Acknowledgement

I consider it pleasant privilege to express my heartiest gratitude and indebtedness to those

who have assisted me towards the completion of my project report. The project wouldnt
have seen the light of day without the help and guidance of many people I take an
opportunity to convey my deepest gratitude to all those individuals.
I feel highly obliged and indebted to my learned guide Mr. Sunil Sharma, Mr. Vikrant
Bansal, Mr. Vikas Bansal, Mr. Shiv Kaushal, of Finance department GSK for not only
providing all the moral and organizational support but also for inspiring encouragement
during the course of this work. Without their help it wouldnt have been possible for me to
accomplish this task in time.

Signature
Roll No.________

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
companys 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. 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 tacts such as ABC, FSN, etc.
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

OHSAS 18001:2007
ISO 9001:2008
ISO 22000:2005
ISO 14001:2004
ISO14001Accreditation and SA8000
Nabha & Sonepat Plant certified for
HACCP (Hazard Analysis Control
Point for Food safety)

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, Maltova, Biscuits,foodles
and in addition promotes and distributes a number of products in diverse categories, including
prominent brands such as Eno, Crocin,Iodex and Sensodyne.
GSKCH has a strong marketing and distribution network in India comprising over 4800
wholesalers and direct coverage of over 7,00,000 retail outlet.
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 are 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 ".

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
Glaxo Welcome. Its global mission is
To improve the quality of human life by enabling people to do more, feel better and live
Longer ".
YEAR
1955:

DESCRIPTION
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.

195657:

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

was

multinational and owned more than 500 companies in more than 200
countries engaged in manufacturing of Brylcream, Hair cream, Eno
Fruit Salt, Macleans, Toothpaste, Pure Silvikrin 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 27-1200

Glaxo
Merge
r

GlaxoSmithKline

Smith Kline
Beecham

2002:

Change of name took place from 23-04-02

2003:

Company installed another manufacturing unit in Haryana - Sonepat

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:

Companys packing unit at Excise Free Zone Baddi (Himachal

Pradesh) came into existence.

2007:

Companys packing unit at Excise Free Zone Gauhati(Assam) came

into existence.

2008:

Company launched Actibase and Actigrow products - Energy drinks

In the Indian market, GSKCH's journey began with Horlicks

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 Kg and 1kg pouches. Packing machines were
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
7

opened at different places. At present Horlicks is dispatched from Nabha in bulk quantity to
the following packing stations:
Mangaldoi (Assam)
Kompally
Baddi (Himachal Pradesh)
Hamira (Punjab)
Parson

Geographical locations

The marketing of the company's products is done through various Regional Sales Offices
(RSO) situated at:
North (New Delhi office)
West (Mumbai office)
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 units container or gusseted
pouches (GPs).
GSK MISSION
9

Our global quest is to improve the human life by enabling the people
TO DO MORE, FEEL BETTER, AND LIVE LONGER.

People at GlaxoSmithKline consumer healthcare limited are dedicated us 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 GSKs culture is the set of norms that create
powerful precedents for acceptations around acceptable risk, change orientation, creative and
innovation, group versus individual effort, customers orientation, extra efforts.
ABOUT THE NABHA PLANT
GSKs Nabha plant is a huge manufacturing unit. Glaxo SmithKline Consumer Healthcare
Ltd. has 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:-

10

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 get weekly off according to Lab ours Act.. The plant runs 24*6and there are 3
shifts 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 for 6 days in a week. Production capacity of Nabha Plant is about 99500 MT pa.
About 7 Milk collection centers were opened at a radius of about 40km around Nabha, to
meet the requirement of 70 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.
5S is a tool that aims to create and maintain an organized, clean and high performance
workplace. This tool has been efficiently utilized by Nabha unit and it has lead to reduce the
records retrieval time drastically.

11

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 form (gif) is filled up and sent to the
Finance Department for payment. The vendor submits 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 orders
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 compiled 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

12

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. Octopi 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 or
buffalo and the next three digits indicates 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 concerned
department also sends a capital investment proposal, which has to be approved in different
forums depending on the investment required.
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 evaporation 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 form of thin layers. Then the vitamins and
other essential nutrients are added to the food items which is then grounded and the result
is our final product HORLICKS.
13

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

Drums(at factories)

Retailers

Bottles (at pack stations)

Wholesalers

Sale Depots

14

PRODUCT PROFILE
The main products of the company are:

New Horlicks
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
Mothers Horlicks With DHA
Boost Premix
Acitbase Regular
Actigrow Chocolate
Actigrow Vanilla
Ready to drink
Junior horlicks
Biscuits
Foodles

Detailed description
1. HORLICKS
The flagship brand of the company, this product name is associated with that of the company. It would
be interesting to know how and where this global brand took off. Way back in 1883, James Horlicks, a
London based chemist experimented with powered malt mixed with milk and launched this product in
Chicago, USA, as "Malted Milk". In 1906 he returned to England and set up a factory at Slough.
Renamed as 'Horlicks' in 1931, it became a part of the giant Beecham Group in 1969. India forms
almost half the world's market for Horlicks.

2. BOOST
15

Boost was launched in 1976 as an energy drink in the Brown Powder segment. An Indian
Brand, this is manufactured at the Nabha Plant. It is also exported to Countries in West Asia.
Very popular in the South, Boost has grown an average growth rate of 15% per annum.
Sportsmen like Kapil Dev and Sachin Tendulkar back it, making it the secret of OUR
ENERGY!!
3. JUNIOR HORLICKS WITH DHA
Junior Horlicks was launched in 1991 in Karnataka in an attempt to cater to the specialized
needs of certain age groups. This special nourisher, an India brand was targeted at 1-3 years
old as a delicious tasting Milk food drink based on the international standards of nutrition
4. MOTHER HORLICKS WITH DHA
Mother Horlicks is manufactured for lactating mothers. Mothers Horlicks (launched in
November96), is a special nourisher scientifically designed to help meet the nutritional
needs of pregnant and lactating women, as part of a healthy diet. It is made with the natural
goodness of Horlicks by a unique spray dried process, which helps make it easy to digest. It
is enriched with natural honey, and a combination of vitamins and minerals that not only
gives excellent flavor but also help in keeping good health during pregnancy and optimal
birth weight of the baby It is also essential for physical and mental development of the
growing foetus. When taken during the breast-feeding period the nourishment of Mothers
Horlicks helps to improve the quality and quantity of breast milk.
5. GOPIKA GHEE (BY PRODUCT)
The main by-product of this company is Gopika Ghee. Gopika Ghee is packed in the factory
itself, rest of the product are bulk packed in containers, which contain 186 kg of Horlicks and
124 kg. of Boost. These are sent to the packing near the major markets.

