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Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
Study on inventory management conducted at reid&taylor(india)ltd
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Study on inventory management conducted at reid&taylor(india)ltd

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Study on inventory management conducted at reid&taylor(india)ltd

Study on inventory management conducted at reid&taylor(india)ltd

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  • 1. Inventory Management Chapter 1 introduction 1.1. Introduction Inventory is a list of goods and materials, or those goods and materials themselves, held available in stock by a business. Inventory management is primarily about specifying the size and placement of stocked goods. Inventory management is required at different locations within a facility or within multiple locations of a supply network to protect the regular and planned course of production against the random disturbance of running out of materials or goods. The scope of inventory management also concerns the fine lines between replenishment lead time, carrying costs of inventory, asset management, inventory forecasting, inventory valuation, inventory visibility, future inventory price forecasting, physical inventory, available physical space for inventory, quality management, replenishment, returns and defective goods and demand forecasting. Management of the inventories, with the primary objective of determining, controlling stock levels within the physical distribution function to balance the need for product availability against the need for minimizing stock holding and handling costs. The objectives of materials management are primarily focused at achieving efficiency in sales and production by minimizing the investment in inventory without sacrificing quality and continuity of supply of materials obtained at lowest possible price. Most manufacturing organizations usually divide their "goods for sale" inventory into • Raw materials - materials and components scheduled for use in making a product. • Work in process, WIP - materials and components that have begun their transformation to finished goods. • Finished goods - goods ready for sale to customers. • Goods for resale - returned goods that are saleable. • Spare parts Haranahalli Ramaswamy Institute of Higher Education, Hassan 1
  • 2. Inventory Management Inventory management is a sub-system of an organisation which in turn has a number of sub- systems. The inter related nature of inventory management function and other organizational functions such as finance function, production function, maintenance function etc. will have to be well appreciated. While defining the inventory management function, the objective was stated as one of providing the pre-determined service to customers at a minimum total cost. 1.2. Problem statement Inventory management study conducted in Reid &Taylor (India) Ltd. 1.3. Objectives • To study work flow of stores department in Reid & Taylor (India) Ltd . • To study how effectively inventories are maintained in Reid and Taylor. • To know the relationship between raw materials and sales. • To study the selective inventory control system adopted in the organisation. 1.4. Scope of the study Inventory management is a very simple concept - don't have too much stock and don't have too little. Since there can be substantial costs involved in straying above and below the optimal range, careful inventory management can make a huge difference in the profitability of a business. Although the concept is simple, the process of getting the right balance can be quite a complex and time consuming task without the right technology. Inventory Management is very important for Reid and Taylor. It enables the business to meet or exceed expectations of the customer by making the product readily available. Haranahalli Ramaswamy Institute of Higher Education, Hassan 2
  • 3. Inventory Management If managed properly, it can help the organization reduce its costs, achieve economies of scale and prepares the organization for uncertainty. The importance of proper management of materials need hardly be emphasised in a developing country like India considering the fact that crores together worth of materials and components enter into production process each year. In any manufacturing industry, nearly 60-70% of the total funds employed are tied up in current assets, of which inventory is the most significant component. In the cost structure of most of the products materials constitute 40-60% of the total cost again pointing to the need for proper budgeting and control of materials expenses. In a competitive environment, no customer will be willing to pay the enhanced price and the manufacturer may well end up with losing his existing business. Company has its own limitation. Firstly marketing may find it difficult to improve sales due to stiff competition. Secondly production needs to be raised which in turn needs additional resources by way of capital man power etc. since capital is scarce, this is also not a practical solution to improve profits. That leaves only cost effective techniques such as 1) Reduction in material cost by using superior design which needs less material or saves on labour 2) Inventory reduction and control by stopping wastage or leakage by 3) Enforce strict consumption control 4) Eliminating all wastages at all places where they occur 5) Disposal of scrap as it arises. 1.5. Data collection methods • Primary data Primary data has been collected from observation and discussion with guide, other officials. Haranahalli Ramaswamy Institute of Higher Education, Hassan 3
  • 4. Inventory Management • Secondary data • Secondary data collected from past records. • Secondary data collected from company annual report. • Secondary data collected from company website. 1.6. Techniques for data analysis Data has been analyzed by using • Regression analysis • Graphs 1.7. Limitations of the study As this is a study under taken to full fill the academic requirement it is bound to have certain limitation. • Study was bounded for only stores department. • Detail study about all the materials was not possible because of time limit. • Some of the information were kept confidential Haranahalli Ramaswamy Institute of Higher Education, Hassan 4
  • 5. Inventory Management Chapter2 literature review 2.1. Introduction to inventory management Inventories constitute the most significant part of current assets of a large majority of companies in India. On an average, inventories are approximately 60 percent of current assets in public limited companies in India. Because of the large size of inventories maintained by firms, a considerable amount of funds is required to be committed to them. It is, therefore, absolutely imperative to manage inventories efficiently and effectively in order to avoid unnecessary investment. A firm neglecting the management of inventories will be jeopardising its long-run profitability and may fail ultimately. It is possible for a company to reduce its level of inventories to a considerable degree e.g., 10 to 20 per cent, without any adverse effect on production and sales, by using simple inventory planning and control techniques. The reduction in ‘excessive’ inventories carries a favourable impact on a company’s profitability. 2.2. Definition and meaning Inventories are consumed are unsold goods purchased or manufactured according to the accounting standard: 2 (Revised), inventories are asset: a) Held for sale in the ordinary course of business. b) In the process of production for such sale or. c) In the form of materials or supplies to be consumed in the production process or in the rendering of service. Thus, that term inventory includes stock of • Raw materials and components:- Raw materials are those basic inputs that are converted into finished product through the manufacturing process. Raw materials inventories are those units which have been purchased and stored for future productions. • Work in process:- work in process inventories are semi-manufactured products. They represent products that need more work before they become finished products for sale. Haranahalli Ramaswamy Institute of Higher Education, Hassan 5
  • 6. Inventory Management • Finished goods:- Finished goods inventories are those completely manufactured products which are ready for sale. Stocks of raw materials and work-in-process 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. The levels of three kinds of inventories for a firm depend on the nature of its business. A manufacturing firm will have substantially high level of all three kinds of inventories, while a retail or wholesale firm will have a very high level of finished goods inventories and no raw material and work-in- process inventories. Within manufacturing firms, there will be differences. Large heavy engineering companies produce long production cycle products; therefore, they carry large inventories. On the other hand, inventories of a consumer product company will not be large because of short production cycle and fast turnover. Firm also maintain a fourth kind of inventory, supplies or stores and spares. Supplies include office and plant cleaning materials like soap, brooms, oil, fuel, light bulbs etc. These materials do not directly enter production, but are necessary for production process. Usually, these supplies are small part of the total inventory and do not involve significant investment. Therefore, a sophisticated system of inventory control may not be maintained for them. 2.3. Need to hold inventories The question of managing inventories arises only when the company holds inventories. Maintaining inventories involves tying up of the company’s fund and incurrence of storage and handling costs. If it is expensive to maintain inventories, why do companies hold inventories? There are three general motives for holding inventories. • Transaction motive emphasises the need to maintain inventories to facilitate smooth production and sales operations. • Precautionary motive necessitates holding of inventories to guard against the risk of unpredictable changes in demand and supply forces and other factors. • Speculative motive influences the decision to increase or reduce inventory level to take advantage of price fluctuations. . Haranahalli Ramaswamy Institute of Higher Education, Hassan 6
  • 7. Inventory Management The procurement of materials may be delayed because of such factors as strike, transport disruption or short supply. Therefore, the firm should maintain sufficient stock of raw materials at a given time to streamline production. Work-in-process inventory builds up because of the production cycle. Production cycle is the time span between introduction of raw material into production and emergence of finished product at the completion of production cycle. Till production cycle completes, stock of work-in-process has to be maintained. Efficient firms constantly try to make production cycle smaller by improving their production techniques. Stock of finished goods has to be held because production and sales are not instantaneous. A firm cannot produce immediately when consumers demand goods. Therefore, to supply finished goods on a regular basis, their stock has to be maintained. Stock of finished goods has also to be maintained for sudden demand from customers. The level of finished goods inventories would depend upon the coordination between sales and production as well as on production time. 2.4. Objective of inventory management In the context of inventory management, the firm is faced with the problem of meeting two conflicting needs: • To maintain a large size of inventories of raw material and work- in-process for efficient and smooth production and of finished goods for uninterrupted sales operations. • To maintain a minimum investment in inventories to maximise profitability. Both excessive and inadequate inventories are not desirable. These are two danger points within which the firm should avoid. The objective of inventory management should be to determine and maintain optimum level of inventory investment. The optimum level of inventory will lie between the two danger points of excessive and inadequate inventories. The firm should always avoid a situation of over investment or under-investment in inventories. The major dangers of over investment are; a) Unnecessary tie-up of the firm’s fund and loss of profit, Haranahalli Ramaswamy Institute of Higher Education, Hassan 7
  • 8. Inventory Management b) Excessive carrying costs, and c) Risk of liquidity. The excessive level of inventories consumes funds of the firm, which cannot be used for any other purpose, and thus, it involves an opportunity cost. The carrying costs, such as the costs of storage, handling, insurance, recording and inspection, also increase in proportion to the volume of inventory. These costs will impair the firm’s profitability further. Excessive inventories carried for long-period increase chances of loss of liquidity. It may not be possible to sell inventories in time and at full value. Raw materials are generally difficult to sell as the holding period increases. There are exceptional circumstances where it may pay to the company to hold stock of raw materials. Maintaining an inadequate level of inventories is also dangerous. The consequences of under-investment in inventories are: a) Production hold-ups and b) Failure to meet delivery commitments. Inadequate raw materials and work-in-process inventories will result in frequent production interruptions. Similarly, if finished goods inventories are not sufficient to meet the demand of customers regularly, they may shift to competitors, which will amount to a permanent loss to the firm. The aim of inventory management, thus, should be to avoid excessive and inadequate levels of inventories and to maintain sufficient inventory for the smooth production and sales operations. Efforts should be made to place an order at the right time with the right source to acquire the right quantity at the right price and quality. An effective inventory management should • Ensure a continuous supply of raw materials to facilitate uninterrupted production, • Maintain sufficient stocks of raw materials in period of short supply and anticipate price changes. • Maintain sufficient finished goods inventory for smooth sales operation, and efficient customer service. • Minimise the carrying cost and time, and • Control investment in inventories and keep it at an optimum level. Haranahalli Ramaswamy Institute of Higher Education, Hassan 8
