CHAPTER 1

INTRODUCTION
INTRODUCTION:

A term inventory refers to the stock file of the products a firm is offering for sale and the
components that make up the product. In other words, inventory is composed of assets that will be
showed in future in the normal course of the business operations. The assets which firms store as
inventory in anticipation of need are:

1. Raw materials

2. Work in process (Semi Finished goods)

3. Finished goods

 Raw-materials and bought in components are the stocks of material held prior to their
utilization in the production process.
 Work-in-progress includes products which are only part way through a manufacturing
process. Raw materials, labour, subcontracting and other manufacturing costs all together
constitute work-in-progress.
 Finished goods are the products which the company sells to its customers.
 Spares are the items required to keep plant and machinery in working condition.

The raw material inventory contains item that are purchased by the firm from other and are
converted into finished goods through the manufacturing (production) process. They are an important
input of the final product. The working process 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. A finished goods represented final or completed products which are
available for sale .

The inventory of such goods consists of items that have been produced but are yet be sold.
Inventory, as a current asset, differs from other current assets because only financial managers are not
involved. Rather all the functional areas, finance, marketing, production, and purchasing are involved.
The views concerning the appropriate level of inventory would differ among the different functional
areas. The job of the financial manger is to reconcile the conflicting view points of the various
functional areas regarding the maximizing the owners wealth. Thus, inventory management, like the
management of other current assets , should be related to the overall objective of the firm. It is in this
context that the present chapter is devoted to the main elements of inventory management from the
view point of financial management.
INVENTORY MANAGEMENT:

Inventory management is primarily about specifying the shape and percentage of stocked
goods. It is required at different locations within a facility or within many locations of a supply
network to precede the regular and planned course of production and stock of materials. Inventory
management involves a retailer seeking to acquire and maintain a proper merchandise assortment
while ordering, shipping, handling, and related costs are kept in check. It also involves systems and
processes that identify inventory requirements, set targets, provide replenishment techniques, report
actual and projected inventory status and handle all functions related to the tracking and management
of material. This would include the monitoring of material moved into and out of stockroom locations
and the reconciling of the inventory balances. It also may include ABC analysis, lot tracking, cycle
counting support, etc. Management of the inventories, with the primary objective of determining and
controlling stock levels within the physical distribution system, functions to balance the need for
product availability against the need for minimizing stock holding and handling costs.

An inventory management system is the combination of technology (hardware and software)

and processes and procedures that oversee the monitoring and maintenance of stocked products,
whether those products are company assets, raw materials and supplies, or finished products ready to
be sent to vendors or end consumers. This system can widely be used by normal shops, departmental
stores or MNCs for keeping a proper track of the stock. It also consists of information like manager
details, customer details etc. With the help of this system we can fix a minimum quantity of any
inventory below which we need to place an order for that inventory. This will help us in good sales
results and never the out of stock stage for any inventory. Inventory Management system provides
information to efficiently manage the flow of materials , effectively utilize people and equipment ,
coordinate internal activities and communicate with customers . Inventory Management does not make
decisions or manage operations, they provide the information to managers who make more accurate
and timely decisions to manage their operations. The objective of inventory management is explained
in some detail sections. Section two is concerned with inventory management techniques. Attention is
given here to basic concepts relevant to the management and control of inventory.

Inventory management and supply chain management are the backbone of any business
operations. With the development of technology and availability of process driven software
applications, inventory management has undergone revolutionary changes. In any business or
organization, all functions are interlinked and connected to each other and are often overlapping. Some
key aspects like supply chain management, logistics and inventory form the backbone of the business
delivery function. Therefore these functions are extremely important to marketing managers as well as
finance controllers. Inventory management is a very important function that determines the health of
the supply chain as well as the impacts the financial health of the balance sheet. Every organization
constantly strives to maintain optimum inventory to be able to meet its requirements and avoid over or
under inventory that can impact the financial figures. Inventory is always dynamic.

Inventory management requires constant and careful evaluation of external and internal
factors and control through planning and review. Most of the organizations have a separate department
or job function called inventory planners who continuously monitor, control and review inventory and
interface with production, procurement and finance departments.

OPERATION CYCLE FOR INVENTORY MANAGEMENT:

Operating Cycle is the time duration to convert sales after the conversion of resources into
invention, into sales there is difference between current assets and fixed assets. A firm required many
years to recover initial invests in fixed assets such plant and 11machinery or land buildings or furniture
and fixtures etc. On the contrary, investment in current assets such as inventory and books debts are
realized during the firms operating cycle, which in usually less than a year. The operation cycle can be
said to be the heart of the working capital. The need for working capital or current assets cannot be
over emphasized as already observed. The main motive of many business firms is to achieve maximum
profits, which can be earned depending upon the magnitude of the sales among other things. However,
sales do not convert in to cash instantly. There is invariable time lag between sale of goods and
receipts of cash. Therefore the need of working capital in the form of current assets to deal with the
problem arising good sold.

Therefore, sufficient working capital requires sustaining sales activity. Technically this is
refer to as the operating the cash cycle. The continuous flow form cash to supplies to inventory to
accounts receivable and back into cash what is called operating cycle.

INVENTORY MANAGEMENT OF THE COMPANY:

Inventory in some big organization constitutes the largest item of working capital and it’s
control is very essential. The management's inventory has always been an essential function of
financial managers and are increasingly becoming a specialist function. It is important to recognize
that a company’s inventory holding is essentially viewed as a necessary evil. They are costly to
maintain both the up working capital and also incurring what may be substantial expenses for the
company in respect of storage e.g Warehouse, rent, security etc. Items that can be grouped under
inventory include raw materials, work in progress and finished goods. Raw material inventory
constitutes the item necessary for manufacturing companies' products. These items of raw material as
to the company dealing with cotton.

Inventory work in progress constitutes the items of raw material inventory undergoing some
process of production, which have not yet been completed. Inventory of finished goods are actual
products, which the company manufactures for sale. It is apparent that the effective management of
inventory is maintained to maximize cost of production. While the company will certainly have An
objective of minimizing cost of production it will equally have other conflicting inventory objectives.

Inventory is the aggregate of those items of tangible personal property which are held for sale
in the ordinary course of business or use in the process of production of goods and services to be made
available for sale. Inventory comprises the following:

i. Raw materials: These are brought in materials which are used in the manufacturing of
products
ii. Work in progress: These are partly completed assemblies and product in corporation raw
materials and sub assemblies.
iii. Finished goods: Complete products ready for sales or distribution.
iv. Consumable stores: Supplies and minor components which hare consumed in the production
of goods and services. This is a measure of the various of the imputes in the acquisition of
materials or merchandise in the present condition and location.

There are four types of inventory cost they include: Ordering cost, carrying cost stock – out, and set up
cost.

i. ORDERING COST : There are the costs associated with producing inventory. They increase
as the number of order increase.
ii. CARRYING COST: These cost are constant despite changes in the number of orders. They
are the costs of holding items in inventory, storage changes, stores staffing, maintenance,
issuance for stocks and security.
iii. STOCK – OUT COSTS : This is the cost associated with being out of stock when the units
are demanded but are favourable for example, the cost of productions stoppages caused by
stock –out work in progress and raw materials, cost contributions through lost sales.
 iv. SET UP COST : These are cost incurred to start productions or adjust production line for the
manufacturing of other products.

Inventory management is the management of the flow of goods and services, involves the
movement and storage of raw materials, of work-in-process inventory, and of finished goods from
point of origin to point of consumption. Interconnected or interlinked networks, channels and node
businesses combine in the provision of products and services required by end customers in a supply
chain. The supply chain includes not only the manufacturer and suppliers, but also transporters,
warehouses, retailers, and even customers themselves. Within each organization, such as a
manufacturer, the supply chain includes all functions involved in receiving and filling a customer
request. These functions include, but are not limited to, new product development, marketing,
operations, distribution, finance, and customer service. Inventory exists in the supply chain because of
a mismatch between supply and demand.

This mismatch is intentional at a steel manufacturer, where it is economical to manufacture in

large lots that are then stored for future sales. The mismatch is also intentional at a retail store where
inventory is held in anticipation of future demand or when the retail store builds up inventory to
prepare for a surge in sales during the holiday season. In these instances, inventory is held to reduce
cost or increase the level of product availability. Inventory management is an ongoing and dynamic
process.

