INVENTORY

MANAGEMENT

INTRODUCTION TO COMPONYINTRODUCTION TO COMPONY

GOETZE(india) limited was established in 1954 as a joint GOETZE(india) limited was established in 1954 as a joint venture between ANIL NANDA group and federal mogul, a venture between ANIL NANDA group and federal mogul, a global supplier of quality products. FEDERAL MOGUL was a global supplier of quality products. FEDERAL MOGUL was a Germany based company and is one of the leading Germany based company and is one of the leading manufacturers of automotive components in the world. federal manufacturers of automotive components in the world. federal mogul has been creating value through innovation & leading mogul has been creating value through innovation & leading technology for more than 100 years. Today the company is a technology for more than 100 years. Today the company is a key player in global market place . THE company has its plant key player in global market place . THE company has its plant located in banglore(pistons,rings & pins), bhiwadi(sintered located in banglore(pistons,rings & pins), bhiwadi(sintered products). The compony has set up its first unit at products). The compony has set up its first unit at Patiala( piston, rings, cylinders, liner and castings) and started Patiala( piston, rings, cylinders, liner and castings) and started its commercial production in 1957. its commercial production in 1957.

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ESCORTS mahle limited was a 50:50 joint venture between ESCORTS mahle limited was a 50:50 joint venture between escorts & mahle ltd. Due to disengagement and share purchase escorts & mahle ltd. Due to disengagement and share purchase agreement among escorts ltd, mhale had decided to exit from agreement among escorts ltd, mhale had decided to exit from the joint venture and sell its entire share to escort-mahle ltd. In the joint venture and sell its entire share to escort-mahle ltd. In view of the fact the business of escorts-mahle ltd and Goetze view of the fact the business of escorts-mahle ltd and Goetze India ltd are closely inter linked and have ovious financial & India ltd are closely inter linked and have ovious financial & technical synergies due to common location of plants, technical synergies due to common location of plants, common customers, products etc. GOETZE (India) ltd took common customers, products etc. GOETZE (India) ltd took over the share capital of escorts mahle ltd. The new company over the share capital of escorts mahle ltd. The new company named ESCORTS PISTONS LTD. came into existence on nov named ESCORTS PISTONS LTD. came into existence on nov 1,2002. Further escorts pistons ltd was amalgamated with 1,2002. Further escorts pistons ltd was amalgamated with goetze (India) ltd on may 26,2003 &w.e.f June 2003 the name goetze (India) ltd on may 26,2003 &w.e.f June 2003 the name of the company is “GOETZE INDIA LTD”.of the company is “GOETZE INDIA LTD”.

IMPORTANTIMPORTANT PRODUCTSPRODUCTS

PISTONSPISTONS

RINGSRINGS

CYLINDERS LINERSCYLINDERS LINERS

IMPORTANT CUSTOMERSIMPORTANT CUSTOMERS

• ASHOK LEYLAND LTD.ASHOK LEYLAND LTD.

• BAJAJ AUTO LTD.BAJAJ AUTO LTD.

• FRICK INDIA LTD.FRICK INDIA LTD.

• HERO HONDA LTD.HERO HONDA LTD.

• HINDUSTAN MOTORS LTD.HINDUSTAN MOTORS LTD.

• INTERNATIONAL TRACTORS LTD.INTERNATIONAL TRACTORS LTD.

• TATA INTERNATIONAL LTD.TATA INTERNATIONAL LTD.

• YAMAHA MOTOR INDIA PVT LTD.YAMAHA MOTOR INDIA PVT LTD.

