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INVENTORY

MANAGEMENT
INTRODUCTION TO COMPONY

GOETZE(india) limited was established in 1954 as a joint


venture between ANIL NANDA group and federal mogul, a
global supplier of quality products. FEDERAL MOGUL was a
Germany based company and is one of the leading
manufacturers of automotive components in the world. federal
mogul has been creating value through innovation & leading
technology for more than 100 years. Today the company is a
key player in global market place . THE company has its plant
located in banglore(pistons,rings & pins), bhiwadi(sintered
products). The compony has set up its first unit at Patiala(
piston, rings, cylinders, liner and castings) and started its
commercial production in 1957.
CONT….
ESCORTS mahle limited was a 50:50 joint venture between
escorts & mahle ltd. Due to disengagement and share purchase
agreement among escorts ltd, mhale had decided to exit from
the joint venture and sell its entire share to escort-mahle ltd. In
view of the fact the business of escorts-mahle ltd and Goetze
India ltd are closely inter linked and have ovious financial &
technical synergies due to common location of plants,
common customers, products etc. GOETZE (India) ltd took
over the share capital of escorts mahle ltd. The new company
named ESCORTS PISTONS LTD. came into existence on nov
1,2002. Further escorts pistons ltd was amalgamated with
goetze (India) ltd on may 26,2003 &w.e.f June 2003 the name
of the company is “GOETZE INDIA LTD”.
IMPORTANT PRODUCTS

 PISTONS

 RINGS

 CYLINDERS LINERS
IMPORTANT CUSTOMERS
• ASHOK LEYLAND LTD.
• BAJAJ AUTO LTD.
• FRICK INDIA LTD.
• HERO HONDA LTD.
• HINDUSTAN MOTORS LTD.
• INTERNATIONAL TRACTORS LTD.
• TATA INTERNATIONAL LTD.
• YAMAHA MOTOR INDIA PVT LTD.
INVENTORY MANAGEMENT
INVENTORY MANAGEMENT refer to process of managing
stocks of finish products, semi finish goods, and raw material
by the firm. It will help in reducing cost and increases the
revenue of the firm. The stocks of inventories differ from firm
to firm. The goal of effective inventory management is to
minimize the total cost of holding inventories. The task of
inventory planning can be highly complex in manufacturing
environments. Inventory planning and management must be
responsive to the needs of the firm. Proper inventory
management helps in taking various business decisions. It is a
continuous process and specialized staff should be employed
for inventory management.
CONT….
The inventory management begins as soon as one starts
production and places the order for raw material. Once the
order have been placed, little time is available to the firm to
put inventory management plan into action before goods are
delivered. It helps the firm to decide in advance where these
supplies should be stored. The inventory control process
provides the information to efficiently manage the flow of
materials, effective utilization of equipment and taking of
decisions related to operations. The firm should design such a
system as to make proper business decisions.
TYPES OF INVENTORIES

 Raw material These are the basic unfabricated


material which have not gone in any operation
since they are received from the supplier.
 Finish products These are the end products of
any production process. These are those goods
which can be offered for sale in the markets.
 Work-in-progress These refer to the partially
completed goods.
 Stores & spares These refer to the goods which
do not form the part of finish product ,but used
in the production process.
Methods of inventory control

 First in first out When a firm adopts the fifo


method to price its raw material the issue of
material will be in order in which it was received.
Thus pricing will be based on material that was
ob tained first.
 Last in first out The material issued will be priced
based on the material that has been purchased
recently.
 Weighted average cost The pricing will be based
on average basis (weights are given based on
quantity).
 Standard price method Material will be priced
 Replacement cost method Material is priced at a
value that is realizable at the time of issue.
VARIOUS COST ASSOCIATED WITH INVENTORIES

 Ordering cost Every manufacturing organization has to


purchase materials. Thus ordering cost refer to cost associated
with preparation of purchase requisition by the user
department, transportation of the material ordered, inspection
and handling. It also includes the cost for not lifting the
material in time. If the concern has capacity to produce the
required components internally, then ordering cost refer to
cost associated with preparation of requisition forms by the
user department, transportation, inspection, handling cost.
Above all ordering cost remain more or less constant
irrespective of size of order although transportation and
inspection cost may vary depending upon the size of the order.
 Carrying cost These are the expenses of storing the goods.
Once the goods have been accepted, they becomes the part of
firm’s inventories. These cost include insurance, rent of the
warehouse, salaries of the storekeeper and security personnel
financing cost of money locked-up in inventories. It is
generally considered as the percentage of value of inventory
held in the warehouse. Approximately carrying cost are
considered to be 25% of value of inventory held in store.
INVENTORY MANAGEMENT TECHNIQUES

