INVENTORY MANAGEMENT<br />INTRODUCTION<br />DEFINITION AND MEANING<br />Inventory is a list of goods and materials, or those goods and materials themselves, held available in stock by a business. Inventory are held in order to manage and hide from the customer the fact that manufacture/supply delay is longer than delivery delay, and also to ease the effect of imperfections in the manufacturing process that lower production efficiencies if production capacity stands idle for lack of materials.<br />The reasons for keeping stock<br />All these stock reasons can apply to any owner or product stage.<br />Buffer stock is held in individual workstations against the possibility that the upstream workstation may be a little delayed in providing the next item for processing. Whilst some processes carry very large buffer stocks, Toyota moved to one (or a few items) and has now moved to eliminate this stock type. <br />Safety stock is held against process or machine failure in the hope/belief that the failure can be repaired before the stock runs out. This type of stock can be eliminated by programmes like Total Productive Maintenance <br />Overproduction is held because the forecast and the actual sales did not match. Making to order and JIT eliminates this stock type. <br />Lot delay stock is held because a part of the process is designed to work on a batch basis whilst only processing items individually. Therefore each item of the lot must wait for the whole lot to be processed before moving to the next workstation. This can be eliminated by single piece working or a lot size of one. <br />Demand fluctuation stock is held where production capacity is unable to flex with demand. Therefore a stock is built in times of lower utilization to be supplied to customers when demand exceeds production capacity. This can be eliminated by increasing the flexibility and capacity of a production line or reduced by moving to item level load balancing. <br />Line balance stock is held because different sub-processes in a line work at different rates. Therefore stock will accumulate after a fast sub-process or before a large lot size sub-process. Line balancing will eliminate this stock type. <br />Changeover stock is held after a sub-process that has a long setup or change-over time. This stock is then used while that change-over is happening. This stock can be eliminated by tools like SMED. <br />Where these stocks contain the same or similar items it is often the work practice to hold all these stocks mixed together before or after the sub-process to which they relate. This 'reduces' costs. Because they are mixed-up together there is no visual reminder to operators of the adjacent sub-processes or line management of the stock which is due to a particular cause and should be a particular individual's responsibility with inevitable consequences. Some plants have centralized stock holding across sub-processes which makes the situation even more acute.<br />The basis of Inventory accounting<br />Inventory needs to be accounted where it is held across accounting period boundaries since generally expenses should be matched against the results of that expense within the same period. When processes were simple and short then inventories were small but with more complex processes then inventories became larger and significant valued items on the balance sheet. This need to value unsold and incomplete goods has driven many new behaviors into management practise. Perhaps most significant of these are the complexities of fixed cost recovery, transfer pricing, and the separation of direct from indirect costs. This, supposedly, precluded "
declaring dividends out of capital"
. It is one of the intangible benefits of Lean and the TPS that process times shorten and stock levels decline to the point where the importance of this activity is hugely reduced and therefore effort, especially managerial, to achieve it can be minimized.<br />LIFO V/S FIFO<br />When a dealer sells goods from inventory, the value of the inventory reduces by the cost of goods sold (Cog sold). This is simple where the Cog has not varied across those held in stock but where it has then an agreed method must be derived. For commodity items that one cannot track individually, accountants must choose a method that fits the nature of the sale. Two popular methods exist: FIFO and LIFO accounting (first in - first out, last in - first out). FIFO regards the first unit that arrived in inventory the first one sold. LIFO considers the last unit arriving in inventory as the first one sold. Which method an accountant selects can have a significant effect on net income and book value and, in turn, on taxation. Using LIFO accounting for inventory, a company generally reports lower net income and lower book value due to the effects of inflation. This generally results in lower taxation. Due to LIFO's potential to skew inventory value, UK GAAP and IAS have effectively banned LIFO inventory accounting.<br />SUPPLY CHAIN MANAGEMENT <br />A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers. Supply chains exist in both service and manufacturing organizations, although the complexity of the chain may vary greatly from industry to industry and firm to firm. <br />Supply chain management is typically viewed to lie between fully vertically integrated firms, where the entire material flow is owned by a single firm and those where each channel member operates independently. Therefore coordination between the various players in the chain is key in its effective management. Cooper and Ellram  compare supply chain management to a well-balanced and well-practiced relay team. Such a team is more competitive when each player knows how to be positioned for the hand-off. The relationships are the strongest between players who directly pass the baton (stick), but the entire team needs to make a coordinated effort to win the race. <br />Below is an example of a very simple supply chain for a single product, where raw material is procured from vendors, transformed into finished goods in a single step, and then transported to distribution centers, and ultimately, customers. Realistic supply chains have multiple end products with shared components, facilities and capacities. The flow of materials is not always along an arborescent network, various modes of transportation may be considered, and the bill of materials for the end items may be both deep and large. <br />To simplify the concept, supply chain management can be defined as a loop: it starts with the customer and ends with the customer. All materials, finished products, information, and even all transactions flow through the loop. However, supply chain management can be a very difficult task because in the reality, the supply chain is a complex and dynamic network of facilities and organizations with different, conflicting objectives.<br />Supply chains exist in both service and manufacturing organizations, although the complexity of the chain may vary greatly from industry to industry and firm to firm. <br />Unlike commercial manufacturing supplies, services such as clinical supplies planning are very dynamic and can often have last minute changes. Availability of patient kit when patient arrives at investigator site is very important for clinical trial success. This results in overproduction of drug products to take care of last minute change in demand. R&D manufacturing is very expensive and overproduction of patient kits adds significant cost to the total cost of clinical trials. An integrated supply chain can reduce the overproduction of drug products by efficient demand management, planning, and inventory management. <br />Traditionally, marketing, distribution, planning, manufacturing, and the purchasing organizations along the supply chain operated independently. These organizations have their own objectives and these are often conflicting. Marketing's objective of high customer service and maximum sales dollars conflict with manufacturing and distribution goals. Many manufacturing operations are designed to maximize throughput and lower costs with little consideration for the impact on inventory levels and distribution capabilities. Purchasing contracts are often negotiated with very little information beyond historical buying patterns. The result of these factors is that there is not a single, integrated plan for the organization---there were as many plans as businesses. Clearly, there is a need for a mechanism through which these different functions can be integrated together. Supply chain management is a strategy through which such integration can be achieved. <br />Supply Chain Management (SCM) is the process of planning, implementing, and controlling the operations of the supply chain with the purpose to satisfy customer requirements as efficiently as possible. Supply chain management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-origin to point-of-consumption.<br />According to the Council of Supply Chain Management Professionals (CSCMP),<br />a professional association that developed a definition in 2004, Supply Chain Management “encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities”. