1

CHAPTER-1

INTRODUCTION

Supply chain management addresses the management of materials and information

across the entire chain from suppliers to producers, distributors, retailers, and
customer. In the past few decades, scholars gave ample attention about the impact
of inventory on Supply Chain Management (SCM).Traditionally; each company
performs purchasing, production and marketing activities independently, so that it
is difficult to make an optimal plan for the whole chain.

Roughly speaking, research on supply chain management has been mainly focused
on three major issues. One is the behavior of information flow; the second issue
deals with inventory management; the third issue is orientated to planning and
operations management. In this paper the second issue, namely inventory
management will be discussed. The author will follow the phases of classifying
inventory; Identify cost factors; Assess cost components; Calculate EOQ; Giving
suggestion and effect of inventory on supply chain will be discussed. The
conclusion is when optimizing the inventory management, both up stream and
downstream activities will run effectively.

2
There is a Chinese proverb saying, “if you want to defeat an army, frustrate the
chief first.” It is also suitable for business fight. As a recently research shown,
inventory cost account for 30% of the total capital cost. As matter of fact,
successful inventory management is often the momentous symbol of competition
victory and a well run organization.

Inventory can range from raw materials, cash, finished goods, etc. Effective
inventory management will optimize the supply chain, eliminate cash flow and
reduce the possibility of occurrence on inventory shortage caused by variable
orders. Consequently, it is of utmost importance to optimize inventory
management to satisfy the company’s strategy goal.

3
4
 CHAPTER- 2

HISTORY

BACKGROUND

Supply chain management addresses the management of materials and information

across the entire chain from suppliers to producers, distributors, retailers, and
customers. Traditionally, each company performs purchasing, production and
marketing activities independently, so that it is difficult to make an optimal plan
for the whole chain. In recent years, it has been realized that actions taken by one
member of the chain can influence all others in the chain (see, for example,
T.J.Peters 1982; Riddalls 2002). More and more companies have gradually
recognized that each of them serves as part of a supply chain against other supply
chains in terms of competition, rather than as a single firm against other individual
firms. Since 1990,as the information technology has continuously developed, it is
possible to coordinate all organizations and all functions involved in the whole
chain. Consequently, supply chain management has been increasingly receiving
attention from both academic researchers and practitioners. Roughly speaking,
research on supply chain management has been mainly focused on three major
issues. One is the behavior of information flow through a supply chain(see, for
example, Lee et al., 1997). The second issue deals with inventory management,
which regards a supply chain as a multiechelon inventory system (see, for

5
example, Axsater, 2000a; Zipkin, 2000, and the cited references in them). The
third issue is orientated to planning and operations management of a supply chain
based on queuing systems. (See the most related works, for example, Raghavan
and Viswanadham, 2001; Song and Yao, 2002).In this paper the second issue,
namely inventory management will be discussed.
There is a Chinese proverb saying, “if you want to defeat an army, frustrate the
chieffirst.” It is also suitable for business fight. In the past few decades, scholars
gave ample attention about the impact of inventory on Supply Chain Management
(SCM).As a recently research shown, inventory cost account for 30% of the total
capital cost. As matter of fact, successful inventory management is often the
momentous symbol of competition victory and a well run organization.

Problem discussion
Inventory can range from raw materials, cash, finished goods, etc. Effective
inventory management will optimize the supply chain, eliminate cash flow and
reduce the possibility of occurrence on inventory shortage caused by variable
orders. Consequently, it is of utmost importance to optimize inventory
management to satisfy the company’s strategy goal. Lee et al. (1997) describe a
problem frequently encountered in supply chains, called the bullwhip effect:
demand variability increases as one move up the supply chain.

Problem presentation
A company may save logistics costs and simultaneously improve service levels by
redesigning its supply chain network. Unfortunately, because of the many complex
logistical issues involved, it is generally difficult to analyze large systems in their
entirety. Considering the uncertainty of lead time and demand, firms in practice
have to encounter decision making challenges to minimize the effect caused by
uncertainty in the most cost saving way. In manufacturing and planning safety
stocks and safety lead time is included in the systems. Safety stock is a buffer of

6
stock above and beyond that needed to satisfy production and gross requirements.
Safety lead time is a procedure whereby purchase orders are released and
scheduled to be delivered one or more periods before necessary to satisfy
production or customer demand (Vollmann, Berry, Whybark, 1997).If uncertainty
of demand and lead time cannot be evaporating, can it be minimized? Reducing
lead time will eliminate uncertainty factor as well as more accurate demand
forecasting.

Problem formulation
When the firms improve their inventory management, what is the reaction of other
factors on supply chain? How to improve the inventory from cost effective
perspective?

Purpose
 To understand the impact of inventory on supply chain.
 To get the knowledge about how manufacturing firms deal with the inventory
from cost effective view.
 In a broader point of view, it is a cost reduction procedure that can have an
impact on the economies of the company directly and on other department sin
directly.

Relevance
The relevance of this research is shown together with a motivation of why it is
important to do research within the area of inventory management. This study is
both theoretically and practically relevant because it involves a working procedure
of how to be more cost effective within inventory management. According to the
optimization of inventory management, production manager can easily coordinate
other department so as to improve supply chain to enhance the competition of the
firms.

7
When it comes to dealing with inventory in your supply chain there is more to it
than just straight inventory management and replenishment. To reach the highest
service levels with the minimum amounts of inventory requires the use of an
advanced technique known as inventory optimization.

What is Inventory Optimization?

Starting a number of years ago, this term has begun to emerge in the realm of
Supply Chain Management (SCM): So what exactly is Inventory Optimization?.
One of the first and simplest definitions of Inventory Optimization is the
following:
Inventory optimization is an emerging practical approach to balancing investment
and service-level goals over a very large assortment of stock-keeping units (SKUs)
… In contrast to traditional marginal stock level setting, inventory optimization
simultaneously determines all SKU stock levels to fulfill total service and
investment constraints or objectives.

Delimitations and limitations

The study will be carried from the supply chain perspective; However the study
area will be limited to the upstream of supply chain. The case company has no
concrete method to calculate the inventory before. That means lack of information
gathering.

8
9
 CHAPTER-3

COMPANY PROFILE

HISTORY

10
MISSION STATEMENT:

“Endeavour to be the best and most efficient state

of the art generating utility in the country producing reliable
and adequate power at competitive and affordable rates”

 Koradi Thermal Power Station (KTPS) is located at Koradi near Nagpur,

Maharashtra. The power plant is one of the four major power plants in
Vidarbha – a power surplus region of India. The power station began
operations in 1974 and is one of the nine active power stations operated by
Maharashtra State Power Generation Company Limited (MahaGenco), a
subsidiary of Government of Maharashtra owned Maharashtra State Electricity
Board (MSEB). The plant operates 7 units. 4 x 105 MW, 1 x 200 MW & 2 x
210 MW respectively and has a total power generation capacity of 1080 MW.
First Unit commissioned on 03-06-1974 and Unit No.7 on 13-01-1983. The
station was commissioned in early 70’s under the National Policy of Govt. of

11
 India and has been functioning since then under various statutory obligations
and guidelines of MoP, MoI, MoEF, CEA, and MERC.
A proposed 440 kilovolt high power transmission line from Koradi to Bhusawal
would join Nagpur with Mumbai. KTPS campus also contains training institute of
MahaGenco for middle and senior level engineers, technicians and other staff.

