1

SUMMER INTERSHIP PROJECT REPORT

ON

“INVENTORY MANAGEMENT”

Submitted in partial fulfillment of the requirements for the awards of the

degree of

MASTER OF MANAGEMENT STUDIES (MMS)

MUMBAI UNIVERSITY

(2023-24)

UNDER THE GUIDANCE OF

(Prof. Amit sir )

SUBMITED BY:

Student Name
(Roll no. 22139 )

(Specialization: Operation )

SUBMITTED TO:

Swayam Siddhi College of Management &

Research
(Affiliated to University of Mumbai, Approved by AICTE & Recognized by Govt. of Maharashtra)
( DTE Code: MB 3133)
(An ISO 9001 – 2000 Certified Institute
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DECLARATION
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I hereby declare that summer internship project

titled” INVENTORY MANAGEMENT ”is submitted in partial fulfillment of degree of
Masters in Management studies, University of Mumbai in the academic year 2023-24
and was carried out with sincere intention. To the best of my knowledge it is an original
piece of work done by me. It has neither been submitted to any organization not publish
anywhere.

Place: Bhiwandi
Date: Vishal r sakpal

GUIDE CERTIFICATE

This is to certify that the survey entitled, “ INVENTORY MANAGEMENT Submitted

In partial fulfillment of the requirement for the award of degree of Masters of
Management studies (MMS) from University of Mumbai is a bonafide summer training
project work carried out by Vishal R Sakpal under my supervision and guidance and to
the best of my knowledge and information, no part of summer training project work has
been submitted for any other degree or diploma.
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Signature of Guide

Acknowledgement

This project report bears the imprint of those who had rendered their wholehearted support
and encouragement without whose help this effort of mine would be in vain. I express my
deep sense of gratitude and sincere thanks to my project guide for his directions, suggestion
and information provided which were of utmost importance for the successful completion of
the project. I am also thankful to Stellar Value Chain head/Manager/Concern person for her
proper guidance. I thankful to the employees of Stellar Value Chain for assisting me in the

timely completion of project.

At last, I also thank to my family and my friends those helped me in my training

period and in the completion of project.
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Vishal R Sakpal

EXECUTIVE SUMMERY

Every organization needs inventory for smooth running of its activities. It serves as a link
between production and distribution processes. The investment in inventories constitutes the
most significant part of current assets/working capital in most of the undertakings. Thus, it is
very essential to have proper control and management of inventories. The purpose of
inventory management is to ensure availability of materials in sufficient quantity as and when
required and also to minimise investment in inventories. Raw materials, goods in process and
finished goods all represent various forms of inventory. Each type represents money tied up
until the inventory leaves the company as purchased products. Because of the large size of the
inventories maintained by firms, a considerable amount of funds is required to be committed
to them. It is therefore absolutely imperative to manage inventories efficiently and effectively
in order to avoid unnecessary investments. A firm neglecting the management of inventories
will be jeopardizing its long run profitability and may fail ultimately. The reduction in
excessive inventories carries favourable impact on the company’s profitability .

The study starts with an introduction to inventory management, Company’s profile, its Vision
& Mission, Achievements and also the need for study, review of literature and objectives are
set out for the study. Research methodology, Data analysis & Interpretation, Findings and
Suggestions of the study follow. One of the main areas of the project is the analysis part,
where the data are analysed & interpreted, to find out how the inventories were managed.
Some of the tools used in inventory are regarding to:

 Economic Order Quantity

 Safety Stock

 ABC Analysis

 Trend Analysis and

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Inventory Turnover Ratio. And then conclusions, limitations & scope for further study were
discussed.
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Internship Certificate:
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TABLE OF CONTENTS

[Link]. Content Page No.

Executive Summery 6
1 Introduction 9
2 Need for Studies 15
3 Objective Study 19
4 Company Profile 30
5 Review &Literature 33
6 Research Methodology 36
7 Data Analysis & interpretation 37
8 Finding 42
9 Suggestion 43
10 Conclusion 44
11 Limitation of Studies 45
Reference 46
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Introduction

Inventory management is a crucial aspect of business operations that involves overseeing

and controlling the flow of goods, raw materials, and finished products within an
organization. It plays a vital role in maintaining adequate stock levels, optimizing costs,
meeting customer demands, and ensuring smooth operations.

The primary goal of inventory management is to strike a balance between meeting customer
needs and minimizing the costs associated with holding inventory. It is essential for
businesses to have the right amount of inventory available at the right time to avoid
stockouts, which can result in lost sales and dissatisfied customers. On the other hand,
excessive inventory ties up valuable resources, increases holding costs, and can lead to
obsolescence or spoilage.
Proper inventory management enables businesses to optimize their supply chain, improve
operational efficiency, and maximize profitability. It involves various activities, such as
forecasting demand, determining optimal order quantities, monitoring stock levels, and
implementing effective replenishment strategies.

One of the key objectives of inventory management is to maintain adequate stock levels.
This requires businesses to accurately forecast customer demand based on historical data,
market trends, and seasonality. By understanding demand patterns, businesses can ensure
they have enough inventory on hand to fulfill orders promptly and avoid stockouts.
Additionally, they can minimize excess inventory by avoiding overestimation of demand,
which helps reduce holding costs and the risk of product obsolescence.

Cost optimization is another important objective of inventory management. Holding

inventory incurs costs such as storage, insurance, handling, and depreciation. By carefully
managing inventory levels, businesses can minimize these costs and improve their overall
financial performance. For instance, reducing excess stock and adopting just-in-time (JIT)
inventory practices can help free up capital, improve cash flow, and reduce carrying costs.
Inventory management also contributes to improving operational efficiency. By
implementing efficient inventory tracking systems and processes, businesses can enhance
their order fulfilment processes, reduce lead times, and streamline operations. This includes
optimizing warehouse layouts, implementing barcode or RFID systems for accurate
tracking, and employing automated inventory management systems. These measures help
minimize errors, improve inventory accuracy, and enable faster order processing and
delivery.

Furthermore, effective inventory management contributes to customer satisfaction.

Customers expect products to be readily available when they place an order. By maintaining
optimal inventory levels, businesses can fulfill customer orders promptly, leading to higher
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customer satisfaction and loyalty. On the other hand, stockouts can result in delayed
deliveries, order cancellations, and negative customer experiences.
Technology plays a significant role in modern inventory management practices. Inventory
management software, barcoding systems, and advanced analytics enable businesses to track
inventory in real-time, automate replenishment processes, and gain valuable insights into
inventory performance. These technological advancements improve accuracy, efficiency,
and decision-making in inventory management.

 Here are the key steps involved in inventory management:

1. Demand forecasting: Inventory managers analyse historical sales data, market trends,
and other relevant factors to forecast customer demand accurately. This helps determine the
right quantity of each product to keep in stock.

2. Stock replenishment: Based on the demand forecast, inventory managers initiate the
process of replenishing inventory. They place orders with suppliers or manufacturers to
ensure timely delivery of goods.

3. Order processing: When customers place orders, inventory managers verify the
availability of the requested items. If the items are in stock, the order is processed for
shipment. If not, the inventory manager may determine when the items will be restocked and
provide an estimated delivery date to the customer.