  • 9. Inventory Management 2.5. INVENTORY SYSTEMS. Records pertaining to quantity and value of inventory – in- hand can be maintained according to any of the following two systems: 1) Periodic Inventory system. 2) Perpetual Inventory system. Periodic inventory system In case of periodic inventory system the quantity and the value of inventory is found out only at the end of the accounting period after having a physical verification of the units in hand. The system does not provide the information regarding the quantity and value of material in hand on a continuous basis .the cost of material used is obtained by adding the total value of goods purchased during the period to the value of inventory in hand in the beginning of the of the period and subtracting the value of inventory at the end of the period. However review period is fixed in this inventory system. This inventory is also known as fixed period or replenishment inventory system or P-system. In the periodic review system, the inventory is being reviewed at periodic intervals and therefore there is no flexibility in the order period. Hence the fluctuation in the demand is taken care of by the safety stock. The periodic inventory system requires more inventory on hand, for a given frequency of shortage, as compared to perpetual inventory system. Perpetual inventory system It is also known as Automatic inventory system. According to the Charted Institute of Management Accountants London, it is “A system of records maintained by controlling department, which reflects the physical movements of stocks and their current balance.” Haranahalli Ramaswamy Institute of Higher Education, Hassan 9
  • 10. Inventory Management The definition given by Wheldon is more exhaustive and explanatory. According to him, it is “A method of recording inventory balances after every receipt and issue to facilitate regular checking and to obviate closing down for stocktaking.” In case of this system the stores ledger gives balance of raw materials, work-in-progress and finished goods on a continuing basis. The basic objective of this system is to make available details about the quantity and value of stock of each item at all times. The system, thus, provides a rigid control over stock of materials, as physical stock can regularly be verified with the stock records kept in the stores and the cost office. Since the perpetual inventory system requires perpetual auditing of the system, the cost of operating the system is higher. However, because of the computer facilities, cost advantage of periodic review system is withering away and many companies are resorting to the perpetual inventory system. 2.6. Methods of valuation of inventories According to International Accounting standard:2 (IAS:2), the inventories should be valued at the lowest of “historical cost” and “ net realizable value”. Historical price Historical cost of inventories is the aggregate of cost of purchase, cost of conversion, and other costs incurred in bringing the inventories to their present location and condition. Thus, cost includes not only the price paid for acquisition of inventories but also all costs incurred for bringing and making them fit for use in production or for sale, e.g., transportation costs, duties paid, insurance, manufacturing expenses, wages or manufacturing expenses incurred for converting raw materials into finished products, etc. selling expenses such as advertisement expenses or storage costs should not be included. A major objective of accounting for inventories is the proper determination of income through the process of matching appropriate costs against revenues. It requires assigning of proper costs to inventory as well as goods sold. However, it should be needed that assigning of such costs need not conform to the physical flow of goods. 1) First In First Out Haranahalli Ramaswamy Institute of Higher Education, Hassan 10
  • 11. Inventory Management Under this method, it is assumed that the materials/goods first received are the first to be issued/ sold. Thus, according to this method, the inventory on a particular date is presumed to be composed of the items which have been acquired most recently. This method of pricing issued material is based on the theory that material is first issued from the earliest lot on hand and should be priced at the cost at which the lot was placed in stock. It is assumed that the materials purchased are issued in strict chronological order that it is materials are issued from the oldest supply in stock and that units issued are priced at the oldest cost price listed on the stock ledger sheets, that materials on hand at all times being the most recent purchases, when a requisition for a certain type of material is presented to the store keeper, he uses the cost price of the first lot of materials received which is still on hand. If the quantity required is greater than the units remaining the first lot, he uses the cost price of the second lot, than of the third and fourth until enough material is obtained to fill the requisition Advantages:- The FIFO method has the following advantages: a) It values stock nearer to current market prices since stock is presumed to be consisting of the most recent prices. b) It is based on cost and, therefore, no unrealised profit enters into the financial accounts of the company. c) The method is realistic since it takes into account the normal processor for utilizing slash selling those materials/goods which have been longest in stock. Disadvantages: The method suffers from the following disadvantages: a) It involves complicated calculation and hence increases the possibility of clerical errors. b) Comparison between different jobs using the same type of materials becomes sometimes difficult. c) A job commenced a few minutes after another jobs may have to bear an entirely different charges of materials because the first job completely exhausted the supply of materials of particular lot. The FIFO method of valuation of inventories is particularly suitable in the following circumstances. a) The materials / goods are of a perishable nature. b) The frequency of purchases is not large. c) There on only moderate fluctuations in the prices of materials or goods purchased. d) Materials are easily identifiable as belonging to a particular purchase lot. Haranahalli Ramaswamy Institute of Higher Education, Hassan 11
  • 12. Inventory Management 2) Last in last out method This method is based on the assumption that last item of material/goods purchased are the first to be issued/sold. Thus, according to this method, inventory consists of items purchased at the earliest cost. Under this method, which assumes that most current prices should be charged for the cost of materials which enter into the goods manufactured and sold, which stands for ‘Last in first out’ flow of costs assumptions produce a lower income during rising prices since stated materials costs are higher than under FIFO method. When prices are falling, it shows a higher income and thus tends to washout paper profits that results from a closing inventory and opening inventory stated at different prices. LIFO method of inventory accounting can, however, in periods of inflation help approximate contemporary income and loss. LIFO method charges materials account with current replacement cost of inventory. For profit and loss account, it gives clear insight, the underlying purpose of which is to match current cost with current revenues. It, however, can result in an unrealistic inventory valuation for purpose of the balance sheet, sometimes distorting the current ratio and current assets relationship. But the choice between the FIFO and LIFO methods is still a choice between methods of accounting practice of historical costs and neither of the two methods meets the need for a valuation of materials and inventories at current market prices. The method is most suitable for materials which are of a bulky and non-perishable type. Advantages The method has the following advantages: 1) It takes into account the current market conditions while valuing the materials issued to different jobs or calculating the cost of goods sold. 2) The method is based on cost and, therefore, no unrealised profit or loss is made on account of use of this method. 2.7. SELECTIVE INVENTORY CONTROL 2.7.1. INTRODUCTION: The inventory of any industrial firm generally comprises thousands of times with diversified prices, usage and lead-time, as well as procurement and / or technical problems. Thus, in the case, the best approach to solve any problem is to tackle the important aspects more rigorously. Selective inventory control is one such basic analytical tool, which enables management to place efforts where the results will be Haranahalli Ramaswamy Institute of Higher Education, Hassan 12
  • 13. Inventory Management greatest. It is a known fact that the manager’s time is limited and he can’t spend his time on all aspects. He has to devote his time such that it rewards him. This technique is a cost and time saving technique, which concentrates more on few materials which are expensive or more vital to a organisation, where the control to the maximum, brings in more benefit through cost reduction and effective utilization. The motive behind any selective control is that an equally critical analysis of all items will be very expensive. This being the case, few need more analysis than the other. The importance of the material can be due to its costs, it’s criticality, it’s availability and its consumption. Selective inventory control becomes the spotlight of attention to be given in respect of the following areas: • Loss • Wastage • Scrap • Quantity • Price variance • Usage variance • Inventory turnovers There are different methods of classifying the item for inventory control purposes, ABC Analysis (Always better control) Here annual values of consumption Of items are considered and are Classified as A, B and C class items. HML Classification (High- medium-Low Here unit price of the materials are Price) Considered. Haranahalli Ramaswamy Institute of Higher Education, Hassan 13
  • 14. Inventory Management FSN Classification Based on the materials issue from (Fast, Slow, and Non- moving) The stores, this analysis is carried Out. 2.7.2 FSN ANALYSIS This classification is based on the consumption pattern of the materials. i.e. movement analysis forms the basis. Here the items are classified into Fast moving, slow moving, and non- moving on the basis of frequency of transaction. FSN analysis is especially useful to combat obsolete items whether spare parts are raw materials or components. It helps in arrangement of stocks in stores and their distribution and handling methods. The main aim of this analysis is to control obsolescence of the inventories. If there is a rapid change in technology then this classification will have to be updated more often. FSN analysis is stock turnover ratio based analysis. Stock turnover ratio is defined as the ratio of annual consumption of a material divided by its average inventory i. e. The items can be classified into three categories viz FAST MOVING (F) Those items whose stock turnover ratio is greater than 3. SLOW MOVING(S) Those items whose stock turnover ratio is between 1 and 3. NON- MOVING (N) Those items whose stock turnover ratio is below 1. 2.7.3. VED ANALYSIS VED Analysis can be defined as the analysis of maintenance spares in to V Items – Items of vital importance, Haranahalli Ramaswamy Institute of Higher Education, Hassan 14
  • 15. Inventory Management E Items – Items of essential importance, D Items – Items of desirable importance. • Vital importance in the way of indicating the fact that machine can’t run without ‘V’ Item. • Essential importance in the sense impart that machine can run but without parameters as such efficiency, noise reduction etc. • Desirable importance in the way denotes machine can run but factor of safety, industrial formalities can’t be satisfied. • Vital (V) spares are those whose non availability results in very high loss due to production down and a very high cost due to emergency purchases. Essential (E) spares are those non availability is expected to cause moderate production down time loss. Desirable (D) spares are those whose non availability does not result into any significant production down loss. 2.7.4. ABC Classification / Analysis of Inventory ABC analysis is a popular inventory control technique, which is an adaptation of Pareto’s law. This is the well- known method called ABC approach or Always Better Control. ABC is also known as Alphabetical Approach offers a basic analytical tool to concentrate the efforts where the results will be the greatest. This technique aims at keeping the investment low and also avoids stock out of critical items. It tries to analyze the distribution of inventory items annual consumption value so as to determine relative priority. This method is based on annual consumption value, which is obtained by the multiplication on unit price by the annual consumption quantity. The ABC classification process is an analysis of a range of objects, such as finished products, items lying in inventory or customers into three categories. It's a system of categorization, with similarities to Pareto analysis, and the method usually categorizes inventory into three classes with each class having a different management control associated: Haranahalli Ramaswamy Institute of Higher Education, Hassan 15
