This Report is just an overview of how an Inventory Management

system will play crucial role in the Level of control of our Material
Procurement cost.
Current Scenario:
implementation of Inventory Management System:
Level of Control: LOW
Medium-High
Level of Planning: LOW
Planning: High

Scenario after
Level of Control:
Level of

Inventory Management is the source of Material Procurement cost. 70% of the Procurement cost can be
reduced by Effective Inventory Management System.
Current Scenario: 300-400 indents are raised per vessel per year. It is almost every day an indent is raised. It
is very important for the Master/Chief Engineer to understand the cost of raising indents. If we observe
Logistics cost of raising indent, it is 10000-15000 per indent.
Number of indents is very much correlated to Logistics cost. After performing a regression analysis, the
result showed Correlation of 0.8(High). Hence by Reducing the Number of Indents to Double Digit, Logistics
Cost will also reduce.

Steps to improve inventory management

1) Item Master
We need to maintain an Item Master of all the items for all the vessels. The Item Master will contain all the spares, store
items, paints, lubes, chemicals, and gases which are to be procured while the ship is in operation. The Item Master will
include description, material, handling specification, unit of measure, warehouse, PO/Receiving etc. of all the items.
Inventory Categorization: Categorizing the Inventories into sub classes within the system

Spares
Stores
a) Engine Stores
b) Deck Stores
c) Galley Stores
Paints
Lubes
Chemicals
Gases
Urgent/Critical Spares

2) Codification
Once all the items are fed into the system, next step is to codify the same. Just by the code we should be able to identify
the exact item and to which unit does it belong. The code should be like a bill of material where the item is easily
identified by the concerned departments, ships chief Engineer/Master, Forwarders and the Makers.

3) Stock Take
Once the coded items have been identified, a system where physical verification of quantities and condition of items held in
an inventory is to be in place for stock discrepancy information.

4) Lead Time

We need to identify and set a lead time for all the coded items in the system. The lead time is determined by the time order
is placed to ready to be delivered to the vessel.

5) Ordering
Once the Lead time is determined, we need to set a re-order point. Two main points have to be identified before we
determine the re-order point:
a) Safety Stock: Number of days worth of inventory kept in case of emergency
b) Basic stock: Number of days worth of inventory normally kept on hand
Re-order Point will be calculated using following formula:
Reorder point = (Lead time + Safety stock + Basic stock)*average number of units used per day
Once an item reaches its re-order point, an automatic alert should be given to the ship for replenishment to the basic
stock level.

6) Receipts/Issues
Create a system where receipts which are to be credited and issues which are to be debited are tracked. A virtual store
manager within the system to issue the items to the ship should be in place.
Once the product is received in the store, the value of the product should be credited to stores account. Once the product is
issued to the ship, the value of the product should be debited from stores account.
This will help in proper tracking of actual number of items which are being used. Any deviation from basic stock level would
be written-off.
7) Periodic Stock Take
Once all the systems are in place, we need to identify items which are to be ordered monthly, bi-monthly, quarterly or
annually. The system should reject any emergency orders for the items except for critical spares/spares for part which is
creating hindrance for normal operation. Exampl:

Spares: Every Month Items will be reviewed and ordered

Stores: Every 2 Months Items will be reviewed and ordered
Paints/Lubes/Chemicals/Gases: Every Quarterly Items will be reviewed and ordered
Urgent/Critical Spares: As and when Required

Spares: 12 Indents/Year
Stores: 6 Indents/Year
Paints: 4 Indents/Year
Lubes: 4 Indents/Year

Total: 34
Indents/Year/Vessel +
Critical/Urgent Spares
Indents (Negligible)

Chemicals: 4 Indents/Year
Gases: 4 Indents/Year

8) Reconciliation of Variances
This is the final steps in order to minimise the write-offs (Variances). We need to continuously update the accuracy of
inventory records. Inventory reconciliation is needed to ensure that actual and recorded inventory amounts are same at the
end of the year. There may be variance in physical count and inventory record. Any variances need to be investigated and
written-off. At the end, altering the inventory record in order to match the physical count will reconcile the variance. The
goal will be reduce the variances in order to minimize the write-offs. This is directly related to Receipts/Issues system. If the
above system works properly, we would definitely be able to reduce the number of indents raised. Hence reducing the
logistics cost.

If we achieve all of the above we would be generating around 34 Indents/Year/Vessel Excluding Urgent/Critical Spares. There
should be no urgent requirements for stores and other items except for critical spares.
As we can see in above Tables:

Reducing Indents to 50, our Logistics cost reduces around 85%

Reducing Indents to 75, our Logistics cost reduces around 80%
Reducing Indents to 100, our Logistics cost reduces around 75%

SUMMARY