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A study on Inventory Management

1.1 INTRODUCTION
Inventory management is the process of efficiently overseeing the constant
flow of units into and out of an existing inventory. This process usually involves
controlling the transfer in of units in order to prevent the inventory from becoming too
high, or dwindling to levels that could put the operation of the company into jeopardy.
Competent inventory management also seeks to control the costs associated with the
inventory, both from the perspective of the total value of the goods included and the
tax burden generated by the cumulative value of the inventory.
Balancing the various tasks of inventory management means paying attention
to three key aspects of any inventory. The first aspect has to do with time. In terms of
materials acquired for inclusion in the total inventory, this means understanding how
long it takes for a supplier to process an order and execute a delivery. Inventory
management also demands that a solid understanding of how long it will take for
those materials to transfer out of the inventory be established. Knowing these two
important lead times makes it possible to know when to place an order and how many
units must be ordered to keep production running smoothly.
Calculating what is known as buffer stock is also key to effective inventory
management. Essentially, buffer stock is additional units above and beyond the
minimum number required to maintain production levels. For example, the manager
may determine that it would be a good idea to keep one or two extra units of a given
machine part on hand, just in case an emergency situation arises or one of the units
proves to be defective once installed. Creating this cushion or buffer helps to
minimize the chance for production to be interrupted due to a lack of essential parts in
the operation supply inventory.
Inventory management is not limited to documenting the delivery of raw
materials and the movement of those materials into operational process. The
movement of those materials as they go through the various stages of the operation is
also important. Typically known as a goods or work in progress inventory, tracking
materials as they are used to create finished goods also helps to identify the need to
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A study on Inventory Management


adjust ordering amounts before the raw materials inventory gets dangerously low or is
inflated to an unfavorable level.
Finally, inventory management has to do with keeping accurate records of
finished goods that are ready for shipment. This often means posting the production of
newly completed goods to the inventory totals as well as subtracting the most recent
shipments of finished goods to buyers. When the company has a return policy in
place, there is usually a sub-category contained in the finished goods inventory to
account for any returned goods that are reclassified as refurbished or second grade
quality. Accurately maintaining figures on the finished goods inventory makes it
possible to quickly convey information to sales personnel as to what is available and
ready for shipment at any given time.
In addition to maintaining control of the volume and movement of various
inventories, inventory management also makes it possible to prepare accurate records
that are used for accessing any taxes due on each inventory type. Without precise data
regarding unit volumes within each phase of the overall operation, the company
cannot accurately calculate the tax amounts. This could lead to underpaying the taxes
due and possibly incurring stiff penalties in the event of an independent audit.
INVENTORY MANAGEMENT must tie together the following objectives ,to
ensure that there is continuity between functions :
Companys Strategic Goals
Sales Forecasting
Sales & Operations Planning
Production & Materials Requirement Planning.
Inventory Management must be designed to meet the dictates of market place
and support the companys Strategic Plan . The many changes in the market demand ,
new opportunities due to worldwide marketing , global sourcing of materials and new
manufacturing technology means many companies need to change their Inventory
Management approach and change the process for Inventory Control .

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A study on Inventory Management


Inventory Management system provides information to efficiently manage the
flow of materials , effectively utilize people and equipment , coordinate internal
activities and communicate with customers . Inventory Management does not make
decisions or manage operations, they provide the information to managers who make
more accurate and timely decisions to manage their operations.
Inventory is defined as the blocked Working Capital of an organization in the
form of materials . As this is the blocked Working Capital of organization, ideally it
should be zero. But we are maintaining Inventory . This Inventory is maintained to
take care of fluctuations in demand and lead time. In some cases it is maintained to
take care of increasing price tendency of commodities or rebate in bulk buying.
Traditional Supply Chain solutions such as Materials Requirement Planning,
Inventory Control , typically focuses on implementing more rapid and efficient
systems to reduce the cost of communicating information between and across the
Inventory links in the SCM.COM focuses in optimizing the total investment of
materials cost and workload for every Inventory item throughout the chain from
procurement of raw materials to finished goods Inventory .
Optimization means providing a balance of supply to meet the demand at a
minimum total cost , Inventory level and workload to meet customers service goal for
each items in the link of Inventory Chain.
It is strategic in the sense that top management sets goals. These include
deployment strategies (Push versus Pull), control policies, the determination of the
optimal levels of order quantities and reorder points and setting safety stock levels .
These levels are critical, since they are primary determinants of customer service
levels.
Keeping in view all concerns, the latest concept of Vendor Managed Inventory
is used to optimize the Inventory. We are entering into Vendor Managed Inventory,
Annual Rate Contracts with manufacturers or their authorized dealers, who maintain
Inventory on our behalf and supply the items as and when required.

Siddartha Institute of Engineering & Technology

A study on Inventory Management


VMI reduces stock-outs and optimize inventory in supply chain. Some features of
VMI include:
Shortening of Supply Chain
Centralized Forecasting
Frequent communication of inventory, stock-outs and planned promotions
Trucks are filled in a prioritized order , e.g. items that are expected to stock out have
top priority then items that are furthest below targeted stock levels then advance
shipments of promotional items
Despite the many changes that companies go through, the basic principles of
Inventory Management and Inventory Control remain the same. Some of the new
approaches and techniques are wrapped in new terminology, but the underlying
principles for accomplishing good Inventory Management and Inventory activities
have not changed.
The Inventory Management system and the Inventory Control Process
provides information to efficiently manage the flow of materials, effectively utilize
people and equipment, coordinate internal activities, and communicate with
customers. Inventory Management and the activities of Inventory Control do not
make decisions or manage operations; they provide the information to Managers who
make more accurate and timely decisions to manage their operations.
The basic building blocks for the Inventory Management system and Inventory
Control activities are:

Sales Forecasting or Demand Management

Sales and Operations Planning

Production Planning

Material Requirements Planning

Inventory Reduction
The emphases on each area will vary depending on the company and how it

operates, and what requirements are placed on it due to market demands. Each of the

Siddartha Institute of Engineering & Technology

A study on Inventory Management


areas above will need to be addressed in some form or another to have a successful
program of Inventory Management and Inventory Control.
Inventory is usually a distributors largest asset. But many distributors arent
satisfied with the contribution inventory makes towards the overall success of their
business:

The wrong quantities of the wrong items are often found on warehouse shelves.
Even though there may be a lot of surplus inventory and dead stock in their
warehouse(s), backorders and customer lost sales are common. The material a
distributor has committed to stock isnt available when customers request it.

Computer inventory records are not accurate. Inventory balance information in the
distributors expensive computer system does not accurately reflect what is
available for sale in the warehouse.

The return on investment is not satisfactory. The companys profits, considering


its substantial investment in inventory, is far less than what could be earned if the
money were invested elsewhere.

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A study on Inventory Management

1.2 INDUSTRY PROFILE


INTRODUCTION
This chapter deals with industry profile which gives about the information
regarding the batteries and its related products, characteristics and in which sector
these are useful. A battery is an electrochemical device in which the free energy of
chemical reactions is converted into the electrical energy.
The chemical energy contained in the active materials is converted into elect
cal energy be means of electrochemical oxidation-reduction reaction.

HOW A BATTERY WORKS


When you place the key in your cars ignition and turn the ignition switch to
ON a single is sent to the cars battery. Upon receiving this signal the car battery
takes energy that it has been strong in chemical form and releases it as electricity. This
electric power is used to crank the engine. The battery releases energy to power the
cars lights and other accessories. It is the only device, which can store electrical
energy in the form of chemical energy, and hence it is called as a strong battery.

