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PROJECT REPORT ON
EFFECTIVENESS OF INVENTORY MANAGEMENT IN A
MANUFACTURING COMPANY
GALIAKOTWALA TECHNOLOGIES PVT LTD
( BEYOND TIME EXPERIENCE ZONE)
A Project Submitted to
University of Mumbai for partial completion of
the degree of Master Of Commerce
Under the Faculty of Commerce
By
Roll No
Under the Guidance Of
Prof. Shraddha Shukla
Studying at

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December, 2020
DECLARATION
I the undersigned Mr. Parth Krishna Kolambekar hereby, declare that the work embodied
in this work project work entitled “ Effectiveness of Inventory Management In
Manufacturing Company”, forms my own contribution to the research work carried out
under the guidance of DR. Shradha Shukla is a result of my own research work and has not
been previously submitted to any other university for any other degree /diploma to this or any
other University.
Wherever reference has been made to previous works to others , it has been clearly indicated
as such and included in Bibliography
I, hereby further declare that all information of this document has been obtained and presented
in accordance with academic rules and ethical conduct.
Date :- Signature Of Teacher :
Place :- Mumbai
Signature Of Student
Seal Of the
College

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CERTIFICATE
This is to Certify that Parth Krishna Kolambekar has worked and duly completed his
Project work for the degree of Master in Commerce in the subject of
and his/her project is entitled , “Effectiveness Of Inventory Management In Manufacturing
Company” under my supervision.
I further certify that the entire work has been done by the learner under my guidance and that
no part of it has been submitted previously for any degree or diploma of any university.
It is his/her own work and facts reported by his/her personal findings and investigation.
Prof. Shraddha Shukla Prof. Jagruti Darji
(Project Guide) (M.Com. Co-Ordinnator)
External examiner Dr. Minu Madlani
(Principal)

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ACKNOWLEDGEMENT
To list who all have helped me is difficult because they are so numerous and the depth is so
enormous.
I would like to acknowledge the following as being idealistic channels and fresh dimensions
in the completion of the project.
I take this opportunity to thank the University of Mumbai for giving me chance to do this
project.
I take this opportunity to thank my Principal Minu Madlani for Providing the necessary
facilities for completion of the project.
I take this opportunity to thank our coordinator Dr. Jagruti Darji for moral support and
guidance.
I would also like to express my sincere gratitude towards my project guide Dr. Shradha
Shukla whose guidance and care made the project successful.
I would like to thank my College Library, for having provided various reference books and
magazines related to my project.
Lastly, I would like to thank each and everyone who directly or indirectly helped me in the
completion of the project especially my Parents and Peers who supported me throughout my
project.

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ABSTRACT
This study examines the essence of effective inventories control and management to
manufacturing companies. The aim of this study is to investigate and ascertain areas of lapses
by the company and offer effective ways and solutions in which the manufacturing company
can explore the services of inventory management to effect its objectives. In carrying out this
study, various research instruments such as questionnaires and oral interview were used to
collect data from respondents and a research design was adopted. Based on the analysis, it was
discovered that inventory management plays a vital role in the manufacturing company. A well
functional inventory management following the recommendations can bring about proper
management thereby enhancing proper and effective production and it will equally ensure the
effective, efficient and adequate use of materials and resources in the manufacturing company.

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INDEX
Sr. No. Topic Page
No
CHAPTER NO.1 INTRODUCTION
1.1 BACKGROUND OF THE STUDY 09
1.2 STATEMENT OF THE PROBLEM 15
1.3 OBJECTIVE OF THE STUDY 15
1.4 TEST OF HYPOTHESIS 16
1.5 RESEARCH QUESTIONS 16
1.6 SIGNIFICANCE OF THE STUDY 17
1.7 SCOPE OF THE STUDY 17
1.8 LIMITATION OF THE STUDY 19
1.9 DEFINITION OF THE TERM 19
CHAPTER NO.2 RESEARCH METHODOLOGY
2.1 INTRODUCTION 21
2.2 CONCEPT OF INVENTORY 21
2.2.1 TYPES OF INVENTORY 25

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2.3 CLASSIFICATION OF INVENTORIES 29
2.4. INVENTORY POLICY 38
2.4.1. REASONS FOR INVENTORY 38
2.5. INVENTORY CONTROL 42
2.5.1. PURPOSES OF INVENTORY CONTROL 43
2.6. COST ASSOCIATED WITH INVENTORY 44
2.7 INVENTORY MODEL 47
2.8 ECONOMIC ORDER QUANTITY 49
2.8.1 REPLENISHMENT MODEL 51
2.9 INVENTORY LEVEL I 51
2.10 INVENTORY VALUATION METHOD 53
2.11 INVENTORY ACCOUNTING SYSTEM 56
2.12 STOCK TAKING METHOD 58
CHAPTER NO.3 LITERATURE REVIEW
3.0 INTRODUCTION 60
3.1 RESEARCH DESIGN 60
3.2 AREA OF THE STUDY 60
3.3 POPULATION OF THE STUDY 60
3.4 SOURCES OF DATA 61
CHAPTER NO.4 DATA ANALYSIS, INTERPRETATION
AND PRESENTATION
4.1 INTRODUCTION 61

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4.2 ANALYSIS OF DATA 61
4.3 TEST OF HYPOTHESIS 77
CHAPTER NO.5 CONCLUSION, FINDINGS AND
SUGGESTIONS
5.1 SUMMARY OF FINDINGS 77
5.2 CONCLUSION 79
5.3 RECOMMENDATIONS 80
CHAPTER NO.6 BIBLIOGRAPHY 81
ANNEXURE - A (QUESTIONNAIRE) 81
ANNEXURE – B ( LIST OF COMPANIES) 85

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CHAPTER ONE
INTRODUCTION
BACKGROUND OF THE STUDY
Inventory is one of the resources that are managed by business organizations and it was first
recorded in 1601. The need for inventory control cannot be overemphasized as it is a means

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for improving the performance of manufacturing industries. Inventory can be defined as a
record of a business current assets including property owned, merchandise on hand and the
value of work in progress and work complete but not sold and it is classified as a current asset
because it can be turned into liquid cash within a short period of time. Inventory has created a
great impact on the profitability of the manufacturing firm which resulted to the deep research
of this topic. Effectiveness of inventory management in a manufacturing company.
Inventory plays a major role in the operation of many businesses and manufacturing
companies. In manufacturing, inventories of raw materials allow companies to operate
independently of their sources of supplies. Day to dayType equation here. operation are
not dependent on deliveries from supplies since stock of the necessary mateials are maintained
and used s needed. Without inventory control, millions of naira could be lost year because of
non accountability of stocks and inaccurate checks and balances.
Good Inventory Management = Controlled Costs of Operation.
Inventory Management Saves your Money & allows you to fulfill your customers needs. In
other words, it enables successful cost control of operations. Knowing what you have what is
in your warehouse & how to manage the supply chain properly is the backbone of business. A
deep understanding of customer demand for what you sell is the key to proper inventory
management. Once you understand how your customer buy you can begin to make smart
buying & storing choices. Inventory is expensive to acquire, but businesses do so with the
expectations of selling it for profit. Inventory sitting on a shelf, however, locks up its value.
You may encounter working capital and cash flow issues, because you expected to turn it into
profit but haven’t. Good Inventory management solve these complex Problems.

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Tying up too much money in your inventory will bring your company down. Not
spending enough can hurt your customer services.you can find the perfect middle ground with
proper inventory management.
When it comes to improving your business Performance , data is a
good thing. But having too much data can be even worse than not having
enough – you’ll get so buried in reports that you’ll miss the most important indicators
of your business health.
The process of control and management of inventory is a very
important factor in the success or failure of any business for example, little stock will result in
stock out which will disrupt the production distribution cycle that is crucial to the survival of
all manufacturing companies while too much stock will tie down the resources of a company.
Poor or inadequate inventory management can present a serious challenge to the productive
capacity of a manufacturing organization. In addition to raw materials and finished goods,
many companies also maintain items of assets, property, inventories of work in progress, office
supplies, business firms and general operation supplies.
Inventories often constitutes the most significant part of current assets of large companies. In
the public limited companies, inventories are approximately 60% of current assets on the
average. The US Burean of the census stated that inventory and accounts receivable ate the two
largest accounts of equal magnitude and together they comprise almost 80% of current assets
and over 30% of total assets for all manufacturing companies in 1982.
Considering the large sum of money that are committed to the stocks of raw materials, work
in progress and finished goods, it is therefore of paramount necessity that these stocks be
managed efficiently and effectively in order to avoid the jeopardizing of the profit position of
the firm.

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In inventory, there is an optimum level therefore inadequate inventory causes loss of
sale and disrupts the production process while excessive stock level leads to unnecessary
carrying cost and obsolescence or spoilage risks. According to Charles T. Horngren (2007), the
optimum inventory. Level lies between the inadequate inventories and the excessive
inventories. Inventory management aims at maintaining an optimum inventory level that will
be carried at the least cost.
A BRIEF HISTORY OF GALIAKOTWALA TECHNOLOGIES PVT LTD
(BEYOND TIME EXPERIENCE ZONE)
The Galiakotwala Group has a long and respected history spanning three generations. It began
as a small hardware trading firm in Mumbai, India in 1923 and is involved in various trading
and manufacturing activities in both traditional and contemporary growth industries. Our
activities include distribution of electronic products, cotton trading, industrial and decorative
coatings, steel packing containers, chemical plant equipment, property development and
finance.
Our business has evolved over time, and has grown cumulatively to over Rs.500 crores (US $
100 Million). We have a network of 31 branch offices spanning the country in addition to 8
offices in Mumbai and also has significant international dealings and collaborations.
What has remained unchanged is our dedication and commitment towards our partners. We
believe that this personal investment in every relationship we have nurtured over these eventful
years is our most valued asset today.
Galiakotwala Technologies Pvt. Ltd. is an optimal blend of core ethical values and dynamic
business approach.

