3u4e"5i3o" a$d i$34ecti$# aut:o"itie3/ 0ualitati5e i$34ectio$ a$d 3u4e"5i3io$ o! t:e ba$.i$# 4"oduct3 ?it: 34eci!ied ta"#et3/ T:e"e!o"e> t:e "eal co"e 4eo4le ?:o ?ill be "etai$ed b t:e3e ba$.eti$#> co"4o"ate a$d "etail ba$.

3 a"e "eBui"ed to :a5e a commo$ a#e$c ?it: ?:ic: t:e e$ti"e databa3e o! all t:e ba$.acco"di$# to acti5it > a#e> 4lace> i$come> educatio$> etc/> o! t:e o"#a$iAatio$3 a$d 4eo4le ?:o co$3titute t:i3 data/ &:e$ t:i3 4"oce33 i3 do$e o$ all I$dia ba3e3> a ?ealt: o! i$!o"matio$ ?ill be a5ailable> ?:ic: ca$ be u3ed a3 a ma".4"o!e33io$al3 ca$ be !u"t:e" e=te$ded to co5e" ot:e" a"ea3 a3 ?ell/ Fo" e=am4le ba$.3 3:ould be 3:a"ed/ T:i3 data 3:ould be a$al Aed a$d cla33i!ied i$to 5a"iou3 3e#me$t3 3a .3 ca$ co$$ect t:e ma$u!actu"e"3 o! #ood3 a$d 3e"5ice3 ?it: t:e ultimate bu e"3/ T:e 4"oce33 i3 5e" 3im4le/ (a$.i$# la?3 a"e "eBui"ed !o" t:i3 4u"4o3e/ (' .eti$# tool/ Fe? "ela=atio$3 i$ t:e e=i3ti$# ba$.

i$# accou$t a$ time o" $e#otiate a$ o5e"d"a!t at 8 am/ T:e ATM ?a3 al3o "eco$!i#u"ed !"om me"e ca3: di34e$3e" to a 5e"3atile a$d ti"ele33 accou$t e=ecuti5e/ T:e (( .al3o .i$# i$du3t" .i$# I$3titutio$3 o! t:e ?e3t a$d 3eei$# t:ei" 4e"!o"ma$ce i$ t:e u3e o! i$$o5ati5e met:od3 to ma.i$# i$du3t" u$touc:ed/ T:e o4e$i$# o! t:e ?o"ld t"ade :a3 b"ou#:t out 3e5e"al c:a$#e3 i$ t:e #lobal ba$. co"4o"ate #o5e"$a$ce at a !e? !i"m3 ca$ d"amaticall c:a$#e t:e co3t o! ca4ital a$d im4o3e additio$al "e#ulato" bu"de$ o$ e5e$ ?ell ma$a#ed o"#a$iAatio$3/ Tec:$olo# i3 "a4idl t"a$3!o"mi$# t:e ba$.a$d e=4a$di$# it3 abilit to "eac: t:e u$ba$.3/ Co$3ume"3 a"e u3i$# t:ei" 4a "oll ca"d3 a$d ot:e" 5e"3io$3 o! 4"e4aid debit ca"d.$e33 a$d ?ea.e$ 4lace i$ t:e la3t decade demo$3t"ate a#ai$ t:e tec:$ical ?ea.ed/ Em4lo e"3 i$ t:e de5elo4ed cou$t"ie3 a"e tu"$i$# i$c"ea3i$#l to elect"o$ic 4a "oll ca"d3 a3 a co3t-e!!ecti5e ?a to "educe t:e bu"de$ o! ?"iti$# a$d 4"oce33i$# c:ec.a3 a 3ub3titute !o" ca3: a$d c:ec.i$# mail-o"de" com4a$ L/L/ (ea$> .e t:em3el5e3 mo"e cu3tome"-!"ie$dl ?e ?ould :a5e $o doubt3 about t:ei" 3t"o$# ba$.$o? a3 3to"ed 5alue ca"d3.i$# ma4/ T:e co$ti$ui$# e5olutio$ o! t:e ba$.UINNOSATION IN CE7TO(ER 7ERSICE IN -ANO7: 7atisfied customers are the best #uarantee for the stability and #rowth& Customers will be satisfied only when the ban"s pro!ide the customi$ed and inno!ati!e products and ser!ices at responsible cost& This article focuses on the "ind of ser!ices pro!ided by de!eloped countries and le!el of inno!ati!e ser!ices pro!ided by Indian ban"s& (any inno!ati!e ser!ices are currently a!ailable from Indian ban"s li"e E4-an"in#% AT(s% Anywhere -an"in# etc&% but there is a wastB scope of impro!ement& GlobaliAatio$> t:e buAA?o"d> ?:ic: e$#ul!ed all t:e $atio$3 o! t:e ?o"ld 3i$ce t:e be#i$$i$# o! t:e la3t decade o! t:e 4a3t mille$$ium> did $ot lea5e t:e ba$.a$ “e5olutio$ o! 4a me$t be:a5io">” t:e A(A $oted> “d"i5e$ b t:e i$c"ea3i$# 4o4ula"it o! debit ca"d3/"3 4"e!e""ed 4a me$t met:od !o" i$ 3to"e 4u"c:a3e3.et :a3 c"eated o44o"tu$itie3 bot: !o" 4"o5ide"3 a$d !o" u3e"3 o! !i$a$cial 4"oduct3 a$d t:i3 e5olutio$ :a5e 4"o5e$ be$e!icial to t:e eco$om / -o?e5e"> i$$o5atio$3 i$ !i$a$cial 4"oduct3 al3o :a5e #i5e$ "i3e to 3ome $e? c:alle$#e3 !o" ma".i$# a$d !i$a$cial ma".I3 4"oduct3 a$d 3e"5ice3/ T:e ce$te" e5e$ allo?3 cu3tome"3 to o4e$ a c:ec.i$# a$d 3e"5ice deli5e" 3 3tem3> a3 it3 model !o" c:a$#e/ A ma)o" "e3ult o! t:i3 !u$ctio$al be$c:ma".et 4a"tici4a$t3 a$d t:ei" 3u4e"5i3o"3 i$ t:e a"ea3 o! co"4o"ate #o5e"$a$ce a$d com4lia$ce/ T:e c:a$#e3 t:at a"e ta.e"3 A33ociatio$ "e4o"ted la3t 'ecembe" t:at i$ 8<<G> !o" t:e !i"3t time> elect"o$ic 4a me$t3 3u"4a33ed ca3: a$d c:Bue3 a3 co$3ume i$ 3to"e 4u"c:a3e3.$o? !o" it3 3u4e"b o"de"ta.i$# accou$t3/ Mo$ito"i$# t:i3 t"e$d> t:e Ame"ica$ (a$.i$# ?a3 t:e e3tabli3:me$t o! a 8H-:ou" cu3tome" 3e"5ice ce$te" t:at ca$ $ot o$l "e34o$d to Bue"ie3 a$d com4lai$t3 but al3o 4"omote a$d 3ell t:e ba$.a$ “e5olutio$ o! 4a me$t be:a5io">” t:e A(A $oted> “d"i5e$ b t:e i$c"ea3i$# 4o4ula"it o! debit ca"d3/ Comi$# ac"o33 t:"ou#: t:e 4e"!o"ma$ce o! (a$.

