2.

Explain in detail about the inventory management system followed in a textile

firm of your choice. Discuss the various advantages and disadvantages of this
current system & develop suggestions for improvement in the inventory
management.

LAXMI COTSPIN PVT.LTD. JALNA

ABOUT COMPANY:
Laxmi Cotspin Pvt.Ltd. is a joint venture of Rajuri Steel Pvt.
Ltd. & Gujrat Tea Traders Pvt.Ltd both is renowned group in
India. Rajuri Steel Pvt.Ltd is in core business of manufacturing
MS steel ingots, TMT bars with world class sThermax
technology in brand “Rajuri500” where as Gujarat Tea Traders
Pvt.Ltd. is well known for :Bhaishree’s Vikram” brand premium
tea, both having a large dealers network all over India.

PROCESS SETUP:
The installed capacity of Laxmi Cotspin in the first phase is 15600 spindles. The
company envisages to setup 1,20,000 spindles in phased manner. The plant produces
100% combed cotton, weaving & hosiery yarns, counts ranging from 20’ to 60’ Ne.
The plant is equipped with state of the art latest machineries of international repute.
Blow Room & Carding from Trumac Truzschler, Preparatory machines of Rieter
Textile System with high speed auto leveler Draw Frames, Unilap and Combers,
Zinser Speed Frames, KTTM high speed long ring frames with auto doffer,
Schlafhorst Autoconer 338 with Leophe electronic yarn clearer. The plant is
equipped with fully automatic dust & pollution-free Luwa removal & yarn
conditioning systems.

INTRODUCTION TO INVENTORY MANAGEMENT:

Inventory is a list for goods and materials, or those goods and materials themselves, held
available in stock by a business. Inventory are held in order to manage and hide from the
customer the fact that manufacture/supply delay is longer than delivery delay, and also to
ease the effect of imperfections in the manufacturing process that lower production
efficiencies if production capacity stands idle for lack of materials.
The most important objective or inventory control is to determine and maintain an
optimum level of investment in the inventory. Most companies have now successfully
installed one or the other system of inventory planning and control.
Inventory Management and Inventory Control must be designed to meet the dictates of
the marketplace and support the company's strategic plan. The many changes in market
demand, new opportunities due to worldwide marketing, global sourcing of materials,
and new manufacturing technology, means many companies need to change their
Inventory Management approach and change the process for Inventory Control.
Despite the many changes that companies go through, the basic
principles of Inventory Management and Inventory Control remain the
same. Some of the new approaches and techniques are wrapped in
new terminology, but the underlying principles for accomplishing good
Inventory Management and Inventory activities have not changed. The
Inventory Management system and the Inventory Control Process
provides information to efficiently manage the flow of materials,
effectively utilize people and equipment, coordinate internal activities,
and communicate with customers. Inventory Management and the
activities of Inventory Control do not make decisions or manage
operations; they provide the information to Managers who make more
accurate and timely decisions to man.
Inventories constitute the most significance part of current assets of a
large majority of companies in India. On an average, inventories are
approximately 60 per cent of current assets in public limited
companies in India. Because of the large size of the inventories
maintained by firms, a considerable amount of funds is required to be
committed to them. It is, therefore, absolutely imperative to manage
inventories efficiently & effectively in order to avoid unnecessary
investment. A firm neglecting the management of inventories will be
jeopardizing its long run profitability & may fail ultimately. It is possible
for a company to reduce its level of inventories to a considerable
degree, 10 to 20 per cent ,
without any adverse effect on production and sales, by using simple
inventory planning and control techniques. The reduction in ‘excessive’
inventories carries a favorable impact on a company’s profitability.

Despite the many changes that companies go through, the basic

principles of Inventory Management and Inventory Control remain the
same. Some of the new approaches and techniques are wrapped in
new terminology, but the underlying principles for accomplishing good
Inventory Management and Inventory activities have not changed. The
Inventory Management system and the Inventory Control Process
provides information to efficiently manage the flow of materials,
effectively utilize people and equipment, coordinate internal activities,
and communicate with customers. Inventory Management and the
activities of Inventory Control do not make decisions or manage
operations; they provide the information to Managers who make more
accurate and timely decisions to man.
Inventories constitute the most significance part of current assets of a
large majority of companies in India. On an average, inventories are
approximately 60 per cent of current assets in public limited
companies in India. Because of the large size of the inventories
maintained by firms, a considerable amount of funds is required to be
committed to them. It is, therefore, absolutely imperative to manage
inventories efficiently & effectively in order to avoid unnecessary
investment. A firm neglecting the management of inventories will be
jeopardizing its long run profitability & may fail ultimately. It is possible
for a company to reduce its level of inventories to a considerable
degree, 10 to 20 per cent ,without any adverse effect on production
and sales, by using simple inventory planning
and control techniques. The reduction in ‘excessive’ inventories carries
a favorable impact on a company’s profitability.

