INVENTORY MANAGEMENT

INVENTORY MANAGEMENT
WITH SPECIAL EMPHASIS ON VARIOUS TECHNIQUES OF
INVENTORY CONTROL
A training report submitted in partial fulfillment of the requirement for the degree

Of

BATCHELORS OF BUSINESS
ADMINISTRATION
(2007-2010)

Submitted by:
DEEPAK AGGARWAL
ROLL.NO. 3901

MULTANI MAL MODI COLLEGE

PAT I A L A

INVENTORY MANAGEMENT

ACKNOWLEDGEMENT
I consider it pleasant privilege to express my heartiest gratitude and indebtedness to those who
have assisted me towards the completion of my project report. The project wouldnt have seen
the light of day without the help and guidance of many people I take an opportunity to convey
my deepest gratitude to all those individuals.
My first words of thanks go to Mr. Jadish Rao (General Manager) & Mr. Munish Kaushal
(Manager Finance & IT) for giving me the opportunity to work on this project.
I feel highly obliged and indebted to my learned guide Mr. Rixon Singla, Mr. Sunil Sharma,
Mrs. Pooja Sharma, Mr.Usman Ali, Mr.Sumit Bansal, Mr.Virender Kumar, Mr. Anoop
Wadhwa of Finance department GSK for not only providing all the moral and organizational
support but also for inspiring encouragement during the course of this work. Without their help
it wouldnt have been possible for me to accomplish this task in time.
Words at my command are inadequate both in form and spirit to express my sincere and
profound gratitude to all these persons for their meticulous guidance, keen supervision, and
constructive criticism. Friendly attitude and whole-hearted help throughout the course of this
project. Their unforgettable, positive approach and freehand acumen made this project
possible.

DEEPAK

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PREFACE
The problem of unemployment is one of our major problems. This problem has been troubling us
ever since we gained independence. One reason for growing unemployment in the country is our
faulty education system. Students are given bookish knowledge without any training for specific
jobs. To solve this problem to some extent training programmes are being introduced. This helps
the students to increase their job perspective. Training can be done in industries, business-houses,
sales and income tax department of various central, state, local, government societies etc.
A project work programme in industry is to get an overall view and exposure of the industry and
its working environment. It enhances the confidence and boosts the morale of the students who go
for their project in the industry. These programmes are included in the curriculum of studies for
development of the personality of the finance students and get a first hand experience about the
working of the industry.

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EXECUTIVE SUMMARY
1st part of the report contains introduction to GSK, which includes company profile showing
the company status, ISO certification etc., Historical background which shows how GSK
comes into being? Then various Packaging stations, Manufacturing process which shows how
Horlicks is manufactured in company? After that there is Supply chain process which shows
that how the Horlicks reaches to the final consumer?
It contains the brief information about the GSK Nabha plant like no. of employees, shift
timings, milk collection centers etc. After this there is product profile, which shows range of
products offered by GSK Consumer Health Care Ltd., Department overview, which shows how
various departments works for the company, Then comes GSK mission which shows
companys dedication towards the society and an overview about its financial and marketing
implications.
2nd part contains the Research Methodology, which includes justification about the topic
selected, the objective of the study, Unit where the study is conducted, time period for which
the study is conducted. Scope of the study and sources of information (primary as well as
secondary). It also includes various limitations during the course of the project.
3rd part contains the introduction to topic Inventory Management this includes the
information, as to what is Inventory Management all about, the aspects of Inventory
Management, its importance, the objectives for Inventory Control and scope, Inventory Control
techniques, etc. and all this is well supported with the data of GSK.
4th part is about the analysis of the data which includes the present scenario of inventory
management in GSK , NABHA, the ways in which inventory could be utilized, the various
inventory control tacts such as ABC, FSN, etc.

INVENTORY MANAGEMENT
5th part of this report is about the findings and suggestions, the various proposals that the
company could apply for maintaining the inventory and the suggestions for the improvement in
inventory control that could be helpful to the organization, some techniques for practicing good
inventory control management.
The last part of the report is that of Bibliography in which the various books, web sites and
articles consulted for the preparation of this report are mentioned.

INVENTORY MANAGEMENT

COMPANY PROFILE
Company

Glaxo SmithKline Consumer Healthcare Ltd

Head office

Gurgaon (Haryana)

Registered Office

Nabha (Punjab)

Status

Multinational Company.
Originally U.K. Firm

Quality Status

AWARDED Latest Version OHSAS

18001, ISO 9001:2000 and
ISO14001:2004
Rajahmundry Plant Received
ISO14001Accreditation and SA8000
Nabha & Sonepat Plant certified for
HACCP (Hazard Analysis Control
Point for Food safety).

Turnover (2008)

Rs. 13955(Millions), 15% increase

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as compared to last year.

Export To

Bangladesh, Myanmar, Sri Lanka,

Middle east, Nepal, Hong Kong,
Malaysia, Fiji

INTRODUCTION TO GSK

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GlaxoSmithKline Consumer Healthcare Ltd. (GSKCH) is an Indian associate of

GlaxoSmithKline plc, U.K.
GSKCH is one of the largest players in the Health Food Drinks industry in India. The Company, with its
manufacturing plants located in Nabha, Rajahmundry and Sonepat, has a total workforce of over 2700
people, each driven by a spirit of enterprise.
Its flagship product, Horlicks, is a highly respected brand, which is over 100 years old in India. The
Company also manufactures and markets Boost, Viva, Maltova, and Biscuits and in addition promotes
and distributes a number of products in diverse categories, including prominent brands such as Eno,
Crocin and Iodex.
GSKCH has a strong marketing and distribution network in India comprising over 1800 wholesalers and
direct coverage of over 4,00,000 retail outlets.

