A

Project Report On

“A STUDY ON INVENTORY MANAGEMENT”

Submitted By
MR. PRIYANK GONDALIA
ROLL NO: 39

In partial fulfillment for the award of the degree

of

POST GRADUATE DIPLOMA IN FINACAIAL MANAGEMENT

DEPARTMENT OF ACCCOUNTING & FINANCIAL MANAGEMENT

FACULTY OF COMMERCE
THE M.S.UNIVERSITY OF BARODA
VADODARA

UNDER THE GUIDANCE OF

MS. HETAL SONI

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POST GRADUATE DIPLOMA IN FINANCAIAL MANAGEMENT
DEPARTMENT OF ACCOUNTING & FINANCIAL MANAGEMENT
FACULTY OF COMMECE
THE M.S.UNIVERSITY OF BARODA
VADODARA

BONAFIDE CERTIFICATE

Certified that this project report “A STUDY OF INVENTORY

MANAGEMENT & BUDGETORY CONTROL” is a bonafide work
of “PRIYANK GONDALIA” who carried out the project work under
my supervision. Thus the sole object of collecting information is of
academic purpose and I sure that collected information is of academic
purpose shall be only for fieldwork report and nothing else.

SIGNATURE
HETAL SONI

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 ACKNOWLEDGEMENT

I am appreciative to Mrs. Hetal Soni mam (Collage Guide ) for her

detail direction in systematic and effective completion of the task.

I likewise extraordinarily on grateful of Mr. Mitul Parmar sir, for

allowing me the chance to do the undertaking work and furthermore
for his all-inclusive help to make this task finish.

I additionally thankful to every one of my colleagues particularly

Samarth dixit and pankil patel for the enormous help and helping me
out altogether till the end, as well as web.

I genuinely thank those all who helped me to finish the project.

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 TABLE OF CONTENT

1 INTRODUCTION 5

2 ORGANIZATIONAL PROFILE

2.1 Introduction of the organization 9

2.2 Raw material inventory 9

2.3 Finish good stock 10

3 RESEARCH METHODOLOGY

3.1 Objective 10

3.2 Scope of study

3.3 Disadvantage of study

4 DATA COLLETION TECHNIQUE

4.1 Primary sources of data 13

4.2 Secondary sources of data 15

5 INVENTORY RATIOS

5.1 Objectives 16

5.2 Stock level 17

5.3 Method of evaluation 19

6 DATA ANALYSIS 23

7 CONCLUSION 28

8 BIBLOGRAPHY 29

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1. INTRODUCTION

INVENTORY MANAGEMENT
Inventory management and production network the board are the foundation of
any business operation. With the improvement of innovation and accessibility of
procedure driven programming applications, stock administration has experienced
progressive changes. In any business or association, all capacities are interlinked
and associated with one another and are regularly covering. Some key viewpoints
like store network the executives, coordination’s and stock structure the foundation
of the business conveyance work. Therefore these functions are critically important
to marketing managers as well as budgetary controllers. Inventory management
is a very vital role that regulates the wellbeing of the inventory network as
well as the effect of the financial health of the balance sheet. Each association
continually endeavors to keep up ideal stock to have the capacity to meet its
prerequisites and stay away from over or under stock that can affect the money
related figures.
Inventory is dynamic. A large portion of the organizations have a different office
or occupation work called stock organizers who ceaselessly screen, control and
audit stock and interface with generation, procurement and finance departments.

INVENTORY MANAGEMENT TECHNIQUES

Managing inventory can be a daunting assignment, and in the event that it
isn't done appropriately it could cost organization a large number of dollars.
Inventory management grows more and more complicated with increase in sales
volume and diversification of product assortment.

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1. INVENTORY REVIEW
Inventory review is a standard investigation of stock versus anticipated future
needs. This should be possible through a manual survey of stock or by utilizing
stock programming. Defining your base stock dimension will enable you to set up
standard reviews and reorders of provisions. Make sure to take into account certain
situations that can arise, such as vendors taking longer than average to replenish
stock. This will help you in utilizing in the nick of time ordering, where the stock
is held for a base measure of time before it moves to the following stage in the
production network.