NATURE OF INVENTORIES
Inventories are stock of the product a company is manufacturing for
sale and
components that make up the product. The various forms in which
inventories exist in a manufacturing company are :
1. Raw materials are those basic inputs that are converted in to
finished product
through the manufacturing process. Raw material inventories are those
units
which have been purchased and stored for future production.
2. Work in process inventories are semi-manufacturing products. They
represent
products that need more work before they become finished products
for sale.
3. Finished goods inventories are those completely manufactured
products which are ready for sale. Stocks of raw material and work in
process facilitate production, while stock of finished goods is required
for smooth marketing operations. Thus ,inventories serve as a link
between the production and consumption of goods.

The levels of three kinds of inventories for a firm depend on the nature
of its
business. A manufacturing firm will have substantially high levels of all
three kinds of inventories, while a retail or wholesale firm will have a
very high level of finished goods inventories and no raw material and
work-in-process inventories. Within manufacturing firms, there will be
differences. Large heavy engineering companies produce long
production cycle products; therefore, they carry large inventories. On
the other hand, inventories of a consumer product company will not be
large because of short production cycle and fast turnover.
Firms also maintain a fourth kind of inventory, supplies or stores and
spares.
Supplies include office and plant cleaning material like soap, brooms,
oil, fuel, light bulbs etc. These materials do not directly enter
production, but are necessary for production process. Usually, these
supplies are small part of the total inventory and do not involve
significant investment. Therefore, a sophisticated system of inventory
control may not be maintained for them.
NEED TO HOLD INVENTORIES
The question of managing inventories arises only when the company
holds
inventories. Maintaining inventories involves tying of the company’s
funds and
incurrence of storage and handling costs. If it is expensive to maintain
inventories, why do companies hold inventories? There are three
general motives for holding inventories.
.Transaction motive emphasis the need to maintain inventories to
facilitate smoothproduction and sales operations.

.Precautionary motive necessitates holding of inventories to guard

against the risk of unpredictable changes in demand and supply forces
and other factors.

.speculative motive influences the decision to increase or reduce

inventory levels to take
advantages of price fluctuations.

A company should maintain adequate stock of materials for a continuous supply

to the factory for an uninterrupted production. It is not possible for a company to procure
raw materials whenever it is not possible for a company to procure raw materials
whenever it is needed. A time lag exits between demands for materials and its supply.
Also, there exits uncertainty in procuring raw materials in time on many occasions. The
procurement of materials may be delayed because of such factors as strike, transport
disruptions or short or short supply. Therefore, the firm should maintain sufficient stock
of raw materials at a given time to streamline production. Other factors which may
necessitance purchasing and holding of raw material inventories are quantities discounts
and anticipated price increase. The firm may purchase large quantities of raw material
than needed for the desired production and sales levels to obtain quantity discount of bulk
purchasing. At times, the firm would like to accumulated raw materials in anticipation of
price rise.

Work-in-process inventory builds up because of the production cycle. Production

cycle is the time span between introduction of raw material into production and
emergence of finished product at the completion of production cycle. Till production
cycle completes, stock of work-in-process has to be maintained. Efficient firms
constantly try to make production cycle smaller by improving their production
techniques.

Stock of finished goods has to be held because production and sales are not
instantaneous. A firm cannot produce immediately when customers demand goods.
Therefore, to supply finished goods on a regular basis, their stock has to be maintained.
Stock of finished goods has also be maintained for sudden demands from customers.
In case the firm’s sales are seasonal in nature, substantial finished goods inventories
should be kept to meet the peak demand. Failure to supply products to customers, when
demanded, would mean loss of the firm’s sales to competitors. The level of finished
goods inventories would depend upon the coordination between sales and production as
well as on production time.
OBJECTIVE OF INVENTORY MANAGEMENT
In the context of inventory management, the firm’s is faced with the
problem of
meeting two conflicting needs:

. To maintain a large size of inventories of raw material and work-in-

process for efficient and smooth production and of finished goods for
uninterrupted sales operations.

. To maintain a minimum investment in inventories to maximize

profitability.
Both excessive and inadequate inventories are not desirable. These
are two danger points within which the firm should avoid. The objective
of inventory management should be to determine and maintain
optimum level of inventory investment. The optimum level of inventory
will lie between the two dangers of excessive and inadequate
inventories.

The firm should always avoid a situation of over investment or under-

investment
in inventories. The major dangers of over investment are:

a) Unnecessary tie-up of the firm’s funds and loss of profit.

b) Excessive carrying costs.
c) Risk of liquidity.

