A

Project Report
On

“A STUDY ON INVENTORY MANAGEMENT”

Submitted By

MR. PRIYANK
GONDALIA

ROLL NO: 39

In partial fulfillment for the award of the degree

of

POST GRADUATE DIPLOMA IN FINACAIAL MANAGEMENT

DEPARTMENT OF ACCCOUNTING & FINANCIAL

MANAGEMENT

FACULTY OF COMMERCE
THE M.S.UNIVERSITY OF BARODA
VADODARA

UNDER THE GUIDANCE OF

MS. HETAL SONI

1
POST GRADUATE DIPLOMA IN FINANCAIAL MANAGEMENT
DEPARTMENT OF ACCOUNTING & FINANCIAL
MANAGEMENT
FACULTY OF COMMECE
THE M.S.UNIVERSITY OF BARODA
VADODARA

BONAFIDE CERTIFICATE

Certified that this project report “A STUDY OF

INVENTORY MANAGEMENT & BUDGETORY
CONTROL” is a bonafide work of “PRIYANK GONDALIA”
who carried out the project work under my supervision. Thus
the sole object of collecting information is of academic purpose
and I sure that collected information is of academic purpose
shall be only for fieldwork report and nothing else.

SIGNATURE
HETAL SONI

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 ACKNOWLEDGEMENT

I am appreciative to Mrs. Hetal Soni mam (Collage Guide ) for her detail
direction in systematic and effective completion of the task.

I likewise extraordinarily on grateful of Mr. Mitul Parmar sir, for allowing

me the chance to do the undertaking work and furthermore for his all-
inclusive help to make this task finish.

I additionally thankful to every one of my colleagues particularly Samarth

dixit and pankil patel for the enormous help and helping me out altogether
till the end, as well as web.

I genuinely thank those all who helped me to finish the project.

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 TABLE OF CONTENT

1 INTRODUCTION 5

2 ORGANIZATIONAL PROFILE

2.1 Introduction of the organization 9

2.2 Raw material inventory 9

2.3 Finish good stock 10

3 RESEARCH METHODOLOGY

3.1 Objective 10

3.2 Scope of study

3.3 Disadvantage of study

4 DATA COLLETION TECHNIQUE

4.1 Primary sources of data 13

4.2 Secondary sources of data 15

5 INVENTORY RATIOS

5.1 Objectives 16

5.2 Stock level 17

5.3 Method of evaluation 19

6 DATA ANALYSIS 23

7 CONCLUSION 28

8 BIBLOGRAPHY 29

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 1. INTRODUCTION

INVENTORY MANAGEMENT
Inventory management and production network the board are the
foundation of any business operation. With the improvement of innovation
and accessibility of procedure driven programming applications, stock
administration has experienced progressive changes. In any business or
association, all capacities are interlinked and associated with one another
and are regularly covering. Some key viewpoints like store network the
executives, coordination’s and stock structure the foundation of the
business conveyance work. Therefore these functions are critically
important to marketing managers as well as budgetary controllers.
Inventory management is a very vital role that regulates the wellbeing
of the inventory network as well as the effect of the financial health of
the balance sheet. Each association continually endeavors to keep up ideal
stock to have the capacity to meet its prerequisites and stay away from over
or under stock that can affect the money related figures.
Inventory is dynamic. A large portion of the organizations have a different
office or occupation work called stock organizers who ceaselessly screen,
control and audit stock and interface with generation, procurement and
finance departments.

INVENTORY MANAGEMENT TECHNIQUES

Managing inventory can be a daunting assignment, and in the event
that it isn't done appropriately it could cost organization a large number of
dollars. Inventory management grows more and more complicated with
increase in sales volume and diversification of product assortment.

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 1. INVENTORY REVIEW
Inventory review is a standard investigation of stock versus anticipated
future needs. This should be possible through a manual survey of stock or
by utilizing stock programming. Defining your base stock dimension will
enable you to set up standard reviews and reorders of provisions. Make
sure to take into account certain situations that can arise, such as vendors
taking longer than average to replenish stock. This will help you in utilizing
in the nick of time ordering, where the stock is held for a base measure of
time before it moves to the following stage in the production network.

