Meaning of Inventory Let's find out, What is inventory? 1. Inventory is the stock of goods held for doing business.

2. It is usually required to carry on the business and its allied activities. Important points covering the meaning of inventory is depicted belo .

!he meaning of inventory mainly revolves around follo ing four items" #. Raw-materials required for production process. 2. Work in progress $WI%&. 'or e(ample, semi)finished goods. *. Captive consumable goods are goods produced and used by producer. +. Finished goods hich are available for sale. Inventory also includes investment made in ra )materials and their parts in accordance policy established by the management. Definition of Inventory

ith the inventory

Inventory can be defined in many ays .r.t different prespectives. 'ollo ing selected statements you to get a broad understanding of its concept.

ill help

In general, the simple definition of inventory can be stated as follo s.

,Inventory means the stock of goods available or held for sale in the ordinary course of business.In a business sense, the inventory can be defined as under. ,Inventory includes ra )materials stored in a arehouse, ork)in)progress in production, and finished goods available for sale.'rom an academic or learning perspective, ,Inventory is that stock of goods, hich have a demand and supply in the market and can be easily reali.ed in cash.!amples of Inventory !he e(amples of inventory of some ma/or industries are depicted belo .

'ollo ing are e(amples of inventory seen in four ma/or industries" #. 0utomobile industry's inventory comprises of the total number of cars and their spare parts. 2. 1onsumable goods' inventory contains packets of heat flour, cans of edible oil, etc. *. 2lectronic goods' inventory includes televisions, computers, mobile phones, air)conditioners, refrigerators, etc. +. 1onstruction industry's inventory mainly covers residential flats and commercial shops. What is Inventory Control" Definition #. 0ccording to #ordon Carson, 3Inventory control is the process here by the investment in materials and parts carried in stocks is regulated, ithin pre)determined limits set in accordance ith the inventory policy established by the management.3 !his definition of inventory control is taken from a book titled 'Production Handbook' published in #456 and edited by 7ordon 8. 1arson. 9efinitions of inventory control .r.t different perspectives are quoted belo .

Image credits : %rof. ;udit <atyani. 2. In #eneral sense, 3Inventory control is a method here all stocks of goods are properly and promptly issued, accounted, and preserved in the best interest of an entity that handles its inventory.3 *. In terms of $usiness, 3Inventory control is a method designed by the top level of management of a company. It requires a strategic decision to be taken for its effective implementation. Its proper implementation is the responsibility of the store manager.3 +. In an %cademic perspective, 3Inventory control is a method to identify those stocks of goods, hich can be used for the production of finished goods. It shall be supported by a schedule hich gives details regarding= opening stock, receipt of ra )materials, issue of materials, closing stock, and scrap generated.3 >o let's discuss further to understand the meaning of inventory control. Meaning of Inventory Control Inventory control means to monitor the stock of goods used for production, distribution and captive $self& consumption. 'or a specific time period, stock of goods are placed at some particular location. ?tock of goods includes ra )materials, ork in progress, finished goods, packaging, spares, components, consumable items, etc. Inventory 1ontrol means maintaining the inventory at a desired level. !he desired)level keeps on fluctuating as per the demand and supply of goods. !he concept or meaning of inventory control is depicted in the diagram.

'ollo ing important points convey the broad meaning of inventory control" #. Inventory 1ontrol mainly focuses on location, storage, recording the quantity, and accounting for the amount of inventories. 2. It helps to supply inventories to different departments or units henever demand requisition is raised. ;ostly, it supplies inventories to the production department. *. It keeps a record of inventory issued to the concerned department located at a specific place. +. It provides prompt and proper service to all concerned departments or units. 5. It also helps to maintain inventories at lo est costs. @. It bifurcates high)value and lo )value stock of goods. A. It also avoids over)stocking and under)stocking of ra )materials. &ow to %chieve Inventory Control" !he inventory control can be achieved by" #. %urchasing items of the right)quantity, at the right)place and at right)time. 2. %roviding a suitable, secure, and sufficient place for storage. *. 9eveloping a proper inventory identification system. +. ;aintaining an up)to)date record keeping. 5. ;aking proper requisition procedures. !plain $enefits or Importance of Inventory Control 'ollo ing image briefly e(plains benefits or importance of inventory control.

