Inventory Management System at V-Guard Industries LTD., Vennala

Rajagiri College of Management and Applied Sciences
INDUSTRIAL PROJECT REPORT

A Study of Inventory Management System at V-Guard Industries Ltd., Vennala
Submitted by ROHITH THAMPI Reg No: 2146 Under the Guidance of Ms. ANU B GEORGE
In partial fulfillment of the requirements for the award of the Degree of Bachelor of Business Administration
Mahatma Gandhi University, Kottayam
Rajagiri College of Management & Applied Sciences Rajagiri Valley, Kakkanad, Cochin 682039
2009 - 2012
TABLE OF CONTENTS
Chapter/Part No Title page Certificate Declaration
Contents
Page No.
Completion Letter from Organization Acknowledgement List of Tables List of Figures Executive Summary Part I Organizational Study Industrial Profile Organizational Profile Part II Chapter - 1 Chapter - 2 Chapter - 3 Chapter - 4 Research Project Introduction And Theoretical Framework Research Methodology Data Analysis And Interpretation Findings And Conclusion Appendix - Source Of Secondary Data Bibliography
LIST OF TABLES
Table No
Contents Showing awareness of Inventory Management System Showing awareness of presence of Inventory Management System Showing whether or not employees agree to
Page No.
Table No 3.1
Table No 3.2
Table No 3.3
requiring Inventory Management System in the organization.
Table No 3.4
Showing reasons for presence of Inventory Management System Showing whether employees agree that
Table No 3.5
Inventory Management System has fulfilled its need
Table No 3.6
Showing benefits of going for an Inventory Management System Showing whether respondent feel that skilled professionals is required Showing what category of professions are required to manage your company Showing the perception of employees on
Table No 3.7
Table No 3.8
Table No 3.9
whether more emphasis is given to software than skilled man power with regard to Inventory Management Showing perception of employees on whether
Table No 3.10 software used in the company is according to design and need of the system Table No 3.11 Showing the prime challenge the company face in regard to inventory management
LIST OF DIAGRAM
Diagram No
Contents Showing awareness of Inventory Management
Page No.
Graph 3.1
System Showing awareness of presence of Inventory
Graph 3.2
Management System Showing whether or not employees agree to
Graph 3.3
requiring Inventory Management System in the organization. Showing reasons for presence of Inventory
Graph 3.4
Management System Showing whether employees agree that
Graph 3.5
Inventory Management System has fulfilled its need Showing benefits of going for an Inventory
Graph 3.6
Management System Showing whether respondent feel that skilled
Graph 3.7
professionals is required Showing what category of professions are
Graph 3.8
required to manage your company Showing the perception of employees on whether more emphasis is given to software
Graph 3.9
than skilled man power with regard to Inventory Management Showing perception of employees on whether
Graph 3.10
software used in the company is according to design and need of the system Showing the prime challenge the company face
Graph 3.11
in regard to inventory management
INDUSTRIAL PROFILE Manufacturing industry refers to those industries which involve in the manufacturing and processing of items and indulge in either creation of new commodities or in value addition. The manufacturing industry accounts for a significant share of the industrial sector in developed countries. The final products can either serves as a finished good for sale to customers or as intermediate goods used in the production process. Manufacturing takes turns under all types of economic systems. In a free market economy, manufacturing is usually directed toward the mass production of products for sale to consumers at a profit. In a collectivist economy, manufacturing is more frequently directed by the state to supply a centrally planned economy. In free market economies, manufacturing occurs under some degree of government regulation. Evolution of the Manufacturing Industry Manufacturing industries came into being with the occurrence of technological and socio-economic transformations in the Western countries in the 18th-19th century. This was widely known as industrial revolution. It began in Britain and replaced the labour intensive textile production with mechanization and use of fuels. Working of Manufacturing Industry Manufacturing industries are the chief wealth producing sectors of an economy. These industries use various technologies and methods widely known as manufacturing process management. Manufacturing industries are broadly categorized into engineering industries, construction industries, electronics industries, chemical industries, energy industries, textile industries, food and beverage industries, metalworking industries, plastic industries, transport and telecommunication industries. Manufacturing industries are important for an economy as they employ a huge share of the labour force and produce materials required by sectors of strategic importance such as national infrastructure and defence. However, not all manufacturing industries are beneficial to the nation as some of them generate negative externalities with huge social costs. The cost of letting such industries flourish may even exceed the benefits generated by them.
World Manufacturing Industry Owing to the emerging technologies worldwide, the world manufacturing industry has geared up and has incorporated several new technologies within its purview. Economists consider the World manufacturing industry as a sector which generates a lot of wealth. Generating employment, introducing latest techniques, real earnings from shipments etc., have put the world manufacturing industry in a favourable position. With the implementation of the concept of eco friendly environment, world manufacturing industry has taken several measures to ensure that the manufacturing industries worldwide abide by the eco friendly norms. World manufacturing industry also plays an important role in the defence of a country. By manufacturing aircrafts which play a vital role in the country's defence, the aerospace manufacturing industry acts as a shield. Other industries in the manufacturing sector manufacture products which are indispensable in our daily lives. With regard to the GDP or gross domestic product, world manufacturing industry contributes to the global economy as well as the global GDP. Manufacturing Industry in India The manufacturing industry in India has all the qualities which enhance economic development, increase the productivity of the manufacturing industry and face competition from the global markets. The Manufacturing industry in India is believed to have the potential of improving the economic condition of India Studies conducted on the manufacturing industry have concluded that India has a working population of 75%. Out of this, only 600 million have acquired education till middle school. Due to this reason, the manufacturing industry in India, which is labour intensive, can provide the requisite number of employment units in the country. Studies have indicated that the productivity of the manufacturing industry in India is approximately 1/5th of the productivity in the manufacturing industry of United States of America.
COMPANY PROFILE V-Guard Industries LTD started in 1977 with two employees and a burning passion is now a force to reckon with in the Indian electric and electronic goods panorama. Their untiring commitment for performance, cutting edge technology, innovative design and dependable service standards have lead to unrivalled product quality and a trusted brand image. At V-Guard the principles that motivated our success remain unchanged: The passion of our early years and our quest for excellence. Through stringent quality measures, reliable products, talented people and a responsible approach to business and global citizenship they continue to steadily capture the hearts of the people. In 1977, Kochouseph Chittilappilly began a small manufacturing unit for voltage stabilizers with a vision and a capital of Rs 1, 00,000 borrowed from his father. He soon established V-Guard Industries as a household name. V-Guard became the synonym for voltage stabilizers across South India. The company soon extended their range of products to include Pumps & Motors, Electric Water Heaters, Solar Water Heaters, Cables, UPSs, and Ceiling Fans. Now with a production of over 1, 25,000 Stabilizers and processing 500 tons of copper every month, V-GUARDs winning edge is in its technological excellence, automation and computerization that provides the impetus for a turnover racing the past `7000 million mark. At V-GUARD, success is measured not in terms of financial considerations, but in terms of customer satisfaction and quality that is built into every product. The value of commitment to quality is also cherished by more than 1500 staff members and over 4000 workers engaged in the production process either directly or indirectly. It is consciously upheld by a network of over 9500 retail dealers and 200 distributors/service centres spread all over India, with prompt, efficient and courteous after-sale service, that is the foundation for V-GUARDs excellent customer relations. In fact, millions of satisfied customers have played a pivotal role in promoting VGUARDs image.
V-Guard continues to remain at the helm through rigorous research and development. R&D labs at Cochin and Coimbatore explore and reinvent existing products and design. R&D for electronic products and electric geysers are carried out in Cochin while electro-mechanical products, electrical wires and solar water heaters are the strong point of the Coimbatore R&D lab. State of the art production centres ensure consistency and quality throughout the product range. V-Guard Industries Limited is a Kerala based company, manufacturing and marketing of electrical and electronic products. It was incorporated in February 1996. The company was converted into a private limited company in 15 November, 2001 and subsequently got converted into a public limited company on August 1, 2007 and received a fresh certificate of incorporation in the name of V-Guard Industries Limited under the companies Act, 1956, with the registration N0. 09-10010 of 1996 having its registered office at 33/2905, Vennala High School road, Vennala P.O , Kochi - 682028, Kerala, India. The V-Guard brand name is a household name in India and helped a lot to promote other products. At V-Guard, Quality is not an accident but a continuous process, beginning with the careful selection of only the finest components through the best sources. From hi-tech product designs to stringent quality checks at every stage of the manufacturing process, to ensure world class performance, V-GUARDs passion for perfection gets first priority. Then comes the service to the customers. At V-Guard success is measured in terms of customer satisfaction. The pricing of the product also plays a major role in marketing. Everybody knows a superior product needs a
reasonably good pricing. V-GUARD does not believe in creating an artificial demand for their product. Before a product is advertised it is made available in the market so as to avoid inconvenience and confusion to the customer. V-Guard Supply Chain Division is playing an important role in the safe distribution of goods all over the country with speed. Kochouseph Chittilappilly ventured into the leisure industry in the year 2000, established Veega Land one of the most attractive amusement park in the country, with a spectacular range of rides and entertainment, located at Pallikara in Kochi. Veega Land has lent a new dimension to the tourism scenario in Kerala. Veega Land is the first amusement park in the country to be awarded the ISO 14001 2004
certification for environment friendliness and conservation of natural resources. The company won the Kerala State Tourism Award for the year 2001-02 for being the most eco-friendly tourism project through its group company Veega Land. As a successful result the V-Guard Group has set up their second and Indias biggest amusement park Wonder La in Bangalore. V-Star Creations of V-Guard manufactures designer in garment and lingerie. Kochouseph Chittilappilly, the man behind V-Guard has also authored a book Practical Wisdom... in real life & management. It is a compilation of 52
enlightening articles he wrote in the in-house magazine of V-GUARD. This book is an account of simple yet effective ways of practical business management in business as well as real life, from his personal experiences, cited through various incidents. It explains ways to triumph over adverse circumstances and attain success in this highly competitive world, in a simple language, for the easy comprehension of all. The proceeds from the sale of this book are utilized only for charity. Practical Wisdom II is ready and will reach the shelf soon. He has also authorized a book in Malayalam, Ormakilivathil, which was released recently in Kerala, by DC books.
Vision LET US ENDEAVOUR TO MAKE V-GUARD A TRUSTED HOUSEHOLD NAME
Mission To offer a range of products at affordable prices, which add to comfort of life through saving in manual labour, time and energy or for entertainment. To make our products meet international quality standards and provide trouble free performance. To adopt designs, which support timely and efficient post sale service. To continuously innovate and add value to our products, if needed with technical collaboration. To continuously assess and improve customer care.
PRODUCT PROFILE The company manufactures and sells a range of electrical appliances. The major product of the company are voltage stabilizers, wiring cables, solar water heaters, electric pumps, electric motors, electric fans and UPSs.
Voltage stabilizers
Wiring cables
Electric motors
Solar water heaters
Electric fans
UPS
ABOUT VANNALLA UNIT The registered office of V-Guard Industries has been shifted to Vennala two years back. There are around 450 employees, which consist of 20-25 top level managers. The warehouse of V-Guard is situated just beside this cooperate office. The Board of Directors are: P.G.R. Prasad, Chairman Kochouseph Chittilapilly, Managing Director Dr. George Sleeba, Joint Managing Director Mithun Chittilapilly, Executive Director C.J.George, Director A.K.Nair, Director