In businesses where manual inventory management techniques are still in use, the
primary inventory control methods include:

 Visual control
 Tickler control
 Click-sheet control

You shouldn’t perform manual reviews because they can take a lot of time and
possibly produce errors. Businesses are starting to invest in software to automate
the review, and it will help organizations keep track of their inventory, ensure
timely reorders, and avoid costly shortages.

1. ABC ANALYSIS

This is a mainstream approach to break down your stock. Under this strategy,
you arrange the stock into three classifications, for example, A, B and C. These
classifications depend on the stock esteem and cost centrality. Additionally, the
quantity of things and estimations of every class are communicated as a level of
the aggregate.

- Items of high value and small in number are termed as “A”

- Items of moderate value and moderate in number are termed as “B”
- Items of small in value and large in number are termed as “C”

To manage each category separately: The nice thing about group C is that it can
be fairly hands-off, while group A requires special attention. You can use ABC
analysis in conjunction with the just-in-time technique to help you get your
reorder timing just right.
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 2. VED ANALYSIS:

VED analysis speaks to arrangement of things dependent on criticality. The

analysis arranges the things into three gatherings called Vital, Essential, and
Desirable.
Vital category envelops those things for need of which production would come
to halt. Essential group includes items whose stock outs cost is very high.
Desirable group comprises of items which do not cause any immediate loss of
production or their stock-out entail nominal expenditure and cause minor
disruptions for a short duration.

3. SDE ANALYSIS:

SDE analysis classifies into three items called ‘Scarce’, ‘Difficult’ and ‘Easy’. The
information so developed is then used to decide purchasing strategies. SDE
analysis is based on problems of procurement namely:

 Non-availability
 Scarcity
 Longer lead time
 Geographical location of suppliers
 Reliability of suppliers, etc.

4. JUST IN TIME:
The objective of JUST IN TIME method is to increase the inventory
turnover and at the same time reduce the inventory holding cost. JIT inventory
system also exposes the unwanted or the dead inventory held by the retailer/
manufacturer. This method is ideal for manufacturing organization and it is not
used in Retail industry in general. This will also involve usage of Kanban card to
track inventory movement.

5. VENDOR MANAGED INVENTORY:

As the name explains, it involved SKUs managed directly by the supplier.
Inventory is replenished based on the sales on regular intervals by the vendor. The
retailer provides shop floor space and the vendor is charged a consignment rate on
every product sold at the location. The ownership of the items from receiving to
sales and inventory loss if any will be with the supplier.
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 2. ORGANIZATION PROFILE

2.1 Company Name: Mahindra Forgings Ltd.

Website: www.mahindracie.com

The Mahindra Group

The Mahindra Group is a league of organizations with an expanded nearness

crosswise over 18 businesses and working in excess of 100 nations over the
world. The unified structure guarantees that every business diagrams its very own
future and is all the while ready to use the cooperative energies of the gathering's
skills. A US $16.9 billion worldwide gathering, it utilizes in excess of 200,000
individuals and appreciates an authority position in utility vehicles, tractors, data
innovation and excursion proprietorship. It likewise has a developing nearness in
zones like car industry, aviation, secondary selling, segments, counselling
administrations, protection, vitality, budgetary administrations, coordination’s,
land, retail, and bikes. In 2013, the Mahindra bunch got the Financial Times
'Boldness in Business' Award in the 'Developing Markets' class. Group
Chairman, Mr. Anand Mahindra, was likewise named the 'Entrepreneur of the
year – 2013' by Forbes India magazine. In 2012, Mahindra included on the
Forbes Global 2000 rundown, a posting of the greatest and most dominant
recorded organizations on the planet.