!he benefits or importance of inventory control is listed in follo ing points" Inventory control protects a company from fluctuations in demand of its products. 2. It enables a company to provide better services to its customers. 3. It keeps a smooth flo of ra )materials and aids in continuingproduction operations. +. It checks and maintains the right stock and reduces the risk of loss. 5. It helps to minimise administrative orkload, manpo er requirement and even labour cost. @. It tries to protect fluctuation in output. 7. It makes effective use of orking capital by avoiding over)stocking. 6. It helps to maintain a check on loss of materials due to carelessness or pilferage $stealing&. 4. It facilitates cost accounting activities. #B. It avoids duplication in ordering of stock. !he follo ing discussion briefly and lucidly covers all the above)mentioned ob'ectives, benefits or importance of inventory control.
1.

() *rotects from fluctuations in demand ;any a times, the demand forecast of a product is not accurate. !here is al ays a small difference bet een the demand forecast and actual demand. Co ever, sometimes, there is a big difference bet een the demand forecast and actual)demand.

?o, there are al ays chances of fluctuations in the demand of a material. !hese fluctuations can be ad/usted if there are sufficient items in the stock ofinventory. !herefore, proper inventory control protects the company from fluctuations in demand. +) $etter services to customers If the company maintains a proper inventory of ra )materials, then it can complete its production in time. ?o, it can deliver the finished goods to the customers in time. ?imilarly, if the company has a proper inventory of finished goods, then it can satisfy the additional demand of the customers. ?o, inventory control helps the company to deliver goods at the right time as demanded by the customers. 0fter making timely delivery, the company can concentrate on giving other services to the customers. ,) Continuity of production operations %roper inventory control helps to maintain continuity of production operations. !his is because it maintains a smooth flo of ra materials. ?o, there are no shortages of ra )materials required for production process. -) Reduces the risk of loss %roper inventory control helps to reduce the risk of loss due to obsolescence $outdated& or deterioration of items. !his is because it checks all the items regularly. 'urthermore, it sells all the slo )moving items, in time, at the market prices. It only maintains the right stock at all times. ?o, the chances of any item getting outdated is reduced. .) Minimi/es the administrative workload %roper inventory control helps to minimi.e the administrative ork load of purchasing, inspection, arehousing, etc. !his ill reduce the manpo er requirement and ill minimi.e the labour cost too. 0) *rotects fluctuation in output Inventory control tries to reduce the gap bet een planned production and actual production. !here are cases here the production schedule cannot be follo ed because of" #. ?udden breakdo n of machines, 2. %roblems in supply of materials, *. ?udden labour strikes, +. Loss due to failure of po er supply, etc. In such cases, the difference bet een planned production and actual production can be bridged by inventories held in stock. 1) ffective use of working capital

%roper inventory control helps to make effective use of orking capital. Inventory control helps in maintaining the right amount of stocks of materials, components, etc. Dver stocking is avoided. !herefore, the orking capital ill not be blocked in e(cess inventory. 2) Check on loss of materials Inventory control helps to maintain a check on the loss of materials due to carelessness or pilferage $stealing&. If there is no proper inventory control, then there are more chances of carelessness and pilferage by the employees, especially in the store)keeping department. 3) Facilitates cost accounting activities Inventory control facilitates cost accounting activities. !his is because, inventory control provides a means of allocating materials cost of products, departments or other operating accounts. (4) %voids duplication in ordering Inventory control avoids duplication in ordering of stock. !his is done by maintaining a separate purchase department. !his department ill do all the purchasing for the full organisation. >o other department is allo ed to do purchasing. ?o there ill not be any duplication in ordering of stock. I56 578R9 M%5%# M 57 M %5I5# 8F I56 578R9:!he inventory refers to the stock pile of the product a firms offering for sale and the components that make up the product. In other ords, Inventory is composed of assets that ill be sold in future in the normal course of business operations. !he assets hich firms store as inventory in anticipation of need can be classified into $#& cash $2& Ea ;aterials $*& Work)in)progress$?emi finished goods& $+& 'inished 7oods

;l< C%=&:- 1ash is the important current assets for the operations of a business. 1ash is the basic input needed to keep the business running on a continuous basis. !he term cash includes coins, currency and cheques held by the firm, and balances in its bank accounts. ) ;+< R%W M%7 RI%>=:-Inventory contains items that are purchased by the firm from others and are converted into finished goods through the manufacturing process. !hey are important inputs for the final product. ;,< W8R?-I5-*R8#R ==:- Inventory consists of items currently being used in the production process. !hey are normally partially or semi)finished goods that are at various ?tages of production in a multi stage production process. ;-< FI5I=& D #88D=:- It represents final or completed products hich are available for sale, the inventory of such goods consists of items that have been produced but are yet to be sold. !he /ob of the final

manager is to reconcile the conflicting vie points of the various functional areas regarding the appropriate inventory levels in order to fulfill the over all ob/ectives of ma(imi.ing the o ner's ealth. IM*8R7%5C 8F I56 578R9:Inventory plays cardinal role in every organi.ation. !he profit of the organi.ation mainly depends on the inventory. Inventory is the second largest value in the organi.ation. It is the liquid asset and the current asset of the organi.ation. Inventory storage is an important activity in the organi.ation. 8$@ C7I6 = 8F I56 578R9 M%5%# M 57 !he ob/ectives of the inventory management consist of t o counter balancing parts" $a& $b& !o ma(imi.e the firms investment in inventory !o meet a demand for the product by efficiently organising the firms production and sales operation.