SEALED MAINTENANCE FREE (SMF) BATTERIES


Sealed maintenance free (SMF) batteries technologies are loading the battery
industry in recent year in automobile and industrial sector around the globe.
SMF battery come under the rechargeable battery category so is can be use a no. of
time in the life of a batterys batteries are more economical than nickel cadmium
batteries .these batteries are more compact than the west type batteries. It can be use
at any position; these batteries are very popular for portable power requirements and
space constraint application.

VALUE REGULATED LEAD ACID (VRLA) BATTERIES

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VRLA batteries are leak proof, spill-proof and explosion restrict and having
life duration of 15-20 years. These batteries withstand the environmental conditions
due to high technology, in built in the batteries. Each cell is housed in a power coated
steel tray making them convent transport and installations transit damages are
minimized in cases of batteries. Sealed maintenance free (SMF) batteries and value
regulated lead acid (VRLA) batteries technology are leading the batteries industries in
recent years. In auto mobile and industrial battery sector around the globe VRLS
batteries have become the preferred choice in various applications such as
uninterrupted power supply, emergency lights, and security systems and weighting
scales.

CLASSIFICATION OF BATTERIES
Batteries are broadly classified into two segments like: Automotive batteries
Industrial batteries

AUTOMOTIVE BATTERIES
Apart from mopeds all other automobiles including need storage batterys
automotive batteries are playing predominant role in automobile sector by
influencing customers in the automobile market. Automobile batteries can be further
distinguished as the original equipment (OE) markets as low as 5-6%.OE segment has
the advantage of securing continuous order and in queries. This enables manufactures
to streamline production facilities, plan production schedules and attain certain level
of operational efficiency.
The replacement market, on the other hand, is much larger. The replacement
market is characteriesed by the pre sense of large unorganized sector, which
constitutes around 55-60% of the total replacement market. This is possible due to
low capital entry barrier. These players have the advantage of in applicability duties.

INDUSTRIAL BATTERIES
The industrial battery segment comprises of to main categories. One comprise
of the stationary segment and second relating to motive power and eclectic
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vehicles. The motive power and the electric vehicle segment comprising of telecom,
railways and power industries have registered a growth In excess of 20% and this
trend is likely to continue in the next five years.
The Industrial segment is highly technological intensive and access to high
quality world-class technology is an important factor and is vital for brand reference.
The total demand for the industrial battery segment is met by indigenous production
with small saves of about 10% by imports. The demand for industrial batteries has
grown slowly and steadily. All for as industrial batteries are concerned the evolving
consciousness among Corporate and Government departments regarding environment
factors will result in a shift towards pollution-free technology. There has been a
preferential shift in this segment from the Conventional Lead batteries to sealed
maintenance free batteries (SMF). The bull of battery industry admits that the sales
are fallen but at the same time they are expecting larger orders especially from
telecom industry, which gets going. Due to strong customers like telecom, railways
and electricity boards, the industrial batteries are on prosperous scale

PORTABLE POWER SYSTEM


Portable power system offers the convenience of Alternating Current (AC)
power. Whenever utility is unavailable. Due to their non-reliance on gird lines, power
packs make an ideal companion to be along on vocations to deliver hours of power to
a cellular phone, a laptop computer, or a portable television.

RECYCLING BATTERIES
Battery acid is recycled by neutralizing it into water of converting it to sodium
sulphate for laundry detergent, glass and textile manufacturing. Cleaning the battery
cases, meeting the plastic and reforming it into uniform pellets recycle plastic. Lead,
which makes up 50% of every battery, is method, poured into slabs and purified.
The following are the major manufacturers in battery industry in India,
Exide Industries
Standard Batteries
Amco Batteries
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Tudor India
Amara Raja Batteries Ltd.
Hyderabad Batteries Ltd.
Sealed Maintenance Free (sum) batteries and Value Regulated Lead Acid
(VRLA) technologies are leading the battery industry in the recent years in the
preferred choice in various applications such as uninterrupted power supply,
emergency lights, and Security systems and weighing scale.

CHARACTERISTICS OF VRLA BATTERIES


DMF batteries are comes under the rechargeable battery category so it can
used a number of times in the life of battery.
SMF batteries are more economical than nickel cadmium batteries. These
batteries are more compact than the wet type batteries. It can be used at any position:
these batteries are very popular for portable power requirements and space constraint
applications.
VRLA batteries are leak proof, spill proof and explosion resistant and having
life duration of 15-20 years. These batteries withstand the environmental conditions
due to high technology in built in the batteries. Each cell is housed in a power coated
steel tray making them convenient to transportation and installation, so transit
damages are minimized in the case of the batteries.

PROSPECTS OF SMF/VRLA BATTERIES IN INDIA


The following factors are influencing the demand for VRLA technology batteries.
Entry to multinational in Telecom industry.
DOTs policy decisions to upgrade the overall technology base.
Constraints in the use of use of conventional battery in radio paging and cellular
segments.
Due to project expansion in Telecom & Railways, the demands for VRLA
Batteries are greater than other industrial batteries.

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Telecom The Governments policy to increase the capacity from 10 million to
21 million lines by 2000 increased the demand for storage batteries considerably the
value added services like radio paging and cellular will increase the demand for
storage batteries in future considerably.

RAILWAYS
In Railways, the demand estimate is based on the annual coach production this
comes to 2500 numbers by Railways itself and 1000 numbers more by various other
segments, replacement demand and annual requirement for railways electrification.

FIRST NATIONAL BATTERIES-LEAD ACID BATTERIS FOR


ALL APPLICATIONS
First national batteries is the leading manufacture and distributor of lead acid
batteries for use in mine lighting, automotive and other industrial applications in
South Africa. At present, a significant share of all new motor.
First national batteries are currently the original equipment supplier to the
following South African motor manufacture.
Daimler Chrysler
Toyota
Mitsubishi
M.A.N
BMW and Nissan.

MISSION STATEMENT OFAMARARAJA


POWER SECTORS
In this sector, the estimated 90 private power prefects who are expected to
produce 40,000 MV with an approximate capital outlay of RS. 1, 40,000 crores would
keep the industrys future brighter in the coming years.
The demand of VRLA batteries is increasing due to its performance over
conventional batteries. So it is more acceptable to consumers. There appears to be a
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considerable pote4ntial for electrically operated material handling equipment and
related vehicle besides the privatization of technology. It is expected to generate
demand for various applications. The power sector is also opening up a setting up pf
generating stations will give a boost to demand levels. The demand is OEM segments
will grow time with the growing automation in industries.
The domestic storage battery industry is in the process of transcending the past
limitations in the technology front and the new sophisticated battery will be
introduced in future threat from the overseas supplies do not at the current moment
appeal to be significant.

STORAGE BATTERIES
In the storage battery industry, some new units have come up. The latest
development in this field is maintenance free rechargeable storage battery. These are
also known as Value Regulated Lead Acid (VRLA) or Sealed Maintenance Free
(SMF) batteries. Improvement of technology in this industry is benefiting customers.

PLASTIC BATTERY COMPONENTS


First national battery has plastic processing plant where more than 20 million
battery

components is produced annually on plastic injection moldings equipment

from 50t to 85t capacity.

