Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1

1

uocumenLaLlon
Cn
ÞreparaLlon Cf L8Þ lnvenLorv ManaaemenL
under Lhe auldance of ÞrofŦ Anand Mohan
8v
8upam uev
M8AŴ002ţ 8eaŦ noŦť09291040


Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
2

lndex
Sl.
No.
Chapter Name Content Page No.
1 Introduction Introduction,
Obiective, Motive
4-8
2 Analysis Introduction, Why it is
required, What is
ERP, Key Ieatures,
Inventory
Management module
division, Required
Tools, Important
methods
9-36

3 Design Introduction,
Specimen oI :BIN
card, Store
Requisition,Material
TransIer, Material
Analysis, LIFO, FIFO,
Goods Received Note,
Purchase Order and
proIessional version oI
a BIN card and E.O.Q.
system; Images
37-56
4 Implementation Introduction, EIIective
sides
57-61
5 Decision Seven steps 62-66
6 Bibilography 67

Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
l

ACknCWLLuCLMLn1
I hereby acknowledge that, I have completed the Iollowing
proiect on 'Preparation OI ERP Inventory Management System¨
based on company inventories programme & I am duly
submitting it in an eIIicient manner. It has been prepared Ior the
purpose oI maintaining the inventories oI the Iirm easily. I am
very much grateIul to ProI. Anand Mohan, who has been a
constant inspiration &under whom I have been able to complete
this proiect successIully. I also want to thank the Iaculties` oI
NSHM Business School, Durgapur Ior their support&
cooperation.

The completion oI this proiect gives me great satisIaction & I
am indebted to NBS Ior providing me the knowledge regarding
the subiect.

Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
4

CPAÞ1L8
1
Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
5

Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
õ

Lverv enLerprlse needs lnvenLorv manaaemenL svsLem for
smooLh runnlna of lLs acLlvlLlesŦ lL serves as a llnk beLween
producLlon and dlsLrlbuLlon processesŦ 1here lsţ aenerallv a
Llme laa beLween Lhe recoanlLlon of a need and lLs fulflllmenLŦ
1he areaLer Llme laaţ Lhe hlaher Lhe requlremenLs of Lhe
lnvenLorvŦ Means lL ls Lhe sLaLlsLlcal daLa of an enLerprlse of
Lhelr needs and lLs fulflllmenLŦ lL also provldes a cushlon for
fuLure prlce flucLuaLlonŦ

Inventory management system oIIers a complete set oI inventory
management, manuIacturing, and purchasing capabilities that
will provide you with integrated supply chain management and
control across your entire organization.

Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
7

OBJECTIVES:
Get complete real-time visibility into demand,
supply, costs and IulIillment measures and trends.
Manage margins with a clear view into inventory
costs, turn rates and inventory proIitability.
Eliminate manual inventory management processes
and improve vendor satisIaction with a seamless
procure-to-pay process.
SigniIicantly improve your relationships with
suppliers, vendors and partners by providing selI
service and real-time visibility.
EIIectively and eIIiciently meet customer demand,
helping drive and maintain superior customer service
levels.
This system helps to avoid over-stocking and under-
stocking oI inventory.
To minimizes losses through deterioration, pilIerage,
wastages and damages.
It helps to control the cost oI production oI the
enterprise.
To eliminate duplication in order placing.

Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
8

MOTIVE:
The Transaction Motive which Iacilitates
continuous production and timely execution oI sales
order.
The Precautionary Motive which necessitates the
holding oI inventories Ior meeting the unpredictable
changes in demand and suppliers oI materials.
The Speculation Motive which induces to keep
inventories Ior taking advantage oI price
Iluctuations, saving in re-ordering cost and quantity
discounts, etc.
The above are the three main motives Ior the reason an
enterprise maintain the inventory management system.
But besides there have some other motives:
a)Ensuring perpetual inventory control so that
material shown in stock ledgers should actually
lying in stores.
b)Avoiding the gap oI continuous supply oI raw
material.
c)Clear cut accountability should be Iixed at various
levels oI the organization.


Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
9

CPAÞ1L8
2



Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
10

Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
11

Accordlna Lo Paul Hamerman, vice president oI enterprise
applications at Forrester Research "You need to know what's on
the shelves, what's in the warehouse, and how you re-order
goods to manage the Ilow oI goods throughout the operation.¨
According to Ray Wang, senior analyst at Altimeter Group 'you
need to account Ior (inventory) when it's arrived, where you put
it, how long it's been there, how it's been returned or how it's
been put into a product.¨
Types of ERP inventory management:
M8Þ lnvenLorv manaaemenL svsLemŦ
lC lnvenLorv manaaemenL svsLemŦ
lnvenLorv warehouse manaaemenL svsLemŦ
Þurchaslna lnvenLorv svsLemŦ
orecasLlna lnvenLorv manaaemenL svsLemŦ
LŴcommerce lnvenLorv manaaemenL svsLemŦ
lnvenLorv asseLs manaaemenLŦ

Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
12

Wn¥ INVLN1Ck¥ MANAGLMLN1 I5 kLCUIkLDť
While inventory management can be a standalone application,
typically the soItware is bundled into warehouse management or
supply chain management systems. This ERP inventory
management module is used by retail, distribution and
manuIacturing and tied into retail merchandising systems where
users also manage pricing.
hat is ERP:
ERP stands Ior Entrepreneur Resource Management. The word
says it essentialities in an organization. When ERP is related
with the Inventory Management then it means the system or
programme which is related to make proper utilization oI the
inventory resources an enterprise have with them at their hand.
This kind oI system helps to keep a healthy relation between the
supply and demand oI the required material. It can be deIined
one kind oI real time application oI system in the organization.






Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
1l

Key Ieatures in ERP inventory management modules are:
Inventory control.
Build materials and kitting (putting components together as
part oI a kit Ior sale).
Serial number tracking.
Bar code printing.
Valuation Ieatures to understand the dollar value oI
inventory on hand.

Another Ieature oI ERP inventory management is the ability
to track and manage purchases in order to determine spend
levels.
According to Wang When companies are carrying lots oI
inventory, cash management becomes an important Iactor.
"You need to make sure you're not deploying your capital
inappropriately,"
ERP module has another some Iacilities, which will
simultaneously describe what the Inventory actually mean:
O Raw Material
O Work-In-Process(W.I.P.)
O Consumables
O Finished Goods
O Spares

Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
14

4 Raw Material is the product which actually carries out the
production process. ERP Inventory Management System
deIines its regularity and availability.

4 P. is the satge oI stock which lies between raw
material and Iinished goods. It also as a stock to company.
The more stock lies in this stage, the more amount oI work
in progress.

4 onsumable works as catalysts which directly never
entered into the production process. ERP system can also
deIine its present situation oI their capability as it incurres a
cost to production system.
Ex: The Iuel oil Ior a Pen manuIacturing Iactory.

4 inished Goods is simply understandable. It is ready to use
Ior the customer. Maintaining ERP Ior Iinished goods mean
to ensure proper supply oI goods to consumer.


4 Spares also Iorm the part oI the Iinished goods. The
consumption oI spares is a little diIIerent Irom Iinished
goods and raw material. It varies Irom company to
company also. Like transport industry requires more spares
than other industry. They used it and keep it Ior Iurther use.
So ERP system can give a brieI statistics about the spares
also.

Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
15

Inventory Management module is sub divided into
diIIerent modules as under:
Inventory Requisition.
Inventory Order Assessment.
Inventory Placing.
Supplier PerIorma.
Order Received.
Quality checks.
Inventory Bills and Challans.
Minimum Inventory Assessment.
Maximum Inventory Assessment.

Minimum Inventory Assessment
In this particular module the obiective is to get the minimum
Inventory requirement Irom diIIerent Departments. A PerIorma
is prepared in which diIIerent departments have to Iill up there
minimum inventory requirement in coming 15 days i.e. we are
planning Ior ahead what will be the inventory requirement in
near Iuture. This assessment will be done by taking into account
the Customers Order received, Inventory in hand, Scrap etc.
Taking all these into account Departments will be Iilling
Minimum Inventory Requirement.


Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1

What is Minimum Inventory Requirement?
Minimum Inventory Requirement is that quantity oI inventory
below which workers cannot work i.e. it is that quantity oI
inventory, which is minimum, required accomplishing the task
oI Student. Hence stock oI inventory should not go below this
amount.
Maximum Inventory Assessment
In this particular module the obiective is to get the maximum
Inventory requirement Irom diIIerent Departments.
A PerIorma is prepared in which diIIerent departments have to
Iill up there maximum inventory requirement in coming 15 days
i.e. we are planning Ior ahead what will be the inventory
requirement in near Iuture. We are taking Maximum Inventory
Requirement Ior this reason so that to assure that wastage does
not happen and there is no blocking oI Iunds unnecessary. This
assessment will be done by taking into account the Customers
Order received, Inventory in hand, Scrap, Durable goods, Non
Durable goods etc. Taking all these into account Departments
will be Iilling Maximum Inventory Requirement.
What is Maximum Inventory Requirement?
Maximum Inventory Requirement is that quantity oI inventory
above which order Ior Inventory should not be placed i.e. it is
that quantity oI inventory, which is enough to accomplish the
task oI Student. The stock oI inventory above this quantity will
result in wastage and blocking oI Iunds.
Inventory Requisition
In this particular module the obiective is to take the inventory
requirement Irom diIIerent departments oI the Student. This is
done by Iilling up oI Inventory Requisition Iorm by diIIerent
Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
17