KTPS is located on the northern side of Nagpur and is spread across an area of
30,337 km2. Koradi Thermal Power Station engaged in the business of generation
of electricity through coal based thermal process, is situated at about 11 Km North
of Nagpur on the N.H. No. 69. Coal for KTPS comes from various nearby
collieries of Western Coal Fields, Nagpur (WCL) located at Silewara, Pipla,
Patansaongi, Kamptee, Inder, Walni, Gondegaon and Saoner. These are at an
average distance of 10 kilometers (6 mi) away. The plant approximately requires
16,000 to 17,000 tonnes of coal per day.

The station is well equipped with modern days high end machinery, high
precision equipments for monitoring and measurements, auxiliaries, well equipped
software and hardware enabled services, digital control systems, fire fighting
systems, sophisticated pollution control systems, safety gadgets, fire monitoring &
prevention system, security services. The station also renders services for its
employees in way of residential premises, drinking water facilities, educational
facilities, library, recreational facilities and medical services at large. Also
facilities of canteen, guest house, and transport services are extended to the
visitors. Other curricular activities like drama competitions, sports activities,
external trainings, Environment day, Safety Day are carried out enthusiastically
and to enhance motivation among the employees.
The power generated by the station is transmitted over 400 KV & 220 KV
transmission lines to meet the power demand of the Parent State and neighboring
States.

12
 Based on its overall performance, the station has bagged the
meritorious National Awards viz. “Improvement in Generation of the Station” for
the years 1989, 1990, 1991 & 1995-96, “Reduction in furnace oil consumption”
for the Years 1993, 1994, 1995, 1996, 1997, 1998, 1999 & 2000. The station has to
its credit “Environmental Excellence Award” for the consecutive 4 years since
2004. The station has participated in various states/National level seminars of
Quality Forum of India, Hyderabad and bagged National recognition as well as
International recognition at Singapore in ITEX.

Formation of company

Maharashtra State Power Generation Co Ltd. (hereinafter referred to as “The

Company”) has been incorporated under Indian Companies Act 1956 pursuant to
decision of Govt. of Maharashtra to reorganize Erstwhile Maharashtra State
Electricity Board (herein after referred to as “MSEB”). The said reorganization of
the MSEB has been done by Govt. of Maharashtra pursuant to Part XIII read with
section 131 of The Electricity Act 2003. MahaGenco has been incorporated on
31.5.2005 with The Registrar of Companies, Maharashtra, and Mumbai and has
obtained Certificate of Commencement of Business on 15.09.2005. Mahagenco is
engaged in the business of generation and supply of Electricity and has been
vested with generation assets, interest in property, rights and liabilities of MSEB
as per Gazette Notification dated 4th June 2005 issued by Industry, Energy and
Labour Dept of Govt. of Maharashtra pursuant to section 131 of Electricity Act
2003.

VISION

13
GENERATING FOR GENERATIONS

* Endeavour to fully meet the future energy needs of the State and also create
sufficient spinning reserves through Organic Value enhancing growth initiatives;

* Diversify the energy portfolio to include solar, wind, gas, hydroelectric and
responsible fossil generation directed towards shrinking our carbon footprints;

* Commit to affordable energy rates through cost minimization and consistent

Operational excellence and energy efficiency;

* Value enhancement to the stakeholders by being nimble and resourceful in the

economic environment, increase our business scope and scale to succeed
throughout the economic cycles and adapting our business and portfolio to the
dynamic energy market place;

* Strive to improve the quality of life for the people who live and work in our
operational territory and power plants vicinity.

TOTAL GENERATING CAPACITY OF MAHAGENCO

Sr. Power Station Units & MW Total MW
No.
Thermal Power Stations
1 Koradi TPS 4 * 105 1040
1 * 200
2 * 210
2 Nashik TPS 2 * 125 880
3 * 210
3 Bhusawal TPS 1 * 55 475
2 * 210

14
 4 Paras TPS 1 * 55 305
1 * 250
5 Parli TPS 2 * 20 920
3 * 210
1 * 250
6 Khaparkheda TPS 4 * 210 840
7 Chandrapur TPS 4 * 210 2340
3 * 500
Hydro power StationS
8 Koyna Hydro Power Station 4 * 70 1920
8 * 80
4 * 250
Small Hydro Power Stations 424
Gas Based power Station
9 Uran G. T. 3 * 60 612
4 * 108
Waste Heat Recovery (WHR) 2 * 120 240
Total Installed Capacity of MSPGCL 9996

HIGHLIGHTS AND STRENGTHS

• Large number of trained manpower.

• over an area of 1265 hectares
• Other supporting QA equipments.
• Efficient power backup for non stop working.
• Infrastructure ready for expansion.
• A good set up for all kind of tool room machines for in house
development of jigs and fixtures.
• An IMS certified company.

15
PLANT IN OPERATING CONDITION

A proposed 440 kilovolt high power transmission line from Koradi to Bhusawal
would join Nagpur with Mumbai.

16
17
CHAPTER-4

18
 RESEARCH METHODOLOGY

It is the systematic and objective analysis and recording of controlled observation

that may lead to the development of generalizations, principle or theories resulting
in prediction and possibly ultimate control of events.

In a layman’s term, research is an endeavor to find solutions / answers to

problems intellectual and practical, through the use of scientific methods.

DATA COLLECTION
In any report data is very important since it provides the information needed for
analysis and interpretation. For this report two kinds of data are being used. They
are:

Primary data:
• Primary data are original data which are collected for first time for a
specific purpose.
• Primary data were collected from the most prominent category of
participants related to commodity market.
• Personal interview and telephonic interview were also taken. To maintain
the consistency they were asked similar set of questions and responses have
been collected.
Secondary Data:
The methodology used in this project is detailed analysis of published financials
by the company that is the Annual Report of the company. All the published data
has used to extract the effect of inventory level on the profitability of the company,
the source of data used in this study is secondary data.
• Books and Journals

19
 • Industry Reports
• Internet

METHOD APPROACHES

Method can be approached in the following ways :

ABC ANALYSIS

The ABC analysis follows the general principle of pareto analysis (Wilfredo Italy,
1896) which states that “ if any series of elements to be controlled, then a small
portion of that series in terms of numbers will result in large portion in terms of
effect”.