6. ELAICHI HORLICKS
Elaichi Horlicks was launched in October 1974. Horlicks position as the market leader in the
Milk Food Drinks (MFD) category was further strengthened with the launch of Chocolate
Horlicks in November 1990. Elaichi Horlicks is Horlicks with a fresh cardamom taste and
aroma along with natural goodness of wheat, milk and malted barley making an appetizing
and easily digestible drink.

16

7. ENO
Eno is a 100 years old global brand. It is a part of Gastrointestinal category Eno is the only
powder antacid and has shown favorable growth over the years. This has been strengthened
of the lemon variant and the sachet pack.
8. BISCUITS
The biscuit division has spread its wings and set flight with a 54% increase in the turnover.
Horlicks biscuits are now a truly national brand. The division has a number of plans for the
future growth with the lot of exciting new variety up its sleeves.

17

ABOUT THE NABHA PLANT

GSKs Nabha plant is a huge manufacturing unit so the requirement of workforce changes
with change in production policy. It is biggest unit of all the three manufacturing units and it
is also the registered office of GSK Consumer Health Care. 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 140 persons. There is a wage agreement for 3 years.
The workers also get weekly off according to Labour Statutes. The plant runs 24 X 7 and
there are 3 shifts which 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 for 6 days in a week.
There are 6 Milk Collection Centers (MCCs) around Nabha, to meet the requirement of 70
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 prices, thus, raising
their standard of living.

18

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.
1. Sort------------------------Throw out rubbish
2. Store-----------------------Find suitable storage area for everything
3. Shine-----------------------Clean all surface areas
4. Standardize---------------Communicate the 5S procedure for your area
5. Sustain---------------------Participate in site-wise monthly assessment & display results
Why do it?
How often do you go to use a piece of equipment and its not where you left it? Wouldnt 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.
19

5. Continue to Red Tag regularly.

Store - Organize whats Left! Arrange and Identify for ease of use
A place for everything, everything in its place, Know what you have and where its 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 whats 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 wont 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.

20

INVENTORY MANAGEMENT
MEANING OF INVENTORY:The inventory refers to the stock pile of the product a firms offering for sale and the
components that make up the product. In other words, Inventory is composed of assets that
will be sold in future in the normal course of business operations. The assets which firms
store as inventory in anticipation of need can be classified into
(1) cash
(2) Raw Materials
(3) Work-in-progress(Semi finished goods)
(4) Finished Goods
(l)

CASH:-

Cash is the important current assets for the operations of a business. Cash is the basic input
needed to keep the business running on a continuous basis. The term cash includes coins,
currency and checques held by the firm, and balances in its bank accounts. (2)

RAW MATERIALS:-

Inventory contains items that are purchased by the firm from others and are converted into
finished goods through the manufacturing process. They are important inputs for the final
product.
(3)

WORK-IN-PROGRESS:-

Inventory consists of items currently being used in the production process. They are normally
partially or semi-finished goods that are at various Stages of production in a multi stage
production process.
(4)

FINISHED GOODS:-

21

It represents final or completed products which are available for sale, the inventory of such
goods consists of items that have been produced but are yet to be sold. The job of the final
manager is to reconcile the conflicting view points of the various functional areas regarding
the appropriate inventory levels in order to fulfill the over all objectives of maximizing the
owner's wealth.
IMPORTANCE OF INVENTORY:Inventory plays cardinal role in every organization. The profit of the organization mainly
depends on the inventory. Inventory is the second largest value in the organization. It is the
liquid asset and the current asset of the organization. Inventory storage is an important
activity in the organization.
OBJECTIVES OF INVENTORY MANAGEMENT
The objectives of the inventory management consist of two counter balancing parts:
(a)

To maximize the firms investment in inventory

(b)

To meet a demand for the product by efficiently organizing the firms production and
sales operation.

These two conflicting objectives of inventory management can also be expressed in terms of
cost and benefits associated with inventory. An optimum level of inventory should be
determined on the basis of the tradeoff between cost and benefits associated with the levels of
inventory.
Optimum level of inventory and finding ensures to the problems of EOQ are the recorder
point and the safety stock. These techniques are very essential to economize the use of
resources by minimizing the total inventory cost. The techniques of inventory management
are very useful in data mining. The cases the board frame works for managining inventories.
To the majority of the companies, inventory represents a substantial investment. Thus the
goal of wealth maximization is related to the financial manager has an important role to play
in the management of inventory. Although it is not his operating responsibility to control
inventory. The financial should see

that only an optimum amount is invested in inventory.

He should be familiar with in inventory control techniques and ensure that inventory is
22

managed well. Effect would be reduce inventory investment and increase the firm's prospects
of making profits.
INVENTORY CONTROL:Inventory control renders to "The process whereby the investment in materials and parts
carried in stock is regulated within predetermined limits set in accordance with the inventory
policy established by the management. The inventory control is activity oriented process
whereas inventory control is the management process and the latter is the firm's setup to be
followed by the former.
Inventory control refers to a planned method of purchasing and storing the material at lowest
possible cost without affecting the sales scheduled. Inventory control therefore, is a scientific
method of determining what, when and how much to purchase and how much to have to
stock for a given period of time.
The Needs for Inventory Control:The rewards of inventory control system cannot be over looked in the Indian context the idea
behind this is,
Conserving valuable foreign exchange.
Release of capital.
Reduction in cost
The primary object of Inventory control is: To minimize the idle time caused by shortage of inventory and inventoryAvailability
of inventory.
To keep down capital investment in inventories. Inventory carrying cost and
obsolescence losses.

