Techniques of Inventory Control

Techniques of inventory  control

CONTENTS  THE NEED FOR INVENTORY   THE NEED FOR CONTROL  FINANCE F OR INVENTORIES   W HAT IS INVENTORY  CONTROL  THE TECHNIQUES  THE T YP ES OF INVENTORIES

SIS OR SELECTI VE INVENTORY   ABC ANALY SIS CONTROL  THE T W O BIN S Y STEM STEM  MAX MINI S Y STEM STEM  ECONOMIC ORDER QUANTIT Y   SA FET Y  OR BUFFER STOCK  FSN/VED ANALY SIS SIS  CA SE STUDIES

JS W  AVON CYCLES BHUSHAN STEEL CO.

GROUP MEMBERS  

NAME

KAMALPREET SINGH  

   

6

MANINDER SINGH

PRATIK BAMBRI  

ROLL NO.

7 9

NEHA DAVE MANINDER SINGH DHANJAL

15 17

JAY GUPTA

21

PRONOY KAPOOR

25

BALJIT KAUR

46

 

TANVEER SINGH RAINU

47

ACKNOWLEDGEMENT

It hereby gives us great pleasure to submit our first project on MATERIALS MANAGEMENT. We would like to thank our prof. P.M. RAO for giving us such a good project. We would like to thank all others who have directly or indirectly helped us in making this project. We also gained some knowledge from this project. We would be looking for such projects in future.

THE NEED FOR INVENTORY 

The ordinary dictionary meaning of inventory is 'a list of goods an estate contains'. In industry, inventory means 'stock of goods'. It may mean raw materials, work-in-progress, maintenance materials, processed and semiprocessed materials, oils, fuels and lubricants as well as finished and semifinished goods. They may be either in solid, liquid or gaseous form, required for future use, mainly in the production process as in the case of finished goods for re-sale. In any case, it is an idle resource having an economic value awaiting conversion, consumption or re-sale. Thus inventories are held primarily for some transaction. 'Today's inventory in ventory is tomorrow's production'. In case of production inventory, generally there is a time-lag between the recognition of the need and fulfillment of that need. This time-lag; which is technically called 'leadtime', is due to the time required for ordering, processing and time needed by the vendor for actual delivery of the materials. Consequently, leadtime greatly influences holding of the volume of inventory. Had it been so that materials were readily available right on placing orders, there would have been no need for holding inventory. The second element is that inventories are held as a precautionary measure for increases in both leadtime and consumption rate. Also, there are reasons re asons for holding inventory as a matter of speculation, because prices may subsequently go up or the material may become scarce in the future. This is however, not 'of so much importance for our purpose. Finally, inventories also serve to decouple materials from consumption at successive stages of production pr oduction operations.

THE NEED FOR CONTROL We have already seen how h ow important it is to improve upon the return on capital, that is, profit margin. But there are obvious limitations such as competition in the business world. One way of improving impr oving the profit margin is to turn inventories into saleable products with less investment and as quickly as possible so that higher sales targets can be achieved and more profits made with less investment. In other words, a high inventory in ventory to sales turn over ratio is necessary to achieve an improvement over return on capital. The inventory-turnover ratio can be defined as the gross sales revenue to average inventory held during a year. This ratio is too low in India. While it is roughly about 3:1 in India, it is about 12 to 18 in the USA on an average. The same is about 7 in West Germany and about 6 to 8 in the UK. An RBI study on 700 Joint Stock Companies shows the following investment structure: Raw Materials and Inventories «. Rs. 600 crores Plant and Machineries «. Rs. 540 crores The above figures show higher capital outlay in raw materials and inventories than in plant and machinery. A constant attempt should be made to reduce re duce investment in inventories. If a modest 5 per cent reduction is i s possible, that would mean release of 1m extra amount of investable funds for other productive purpose. The overall picture is gloomier. It has been variously estimated that in India about Rs. 15,000 crores is blocked in immovable inventory in ventory of which about Rs.2,500 crores is blocked in dead inventories. One wonders whether a developing economy can afford to  block so much money in an idle resource.

