The Impact of Inventory Management on Manufacuring Industry
Inventory Management Systems ( Internship)
1. 1
Inventory Management Systems
CHAPTER I
INTRODUCTION
1.1 Origin of the Study
1.2 Objectives of the Study
1.3 Methodology of the Study
1.3.1 Data Collection Instrument
1.3.2 Scopeof the Study
1.4 Limitations of the Study
2. 2
1.1 Origin of the Study
I am a student of Dhaka University at Business faculty in MBA Program. I have completed
all theoretical part of that program but the program requires internship to any organization
for full fillment of its course and to gain practical idea about organization. So this report
also prepared as a requirement of the internship program. The organization attachment
started on 1st April 2008 and ended on 30th June 2008. The program was being assigned by
the organization’s supervisor Mr. F.K. Zaman Director and Manager Inventory, FAKIR
KNITWEAR LTD (FKL) and it was approved by institution supervisor Md. Abdul Hakim,
Professor, Department of Accounting & Information Systems, University of Dhaka.
1.2 Objectives of the Study
Inventory management system works as most important key to any organization. A lot of
organization could not gain its objective due to inadequate inventory management system.
Multinational company followed up to date inventory management system and they are
doing research work for its inventory management system. Due to intensive use of private
entrepreneurships some company of Bangladesh also using modern invento ry
management system in lieu of traditional inventory management system. So my study was
conducted to make a review and analysis of the inventory management process followed
by FKL. This company also follows the rules provided by ISO. By that I can grasp an overall
knowledge of up to date inventory management process & guidelines. The purpose was
also to make recommendations for improving the quality and soundness of this process.
1.3 Methodology
Primary data
Primary data were collected through practical knowledge during the works done in the
internship program at Inventory management process of FAKIR KNITWEAR LTD. Head
office, Kayempur Fatullah, Narayangonj.
Secondary data
Different types of secondary data are included in this study report. Sources of secondary
information can be defined as follows:
3. 3
Operation Manual of Fakir Knitwear Ltd.
A field in inventory management format of different organization.
Prior Research Reports Internet.
1.3.1 Data Collection Instrument
In – depth interviews were conducted with the manager, executives and officers of the
inventory management of Fakir Knitwear Ltd. for collection of information and their
opinions.
1.3.2 Scope of the study
The scope of my study covers certain area of inventory management system viz FKL
management system. I closely observed certain area of inventory management system. I
covered input system, ordering system, and safety stock measurement system, disperse
system & gate checking system in my study. Ordering of certain quantity of materials,
checking of ordered quantity by merchandiser, Quality Control, and other roles also
included. For that I closely monitored the role of accounts department about the ordering
quantity. And from the ordering quantity I monitored the gate checking system of that
ordering material and system of stocking materials by store keeper. Finally I monitored the
bill payment system of those raw materials including the roll of merchandiser, quality
controller, and finance and accounts department.
1.4 Limitations of the Study
The study was limited to FKL (Head office) and did not cover the sister concerns of FKL due
to time constraint of my study. Some of the relevant papers and documents were strictly
prohibited due to maintain business confidentially .To understands something special,
professional knowledge is required so it was also impossible to recognize all relevant data.
4. 4
CHAPTER II
COMPANY PROFILE
2.1 Company Origin
2.2 Vision & Mission
2.3 Board of Directors
2.4 Fakir Knitwear Ltd. Sister Concerns
2.5 Bankers
2.6 Turn Over
2.7 Fakir Knitwear Organogram
2.8 Import/ExportCountries
2.9 Production Capacity
2.10 Three Years ComparativeProduction Record
5. 5
2.4 Fakir Knitwear’s Sister Concern:
KNITIVO KNITWEARS LTD.
ZAMAN KNITWEARS LTD.
FAKIR APPARELS LTD.
KNITIVO FASHIONS LTD.
2.1Company Origin
Fakir group stared journey in the year 1988 in knit garments export, Fakir group crossed over a
long way and found them as one of the best knit wear manufacturer –exporter of Bangladesh .It is
certified with Oeko- Tex, ISO 9001-2000 & SRM also it is on the verge of getting WRAP and ISO -
14001.
2.2Vision & Mission
Fakir knitwear strives to provide the best quality garment to it buyers. It practice advanced
technology in all aspects of its operation to attain excellence concerning quality, dependability and
commitment for apparel industry and society.
2.3Board of Directors
1. F.B ZAMAN -CHAIRMAN
2. F.A ZAMAN - Managing Director
3. F.M ZAMAN - Director
4. F.S ZAMAN - Director
5. F.A ZAMAN (Asad) - Director
6. F.K ZAMAN (Nahid) - Director
7. F.W ZAMAN (Riyead) - Director
8. F.M ZAMAN (Niaz) - Director
9. FARZANA ZAMAN (Liza) - Director 2.5 Bankers
National Bank of Pakistan
79, Motijheel C/A .Dhaka -1000,
Bangladesh.
Dhaka Bank Limited
Foreign Exchange Branch .
Dhaka -1000, Bangladesh.
6. 6
2.6 Turn Over
2.7 Fakir Knitwear Organogram
Year- 2004 turnover: US $ 30 million.
8. 8
1) USA
2) UK
3) IRLAND
4) GERMANY
5) NATHERLAND
6) DENMARK
7) SWEDEN
8) FRANCE
9) SWITZERLAND
10) CANADA
1) SINGAPORE
2) CHINA
3) INDIA
4) K0REA
5) INDONESIA
2.8 Import /Export Countries
Fakir group business strategy is to focus on knit garment niche. Fakir knitwear used to visit into new
market arena searching the buyers/seller (wherever they are) of unique interest and values of knit
items. It always attempts to satisfy the requirement conforming superior quality honoring their
creativity. Fakir group is doing business all over the world. Such as:
Export Countries Import Countries
2.9 Production Capacity:
Area of premises : 220,414 SFT
Floor space : 233,776 SFT
Number of employees : 6,000 Persons.
10. 10
Series1
Series2
Series3
2.10 Three Years Comparative Production Record
Months 2004 2005 2006
JANUARY 2,299,162 1,016,686 1,815,403
FEBRUARY 866,775 1,553,348 2,183,573
MARCH 1,835,531 1,936,881 2,062,581
APRIL 1,617,765 1,800,449 1,637,016
MAY 2,154,491 1,631,258 1,867,357
JUNE 2,022,719 1,522,047 1,466,242
JULY 1,191,101 1,220,649 1,980,382
AUGUST 541,723 1,232,970 1,347,025
SEPTEMBER 540,391 467,560 968,067
OCTOBER 500,911 879,991 1,680,999
NOVEMBER 637,039 962,555 1,619,654
DECEMBER 917,611 1,384,384 1,696,959
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CHAPTER III
LITERATURE REVIEW
3.1 Definition
3.2 Types of inventory
3.3 Role of Inventory
3.4 Requirement
3.5 JITConcept
3.6 JITPurchasing
3.7 Key Elements in a JITSystem
3.8 Costof Inventory
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3.9 Steps of Inventory Management.
3.10 Purchaseof Materials
3.11 Inventory or storeof Materials
3.12 Issuanceor utilization of materials
3.13 Materials Stock or Inventory controls
3.14 Accounting for Materials & CostControl
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3.1 Definition:
Inventory is list of goods and materials or those goods and materials, held available in stock by a
business.
In other ward, Inventory is stored accumulation of materials resource and physically located that are
used in a transformation process and /or activated as asset.
In accounting definition : An asset comprised of all materials supplies, finished goods or goods in some
stage of processing that are owned by a company, whether located physically on the premises of that
company, in transit, or in the hands of a distribution who has them on consignment.
Inventory are a vital part of business .Not only are they necessary for operation ,but also they
contribute to customer satisfaction .To get a sense of the significance of inventories , a typical firm
probably has about 30 percent of its current assets and perhaps as much as 90 percent of its working
capital invested in inventory . One widely used measure of managerial performance relates to return
on investment (ROI) ,which is profit after taxes divided by total asset .Because inventories may
represent a significant portion of total asset ,a reduction of inventories can result in a significant
increase in ROI
Basically, materials control is a major task of inventory management. Different types of direct and
indirect materials right and precise controlling and reducing cost is a main purpose of inventory
management.
Inventory is a third major current asset. There are three common stage of inventory. Such as 1) Raw
Materials Inventory 2) Work –In –Process Inventory 3) Finished Goods Inventory.
Raw materials Work in Process Finished Goods Finished goods in Field
Raw materials inventory: Inventory that is stored before it is used in the production process.
Work –in- process inventory: Partly finished inventory that is within the production process.
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Finished product inventory: Inventories of product those are ready to be sold.
3.2Types of inventory
There are several types of inventory. These discuss as follows.