VALUATION OF WORK-IN-PROCESS AND FINISHED STOCK

The valuation of work-in-process and finished goods inventory depends to a certain
extent on the method of pricing the raw material and to a large extent on the method of
23

costing used to apportion the fixed manufacturing overheads. Direct Costing and
Absorption Costing are the two techniques used for allocation of costs to the inventory.
Direct costing is based on the traceability of cost to the cost objective. All indirect costs
(which may include fixed manufacturing overheads) are charged to the income statement
and are known as period costs. If the fixed costs are directly identifiable, then it is
considered for inventory valuation.Absorption costing is a technique, which treats the
fixed manufacturing overheads as product costs. Thus, all costs i.e. both fixed and
variable will be assigned to the inventory value. This difference in approach to costing
will affect the inventory value and also the profits. The direct costing method lowers the
inventory value (by not considering the indirect costs) and increases profits with a
decrease in inventory level (when the inventory level decreases the direct costs come
down while the fixed costs remain the same). Contrary to this the inventory valuation will
be higher for stocks valued under absorption costing method as it considers all the fixed
manufacturing overheads.

24

INVENTORY CONTROL TECHNIQUES:Selective inventory control

1. ABC Analysis

Inventory management techniques

1. EOQ (Economic Order Quantity)

2. XYZ Analysis

A. Ordering Cost.

3. VED Classification.

B. Carrying Cost.

4. FNS Classification.

2. System of Re-ordering.

5. SOS Classification.
6. S-D-E Analysis
7. HML Analysis
ECONOMIC ORDER QUANTITY:One of the major inventory management problems to be resolved is how much inventory
should be added when inventory is replenished. If the firm is buying raw materials, it has to
decide lots in which it has to be purchased on cash replenishment
If the firm is planning production as per schedule. These problems are called order quantity
problem and task of the firm is to determine optimum inventory level involves two types of
costs:
(1) Ordering cost
(2) Carrying cost.
The economic order quantity is that inventory level, which minimizes the total of ordering
and carrying costs.
Ordering costs:The term ordering cost is used in case of raw materials (or supplies)and includes the entire
costs of acquiring raw materials. They include costs incurred in the following activities.
Requisitioning, purchase ordering, transport receiving, inspecting, and storing(store
25

placement), ordering cost increase in proportion to the number of orders placed the critical
and staff costs, however, don't vary in proportion to the number orders placed, and one view
is that so long as they are committed cost they need not to be revoked in computing ordering
cost. Carrying costs:Cost incurred for maintaining a given level of inventory are called carrying cost, they include
storage, insurance, taxes, deterioration and obsolescence's

2 x quality required x order cost

EOQ ((economic order quantity) = Carrying Costs
ABC ANALYSIS:ABC Analysis is one of widely used inventory control tool. Under this we have to
classify materials according to their importance and concentrate more on critical items.
Importance of any item arises due to the two factors namely, consumption values and
critically in -use. Classification of materials according to importance has its basis on the
promise "Vital Few and Trivial Many".
The classification based on consumption value is called ABC Analysis and the classification
based on the critically of the items is called VED Analysis (Vital, Essential and Desirable).
Periodical consumption values are used as the basis for VED Analysis. ABC is said to denote
"Always Better Control", the method of classification of material is also known as "selective
method control". The basis of analyzing the annual consumption cost (or usage cost) goes
after the principle "Vital Few and Trivial Many".
Items held in the stores can grouped into class A, B and C respectively based on their Annual
Consumption Values. It has been found in a large number of organization that about 10% of
the items contribute to 70% of the annual consumption value, 20% of the number of items
contributes about 20% of the annual consumption value and the remaining 70% of the items
contribute 10% of the annual consumption value. Hence consumption value need to be
controlled at the highest level and these are the A items. The control of bottom 70% of the
items that contribute only 10% of the annual consumption value, that are denoted as C items
can be delegated to the lowest decision making levels while, the middle B items can be
controlled by the middle levels of personnel.
"The following figures bring out clearly the concept of ABC Analysis".
26

Category Value

Item 10%

% of Annual

A Item

10

70

B Item

20

20

C Item

70

10

Consumption

The Advantage of ABC method of Inventory control is as follows:It becomes possible to concentrate all efforts in areas which need genuine efforts. This
method produces better results and involves minimum control. In the case of A items careful
attention is paid at every stage i.e., estimates of requirements, purchasing safety stocks, ,
receipts, inspection and issues. A close watch on high consumption items and their progress
of replenishment etc, maintained. In the case of C items which are numbers and at the same
time in expensive are loosely controlled.
The items fall under B category may be dispensed within the record keeping system. This
will help in saving time, money and labor without endangering production schedule, it is
most effective and economical method as it is based on the selective method. It helps in
placing the orders, deciding the quantity of
Purchasing safety stocks etc. Thus saving the organization from the unnecessary stocks outs
or surpluses.
VED ANALYSIS:VED analysis represents classification of items based on critically the analysis classifies the
items into 3 "groups called vital, essential, desirable "Vital" category encompasses those
items for want of which production would come to halt. "Essential" group Includes items
whose stock out is very "Desirable" group comprises of items which do not cause any
immediate loss of production would come is high. "Desirable" group comprises of items
which do not cause any immediate loss of production or their stock out entail nominal
expenditure and causes minor disruption for a short duration.

