A PROJECT REPORT

ON
A STUDY ON INVENTORY
MANAGEMENT SYSTEM IN
COMPANY"
Submitted By:
Sumit Soni
Roll No. 1405004198
Master of Business Administration
Sikkim Manipal University
UNDER THE GUIDANCE OF:
Dr. Prashant Sharma
Centre Code- 03487
(Vans InfoTech)
1

DECLARATION
I Sumit Soni, student of Sikkim Manipal University, hereby
declare that the project work titled A STUDY ON INVENTORY
MANAGEMENT IN COMPANY which is submitted to Sikkim
Manipal University in partial fulfillment of the requirements for the
degree of Master of Business Administration, is a record of original
research work done by me under the guidance of, Dr. Prashant
Sharma of Vans InfoTech, that this is genuine and has not been
submitted elsewhere for any other degree or diploma.

PLACE: Aligarh
Sumit Soni
DATE:
ROLL NO: 1405004198

ACKNOWLEDGEMENT
I have prepared this study paper for the A Study on Inventory
Management System in Company have derived the contents
and approach of this study paper through discussions with my
Colleagues, friends and internet as well as with the help of various
Books, Magazines and Newspapers etc.
I would like to give my sincere thanks to my guide Dr. Prashant
Sharma, friends who, through their guidance, enthusiasm and
counseling helped me enormously as I think there will be always
need for improvement. Apart from this, I hope this study would
stimulate the need of thinking and discussion on the topics like
this one.

INDEX
Sr. No.

Topic

1
2
3
4
5
6
7
8
9
10
11
12

INTRODUCTION TO THE STUDY

OBJECTIVE OF THE STUDY
NEED FOR THE STUDY
SCOPE OF THE STUDY
MANAGEMENT OF INVENTORY
CONCEPT OF INVENTORY MANAGEMENT
OBJECTIVES OF INVENTORY MANAGEMENT
TYPES OF INVENTORY
NEED TO HOLDING INVENTORIES
FACTORS INFLUENCING INVENTORY
ADVANTAGES OF INVENTORY CONTROL
RISK AND COST ASSOCIATED WITH
INVENTORIES
ESSENTIAL OF INVENTORY CONTROL SYSTEM
FACTORS AFFECTING STOCK INVESTMENT
LEVEL
INVENTORY CONTROL TECHNIQUES
REVIEW OF LITERATURE
RESEARCH METHODOLOGY

13
14
15
16
17
18
19
20
21
22
23

OBJECTIVES OF INVENTORY CONTROL IN

ORGANIZATION
FINANCIAL MANAGERS ROLE IN INVENTORY
MANAGEMENT
VALUATION OF INVENTORIES
DEFINITIONS
CONCLUSION
BIBLIOGRAPHY

Page
No.
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6
7
7
8
8
9
11
12
13
14
14
15
17
19
32
37
39
71
72
73
81
82
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INTRODUCTION TO THE STUDY

Inventory is the business largest asset .It is stock of item used in
business. Inventory represent one of most important asset that
most businesses posses, because the turnover of the inventory
represents one of the primary sources of revenue generation and
subsequent earnings for the companys shareholder and owners.
Inventory is very vital to every company that is without inventory
no company would survive. Inventory is meant for protection
and for economy in cost.
Keeping inventory of sufficient stock will help to face lead time
component, demand and supply fluctuation and any unforeseen
circumstance in the procurement of materials. Though to have
inventory is must, inventory is such a thing that will pile up and
creep into the area of profits to turn them as losses and can put
the company in red. It is therefore, necessary to have Control over
inventory to save the company from piling up inventories and to
avoid losses. Better said than done, is the word that suits
inventory Control.
The management of inventory is a key concern of all business. If a
company's inventory level is too low, it risks delays in fulfilling its
customers orders. If the inventory is too high, it is tying up
dollars that can be better used in other areas. It also risks
obsolescence and spoilage. Successful businesses keep their
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inventory turns high, but also keep their service level at or above
the industry standard.
Inventory is a stock of goods required by an organization for its
successful operation. Inventory refers to materials procured,
stored and used for day to day functioning of the whole
organization. Inventory is directly related to production and
marketing department, still the finance department has to play a
vital role in the management of inventory. The purpose of
inventory management is to keep stock in such a way that there
is no overstocking or under stocking.
Inventory is one of the most expensive assets of many companies
representing as much as 50% of total invested capital. Inventory
Control relates to a set of policies and procedure by which an
industry determines which materials it will hold in stock and the
quality of each that it will carry in stock.
Inventory is the largest item in the current assets category and
must be accurately counted and valued at the end of each
accounting period to determine a companys profit or loss. So the
management of inventory is important. Inventory management is
the process of efficiently overseeing the constant flow of units
into and out of an existing inventory.
Inventory

