sonam kant
TRANSCRIPT
A
PROJECT REPORT
ON
WITH SPECIAL EMPHASIS ON VARIOUS TECHNIQUES OF
INVENTORY CONTROL
UNDER THE GUIDANCE OF
MR.USMAN ALI (EXTERNAL GUIDE)
Submitted for the partial completion of the degree of Master of Business
Administration
At
Internal guide: Submitted by:
Ms. SHEETAL SONAM KANT
TABLE OF CONTENTS
Declaration
Acknowledgement
Preface
Executive Summary
Chapter-1 Introduction Page No
1.1 INVENTORY MANAGENENT
1.2 Overview of the GSK
1.3 Profile of the Organization
1.4 Need of the study
1.5 Objectives of the study
Chapter-2 Research Methodology
2.1 Statement of the Problem
2.2 Research Design
2.3 Sampling Techniques used
2.4 Selection of Sample Size
2.5 Data Collection
2.6 Statistical Tools Used
2.7 Limitations of the Study
Chapter-3 Data Analysis and interpretation
Chapter-4 Conclusion and Suggestions
Annexure
Questionnaire
Bibliography
DECLARATION
I, ………………, a Student of MBA 2009-11 Batch, Bhai Gurdas Institute of Engg. &
Technology, hereby declare that the project on “………………………….” is my original
work and that it has not previously formed the basis for the award of any other Degree,
Diploma, Fellowship or other similar titles.
It has been done under the guidance of …………………………………………………
(external guide).
sonam
ACKNOWLEDGEMENT
I feel immense pleasure to give the credit of my project
work not only to one individual as this work is integrated effort of all those who
concerned with it. I want to owe my thanks to all those individuals who guided
me to move on the track.
This report entitled “INVENROTY MANAGEMENT IN
GLAXOSMITHKLINE” is the outcome of my summer training at
GLAXOSMITHKLINE CONSUMER HEALTHCARE LTD., Nabha.
I would like to appreciate the pain staking effort of Mr.
Jagdish Rao (General Manager) and & Mr. Munish Kaushal (Manager
Finance & IT) for educating and guiding me at each and every stage and
providing me the information related to my chosen topic. I am equally thankful to
the whole team of Finance & IT Department of GLAXOSMITHKLINE
CONSUMER HEALTHCARE LTD., Nabha., who extended their full co-
operation and assistance. Words are not sufficient to express the greatness for
the help, guidance and knowledge dispensed to me by Respected Supervisor, Mr.
Usman Ali (Executive Finance), who not only lent her considerable time and
energy to the understanding, but also helped me a great deal in making this report
see the light of the day.
Last but not least, I owe my special regards to my parents and my elders
for their blessings and good wishes.
sonam
PREFACE
The problem of unemployment is one of our major problems. This problem has been troubling us
ever since we gained independence. One reason for growing unemployment in the country is our
faulty education system. Students are given bookish knowledge without any training for specific
jobs. To solve this problem to some extent training programmes are being introduced. This helps
the students to increase their job perspective. Training can be done in industries, business-houses,
sales and income tax department of various central, state, local, government societies etc.
A project work programme in industry is to get an overall view and exposure of the industry and
its working environment. It enhances the confidence and boosts the morale of the students who go
for their project in the industry. These programmes are included in the curriculum of studies for
development of the personality of the finance students and get a first hand experience about the
working of the industry.
EXECUTIVE SUMMARY
1st part of the report contains introduction to GSK, which includes company profile showing
the company status, ISO certification etc., Historical background which shows how GSK
comes into being? Then various Packaging stations, Manufacturing process which shows how
Horlicks is manufactured in company? After that there is Supply chain process which shows
that how the Horlicks reaches to the final consumer?
It contains the brief information about the GSK Nabha plant like no. of employees, shift
timings, milk collection centers etc. After this there is product profile, which shows range of
products offered by GSK Consumer Health Care Ltd., Department overview, which shows
how various departments works for the company, Then comes GSK mission which shows
company’s dedication towards the society and an overview about its financial and marketing
implications.
2nd part contains the Research Methodology, which includes justification about the topic
selected, the objective of the study, Unit where the study is conducted, time period for which
the study is conducted. Scope of the study and sources of information (primary as well as
secondary). It also includes various limitations during the course of the project.
3rd part contains the introduction to topic Inventory Management this includes the
information, as to what is Inventory Management all about, the aspects of Inventory
Management, its importance, the objectives for Inventory Control and scope, Inventory Control
techniques, etc. and all this is well supported with the data of GSK.
4th part is about the analysis of the data which includes the present scenario of inventory
management in GSK , NABHA, the ways in which inventory could be utilized, the various
inventory control tact’s such as ABC, FSN, Level Setting, and last but not the least about the
5S Housekeeping.
5th part of this report is about the findings and suggestions, the various proposals that the
company could apply for maintaining the inventory and the suggestions for the improvement in
inventory control that could be helpful to the organization, some techniques for practicing good
inventory control management.
The last part of the report is that of Bibliography in which the various books, web sites and
articles consulted for the preparation of this report are mentioned.
COMPANY PROFILE
Company Glaxo SmithKline Consumer Healthcare Ltd
Head office Gurgaon (Haryana)
Registered Office Nabha(Punjab)
Status Multinational Company.
Originally U.K. Firm
Quality Status AWARDED Latest Version OHSAS
18001, ISO 9001:2000 and
ISO14001:2004
Rajahmundry Plant Received
ISO14001Accreditation and SA8000
Nabha & Sonepat Plant certified for
HACCP (Hazard Analysis Control
Point for Food safety).
Turnover (2009) Rs.202512 (lacs)
Profit(Before Tax)(2006) Rs.23278(lacs)
Export To Bangladesh, Myanmar, Sri Lanka,
Middle east, Nepal, Hong Kong,
Malaysia, Fiji
INTRODUCTION TO GSK
GlaxoSmithKline Consumer Healthcare Ltd. (GSKCH) is an Indian associate of
GlaxoSmithKline plc, U.K.
GSKCH is one of the largest players in the Health Food Drinks industry in India. The Company, with its
manufacturing plants located in Nabha, Rajahmundry and Sonepat, has a total workforce of over 2700
people, each driven by a spirit of enterprise.
Its flagship product, Horlicks, is a highly respected brand, which is over 100 years old in India. The
Company also manufactures and markets Boost, Viva, Malt ova, Biscuits and in addition promotes and
distributes a number of products in diverse categories, including prominent brands such as Eno, Crocin
and Iodex.
GSKCH has a strong marketing and distribution network in India comprising over 1800 wholesalers and
direct coverage of over 4,00,000 retail outlets.
HISTORICAL BACKGROUND
GlaxoSmithKline Consumer Healthcare Ltd. is a pharmaceutical and healthcare company born out of
the merger of two leading international organizations SmithKline Beecham and GlaxoWellcome. GSK
Consumer Healthcare Ltd and GSK Pharmaceuticals Ltd are the two businesses of GSK in India of which
former is headquartered at DLF Gurgaon and the latter at Worli, Mumbai.
Its global mission is
“To improve the quality of human life by enabling people to do
more, feel better and live Longer ".
In the Indian market, GSKCH's journey began with Horlicks.
YEAR DESCRIPTION
1955: Horlicks a milk product manufactured by Horlicks Ltd. Slough, England was
being imported, bottled and sold in India. Due to changes in import policy
import stopped.
1956–57: A team from the organization visited to explore the possibilities of setting up
a plant with the support of Maharaja of Nabha, His highness PRATAP
SINGH, and a plant was set up at Nabha.
1958: On May 31, 1958 His highness Pratap Singh laid the foundation stone of
the Company at Nabha.
1960: On 24th March 1960, the factory went into production.
1969: Horlicks Group disposed off their holding in India and U.K. to “BEECHAM
GROUP OF INDUSTRIES" which is multinational and owns more than 500
companies in more than 200 countries engaged in manufacturing of
Brylcream, Haircream, Eno Fruit Salt, Toothpaste, etc. Immediately after
taking over the management, Beecham Group shifted its head office from
Nabha to Delhi.
1979: Beecham India (Pvt.) Ltd. Mumbai merged with Hindustan Milk food
Manufacturers Ltd. and the name was changed to H.M.M. Ltd. Beecham
Group Plc.
1991: SmithKline U.S.A. merged on September 16, 1991 to form Smith Kline
Beecham Consumer Brands, Plc. with its registered office in the U.K.
