INVENTORY MANAGEMENT OF A

WEAVING MILL
 SADIYA SANJANA

ID: 2022-3-95-059

Course: MIS-501

ASSIGNMENT ON:

INVENTORY MANAGEMENT OF A WEAVING MILL

SUBMITTED TO: DEBDULAL ROY

Executive Director of Bangladesh Bank

(Adjunct Faculty)

DEPARTMENT OF MASTER OF BUSINESS ADMINISTRATION

SUBMISSION DATE: 15.09.2023

INTRODUCTION:....................................................................................................................................3
FRAMEWORK/DEPENDING FACTORS FOR INVENTORY MANAGEMENT:...............................................3
TYPES OF INVENTORY MANAGEMENT:.................................................................................................5
  Raw Materials Inventory:...........................................................................................................5
 Work-in-Progress Inventory:......................................................................................................6
 Finished Goods Inventory:.........................................................................................................6
VARIOUS TECHNIQUES OF INVENTORY MANAGEMENT:.......................................................................6
 ABC Analysis for Prioritization:..................................................................................................6
 Economic Order Quantity (EOQ) and Reorder Point:.................................................................6
 Just-in-Time (JIT) Inventory Management:................................................................................7
 Safety Stock and Buffer Stock:...................................................................................................7
 FIFO and LIFO Methods:............................................................................................................7
IMPORTANCE OF INVENTORY MANAGEMENT:.....................................................................................7
 Understanding the Inventory System in Weaving Mills:............................................................7
 Significance of Efficient Inventory Management:......................................................................8
 Impact on Cost Control and Profitability:...................................................................................8
 Role in Meeting Customer Demand and Satisfaction:...............................................................8
Conclusion:............................................................................................................................................9
References:..........................................................................................................................................10

INVENTORY MANAGEMENTOF A WEAVING MILL

INTRODUCTION:
Inventory constitutes a major component of working capital. To a large extent, the success
and failure of a business depends upon its inventory management performance. The basic
objective of inventory management is to optimize the size of inventory in a firm so that
smooth performance of production and sales function may be possible at minimum cost.
Inventory management is a critical aspect of running a weaving mill efficiently and
profitably. Effective inventory management ensures that raw materials, work-in-progress, and
finished goods are adequately controlled, minimizing costs, maximizing productivity, and
meeting customer demands. This assignment explores the key principles, importance, and
best practices of inventory management in a weaving mill.

FRAMEWORK/DEPENDING FACTORS FOR INVENTORY

MANAGEMENT:
The general framework concerning inventory models comprises five key elements:

 Demand,
 Quantity to Order,
 Lead Time,
 Safety Buffer, and
 Inventory Holding Costs.

1. Demand: The aspect of Demand holds utmost importance within inventory

management. Decisions pertaining to inventory are always grounded in anticipated
future demand. These decisions are made when the manager possesses a clear
understanding of departmental requirements. However, they are also made in
situations of uncertainty regarding demand, where future levels cannot be reliably
predicted.

2. Quantity to Order: Once the necessary quality of items to be procured is determined,

the buyer needs to ascertain the appropriate quantity to purchase. Many material
 requirements are ongoing and cumulative in nature, encompassing overall needs. This
approach to requirements is more effective than considering day-to-day necessities. In
the context of procurement, "quantity" carries a specific significance. Just as
identifying the most suitable and cost-effective material quality is vital, determining
the most economically viable ordering quantity is equally crucial. Calculations for the
economic order quantity aim to establish an order quantity that minimizes the overall
variable inventory costs.

3. Lead Time: Lead time refers to the time interval between identifying the need for
materials, placing an order, and the eventual manufacturing and delivery of those
materials. This temporal gap, known as lead time, directly impacts production
outcomes: longer lead times correspond to lengthier production cycles, while shorter
lead times expedite results. Increased lead times necessitate higher inventory levels to
ensure continuous operations. If lead time were non-existent, safety stocks wouldn't
be necessary since stock replenishment could occur immediately. Longer lead times
make it challenging to accurately predict usage during the open order period. If lead
time were zero, predictive measures wouldn't be required. Nonetheless, lead time
variations can be considerable.

