DISSERTATION ON

INVENTORY MANAGEMENT
SUBMITTED BY SHINJU V S Reg.No:11005

Guide:

SUBMITTED IN PARTIAL FULFILLMENT OF PGPBM COURSE TO

INTERNATIONAL SCHOOL OF BUSINESS AND MEDIA BANGALORE

2010-2012

DECLARATION

I, SHINJU V.S,here by declare that this dissertation titled as Inventory Management is my original work under the guidance of Prof.JAYAKUMAR towards the partial fulfillment for the PGPBM Course of International School of Business & Media.This report has not been submitted earlier for the award of Degree/Diploma/Course by any other University/B-school.

Place: Date:

(Signature of Student) SHINJU V S Reg.no:11005

ACKNOWLEDGEMENT

An undertaking of this type is a result of contribution received from a number of people. This report cannot be claimed as my individual work. This is to acknowledge all the people who have provided me with the inspiration, guidance& help during the preparation of the report. Therefore I extend my deep sense of gratitude towards them. I am extremely grateful to Prof.JAYAKUMAR,my guide, who has been a constent source of support.

(Signature of Student) SHINJU V S

Reg.No:11005

INDEX Chapters 1 2 3 4 5 6 7 8 9 Particulars Introduction Research Methodology Limitation of Study Analysis and Interpretation Findings Recommendation&suggestions Conclusion Bibliography Annexure

INTRODUCTION
Inventory means a list compiled for some formal purpose, such as the details of an estate going to probate, or the contents of a house let furnished. This remains the prime meaning in British English. In the USA and Canada the term has developed from a list of goods and materials to the goods and material available in stock by a business; and this has become the primary meaning of the term in North American English, equivalent to the term "stock" in British English. In accounting, inventory or stock is considered an asset. In financial parlance, inventory is defined as the sum of the value of raw materials, fuels and lubricants, spare parts, maintenance consumables, semiprocessed materials and finished goods stock at any given point of time. The operational definition of inventory would be: the amount of raw materials, fuel and lubricants, spare parts and semi-processed material to be stocked for the smooth running of the plant. Since these resources are idle when kept in stores, inventory is defined as an idle resource of any kind having an economic value. Inventories are maintained basically for the operational smoothness, which they can affect by uncoupling successive stages of production, whereas the monetary value of inventory serves as a guide to indicate the size of the investment made to achieve this operational convenience. The materials management department is expected to provide this operational convenience with a minimum possible investment in inventories. The objectives of inventory, operational and financial, needless to say, are conflicting. The materials department is accused of both stock outs as well as large Investment in inventories. The solution lies in exercising a selective inventory control and application of inventory control techniques.

Objectives
(1)To keep inventory at sufficiently high level to perform production and sales activities smoothly. (2) To minimise investment in inventory at minimum level to maximise profitability. (3) To ensure that the supply of raw material & finished goods will remain continuous so that production process is not halted and demands of customers are duly met. (4) To minimise carrying cost of inventory. (5) To keep investment in inventory at optimem level. (6) To reduce the losses of theft, obsolescence & wastage etc. (7) To make arrangement for sale of slow moving items.

Inventory management 1. Inventory management is the branch of business managementconcerned with planning and controlling inventories. 2. Inventory is stock of items held to meet future demand. 3. It deals with two basic questions: y How much to order y When to order Types of inventory y Raw material y Work-in-progress y Finished goods Nature of inventories 1. Raw materials Basic inputs that are converted into finished products through the manufacturing products 2. Work-in-progress Semi manufactured products need some more work before they become finished goods for sale 3. Finished goods Completely manufactured products ready for sale Supplies Office and plant cleaning materials not directly enter production but are necessary for production process and do not involve

significant
An optimum inventory level involves three types of cost Ordering cost y Quetation or tendering y Requisitioning y Order placing y Transportation y Receiving, inspecting and storing y Quality control y Clerical and staff Stock out cost y Loss of sale y Failure to meet delivery commitments Carrying cost y Warehousing or storage y Handling y Clerical and staff y Insurance y Interest y Taxes y Cost of capital Dangers of over investment: y y y y

investment

Unnecessary tie-up of firms fund and loss of profit involves opportunity cost Excessive carrying cost Risk of liquidity difficult to convert into cash Physical deterioration of inventories while in storage due to mishandling and improper storage fecilities