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1.3 COMPANY PROFILE

Amara raja batteries limited (ARBL) incorporated under the companys act
1956 on 13th February 1985 and converted in to public limited company on 16th
September 1990.
The chairman and managing director of the company is Sri Galla Ram
Chandra Naidu. ARBL is the first company is India which manufactures value
regulated lead acid (VRLA) batteries. the main objective of the company is
manufacturing of good quality of sealed maintenance free (SMF) acid batteries .The
company is setting up to rs.1,920 lakhs plant is in 185 acres in karakambadi village,
Renigunta Mandal. The project site is notified under B category.
The company has the clear-cut policy of direct selling without any
intermediate. So they have setup six branches and are operated by corporate
operations office located in Chennai. The company has virtual monopoly in higher
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A.H (Amp Hour) rating market its product VRLA. It is also having the facility for
industrial and automotive batteries.
Amara raja is 5 S companies and its aim is to improve the work place
environment by using 5 S techniques which is:
A systematic and rational approach to work place and methodical house
keeping with a sense of purpose, of following five elements.
1. SEIRI

2. SEITION

Systematic arrangement
Arranging in order
A place for everything and everything in it place

3. SEISO

Spic and spam


Cleaning the work place/equipment
Ensuring tip top condition
Standardition
Working methodology (procedures and work instruments)

4. SEIKETSU
5. SHITSUKE

Sort out ,
Segregate necessary from unnecessary.
Discard what is not required.
Decide on frequency of sorting.

- Self discipline
- Forming the habit-Be discipline

THEY PURPOSE TO ACCOMPLISH THIS BY:


Training the people and creating awareness on 5s
Motivating and changing the behavior patterns of the People
Establishing standard/procedures for the Implementation of each element of 5s
They believe that effective implementation of 5Stechniques will result in:

Consistent and better quality product


Higher productivity
Lesser accidents
Higher employee morale

COLLABORATION

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Amara raja batteries limited were a strategic tie up with Johnson controls
Inc of USA who owns 26% stack in this company .It is the largest manufactures of
lead acid batteries in North America. The main objective of the company is
manufacturing of good quality of sealed maintenance free acid batteries (SMF).The
annual growth rate of a company is 2.5%per annum. The present turnover of the
company is Rs.270crores.Major customers are BSNL, VSNL, SIEMEN, and BHEL,
ETC.
Amara raja has always offered time tested world class technology and process
development on international standards. High integrity VRLA systems like power
stack and power plus or the recently launched high performance UPS BatteryKOMBAT And AMARON hi-life automotive batteries are the products of the
collaborative battery efforts of engineering at Johnston controls Inc and
amararaja.AMARON launched in January 2000, Amara raja has pioneered the
introduction of hi-cube automotive batteries in India. This zero maintenance product
uses the revolutionary patend silver X technology developed by Johnson controls for
high environments and incorporates May superior features that make it the most
advantage battery on roads anywhere in the world.

STRENGTHS
Proven technology from GNB and being a pioneer:

Strong and well organized customer base


Full-organized infrastructure in place
Manufacturing facilities perceived as a benchmark
Complete range of VRLA batteries
Proven field performance in all user segment
Approved vendor status in major user segments

in India

To transfer our spheres of influences and enrich the quality of life by building
institutions that provides better access to better opportunities, goods and services. To
more people All the time.

VALUES & BELIEFS

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They believe in treating each other with honesty, fairness, dignity and respect and
in creating a safe ,healthy and pleasant workplace
They believe in innovative and optimum use of our continuous improvement
everything we do, as they are pre-requisites for sustained growth.
They believe that the empowerment of our people is the foundation of our
strength. We will help each other to work in teams and hold each other
accountable to fair contribution in achieving our collective goals,
They will strive to exceed our customers ever increasing expectations though
continuous improvement in quality, service support and time compression.

SOCIAL PROGRAMMES
Housing colony for employees in progress. Total plan, 500 families over five

years.
Plan to provide community hall, open auditorium, parks and play ground.
Training center for employees.
Bachelors hostel, co-operative stores banks in operation.
Roads, water supply, streetlights, greenery educational villages.
Award and reward to the younger generation for improvement of education.
Modernization of public parks for the fledged recreation of children.
Public awareness programs (in Mumbai) on environmental protection, through
street

Theatrewhose Mumbai is it any way on the occasion Of Earthday April 23rd 2001.

BRAND
Amara rajas reflects the innate dynamism of the company .the emblem
demonstrates the interplay of the universally in Yang symbols and the philosophy of
balanced forces. the color green and black emphasize the perfect symmetry of
absorbing and releasing energies, while the entire form in continuous motion signifies
unrelenting progress. The color green also elucidates the role of technology as an
integral part of the companys growth. Not incidentally, it also connotes the
companys resolve to preserve and nature the environment.

CULTURE AND ENVIRONMENT


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Amara raja is putting a no. of HRD initiatives to foster a spirit of togetherness and
a culture of meritocracy. Involving employees at all levels in building
organizational support plans and in evolving our vision for the organization.
ARBL encourage initiative and growth of young talent allows the organization to
develop innovative solution and ideas.
Benchmark pollution control measures, energy conversation measures, waste
reduction schemes, massive green belt development programs. Employee health
monitoring and industrial safety programs have helped ARBL to take further
environment management program.

QUALITY PLOICY
ARBLs main aim is to achieve customer satisfaction through the collective
commitment of employees in design; manufacture and marketing of reliable power
systems, batteries, allied products and services.

TO ACCOMPLISH, ARBLFOCUS ON
Establishing superior specifications for our products and processes

Employing state of-the-art technologies and robust design principles.


Striving for continuous improvement in process and product quality.
Implementing methods and technique to monitor quality levels.
Provided prompt after sales service.

RESEARCH & DEVELOPMENT


Specific areas in which the company carries out R&D are,

New product development


Process technology up gradation
Application engineering for new market place
Quality improvements

BENEFITS DERIVED AS A RESULT OF ABOVE R & D

4v/200ah batteries
Design optimization of higher AH batteries for DOT application
Design optimtsation of batteries92v/1285 for TL/AC-railway application.
Formation cycle optimization results in reduced duration and rejection
Chemist curing cycle optimization

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Manufacturer of automobile battens for four-wheeler vehicles.
Commercialization of motor-cycle batteries development

FUTURE PLAN OF ACTION

A new range high integrity VRLA cell design


Establishment of product for new application segment
Studies on paste additives to enhance the battery performance
In-dept evaluation of metal surface treatment chemicals to reduce the process

cycle time
Validating alternative grades of propylene to converse energy and to improve
productivity.

AWARDS
Honorable doctorate degree 2008by S V University, Tirupatthi and JNTU ,
Hyderabad
The spirit of excellence Award by academy of fine arts, Tirupatthi
Best entrepreneur of the year 1998 - by Hyderabad association
Industrial economist business excellence award-1991 award by the industrial
economist Chennai.
Excellence award by institution of Economic Studies (ES), New Delhi.
Undying rattan award by institution of ES I, new Delhi
Q1 certificate-2002 by FORD Company.