The main idea behind the pareto analysis is that by doing 20% of work we can
generate 80% of the advantage of the entire job. Or in terms of quality
improvement, a large majority of problems (80%) are produced by a few key
causes (20%). This technique helps the individual to identify the top 20% of
causes that needs to be addressed to resolve the 80% of the problems. The
application of the Pareto analysis in risk management allows management to focus
on the 20% of the risks that have the most impact on the project.(source :
http://en.wikipedia.org/wiki/Pareto_analysis, 28 / 05 / 10)

ABC analysis can be defined as the analysis through which the materials can be
classified as per the annual usage value of the material under group A, B and C.
The group A consists of a very small portion of total number of items where as it
consists of a large value of the total stock. The group B consists of a very large
portion of total number of items and it consists of a very small value of the stock.
The group B items lies between group A items and group B items. The A group

20
items needs careful attention by the material managerial while the C group items
require less attention by the material manager and the B group items lies under A
group items and B group items.

Advantages of ABC analysis : This analysis helps or guides the material

manager or the concerned person for the selective control due to which he / she
can concentrate on the few items instead of being concentrating on lakhs of
material. By concentrating on A class items only the material manager is able to
show excellent results in a very short span of time. By controlling the A group
items only and by doing proper inventory analysis, obsolete and surplus stocks are
pinpointed. Many managers and officers from various organizations had claimed
that ABC analysis not only helped in reducing the clerical work but also resulted
in better planning and improved inventory turnover.

Limitations of ABC analysis : For the full and complete effect of ABC analysis
it should be carried out with standardization ad codification which is based on the
grading the items according to the importance of the performance of the item, that
is by VED (vital, essential and desirable) analysis.

21
ECONOMIC ORDER QUANTITY (EOQ)

Economic Order Quantity is the calculating method used to determine the best
level of inventory for production while being the most cost effective for holding
and ordering. EOQ, as it is referred to, has been around since the rise of modern
manufacturing processes back in the early 20th century. The first model for
calculating EOQ was designed in 1913 by F.W. Harris.

What EOQ basically does is determine the best point where the costs for inventory
holding and ordering are at the lowest. This helps to determine the number of units
of stock to order to re-supply inventory without spending too much money on
overstock.

How Does EOQ Works?

EOQ is not used in every type of business and industry. Most companies that deal
with large volumes of stock use a form of EOQ. It is common in manufacturing
where the ordering of stock is constant and repetitive. EOQ is primarily used for
purchase-to-stock distributors and make-to-stock manufacturers.

These are businesses that have multiple orders, release dates for their products,
and have to plan for their components.

Another type of business that uses EOQ are those that have maintenance, repair,
and operating inventory (or MRO). Businesses that have a steady demand for
stock are the most suitable for EOQ applications but some seasonal items can
benefit from the method, too.

22
How to Calculate EOQ?

Economic Order Quantity must be calculated using a mathematical equation. By

using a set of numbers for production, demand, and a few other variables, a
company’s inventory costs can be minimizes. Here is the equation for EOQ:

EOQ = 2DCo/Cc

Total cost = Unit cost of product* D + Co (D / EOQ) + Cc (EOQ / 2)

The sub-components that make up the equation are as follows:

Annual Usage – This part is pretty self-explanatory. Based on units, a company

simply enters the predicted annual usage amount.

Order Cost –This component is the sum of the fixed costs that occur every time an
item is ordered. They are not associated with the quantity ordered, only with the
actual physical act required to process the order. Also known as purchase cost or
set up cost.

Carrying Cost – This part is the financial costs of carrying and storing inventory at
or near the business. The amount is mostly made up of the costs associated with
physically storing the inventory and the financial investment for the inventory. It is
also referred to as holding cost.

CAUSE AND EFFECT DIAGRAM

The cause & effect diagram is the brainchild of Kaoru Ishikawa, who pioneered
quality management processes in the Kawasaki shipyards, and in the process
became one of the founding fathers of modern management. The cause and effect
diagram is used to explore all the potential or real causes (or inputs) that result in a

23
single effect (or output). Causes are arranged according to their level of
importance or detail, resulting in a depiction of relationships and hierarchy of
events. This can help you search for root causes, identify areas where there may be
problems, and compare the relative importance of different causes.

Causes in a cause & effect diagram are frequently arranged into four major
categories. While these categories can be anything, you will often see:

• manpower, methods, materials, and machinery (recommended for

manufacturing)
• equipment, policies, procedures, and people (recommended for
administration and service).

These guidelines can be helpful but should not be used if they limit the diagram or
are inappropriate. The categories you use should suit your needs. At SkyMark, we
often create the branches of the cause and effect tree from the titles of the affinity
sets in a preceding affinity diagram.

The C&E diagram is also known as the fishbone diagram because it was drawn to
resemble the skeleton of a fish, with the main causal categories drawn as "bones"
attached to the spine of the fish, as shown below.

Cause & effect diagrams can also be drawn as tree diagrams, resembling a tree
turned on its side. From a single outcome or trunk, branches extend that represent
major categories of inputs or causes that create that single outcome. These large

24
branches then lead to smaller and smaller branches of causes all the way down to
twigs at the ends. The tree structure has an advantage over the fishbone-style
diagram. As a fishbone diagram becomes more and more complex, it becomes
difficult to find and compare items that are the same distance from the effect
because they are dispersed over the diagram. With the tree structure, all items on
the same causal level are aligned vertically.

o To successfully build a cause and effect diagram:

1. Be sure everyone agrees on the effect or problem statement before

beginning.
2. Be succinct.
3. For each node, think what could be its causes. Add them to the tree.
4. Pursue each line of causality back to its root cause.
5. Consider grafting relatively empty branches onto others.
6. Consider splitting up overcrowded branches.
7. Consider which root causes are most likely to merit further investigation.

25
MRP (MATERIAL REQUIREMENT PLANNING)

Material requirements planning (MRP) is the process of managing the

manufacturing process by properly planning the production and controlling the
inventory including sales forecast, sales of order and bills of material. Most of the
MRP systems are software based while MRP can be conducted by hand also. It is a
material planning methodology developed in the 1970's by making use of
computer technology. This MRP is now evolved to ERP(Enterprise Resource
Planning)

An MRP system is intended to simultaneously meet three objectives:

• Ensure materials and products are available for production and delivery to
customers.
• Maintain the lowest possible level of inventory.
• Plan manufacturing activities, delivery schedules and purchasing activities.

MRP uses the following elements to plan optimal inventory levels, purchases,
production schedules and more:

a) Master Production schedule (MPS) :

26
b) Bill of Materials (BOM)
c) Quantity on Hand (QOH)
d) Part lead Times
e) Sales order Quantities / due dates
f) Purchase Order Quantities / Due dates
g) Scrap rates

Benefits : By implementing the MRP can provide the following benefits.

 Better competitive position
 Reduced overtime
 Reduction in excess inventory
 Reduced freight cost
 Improved plant efficiency
 High production quality
 Reduced lead time
 Reduced manufacturing cost
 Reduced purchasing cost
 Less scrap and rework

Scope of MRP in Manufacturing :

Many of the manufacturing organizations facing the same problem day to day that
the customer requires the product in a shorter period than the period actually takes
to manufacture it which means that some sort of a good planning is required.
Companies need to control the types and quantities of materials they purchase,
plan which products are to be produced and in what quantities and ensure that they
are able to meet current and future customer demand, all at the lowest possible
cost. Making a bad decision in any of these areas will make the company lose
money.