To keep out the inefficiencies in system, process and physical operations, calls for active
management participation and continuous improvement in all processed and systems that are involved
in inventory management. It is all about knowing what is on hand, where it is in use, and how much
finished product results. Inventory can mean different things and depends on the industry the firm
operates in. It includes Raw materials and components from suppliers, Work in progress or part
finished goods made within the business, Finished goods ready to dispatch to customers, Consumables
and materials used by service businesses. Inventory managers are concerned with cost, criticality and
contribution of their holdings, ordering and maintaining inventory has several costs. Inventory
availability is the most important aspect of customer service.

The goal of inventory management is therefore to increase financial returns on inventory

while simultaneously increasing customer service levels. Organizations uses inventory control to
minimize idle time caused by shortage of inventory and non-availability of inventories as per
requirement to keep down capital investment in inventory. The model aims to reduce inventory
holding and carrying costs in order to improve the efficiency and effectiveness of organizations.
This is achieved through:

 Conducting an XYZ analysis in order to access the classification of materials to minimize

inventory.
 Conducting the EOQ model to manage inventory costs per order.
 Building a questionnaire to assess current inventory management.
 Building a computerized inventory management system for inventory control in general.
The results of this paper demonstrate the reduction of the total holding and carrying costs
by a large amount whilst the efficiency of the service is improved and achieved as required.

TYPES OF INVENTORY BY FUNCTIONS:

INPUT:

RAW MATERIAL:

 Consumables required for processing. Eg : Fuel, Stationary, Bolts & Nuts etc. required in
manufacturing.
 Maintenance Items/Consumables
 Packing Materials
 Local purchased Items required for production

PROCESS:

WORK IN PROCESS:

 Semi Finished Production in various stages, lying with various departments like Production,
WIP Stores, QC, Final Assembly, Paint Shop, Packing, Outbound Store etc.
 Production Waste and Scrap
 Rejections and Defectives

OUTPUT:

FINISHED GOODS:

 Finished Goods at Distribution Centers throughout Supply Chain

 Finished Goods in transit
  Finished Goods with Stockiest and Dealers
 Spare Parts Stocks & Bought Out items
 Defectives, Rejects and Sales Returns
 Repaired Stock and Parts
 Sales Promotion & Sample Stocks

IMPORTANCE OF INVENTORY MANGEMENT:

The importance of inventory management cannot be stressed enough especially for

ecommerce and online retail brands. Accurate inventory tracking allows brands to fulfill orders timely
and accurately. Inventory management in businesses must grow as the company expands. With a
strategic plan in place that optimizes the process of overseeing and managing inventory, including
real-time data of inventory conditions and levels, companies can achieve inventory management
benefits that include: Accurate Order Fulfillment With an effective inventory management system, you
can easily track the stock in the warehouse. Bid goodbye to overstocking, stocking of obsolete items,
under stocking and start focusing on making your brand become one of the key players in the market
space. Develop a robust plan with the help of an efficient accounting software and avoid inaccurately
filled orders, high return volumes and a loss of customer base.

BETTER INVENTORY PLANNING AND ORDERING:

Striking a balance between the demand and supply is extremely crucial for businesses, thus,
inventory management provides aid in better planning and ordering of stock items. Imagine having a
huge demand for a particular product but not having enough material to supply the same. Sounds like
your worst nightmare, right? A detailed inventory management mitigates these issues, allowing
warehouse managers to refresh inventory only when needed. It’s both space and cost effective.

INCREASED CUSTOMER SATISFACTION:

Since a systematic and robust inventory tracking system will give you a comprehensive view
of your stock at-hand, it yields in an increased customer satisfaction. In retail sector, customers resent
late deliveries or “out of stock” notifications and eventually never return to the website to fulfil their
shopping needs. However, good inventory management leads to orders being fulfilled more quickly
and shipped out to customers faster. The enhanced processes can help e-Commerce and online retail
brands build a strong repertoire with consumers – and keep them coming back for more.
ORGANISED WAREHOUSE:

A good inventory management strategy leads to an organized fulfillment centre. An organized

warehouse results in more efficient present and future fulfillment plans. This also includes cost savings
and improved product fulfillment for businesses utilizing the warehouse for managing inventory.

MINIMISE THE BLOCKAGE OF FINANCIAL RESOURCES:

The importance of inventory control is to minimise the blockage of financial resources. It

reduces the unnecessary tying up of capital in excess inventories and also improves the liquidity
position of the firm. With proper inventory tracking module, business owners can take quicker
decisions about the stock lying in the warehouse more wisely.

INCREASED OVER ALL EFFICIENCY:

Employee efficiency can significantly increase your business’s overall health. Without
adequate inventory management, you’ll pay your employees to spend time sifting through files,
sending spreadsheets to one another, manually write all reports, or visit the warehouse every time
there’s uncertainty regarding stock. Instead of wasting money on these tasks, you can avoid them
altogether with a good inventory management system. Your employees will be happier if they can
spend more time on necessary tasks that contribute to the company, and you’ll be more content with
more accessibility.

ALWAYS KNOW WHERE YOUR INVENTORY IS LOCATED:

Businesses with more than one location can suffer when employees need to constantly call
each other to find a single piece of inventory, or confirm its presence. Accurately managing your
inventory can help you avoid any problems regarding inventory location, including issues regarding
tracking down one product that a customer wants.

CLOSE EVERY SALE POSSIBLE:

Inadequate inventory management can also lead to a loss in sales. There are many ways things
can go wrong, such as when employees believe that an item is out of stock and inform the customer of
this, only to discover the item later. Employees may also direct a customer to a certain location to find
a specific item, only to discover that the location doesn’t have it. The more accurate your inventory
management is, the more customer success you’ll experience.
ALWAYS MEET DELIVERY DATES:

Many businesses can quickly develop a poor reputation if they fail to deliver items on time to
customers when items aren’t in stock. In many cases, a lack of knowledge about where items are
between the vendor and the store or warehouse can lead to late deliveries.

CHANGE VENDOR ORDER FREQUENCY WHEN NEEDED:

The opposite issue of insufficient storage is having too much. Storage costs can quickly
accumulate for many businesses, and many companies wind up putting on a big sale simply because
they overordered certain items to make storage more manageable. It’s important to keep track of
exactly how many of each item you have in stock, along with how much you have on order. Doing so
can allow you to change order frequency as soon as you need to, which can help keep your inventory
in check.

MAKE EASIER:

Using manual Word docs to copy purchase orders can lead to inaccuracies regarding item
numbers, currency exchanges, or item spec descriptions. Good inventory management will enable you
to copy recent purchase orders and choose specific item numbers and specs from a simple dropdown
menu to help avoid errors. With these benefits, you can see why implementing a solid inventory
management system is beneficial to your business operations. Even if your operations are small,
automating your inventory management can go a long way in helping your business grow while
maintaining manageability. You’ll be able to keep both employees and customers consistently
satisfied, while at the same time you can remain happy about how your business runs, without any of
the complications that can come with a lack of inventory management.

BENEFITS:

Inventory management enhances business operations with the effective flow of goods and
services. Inventory management and control implies the controlling of business stock or controlling the
movement of products and services following their demand. Inventory Management and control are
highly beneficial in today’s business world as it makes a vital part in any business success/failure
having intense competition within its industry.
The benefits of inventory management and the knowledge about its usage are vital for
enhancing product quality, improving competitive ability, reducing inventory carrying costs by
reducing inventories, service enhancement, and operational flexibility through pull systems. Inventory
Management and control provide actions & strategies that are integrated into all management
controlling, planning, and processes which are crucial to enhancing and making successful
management. Every business inventory requires a lot of focus, and such attention is provided through
Inventory Management and control. The list usually involves the most considerable cash-flow in any
business, both concerning purchasing and selling stock. That’s why Inventory Management and
control would, in turn, have a massive effect on business finance. Aside from adding competitive
ability and profitability, the benefits of inventory management are, and it fosters growth leading to
economic and business efficiency.

ADVANTAGES OF INVENTORY MANAGEMENT:

SIMPLIFIED INVENTORY MANAGEMENT:

Perhaps the biggest benefit to using inventory management system is that it makes the
process of managing your inventory a whole lot easier, saving you time, money and quite frankly,
sanity.
With supply and demand changing throughout the year and your stock levels continuously
fluctuating, inventory management software helps to avoid the risk of human error by automating your
key business processes.