Dangers of under investment:y y y y Production hold-ups-loss of labour hours Failure to meet delivery commitments Customers may shift to competitors which will amount to a permanent loss to the firm May affect the goodwill and image of the firm

The reasons for keeping stock There are three basic reasons for keeping an inventory: 1. Time - The time lags present in the supply chain, from supplier to user at every stage, requires that you maintain certain amounts of inventory to use in this "lead time." However, in practice, inventory is to be maintained for consumption during 'variations in lead time'. Lead time itself can be addressed by ordering that many days in advance. 2. Uncertainty - Inventories are maintained as buffers to meet uncertainties in demand, supply and movements of goods. 3. Economies of scale - Ideal condition of "one unit at a time at a place where a user needs it, when he needs it" principle tends to incur lots of costs in terms of logistics. So bulk buying, movement and storing brings in economies of scale, thus inventory. All these stock reasons can apply to any owner or product

Functions of Inventory The necessity of holding inventory is due to the following functions of inventory: (1)Specialization: A firm can either produce all the required variety products at a plant at one location, or, produce different products at separate plant locations. Locating separately will enable the firm to select the location of each different product manufacturing plant based on the particular requirements of that product, thus achieving specialization efficiencies like geographical facilities and economies of scale. This specialization approach creates inventory at diverse locations.

Also, pipeline inventories are created due to transport linkages required between different manufacturing plants and with distribution warehouses. (2)Balancing supply and demand: Demand depends upon the requirements of customers relating to time and quantity of products, and is not in the control of the producer. Supply, on the other hand is under the producers control, but has to be economized and also paced with the time and quantity requirements of customer demand. In order to ensure that customers are not dissatisfied when they demand the required quantity of products, it is necessary to have adequate inventory of products available at all times. This is the balancing inventory required due to the different rates of manufacturing and consumption. In case of seasonal products when production has to take place for a longer period of time in advance of the season, production throughout the year ensures lower investments in production capacities while increasing inventory. An example is the production of rainwear throughout the year for the sales which will occur only during the rainy season. Another example of balancing is seasonal production during raw material availability and year-round consumption, which also requires inventory. The example of this is seasonal availability of mango fruit and year-round consumption of mango based products. (3) Economies of scale: Economies of scale are obtained by holding large inventories a) While purchasing, ordering in large quantities provides cost economies and discounts; (b) transportation economies are obtained by transporting in larger quantities; and, (c) during manufacturing, producing in economic batch quantities lower costs. (4) Overcoming uncertainty: Safety stock of inventory is required to overcome uncertainty of customer demand on the one hand; and, purchasing, receiving, manufacturing, and order processing delays on the other. Either of these may result in shortages of products at the time of customer requirements if adequate safety stock of material is not provided for. If such material stock outs are not frequent occurrences, the customer may look elsewhere leading to a last order at the very least, or a lost customer. This uncertainty results in buffer stocks being created between (a) supplier and purchasing, (b) purchasing and production, (c)

production and marketing, (d) marketing and distribution, (e) distribution and intermediary, (f) intermediary and customer, in order to avoid stock outs. Classification of Inventories (1)Production inventories They represent raw materials, parts and components that are used in the process of production. Production inventories include Standard industrial items purchased from outside (also called bought outs) Non-standard items (purchased items) Special items manufactured in the factory itself (also called works made parts or piece parts.

(2) MRO inventories (Maintenance, Repair and Operations) They refer to the maintenance; repairs and operation supplies, which are consumed during process of, manufacture but do not become a part of the product. (3)In-process inventories They represent items in the semi-finished condition (i.e. items in the partially completed stage)

(4)Goods-In-Transit They represent such materials, which have been paid for but have not yet been received by the stores. Reasons for holding inventory 1. Meet variations in customer demand: y Meet unexpected demand y Smooth seasonal or cyclical demand 2. Prising related: y Temporary price discounts y Hedge against price increases y Take advantage of quantity discounts