In businesses where manual inventory management techniques are still in

use, the primary inventory control methods include:

 Visual control
 Tickler control
 Click-sheet control

You shouldn’t perform manual reviews because they can take a lot of time
and possibly produce errors. Businesses are starting to invest in software
to automate the review, and it will help organizations keep track of their
inventory, ensure timely reorders, and avoid costly shortages.

1. ABC ANALYSIS

This is a mainstream approach to break down your stock. Under this

strategy, you arrange the stock into three classifications, for example, A,
B and C. These classifications depend on the stock esteem and cost
centrality. Additionally, the quantity of things and estimations of every
class are communicated as a level of the aggregate.

- Items of high value and small in number are termed as “A”

- Items of moderate value and moderate in number are termed as “B”
- Items of small in value and large in number are termed as “C”

To manage each category separately: The nice thing about group C is that
it can be fairly hands-off, while group A requires special attention. You
can use ABC analysis in conjunction with the just-in-time technique to
help you get your reorder timing just right.
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2. VED ANALYSIS:

VED analysis speaks to arrangement of things dependent on criticality.

The analysis arranges the things into three gatherings called Vital,
Essential, and Desirable.
Vital category envelops those things for need of which production would
come to halt. Essential group includes items whose stock outs cost is
very high. Desirable group comprises of items which do not cause any
immediate loss of production or their stock-out entail nominal
expenditure and cause minor disruptions for a short duration.

3. SDE ANALYSIS:

SDE analysis classifies into three items called ‘Scarce’, ‘Difficult’ and ‘Easy’.
The information so developed is then used to decide purchasing strategies. SDE
analysis is based on problems of procurement namely:

 Non-availability
 Scarcity
 Longer lead time
 Geographical location of suppliers
 Reliability of suppliers, etc.

4. JUST IN TIME:
The objective of JUST IN TIME method is to increase the inventory
turnover and at the same time reduce the inventory holding cost. JIT
inventory system also exposes the unwanted or the dead inventory held by
the retailer/ manufacturer. This method is ideal for manufacturing
organization and it is not used in Retail industry in general. This will also
involve usage of Kanban card to track inventory movement.

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5. VENDOR MANAGED INVENTORY:
As the name explains, it involved SKUs managed directly by the supplier.
Inventory is replenished based on the sales on regular intervals by the
vendor. The retailer provides shop floor space and the vendor is charged
a consignment rate on every product sold at the location. The ownership
of the items from receiving to sales and inventory loss if any will be
with the supplier.

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 2. ORGANIZATION PROFILE

2.1 Company Name: Mahindra Forgings Ltd.

Website: www.mahindracie.com

The Mahindra Group

The Mahindra Group is a league of organizations with an expanded nearness

crosswise over 18 businesses and working in excess of 100 nations over the
world. The unified structure guarantees that every business diagrams its very
own future and is all the while ready to use the cooperative energies of the
gathering's skills. A US $16.9 billion worldwide gathering, it utilizes in excess
of 200,000 individuals and appreciates an authority position in utility vehicles,
tractors, data innovation and excursion proprietorship. It likewise has a
developing nearness in zones like car industry, aviation, secondary selling,
segments, counselling administrations, protection, vitality, budgetary
administrations, coordination’s, land, retail, and bikes. In 2013, the Mahindra
bunch got the Financial Times 'Boldness in Business' Award in the 'Developing
Markets' class. Group Chairman, Mr. Anand Mahindra, was likewise named the
'Entrepreneur of the year – 2013' by Forbes India magazine. In 2012, Mahindra
included on the Forbes Global 2000 rundown, a posting of the greatest and
most dominant recorded organizations on the planet.