4. Inventory tracking: It is crucial to monitor inventory levels to prevent stockouts or

excess inventory. Inventory managers use various tools and technologies, such as barcodes,
RFID (Radio-Frequency Identification), or inventory management software, to track the
movement of goods. This allows them to know the quantity of each item available in real-
time.

5. Stock storage and organization: Inventory managers establish efficient storage systems
to ensure that items are easily accessible, properly labelled, and stored in appropriate
conditions. They may use shelving, racks, or automated systems to optimize space
utilization and facilitate inventory handling.

6. Inventory valuation: Inventory managers need to assign value to the inventory on hand
for accounting and financial purposes. They use different valuation methods, such as First-
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In-First-Out (FIFO) or Last-In-First-Out (LIFO), to determine the cost of inventory and its
impact on financial statements.

7. Inventory analysis: Regular analysis of inventory data is essential to identify trends,

patterns, and potential issues. Inventory managers analyse data related to sales, stock levels,
lead times, and other relevant factors to optimize inventory levels, identify slow-moving
items, and make informed decisions regarding purchasing, pricing, and promotions.

8. Inventory optimization: Through the analysis and insights gained from inventory data,
inventory managers can optimize their inventory levels. This involves setting reorder points
and safety stock levels to prevent stockouts, reducing excess inventory through sales and
promotions, and identifying opportunities for cost savings.

By effectively managing inventory, businesses can ensure that they have the right products
available at the right time, minimize holding costs, avoid stockouts, and ultimately improve
customer satisfaction and profitability. The use of technology and automated inventory
management systems can greatly enhance the accuracy and efficiency of inventory
management processes.

 Types of Inventory :

Inventory refers to the stock of goods and materials that a company holds for various
purposes, such as production, sales, or support operations. Different types of
inventory are managed by businesses based on their specific needs, industry
requirements, and the stage of the supply chain. Understanding the various types of
inventory is essential for effective inventory management. Here are the key types of
inventory:

1. Raw Materials:
Raw materials are the basic inputs used in the manufacturing or production process.
They are transformed into finished goods through various operations and processes.
Raw materials can be sourced from suppliers or produced internally by the company.
Examples of raw materials include metals, chemicals, fabrics, wood, or any other
materials used in the production process.
Managing raw materials effectively is crucial to ensure a continuous production flow.
Companies need to monitor raw material inventory levels, forecast demand, and
coordinate with suppliers to maintain an adequate supply. By optimizing raw material
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inventory, businesses can avoid production delays, reduce holding costs, and meet
customer demand efficiently.

2. Work-in-Progress (WIP):
Work-in-progress inventory consists of items that are currently in the production
process but are not yet finished goods. These are partially completed products that
require additional processing, assembly, or value-added operations to reach the final
stage.
WIP inventory represents the materials, components, or subassemblies at various
stages of completion in the production cycle. It is a critical component in industries
with complex manufacturing processes, such as automotive, electronics, or
construction. Managing WIP inventory involves tracking the status of each item,
coordinating production schedules, and ensuring a smooth flow of materials and
information between different production stages.

Effective WIP inventory management requires balancing production rates,

minimizing bottlenecks, and optimizing work processes to prevent delays, improve
productivity, and reduce costs associated with idle time or excessive work-in-
progress.

3. Finished Goods:
Finished goods inventory comprises the final products that are ready for sale to
customers. These are the end products of the manufacturing or production process, in
the form in which they will be sold or delivered to customers.

Finished goods inventory levels need to be carefully managed to ensure the

availability of products to meet customer demands while avoiding excessive stock
that ties up capital. Businesses need to forecast demand accurately, establish optimal
reorder points, and maintain efficient order fulfilment processes to prevent stockouts
or overstock situations.

In industries with seasonal demand patterns or short product lifecycles, managing

finished goods inventory becomes even more critical. Effective inventory
management can help minimize obsolescence, reduce holding costs, and improve
customer satisfaction by ensuring timely product availability.

4. Maintenance, Repair, and Operations (MRO):

MRO inventory consists of items used to support maintenance, repair, and operations
activities within a business. These items are not directly used in the production of
finished goods but are essential for keeping the production facilities, machinery, and
equipment operational.

MRO inventory includes items such as tools, spare parts, lubricants, safety equipment,
cleaning supplies, and other consumables. Managing MRO inventory is crucial to
ensure that the necessary resources are available for routine maintenance, emergency
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repairs, or ongoing operations. Effective MRO inventory management involves

establishing appropriate reorder levels, conducting regular audits, and ensuring timely
procurement to minimize equipment downtime and maintain operational efficiency.

5. Goods in Transit:
Goods in transit inventory refers to products that are in the process of being
transported from one location to another. It includes inventory that is in transit
between suppliers, warehouses, distribution centre’s, or from distribution centre’s to
retail stores or end customers.

Managing goods in transit inventory requires accurate tracking and coordination with
transportation providers. Visibility into the location and estimated time of arrival of
goods in transit helps optimize inventory planning, reduce stockouts, and ensure
timely delivery. Companies may utilize tracking technologies such as GPS, barcodes,
or RFID to monitor goods in transit and update inventory records accordingly.

6. Safety Stock:
Safety stock is a buffer quantity of inventory kept to mitigate the risk of stockouts due
to unforeseen events, such as unexpected increases in demand, supply chain
disruptions, or lead time variations. It acts as an insurance policy to ensure that there
is sufficient inventory to meet customer demands even under uncertain circumstances.

Safety stock levels are determined based on factors such as demand variability, supply
chain reliability, and desired service levels. Businesses need to strike a balance
between carrying excessive safety stock, which incurs holding costs, and having
inadequate safety stock, which may result in stockouts and customer dissatisfaction.
Effective safety stock management involves analysing historical demand patterns,
understanding lead time variability, and establishing appropriate safety stock levels
for different products or product categories.

7. Anticipation Inventory:
Anticipation inventory, also known as seasonal inventory, is held in anticipation of
anticipated future demand fluctuations. It is used to address seasonal demand peaks,
promotional activities, or planned events that are expected to generate increased sales.

For example, retailers may build anticipation inventory in preparation for holiday
seasons, festivals, or special sales events. By stocking up in advance, businesses can
ensure that they have sufficient inventory to meet the temporary surge in demand,
reduce stockouts, and take advantage of sales opportunities.

Managing anticipation inventory involves accurately forecasting demand patterns,

coordinating with suppliers to ensure timely delivery, and adjusting inventory levels
to align with anticipated sales peaks. Careful planning and collaboration with
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marketing and sales teams are essential to optimize anticipation inventory levels and
minimize holding costs.

8. Dead Stock and Obsolete Inventory:

Dead stock or obsolete inventory refers to items that are no longer in demand or have
become outdated or obsolete. It may include expired products, discontinued items, or
products that have become technologically or functionally obsolete due to changes in
market preferences or technological advancements.

