Techniques for Inventory Control

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Techniques of inventory control

CONTENTS

* THE NEED FOR INVENTORY

* THE NEED FOR CONTROL

* FINANCE FOR INVENTORIES

* WHAT IS INVENTORY CONTROL

* THE TECHNIQUES

* THE TYPES OF INVENTORIES

* ABC ANALYSIS OR SELECTIVE INVENTORY CONTROL

* THE TWO BIN SYSTEM

* MAX MINI SYSTEM

* ECONOMIC ORDER QUANTITY

* SAFETY OR BUFFER STOCK

* FSN/VED ANALYSIS

* CASE STUDIES
JSW
AVON CYCLES
BHUSHAN STEEL CO.
GROUP MEMBERS
NAMEROLL NO.
KAMALPREET SINGH6
MANINDER SINGH 7
PRATIK BAMBRI9
NEHA DAVE15
MANINDER SINGH DHANJAL17
JAY GUPTA21
PRONOY KAPOOR25
BALJIT KAUR46
TANVEER SINGH RAINU47

ACKNOWLEDGEMENT

It hereby gives us great pleasure to submit our first project on MATERIALS MANAGEMENT. We would like to thank our prof. P.M. RAO for giving us such a good project. We would like to thank all others who have directly or indirectly helped us in making this project. We also gained some knowledge from this project. We would be looking for such projects in future.

THE NEED FOR INVENTORY

The ordinary dictionary meaning of inventory is 'a list of goods an estate contains'. In industry, inventory means 'stock of goods'. It may mean raw materials, work-in-progress, maintenance materials, processed and semi-processed materials, oils, fuels and lubricants as well as finished and semi-finished goods. They may be either in solid, liquid or gaseous form, required for future use, mainly in the production process as in the case of finished goods for re-sale. In any case, it is an idle resource having an economic value awaiting conversion, consumption or re-sale. Thus inventories are held primarily for some transaction. 'Today's inventory is tomorrow's production'. In case of production inventory, generally there is a time-lag between the recognition of the need and fulfillment of that need. This time-lag; which is technically called 'leadtime', is due to the time required for ordering, processing and time needed by the vendor for actual delivery of the materials. Consequently, leadtime greatly influences holding of the volume of inventory. Had it been so that materials were readily available right on placing orders, there would have been no need for holding inventory. The second element is that inventories are held as a precautionary measure for increases in both leadtime and consumption rate. Also, there are reasons for holding inventory as a matter of speculation, because prices may subsequently go up or the material may become scarce in the future. This is however, not 'of so much importance for our purpose. Finally, inventories also serve to decouple materials from consumption at successive stages of production operations.

THE NEED FOR CONTROL

We have already seen how important it is to improve upon the return on capital, that is, profit margin. But there are obvious limitations such as competition in the business world. One way of improving the profit margin is to turn inventories into saleable products with less investment and as quickly as possible so that higher sales targets can be achieved and more profits made with less investment. In other words, a high inventory to sales turn over ratio is necessary to achieve an improvement over return on capital. The inventory-turnover ratio can be defined as the gross sales revenue to average inventory held during a year. This ratio is too low in India. While it is roughly about 3:1 in India, it is about 12 to 18 in the USA on an average. The same is about 7 in West Germany and about 6 to 8 in the UK. An RBI study on 700 Joint Stock Companies shows the following investment structure: Raw Materials and Inventories …. Rs. 600 crores

Plant and Machineries …. Rs. 540 crores

The above figures show higher capital outlay in raw materials and inventories than in plant and machinery. A constant attempt should be...
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