H.M.M. became a part of Smithkline Beecham Consumer Brands, one of
the three sectors of Smithkline Beecham and its name was changed to
SmithKline Consumer Brands Ltd.
1994: The name was changed to Smithkline Consumer Healthcare Ltd. to
reassert the company's promise of providing Healthcare to consumers. The
company decided to do away with its toiletry products and sold its brands
like Brylcream and Silvikrin to Sara Lee.
2000: The Company acquired MALTOVA and VIVA brands of nutritional from
Jagatjit Industries Ltd.
A merger took place between Smithkline Beecham and Glaxo Welcome and
the new company Glaxo Smithkline (GSK) was formed on 27-12-00
2002: Change of name took place from 23-04-02
2004: The Bank of Punjab has tied up with the company for facilitating finance on
attractive terms to its milk suppliers.
2005: Deutsche bank has tied up with GSK for facilitating their fund
management as well as treasury management on a centralized
basis
2006: Company’s packing unit at Excise Free Zone – Baddi (Himachal
Pradesh) came into existence.
2007: Company’s packing unit at Excise Free Zone – Gauhati(Assam)
came into existence.
2008: Company launched Actibase and Actigrow products - Energy
drinks
Glaxo
SmithKline Beecham
Merge GlaxoSmithKline
PLANT LOCATIONS IN INDIA
PRODUCTION STATIONS
FOOD POWDER : NABHA, RAJAHMUNDRY & SONEPAT
BISCUITS : SAHIBABAD
ENO : RAJAHMUNDRY
CROCIN : BANGLORE
IODEX : BANGLORE
PACKING STATIONS
The company started packing Horlicks in ½ Kg and 1kg pouches. Packing machines was
imported and installed. As the main market for sale of Horlicks was in the South and East
India, need was felt for the sale of Horlicks in small units of the country. Therefore was opened
at different places. At present Horlicks is dispatched from Nabha in bulk quantity to the following
packing stations:
Ballabgarh
Mangaldoi (Assam)
Kompally
Baddi (Himachal Pradesh)
Hamira (Punjab)
Parson
The marketing of the company's products is done through various Regional Sales Offices
(RSO) situated at:
NORTH (NEW DELHI OFFICE)
W E S T ( M U M B A I O F F I C E )
EAST (KOLKATA OFFICE)
SOUTH (CHENNAI OFFICE)
The company has its head office in Gurgaon. Bulk-malted food manufactured in Nabha is dispatched to
different packing stations in drums for packing in unit’s container or gusseted
GlaxoSmithKline Consumer Healthcare Limited is one of the three sectors of
Glaxo SmithKline. The other two sectors are:
1. GLAXOSMITHKLINE PHARMACEUTICALS: -
It is a one of the major players of pharmaceutical companies and has activities in
all the major markets of the world and spends a major part of its income in R&D.
2. GLAXOSMITHKLINE CLINICAL LABORATORIES: -
It is the leading network of clinical testing laboratories in North America and its major
laboratories and patient centers provide the broadcast range of testing to help physicians,
hospitals and other private organization to detect disease and monitor health.
GLAXO SMITHKLINE PHARMACEUTICALSLIMITED
GLAXO SMITHKLINECLINICALLABORATORIES
GLAXO SMITHKLINECONSUMER HEALTH CARE LIMITED
GLAXOSMITHKLINE
GSK MISSION
Our global quest is to improve the human life by enabling the people
“TO DO MORE, FEEL BETTER, AND LIVE LONGER”.
People at Glaxo SmithKline consumer healthcare limited are dedicated ourselves to delivering medicines
and products that help million of people around the world LIVE LONGER, HEALTHIER AND
HAPPIER LIVES.
CULTURE
Successful companies have developed something special that supersedes corporate strategy, market
presence, or technical advantage- distinctive culture. What it is, whether it is important or not, what you
deal with indirectly. Why? Because culture is an intangible shadow. You cannot garb hold of culture. it
has no handles, nothing you can touch directly. Having said all that, it is an important issue GSK’s culture
is the set of norms that create powerful precedents for acceptations around acceptable risk, change
orientation, creative and innovation, group versus individuals effort, customers orientation, extra efforts
OUR SPIRIT
"We undertake our quest with the enthusiasm of
entrepreneurs, excited by the constant search for
innovation. We value performance achieved with
integrity. We will attain success as a world class leader
with each and every one of our people contributing with
passion and an unmatched sense of urgency.
COMPETITION ANALYSIS
The sector is dominated by three major players. GSKCH is the major player in the healthcare
products.
The major competitors in the consumer healthcare markets are Procter & Gamble, Cadbury,
Nestle, Unilever and Johnson & Johnson. All of these companies are major international
companies and continue to be extremely active in what is a highly competitive market. In
addition, there are many other large and small companies that compete with GlaxoSmithKline in
selected markets.
In nutritional healthcare the major competitors to Horlicks are Burnivita , Complan and Milo
malted food and chocolate drinks. The competitors to Gopika Ghee are primarily local desi
ghee manufacturing companies as Milk food.
The Consumer Healthcare business relies on the development of high-quality branded products
with good consumer acceptance, supported by advertising and brand promotion, line
extensions, new formulations and packaging innovations. GlaxoSmithKline’s ability to compete
effectively is dependent on its skills in developing new scientifically supported products and line
extensions with performance superior to those of its competitors, backed up by compelling
advertising.
ABOUT THE NABHA PLANT
GSK’s Nabha plant is a huge manufacturing unit. Glaxo SmithKline Consumer Healthcare Ltd. is having
three factories, which are at Nabha, Rajahmundry and Sonepat. The factory at Nabha is the mother unit
and products manufactured by this company fall under two categories of consumer healthcare:
The food powder (HORLICKS & BOOST) is manufactured in Nabha. The requirement of workforce
changes with change in production policy. The plant at present employs a work force varying from 1500
to 2000 out of which approximately 1100 are permanent. There is a staff and management of about 145
persons. There is a wage agreement for 3 years. The workers also getting weekly off according to Labors
Act.. The plant runs 365 days a years in 3 shifts daily which work from 5.15 a.m. to 1.15 p.m., 1.15 p.m.
to 9.15 p.m. & 9.15 p.m. to 5.15 a.m.. The office opens 6 days a week.
About 7 Milk collection centers were opened at a radius of about 40km around Nabha, to meet the
requirement of 10 tones of Milk per day. The main purpose of opening collection centers at village level
was to get good quality of Milk directly from the producer and pay them good price, thus, raising their
standard of living. Nabha and Sonepat production facility has already been certified for HACCP ( Hazard
Analysis Critical Control Point for Food Safety ).During the year the Nabha site received “ The Best
Environment Protection Initiative 2006” award from the Punjab Pollution Control Board.
Nutritional Health Drinks
Gastrointestinal ENO Fruit Salts
Horlicks and its variants
PRODUCT PROFILEThe main products of the company are:
N e w H o r l i c k s
Horlicks Pistachio
Horlicks Export
Boost Intermediate
Horlicks intermediate for Pistachio and Butterscotch variants
Horlicks Premix
Horlicks Vanilla Premix
Junior Horlicks Chocolate with DHA
Actibase Vanilla
Horlicks with FAT
Junior Horlicks Intermediate
New Junior Horlicks DMI
New Mother Horlicks DMI
Horlicks Butterscotch delite
New Improved Boost
Junior Horlicks With DHA
New Elaichi Horlicks
Mother’s Horlicks With DHA
Boost Premix
Acitbase Regular
Actigrow Chocolate
Actigrow Vanilla
Ready to drink
Junior horlicks
Biscuits
Foodles
DEPARTMENTAL OVERVIEW
The various departments in GSK Ltd. Nabha are:
OPERATIONAL EXCELLENCE
QUALITYASSURANCE
MANUFACTURING
PROCUREMENT
ENGINEERING
WAREHOUSESUPPLY CHAINMANAGEMENT
HR & A
FINANCE&
I.T.
ENVIORNMENT HEALTH &SAFETY
MAIN FUNCTIONS OF FINANCE DEPARTMENTS
FINANCE DEPARTMENT
Main Functions of Finance Department Are As Follows: -
Vendor payment
When an article arrives at the gate, an entry permit is made and they are sent to the GOODS INWARD
DISPATCH section (GID). A goods inward from (gif) is filled up and sent to the finance department for
payment .the vendor submit the bill to purchase department .the finance department also receives a hard
copy of the corresponding purchase order (PO). There is online passing and payment system .this
contains a database of all purchase order issued .these are checked against the bills for the GIF,PO
references after which the bill is posted for production of the payment slips.