!hese t o conflicting ob/ectives of inventory management can also be e(pressed in terms of cost and benefits associated ith inventory. 0n optimum level of inventory should be determined on the basis of the tradeoff bet een cost and benefits associated ith the levels of inventory. Dptimum level of inventory and finding ensures to the problems of 2DF are the recorder point and the safety stock. !hese techniques are very essential to economi.e the use of resources by minimi.ing the total inventory cost. !he techniques of inventory management are very useful in data mining. !he cases the board frame orks for managining inventories. !o the ma/ority of the companies, inventory represents a substantial investment. !hus the goal of ealth ma(imi.ation is related to the financial manager has an important role to play in the management of inventory. 0lthough it is not his operating responsibility to control inventory. !he financial should see that only an optimum amount is invested in inventory. Ce should be familiar ith in inventory control techniques and ensure that inventory is managed ell. 2ffect ould be reduce inventory investment and increase the firm's prospects of making profits. I56 578R9 C857R8>:Inventory control renders to 3!he process hereby the investment in materials and parts carried in stock is regulated ithin predetermined limits set in accordance ith the inventory policy established by the management. !he inventory control is activity oriented process hereas inventory control is the management process and the latter is the firm's setup to be follo ed by the former. Inventory control refers to a planned method of purchasing and storing the material at lo est possible cost ithout affecting the sales scheduled. Inventory control therefore, is a scientific method of determining hat, hen and ho much to purchase and ho much to have to stock for a given period of time. 7he 5eeds for Inventory Control:!he re ards of inventory control system cannot be over looked in the Indian conte(t the idea behind this is, 1onserving valuable foreign e(change. Eelease of capital. Eeduction in cost !he primary ob/ect of Inventory control is")

 !o minimi.e the idle time caused by shortage of inventory and inventory0vailability of inventory. !o keep do n capital investment in inventories. Inventory carrying cost and obsolescence losses. I56 578R9 C857R8> 7 C&5IAB = ?elective inventory control #. 081 0nalysis 2. GHI 0nalysis *. J29 1lassification. +. '>? 1lassification. 5. ?D? 1lassification. @. ?)9)2 0nalysis A. C;L 0nalysis C858MIC 8RD R AB%57I79:Dne of the ma/or inventory management problems to be resolved is ho much inventory should be added hen inventory is replenished. If the firm is buying ra materials, it has to decide lots in hich it has to be purchased on cash replenishment If the firm is planning production as per schedule. !hese problems are called order quantity problem and task of the firm is to determine optimum inventory level involves t o types of costs" $#& Drdering cost $2& 1arrying cost. !he economic order quantity is that inventory level, carrying costs. 8rdering costs:!he term ordering cost is used in case of ra materials $or supplies&and includes the entire costs of acquiring ra materials. !hey include costs incurred in the follo ing activities. Eequisitioning, purchase ordering, transport receiving, inspecting, and storing$store placement&, ordering cost increase in proportion to the number of orders placed the critical and staff costs, ho ever, don't vary in proportion to the number orders placed, and one vie is that so long as they are committed cost they need not to be revoked in computing ordering cost. 1arrying costs") 1ost incurred for maintaining a given level of inventory are called carrying cost, they include storage, insurance, ta(es, deterioration and obsolescence's 2DF $$economic order quantity& K %$C %5%>9=I=:081 0nalysis is one of idely used inventory control tool. Lnder this e have to classify materials according to their importance and concentrate more on critical items. Importance of any item arises due to hich minimi.es the total of ordering and Inventory management techniques #. 2DF $2conomic Drder Fuantity& 0. Drdering 1ost. 8. 1arrying 1ost. 2. ?ystem of Ee)ordering.