Normal Inventory: This is inventory required to support the normal replenishment process
under conditions of certainty. If demand and lead times are consistent, normal inventory is what
the organization needs to meet customers demand at a given point in time. This type of
inventory should generally be as close to zero as possible. However, this may not happen due
to transportation, production, and distribution in economics of scale.
Safety Inventory: Surplus inventory that a company holds to protect against the uncertainty in
demand, in lead times and in quality of supply.
Pipeline Inventory: Inventory moving from point in the materials flow is called pipeline
inventory. This type of inventory will either belong to the shipper or to the customer depending
on the terms of sale.
Speculative Inventory: This type of inventory is held other than meeting current demand. For
example, the company may decide to buy and stock more than it needs in the event that it
forecast that prices of materials will rise or suppliers offers lower price if a large quantity is
purchased at one time.
Seasonal Inventory:.If the majority of sales occur in relatively short project of time. Companies
may stock seasonal inventory to stabilize production over a more extended period of time and
maintain labor force capacities.
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Dead inventory: No one wants this type of inventory but it is held for a verity of reasons. Say if
company expects demand may create after long time or it may cost more to dispose of than it
does to keep. Sometimes to met occasional needs of customers. It is kept as a gesture of
goodwill.
3.3 Role of Inventory:
Today’s inventory managers have to play much more dynamic role in the organization. Besides
inventory managers, other managers in alltypes of business should be concerned for ensuring effective
inventory management.
To balance the conflicting costs and pressure that urges for both low and high inventories and
determine appropriate levels
Few common basic role of inventory manager
Integration
Effective utilization of technology
Assist in making strategic planning and functional objectives to the organization
Make inventory management plan.
3.4 Requirement
Improve customer service
Economics of purchasing
Economics of production
Transportation saving
Hedge against future.
Unplanned stock (labor strikes, natural disasters, surges in demand )
To maintain independence of supply chain
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3.5 JIT concept: When company uses the just –in- time (JIT) production and inventory control system,
they purchase materials and produce unit only as needed to meet actual customer demand. In a JIT
system, inventories are reduced to the minimum and in some cases is zero. The JIT approach can be
used in both merchandising and manufacturing companies. It has the most profound effects, however,
on the operations of manufacturing companies, which maintain three classes of inventories – Raw
materials, Work –in-process, and finished goods.
A company operating a Just in time system would purchase only enough materials each day to meet
that day’s needs. Moreover, the company would have no goods still in process at the end of the day,
and all the Goods completed during the day would have been shipped immediately to customers. As
this sequence suggests
‘Just –in-time’ means that raw materials are received just in time to go into production, manufactured
parts are completed Just in time to be assembled into products, and products are completed just in
time to be shipped to customers .Although few companies have been able to reach this ideal, many
companies have been able to reduce inventories to only a fraction of their previous levels. The result
has been a substantial reduction in ordering and warehousing costs, and much more effective
operations. In a JIT environment the flow of goods is controlled by a pull approach. The pull approach
can be explained as follows: At the final assembly stage, a signal is sent to the preceding workstation
as to exact amount of parts and materials that will be needed over the next few hours to assemble
products to fill customer orders, and only the amount of parts and materials is provided. The same
signal sent back through preceding workstation so that a smooth flow chart of parts and materials is
maintain with no appreciable inventory build up at any point .Thus all work stations respond to the pull
exerted by the final assembly stage, which in turn respond to customer orders.
3.6 JIT Purchasing any organization with inventories – retail, wholesale, distribution, service, or
manufacturing –can use JIT purchasing .Under JIT purchasing:
1) A company relies on a few ultra reliable suppliers: IBM for example , eliminated 95% of the
suppliers from one of it plants, reducing the number from 640 to only 32. Rather than soliciting
bids from suppliers each years and going with the low bidder, the dependable suppliers are
rewarded with long-term contract.
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2) Suppliersmakefrequent deliveriesinsmall lots just beforethe goodsareneeded Rather than
delivery a week’s (or a month) supply of an item at one time, suppliers must be willing to make
deliveries as often as several times a day, and in the exact quantity specified by the buyer.
Undependable suppliers who do not meet delivery schedules are weeded out. Dependability
is essential, since a JIT systemis highly vulnerable to any interruption in supply. If a single part
is unavailable, the entire assembly operation may have to be shut down .Or, in the case of a
merchandising company, if the suppliers allows inventories to get down zero, customer may
be turned away unsatisfied.
3) Suppliers must deliver defect –free goods. Because of the vulnerability of a JIT system to
disruption, defect cannot be tolerated. Indeed, suppliers must become so reliable that
incoming goods do not have to be inspected.
3.7 Key Element in a JIT System: In addition to JIT purchasing, four key elements are usually required
for the successfuloperation of aJIT manufacturing system. Theseelements include improving the plant
layout, reducing the setup time needed for the production runs, striving for zero defects, and
developing a flexible workforce.
Improving Plant Layout: To properly implement JIT, a company typically must improve the
manufacturing flow lines in its plant .A flow line is the physical path taken by a product as it moves
through the manufacturing process as it is transformed from raw materials to completed goods
.Traditionally, companies have designed their plant floors so that similar machines are grouped
together, such a functional layout result in all drill press in one place, all lathes in another place, and
so forth. The approach to plant layout requires that work in process be moved from one group of
machines to another frequently across the plant or even to another building. The result is extensive
materials –handling cost, large work in process inventories, and unnecessary delays.
In a JIT System, all machines needed to make a particular product are often brought together in one
location .This approach to plant layout creates an individual “mini” factory for each separate product
, frequently, referred to as a focused creates an individual “mini” factory. “The flow line for a product
can be straight; the key point is that all machines in a product flow line are tightly grouped together so
that particular completed units are not shipped from place to place all over all over the factory.
Manufacturing cells are also often part of a JIT product flow line. In a cell, a single worker operates
serve machines.
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The focused factory approach allows workers to focus all of their efforts on a product from start to
finishand minimizes handlings and moving. After one largemanufacturing company rearranged is plant
layout and organized its products into individual flow, the company determined that the distance
traveled by one product.
Reduced Setup Time: Setup involved activities such as moving materials, changing
machine setting, setting up equipment, and tests- that must be performed whenever production is
switched over from making one type to another. For example, it may not be simple matter to switch
over from making ½ inch brass screws to making ¾ inch brass screws on a manually controlled milling
machine. Many preparatory steps take times. Becauseof the time and expense involved in such setups,
many managers believe setups should be avoided and therefore items should be produced in large
batches.
If equipment is dedicated to a single product, set up are largely eliminated and the product can be
produced in any batch size desired. Even when dedicated flow lines are not used, it is often possible
to slash setup time by using techniques such as Single –minute –exchange –of- dies. The goal with
single - minute –exchange –of- dies is to reduce the amount of time required to change a die to a
minute or less. This can be done by simple techniques such as doing as much as of the change over
work in advance as possible rather than waiting until production is shut down.
Zero Defects and JIT : Defective units create big problems in JIT environment .If a completed
order contains a defective unit, the company must ship the order with less than the promised quantity
or it must restart the whole production process to generate a ripple effect that delay other orders .For
this and other reasons,defects cannot be tolerated in a JITsystem. Companies that are deeply involved
in JIT tend to become enthusiastically committed to a goal of zero defects. Even though it may next to
impossible to attain the zero defect goal, companies have found that they can come very close. For
example, Motorola, Allied signal, and many other companies now measure defects in terms of the
number of defects per million units of products.
On the other hand in a traditional company, parts and materials are inspected for defects when they
are received from suppliers, and quality inspectors inspect units as they progress along the production
line. In a JIT system, the company’s suppliers are responsible for the quality of incoming parts and
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materials. And instead of using quality inspectors, the company’s production workers are directly
responsible for spotting defective units. A worker who discovers adefect is supposed to punch an alarm
button that stops the production on the workstation to determine the cause of the defect and correct
it before any further defective units are produced. This procedure ensures that problems are quickly
indentified and corrected, but it does require that defects are rare- otherwise there would be constant
disruptions to the production process.
Flexible Workforce: Workers on a JIT line must be multi skilled and flexible. Workers are often
expected to operate all of the equipment on a JIT product flow line .Moreover, workers are expected
to perform minor repairs and do maintenance work when they would otherwise be idle .In contrast
,on the conventional assembly line a worker performs a single task all the time every day and all
maintenance work is done by a specialized maintenance crew .
Comparison between Traditional Inventories and JIT Systems:
3.8 Cost of Inventory: Oneoperating objective of inventory management is to minimize cost. Excluding
the costs associated with inventory fall into two basic categories. The categories given as follows:
Cost of Inventory
Procurement cost Carrying Cost Out of - stock cost
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Procurement Cost includes:
Order processing cost
Shipping
Handling cost
Purchasing cost
Manufacturing cost
Carrying cost includes:
Opportunity cost
Inventory Risk cost
Space cost
Inventory service cost.