Problems with MRP system : One of the main problem in the MRP system is
the integrity of the data i.e the link between each data i.e if there is any error in
inventory then the bill of material(BOM) data, production schedule and outputted
data(GIGO : Garbage in garbage will also be incorrect.

27
Second problem is that the time taken by a company to manufacture the product as
per user specifies that the customer requires the product in a shorter period than
the period actually takes to manufacture it.

JUST IN TIME (JIT)

JIT is first developed and implemented by Japanese companies to produce a very
high quality in the minimum time possible. This is a very different manufacturing
philosophy than the traditional which the other countries generally used to follow.
The main purpose behind this process is that to eliminate the wastage not only the
conventional form of waste such as obsolete materials, surplus waste , rework and
equipment downtime but also the waste like excess lead time, over production and
improper utilization of space. The basic principle of this philosophy is to produce
the necessary products at the necessary time by using the necessary quantity and
necessary space at each manufacturing stage.

In warehousing JIT can be implemented because it is very easy to use. The items
can be split into two types :

 Those using JIT.

 Those controlled conventionally.

The major items will be controlled by JIT as we earlier discussed the A group
items under ABC classification with the high usage, more consistant demand
patterns and significant benefits from inventory reduction. The cost savings
produced by JIT are discussed below :

1. Smaller delivery quantity means small transport which costs considerably

less, since the operating costs are reduced.

2. Frequant fixed route deliveries due to which regular plannig and

management is not required.

28
 3. Discount on contracts can be very significant.

4. Careful planning so that delivery schedule is not altered in the last minute.

There are many problems that the majority of Indian industry are currently facing
and that problems to be tackled to implement JIT. Some of the problems are :
1. Reduction of set-up times.
2. Kanban System.
3. Delivery of exact quantity as per exact schedule.
4. Preventive maintenance.
5. Group technology.

29
BULLWHIP EFFECT

The supply chain is a complex group of companies that move goods from
raw materials suppliers to finished goods retailers. These companies work together
when meeting consumer demand for a product; supply chains allow companies to
focus on their specific processes to maintain maximum probability. Unfortunately,
supply chains may stumble when market conditions change and consumer demand
shifts.

Definition

The bullwhip effect on the supply chain occurs when changes in consumer
demand causes the companies in a supply chain to order more goods to meet the
new demand. The bullwhip effect usually flows up the supply chain, starting with
the retailer, wholesaler, distributor, manufacturer and then the raw materials
supplier. This effect can be observed through most supply chains across several
industries; it occurs because the demand for goods is based on demand forecasts
from companies, rather than actual consumer demand.

o Forecasting Errors

When companies enter new products into the marketplace, they estimate the
demand of the good based on current market conditions. Most companies in the
supply order more than they can sell, attempting to prevent shortages and lost sales
of goods. This "extra" inventory begins to increase or decrease during the normal
market fluctuations of supply and demand. When demand increases, the
companies closest to the consumer will increase inventory to meet the consumer
demand. When the demand falls, the front-end of the supply chain will decrease
inventory, amplifying the extra inventory on each company up the supply chain.

30
 o Behavioral Causes

One cause of the bullwhip effect is normally driven by management behavior at

the front-end companies of the supply chain. Retail management never wants to
have a stock-out on a popular good, leading to higher orders from the wholesalers.
This eventually squeezes each company in the supply chain and creates decreases
in inventory.

Another major behavioral effect is the ordering of too much inventory when
consumer demand has fallen for an item. Retailers may have raised their inventory
levels to avoid a stock-out but are now met with goods that cannot be sold quickly.
This creates overstock of inventory for each supply chain company.

o Operational Causes

The main operational cause of the bullwhip effect comes from individual demand
forecasts from each company in the supply chain. This causes an increase in
demand from companies in the supply chain, but not the actual consumers who
will purchase the goods. A lack of communication is also prevalent during
operational causes; companies may not supply information up the supply chain
regarding current market conditions, causing improper levels of inventory.

o Corrective Measures

To properly manage the fluctuations in consumer demand, implementing a point-

of sale (POS) system with a just-in-time (JIT) inventory system. This allows each
company in the supply chain to process information electronically regarding
individual goods. Understanding consumer demand can then be evaluated based
on the order information from the POS system and allow managers to order more
goods if needed.Other uses for the Cause and Effect tool include the organization
diagramming, parts hierarchies, project planning, tree diagrams, and the 5 Why's.

31
32
 CHAPTER-5

INVENTORY MANAGEMENT
DEFINATION AND PURPOSE OF INVENTORY
Inventory is the stock of any item or resource used in an organization. An
inventory system is the set of policies and controls that monitor levels of inventory
and determine what levels should be maintained, when stock should be
replenished, and how large orders should be.
All firms (including JIT operations) keep a supply of inventory for the following
reasons:
To maintain independence of operations: A supply of materials at a work center
allows that center flexibility in operation. For example, because there are costs for
making each new production setup, this inventory allows management to reduce
the number of setups.
Independence of workstations is desirable on assembly lines as well. The time that
it takes to do identical operations will naturally vary from one unit to the next.
Therefore, it is desirable to have a cushion of several parts within the workstation
so that shorter performance times can compensate for longer performance times.
This way the average output can be fairly stable.
To meet variation in product demand: If the demand for the product is known
precisely, it may be possible to produce the product to exactly meet the demand.
Usually, however, demand is not completely known, and a safety or buffer stock
must be maintained to absorb variation.
To allow flexibility in production scheduling: A stock of inventory relieves the
pressure on the production system to get the goods out. This causes longer lead
times, which permit production planning for smoother flow and lower cost
operation through larger lot size production. High setup costs, for example, favor
producing a larger number of units once the setup has been made.

33
To provide a safeguard for variation in raw material delivery time: When
material in ordered from a vendor, delays can occur for a variety of reasons: a
normal variation in shipping time, a shortage of material at the vendor’s plant
causing backlogs, an unexpected strike at the vendor’s plant or at one of the
shipping companies, a lost order, or a shipment of incorrect or defective material.
To take advantage of economic purchase order size: There are costs to place an
order: labor, phone calls, typing, postage, and so on. Therefore, the larger each
order is, the fewer the orders that need be written. Also, shipping costs favor larger
orders –the larger the shipment, the lower the per unit cost.
For each of the preceding reasons (especially for items 3, 4, and 5), be aware that
inventory is costly and large amounts are generally undesirable. Long cycle times
are caused by large amounts of inventory and are undesirable as well.