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, Supply Chain Management integrates supply and demand management within and across companies.<br />According to Cohen & Lee (1988)<br />Supply Chain Management is “The network of organizations that are having linkages, both upstream and downstream, in different processes and activities that produces and delivers the value in form of products and services in the hands of ultimate consumer.” Thus a shirt manufacturer is a part of supply chain that extends up stream through the weaves of fabrics to the spinners and the manufacturers of fibers, and down stream through distributions and retailers to the final consumer. Though each of these organizations are dependent on each other yet traditionally do not closely cooperate with each other. An integrated supply chain management streamlines processes and increases profitability by delivering the right product to the right place, at the right time, and at the lowest possible cost. <br />According to Ganeshan & Harrison (2001)<br />Supply Chain Management is a “systems approach to managing the entire flow of information, materials, and services from raw materials suppliers through factories and warehouses to the end customer.”<br />Supply chain event management (abbreviated as SCEM) is a consideration of all possible occurring events and factors that can cause a disruption in a supply chain. With SCEM possible scenarios can be created and solutions can be planned.<br />Some experts distinguish supply chain management and logistics management, while others consider the terms to be interchangeable. From the point of view of an enterprise, the scope of supply chain management is usually bounded on the supply side by your supplier's suppliers and on the customer side by your customer's customers.<br />Supply chain management is also a category of software products.<br /> <br />OBJECTIVES AND NEED OF SUPPLY CHAIN MANAGEMENT<br />Traditionally, marketing, distribution, planning, manufacturing, and the purchasing organizations along the supply chain operated independently. These organizations have their own objectives and these are often conflicting. <br />Marketing's objective of high customer service and maximum sales dollars conflict with manufacturing and distribution goals. Many manufacturing operations are designed to maximize throughput and lower costs with little consideration for the impact on inventory levels and distribution capabilities. Purchasing contracts are often negotiated with very little information beyond historical buying patterns. <br />The result of these factors is that there is not a single, integrated plan for the organization---there were as many plans as businesses. Clearly, there is a need for a mechanism through which these different functions can be integrated together. Supply chain management is a strategy through which such integration can be achieved. <br />Moreover, shortened product life cycles, increased competition, and heightened expectations of customers have forced many leading edge companies to move from physical logistic management towards more advanced supply chain management. Additionally, in recent years it has become clear that many companies have reduced their manufacturing costs as much as it is practically possible. Therefore, in many cases, the only possible way to further reduce costs and lead times is with effective supply chain management.<br />In addition to cost reduction, the supply chain management approach also facilitates customer service improvements. It enables the management of:<br />inventories, <br />transportation systems and <br />whole distribution networks <br />so that organizations are able to meet or even exceed their customers' expectations.<br />The major objective of supply chain management is to reduce or eliminate the buffers of inventory that exists between originations in chain through the sharing of information on demand and current stock levels.<br />Broadly, an organization needs an efficient and proper supply chain management system so that the following strategic and competitive areas can be used to their full advantage if a supply chain management system is properly implemented.<br />Fulfillment of raw materials:<br />Ensuring the right quantity of parts for production or products for sale arrive at the right time. This is enabled through efficient communication, ensuring that orders are placed with the appropriate amount of time available to be filled. The supply chain management system also allows a company to constantly see what is on stock and making sure that the right quantities are ordered to replace stock. <br />Logistics: <br />The cost of transporting materials as low as possible consistent with safe and reliable delivery. Here the supply chain management system enables a company to have constant contact with its distribution team, which could consist of trucks, trains, or any other mode of transportation. The system can allow the company to track where the required materials are at all times. As well, it may be cost effective to share transportation costs with a partner company if shipments are not large enough to fill a whole truck and this again, allows the company to make this decision.<br /> <br />Smooth Production:<br />Ensuring production lines function smoothly because high-quality parts are available when needed. Production can run smoothly as a result of fulfillment and logistics being implemented correctly. If the correct quantity is not ordered and delivered at the requested time, production will be halted, but having an effective supply chain management system in place will ensure that production can always run smoothly without delays due to ordering and transportation. <br />Increase in Revenue & profit:<br />Ensuring no sales is lost because shelves are empty. Managing the supply chain improves a company flexibility to respond to unforeseen changes in demand and supply. Because of this, a company has the ability to produce goods at lower prices and distribute them to consumers quicker then companies without supply chain management thus increasing the overall profit. <br />Reduction in Costs:<br />Keeping the cost of purchased parts and products at acceptable levels. Supply chain management reduces costs by increasing inventory turnover on the shop floor and in the warehouse controlling the quality of goods thus reducing internal and external failure costs and working with suppliers to produce the most cost efficient means of manufacturing a product. <br />Mutual Success:<br />Among supply chain partners ensures mutual success. Collaborative planning, forecasting and replenishment (CPFR) is a longer-term commitment, joint work on quality, and support by the buyer of the supplier’s managerial, technological, and capacity development. This relationship allows a company to have access to current, reliable information, obtain lower inventory levels, cut lead times, enhance product quality, improve forecasting accuracy and ultimately improve customer service and overall profits. The suppliers also benefit from the cooperative relationship through increased buyer input from suggestions on improving the quality and costs and though shared savings. Consumers can benefit as well through higher quality goods provided at a lower cost.<br />ABOUT THE COMPANY:<br /> Telco Construction Equipment Company (TELCON) has set global benchmark in the manufacturing heavy equipment for the construction, earthmoving & mining industries, while playing a significant role in realizing India’s infrastructure dreams. <br /> The company manufactures construction equipment that is used in major infrastructure projects in India. It has a market leader for the past 5 years, despite the tough competition. It has revolutionized the Indian construction equipment industry, with the introduction of the V-series of hydraulic excavators. The company has an extensive customer base era includes government & institutional buyers, and contractors. The company was the country’s first construction equipment manufacture to receive the International Organization of Standardization (ISO) 9001 certification.<br /> Telcon's facilities are located in Dharwad in Karnataka and Jamshedpur in Jharkhand, are strategic locations with proximity to the markets of the respective products manufactured in each.<br />4. ACTIVITIES/FUNCTIONS OF SCM IN TELCON<br />Supply chain management is a cross-functional approach to managing the movement of raw materials into an organization and the movement of finished goods out of the organization toward the end-consumer. As corporations strive to focus on core competencies and become more flexible, they have reduced their ownership of raw materials sources and distribution channels. These functions are increasingly being outsourced to other corporations that can perform the activities better or more cost effectively. The effect has been to increase the number of companies involved in satisfying consumer demand, while reducing management control of daily logistics operations. Less control and more supply chain partners led to the creation of supply chain management concepts. The purpose of supply chain management is to improve trust and collaboration among supply chain partners, thus improving inventory visibility and improving inventory velocity.