Abstract:

In the present era, where there is a competitive world in the area of business it is very
important to control various costs to sustain in the market. And the most importantly
customer is to be considered as the most important part of any business. In such fast
moving and rapid environment, inventory management plays an important role to
make a control over the financial statement of the organization. Inventory involves in
the whole process cycle of the organization as it starts with the shop floor to the top
level management commitment. In this paper, we will discuss and analyse some of the
parameters which directly show the impact of inventory management to the financial
statement of the form. This paper also consists of different parts where the inventory
management concepts are discussed, different inventory control techniques are
discussed, and their interrelationship with the financial statement of the firm. This
paper also introduces the various costs incurred due to the storage inventory,
economic order quantities, reorder level, shortage costs, inventory methods.

INTRODUCTION
.1. INVENTORY
Inventory can be defined in several ways as follows as given below:
Inventory is the stock of physical items such as materials, components, work-inprogress, finished goods, etc., held at a specific location at a specific time.
Inventory is the merchandise that is purchased and/or produced and stored for
eventual sale.
Inventory is a list of what you have. In company accounts, inventory usually refers
to the value of stocks, as distinct from fixed assets. An inventory would include items
which are held for sale in the ordinary course of business or which are in the process
of production for the purpose of sale, or which are to be used in the production of
goods or services which will be for sale.
Inventory is a list of names, quantities and/or monitory values of all or any group of
items.
Any quantifiable item that you can handle, buy, sell, store, consume, produce, or
track can be considered inventory. This covers everything from office and
maintenance supplies, to raw material used for manufacturing, to semi-finished and
finished goods, to fuel used to power equipment used in the business
Inventories are the current assets which are expected to be converted within a year in
the form ofcashor accounts receivables. Thus, it is a significant part of the assets for
the business firms. Actually, inventories are the goods that are stocked and have a
resale value in order to gain some profit. It shows the largest costs for the trading
firms, wholesalers and retailers. Normally, it consists of 20-30% of the investment of
the total investment of the firm. Thus, it should be managed in order to avail the
inventories at right time in right quantity. Inventory refers to the stock of the resources

which are held to sales and/or future production. It can be also viewed as an idle
resource which has an economic value. So, better management of the inventories
would release capital productively. Inventory control implies the coordination of
materials controlling, utilization and purchasing. It has also the purpose of getting the
right inventory at the right place in the right time with right quantity because it is
directly connected with the production. This implies that the profitability of the firm is
directly or indirectly affected by the inventory management. There is need for
controlling the inventories for any firm in developing countries like India. A firm must
install some better inventory control techniques to improve their financial condition.
According to Kotler, inventory management is the technique of managing, controlling
and developing the inventory levels at different stages i.e. raw materials, semifinished goods and finished goods so that there is regular supply of resources at
minimum costs. According to Coyle, inventory management is the management of the
materials in motion andat rest. According to Rosenblatt, the inventory management
costs are the price which is paid by the customer but it is the cost to the owner.
Different authors defined inventory management in different way. Sometimes,
inventory and stock are considered as the same thing. But there is a slight difference
between them. Stock is the storage of material kept in specified place only. Inventory
management involves all activities which are done for the continuous supply of
materials with optimal costs. Basically, inventory management has two goals. First
goal is to avail the goods at right place in right time. Because it is very important to
keep operations running to give specific service. Second goal is to achieve the service
level against optimal cost. It is very difficult to achieve goal against optimal cost. All
items cannot be stocked, so there is need to specify the important goods to be stocked.
The supplies inventories involves the materials required for the maintenance, repair
and operating that do not go to the final product. But it is also considered as the types
of inventories. Thus, inventory management is also defined as it is the science and art
of managing the level of stock of group of items which incurred least costs and also
reach the objectives set by the top management. So, on the final note the primary
objective of inventory management is to improve the customer satisfaction level. For
this one has to keep adequate amount of inventory for demand fluctuations and

variability. The secondary objective is to increase the production efficiency.

Increasing production efficiency means that the production control, maintaining the
level of inventory for efficient materials management.
2.2. TYPES OF INVENTORIES
Depending up on the type of organization the inventory can be classified into two
basic types. They are as follows:
1. Manufacturing Inventory: It is the inventory maintained by a manufacturing
organization. Manufacturing Inventory consists of following three parts: a. Raw
Materials (RM) which are processed to manufacture the final product. b. Work In
Progress (WIP) which refers to the intermediate product which is obtained by
processing the raw material but is not fully converted into final product. c. Finish
Goods (FG) that are the fully processed final products that are being manufactured
and are ready to be dispatched.
2. Trading Inventory: It is the inventory maintained by a trading organization with a
purchase and sale business. Trading Inventory consists of goods that are purchased
from a supplier or manufacturer and sold to customers with a certain margin of profit.
In this case, the purchased goods do not undergo any further processing and are sold
directly without any change of form. The Trading Inventory is also referred as the
term Stock.
.3. INVENTORY CONTROL The chief motive of an organization is Profit
Maximization. Inventory is an essential part of an organization since it is one of the
major factors that affect the profit earned by the organization. Hence controlling or
managing inventory is one of the most important tasks necessary to achieve
organizational goal of earning maximum profit and reducing costs and expenses.
Inventory Control is a technique of maintaining and monitoring the size of the
inventory at appropriate level, so that the production and distributions take place
effectively. The main objective of inventory control is to achieve maximum efficiency

in production and sales with the minimum investment in inventory. Inventory Control
is achieved by:
Purchasing items at proper time and price, and in right quantity.
Provision of suitable storage locations with sufficient space
Maintaining proper level of stocks.
Adequate inventory identification system.
Up-to-date and accurate record keeping.
Appropriate requisition procedures.