Out -of stock cost includes:
Lost sales cost
Back order cost
3.9 Steps of Inventory Management:
To reduce production costs largely depend on right and efficient inventory management. So, sound and
efficient inventory management is expectable to each manufacturing organization. Inventory
management started from purchase of materials to conversion of finish goods or storage goods available
for sales. The steps of inventory management has given as follows,
Purchase of Materials.
Storing of Materials.
Issuance or Utilization of Materials.
Materials stock or Inventory control.
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Accounting for Materials &Cost control.
3.10 Purchase of Materials:
Each organization purchase materials for production in regular basis. To do so each organization has a
separate purchase department. The principles of management is to provide necessary goods & service
in right time, right quality, right quantity, right price, right source, according to production plan .It is
also called Purchase Five R. There are many methods use for materials purchasing. The following steps
are necessary for purchase of materials.
3.10.1 Determination of annual purchasing requirement
3.10.2 Purchase requisition
3.10.3 Purchase order
Purchase of Materials.
Storing of Materials.
Issuance or Utilization.
Materials stock or Inventory control.
Accounting for Materials & Cost
control.
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3.10.4 Receive of materials
3.10.5 Inspecting & testing materials
3.10.6 Voucher rising & making payment
3.10.7 Adjusting of invoices.
3.10.1 Determination of annual purchasing requirements: The first step of purchasing materials is
determined annual purchasing requirement for production. Basically, Annul productions Budget,
Economic Order Quantity, Bills of Materials etc are used for determining quantity materials to be
purchase.
3.10.2 Purchase requisition form: Purchase requisition form is used for requesting purchase
department for purchase. Until get purchase requisition form, purchase department has no right to
purchase any goods. In purchase requisition form detail materials description; quantity, delivery date,
code number etc are mentioned properly in their certain column. Normally, storekeeper is prepared
perpetual goods purchase requisition form when stock of goods comes down to reorder level,but other
special items (which is not use daily basis) related department has to make purchase requisition form
and send to store keeper. Then storekeepers give those forms to purchase department for purchase.
A sample of purchase requisition form is given below:
3.10.3 Purchase order: After receiving purchase requisition form purchase department take
preparation for purchase their necessary goods. First of all they search source of goods, Catalog,
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previous record, price list,Materials quality, goodwill of suppliers, Delivery time, Condition of payment,
etc are considered strictly to choose the suitable suppliers. In bulk purchasing, purchase department
invite tender for purchase their necessary goods. Here Sample of purchase order form presented
below:
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But when company purchase materials from its sister concern , they would consider transfer pricing.
Transfer Pricing:
Business segmentoften supply goods and services to other business segmentwithin the samecompany
.For example, the truck division of Toyota supplies trucks to other divisions to use in their operations.
When the division are evaluated based on their profit, return on investment or residual income, a price
must be established for such a transfer. Otherwise, the division that produces the goods or services
will receive no credit. The price in such a situation is called Transfer Price. A transfer price is the price
charged when one segment of acompany provides goods or services to another segment of a company.
For example, most companies in the oil industry, such as Exxon, Shell and Texaco, have petroleum
refining divisions that are evaluated on the basis of ROI or residual income. The petroleum refining
division process crude oil into gasoline, kerosene, lubricants and other end product. The retail sales
division takes gasoline and other products from the refining division and sells them through the
company’s chain and service station. Each product has a price for transfers within the company.
Suppose the transfer price for gasoline is $0.80 a gallon .then the refining division gets credit for $0.80
a gallon of revenue on its report and the retailing division must deduct $0.80 a gallon as an expense on
its segment report. Clearly, the refining division would like the transfer price to be as high as possible,
whereas the retailing division would like the transfer price to be as low as possible. However , the
transfer has no direct effect on the entire company’s reported profit .It is like taking money out of one
pocket and putting it into the other . Managers are intensely interested in how transfer price are set,
since transfer can have a dramatic effect on the apparent profitability of a division.
Three common approaches are used to set transfer prices.
Allow the managers involved in the transfer to negotiate their own transfer price.
Set transfer price at cost using : a. Variable cost b. Full (absorption ) cost
Set transfer price at the market price.
3.10.4 Receive of materials:
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Generally, in Small organization storekeepers receive materials by him. But in large organization has a
separate materials receiving department for receive materials or unload materials which is imported
from other countries. The responsibilities of purchase department are exploring package and check it
as per voucher.
3.10.5 Inspecting & testing materials: Before receiving supplier’s goods storekeeper inspect & test
quality of materials, weight, size, quantity, and condition. In most cases, inferior goods are sent for
test quality. Test is conducted by respective laboratory. After preparing inspection and testing report
storekeeper sent report to the related department.
3.10.6 Voucher rising & making payment: If the supplier’s delivery goods is not as per order or find
any damage or wastage, purchase department return it to the suppliers. Sometime purchase department
keep those items in his warehouse and request to suppliers for materials adjustment invoice. Adjusted
invoice is necessary for adjust more or less materials delivery against purchase order. Generally,
purchase department not send voucher to the cash department until the bill is not adjusted.
3.10.7 Adjusting of invoices: After taking necessary adjustment or all the adjustment has been
completed then suppliers providing bills and examine and approved by purchase department.
3.11 Inventory or store of Materials.
Each organization stored materials for production in regular basis. To do so each organization has to
go through two separate systems. These are:
…co Ltd
Meterials Receiving Report
From (Seller) …. No ………
Place ….. Date …….
Compared by ..
Inspected by …
SL.No
Description of
Materials
Code No
Purchase Order
No
Rem arks
Quantity
Ordered
Quantity
Received
Quantity
Rejected
Rate Value
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3.11.1 Inventory Record System: Practically all inventory systems have certain common characteristic
of record maintenance. These aims to show what are on hand, where it is located, and what future
stock may be anticipated. For each items of inventory, it should thus be
I. Storage location
II. Quantity on hand at the start of a period.
III. Additional stock on order or en route, stock committed to production or sales.
IV. Stock distributed, such as to production, to ware house, to various outlet, or to customers.
V. Balance on hand at the end of a period (that is ,the beginning quantity of the next period )
One of the major steps of material management is to proper store of materials. Some organizations
not only store the materials supplied by others but also the materials produced by them.
The materials receiving department unload all materials and send it to the store after necessary
checking and experiment. Store conservator compares the materials with Material Receiving Report or
Goods Received Note-GRN and then he sore the materials in the store. In some emergency case
materials directly send to the production department without entry to the store. In such case store
conservator directly go to the production department and take necessary notes.
To easy to identify storing materials, materials are separated following items
Metal materials
Non metal materials
Decomposed materials
Chemicals
Oil and Lubricant
Accessories
One of the major responsibilities of store conservator is to send materials in according to materials
requisitions.
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3.11.2 Bincard: In every section of astore there is a card which contains content of materials including
quantity, issuing, receiving date and is called bin card. Usually a bin card contains quantity of materials
not the price of materials. Separate bin card contains separate bin card. By bin card a grasp idea can
be taken. It is also a proof of store ledger. A specimen of bin card is given below.
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3.12 Issuance or utilization of materials
Storekeeper responsibility is not only storage of material but also dispatch of materials from
store to production department as per their demand. Production department send requisition
form to warehouse for necessary materials. Storekeeper gets those requisition form and then
he record issue quantity, check balance in Bin Card and then he dispatch goods to production
department as per requisition. There are three functions of utilization of materials. The
functions of issuance given are follows:
[ [
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3.12.1 Materials requisition: Production department ask for delivery necessary materials to
store keeper by materials requisition form. Storekeeper should not issue or deliver materials
without materials requisition form. Generally the four man of production department send
materials requisition form approved by related authority .This form mention quantity, Goods
description, Code No, Rate etc .Here illustration of materials requisition form given as follow.
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3.12.2 Materials transfer note: Sometimes materials transfer from one department to another
department for their necessity.In this case,materials are transferred by materials transfer note or gate
pass. In materials transfer note, materials description, code no, quantity, issue department, receiving
department.
3.12.3 Materials return note: After converse finished goods, production department return excess
materials, scrap and waste materials to warehouse. Production department transfer those materials
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with materials return note. This materials return note is like as materials requisition form. To segregate
each other those forms are printed by different color.
3.13 Materials Stock or Inventory controls:
The most important part of materials management is inventory control. This control ensures minimum
capital investments by which produces materials in right time, right quantity and ensures maximum
quality. Basically main objective of inventory control is to provide proper material stock by less cost.