REDUCED RISK OF OVERSELLING:

Overselling is a major challenge for online sellers, often resulting in loss of control,
disappointed customers and in some instances, being suspended from marketplaces such as Amazon
and eBay.
By synchronizing your orders and inventory across each of your online marketplaces and E-
Commerce platforms, ensuring that stock levels are adjusted each time you make a sale.

GREATER COST SAVINGS:

By streamlining your inventory management processes, you not only stand to eliminate the
inventory costs associated with human error, but you can also benefit from further cost savings.
It can improve your chances of shortening your supplier lead time through better supplier
management relationships.
Poor inventory management can cause significant revenue losses, driven by avoidable errors
including stock-outs and overstocks.
IMPROVED BUSINESS NEGOTIATIONS:
By using inventory and order management software with batch tracking capabilities, you will
have far better product traceability and subsequently be able to access valuable information allowing
for potential negotiations with suppliers.
More specifically, you will be able to obtain a far better understanding of which suppliers are
benefiting your business the most and which require improvements.
With detailed information on supplier performance, you will be better equipped to negotiate
more favourable trading terms and even exclusivity deals.

BETTER PRODUCT VISIBILITY IN THE EVENT OF A RECALL:

Product recalls can at times be inevitable.

 The problem, however, is the time and effort it can take to track down the affected
products without batch tracking functionality.
 We’re talking countless hours and numerous headaches.
 In fact, without full product traceability and the ability to easily locate necessary
batches, attempting to resolve the problem with your supplier can be a major challenge.
 Not ideal when you’re trying to run a business.

THE ABILITY TO MAKE MORE PROFITABLE BUSINESS DECISION:

 Effective inventory management software can provide invaluable sales data, allowing
for more data-driven business decisions.
 As an example, with a more informed understanding of supply and demand, you can go
some way to forecast sales trends, giving you a more competitive edge.
 With access to reporting features and inventory metrics, many inventory management
systems equip you with the tools needed to make strategic decisions.
DISADVANTAGE OF POOR INVENTORY MANAGEMENT:

POOR TURNOVER:

Companies typically want to produce or maintain only enough inventory to meet immediate
demands and to avoid stock outs. When companies have excessive amounts of inventory, they are
generally not selling enough to prevent inventory buildup. This is not a good situation as businesses
need to turn over inventory efficiently to maintain reasonably high profit margins and to avoid the
costs and other disadvantages that come with high levels of inventory.

HIGH COST:
Carrying excess inventory has significant costs. One of the highest costs for many companies
is financing the purchase and holding of inventory. Also, the more inventory you hold, the more you
have to spend on labor to manage it, space to hold it, and in some cases, insurance to protect against its
loss or damage. Physically counting and monitoring the levels of inventory you hold also takes time
and has costs.

LOSS OR DAMANGE:
Related to the high costs of high inventory, some inventory can also go bad after a certain
amount of time and go to waste. When retailers buy excess inventory of perishable food items, for
instance, they may have to throw out inventory that spoils or becomes rotten. When you carry high
inventory, you also have greater exposure to lost or damaged product. Thieves have more products to
choose from and you have greater potential for product to turn up missing or broken when you count
inventory.

STRATEGIC PLANNING TIME:

Company leaders typically have to spend more time in strategic planning meetings when the
company has high inventory levels. Management must figure out how to communicate with suppliers,
how to improve ordering processes or how to increase market demand to reduce the high levels of
inventory. This problem takes away from the ability of these managers to focus on other proactive or
more important strategic decisions to move the company forward. Dealing with inventory problems is
a more reactive strategy to resolve the issue at hand.
FEATURES OF INVENTORY MANAGEMENT:
INVENTORY MANAGEMENT:
The module or feature is all meant to keep your essential warehouse functions centralized.
This helps in tracking every single inventory details like stock level, product history, and other product
specifications. More importantly, the data syncs with all other modules in the inventory system. This
helps in accurately operating inventory which enhances productivity by promoting a sense of
collaboration among team members working from different locations on their systems.
The Inventory Management module enables you to have multiple sub-categories and features
to get real-time reports for all necessary inventory. The automated shortage reports help in controlling
any issues quickly and timely manner; alerts and reports let you efficiently tackle any unfortunate
inventory mishaps. Inventory management empowers you to successfully build your ecommerce
presence at various locations.

BARCODING AND TAGGING:

Bar-coding module helps you eliminate standard human error, which often occurs due to
manual data accumulations. Scanning barcode provides fast and reliable solutions compared to manual
data entry. At the same time, having a barcode system in place reduces employee training time, as it
requires no more than a few minutes to master. The traditional means used to require immense efforts
and workforce to train an employee on how to record products details. Bar coding improves inventory
control and tracks things such as pricing and product details precisely.
 Scan barcode easily
 Faster performance
 Records things faster than the workforce
 Get precise details of products
 Locate products
 Barcode and Tagging
 Inventory Management System

INVENTORY TRACKING:
Warehouse requires a workforce to keep a tab at every step. Barcode, which we have
understood earlier in this article, plays a significant role in letting you track your inventory accurately.
Assets serial number, RFID, and other things important here as these are the things which let you
know real-time data of everything inventory
  Product tracking
 Tagging
 Reports and audits
 Inventory Tracking Solutions

REPORTING TOOLS:
For any inventory business to be efficient, you need to be updated with real-time data
regarding product status, driver’s whereabouts, order status, shipment and much more. An efficient
Inventory Management app comes with the capabilities of integrating various reporting tools and
features that makes the reporting process easier. This is a crucial feature for any hardcore inventory
business.
 Smooth and flawless communication

 Enhanced Productivity

 Reduced common human error

 Reporting Tools for Inventory Management

 Businesses who actively manage their inventory report a 2-10% increase in sales.

INVENTORY FORECASTING:
You would never want to disappoint your customers with their favorite products out of the
stocks, would you? Inventory forecast, as the name suggests, lets you find out which products are
going to out of stock soon and what’s in abundance. This is a great trick to have up your sleeve for
serving an excellent user experience to your customers. The biggest advantage of forecasting is it gives
you the control and wisdom of spending your resources wisely. You should be more alert about sales
attributes such as size, color, material, scent and other features to be better prepared. This gives you a
better judgment of purchase quantity and a better understanding of what to purchase when.

 Powerful future insights

 Align sales and marketing efforts
 Reduce the risk of stock outs
 Lower holding costs
 Increased turnover rates
 Maximizes asset efficiency
 Inventory Forecasting
INVENTORY ALERTS:
Gone are the days when you had to waste your valuable business time and money on
manually monitoring the critical stock data. What if it directly be alerted via a low stock inventory
alert? With the right inventory alert feature, you will be able to find out the possible issues which
might occur in the future directly via email or SMS alert. What goes out; what comes in; status of a
shipment, issues alerts, etc. important aspects of running a business accurately will be easily managed
by getting a reliable inventory alerts.
 Reduced stock waste
 Optimised inventory levels
 improved cross department visibility of stock data
 Helps manage your Investment Style
 Drive sales
 Maintain operational control
 Inventory Alert

INVENTORY SECURITY AND BACKUPS:

No matter what business you are in, having the right security for your inventory is essential. If
you have Inventory Management Apps, the proper protection should be put in place. Right from
protecting your assets to the data it accumulates should be safe and adequately backed up. Generally,
the inventory should be securely optimized, to protect our data from hacking.

IOT INTERGRATION:
IOT - driven inventory management is an increasing demand and as an IoT along with RFID
helping manufacturers outflank the problems faced manually. Right from real-time visibility of the
inventory to record details of the inventory automatically can help you manage the inventory smartly.
IoT integrated with inventory system boils down to the data fetched by RFID readers into productive
and meaningful insights. Integrating the IoT into the inventory system will get you insights will keep
you more focused while it will keep in you informed about the items’ location, assets’ live status,
movement and so much more.
 Automated tracking and reporting
 Keeps a constant tab on assets, location, movement, and quantity
 Keeps inventory optimized
 Lead time optimization
 IOT Integrated Inventory Management System
BASIC INVENTORY PROCEDURE:
A key component in effective kitchen management is inventory control. By knowing what
supplies are on hand at a given time, the manager will be able to plan food orders, calculate food
costs since the previous inventory, and make menu item changes if needed. By keeping an eye on
inventory, it is possible to note potential problems with pilferage and waste. Managing inventory is
like checking a bank account. Just as you are interested in how much money you have in the bank
and whether that money is paying you enough in interest, so the manager should be interested in the
value of the supplies in the storeroom and in the kitchen.
An inventory is everything that is found within your establishment. Produce, dry stores,
pots and pans, uniforms, liquor, linens, or anything that costs money to the business should be
counted as part of inventory. Kitchen items should be counted separately from the front of the house
and bar inventory and so forth. Regardless of the size of your operation, the principles of inventory
control are the same. In larger operations there will be more people and sometimes even whole teams
involved with the various steps, and in a small operation, all responsibility for managing the
inventory may fall on one or two key people.