HISTORICAL BACKGROUND
GlaxoSmithKline Consumer Healthcare Ltd. is a pharmaceutical and healthcare company born out of
the merger of two leading international organizations SmithKline Beecham and GlaxoWellcome. GSK
Consumer Healthcare Ltd and GSK Pharmaceuticals Ltd are the two businesses of GSK in India of which
former are headquartered at DLF Gurgaon and the latter at Worli, Mumbai.

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Its global mission is

To improve the quality of human life by enabling people to do

more, feel better and live Longer ".

In the Indian market, GSKCH's journey began with Horlicks.

PLANT LOCATIONS IN INDIA

PRODUCTION STATIONS

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FOOD POWDER

NABHA, RAJAHMUNDRY & SONEPAT

BISCUITS

SAHIBABAD

ENO

RAJAHMUNDRY

CROCIN

BANGLORE

IODEX

BANGLORE

PACKING STATIONS
The company started packing Horlicks in Kg and 1kg pouches. Packing machines were imported and
installed. As the main market for sale of Horlicks was in the South and East India, need was felt for the
sale of Horlicks in small units of the country. Therefore was opened at different places. At present
Horlicks is dispatched from Nabha in bulk quantity to the following packing stations:
Mangaldoi (Assam)
Kompally
Baddi (Himachal Pradesh)
Hamira (Punjab)
Parson

The marketing of the company's products is done through various Regional Sales Offices (RSO) situated
at:
North (New Delhi office)
West

(Mumbai office)

East

(Kolkata office)

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INVENTORY MANAGEMENT
South (Chennai office)
The company has its head office in Gurgaon. Bulk-malted food manufactured in Nabha is dispatched to
different packing stations in drums for packing in units container or gusseted pouches (GPs).

GSK MISSION
Our global quest is to improve the human life by enabling the people
TO DO MORE, FEEL BETTER, AND LIVE LONGER.

People at Glaxo SmithKline consumer healthcare limited are dedicated ourselves to delivering medicines
and products that help million of people around the world LIVE LONGER, HEALTHIER AND
HAPPIER LIVES.

CULTURE
Successful companies have developed something special that supersedes corporate strategy, market
presence, or technical advantage- distinctive culture. What it is, whether it is important or not, what you
deal with indirectly. Why? Because culture is an intangible shadow. You cannot garb hold of culture. it has

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no handles, nothing you can touch directly. Having said all that, it is an important issue GSKs culture is
the set of norms that create powerful precedents for acceptations around acceptable risk, change
orientation, creative and innovation, group versus individuals effort, customers orientation, extra efforts

ABOUT THE NABHA PLANT

GSKs Nabha plant is a huge manufacturing unit. Glaxo SmithKline Consumer Healthcare Ltd. is having
three factories, which are at Nabha, Rajahmundry and Sonepat. The factory at Nabha is the mother unit
and products manufactured by this company fall under two categories of consumer healthcare:
Nutritional
Health Drinks

Horlicks and its

variants

Gastrointestinal

ENO Fruit Salts

The food powder (HORLICKS & BOOST) is manufactured in Nabha. The requirement of workforce
changes with change in production policy. The plant at present employs a work force varying from 1500
to 2000 out of which approximately 1100 are permanent. There is a staff and management of about 145
persons. There is a wage agreement for 3 years. The workers also getting weekly off according to Labors
Act.. The plant runs 365 days a years in 3 shifts daily which work from 5.15 a.m. to 1.15 p.m., 1.15 p.m.
to 9.15 p.m. & 9.15 p.m. to 5.15 a.m.. The office opens 6 days a week.
About 12 Milk collection centers were opened at a radius of about 40km around Nabha, to meet the
requirement of 20 tones of Milk per day. The main purpose of opening collection centers at village level
was to get good quality of Milk directly from the producer and pay them good price, thus, raising their
standard of living. Nabha and Sonepat production facility has already been certified for HACCP (Hazard

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Analysis Critical Control Point for Food Safety).During the year the Nabha site received The Best
Environment Protection Initiative 2006 award from the Punjab Pollution Control Board.

DEPARTMENTAL OVERVIEW
The various departments in GSK Ltd. Nabha are:
OPERATIONAL
EXCELLENCE

MANUFACTURING
ENVIORNMENT
HEALTH &
SAFETY
ENGINEERING

HR & A
QUALITY
ASSURANCE

FINANCE
&
I.T.
PROCUREMENT

WAREHOUSE
SUPPLY CHAIN
MANAGEMENT

MAIN FUNCTIONS OF FINANCE DEPARTMENTS

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FINANCE DEPARTMENT
Main Functions of Finance Department Are As Follows: -

Vendor payment
When an article arrives at the gate, an entry permit is made and they are sent to the GOODS INWARD
DISPATCH section (GID). A goods inward from (gif) is filled up and sent to the finance department for
payment .the vendor submit the bill to purchase department .the finance department also receives a hard
copy of the corresponding purchase order (PO). There is online passing and payment system .This
Contains a database of all purchase order issued .these are checked against the bills for the GIF, PO
references after which the bill is posted for production of the payment slips.