Generally, our countries most popular method of inventory control is Supply & demand method.
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INVENTORY
CONTROL
Economic
Order Quantity
Re -order Level
Maximum Level
Minimum Level
Average Level
Automatic
Ordering System
Stock Record
Card
Order Cycling
ABC plan
Two Bin System
Stock taking &
Stock Varification
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3.13.1 Economic Order Quantity: The model was originally developed by F.W Haris in 1913, though
R.H Wilson is created for his depth analysis of the method .EOQ is a model that defines the optimal
quantity to order that minimizes total variable cost and required to order and held inventory. By
following EOQ, it would be able to minimize the sum of ordering cost to cover the demand for a
particular period .Too many orders will occur the excessive ordering cost ,while too few order will
cause high inventory holding cost .In order to make EOQ ,we need to make balance of two costs .
Inventory holding cost
Ordering cost .
The economic order quantity (EOQ) is the order quantity that minimizes total holding and ordering
costs for the year. Even if all the assumptions don’t hold exactly, the EOQ gives us a good indication of
whether or not current order quantities are reasonable. Assumptions:
Relatively uniform & known demand rate
Fixed item cost
Fixed ordering and holding cost
Constant lead time
(Of course, these assumptions don’t always hold, but the model is pretty robust in practice.)
A = Demand for the year
Cp = Cost to place a single order
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Ch = Cost to hold one unit inventory for a year.
Total Relevant* Cost (TRC)
Yearly Holding Cost + Yearly Ordering Cost
“Relevant” because they are affected by the order quantity Q
Economic Order Quantity (EOQ)
EOQ Formula
35. 35
Same Problem
Pam runs a mail-order business for gym equipment. Annual demand for the Tricof lexers is 16000. The
annual holding cost per unit is $2.50 and the cost to place an order is $50. What is the economic order
quantity?
Cost of adopting plans with different order quantities
Demand =16000 per year
400 500 2000 2500 Unit purchase cost =10
600 750 1333 2083 Inventory carrying cost =25%
800 1000 1000 2000 Cost per order =50
1000 1250 800 2050
1200 1500 667 2167
1400 1750 571 2321
1600 2000 500 2500
Ordering
cost
Totol
cost
Totol cost =
Order quantity Holding cost
36. 36
3.13.2 Re-Order Level: The EOQ technique determines the size of an order to acquire
inventory so as to minimize the carrying as well as the ordering cost .In other wards, the EOQ
provides an answer to the question: how much inventory should order in one lot? Another
important question pertaining to efficient inventory management: when should the order to
procure inventory to placed .The reorder level is stated in terms of the level of inventory at
which an order should be placed for replenishing the current stock of inventory .In other
words , re order level may be defined as the level of inventory when fresh order should be
placed with the suppliers for procuring additional inventory equal to the economic order
quantity .To calculate the reorder level based on some assumption : 1) Constant daily usage
of inventory and 2)fixed lead time .The formula of Re-order level given below
Re-order level: Maximum period required for deliveryX Maximum consumption.
Or Re-order Level: Minimum stock + (Average rate of consumption rate x Average lead time)
The term lead time refers to the time normally taken in receiving the delivery after placing
orders with the suppliers .It cover the time –span from the point when a decision to place the
order for the procurement of inventory is made to the actual receipt of the inventory by the
firm. In other words, the lead time consists of the number of days during which the goods will
be in transit from the supplier. The lead time may also call as the procurement of inventory.
Illustration: Maximum daily usage of inventory of a firm is 5000 unit .The number of days
required to receive the delivery of inventory after placing order is 15 days.
So, Reorder level = (5000 X 15) = 75000 Unit.
3.13.3Maximum Level: Maximum stock level is that stock which will not consumed by the
company by any means. The maximum amount which is economically appropriate to kept in
the warehouse is called maximum stock level. Factors considered in determining Maximum
level:
Average rate of Consumption
Lead time
Amount of capital and rate of interest on it
37. 37
Area of warehouse
Carrying cost
Economic Order Quantity
Price stability
Government restriction.
Theory determining Maximum level:
Maximum level = (Re-order Level+ Reorder quantity)-(Minimum Consumption Rate X
Minimum delivery time)
3.13.4 Minimum Level: Minimum stock level is that least level below of it will not allow ed
by the company by any means. This is the least quantity stock level and also called safety stock.
Separate minimum level exists for separate materials. If any stock of materials goes below the
minimum level is called Danger level. Factors considered in determining Minimum Level:
Average consumption rate
Lead time
Probable stock out cost
Characteristic or nature of materials
Re- order level
Theory determining Minimum level:
Minimum Level: Re-order level – (Normal consumption Rate X Average Delivery Period)
3.13.5Average Level: When stock level keeps on middle of maximum and minimum level it
is called average level.
Theory determining Average level:
Average Level :( Maximum Level + Minimum Level)/2
3.13.6 Automatic Ordering Systems: When stock come below the re- order level
automatically order place as per economic order quantity is called Automatic Ordering System.
38. 38
In this method, it would not be considering anything to replenish stock when it reaches in re
order level. Automatic Ordering system only applies those organizations which have Electronic
Data Processing System.
3.13.7 Stock Record Card: It is necessary to record stock status for proper inventory contro l
.Bin card & Free stock Balance card, this two is used for keep continuous stock record. Bin
card is considered as a vital way of inventory control. As per Materials Receiving report issue
and delivery columns are fulfill in the Bin card.
3.13.8 Order cycling: In this method, materials stocks are check or examine meticulously. In
order to maintain proper inventory control stock period is divided by 3 months, 2 months, and
1 month.
3.13.9 The ABC Classification :The ABC classification system is to grouping items according
to annual sales volume, in an attempt to identify the small number of items that will account
for most of the sales volume and that are the most important ones to control for effective
inventory management.
3.13.10 Two Bin System: In two Bin card systems, each materials exhibit by two separate
Bin card in separate cell .After finishing of materials in first cell new order is called.
Materials nature & control method Class A Class B
1) Amount of materials(In percentage) 5%-10% 10%-20%
2) Total materials value (In percentage ) 70%-80% 10%-20%
3) Price of Materials High price Low price
4) Quantity of Materials Less Moderate
5) Safety stock Vary low Moderate
6) Re-order time Almost each week Generally ,after twelve weeks
7) Price analysis & control Strictly price analysis Moderate price analysis
8) Importance Give more importance Give moderate importance
39. 39
Accounting for
Materials & Cost
Control
Accounting for
Materials Receipt
Accounting for
Materials Issues.
Materials collected in first cell before finishing materials of second cell. In each cell
consider the quantity of materials by average consumption level, lead time etc.
3.13.11 Stock taking & Stock Verification: Stock taking or stock verification is important
because it ensures the quantity, quality of stock materials. By that it controls not only the
quantity of materials but also it ensures the profit/loss of the company. In absence of it there is
a possibility of loss, stolen of materials. There are two method of stock taking.
Periodic Stock Taking System
Continuous or Perpetual Inventory System
3.14 Accounting for Materials & Cost Control:
The last step of materials management and Inventory control is accounting for Materials &
Cost control. As major part of the cost of production go to purchasing of materials and storing
of materials. In absence of cost control production cost increases and subsequently sell price
also increases.
40. 40
3.14.1 Accounting for materials Receipts:
Materials receiving related account is recorded with the help of Bin card, purchase order,
Materials receiving report, and store ledger. After approving purchase order and materials
receiving report by purchase department then this copy send to cost department. Seeing this
copy ledger keeper fill materials ledger’s receiving column. In materials ledger, he /she record
materials receiving date, Materials receiving report number, Actual total purchase value etc.
If he purchase materials he record journal as follow.
Materials control account ……………….Dr
To Account payable /Creditors …………Cr
If materials return to seller, journal is ………
Account payable /Creditors ……………..Dr
To Materials control ……………Cr
3.14.2 Accounting for Materials Issues: Store keeper send a copy of materials requisition
report to accounts department after issuing materials according to material requisition. The
concern person who is responsible for detecting the price of materials fill the unit price of
41. 41
materials then fill the total price after that he send material requisiti on to the ledger writer.
Material ledger keeper
Materials Control Account: The ultimate objective in cost accounting is to produces accurate
and meaningful figure for the cost of goods sold .These figure can be used for purposes of
control and analysis and are eventually match against revenue produced in order to
determine operating income .
After the unit cost and total cost of incoming materials are entered in the received section
of a materials ledger card ,next step is to cost these materials as they move either form
storeroom to factory as direct or indirect materials or from storeroom to marketing and
administrative expense account as supplies . The more common methods of materials control
account is given as follow
First in first out (FIFO)
Last in first out (LIFO)
Weight average costing
Standard costing
Replacement costing
First in first out (FIFO): Items issued are valued based on the cost of the oldest units in the
inventory from which the issued materials could have been drawn, up until these are
exhausted. Valuation then passes on the next oldest, and so on . The value of stock at a period
end is calculated from the init the unit value of items remaining in stock.