27

HML analysis is the price based analysis. This analysis is generally used for control of spares.
The items m under this analysis are classified into 3 groups which are called "High",
"Medium", "Low". To classify,, items are listed in the descending order of their unit price.
Ex:- The management may decide that all items of unit price above Rs 1000 will be of 'H'
category. Those with unit price between Rs 100 to Rs 1000 will be of 'M' category and those
having unit price below Rs 100 will be offs' category.
F-S-N ANALYSIS:F-S-N analysis is based on the consumption figures of the items. The items under this
analysis are classified into 3 groups.
F-Fast moving
S-Slow moving
N-Non moving

To conduct the analysis the last date of receipt or the date of issue whichever is later taken
into account and the period, usually in terms of number of months that has elapsed since the
last movement is recorded.
X-Y-Z ANALYSIS:X-Y-Z analysis is based on value of the stock on hand. Items whose inventory values are high
are called 'X' items those inventory values are low are called 'Z' items and 'Y' items are those
which have moderate inventory stocks.
Usually X-Y-Z analysis is used in conjunction with either ABC analysis or HML analysis.
S-OS ANALYSIS.S-OS analysis is based on seasonality of the items and it classified the items into 2 groups.
S-Seasonal
OS-off seasonal.

28

S-D-E ANALYSIS:S-D-E analysis is based on problems of procurement namely,

No availability
Security
Longer lead time
Geographical location of suppliers &
Reliability of suppliers etc.
S-D-E analysis classifies the items into 3 groups called "scare", "Difficult", and "Easy".
The information so developed is then used to decide purchasing strategies. "Scare"
classification comprises of items which are in short supply imported through government
agencies. "Difficult" classification includes those items which are available indigenously but
are not easy to produce. "Easy" classification covers those items which are readily available.
LEVEL SETTING: In order to have proper control on materials the following Levels are set:
Re-order Level
Ordering Level
Minimum Level
Maximum Level
Average Stock Level
Danger Level
Safety Stock Level
Re-order Level: 29

It is the point at which if stock of a particular material in store approaches the storekeeper
should initiate the purchase requisition for fresh suppliers of the material. This level is fixed
somewhere between the maximum and minimum Levels in such a way that the difference of
the quantity of the material between the re-ordering level and the minimum level will be
sufficient to meet the requirements of production up to the time fresh supply of the material is
received.
"Reorder level can be calculated by applying the following formula":Ordering level= Minimum Level + Consumption during the time required to get the fresh
delivery.
Another formula given by Weldon in his book 'cost accounting' is follows:
Recording Level= Maximum consumption X Maximum re-order level period.
Ordering Level:This is the quantity of stock fixed between the maximum and minimum level of stock. When
this level is reached, it-becomes the duty of the store-in-charge to replenish the stock within
reasonable time. This level is usually a little higher than the minimum level. In order to be
prepared for such emergencies as abnormal consumption delay in delivery of new supplies
etc., while fixing this level following points are taken into consideration: Time required for obtained fresh suppliers.
Possible unexpected requirements which cannot be avoided.
Minimum Level:Formula level represents the level beyond, which the stock in hand is not allowed to exceed.
This is because:
If the stock exceeds this level, it will
Involves more investment
Requires more space for storages

30

 Amount to more wastage because of more handling, spoilage, obsolescence

Involves more carrying cost.
Excess stock will increase the cost of storage, thereby increasingly selling cost. Excess stock
will involve unnecessary blockade of working capital and prevent its availability for a more
profitable use.
Stock in excess will prevent the management from taking advantages of price fluctuation and
favorable market condition.
The fixation of maximum level depends on the following factors: Rate of consumption of the material
Money available
Time required to obtain deliveries
Storage space available
Economic order quantity
Market conditions, seasonality and price fluctuation
Possibility of loss due to deterioration
The formula for the calculation of Maximum stock Level given by Wheldon is as
follows:-Maximum stock Level= Re- ordering + Re- ordering - quality (Minimum
Consumption X Minimum re- ordering period)
Average Stock level:The Average stock is calculated by the following formula.
Average stock level=Minimum stock level + VI of recorder quantity of '/z (Minimum
Stock Level+ Maximum Stock Level) Danger Level: -

31

This means levels at which normal issues are made only under specific instructions. The
purchases officer will make special arrangements to get the materials which reach at their
danger level so that the production may not stop due to storage of material Danger Level
-Average Consumption X Maximum re-order period for Emergency purchase.
Safety Stock level: -This level is below the minimum level and represents the stage at which
emergency.

Inventory Management provides:

Up-to-date information about data processing resources through the creation and archiving of
records in a centralized repository.
Financial records specific to a single component, or groups of components.
Service records for all components in the inventory.
Data used to support configuration diagrams of the hardware and software components
contained within specific locations, or the entire data processing environment.

Scope
The Inventory Management discipline encompasses all system and data network elements
from the mainframe through the server level to the PC or end component throughout the
enterprise.
All mainframe and data network based hardware and software assets must be identified and
entered into the Inventory System. Any changes to these environments must be reflected in
the Inventory System.
Financial and technical product information must be available through the Inventory System,
as needed to support the functional responsibilities of personnel within the finance and
contracts management departments.
Asset criticality must be included with asset descriptive and financial information, so that the
Recovery Management department is supplied with the information it requires. Recovery
actions must be implemented to safeguard critical assets.
The Standards and Procedures Manual section relating to Inventory Management must be
created and published. This section must describe the process by which assets are identified,
entered into the Inventory Management System, tracked, and finally deleted. All information
needed by personnel to perform Inventory Management functions must be clearly described
within this S&P Manual section. Finally, personnel responsible for implementing, supporting,
and maintaining assets must have access to the Inventory Management System to identify
asset information needed by them to perform their functional responsibilities. This process
32

includes logging the availability or assets, their support history, and any maintenance activity
performed on the asset