Managing dead stock is crucial to minimize holding costs and recover value from
unsellable inventory. Companies employ various strategies to handle dead stock, such
as liquidation sales, promotions, donation, or disposal. Accurate demand forecasting,
monitoring market trends, and closely managing product life cycles can help
minimize the risk of dead stock and reduce financial losses associated with obsolete
inventory.
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NEED OF STUDY

 Order Fulfilment Methods: A Comprehensive Explanation

Introduction

Order fulfilment is a critical process in business operations, encompassing all the

activities involved in processing and delivering customer orders. To ensure efficient
and timely order fulfilment, businesses employ various methods and strategies. In this
article, we will explore the different order fulfilment methods commonly utilized in
the industry, their benefits, and their suitability for different business types.

Section 1: Traditional Order Fulfilment Methods

1.1 Warehouse Fulfilment:

Warehouse fulfilment is a commonly used method wherein a company maintains its
inventory in a central warehouse. When an order is received, the items are picked,
packed, and shipped directly from the warehouse. This method offers economies of
scale and enables bulk storage, making it suitable for businesses with large product
volumes.

1.2 Retail Store Fulfilment:

Retail store fulfilment involves fulfilling orders from brick-and-mortar stores. When
an order is received online, the items are picked from the store's shelves, packed, and
shipped to the customer. This method leverages existing retail infrastructure and can
provide faster delivery for customers located near the stores.

1.3 Drop shipping:

Drop shipping is a fulfilment method where the retailer doesn't hold inventory.
Instead, when a customer places an order, the retailer purchases the item from a
supplier who directly ships it to the customer. Drop shipping eliminates the need for
inventory management, making it an attractive option for small businesses or those
with limited capital.

Section 2: Advanced Order Fulfilment Methods

---------------------------------------------------------
2.1 Cross-Docking:
Cross-docking is an efficient order fulfilment method that involves transferring
incoming goods from a supplier directly to outgoing shipments without intermediate
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storage. This method minimizes handling, reduces inventory carrying costs, and
allows for faster order processing. Cross-docking is suitable for businesses with
perishable goods, time-sensitive products, or those aiming for just-in-time inventory
management.

2.2 Third-Party Logistics (3PL):

Third-party logistics refers to outsourcing order fulfilment to specialized companies.
These 3PL providers handle warehousing, inventory management, order processing,
and shipping on behalf of the retailer. This method allows businesses to focus on core
competencies while benefiting from the expertise and infrastructure of the logistics
provider.

2.3 Fulfilment by Amazon (FBA):

Fulfilment by Amazon is a popular method for e-commerce businesses. With FBA,
sellers store their products in Amazon's fulfilment centre’s. When an order is placed,
Amazon picks, packs, and ships the items. FBA also handles customer service and
returns. This method enables businesses to leverage Amazon's extensive logistics
network and gain access to Prime customers, providing fast and reliable shipping
options.

Section 3: Technological Advancements in Order Fulfilment

3.1 Warehouse Automation:

Advancements in technology, such as robotics and automation, have revolutionized
order fulfilment. Automated systems can handle tasks like inventory management,
order picking, and packing, leading to increased speed and accuracy. Warehouse
automation reduces labour costs, improves efficiency, and enables scalability for
businesses experiencing high order volumes.

3.2 Order Management Systems (OMS):

Order management systems are software platforms that centralize and streamline
order processing activities. OMS provides real-time inventory visibility, automates
order routing, and integrates with various sales channels, warehouses, and shipping
carriers. By optimizing order flow and reducing manual errors, OMS enhances order
fulfilment efficiency and customer satisfaction.

3.3 Delivery Tracking and Visibility:

Real-time tracking and visibility solutions allow customers to monitor the status of
their orders from placement to delivery. Advanced tracking technologies, such as GPS
and RFID, enable businesses and customers to track shipments accurately, provide
delivery updates, and manage exceptions effectively. This enhances transparency,
reduces customer inquiries, and improves overall satisfaction.
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Section 4: Factors Influencing Order Fulfilment Method Selection

4.1 Product Characteristics:

The nature of the products being sold influences the choice of order fulfilment
method. Perishable or fragile items may require faster shipping methods or
specialized handling, making cross-docking or 3PL services more suitable. On the
other hand, small, lightweight, and non-perishable items may be efficiently fulfilled
through drop shipping or FBA.

4.2 Business Size and Growth:

The size and growth trajectory of a business play a vital role in determining the order
fulfilment method. Small businesses or startups with limited capital may prefer drop
shipping to minimize upfront costs. As businesses expand, they may transition to
warehouse fulfilment or consider outsourcing to 3PL providers for scalability.

4.3 Geographic Reach:

The geographical spread of a business and its target market impact the choice of order
fulfilment method. Retail store fulfilment works well for businesses with a local or
regional presence, offering faster delivery to nearby customers. On the other hand,
businesses with a national or global reach may benefit from centralized warehousing,
cross-docking, or leveraging 3PL networks.

Studying inventory management is essential for businesses and professionals in

the field for several reasons:

1. Knowledge and Expertise: Studying inventory management provides individuals

with a deep understanding of the concepts, principles, and best practices in effectively
managing inventory. It equips them with the knowledge and expertise to make
informed decisions, implement efficient processes, and optimize inventory control
strategies.

2. Operational Efficiency: Inventory management studies help businesses improve

their operational efficiency by implementing proven inventory management
techniques and strategies. By understanding inventory replenishment methods,
demand forecasting, and inventory optimization models, businesses can streamline
their operations, reduce costs, and improve productivity.

3. Cost Optimization: Effective inventory management helps minimize costs

associated with holding inventory, such as storage, obsolescence, and carrying costs.
By studying inventory management, businesses can learn techniques to optimize stock
levels, implement just-in-time (JIT) practices, and reduce excess inventory, leading to
cost savings and improved profitability.
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4. Customer Satisfaction: Studying inventory management enables businesses to meet

customer demands promptly, leading to higher customer satisfaction. By
understanding customer demand patterns, implementing efficient order fulfillment
processes, and maintaining optimal stock levels, businesses can ensure that customers
receive their orders on time, minimizing stockouts and enhancing customer loyalty.

5. Supply Chain Integration: Inventory management studies facilitate a better

understanding of supply chain dynamics and integration. By studying inventory
management in the context of supply chain management, businesses can develop
effective strategies for coordinating with suppliers, improving communication, and
optimizing inventory levels across the entire supply chain.

6. Risk Mitigation: Effective inventory management studies emphasize the

importance of risk mitigation in inventory control. Businesses can learn about risk
management techniques such as safety stock management, demand variability
analysis, and supply chain resilience. This knowledge helps businesses prepare for
unexpected disruptions, minimize the impact of supply chain risks, and maintain
continuity of operations.

7. Decision-Making: Inventory management studies provide individuals and

businesses with the tools and frameworks to make informed decisions related to
inventory control. By understanding inventory analysis methods, demand forecasting
models, and performance metrics, businesses can make data-driven decisions that
optimize inventory levels, improve operational efficiency, and align with
organizational goals.

8. Continuous Improvement: The field of inventory management is constantly

evolving with advancements in technology, supply chain practices, and market
dynamics. Studying inventory management allows individuals and businesses to stay
updated with the latest trends, emerging technologies, and industry best practices.
This knowledge helps in continuously improving inventory management processes
and adapting to changing market conditions.

