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 Scope of the Study

1.4 Limitations of the Study

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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 inventory

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

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Different types of secondary data are included in this study report. Sources of secondary

information can be defined as follows:

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

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special, professional knowledge is required so it was also impossible to recognize all

relevant data.

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 /Export Countries

2.9 Production Capacity

2.10 Three Years Comparative Production Record

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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.

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2.6 Turn Over

2.7 Fakir Knitwear Organogram

Year- 2004 turnover: US $ 30 million.

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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.

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Capacity:

Garments 100,000 Pcs/Day

Knitting 37 Tons/Day

Dyeing 30 Tons/Day

Dyeing Finishing 35 Tons/Day

Garments Washing 25,000Pcs/Day

Printing 25,000 Pcs/Day(Up to 16 colors)

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2.10 Three Years Comparative Production Record

Months 2004 2005 2006

JANUARY 2,299,16

2

1,016,68

6

1,815,40

3

FEBRUARY 866,775 1,553,34

8

2,183,57

3

MARCH 1,835,53

1

1,936,88

1

2,062,58

1

APRIL 1,617,76

5

1,800,44

9

1,637,01

6

MAY 2,154,49

1

1,631,25

8

1,867,35

7

JUNE 2,022,71

9

1,522,04

7

1,466,24

2

JULY 1,191,10

1

1,220,64

9

1,980,38

2

AUGUST 541,723 1,232,97

0

1,347,02

5

SEPTEMBER 540,391 467,560 968,067

OCTOBER 500,911 879,991 1,680,99

9

NOVEMBER 637,039 962,555 1,619,65

4

DECEMBER 917,611 1,384,38

4

1,696,95

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CHAPTER III

LITERATURE REVIEW

3.1 Definition

3.2 Types of inventory

Series1Series2Series3

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3.3 Role of Inventory

3.4 Requirement

3.5 JIT Concept

3.6 JIT Purchasing

3.7 Key Elements in a JIT System

3.8 Cost of Inventory

3.9 Steps of Inventory Management.

3.10 Purchase of Materials

3.11 Inventory or store of Materials

3.12 Issuance or utilization of materials

3.13 Materials Stock or Inventory controls

3.14 Accounting for Materials & Cost Control

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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 all types 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

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. 15

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.

2) Suppliers make frequent deliveries in small lots just before the goods are needed Rather

than delivery a week’s (or a month) supply of an item at one time, suppliers must be willing 16

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 system is 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 successful operation of a JIT manufacturing system. These elements 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.

The focused factory approach allows workers to focus all of their efforts on a product from start to

finish and minimizes handlings and moving. After one large manufacturing company rearranged is 17

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. Because of 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 can not be tolerated in a JIT system.

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 materials. And instead of using quality inspectors, the company’s production workers are

directly responsible for spotting defective units. A worker who discovers a defect is supposed to

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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: One operating objective of inventory management is to minimize cost.

Excluding the costs associated with inventory fall into two basic categories. The categories given as

follows:

Procurement Cost includes:

Cost of Inventory

Procurement cost Carrying Cost Out of - stock cost

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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.

Accounting for Materials &Cost control.

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Purchase of Materials. Storing of Materials.Issuance or Utilization. Materials stock or Inventory control. 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

3.10.4 Receive of materials

3.10.5 Inspecting & testing materials

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…….co Ltd Purchase Requisition

No… Date ……

Serial No Describetion of Materials Code No Quantity Requirement Remarks

prepared By …….. Approved BY …..

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, 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

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………. Co .Ltd Purchase order

From …… Order number ……….TO …….. Date ………….

Ref …………

Your quotation No.Dt .has been accepted.Please supply the following materials in accordence with thew instraction mention herein ;

Serial No Description Code Quantity Rate Value Delivery Date Remarks

Excise Duty ……Sales taxes ……..Discount allowed Packing Charge ..Terms of payment

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 segment often supply goods and services to other business segment within the same

company .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 a company 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.

…co Ltd Meterials Receiving Report

From (Seller) …. No ………Place ….. Date …….