<br />Several models have been proposed for understanding the activities required managing material movements across organizational and functional boundaries. SCOR is a supply chain management model promoted by the Supply-Chain Council. Another model is the SCM Model proposed by the Global Supply Chain Forum (GSCF). Supply chain activities can be grouped into strategic, tactical, and operational levels of activities. <br />Strategic:-<br />Strategic network optimization, including the number, location, and size of warehouses, distribution centers and facilities.<br />Strategic partnership with suppliers, distributors, and customers, creating communication channels for critical information and operational improvements such as cross docking, direct shipping, and third-party logistics. <br />Products design coordination, so that new and existing products can be optimally integrated into the supply chain. <br />Information Technology infrastructure, to support supply chain operations. <br />Where to make and what to make or buy decisions.<br />Tactical:-<br />Sourcing contracts and other purchasing decisions. <br />Production decisions, including contracting, locations, scheduling, and planning process definition. <br />Inventory decisions, including quantity, location, and quality of inventory. Transportation strategy, including frequency, routes, and contracting. <br />Benchmarking of all operations against competitors and implementation of best practices throughout the enterprise. <br />Operational:-<br />Daily production and distribution planning, including all nodes in the supply chain.<br />Production scheduling for each manufacturing facility in the supply chain (minute by minute). <br />Demand planning and forecasting, coordinating the demand forecast of all customers and sharing the forecast with all suppliers. <br />Sourcing planning, including current inventory and forecast demand, in collaboration with all suppliers. Inbound operations, including transportation from suppliers and receiving inventory.<br />Production operations, including the consumption of materials and flow of finished goods. <br />Outbound operations, including all fulfillment activities and transportation to customers. <br />Order promising, accounting for all constraints in the supply chain, including all suppliers, manufacturing facilities, distribution centers, and other customers. Performance tracking of all activities.<br />INTEGRATED SUPPLY CHAIN MANAGEMENT<br />An integrated supply chain management streamlines processes and increases profitability by delivering the right product to the right place, at the right time, and at the lowest possible cost. Unlike commercial manufacturing supplies, clinical supplies planning is very dynamic and can often have last minute changes. Availability of patient kit when patient arrives at investigator site is very important for clinical trial success.<br />This results in overproduction of drug products to take care of last minute change in demand. R&D manufacturing is very expensive and overproduction of patient kits adds significant cost to the total cost of clinical trials.<br />An integrated supply chain can reduce the overproduction of drug products by efficient demand management, planning, and inventory management. Implementation of ERP system (such as SAP) in R&D can have major ROI by an efficient supply and inventory management system and also by reducing overproduction.<br />How Integration Is Achieved In Supply Chain?<br />Stage 1: <br />Complete functional independence where each business function such as production or purchasing does its own thing in complete isolation from other business function. For instance, production function seeking to optimize its unit cost of manufacture by long production runs with out regard for build up of finished goods inventory and advance impact it will have on the warehousing as well as working capital. <br />Stage 2: <br />Companies recognize the need of limited integration between adjacent functions such as distribution and inventory management or purchasing and material control.<br />Stage 3: <br />A natural extension of stage two, leading to establishment and implementation of end- to-end integration. A concept of linkage and coordination is achieved.<br />STAGE 4: <br />The linkage achieved in stage three is extended upstream to suppliers and down stream to customers. It represents true supply chain integration. This concept is also called ‘co-managed inventory’ (CMI).<br />Force of supply chain management is on trust and cooperation and the recognition that is properly managed ‘the whole cane be greater then the sum of its part’.<br />Inventory Decisions: <br />These refer to means by which inventories are managed. Inventories exist at every stage of the supply chain as either raw material, semi-finished or finished goods. They can also be in-process between locations. Their primary purpose to buffer against any uncertainty that might exist in the supply chain. Since holding of inventories can cost anywhere between 20 to 40 percent of their value, their efficient management is critical in supply chain operations. It is long term in the sense that top management sets goals. However, most researchers have approached the management of inventory from short term perspective. These include deployment strategies (push versus pull), control policies --- the determination of the optimal levels of order quantities and reorder points, and setting safety stock levels, at each stocking location. These levels are critical, since they are primary determinants of customer service levels.<br />5. INVENTORY CONTROLMANAGEMENT<br />Inventory databaseAn important component of inventory planning involves access to an inventory database. It is a structured framework that contains the information needed to effectively manage all items of inventory, from raw materials to finished goods. This information includes the classification and amount of inventories, demand for the items, cost to the firm for each item, ordering costs, carrying costs and other data.The task of inventory planning can be highly complex. At the same time it rests on fundamental principles. In doing so we must understand and determine the optimal lot size that has to be ordered. The EOQ (economic order quantity) refers to the optimal order size that will result in the lowest total of order and carrying costs and ordering costs. By calculating the economic order quantity the firm attempts to determine the order size that will minimize the total inventory costs. In examination of the two curves reveals that the carrying cost curve is linear i.e. more the inventory held in any period, greater will be the cost of holding it. Ordering cost curve on the other hand is different. The ordering costs decrease with an increase in order sizes. The point where the holding cost curve i.e. the carrying cost curve and the ordering cost curve meet, represent the least total cost which is incidentally the economic order quantity or optimum quantity.<br />PRODUCTIVITY<br />In the industries there will be a competitor who will be a low cost producer and will have greater sales volume in that sector. This is partly due to economies of scale, which enable fixed costs to spread over a greater volume but more particularly to the impact of the experience curve.It is possible to identify and predict improvements in the rate of output of workers as they become more skilled in the processes and tasks on which they work. Bruce Henderson extended this concept by demonstrating that all costs, not just production costs, would decline at a given rate as volume increased. This cost decline applies only to value added, i.e. costs other than bought in supplies. Traditionally it has been suggested that the main route to cost reduction was by gaining greater sales volume and there can be no doubt about the close linkage between relative market share and relative costs. However it must also be recognized that logistics management can provide a multitude of ways to increase efficiency and productivity and hence contribute significantly to reduced unit costs.<br />In today’s more turbulent environment there is no longer any possibility of manufacturing and marketing acting independently of each other. It is now generally accepted that the need to understand and meet customer requirements is a prerequisite for survival. At the same time, in the search for improved cost competitiveness, manufacturing management has been the subject of massive renaissance. The last decade has seen the rapid introduction of flexible manufacturing systems, of new approaches to inventory based on materials requirement planning (MRP) and just in time (JIT) methods, a sustained emphasis on quality. Equally there has been a growing recognition of the critical role that procurement plays in creating and sustaining competitive advantage as part of an integrated logistics process.In this scheme of things, logistics is therefore essentially an integrative concept that seeks to develop a system wide view of the firm. It is fundamentally a planning concept that seeks to create a framework through which the needs of the manufacturing strategy and plan, which in turn link into a strategy and plan for procurement.