“A Study On Inventory Management with reference to

[Link].”

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1: Introduction

Inventory control is vitally important to almost every type of business, whether product or
service oriented. Inventory control touches almost every parts of operations. A proper balance
must be struck to maintain proper inventory with the minimum financial impact on the
customer. Inventory control is the activities that maintain stock keeping items at desired
levels. In manufacturing since the focus is on physical product, inventory control focus on
material control.
“Inventory” is physical stock of goods, which is kept in hands for smooth and efficient
running of future affairs of an organization at the minimum cost of funds blocked in
inventories. The fundamental reason for carrying inventory is that it is physically impossible
and economically impractical for each stock item to arrive exactly where it is needed, exactly
when it is needed.
A term inventory refers to the stock file of the products a firm is offering for sale and the
Components that make up the product. In other words, inventory is composed of assets that
will be showed in future in the normal course of the business operations. The assets which
firms store as inventory in anticipation of need are:
 Raw materials
 Work in process (Semi Finished goods)
 Finished goods
The raw material inventory contains item that are purchased by the firm from other and are
Converted into finished goods through the manufacturing (production) process. They are an
Important input of the final product. The working process inventory consists of items
currently being used in the production process.
They are normally semi finished goods that are at various stages of production in a multi
Stage production process. A finished goods represented final or completed products which
are available for sale .The inventory of such goods consists of items that have been produced
but are yet be sold.
Inventory, as a current asset, differs from other current assets because only financial

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managers are not involved. Rather all the functional areas, finance, marketing, production,
and purchasing are involved. The views concerning the appropriate level of inventory would
differ among the different functional areas.
The job of the financial manger is to reconcile the conflicting view points of the various
Functional areas regarding the maximizing the owners wealth. Thus, inventory management,
like the management of other current assets, should be related to the overall objective of the
firm. It is in this context that the present chapter is devoted to the main elements of inventory
management from the view point of financial management.
The aspects covered in inventory:
 Determination of the type of control required.
 The basic economic order quantity
 The reorder point, and
 Safety stocks.
The inventory management techniques are a part of production management. But a
familiarity with them is of great help to the financial managers in planning and budgeting
inventory.

1.1: Meaning
Inventory is the raw materials, work-in-process products and finished goods that are
considered to be the portion of a business's assets that are ready or will be ready for sale.
Inventory represents one of the most important assets of a business because the turnover of
inventory represents one of the primary sources of revenue generation and subsequent
earnings for the company's shareholders

1.2 :Definition
 Inventory is an asset that is intended to be sold in the ordinary course of business.
Inventory may not be immediately ready for sale. Inventory items can fall into one of
the following three categories
 Inventory is defined as a stock or store of goods. These goods are maintained on hand
at or near a business's location so that the firm may meet demand and fulfil its reason
for existence. If the firm is a retail establishment, a customer may look elsewhere to

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have his or her needs satisfied if the firm does not have the required item in stock
when the customer arrives. If the firm is a manufacturer, it must maintain some
inventory of raw materials and work-in-process in order to keep the factory running.
In addition, it must maintain some supply of finished goods in order to meet demand.

1.3 :Scope of Inventory

Regardless of which type of inventory system a company uses:

 The scope of the inventory may change based on the strategic targets of the business.
 Scope may refer to different aspects of how inventory counts are conducted or to the way
inventory information is used.
 A manufacturer of durable goods may use inventory information to control the costs of
raw materials and to maximize margins

1.4: Types of Inventory

 TRANSIT INVENTORY

Transit inventories result from the need to transport items or material from one location to
another, and from the fact that there is some transportation time involved in getting from one
location to another. Sometimes this is referred to as pipeline inventory. Merchandise shipped
by truck or rail can sometimes take days or even weeks to go from a regional warehouse to a
retail facility. Some large firms, such as automobile manufacturers, employ freight
consolidators to pool their transit inventories coming from various locations into one shipping
source in order to take advantage of economies of scale. Of course, this can greatly increase
the transit time for these inventories, hence an increase in the size of the inventory in transit.

 BUFFER INVENTORY

Inventory is sometimes used to protect against the uncertainties of supply and demand, as
well as unpredictable events such as poor delivery reliability or poor quality of a supplier's
products. These inventory cushions are often referred to as safety stock. Safety stock or
buffer inventory is any amount held on hand that is over and above that currently needed to
meet demand. Generally, the higher the level of buffer inventory, the better the firm's
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customer service. This occurs because the firm suffers fewer "stock-outs" (when a customer's
order cannot be immediately filled from existing inventory) and has less need to backorder
the item, make the customer wait until the next order cycle, or even worse, cause the
customer to leave empty-handed to find another supplier. Obviously, the better the customer
service the greater the likelihood of customer satisfaction.

 ANTICIPATION INVENTORY

Firms purchase and hold inventory that is in excess of their current need in anticipation of a
possible future event. Such events may include a price increase, a seasonal increase in
demand, or even an impending labour strike. This tactic is commonly used by retailers, who
routinely build up inventory months before the demand for their products will be unusually
high For manufacturers, anticipation inventory allows them to build up inventory when
demand is low so that when demand picks up the increased inventory will be slowly depleted
and the firm does not have to react by increasing production time. Therefore, the firm has
avoided both excessive overtime due to increased demand and hiring costs due to increased
demand. It also has avoided layoff costs associated with production cut-backs, or worse, the
idling or shutting down of facilities. This process is sometimes called "smoothing" because it
smoothes the peaks and valleys in demand, allowing the firm to maintain a constant level of
output and a stable workforce.

 DECOUPLING INVENTORY

A production facility where every machine in the process produces at exactly the same rate.
In fact, one machine may process parts several times faster than the machines in front of or
behind it. If one walks through the plant it may seem that all machines are running smoothly
at the same time. It also could be possible that while passing through the plant, one notices
several machines are under repair or are undergoing some form of preventive maintenance.
Even so, this does not seem to interrupt the flow of work-in-process through the system. The
reason for this is the existence of an inventory of parts between machines, a decoupling
inventory that serves as a shock absorber, cushioning the system against production
irregularities. As such it "decouples" or disengages the plant's dependence upon the
sequential requirements of the system.

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The more inventories a firm carries as a decoupling inventory between the various stages in
its manufacturing system, the less coordination is needed to keep the system running
smoothly. Naturally, logic would dictate that an infinite amount of decoupling inventory
would not keep the system running in peak form. A balance can be reached that will allow the
plant to run relatively smoothly without maintaining an absurd level of inventory. The cost of
efficiency must be weighed against the cost of carrying excess inventory so that there is an
optimum balance between inventory level and coordination within the system.

 CYCLE INVENTORY

EOQ is an attempt to balance inventory holding or carrying costs with the costs incurred from
ordering or setting up machinery. When large quantities are ordered or produced, inventory
holding costs are increased, but ordering/setup costs decrease. Conversely, when lot sizes
decrease, inventory holding/carrying costs decrease, but the cost of ordering/setup increases
since more orders/setups are required to meet demand. When the two costs are equal the total
cost is minimized. Cycle inventories, sometimes called lot-size inventories, result from this
process. Usually, excess material is ordered and, consequently, held in inventory in an effort
to reach this minimization point. Hence, cycle inventory results from ordering in batches or
lot sizes rather than ordering material strictly as needed.

 MRO GOODS INVENTORY

Maintenance, repair, and operating supplies, or MRO goods, are items that are used to
support and maintain the production process and its infrastructure. These goods are usually
consumed as a result of the production process but are not directly a part of the finished
product. Examples of MRO goods include oils, lubricants, coolants, janitorial supplies,
uniforms, gloves, packing material, tools, nuts, bolts, screws, shim stock, and key stock. Even
office supplies such as staples, pens and pencils, copier paper, and toner are considered part
of MRO goods inventory.

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1.5: Motives of inventory

 Transaction Motive:
This refers to the need of maintaining inventory to facilitate smooth production and sales
Operations.
 Precaution Motive:
Precautionary motive for holding inventory is to provide a safeguard when then actual level
of activity is differ than anticipated. This inventory serves when there is a unpredictable
changes in the demand and supply forces.

 Speculative Motive:
This motive influences the decision to increase or decrease the levels of inventory to take the
advantage of price fluctuations.

1.6: Objectives of Inventory

 To ensure that the supply of raw material & finished goods will remain continuous
so that production process is not halted and demands of customers are duly met

 To minimize carrying cost of inventory.

 To keep investment in inventory at optimum level.

 To reduce the losses of theft, obsolescence & wastage etc.

 To make arrangement for sale of slow moving items.

 To minimize inventory ordering costs

1.7: Reasons for maintaining inventory

1. Meet variation in Production Demand

Production plan changes in response to the sales, estimates, orders and stocking
patterns. Accordingly the demand for raw material supply for production varies with
the product plan in terms of specific as well as batch quantities. Holding inventories at

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a nearby warehouse helps issue the required quantity and item to production just in
time.

2. Cater to Cyclical and Seasonal Demand

Market demand and supplies are seasonal depending upon various factors like
seasons; festivals etc and past sales data help companies to anticipate a huge surge of
demand in the market well in advance. Accordingly they stock up raw materials and
hold inventories to be able to increase production and rush supplies to the market to
meet the increased demand.