the t o factors namely, consumption values and critically in )use. 1lassification of materials according to importance has its basis on the promise 3Jital 'e and !rivial ;any3. !he classification based on consumption value is called 081 0nalysis and the classification based on the critically of the items is called J29 0nalysis $Jital, 2ssential and 9esirable&. %eriodical consumption values are used as the basis for J29 0nalysis. 081 is said to denote 30l ays 8etter 1ontrol3, the method of classification of material is also kno n as 3selective method control3. !he basis of analy.ing the annual consumption cost $or usage cost& goes after the principle 3Jital 'e and !rivial ;any3. Items held in the stores can grouped into class 0, 8 and 1 respectively based on their 0nnual 1onsumption Jalues. It has been found in a large number of organi.ation that about #BM of the items contribute to ABM of the annual consumption value, 2BM of the number of items contributes about 2BM of the annual consumption value and the remaining ABM of the items contribute #BM of the annual consumption value. Cence consumption value need to be controlled at the highest level and these are the 0 items. !he control of bottom ABM of the items that contribute only #BM of the annual consumption value, that are denoted as 1 items can be delegated to the lo est decision making levels hile, the middle 8 items can be controlled by the middle levels of personnel. 3!he follo ing figures bring out clearly the concept of 081 0nalysis3. Category 6alue 1onsumption 0 Item 8Item 1Item #B 2B AB AB 2B #B Item (4C C of %nnual

7he %dvantage of %$C method of Inventory control is as follows:It becomes possible to concentrate all efforts in areas hich need genuine efforts. !his method produces better results and involves minimum control. In the case of 0 items careful attention is paid at every stage i.e., estimates of requirements, purchasing safety stocks, receipts, inspection and issues. 0 close atch on high consumption items and their progress of replenishment etc, maintained. In the case of 1 items hich are numbers and at the same time in e(pensive are loosely controlled. !he items fall under 8 category may be dispensed ithin the record keeping system. !his ill help in saving time, money and labor ithout endangering production schedule, it is most effective and economical method as it is based on the selective method. It helps in placing the orders, deciding the quantity of %urchasing safety stocks etc. !hus saving the organi.ation from the unnecessary stocks outs or surpluses. 6 D %5%>9=I=:J29 analysis represents classification of items based on critically the analysis classifies the items into * 3groups called vital, 2ssential, desirable 3Jital3 category encompasses those items for ant of hich production ould come to halt. 32ssential3 group Includes items hose stock out is very 39esirable3 group comprises of items hich do not cause any immediate loss of production ould come is high. 39esirable3 group comprises of items hich do not cause any immediate loss of production or their stock out entail nominal e(penditure and causes minor disruption for a short duration, &M> %5%>9=I=:-

C;L analysis is the price based analysis. !his analysis is generally used for control of spares. !he items m under this analysis are classified into * groups hich are called 3Cigh3, 3;edium3, 3Lo 3. !o classify,, items are listed in the descending order of their unit price. 2(") !he management may decide that all items of unit price above Es #BBB ill be of 'C' category. !hose ith unit price bet een Es #BB to Es #BBB ill be of ';' category and those having unit price belo Es #BB ill be of'L' category. F-=-5 %5%>9=I=:')?)> analysis is based on the consumption figures of the items. !he items under this analysis are classified into * groups. ')'ast moving ?)?lo moving >)>on moving , !o conduct the analysis the last date of receipt or the date of issue hichever is later taken into account and the period, usually in terms of number of months that has elapsed since the last movement is recorded. D-9-E %5%>9=I=:G)H)I analysis is based on value of the stock on hand. Items hose inventory values are high are called 'G' items those inventory values are lo are called 'I' items and 'H' items are those hich have moderate inventory stocks. Lsually G)H)I analysis is used in con/unction ith either 081 analysis or C;L analysis. =-8= %5%>9=I=)?)D? analysis is based on seasonality of the items and it classified the items into 2 groups. ?)?easonal D?)offseasonal

=-D- %5%>9=I=:?)9)2 analysis is based on problems of procurement >amely, >onavailability ?ecurity Longer lead time 7eographical location of suppliers N Eeliability of suppliers etc. ?)9)2 analysis classifies the items into * groups called 3scare3, 39ifficult3, and 32asy3. !he information so developed is then used to decide purchasing strategies. 3?care3 classification comprises of items hich are in short supply imported through government agencies. 39ifficult3 classification includes those items hich are available indigenously but are not easy to produce. 32asy3 classification covers those items hich are readily available. > 6 > = 77I5#: In order to have proper control on materials the follo ing Levels are set" Ee)order Level Drdering Level ;inimum Level ;a(imum Level 0verage ?tock Level 9anger Level ?afety ?tock Level Re-order >evel: It is the point at hich if stock of a particular material in store approaches the storekeeper should initiate the purchase requisition for fresh suppliers of the material. !his level is fi(ed some here bet een the ma(imum and minimum Levels in such a ay that the difference of the quantity of the material bet een the re)ordering level and the minimum level ill be sufficient to meet the requirements of production up to the time fresh supply of the material is received. FReorder level can be calculated by applying the following formulaF:Drdering levelK ;inimum Level O 1onsumption during the time required to get the fresh delivery. 0nother formula given by heldon in his book 'cost accounting' is follo s" Eecording LevelK ;a(imum consumption G ;a(imum re)order level period. 8rdering >evel:-