FINANCE FOR INVENTORIES Like their counterparts all over the world, Indian industries also performance their inventories primarily through bank credit. Banks extend credit by way of  advance against inventories. It is generally made available under un der pledge or hypothecation. As a matter of fact, full value of inventories is not advanced. A margin is retained by the bank and the borrower is required to meet the financial requirements of inventory through internal resources. Margins, however, vary widely depending upon many factors which are taken into account by the bankers ban kers while they extend credit. Large portions of working capital of many companies are sunk in inventories and banks generally provide pr ovide the working capital requirements. Traditionally, organized industrial sector of  the economy accounts for more than 50 to 60 per cent of the total bank credit. The quantum of bank credit for industries has always been on the increase. As such, inventory financing has becoming a very important part of credit planning for the banking system in India. The Reserve Bank of India, in order to regulate and control bank credit, from time to time issues policy directives to commercial banks. As for example,  banks are required to t o maintain a statutory reserve in the form of cash. The liquidity ratio of cash to demand and time liabilities are periodically reviewed and varied in order to control credit. The Variable Reserve Ratio (VRR), as it is called, is a powerful tool in the hands of RBI for controlling credit and money supply in the country. The RBI also lowers or increases lending rates to commercial banks for such purposes. Over and above, it also exercises selective

credit control for a large number of commodities and recommends a minimum margin to banks for advances and loans. For others, banks are left free to advance loans and credits at their discretions. In July .1974, RBI appointed a study group to frame some guide lines for hank credit to industries. in dustries. The committee headed by the then Chairman Ch airman of the Punjab National Bank, Sri Prakash Tandon, recommended three methods of financing inventories. in ventories. (a) Firstly, the borrowing organisation is expected to finance 25 per cent of the working capital requirements from its own internal resources. (b) Secondly, the borrowing organisation is required to finance to the extent of  at least 25 per cent of its current assets from its own internal resources. r esources. (c) Thirdly, the borrowing organisation is expected to finance its i ts 'core current assets'. The implication is that individual in dividual borrowing organisations organisations will need to t o take care to minimize their current assets. They must reduce inventory and will try to increase the inventory-t in ventory-turnover urnover ratio .in order to maintain a steady flow of  funds and liquidity. They will have h ave to streamline procedures to cut administrative and internal leadtimes. This in turn requires an analytical approach to inventory control, flow of information, in formation, documentation, organisational restructuring and delegation of financial powers for smooth flow of materials, to, through and out of an organisation. Thus, inventory control has assumed great importance to industries.

 W HAT

IS INVENTORY  CONTROL

The simplest language, language, inventory control control may be said to be be a planned method whereby investment in inventories held in stock is maintained mai ntained in such a manner that it ensures en sures proper and smooth smooth flow of materials materi als needed for production operations as 'well sales, while at the same time, the total costs of investment in inventories is kept at a minimum. From the above definition it follows that a comprehensive inventory control system must be closely coordinated with other planning and control activities, such as, (planning, capital bu dgeting, sales forecasting, including production planning, production scheduling and control. This impinges on a wide range r ange of operations, operating decisions and policies for production, sales and finance. The finance controller of a company regards inventory as a necessary evil, since it i t drains off cash which could he he used elsewhere to earn some profits. The marketing manager always wants enough of ready stock of finished fini shed goods inventories in order to give better customer service to ensure the company's goodwill and would not like t o see a sales opportunity lost for want of saleable ready stock. The production manager does not want an out-of. Stock Stock condition con dition for which production might  be held up. It will, therefore, he seen that everyone- has some objectives which arc connecting in nature. The basic problem is, therefore, to strike a balance  between operating efficiency and the costs of investment in vestment and other associated costs with large inventories, with the object to keep the basic conflicts at the minimum while optimizing the inventory holding.