3. Process and supply surprises y Internal upsets in parts of or our own processes y External delays in incoming goods An effective inventory management should :y Ensure a continuous supply of raw materials to facilitate uninterrupted production. y Maintain sufficient stock of raw materials in periods of short supply and anticipate price changes. y Maintain sufficient finished goods inventory for smooth sales operation, and efficient customer service. y Minimise the carrying cost and time y Control investment in inventories and keep it at an optimum level. Risks of Holding Inventory The holding of inventory creates the following risks for a firm The investments committed to a particular inventory combination are not available for alternative uses for the benefit of the firm. The risks in these case is due to the interest cost incurred on this inventory until the investment is recovered, as also the opportunity cost of profit which might have been made in alternative investment The inventory may be pilfered or lost The inventory may become absolute and/ or useless Determination of inventory is another risk for holding inventory. Inventory Cost In operating an inventory system manager should consider only those costs that vary directly with the operating doctrine in deciding when and how much to recorder; cost independent of the operating doctrine are irrelevant. Basically, there are five types of relevant costs. a)Cost of the item. b)Cost of procuring the item. c)Cost of carrying the item in inventory. d)Cost associated with being out of stock when units are demanded but are unavailable (stock outs).

e)Cost associated with data gathering and control procedures for the inventory system. Often these five costs are combined in one way or another, but lets discuss them separately before we consider combinations. (1)Cost of Item The cost, or value, of the item is usually its purchase price: the amount paid to the supplier for the item. In some instances, however, transportation, receiving, or inspection costs, for example, may be included as part of the cost of the item. If the cost of the item per unit is constant for all quantities ordered, the total cost of items purchased during the planning horizon is irrelevant to the operating doctrine. If the unit cost varies with the quantity ordered, a price reduction called a quantity discount, this cost is relevant. If the facility manufactures the item, the cost of the item is its direct manufacturing cost. Again, constant unit cost mean total costs are irrelevant. (2) Procurement Costs Procurement costs are the placing a purchase order or the setup costs if the item is manufactured at the facility. These costs vary directly with each purchase order placed. Procurement costs include costs of postage, telephone calls to the vendor, labor costs in purchasing and accounting, receiving costs, computer time for record keeping, and purchase order supplies. (3) Carrying Costs Carrying or holding casts are the costs of maintaining the inventory warehouse and protecting the inventoried items. Typical costs are insurance, security, warehouse rental, heat, lights taxes, and losses due to pilferage spoilage, or breakage. The cost of typing up capital inventory is also considered a carrying cost. (4) Stockout Cost Stock out cost, associated with demand when stocks have been, takes the form of lost sales or backorder costs. When sales are lost because of stockouts, the firm loses both the profit margin on unmade sale and its customers good will. If customers take their business elsewhere, future profit margins may also be lost. When customers agree to come back after inventories have been replenished, they make backorders. Backorder costs include loss of good will

and money paid to reorder goods and notify customers when goods arrive. As the next example shows, stockouts can and do occur in the service industries. (5) Cost of operating the information processing system Whether by hand or by computer, someone must update records as stock levels change, for system in which inventory levels are not recorded daily, the cost is primarily incurred in obtaining accurate physical counts of inventories. Frequently, these operating costs are more fixed than variable over a wide quantity range. Therefore since fixed costs are not relevant to the operating doctrine, we will not consider them further. (6) Cost tradeoffs Our objective in the inventory control is to find the minimum cost operating doctrine over some planning horizon; these costs can be expressed in a general cost equation: Total Annual = cost of the items + procurement costs + carrying Costs + stock out cost Relevant cycle stocks lost sales WHY KEEP INVENTORY? Why would a firm hold more inventory than is currently necessary to ensure thefirm's operation? The following is a list of reasons for maintaining what wouldappear to be "excess" inventory. MEET DEMAND In order for a retailer to stay in business, it must have the products that the customer wants on hand when the customer wants them. If not, the retailer will have to back-order the product. If the customer can get the good from some other source, he or she may choose to do so rather than electing to allow the original retailer to meetdemand later (through back-order). Hence, in many instances, if a good is not ininventory, a sale is lost forever.

KEEP OPERATIONS RUNNING A manufacturer must have certain purchased items (raw materials, components, or subassemblies) in order to manufacture its product. Running out of only one itemcan prevent a manufacturer from completing the production of its finished goods.Inventory between successive dependent operations also serves to decouple thedependency of the operations. A machine or workcenter is often dependent upon the previous operation to provide it with parts to work on. If work ceases at aworkcenter, then all subsequent centers will shut down for lack of work. If a supplyof work-in-process inventory is kept between each workcenter, then each machinecan maintain its operations for a limited time, hopefully until operations resume theoriginal center.