MAJOR EVENTS AND MILESTONES ON OUR JOURNEY 1977 Mr. Kochouseph Chittilappilly sets up Premier Electronics with an investment of Rs. one lakh and with just two employees. Two Refrigerator Stabilizers were manufactured each day. 1980 1982 1983 1986 Launched AC Stabilizers. Started another unit called "Universal Electronics". Started "Supreme Electronics". Started "Prompt India". Expanded operations outside Kerala by opening of Tamil Nadu branch, followed by a branch in Karnataka. Prompt India started marketing Stabilizers in the brand name of VGuard. 1987 1989 1992 Launched Servo-Controlled Stabilizers. 'Prompt India' converted into 'V-Guard' Industries. Launched V-Guard Pumps and started new branch office in Andhra Pradesh. 1996 V-Guard Industries became a Public Limited Company. Launched V-Guard Water Heaters and Wiring Cables. 1997 Launched Aquatron, an Electronic Water Level Controller for overhead water tanks. 1998 1999 Launched UPS (Online & Offline). Launched Digital Stabilizer, Diversified into Electric Cable business with V-Guard Cable manufacturing unit at Coimbatore. 2000 2001 Turnover crosses INR 1000 Million Mark. Launched Compressor Pumps. Company is converted into Private Limited for better maneuverability. 2002 2003 Launched V-Guard Solar Water Heaters. Solar Water Heater manufacturing unit and Electro Mechanical Works for manufacturing pumps in Coimbatore becomes
operational. Branch Office started in Delhi. 2005 Launched Solar Water Heaters with Evacuated Glass Tube Collector Technology.
2006
Launched V-Guard Fans. Branch office at Bhubaneswar, Pune and Hubli.
2007
New Branch offices at Vijayawada, Bhopal, Kala Amb, Vadodara, Kanpur, Nagpur, Raipur, Jamshedpur, Kolkata, Ludhiana and Jaipur. Turnover crossed INR 240 Million Mark. V-Guard Industries became a Public Limited Company.
2008
Listed in BSE & NSE. Launched Inverters & LT Cables. New Factories at Coimbatore & Kashipur established.
2009
New LT Cable Factories at Kashipur and Coimbatore became operational.
2009
Opened Manufacturing facility for Water Heaters and Fan at Kala Amb, Himachal Pradesh.
2010 2010 2011 2011
Turnover crosses 4600 million marks. New branch office in Madurai. Turnover crosses 7263.5 million marks. New branch offices in Ghaziabad, Dehradun, Patna and Chandigarh
STRUCTURE OF THE COMPANY V-Guard Industries ltd. Act upon the rules and regulations of the companies act, 1948. The company has well defined structure. It has the following departments. HR / Personal department Accounts department Purchase department Store department Quality assurance & quality control IT department R&D department Sales and excise department
WHAT IS SUPPLY CHAIN DEPARTMENT? Supply chain management (SCM) is the process of planning, implementing, and controlling the operations of the supply chain as efficiently as possible. Supply Chain Management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-origin to point-of-consumption. The definition one American professional association put forward is that Supply Chain Management encompasses the planning and management of all activities involved in sourcing, procurement, conversion, and logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, Supply Chain Management integrates supply and demand management within and across companies. More recently, the loosely coupled, self-organizing network of businesses that cooperates to provide product and service offerings has been called the extended enterprise. Organizations increasingly find that they must rely on effective supply chains, or networks, to successfully compete in the global market and networked economy. In Peter Drucker's management's new paradigms, this concept of business relationships extends beyond traditional enterprise boundaries and seeks to organize entire business processes throughout a value chain of multiple companies. During the past decades, globalization, outsourcing and information technology have enabled many organizations, such as Dell and Hewlett Packard, to successfully operate solid collaborative supply networks in which each specialized business partner focuses on only a few key strategic activities. This inter-organizational supply network can be acknowledged as a new form of organization. However, with the complicated interactions among the players, the network structure fits neither "market" nor "hierarchy" categories. It is not clear what kind of performance impacts that different supply network structures could have on firms, and little is known about the coordination conditions and trade-offs that may exist among the players. From a system's point of view, a complex network structure can be decomposed into individual component firms. Traditionally, companies in a supply network concentrate on the inputs and outputs of the processes, with little concern for the
internal management working of other individual players. Therefore, the choice of an internal management control structure is known to impact local firm performance. In the 21st century, there have been a few changes in business environment that have contributed to the development of supply chain networks. First, as an outcome of globalization and the proliferation of multi-national companies, joint ventures, strategic alliances and business partnerships, there were found to be significant success factors, following the earlier "Just-In-Time", "Lean Management" and "Agile Manufacturing" practices. Second, technological changes, particularly the dramatic fall in information communication costs, which are a paramount component of transaction costs, have led to changes in coordination among the members of the supply chain network. Many researchers have recognized these kinds of supply network structures as a new organization form, using terms such as "Keiretsu", "Extended Enterprise", "Virtual Corporation", Global Production Network", and "Next Generation Manufacturing System". In general, such a structure can be defined as "a group of semi-independent organizations, each with their capabilities, which collaborate in ever-changing constellations to serve one or more markets in order to achieve some business goal specific to that collaboration". Successful SCM requires a change from managing individual functions to integrating activities into key supply chain processes. An example scenario: the purchasing department places orders as requirements become appropriate. Marketing, responding to customer demand, communicates with several distributors and retailers, and attempts to satisfy this demand. Shared information between supply chain partners can only be fully leveraged through process integration. Supply chain business process integration involves collaborative work between buyers and suppliers, joint product development, common systems and shared information. According to Lambert and Cooper operating an integrated supply chain requires continuous information flows, which in turn assist to achieve the best product flows. However, in many companies, management has reached the conclusion that
optimizing the product flows cannot be accomplished without implementing a process approach to the business. The key supply chain processes stated by Lambert are: Customer relationship management Customer service management Demand management Order fulfilment Manufacturing flow management Supplier relationship management Product development and commercialization Returns management
One could suggest other key critical supply business processes combining these processes stated by Lambert such as: a) Customer service management process Customer Relationship Management concerns the relationship between the organization and its customers. Customer service provides the source of customer information. It also provides the customer with real-time information on promising dates and product availability through interfaces with the company's production and distribution operations. Successful organizations use following steps to build customer relationships: determine mutually satisfying goals between organization and customers establish and maintain customer rapport produce positive feelings in the organization and the customers
b) Procurement process Strategic plans are developed with suppliers to support the manufacturing flow management process and development of new products. In firms where operations extend globally, sourcing should be managed on a global basis. The desired outcome is a win-win relationship, where both parties benefit, and reduction times in the design cycle and product development are achieved. Also, the purchasing function develops rapid communication systems, such as Electronic Data Interchange (EDI) and Internet
linkages to transfer possible requirements more rapidly. Activities related to obtaining products and materials from outside suppliers requires performing resource planning, supply sourcing, negotiation, order placement, inbound transportation, storage, handling and quality assurance, many of which include the responsibility to coordinate with suppliers in scheduling, supply continuity, hedging, and research into new sources or programs. c) Product development and commercialization Here, customers and suppliers must be united into the product development process, thus to reduce time to market. As product life cycles shorten, the appropriate products must be developed and successfully launched in ever shorter time-schedules to remain competitive. According to Lambert and Cooper, managers of the product development and commercialization process must: 1. Coordinate with customer relationship management to identify customer articulated needs; 2. Select materials and suppliers in conjunction with procurement, and 3. Develop production technology in manufacturing flow to manufacture and integrate into the best supply chain flow for the product/market combination. d) Manufacturing flow management process The manufacturing process is produced and supplies products to the distribution channels based on past forecasts. Manufacturing processes must be flexible to respond to market changes, and must accommodate mass customization. Orders are processes operating on a just-in-time (JIT) basis in minimum lot sizes. Also, changes in the manufacturing flow process lead to shorter cycle times, meaning improved responsiveness and efficiency of demand to customers. Activities related to planning, scheduling and supporting manufacturing operations, such as work-in-process storage, handling, transportation, and time phasing of components, inventory at manufacturing sites and maximum flexibility in the coordination of geographic and final assemblies postponement of physical distribution operations.
e) Physical distribution This concerns movement of a finished product/service to customers. In physical distribution, the customer is the final destination of a marketing channel, and the availability of the product/service is a vital part of each channel participant's marketing effort. It is also through the physical distribution process that the time and space of customer service become an integral part of marketing, thus it links a marketing channel with its customers. f) Outsourcing/partnerships This is not just outsourcing the procurement of materials and components, but also outsourcing of services that traditionally have been provided in-house. The logic of this trend is that the company will increasingly focus on those activities in the value chain where it has a distinctive advantage and everything else it will outsource. This movement has been particularly evident in logistics where the provision of transport, warehousing and inventory control is increasingly subcontracted to specialists or logistics partners. Also, to manage and control this network of partners and suppliers requires a blend of both central and local involvement. Hence, strategic decisions need to be taken centrally with the monitoring and control of supplier performance and day-to-day liaison with logistics partners being best managed at a local level. g) Performance measurement Experts found a strong relationship from the largest arcs of supplier and customer integration to market share and profitability. By taking advantage of supplier capabilities and emphasizing a long-term supply chain perspective in customer relationships can be both correlated with firm performance. As logistics competency becomes a more critical factor in creating and maintaining competitive advantage, logistics measurement becomes increasingly important because the difference between profitable and unprofitable operations becomes narrower. A.T. Kearney Consultants noted that firms engaging in comprehensive performance measurement realized improvements in overall productivity. According to experts internal measures are generally collected and analyzed by the firm including
1. Cost 2. Customer Service 3. Productivity measures 4. Asset measurement, and 5. Quality. External performance measurement is examined through customer perception measures and "best practice" benchmarking, and includes 1. Customer perception measurement, and 2. Best practice benchmarking. Supply Chain Management Problems Supply chain management must address the following problems: Distribution Network Configuration: Number, location and network missions of suppliers, production facilities, distribution centres, warehouses, cross-docks and customers. Distribution Strategy: Including questions of operating control (centralized, decentralized or shared), delivery scheme (e.g., direct shipment, pool point shipping, Cross docking, DSD (direct store delivery), closed loop shipping), mode of transportation (e.g., motor carrier, including truckload, railroad, ocean freight, airfreight); replenishment strategy (e.g., pull, push or hybrid); and transportation control (e.g., owner operated, private carrier, common carrier, contract carrier. Information: Integration of and processes through the supply chain to share valuable information, including demand signals, forecasts, inventory and transportation etc. Inventory Management: Quantity and location of inventory including raw materials, work-in-process and finished goods. Cash-Flow: Arranging the payment terms and the methodologies for exchanging funds across entities within the supply chain. Supply chain execution is managing and coordinating the movement of materials, information and funds across the supply chain. The flow is bi-directional.
ACTIVITIES Supply chain management is a cross-functional approach to managing the movement of raw materials into an organization, certain aspects of the internal processing of materials into finished goods, and then the movement of finished goods out of the organization toward the end-consumer. As organizations strive to focus on core competencies and becoming more flexible, they have reduced their ownership of raw materials sources and distribution channels. These functions are increasingly being outsourced to other entities that can perform the activities better or more cost effectively. The effect is to increase the number of organizations involved in satisfying customer demand, while reducing management control of daily logistics operations. Less control and more supply chain partners led to the creation of supply chain management concepts. The purpose of supply chain management is to improve trust and collaboration among supply chain partners, thus improving inventory visibility and improving inventory velocity. Several models have been proposed for understanding the activities required to manage material movements across organizational and functional boundaries. SCOR is a supply chain management model promoted by the Supply Chain Management Council. Another model is the SCM Model proposed by the Global Supply Chain Forum (GSCF). Supply chain activities can be grouped into strategic, tactical, and operational levels of activities. Strategic Strategic network optimization, including the number, location, and size of warehouses, distribution centres and facilities. Strategic partnership with suppliers, distributors, and customers, creating communication channels for critical information and operational improvements such as cross docking, direct shipping, and third-party logistics. Product design coordination, so that new and existing products can be optimally integrated into the supply chain, load management Information Technology infrastructure, to support supply chain operations. Where-to-make and what-to-make-or-buy decisions Aligning overall organizational strategy with supply strategy.