departments. In this particular Iorm the Department head will Iill
up the quantity oI Inventory required, Grade / quality oI
Inventory required etc. Department head should take into
account the minimum inventory required, maximum inventory
required and current inventory available.
Inventory Order Assessment
This is back end program written in Java Servlets. This program
is actually assessing the Inventory requirements oI the
Company.
It takes the Input Irom the Inventory Requisition Iorm and
processes it i.e. it then compares the Inventory demanded by
diIIerent departments with the minimum inventory required
according to customers order.
AIter processing the results it makes the Iinal Inventory
requirement Ior diIIerent departments and then call Ior Suppliers
list that provides these inventory.
Supplier PerIorma
In this module the quotation Ior Inventory requisition is called
Irom diIIerent suppliers. Suppliers will be Iilling up the Proposal
Form in which they will be stating that:
O How much quantity oI goods they can provide?
O In what time?
O What will be pay mode?
O Are they providing Credit?
O What will be the Quantity oI goods?
Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
18

All this inIormation will be stored and then will be processed by
the program which then taking into account all the above Iilled
inIormation will Iinalize the supplier. Inventory ordered should
be cost eIIective and should be oI good quality
Inventory Placing
Now the supplier is selected we have to Iinally place an order.
We have to Iill up order placing Iorm in which we will be Iilling
up inIormation like Date oI Placing oI Order, Quality required,
Transportation Mode, Mode oI Payment, Advance Payment,
Supplier ID, Department ID, price per Item etc. and the order
will be placed.
Order Received
Next module is Order Received module in this module we will
be recording the Inventory received inIormation. We will be
comparing order placed and order received data i.e. weather
there is uniIormity between these two or not. We will be
comparing Date oI placing order and Date oI receiving order,
Quality oI Inventory, Quantity oI order received and Quantity oI
order placed, Transport mode etc. II there is uniIormity in both
then we will be assessing the amount to be paid to the supplier.
We will be taking into account the quantity received, price per
Item and advance paid.
Quality Assessment
We have received order then it have to pass through quality
checks by R&D Department and Department head has to Iill up
quality assessment Iorm indicating the quality oI goods
received.

Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
19

Inventory Bills & Challans
Last thing in Inventory control is making up oI payment. When
we Iinally make up payment we have to draw bill & challan
indicating the amount paid, mode oI payment, Supplier ID,
Receipt ID etc.


Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
20

REQUIREMENT OF THIS SYSTEM
EIIective Inventory Management system requires an eIIective
control system Ior inventories. A proper inventory system can
not solve the problem oI liquidity but also increases the proIits.

The Iollowings are the required tools or techniques
oI inventory management control:
1.Determination oI Stock Levels.
2.Determination oI saIety stock.
3.Selecting a proper system oI ordering inventory.
4.Determination oI Economic Order Quantity (E.O.Q).
5.A.B.C. Analysis.
6.V E D Analysis.
7.Inventory Turnover Ratio.
8.Aging Schedule oI Inventories.
9.ClassiIication and codiIication oI Inventories.
10. Preparation oI Inventory Reports.
11. Lead Time.
12. Perpetual Inventory system.
13. JIT control system.



Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
21

Determination oI Stock Levels:
An eIIicient inventory system management requires that a
Iirm should maintain an optimum level oI inventory costs are the
minimum and at the same time there is no stock-out which may
result in loss oI production. Various stock levels are discussed as
such.
a)Minimum Level-
This represents the quantity which must be maintained
in hand at all times. Means stock are less than that
then production system will hamper. Following Iactors
are taken into account while Iixing minimum stock
level:
Lead time
Rate oI Consumption
Nature oI Material
Minimum stock level can be calculated with the help oI
Iollowing Iormula

Re-ordering level-(Normal consumption x Normal Re-order
period)



Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
22

b)Re-ordering Level-
When the quantity oI stock reaches at a certain level
then the next order should be placed to get materials
again. The order should be sent beIore Minimum stock
level.


Re-ordering level can calculated by Iollowing
Iormula

Maximum consumption x Maximum re-order period


c)Maximum Level-
It is the measure oI quantity oI stock which a Iirm
should not exceeds its stock. II the quantity exceeds
the level it will be overstocking. A Iirm should avoid
this kind oI situation to make the cost oI production
lowest. It depends on such Iactors like:
The availability oI capital
The maximum requirements oI a company or
Iirm
The availability oI space Ior storing the materials.
Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
2l

The rate oI consumption oI materials during the
lead time
The cost oI maintaining the stores.
The possibility oI Iluctuation oI the prices
The nature oI the materials. II the materials is
perishable in nature then it cannot be stored Ior
long
Availability oI the materials. II the material is
available Ior a certain period then it have to be
stored Irom earlier.
Restriction imposed by the government.
The possibility oI changes in Iashion will also
aIIects it
The following formula may be used to calculate Maximum
stock level:
Maximum Stock Level÷ Re-ordering Level¹Re-ordering
Quantity-(Minimum Consumption x Minimum Re-ordering
period)


Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
24

d)Danger level-
It is the level beyond which materials should not Iall
in any case. II danger level arises then immediate steps
should be taken to replenish the stock even the more
cost is incurred to meet the level.

anger level is determined with the following
formula:

Danger level÷Average Consumption x Maximum re-
order period Ior emergency purchase
.
e)Average stock level-
This is calculated as such:

Average stock level÷ Minimum stock level x ½ oI re-
order quantity

Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
25

2. Determination oI saIety stocks:
SaIety stock is a buIIer to meet some unanticipated increase in
usage. The usage oI inventory cannot be perIectly Iorecasted. It
Iluctuates over a period oI time. The demand oI the materials
may Iluctuate and the delay oI getting the material may be Iaced
by a Iirm or a company. This situation is called the problem oI
Stock-Out. In order to avoid such kind oI problem the Iirm may
use the saIety stock levels.
3. Ordering System Inventory:
The basic problem oI the inventory is to decide the re-order
point. This point indicates when an order should be placed. The
re-order point is determined with the help oI these things :
i. Average consumption rate
ii. Duration oI lead time
iii. Economic Order Quantity
There are three prevalent system oI ordering and a concern can
choose any one oI them:
O E.O.Q. system
O Periodic re-order system
O Single order system

Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1

4. Economic Order Quantity:
A decision about how much to order at time is very signiIicant
in the inventory management system. The quantity which will be
purchasing should neither be higher nor be lower because costs
oI buying and carrying materials are too high. Economic Order
Quantity is the size where carrying cost and the ordering cost
per order is same. In determining the E.O.Q. it is assumed that
cost oI managing inventory is made up solely oI two parts i.e.,
ordering costs and carrying cost.
a)ordering Costs-
These are the cost which are associated with the purchasing
or ordering oI materials. The costs include---
Costs oI staII posted Ior ordering oI goods. A purchase
order is processed and then placed with the suppliers.
The labour spent on this process is included in this
cost
Expenses incurred on transportation oI goods
purchased.
Inspection costs oI incoming materials.
Cost oI stationery, typing, postage, telephone charges
etc.


Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
27

b)Carrying cost-
These are the costs oI holding the inventories. This costs
will not be incurred iI inventories are not carried. The cost
include:
The cost oI capital invested in the inventories. An
interest will be paid on the amount locked-up in
inventories.

Cost oI storage which could have been used Ior other
purposes.


The loss oI materials due to deterioration and
obsolescence. The material may deteriorate with
passage oI time. The loss oI obsolescence arises whn
the materials in stock are not usable because oI change
in process oI product.

Insurance cost.


Cost oI spoilage in handling oI materials.



Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
28

Assumption oI EOQ. While calculating the Iollowing
assumptions are made.
1)The supply oI goods is satisIactory. The goods can be
purchased when these are needed.
2)The quantity to be purchased by the concern is certain.
3)The prices oI goods are stable. It results to stabilize
carrying costs.
hen above conditions are satisfied then EOQ can be
calculated by the help of following formula

˗˛˝

Ŷ˓˟
H



Where A ÷ Annual consumption per year.
S ÷ Cost oI placing an order.
I ÷ Inventory carrying costs oI one unit.
Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
29

5. A-B-C Analysis:
The materials are divided into a number oI categories Ior
adopting a selective approach Ior material control. It is generally
seen that in manuIacturing concern, a small percentage oI items
contribute a large percentage oI value oI consumption and a
large percentage oI items oI materials contribute a small
percentage oI value. In between these two limits there are some
items which have almost equal percentage oI value oI materials.
Under A-B-C analysis, the materials are divided into three parts
viz., A, B, and C.
A-B-C analysis helps to concentrate more eIIorts on category
A` since greatest monetary advantage will come by controlling
this item. This item should be kept under a constant review so
that a substantial material cost may be controlled. The control oI
C` items may be relaxed and these stocks may be purchased Ior
the year. A little more attention should be given towards B`
category items and their purchase should be undertaken at
quarterly or halI-yearly intervals.



Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
l0

6. VED analysis-
The VED analysis is mainly made Ior spare parts. The
requirement and urgency oI spare parts is diIIerent Irom that oI
material. A-B-C analysis may not be properly used Ior spare
parts. The demand Ior spares depends upon the perIormance oI
the plant and machinery. Spare parts are classiIied as Vital (V),
Essential (E), and Desirable (D). The vital spares se must Ior
running the business the smoothly and these must be stored
adequately. The non-availability oI vital parts will cause havoc
in the concern. The E type oI spare are also necessary but their
stocks must be kept at low level. The stocking oI D level parts
can be avoid sometimes. II the lead time oI these spares is less,
then stocking oI these spares can be neglected.

The classiIication oI spares under three categories is an
important decision. Wrong classiIication oI any spares will
create diIIiculties Ior production department. The classiIication
oI spares should be leIt to the technical staII because they know
the need , emergency, usage oI the spares.

Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
l1

7. Inventory Turnover Ratio:
Inventory turnover ratio is calculated to indicate whether
inventory have been used eIIiciently or not. The purpose is to
ensure the blocking oI only required minimum Iunds in
inventory. The Inventory Turnover Ratio also known as Stock
Velocity. It is normally calculated as sales/average inventory
cost. Inventory conversion period may be calculated to Iind the
average time taken Ior clearing the stocks.
Symbolically,

Inventory Turnover Ratio ÷
Cost o] goods soId
A¡c¡ugc In¡cnto¡y Cost

Or ÷
˚˥ˮ soˬ˥s
(˓˰˥ro˧˥)HJ˰˥Jˮor˳


And Inventory Conversion Period÷
Ðuys ìn u ycu¡
In¡cnto¡y tu¡no¡c¡ ¡utìo


Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
l2

8. Aging Schedule oI Inventories:
ClassiIication oI inventories to the period (age) oI their holding
also helps in identiIying slow moving inventories thereby
helping in eIIective control and management oI inventories. The
Iollowing table shows aging oI inventories oI a Iirm.

AGG SE&E O 'ETORES
ITEM
NAME/CODE
AGE
CLASSIFICATION DATE OF
ACQUISITION
AMOUNT ˛˘ ˠ˛ˠ˓H
001 0-15 days June 25,
2005
30000 15
002 16-30 days June 10,
2005
60000 30
003 31-45 days May
20,2005
50000 25
004 46-60 days May 5,
2005
40000 20
005 61 and above April 12,
2005
20000 10


Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
ll

9. ClassiIication:
The companies are using various kind oI inventories at a time in
their production department. Finished goods may be a type,
spares may be a type and etc. the inventories should be classiIied
and code numbers should be assigned Ior their identiIication.
The identiIication or the short name is essential not only Ior the
big companies or Iirm but Ior the small Iirms also. Lack oI
proper classiIication mat lead to reduction in production.

10. Inventory reports:
Form eIIective inventory control management should be kept
inIormed with the latest stock position oI diIIerent items. This is
usually done by preparing periodical inventory reports. This
report should contain all inIormation necessary Ior managerial
action. On the basis oI this report manager takes decision
whenever necessary. The more Irequently this reports are
prepared the less will be the chances oI lapse in the
administration oI inventories.




Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
l4

11. Lead Time:
Lead time period means the laps between the order time and the
supply time laps. There is a direct relation between lead time
and inventories. Suppose the lead time is oI one month, so any
action has taken to bring the materials will take a minimum oI
one month. During this time the inventory must be in hand as
consuming department will have to be served Irom the inventory
held.

12. Perpetual Inventory System:
The stock taking may either be done annually or continuously.
A schedule is prepared to take the stock taking Ior the various
store bin(store room). One bin is selected at random and the
goods are checked as per shown in the store ledger. Then some
other bin are selected and done the same. The personnel
associated with store keeping are not told oI stock taking
programme because store room is chosen randomly. The
Institute oI Cost and Management Accounts, London deIines
perpetual inventory system as ' a systemoI records maintained
by the controlling department, which reIlects the physical
movements oI stocks and their current balance ¨

Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
l5

13. Just In Time(JIT) Inventory Control System:
Just In Time philosophy, which aims at eliminating
wasteIrom every aspect oI manuIacturing and its related
activities, was Iirst developed in Japan. Toyota introduced this
technique in 1950`s in Japan, however U.S. companies started
using this technique in 1980.
According to oIIicial terminology oI C.I.M.A., JIT, is 'a
technique Ior the organization oI work Ilows, to allow rapid,
high quality, Ilexible production whilst minimizing
manuIacturing work and stock level¨.
There broadly two aspects-a)iust in time production, b)iust in
time purchasing.
Just in time inventory control system involves the purchase oI
materials in such away that delivery oI purchased material is
assuered iust beIore their use oI demand. The system implies
that the Iirm should maintain a minimum oI inventory and rely
on suppliers to provide materials iust in time to meet the
requirement.
Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1

SOMR OTER MPORTAT METOS O
MATAG 'ETORY:
There have some methods without which the inventory
calculation is not complete. They are:
A)First In First Out.(FIFO)
B)Last In First Out.(LIFO)
C)Simple Average Method.