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We strive to be the first choice in providing new and superior technology in the field of
Consumer Electronics focusing on who are launching new products in the Indian market or are
looking to extend themselves in untapped market segments.
Over the years what has remained unchanged is our dedication and commitment towards our
customers and associates. We believe that this personal investment in every relationship we
have nurtured over these eventful years is our most valued asset today.
Electronics
This division was created to participate in the telecom and digital industry which is growing at
a rapid pace in our country.
Galiakotwala Technologies Pvt. Ltd. entered the field of telecom products in 1995 and over the
years has marketed BPL prepaid and post-paid services, Sony Ericsson Mobiles Phones,
Siemens Mobile Phones and Canon Digital Cameras among others. This division has also
forayed into servicing of Sony Ericsson Mobiles phones through its authorized Sony Ericsson
Service Station.
Subsequently the company took up distribution for Western Region, India (Maharashtra, Goa,
Gujarat, Madhya Pradesh and Chattisgarh) for Satguide Navigational Products, Panasonic
Digital Cameras and Casio Digital Cameras.
In the last 19 years, Galiakotwala Technologies Pvt. Ltd. has developed a sound network within
the mobile phone, photography, consumer electronic and corporate sales channels as well as a
decent network with the Auto Car Dealers and Auto Car Accessories Channel.
The company has also forayed into retail business of Electronic products in the name of
"Beyond Time" with a large size shop in shop with Akbarally's - Fountain and Akbarally's -
Chembur and have replicated the same concept in our E-Portal venture by the name of
www.beyondtime.in which focuses on providing Consumer Electronic Products and Services
to its Online Customers.
We provide Home/Office Automation solutions to our valued customers which begins with
complete Wi-Fi coverage along with integration of all gadgets like Android / Apple TV, LED

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TV's, Home Theatre Systems, NAS Drives, Printers, Projectors etc thereby creating an
experience zone by allowing users to control and connect all gadgets thru one single device.
For facilitating the above mentioned services we have tied up with Hathway to provide Ultra
High Speed Broadband Internet Solutions to all our customers.
With years of experience in handling Consumer Electronic Products along with being
strategically located at Nariman Point, the Business Hub of Mumbai, we have over the years
have built a good repute with our Corporate Clients for their overall requirements. Through our
team of competent and trained staff, we strive to establish market leadership for the products
within their category for brands we promote and distribute.

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STATEMENT OF THE PROBLEM
The problems seen in the course of this study are as follows:-
i. Ineffective management of inventory in the manufacturing company.
ii. Loss of sales or business of the company as a result of insufficient inventories of
finished goods.
iii. Low productivity in the manufacturing company as a result of poor inventories
model used by the company iv. Poor management and control of inventories in the
manufacturing company.
OBJECTIVE OF THE STUDY

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The major objective of this study is to determine of the effectiveness of inventory management
in a manufacturing company. The specific objectives of this study are as follows:-
i. To determine to what extent the ineffective management of inventory in has caused
low productivity in the coampany.
ii. To examine the extent to which insufficient inventory of finished goods cause loss
of sales to the company.
iii. To identify the degree to which poor inventory modern used by the company has
resulted to low productivity in the company.
iv. To ascertain whether the company has suffered from poor
management and control of inventories.
TEST OF HYPOTHESES
Based on the problems and objectives of this study, the following hypotheses are formulated
for this research.
Ho: There is no significant relationship between low productivity and poor inventories
management.
H1: There is a significant relationship between low productivity and poor inventories
management.
Ho: There is no significant relationship between proper inventory policies and productivity in
a manufacturing company.
H2: There is a significant relationship between proper inventory policies and productivity in a
manufacturing company.

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RESEARCH QUESTIONS
For the purpose of this research study, the following research questions were formulated:
1. Does effective inventory control ensure continuous production of goods ?
2. What is the state of inventory management in the manufacturing company?
3. Has effective inventory control made a significant impact on the manufacturing
company?
SIGNIFICANCE OF THE STUDY
The significance of this study lies on the fact that with improved inventory control and
management in manufacturing companies, the following persons may benefit from it:
It will be significant to manufacturing companies, firms and businesses as it will enable
them keep an adequate inventory control and ensure that they do not run out of stock or have
excess stock which can endanger their liquidity position. It will also help to meet consumer’s
demands or quest. It is also important to the government as it will help to reduce waste of
investment inventory. It will also help lecturers to really know the importance of inventory
control so that they will be able to impact it on their students. This study will also reveal the
relevant methods to be used in preventing mismanagement; it will also improve stock control
which has led to the mismanagement and unproductively of materials.

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SCOPE OF THE STUDY
This research work on the effectiveness of inventory management in a manufacturing
company. 7 Main Scope of inventory management & Control.
1.Determination Of Economic Order Quantity
Economic order quantity or economic lot size refers to that number ordered in a single
purchase or number of units should be manufactured in a single run, so that the total costs —
ordering or set up costs and inventory carrying costs are at the minimum. So, the
determination of E.O.Q. is also within the scope of inventory control.
2.Formulation Of Policy
The policies of investment procurement, storage, handling, accounting, storages and stock
outs, deterioration, obsolescence etc. are to be formulated under the scientific system of
inventory control. What, when and how much of purchasing and fixation of minimum and
maximum levels is also to be determined for a given period of time.
3.Determination Of Lead Time
By lead time is meant the time that lapses between the raising of an indent by the stores and
the receipt of materials by them. Lead time is of fundamental importance in determining
inventory levels.
4. Effectiveness Towards Running The Store
The determination of policies of the location, layout and materials and storage handling
equipments certainly help in the effective working of stores organisation.
5. Organisation Structure
After determining of inventory policy, the next step is to decide the location, layout and types
of storehouse. It facilitates the movement of materials and thus minimise the storage and
handling cost of stores.

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6. Determination Of Safety Stock
Safety stock is defined as the difference between the amount stocked to sati.sfy demand
during a certain time interval and the mean expected demand for that period. It is for the
purpose of providing protection against depletion. If demand remained constant and lead tin-;
is invariable, there would be no fear of shortages and no need for safely stocks.
The exact quantity of safety stock of an item depends upon its lead time, usage value, and
variability of lead time demand, carrying charges and the importance of its stock out cost.
Again, determination of buffer stock reserve stock is included in the management of
inventory.
7. Minimum Material Handling & Storage Cost
Stores organisation activities are arranged in such a manner that the east of bringing in the
store house and issuing from the store house if the various stores, will minimise the storage
and materials handling cost of stores.
LIMITATIONS OF THE STUDY
Some limitations and factors in this research study are as follows:-
i. The time required for the research and the submission of this work is very short and
the researcher was unable to go through all manufacturing companies.
ii. Financial constraints:-Finance which is the most important
resource for this work was not readily available.
iii. Limited exeat:-Due to the fact that exeat is very difficult to get in school, proper
research was not carried out and this affected the integrity of the results achieved.

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iv. Unco-operative attitudes of some of my respondents:- The management of Ama
Breweries prohibited its employees from giving out information about the company
to outsiders without adequate permission from the management and even when this
permission was obtained at the long run, many vital information were not revealed
because they were regarded as the privacy of the company.
DEFINITION OF TERMS
INVENTORY:-
This is a record of a business’ current assets. It can also be described as the merchandise or
supplies held or in transit at a particular point in time.
Inventory is the term for the goods available for sale and raw materials used to produce goods
available for sale. Inventory represents one of the most important asset of a business because
the turnover of inventory represents one of the primary sources of revenue generation and
subsequent earnings for the company's shareholders.
Inventory is the arrey of finished goods or goods used in production held by a company.
Inventory is classified as a current asset on a company's balance sheet, and it serves as a buffer
between manufacturing and order fulfillment. When an inventory item is sold, its carrying cost
transfers to the cost of goods sold (COGS) category on the income statement.
Important :- Holding inventory for long periods of time is disadvantageous given storage
costs and the threat of obsolescence
KEY TAKEAWAYS
 Inventory is the goods available for sale and raw materials used to produce goods
available for sale.

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 The three types of inventor include raw materials, work-in-progress, and finished
goods.
 Inventory is classified as a current asset on the balance sheet and is valued in one of
three ways—FIFO, LIFO, and weighted average.
CHAPTER TWO
LITERATURE REVIEW
INTRODUCTION
A truly effective inventory management system will minimize the complexes involved in
planning, executing and controlling a supply chain network which is critical to business
success. The opportunities available by improving a company’s inventory management can
significantly improve bottom line business performance.
Oftentimes, inventory is the largest items in a manufacturer’s or distributor’s balance sheet.
As a result, there is a lot of management emphasis on keeping inventories down so that they
will not consume too much cash.

