A PROJECT REPORT ON INVENTORY MANAGEMENT

PROJECT REPORT SUBMITTED TO THE GUNTUR ENGINEERING COLLEGE IN PARTIAL FULFILLMENT FOR THE AWARD OF THE DEGREE OF MASTERS OF BUSINESS ADMINISTRATION

UNDER GUIDANCE OF: Mr. K.MADHUSUDHN RAO

(HOD)

SUBMITTED BY: M.SULAKSHNA (11JK1E0044) MBA 2012

DECLARATION

I M.SULAKSHNA student of Master of Business Management, Guntur Engineering College, hereby that the project report entitled INVENTORY MANAGEMENT submitted in partial fulfillment for the Masters Degree in Business Administration in the result of my own work and is original. I have not submitted this project to any other university or college for the award of any other degree or Diploma.

M.SULAKSHNA

ACKNOWLEDGEMENTS

I wish to express my heartfelt thanks to my parents and my friends for their help and constant encouragement during this endeavor.

I sincerely express my heartfelt gratitude to my Project Guide Mr.K.MadhusudhnRao, for his valuable guidance and keen interest that he has shown in my preparation of project report and in this regard I am thankful to M.B.A. Staff Members.

M.SULAKSHNA

PREFACE

The present study is conducted with objectives of identified the INVENTORY MANAGEMENT.

The first chapter deals with the introduction of the inventory management. The second chapter, Research Methodology, inventory management. The third chapter deals with data analysis and interpretation. The fourth chapter conclusions and Bibliography regarding the study with the help of last years balance sheets. finding and suggestion

INDEX
TABLE OF CONTENTS 1. MEANING OF THE PROJECT

CHAPTER-1 INTRODUCTION TO INVENTORY MANAGEMENT. NATURE OF INVENTORY MANAGEMENT

OBJECTIVE OF THE STUDY. SIGNIFICANCE OF THE STUDY. METHODOLOGY

CHAPTER -2

LIMITATIONS OF THE STUDY INTRODUCTION OF COMPANY

RESEARCH METHODOLOGY INVENTORY MANAGEMENT CHAPTER -3 1 DATA ANALYSIS

CHAPTER -4

1. CONCLUSION 2. 3.
FINDING AND SUGGESTION

BIBLIOGRAPHY

MEANING OF PROJECT
The word Project has great specification in the field of management before starting any work we must have an idea about its basic. The meaning of the PROJECT is as follows: -

P The word p signify the phenomenon of planning, which deals symbolization and proper arrangement of sensex and suggestion on respectively in accordance with need. R It stand for associated with word resource with which guides to promote planning. O This letter stands overhead expenses on unestimated expenses, which occur in manufactures designed or layout of project. J This letter stands for joint efforts i.e. Project work which is undertaking should be completed with a combined effort. E This stands for engineering i.e. worker undertaken is to be employing technical process. C This stands for the phenomenon of constriction on which is more essentially and basic form of work. T This stands for the techniques unless techniques to work is not Known.

CONCLUSION: - In general we came to conclusion. That project is systematic conclusion discussed proposed particular subject which, include complete information about required to machine tools, appliances need the various operation required to be done in well sequences.

CHAPTER-1
INTRODUCTION TO INVENTORY MANAGEMENT. NATURE OF INVENTORY MANAGEMENT.

OBJECTIVE OF THE STUDY. SIGNIFICANCE OF THE STUDY. METHODOLOGY. LIMITATIONS OF THE STUDY. INTRODUCTION OF COMPANY

INTRODUCTION OF INVENTORY MANAGEMENT

Inventory :An inventory can be defined as a stock of goods which is held for the purpose of future production or sales. The stock of goods may be kept in the following forms: Raw Materials Partly finished goods Finished goods Spare parts etc. OR 1. A stock of items held to meet future demand 2. Inventory is a list for goods and materials, or those goods and materials themselves, held available in stock by a business. Variables in an Inventory Problem: The variables associated with the inventory problems are classified into two categories. a. The Controlled variables b. The uncontrolled variables

a) The variables that may be controlled, separately or in combination are following: 1. The quantity acquired By purchase, production, or some other means. The decision maker may have a control over the production or purchase level. 2. The frequency of timing of acquisition The decision maker may have control over how often or when the inventory should be replenished.