Last in first out (LIFO): Items issued to production are valued based on the cost of the most
recent units received , up until these are exhausted .Valuation then passes on the next recent
42. 42
,and so on .The value of inventory at the period end is ,again ,calculated based on the unit
value of the items remaining in stock .
Weight average costing: An average value is calculated for each unit in stock .It is calculated
by adding together the values of inventory already in stores together with the value of any
new units introduced ,and dividing by the total quantity of inventory .
Standard costing: This method is most of ten employed to compute the production cost of
product made up of several component items . A standard cost can be set for each item ,e.g
. based on an average period’ costs or on a best estimate of the likely future costs .
Replacement costing: This is similar to standard costing method except that the unit value is
based on the quoted cost to replace the units required to be maintained in stock.
CHAPTER IV
INVENTORY MANAGEMENT OF FAKIR KNITWEAR
4.1 Fakir Knitwear Ltd. Store Chart
4.2 Schematic view of FKL Production Process and Related Store
4.3 Steps of Inventory Managementof FKL
4.4 Purchaseof Materials
4.4.1 PurchaseRequisition Slip
43. 43
4.4.2 Storerequisition
4.4.3 Purchaseorder
4.5 Receive of Materials
4.6 Storing of Materials
4.7 Issuanceor utilization of materials
4.8 Materials Stock or Inventory control
4.9 Accounting for Materials & CostControl
44. 44
4.1 Fakir Knitwear Ltd. Store Chart
Fakir Knitwear has eight stores to support its production process. Each store has different items to
provide logistic support of Fakir Knitwear production process .Stores of Fakir Knitwear present as
follows:
Those stores are directly support Fakir Knitwear’s production process. Here graphically present Fakir
Knitwear production process and there related store.
InventoryManagement
Accessorie
s Store
General
Store
Yarn store
Dyes&
Chemical
Store
Dyedyarn
& Fabric
Store
Dyeing
Delivery
Store
Spare
parts Store
Printing
store
45. 45
4.2
Schematic view of FKL Production Process and Related Store is shown above.
Gray yarn Dyed yarn &
Fabric store
Dyes &Chemical
Store
Dyeing delivery
Store
Accessories
Store
Printing Store
(accessories)
Accessories
Store
General
Store
Spare parts
Store
46. 46
4.3 Steps of Inventory Management of FKL:
Purchase of Materials.
Storing of Materials.
Issuance or Utilization of Materials.
Materials Stock or Inventory Control
Accounting for materials &Cost Control.
4.4 Purchase of Materials::
Fakir Knitwear has several production stage .Each stage need different materials for soun d
production. Production stages are different from each other as well materials collection
process in each store also different. Each stages related store has own materials collection
process which is different from others. For example, accessories store’s purchase procedures
are not like as dyes and chemical store or general store. Normally Fakir Knitwear purchased
materials for different store by following steps:
4.4.1 Purchase Requisition Slip
4.4.2 Store Requisition
4.4.3 Purchase Order
4.4.1 Purchase Requisition Slip: In general store, purchase order is made by other
departments purchase requisition slip .It is done for rare items. Spare parts store also place
purchase order by purchase requisition slip .Fakir Knitwear has separate purchase order
requisition slip for purchase .Normally, purchase requisition slip is done for emergency need
or to purchase small quantity. The sample of purchase requisition slip is given below.
47. 47
F A K I R K N I T W E A R S L T D.
Kayempur, Fatullah, Narayangong-1400
Purchase Requisition Slip
P.R
NO
P.R
DATE NAME OF ITEM USE OF PLACE PR QTY UNIT BALANCE
8 12.08.07
1.PENCIL BATTERY(SANO
ALKALINE) ALL FACTORY 10 DOZ -
2.DRIL BIT WATER LINE 6 PCS -
3.C/M SPRING &KNIFE SOF T CUTTING 24 PCS -
4.AIR GUM M/C KNITTING 12 PCS -
5.10 MM ROYAL BOLT
NEW
FINISHING 100 PCS -
6.BEARING HOUSE FL-207 & F-
204 M/C 4+4 PCS
7.PULLY & GREASE NIPPLE M/C 1+8 PCS
8.CHAIN BRUEKNER 2 PCS
48. 48
4.4.2 Store requisition: Store requisition slip made by store keeper. When available materials
or perpetually used materials are finished store keeper prepare a purchase requisition slip.
All stores of Fakir Knitwear follow these procedures to purchase materials .Store purch as e
requisition slip is given bellow
4.4.3 Purchase order: Yarn store is very important store for knitting section .This store
Support Company’s first production process. Generally, company purchases gray yarn from
foreign and local market. But dyed yarn is dyed by other yarn dyed factory. When Fakir
Knitwear imports yarn to other country they consider some factors such as buyer’s demand,
Company’s current stock status, Daily yarn consumption, Safety stock, Free space in ware
house. When company imports yarn from India, they consider one month lead time.
Dyes and chemical store provide logistic support of dyeing section. Fakir Knitwear purch ase
dyes &chemical from local & foreign market. They purchase from local market in emergency
situation or for production of small amount, but in the case of bulk purchase they import
directly from foreign market. Before place purchase order they consider some factors such as
average daily consumption, lead time, safety stock, fee space of ware house etc. Normally
Fakir Knitwear consider three months lead time for order placing to in-house dyes &
chemicals. Daily stock report or daily dyes & chemicals consumption report helps to
determine average daily consumption. This order placed by top management such directors.
Accessories store support sewing section for sewing goods. This store also delivers finishing
accessories for finishing goods. Accessories store place purchase order as per buyer order
sheet. In some cases merchandiser placed full order as per buyer’s requirements. Generally
merchandiser placed one purchase order against one buyer‘s order .Here he does not follow
economic order quantity or any other methods.
General Store and spare part stores are responsible for provide all necessary materials for
production process .This two store works beginning from knitting to shipment goods .General
49. 49
store deliver Stationary items and official document. Fakir Knitwear collect all items (like
official document) from his sister concern factory (Zaman label) and other stationary items
purchase from his nominated suppliers like Okil Shaheb. Spare part store ensure spare part of
all mechanical and electrical equipments. Spare parts items purchased from local market.
It is mentionable that Fakir Knitwear have strong relationship between their reliable foreign
exporter .Fakir Knitwear import dyes & chemicals from several countries to minimize business
threat. Normally Fakir Knitwear imports dyes & chemicals from following exporters
50. 50
FAKIR KNITWEAR LTD
Foreign suppliers
(DYES & CHAMICAL)
SL
NO
SUPPLIER NAME SUPPLIER ADDRESS
1 A.B ENZYMES GMBH
3 INTERNATIONAL BUSINESS PARK #07-18
NORDIC EUROPEAN CENTRE SINGAPUR 609927
2
SUMITOMO
CORPORATION
(SINGAPORE)PTE LTD
20 CECIL STREET#23-01/08 -01/08
EQUITY PLAZA. SINGAPORE
3
HUNTSMAN(SINGAPORE)
PTE LTD
HUNTSMAN(SINGAPORE) PTE LTD
150 BEACH ROAD,#06-05/08 GATEWAY WEST
SINGAPUR 189720 FAX:+65 63906400
4 HANGZHOU CHINA
5 BEZIAMA SWIZZERLAND SWITZER LAND
6 GRASIM INDUSTRIES LTD
GRASIM INDUSTRIES LTD
10, CAMAC STREET
INDUSTRY HOUSE, 17TH FLOOR
KOLKATA-700 017, INDIA, FAX;+91-33-2282-2923
E-MAIL:matadina@adittyabiria.com
7 M/S OCI CORPORATION
OCI CORPORATION
50,SOGONG-DONG CHUNG-GU
SEOUL KOREA
8 M/S HANGZHOU JIHUA
IMPORT EXPORT CO LTD
M/S HANGZHOU JIHUA IMPORT EXPORT CO LTD
HONGSHAN FARM XIAOSHAN HANGZHOU
ZHEJIANG CHINA
9
KYUNG-IN SYNTHETIC
CORPORATION
KYUNG-IN SYNTHETIC CORPORATION
113-31 YEOMCHANG- DONG KANGSEO-GU
SEOUL, SOUTH KOREA
10
MAC-NELS CONTAINER
LINES
INDONESIA NIKKA CHEMICALS
KARAWANG INTERNATTONAL INDUSTRIAL CITY
JL,MALIGI II LOT-3
KARAWANG 41361
51. 51
11 DYSTAR
DYSTAR SINGAPORE PTE LTD
152 BEACH ROAD #37
THE GATEWAY EAST SINGAPUR 189721
FAX:62918263
Fakir Knitwear also have good relationship between local market suppliers .They have long time
business relation. The suppliers name of local market is given below:
FAKIR KNITWEAR LTD
LOCAL SUPPLIERS
CHAMICAL SUPPLIER NAME
SUPPLIERS NAME TYPE OF CHEMICALS Address
1 ROYAL TRADE INTER. ACITEC ACID M.MALEH ROAD, KARIM MANSIO (Fist
floor) TANBAZER , NARAYANGONJ
2 H.P CHEMICALS LTD. HYDROZEN PEROXIDE H202 35% TEENGAON (BHULTA)DUPTARA
,ARAIHAZER, NARAYANGONJ
3 RAFA CHEMICAL POTASH & HYPO 218 , MIDFORD ROAD ,DHAKA
4 AL MADINA CHEMICALS STONE SHOP-C-10, SHOMO BIA COMPLEX STATION
ROAD CHA.GAJIPUR.