Disbursement of salaries
The HR Department sends a compile list of all employees on the payroll together with their monthly
working records .The salaries are paid mainly through the bank to all the employees.
Payment to government bodies
Excise is paid to all suppliers for goods manufactured. The company takes credit of the payment of excise
from the govt. According to the CENVAT. Excise is however paid for the finished goods. Octroi is paid
to Local authorities for goods arriving from outside Nabha. Property tax, insurance and sales tax are also
paid in case of accidents; breakdowns are called for assessment, when a claim is filed. VAT is paid to
Excise and Taxation Department of Punjab.
Milk accounting
Every milk supplier has a code, the first two digit indicating whether the milk is from cow, buffalo and
the next three digits indicating the supplier. Payments are made after 10 days by cheque/MT/DD..
Payment of services
The finance department pays for various services like rent, truck hire etc.
Capital budgeting
Every department submits an annual budget, which is allocated quarter wise . The concern department
also sends a capital investment proposal, which has to be approved in different forums depending on the
investment required.
DEPARTMENTAL CHART OF FINANCE & IT
s
Mr. MUNISH KAUSHAL
Sr. Manager- Finance, IT & Compliance
Sumit BansalA.M. Finance-
Central Excise, Income tax, service tax ,AR VAT, Site
Compliance, Treasury, eTDS.
Rixon Singla Manager Finance -
Fixed Assets & Capex, Payroll RM, Costing, Insurance, OE
Coordinator.
Sunil SharmaSr. Officer Finance –
Central excise, VAT, Service Tax, TDS, Payroll.
Anoop Wadhwa A.M. – Finance
Accounts payable- Milk,
DOA, DOB, Services & Related Compliance, OE
Coordinator
Virender KumarOfficer Finance -
Milk Accounting, Freight Accounting
Mr. Jagdish B. Rao
General Manager- NABHA
Usman AliExecutive Finance – Budgeting MIS, BPCS-Admin, Fixed Assets & Capex
Agency HeadcountCosting, Raw Materials/FG Agency Head
CountMilk & Freight
Narinder VermaDy. Mgr I.T. –Infrastructure, Servers, Notes, Mail, Applications Support, IT Training.
5S AT NABHA
5S is a tool that aims to create and maintain an organized, clean & high performance workplace. This tool
has been efficiently utilized by Nabha Unit and it has lead to reduce the records retrieval time drastically.
Sort Throw out rubbish
Store Find suitable storage area for everything
Shine Clean all surface areas
Standardize Communicate the 5S procedure for your area
Sustain Participate in site-wise monthly assessment & display results
Why do it?
How often do you go to use a piece of equipment and it’s not where you left it? Wouldn’t it be less time
consuming if everybody knew where they were supposed to store it?
Where do I start?
Get everyone involved
Get commitment and authorization for area wide improvement
Have leaders set expectations
Sort - Get rid of what is not needed. Throw out rubbish
Define personal space first (and stay out). Start at one corner touch everything. Ask questions about each
thing: How often do you use it? Where does it go? Place stuff based on frequency of use. Place red tags
on unnecessary stuff.
1. Red tagging visually identifies what is not needed in the workplace.
2. Establish rules for what is needed and where it belongs.
3. Remove and store Red Tagged items in a temporary holding area.
4. Sort through and dispose of those items that are truly unnecessary. Prepare all other items for
relocation. Ensure that all interested parties agree.
5. Continue to Red Tag regularly.
Store - Organize what’s Left! Arrange and Identify for ease of use
A place for everything, everything in its place, Know what you have and where it’s kept to get rid of
waste of searching.
1. Designate locations in a variety of ways
2. Lines on the floor
3. Signs hung from the ceiling
4. Tool boards
5. Fix Storage Methods and Places
Shine - Clean up what’s left! Clean Daily
Paint, refurbish, etc….Get the remaining items into the same condition as when they were new!
Standardize - Standardize cleanup methods
1. Make Sort, Storage, and Shine a daily habit
2. Assign responsibilities to apply these procedures
3. Integrate Sort, Storage, and Shine into regular work activities
4. Check on the maintenance of Sort, Storage, and Shine
5. Do you have standards, procedures & assigned responsibilities for Sort, Storage & Shine?
Sustain - Set discipline, plan and schedule
1. Follow the rules that you set!
2. Involve everybody in the production of standard documents and checks sheets. Develop habits you
won’t forget! Assessment is a key activity and should be carried out on a regular basis depending
on the overall status of the 5S activity. The radar chart is used to map progress using the data from
the assessment checklist within the area. It should be displayed in a prominent location and
updated on completion of the assessment.
MANUFACTURING PROCESS
The Manufacturing process for Horlicks is as Follows:
1. The First step in the production process involves the mixing of wheat flour with Malted Barley.
2. In The Second step water is added to the above mixture and the material is mashed thoroughly, as
a result of which the outer cover of malted barley is moved and remains after it is called Husk.
3. After mashing the material it becomes thick slurry in which the solid content is above 50%.
4. The fourth step involves the adding up of water to the above mixture.
5. The next stage is the stage of evaporation in which the material is evaporated and the result is
thick slurry of the material in which the solid content is around 80%.
6. After evaporated comes the step of spreading out of material in plates and keeping them in the
oven for about half an hour.
7. Once the material is completely dried, the plates are taken out from the oven and the food item is
scrapped out, which comes out in the from of thin layers. Then the vitamins and other essential
nutrients are added to the food items which is then ground and the result is our final product
HORLICKS.
SUPPLY CHAIN PROCESS
The supply Chain Process at GSK; Nabha is as follows:
Horlicks manufactured at the Nabha plant, after it is put in drums with a capacity of 184 kgs. Is either
bottled or packed in pouches and then sent to sales depots situated across the country. Its chain is as
follows:
Consumer
Retailers Drums(at factories)
Wholesalers Bottles (at packing stations)
Sale Depots
SWOT ANALYSISSWOT analysis provides the information that is helpful in matching the firm’s resources
and capabilities to the competitive environment in which it operates. Environmental
factors internal to the firm can be classified as Strengths (S) and Weaknesses (W) and
those external to the firm are classified as Opportunities (O) and Threats (T). Such an
analysis of strategic environment is called SWOT ANALYSIS.
SWOT ANALYSIS OF GSK, NABHA IS AS FOLLOWS:
STRENGTHS
The firm’s strengths are its resources and capabilities that can be used as competitive
advantage. The main strengths of Glaxo SmithKline consumer healthcare ltd. are:
Strong brand names. Recently brand equity has place the brand Horlicks on 6th position
in the list of top 10 brands in terms of brand equity.
Good reputation among the customers
Capability for troubleshooting and crises management
Creative and innovative thinking
Peaceful Industrial Environment
Strong discipline and positive attitude culture
Strong HRD development tools for work force
WEAKNESS
The absence of certain strengths may be viewed as weakness and the major weakness faced
by the GSK is:
Non availability of tax exemptions and subsidies.
Approach to the plant at Nabha is not through national Highway.
Over dependence on single product Horlicks.
OPPORTUNITIES
External environment analysis may reveal certain new opportunities for profit and growth and
the opportunities before GSK are:
The newly product ‘foodles’ is a unique product in itself as Maggi by Nestle has 80% market share, horlicks jumped into the noodles segment, with a target to capture 10% of the estimated Rs1,000-crore organised noodles market within a year.
Rising household incomes, increasing urbanization, changing life styles, growth
andworking women population demand for processed food products
Capturing niche markets with customer specific features in the products such as
Junior Horlicks, Mother’s Horlicks etc.
liberalization in Gov. policies and tax laws
Availability of latest / state of art technology
THREATS
Changes in external environment may also poses threats to the firm Major threats to GSK are:
High inflation has offset the rise in household incomes as the disposable income of people has declined vis-à-vis previous years.
Government Policies, Rules and Regulations.
Shift in consumer taste away from the firm’s product
Competition from other MNCs like Cadburys and Nestle.
(SPECIAL EMPHASIS ON
ABC ANALYSIS OF
INVENTORY CONTROL)
INVENTORY MANAGEMENT
Every business needs inventory for smooth working of its activities. It serves as a link between production
and distribution activities. Inventory the most significant part of current assets.