OVERVIEW OF INVENTORY
Inventory management is pivotal in effective and efficient organization. It is also vital
in the control of materials and goods that have to be held (or stored) for later use in
the case of production or later exchange activities in the case of services. The
principal goal of inventory management involves having to balance the conflicting
economics of not wanting to hold too much stock. Inventory problems of too great or
too small quantities on hand can cause business failures. If a manufacturer
experiences stock-out of a critical inventory item, production halts could result.
Moreover, a shopper expects the retailer to carry the item wanted. If an item is not
stocked when the customer thinks it should be, the retailer loses a customer not only
on that item but also on many other items in the future. The conclusion one might
draw is that effective inventory management can make a significant contribution to
companys profit as well as increase its return on total assets. It is thus the
management of this economics of stockholding, that is appropriately being refers to as
inventory management. The reason for greater attention to inventory management is
that this figure, for many firms, is the largest item appearing on the asset side of the
balance sheet. Yang et al [1] has argued that supply chains have evolved from
traditional forecast-driven push to demanddriven pull systems over time, and that
postponement is playing an increasingly important role in a supply chain. Wanke [2]
states that inventory management approaches are a "function of product, operational
and demand related variables such as delivery time, obsolescence, coefficient of
variation of sales and inventory turnover" and that logistics managers are more likely
to decentralise inventory in order to stock product close to the customer's facility if
the customers demand a reduced delivery time. Graman [3] argued that today, the cost
of holding inventory, extensive product proliferation and the risk of obsolescence,
especially in rapidly changing markets, make the expense of holding large inventories
of finished goods excessive and that high demand items naturally have safety stock
assigned to them but in many organisations there are so many very-lowdemand items

that keeping any stock of these items is unreasonably expensive, so they argue that
companies must now provide good service while maintaining minimal inventories.
Therefore, inventory management approaches are essential aspects of any
organisation.
Rich Lavely (1998) asserts that inventory means Piles of Money on the shelf and
the profit for the firm. However, he notices that 30% of the inventory of most retail
shops is dead. Therefore, he argues that the inventory control is facilitate the shop
operations by reducing rack time and thus increases profit. He also elaborates the two
types of inventory calculations that determine the inventory level required for
profitability. The two calculations are cost to order and cost to keep. Finally, he
proposes seven steps to inventory control. The limitation of this literature is that he
does not outline the calculation method that actually evaluates the inventory level and
cost of handling it
James Healy (1998) highlights that the distributors carry 10-30% of additional
inventory that is unnecessary. These inventories unnecessarily increase costs and loss
of customers, lost of sales and lost profit due to inefficient inventory management. He
points out there is a need to set out procedures to find out physical inventories to
determine the true cost of handling cost of the inventory. He further points out some
misconceptions of the inventory management such as adequacy of Enterprise
Resource Planning System in handling the inventory, the importance of turns in
measuring the success of the inventory system and confidence on profitability of
using the inventory optimization method. The limitation of this literature is that it
does not give reasons for the causes of the unnecessary inventory
Dave Piasecki (2001) presents an inventory model for calculating the optimal order
quantity that used the Economic Order Quantity method. He points out that many
companies are not using EOQ model because of poor results resulted from inaccurate
data input. He says that EOQ is an accounting formula that determines the point at
which the combination of order costs and inventory costs are the least. He highlights
that EOQ method would not conflict with the JIT approach. He further elaborates the

EOQ formula that includes the parameters such as annual usage in unit, order cost and
carrying cost. Finally, he proposes several steps to follow in implementing the EOQ
model. The limitation of this literature is that it does not elaborate further relationship
between EOQ and JIT. It does not associate the inventory turns with the EOQ formula
and fails to mention the profit gain with the quantity is calculated
Farzaneh (1997) presents a mathematical model to assist the companies in their
decision to switch from EOQ to JIT purchasing policy. He defines JIT as to produce
and deliver finished goods just in time to be sold, sub-assemblies just in time to be
assembled in goods and purchased material just in time to be transformed into
fabricated parts. He highlights that the EOQ model focuses on minimizing the
inventory costs rather than minimizing the inventory. Under the ideal condition where
all the conditions meet, it is economically better off to choose the JIT over the EOQ
because it results in purchase price, ordering cost. The limitation of this literature is
that he only compares the cost saving and required quantities of choosing the system
Morris (1995) stressed that inventory management in its broadest perspective is to
keep the most economical amount of one kind of asset in order to facilitate an
increase in total value of assets of the organization.
Rosenblatt (1977) says that the cost of maintaining inventory is included in the final
price paid by the consumer. Good in inventory represents a cost to their owner. The
manufacturer has the expense of material and labour. The wholesaler also has funds
tied up.
Christopher Benjamin and Kamalavalli (2009) investigated the influence management
of the working capital on the profitability of Indian hospitals by taking 14 out of 51
listed hospitals in India. The result of their analysis depicted that the inventory
turnover ratio, debtor turnover ratio and working capital turnover ratio were positively
related with the return on investment, a variable used for the measurement of the
firms profitability

Ghosh and Kumar (2007) defined inventory as a stock of goods that is maintained by
a business in anticipation of some future demand. The definition was also supported
by Brag (2005) who stressed that the inventory management has an impact on all
business functions, particularly operations, marketing, accounting and finance. He
established that there are three motives for holding inventories, which are transaction,
precautionary and speculative motives.
Agus and Noor (2006) examined the relationship between the inventory management
and financial performance of the firm. The study measured the managers perceptions
of the inventory management practices ad financial performance of the firm.
Koumanakos (2008) studied the effect of inventory management on firm
performances. 1358 manufacturing firms operating in three industrial sectors of
Greece, food, textiles and chemicals were used in the study covering period of 20002002. The hypothesis that lean inventory management leads to an improvement in a
firms financial performance was tested. The findings suggests that the higher the
level of inventories preserved by a firm, the lower the rate of return.
Roumiantsev and Netessine (2005) investigated the association between inventory
management policies and the financial performance of a firm. The purpose of the
study was to assess the impact of inventory management practice on financial
performances across the period 1992-2000.

