“TO INTRODUCE ABC INVENTORY CONTROL TECHNIQUE IN SARK CABLES PVT.LTD, KANJICODE, PALAKKAD”

Minor project Report

Submitted to University of Calicut

By

Rajeswari.B, (Reg. No LCAL MBA 056) IIIrd Semester MBA (2011-13),

LEAD College of Management, Palghat

Name of Guide

Mr.Arun.V

Assistant Professor,

LEAD College of Management, Palghat

November 2012

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DECLARATION

I, RAJESWARI.B do hereby that this project work entitled “To Introduce ABC Inventory Techniques In Sark Cables For Better Control Of The Stock” is a confide work done by me during my period of study at Lead College Of Management Doni, Palakkad and is submitted in partial fulfillment of the requirement for the award of the post graduate degree of Master Of Business Administration.

Place: Rajeswari.B

Date: Signature

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Chapter No. Title Page No.

1. INTRODUCTION 5-15

2. LITERATURE REVIEW 16-20

3&4. DATA COLLECTION AND DATA TABULATION 21-45

5. FINDINGS, RECOMMENDATIONS AND EXECUTIVE SUMMARY 46-50

BIBLIOGRAPHY 51APPENDIX

S

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ACKNOWLEDGMENT

I take this opportunity first and foremost to thank god almighty, without whose blessings and guidance this work would not have been completed.

I have immense pleasure in acknowledging my heartfelt gratitude to Sri. K.V. Unninarayanan, principal of Lead College of Management, Dhoni Palakkad, for his sound advice whole hearted support.

I am deeply indebted of thank Sri. Arun Velayudhan, assistant professor of Lead College of Management, who gave me valuable advice and guidance to make my project a success.

I am grateful to the management of Sark Cables Pvt. Ltd., Kanjikode, Palakkad and also express my gratitude to Mr.Sajeev Kumar (MD), Sark Cables for granting me permission to do the project work. I am deeply indebted to Mr.K.P.S Padmanabhan HO-HR, and Mr. Rajesh Production Head of Sark Cables Pvt.Ltd., Kanjikkode for their valuable support assistance in providing sufficient facilities for the successful completion of the study.

No words could express my thanks to all my friends and all others who helped me in presenting this report.

Rajeswari.B

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CHAPTER-1

INTRODUCTION

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INTRODUCTION

A study of inventory management at SARK CABLES LTD is undertaken in order to know the inventory performance and position of the company and to know the strength and weakness and to assess the profitability of the company. Inventories constitute most significant part of assets of large majority of the companies in India. Inventory a double edged sword is usually an asset of an organization, if not used properly it will become liability. It is therefore absolutely very important to manage inventories efficiently and effectively in order to overcome unnecessary investment.

COMPANY PROFILE

SARK CABLES PVT.LTD. the only one company of its kind in Kerala promoted over a decade ago in manufacturing various cables as per Indian/International specifications. They commenced its production in 1996, December at new industrial development area (NIDA), Kanjikode , Palakkad District, Kerala as a small scale industrial unit with permanent SSI registration number 090711939, they are also registered with NSIC vide registration number, NSIC/KER/UP/RS/8-53/99. As well as SISI vide KSX registration number KSX/1357/G9 date 5/4/1999.c

The company is catering to the needs of public sector undertaking OEMS in INDIA and also executed import substitute requirement as well as very stringent applications like cable for the rocket launching purposes under water communications etc.

The company is managed by a board of directors consisting of 6 persons out of whom Mr. K Sajeev Kumar is the Managing Director and Mr. Sunil Joseph, Director (Technical Services) take care of the day today management of the company. the company has a prestigious ISI certificate it has got ISO 9001-2000 certification on 2004.

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The company has started second unit in Coimbatore which went into production from 1st October 2008. The company has another associate unit in Thodupuzha , namely COCHIN POWER CABLES PVT.LTD, which also produces power cables.

SARK CABLES is mainly producing the wires and cables for industrial purpose like heavy duty power cables, control cables, telephone cables, switch board cables, co-axial cables as per the requirement of the customers.

The company has won many laurels, best entrepreneur by the department of industries and commerce (1998 and 1999) and best entrepreneur by the Management Association and Business Deepika. The mission statement of the company is to provide beneficial and innovative product in time to the customers at competitive prices that represent the high value for the money in the industry. The company is holding BSI license for manufacturing heavy duty underground cables as per IS 1554/1 under license number CM/L6180765 and also light duty cables as per IS 694/1990 license number CM/L6148062. The company was awarded the prestigious ISO 9001-2000 certificate by Phoenix Certification Private Limited who are associated by RVA.

SARK CABLES also holding approvals from PWD for using their cables for government works, vide their approval letter number EL2050898 and M/s Kerala State Electricity board vide letter number CE.SSTLC/REC/SKDA approval 2001-02/389 dated 09.05.2001 they are approved vendor with M/s. Cochin Refineries Limited (code number 524135) M/s. Hindustan news print Limited (code number 51023), M/s. BHEL (code number 29766P), M/s. Kerala Minerals and Limited (code number 50025) etc.

