ASSIGNMENT-2

SCM110

ASHISH DAHIYA (A00159728)

1). Inventory management is one of the most important parts of supply chain. It is basically
the tracking of the inventory from manufacturers to warehouses and then from these
amenities to its final sale to the potential customers.

If defined in brief then inventory management starts from the point of the raw material
collection of a particular product by the respective company and ends when the finished
goods are released in the market.

Inventory management is the process of ordering, storing and utilizing the organizations
inventory and while conducting such activities on a large-scale, obstacles can occur at any
point of the whole cycle so, to manage those problems and come out of them successfully
inventory management strategies are designed keeping in mind the needs of the company.

 Some strategies which an organization can consider for managing its inventory
are:
i. Using Inventory Management software- Goods should always be purchased keeping
in the needs of the company as in quantity. As if these good are leftover for a long
time they can get damaged or expired and, in that case, these good will be of no use
to the company and would be thrown as a waste. By purchasing limited quantity
goods, the company can save them from getting spoilt and being of no use to them.
This can also be done with the help of inventory management software. They help in
recording the data of the goods kept and also helps in minimizing the losses errors
which can erupt if all the work is done manually.

ii. Monitoring the circulation of the goods- This is one of the most effective strategies
as it helps in keeping the good in check balance. When the data is stored
systematically, once an order is placed it will check up on the stock and accordingly
will start preparing the shipment. This gives the company the hold on the time
consumed while preparing an order and may also help in minimizing the time used
making the deliveries go in much faster.
iii. Build the warehouse space efficiently- This is known to be the top-tier inventory
management strategy and every inventory manager should follow this. Designing a
blue-print of the warehouse and how the goods will be stored can help the
organization in great ways. It can ease the process of searching, transporting,
exporting faster and saving time and effort.

 There are 4 main types of inventory management systems:

1. Just-in time management (JIT) – JIT method facilitates the company to save
significant amount of money and minimize the waste by keeping only the goods
which are required for the production of products and their sale. This also saves the
cost of discarding excess inventory.
 2. Materials Requirement Planning (MRP)- This inventory management system is solely
dependent on the sales-forecast of the products. This means that the manufacturers
must have a report stating the approximate sales record which will then enable the
accurate planning of the inventory needs and then communicating it further to the
suppliers timely.

3. Economic Order Quantity (EOQ)- This system is used in calculating the number of
units an organization should add more to its inventory for each batch keeping a check
of the total costs if the inventory and the customer demand for that particular
product to avoid over production of the product.

4. Days Sales of Inventory (DSI)- DSI is also known as the average age of inventory or
the days sales in inventory. This is basically the calculation of the days which the
company takes to turn its inventory into finished goods and then to final sales.

3). Case Study – Linamar India Private Limited, Pune

Linamar is a private limited company which was incorporated in the year 2013. It is a
subsidiary of foreign company, Linamar Corporation. It manufactures core engine
components like cylindrical blocks and heads, camshafts and connecting rods.

The company uses the EOQ tool of inventory management to calculate its optimum order
quantity as EOQ is used for calculating the quantity of the goods the company needs to add
to its inventory to continue its manufacturing process. The company religiously follows the
EOQ standards as per its requirements.

By using this method, the company would save a significant amount which could be used for
other processes in the cycle rather than wasting it on excess purchasing of the raw materials.

The company should also consider adapting the JIT method of inventory management as it
will be beneficial for the company in quite a few ways.

It will prove to be time efficient for the company as JIT minimizes the waste by keeping only
the goods which are required for the manufacturing fi the product and it also minimizes the
cost of discarding the waste.

By assessing all the factors affecting the company, it will be able to list out its risks in the end
by preparing a clear statement of their security needs.

The company if tries other methods like JIT instead of just depending on EOQ could even
save more and make its working efficient. Trying new inventory management methods will
also provide security to the operations of the company by saving it's time and costs.

It will also help the organization to reduce its inventory holding costs.
5). There are many types of costs that are present in inventory management which have an
affect on the product pricing to. Some of them are as follows:

1. Ordering Costs- These costs are usually included in the overhead cost. Ordering costs
include taxes, benefits and wages of the procurement department and the costs of
labor required in the entire process. They also include the transportation cost which
might affect the product price in the form of shipping charges.

2. Inventory Holding Costs- This is simply the price a business has to pay for storing
their inventory in the form of rent for all the warehouses put together or just a
percentage of the area they have acquired inside the office premises. These include
inventory risk costs, storage space costs and inventory financing costs.

3. Shortage Costs- This is also termed as stock-out costs which happens when the
business runs out of stock due to some reason. Some of those reasons can be
customer loyalty and reputation, emergency shipment costs and disrupted
production costs.

4. Spoilage Costs- Companies which manufacture products which are perishable should
always keep in track of their sales and produce goods according to that. As these
good can easily rot or expire and will be of no use and become a straight waste and
loss for the company. Food and beverages manufacturing companies should be very
careful with their stocks as every item of theirs is perishable which means it rots or
expires after a given time period.

5. Inventory Carrying Costs- This aspect of inventory cost is not known widely. Under
this cost comes some certain calculations to help the company understand its direct
effect on the profit and loss statement of the company. It includes scrap costs, capital
costs, warehouses costs and maintenance costs.