2.2 Raw Material Inventory:

Raw materials inventory is the overall price of all element present in stock that
have not yet been utilized in work-in-process or finished goods production.
Raw material can further be divided in two sub category, they are
 Direct material - These are materials fused into the final item. For instance, this is
the wood used to make a bureau.
 Indirect material - These are materials not consolidated into the last item, yet
which are used in the creation procedure. For instance, this is the ointment, oils,
clothes, lights, etc devoured in a run the manufacturing unit.
The cost of raw materials on hand as of the balance sheet date appears in the
balance sheet as a current asset. Raw materials might be totaled into a solitary
stock detail in a critical position sheet that additionally incorporates the expense
of work-in-process and finish good stock. It maybe announce outdated, probably
because they are no longer used in company products, or for the reason that they
have despoiled while in storage, and so can no longer be used. If so, they are
usually charged directly to the overall cost of goods sold with a counterbalancing
credit to the raw materials stock record.
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2.3 Finish goods inventory:

Finished goods are products that have been finalized by the assembling
procedure, or acquired in a finished structure, yet which have not yet been sold to
clients. Products that have been bought in finished structure are known as
product. The expense of finished good stock is viewed as a short term assets,
whereas the desire is that these things will be sold in under one annual year. The
aggregate sum of completed products stock available as of the finish of a
revealing period is normally totaled with the expenses of crude materials and
work-in-process, and is accounted for inside a solitary "Stock" detail on the
balance sheet.

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 3. RESEARCH METHODOLOGY
3.1 Objectives:
1) To Learn the Inventory Management Techniques.
2) To Learn the Different types of Inventory Control techniques.
3) To learn the procedure of Implementation of ABC Analysis.

The principal focus behind this endeavor is to consider the approach of

Integrated Material Management for satisfactory Inventory Control. This can be
practiced by

a) Removal of worthless activities.

b) Cut a deal with Vendor/ Service providers
c) Converting Fixed expense as Variable expense
d) Import substitution of raw material without affecting the quality & features.

To reflect the significance of Inventory Management System in `connection to

Mahindra CIE auto.Ltd.

3.2 Scope of the Study:

Because of absence of offices given by organization, individuals are not working

productively and it has abnormal effect on their performance and result, so
1) Assessing their needs,
2) Working conditions,
3) Providing the development opportunities,
4) Helping skill development through training interventions and planning.
And through this the employee satisfaction level can be increases & productivity
also increases.

3.3 Disadvantage of the Study:

1) Just In Time.
2) Commodity wise inventory value.
3) Constant attention required.
4) Subject to human blunder when representatives enter wrong data accidentally.
5) Details of product is not disclose due to confidential policy.
6) Daily work load and work responsibility.

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4. DATA COLLECTION TECHNIQUE

4.1 PRIMARY SOURCES OF DATA

Primary knowledge data is collected or generated by the scientist for the
needs of the project like a shot at hand. For example, an investigator wants to
know about the level of job satisfaction by the workers industry. He can prepare
a schedule and meet a sample number of workers and ask for their opinions. This
is reaching to be the knowledge collected for the item of this study and so
becomes primary in nature. When the data are collected for the first time, the
responsibility for the processing of data also rests with the original investigators.
Ordinarily, experiments and surveys constitute the main sources of primary data.
For better understanding of the nature of primary sources of data advantages and
disadvantages will have to be studied.

Sources of
data collection

primary data
collaection

Questionnaire
Interview Observation
& survey

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 METHODS OF COLLECTING PRIMARY DATA

The Primary information are the data created to meet the lesser explicit
necessities of the current examination. Therefore, the agent needs to gather,
information independently for the investigation attempted. Coming up next are
the three strategies which are utilized to arrange essential information.
(1)Observation (2) survey (3) Interview.

1) Observation:
It is one of the less expensive and progressively powerful procedures of
information collection. This way to deal with the gathering of data is as old as
human race. Perception is essential in sciences as well as in sociologies inquire
about additionally perception has its own utility. It isn't constantly conceivable to
measure the information and make precise determinations based on such
information. In this way, the perception or observation technique is commonly
received for testing speculation.