3. Economies of Scale in Procurement

Buying raw materials in larger lot and holding inventory is found to be cheaper for the
company than buying frequent small lots. In such cases one buys in bulk and holds
inventories at the plant warehouse.

4. Take advantage of Price Increase and Quantity Discounts

If there is a price increase expected few months down the line due to changes in
demand and supply in the national or international market, impact of taxes and
budgets etc, the company’s tend to buy raw materials in advance and hold stocks as a
hedge against increased costs.

Companies resort to buying in bulk and holding raw material inventories to take
advantage of the quantity discounts offered by the supplier. In such cases the savings
on account of the discount enjoyed would be substantially higher that of inventory
carrying cost.

5. Reduce Transit Cost and Transit Times

In case of raw materials being imported from a foreign country or from a far away
vendor within the country, one can save a lot in terms of transportation cost buy
buying in bulk and transporting as a container load or a full truck load. Part shipments
can be costlier.

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In terms of transit time too, transit time for full container shipment or a full truck load
is direct and faster unlike part shipment load where the freight forwarder waits for
other loads to fill the container which can take several weeks.

There could be a lot of factors resulting in shipping delays and transportation too,
which can hamper the supply chain forcing companies to hold safety stock of raw
material inventories.

6. Long Lead and High demand items need to be held in Inventory

Often raw material supplies from vendors have long lead running into several months.
Coupled with this if the particular item is in high demand and short supply one can
expect disruption of supplies. In such cases it is safer to hold inventories and have
control.

1.8: Advantages and Disadvantages of Inventory

1. Avoiding Losses of Sales:

By holding inventories, a firm can avoid sales losses on account of non-supply of goods at
times demanded by its customers.

2. Reducing Ordering Costs:

Ordering costs, i.e., the costs associated with individual orders such as typing, approving,
mailing, etc. can be reduced, to a great extent, if the firm places large orders rather than
several small orders.

3. Achieving Efficient Production Run:

Holding sufficient inventories also ensures efficient production run. In other words, supply of
sufficient inventories protects against shortage of raw materials that may at times interrupt
production operation.

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1.9 :Costs of Holding Inventories:

Holding inventories is not an unmixed blessing. In other words, it is not that everything is
good with holding inventories. It is said that every noble acquisition is attended with risks; he
who fears to encounter the one must not expect to obtain the other. This is true of inventories
also. There are certain costs also associated with holding inventories

Inventory Costs

Inventory procurement, storage and management is associated with huge costs associated
with each these functions.

Inventory costs are basically categorized into three headings:

1. Ordering Cost
2. Carrying Cost
3. Shortage or stock out Cost & Cost of Replenishment

a. Cost of Loss, pilferage, shrinkage and obsolescence etc.

b. Cost of Logistics
c. Sales Discounts, Volume discounts and other related costs.

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1. Ordering Cost

Cost of procurement and inbound logistics costs form a part of Ordering Cost.
Ordering Cost is dependant and varies based on two factors - The cost of ordering
excess and the Cost of ordering too less.

Both these factors move in opposite directions to each other. Ordering excess quantity
will result in carrying cost of inventory. Whereas ordering less will result in increase
of replenishment cost and ordering costs. These two above costs together are called
Total Stocking Cost. If you plot the order quantity vs. the TSC, you will see the graph
declining gradually until a certain point after which with every increase in quantity
the TSC will proportionately show an increase.

This functional analysis and cost implications form the basis of determining the
Inventory Procurement decision by answering the two basic fundamental questions -
How Much to Order and When to Order.

2. Carrying Cost

Inventory storage and maintenance involves various types of costs namely:

 Inventory Storage Cost

 Cost of Capital

Inventory carrying involves Inventory storage and management either using in house
facilities or external warehouses owned and managed by third party vendors. In both cases,
inventory management and process involves extensive use of Building, Material Handling
Equipments, IT Software applications and Hardware Equipments coupled managed by
Operations and Management Staff resources.

3. Inventory Storage Cost

Inventory storage costs typically include Cost of Building Rental and facility maintenance
and related costs. Cost of Material Handling Equipments, IT Hardware and applications,
including cost of purchase, depreciation or rental or lease as the case may be. Further costs

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include operational costs, consumables, communication costs and utilities, besides the cost of
human resources employed in operations as well as management.

4. Cost of Capital

Includes the costs of investments, interest on working capital, taxes on inventory paid,
insurance costs and other costs associate with legal liabilities.

The inventory storage costs as well as cost of capital is dependent upon and varies with the
decision of the management to manage inventory in house or through outsourced vendors and
third party service providers.

The trend is increasingly in favour of outsourcing the inventory management to third party
service provides. For one thing the organizations find that managing inventory operations
requires certain core competencies, which may not be in line with their business
competencies. They would rather outsource to a supplier who has the required competency
than build them in house.

5. Valuing Inventory

Accountants value inventory using one of the three methods. The first-in, first-out (FIFO)
method says that the cost of goods sold is based on the cost of materials purchased the
earliest, while the carrying cost of remaining inventory is based on the cost of materials
bought the latest. The last-in, first-out (LIFO) method states that the cost of goods sold is
valued using cost of materials bought latest, while the value of remaining inventory is based
on materials purchased earliest. The weighted average method requires valuing both
inventory and the cost of goods sold based on the average cost of all materials bought during
the period.

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1.10: Inventory Management

Introduction

Inventory management is the process of efficiently overseeing the constant flow of units into
and out of an existing inventory. This process usually involves controlling the transfer in of
units in order to prevent the inventory from becoming too high, or dwindling to levels that
could put the operation of the company into jeopardy. Competent inventory management also
seeks to control the costs associated with the inventory, both from the perspective of the total
value of the goods included and the tax burden generated by the cumulative value of the
inventory.

Inventory management is the integrated functioning of an organization dealing with supply of

materials and allied activities in order to achieve the maximum co-ordination and optimum
expenditure on materials. Inventory control is the most important function of inventory
management and it forms the nerve center in any inventory management organization. An
Inventory Management System is an essential element in an organization. It is comprised of a
series of processes, which provide an assessment of the organization’s inventory.
Inventories represent the second largest asset category for manufacturing companies, next
only to plant and equipment. The proportion of inventories to total asset generally varies
between 15 to 30 percent. Given substantial investment in inventories, the importance of
inventory management cannot be overemphasized. The present study is intended to determine
the industry practice in inventory management and to evaluate management performance in
this regard. In order to evaluate the performance of the inventory management referring the
annual reports of the organization the required data has been collected

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Inventory management is not limited to documenting the delivery of raw materials and the
movement of those materials into operational process. The movement of those materials as
they go through the various stages of the operation is also important. Typically known as a
goods or work in progress inventory, tracking materials as they are used to create finished
goods also helps to identify the need to adjust ordering amounts before the raw materials
inventory gets dangerously low or is inflated to an unfavourable level.

During the mid to late 1990s, retailers began implementing modern inventory management
systems, made possible in large part by advances in computer and software technology. The
systems work in a circular process, from purchase tracking to inventory monitoring to re-
ordering and back around again. The constant “beep, beep, beep” of bar codes being scanned
at a check-out lane represents a pillar of modern inventory management systems.

1.11: Concepts of Inventory management

Inventory management and supply chain management are the backbone of any business
operations. With the development of technology and availability of process driven software
applications, inventory management has undergone revolutionary changes. In the last decade
or so we have seen adaptation of enhanced customer service concept on the part of the
manufacturers agreeing to manage and hold inventories at their customers end and thereby
effect Just In Time deliveries. Though this concept is the same in essence different industries
have named the models differently. Manufacturing companies like computer manufacturing
or mobile phone manufacturers call the model by name VMI - Vendor Managed Industry
while Automobile industry uses the term JIT - Just In Time where as apparel industry calls
such a model by name - ECR - Efficient consumer response. The basic underlying model of
inventory management remains the same.

Inventory is a necessary evil that every organization would have to maintain for various
purposes. Optimum inventory management is the goal of every inventory planner. Over
inventory or under inventory both cause financial impact and health of the business as well as
effect business opportunities.

Inventory holding is resorted to by organizations as hedge against various external and

internal factors, as precaution, as opportunity, as a need and for speculative purposes.
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1.12: Meaning
Inventory management is the supervision of non-capitalized assets (inventory) and stock
items. A component of supply chain management, inventory management supervises the flow
of goods from manufacturers to warehouses and from these facilities to point of sale.

