inventory management at telcon

8/7/2019 Inventory Management at TELCON

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INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT,BANGALORE

OPERATIONS RESAERCH 1

INVENTORY MANAGEMENT

1. INTRODUCTION

DEFINITION AND MEANING

Inventory is a list of goods and materials, or those goods and materials themselves, held

available in stock by a business. Inventory are held in order to manage and hide from the

customer the fact that manufacture/supply delay is longer than delivery delay, and also to

ease the effect of imperfections in the manufacturing process that lower production

efficiencies if production capacity stands idle for lack of materials.

The reasons for keeping stock

All these stock reasons can apply to any owner or product stage.

Buffer stock is held in individual workstations against the possibility that the upstream

workstation may be a little delayed in providing the nex t item for processing. Whilst some

processes carry very large buffer stocks, Toyota moved to one (or a few items) and has now

moved to eliminate this stock type.

Safety stock is held against process or machine failure in the hope/belief that the failure c an

be repaired before the stock runs out. This type of stock can be eliminated by programmes

like Total Productive Maintenance

Overproduction is held because the forecast and the actual sales did not match. Making to

order and JIT eliminates this stock type.

Lot delay stock is 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 be eliminated by

single piece working or a lot size of one.


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Demand fluctuation stock is held where production capacity is unable to flex with demand.

Therefore a stock is built in times of lower utilization to be supplied to customers when

demand exceeds production capacity. This can be eliminated by increasing the flexibility and

capacity of a production line or reduced by moving to item level load balancing.

Line balance stock is 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.

Changeover stock is 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. This stock can be eliminated by toolslike SMED.

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 particular

cause and should be a particular individual's responsibility with inevitable consequences.

Some plants have centralized stock holding across sub-processes which makes the situation

even more acute.

The basis of Inventory accounting

Inventory needs to be accounted where it is held across accounting period boundaries since

generally expenses should be matched against the results of that expense within the same

period. When processes were simple and short then inventories were small but with more

complex processes then inventories became larger and significant valued items on the

balance sheet. This need to value unsold and incomplete goods has driven many new

behaviors into management practise. Perhaps most significant of these are the complexities

of fixed cost recovery, transfer pricing, and the separation of direct from indirect costs. This,

supposedly, precluded "anticipating income" or "declaring dividends out of capital". It is one

of the intangible benefits of Lean and the TPS that process times shorten and stock levels


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decline to the point where the importance of this activity is hugely reduced and therefore

effort, especially managerial, to achieve it can be minimized.

LIFO V/S FIFO

When a dealer sells goods from inventory, the value of the inventory reduces by the cost of

goods sold (Cog sold). This is simple where the Cog has not varied across those held in stock

but where it has then an agreed method must be derived. For commodity items that one

cannot track individually, accountants must choose a method that fits the nature of the sale.

Two popular methods exist: FIFO and LIFO accounting (first in - first out, last in - first out).

FIFO regards the first unit that arrived in inventory the first one sold. LIFO considers the last

unit arriving in inventory as the first one sold. Which method an accountant selects can have

a significant effect on net income and book value and, in turn, on taxation. Using LIFO

accounting for inventory, a company generally re ports lower net income and lower book

value due to the effects of inflation. This generally results in lower taxation. Due to LIFO's

potential to skew inventory value, UK GAAP and IAS have effectively banned LIFO inventory

accounting.

SUPPLY CHAIN MANAGEMENT

A supply chain is a network of facilities and distribution options that performs the functions

of procurement of materials, transformation of these materials into intermediate and

finished products, and the distribution of these finished products to custom ers. Supply

chains exist in both service and manufacturing organizations, although the complexity of the

chain may vary greatly from industry to industry and firm to firm.

Supply chain management is typically viewed to lie between fully vertically

integrated firms, where the entire material flow is owned by a single firm and those whereeach channel member operates independently. Therefore coordination between the various

players in the chain is key in its effective management. Cooper and Ellram [1993] compare

supply chain management to a well-balanced and well-practiced relay team. Such a team is

more competitive when each player knows how to be positioned for the hand-off. The


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relationships are the strongest between players who directly pass the baton ( stick), but the

entire team needs to make a coordinated effort to win the race.

Below is an example of a very simple supply chain for a single product, where raw

material is procured from vendors, transformed into finished goods in a single step, and

then transported to distribution centers, and ultimately, customers. Realistic supply chains

have multiple end products with shared components, facilities and capacities. The flow of

materials is not always along an arborescent network, various modes of transportation may

be considered, and the bill of materials for the end items may be both deep and large.

To simplify the concept, supply chain management can be defined as a loop: it starts

with the customer and ends with the customer. All materials, finished products,

information, and even all transactions flow through the loop. However, supply chain

management can be a very difficult task because in the reality, the supply chain is a complex

and dynamic network of facilities and organizations with diffe rent, conflicting objectives.

Supply chains exist in both service and manufacturing organizations, although the

complexity of the chain may vary greatly from industry to industry and firm to firm.

Unlike commercial manufacturing supplies, services such as clinical supplies planning

are very dynamic and can often have last minute changes. Availability of patient kit when

patient arrives at investigator site is very important for clinical trial success. This results in

overproduction of drug products to take care of last minute change in demand. R&D

manufacturing is very expensive and overproduction of patient kits adds significant cost to

the total cost of clinical trials. An integrated supply chain can reduce the overproduction of

drug products by efficient demand management, planning, and inventory management.


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Traditionally, marketing, distribution, planning, manufacturing, and the purchasing

organizations along the supply chain operated independently. These organizations have

their own objectives and these are often conflicting. Marketing's objective of high customer

service and maximum sales dollars conflict with manufacturing and distribution goals. Many

manufacturing operations are designed to maximize throughput and lower costs with little

consideration for the impact on inventory levels and distribution capabilities. Purchasing

contracts are often negotiated with very little information beyond historical buying

patterns. The result of these factors is that there is not a single, integrated plan for the

organization---there were as many plans as businesses. Clearly, there is a need for a

mechanism through which these different functions can be integrated together. Supply

chain management is a strategy through which such integration can be achieved.

Supply Chain Management (SCM) is the process of planning, implementing, and controlling

the operations of the supply chain with the purpose to satisfy customer requirements as

efficiently as possible. Supply chain management spans all movement and storage of raw

materials, work-in-process inventory, and finished goods from point -of-origin to point-of-

consumption.

According to the Council of Supply Chain Management Professionals (CSCMP),

a professional association that developed a definition in 2004, Supply Chain Management

encompasses the planning and management of all activities involved in sourcing and

procurement, conversion, and all logistics management activities. Importantly, it also

includes coordination and collaboration with channel partners, which can be suppliers,

intermediaries, third-party service providers, and customers. In essence, Supply Chain

Management integrates supply and demand management within and across companies.


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According to Cohen & Lee (1988)

Supply Chain Management is The network of organizations that are having linkages, both

upstream and downstream, in different processes and activities that produces and delivers

the value in form of products and services in the hands of ultimate consumer. Thus a shirt

manufacturer is a part of supply chain that extends up stream through the weaves of fabrics

to the spinners and the manufacturers of fibers, and down stream through distributions and

retailers to the final consumer. Though each of these organizations are dependent on each

other yet traditionally do not closely cooperate with eac h other. An integrated supply chain

management streamlines processes and increases profitability by delivering the right

product to the right place, at the right time, and at the lowest possible cost.