Lead Time Lead time is the time that elapses between the placing of an order ( either a purchase order or production order issued to the shop or the factory floor) and actually received the goods ordered. If a supplier cannot supply the required goods on demand, then the client firm must keep an inventory of the needed goods. The longer the lead time , the larger the quantity of goods the firm must carry in inventory.

Hedge Inventory can also be used as a hedge against price increases and inflation .Salesman routinely call purchasing agents shortly before a price increase goes into effect. This gives the buyer a chance to purchase material, in excess of current need, at a price that is lower than it would be if the buyer waited until after the price increase occurs . There are three reasons for keeping an inventory


 

Stock Keeping Unit (SKU) is a unique combination of all the components that are assembled into the purchasable item. Therefore, any change in the packaging or product is a new SKU. This level of detailed specification assists in managing inventory. Stockout means running out of the inventory of an SKU. "New old stock" (sometimes abbreviated NOS) is a term used in business to refer to merchandise being offered for sale that was manufactured long ago

but that has never been used. Such merchandise may not be produced anymore, and the new old stock may represent the only market source of a particular item at the present time. There are three types of costs that together constitute total inventory costs Holding cost Holding cost also called carrying cost, are the costs that results from maintaining the inventory . Inventory in excess of current demand frequently that it holder must provide a place for its storage when not in use. This could range from a small storage area near the production line to a huge warehouse or distribution centre . A storage fecility requires personnel to move the inventory when needed and to keep track of what is stored and where it is stored. If the inventory is heavy or bulky, forklifts may be necessary to move it around.Storage facilities also require heating, cooling, lighting, and water. The firm must pay taxes on the inventory, and opportunity costs occur from the lost use of thefunds that were spent on the inventory. Also, obsolescence, pilferage (theft), andshrinkage are problems. All of these things add cost to holding or carryinginventory. SET-UP COSTS. Set-up costs are the costs incurred from getting a machine ready to produce the desired good. In a manufacturing setting this would require the use of a skilled technician (a cost) who disassembles the tooling that is currently in use on the machine. The disassembled tooling is then taken to a tool room or tool shop for maintenance or possible repair (another cost). The technician then takes the currently needed tooling from the tool room (where it has been maintained; another cost) and brings it to the machine in question. There the technician has to assemble the tooling on the machine in the manner required for the good to be produced (this is known as a "set-up"). Then the technician has to calibrate the machine and probably will run a number of parts, that will have to be scrapped (a cost), in order to get the machine correctly calibrated and running. All the while the machine has been idle and not producing any parts(opportunity cost). As one can see, there is considerable cost involved in set-up. If the firm purchases the part or raw material, then an order cost, rather than a set-up cost, is incurred. Ordering costs include the purchasing agent's salary and travel/entertainment budget, administrative and secretarial support, office space, copiers and office supplies, forms and documents, long-distance telephone bills, and computer systems and support. Also, some firms include the cost of shipping the purchased goods in the order cost.

PURCHASING COST. Purchasing cost is simply the cost of the purchased item itself. If the firm purchasesa part that goes into its finished product, the firm can determine its annual purchasing cost by multiplying the cost of one purchased unit (P) by the number of finished products demanded in a year (D). Hence, purchasing cost is expressed asPD. Now total inventory cost can be expressed as: Total = Holding cost + Set-up/Order cost + Purchasing cost or Total = H(Q/2) +S(D/Q) + PD If holding costs and set-up costs were plotted as lines on a graph, the point at which they intersect (that is, the point at which they are equal) would indicate the lowest total inventory cost. Therefore, if we want to minimize total inventory cost, every time we place an order, we should order the quantity (Q) thatcorresponds to the point where the two values are equal. There are a number of assumptions that must be made with the use of the EOQ.These include: Only one product is involved. Deterministic demand (demand is known with certainty). Constant demand (demand is stable through-out the year).No quantity discounts. Constant costs (no price increases or inflation).While these assumptions would seem to make EOQ irrelevant for use in a realisticsituation, it is relevant for items that have independent demand. This means that thedemand for the item is not derived from the demand for something else (usually a parent item for which the unit in question is a component). For example, the demandfor steering wheels would be derived from the demand for automobiles (dependentdemand) but the demand for purses is not derived from anything else; purses haveindependent demand. Recent industry reports show that inventory costs as a percent of total logistics costs are increasing. Despite this rise, many organizations have not taken full advantage of ways for lowering inventory costs. There are a number of proven strategies that will provide payoff in the inventory area, both in client service and in financial terms. Some of these strategies for lowering inventory costs involve having