2.2 Raw Material Inventory:

Raw materials inventory is the overall price of all element present in stock
that have not yet been utilized in work-in-process or finished goods
production.
Raw material can further be divided in two sub category, they are

 Direct material - These are materials fused into the final item. For
instance, this is the wood used to make a bureau.

 Indirect material - These are materials not consolidated into the last
item, yet which are used in the creation procedure. For instance, this
is the ointment, oils, clothes, lights, etc devoured in a run the
manufacturing unit.
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The cost of raw materials on hand as of the balance sheet date appears in the balance
sheet as a current asset. Raw materials might be totaled into a solitary stock detail in a
critical position sheet that additionally incorporates the expense of work-in-process
and finish good stock. It maybe announce outdated, probably because they are no
longer used in company products, or for the reason that they have despoiled while in
storage, and so can no longer be used. If so, they are usually charged directly to the
overall cost of goods sold with a counterbalancing credit to the raw materials stock
record.

2.3 Finish goods inventory:

Finished goods are products that have been finalized by the assembling procedure, or
acquired in a finished structure, yet which have not yet been sold to clients. Products
that have been bought in finished structure are known as product. The expense of
finished good stock is viewed as a short term assets, whereas the desire is that these
things will be sold in under one annual year. The aggregate sum of completed
products stock available as of the finish of a revealing period is normally totaled with
the expenses of crude materials and work-in-process, and is accounted for inside a
solitary "Stock" detail on the balance sheet.

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 3. RESEARCH METHODOLOGY

3.1 Objectives:
1) To Learn the Inventory Management Techniques.

2) To Learn the Different types of Inventory Control techniques.

3) To learn the procedure of Implementation of ABC Analysis.

The principal focus behind this endeavor is to consider the approach

of Integrated Material Management for satisfactory Inventory Control.
This can be practiced by

a) Removal of worthless activities.

b) Cut a deal with Vendor/ Service providers

c) Converting Fixed expense as Variable expense

d) Import substitution of raw material without affecting the quality &

features.

To reflect the significance of Inventory Management System in

`connection to Mahindra CIE auto.Ltd.

3.2 Scope of the Study:

Because of absence of offices given by organization, individuals are not
working productively and it has abnormal effect on their performance and
result, so
1) Assessing their needs,

2) Working conditions,

3) Providing the development opportunities,

4) Helping skill development through training interventions and planning.

And through this the employee satisfaction level can be increases &
productivity also increases.
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3.3 Disadvantage of the Study:

1) Just In Time.

2) Commodity wise inventory value.

3) Constant attention required.

4) Subject to human blunder when representatives enter wrong data accidentally.

5) Details of product is not disclose due to confidential policy.

6) Daily work load and work responsibility.

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 4. DATA COLLECTION TECHNIQUE

4.1 PRIMARY SOURCES OF DATA

Primary knowledge data is collected or generated by the scientist
for the needs of the project like a shot at hand. For example, an
investigator wants to know about the level of job satisfaction by the
workers industry. He can prepare a schedule and meet a sample number
of workers and ask for their opinions. This is reaching to be the
knowledge collected for the item of this study and so becomes primary in
nature. When the data are collected for the first time, the responsibility
for the processing of data also rests with the original investigators.
Ordinarily, experiments and surveys constitute the main sources of
primary data. For better understanding of the nature of primary sources of
data advantages and disadvantages will have to be studied.

Sources of
data collection

primary data
collaection

Questionnaire
Interview Observation
& survey

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METHODS OF COLLECTING PRIMARY DATA

The Primary information are the data created to meet the lesser explicit
necessities of the current examination. Therefore, the agent needs to gather,
information independently for the investigation attempted. Coming up next are
the three strategies which are utilized to arrange essential information.
(1)Observation (2) survey (3) Interview.

1) Observation:

It is one of the less expensive and progressively powerful procedures of

information collection. This way to deal with the gathering of data is as
old as human race. Perception is essential in sciences as well as in
sociologies inquire about additionally perception has its own utility. It
isn't constantly conceivable to measure the information and make precise
determinations based on such information. In this way, the perception or
observation technique is commonly received for testing speculation.