Effective inventory control can be broken down into a few important steps:

 Set up systems to track and record inventory

 Develop specifications and procedures for ordering and purchasing
 Develop standards and procedures to efficiently receive deliveries
 Determine the frequency and processes for reconciling inventory
 Analyze inventory data and determine any areas for improvement

INVENTORY REQUIREMENTS:

Inventory requirements means, that the inventory of Product in question

(i) has a remaining shelf-life, on the Closing Date, that is greater than or equal of the
Minimum Shelf-Life for such Product
(ii) that meet the specifications for the applicable Products (including in respect of
manufacturing of such Product and the Marketing Authorizations for such
Product), comply with Applicable Laws and are of a good and saleable quality.

Inventory requirements Licensee shall use commercially reasonable efforts to manage

Licensed Product inventory in each Branded Retail Store. Licensee shall provide adequate levels of
inventory to the Licensee for expected demand and avoid taking action that would result in a detriment
to Licensee’s sales at each Branded Retail Store. Licensor and Licensee shall exercise reasonable
commercial efforts to ensure that Gross Revenues shall equal or exceed the sales projections set forth
in a Sales Plan for the applicable calendar year or period to which the Sales Plan relates.

Use of an SMI process, whether with Hubs, HP Warehouse or otherwise, may require
additional or different terms and conditions and is subject to mutual agreement. Inventory
requirements for an SMI process may be agreed by the parties. Without limiting any of the obligations
or liabilities of Supplier, Supplier will maintain, at its own expense, as long as this Agreement is in
effect, insurance policies.

REQUIREMENTS FOR EFFECTIVE INVENTORY MANAGEMENT:

 A system to keep track of the inventory on hand and on order

 A reliable forecast of demand, including forecast error
 Knowledge of lead times and variability
 Estimates of holding, ordering and shortage costs
 Classification system for inventory

INVENTORY MANGEMENT TECHNIQUES:

ABC ANALYSIS:

In inventory management, ABC analysis is an inventory categorization technique. ABC

analysis divides an inventory into three categories "A items" with very tight control and accurate
records, "B items" with less tightly controlled and good records, and "C items" with the simplest
controls possible and minimal records. 'A' items are very important for an organization. Because of the
high value of these 'A' items, frequent value analysis is required. In addition to that, an organization
needs to choose an appropriate order pattern (e.g. 'just-in-time') to avoid excess capacity. 'B' items are
important, but of course less important than 'A' items and more important than 'C' items. Therefore, 'B'
items are intergroup items. 'C' items are marginally important.

JIT ANALYSIS:

The just in time(JIT) inventory management is a management strategy that aligns raw-
material orders from suppliers directly with production schedules. Companies employ this inventory
strategy to increase efficiency and decrease waste by receiving goods only as they need them for the
production process, which reduces inventory costs. This method requires producers to forecast demand
accurately. The JIT inventory system contrasts with just-in-case strategies, wherein producers hold
sufficient inventories to have enough product to absorb maximum market demand.

EOQ ANALYSIS:

Economic order quantity (EOQ) is the ideal order quantity a company should purchase to
minimize inventory costs such as holding costs, shortage costs, and order costs. This production
scheduling model was developed in 1913 by Ford W. Harris and has been refined over time. The
formula assumes that demand, ordering, and holding costs all remain constant. One of the important
limitations of the economic order quantity is that it assumes the demand for the company’s products is
constant over time.

HML ANALYSIS:

HML Analysis classifies inventory based on how much a product costs/its unit price. The
classification is as follows:

• High Cost (H) – Item with a high unit value.

• Medium Cost (M) – Item with a medium unit value.

• Low Cost (L) – Item with a low unit value.

VED ANALYSIS:

VED stands for Vital Essential and Desirable. Organizations mainly use this technique for
controlling spare parts of inventory. Like, a higher level of inventory is required for vital parts that are
very costly and essential for production. Others are essential spare parts, whose absence may slow
down the production process, hence it is necessary to maintain such inventory. Similarly, an
organization can maintain a low level of inventory for desirable parts, which are not often required for
production.

FSN ALAYSIS:

This method of inventory control is very useful for controlling obsolescence. All the items
of inventory are not used in the same order; some are required frequently, while some are not required
at all. So this method classifies inventory into three categories, fast-moving inventory, slow-moving
inventory, and non-moving inventory. The order for new inventory is placed based on the utilization of
inventory.
MINIMUM SAFETY STOCK ANALYSIS:

The minimum safety stock is the level of inventory which an organization maintains to
avoid the stock-out situation. It is the level when we place the new order before the existing inventory
is over. Like for example, if the total inventory in an organization is 18,000 units, they place a new
order when the inventory reaches 15,000 units. Therefore, the 3,000 units of inventory shall form part
of the minimum safety stock level.

SED ANALYSIS:

This analysis classifies inventory based on how freely available an item or scarce an item
is, or the length of its lead time. This is how the inventory is classified:

• Scarce (S) – Imported items and require longer lead time.

• Difficult (D) – Items which require more than a fortnight to be available, but less than 6
months lead time.

• Easily available (E) – Items which are easily available.

INVENTORY TURNOVER RATIO ANALYSIS:

There are two variations to the formula to calculate inventory turnover ratio. The most
commonly used formula is dividing the sales by inventory. The other formula divides the Cost of
Goods Sold (COGS) by average inventory. The latter takes into account the fluctuations in inventory
levels throughout the year.

FIFO AND LIFO ANALYSIS:

LIFO uses the most recently acquired inventory to value COGS, the leftover inventory
might be extremely old or obsolete. As a result, LIFO doesn't provide an accurate or up-to-date value
of inventory because the valuation is much lower than inventory items at today's prices. Also, LIFO is
not realistic for many companies because they would not leave their older inventory sitting idle in
stock while using the most recently acquired inventory.

FIFO can be a better indicator of the value for ending inventory because the older items
have been used up while the most recently acquired items reflect current market prices. For most
companies, FIFO is the most logical choice since they typically use their oldest inventory first in the
production of their goods, which means the valuation of COGS reflects their production schedule.
COMPANY PROFILE
COMPANY PROFILE

SENBAGAM TEXTILES AND SPINNERS.

Incepted in the year 1991, we have established ourselves as one of the leading manufacturers
and suppliers of fine quality thread is AZO free polyester sewing thread, polyester core spun
sewing thread, cotton sewing thread that are demanded all over the world. Our thread meets the
international standard in all aspects. We have made a good impression in the market and are drawing
an impressive turn over annually.
Our threads is Oeko-Tex class I certified for baby use from TESTTEX Zurich. We have a team of
experts and a highly upgraded infrastructure that helps us on offering threads that are manufactured
using eco friendly methods.
With the commitment and dedication of our team, we are catering to the needs of various industries all
across the world. We have achieved an enviable status in the market with our quality products and fair
business deals. We draw encouragement from the appreciation and are constantly on a look out for
achieving perfection.

OUR QUALITY

We assign foremost importance to quality and take strict measures to ensure that high quality
standards are maintained in all our products. We have a team of quality checkers who check the
polyester fiber at the time of procurement. Once the production starts they monitor the production
process closely to make sure that all the possibilities of defects and flaws are eliminated. All our
threads are tested on the following parameters:

 Strength
 Color
 Dyeing capacity
 Fiber dimension
 Capacity to withstand vigorous wash
 Azo content

Senbagam Textiles And Spinners is a 19 years 27 days old Proprietorship Firm incorporated on
10-Mar-2005, having its registered office located at B4/4, Sidco Industrial Estate, Kappalur, Madurai,
Tamil Nadu.
 The major activity of Senbagam Textiles And Spinners is Manufacturing, Sub-classified into
Manufacture of textiles and is primarily engaged in the Preparation and spinning of manmade fiber
including blended manmade fiber.