!his is the quantity of stock fi(ed bet een the ma(imum and minimum level of stock. When this level is reached, it)becomes the duty of the store)in)charge to replenish the stock ithin reasonable time. !his level is usually a little higher than the minimum level. In order to be prepared for such emergencies as abnormal consumption delay in delivery of ne supplies etc., hile fi(ing this level follo ing points are taken into consideration") !ime required for obtained fresh suppliers. %ossible une(pected requirements hich cannot be avoided. Minimum >evel:'ormula level represents the level beyond, because" If the stock e(ceeds this level, it ill Involves more investment Eequires more space for storages 0mount to more astage because of more handling, spoilage, obsolescence Involves more carrying cost. 2(cess stock ill increase the cost of storage, thereby increasingly selling cost. 2(cess stock involve unnecessary blockade of orking capital and prevent its availability for a more profitable use. ill hich the stock in hand is not allo ed to e(ceed. !his is

?tock in e(cess ill prevent the management from taking advantages of price fluctuation and favorable market condition. !he fi(ation of ma(imum level depends on the follo ing factors") Eate of consumption of the material 2conomic order quantity ;oney available ;arket conditions, seasonality and fluctuation !ime required to obtain deliveries %ossibility of loss due to deterioration ?torage space available

price

!he formula for the calculation of ;a(imum stock Level given by Wheldon is as follo s");a(imum stock LevelK Ee) ordering O Ee) ordering ) quality $;inimum 1onsumption G ;inimum re) ordering period& %verage =tock level:!he 0verage stock is calculated by the follo ing formula. 0verage stock levelK;inimum stock level O Ji of recorder quantity of 'P. $;inimum ?tock LevelO ;a(imum ?tock Level& 9anger Level" ) !his means levels at hich normal issues are made only under specific instructions. !he purchases officer ill make special arrangements to get the materials hich reach at their danger level so that the production may not stop due to storage of material 9anger Level )0verage 1onsumption G ;a(imum re) order period for 2mergency purchase. =afety =tock level: !his level is belo the minimum level and represents the stage at hich emergency and immediately steps have to be taken for getting the stock Eeplenished.

7& M%I5 %IM 8F I56 578R9 M%5%# M 57 !he main aim of Inventory ;anagement they should be to avoid e(cessive and in adequate levels of Inventories N to maintain sufficient Inventory for the smooth production N sales operations effort should be made to place an order at the right time ith the fight source to acquire the right quality at the right place N quantity. 2nsure a continuous supply of Ea ;aterials to facilitate uninterrupted production. ;aintain sufficient stocks of Ea service. ;aterials in periods of short supply N anticipated price customer

;inimi.e the carrying and time, and 1ontrol investment in Inventories N keep it at an optimum level. Causes of inventory:2(ternal causes") 1ustomers, ?uppliers etc. Internal causes") ;arket, policy, production and ?1;. *roblems with high inventory: Interests, Insurance costs. Fuality deterioration. Wear anttear. Q ?torage and pilferage. Inventory 7urnover Ratio : I!EK1ostpSf productionPinventory Cigher I!ETQ Lo inventories Lo I!ETQ Cigh inventories &igh inventory Reasons: %roduction" ;ore N Lo volume products Large cycle times >e and campaign product >on)moving products. Marketing:R

 Lncertainty of orders 9eviating sales forecast

=upply Chain management: Improper planning 2(cessPshort E; supply. =uggestions : 'le(ible production plans ith tight monitoring. ;in N ;a( inventory levels and their up to date revision 1ost benefits analysis in on carrying cost Eevie and disposal of non)moving inventory. Eeliability should improve. 9ynamic approach is essential. 1oordination ith market and plants. 0dherence to commitments and time)to)time revie is must. =election of =ite:!he follo ing are the chief considerations hich should determine the selection of a site" $a& !he site ill be connected ith road and rail, or if there is river transport, ith ater transport. $b& !he e(istence of facilities for disposal of ater or effluent ater is important. 'or this purpose some times special arrangements are necessary though some times it may be possible to use e(isting aste land. Cealth authorities ill naturally have a say in the matter. $c& !he available land should be sufficient for purpose of the unit. In 0ddition to factory buildings, it is often necessary to provide houses for the staff and orkers. $d& If possible the site should be located in good surroundings. !he question of beauty should not be ignored. =78R =G =*%R = %5D *BRC&%= =:#. ?tore <eeping. 2. ?tore system *. Jarious stores operation. +. ;ethods of pricing the material issues. 5. Eeceiving section and issue department.

