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CHAPTER-1
INTRODUCTION
Roughly speaking, research on supply chain management has been mainly focused
on three major issues. One is the behavior of information flow; the second issue
deals with inventory management; the third issue is orientated to planning and
operations management. In this paper the second issue, namely inventory
management will be discussed. The author will follow the phases of classifying
inventory; Identify cost factors; Assess cost components; Calculate EOQ; Giving
suggestion and effect of inventory on supply chain will be discussed. The
conclusion is when optimizing the inventory management, both up stream and
downstream activities will run effectively.
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There is a Chinese proverb saying, “if you want to defeat an army, frustrate the
chief first.” It is also suitable for business fight. As a recently research shown,
inventory cost account for 30% of the total capital cost. As matter of fact,
successful inventory management is often the momentous symbol of competition
victory and a well run organization.
Inventory can range from raw materials, cash, finished goods, etc. Effective
inventory management will optimize the supply chain, eliminate cash flow and
reduce the possibility of occurrence on inventory shortage caused by variable
orders. Consequently, it is of utmost importance to optimize inventory
management to satisfy the company’s strategy goal.
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CHAPTER- 2
HISTORY
BACKGROUND
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example, Axsater, 2000a; Zipkin, 2000, and the cited references in them). The
third issue is orientated to planning and operations management of a supply chain
based on queuing systems. (See the most related works, for example, Raghavan
and Viswanadham, 2001; Song and Yao, 2002).In this paper the second issue,
namely inventory management will be discussed.
There is a Chinese proverb saying, “if you want to defeat an army, frustrate the
chieffirst.” It is also suitable for business fight. In the past few decades, scholars
gave ample attention about the impact of inventory on Supply Chain Management
(SCM).As a recently research shown, inventory cost account for 30% of the total
capital cost. As matter of fact, successful inventory management is often the
momentous symbol of competition victory and a well run organization.
Problem discussion
Inventory can range from raw materials, cash, finished goods, etc. Effective
inventory management will optimize the supply chain, eliminate cash flow and
reduce the possibility of occurrence on inventory shortage caused by variable
orders. Consequently, it is of utmost importance to optimize inventory
management to satisfy the company’s strategy goal. Lee et al. (1997) describe a
problem frequently encountered in supply chains, called the bullwhip effect:
demand variability increases as one move up the supply chain.
Problem presentation
A company may save logistics costs and simultaneously improve service levels by
redesigning its supply chain network. Unfortunately, because of the many complex
logistical issues involved, it is generally difficult to analyze large systems in their
entirety. Considering the uncertainty of lead time and demand, firms in practice
have to encounter decision making challenges to minimize the effect caused by
uncertainty in the most cost saving way. In manufacturing and planning safety
stocks and safety lead time is included in the systems. Safety stock is a buffer of
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stock above and beyond that needed to satisfy production and gross requirements.
Safety lead time is a procedure whereby purchase orders are released and
scheduled to be delivered one or more periods before necessary to satisfy
production or customer demand (Vollmann, Berry, Whybark, 1997).If uncertainty
of demand and lead time cannot be evaporating, can it be minimized? Reducing
lead time will eliminate uncertainty factor as well as more accurate demand
forecasting.
Problem formulation
When the firms improve their inventory management, what is the reaction of other
factors on supply chain? How to improve the inventory from cost effective
perspective?
Purpose
To understand the impact of inventory on supply chain.
To get the knowledge about how manufacturing firms deal with the inventory
from cost effective view.
In a broader point of view, it is a cost reduction procedure that can have an
impact on the economies of the company directly and on other department sin
directly.
Relevance
The relevance of this research is shown together with a motivation of why it is
important to do research within the area of inventory management. This study is
both theoretically and practically relevant because it involves a working procedure
of how to be more cost effective within inventory management. According to the
optimization of inventory management, production manager can easily coordinate
other department so as to improve supply chain to enhance the competition of the
firms.
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When it comes to dealing with inventory in your supply chain there is more to it
than just straight inventory management and replenishment. To reach the highest
service levels with the minimum amounts of inventory requires the use of an
advanced technique known as inventory optimization.
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CHAPTER-3
COMPANY PROFILE
HISTORY
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MISSION STATEMENT:
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India and has been functioning since then under various statutory obligations
and guidelines of MoP, MoI, MoEF, CEA, and MERC.
A proposed 440 kilovolt high power transmission line from Koradi to Bhusawal
would join Nagpur with Mumbai. KTPS campus also contains training institute of
MahaGenco for middle and senior level engineers, technicians and other staff.