Stock Management framework has seen by offering visit to the store division.
Container Card, Coding of Inventory, Inward and Outward of Inventory, ERP
framework, ABC system everything identified with Inventory Management has
been watched.

2) Survey and Questionnaire:

The Most frequently utilized technique for information gathering is called
survey. These strategies are considered to have a specific applicability, if the
specialist is to gather information on personal preference, social behavior,
sentiments, convictions, emotions, and so forth the expanding utilization of
timetables and polls is a result of expanded stress by social researcher on
quantitative estimation of systematically aggregated data.

3) Interview:
Meeting is additionally valuable procedure of information gathering through
essential sources. It is a verbal technique for verifying information in the field
reviews. Data is obtain by talking with the respondents.

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4.2 SECONDARY SOURCES OF DATA

Secondary information refer to the data that has been gathered by somebody
other than an analyst for purposes other than those engaged with the exploration
venture within reach. There are different factors, for example, the nature of the
reserch /examination, status of the specialist, accessibility of funds, time and
level of expertness of the outcomes wanted, that chose the decision of the sources
of information that improves the utility of the study.
The study of this project is made with the help of secondary data.
Internal Sources:
This information is gathered from the association.
1) With the assistance of capacity information in the association just as data got
from Store director who gives reasonable thought of how stock administration is
done in the association.
2) By watching inside Inventory related Reports and Documents like Bin Cards,
Purchase Order, and Goods Receipt cum Inspection Note and so on.

External Sources:
There are few external sources for secondary data like
Website of the company
Reference books-
Textbook of Logistics and supply chain management by D K Agrawal and
Inventory Management by L C Jhamb is used during the study.

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 5. Inventory Ratios

5.1 The Objectives of Inventory Turnover Ratios:-

1. Fast Moving Stock
2. Slow Moving Stock
3. Dormant Stock
4. Obsolete Stock.

Following Are Some of the Ratios:-

1. Inventory Turnover Ratio:-

This ratio is a relationship between cost of material consumed and average
inventory held during the period. It is calculated by applying the following
formula-
=Cost of material consumed
Cost of average stock held during the period.

Higher ratio indicates fast moving stock. Low ratio indicates up of work
capital. The ratio is calculated in days as follows:-
= Days during the period
Inventory turnover ratio

This ratio shows the period for which inventory is held. The period should be
a minimum as possible. Shorter the period better is the management.

2. Input output ratio:-

This ratio is relationship between finished goods and material consumed. It is
calculated as follows-
=Value of output
Value of input of materials

The ratio can be calculated by applying the following formula:-

= Standard cost of Actual Quantity
Standard cost of a Standard Quantity

The ratio facilitates to know the performance of the firm. It also helps to know
whether the use of material is favourable or unfavourable.

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3. Ratio of Slow Moving Items to Total Inventory:-
This ratio is calculated to find out the proportion of slow moving items to total
inventory. It is given by the following formula-
= Slow moving Stores
Total Inventory

This ratio helps to identify the slow moving items. Higher ratio indicates that
there are many slow moving items and therefore capital is locked up.
Management should take immediate steps to set right this situation.

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5.2 Stock levels.
This system fixes stock control levels regarding amount to guarantee that Ideal
amount of materials is purchased and put away. It additionally responds to the
inquiry, when to purchase and helps the administration to spending plan and
get ready time calendar of buys. The procedure requires obsession of stock
control levels in regard of each kind of material.

The Different Limits Fixed Are:-

1. Maximum Level:-
This dimension shows most extreme amount of stock to be held whenever. It
is the biggest amount of a specific material whenever. The amount of stock
should nos. surpass the dimension. This is to limit stock holding costs.

