5.4 Inventory Magt

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AcknowledgementWe would like to express our profound gratitude to our project

guide Prof.KAMAL who has so ably guided our research project

with his vast fund of knowledge, advice and constant

encouragement, which made us, think past the difficulties and

lead us to successful completion of the project.

We have tried to cover all the aspects of the project & every care

has been taken to make the project faultless. We have tried to

write the project in our words as far as possible and simplified all

the concepts by presenting it in a different form.

Well be looking forward in future for such type of project. Weare eagerly waiting for fruitful comments & constructive

suggestions.

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GROUP NO-3COMPILED BY

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INDEX

SR NO TOPIC PG NO

1 INTRODUCTION 7-9

2 PURPOSE OF INVENTORY

MANAGEMENT

1O-14

3 OBJECTIVE OF INVENTORY

MANAGEMENT

15-17

4 IMPORTANCE OF INVENTORY

MANAGEMENT

18-24

5 FUNDAMENTAL APPROACHES

TO MANAGEMENT INVENTORY

25-29

6 COMMON COMPONENTS OF AN

INVENTORY MANAGEMENT SYSTEM

30-32

7 CLASSIFICATION OF INVENTORY 32-33

8 FUNCTIONS OF INVENTORY 34-37

9 ROLE OF FINANCE MANAGER

IN INVENTORY MANAGEMENT

38-46

10 CASE STUDY 47-48

11

BIBILIOGRAPHY 49

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INVENTORY:-

A tangible property held finished goods, work

in process, raw material including maintenance, and

consumables.

MEANING OF INVENTORY:-

The inventory refers to the stock pile of the

product a firm offering for sale the components that

make up the product. In other words, inventory is

composed of assets that will be sold in future in the

normal course of business operations. The assets which

firms store as inventory in anticipation of need can be

classified into

(1) raw materials

(2) work-in-progress(semi finished goods)

(3) finished goods

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(1).RAW MATERIALS:-

Inventory contains items are purchased by

the firm from others and are converted into finished

goods through the manufacturing process. They are

important inputs for the final product.

(2).WORK-IN-PROCESS:-

Inventory consists of items currently being

used in the production process. They are normally

partially or semi-finished goods that are at various

stages of production in a multi stage production

process.

(3).FINISHED GOODS:-

It represents final or completed products

which are available for sale, the inventory of such

goods consists of items that have been produced butare yet to be sold. The job of the final manager is to

reconcile the conflicting view points of the various

functional areas regarding the appropriate inventory

levels in order to fulfil the over all objectives of

maximizing the owners wealth.

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purpose of Inventory Management

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 Managementmust 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 manufacturingtechnology means many companies need to change their

Inventory Management approach and change the

process for Inventory Control.

Inventory Managementsystem provides information to

efficiently manage the flow of materials, effectively

utilize people and equipment, coordinate internalactivities 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.

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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. ThisInventory 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 procurementof 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 setsgoals. 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.

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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 manufacturersor their authorized dealers, who maintain Inventory on

our behalf and supply the items as and when required.

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 andInventory 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

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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:

SalesForecastingorDemandManagement

SalesandOperationsPlanning

Production Planning

Material Requirements Planning

Inventory Reduction

The emphases on each area will vary depending onthe company and how it operates, and what

requirements are placed on it due to market

demands. Each of the 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:

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The wrong quantities of the wrong items are

often found on warehouse shelves. Even though

there maybe a lot of surplus inventory and dead

stock in their warehouse(s), backorders andcustomer 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, are far less than what

could be earned if the money were invested

elsewhere.

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OBJECTIVES OF INVENTORY MANAGEMENT

The objectives of the inventory management

consist of two counter balancing parts:

a) to maximize the firms investment in inventory

b) To meet a demand for the product by efficiently

organizing the firms production and sales

operation.

These two conflicting objectives inventory management

can also be expressed in terms of cost and benefits

associated with inventory. An optimum level of

inventory should be determined on the basis of the

trade off between cost and benefits associated with

the levels of inventory.

The reasons for keeping stock

All these stock reasons can apply to any owner or

product stage.

Buffer stockis held in individual workstations against

the possibility that the upstream workstation may be a

little delayed in providing the next item for processing.

Whilst some processes carry very large buffer stocks,

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Toyota moved to one (or a few items) and has now

moved to eliminate this stock type.