e?i3e ado4ted i$$o5ati5e 3e"5ice 3t"ate#ie3 a$d 4"actice3/ Ma$ (a$. u4 t:i3 4:o$e a$d "ela :i3 o" :e" com4lai$3> Bue3tio$3> o" di!!icultie3/ () .e t:e a5e"a#e time to !i$i3: a t"a$3actio$ a$d t:e com4a$ I3 4"oduct3 a$d 3e"5ice3/ I$!o"matio$ about t:e bu3ie3t da o" da 3 i$ t:e b"a$c: i3 di34la ed 3o t:at t:e cu3tome"3 ?:o ?a$t to a5oid t:e3e 4e"iod3 ma do 3o/ .3 i$ t:e ?e3t :a5e> 3ledded t:ei" co$5e"3atio$ “!i$a$ce a$d co$t"ol” ima#e3> :a5e li.mac:i$e ca$ e5e$ bu a$d 3ell mutual !u$d3/ I$34i"ed b LL (ea$> (a$.:o$e li$e3 dedicated to cu3tome" 3e"5ice :a5e bee$ i$3talled/ Ma$ I$dia$ ba$.3 :a5e e3tabli3:ed a$ i$!o"matio$ ce$te" o" “e$c clo4edia” i$ t:e ?aiti$# lou$#e/ -e"e cu3tome"3 ca$ b"o?3e t:"ou#: 5a"iou3 bit3 a$d 4iece3 o! im4o"ta$t 3e"5ice i$!o"matio$ li.3 4ubli3:ed a D<-4a#e catalo#ue to :el4 cu3tome"3 a44"eciate a$d 3elect !"om it3 mo"e t:a$ 7J< !i$a$cial 3e"5ice3/ Ot:e" ba$.3 :a5e al3o ado4ted 3ome o! t:e3e 3 3tem3/ A$ cu3tome" ca$ 4ic.

C$n3%u"+n2 R# ark0: &e !eel t:at !i"3t o! all> i$$o5atio$ i3 "eBui"ed i$ ba$. o! a butto$ b 3itti$# at ou" :ome3/ Fi$all > ?atc:?o"d i3 3:a"e i$!o"matio$K mo$e a$d "e3ou"ce3 1:uma$> 4: 3ical> a$d tec:$olo#ical2 to im4"o5e ou" ba$. Esers in banks as we know are not !# professionals and though they are trained in various aspects1 it really makes impractical for them to covers themselves suddenly to new upcoming systems. Ese of a very technical and proprietary back and software1 which cannot be customi4ed easily.i$# e$able3 $e? 4"oduct3 a$d 3e"5ice3 to be #ea"ed !o" 34eci!ic cu3tome"3/ &e :a5e 5a"iet o! cu3tome"3 toda a$d t:e $eed o! eac: cu3tome" i3 di!!e"e$t a$d 5a"ied/ Loo. #o remove inflexibility like lack of users friendly front and environment for bank officialsA 2.3 to "e$de" bette" a$d e!!icie$t cu3tome" 3e"5ice3/ Elect"o$ic ba$.e F"a$ce a$d +$ited State3 ou" ba$.3> 3ma"t ca"d3> e-ca3: o" c be" ca3:> automated telle" mac:i$e3> ?:ic: a"e bei$# e=te$3i5el 4"acticed i$ t:e3e cou$t"ie3/ I$te"$et ba$.i$# 3ecto"/ &e ca$ 4e"!o"m all t:e ba$.i$# 3ecto"> !o" bette" tomo""o?/ (* . 3.i$# 3 3tem :a3 al3o ado4ted c"edit ca"d3> debit ca"d3> elect"o$ic c:ec.C$n0tra+nt0: #he constraints that need to be removed to make our banking sector progressive are? 1.i$# i3 i$ 5o#ue $o?ada 3/ It i3 t:e o$e o! t:e late3t e=am4le o! IT i$ ba$.i$# to ot:e" eco$omie3 li.i$# o4e"atio$3> )u3t o$ t:e clic.