AMARARAJA GROUP OF COMPANIES


AMARARAJA POWER SYSTEM PUBLIC LTD (ARPSL) , Karakambadi ,
Tirupati
MANGALA PRECISION PRODUCTS PUBLICLTD. (MRPL1), karakambadi,
Tirupati.
MANGALAM PRECISION PRODUCTS PUBLICLTD(MRPPL8), Petamitta,
chittoor
AMARARAJA ELECTRRONICS

PUBLIC LTD, (AREPL), Dighavamgham,

chittoor
GALLA FOODS PUBLIC LTD(GFPL), Puthalapattu, chittoor

GENERAL INFORMATION
ARBL
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Industrial battery division

Auto battery division

Railway coaches
Telecom
UPS

INDUSTRIAL BATTERY DIVISION


Amara raja has become the benchmark in manufacturer of industrial batteries.
India has one of the largest and fasted growth markets for industrial batteries in the
world. Amara raja has leading in the front; with an 80%market sahare is stand by
VRLA batteries point of view .It is also having the facility for production plastic
components.ARBL is the first company in India to manufacturer VRLA (SMF)
batteries .The initial investment of the company has Rs.1920lakhs; the total land is
around 18 acres in karakambadi village, and Renigunta Mandal. The project site is
notified under B category.

AUTOMOTIVE BATTERY DIVISION (ABD)


ARBL has inaugurated its new automotive plant at karakambadi in Tirupatthi
on September 24th ,2001.This plan is a part of the most completely integrated battery
manufacturing facility in India with all critical components, including plastics sourced
in house form existing facilities on site. In this project, Amararaja s strategic alliance
partners Johnson controls Inc., of USA have closely worked with their Indian
counterparts put together the latest advances in manufacturing and plant engineering.
It is also having the facility for producing plastic components required for automotive
batteries.

CAPACITY
The capacity per the year 2005-2006 of IBD is 3, 70,000 cells per annum.With
an existing production capacity of 5 lakh units of automotive batteries, the-new
Greenfield plant will now be able to produce one million batteries per annum.This is
the first phase in the enhancement of Amararajas production capacity, for this the first
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company has invested Rs.45 crores and the next phase, at an additional cost of Rs 25
crores , for the production capacity will be increase to two million units and the
company has estimated to complete around 3 years,after that ARBL, will become the
single larges battery manufacturer in Asia . The fiscal year 2005-2006s capacity of
abd is 2.2 million numbers per year.

CUSTOMERS
ARBL has prestigious OEM (Original Equipment Manufacturer) clients like FORD,

GEHERAL MOTORS,
DAEWOD MOTORS,
MERCEDS BENZ,
DAILMLER,
MARUTHI UDYOGE LTD.,
Premier auto Ltd, and
Recent acquired a preference supplier alliance with ASHOK LEYLAND,
HINDUSTAN MOTORS, TELCO, MAHINDRA & MAHINDRA and SWARAJ
MAZAD.

COMPETITORS
The major competitors for Amararaja batteries products are:
Exide Industries Ltd
Hyderabad Batteries Ltd
GNB Industries (US based)

PRODUCTS
Type of VRLA batteries manufactured in IBD is:

POWERSTACK
KOMBAT(UPS Battery)
BRUTE
GENPRO

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FEATURES & BENEFITS OF THE PRODUCT:


Absorbed Electrolyte

-safe, no fee acid

construction

-spells proof and leak

Oxygen recombination cycle

-no external gassing

Resealing safety value

-explosion proof and Pressure regulated

Copper core terminal

- improved connection

Special hybrid alloy

- Deep cycle capability

Factory charged

- Ready to use

1.4 PRODUCT PROFILE


VRLA batteries manufactured in the industrial battery division and their
applications are as follows:

POWER STACK
Applications: Power plants, process and service industry, Railways,
Telecommunication, Uninterruptable power supply (UPS) systems, electronic private
automatic branch exchange (EPABX) , Defence (Onshore & Off share wireless
communication cellular radios), Motive power.

KOMBAT (UPS BATTERY)


Applications: UPS, EPBX, Engine starting, emergency lighting, SPV,
portable power, security systems

BRUTE:
Applications: Forklifts, pellet truck, stackers, 8platforms trucks.
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PRODUCTION FACILITIES
During the year under review ARBL has priorities and directed its objectives
towards streamlining the production process by assimilating and synchronizing
capacities of different section of plant to optimize the capacity utilization. As a part of
this prograhhe, ARBL has proposed to increase the capacity of assembly and
formation section. The reasons for the capacity are as follow:

EXPANSIONS IN AN AS UNDER
To meet the growing demand for the power stack batteries.
To cope-up with the peak level operations during the second half of the fiscal
year
To improve the overall productivity & quality/
To balance the line capacity of the plant with essential utilities & facilities.
To achieve the above, ARBL had conducted an elaborate study on the capacities of
different sections and identified the section wide requirements.
This had clearly spelt out the need for capacity expansion in power stack assembly
line formation section, on completion of the explanation programmed the capacity
will increase from 1,00,000 to 1,60,000 batteries per annum.

GALLA FOODS PRIVATE LIMITED (GFPL)


GFPL incorporated in 11th march 2004and having the its registered office at
Eangampet village, puthalapattu mandal, Chittoor district, AndraPradesh.
It is the process of setting up at world class food processing unit on par with the
international standards for extracting natural fruit concentrates from tropical fruits
and export to USA, Europe and other advanced international market.

S.NO

PRODUCT NAME

FEATURES

AMARON HARVEST

High performance, Totally


maintenance free, High For Tractors
power charge acceptance

AMARON SHIELD

Ready to fit, long life low For Inverters


maintenance
Higher
cranking power

AMARON
HI-LIFE Long life maintenance free, Cars,
Utility
BATTERIES
fully scaled and tested No Vehicles, Tractors, 4
leakage/improved safety
Wheelers,
HCVs

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Genets & LCVs

KOMBAT

High
discharge,
High
performance
batteries
which are compact light
weight factory charge,
explosion resistant and
environmental friendly

UPS, EPBX, Engine


starting, Emergency
lighting,
SPB,
portable power, Fire
alarm
security
systems.

AMARA
RAJA(POWER
STACK)INDUSTRIES

Industrial
applications, Power
plants,
Railways,
Light
weight,
study Telecommunications,
weather proof and long process and service
lasting, High integrity, Industry,
Defense,
High energy density.
Motive, Power solar
Photo
voltaic,
Electric
vehicle,
Emergency lighting.

Zero maintenance, No
specific gravity checks, No
water tapping up required
RAJA
long life, ideal size factory For Generators
charged, therefore ready to
use assured starting and
service.

AMARA
GENPRO

AMARON
BATTEIRS

QUANTA

Sera maintenance, No life


time, No leaks, High
BRUTE(THE
energy
density,
No
MOTIVE
POWER
sulphation of plates, Valve
HOUSE)
Regulated,
Safe
and
expansion proof

HI-WAY

Long life, Ultra low


maintenance ready to fit, For Trucks
Higher cranking power.
--

Siddartha Institute of Engineering & Technology

Ups Batteries

Factory vehicles like


forklifts, Pal lot
trucks, stackers and
platform trucks.

A study on Inventory Management

LOCATION OF ARBL

Siddartha Institute of Engineering & Technology

A study on Inventory Management

HIERARCHY

PROSPECTUS OF MF-VRLA BATTERIES IN INDUSTRIAL


BATTERY

M.D
Vice-President-Finance

AGM-Financial

AGM-Secretarial

Manager CommercialManager
g

Co-OrdinatorCo-Ordinator

Asst. Manager

Manager MIS

Sr. Officer

Co-Ordinator Co-ordinator

Siddartha Institute of Engineering & Technology

Sr. Manager
asury

Sr. OfficerOfficer A/c receivable

Co-Ordinator Co-Ordinator

A study on Inventory Management


The prospectus of MF-VRLA batteries technology and the demand for VRLA
batteries in various segments in estimated based on the following:

Entry of multinationals in telecom sector.