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CONCEPT OF INVENTORY
Inventories are vital to the successful functioning of manufacturing and retailing organizations.
This is because many companies hold inventories as part of their business operation.
Inventories make up the most significant part of current assets of most companies especially
the manufacturing companies. The need for management to ensure inventory control if properly
managed cannot be over emphasized. A firm neglecting inventory management will be
jeopardizing its ling run profitability and it may end up failing in its business. The definition
of inventory has been defined by many professional bodies and scholars in different ways. The
Microsoft Encarta premium defined it as the quantity of goods and materials on hand. A
manufacturer’s inventory represents those items that are ready and available for sale.
Inventory can be defined as a tangible property held to resale in the ordinary course or business,
in the production for sale, to be consumed in the production of goods and services According
to Jain (1999:472), inventory is the aggregate of these items of intangible property which are
held for sale in the ordinary cause of the business, held in the process of production for such
sales to be currently consumed in the production of goods and services to be made available
for sale.
Businesses can only function efficiently as a result of different variables. Arguably, the most
important of those variables is customer satisfaction. After all, without customers, there’s no
business in the first place! But how does a company get (and keep) those customers? By
tracking their available supply using different types of inventory.
Supply and demand is a common concept: your business succeeds when you have a supply of
goods and/or services available to your customers. In order to create and maintain demand,
supply must be constant. Knowing your inventory and maintaining a seamless communication

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system (like the message board offered by Sling!) within your company helps you keep supply
up.
Businesses can only function efficiently as a result of different variables. Arguably, the most
important of those variables is customer satisfaction. After all, without customers, there’s no
business in the first place! But how does a company get (and keep) those customers? By
tracking their available supply using different types of inventory.
Supply and demand is a common concept: your business succeeds when you have a supply of
goods and/or services available to your customers. In order to create and maintain demand,
supply must be constant. Knowing your inventory and maintaining a seamless communication
system (like the messageboard offered by Sling!) within your company helps you keep suppl
6 KEY POINTS :-
1.ORDERING PRODUCTS :-
How you choose to purchase your merchandise will define your ordering method & quantities
you will need to reorder. This should be based on your return on investment. Large Retailers
have the benefit of using distribution warehouses & complex systems that break each item into
smaller units to ship & to store as items are ordered.
2. RECEIVING A SHIPMENT :-
A Key Point of loss is that the time of receiving inventory. Closely reviewing packing slips to
catalogue shipment is necessary for inventory management. You will also want to carefully
inspect items before the shipping company leaves in case you need to file a damage claim. Each

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shipment should be closely checked, and this should include counting products & comparing
them to packaging slip.
3. STORING INVENTORY :-
After receiving your products , you will need to decide where they should be placed. Will you
be using your garage , a local warehouse or a distribution facility that will both store & ship
your products? Whatever you decide, develop a systemetic way to be able to find your
products.
4. MINIMIZING LOSS :-
Most of us think of loss as theft. However, a substantial amount of loss simply occurs due to
clerical mistakes. These mistakes can occur at any point during the inventory cycle.
Incorporating loss prevention techniques can help prevent these costly problems.
Managing Your inventory effectively may require implementing a variety of loss prevention
techniques including utilizing security cameras to reduce customer & employee theft, using
security tags, limiting access to inventory & carefully monitoring customer returns.
5. TAKING REGULAR INVENTORY :-
Inventory management also includes taking periodic inventory for tax purposes. Inventorying
more often can also help you better understand loss trends & the amount of unsold merchandise.
Consider having scheduled inventory days when employees check inventory for quality & age.
This is the time to weed out old products by having clearance sale or special promos to liquidate
merchandise.

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6. INVENTORY MANAGEMENT SOLUTIONS :-
If you sell products, a inventory management solutions is something that you definitely need
to consider. There are many to choose from that are designed specially for small businesses.
Most inventory systems currently available will help your oversee the flow of your products,
create invoices & Purchase Orders , generate receipts & control inventory related accounting
for you.
TYPES OF INVENTORY
Vohra (2008) classified inventories according to the purpose for which they are held. He stated
that inventories may be held for a variety of purposes, but in general these are five types of
inventories that an organization can use for serving these purposes and they include:

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1. MOVEMENT INVENTORIES
This is also called transit inventories. It is due to the fact that transportation time is involved
in transferring substantial amount of resources for example, when goods are on transit they
cannot provide any service to the customers.
Goods in transit refers to merchandise and other types of inventory that have left the shipping
dock of the seller, but not yet reached the receiving dock of the buyer. The concept is used to
indicate whether the buyer or seller of goods has taken possession, and who is paying for
transport. Ideally, either the seller or the buyer should record goods in transit in its accounting
records. The rule for doing so is based on the shipping terms associated with the goods, which
are:

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FOB shipping point. If the shipment is designated as freight on board (FOB) shipping point,
ownership transfers to the buyer as soon as the shipment departs the seller.
FOB destination. If the shipment is designated as freight on board (FOB) destination,
ownership transfers to the buyer as soon as the shipment arrives at the buyer.
2. BUFFER INVENTORIES
This is also known as reserve stock. This is a stock of basic commodity accumulated by a
government when supplies are plenty, and prices low and held for use when supplies are short
to establish the price. Buffer inventories are held so as to protect against the uncertainties of
demand and supply. An organization generally knows the average and could well exceed it.
To be able to handle this kind of situation, inventories may be held in excess of the average or
expected demand. The lead time may be known but a times unpredictable events could cause
the lead time to vary.
As previously stated, inventory is sometimes used to protect against the uncertainties of supply
and demand, as well as unpredictable events such as poor delivery reliability or poor quality of
a supplier's products. These inventory cushions are often referred to as safety stock. Safety
stock or buffer inventory is any amount held on hand that is over and above that currently
needed to meet demand. Generally, the higher the level of buffer inventory, the better the firm's
customer service. This occurs because the firm suffers fewer "stock-outs" (when a customer's
order cannot be immediately filled from existing inventory) and has less need to backorder the
item, make the customer wait until the next order cycle, or even worse, cause the customer to
leave empty-handed to find another supplier. Obviously, the better the customer service the
greater the likelihood of customer satisfaction.

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3. ANTICIPATION INVENTORIES
These inventories are held for the purpose of the future demand for a product. This situation
occurs when a company embarks on the production of some specialized items before the season
for them set in for example, the production of umbrellas and rain coat before the rainy season
sets in.
Oftentimes, firms will purchase and hold inventory that is in excess of their current need in
anticipation of a possible future event. Such events may include a price increase, a seasonal
increase in demand, or even an impending labor strike. This tactic is commonly used by
retailers, who routinely build up inventory months before the demand for their products will be
unusually high (i.e., at Halloween, Christmas, or the back-to-school season). For
manufacturers, anticipation inventory allows them to build up inventory when demand is low
(also keeping workers busy during slack times) so that when demand picks up the increased
inventory will be slowly depleted and the firm does not have to react by increasing production
time (along with the subsequent increase in hiring, training, and other associated labor costs).
Therefore, the firm has avoided both excessive overtime due to increased demand and hiring
costs due to increased demand. It also has avoided layoff costs associated with production cut-
backs, or worse, the idling or shutting down of facilities. This process is sometimes called
"smoothing" because it smoothes the peaks and valleys in demand, allowing the firm to
maintain a constant level of output and a stable workforce
4. DE-COUPLING INVENTORIES
This is to disengage different parts of the production system. Inventories in-between the
various machines are held in order to disengage the processing on these machines. Different
machines and people normally work at different rates so that when a machine breaks down the

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work will not stop. The de-coupling inventories act as a cushioning effect in the face of the
varying work rates and machine failures.
Very rarely, if ever, will one see a production facility where every machine in the process
produces at exactly the same rate. In fact, one machine may process parts several times faster
than the machines in front of or behind it. Yet, if one walks through the plant it may seem that
all machines are running smoothly at the same time. It also could be possible that while passing
through the plant, one notices several machines are under repair or are undergoing some form
of preventive maintenance. Even so, this does not seem to interrupt the flow of work-in-process
through the system. The reason for this is the existence of an inventory of parts between
machines, a decoupling inventory that serves as a shock absorber, cushioning the system
against production irregularities. As such it "decouples" or disengages the plant's dependence
upon the sequential requirements of the system (i.e., one machine feeds parts to the next
machine).
The more inventory a firm carries as a decoupling inventory between the various stages in its
manufacturing system (or even distribution system), the less coordination is needed to keep the
system running smoothly. Naturally, logic would dictate that an infinite amount of decoupling
inventory would not keep the system running in peak form. A balance can be reached that will
allow the plant to run relatively smoothly without maintaining an absurd level of inventory.
The cost of efficiency must be weighed against the cost of carrying excess inventory so that
there is an optimum balance between inventory level and coordination within the system.
5. CYCLE INVENTORIES

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These inventories are held for the purpose of purchases which are usually made in lots
rather than for the exact amounts which may be needed at a point in time. If all purchases are
made exactly as at when the item is required, these would be no cycle inventories. Those who
are familiar with the concept of economic order quantity (EOQ) know that the EOQ is an
attempt to balance inventory holding or carrying costs with the costs incurred from ordering or
setting up machinery. When large quantities are ordered or produced, inventory holding costs
are increased, but ordering/setup costs decrease. Conversely, when lot sizes decrease, inventory
holding/carrying costs decrease, but the cost of ordering/setup increases since more
orders/setups are required to meet demand. When the two costs are equal (holding/carrying
costs and ordering/setup costs) the total cost (the sum of the two costs) is minimized. Cycle
inventories, sometimes called lot-size inventories, result from this process. Usually, excess
material is ordered and, consequently, held in inventory in an effort to reach this minimization
point. Hence, cycle inventory results from ordering in batches or lot sizes rather than ordering
material strictly as needed.
CLASSIFICATION OF INVENTORIES
Inventories are classified in manufacturing companies as follows:-
1. RAW MATERIALS :-
Raw materials are inventory items that are used in the manufacturer's conversion process to
produce components, subassemblies, or finished products. These inventory items may be
commodities or extracted materials that the firm or its subsidiary has produced or extracted.
They also may be objects or elements that the firm has purchased from outside the organization.
Even if the item is partially assembled or is considered a finished good to the supplier, the
purchaser may classify it as a raw material if his or her firm had no input into its production.
Typically, raw materials are commodities such as ore, grain, minerals, petroleum, chemicals,

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paper, wood, paint, steel, and food items. However, items such as nuts and bolts, ball bearings,
key stock, casters, seats, wheels, and even engines may be regarded as raw materials if they are
purchased from outside the firm.
Raw materials are necessary to the life of any business. They’re made up of the materials your
business uses to produce its own goods.
For example, water, sugar, and lemon would be the raw materials you’d need if you run a
lemonade business. Without those raw materials, you can’t produce the beverage you market
and sell. Lemonade on hand = satisfied (and no longer thirsty) customers.
If your company does not have a system in place to track its supply of raw materials, you can’t
accurately forecast what you’ll produce over the next quarter or year.
The bill-of-materials file in a Material Requirements Planning system (MRP) or a
manufacturing resource planning (MRP II) system utilizes a tool known as a product structure
tree to clarify the relationship among its inventory items and provide a basis for filling out, or
"exploding," the master production schedule. Consider an example of a rolling cart. This cart
consists of a top that is pressed from a sheet of steel, a frame formed from four steel bars, and
a leg assembly consisting of four legs, rolled from sheet steel, each with a caster attached.
Generally, raw materials are used in the manufacture of components. These components are
then incorporated into the final product or become part of a subassembly. Subassemblies are
then used to manufacture or assemble the final product. A part that goes into making another
part is known as a component, while the part it goes into is known as its parent. Any item that
does not have a component is regarded as a raw material or purchased item. From the product
structure tree it is apparent that the rolling cart's raw materials are steel, bars, wheels, ball
bearings, axles, and caster frames.