Factors:-
*Re-Order Level.
*Re-Order Quantity.
*Minimum Consumption.
*Minimum Re-Order Period.
*Adequacy of Working Capital.
*Storage Space.
*Additional Storage Cost.
*Additional Insurance Cost.
*Risk of Loss Due To Obsolescence.
*Fluctuations in Price.
*Supply of Imported Materials.
This level is fixed by using the following formula:-
Maximum Level = Reorder Level + Reorder Quantity – (Minimum
Consumption* Minimum Time for Reordering)

2. Minimum Level:-
This level indicates minimum quantity of stock to be held at any time. It is the
lowest quantity of material to be held at all the time. This is to avoid risk of
dislocation of production process. This level is fixed after taking into
consideration the rate of consumption and the time required to acquire
sufficient materials to avoid dislocation of production.

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Factors:-
*Re-order Level.
*Normal Consumption.
*Normal Re-Order Period.
The following formula is used to fix up the minimum level:-
Minimum Level = Reorder Level – (Normal Consumption * Normal Reorder
Period)

3. Re-order Level:-
This dimension shows an opportunity to put request for material. It implies the
activity point for securing the material. This dimension is between the base
and greatest dimensions. It is the dimension at which buy order ought to be
made out for new supply. The object of this dimension is to demonstrate time
to put request with the goal that stock isn't decreased to a dimension not
exactly the base dimension.

Factors:-
*Maximum Consumption.
*Maximum Re-order Period.
*Minimum Level.
The following formula is used to fix up Reorder-Level:-
Reorder Level = (Maximum Consumption * Maximum Reorder Period)

4. Danger Level:-
It shows the dimension of stock when the typical issue ought to be halted. It
shows the need of dire consideration and crisis ventures to recharge stock by
acquiring materials. The amount of this dimension is among least and nil
stock dimension. The target of fixing risk level is to choose when a critical
activity is required for acquirement of crisp supply of material.

Factors:-
*Normal Consumption.
*Maximum Re-order Period for Emergency Purchases.
The following formula is used to fix up Danger Level:-
Danger Level = Normal Consumption * Maximum Re-order Period for
Emergency Purchases.

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5. Average Stock Level:-
It is the average of maximum level and minimum level. It is the average stock
of materials in the stores.
It is calculated by the following formula:-
Average Stock = Minimum Level + ½ Re-order Quantity.
The fixation of control levels is based mainly on non-cost factors. It is based
on times involved in several control procedures and rate of consumption.

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5.3 DIFFERENT METHODS OF EVALUATION OF INVENTORY.
A large part of stock valuation comes from being able to understand how
inventory is valued and built.
To put it in the most basic form, inventory is what you have in stock. If you
expand on this definition to look at what is involved on the other side of the
scale to get the ending inventory amount, the equation for inventory is
=Beginning Inventory + Net Purchases – Cost of Goods Sold = Ending
Inventory.
In words, your beginning inventory along with your purchases and then
subtracting what you have sold, results in ending inventory. But this is where
it gets tricky with GAAP rules. Depending on the inventory valuation
method used by the company, the COGS can vary considerably which
ultimately affects the ending inventory.

1. Average Cost Method.

2. First in First Out (FIFO) Method.
3. Last in First Out (LIFO) Method.
4. Weighted Average Cost Method (WAC).
5. Highest in First Out Method (HIFO).
6. Next in First Out Method (NIFO).
7. Cost Production.
8. Market Production.
9. Replacement.

1. Average Cost Method:-

To put it real bluntly, the average cost method is rarely used. This method
does not offer any real convenience or added accuracy.
The equation for average cost method is as follows:-
Average Cost = (Total Quantity of Inventory Units) / (Total Quantity of
Units)
Where,
Cost of Goods Sold = (Average Unit Cost) x (Number of Units Sold)
For example if 1,000 toys are produced on Monday at a cost of $1 and then on
Tuesday another 1,000 toys are manufactured at a price of $1.05, the average
cost method would value the inventory at $1.025 a piece.