9. Competitive Advantage: Effective inventory management can provide a

competitive advantage in the marketplace. By studying inventory management and
implementing efficient inventory control strategies, businesses can differentiate
themselves from competitors by offering better customer service, faster order
fulfillment, and improved operational efficiency.
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 Objective Study
Inventory management is a critical component of business operations, as it directly impacts a
company's profitability, customer satisfaction, and overall efficiency. It involves overseeing
and controlling the flow of goods, raw materials, and finished products within an
organization. Effective inventory management ensures that the right products are available in
the right quantities, at the right locations, and at the right time. This article explores the
importance of inventory management, its key objectives, and the various methods and
techniques employed by businesses to maintain optimal inventory levels and maximize
operational performance.

 Importance of Inventory Management :

Inventory management plays a vital role in meeting customer demands while minimizing
costs and maximizing revenue. It helps businesses strike a balance between excess inventory
and stockouts, ensuring that they have sufficient stock to fulfill orders without tying up
unnecessary capital or warehouse space. Proper inventory management enables businesses to:

1. Meet Customer Demand: By having the right products readily available, businesses can
fulfill customer orders promptly, leading to improved customer satisfaction and loyalty.

2. Minimize Costs: Efficient inventory management helps avoid unnecessary costs associated
with overstocking, such as storage expenses, depreciation, obsolescence, and the risk of
products becoming outdated or damaged.

3. Optimize Cash Flow: Keeping inventory levels in check prevents excessive investment in
stock, allowing businesses to allocate their financial resources effectively and improve cash
flow.

4. Streamline Operations: By accurately tracking inventory levels, businesses can identify

patterns, forecast demand, and optimize their supply chain, reducing lead times and
improving overall operational efficiency.
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Objectives of Inventory Management

The primary objectives of inventory management are to strike a balance between supply and
demand, minimize costs, and ensure customer satisfaction. The key objectives include:
1. Maintaining Adequate Stock Levels: Inventory management aims to have the right quantity
of products available to fulfill customer orders promptly, avoiding stockouts that can lead to
lost sales or dissatisfied customers.
2. Minimizing Holding Costs: By efficiently managing inventory, businesses can reduce costs
associated with holding inventory, such as warehousing, insurance, and obsolescence
expenses.
3. Optimizing Order Fulfilment: Effective inventory management helps streamline order
processing, picking, packing, and shipping operations, leading to faster and more accurate
order fulfilment.
4. Forecasting and Planning: Inventory management involves analysing historical data,
market trends, and customer demand patterns to forecast future inventory requirements
accurately. This enables businesses to plan their procurement, production, and distribution
activities efficiently.

Methods and Techniques in Inventory Management :

Various methods and techniques are employed in inventory management to achieve optimal
inventory control. Some commonly used approaches include:

1. Economic Order Quantity (EOQ):

EOQ is a formula-based approach that calculates the optimal order quantity by considering
factors such as carrying costs, ordering costs, and demand variability. It helps determine the
most cost-effective quantity to order, minimizing holding and ordering costs.
For any business that buys and holds inventory, it's essential to place orders in the amounts
that best fit your needs. That's where economic order quantity (EOQ) comes in.
21

If your orders are too large, you could have too much money tied up in inventory and storage
expenses. If you order too little, you won’t be able to meet your customers’ needs. Economic
order quantity helps you find the sweet spot where your business makes the ideal order size
and maximizes profitability.

 What Is Economic Order Quantity (EOQ)?

Economic order quantity (EOQ) is a calculation companies perform that represents their ideal
order size, allowing them to meet demand without overspending. Inventory managers
calculate EOQ to minimize holding costs and excess inventory.
It doesn’t matter if your business sells jelly beans, appliances, furniture or airplanes. Finding
the economic order quantity for every product you purchase is almost certain to impact the
bottom line. Every business that manages inventory can benefit from measuring and
following the EOQ.
Economic order quantity is a useful metric for businesses that buy and hold inventory for
manufacturing, resale, internal use or any other purpose. Businesses that follow EOQ look at
all costs related to purchasing and delivery while also factoring in demand for the product,
purchase discounts and holding costs.
Experienced business owners and managers understand that purchasing and finding the ideal
inventory levels can be complex. When your vendors offer volume discounts and other
incentives to purchase more, EOQ can help you decide on the right place to draw the line.
EOQ relies on the economic order quantity formula (found below). That gives you a data-
driven result to help optimize business profitability.
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 Benefits of Economic Order Quantity (EOQ)

The main benefit of using EOQ is improved profitability. Here’s a list of benefits that all add
up to savings and improvements for your business:
Improved Order Fulfillment: When you need a certain item or something for a customer
order, optimal EOQ ensures the product is on hand, allowing you to get the order out on time
and keep the customer happy. This should improve the customer experience and may lead to
increased sales.
Less Overordering: An accurate forecast of what you need and when will help you avoid
overordering and tying up too much cash in inventory.
Less Waste: More optimized order schedules should cut down on obsolete inventory,
particularly for businesses that hold perishable inventories that can result in dead stock.
Lower Storage Costs: When your ordering matches your demand, you should have less
products to store. This can lower real estate, utility, security, insurance and other related costs.
Quantity Discounts: Planning and timing your orders well allows you to take advantage of the
best bulk order or quantity discounts offered by your vendors.

2. Just-in-Time (JIT):
JIT is a lean inventory management approach that aims to reduce or eliminate excess
inventory by synchronizing production with customer demand. It involves ordering and
producing goods only when they are needed, minimizing carrying costs and improving cash
flow.
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Inventory is a valuable asset in many industries. If your business depends on inventory to

build your brand and generate revenue, just-in-time (JIT) inventory should be on your radar.
It’s a buzzword in the supply chain world as well as a tried-and-true technique that can help
you improve efficiency and increase your bottom line. Here’s how the JIT inventory
management method works.
What Does Just-in-Time Mean?
JIT is an inventory management method that focuses on keeping as little inventory on hand as
possible. Instead of stockpiling products and raw materials, you order small shipments to
replace inventory as you forecast and fulfill orders. JIT is designed to reduce costs from the
production process while ensuring the highest quality products.
With JIT, you don’t have to worry about unwanted inventory in the event an order gets
canceled or is not fulfilled for any other reason. Grocery stores are a good example of
businesses that implement JIT. When an item runs low, these stores order more. This allows
them to keep optimal levels of stock and eliminate excess inventory that would lead to waste.