INVENTORY MANAGEMENTINVENTORY MANAGEMENT

INVENTORY MANAGEMENT refer to process of managing INVENTORY MANAGEMENT refer to process of managing stocks of finish products, semi finish goods, and raw material stocks of finish products, semi finish goods, and raw material by the firm. It will help in reducing cost and increases the by the firm. It will help in reducing cost and increases the revenue of the firm. The stocks of inventories differ from firm revenue of the firm. The stocks of inventories differ from firm to firm. The goal of effective inventory management is to to firm. The goal of effective inventory management is to minimize the total cost of holding inventories. The task of minimize the total cost of holding inventories. The task of inventory planning can be highly complex in manufacturing inventory planning can be highly complex in manufacturing environments. Inventory planning and management must be environments. Inventory planning and management must be responsive to the needs of the firm. Proper inventory responsive to the needs of the firm. Proper inventory management helps in taking various business decisions. It is a management helps in taking various business decisions. It is a continuous process and specialized staff should be employed continuous process and specialized staff should be employed for inventory management. for inventory management.

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The inventory management begins as soon as one starts The inventory management begins as soon as one starts production and places the order for raw material. Once the production and places the order for raw material. Once the order have been placed, little time is available to the firm to order have been placed, little time is available to the firm to put inventory management plan into action before goods are put inventory management plan into action before goods are delivered. It helps the firm to decide in advance where these delivered. It helps the firm to decide in advance where these supplies should be stored. The inventory control process supplies should be stored. The inventory control process provides the information to efficiently manage the flow of provides the information to efficiently manage the flow of materials, effective utilization of equipment and taking of materials, effective utilization of equipment and taking of decisions related to operations. The firm should design such a decisions related to operations. The firm should design such a system as to make proper business decisions. system as to make proper business decisions.

TYPES OF INVENTORIESTYPES OF INVENTORIES

Raw material Raw material These are the basic unfabricated These are the basic unfabricated material which have not gone in any operation material which have not gone in any operation since they are received from the supplier. since they are received from the supplier.

Finish productsFinish products These are the end products of These are the end products of any production process. These are those goods any production process. These are those goods which can be offered for sale in the markets. which can be offered for sale in the markets.

Work-in-progress Work-in-progress These refer to the partially These refer to the partially completed goods.completed goods.

Stores & sparesStores & spares These refer to the goods which These refer to the goods which do not form the part of finish product ,but used in do not form the part of finish product ,but used in the production process.the production process.

Methods of inventory controlMethods of inventory control

First in first outFirst in first out When a firm adopts the fifo method When a firm adopts the fifo method to price its raw material the issue of material will be to price its raw material the issue of material will be in order in which it was received. Thus pricing will be in order in which it was received. Thus pricing will be based on material that was ob tained first.based on material that was ob tained first.

Last in first out Last in first out The material issued will be priced The material issued will be priced based on the material that has been purchased based on the material that has been purchased recently.recently.

Weighted average costWeighted average cost The pricing will be based on The pricing will be based on average basis (weights are given based on quantity).average basis (weights are given based on quantity).

Standard price methodStandard price method Material will be priced based Material will be priced based on the standard cost which is predeterminedon the standard cost which is predetermined

Replacement cost methodReplacement cost method Material is priced at a Material is priced at a value that is realizable at the time of issue. value that is realizable at the time of issue.

VARIOUS COST ASSOCIATED WITH INVENTORIESVARIOUS COST ASSOCIATED WITH INVENTORIES

Ordering costOrdering cost Every manufacturing organization has to Every manufacturing organization has to purchase materials. Thus ordering cost refer to cost associated purchase materials. Thus ordering cost refer to cost associated with preparation of purchase requisition by the user with preparation of purchase requisition by the user department, transportation of the material ordered, inspection department, transportation of the material ordered, inspection and handling. It also includes the cost for not lifting the and handling. It also includes the cost for not lifting the material in time. If the concern has capacity to produce the material in time. If the concern has capacity to produce the required components internally, then ordering cost refer to required components internally, then ordering cost refer to cost associated with preparation of requisition forms by the cost associated with preparation of requisition forms by the user department, transportation, inspection, handling cost. user department, transportation, inspection, handling cost. Above all ordering cost remain more or less constant Above all ordering cost remain more or less constant irrespective of size of order although transportation and irrespective of size of order although transportation and inspection cost may vary depending upon the size of the order.inspection cost may vary depending upon the size of the order.

