inventory managementfinal

7/30/2019 Inventory Managementfinal

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INVENTORY

MANAGEMENT

@ OM BIOMEDICS

PVT LTD

Submitted to

Dr. Sumit Singh Jasial

ContentsContents..................................................................................................................... 1

By :Annu Yadav (E-11)Govind Verma (E-27)Pranav Singh (E-37)Rajat Goyal (E-43)


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INTRODUCTION........................................................................................................3

MEANING OF INVENTORY:-......................................................................................3

NATURE OF INVENTORIES :- ..................................................................................3

RAW MATERIALS:- ...................................................................................................3

WORK IN PROGRESS:- .............................................................................................3

PACKAGING MATERIAL:- .......................................................................................4

FINISHED GOODS:- ................................................................................................. 4

INVENTORY MANAGEMENT......................................................................................4

Two types of cost are involved in the inventory maintenance:-..............................6

OBJECTIVES OF INVENTORY MANAGEMENT.............................................................6

Operating Objectives:..............................................................................................7

Financial Objectives:............................................................................................. 8

Importance of inventory management....................................................................8

SUCCESSFUL INVENTORY MANAGEMENT...............................................................10

About Inventory Control........................................................................................ 11

ADVANTAGES OF INVENTORY CONTROL:..............................................................11

Inventory Costs..................................................................................................... 12

Safety Stock.......................................................................................................... 12

Ordering Costs.......................................................................................................12

The Cost of Shortfalls............................................................................................12Cyclical Counting................................................................................................... 13

TECHNIQUES OF INVENTORY MANAGEMENT.........................................................14

Economic Order Quantity...................................................................................... 15

Just in Time Inventory............................................................................................16

ABC Analysis.......................................................................................................... 17

Common Inventory Valuation Methods..................................................................18

Inflationary Effects on Valuation............................................................................19

INDUSTRY OVERVIEW............................................................................................20

Pharmaceutical industry in India..............................................................................20

Om Biomedic Private Limited...............................................................................21

Contact Details......................................................................................................22

Procedure followed by the company.....................................................................22

DATA COLLECTED.................................................................................................. 23


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CONCLUSION ........................................................................................................26

INTRODUCTION

MEANING OF INVENTORY:-

Inventory is the physical stoke of goods maintained in an organization for its smooth sunning. In

accounting language it may mean stock of finished goods only. In a manufacturing concern, it

may includes raw materials, work-in-progress and stores etc. In the form of materials or supplies

to be consumed in the production process or in the rendering of services.

In brief, Inventory is unconsumed or unsold goods purchased or manufactured.

NATURE OF INVENTORIES :-

Inventories are stock of the product a company is manufacturing for sale and components that

make up the product. The various forms in which inventory exist in a manufacturing

company are raw materials, work in progress and finished goods.

RAW MATERIALS:-

Raw materials are those inputs that are converted into finished product though the

manufacturing process. Raw materials inventories are those units which have been purchased

and stored for future productions.

WORK IN PROGRESS:-

These inventories are semi manufactured products. They represent products that need more

work before they become finished products for sales.


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PACKAGING MATERIAL:-

Packaging material includes those items which are used for packaging of perfumery product i.e.

cap of the bottle, pump, coller,liver, box etc.

FINISHED GOODS:-

Finished goods inventories are those completely manufactured products which are ready forsale. Stock of raw materials and work in progress facilitate production. While stock of finished

goods is required for smooth marketing operation. Thus, inventories serve as a link between the

production and consumption of goods.

INVENTORY MANAGEMENT

"managing the level of inventory is like maintaining the level of water in a bath tub with an open

drain. the water is flowing out continuously. if water is let in too slowly, the tub is soon empty. ifthe water is let in too fast, the tub overflows."

The dictionary meaning of inventory is 'stock of goods'. The investment in inventory is

very high in most of the undertakings engaged in manufacturing. The amount of investment is

sometimes more in inventory than in other assets. About 90 percent part of working capital is

invested in inventories. It is necessary for every management to give proper attention to

inventory management. A proper planning of purchasing, handling, storing and accounting

should form a part of inventory management. By proper planning it is possible for a company to

reduce its levels of inventories to a considerable degree, without any adverse effect on

production and sales, by using simply inventory planning and control technique. The reduction in

excessive inventories carries a favorable impact on company's profitability.

An efficient system of inventory management will determine.

1) What to purchase


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2) How much to purchase

3) From where to purchase

4) Where to store, etc.

"Effective inventory management enables an organization to meet or exceed customers'

expectations of product availability while maximizing net profits or minimizing co.