2. REVIEW OF LITREATURE
There are some factors listed below which are essential to be discused for
understanding the concept of inventory management. These activities are associated
with inventory management and to be considered to achieve its objectives. These
factors are:
1. Costs related to inventory.
2. Inventory costing methods.
3. Inventory models.
4. Inventory control techniques
1. Costs related to inventory:There are various costs which are related to the
inventories. These costs are incurred due to the inventories. These costs are
1.1Purchase cost:- Purchase cost is the cost of purchasing the inventory items and it
depends upon the quantity of the items to be purchased
1.2 Ordering Cost:- It is the cost related to the bringing the inventory to the
production system. It includes all costs which are directly or indirectly involved in
bringing the inventory to the production system. Costs included in ordering costs are
tendering cost, quality inspection cost, transportation cost etc
1.3 Carrying cost:- It is the cost which is associated with costs which are spent to the
storage of the inventory items in the store. It depends upon the quantity and period of
time till when the inventory is to be stored. It includes storage cost, damage cost,
depreciation, handling cost, insurance cost etc
1.4 Shortage cost:- Shortage cost simply means the cost due to the absence of
inventory items in the store. It is associated with the lost sales. Generally, shortage

costs incurred for those items which is more costly and which incurs more handling
costs.
2. Inventory Costing methods:- These are the methods which are used for give the
values to the inventories. These valuation methods can be explained as
2.1 First In First Out:- In this method, the materials coming first will be considered
first and then next consignment will be taken. This method is useful when the price of
material is falling because material charge to production will be high while the
replacement cost will be low.
2.2 Last In First Out:- It is the method in which materials coming latest will be
considered first. The last consignment is taken first and when it is exhausted then
second last consignment is taken. This method is more useful when the rice is rising
and show a charge to production which is closely related to current price.
2.3 Weighted Average Cost method:- In this method, material issued price is based
upon the calculation of weighted average cost of the material. It is calculated with
using formula:- WAC = Value of material in stock/ Quantity in stock
2.4 Standard Price method:- In this method, a standard price is predetermined. The
price is predetermined for the stated period of time taken in the account all the factors
affecting price such as anticipated market trends, transportation charges etc. standard
prices are predetermined irrespective of purchase price. Any difference between the
predetermined price and actual price is the material price variance.
2.5 Current Price:- In this method, material issued is priced at the replacement or
realizable price at the time of issue. So , the cost at which material could be purchased
should be ascertained.
3. Inventory models:- Among different inventory models EOQ model is most popular
and commonly used inventory model. These models are used to determine the
economic order quantity of the materials to be stored

3.1 EOQ Model:- As inventory is determined as the most important factor which
affects the operations, then a mathematical model was developed to control the
inventory levels. The most widely used model is EOQ model. It was first developed
by F.W. Haris in 1913 but still R.H. Wilson is given credit for this model due to his
early in-depth analysis. This model is also known as Wilson EOQ model. According
to this model, some costs like ordering costs are declined with inventory holdings
while some costs like holding costs rise and thus total inventory cost curve has a
minimum point where inventory costs can be minimized. The economic quantity is
the level for inventory which minimizes the total inventory costs. It is the optimal
level of inventories which satisfies the demand constraints and cost constraints.
There are some assumptions on which EOQ is calculated. These assumptions are:-i.
There is known and constant holding cost. ii. There is a known and constant ordering
cost. iii. The rates of demand are known. iv. There is known constant price per unit. v.
No stock-outs are allowed. vi. Replenishment is made instantaneously.
4. Inventory control techniques:- There are various techniques used by a firm to
control the inventories. Some of these techniques can be explained as
4.1. ABC Analysis:- ABC analysis of inventories represent that the small portion of
material contains bulk amount of money value while a relatively large portion of
material consists less amount of money value. The money value is ascertained by
multiplying the quantity by unit price. According to this approach, inventory control
of high value items are closely controlled than low value items. Each item is
categorized as A, B and C categories depending upon the amount spent for the
particular item
4.2. Minimum level:- The minimum level of inventories kept on the different bases
like consumption during the lead time, stock-out costs, customer irritation and loss of
goodwill etc. To continue production it is very essential to maintain optimal amount
of inventories. The stock which takes care for the fluctuation in demand is known as
safety stock. It also governs the ordering point.

4.3. Maximum level:- The maximum limit beyond which the quantity of any item is
not normally allowed to rise is known as maximum level. It is the sum of minimum
level and EOQ. The amounts to be fixed in maximum level depend upon the factors
like space available, nature of material etc.
4.4. Reorder level:- It is the level of the stock at which a purchase requisition is
initiated by the storekeeper for replenishing the stock. This level is set between the
maximum and minimum level in a such way that before material ordered for are
received into the stores. Its fixation depends upon maximum delivery period and
maximum consumption.
4.5. Just In Time system:- Japanese firms popularized this technique in order to
reduce the inventory level up to zero to eliminate the inventory costs. According to
this system, the materials arrive at the manufacturing sites just few hours before they
are going to use. This system also eliminates the necessity of carrying large
inventories.
4.6. Outsourcing:- Earlier there was tendency of manufacturing companies to
manufacture all parts in-house. Now, more companies are adopting outsourcing
techniques. Outsourcing is a system of buying parts and components from other
companies rather than manufacturing in house.
4.7. Computerized Inventory Control System:- It is the modern technique used for
controlling the inventories. It enables a company to track large items of inventories
easily. It is an automatic system of counting inventories, recording withdrawals and
balances. There is an in-built system of placing order as the computer notices that the
reorder point has been reached. The information system of the buyers and suppliers
are linked to each other.