Senbagam Textiles And Spinners is classified as Small enterprise in the financial year 2023-24.
It has its unit situated at Virudhunagar, Tamil Nadu.

We are a professionally managed company that believes in delivering absolute client

satisfaction. Our range of polyester sewing thread, polyester core spun sewing thread and cotton
sewing thread is made from the finest quality polyester fibers that are procured from reliable sources.
Making use of sophisticated machineries, our skilled work force grants our products with durability
and strength. We are an environmental friendly company and our products are azo free and are oeko
tex class I certified by TESTTEX Zurich and are safe for baby usage.

OUR VISION

To achive excellence in all sectors of the textile industry, from fibre to finished product,
constantly striving to be at the forefront of our industry and to generate highest possible value for all
stakeholders.

OUR MISSION

 To manufacture International quality yarn,fabric and ultimately the finished textile

garments with the highest level of competitiveness on all parameters.
 To be an ethically responsible organization in all aspects of the business.
 To effectively harness and integrate all available technology across various elements of
the textile chain.
 To cater to product innovation by mastering value added areas like processing and
finishing.

CORPORATE STRATEGY

To emerge as a leader in terms of market share achieved through quality products. The
company believes in achieving a consistent growth by striking a perfect balance between profitability
and social welfare, emphasizing on complete customer satisfaction.

Team Spirit

To achieve the company goals by working consistently and efficiently

PROFILE OF THE COMPANY

GST No : 33ABDFS3891F1Z5

Date of Incorporation : 01 - 06 - 2017

Status : Active

Company category : Company limited by shares

Company Sub – Category : Non-Government Company

Company Class : Unlisted Private company

Business Activity :

Registration Date : 05 - 10 - 1981

Registration Number : 12451

Managing Directors : Bala Subramaniyam

Address : B4/4B4 Sidco Industrial Estate

Kappalur, Madurai ,

Madurai Tamil Nadu 625008

INDUSTRY PROFILE
INDUSTRY PROFILE

The textile and apparel industry is one of the largest segments of India’s economy, accounting
for 20 percent of total industrial production and slightly more than 30 percent of total export earnings.
It is also the largest employer in the manufacturing sector with a workforce of some 38 million people.
In addition, millions of others rely on the textile and apparel industry for their livelihoods, especially
those involved in cotton production. This chapter examines the structure of India’s textile and apparel
industry, from fiber production to textile and apparel manufacturing, and concludes with an overview
of its textile machinery industry, the major source of equipment for the country’s textile and apparel
industry.

Fiber Production India is the third-largest producer of cotton in the world with annual
production of some 3 million tons, or about 15 percent of the world total. 17 India grows a wide range
of cotton, from short staple to extra-long staple, and has the largest area under cotton cultivation in the
world today, about 7.5 million hectares. 18 Two-thirds of the cotton growing area in India is rain fed,
which has led to low productivity and wide fluctuations in annual production. 19 Indian cotton also
reportedly contains high levels of contamination or foreign matter, contributing to low levels of
productivity and product quality in cotton ginning and, in turn, the textile sector

India ranks among the world’s five largest producers of manmade fibers and filament yarns
with an annual output of 1.7 million tons (see table 2-1). 21 Its manmade fiber and filament yarn sector
comprised 97 establishments with an installed capacity of 2.1 million tons in 1999 (see table 2-2).
About70 percent of the capacity, or 1.5 million tons, is for polyester staple fiber (PSF) and polyester
filament yarn (PFY). The polyester-producing segment underwent significant consolidation in the
1990s, with most of India’s PSF market production capacity now accounted for by Reliance Industries
(60 percent), Indo Rama Synthetics (21 percent), and JCT Fibers (8 percent). Reliance Industries
increased its domestic PSF market share from 40 percent in 1997 to 60 percent in 1999.

India’s PFY production capacity is accounted for by at least 33 registered producers, led by
Reliance Industries (35 percent) and Indo Rama Synthetics (10 percent). India is also the world’s
second-leading producer of silk, with annual output of nearly 15 million kilograms. 22 Demand for
wool in India is met by imports, primarily from Australia. Textile Sector The textile sector in India is
one of the world’s largest; it has more installed spindles to make spun yarn than any other country
except China and has the most looms in place to weave fabric. However, these production capacity
measures are somewhat misleading because much of India’s spinning and weaving equipment is
technologically outdated. The Indian textile industry comprises three interrelated but competing
sectors—the organized mill sector and the “decentralized” handloom and power loom sectors.

The organized mill sector consists of 285 medium- to large-sized firms that are vertically
integrated “composite mills” that do spinning, weaving, and finishing operations and 2,500 spinning
mills (see table 2-3). More than 900 of the spinning mills are registered as small scale industry (SSI)
units, which are eligible for special GOI benefits, provided that investment in plant and equipment
does not exceed an amount equivalent to not more than $230,000 per unit. The decentralized handloom
and powerloom sectors comprise thousands of small fabric-weaving units and processing (dyeing and
finishing) units.

The number of decentralized units grew as a result of government policy implemented

following India’s independence in 1947 to encourage the creation of large-scale employment
opportunities. The handloom sector is an integral part of rural life in India, employing more than 12
million workers. A typical handloom unit is a family-run business with two to six manually operated
looms. 23 Most of the 3.5 million handlooms are antiquated. 24 Although the handloom sector incurs
relatively high production costs and low productivity, the sector is known for its craftsmanship and
unique products, which have helped it to develop a niche in global markets.

The Indian textile industry is one of the oldest industries in the country and displays a very
complex sectoral dispersal matrix with hand-spun and hand-woven sector on one end of the spectrum
and the capital-intensive sophisticated mill sector at the other, with the decentralized power loom and
knitting sectors coming in between. Even in the organised sector, “island of excellence” exist, using
highly sophisticated information technology based equipment with facilities for ERP/SAP which are
second to none in the world.

The fibre specific configuration of the textile industry includes almost all types of textile fibres
from natural fibres like cotton, jute, silk and wool to synthetic/man-made fibres like polyester, viscose,
nylon, acrylic, polypropylene and the multiple blends of such fibres and filament yarns. The diverse
structure of the industry coupled with its close linkage with our ancient culture and tradition provides it
with the unique capacity to produce, with the help of latest technological inputs and design capability,
a wide variety of products suitable to the varying consumer tastes and preferences, both within the
country and overseas.

It is perhaps the only industry in the Indian industrial arena which is self reliant and complete
in value chain, i.e., from raw material to the highest value added products, i.e., garments/made-ups.
The Indian textile industry has a significant presence in the Indian economy as well as in the
international textile economy. Its contribution to the Indian economy is manifested in terms of its
contribution to the industrial production, employment generation and foreign exchange earnings.

The Indian textile industry is one of the largest in the world with a massive raw material and
textiles manufacturing base. Our economy is largely dependent on the textile manufacturing and trade
in addition to other major industries. About 27% of the foreign exchange earnings are on account of
export of textiles and clothing alone. The textiles and clothing sector contributes about 14% to the
industrial production and 3% to the gross domestic product of the country. Around 8% of the total
excise revenue collection is contributed by the textile industry. So much so, the textile industry
accounts for as large as 21% of the total employment generated in the economy. Around 35 million
people are directly employed in the textile manufacturing activities. Indirect employment including the
manpower engaged in agricultural based raw-material production like cotton and related trade and
handling could be stated to be around another 60 million.

This industry is poised to meet the increased global competition in the post 2005 trade regime
under WTO. The consequent effects of unleashing a flood of imported textiles into India and also
making the export markets far more competitive are being felt from now onwards. The textile industry
in India has a strong multi-fibre raw material production base, vast pool of skilled personnel,
entrepreneurial talent, good export potential and low import content. Production systems are flexible,
dynamic and vibrant. However, the industry’s above strengths get substantially diluted on account of
production process disadvantages in certain areas in terms of technology and supply-chain
management deficiencies. It is high time that adequate corrective measures were taken to prepare a
technology savvy industry to meet the challenges ahead.