It won’t be out of place to mention here that SARK CABLES have been satisfactorily working at various sites inside and outside Kerala and they have received performance certificate from M/s. Keltron, M/s. Malabar Cements Limited, M/s. Kerala State Electricity Board etc.

MISSION OF THE COMPANY

The mission statement of the company is provide beneficial and innovative product in time to the customers at competitive prices that represent the high value for money in the industry.

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VISION OF THE COMPANY

The vision of the company is to make it a leading player in the field and to compete with leading, in another two years time. It also aims to give more importance in keeping up the quality of their products.

As it is, the company is in the SSI sector. Company is undergoing an expansion program and a second unit of the company has already started functioning, augmenting the manufacturing and supply efficiently.

LOCATION OF THE COMPANY

The company is situated in New Industrial Development Area at Kanjikode in Palakkad District. It is located near Kerala Tamilnadu boarder.

CAPACITY OF THE PLANT

The plant has a capacity to manufacture 8600 core kilometers of various cables per month.

OBJECTIVE OF THE COMPANY

The company was incorporated with the intention of manufacturing and marketing different kind of cables and wires. The main objective of the company is to supply different types of cables and wires according to the requirement of the customers.

REGISTERED WITH

SSI Reg. No. 0907-11939 NBSIC Reg. No. NSIC/KER/GP/RS/S-53/99

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BIS, ITI,KSEB,RELIANCE,YOKOGOVA BLUE STAR, APOLLO TYRES, AMRITHANANTHAMVI GROUP, COCHIN PORT TRUST, KOCHIN SHIPYARD, MALABAR CEMENTS, BHEL, EICL, L & T, COCHIN REFINERIES, TELK, CMRL, BPL, KAMCO, KMML, IREL.

WORK FORCE OF THE SARK CABLES

SARK CABLES has around 60 employees. They have 3 shifts in a day. The shifts start from morning 8.30 am. First shift is the general shift. In this shift on an average 45 employees are working it is from 8.30 am to 4.30 pm. Second shift is from 4.30 pm to 12.30 am. In this shift around 10 employees are working. The final shift is the night shift and is from 12.30 am to 8.30 am in this shift 5 employees are working.

The company is stocking the final product in the factorial godown. The finished goods are moved out of the company within 15 days. The raw materials are also kept the company. The company has well experienced technicians for the different manufacturing process. There is a manager for production and he controls all the production process.

DEPARTMENTS OF SARK CABLE

Purchase department Marketing department Human resource department Account department Production department

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DISTINGUISHED COSTOMERS Bharath heavy electrical limited Cochin refineries ltd Cochin shipyard ltd Cochin port ltd Hindustan news print ltd Binani zinc ltd Reliance infocom ltd Transformers electrical Kerala ltd Keltron Trivandrum KSEB Kerala minerals and material ltd Apollo tires ltd Indian telephone industries ltd Vikram sarabhai space centre ltd Share centre, sreeharikotta ltd Andrew Yula & company ltd, Chennai Yokagow blue star ltd Tata tea ltd

COMPETITORS

Phenolex cables V-guard cables Poly cables Havells India ltd Anchor cables

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Gloster

PRODUCT

Sark Cables Pvt Ltd was incorporated for manufacturing and marketing cables and wires. The main products of Sark Cables are;

Power and control cables up to 1100 volts Single core flexible cables Multi core flexible cables Submersible or water proof cables Weather proof service wire Single core flexible flame retardant (fr) PVC wires cables. Telephone and switch board cables Recommended cables size for motors with star-delta and dol started

OBJECTIVES OF THE STUDY

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The main objectives of the study are:-

To study how ABC analysis and aging schedule is implementing in inventory management

To determine the stock level in inventory management at SARK CABLES PVT.LTD

To identify problems related to inventory management and to find out suitable measures to overcome them.

SCOPE OF THE STUDY

The research study could help in decision making. The study makes important contribution to the management by helping to set the objective, the develop plan of action and control its performance. It is especially valuable in providing information for production department and store keeping unit.

• This study is to find the facts and opinions of inventory management and control at SARK CABLE plant.• In accordance with the present trends it aims mainly at finding out the inventory control procedures at SARK CABLE• This study gives the brief information about the inventory management of the indo ltd SARK CABLE• The study was done by using annual reports, inventory manual…etc.

RESEARCH METHODOLOGY

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The basic concept of research methodology refers to the way in which companies conduct their research and how they collect the data they need. Whenever a company or organization needs to investigate a particular area of their business dealings, they need to adapt the most suitable research methodology for the job. 

RESEARCH DESIGN

A detailed outline of how an investigation will take place. A research design will typically include how data is to be collected, what instruments will be employed, how the instruments will be used and the intended means for analyzing data collected.