@. %urchase department. A. ?tores and ?pares. 6. %urchasing system. 4. Inventory. 9ifferent to ards inventory. ?tructure of inventory mocks. 'actors influencing inventory. 1lassification of inventory. =78R ? *I5#:-

It is serving facility, inside of an organi.ation responsible for proper storage of the material and then issuing it to respective department on proper requisition. !hose items, hich are not in use for some specific duration e(ample ?pare parts and the Ea materials, are called stores and the building or space here these are kept is kno n as ?tore room. 0ccording to ;aynard 3the duties of stock keeping are i.e. to receive materials are to protect them hile in storage from damage and unauthori.ed removal, to issue the materials the right quantities at the right time to the right place and to provide these service promptly at least cost3. It is an establishment fact that more than 7ovt of the current assets are invested in stores. !hus for efficient and economic utili.ation of fond )the importance of store cannot be ignored. FB5C7I85= 8F =78R ? *I5#:-

!he main functions of store keeping can be outlined as Eeceiving of goods in stores against damage and pilferage. 1ustodian of goods in stores against damage and pilferage. 2ffective utili.ation of stores space. !o provide service to the organi.ation in most economic ay. %roper identification and easy location of them. 8$@ C7I6 = 8F =78R ? *I5#:-

2asy location of the items in store. %roper identification of items. ?peed issue of material. 2fficient utili.ation of space. F%C78R= 8F *>%57 >8C%7I85:*rimary factors :-

 Ea ;aterial ;arket 'uel and po er !ransport Labor =econdary Factors: ;omentum of early start Industrial 0tmosphere ?pecial advantage of a place %ersonal factors Cistorical factors %olitical stability ?pecial concessions and benefits =tages in production control : %lanning Eouting ?cheduling Loading 9ispatching Inspection %dvantages of production planning and control: 2fficient service 0voidance of rush orders 0voidance of bottlenecks Inventory control 2conomy in production time 2quipment utili.ation 7ypes of layout: %roduct or line layout

 %rocess or functional layout 1ombined layout Factors in plant layout: 8asic managerial policies and decisions >ature of plant location !ype of industry and process conomies in *roduction: Lse of automatic machinery 9ivision of labor Ltili.ation of by)products !imely and economical repairs and maintenance. 0cquisition of patents. %**R8%C&:!he importance of an integrated. approach of material management ith in the frame ork of the Indian environment and presents a comprehensive coverage of all aspects of the sub/ects, such as the operational details of stores systems and procedures and modem mathematical concepts also featured. ?ince the theory is based on the practical e(perience and research pro/ects, it fulfills the needs for authentic literature in the field on materials management. *urpose of =tores:?tore plays a vital role in the operation of a company. It is in direct touch ith the user departments in its day)to)day activities. !he most important purpose served by the stores is to providing uninterrupted service to the manufacturing divisions. 'urther, stores is often equated directly ith money, money is locked.up in the stores. !he function of stores can be classified as follo s") #. !o receive ra materials, tools, equipments and other items and account for them items.

2. !o provide adequate and proper storage and preservation to the various

*. !o meet the demands of the consuming departments by proper issues and account for the consumption. +. !o minimi.e obsolescence, surplus and scrap through proper 1odification, preservations and handling. 5. !o highlight stock accumulation, discrepancies and abnormal 1onsumption and effect control measure. @. !o ensure good housekeeping so that material handling, materials %reservation, stocking, receipt and issue can be done adequately. A. !o assist in verification and provide supporting information for 2ffective purchase action. In India, o ing to positions, + to @ months inventories are not uncommon AAand, In fact, for certain imported items, it could be as high as 2+ month's stock. In this conte(t, stores management assumes greater importance.

=tores >eader:!he stores leader is very important because this facilitates the calculation of the value of goods used for production purposes. It indicates the issue of materials purchase of materials, finished goods. !here are several methods for calculating the issue price of the materials. () FIF8:hich that

Lnder this method is first issued from the earliest consignment on hand and priced at consignment as placed in the stores. In other ords materials received first are issued first.