 How JIT Inventory Management Works

JIT ensures that inventory arrives as it’s needed to meet consumer demand. Since it revolves
around delivering quality at the best possible prices, it relies on establishing long-term
contracts with reputable suppliers. While the JIT process can vary a bit by business, it usually
involves these steps:
 A customer places an order
 The business receives the order and orders the product from the supplier
24

 Once the supplier receives the order, they deliver it to the business
 The business fulfills the order and the customer receives the product

While other inventory management systems are “push” systems, JIT is a “pull” system. Push
inventory systems create inventory in advance so that it’s all set to meet customer demand. A
pull system, such as JIT does the opposite as inventory is ordered to meet actual demand.
 Benefits of JIT
Reduce waste. With JIT inventory, you can eliminate excess inventory and overstocking,
which can be expensive and take up a lot of space. You’ll also be able to reduce the losses
that come from defective products by identifying and resolving them easily as a result of low
production volumes.
Increase productivity. The JIT inventory technique reduces the time and resources needed for
manufacturing, thereby boosting productivity. The more productive your business is, the
more products you’ll be able to sell and the more profitable you’ll become.
Improve quality. JIT inventory management means you have fewer items in stock. This will
make it easier for you to sell the highest quality products that are free of defects and meet (or
even exceed) customer expectations.
Create flexibility. Ordering fewer products more frequently will allow you to be more flexible
with your inventory. You’ll be able to address customer behavior and shopping trends, putting
yourself ahead of your competition.

Drawbacks of JIT :
Higher inventory costs. It’s more expensive to make smaller, more frequent orders than bulk
orders every so often. Therefore, JIT inventory can reduce your profit from each sale.
Supply chain disruption. If a product goes on back order or a natural disaster strikes, you may
experience disruptions in your supply chain. These disruptions can hinder your operations
and cost you money.
Risk of running out of inventory. To succeed with JIT, you must accurately track sales and
predict customer demand. Failure to do so can cause you to sell products faster than you can
replenish them.
Staffing issues. Since JIT is a fairly new concept and your employees might not be used to it,
it may hinder their productivity. This can prevent your business from reaching its full
potential.
JIT Inventory Management Software
If you’re interested in using JIT to improve the way you operate, JIT inventory management
software is worth considering. It can automate your processes and make it easier to take
advantage of this strategy. While there are many JIT software options on the market, some of
the best include Netsuite ERP, ShipBob, Zoho Inventory and Sortly.
25

Bottom Line
JIT inventory can be a great way to save money and improve efficiency, especially if you
implement it correctly. You’ll have fewer products on hand and reduce the risk of purchasing
products you can’t sell. Make sure it makes sense for your unique business model.

3. ABC Analysis:
ABC analysis categorizes inventory items based on their value and importance. "A" items are
high-value items that contribute significantly to revenue, "B" items are medium-value items,
and "C" items are low-value items. This classification helps prioritize inventory management
efforts and allocate resources accordingly.

 ABC Method of Inventory Control

It has become an indispensable part of a business and the ABC analysis is widely used for
unfinished good, manufactured products, spare parts, components, finished items and
assembly items. Under this method, the management divides the items into three categories
A, B and C; where A is the most important item and C the least valuable.

ABC inventory analysis is based on the Pareto Principle. The Pareto Principle states that 80%
of the sales volume are generated from the top 20% of the items. It means that the top 20% of
the items will generate 80% of the revenue for the business. It is also known as the 80/20
rule.
This method is significant to identify the top category of inventory items that generate a high
percentage of yearly consumption. It helps the managers to optimize the inventory levels and
achieve efficient use of stock management resources.
26

 Policies Governing the ABC Method of Inventory Management

The idea behind using the ABC analysis is to leverage the imbalances of sales. This means
that each item must be given the appropriate amount of weight depending on their class:
Item A:
a) These are subjected to strict inventory control and are given highly secured areas in terms
of storage
b) These goods have a better forecast for sales
c) These are also the items that require frequent reorders on a daily or a weekly basis
d) They are kept as a priority item and efforts are made to avoid unavailability or stock-out of
these items
Item B:
a) These items are not as important as items under section A or as trivial as items categorized
under C
b) The important thing to note is that since these items lie in between A and C, they are
monitored for potential inclusion towards category A or in a contrary situation towards
category C
Item C:
a) These items are manufactured less often and follow the policy of having only one of its
item on hand or in some cases they are reordered when a purchase is actually made
b) Since these are low demand goods with a comparatively higher risk of cost in terms of
excessive inventory, it is an ideal situation for these items to stock-out after each purchase
c) The questions managers find themselves dealing with when it comes to items in category C
is not how many units to keep in stock but rather whether it is even needed to have to these
items in store at all.

 Uses of ABC Analysis

The ABC analysis is widely used in supply chain management and stock checking and
inventory system and is implemented as a cycle counting system. It is most important for
companies that seek to bring down their working capital and carrying costs. This done by
analysing the inventory that is in excess stock and those that are obsolete by making way for
items that are readily sold. This helps avoid keeping the working capital available for use
rather than keeping it tied up in unhealthy inventory.
When a company is better able to check its stock and maintain control over the high-value
goods it helps them to keep track of the value of the assets that are being held at a time. It
also brings order to the reordering process and ensures that those items are in stock to meet
the demands.
27

The items that fall under the C category are those that slow-moving and need not be re-
ordered with the same frequency as item A or item B. When you put the goods into these
three categories, it is helpful for both the wholesalers and the distributors to identify the items
that need to be stocked and those that can be replaced.
For Example- ‘H&M’ manufactures 80% of its retail inventory in advance and introduces the
remaining 20% based on the most current market trends.
Similarly, ‘Amazon’ does not keep stock of every single item offered on its website. The
stocks of only the popular items that are frequently purchased are maintained. If there is an
order for an unpopular item, then Amazon would request it from its distributor, who would
then ships it to the company.

 Advantages of Implementing the ABC Method of Inventory Control

This method helps businesses to maintain control over the costly items which have large
amounts of capital invested in them.
It provides a method to the madness of keeping track of all the inventory. Not only does it
reduce unnecessary staff expenses but more importantly it ensures optimum levels of stock is
maintained at all times.
The ABC method makes sure that the stock turnover ratio is maintained at a comparatively
higher level through a systematic control of inventories.
The storage expenses are cut down considerably with this tool.
There is provision to have enough C category stocks to be maintained without compromising
on the more important items.

 Disadvantages of using the ABC Analysis

For this method to work and render successful results, there must be proper standardization in
place for materials in the store.
It requires a good system of coding of materials already in operation for this analysis to work.
Since this analysis takes into consideration the monetary value of the items, it ignores other
factors that may be more important for your business. Hence, this distinction is vital.
The ABC model works in a manner as to get prime attention to the important items or the
critical few and not have unnecessary attention be spent on the not so important items or the
trivial many. Each category has a differing management control in place. This prioritization
of attention and focus is vital to keep the costs in check and under control in the supply chain
system. To get the best results it is important that items that involve a lot of costs are given
the due management attention.
4. Safety Stock Management: Safety stock is a buffer inventory held to mitigate
uncertainties, such as demand fluctuations or supplier delays. Effective safety stock
management ensures that businesses have enough inventory to handle unforeseen situations
without experiencing stockouts.
28

5. Inventory Performance Metrics:

- Stock Turnover: It measures how quickly inventory is sold and replenished. It is
calculated as the ratio of cost of goods sold (COGS) to average inventory value.
- Carrying Cost: It represents the expenses incurred to store and maintain inventory,
including warehousing, insurance, taxes, and obsolescence costs.
- Fill Rate: It measures the percentage of customer orders that can be immediately fulfilled
from available stock.
- Lead Time: It is the time interval between placing an order and receiving it. Managing
lead times effectively helps prevent stockouts and plan inventory replenishment.