  • 16. Inventory Management A - Outstandingly important; B - of average importance; C - relatively unimportant as a basis for a control scheme. Each category can and sometimes should be handled in a different way, with more attention being devoted to category A, less to B, and still less to C. Thus, applied in the context of inventory, it's a determination of the relative ratios between the number of items and the currency value of the items purchased / consumed on a repetitive basis: • 10-20% of the items ('A' class) account for 70-80% of the consumption • the next 15-25% ('B' class) account for 10-20% of the consumption and • the balance 65-75% ('C' class) account for 5-10% of the consumption • High value (A), Low value (C) , intermediary value (B) A,B & C , all have a purchasing / storage policy - "A", most critically reviewed , "B" little less while "C" still less with greater results. Inventory Control Application: The ABC classification system is to grouping items according to annual issue value, (in terms of money), in an attempt to identify the small number of items that will account for most of the issue value and that are the most important ones to control for effective inventory management. The emphasis is on putting effort where it will have the most effect. All the items of inventories are put in three categories, as below: A Items : These Items are seen to be of high Rupee consumption volume. "A" items usually include 10-20% of all inventory items, and account for 50-60% of the total Rupee consumption volume. B Items : "B" items are those that are 30-40% of all inventory items, and account for 30-40% of the total Rupee consumption volume of the inventory. These are important, but not critical, and don't pose sourcing difficulties. C Items : "C" items account for 40-50% of all inventory items, but only 5-10% of the total Rupee consumption volume Table 2.1 . Table showing the suggested policy guidelines for A , B & C classes of items A items (High cons. Val) B items (Moderate cons.Val) C item (Low cons. Val) Very strict cons. control Moderate control Loose control No or very low safety stock Low safety stock High safety stock Haranahalli Ramaswamy Institute of Higher Education, Hassan 16
  • 17. Inventory Management Phased delivery (Weekly) Once in three months Once in 6 months Weekly control report Monthly control report Quarterly report Maximum follow up Periodic follow up Exceptional As many sources as possible Two or more reliable Two reliable Accurate forecasts Estimates on past data Rough estimate Central purchasing /storage Combination purchasing Decentralised Max.efforts to control LT Moderate Min.clerical efforts To be handled by Sr.officers Middle level Can be delegated OBJECTIVE OF ABC ANALYSIS The ABC analysis enables the materials manager to exercise selective control when he is confronted with a large number of items. Tighter and accurate procedures are essential for ‘A’ value items relating to materials planning, forecasts, ordering, review, records, postings, revisions, lead time analysis, safety stock, materials consumption control, purchase budget, delivery schedule, Value analysis, follow- up, clerical efforts, physical stock verification, receipts, issues, stores accounting and inspection. The degree of control should rigorous for ‘A’ items and should be minimum for ‘C’ items. ABC analysis is also helpful to rationalize the number of orders and reduce the overall inventory. All in all, the objectives of ABC analysis can be summarized as follows: • To restrict the control to and appreciable level. • To concentrate on maximum degree of coverage of inventory value. LIMITATIONS OF ABC ANALYSIS ABC analysis, in order to be fully effective, should be carried out with standardization and codification. ABC analysis is based on grading the items according to the importance of performance of an item that is by V.E.D- Vital, essential and desirable analysis. Some items, though negligible in monetary value, may be vital for running the plant, and constant attention is needed. If the inventory position is analysed Haranahalli Ramaswamy Institute of Higher Education, Hassan 17
  • 18. Inventory Management according to the value, commonly known as XYZ analysis, then results of ABC and XYZ analysis will be different, depending upon the nature of obsolete items. The results of ABC analysis have to be reviewed periodically and updated. However, ABC analysis is a powerful approach in the direction of cost reduction as it helps to control items with a selective approach. 2.7.5. HML ANALYSIS Since the annual usage is considered in case of ABC analysis, we may come across a few items which fall ‘B’ category, although the unit cost i.e. (cost per piece or unit) is quite high. If controls are exercised on the basis of ABC only, the importance of these items will be much less then ‘A’ or ‘B’ items even though the inventory transaction of one unit of these items will mean quite a lot money. Therefore, it is necessary that unit cost is also considered in order to find out the importance of the items on the basis of unit costs. This method resembles ABC classification except for the difference in the consumption value and unit value. Here the materials are classified according to their unit price as high cost items (H), medium cost items (M), and low cost items (L). This being similar to ABC analysis, usually, they are combined to arrive at a very effective satisfactory analysis. This is mainly used for controlling the purchase prices. HML analysis is the price bond analysis. This analysis is generally used for control of space. The criteria used are: • HIGH(H)- Those items, which have unit price (say above rs.1000) • MEDIUM (M) – Those item that have moderate unit price (say between rs.100 and rs.1000). • LOW(L)- Those items that have low unit price (say below rs.100) 2.8. Spare parts management Spare parts represent a major part of maintenance expenses in a plant- ranging from 50 % in low technology to as high as 80% in high technology and process industries. The investment in spare parts range between 5% to 15%of the value of plant and machinery in a factory-and most of this inventory is idle or non-moving. Yet, despite the enormous range and value of inventory there is shortage of some critical spare parts or other, which often has a crippling effect on production. This situation is mainly due to the unpredictable nature of failures which creates the need for spare parts. All these matters make management of spare parts a hazardous and frustrating experience. The main problem with spares required for day-to-day Haranahalli Ramaswamy Institute of Higher Education, Hassan 18
  • 19. Inventory Management repair maintenance of plant and machinery is that there never seem to be enough of them when required and too many in stock of spare which are not required. This is only the symptom of illness. The main causes are: 1) The usage rates of spares are very low as compared to raw materials or as general stores. This causes their requirement to be highly fluctuating from period to period. 2) The range of spare rates is very large and their individual values, relatively small. Thus rise the problem of the level of control. Unfortunately, most spare parts inventory management is done at the lowest organisational level. 3) The usage rate itself is difficult to establish from past records- especially for the slow movers which form the bulk of the spare parts inventory. Little usage history is available and the material variability of usage causes over estimates of requirement. Categories of spares Spares can basically be classified into four categories: 1) Consumable spares 2) Replacement spares 3) Rotable spares 4) Insurance spares Consumable spares are those which due to normal wear and tear have considerably short life and are required regularly either as replacement of parts which wear out, or as replacement of part after specified period of service.. Replacement spares are those parts or assemblies which are ordered on the basis of prior inspection against planned overhaul schedules. Rotable spares are those which are repaired after use and kept in stock to be used again. Haranahalli Ramaswamy Institute of Higher Education, Hassan 19
  • 20. Inventory Management Insurance spares also called capital spares or emergency spares are those which do not wear and tear during the working life of the equipment yet they are stocked to safeguard high down time cost in the event of their breakdown. 2.9. Inventory management techniques In managing inventories, the firm’s objective should be in consonance with the shareholder wealth maximisation principle. To achieve this, the firm should determine the optimum level of inventory. Efficiently controlled inventories make the firm flexible. In efficient inventory control results in unbalanced inventory and inflexibility –the firm may sometimes run out of stock and sometimes may pile up unnecessary stocks. This increases the level of investment and makes the firm unprofitable. To manage inventories efficiency, answers should be sought to the following to questions: • How much should be ordered? • When should it be ordered? The first question, how much to order, relates to the problem of determining economic order quantity (EOQ), and is answered with an analysis of cost of maintaining certain level of inventories. The second question, when to order, arises because of uncertainty and is a problem of determining the re-order point. ECONOMIC ORDER QUANTITY (EOQ) One of the major inventory management problems to be resolved is how much inventory should be added when inventory is replenished. If the firm is buying raw materials, it has to decide lots in which it has to be purchased on replenishment. If the firm is planning a production run, the issue is how much production to schedule (or how much to make). These problems are called order quantity problems, and the task of the firm is to determine the optimum or economic order quantity (or economic lot size). Determining an optimum inventory level involves two types of costs: a) Ordering costs and Haranahalli Ramaswamy Institute of Higher Education, Hassan 20
  • 21. Inventory Management b) Carrying costs. The economic order quantity is the inventory level that minimises the total of ordering and carrying costs. Ordering costs The term ordering costs is used in case of raw materials (or supplies) and includes the entire costs of acquiring raw materials. They include cost incurred in the following activities: requisitioning, purchase ordering, transporting, receiving, inspecting and storing (store placement). Ordering costs increase in proportion to the number of orders placed. The clerical and staff costs, however, do not have to vary in proportion to the number of orders placed, and one view is that so long as they are committed costs, they need not be reckoned in computing ordering cost. Alternatively, it may be argued that as the number of orders increases, the clerical and staff costs tend to increase. If the number of orders are drastically reduced, the clerical and staff force released now can be used in other departments. Thus, these costs may be included in the ordering costs. It is more appropriate to include clerical and staff costs on a pro rata basis. Ordering cost increase with the number of orders, thus the more frequently inventory is acquired, the higher the firm’s ordering costs. On the other hand, if the firm maintains large inventory levels, there will be few orders placed and ordering costs will be relatively small. Thus, ordering costs decrease with increasing size of inventory. Carrying costs Costs incurred for maintaining given level of inventory are called carrying costs. They include storage, insurance, taxes, deterioration and obsolescence. The storage costs comprise cost of storage space (warehousing cost), stores handling costs and clerical and staff service costs (administrative costs) incurred in recording and providing special facilities such as fencing, lines, racks etc. EOQ is calculated by using the following formula EOQ = 2AO c Where, Haranahalli Ramaswamy Institute of Higher Education, Hassan 21