Tactical Sourcing contracts and other purchasing decisions. Production decisions, including contracting, locations, scheduling, and planning process definition. Inventory decisions, including quantity, location, and quality of inventory. Transportation strategy, including frequency, routes, and contracting. Benchmarking of all operations against competitors and implementation of best practices throughout the enterprise. Milestone payments.
Operational Daily production and distribution planning, including all nodes in the supply chain. Production scheduling for each manufacturing facility in the supply chain (minute by minute). Demand planning and forecasting, coordinating the demand forecast of all customers and sharing the forecast with all suppliers. Sourcing planning, including current inventory and forecast demand, in collaboration with all suppliers. Inbound operations, including transportation from suppliers and receiving inventory. Production operations, including the consumption of materials and flow of finished goods. Outbound operations, including all fulfilment activities and transportation to customers. Order promising, accounting for all constraints in the supply chain, including all suppliers, manufacturing facilities, distribution centres, and other customers.
COMPONENTS OF SCM The SCM components are the third element of the four-square circulation framework. The level of integration and management of a business process link is a function of the number and level, ranging from low to high, of components added to the link. Consequently, adding more management components or increasing the level of each component can increase the level of integration of the business process link. The literature on business process reengineering, buyer-supplier relationships and SCM suggests various possible components that must receive managerial attention when managing supply relationships. Lambert and Cooper (2000) identified the following components which are: Planning and control Work structure Organization structure Product flow facility structure Information flow facility structure Management methods Power and leadership structure Risk and reward structure Culture and attitude
However, a more careful examination of the existing literature[8] will lead us to a more comprehensive structure of what should be the key critical supply chain components, the "branches" of the previous identified supply chain business processes, that is, what kind of relationship the components may have that are related with suppliers and customers accordingly. Bowersox and Closs states that the emphasis on cooperation represents the synergism leading to the highest level of joint achievement. A primary level channel participant is a business that is willing to participate in the inventory ownership responsibility or assume other aspects of financial risk, thus including primary level components. A secondary level participant is a business that participates in channel relationships by performing essential services for primary participants, thus including secondary level components, which are in support of primary participants. Third level channel participants and components that
will support the primary level channel participants, and which are the fundamental branches of the secondary level components, may also be included. Consequently, Lambert and Cooper's framework of supply chain components does not lead us to the conclusion about what are the primary or secondary level supply chain components. That is, what supply chain components should be viewed as primary or secondary, how these components should be structured in order to have a more comprehensive supply chain structure, and to examine the supply chain as an integrative one. Baziotopoulos reviewed the literature to identify supply chain components. Based on this study, Baziotopoulos suggests the following supply chain components: 1. For customer service management: Includes the primary level component of customer relationship management, and secondary level components such as benchmarking and order fulfilment. 2. For product development and commercialization: Includes the primary level component of Product Data Management (PDM), and secondary level components such as market share, customer satisfaction, profit margins, and returns to stakeholders. 3. For physical distribution, manufacturing support and procurement: Includes the primary level component of enterprise resource planning (ERP), with secondary level components such as warehouse management, material management, postponement. 4. For performance measurement: Includes the primary level component of logistics performance measurement, which is correlated with the information flow facility structure within the organization. Secondary level components may include four types of measurement such as: variation, direction, decision and policy measurements. More specifically, in accordance with these secondary level components, total cost analysis (TCA), customer profitability analysis (CPA), and asset management could be concerned as well. 5. For outsourcing: Includes the primary level component of management methods, and the strategic objectives for particular initiatives in key areas of information technology, operations, manufacturing capabilities, and logistics. manufacturing planning, personnel management, and
Reverse Supply Chain: Reverse Logistics is the process of planning, implementing and controlling the efficient, effective inbound flow and storage of secondary goods and related information opposite to the traditional supply chain direction for the purpose of recovering value or proper disposal. Reverse logistics is also referred to as "Aftermarket Customer Services". In other words, anytime money is taken from a company's Warranty Reserve or Service Logistics budget that is a Reverse Logistics operation.
Traditional and Supply Chain Management Approaches Compared ELEMENT Inventory Management Approach Total Cost Approach Time horizon Amount of information sharing and monitoring Amount of coordination of multiple levels in the channel Joint Planning Compatible of Corporate Philosophies Breadth of supplier base TRADITONAL Independent Effort SUPPLY CHAIN Joint reduction in channel inventories Channel-wide cost efficiencies Long-term As required for planning and monitoring processes Multiple contacts between levels in firm and levels of channel Ongoing Compatible for at least for key relationships Small to increase Coordination Needed for Channel leadership Not needed coordination Focus Amount of sharing of risks and rewards Risks and rewards Each on its own shared over the long-term Warehouse Speed of operations, information and inventory flows orientation (storage, safety stock) interrupted by barriers to flows; Localize to channel pairs Distribution Centre orientation (inventory velocity) interconnecting Flows; JIT; Quick Response across the channel.
Minimize firm costs Short-term Limited to needs of current transaction Single contact for the transaction between channel pairs Transaction-based Not relevant Large to increase competition and spread risk
INVENTORY MANAGEMENT Inventory control cannot be treated in isolation. Inventories grow because of large lead times, long setup times, erratic output, etc. Inventory managers have an unenviable task on their hands. They are blamed at the drop of a hat. However the nature of the problem is such that, they on their own, can do very little about the inventory on hand. Inventory management is but a part of the greater system that we may well call as the production materials management system. Traditionally, inventory control systems have been reactive in nature. The rule has been to provide for extra inventory as a means to tackle the wide range of variability that confronts any organization. Inventories must flow. This becomes all the more important when cost is considered, for cost is like dust-it has a tendency to settle on anything sitting around. Rapid flow of materials allows little time for cost to accumulate. Four reasons for its importance are Inventories can be a major commitment of monetary resources. Inventories affect virtually every aspect of daily operations. Inventories can be a major competitive weapon. Inventories are the major control problem in many companies.
Functions and types of inventories: Inventory serves various functions in a firm. Firms hold inventories to buffer against uncertainties in supply, in the production process, and in demand. Irrespective of whether a certain inventory is planned or not, it always serves the basic function of de-coupling supply from demand. Inventories can be classified in various ways depending on the specific purpose. Manufacturing companies have broadly two categories of inventories. They are: 1. Manufacturing inventory 2. Distribution inventory
1. Manufacturing Inventory a) Raw materials b) Semi-finished components c) Finished components d) Sub-assemblies e) Work in progress f) Finished goods g) Supplies/consumables h) Spares 2. Distribution Inventory a) Finished products in warehouse b) Finished products in transit OBJECTIVES OF INVENTORY MANAGEMENT The basic managerial objectives of inventory control are two-fold; first, the avoidance over-investment or under-investment in inventories; and second, to provide the right quantity of standard raw material to the production department at the right time. In brief, the objectives of inventory control may be summarized as follows: 1) Operating Objectives a) Ensuring Availability of Materials: There should be a continuous availability of all types of raw materials in the factory so that the production may not be help up wants of any material. A minimum quantity of each material should be held in store to permit production to move on schedule. b) Avoidance of Abnormal Wastage: There should be minimum possible wastage of materials while these are being stored in the godowns or used in the factory by the workers. Wastage should be allowed up to a certain level known as normal wastage. To avoid any abnormal wastage, strict control over the inventory should be exercised. Leakage, theft, embezzlements of raw material and spoilage of material due to rust, bust should be avoided. c) Promotion of Manufacturing Efficiency: If the right type of raw material is available to the manufacturing departments at the right time, their
manufacturing efficiency is also increased. Their motivation level rises and morale is improved. d) Avoidance of Out of Stock Danger: Information about availability of
materials should be made continuously available to the management so that they can do planning for procurement of raw material. It maintains the inventories at the optimum level keeping in view the operational requirements. It also avoids the out of stock danger. e) Better Service to Customers: Sufficient stock of finished goods must be maintained to match reasonable demand of the customers for prompt execution of their orders. f) Highlighting slow moving and obsolete items of materials. g) Designing poorer organization for inventory management: Clear cut accountability should be fixed at various levels of organization. 2) Financial Objectives a) Economy in purchasing: A proper inventory control brings certain advantages and economies in purchasing also. Every attempt has to make to effect economy in purchasing through quantity and taking advantage to favourable markets. b) Reasonable Price: While purchasing materials, it is to be seen that right quality of material is purchased at reasonably low price. Quality is not to be sacrificed at the cost of lower price. The material purchased should be of the quality alone which is needed. c) Optimum Investing and Efficient Use of capital: The basic aim of inventory control from the financial point of view is the optimum level of investment in inventories. There should be no excessive investment in stock, etc. Investment in inventories must not tie up funds that could be used in other activities. The determination of maximum and minimum level of stock attempt in this direction.
CONTROL OF MATERIALS Rigid controls over materials are necessary not only to guard against theft, but also to minimize waste and misuse from causes such as excessive inventory, over issue, deterioration, spoilage, and obsolescence. There are certain prerequisites to an effective control system for materials 1. Materials of the desired quantity will be available when needed; 2. Materials will be purchased only when a need exists and in economical qualities; 3. Purchase of material will be made at most favourable prices; 4. Vouchers for the payment of materials purchased will be approved only if materials have been received in good condition; 5. Material will be protected against loss by proper physical control; 6. Issue of materials will be properly authorized and accounted for; and 7. All materials, at all times, will be charged, as the responsibility of some individual. IMPORTANCE OF INVENTORY CONTROL The importance or necessity of inventory control is well explained in the terms of the objects of inventory control, which are obtained through it. A proper inventory control lower down the cost of production and improves profitability of enterprise. ADVANTAGES OF INVENTORY CONTROL 1. Reduction in investment in inventory. 2. Proper and efficient use of raw materials. 3. No bottleneck in production. 4. Improvement in production and sales. 5. Efficient and optimum use of physical as well as financial resources. 6. Ordering cost can be reduced if a firm places a few large orders in place of numerous small orders. 7. Maintenance of adequate inventories reduces the set-up cost associated with each production run.
ESSENTIAL OF INVENTORY CONTROL SYSTEM For an efficient and successful inventory control there are certain important conditions that are as follows: 1. Classification and identification of inventories: The usual inventory of