1.13: Types of inventory management

 Raw Materials – Raw materials are important for obvious reasons such as the
production of goods. The raw goods are what comes from your suppliers and their
suppliers. If you do not have a system in place that grants visibility of raw materials,
you cannot accurately gauge what you will produce over the next quarter or year. A
company can go bankrupt if it doesn’t properly manage its raw-material inventory.
For example, a multi-billion dollar business had to shut down business and halt
production for four days because they ran out of pallets on which to store and ship
their supply. Pallets are very important for shipping and manufacturing companies
and if they are ignored, then the business suffers.
 Work in Progress – The second type of inventory is composed of the goods currently
being produced in your, or a contract manufacturer’s company. Because many
companies used to overlook this element, Enterprise Resource Planning (ERP)
systems have been implemented to completely track all goods, those even being
converted from raw to production, to accurately track profits and assist in the planning
of future raw-material purchases.
 Finished Goods – This type of inventory is usually controlled by your distributors or
by your warehouse. For companies that have many distributors of their product it is
important for them to know how much of their product is on the market. Especially
when in the case of car manufacturers. It is hard to manufacture for multiple
distributors when there is no visibility of your finished goods.
 Service Inventory – Distribution inventory barely holds a candle compared to the
difficulties of service industry, on of the most difficult of the five types of inventory.
Crucial to business, service inventory needs proper management. Global mandates
such as recycling and energy regulations need to be managed. You can gather

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information about failed products, using failure analysis to design better products and
be able to leverage parts sales.
 Transportation – A supply train of different inventories connected by transportation
is the traditional definition of a supply chain, although this has changed now though.

1.14 :Objectives of inventory management

1. To keep inventory at sufficiently high level to perform production and sales activities
smoothly.

[Link] minimize investment in inventory at minimum level to maximize profitability.

3. To ensure that the supply of raw material & finished goods will remain continuous so that
production process is not halted and demands of customers are duly met.

4. To minimize carrying cost of inventory.

5. To keep investment in inventory at optimum level.

6. To reduce the losses of theft, obsolescence & wastage etc.

7. To make arrangement for sale of slow moving items.

8. To minimize inventory ordering costs.

9. It helps in minimizing the capital investment which gets stuck up due to maintaining the
excessive stocks.

10. It makes sure that there is uninterrupted production in the business by ensuring timely and
enough supply of the raw materials.

11. This method uses a scientific way for calculating inventory. This leads to a more accurate
result and hence helps in maintaining better stocks.

12. Owing to the calculations for maintaining stocks, the fluctuations occurring in the
demand of the inventory can be managed as there is maintained a safety stock all the time
within the organization.

13. The inventory management system helps in evading the risk of any kind of loss which
would occur due to deterioration, obsolescence, etc.

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14. A proper record of all the loss or the consumption of the stock is maintained at all the
times which helps in turn to replenish the stock as and when required.

15. The inventory which is transported between various locations like the warehouse and
production area etc and be easily tracked with the help of this inventory tracking management
system.

16. This system is that it makes the picking, packing and shipping items quite easy from a
warehouse.

17. One of the most important purposes is to keep a track on the sales of the product and the
levels of inventory maintained. With this system in function, the tracking can be easily done.

1.15 :Importance Of Inventory Management

The term inventory refers to the goods or materials used by a firm for the purpose of
production and sale. It also includes the items, which are used as supportive materials to
facilitate production.
Inventory management is important from the view point that it enables to address two
important issues:
*. The firm has to maintain adequate inventory for smooth production and selling activities.
*. It has to minimize the investment in inventory to enhance firm's profitability.

* Inventory management helps in maintaining a trade off between carrying costs and ordering
costs which results into minimizing the total cost of inventory.

* Inventory management facilitates maintaining adequate inventory for smooth production

and sales operations.

* Inventory management avoids the stock-out problem that a firm otherwise would face in the
lack of proper inventory management.

* Inventory management suggests the proper inventory control system to be applied by a firm
to avoid losses, damages and misuses.

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1.16: Goals of Inventory Management

 Inventory management is essential for a business to succeed.

 Good management of your company’s stock decreases excess inventory and ensures
that you have enough product on hand to meet customer demand.
 Develop an inventory management plan to streamline ordering and reduce wasted
time on inventory control.

1.17 :Ensuring Safety of Inventory

One of the goals of inventory management is to keep products safe. Inventory should be kept
in a safe area, where it is protected against theft. Depending on the size of your company, this
could mean using surveillance equipment, guards or alarm systems. The inventory should be
handled carefully, as well, to avoid breakage. Broken or lost inventory means a financial loss
for company.

1. Tracking Sales

Track and review company sales on a regular basis as part of your inventory management
plan. Note the items that don’t sell and have a tendency to sit for prolonged periods of time.
Also, track the best sellers and seasonal items that experience increased sales at different
times of the year. Use this data to manage the quantity of items and when to order them.
Although you want to avoid excess stock, don’t be too safe with ordering inventory. You
don’t want to be out of stock when new orders are requested.

2. Accuracy of Inventory Systems

Manage your computer inventory systems. Incorrect information displayed on inventory

databases can cause problems in your company. A goal of inventory management should be
to keep the inventory database up to date. Each item sold should be removed from the
inventory log promptly. Stock receipts should be entered into the inventory database within a
24-hour period.

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3. Eliminating Excess Products

Inventory control also will keep dead stock off of the shelves. Stock that does not sell drains
company’s resources because it takes up space in your store or warehouse. Sales events can
be used to push stock that has not been performing well. Another strategy would be to return
stock that is not selling or offer the products at a discounted rate to another company.
Function of Inventory management.

Inventory is not just about the items a retailer sells. Inventory management involves taking
stock of a business' assets, such as labour, cash and material items used or sold. In essence,
inventory control enables the business to have what it needs, when it needs it in order to do
business.

1.18: Inventory Control

The goal for a business is to invest the least amount in inventory while maintaining specific
operating requirements. Ideally, the inventory control in place allows the business to supply
needs in regards to production or to the customer at the precise moment needed, at the
minimal price. Successful inventory control keeps waste and surplus at a minimum and
efficiently handles storage, production and distribution of inventory.

Primary Function

The primary function of inventory is to use marketing and production to increase

profitability, to get the maximum amount for the business' investment. There are other
functions of inventory, such as balancing supply and demand, improving efficiency,
establishing a safety stock and geographical specialization. All of those help to increase a
business' profitability.

Balancing Supply and Demand

Balancing supply and demand involves replacing consumed items, and liquidating seasonal
items. For example, when the supermarket stocks up Halloween items for the October

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holiday, it ideally wants to liquidate those items by November. Successfully handling

inventory involves supplying demand at the precise time, for the least amount of money,
without a surplus.

Safety Stock

When controlling inventory, one function is maintaining safety stock. This involves having a
buffer stock in case of an unexpected delay in replenishing inventory or excess sales. For
example, if a breakfast restaurant only orders enough eggs to get it through an average
weekend, yet experiences an unexpected spike in business, it risks losing sales, angering
customers and damaging its reputation by being unable to serve enough eggs.

Geographical Specialization

Geographical specialization in regards to inventory involves maximizing the assets of each of

the business' locations. Factors to consider include energy costs, location, labor and
transportation. For example, a manufacturing company will want to locate in an area where it
can distribute its product for the least amount of money. If it uses the railroad, distribution of
the inventory near a railroad is wiser than a remote distribution center 100 miles away

1.19: Features of inventory management

Comprised of many components, the inventory management makes handling the inventories
an easy and simpler task. Owing to the inventory management services, the overall efficiency
and productivity of the business improves. It is essential to use such kinds of inventory
software for the business as they handle the regular tasks and time consuming chores
efficiently and this in turn lets the focus be on the production part. Following are few of the
features of inventory management system.

1. Order management: With the help of a proper and effective inventory system, an
adequate amount of inventory can be maintained at all times. The system raises an
alarm in the case where the inventory drops down a specific threshold limit or exceeds
over and above the prescribed limit. In both the conditions, due steps are taken and
the needful is done.

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2. Asset tracking:

Tracking of the asset is yet another feature of asset management. In the case where there is a
requirement of a specific product/ raw material and it is not easily traceable with the naked
eye or is stored in the warehouse, then in that case measures are taken and the location of the
same is identified using the software. This easy tracking of the product helps a great deal in
saving the time and energy of the person in charge of finding it and the same can be invested
somewhere else and productivity can be reaped. The identification in such a case can be made
through serial number, barcode.

3. Service management:

In the case of companies which deal primarily into the service industry, this kind of
management system helps in tracking the cost of the materials which are used for providing
services and includes the cost of cleaning, supplies etc. This in turn helps in attaching the cost
to the total cost of the services.

4. Inventory optimization:

An inventory management methods helps a great deal in optimizing the inventory. It helps in
deciding the reorder point for a manufacturing process, i.e., when should the fresh order for
inventory be placed along with the appropriate quantity of inventory. It also helps in
managing the stock in hand as well the days for which the stock will be available in case
there arises some emergency due to which the fresh order cannot be placed for new stock.

1.20:Internal & External Factors that affect over all Inventory management, control
and techniques

A new company maintaining a current business, must find a way to keep enough inventory
on hand to satisfy your customers' needs. At the same time, we don't want to invest all your
capital in inventory that drains your working capital. When forecasting inventory
requirements, take in both the internal and external factors that affect your inventory flow.

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 Finances

The cost of borrowing money to stock your inventory is an external factor that varies with the
economy. Closely watching interest rates can help you plan your purchases. The tax write-
offs associated with your inventory costs are internal factors that always come into
consideration, especially when preparing for end-of-year tax returns. The risk you take when
buying inventory may guide your buying decisions as well. An instalment loan requires that
you make payments regardless of your sales while an equity loan usually doesn't require
repayment until you've made some profits. Other financial factors that affect your inventory
management decisions include cost of warehouse operations and transportation costs. The
cost of gas is an external factor while the choice to purchase your own trucks or use outside
contractors can prove to be a more predictable internal factor.

