PRODUCTION DEPARTMENT

Production is the foundation on which every organization is

built. The organization can be a manufacturing unit or a serviceoriented unit. In a manufacturing unit production is an intentional act
of producing something in an organization manner. It is the fabrication
of a physical object through the use of men, material and equipment.
Irrespective of the nature of an organization production is some act of
transformation i.e. inputs are processed and transformed into some
output. The main inputs are information, management, land, labor, and
capital.
Santosh chemicals Pvt. Ltd. are manufacturing unit,
which undertakes chemical soap and chemical detergent.

MATERIAL HANDLING

Systematic material handling

can reduce handling cost & time,
damages & breakages & would
ensure timely flow of materials,
cutting down processing time. It is
desirable to make the following analysis to determine the most
effective methods of material handling.
1. Which items have to move?
2. How frequently have / these to be moved?
3. Where to move the items?
4. How to move the items?
It would help in determination of the type of equipments
to be used for the movement in the interest of smooth flow &
efficiency. Considering the importance of material handling, it is
worthwhile to take advice of some specialist in the field for planning
light/ heavy duty stores equipments and for the handling problems of
all materials including raw materials, spares consumable stores, works
in progress & Finished goods.

INVENTORY CONTROL SYSTEMS

Inventory is the idle economic source of material
lying in the production line or store. This constitutes a major portion
of manufacturing cost of the product inventories occupy a very vital
and critical portion of the scarce resources of a commodity and
account for a major share of the working capital. Inventory can be
classified as under:
Production inventory including consumable.
Work in progress inventory.
Finished goods inventory

In most of the industries, the inventory control

function is assigned to material management department. While the
production and maintenance department draws from inventory
reservoir, the purchase department feeds this reservoir. Since materials
management department is more aware about the lead time and
decides re-order point, safety stock etc., which have vital bearing on
inventory, the major responsibility for inventory control should be
vested with this department. It is, however, necessary that strict
control is applied in regulating inventory and the holding is justified
and within reasonable limits and norms. Under the materials
management discipline, the area of inventory control should be given
its due importance.

METHODS OF INVENTORY CONTROL

TYPE

BASIS

USE

ABC

Annual

Inventory Control

Consumption Value
VED

Criticality
Component of an item

FSN

Consumption
pattern of an items

For maintenance
levels of spare parts
To Control
Obsolescence

INVENTORY CONTROL OPERATION IN SANTOSH

CHEMICALS
Santosh being a process industry holding large
number of items having substantial value there is needed to apply
scientific methods of inventory control. We are requiring 20 items
for daily uses. The items thus identified are reviewed periodically
to find out the trend of consumption. So that average level are
fixed reviewed. Whole inventories are classified in to three
Groups. The classification is based on the annual consumption
value. The groups of classification are as under to control
inventory under based on the ABC Analysis.
CLASIFICATION OF INVENTORY ACCORDING TO

ABC ANALYSIS AND VED ANALYSIS

ABC ANALYSIS
ABC

classification

is

basic

analytical

Management tools which enables top Management to direct their

effort where the result will be maximum. This technique properly
knocks as ALWAYS BETTER CONTROL has universal application
in many areas of human endeavor. The technique tries to analyze the
distribution of any characteristic by money value of importance in
orders to determine its priority. In materials Management, this
technique has been applied in areas needing selective control. Such as
Inventory critically of items, obsolesce. Stock purchases order, receipt
of materials, inspection, storekeeper and billing verification.
ADVANTAGES OF ABC CLASSIFICATION:
This approach helps the material manager to
exercise selective control and focus his attention only on a few items.
When he is dealing with lacks of store items. ABC analysis has to be
reported to equal extension to A, B and C items will not worth while
and would be very expensive. Concentrating on all items it is likely to
have diffused effect irrespective of the priorities.

It provides a sound basis on which to allocate

funds and time of personnel with respect to their importance of the
individual items.
TECHNIQUES OF ABC CLASSIFICATION:
The techniques of classifying the items into A, B
and C categories as described in the following steps:
(1) Classify the items of inventories, determining the expected use in
units and the price per unit for each item.
(2) Determining the total value of each item by multiplying the
expected units by its units price.
(3) Rank the items in accordance with the total value, giving first
rank to the item with highest total value and so on.
(4) Compute the ratios (percentage) of number of units of each item to
total units of all items and the ratio to total of each item to total
value of all items.
(5) Combine items on the basis of their relative value to form three
categories A, B and C.

PURPOSE OF ABC CLASSIFICATION

The object of carrying out ABC classification is
to develop policy guidelines for selective control.