Safety stockis held against process or machine failurein the hope/belief that the failure can be repaired

before the stock runs out. This type of stock can be

eliminated by programmes like Total Productive

Maintenance

Overproductionis held because the forecast and the

actual sales did not match. Making to order and JITeliminates this stock type.

Lot delay stockis held because a part of the process

is designed to work on a batch basis whilst only

processing items individually. Therefore each item of

the lot must wait for the whole lot to be processed

before moving to the next workstation. This can beeliminated by single piece working or a lot size of one.

Demand fluctuation stockis held where production

capacity is unable to flex with demand. Therefore a

stock is built in times of lower utilisation to be supplied

to customers when demand exceeds production

capacity. This can be eliminated by increasing theflexibility and capacity of a production line or reduced

by moving to item level load balancing.

Line balance stockis held because different sub-

processes in a line work at different rates. Therefore

stock will accumulate after a fast sub-process or

before a large lot size sub-process. Line balancing will

eliminate this stock type.

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Changeover stockis held after a sub-process that has

a long setup or change-over time. This stock is then

used while that change-over is happening.

Where these stocks contain the same or similar items

it is often the work practice to hold all these stocks

mixed together before or after the sub-process to

which they relate. This reduces costs. Because they

are mixed-up together there is no visual reminder to

operators of the adjacent sub-processes or line

management of the stock which is due to a particularcause and should be a particular individuals

responsibility with inevitable consequences. Some

plants have centralized stock holding across sub-

processes which makes the situation even more acute.

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IMPORTANCE OF INVENTORY MANAGEMENT

Inventory management refers to the process of

managing the stocks of finished products, semi-

finished products and raw materials by a firm.

Inventory management, if done properly, can bring

down costs and increase the revenue of a firm.

How much one should invest in inventory management?

The answer to this question depends on the volume andvalue of inventory as a percentage of the total assets

of a firm. The importance of inventory management

varies according to industries. For example, an

automobile dealer has very high inventories, sometimes

as high as 50 per cent of the total assets, whereas in

the hotel industry it may be as low as 2 to 5 per cent.The process of inventory management is a continuous

one and there are various kinds of solutions available.

It is advisable to employ specialized staff for

inventory management.

The inventory management process begins as soon as

one has started production and ordered raw materials,semi-finished products or any other thing from a

supplier. If you are a retailer, then this process begins

as soon you have placed your first order with the

wholesaler.

Once orders have been placed, there is generally a

short period of time available to a firm to put an

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inventory management plan in place before the supplies

are delivered. Inventory management helps a firm to

decide in advance where these supplies should be

stored. If a firm is getting supplies of small-sizedgoods, it may not be much of a problem to store them,

but in the case of large goods, one has to be careful so

that the warehousing space is optimally utilized.

From invoices to purchase orders, there is lot of

paperwork and documentation involved in inventory

management. Several software programs are availablein market, which help in inventory management.

Inventory plays cardinal role in every

organization. The profit of the organization mainly

depends on the inventory. Inventory is the second

largest value in the organization. It is the liquid asset

and the current asset of the organization. Inventory

storage is in important activity in the organization.

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NVENTORY MANAGEMENT

SOFTWARE (IMS)

The Inventory ManagementSoftware is designed specially to meet

the requirements of medium sized and

corporate enterprises. A well organized

Business house needs to maintain timely

and accurate information about receipt

of goods, Sale & Purchase, Disposition,

Goods Transfer, and status of stock

at any point of time. A precise

inventory control system is required to

manage the above operations smoothly

and accurately.

RG InfoTech Inventory ManagementSoftware (IMS) provides you this power

to control your inventory with

centralized stock information and easy

to comprehend operation interface. It

helps you track every significant piece of

information about each inventory item.

This provides you with the latest statusof your inventory and allows you to

effectively edit and update significant

information. It supports

full customizable company info, logo,

tax code and value, invoice number etc.

It has easy to create invoice, stock

balance & invoice management, item

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category management, staff sales

records and staff permission

management, backup and restore of

stock by its user friendly interface andfunctionalities.

KEY FEATURES:

Complete maintenance of information

on each inventory item.

Maintenance of componentinformation on each item.

Complete transaction history for

unlimited time period.

Support for multi user functionality.

Logical grouping of products according

to product type and storage location.

Effective and quick Invoice

generation.

Maintenance and creation of Receipts.

Stock balance and reorder

management.

