TOPIC: INVENTORY MANAGEMENT :

INDIAN RAILWAYS
SUBMITTED BY: VISHALI VASHNAVI
ROHINI RAINA
AKANKSHA BHASIN
INTRODUCTION
The concept of inventory management dates back to 1915,
when F.N. Harris developed a very simple and useful
model of an inventory problem. It was quite natural for
the inventory problem to be among the first selected for
mathematical analysis, because it was a wide spread
problem which was seen as being more structured and
having a potentially more profitable pay off than the other
problems.
MEANING: INVENTORY
 Inventory is defined as an idle resource of any kind that
has potential economic value and considered as locked up
capital. Materials play an important role in Railways both
in production of new assets and in the operation and
maintenance of the existing assets.
Their continuous availability is a prime requirement for
uninterrupted working. In improving profitability,
reduction of input costs is a major parameter and since
expenditure on men and machine is more or less fixed, the
only field where economy may be possible is management
of materials. 
WHAT INVENTORY REQUIRES??
Any inventory system requires the collection and
processing of large quantity of data. However, the
introduction of computer in 1950s brought down the
cost of handling data which was quite high during pre-
computer days, thereby renewed interest in inventory
theory and marked the beginning of an era, in which,
sophisticated large scale inventory systems became as
common place in industry.
INVENTORY MANAGEMENT
Inventory Management is a technique through which
stocked goods, inventories, and non-capitalized assets are
kept in a proper manner according to their specific shape
and placement.
Inventory Management is a process of ordering, storing,
and using inventories. This stock management includes
generating the lead on raw materials, components, and
finished products, along-side warehousing and processing
of such items in your company.
TYPES OF INVENTORY
 Inventory Control can be of two kinds
Periodical
Perpetual
Periodic Inventory System: It is one in which inventory
data is updated after a specific interval of time, usually a year.
This is where the term periodic comes from. Data is entered
into the inventory systems after a specific period of time.
Perpetual Inventory Systems : A perpetual inventory
system has the advantages of both providing up-to-date
inventory balance information and requiring a reduced level
of physical inventory counts. Plus, it saves the company time
and money by lowering inventory costs and reducing
manpower needed to run the business.
OBJECTIVES OF INVENTORY MANAGEMENT
To ensure a continuous supply of materials and stock so
that production should not suffer at the time of customers
demand.
To avoid both overstocking and under-stocking of
inventory.
To maintain the availability of materials whenever and
wherever required in enough quantity.
To optimize various costs indulged with inventories like
purchase cost, carrying a cost, storage cost, etc.
To keep material cost under control as they contribute to
reducing the cost of production.
PARETO PRINCIPLE: INDIAN RAILWAYS
 The Pareto principle serves as a baseline for ABC
ANALYSIS, widely used in logistics and procurement for
the purpose of optimizing stock of goods, as well as costs
of keeping and replenishing that stock. ABC means “
Always Better Control” of inventory.
 Indian Railways has more than 262 Depots and stacks
more than a 1.3 lakh categories of materials
stack. Materials are procured in large quantities for day-
to-day operations and maintenance of open line.
 Materials are also procured for carrying out I0H/POH of
carriages & wagons in workshops in order to ensure
Rolling Stock in fit in condition.
STANDARD CATEGORISATION OF ABC ITEMS
Fixing A, B and C categories to Stores based on their
average annual consumption in a Zonal Railway. In South
Central Railway, AACs valuing more than Rs.40 lakhs
belongs to ‘A’ category of stores, AAC ranging from
Rs.5.75 lakhs and upto Rs.40 lakhs is ‘B’ category and
others belong to ‘C1 and C2’ categories.
‘A’ category items are high value items constituting about
70% of value of Stores but representing only 10% of
items. This category of items are monitored right from
Indent, Tender, Receipts, stacking, issue etc. 
CONTD.
‘B’ category items are monitored not so closely and
strictly as ‘A’ category, but control is exercised at CMM
level. 20% of value of stores comprises say 20% of items.
‘C’ category consists only 10% of value of stores but
involves 70% of quantity control can be exercised at
lower level.
Receipts, issues and balances are monitored through Bin
Cards. This ensures perpetual Inventory Control over
Stores Balances.
STEPS FOR BETTER INVENTORY CONTROL
Continuous and critical reviews of balances should done
while finalising new purchases or invoking option clause
in the Purchase Orders.
AACs are to be reviewed carefully with reference to
change in designs and drawings and also keeping in view
new types of Rolling stock introduced from time to time. 
IP quantity (quantity required from the date of finalization
to commencement of Contract period) should be nil
especially when Stock on hand and covered dues is
adequate.
NEED OF INVENTORY CONTROL
 Theoretically, if supplies of materials can be so
arranged as to meet exactly the operational needs for
day to day, there will hardly be any need for keeping
inventory. It is impossible to obtain material with zero
time lag.
To overcome the fluctuation of supply and demand,
inventory has to be maintained. Inventory serves as a
cushion and protects the system against the fluctuation
of demand and supply.
AIM FOR INVENTORY CONTROL
 Low inventories will result in payment of less interest
charges on capital locked up and also release the much
wanted and same capital for alternative uses.
 It is in the interest of organization to keep inventory
holding at the lowest possible level consistent with the
service. Inventory management on Indian Railways has
helped save thousands of crores of rupees from being
invested in materials
.
INVENTORY TURNOVER RATIO
 The efficiency indicator for inventory management is
turnover ratio which is the ratio of stores balances at the end
of the financial year divided by total issues during the year
and expressed as percentage. 
 It is calculated separately with fuel and without fuel.  As
per Indian Railway Year Book, Inventory Turnover Ratio
was 14% (without fuel) and 8% (with fuel).  The total value
of inventory (without fuel) held by Indian Railway was
Rs.2,765.37 crs. (Rs.2,999.34 crs. with fuel) against total
issues of Rs.20,317.62 crs. (Rs.37,136.16 crs. with fuel). 
Lower the Ratio better the health of Inventory Management
of a Railway or vice versa.