KTPS is located on the northern side of Nagpur and is spread across an area of
30,337 km2. Koradi Thermal Power Station engaged in the business of generation
of electricity through coal based thermal process, is situated at about 11 Km North
of Nagpur on the N.H. No. 69. Coal for KTPS comes from various nearby
collieries of Western Coal Fields, Nagpur (WCL) located at Silewara, Pipla,
Patansaongi, Kamptee, Inder, Walni, Gondegaon and Saoner. These are at an
average distance of 10 kilometers (6 mi) away. The plant approximately requires
16,000 to 17,000 tonnes of coal per day.
The station is well equipped with modern days high end machinery, high
precision equipments for monitoring and measurements, auxiliaries, well equipped
software and hardware enabled services, digital control systems, fire fighting
systems, sophisticated pollution control systems, safety gadgets, fire monitoring &
prevention system, security services. The station also renders services for its
employees in way of residential premises, drinking water facilities, educational
facilities, library, recreational facilities and medical services at large. Also
facilities of canteen, guest house, and transport services are extended to the
visitors. Other curricular activities like drama competitions, sports activities,
external trainings, Environment day, Safety Day are carried out enthusiastically
and to enhance motivation among the employees.
The power generated by the station is transmitted over 400 KV & 220 KV
transmission lines to meet the power demand of the Parent State and neighboring
States.
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Based on its overall performance, the station has bagged the
meritorious National Awards viz. “Improvement in Generation of the Station” for
the years 1989, 1990, 1991 & 1995-96, “Reduction in furnace oil consumption”
for the Years 1993, 1994, 1995, 1996, 1997, 1998, 1999 & 2000. The station has to
its credit “Environmental Excellence Award” for the consecutive 4 years since
2004. The station has participated in various states/National level seminars of
Quality Forum of India, Hyderabad and bagged National recognition as well as
International recognition at Singapore in ITEX.
Formation of company
VISION
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GENERATING FOR GENERATIONS
* Endeavour to fully meet the future energy needs of the State and also create
sufficient spinning reserves through Organic Value enhancing growth initiatives;
* Diversify the energy portfolio to include solar, wind, gas, hydroelectric and
responsible fossil generation directed towards shrinking our carbon footprints;
* Strive to improve the quality of life for the people who live and work in our
operational territory and power plants vicinity.
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4 Paras TPS 1 * 55 305
1 * 250
5 Parli TPS 2 * 20 920
3 * 210
1 * 250
6 Khaparkheda TPS 4 * 210 840
7 Chandrapur TPS 4 * 210 2340
3 * 500
Hydro power StationS
8 Koyna Hydro Power Station 4 * 70 1920
8 * 80
4 * 250
Small Hydro Power Stations 424
Gas Based power Station
9 Uran G. T. 3 * 60 612
4 * 108
Waste Heat Recovery (WHR) 2 * 120 240
Total Installed Capacity of MSPGCL 9996
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PLANT IN OPERATING CONDITION
A proposed 440 kilovolt high power transmission line from Koradi to Bhusawal
would join Nagpur with Mumbai.
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CHAPTER-4
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RESEARCH METHODOLOGY
DATA COLLECTION
In any report data is very important since it provides the information needed for
analysis and interpretation. For this report two kinds of data are being used. They
are:
Primary data:
• Primary data are original data which are collected for first time for a
specific purpose.
• Primary data were collected from the most prominent category of
participants related to commodity market.
• Personal interview and telephonic interview were also taken. To maintain
the consistency they were asked similar set of questions and responses have
been collected.
Secondary Data:
The methodology used in this project is detailed analysis of published financials
by the company that is the Annual Report of the company. All the published data
has used to extract the effect of inventory level on the profitability of the company,
the source of data used in this study is secondary data.
• Books and Journals
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• Industry Reports
• Internet
METHOD APPROACHES
ABC ANALYSIS
The ABC analysis follows the general principle of pareto analysis (Wilfredo Italy,
1896) which states that “ if any series of elements to be controlled, then a small
portion of that series in terms of numbers will result in large portion in terms of
effect”.
The main idea behind the pareto analysis is that by doing 20% of work we can
generate 80% of the advantage of the entire job. Or in terms of quality
improvement, a large majority of problems (80%) are produced by a few key
causes (20%). This technique helps the individual to identify the top 20% of
causes that needs to be addressed to resolve the 80% of the problems. The
application of the Pareto analysis in risk management allows management to focus
on the 20% of the risks that have the most impact on the project.(source :
http://en.wikipedia.org/wiki/Pareto_analysis, 28 / 05 / 10)
ABC analysis can be defined as the analysis through which the materials can be
classified as per the annual usage value of the material under group A, B and C.
The group A consists of a very small portion of total number of items where as it
consists of a large value of the total stock. The group B consists of a very large
portion of total number of items and it consists of a very small value of the stock.
The group B items lies between group A items and group B items. The A group
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items needs careful attention by the material managerial while the C group items
require less attention by the material manager and the B group items lies under A
group items and B group items.