John A. BuzacottSchulich School of Business, York University,

Toronto, Ontario, Canada M3J 1P3, Rachel Q. Zhang, Department of

Industrial Engineering and Engineering Management, Hong Kong

University of Science and Technology, Clear Water Bay, Kowloon,
Hong Kong,September 1, 2004. Inventory Management with AssetBased Financing. Most of the traditional models in production and
inventory control ignore the financial states of an organization and
can lead to infeasible practices in real systems. This paper is the
first attempt to incorporate asset-based financing into production
decisions. Instead of setting a known, exogenously determined
budgetary constraint as most existing models suggest, we model
the available cash in each period as a function of assets and
liabilities

that

may

beupdated periodically

according

to

the

dynamics of the production activities. Furthermore, our models allow

different interest rates on cash balance and outstanding loans,
which are an enhancement over most traditional models in that
inventory financed by a loan, may be more expensive than that by
out-of-pocket cash. We demonstrate the importance of joint
consideration of production and financing decisions in a start-up
setting in which the ability to grow the firm is mainly constrained by
its limited capital and dependence on bank financing. We then
explain the motivation for asset-based financing by examining the
decision making at a bank and a set of retailers in a newsvendor
setting.

Edward A. Silver, University of Calgary, Calgary, Alberta,August 1,

1981Operations Research in Inventory Management: A Review and Critique.The
objectives of inventory management, including the relevant related costs, are
examined in this paper. A brief review of standard problems, that have been
effectively solved, is presented. However, we point out that a serious gap exists
between theory and practice in many organizations. Suggestions are made for
bridging this gap. Finally, a list is provided of a number of research problems

whose implementable solution would have a major beneficial impact on the practice
of inventory management.

Tim Baldenius, Graduate School of Business, Columbia University, New York,

New York 10027Stefan ReichelsteinGraduate School of Business, Stanford
University, Stanford, California 94305, July 1, 2005Incentives for Efficient
Inventory Management: The Role of Historical Cost
This paper examines inventory management from an incentive perspective. We show
that when a manager has private information about future attainable revenues, the
residual income performance measure based on historical cost can achieve optimal
(second-best) incentives with regard to managerial effort as well as production and
sales decisions. The LIFO (last-infirst-out) inventory flow rule is shown to be
preferable to the FIFO (first-infirst-out) rule for the purpose of aligning incentives.
Our analysis also finds support for the lower-of-cost-or-marketinventory-valuation
rule in situations where the manager receives new information after the initial
contracting stage.
David P. HerronFMC Corporation, Santa Clara, California, December 1, 1967
One of the most popular types of inventory management is the (Q, r) system, in which
a quantity Q of an item is reordered whenever the inventory position reaches the
reorder point r. A number of packaged computer programs are available for this
system. However, these programs seldom give the minimum-cost values of Q and r,
since they usually employ the Wilson Economic Order Quantity. Use of the Wilson
EOQ may result in substantial excess costs, particularly for items of high annual cash
flow. This article describes graphical and algebraic methods suitable for computer
application to determine accurately the minimum-cost values of Q and r, employing
either dollar stockout penalties or specified service levels. Both the single-item and
aggregate inventory cases are included. The methods described can readily be implied
on most computers and can result in significant cost savings.

L. Beril ToktayTechnology Management, INSEAD, 77305 Fontainebleau,

FranceLawrence M. WeinSloan School of Management, Massachusetts Institute
of Technology, Cambridge; Massachusetts 02139Stefanos A. ZeniosGraduate
School of Business, Stanford University, Stanford, California 94305, June 26,
1997We address the procurement of new components for recyclable products in the
context of Kodak's single-use camera. The objective is to find an ordering policy that
minimizes the total expected procurement, inventory holding, and lost sales cost.
Distinguishing characteristics of the system are the uncertainty and unobservability
associated with return flows of used cameras. We model the system as a closed
queuing network, develop a heuristic procedure for adaptive estimation and control,
and illustrate our methods with disguised data from Kodak. Using this framework, we
investigate the effects of various system characteristics such as informational
structure, procurement delay, demand rate, and length of the product's life cycle.
Krishnan Anand The Wharton School, University of Pennsylvania, Philadelphia,
Pennsylvania 19104Ravi Anupindi Stephen M. Ross School of Business,
University of Michigan, Ann Arbor, Michigan 48109, August 8, 2008Strategic
Inventories in Vertical Contracts Classical reasons for carrying inventory include
fixed (nonlinear) production or procurement costs, lead times, non-stationary or
uncertain supply/demand, and capacity constraints. The last decade has seen active
research in supply chain coordination focusing on the role of incentive contracts to
achieve first-best levels of inventory. An extensive literature in industrial organization
that studies incentives for vertical controls largely ignores the effect of in ventories.
Does the ability to carry inventory influence the problem of vertical control?
Conversely, can inventories arise purely due to incentive effects? This paper explicitly
considers both incentives and inventories, and their interplay, in a dynamic model of
an upstream firm (supplier) and a downstream firm (buyer) who can carry inventories.
In our model, none of the classical reasons for carrying inventory exists. However, as
we prove, the buyer's optimal strategy in equilibrium is to carry inventories, and the
supplier

is

unable

to

prevent

this.

These

inventories arise

out

of

purely strategic considerations not yet identified in the literature, and have a
significant impact on the equilibrium solution as well as supplier, buyer, and channel

profits. We prove that strategic inventories play a pivotal role under arbitrary
contractual structures, general (arbitrary) demand functions and general (finite or
infinite) horizon lengths. As one example, two-part tariff contracts do not lead to
optimal channel performance, nor can the supplier extract away all of the channel
profits, in our dynamic model. Our results imply that firms can and must
carry inventories strategically, and that optimal vertical contracts must take the
possibility of inventories into account.
Tava Lennon Olsen Olin Business School, Washington University in
St. Louis, St. Louis, Missouri 63130.Rodney P. Parker The University
of