Disbursement of salaries
The HR Department sends a compile list of all employees on the payroll together with their monthly
working records .The salaries are paid mainly through the bank to all the employees.

Payment to government bodies

Excise is paid to all suppliers for goods manufactured. The company takes credit of the payment of excise
from the govt. According to the CENVAT. Excise is however paid for the finished goods. Octroi is paid to
Local authorities for goods arriving from outside Nabha. Property tax, insurance and sales tax are also
paid in case of accidents; breakdowns are called for assessment, when a claim is filed. VAT is paid to
Excise and Taxation Department of Punjab.

Milk accounting
Every milk supplier has a code, the first two digits indicating whether the milk is from cow, buffalo and
the next three digits indicating the supplier. Payments are made after 10 days by cheque/MT/DD..

Payment of services
The finance department pays for various services like rent, truck hire etc.

Capital budgeting

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Every department submits an annual budget, which is allocated quarter wise . The concern department
also sends a capital investment proposal, which has to be approved in different forums depending on the
investment required.

DEPARTMENTAL CHART OF FINANCE &IT

Mr. Jagdish B. Rao

General Manager- NABHA

Mr. ARUP CHAKROBARTY

Sr. Manager- Finance, IT & Compliance

Surya Kant Jain

DY.. Manager- Finance
Budgeting, MIS, Audits
AP, Product Costing, OE
financials, Indirect Taxation,
Debtors, Site Oxygen
Champion

Rixon Singla

Ajay Kansal

DY. Manager Finance Fixed Assets & Capex, Payroll

RM, Costing, Insurance, OE
Coordinator.

Asst. Manager- Finance

Accounts Payroll, Milk/
DOA/ DOB/ Services/
Freight, Audits,
Compliance.

Usman Ali
Vikas Gupta
Officer Finance Budgeting, MIS Banking,
OE Financials New product
Costing, Record Retention

Sumit Bansal
Officer FinanceCentral Excise, TCS,
Debtors, VAT, eTDS,
service Tax

Pooja Sharma
officer Finance Costing, Raw Material/
FG accounting &
Related Compliance

Sunil Sharma
Officer Finance Fixed Assets A/c, Capital
WIP, Payroll, Insurance,
Employee Services, EHS, 5 S

Officer Finance DOA, DOB,

Services & Related
Compliance, KP
co-coordinator

Virender Kumar
Officer Finance Milk Accounting, Freight
Accounting

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INVENTORY MANAGEMENT

Narinder Verma
Executive IT
Infrastructure, Servers, Notes Mail,
Applications Support, IT Training

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MANUFACTURING PROCESS
The Manufacturing process for Horlicks is as Follows:
1. The First step in the production process involves the mixing of wheat flour with Malted Barley.
2. In The Second step water is added to the above mixture and the material is mashed thoroughly, as
a result of which the outer cover of malted barley is moved and remains after it is called Husk.
3. After mashing the material it becomes thick slurry in which the solid content is above 50%.
4. The fourth step involves the adding up of water to the above mixture.
5. The next stage is the stage of evaporation in which the material is evaporated and the result is
thick slurry of the material in which the solid content is around 80%.
6. After evaporated comes the step of spreading out of material in plates and keeping them in the
oven for about half an hour.
7. Once the material is completely dried, the plates are taken out from the oven and the food item is
scrapped out, which comes out in the from of thin layers. Then the vitamins and other essential
nutrients are added to the food items which is then ground and the result is our final product
HORLICKS.

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SUPPLY CHAIN PROCESS

The supply Chain Process at GSK; Nabha is as follows:
Horlicks manufactured at the Nabha plant, after it is put in drums with a capacity of 184 kgs. Is either
bottled or packed in pouches and then sent to sales depots situated across the country. Its chain is as
follows:

Consumer

Drums(at factories)

Retailers

Bottles (at packing stations)

Wholesalers

Sale Depots

RESEARCH METHODOLOGY
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OBJECTIVES OF STUDY
The present study has been undertaken in respect of Glaxo SmithKline at Nabha the main objectives of
study are as follows:

To know that how a company apply the controlling technique on the inventory.

To know that how the recategorisation of the inventory is done through the ABC analysis.

To know that how the purchase orders have an impact on inventory and hoe it simplifies the
complexity.

To know that how a company actually get the benefit of the controlling technique.

To know that how other techniques can be better applied on the existing controlling technique.

SCOPE OF STUDY
The scope of the study is designed in terms of unit worked, the concept adopted and the period under
focus.
The unit
The study is done in the Finance department & stores department of GlaxoSmithKline Consumer
Healthcare Ltd. at Nabha plant.

The concepts
The concept of various tools and techniques of general inventory control are used and analysed.
The period
The study is supposed to be relating to the period of last years consumption i.e. from April 2006- March
2007.

Sources of Data:
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Secondary Data: - The study is based on mainly on the secondary data including Annual Report,
Store Records & for theoretical portion various books.

Primary Data: - The only mode of collecting primary data was the non-structured direct intersection
with the concerned persons of Finance & Stores Department.

