A SUMMER TRAINING PROJECT REPORT ON ANALYTICAL STUDY OF INVENTORY MANAGEMENT OF

SUBMITTED FOR THE PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE AWARD OF MASTER OF BUSINESS ADMINISTRATION (FINANCE)

UNDER THE GUIDANCE OF PROF. PRABHAKAR SHUKLA

(FACULTY OF MANAGEMENT)

UNDER THE SUPERVISION OF MR. R.B. PANDEY

HEAD (FINANCE)

SUBMITTED BY PUSHPAK TRIPATHI ROLL NO. # 0817270071 MBA (2008-10)

LLOYD INSTITUTE OF MANAGEMENT & TECHNOLOGY PLOT NO. 11, KNOWLEDGE PARK- II, GR. NOIDA (U.P)

CONTENTS
1- ACKNOWLEDGEMENT 2- PREFACE 3- EXECUTIVE SUMMARY

PAGE NO.

CHAPTER ONE: INTRODUCTION

LITERATURE REVIEW
CAMPANYS PROFILE INVENTORY MANAGEMENT - AN INTRODUCTION MODERN INVENTORY CONTROL TECHNIQUES OF NTPC INVENTORY STRUCTURE, ECONOMIC LOT SIZE MODEL AND INVENTORY COST PLACING FORMAL PURCHASE ORDER AND GOING TO FOLLOW UP DELIVERY AUTOMATION - REQUIREMENT OF STOCK CONTROL SYSTEM

1-95
2-93
2-17 18-42 42-50

51-61

62-76 77-93

PROJECT OBJECTIVE NEED OF THE PROJECT SCOPE OF THE PROJECT

94 95 95

 CHAPTER TWO: RESEARCH METHODOLOGY

RESEARCH DESIGN DATA COLLECTION SOURCES DATA COLLECTION METHODS DATA COLLECTION INSTRUMENTS SAMPLING PLAN ASSUMPTIONS OF THE PROJECT

96-100
98 98-99 99 99 99-100 100

CHAPTER THREE: FINDINGS & ANALYSIS

101-105

CHAPTER FOUR: CONCLUSIONS AND REOMMENDATIONS

CONCLUDING WORDS RECOMMENDATIONS LIMITATIONS

106-111
107-108 109-110 111

CHAPTER FIVE: BIBLIOGRAPHY

BIBLIOGRAPHY

112-113
113

APPENDIX
QUSTIONNAIRE

114-117
115-117

ACKNOWLEDGEMENT

One of the most pleasant aspects of writing an acknowledgement is the opportunity to thank all those who have contributed to it. Unfortunately, the list of expression of gratitude- no matter how extensive is always incomplete and inadequate. This acknowledgement is no exception.

First of all, I wish to express my sincere thanks to Prof. Prabhakar Shukla -Faculty LIMT, Greater Noida, for guiding me in the right direction in the course of this project, where his valuable support and knowledge came handy to me in all respects. Because of his inspiring guidance, motivation, positive criticism, continuous encouragement and untiring supervision this work could be brought to its present shape.

I would like to thank all of them who in one way or the other have helped me.

Pushpak Tripathi

PREFACE

INVENTORY is a list of goods and materials, or those goods and materials themselves, held available in stock by a business. Inventory are held in order to manage and hide from the customer the fact that manufacture delay is longer than delivery delay, and also to ease the effect of imperfections in the manufacturing process that lower production efficiencies if production capacity stands idle for lack of materials. Inventories also play an important role in national accounts and the analysis of the business cycle. Some short-term macroeconomic fluctuations are attributed to the inventory cycle. I am very much grateful to Sri E.P.Das, General Manager Operations & Sri S. B. Singh, DGM (P&A), NTPC for providing me opportunity for practical Training at Division Unchahar. I also extend my sincere gratitude for Sri R.B. Pandey, Head of Fin. & A/C.

EXECUTIVE SUMMARY

Inventories Companies hold inventories in the form of raw materials, work-in process and finished goods. Inventories represent investment of a firms funds.

The objective of the inventory management should be the maximization of the value of the firm. The firm should therefore consider: (a) costs, (b) return, and (c) risk factors in establishing its inventory policy.

Transaction Motive to Hold Inventory for facilitating smooth production and sales operation.

Precautionary Motive to Hold Inventory to guard against the risk of unpredictable changesin usage rate and delivery time.

Speculative Motive to Hold Inventory to take advantage of price fluctuations. Ordering Costs requisition, placing of order, transportation, receiving, inspecting and storing and clerical and staff services. Ordering costs are fixed per order. Therefore, they decline as the order size increases.

Carrying Costs warehousing, handling, clerical and staff services, insurance and taxes. Carrying costs vary with inventory holding. As order size increases, average inventory holding increases and therefore, the carrying costs increase.

Economic Order Quantity (EOQ) The firm should minimise the total cost (ordering plus carrying). The economic order quantity (EOQ) of inventory will occur at a point where the total cost is minimum. The following formula can be used to determine

EOQ = (2 AO/C ) 1/2 =Q*

where A is the annual requirement, O is the per order cost, and c is the per unit carrying cost. The economic order level of inventory, Q* , represents maximum operating profit, but it is not optimum inventory policy.

Optimum Inventory Policy The value of the firm will be maximized when the marginal rate of return of investment in inventory is equal to the marginal cost of funds. The marginal rate of return (r) is calculated by dividing the incremental operating profit by the incremental investment in inventories, and the cost of funds is the required rate of return of suppliers of funds.

Reorder Point The inventory level at which the firm places order to replenish inventory is called the reorder point. It depends on (a) the lead time and (b) the usage rate. Under perfect certainty about the usage rate, and instantaneous delivery (i.e., zero lead time), the reorder point will be equal to: Lead time x Usage rate.

Safety Stock In practice, there is uncertainty about the lead time and/or usage rate. Therefore, firms maintain safety stock which serves as a buffer or cushion to meet contingencies.

In that case, the reorder point will be equal to: Lead time x Usage rate + Safety stock. The firm should strike a trade-off between the marginal rate of return and marginal cost of funds to determine the level of safety stock.

Total Quality Management (TQM) System Large number of companies there days follow the total quality management (TQM) System which requires companies to adopt JIT and computerized system of inventory management.