Large size of inventory are maintained by firms, a considerable amount of fund is required to be
committed in them. Therefore, one of the most significant decision areas concerning finance manager is
inventory management. Inventories consisting raw material, WIP, finished goods, maintenance spare parts
a significant preparation of total assets.
Inventory management means preparing the stock of goods at such I level that neither the stock should be
excessive or inadequate. It is a system, which ensures that right quality of material, is available in the
right quantity at right time and right place with the right amount of investment. Large size of inventory
ensures efficient and smooth production and sales operations, while minimum investment in inventories
maximizes profitability. Both the extreme points are dangerous. An efficient manager always determines
the optimum points in between of the two extremes. Excess installments in the inventory pees danger like
unnecessary the up of firm’s funds and loss of profit excess carrying cost. Risk of liquidity and risk of
physical deterioration of inventories. On the other hand inadequate investment in inventories seeks to
production hold ups failure to meet delivery commitments. Thus, the aim of inventory management is to
balance between the two and maintain sufficient inventories. According to Curry and Frank:
“ Because materials constitute such a significant part of product cost and since
this cost is controllable, proper planning, purchasing, handling and accounting
are of great importance”.
OBJECTIVES OF INVENTORY MANAGEMENT
The main objectives of inventory management are operational and financial. The operational objective
means that the materials and spares should be available in sufficient quantity so that work is not disrupted
for want of inventory. The financial objective means that investments should not remain idle and
minimum working capital should be locked in it.
Ensure sufficient stocks of raw materials in periods of short To ensure continuous supply of materials
spares and finished goods so that production should not suffer at any time and the customer’s demand
should also be met.
To avoid both over- stocking and under-stocking of inventory.
To maintain investments in inventories at the optimum level as required by the operational and sales
activities.
To keep material cost under control so that they contribute in reducing cost of production and overall
costs.
To eliminate duplication in ordering or replenishing stocks. This is possible with the help of
centralizing purchases.
DEFINITION OF INVENTORY
The dictionary meaning of Inventory is ‘a list of goods’. In a wider sense, inventory can be defined as an
idle resource, which has an economical value. It is however, commonly used to indicate various items of
stores kept in stock in order to meet future demands.
In any organization, there may be following four types of inventory:
a) Raw materials & parts- These may include all raw materials, components and assemblies used in
the manufacture of a product.
b) Consumables & Spares- These may include materials required for maintenance and day-to-day
operations.
c) Work-in-progress- These are items under various stages of production not yet converted as
finished goods.
d) Finished goods- These are the goods that are not yet sold or put into us.
INVENTORY CONTROL
Inventory Control is the art and science of maintaining the stock level of a given group of items, incurring
the least total cost, consistent with other relevant targets and objectives set by the management.
Inventory control refers to “ the process whereby the investment in material and parts carried in stock is
regulated within predetermined limits set in accordance with inventory policy established by the
management” (Gorden B. Carson). The activities of Inventory control, thus, include the following:
Determination of limits of inventories to be held.
Determination of inventory policies.
Setting out of investment pattern and its regulation as per individual and collective requirements.
IMPORTANCE OF INVENTORY CONTROL
The primary objective of inventory control is:
To minimize the idle time caused by shortage of inventory and non- availability of inventories as
per requirements, and
To keep down capital investment in inventories, inventory carrying cost and obsolesces losses.
Achievement of these objectives will result in more return on capital which is materially the prime
objective of an organization whether commercial or industrial. The formula given below is helpful in
arriving at the return on investment:
RETURN ON CAPITAL = PROFIT
CAPITAL INVESTMENT
In normal circumstances, profit margin depends on external factors like competition over which the
management has little control. Here the question arises how the management control over
competitiveness? This is possible through the control over inventories; the total capital in GSK is invested
in fixed assets such as buildings, plant & machinery and a cut in this cannot be effected. But a reduction
in working capital, high percentage of which is locked up in inventories, is possible and there is definite
increasing profit earning capacity of the organization.
SCOPE
The scope of inventory management is vast. It encompasses various functions starting with determination
of the requirement of inventory and ending with the supply of finished products to the users. In widest
sense, functions included in the scope of inventory management can be summarized as:
Determination of inventory requirement and planning its inflow.
Floating tender enquiries.
Identifying suppliers and placing orders for the suppliers.
Inspection of items received
Store keeping and stock control.
Issue, Valuation and Store Accounting.
Warehousing and Distribution.
All these functions are carried out, one after the other, in close sequence. First the periodic requirement of
inventory is determined on the basis of sales forecasts and production plan. At the same time tender
enquiries are floated for identifying the sources of suppliers. Orders are then placed with the suppliers.
When the inventory consignments are received they are inspected to ascertain that items supplied are as
per the specifications given in the order. Items found in order are then stored in bins, racks and containers
to ensure their safety, security and prevent deterioration in quality. Inventory items are issued from stores
to production and other departments as per their demand. Proper records are maintained for the receipt
and issue of all these items. The stores department also maintains the finished goods inventory. Finally
these items are issued to the distributors and dealers as their purchase orders, after obtaining instruction
from the sales department.
INVENTORY MANAGEMENT- CONSTRAINTS & PROBLEMS
CONSTRAINTS
Constraints of inventory management vary from organization to organization depending upon various
variables; some of them are as under:-
a) Whether the demand for the goods is one time (static) or of repetitive nature (dynamic). In GSK
all the non-stock items are treated of static nature and stock items of dynamic nature.
b) In case of demands of dynamic (repetitive) items, whether future requirements can be assessed
with certainty or uncertainty or under risk (probability). Also, whether the demand is fixed over a
time or is variable.
c) Whether the material is manufactured in house or is to be purchased through outside suppliers.
d) Whether the lead-time during which material can be arranged is fixed or is variable.
PROBLEMS
On one hand, inventories are idle and valuable resources i.e. capital remains locked up in the inventories,
which can be used for other productive purposes, but on the other hand they are desirable to satisfy
manufacturing, maintenance or operation requirement of the organization. Hence basic problems of
Inventory Management is to optimize the stock levels of different materials so that their stocks are
maintained at optimum levels without affecting the production or day to day maintenance.
Three basic problems associated with optimization of stocks are:
1. When to initiate purchase of the materials?
2. How much quantities are to be purchased at a time?
3. What should be the stock levels of the different items?
VARIOUS INVENTORY MANAGEMENT TECHNIQUES
Various techniques employed for controlling stock levels are:
a) Selective Management: - In this technique, various items of stores are classified in various
classifications depending upon their consumption value, unit price, criticality for the organization,
source of supply, purchasing problems, rate of withdrawals from the stores, seasonality and stores
balances on a particular date. Different approaches of control are being followed for different
types of items.
Two such classifications ABC & FSN are followed in GSK
b) Management by Exception: - In this technique, items with certain exceptions are tackled on
different points of time. For example, overstock items; surplus items and inactive items may
require more attention.
In GSK management by exception is followed for such goods that are
stock outs for some period.
c) Rationalization: - Techniques of standardization and variety reduction are used to minimize lead-
time of the material, and reduce unnecessary inventory carrying costs.
d) Value Analysis: - Functions performed by the materials are analyzed and alternative designs/raw
materials are suggested to achieve the same function at minimum cost.
e) Computerization: - Computer outputs can be used for scientific forecast of demand to solve
many inventory models, providing optimum safety and for controlling funds.
GENERAL STORE INVENTORY
General store is a major part of the inventory in all the concerns. It provides the information regarding
how much material we can purchase, and how much material we can keep in store such as it is helpful to
provide the information regarding all levels. The major part of working capital of all the concern spent in
General store inventory.
NATURE OF GENERAL INVENTORY IN GSK
Inventories are stock of the product a company is manufacturing for sale and components that make up
the product. The various forms in which inventories exist in a manufacturing company are: raw materials,
work in progress, finished goods & stores and spares.
Raw materials are those basic inputs that are converted into finished product through the manufacturing
process. Raw material inventories are those units, which have been purchased and stored for future
productions.
In GSK Malted Barley, Wheat flour, Skim Milk Product (SMP), Fine Crystalline Sugar (FCS),
Roasted Malted Barley, Calcium, Potassium, Sodium, Vitamin Flavors etc., are main raw
materials.
Work-in-process. The work-in-process is that stage which is in between raw material and finished goods.