Predefined and Customized (optional)

reports. Tracking of minimum stocking levels

through alerts.

Easy search options for inventory

items.

Support for partial payments.

Real time balance calculation for each

vendor and customer.

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Support for document printing.

Management report generation using

powerful report wizard.

Integration with bulk mailing softwarefor sending offers to customers

(OPTIONAL)

Integration for Barcode Reader

(OPTIONAL)

Inventory Management Software

Solutions IndiaLotus Notes Domino Workflow Application

developed by Himalayan IT Solutions has

several modules. The inventory module is a

good one to keep track of the records of

sale, purchase and dealer prices of all the

items stored in the system. The users can

draw the information based on the access

rights defined in the system when creating

an opportunity, quotation or invoice. With

this modern application the management of

inventory takes the easiest form. The

supply chain is kept up to date always and

the customers get no negative cueregarding the company's ability to

perform.

Our Lotus Notes Domino Workflow

Application has a collaborative interface

which is useful for any kind of

organizations. The managers as well as

other employees can draw the required

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information regarding inventory from the

database faster than all other methods

and the accuracy of data is fully

ensured .The speedy accession providesenough time to hold the customers. Lotus

Workflow Application is the most efficient

groupware system in the service of

business firms. It has been liked by big and

small companies alike.

The proper tracking of inventory is an

important part of business dealings as it

showcases a firms potential to serve the

customers. Lotus Workflow Application

takes into account every aspect of the

inventory management and holds up the

advantageous position of the organization

in the industry. Its use can create acontinuous supply chain with the minimum

effort and maximum conversion rate of

orders.

Lotus Notes Domino Workflow Application

brings to users the new age collaborative

interface cum web application system

highly customized and compatible for therequirements of the modern age

organizations. The flexibility and speed of

functions along with the highly effective

database management system makes the

administrative works less time consuming

and provides greater scope for activities

like customer care and implementation of

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new ideas. With its use the effective time

for business of the companies is bound to

increase in manifolds.

In the modern business world deliveryprocess takes several routes. The logistics

chain needs to be well maintained;

otherwise the companies have fear of

losing potential orders and a portion of

their profit. Our latest Notebook

Application is a ready at hand solution for

keeping every detail in the correct order

so that nothing important gets overlooked

during business dealings. This Application

on Inventory module provides the unique

opportunity to deal with work pressure and

remain mobile in the tidiest way.

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Fundamental approaches to managing Inventory

Traditional Inventory management has been deciding

how much to order? And when to order? But challengesof today require inventory managers to find answer to

the question where to stock the material as this

greatly influences customer satisfaction level. High

level of inventory indicates higher customer

satisfaction level, but cost of high inventory is

obviously high. Hence the modern challenge is high

customer satisfaction at minimum inventory.

Fixed Order Quantity Approach: Q model

The above approach also called Q model signifies that

the order quantity can be fixed at a level depending on

demand, value and inventory related costs. A stock

level called Re Order Level [ROL] is fixed, whichtriggers ordering. Re Order Level is the lead-time

consumption or product of lead-time and demand rate

during lead-time. When we follow this approach order

quantity is fixed by calculating EOQ and ROL is fixed

by calculating lead-time consumption. Inventory cycles

can be conceptualized by looking at the figure given

below and drawn in the class.

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Constant monitoring is the main disadvantage of this

model

Salient Features of the above approach

1. Widely used technique

2. Requires constant monitoring of stock levels

3. Suitable for high value and critical items

Limited by the assumptions made cost of in transit

inventory, volume transportation rates, use of private

carriage, etc

Economic Order Quantity and Economic Production

Quantity

Models for Inventory Management

Inventory control is concerned with minimizing thetotal cost of inventory. In the U.K. the term often used

is stock control. The three main factors in inventory

control decision making process are:

The cost of holding the stock (e.g., based on the

interest rate).

The cost of placing an order (e.g., for row materialstocks) or the set-up cost of production.

The cost of shortage, i.e., what is lost if the stock

is insufficient to meet all demand.

The third element is the most difficult to measure and

is often handled by establishing a "service level" policy,

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e. g, certain percentage of demand will be met from

stock without delay.

The ABC Classification The ABC classification systemis to grouping items according to annual sales volume, in

an attempt to identify the small number of items that

will account for most of the sales volume and that are

the most important ones to control for effective

inventory management.