The ongoing globalisation process is replete with threats from our competitors, particularly the
export-led economies like China to de-stabilise our export and local markets. At the same time, one
should also realise that it offers unlimited opportunities. In order to withstand the competition both in
international and domestic markets and accelerate our export growth, it is imperative to identify the
strengths and weaknesses of the textile industry hindering its growth. Considering the inherent
strengths of this industry in terms of a strong raw material base, skilled manpower and low wage costs,
this industry has immense potential in the globalised textile economy. However, given the nature and
extent of the fragmentation and technology obsolescence in the decentralised sector, it calls for a
focused action plan and programmes to accelerate and sustain the growth level of the different
segments of the industry.
 In the above background, the Government of India as well as the important state governments
having a significant presence of the textile industry reviewed the whole spectrum of textile industry.
Based on the above review and discussions, appropriate roadmaps have been drawn up for the
development and promotion of all the sectors of the textile industry from cotton to finished products.
The National Textile Policy 2000 has envisaged a foreign exchange earning to the tune of US $ 50
billion by the year 2010. Besides, many important measures have been spelt out in the policy
document. Before formulating the textile policy, the Government of India had set up a Committee
under the chairmanship of Mr. Sathyam to examine and draw up action points on various sectors of
the textile industry.

Accordingly, the committee in its report had outlined critical issues for development and
growth. In the textile industry, the weaving sector has been identified as one of the poorest
technological links in the value chain. What makes the problem more serious is that the decentralised
sector, both the powerlooms and the handlooms, which are accounting for the production of 76% of
our fabrics needs, is marked by an overabundance. The textile industry can be broadly classified into
two categories, the organised mill sector and the unorganised decentralised sector. Being a controlled
sector, the organised mill sector has a complete information base on the organisational set-up,
machinery installation, production pattern, employment etc.

However, information-base on the decentralised sector on the above parameters are inadequate
and policy planning has so far been based on hearsay and rough indirect estimates. The organised
sector of the textile industry represents the mills. It could be a spinning mill or a composite mill.
Composite mill is one where the spinning, weaving and processing facilities are carried out under one
roof. On the other hand, the decentralised sector has been found to be engaged mainly in the weaving
activity, which makes it heavily dependent on the organised sector for their yarn requirements. This
decentralised sector is comprised of the three major segments viz., powerloom, handloom and hosiery.
In addition to the above, there are readymade garments, khadi as well as carpet manufacturing units in
the decentralised sector.

In a country like ours where labour is abundant and the unemployment poses a serious threat
to the economic growth of the country, there is always a controversy about the production technology
to be adopted. The mill sector’s competitiveness is at stake given the mushrooming of a large power
loom sector who has production-function advantages. The textile production in case of the later
entrants like power looms have therefore upset the entire production scenario. The powerlooms and
mills are able to go for mass production with better quality products. Inspite of the fact that the
industry could assimilate high technology levels for better quality production in the market, it has
never adapted to the modern technology and, therefore, has remained obsolete. In the advent of
globalization, the Government of India, as part of its modernization efforts, has decided to induct about
50,000 shuttle less looms and upgrade 2.5 lakh looms into automatic and semi automatic power looms
and make it cost effective.

India is a traditional textile-producing country with textiles in general, and cotton in particular,
being major industries for the country. India is among the world’s top producers of yarns and fabrics,
and the export quality of its products is ever increasing. Textile Industry is one of the largest and oldest
industries in India. Textile Industry in India is a self-reliant and independent industry and has great
diversification and versatility. The textile industry can be broadly classified into two categories, the
organized mill sector and the unorganized decentralized sector.

The organized sector of the textile industry represents the mills. It could be a spinning mill or a
composite mill. Composite mill is one where the spinning, weaving and processing facilities are
carried out under one roof. The decentralized sector is engaged mainly in the weaving activity, which
makes it heavily dependent on the organized sector for their yarn requirements. This decentralized
sector is comprised of the three major segments viz., powerloom, handloom and hosiery. In addition to
the above, there are readymade garments, khadi as well as carpet manufacturing units in the
decentralized sector. The Indian Textile Industry has an overwhelming presence in the economic life of
the country.

It is the second largest textile industry in the world after China. Apart from providing one of
the basic necessities of life i.e. cloth, the textile industry contributes about 14% to the country's
industrial output and about 17% to export earnings. After agriculture this industry provides
employment to maximum number of people in India employing 35 million people. Besides, another 50
million people are engaged in allied activities. India is the largest producer of Jute, the 2nd largest
producer of Silk, the 3rd largest producer of Cotton and Cellulosic Fibre / Yarn and 5th largest
producer of Synthetic Fibers/Yarn. Textile Industry contributes around 4% of GDP, 9% of excise
collections, 18% of employment in industrial sector, and has 16 % share in the country’s export. The
Industry contributes around 25% share in the world trade of cotton yarn. India is the largest exporter of
yarn in the international market and has a share of 25% in world cotton yarn export market.
 India contributes for 12% of the world’s production of textile fibers and yarn. Indian textile
industry is second largest after China, in terms of spindleage, and has share of 23% of the world’s
spindle capacity. India has around 6% of global rotor capacity. The country has the highest loom
capacity, including handlooms, and has a share of 61% in world loomage. The Apparel Industry is one
of largest foreign revenue contributor and holds 12% of the country’s total export. The Inventory
Management System is a real-time inventory database capable of connecting multiple stores. This can
be used to track the inventory of a single store or to manage the delivery of stock between several
branches of a larger franchise. However, the system merely records sales and restocking data and
provides warning of low stock at any location through email at a specified interval.

The goal is to reduce the stress of tracking rather than to holder all store maintenance. Further
features may consist of the ability to create reports of sales, but again the explanation is left to the
management. In addition, since theft does occasionally occur, the system provides solutions for
confirming the store inventory and for correcting stock quantities. Production units use an inventory
management system to reduce their transport costs. The system is used to track products and parts as
they are transported from a seller to a storeroom, between storerooms, and finally to a retail location or
directly to a customer.

 Maintaining and recording the information between too much and too little inventory in the
company.
 Keep track of inventories as it is transported between different locations.
 Recording product information in a warehouse or other location.
 Having a record of Picking, packing, and selling products from a warehouse.
 Reduction of product obsolescence and decay.
 Avoiding out-of-stock situations.
OBJECTIVE OF THE STUDY:

 To evaluate the inventory management practices of SENBAGAM TEXTILES AND

SPINNERS.

 To study about the ordering levels for components of inventory.

 To measure economic order quantity for the raw material items.

 To analyse its inventory management methods with the help of ABC, VED analysis.

SCOPE OF THE STUDY:

Inventory management is a simple concept don’t have too much stock and don’t have too

little. Since there can be a substantial costs involved in staying above and below the optimal range,

inventory management can make a huge difference in the right balance can be quite a complex and

time consuming task without the right technology. Inventory management is very important for

“SENBAGAM TEXTILES AND SPINNERS, MADURAI”.

It enables the business to meet or exceed expectations of the customers by making the

products readily available. The scope of the study includes the ABC Analysis of Raw Materials, work

in progress and finished goods.

STATEMENT OF THE PROBLEM

The reorder point should equal to the lead-time demand. Avoid shortages managers often maintain

a safety stock. The approximate cost to hold inventory is very high, as they have to reduce prices and

absorb losses, and if missing could reduce sales, maintain inventory levels according to sales forecasts.

Had to spend hours counting endless rows of finished thread by hand

PERIOD OF THE STUDY

The project was detailed study on the topic “A STUDY ON INVENTORY MANAGEMENT”
within the time period of three months.

AREA OF THE STUDY

The area of the study is at “SENBAGAM TEXTILES AND SPINNERS, MADURAI”

LIMITATION OF THE STUDY:

 Detail study about the material was not possible because of time limit.

 Some of the information was kept confidential by the stores department.

 Study was confined only to the selected components in the stores department.

CHAPTERIZATION

CHAPTER – I

It deals with Introduction of the study, Industry profile, Company profile, Statement of the
problem, Objectives, Need, Scope, Period, Area of the study and Limitations.

CHAPTER – II

It deals with Review of Literature of the study.

CHAPTER – III

It deals with Research Methodology of the study.

CHAPTER – IV

It deals with Data analysis and interpretation of the study.

CHAPTER – V

It deals with Findings, Suggestions and Conclusion of the study.