The excessive level of inventories consumes funds of the firm, which cannot be used for
any other purpose, and thus, it involves an opportunity cost. The carrying costs, such as
the costs of storage, handling, insurance, recording and inspection, also increase in
proportion to the volume of inventory. These costs will impair the firm’s profitability
further. Excessive inventories carried for long-period increase chances of loss of
liquidity. It may not be possible to sell inventories in time and at full value.
Raw materials are generally difficult to sell as the holding period increases. There are
exceptional circumstances where it may pay to the company to hold stocks of raw
materials. This is possible under conditions of inflation and scarcity. Work-in-process is
far more difficult to sell. Similarly, difficulties may be faced to dispose off finished goods
inventories as time lengthens. The downward shifts in market and the seasonal factors
may cause finished goods to be sold at low prices. Another danger of carrying excessive
inventory is the physical deterioration of inventories while in storage. In case of certain
goods or raw materials deterioration occurs with the passage of time, or it may be due to
mishandling and improper storage facilities. These factors are within the control of
management; unnecessary investment in inventories can, thus, be cut down.
Maintain an inadequate level of inventories is also dangerous. The consequences of
under-investment in inventories are:

. Production hold-up
. Failure to meet delivery commitments.

Inadequate raw materials and work-in-process inventories will result in frequent

production interruptions. Similarly if finished goods inventories are not sufficient to meet
the demand of customers regularly, they may shift to competitors, which will amount to a
permanent loss to the firm.

The aim of inventory management, thus, should be to avoid excessive and inadequate
levels of inventories and to maintain sufficient inventory for the smooth production and
sales operations. Efforts should be made to place an order at the right time with the right
source to acquire the right quantity at the right price and quality. An effective inventory
management should

. Ensure a continuous supply of raw materials to facilitate uninterrupted production.

. Maintain sufficient stock of raw materials in periods of short supply and anticipate price
changes.
. Maintain sufficient finished goods inventory for smooth sales operation, and efficient

. Maintain the carrying cost and time.

. Control investment in inventories and keep it at an optimum level.

STORE DEPARTMENT
Store management is one of the important part of inventory
management. The store department mainly consists of raw materials
and work-in-process (semi-finished goods) that are required for
production. Raw material inventory contains items that are purchased
by the firm from other and are converted in to finished goods through
the manufacturing process. They are an important input of the final
product. The work-inprocess inventory consists of items currently being
used in the production process. They are normally semi-finished goods
that are at various stages of production in a multi-stage production
process. Thus, inventory management, like the management of other
current assets, should be related to the overall objective of the firm. In
fact, the store management
is a part of production management, but a familiarity with them is of
great help to the financial managers in planning and budgeting
inventory.

In the beginning of my internship I started my work from store department. As all other
functions of costing are depends upon store department. In the store department of
LAXMI COTSPIN the store incharge Mr.: Mohan Madan Khandare has given me very
proper guidelines about functioning of store department. First I observe and analyze
working of store department then I actually done work in store department. Finally I
come to conclusion that the functions of store department are-
1. Material planning & Programming
2. Purchasing
3. Inventory control
4. Receiving materiel
5. Recording & accounting
6. Transportation & material handling
7. Disposal of surplus stores

1. Material planning & programming: -

First the production manager tells whatever requirement of material for
manufacturing finished product to the store incharge that is called as INDENT. Then
store incharge check that how much material is in store department and how much
required to be purchased and mentioned that information on that Indent. And send the
Indent to the Director.
Indent
Date:
Department:

Departmental head P.M Store keeper

General manager

2. Purchasing: -
Then Director checks that Indent and give sign on that Indent and send
it to the store incharge to give order of that inventory. For purchasing
inventory store incharge conductfollowing activities –

1. He send requirement letter to different dealer.

2. Various dealer send quotation to the company.
3. Which dealer offers low cost is selected for purchasing inventory?
4. Then store incharge give PURCHASE ORDER to selected dealer.

3. Inventory control: -
Inventory control determine systematically what items to hold in stock,
when and
in what quantities to order them and how much to hold at anytime.
ABC Analysis –
A- High value item
B- Medium value item
C- Low value item
In respect of “A’ item careful attention is paid to work out the
requirement
order scheduling, safety stocks and prompt receipt and inspection.
“A” and “B” item should be frequently reviewed and closed watch is
kept on their consumption, stock and replenishment orders. For
inexpensive
“C” item control is comparatively relaxed.

4. Receiving material: -
The material ordered is received and stored in the store department.
The received material is checked by production engineer weather it is
right material as ordered, weather it is good in condition or not and
weather it should be keep or reject.

5. Recording: -
All the inward material is recorded by store incharge with total quantity
and amount.
Inward material is recorded in following format: -
INWARD MATERIAL
17/4/2009

6. Transportation and material handling: -

Whatever material is required for day-to-day production, the
production manager give the list of that material to store incharge and
that list is called as ISSUE SLIP. Then store incharge give the material
that mentioned in the issue slip to the production department , that
material is called as ISSUED MATERIAL. Issued material is recorded in
following format –
 Issued Material
29/04/2009

7. Disposal of surplus store: -

Whatever excess stock in inventory such as damaged items, scrap cotton, nonrequired
inventory items etc. also managed by store In-Charge. Damaged items and nonrequired
inventory items are send back to respected dealer and scrap cotton is sold to any
other manufacturing unit.