INVENTORY
MANAGEMENT
(SPECIAL EMPHASIS ON
A, B, C ANALYSIS OF
INVENTORY CONTROL)

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INVENTORY MANAGEMENT
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Every business needs inventory for smooth working of its activities. It serves as a link between production
and distribution activities. Inventory the most significant part of current assets.
Large size of inventory is maintained by firms, a considerable amount of fund is required to be committed
in them. Therefore, one of the most significant decision areas concerning finance manager is inventory
management. Inventories consisting raw material, WIP, finished goods, maintenance spare parts a
significant preparation of total assets.
Inventory management means preparing the stock of goods at such I level that neither the stock should be
excessive or inadequate. It is a system, which ensures that right quality of material, is available in the
right quantity at right time and right place with the right amount of investment. Large size of inventory
ensures efficient and smooth production and sales operations, while minimum investment in inventories
maximizes profitability. Both the extreme points are dangerous. An efficient manager always determines
the optimum points in between of the two extremes. Excess installments in the inventory pees danger like
unnecessary the up of firms funds and loss of profit excess carrying cost. Risk of liquidity and risk of
physical deterioration of inventories. On the other hand inadequate investment in inventories seeks to
production hold ups failure to meet delivery commitments. Thus, the aim of inventory management is to
balance between the two and maintain sufficient inventories. According to Curry and Frank:

Because materials constitute such a significant part of product cost and since
this cost is controllable, proper planning, purchasing, handling and accounting
are of great importance.

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OBJECTIVES OF INVENTORY MANAGEMENT

The main objectives of inventory management are operational and financial. The operational objective
means that the materials and spares should be available in sufficient quantity so that work is not disrupted
for want of inventory. The financial objective means that investments should not remain idle and
minimum working capital should be locked in it.
Ensure sufficient stocks of raw materials in periods of short to ensure continuous supply of materials
spares and finished goods so that production should not suffer at any time and the customers demand
should also be met.
To avoid both over- stocking and under-stocking of inventory.
To maintain investments in inventories at the optimum level as required by the operational and sales
activities.
To keep material cost under control so that they contribute in reducing cost of production and overall
costs.
To eliminate duplication in ordering or replenishing stocks. This is possible with the help of
centralizing purchases.

DEFINITION OF INVENTORY
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INVENTORY MANAGEMENT

The dictionary meaning of Inventory is a list of goods. In a wider sense, inventory can be defined as an
idle resource, which has an economical value. It is however, commonly used to indicate various items of
stores kept in stock in order to meet future demands.
In any organization, there may be following four types of inventory:
a) Raw materials & parts- These may include all raw materials, components and assemblies used in
the manufacture of a product.
b) Consumables & Spares- These may include materials required for maintenance and day-to-day
operations.
c) Work-in-progress- These are items under various stages of production not yet converted as
finished goods.
d) Finished goods- These are the goods that are not yet sold or put into us.

INVENTORY CONTROL
Inventory Control is the art and science of maintaining the stock level of a given group of items, incurring
the least total cost, consistent with other relevant targets and objectives set by the management.
Inventory control refers to the process whereby the investment in material and parts carried in stock is
regulated within predetermined limits set in accordance with inventory policy established by the
management (Gordon B. Carson). The activities of Inventory control, thus, include the following:

Determination of limits of inventories to be held.

Determination of inventory policies.

Setting out of investment pattern and its regulation as per individual and collective requirements.

IMPORTANCE OF INVENTORY CONTROL

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The primary objective of inventory control is:
To minimize the idle time caused by shortage of inventory and non- availability of inventories as
per requirements, and
To keep down capital investment in inventories, inventory carrying cost and obsolesces losses.

Achievement of these objectives will result in more return on capital which is materially the prime
objective of an organization whether commercial or industrial. The formula given below is helpful in
arriving at the return on investment:
RETURN ON CAPITAL =

PROFIT
CAPITAL INVESTMENT

In normal circumstances, profit margin depends on external factors like competition over which the
management has little control. Here the question arises how the management controls over
competitiveness? This is possible through the control over inventories; the total capital in GSK is invested
in fixed assets such as buildings, plant & machinery and a cut in this cannot be affected. But a reduction
in working capital, high percentage of which is locked up in inventories, is possible and there is definite
increasing profit earning capacity of the organization.

SCOPE
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INVENTORY MANAGEMENT

The scope of inventory management is vast. It encompasses various functions starting with determination
of the requirement of inventory and ending with the supply of finished products to the users. In widest
sense, functions included in the scope of inventory management can be summarized as:
Determination of inventory requirement and planning its inflow.
Floating tender enquiries.
Identifying suppliers and placing orders for the suppliers.
Inspection of items received
Store keeping and stock control.
Issue, Valuation and Store Accounting.
Warehousing and Distribution.
All these functions are carried out, one after the other, in close sequence. First the periodic requirement of
inventory is determined on the basis of sales forecasts and production plan. At the same time tender
enquiries are floated for identifying the sources of suppliers. Orders are then placed with the suppliers.
When the inventory consignments are received they are inspected to ascertain that items supplied are as
per the specifications given in the order. Items found in order are then stored in bins, racks and containers
to ensure their safety, security and prevent deterioration in quality. Inventory items are issued from stores
to production and other departments as per their demand. Proper records are maintained for the receipt
and issue of all these items. The stores department also maintains the finished goods inventory. Finally
these items are issued to the distributors and dealers as their purchase orders, after obtaining instruction
from the sales department.