manufacturing firm includes raw material, stores, work in progress, and components etc. To facilitate prompt recording the dealing, each item of the inventory must be assigned a particular code number and it must be classified in suitable group or sub-division. ABC analysis of materials is very helpful in this context. 2. Standardization and simplification of inventories: In order to facilitate inventory control, the inventory line should be simplified. It refers to the elimination of excess types and size of items. Simplification leads to reduction in classification of inventories and its carrying costs. Standardization, on the other hand, refers to fixation of standards of raw material to be purchased and specification of the components and tools to be used. 3. Setting the maximum and minimum limits for each part of inventory: The third step in this process is to set the maximum and minimum limits for each item of inventory. It avoids the chances of over-investment as well as running a short of any item during the cost of producing. Reordering point should also be fixed beforehand. 4. Economic order quantity: It is also a basic inventory problem to determine the quantity as how much to order at a time. In determine the EOQ, the problem is one to set a balance between two opposite cost, namely, ordering cost and carrying cost. This quantity should be fixed beforehand. 5. Adequate Storage facilities: To make the system of inventory control successful and efficient one, it is also essential to provide the adequate storage facilities. Sufficient storage area and proper handling facilities should be organized. 6. Adequate reports and records: Inventory control requires the maintenance of adequate inventory record and reports. Various inventory records must contain information to meet the needs of purchasing, production, sales and financial staff. The typical information required about any class of inventory may be relating to quantity on hand, location, quantities in transit, unit cost, code for each item of inventory, reorder point, safety level etc. Statement forms and
inventory records should be so designed that the clerical cost of maintaining these records must be kept minimum. 7. Intelligent and experienced personnel: An important requirement of successful inventory control system is the appointment of qualified and experienced staff in purchase and stores department. Mere establishment of procedures and the maintenance of records would not give the desired results as there is no substitute for sincere and devoted as well as experienced hands. Hence, the whole inventory control structure should be manned with trained, qualified, experienced and devoted employees. 8. Coordination: There must be proper coordination of all departments involved in the process of inventory control, such as purchase, finance, receiving, approving, storage, and accounting departments. These all departments have different outlook and objects in inventory management but financial managers has to coordinate them all. 9. Budgeting: An efficient budgeting system is also required. Preparation of budget concerning materials, supplies and equipment to ensure economy in purchasing and use of material is also necessary. 10. Internal Check: Operating of a system of internal check is also vital in inventory management so that all transactions involving material supplies and equipment purchase are properly approved and automatically checked. RISK ASSOCIATED WITH INVENTORIES Holding of inventories expose the firm to a number of risks. Major risks are; 1. Price decline: They may be due to increase in market supply of the product, introduction of a new competitive product, price-cut by the competitors etc. 2. Product deterioration: This may due to holding a product for too long a period or improper storage conditions 3. Obsolescence: This may due to change in customers taste, new production technique, improvements in product design, specification etc.
FACTORS AFFECTING STOCK INVESTMENT LEVEL The factors can be put in two categories: General and Specific. General Factors: These factors include those factors, which affect directly or indirectly level of investment in any assets. These are as follows. 1. Nature of business 2. Size and scale of business 3. Expected sales volumes 4. Price level changes 5. Availability of funds 6. Management view point Specific factors: These factors are directly related with investment in stocks. The main factors are: 1. Seasonal character of raw material 2. Length and technical nature of the production process 3. Terms of purchase 4. Nature of end product 5. Supply conditions 6. Time factor 7. Loan facilities 8. Price level fluctuation
ELEMENTS OF INVENTORY COSTS The types of costs that usually affect the inventory decision are: 1. The cost to place replenishment order. These are also referred to as replenishment costs or procurement or indenting costs. Cost of paperwork, typing and dispatching an order, Costs incurred in following up timely deliveries, travelling costs, purchase follow up costs, telephone, telegrams, telex, postal, email and other correspondence costs, Costs involved in receiving the order, incoming inspection, checking, physical handing over to stores, Any setup machine cost, if any, directly charged by the supplier to the batch size, Salaries and wages of the purchase department.
2. The cost to hold inventory: These costs include all expenses incurred because of the volume of inventory carried. These are also called as inventory carrying costs. This may be a fixed sum per unit per time period, or it may be a fixed percent of value per time period. In more complex models it may consist of more than one element. That is, holding costs may consist of both physical storage and capital costs. Among the relevant costs are warehouse rental, clerical costs of counting inventory, insurance for goods and warehouses, security, taxes on inventory, obsolescence, damage, pilferage, theft (burglars and employees), reduced item life, spoilage, and the value associated with funds tied up in inventory. This cost of capital may be the actual cost of funds borrowed to purchase inventory, the interest that could be saved if that money were used to retire debt, the interest that could have been earned by depositing the funds, or an internal rate of return, representing gains made from using the same funds on, for example, a plant expansion. The components of this cost are cycle stock costs and buffer stock costs.
The Challenges of Inventory Management: Maximize the level of customer service, and Minimizing the cost of providing an adequate level of customer service, promoting efficiency in production or purchasing The organizations Inventory Management System must carry out objectives set by upper management. It must perform in such a way to enhance the organizations profit or performance. The objectives set by management will frequently fall into either of two categories: 1. Customer service objectives, and 2. Inventory investment objectives. Thus we see the basic conflict of inventory management: some objectives call for economizing on inventory levels, while other objectives call for increasing inventories. These objectives may create conflict along departmental lines: finance wants smaller sums tied up in inventory, while marketing wants larger amounts so that customer orders can be more promptly satisfied. COSTS ASSOCIATED WITH INVENTORIES From a managerial point of view, two basic categories of costs are associated with inventories: 1. Inventory carrying costs and 2. Inventory acquisition costs. These plus related variable costs are discussed in the following paragraphs. Carrying Costs Carrying material in inventory is expensive. Prior to the relatively recent periods of higher rates, a number of studies determined that the annual cost of carrying a production inventory averaged approximately 25 percent of the value of the inventory. The escalating and volatile cost of money in recent years, however, has increased the typical firms annual inventory carrying cost to figure between 25 and 35 percent of the value of the inventory.
Five major elements make up these costs in the following manner: Opportunity cost of invested funds Insurance costs Property taxes Storage costs Obsolescence and deterioration Total carrying costs 12-20% 2-4% 1-3% 1-3% 4-10% 20-40%
Let us briefly examine these carrying costs. 1. Opportunity cost of invested funds. When a firm purchases Rs.500, 000 worth of a production material and keeps it in inventory, it simply has this much less cash to spend for other purposes. Money invested in productive equipment or in external securities earns a return for the company. Conceptually, then, it is logical for the firm to charge all money invested in inventory an amount equal to that it could earn if invested elsewhere in the company. This is the opportunity cost associated with inventory investment. 2. Insurance costs. Most firms insure their assets against possible loss from fire and other forms of damage. An extra Rs.500, 000 worth of inventory represents an additional asset on which insurance premiums must be paid. 3. Property taxes. As with insurance, property taxes are levied on the assessed value of a firms assets; the greater the inventory value, the greater the asset value, the greater the asset value, and consequently the higher the firms tax bill. 4. Storage costs. The warehouse in which a firm stores its inventory is depreciated a certain number of rupees per year over the length of its life. One may say, then, that the cost of warehouse space is a given number of Rs. per cubic foot per year. And this cost conceptually can be charged against inventory occupying in the space.
5. Obsolescence and deterioration. In most inventory operation, a certain percentage of the stock spoils, is damaged, is pilfered, or eventually becomes obsolete. No matter how diligently warehouse managers guard against these occurrences, a certain number always take place. With new products being introduced at an increasing rate, the probability of obsolescence is increased accordingly. Consequently, the larger the inventory, typically the greater the absolute loss from this source. Generally speaking, this group of carrying costs rises and falls nearly proportionately with the rise and fall of the inventory level. Further, the inventory level is directly related to the quantity in which the ordered material is delivered. When the complete order is shipped at one time, the larger the order quantity; the higher the average inventory level vary nearly directly with the size of the delivery quantity. If a firm has estimated its approximately inventory carrying cost, as a percentage of inventory value, the annual inventory carrying costs that would be generated by delivery quantities of various sizes can be calculated as follows: (Carrying cost per year) = (average inventory value) x (inv. Carrying cost as a % of inv. value) (Carrying cost per year) = (average inventory in units) x (material unit cost) x (inv. carrying cost as % of inv. value) CC = Q/2 x C x I Where CC = carrying cost per year for the material in question Q = order or delivery quantity for the material, in units C = delivered unit cost of the material I = inventory carrying cost for the material, expressed as a percentage of inventory value
Acquisition Costs Looking at inventory costs in another light, a different set of indirect materials cost factors emerges. These factors all contribute to the cost of generating, processing, and handling an order, along with its related paperwork. Examples of these costs are listed below and can be thought of as inventory acquisition costs. 1. A certain portion of wages and operating expenses of such departments as purchasing and supply, production control, receiving, inspection, stores, and accounts payable those departments whose personnel devote time to the generation and handling of the order. 2. The cost of supplies such as engineering drawings, envelops, stationary, and forms for purchasing, production control, receiving, accounting, and so forth. 3. The cost of services such as computer time, telephone, fax machine, telegraphs, and postage expended in procuring material when considering this group of acquisition costs, observe that they behave quite differently from carrying costs. Acquisition costs are not related to inventory size percentage; rather, they are a function of the number of orders placed or deliveries received during a given period of time. One simplified example will illustrate this point. Suppose a buyer in the purchasing and supply department receives a requisition for a special fabricated part used in the manufacture of one of the firms products. Assume further that the part has been purchased before and that price quotations from three or four shops are on file. The buyer first reviews the present inventory situation and probably checks with production control to see if any significant changes are anticipated in future production. Drawings and specifications of the part are then reviewed to refresh his or her memory regarding required tooling and other technical details of the purchase. Next, the buyer reviews the quotations to determine why the order was placed with supplier a last time. Before deciding if supplier A should again receive the order, the buyer must also review supplier performance data. Finally, the buyer decides which supplier should receive the order and subsequently inquiries about the firms current shop loads and any other matters that have arisen during the investigation. It is entirely possible that a negotiation session may also be required. In total, the buyers
investigation may require anywhere from an hour to several days. The total cost of the buyers time to the company will be the same whether the purchase order is written for 20 parts or 200 parts. This process may result in the development of a term contract with the supplier, in which case the buyers effort is spread over all deliveries of the item during the life of the contract. If this is not the case, however, the next time the buyer receives another requisition for this part, he or she will go through somewhat the same process, generating almost the same indirect cost for the company. In the largest segment of the acquisition, cost element is made up of these types of indirect labour and overhead costs, generated in purchasing and in other departments that subsequently become involved in handling some activity associated with the purchase. The cost of suppliers and services consumed in the placement and handling of an order typically varies directly with the number of order placed. While these costs are significant, they are considerably less so that the human and related overhead cost figures just discussed. If a firm experiences a certain annual usage of an item, the number of orders placed during the year will decline as the individual order quantity increases, thus generating lower annual acquisition costs. If a firms cost accounting department can estimate its approximately acquisition cost per order, the annual acquisition costs that would be generated by order quantities of various sizes can be calculated as follows: (Acquisition cost per year) = (number of orders placed per year) x (acquisition cost per order) AC = U/Q x A Where AC = acquisition cost per year for the material in question U = expected annual usage of the material, in units Q = order or delivery quantity for the material, in units. A = acquisition cost per order or per delivery for the material