While the total ordering costs are decreased with increase in


size of order, the carrying costs increases with the increase
in size of order indicating the need of proper balancing of
these two type of cost. Again if the company wants to avoid
stock out costs, it may have to maintain larger inventories of
materials and finish goods. Thus importance of effective
inventory management is directly related to the size of
investment in inventory.
There are three types of inventory management systems:-
3. Economic order quantity
4. Reorder point formula
5. ABC model
Economic order quantity

Economic order quantity refer to the optimal order size that will
result in lowest ordering and carrying cost. In simple words
EOQ is that size of order which gives economy to order and
ultimately contribute towards maintaining of material at
optimal level and also at minimum cost. It is given by the
formula:-
$2CO/I
Where C- annual usage
O- ordering cost
I- carrying cost
Re-order point formula

One can adopt much simpler formula which gives relaible


results in indicating the point at which inventory is to be re-
ordered. The formula is:-
re-order point= S*L+F(S*R*L)
Where S- usage in units
L-lead time
F-stock out acceptance factor
R-average number of units per order
ABC model

ABC refers to always better control. This analysis has gained


importance as it can be applied to any area that needs control.
In this model the organization will divide the material into 3
catagories for having better control over them. This analysis of
material in store can contribute to a large percentage of value
and consumption. The items fall in the first category are called
as A group, 2nd as B group, 3rd as C group.
category %of items %of value
A 10 70
B 20 20
C 70 10
Inventory management in FMGIL

ABC analysis is being used to manage the inventories. A


category consist of items of higher value and directly linked
with production. Some of the items are CIMSTAR, MB62C
etc. B category includes items of less value and item and is
directly linked with production. E.g. servo 68%, cutting oil,
etc C category include mislanious items such as mobile oil,
power oil, preventing oil etc. Computers (SAP) are being used
to store maximum level and re-order level of each item. The
company has centralized purchasing system. The purchased
items are divided into two groups i.e type 4(local purchaase)
and type 5 (purchases by the head office)
Due to large number of items codes have been assigned to
every items. These codes have specific order so to have easy
identification of every item
Research methodology

A:- Objective of the study


 To know the functioning of inventories and understand the
system of procurement of material.
 To understand the accounting and valuation of raw-material,
work-in-progress and finish goods.
 To analyze inventory control techniques.
 To study the performance of the company and thus provide
suggestions if any on the basis of analysis and interpatation of
data
B:- The reseaerch is based on collection data
 Primary data
 Secondary data
Findings

 There has been tremendous increase in the level of inventories


year by year.
 Among ABC classification no special consideration has been
given to B and C class items.
 MIS reports has been prepared by the finance department to
manage the inventory level.
 The prices for the supplies has been decided at the beginning
of the year & factory receives the material at that very price
throughout the year.
 Only maximum and re-order level are maintained. No
weightage is given to min. level due to SAP.
 The various items in raw material are stored at different
location according to the suitability of their use near to
respective departments. But same are controlled from central
location i.e. from general store.
 As and when material is received in the store, the same is
given material as well as SAP code. These codes are decided
in company itself.
 Re-order level is calculated in the firm by the formula max.
level* max. lead time.
 The lead time is based on the distance between sending &
receiving ports.
Limitations

 Change of financial year


 Lack of confidential data
 Limited time
 Lack of comparative data for inter-firm comparison.
Suggestions

 The company should make realistic production program and


there should not be frequent changes in the same.
 Suppliers should be given schedule for the supply of raw-
material and other supplies in time.
 Still better co-ordination should be there among various
departments.
 A large part of company’s investments are tied up with the
loan, the company should try to pool its capital investments.
 It should start its own marketing program to promote
company’s sale and to face competition.
 Standardized tools should in production.
 In stores and spares there are certain items which are slow or
non moving, investment in these items should be made
reduced
 The company should give attention to improve the packing
material .