less inventory while others involve owning less of the inventory you have. Regardless of which techniques you employ, proactive inventory management practices will make a measurable difference in the operations. INVENTORY MANAGEMENT Inventory Management System deals with the maintenance of equipments.Inventory Management is a discipline that encompasses the principles, concepts andtechniques for determining what to order, when to order and how much to order.The right amount of inventory involves the balance between what is required toservice your customers and what is financially practical. Precise control and safeguarding of inventory is an essential task for a successful,well-organized company; businesses require timely and accurate information oninventory location, movement, and valuation. The Inventory Management modulefor Sage MAS 90 and Sage MAS 200 ERP systems provides data pertaining to thereceipt of goods, the movement of goods within or between locations, the sale,removal, or other disposition of goods, kitting capabilities, lot and serial tracking,and the precise valuation and status of goods remaining in inventory at any point intime. When used in conjunction with other Sage MAS 90 and 200 modules,Inventory Management is the cornerstone of an effective manufacturing or distribution solution. Inaccurate inventory counts can cost you sales and delayshipments past the promise date. Out-of stock items as well as overstocked items ininventory can be devastating to your business. Additionally, an overstated or understated inventory valuation can result in incorrectly reported assets within your financial statements.Inventory Management offers comprehensive reporting capabilities to keep you ontop of inventory status. Generate reports on item pricing, stock status, detailed saleshistory, backorder information, reorder points and recommendation, valuation,turnover, sales analysis, and much more. And adding the Business Alerts modulecan keep your staff on top of quantity changes to critical inventory items, to keepstocking levels precisely where you want them. Properly used, the InventoryManagement module can help bring about the formulation of new or improved purchasing policies, sales policies, pricing methods, and even enhanced customer service. Inventory Management could also provide your company with an additionaledge over competitors who are unable to access the same strategic information.

FEATURES OF INVENTORY MANAGEMENT Extended Pricing Equip your sales team to improve customer satisfaction and beat the competition bycreating flexible pricing options and rules for each customer. With extended pricingyou can: Create standard price schemes such as percentage-off, value-off, and net pricing, along with personalized pricing options. Implement powerful date-sensitive functionality for sales and promotions. Navigate the system using drill-down, zoom, and special menu capabilities thatoffer a fast learning curve and easy visibility into your pricing index. Bill of Materials Increase productivity by providing a superior solution for tracking the components and subassemblies used in light manufacturing and similar production and assembly operations. With bill of materials can: 1.Define the exact order of your assembly process, up to 10 levels deep. 2.Attach electronic notes to bills to detail exact component use at every assemblylevel. 3.Track the actual cost for assembled items, plan for futurechanges,and managecurrent and past items. 4. Sc h e d u l e t r a ns a c t ion s i n to t he f utu r e w it hout r e s er vi n g st oc k. 5. Cra dl e -t o- Gr a ve Se r ia l / Lo t T ra c ki n g 6.Transform time-consuming searches into quick, efficient processes byidentifying all instances of an item with a single trace. With cradle-to- graveserial/lot tracking you can: 7. Inc r e a se v i s ibi li t y i nt o se r i a l / l ot nu mbe r li fe c yc le s .