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2. FIFO Method:-
As mentioned previously on aggressive and conservative accounting policies,
the FIFO method of valuing inventory is considered to be the aggressive
method. FIFO works like how you maintain your fridge at home. After you
have bought some groceries, you tend to place what you just bought at the
back of the fridge in order to finish off the older food before it spoils.
In other words, under FIFO, the oldest goods are sold first and the newest
goods are sold last.
As a formula it would look like this:-
Unit Cost per batch = (Cost/Quantity) for each batch
Where,
Cost of Goods Sold = (Unit Cost x Quantity) for each batch
Using the toy example above, if 1,000 toys were then sold on Wednesday, the
COGS would be $1 per unit. The remaining inventory on the balance sheet
would then be worth $1.05 each.

3. LIFO Method:-
LIFO is the opposite of FIFO. Instead of the oldest inventory being considered
as sold first, the newest product is sold first. While the factory analogy works
for the FIFO, consider a bakery. By lunch or evening, the bread baked from
the morning will not sell as well as the fresh ones from the afternoon batch.
This means that cost of the latest inventory now becomes the COGS with the
cost of the oldest inventory being assigned to the inventory value on the
balance sheet. The equation is essentially the same as FIFO since both are
calculated based on batches of unit sold.
Unit Cost per batch = (Cost/Quantity) for each batch
Where,
Cost of Goods Sold = (Unit Cost x Quantity) for each batch
Using the toy example, the 1,000 units sold on Wednesday would have a
COGS of
$1.05 per unit, with the remaining 1,000 toys being valued at $1 each.

4. WEIGHTED AVERAGE COST METHOD:-

Inventory valuation method used where different quantities of goods are
purchased at different unit costs. Under this method, weights are assigned to
the cost price on the basis of the quantity of each item at each price.

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5. HIFO Method:-
In accounting, an inventory distribution method in which the inventory with
the highest cost of purchase is the first to be used or taken out of stock. This
will impact the company's books such that for any given period of time, the
inventory expense will be the highest possible.
Companies would likely choose to use the HIFO inventory method if they
wanted to decrease their taxable income for a period ofntime. Because the
inventory that is recorded as used up is always the most expensive inventory
the company has (regardless of when the inventory was purchased), the
company will always be recording maximum cost of goods sold.

6. NIFO Method:-
A method of valuation where the cost of a particular item is based upon the
cost to replace the item rather than on it's original cost. This form of valuation
is not one of the generally accepted accounting principles (GAAP) because it
is said to violate the cost principle. The cost principle is an accounting concept
that states that goods and services should be recorded at their original cost, not
present market value.

7. Cost Production:-
A cost incurred by a business when manufacturing a good or producing a
service. Production costs combine raw material and labor. To figure out the
cost of production per unit, the cost of production is divided by the number of
units produced. A company that knows how much it will cost to produce an
item, or produce a service, will have a clearer picture of how to better price
the item or service and what will be the total cost to the company. Businesses
that know their production costs know the total expense to the production line,
or how much the entire process will cost to produce the item. If costs are too
high, these can be decreased or possibly eliminated. Production costs can be
used to compare the expenses of different activities within the company. In
production, there are direct costs and indirect costs. For example, direct costs
for manufacturing an automobile are materials such as the plastic, metal or
labor incurred to produce such an item. Indirect costs include overhead such as
rent, salaries or utility expense.

8. Market Production:-
In a general sense, market production refers to the production of a product or
service which is intended for sale at a money-price in a market. The product or
service in principle has to be trade able for money.

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9. Replacement:-
The cost to replace the assets of a company or a property of the same or equal
value. The replacement cost asset of a company could be a building, stocks,
accounts receivable or liens. This cost can change depending on changes in
market value. Replacement cost insurance can be purchased to protect and
cover a company or individual from this type of cost. This insurance pays the
full amount needed to replace the asset or property. The gradual reduction of
the asset value or depreciation is not taken into account for insurance
purposes.