INVENTORY COSTS
Inventory costs are important for three major reasons. First, inventory costs
represent a significant component of total logistics costs in many companies.
Second, the inventory levels that a firm maintains at points in its logistics system
will affect the level of service the firm can provide to its customers. Third, cost
tradeoff decisions in logistics frequently depend upon and ultimately affect
inventory carrying costs.

Inventory carrying cost

Four major components of inventory carrying cost: capital cost, storage space cost,
inventory service cost, and inventory risk cost.
Capital Cost. Sometimes called the interest or opportunity cost, this cost type
focuses upon what having capital tied up in inventory. The capital cost is
frequently the largest component of inventory carrying cost. A company usually
expresses it as a percentage of the value of the inventory the company holds.
Virtually all companies seek to reduce inventory because management recognizes

34
that holding excessive inventory provides no value added to the firm. The
company must consider what rate
of return it is sacrificing on the cash invested in inventory.
Storage Space Cost. This category includes handling costs associated with
moving products into and out of inventory, and storage costs such as rent, heating,
and lighting. Such costs may vary considerably from one circumstance to the next.
For example, firms can often unload raw materials directly from railcars and store
them outside, whereas finished goods typically require safer handling and more
sophisticated storage facilities.
Inventory Service Cost. Another component of inventory carrying cost includes
insurance and taxes. Depending upon the product value and type, the risk of loss
or damage may require high insurance premiums. In most cases, there will be few,
if any, significant changes from year to year in the tax and insurance components
of the inventory carrying cost.

Order/Setup Cost
A second cost affecting total inventory cost is ordering cost or setup cost. Ordering
cost refers to the expense of placing an order for additional inventory, and does not
include the cost or expense of the product itself. Setup cost refers more
specifically to the expense of changing or modifying a production or assembly
process to facilitate product line changeovers.
Order cost. The costs associated with ordering or acquiring inventory have both
fixed and variable components . The fixed element may refer to the cost of the
information system, facilities, and technology available to facilitate order
placement activities. This fixed remains constant in relation to the number of
orders placed. There are also a number of costs that vary in relation to the number
of orders that are placed for more inventories. Some of the types of activities that
may be responsible for these costs include (1) reviewing inventory stock levels;
(2) preparing and processing order requisitions or purchase orders; (3) preparing

35
and processing receiving reports; (4) checking and inspecting stock prior to
placement in inventory; (5) preparing and processing payment.

Setup Cost. Production setup costs may be more obvious than ordering or
acquisition costs. Setup costs are expenses incurred each time a firm modifies a
production line to produce a different item for inventory. The fixed portion of
setup cost might include use of the capital equipment needed to change over
production facilities, while the variable expense might include the personnel costs
incurred in the process of modifying or changing the production line.

DEMAND MANAGEMENT
Demand generates forecasts based on sales history, currently scheduled orders,
scheduled marketing activities and customer information (Veinott 1966). Ideally,
demand management works collaboratively and interactively both internally
across the firm’s functional components and externally with supply chain partners
to develop a common and consistent forecast for each item period, location and
item.
The forecast must also incorporate feedback from customers to integrate the
influence of combined demand generation activities such as advertising and
promotion. Practically, demand management and forecasting are closely related,
and forecasting is an extensive topic in itself (Bowersox at al., 2002).
Demand forecasting is a critical tool in the management toolbox. Because the
mostly widely cited reasons for forecasting include:
 Increase customer satisfaction
 Reduce stock out
 Scheduling production more efficiently
 Lowering safety stock requirements
 Reducing product obsolescence costs
 Managing shipping better

36
 Improving pricing and promotion management
 Making more informed pricing decisions
And above reasons are essential to management decision making.
The forecasting time frames are:
(1) long term forecasts, usually cover more than three years and are used for long
rang planning and strategic issues.
(2) Midrange forecasts usually range from one to three years and address
budgeting issues and sales plans.
(3) Short term forecasts are most important for the operational logistics planning
process. They
project demand into the next several months and, in some cases, more than a year
ahead (Chien 1989).

TRANSPORTATION
A major focus in logistics is upon the physical movement or flow of goods, or
upon the network that moves the product. The logistics manager is responsible for
selecting the mode or modes of transportation used in moving the raw materials or
for developing private transportation as an alternative. A direct relationship exists
between transportation and the level of inventory and number of warehouses
required (Aghezzaf 2001). For example, if firms use a relatively slow means of
transport, they usually have to keep higher inventory levels and usually have more
warehousing space for this inventory. They may examine the possibility of using
faster transport to eliminate some of theses warehouses and the inventory stored
therein. One reason companies may accumulate inventories of finished or semi-
finished product is similar to a reason for accumulating raw materials:
transportation
economies (Jaillet 1997). By shipping in carloads or truckload quantities rather
than less than carloads

37
or less than truckload quantities, a company may experience lower per unit
transportation rates. As long as the transportation cost savings exceed any
expenses associated with warehousing the additional volumes of product, it will be
advantageous to ship in the larger quantities. Also, shipments in large volumes
may experience better service, such as faster transit times and more reliable and
consistent service. These results will help to reduce other costs such as in transit
inventory carrying cost and potential costs of lost sales due to product
unavailability at point of sale or use.
WAREHOUSING AND STORAGE
Warehousing is an integral part of every logistics system. We can define
warehousing as that part of a firm’s logistics system that stores products (raw
materials, parts, goods in process, finished goods) at and between point of origin
and point of consumption of items being stored (Richard 1995). The term
distribution centre (DC) is sometimes used, but the terms are not identical.
Warehouse is the more generic term. With an increasing interest in improving
inventory turns and reducing time to market, the role of distribution increasingly
focuses on filling orders rapidly and efficiently.

38
39
 CHAPTER-6

FACTS AND FINDINGS

INVENTORY MANAGEMENT

Inventories are any resources which is having an economic value like the
inventory which consists of raw materials, work-in-progress, finished goods
consumables and stores. Thus, inventory management is all about the process of
planning , maintaining an controlling the available resources. The inventory
process is used in the various stages of the operation system of the organization.
Materials, manufacturing and marketing departments are the three operating
subsystems while Finance and Human Resource departments are the non -
operating subsystems. The material subsystem deals with the procurement of raw
materials, manufacturing subsystems converts the raw materials into final finished
product and finally the marketing subsystem sells the finished product and Finance
an Human Resource departments are the need of these three operating subsystems

40
For the good performance of business activities of any Organization, the capital
raised by the firm is invested in current assets as well as in fixed assets. The
portion of the Capital invested in current assets is known as Working Capital and a
large amount of this working capital is included by Inventories. The 80% of
working capital are the inventories are like raw materials, work-in-progress,
components, stores, spares etc. To maintain a good financial management in the
company it must have a very good inventory management. “when you need
money, look at your inventories before you look to your bankers". This can be
achieved with the given amount of capital either by maximizing the output or by
maximizing the margin of profit or by the combination of both. It is also difficult
to raise the profit margin to a very a high limit due to excessive competition. Thus
the overall capital and the productivity of capital does not match. Several special
and modern techniques are developed and used by the managers. Among these
methods the most unique and the best one is the inventory management.