<br />Inventory Flow:<br />The management of logistics is concerned with the movement and storage of materials and finished products. Logistical operations start with the initial shipment of a material or component part from a supplier and are finalized when a manufactured or processed product is delivered to a customer. From the initial purchase of a material or component, the logistical process adds value. By moving inventory when and where needed. Thus the material gains value at each step. For a large manufacturer, logistical operations may consist of thousands of movements, which ultimately culminate in the delivery of the product to an industrial user, wholesaler, dealer or customer. Similarly for a retailer, logistical operations may commence with the procurement of products for resale and may terminate with consumer pickup or delivery.The significant point is that regardless of the size or type of the enterprise, logistics is useful and requires continuous management attention.<br />INVENTORY- related costsInventory carrying cost (ICC):TaxStorageCapitalInsuranceObsolescenceOrdering:CommunicationProcessing, including material handling and packagingUpdate activities, including receiving and date-processing<br />BASIC INVENTORY DECISIONS<br />There are two basic decisions that must be made for every item that is maintained in inventory. These decisions have to do with the timing of orders for the item and the size of orders for the item.<br />Basic Inventory DecisionsHow much?When?Lot sizing decisionDetermination of the quantity to be ordered.Lot timing decisionDetermination of the timing for the orders.<br />RELEVANT INVENTORY COSTS<br />Relevant Inventory CostsItem CostsHolding CostsOrdering CostsShortage CostsDirect cost for getting an item. Purchase cost for outside orders, manufacturing cost for internal orders.Costs associated with carrying items in inventory. Storage and other related costs.Fixed costs associated with placing an order (either a purchase cost for outside orders, or a setup cost for internal orders).Costs associated with not having enough inventory to meet demand.<br />EOQ:The EOQ can be calculated with the help of a mathematical formula. Following assumptions are implied in the calculation:1. Constant or uniform demand- although the EOQ model assumes constant demand, demand may vary from day to day. If demand is not known in advance- the model must be modified through the inclusion of safe stock. 2. Constant unit price- the EOQ model assumes that the purchase price per unit of material will remain unaltered irrespective of the order offered by the suppliers to include variable costs resulting from quantity discounts, the total costs in the EOQ model can be redefined.3. Constant carrying costs- unit carrying costs may very substantially as the size of the inventory rises, perhaps decreasing because of economies of scale or storage efficiency or increasing as storage space runs out and new warehouses have to be rented.4. Constant ordering cost- this assumption is generally valid. However any violation in this respect can be accommodated by modifying the EOQ model in a manner similar to the one used for variable unit price.5. Instantaneous delivery- if delivery is not instantaneous, which is generally the case; the original EOQ model must be modified through the inclusion of a safe stock.6. Independent orders- if multiple orders result in cost saving by reducing paper work and the transportation cost, the original EOQ model must be further modified. While this modification is somewhat complicated, special EOQ models have been developed to deal with it. These assumptions have been pointed out to illustrate the limitations of the basic EOQ model and the ways in which it can be easily modified to compensate for them.<br />The formula for the EOQ model is:<br />2 M CoS Cc <br />Where M = is the annual demandCo is the cost of ordering Cc is the inventory carrying costS = is the unit price of an item.<br />Limitations of the EOQ formula-1. Erratic changes usages- the formula presumes the usage of materials is both predictable and evenly distributed. When this is not the case, the formula becomes useless.2. Faulty basic information- order cost varies from commodity to commodity and the carrying cost can vary with the company’s opportunity cost of capital. Thus the assumption that the ordering cost and the carrying cost remains constant is faulty and hence EOQ calculations are not correct.3. Costly calculations: the calculation required to find out EOQ is extremely time consuming. More elaborate formulae are even more expensive. In many cases, the cost of estimating the cost of possession and acquisition and calculating EOQ exceeds the savings made by buying that quantity.4. No formula is a substitute for common sense- sometimes the EOQ may suggest that we order a particular commodity every week (six-year supply) based on the assumption that we need it at the same rate for the next six years. However we have to order it in the quantities according to our judgment. Some items can be ordered every week; some can be ordered monthly, depends on how feasible it is for the firm.5. EOQ ordering must be tempered with judgment- Sometimes guidelines provide a conflict in ordering. Where an order strategy conflicts with an operational goal, order strategy restrictions should be developed to permit honoring the goal.Quantity discounts: In the EOQ analysis, it has been assumed that material prices and transportation costs were constant factors for the range of order quantities considered. In practice, some situations occur in which the delivered unit cost of a material decreases significantly if a slightly larger quantity than the originally computed EOQ is purchased. Quantity discounts, freight rate schedules and price increases may create such situations. These additional variables can also be included in the formula.<br />Cost of carrying inventory:Carrying material in inventory is expensive. A number of studies indicated that the annual cost of carrying a production inventory averaged approximately 25% of the value of the inventory. The escalating and volatile cost of money has escalated the annual inventory carrying cost to a figure between 25% - 35% of the value of the inventory. The following five elements make up this cost:1) Opportunity cost (12% -20%)2) Insurance cost (2% – 4%)3) Property taxes (1% - 3%)4) Storage costs (1%- 3%)5) Obsolescence and deterioration (4% - 10%)Total carrying cost (20% - 40%)Let us briefly look into these costs:<br />Opportunity cost of invested fundsWhen a firm uses money to buy production material and keeps it in the inventory, it simply has this much less cash to spend for other purposes. Money invested in external securities or in productive equipment earns a return for the company. Thus it is logical to charge all money invested in inventory an amount equal to that it could earn elsewhere in the company. This is the opportunity cost associated with inventory investment.Insurance costMost firms insure the assets against possible losses from fire and other forms of damage.Property taxesThis is levied on the assessed value of a firm’s assets, the greater the inventory value, the greater the asset value and consequently the higher the firm’s tax bill.Storage costsThe warehouse is depreciated every year over the length of its life. This cost can be charged against the inventory occupying the space.<br />Obsolescence and deteriorationIn most inventory operations, a certain percentage of the stock spoils, is damaged, is pilfered, or eventually becomes obsolete. A certain number always takes place even if they are handled with utmost care.Generally speaking, this group of carrying costs rises and falls nearly proportionately to the rise and fall of the inventory level.<br />Calculations:<br />TMX 20<br />MATERIAL ORDERED2005-6 DEMANDORDER COSTHOLDING ARM 302212001.048809BUCKET302212001.048809ECU30226001.48324CRANK302280000.406202ENGINE BLOCK302246500.532795 2006-07ARM 302312001.072381BUCKET302312001.072381ECU30236001.516575CRANK302380000.415331ENGINE BLOCK302346500.54477 2007-08ARM 302412001.095445BUCKET302412001.095445ECU30246001.549193CRANK302480000.424264ENGINE BLOCK302446500.556487 2008-09ARM 302512001.118034BUCKET302512001.118034ECU30256001.581139CRANK302580000.433013ENGINE BLOCK302546500.5679622009-10ARM 302712001.161895BUCKET302712001.161895ECU30276001.643168CRANK302780000.45ENGINE BLOCK302746500.590243<br />ANALYSIS<br />Even with all the production orders remaining constant for this particular type of the machines due to the varying order costs the EOQ falls down varying between .5 to 3 which depends on the various machine parts which is a basic challenge for most of the Material managers who have to make decisions based on this model. The company follows ordering all the materials on a single schedule for a period of 3months based on the order flow in the production line with the help of SAP module which is production planning. The company considers all the effective inventory models to be best fit only on the papers. <br />EX 40<br />EX40MATERIAL ORDERED2005-6 DEMANDORDER COSTHOLDING ARM 402212001.21106BUCKET402212001.21106ECU45226001.81659CRANK502280000.524404ENGINE