Limitations of ABC analysis : For the full and complete effect of ABC analysis
it should be carried out with standardization ad codification which is based on the
grading the items according to the importance of the performance of the item, that
is by VED (vital, essential and desirable) analysis.
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ECONOMIC ORDER QUANTITY (EOQ)
Economic Order Quantity is the calculating method used to determine the best
level of inventory for production while being the most cost effective for holding
and ordering. EOQ, as it is referred to, has been around since the rise of modern
manufacturing processes back in the early 20th century. The first model for
calculating EOQ was designed in 1913 by F.W. Harris.
What EOQ basically does is determine the best point where the costs for inventory
holding and ordering are at the lowest. This helps to determine the number of units
of stock to order to re-supply inventory without spending too much money on
overstock.
EOQ is not used in every type of business and industry. Most companies that deal
with large volumes of stock use a form of EOQ. It is common in manufacturing
where the ordering of stock is constant and repetitive. EOQ is primarily used for
purchase-to-stock distributors and make-to-stock manufacturers.
These are businesses that have multiple orders, release dates for their products,
and have to plan for their components.
Another type of business that uses EOQ are those that have maintenance, repair,
and operating inventory (or MRO). Businesses that have a steady demand for
stock are the most suitable for EOQ applications but some seasonal items can
benefit from the method, too.
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How to Calculate EOQ?
EOQ = 2DCo/Cc
Order Cost –This component is the sum of the fixed costs that occur every time an
item is ordered. They are not associated with the quantity ordered, only with the
actual physical act required to process the order. Also known as purchase cost or
set up cost.
Carrying Cost – This part is the financial costs of carrying and storing inventory at
or near the business. The amount is mostly made up of the costs associated with
physically storing the inventory and the financial investment for the inventory. It is
also referred to as holding cost.
The cause & effect diagram is the brainchild of Kaoru Ishikawa, who pioneered
quality management processes in the Kawasaki shipyards, and in the process
became one of the founding fathers of modern management. The cause and effect
diagram is used to explore all the potential or real causes (or inputs) that result in a
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single effect (or output). Causes are arranged according to their level of
importance or detail, resulting in a depiction of relationships and hierarchy of
events. This can help you search for root causes, identify areas where there may be
problems, and compare the relative importance of different causes.
Causes in a cause & effect diagram are frequently arranged into four major
categories. While these categories can be anything, you will often see:
These guidelines can be helpful but should not be used if they limit the diagram or
are inappropriate. The categories you use should suit your needs. At SkyMark, we
often create the branches of the cause and effect tree from the titles of the affinity
sets in a preceding affinity diagram.
The C&E diagram is also known as the fishbone diagram because it was drawn to
resemble the skeleton of a fish, with the main causal categories drawn as "bones"
attached to the spine of the fish, as shown below.
Cause & effect diagrams can also be drawn as tree diagrams, resembling a tree
turned on its side. From a single outcome or trunk, branches extend that represent
major categories of inputs or causes that create that single outcome. These large
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branches then lead to smaller and smaller branches of causes all the way down to
twigs at the ends. The tree structure has an advantage over the fishbone-style
diagram. As a fishbone diagram becomes more and more complex, it becomes
difficult to find and compare items that are the same distance from the effect
because they are dispersed over the diagram. With the tree structure, all items on
the same causal level are aligned vertically.
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MRP (MATERIAL REQUIREMENT PLANNING)
• Ensure materials and products are available for production and delivery to
customers.
• Maintain the lowest possible level of inventory.
• Plan manufacturing activities, delivery schedules and purchasing activities.
MRP uses the following elements to plan optimal inventory levels, purchases,
production schedules and more:
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b) Bill of Materials (BOM)
c) Quantity on Hand (QOH)
d) Part lead Times
e) Sales order Quantities / due dates
f) Purchase Order Quantities / Due dates
g) Scrap rates
Problems with MRP system : One of the main problem in the MRP system is
the integrity of the data i.e the link between each data i.e if there is any error in
inventory then the bill of material(BOM) data, production schedule and outputted
data(GIGO : Garbage in garbage will also be incorrect.
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Second problem is that the time taken by a company to manufacture the product as
per user specifies that the customer requires the product in a shorter period than
the period actually takes to manufacture it.
In warehousing JIT can be implemented because it is very easy to use. The items
can be split into two types :
The major items will be controlled by JIT as we earlier discussed the A group
items under ABC classification with the high usage, more consistant demand
patterns and significant benefits from inventory reduction. The cost savings
produced by JIT are discussed below :
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3. Discount on contracts can be very significant.