THE TECHNIQUES Some of the techniques which will follow include methods of fixing purchase quantities, setting of order points and safety stocks. The decisions as to which item to make when and to keep inventories in balance requires application of a wide range of techniques from simple graphical methods to more sophisticated and complex quantitative techniques. Many of these techniques employ concepts and tools of mathematical and statistical methods and make u se of  various control theories from engineering and other fields. They arc primarily aimed at helping to make better decisions and getting people involved and follow a wise policy. As such, they are far from academic exercises only. However, making decisions more intelligently and making actions follow these decisions is not easy. Thus while these th ese quantitative techniques have taken much out of the decision-making managers what was being done through  bunch or intuitive judgment, real business acumen demands that these must be  blended with practical business sense. It is an axiomatic truth that these techniques alone cannot turn bad judgement ju dgement into good ones simply because they are exact. However, before focusing our attention on such techniques, let us first attempt to analyze different di fferent types of inventories

T YPES OF INVENTORIES Inventories may be classified as under:un der:(1) Raw materials and production inventories: These are raw - materials, m aterials, parts and components which enter into the product Direct during the production process and generally form part of the product. (2) In-process inventories: Semi-finished parts, work-in-process and partly finished products formed at various stages of production. (3) M.R.O. Inventories: Maintenance, repairs and operating supplies which are consumed during the production process and generally do not form part of the prod.uct itself (e.g. POL, Petroleum products like petrol, kerosene, diesels, various oils and lubricants, machinery and plant spares, tools, jibs and fixtures, etc.) (4) Finished goods inventories: Complete finished products ready for sale. Inventories may also be classified according to the function they serve, such as, (a) Movement and transit inventories: This arises because of the time necessary to move stocks from one place to another. The average amount can be determined de termined mathematically thusI=S x T Where, S represents the average rate of sales (say, weekly or monthly average) and T the transit time required to move from one place place to another, and I the movement inventory needed. As for example, if it takes t akes three weeks to move materials to aware house h ouse from the plant and if i f the warehouse sells 110 per week, then the average inventory needed will be 110 units x 3 weeks = 330 units. In fact, when a unit of finished product is manufactured and ready for sale, it must remain idle for three weeks for movement to warehouse. Therefore, the plant stock on an average must mu st be equal to three weeks' sale in transit. (b) Lot-size inventories: In order to keep costs of buying, buyin g, receipt, inspection and transport and handing charge slow, larger quantities are bought than are necessary for immediate use. It is common practice to buy some raw materials in large quantities in order to avail of quantity discounts.

(c) Fluctuation inventories: In order to cushion against unpredictable demands these are maintained, but they are not absolutely essential in the sense that such stocks are always uneconomical. Rather than taking what they can get, general practice of serving the customer better is the reason r eason for holding such type of inventories. (d) Anticipation inventories: Such inventories are carried out to meet predictable changes in, demand. In case of seasonal variations in the availability availabilit y of some raw materials, it is of  inventory and also to some extent economical to build up stocks where consumption pattern may be reasonably uniform and predictable. of the types of inventories discussed above, the Lot-size, Fluctuation and Anticipation Inventories may be said to he h e 'Organization Inventories'. As more of these,  basic types of inventories are carried into stock, less coordination and planning are required. Also less clerical and an d administrative efforts are needed and greater economies can be obtained in handling, h andling, manufacturing and dispatching. But the difficulty is that gains are not directly proportional to the size of  inventories maintained. As the size increases, even if they are efficiently maintained, handled and properly located, gains from additional stock become less and less prominent The cost of warehousing, obsolescence and capital costs associated with maintenance of large quantities grow at a faster rate than the inventories themselves. As such, the basic problem is to strike a balance between the increase in costs and the decline in return f rom rom holding additional inventories in ventories.. Striking a balance in a complex business situation through intuition alone is i s not easy. Costs, and to be sure, the balancing of opposite costs, lie at the heart of  all inventory control problems, for which cost analyses are necessa ne cessary ry to which we shall turn in this chapter now. As has already been said that even a typically medium-size industrial organization may use 10,000 to 15,000 different items i tems which are carried in inventory. Initial planning and subsequent control of such inventories can only  be accomplished on the basis at knowledge kn owledge about them. Consequently, Consequently, the starting point in inventory management and control is the development of a stores catalogue, which is more or less comprehensive and complete in all an d carefully described and a code respects . All inventories should be fully and number should be allotted. Similar items should be grouped gr ouped together and standard codification should be adopted.