The raw material enters the process of manufacture but they are yet to attain a final shape of finished
goods. The quantum of work-in-process depends upon the time taken in the manufacturing process. The
greater the time taken in manufacturing, the more will be the amount of work in process.
In GSK at Nabha there is no work in progress.
Consumables. These are the materials, which is needed for smooth process of production. These
materials do not directly enter in the production but they act as catalysts, etc. consumables may be
classified according to their consumption and criticality. Generally, consumables stores do not create any
supply problems and form a small part of production cost. There can be instance where these materials
may account for much value than the raw materials The fuel oil may form a substantial part of cost.
In GSK Nabha Polythene, Drum Seal, Tape roll, Label, Cleansing Agent, Hand gloves, Oil,
Chemical, Coal, etc. are examples of some consumables.
Finished goods. These are the goods, which are ready for the customers. The s tock of finished goods
provides a buffer between production and market. The purpose of maintaining inventory is to ensure
proper supply of goods to customers. In some concerns the production is undertaken on the order basis, in
general without waiting for specific orders.
In GSK main finished goods are Horlicks, Boost, Vanilla Horlicks, Elachi Horlicks, Boost
intermediate, Horlicks high fat, Junior Horlicks DHA, mother Horlicks DHA etc. are products,
which are produced for consumption in India. Mother Horlicks DMI and Junior Horlicks DMI are
products manufactured for export package and send to Bangladesh.
Spares. Spares also form a part of inventory. The consumption pattern of raw material, consumables,
finished goods are different goods are different form that of spares. The stocking policies of spares are
different from industry to industry. Some industry like transport will require more spares than other
concern. Costly spare parts like engines, maintenance spares etc. are not discarded after use, rather they
are kept in ready position for further use. All decision about spares is based on the financial cost of
inventory on such spares and the costs that may arise due to their non-availability
In GSK examples of Spares are Barring, V-Bolt etc.
Stock of raw-material, work-in-process and stores and spares facilitate production, while stock of
finished goods is required for smooth marketing operations. Thus inventories serve as a link between the
production and consumption of goods.
GENERAL STORE INVENTORY IN GSK
General store is that which the part of the production becomes indirectly. Without such inventory no
production will be there. This store inventory includes: -
Polythene bags
Consumables like diesel etc.
Cleaning material like nitric acid, caustic soda etc.
Floor cleaning towels
Spare parts of the machines
Inventory required under GMP (Good Manufacturing Practices) like uniform, hand gloves, mouth
covers, safety shoes etc.
Under the general store inventory total no. of items are 2581, which have the ABC classification.
Their total consumption value is Rs. 43,471,622.14. It includes 30 items, some of which don’t have
any classification because these items are used as and when required during the year as such do not
fall under any category and some are capital related spares.
Inventories
Inventories amounted to Rs. 2,66,03.20 Lacs as at 31 December 2009 as against Rs. 2,77,17.03 Lacs as at previous year end. The decrease is primarily on account of a decrease in Raw Materials from Rs. 73,68.95 Lacs in 2008 to Rs. 51,14.09 Lacs in 2009 and Packing Materials from Rs. 21,50.71 Lacs in 2008 to Rs. 18,33.38 Lacs in 2009.
RESEARCH METHODOLOGY ADOPTED
Research Methodology: Research methodology is the systematic and objective
identification, collection, analysis, dissemination and use of information for the purpose of
assisting management decision making relating to the identification and solution of the problem
and opportunities.
This data are collected using the most appropriating method analyzed, interpreted
and inferences are drawn and finally the findings, implications and recommendations are
provided in a format that allows the information to be used for decision making.
RESEARCH DESIGN :
I have adopted descriptive research deign for my project because descriptive research is
concerned with describing the characteristics of a particular individual or of a group.
QUESTIONNAIRE DESIGN :
Questionnaire was designed in consultation with the experts of GSK-CH
in manner that it would facilitate the respondents to reveal maximum information.
SAMPLE SIZE :
The sample size consisting of 100 respondents were selected for the study.
SAMPLING DESIGN:
Since it is difficult to contact the entire population, sampling technique was adopted. The
employees were interviewed using convenience sampling techniques
OBJECTIVES OF STUDY
The present study has been undertaken in respect of Glaxo SmithKline at Nabha the main objectives of
study are as follows: -
To know that how a company apply the controlling technique on the inventory.
To know that how the recategorisation of the inventory is done through the ABC analysis.
To know that how the purchase orders have an impact on inventory and hoe it simplifies the
complexity.
To know that how a company actually get the benefit of the controlling technique.
To know that how other techniques can be better applied on the existing controlling technique.
SCOPE OF STUDY
The scope of the study is designed in terms of unit worked, the concept adopted and the period under
focus.
The unit
The study is done in the Finance department & stores department of GlaxoSmithKline Consumer
Healthcare Ltd. at Nabha plant.
The concepts
The concept of various tools and techniques of general inventory control are used and analysed.
The period
The study is supposed to be relating to the period of last year’s consumption i.e. from April 2009- March
2010.
Sources of Data:
Secondary Data: - The study is based on mainly on the secondary data including Annual Report,
Store Records & for theoretical portion various books.
Primary Data: - The only mode of collecting primary data was the non-structured direct intersection
with the concerned persons of Finance & Stores Department.
ABC ANALYSIS
ABC analysis is a basic analytical materials management tools. Fundamentally ABC analysis may be
applied to any branch of management eith ease and success. It calls upon the top management to place its
efforts where the result will be greatest. It is selective approach popularly known Always (A) Better (B)
Control (C). The ABC goes by its name it always the best, then better and lastly the good.
Manufacturing organizations find it useful to divide materials into three categories for the purpose of
exercising selective control on materials. An analysis of the materials cost will show that a smaller
percentage of items of materials in the store may contribute to large percentage of the value of
consumption and, on the other hand, a large percentage of items may represent a smaller percentage of
the value of items consumed. Between these two extremes will fall those items the percentage number of
which is more or less equal to their value of consumption. Items falling in the first category are treated as
“A” items, of the second category as “B” items and items of third category are taken as “C” items. Such
an analysis of material is known as “ABC ANALYSIS”
This technique of stock control is also known as stock control according to value method or always
better control method or proportional parts value analysis method. Thus under this technique of stock
control materials are listed in “A”, “B” and “C” categories in descending order based on money value of
consumption.
The significance of this analysis is that a very close control is exercised over the items of
“A” group which account for a high percentage of costs while less stringent control is adequate for
category “B” and very little control would suffice for “C” items.
All types of materials control i.e., purchase stores and issues are to be strictly applied in
case of the items of “A” group. In case of the “C” items an elaborate material control is not exercised
because these items represent a very small portion of the material costs. These items can be purchased
once a year and various stock levels i.e., minimum level, ordering level etc. may not be adhered to. All the
time, efforts and costs saved on the C group items by not having an elaborate control can be usefully
utilized on the A and B group items.
A-B-C Analysis: This analysis is based upon PARETO PRINCIPLE, according to which in many
situations, majority of the activity (70 to 80%) is governed by very few (10 to 20) attributes. Hence if all
the stock items are analyzed in terms of their annual consumption, major part of total consumption value
on a GSK (about 70-80%) is of only few high consumption value items (say 10-20%). These items may
be classified as A category.
15 to 20% of total consumption is represented by another 15 to 20% items that may be classified as B
category.
Remaining 5 to 10% consumption is represented by a large no. of small consumption value items, which
may be classified as C category.
Actually ABC classification depends upon management decision. In GSK it is decided that-
All high consumption value items, which represent 70% of total issues, will be classified as A
category.
Items, which represent 20% of total issue, will be classified as B category.
All remaining items are of C category.
For the purpose of Inventory Control, A category items are most important. Therefore, they are closely
monitored at highest level at very frequent intervals.
Stock physical verification in GSK
For A category items is carried out every six months;
For B category items every year and
Once in two years for C category items.
To achieve better inventory turnover ratio, GSK intend to keep average stocks of 3 months, 6
months and 12 months of A, B and C category items respectively.
ABC ANAYSIS PATTERN
SR.NO. SUMMARY OF CONTROL ITEMS A ITEMS B ITEMS CSR.NO. SUMMARY OF CONTROL ITEMS A ITEMS B ITEMS C
1 Control Tight Moderate Loose
2 Requirement Exact Exact Estimate
3 Postings/Recording Individual/ Individual/ Group/ Complete Complete None
4 Check of revisions Close Some Little
5 Quality Control Exact Exact Approximate
6 Expediting Regular Some No
PREPARATION OF PROPOSALS
For preparing the proposals under the different conditions following steps have been taken: -
Firstly check that according to the unit value in which category the item is falling.