Economic Order Quantity Concept (EOQ) If one has to make decisions about managing an inventory, it is useful to understand the behaviour of the inventory-related cost factors just discussed. These factors often help a manager determine which items should or should not be carried in inventory, what inventory levels should be carried for specific items, and what order quantities are appropriate for given items. As its name suggests, this concept holds that the appropriate quantity to order may be the one that tends to minimize all the costs associated with the order -carrying costs, acquisition costs, and the cost of the material itself. Concentrating for the moment on the first two costs, fig. shows clearly that as the order or delivery quantity increases, carrying costs rise-and at the same time acquisition costs decrease. To see the total picture more clearly, if carrying costs and acquisition costs are added together over the order quantity range shown on the graph, the total indirect materials cost curve, TC, is produced. This transformation is shown in fig. The economic order quantity concept simply says that the sum of all the indirect costs associated with inventory will be minimized on an annual basis if the material, for which the graph is drawn, is ordered (or delivered) consistently in the quantity that corresponds with the low point on the TC curve. This is the economic order quantity. Note that the low point on the total cost curve coincides with the point at which the carrying cost curve intersects the acquisition cost curve. This makes it easy to develop the basic formula that can always be used to calculate a materials basic EOQ. Recall the two simple cost formulas developed for annual carrying costs and annual acquisition costs. These can be now be used to develop the EOQ formula. EOQ occurs when Annual carrying cost = annual acquisition cost CC = AC QCI/2 = UA/2
Solving for Q: Q2CI = 2UA Q = sq. root of 2 UA/CI This formula, then, is the fundamental mathematical representation of the EOQ concept. It can be modified to accommodate numerous special conditions, but in practice it probably finds its most effective application in this form. Professor Daniel Jones, who has researched various lot sizing concepts, says that the EOQ concept can be used in conjunction with a variety of inventory management systems, including JIT. He writes: When the EOQ model is properly employed, there is a little difference between lot sizes based on the JIT model and the EOQ model. He points out that all relevant incremental costs must be included when using the EOQ model. This is perhaps an obvious observation, but one that he finds frequently is violated in practice. So, despite some criticisms, the EOQ concept continues to be a versatile and useful too if it is properly applied. Various types of inventory management techniques are: a) ABC analysis b) VED analysis c) HML analysis d) GOLF analysis e) SOS analysis f) LIFO FIFO technique g) MNG analysis h) FSN analysis i) XYZ analysis a) ABC analysis ABC analysis is based on "80 - 20" principle or principle of "Vital few" & "trivial many".
According to this principle it is said that 80% of the inventory cost is due to 20% of the items (which are expensive) and hence their management is very much required to keep down the inventory cost. ABC analysis is based on "value analysis". (Value of item based on its consumption) 'A' items are those whose cost is very high, hence proper inventory management and regular check for such items are required. 'A' category items should be managed by senior executive and monthly inspection for such products is required. These items should not be purchased in 'bulk but it must be purchased regularly in small quantities supplier of such items should be informed about the requirement of the product as per manufacturing plan. These items are 5% to 10% present and cost about 70% to 80% of total inventory. 'B' category items are not very expensive as compared to 'A' category. Minimum inventory control should be done. These items are 15% to 20% present and cost 15% to 20% of total inventory. 'C' category items are purchased in bulk. They constitute 70% to 80% of total product and cost about 5% to 10%. They do not require regular inventory control. They are purchased in bulk to avail price discount benefit. b) VED analysis VED analysis is based on criticality, availability etc. e.g. Car. V - Vital items E - Essential items D - Desirable items Vital items are those which when not present, the production may come to halt. Essential items are those which when not present may not affect the production for short period but during long run or hire cost of production may go up. Desirable products are those which do not matter of much important & production may go without it for long period of time.
c) HML analysis: This is based on price analysis. H - High cost M - Medium cost L - Low cost d) GOLF analysis G - Government NG - Non Government L - Local F - Foreign Golf analysis states that products which are bought from Government sources require more time and advance payment. Non government products require less time in purchasing, less paper work & are given on credit. Goods from local suppliers can be bought on credit purchase easily. Foreign goods require more terms and conditions, more paper work & legal documents like custom clearance etc. e) SOS analysis S - Seasonal OS - Off Seasonal Seasonal goods should be purchased in bulk during season and stored for off season. f) LIFO FIFO technique LIFO - Last in First out FIFO - First in First out
g) FSN analysis F - Fast moving items S - Slow moving items N - Non moving items Non moving items should not be kept. These are scientific inventory management techniques which are in current use and helps in effective inventory control and management easy to adopt and easy to be understood. TECHNIQUES OF INVENTORY CONTROL In managing inventories, the firms objective should be in consonance with the wealth maximization principle. To achieve this, the firm should determine the optimum level of investment in inventory. To deal with the problems of inventory management effectively, it becomes necessary to be conversant with the different techniques of inventory control. Although the concepts involved in inventory management are production-oriented and are not strictly financial it is important that the financial manager understand them since they have certain built-in financial costs. The different techniques of inventory control may be summarized as follows: 1. Inventory Level Technique: The main objective of stock control is to determine and maintain the optimum level of stock so that there is neither shortage of any material nor unnecessary investment in inventory. For this purpose, determination of maximum and minimum limits of inventory and ordering level is necessary. 2. Maximum Stock Limit: This represents the quantity of inventory above which it should not be allowed to be kept. The main object of fixing this limit is to ensure that unnecessary working capital is not blocked in stores. The quantity is fixed keeping in view the disadvantages of overstocking.
The disadvantages of over stocking are: 1. Capital is blocked up unnecessarily in stores so there will be loss of interest. 2. More godown space is needed so more rent will have to be paid. 3. There are chances of deterioration in quality because large stocks will require more time for use is the factory. 4. There is the possibility of loss due to obsolescence. 5. There is danger of depreciation in market values. The maximum stock level is fixed by taking into account the following factors: 1. Amount of capital available for maintaining stores. 2. Godown space available. 3. Rate of consumption of the material. 4. The time lag between indenting and receiving of the material. 5. Length and technical nature of the production process. 6. Possibility of loss in stores by deterioration, evaporation etc. There are certain stores, which deteriorate in quality if they are stored for longer period. 7. Cost of maintaining stores. 8. Likely fluctuation in prices. For instance, if there is a possibility of a
substantial increase in prices in the coming period, a comparatively large maximum stock level will be fixed. On the other hand, if there is the possibility of decrease in price in the near future, stocks are kept at a much reduced level. 9. The seasonal nature of supply of material. Certain materials are available only during specific periods of year. So these have to be stocked heavily during these periods. 10. Restrictions imposed by the government or local authority in regard to materials which there are inherent risks, e.g. fire and explosion. 11. Risk of obsolescence, i.e., possibility of change in fashion and habit which will necessitate change in requirements of materials. The following formula may be applied to calculate the maximum stock: 1. Maximum Stock = Minimum Inventory + Lot size 2. Maximum Stock = Reorder Level - Minimum consumption during Minimum lead time + Lot size
MINIMUM STOCK LIMIT (SAFETY OR BUFFER STOCK) This represents the quantity below which stock should not be allowed to fall. It is maintained to save from the situation of stock out in the event of abnormal increase in material usage rate and/or delivery period. In fact determination of this quantity is significant because of uncertainty in respect to material usage rate and delivery period. The main purpose of this level is to ensure that production is not held up due to shortage of any material. This level is fixed for all items of stores and following factors are taken into account for the fixation of this level: a) Lead time i.e. time lag between intending and receiving the material. b) Rate of consumption of the material during the lead time. c) Re-order Level But if normal usage and normal lead time is not known then average usage will be treated as normal usage and average re-order will be treated as normal re-order period. Re-ordering Level (Ordering Level) It is the point at which if the stock of the material in stores reaches, the storekeeper should initiate the purchase requisition for fresh supply of material. This level is fixed somewhere between maximum and minimum level is such a way that the difference of quantity of the material between the reordering level and the minimum level will be sufficient to meet requirements of production up to the time of fresh supply of the material. It is fixed after taking into consideration the following factors: (a) Rate of material usage: Generally this rate is found out as usage rate per day, pre week or per month. The quantity of production fluctuates according to demand of the product which results in variation in usage rate. Hence, the following three factors: i. Maximum usage rate: It implies quantity of material required at maximum capacity production. ii. Minimum usage rate: It implies quantity of material required at capacity production in most unfavourable business conditions. iii. Normal or average Usage Rate: It implies quantity of material required at capacity production under normal business conditions.
(b) Ordering Period: The time taken in preparing the order for purchase of material is called ordering period. In some concerns this period may be significant but in large concerns this period is significant because before placing the order the purchase manager has to trace out the best suppliers, after that only he places the order. (c) Delivery, Lead or Procurement Time: The time taken from the date of placing the order to the date of delivery by the suppliers is called procurement time. The maximum, minimum and average procurement time should also be determined. (d) Minimum Stock Level: This is the level of stock below which stocks should normally not be allowed to fall.
SYNOPSIS TITLE OF STUDY A study on effectiveness of Inventory Management System (IMS) at V-Guard Industries Limited, Vennala. INTRODUCTION Inventory control cannot be treated in isolation. Inventories grow because of large lead times, long setup times, erratic output, etc. Inventory managers have an unenviable task on their hands. They are blamed at the drop of a hat. However the nature of the problem is such that, they on their own, can do very little about the inventory on hand. Inventory management is but a part of the greater system that we may well call as the production materials management system. STATEMENT OF THE PROBLEM As organisation strive to focus on core competencies and becoming more flexible, the importance of Inventory Management has become more profound. The problem selected to the analysis is to study the effectiveness of Inventory Management System at V-Guard. The effectiveness of the prevailed inventory system is analysed simultaneously. SIGNIFICANCE OF THE STUDY In todays world it is very important for companies to understand the effectiveness of Supply Chain Management. This project would be very useful as this would exhibit the effectiveness of their Inventory Management System. SCOPE OF THE STUDY The study mainly focuses on the detailed analysis of the Inventory Management System. In this study, the overall functioning of warehousing was analyzed as well as its effectiveness. A moderate attempt was made to have the SWOT analysis of the company. This study also involved the practical application of theoretical knowledge. This study will help to know the organization better and to have a new insight on the functioning of warehousing.
OBJECTIVE OF THE STUDY General Objective To have a general awareness of the functioning and management of an organization. To understand the extent to which management theory matches with actual practices seen Specific Objective To understand the organization structure and working of Supply Chain Management. To identify departments strength and weaknesses. To have an exposure to the working environment.
RESEARCH METHODOLOGY Data for the report are collected through both primary and secondary sources. Primary Data Observation Interviews Questionnaire Discussion with managers and employees
Secondary Data Companys supply chain department manual Company manual Websites
TOOLS FOR DATA COLLECTION Interviews Questionnaire
STATISTICAL TOOLS USED FOR ANALYSIS Percentage Graphical Representation
LIMITATION OF STUDY This being an academic study, it suffers from time and cost constraints. The analysis of study is limited to Ernakulam city only. Hence it cannot be generalized in other places. As the executives were busy with their work, adequate information couldnt be collected The Company didnt reveal some official report and documents as it is kept confidential.
1) Are you aware about Inventory Management System? Table 3.1 - Showing awareness of Inventory Management System No of respondents Yes No Do not Know / Cannot say 15 3 2 20 Percentage 75 15 10 100
Graph 3.1 - Showing awareness of Inventory Management System