4. Careful planning so that delivery schedule is not altered in the last minute.
There are many problems that the majority of Indian industry are currently facing
and that problems to be tackled to implement JIT. Some of the problems are :
1. Reduction of set-up times.
2. Kanban System.
3. Delivery of exact quantity as per exact schedule.
4. Preventive maintenance.
5. Group technology.
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BULLWHIP EFFECT
The supply chain is a complex group of companies that move goods from
raw materials suppliers to finished goods retailers. These companies work together
when meeting consumer demand for a product; supply chains allow companies to
focus on their specific processes to maintain maximum probability. Unfortunately,
supply chains may stumble when market conditions change and consumer demand
shifts.
Definition
The bullwhip effect on the supply chain occurs when changes in consumer
demand causes the companies in a supply chain to order more goods to meet the
new demand. The bullwhip effect usually flows up the supply chain, starting with
the retailer, wholesaler, distributor, manufacturer and then the raw materials
supplier. This effect can be observed through most supply chains across several
industries; it occurs because the demand for goods is based on demand forecasts
from companies, rather than actual consumer demand.
o Forecasting Errors
When companies enter new products into the marketplace, they estimate the
demand of the good based on current market conditions. Most companies in the
supply order more than they can sell, attempting to prevent shortages and lost sales
of goods. This "extra" inventory begins to increase or decrease during the normal
market fluctuations of supply and demand. When demand increases, the
companies closest to the consumer will increase inventory to meet the consumer
demand. When the demand falls, the front-end of the supply chain will decrease
inventory, amplifying the extra inventory on each company up the supply chain.
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o Behavioral Causes
Another major behavioral effect is the ordering of too much inventory when
consumer demand has fallen for an item. Retailers may have raised their inventory
levels to avoid a stock-out but are now met with goods that cannot be sold quickly.
This creates overstock of inventory for each supply chain company.
o Operational Causes
The main operational cause of the bullwhip effect comes from individual demand
forecasts from each company in the supply chain. This causes an increase in
demand from companies in the supply chain, but not the actual consumers who
will purchase the goods. A lack of communication is also prevalent during
operational causes; companies may not supply information up the supply chain
regarding current market conditions, causing improper levels of inventory.
o Corrective Measures
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CHAPTER-5
INVENTORY MANAGEMENT
DEFINATION AND PURPOSE OF INVENTORY
Inventory is the stock of any item or resource used in an organization. An
inventory system is the set of policies and controls that monitor levels of inventory
and determine what levels should be maintained, when stock should be
replenished, and how large orders should be.
All firms (including JIT operations) keep a supply of inventory for the following
reasons:
To maintain independence of operations: A supply of materials at a work center
allows that center flexibility in operation. For example, because there are costs for
making each new production setup, this inventory allows management to reduce
the number of setups.
Independence of workstations is desirable on assembly lines as well. The time that
it takes to do identical operations will naturally vary from one unit to the next.
Therefore, it is desirable to have a cushion of several parts within the workstation
so that shorter performance times can compensate for longer performance times.
This way the average output can be fairly stable.
To meet variation in product demand: If the demand for the product is known
precisely, it may be possible to produce the product to exactly meet the demand.
Usually, however, demand is not completely known, and a safety or buffer stock
must be maintained to absorb variation.
To allow flexibility in production scheduling: A stock of inventory relieves the
pressure on the production system to get the goods out. This causes longer lead
times, which permit production planning for smoother flow and lower cost
operation through larger lot size production. High setup costs, for example, favor
producing a larger number of units once the setup has been made.
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To provide a safeguard for variation in raw material delivery time: When
material in ordered from a vendor, delays can occur for a variety of reasons: a
normal variation in shipping time, a shortage of material at the vendor’s plant
causing backlogs, an unexpected strike at the vendor’s plant or at one of the
shipping companies, a lost order, or a shipment of incorrect or defective material.
To take advantage of economic purchase order size: There are costs to place an
order: labor, phone calls, typing, postage, and so on. Therefore, the larger each
order is, the fewer the orders that need be written. Also, shipping costs favor larger
orders –the larger the shipment, the lower the per unit cost.
For each of the preceding reasons (especially for items 3, 4, and 5), be aware that
inventory is costly and large amounts are generally undesirable. Long cycle times
are caused by large amounts of inventory and are undesirable as well.
INVENTORY COSTS
Inventory costs are important for three major reasons. First, inventory costs
represent a significant component of total logistics costs in many companies.
Second, the inventory levels that a firm maintains at points in its logistics system
will affect the level of service the firm can provide to its customers. Third, cost
tradeoff decisions in logistics frequently depend upon and ultimately affect
inventory carrying costs.
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that holding excessive inventory provides no value added to the firm. The
company must consider what rate
of return it is sacrificing on the cash invested in inventory.
Storage Space Cost. This category includes handling costs associated with
moving products into and out of inventory, and storage costs such as rent, heating,
and lighting. Such costs may vary considerably from one circumstance to the next.
For example, firms can often unload raw materials directly from railcars and store
them outside, whereas finished goods typically require safer handling and more
sophisticated storage facilities.