 Responsibility

The ultimate responsibility to oversee your inventory and ensure orders are placed
appropriately and regular audits performed. When managers and accountants are hired to
oversee the process, our primary overseeing duties are the only internal control you can count
on. Employees typically don't have the same stake in your business as you do and may not
keep a close eye on inventory. An external factor, you have some control over their fate,
however. You can reward employees who maintain inventory controls set in place and
remove those who continually make bad inventory decisions.

 Availability

One of the external factors for business owners is an unpredictable or unreliable supplier.
Product suppliers who deliver poor-quality merchandise also can throw unexpected snags
into your inventory supply chain. Understanding suppliers' lead-time requirements can help
you maintain sufficient inventory. Finding and utilizing backup suppliers is an internal
decision that also can cover inventory shortages. Joining a bulk-purchasing group places
some of your inventory control in the hands of others, but may prove to be worthwhile.

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1.21 :Advantages and Disadvantages of Inventory Control

1. Inventory Balance. Good inventory management helps you figure out exactly how
much inventory you need. This makes it easier to prevent product shortages and keep
just enough inventory on hand without having too much.

2. Inventory Turnover. You need to keep a high inventory turnover ratio to ensure
your products aren’t spoiling, becoming obsolete or sucking up your working capital.
Calculate how many times your inventory sells in a year and see where you can make
better use of your resources.

3. Repeat Customers. Good inventory management leads to what every business

owner wants – repeat customers. You want your hard-earned customers to keep coming
back to your business to meet their needs. One way to do this is to make sure you have
what they’re looking for every time they come.

4. Accurate Planning. Using smart inventory management, you can stay ahead of the
demand curve, keep the right amount of products on hand and plan ahead for seasonal
changes. This goes back to keeping your customers happy all year long.

5. Warehouse Organization. If you know which products are your top sellers and
what combinations of products your customers often order together, you can optimize
your warehouse setup by putting those products close together and in easily accessible
places. This speeds up the picking, packing and shipping processes.

6. Employee Efficiency. You can empower your employees to help you manage
inventory. Training employees to use barcode scanners, inventory management
software and other tools helps them make better use of their time, and it hCelps your
business make better use of its resources, both human and technological.

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7. Inventory Orders. If you’ve done a good job keeping track of how much inventory
you have on hand, you can make smarter decisions about when and what to order.
Inventory management software lets you speed up the ordering process. You can
simply scan a product barcode and type in some information to place an order and
generate an invoice.

8. Inventory Tracking. If you have multiple locations, then inventory management

becomes even more important because you need to coordinate your supplies at each
location depending on differences in demand and other factors.

9. Time Saving. Inventory management is a great time-saving tool. By keeping track

of all the products you have on hand and on order, you can save yourself the hassle of
doing inventory recounts to make sure your records are accurate. This once again
requires inventory management software.

10. Cost Cutting. When your inventory is humming along efficiently through your
facilities, you can bet you’ll save a lot of money. Inventory management helps you
avoid wasting money on slow-moving products so you can put it to better use in other
areas of your business.

Disadvantages
1. High Cost of Implementation

The inventory system cannot be maintained manually. Therefore, in order to use the
inventory system, a business must first install specialized equipment and software. This
typically results in a much higher cost of implementation, especially in large businesses with
multiple different locations. Even after the necessary equipment and programming is
installed, periodic maintenance and upgrades will still be necessary on an ongoing basis,
which will cost businesses even more.

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2. Recorded Inventory May Not Reflect Actual Inventory

Transactions are recorded as soon as they take place. For the most part, this is a good thing.
However, it can also be a disadvantage because the recorded inventory may not reflect the
actual inventory over time. This is mainly due to the fact that physical inventory counts aren't
used in an inventory . Therefore, whenever errors are entered into the system, items are
stolen, or merchandise isn't properly scanned, the recorded figures will not match with the
actual inventory.

3. Greater Complexity

Another disadvantage of using this system is that it requires businesses to offer additional
training to each of their employees because of the complexity of the system. For example,
employees will need to be trained on how to use the company's specific software programs
and also be trained to use special equipment, such as scanners. With a greater number of
people entering transactions into the system, the company assumes a much greater risk of
mistakes being made due to human error.

4. More Time-Consuming

Businesses allocate a certain time when inventories are recorded. Depending on the business,
inventories could be done weekly, monthly or even annually. This makes much less time-
consuming than the continuous inventory system. With, each transaction must be recorded
immediately, auditors must review transactions to make sure they're correct and physical
inventories must still be completed to cross-reference and find discrepancies in the figures.

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1.22: INVENTORY CYCLE

OPERATING CYCLE OF INVENTORY MANAGEMENT

Operating Cycle is the time duration to convert sales after the conversion of resources into
invention, into sales there is difference between current assets and fixed assets. A firm
required many years to recover initial invests in fixed assets such plant and machinery or land
buildings or furniture and fixtures etc. On the contrary, investment in current assets such as
inventory and books debts are realized during the firms operating cycle, which in usually less
than a year.
The operation cycle can be said to be the heart of the working capital. The need for
working capital or current assets cannot be over emphasized as already observed. The main
motive of many business firms is to achieve maximum profits, which can be earned
depending upon the magnitude of the sales among other things. However, sales do not
convert in to cash instantly. There is invariable time lag between sale of goods and receipts of
cash. Therefore the need of working capital in the form of current assets to deal with the
problem arising good sold.

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Therefore, sufficient working capital requires sustaining sales activity. Technically this is
refers to as the operating the cash cycle. The continuous flow form cash to supplies to
inventory to accounts receivable and back into cash what is called operating cycle.

The operating cycle of manufacturing company has three phases namely

1. Acquisition of resources
2. Manufacturing products
3. Sale of product

[Link] of resources:-
In the phase first operating cycle, include phases of raw materials, fuel & power etc.,
which are totally required or manufacturing product

[Link] products:-
In the phase 2 of the operating cycle includes conversion of raw material in to work-in
progress and the work in progress is converted into finished goods.

[Link] of product:-
In the phase 3 of the operating cycle may sale the product either for credit is made to
customers.

1.23: Inventory control and inventory control techniques

An inventory control system is a system the encompasses all aspects of managing a

company's inventories; purchasing, shipping, receiving, tracking, warehousing and storage,
turnover, and reordering. In different firms the activities associated with each of these areas
may not be strictly contained within separate subsystems, but these functions must be
performed in sequence in order to have a well-run inventory control system. Computerized
inventory control systems make it possible to integrate the various functional subsystems that
are a part of the inventory management into a single cohesive system.

In today's business environment, even small and mid-sized businesses have come to rely on
computerized inventory management systems. Certainly, there are plenty of small retail
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outlets, manufacturers, and other businesses that continue to rely on manual means of
inventory tracking. Indeed, for some small businesses, like convenience stores, shoe stores, or
nurseries, purchase of an electronic inventory tracking system might constitute a wasteful use
of financial resources. But for other firms operating in industries that feature high volume
turnover of raw materials and/or finished products, computerized tracking systems have
emerged as a key component of business strategies aimed at increasing productivity and
maintaining competitiveness. Moreover, the recent development of powerful computer
programs capable of addressing a wide variety of record keeping needs—including inventory
management—in one integrated system have also contributed to the growing popularity of
electronic inventory control options

1.24 :Meaning of inventory control

An inventory control system is a system the encompasses all aspects of managing a
company's inventories; purchasing, shipping, receiving, tracking, warehousing and storage,
turnover, and reordering.

1.25 :Definition
The Inventory control system is maintained by every firm to manage its inventories
efficiently. Inventory is the stock of products that a company manufactures for sale and the
components or raw materials that make up the product. Hence, an inventory comprises of the
buffer of raw material, work-in-process inventories and finished goods

1.26: Features of inventory control

The important requirements of inventory control are:

• A firm needs inventory control system to effectively manage its inventory.

• Proper classification of materials with codes, material standardization and simplification.

• The operation of a system of internal check to ensure that all transactions involving material
and equipment are checked by properly authorized and independent persons.

• The operation of a system of perpetual inventory so that it is possible to determine at any

time, the amount and value of each kind o material in stock.

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• A suitable method of valuation of materials is essential because it affects the cost of jobs
and the value of closing stock of materials.

1.27: Objectives of Inventory Control

The main objectives of inventory control are:

1. To maintain a large size of inventory for efficient and smooth production and sales
Operation.

2. To maintain a minimum investment in inventories to maximize profitability.

3. To ensure a continuous supply of raw materials to facilities uninterrupted production.

4. To maintain sufficient stocks of raw materials in periods of short supply and anticipate
price Change.

5. Maintain sufficient finished goods inventory for smooth sales operation and efficient
Customer services.

6. Minimize the carrying cost and time.

[Link] investment in inventories and keep it at an optimum.