BLOCK602246500.753487 2006-07ARM 402312001.238278BUCKET402312001.238278ECU45236001.857418CRANK502380000.53619ENGINE BLOCK602346500.770421 2007-08ARM 402412001.264911BUCKET402412001.264911ECU45246001.897367CRANK502480000.547723ENGINE BLOCK602446500.786991 2008-09ARM 402512001.290994BUCKET402512001.290994ECU45256001.936492CRANK502580000.559017ENGINE BLOCK602546500.803219 2009-10ARM 402712001.341641BUCKET402712001.341641ECU45276002.012461CRANK502780000.580948ENGINE BLOCK602746500.83473<br />ANALYSIS<br />Even with all the production orders remaining constant for this particular type of the machines due to the varying order costs the EOQ falls down varying between .5 to 3 which depends on the various machine parts which is a basic challenge for most of the Material managers who have to make decisions based on this model. The company follows ordering all the materials on a single schedule for a period of 3months based on the order flow in the production line with the help of SAP module which is production planning. The company considers all the effective inventory models to be best fit only on the papers. <br />TJD V<br />TJD V MATERIAL ORDERED2005-6 DEMANDORDER COSTHOLDING ARM 300022120010.48809BUCKET480022120013.2665ECU72002260022.97825CRANK110002280007.778175ENGINE BLOCK1400022465011.5097 2006-07ARM 300023120010.72381BUCKET480023120013.56466ECU72002360023.49468CRANK110002380007.952987ENGINE BLOCK1400023465011.76837 2007-08ARM 300024120010.95445BUCKET480024120013.85641ECU72002460024CRANK110002480008.124038ENGINE BLOCK1400024465012.02149 2008-09ARM 300025120011.18034BUCKET480025120014.14214ECU72002560024.4949CRANK110002580008.291562ENGINE BLOCK1400025465012.26938 2009-10ARM 300027120011.61895BUCKET480027120014.69694ECU72002760025.45584CRANK110002780008.616844ENGINE BLOCK1400027465012.75071<br />ANALYSIS<br />Even with all the production orders remaining constant for this particular type of the machines due to the varying order costs the EOQ falls down varying between .5 to 3 which depends on the various machine parts which is a basic challenge for most of the Material managers who have to make decisions based on this model. The company follows ordering all the materials on a single schedule for a period of 3months based on the order flow in the production line with the help of SAP module which is production planning. The company considers all the effective inventory models to be best fit only on the papers. <br />EX200<br />EX200MATERIAL ORDERED2005-6 DEMANDORDER COSTHOLDING ARM 19002212008.346656 BUCKET23002212009.183318 ECU29002260014.5831 CRANK38502280004.60163 ENGINE BLOCK48002246506.739388 2006-07 ARM 19002312008.534245 BUCKET23002312009.389711 ECU29002360014.91085 CRANK38502380004.70505 ENGINE BLOCK48002346506.890854 2007-08 ARM 19002412008.717798 BUCKET23002412009.591663 ECU29002460015.23155 CRANK38502480004.806246 ENGINE BLOCK48002446507.039062 2008-09 ARM 19002512008.897565 BUCKET23002512009.78945 ECU29002560015.54563 CRANK38502580004.905354 ENGINE BLOCK48002546507.184212 2009-10 ARM 19002712009.246621 BUCKET230027120010.17349 ECU29002760016.15549 CRANK38502780005.097794 ENGINE BLOCK48002746507.466052<br />ANALYSIS<br />Even with all the production orders remaining constant for this particular type of the machines due to the varying order costs the EOQ falls down varying between .5 to 3 which depends on the various machine parts which is a basic challenge for most of the Material managers who have to make decisions based on this model. The company follows ordering all the materials on a single schedule for a period of 3months based on the order flow in the production line with the help of SAP module which is production planning. The company considers all the effective inventory models to be best fit only on the papers. <br />The ABC Classification:<br />Indicators that classifies a material as an A,B or C part according to its consumption value .The classification process is known as the ABC analysis.<br />The three indictors have the following meanings:<br />A-important part , high consumption value <br />B-less important , medium consumption value <br />C-relatively unimportant part , low consumption value<br /> The ABC classification system is to grouping items according to annual sales volume, in an attempt to identify the small number of items that will account for most of the sales volume and that are the most important ones to control for effective inventory management. <br />Reorder Point: The inventory level R in which an order is placed where R = D.L, D = demand rate (demand rate period (day, week, etc), and L = lead time. <br />Safety Stock: Remaining inventory between the times that an order is placed and when new stock is received. If there are not enough inventories then a shortage may occur. <br />Safety stock is a hedge against running out of inventory. It is an extra inventory to take care on unexpected events. It is often called buffer stock. The absence of inventory is called a shortage. <br />ABC Inventory Classification<br /> <br />The ABC classification process is an analysis of a range of items, such as finished products or customers into three categories: 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 less to C. <br />Inventory Control Application: The ABC classification system is to grouping items according to annual sales volume, in an attempt to identify the small number of items that will account for most of the sales volume and that are the most important ones to control for effective inventory management. <br />Break-even analysis depends on the following variables:<br />Selling Price per Unit: The amount of money charged to the customer for each unit of a product or service. <br />Total Fixed Costs: The sum of all costs required to produce the first unit of a product. This amount does not vary as production increases or decreases, until new capital expenditures are needed. <br />Variable Unit Cost: Costs that vary directly with the production of one additional unit.<br />Total Variable Cost The product of expected unit sales and variable unit cost, i.e., expected unit sales times the variable unit cost.<br />Forecasted Net Profit: Total revenue minus total cost. Enter Zero (0) if you wish to find out the number of units that must be sold in order to produce a profit of zero (but will recover all associated costs)<br />Break-Even Point in TELCON: Number of units that must be sold in order to produce a profit of zero (but will recover all associated costs). In other words, the break-even point is the point at which your product stops costing you money to produce and sell, and starts to generate a profit for your company.<br />where: <br />Q = Break-even Point, i.e., Units of production (Q),<br />FC = Fixed Costs, <br />VC = Variable Costs per Unit <br />UP = Unit Price<br />Therefore, <br />Break-Even Point Q = Fixed Cost / (Unit Price - Variable Unit Cost) <br />Stock control and inventory<br />Stock control, otherwise known as inventory control, is used to show how much stock you have at any one time, and how you keep track of it.<br />It applies to every item you use to produce a product or service, from raw materials to finished goods. It covers stock at every stage of the production process, from purchase and delivery to using and re-ordering the stock.<br />Efficient stock control allows you to have the right amount of stock in the right place at the right time. It ensures that capital is not tied up unnecessarily, and protects production if problems arise with the supply chain.<br />Supply chain vendor management inventory:<br />Allows supply chain partners to share critical order, demand and inventory information in real-time and uses both integrated and web based applications to reduce administration costs, shortening cycle times and help lower inventory levels. Our unique, managed supply hub requires little upfront investment, yet quickly starts delivering high performance in real time <br />Inventory Control Overview <br />Normal Inventory<br />As it sounds, this type of inventory item will be used for the majority of your parts. It will correctly track the inventory received and sold on a first in first out basis, will handle cost of sales, and will warn you when you're out of stock.<br />Non-Inventory Type<br />This is used for selling things that are not really inventory items. For example, you could be selling warranty, but because you don't have warranty in a box to sell, and you'll never run out of stock, you won't need to keep inventory control on it. As well, there is no cost of sale adjustments with non-stock items. The system will not calculate how much you paid for the item, and therefore will not try to remove that value from inventory in the general ledger. If you are selling something that does cost you money, you will have to handle these details manually.