80 70 60 50 40 30 20 10 0 Yes No Do not know / Cannot say 15 10 Percentage 75
INFERENCE The awareness level among the company officials regarding the existence, functioning and applicability of inventory management system is high that is 75 percent, as per the result of the study.
2) Do you know that your company has an inventory management system? Table 3.2 - Showing awareness of presence of Inventory Management System No of respondents Yes No Do not Know / Cannot say 14 4 2 20 Percentage 70 20 10 100
Graph 3.2 - Showing awareness of presence of Inventory Management System

80 70 60 50 40 30 20 10 0 Yes No Do not know / Cannot say Percentage 20 10 70
INFERENCE The company officials are aware about their company having an inventory management system. 70 percent of the respondents do have this awareness as against 20 percent plus 10 percent of the respondents who are either not aware or not able to provide any information in this regard.
3) Do you agree that there should be an inventory management system in of any organization? Table 3.3 - Showing whether or not employees agree to requiring Inventory Management System in the organization. No of respondents Agree Disagree Do not Know / Cannot say 13 3 4 20 Percentage 65 15 20 100
Graph 3.3 - showing whether or not employees agree to requiring Inventory Management System in the organization.
70 60 50 40 30 20 10 0 Agree Disagree Do not know / Cannot say 15 20 Percentage 65
INFERENCE According to the response to the above question, it appears that every company / organization should have a system or mechanism in place for managing their inventory.
4) For what reasons do you feel that there should be inventory management system? Table 3.4 - Showing reasons for presence of Inventory Management System
No of respondents To smoothen operational requirement To save time To maintain accountability & transparency Other Reason Do not know / Cannot say 5 4 6 3 2 20
Percentage
25 20 30 15 10 100
Graph 3.4 - Showing reasons for presence of Inventory Management System