1.28 :Advantages of Inventory Control

1. Eliminates wastages in use of material.

2. It reduces the risk of loss form fraud and theft.
3. It helps in keeping perpetual inventory and other records to facilitate the preparation of
accurate material reports management.
4. To reduce the capital tied up in inventories.
5. It reduces cost of storage.

Disadvantages of Inventory Control

1. Opportunity cost : Every firm has to maintain inventory for that some investment is
needed it is known as opportunity cost and handle the investment in inventory are more the
funds are blocks up with inventory.

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2. Excessive inventories: It will lead to firm losses due to excessive carrying costs the risk of
liquidity. It is also referred as danger level.
3. Inadequate Inventory: It is another danger which results is production hols-up and failure
to meet delivery commitments. In adequate raw materials and work - in - process inventors
will results in frequent production interruptions. It finished goods are not sufficient customers
may shifts to competitors.
4. Danger due to physical decoration: It is one of the reason with the inventories due to
maintaining stocks at high levels they will be deteriorated due to passage of time, sometimes
due to mishandling or improper storage facilities.

1.29 INVENTORY CONTROL TECHNIQUES

Inventory control techniques are employed by the inventory control organization within the
framework of one of the basic inventory models, viz. Fixed order quantity systems or fixed
order period system. Inventory control techniques represent the operational aspect of
inventory management and help realize the objectives inventory management and control.
The techniques are most commonly used are the following,
 Always better control (ABC) analysis
 Fast moving, slow moving and Non-moving (FSN) analysis .
 Economic Order Quantity (EOQ)
 Maximum - Minimum technique .
 Bin card system (KAN – BAN)
 Materials Requirement Planning (MRP) .
 Just In time (JIT) .
 VED Analysis

[Link] Analysis:
ABC analysis is based on Pareto principle (80-20 rule) which states that 80% of the overall
consumption value (expense) is based only on 20% of the total items i.e. small portion of the
items may typically represent the bulk of money value, while a relatively large number of
items may form a small part of the money value.

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All items : money value is highest 70%, represent only 10% of items ―B‖ items : money
value is medium 20%, represent about 20% of items ―C‖ items : money value is lowest 10%,
represent about 70% of items
 A-items should have tight inventory control under more experienced management.
Re-orders should be more frequent.
 B-items require medium attention for control. An important aspect of class B is the
monitoring of potential evolution toward class A or, in the contrary, toward the class
 C-items require minimum attention and may be kept under simple observation. Re-
ordering is less frequent

[Link] Analysis (Based On Turnover Ratio)

In a manufacturing industry, not all items are required with the same frequency. Some
materials are quite regularly required, yet some others are required very occasionally and
some materials may have become obsolete and might not have been demanded for years
together. FSN analysis groups them into three categories as Fast-moving, Slow-moving and
Non-moving (dead stock) respectively. Inventory policies and models for the three categories
have to be different. While performing this particular analysis the turnover ratio of each item
has to be calculated because the items are sorted and analyzed according to the turnover ratio
it possesses.

3. Economic Order Quantity

Economic order quantity (EOQ) is the order quantity that minimizes the total inventory
holding costs and ordering costs. It is one of the oldest classical production scheduling
models. The framework used to determine this order quantity is also known as Wilson EOQ
Model, Wilson

[Link] ban
Kan ban is a scheduling system for lean and just-in-time (JIT) production. Kan ban is a
system to control the logistical chain from a production point of view, and is an inventory
control system. Kanban was developed by Taiichi Ohno, an industrial engineer at Toyota, as
a system to improve and maintain a high level of production. Kan ban is one method to
achieve JIT.

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Kan ban became an effective tool to support running a production system as a whole, and an
excellent way to promote improvement. Problem areas are highlighted by reducing the
number of kan ban in circulation. One of the main benefits of kan ban is to establish an upper
limit to the work in progress inventory, avoiding overloading of the manufacturing system.

5. Kan ban cards

Kan ban cards are a key component of kan ban and they signal the need to move materials
within a production facility or to move materials from an outside supplier into the production
facility. The kan ban card is, in effect, a message that signals depletion of product, parts, or
inventory. When received, the kan ban triggers replenishment of that product, part, or
inventory. Consumption, therefore, drives demand for more production, and the kan ban card
signals demand for more product so kan ban cards help create a demand-driven system.
It is widely held by proponents of lean production and manufacturing that demand-driven
systems lead to faster turnarounds in production and lower inventory levels, helping
companies implementing such systems be more competitive.

[Link] Requirements Planning

Material requirements planning (MRP) is a production planning, scheduling, and inventory
control system used to manage manufacturing processes. Most MRP systems are software-
based, while it is possible to conduct MRP by hand as well.

[Link]-In-Time Manufacturing
Just-in-time (JIT) manufacturing, also known as just-in-time production or the Toyota
production system (TPS) is a methodology aimed primarily at reducing flow times within
production as well as response times from suppliers and to customers. Following its origin
and development in Japan, largely in the 1960s and 1970s and particularly at Toyota, JIT
migrated to Western industry in the 1980s, where its features were put into effect in many
manufacturing companies—as is attested to in several books and compendia of case studies
and articles from the 1980s.
But the wide use of the term JIT manufacturing throughout the 1980s faded fast in the 1990s,
as the new term lean manufacturing became established as "a more recent name for JIT." As

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just one testament to the commonality of the two terms, Toyota production system (TPS) has
been and is widely used as a synonym for both JIT and lean manufacturing.

[Link] Analysis VED (V-Vital, E-Essential, D-Desirable) classification is based on the

criticality of the inventories, in contrast to ABC classification which is based on consumption
value.
 Vital (V):
The medicines that are critically needed for the survival of the patients, which must be
available in the hospital all the times. Vital items (V) are items like Oxygen which are vital
for functioning of a health care establishment and whose shortage will have serious adverse
effects on routine functioning of the organisation.
 Essential (E):
Medicines with lower critical need, which may be available in the hospital. Essential items
(E) are the items whose shortage or non– availability can only be afforded for a short time
(such as intravenous sets & IV fluids in a hospital) and if their shortage continues for
anything more than the shortest time, the functioning would be affected seriously and
adversely.
 Desirable (D):
The remaining medicines with lowest critically, the absence of which will not be detrimental
to the health of the patients. These are items whose shortage would not affect the routine
functioning of an organisation even if the shortage is for a long time.

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Chapter 2

Research and Design

2..00: Title chosen:

“A study on Inventory Management with special reference to [Link] ”

2.1: Statement of problem:

 An inventory management is undertaken in command to identify the inventory

performance and position of the company and to recognize the potency and flaw and
to assess the profitability of the company.
 Inventories constitute most important part of resources of large mainstream of the
companies in India. Inventory a double edged sword is usually an asset of an
organization, if not worn correctly it will become liability.
 It is therefore absolutely very important to handle inventories resourcefully and
efficiently in order to overcome unnecessary investment. And to identify the
trouble/challenges concerned in the Inventory Management Process..

2.2: Scope of the study :

 Inventory management is a simple concept-don’t have too much stock and don’t have
too little. Since there can be a substantial costs involved in staying above and below the
optimal range, careful inventory management huge difference in the right balance can be
quite a complex and time consuming task without the right technology.
 Inventory management is very important for a manufacturing company. It enables the
business to meet or exceed expectations of the customers by making the products
readily available.

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 The scope of the study includes the ABC Analysis of Raw Materials, work in progress
and finished goods for four financial years
 This study provides insight to the management of high value items and also brings
attention of management towards movement of ‘A’ class items over period of years.
 The aim of the research is to develop a web based inventory management system that
will be implemented within the company to help the inventory manager record the
details of the inventory and the details of the inventory including the product ,supplier
,order and all information shall be stored in the database.
 The system will provide all of the information needed for inventory manager ,display
the product information ,the supplier info which will enable the inventory manager to
create /delete inventory or add new inventory or send alerts when the inventory levels
are low in stock and will enable to track order history of vendor

2.3: OBJECTIVES OF THE STUDY:

 To study about the ordering levels for the important components of inventory.
 To understand and measure economic order quantity for the selected raw material items.
 To analyse its inventory management methods with the help of ABC analysis, VED
analysis etc.
 To evaluate the inventory management practices of company.
 To offer suitable suggestions for the improvement of inventory management practices.
 To study work flow of stores department in company.
 To study how efficient inventories are maintained in the company.
 To know the relationship between raw material and sales.
 To study selective inventory control system adopted in organization

2.4 Research Methodology

 Sample area
The area of study for our is the premises of both firm and employee
 Sample size
Employees of the firm and even the customers were present during the study

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 Sample Time
Our study carried about 2-3 weeks in the firm

Sources of Data
The study is based on both primary and secondary data. The primary data has been collected
by using a interviews and observation and the secondary data has been collected from books
and internet
 Primary data
The information has been generated from organization in the form of financial statement
with employees
 Secondary data
1. Collected information from the annual reports of the respective firms and other
information are from customers.
2. Reference project.
3. Internet
4. Books

2.5 LIMITATIONS OF THE STUDY:

 Detail study about all the material was not possible because of time limit.
 Some of the information was kept confidential by the stories department.
 Study was confined only to the selected components in the stores department.
 Lack of quick access of information and it is not easily available.
 Financial constraints like travelling cost and printing cost etc.
 This project was to be completed within less time so there was time constraint.