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2. WORK IN PROGRESS :-
This can be defined as an incomplete ongoing piece of work. It also refers to items that are
partially completed but are not yet finished products. It also refers to the stock of all materials
in which processing has commenced but it is not yet completed. Such materials are usually
found between raw materials and finished goods.(defined work-in-progress as partly finished
goods and material subassemblies between manufacturing stages.
Work-in-process (WIP) is made up of all the materials, parts (components), assemblies, and
subassemblies that are being processed or are waiting to be processed within the system. This
generally includes all material—from raw material that has been released for initial processing
up to material that has been completely processed and is awaiting final inspection and
acceptance before inclusion in finished goods.
Any item that has a parent but is not a raw material is considered to be work-in-process. A
glance at the rolling cart product structure tree example reveals that work-in-process in this
situation consists of tops, leg assemblies, frames, legs, and casters. Actually, the leg assembly
and casters are labeled as subassemblies because the leg assembly consists of legs and casters
and the casters are assembled from wheels, ball bearings, axles, and caster frames.
Work-in-progress (WIP) is made up of the different parts that are being processed in a system,
including all:
Necessary materials
Parts (components)
Assemblies
Subassemblies

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WIP usually includes raw materials that have been released for initial processing. It also covers
the entire process of a production. Say, for example, you own an auto repair company. Brake
pads would be part of your WIP.
3. FINISHED GOODS:-
A finished good is a completed part that is ready for a customer order. Therefore, finished
goods inventory is the stock of completed products. These goods have been inspected and have
passed final inspection requirements so that they can be transferred out of work-in-process and
into finished goods inventory. From this point, finished goods can be sold directly to their final
user, sold to retailers, sold to wholesalers, sent to distribution centers, or held in anticipation of
a customer order.
Any item that does not have a parent can be classified as a finished good. By looking at the
rolling cart product structure tree example one can determine that the finished good in this case
is a cart.
Inventories can be further classified according to the purpose they serve. These types include
transit inventory, buffer inventory, anticipation inventory, decoupling inventory, cycle
inventory, and MRO goods inventory. Some of these also are know by other names, such as
speculative inventory, safety inventory, and seasonal inventory. We already have briefly
discussed some of the implications of a few of these inventory types, but will now discuss each
in more detail.
Like you probably would have guessed, finished goods inventory includes any complete
products that are now ready to be marketed and sold. If your restaurant business makes pre-
packaged ice cream treats, for instance, the packaged and boxed ice cream cones would be
finished goods inventory.

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4) Packing Material :-
As the name suggests, packing material is the inventory you use to pack and ship your finished
goods. Packing material usually falls into one of three categories:
Primary packing
Secondary packing
Miscellaneous packing
Primary packing material includes the box, bag, or other material that encloses your product
while on retail display. If your business manufactures laundry detergent, your primary packing
material is the box or bottle that customers pull off the grocery store shelf.
Secondary packing material is the box, bag, or other material you use for convenient storage
and transportation of your product. Continuing with the laundry detergent example, the
secondary packing material is the large box that holds four bottles of your product for bulk
storage and shipping to retail locations.
Miscellaneous packing material is all of the other items that you use for the storage and
transport of your product, including:
Bubble wrap
Foam peanuts
Pallets
Pallet wrap
Labels
At first glance, packing materials might not seem like a significant expense. But your business
does use a large amount of these supplies every day. If you don’t keep tight control of this
inventory, the cost will quickly add up.

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5) Safety Stock :-
With good monitoring, tracking, and control, you can allocate certain types of inventory to
protect against supply-and-demand uncertainties, low delivery reliability, and poor-quality
components. This type of inventory cushion is called safety stock (or buffer inventory).
Safety stock is the amount of product you keep on hand that exceeds what your business needs
to satisfy regular demand.
With safety stock, you can avoid:
Stock-outs (when an order cannot be filled from existing inventory)
Backorders
Making the customer wait until the next production cycle
Causing the customer to go elsewhere to find the product
When your business doesn’t have to contend with these issues, it can provide better customer
service—getting the product in the customer’s hand when they need it without making them
wait—and, ultimately, better customer satisfaction.
Depending on the business you run and the industry in which it operates, a significant amount
of safety stock may be a necessary type of inventory. Other businesses can get away with little
or no safety stock. It all depends on the market and how quickly you can manufacture a product
(with high quality) and deliver it to your customers.
A detailed review of your workflow, workforce, and fulfillment schedule will give you a clear
picture of whether or not safety stock is right for your business.
6) Smooth Inventory :-

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Smoothing inventory (a.k.a. anticipation inventory) is a type of inventory in which a
manufacturer purchases and stores products or supplies in excess of current needs in
anticipation of a future event.
Businesses do this because it “smoothes” out the peaks and valleys of seasonal, fluctuating
demand and allows them to maintain a constant output. Here’s how it works.
A pen manufacturer will build up components, supplies, and completed stock in the months
leading up to the start of a new school year (when demand is at its highest). Then, during the
rush of back to school time, the manufacturer slowly reduces the excess inventory without
having to increase production time.
Storing smoothing inventory allows the manufacturer to save money in other ways, including:
Keeping workers busy during slow months
Preventing temporary layoffs
Stocking up on supplies when prices are lower
Avoiding hiring, onboarding, training, and other labor costs
Minimizing overtime hours associated with increased production
Averting plant shut-down or idling
If your business deals with a seasonal increase in demand, building this type of inventory before
the rush comes, can keep your workflow running smoothly and efficiently all year long.
7) Decoupling :-
In a manufacturing environment, very rarely does every machine produce at the same rate. One
or two pieces of equipment may run several times faster than other pieces of equipment in front

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of or behind them in the production chain. Sometimes, machines are down for repairs or
maintenance.
Despite these differences in activity and production time, manufacturers can maintain the
workflow by holding decoupling inventory in stock.
Decoupling inventory are parts, supplies, and finished products that are waiting to be used by
the next machine in the chain. Think of it as a type of shock absorber that cushions the
manufacturing process against production irregularities caused by a difference in run time, a
breakdown, or maintenance of individual machines.
This type of inventory decreases the business’s dependence on the sequential nature of the
production line and means that Machine B doesn’t have to wait for Machine A to finish before
they can start. The Machine B operator can pull parts from decoupling stock even if Machine
A is down for repairs.
The more decoupling inventory a business holds in the various stages of production and
distribution the less it will have to coordinate to keep everything running smoothly.
9) MRO Goods :-
Maintenance, repair, and operating supplies—or MRO goods—are items put in place to
maintain tasks in the production process. These goods are usually a major component of the
production process but are not directly a part of the finished product.
Examples of MRO goods include gloves, packing materials, tools, etc. Even office supplies
like staples, pens and pencils, copier paper, and toner—all of the little parts that keep the wheels
turning—are considered MRO goods inventory.

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10) Theoretical :-
Theoretical inventory attempts to balance (equalize) inflow, processing, and outflow rates into
one ideal operation. To do that, theoretical inventory describes the average inventory necessary
for a given manufacturing run assuming that no production item (or work-in-progress item) has
to wait in a buffer (e.g., decoupling inventory).
In simpler terms, theoretical inventory is the minimum inventory needed for a product to move
through the manufacturing system without waiting.
Unless your business runs a single production system (e.g., one machine), theoretical inventory
will be an ideal that you may never reach because there will always be some inventory in the
system (e.g., transportation, decoupling, MRO, etc.). Nevertheless, you can use this type of
inventory to plan production runs and prepare for peak demand.
11) Transportation :-
Transit inventories are crucial to businesses that need to transport items or materials from one
location to another. Merchandise shipped by truck or rail can sometimes take days (or even
weeks) to go from a regional warehouse to your retail facility.
Inventory in transit must be accounted for when it comes to supply and demand, along with the
timelines for those demands to be met.
INVENTORY POLICY
The type of decision to be taken about inventory management is similar regardless of the size
and complexity of the business. However, all decisions may be made by one man in a simpler

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or smaller business, while a bigger or separate level of top management will usually be
concerned with inventory decision in complex businesses.
Inventory policies are used as guides in the process of establishing programs and
controls in business organizations so that a suitable rate of return will be earned on the
inventory investment. In most cases the decisions or policies will cover:
i. How much to order i.e the optimal quantity of an item that could be ordered whenever an
order is placed.
ii. When should an order be placed?
iii. How much safety stock should be kept.
REASONS FOR INVENTORY
There are many reasons why organizations maintain inventory of goods. The fundamental
reasons for doing so is that it is either physically impossible or economically unsound to have
goods manufactured whenever they are demanded for, without inventory of goods, customers
would have to wait until the goods they ordered for are manufactured.
There are some other reasons for keeping inventory, they are; the fluctuating nature of price of
raw materials may make an organization stock up inventory of raw materials when price is low,
it is good and profitable for an organization to buy in large quantity and keep it in inventory so
it can last through high price seasons.
1. More Accurate Ordering
This may seem obvious but its importance cannot be overstated. The products you buy and put
on the shelf is one of the biggest investments that you make in your business. How can you

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know what to order and keep on your shelves if you don’t know what you have? Whether you
are manually creating orders, using our suggested ordering or some combination of the two,
you need to know what you have so you know what you need.
2. Customer Service
Ever ask a store clerk for your favorite product and watch them fumble around, running from
the shelf to the stock room while you patiently wait for them to figure it out? Having an accurate
inventory figure in your retail management system eliminates this problem. Your staff can
quickly and easily tell your customers whether you have a product on hand right from the point
of sale. The right system can even tell them where to find it.
3. Vendor Management
At best our suppliers can be real partners, helping us to grow our sales and manage our
inventory more effectively so we grow together. At worst, they short ship, add on extra items
and send us damaged or expiring products. Using our Purchasing and Receiving Module as
part of your inventory management process will ensure that you are getting exactly what you
ordered and can easily track and respond to those times that you don’t.
4. Employee Efficiency
Your staff have better things they can be doing than searching for product and manually
receiving. Empower your employees to provide the great customer service you probably hired
them for by giving them the tools they need to accurately manage inventory as efficiently as
possible. Spending the time to track your inventory effectively will make ordering, receiving