Data policy decision to upgrade the overall technology base.
Constraint in use of conventional battery in radio paging cellular segments
Switch over railways to Maintenance Free Value Regulated for Lead Acid (MFVRLA) for coach air conditioning to 100%level and the expected gradual shift for

application like TL, S&T and railway electricians.


Technology up graduation and privatization of the power segment.
Strong performance towards VRLA in the office automation industry (UPS and
EPABX application due to user friendly and compact features).

PRODUCTION FACILITIES, CAPACITY EXPANSION AND


PLASTIC PROJECT
During the year under review, ARBL had prioritized and directed its objectives
toward streamlining the production process by assimilating and synchronizing
capacities of different section of the plans to optimize the capacity utilization. As a
part of this program, ARBL has proposed to increase the capacity assemble and
formation section. The reasons for the capacity expansion are as under

To meet the growing demand for the power stack batteries.


To cope-up with thaw peak level operations during second half of the fiscal year .
To improve the overall productivity & quality.
To balance the line capacity of the plant with essential utilities and liabilities.
To achieve the above, ARBL had conducted and elaborated study on the

capacities o different sections and identified the section wide requirements. This had
clearly spelt out for capacity expansion program .The plant capacity will increase
from 1, 60,000 to 2, 75,000 batteries per annum. The estimated cost of expansion is
Rs.1, 080 cores.

RESEARCH & DEVELOPMENT


Specific areas in which the company carries out R & D.
New product development.
Siddartha Institute of Engineering & Technology

A study on Inventory Management


Process technology up graduation.
Application engineering for new market place.
Quality improvements.

FUTURE PLAN ACTION


Commercialization of motor-cycle batteries.
Development of new range high integrity VRLA cell design.
Establishment of products for new application segment.
Studies on paste additives to enhance the battery performance.
In-depth evaluation of metal surface treatment chemicals to reduce the process
cycle time.

MAJOR USERS
A. RAILWAYS
Train lighting, air conditioning, diesel engine starting, signaling systems,
control systems, emergency breaking systems and telecommunications.
B. TELECOMMUNICATION
Central office power plants, microwave repeaters station, RAX in public
building, emergency lighting systems at air ports, fire alarm system etc.
C. POWER SYSTEMS
Switch gear control systems, power hose control systems, rural street
lighting etc.
D. UPS SYSTEMS
Backup power to computers in progress control system in industry etc.,
E. TRACTION
Forklift trucks, earth motioning machinery, mining locomotives and road
vehicles etc.
F. PETROCHEMICALS
Off-shore and On-shore pill exploration lighting systems, security systems etc.
G. DEFENCE:
Defense communication, aircraft and helicopter ground starting, stationary and
mobile diesel engine starting etc.

FLOW CHART BATTERIES PROCESS FLOW

Converting
Siddartha Institute of Engineering & Technology
pure Lead
into Lead
Oxide
Gird
Casting

Paste mixing by
Adding
sulphuric Acid
and
waterthe
Winding
Pasting
Gird
Finishing
Formation
Sealing
the
jar
Group
pasted
Grid
with Lead

A study on Inventory Management

BOARD OF DIRECTORS
The company has a non-executive chairman and the number of independent
directors is 3 representing 33.33% of the total number of directors i.e. more than onethird of the total number of directors. The number of the total non-executive directors
are 8 i.e. 88.89% which is more than 50% of the total number of directors. Hence the
board of the company has an optimum combination of executive and non-executive
directors in conformity with the provisions clause 49 of the listing agreement.
None of the members of the board is holding membership in more than 10
committees or chairmanship in more than 5 committees as specified in clause 49 of
the listing agreement.

Siddartha Institute of Engineering & Technology

A study on Inventory Management


The composition and category of the board of directors as at March 31, 2008
and the number of other directorships/committee memberships held by them are as
under:

S.no. Name of the Director

Category

1.

Dr. Rama Chandra N Galla

Promoter/Non-executive chairman

2.

Mr. Jayadev Galla

Promoter/Managing Director

3.

Dr. G.Ramadevi

Promoter/Non-executive Director

4.

Mr. Frank E Kraick

Non-Executive Director

5.

Mr. Raymond J Brown

Non-Executive Director

6.

Mr. Shu Qing Yang

Non-Executive Director

7.

Mr.P.Lakshmana Rao

Independent Director

8.

Mr. Ravi Bhamidi pati

Independent Director

9.

Mr.Nagarjun Valluripalli

Independent Director

10.

Mr. Rohit Kotchar

Alternate director to Mr.Shu Qing

Yang

AMARA RAJA NETWORK


Registered Office

- Karakambadi, Tirupathi.

Corporate Operations Office

- Chennai, Hyderabad

Marketing Offices & Services Centers

- Bangalore, Mumbai, Kolkata, New

Delhi,

Hyderabad and Chennai

SELLING POLICY
The Company is adopting the policy of direct selling without any
intermediates as the product falls under the category of Capital Goods. The Company
established its based and in major cities like Mumbai, Calcutta, New Delhi, Mysore,
Siddartha Institute of Engineering & Technology

A study on Inventory Management


Bangalore and Hyderabad. All these units are fully equipped with experienced staff
and infrastructure. ARPS has also widened services network. As a member of Amara
Raja Batteries automotive branchs facilities for service points to serve the need of its
clientele better.

PRODUCT LINE
Conventional Batteries Charges

: Up to 220V / 500 A 24 V /2000 A.

Switch Mode Power Supply (SMPS)

: Modules of 48 V/25A up to 200A and

48V/100A up to 3200A Integrated Power Supply (IPS) Systems Specially.


Designed for Railway Signaling & Telecommunications.

DC/AC Distribution Boards.

AMARA RAJA BATTERY PRODUCTS


Power stacks (general purpose battery)

: 40AH to 6000AH.

Brute (Motive Power Battery)

: 40AH to 1500AH.

Combat (UPS battery)

: 40AH to 80 AH.

Diagnostic Tools
Beta Check (Health Monitor)

: 100A & 300A.

ENVIRONMENTAL PROGRAMS

Advancement for ISO-4001 Certification.


Health monitoring and awareness Programme.
Both personal and Industrial Safety Programme.
Start up of EMS implementation Programme.
Nil discharge and lowest emission awareness and implementation Programme.
Waste Reduction Scheme.
Energy Conservation Programme.
Continuous and massive greenbelt development Programme.
Ground Waste Collection, Treatment, Storage and Safe Disposal Programmed.
Central Waste Collection, Treatment, Storage and Safe Disposal Programme.
Personal health Safe Guarding Programme.

SOCIAL PROGRAMS
Housing Colony to the Employees is in Progress.
Siddartha Institute of Engineering & Technology

A study on Inventory Management

Total Plan 500 families over five years, 108 already commissioned.
Plant provide Community Hall Open Auditorium, Recreation club,
Park and play Ground.
Training Centre for Employees.
Bachelors hostel, Co-operative Store and Banks in Operation.
Roads, Water Supply, Street Lights, Greenery, Educational and Cultural Activities.
Enhancement in neighboring villages.
Awards and Rewards to the Younger Generation for improvement of education
Modernization of Public Parks for the fledged of Children.

AMARA RAJA GROUP OF COMPANIES


1.
2.
3.
4.
5.
6.

Amara Raja Batteries Limited (ARBL).


Amara Raja Power Systems Limited (ARPSL )
Mangal Precision. Ltd., (1)
Mangal Precision.Ltd. (2).
Amara Raja Electro Systems Ltd.
Galla Foods Ltd.