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2.6: Chapter scheme

Chapter 1: Introduction

The chapter tells about introduction of inventory,inventory management,techinques,cycle

etc.. definitions,meaning,importances,scope objectives and advantages and disadvantages of
the sources.

Chapter 2: Research Design

This chapter tells about the introduction to the study ,statement of the problem,scope of the
study,objectives of the study ,research methodology and chapter scheme.

Chapter 3: Industry and Company Profile

This chapter tells us about thye origin and histoy of the concepts, measures and growth in
Indian economy Services products vission mission , And company profile tells abot the orgin
and history of the company organzation structure products and service of the company.

Chapter 4: Data Analysis and Interpretation

This chapter shows the data in tables and the interpretation for those data ,datas in graphs and
chart and the analysis of the mentioned data.

Chapter 5: Findings Suggestations and conclusion

This chapter speaks about the findings and suggestions of the data mentioned in the previous
chapter and the over all chapter and finally over all conclusion of the entire chapter is
mentioned in this chapter.

Bibilography

Annexure

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INDUSTRIAL AND COMPANY PROFILE

3.00 :INDUSTRIAL PROFILE

3.1 :Origin and history

Indian retailing:

Retailing in India is one of the pillars of its economy and accounts for about 15% of GDP.
The Indian retail market is estimated to be us$ 450 billon and one of the top five retail
markets in the world wide economic value .India is one of the fastest growing retail markets
in the world, with 1.2 billion people.

India’s retailing industry is essentially owner manned small shop. In 2010, larger format
convenience stores and super markets accounted for about 4 percent of the industry, and these
were present only in large urban centres. India’s retail and logistics industry employs about
40 million Indian’s (3.3% of Indian population)

Until 2011, Indian central government denied foreign direct investment (FDI) in multi-brand
retail, forbidding foreign groups from any ownership in supermarket, convenience stores or
any retail outlets. Even single-brand retail was limited to 51% ownership and a bureaucratic
process.

In November 2011, India’s central government announced retail reforms for both multi-
brands stores and multi-brand store. These market reforms paved the way for retail
innovation and competition with multi-brand retails such as Wal-mart, Carrefour and Tesco,
as well single –brand major such as IKEA, Nike, apple. The announcement sparked intense
activism, both in opposition and in support of the reforms. In December 2011, under pressure
from the opposition, Indian government placed the retail reforms on hold till it reaches and
consensus.

In January 2012, India approved reforms for single-brand stores welcoming anyone in the
world to innovate in Indian retail market with 100% ownership. Indian government
continues the hold on retail reforms for multi-brand store.

Organized retailing, in India, refers to trading activities undertaken by licensed retailers, that
Is, those who are registered for sales tax, income tax, etc., these include the publicly-traded
supermarkets, corporate-backed hypermarkets and chains, and also the privately owned large
retail businesses.

Unorganized retailing, on the other hand, refers to the traditional formats of low-cost
retailing. For example, owner manned general stores, pan shops, convenience, hand cart and
pavement vendors, etc.,
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Organized retailing was absent in most rural and small towns of in 2010. Super markets and
similar organized retail accounted for just 4% of the market.

3.2 :Background of Indian retailing:

Most Indian shopping takes place in open markets or million of small, independent grocery
and retail shops. Shoppers typically stand outside the retail shop, ask for what they want, and
cannot pick or examine a product from the shelf. Access to the shelf or product storage area is
limited. Once the shopper requests the food staple or household product they are looking for,
the shopkeeper goes to the container or shelf or to the back of the store, brings it out and
offers it for sale to the shopper. Often the shopkeeper may substitute the product, claiming
that is similar or equivalent to the product the consumer is asking for. The product typically
has no price label in these small retail shops; although some product do have a manufactured
suggested retail price (MSRP) pre-printed on the packaging. The shopkeeper prices the food
staple and household products arbitrarily, and two consumers may pay different prices for the
same product on the same day. Price is sometimes negotiated between shopper and
shopkeeper. The shoppers do not have time to examine the product label, and do not have a
choice to make an informed decision between competitive products.

Indian’s retail and logistics industry, organized and unorganized in combination, employs
about 40million Indians (3.3% of Indian population). The typical Indian retail shop are very
small. Over 14million outlets operate in the country and only 4% of them being larger than
500sq ft (46m2) in size. India has about 11 shop outlets for every 1000 people. Vast majority
of the unorganized retail shop in India employ family members, do not have the scale to
procure or transport products at high volume wholesale level, have limited to no quality
control or fake-versus-authentic product screening technology and have no training on safe
and hygienic storage, packaging or logistics. The unorganized retail shop source their
products from a chain of middlemen who mark up the product as it moves from farmer or
producer to the consumer. The unorganized retail shops typically offer no after-sales support
or service. Finally, most transactions at unorganized retail shops are done with cash, with all
sales being final. Until the 1990s, regulation prevented innovation and entrepreneurship in
Indian retailing. Some retails faced complying with over thirty regulation such as “signboard
licences” and “anti-hoarding measures” before they could open doors. There are taxes for
moving goods to states, and even within states in some cases. Farmers and producers had to
go through middlemen monopolies. The logistics and infrastructure was very poor, with
losses exceeding 30%.

Through the 1990s,India introduced widespread free market reforms, including some related
to retail. Between 2000 to 2010, consumers in select Indian cities have gradually begun to
experience the quality, choice, convenience and benefits of organized retail industry.

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3.3 :Types of retailing industry

There are 7 main types of retailers which can be defined by the size of their business and way
they in which they sell their products.

1. Department store:-
This type of retailer is often the most complex offering a wide range of products and
can appear as a collection of smaller retail stores managed by one company. The
department store retailers offer products at various pricing levels. This type of
retailers adds high levels of customers service by adding convenience enabling a large
variety of products to be purchased from one retailer.

2. Supermarkets:-
Generally this type of retailer concentrates in supplying a range of food and beverage
products. However many have now diversified and supply products from the home,
fashion and electrical products markets too. Supermarkets have significant buying
power and therefore often retail goods at low prices.

3. Warehouse retailers:-
This type of retailer is usually situated in retail or business park and where premises
rents are lower. This enables this type of retailer to stock, display and retail large
variety of good at very competitive prices.

4. Speciality retailers:-
Specialising in specific industries or products, this type of retailer is able to offer the
customer expert knowledge and a high level of service. They also add value by
offering accessories and additional related products at the same outlet.

5. E-toiler:-
This type of retailer enables customers to shop on-line via the internet and buy
products which are then delivered. This type of retailer is highly convenient and is
able a wider geographic customer base.

6. Convenience retailer:-
Usually located in residential areas this type of retailer offers a limited range of
products at premium prices due to the added value of convenience.

7. Discount retailer:-
This type of retailer offers a variety of discount products. They offer low prices on
less fashionable branded products from a suppliers by reselling end of line and
returned goods at discounted prices.

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3.4: Advantages and disadvantages of retailing company

Retailing is growing at an astonishing rate with sales now accounting for around one quarter
of the total retail market. Retailers who ignore e-commerce may see their trade lessening as
customers continues to shift to ordering products.

The advantages of retailing includes:-

 Easy access to market:-

In many ways the access to market for entrepreneurs has never been easier. Market
places such as eBay and Amazon allow anyone to set up a simple see selling through
market places.
 Reduced overheads:-
Selling can remove the need for expensive retail premises and customers-facing staff,
allowing you to invest in better marketing staff, allowing you to experience on your e-
commerce site.
 Potential for rapid growth:-
Selling on the internet means traditional constraints to retail growth –eg finding and
paying for larger- are not major factors. With a good digital marketing strategy and a
plan a scale up order fulfilment systems, you can respond and boost growing sales.
See planning for e-commerce.
 Widen your market/export:-
One major advantage over premises-based retailers is the ability expand your market
beyond local customers very quickly. you may discover a strong demand for your
products in other countries which you can respond to by targeted marketing.
 Customer intelligence:-
Ability to use marketing tools to target new customers and website analysis tools to
gain insight into your customer’s needs.

The disadvantages of retailing includes:-

 Website cost:-
Planning, designing, creating, hosting, securing and maintaining a professional e-
commerce website isn’t cheap, especially if you expect large and growing sales
volumes.
 Infrastructure cost:-
Even if you aren’t paying the cost of customer-facing premises, you’ll need to think
about the costs of physical space for order fulfilment, warehousing goods, dealing
with returns and staffing for these tasks.
 Security and fraud:-
The growth of online retail market has attracted the attention of sophisticated criminal
elements
.

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 Legal issues:-
Getting to grips with e-commerce and the law can be a challenge and you’ll need to
be aware of, and plan to cope with, the additional customer rights which are attached
to sales.
 Advertising costs:-
While marketing can be a very efficient way of getting the right customers to your
products, it demands a generous budget. This is especially true if you are completing
in a crowded sector or for popular keywords.
 Customer trust:-
If can be difficult to establish a trusted brand name, especially without a physical
business with a track record and face -to-face interaction between customers and sales
staff.