Inventories constitute about 60% of current assets of companies of India. The manufacturing

companies hold inventories in the form of raw materials, work in process, finished goods, stores

and spares, chemicals, lubricants etc.

In a literal sense, inventory refers to stocks of anything necessary to do business. These stocksrepresent a large portion of the business investment and must be well managed in order to

maximize profits. In fact, many small businesses cannot absorb the types of losses arising from

poor inventory management. Unless inventories are controlled, they are unreliable, inefficient

and costly.

Inventory management simply means the methods you use to organize, store and replace

inventory, to keep an adequate supply of goods while minimizing costs. Each location where

goods are kept will require different methods of inventory management. Keeping an inventory,or stock of goods, is a necessity in retail. Customers often prefer to physically touch what they

are considering purchasing, so you must have items on hand. In addition, most customers prefer

to have it now, rather than wait for something to be ordered from a distributor. Every minute that

is spent down because the supply of raw materials was interrupted costs the company unplanned

expenses

Three motives for holding inventories:-

To facilitate smooth production and sales operation (transaction motive),

To guard against the risk of unpredictable changes in usage rate and delivery time

(precautionary motive)


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Operating Objectives:

(1) Ensuring Availability of Materials: There should be a continuous availability of all

types of raw materials in the factory so that the production may not be help up wants of any

material. A minimum quantity of each material should be held in store to permit production

to move on schedule.

(2) Avoidance of Abnormal Wastage: There should be minimum possible wastage of

materials while these are being stored in the godowns or used in the factory by the workers.

Wastage should be allowed up to a certain level known as normal wastage. To avoid any

abnormal wastage, strict control over the inventory should be exercised. Leakage, theft,

embezzlements of raw material and spoilage of material due to rust, bust should be avoided.

(3) Promotion of Manufacturing Efficiency: If the right type of raw material is available tothe manufacturing departments at the right time, their manufacturing efficiency is also

increased. Their motivation level rises and morale is improved.

(4) Avoidance of Out of Stock Danger: Information about availability of materials should

be made continuously available to the management so that they can do planning for

procurement of raw material. It maintains the inventories at the optimum level keeping in

view the operational requirements. It also avoids the out of stock danger.

(5) Better Service to Customers: Sufficient stock of finished goods must be maintained to

match reasonable demand of the customers for prompt execution of their orders.

(6)Highlighting slow moving and obsolete items of materials.

(7) Designing poorer organization for inventory management: Clear cut accountability should

be fixed at various levels of organization.


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Financial Objectives:

(1) Economy in purchasing: A proper inventory control brings certain advantages and

economies in purchasing also. Every attempt has to make to effect economy in purchasing

through quantity and taking advantage to favorable markets.

(2) Reasonable Price: While purchasing materials, it is to be seen that right quality of material

is purchased at reasonably low price. Quality is not to be sacrificed at the cost of lower price.

The material purchased should be of the quality alone which is needed.

(3) Optimum Investing and Efficient Use of capital: The basic aim of inventory control from

the financial point of view is the optimum level of investment in inventories. There should be

no excessive investment in stock, etc. Investment in inventories must not tie up funds that

could be used in other activities. The determination of maximum and minimum level of stock

attempt in this direction.

Importance of inventory management

1. COUNTING CURRENT STOCK

All businesses must know what they have on hand and evaluate stock levels with respect to

current and forecasted demands. You must know what you have in stock to ensure you can meet

the demands of customers and production and to be sure you are ordering enough stock in the

future. Counting is also important because it is the only way you will know if there is a problem

with theft occurring at some point in the supply chain. When you become aware of such

problems you can take steps to eliminate them.


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Warehouse employees should be educated on the costs of improper inventory management. Be

sure they understand that the lower your profit margin, the more sales must be generated to make

up for the lost goods. Incentive programs can help employees keep this in perspective. When

they see a difference in their paychecks from poor inventory management, they are more likely

to take precautions to prevent shrinkage.

Each stock item in your warehouse or back room should have its own procedures for

replenishing the supply. Find the best suppliers and storage location for each and record this

information in official procedures that can easily be accessed by your employees.

Inventory management should be a part of your overall strategic business plan. As the business

climate evolves towards a green economy, businesses are looking for ways to leverage this trend

as part of the big picture. This can mean re-evaluating your supply chain and choosing

products that are environmentally sound. It can also mean putting in place recycling procedures

for packaging or other materials. In this way, inventory management is more than a means to

control costs; it becomes a way to promote your business.