6. Technology and Software:

- Inventory Management Systems (IMS): These software applications streamline and
automate inventory-related tasks, including tracking, reordering, and reporting. They
provide real-time visibility into inventory levels and can integrate with other business
systems like sales and purchasing.
- Barcoding and RFID: Barcodes and RFID tags enable accurate and efficient inventory
tracking. They allow quick identification and recording of items during receiving, picking,
and stocktaking processes.
- Demand Planning and Forecasting Tools: These tools use historical data, statistical
models, and algorithms to predict customer demand accurately. They help in optimizing
inventory levels and reducing stockouts.

7. Challenges in Inventory Management:

- Stockouts and Overstocking: Striking the right balance is crucial to avoid customer
dissatisfaction due to stockouts or excessive capital tied up in overstocking.
- Demand Variability: Fluctuating customer demands can lead to inaccurate forecasting
and inventory imbalances.
- Supply Chain Disruptions: Unforeseen events like natural disasters, transportation issues,
or supplier problems can disrupt the supply chain and impact inventory availability.
29

- Seasonal Demand: Businesses experiencing seasonal fluctuations need to manage

inventory levels accordingly to meet peak demands without excess stock during slower
periods.

Effective inventory management requires a combination of accurate forecasting, efficient

processes, data-driven analysis, and the use of appropriate technologies. It helps businesses
optimize their resources, reduce costs, and maintain a competitive edge in the market.

8. Safety Stock:
Safety stock is a buffer quantity of inventory kept to protect against unexpected increases in
demand, supply chain disruptions, or lead time variations. It acts as an insurance policy to
ensure that there is sufficient inventory to meet customer demands even under uncertain
circumstances.

9. Order Fulfillment Methods:

- First-In-First-Out (FIFO): This method assumes that the oldest inventory is sold or used
first. It is commonly used for perishable or time-sensitive goods to prevent spoilage or
obsolescence.
- Last-In-First-Out (LIFO): LIFO assumes that the most recently acquired inventory is sold
or used first. It can be beneficial for businesses during inflationary periods as it reduces the
impact of rising costs.

10. Vendor-Managed Inventory (VMI):

In VMI, the supplier or manufacturer is responsible for monitoring and replenishing
inventory levels at the customer's location. This arrangement helps streamline the supply
chain, improve inventory accuracy, and reduce stockouts.

11. Cycle Counting:

It is a method of regularly auditing inventory by counting a subset of items on a rotational
basis. Instead of conducting a full physical inventory count, cycle counting ensures ongoing
accuracy and minimizes disruptions to daily operations.
30
31

COMPANY PROFILE

The Passion for being Stellar

Changing the logistics landscape of India needs humongous capital, planning down to the last
detail, execution capabilities which can merge futuristic with current effectively, and the will
to bring it all together.

With the passion fed from over 25 years of hard-core experience through multiple companies
in multiple stages of evolution battling different and similar challenges, Anshuman Singh
started Stellar Value Chain in 2016. His passion is to see India in the top 5 of Global
Logistics Performance Index.

Anshuman has driven supply chain transformation by setting-up modern Distribution Centres
conforming to global best practices, brought in large-scale technology and automation, and
was instrumental in creating some of the most modern DCs at par with best in the world. The
many firsts-in-India under his belt include setting up of Built-to-Suit buildings, use of global
best-in-class WMS, implementing high-end automation such as Put-to-Light technology,
integrating an end-to-end supply chain.

The Vision for a stellar India

With the Vision to catapult India to the top 5 in the World Bank’s Logistics Performance
Index, Anshuman realized that he had to bring about disruptive changes much faster and with
greater impact. Armed with an investment backing of USD 125mn from Warburg Pincus, a
leading global private equity player, he founded Stellar Value Chain Solution Ltd.

Stellar aims to bring disruptive changes in the Indian supply chain landscape through ‘Value
Chain Transformation’, thus unlocking value in the Indian economy.

Stellar wants to bring in a fundamental cultural change in the way business is done in India.
Mediocrity and inefficiency are the two key reasons why Indian businesses are far from
global benchmarks. Stellar believes that mediocrity is an enemy that should be defeated and
only then will India rise up in the world economy.

On the path of Success

Stellar has now become one of the leading Consumer logistics companies in India covering
over 10 million sq. ft. of logistics space. With the acquisitions of Innovative Logistics, Kelvin
Cold Chain and Patel Roadways, the company also runs a fleet of over 2,000 trucks in
Express, Less-than truck load and temperature-controlled transportation.

The story has just begun. Stellar aims to be the catalyst of change across the logistics eco-
system. The pages ahead will unfold the rest of the story.
32

Stellar Value Chain is one of the largest Consumer supply chain company in India. It is
currently operating more than 10 million sq. ft. of state-of-the-art grade A Distribution
Centres, Fulfillment Centres and Transportation facilities. The combined Express and Less-
than-Truckload (LTL) services have more than 2000 trucks running across the country,
servicing 15000 pin codes.
33

Stellar’s fast organic growth is being supplemented with multiple acquisitions in the related
space. With the acquisitions of Innovative Logistics, Kelvin Cold Chain and Patel Roadways,
Stellar is a truly integrated supply chain company with services ranging from Contract
Logistics, Express transportation, LTL transportation and Cold Chain operations.

To be the disruptor and market leader, Stellar plans to have 50 Mn sq. ft. of modern
warehousing operations spread across over 40 logistics parks and 21 cities and running a
cross-country fleet of 50,000 vehicles in all major formats of Express, LTL, Distribution and
Temperature- controlled transportation.

With a solutions design led approach coupled with Grade A infrastructure, operational
excellence and knowledge capital, Stellar brings speed, transparency and seamlessness to
your supply chain operations.
34

REVIEW OF LITERATURE
INTRODUCTION
The present paper focuses on the review of existing literature in the field of Inventory
Management which helps in capturing both conceptual and research based studies. A Number
of studies have been conducted to find the determinants of investment in inventories and the
process is still going on. The present study is the summary of critical points of a particular
topic consisting of essential findings as well as theoretical and methodological contributions.
My paper shall discuss conceptual studies of both Indian and other nationals.

Dave Piasecki (2001)

He focused on inventory model for calculating the optimal order quantity that used the
Economic Order Quantity method. He points out that many companies are not using EOQ
model because of poor results resulted from inaccurate data input. He says that EOQ is an
accounting formula that determines the point at which the combination of order costs and
inventory costs are the least. He highlights that EOQ method would not conflict with the JIT
approach. He further elaborates the EOQ formula that includes the parameters such as annual
usage in unit, order cost and carrying cost. Finally, he proposes several steps to follow in
implementing the EOQ model. The limitation of this literature is that it does not elaborate
further relationship between EOQ and JIT. It does not associate the inventory turns with the
EOQ formula and fails to mention the profit gain with the quantity is calculated.