According to Ganeshan & Harrison (2001)

Supply Chain Management is a systems approach to managing the entire flow of

information, materials, and services from raw materials suppliers through factories and

warehouses to the end customer.

Supply chain event management (abbreviated as SCEM) is a consideration of all possible

occurring events and factors that can cause a disruption in a supply chain. With SCEM

possible scenarios can be created and solutions can be planned.

Some experts distinguish supply chain management and logistics management,

while others consider the terms to be interchangeable. From the point of view of an

enterprise, the scope of supply chain management is usually bounded on the supply side

by your supplier's suppliers and on the customer side by your customer's customers.

Supply chain management is also a cate gory of software products.


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3. OBJECTIVES AND NEED OF SUPPLY CHAIN MANAGEMENTTraditionally, marketing, distribution, planning, manufacturing, and the purchasing

organizations along the supply chain operated independently. These organizations have

their own objectives and these are often conflicting.

Marketing's objective of high customer service and maximum sales dollars conflict with

manufacturing and distribution goals. Many manufacturing operations are designed to

maximize throughput and lower costs with little consideration for the impact on inventory

levels and distribution capabilities. Purchasing contracts are often negotiated with very little

information beyond historical buying patterns.

The result of these factors is that there is not a single, integrated plan for the

organization---there were as many plans as businesses. Clearly, there is a need for a

mechanism through which these different functions can be integrated together. Supply

chain management is a strategy through which such integration can be achieved.

Moreover, shortened product life cycles, increased competition, and heightened

expectations of customers have forced many leading edge companies to move from physical

logistic management towards more advanced supply chain management. Additionally, in

recent years it has become clear that many companies have reduced their manufacturing

costs as much as it is practically possible. Therefore, in many cases, the only possible way to

further reduce costs and lead times is with effective supply chain management.


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In addition to cost reduction, the supply chain management approach also facilitates

customer service improvements. It enables the management of:

inventories,transportation systems andwhole distribution networks

so that organizations are able to meet or even exceed their customers' expectations.

The major objective of supply chain management is to reduce or eliminate the

buffers of inventory that exists between originations in chain through the sharing of

information on demand and current stock levels.

Broadly, an organization needs an efficient and proper supply chain management

system so that the following strategic and competitive areas can be used to their full

advantage if a supply chain management system is properly implemented.

1. Fulfillment of raw materials:

Ensuring the right quantity of parts for production or products for sale arrive at the

right time. This is enabled through efficient communication, ensuring that orders are placed

with the appropriate amount of time available to be filled. The supply chain management

system also allows a company to constantly see what is on stock and making sure that the

right quantities are ordered to replace stock.

2. Logistics:

The cost of transporting materials as low as possible consistent with safe and reliable

delivery. Here the supply chain management system enables a company to have constant

contact with its distribution team, which could consist of trucks, trains, or any other mode

of transportation. The system can allow the company to track where the required materials

are at all times. As well, it may be cost effective to share transportation costs with a partner


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company if shipments are not large enough to fill a whole truck and this again, allows the

company to make this decision.

3. Smooth Production:

Ensuring production lines function smoothly because high -quality parts are available

when needed. Production can run smoothly as a result of fulfillment and logistics being

implemented correctly. If the correct quantity is not ordered and delivered at the requested

time, production will be halted, but having an effective supply chain management system in

place will ensure that production can always run smoothly without delays due to ordering

and transportation.

4. Increase in Revenue & profit:

Ensuring no sales is lost because shelves are empty. Managing the supply chain

improves a company flexibility to respond to unforeseen changes in demand and supply.

Because of this, a company has the ability to produce goods at lower prices and distribute

them to consumers quicker then companies without supply chain management thus

increasing the overall profit.

5. Reduction in Costs:

Keeping the cost of purchased parts and products at acceptable levels. Supply chain

management reduces costs by increasing inventory turnover on the shop floor and in the

warehouse controlling the quality of goods thus reducing internal and external failure costs

and working with suppliers to produce the most cost efficient means of manufacturing a

product.

6. Mutual Success:

Among supply chain partners ensures mutual success. Collaborative planning,

forecasting and replenishment (CPFR) is a longer-term commitment, joint work on quality,


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and support by the buyer of the suppliers managerial, technological, and capacity

development. This relationship allows a company to have access to current, reliable

information, obtain lower inventory levels, cut lead times, enhance product quality, improve

forecasting accuracy and ultimately improve customer service and overall profits. The

suppliers also benefit from the cooperative relationship through increased buyer input from

suggestions on improving the quality and costs and though shared savings. Consumers can

benefit as well through higher quality goods provided at a lower cost.


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ABOUT THE COMPANY:

Telco Construction Equipment Company (TELCON) has set global benchmark in the

manufacturing heavy equipment for the construction, earthmoving & mining industries,

while playing a significant role in realizing Indias infrastructure dreams.

The company manufactures construction equipment that is used in major infrastructure

projects in India. It has a market leader for the past 5 years, de spite the tough competition.

It has revolutionized the Indian construction equipment industry, with the introduction of

the V-series of hydraulic excavators. The company has an extensive customer base era

includes government & institutional buyers, and con tractors. The company was the

countrys first construction equipment manufacture to receive the International

Organization of Standardization (ISO) 9001 certification.

Telcon's facilities are located in Dharwad in Karnataka and Jamshedpur inJharkhand, are

strategic locations with proximity to the markets of the respective products manufactured in

each.


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4. ACTIVITIES/FUNCTIONS OF SCM IN TELCON

Supply chain management is a cross-functional approach to managing the

movement of raw materials into an organization and the movement of finished goods out of

the organization toward the end-consumer. As corporations strive to focus on core

competencies and become more flexible, they have reduced their ownership of raw

materials sources and distribution channels. These functions are increasingly being

outsourced to other corporations that can perform the activities better or more cost

effectively. The effect has been to increase the number of companies involved in satisfying

consumer demand, while reducing management control of daily logistics operations. Less

control and more supply chain partners led to the creation of supply chain management

concepts. The purpose of supply chain management is to improve trust and collaboration

among supply chain partners, thus improving inventory visibility and improving inventory

velocity.

Several models have been proposed for understanding the activities required

managing material movements across organizational and functional boundaries. SCOR is a

supply chain management model promoted by the Supply-Chain Council. Another model is

the SCM Model proposed by the Global Supply Chain Forum (GSCF). Supply chain activities

can be grouped into strategic, tactical, and operational levels of activities.

(a) Strategic:-Strategic network optimization, including the number, location, and size of

warehouses, distribution centers and facilities.

Strategic partnership with suppliers, distributors, and customers, creatingcommunication channels for critical information and operational improv ements such

as cross docking, direct shipping, and third -party logistics.


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Products design coordination, so that new and existing products can be optimallyintegrated into the supply chain.

Information Technology infrastructure, to support supply chain operations.Where to make and what to make or buy decisions.

(b) Tactical:-Sourcing contracts and other purchasing decisions.

Production decisions, including contracting, locations, scheduling, and planningprocess definition.