Stock Management framework has seen by offering visit to the store

division. Container Card, Coding of Inventory, Inward and Outward of
Inventory, ERP framework, ABC system everything identified with
Inventory Management has been watched.

2) Survey and Questionnaire:

The Most frequently utilized technique for information gathering is called
survey. These strategies are considered to have a specific applicability, if
the specialist is to gather information on personal preference, social
behavior, sentiments, convictions, emotions, and so forth the expanding
utilization of timetables and polls is a result of expanded stress by social
researcher on quantitative estimation of systematically aggregated data.

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3) Interview:
Meeting is additionally valuable procedure of information gathering
through essential sources. It is a verbal technique for verifying
information in the field reviews. Data is obtain by talking with the
respondents.

4.2 SECONDARY SOURCES OF DATA

Secondary information refer to the data that has been gathered by somebody
other than an analyst for purposes other than those engaged with the exploration
venture within reach. There are different factors, for example, the nature of the
reserch /examination, status of the specialist, accessibility of funds, time and
level of expertness of the outcomes wanted, that chose the decision of the
sources of information that improves the utility of the study.
The study of this project is made with the help of secondary data.
Internal Sources:
This information is gathered from the association.
1) With the assistance of capacity information in the association just as data got
from Store director who gives reasonable thought of how stock administration is
done in the association.
2) By watching inside Inventory related Reports and Documents like Bin Cards,
Purchase Order, and Goods Receipt cum Inspection Note and so on.

External Sources:
There are few external sources for secondary data like
Website of the company
Reference books-
Textbook of Logistics and supply chain management by D K Agrawal
and Inventory Management by L C Jhamb is used during the study.

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 5. Inventory Ratios

5.1 The Objectives of Inventory Turnover Ratios:-

1. Fast Moving Stock
2. Slow Moving Stock
3. Dormant Stock
4. Obsolete Stock.

Following Are Some of the Ratios:-

1. Inventory Turnover Ratio:-

This ratio is a relationship between cost of material consumed and average
inventory held during the period. It is calculated by applying the following
formula-
=Cost of material consumed
Cost of average stock held during the period.

Higher ratio indicates fast moving stock. Low ratio indicates up of work capital.
The ratio is calculated in days as follows:-
= Days during the period
Inventory turnover ratio

This ratio shows the period for which inventory is held. The period should be a
minimum as possible. Shorter the period better is the management.

2. Input output ratio:-

This ratio is relationship between finished goods and material consumed. It is
calculated as follows-
=Value of output
Value of input of materials

The ratio can be calculated by applying the following formula:-

= Standard cost of Actual Quantity
Standard cost of a Standard Quantity

The ratio facilitates to know the performance of the firm. It also helps to know
whether the use of material is favourable or unfavourable.

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3. Ratio of Slow Moving Items to Total Inventory:-
This ratio is calculated to find out the proportion of slow moving items to total
inventory. It is given by the following formula-
= Slow moving Stores
Total Inventory

This ratio helps to identify the slow moving items. Higher ratio indicates that there
are many slow moving items and therefore capital is locked up. Management
should take immediate steps to set right this situation.

5.2 Stock levels.

This system fixes stock control levels regarding amount to guarantee that Ideal
amount of materials is purchased and put away. It additionally responds to the
inquiry, when to purchase and helps the administration to spending plan and get
ready time calendar of buys. The procedure requires obsession of stock control
levels in regard of each kind of material.

The Different Limits Fixed Are:-

1. Maximum Level:-
This dimension shows most extreme amount of stock to be held whenever. It is the
biggest amount of a specific material whenever. The amount of stock should nos.
surpass the dimension. This is to limit stock holding costs.