<br />Labor Parts<br />You (probably) don't have technicians hanging from hooks in your back room, so like non-inventory items, the system will not try to remove them from inventory when you sell a labor item. The two differences between Non-Inventory items an Labor items are that you can optionally have the system ask you for the technician code that did the work so that you can print reports showing who did what work. As well, the system will optionally ask for a comment to explain what was done so that the description of the service work can be printed on the invoice.Note too that you can optionally keep track of how much time was spent and how much time was billed for on a per job basis. At the end of the month, you can then print technician productivity reports to compare total time spent compared to billable hours. In the automotive industry, some mechanics can do the work faster than is what is billed because the billing is based on industry standards.<br />Consignment Items<br />Consignments can be used to keep track of inventory that you don't own, but at the time you sell it, you must pay for it. You'll be able to generate several reports, including a list of inventory that is on consignment but not sold and a list of inventory sold on consignment, but not yet paid for.<br />Floor Plan Inventory<br />Floor planning is very similar to consignment, except that you take possession and own the inventory when you receive it, but you don't have to pay for it until it's sold, or until it's been in the store for a negotiated period of time. However, you do own the inventory and do have to pay for it sometime.Some floor planning companies want the ability to check the inventory serial number by serial number for the larger items, and others may just want to count the number of each model number on hand. Regardless, Windward System Five can handle it.On the accounts payable side, you will be able to keep track of who you owe the money too (Floor Planning Company) and who you actually bought the inventory from (Supplier) and generate proper histories of each.<br />Tire Inventory<br />Windward System Five has the ability to sort and categorize tires by their size, aspect ratio and rim size. In addition, you will also be able to search for the tires by just entering in some of the search criteria and having the system bring up a window of all matches.When the list brings up a list of tires that can all fit the vehicle, the system can sort the list to show the items with the highest quantity in stock at the top of the list and the items that are out of stock at the bottom of the list. This will help you sell what you actually have to sell instead of creating special orders.<br />Product Inventory<br />Products are items such as vehicles that you might service or repair after selling them to the customer. That is, they are an item in the database that can be sold, and when sold, are automatically added to the customer's list of products that can be worked on.Examples are vehicles, trucks, recreational vehicles, fridges, air conditioners, and chainsaws. The system will let you keep additional information on these products, such as make, model, year, and other comments, and will also be able to list all the work or repairs performed between two dates.<br />Windward System Five can also track whole goods such as recreational vehicles by keeping track of the cost of the item before the sale, add ones and pre-delivery inspection items. In addition, the system can generate a "
report one level deep to show the costs and income associated with the trade in.<br />Serialized Inventory<br />Those items that need to be tracked by their serial numbers can be marked as serialized inventory. For example, fridges, stoves, computers, and chainsaws might all be serialized. Note that if you plan on servicing these items in the future and keeping track of all work you do on them, they should be entered as products instead of serial numbers.<br />TYPES OF INVENTORY <br />Several different types of inventories are conducted, depending upon the type of materiel involved and type of information needed. Bulkhead-to-Bulkhead Inventory <br />A bulkhead-to-bulkhead inventory is a physical count of all stock materiel within the ship or within a specific storeroom. . A bulkhead-to-bulkhead inventory of a specific storeroom is taken when a random sampling inventory of that storeroom fails to meet the inventory accuracy rate of 90 percent when directed as a result of a supply management inspection (SMI). It is also taken when directed by the commanding officer or when circumstances clearly indicate that it is essential to effective inventory control. <br />Specific Commodity Inventory<br /> The specific commodity inventory is a physical count of all items under the same cognizance symbol, FSC, or that support the same operational function, such as- boat spares, electron tubes, boiler tubes, or fire brick. This inventory is taken under the same conditions as a bulkhead- to-bulkhead inventory; however, prior knowledge of specific stock numbers and item location is required to conduct a specific commodity inventory<br />Special Materiel Inventory <br />A special materiel inventory requires the physical count of all items that, because of their physical characteristics, costs, mission essentiality, and criticality, are specifically designated for separate identification and inventory control. Special materiel inventories include, but are not limited to, stocked items designated as classified or hazardous. Special materiel inventories also include controlled equipage and presentation silver<br />Advantage Inventory Control <br />The Inventory Control gives you the ability to handle your inventory your way. As one of the most flexible and comprehensive modules in the Advantage, you can choose the level of control that best suits your specific business needs. Your inventory can be valued on a LIFO, FIFO or Average cost basis. You can choose to use parts explosions, serialized inventory, parts allocations, vendors, warehouses and an audit trail. The system can also track the quantity sold for each item for the last 12 months and, using this data, provides a sales analysis report to help you better manage your stock. Financing is aided by the serialized aged report that shows which serialized items have been in your inventory the longest and how much you have outstanding. Pricing can be standardized by rounding to a given factor or by being set to a specific suffix. With the Below Minimum report, reordering stock is automatic and accurate. Inventory Control is a stand–alone module that can also be integrated with Purchase Orders, Point of Sale, Billing/Order Entry, Job Cost, Time Billing and Quick Sale.<br />21–character alphanumeric item number field <br />Lookup on item number, item description (21 characters) and group (15 character) fields <br />Tracks serialized items <br />Allows for superseded, preceded and substitute items <br />Unlimited additional descriptions can be added to items <br />Handles markup and gross profit cost basis <br />Can automatically update item pricing and discounts <br />Handles core pricing <br />Produces a re–order report based on minimum stock quantities <br />Tracks unlimited vendors per item and recommends a ‘best’ vendor <br />Tracks allocations including explosion allocations <br />Up to 254 discounts per item, including quantity break discounts <br />Unit conversions can be defined for each item for both buying and selling quantities <br />Allows for warehouse transfers and other quantity adjustments <br />Set up special sale dates for item discounting <br />Produces physical inventory forms <br />Imports physical inventory and received quantities from data collected with hand-held computers <br />Provides up to 255 levels of parts explosion to allow you to identify all components of your assembled stock<br />Automatically updates cost and price on explosion items based on subassembly changes <br />· Reports the best and worst selling items in each of eight different categories <br />· Tracks items by location or quantity in multiple warehouses <br />· Can automatically generate items based on a template item <br />· Utilizes Rapid Entry to facilitate entry of item data<br />Disadvantages: • conveyor needs to be slightly declined for carton movement (one way);• may require addition of powered booster units in some applications;• cannot be used for inter-floor movement except for down travel;• goods need to be manually pushed when horizontal;• no positive control over moving carton;• produces line pressure when accumulating.