Carrying cost Carrying cost These are the expenses of storing the goods. These are the expenses of storing the goods. Once the goods have been accepted, they becomes the part of Once the goods have been accepted, they becomes the part of firm’s inventories. These cost include insurance, rent of the firm’s inventories. These cost include insurance, rent of the warehouse, salaries of the storekeeper and security personnel warehouse, salaries of the storekeeper and security personnel financing cost of money locked-up in inventories. It is financing cost of money locked-up in inventories. It is generally considered as the percentage of value of inventory generally considered as the percentage of value of inventory held in the warehouse. Approximately carrying cost are held in the warehouse. Approximately carrying cost are considered to be 25% of value of inventory held in store.considered to be 25% of value of inventory held in store.

INVENTORY MANAGEMENT TECHNIQUESINVENTORY MANAGEMENT TECHNIQUES

While the total ordering costs are decreased with increase in size of order, the carrying costs increases with the increase in size of order indicating the need of proper balancing of these two type of cost. Again if the company wants to avoid stock out costs, it may have to maintain larger inventories of materials and finish goods. Thus importance of effective inventory management is directly related to the size of investment in inventory.

There are three types of inventory management systems:-1. Economic order quantity 2. Reorder point formula3. ABC model

Economic order quantityEconomic order quantity

Economic order quantity refer to the optimal order size that will Economic order quantity refer to the optimal order size that will result in lowest ordering and carrying cost. In simple words result in lowest ordering and carrying cost. In simple words EOQ is that size of order which gives economy to order and EOQ is that size of order which gives economy to order and ultimately contribute towards maintaining of material at ultimately contribute towards maintaining of material at optimal level and also at minimum cost. It is given by the optimal level and also at minimum cost. It is given by the formula:-formula:-

$2CO/I$2CO/I

Where C- annual usageWhere C- annual usage

O- ordering costO- ordering cost

I- carrying costI- carrying cost

Re-order point formulaRe-order point formula

One can adopt much simpler formula which gives relaible One can adopt much simpler formula which gives relaible results in indicating the point at which inventory is to be re-results in indicating the point at which inventory is to be re-ordered. The formula is:-ordered. The formula is:-

re-order point= S*L+F(S*R*L)re-order point= S*L+F(S*R*L)

Where S- usage in units Where S- usage in units

L-lead time L-lead time

F-stock out acceptance factorF-stock out acceptance factor

R-average number of units per order R-average number of units per order

ABC modelABC model

ABC refers to always better control. This analysis has gained ABC refers to always better control. This analysis has gained importance as it can be applied to any area that needs control. importance as it can be applied to any area that needs control. In this model the organization will divide the material into 3 In this model the organization will divide the material into 3 catagories for having better control over them. This analysis of catagories for having better control over them. This analysis of material in store can contribute to a large percentage of value material in store can contribute to a large percentage of value and consumption. The items fall in the first category are called and consumption. The items fall in the first category are called as A group, 2as A group, 2ndnd as B group, 3 as B group, 3rdrd as C group. as C group.

category %of items %of valuecategory %of items %of value A 10 70A 10 70 B 20 20B 20 20 C 70 10C 70 10

Inventory management in FMGILInventory management in FMGIL

ABC analysis is being used to manage the inventories. A ABC analysis is being used to manage the inventories. A category consist of items of higher value and directly linked category consist of items of higher value and directly linked with production. Some of the items are CIMSTAR, MB62C with production. Some of the items are CIMSTAR, MB62C etc. B category includes items of less value and item and is etc. B category includes items of less value and item and is directly linked with production. E.g. servo 68%, cutting oil, directly linked with production. E.g. servo 68%, cutting oil, etc C category include mislanious items such as mobile oil, etc C category include mislanious items such as mobile oil, power oil, preventing oil etc. Computers (SAP) are being used power oil, preventing oil etc. Computers (SAP) are being used to store maximum level and re-order level of each item. The to store maximum level and re-order level of each item. The company has centralized purchasing system. The purchased company has centralized purchasing system. The purchased items are divided into two groups i.e type 4(local purchaase) items are divided into two groups i.e type 4(local purchaase) and type 5 (purchases by the head office)and type 5 (purchases by the head office)