Inventory Management disciplines and interfaces

The Inventory Management function is responsible for tracking all assets, from Mainframe
based to Data Network based, that are connected to the data center or data network. In each
case the Inventory Management Systems must be able to
Identify the asset and its serial number
Associate the asset with its owner and location
Relate the asset to its vendor
Track the maintenance level of the asset and
Provide the assets Problem and Change history
The ideal Inventory Management System should also
Provide financial information related to an asset;
Define the criticality of the asset and
Supply history information for the asset
The Inventory Management System interfaces with the following departments:
1. Finance
2. Contracts
3. Systems Software
4. Technical Support
5. Change Management
6. Production Services
7. Facilities Management; and
8. Enterprise Management personnel
Inventory Management is one of the basics problems for a company. It may cause a lot of
paperwork, if there is no automated system avalible.implementing such as determination of
the requirements system structure decision software requirements barcode system selection
and determination of the software tools.
Determination of the Requirements
Inventory Management System (IMS) is generally used by IT Office/Departmenor
Accounting Office of a company or a university. Therefore, searching basic needs for
implementation is the first step of IMS design. Several meetingswithITOfficeand Accounting
Office are arranged. Accounting Office needs detailed reporting tools, detailed categorization
and declaration of specificationsoneachitem, purchasing and billing info. The Information
33

Technologies Officeneedsanother module except the requirements of Accounting Office. The

module isabout the interior maintenance and exterior product service flow.
ForinteriorMaintenance flow, there will be a section. This section will be available for all
Users. Basically, a maintenance request will be created by the users, and the IT Office will
respond to these requests. Finally, it is necessary to consider the endusersneedsthat are also
important part of the IMS software design. This leaded ustousebarcode based system.
2.1.2 Software Requirements
After gathering all the requirements and information, we achieve next state which
is quite important for the project. If the decision is not well organized, it may cause
re-organization and programming the algorithms at the beginning.
At the beginning, first thing to decide is the general structure. We decide to
build the system browser based. The system is going to be used by a large number
of users, so it should have been designed to be reachable for every single user,
instead of having a desktop application for every user. Also if we consider that
Kadir Has University already has a similar systemInformation Management
System, it would be easy to integrate. By using the user database of the existing
systems, the login parameters are ready to use for IMS. So, we would provide the
portability. The next step is to decide the language to implement.
There are several parameters to decide in realization period. First is the compatibility,
and then came the time which is related with ease of implementation. In
the light of these redirections, we decided to use PHP as the language to code the
system. It is compatible with the other software and hardware, and it is easy to
integrate everything. PHP is an open source environment and there are a large
range of resources to get help. Information Management System is already
developed by using PHP. We also decide to use AJAX to obtain a faster system. In
AJAX, only the needed data is being requested from the server, this method speeds
up the loading time. While thinking how to code with PHP, we decide to use

THE MAIN AIM OF INVENTORY MANAGEMENT

The main aim of inventory management they should be to avoid excessive and in adequate
levels of Inventories & to maintain sufficient Inventory for the smooth production & sales
operations effort should be made to place an order at the right time with the fight source to
acquire the right quality at the right place & quantity.
34

 Ensure a continuous supply of Raw Materials to facilitate uninterrupted production.

Maintain sufficient stocks of Raw Materials in periods of short supply & anticipated
price customer service.
Minimize the carrying and time, and
Control investment in Inventories & keep it at an optimum level.
Causes of inventory:External causes:- Customers, Suppliers etc.
Internal causes:- Market, policy, production and SCM.
Problems with high inventory: Interests, Insurance costs.
Quality deterioration.
Wear anttear.
> Storage and pilferage.
Inventory Turnover Ratio: ITR= Costp_f production/inventory
Higher ITR> Low inventories
Low ITR> High inventories
High inventory Reasons: Production:
More & Low volume products
Large cycle times

35

 New and campaign product

Non-moving products.
Marketing: Uncertainty of orders
Deviating sales forecast
Supply Chain management: Improper planning
Excess/short RM supply.
Suggestions: Flexible production plans with tight monitoring.
Min & Max inventory levels and their up to date revision
Cost benefits analysis in on carrying cost
Review and disposal of non-moving inventory.
Reliability should improve.
Dynamic approach is essential.
Coordination with market and plants.
Adherence to commitments and time-to-time review is must.
Selection of Site:The following are the chief considerations which should determine the selection of a site:
(a) The site will be connected with road and rail, or if there is river transport, with water
transport.
36

(b) The existence of facilities for disposal of water or effluent water is important. For this
purpose sometimes special arrangements are necessary though sometimes it may be
possible to use existing waste land. Health authorities will naturally have a say in the
matter.
(c) The available land should be sufficient for purpose of the unit. In Addition to factory
buildings, it is often necessary to provide houses for the staff and workers.
(d) If possible the site should be located in good surroundings. The question of beauty should
not be ignored.
STORES, SPARES AND PURCHASES:1. Store Keeping.
2. Store system
3. Various stores operation.
4. Methods of pricing the material issues.
5. Receiving section and issue department.
6. Purchase department.
7. Stores and Spares.
8. Purchasing system.
9. Inventory.
Different towards inventory.
Structure of inventory mocks.
Factors influencing inventory.
Classification of inventory.
STORE KEEPING:37

It is serving facility, inside of an organization responsible for proper storage of the material
and then issuing it to respective department on proper requisition. Those items, which are not
in use for some specific duration example Spare parts and the Raw materials, are called stores
and the building or space where these are kept is known as Store room.
According to Maynard "the duties of stock keeping are i.e. to receive materials are to protect
them while in storage from damage and unauthorized removal, to issue the materials the right
quantities at the right time to the right place and to provide these service promptly at least
cost".
It is an establishment fact that more than Govt of the current assets are invested in stores.
Thus for efficient and economic utilization of fond -the importance of store cannot be
ignored.
FUNCTIONS OF STORE KEEPING:The main functions of store keeping can be outlined as
Receiving of goods in stores against damage and pilferage.
Custodian of goods in stores against damage and pilferage.
Effective utilization of stores space.
To provide service to the organization in most economic way.
Proper identification and easy location of them.
OBJECTIVES OF STORE KEEPING: Easy location of the items in store.
Proper identification of items.
Speed issue of material.
Efficient utilization of space.
FACTORS OF PLANT LOCATION:38

Primary factors: Raw Material

Market
Fuel and power
Transport
Labor
Secondary Factors: Momentum of early start
Industrial Atmosphere
Special advantage of a place
Personal factors
Historical factors
Political stability
Special concessions and benefits
Stages in production control: Planning
Routing
Scheduling
Loading
Dispatching

39

 Inspection
Advantages of production planning and control: Efficient service
Avoidance of rush orders
Avoidance of bottlenecks
Inventory control
Economy in production time
Equipment utilization
Types of layout: Product or line layout
Process or functional layout
Combined layout
Factors in plant layout: Basic managerial policies and decisions
Nature of plant location
Type of industry and process
Economies in Production: Use of automatic machinery
Division of labor
Utilization of by-products

40

 Timely and economical repairs and maintenance.