<br />· Require efficiency of land<br />We propose a method for valuing new, recoverable, and recovered assemblies (products, components, parts, etc.) in production systems with reverse logistics. Values of assemblies influence their opportunity holding cost rates and are hence essential for comparing inventory strategies in average cost models. We argue that the proposed method is 'correct' from a discounted cash flow (DCF) point of view. We refer to some previous results on valuing assemblies in systems without disassembly of returned products that seem to confirm this. Furthermore, we test the method for a specific example with disassembly of returned products. The simulation results indicate that the method indeed leads to (nearly) DCF optimal inventory strategies. <br />Packaging<br />In TELCON, with its large product volumes, High margins and fierce competition, is constantly seeking efficiency improvements in its supply chain. The grocery retail industry uses an immense amount of packaging and is directly affected by packaging logistics activities. There is, therefore, a potential for efficiency improvements in the grocery retail supply chain through the integration and development of new systems of packaging and logistics. Packaging handling is identified as one of the main activities that has a strong impact on the overall logistical cost of chain. This research article investigates packaging handling evaluation methods and discusses how these are employed to benefit the industry from the industry, have been used to evaluate packaging and logistics activities. This work, together with a literature review, was used to identify the need for evaluative methods and the present availability of such methods. The results indicated a lack of sufficient and usable packaging handling evaluation methods in today's grocery and packaging industry especially from a logistical point of view. The paper also highlights the lack of systematization among the few methods used and discusses how these can be used to build a systematic and multifunctional evaluation model in order to utilize the information from different studies to build a knowledge base for the future<br /> <br />Vendor-Managed Inventory <br />TELCON is a leading global manufacturer, focused on delivering operational services to high-tech companies, needed to take advantage of vendor-managed inventory (VMI) postponement and optimal fulfillment solutions to stay competitive in its low-margin manufacturing marketplace. Its objective was to find ways to reduce inventory redundancy, improve customer responsiveness by reduced cycle times and simplify supplier management and procurement administration. The manufacturer also needed to augment existing infrastructure, while reducing investments in additional personnel, facilities and systems Vendor Managed Inventory (VMI) <br /> <br />Vendor Managed Inventory supports the efficient flow of materials into the market. Working closely with you and your suppliers, we automate the forecast management process with Web-based software that enables the flow of supply to more accurately mirror store – and even shelf-level – demand.<br />Move your inventory in and out of our distribution centers and manage demand planning. We can store and stage product for replenishment at our often freeing or limited store rooms. We provide forecast visibility, comparing actual demand against DC-on-hand, store-on-hand and in-transit inventory. When store or inventory falls below pre-determined levels, auto alerts are sent to you and your supplier to prompt replenishment. <br />Advanced Shipping Notices (ASNs) provide detail on in-transit inventory from suppliers so you have visibility to inventory deeper into the supply chain. This allows for confident commitment to orders based on this inbound flow. <br />Postpone inventory ownership until shipment to your site. Once your inventory is moved to the we work with your suppliers to transition inventory ownership until demand occurs. <br />Perform value-added services, allowing you to more efficiently manage the flow of goods into manufacturing or directly to market.<br />6. WAREHOUSE<br />A warehouse is a commercial building for storage of goods. Warehouses are used by manufacturers, importers, exporters, wholesalers, transport businesses, customs, etc. They are usually large plain buildings in industrial areas of cities and towns. They come equipped with loading docks to load and unload trucks; or sometimes are loaded directly from railways, airports, or seaports. They also often have cranes and forklifts for moving goods, which are usually placed on ISO standard pallets loaded into pallet racks.<br />Some warehouses are completely automated, with no workers working inside. The pallets and product are moved with a system of automated conveyors and automated storage and retrieval machines coordinated by programmable logic controllers and computers running logistics automation software. These systems are often installed in refrigerated warehouses where temperatures are kept very cold to keep the product from spoiling, and also where land is expensive, as automated storage systems can use vertical space efficiently. These high-bay storage areas are often more than 10 meters high, with some over 20 meters high.<br />The direction and tracking of materials in the warehouse is coordinated by the WMS, or Warehouse Management System, a database driven computer program. The WMS is used by logistics personnel to improve the efficiency of the warehouse by directing putaways and to maintain accurate inventory by recording warehouse transactions.<br />Traditional warehousing has been declining since the last decades of the 20th century with the gradual introduction of Just In Time (JIT) techniques designed to improve the return on investment of a business by reducing in-process inventory. The JIT system promotes the delivery of product directly from the factory to the retail merchant, or from parts manufacturers directly to a large scale factory such as an automobile assembly plant, without the use of warehouses. However, with the gradual implementation of offshore outsourcing and offshoring in about the same time period, the distance between the manufacturer and the retailer (or the parts manufacturer and the industrial plant) grew considerably in many domains, necessitating at least one warehouse per country or per region in any typical supply chain for a given range of products.<br />Recent developments in marketing have also led to the development of warehouse-style retail stores with extremely high ceilings where decorative shelving is replaced by tall heavy duty industrial racks, with the items ready for sale being placed in the bottom parts of the racks and the crated or palletized and wrapped inventory items being usually placed in the top parts. In this way the same building is used both as a retail store and a warehouse.<br />TELCON has only one centralized warehouse in Nagpur Maharashtra <br />7. TRANSPORTATION<br />Transport or transportation is the movement of people and goods from one place to another. The term is derived from the Latin trans ("
) and portare ("
). Industries which have the business of providing equipment, actual transport, transport of people or goods and services used in transport of goods or people make up a large broad and important sector of most national economies, and are collectively referred to as transport industries.<br />MODES OF TRANSPORT USED FOR TRANFER OF INVENTORY IN TELCON<br />Air transport <br />Rail transport <br />Road transport, including human-powered transport such as walking and cycling <br />Ship transport <br />Transport is a major use of energy, and transport burns most of the world's petroleum. Transportation accounts for 2/3 of all U.S. petroleum consumption.<br />The transportation sector generates 82 percent of carbon monoxide and 56 percent of NOx emissions and over one-quarter of total US greenhouse gas emissions. Hydrocarbon fuels also produce carbon dioxide, a greenhouse gas widely thought to be the chief cause of global climate change, and petroleum-powered engines, especially inefficient ones, create air pollution, including nitrous oxides and particulates (soot). Although vehicles in developed countries have been getting cleaner because of environmental regulations, this has been offset by an increase in the number of vehicles and more use of each vehicle.<br />Other environmental impacts of transport systems include traffic congestion and automobile-oriented urban sprawl, which can consume natural habitat and agricultural lands.<br />Toxic runoff from roads and parking lots that can also pollute water supplies and aquatic ecosystems.<br />Alternative propulsion can reduce pollution. Low pollution fuels may have a reduced carbon content, and thereby contribute less in the way of carbon dioxide emissions, and generally have reduced sulfur, since sulfur exhaust is a cause of acid rain. The most popular low-pollution fuels at this time are biofuels: gasoline-ethanol blends and biodiesel. Hydrogen is an even lower-pollution fuel that produces no carbon dioxide, but producing and storing it economically is currently not feasible. Plug-in hybrids are energy-efficient vehicles that are going to be in the mass-production.<br />Another strategy is to make vehicles more efficient, which reduces pollution and waste by reducing the energy use. Electric vehicles use efficient electric motors, but their range is limited by either the extent of the electric transmission system or by the storage capacity of batteries. Electrified public transport generally uses overhead wires or third rails to transmit electricity to vehicles, and is used for both rail and bus transport. Battery electric vehicles store their electric fuel onboard in a battery pack. Another method is to generate energy using fuel cells, which may eventually be two to five times as efficient as the internal combustion engines currently used in most vehicles. Another effective method is to streamline ground vehicles, which spend up to 75% of their energy on air-resistance, and to reduce their weight. Regenerative braking is possible in all electric vehicles and recaptures the energy normally lost to braking, and is becoming common in rail vehicles. In internal combustion automobiles and buses, regenerative braking is not possible, unless electric vehicle components are also a part of the powertrain, these are called hybrid electric vehicles.