Compared by ..Inspected by …

SL.No Description of Materials

Code No Purchase Order No

RemarksQuantity Ordered

Quantity Received

Quantity Rejected

Rate Value

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:

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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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…..CO LtdBin Card

Description of materials … Bin No …Code No… Normal Quantity to Order …Store ledger Folio NO… Maximum Stock Level …

Manimum Stock Level …Re-Order Level …

Balance G.R No. Quantity S.R No . Quantity Quantity

ReceiptsDate

Issues Audit Notes

3.11.2 Bin card: In every section of a store 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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…..Co LtdMeterials Requisition …

Department ……… No ……..Job /Process No ……… Date ……Date Required ………..To ……(Storekeeper)

Please issue the materials stated here in

Description Quantity Code No Bin Card No Store Ledge Folio Rate Amount

Authorised by …….. Storekeeper……Received by ……….. Checked by…….

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

32

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

33

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

34

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 =10600 750 1333 2083 Inventory carrying cost =25%800 1000 1000 2000 Cost per order =50

1000 1250 800 20501200 1500 667 21671400 1750 571 23211600 2000 500 2500

Ordering cost

Totol cost

Totol cost =

Order quantity Holding cost

-

35

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 it36

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 allowed

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 37

System. 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

control .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.

Materials nature & control method Class A Class B1) 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 analysis8) Importance Give more importance Give moderate importance

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

38

Accounting for Materials & Cost Control

Accounting for Materials Receipt Accounting for Materials Issues.

called. 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.

39

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

40

concern person who is responsible for detecting the price of materials fill the unit price of

materials then fill the total price after that he send material requisition 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

41

recent ,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 Management of FKL

4.4 Purchase of Materials

4.4.1 Purchase Requisition Slip

42

4.4.2 Store requisition

4.4.3 Purchase order

4.5 Receive of Materials

4.6 Storing of Materials

4.7 Issuance or utilization of materials

4.8 Materials Stock or Inventory control

4.9 Accounting for Materials & Cost Control

43

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.

Inventory Management

Accessories Store

General Store Yarn store

Dyes & Chemical

Store

Dyed yarn & Fabric

Store

Dyeing Delivery

Store

Spare parts Store

Printing store

44

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

Knitting Dyeing

Cutting

Sewing

Printing Finishing

Shipment

45

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 sound

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.

46

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

47

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 purchase 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 purchase

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

48

goods .General 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

49

FAKIR KNITWEAR LTD

Foreign suppliers

(DYES & CHAMICAL)

SL NO

SUPPLIER NAME SUPPLIER ADDRESS

1 A.B ENZYMES GMBH 3 INTERNATIONAL BUSINESS PARK #07-18NORDIC EUROPEAN CENTRE SINGAPUR 609927

2SUMITOMO CORPORATION (SINGAPORE)PTE LTD

20 CECIL STREET#23-01/08 &#24-01/08 EQUITY PLAZA. SINGAPORE

3 HUNTSMAN(SINGAPORE) PTE LTD

HUNTSMAN(SINGAPORE) PTE LTD150 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 STREETINDUSTRY HOUSE, 17TH FLOORKOLKATA-700 017, INDIA, FAX;+91-33-2282-2923E-MAIL:matadina@adittyabiria.com

7 M/S OCI CORPORATIONOCI CORPORATION50,SOGONG-DONG CHUNG-GUSEOUL KOREA

8 M/S HANGZHOU JIHUA IMPORT EXPORT CO LTD

M/S HANGZHOU JIHUA IMPORT EXPORT CO LTDHONGSHAN FARM XIAOSHAN HANGZHOU ZHEJIANG CHINA

9 KYUNG-IN SYNTHETIC CORPORATION

KYUNG-IN SYNTHETIC CORPORATION113-31 YEOMCHANG- DONG KANGSEO-GUSEOUL, SOUTH KOREA

10 MAC-NELS CONTAINER LINES

INDONESIA NIKKA CHEMICALS KARAWANG INTERNATTONAL INDUSTRIAL CITYJL,MALIGI II LOT-3KARAWANG 41361

50

11 DYSTAR

DYSTAR SINGAPORE PTE LTD152 BEACH ROAD #37THE GATEWAY EAST SINGAPUR 189721FAX: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

51

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

7 MAGNET TRADING CO.LTD. CIBAFLUID C,INVADINE

LUN, SAPAMINE F-PG .