One of the analytical aspects of the management is the concepts of the inventory
management. The inventory management involves optimization of available
resources along with the holding of stocks. Lack of inventory can lead to to
stoppage of the production process and excess of inventory can cause a very high
cost of production which is because of high inventory carrying cost. Thus,
optimization of inventory should ensure that the available stocks are neither too
high nor too low.

This project is aimed to show how good inventory control can be used in practice.
It will cover the working of the engine which means that how inventory control
techniques will work, how to use this inventory control techniques and how and
how to get the best out of the inventory control techniques vehicle i.e how to
optimize the available resources. This project may develop a solutions for
lowering the inventory overhead, nourishing the present customer relationship and

41
increasing the productivity and performance level of the company. These
techniques are under usage as per the requirement of stores operations of , which
can be applied to a number of situations, from manufacturing and distribution to
warehousing, consumable stores, and spares and service.

Continuing with this process of best practices of inventory management, includes

cutting-edge strategies, Pareto analysis, Just in Time (JIT), Total quality
management(TQM), Supply relationship management(SRM), Customer
relationship management(CRM), Material Requirements Planning (MRP).

DEMAND MANAGEMENT:

Demand generates forecasts based on sales history, currently scheduled orders,

scheduled marketing activities and customer information (Veinott 1966). Ideally,
demand management works collaboratively and interactively both internally
across the firm’s functional components and externally with supply chain partners
to develop a common and consistent forecast for each item period, location and
item.
The current purchasing policy that the Koradi Thermal Power Station (KTPS) is
following is that of forecasting policy. This forecasting policy is based on the past
and the previous records and history. Every year there is a annual meeting
between the management, production department, purchase department and sales
department for the production, where the plant people used to set a annual target of
electricity production. On the basis of this target the purchase department used to
plan the further activities for the procurement of raw materials.

The purchase people used to divide the annual target into 4 small targets of 3
months each i.e into quarters and then they procure the material according to the
requirement in the quarter.

42
LOGISTICS SYSTEM:

KTPS does not have any critical margins because if the company went out of stock
would the production not going on. When there is time for budget proposition, the
company looks if the stock of raw material is enough for the planned activity. If
the stock is not enough then they have to order the raw materials which time of
delivery is very long and for the raw material which requires less time will be
ordered according to the need. The time that the finished product or the double
rolling bale press takes for it to reach the company it is depending on the which
transportation mode is being used. KTPS uses the different modes of
transportation according to the destination of the delivery of the finished product.

Logistics Model:

Inbound Outbound
Logistics Logistics
Suppliers Company Customer

Reverse Logistics

43
PROCUREMENT:

Rates Comparison for Purchasing :

The way of purchasing a particular material can be improved by comparing the

rate of this material of one company with the rate of the same material with other
company i.e the company will get to know the complete and precise information
of the material through which better decisions for purchasing the material can be
established which results an effective management of the raw materials.

Rate comparison of single product:

SR.NO. PARTICULARS MAHARASHTRA BERING NEWAGE BERING

1 ITEM NUMBER BEARING 51240 BEARING 51240

2 SAP CODE 40001206 40001206
3 MAKE ZKL ZKL
4 BASIC RATE (Rs.) 11000 12500
5 DISCOUNT (%) -- 5.0 %
6 P & F (%) 0 0
7 EXCISE DUTY 0 0
8 VAT/CST 440 499.8
9 FREIGHT 0 0.25
10 OTHER CHARGES 0 0
11 TOTAL COST 11440 12500.25

The above table shows the comparison of a single product of “BEARING 51240”
of two companies Maharashtra bearing and Newage bearing. This comparison
gives the detailed information to the purchase department that what sort of
decisions they have to take and in which company's material they have to invest
the money.

As it is shown in the above table, first it is compared with its basic rates i.e the rate
which is fixed by the company to sell. The basic rate of Bearing 51240 of

44
Maharashtra Bearing Company is Rs 11,000 where as the basic rates of Bearing
51240 of Newage Bearing is Rs 12,500. so in the first step itself the company gets
to know that the Bearing 51240 manufactured by Newage Bearing Company is
much expensive than the Bearing manufactured by Maharashtra Bearing company.

Now secondly it is observed that whether the company is providing any discount
or not and if the company is providing any discount then the discounted value is
formed from the basic rate, for example : the Maharashtra Bearing is not providing
any discount while the Newage company is providing 5% discount.

Finally the companies are compared with the other parameters like Packaging and
Forwarding(P&F)(%), Excise duty, VAT/CAST, Freight charges and Other
Charges.

Bajaj steel ind. ltd. uses no. of suppliers when it comes to raw material deliveries,
and the most important selection criteria they use are the cheapest suppliers gets
the delivery and BSIL have an independent controller to check every delivery that
arrives to the company. BSIL has some quality requirements.
To secure the delivery to BSIL they use suppliers from the local market or from
the outside state and sometimes import the raw material. They also have a system
where the spread the contract period for all the suppliers so the don’t need to
negotiate with all the suppliers at the same time. With this system the always have
contracted suppliers that are committed to deliver raw material.
The main role of Purchasing process is to make sure about the continuous supply
of raw materials such that there is no hurdle in the production process and the
procurement of raw materials at the lowest cost possible. A good purchasing
policy not only deals with the good procurement policy but it also ensures the cost
of finished goods i.e the cost of final products at the lowest cost possible. For
ensuring this policies it deals with a large number of parameters as : right price,
right quality, right time, right contracts, right source , right material , right place ,
right mode of transportation, right quantity and right attitude.

45
Good purchasing depends upon how better the inventory is controlled, a statement
of inventory control in the form of example is shown above . Here a group of
mechanical materials are mentioned in the statement with specifications along
with the sap codes, quantity as per requirement 15, 20, 10, 30 and planning as per
the different models of the machines as : 10BP, 15BP, 20BP 32BP, total
requirement of material, usage per month, usage per week, minimum inventory,
maximum inventory, lead time, category, stock, order quantity, intimation.

46
47
 CHAPTER-7

ANALYSIS & INTERPRETATION

In this project first we classify these raw materials by ABC analysis i.e assigning
the given materials into class A, class B and class C as per the priority of the
annual usage value of the material.

Example : The ABC analysis of miscellaneous items from the raw materials of
Electrical maintenance section of stage 1,koradi thermal power station .