METHODOLOGY OF DATA COLLECTION

a) Primary data

The primary data is collected by personal interviews with officials.

b) Secondary data

Files, annual reports, periodicals, manuals and text book. Which have already been passed through the statistical process are the secondary data used.

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c) Field work

This was under taken individually to collect various information regarding the study by visiting following sections.

Stores department

Information regarding stocking of materials receipts and issues to workshops. Inventory control procedures in various wards inside the department were obtained.

Accounts department

Remaining all the information was obtained from accounts department through personal interviews with section officials.

PLAN OF ANALYSIS

The analysis and interpretation was collected from finance department thus processed and tabulated is in the form of tables and graphs. The table thus obtained by calculating average, percentage, turnover ratio, graphs and diagram in respect of the stock of raw materials sales & inventory control procedures and thus to draw conclusion from the analysis done.

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STATEMENT OF PROBLEM

A study of inventory management at Sark Cables Pvt.Ltd.is undertaken in order to know the inventory performance and position of the company and to know the strength and weakness and to assess the profitability of the company. Inventories constitute most significant part of assets of large majority of the companies in India. Inventory a double edged sword is usually an asset of an organization, if not used properly it will become liability. It is therefore absolutely very important to manage inventories efficiently and effectively in order to overcome unnecessary investment. And “To identify the problems/challenges involved in the Inventory Management process at Sark Cables Pvt. Ltd.”

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CHAPTER-2

REVIEW OF LITERATURE

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AN INVENTORY CONTROL PROJECT IN A MAJOR DANISH   COMPANY. THIS PROJECT DONE BY JHON KENADY

Jhon describe the development of a framework to compute the optimal inventory policy for a large spare-parts’ distribution centre operation in the RA division of the Danfoss Group in Denmark. The RA division distributes spare parts worldwide for cooling and A/C systems. The warehouse logistics operation is highly automated. However, the procedures for estimating demands and the policies for the inventory control system that were in use at the beginning of the project did not fully match the sophisticated technological standard of the physical system.

During the initial phase of the project development we focused on the fitting of suitable demand distributions for spare parts and on the estimation of demand parameters. Demand distributions were chosen from a class of compound renewal distributions.

In the next phase, we designed models and algorithmic procedures for determining suitable inventory control variables based on the fitted demand distributions and a service level requirement stated in terms of an order fill rate.

Finally, he validated the results of our models against the procedures that had been in use in the company. It was concluded that the new procedures were considerably more consistent with the actual demand processes and with the stated objectives for the distribution centre. He also initiated the implementation and integration of the new procedures into the company’s inventory management system

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INVENTORY MANAGEMENT IN JUBILANT ORGANOSYS LTD by VAIBHAV AGARWAL

Objective of research study is Analysis of inventory of Jubilant Organosys Ltd. Analyzing of inventory, he determining following inventories-1. Raw materials inventory.2. Work in progress inventory.3. Finished goods inventory &4. Supplies inventory. I n   t h i s   s ec t i on  o f   i nven t o r i e s ,   he   shou ld   ana l yze   t he   ann ua l   i nves t men t   i n  i nv en t o r i e s , Va lua t i on  o f   i nven t o ry   a f t e r   c l o s in g  ba l ance  o f   i t e ms   i n   i nven t o ry .   I n   t h i s  man ne r ,  we calculate reorder point, safety stock levels, minimum & maximum levels of inventory. 

Working hypothesis of the objective is that inventories are the stock piles of goods .The all organization on their inventories. JOL invests about 60%of total assets inventory should be analyzed their records.

The analysis of inventory according to the data available in the company. The data collection of inventory for analysis by the direct store department. He should record primary and secondary data by the helps of assistants ledger books M R N etc. He went to the all inventories as raw material, work in progress inventory, finished goods inventory by the proper observation of data’s of the company. 

The particular method for data collecting used direct interview with assistants and telephone interview with friends to known about annual investment of inventories another important data.

He suggested using ABC analysis for better control over the stock,

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INVENTORY CONTROL: A REVIEW FOR RS HOSPITAL PHARMACISTS. BY STEPHAN

The influence of proper inventory management upon operating costs and profits is often underestimated in the fiscal operation of a hospital pharmacy. Significant savings can be realized through proper management of inventory levels and order quantities.

The primary purpose of this paper is to review the use of the Economic Order Value concept and the ABC classification of inventory as it applies to hospital pharmacy. This system is relatively new to hospital pharmacy, offers economical advantages over the traditional maximum-minimum system and achieves greater financial control.

The intent of this overview is not only to show the importance of inventory management but to serve as a stimulus to pharmacy administrators to become more efficient through the use of sophisticated inventory management techniques.