 CHAPTER II
REVIEW OF LITERTURE
INTRODUCTION:

The raw material inventory contains item that are purchased by the firm from other and are
converted into finished goods through the manufacturing (production) process. They are an important
input of the final product. The working process 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. A finished goods represented final or completed products which are
available for sale .

The inventory of such goods consists of items that have been produced but are yet be sold.
Inventory, as a current asset, differs from other current assets because only financial managers are not
involved. Rather all the functional areas, finance, marketing, production, and purchasing are involved.
The views concerning the appropriate level of inventory would differ among the different functional
areas. The job of the financial manger is to reconcile the conflicting view points of the various
functional areas regarding the maximizing the owners wealth. Thus, inventory management, like the
management of other current assets , should be related to the overall objective of the firm. It is in this
context that the present chapter is devoted to the main elements of inventory management from the
view point of financial management.

The objective of inventory management is explained in some detail sections. Section two is
concerned with inventory management techniques. Attention is given here to basic concepts relevant to
the management and control of inventory.

The aspects covered are:

 Determination of the type of control required.

 The basic economic order quantity
 The reorder point, and
 Safety stocks.

As a matter of fact, the inventory management techniques are a part of production

management. But a familiarity with them is of great help to the financial managers in planning and
budgeting inventory.
2.2 REVIEW OF LITERATURE:

INTRODUCTION

An inventory management system (or inventory system) is the process by which you track your
goods throughout your entire supply chain, from purchasing to production to end sales. It governs how
you approach inventory management for your business. If you’re holding a lot of inventory in your
business, you need to stay efficient and maintain healthy margins. Inventory management tracks how
much physical inventory you have in your organization. It monitors stock at other locations, such as
distributors or subcontractors. When you have clear visibility into your inventory, you know when to
order, where to store it, and when you need to stop selling.

The system keeps track of current inventory levels for recipes at the ingredient level, predicts
how much inventory is needed for the upcoming week, and generates order forms that can be
automatically sent to vendors. After meeting with a cook for The Classic Cafeteria, an on-site
commercial cafeteria management company, we were easily able to identify issues in the maintenance
of resource prerequisite lists.

To keep track of their inventory levels, staff had to calculate a list of groceries utilized during a
course of time, calculate, and analyze the requirements for the upcoming weeks, and place their next
order to multiple vendors if needed. This process takes up a lot of time and human effort and is also
inclined to human error.

REVIEW OF LITERATURE

1. Vendanand Sakthidhasan (2010), addresses the application of lean manufacturing concepts

to the continuous production sector with a focus on the motor manufacturing industry. The goal of this
research is to investigate how lean manufacturing tools can be adapted from the discrete to the
continuous manufacturing environment.

2. Mandahawiand et al (2012), presents a process improvement study applied at a local paper

manufacturing company based on customized Lean Six Sigma methodologies. The DMAIC (Define,
Measure, Analyze, Improve, and Control) project management methodology and various lean tools are
utilized to streamline processes and enhance productivity.
 3. Zabala (2012), investigates whether decisions considered as common in new product
development literature are also valid in a region characterized by traditional industries. The author
aims to link the theoretical and empirical fields in the context of new product development and product
innovation management.

4. Mosich (2013), Inventories consists of good held for sale to customers, partially completed
goods, and material and supplies to be used in production. Inventory items are acquired and sold
continuing by a merchandising enterprise or acquired, placed in production, converted to a finished
product, and sold by a manufacturing enterprise. The sale of merchandise or finished products is the
primary source of revenue for most non service business enterprises.

5. Nezhad (2013), employed the decision on belief (DOB) approach for fault detection in
univariate process control. The concept of DOB and its application in decision making problems were
introduced, and then methodology of modeling fault detection in statistical process control by DOB
approach was discussed.

6. Dou (2014), paper is committed to design a logistics industry development policy model
based on system dynamic to simulate the policy measures which promote region economic and
logistics efficiency. The interaction between logistic industry development policy and economy needs
to be investigated and the influence degree of logistic efficiency affected by industry policy needs to
be identified too.

7. Leber (2014), reports the results of a survey on the use of innovation management
techniques with the potential to improve effectiveness of new product development, and customer
satisfaction. Failure mode and effects analysis was found as the most applied IMT in Slovene firms
with the highest perceived utility potential to reduce development costs and improve customer
satisfaction.

8. Stevenson (2015), the reason for hold inventories are discussed in detail in the following
paragraphs. First, inventory helps to project against stock outs, delayed delivers and expected increase
in the risk of shortages lays can occurs because of weather conditions, supplies stock outs, delivers of
wrong materials, quality problem and soon. The risk of shortage can be reduce by holding safety stock
which are stocks in excess of average demand to compensate for variability in demand and lead time.

9. Li Yao (2016), With the increasing number of China's automobile production and
ownership, the automobile industry faces new opportunities as well as challenges. Automobile
industry, especially the environmental new energy vehicles, on one hand is facing a better policy
environment and conditions; on the other hand, the competition has become more intense. TOYOTA,
Volkswagen and other international auto giants have settled in China, and at the same time, the
domestic automobile have been rising. So many brands and companies increase the competition of the
automobile market. This paper points out the problems of E company in inventory management, and
puts forward the corresponding optimization strategies from improving the methods of demand
forecasting and the method optimization of the inventory management.

10. Qilan Zhao (2016) For inventory control strategy, the more common side strategy is
centralized inventory control strategy and decentralized inventory control strategy. In this paper,
multiple retailers on the supply chain are chose as research objects to study the inventory control
strategy under random demand of these retailers in a multi-period inventory system. Considering the
shortage costs and inventory holding costs, multi-period stochastic inventory models are built to
compare the difference between traditional decentralized inventory control strategy and centralized
inventory control strategy based on risk sharing. The findings show the advantages of centralized
inventory control. Besides, this paper also analysis the influence of demand relevance on the
performance of centralized inventory control strategy.

11. Emrah Koksalmis (2017), Inventor management is in the heart of operational performance
in aircraft parts and space vehicles industries. As a result of its importance in practice, this subject has
been extensively studied in recent years in operations management. The main focus of this study is to
look at the relationship between inventory management performance such as inventory effectiveness,
efficiency and responsiveness and company operational performance. A performance model, which
includes the different dimensions of aircraft parts and space vehicle industries’ inventory management
system, has been applied and empirically tested. In order to examine the effect of various measures on
inventory performance, the regression analysis has been employed. We use financial data of 39
publicly listed U.S. aircraft parts and space vehicle industries for the 11- year period, 2005 to 2015.
The data (Compustat North America Annually Updated) is taken from Standard &Poor’s Compustate
database via Wharton Research Data Services (WRDS). We discuss the implementation of these
experimental results on the study of inventory management policy execution, and give researchers
some guidance for further research area.

12. Yanhong Zhu (2017), This paper mainly studies on how to distribute the blood items
among different departments within a hospital. The improper allocation of blood in hospital at present
could cause severe shortage and wastage of blood resource, which may endanger patient’s lives and
impose considerable costs on hospital. In order to solve this problem, we investigate the novel
allocation method by centralizing the blood inventory of some departments. This paper illustrates the
centralization principle in hospital, and formulates the integer programming model to work out the
optimal allocation network scheme and the optimal inventory setting for every department. The results
of the numerical example demonstrate that this centralization method could considerably reduce blood
shortage and wastage in hospital by about 80% and 28% respectively. Furthermore, it could decrease
the total cost by about 5000 Yuan in the hospital and improve the effect of some certain surgeries by
transfusing the fresh blood to patients

13. Feng Tao (2018), This paper focuses on who should control the inventory and who should
lead the supply chain under consignment contract. The supply chain consists of one supplier and one
retailer, and inventory inaccuracy occurs on the retailer's side. Vendor-managed inventory (VMI) and
retailer-managed inventory (RMI) models are analyse in two different supply chain power structures:
where the supplier is the Stackelberg leader (referred as SVMI and SRMI) and where the retailer is the
Stackelberg leader (referred as RVMI and RRMI).

14. Fitra Lestari (2018), Aims of this study is to build an information system model using the
system development life cycle approach in order to manage blood demand. Furthermore, this case
adopted continuous review model to conduct the inventory policies involving safety stock, reorder
point, and order quantity on each blood components.

15. Jose Rojas (2018), The ceramic title market in peru had a sustained growth until 2013
when the construction sector began to decline. Added to this phenomenon was greater competition for
products from china at prices below the national average, which meant a companies.