Acquisition of patents.
APPROACH:The importance of an integrated approach of material management within the frame work of
the Indian environment and presents a comprehensive coverage of all aspects of the subjects,
such as the operational details of stores systems and procedures and modem mathematical
concepts also featured. Since the theory is based on the practical experience and research
projects, it fulfills the needs for authentic literature in the field on materials management.
Purpose of Stores:Store plays a vital role in the operation of a company. It is in direct touch with the user
departments in its day-to-day activities. The most important purpose served by the stores is to
providing uninterrupted service to the manufacturing divisions. Further, stores is often
equated directly with money, money is locked. Up in the stores. The function of stores can be
classified as follows:1. To receive raw materials, tools, equipments and other items and

account for them

2. To provide adequate and proper storage and preservation to the various

items.

3. To meet the demands of the consuming departments by proper issues and account for the
consumption.
4. To minimize obsolescence, surplus and scrap through proper Codification, preservations
and handling.
5. To highlight stock accumulation, discrepancies and abnormal Consumption and effect
control measure.
6. To ensure good housekeeping so that material handling, materials Preservation, stocking,
receipt and issue can be done adequately.
7. To assist in verification and provide supporting information for Effective purchase action.

41

In India, owing to positions, 4 to 6 months inventories are not uncommon 77and, In fact, for
certain imported items, it could be as high as 24 month's stock. In this context, stores
management assumes greater importance.
Stores Leader:The stores leader is very important because this facilitates the calculation of the value of
goods used for production purposes. It indicates the issue of materials purchase of materials,
finished goods. There are several methods for calculating the issue price of the materials.
1.

FIFO:-

Under this method is first issued from the earliest consignment on hand and priced at which
that consignment was placed in the stores. In other words materials received first are issued
first.
This method is most suitable in times of falling prices because the issue price of materials to
be jobs work orders will be high while the cost of replacements of materials will be low.
2.

LIFO:-

The issues under this method are priced in the reverse order of purchase i.e.., the price of the
latest available consignment is taken. This method is sometimes known as the replacement
cost method because materials are issued at the current cost to work orders expect when
purchases were long ago.
This method is suitable in times of raising prices because material will be issued from latest
consignment at a price which is closely related to the current price levels.

3.

Base stock method:-

Each concern always maintains a minimum quantity of material in stock. This minimum
quantity is known as safety or base stock and this should be used when an emergency arises.
The objective of this method is to issue the material according to the current prices.

42

4.

Average method:In this method stock is divided by the quantity.

5.

Market Price:The issues are made at the market prices. .

6.

Inflated Prices: -

This method is used for any wastage in the materials. Ex: 50 units are purchased at Rs. 10. In
50 units will go for wastage. The issue price will be 500/40=12.5
Location and Layout:More often than not; in the matter of locating the stores, materials management is rarely
consulted. The normal practice is to locate the stores near the consuming departments. This
minimizes handling and ensures timely dispatch, hi stores layout, governing criteria are easy
movement of materials, good housekeeping, and sufficient space for men and materials
handling equipments, such as shelves, racks, pallets and proper preservation from rain, light
and other such elements.
These problems are more important in the case of items that have a limited shelf life.
Other important factors governing the location are the number of users and their locations,
the volume and the variety of goods to be handled the location of the central receiving section
and accessibility to modes of transportation such as rail or road.
Since stores have to be nearest to the sugar, large organizations usually have stores near
consuming department, whereas receiving is done centrally. Items of common usage are
stocked in the central stores so that inventory is kept at an optimum level. These factors are
considered at the planning level of layout.
In the case of warehouses stocking finished goods, factors such as proximity to ports, railway
lines, quality of roads, availability of power, etc., become quite important. It is also important
that the stores are constructed with a futuristic orientation, so that sufficient flexibility for
expansion needs is inbuilt. The activities of receiving the goods, stocking in appropriate
locations, material handling and issue must be done swiftly and economically. The stores
building have adequate facilities for preservation of stores.
43

Sometimes facilities, such as cold storage, heating equipments, air conditioning and similar
facilities may be required. These should be planned in advance. Comfortable working
conditions must be provided to the stores personnel to get maximum efficiency and morale.
The Important factors in the design of stores building can be summarized as follows:
Lighting:Clear and adequate lighting is a must for a work environment. Lighting effects can be
accentuated through a judicious choice of colors for the walls. For stores personnel who
workday in and day out in the stores receiving, checking, stocking, handling and issuing
goods, a pleasing environment goes a long way in reducing monotony. Any attempt to reduce
these facilities will prove false in economizing in the long run.
Safety:This factor is perhaps the most important aspects. In stores a large volume of goods are
handled every day. Accidents considerably reduce the morale and effectiveness of the system.
The following measures are necessary if accidents are to be checked:
Safety consciousness should be instilled in the minds of stores, personnel through training
programmers, visual aids and literature.
Safety appliances, such as goggles, hand gloves, etc..., must be provided and their use
must be encouraged.
Good housekeeping is essential. This means that gangways must be clean, adequately
wide so that movement of forklifts, trolleys and Industrial tractors is smooth. Stocking
must be in appropriate locations so that handling is minimum.
All stores equipment must be kept in good order. This Includes adequate maintenance
practice

with

regard

to

forklifts,

overhead

cranes,

trolleys, conveyors, etc.