See that according to the consumption value which category is best suited to the item.
Then out of the two put the items in the upper category.
For example: -
Item Code Per unit value Consumption value
IS97004 147.2. 12355.20
Proposed Category
C B
According to Unit value it should fall in ‘C’ category but according to Consumption value it should fall in ‘B’ category.
Therefore, it will fall in ‘B’ category.
Item code Per unit value Consumption value
S99471 46.2916 147896.91
Proposed Category A B
According to Unit value it should fall in ‘A’ category but according to Consumption value it should fall in ‘B’ category
Therefore, it will fall in ‘A’ category.
Proposal for the year 2009
In the year 2009, this proposal is prepared to recategorise the inventory according to the
current inventory Z stock, taking into consideration the changes in the unit value and the
consumption value of the inventory. The results of the proposal for the year April 2008-
March 2009 are as follows:-
Proposed status of inventory as on March 2009
Proposed criteria: Per Unit Value Rs. 5000 & Consumption Value Rs.50000
1. According to No. of Items
Category Proposed No. of items % of items
A 295 11.88%
B 573 23.07%
C 1615 65.01%
TOTAL 2483
2. According to Consumption Value
Category Consumption Value %
A 44147223 81.29%
B 5818917.82 10.7%
C 4373084.19 8.05%
TOTAL 54339225.01 100
NOTE: Total items in the Proposed Category include 8 items, which have “No
Category” as these are capital related spares and have no consumption value but
there are also 30 items which are used rarely in the production as such are not
considered under any category in spite of having consumption value.
Existing status of inventory as on March 2010
Existing criteria: Per Unit Value Rs. 5000 & Consumption Value Rs.50000
1. According to No. of items
Category Existing No. of items %
A 279 12.38%
B 531 23.56%
C 1444 64.06%
TOTAL 2254
2. According to Consumption Value
Category ConsumptionValue
%
A 14624833.23 73.48%
B 2939544.6 14.77%
C 2337890.3 11.75%
TOTAL 19902268.1 100
PROPOSAL 1:CHANGES FROM THE EXISTING CATEGORY
Thus the exercise has lead to movement of 9.61% of total inventory to “A” category
as against 11.5% in the existing status with the little difference in the percentage of
items in the said category. Also there is movement of almost 14.8% & 76% of total
inventory to “B” & “C” categories as against 24% & 66% respectively in the existing
situation.
Category No. of items (E) % of existing items No. of items (P) % of itemsA 279 12.38% 295 11.88%
B 531 23.56% 575 23.073%C 1444 64.06% 1615 65.01%
TOTAL 2254 2483
COMPARISON OF ITEMS :
On the same way, as per the proposal consumption value of near about 80% of total
inventory shift to “A” category as against 74% in the existing status with the little
difference in the percentage of items in the said category. Movement in the “B” & “C”
category is almost 15% & 5% as against 16% & 10% respectively in the existing
category.
COMPARISON OF CONSUMPTION VALUES:
Category ExistingConsumption
% Proposed Consumption
%
A 14624833.23 73.48% 44147223 64.49%B 2939544.6 14.77% 5818917.82 23.5%
C 2337890.3 11.75% 4373084.19 12.01%TOTAL 19902268.1 100 54339225.01 100
CONCLUSION
The Existing criteria applied in stores is correct as it follows the ‘pareto principle’ it shows
that maximum consumption of minimum no. of items comes under ‘A’ category and
minimum consumption value items with maximum no. of items falls under ‘C’ category.
But some changes are required in the same as shown above i.e. some items are required to
move between all the three categories.
PROPOSAL (1): As per Unit Value Rs. 7000 & Consumption Value Rs. 70000 (ANNEXURE 2)
1. According to No. of items
CategoryNo. ofItems %
A 177 7.11%
B 283 11.39%
C 2023 81.50%
TOTAL 2483
2. According to Consumption Value
CategoryConsumption Value %
A 42927988.50 79.02%
B 6162067.21 11.34%
C 5249169.30 10.51%
TOTAL 54339225.01
NOTE: Total items in the Proposed Category include 8 items, which have “No
Category” as these are capital related spares and have no consumption value but
there are also 30 items which are used rarely in the production as such are not
considered under any category in spite of having consumption value.
Thus the exercise has lead to movement of 8% of total inventory to “A” category as
against 11% in the existing status with the little difference in the percentage of items in
the said category. Also there is movement of almost 12% & 81% of total inventory to
“B” & “C” categories as against 24% & 64% respectively in the existing situation with a
large difference in the percentage of items in the said category.
Category No. of items (E) % of existing items No. of items (P) % of items
A295 11.88% 177 7.11%
B 575 23.073% 283 11.39%
C 1615 65.01% 2023 81.5%
TOTAL 2483 2483
On the same way, as per the proposal consumption value of near about 77% of total
inventory shift to “A” category as against 74% in the existing status with the little
difference in the percentage of items in the said category. Movement in the “B” & “C”
category is almost 13% & 10% as against 16% & 10% respectively in the existing
category.
CategoryExistingConsumption %
Proposed Consumption %
A 44147223 64.49% 42927988.50 79.02%
B 5818917.82 23.5% 6162067.21 11.34%
C 4373084.19 12.01% 5249169.30 10.51%
TOTAL 54339225.01 100 54339225.01 100
CONCLUSION: The Existing criteria applied in stores is correct as it follows the ‘pareto principle’ it shows that
maximum consumption of minimum no. of items comes under ‘A’ category and minimum consumption
value items with maximum no. of items falls under ‘C’ category. But some changes are required in the
same as shown above i.e. some items are required to move between all the three categories.
IMPLEMENTATION OF THE PROROSAL
For actual implementation of the selected proposal again some analysis is carried on.
Physical verification:
First of all physical verification of the whole inventory is done. Under this each and every item of the
inventory is verified with the books. For this purpose concerned person goes to the stores and does the
verification.
Current Year’s Consumption:
After the physical verification all inventory is again checked with the current year’s consumption. If in
case of any particular item .the current year’s consumption changes corresponding to the previous year’s
consumption then it can be proposed in another category, then that proposal is acceptable.
For instance:
Item Code: S05013
Consumption in fin. year ending March 2007 Current Category
49527.62 B
Consumption in fin. year ending March 2008 Proposed Category
53054.09 A
In this way all the items are analyzed and a final report is prepared.
ADVANTAGES OF ABC ANALYSIS
A strict control is exercised on the items, which represent a high percentage of the material costs .
Managerial time is spent on ‘A’ items whereas clerical staff with least managerial supervision can
handle ‘C’ items and sometimes ‘B’ items. Equal attention to all the items of stores is not desirable
because it will not be a cost effective option for the firm. Concentrating on all the items of stores is
likely to have a defused effect on all the items, irrespective of the value of
consumption.Therefore,ABC analysis should be followed to give due attention to the items, which
they deserve, keeping in view their value of consumption.
Investment in inventory is reduced to the minimum possible level because a reasonable quantity of
’A’ items representing a significant portion of the materials costs is purchased.
To reduce investment in materials, close control of ‘A’ items contributes much more than close
control of ‘C’ items.
Storage cost is reduced, as a reasonable quantity of materials, which account for high percentage
of value of consumption, will be maintained in the stores.
With the introduction of the ABC analysis, management time is saved because attention is
required to be paid only to some of the items rather than on all items
It becomes possible to concentrate all effort in areas, which need genuine efforts.
It is most effective and economical method as it is based on selective approach.