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6. DATA ANALYSIS

One of the major working troubles in the logical stock control is a very expansive
assortment of things loaded by different associations. These may fluctuate from
10,000 to 100,000 distinct kinds of supplied things and it is neither practical nor
attractive to apply thorough logical standards of stock control in every one of
these things. Such an unpredictable methodology may make cost of stock control
more than its advantages and consequently may end up being counter-gainful.
Along these lines, stock control must be practiced specifically. Contingent on the
esteem, criticality , and use recurrence of a thing we may need to settle on a
proper sort of stock approach. The specific stock administration in this manner
assumes a urgent job with the goal that we can put our constrained control
endeavors all the more sensibly to the more huge gathering of things. In specific
administration we bunch things in couple of discrete classes relying on esteem;
criticality and use recurrence. Such investigations are famously known as ABC,
VED and FSN Analysis individually. This sort of collection may well shape the
beginning stage in presenting logical stock administration in an association.

In Mahindra CIE Auto. Ltd. ABC investigation is utilized for dealing with the
stock. So the investigation of ABC examination is done in this task.

ABC ANALYSIS:

The concept ABC (Always Better Control) Analysis is based on ‘Think on

the Best and then on the Rest’. ABC analysis underlines a very important
principle “Vital few: trivial many” Generally, companies are required to keep
stock of large number of items used in production and distribution. In practice, it
is not possible to maintain and control a similar/ proper level of inventory of all
items, which is also not feasible due to resource constraints. Hence, the prevalent
practice is that sincere efforts are made to have a proper control on the most
circulating items and least on rare circulating once.
ABC analysis offers a basis for grouping of items on certain basis of annual/
monthly consumption value. In other words, of an item’s unit price is very little
but if it is a most circulating items and its monthly/annual consumption value is
maximum, then closer and careful control will be done and vice versa. Hence, In
ABC analysis, items are categorized in three broad groups, namely; A, B, and C,
on the basis of their monthly/annual consumption value.
INVENTORY STUDY:
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 ‘INVENTORY’ may be defined as ‘usable but idle resource’. If resource is
some physical and tangible object such as materials, then it is generally termed as
stock. Thus stock or inventories are synonyms terms though inventory has wider
implications.

Or

Inventory is a detailed list of movable items, which are necessary to manufacture

a product and to maintain the equipment and machinery in good working order.
The quantity and the value are also mentioned in the list.

Broadly speaking, the problem of INVENTORY in inventory management is one

of maintaining, for a given financial investment, an adequate supply of
something to meet an expected demand pattern. This could be raw material, work
in progress finished products or the spares and other indirect material.

INVENTORY system in inventory can be one of the indicators of the

management effectiveness on the materials management front. Inventory
turnover ratio (annual demand/average inventory) is an index of business
performance. A soundly managed organization will have higher inventory
turnover ratio and vice-versa.

Inventory management deals with the determination of optimal policies and

procedures for procurement of commodities. Since it is quite difficult to imagine
a real work situation in which the required material will be made available at hr
point of use instantaneously, hence maintaining inventories becomes almost
necessary. Thus
inventories could be visualized as ‘necessary evil’.

Thus Inventory management/control during use of INVENTORY system is

concerned with achieving an optimum balance between two competing
objectives. The objectives are:

 To minimize investment in inventory

 To minimize the service levels to the firm’s customers and its own
operating departments
 Inventory Related Cost
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 An inventory as per INVENTORY system may be defined as one in which the
following costs are significant-

 Cost of carrying inventories (holding cost)

 Cost of incurring shortages (stock out cost)
 Cost of replenishing inventories (ordering cost)

a) Cost of carrying inventories (holding cost)

This is expressed as Rs/item hold in stock/unit time. This is the

opportunity cost of blocking material in the non-productive form as inventories.
Some of the cost elements that comprise carrying cost are- Cost of blocking
capital (interest rate); cost of insurances; storage cost; cost due to obsolescence,
pilferage, deterioration, etc. It is generally expressed as a fraction of carrying
charges in value of the goods stocked per year.