ABC ANALY SIS SIS OR SELECTI VE INVENTORY  CONTROL (SIC) 80 per cent of the income and wealth were concentrated in the hands of about 20 per cent of the population. This 80-20 relationship also holds good in most cases of inventories where it may be found that about 20 per cent of the total number of items are responsible r esponsible for about 80 per cent of the value. The idea of  studying such, inventory value is to find out 'where the money lies'. AS this thi s '20 per cent of items, 80 per cent of value' rule holds good in many inventory situations, high value items need more stringent control, which may be termed 'A' class items, and the remaining ones can be classified as 'B' and 'c' class items according to descending order of value. Thus, the principle prin ciple of graduated control may be affected and the degree of control may be equated with the frequency of reviews. Controlling tightly means reviewing frequently, and frequency in turn tends to determine the order quantity, A items would be reviewed frequently, and because of their high hi gh value they will be ordered in small quantities in order to keep the inventory investment minimum. B items will be renewed less frequently and C items still less, The following graphical illustration will make the meaning of ABC Analysis more clear, which is based on selective control technique.

CLASS A B C TOTAL

NO. OF ITEMS IN USE (%) 20 30 50 100

VALUE (%) 80 15 5 100

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

BIN NO 1

Use till Bin no 1 is empty

BIN NO 2

Use Bin No 2 when Bin no 1 is empty

Such a method is appropriate only when consumption rate is constant, that is to say, it is a deterministic system. We know from our experience what quantity qu antity of bolts and nuts are necessary for a given period as well as we know their rate of consumption.

MAX MINI S Y STEM STEM Under this method, maximum level and minimum level are fixed. Re-ordering is done after a period of review and order or re-order is placed when the quantity touches a certain level. Suppose you have an item in inventory for which maximum is fixed at 1,000 and minimum quantity to be held he ld in stock is 250units. Previous experience shows that a safety stock of 250 units un its is quite sufficient. If during durin g the past two months consumption rate has been 300 units unit s per month on an average, and if  i f  the leadtime is taken to be two months time, then you will run out soon, if  either delivery is not received re ceived just after two months or if during the subsequent months consumption rate increases. The weakness of this system is: (a) Stock levels are actually actu ally fixed at lower levels since managers have no time to to study inventory levels of individual items. (b) Re-order points and safety levels once fixed are ar e not frequently changed after study. (c) Delay in postings p ostings makes the records useless for control as often even a critical item can be held he ld up for want of posting which otherwise would have  been shown that the re-order point has h as been touched. Thus, we may conclude that in any inventory in ventory management and control system, control is exercised through various levels, and the order point point and the order order quantity: i. ii. iii. iv.

Maximum level Minimum level Order level or re-order level or the order point Order quantity

There are two  ba sic control  sic  control systems:  systems:  1. Periodic review system. 2. Fixed order quantity system. 1. Periodic review system: This is a time-bound system which requires periodic reviews of the stocklevels of all items. Here, period of review is fixed either ei ther at three months, six months or once in a year, when requirements of all items are worked out ,a fresh, and the quantity varies. This system works well for production raw materials and components for which long leadtimes are necessary.