Key weaknesses are identified as follows? &.ositive international perceptions on !ndia %8 #olerant inflation level F8 %omfortable external payment position with substantial inflow from abroad lending to comfortable foreign exchange position.1/.ositive factor include? 28 !mprovement in private corporate sector investments1 B8 .1/1 it is difficulty to achieve the target and the likely growth rate expected to below )/ during the plan period. !ndustrial sector also showed signs of improvement. 2n important reason for the lower growth is that investment did not increase in line with available investible resources.th .P%an Tar2#t0B #he 5id #erm 2ppraisal of #he 1. growth has averaged (. th plan target of *.'/ in the first three years1 which is below the 1.lan conducted by the National Fevelopment %ouncil 7NF%8 noted that in some areas of the economy is doing well and these gains need to be consolidated1 but there are also important weaknesses1 which if not corrected could undermine even the performance of the economy and problems of the economy are assumed as follows? GF.“BANCING SCENE: INDIA8 AM+" T#r A44ra+0a% $5 t-# &'t. (+ . #he ultimate aim should be to consolidate the gains in these developments and to overcome the weaknesses in the economy. A22r#2at# Gr$=t- #hough the plan fixed a target of *. .

#he uality of infrastructure impacts on our ability to compete globally and also to attract "oreign Firect !nvestment. #he social indicators are also show wide disparity in the gender gaps1 large rural and urban differences and wide variation across states. 9. ). $ince we have ample foreign exchange reserves at the moment1 the impacts of the oil prices are not passed on to the users. A2r+3u%tura% Gr$=t-: 2griculture Growth is very poor over the last two decades.+/ between 1+*. S$3+a% D#/#%$4 #nt0: Hur social indicators are not only lower then the levels in East 2sian countries1 but they are lower even in comparison with the levels achieved by these countries twenty6five years ago.<. D.2/ to 1. 2nother cause of concern is that the downturn in the world economy1 which will affect our export growth considerably. !t s estimated that every 1 percentage point reduction in our export growth rate will reduce the growth rate of GF. !. In5ra0tru3tur# Pr$. But if the oil prices remain high1 its impact need to be passed on to the consumer1 which will lead to inflation or fiscal deficit in the country. Int#rnat+$na% D#/#%$4 #nt: Hwing to high oil prices1 our import outgo is uite high.2/ points. 2griculture Growth has decelerated sharply from 3.. by .6*1 and 1++'6+(. #here is a need to revamp the entire strategy ad more action is called for to improve the performance in agriculture sector. .%# 0: !nade uate infrastructures in both rural and urban areas are a ma:or factor constraining on !ndia<s growth.

E. $ome states were able to reap the benefits of the economic reforms1 but some others were not able to do so. ). #he moderate improvement in education ad health indicators implies that access to more productive employment remains limited1 especially in backward regions and amongst disadvantaged groups. Neither the center nor the state have been able to mobeli4e the resources needed to keep outlays in line with 1.: #hough the poverty has declined the decline was less then targeted. (. R#0$ur3#0 +n t-# Pu./ of the GF.%+3 S#3t$r: #he availability of resources in the public sector to meet targeted levels of plan expenditure is an area1 which deserves attention.1 which is among the highest in emerging market economies. )1 . $tudies based on data collected from organi4ed and unorgani4ed sectors state that while employment may be increasing in the unorgani4ed sector in response to growth1 there is actually a contraction in employment in the organi4ed sector1 which is the preferred sector for employment by new entrants to the labour force. E 4%$. th plan pro:ections and this has led to significant under funding in many sectors. In#?ua%+t. #nt: #his is another area of grave concern. an" P$/#rt. F. Even district backwardness in a well performing state also presents a grim picture. #he consolidated public debt of the %enter and $tates taken together is about *. Ba%an3# R#2+$na% D#/#%$4 #nt: -egional imbalance in the development of different states presents a picture1 which re uires a focused attention.

D#3%arat+$n $5 D+/+"#n": #he -B! has decided to grant general permission to banks to declare dividends1 provided they comply with the following conditions? Eligibility Criteria &.2 ratio is less then '/.of at least +/ for the accounting year for which it proposes to declare dividend. !n case any bank does not meet the above %-2.&'. )2 . <. !t would be eligible to declare dividend provided1 its net N. !. 9. Hnly those banks1 which comply with the following minimum prudential re uirements1 would be eligible to declare dividends without the -eserve Banks prior approval? a8 %apital to risk6weighted assets ratio 7%-2-8 of at least +/ for preceding two completed years and the accounting year for which it proposes to declare dividends b8 Net Non6performing 2ssets 7N. #he bank should comply with the provisions of section 1' and 1) of the Banking -egulations 2ct1 1+&+. #he bank should comply with the -eserve Bank<s prevailing regulations/guidelines1 including creating ade uate provisions for impairment of assets and staff retirement benefits1 transfer of profits to statutory reserves1 etc.2s8 of less then )/.norm1 but is having a %-2. #he proposed dividend should be payable out of the current year<s profit.