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INVENTORY MANAGEMENTCONSTRAINTS & PROBLEMS

CONSTRAINTS
Constraints of inventory management vary from organization to organization depending upon various
variables; some of them are as under:a) Whether the demand for the goods is one time (static) or of repetitive nature (dynamic). In GSK
all the non-stock items are treated of static nature and stock items of dynamic nature.
b) In case of demands of dynamic (repetitive) items, whether future requirements can be assessed
with certainty or uncertainty or under risk (probability). Also, whether the demand is fixed over a
time or is variable.
c) Whether the material is manufactured in house or is to be purchased through outside suppliers.
d) Whether the lead-time during which material can be arranged is fixed or is variable.

PROBLEMS
On one hand, inventories are idle and valuable resources i.e. capital remains locked up in the inventories,
which can be used for other productive purposes, but on the other hand they are desirable to satisfy
manufacturing, maintenance or operation requirement of the organization. Hence a basic problem of
Inventory Management is to optimize the stock levels of different materials so that their stocks are
maintained at optimum levels without affecting the production or day to day maintenance.
Three basic problems associated with optimization of stocks are:
1. When to initiate purchase of the materials?
2. How much quantities are to be purchased at a time?
3. What should be the stock levels of the different items?

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VARIOUS INVENTORY MANAGEMENT TECHNIQUES

Various techniques employed for controlling stock levels are:
a) Selective Management: - In this technique, various items of stores are classified in various
classifications depending upon their consumption value, unit price, criticality for the organization,
source of supply, purchasing problems, rate of withdrawals from the stores, seasonality and stores
balances on a particular date. Different approaches of control are being followed for different
types of items.

Two such classifications ABC & FSN are followed in GSK

b) Management by Exception: - In this technique, items with certain exceptions are tackled on
different points of time. For example, overstock items; surplus items and inactive items may
require more attention.

In GSK management by exception is followed for such goods that are

stock outs for some period.
c) Rationalization: - Techniques of standardization and variety reduction are used to minimize leadtime of the material, and reduce unnecessary inventory carrying costs.

d) Value Analysis: - Functions performed by the materials are analyzed and alternative designs/raw
materials are suggested to achieve the same function at minimum cost.

e) Computerization: - Computer outputs can be used for scientific forecast of demand to solve
many inventory models, providing optimum safety and for controlling funds.

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GENERAL STORE INVENTORY

General store is a major part of the inventory in all the concerns. It provides the information regarding
how much material we can purchase, and how much material we can keep in store such as it is helpful to
provide the information regarding all levels. The major part of working capital of all the concern spent in
General store inventory.

NATURE OF GENERAL INVENTORY IN GSK

Inventories are stock of the product a company is manufacturing for sale and components that make up
the product. The various forms in which inventories exist in a manufacturing company are: raw materials,
work in progress, finished goods & stores and spares.
Raw materials are those basic inputs that are converted into finished product through the manufacturing
process. Raw material inventories are those units, which have been purchased and stored for future
productions.
In GSK Malted Barley, Wheat flour, Skim Milk Product (SMP), Fine Crystalline Sugar (FCS),
Roasted Malted Barley, Calcium, Potassium, Sodium, Vitamin Flavors etc., are main raw materials.
Work-in-process. The work-in-process is that stage which is in between raw material and finished goods.
The raw material enters the process of manufacture but they are yet to attain a final shape of finished
goods. The quantum of work-in-process depends upon the time taken in the manufacturing process. The
greater the time taken in manufacturing, the more will be the amount of work in process.
In GSK at Nabha there is no work in progress.

Consumables. These are the materials, which is needed for smooth process of production. These
materials do not directly enter in the production but they act as catalysts, etc. consumables may be
classified according to their consumption and criticality. Generally, consumables stores do not create any
supply problems and form a small part of production cost. There can be instance where these materials
may account for much value than the raw materials The fuel oil may form a substantial part of cost.
In GSK Nabha Polythene, Drum Seal, Tape roll, Label, Cleansing Agent, Hand gloves, Oil,
Chemical, Coal, etc. are examples of some consumables.
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INVENTORY MANAGEMENT
Finished goods. These are the goods, which are ready for the customers. The s tock of finished goods
provides a buffer between production and market. The purpose of maintaining inventory is to ensure
proper supply of goods to customers. In some concerns the production is undertaken on the order basis, in
general without waiting for specific orders.
In GSK main finished goods are Horlicks, Boost, Vanilla Horlicks, Elachi Horlicks, Boost
intermediate, Horlicks high fat, Junior Horlicks DHA, mother Horlicks DHA etc. are products,
which are produced for consumption in India. Mother Horlicks DMI and Junior Horlicks DMI are
products manufactured for export package and send to Bangladesh.
Spares. Spares also form a part of inventory. The consumption pattern of raw material, consumables,
finished goods are different goods are different form that of spares. The stocking policies of spares are
different from industry to industry. Some industry like transport will require more spares than other
concern. Costly spare parts like engines, maintenance spares etc. are not discarded after use, rather they
are kept in ready position for further use. All decision about spares is based on the financial cost of
inventory on such spares and the costs that may arise due to their non-availability
In GSK examples of Spares are Barring, V-Bolt etc.
Stock of raw-material, work-in-process and stores and spares facilitate production, while stock of
finished goods is required for smooth marketing operations. Thus inventories serve as a link between the
production and consumption of goods.