!his method is most suitable in times of falling prices because the issue price of materials to be /obs ork orders ill be high hile the cost of replacements of materials ill be lo . +) >IF8:-

!he issues under this method are priced in the reverse order of purchase i.e.., the price of the latest available consignment is taken. !his method is sometimes kno n as the replacement cost method because materials are issued at the current cost to ork orders e(pect hen purchases ere long ago. !his method is suitable in times of raising prices because material consignment at a price hich is closely related to the current price levels. ,) $ase stock method:ill be issued from latest

2ach concern al ays maintains a minimum quantity of material in stock. !his minimum quantity is kno n as safety or base stock and this should be used hen an emergency arises. !he ob/ective of this method is to issue the material according to the current prices. -) %verage method:In this method stock is divided by the quantity. .) Market *rice:!he issues are made at the market prices. . @. Inflated *rices: -

!his method is used for any astage in the materials. 2(" 5B units are purchased at Es. #B. In 5B units ill go for astage. !he issue price ill be 5BBP+BK#2.5 >ocation and >ayout:;ore often than not= in the matter of locating the stores, materials management is rarely consulted. !he normal practice is to locate the stores near the consuming departments. !his minimi.es handling and ensures timely dispatch, hi stores layout, governing criteria are easy movement of materials, good house keeping, and sufficient space for men and materials handling equipments, such as shelves, racks, pallets and proper preservation from rain, light and other such elements. !hese problems are more important in the case of items that have a limited shelf life. Dther important factors governing the location are the number of users and their locations, the volume and the variety of goods to be handled the location of the central receiving section and accessibility to modes of transportation such as rail or road. ?ince stores have to be nearest to the sugar, large organi.ations usually have stores near consuming department, hereas receiving is done centrally. Items of common usage are stocked in the central stores so that inventory is kept at an optimum level. !hese factors are considered at the planning level of layout.

In the case of arehouses stocking finished goods, factors such as pro(imity to ports, rail ay lines, quality of roads, availability of po er, etc., become quite important. It is also important that the stores are constructed ith a futuristic orientation, so that sufficient fle(ibility for e(pansion needs is inbuilt. !he activities of receiving the goods, stocking in appropriate locations, material handling and issue must be done s iftly and economically. !he stores building have adequate facilities for preservation of stores. ?ometimes facilities, such as cold storage, heating equipments, air conditioning and similar facilities may be required. !hese should be planned in advance. 1omfortable orking conditions must be provided to the stores personnel to get ma(imum efficiency and morale. !he Important factors in the design of stores building can be summari.ed as follo s" >ighting:1lear and adequate lighting is a must for a ork environment. Lighting effects can be accentuated through a /udicious choice of colors for the alls. 'or stores personnel ho orkday in and day out in the stores receiving, checking, stocking, handling and issuing goods, a pleasing environment goes a long ay in reducing monotony. 0ny attempt to reduce these facilities ill prove false in economi.ing in the long run. =afety:!his factor is perhaps the most important aspects. In stores a large volume of goods are handled every day. 0ccidents considerably reduce the morale and effectiveness of the system. !he follo ing measures are necessary if accidents are to be checked" ?afety consciousness should be instilled in the minds of stores, personnel through training programmers, visual aids and literature. ?afety appliances, such as goggles, hand gloves, etc..., must be provided and their use must be encouraged. 7ood housekeeping is essential. !his means that gang ays must be clean, adequately ide so that movement of forklifts, trolleys and Industrial tractors is smooth. ?tocking must be in appropriate locations so that handling is minimum. 0ll stores equipment must be kept in good order. !his Includes adequate maintenance practice ith regard to forklifts, overhead cranes, trolleys, conveyors, etc. Dperation must be trained in safety so that safety precautions are not overlooked. Cealthy competition can be stimulated by installing 3safety a ards3 and cash pri.es hich bring recognition to the concerned stores personnel for safety practices. !his also motivates other to practice safety. %rovision of fire fighting facilities is necessary especially here inflammable materials are stored and handled. In fact large organi.ations have a ell maintained the fighting equipment. <eep the stores in preparedness. !his has in the run reduced losses and reduced insurance e(penses, fire e(tinguisher, fire escapes, alarms and sprinklers must be available the personnel should be familiar in handling them. Dther factors hich merit attention equipments, safe electrical irings, etc.., Cost %spects and *roductivity:include provision of toilets, routine maintenance