3ectio$ 8G o! t:e ba$. #he -eserve Bank of !ndia should not have placed any explicit restrictions on the bank for declaration of dividends. per cent. b8 !n case the profit for relevant period includes any extraordinary profits/income1 the payout ratio should be computed after excluding such extraordinary items for reckoning compliance with the prudential pay out ratio. Banks1 which fulfill the eligibility criteria1 may declare and pay dividends1 provided6 a8 #he divined payout ratio does not exceed &. boa"d3 a$d 3e$d t:e 3ame !o" R(I a44"o5al/ I$ t:e i$3t"ume$t3> etc/> !"om t:e 4"emi3e3 o! ce$t"al a$d 3tate #o5e"$me$t3 de4a"tme$t3/ )3 .i$# "e#ulatio$ Act> 7EHE/ Acco"di$#> t:e ba$. -egarding the uantum of dividend1 the -B! made the following stipulations. 7Fivined pay out ratio should be calculated as a percentage of Cdividend payable in a yearD 7excluding dividend tax8 to Cnet profit during the yearD. !n case of any ualification to that effect1 the net profit should be suitably ad:usted while computing the dividend pay out ratio. D$$r:St#4 Bank+n2: T:e "e3e"5e ba$. c8 #he financial statements pertaining to the financial year to which the dividend is declared1 should be free of any ualification by the statuary auditors1 which have an adverse bearing on the profit during that year.3 to !o"mulate a 3c:eme !o" 4"o5idi$# 3e"5ice3 at t:e 4"emi3e3 o! a cu3tome" ?it:i$ t:e !"ame?o". :a3 ad5i3ed all 3c:eduled comme"cial ba$.D. #he reserve bank will not entertain any application for a higher dividend payout ratio than the one for which the banks ualify.3 :a5e to !o"mulate t:e 3c:eme ?it: t:e a44"o5al o! t:ei" "e34ecti5e ba$.

$o are there Non .erforming 2ssets.!% is a long6term player with long6term resources garnered at a low cost.arekh1 the managing partner at consulting ma:or author 2ndersen1D #he ongoing convergence in 7!ndian8 financial markets will result in the emergence of three or four large universal banks.!% in marketing1 servicing1 and cash flow management. #he business per employee and intermediation costs for these two banks are the lowest in the industry. #he $tate Bank of !ndia<s decision may have something to do with the state of the banking business.)/ now. !n the 5angalore based %orporation bank are perhaps the biggest gambles over undertaken by the two giants. #he .D #he marriage of banking and insuranceD1 explains -avi #rivedi1 an Executive )& director with consulting firm . !t has chosen %orporation Bank and Hriental Bank of %ommerce1 for investments in their e uity shares. Ba:pai believes the %orporation Bank deal is a win6win one. #hat1 despite the state banks status as one of the best6managed bank in the country. !t is highly likely that the immediate motivation was the entry of aggressive private sector player into its home6turf1 insurance. #hese two public sector banks have the distinction of turning out superlative performance. Both . %orporation bank incidentally1 is the only public sector bank1 where the recent voluntary retirement schemes has not been implemented1 as it does not have any excess staff to be sent out. %ompetition is intense in both domence at last count there were 1+ public sectors1 3& private sectors1 and &' foreign banks operating in the country1 and at the time of going to press1 ( companies have secured license from the !-F2 to start operations 7four of these already had8.!% and $B! >2N# to be serious contenders for the postD. !t is logical for the two companies to want to be universal banks. !ndian banks have seen there interest speared6 the difference between the rate at which they lend money and the rate at which they borrow it s uee4ed over the last ' years.“ENTRY OF LIC INTO BANCING: A WISE DECISION8 . "rom a healthy &/ in 1++(1 this has come down to around 2.ife !nsurance %orporations belated attempt to leverage its consideration financial and distribution muscle could have stemmed from a desire to become more ten a insurance company.D 2ds 2shwin . C #he proposed synergy between the two efficient public sector organi4ations will be mutually rewarding and help .

!%<s stake in the banks once the government amends the banking companies 2ct1 allowing private holdings in nationali4ed banks to exceed &+ per cent. crore does make great business sense? %orporation Bank is among the better banks in the countryA and a green6filed banking entity will find it difficult to establish itself in these trying times.ife !nsurance %orporation<s ac uisition of a 2) percent stake in corporation bank for rs.2'1 . By ac uiring a 33/ stake in corpbank securities1 . crore.&). $ays Ba:apai? C>e have put in a place a very wide array of products and today we are truly financial supermarketD..ricewaterhouse%oopers1Dwill provide banks with a source of long6term funds to manage their short6term liabilities. #he bank can help it manage this money.. crore it needs to invest in government securities.*'.* crore8 to 11/1 ...&.!% has made its intent clearA to restructure itself into what Ba:pa terms Ca transnational competitive financial conglomerate of significance to societiesD. 2&1(*.!% ac uires an almost in house fund manager for all the -s. croreA net profit1 -s. Hnly1 $B! is seeking to become a universal bank through organic means1 while . #hanks to the ac uisition of this stake1 !ndia<s largest insurance company now benefit from %orporation Bank<s expertise in money management.2. 5anaging a sum of this magnitude will not only enable %orporation Bank earn a large management fee1 it will also help it ac uire a significant clout in the money market. T:e Same E$d3: #he . ...D #hat both companies are serious about their universal6banking ambitions is evident.!% has started its campaign with the ac uisition of a significant stake in corporation bank. Ba:pai has already articulated his desire to up . )' . #oday (' per cent of $B!<s revenues come from banking1 and almost all of .2.1 deposits1 -s.!% boasts an annual cash flow of around rs.!%<s revenues come form insurance. 2nd by gradually increasing its stake in the profit making Hriental Bank of %ommerce 72. Both are seeking to reduce this proportion over the next five years..