3. The stage of completion of stocked items The decision maker may have a control over the stage at which the unfinished items be held so that there is no delay in supplying customers.

b) The uncontrolled variables The variable that may not be controlled in an inventory problem are divisible into cost variables and others.

Inventory management: 1. Inventory management is the branch of business management concerned with planning and controlling inventories. 2. Inventory is stock of items held to meet future demand. 3. It deals with two basic questions: How much to order When to order?

Types of Inventory: 1. Raw Material 2. Work in progress 3. Finished Goods Nature of Inventories 1. Raw Materials Basic inputs that are converted into finished product through the manufacturing process. 2. Work-in-progress Semi-manufactured products need some more work before they become finished goods for sale. 3. Finished Goods Completely manufactured products ready for sale. 4. Supplies Office and plant cleaning materials not directly enter production but are necessary for production process and do not involve significant investment. Reasons To Hold Inventory 1. Meet variations in customer demand:

o Meet unexpected demand o Smooth seasonal or cyclical demand 2. Pricing related: o Temporary price discounts o Hedge against price increases o Take advantage of quantity discounts 3. Process & supply surprises o Internal upsets in parts of or our own processes o External delays in incoming goods. Objective of Inventory Management 1. To maintain a optimum size of inventory for efficient and smooth production and sales operations. 2. To maintain a minimum investment in inventories to maximize the profitability. 3. Effort should be made to place an order at the right time with right source to acquire the right quantity at the right price and right quality.

An effective inventory management should: Ensure a continuous supply of raw materials to facilitate uninterrupted production. Maintain sufficient stocks of raw materials in periods of short supply and anticipate price changes. Maintain sufficient finished goods inventory for smooth sales operation, and efficient customer service. Minimize the carrying cost and time. Control investment in inventories and keep it at an optimum level.

An optimum inventory level involves three types of costs:-

Ordering costs:-

Quotation or tendering Requisitioning Order placing Transportation Receiving, inspecting and storing Quality control Clerical and staff

Stock-out cost
Loss of sale Failure to meet delivery commitments Carrying costs: Warehousing or storage Handling Clerical and staff Insurance Interest Deterioration, shrinkage, Taxes Cost of capital

Dangers of Over investment:Unnecessary tie-up of firms fund and loss of profit involves opportunity cost Excessive carrying cost Risk of liquidity- difficult to convert into cash

Physical deterioration of inventories while in storage due to mishandling and improper storage facilities

Dangers of under-investment: Production hold-ups loss of labor hours Failure to meet delivery commitments Customers may shift to competitors which will amount to a permanent loss to the firm May affect the goodwill and image of the firm

METHODOLOGY For the purpose of the study necessary information has been collected Through primary and secondary sources.

PRIMARY DATA: DEFINATION The primary data are those which are collected a fresh and for the first time, and thus happened to be original in character. Primary data include the Information collected from the officials and existing company through Discussions

SECONDARY DATA : DEFINITION The secondary data, on the other hand are those which have already been collected by someone else and which have already been passed though the Tactical process. The secondary data include the information from the company annual reports which include financial statement like balance sheet and income statements and such other information from text books of financial management, journals and magazine has also been collected.

OBJECTIVES OF THE STUDY Working capital is the most widely used and powerful technique of financial Analysis .The main objective of the present study is to know the financial Condition of the company. To know the overall operational efficiently and performance of the company. To interpret the financial position of company of is appropriate (or) not. To assess the long term financial viability of company .to knows whether the management is

constantly concerned about the overall profitability of the company (or) not. To provide reliable financial information about economic resources and obligation of a business

enterprise. To provide reliable financial information those add, its in estimating the potential of the

enterprise. To disclose to the extent possible other information related to the financial statements users.