  • 22. Inventory Management EOQ = Economic Order Quantity A = Annual consumption or annual requirement O = Ordering cost C = Carrying cost Reorder Point The problem, how much to order, is solved by determining the economic order quantity, yet the answer should be sought to the second problem, when to order. This is a problem of determining the reorder point. The reorder point is that inventory level at which an order should be placed to replenish the inventory. To determine the reorder point in certainty, we should know: a) Lead time b) Average usage, and c) Economic order quantity. Lead time is the time normally taken in replenishing inventory after order has been placed. By certainty we mean that usage and lead time do not fluctuate. Under such a situation, reorder point is simply that inventory level which will be maintained for consumption during the lead time. That is: Reorder point = Lead × Average usage Safety stock The reorder point was computed under the assumption of certainty. It is difficult to predict usage and lead time accurately. The demand for material may fluctuate from day-to-day or from week-to- week. Similarly, the actual delivery time may be different from the normal lead time. If the actual usage increases or the delivery of inventory is delayed, the firm can face a problem of stock-out which can prove to be costly for the firm. Therefore, in order to guard against the stock-out, the firm may maintain a safety-stock —some minimum or buffer inventory as cushion against expected increased usage and/or delay in delivery time. 2.10. Ratio Analysis Haranahalli Ramaswamy Institute of Higher Education, Hassan 22
  • 23. Inventory Management Ratio analysis is a powerful tool of financial analysis. A ratio is defined as “the indicated quotient of two mathematical expressions” and as “ the relationship between two or more things”. In financial analysis, a ratio is used as a benchmark for evaluating the financial position and performance of a firm. Activity ratios Funds of creditors and owners are invested in various assets to generate sales and profits. The better the management of assets, the large amount of sales. Activity ratios are employed to evaluate the efficiency with which the firm manages and utilises its assets. These ratios are also called turnover ratios because they indicate the speed with which assets are being converted or turned over into sales. Inventory turnover Inventory turnover indicates the efficiency of the firm in producing and selling its product. It is calculated by dividing the cost of goods sold by the average inventory: Inventory turnover = cost of goods sold Average inventory The average inventory is average of opening and closing balances of inventory. In a manufacturing company inventory of finished goods is used to calculate inventory turnover. Debtor’s turnover A firm sells goods for cash and credit. Credit is used as a marketing tool by a number of companies. When the firm extends credits to its customers, debtors are created in the firm’s accounts. Debtors are convertible into cash over a short period and, therefore, are included in current assets. The liquidity position of the firm depends on the quality of the debtors to a great extent. Financial analysts apply three ratios to judge the quality or liquidity of debtors: a) Debtors turnover, b) Collection period, Haranahalli Ramaswamy Institute of Higher Education, Hassan 23
  • 24. Inventory Management c) Aging schedule of debtors. Debtors turnover = Credit sales Average debtors Collection period = 360 days Debtors turnover ratio Creditors Turnover Ratio It is also known as Accounts Payable Ratio. This ratio gives the average credit period enjoyed from the creditor. A low ratio indicates that creditors are not period in time while a high ratio gives an idea that business is not taking full advantages of credit period allowed by the creditor. Creditors Turnover Ratio = Credit Purchase Average creditors Chapter 3 company analysis 3.1. Profile of the industry 3.1.1Meaning The textile industry is a term used for industries primarily concerned with the design or manufacture of clothing as well as the distribution and use of textiles. The history of development in World Textile industry was started in Britain as the spinning and weaving machines were invented in that country. High production of wool, cotton and silk over the world has boosted the industry in recent years. Though the industry was started in UK, still in 19th Century the textile production passed to Europe and North America after mechanization process in those areas. From time to time Japan, China and India took part in industrializing their economies and concentrated more in that sector. Haranahalli Ramaswamy Institute of Higher Education, Hassan 24
  • 25. Inventory Management Japan, India, Hong Kong and China became leading producers due to their cheap labour supply, which is an important factor for the industry. 3.1.2.Global Textile Scenario According to statistics, the global textile market possesses a worth of more than $400 billion presently. In a more globalize environment, the industry has faced high competition as well as opportunities. It is predicted that Global textile production will grow by 25 percent between 2002 and 2010 and Asian region will largely contribute in this regard. The World Trade Organization (WTO) has taken so many steps for uplifting this sector. In the year 1995, WTO had renewed its MFA and adopted Agreement on Textiles and Clothing (ATC), which states that all quotas on textile and clothing will be removed among WTO member countries. However the level of exports in textiles from developing countries is increasing even if in the presence of high tariffs and quantitative restrictions by economically developed countries. New innovations in clothing production, manufacture and design came during the Industrial Revolution - these new wheels, looms, and spinning processes changed clothing manufacture forever. The ‘rag trade’, as it is referred to in the UK and Australia is the manufacture, trade and distribution of textiles. There were various stages - from a historical perspective - where the textile industry evolved from being a domestic small-scale industry, to the status of supremacy it currently holds. The ‘cottage stage’ was the first stage in its history where textiles were produced on a domestic basis. During the Industrial Revolution, new machines such as spinning wheels and handlooms came into the picture. Making clothing material quickly became an organized industry - as compared to the domesticated activity it had been associated with before. A number of new innovations led to the industrialization of the textile industry in Great Britain Haranahalli Ramaswamy Institute of Higher Education, Hassan 25
  • 26. Inventory Management 3.1.3.Textile Industry in India India Textile Industry is one of the leading textile industries in the world. Though was predominantly unorganized industry even a few years back, but the scenario started changing after the economic liberalization of Indian economy in 1991. The opening up of economy gave the much-needed thrust to the Indian textile industry, which has now successfully become one of the largest in the world. India textile industry largely depends upon the textile manufacturing and export. It also plays a major role in the economy of the country. India earns about 27% of its total foreign exchange through textile exports. Further, the textile industry of India also contributes nearly 14% of the total industrial production of the country. It also contributes around 3% to the GDP of the country. India textile industry is also the largest in the country in terms of employment generation. It not only generates jobs in its own industry, but also opens up scopes for the other ancillary sectors. India textile industry currently generates employment to more than 35 million people. It is also estimated that, the industry will generate 12 million new jobs by the year 2010. Indian textile industry can be divided into several segments, some of which can be listed as below: • Cotton Textiles • Silk Textiles • Woollen Textiles • Readymade Garments • Hand-crafted Textiles • Jute and Coir 3.2.S.Kumars Nationwide Limited S.Kumars’ group was founded in 1948 by two brothers Mr.Abhayakumar S.Kasliwal and Mr.Shambhukumar S.Kasliwal . The group consist of a conglomeration of several manufacturing,trading, Haranahalli Ramaswamy Institute of Higher Education, Hassan 26
  • 27. Inventory Management marketing and service companies. Each of which is decentralised and run as an independent operating unit by well qualified personnel. S.Kumars’ under the dynamic leadership of Mr.Nithin Kasliwal, not only continues to grow in its existing line of synthetic fabrics but has also firmly committed itself to major investments in cotton, synthetic and woollen fibre groups. The sprawling 40 acres of Reid & Taylor plant for worsted suiting in Mysore in south India is a living testimony of the S.Kumars’ firm resolve to emerge as one of the most important and diversified textile group in India. 3.2.1. Four Pillars of S.Kumars Nationwide Limited SKNL's success is based on its four pillars of strength - Manufacturing, Distribution, Brands and Human Capital. These four pillars have made the company stand apart and succeed in a highly competitive market scenario. Manufacturing Maintaining world-class quality has been a corner stone in SKNL's business strategy. The company has invested extensively in manufacturing facilities to maintain high quality standards. Four state of art manufacturing units based in Mysore (Karnataka) and Dewas (Madhya Pradesh) collectively produce over 2,00,000 meters of high-quality fabrics each day. Luxury Textile fabrics are manufactured at a world-class integrated facility situated near Mysore (Karnataka). Its high quality fabrics are well received in the domestic as well as international market. In fact, Reid & Taylor - Scotland, sources its fabrics from this mill as well for its international markets. SKNL is the only manufacturer of fine count Damask in India. Its Chamunda Standard Mills and Amana Manufacturing Unit in the outskirts of Dewas (Madhya Pradesh) manufactures this fine fabric to cater to Indian & European markets. Distribution The company’s wide network reaches both domestic as well as overseas market. SKNL caters to the entire socio-economic segments of the Indian market across 30,000 outlets through 300 dealers. Haranahalli Ramaswamy Institute of Higher Education, Hassan 27
  • 28. Inventory Management Today, SKNL is the largest institutional supplier in India in the organized sector. The company plans to establish high impact presence through multi-brand outlets, large format chain stores and exclusive stores for all its brands. Brands Ability to build brands, across the socio-economic segments has been one of the key factors in SKNL's success. A keen understanding of the dynamic market trends, while keeping abreast with the changing usage patterns, attitudes and preferences of the consumers has been the foundation of creating successful brands. Reid & Taylor caters to the premium and upper-middle strata of the Indian suiting market. Since its national launch in 1999, the brand has accelerated to the second position in a highly competitive market. The brand's growth has been hailed by marketing professionals and is a case study for launching international brands in India. No surprise that Superbrands Council, the world’s leading authority on marketing and advertising; has awarded it a ‘Superbrand’ status, second time running. Belmonte offers a wide range of polyester and viscose blend fabrics for office, leisure and evening wear catering to the mid-premium consumer. It is available across top 100 cities in India. ‘Uniformity by Belmonte’ is the sub-brand which offers a wide range of uniform fabrics for professional work-wear across industries. Carmichael House is a new entrant in the Home Textile category. This mass premium brand offers a wide range of home textile solutions for the entire abode in a variety of fabrics and weaves. Since its launch, Carmichael House, has received fast recognition among its consumers. Human Capital Haranahalli Ramaswamy Institute of Higher Education, Hassan 28
  • 29. Inventory Management SKNL has developed highly effective management capabilities due to a unique fusion of entrepreneurship with professional expertise. The Board of Directors includes eminent people from industry, law, banking, finance and economic sectors. The business at SKNL is divided into product-wise Strategic Business Units viz, Consumer Textiles (work wear, mid premium and daily wear), Home Textiles (THE), Premium cotton fabric (HVFC) and Ready to Wear (Total Wardrobe Solutions),Luxury Textiles. Each SBU operates as an independent profit center and is lead by a seasoned professional. Service functions like Human Resources, Corporate Finance, Corporate Planning, Research, Marketing & Communications and Legal are centralized. 3.3. REID AND TAYLOR (INDIA) LTD Reid & Taylor (India) Ltd., is a subsidiary of SKNL. Synonymous with British tradition, Reid & Taylor has been styling the world's elite for over 170 years. It all began in the 1830's with Alexander Reid, an enterprising Scottish gentleman, embarking on a journey to make his vision a reality. Using locally available Cheviot wool he created Cheviot cloth that soon caught on the fancy of the landed gentry. As the clientele and reputation grew, he was joined by financer Joseph Taylor. Thus, began the enduring partnership of creating finest cloths in the world, which today is better known as Reid & Taylor. Reid & Taylor continues the journey to create the finest fabric passionately and has thus carved out a distinguished name for itself in the industry. Reid & Taylor was launched by SKNL in India in 15th December 1998 with the inauguration of a state-of-the-art fabric plant at Mysore in 40 acres of land . The discerning consumers in India now can experience international-quality garments in their own cities and towns. Today, Reid & Taylor has emerged as a leading brand in the worsted suiting segment with sales turnover of Rs. 2200 Million and a market share of 18 %, propelling the brand to grow at a rapid rate of 25% p.a. The manufacturing facilities for Reid & Taylor includes; 13600 state-of-the-art worsted spindles, complete and comprehensive facilities for dyeing of wool tops, yarn and fabrics , the latest Dornier Rapier looms , well-equipped finishing department with the ultra modern fabric processing gadgets. All these have churned out over 600 designs in the first year of operation. Reid & Taylor is the first brand in India to offer both fabrics and apparel under one label. The fine quality of garments and sharp styling has created a space for itself in the customer’s mind. Haranahalli Ramaswamy Institute of Higher Education, Hassan 29