35 30 25 20 15 10 5 0 To smoothen operational requirement To save time To maintain accountability and transparency Other reason Do not know / Cannot say 25 20 15 10 30
INFERENCE To everyones surprise, 30 per cent of the respondents feel that it is for accountability and transparency purpose that inventory records are maintained and hence the need for an inventory management system. This is followed by the need for saving time and the requirement of operational smoothness.
5) Do you agree that the inventory management system in your company has fulfilled the need for which it was involved? Table 3.5 - Showing whether employees agree that Inventory Management System has fulfilled its need No of respondents Strongly Agree Agree Disagree Strongly Disagree Do not Know / Cannot say 4 9 3 1 3 20 Percentage 20 45 15 05 15 100
Graph 3.5 - Showing whether employees agree that Inventory Management System has fulfilled its need
50 45 40 35 30 25 20 15 10 5 0 Strongly Agree Agree Disagree Strongly Disagree Do not know / Cannot say 5 20 15 15 Percentage 45
INFERENCE From the above response, it appears that the inventory management system has more or less achieved its objectives for which it was in place. This is evident from the 65 percent of the respondents opinion who have either agreed or strongly agreed in favour of this proposition. However the response of 20 percent of the respondents who think otherwise also speaks something.
6) What according to you is the major benefit of going for an inventory management system by your company? Table 3.6 - Showing benefits of going for an Inventory Management System No of respondents It will make storage and retrieval of material easier Improve sales Effectiveness Reduce operational cost Other Benefits Do not know / Cannot say 5 4 2 2 20 25 20 10 10 100 7 35 Percentage
Graph 3.6 - Showing benefits of going for an Inventory Management System