SUCCESSFUL INVENTORY MANAGEMENTSuccessful inventory management involves balancing the costs of inventory with the benefits of

inventory. Many small business owners fail to appreciate fully the true costs of carrying

inventory, which include not only direct costs of storage, insurance and taxes, but also the cost of

money tied up in inventory. This fine line between keeping too much inventory and not enough

is not the manager's only concern. Others include:

Maintaining a wide assortment of stock -- but not spreading the rapidly moving ones too

thin;

Increasing inventory turnover -- but not sacrificing the service level;

Keeping stock low -- but not sacrificing service or performance.


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Obtaining lower prices by making volume purchases -- but not ending up with slow-

moving inventory; and

Having an adequate inventory on hand -- but not getting caught with obsolete items.

The degree of success in addressing these concerns is easier to gauge for some than for

others. For example, computing

About Inventory Control

Inventory consists of the goods and materials that a retail business holds for sale or a

manufacturer keeps in raw materials for production. Inventory control is a means for maintaining

the right level of supply and reducing loss to goods or materials before they become a finished

product or are sold to the consumer.

Inventory control is one of the greatest factors in a companys success or failure. This part of the

supply chain has a great impact on the companys ability to manufacture goods for sale or to

deliver customer satisfaction on orders of finished products. Proper inventory control will

balance the customers need to secure products quickly with the business need to control

warehousing costs. To manage inventory effectively, a business must have a firm understanding

of demand, and cost of inventory.

ADVANTAGES OF INVENTORY CONTROL:

(1) Reduction in investment in inventory.

(2) Proper and efficient use of raw materials.

(3)No bottleneck in production.

(4) Improvement in production and sales.

(5) Efficient and optimum use of physical as well as financial resources.

(6)Ordering cost can be reduced if a firm places a few large orders in place of numerous small

orders.

(7)Maintenance of adequate inventories reduces the set-up cost associated with each production


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Inventory Costs

There are three main types of cost in inventory. There are the costs to carry standard inventories

and safety stock. Ordering and setup costs come into play as well. Finally, there are shortfall

costs. A good inventory control system will balance carrying costs against shortfall costs.

Safety Stock

Safety stock is comprised of the goods needed to be kept on hand to satisfy consumer demand.

Because demand is constantly in flux, optimizing the Safety Stock levels is a challenge.

However, demand fluctuations do not wholly dictate a companys ability to keep the right supply

on hand most of the time. Companies can use statistical calculations to determine probabilities in

demand.

Ordering Costs

Ordering costs have to do with placing orders, receiving and stowage. Transportation and invoice

processing are also included. Information technology has proven itself useful in reducing these

costs in many industries. If the business is in manufacturing, then to production setup costs are

considered instead.

The Cost of Shortfalls

Stock out or shortfall costs represent lost sales due to lack of supply for consumers. Sales

departments prefer these numbers be kept low so that an ample stock will always be kept.

Logistics managers prefer to err on the side of caution to reduce warehousing costs.


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Shortfall costs are avoided by keeping an ample safety stock on hand. This practice also

increases customer satisfaction. However, this must be balanced with the cost to carry goods.

The best way to manage stockout is to determine the acceptable level of customer service for the

business. One can then balance the need for high satisfaction with the need to reduce inventory

costs. Customer satisfaction must always be considered ahead of storage costs.

Cyclical Counting

Many companies prefer to count inventory on a cyclical basis to avoid the need for shutting

down operations while stock is counted. This means that a particular section of the warehouse or

plant is counted physically at particular times, rather than counting all inventory at once. Whilethis method may be less accurate than counting the whole, it is much more cost effective.

Cyclical counting is preferred because it allows for operations to continue while inventory is

taken. If not for this practice, a business would have to shut down while counts were taken, often

requiring the hire of a third party or use of overtime employees. Cyclical counting usually

utilizes the ABC rule, but there are other variations of this method that can be used. The ABC

rule specifies that tracking 20 percent of inventory will control 80 percent of the cost to store the

goods. Therefore, businesses concentrate more on the top 20 percent and counter other goods

less frequently. Items are categorized based on three levels:

A Category: Top valued 20 percent of goods, whether by economic or demand value

B Category: Midrange value items

C Category: Cheaper items, rarely in demand

Warehouse staff can now schedule counting of inventories based on these categories. The A

category is counted on a regular basis while B and C categories are counted only once a

month or once a quarter.