8. Con d uc t po we r f ul se a r c he s u si n g a n i te m s se r i a l or lo t nu mbe r. 9.Complete widespread searches across all transactions, including bills of materials and customer orders. 10.Consolidate like lot numbers in all lot number entry windows to gain an accurateview of inventory for a given lot numberincluding manufactured date andexpiration datewithout juggling multiple records. 11.Instant Access to Transaction Information 12.Get instant information on all transactions related to any item you define in theinquiry windowsincluding lot number, price levels, and item typeand drilldown as needed. Query originating documents, and then drill down for detailsabout Field Service, Project Accounting or Manufacturing documents. Stock Count and Discrepancy Alerts Maintain an accurate stock count schedule and investigate stock discrepanciesquickly with system alerts that notify you when inventory is due for counting or when differences occur between an items reported status and warehouse presence. In-Transit Inventory Transfers Input a middle site into the transfer process to allow for via tracking to preventsalespeople from selling material that isnt currently in the destinationwarehouse. Accurate inventory quantities at both from site and to site allow more realistic promise dates and improve inventory management. Increased Lot Flexibility Notify employees when a lot is close to its expiration date, so they candetermine the best course of action. Inventory Control preferences offer optional password protection, so your people can control the selection of expired lots. Detailed Insight into Inventory Usage

More effectively analyze sales, transfers, and materials used for manufacturing by drilling down to each transaction that reduces inventory, including those indebited and credited accounts. Access supply and demand information using Allocated and On Order drilldowns and view item allocations in existing orders quickly and easily. Narrow search results by providing date ranges for item transaction inquiries. Inventory Management includes the integrated management and control of assigned items of material. The work involves a number of processes such as: Requirements Determination Planning for and determining current andfuture supply requirements to meet customer needs Material Distribution Planning and determining the distribution and positioning of supplies among major supply stations, stock points, or usingactivities Procurement Authorization Preparing recommendations and directives for the procurement of material, indicating the types of items, quantities, and at alltimes, the sources; and Funds Management Analyzing planned or scheduled material requirementsand forecasts to determine categories and quantities of items, as well as fundsrequired. Inventory management involves several common elements. Among the more important of these are: utilization of increasingly sophisticated electronic data processing systems asintegral parts of material control, record, and data communications systems use of scientific or business type decision rules and formulas to make materialcontrol decisions that optimally balance cost and material support effectiveness evelopment and implementation of various material standardization programs planning and coordinating material actions to assure properly phased support tomajor items of equipment and/or weapon systems in test phases, in production,in service, and during phaseout periods; and monitoring the quality of input andoutput of automated inventory management systems and

recommending systemand programming changes to improve timeliness, accuracy, and utility of inventory information for users. Inventory Control includes performing one or more of a wide variety of staff or administrative functions such as: Initiating, developing, installing, or administering a control program. Providing guidance on or conducting surveys of supply and inventorymanagement functions. Analyzing, evaluating, revising, or developing new inventory managementsystems. Developing long-range material support plans. Directing, guiding, or reviewing material support programs, functions, andactions implemented by others; and Performing quality assurance and review functions. Inventory specialists satisfy these responsibilities by: Controlling and authorizing funding for material so that the proper kind, quality,and quantity are available at the correct time and place. Maintaining records and controls over material in stock, due in, or planned for the distribution system on a quantitative and monetary basis; and Controlling the distribution or redistribution of stock within the supply system. Inventory management work is classified in this series when duties andresponsibilities demonstrate that the preponderance of the work requires performing most of the preceding functions and, at least three of the following: Managing items with difficult supply and demand patterns related to seasonalfactors, program changes, changes in end-use applications, and similar elements;

Making supply system decisions which consider more than the status of anindividual item or the problem presented by a particular supply transaction, e.g.,interchangeability of items among different equipment or systems; Exercising substantially independent authority to - establish and revise reorder frequencies;

establish stock levels for individual items on a selective basis; and manageassigned items in such a manner as to achieve effective supply support whileremaining within authorized or available funds; Programming requirements for assigned items, including phasing procurementsand deliveries and determining best use of funds saved through judiciousmanagement; Reviewing planned work programs, schedules, and other planning data.Advising others regarding major categories of material which will be neededand pointing out material areas most likely to cause difficulties; Planning and coordinating material support for assigned program or projectareas including extensive provisioning conferences and personal contacts tonegotiate stock levels, phased production, changes in work schedules, or other means of alleviating material problems; Serving as a central point of contact and exchange of information for personnelof supply, production, maintenance, and other organizations relative to materialsupport problems affecting an assigned program or project area; Recommending changes in automated data bases and systems of data storage,formats, and reports; and/or Participating in planning for new data processing systems in terms of definingthe nature of information required, organizational responsibilities, computer network requirements, and the nature of output desired from inventorymanagement systems. BENEFITS 1.Centralized inventory management consolidates inventory information by tracking lot numbers, on-hand levels and expiration dates, making the reordering process more efficient.