NEED OF THE STUDY During the post liberalization are the worlds assail as economic Indias scenario has shown a great progress and is growing with increased phase this has necessitated the complex and efficient ways of management .thinking practically the main concern is of the influence of external environment on business providing a modern dimension to business to management .they find solution for many problems in the aspect of financial analysis .financial establishes inter relationship that exists among. The different items appeared in the financial statements, which are effectively helpful to describe the company should monitor key indication of operating performance and where possible must compare, itself with the competitors in the industry.

A systematic financial analysis of accounting figure helps to analysis the probable caused relationship among different items after analyzing scrutinizing the past result which helps the management to prepare budgets, to formulate company policy and to prepare future plan of action. It focuses on companys relative performance in sales growth margins and assets management .It is a simple tool where by a company can make its internal audit to evaluate internal strengths and weakness of the part of the strategic planning.

LIMITATIONS OF THE STUDY The study conducted and done is analytical, subject to the following limitations 1) The study is mainly carried out based on the secondary data provided in the financial statements. 2) This study is based on the historical data and information provided in the annual reports therefore it may not be a future indicator. 3) There may be some fractional differences in the calculated ratios. As the study was for short span of 8 weeks and due to lack of time other areas could not be well focused.

INTRODUCTION OF COMPANY
The introduction of company can be described in two parts: Company Details

Company Details: Company Name: Address:

Telephone: Mobile: Web site:

Name of CEO: Establishment: Primary Business Type: Market Cover: Products offer:

Chapter-2 1. RESEARCH METHODOLOGY 2. INVENTORY MANAGEMENT

RESEARCH METHODOLOGY

STATEMENT OF PROJECT
Evaluation, analysis & interpretation of inventory management of XXXXXXXX. Suggesting ways to improve its inventory management utilization.

OBJECTIVE OF RESEARCH
Estimation of inventory management requirement Evaluation of inventory management Analysis of relationship on inventory management and profitability Analysis & sources of inventory management

COLLECTION OF DATA:
Data has been collected from various sources like: Annual reports of last three years

 Manual of concerned departments Internet sites like www.google.com,

ASSUMPTIONS
Year is taken of 365 days All purchases have been taken as credit purchases and all sales have been taken as credit sales. In the absence of relevant data the data from internet site is taken as the relevant information.

LIMITATIONS
The data is mostly secondary in nature Data has been recalculated & regrouped wherever necessary In the absence of sufficient data personnel judgment have been taken on reasonable assumption. In the absence of sufficient data in-depth study of cash, Receivables and inventory management was not possible.

CLASSIFICATION OR KIND OF INVENTORY MANAGEMENT:

ABC Classification

HML Classification XYZ Classification VED Classification FSN Classification SDF Classification GOLF Classification SOS Classification

1. ABC Classification : In most of the cases 10 to 20 % of the inventory account for 70 to 80% of the annual activity. A typical manufacturing operation shows that the top 15% of the line items, in terms of annual rupees Next 15% of items reflect 15% of annual rupees Next 70% accounts only for 5% usage

usage, represent 80% of total annual rupees usage.

2. HML Classification : On the basis of unit value of item There is 1000 unit of Q @ Rs. 10 and 10,000 units of W @ Rs. 5. Aimed to control the purchase of raw materials. H High, M- Medium, L - Low

4.

XYZ Classification :On the basis of value of inventory stored Whereas ABC was on the basis of value of consumption to value. X High Value Y Medium value Z Least value

Aimed to identify items which are extensively stocked.

5.

VED Classification :Mainly for spare parts because their consumption pattern is different from raw materials. Raw materials on market demand Spare parts on performance of plant and machinery. V Vital, E Essential, D Desirable

6.

FSN Classification :According to the consumption pattern To combat obsolete items F Fast moving S Slow moving N Non Moving

7.