#he decision is a result of its desire to augment its fee6based income through commission from the sale of policies. Hne reason is its decision to link the fortunes of its insurance subsidiaries1 $B!6life1 to the ability of its banking6branches to sell insurance policies6the classic B2N%2$$E-2N%E model.!%1 to its policyholders.W-$B0 B#tt#rG Fiscounting the overlap that must exist between the two1 both companies on their existing customer base to help them make the transformation to universal bank. #he strategy has imposed several limitations on $B!. #hen there are operational efficiencies to be gained. $B!1 for instance1 can sell a clutch of offering to its account6holdersA . !ts progress in the insurance business has been slow simply because the parliament has yet to clear a bill allowing banks to sale insurance.!%8 in the first lap of what must certainly be a long6distance race. Fespite $B!<s strong brand1 si4eable network1 and huge customer base1 it does look second best 7to . )( .

ECTIVE: 4 In!entories represent in!estment of a firm:s funds& The objecti!e of the in!entory mana#ement should be the ma'imi$ation of the !alue of the firm& The firm should therefore consider3 5a6 5b6 5c6 costs% return% and Ris" factors in establishin# its in!entory policy& Two types of costs are in!ol!ed in the in!entory maintenance3 .O(.4Orderin# costs3 4 Re8uisition% placin# of order% transportation% and staff ser!ices& Orderin# costs are fi'ed per order si$e increases& <4Carryin# costs3 4 2arehousin#% handlin#% clerical and staff ser!ices% insurance and ta'es& Carryin# cost increases& The firm should minimi$e the total cost 5orderin# cost F carryin# cost6& The economic order 8uantity 5EO@6 of in!entory will occur at a point where the total cost is minimum& The followin# formula can be used to determine EO@3 EO@C5<AODC6V.D< 2here% AC Annual re8uirement& OC Per order cost& CC Per unit carryin# cost& )) .

&-EN S-O+L' T-E FIRM .LACE AN OR'ER TO RE.LENISINVENTORY9 The in!entory le!el at which the firm places order to replenish in!entory is called reorder point& It depends on 5a6 the lead time and 5b6 the usa#e rate& Ender perfect certainty about the usa#e rate% the instantaneous deli!ery 5i&e& $ero lead timeH% the reorder point will be e8ual to3 1ead4time TEsa#e rate F7afety stoc"& The firm should stri"e a trade4off between the mar#inal rate of return and mar#inal cost of funds to determine the le!el of safety stoc"& A firm% which carries a number of items in in!entory% which differ in !alue% can follow a selecti!e control system& A selecti!e control system% such as the A4-4C analysis% classifies in!entories in to three cate#ories accordin# to the !alue of item3 A4Cate#ory consists of hi#hest !alue items% -4 Cate#ory consists of hi#h !alue items% C4Cate#ory consists of lowest !alue items& (ore cate#ories of in!entories can also be created& Ti#ht control may be applied for hi#h4!alue items and relati!ely loose control for low4!alue items& )* .

F+NCTION OF INVENTORY CONTROL /unctions to be performed in the field of In!entory Control are3 . 7ettin# up norms for carryin# In!entory& < 0eterminin# what items to be stoc"ed& = 7ettin# rules for In!entory replenishments& > Recei!in#% storin# and issuin# in!entory items as needed& A (aintainin# records of in!entory 8uantities and !alues& B Identifyin# and deposin# of slow mo!in#% non4mo!in#% obsolete or dama#e in!entories& J /urnishin# summary information on in!entory position for control purposes& 1ocations of position responsible for performin# each of these functions in or#ani$ation structure #reatly !ary from company to company& In New 9olland /iat India determination of product material or direct wor" order material 5what?6 to be carried in In!entory is more or less automatic result of product desi#n formulation and is #i!en in material forecast for a wor" order& Indirect materials consumed in manufacturin# process such as electrodes% bra$in# alloys% toolin# etc& are usually #i!en by process en#ineerin# or at times by desi#n departments& -alance #reat bul" of indirect materials is made up of repair parts and #eneral supplies& Responsibility for specific 5what?6 items to be carried in in!entory rests with 2or"s En#ineerin#& 2ith respect to raw materials and purchased parts% responsibility for determinin# 5when?6 and how much to buy is a si#n to rele!ant product manufacturin# i&e& production plannin# and material plannin# #roups& 9owe!er a strict bud#etary control and allocation to specific wor" order control on hi#h !alue items is e'ercised by In!entory control department or#ani$ed separately under (aterial (ana#ement& Purchase department attached to manufacturin# department determines 5where?6 to buy& )+ .

0etermination of indirect material 5when?6 and how much to buy and 5where?6% is done by central #roup under (aterial (ana#ement by consolidatin# re8uirements of all sections and while loo"in# at consumption trends o!er a No& Pears& A#ain a strict bud#etary control and control on hi#h !alue items for their allocation is e'ercised by In!entory control #roup& Recei!in# and storin# is done by Central 7tores C7W under (aterial (ana#ement 0epartment& Issuin# In!entory is done by C7W on demand from manufacturin# and is controlled by (aterial Plannin#& A#ain some on 1ine chec"s are proposed to be introduced at raisin# of 7tore Issue !oucher sta#e itself% for hi#h !alue items so that induction is controlled strictly as per re8uirement of production schedule based on lead time for manufacture to "eep 2IP in!entory under control& Records of In!entory are maintained on a main frame computer centrally arran#ed ha!in# shared access from all functions for their specific use& *. .