Normally, once A.B.C.classification has been done

the following broad policy guidelines can be established in respect of
each category.

A-ITEMS
B-ITEMS
Sr. no.
1.
Very strict control
Moderate control
2.
No safety stock
Low safety stock
3.
Frequent ordering Once in four months

C-ITEMS
Low control
High safety stock
Bulk ordering once

4.

or weekly deliveries
Weekly
control Monthly reports

in six months
Quarterly
control

5.

statements
Maximum

reports
Follow

follow Periodic follow up

up and expediting

up

and

expediting
exceptional cases
value Minimum
value

6.

Strict value analysis Moderate

7.

analysis
analysis
As many sources as Two or more reliable Two reliable sources
possible for each sources

8.

item
Accounts forecast in Estimate
material planning

9.

Minimization
surplus(review

based

on Rough estimate for

past data on present planning

plan
of Quarterly

waste obsolete and over

10.
11.

for each items

control Annual reviews over

surplus

and surplus and obsolete

obsolete items

items

every 15 days)
Individual posting
Small group posting
Central purchasing Combination

Group posting
Decentralized

and storage

purchasing

purchasing

12.

Maximum efforts to Moderate

13.

reduce lead time

efforts
Must be handled by Can be handled by Can
senior officers

middle Management

Minimum

clerical

be

delegated

GRAPHICAL REPRESENTATION OF ABC ANALYSIS

The tabular & graphic presentations indicate
that item forms a minimum, preparation 65.09 percent of total
units of all items. But represents the higher value 75.73 percent.
On the other hand, item C represents 14.61 percent of the total
units and only 6.52 percent of the total value item B occupies
20.29 percent of the total units and 17.72 percent of the total
value. Items A and B jointly represent 85.38 percent of the total
units and 93.45 percent of the investment. Item C representing
merely 6.52 percent of the investment. Thus a tightest control
should be exercised on item A in order in maximum profitability
on its investment. In case of item B Medium control and in case
of item C simple controls will be sufficient.

Percentage of Units

65.09 85.38

fully

Percentage of Cost

75.73 93.45

100
90
80
70
60
50

Percentage
of Cost

40
30
20
10
0
0

10

20

30

40

50

60

70

VED ANALYSIS

80

90

100

The VED classification is applicable largely to

spare parts. Stocking of spare parts will be based on strategies
different from those for raw materials, because their consumption
pattern is different, while the consumption of raw materials depends
directly on the market demand on production the demand for spare
parts depends on the performance of the plant and machinery.
Therefore, the method of classification designed for one type of
Inventory will not be compatible for selective control of another type
of Inventory to over come this draw back the VED classification is
used.
Spares are classified as vital, essential desirable.
This implies that V classes of spares have to be stocked adequately to
ensure the operation of the pant, because by definition the nonavailability of vital spares can cause havoc and stop the wheels of the
organization. Some risk can be taken in the case of E class of spares.
Stocking of desirable spares can be even done if the lead-time for their
procurement is law. It is essential that this classification be done by
technical department or by those in charge of the maintenance of the
plant. This classification will be very useful to SANTOSH
CHEMICALS PVT.LTD. If it is implemented.
Moreover, ABC and VED classification can be a
combined advantage, in order to control the stocking of spare parts.
The control action for the class AV, BE, CD, etc are given below:

CLASSES

V-ITEM

E- ITEM

D- ITEM

Constant control
A Items

& regular follow

Moderate stock

Nil stock

B Items
C Items

up
Moderate stock
High Stocks

Moderate stock
Moderate stock

Very low stock

Low stock

MATERIAL MANAGEMENT
Materials management as a discipline deals with
the entire range of functions such as conservation, utilization, quality,
cost and smooth flow of materials. These activities include materials
planning, purchasing, storekeeping, transportation, materials handling

and disposal of scrap and surplus. It is a part of the bigger field of

MANAGEMENT that exclusively deals with planning, organizing,
directing and controlling of materials within the organization. The
concept of INTEGRATED materials management developed in early
seventies. When the practicing Managers realized the potential and
cost saving associated with the effective management and utilization
of materials.
Material

management

discipline

in

any

organization has to be considered as a profit center rather than a cost

centre as scientific management of this function can be lead to
substantial profits which may not be otherwise possible without
investing huge sum in assets and increasing the sales turn over.

Material management as a 5 R discipline:

Material management is also popularly known
as 5 R discipline.

Right
Source

Right
Price

Right
Quality

Right
Quantity

Right
Delivery