Reorder Point: The inventory level R in which an orderis placed where R = D.L, D = demand rate (demand rate

period (day, week, etc), and L = lead time.

Safety Stock: Remaining inventory between the times

that an order is placed and when new stock is received.

If there are not enough inventories then a shortage

may occur.Safety stock is a hedge against running out of

inventory. It is an extra inventory to take care on

unexpected events. It is often called buffer stock. The

absence of inventory is called a shortage.

Quantity Discount Model Calculation Steps:

Compute EOQ for each quantity discount price.

Is computed EOQ in the discount range?

If not, use lowest cost quantity in the discount

range.

Compute Total Cost for EOQ or lowest cost

quantity in discount range.

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Select quantity with the lowest Total Cost,

including the cost of the items purchased.

ECONOMIC ORDER QUANTITY:-One of the inventory management problems

to be resolved is how much inventory should be added

when inventory is replenished. If the firm is buying raw

materials, it has to decide lots to in which it has to be

purchased on cash replenishment.

If the firm is planning production as per

schedule. These problems are called order quantity

problem and task of the firm is to determine optimum

inventory level involves two types of costs:

1. Ordering cost.

2. Carrying cost.

The economic order quantity is that inventory

level, which minimizes the total of ordering and

carrying costs.

Ordering costs:-

The term ordering cost is used in case of raw

materials (or supplies) and includes the entire costs of

acquiring raw materials. They include costs incurred in

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the following activities. requisitioning, purchase

ordering, transport receiving, inspecting and

storing(store placement), ordering cost increase in

proportion to the number of orders placed the critical

and staff costs, however, dont vary in proportion to

the number orders placed, and one view is that so long

as they are committed cost they need not to be

revoked in computing ordering cost.

Carrying costs:

Cost incurred for maintaining a given level of

inventory are called carrying cost, they include storage,

insurance, taxes, deterioration and obsolescences.

___________

____________________

2*quantity

required * ordering costEOQ (economic order quantity) =

------------------------------------------------

Carryi

ng cost

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What Are Common Components of an Inventory

Management System?

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Inventory Software

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Classification of Inventories

Production inventories

They represent raw materials, parts and components

that are used in the process of production. Production

inventories include

Standard industrial items purchased from outside (also

called bought outs)

Non-standard items (purchased items)

Special items manufactured in the factory itself (also

called works made parts or piece parts.

MRO inventories

They refer to the maintenance; repairs and operation

supplies, which are consumed during process of,

manufacture but do not become a part of the product.

In-process inventories

They represent items in the semi-finished condition

(i.e. items in the partially completed stage)

Goods-In-Transit

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They represent such materials, which have been paid

for but have not yet been received by the stores.

Risks of Holding Inventory

The holding of inventory creates the following risks

for a firm

The investments committed to a particular inventory

combination are not available for alternative uses for

the benefit of the firm. The risks in these case is due

to the interest cost incurred on this inventory until theinvestment is recovered, as also the opportunity cost

of profit which might have been made in alternative

investment

The inventory may be pilfered or lost

The inventory may become absolute and/ or useless

Determination of inventory is another risk for holding

inventory.

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Functions of Inventory

The necessity of holding inventory is due to the

following functions of inventory:

Specialization:

A firm can either produce all the required variety

products at a plant at one location, or, produce

different products at separate plant locations.Locating separately will enable the firm to select the

location of each different product manufacturing plant

based on the particular requirements of that product,

thus achieving specialization efficiencies like

geographical facilities and economies of scale. This

specialization approach creates inventory at diverse

locations. Also, pipeline inventories are created due totransport linkages required between different

manufacturing plants and with distribution warehouses.

Balancing supply and demand:

Demand depends upon the requirements of customers

relating to time and quantity of products, and is not inthe control of the producer. Supply, on the other hand

is under the producers control, but has to be

economized and also paced with the time and quantity

requirements of customer demand. In order to ensure

that customers are not dissatisfied when they demand

the required quantity of products, it is necessary to

have adequate inventory of products available at all

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times. This is the balancing inventory required due to

the different rates of manufacturing and consumption.

In case of seasonal products when production has to

take place for a longer period of time in advance of theseason, production throughout the year ensures lower

investments in production capacities while increasing

inventory. An example is the production of rainwear

throughout the year for the sales which will occur only

during the rainy season. Another example of balancing

is seasonal production during raw material availability

and year-round consumption, which also requires

inventory. The example of this is seasonal availability

of mango fruit and year-round consumption of mango

based products.