Chicago

Graduate

School

of

Business,

Chicago,

Illinois

60637August 8, 2008Inventory Management Under Market Size

Dynamics

We

investigate

the

situation

where

customer

experiencing an inventory stock out at a retailer potentially leaves

the firm's market. In classical inventory theory, a unit stock out
penalty cost has been used as a surrogate to mimic the economic
effect of such a departure; in this study, we explicitly represent this
aspect of consumer behavior, incorporating the diminishing effect of
the consumers leaving the market upon the stochastic demand
distribution in a time-dynamic context. The initial model considers a
single firm. We allow for consumer forgiveness where customers
may flow back to the committed purchasing market from a nonpurchasing latent market. The per-period decisions include a
marketing mix to attract latent and new consumers to the
committed market and the setting of inventory levels. We establish
conditions under which the firm optimally operates a basestock inventory policy. The subsequent two models consider a
duopoly where the potential market for a firm is now the committed
market of the other firm; each firm decides its own inventory level.
In the first model, the only decisions are the stocking decisions and
in the second model, a firm may also advertise to attract dissatisfied

customers from its competitor's market. In both cases, we establish

conditions for a base-stock equilibrium policy. We demonstrate
comparative statics in all models.
Tong Wang Decision Sciences Area, INSEAD, 77305 Fontainebleau,
France, April 1, 2008Inventory Management with Advance Demand
Information and Flexible Delivery
This paper considers inventory models with advance demand information and flexible
delivery. Customers place their orders in advance, and delivery is flexible in the sense
that early shipment is allowed. Specifically, an order placed at time t by a customer
with demand lead time T should be fulfilled by period t + T; failure to fulfill it within
the time window [t, t + T] is penalized. We consider two situations: (1) Customer
demand lead times are homogeneous and demand arriving in period t is a scalar dt to
be satisfied within T periods. We show that state-dependent (s, S) policies are optimal,
where the state represents advance demands outside the supply lead-time horizon. We
find that increasing the demand lead time is more beneficial than decreasing the
supply lead time. (2) Customers are heterogeneous in their demand lead times. In this
case, demands are vectors and may exhibit crossover, necessitating an allocation
decision in addition to the ordering decision. We develop a lower-bound
approximation based on an allocation assumption, and propose protection-level
heuristics that yield upper bounds on the optimal cost. Numerical analysis quantifies
the optimality gaps of the heuristics (2% on average for the best heuristic) and the
benefit of delivery flexibility (14% on average using the best heuristic), and provides
insights into when the heuristics perform the best and when flexibility is most
beneficial.
Kamran Moinzadeh School of Business, University of Washington, Seattle,
Washington 98195Charles Ingene School of Business, University of Washington,
Seattle, Washington 98195. May 1, 1993, An Inventory Model of Immediate and
Delayed Delivery, This paper considers the long run, profit maximizing strategy of a
distributor that holds a good (good 1) in inventory for immediate delivery and that
offers a second good (good 2) for delayed delivery. When the two goods are

substitutes, an out-of-stock situation for good 1 will cause some consumers

(walkers) to seek the good elsewhere, other consumers (waiters) to accept a rain
check for later delivery of good 1, and others still (switchers) to place an order for
good 2. It is shown that a profit maximizing strategy may entail setting a price for the
delayed delivery item so as to encourage switching behaviour. The rationale is that the
distributor can hold a smaller inventory, thereby incurring lower holding costs,
because out-of-stock situations are less costly than they would be without some
consumers being willing to switch.

Cyrus

Derman

University,

Columbia

July

1,

University,

1958Inventory

Morton

Klein

Depletion

Columbia

Management

Consideration is given to problems of choosing the order of issue of

items from a stockpile of material whose utility characteristics are
changing with time. Conditions are given under which either LIFO
(last in, first out) or FIFO (first in, first out) is an optimal issue policy.
Sampath Rajagopalan Marshall School of Business, University of
Southern California, Los Angeles, California 90089Jayashankar M.
Swaminathan The Kenan-Flagler Business School, University of
North Carolina, Chapel Hill, North Carolina 27599January 24, 2000A
Coordinated Production Planning Model with Capacity Expansion and
Inventory ManagementMotivated by a problem faced by a large
manufacturer of a consumer product, we explore the interaction
between production planning and capacity acquisition decisions in
environments with demand growth. We study a firm producing
multiple items in a multi period environment where demand for
items is known but varies over time with a long-term growth and
possible short-term fluctuations. The production equipment is
characterized

by

significant

changeover

time

between

the

production of different items. While demand growth is gradual,

capacity additions are discrete. Therefore, periods immediately

following a machine purchase are characterized by excess machine

capacity. We develop a mathematical programming model and an
effective solution approach to determine the optimal capacity
acquisition, production and inventory decisions over time. Through a
computational study, we show the effectiveness of the solution
approach in terms of solution quality and investigate the impact of
product variety, cost of capital, and other important parameters on
the capacity and inventory decisions. The computational results
bring out some key insightsincreasing product variety may not
result in excessive inventory and even a substantial increase in setup times or holding costs may not increase the total cost over the
horizon in a significant manner due to the ability to acquire
additional capacity. We also provide solutions and insights to the
real problem that motivated this work.
Brian Downs Supply Chain Division, Aspen Technology, Inc., 1293
Eldridge Parkway, Houston, Texas 77077August 1, 1998Managing
Inventory with Multiple Products, Lags in Delivery, Resource
Constraints, and Lost Sales: A Mathematical Programming Approach
This

paper

develops

an order-up-to S inventory model

that is

designed to handle multiple items, resource constraints, lags in

delivery, and lost sales without sacrificing computational simplicity.
Mild conditions are shown to ensure that the expected average
holding cost and the expected average shortage cost are separable
convex

functions

of

the

order-up-to

levels.