16. Kanyanatjakkraphobyothi (2018), The purpose of this research study is to examine key
factors affecting inventory management in Thai construction industry. A questionnaire survey was
developed to gather data for an exploratory factor analysis (EFA).

17. Meiyan Lin (2018), It’s well known that small and medium-sized enterprises(SMEs)
occupy a significant position in Chinese economy. However, in credit practices, SMEs are often
considered as high-risk lenders who often need to pay higher capital costs to obtain funds. This paper
explores (1)debt financing can distort a retailer’s inventory decision when the retailer with limited
funds and selling multiple products with different price, cost, revenue, and yield uncertainty
parameters ;(2)we also explore the role of each parameter in this distortion. Because of the limited
liability, a debt-financed retailer prefers items with high selling price, high penalty factor(late delivery)
and low salvage value. Furthermore, based on the fact that the capital cost of suppliers has always been
higher than that of banks, we discuss that this distortion can be mitigated when the financing is
provided by the supplier who can observe the actual 0rdequantities before determining the credit
terms. Besides, borrowing goods instead of borrowing cash limits the retailer’s ability to deviate from
the first-best inventory decision. On the other hand, based on the fact that the capital cost of suppliers
has always been higher than that of banks, we studied the combination of bank and supplier financing
to enable retailers to achieve the best way of financing.

18. Pikulkaew Tangtisanon (2018), This paper focuses on an inventory management and a
stock forecasting system. Web service was implemented as a new approach for an inventory
management system that helps to manage and to find the food additives that exist in the international
food additive database authorized by Codex Alimentarius Commission.

19. Shu Guo (2018), Mass customization (MC), as an operations program to satisfy target
consumers by offering personalized products or services, has attracted substantial attention from both
the industry and academia. Under this program, one of the most important issues is an efficient
management of the related inventories, including the work-in-process inventories, standard items, and
the customized items, which can ultimately contribute to a profitable business for the companies who
have launched MC. This paper, therefore, focuses on reviewing the mass customization based
literature and identifying various methods to effectively manage inventory for MC schemes. In
addition to regular inventory management, with the increasing emphasis on corporate social
responsibility, MC companies are required to devote more effort to the proper management of leftover
and returned inventories under MC. This paper, hence, examines MC inventory management in both
forward and reverse logistics. Findings from this review provide a guideline managers on inventory
management improvement in their MC operations. Future research opportunities related to MC
inventory management, such as supply chain coordination and risk management, are discussed. Index
Terms—Consumer returns, coordination, inventory management, leftover inventories, mass
customization, regular inventories

20. Alexa Karin Alfaro Santacruz (2019), A model is proposed for managing the inventories
of service companies in the industrial machinery rental sector based on the Sales Operation Planning
tool. This model is based on a maturity model allowing the company to evaluate its current situation
and identify the necessary requirements to be able to scale up development in the company.
 21. Huseyin Uvet (2019), This paper presents a concept for the semiautomatic Warehouse
Inventory management Device (WIND) that can be installed on reach truck (RT) vehicles. Inventory
counting is a compulsory operational process in supply chain management. Current counting methods
often threats employee’s health and safety and are not cost efficient. The WIND is designed to take
automatic image recording to perform manual counting process. The WIND system consists of a high
resolution industrial camera for visual inventory counting. A wheeled encoder and a laser distance
measurement sensor are ready on the system in order to maintain semiautomatic functions. A sensor
fusion algorithm run in the background and provides localization among the warehouse racks. While a
RT is on the move, its current location can be matched data sensors’ data using the DHL Supply
Chain® warehouse management system. The camera unit has an automatic triggering mechanism
which switches on only when the RT is in the correct location. The captured photos are saved to an
industrial computer on the WIND instantly and uploaded to the main database upon completing whole
tasks. In the final stage, users can count inventories manually on a computer screen and then, save in to
the database. By the proposed system, organizations can correct records, identify flaws in the
inventory process and avoid discrepancies.

22. Juan Yalan Curo (2019), Small and medium sized enterprise present with a set of problem
due to improper supply chain planning; a demand forecasting accuracy. Consequently this result in
difficulties in effectively balancing supply and demand, which in turn means that areas such as
purchasing production and inventories do not interrelated with ine another, resulting in a negative
economic impact.

23. Soni (2019), Made an in depth study of practices followed in regard to inventory
management in the engineering goods industry in Punjab. The analysis used a sample of 11 companies
for a period five years, that is, 2004–2009 and was done using panel data set. The adequate and timely
flow of inventory deter- mines the success of an industry. She concluded that size of inventory
enhanced marginally over the period as compared to a hike in current assets and net working capital.
Inventories constituted half of the working capital which was due to over- stocking of inventory as a
result of low inventory turnover especially for finished goods and raw materials. Rise in sales and
favourable market conditions lead to a rise in inventory levels. It was also inferred that sales increased
more as compared to inventory.

24. Wanthanee Prachuabsupakij (2019), The aim of this work is to present the data mining
techniques for classifying stock keeping units to ABC classification in spare parts warehouse in a
factory of Thailand. ABC analysis is an “inventory categorization method” that divide items into three
categories (A, B, and C), which are the label of data.

25. Rushad Mehta (2020), The robot scans the Radio Frequency Identification (RFID) tag of
books to get the shelf location of the books and then navigates through the library to the location where
the book should be and places the book on its shelf thus making the book available quickly. The
innovation of this system is that since it works in a known environment.

26. R.S. Chadda (2020) Study had been made on inventory management practices of Indian
companies. The analysis suggested application of modern scientific inventory control techniques like
operations research. These modern scientific techniques furnish opportunities for the companies,
Companies can minimize their investment in inventory but there is continuous flow of production. He
argued that industrially advanced countries, like, USA, were engaged in developing highly
sophisticated mathematical models and techniques for modernizing and redefining the existing tools of
inventory investment.

27. Dave Piasecki (2020) He focused on inventory model for calculating the optimal order
quantity that used the Economic Order Quantity method. He points out that many companies are not
using EOQ model because of poor results resulted from inaccurate data input. He says that EOQ is an
accounting formula that determines the point at which the combination of order costs and inventory
costs are the least. He highlights that EOQ method would not conflict with the JIT approach. He
further elaborates the EOQ formula that includes the parameters such as annual usage in unit, order
cost and carrying cost. Finally, he proposes several steps to follow in implementing the EOQ model.
The limitation of this literature is that it does not elaborate further relationship between EOQ and JIT.
It does not associate the inventory turns with the EOQ formula and fails to mention the profit gain with
the quantity is calculated.

28. Eneje et al (2021) Investigated the effects of raw materials inventory management on the
profitability of brewery firms in Nigeria using a cross sectional data from 1989 to 2008 which was
gathered for the analysis from the annual reports of the sampled brewery firms. Measures of
profitability were examined and related to proxies for raw materials inventory management by
brewers. The Ordinary Least Squares (OLS) stated in the form of a multiple regression model was
applied in the analysis. The study revealed that the local variable raw materials inventory management
designed to capture the effect of efficient management of raw material inventory by a company on its
profitability is significantly strong and positive and influences the profitability of the brewery firms in
Nigeria. They concluded that efficient management of raw material inventory is a major factor to be
contained with by Nigerian brewers in enhancing or boosting their profitability

29. Nyabwanga and Ojera (2021) They Highlighted the association between inventory
management practices and business performance of smallscale enterprises (SSEs), in Kisii
Municipality, Kisii County, Kenya. They used a cross-sectional survey study based on a small sample
size of 79 SSEs. The study inferred that inventory comprised the maximum portion of working capital,
and improper management of working capital was one of the major reasons of SSE failures. The
empirical results disclosed that a positive significant relationship existed between business
performance and inventory management practices with inventory budgeting having the maximum
influence on business performance ensued by shelf-space management. The study suggested that by
following effective inventory management practices business performance can be enhanced.

30. Srinivas Rao Kasisomayajula (2021) An analytical study was conducted on” Inventory
Management in Commercial Vehicle Industry In India”. A sample of five companies’ was selected for
study. The study concluded that all the units in the commercial vehicle industry have significant
relationship between Inventory and Sales. Proper management of inventory is important to maintain
and improve the health of an organization. Efficient management of inventories will improve the
profitability of the organization.