Inventory decisions, including quantity, location, and quality of inventory.Transportation strategy, including frequency, routes, and contracting.

Benchmarking of all operations against competitors and implementation of bestpractices throughout the ent erprise.

(c) Operational:-Daily production and distribution planning, including all nodes in the supply chain.

Production scheduling for each manufacturing facility in the supply chain (minute byminute).

Demand planning and forecasting, coordinating the demand forecast of allcustomers and sharing the forecast with all suppliers.

Sourcing planning, including current inventory and forecast demand, in collaborationwith all suppliers. Inbound operations, including transportation from suppliers and

receiving inventory.


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Production operations, including the consumption of materials and flow of finishedgoods.

Outbound operations, including all fulfillment activities and transportation tocustomers.

Order promising, accounting for all constraints in the supply chain, including allsuppliers, manufacturing facilities, distribution centers, and other customers.

Performance tracking of all activities.

INTEGRATED SUPPLY CHAIN MANAGEMENT

An integrated supply chain management streamlines processes and increases

profitability by delivering the right product to the right place, at the right time, and at the

lowest possible cost. Unlike commercial manufacturing supplies, clinical supplies planning is

very dynamic and can often have last minute changes. Availability of patient kit when

patient arrives at investigator site is very important for clinical trial success.

This results in overproduction of drug products to take care of last minute change in

demand. R&D manufacturing is very expensive and overproduction of patient kits adds

significant cost to the total cost of clinical trials.

An integrated supply chain can reduce the overproduction of drug products by

efficient demand management, planning, and inventory management. Implementation of

ERP system (such as SAP) in R&D can have major ROI by an efficient supply and inventory

management system and also by reducing overproduction.


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HowIntegration Is AchievedIn Supply Chain?

Stage 1:

Complete functional independence where each business function such as production or

purchasing does its own thing in complete isolation from other business function. For

instance, production function seeking to optimize its unit cost of manufacture by long

production runs with out regard for build up of finished goods inventory and advance

impact it will have on the warehousing as well as working capital.

Stage 2:

Companies recognize the need of limited integration between adjacent functions such as

distribution and inventory management or purchasing and material control.

Stage 3:

A natural extension of stage two, leading to establishment and implementation of end - to-

end integration. A concept of linkage and coordination is achieved.

STAGE 4:

The linkage achieved in stage three is extended upstream to suppliers and down stream to

customers. It represents true supply chain integration. This concept is also called co-

managed inventory (CMI).

Force of supply chain management is on trust and cooperation and the recognition that is

properly managed the whole cane be greater then the sum of its part.

Inventory Decisions:

These refer to means by which inventories are managed. Inventories exist at every

stage of the supply chain as either raw material, semi-finished or finished goods. They can

also be in-process between locations. Their primary purpose to buffer against any

uncertainty that might exist in the supply chain. Since holding of inventories can cost


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anywhere between 20 to 40 percent of their value, their efficient management is critical in

supply chain operations. It is long term in the sense that top management sets goals.

However, most researchers have approached the management of inventory from short term

perspective. 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, at each stocking location. These levels are critical, since they are primary

determinants of customer service levels.


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5.INVENTORY CONTROL

MANAGEMENT

Inventory database

An important component of inventory planning involves access to an inventory database. Itis a structured framework that contains the information needed to effectively manage all

items of inventory, from raw materials to finished goods. This information includes the

classification and amount of inventories, demand for the items, cost to the firm for each

item, ordering costs, carrying costs and other data.

The task of inventory planning can be highly complex. At the same time it rests on

fundamental principles. In doing so we must understand and determine the optimal lot size

that has to be ordered. The EOQ (economic order quantity) refers to the optimal order size

that will result in the lowest total of order and carrying costs and ordering costs. By

calculating the economic order quantity th e firm attempts to determine the order size that

will minimize the total inventory costs. In examination of the two curves reveals that the

carrying cost curve is linear i.e. more the inventory held in any period, greater will be the

cost of holding it. Or dering cost curve on the other hand is different. The ordering costs

decrease with an increase in order sizes. The point where the holding cost curve i.e. the

carrying cost curve and the ordering cost curve meet, represent the least total cost which is

incidentally the economic order quantity or optimum quantity.

PRODUCTIVITY

In the industries there will be a competitor who will be a low cost producer and will have

greater sales volume in that sector. This is partly due to economies of scale, which enable

fixed costs to spread over a greater volume but more particularly to the impact of the

experience curve.

It is possible to identify and predict improvements in the rate of output of workers as they

become more skilled in the processes and tasks on which t hey work. Bruce Henderson

extended this concept by demonstrating that all costs, not just production costs, would

decline at a given rate as volume increased. This cost decline applies only to value added,

i.e. costs other than bought in supplies. Traditionally it has been suggested that the main


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route to cost reduction was by gaining greater sales volume and there can be no doubt

about the close linkage between relative market share and relative costs. However it must

also be recognized that logistics management can provide a multitude of ways to increase

efficiency and productivity and hence contribute significantly to reduced unit costs.

In todays more turbulent environment there is no longer any possibility of manufacturing

and marketing acting independently of each other. It is now generally accepted that the

need to understand and meet customer requirements is a prerequisite for survival. At the

same time, in the search for improved cost competitiveness, manufacturing management

has been the subject of massive renaissance. The last decade has seen the rapid

introduction of flexible manufacturing systems, of new approaches to inventory based on

materials requirement planning (MRP) and just in time (JIT) methods, a sustained emphasis

on quality.

Equally there has been a growing recognition of the critical role that procurement plays in

creating and sustaining competitive advantage as part of an integrated logistics process.

In this scheme of things, logistics is therefore essentially an integrative conce pt that seeks to

develop a system wide view of the firm. It is fundamentally a planning concept that seeks to

create a framework through which the needs of the manufacturing strategy and plan, which

in turn link into a strategy and plan for procurement.

Inventory Flow:

The management of logistics is concerned with the movement and storage of materials and

finished products. Logistical operations start with the initial shipment of a material or

component part from a supplier and are finalized when a manufactured or processed

product is delivered to a customer. From the initial purchase of a material or component,

the logistical process adds value. By moving inventory when and where needed. Thus the

material gains value at each step. For a large manufacturer, logistical operations may consist

of thousands of movements, which ultimately culminate in the delivery of the product to an

industrial user, wholesaler, dealer or customer. Similarly for a retailer, logistical operations

may commence with the procurement of products for resale and may terminate with

consumer pickup or delivery.


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The significant point is that regardless of the size or type of the enterprise, logistics is useful

and requires continuous management attention.

INVENTORY- related costs

Inventory carrying cost (ICC):

Tax

Storage

Capital

Insurance

Obsolescence

Ordering:

Communication

Processing, including material

handling and packaging

Update activities, including

receiving and date-processing

BASIC INVENTORY DECISIONS

There are two basic decisions that must be made for every item that is maintained in

inventory. These decisions have to do with the timing of orders for the item and the size of

orders for the item.


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Basic Inventory Decisions

How much? When?

Lot sizing decision

Determination of the quantity

to be ordered.

Lot timing decision

Determination of the timing

for the orders.

RELEVANT INVENTORY COSTS

Relevant Inventory Costs

Item Costs Holding Costs Ordering Costs Shortage CostsDirect cost for

getting an item.