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and those dreaded year-end inventory counts a breeze. Working with the right technology
partner will make this process simple, accurate and efficient.
5. Avoid Expired Product
There’s nothing worse than having to discount product because it’s getting close to its expiry
date. Effective inventory management will help you to identify stale dated and expiring
product. Easily run a report to know what may be approaching its expiry date and make sure
that you’re merchandising effectively to get it out the door before you are forced to mark it
down or write it off.
6. Avoid Damaged Product
The longer a product sits on the shelf the more likely it is to get bumped, dropped and damaged.
Inventory management processes like cycle counting, helps to identify slow moving items so
that you can blow them out to make space for products that will sell. Having a process for
tracking your damaged or returned product is an important part of inventory management. This
will allow you to identify patterns and trends that are costing you money.
7. Cost & Margin Control
We already know that inventory is one of the biggest investments that we make in our business.
You wouldn’t invest in the stock market without knowing how much your stocks are worth and
what your return is would you? Properly using an inventory management system is going to
give you the control you need to maximize profit while identifying problem areas. More
advanced systems allow you to more accurately track inventory value on a FIFO (First in, First
Out) basis while accounting for promotional costs and vendor discounts. Accurate inventory

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cost can also be factored into suggested ordering. Minimum stock levels can be set based on
inventory cost to ensure that your systems are suggesting you re-order low turnover items as
long as their cost falls within an acceptable threshold.
8. Loss Prevention
Nobody wants to think about this but according to the National Retail Security Survey
inventory loss is about 2% of sales. If your store does $1M in sales per year that’s $20,000
disappearing from your bottom line. Inventory shrink happens in a number of ways that
Inventory Management will lower. Employee theft, shoplifting, paperwork errors and supplier
fraud are the leading causes of shrink. These issues are all addressed with effective Inventory
Management systems. The number will never be zero but technology can help you get your
inventory loss as close to it as possible.
9. Cash Flow
We love working with small businesses. One of the most important issues for a small business
to manage is cash flow and this may be the most important benefits of an effective Inventory
Management system. Our software will directly affect your cash flow by helping you to assess
your inventory investment and improve inventory turnover to improve cash flow, increase
sales, improve margins, decrease shrink, improve customer service and improve employee
efficiency.
10. Knowledge is Power
Our customers are experts in what they do. Whether they are advising a patient on drug
interactions, suggesting the best cut of meat, picking out the perfect tomato or finding the right

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natural solution to a health issue, they are leaders in their industry. Our reporting and analytics
solutions are just here to reinforce their knowledge, experience, expertise and gut instinct to
help them make decisions to improve their business. Web-based dashboard reporting and
analytics are great but only if there is accurate information to report on. Having the right tools
for inventory management will ensure that you can make decisions based on the best possible
information.
INVENTORY CONTROL
Control in management is the activity of determining whether
resources have been provided and production carried out in accordance with plan and where
this is not the case, taking corrective action is needed. Control is the process of instituting
procedures and obtaining feedback as needed to ensure that all parts of the organization are
functioning effectively and moving towards the overall company’s goals.
Inventory control can be defined as an inventory policy designed to obtain right quantity and
right quality of raw materials at the right places. It can also be defined as the system used in
the firm to control a firm’s investment in stock. It includes the recording and monitoring of
stock levels, forecasting future demand and deciding when and how many to order. Inventory
control as the means of ensuring that actual flow of inventory in an organization conform to
plan.
Inventory control as the techniques used by store managers to ensure that materials are made
available when they are needed in the quantity, quality and price that they are needed without
the risk of stock out and over stocking.
However, for inventory control to be effective there must be a plan which is the development
of objectives in an organization and preparation of various budgets to achieve these objectives.

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Planning of inventory is very essential in an organization. A firm should be able to determine
its optimum level of investment in inventories. This situation can only be possible when the
company ensures that stocks are sufficient to meet the requirements of production and sales,
and the company must avoid holding surplus inventories that are unnecessary because it
increases the risk of obsolescence. Against this, a company cannot afford loss of sales because
of insufficient inventories and at the same time, it is expensive to have more inventories on
hand than necessary.
Various departments within the same company adopt different views and attitudes towards
inventories. For instance, the sales department of a company might desire large inventory in
reserve to meet virtually every demand that comes. The production department within the same
company would similarly ask for large inventories of materials so that the production system
will not be interrupted. On the other hand, the finance department would always request for a
minimum investment in inventories so that the fund can be used some where else for other
purposes. Therefore, inventory control involves the recording and monitoring of stock levels,
determining the optimal levels and forecasting future demands and decision. The main aim of
inventory control is to minimize cost associated with stock.
Purposes of inventory control
The following are the purposes of inventory control:
i. To minimize cost
ii. To maximize profit
iii To maximize the return on investment. iv. To avoid
running out of stock.
v. To prevent surplus stock that are unnecessary

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vi. To keep inventory with an available storage capacity.
vii. To control capital investment in order to avoid mismanagement and misappropriation
of funds.
viii. To maximize sales.
COST ASSOCIATED WITH INVENTORY
In order to determine an optimal inventory level or policy, the method often used is the cost
function. The classical inventory analysis identifies four manor cost components and it all
depends on the structure of an inventory situation.
The four major components of the cost are:
1. PURCHASE COST:
This is described as the purchase price for the items that are bought from external sources and
the production cost if the items are produced within the organization. It also refers to the
nominal cost of inventory. This may be constant per unit or it may vary as quantity purchased
increases or decreases. The quantity of discounts are considered because they are available for
bulk purchases and savings in production cost which would be possible with longer batch run
which affect the decision.
2. ORDERING COST:
This can be defined as the cost incurred in sending inquiries, writing purchased order. It is also
when goods are purchased from outside. According to Okeke (1997), ordering cost refers to
the cost associated with replenishing the inventory for purchased goods. According to Adeniji

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(2008), ordering cost is a cost incurred in placing the order up to the point of receiving the
goods into the warehouse. Inventory ordering cost include:
i. Cost of processing the papers.
ii. Cost of communications –telephone, e-mail, fax.
iii. Carriage in costs.
iv. Transport and travel.
3. CARRYING OR HOLDING COST
This refers to cost which consist of all cost relating to carrying inventories. According to
Okeke (1997), carrying cost refers to cost associated with maintaining the items in inventory.
According to Adeniji (2008), carrying cost is the cost incurred whenever a material is stored.
They are incurred because the firm has decided to maintain inventories. Carrying costs are costs
that are associated with storing an item in inventory and they are proportional to the amount of
the inventory and the time in which the inventory is held. Carrying cost includes:
i. Cost of funds tied down
ii. Insurance premium costs.
iii. Inventory handling costs.
iv. Heat light power and depreciation costs associated with the
inventory storage facilities.
v. Cost of spoilage, obsolescence (machines). Deterioration (for perishable goods) and
evaporation (for volatile products).
vi. General insurance and security costs.

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Carrying cost is considered to be variable cost because the larger the stock, the more
the cost associated with maintaining the inventory of the item. The cost of carrying an inventory
of item is sometimes expressed as a percentage of the value of the item and it is usually
expressed in terms of the amount of money per unit time period.
4. STOCK-OUT COST:
This cost is incurred when customer’s demands cannot be fulfilled because the inventory is
completely depleted. It refers to the disrupted production when materials are unavailable.
According to Okeke (1997), stock is as a result of an item that is needed but its inventory level
is completely depleted in a manufacturing system. a stock-out might cause production delays
idle labour, equipment and sometimes emergency supply order in the warehouse or retail
production and this may lead to loss of sales. According to Adeniji (2008), stock-out cost is the
cost that involves a situation where customers’ demands cannot be met because the stock is
exhausted. They are the opportunity cost of not having a stock item when there is effective
demand. Stock-out cost simply implies shortage of inventories of items. When an organization
runs out of supplies for its needs, it implies that its inventory level is too low and this situation
leads to loss of profit through cost sales, loss of future sales because it drives away customers,
wages being paid for idle time, loss of customers goodwill and customers canceling their orders
because of delay in the delivery.
INVENTORY MODEL
Inventory model is a mathematical model that helps business in determining the

48. 48
optimum level of inventories that should be maintained in a production process,
managing frequency of ordering, deciding on quantity of goods or raw materials to be
stored, tracking flow of supply of raw materials and goods to provide uninterrupted
service to customers without any delay in delivery.
There are two types of Inventory model widely used in business.
Fixed Reorder Quantity System
Fixed Reorder Period System.
Fixed Reorder Quantity System.
Fixed Reorder Quantity System is an Inventory Model, where an alarm is raised
immediately when the inventory level drops below a fixed quantity and new orders are
raised to replenish the inventory to an optimum level based on the demand. The point
at which the inventory is ordered for replenishment is termed as Reorder Point. The
inventory quantity at Reorder Point is termed as Reorder Level and the quantity of new
inventory ordered is referred as Order Quantity.
Average Demand (DAv): It is the average number of order requests made per day.
Average Lead Time (TL): The time required to manufacture goods or product.
Average Lead Time Demand (DL): Average number of orders requested during the Lead Time
Average Lead Time Demand (DL) = Average Demand (DAv) X Average Lead Time (TL)
Safety Stock (S): It is the extra stock that is always maintained to mitigate any future
risks arising due to stock-outs because of shortfall of raw materials or supply,
breakdown in machine or plant, accidents, natural calamity or disaster, labour strike or

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any other crisis that may the stall the production process.
The quantity of safety stock is often derived by analysing historical data and is set to
an optimized level by evaluating carefully the current cost of inventory and losses that
may be incurred due to future risk.
Reorder Level (RL): Reorder level is the inventory level, at which an alarm is triggered
immediately to replenish that particular inventory stock. Reorder level is defined,
keeping into consideration the Safety Stock to avoid any stock-out and Average Lead
Time Demand because even after raising the alarm, it would take one complete process
cycle (Lead Time) till the new inventories arrive to replenish the existing inventory.
Reorder Level (RL) = Safety Stock (S) + Average Lead Time Demand (DL)
Order Quantity (O): Order quantity is the Demand (Order requests) that needs to be delivered
to the customer.
Minimum Level: At least Safety Stock has to be always maintained to avoid any future stock-
outs as per the standard practices of inventory management.
Minimum Level (LMin) = Safety Stock (S)
Maximum Level: The maximum level that can be kept in stock is safety stock and the demand
(the quantity ordered).
Maximum Level (LMax) = Safety Stock (S) + Order Quantity (O)
Fixed Reorder Period System.
Fixed Reorder Period System is an Inventory Model of managing inventories, where an
alarm is raised after every fixed period of time and orders are raised to replenish the
inventory to an optimum level based on the demand. In this case replenishment of
inventory is a continuous process done after every fixed interval of time.