2. Fixed order quantity quan tity system: Under this system, order quantity is fixed but bu t the time varies. This system recognizes the fact that each item in inventory possesses its own characteristics and optimum order quantity requirements. Designing of this system requires consideration of many factors, such as, price, usage r ate and other pertinent factors. Maximum and minimum levels are determined for each inventory item and an order or re-order point is established in  between the two levels. The order point is computed in such a manner that  by the time new supplies is received, the stock balance will fall to the th e minimum and it will be replenished again to the maximum. The major advantages are: (i) Each item can be procured at the most economical price and quantity, (ii) Purchasing and inventory control people automatically pay attention to the items when they need it. Thus, in order to devise a good inventory control system, system, we have to consider the following: (a) What to order. (b) When and how much. The first involves planning with due regard to production pr oduction and marketing requirements. The second has two aspects: (i) Order point (ii) Order or re-order quantity Order quantity will be discussed di scussed along with safety stock or buffer stock since subtle influence of time in transit on .total inventory is closely related to the safety stock provisioning to create an impact on inventory control. At this point, it would be better to t o draw a distinction between Accounting costs and operational costs. The former is based on hi storical cost concept used for financial reporting and the latter is, by and large, lar ge, used for day-to-day decision-making and insensitive to small variations. Accounting system typically distinguishes three types of costs, viz., direct cost, indirect cost and overheads. As against the principles and consistency of accounting costs, the definition of costs in an inventory in ventory system may vary from time to time, depending upon the length of time being bein g planned and other circumstances. However, the objective underlying inventory in ventory control is to minimize the total cost of procurement, storage, handling, distribution and other charges. Economic ordering starts with an analysis of these various vari ous components of costs.

ECONOMIC ORDER QUANTIT Y  OR EOQ FORMULA The inventory costs may be broadly divided components: A PROCUREMENT COST (this includes administrative and

provisioning costs.)

B. STORAGE. COST (this includes carrying, handling, etc.) C. STOCK-OUT COST (this may be laid down by management policy.)

according to its

The first two may be broken br oken down into a number of components. Typically they are: A. (i) Requisitioning (ii) Order-placing (iii) Processing and progress-chasing (iv) Receiving, checking and inspection in spection B. (i) Interest on capital (ii) Expected return on capital (imputed cost) cost) (Hi) Warehousing (this includes insurance, lighting and other maintenance costs). A point of minimum cost is reached re ached at which the ordering or dering cost will be just equal to the carrying cost so that the tota1 cost is minimum at that th at point. In other words, neither excess quantity of material is ordered, nor too fr6quently too many orders are placed for the same material during a period of time. We assume, however, that no stock-out or idle-time cost has to be accounted accoun ted for. Also, where quantity discounts are allowed on lot-purchases or where there are price-breaks, this will not hold true. In such cases, linear relationship of the unit price with purchase quantity qu antity breaks down and distorts the formula given  below as we shall presently see, When unit un it price is same regardless re gardless of the quantity purchased, we can use the following formula when we find that the order quantity varies in proportion to the square root of the demand. These are indices given on scientific basis to order quantity, qu antity, keeping in view position states of inventories, viz., the set of costs, ordering cost and carr ying cost. This is known as Economic Order Quantity

(EOQ) or Square Root Formula developed by R.H Wilson. EOQ or D2 = (2Qa) C Where Q= Annual requirements in units un its (estimated demands) a = Unit cost of placing an order (in Rupees) c = Annual carrying cost (this is generally expressed in percent)

In determining the EOQ, this mathematical model has assumed that the costs of  managing. an inventory inventory item consist consist solely of two parts: (1) Ordering cost and (2) Carrying cost, ignoring the idle i dle time or stock-out cost, which cannot be altogether ruled out. Ordering cost: This is the additional cost of placing an order or re-order. Its characteristic is that it is independent of the order size. It increases with the number of orders and is not influenced by the size of the order. Carrying cost: On the other hand, the characteristic of the carrying cost is that it increases with the volume of inventory irrespective of the number of orders. It i s linearly related with the quantum of inventory. in ventory. The cost of inventory carrying is generally expressed as an annual percentage of the unit purchase cost. From the above graph, it will thus thu s be noticed that the above two costs are opposite in nature. The former varies with the number of orders and the latter varies directly with the volume of inventory. Thus, if purchases pur chases are made frequently and in small lots, carrying cost can be kept low, but the order or re-order cost will be higher. It will, therefore, th erefore, be appreciated that when the slope of the order cost curve meets the rising carrying cost curve, cur ve, that is to say, where the marginal ordering cost is equal to the marginal carrying cost, the total minimum cost point is reached. In other words, wor ds, this is the point where we hold h old the optimum inventory meet this point the order or der cost curve begins to rise again.