Materials required for Turbo Generator site:

c
a
t
Sr. Item Code e
E-Tendering Item Code Item Description For PPMS / Local Code
No PPMS/Local g
o
r
y
17561204 C
1
0 40 WATT FLOURESCENT TUBE ,230V,50 HZ.
19021039 059-01-001-006- LIGHTING ARRESTORS RATING 198 KV, 10 A
2
0 0001 KA
81000302 A
3
6 ARM
81000302 A
4
7 ARM
86003991 B
5
5 COOLING FANS FOR L T MOTORS
120 MW GENERATER EXCITER CARBON A
6 61302832 022-05-001-001- BRUSH( LHS) SIZE 57 X 31.75 X 9.5
5 0001 mm.GRADE E-49(I).
120 MW GENERATOR EXCITER CARBON A
7 61302832 022-05-001-001- BRUSH( RHS) SIZE 57 X 31.75 X 9.5
6 0001 mm.GRADE E-49(I).
078-02-001-001- C
8
61501050 0010 Acetone AR grade in 500 ml
078-01-001-005- C
9
6211101 0014 Araldite 180 gms set
06150105 078-01-001-004- B
10
0 0010 Adhesive Dentrite in 500 ml Tin
06251140 078-01-001-002- B
11
1 0017 M seal 1 KG PACK

48
 06151205 078-02-020-001- C
12
0 0001 Liquid Soap in 500 ml pack
25253005 001-04-003-003- Emery Paper Cloth Roll (Fine) Size 50mm x C
13
0 0001 50 Mtrs
38500200 C
14
2 027-10-001-600-01 NEOPRENE RUBBER SHEET 2MM THICK
38500200 027-10-001-008- C
15
4 0001 NEOPRENE RUBBER SHEET 4 MM THICK..
16705302 027-08-001-005- B
16
0 0001 CORK SHEET SIZE : 900 x 600 x 2 mm
16705303 027-08-001-006- B
17
0 0001 CORK SHEET SIZE : 900 x 600 x 3 mm
29710420 114-19-006-001- A
18
8 0020 Washer (Thickness 1.5 to 2 mm,size 8 mm)
29710421 114-19-006-001- Washer (Thickness 1.5 to 2 mm,size 10 A
19
0 0001 mm)
86003902 C
20
7 D.C. SEAL OIL PUMP MOTOR ,5 KW
86003902 D.C. LUB.OIL PUMP MOTOR FOR U-1 & U-2, C
21
8 17 KW.

IDENTIFY COST FACTORS:

Inventory cost can be divided into carrying cost and order cost. In order to give a
holistic view of the factors and elements of carrying cost, a Cause-Effect diagram
is used as following:

Capital cost salary

cccost
equipment

storage
personnel power
Inventory
cost rent
Carrying
cost
increase
taxes
Inventory risk

insurance damage
spoilage

49
 security relocation obsolescence

Inventory
review

Figure: Cause-effect diagram of carrying cost factor

ASSESS COST COMPONENTS

For the identified cost elements, the next step involved calculation and assessment
of each item.

Ordering cost factor:

Transportation cost: Obviously, this factor refers to costs for external

transportation from supplier to BSIL’s plant. From the number of raw materials I
have chosen hydraulic. The firm has no special large truck for transport this kind
of material. It is therefore that all transportation for raw material is included in the
raw material price. No deliver terms are stated in the purchasing order. Thus, there
is no cost for transportation to consider.
Procurement: As mentioned in theory part, production should be ensured with
continuous material supply. The company uses 6-8 suppliers when it comes to
hydraulic deliveries; hence, the supplier resources never short. They sign contract
with supplier for a period of 1-3 years.

Material handing: Material handling of raw material from the loading truck to
the storage space required to keep the material at proper place at warehouse.

50
Carrying cost factor:

Capital cost: The company had a mean inventory value of 111417903.46 crore in
raw material.

Storage space cost: The cost of salary for the storage personnel is also included in
the carrying cost. Personnel costs for facility maintenance, inventory review, and
internal transportation are though already considered.

Inventory risk cost: First, there is no obsolescence concept for the BSIL. It is of
no necessary to consider about this part.

APPLICATION OF EOQ:

EOQ only applies where the demand for a product is constant over the year and
that each new order is delivered in full when the inventory reaches zero. There is a
fixed cost charged for each order placed, regardless of the number of units
ordered. There is also a holding or storage cost for each unit held in storage
(sometimes expressed as a percentage of the purchase cost of the item).

We want to determine the optimal number of units of the product to order so that
we minimize the total cost associated with the purchase, delivery and storage of
the product.

The required parameters to the solution are the total demand for the year, the
purchase cost for each item, the fixed cost to place the order and the storage cost
for each item per year. Note that the number of times an order is placed will also

51
affect the total cost, however, this number can be determined from the other
parameters.

Calculations:
1) Here we take the example of one of raw material i.e. Carbon brush
Annual demand, D = 4800 Units per year
Unit cost of product = Rs 400
Carrying cost, Cc = 20% of unit cost = Rs 80
Ordering cost, Co = Rs200
Now,
EOQ = √2DCo/Cc

EOQ = 155 (APPROX.)

2) Time between two consecutive orders
= EOQ/D
= 155/4800 years
= 155*12/4800 months
= 0.38 months
3) No of orders per year
= D/EOQ
= 4800/155
= 31 (approx.)
4) Total cost
= Unit cost of product* D + Co (D / EOQ) + Cc (EOQ / 2)
= 400*4800 + 200 (4800/155) + 80 (155/2)
= Rs 1932393 (approx.)

If we check the total cost for any order quantity other than 155(=EOQ), we will
see that the cost is higher. For instance, supposing 200 units per order, then
Total cost

52
 = 400*4800 + 200 (4800/200) + 80 (200/2)
= Rs 1932800 (approx.)
Similarly, if we choose 100 for the order quantity then
Total cost
= 400*4800 + 200 (4800/100) + 80 (100/2)
= Rs 1933600 (approx.)

This illustrates that the Economic Order Quantity is always in the best interests
of the entity.

53
CHAPTER-8

54
 RESULT

The current ordering time of carbon brush in Electrical maintenance of KTPS is

40-45 times according to the requirement from the production department.
Annual demand, D = 4800 Units per year
Then no of units ordered per time per year
= D/Ordering time
=4800/40
= 120 (approx.)
If we check the total cost for any order quantity other than 155(=EOQ), we will
see that the cost is higher. For instance, supposing 120 units per order, then
Total cost
= Unit cost of product* D + Co (D / EOQ) + Cc (EOQ / 2)
= 400*4800 + 200 (4800/120) + 80 (120/2)
= Rs 1932800 (approx.)
If we compare the total cost of current ordering units with total cost of EOQ, then
it is found that the total cost of current ordering units(Rs 1932800) is more than
the total cost of EOQ(Rs 1932393).

Here we decrease the ordering time by increasing the quantity of raw material by
calculating the economic order quantity with the optimal cost associated with it.
The optimization of inventory control drives the supply chain cost effectively.
According to raising the quantities of each ordering time, the company can hold
more inventories during a period of two reorder points. Now maybe someone is
doubtful of the problem of storage space. But the variability figure of inventory
after optimization just swing at a low level. The company is easily going to deal
with it.
By using the method of decreasing ordering times and rising quantities, the
company may optimize their whole supply chain. Firstly, cost of procurement and

55
inventory review go down. The situations of using safety stock correspondingly
eliminate. Then the production line can run smoothly. Also, by keeping some
excess inventory in field warehouse locations, companies can respond quickly to
meet unexpected demand.