Factors:-
*Re-Order Level.
*Re-Order Quantity.
*Minimum Consumption.
*Minimum Re-Order Period.
*Adequacy of Working Capital.
*Storage Space.
*Additional Storage Cost.
*Additional Insurance Cost.
*Risk of Loss Due To Obsolescence.
*Fluctuations in Price.
*Supply of Imported Materials.
This level is fixed by using the following formula:-
Maximum Level = Reorder Level + Reorder Quantity – (Minimum Consumption*
Minimum Time for Reordering)
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2. Minimum Level:-
This level indicates minimum quantity of stock to be held at any time. It is the
lowest quantity of material to be held at all the time. This is to avoid risk of
dislocation of production process. This level is fixed after taking into consideration
the rate of consumption and the time required to acquire sufficient materials to
avoid dislocation of production.

Factors:-
*Re-order Level.
*Normal Consumption.
*Normal Re-Order Period.
The following formula is used to fix up the minimum level:-
Minimum Level = Reorder Level – (Normal Consumption * Normal Reorder
Period)

3. Re-order Level:-
This dimension shows an opportunity to put request for material. It implies the
activity point for securing the material. This dimension is between the base and
greatest dimensions. It is the dimension at which buy order ought to be made out
for new supply. The object of this dimension is to demonstrate time to put request
with the goal that stock isn't decreased to a dimension not exactly the base
dimension.

Factors:-
*Maximum Consumption.
*Maximum Re-order Period.
*Minimum Level.
The following formula is used to fix up Reorder-Level:-
Reorder Level = (Maximum Consumption * Maximum Reorder Period)

4. Danger Level:-
It shows the dimension of stock when the typical issue ought to be halted. It shows
the need of dire consideration and crisis ventures to recharge stock by acquiring
materials. The amount of this dimension is among least and nil stock dimension.
The target of fixing risk level is to choose when a critical activity is required for
acquirement of crisp supply of material.
Factors:-
*Normal Consumption.
*Maximum Re-order Period for Emergency Purchases.
The following formula is used to fix up Danger Level:-
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Danger Level = Normal Consumption * Maximum Re-order Period for Emergency
Purchases.

5. Average Stock Level:-

It is the average of maximum level and minimum level. It is the average stock of
materials in the stores.
It is calculated by the following formula:-
Average Stock = Minimum Level + ½ Re-order Quantity.
The fixation of control levels is based mainly on non-cost factors. It is based on
times involved in several control procedures and rate of consumption.

5.3 DIFFERENT METHODS OF EVALUATION OF INVENTORY.

A large part of stock valuation comes from being able to understand how inventory
is valued and built.
To put it in the most basic form, inventory is what you have in stock. If you
expand on this definition to look at what is involved on the other side of the scale
to get the ending inventory amount, the equation for inventory is
=Beginning Inventory + Net Purchases – Cost of Goods Sold = Ending
Inventory.
In words, your beginning inventory along with your purchases and then subtracting
what you have sold, results in ending inventory. But this is where it gets tricky with
GAAP rules. Depending on the inventory valuation method used by the company,
the COGS can vary considerably which ultimately affects the ending inventory.

1. Average Cost Method.

2. First in First Out (FIFO) Method.
3. Last in First Out (LIFO) Method.
4. Weighted Average Cost Method (WAC).
5. Highest in First Out Method (HIFO).
6. Next in First Out Method (NIFO).
7. Cost Production.
8. Market Production.
9. Replacement.

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1. Average Cost Method:-
To put it real bluntly, the average cost method is rarely used. This method does not
offer any real convenience or added accuracy.
The equation for average cost method is as follows:-
Average Cost = (Total Quantity of Inventory Units) / (Total Quantity of Units)
Where,
Cost of Goods Sold = (Average Unit Cost) x (Number of Units Sold)
For example if 1,000 toys are produced on Monday at a cost of $1 and then on
Tuesday another 1,000 toys are manufactured at a price of $1.05, the average cost
method would value the inventory at $1.025 a piece.