Eneje et al (2012)
Investigated the effects of raw materials inventory management on the profitability of
brewery firms in Nigeria using a cross sectional data from 1989 to 2008 which was gathered
for the analysis from the annual reports of the sampled brewery firms. Measures of
profitability were examined and related to proxies for raw materials inventory management
by brewers. The Ordinary Least Squares (OLS) stated in the form of a multiple regression
model was applied in the analysis. The study revealed that the local variable raw materials
inventory management designed to capture the effect of efficient management of raw material
inventory by a company on its profitability is significantly strong and positive and influences
the profitability of the brewery firms in Nigeria. They concluded that efficient management
of raw material inventory is a major factor to be contained with by Nigerian brewers in
enhancing or boosting their profitability.

Madishetti and Kibona (2013)

Found that a well designed and executed inventory management contributes positively to a
small or medium-sized enterprises (SMEs) profitability. They studied the association between
inventory conversion period and profitability and the impact of inventory management on
35

SMEs profitability. They took a sample of 26 Tanzanian SMEs, and used the data from
financial statements for the period 2006–2011. Regression analysis was adopted to determine
the impact of inventory conversion period over gross operating profit. The results cleared out
that significant negative linear relationship occurred between inventory conversion period
and profitability

Pradeep singh (2008)

In his study made an attempt to examine the inventory and working capital management of
Indian Farmers Fertilizer Cooperative Limited (IFFCO) and National Fertilizer Limited
(NFL). He concluded that the overall position of the working capital of IFFCO and NFL is
satisfactory. But there is a need for improvement in inventory in case of IFFCO. However
inventory was not properly utilized and maintained bay IFFCO during study period. The
management of NFL must try to properly utilize the inventory and try to maintain the
inventory as per the requirements. So that liquidity will not interrupt

Gaur and Bhattacharya (2011)

Attempted to study the linkage between the performance of the components of inventory such
as raw material, work in progress and finished goods and financial performance of Indian
manufacturing firms. The study revealed that finished goods inventory as inversely associated
with business performance while raw material inventory and work in progress did not have
much effect on same. They emphasised that instead of focusing on total inventory, an attempt
should be made to concentrate on individual components of inventory so as to adequately
manage the same. They concluded that managers not paying heed to inventory performance
may become weak in combating competitors.

Soni (2012)
Made an in depth study of practices followed in regard to inventory management in the
engineering goods industry in Punjab. The analysis used a sample of 11 companies for a
period five years, that is, 2004–2009 and was done using panel data set. The adequate and
timely flow of inventory determines the success of an industry. She concluded that size of
inventory enhanced marginally over the period as compared to a hike in current assets and net
working capital. Inventories constituted half of the working capital which was due to
overstocking of inventory as a result of low inventory turnover especially for finished goods
and raw materials. Rise in sales and favourable market conditions lead to a rise in inventory
levels. It was also inferred that sales increased more as compared to inventory.

Srinivas Rao Kasisomayajula(2014)

36

An analytical study was conducted on” Inventory Management in Commercial Vehicle

Industry In India”. A sample of five companies’ was selected for study. The study concluded
that all the units in the commercial vehicle industry have significant relationship between
Inventory and Sales. Proper management of inventory is important to maintain and improve
the health of an organization. Efficient management of inventories will improve the
profitability of the organization.
Krishnamurty and Sastry (1970)
It is the most comprehensive study on manufacturers’ inventories. They used the CMI data
and the consolidated balance sheet data of public limited companies published by the RBI, in
order to analyse each of the major components, like the raw materials, goods-in-process and
finished goods, for 21 industries over the period ranging from 1946-62. The study was a time
series one although there were some inter-industry cross-section analyses that were carried
out in the analysis. The Accelerator represented by change in sales, bank finance and short-
term interest rate was found to be an important determinant. The utilisation of productive
capacity and price anticipations was also found to be relevant in the study
Capkun, Hameri and Weiss (2009)
Statistically analysed the relationship between inventory performance and financial
performance in manufacturing companies using the financial information of a large sample of
US-based manufacturing firms over a 26-year period, that is, 1980 to 2005. They inferred that
a significant relationship existed between inventory performance along with the performance
of its components and profitability. Raw material inventory performance was highly
correlated to gross profit and operating profit. Work in progress inventory was highly
correlated to gross profit measures while finished goods inventory performance was more
correlated with operating profit measures.
Wolf Bagby, Managing inventory
In this study Mr. [Link] explains that by managing the inventory it becomes easier for the
organization to meet the profit goals, shorter the cash cycle, avoid inventory shortage, avoid
excessive carrying costs for unused inventory, and improve profitability by decreasing cash
conversion and adopt JIT system. According to this study companies need to get smart about
inventory. Boosting financial performance is another benefit that comes from better inventory
management. Infect large number of manufacturers enjoy savings and better performance by
choosing the approach of inventory reduction. For this company needs to maximize the cash
flow and profitability and this includes keeping a watchful discerning eye on charge in supply
and demand?4. Asfaque Ahmed October 12, 2004 (Article from master requirement planning
and master production scheduling) He said that most of the manufacturing company vendors
have planning and scheduling product which assume either infinite production capacity for
calculating quantities of row material and work in progress (WIP) requirements or infinite
quantities of raw material and WIP materials for calculating production capacity. There are
many problems with this approach and how to avoid these by making sure that the product
you are buying indeed takes into account finite quantities of required materials as well as
finite capacities of work centers in your manufacturing facilities.
37

RESEARCH METHODOLOGY
 METHODOLOGY OF THE STUDY
Research is an organized, systematic, data based, critical, objective scientific inquiry into a
specific problem, undertaken with the purpose of finding solutions to it. The research
provides the needed information that guides managers to make informed decisions to
successfully deal with the problem. Here I am adapting different kinds of methods depending
on the natures of the study and information they require.
 OBJECTIVES OF THE RESEARCH
 To analyze the inventory management of this company.
 To analyze the entire activities of purchase and stores department.
 To suggest the suitable technique to the company to have improved control over the
inventory
 TYPE OF DATA
 Primary data- The primary data is collected by personal interviews with officials.
 Secondary data- Articles, annual reports, PDF. Which have already been passed through the
analyzing process are the secondary data used.
 Field work- This was under taken individually to collect information regarding the study by
visiting following sections.

 RESEARCH VARIABLES
 To find out the cost involved in the entire inventory management process.
 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.
 LIMITATIONS OF THE RESEARCH
 Time restriction was only 2 months for research in the company.
 The finding and suggestion cannot be generalized.
 The study covered a wide concept hence wide collection and coverage of information was
not easily possible.
38

DATA ANALYSIS & INTERPRETATION

ECONOMIC ORDER QUANTITY (EOQ)
 Meaning
Economic Order Quantity is the Inventory management technique for determining optimum
order quantity which is the one that minimises the total of its order and carrying costs.

Table 1.1ECONOMIC ORDER QUANTITY

Sr. Component Deman Re order Carrying EOQ No. of No.