GENERAL STORE INVENTORY IN GSK

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INVENTORY MANAGEMENT
General store is that which the part of the production becomes indirectly. Without such inventory no
production will be there. This store inventory includes:

Polythene bags

Consumables like diesel etc.

Cleaning material like nitric acid, caustic soda etc.

Floor cleaning towels

Spare parts of the machines

Inventory required under GMP (Good Manufacturing Practices) like uniform, hand gloves, mouth

covers, safety shoes etc.

Under the general store inventory total no. of items are 2472, which have the ABC classification.
Their total consumption value is Rs. 54339226.01. It includes 99 items, some of which dont have
any classification because these items are used as and when required during the year as such do not
fall under any category and some are capital related spares. (See Annexure)

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ABC ANALYSIS
ABC analysis is a basic analytical materials management tools. Fundamentally ABC analysis may be
applied to any branch of management with ease and success. It calls upon the top management to place its
efforts where the result will be greatest. It is selective approach popularly known Always (A) Better (B)
Control (C). The ABC goes by its name it always the best, then better and lastly the good.
Manufacturing organizations find it useful to divide materials into three categories for the purpose of
exercising selective control on materials. An analysis of the materials cost will show that a smaller
percentage of items of materials in the store may contribute to large percentage of the value of
consumption and, on the other hand, a large percentage of items may represent a smaller percentage of
the value of items consumed. Between these two extremes will fall those items the percentage number of
which is more or less equal to their value of consumption? Items falling in the first category are treated as
A items, of the second category as B items and items of third category are taken as C items. Such
an analysis of material is known as ABC ANALYSIS
This technique of stock control is also known as stock control according to value method or always
better control method or proportional parts value analysis method. Thus under this technique of stock
control materials are listed in A, B and C categories in descending order based on money value of
consumption.
The significance of this analysis is that a very close control is exercised over the items of
A group which account for a high percentage of costs while less stringent control is adequate for
category B and very little control would suffice for C items.
All types of materials control i.e., purchase stores and issues are to be strictly applied in
case of the items of A group. In case of the C items an elaborate material control is not exercised
because these items represent a very small portion of the material costs. These items can be purchased
once a year and various stock levels i.e., minimum level, ordering level etc. may not be adhered to. All the
time, efforts and costs saved on the C group items by not having an elaborate control can be usefully
utilized on the A and B group items.

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INVENTORY MANAGEMENT

A-B-C Analysis: This analysis is based upon PARETO PRINCIPLE, according to which in many
situations, majority of the activity (70 to 80%) is governed by very few (10 to 20) attributes. Hence if all
the stock items are analyzed in terms of their annual consumption, major part of total consumption value
on a GSK (about 70-80%) is of only few high consumption value items (say 10-20%). These items may
be classified as A category.
15 to 20% of total consumption is represented by another 15 to 20% items that may be classified as B
category.
Remaining 5 to 10% consumption is represented by a large no. of small consumption value items, which
may be classified as C category.
Actually ABC classification depends upon management decision. In GSK it is decided that

All high consumption value items, which represent 70% of total issues, will be classified as A
category.

Items, which represent 20% of total issue, will be classified as B category.

All remaining items are of C category.

For the purpose of Inventory Control, A category items are most important. Therefore, they are closely
monitored at highest level at very frequent intervals.
Stock physical verification in GSK

For A category items is carried out every six months;

For B category items every year and

Once in two years for C category items.

To achieve better inventory turnover ratio, GSK intend to keep average stocks of 3 months, 6
months and 12 months of A, B and C category items respectively.

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INVENTORY MANAGEMENT

ABC ANALYSIS PATTERN

SR.NO. SUMMARY OF CONTROL ITEMS A

ITEMS B
Moderate

ITEMS C

Control

Tight

Loose

Requirement

Exact

Exact

Estimate

Postings/Recording

Individual/
Complete

Individual/
Complete

Group/
None

Check of revisions

Close

Some

Little

Quality Control

Exact

Exact

Approximate

Expediting

Regular

Some

No

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INVENTORY MANAGEMENT

PREPARATION OF PROPOSALS
For preparing the proposals under the different conditions following steps have been taken: Firstly check that according to the unit value in which category the item is falling.
See that according to the consumption value which category is best suited to the item.
Then out of the two put the items in the upper category.

For example: Item Code

S30028
Proposed Category

Per unit value

754.51
C

Consumption value
22492.71
B

According to Unit value it should fall in C category but according to Consumption value it should fall in
B category.
Therefore, it will fall in B category.

Item code
S92314
Proposed Category

Per unit value

6824.45
A

Consumption value
6827.23
B

According to Unit value it should fall in A category but according to Consumption value it should fall in
B category.
Therefore, it will fall in A category.

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INVENTORY MANAGEMENT

Proposal for the year 2009

In the year 2009, this proposal is prepared to recategorise the inventory according to the current inventory
Stock, taking into consideration the changes in the unit value and the consumption value of the inventory.
The results of the proposal for the year April 2008-March 2009 are as follows:-

PROPOSAL (1): As per Unit Value Rs. 6000 & Consumption Value Rs. 60000 (ANNEXURE 1)
1.