2. FIFO Method:-
As mentioned previously on aggressive and conservative accounting policies, the
FIFO method of valuing inventory is considered to be the aggressive method. FIFO
works like how you maintain your fridge at home. After you have bought some
groceries, you tend to place what you just bought at the back of the fridge in order
to finish off the older food before it spoils.
In other words, under FIFO, the oldest goods are sold first and the newest goods
are sold last.
As a formula it would look like this:-
Unit Cost per batch = (Cost/Quantity) for each batch
Where,
Cost of Goods Sold = (Unit Cost x Quantity) for each batch
Using the toy example above, if 1,000 toys were then sold on Wednesday, the
COGS would be $1 per unit. The remaining inventory on the balance sheet would
then be worth $1.05 each.

3. LIFO Method:-
LIFO is the opposite of FIFO. Instead of the oldest inventory being considered as
sold first, the newest product is sold first. While the factory analogy works for the
FIFO, consider a bakery. By lunch or evening, the bread baked from the morning
will not sell as well as the fresh ones from the afternoon batch.
This means that cost of the latest inventory now becomes the COGS with the cost
of the oldest inventory being assigned to the inventory value on the balance sheet.
The equation is essentially the same as FIFO since both are calculated based on
batches of unit sold.
Unit Cost per batch = (Cost/Quantity) for each batch
Where,
Cost of Goods Sold = (Unit Cost x Quantity) for each batch
Using the toy example, the 1,000 units sold on Wednesday would have a COGS of
$1.05 per unit, with the remaining 1,000 toys being valued at $1 each.
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4. WEIGHTED AVERAGE COST METHOD:-
Inventory valuation method used where different quantities of goods are purchased
at different unit costs. Under this method, weights are assigned to the cost price on
the basis of the quantity of each item at each price.

5. HIFO Method:-
In accounting, an inventory distribution method in which the inventory with the
highest cost of purchase is the first to be used or taken out of stock. This will
impact the company's books such that for any given period of time, the inventory
expense will be the highest possible.
Companies would likely choose to use the HIFO inventory method if they wanted
to decrease their taxable income for a period ofntime. Because the inventory that is
recorded as used up is always the most expensive inventory the company has
(regardless of when the inventory was purchased), the company will always be
recording maximum cost of goods sold.

6. NIFO Method:-
A method of valuation where the cost of a particular item is based upon the cost to
replace the item rather than on it's original cost. This form of valuation is not one
of the generally accepted accounting principles (GAAP) because it is said to violate
the cost principle. The cost principle is an accounting concept that states that goods
and services should be recorded at their original cost, not present market value.

7. Cost Production:-
A cost incurred by a business when manufacturing a good or producing a service.
Production costs combine raw material and labor. To figure out the cost of
production per unit, the cost of production is divided by the number of units
produced. A company that knows how much it will cost to produce an item, or
produce a service, will have a clearer picture of how to better price the item or
service and what will be the total cost to the company. Businesses that know their
production costs know the total expense to the production line, or how much the
entire process will cost to produce the item. If costs are too high, these can be
decreased or possibly eliminated. Production costs can be used to compare the
expenses of different activities within the company. In production, there are direct
costs and indirect costs. For example, direct costs for manufacturing an automobile
are materials such as the plastic, metal or labor incurred to produce such an item.
Indirect costs include overhead such as rent, salaries or utility expense.

8. Market Production:-
In a general sense, market production refers to the production of a product or
service which is intended for sale at a money-price in a market. The product or
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service in principle has to be trade able for money.

9. Replacement:-
The cost to replace the assets of a company or a property of the same or equal
value. The replacement cost asset of a company could be a building, stocks,
accounts receivable or liens. This cost can change depending on changes in market
value. Replacement cost insurance can be purchased to protect and cover a
company or individual from this type of cost. This insurance pays the full amount
needed to replace the asset or property. The gradual reduction of the asset value or
depreciation is not taken into account for insurance purposes.