Inventory Service Cost. Another component of inventory carrying cost includes
insurance and taxes. Depending upon the product value and type, the risk of loss
or damage may require high insurance premiums. In most cases, there will be few,
if any, significant changes from year to year in the tax and insurance components
of the inventory carrying cost.
Order/Setup Cost
A second cost affecting total inventory cost is ordering cost or setup cost. Ordering
cost refers to the expense of placing an order for additional inventory, and does not
include the cost or expense of the product itself. Setup cost refers more
specifically to the expense of changing or modifying a production or assembly
process to facilitate product line changeovers.
Order cost. The costs associated with ordering or acquiring inventory have both
fixed and variable components . The fixed element may refer to the cost of the
information system, facilities, and technology available to facilitate order
placement activities. This fixed remains constant in relation to the number of
orders placed. There are also a number of costs that vary in relation to the number
of orders that are placed for more inventories. Some of the types of activities that
may be responsible for these costs include (1) reviewing inventory stock levels;
(2) preparing and processing order requisitions or purchase orders; (3) preparing
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and processing receiving reports; (4) checking and inspecting stock prior to
placement in inventory; (5) preparing and processing payment.
Setup Cost. Production setup costs may be more obvious than ordering or
acquisition costs. Setup costs are expenses incurred each time a firm modifies a
production line to produce a different item for inventory. The fixed portion of
setup cost might include use of the capital equipment needed to change over
production facilities, while the variable expense might include the personnel costs
incurred in the process of modifying or changing the production line.
DEMAND MANAGEMENT
Demand generates forecasts based on sales history, currently scheduled orders,
scheduled marketing activities and customer information (Veinott 1966). Ideally,
demand management works collaboratively and interactively both internally
across the firm’s functional components and externally with supply chain partners
to develop a common and consistent forecast for each item period, location and
item.
The forecast must also incorporate feedback from customers to integrate the
influence of combined demand generation activities such as advertising and
promotion. Practically, demand management and forecasting are closely related,
and forecasting is an extensive topic in itself (Bowersox at al., 2002).
Demand forecasting is a critical tool in the management toolbox. Because the
mostly widely cited reasons for forecasting include:
Increase customer satisfaction
Reduce stock out
Scheduling production more efficiently
Lowering safety stock requirements
Reducing product obsolescence costs
Managing shipping better
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Improving pricing and promotion management
Making more informed pricing decisions
And above reasons are essential to management decision making.
The forecasting time frames are:
(1) long term forecasts, usually cover more than three years and are used for long
rang planning and strategic issues.
(2) Midrange forecasts usually range from one to three years and address
budgeting issues and sales plans.
(3) Short term forecasts are most important for the operational logistics planning
process. They
project demand into the next several months and, in some cases, more than a year
ahead (Chien 1989).
TRANSPORTATION
A major focus in logistics is upon the physical movement or flow of goods, or
upon the network that moves the product. The logistics manager is responsible for
selecting the mode or modes of transportation used in moving the raw materials or
for developing private transportation as an alternative. A direct relationship exists
between transportation and the level of inventory and number of warehouses
required (Aghezzaf 2001). For example, if firms use a relatively slow means of
transport, they usually have to keep higher inventory levels and usually have more
warehousing space for this inventory. They may examine the possibility of using
faster transport to eliminate some of theses warehouses and the inventory stored
therein. One reason companies may accumulate inventories of finished or semi-
finished product is similar to a reason for accumulating raw materials:
transportation
economies (Jaillet 1997). By shipping in carloads or truckload quantities rather
than less than carloads
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or less than truckload quantities, a company may experience lower per unit
transportation rates. As long as the transportation cost savings exceed any
expenses associated with warehousing the additional volumes of product, it will be
advantageous to ship in the larger quantities. Also, shipments in large volumes
may experience better service, such as faster transit times and more reliable and
consistent service. These results will help to reduce other costs such as in transit
inventory carrying cost and potential costs of lost sales due to product
unavailability at point of sale or use.
WAREHOUSING AND STORAGE
Warehousing is an integral part of every logistics system. We can define
warehousing as that part of a firm’s logistics system that stores products (raw
materials, parts, goods in process, finished goods) at and between point of origin
and point of consumption of items being stored (Richard 1995). The term
distribution centre (DC) is sometimes used, but the terms are not identical.
Warehouse is the more generic term. With an increasing interest in improving
inventory turns and reducing time to market, the role of distribution increasingly
focuses on filling orders rapidly and efficiently.
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CHAPTER-6
INVENTORY MANAGEMENT
Inventories are any resources which is having an economic value like the
inventory which consists of raw materials, work-in-progress, finished goods
consumables and stores. Thus, inventory management is all about the process of
planning , maintaining an controlling the available resources. The inventory
process is used in the various stages of the operation system of the organization.