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Regular Intervals (R): Regular Interval is the fixed time interval at the end of which the
inventories would be reviewed and orders would be raised to replenish the inventory
Inventory on Hand (It): Inventory on hand is the Inventory level measured at any given
point of time.
Maximum Level (M): It is the maximum level of inventory allowed as per the
production guidelines. The maximum level is derived by analysing historical data.
Order Quantity: In this system, inventory is reviewed at regular intervals (R), inventory
on hand (It) is noted at the time of review and order quantity is placed for a quantity of
ECONOMIC ORDER QUANTITY
The optimum order may be determined by the costs that are affected by either the quantity of
inventories held or the number of orders placed. There is a problem of minimizing the cost of
holding inventories and the cost of ordering inventories at the same time because if more units
are ordered at one time, then few orders will be required within the same period of time and
this will mean a reduction in the ordering costs. However, when few orders are placed, large
average inventories must be maintained and this will mean an increase in the holding cost.
The aim of inventory planning is to ascertain the most efficient way to minimize the total cost
of ordering and the h holding cost and the model that minimizes the combined cost is the
economic order quantity which was originally formulated in 1915 by F.W.Harris.
Economic order quantity can be described as the ideal order size that is the size of an order for
goods that minimizes the sum of shipping, handling and carrying costs.
Economic order quantity as the amount of

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materials to be ordered at one time. It is defined as the quantity of inventory item to order so
that inventory costs are minimized over the firm’s planning period. Olowe (2008), defined
economic order quantity as the optimal ordering quantity for an item that will minimize cost.
However, Horngren (2007), wrote that economic order quantity model is a decision model that
calculates the optimal quantity of inventory of items ordered under a given set of assumptions:
ASSUMPTIONS OF ECONOMIC ORDER QUANTITY
ACCORDING TO THE HORVGREN (2007)
i. The demand for the item is certain, continuous and constant
overtime.
ii. The same quantity is being ordered at each re-order point.
iii. The lead time is known and fixed and the delivery time is
instantaneous.
iv. The purchase price of the item is constant, that is no discounts is available for bulk
purchases.
v. The inventory is replenished immediately as the stock level gets to zero.
vi. No stock-out occurs
vii. The per unit holding cost and the ordering cost are constant within the range of the
quantities to be ordered.
REPLENISHMENT MODEL

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In this model, inventory costs are not considered explicitly and there is no fixed re-order
quantity rather inventory is reviewed at periodic intervals and if there has been any sales
since the last review, an order is placed. The replenishment level is aimed at keeping
inventory at a minimum level consistent with maintaining some particular protection
against stock-out and a particular schedule of the periodic review of reorders.
INVENTORY LEVEL IRE
– ORDER LEVEL:
Re-order level is the level where an item in stock reaches and these will be an order for
replenishment. There will be a certain level in which the items in stock will fall and it will
necessitate a new order to be placed.
Pandey defined re-order level as the level at which an order should be placed in order to
replenish the inventory. He enumerated some of the points that should be taken into
consideration before determining the re-order point and they include: lead time, the economic
quantity and the average time. Lead time is the time taken in receiving the delivery of inventory
after the order has been placed.
II MAXIMUM STOCK
The maximum stock level is a not-to-exceed amount used for inventory planning. This stock
level is based on a calculation of the cost of storage, standard order quantities, and the risk of
inventory becoming obsolete or spoiling with the passage of time. Another issue may be a strict
limitation on storage space, as may be the case for refrigerated or frozen goods.

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The maximum stock level tends to be quite high for low-volume, low-cost items that are
unlikely to become obsolete, such as fittings and fasteners. Conversely, the maximum stock
level tends to be quite low for high-volume or high-cost items, and especially those with short
shelf lives. Thus, the maximum stocking level might only be enough for a few days or weeks
for fashion clothes (short shelf life), computer chips (high cost), and refrigerators (high
volume).
III. Minimum stock level:
A minimum stock level is the level of an item of material, below which the actual
stock should not normally be allowed to fall.
In other words, it refers to the minimum quantity of a particular item of material that
must be kept in the stores at all times. The fixation of this level acts as a safety
measure and hence, it is also known as ‘Safety Stock‘ or ‘Buffer Stock‘. In case the
actual stock falls below this level, there is a danger of stoppage in production and the
management has to give top priority to the acquisition of fresh supplies. The main
objective of fixing the minimum level of materials is to ensure that the required
quantity of each item is available in stores at all times.
Main factors involve in fixing the minimum stock level
The main factors which are taken into account in fixing the minimum stock level are:
(a) The average rate of consumption of materials.
(b) The time required to obtain fresh supplies under top priority conditions.
(c) Re-order level
(d) The production requirements as to materials.

54. 54
(e) The minimum quantity of materials which could be procured advantageously.
Minimum Stock Level = Re-order Level – (Normal consumption per day/per week, etc.
X Normal delivery time).
IV OPTIMAL STOCK LEVELS
The optimal stock level is the stock level that is either too large or too small that is to say it is
between the maximum stock level and the minimum stock level. The stock level of a company
depends on the nature and the volume of the operation therefore, it sit he level that makes use
of the capacity of the storeroom.
INVENTORY VALUATION METHOD
The main objective of inventory value is to produce accurate and meaningful value for
purchases of product cost and income determination and this is because the different valuation
methods have different effect on a firm’s order.
I. FIRST IN-FIRST OUT (FIFO):
This method implies that the oldest goods are issued out first that is, materials are issued. Out
in the order in which they were received. Most times, materials or goods may not be issued out
in this order but it will be a good and effective store keeping practice if this order is maintained
because it checks material obsolescence, deterioration and depreciation and it ensures that these
materials are issued out at the actual cost thereby avoiding unrealized profits or losses which
may result from random issue of the materials

55. 55
FIFO method poses problem in times of prices being changed because the cost of goods sold
is likely to be understated or underestimated during inflation as old prices are adopted to value
the material used.
The FIFO method is used for cost flow assumption purposes. In manufacturing, as items
progress to later development stages and as finished inventory items are sold, the associated
costs with that product must be recognized as an expense. Under FIFO, it is assumed that the
cost of inventory purchased first will be recognized first. The dollar value of total inventory
decreases in this process because inventory has been removed from the company’s ownership.
The costs associated with the inventory may be calculated in several ways — one being the
FIFO method. First In, First Out (FIFO) is an accounting method in which assets purchased or
acquired first are disposed of first.
FIFO assumes that the remaining inventory consists of items purchased last.
An alternative to FIFO, LIFO is an accounting method in which assets purchased or acquired
last are disposed of first.
2. LAST IN FIRST -OUT:
This method is an opposite of the FIFO method because it implies that the latest materials
received are issued out first thereby leaving oldest ones in stock and this means that the
materials which are issued for production are charged on the recent process while the stock on
hand I s valued at the oldest prices.
The current production cost are simultaneous with the current sales revenue in order to obtain
a realistic profit for the current period and this is because the most important advantage of this
method is that it has the ability to give the most current cost of a product since the materials
used are charged at the current prices. The disadvantage of this method is that the oldest

56. 56
materials are left in stock thereby exposing them to risk of loss through obsolescence,
deterioration or depreciation.
Last in, first out (LIFO) is a method used to account for inventory.
Under LIFO, the costs of the most recent products purchased (or produced) are the first to be
expensed.
LIFO is used only in the United States and governed by the generally accepted accounting
principles (GAAP).
Other methods to account for inventory include first in, first out (FIFO) and the average cost
method.
3. BASE STOCK METHODS:
This method is not an independent method because it makes use of both the FIFO and the
LIFO method. The base stock method according to
Osisioma (1990) implies a fixed minimum stock carried at the original cost. He said it should
be set aside and should be issued out when an emergency situation arises. Except the minimum
of buffer stock, the subsequent materials received may be issued and charged on the basis of
any stock valuation method.
4. STANDARD PRICE MEHTOD
This method uses a predetermined price for pricing all the materials that are issued out. The
standard prices may be set over a given period of time after all factors which affect prices of
materials may have been taken into consideration. The use of standard prices may result in
profit if the actual materials price is low and it may also result in loss if the reverse is the case.