40 35 30 25 20 15 10 5 0 35 25 20 10 10 Percentage
It will make Improve Reduce storage and sales operational retrieval of Effectiveness cost material easier
Other Benefits
Do not know / Cannot say
INFERENCE As regards the benefits of having an inventory management system by the company, the respondents are of the opinion that the major benefit lies in relaxing the terms of storage and retrieval of material. This is followed by the benefit of increasing sales effectiveness and reduction in operational cost. However, all these benefits are interlinked and the spearing between them is more analytical than anything else.
7) Do you have skilled professionals in your company for inventory management? Table 3.7 - Showing whether respondent feel that skilled professionals is required No of respondents Yes No Do not Know / Cannot say 10 6 4 20 Percentage 50 30 20 100
Graph 3.7 - Showing whether respondent feel that skilled professionals is required
60 50 50 40 30 30 20 20 10 0 Yes No Do not know / Cannot say Percentage
INFERENCE Half of the respondents agree that there should be sufficient number of skilled professionals. Little more than quarter say it is not necessary while one-fifth of the respondents were not willing to comment.
8) What category of professionals is managing your company inventory? Table 3.8 Showing what category of professions are required to manage your company No of respondents Skilled and trained Only skilled but not trained Non skilled but trained professionals Non skilled and non trained professionals Others 6 3 4 5 2 20 30 15 20 25 10 100 Percentage
Graph 3.8 - Showing what category of professions are required to manage your company
35 30 25 20 15 10 5 0 Skilled and trained Only skilled Non skilled Non skilled but not but trained and non trained professionals trained professionals Others 15 10 Percentage 20 30 25
INFERENCE 30 percent of respondents say that there should be skilled and trained professionals. 15 percent of the respondents think that training is not a pre requisite. More than half of the respondents feel it is not necessary to have such highly skilled employees.
9) Do you agree that your company gives more emphasis on software than skilled manpower with regard to inventory management? Table 3.9 - Showing the perception of employees on whether more emphasis is given to software than skilled man power with regard to Inventory Management No of respondents Strongly Agree Agree Disagree Strongly Disagree Do not Know / Cannot say 4 3 10 2 1 20 Percentage 20 15 50 10 5 100
Graph 3.9 - Showing the perception of employees on whether more emphasis is given to software than skilled man power with regard to Inventory Management
60 50 50 40 30 20 20 10 0 Strongly Agree Agree Disagree Strongly Disagree Do not Know / Cannot say 15 10 5 Percentage
INFERENCE The above response gives an impression that the company puts greater emphasis on skilled manpower than software for inventory details management.
10) Do you think that the software used by your company is according to the design and need of the system? Table 3.10 - Showing perception of employees on whether software used in the company is according to design and need of the system No of respondents Yes No Do not Know / Cannot say 17 2 1 20 Percentage 85 10 05 100
Graph 3.10 showing perception of employees on whether software used in the company is according to design and need of the system
90 80 70 60 50 40 30 20 10 0 Yes No Do not Know / Cannot say 10 5 Percentage 85
INFERENCE The company appears to be using the software according to the system requirement and design and according to the organizational needs.
11) What is the prime challenge your company face in regard to inventory management? Table 3.11 showing the prime challenge the company face in regard to inventory management No of respondents Lack of trained professionals Maintenance cost Changing requirement of customers Other problems Do not know / Cannot say 8 4 5 2 1 20 40 20 25 10 05 100 Percentage
Graph 3.11 showing the prime challenge the company face in regard to inventory management
45 40 35 30 25 20 15 10 5 0 Lack of Maintenance Changing Other trained cost requirement problems professionals of customers Do not know / Cannot say Percentage 10 5 20 25 40
INFERENCE Lack of availability of trained professionals coupled with maintenance cost and changing needs of the customers are perceived to be the inventory challenges before the company.
SWOT ANALYSIS STRENGTHS 1. Market leadership in the dominant industry segments like voltage stabilizers and water heaters. 2. Dynamic and progressive leadership. 3. Responsive to changes in market condition and product profile. 4. Leadership position being maintained through focused marketing strategies. 5. Technical Superiority. 6. Superior product quality. 7. Strong brand equity. 8. Strong distribution network. 9. Quick responsive to market need. 10. High consumer and brand recall in a sensitive markets. 11. Good relationship between employees and employers. 12. Goodwill of the organization. 13. There is prompt dispatch as well as timely delivery of goods. 14. Stock loss is practically nil WEAKNESSES 1. Advertisements are inadequate. 2. Low presence in Global market. 3. Under Utilization of IT practices and Systems. 4. There is no sufficient employee for housekeeping. 5. The availability of closed vehicle is very less. OPPORTUNITIES 1. In the new economic scenario, IT has a dominant role and it will help the company to reduce labour cost as well as time. 2. Planning to bring out computerized colour system. THREATS 1. An increase in the flow of goods from cheaper and competitive sources. 2. Rising Cost of raw materials. 3. Threats of Fire.
FINDINGS 1. Employees are aware about Inventory Management System and the presence of Inventory Management System in the organization. 2. The respondents feel that there is high requirement for Inventory Management System in the company. 3. Most of the employees feel Inventory Management System is prepared to maintain accountability and transparency. 4. Inventory Management System (IMS) can help to smoothen operational requirement and to save time. 5. The study shows Inventory Management System is to make storage and retrieval of material easier and also helps to improve sales. 6. Inventory Management System helps to reduce operational cost. 7. Most of the respondents feel there should be sufficient skilled professionals as there is a dearth of it now. 8. The company has a good organizational structure. 9. The products of the company are known for its high quality standard.
SUGGESTIONS 1. Company should try to increase its market share. 2. The company should try to bring more skilled professionals. 3. The relation between management should be improved. 4. They should try to bring IT into their plant. 5. Try to bring computerized colour system as soon as possible as it will reduce time. 6. Try to own few closed vehicle as the availability of them is very less.
CONCLUSION V-Guard Industry is steadily expanding every year. It is one of the leading manufacturing companies in India. It stands 1st in production of stabilizers. The company is now making sufficient profit every year. The wage system that prevails in V-Guard is very good and there is better working condition and industrial harmony among employees. The company is facing cut throat competition from entities that manufacture cheaper products. The goal of wealth maximization is affected by the efficiency with which inventory is managed. Inventories constitute about 60% of current assets of companies in India. The manufacturing companies hold inventories in the form of raw materials, work in progress and finished goods. Inventories facilitate smooth production and sales operation (transaction motive), to guard against the risk of unpredictable changes in usage rate and delivery time (precautionary motive) and to take advantage of price fluctuations (speculative motive). Inventories represent investment of a firms funds. The objectives of the inventory management should be the maximization of the value of the firm. Therefore the firm should consider: 1. Cost 2. Return 3. Risk factors
In inventory maintenance two types of costs are involved carrying cost and ordering cost and the firm should minimize the total cost (carrying plus ordering cost).The firm follows inventory control techniques as A-B-C technique EOQ & JIT techniques for better holding inventories.
Questionnaire Sir / Madam I am Rohith Thampi currently pursuing BBA from Rajagiri College of Management and Applied sciences, Kakkanad. As a part of curriculum, I am doing a project on A study on Inventory Management at V-Guard industries Ltd. Kindly cooperate and respond sincerely to each question. All the information will be kept confidential and will be used only for academic purpose. Please answer the following question: 12) Are you aware about Inventory Management System? A) Yes B) No C) Do not know / Cannot say 13) Do you know that your company has an inventory management system? A) Yes B) No C) Do not know / Cannot say 14) Do you agree that there should be an inventory management system in of any organization? A) Agree B) Disagree C) Do not know / Cannot say 15) For what reasons do you feel that there should be inventory management system? A) To smoothen operational requirement B) To save time C) To maintain accountability and transparency D) Other Reason E) Do not know / Cannot say 16) Do you agree that the inventory management system in your company has fulfilled the need for which it was involved? A) Strongly Agree B) Agree C) Disagree D) Strongly Disagree E) Do not know / Cannot say
17) What according to you is the major benefit of going for an inventory management system by your company? A) It will make storage and retrieval of material easier B) Improve sales Effectiveness C) Reduce operational cost D) Other Benefits E) Do not know / Cannot say 18) Do you have skilled professionals in your company for inventory management? A) Yes B) No C) Do not know / Cannot say 19) What category of professionals is managing your company inventory? A) Skilled and trained B) Only skilled but not trained C) Non skilled but trained professionals D) Non skilled and non trained professionals E) Others 20) Do you agree that your company gives more emphasis on software than skilled manpower with regard to inventory management? A) Strongly Agree B) Agree C) Disagree D) Strongly Disagree E) Do not know / Cannot say 21) Do you think that the software used by your company is according to the design and need of the system? A) Yes B) No C) Do not know / Cannot say 22) What is the prime challenge your company face in regard to inventory management? A) Lack of trained professionals B) Maintenance cost C) Changing requirements of customers D) Other problems E) Do not know / Cannot say THANK YOU
BIBLIOGRAPHY
Books 1. Sunil Chopra, Peter Meindl, D.V.Kalra. (2008). Supply Chain Management. (3rd Ed.). Dorling Kindersley (India) 2. Janat Shah. (2009), Supply Chain Management. Dorling Kindersley (India) 3. Max Muller. (2003), Essentials of inventory management, Amacom (USA) 4. Company Manual
Web pages 1. http://www.indiainfoline.com/Markets/Company/Background/CompanyProfile/V-Guard-Industries-Ltd/532953 2. http://economictimes.indiatimes.com/v-guard-industriesltd/infocompanyhistory/companyid-4264.cms 3. http://www.sebi.gov.in/dp/vguard.pdf 4. www.google.com 5. www.wikipedia.org 6. www.vguard.in

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Inventory Management System at V-Guard Industries LTD., Vennala

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Rajagiri College of Management and Applied Sciences

INDUSTRIAL PROJECT REPORT

Mahatma Gandhi University, Kottayam

Rajagiri College of Management and Applied Sciences

Chapter/Part No Title page Certificate Declaration

Rajagiri College of Management and Applied Sciences

requiring Inventory Management System in the organization.

Inventory Management System has fulfilled its need

Rajagiri College of Management and Applied Sciences

Contents Showing awareness of Inventory Management

System Showing awareness of presence of Inventory

Management System Showing whether or not employees agree to

Management System Showing whether employees agree that

Management System Showing whether respondent feel that skilled

professionals is required Showing what category of professions are

in regard to inventory management

Rajagiri College of Management and Applied Sciences

Rajagiri College of Management and Applied Sciences

Rajagiri College of Management and Applied Sciences

Rajagiri College of Management and Applied Sciences

Rajagiri College of Management and Applied Sciences

Rajagiri College of Management and Applied Sciences

Vision LET US ENDEAVOUR TO MAKE V-GUARD A TRUSTED HOUSEHOLD NAME

Rajagiri College of Management and Applied Sciences

Solar water heaters

Rajagiri College of Management and Applied Sciences

Rajagiri College of Management and Applied Sciences

Rajagiri College of Management and Applied Sciences

Launched V-Guard Fans. Branch office at Bhubaneswar, Pune and Hubli.

New LT Cable Factories at Kashipur and Coimbatore became operational.

2010 2010 2011 2011

Rajagiri College of Management and Applied Sciences

Rajagiri College of Management and Applied Sciences

Rajagiri College of Management and Applied Sciences

Rajagiri College of Management and Applied Sciences

Rajagiri College of Management and Applied Sciences

Rajagiri College of Management and Applied Sciences

Rajagiri College of Management and Applied Sciences

Rajagiri College of Management and Applied Sciences

Rajagiri College of Management and Applied Sciences

Rajagiri College of Management and Applied Sciences

Rajagiri College of Management and Applied Sciences

Rajagiri College of Management and Applied Sciences

Rajagiri College of Management and Applied Sciences

Rajagiri College of Management and Applied Sciences

Rajagiri College of Management and Applied Sciences

Rajagiri College of Management and Applied Sciences

Rajagiri College of Management and Applied Sciences

Rajagiri College of Management and Applied Sciences

Rajagiri College of Management and Applied Sciences

Rajagiri College of Management and Applied Sciences

Rajagiri College of Management and Applied Sciences

Rajagiri College of Management and Applied Sciences

Rajagiri College of Management and Applied Sciences

Rajagiri College of Management and Applied Sciences

Rajagiri College of Management and Applied Sciences

Rajagiri College of Management and Applied Sciences

Rajagiri College of Management and Applied Sciences

Rajagiri College of Management and Applied Sciences

Rajagiri College of Management and Applied Sciences

Rajagiri College of Management and Applied Sciences

Rajagiri College of Management and Applied Sciences

Rajagiri College of Management and Applied Sciences

Rajagiri College of Management and Applied Sciences

Rajagiri College of Management and Applied Sciences

Rajagiri College of Management and Applied Sciences