2.Enables simultaneous tracking and documenting supplies during studies toreduce redundant data entry and increase workflow efficiency. 3.When multiple officials are involved in a case, the statistical report accuratelycorrelates the supplies used with the correct user, eliminating mischarges andappropriately tracking resources. 4.Provides stand-alone inventory management system for the institution with thecapacity to integrate with a hospitals existing inventory system, significantlyreducing go-live times and improving departmental efficiency. 5.Optional interface to institutions/companys material management systemsignificantly reduces ongoing inventory maintenance, and ensures accurate pricing data for case cost reports and auto-decrements supply levels. 6.Comprehensive inventory reports help automate key administrativeresponsibilities, such as tracking inventory item usage by vendor and physician,maintaining in-stock value of consignment verses nonconsignment items, and providing notification of items with upcoming expirations. Basic EOQ model
Economic order quantity is the order quantity that minimizes total inventory holding costs and ordering costs. It is one of the oldest classical production scheduling models. The framework used to determine this order quantity is also known as Wilson EOQ Model or Wilson Formula.

Assumptions
1. The ordering cost is constant. 2. The rate of demand is known, and spread evenly throughout the year. 3. The lead time is fixed. 4. The purchase price of the item is constant i.e. no discount is available 5. The replenishment is made instantaneously, the whole batch is delivered at once. 6. Only one product is involved. EOQ is the quantity to order, so that ordering cost + carrying cost finds its minimum. (A common misunderstanding is that the formula tries to find when these are equal.)

Economic Order Quantity (EOQ)

A = Demand for the year Cp = Cost to place a single order Ch = Cost to hold one unit inventory for a year

Types of inventory Movement inventory- This inventory is known as transit or pipeline inventory arises due to shipment of inventory items to distribution centres and from various production centres. Buffer inventory This inventory is maintained to meet uncertainties of demand and supply . Such buffer inventory which are in excess of those necessary to just meet the average demand during the lead time. Anticipation inventory This is known as seasonal inventories held because of future demand which is anticipated. Lot size inventory These are held for the reason that purchase are usually made in lots rather than for the exact amounts which may be needed at appoint of time. Typical assumptions made: a)Annual demand (D), Carrying cost (C), and ordering cost(S) can be estimated b)Average inventory level is the fixed order quantity(Q) devided by 2 which implies

y y y y y y y y y

No safety stock Orders are received at all once Demand occurs at a uniform rate No inventory when an order arrives Stock out, customer responsiveness , and other costs are inconsequential Acquisition cost is fixed ie no quantity discounts Annual carrying cost =(average inventory level)*(carrying cost) = (Q/2)C Annual ordering cost = ( average number of orders per year)*(ordering cost) = (D/Q)S Total annual stocking cost (TSC) = annual carrying cost + annual ordering cost = (Q/2)C+(D/Q)S EOQ = 2DS/C Example: Basic EOQ Zartex company produces fertilizer to sell to wholesaler s. One raw material calcium nitrate is purchased from a nearby supplier at $22.50 per ton . Zartex estimates it will need 57,50,000 tons of calcium nitrate next year. The annual carrying cost , and the ordering cost is $595 a)what is the most economical order quantity? b)how many orders will be placed per year? c)how much time will elapse between orders?

(Economic Order Quantity) EOQ

D = 5750000 tons per year C = .40(22.50)$9.00 per year S = $595/order EOQ = 2DS/C EOQ = 2(5750000)(595)/9.00

= 27573.135 tons per order Total annual stocking cost (TSC) = (Q/2)C+(D/Q)S = (27573.135/2)(9.00) + (5750000/275730135)(595) = 124079.11 + 124079.11 = $248158.22 Number of orders per year = (D/Q) = 5750000/27573.135 = 208.5 orders per year Time between orders = (Q/D) = 1/208.5 = .004796 years per order = .004796(365 days per year) = 1.75 days per order