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The main objective of the standard price is to ensure the efficiency in the purchase of materials.
Most times it is difficult to establish an acceptable standard price of all materials.
5. AVERAGE PRICE METHOD:
This method is the weighted average which determines the unit price by dividing the total cost
by the quantity of materials because all materials issued are charged on the average price and
this price makes the cost of materials uniform rather than the actual cost.
A significant advantage of using the weighted average cost method that it is the simplest way
to track inventory expense. You can store inventory stock without the need to designate which
batch it belongs to and you don’t need to trace the original cost before pricing items, simply
marking up the average price of the stock units. The calculation used to determine the weighted
average cost is also easier than that of other valuation methods which take multiple steps to
calculate the inventory value or COGS. Using this method also requires less paperwork. The
weighted average cost method only requires a single cost calculation and uses this cost for all
other calculations, requiring only a single record documenting the calculation. There is no need
to maintain detailed records for each purchase, only records of the totals. Consistency is another
advantage because once the product cost is calculated, it is used consistently across all stock
units. This includes the cost used for the ending inventory value as well as the COGS.
Alternative methods such as FIFO and LIFO use a range of costs, depending on the individual
costs incurred with each transaction.
INVENTORY ACCOUNTING SYSTEM

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Store accounts facilitates materials cost in two ways. They provide prices by which any
particular items can be calculated. Secondly, a comparison of the total value of materials
charges to various activities provides a check that all the materials have been properly costed.
An effective inventory accounting system facilitates the provision of relevant inventory data
to the management in determining the amount of inventories at the end of each accounting
period and it minimized efforts used in data processing. Accountants are needed in inventory
management because of the important role of the inventory accounting system in inventory
management. The accounting system provides useful and accurate figures to managers for
adequate inventory management. It also gives useful advice on the actual quantity of stock
valued. The accounting system gathers and transmits data to the inventory manages to enable
him carry out his duties effectively and efficiently.
Inventory accounting is the body of accounting that deals with valuing and accounting
for changes in inventoried assets. A company's inventory typically involves goods in
three stages of production: raw goods, in-progress goods, and finished goods that are
ready for sale. Inventory accounting will assign values to the items in each of these
three processes and record them as company assets. Assets are goods that will likely
be of future value to the company, so they need to be accurately valued in order for
the company to have a precise valuation.
Inventory items at any of the three production stages can change in value. Changes in
value can occur for a number of reasons including depreciation, deterioration,
obsolescence, change in customer taste, increased demand, decreased market supply,
and so on. An accurate inventory accounting system will keep track of these changes
to inventory goods at all three production stages and adjust company asset values and

59. 59
the costs associated with the inventory accordingly.
Inventory accounting determines the specific value of assets at certain stages in their
development and production.
This accounting method ensures an accurate representation of the value of all assets,
company-wide.
Careful examination by a company of these values could lead to increased profit
margins at each stage of the product.
STOCK TAKING METHODS
Stock taking is very necessary for an efficient day to day operation in business because of
errors which may occur. There are two major approaches they are:-
1. PERPETUAL STOCK TAKING:
This approach involves keeping a running balance on the store records after each materials is
received and issued. It is also known as the continuous stock taking which involves the regular
taking of the samples of stock and the comparison of the actual quantity on hand with the stock
records. Differences may occur between the physical stock and the balance on the store records
as a result of errors which is why the control element is the comparison of these differences.
This system conducts stocktaking throughout the year under a predetermined plan of action.
The predetermined plan of action should be developed by the business depending on what type
of goods they store. The business has the freedom to decide the frequency of stocktaking under
such circumstances. Since the discovery of discrepancies is spread throughout the year, a
detailed analysis of the condition of the stock is possible with this system. On the other hand,
final accounts can be prepared and completed on schedule since continuous verification will

60. 60
be done as per plan. There is no need to freeze the entire operations of the business when
stocktaking since the verification is being carried out throughout the year. The stock records of
the warehouse are up to date at any time.
2. PERIODIC STOCK TAKING:
This is done when store are closed. Every item is counted and valued at a fixed date under the
supervision of the firm’s internal auditors. This process is a simple and convenient stocktaking
method for a small storage facility or warehouse.
No extra staff is needed for the stocktaking process. You can allocate in-house staff to carry
this out.
It will give the correct figure of closing stock for balance sheet purposes. Hence, your balance
sheet will be accurate with this method of stocktaking.

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CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION
This chapter covers the research design, the area of the study, the population of the study, the
determination of the sample size, and the sources of data method of data analysis, validity of
the test and the reliability of the test.
RESEARCH DESIGN
The research design adopted in this work is the survey design method which comprises of the
use of questionnaires and oral interviews.
AREA OF THE STUDY
The area of the study is limited to Galiakotwala Technologies Pvt Ltd
(BEYOND TIME EXPERIENCE ZONE) .
POPULATION OF THE STUDY
The population of the study for number of 500 employees but because of the nature of this
work, the population will be reduced to a total number of 60 which consists of the production
department, sales department and the marketing department.

62. 62
SOURCES OF DATA
There are two sources of data collected and used in this work and they are: the primary sources
of data and the secondary of data. The primary data was generated through the distribution of
questionnaires and oral interviews. The secondary data was obtained from the relevant
textbooks, journals and news papers.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
INTRODUCTION
This chapter deals with the presentation and the analysis of the data collected from
Galiakotwala Technologies Pvt Ltd (Beyond Time Experience Zone). A total number of 52
questionnaires were distributed of which 40 were completed and returned. Relevant
mathematical and statistical tool will be used in the presentation and analysis of data derived
form the questionnaire.
ANALYSIS OF DATA
In an attempt to satisfy the objectives of this study which were stated in chapter one, the re-
searcher now proceeds to present and analyze the relevant information collected through the
questionnaires that were distributed. The statistical tool used in testing the hypothesis is the
chisquare and simple percentages are also used in testing the data.

63. 63
QUESTION 1
What is your work experience?
TABLE 4.2
OPTIONS RESPONDENTS PERCENTAGE%
1-5 years 17 85%
6-10 years 3 15%
11-15 years 0
16 years and above 0
Total 20 100%
Table 4.2 indicates that 3 (15%) of respondents have work experience of 6 -10 years, 17 (85%)
have an experience of 1-5 years. No one has a Experience between 11-15 years & above the 16
years.
0%
15%
0%
85%
1-5 years
6-10 years
11-15 years
16 years and above

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40%
50%
5%
5%
Finished goods
Work in progress
Raw materials
All of the above
QUESTION 2
Which of the following types of inventories does your company maintain?
TABLE 4.3
Table 4.3 indicates that 10 (50%) of respondents have Finished Goods, 1 (5%) have an work
in progress. 1 (5%) have an Raw Material & 8 Respondents have an all of the above goods.
OPTIONS RESPONDENTS PERCENTAGE%
Finished goods 10 50%
Work in progress 1 5%
Raw materials 1 5%
All of the above 8 40%
Total 20 100%

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QUESTION 3
Which of the following determines the size of inventory in your company?
TABLE 4.4
Table 4.4 indicates that 12 (60%) of respondents agreed with level of sales, 4 (20%) have agreed
with production process. 2 (10%) have agreed upon durability versus perish ability. &
remaining 2 of them agreed upon all of the above.
10%
10%
20% 60%
Level of sales
Production process
Durability versus perish
All of the above
OPTIONS RESPONDENTS PERCENTAGE%
Level of sales 12 60%
Production process 4 20%
Durability versus perish
ability
2 10%
All of the above 2 10%
Total 20 100%

66. 66
40% Yes
60%
No
QUESTION 4
Does your company make formal inventory policies?
TABLE 4.5
OPTIONS RESPONDENTS PERCENTAGE%
Yes 12 60%
No 08 40%
Total 20 100%
Table 4.5 shows that the company makes formal inventory policies and this because out of 20
12 respondents unanimously agreed to this.
QUESTION 5
Is there any committee assigned with the function of making policy decisions about
management?

67. 67
50% 50% Yes
No
TABLE 4.6
OPTIONS RESPONDENTS PERCENTAGE%
Yes 10 50%
No 10 50%
Total 20 100%
Table 4.6 shows that there is committee is assigned as per 50 50 Responses.
QUESTION 6
Does your company adhere strictly to her inventory management policies?
OPTIONS RESPONDENTS PERCENTAGE%
Yes 15 75%
No 05 25%
Total 20 100%

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Table 4.7 shows that 15 (75%) are of the opinion that the company adheres strictly to her
inventory management policies while 05 (25%) disagree.
QUESTION 7
Does the inventory policies made in your company affect productivity?
Table 4.8
25%
Yes
No
75%
OPTIONS RESPONDENTS PERCENTAGE%
Yes 16 80%
No 4 20%
Total 20 100%

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Table 4.8 shows that 16 (80%) agree that inventory policies made in the company affect
productivity while 4(20%) disagrees.
QUESTION 8
Does your company maintain minimum stock?
TABLE 4.9
20%
Yes
No
80%
OPTIONS RESPONDENTS PERCENTAGE%
Yes 16 80%
No 04 20%
Total 20 100%

70. 70
Table 4.9 shows that 16 (80%) of the respondents agree that the company maintains minimum
stock while 04 (20%) disagrees with this fact.
QUESTION 9
Does your company maintain perpetual stock records?
TABLE 4.10
20%
Yes
No
80%
OPTIONS RESPONDENTS PERCENTAGE%
Yes 18 90%
No 2 10%
Total 40 100%

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Table 4.10 shows that the company maintains perpetual stock records because 18 (90%)
respondents agreed to this fact.
QUESTION 10
Does your company experience low productivity?
TABLE 4.11
10%
Yes
No
90%
OPTIONS RESPONDENTS PERCENTAGE%
Yes 11.5 57.5%
No 8.5 42.5%
Total 40 100%

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From table 4.11, it can be seen that the company experiences low productivity because most of
the respondents agree to the YES.
QUESTION 11
If yes, do you think that low productivity is caused by poor
inventory management?
TABLE 4.12
OPTIONS RESPONDENTS PERCENTAGE%
Yes 09 45%
No 11 55%
Total 20 100%
43% Yes
57% No

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From table 4.12, it can be seen that of the respondents don’t agree that low productivity are
caused by poor inventory management.
QUESTION 12
How does your company know when to re-order?
Answer
It was made known to the researcher that the company knows when to reorder by monitoring
the stock levels through the perpetual stock taking methods.
Question 13
Does your company run out of stock from time to time?
TABLE 4.13
45% Yes
55% No
OPTIONS RESPONDENTS PERCENTAGE%
Yes 08 40%