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TECHNIQUES OF INVENTORY MANAGEMENT

The various techniques of inventory management are:-

1. Level Setting

2. EOQ

3. Price Break

4. Just In time Inventory

5. ABC Analysis

Level Setting

In order to have proper control on materials, following levels are set:-

a. RE ORDER LEVEL

b. MINIMUM LEVEL

c. MAXIMUM LEVEL

1. RE ORDER LEVEL - It is the point at which stock of a particular material in store

approaches, the storekeeper should initiate the purchase requisition for fresh supplies of

that material. The level is fixed somewhere between the maximum and the minimum

level.


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MINIMUM LEVEL + CONSUMPTION DONE DURING THE TIME REQUIRED TO

GET FRESH STOCK

OR

(MAXIMUM CONSUMPTION X MAXIMUM RE ORDER PERIOD)

2. MINIMUM LEVELAlso called the safety stock, this represents the minimum quantity

of the material which must be maintained in hand at all times. The quantity is fixed so

that production may not be held up due to shortage of the material.

RE ORDER LEVEL (NORMAL CONSUMPTION *NORMAL RE ORDER PERIOD)

3. MAXIMUM LEVELIt represents the maximum quantity of an item of material which

can be held in stock at any time. Stock should not exceed this quantity. The quantity is

fixed so that there is no over-stocking.

RE ORDER LEVEL + RE ORDER QUANTITY (MINIMUM CONSUMPTION *

MINIMUM RE ORDERING PERIOD)

Economic Order Quantity

Economic order quantity is the order quantity that minimizes total inventory holding costs and

ordering costs. It is one of the oldest classical production scheduling models.EOQ applies only

when demand for a product is constant over the year and each new order is delivered in full when

inventory reaches zero. There is a fixed cost for each order placed, regardless of the number of

units ordered. There is also a cost for each unit held in storage, sometimes expressed as a

percentage of the purchase cost of the item.

Assumptions:-

1. The ordering cost is constant.

2. The rate of demand is known, and spread evenly throughout the year.


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3. The lead time is fixed.

4. The purchase price of the item is constant i.e. no discount is available

5. The replenishment is made instantaneously i.e. the whole batch is delivered at once.

6. Only one product is involved.

It consists of two parts:-

1. CARRYING COSTS Cost of holding the materials in the store. Eg.- Cost of

warehousing, cost of racks etc.

2. ORDERING COSTS Cost of placing the order. Eg.-Cost of purchasing department,

stationery costs etc.

Formula of Economic Order Quantity: 2CO/I (under root)

C Carrying cost

O Ordering cost

I Interest payment of storing cost per unit per year

Price Break Model

When there is discount offered on larger quantities, it may appear that the holding costs may

increase. But discounts offered are so attractive that it outweighs the holding costs. The formulais the same as that of EOQ, only the holding costs/carrying costs changes according to the price

break.

Just in Time Inventory


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Just-In-Time or JIT purchasing is the purchase of material or goods in such a way that delivery

of purchased items is assured before their use or demand. JIT purchasing recognizes too much

carrying costs associated with holding high inventory levels. Hence, it advocates developing

good relations with suppliers and making timely purchases from proven suppliers which can

make ready delivery of goods available as and when required.

JIT helps reduce the investment in inventory as more frequent purchase orders of small quantities

are made. Thus, the carrying cost is also reduced as a result of low investment in inventory. Also,

there is a reduction in the number of suppliers to be dealt with. Lastly, JIT reduces the wasting of

time by the workforce and the time is spent concentrated on the production process.

ABC Analysis

The ABC analysis is a business term used to define an inventory categorization technique often

used in materials management. It is also known as Selective Inventory Control. Policies based on

ABC analysis:

A ITEMS: very tight control and accurate records

B ITEMS: less tightly controlled and good records

C ITEMS: simplest controls possible and minimal records

The ABC analysis provides a mechanism for identifying items that will have a significant impact

on overall inventory cost, while also providing a mechanism for identifying different categories

of stock that will require different management and controls.

'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.

According to Pareto Principle, ABC has been divided into the following categories:


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Class A items may represent only about 10% of the total inventory items, but they

represent about 70% of the total money value.

Class B items may represent about 20% of the total inventory items and they represent

about 20% of the total money value.

Class C items may represent about 10% of the total inventory items, but they represent

only about 10% of the total money value.

Using the classification each item should be handled in different way, with more attention

being devoted to category A, less to B , and still less to C.

Common Inventory Valuation Methods

The methods a company uses to value the costs of inventory have a direct effect on the business

balance sheets, income statements and cash flows. Three methods are widely used to value such

costs. They are First-In, First-Out (FIFO), Last-In First-Out (LIFO) and Average Cost. Inventory

can be calculated based on the lesser of cost or market value. It can be applied to each item, each

category or on a total basis.