It helps in placing the orders, deciding the quantity of purchase, safety stock, etc., thus saving the
enterprise from unnecessary stock-cuts or surpluses and their resultant consequences. This may be
well shown by an example where average inventory is one-half of the order quantity:
Category Annual consumption No. of Orders Average Working Inventory
A Rs. 3,00,000 4 37500 B Rs. 30,000 4 3750 C Rs. 3,000 4 375
TOTAL Rs. 3,33,000 12 41625
Keeping the same no. of orders per year, viz., 12 inventories, can reduced by 39% merely by segregating items according to their usage value as shown below:
Category Annual consumption No. of Orders Average Working Inventory
A Rs. 3,00,000 8 18750 B Rs. 30,000 3 5000 C Rs. 3,000 1 1500
TOTAL Rs. 3,33,000 12 25250
OTHER BENEFITS:
Complexity reduction
Optimum utilization of time
Reduction in operating expenses
Reduction in stock outs
Reduction in refusals
Quantity discounts
FSN CLASSIFICATION
ABC Classification is on the basis of consumption value of an item and does not give any importance to
the criticality of the item and therefore, only ABC Classification is not adequate. Classification done on
the basis on the movement of the items in the storehouse is known as FSN, where the items are classified
as fast moving (F),slow moving(S) and non-moving(N),items .This classification is done on the basis of
consumption pattern of the items under analysis. This analysis is useful in case of obsolete items. Previous
year issues is a guiding factor for FSN analysis previous two years issues are taken into consideration for
a decision whether the items stocked in storehouse are fast moving ,slow moving or non moving.
Fast moving:-Items being issued more than 15 times a year may be placed in ‘F’ category. Certainly such
analysis and limits of issue vary from one organization to another organization.
Slow moving:-Items up to a certain limit say 10-15 issues in a year may be classified as ‘S’ items.
Non-moving:-If there is no issues of a particular item during the past few years, naturally they will be
classified as ‘Zero issue items’ and under this method of analysis these items will be classified as ‘N’
items.
In GSK items, under FSN categorizing is done on the following criteria :-
Fast moving :-The items which are very frequently moved in one year are included in the fast moving
category .
Slow moving :-The items which are moved from stores for a period of one and a half year.
Non-moving:-The items which are not issued from stores for more than three years.
In GSK Inventory’s FSN categorization of items in stores ,in which 91 lacs value items are of non moving
nature which are not moved within a period of three years and 43 lacs value are of slow moving which is
moved within a period of one and a half year and 64 lacs are of fast moving nature that are frequently
moved.
Category Inventory (Lacs) Percentage (%)
Non Moving Inventory 91 51
Slow Moving Inventory 43 34
Fast Moving Inventory 64 15
Total 198 100
LEVEL SETTING
In order to have proper control over inventory various levels are set to avoid wastages and for optimum
utilization of stock. Following levels are set for the said purpose: -
o Re-order Level
o Minimum Level
o Maximum Level
o Danger Level
o Average Stock Level
(A) Re-order Level: - It is the point at which if the stock of a particular material in store approaches,
the storekeeper should initiate the purchases requisition for fresh supplies of that material. This level is
fixed somewhere between the maximum and minimum levels in such a way that the difference of quantity
of material between the re-ordering level and the minimum level will be sufficient to meet the
requirements of production up to the time the time the fresh supply of materials received.
Re-ordering level can be calculated by applying the following formula:-
Ordering Level = Minimum Level + Consumption during the time required to get the fresh delivery
Re-ordering level = Maximum Consumption *Maximum re-order period
Here, maximum re-order period means the period taken to get the material once it is initiated, so that the
factory may not stop production in any case due to the shortage of material.
(B) Minimum level: -This represents the minimum quantity of the material, which must be
maintained in hand at all the times. The quantity is fixed so that production may not be held up due to
shortage of material .in fixing this level, the following factors are taken into consideration: -
Lead-time: - It is the time lag between the indenting and the receiving of material. It is time required to
replenish the supply.
Rate of Consumption of material during the lead-time.
Nature of Material:-Minimum level neither is nor required in case of a special material which is required
against customer specific order.
Minimum stock Level= Re-ordering Level - (Normal Consumption * Normal Re-order Period)
(C) Maximum Level: - It represents the maximum quantity of an item, which can be held in stock
any time. Stock should not exceed this level is fixed to avoid over stocking.
Maximum Level = Reordering level + Minimum Re-ordering Quantity -
(Minimum Consumption * Minimum Re-ordering Level period)
(D) Danger Level: -This means a level at which normal issue of the material are stopped and issues
are made only under specific instructions. The purchase offer will make special arrangements to get the
material, which reach at their danger levels so that the production may not stop due to the shortage of
materials.
Danger Level = (Average Consumption) * (Maximum re-order period for emergency purchases)
(E) Average stock Level: -The average stock Level is calculated by the following formula:-
Average stock Level = Minimum stock level + ½ of re-order quantity
OR
Average stock Level =1/2(Minimum stock level + Maximum stock level)
At GSK all these levels are set by stores department on the basis of the following requirements:-
First of all consumption of the items by different department or according to production
pattern.
On the basis of lead-time involved on purchase of items.
ECONOMIC ORDER QUANTITY
Depending upon various variables, different inventory models have been developed. Different models
take different costs into accounts. One of the popular model developed for items of repetitive nature
(dynamic) ,future demands for which can be projected with certainty is Economic Order Quantity (EOQ)
model.
In addition to factors mentioned above, this model assumes that price of the material remains constant
with time and also does not vary with order quantity. This model can be developed mathematically by
differentiating total cost of inventory (ordering cost + inventory carrying cost) with respect to Quantity.
The quantity to be ordered should be such which minimise the carrying and ordering cost. The order for
the material to be purchased should be large enough to earn more trade discount and to take advantage of
bulk transport, but at the same time it should not be too large to incur to heavy a payment on account of
interest, storage and insurance cost. If the price to be paid is stable, the quantity to be ordered each time
can be ascertained by the following formula:-
Economic Order Quantity (EOQ) = √ 2AO/C
Where,
A = Annual Consumption Quantity
O = Cost of placing one order (ordering cost)
C = Annual inventory carrying cost or holding
Every firm, needs due concentration on two basic questions or managing inventories efficiently,
When to purchase?
How much to purchase?
The total cost of material usually consists of:-
Total acquisition cost (Purchase Value) + Total carrying cost (Holding Cost) + Total ordering cost
Acquisition Cost- Total acquisition cost i.e. total purchase value through is buying is unaffected
irrespective of the quantity of material ordered at one time unless quantity discounts are available. Thus,
when acquisition cost of a material remains the same, the only costs to be taken care of are orderinf costs
and carrying cots.
Holding cost – The very fact that the items are required to be kept in stock means additional expenditure
to the organization. The different elements of costs associated with keeping stock over time are as
follows:
Storage costs
Rent/depreciation
Labour
Overheads (e.g. heating, lighting, security)
Money tied up (loss of interest, opportunity cost)
Obsolescence costs (if left with stock at the end of product life)
Stock deterioration (lose money if product deteriorates whilst held)
Theft/insurance
IN GSK THE RESONABLE ASSESSMENT OF INVENTORY CARRYING COSTS IS
ESTIMATED TO 15% PER YEAR OF THE AVERAGE INVENTORY HOLDING. IT IS AGAIN
CLARIFIED HERE THAT THESE COSTS ARE NOT NORMALLY REFLECTED IN OUR
ACCOUNTING SYSTEM.
Ordering costs-In large organizations like GSK, the demands received are technically scrutinized,
inquiries are issued, tenders are received and evaluated, orders are progressed, materials are received and
inspected and lastly, the payments are arranged. All these constitutes an additional costs to the
organization and costs associated with ordering and receiving an order are:
Clerical/labour costs of processing orders
Inspection and return of poor quality products
Transport costs
Holding costs
IN GSK ORDERING COST PER ORDER COMPUTED IS APPROXIMATELY Rs. 25 PER ORDER.
Economic order quantity is determined keeping in view the ordering cost and carrying cost.
At GSK instead of using EOQ (Economic Order Quantity), ROQ(Re Order Quantity)is used and
this quantity level is calculated by inventory software and it is revised on the basis of consumption
requirements of different departments.
PROPOSAL
STUDY AND ANALYSIS OF THE INVENTORY OF GSK AS PER THE EOQ
MODEL TO KNOW THE DIFFERENCE BETWEEN THE TOTAL INVENTORY
COST TO THE ORGANIZATION IN COMPARISON TO THEIR ACTUAL (ROQ
METHOD) AND TOTAL SAVINGS, IF ANY, CAN BE MADE FROM THE THREE
DIFFERENT.
For implementing the proposal the whole data of the inventory is analyzed as follows and following
conclusions are drawn:
REQUIREMENTS:
General inventory items data.
The Unit value
Existing Purchase Orders (PO)
For calculating the unit value any of the following is required
Closing value and closing quantity
Or
Opening value and opening quantity
Or
Consumption value and consumption quantity
Per Unit Value = Closing value/Opening value/Consumption value
----------------------------------------------------------
Closing qty./Opening qty./Consumption qty.