  • 30. Inventory Management After an initial flush of success the brand once again faced the grim future of stagnation. Research by ACNielsen concluded that it needed to reach a wider audience in metros without losing the premium values associated with the brand .The challenge required a brand ambassador who was a style icon for Indians, was equally popular with both the masses as well as the elite. Also, his personality had to jell with the brand platform. Amitabh Bachchan clearly fitted this role. The association has helped the brand consolidate its positioning of ‘Bond with the Best’. This is because Bachchan stands head and shoulders above his peers, defining the outstanding values that always accompany style, grooming and professional excellence. Reid & Taylor manufactures suit lengths in superfine merino fleece and superfine polyester executive wear in wool and polyester and other popular blends. The composition, too, is more adventurous. Linen Kraft is a unique combination of linen with 10% polyester for an unruffled look. Specially developed for ceremonial wear is Silk Ovation – a 100% silk fabric with a clear understanding of major user segments and usage environments, the product offering has been created to exceed customer expectations. Rewriting the rules with dynamic colours, attractive selvedge and competitive pricing, Reid & Taylor has made its mark across all segments in the market. The plant has 12960 spindles and 56 looms and has a captive power generating capacity of 70MW.All the machinery is imported from Germany, France, Italy, Switzerland and England. The range of the products varies from medium to higher range. The 25% of its production are exported to foreign countries like U.K, Middle east, Japan and UAE etc. The plant having technical collaboration with Reid &Taylor Scotland . The company has provided direct employment to 1200 workers including staff and indirect employees. The workmen are employed as company apprentice on training period of two years and over 95% of the workmen are recruited from in and around Nanjangud and adjoining villages. 3.3.1.Mission Statements • To ensure the consumer remains the focal point of all our activities by offering him high value for money. • To pursue our goals in a just and ethical manner. Haranahalli Ramaswamy Institute of Higher Education, Hassan 30
  • 31. Inventory Management • To provide every opportunity to our business associates and employees to realise their potential to the fullest extent. • To blend modern technology with traditional values in our endeavour to be a world class, Indian company globally. 3.3.2.Objectives • To be India’s leading textile group and a world class entity. • To continue and expand the leadership position in uniforms/ workday materials. • To consolidate and expand in the household material sector. • To reinforce and expand the position in shirting and prints. • To enter made-ups and value added products. • To expand exports to 20% of group activity. • To enter retailing of apparel and soft goods country-wide in a big way. • To become a global player in textiles. 3.3.3. Quality policy We are committed to be a world class company by consistently designed and manufacturing suiting to the highest standards and customer expectations. We shall operate in a just and ethical manner providing opportunity to employees and associates to realise their potential to the fullest extent. We are committed to comply with ISO 9001 and for continual improvement of the quality management system . Haranahalli Ramaswamy Institute of Higher Education, Hassan 31
  • 32. Inventory Management 3.3.5.Products and services Fabrics Reid & Taylor manufactures a wide range of Worsted and Premium suitings including: • All Wool Superfine • Polywool Blends • Wool Cashmere Blends • Wool Linen & Wool Silk Polyester Blends • Polyester Viscose Blends • Polyester Viscose – worsted • Value added Polyester Viscose blends • Wrinkle resistant suitings • ECOFRESH suitings Apparel In the ready to wear segment, Reid & Taylor has launched • Suits • Jackets • Trousers • Shirts • T-Shirts • golfing Haranahalli Ramaswamy Institute of Higher Education, Hassan 32
  • 33. Inventory Management 3.3.7.SWOT Analysis Strengths • Outstanding brand equity. • 30,000 strong retailer networks all over the country. • Professional management with entrepreneurial outlook. • Excellent track record in business administration. Haranahalli Ramaswamy Institute of Higher Education, Hassan 33
  • 34. Inventory Management • Broad market coverage. • Good materials management systems. • Human resource competencies. • Appropriate organizational structure. • Management support. • Work union support. • R&D skills. • Technology used. • 25 retail shops. Weakness • Depend on single supplier for some materials. • High cost for procurement of wool. • High cost for procurement of polyester. Opportunities • Expand core business(es). • Widen product range. • Expand into foreign markets. • Seek fast market growth. • Government support. Haranahalli Ramaswamy Institute of Higher Education, Hassan 34
  • 35. Inventory Management • Support from banks and financial institutions. • Investors. • Overcome barriers to entry. • Enlarge corporate portfolio. • Technical collaboration with Reid & Taylor Scotland. Threats • Increases in domestic competition. • Increase in foreign competition. • Changes in economic factors. • Downturn in economy. • Strong competition from Raymond. Chapter 4 analysis 4.1. Stores procedure Chart4.1. Chart showing Stores procedure Material receiving Haranahalli Ramaswamy Institute of Higher Education, Hassan 35 Supplier Receiving stores Inspection Rejection bay
  • 36. Inventory Management If ? Not Ok Ok Holding stores STORES PROCEDURE To ensure 100% uptime of all manufacturing activity as related to stores function. 4.1.1 MATERIALS RECEIVING Haranahalli Ramaswamy Institute of Higher Education, Hassan 36
  • 37. Inventory Management  Stores receive materials from various vendors through RPP/LR/RR/BANK/Representative collection along with dc/invoice copies in duplicate.  check for purchase order on dc/invoice  Unpack the material, check for quantity, specification, correctness of the material and acknowledge.  If found damaged/excess supplied/short supplied, generate discrepancy note and send a copy to purchase department for information and further action.  Prepared goods received note (GRN) and send it to the concerned department head for inspection.  If quality accepted, take concerned head of Department signature and store the material in pre- determined location.  If rejected based on concerned H.O.D’s remark prepare rejection report and arrange to send the material back to the supplier through non-returnable gate pass and inform purchase department and accounts for further action.  In case of materials unloaded at shop, stores put the tag “materials for inspection”/can have demarcated physical area for materials under inspection. And same procedure may be followed for regularization. 4.1.2 INSPECTION  Receiving inspection checks the material with respect to purchase order for specification and quality.  If found ok, accepted sticker will be put on the material, prepare final stores document. Stores lift the material and storage will be made in predetermined area.  If found not ok, a rejected sticker will be put on the material. Stores lift the material and keep it in rejected stores.  A copy of rejection report will be given to purchase for further action.  Inspection report may be prepared for vendor rating analysis 4.1.3 PURCHASE ORDER  Purchase department prepares purchase orders for the required materials and will be sent to the vendor. Haranahalli Ramaswamy Institute of Higher Education, Hassan 37
  • 38. Inventory Management  Procurement of material is against purchase order only.  Purchase order should have all the details like  Terms of purchase  Mode of transport  Modvat details – In case of excisable goods  Delivery schedules  Lead time  Packaging and freight details 4.1.4 ISSUE PROCEDURE  Receive indents/material request note from users  Check for authorization, stock availability etc. ,  Issue slips creation, take printout and issue the right material.  File a copy of issue slip duly signed as acknowledgement. 4.1.5 STORAGE  Codification of materials.  Put identification tags on material.  Allot a particular area for storage of items and update the location in the system for easy traceability.  Separate stores should be made for “shelf life items”, paints, resin and hardeners, chemicals etc.,  Shelf life items should be periodically checked for its validity.  Electronic/Electro static devises should be stored in specific recommended ESD area only-can be stored in electronic lab.  Storage racks, storage shelves/bins should be properly identified. Haranahalli Ramaswamy Institute of Higher Education, Hassan 38
  • 39. Inventory Management  Ensure proper handling and storing of materials in a dust free area. Maintain good housekeeping. 4.1.6 OLD/DAMAGED PARTS ACCOUNTING  Get old/unusable/damaged materials during process from users.  Classify the materials as usable or not usable.  Further classify the materials as PVC/rubber /metallic etc. ,  If material can be rectified and reused, inform purchase to send the material for repair /follow up- prepare RGP, have a track of it.  If material cannot be used, call for tender from scrap vendors and arrange for auction or generate scrap note for scraping the material.  Take a care of excise related items while sending out of repair / scraping(duty reversal)  Same procedure may be followed even for capital equipments. 4.1.7 PASSING  Receive inspection report  If material is ok, check for identification tag, accepted sticker and quantity and move the material to holding stores.  If material is rejected, check for rejected sticker, rejection report, and quantity. Put rejected tag giving all the details like PO NO., date, quantity, and reason for rejection. Lift and store the material in rejected stores.  Purchase takes the responsibility of sending back the rejected material in coordination with stores for preparation of RGP/NRGP etc.,  Clear invoice/bill and pass it to accounts/ finance.  Rejected materials can be replaced on one-one basis and can be regularised on the same invoice /bill.  In case of excise duty related materials, excise duty gate pass should be handed over to the concerned to avail the Modvat facility. Haranahalli Ramaswamy Institute of Higher Education, Hassan 39
  • 40. Inventory Management 4.1.8 GATE PASSES Returnable gate pass (RGP) and non returnable gate pass (NRGP) may be maintained as applicable to send the material out of the company. Stores should have control over gate passes. 4.1.9 REPORTS Stores must be able to generate all inventory-related reports as required by the management. Stores should ensure availability of right material in right place as per stock ledger during inventory checking by the statutory auditors. 4.2.STORES RECORDS Delayed documentation of all the transactions is one of the major functions of the Materials management Department. Any ignorance or negligence in this process would lead to dire consequences at the later point of time wherein without the essential records, certain transactions that need verification cannot be subject to the same. Thus, these stores records are valuable pieces of information that form the base for further reference. Some of the stores records are as follows: 4.2.1 .BINCARD This is a card, which is attached to each bin, rack, shelf, or other container for stores. A record of all materials entering or leaving the bin and balance of materials in hand is kept in this card. The storekeeper enters these cards and only the quantities are recorded. These should tally with the quantities of materials as shown in the relevant account in the stores ledger. This will enable the storekeeper ascertain the quantity of materials in stock and remind him to send requisition of fresh stock, when the minimum stock has been reached. In some factories duplicate bin cards are being used. In such cases one card is attached to the bin and the storekeeper on his table for ready reference keeps the duplicate. The inspectors check bin cards from time to time and they put their initials and take down their discrepancies. 4.2.2.STORES LEDGER It is a detailed record of the receipt and issue of material with respect to rate of item, issues, transactions, opening and closing balance and value of all items kept in the store. A separate sheet or card is maintained for each article. It contains the name, description, bin number etc. It records the receipts, issues, and balance in hand of each and every article. At the time of physical verification, verifying officer, after inspection of records gives his recommendations in remarks column. Haranahalli Ramaswamy Institute of Higher Education, Hassan 40