It is erroneously covered that every cubic meter of space must be utili.ed by stocks for high efficiency. Jery often such stocking may drastically cut the speed of materials movements and create bottlenecks apart from affecting overall safety. !herefore maneuvering needs for handling equipment and for minimi.ing the time required for stocking, and issue, must be borne in the mind at the planning stage in order to ensure real efficiency. 1osts involved in stores can be analy.ed under t o heads, vi..., fi(ed and variable. 'i(ed costs are to be incurred irrespective of the utili.ation of space stores. !hey include money spent on land and buildings, rent interest, repairs, maintenance, insurance, etc. Jariable costs vary ith the volume through output. !hey consist of handling cost, damages, deterioration, obsolescence, etc. Dbviously hen the throughout or the volume goods handled is high, the total cost per tonne is lo . !his should be the aim of the stores manager in order to optimi.e the costs in stores. *roblems and Development: It is an unfortunate fact that stores management has been regulated as a critical function. In the gamut of material management, stores is considered as the least glamorous and it never attracts talent. It is forgotten that the stores manager is probably the custodian of the single largest group of current assets and plays a pivotal role in ensuring smooth production besides assisting purchase activities through timely support. !his is the ma/or problem and challenge that faces stores manager today. ;any decisions in stores management, such as selection of racks, bins, handling equipment, safety practices, codification, training personnel and accounting, call for considerable, sick and an ability to coordinate ith other 9epartments as ell as ith outside agencies. !hese aspects should be highlighted and appreciated so that the store function is given due to importance. Dther areas in stores, such as records keeping, movement analysis to reduce obsolescence, surplus and damage are critical to the profitable operation of the firm and the stores manager faces challenges in the areas as ell. In many organi.ations the scrap yard also comes under control of the stores manager. !his is an entirely ne responsibility calling for the ability to ma(imi.e returns on the disposal of scrap. !he chief stores officer has under him separate officers for the functions of receipt, issue, karde( and sub)stores. 8esides coming into contact ith the production, purchase maintenance, inspection and finance departments ith in his organi.ation, he has to come into contact ith outsiders like suppliers, transport carriers and bankers. In order to meet such challenges the importance of the stores function should gradually gain momentum and qualified engineers should be posted as chief stores officers reporting to the materials manager. 8RD R *8I57:Drder level must be such that, inventory at the time of ordering suffices to meet the need of production during the procurement period. 8rdering level H lead time in days for procurement ! avg daily usage !he order level is normally greater than the normal consumption it is equal to normal consumption plus safety stock. 8rder level H normal consumption I safety stock ?afety stock)?afety stock is to seek total protection against stock out. It can be calculated by using usage rate and lead time.

=78C?I5# 8F FI5I=& D #88D=:'inished goods are stocked in godo ns for dispatching. I5 C&%R# =:In charge for ra material is cane manager and in charge for finished goods is sales e(ecutive. I56 578R9 7BR586 R:!his ratio indicates the efficiency of the firm in selling its product. It is calculated by dividing the cost of goods sold by the average inventory. Inventory turnover K cost of goods sold 0verage Inventory Cere cost of sold goods K Dpening stock O %urchases O ;anufacturing 2(penses ) 1losing stock !he average inventory is the average of opening and closing balances of inventory. In a manufacturing company inventory of finished goods is used to calculate inventory turnover. 0verage inventory K Dpening stock O 1losing stock 2 !he manufacturing firm's inventory consists of t o more components" Ea ;aterial Work in process 0n analyst also is interested in e(amining the efficiency ith hich the firm converts ra material into ork in process and the ork in process into finished goods. !hat is, he ould like to kno the levels of ra materials inventory and ork in process inventory held by the firm on an average. !he ra material inventory should be related to materials consumed, and ork in process to the cost of production. Ea material inventory turnover K material consumed

0verage ra material inventory

Work in process inventory turnover K

cost of production

0verage ork in process inventory !he inventory turnover sho s ho rapidly the inventory is turning into receivable through sales. 7enerally, a high inventory turnover is indicative of good inventory management. 0 lo inventory turnover implies e(cessive inventory levels than arranted by production and sales activities, or a slo moving or obsolete inventory. 0 high level of sluggish inventory amounts to unnecessary tie) up of funds, impairment of profit and increased costs. If the obsolete inventories have to be ritten off, this ill adversely affect the orking capital and liquidity position of the firm. 0gain, a relatively high inventory turnover should be carefully analy.ed. 0 high inventory turnover may be the result of a very lo level of inventory hich results in frequent stock outs. !he turnover ill also be high if the firm replenishes its inventory in too many small lot si.es. !he situations of frequent tock outs and too many small inventory replacements are costly

for the firm. !hus, too high and too lo inventory turnover ratios should be investigated further. !he components of inventory may help to detect the imbalanced investments in the various inventory components.