Purchase cost for

outside orders,

manufacturing cost

for internal orders.

Costs associated

with carrying items

in inventory.

Storage and other

related costs.

Fixed costs

associated with

placing an order

(either a purchase

cost for outside

orders, or a setup

cost for internal

orders).

Costs associated

with not having

enough inventory

to meet demand.


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EOQ:

The EOQ can be calculated with the help of a mathematical formula. Following assumptions

are implied in the calculation:

1. Constant or uniform demand- although the EOQ model assumes constant demand,

demand may vary from day to day. If demand is not known in advance - the model must be

modified through the inclusion of safe stock.

2. Constant unit price- the EOQ model assumes that the purchase price per unit of material

will remain unaltered irrespective of the order offered by the suppliers to include variable

costs resulting from quantity discounts, the total co sts in the EOQ model can be redefined.

3. Constant carrying costs- unit carrying costs may very substantially as the size of the

inventory rises, perhaps decreasing because of economies of scale or storage efficiency or

increasing as storage space runs out and new warehouses have to be rented.

4. Constant ordering cost- this assumption is generally valid. However any violation in this

respect can be accommodated by modifying the EOQ model in a manner similar to the one

used for variable unit price.

5. Instantaneous delivery- if delivery is not instantaneous, which is generally the case; the

original EOQ model must be modified through the inclusion of a safe stock.

6. Independent orders- if multiple orders result in cost saving by reducing paper work and

the transportation cost, the original EOQ model must be further modified. While this

modification is somewhat complicated, special EOQ models have been developed to deal

with it.

These assumptions have been pointed out to illustrate the limitations of the bas ic EOQ

model and the ways in which it can be easily modified to compensate for them.

The formula for the EOQ model is:

2 M Co

S Cc

Where M = is the annual demand


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Co is the cost of ordering

Cc is the inventory carrying cost

S = is the unit price of an item.

Limitations of the EOQ formula-

1. Erratic changes usages- the formula presumes the usage of materials is both predictable

and evenly distributed. When this is not the case, the formula becomes useless.

2. Faulty basic information- order cost varies from commodity to commodity and the

carrying cost can vary with the companys opportunity cost of capital. Thus the assumption

that the ordering cost and the carrying cost remains constant is faulty and hence EOQ

calculations are not correct.

3. Costly calculations: the calculation required to find out EOQ is extremely time consuming.

More elaborate formulae are even more expensive. In many cases, the cost of estimating

the cost of possession and acquisition and calculating EOQ exceeds the savings made by

buying that quantity.

4. No formula is a substitute for common sense - sometimes the EOQ may suggest that we

order a particular commodity every week (six-year supply) based on the assumption that we

need it at the same rate for the next six years. However we have to order it in the quantities

according to our judgment. Some items can be ordered every week; some can be ordered

monthly, depends on how feasible it is for the firm.

5. EOQ ordering must be tempered with judgment- Sometimes guidelines provide a conflict

in ordering. Where an order strategy conflicts with an operational goal, order strategy

restrictions should be developed to permit honoring the goal.

Quantity discounts: In the EOQ analysis, it has been assumed that material prices and

transportation costs were constant factors for the range of order quantities considered. In

practice, some situations occur in which the delivered unit cost of a material decreases

significantly if a slightly larger quantity than the originally computed EOQ is purchase d.

Quantity discounts, freight rate schedules and price increases may create such situations.

These additional variables can also be included in the formula.

Cost of carrying inventory:

Carrying material in inventory is expensive. A number of studies indic ated that the annual

cost of carrying a production inventory averaged approximately 25% of the value of the


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inventory. The escalating and volatile cost of money has escalated the annual inventory

carrying cost to a figure between 25% - 35% of the value of the inventory. The following five

elements make up this cost:

1) Opportunity cost (12% -20%)

2) Insurance cost (2% 4%)

3) Property taxes (1% - 3%)

4) Storage costs (1%- 3%)

5) Obsolescence and deterioration (4% - 10%)

Total carrying cost (20% - 40%)

Let us briefly look into these costs:

Opportunity cost of invested funds

When a firm uses money to buy production material and keeps it in the inventory, it simply

has this much less cash to spend for other purposes. Money invested in external securities

or in productive equipment earns a return for the company. Thus it is logical to charge all

money invested in inventory an amount equal to that it could earn elsewhere in the

company. This is the opportunity cost associated with inventory investment.

Insurance cost

Most firms insure the assets against possible losses from fire and other forms of damage.

Property taxes

This is levied on the assessed value of a firms assets, the greater the inventory value, the

greater the asset value and consequently the higher the firms tax bill.

Storage costs

The warehouse is depreciated every year over the length of its life. This cost can be charged

against the inventory occupying the space.

Obsolescence and deterioration

In most inventory operations, a certain percenta ge of the stock spoils, is damaged, is

pilfered, or eventually becomes obsolete. A certain number always takes place even if they


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are handled with utmost care.

Generally speaking, this group of carrying costs rises and falls nearly proportionately to the

rise and fall of the inventory level.

Calculations:

TMX 20

MATERIAL

ORDERED 2005-6

DEMAND

ORDER

COST HOLDING

ARM 30 22 1200 1.048809

BUCKET 30 22 1200 1.048809

ECU 30 22 600 1.48324

CRANK 30 22 8000 0.406202

ENGINE BLOCK 30 22 4650 0.532795

2006-07

ARM 30 23 1200 1.072381

BUCKET 30 23 1200 1.072381

ECU 30 23 600 1.516575

CRANK 30 23 8000 0.415331

ENGINE BLOCK 30 23 4650 0.54477

2007-08

ARM 30 24 1200 1.095445BUCKET 30 24 1200 1.095445

ECU 30 24 600 1.549193

CRANK 30 24 8000 0.424264

ENGINE BLOCK 30 24 4650 0.556487

2008-09

ARM 30 25 1200 1.118034

BUCKET 30 25 1200 1.118034

ECU 30 25 600 1.581139

CRANK 30 25 8000 0.433013

ENGINE BLOCK 30 25 4650 0.567962

2009-10

ARM 30 27 1200 1.161895

BUCKET 30 27 1200 1.161895

ECU 30 27 600 1.643168

CRANK 30 27 8000 0.45

ENGINE BLOCK 30 27 4650 0.590243


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ANALYSIS

Even with all the production orders remaining constant for this particular type

of the machines due to the varying order costs the EOQ falls down varying

between .5 to 3 which depends on the various machine parts which is a basic

challenge for most of the Material managers who have to make decisions

based on this model. The company follows ordering all the materials on a

single schedule for a period of 3months based on the order flow in the

production line with the help of SAP module which is production planning. The

company considers all the effective inventory models to be best fit only on the

papers.