Limitations of the EOQ formula However, the very restrictive nature of the assumptions made in the th e EOQ  formula restrains the use of the formula in many cases of practical inventory in ventory situations. The cost-analyses on the basis Of which the formula has h as been developed are merely notional rather .than actual in some cases. In practice, practi ce, unit cost of purchase of an item i tem varies, lead times are uncertain and an d also requirements or demands of inventory items are not perfectly predictable in advance. Rate of consumption varies greatly in many cases. As such, the Application of the formula often becomes difficult and complicated. Price

Breaks or Quantity Discounts

In many cases, quantity discounts are allowed by firms in order to boost their sales and it becomes preferable to purchase in some bulk quantities to avail of  the discounts. In such cases, it is only on ly worthwhile to calculate the EOQ for an item in order to see that if it is really profitable to order in EOQ quantity. This will also mean that the usage rate must be steady. Again, if the, unit cost of  purchase fluctuates greatly from time to time, then the EOQ for that particular item will also not hold good. g ood. Leadtime variation The formula was' also developed on the basis of invariant i nvariant leadtime, that is, the time interval between placement of an order and actual replenishment will not vary for all practical purposes. Often this supposition is invalid, because schedule of deliveries varie s for many reasons. Moreover, some items have longer leadtimes than others and even for the same items, it will differ from one lot purchase to another. For this reason also, it is difficult to t o use EOQ for many times Order or re-order Point Thus, while EOQ tells us something about how h ow much to order, it tells us almost nothing about when to order or re-order, re -order, for, this depends upon the level of  inventory in question. The order or reorder point should be set at such a level that the stock on hand h and plus on orders should last till fresh supplies are received. This will require ascertaining the usage rate r ate of that particular item. If  the rate of consumption greatly varies and there is an upward surge in the consumption pattern suddenly, this will lead ultimately to stock-out condition. For this reason only, for many items additional additi onal stocks have to be maintained in order to meet unanticipated demand due to variation vari ation in usage rate due to normal consumption and during lead times.

SAFET Y  OR BUFFER STOCK Some additional stocks are always provided in order to meet contingencies of  unanticipated, demand due to both (a) leadtime variations usage pattern during leadtime. This additional stock, safety or buffer stock as it is called will, however, depend upon the service level desired on the one h and, and, the risk of stock-out, on the other. If the rate r ate of consumption remains fairly constant, the suppliers' delivery times do not vary, there are no rejections during inspection, it would have been a simple matter to place a new order whenever stock on hand reaches the quantity equal to the lead time usage. u sage. A hundred per cent service level can be easily e asily .attained in such circumstances when there will  be no occasion for stock-outs as fresh supplies would always al ways be arriving before the existing stock out.

The EOQ was developed on the presumption pre sumption that such an ideal situation holds true and the average inventory holding during the twelve-month period is 1/2 during the year. So, the inventory level is equal to Q or EOQ intermediately upon receipt of the order quantity and is reduced at a constant rate of  depletion until it reaches a zero-level again. But such an ideal situation is hard to come across. In practice, demands vary greatly, supplies are un certain, prices do not remain constant and a host h ost of other variables and seen circumstances and difficulties are experienced, which may lead to t o occasional stock -out conditions. On the other hand, unnecessary apprehension about stock shortages leads to holding of a building up of huge stock piles. So, an inventory control system should be provided that can absorb the shocks or bu mps up and down, the system itself not being too costly at the th e same time. In designing such a system, we have already stressed the importance i mportance of service level desired by management. Some additional stocks are kept on hand always in reserve to avoid temporary shortages or stock-out conditions. As more and more safety or  buffer stocks are provided, this eliminates the changes of shortages and means holding of unnecessary additional inventories. But when less are provided, this means there are chances of occasional stock-outs and management m anagement has to run the risk or production hold ups. Thus the provisioning pr ovisioning of safety stock assumes great importance in the face of uncertainties. u ncertainties. The following illustration depicts the situation. The problem of determining safety stock of buffer stock is a comparatively simple matter, where the rate of consumption fairly constant or can be accurately forecast. At this thi s point mill be appreciated that variations in future consumption are not only cause of stock-outs. The variations in l eadtime use ages and related uncertainties un certainties of delivery time must also be taken into account, which make the calculation of safety stock a complicated affair. It involves numerous repeated trials or tests of the combined effect of variati ons in demand and in leadtime useages to arrive at an ideal safety stock level.