718, SATMASJID ROAD ,DHAKA-1100

52

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

send suppliers bill with invoice to accounts section and account section give it to audit section for

audit. Auditor goes to the accessories store and checks it against purchase order and physical

53

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. NOP.R

DATE NAME OF ITEMPR

QTY UNITRECEIVED

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

54

materials coming as per invoice or not.

Fakir Knitwears LTd Quality certificate Report

Description of materials : Sweing thread Buyer order No : 19546248Buyer Name : H&M Supplier Name : Coast Bangladesh Ltd .

Date Remarks5/8/2008 130 100 ctn

Approved By Jibon

Marchandiser

Receipts

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)55

Fakir Knitwrears LtdBin Card

Description of materials : Han tag Bin No …1320Reck No : 5 Cell No… 10Store ledger Folio NO:520

Balance G.R No. Quantity S.R No . Quantity Quantity

5/8/2008 130 100 ctn 1350 50 ctn 50 ctn10/8/2008 879 300 ctn 350 ctn

17/8/08 1560 200 ctn 150 ctn

Checked By ….Mizan

ReceiptsDate

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 .

56

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:

57

FAKIR KNITWEARS LTD.KAYEMPUR, FATULLAH, NARAYANGONJRACK WISE GOODS PLANE

RACK-BCell-No NAME OF ITEM Cell-NO NAME OF ITEM

TRICON BLUE EBRT-200% B12 SUMI RED 3BSTRICON BLUE 2RHWTREACTIVE BLUE RSPL B13 SUMI RED 3BSCIVA ORANGE W3R

B14 NILLB2 DYES SAMPLE

NEOFIX R 250FSUMIKARON BLACK SBF (A) LIPATOL PS 60FSUMIKARON RED SERPD ASSIST SL 2FSUMIKARON YELLOW SERPD

B16 SUMI RED 3BS-150%B4 CHEMICAL SAMPLE

B17 SUMI RED EXFREACTIVE YELLOW 3BNREACTIVE BLUE RSPL B18 SUMI RED EXFSUMI YELLOW 3RFSUMI ORANGE 3R B19 BIOTUCH C-30CIVA RED FB

SYNO WHITE 4BKSUMI BLUE BRF TERASIL BLUE WBLSSUMI YELLOW BRS TERASIL BLACK WNSSUMI YELLOW 3GF

B21 SUMI RED EXFREACTIVE BLACK BSUMI YELLOW 4GL B22 BAZACTIVE RED 3BS/150NOVACRON YELLOW S3R

B23 NILLB8 REACTIVE BLACK GRC

B24 SYNO WHITE 4BKREACTIVE YELLOW 3RNULTAJOL YELLOW 145 B25 SUMI RED EXFSUMI BRILLANT ORANGE 3RREACTIVE BLUE RSPL B26 BEZACTIVE RED S3B/150

SUMI RED 3RSSUMI BLUE RSPL

REACTIVE RED 3BSSUMI SCARLET 2GF

B11

B15

B20

B1

B3

B5

B6

B7

B9

B10

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

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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

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manager .Accessories store also follow some procedures to issuance goods to other

department .Here the process of delivery given below.

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 all related production items is available in the 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).

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Register prepared invoice

S.I.RApp.by merchandiser

Other party

Schematic view of External Delivery process :

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

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follow safety stock. Generally they keep safety stock for extra customer demand or any emergency

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

62

FABRICATION Color QTY PCS

USED. GREY FABRICS/ KGS.

Lycra/ kgs Yarn Lycra

price/ kgYARN

RATE/KGKNITTING 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

Applique $0.00

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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 COSTINGREAL

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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CHAPTER V

FINDINGS & DISCUSSION

5.1 Findings & Discussion

65

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 inventory

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 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. 67

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 inventory 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 inventory 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

accumulate bulk size of materials of its warehouses. These warehouses are not situated 68

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

69

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 system by division of 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 all products

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.

71

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

Appendix 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

Appendix B:

Acronyms

72

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.

73