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EX 40

EX40

MATERIAL

ORDERED 2005-6

DEMAND

ORDER

COST HOLDING

ARM 40 22 1200 1.21106

BUCKET 40 22 1200 1.21106

ECU 45 22 600 1.81659

CRANK 50 22 8000 0.524404

ENGINE BLOCK 60 22 4650 0.7534872006-07

ARM 40 23 1200 1.238278

BUCKET 40 23 1200 1.238278

ECU 45 23 600 1.857418

CRANK 50 23 8000 0.53619

ENGINE BLOCK 60 23 4650 0.770421

2007-08

ARM 40 24 1200 1.264911

BUCKET 40 24 1200 1.264911

ECU 45 24 600 1.897367

CRANK 50 24 8000 0.547723

ENGINE BLOCK 60 24 4650 0.786991

2008-09

ARM 40 25 1200 1.290994

BUCKET 40 25 1200 1.290994

ECU 45 25 600 1.936492

CRANK 50 25 8000 0.559017

ENGINE BLOCK 60 25 4650 0.803219

2009-10

ARM 40 27 1200 1.341641

BUCKET 40 27 1200 1.341641

ECU 45 27 600 2.012461

CRANK 50 27 8000 0.580948

ENGINE BLOCK 60 27 4650 0.83473


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ANALYSIS







production line with the help of SAP module which is production pla nning. The


papers.


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TJD V

TJD V

MATERIAL

ORDERED 2005-6

DEMAND

ORDER

COST HOLDINGARM 3000 22 1200 10.48809

BUCKET 4800 22 1200 13.2665

ECU 7200 22 600 22.97825

CRANK 11000 22 8000 7.778175

ENGINE BLOCK 14000 22 4650 11.5097

2006-07

ARM 3000 23 1200 10.72381

BUCKET 4800 23 1200 13.56466

ECU 7200 23 600 23.49468

CRANK 11000 23 8000 7.952987

ENGINE BLOCK 14000 23 4650 11.76837

2007-08

ARM 3000 24 1200 10.95445

BUCKET 4800 24 1200 13.85641

ECU 7200 24 600 24

CRANK 11000 24 8000 8.124038

ENGINE BLOCK 14000 24 4650 12.02149

2008-09

ARM 3000 25 1200 11.18034

BUCKET 4800 25 1200 14.14214

ECU 7200 25 600 24.4949CRANK 11000 25 8000 8.291562

ENGINE BLOCK 14000 25 4650 12.26938

2009-10

ARM 3000 27 1200 11.61895

BUCKET 4800 27 1200 14.69694

ECU 7200 27 600 25.45584

CRANK 11000 27 8000 8.616844


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ENGINE BLOCK 14000 27 4650 12.75071

ANALYSIS







production line with the help of SAP module which is prod uction planning. The

company considers all the effective inventory models to be best fit only on thepapers.


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EX200

EX200

MATERIAL

ORDERED 2005-6

DEMAND

ORDER

COST HOLDING

ARM 1900 22 1200 8.346656

BUCKET 2300 22 1200 9.183318

ECU 2900 22 600 14.5831

CRANK 3850 22 8000 4.60163

ENGINE BLOCK 4800 22 4650 6.739388

2006-07

ARM 1900 23 1200 8.534245

BUCKET 2300 23 1200 9.389711

ECU 2900 23 600 14.91085

CRANK 3850 23 8000 4.70505

ENGINE BLOCK 4800 23 4650 6.890854

2007-08

ARM 1900 24 1200 8.717798

BUCKET 2300 24 1200 9.591663ECU 2900 24 600 15.23155

CRANK 3850 24 8000 4.806246

ENGINE BLOCK 4800 24 4650 7.039062

2008-09

ARM 1900 25 1200 8.897565

BUCKET 2300 25 1200 9.78945

ECU 2900 25 600 15.54563

CRANK 3850 25 8000 4.905354

ENGINE BLOCK 4800 25 4650 7.184212

2009-10

ARM 1900 27 1200 9.246621

BUCKET 2300 27 1200 10.17349

ECU 2900 27 600 16.15549

CRANK 3850 27 8000 5.097794

ENGINE BLOCK 4800 27 4650 7.466052


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ANALYSIS




challenge for most of the Material managers who have to make decisionsbased on this model. The company follows ordering all the materials on a


production line with the help of SAP module which is production pla nning. The


papers.


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The ABC Classification:

Indicators that classifies a material as an A,B or C part according to its consumption value

.The classification process is known as the ABC analysis.

The three indictors have the following meanings:

A-important part , high consumption value

B-less important , medium consumption value

C-relatively unimportant part , low consumption value

The ABC classification system is 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 order is 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 invent ory is called a

shortage.

ABC Inventory Classification

The ABC classification process is an analysis of a range of items, such as finished products or

customers into three categories: A - outstandingly important; B - of average importance; C -

relatively unimportant as a basis for a control scheme. Each category can and sometimes

should be handled in a different way, with more attention being devoted to category A, less

to B, and less to C.Inventory Control Application: The ABC classification system is 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.

Break-even analysis depends on the following variables:


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1. Selling Price per Unit: The amount of money charged to the customer for each unitof a product or service.

2. Total Fixed Costs: The sum of all costs required to produce the first unit of a product.This amount does not vary as production increases or decreases, until new capital

expenditures are needed.

3. Variable Unit Cost: Costs that vary directly with the production of one additionalunit.

Total Variable Cost The product of expected unit sales and variable unit cost, i.e., expected

unit sales times the variable unit cost.

4. Forecasted Net Profit: Total revenue minus total cost. Enter Zero (0) if you wish tofind out the number of units that must be sold in order to produce a profit of zero

(but will recover all associated costs)

Break-Even Point in TELCON: Number of units that must be sold in order to produce a profit

of zero (but will recover all associated costs). In other wo rds, the break-even point is the

point at which your product stops costing you money to produce and sell, and starts to

generate a profit for your company.

where:

Q = Break-even Point, i.e., Units of production (Q),

FC = Fixed Costs,

VC = Variable Costs per Unit

UP = Unit Price

Therefore,

Break-Even Point Q = Fixed Cost / (Unit Price - Variable Unit Cost)

Stock control and inventory

Stock control, otherwise known as inventory control, is used to show how much stock youhave at any one time, and how you keep track of it.

It applies to every item you use to produce a product or service, from raw materials to

finished goods. It covers stock at every stage of the production process, from purchase and

delivery to using and re-ordering the stock.


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Efficient stock control allows you to have the right amount of stock in the right place at the

right time. It ensures that capital is not tied up unnecessarily, and protects production if

problems arise with the supply chain.

Supply chain vendor management inventory:

Allows supply chain partners to share critical order, demand and inventory information in

real-time and uses both integrated and web based applications to reduce administration

costs, shortening cycle times and help lower inventory lev els. Our unique, managed supply

hub requires little upfront investment, yet quickly starts delivering high performance in real

time

Inventory Control Overview

Normal Inventory

As it sounds, this type of inventory item will be used for the majority of your parts. It will

correctly track the inventory received and sold on a first in first out basis, will handle cost of

sales, and will warn you when you're out of stock.

Non-Inventory Type

This is used for selling things that are not really inventory item s. For example, you could be

selling warranty, but because you don't have warranty in a box to sell, and you'll never run

out of stock, you won't need to keep inventory control on it. As well, there is no cost of sale

adjustments with non-stock items. The system will not calculate how much you paid for the

item, and therefore will not try to remove that value from inventory in the general ledger. If

you are selling something that does cost you money, you will have to handle these details

manually.