HISTORY OF THE ORGANISATION:


DEC 1985 -Foundation stone laid for Amara raja.
MAY 1992 -Designed and implemented the most advanced battery

manufacturing facility in India.


FEB 1997 -Received the ISO 9001 certification.
DEC 1997 -Commissioned own plastics and tool room sections.
Signed Joint Venture with Johnson controls.
MAY 1999-Received QS 9000 certification.
JAN 2000- Launched Amaron batteries.
April 2001-Launched the new corporate logo.Sep 2001-Awarded the ISO

14001 certification
New corporate logo launched.
May 2002-commissioned phase1 of new automotive battery plant with a

capacity of 2 million batteries.


JUL 2002-Launched Quanta UPS batteries.
AUG 2002-Launched Amaron Hiway and Harvest batteries.
MAR 2004-Received Ford World Excellence Award.
SEP 2004-Launched Amaron PRO,GO and FRESH automotive batteries
OCT 2004-OE agreement with Maruthi Udyog Ltd.
JUN 2005-OE agreement with Hyundai Motors.
AUG 2005-NK series limited edition batteries launch.
DEC 2007-Launched power zone. Launched new-look Amaron range with

Amaron Black, Flo batteries.


MAY 2008-Launched Amaron PRO BIKE RIDER 2w batteries.
Siddartha Institute of Engineering & Technology

A study on Inventory Management


Public awareness programs (in Mumbai) on environmental protection, through
street theatrewhose Mumbai is it any way on the occasion Of Earth day April 23rd
2001.

REVIEW OF LITERATURE
DEFINITIONS OF INVENTORY MANAGEMENT
The overseeing and controlling of the ordering, storage and use of components
that a company will use in the production of the items it will sell as well as the
overseeing and controlling of quantities of finished products for sale.
Inventory management is a science primarily about specifying the shape and
percentage of stocked goods. It is required at different locations within a facility or
within many locations of a supply network to precede the regular and planned course
of production and stock of materials.
The scope of inventory management concerns the fine lines between
replenishment lead time, carrying costs of inventory, asset management, inventory
forecasting, inventory valuation, inventory visibility, future inventory price
forecasting, physical inventory, available physical space for inventory, quality
management, replenishment, returns and defective goods, and demand forecasting.
Inventory management is primarily about specifying the size and placement of
stocked goods. Inventory management is required at different locations within a
facility or within multiple locations of a supply network to protect the regular and
planned course of production against the random disturbance of running out of
materials or goods.
Inventory management is the process of ensuring that a company always has
the products it needs on hand and that it keeps costs as low as possible.
Siddartha Institute of Engineering & Technology

A study on Inventory Management


Inventory Management is concerned with keeping enough product on hand to
avoid running out while at the same time maintaining a small enough inventory
balance to allow for a reasonable return on investment. Proper inventory management
is important to the financial health of the corporation. Excessive level of inventory,
results in large inventory carrying cost, including the cost of capital tied up in
inventory warehouse fees, insurance etc.
Inventory is needed for the definite consumption demand of materials, and to
take care of the uncertainty involved in the usage or availability of the materials.
Some times other authors described as the decoupling function of the inventory of
materials is maintained at the different stages of production.
The inventory taking care of the normal consumption requirements i.e.,
depending upon the average consumption rates and average lead times for
procurement/manufacture of the material, inventories are kept at the appropriate
times is called the normal inventory and the inventory taking care of a production
process, however continuous it maybe, is bound to have some interruptions; it may
also have imbalances in the consumption and production rates of the materials at
different stages.
These interruptions and imbalances make it necessary to keep stocks of
inventory between the different stages of the operations the aspect of this uncertainty
is called the safety stock or buffer stock of inventory

MEANING OF INVENTORY MANAGEMENT


Inventory management means safeguarding the company property in the form
of inventories and maintaining it at the optimum level, considering the operating
requirements and financial resources of the business.

Inventory management

emphasizes control over purchases, storage, consumption of materials and


determining the optimum level for each item of investments.

IMPORTANCE OF INVENTORY MANAGEMENT


Inventory management is concerned with keeping enough products on hand to
avoid running out while at the same time maintaining a small enough inventory
Siddartha Institute of Engineering & Technology

A study on Inventory Management


balance to allow for a reasonable return on investment. Proper inventory management
is important to the financial health of the corporation; being out of stock forces
customers turn to competitors or results in a loss of sales.

Excessive level of

inventory however, results in large carrying costs, including the cost of capital tied up
in inventory warehouse fees, insurance etc.
A major problem with managing inventory is that the demand for a
corporations product is to a degree uncertain. The supply of the raw materials used
in its production process is also somewhat uncertain. In addition the corporations
own production contains some degree of uncertainty due to possible equipment
breakdowns and labor difficulties.
Because of these possibilities, inventory acts as a shock absorber between
product demand and product supply. If product demand is greater than expected,
inventory can be depleted without losing sales until production can be stepped up
enough to select the unexpected demand.
However inventory is difficult to manage because it crosses so many lines of
responsibility. The purchasing manager is responsible for supplies of raw material
and would like to avoid shortages and to purchases in bulk order take advantages of
quantity discounts.
The production manager is responsible for uninterrupted production and wants
to have enough raw materials and work in process, inventory on hand to avoid
disruption in the production process. The marketing manager is responsible for
selling the product and wants to minimize the chances of running out of inventory.
The financial manager is concerned about achieving an appropriate overall rate of
return. Funds invested in an inventory are idle and do not earn a return.
Nature of Inventories
Inventories are stock of the product a company is manufacturing for sale
and components that make up the product. The various forms in which inventories
that exist in manufacturing company are
Raw materials
Siddartha Institute of Engineering & Technology

A study on Inventory Management


Work-in-process
Finished goods

RAW MATERIALS
These are those basic inputs that are converted into finished product through the
manufacturing process. Raw materials inventories are those units which have been
purchased and stored for future production.

WORK-IN-PROCESS
These inventories are semi-manufacture products. They represent products that
need more work before they became finished for sale.

FINISHED GOODS
These inventories are those completely manufactured products which are
ready for sale. Stocks of raw materials and work-in-process facilitate production
while stock of finished goods is required for smooth marketing operations. Thus,
inventories serve as link between the production and consumption of goods.

NEED TO HOLD INVENTORIES


Maintaining of inventories involves trying up the companies and incurrence
of storage and handling cost. There are three general motives for holding inventories.

TRANSACTION MOTIVE
It emphasizes the need to maintaining inventories to facilitate smooth
production and sales operation.

PRECAUTIONARY MOTIVE

Siddartha Institute of Engineering & Technology

A study on Inventory Management


It necessitates the holding of inventories to guard against risk of unpredictable
changes in demand and supply force and other factors.

SPECULATIVE INVENTORIES
It influences the decision to increase or reduce inventory level to take advantage
of price fluctuations.
The firm should always avoid a situation of over investment or under
investment in inventories.
The major dangers of over investment in inventories are
i. Unnecessary tie up of the funds and loss of profits.
ii. Excessive carrying cost.
iii. The risk of liquidity.
The consequences of under investment in inventories are
i. Production hold-ups
ii. Failure to meet delivery commitments. Inadequate raw
materials.
iii. Work-in-process will result in frequent in production interrupts.
AN EFFICIENT INVENTORY MANAGEMENT SHOULD

Ensure a continuous supply of raw materials to facilitate uninterrupted


production.
Maintain sufficient supply 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 transportation cost on time.
Control investment in inventories and keep it at an optimum level
COST OF HOLDING INVENTORIES
The determination of inventory cost is essentially an income measurement
problem, a means where by there is rational orderly, systematic interpretation of the
Siddartha Institute of Engineering & Technology

A study on Inventory Management


effect on the economic progress of the company of expenditures involved acquiring
goods or in maintaining and operating productive facilities. Ability to quantify and
develop rigorous models of most managerial problems is dependent on the
determination behavior of relevant costs. The practical application of such models is
also dependent on ability to obtain the cost data. Relevant inventory costs which
change with level of inventory are listed below.