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STUDY ON INVENTORY CONTROL TECHNIQUES AT BICSO CHEMICALS PVT.LTD. PROJECT DONE BY SYMON

A specialty chemical company with worldwide operations serving the electronics, surface finishing, and decorative industries engaged Daniel Penn Associates to improve its supply chain logistics and inventory control systems. At the time, the company had 14 manufacturing site, six R&D facilities, sales, and distribution centers worldwide and employs 1,300 people. In their efforts to reduce finished goods inventories and expenses while improving customer service, the company wanted to determine how they could reduce the number of warehouse facilities and service their customers based from fewer locations in North America. At the time, products were manufactured from four facilities and distributed through 22 distribution centers, of which 16 were public warehouses and six were company-owned. Initially, DPA visited with senior managers to define the study objectives in the areas of distribution management and inventory control. 

In a nutshell, our analysis was geared to answer three main questions: After thorough evaluations by our consulting team, interviews with all levels of management, analysis, and customer service reviews, we determined the study culminated in a detailed implementation plan outlining the steps for consolidation and optimization the distribution system. The corrective actions identified included: 

The direct bottom line results to the company included a 35% decrease in freight to public warehouse costs and 35% decrease in public warehouse costs. Inventory control is the implementation of management's inventory policies in a manner that assures that the goals of inventory management are met. Wise control of inventory is often a critical factor in the success of businesses in which inventories are significant. 

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CHAPTER-3 & 4

DATA ANALYSIS AND INTERPRETATION

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INVENTORY MANAGEMENT

Inventory management is the process of efficiently overseeing the constant flow of units into and out of an existing inventory. This process usually involves controlling the transfer in of units in order to prevent the inventory from becoming too high, or dwindling to levels that could put the operation of the company into jeopardy. Competent inventory management also seeks to control the costs associated with the inventory, both from the perspective of the total value of the goods included and the tax burden generated by the cumulative value of the inventory.

INVENTORY

Inventory is an idle stock of physical goods that contain economic value, and are held in various forms by an organization in its custody awaiting packing, processing, transformation, use or sale in a future point of time.

Any organization which is into production, trading, sale and service of a product will necessarily hold stock of various physical resources to aid in future consumption and sale. While inventory is a necessary evil of any such business, it may be noted that the organizations hold inventories for various reasons, which include speculative purposes, functional purposes, physical necessities etc.

Inventory of materials occurs at various stages and departments of an organization. A manufacturing organization holds inventory of raw materials and consumables required for production. It also holds inventory of semi-finished goods at various stages in the plant with various departments. Finished goods inventory is held at plant, FG Stores, distribution centers etc. Further both raw materials and finished goods those that are in transit at various locations also form a part of inventory depending upon who owns the inventory at the particular juncture. Finished goods inventory is held by the organization at various stocking points or with dealers and stockiest until it reaches the market and end customers.

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Besides Raw materials and finished goods, organizations also hold inventories of spare parts to service the products. Defective products, defective parts and scrap also form a part of inventory

as long as these items are inventoried in the books of the company and have economic value.

NEED TO HOLD THE INVENTORIES

There are the four major reason for holding inventories.

1. TRANSACTION PURPOSE:

emphasized the need to maintain inventories to smoothen production and sales operations, which is for the day-to-day use.

2. SAFETY PURPOSE:

Which necessities holding of inventories to guard against the risk of unpredictable changes in the market.

3. SPECULATIVE PUROSE :There is a speculative element which influences the decision to increase or decrease Inventory levels to take advantage of price change.

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OBJECTIVE OF INVENTORY CONTROL TECHNIQUES

1. To keep inventory at sufficiently high level to perform production and sales activities smoothly.

2. To minimize investment in inventory at minimum level to maximize profitability.

3. To ensure that the supply of raw material & finished goods will remain continuous so that production process is not halted and demands of customers are duly met.

4. To minimize carrying cost of inventory.

5. To keep investment in inventory at optimum level.

6. To reduce the losses of theft, obsolescence & wastage etc.

7. To make arrangement for sale of slow moving items.

8. To minimize inventory ordering costs.

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TYPE OF INVENTORY BY FUNCTIONS

INPUT PROCESS OUTPUT

Raw Materials Work in progress Finished goods

Consumables required for processing. Eg : Fuel, Stationary,

Bolts & Nuts etc. required in manufacturing

Semi Finished Production in various stages, lying with various departments like

Production, WIP Stores, QC, Final Assembly, Paint Shop, Packing, Outbound Store etc.

Finished Goods at Distribution Centers throughout Supply

Chain

Maintenance Items/Consumables Production Waste and Scrap Finished Goods in transit

Packing Materials Rejections and Defectives Finished Goods with Stockiest and Dealers

Local purchased Items required for production

Spare Parts Stocks & Bought Out items

Defectives, Rejects and Sales Returns

Repaired Stock and Parts

Sales Promotion& Sample Stocks

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THE ADVANTAGES OF AN INVENTORY MANAGEMENT SYSTEM

Supply and Demand

Having an adequate supply of a particular product to meet customer demand is crucial to both sales increases and customer service. If a customer comes to a business to purchase a product and it is out of stock, the sale is lost forever and the customer will probably go to a competitor to find what they need. A good inventory management system, whether computerized or manual, will identify sales trends and prepare for customer needs.