Labor Parts

You (probably) don't have technicians hanging from hooks in your back room, so like non -

inventory items, the system will not try to remove them from inventory when you sell a

labor item. The two differences between Non -Inventory items an Labor items are that you

can optionally have the system ask you for the technician code that did the work so that you


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can print reports showing who did what work. As well, the system will optionally ask for a

comment to explain what was done so that the description of t he service work can be

printed on the invoice.

Note too that you can optionally keep track of how much time was spent and how much

time was billed for on a per job basis. At the end of the month, you can then print technician

productivity reports to compa re total time spent compared to billable hours. In the

automotive industry, some mechanics can do the work faster than is what is billed because

the billing is based on industry standards.

Consignment Items

Consignments can be used to keep track of inventory that you don't own, but at the time

you sell it, you must pay for it. You'll be able to generate several reports, including a list of

inventory that is on consignment but not sold and a list of inventory sold on consignment,

but not yet paid for.

Floor Plan Inventory

Floor planning is very similar to consignment, except that you take possession and own the

inventory when you receive it, but you don't have to pay for it until it's sold, or until it's

been in the store for a negotiated period of time. H owever, you do own the inventory and

do have to pay for it sometime.

Some floor planning companies want the ability to check the inventory serial number by

serial number for the larger items, and others may just want to count the number of each

model number on hand. Regardless, Windward System Five can handle it.

On the accounts payable side, you will be able to keep track of who you owe the money too

(Floor Planning Company) and who you actually bought the inventory from (Supplier) and

generate proper histories of each.

Tire Inventory


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Windward System Five has the ability to sort and categorize tires by their size, aspect ratio

and rim size. In addition, you will also be able to search for the tires by just entering in some

of the search criteria and having the system bring up a window of all matches.

When the list brings up a list of tires that can all fit the vehicle, the system can sort the list to

show the items with the highest quantity in stock at the top of the list and the i tems that are

out of stock at the bottom of the list. This will help you sell what you actually have to sell

instead of creating special orders.

Product Inventory

Products are items such as vehicles that you might service or repair after selling them to the

customer. That is, they are an item in the database that can be sold, and when sold, are

automatically added to the customer's list of products that can be worked on.

Examples are vehicles, trucks, recreational vehicles, fridges, air conditioners, and chainsaws.

The system will let you keep additional information on these products, such as make, model,

year, and other comments, and will also be able to list all the work or repairs performed

between two dates.

Windward System Five can also track whole goods such as recreational vehicles by keeping

track of the cost of the item before the sale, add ones and pre -delivery inspection items. In

addition, the system can generate a "wash out" report one level deep to show the costs and

income associated with the trade in.

Serialized Inventory

Those items that need to be tracked by their serial numbers can be marked as serialized

inventory. For example, fridges, stoves, computers, and chainsaws might all be serialized.

Note that if you plan on servicing these items in the future and keeping track of all work you

do on them, they should be entered as products instead of serial numbers.


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TYPES OF INVENTORY

Several different types of inventories are conducted, depending upon the type of

materiel involved and type of information needed. Bulkhead-to-Bulkhead Inventory

A bulkhead-to-bulkhead inventory is a physical count of all stock materiel within the

ship or within a specific storeroom. . A bulkhead-to-bulkhead inventory of a specific

storeroom is taken when a random sampling inventory of that storeroom fails to

meet the inventory accuracy rate of 90 percent when directed as a result of a supply

management inspection (SMI). It is also taken when directed by the commanding

officer or when circumstances clearly indicate that it is essential to effective inventory

control.

Specific Commodity Inventory

The specific commodity inventory is a physical count of all items under the same

cognizance symbol, FSC, or that support the same operational function, such as-

boat spares, electron tubes, boiler tubes, or fire brick. This inventory is taken under the

same conditions as a bulkhead- to-bulkhead inventory; however, prior knowledge of

specific stock numbers and item location is required to conduct a specific commodity

inventory

Special Materiel Inventory

A special materiel inventory requires the physical count of all items that, because of

their physical characteristics, costs, mission essentiality, and criticality, are specifically

designated for separate identification and inventory control. Special materiel

inventories include, but are not limited to, stocked items designated as classified or

hazardous. Special materiel inventories also include controlled equipage and

presentation silver


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Advantage Inventory Control

The Inventory Control gives you the ability to handle your inventory your way. As one of the

most flexible and comprehensive modules in the Advantage, you can choose the level of

control that best suits your specific business needs. Your inventory can be valued on a LIFO,

FIFO or Average cost basis. You can choose to use parts explosions, serialized inventory,

parts allocations, vendors, warehouses and an audit trail. The system can also track the

quantity sold for each item for the last 12 months and, using this data, provides a sal es

analysis report to help you better manage your stock. Financing is aided by the serialized

aged report that shows which serialized items have been in your inventory the longest and

how much you have outstanding. Pricing can be standardized by rounding t o a given factor

or by being set to a specific suffix. With the Below Minimum report, reordering stock is

automatic and accurate. Inventory Control is a stand alone module that can also be

integrated with Purchase Orders, Point of Sale, Billing/Order Entry , Job Cost, Time Billing

and Quick Sale.

21character alphanumeric item number field

Lookup on item number, item description (21 characters) and group (15 character) fields

Tracks serialized items

Allows for superseded, preceded and substitute items

Unlimited additional descriptions can be added to items

Handles markup and gross profit cost basis

Can automatically update item pricing and discounts

Handles core pricing

Produces a reorder report based on minimum stock quantities

Tracks unlimited vendors per item and recommends a best vendor

Tracks allocations including explosion allocations

Up to 254 discounts per item, including quantity break discounts

Unit conversions can be defined for each item for both buying and selling quantities

Allows for warehouse transfers and other quantity adjustments

Set up special sale dates for item discounting


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Produces physical inventory forms

Imports physical inventory and received quantities from data collected with hand -held

computers

Provides up to 255 levels of parts explosion to allow you to identify all components of your

assembled stock

Automatically updates cost and price on explosion items based on subassembly changes

Reports the best and worst selling items in each of eight different categor ies

Tracks items by location or quantity in multiple warehouses

Can automatically generate items based on a template item

Utilizes Rapid Entry to facilitate entry of item data

Disadvantages:

conveyor needs to be slightly declined for carton movement (one way);

may require addition of powered booster units in some applications;

cannot be used for inter-floor movement except for down travel;

goods need to be manually pushed when horizontal;

no positive control over moving carton;

produces line pressure when accumulating.

Require efficiency of land

We propose a method for valuing new, recoverable, and recovered assemblies (products,

components, parts, etc.) in production systems with reverse logistics. Values of assemblie s

influence their opportunity holding cost rates and are hence essential for comparing

inventory strategies in average cost models. We argue that the proposed method is 'correct'

from a discounted cash flow (DCF) point of view. We refer to some previous re sults on

valuing assemblies in systems without disassembly of returned products that seem to

confirm this. Furthermore, we test the method for a specific example with disassembly of


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returned products. The simulation results indicate that the method indeed leads to (nearly)

DCF optimal inventory strategies.