T:e I$te"$et i$ E-comme"ce: I$5e$to" 4la$$i$# a$d o"de" ma$a#eme$t (ost of the time the job of forecastin# demand and replenishin# in!entory to suit the demand is not accomplished in a manner that is useful& 2eLll tell you how to collaborate o!er the Internet on order mana#ement% in!entory mana#ement% and demand forecastin#% production schedulin# and transportation& 2eLll describe how throu#h collaborati!e plannin# on the Internet% consumer beha!ior can be communicated throu#hout the or#ani$ation& Sce$a"io3: 2hat happens when a customer contacts you and as"s for a product that he wants immediately and you disco!er that your warehouse doesnLt stoc" it at that moment? And if this happens after the item has been lo##ed in as a confirmed order? Are you able to respond in a timeframe thatLs suitable to your customer? 2hat happens if the customer contacts you throu#h telesales% or throu#h online sales on the web? Is your staff able to respond accurately to the customerLs 8uery? In the process are you really ma"in# money in these deals? 2hat do you need to ensure that you are not in a situation where you are in the dar" about orders and in!entories% and maybe e!en customers? 2e "now that customer orders dri!e a supply chain& A primary re8uisite for any e4 commerce business is that it employs systems that mana#e orders and in!entory le!els efficiently& *1 .

2hen customers demand ser!ice throu#h multiple channels% order promisin#% trac"in# and fulfillment become more comple' and intensi!e& (ultiple channels could mean customers callin# in throu#h the web+ phone% fa' or email and usually different people attend to these calls in an or#ani$ation& 0isparate order processin# can lead to serious #aps in demand and fulfillment& If order commitments are not honored throu#hout the enterprise a consolidated order status at any point of time can be difficult to !iew and this difficulty may in turn to be communicated to the customer& Consolidatin# orders into a sin#le interface for submission% trac"in#% routin#% fulfillment% and order status 8ueries% can help all employees access !ital information from a common interface thus ensurin# !isibility in the entire process& And if this !isibility is in turn communicated to the customer% it means that the customer has a complete picture of the status of his order until the final deli!ery& Customer order history implies !iewin# and mana#in# pendin# orders by status% accessin# order numbers by in!oice numbers% trac"in# number or customer& O"de" ma$a#eme$t 3e"5ice3: Order mana#ement ser!ices are a critical component of customer ser!ice 4 enablin# internal communications within an or#ani$ation and facilitatin# collaboration amon# tradin# partners to ensure that all customer orders are fulfilled and deli!ered when promised& *2 .

Profitable order mana#ement features can afford the followin#3 • • Consolidated order mana#ement that lowers costs in turn& Ad!anced order commitment and trac"in# that can in turn help impro!e customer ser!ice& • Allocation of in!entory and products in a profitable manner& Automation of wor"flows throu#h order mana#ement processesX Order !isibility 5order trac"in#6X • • Optimi$ed price lists and customer 8uotes to ma'imi$e mar#ins X Consolidation of order data to support enterprise forecastin# and replenishment initiati!esX • • 7i#nificant increase in the !isibility of demand and future re8uirementsX Elimination of repetiti!e tas"s and physical paper handlin# X Addition of the !alue of a!ailability to a productX Reduced lead times% reduced administrati!e wor"loads and the use of multi databasesX • • • • Optimi$ation of catalo# price lists for profitability& *3 .

I$5e$to" ma$a#eme$t: One of the lar#est costs to any business is that of in!entory or stoc" at hand& 2hether a manufacturer% retailer or distributor% the amount of in!entory held directly impacts your bottom line in more number of ways than you can ima#ine& 9a!in# too much cash tied up by not stoc"in# up on items that customers need% can ha!e a major impact on your business& A product that is in e'cessi!e demand is usually e'tremely difficult to mana#e& 7upplyin# the ri#ht amount of products implies that an accurate demand forecast is essential& This impacts the entire supply chain& A similar situation e'ists at the warehouse le!el and e!en the manufacturer end& Continuous replenishment in a warehouse can become a mammoth tas" if consumer response is not studied accurately& To facilitate efficient consumer response based on consumer demands% warehouse data% sales forecasts% and in!entory plannin#% it becomes imperati!e that such companies consider in!entory mana#ement seriously& (a"in# accurate demand and supply predictions is an ideal situation that anyone in the supply chain mana#ement arena could dream off& In!entory mana#ement can remo!e barriers between manufacturer and retailers and establish a closer relationship between them& Ideally in!entory mana#ement should be easy as the main aim is to reduce in!entories& If items wanted are not at hand or *& .

e!en if merchandi$e wanted is reordered often% sales will be lost to competitors& Precise control of in!entory is an essential in#redient for a successful company& The = main aims in in!entory mana#ement are3 .& Impro!ed customer ser!ice <& Reduced in!entory in!estment =& Increased producti!ity -enefits of in!entory mana#ement3 • • Complete control of in!entory& Complete information about the !alue of the in!entoryX Complete !isibility on @uantities on hand% @uantities committed and @uantities soldX • • Response time to demand chan#es reducedX Increased sales Onowled#e of the e'act si$e of merchandi$in# in!entoryX /re8uent analysis of purchases% sales and in!entory records& Remo!al of unnecessary use of warehouse space used by unneeded part of in!entory& • • • • *' .