74. 74
40%
Yes
No
60%
No 12 60%
Total 20 100%
From table 4.13, it can be observed that 08(40%) of the respondents agreed that the company
runs out of stock from time to time while 12(60%) disagrees with this fact.
QUESTION 14
Does your company have loss of sales as a result of stock out?
TABLE 4.14
OPTIONS RESPONDENTS PERCENTAGE%
Yes 14 70%
No 06 30%
Total 40 100%

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Table 4.14 shows that the company has loss of sales as a result of stock-out because most of
the respondents agreed to this.
Question 15
What is your opinion of the company’s storage cost?
TABLE 4.15
30%
Yes
No
70%
OPTIONS RESPONDENTS PERCENTAGE%
Very low - -
Moderate 15 75%
Low - -
High 5 25%
Total 20 100%

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From table 4.15, it can be seen that 15(75%) of the respondents were of the opinion that the
company’s storage cost is moderate while 5(25%) of the respondents were of the opinion that
the company’s storage cost is high. It should be noted that storage cost is a function of the level
of average inventory held while on the other hand, the level of average inventory held affects
the frequency of ordering.
QUESTION 16
Is there any control access to inventories?
TABLE 4.16
0%
25%
0%
75%
Very low
Moderate
Low
High
OPTIONS RESPONDENTS PERCENTAGE%
Yes 19 95%
No 1 5%
Total 20 100%

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From table 4.16, it can be seen that 19(95%) of the respondents are of the opinion that there are
control access to inventories while 1(5%) disagree.
QUESTION 17
From your work experience, what factors constrain effective management of inventories?
ANSWER: It was pointed out that the factors that militate against effective management of
inventories are:
i. Lack of free flow of information within the company.
ii. Inflation pressures.
iii. Scarcity of materials.
5%
Yes
No
95%

78. 78
TEST OF HYPOTHESES
Based on the problems and objectives of this study, the hypothesis stated will be written below.
HYPOTHESIS ONE
Ho: There is no significant relationship between low productivity and poor inventories
management.
H1: There is a significant relationship between low productivity and poor inventories
management.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
SUMMARY OF FINDINGS
The main objective of this research work is to highlight the effectiveness of inventory
management in a manufacturing company specifically Galiakotwala Technologies Pvt Ltd
(Beyond Time Experience Zone). Relevant related literature on inventory management was
received to find out the extent of work already done. The instrument used for data collection
was questionnaires which were subjected to reliability and validity before it was being
administered to the respondents.
However, having analyzed the data the following are the findings which were deduced from
this study:
i. Galiakotwala Technologies Pvt Ltd (Beyond Time Experience Zone), the company
used as the case study makes formal inventory policies. This is supported by table
4.5 in chapter 4 which shows that all the respondents agreed that the company

79. 79
makes formal inventory policies. This is a clear indication that the company
attached some degree of importance to the management of inventories.
ii. It was discovered that the company makes use of replenishment model and the re-
order date is not fixed rather, minimum and maximum levels are set. When stock is
depleted to the minimum level, an order for replenishment is placed to bring the
stock to the maximum level. It was also discovered that the company monitors the
stock levels through the perpetual stock taking methods so that they can know when
to re-order for stocks.
iii. There is a divergence between policies and the practices of those policies made in
the company under this study because it was observed that the company adhere
strictly to her inventory policies. This was confirmed by the responses in table 4.7
of the questionnaire where 15 of the respondents agreed that the company adhere
strictly to her inventory policies. In order words, policy decisions are made by the
company, but sometimes it fails to follow such procedures or policies made.
iv. A number of reasons were given by the respondents that constrain effective
management of inventories in the company, they are as follows:
(a) Inadequate flow of information:
This was the reasons given as result of the occasional depletion of materials below
the re-order point before a replenishment procedure is initiated. Sometimes
information as to the issue of materials by the sales department are not given
promptly, thereby leading to inadequate update of inventory records as a result of
inadequate flow of information.
(b) Inflationary pressures:

80. 80
This is a general problem as was stated by the various respondents in the various
departments. This according to them destabilizes their plans and causes them to
invest more than planned on inventory since prices of materials are increasing
rapidly. This means that sometimes the company exceeds her stipulated maximum
stock level because it expects increases in prices in the
future.
(c) Scarcity of materials:
These like inflationary pressures causes the company to exceed her stipulated
maximum stock level, the respondents when interviewed explained that since some
of the materials which are being used are scarce, they are bought in large quantities
so that they can be used for future purposes thereby exceeding re-order level.
v. It was also discovered that the company runs out of stock from time to time and
whenasked why, the researcher was made to understand that although minimum stock
is maintained, the reasons for stock out was attributed to unexpected delay in delivery
orexceptionally high consumption during the lead time.
CONCLUSION
During the course of the study on the effectiveness of inventory management in a
manufacturing company, it was discovered that inventory is the in the existence of any
manufacturing firm and effective management of inventory will lead to effective control of the
organization. However, whatever system or technique of inventory management, it much be
channeled towards the reduction of stock to the barest minimum. These inventory techniques
should be monitored to ensure its effectiveness. Therefore, from the results of the data analysis

81. 81
it is right to conclude that inventory management has not been very effective in Galiakotwala
Technologies Pvt Ltd (Beyond Time Experience Zone). and this is as a result of the fact that
inventory policies are not strictly adhered to. Therefore, efforts are needed to be made in order
to improve on these present situations.
Therefore, the researcher highlighted some recommendations which if implemented,
Galiakotwala Technologies Pvt Ltd (Beyond Time Experience Zone). will have its profitability
improved as a result of reduction in cost which will enable it to reduce price and increase its
turnover thereby spreading its overhead costs over increased output which will in turn result in
reduced cost of reduction.
RECOMMENDATION
Having carried out a study of inventory management in a
manufacturing company with a specific focus on Galiakotwala Technologies Pvt Ltd (Beyond
Time Experience Zone) , the following are some recommendations given by the researcher
which if implemented, will have its profitability improved as a result of reduction in cost to
enable wider gross margin of the company:
i. The company should try by all means to adhere to inventory polices made. A
situation is a case whereby materials or items are allowed to leave the stores without
proper requisition, this shows that the internal control is weak. In order to ensure
that the company adheres to inventory policies, under no circumstance should items
of inventory be allowed to leave stores without proper requisition.
ii. The company should employ the economic order quantity method when placing
orders. The economic order quantity model puts into account the relevant costs
associated with ordering and carrying inventory. Every business organization aims

82. 82
at reducing cost to the barest minimum and one of the avenues by which this could
be achieved is adopting the economic order quantity method of placing order.
iii. Sufficient stock should be held in order to avoid stock-out so that when the ordering
level is high; there will be enough stock to be delivered.
iv. The flow of information should be increased and should be circulated adequately in
order to enhance adequate updates of inventory records.
BIBLIOGRAPHY
A. BOOKS
(Based on www.google book search)
 Inventory Best Practices by Steven M. Bragg
 Inventory Accuracy : People Processes & Technology by David J .Piasecki
 Inventory Management Explained : A Focus on Forecasting lot Sizing, Safety Stock
and Ordering Systems by David J. Piasecki.
 Warehouse Management : A Complete Guide to improving Efficiency and
Minimizing costs in the modern Warehouse 2nd
edition by Gwynne Richards.
 Rightsizing Inventory by Joseph L,Aiello.
B. Newspapers
 Economic Times
 Times Of India
 Hindustan Times
 Business Times

83. 83
C. Websites
 www.google.com
 www.research.net
 www.acdemia.edu
APPENDIX A
Please give your answer to the questions by ticking ( ) in the box corresponding to the
option chosen
1. What is your work experience?
(a) 1-5 years
(b) 6-10 years
(c) 11-15 years
(d) 16 years and above
2. Which of the following type of inventories does your company maintain?
(a) Finished goods
(b) Work in progress
(c) Raw materials
(d) Supplies
(e) All of the above
3. Which of the following determines the size of inventory in your company?
(a) Level of sales
(b) Production process
(c) Durability versus perishability

84. 84
(d) All of the above
4. Does your company make formal inventory policies?
(a) Yes
(b) No
5. Is there any committee assigned with the function of making policy decisions about
management?
(a) Yes
(b) No
6. Does your company adhere strictly to her inventory management
policies?
(a) Yes
(b) No
7. Does the inventory policies made in your company affect productivity?
(a) Yes
(b) No
8. Does your company maintain minimum stock?
(a) Yes
(b) No
9. Does your company maintain perpetual stock records?

85. 85
(a) Yes
(b) No
10. Does your company experience low productivity?
(a) Yes
(b) No
11. If yes, do you think that low productivity are caused by poor inventory management?
(a) Yes
(b) No
12. How does your company know when to re-order?
13. Does your company run out of stock fro time to time?
(a) Yes
(B) No
14. Does your company have loss of sales as a result of stock-out?
(a) Yes
(b) No
15 What is your opinion of the company’s storage cost?
(a) Very low
(b) Moderate
(c) Low
(d) High

86. 86
16. Is there any control access to inventories?
a) Yes
b) No
17. From your work experience, what factors constrain effective management of inventories?
APPENDIX B
1. RJ & ASSOCIATES
2.AROMABLENDZ GOOD HEALTH SOLUTIONS
3.MAYUR METAL INDUSTRIES
4.BIOPAC INDIA CORPORATION LIMITED
5.P.K. ENTERPRISES
6. MOSHASTAR INTERNATIONAL
7.ARHAM ELECTRONICS
8.ARIHANT ELECTRICAL
9.RIDDHI SIDDHI ELECTRICALS
10.GALIAKOTWALA TECHNOLOGIES PVT LTD
11. BCMA LTD – CANTO
12. BEYOND TIME EXPERIENCE ZONE
13.RAJESH & ASSOCIATES
14. MASON CORPORATE ASSOCIATES

87. 87
15. MANIAR ELECTRICALS
16. GALIAKOTWALA TECHNOLOGIES PVT LTD
17. FBIL
18. HDFC SALES PVT LTD
19. YO DIGITALS PVT LTD
20. FASTLINK CONNECTIONS PVT LTD