. INVENTORY MANAGEMENT AT PIDILITE The company has complete and accurate knowledge of the stock across the units and inventory management at all units greatly improved post implementation. Matching aspiration with execution is an important ingredient for success, especially for companies playing in the global market. And to execute well, visibility into operations is a pre -requisite. As Pidilite Industries figured, a robust system can provide this much needed visibility. So they chose SAP Business One application to automate operations

across global locations. And reaped the benefits. Pidilite Industries Limited (PIL) specializes in the areas of Specialty Chemicals(Industrial adhesives, Pigments, Textile resins, Leather chemicals), Consumer products (Stationery & Art Material, Fabric Care & Maintenance Products),Construction Chemicals, Paints, Adhesives and Sealants. Pidilites Fevicol, Steelgrip, Acron, Dr. Fixit, Fevitite and M-seal are among the most well known brands in India. The company, fast becoming a global player, recorded revenues of over Rs.1111 cr in FY08-09. To fuel its quick rise, the company has made investments in a number of midsized manufacturing and distribution companies located in the UAE, Singapore and Thailand. CHALLENGES: SINGLE INTEGRATED SYSTEM Pidilite was on a path of rapid expansion. With Pidilite aiming at markets spreadacross the globe, transparency of, and control over, business operations across the extended organization was posing a big challenge for the top management. Pidilite needed a single integrated and more importantly, universal solution which would enable them to establish central transaction and management control. This would, in turn enable accurate and on time generation of consolidated MIS reports , helping top management to monitor the help of individual companies efficiently. Second the local management needed systemic support to run their day to day operations . Generating timely and accurate MIS reports , recording daily transactions and reporting the central office on time was a great challenge at all the individual offices. Another important area which needed immediate attention was inventory management. Thus, it was clear that we needed a system that would be universal, as well as handle country specific localization needs, says Zoeb Adenwala, the companies chief of IT. Managing a multi location implementation

The biggest challenge Pidilite had to deal with was managing simultaneousimplementation across global locations. While the company put together acompetent internal team, they realized that not many members had first handexperience working at these locations nor did they have an understanding of thelocal systems in place.After a careful consideration, Octopus-e International was selected as theimplementation partner for all the locations. Octopus-e set up an experienced teamto handle the complexities of the project. The Big Bang implementation approachwas followed and implementation was kicked off in July 2006 across all thelocations simultaneously. Standard modules including sales, purchase, inventory,finance

and banking were implemented and the solution was customized accordingto local tax and reporting structures. Even though there were challenges in copingwith language issues and understanding the local context, Octopus-e drew on their experience to deal with them, says Atul Kshetry, Director, Octopus-e International.Pidilite needed a common chart of accounts for all the companies; mapping thechart of accounts across the three countries accurately was quite challenging for theimplementation team. With the help of the dedicated internal team and our ownteam, the implementation was completed in just three months. SYSTEM ANALYSIS System Analysis refers into the process of examining a situation with the intent of improving it through better procedures and methods. System Analysis is the processof planning a new System to either replace or complement an existing system. But before any planning is done the old system must be thoroughly understood and the requirements determined. System Analysis is therefore, the process of gathering andinterpreting facts, diagnosing problems and using the information to recommentimprovements in the System. Or in other words, System Analysis means a detailedexplanation or description. Before computerized a system under consideration, it hasto be analyzed. We need to study how it functions currently, what are the problems,and what are the requirements that the proposed system should meet. System Analysis is conducted with the following objectives in mind:  Identify the customers need. Evaluate the system concept for feasibility. Perform economic and technical analysis. Allocate functions to hardware, software people, database and other systemelements. Establish cost and schedule constraints. Create a system definition that forms the foundation for all the subsequentengineering work. Requirement Analysis/ SRS of the Component

PROBLEM DEFINITION To provide the basic services related to the Supply of the material to maintain their PRE-SO (Supply Order) and POST-SO details. The product will take care of all thesupply orders. Pre-So is maintained from the starting of the financial year. It isconcern to keep the records of each Supply Order, which is received, from firm,supplying equipments. These equipments are then assigned a unique ISG Number given by BRO, further they are supplied to different project departments of BRO. The reference of Last Purchase Price (LPP) of the equipments corresponding to theISG (Initial Stocking Guide) is maintain to form the transaction sheet of the particular financial year.