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 6. DATA ANALYSIS

One of the major working troubles in the logical stock control is a very
expansive assortment of things loaded by different associations. These
may fluctuate from 10,000 to 100,000 distinct kinds of supplied things
and it is neither practical nor attractive to apply thorough logical
standards of stock control in every one of these things. Such an
unpredictable methodology may make cost of stock control more than its
advantages and consequently may end up being counter-gainful. Along
these lines, stock control must be practiced specifically. Contingent on
the esteem, criticality , and use recurrence of a thing we may need to
settle on a proper sort of stock approach. The specific stock
administration in this manner assumes a urgent job with the goal that we
can put our constrained control endeavors all the more sensibly to the
more huge gathering of things. In specific administration we bunch things
in couple of discrete classes relying on esteem; criticality and use
recurrence. Such investigations are famously known as ABC, VED and
FSN Analysis individually. This sort of collection may well shape the
beginning stage in presenting logical stock administration in an
association.

In Mahindra CIE Auto. Ltd. ABC investigation is utilized for dealing

with the stock. So the investigation of ABC examination is done in this
task.

ABC ANALYSIS:

The concept ABC (Always Better Control) Analysis is based on

‘Think on the Best and then on the Rest’. ABC analysis underlines a very
important principle “Vital few: trivial many” Generally, companies are
required to keep stock of large number of items used in production and
distribution. In practice, it is not possible to maintain and control a
similar/ proper level of inventory of all items, which is also not feasible
due to resource constraints. Hence, the prevalent practice is that sincere
efforts are made to have a proper control on the most circulating items
and least on rare circulating once.

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 ABC analysis offers a basis for grouping of items on certain basis of
annual/ monthly consumption value. In other words, of an item’s unit
price is very little but if it is a most circulating items and its
monthly/annual consumption value is maximum, then closer and careful
control will be done and vice versa. Hence, In ABC analysis, items are
categorized in three broad groups, namely; A, B, and C, on the basis of
their monthly/annual consumption value.

INVENTORY STUDY:
‘INVENTORY’ may be defined as ‘usable but idle resource’. If
resource is some physical and tangible object such as materials, then it
is generally termed as stock. Thus stock or inventories are synonyms
terms though inventory has wider implications.

Or

Inventory is a detailed list of movable items, which are necessary to

manufacture a product and to maintain the equipment and machinery
in good working order. The quantity and the value are also mentioned
in the list.

Broadly speaking, the problem of INVENTORY in inventory

management is one of maintaining, for a given financial investment, an
adequate supply of something to meet an expected demand pattern. This
could be raw material, work in progress finished products or the spares
and other indirect material.

INVENTORY system in inventory can be one of the indicators of the

management effectiveness on the materials management front. Inventory
turnover ratio (annual demand/average inventory) is an index of business
performance. A soundly managed organization will have higher
inventory turnover ratio and vice-versa.

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Inventory management deals with the determination of optimal policies
and procedures for procurement of commodities. Since it is quite difficult
to imagine a real work situation in which the required material will be
made available at hr point of use instantaneously, hence maintaining
inventories becomes almost necessary. Thus
inventories could be visualized as ‘necessary evil’.

Thus Inventory management/control during use of INVENTORY system

is concerned with achieving an optimum balance between two competing
objectives. The objectives are:

- To minimize investment in inventory

- To minimize the service levels to the firm’s customers and its
own operating departments

Inventory Related Cost

An inventory as per INVENTORY system may be defined as one

in which the following costs are significant-

a) Cost of carrying inventories (holding cost)

b) Cost of incurring shortages (stock out cost)
c) Cost of replenishing inventories (ordering cost)

a) Cost of carrying inventories (holding cost)

This is expressed as Rs/item hold in stock/unit time. This is the

opportunity cost of blocking material in the non-productive form as
inventories. Some of the cost elements that comprise carrying cost are-
Cost of blocking capital (interest rate); cost of insurances; storage cost;
cost due to obsolescence, pilferage, deterioration, etc. It is generally
expressed as a fraction of carrying charges in value of the goods stocked
per year.
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For example, if the fraction carrying charge is 20 % per year and a
material worth is Rs. 1000 is kept in inventory for one year, the unit
carrying cost will be Rs
200item/year. It is obvious that for items that are perishable in nature,
the attributed carrying cost will be higher.