ORDERING COSTS
Every order is placed for stock replenishment, certain cost are involved. The
ordering cost may vary, dependent upon type item.
This cost of ordering includes
Paper work cost, typing and dispatching order.
Follow-up costs the follow-up required ensure timely supplies include the
travel cost for purchases follow-up, telephone telex and postal bills.
Cost involved in receiving the order inception, checking and handling to the
stores.
Any set up cost of machines if charged by supplier, either directly indicated in
quotations or assessed thought quotations for various quantities.
The salaries and wages to the purchase department are relevant for
consideration if the purchasing function is carried out at the same level with
existing staff.
There are certain costs that remain the same regardless of the size of the lot
purchased or requisitioned. This would be retailer ordering from the distributor,
from the distributor ordering from a factory warehouse, for the factory warehouse
ordering a new production run from the factory, and for the factory ordering raw
materials from vendors. These kinds of costs are called preparation or set up
costs.
If we are ordering to replenish supplies at one stock point from another stock
point, our interest is in the incremental clerical costs of preparing orders,
following these orders. Expediting them when necessary, etc, a large segment of
Siddartha Institute of Engineering & Technology

A study on Inventory Management


the total cost of the ordering function is fixed, regardless of the number orders
issued. Even then it may be difficult determined satisfactorily the incremental
cost, which results from one more order. Quantity discounts and handling and
transport cost are other factors, which vary lot sizes.
Preparation cost are the incremental costs of planning production, writing
production orders, setting machines and controlling the flow orders through the
factory. Material handling cost in the plant have an effect on production lot sizes in
much the same way that freight costs may effect purchase lot sizes.
Besides the preparation costs of production, there are some other production costs,
which have a direct bearing on inventory models, however. These are over time
premiums and the incremental cost of changing production levels, such as hiring,
training, and separation costs.
Carrying costs
Carrying costs constitutes all the costs of holding items in inventory for a given period
of time. They are expressed either in rupees per period or as percentage of the
inventory value per period.
Components of these costs include the following
Storage and handling cost.
Obsolescence and deterioration costs
Insurance
Taxes
The cost of the funds invested in inventories
Storage and handling costs include the cost of warehouse space.
Obsolescence costs represent the decline in inventory value caused by style changes
that make the existing product less salvable.
Deterioration costs represent the decline in value caused by changes in the
physical quality of the inventory such as spoilage and breakage.

Siddartha Institute of Engineering & Technology

A study on Inventory Management


Another element of carrying cost is the cost of insuring the inventory against
losses due to theft, fire and natural disaster. In addition, a company must pay any
personal property taxes required by local and state government on the value of its
inventories.
Like ordering costs, inventory-carrying costs contain both fixed and variable
components. Most carrying costs vary with inventory level, but a certain portion of
them-such as warehouse rent and depreciation on inventory handling equipment- are
relatively fixed over the short run, inventory model such as EOQ model treat the
entire carrying cost as variable.
Stock out costs
Stocks out costs are incurred when ever a business is unable to fill orders
because the demand for an item is greater than the amount currently available in
inventory. When a stock out in raw materials occur, for example, stock out costs
include the expenses of placing special orders (back ordering) and delays. A stock out
in work in progress inventory results in additional costs of rescheduling and speeding
production with in the plant, and it also may result in reduce production costs if work
stoppages occur. Final, a stock out in finished goods inventory may result in the
immediate loss of profits of customers decide to purchase the product from the
competitor and in potential long-term losses if customers decide to order from other
companies in the future.
Other characteristics of inventory situations.

Besides the various types of costs

involved, there are other characteristics of the situation that vary among types of
inventory and must be captured if the decision model is to be an accurate
representation of the physical circumstances.

LEAD TIMES
Obtaining inventory usually requires a lag from the initiation of the process
until the inventory starts to arrive. This lead-time may be a few minutes or it may be
many months, and depends in part on whether the firm is producing goods for its

Siddartha Institute of Engineering & Technology

A study on Inventory Management


inventory or is ordering these goods from another firm. To produce goods for its own
use, the firm must schedule, set up and adjust manufacturing equipment.
SOURCES AND LEVELS OF RISK

Uncertainties play a significant role in inventory situations. Uncertainties


usually involve lead times and demand times and demand levels, but situations where
other variables are uncertain also occur. Where are substantial
uncertainties and where the costs of stock out are important Strategies for addressing
risk must be formulated?

STATIC VERSUS DYNAMIC PROBLEMS


Inventory problems are usually divided into two types based on the
characteristics of the goods involved. In static inventory problems, the goods have
one-period life; there can be carrying over of goods from one period to the next.
Inventory situations where decisions involve the number of news papers to print, the
number of greeting cards to purchase or the number of calendars to produce are static
inventory problems. In dynamic inventory problems, the goods have value beyond
the initial period; they do not lose their value completely over time.
Replenishment rate
Once goods start to be received from a vendor or from the firms own
production processes, there are differences among goods in the rate at which they are
received.

Small orders from vendors are likely to by receive all at once.

For

example, assume that a firm has placed in order for 10 cases of paper towels. For
such a small order the rate of replenishment is infinite; the firms inventories well go
up 10 cases in a very short time as the goods are quickly unloaded.
For large order from vendors, or for inventory produced with in the firm, the
replenishment rate may be slower.
Types of inventory

Siddartha Institute of Engineering & Technology

A study on Inventory Management


Inventories can be classified into five basic types on the basis of their production.
These various types of inventories cannot be identified and segregated within the
organization. These five types are
1. MANAGEMENT INVENTORY

They are needed because of the time required to move stocks from one place to
another place.

2. LOT SIZE INVENTORIES

These are as a result of buying materials in quantities larger than the


immediate requirement, with a view to minimizing cost of transportation, buying,
receipt and handling and to obtaining quantity discount.
3. FLUCTUATION INVENTORIES

These are carried to ensure ready suppliers to consumer even when these are
irregular and unpredictable fluctuations in their demand.
4. ANTICIPATION INVENTORIES

These are usually maintained to meet a predictable but changing pattern of


future

demand.

5. CYCLE INVENTORIES

These result from managements attempt to minimize the total cost of carrying
and ordering inventory. They arise from ordering in batches or lots, rather from
needed basis.
Inventories can be further classified into production inventories maintenance
repair and operation (MRO) inventories, in-process inventories and finished goods
inventories.

Production inventory consists of raw materials parts and components which


are used in the production process forming parts of the final product.

Siddartha Institute of Engineering & Technology

A study on Inventory Management

Maintenance, repair and operation supplies which are used in the production
of goods or services but do not become part of the product.

In-process inventories are semi-finished materials, parts and assemblies found


at various stages in the production operation.

Finished goods inventory consists of completed products ready for sale.