We

develop

nonparametric estimates of these costs and use them in conjunction

with linear programming to produce what is termed the LP policy.
The LP policy has two major advantages over traditional methods:
first, it can be computed in complex environments such as the one
described above; and second, it does not require an explicit
functional form of demand, something that is difficult to specify

accurately in practice. In two numerical experiments designed so

that optimal policies could be computed, the LP policy fared well,
differing from the optimal profit by an average of 2.20% and 1.84%,
respectively. These results compare quite favorably with the errors
incurred

in

traditional

methods

when

correctly

specified

distribution uses estimated parameters. Our findings support the

effectiveness of this mathematical programming technique for
approximating complex, real-world inventory control problems.
Woonghee Tim Huh Department of Industrial Engineering and Operations
Research,

Columbia

University,

New

York,

New

York

10027Ganesh

Janakiraman Stern School of Business, New York University, New York, New
York 10012May 16, 2006Inventory Management with Auctions and Other Sales
Channels:

Optimality

of

(s,

S)

Policies

We

study

periodic-

review inventory replenishment problems with fixed ordering costs, and show the
optimality of (s, S) inventory replenishment policies. Inventory replenishment is
instantaneous, i.e., the lead time is zero. We consider several sales mechanisms, e.g.,
auction mechanisms, name-your-own-price mechanisms, and multiple heterogeneous
sales channels. We prove this result by showing that these models satisfy a recentlyestablished sufficient condition for the optimality of (s, S) policies. Thus, this paper
shows that the optimality of (s, S) policies extends well beyond the traditional sales
environments studied so far in the inventory literature.

Brian G. Kingsman Formerly of the Department of Management Science,

Lancaster University, Lancaster LA1 4YL, United Kingdom Robert W.
Grubbstrm Department of Production Economics, Linkping Institute of
Technology, SE-581 83 Linkping, SwedenJune 2, 1998This paper considers the
problem of determining the optimal ordering quantities of a purchased item where
there are step changes in price, either up or down. Other costs incurred include
ordering costs associated with each replenishment and holding costs related to capital

tied up in inventory and physical stock holding. The net present value (NPV) principle
is applied. Explicit expressions for the development of the optimal order quantities
over time are presented. It is shown that three cases may be distinguished: (i) when
the price change is very small, (ii) when an essential price increase occurs, and (iii)
when there is an essential price decrease. Although the optimal last-order quantity
before a price increase is similar in magnitude to what has been presented in other
articles applying average cost approaches, in certain respects, this paper offers novel
results contradictory to those suggested by other authors. Analysis shows that the
average-cost model solutions are first-order approximations in the discount rate.
Numerical evaluations of a range of price increases and times to the price increase
suggest that, with certain important caveats, the average-cost formulae are likely to be
acceptable for most practical situations for the infinite horizon situation.
Steven Nahmias University of Pittsburgh May 1, 1974Inventory
Depletion Management When the Field Life is Random This paper
considers the problem of describing optimal issuing policies when
the field life ,X(s), is a nonnegative random variable. A new
optimality criterion involving stochastic ordering is introduced and
sufficient conditions given for the optimality of FIFO and LIFO. Two
specific models of perishable inventory are then considered; Model I
allows for the perishing of items in the stockpile and Model II does
not. It is demonstrated that both LIFO and FIFO are optimal for
Model I when the items age at the same rate in the stockpile as in
the field. Under the assumption that X(s) is uniformly distributed the
optimality of FIFO is established for Model II

3. INDUSTRY PROFILE:
A Mineral is a naturally occurring substance that is solid and inorganic representable
by a chemical formula, usually a biogenic, and has an ordered atomic structure. It is
different from a rock, which can be an aggregate of minerals or non-minerals and
does not have a specific chemical composition. The exact definition of a mineral is
under debate, especially with respect to the requirement a valid species be a biogenic,
and to a lesser extent with regard to it having an ordered atomic structure. The study
of minerals is called mineralogy.
There are over 4,900 known mineral species; over 4,660 of these have been approved
by the International Mineralogical Association (IMA). The silicate minerals compose
over 90% of the Earth's crust. The diversity and abundance of mineral species is
controlled by the Earth's chemistry. Silicon and oxygen constitute approximately 75%
of the Earth's crust, which translates directly into the predominance of silicate
minerals. Minerals are distinguished by various chemical and physical properties.
Differences in chemical composition and crystal structure distinguish various species,

and these properties in turn are influenced by the mineral's geological environment of
formation. Changes in the temperature, pressure, and bulk composition of a rock mass
cause changes in its mineralogy; however, a rock can maintain its bulk composition,
but as long as temperature and pressure change, its mineralogy can change as well.
Minerals can be described by various physical properties which relate to their
chemical structure and composition. Common distinguishing characteristics include
crystal structure and habit, hardness, lustre, diaphaneity, colour, streak, tenacity,
cleavage, fracture, parting, and specific gravity. More specific tests for minerals
include reaction to acid, magnetism, taste or smell, and radioactivity.
Minerals are classified by key chemical constituents; the two dominant systems are
the Dana classification and the Strunz classification. The silicate class of minerals is
subdivided into six subclasses by the degree of polymerization in the chemical
structure. All silicate minerals have a base unit of a [SiO 4]4 silica tetrahedrathat is,
a silicon cation coordinated by four oxygen anions, which gives the shape of
a tetrahedron. These tetrahedra can be polymerized to give the subclasses:
orthosilicates (no polymerization, thus single tetrahedra), disilicates (two tetrahedra
bonded together), cyclosilicates (rings of tetrahedra), inosilicates (chains of
tetrahedra), phyllosilicates (sheets of tetrahedra), and tectosilicates (three-dimensional
network of tetrahedra). Other important mineral groups include the native
elements, sulfides, oxides, halides, carbonates,sulfates, and phosphates.

INDIAN MINERALS:
The tradition of mining in the region is ancient and underwent modernization
alongside the rest of the world as India has gained independence in
1947. The economic reforms of 1991 and the 1993 National Mining Policy further
helped

the

growth

of

the

mining

sector. India's

minerals

range

from

both metallic and non-metallic types. The metallic minerals comprise ferrous and nonferrous minerals, while the nonmetallic minerals comprise mineral fuels, precious
stones, among others.