According to No. of Items

Category

Proposed No. of items

% of items

269

10.88%

455

18.41%

1748

70.71%

TOTAL

2472

100

No. of
items
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INVENTORY MANAGEMENT

2. According to Consumption Value

Consumption Value
44745851.09
5985626.63
3607747.29
54339225.01

Valu
e in
Perc
enta
ge

Category
A
B
C
TOTAL

%
82.35%
11.02%
6.63%
100

General store items cat. A, B, C (VALUES)

Category

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INVENTORY MANAGEMENT

Existing status of inventory as on March 2009

Existing criteria: Per Unit Value Rs. 5000 & Consumption Value Rs.50000

1. According to No. of items

Existing No. of
items
297
581
1594
2472

%
12.01%
23.50%
64.49%
100

No. of
Items

Category
A
B
C
TOTAL

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INVENTORY MANAGEMENT

2. According to Consumption Value

Consumption
Value
44147223
5818917.82
4373084.19
54339225.01

%
81.29%
10.7%
8.05%
100

Valu
e in
Perc
enta
ge

Category
A
B
C
TOTAL

Category

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INVENTORY MANAGEMENT

PROPOSAL 1:CHANGES FROM THE EXISTING CATEGORY

Thus the exercise has lead to movement of 10.88% of total inventory to A category
as against 12.01% in the existing status with the little difference in the percentage of
items in the said category. Also there is movement of almost 18.41% & 70.71% of
total inventory to B & C categories as against 23.5% & 64.49% respectively in
the existing situation.

Category
A

No. of items (E)

297

% of items (E)
12.01%

No. of items (P)

269

% of items (P)
10.88%

B
C

581
1594

23.5%
64.49%

455
1748

18.41%
70.71%

TOTAL

2472

100

2472

100

No.
of
Item
s

PROPOSAL 1:CHANGES FROM THE EXISTING CATEGORY

Category

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INVENTORY MANAGEMENT

On the same way, as per the proposal consumption value of near about 82% of total
inventory shift to A category as against 64.49% in the existing status with the little
difference in the percentage of items in the said category. Movement in the B & C
category is almost 11.01% & 6.60% as against 23.5% & 12.01% respectively in the
existing category.

Category
A
B
C
TOTAL

Existing
Consumption
44147223
5818917.82
4373084.19
54339225.01

%
64.49%
23.5%
12.01%
100

Proposed
Consumption
44745851.09
5985626.63
3607747.29
54339225.01

%
82.30%
11.01%
6.60%
100

Valu
e in
Perc
enta
ge

PROPOSAL 1:CHANGES FROM THE EXISTING CATEGORY

Category

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INVENTORY MANAGEMENT

CONCLUSION: The Existing criteria applied in stores is correct as it follows the pareto principle it
shows that maximum consumption of minimum no. of items comes under A category and minimum
consumption value items with maximum no. of items falls under C category. But some changes are
required in the same as shown above i.e. some items are required to move between all the three
categories.

IMPLEMENTATION OF THE PROPOSAL

For actual implementation of the selected proposal again some analysis is carried on.

Physical verification:
First of all physical verification of the whole inventory is done. Under this each and every item of the
inventory is verified with the books. For this purpose concerned person goes to the stores and does the
verification.

Current Years Consumption:

After the physical verification all inventory is again checked with the current years consumption. If in
case of any particular item .the current years consumption changes corresponding to the previous years
consumption then it can be proposed in another category, then that proposal is acceptable.
For instance:
Item Code: S05013
Consumption in fin. year ending March 2007
49527.62
Consumption in fin. year ending March 2008
53054.09

Current Category
B
Proposed Category
A

In this way all the items are analyzed and a final report is prepared.

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INVENTORY MANAGEMENT

ADVANTAGES OF ABC ANALYSIS

A strict control is exercised on the items, which represent a high percentage of the material costs .
Managerial time is spent on A items whereas clerical staff with least managerial supervision can
handle C items and sometimes B items. Equal attention to all the items of stores is not desirable
because it will not be a cost effective option for the firm. Concentrating on all the items of stores is
likely to have a defused effect on all the items, irrespective of the value of
consumption.Therefore,ABC analysis should be followed to give due attention to the items, which
they deserve, keeping in view their value of consumption.
Investment in inventory is reduced to the minimum possible level because a reasonable quantity of
A items representing a significant portion of the materials costs is purchased.
To reduce investment in materials, close control of A items contributes much more than close
control of C items.
Storage cost is reduced, as a reasonable quantity of materials, which account for high percentage
of value of consumption, will be maintained in the stores.
With the introduction of the ABC analysis, management time is saved because attention is required
to be paid only to some of the items rather than on all items
It becomes possible to concentrate all effort in areas, which need genuine efforts.
It is most effective and economical method as it is based on selective approach.