2. Streamline Operations

Manufacturing facilities should always maintain proper inventory of the supplies necessary to produce their products. If one component is missing from the inventory, the whole production process is interrupted. Streamlined operations are an important benefit of an effective inventory management system.

3. Lead Time Adjustments

Inventory management systems are important for determining when to order certain items, especially for products with varying lead times. Some products take longer to receive from the manufacturer than others, and it’s important to have an inventory management system that accounts for lead time. If for example, a grocery store was going to have a sale on hotdogs, relish and mustard, but the hotdogs took longer than three days to receive while the condiments took five days; the inventory management system would need to ensure that all items were in stock in time for the sale.

4. Reduce Liabilities

Another significant advantage to an inventory management system is it reduces the liabilities and loss created by overstock. Similar to monitoring supply and demand, a good inventory management system will notice declines in sales or identify one-time occurrences to prevent over-ordering certain products. For instance, if a clothing store was having a sale on a certain style of jeans; it may order additional stock to meet customer demands. The inventory management system should take the sale into account before ordering more of the jeans based on the spike in sales. Otherwise, they store may have to offer even deeper discounts to get rid of the excess inventory

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5. Labor Cost

Well-defined inventory control policies can reduce the labor costs associated with managing the inventory. Each time inventory gets handled, whether to move it from one location to another, to retrieve it for order picking or to put it away for storage, it involves labor. This handling makes up part of the cost associated with managing inventory. Companies prefer to handle the inventory as little as possible. When a company constantly searches for lost inventory, moves inventory from one location to another because of poor space utilization or handle the inventory multiple times; it results in increased labor costs. Properly managed inventory reduces these incidents and reduces the labor cost associated with the inventory.

6. Inventory Costs

Lower inventory cost is a definite advantage for the company that effectively controls its inventory. Business owners need to fully understand the costs of carrying inventory, not just how much the inventory costs to purchase. Inventory carrying costs consist of all the expenses a company incurs for owning inventory. These expenses include the cost of capital, storage and risks costs (including obsolescence, damage, theft and deterioration) plus the appropriate taxable amounts. Effective inventory control reduces these costs because it reduces the total amount of inventory required to manage the business. Inventory control monitors the level of inventory and proactively manages obsolescence and deterioration by ordering in the appropriate quantities. Effective inventory control also reduces storage costs, because it orders enough inventories to fill consumer demand and not much more.

THE TECHNIQUES

Some of the techniques which will follow include methods of fixing purchase

quantities, setting of order points and safety stocks. The decisions as to which item to make

when and to keep inventories in balance requires application of wide range of techniques from

simple graphical methods to more sophisticate and complex quantitative techniques. Many of

these techniques employ concepts and tools of mathematical and statistical methods and make

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use of various control theories from engineering and other fields. They are primarily aimed at

helping to make better decisions and getting people involved and follow a wise policy. As such,

they are far from academic exercises only. However, making decisions more intelligently and

making actions follow these decisions is not easy. Thus while these quantitative techniques have

taken much out of the decision-making managers what was being done through bunch or

intuitive judgment, real business acumen demands that these must be blended with practical

business sense. It is an axiomatic truth that these techniques alone cannot turn bad judgment into

good ones simply because they are exact. However, before focusing our attention on

such techniques, let us first attempt to analyze different types of inventories.

1. Determination of various levels of materials

2. Economic Order Quantity

3. ABC Analysis

4. Two Bin System

5. Fsn/Ved Analysis

1. DETERMINATION OF VARIOUS LEVELS OF MATERIALS

The store-keeper plays an important role in deciding upon the various levels materials. In order to ensure that the optimum quantity of materials is purchased stocked neither less nor more, the store keeper applies scientific techniques of material management. Fixing of certain levels for each item of materials in one of techniques.

(a) Re-order Level

(b) Maximum Level

(c) Minimum Level

(d) Average Level

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(e) Danger Level

(a) Re-order Level:

This level is that level of material at which it is necessary to initiate purchase requisition for fresh supplies. This is normally the point lying between the maximum and the minimum levels. Fresh orders must be placed before the actual stocks touch the minimum level.

This level is fixed in such a manner that the quantity of materials represented by the difference between the re-order level and the minimum level will be sufficient to meet the requirement of production till such time as the order materializes and materials are delivered. The following factors are taken into account for fixing the Re-order level:

(i) Rate of consumption of material

(ii) Lead time, i.e., time required to receive the delivery of fresh purchase.