Operation must be trained in safety so that safety precautions are not overlooked.
Healthy competition can be stimulated by installing "safety awards" and cash prizes
which bring recognition to the concerned stores personnel for safety practices. This also
motivates other to practice safety.

44

 Provision of fire fighting facilities is necessary especially where inflammable materials

are stored and handled. In fact large organizations have a well maintained the fighting
equipment.
Keep the stores in preparedness. This has in the run reduced losses and reduced insurance
expenses, fire extinguisher, fire escapes, alarms and sprinklers must be available the
personnel should be familiar in handling them.
Other

factors

which merit

attention

include

provision

of toilets,

routine

maintenance equipments, safe electrical wirings, etc..,

Cost Aspects and Productivity:It is erroneously covered that every cubic meter of space must be utilized by stocks for high
efficiency. Very often such stocking may drastically cut the speed of materials movements
and create bottlenecks apart from affecting overall safety.
Therefore maneuvering needs for handling equipment and for minimizing the time required
for stocking, and issue, must be borne in the mind at the planning stage in order to ensure real
efficiency.
Costs involved in stores can be analyzed under two heads, viz.., fixed and variable. Fixed
costs are to be incurred irrespective of the utilization of space stores. They include money
spent on land and buildings, rent interest, repairs, maintenance, insurance, etc.
Variable costs vary with the volume through output. They consist of handling cost, damages,
deterioration, obsolescence, etc. Obviously when the throughout or the volume goods handled
is high, the total cost per tonne is low. This should be the aim of the stores manager in order
to optimize the costs in stores.
Problems and Development: It is an unfortunate fact that stores management has been regulated as a critical
function. In the gamut of material management, stores is considered as the least glamorous
and it never attracts talent. It is forgotten that the stores manager is probably the custodian of
the single largest group of current assets and plays a pivotal role in ensuring smooth

45

production besides assisting purchase activities through timely support. This is the major
problem and challenge that faces stores manager today.
Many decisions in stores management, such as selection of racks, bins, handling equipment,
safety practices, codification, training personnel and accounting, call for considerable, sick
and an ability to coordinate with other
Departments as well as with outside agencies. These aspects should be highlighted
and appreciated so that the store function is given due to importance. Other areas in stores,
such as records keeping, movement analysis to reduce obsolescence, surplus and damage are
critical to the profitable operation of the firm and the stores manager faces challenges in the
areas as well.
In many organizations the scrap yard also comes under control of the stores manager. This is
an entirely new responsibility calling for the ability to maximize returns on the disposal of
scrap. The chief stores officer has under him separate officers for the functions of receipt,
issue, kardex and sub-stores.
Besides coming into contact with the production, purchase maintenance, inspection and
finance departments within his organization, he has to come into contact with outsiders like
suppliers, transport carriers and bankers. In order to meet such challenges the importance of
the stores function should gradually gain momentum and qualified engineers should be
posted as chief stores officers reporting to the materials manager.
ORDER POINT:Order level must be such that, inventory at the time of ordering suffices to meet the need of
production during the procurement period.
Ordering level = lead time in days for procurement x avg daily usage
The order level is normally greater than the normal consumption it is equal to normal
consumption plus safety stock.
Order level = normal consumption + safety stock
Safety stock-Safety stock is to seek total protection against stock out. It can be
calculated by using usage rate and lead time.
46

STOCKING OF FINISHED GOODS:Finished goods are stocked in go downs for dispatching.

IN CHARGES:In charge for raw material is cane manager and in charge for finished goods is sales
executive.
INVENTORY TURNOVER:This ratio indicates the efficiency of the firm in selling its product. It is calculated by dividing
the cost of goods sold by the average inventory.
Inventory turnover = cost of goods sold
Average Inventory
Here cost of sold goods = Opening stock + Purchases + Manufacturing
Expenses - Closing stock
The average inventory is the average of opening and closing balances of inventory. In
a manufacturing company inventory of finished goods is used to calculate inventory turnover.
Average inventory = Opening stock + Closing stock
2
The manufacturing firm's inventory consists of two more components:
Raw Material
Work in process
An analyst also is interested in examining the efficiency with which the firm converts
raw material into work in process and the work in process into finished goods. That is, he
would like to know the levels of raw materials inventory and work in process inventory held
by the firm on an average. The raw material inventory should be related to materials
consumed, and work in process to the cost of production.
47

Raw material inventory turnover =

material consumed

Average raw material inventory

Work in process inventory turnover =

cost of production

Average work in process inventory

The inventory turnover shows how rapidly the inventory is turning into receivable
through sales. Generally, a high inventory turnover is indicative of good inventory
management. A low inventory turnover implies excessive inventory levels than warranted by
production and sales activities, or a slow moving or obsolete inventory. A high level of
sluggish inventory amounts to unnecessary tie- up of funds, impairment of profit and
increased costs. If the obsolete inventories have to be written off, this will adversely affect the
working capital and liquidity position of the firm. Again, a relatively high inventory turnover
should be carefully analyzed. A high inventory turnover may be the result of a very low level
of inventory which results in frequent stock outs. The turnover will also be high if the firm
replenishes its inventory in too many small lot sizes. The situations of frequent tock outs and
too many small inventory replacements are costly for the firm. Thus, too high and too low
inventory turnover ratios should be investigated further. The components of inventory may
help to detect the imbalanced investments in the various inventory components.

Every business needs inventory for smooth working of its activities. It serves as a link
between production and distribution activities. Inventory is the most significant part of
current assets.
Large size of inventory is 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 include raw material, WIP, finished
goods, maintenance spare parts which are a significant preparation of total assets.
Inventory management means preparing the stock of goods at such level that neither the
stock should be excessive nor inadequate. It is a system, which ensures that right quality of
48

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
between two extremes. Excess installments in the inventory pees danger like unnecessary the
up of firms 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 need 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 shortage to ensure continuous
supply of materials, spares and finished goods so that production may not suffer at any
time and the customers demand is adequately 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. Inventories are stock of the
product a company is manufacturing for sale and components that make up the product.
It is however, commonly used to indicate various items kept in stock in order to meet future
demands.
49

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. 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 production.
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.
b) Consumables & Spares- These may include materials required for maintenance and dayto-day operations.