D.R. Khullar holds that mining in India depends on over 3,100 mines, out of which
over 550 are fuel mines, over 560 are mines for metals, and over 1970 are mines for
extraction of nonmetals. The figure given by S.N. Padhi is: about 600 coal mines, 35
oil projects and 6,000 metalliferous mines of different sizes employing over one
million persons on a daily average basis. Both open cast mining and underground
mining operations are carried out and drilling/pumping is undertaken for extracting
liquid or gaseous fuels. National Mining Policy further helped the growth of the
mining sector. India's minerals range from both metallic and non-metallic types. The
metallic minerals comprise ferrous and non-ferrous minerals, while the nonmetallic
minerals comprise mineral fuels, precious stones, among others.
The country produces and works with roughly 100 minerals, which are an important
source for earning foreign exchange as well as satisfying domestic needs. India also
exports iron

ore,

titanium, manganese, bauxite, granite,

and

imports cobalt, mercury, graphite etc.

Unless controlled by other departments of the Government of India mineral resources
of the country are surveyed by the Indian Ministry of Mines, which also regulates the
manner in which these resources are used. The ministry oversees the various aspects
of industrial mining in the country. Both the Geological Survey of India and
the Indian Bureau of Mines are also controlled by the ministry. Natural
gas, petroleum and atomic minerals are exempt from the various activities of the
Indian Ministry of Mines.
GEOGRAPHICAL DISTRIBUTION

Miner
al Belt

Location

Minerals found

Coal,

iron

ore,

manganese, mica,

bauxite,
copper, kyanite, chromite, beryl, apatit
e etc.

Khullar

calls

this

region

the mineral heartland of India and

further cites studies to state that: 'this
region possesses India's 100 percent
North
Easter
n
Penins
ular
Belt

Kyanite, 93 percent iron ore, 84

ChotaHYPERLINK

percent coal, 70 percent chromite, 70

"https://en.wikipedia.org/wiki/Chota_Nagpur

percent mica, 50 percent fire clay, 45

_plateau"
Orissa plateau

Nagpur

plateau and

covering

the

of Jharkhand, West Bengal and Orissa.

the percent

asHYPERLINK

states "https://en.wikipedia.org/wiki/Asbesto
s"

HYPERLINK

"https://en.wikipedia.org/wiki/Asbesto
s"bestHYPERLINK
"https://en.wikipedia.org/wiki/Asbesto
s"

HYPERLINK

"https://en.wikipedia.org/wiki/Asbesto
s"os,

45

percent china

percent limestone and

manganese.'

10

clay,

20

percent

Manganese,

Chhattisgarh,Andhra

limestone, marble,

Pradesh,MadhyaHYPERLINK
Centra "https://en.wikipedia.org/wiki/Madhya_Prade
l Belt

sh"

HYPERLINK

"https://en.wikipedia.org/wiki/Madhya_Prade
sh"Pradeshand Maharastra.

mica, graphite etc.

coal, gems,
exist

in

large

quantities and the net extent of the

minerals of the region is yet to be
assessed. This is the second largest belt
of minerals in the country.

South
ern

bauxite, uranium,

Ferrous minerals and bauxite. Low

Karnataka plateau and Tamil Nadu.

diversity.

Belt
South
Wester Karnataka and Goa.

Iron ore, garnet and clay.

n Belt

North
Wester
n Belt

Rajasthan and

Gujarat along

the

AravaliHYPERLINK
"https://en.wikipedia.org/wiki/Aravali_Range
" Range.

Non-ferrous

minerals, uranium,

mica, beryllium, aquamarine, petroleu

m, gypsum andemerald.

3. 1. COMPANY PROFILE:
ES.ES.MINERALS was established in the year 1994 with a vision to provide its
quality product in large volume to the valued clients. Since then we have targeted to
produce our product industry specific. Obtaining a good quality of minerals from
mines is not only important. Grinding the mined out product with exact specifications
of the customer is important in this venture. It has whole department dedicated to this
led by the owner himself to cater the customer needs.
We have kept our concentration in producing customized products to fulfill the needs
of iron & steel, welding rod, earth solutions, poultry feed, phile foundation, tiles,
sanitary wares, glass, paints, rubbers, detergents, insulators, frits, medicines and
construction companies. We understood the consumption of our product in large
volume by these industries specially CERAMIC and GLASS category and we are
proud to say we have fulfilled our heavy demand of our customer (around 10,000 MT
in a month) with the 0% consideration in quality and with timely deliveries.
Unless controlled by other departments of the Government of India mineral resources
of the country are surveyed by the Indian Ministry of Mines, which also regulates the
manner in which these resources are used. The ministry oversees the various aspects

of industrial mining in the country. Both the Geological Survey of India and
the Indian Bureau of Mines are also controlled by the ministry.
Natural gas, petroleum and atomic minerals are exempt from the various activities of
the Indian Ministry of MinesTo attach the task, we are enough equipped with our
plants and latest technologies, we obtained roller mill and pulverizer mill which
produce the material in large volume.
ES.ES.MINERALS based in India believes in countries ideology of
CUSTOMER IS GOD

THE MISSION:
To approach the new height of trustworthy organization and to provide of best to our
customers.

THE VISION:
ES.ES.MINERALS aims to become one of the top calls Manufacturer & Exporter of
Non Metallic Minerals in India providing best services to its customers across the
globe.
Aiming to provide best services ES.ES.MINERALS has set up its state of art
Research & Development Labs & has set up one of the best processing facilities in
India.

OUR MANAGEMENT PHILOSOPHY:

Our management philosophy represents our strong determination to contribute

directly to the prosperity of the people all over the country. The Managing director
T.MANOHARAN of ES.ES.MINERALS has a vast experience of 20 years.
We have served in all the areas right form manufacturing activity to
marketing and exporting and good understanding of quality of product & do proper
R&D to develop needed products. We are mainly interested in exporting the goods as
per the customer requirement and satisfaction.

OUR AIM:
ES.ES.MINERALS aims at exporting good quality of products either self
manufactured or selected quality product from the market. Company is interested in
having good and long term relationship with the clients within the country and also
abroad. Client satisfaction is highest concern of the company.
1.3 OUR RANGE OF PRODUCT LINES :
We are the Chennais leading manufacturers and exporters of diversified range of
industrial minerals and are committed to maintain that position.
BENTONITE

Bentonite is an absorbent aluminium phyllosilicate, essentially impure clay consisting

mostly of montmorillonite. The absorbent clay was given the name bentonite by
Wilbur C. Knight in 1898, after the Cretaceous Benton Shale near Rock River,
Wyoming.