  • 41. Inventory Management 4.2.3. MATERIAL ISSUE REQUISITION An important rule, which should be strictly followed, does not allow any material to pass from stores department into the works except upon the authority of written requisitions. These indents on stores are demands upon the store the storekeeper signed by authorized persons, issued to the bearer, to be charged to a particular job or department specified therein. Such indents are made out in triplicate from bound books and are supplied to each department. As it is in triplicate, the original copy is sent to the cost department for costing, duplicate retained by the storekeeper and the triplicate in the bound book by way of indent or by way of permanent record. 4.2.4.MATERIAL RETURNED NOTE Material issued for department use are sometimes not required and returned to storekeeper. They must be properly recorder and their value may be duly entered in the store records and these values may be credited to the accounts of the departments concern by the cost department. For this purpose material returned notes are written out in triplicate. Two copies being sent to the storekeeper along with the returned material. One of these is returned to the foreman with the storekeeper’s acknowledgement. The copy retained by the storekeeper is entered by him on the bin cards and then passed to stores account and to be priced and entered in the relative stores card. 4.2.5. GOODS RECEIVED NOTES (GRN) To the existing goods received note, three additional columns for entering details about the quantity entered, quantity received and quantity rejected has been provided for appendix. Another column is provided for entering material codes. On receipt of the goods, physical verification of the goods is done in presence of one person each from the security; stores, purchase department and the supplier. If found correct, by comparing the consignment with that of the order placed, the GRN is prepared and the concerned department is asked to check the quality of the items. If the items need to be tested on t he machine, the item is taken to the department, along with the GRN and sent to the stores, along with the payment card. One copy of the GRN is retained with the department. At this, the goods are taken in to the stock and the purchase order is transferred from “order pending file” to the “orders completed file”. 4.2.6. GATE PASS Returnable gate pass (RGP) and Non Returnable Gate Pass (NRGP) may be maintained as applicable to send the material out of the company. Stores should have control over gate passes. Haranahalli Ramaswamy Institute of Higher Education, Hassan 41
  • 42. Inventory Management 4.3. Study on sales and raw material consumption Table 4.1. Table showing the raw material consumed and the sales for 5 years. SL NO YEAR RAWMATERIAL SALES 1 2004-05 254.14 344.53 2 2005-06 640.71 889.73 3 2006-07 886.84 1229.54 4 2007-08 1112.32 1748.65 5 2008-09 1541.61 2260.36 Chart 4.2. Chart showing the sales and raw materials consumed for 5 years Analysis Study on raw material consumption and sales has be carried out from 2004 to 2009. Intepretation Haranahalli Ramaswamy Institute of Higher Education, Hassan 42
  • 43. Inventory Management Percentage of raw materials on sales for 5 years are as follows Year Percentage 2004-05 73.76 2005-06 72.01 2006-07 72.13 2007-08 63.61 2008-09 68.2 From this we can findout that the percentage of raw materials consumption increases in the year 2006-07 and again in 2008-09. It shows that in these years cost has increased in the organization. Table 4.2. Table showing the regression analysis taking two variables they are rawmaterials and sales. RAWMATERIAL dx=x- dy=Y- SALES (x) (y) A(1229.54) dx2 A(886.84) 344.53 254.14 -885.01 783242.7001 -632.7 889.73 640.71 -339.81 115470.8361 -246.13 1229.54 886.84 0 0 0 1748.65 1112.32 519.11 269475.1921 225.48 2260.36 1541.61 1030.82 1062589.872 654.77 ∑X=6472.81 ∑Y=4435.62 ∑dx=325.11 ∑dx2=2230778.6003 ∑dy=1.42 dy2 dxdy 400309.29 559945.827 60579.9769 83637.4353 0 0 50841.2304 117048.9228 428723.7529 674950.0114 2 ∑dy =940454.2502 ∑dxdy=1435582.14 Haranahalli Ramaswamy Institute of Higher Education, Hassan 43
  • 44. Inventory Management = 5(1435582.14)-(325.11)(1.42) √5(2230778.6003)-(105696.5121) × √5(940454.2502)-(2.0164) = 7177449.044 √5(2125082.0882)×√5(940452.2338) = 7177449.044 √10625410.441 × √4702261.169 = 7177449.044 3259.6642 × 2168.4697 = 7177449.044 7068483.04987 = 1.0154 r = n∑dxdy-∑dx*∑dy √n∑dx2-(∑dx)2 √n∑dy2(∑dy)2 Analysis Regression analysis has been carried out taking sales and raw material consumption into consideration for 5 years. Interpretation Regression analysis is a powerful statistical tool used to know the relationship between two variables in any field. From this analysis regression of 1.0154 shows the positive relationship between sales and raw Haranahalli Ramaswamy Institute of Higher Education, Hassan 44
  • 45. Inventory Management materials. From this it shows that there is proper relationship between cost and income of the organization. It shows that company consuming good proportion of raw materials every year. 4.4. Calculation of debtors and creditors turnover ratio. Table 4.3. Table showing average debtors and sales for last 5years SL NO YEAR Average debtors SALES 1 2004-05 391.14 344.53 2 2005-06 448.855 889.73 3 2006-07 549.765 1229.54 4 2007-08 705.05 1748.65 5 2008-09 1002.93 2260.36 Calculation of Debtors Turnover Ratio and Debt Holding Period Debtors Turnover Ratio = Net sales Average debtors DTR For 2004-05 = 344.53 391.14 = 0.880835506 Times DTR For 2005-06 = 889.73 448.855 = 1.98222143 Times DTR For 2006-07 = 1229.54 549.765 = 2.23648286 Times DTR For 2007-08 = 1748.65 705.05 Haranahalli Ramaswamy Institute of Higher Education, Hassan 45
  • 46. Inventory Management = 2.480178711 Times DTR For 2008-09 = 2260.36 1002.93 = 2.253756493 Times Calculation of Debt Holding Period Debt Holding Period = 360 Days Debtors Turnover Ratio DHP For 2004-05 = 360 Days 0.880835506 = 414.3792993 days DHP For 2005-06 = 360 Days 1.98222143 = 184.1368449 Days DHP For 2006-07 = 360 Days 2.23648286 = 163.2026816 Days DHP For 2007-08 = 360 Days 2.480178711 = 147.1668144 Days DHP For 2008-09 = 360 Days 2.253756493 = 161.9518351 Days Analysis Haranahalli Ramaswamy Institute of Higher Education, Hassan 46
  • 47. Inventory Management Debtors turnover ratio and debt holding period has been calculated for 5 years from 2004-05 to 2008-09. Interpretation Debtors turnover ratios is very low in the company. It shows the inefficient management of debtors. Debt holding period is high in the years and it indicates on an average that credit sales are pending uncollected by the concern. Table 4.4. Table showing average creditors and purchases for 5years: SL NO YEAR Purchases Average creditors 1 2004-05 254.14 103.995 2 2005-06 640.71 108.045 3 2006-07 886.84 127.515 4 2007-08 1112.32 147.815 5 2008-09 1541.61 191.17 Calculation of Creditors Turnover Ration And Credit Payment Period Creditors Turnover Ratio = Net Purchases Average creditors CTR For 2004-05 = 254.14 103.995 = 2.443771335 Times Haranahalli Ramaswamy Institute of Higher Education, Hassan 47
  • 48. Inventory Management CTR For 2005-06 = 640.71 108.045 = 5.930029155 Times CTR For 2006-07 = 886.84 127.515 = 6.954789633 Times CTR For 2007-08 = 1112.32 147.815 = 7.525082028 Times CTR For 2008-09 = 1541.61 191.17 = 8.064079092 Times Calculation of Credit Payment Period Credit Payment Period = 360 Days Creditors Turnover Ratio CPP For 2004-05 = 360 Days 2.443771335 = 149.3593098 Days CPP For 2005-06 = 360 Days 5.930029155 = 61.55113078 Days CPP For 2006-07 = 360 Days 6.954789633 = 52.48181746 Days Haranahalli Ramaswamy Institute of Higher Education, Hassan 48
  • 49. Inventory Management CPP For 2007-08 = 360 Days 7.525082028 = 48.50445465 Days CPP For 2008-09 = 360 Days 8.064079092 = 45.26245289 Days Analysis Creditors turnover ratio and credit payment period has been calculated for 5 years from 2004-05 to 2008-09. Interpretation From the study we can say that company’s creditor’s turnover ratio is neither low nor high. It taking advantages of credit and its average credit payment period is 45 to 50 days. 4.5. Calculation of EOQ, Safety Stock and Reorder Point 1. Material - Foron Yellow Brown RD-2RSI polyester dye Annual requirement of Foron Yellow Brown RD-2RSI polyester dye is 525.92 kgs, at the rate of RS.363.29. Acquisition costs are Rs 125 and carrying cost is 20% of cost. And lead time is 10 days. EOQ = 2AO = √ 2×525.92×125 = 43 units c 363.29×20 % Safety stock = Average consumption per day × Lead Time = 1.461 × 10 = 14.61 Kgs Reorder level = Average consumption during lead time + Safety stock = 14.61 + 14.61 = 29.22 Kgs Maximum level = EOQ + Safety stock = 43 + 14.6 = 57.6 Kgs Haranahalli Ramaswamy Institute of Higher Education, Hassan 49
  • 50. Inventory Management Chart 4.3. Chart showing the different levels of inventory, Material - Foron Yellow Brown RD-2RSI polyester dye Maximum level 57.6 Reorder point 29.2 EOQ Safety Stock 14.6 5 10 15 20 25 30 Days 2.Material - Foron Navy Blue RD-GFLI Polyester dye Annual requirement of Foron NavyRD-GFLI polyester dye is 241.72 kgs, at the rate of RS. 356.38. Acquisition costs are Rs 125 and carrying cost is 20% of cost. And lead time is 10 days. EOQ = 2AO = √ 2 × 241.72 ×125 = 29 Kgs c 356.38×20% Safety Stock = Average consumption per day × Lead Time = 0.7 × 10 = 7 Kgs Reorder level = Average consumption during lead time + Safety stock = 7+7 = 14 Kgs Haranahalli Ramaswamy Institute of Higher Education, Hassan 50
  • 51. Inventory Management Maximum level = EOQ + Safety stock = 29 +7 = 36 Kgs Chart4.4. Chart showing the different levels of inventory, Material - Foron Navy Blue RD-GFLI Polyester dye Maximum level 36 Reorder point 14 EOQ Safety Stock 7 5 10 15 20 25 30 Days 3. Material - Foron Scarlet RD-RLSI Polyester dye Annual requirement of Foron Scarlet RD-RLSI polyester dye is 127.12 kgs, at the rate of RS. 341.54. Acquisition costs are Rs 125 and carrying cost is 20% of cost. And lead time is 10 days. EOQ = 2AO = √ 2 × 127.12 ×125 = 22 Kgs c 341.54 ×20% Safety Stock = Average consumption per day × Lead Time = 0.35 × 10 = 3.5 Kgs Reorder level = Average consumption during lead time + Safety stock Haranahalli Ramaswamy Institute of Higher Education, Hassan 51
  • 52. Inventory Management = 3.5 + 3.5 = 7 Kgs Maximum level = EOQ + Safety stock = 22 +3.5 = 25.5 Kgs Chart 4.5. Chart showing the different levels of inventory, Material - Foron Scarlet RD-RLSI Polyester dye Maximum level 25.5 Reorder point 7 EOQ Safety Stock 3.5 5 10 15 20 25 30 Days 4. Material - Foron Blue RD-GLF Polyester dye Annual requirement of Foron Blue RD-GLF Polyester dye is 60.68 kgs, at the rate of RS. 1435.34.Acquisition costs are Rs 125 and carrying cost is 20% of cost. And lead time is 10 days EOQ = 2AO = √ 2 × 60.68 ×125 = 7 Kgs c 1435.34 ×20% Safety Stock = Average consumption per day × Lead Time = 0.167 × 10 = 1.67 Kgs Haranahalli Ramaswamy Institute of Higher Education, Hassan 52
  • 53. Inventory Management Reorder level = Average consumption during lead time + Safety stock = 1.67 + 1.67 = 3.34 Kgs Maximum level = EOQ + Safety stock = 7 +1.67 = 8.67 Kgs Chart4.6. Chart showing the different levels of inventory, Material - Foron Blue RD-GLF Polyester dye Maximum level 8.67 Reorder point 3.34 EOQ Safety Stock 1.67 5 10 15 20 25 30 Days 5. Material - Foron Yellow RD-4GRLI Polyester dye Annual requirement of Foron Yellow RD-4GLFI Polyester dye is 76.76 kgs, at the rate of RS. 742.45. Acquisition costs are Rs 125 and carrying cost is 20% of cost. And lead time is 10 days. EOQ = 2AO = √ 2 × 76.76 ×125 = 11 Kg c 742.45 ×20% Haranahalli Ramaswamy Institute of Higher Education, Hassan 53
  • 54. Inventory Management Safety Stock = Average consumption per day × Lead Time = 0.213 × 10 = 2.13 Kgs Reorder level = Average consumption during lead time + Safety stock = 2.13 + 2.13 = 4.26 Kgs Maximum level = EOQ + Safety stock = 11 +2.13 = 13.13 Kgs Chart 4.7. Chart showing the different levels of inventory, Material - Foron Yellow RD-4GRLI Polyester dye Maximum level 13.13 Reorder point 4.26 EOQ Safety Stock 2.13 5 10 15 20 25 30 Days 6. Material - Foron DK Blue RD -2REN Polyester dye Annual requirement of Foron DK Blue RD-2REN Polyester dye is 220 kgs, at the rate of RS. 1223.55. Acquisition costs are Rs 125 and carrying cost is 20% of cost. And lead time is 10 days Haranahalli Ramaswamy Institute of Higher Education, Hassan 54
  • 55. Inventory Management EOQ = 2AO = √ 2 × 220×125 = 15 Kgs c 1223.55 ×20% Safety Stock = Average consumption per day × Lead Time = 0.61 × 10 = 6.11 Kgs Reorder level = Average consumption during lead time + Safety stock = 6.11 + 6.11 =12.22 Kgs Maximum level = EOQ + Safety stock = 15 +6.11 = 21.11 Kgs Chart 4.8. Chart showing the different levels of inventory, Material - Foron DK Blue RD -2REN Polyester dye Maximum level 21.11 Reorder point 12.22 EOQ Safety Stock 6.11 5 10 15 20 25 30 Days 7. Material - Foron Rubine S2GFLI Polyester dye Haranahalli Ramaswamy Institute of Higher Education, Hassan 55
  • 56. Inventory Management Annual requirement of Foron Rubine S2GFLI polyester dye is 75.52 kgs, at the rate of RS 267.24. Acquisition costs are Rs 125 and carrying cost is 20% of cost. And lead time is 10 days EOQ = 2AO = √ 2 × 75.52×125 = 19 c 267.24×20% Safety Stock = Average consumption per day × Lead Time = 0.209 × 10 = 2.09 Kgs Reorder level = Average consumption during lead time + Safety stock = 2.09 + 2.09 = 4.18 Kgs Maximum level = EOQ + Safety stock = 19 + 2.09= 21.09 Kgs Chart 4.9. Chart showing the different levels of inventory, Material - - Foron Rubine S2GFLI Polyester dye Maximum level 21.09 Reorder point 4.18 EOQ Safety Stock 2.09 5 10 15 20 25 30 Haranahalli Ramaswamy Institute of Higher Education, Hassan 56