Economies of scale:

Economies of scale are obtained by holding largeinventories:(a) While purchasing, ordering in large

quantities provides cost economies and discounts; (b)

transportation economies are obtained by transporting

in larger quantities; and, (c) during manufacturing,

producing in economic batch quantities lower costs.

Overcoming uncertainty:

Safety stock of inventory is required to overcome

uncertainty of customer demand on the one hand; and,

purchasing, receiving, manufacturing, and order

processing delays on the other. Either of these may

result in shortages of products at the time of

customer requirements if adequate safety stock of

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material is not provided for. If such material stock

outs are not frequent occurrences, the customer may

look elsewhere leading to a last order at the very least,

or a lost customer. This uncertainty results in bufferstocks being created between (a) supplier and

purchasing, (b) purchasing and production, (c)

production and marketing, (d) marketing and

distribution, (e) distribution and intermediary, (f)

intermediary and customer, in order to avoid stock

outs.

Inventory Management and Inventory Control must be

designed to meet the dictates of the marketplace

and support the company's strategic plan. The many

changes in 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.

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,

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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 accurateand 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 theareas above will need to be addressed in some form

or another to have a successful program of Inventory

Management and Inventory Control.

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ROLE OF FINANCE MANAGER IN INVENTORY

MANAGEMENT

Optimum level of inventory and finding

ensures to the problems of EOQ are the recorder

point and the safety stock. These techniques are very

essential to economize the use of minimizing the total

inventory cost. The techniques of inventory

management are very useful in data mining. The cases

the board frame works for maintaining inventories.

To the majority of the companies, inventory represents

a substantial investment. Thus the goal of wealth

maximization is related to the financial manager has an

important role to play in the management of inventory.

Although it is not his responsibility to controlinventory. The financial should see that only an

optimum amount is invested in inventory. He should be

familiar with in inventory control techniques and ensure

that inventory is managed well. Effect would be reduce

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inventory investment and increase the firms prospects

of making profits.

Just-In-Time Inventory Management Strategy &

Lean Manufacturing

Overview of Just-in-Time Inventory Management

Just-in-time is a movement and idea that has gainedwide acceptance in the business community over the

past decade. As companies became more and more

competitive and the pressures from Japans continuous

improvement culture, other firms were forced to find

innovative ways to cut costs and compete. The idea

behind JIT, or lean manufacturing, is to have the

supplies a firm needs at the exact moment that theyare needed. In order to accomplish this goal a firm

must constantly be seeking ways to reduce waste and

enhance value. A recent survey of senior manufacturing

executives showed that 71% used some form of JIT in

their processes (Pragman). This simple statistic

illustrates that JIT is here to stay and also that firms

must constantly be searching for ways to cut costs andachieve an advantage. JIT is one way to achieve that

end result.

In order to understand how JIT works a common

vocabulary needs to be established from which to

further discuss the topic and gain insight into why somany firms have adopted it. As previously stated, one

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of the key components of JIT is to reduce waste and

add value. There are several activities that a company

must monitor as targets for reducing waste. Among

these are, excessive waste times, inflated inventories,unneeded people or material movement, unnecessary

processing steps, numerous variabilities throughout a

firm's activities and any other non-value adding

activity. A key example of this is a new plant that

Caterpillar is bringing on-line in the near future. By

reducing the number of times a bucket had to be

repositioned while it was being welded, Caterpillar was

able to reduce the amount of time the bucket spent in

the welding line, reduce labor costs by limiting idle time

at the welding station and increase the efficiency of

the entire manufacturing process.

The layout and inventories that are part of a JITstrategy may seem the most logical steps to reduce

waste and increase value. By simply redeveloping the

layout of certain facilities a firm can reduce the time it

takes for supplies to get to the next step in process

and cut costs associated with that movement. One way

to do this is to have work-in-progress close to the next

station in the manufacturing chain. Couple this withlowering inventories and a powerful combination is

formed to reduce costs. In lowering inventories a firm

can reap numerous benefits; batch sizes, set-up times

and safety stock are all reduced, ergo costs are

trimmed and value is added. But in order to achieve

these things a firm must be willing to accept the

problems that these actions can either uncover or

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create. Dell Computers participates in both of these

activities and they are now the industry leader. Dell has

warehouse space at their manufacturing facilities in

which suppliers keep parts directly on-site which is thequintessential JIT layout. In addition, Dell is constantly

working to achieve "JIT" inventories of only four days

and in doing so are constantly uncovering and solving

supply chain problems.