4. Safety Stock: In practical terms, demand or usage levels are seldom certain and
usually fluctuate over time. Finished goods inventory demand experiences the greatest
oscillations, unlike raw materials and in-transit inventory, which rely on production
schedules and are more foreseeable. Moreover, the time required to receive inventory
after order placement is also subject to variability. Given these fluctuations, it's
unwise to deplete expected inventory completely before anticipating a new order, a
strategy that would have been feasible with assured usage and lead time knowledge.

The order point serves as a predetermined signal to the inventory controller that it's time to
consider reordering a particular stock item. This value is expressed in material units, as
stocked and ordered. Whenever an item's depletion brings its coverage below this predefined
point, investigation is warranted. The order point needs to be set high enough to adequately
meet the peak expected demands on the stock while replacement stock is in the ordering
process. In summary, the order point equals the maximum projected usage during the lead
time.

5. Inventory Holding Expenses: It is widely acknowledged that maintaining

inventories comes with a substantial financial burden. According to research
conducted by Professor Alford and Bangs, the annual expenses associated with
holding a production inventory amount to roughly 25 percent of the inventory's value.
Similarly, Everett Welch's findings reveal that the annual carrying expenses for
inventory typically exceed 20 percent of the total inventory value, spanning a range of
approximately 10 to 34 percent. As the act of retaining inventories incurs a variety of
costs, the primary expenses tied to inventory possession encompass: (a) Capital
Costs, (b) Insurance Expenses, (c) Property Taxes, (d) Storage Charges, (e)
Obsolescence and Deterioration Costs, (f) Procurement Expenses, (g) Acquisition
Costs, and (h) Ordering Expenses. These factors are succinctly explored in the
subsequent section.

TYPES OF INVENTORY MANAGEMENT:

 Raw Materials Inventory: Raw materials inventory consists of the materials
required to produce textiles in the weaving mill. These materials could include
various types of yarns (such as cotton, wool, synthetic fibres), dyes, chemicals, and
any other inputs that are used in the weaving process. This inventory type is essential
for ensuring a continuous production process and avoiding disruptions due to
shortages.
 Work-in-Progress Inventory: Work-in-progress (WIP) inventory includes products
that are currently in various stages of the weaving process but are not yet considered
finished goods. This could encompass partially woven fabrics, textiles undergoing
dyeing or finishing processes, or items at different points in the production pipeline.
Managing WIP inventory is crucial for tracking production progress, optimizing
production schedules, and identifying potential bottlenecks.
 Finished Goods Inventory: Finished goods inventory comprises the textiles that
have completed the weaving process and any subsequent treatments, such as dyeing,
finishing, and quality control checks. These are ready to be shipped out to customers
or stored until they are needed for distribution. Managing finished goods inventory
 helps in fulfilling customer orders, maintaining product availability, and preventing
overproduction or stockouts.

VARIOUS TECHNIQUES OF INVENTORY MANAGEMENT:

 ABC Analysis for Prioritization:

ABC analysis is a method used to categorize items in inventory based on their value and
importance. It helps prioritize items for better allocation of resources. Items are usually
categorized into three groups: A, B, and C.

A items B items C items

High-valued items that Medium-valued items that Low-valued items that are
contribute significantly to require moderate managed with less scrutiny
the overall inventory value. management and and monitoring.
They are managed more monitoring.
closely and monitored more
frequently.

 Economic Order Quantity (EOQ) and Reorder Point:

EOQ is a formula-based approach to determine the optimal order quantity that minimizes the
total cost of ordering and holding inventory. It considers factors like ordering costs and
holding (carrying) costs. Reorder point is the inventory level at which a new order should be
placed to replenish stock before it reaches a critically low level.

 Just-in-Time (JIT) Inventory Management:

Just-in-Time is a philosophy and strategy that aims to reduce waste and improve efficiency
by minimizing inventory levels. The goal is to receive materials or products exactly when
they are needed, reducing carrying costs and the risk of obsolescence.
  Safety Stock and Buffer Stock:
Safety stock or buffer stock is the extra inventory maintained to account for uncertainties in
demand, supply chain delays, and other unexpected factors. It acts as a cushion to prevent
stockouts and maintain customer satisfaction.