  • 57. Inventory Management Days 8. Material - Foron Navy Blue FS2RFLI Polyester dye Annual requirement of Foron Navy Blue FS2RFLI polyester dye is 97.92 kgs, at the rate of RS 280.25. Acquisition costs are Rs 125 and carrying cost is 20% of cost. And lead time is 10 days EOQ = 2AO = √ 2 × 97.92 × 125 = 21 kgs c 280.25 × 20% Safety Stock = Average consumption per day × Lead Time = 0.272 × 10 = 2.72 Kgs Reorder level = Average consumption during lead time + Safety stock = 2.72 + 2.72 = 5.44 Kgs Maximum level = EOQ + Safety stock = 21 + = 23.72 Kgs Chart 4.10. Chart showing the different levels of inventory, Material - Foron Navy Blue FS2RFLI Polyester dye Maximum level 23.72 Reorder point 5.44 EOQ Safety Stock 2.72 Haranahalli Ramaswamy Institute of Higher Education, Hassan 57
  • 58. Inventory Management 5 10 15 20 25 30 Days 9. Material - Foron Yellow S4GLI Polyester dye Annual requirement of Foron Yellow S4GLI polyester dye is 138.16 kgs, at the rate of RS 707.82. Acquisition costs are Rs 125 and carrying cost is 20% of cost. And lead time is 10 days EOQ = 2AO = √ 2 × 138.16 × 125 = 16 Kgs c 707.82 × 20% Safety Stock = Average consumption per day × Lead Time = 0.383 × 10 = 3.83 Kgs Reorder level = Average consumption during lead time + Safety stock = 3.83 + 3.83 = 7.66 Kg Maximum level = EOQ + Safety stock = 16 + 3.88 = 19.88 Kgs Chart 4.11. Chart showing the different levels of inventory, Material - Foron Yellow S4GLI Polyester dye Maximum level 19.88 Haranahalli Ramaswamy Institute of Higher Education, Hassan 58
  • 59. Inventory Management Reorder point 7.66 EOQ Safety Stock 3.88 5 10 15 20 25 30 Days 10. Material - Sarasperse Yellow Brown 2RF Polyester dye Annual requirement of Sarasperse Yellow Brown 2RF polyester dye is 1492.60 kgs, at the rate of RS 195.17. Acquisition costs are Rs 125 and carrying cost is 20% of cost. And lead time is 10 days EOQ = 2AO = √ 2 × 1492.6 × 125 = 98 Kgs c 195.17 × 20% Safety Stock = Average consumption per day × Lead Time = 4.146 × 10 = 41.46 Kgs Reorder level = Average consumption during lead time + Safety stock = 41.46 + 41.46 = 82.92 Kgs Maximum level = EOQ + Safety stock = 98 + 41.46 = 139.46 Kgs Chart 4.12. Chart showing the different levels of inventory, Material - Sarasperse Yellow Brown 2RF Polyester dye Haranahalli Ramaswamy Institute of Higher Education, Hassan 59
  • 60. Inventory Management 139.4 Maximum level 6 Reorder point 82.92 EOQ Safety Stock 41.46 5 10 15 20 25 30 Days 11. Material - Sarasperse Red Conc Polyester dye Annual requirement of Sarasperse Red Conc polyester dye 250.36 kgs, at the rate of RS185.06. Acquisition costs are Rs 125 and carrying cost is 20% of cost. And lead time is 10 days. EOQ = 2AO = √ 2 × 250.36 × 125 = 41 Kgs c 185.06× 20% Safety Stock = Average consumption per day × Lead Time = 0.7 × 10 = 7 Kgs Reorder level = Average consumption during lead time + Safety stock = 7+ 7 = 14 Kgs Maximum level = EOQ + Safety stock = 41 + 7 = 48 Kgs Haranahalli Ramaswamy Institute of Higher Education, Hassan 60
  • 61. Inventory Management Chart 4.13. Chart showing the different levels of inventory, Material - Sarasperse Red Conc Polyester dye Maximum level 48 Reorder point 14 EOQ Safety Stock 7 5 10 15 20 25 30 Days 12. Material - Sarasperse Blue 2RX Polyester dye Annual requirement of Sarasperse Blue 2RX polyester dye 128 kgs, at the rate of RS 341.20. Acquisition costs are Rs 125 and carrying cost is 20% of cost. And lead time is 10 days EOQ = 2AO = √ 2 × 128 × 125 = 22 Kgs c 341.20 × 20% Safety Stock = Average consumption per day × Lead Time = 0.35 × 10 = 3.5 Kgs Reorder level = Average consumption during lead time + Safety stock Haranahalli Ramaswamy Institute of Higher Education, Hassan 61
  • 62. Inventory Management = 3.5 + 3.5 = 7 Kgs Maximum level = EOQ + Safety stock = 22+ 3.5 = 25.5 Kgs Chart 4.14. Chart showing the different levels of inventory, Material - Sarasperse Blue 2RX Polyester dye Maximum level 25.5 Reorder point 7 EOQ Safety Stock 3.5 5 10 15 20 25 30 Days 13. Material - Sarasperse Navy Blue 2GSP Polyester dye ss Annual requirement of Sarasperse Navy Blue 2GSP polyester dye 1372 kgs, at the rate of RS.242.25. Acquisition costs are Rs 125 and carrying cost is 20% of cost. And lead time is 10 days EOQ = 2AO = √ 2 × 1372× 125 = 84 Kgs c 242.25 × 20% Safety Stock = Average consumption per day × Lead Time Haranahalli Ramaswamy Institute of Higher Education, Hassan 62
  • 63. Inventory Management = 3.8 × 10 = 38 Kgs Reorder level = Average consumption during lead time + Safety stock = 38 + 38 = 76 Kgs Maximum level = EOQ + Safety stock = 84+ 38 = 122 Kgs Chart 4.15. Chart showing the different levels of inventory, Material - Sarasperse Navy Blue 2GSP Polyester dye Maximum level 122 Reorder point 76 EOQ Safety Stock 38 5 10 15 20 25 30 Days 14. Material - Sarasperse Black RD-G2 Polyester dye Annual requirement of Sarasperse Black RD-G2 polyester dye 1580 kgs, at the rate of RS. 259.65. Acquisition costs are Rs 125 and carrying cost is 20% of cost. And lead time is 10 days Haranahalli Ramaswamy Institute of Higher Education, Hassan 63
  • 64. Inventory Management EOQ = 2AO = √ 2 × 1580× 125 = 87 Kgs c 259.65 × 20% Safety Stock = Average consumption per day × Lead Time = 4.4 × 10 = 44 Kgs Reorder level = Average consumption during lead time + Safety stock = 44 + 44 = 88 Kgs Maximum level = EOQ + Safety stock = 87 + 44 = 131 Kgs Chart 4.16. Chart showing the different levels of inventory, Material - Sarasperse Black RD-G2 Polyester dye Maximum level 131 Reorder point 88 EOQ Safety Stock 38 5 10 15 20 25 30 Days 15. Material - Sarasperse Black PW Polyester dye Haranahalli Ramaswamy Institute of Higher Education, Hassan 64
  • 65. Inventory Management Annual requirement of Sarasperse Black PW polyester dye 220 kgs, at the rate of RS. 383.51. Acquisition costs are Rs 125 and carrying cost is 20% of cost. And lead time is 10 days EOQ = 2AO = √ 2 × 220× 125 = 27 Kgs c 383.51 × 20% Safety Stock = Average consumption per day × Lead Time = 0.6 × 10 = 6 Kgs Reorder level = Average consumption during lead time + Safety stock =6+6 = 12 Kgs Maximum level = EOQ + Safety stock = 27 + 6 = 33 Kgs Chart 4.17. Chart showing the different levels of inventory, Material - Sarasperse Black PW Polyester dye Maximum level 33 Reorder point 12 EOQ Safety Stock 6 5 10 15 20 25 30 Days Haranahalli Ramaswamy Institute of Higher Education, Hassan 65
  • 66. Inventory Management 16. Material - Terasil Blue VGE Polyester dye Annual requirement of Terasil Blue VGE polyester dye 54.68 kgs, at the rate of RS. 1386.55. Acquisition costs are Rs 125 and carrying cost is 20% of cost. And lead time is 10 days EOQ = 2AO = √ 2 × 54.68 × 125 = 7 Kgs c 1386.55 × 20% Safety Stock = Average consumption per day × Lead Time = 0.15 × 10 = 1.5 Kgs Reorder level = Average consumption during lead time + Safety stock =1.5 + 1.5 = 3 Kgs Maximum level = EOQ + Safety stock = 7 + 1.5 = 8.5 Kgs Chart 4.18. Chart showing the different levels of inventory, Material - Terasil Blue VGE Polyester dye Maximum level 8.5 Reorder point 3 EOQ Safety Stock 1.5 Haranahalli Ramaswamy Institute of Higher Education, Hassan 66
  • 67. Inventory Management 5 10 15 20 25 30 Day s 17.Material - Lanaset Yellow 2R wool dye Annual requirement of Lanaset yellow 2R wool dye is 678.76 kgs, at the rate of RS. 426.50 Acquisition costs are Rs 125 and carrying cost is 20% of cost. And lead time is 15 days. EOQ = 2AO = √ 2×678.76×125 = 45 Kgs c 426.50×20% Safety stock = Average consumption per day × Lead Time = 1.885 × 15 = 28.3 Kgs Reorder level = Average consumption during lead time + Safety stock = 28.3 + 28.3 = 56.6 Kgs Maximum level = EOQ + Safety stock = 45+ 28.3 = 73.3 Kgs Chart 4.19. Chart showing the different levels of inventory, Material - Lanaset Yellow 2R wool dye Maximum level 73.3 Reorder point 56.6 Haranahalli Ramaswamy Institute of Higher Education, Hassan 67
  • 68. Inventory Management EOQ Safety Stock 28.3 5 10 15 20 25 30 Days 18.Material - Lanaset Red G wool dye Annual requirement of Lanaset Red G wool dye is 108 kgs, at the rate of RS. 831.68. Acquisition costs are Rs 125 and carrying cost is 20% of cost. And lead time is 15 days. EOQ = 2AO = √ 2×108 ×125 = 13 kgs c 831.68×20% Safety stock = Average consumption per day × Lead Time = 0.3× 15 = 4.5 Kgs Reorder level = Average consumption during lead time + Safety stock = 4.5 + 4.5 = 9 Kgs Maximum level = EOQ + Safety stock = 13 + 4.5 = 17.5Kgs Chart4. 20. Chart showing the different levels of inventory, Material - Lanaset Red G wool dye Maximum level 17.5 Haranahalli Ramaswamy Institute of Higher Education, Hassan 68
  • 69. Inventory Management Reorder point 9 EOQ Safety Stock 4.5 5 10 15 20 25 30 Days 19 . Material - Lanset Grey G wool dye Annual requirement of Lanset Grey G wool dye is 242.92kgs, at the rate of RS. 1010.38.Acquisition costs are Rs 125 and carrying cost is 20% of cost. And lead time is 15 days. EOQ = 2AO = √ 2 × 242.92 × 125 = 17kgs c 1010.38 × 20% Safety stock = Average consumption per day × Lead Time = 0.674 × 15 = 10 Kgs Reorder level = Average consumption during lead time + Safety stock = 10 + 10 = 20 Kgs Maximum level = EOQ + Safety stock = 17+ 10 = 27 Kgs Chart 4.21. Chart showing the different levels of inventory, Material - Lanset Grey G wool dye Haranahalli Ramaswamy Institute of Higher Education, Hassan 69
  • 70. Inventory Management Maximum level 27. Reorder point 20 EOQ Safety Stock 10 5 10 15 20 25 30 Days 20.Material - Lanset Navy R wool dye Annual requirement of Lanset Navy R wool dye is 999.88kgs, at the rate of RS 742.11. Acquisition costs are Rs 125 and carrying cost is 20% of cost. And lead time is 15 days. EOQ = 2AO = √ 2×999.88×125 = 41 kgs c 742.11×20% Safety stock = Average consumption per day × Lead Time = 2.7 × 15 = 40 Kgs Reorder level = Average consumption during lead time + Safety stock = 40 +40 = 80 Kgs Maximum level = EOQ + Safety stock = 41 + 40 = 81 Kgs Haranahalli Ramaswamy Institute of Higher Education, Hassan 70
  • 71. Inventory Management Chart4. 22. Chart showing the different levels of inventory, Material - Lanset Navy R wool dye Maximum level 81 Reorder point 80 EOQ Safety Stock 40 5 10 15 20 25 30 Days 21.Material - Lanaset Black B wool dye Annual requirement of Lanaset black B wool dye is 233.60 kgs, at the rate of RS. 554.45. Acquisition costs are Rs 125 and carrying cost is 20% of cost. And lead time is 15days. EOQ = 2AO = √ 2×233.60×125 = 23 kgs c 554.45×20% Safety stock = Average consumption per day × Lead Time = 0.649 × 15 = 9.7 Kgs Reorder level = Average consumption during lead time + Safety stock = 9.7 + 9.7 = 19.4 Kgs Maximum level = EOQ + Safety stock Haranahalli Ramaswamy Institute of Higher Education, Hassan 71
  • 72. Inventory Management = 23 + 9.7 = 32.7 Kgs Chart 4.23. Chart showing the different levels of inventory, Material - Lanaset Black B wool dye Maximum level 32.7. Reorder point 19.4 EOQ Safety Stock 9.7 5 10 15 20 25 30 Days 22.Material - Lanaset Brown G01 wool dye Annual requirement of Lanaset Brown G01 wool dye is 91.76kgs, at the rate of RS. 631. Acquisition costs are Rs 125 and carrying cost is 20% of cost. And lead time is 15 days. EOQ = 2AO = √ 2×91.76×125 = 13 kgs c 631.22×20% Safety stock = Average consumption per day × Lead Time = 0.255 × 15 = 3.825 Kgs Reorder level = Average consumption during lead time + Safety stock Haranahalli Ramaswamy Institute of Higher Education, Hassan 72
  • 73. Inventory Management = 3.825 + 3.825 = 7.65 Kgs Maximum level = EOQ + Safety stock = 13+ 3.825 = 16.825 Kgs Chart 4.24. Chart showing the different levels of inventory, Material - Lanaset Brown G01 wool dye Maximum level 16.825. Reorder point 7.65 EOQ Safety Stock 3.825 5 10 15 20 25 30 Days 23.Material - Lanaset Brown B wool dye Annual requirement of Lanaset Brown B wool dye is 243.48kgs, at the rate of RS.. 503.27. Acquisition costs are Rs 125 and carrying cost is 20% of cost. And lead time is 15 days. EOQ = 2AO = √ 2×243.48×125 = 25 kgs c 503.27×20% Safety stock = Average consumption per day × Lead Time Haranahalli Ramaswamy Institute of Higher Education, Hassan 73
  • 74. Inventory Management = 0.676× 15 = 10.14 Kgs Reorder level = Average consumption during lead time + Safety stock = 10.14 + 10.14 = 20.28 Kgs Maximum level = EOQ + Safety stock = 25+ 10.14 = 35.14 Kgs Chart 4.25. Chart showing the different levels of inventory, Material - Lanaset Brown B wool dye Maximum level 35.14. Reorder point 20.28 EOQ Safety Stock 10.14 5 10 15 20 25 30 Days 24.Material - Lanaset Bordeaux B wool dye Annual requirement of Lanaset Bordeaux B is 87.64kgs, at the rate of RS.609.90 Acquisition costs are Rs 125 and carrying cost is 20% of cost. And lead time is 15 days. Haranahalli Ramaswamy Institute of Higher Education, Hassan 74
  • 75. Inventory Management EOQ = 2AO = √ 2×87.64×125 = 13 kgs c 609.90×20% Safety stock = Average consumption per day × Lead Time = 0.243 × 15 = 3.645 Kgs Reorder level = Average consumption during lead time + Safety stock = 3.645 = 7.29 Kgs Maximum level = EOQ + Safety stock = 13 + 3.645 = 16.645 Kgs Chart 4.26. Chart showing the different levels of inventory, Material - Lanaset Bordeaux B wool dye Maximum level 16.645. Reorder point 7.29 EOQ Safety Stock 3.645 5 10 15 20 25 30 Days 25.Material - Lanaset Blue 2R wool dye Haranahalli Ramaswamy Institute of Higher Education, Hassan 75
  • 76. Inventory Management Annual requirement of Lanaset Blue 2R wool dye is 98.80kgs, at the rate of RS 1520.05. Acquisition costs are Rs 125 and carrying cost is 20% of cost and lead time is 15days. EOQ = 2AO = √ 2×98.80×125 = 9kgs c 1520.05×20% Safety stock = Average consumption per day × Lead Time = 0.274× 15 = 4.11 Kgs Reorder level = Average consumption during lead time + Safety stock = 4.11 + 4.11 = 8.22 Kgs Maximum level = EOQ + Safety stock = 9+ 4.11 = 13.11 Kgs Chart4. 27. Chart showing the different levels of inventory, Material - Lanaset Blue 2R wool dye Maximum level 13.11. Reorder point 8.22 EOQ Safety Stock 4.11 5 10 15 20 25 30 Days Haranahalli Ramaswamy Institute of Higher Education, Hassan 76