Going hand-in-hand with maintaining Just In Time

inventory levels is JIT scheduling. By working to reduce

inventory to the lowest possible working levels, a firm

must constantly be adjusting its schedule of ordering

and delivering. In doing so, communication both up and

down the supply chain is critical. Frequent orders are

placed for supplies and small production runs are

constantly being initiated. In order to achieve thisbreakneck pace of order/production schedule, a firm

must constantly be making small changes to

orders/production and recognize that kanbans are of

incredible importance.

Possibly the single piece of JIT that has the most

relevance to a study of supply chain management is thepartnerships that are essential to making JIT truly

work. A firm cannot implement a JIT system by itself;

it must have the complete cooperation of its entire

supply chain. The sheer amount of information that is

needed for a JIT system to operate well demands

partnerships to be formed and nurtured, almost to the

point at which an entire supply chain operates as one

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firm. Examples of these kinds of partnerships are

everywhere in today's business world. XYZ-Company

allows its key suppliers to work directly at their

manufacturing sites and place orders as needed for theparts that that supplier supplies. By example Dell has

its suppliers store raw materials directly at the

manufacturing plants.

Other concepts of Just In Time also need to be

introduced in order to have a discussion about what

truly makes Just In Time a worthy endeavor. By the

1980s the Japanese had achieved manufacturing

greatness by practicing continuous improvement, in that

a firm is constantly working to improve in every facet

of its business functions. To do this a firm must always

increase quality, look for innovative ways to solve

problems and increase focus on the quality of itssuppliers. All of these are cornerstones of a modern

JIT system. Lastly, getting the workforce to buy into a

JIT lean manufacturing system is important because

without the dedication of the workforce, any endeavor

is sure to fail. There are several ways to achieve

workforce commitment. A simple way is to cross train

the workforce members outside of their normalbusiness function and help increase an employee's

problem solving ability. In doing so a firm is empowering

its workforce to think about their function in a new way

while looking for ways to improve and giving them an

overall view of the entire firm, not just their single job.

When this is coupled with the support of management,

an increase in resources to solve problems, and an

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increase in employee roles and responsibility, a

workforce will feel empowered and work to make Just

In Time a success for the business.

Strengths of JIT

There is a lot of strength in incorporating JIT lean

manufacturing in a company. JIT makes production

operations more efficient, cost effective and customer

responsive. JIT allows manufacturers to purchase and

receive components just before they're needed on the

assembly line, thus relieving manufacturers of the cost

and burden of housing and managing idle parts. In that

respect, company spokesman for Dell Venancio

Figueroa, says "With our pull-to-order system, we've

been able to eliminate warehouses in our factories and

have improved factory output by double by addingproduction lines where warehouses used to be" (Songini,

2000). The benefit of carrying smaller amounts of

inbound, in-process, and finished goods inventory exists

regardless of the firm's operating context (size,

production technology, etc.). Just In Time appeals to

many companies because it helps prevent

manufacturers from being stuck with inventory thatmay become obsolete. JIT was initially developed and

justified based on cost reduction and quality

improvement dimensions. Now, companies view JIT as

providing an approach to achieving excellence in the

elimination of waste (thought of as all things that do

not add value to the product), as well as making the

company more responsive to short-term customer

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demand patterns.

JIT manufacturing can be a real money-saver for a

company. Companies are not only more responsive totheir customers, but they also have less capital tied up

in raw materials and finished goods inventory, allowing

companies to optimize their transportation and logistics

operations (UPS, 2003).

Overall, JIT manufacturing results in lower total

system costs and improved product quality. With JIT,

some plants have reduced inventory more than fifty-

percent and lead time more than eighty-percent

(Droge, 1998). JIT is lowering costs and inventory,

reducing waste, and raising the quality of products.

Weaknesses of JIT

Just as JIT has many strong points, there are

weaknesses as well. "In just-in-time, everything is very

interdependent. Everyone relies on everybody else"

(Greenberg, 2002). Because of this strong

interdependence with JIT, a weakness in the supply

chain caused by a JIT weakness can be very costly toall linked in the chain. JIT processes can be risky to

certain businesses and vulnerable to the supply chain in

situations such as labor strikes, interrupted supply

lines, market demand fluctuations, stock outs, lack of

communication upstream and downstream in the supply

chain and unforeseen production interruptions.