management

is

very

important

function

that

determines the health of the supply chain as well as the impacts

the

financial

health

of

balance

sheet.

Every

organization

constantly strives to maintain optimum inventory to meet its

requirements and avoid over or under inventory that can impact

the financial figures.

OBJECTIVE OF THE STUDY

Inventories constitute the principal item in the working capital of
the majority of trading and industrial companies. In inventory, we
include raw materials, finished goods, work in progress, supplies
and

other

accessories.

To

maintain

the

continuity

in

the

operations of business enterprise, a minimum stock of inventory

required.
However, the physical control of inventory is the operating
responsibility of stores superintendent and financial personnel
have nothing to do about it but the financial control of these
inventories in all lines of activity in which they comprise a
substantial part of the current assets is a frequent problem in the
management of working capital. Management of inventory is
designed to regulate the volume of investment in goods on hand,
the types of goods carried in stock to meet the needs of
production and sales while at the same time, the investment in
them is to kept at a reasonable level.

NEED FOR THE STUDY

Inventories perform certain basic functions which are of crucial
importance in the firms production and marketing strategies.
Effective Control over the utilization of materials has much
bearing

on

profit

and

here

is

an

attempt

to

study

the
7

management of materials. This study helps the company to

detect and evaluate its own strength and weakness and also give
recommendation for the better inventory management.
Without inventory management it would be difficult for any
company to maintain Control and be able to handle the needs of
customers. Inventories are necessary for a firm to operate
efficiently and almost all business transactions involve the
delivery of a product or services in exchange of currency.

SCOPE OF THE STUDY

Inventory is the major element in the working capital of any
trading and manufacturing concern. The scope of the present
study extends to ensure proper inventory management and cost
Control. It provides a guideline for the management of the
materials of the company and helps to introduce necessary
changes as and where required.
The scope of inventory management concerns the fine line
between replenishment lead time, carrying cost of inventory,
asset management, inventory forecasting, quality management,
replenishment,

returns

and

defective

goods

and

demand

forecasting. Balancing these competing requirements lead to

optimal inventory levels, which is an ongoing process as the
business need shift and react to the wider environment

MANAGEMENT OF INVENTORY
Inventories constitute the principal item in the working capital of
the majority of trading and industrial companies. In inventory, we
include raw materials, finished goods, work-in-progress, supplies
and other accessories. To maintain the continuity in the operations
of business enterprise, a minimum stock of inventory required.
However, the physical control of inventory is the operating
responsibility of stores superintendent and financial personnel have
nothing to do about it but the financial control of these inventories
in all lines of activity in which they comprise a substantial part of
the current assets is a frequent problem in the management of
working capital. Management of inventory is designed to regulate
the volume of investment in goods on hand, the types of goods
carried in stock to meet the needs of production.

CONCEPT OF INVENTORY MANAGEMENT

The term inventory management is used in two ways- unit control
and value control. Production and purchase officials use this word in
term unit control whereas in accounting this word is used in term of
value control. As investment in inventory represents in many cases,
one of the largest asset items of business enterprises particularly
those engaged in manufacturing, wholesale trade and retail trade.
Sometimes the cost of material used in production surpasses the
wages and production overheads. Hence, the proper management
and control of capital invested in the inventory should be the prime
responsibility of accounting department because resources invested
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in inventory are not earning a return for the company. Rather, on

the other hand, they are costing the firm money both in terms of
capital costs being incurred and loss of opportunity income that is
being foregone.

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