SDF Classification :Based on source of procurement S Scarce, D- Difficult, E- Easy. GOLF Classification :-

8.

G Government, O Ordinary, L Local, F Foreign. 9.SOS Classification : Raw materials especially for agriculture units

S Seasonal OS Off seasonal

Deciding on the inventory model: Assume an analyst applies an inventory model that does not allow for spoilage to a grocery chains

ordering policy for lettuce and formulates the strategy of ordering lettuce in large amounts every 14 days. A little thought will show that this is obliviously foolish. This strategy implies that lettuce will be spoiled. However it is not a failure of inventory, it is a failure to apply the correct model.

DATA ANALYSIS
1. EOQ model 2. Its extension 3. Probabilistic model
Basic EOQ Model
Assumption Seasonal fluctuation in demand is ruled out. Zero lead time Time lapsed between purchase order and inventory usage. Cost of placing an order and receiving are same and independent of the units ordered. Annual cost of carrying the inventory is constant. Total inventory cost = Ordering cost + carrying cost

EOQ Three Approaches : Trial and Error method Order-formula approach Graphical approach

Trial & Error Method :Assumptions:Annual requirement (C)=1200 units Carrying cost (I) = Rs.1 Ordering cost (O) =Rs.37.5

Order size Q Average inventory Q/2 No. of orders C/Q Annual carrying cost I* Q/2

1200 600 1 600

600 300 2 300 75 375

400 200 3 200 112.5 312.5

300 150 4 150 150 300

240 120 5 120 187.5 307.5

200 100 6 100 225 325

150 75 8 75 300 375

120 60 10 60 375 435

100 50 12 50 450 500

Annual ordering cost O*C/Q37.5 Total annual cost 637.5

Order- Formula approach :1/2 EOQ =(2CO/I) C = Annual demand O = Ordering cost per order I = Carrying cost per unit 1/2 EOQ =(2*1200*37.5/1) = 300 units

Graphical method to find EOQU:-

Extension of basic EOQ model : This model can be extended to include quantity discounts, were simple calculation for quantity discount is added. Non zero lead time Non zero lead time If the lead time is n then procurement must be done prior to n days, i.e. T-n as shown in the figure.

Probabilistic inventory model : In practical inventory management assumption may not be strictly correct. 1. Demand may fluctuate over time due to seasonal, cyclical and random influences. 2. Lead time may also fluctuate because of transportation delay, strikes or natural disaster. For such reason most of the companies use safety stock. 3. But in some cases even the safety stock becomes ineffective to combat stock out. Like:-

CONCLUSION The companys overall position is at a good position. Particularly the current years position is well due to raise in the profit level from the last year position. It is better for the organization to diversify the funds to different sectors in the present market scenario.Inventory control responsibility In effect the responsibility cannot be kept on one head since inventory management

is a integrated effort Purchasing naturally has vest interest in inventories, even to the extend that in some companies the purchasing and stores functions are combined.

Production looks after the work in progress Logistics plays a major role in inventory control Inventories are economic importance to finance department

The fact that materials must be moved from one place to another is of importance to materials department.

Emerging trends in inventory management: Entering into log term contract at a fixed price to reduce uncertainties Just-in-time Kanbans Japanese technique (Only produce when demand comes) Internet based ordering system Supply chain management

Vendor development & Investment in plant and machinery

FINDINGS OF THE STUDY:

Making available inventory to manage on materials than use the EOQ analysis to easy to control the inventory cost

The company should administrate their credit on the basis of certain well recognized and established principle of credit administration.

The company should maintain an optimum level of cash in the business in order to maintain a proper liquidity in the business

BIBLOGRAPHY

Financial Management theory and practice by Prassanna Chandra Financial Management theory and practice by Shashi .K. Gupta & R.K. Sharma. Www. Google.com, www. Wikepidia.com

 Operation Management by Prof. Subir Guha Production and Operations Management by EVERETT E. ADAM , Jr. RONALD J. EBERT