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

AVON CYCLES SUNIL

GUPTA G.M Q UALITY DEPARTMENT Raw materials: materials: - Tubes, Stips, rubber, Steel more m ore than 3000 R.M Source: ource:

- Ludhiana. Some materials are imported.

They are having more than 100 models. Almost 6 to 7 thousand cycles are manufactured m anufactured per day. Lead time: time: - 1 day and in some cases 12hrs. No.

of vendors: vendors: - more than 500.

They follow the principle of Kaizen i.e.

KAI

Improvement

Plant

ZEN

Betterment

location: location: - Labor and electricity Cheap, Easy availability of Raw materials. Area: 13 acres

Inventory control: control: -They follow Just In Time (JIT) and Zero Zer o Inventory. On the basis of previous pr evious 3-4 years sales forecast production is planned and Raw materials are procured from suppliers.

Stores

10 stores department: 2 Raw material stores, 8 finished finishe d goods stores. BIN CARD and online system in use. Codification: Codification: - Alphanumerical i.e. Rack nos.1,2,3. Level A, B, C.

Unloading

area or Goods receiving area

Goods received

Counted according to the purchase requisition made

Inspected/Quality is checked

Passed on

Plant

layout The Plant is divided into zones and there are 23 zones Each Zone has a zonal head E.g. Production department is 1 zone.

Purchase

cycle

Sales is forecasted on the basis of previous 3-4 years A tentative plan is made Requisition is made to purchase department Order is given to t o vendors on the basis of four grades A, B, C, D.

BHUSHAN STEEL CO. Plant for: - Cold rolling strips & Plain Carbon steel A.K Sharma (Manager quality assurance) Raw Materials: Materials: - H.R(Hot rolled) coils. Source: ource: - Bokaro (vertical integration), SAIL. Codification: Codification: - Alphanumeric. Lead time: time: - 15 days. Stores: tores:

- Indenting, only 1 stores department ABC and FSN Analysis (Electronic cards used). A items - slow moving B items ² non moving (e.g. Hydraulic Hydraulic space, hydraulic h ydraulic pump) C items - fast moving (e.g. Nuts, bolts, spare parts). BIN card, Online system (software: File compiler software), ERP (Effective resource Planning). Quality Dept Use of computerized Hardness tester and Ultimate Testing Machine (UTM):- Which measures the tensile t ensile strength load at which the material fractures.

STEEL PROCESS

Initially there are 2 mills

H.R strip/coil of barrel length-500mm & 556mm are used. u sed. Analysis of material

Planning H.R splitting Steel is passed through HCL Then through reversible mill (to change the tension)

Annealing process (i.e. the steel is heated he ated for 8-10hrs at 600-700 Celsius then soaked for 10-12hrs 10-12hr s and then cooled) There are 18 annealing anne aling furnaces having capacity of 40-45 tonnes.

Material is cooled Grinding Process (for stress removal) Slidding process Cutters process (i.e. the steel is cut according to the customers requirement)

Skin pass/CRS process (Steel is passed through a Rust Ru st preventing oil) Along with CTL machine i.e. Cut To Length machine. m achine. Quality department (Use of Hardness tester and UTM) Stores Department