• Reduction in e'cess merchandi$e stoc"& Ta'es and insurance premiums paid on e'cess merchandi$e in!entory a!oided& • -y pro!idin# timely accurate information pertainin# to in!entory location% mo!ement and !aluation% receipt of #oods% sale and return of #oods and profits you can ma"e sure that your in!entory is !isible throu#hout a networ"& 2ith in!entory mana#ement you can set your product catalo# to hide products that are not in stoc"% or chan#e prices based on the amount of products a!ailable in the warehouse& The 8uantity a!ailable can be displayed to the shopper and this can pre!ent unnecessary confusion when the shopper adds items not a!ailable to a shoppin# cart& The store buyer can be automatically notified about low in!entory le!els& IT is a "ey enabler in the transformation of purchasin# into a strate#ic business function& The challen#e is to find a way to put these technolo#ies to use and create !alue and competiti!e ad!anta#e& Contact us for inno!ati!e ideas and solutions in creatin# and buildin# online stores with ad!anced features li"e Order mana#ement and In!entory mana#ement& Chec" out our e4store pac"a#es& *( .

NNN% online retailin# is forecasted to be more than I<H> billion in <HH> YAZ& There are se!eral similarities and differences between online and traditional retailin#& One of the si#nificant differences is that there are many online retailers who do not carry any in!entory& Ob!iously% the stoc"less policy can reduce holdin# cost% and online retailers can ha!e competiti!e ad!anta#es from the policy& 9owe!er% it is ob!ious that stoc"outs will hinder consumersL decision ma"in# for buyin# a product& There are many mar"etin# papers studyin# the relationship between stoc"outs and consumer response& /it$simons ar#ues that when consumers face stoc"outs% consumers react substantially and ne#ati!ely to the stoc"out4they report lower satisfaction with the decision process and show a hi#her li"elihood of switchin# stores on subse8uent shoppin# trips Y=Z& Therefore% there e'ists trade4off between cost sa!in#s and lost sales in the stoc"less policy& Currently% many traditional retailers "eep positi!e stoc" on hand e'cept some special cases 5e&#&% car dealers6& 9owe!er% in e4business% there are many online retailers who are doin# business without carryin# any stoc"& They are just acceptin# bac"orders& The in!entory policies between online and traditional retailers are almost opposite& Then% basic and fundamental 8uestions to as" are Kcan the stoc"less policy be an *) .Q of retail economy in .olic 2 In the past se!eral years% we ha!e seen !ery rapid #rowth in e4commerce& E!en thou#h online retailin# was still less than .I$5e$to" Ma$a#eme$t i$ e-bu3i$e33 1A$ EO0 A44"oac: ?it: Com4e$3atio$ .

optimal in!entory policy?K and Kif it can be an optimal in!entory policy% what are the sufficient conditions for the optimality?K It is well "nown that% under the EO@ model with bac"orders% acceptin# only bac"orders cannot be an optimal solution unless bac"order cost is e8ual to H Y.% >Z& There are many papers about lost sales cases and partial lost sales cases& 9owe!er% the stoc"less policy has not been researched fully yet& This paperLs main purpose is to find the stoc"less policyLs sufficient conditions for the optimality and to #enerate some insi#hts from the sufficient conditions& To analy$e and answer the abo!e basic 8uestions% we introduce a new in!entory policy% Compensation policy& In this policy% the only difference from the other in!entory policy occurs when we do not ha!e any stoc" on hand& That means% if we do not ha!e any stoc" on hand% we will offer a compensation% R% to "eep or increase demand rate& Therefore% we compensate consumerLs waitin# time with compensation due to stoc"4 outs& /rom customerLs point of !iew% stoc"4outs will #i!e a ne#ati!e effect& Therefore% some customers may postpone the final purchase or stop by the other stores when they notice that they cannot buy what they want immediately& 9owe!er% with the compensation policy% the customers may still want to buy the product because of the compensation& /urthermore% it is possible that the compensation policy may ha!e hi#her demand rate compare to the demand rate with stoc"& /rom retailerLs point of !iew% as lon# as they can ma"e profits% they want to increase demand rate& Therefore% this in!entory policy is beneficial for both customers and ** .

retailers as lon# as they can #et benefits from the policy& To implementin# this policy is not difficult& In traditional retailin#% if a store will post its compensation rate with waitin# time% it may be attracti!e some customers who are not interested in purchasin# the product at that time& In e4business retailin#% the policy can be implemented more easy way& 0ue to the ad!anced web4technolo#y% we can chan#e our products price !ery easily& Therefore% a store will announce the compensation immediately when its in!entory is out of stoc"& Ender this compensation policy% there is also trade4off& -ecause we will ha!e an additional compensation cost% our total cost will be also increased& 9owe!er% due to the policy% if the demand rate with stoc"4outs will be increased% our total profit will be increased also& /urthermore% we may ha!e different optimal in!entory policy 5e&#&% stoc"less policy6 under certain conditions& In this paper% we consider two types of compensation& One is flat rate and the other is time dependent compensation& Ender the flat rate compensation policy% we will offer a fi'ed compensation re#ardless of waitin# time& Therefore% durin# the stoc"4outs period% all customers who placed bac"orders #et same fi'ed compensation& On the other hand% under the time dependent compensation policy% customers will be compensated accordin# to waitin# time& To in!esti#ate and find sufficient conditions for each in!entory policies% we formulate Compensation models based on the EO@ model with bac"orders& 9owe!er% there are se!eral differences& /irst% we #enerali$e the assumption about demand rate& Ender the EO@ model with bac"orders% the demand rate is always *+ .