No d per cost/order cost units of
year /units ordered order
year per
year
1 Bearing -Ball
Sealed -6006 360000 12200 2 66272.17 30000 5.43

2 Bearing -Ball 48000 6200 2 17251.09 4000 2.78

sealed -6205-
Swift
3 Drive Assly –
NBO-Chaina 144000 1700 36 3687.62 12000 39.05

4 Drive assly -
ECO Dlx -NBO 96000 1700 36 3011.09 8000 31.88
- China
(Impeller)
5 Driven Pulley -
NBO -China 240000 1700 36 4760.95 20000 50.41
(Same pulley)
6 Wash timer -
Eco 30000 1700 2 7141.43 2500 4.20
Dlx(Ningbo) -
With buzzer
39

(S60)
7 Wash timer -
Eco 42000 1700 2 8449.85 3500 4.97
Dlx(Ningbo) -
Without buzzer
(SI 60

ANALYSIS & INTERPRETATION :

In the above table the EOQ & the no. of orders purchased per year for various components
are calculated. The calculated EOQ is compared with the no. of units of each component
purchased in the organization. It is found that, there is a variation in the EOQ & no. of unit
purchased. It is understood that the company is not following EOQ for purchasing the
materials .
40

ABC ANALYSIS
 MEANING

The ABC system is a widely used classification technique to identify various items of
inventory for purposes of inventory control. On the basis of unit cost involved, the various
items are classified into 3 categories:
(1)A, consisting of items with the large investment,
(2)C, with relatively small investments but fairly large number of items and
(3)B, which stands mid-way between category A & C. Category A needs the most rigorous
control, C requires minimum attention and B deserves less attention than A but more than C.

ABC ANALYSIS

Categories Total No. Items In class Percentage

A 18 45

B 14 35

C 08 20

Total 40 100

ANALYSIS& INTERPRETATION :
The above table shows the classification of various components as A, B & C classes using
ABC analysis techniques based on unit value. From the classification A classes are those
whose unit value is more than Rs.100 and constitutes 45% of total components. B classes are
those whose unit value is between Rs.25-100 constitutes 35% of total components and C
classes are those whose unit value is less than Rs.25 constitutes 30% of total components. It
is good that the company maintains its inventories based on its value using controlling
techniques.
41

ABC Analysis
50
45
40
35
30
25
20
15
10
5
0
A B C

Series 1

INVENTORIES TURNOVER RATIOMEANING

This ratio is calculated to consider the adequacy of the quantum of capital and its justification
for investing in inventory. A firm must have reasonable stock in comparison to sales. It is the
ratio of net sales and the average inventory. This ratio helps the financial manager to evaluate
inventory policy. This ratio reveals the number of times finished stock is turned over during a
given a accounting period.
The formula for the ratio is Net sales.
Avg. Inventory
Inventories Turnover Ratio & Velocity
Year Net Sale Avg. Inventory Ratio Velocity
(Rs) (Rs) ( In Day)
2018 12,30,05,134 8,42,09,371 1.46:1 250
2019 16,06,43,669 8,92,28,407 1.80:1 203
2020 11,73,30,581 14,52,26,952 0.80:1 456
2021 55,53,74,471 18,98,23,381 2.92:1 125
2022 79,11,78,220 17,40.71,613 4.5:1 81
42

ANALYSIS & INTERPRETATION :

In the above table shows inventory turnover ratio for the past years. The ratio is showing
increasing trend from1.46 to 4.5 in the year 2018 to 2022, except in the year 2020 which
shows only 0.80 times. Whereas in the velocity of inventories shows less in 2022 as
compared to 2018 which is81 days in 2022 and 250 days in 2018 except in the year 2005
which is 456 days. This shows that the inventories are easily converted into sales within the
shortest period i.e. the company was able to sell Rs. 4.5 by investing rupee one in the stock in
2022.
43

FINDINGS OF THE STUDY

 It is found that, there is a variation in the EOQ & no. of unit purchased. It is
understood that the company is not following EOQ for purchasing the materials. So,
the inventory management is not satisfactory.
 From calculation of safety stock, we can able to determine how much the company
can hold the inventory in reserve stock per annum.
 From the classification A classes are those whose unit value is more than Rs.100 and
constitutes 45% of total components. B classes are those whose unit value is
betweenRs.25-100 constitutes 35% of total components and C classes are those whose
unit value is less than Rs.25 constitutes 30% of total components. It is good that the
company maintains its inventories based on its value using controlling techniques.
 The ratio is showing increasing trend from1.46 to 4.5 in the year 2018 to 2022, except
in the year 2020 which shows only 0.80 times. Whereas in the velocity of inventories
shows less in 2022 as compared to 2018 which is 81 days in 2022 and 250 days in
2018 except in the year 2020 which is 456 days. This shows that the inventories are
easily converted into sales within the shortest period i.e. the company was able to sell
Rs. 4.5 by investing rupee one in the stock in 2022.
44

SUGGESTIONS
 According to EOQ, as the company does not follow EOQ for its purchasing, the
company can be adjusted to order materials. This will reduce the cost & help to
enhance the profit of the company.

 The company is required to maintain safety stock for its components in order to avoid
stock-out conditions & help in continuous production flow.

 Under ABC analysis, the management must have more control on A than B&C,
because A class constitutes more(45%) of higher values. There should be tight control
exercised on stock levels, to avoid deterioration. This is done through maintaining low
safety stock, continuous check on schedules & ordered frequently in inventories, in
order to avoid over investment of working capital.

 The company must not go to the Non-moving items as far as possible, because there
will be unnecessary blocking of working capital. This would hinder the other
activities of the organization.

 The past data shows increase in inventory the company is also expecting more
inventories for future period i.e. 2023. The management is required to maintain the
same inventory trend in the forth coming year also.

 The inventory turnover ratio indicates whether investment in inventory is within

proper limit or not. It also measures how quickly inventory is sold. It requires to
maintain a high turnover ratio than lower ratio. A high ratio implies that good
inventory management and it also reflects efficient business activities.
45

CONCLUSION

A better inventory management will surely be helpful in solving the problems the
company is facing with respect to inventory and will pave way for reducing the huge
investment or blocking of money in inventory. From the analysis we can conclude
that the Company can follow the Economic Order Quantity (EOQ) for optimum
purchase and it can maintain safety stock for its components in order to avoid stock-
out conditions & help in continuous production flow. This would reduce the cost and
enhance the profit. Also there should be tight control exercised on stock levels based
on ABC analysis & maintain high percentage in fast moving items in inventories as
per on FSN analysis for efficient running of the inventory. Since the inventory
Turnover ratio shows the increasing trend, there will be more demand for the products
in the future periods. If they could properly implement and follow the norms and
techniques of inventory management, they can enhance the profit with minimum cost.
46

LIMITATIONS OF THE STUDY

•The entire analysis applies only to Whirlpool India Ltd, Puducherry.

•The study takes into account only the quantitative data and the qualitative aspects
were not taken into account.

•The assumption made in the EOQ and Safety stock formulas restrict the use of the
formula. In practice, unit cost, lead time, requirements of inventory items are not
accurately predictable. Rate of consumption varies in many cases. As such application
of the formula often becomes a difficult and complicated matter.
47

REFERENCE

 WEB SITES
 [Link] value [Link]
 [Link]/2005/06/safety_stock
 [Link]/inventory_basics/index
 [Link]/justintime/index
 [Link]/inventory_control/index