  • 77. Inventory Management 26.Material -Lanaset Yellow 4 G wool dye Annual requirement of Lanaset Yellow 4 GN wool dye is 165.48 kgs, at the rate of RS. 1121.70. Acquisition costs are Rs 125 and carrying cost is 20% of cost. And lead time is 15 days. EOQ = 2AO = √ 2×165.48×125 = 14 kgs c 1121.70 ×20% Safety stock = Average consumption per day × Lead Time = 0.459 × 15 = 6.885 Kgs Reorder level = Average consumption during lead time + Safety stock = 6.885 + 6.885 =13.77 Kgs Maximum level = EOQ + Safety stock = 14 + 6.885 = 20.885 Kgs Chart 4.28. Chart showing the different levels of inventory, Material - Lanaset Yellow 4 G wool dye Maximum level 20.885. Reorder point 13.77 EOQ Safety Stock 6.885 Haranahalli Ramaswamy Institute of Higher Education, Hassan 77
  • 78. Inventory Management 5 10 15 20 25 30 Days 27.Material -Lanaset Blue 5G wool dye Annual requirement of Lanaset Blue 5G wool dye is 44.12 kgs, at the rate of RS. 3514.36. Acquisition costs are Rs 125 and carrying cost is 20% of cost. And lead time is 15 days. EOQ = 2AO = √ 2×44.12×125 = 4 kgs c 3514.36 ×20% Safety stock = Average consumption per day × Lead Time = 0.122 × 15 = 1.83 Kgs Reorder level = Average consumption during lead time + Safety stock = 1.83+ 1.83 = 3.66 Kgs Maximum level = EOQ + Safety stock = 4+ 1.83 = 5.83 Kgs Chart 4.29. Chart showing the different levels of inventory, Material - Lanaset Blue 5G wool dye Maximum level 5.83. Reorder point 3.66 Haranahalli Ramaswamy Institute of Higher Education, Hassan 78
  • 79. Inventory Management EOQ Safety Stock 1.83 5 10 15 20 25 30 Days 28. Material -Lanaset Red 2 B wool dye Annual requirement of Lanaset Red 2 Bwool dye is 27.88 kgs, at the rate of RS. 1424.51. Acquisition costs are Rs 125 and carrying cost is 20% of cost. And lead time is 15 days. EOQ = 2AO = √ 2×27.88×125 = 5 kgs c 1424.51 ×20% Safety stock = Average consumption per day × Lead Time = 0.077 × 15 = 1.155 Kgs Reorder level = Average consumption during lead time + Safety stock = 1.155 + 1.155 = 2.31 Kgs Maximum level = EOQ + Safety stock = 5+ 1.155 = 6.155 Kgs Chart 4.30. Chart showing the different levels of inventory, Material - Lanaset Red 2 B wool dye Maximum level 6.155. Haranahalli Ramaswamy Institute of Higher Education, Hassan 79
  • 80. Inventory Management Reorder point 2.31 EOQ Safety Stock 1.155 5 10 15 20 25 30 Days 29. Material -Lanaset Green B wool dye Annual requirement of Lanaset Green B wool dye is 13.04 kgs, at the rate of RS. 1693.21. Acquisition costs are Rs 125 and carrying cost is 20% of cost. And lead time is 15 days. EOQ = 2AO = √ 2×13.04×125 = 3 kgs c 1693.21 ×20% Safety stock = Average consumption per day × Lead Time = 0.036 × 15 = 0.54 Kgs Reorder level = Average consumption during lead time + Safety stock = 0.544 + 0.544 = 1.09 Kgs Maximum level = EOQ + Safety stock = 3 + 0.54 = 3.54 Kgs Chart 4.31. Chart showing the different levels of inventory, Material - Lanaset Green B wool dye Haranahalli Ramaswamy Institute of Higher Education, Hassan 80
  • 81. Inventory Management Maximum level 3.54. Reorder point 1.09 EOQ Safety Stock 0.54 5 10 15 20 25 30 Days 30. Material - Lanaset Orange RN wool dye Annual requirement of Lanaset Orange RN wool dye is 36.96 kgs, at the rate of RS. 503.27. Acquisition costs are Rs 125 and carrying cost is 20% of cost. And lead time is 15 days. EOQ = 2AO = √ 2×36.96×125 = 10 kgs c 503.27 ×20% Safety stock = Average consumption per day × Lead Time = 0.1 × 15 = 1.5 Kgs Reorder level = Average consumption during lead time + Safety stock = 1.5 + 1.5 = 3 Kgs Maximum level = EOQ + Safety stock = 10 + 1.5 = 11.5 Kgs Haranahalli Ramaswamy Institute of Higher Education, Hassan 81
  • 82. Inventory Management Chart 4.32. Chart showing the different levels of inventory, Material - Lanaset Orange RN wool dye Maximum level 11.5. Reorder point 3 EOQ Safety Stock 1.5 5 10 15 20 25 30 Days 31. Material - Neolon P wool dye Annual requirement of Neolon P wool dye is104 kgs, at the rate of RS. 345.29. Acquisition costs are Rs 125 and carrying cost is 20% of cost. And lead time is 15 days. EOQ = 2AO = √ 2×104×125 = 19 kgs c 345.29 ×20% Safety stock = Average consumption per day × Lead Time = 0.289 × 15 = 4.3 Kgs Reorder level = Average consumption during lead time + Safety stock = 4.3 + 4.3 = 8.6 Kgs Haranahalli Ramaswamy Institute of Higher Education, Hassan 82
  • 83. Inventory Management Maximum level = EOQ + Safety stock = 19 + 4.3 = 23.3 Kgs Chart 4.33. Chart showing the different levels of inventory, Material - Neolon P wool dye Maximum level 23.3. Reorder point 8.6 Safety Stock 4.3 EOQ 5 10 15 20 25 30 Days Analysis Table 4.5. Table showing the list of materials EOQ, safety level, reorder level, and maximum level E Safety Reorder Maximum OQ Stock level Level Material in Kgs in Kgs in Kgs in kgs SL.NO POLYSTER DYES 1 Foron Yellow Brown 43 14.61 29.22 57.6 Haranahalli Ramaswamy Institute of Higher Education, Hassan 83
  • 84. Inventory Management RD-2RSI 2 Foron Navy Blue RD-GFLI 29 7 14 36 3 Foron Scarlet RD-RLSI 22 3.5 7 25.5 4 Foron Blue RD-GLF 7 1.67 3.34 8.67 5 Foron Yellow RD-4GRLI 11 2.13 4.26 13.13 6 Foron DK Blue RD -2REN 15 6.11 12.22 21.11 7 Foron Rubine S2GFLI 19 2.09 4.18 21.09 8 Foron Navy Blue FS2RFLI 21 2.72 5.44 23.72 9 Foron Yellow S4GLI 16 3.83 7.66 19.83 10 Sarasperse Yellow Brown 98 41.46 82.92 139.46 2RF 11 Sarasperse Red Conc 41 7 14 48 12 Sarasperse Blue 2RX 22 3.5 7 25.5 13 Sarasperse Navy Blue 2GSP 84 38 76 122 14 Sarasperse Black RD-G2 87 44 88 131 15 Sarasperse Black PW 27 6 12 33 16 Terasil Blue VGE 7 1.5 3 8.5 WOOL DYES 17 Lanaset Yellow 2R 45 28.3 56.6 73.3 18 Lanaset Red G 13 4.5 9 17.5 19 Lanset Grey 17 10 20 27 20 Lanset Navy R 41 40 80 81 21 Lanaset Black B 23 9.7 19.4 32.7 22 Lanaset Brown G01 13 3.825 7.65 16.825 23 Lanaset Brown B 25 10.14 20.28 35.14 24 Lanaset Bordeaux B 13 3.645 7.29 16.645 25 Lanaset Blue 2R 9 4.11 8.22 13.11 26 Lanaset Yellow 4 G 14 6.885 13.77 20.885 Haranahalli Ramaswamy Institute of Higher Education, Hassan 84
  • 85. Inventory Management 27 Lanaset Blue 5G 4 1.83 3.66 5.83 28 Lanaset Red 2 B 5 1.155 2.31 6.155 29 Lanaset Green B 3 0.54 1.09 3.54 30 Lanaset Orange RN 10 1.5 3 11.5 31 Neolon P 19 4.3 8.6 23.3 Interpretation EOQ, Safety Stock, Reorder level, maximum level has been calculated as per theoretical. These levels have to be followed in the organization. There is differences between levels which are practicing in company and calculated ones. From the graph we can identify easily the reorder point, safety stock when to order and the maximum level to be maintained for each material. Haranahalli Ramaswamy Institute of Higher Education, Hassan 85
  • 86. Inventory Management Chapter 5 FINDINGS AND SUGGESTIONS • Study has been conducted on sales and consumption of raw materials from 2004-05 to 2008-09 and the graph has been plough for the same. The percentage of raw materials consumed on sales has been calculated. The result of the study is as fallows Year Percentage 2004-05 73.76 2005-06 72.01 2006-07 72.13 2007-08 63.61 2008-09 68.20 From this we can find out that raw material consumption has come down in the year 2005-06 and 2007-08. But in the year 2006-07 and 2008-09 percentage of raw materials consumed increased 0.12% and 5% respectively. This percentages of change costs to Rs.1.475 crores and Rs.113.018 crores. It shows that they have invested crores of rupees excess than its requirement. • Technique adopted in Reid and Taylor for inventory control is Haranahalli Ramaswamy Institute of Higher Education, Hassan 86
  • 87. Inventory Management ABC analysis. FIFO method. EOQ Technique • There is adequate space for storing various types of material in stores department. • There is adequate recording all the transactions in the stores department. • After receiving materials they codifying materials in numerical and alpha numeric method which helps for easy identification of the materials. • Reid and Taylor is large manufacturers of suitings they are maintaining good inventory control systems in the organisation to get competitive advantage in the market. • In Reid and Taylor they are taking proper method of inventory management to cope up with production and consumer preferences. • Most of the times higher management will take decision regarding level of inventories to be maintained and ordering quantity based on the external and internal factors. • In Reid and Taylor some of the inventories are maintained only minimum level due to rare consumption of such materials. • In raw materials like Polyster dyes and wool dyes the maintenance of safety stocks and maximum level varies from theoretical aspects to practical maintenance. Table 5.1. Table showing difference in the calculated safety stocks, reorder level and actual practice Haranahalli Ramaswamy Institute of Higher Education, Hassan 87
  • 88. Materi Calcul Safety differen Calcula Reorder differen Sl al ated stock in ce ted level in ce No safety practice reorder practice Inventory Management stock level POLYSTER DYES 1 Foron Yellow Brown RD-2RSI 14.61 25 10.39 29.22 37.5 8.28 2 Foron Navy Blue RD-GFLI 7 10 3 14 15 1 3 Foron Scarlet RD-RLSI 3.5 5 1.5 7 7.5 0.5 4 Foron Blue RD-GLF 1.67 5 3.33 2.789 7.5 4.711 5 Foron Yellow RD-4GRLI 2.13 5 2.87 4.26 7.5 3.24 6 Foron DK Blue RD -2REN 6.11 10 3.89 12.22 15 2.78 7 Foron Rubine S2GFLI 2.09 5 2.91 4.18 7.5 3.32 8 Foron Navy Blue FS2RFLI 2.72 10 7.28 5.44 15 9.56 9 Foron Yellow S4GLI 3.83 5 1.17 7.66 7.5 -0.1 10 Sarasperse Yellow Brown 2RF 41.46 60 18.54 82.92 90 7.08 11 Sarasperse Red Conc 7 10 3 14 15 1 12 Sarasperse Blue 2RX 3.5 5 1.5 7 7.5 0.5 13 Sarasperse Navy Blue 2GSP 38 60 22 76 90 14 14 Sarasperse Black RD-G2 44 65 21 88 97.5 9.5 15 Sarasperse Black PW 6 10 4 12 15 3 16 Terasil Blue VGE 1.5 5 3.5 3 7.5 4 WOOL DYES 17 Lanaset Yellow 2R 28.3 25 -3.3 56.6 37.5 -19.1 18 Lanaset Red G 4.5 5 0.5 9 7.5 1.5 19 Lanset Grey 10 10 0 20 15 -5 20 Lanset Navy R 40 40 0 80 60 -20 21 Lanaset Black B 9.7 10 0.3 19.4 15 -4.4 22 Lanaset Brown G01 3.825 5 1.175 7.65 7.5 -0.10 23 Lanaset Brown B 10.14 10 -.14 20.28 15 -5.28 24 Lanaset Bordeaux B 3.645 5 1.355 7.29 7.5 0.21 25 Lanaset Blue 2R 4.11 5 0.89 8.22 7.5 -0.72 26 Lanaset Yellow 4 G 6.885 6 -0.885 13.77 9 -4.77 27 Lanaset Blue 5G Institute of Higher Education, Hassan Haranahalli Ramaswamy 1.83 5 3.17 3.66 7.5 3.84 88 28 Lanaset Red 2 B 1.155 2 0.845 2.31 3 0.69 29 Lanaset Green B 0.54 1 0.46 1.08 1.5 0.42
  • 89. Inventory Management Suggestions • Reid and Taylor is a largest manufacturing company in the world it should set standard or benchmark with global competitors. • Reid and Taylor can use Just In Time for some of the materials which they can procure very easily from nearest city like switches, bulbs etc. • Reid and Taylor is a largest manufacturer of worsted suiting they should use special ERP packages available to increase its efficiency in material handling. • They can use SAP ERP package for effectiveness of their material handling. • In materials like Polyster dyes and wool dyes they are maintaining high level of safety stock than actual requirement. So they can reduce the safety stock level by that they can reduce their idle investment in materials and they can invest the same in profitable investment opportunities. • In Reid and Taylor there exist a positive relation relationship with sales and raw materials consumed. The same has to be maintained in future also. • To be competitive in the market and to increase the market share they have to concentrate on cost reduction. This is possible through proper inventory management. • The company should concentrate on non moving materials. So they can reduce inventory cost. • The company should concentrate on selling goods at low cost with best quality by reducing cost to get competitive advantage in the market. • Company can use raw material turnover ratio to find whether raw materials were too much, adequate or inadequate by using following formula Raw material inventory turnover = Material consumed Average raw material inventory Haranahalli Ramaswamy Institute of Higher Education, Hassan 89
  • 90. Inventory Management Conclusion Inventory Management is one of the basic important functions of every business. An average manufacturing organization in India has more than 60% of its current assets invested in inventories. Haranahalli Ramaswamy Institute of Higher Education, Hassan 90
  • 91. Inventory Management Therefore, by following proper efficient inventory management principles, the company can certainty reduce the cost of inventory and can improve its bottom line and thereby becoming competitive, when in turn will improve its market share. Reid and Taylor is a largest manufacturing company and it consumes huge raw materials which cost crores of rupees. So it should take effective control over inventories not only for raw materials but also for finished goods as well. In any manufacturing company cost reduction can be possible only by effective inventory control. So to reduce the cost and to be competitive in the market inventory management and inventory control is necessary for Reid and Taylor. Reid and Taylor maintained a systematic raw material stores which is very near to production departments. It has adopted very good inventory control techniques, to achieve the effective production. Haranahalli Ramaswamy Institute of Higher Education, Hassan 91

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