same& 9owe!er% in our model% we can ha!e different demand rates between with stoc" and with stoc"4outs& 7econd% if the demand rates are not same% just minimi$in# a!era#e in!entory cost will not #i!e us the solution that will ma'imi$e profit& Therefore% there are two ways to sol!e this problem& One is ma'imi$in# profit function% and the other is minimi$in# a!era#e in!entory cost includin# the effect of different demand rate& In this paper% we introduce new cost% opportunity cost& This cost represents and ta"es into account chan#es of profit due to the difference of demand rate& Therefore% in our model% minimi$in# the a!era#e in!entory cost #uarantee that the solution from our model is also ma'imi$in# the profit function& Our major findin#s from our in!entory policy and models are as followin#s& /irst% the EO@ model with bac"orders and its solution are special case of our model& This result is ob!ious& 2hen we will not offer any compensation and ha!e same demand rates between with stoc" and with stoc"4outs% our model is e'actly same as the EO@ model with bac"orders& 7econd% our model also #enerali$es the EO@ model with bac"orders in case of partial lost sales& This is also our modelLs special case when we will not offer any compensation and ha!e partial lost sales& Third% we found that% without any compensation% the stoc"less policy cannot be an optimal in!entory policy unless bac"order cost is $ero& Therefore% with no compensation% we can ha!e only positi!e stoc" on hand or mi'ture in!entory policy accordin# to our cost structure and demand rates& /ourth% the stoc"less policy can be an optimal solution only with positi!e compensation +. .

under certain conditions& /ifth% we deri!e sufficient conditions for the three optimal in!entory policies% which are positi!e stoc" on hand% mi'ture in!entory% and stoc"less in!entory policy& These sufficient conditions are simple and easy to understand& /inally% we show the optimal solutions for each case& Therefore% #i!en cost structure and demand rates for a product% we can tell what is the optimal in!entory policy and what is the e'act solution to minimi$e the a!era#e in!entory cost which is e8ui!alent to ma'imi$in# profit function& Throu#hout the rest of this paper% we will re!iew the traditional EO@ model with bac"orders% formulate Compensation models% analy$e these Compensation models% find insi#hts from our research% and discuss further research issues& To our "nowled#e% e'cept the traditional EO@ with bac"orders% all models are new and also the optimal solutions are new& +1 .

MET-O'OLOGY It is the arran#ement of the conditions for collection and analysis of data in a manner that aims to combine rele!ance to the New 9olland /iat India purpose with economy in procedure& The New 9olland /iat India is e'planatory in the be#innin# as the secondary data is collected mostly from the hi#her mana#ement and some from middle mana#ement& This information is able to #i!e "nowled#e about the company and its share in the mar"et& SOURCES OF DATA -oth primary and secondary data were collected to meet the objecti!e+ the data is collected for the last three years from the annual reports of the new holland fiat india& 0ue to non4a!ailability of the accounts of sepaIn!entoryn units& I measure the performance on the base of all a##re#ate units& 0ata is ta"en as per the re8uirements of the study of the in!entory mana#ement& 7econdary data is used for it& Primary data is collected for the purpose of the theoretical part& +2 .RESERAC.

CONCL+SION .& -y studyin# last two years performance of the company% we say that the wor"in# capital of the company is increasin#& <& The operational In!entory performances of the company are continuously risin# because of the increase in the sales of the companies: products& =& The 0ebt E8uity In!entory of the company is increasin# as company is now payin# its debt due to which the company 1i8uidity In!entory is fallin#& +3 .

FIN'INGS
• /ormation of specific #roup in each area to identify the wasta#e elements and see" participation of all& • Identification of wasta#e& • /ormulation of action plan to eliminateDminimi$e wasta#e& • Re!iew of status& • Identification of correcti!e actions and their implementation& • 9i#hli#htin# the #ains&

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LIMITATION  The study is limited to two month only&  Price le!el chan#es are not considered&  Time is short for deep research&  7eparate records of the all units are not a!ailable&  No comparison made with other firm:s In!entory while durin# the study period and ma"in# conclusion time&  The readjusted and re#roup fi#ure sli#htly affects the In!entory fi#ures&  7tudy is limited with the one unit of New 9olland /iat India Industries limited&  The data is used in the project ha!e been ta"en from annual report only& 9ence% #roupin# and sub #roupin# and annuliasation of data may sli#htly affect the results&

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S+GGESTIONS' Althou#h new holland fiat india% has satisfied the In!entory& The followin# are the su##estion bein# made out by me as obser!ed durin# study of the performance throu#h In!entory (ana#ement3  Company should increase its sales of all the production units with increase in the sales of the company that can be able to increase its financial position&  Company should decrease the operatin# e'penses to increase its operatin# profit&  (a'imi$e the production capacity&  (aintain the amount of current sales le!el and try to increase it&  (a'imi$e the utili$ation of fi'ed assets and wor"in# capital&  All other mana#ement% personal and administrati!e su##estion to be incorporated&  To follow the strict credit collection policy&  Reduce the current assets and 8uic" assets In!entory to maintain the standard In!entory&  Cash In!entory performance is poor& 7o ma"e policies to impro!e it&  Return on in!estment is in satisfactory position and they try to maintain it in future&  Try to start those companies% which are closed due to non4a!ailability of funds&  Try to best utili$ation of the a!ailable resources&  Try to maintain the standard In!entory in the financial In!entory&

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Ltd.!!" &E(/ Site3  www&#oo#le&com D Year -2005. Publishing House Delhi Year .  Principles and Techni8ues of Personnel (ana#ement .-Y (oo.3  (anuals and /iles of New 9olland /iat India& Deep & Deep Publication Pvt.(I(LIOGRA.Edai Paree" Himalya +) .