FIFO means the inventory enters Iirst will be using Iirst to
produce the product. It means the date oI purchasing is
important here.
LIFO means the late comer inventory will arrived Iirst to the
production department.
In simple average method Iirst all the required raw material is
bought and then price are Iixed as per their price average. As the
average price taken the Iear oI losing money is not their, their
may not be proIit but it is sure that there is no loss.
Without this three method there have some other methods like:
O Highest In First method
O Next In First Out method
O Base Stock method
Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
l7

CHAPTER
3

Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
l8

Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
l9

WHAT DO THE DESIGN MEANS:
Design means how the competency oI a system should be Ieel or
understand by a company or the Iirm who will be demanding Ior
a Simple Inventory system.
In this chapter we are going to discuss about the process we
have described and discussed so Iar. II one person says that he
knows the E.O.Q. system Iormula but he does not even know the
eIIiciency oI the Iormula then it will become good Ior nothing.
So Ior using the Simple Inventory system this is the most useIull
portion.
As we have discussed so Iar all about the inventory
management means how it can help one Iirm and how the
decision would be taken on the basis oI the diIIerent Iormula;
now it`s the time to show some practical Iields where such kind
oI application is needed.
In this chapter we will be going to have some practical oriented
problems and search Ior the solution in the next chapter. During
this we will learn how to use E.O.Q. and other system like LIFO
and FIFO.
Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
40

SPECIMEN OF A BIN CARD:
Simple Inventory
BIN card
Material:Dscription.... Maximum Level.....
Code...... Minimum Level......
Store Ledger Folio No... Ordering Level....
Bin No. .......... Danger Level....
Normal Quantity oI Purchase..
Receipts Issues Balance
Date G.R.N.
Or
Debit
No.
Quantity Date S.
Req.
No.
Quantity Date Quantity Audit
Notes


Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
41

The specimen Iorm oI a Stores Debit notes:

XYZ Ltd.
Stores Debit Note


From Department... Serial No. ..
Credit iob/Work Order No... Date......
Item
No.
Description Code Quantity Rate Value Remarks
Prepared
by...
Authorized
by..
Received
by...
Bin No. .....
Store Ledger
Folio...
Cost OIIice
Priced by...
Checked
by...
Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
42

The specimen oI a store requisition:


Lindwal Ltd
Stores Requisition
Department..... No. .....
Job Process...... Date....
Description Code Quantity Rate Value Remarks

Prepared by....
Authorized by....
Storeman.....
Received by....
Bin No. ....
Store Ledger
Folio.....
Cost OIIice
Priced by.....
Checked by.....
Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
4l

The specimen Iorm oI a material transIer note is given below:




ABC Ltd.
Material TransIer Note

From Department.... Job No...Cr. Serial No...
To Department..... Job No...Dr. Date.....
Description Code Quantity Rate Value Remarks
Prepared by.....
Authorized by....
Received by..... Cost OIIice
Priced by....
Checked by.....


Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
44

The specimen oI a material analysis sheet is given below:



Dey`s Ltd.
Material Analysis Sheet
Week ending on....
Date Requisition
No.
Total
Amt.
Jobs Process Production
Overhead
73
Rs.
74
Rs.
75
Rs.
76
Rs.
1
Rs.
2
Rs.
3
Rs.
Rs.


Total

Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
45

A proIessional version oI Bin Card:
Bin ard
Description: Pigments Bin No.:36
Symbol:X-40 Maximum Level: 50000 kg.
Unit: Kg. Minimum Level: 8000 kg.
Ordering Level: 25000 kg.
Ordered
Date
Receipts Issues Balan
ce
Remarks
No.
and
Date
Quantity
(kg.)
Date
Recd.
Challa
n No.
Quantity(k
g.)
Re
q.
No.
Quantity
(kg.)
Quantity
15 0I
1.4.0
2
1000
0
6.4.0
2
April
.

1
2
2
3
3
4
6
6
7








13



48







30000



10000






1
2

3
4


5




13000
2000

10000
5000
500

4500



25000
12000
10000
40000
30000
25000
24500
34500
30000









Shortage
6.4.02 Reserved
Job
No
Qty
(kg.)
Date
issue
d



Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1

A very important role in the inventory management system is
plated by the FIFO(First In First First Out) and LIFO(Last In
First Out) method. Below we are trying to show a Iorm oI
trading account that how this two method can help to deIine
proIit:

Particulars FIFO LIFO Weighted
Average
Sales:
250 (rs. 64 16000
350 (rs. 70 24500
100 (rs. 74 7400

Opening Stock

Purchase:
100 (rs. 41 4100
200 (rs.50 10000
400 (rs. 51.875 20750


Less: Closing Stock

Cost oI Goods Sold


Gross ProIit(Sales Cost oI goods
sold)



47900



47900



47900

3900




34850

3900




34850

3900




34850
38750

5187
38750

3900
38750

5000

33563

34850

33750
14338 13050 14150

Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
47

A proIessional version oI using E.O.Q.:
Let Iirm has Iollowing problems
Ordering quantities Price per kg (rs.)
Less than 500
500 but less than 1600
1600 but less than 4000
4000 but less than 8000
8000 and above
12.00
11.80
11.60
11.40
11.20

The annual requirement Ior the material is 8000 kg. The
ordering cost per order is rs. 12 and the stock holding cost is
estimated at 20° oI material cost per annum. It is required to
compute the most economical propose the Iirm should accepts.