3.5: Growth of Indian retailing:

Growth over 1997-2010

India in 1997 allowed foreign direct investment(FDI)in cash and carry wholesale. Then, it
required government approval. The approval requirement was relaxed, and automatic
permission was granted in 2006. Between 2000 to 2010, Indian retail attracted about $1.8
billion in foreign direct investment, representing a very small 1.5% of total investment flow
into India.

Single brand retailing attracted 94 proposals between 2006 and 2010,of which 57 were
approved and implemented. For a country of 1.2 billion people, this is very small number.
Some claim one of the primary restraints inhibiting better participation was that India
required single brand retailers to limit their ownership in Indian outlets to 51%china is
contrast allows 100% ownership by foreign companies in both single brand and multi-brand
retail presence.

Indian retail has experienced limited growth, and its spoilage of food harvest is amongst the
highest in the world, because of very limited integrated cold-chain and other infrastructure.
one report estimates the 2011 Indian retail market as generating sales of about $470billion a
year of which a miniscule$27billion comes from organized retail such as supermarkets, chain
stores with centralized operations and shops in malls. The opening of retail industry to free
market competition, some claim will enable rapid growth in retail sector of Indian
economy. Others believe the growth of Indian retail will take time, with organized retail
possibly needing a decade to grow to a 25% share. A 25% market shares, given the expected
growth of Indian retail industry through 2021, is estimated to be over $250 billion a year:
revenue equal to the 2009 revenue share from Japan for the world’s 250 largest d alone
retailers. The economist forecasts that Indian retail will nearly double in economic value,

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expanding by about $400 billion by 2020. The projected increased alone in equivalent to the
current retail market size of France.

Strong growth in the Indian retail industry-2015

 The retail sector in India is emerging as one of the largest sectors in the economy.
 By 2015, the total market size is estimated to be around U$$ 600 billion, they
registering a CAGR of 7.45 per cent since 2000.
 Retail industry is expected to grow to U$$1.3trillion by 2020,registering a CAGR of
9.7 percent between 2000-2020

3.6 Company profile

3.7: Origin and history of the company

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GM enterprise Consumer Products is a leading emerging markets company. As part of the

119-year young Godrej Group, we are fortunate to have a proud legacy built on the strong
values of trust, integrity and respect for others. At the same time, we are growing fast and
have exciting, ambitious aspirations.
Today, our Group enjoys the patronage of 1.1 billion consumers globally, across different
businesses. In line with our 3 by 3 approach to international expansion at GM enterprise
Products, we are building a presence in 3 emerging markets (Asia, Africa, Latin America)
across 3 categories (home care, personal wash, hair care). We rank among the largest
household insecticide and hair care players in emerging markets. In household insecticides,
we are the leader in India, the second largest player in Indonesia and are expanding our
footprint in Africa. We are the leader in serving the hair care needs of women of African
descent, the number one player in hair colour in India and Sub-Saharan Africa, and among
the leading players in Latin America. We rank number two in soaps in India and are the
number one player in air fresheners and wet tissues in Indonesia.
But for us, it is very important that besides our strong financial performance and innovative,
much-loved products, we remain a good company. 24 per cent of the holding company of our
Group is held in a trust that invests in the environment, health and education. We are also
bringing together our passion and purpose to make a difference through our 'Good & Green'
approach to create a more inclusive and greener India.
At the heart of all of this, is our talented team. We take much pride in fostering an inspiring
workplace, with an agile and high performance culture. We are also deeply committed to
recognizing and valuing diversity across our teams.

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3.8: Organizatation structure

3.9: Swot analysis

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Indian retail industry has developed rapidly than any other in the world. It is the largest
among all global industries. It is the pillar of India economy and accounts for 14to 25 percent
the nation’s GDP. The Indian retail market is estimated to be about $500 billion. This rapid
change in the retailing industry can be attributed to the substantial shift towards a more
organized retailing setup and great developments taking place in the nation. In fact, many
nations that cannot match the India’s progress in the retail industry are rallying on its SWOT
analysis to gather more helpful details.

 Strengths– SWOT analysis cannot be successful or commence without looking at the

strengths of the retail company.
 Great financial banking is one of the vital strengths to look at. This means that the retailer has
ample capital and can even access bank loans.
 Retailer’s cheaper wholesale prices can also open many retailing doors. Quality of the retail
products can also increase a company’s rank in the market.
 Other strengths include increasing number of Indian consumers, increasing in India’s
working population and an aspiring middle class will to purchase anything.
 Weakness– When analyzing the weakness of a retail company, it is wise to look at the most
palpable weaknesses.
 A retailer may lack an identity, weak brand image, lack good customer services, hence, it has
no competitive edge that set its apart from other retailers.
 Opportunities– Identifying core opportunities in the retailing market is the other mainstay
step towards a fruitful SWOT analysis.
 There are heaps of opportunities within the retail market. And they include consumer needs,
attractive and supple jobs, high standards demand from suppliers, great innovations, digital
plan and customer-centric approach among others.

 Threats– It is easy to pick out the probable threats that affect the retailing industry via a
well-executed SWOT analysis.
 Some of the common threats in the retail industry include a decrease in consumer needs, price
wars with competitor, recession, poor human capital management, underdeveloped shopping
culture and unorganized retailers.
 The retail industry many a times it does not enjoy governmental support and fails to rejoice
the industry status.

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 Indian retail industry has become a pillar in the industry and a stepping stone for those who
want to reach the highest ranks in the market. It is an example that a retail company can grow
on its own and make good revenue and open more new markets. For all aspiring retailers, do
not just identify the strengths, weakness, opportunities and threats faced in the industry, it is
wise to embrace the “SWOT” and come up with unmatched marketing strategies.

3.10:Vision and mission :

VISION
To become leaders in hair products in Latin-America with an excellent relation between price
and quality.

MISSION
To please our customers, to pursue new opportunities, to improve profitability and motivate
our employees to new challenges.

Being innovators and develop products devoted to the personal and home care taking into
consideration the environment.

3.11: Awards and achivement

Best product of the year

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Best service

Best Maintaince

3.11 Products and services

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4 .00:DATA ANALYSIS AND INTERPRETATION

1) ABC analysis (Always Better Control):

ABC analysis classifies various inventory into three sets or groups of priority that allocates
managerial efforts in proportion of the priority the most important item are classified into
class - A, Those of intermediate importance are classified as “class - B’’ and remaining items
are classified into class - C’. The financial manager has to monitor the items belonging to
monitor the items belonging to different groups in that order of priority and depending upon
the consumptions.

The items with the highest values is given priority and soon and are more controlled then low
value item. The re - rational limits are as follows.

Category of items. % of items. % of total cost of materials.

A 5 – 10 70-85
B 10– 20 10– 20
C 70– 85 5– 10

4.1: Table 1
 ABC analysis of raw materials (at closing stock):

YEAR RAW METERIALS (RS in 1000’s)

2011 273
2012 456
2013 532
2014 722
2015 674

Interretation: The above table shows us the constant increas in the raw materials year by
year this shows us the company is earning are good in 2011 there are 273 in numbers and
2014 there are 722 raw materials but in 2015 there is a slight decrease its reduced to 674.

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4.1:Graph1
A Graph on ABC analysis

2500

2000

1500

YEAR
RAW METERIALS (RS in 1000’s)
1000

500

0
1 2 3 4 5

Analysis:

The above graph shows the amount of raw materials at cost. In 2011 the cost of material is
274rs .In 2012 and 2013 the cost of raw materials is increases to 456rs and 532rs respectively
it is more increased to 722rs in the year 2014rs and in 2015 it is decreased to 674rs. Because
its value is falling down and has bad impression on the material management.

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4.2:Table:2
.

2) Stock in progress (at closing stock):

YEAR STOCK IN PROGRESS (RS)

2011 2006

2012 1235

2013 2700

2014 2345

2015 1900

Intrepretation:

The above table shows us the increase and decrease in stock in process which are required for
the company, In the year 2011 the stocks are 2006 and a decrease in 2012 again increase and
decrease in the constant years.

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4.2: Graph 2

3000

2500

2000

YEAR
1500
STOCK IN PROGRESS (RS)

1000

500

0
1 2 3 4 5

Analysis:

In the above chart the blue line shows the year and the red shows the stock. Here the stock
increases and decrease in the subsequent years in 2011 there is 2006 stocks but it decreases in
2012 to 1235 and in 2013 it increases to 2700. Because the company is not able to sustain
the profits.

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4.3:Table 3

3) Finished goods (at closing stock):

YEAR AMOUNT OF FINISHED GOODS

2011 2704

2012 6714

2013 17015

2014 16880

2015 7433

Intrepretation :

The above table shows the stocks of finished goods from 2011 to 2015 the in 2013 there are
lots lots of finished goods as it suggest thre a profit in the firm .

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4.3: CHART 3

18000

16000

14000

12000

10000
YEAR
8000 AMOUNT OF FINISHED GOODS

6000

4000

2000

0
0 1 2 3 4 5 6

Analysis :

The above graph shows us the amont of finished goods for 5 years there is a slight increase
in 2013 and by 2015 it falls down by showing that it doesnot have much profit.