Packaging

In TELCON, with its large product volumes, High margins and fierce competition, is

constantly seeking efficiency improvements in its supply chain. The grocery retail industry

uses an immense amount of packaging and is directly affected by packaging logistics

activities. There is, therefore, a potential for efficiency improvements in the grocery retail

supply chain through the integration and development of new systems of packaging and

logistics. Packaging handling is identified as one of the main activities that has a strong

impact on the overall logistical cost of chain. This research article investigates packaging

handling evaluation methods and discusses how these are employed to benefit t he industry

from the industry, have been used to evaluate packaging and logistics activities. This work,

together with a literature review, was used to identify the need for evaluative methods and

the present availability of such methods. The results indicated a lack of sufficient and usable

packaging handling evaluation methods in today's grocery and packaging industry especially

from a logistical point of view. The paper also highlights the lack of systematization among

the few methods used and discusses how these can be used to build a systematic and

multifunctional evaluation model in order to utilize the information from different studies to

build a knowledge base for the future

Vendor-Managed Inventory

TELCON is a leading global manufacturer, focused on delivering operational services to high -

tech companies, needed to take advantage of vendor-managed inventory (VMI)

postponement and optimal fulfillment solutions to stay competitive in its low -margin

manufacturing marketplace. Its objective was to find ways to reduce inventory redundancy,

improve customer responsiveness by reduced cycle times and simplify supplier

management and procurement administration. The manufacturer also needed to augment


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existing infrastructure, while reducing investments in a dditional personnel, facilities and

systems Vendor Managed Inventory (VMI)

Vendor Managed Inventory supports the efficient flow of materials into the market.

Working closely with you and your suppliers, we automate the forecast management

process with Web-based software that enables the flow of supply to more accurately mirror

store and even shelf-level demand.

Move your inventory in and out of our distribution centers and manage demand planning.

We can store and stage product for replenishment at o ur often freeing or limited store

rooms. We provide forecast visibility, comparing actual demand against DC -on-hand, store-

on-hand and in-transit inventory. When store or inventory falls below pre -determined

levels, auto alerts are sent to you and your supplier to prompt replenishment.

Advanced Shipping Notices (ASNs) provide detail on in -transit inventory from suppliers so

you have visibility to inventory deeper into the supply chain. This allows for confident

commitment to orders based on this inbound f low.

Postpone inventory ownership until shipment to your site. Once your inventory is moved to

the we work with your suppliers to transition inventory ownership until demand occurs.

Perform value-added services, allowing you to more efficiently manage th e flow of goods

into manufacturing or directly to market.


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6. WAREHOUSE

A warehouse is a commercial building for storage of goods. Warehouses are used by

manufacturers, importers, exporters, wholesalers, transport businesses, customs, etc. They

are usually large plain buildings in industrial areas of cities and towns. They come equipped

with loading docks to load and unload trucks; or sometimes are loaded directly from

railways, airports, or seaports. They also often have cranes and forklifts for moving goods,

which are usually placed on ISO standard pallets loaded into pallet racks.

Some warehouses are completely automated, with no workers working inside. The pallets

and product are moved with a system of automated conveyors and automated storage and

retrieval machines coordinated by programmable logic controllers and computers running

logistics automation software. These systems are often installed in refrigerated warehouses

where temperatures are kept very cold to keep the product from spoiling, and also where

land is expensive, as automated storage systems can use vertical space efficiently. These

high-bay storage areas are often more than 10 meters high, with some over 20 meters high.

The direction and tracking of materials in the warehouse is coordinated by the WMS, or

Warehouse Management System, a database driven computer program. The WMS is used

by logistics personnel to improve the efficiency of the warehouse by directing putaways and

to maintain accurate inventory by recording warehouse transactions.

Traditional warehousing has been declining since the last decades of the 20th century with

the gradual introduction of Just In Time (JIT) techniques designed to improve the return on

investment of a business by reducing in-process inventory. The JIT system promotes the

delivery of product directly from the factory to the retail merchant, or from parts

manufacturers directly to a large scale factory such as an automobile assembly plant,

without the use of warehouses. However, with the gradual implementation of offshore

outsourcing and offshoring in about the same time period, the distance between the

manufacturer and the retailer (or the parts manufacturer and the industrial plant) grew

considerably in many domains, necessitating at least one warehouse per country or per

region in any typical supply chain for a given range of products.


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Recent developments in marketing have also led to the development of warehouse -style

retail stores with extremely high ceilings where decorative shelving is replaced by tall heavy

duty industrial racks, with the items ready fo r sale being placed in the bottom parts of the

racks and the crated or palletized and wrapped inventory items being usually placed in the

top parts. In this way the same building is used both as a retail store and a warehouse.

TELCON has only one centralized warehouse in Nagpur Maharashtra


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7. TRANSPORTATION

Transport or transportation is the movement of people and goods from one place to

another. The term is derived from the Latin trans ("across") andportare ("to carry").

Industries which have the business of providing equipment, actual transport, transport of

people or goods and services used in transport of goods or people make up a large broad

and important sector of most national economies, and are collectively referred to as

transport industries.

MODES OF TRANSPORT USED FOR TRANFER OF INVENTORY IN TELCON

Air transport

Rail transport

Road transport, including human-powered transport such as walking and cycling

Ship transport


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Transport is a major use of energy, and transport burns most of the world's petroleum.

Transportation accounts for 2/3 of all U.S. petroleum consumption.[3]

The transportation sector generates 82 percent of carbon monoxide and 56 percent of NOx

emissions and over one-quarter of total US greenhouse gas emissions.[4]

Hydrocarbon fuels

also produce carbon dioxide, a greenhouse gas widely thought to be the chief cause of

global climate change, and petroleum-powered engines, especially inefficient ones, create

air pollution, including nitrous oxides and particulates (soot). Although vehicles in developed

countries have been getting cleaner because of environmental regulations, this has been

offset by an increase in the number of vehicles and more use of each vehicle.

Other environmental impacts of transport systems include traffic congestion and

automobile-oriented urban sprawl, which can consume natural habitat and agricultural

lands.

Toxic runoff from roads and parking lots that can also pollute water supplies and aquatic

ecosystems.

Alternative propulsion can reduce pollution. Low pollution fuels may have a reduced carbon

content, and thereby contribute less in the way of carbon dioxide emissions, and generally

have reduced sulfur, since sulfur exhaust is a cause of acid rain. The most popular low-

pollution fuels at this time are biofuels: gasoline-ethanol blends and biodiesel. Hydrogen is

an even lower-pollution fuel that produces no carbon dioxide, but producing and storing it

economically is currently not feasible. Plug-in hybrids are energy-efficient vehicles that are

going to be in the mass -production.

Another strategy is to make vehicles more efficient, which reduces pollution and waste by

reducing the energy use. Electric vehicles use efficient electric motors, but their range is

limited by either the extent of the electric transmission system or by the storage capacity of

batteries. Electrified public transport generally uses overhead wires or third rails to transmit

electricity to vehicles, and is used for both rail and bus transport. Battery electric vehicles

store their electric fuel onboard in a battery pack. Another method is to generate energy

using fuel cells, which may eventually be two to five times as efficient as the internal


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combustion engines currently used in most vehicles. Another effective method is to

streamline ground vehicles, which spend up to 75% of their energy on air -resistance, and to

reduce their weight. Regenerative braking is possible in all electric vehicles and recaptures

the energy normally lost to braking, and is becoming common in rail vehicles. In internal

combustion automobiles and buses, regenerative braking is not possible, unless electric

vehicle components are also a part of the powertrain, these are called hybrid electric

vehicles.