b) Cost of incurring shortages (stock out cost)

This is opportunity cost of not having an item in stock when one is

demanded. It may be due to lost sales or backlogging. In the backlogging
(or back ordering) case the order is not lost but is backlogged, to be
consolidated as soon as the item is available on stock. In lost sales case
the order is lost. In both cases there are tangible and intangible costs of
not meeting the demand on time. It may include lost generally expressed
as Rs/ item short/ unit time.

c) Cost of replenishing inventory (ordering cost)

This is the amount of money and efforts expended in procurement

or acquisition of stock. It is generally ordering cost. This cost is usually
assumed to be independent of quantity ordered, because the fixed cost
component is generally more significant than the variable component.
Thus it is expressed as Rs / order.
Thus three types of cost are the most commonly incorporated in
inventory analysis though there may be other costs parameters relevant
in such an analysis such as inflation, price discounts etc.

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 Conducting ABC Analysis:
To conduct ABC analysis, following steps are necessary:
a) Prepare the list of the items and estimate their annual consumption(units)

b) Determine unit price (or cost) of each item.

c) Multiply each annual consumption by its unit price (or cost)

to obtain its annual consumption in rupees (annual usage).
d) Arrange items in the descending order of their annual usage
starting with highest annual usage down to the smallest usage.
e) Calculate cumulative annual usages and express the same as
cumulative usage percentages. Also express the number of items
into cumulative items percentage.
f) Graph cumulative usage percentages against cumulative item
percentages and segregate the items into A, B and C categories.
g) Decide the policies of control for the three categories.

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 6. Conclusion

To study the role/importance of INVENTORY system in relation to

Mungi Brothers organization.
Today’s market is a customer oriented market and customer satisfaction
is the most important goal of every organization therefore it is inevitable
to adopt integrated Inventory Management approach for new product
development strategy. Financial – Material management for any product
is a dynamic decision making process involving a series of inter-related
activities.
In today’s dynamic market “Every Bench marks are dynamic,
challenge them for continual improvement”. In order to remain in market
any organization needs to define the process, Benchmark for the
excellence, endeavor to achieve it by strategizing & creating
environment, providing required resources & effective monitoring.
INVENTORY system is an extremely important problem area in
the management of materials handling. It is quite susceptible to control
and a very large amount of scientific models are available in the literature
to enable us to choose an optimal inventory policy. Buying the optimal
quantity can result only from a sound inventory control system that is
achieved by judicious reconciliation of conflicting costs and departmental
objectives. However, inventory is only an indicator of performance of
materials management function and to cut down inventories we use not
only scientific inventory management principles but also models along
with it also take long-term measures to reduce inventories through
strategies such as variety reduction and standardization, source
development and optimization, and vendor rating, lead-time reduction
through improvement in the systems and procedures of procurement. It is
obvious that scientific inventory management has to be practiced
selectively rather than indiscriminately to make it cost-effective. It is also
important to have
Informational inputs like demand forecast, lead-time estimate, and other
cost estimates to be realistic to make effective use of inventory models.

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 7.BIBLIOGRAPHY

1. Logistics and Supply Chain Management - D K Agrawal

2. Inventory Management - L C Jhamb

3. www.fishbowlinventory.com/articles/inventory-
management/inventory- management-techniques/
4. https://www.moneycontrol.com/company-
facts/mahindracieautomotive/history/MF19?classic=true (2.2/2.3
company history )

5. http://www.managementstudyguide.com/inventory-management.htm

6. https://www.accountingtools.com/articles/2017/5/13/raw-materials-inventory (2.4
raw material inventory)

7. https://www.accountingtools.com/articles/2017/5/10/finished-goods-inventory
(2.5 finsihed good)

8.

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