There are different types of bentonite, each named after the respective
dominant element,

such

as

potassium(K), sodium (Na),calcium (Ca),

and aluminium (Al). Experts debate a number of nomenclatorial problems with the
classification of bentonite clays. Bentonite usually forms from weathering of volcanic
ash, most often in the presence of water. However, the term bentonite, as well as a
similar clay called tonstein, has been used to describe clay beds of uncertain origin.
For industrial purposes, two main classes of bentonite exist: sodium and calcium
bentonite. In stratigraphy and tephrochronology, completely devitrified (weathered
volcanic glass) ash-fall beds are commonly referred to as K-bentonites when the
dominant clay species is illite. Other common clay species, and sometimes dominant,
are montmorillonite and kaolinite. Kaolinite-dominated clays are commonly referred
to as tonsteins and are typically associated with coal.

Application of bentonite

Drilling mud

Binder

Purification

Absorbent

Ground water barriers

Medical

Poultry feed manufacturing

Iron & Steel foundry and casting

LIMESTONE

Limestone is

a sedimentary

the minerals calcite and aragonite,

which

rock composed

largely

are

forms of calcium

different crystal

of

carbonate (CaCO3). Many limestones are composed from skeletal fragments of marine
organisms such as coral or foraminifera.
Limestone makes up about 10% of the total volume of all sedimentary rocks.
Thesolubility of limestone in water and weak acid solutions leads to karst landscapes,
in which water erodes the limestone over thousands to millions of years.
Most cave systems are through limestone bedrock.
Limestone has numerous uses: as a building material, as aggregate for the base of
roads, as white pigment or filler in products such as toothpaste or paints, and as a
chemicalfeedstock.
The first geologist to distinguish limestone from dolomite was Belsazar Hacquet in
1778.

Application of limestone

Iron & steel industries

Poultry feed

Face powder

Cement

Glass making

Pigment

Magnetic recording

Photo catalysts

REDOXIDE

Iron(III) oxide or ferric oxide is the inorganic compound with the formula Fe2O3. It
is one of the three main oxides of iron, the other two being iron(II) oxide (FeO),
which is rare, and iron(II,III) oxide (Fe3O4), which also occurs naturally as the
mineral magnetite. As the mineral known as hematite, Fe2O3 is the main source of the
iron for the steel industry. Fe2O3 is ferromagnetic, dark red, and readily attacked by
acids. Iron(III) oxide is often called rust, and to some extent this label is useful,
because rust shares several properties and has a similar composition. To a chemist,
rust is considered an ill-defined material, described as hydrated ferric oxide
Application of red oxide

Iron industry

Polishing

Pigment

Magnetic recording

Photo catalysts

ROCK PHOSPHATE

Phosphorite, phosphate

rock or rock

phosphate is

non-detrital sedimentary

HYPERLINK "http://en.wikipedia.org/wiki/Sedimentary_rock"rockwhich contains

high amounts of phosphate bearing minerals. The phosphate content of phosphorite is
at least 15 to 20%, which is a large enrichment over the typical sedimentary rock
content of less than 0.2%. The phosphate is present as fluorapatite Ca5(PO4)3F (CFA)
typically in cryptocrystalline masses
(grain sizes < 1 m) referred to ascollophane. It is also present as hydroxyapatite
Ca5(PO4)3OH, which is often dissolved from vertebrate bones and teeth, whereas
fluorapatite can originate from hydrothermal veins. Other sources also include
chemically dissolved phosphate minerals from igneous .Phosphorite deposits often
occur in extensive layers, which cumulatively cover tens of thousands of square
kilometres of the Earth's crust.
Application of rock phosphate

Fertilizer

Poultry feed

OUR CUSTOMERS

1.4 COMPETITORS
1. BEACH MINERALS
2. ASHOK MINERALS ENTERPRISES
3. SUPERFINE MINERALS &CHEMICALS
4. SRI MARUTHI MINERALS
5. V V. MINERALS
6. SARA INDUSTRIALS MINERALS
7. MAHAVEER METALS & MINERALS
8. S S. INTERNATIONAL MINERALS
9. B S V . TRADING MINERALS COMPANY
10. A & A. INTERNATIONAL TRADING MINERALS
11. SIBELCO INDIA MINERALS PVT. LTD

1.5 Objectives of the organization

1.

To carry on the business of buying, selling, reselling, importing, exporting, all

type of goods on retail as well as on wholesale basis in India or elsewhere.

2.

To carry on the business as exhibitors of various goods, services and

merchandise and to undertake the necessary activities to promote sales of goods,

services and merchandise manufactured/dealt with/provided by the Company.
3.

To act as broker, trader, agent, C & F agent, shipper, commission agent,

distributor, representative, franchiser, consultant,

4. To reduce the number of defects in manufacturing

1.2OBJECTIVE OF THE STUDY

PRIMARY OBJECTIVE
To study the level of inventory for continuous production in ES.ES.MINERALS.
SECONDARY OBJECTIVES
a. To find the efficiency of inventory management system.
b. To analyze the ABC analysis.
c. To evaluate the movement of stock through FSN analysis.
d. To analyze the different inventory ratio.

SCOPE OF THE STUDY

a) It develops policies for both the continuous review and periodic review of
inventory control system.
b) It distinguishes the different type of inventory an knows how to manage their
c)

quantities.
Saving can be increased which is used for satisfaction of working capital
needs.

LIMITATIONS OF THE STUDY

a) The study is based on the secondary data collected from annual report of
the company. Hence the reliability of the may not be accurate.
b) The study is limited to ES.ES.MINERALS and other concerns are not
considered.
c) Due to time constraints the study is limited to selected spares only.