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8. DISTRIBUTION

Distribution is one of the 4 aspects of marketing. A distributor is the middleman between

the manufacturer and retailer. After a product is manufactured it is typically shipped (and

usually sold) to a distributor. The distributor then sells the product to retailers or customers.

The other three parts of the marketing mix are product management, pricing, and

promotion.

Traditionally, distribution has been seen as dealing with logistics: how to get the product or

service to the customer. It must answer questions such as:

Should the product be sold through a retailer?

Should the product be distributed through wholesale?

Should multi-level marketing channels be used?

How long should the channel be (how many members)?

Where should the product or service be available?

When should the product or service be available?

Should distribution be exclusive, selective or intensive?

Who should control the channel (referred to as the channel captain)?

Should channel relationships be informal or contractual?

Should channel members share advertising (referred to as co-op ads)?

Should electronic methods of distribution be used?

Are there physical distribution and logistical issues to deal with?


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What will it cost to keep an inventory of products on store shelves and in channel

warehouses (referred to asfilling the pipeline)?

THE DISTRIBUTION CHANNEL

Frequently there may be a chain of intermediaries, each passing the product down the chain

to the next organization, before it finally reaches the consumer or end -user. This process is

known as the 'distribution chain' or the 'channel.' Each of the elements in these chains will

have their own specific needs, which the producer must take into account, along with those

of the all-important end-user.

A number of alternate 'channels' of distribution may be available:

Selling direct, such as via mail order, Internet and telephone sales

Agent, who typically sells direct on behalf of the producer

Distributor (also called wholesaler), who sells to retailers

Retailer (also called dealer or reseller), who sells to end customers

Advertisement typically used for consumption goods

Distribution channels may not be restricted to physical products alone. They may be just as

important for moving a service from producer to consumer in certain sectors, since both

direct and indirect channels may be used. Hotels, for example, may sell their services

(typically rooms) directly or through travel agents, tour operators, airlines, tourist boards,

centralized reservation systems, etc.

There have also been some innovations in the distribution of services. For example, there

has been an increase in franchising and in rental services - the latter offering anything from

televisions through tools. There has also been some evidence of service integration, with

services linking together, particularly in the travel and tourism sectors. For example, links

now exist between airlines, hotels and car rental services. In addition, there has bee n a


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significant increase in retail outlets for the service sector. Outlets such as estate agencies

and building society offices are crowding out traditional grocers from major shopping areas..

CHANNEL MEMBERS

Distribution channels can thus have a number of levels. Kotler defined the simplest level,

that of direct contact with no intermediaries involved, as the 'zero -level' channel.

The next level, the 'one-level' channel, features just one intermediary; in consumer goods a

retailer, for industrial goods a d istributor, say. In small markets (such as small countries) it is

practical to reach the whole market using just one- and zero-level channels.

In large markets (such as larger countries) a second level, a wholesaler for example, is now

mainly used to extend distribution to the large number of small, neighborhood retailers.

In Japan the chain of distribution is often complex and further levels are used, even for the

simplest of consumer goods.

Many of the marketing principles and techniques which are applied to the external

customers of an organization can be just as effectively applied to each subsidiary's, or each

department's, 'internal' customers.

In some parts of certain organizations this may in fact be formalized, as goods are

transferred between separate parts of the organization at a `transfer price'. To all intents

and purposes, with the possible exception of the pricing mechanism itself, this process can

and should be viewed as a normal buyer -seller relationship. The fact that this is a captive

market, resulting in a monopoly price', should not discourage the participants from

employing marketing techniques.

Less obvious, but just as practical, is the use of `marketing' by service and administrative

departments; to optimize their contribution to the ir `customers' (the rest of the

organization in general, and those parts of it which deal directly with them in particular). In

all of this, the lessons of the non -profit organizations, in dealing with their clients, offer a

very useful parallel.


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CHANNEL MANAGEMENT

The channel decision is very important. In theory at least, there is a form of trade -off: the

cost of using intermediaries to achieve wider distribution is supposedly lower. Indeed, most

consumer goods manufacturers could never justify the cost of selling direct to their

consumers, except by mail order. In practice, if the producer is large enough, the use of

intermediaries (particularly at the agent and wholesaler level) can sometimes cost more

than going direct.

Many of the theoretical arguments about channels therefore revolve around cost. On the

other hand, most of the practical decisions are concerned with control of the consumer. Thesmall company has no alternative but to use intermediaries, often several layers of them,

but large companies 'do' have the choice.

However, many suppliers seem to assume that once their product has been sold into the

channel, into the beginning of the distribution chain, their job is finished. Yet that

distribution chain is merely assuming a part of the supplier 's responsibility; and, if he has

any aspirations to be market-oriented, his job should really be extended to managing, albeit

very indirectly, all the processes involved in that chain, until the product or service arrives

with the end-user. This may involve a number of decisions on the part of the supplier:

Channel membership

Channel motivation

Monitoring and managing channels

Good Distribution Practice or GDP deals with the guidelines for the proper distribution of

medicinal products for human use. GDP is a quality warranty system, which includes

requirements for purchase, receiving, storage and export of drugs, intended for human

consumption.


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GDP regulates the division and movement of pharmaceutical products from the premises of

the manufacturer of medicinal products, or another central point, to the end user th ereof,

or to an intermediate point by means of various transport methods, via various storage

and/or health establishments.


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10. CONCLUSION

Logistics is the art and science of managing and controlling the flow of goods, energy,

information and other resources like products, services, and people, from the source of

production to the marketplace. It is difficult or nearly impossible to accomplish any

international trading, global export/import processes, international repositioning of raw

materials/products and manufacturing without a professional logistical support. It involves

the integration of information, transportation, inventory, warehousing, material handling,

and packaging. The operating responsibility of logistics is the geographical repositioning of

raw materials, work in proce ss, and finished inventories where required at the lowest cost

possible.

Inventory is a list of goods and materials, or those goods and materials themselves, held

available in stock by a business. Inventory are held in order to manage and hide from the

customer the fact that manufacture/supply delay is longer than delivery delay, and also to

ease the effect of imperfections in the manufacturing process that lower production

efficiencies if production capacity stands idle for lack o f materials.

FINALLY I CONCLUDE THAT TELCON HAS THE BEST INVENTORY CONTROL MEASURES THEY

HAVE BACK UP FOR EVERYTHING WE LEARNT

y HOW INVENTORY IS MANAGEDy WHAT IS ROLE OF TRANSPORTy WHAT IS ROLE OF PACKAGINGy ROLE OF SUPPLY CHAIN IN INEVNTORYy ROLE OF LOGISTICS DEPARTMENT IN INVENTORY


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THEY CAN STILL UPGRADE MORE BY CONCENTRATING MORE ON

JUST IN TIME

MAKE BUY IMPORT

PRICE FIXING

COST ACCOUNTING

COST REDUCTION TECHNIQUES LIKE

VALUE ENGINEERING

STANDARDIZATION

AND OTHER TRANSPORTATIONS PROBLEMS


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12. BIBLIOGRAPHY

WWW.GOOGLE.COM

WWW.TELCON.CO.IN

inventory management at telcon

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