FIFO

FIFO operates under the assumption that the first product that is put into inventory is also the

first sold. An example of this in action can be made when we assume that a widget seller

acquires 200 units on Monday for Rs.1.00 per unit. The next day, he spots a good deal and gets

500 more for Rs.75 per unit. When valuing inventory under the FIFO method, the sale of 300

units on Wednesday would create a cost of goods sold of Rs.275. That is, 200 units at Rs1.00

each and 100 units at Rs.75 each. In this way, the first 200 units on the income statement were

valued higher. The remaining 400 widgets would be valued at Rs.75 each on the balance sheet in

ending inventory.

LIFO


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LIFO assumes instead that the last unit to reach inventory is the first sold. Using the same

example, the income statement and balance sheet would instead show a cost of goods sold of

Rs.225 for the 300 units sold. The ending inventory on the balance sheet would be valued at

Rs.350 in assets. When this method is used on older inventories, the companys balance sheet

can be greatly skewed. Consider the company that carries a large quantity of merchandise over a

period of 10 years. This accounting method is now using 10-year-old information to value its

assets.

WEIGHTED AVERAGE

Average Cost works out a weighted average for the cost of goods sold. It takes an average cost

for all units available for sale during the accounting period and uses that as a basis for the cost of

goods sold. To site our example again, we would calculate the cost of goods sold at [(200 x Rs.1)

+ (500 x Rs.75)]/700, or Rs.821 each. The remaining 400 units would also be valued at this rate

on the balance sheet in ending inventory.

SPECIFIC IDENTIFICATION

A less commonly used, but important method to valuation is called specific identification. This

method is used for high-end items that are more easily tracked. In some cases, this method can

be used for more common items, but less value is realized from this accounting method is such

cases. This is because powerful and detailed tracking software is required to employ specific

identification on large numbers of goods.

Inflationary Effects on Valuation

Market conditions change causing inflationary changes. When this happens, your

accounting method can have a strong impact on how healthy the business looks on income


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The lack of patent protection made the Indian market undesirable to the multinational companiesthat had dominated the market, and while they streamed out. Indian companies carved a niche inboth the Indian and world markets with their expertise in reverse-engineering new processes formanufacturing drugs at low costs. Although some of the larger companies have taken baby stepstowards drug innovation, the industry as a whole has been following this business model until the

present.

Om Biomedic Private Limited

Om Biomedic Private Limited is an Indian Pharma Company is engaged in manufacturing andmarketing of pharmaceutical products based in Haridwar, Uttarakhand.

Om biomedic private limited was established in 2007 (year) with 250 employees and we are the

manufacturer and exporter of diclosenac injection , amikacinsulsate , ceseriaone , salbectam ,drried ferrous sulsate and folic acid. Om Biomedic Private Limited Drug Regulatory Departmenthas well trained personnel for reviewing drug registration procedures with various Ministries ofHealth across the globe and for making products dossiers.Om Biomedic Private Limitedworksas a sub unit of Akums limited and they also manufacture many products for this company.

Fact Sheet

Year of Establishment = 2007 IndiaMART Member Since = 2011

Nature of Business = Manufacturer Legal Status of Firm = Limited Liability/Corporation (Privately Held)

Number of Employees = 476 People

Company has expertise in


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New Product Development Development of Analytical Method

Validation of Analytical Method

Technology Development & Transfer to others

Arranging B.E. Studies & Clinical Trials

Development of Reference & Working Standards

Novel Drug Delivery System (N.D.D.S)

Low RH Preparations with specific reference to SAMe (S-Adenosyl methionine) andclavulanic acid preparations

Taste Masking of Bitter drugs; and

Making drugs in palatable flavor.Company dedicates itself to humanitys quest for longer, healthier, happier lives throughinnovation in Pharmaceuticals Formulations; maintains its high ethical standards, making itsproducts & processes of high quality; and is committed to meeting the needs of its customers andconstantly focuses on customer satisfaction.

Contact Details

Om Biomedic Private Limited

Plot No- 68,69& 82- 83, Sector- 6-A, Sidcul,

Haridwar - 249 403, Uttarakhand, India

Procedure followed by the company

Sales order

Purchase planning

Master formula

Requirement generation


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Market quotation

Purchase order

Inward

Quality testing

Approved stock

Consumption saleorder

Issuing of material

DATA COLLECTED


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CONCLUSION

The data collected by us shows that the company follows the FIFO & FEFO methods ofinventory management for their different products according to the requirement of differentproducts, Whereas there major competitor like Ranbaxy & Sun Pharma uses the LIFO & FEFOfor their different products.

inventory managementfinal

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