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4.4 Table 4
4) Raw materials consumed(at closing stock)

YEAR RAW METERIALS CONSUMED IN (RS)

2011 65000
2012 67542

2013 76490

2014 56832
2015 63998

Interpretation:

The above table shows us raw material consumed for the production purpose the raw material
also vary from year to year.

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4.4 :Chart -4

80000

70000

60000

50000
YEAR
40000
RAW METERIALS CONSUMED IN
30000 (RS)

20000

10000

0
1 2 3 4 5

Analysis:

The above graph shows the raw material consumed in the process in 2011 the raw material is
65000and in 2012 it is increased to 67542 and in 2013 its shows a high use of the material its
value is 76490 and in 2014-15 it decrease and increases.

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5)Ratio analysis:

The Ratio analysis is one of the most powerful tools of financial analysis. It is the process of
establishing and interpreting various ratios. It is with the help of ratios that the inventory
management can be analysed. More clearly and decision made from such analysis.

Following ratios are used in the study.

1. Inventory Turnover Ratio

a) Raw Materials Turnover Ratio

b) Work-In-Progress Turnover Ratio

c) Finished Goods Turnover Ratio

d) Inventory turnover ratio

e) Trend analysis

A)Raw materials turnover ratio:

4.5: Table 5
YEAR Raw-material Avg-raw Ratio values
consumed IN(RS) material (RS)
2011 380000 200000 1.90
2012 424000 213000 1.99
2013 378500 175000 2.16
2014 535000 321000 1.66
2015 540000 300000 1.87

Interpretation :

The above table shows the turn over ratio of raw material consumed the average material
consumed and the ratio value from 2011 to 2015 the ratio value in the year 2013 shows the
peak value.

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4.5: Chart 5

900000

800000

700000

600000
Ratio values
500000 Avg-raw

400000 Raw-material consumed IN(RS)

YEAR
300000

200000

100000

0
1 2 3 4 5 6

Analysis:

The above graph shows us the consumed raw material and the average raw material and the
vales in ratio the ratio in the year 2011 is 1.90 and keeps incresing till 2.16 in 2013 and in
2014it decreases to 1.66 and in 2015 there is a slight increase to 1.87.

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4.6: Table 6
B)Work in progress turnover ratio:

YEAR COST OF GOOD AVG WORK IN RATIO VALUE

MANUFACTURE PROGRESS
IN (RS)
2O11 650000 150000 4.33
2012 680000 170000 4.00
2013 720000 210000 3.42
2014 617000 190000 3.24
2015 715000 230000 3.10

Intrepretation:

The above table shows the ratio of work in process in the firm ,the cost of goods
manufactured ,average work in process and the ratio value where the ratio are decreasing
year by year. It has a impact on manufacturing department.

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4.6: Chart 6

350000
300000
250000
YEAR
200000
150000
COST OF GOODS SOLD IN (RS)
100000 AVG INVENTORY
50000
0 COST OF GOODS SOLD IN (RS)
YEAR
1 2 3 4 5

Analysis:

From the above table the cost of goods turnover is more compared to average work in
progress where the values increasing and decreasing year by year. In the year 2011 its 4.33
and in the year 2013 its decreased to 4 and by 2015 its decreased to 3.10.

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4.7:Table 7
C)Finished goods turnover ratio:

YEAR COST OF GOODS SOLD AVG RATIO VALUE

IN (RS) INVENTORY

2011 500000 150000 3.3

2012 600000 180000 3.3
2013 750000 190000 3.9
2014 830000 200000 4.15
2015 625000 170000 3.67

Intrepretation :

The above table shows the finished goods turn over ratio , it shows the cost of goods sold and
average inventory and the ratio values which is increasing and decreasing value in the year
2014 it has the highest ratio value.

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4.7: Chart 7

350000
300000
250000 YEAR
200000
150000
COST OF GOODS SOLD IN (RS)
100000
AVG INVENTORY
50000
0 COST OF GOODS SOLD IN…
1 YEAR
2 3 4 5

Analysis:

The above graph shows us the turn over ratio of finished goods whre in 2011 the values are
2011 the cost of goods is 500000 and in 2014 830000 and in 2015 the value is decreased by
625000.

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4.8 :Table 8

D)Inventory turnover ratio:

YEAR COST OF GOODS AVG INVENTORY RATIO VALUE

SOLD IN (RS)

2011 200000 60000 3.33

2012 235000 63000 3.73

2013 320000 58000 5.51

2014 300000 68000 4.41

2015 350000 70000 5.00

Intrepretation :

The above table shows the turn over of inventory ratio where the a increase and decrease in
the frequent years where the value in 2015 is the highest.

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4.8: Chart 8

1600000

1400000

1200000

1000000
Series5
800000 Series4
Series3
600000
Series2
400000 Series1

200000

0
YEAR COST OF AVG RATIO
GOODS SOLD INVENTORY VALUE
IN (RS)

Analysis :

The above table shows us the that the ratio value in 2011 is 3.33 and in 2013 it is 5.51 which
has the highest value and in 2015 it is decreased to 5.00. this shows the fall in the profit and
loss in the company.

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4.9: Table 9
E)Trend analysis:

YEAR INVENTORY IN (RS) % of inventory

2011 425000 17.38

2012 450000 18.40

2013 540000 22.08

2014 430000 17.58

2015 600000 24.53

TOTAL 2445000 100

Interpretation:

The above table shows the trend analysis ,The percentage of inventory in the year 2011 is
[Link] 2012 &2013 the percentage is increased to 18.4 and 22.8 respectively. In the year
2014 percentage decreased to 17.5. In 2015 percentage increased to 24.53.

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4.9: Chart 9

3000000

2500000

2000000

1500000 Series2
Series1

1000000

500000

0
YEAR 2011 2012 2013 2014 2015 TOTAL

Analysis :

 The above graph shows the trend analysis of GM [Link] percentage of inventory
in the year 2011 is 17.38 In 2012 &2013 the percentage is increased to 18.4 and 22.8
[Link] in the year 2014 percentage decreased to [Link] 2015 percentage
increased to 24.53. this shows that the financial position is good.

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4.10:Table 10
Stores spares & consumables (closing stock)
YEAR AMOUNT OF COST OF STORES AND SPARES

2011 673.25

2012 1628.44

2013 3617.38

2014 3539.05

2015 973.02

Interpretation :
The above table shows us the spares used in the company there is decrease and increase in
last five years in 2013 the company uses highest spares and by 2015 it falls down.

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4.10: Chart 10

4000

3500

3000

2500
YEAR
2000
AMOUNT OF COST OF STORES
1500 AND SPARES

1000

500

0
1 2 3 4 5

Analysis:
The above graph shows us the increase and decrease in the spares where in 2013 there is
3617 spares and in 2015 it falls down to 973 cr.

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5.00:Finding , suggestion and conclusion

5.1 Finding
1) It was observed that the over all performance of the company is showing on increase
in trend over a period of five years
2) In the study we found that the company was entered into various section in this
financial year.
3) The company gives major importance to the retailing equipments
4) The company and its staff members provide full support for the project
5) The company is in a good and in diversified way
6) The current asset of the company are increasing year by year
7) The current liability is also increasing and this may lead to a sloping position of the
company
8) The company is calculating the ratio in ABC analysis, VED analysis, JIT analysis ,
turnover ratio, etc......
9) By all the above mentioned analysis and ratio we found the companies working
condition
10) The method of calculation and analysing product are changing year by year

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5.2: Suggestions

1) We suggest that adequate training to all the staff members of the company
regarding the management is required.
2) The G.M enterprises should take necessary securities measures of all branches
where ever it was computerised, to avoid fraud and crimes
3) The G.M enterprises should implement few more new advanced techniques
4) The G.M enterprises should maintain a recovery cell for the recovery of the
products for making proper retail services
5) It is appropriate to educate the customers which will have a impact on the
recovery
6) The settings of new branches in the high potential areas can up lift the
business growth rate
7) The measures should be taken regarding miscellaneous expenses
8) They have to develop new service to improve the exciting position
9) The company should strengthen their internal management
10) The company can expand their plant structure

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5.3: Conclusion

Inventory management has to do with keeping accurate records of finished goods that are
ready for shipment. This often means posting the production of newly completed goods to the
inventory totals as well as subtracting the most recent shipments of finished goods to buyers.
When the company has a return policy in place, there is usually a sub-category contained in
the finished goods inventory to account for any returned goods that are reclassified or second
grade quality. Accurately maintaining figures on the finished goods inventory makes it
possible to quickly convey information to sales personnel as to what is available and ready
for shipment at any given time.
Inventory management is important for keeping costs down, while meeting regulation.
Supply and demand is a delicate balance, and inventory management hopes to ensure that the
balance is undisturbed. Highly trained Inventory management and high-quality software will
help make Inventory management a success. The ROI of Inventory management will be seen
in the forms of increased revenue and profits, positive employee atmosphere, and on overall
increase of customer satisfaction.

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Bibliography

Websites :
[Link]
[Link]
[Link]

Books
Management accounting-
Inventory management
Financial management

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