Materials, manufacturing and marketing departments are the three operating
subsystems while Finance and Human Resource departments are the non -
operating subsystems. The material subsystem deals with the procurement of raw
materials, manufacturing subsystems converts the raw materials into final finished
product and finally the marketing subsystem sells the finished product and Finance
an Human Resource departments are the need of these three operating subsystems
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For the good performance of business activities of any Organization, the capital
raised by the firm is invested in current assets as well as in fixed assets. The
portion of the Capital invested in current assets is known as Working Capital and a
large amount of this working capital is included by Inventories. The 80% of
working capital are the inventories are like raw materials, work-in-progress,
components, stores, spares etc. To maintain a good financial management in the
company it must have a very good inventory management. “when you need
money, look at your inventories before you look to your bankers". This can be
achieved with the given amount of capital either by maximizing the output or by
maximizing the margin of profit or by the combination of both. It is also difficult
to raise the profit margin to a very a high limit due to excessive competition. Thus
the overall capital and the productivity of capital does not match. Several special
and modern techniques are developed and used by the managers. Among these
methods the most unique and the best one is the inventory management.
One of the analytical aspects of the management is the concepts of the inventory
management. The inventory management involves optimization of available
resources along with the holding of stocks. Lack of inventory can lead to to
stoppage of the production process and excess of inventory can cause a very high
cost of production which is because of high inventory carrying cost. Thus,
optimization of inventory should ensure that the available stocks are neither too
high nor too low.
This project is aimed to show how good inventory control can be used in practice.
It will cover the working of the engine which means that how inventory control
techniques will work, how to use this inventory control techniques and how and
how to get the best out of the inventory control techniques vehicle i.e how to
optimize the available resources. This project may develop a solutions for
lowering the inventory overhead, nourishing the present customer relationship and
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increasing the productivity and performance level of the company. These
techniques are under usage as per the requirement of stores operations of , which
can be applied to a number of situations, from manufacturing and distribution to
warehousing, consumable stores, and spares and service.
DEMAND MANAGEMENT:
The purchase people used to divide the annual target into 4 small targets of 3
months each i.e into quarters and then they procure the material according to the
requirement in the quarter.
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LOGISTICS SYSTEM:
KTPS does not have any critical margins because if the company went out of stock
would the production not going on. When there is time for budget proposition, the
company looks if the stock of raw material is enough for the planned activity. If
the stock is not enough then they have to order the raw materials which time of
delivery is very long and for the raw material which requires less time will be
ordered according to the need. The time that the finished product or the double
rolling bale press takes for it to reach the company it is depending on the which
transportation mode is being used. KTPS uses the different modes of
transportation according to the destination of the delivery of the finished product.
Logistics Model:
Inbound Outbound
Logistics Logistics
Suppliers Company Customer
Reverse Logistics
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PROCUREMENT:
The above table shows the comparison of a single product of “BEARING 51240”
of two companies Maharashtra bearing and Newage bearing. This comparison
gives the detailed information to the purchase department that what sort of
decisions they have to take and in which company's material they have to invest
the money.
As it is shown in the above table, first it is compared with its basic rates i.e the rate
which is fixed by the company to sell. The basic rate of Bearing 51240 of
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Maharashtra Bearing Company is Rs 11,000 where as the basic rates of Bearing
51240 of Newage Bearing is Rs 12,500. so in the first step itself the company gets
to know that the Bearing 51240 manufactured by Newage Bearing Company is
much expensive than the Bearing manufactured by Maharashtra Bearing company.
Now secondly it is observed that whether the company is providing any discount
or not and if the company is providing any discount then the discounted value is
formed from the basic rate, for example : the Maharashtra Bearing is not providing
any discount while the Newage company is providing 5% discount.
Finally the companies are compared with the other parameters like Packaging and
Forwarding(P&F)(%), Excise duty, VAT/CAST, Freight charges and Other
Charges.
Bajaj steel ind. ltd. uses no. of suppliers when it comes to raw material deliveries,
and the most important selection criteria they use are the cheapest suppliers gets
the delivery and BSIL have an independent controller to check every delivery that
arrives to the company. BSIL has some quality requirements.
To secure the delivery to BSIL they use suppliers from the local market or from
the outside state and sometimes import the raw material. They also have a system
where the spread the contract period for all the suppliers so the don’t need to
negotiate with all the suppliers at the same time. With this system the always have
contracted suppliers that are committed to deliver raw material.
The main role of Purchasing process is to make sure about the continuous supply
of raw materials such that there is no hurdle in the production process and the
procurement of raw materials at the lowest cost possible. A good purchasing
policy not only deals with the good procurement policy but it also ensures the cost
of finished goods i.e the cost of final products at the lowest cost possible. For
ensuring this policies it deals with a large number of parameters as : right price,
right quality, right time, right contracts, right source , right material , right place ,
right mode of transportation, right quantity and right attitude.