For example, if the fraction carrying charge is 20 % per year and a material worth
is Rs. 1000 is kept in inventory for one year, the unit carrying cost will be Rs
200item/year. It is obvious that for items that are perishable in nature, the
attributed carrying cost will be higher.

b) Cost of incurring shortages (stock out cost)

This is opportunity cost of not having an item in stock when one is
demanded. It may be due to lost sales or backlogging. In the backlogging (or
back ordering) case the order is not lost but is backlogged, to be consolidated as
soon as the item is available on stock. In lost sales case the order is lost. In both
cases there are tangible and intangible costs of not meeting the demand on time.
It may include lost generally expressed as Rs/ item short/ unit time.

c) Cost of replenishing inventory (ordering cost)

This is the amount of money and efforts expended in procurement or
acquisition of stock. It is generally ordering cost. This cost is usually assumed to
be independent of quantity ordered, because the fixed cost component is
generally more significant than the variable component. Thus it is expressed as
Rs / order.
Thus three types of cost are the most commonly incorporated in inventory
analysis though there may be other costs parameters relevant in such an analysis
such as inflation, price discounts etc.
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 Conducting ABC Analysis:
To conduct ABC analysis, following steps are necessary:
a) Prepare the list of the items and estimate their annual consumption(units)
b) Determine unit price (or cost) of each item.
c) Multiply each annual consumption by its unit price (or cost) to obtain its annual
consumption in rupees (annual usage).
d) Arrange items in the descending order of their annual usage starting with highest
annual usage down to the smallest usage.
e) Calculate cumulative annual usages and express the same as cumulative usage
percentages. Also express the number of items into cumulative items percentage.
f) Graph cumulative usage percentages against cumulative item percentages and
segregate the items into A, B and C categories.
g) Decide the policies of control for the three categories.

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6. Conclusion

To study the role/importance of INVENTORY system in relation to Mungi

Brothers organization.

Today’s market is a customer oriented market and customer satisfaction is the

most important goal of every organization therefore it is inevitable to adopt
integrated Inventory Management approach for new product development
strategy. Financial – Material management for any product is a dynamic decision
making process involving a series of inter-related activities.

In today’s dynamic market “Every Bench marks are dynamic, challenge

them for continual improvement”. In order to remain in market any organization
needs to define the process, Benchmark for the excellence, endeavor to achieve it
by strategizing & creating environment, providing required resources & effective
monitoring.

INVENTORY system is an extremely important problem area in the

management of materials handling. It is quite susceptible to control and a very
large amount of scientific models are available in the literature to enable us to
choose an optimal inventory policy. Buying the optimal quantity can result only
from a sound inventory control system that is achieved by judicious
reconciliation of conflicting costs and departmental objectives. However,
inventory is only an indicator of performance of materials management function
and to cut down inventories we use not only scientific inventory management
principles but also models along with it also take long-term measures to reduce
inventories through strategies such as variety reduction and standardization,
source development and optimization, and vendor rating, lead-time reduction
through improvement in the systems and procedures of procurement. It is
obvious that scientific inventory management has to be practiced selectively
rather than indiscriminately to make it cost-effective. It is also important to have
Informational inputs like demand forecast, lead-time estimate, and other cost
estimates to be realistic to make effective use of inventory models.

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 7.BIBLIOGRAPHY

1. Logistics and Supply Chain Management - D K Agrawal

2. Inventory Management - L C Jhamb

3. www.fishbowlinventory.com/articles/inventory-management/inventory-
management-techniques/
4. https://www.moneycontrol.com/company-facts/mahindracieautomotive/history/MF19?classic=true
(2.2/2.3 company history )

5. http://www.managementstudyguide.com/inventory-management.htm

6. https://www.accountingtools.com/articles/2017/5/13/raw-materials-inventory (2.4 raw material

inventory)

7. https://www.accountingtools.com/articles/2017/5/10/finished-goods-inventory (2.5 finsihed

good)

8.

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