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Labor strikes, stock outs, and port lockouts can quickly

disrupt an entire supply chain while JIT processes are

in place. "Adhering to the just-in-time concept can be

expensive in times of emergency such as at ports"(Greenburg, 2002). When a ship arriving from Asia full

of supplies cannot make it to shore, the company using

JIT generally has very little inventory to compensate

for the emergency. This lack of inventory is exactly

what makes JIT so great to companies in reducing

costs, yet making it risky as well by in some cases not

having enough buffer inventories to react and keep the

supply chain moving.

Every year markets experience seasonal demand

fluctuations as well as fluctuations due to demand from

disasters or other unforeseen events. "Just-in-time

delivery leaves retailers and manufacturers with littleinventory as the holiday season approaches"

(Greenberg, 2002). Relying solely on JIT systems would

leave supply chains in shock due to the overwhelming

seasonal market demand at different times of the year

for seasonal products. Not all products should be

produced with JIT systems in place. Custom made

items will not work well with JIT as JIT systemsrespond best to mass produced and highly automated

production items.

Communication is king in a JIT rich supply chain. There

is a risk involved with JIT when there is a

communication breakdown and the company cannot get

the right amount of supplies needed to keep the just-

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in-time system running smoothly. Technology is playing

a big role in JIT number, however, the reliance on

technology can lead to breakdowns in the IT systems

that can be costly to work around and go back to the'pencil and paper' methods of doing supply/inventory

demand calculations. Companies should always have

backup systems in place to help thwart the possibility

of technology or communication breakdown.

Weaknesses in JIT systems are very important to

recognize. "From Cisco routers to Dell computers to the

Gap's leather pants, companies have found their just-

in-time manufacturing systems have let them down"

(Johnson, 2001). Companies must strongly evaluate the

pros and cons of implementing JIT systems. The

effects and risk to their supply chain must also be

heavily considered. Although JIT has its weaknesses, inmost cases, the benefits outweigh the risks to the JIT

enabled company. Planning for and recognizing when

things may go wrong with the JIT system are vital for

the success of JIT implementation across all areas of

supply chains.

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Case study

A Study on INVENTORY MANAGEMENT withreference to THE JAYPORE SUGARS COMPANY

LTD

Inventory constitutes the most significant part of

current assets of a large majority of companies in

India. On an average, inventories are approximately 60

percentages of current assets in public limitedcompanies in India. Because of the large size of

inventories maintained by firms; a considerable manage

of funds is required to be committed to them. A firm

neglecting the management of inventories will be

jeopardizing its long run profitability and may decree,

eg, 10to20 per cent with out any adverse effect on

production and sales.

Inventory consists of raw materials, packing materials,

consumables, stores and spares, work in process and

finished goods. The raw materials, work-in-process

goods, and completely finished goods that are

considered to be the portion of a businesss assets that

is ready or will be ready for sale. Inventory represents

one of the most important assets that most businesses

posses, because the turnover of inventory represents

one of the primary sources of revenue generation and

subsequent earnings for the companys share

holders/owners.

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Sugar industry is peculiar in nature i.e., the entire

production activity is carried on in about 4to5 months

period commencing from November and ending March.

Sugar cane is the major raw material for sugarproduction .sugar cane is an agricultural product and

the companys do not have 100 per cent control over

the supply of sugar cane to the sugar factories,

because of the yield of sugar cane depends on so many

climatic condition, which are beyond the control of

farmers and management.

Stocking of raw materials i.e., sugar cane is only

maximum of one days production requirement. Hence,

raw material stock as percentage to the total raw

material consumed will be taken out at the end of the

season and only little quantity is in working process

which will be reprocessed in the subsequent season.

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BIBILIOGRAPHY

Http://en.wikipedia.org/wiki/inventory

Http://www.finmanagementsource.com/categor

y/

Accounting-management/costaccounting/inventory management

Advanced financial management-m.com paper

2

(Sheth publication)

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http://en.wikipedia.org/wiki/inventoryhttp://www.finmanagementsource.com/category/http://www.finmanagementsource.com/category/http://en.wikipedia.org/wiki/inventoryhttp://www.finmanagementsource.com/category/http://www.finmanagementsource.com/category/


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5.4 Inventory Magt

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