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Good purchasing depends upon how better the inventory is controlled, a statement
of inventory control in the form of example is shown above . Here a group of
mechanical materials are mentioned in the statement with specifications along
with the sap codes, quantity as per requirement 15, 20, 10, 30 and planning as per
the different models of the machines as : 10BP, 15BP, 20BP 32BP, total
requirement of material, usage per month, usage per week, minimum inventory,
maximum inventory, lead time, category, stock, order quantity, intimation.
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47
CHAPTER-7
In this project first we classify these raw materials by ABC analysis i.e assigning
the given materials into class A, class B and class C as per the priority of the
annual usage value of the material.
Example : The ABC analysis of miscellaneous items from the raw materials of
Electrical maintenance section of stage 1,koradi thermal power station .
c
a
t
Sr. Item Code e
E-Tendering Item Code Item Description For PPMS / Local Code
No PPMS/Local g
o
r
y
17561204 C
1
0 40 WATT FLOURESCENT TUBE ,230V,50 HZ.
19021039 059-01-001-006- LIGHTING ARRESTORS RATING 198 KV, 10 A
2
0 0001 KA
81000302 A
3
6 ARM
81000302 A
4
7 ARM
86003991 B
5
5 COOLING FANS FOR L T MOTORS
120 MW GENERATER EXCITER CARBON A
6 61302832 022-05-001-001- BRUSH( LHS) SIZE 57 X 31.75 X 9.5
5 0001 mm.GRADE E-49(I).
120 MW GENERATOR EXCITER CARBON A
7 61302832 022-05-001-001- BRUSH( RHS) SIZE 57 X 31.75 X 9.5
6 0001 mm.GRADE E-49(I).
078-02-001-001- C
8
61501050 0010 Acetone AR grade in 500 ml
078-01-001-005- C
9
6211101 0014 Araldite 180 gms set
06150105 078-01-001-004- B
10
0 0010 Adhesive Dentrite in 500 ml Tin
06251140 078-01-001-002- B
11
1 0017 M seal 1 KG PACK
48
06151205 078-02-020-001- C
12
0 0001 Liquid Soap in 500 ml pack
25253005 001-04-003-003- Emery Paper Cloth Roll (Fine) Size 50mm x C
13
0 0001 50 Mtrs
38500200 C
14
2 027-10-001-600-01 NEOPRENE RUBBER SHEET 2MM THICK
38500200 027-10-001-008- C
15
4 0001 NEOPRENE RUBBER SHEET 4 MM THICK..
16705302 027-08-001-005- B
16
0 0001 CORK SHEET SIZE : 900 x 600 x 2 mm
16705303 027-08-001-006- B
17
0 0001 CORK SHEET SIZE : 900 x 600 x 3 mm
29710420 114-19-006-001- A
18
8 0020 Washer (Thickness 1.5 to 2 mm,size 8 mm)
29710421 114-19-006-001- Washer (Thickness 1.5 to 2 mm,size 10 A
19
0 0001 mm)
86003902 C
20
7 D.C. SEAL OIL PUMP MOTOR ,5 KW
86003902 D.C. LUB.OIL PUMP MOTOR FOR U-1 & U-2, C
21
8 17 KW.
storage
personnel power
Inventory
cost rent
Carrying
cost
increase
taxes
Inventory risk
insurance damage
spoilage
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security relocation obsolescence
Inventory
review
For the identified cost elements, the next step involved calculation and assessment
of each item.
Material handing: Material handling of raw material from the loading truck to
the storage space required to keep the material at proper place at warehouse.
50
Carrying cost factor:
Capital cost: The company had a mean inventory value of 111417903.46 crore in
raw material.
Storage space cost: The cost of salary for the storage personnel is also included in
the carrying cost. Personnel costs for facility maintenance, inventory review, and
internal transportation are though already considered.
Inventory risk cost: First, there is no obsolescence concept for the BSIL. It is of
no necessary to consider about this part.
APPLICATION OF EOQ:
EOQ only applies where the demand for a product is constant over the year and
that each new order is delivered in full when the inventory reaches zero. There is a
fixed cost charged for each order placed, regardless of the number of units
ordered. There is also a holding or storage cost for each unit held in storage
(sometimes expressed as a percentage of the purchase cost of the item).
We want to determine the optimal number of units of the product to order so that
we minimize the total cost associated with the purchase, delivery and storage of
the product.
The required parameters to the solution are the total demand for the year, the
purchase cost for each item, the fixed cost to place the order and the storage cost
for each item per year. Note that the number of times an order is placed will also
51
affect the total cost, however, this number can be determined from the other
parameters.