DISCUSS THE EFFECT OF INVENTORY ON SUPPLY CHAIN

MANAGEMENT:
Quite a few factors in the supply chain, namely procurement, transportation,
warehousing and storage and customer service level will be identified under the
circumstance of inventory optimization.
Procurement
By optimizing inventory management, the following advantages of procurement
will achieve:
 Increase customer satisfaction
 Reduce stock out
 Scheduling production more efficiently
 Managing shipping better
 Improving pricing and promotion management
 Making more informed pricing decisions
Decreasing the ordering times and enhancing the quantities of each time will
dramatically reduce stock out. And it also can make scheduling production more
efficiently and accurately. Meanwhile, the company helps the suppliers decrease
the transportation cost. This will give the company more bargain
space.
Transportation
By shipping in carloads or truckload quantities rather than less than car loads or
less than truck load quantities, a company may experience lower per unit
transportation rates. As long as the transportation cost savings exceed any
expenses associated with warehousing the additional volumes of product, it will be

56
advantageous to ship in the larger quantities. Also, shipments in large volumes
may experience better service, such as faster transit times and more reliable and
consistent service. It is of a main element as to the company. These results will
help to reduce other costs such as intransit inventory carrying cost and potential
costs of lost sales due to product unavailability at point of sale or use.
Warehousing and storage
If the company uses the method of reducing the ordering times, it will affect the
warehousing and storage somewhat. But the trend of the number of customer sin
creases obviously. Customer service polices, such as a 24hourdelivery standard,
may require a number of field warehouses in order to minimize total costs while
achieving the standard. By keeping some excess inventory in field warehouse
locations, companies can respond quickly to meet unexpected demand. In
addition, excess inventory allows manufacturers to fill customer orders when
shipments to restock the field warehouses arrive late.

57
58
 CHAPTER-9

RECOMMENDATION
By and large, the company has a good leader of the inventory control. But it is
better to help other assistant involving this activity. Following tips may give
inspiration to the case company:

INVENTORY CONTROL:
The company can adjust the inventory level properly. When calculating the
cost, it is better to use unification units. For example, units of material handling
and payment cost calculation are trucks. And the unit of material demand is tons.
Sometimes it will cause inaccurate of the cost calculation.

ATTITUDE:
Maintaining inventory accuracy must be an integral part of the attitude of
the organization. Like quality, customer service, and plant safety, accuracy must be
promoted throughout the organization as everyone's responsibility. This attitude
must start at the top levels.

DEDICATE POSITIONS FOR MANAGING INVENTORY:

Make sure you have control of which employees are affecting your
inventory. This is especially true in manufacturing operations where the priorities
of machine operators and production supervisors are meeting the production
schedule, keeping the machines running, and ensuring the quality of the product
being produced. Inventory accuracy will never be a primary responsibility of these
types of positions. Once you come to this realization it is easy to see the benefits
of putting your inventory and material handling responsibilities in the hands of
people whose primary responsibility is inventory.

59
STORAGE AREAS:
How you store your product will also affect accuracy. Crowded
unorganized areas become "black holes" for missing product. Crowded areas also
cause increase damage to product that is often disposed of without inventory
corrections being made. High density storage makes it very difficult to accurately
count the product. Tidying up locations of materials are necessary.

KNOW YOUR INVENTORY SYSTEM:

The more you know about how your specific inventory system works, the
more successful you'll be in optimizing its features. Computer systems are
regularly blamed for things that are usually turn out to be human error, however,
occasionally your computer system can be the source of the problem. The only
way to determine the source and correct these problems is to have a thorough
understanding of how your system is set up and how the specific programs process
the information.

60
61
 CHAPTER-10

CONCLUSION

• The problem formulation for this study was:

When the firms improve their inventory management, what is the

reaction of
Other factors on supply chain?

• Due to the effective inventory management, procurement goal can be

achieve quickly. As we know, inventory is the joint of the whole supply
chain. When optimize the inventory management, up stream activities will
run effectively meanwhile down stream activities will go ahead without any
stoppage.

• Proper supply chain and transportation management are being processed in

the organization which increase the overall efficiency of the business.

• Electrical maintenance section of KTPS deals with the inventory from cost-
effective view with the application of the economic order quantity (EOQ).

• In a broader point of view, it is a cost reduction procedure that can have an

impact on the economies of the company directly and on other department
indirectly.

• Supply chain management has led to the increase in customer relationship

and has built trust among customers as it satisfies their demand in time with
effectiveness.

62
BIBLIOGRAPHY
63
BOOKS

1) Bowersox, D. J., Closs, D. J., Cooper, M. B. (2002). Supply Chain

Logistics
Management. NY: McGrawHill
2) Zipkin, P., 2000. Foundations of Inventory Management. McGrawHill.
3) Material management by Gopalakrishnan
4) Inventory Management by D.Chandra Bose

WEBSITES

1) http://www.entrepreneur.com
2) www.google.com
3) www.wikipedia.com
4) http://as.wiley.com/WileyCDA/WileyTitle/productCd-0471253413.html
5) http://www.cmu.edu/policies/documents/Purchasing.html
6) http://books.google.co.in/books?
id=QseYtErYgBoC&lpg=PA56&dq=project%20report%20on
%20inventory%20management%20best
%20practices&pg=PP1#v=onepage&q&f=false
7) http://www.greentree.com/Product_sheets/manufacturing_mrp_and_forecas
ting.pdf
8) http://www.inventorysolutions.org/def_mrp.htm
9) http://www.mirrorservice.org/sites/home.ubalt.edu/ntsbarsh/Business-
stat/otherapplets/Inventory.htm

64
65
 ANNEXURE
QUESTIONNAIRE FOR COMPANY

1. Has any previous research carried out on this topic by the company?
a) Yes b) No

2. How do you manage your supply chain?

a) JIT supply b) e-procurement
c) Subcontracting d) Plan strategies
e) Benchmarking f) Many suppliers
g) Use external consultants
h) Other (specify) _____________________________________

3. How successful do you think is your company in managing its supply chain
in general?
a) Not successful at all b) Not successful

c) Somewhat successful d) Very successful

4. Do you have any separate transport (logistic) department?

a) YES b) NO

5. Does your company have a clear transportation Strategic plan?

a) YES b) NO

6. Are your customer satisfied with the product delivery and scheduling?
a) Very much satisfied b) Satisfied

c) Not satisfied d) Not at all satisfied

66
 7. How many customers are satisfied with your product transportation services
in this year?
(2010)?
a) Below 30 % b) 30% to 50%

c) 50% - 80% d) Above 80%

8. According to you, who is playing an important role in your supply chain?

a) Manufacturers b) Distributors

c) Suppliers d) Other

9. Any Comment for your Supply Chain Management system?

_____________________________________________________________

10. Any suggestion to improve supply chain management?

67