During our discussion on the previous chapter on page no. 26 we
have seen how to calculate the Economic Order Quantity. By
using the method now we can calculate the best economic order
which can be placed. Here we Iound the eIIiciency oI Simple
Inventory

Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
48

omputation of most economical ordering quantity
1)Ordering quantity size(kg)

2)Number oI Orders

Ә
AnnuuI Rcquì¡cmcnt
0¡dc¡ sìzc
ә

3)Average Inventory|kg|

4)Value oI average inventory
(Average inventory x Price)

400


20



200

2400


500


16



250

2950

1600


5



800

9280
4000


2



2000

22800
8000


1



4000

44800


5)Annual total cost: Rs. Rs. Rs. Rs. Rs.
a)Cost oI Material
b)Ordering cost(No.oI orders x 12)
c)Carrying cost(20° oI value oI
average inventory)




Total annual cost(a¹b¹c)

96000
240
480
94400
192
590
91200
60
1856
92800
24
4560
89600
12
8960
96720 95182 94716 95784 98572


Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
49

The specimen oI a goods received is given below:

XYZ Ltd.
Goods Receive Note
From....
No. .......
Date......
Delivery Note No ./ Challan No. ...
Item Description Code
No.
Purchase
Order
No.
Quantity
Ordered
Quantity
Received
Quantity
Reiected
Net
Quantity
received
Rate Value Remarks




Transport Bill No. Stores
Ledger
Accounts ReIerence Inspection
done by



Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
50

The specimen Iorm oI a purchase order is given below:


Dey`s Ltd.
Purchase Order
To,
M/s. ......(name oI suppliers) No. ..
Date....
ReIerence No. .....
Purchase Requisition No..
Dear sir,
Your oIIer contained in your quotation No. ..Dated... is
hereby accepted. Please supply the Iollowing materials as per the
terms and condition mentioned over leaI:

Item
No.
Code
No.
Description Quantity Rate Value Delivery
Date
Remarks



Exise duty
Sales Tax
Discount allowed
Package Charge
Package to be credited on return Purchase manager/manager
Carriage on Delivery Ior Dey`s Ltd.
Terms on payment
Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
51

Now there have some images used in company to maintain the
inventory:

Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
52

This below Iorm is to about the billing oI a company:

Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
5l

The below image is showing a soItware Ior maintaining
inventory:

Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
54

This Iorm is about to collect data about the person who buys or
holds or responsible Ior inventory:



Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
55

The Iollowing shows the way in which inventory records are
kept in a Iirm:


Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1

The Iollowing Iorm are used when any proiects are under taken:




Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
57

CHAPTER
4

Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
58

Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
59

Through out the session we have discussed a proper inventory
management which is measure oI a good company. The
company which can maintain its inventory properly can achieve
a great success in their business. The best concept oI
implementing inventory management system is cost
minimization and proIit maximization.
eeţ Lhe svsLem was deslaned so LhaL when maLerlals hlL Lhe
safeLv sLock levelţ lL was Llme Lo reorderŦ uesplLe lnformaLlon
ln Lhe svsLem LhaL verv clearlv alerLs users LhaL lL ls Llme Lo
reorder bv savlna ƍnCW!ƍ aaaln when lL ls Llme Lo reorderţ
Lhere were sLlll lssues reaardlna Lhe acLual reorderlnaŦ 1here
was even a counLdown bv Lhe svsLem LhaL allows users Lo know
how manv davs Lhev have lefL unLll Lhev have Lo reorderŦ lL was
reallv qulLe clearŦ
o as per Lhe pracLlcal problems ln manaalna Lhls klnd of
slLuaLlon Lhe Lhlna llke LŦCŦCŦ can help me a loLŦ Cne lmporLanL
Lhlna ls LhaL now a davs ln Lhe era of lnLerneL Lhe daLa can be
send Lhrouah Lul(LlecLronlc uaLa lnLerchanae)Ŧ



Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
õ0

The Iactors that prevent improvements in the inventory
management system are not usually related to the ERP soItware
tools that are purchased and implemented, but rather to the way
the company is organized and managed. Reduction in inventory
requires business process change--and it is at that point that
organizational structure, employees, and the internal audit
department come into play.
Inventory is the most diIIicult working capital component to
manage because many oI the contributing "owners" that aIIect it
are cross-Iunctional. Because no single Iunctional area owns the
inventory process, the involvement oI the internal audit
department is likely to be valuable.
The technique oI inventory proportionality is most appropriate
Ior inventories that remain unseen by the consumer. As opposed
to "keep Iull" systems where a retail consumer would like to see
Iull shelves oI the product they are buying so as not to think they
are buying something old, unwanted, or stale; and diIIerentiated
Irom the "trigger point" systems where product is reordered
when it hits a certain level; inventory proportionality is used
eIIectively by iust-in-time manuIacturing processes and retail
applications where the product is hidden Irom view.

Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
õ1

There are some eIIective sides oI implementation:
Less risk and less costs.
O Capital Cost
O Storage and Handling Cost
O Risk oI price decline
O Risk oI obsolescence
O Risk deterioration in quality
Quick calculation oI closing stock
HelpIul in Iormulating purchase policies
Check on stores personnel
HelpIul in production planning
Investments under check
Errors and shortage are easily declared
Increasing eIIiciency oI Organisation
The right quantities oI materials are purchased or produced
at the right time
Investment in inventory are reduced
Wastes are eliminated
Carrying and holding cost oI inventory reduced as because
oI less inventory
Reduction in cost oI quality such as inspection, cost oI
delayed delivery, early delivery, processing documents etc.
resulting into overall reduction in cost.

Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
õ2

CHAPTER
5

Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
õl

Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
õ4

EIIective internal audit assessments oI company inventory
management systems can be deIined by a seven-step process.
1. Obtain management commitment. Management must clearly
communicate the company's vision, strategy, and short- and
long-term goals and obiectives. Many Iunctional areas impact
inventory, yet no one Iunctional area owns the inventory
process. To improve the inventory management system, senior
management must lead the way; be highly visible; communicate
clearly; and deliver Iocused, Iull-time leadership.
2. Develop process obiectives and deploy the team. The internal
audit department should identiIy an internal audit representative
and a representative Irom each Iunctional area, including sales
and marketing, engineering, purchasing, planning and
production, and Iinance and cost accounting.
Once the team Ior each Iunctional area has been established, the
group should determine process obiectives, milestones, and due
dates. An illustration oI typical process obiectives by Iunctional
area can best be described in the "Value Chain" section oI the
"Inventory Management" chart on pages 42-43.
3. IdentiIy the process. The team should identiIy and evaluate all
the inventory-related activities within the Iunctional area.
Benchmark data should then be acquired Ior all key processes or
activities, and comparisons should be made between current
activities and those oI the "best in class
4. DeIine the process. Team members should Iamiliarize
themselves with the processes that aIIect inventory Ior each
Iunctional area. The team should then diagram the process and
Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
õ5

document its impact on the company's inventory. Every step oI
the process should be included. Sticky notes on a wall may be a
useIul tool Ior creating the diagram.
5. Measure the process. The team should deIine perIormance
measurements based on knowledge gathered in steps 3 and 4.
PerIormance measurements act as agents oI change; as the old
saying goes, "What gets measured, gets done." UnIortunately,
many companies have Iar too many perIormance measures and
Iar too Iew that are relevant to their strategy. Pour key ground
rules should deIine perIormance measurements:
* Accessibility: The data required must be readily available.
* Simplicity: The perIormance driver must be understandable.
* Relevance: The perIormance driver must support the deIined
strategy and must be actionable. It must be tied to the strategic
goal and not simply applied within a Iunctional area. Can it pass
the "so what" question to get to the next level?
* Reliability: The perIormance driver must be predictable. Can it
be inIluenced by uncontrollable Iactors? PerIormance
measurements should also:
* Provide managers and employees with critical inIormation
about eIIiciency and eIIectiveness oI business operations.
* Serve as a Ioundation Ior continuous improvement initiatives.
* Be valid and statistical.
* Be tied to compensation.
Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
õõ

6. Assess Ior improvement. The team should evaluate the results
oI the Iunctional process reviews and determine a rough order
magnitude Ior potential inventory reduction and increased
operational eIIiciencies.
7. Communicate the results. The team should communicate the
results oI the Iunctional review to each Iunctional area manager
and request Ieedback on the assessment. The internal audit
department may then consolidate the assessment results Irom
each Iunctional area and prepare a consolidated operational
report with a recommended action plan to upper management.

Pk£P4k41lON Ol £kP lNv£N1OkY M4N46£M£N1
õ7

BIBILOGRAPHY

DURING MY DOCUMENTATION THE FOLLOWING
SITES AND THE CONTENTS HELP ME A LOT:

1." http://Iindarticles.com/p/articles/mim4153/is657/ai69759746/
2.http://www.roseindia.net/blog/2008/01/04/erp-inventory-
management/
3.http://en.wikipedia.org/wiki/Inventory
4.http://www.google.co.in/images?hl÷en&gbv÷2&tbs÷isch°
3A1&sa÷1&q÷inventory¹management¹Iorm&aq÷I&aqi÷
&aql÷&oq÷&gsrIai÷&start÷0
5.FINANCIAL MANAGEMENT by Shashi K. Gupta, R.K.
Gupta, Neeti Gupta.(Kalyani Publication)

Sign up to vote on this title
UsefulNot useful

Master Your Semester with Scribd & The New York Times

Special offer for students: Only $4.99/month.

Master Your Semester with a Special Offer from Scribd & The New York Times

Cancel anytime.