 FIFO and LIFO Methods:

FIFO (First-In-First-Out) and LIFO (Last-In-First-Out) are methods used to value inventory
and cost of goods sold (COGS).

FIFO
Assumes that the oldest items in inventory
are sold first. This method is often used
when inventory items have a short shelf life
or are perishable.
LIFO
Assumes that the newest items in inventory
are sold first. IT can be beneficial during
times of inflation, for allowing the most
recent, higher-cost items to be matched with
current, higher selling prices.

IMPORTANCE OF INVENTORY MANAGEMENT:

 Understanding the Inventory System in Weaving Mills: In the context of weaving

mills, the inventory system plays a pivotal role in maintaining the seamless flow of
raw materials, work-in-progress, and finished goods. Weaving mills involve intricate
processes that require various inputs, such as yarn, dyes, chemicals, and machinery
components. A comprehensive understanding of the inventory system is crucial to
ensure a continuous production cycle and prevent disruptions in the manufacturing
process. Proper tracking of inventory levels, reorder points, and lead times helps these
mills optimize resource allocation, reduce waste, and enhance overall operational
efficiency.

 Significance of Efficient Inventory Management: Efficient inventory management

is a cornerstone of successful business operations across industries. It involves
carefully balancing the costs associated with holding inventory against the risks of
stockouts and production delays. Maintaining optimal inventory levels minimizes the
capital tied up in inventory and reduces holding costs, which can include storage,
insurance, and opportunity costs. Moreover, efficient inventory management leads to
 improved production scheduling, streamlined supply chains, and enhanced
responsiveness to market demand. By having the right amount of inventory at the
right time, businesses can maximize their resource utilization and bolster their
competitive advantage.

 Impact on Cost Control and Profitability: Inventory management has a direct

impact on a company's financial health and profitability. Holding excessive inventory
ties up valuable capital and incurs additional costs, while inadequate inventory can
lead to missed sales opportunities and increased production costs due to rush orders or
disruptions. Striking the right balance between demand forecasting and inventory
replenishment helps minimize excess inventory carrying costs and maximizes the
utilization of resources. Effective inventory management contributes to cost control
by reducing wastage, optimizing storage space, and ensuring that resources are used
efficiently, ultimately enhancing a company's bottom line and overall financial
performance.

 Role in Meeting Customer Demand and Satisfaction: Inventory management is

intimately linked to meeting customer demand and ensuring their satisfaction. By
maintaining the right inventory levels, businesses can consistently fulfil customer
orders on time, preventing stockouts and backorders. This reliability in meeting
demand leads to increased customer satisfaction and loyalty. Additionally, businesses
can tailor their inventory management strategies to respond effectively to seasonal
fluctuations, market trends, and promotional activities. A well-managed inventory
system allows for smoother order processing, quicker order fulfilment, and the ability
to swiftly adapt to changing customer preferences, all of which contribute to a
positive customer experience.
Conclusion:
In summary, inventory management is a critical aspect of modern business operations,
particularly in industries like weaving mills. It encompasses understanding the nuances of
inventory systems, optimizing efficiency, controlling costs, and meeting customer demand.
Effective inventory management not only ensures the smooth functioning of manufacturing
processes but also has a direct impact on a company's financial performance and its ability to
deliver high-quality products and services to customers

References:
1. https://textilelearner.net/inventory-management-in-textile-and-apparel-industry/
2. MANAGEMENT OF INVENTORIES IN TEXTILE INDUSTRY: A CROSS COUNTRY RESEARCH
REVIEW Dr. Mohammad Shafi Associate Professor, Department of Business & Financial
Studies, University of Kashmir Srinagar Kashmir.
3. A COMPARATIVE STUDY OF THE INVENTORY MANAGEMENT TOOLS OF TEXTILE
MANUFACTURING FIRMS, Vasundhara Dahiwale & Pallawi B. Sangode, Research Scholar,
Department of Operations Management, Dr. Ambedkar Institute of Management Studies
and Research, Nagpur, Maharashtra, India. Assistant Professor, Department of Operations
Management, Dr. Ambedkar Institute of Management Studies and Research, Nagpur,
Maharashtra, India
4. https://textilestudycenter.com/inventory-management-in-textile-apparel-industry/