5 BISMILLA COLOUR GLICERINE 38 S,M MALEH ROAD. TANBAZER
,NARAYENGONJ.
6 SILKWAY TRADING CELZYME SPL-H/C SKYLARK POINT(3RDFLOOR) ,24/A ,BIJOY,
NAGAR,DHAKA
7 M/S.TRINA ENTERPRISE AMUNIUM SULPHATE 30,LOYELTANK ROAD (THANA
POKURPAR)TANBAZER,N.GONJ
8 MALA AMUNIUM SULPHATE 218/29 MIDFORD ROAD, MAMOTAZ
MARKET ,DHAKA-1100
9 TAPU AMUNIUM SULPHATE 152/A MAMOTAZ MARKET , MIDFORD
ROAD ,DHAKA.
10 MULTI CHEMI
BANGLADESH
BIO POLISH EC HOUSENO-38,BLACK G,ROAD NO-
11.BANANI,DHAKA
52. 52
11 EAST ASIA CO.LTD. BIO-POLISH EL SAREEF MANSION (3RD FLOOR)
56-57,MOTIJHEEL C/A
12 DYSIN INTERNATIONAL
LTD.
CELZYME SPL-H/C SKYLARK POINT(3RDFLOOR) ,24/A ,BIJOY,
NAGAR 75 S ,S,NAZRUL ISLAM SORONEE
DHAKA
13 MAGNET TRADING
CO.LTD.
CIBAFLUID C,INVADINE LUN,
SAPAMINE F-PG .
718, SATMASJID ROAD ,DHAKA-1100
14 BIOZYMES BIOZYME ECX HOUSE NO- 9, ROAD NO-2F SUITE B-3
BLOCK-JBARIDARA DHAKA 1212.
15 LAXMI VANDER BLEACHING 6/47 S.M MALEH ROAD (RAHMAN SUPER
MARKET)TANBAZAR.N.GONJ.
16 M/S M. A YAHAB A . A S/BLACK TANBAZER ,NARAYANGONJ.
17 M/S BANIZZO BITAN HYDOSE (BASF) 1 NO OLD BANK ROAD KCOROSIN GHAT,
NARAYAN- .GONJ.
18 M . ALI & SONS CAUSTIC (PATA-CHINA) 6 S.S ROAD NARAMATI NARAYANGONJ
19 M/S B.M
.INTERNATIONAL
HYDROGEN OEROXIDE 35% 31 LOYEL TANK ROAD TANBAZAR,
NARAYANGONJ
20 S.B.CHEMICAL NYTRIC ACID 44 NO K,B,S SHAHA ROAD, KALIR BAZER
,NARAYANGONJ.
21 CHEMI COLOUR 218/3 MAMOTAZ MARKET ,MIDFORD ROAD
,DHAKA.
FAKIR KNITWEAR LTD
DYES SUPPLIER NAME
SUPPLIERS NAME TYPE OF CHEMICALS Address
1 S.A ENTERPRISE DRI – YELLOW K44 PALTAN TOWER SUITE #605 DHAKA
6 SILKWAY TRADING CELZYME SPL-H/C SKYLARK POINT(3RDFLOOR) ,24/A
,BIJOY, NAGAR,DHAKA
53. 53
7 MAGNET TRADING CO.LTD. CIBAFLUID C,INVADINE
LUN, SAPAMINE F-PG .
718, SATMASJID ROAD ,DHAKA-1100
8 M/S BANIZZO BITAN HYDOSE (BASF) 1 NO OLD BANK ROAD KCOROSIN
GHAT, NARAYAN- .GONJ.
9 SPARKLE COLOURS LEAFIX AMBER CA ROAD 2, BANNANI,DOSH ,DHAKA-
1206
10 SHAFALI TEX OYSTER TRADE
AGENCY
CIBACORN YELLOW F-4G 25/711,ZIGATOLA DHANMONDI,
DHAKA
After determining purchase requirement Fakir Knitwear send purchase order through some procedure
.At first Fakir Knitwear communicate their suppliers and send a purchase order by e-mail to process it
quickly to delivery their necessary item and then send a formal document .
4.5 Receive of Materials:
At first all kinds of goods received in security supervisor at the gate as per invoice and then note down
on the Goods Receiving Register and the supervisor give a DI number. When goods delivered from the
factory gate supervisors record it Goods Delivery Register. (STR/3/001)
Tally Count & Security Check: Tallyman record it daily in register book and he count & receive the
goods as per invoice, after security check it is send to the central inventory for next procedure.
Inventory documentation & posting: After tally count & security check inventory of ficers record it in
daily receive register and prepare materials receiving report and check it against purchase order sheet.
It is mentionable that merchandisers send a purchase order sheet to inventory before receiving
materials.
Materials receiving report also assist to repay suppliers bills. When suppliers send proforma invoice
with invoice of Fakir Knitwear Ltd, then inventory officers check it their previous suppliers record and
54. 54
send suppliers billwith invoice to accounts section and account section giveit to audit section for audit.
Auditor goes to the accessories store and checks it against purchase order and physical existence of
materials or items and report to accounts section to pay the bills. Here a material receiving report is
given below:
4.5.1 Inspecting & Testing Materials:
Before preparing materials receiving, stores maintain quality certificate report which approved
by the related authority. If found any shortage or damage it is also informing to the concerned
management. After approval by the authority, stores officers physically count that whether
S.L. NO
P.R
DATE NAME OF ITEM
PR
QTY UNIT
RECEIVED
QTY UNIT BALANCE
TOTAL
AMOUNT
786 07.11.07 S.COVER-14" 20 PCS 10 PCS 10 10
- -
788 11.11.07 1.HAIR DYER 10 PCS 10 PCS - -
2.BOSCH DYER 10 PCS 10 PCS - -
-
MD SIR 1.P.T.C RELAUS 1 PCS 1 PCS - -
2.P.T.C OVER LOAD 1 PCS 1 PCS - -
3.COIL OVER LOAD 1 PCS 1 PCS - -
- -
MD SIR 05.12.07 1.BATTERY-CR-2032 20 PCS 20 PCS - -
2.1.5 V BATTERY 8 PCS 8 PCS - -
-
F A K I R K N I T W E A R S L T D.
Kayempur, Fatullah,
Narayanganj-1400
55. 55
materials coming as per invoice or not.
4.5.2)Voucher Rising & Making Payment: If the supplier’s delivery goods is not as per order or find
any damage or wastage, Central inventory return it to the suppliers. Sometime central inventory keep
those items in his warehouse and request to suppliers for materials adjustment invoice. Adjusted invoice
is necessary for adjust more or less materials delivery against purchase order. Generally, Central
inventory not send voucher to the cash department until the bill is not adjusted.
4.5.3 Adjusting of Invoices: After taking necessary adjustment or all the adjustment has been completed
then suppliers providing bills and examine and approved by central inventory. This examine documents
are send to account section for pay suppliers bills.
4.6 Storing of Materials:
Storing of materials is second important step of inventory management. Efficient inventory
management has to conscious about storing of materials, because precise storing systems ensure best
use of company premises and protect wastage, pilferage and deterioration. Which ultimately reduce
cost and maximize company profit .Fakir Knitwear limited realize its impotency .To ensure proper
storing of materials it follow some procedures. Here Fakir Knitwear Ltd Storing System is given below.
Accessories Store has 11 Rack (Sewing Accessories six, Finishing Accessories Five)
Fakir Knitwears LTd
Quality certificate Report
Description of materials : Sweing thread
Buyer order No : 19546248
Buyer Name : H&M
Supplier Name : Coast Bangladesh Ltd .