TECHNIQUES OF THE INVENTORY MANAGEMENT


1) ABC ANALYSES
The ABC method is an analytical method of stock control which aims at
concentrating efforts on those items where attention is needed most. It is based on the
premise that a small number of the items in inventory may typically represent the bulk
money value of the total materials used in production process. While a relatively
large number of items may represent a small portion of the money value of stores
used and that small number of items should be subject to the greatest degree of
continuous control.
Under this system, the materials stocked may be classified into a number of
categories according to their importance i.e., their value and frequency of
replenishment during a period. The first category, we may call it the group of A
items, may consist of only a small percentage of total items handled but its combined
value may be a large portion of the total stock value.
The second category, naming it as group of B items, may be relatively less
important. In the third category consisting of C items, all the remaining items of
stock may be included which are quite large in number but their value is not high.
Categories of ABC analysis
In ABC analysis the items are classified in three main categories based on
their respective consumption value.
Siddartha Institute of Engineering & Technology

A study on Inventory Management


1. Category A items:
The items, which are most costly and valuable, are classified as A nearly 10
percentage of the total number of items stored will account for 70 percentage
of total value of all items stocked.
2. Category B items:
The items having average consumption value are classified as B nearly20
percentage of total number of items will account for 20 percentage of total
value. Statistical sampling is general useful to control them.
3. Category C items:
The items having low consumption value are put in category C nearly 70
percentage of total number as items will account for 10 percentage total values.
Generally these items are slow and non-moving items in the stores, which are
frequently used for production process but with more quality.
2) VED CLASSIFICATION
This analysis is based on criticality of inventory, it is used to determine the
criticality of the item and its effect on production and other services .it is specially
used for classification of spare parts. If a part is vital, it is given V classification. if
essential ,then it is given E classification and if it is not essential the part is given D
classification for V items, a large stock of inventory is generally maintained ,these
item have immediate effect on production more attention paid for this item.
3) ECONOMIC ORDER QUANTITY
The economic order quantity is that inventory level, which minimizes the total
of ordering cost and carrying costs.
It is the question, how much to order the quantity when inventory is
replenished. If the firm is buying raw materials, the question is to purchase the
quantity of; each replenishment and if it has to plan for production run, it is how much
production to schedule. It may be solved through EOQ.

COST OF HOLDING INVENTORIES


Siddartha Institute of Engineering & Technology

A study on Inventory Management


The determination of inventory costs is essentially an income measurement
problem, a means whereby there is a rational, orderly, systematic interpretation of the
effect on the economic progress of the company of expenditures involved in acquiring
goods or in maintaining and operating productive facilitates. Ability to quantify and
develop rigors models of most managerial problems is dependent on the
determination of the behavior of relevant costs. The practical application of such
models is also dependent on ability to obtain the cost data. Relevant inventory costs
which change with the level of inventory are listed below.
Ordering cost:
Every time an order is placed for stock replenishment, certain costs are
involved. The ordering cost may vary, dependent upon the type of item. However, an
estimate of ordering cost can be obtained for a given range of items.
1. Paper work costs, typing and dispatching an order.
2. Follow up costs-the follow-up required to ensure timely to ensure timely
supplies include the travel cost for purchase followup, telephone, telex and
postal bills.
3. Cost involved in receiving the order inspection, checking and handling to the
stores.
4. Any set up cost of machines if charged by the supplier, either directly
indicated in quotations or assessed through quotations for various quantities.
5. The salaries wages to the purchase department are relevant for consideration if
the purchasing function is carried out at the same decreases significantly,
obviously a proportional amount of personnel will be transferred to other
departments.

CARRYING COSTS
Carrying costs constitute all the costs of holing items in inventory for a
given period of time. They are expressed either in rupees per unit per period or as a
percentage of the inventory value per period. Components of this cost include the
following.
1.Storage and Handling costs: It includes the cost of warehouse space.
Siddartha Institute of Engineering & Technology

A study on Inventory Management


1. Obsolescence and deterioration costs:Obsolescence costs represent the
decline in inventory value caused by technological or style changes that make
the existing product less salable. Deterioration costs represent the decline in
value caused by changes in the physical quality of the inventory, such as
spoilage and breakage.
2. Insurance: The inventory against losses due to the theft, fire, and natural
disaster.
3. Taxes: A company must pay any personal property taxes and business taxes
required by local and state governments on the value of its inventory.
4. The cost of funds invested in inventories: It is measured by the required rate
of return on these funds. Because inventory investments are likely to be of
average risk the overall weighted cost of capital should be used to measure
the cost of these funds.
5. Storage and Handling costs: It includes the cost of warehouse space.
EOQ for an item is arrived on the following assumptions
1. .Demand is continuous at a constant rate.
2. The process continues infinity.
3. No constraints are imposed on quantities ordered, storage capacity, budget
etc.,
4. Replenishment is instantaneous.
5. All costs are time invariant.
6. Units are not available.
EOQ for an item is arrived by the following formula
2 * AD* Co
CH

EOQ=
Where
EOQ=economic order quantity
Co=cost of ordering an order
AD= annual consumption of an item
Siddartha Institute of Engineering & Technology

A study on Inventory Management


CH=cost of carrying one unit/year
4) HML CLASSIFICATION
The high and medium and low (HML) classification follows the same
procedure as is adopted in ABC classification. Only difference is that in HML, the
classification

unit value is the criterion and not the annual consumption value. The

item of inventory should be listed to the descending order of unit value and it is up to
the management to fix limits for the three categories. For example, the

the

management may decided that all units with unit value of Rs.2000 and above will be
H items, Rs 1000 to 2000 M items

and less than Rs. 1000, l items. The HML

analyses is useful for keeping control over consumption at department levels for
deciding the frequency of physical , and for controlling purchases.
5) SDE CLASSIFICATION
The SDE classification is based upon the availability of items and is very
useful in the context of scarcity of supply. In this analysis, S refers to scarce items,
generally imported, and those which are in short. D refers to difficult items, which are
available indigenously but are difficult items to procure. Items which have to come
form distance places or for which reliable suppliers are difficult to come by, fall in to
D category. E refers to items which are easy to acquire and which are available in the
local strategies
The SDE classification. Based on problems faced in procurement, is vital to the leadtime analyses and in deciding on purchases strategies.
6) MINIMUM-MAXIMUM TECHNIQUE
The minimum maximum system is often used in connection with manual
inventory control system. The minimum quantity is established in the same way as
any re- order point. The maximum is the minimum quantity plus the optimum lot
size. In practice, a requisition is initiated when, a withdrawal reduces the inventory
below the minimum level, and the order quantity is the maximum minus the inventory
status after the withdrawal. If the final withdrawal reduce the stock

the stock

substantially below the minimum level, the order quantity will be higher than the
Siddartha Institute of Engineering & Technology

A study on Inventory Management


calculated EOQ. The effectiveness of a minimum system is determined by the method
and precision with which the minimum and maximum parameters are established
7) TWO BIN SYSTEM
One of the oldest systems of inventory control is the two-bin system, which is
mainly adopted to control C group inventories. In the two bin system. Stock of each
item is separated in to two bins. One bin contained stock; just enough to last from the
date a new order is placed until it is received in inventory. The other bin contains a
quantity of stock. When the first bin is empty, an order for replenishment is placed,
and although the system itself possesses a high degree of atomic, in practice, we need,
for such a system, the most desirable quantity to re-order is the EOQ. Since the
quantity to re-order is fixed in advance, initiation of replenishment action can be
delegated to the lower staff and there is need to take physical count of inventory
levels.

Siddartha Institute of Engineering & Technology