Due to large number of items codes have been assigned to Due to large number of items codes have been assigned to every items. These codes have specific order so to have easy every items. These codes have specific order so to have easy identification of every itemidentification of every item

Research methodology Research methodology

A:- Objective of the study A:- Objective of the study To know the functioning of inventories and understand the To know the functioning of inventories and understand the

system of procurement of material.system of procurement of material. To understand the accounting and valuation of raw-material, To understand the accounting and valuation of raw-material,

work-in-progress and finish goods. work-in-progress and finish goods. To analyze inventory control techniques.To analyze inventory control techniques. To study the performance of the company and thus provide To study the performance of the company and thus provide

suggestions if any on the basis of analysis and interpatation of suggestions if any on the basis of analysis and interpatation of data data

B:- The reseaerch is based on collection dataB:- The reseaerch is based on collection data Primary dataPrimary data Secondary dataSecondary data

FindingsFindings

There has been tremendous increase in the level of inventories There has been tremendous increase in the level of inventories year by year.year by year.

Among ABC classification no special consideration has been Among ABC classification no special consideration has been given to B and C class items.given to B and C class items.

MIS reports has been prepared by the finance department to MIS reports has been prepared by the finance department to manage the inventory level.manage the inventory level.

The prices for the supplies has been decided at the beginning The prices for the supplies has been decided at the beginning of the year & factory receives the material at that very price of the year & factory receives the material at that very price throughout the year.throughout the year.

Only maximum and re-order level are maintained. No Only maximum and re-order level are maintained. No weightage is given to min. level due to SAP. weightage is given to min. level due to SAP.

The various items in raw material are stored at different The various items in raw material are stored at different location according to the suitability of their use near to location according to the suitability of their use near to respective departments. But same are controlled from central respective departments. But same are controlled from central location i.e. from general store.location i.e. from general store.

As and when material is received in the store, the same is given As and when material is received in the store, the same is given material as well as SAP code. These codes are decided in material as well as SAP code. These codes are decided in company itself.company itself.

Re-order level is calculated in the firm by the formula max. Re-order level is calculated in the firm by the formula max. level* max. lead time.level* max. lead time.

The lead time is based on the distance between sending & The lead time is based on the distance between sending & receiving ports.receiving ports.

Limitations Limitations

Change of financial yearChange of financial year Lack of confidential dataLack of confidential data Limited timeLimited time Lack of comparative data for inter-firm comparison.Lack of comparative data for inter-firm comparison.

Suggestions Suggestions

The company should make realistic production program and The company should make realistic production program and there should not be frequent changes in the same.there should not be frequent changes in the same.

Suppliers should be given schedule for the supply of raw-Suppliers should be given schedule for the supply of raw-material and other supplies in time.material and other supplies in time.

Still better co-ordination should be there among various Still better co-ordination should be there among various departments.departments.

A large part of company’s investments are tied up with the A large part of company’s investments are tied up with the loan, the company should try to pool its capital investments.loan, the company should try to pool its capital investments.

It should start its own marketing program to promote It should start its own marketing program to promote company’s sale and to face competition.company’s sale and to face competition.

Standardized tools should in production. Standardized tools should in production.

In stores and spares there are certain items which are slow or In stores and spares there are certain items which are slow or non moving, investment in these items should be made non moving, investment in these items should be made reducedreduced

The company should give attention to improve the packing The company should give attention to improve the packing material .material .