Date Remarks
5/8/2008 130 100 ctn
Approved By
Jibon
Marchandiser
Receipts
56. 56
Fakir Knitwrears Ltd
Bin Card
Description of materials : Han tag Bin No …1320
Reck No : 5
Cell No… 10
Store ledger Folio NO:520
Balance
G.R No. Quantity S.R No . Quantity Quantity
5/8/2008 130 100 ctn 1350 50 ctn 50 ctn
10/8/2008 879 300 ctn 350 ctn
17/8/08 1560 200 ctn 150 ctn
Checked By ….Mizan
Receipts
Date
Issues
Remarks
Sewing Racks have total 205 cells (Rack A-30, B-30, C-30, D-40, E-30, and F-45) & Finishing Racks have
total 125 cells (Rack I-30, J-30, M-25, L-40).
Accessories sewing items segregate by Buyer Name and order Number. One/Two Racks are kept for
one Specific buyer. Buyer all sewing accessories items keep in those buyer racks. For example, Rack C
is reserve for H&M buyer. In the rack each cells has a Bin card, which record Accessories name, Shade
no, Description, Total quantity, Delivery, Balance. Cells number & order number also record in the Bin
card. Sewing Accessories has a looking board /Description board, which describe all of items have in
the Racks.
Finishing Accessories keep in rack by items wise. Here all buyers finishing accessories (Such as Hanger)
items keep in a rack. In the rack each cells has a Bin card, which record Order Number, Buyer’s Name,
Items Name, Cell Number, Receive, Delivery, and Balance Quantity. Finishing Accessories has a looking
board /Description board, which describe all of items have in the Racks. For example, here given the
bin card of Fakir Knitwear .
57. 57
When store keeper receives dyes & chemical he storage it into the rack. Racks have many cells. Store
keeper give each and every cells number & hung on a bin card. A bin card describe items list, Receive
Quantity, Delivery quantity, Balance. Generally, store keeper Storage dyes & chemical in the cells in
following ways:
58. 58
4.7 Issuance or utilization of materials:
Fakir Knitwear product has good customer demand in the world wide .To fulfill this customer
demand in right time ,Fakir Knitwear give subcontract to other factory to produce it garments
items. So, to produce these garments items to other factory Fakir Knitwear provide them necessary
logistic support. By that it issuance materials from store to inside of factory and other subcontract
party (like Tara Apparels). Fakir Knit wears store utilization materials given as follow .First of all, yarn
store issuance of materials present below then we discuss the delivery process of accessories store.
Generally, yarn store deliver yarn to two parties
4.7.1 Inside of factory
59. 59
4.7.2 Other party or sub contract.
4.7.1 Inside of factory:
Knitting Manager Yarn Requisition S.I.R Yarn in charge
Knitting Manager Yarn Requisition: Knitting manager issue gray yarn requisition slip and approved by
related authority (such as Merchandiser, Production coordinator, and Director) and send this paper to
central inventory & gray yarn store. Generally knitting section prepared three documents for collecting
gray yarn 1) Yarn requisition planning 2) Yarn requisition slip 3) Requisition wise daily knitting issue.
Yarn in charge get those knitting manager yarn requisition and sending yarn to knitting section as per
requisition slip which approved by inventory manager.
4.7.2 Other party or Sub –contract:
Knitting Manager Yarn Requisition Yarn in charge Sub-contract
Knitting Manager Yarn Requisition: Knitting manager issues gray yarn requisition slip for knitting other
party. He is approved it by related authority (such as Merchandiser, Production coordinator, and
Director) and send this paper to central inventory & gray yarn store. Generally knitting section
prepared three documents for collecting gray yarn
Yarn requisition planning
Yarn requisition slip.
Sometimes yarn store deliver yarn other than above mentioned two.
4.7.3 Requisition wise daily knitting issue: Yarn in charge get those knitting manager yarn requisition
slip and sending yarn to other party as per requisition slip which approved by inventory manager
.Accessories store also follow some procedures to issuance goods to other department .Here the
process of delivery given below.
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Internal Accessories delivery process (For swing & finishing):
Sub- Store (S.I.R) Main store
Accessories store get cutting sheet, trim card, pre- production meeting sheet (p.p meeting), cutting
sheet is provided by buyer to merchandiser and merchandiser send it related section to perform as per
cutting sheet .In this case cutting sheet use for delivery accessories. Trim CARD also use for delivery
accessories from main store to sub store. In the trim card buyer provide some sewing accessories
sample, as per trim card accessories store responsible to supply accessories items to the sub store for
sewing the goods. Pre- production meeting (Before go to production pre- production meeting is held
for ensure allrelated production items is availableinthe store to help smooth production).This meeting
is presided by production DGM along with work study manager, Quality manager, and Production
manager, Inventory manager, Cutting manager and Sample in charge & Sewing in charge. After the
meeting they give order to Accessories store to delivery accessories and accessories store is ready for
delivery accessories to sub store.
Main store: Whenever any department requires any thing from the store, the departmental head
issues requisition (STR/3/006) after duly singed by the Head of the department. As per Store Issue
Requisition slip, sewing thread and other accessories such as main label, care label, etc main store.
Against the store issue requisition accessories store register it stock delivery & receive ledger
(STR/3/005) by buyer and order wise. This delivery also record in accessories store computer.
Sub- store : sub-store distributes the accessories to the production line as per verbal instruction of
production manager and maintain output register (STR/3/007).
Schematic view of External Delivery process:
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Register prepared invoice
S.I.RApp.by merchandiser
Other party
Register Prepared Invoice : Accessories store also deliver accessories outside of FKL for sub contract .
In this case, accessories store prepared an invoice by verbal instruction of Production coordinator /
Merchandiser for delivery accessories to sub contract.
S.I.R Approved By merchandiser /production coordinator: After prepared S.I.R accessories officers
approved it by the merchandiser / production coordinator for delivery accessories to sub contract
party.
Other party: As per to the S.I.R other party /sub contract party get necessary accessories.
4.8 Materials Stock or Inventory control:
Fakir Knitwear Ltd is vary conscious about his royal customer demand. To fulfill customer necessity in
time Fakir Knitwear always try to stock required materials for their smooth production .Fakir Knitwear
follow safety stock. Generally they keep safety stock for extra customer demand or any emergency
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customer demand and another reason is that to avoid any unexpected situation like, political
instability, employee strike, or any other natural calamities.
4.9 Accounting for Materials & Cost Control:
Accounting for materials and cost control is vital element of any organization to protect its profit. To
minimize production cost Fakir Knitwear ltd use batch costing for each customer order. It has many
loyal customers in the worldwide. They places order in regular basis.Its tried to find out each customers
order production cost .It is previously mentioned that it has several production processes. Company
evaluate the production cost how much differ it from standard. It also computes that which customer
order is more profitable than the others. Fakir Knitwear cost consumption given below.
Buyer Name: TEMA
Style Name: ZEHAR-U
Order No. 76704
Fabrication: 100% COTTON 1X1 RIB-210 GSM
Price Per Pc: $1.80
Consume/dz ( Grey Fab.) 2.978 kgs/dz
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FABRICATION Color
QTY
PCS
USED.GREY
FABRICS/KGS.
Lycra/
kgs
Yarn
Lycra
price/kg
YARN
RATE/KG
KNITTING
RATE/KG
100%
COTTON
1X1 RIB
SIKLAMENT 9000 2234 30/1 $2.90 $0.145
TOTAL TOTAL 9000 2234
TRIM COST
Accessories Name Order Qty Price/dz Unit Cost
Main / Size Label 9644 $0.09 DZ $72.33
Care Label 9450 $0.14 DZ
$110.25
Inner Barcode Label 9732 $0.07 DZ $56.77
Carton sticker 300 $0.35 DZ $8.75
Bilister sticker 789 $0.35 DZ $23.01
Thread Coats (AVG Color) 360 $0.66 CONE $237.60
Hang Tag 9225 $0.17 DZ $130.69
Blister Poly ( 29" x 12" ) 757 $0.66 DZ $41.64
Single Poly ( 12" x 12" ) 9091 $0.30 DZ $227.28
Carton ( 56x32x31) cm 130 $1.20 PC $156.00
Tissue Paper ( 30 x 25 cm ) 9135 $0.06 DZ $45.68
Mobilon tap 2275 $0.01 YDS $23.66
Gum Tape 10 $0.50 DZ $5.00
OTHER (LOCK TAG)/COST TAPE 9000 $0.05 DZ $37.50
Total Trim Cost = $1176.15
OTHERS: Order Qty Price Unit Cost
Print DZ $0.00
Embroidery 9000 $0.20 DZ $150.00
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Applique $0.00
Others $0.00
Total other cost $150.00
Total fabric cost = $10,376.93
Total trim cost = $1176.15
Others cost = $150.00
Total cost = $11703.08
L/c value = $16200.00
Total cm = $4496.93
Actual cm per/doz = $6.00
MARKATING COSTING
REAL
COSTING
Fabric price/kg $5.00
$15.00
$13.84Consumption/dz 3.00
Accessories/dz 3.00 3.00 $1.57
Embroidery/dz 0.50 0.50 $0.20
CM/dz 3.00 3.00 $19.83
Unit Price $1.79 1.80
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5.1 Finding & Discussion
Every organization has its own inventory management procedure. Organization runs under
this inventory management process. As the objective of my study is to make a comment on
the inventory management process of Fakir Knitwear Ltd, I try my best to collect data for the
study and find out the reality. Based on the data generated during my study period I will sum
up my finding here and I think these will help me to achieve my objectives.