(iii) Re-order quantity

(iv) Minimum level

Re-order level can be calculated by applying the following formula:

Re-order level = Minimum level + consumption during period required to get fresh delivery

(b) Maximum Level:

The maximum level is that level of stock which can be held at any time. In other words, it is the level beyond which stock should not be maintained. The purpose is to avoid over-stocking and thereby using working capital in a proper way. This level is fixed after taking into account the following factors:

(i) Rate of consumption

(ii) Lead time

(iii) Availability of capital

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(iv) Storage capacity

(v) Cost of maintaining stores including insurance cost

(vi) Nature of commodity

(vii) Possibility of price fluctuation

(viii) Possibility of change in fashion, habit, etc.

(ix) Restrictions imposed by Govt., local authority or trade associations

(x) Re-order level it

(xi) Re-order quantity

Maximum level can be calculated by applying the following formula:

Maximum Level = Re-order level + Re-order Quantity - (Minimum consumption x Minimum Re-order period)

(c) Minimum Level:

This is the level below which the stock of an item should not fall. This is known as safety or buffer stock. An enterprise must maintain minimum quantity of stock so that the production is not hampered due to non-availability of materials. This level is fixed after considering the following factors:

(i) Re-order level

(ii) Lead time

(iii) Rate of consumption

The formula for calculating minimum level is:

Minimum level = Re-order level - (Normal consumption x Normal Re-order period)

(d) Average Level:

Average level can be calculated by applying the following formula:

Maximum level + Minimum level Average level = ---------------------------------------------- -

Or Average level = Minimum level + of Re-order Quantity.

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(e) Danger Level:

Usually stock should not be lower than the minimum level. But if for any reason, stock comes down below the minimum level, it is called danger level. When the stock reaches danger level, it is necessary to take urgent action on the part of the management for immediate replenishment of stock to prevent stock-out situation. The danger level can be calculated by applying the following formula:

Danger Level = Average consumption x Maximum Re-order period for emergency purchases

2. ECONOMIC ORDER QUANTITY (EOQ)

The economic order quantity, known as EOQ, represents the most favorable quantity to be ordered each time fresh orders are placed.

The quantity to be ordered is called economic order quantity because the purchase of this size of material is most economical. It is helpful to determine in advance as to how much should one buy when the stock level reaches the re-order level. If large quantities arc purchased, the carrying costs would be high the other hand, if small quantities are purchased at frequent intervals the ordering costs would be high. The economic order quantity is fixed at such a level as to minimize the cost of ordering and carrying the stock. It is the size of the order which produces the lowest cost of material ordered. While determining the economic order quantity, the following three cost factors are taken into consideration:

(i) The cost of the material

(ii) The inventory carrying cost

(iii) The ordering cost

Carrying costs are the costs of holding the inventory in the stores. These are:

(i) Rent for the storage space.

(ii) Salaries and wages of the employees engaged in store keeping department.

(iii) Loss due to pilferage and deterioration.

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(iv) Insurance charges.

(v) Stationery used in the stores.

(vi) Loss of interest on the capital locked up in materials.

Ordering costs are the costs of placing orders for the purchase of materials. These are:

(i) Salaries and wages of the employees engaged in purchasing department.

(ii) Stationary, postage, telephone expenses, etc. of the purchasing department.

(iii) Depreciation on equipments and furniture used by the purchasing department.

(iv) Rent for the space used by the purchasing department.

While placing orders for purchasing materials, the total cost to be incurred is kept in view. As discussed earlier, if an order is placed for a large quantity at a time, the ordering cost is less but the carrying cost would be more.

3. ABC ANALYSIS

This technique of inventory control is also known as Always Better Control technique. ABC analysis is an analytical method of control which aims at concentrating efforts on those areas where attention is needed most.

This is a principle of selective control. The emphasis of ABC analysis technique is that the management should concentrate its energy in controlling those items that mostly affect the organizational objects. Manufacturing concerns find it useful to group the materials into three classes on the basis of investment involved.

Materials having higher values but constitute small percentage of total items, are grouped in 'A' category. On the other hand, a large percentage of items of materials which represent a smaller percentage of the values, are grouped in 'C' category. Items of materials having moderate value 'and moderate size are grouped in 'B' category. On the basis of physical quantities and value of arterials used, the following table illustrates the above classification:

After the items of materials are classified into A, B and C category, control can be exercised in a selective manner as follows:

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(i) Greater care and strict control should be exercised on the items of category 'A' as any loss or breakage or wastage of any item of this category many prove to be very costly. Economic order quantity and re-order level should be carefully fixed for such category of items.

(ii) Moderate and relaxed control is required for the items of category 'B'.

(iii) There is not much need for exercising control over the items of category 'C' Periodic or annual verification is required for this category of materials.