For calculating existing PO’s following method is adopted:
PO (Existing) = Purchase Qty./ ROQ
For Example: -
ROQ = 10
Opening Qty. = 30 units
Purchase Qty. = 100 units
Closing Qty. = 20 units
So Consumption Qty. = 30+100-20 = 110 units
In the absence of opening and closing qty., purchases & consumption will be the same. But as there are
both opening and closing balances the purchase orders are calculated on purchase qty.
PO’s = 100/10
= 10 units.
In this way the whole data is analyzed and current PO’s are taken out.
E C O N O M I C O R D E R Q U A N T I T Y
COMPUTATIONS DONE FOR:
HOLDING COST (HC)
ORDERING COST (OC)
PO’s PROPOSED
TOTAL INVENTORY COST (IC)
IN GSK RESONABLE ASSESSMENT ON GENERAL INVENTORY SHOWES HOLDING COST TO
BE 15% IF THE AVERAGE INVENTORY & ORDERING COST IS Rs. 25 PER ORDER.
TOTAL HOLDING COST (Existing) = Price Per Unit/ Unit Value *15%
EOQ = ROUNDUP (SQRT((2*OC*CONSUMPTION QTY.)/HC), 0)
For calculating proposed PO’s following calculation is done:
PO (Existing) = Purchase Qty./ EOQ
Total holding cost & ordering costs are computed separately for “A”, “B”, “C” Category
items. Total inventory costs are also drawn out for the three categories and savings are find
out from their existing inventory costs.
TOTAL HOLDING COST (Existing)
= (ROQ * UNIT VALUE * 15% * LEAD TIME)/30
TOTAL ORDERING COST (Existing)
= EXISTING PO’s * 25
TOTAL INVENTORY COST (Existing)
= PURCHASE VALUE (ACQUISITION COST)+TOTAL HC+TORAL OC
The above criteria is applied on the whole given data and randomly top 40-50 items are chosen which
gives some considerable amount of savings; to draw out conclusion and the analysis & interpretation
drawn from data shows:
“A” CATEGORY
NO.OF ITEMS TAKEN= 40
TOTAL EXISTING INVENTORY COST= Rs. 61,36,034
“B” CATEGORY
NO.OF ITEMS TAKEN= 40
TOTAL EXISTING INVENTORY COST= Rs. 15,10,368
“C” CATEGORY
NO.OF ITEMS TAKEN= 50
TOTAL EXISTING INVENTORY COST= Rs.6,59,387
Similarly, proposed total HC & OC are calculated like as follows:
TOTAL HC (Proposed) = (EOQ * UNIT VALUE * 15% * LEAD TIME)/ 30
TOTAL OC (Proposed) = PROPOSED PO’s * 25
TOTAL INVENTORY COST (Proposed)
= PURCHASE VALUE (ACQUISITION COST)+TOTAL HC+TORAL OC
The above criteria is applied on the whole given data and randomly top 40-50 items are
chosen to draw out conclusion and the analysis & interpretation drawn from data shows:
“A” CATEGORY
NO.OF ITEMS TAKEN= 40
TOTAL PROPOSED INVENTORY COST= Rs. 61,09,275
“B” CATEGORY
NO.OF ITEMS TAKEN= 34
TOTAL PROPOSED INVENTORY COST= Rs 14,97,927
“C” CATEGORY
NO.OF ITEMS TAKEN= 40
TOTAL PROPOSED INVENTORY COST= Rs.6,47,832
FINDINGS OF THE PROPOSAL
Category Existing Inventory cost Proposed Inventory cost SAVINGS
A 6136034 6109275 26759
B 1510368 1497927 12441
C 659387 647832 11555
TOTAL 83,05,789 82,55,034 50,755
B E N E F I T S
IF THE ORGANIZATION STARTS PLACING THEIR PURCHASE ORDERS AS PER THE EOQ
METHOD THEY CAN SAVE SOME AMOUNT OF MONEY FROM THEIR ACTUAL TOTAL
INVENTORY COSTS, AS THIS CAN HELP THEM IN SAVING THEIR WORKING CAPITAL
ALSO.
FINDINGS AND SUGGESTIONS
After conducting a deep study on the whole process of the ABC Recategorisation & EOQ Technique, I
found certain facts regarding the ABC analysis & EOQ, which are as follows: -
FINDINGS:
Many items are there in the stores, which although lying in general stores but don’t have any
category in spite of having consumption value.
Some items have no consumption value but their minimum quantity is more than twice.
Some modern techniques of inventory management like JIT, VED etc., which can help in reducing
investment in inventory, is absent.
Items, which are written off in the books, are lying in the stores and in any year if again their need
arises they are written back in the books
Capital related spares are placed under D99 category. These are those spares the asset value of
which becomes zero but their spares have value.
SUGGESTIONS:
All the general store inventory items should be recategorized especially those, which have the
consumption value during the year.
Company should have to go for some other controlling techniques like VED, JIT etc.
The items, which don’t fall under any category, should be treated separately
The company must treat ROQ & EOQ separately on their individual effects on the inventory costs.
CONCLUSION
From the thorough assessment of my study on “INVENTORY MANAGEMENT” I Concluded that
Controlling techniques relating to the general inventory in GSK are developed with the objective of
ensuring that the inventory will be controlled in an effective manner, without having any loss to the
inventory.
The study of Recategorisation of the general store inventory of GSK is conducting for the purpose of
knowing the actual status of the inventory in the stores. First Recategorisation was done in the year 1999
and after that it was conducted during the year 2005. From this study I conclude that any technique
remains effective only when if it is carried on regularly means at proper time. This study reveals that
through the ABC analysis, effective control can be exercised on the inventory. Items, which have more
importance to the company, those come under strict control. But all the items should have been
categorized specially those, which have consumption value during the year. No doubt their criteria of
recategorisation is appropriate but still some changes are required in it i.e. some movements of general
stores items are required between three categories. Regarding EOQ technique, there is need of making
effective changes in their present system.
At last I would like to say that there is proper control of inventory in the organization. Inventory
management is done at par. Proper accounts & records are maintained of each and every item, better
techniques are applied. 5S technique is implemented fully in GSK.
BIBLIOGRAPHY
SECONDARY DATA:
ANNUAL REPORT OF THE COMPANY
BOOKS
GUPTA SHASHI K., SHARMA R.K., FINANCIAL MANAGEMENT, Kalyani Publishers,
Edition 2005, pp 10.41-10.54
JAIN S.P., NARANG K.L. & DHINGRA T.R., COST ACCOUNTING-Principles and
Practices, 1974, pp 8-25
CHANDRA PRASANA, FINANCIAL MANAGEMENT- THEORY & PRACTICE, Tata Mc-
Grew Hill, New Delhi, 4th edition, 2004.
SHARMA K.R., QUANTITATIVE TECHNIQUES AND OPERATIONS RESEARCH,
Kalyani Publishers, 1990, pp 589-631.
PRIMARY DATA:
WEB SITES:
www.gsk.com
www.gsk-India.com
www.Glaxosmithkline-ConsumerHealthcareindialtd.html
Inventory Questionnaire Internal Control Questionnaire
Question Yes No N/A Remarks
A university should establish policies to ensure proper accounting, reporting, and safeguarding over inventory. Inventory records need to be maintained to record purchases and issues from stock. Perpetual inventory records are updated immediately and represent the quantity on hand, unit cost, and total cost. Periodic inventory systems record the beginning balance and are updated at the end of each fiscal year as determined by a physical inventory.
1. Are policies and procedures current, in writing, and properly approved?
2. Are these policies and procedures clearly stated and systematically communicated?
3. Do these policies and procedures support internal control?
4. *Are receiving, issuing, accounting and storing responsibilities properly segregated?
5. *Has management taken the appropriate steps to safeguard goods against risk of loss by theft (e.g., goods kept in locked buildings, rooms, or cages, access to which is granted only to authorized personnel)?
6. Are inventory records reconciled (and differences explained) to Advantage reports on a regular basis? (Current inventory is adjusted at year-end by fiscal year-end physical counts.)
7. *Do departments compare quantities received against receiving reports, etc.?
8. *Is material released from storerooms only on the basis of requisitions which are approved by a responsible official of the department?
9. *Is adequate provision made for obsolete and inactive items in inventories?