<br />8. DISTRIBUTION<br />Distribution is one of the 4 aspects of marketing. A distributor is the middleman between the manufacturer and retailer. After a product is manufactured it is typically shipped (and usually sold) to a distributor. The distributor then sells the product to retailers or customers.<br />The other three parts of the marketing mix are product management, pricing, and promotion.<br />Traditionally, distribution has been seen as dealing with logistics: how to get the product or service to the customer. It must answer questions such as:<br />Should the product be sold through a retailer? <br />Should the product be distributed through wholesale? <br />Should multi-level marketing channels be used? <br />How long should the channel be (how many members)? <br />Where should the product or service be available? <br />When should the product or service be available? <br />Should distribution be exclusive, selective or intensive? <br />Who should control the channel (referred to as the channel captain)? <br />Should channel relationships be informal or contractual? <br />Should channel members share advertising (referred to as co-op ads)? <br />Should electronic methods of distribution be used? <br />Are there physical distribution and logistical issues to deal with? <br />What will it cost to keep an inventory of products on store shelves and in channel warehouses (referred to as filling the pipeline)? <br />THE DISTRIBUTION CHANNEL<br />Frequently there may be a chain of intermediaries, each passing the product down the chain to the next organization, before it finally reaches the consumer or end-user. This process is known as the 'distribution chain' or the 'channel.' Each of the elements in these chains will have their own specific needs, which the producer must take into account, along with those of the all-important end-user.<br />A number of alternate 'channels' of distribution may be available:<br />Selling direct, such as via mail order, Internet and telephone sales <br />Agent, who typically sells direct on behalf of the producer <br />Distributor (also called wholesaler), who sells to retailers <br />Retailer (also called dealer or reseller), who sells to end customers <br />Advertisement typically used for consumption goods <br />Distribution channels may not be restricted to physical products alone. They may be just as important for moving a service from producer to consumer in certain sectors, since both direct and indirect channels may be used. Hotels, for example, may sell their services (typically rooms) directly or through travel agents, tour operators, airlines, tourist boards, centralized reservation systems, etc.<br />There have also been some innovations in the distribution of services. For example, there has been an increase in franchising and in rental services - the latter offering anything from televisions through tools. There has also been some evidence of service integration, with services linking together, particularly in the travel and tourism sectors. For example, links now exist between airlines, hotels and car rental services. In addition, there has been a significant increase in retail outlets for the service sector. Outlets such as estate agencies and building society offices are crowding out traditional grocers from major shopping areas..<br />CHANNEL MEMBERS<br />Distribution channels can thus have a number of levels. Kotler defined the simplest level, that of direct contact with no intermediaries involved, as the 'zero-level' channel.<br />The next level, the 'one-level' channel, features just one intermediary; in consumer goods a retailer, for industrial goods a distributor, say. In small markets (such as small countries) it is practical to reach the whole market using just one- and zero-level channels.<br />In large markets (such as larger countries) a second level, a wholesaler for example, is now mainly used to extend distribution to the large number of small, neighborhood retailers.<br />In Japan the chain of distribution is often complex and further levels are used, even for the simplest of consumer goods.<br />Many of the marketing principles and techniques which are applied to the external customers of an organization can be just as effectively applied to each subsidiary's, or each department's, 'internal' customers.<br />In some parts of certain organizations this may in fact be formalized, as goods are transferred between separate parts of the organization at a `transfer price'. To all intents and purposes, with the possible exception of the pricing mechanism itself, this process can and should be viewed as a normal buyer-seller relationship. The fact that this is a captive market, resulting in a `monopoly price', should not discourage the participants from employing marketing techniques.<br />Less obvious, but just as practical, is the use of `marketing' by service and administrative departments; to optimize their contribution to their `customers' (the rest of the organization in general, and those parts of it which deal directly with them in particular). In all of this, the lessons of the non-profit organizations, in dealing with their clients, offer a very useful parallel.<br />CHANNEL MANAGEMENT<br />The channel decision is very important. In theory at least, there is a form of trade-off: the cost of using intermediaries to achieve wider distribution is supposedly lower. Indeed, most consumer goods manufacturers could never justify the cost of selling direct to their consumers, except by mail order. In practice, if the producer is large enough, the use of intermediaries (particularly at the agent and wholesaler level) can sometimes cost more than going direct.<br />Many of the theoretical arguments about channels therefore revolve around cost. On the other hand, most of the practical decisions are concerned with control of the consumer. The small company has no alternative but to use intermediaries, often several layers of them, but large companies 'do' have the choice.<br />However, many suppliers seem to assume that once their product has been sold into the channel, into the beginning of the distribution chain, their job is finished. Yet that distribution chain is merely assuming a part of the supplier's responsibility; and, if he has any aspirations to be market-oriented, his job should really be extended to managing, albeit very indirectly, all the processes involved in that chain, until the product or service arrives with the end-user. This may involve a number of decisions on the part of the supplier:<br />Channel membership <br />Channel motivation <br />Monitoring and managing channels <br />Good Distribution Practice or GDP deals with the guidelines for the proper distribution of medicinal products for human use. GDP is a quality warranty system, which includes requirements for purchase, receiving, storage and export of drugs, intended for human consumption.<br />GDP regulates the division and movement of pharmaceutical products from the premises of the manufacturer of medicinal products, or another central point, to the end user thereof, or to an intermediate point by means of various transport methods, via various storage and/or health establishments.<br /> <br />10. CONCLUSION<br />Logistics is the art and science of managing and controlling the flow of goods, energy, information and other resources like products, services, and people, from the source of production to the marketplace. It is difficult or nearly impossible to accomplish any international trading, global export/import processes, international repositioning of raw materials/products and manufacturing without a professional logistical support. It involves the integration of information, transportation, inventory, warehousing, material handling, and packaging. The operating responsibility of logistics is the geographical repositioning of raw materials, work in process, and finished inventories where required at the lowest cost possible.<br />Inventory is a list of goods and materials, or those goods and materials themselves, held available in stock by a business. Inventory are held in order to manage and hide from the customer the fact that manufacture/supply delay is longer than delivery delay, and also to ease the effect of imperfections in the manufacturing process that lower production efficiencies if production capacity stands idle for lack of materials.<br />FINALLY I CONCLUDE THAT TELCON HAS THE BEST INVENTORY CONTROL MEASURES THEY HAVE BACK UP FOR EVERYTHING WE LEARNT <br />HOW INVENTORY IS MANAGED<br />WHAT IS ROLE OF TRANSPORT<br />WHAT IS ROLE OF PACKAGING<br />ROLE OF SUPPLY CHAIN IN INEVNTORY<br />ROLE OF LOGISTICS DEPARTMENT IN INVENTORY<br />THEY CAN STILL UPGRADE MORE BY CONCENTRATING MORE ON <br />JUST IN TIME<br />MAKE BUY IMPORT<br />PRICE FIXING<br />COST ACCOUNTING<br />COST REDUCTION TECHNIQUES LIKE<br />VALUE ENGINEERING<br />STANDARDIZATION <br />AND OTHER TRANSPORTATIONS PROBLEMS<br />12. BIBLIOGRAPHY<br />WWW.GOOGLE.COM <br />WWW.TELCON.CO.IN<br />