In spare parts store, necessary spare parts were purchased by several parsons. There were
no control of purchasing spare parts, some time it was purchased by Chairman and
sometime director and sometime spare parts were purchased by store Keeper.
Although it is role that all purchasing materials quality are checked by related store, but
in practice spare parts store has no such authority to do that. So there is a lagging behind
material receiving report. By that a chance of pilferage exists.
Inventory is very important part of each organization .Almost 80% of company’s working
capital is invested in this sector .So, best use of those capitals to ensure maximize profit.
Fakir Knitwear Ltd import significant portion of materials from overseas .They consume it
gradually in several orders .To compute each customer order profit, customer order
production cost is vary necessary. Meticulously costing each customer order production
cost materials accounting is vary vital .In Fakir Knitwear Ltd this type of accounting is not
properly practiced. Here management just purchase enormous amount of materials then
those materials are consumed in several orders. So cost control is absence in this scenario.
Fakir Knitwear emphasis reduces process loss or reproduction cost .They reduces cost by
this process.
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Fakir Knitwear Ltd purchase necessary goods from their reliable suppliers .When it
purchase goods from other suppliers by competitive bidding .But ,when Fakir Knitwear
purchase stationary items or office documents books from their sister concerns company
.They do not consider transfer pricing .Some times this price is higher than other suppliers
.Which increase its production cost.
Fakir Knitwear does not follow Economic Order Quantity. They purchase bulk amount of
goods at a time and storage those in warehouse. By that huge amount of working capital
remains idle, which has cost of capital .Those cost curtail overall profit. It also increases
supervising cost, maintenance cost, ware house rent, wastage, spoils cost etc. So a chance
of pilferage is exist.
In yarn store of Fakir Knitwear Ltd is directed by the direction of two department of Fakir
Knitwear, like knitting division and central inventory department. Yarn in charge have to
follow direction of both departmental manager .Yarn in charge is accountable for his work
by two manager. Central inventory manager is official boss and knitting invento ry
manager is working boss of yarn in charge .Some time yarn in charge face lot of problem
to follow different commend of both manager , This two way direction create conflict of
their power of authority .Some time one departmental head try to show his
administrative power to other department .
Store keeper faces some problem to keep dyes & chemicals. Because dyes & chemicals are
stored in the same storage. It has no separate place to storage these different types of
materials. .For instance, in case of Soda Caustic, we know it is very much heat sensitive
and become liquid in higher temperature. When stored in a same place the liquate soda
caustic may penetrate its package and mixing up with other chemicals which may principal
69. 69
cause of a severe accident. So in storage proper care must necessary, otherwise a risk of
losses of property is exists. It also health hazard.
Fakir Knitwear follows several methods to calculate materials cost of production .Fakir
Knitwear has several production steps, each step need different materials to finish their
job. Fakir Knitwear is produce fabrics in knitting steps, In Knitting function they need yarn
for knitting fabrics. To determine knitting production cost they follow first in first out
method. On the other hand , In dyeing division for dyeing fabrics they use dyes and
chemicals, to calculate batch costing they follow average materials cost .In sewing and
finishing garments items accessories is necessary for to do those . To compute sewing and
finishing materials cost they follow Actual Cost Method .To complete one customer order
they follow several materials accounting method which is not resembled with GAAP.
As Fakir Knitwear ltd establish inventory department very soon. So, It does not work
successfully by its own fashion .Each organization has independent inventory department
which is responsible for purchase, distribution materials to production department
,Materials control and bill payment, Storage materials for available for sale . But in reality
, Fakir Knitwear ltd inventory management not enjoy of all the above responsibility or
authority .The administration of Fakir Knitwear Ltd only give responsibility to invento ry
management to storage and distribution of materials. Central inventory management
team monitor daily in coming and out going materials record and sometime support audit
department to audit the inventory. So, the other department of Fakir Knitwear Ltd not
show job honor to inventory management team. For this result, the officers of invento ry
management not get support from other department to do their work successfully.
Fakir knitwear Ltd (FKL) use several warehouses for storage its important materials to
support it production. To fulfill its customer demand they need logistic support. FKL
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accumulate bulk size of materials of its warehouses. These warehouses are not situated at
one place, scattered other places. To deliver these necessary items to working place
troublesome. By that it incurred cost and time.
CHAPTER VI
CONCLUSION & RECOMMENDATIONS
6.1Conclusion
6.2 Recommendations
71. 71
6.1 Conclusion
In this report I presented the inventory management system of Fakir Knitwear limited and
I also present some findings. By that I conducted conclusion of that company’s inventory
management system which I think most important and company should emphasize that
most.
Centralized management system is not worth full to large organization. Fakir
Knitwear also followed centralized management system. So it faces some problem
about that. Its inventory management was also drive by its central decision. So it
required time to take any steps.
Inventory manager had no administrative power to take any decision regarding
inventory. So he had nothing to do but only clerical jobs. Even sometimes he was
not allowed to know about import price of some products. By that he was reluctant
to know the price of products, which sometimes adversely effect the management
decision regarding cost control.
Absence of transfer pricing exists in that company. So in absence of transfer pricing
actual cost of product was not perceived. So the company many times looses
money by that way.
Inventory management system should be consistence. But in here some times LIFO
is used, sometimes FIFO or Average method is used. By that it creates consistency
problem.
Some materials were wastage due to inappropriate material storage system.
Without due care of materials percentage of wastage grows up.
The range of inventory management in Fakir Knitwear Limited was narrow. It was
not widely adept in all other sector of that company.
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6.2 Recommendations
1. To make decentralized management system, Fakir Knitwear’s should change its entire
management systemby divisionof controlling power. It may be that every director should take
care one division. Again also director should give some administrative power to section in
charge. Every body should responsible to his immediate boss to his performance. By that
inventory management become worth full.
2. Inventory manager should have some administrative power. He should know allproducts price
and he should take participate all purchasing decision. By that he becomes a fruitful member
of that company and in this way he become responsible for his works to his superior.
3. The company need to conscious about their purchase of materials from its sister concerns
factory. So it should consider transfer pricing. It also should purchase it necessary materials
through its one department like purchase or Inventory department .By that, it can control
unnecessary purchase of materials and it also assist to storage materials in proper way.
4. As the company purchase some necessary goods from its sister concern factory (Zaman level
) In that case, they can follow JIT concept.
5. Fakir Knitwear should exercise full function of inventory management. Procurement of
materials .materials accounting, and cost control. And also it should follow consistency of
those method such as only FIFO or Average system
6. Proper storage system should used to storage of materials. Sometimes consultant’s advice
should adopt in costly, flammable products storage.
7. To storage bulk size inventory, it also has some cost .So to avoid this unnecessary cost it can
apply Economic Order Quantity.
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8. For smooth production or ensure accountability of employee Fakir Knitwear should Follow one
way commending structure .That mean ,one employee is accountable to one boss .
Thank you
A ppendix A:
Bibliography
Norbert Lioyd Enrick “ Inventory Management” Installation ,Operation, and Control .page 82-90
Elwood S. Buffa “Modern production Management” page 504-526
William J. Stevenson “Operations Management “ page 542-580.
Shankar kumar Roy. Workshop on Inventory Management (Bd Jobs ) PP 3-32
M Y Khan , P.K Jain. “ Financial Management “ Page 20.2-20.13
James C.Van Horne ,Jain .M .Wachowicz JR page 259-268
Ray H. Garrison “Managerial Accounting “ Page 531-551.
I. M Pandey “Financial Management” Page 885-905
Mokbul Hossain “Cost and Management Accounting” Page 33-72
Garrison Noreen “Managerial Accounting” tenth Edition, Page 554-562
A ppendix B:
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Acronyms
ABC Plan: Activity Base Costing Plan
GSM: Gram per Square Miter
TOD: Time of Delivery
PR QTY: Purchase Required Quantity.
PR Date: Purchase Required Date.
PP Meeting: Pre Production Meeting.