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INVENTORY MANAGEMENT
It helps in placing the orders, deciding the quantity of purchase, safety stock, etc., thus saving the
enterprise from unnecessary stock-cuts or surpluses and their resultant consequences. This may be
well shown by an example where average inventory is one-half of the order quantity:

Category
A
B
C
TOTAL

Annual consumption
Rs. 3,00,000
Rs. 30,000
Rs. 3,000
Rs. 3,33,000

No. of Orders

Average Working Inventory

4
4
4

37500
3750
375

12

41625

Keeping the same no. of orders per year, viz., 12 inventories, can reduced by 39% merely by
segregating items according to their usage value as shown below:

Category
A
B
C
TOTAL

Annual consumption

No. of Orders

Rs. 3,00,000
Rs. 30,000
Rs. 3,000

8
3
1

18750
5000
1500

12

25250

Rs. 3,33,000

Average Working Inventory

OTHER BENEFITS:
Complexity reduction
Optimum utilization of time
Reduction in operating expenses
Reduction in stock outs
Reduction in refusals
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INVENTORY MANAGEMENT
Quantity discounts

FSN CLASSIFICATION
ABC Classification is on the basis of consumption value of an item and does not give any importance to
the criticality of the item and therefore, only ABC Classification is not adequate. Classification done on
the basis on the movement of the items in the storehouse is known as FSN, where the items are classified
as fast moving (F),slow moving(S) and non-moving(N),items .This classification is done on the basis of
consumption pattern of the items under analysis. This analysis is useful in case of obsolete items. Previous
year issues is a guiding factor for FSN analysis previous two years issues are taken into consideration for
a decision whether the items stocked in storehouse are fast moving ,slow moving or non moving.
Fast moving:-Items being issued more than 15 times a year may be placed in F category. Certainly such
analysis and limits of issue vary from one organization to another organization.
Slow moving:-Items up to a certain limit say 10-15 issues in a year may be classified as S items.
Non-moving:-If there is no issues of a particular item during the past few years, naturally they will be
classified as Zero issue items and under this method of analysis these items will be classified as N
items.
In GSK items, under FSN categorizing is done on the following criteria :Fast moving:-The items which are very frequently moved in one year are included in the fast moving
category.
Slow moving:-The items which are moved from stores for a period of one and a half year.
Non-moving:-The items which are not issued from stores for more than three years.

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INVENTORY MANAGEMENT

In GSK Inventorys FSN categorization of items in stores for the month of April 2008 in which 61 lacs
value items are of non moving nature which are not moved within a period of three years and 110 lacs
value are of slow moving which is moved within a period of one and a half year.

Category
Non Moving Inventory
Slow Moving Inventory
Total

Inventory (Lacs)
60.66
109.87
170.5

Percentage (%)
35.57
64.43
100

FINDINGS AND SUGESSTIONS

After conducting a deep study on the whole process of the ABC Recategorisation, I found certain facts
regarding the ABC analysis which are as follows: FINDINGS:

Many items are there in the stores, which although lying in general stores but dont have any category
in spite of having consumption value.

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INVENTORY MANAGEMENT

Some items have no consumption value but their minimum quantity is more than twice.

Some modern techniques of inventory management like JIT, VED etc., which can help in reducing
investment in inventory, is absent.

Items, which are written off in the books, are lying in the stores and in any year if again their need
arises they are written back in the books.

.
SUGESSTIONS:

All the general store inventory items should be recategorized especially those, which have the
consumption value during the year.

Company should have to go for some other controlling techniques like VED, JIT etc.

The items, which dont fall under any category, should be treated separately.

CONCLUSION
From the thorough assessment of my study on INVENTORY MANAGEMENT I Concluded that
Controlling techniques relating to the general inventory in GSK are developed with the objective of
ensuring that the inventory will be controlled in an effective manner, without having any loss to the
inventory.

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INVENTORY MANAGEMENT
The study of Recategorisation of the general store inventory of GSK is conducting for the purpose of
knowing the actual status of the inventory in the stores. First Recategorisation was done in the year 1999
and after that it was conducted during the year 2005. From this study I conclude that any technique
remains effective only when if it is carried on regularly means at proper time. This study reveals that
through the ABC analysis, effective control can be exercised on the inventory. Items, which have more
importance to the company, those come under strict control. But all the items should have been
categorized specially those, which have consumption value during the year. No doubt their criteria of
recategorisation is appropriate but still some changes are required in it i.e. some movements of general
stores items are required between three categories.
At last I would like to say that there is proper control of inventory in the organization. Inventory
management is done at par. Proper accounts & records are maintained of each and every item, better
techniques are applied. 5S technique is implemented fully in GSK.

BIBLIOGRAPHY
SECONDARY DATA:
ANNUAL REPORT OF THE COMPANY
BOOKS
GUPTA SHASHI K., SHARMA R.K., FINANCIAL MANAGEMENT, Kalyani Publishers,
Edition 2005, pp 10.41-10.54
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INVENTORY MANAGEMENT
JAIN S.P., NARANG K.L. & DHINGRA T.R., COST ACCOUNTING-Principles and
Practices, 1974, pp 8-25
CHANDRA PRASANA, FINANCIAL MANAGEMENT- THEORY & PRACTICE, Tata McGrew Hill, New Delhi, 4th edition, 2004.
SHARMA K.R., QUANTITATIVE TECHNIQUES AND OPERATIONS RESEARCH,
Kalyani Publishers, 1990, pp 589-631.

PRIMARY DATA:
WEB SITES:

www.gsk.com

www.gsk-India.com

www.Glaxosmithkline-ConsumerHealthcareindialtd.html

49