Calculations:
1) Here we take the example of one of raw material i.e. Carbon brush
Annual demand, D = 4800 Units per year
Unit cost of product = Rs 400
Carrying cost, Cc = 20% of unit cost = Rs 80
Ordering cost, Co = Rs200
Now,
EOQ = √2DCo/Cc
If we check the total cost for any order quantity other than 155(=EOQ), we will
see that the cost is higher. For instance, supposing 200 units per order, then
Total cost
52
= 400*4800 + 200 (4800/200) + 80 (200/2)
= Rs 1932800 (approx.)
Similarly, if we choose 100 for the order quantity then
Total cost
= 400*4800 + 200 (4800/100) + 80 (100/2)
= Rs 1933600 (approx.)
This illustrates that the Economic Order Quantity is always in the best interests
of the entity.
53
CHAPTER-8
54
RESULT
Here we decrease the ordering time by increasing the quantity of raw material by
calculating the economic order quantity with the optimal cost associated with it.
The optimization of inventory control drives the supply chain cost effectively.
According to raising the quantities of each ordering time, the company can hold
more inventories during a period of two reorder points. Now maybe someone is
doubtful of the problem of storage space. But the variability figure of inventory
after optimization just swing at a low level. The company is easily going to deal
with it.
By using the method of decreasing ordering times and rising quantities, the
company may optimize their whole supply chain. Firstly, cost of procurement and
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inventory review go down. The situations of using safety stock correspondingly
eliminate. Then the production line can run smoothly. Also, by keeping some
excess inventory in field warehouse locations, companies can respond quickly to
meet unexpected demand.
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advantageous to ship in the larger quantities. Also, shipments in large volumes
may experience better service, such as faster transit times and more reliable and
consistent service. It is of a main element as to the company. These results will
help to reduce other costs such as intransit inventory carrying cost and potential
costs of lost sales due to product unavailability at point of sale or use.
Warehousing and storage
If the company uses the method of reducing the ordering times, it will affect the
warehousing and storage somewhat. But the trend of the number of customer sin
creases obviously. Customer service polices, such as a 24hourdelivery standard,
may require a number of field warehouses in order to minimize total costs while
achieving the standard. By keeping some excess inventory in field warehouse
locations, companies can respond quickly to meet unexpected demand. In
addition, excess inventory allows manufacturers to fill customer orders when
shipments to restock the field warehouses arrive late.
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58
CHAPTER-9
RECOMMENDATION
By and large, the company has a good leader of the inventory control. But it is
better to help other assistant involving this activity. Following tips may give
inspiration to the case company:
INVENTORY CONTROL:
The company can adjust the inventory level properly. When calculating the
cost, it is better to use unification units. For example, units of material handling
and payment cost calculation are trucks. And the unit of material demand is tons.
Sometimes it will cause inaccurate of the cost calculation.
ATTITUDE:
Maintaining inventory accuracy must be an integral part of the attitude of
the organization. Like quality, customer service, and plant safety, accuracy must be
promoted throughout the organization as everyone's responsibility. This attitude
must start at the top levels.
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STORAGE AREAS:
How you store your product will also affect accuracy. Crowded
unorganized areas become "black holes" for missing product. Crowded areas also
cause increase damage to product that is often disposed of without inventory
corrections being made. High density storage makes it very difficult to accurately
count the product. Tidying up locations of materials are necessary.
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61
CHAPTER-10
CONCLUSION
• Electrical maintenance section of KTPS deals with the inventory from cost-
effective view with the application of the economic order quantity (EOQ).
62
BIBLIOGRAPHY
63
BOOKS
WEBSITES
1) http://www.entrepreneur.com
2) www.google.com
3) www.wikipedia.com
4) http://as.wiley.com/WileyCDA/WileyTitle/productCd-0471253413.html
5) http://www.cmu.edu/policies/documents/Purchasing.html
6) http://books.google.co.in/books?
id=QseYtErYgBoC&lpg=PA56&dq=project%20report%20on
%20inventory%20management%20best
%20practices&pg=PP1#v=onepage&q&f=false
7) http://www.greentree.com/Product_sheets/manufacturing_mrp_and_forecas
ting.pdf
8) http://www.inventorysolutions.org/def_mrp.htm
9) http://www.mirrorservice.org/sites/home.ubalt.edu/ntsbarsh/Business-
stat/otherapplets/Inventory.htm
64
65
ANNEXURE
QUESTIONNAIRE FOR COMPANY
1. Has any previous research carried out on this topic by the company?
a) Yes b) No
3. How successful do you think is your company in managing its supply chain
in general?
a) Not successful at all b) Not successful
6. Are your customer satisfied with the product delivery and scheduling?
a) Very much satisfied b) Satisfied
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7. How many customers are satisfied with your product transportation services
in this year?
(2010)?
a) Below 30 % b) 30% to 50%
c) Suppliers d) Other
_____________________________________________________________
67