4. TWO BIN SYSTEM

One of the earliest systems of stock control is two-bin system, which is a simple method of control exercised by two simple rules. One is when the order should be placed, and the other is what quantity should be covered. The following diagram shows this simple method. The bins contain, say, mild-steel bolts and nuts. The bolts and nuts are issued from the first bin as and when required, and as soon as the first bin is empty, more bolts and nuts are ordered. The replenishment arrives just when the second bin is empty. While delivery is awaited, the nuts and bolts from the second bin are issued. When the delivery arrives, then both the bins are again filled.

BIN NO. 1 BIN NO.2

Use till Bin no 1 is empty Use Bin No 2 when Bin no 1 is empty

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5. FSN/VED ANALYSIS

A-B-C Analysis was evolved on the principle of graduated control stringency. The degree of control was equated with the frequency of reviews of a given inventory record. Controlling tightly means reviewing frequently, this tends to determine order quantity. A-items would be reviewed frequently and order in small quantities to keep inventory investment low’s-items less, C-items still less. But this approach does not take into account the fact that sometimes a low-valued small item of critical nature needs as much attention as high-valued A-class item, so that inventories also need to be classified according to Vital, Essential and Desirable (V -E-D), which in essence means that stress is more on importance rather than on value.Again, inventories may also be classified according to Fast-moving, Slow-moving and Non-moving items in order to see the rapidity of their use and to weed out the unnecessary ones. This is aimed at keeping the total inventory size down and reduces investment. Thus, selective control may be exerted under different types of classification according to necessity. A single-type approach may not prove fruitful under al circumstances.

6. ORDER CYCLING SYSTEM

This system is based upon a review timetable. According to this system, a review of the entire inventory is done at regular intervals, such as 30 days, 60 days or 90 days. After the review is done, the cost accountant views stock items with low quantities that will not last up to the next review interval. The purchase order for such a stock item is placed immediately. The order

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cycling system is not exactly foolproof and one requires a rather experienced cost accountant to efficiently conduct it.

FUNCTIONAL DETAILS OF STORES AND PURCHASE

\

RECEIVING RAW MATERIALS

PHYSICAL CHECK

TESTING

RAW MATERIAL SHORTAGE

FINISHED PRODUCT

DESPATCH

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MD

ACCEPT REJECT

RELEASE TO PRODUCTION

PROCEDURE

Stores receives materials vide good received note (GRN) SARK/SPD/GRN/001 or delivery note (DN), SARK/SPD/DN/002 and kept in raw material storage area.

After verifying the quantity and packaging of the materials, then GRN/DN are forward to QA department for their information and approval.

After QA approval the materials are identified by QA approved tags.

Materials put under Hold by QAD are segregated and kept in the NCR allocated area.

The materials are issued to production for further process by stores according to the raw material requision slip SARK/SPD/003, issued by production department.

The minimum quantity of row material is stored according to the minimum stock level SARK/SPD/004.

Receipt and issues of raw materials are recorded in raw material stock register SARK/SPD/RSR/005.

Purchase indent, SARK/SPD/PI/006, is forwarded to administration department for purchasing the required raw materials.

Finished products, received vide finished good transfer slip, SARK/PDD/FGT/004, from QAD are duly packed and kept in the finished good storage area with proper identification.

Finished products are dispatched to the customers as per the invoice issued by the marketing department.

Receipt and issue of finished goods are recorded in finished product register SARK/SPD/FPR/007.

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Inventory of raw material and finished goods are made once in a year.

All raw material suppliers are evaluated on the basis of the quality, quantity, delivery time and price of the material.

INTRODUCING ABC INVENTORY CONTROLING TECHNIQUE AT SARK CABLES

Item classified according to the book value of the item stores is custodian every items. Break up of ABC:

A-70% B-20% C-10%

CATEGORY PECENTAGE OF TOTAL VALUE

PERCENTAGE OF TOTAL QUALITY

A 70-80 5-10

B 20-25 20-30

C 5-10 60-70

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PECENTAGE OF TOTAL VALUE

abC

A item B item C item

High consumption value Moderate value Low consumption value

High control Moderate control Low control

Minimization of waste material

Control over waste Annual review of waste

No safety stock Low safety stock High safety stock

Frequent ordering Ordering 3 times in a month Bulk ordering once in a month

Weakly control statement Monthly control Quality control report

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INVENTORY MANAGEMENT AT SARK CABLES PVT.LTD.

There are 3 categories of inventory in Sark Cables;

Stores and spare Production Packing

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CALCULATION OF TOTAL COST OF INVENTORY

STEP 1

ITEMS PRICE PER UNIT (Rs.) NO. OF UNIT TOTAL COST(Rs)

Iron 4.3 68867 296128.1

Copper 140 832 116480

Coke 17.31 246 4258.26

lubricant 20.81 284 5910.04

zinc 312.5 830 259375

Aluminum 3.08 2435 7499.8

Lead 480.29 987 474046.2

Plastic 2.8 4283 11992.4

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CALCULATION OF TOTAL COST IN DECLINE ORDER

ITEMS PRICE PER UNIT (Rs.) NO. OF UNIT TOTAL COST(Rs)

Lead 480.29 987 474046.2

Iron 4.3 68867 296128.1

zinc 312.5 830 259375

Copper 140 832 116480

Plastic 2.8 4283 11992.4

Aluminum 3.08 2435 7499.8

lubricant 20.81 284 5910.04

Coke 17.31 246 4258.26

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TOTAL COST IN DECLINE ORDER

Lead

Iron

zinc

CopperPlas

tic

Aluminum

lubrican

tCoke

0

50000

100000

150000

200000

250000

300000

350000

400000

450000

500000

PRICE PER UNIT (Rs.)NO. OF UNITTOTAL COST(Rs)

INTERPRETATION

In this graph show that Lead, Iron, Zinc and copper having high cost so we want to high control over that raw material, these raw materials are comes under A category because of that frequent ordering is necessary

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STEP 2

CALCULATION OF CUMILATIVES OF INVENTORIES

ITEMS PRICE PER UNIT (Rs.)

NO. OF UNIT TOTAL COST(Rs) CUMULATIVE

Lead 480.29 987 474046.23 474046.23

Iron 4.3 68867 296128.1 770174.33

Zinc 312.5 830 259375 1029549.33

Copper 140 832 116480 1146029.33

Plastic 2.8 4283 11992.4 1158021.73

Aluminum 3.08 2435 7499.8 1165521.53

lubricant 20.81 284 5910.04 1171431.57

Coke 17.31 246 4258.26 1175689.83

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CUMILATIVE TOTAL COST

Lead

Iron

zinc

CopperPlas

tic

Aluminum

lubrican

tCoke

0

200000

400000

600000

800000

1000000

1200000

PRICE PER UNIT (Rs.)NO. OF UNITTOTAL COST(Rs)cumilatives

INTERPRETATION

The aggregate amount that an investment has gained or lost over time, independent of the period of time involved. Company more likely to see a compound return than a cumulative return, as the compound return figure will be annualized. This helps purchase department to compare different investment choices. 

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STEP 3

Classifying the group as A, B, and C based on the total cost

A CATEGORY

A=70% of the total cost= .70

Cumulative total*.70

1175689.83*.70= 822982.88

B CATEGORY

B=20% of the total cost= .20

Cumulative total* .20

1175689.83* .20 = 235137.96

C CATEGORY

C=10% of the total cost = .10

Cumulative total* .10

1175689.83* .10 = 117568.98

INTERPRETATION

'A' items are very important for an organization. Because of the high value of these ‘A’ items, frequent value analysis is required. In addition to that, an organization needs to choose an appropriate order pattern (e.g. ‘Just- in- time’) to avoid excess capacity.'B' items are important, but of course less important, than ‘A’ items and more important than ‘C’ items. Therefore ‘B’ items are intergroup items.

'C' items are marginally important.

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CHAPTER-5

FINDINGS, RECOMMENDATIONS AND EXECUTIVE SUMMARY

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FINDINGS

There is no proper inventory control techniques in SARK CABLES pvt ltd

Classified SARK CABLE raw material into 3 category(A,B and C) according to the value of the raw materials and total cost

Lead, Zinc and copper having high cost so we want to high control over that raw material

'A' items are very important for an organization. Because of the high value of these ‘A’ items, frequent value analysis is required

'B' items are important, but of course less important, than ‘A’ items and more important than ‘C’ items. Therefore ‘B’ items are intergroup items.

'C' items are marginally important.

Cumulative helps purchase department to compare different investment choices. 

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RECOMMENDATIONS TO THE ORGANISATION :

In store department items should placed their proper sequence & acknowledgement.

There should be proper record of wastage. It is good for the company.

Give more importance to high value goods( A category goods)

Give maximum attention to high value materials and minimum attention to low value materials

I recommend implementing, ABC INVENTORY CONTROL TECHNIQUE in SAK CABLES PVT.LTD, KANCHIKODE.

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EXECUTIVE SUMMARY

Inventory management is so critical for planning or forecasting for the future needs and for developing strategic plans to handle the market situation. It needs to a top down approach to structure on effective way of taking inventory managing problems.

If SARK CABLE is to achieve incremental growth and maximize its market capitalization, it has to give more emphasis on effective inventory control and use available resource optimally. SARK CABLE has to keep itself abreast use of new trends in inventory management and lean manufacturing such as JIT.

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LIMITATION OF THE STUDY

• Time restriction was only 30 days of project work in the organization.• The information, which was needed, could not be made public by the organization.• The study is related to Sark Cables Pvt. Ltd. only• The finding and suggestion cannot be generalized.

• The study covered a wide concept hence wide collection and coverage of information was not easily possible.

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BIBLIOGRAPHY

WEBSITES

www.google.com

www.sarkcables.com

www.wikipedia.com

BOOKS

Company Records and manuals.

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