Consumables. These are the materials, which are 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.

Spares. Spares also form a part of inventory. The consumption pattern of raw
material, consumables, finished goods are different from that of spares. The
stocking policies of spares differ from industry to industry. Some industries 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.

c) Work-in-progress- These are items under various stages of production not yet converted
as finished goods. 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
50

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.
d) Finished goods- These are the goods that are not yet sold or put into use. 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, ElachiHorlicks, Boost intermediate, Horlicks high fat,
Junior Horlicks DHA, motherHorlicks 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.Stock of raw-material, work-inprocess 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.
INVENTORY CONTRO:-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.

To minimize the idle time caused by shortage of inventory and non availability of
inventories as per requirements.

To keep down capital investment in inventories, inventory carrying cost and

obsolesces losses.

51

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,
52

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- Constrains and 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 a basic problem 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:

53

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 out
fulsome 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.

54

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
55

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 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.
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 dont 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.
ABC ANALYSIS
56

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.

57

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 thatAll 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 C
1
Loose

Control

2
Estimate

Requirement

3
Group/

Postings/Recording

ITEMS A

Tight
Exact

ITEMS B

Moderate
Exact

Individual/

Individual/

Complete

Complete

None
4
Little

Check of revisions

Close

General Inventory Items

58

Some

Their Unit Value

There annual Consumption

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

IS97004
Proposed

value
147.2.
C

unit Consumption
value
12355.20
B

Category
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 2008
In the year 2008, this proposal is prepared to recategorise the inventory according to the
current inventory Zstock, 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 2008March 2009 are as follows:PROPOSAL (1): As per Unit Value Rs. 5000 & Consumption Value Rs. 50000
(ANNEXURE 1)
1. According to No. of Items
Proposed
Category
A
B
C
TOTAL

items
270
456
1757
2483

No.

of
% of items
10.87%
18.37%59
70.76%

2. According to Consumption Value

Category

Consumption Value

44745851.09

82.35%

5985626.63

11.01%

3607747.29

6.63%

TOTAL

54339225.01

This is represented clearly below with the help of chart:-

60

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 2009

Existing criteria: per Unit Value Rs. 7000 & Consumption Value Rs.70000
1. According to No. of item
Category

Existing No. of items

295

11.88%

573

23.07%

1615

65.01%

TOTAL

2483

61

This is represented clearly below with the help of chart:-

2. According to Consumption Value

Consumption
Category

Value

44147223

81.29%

5818917.82

10.7%

4373084.19

8.05%

TOTAL

54339225.01

100

This is represented clearly below with the help of chart:-

62

EXISTING CONSUMPTION VALUE

60000000
50000000
40000000

"

30000000
20000000
10000000
0

TOTAL

PROPOSAL 1: CHANGES FROM THE EXISTING CATEGORY

Thus the exercise has lead to movement of 10.87% of total inventory to A category as
against 11.88% in the existing status with the little difference in the percentage of items in the
said category. Also there is movement of almost 18.37% & 70.76% of total inventory to B
& C categories as against 23.07% & 65.01% respectively in the existing situation.

No. of items %

of

existing No. of items

Category

(E)

items

(P)

% of items

A
B
C
TOTAL

295
575
1615
2483

11.88%
23.07%
65.01%

270
456
1757
2483

10.87%
18.37%
70.76%

63

COMPARISON OF ITEMS
2500
2000
"

1500

"

1000
500
0

TOTAL

On the same way, as per the proposal consumption value of near about 82.35% of total
inventory shift to A category as against 64.49% 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 11% & 6.63% as against 23.5% & 12% respectively in the existing
category.
Existing
Category
A
B
C
TOTAL

Consumption
44147223
5818917.82
4373084.19
54339225.01

Proposed
%
64.49%
23.5%
12.01%
100

Consumption
44745851.09
5985626.63
3607747.29
54339225.01

64

%
82.35%
11.01%
6.63%
100

COMPARISON OF CONSUMPTION VALUES

60000000
50000000
40000000
30000000

"

"

20000000
10000000
0

TOTAL

PROPOSAL (1): As per Unit Value Rs. 10,000 & Consumption Value Rs. 1,00,000
(ANNEXURE 2)
1. According to No. of items
No. of
Category
A
B
C

Items
177
283
2023

%
7.11%
11.39%
81.50%

TOTAL

2483

100%

65

2500
2000
1500
"

1000
500
0

TOTAL

2. According to Consumption Value

Consumption
Category
A
B
C
TOTAL

Value
42927988.50
6162067.21
5249169.30
54339225.01

%
79.02%
11.34%
10.51%
100.00%

60000000
50000000
40000000
30000000

"

20000000
10000000
0
A

66

TOTAL

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 7% of total inventory to A category as against
11.88% in the existing status with the little difference in the percentage of items in the said
category. Also there is movement of almost 11% & 81% of total inventory to B & C
categories as against 23% & 65% respectively in the existing situation with a large difference
in the percentage of items in the said category.
COMPARISON OF ITEMS
No. of items %

of

existing No. of items

Category

(E)

items

(P)

% of items

A
B
C
TOTAL

295
575
1615
2483

11.88%
23.073%
65.01%

177
283
2023
2483

7.11%
11.39%
81.5%

COMPARISON OF ITEMS

2500
2000
1500

"

"

1000
500
0

TOTAL

On the same way, as per the proposal consumption value of near about 79% of total inventory
shift to A category as against 64% in the existing status with the little difference in the
67

percentage of items in the said category. Movement in the B & C category is almost 11%
& 10% as against 23% & 12% respectively in the existing category.
COMPARISON OF CONSUMPTION VALUE
Existing
Category
A
B
C
TOTAL

Proposed

Consumption
44147223
5818917.82
4373084.19
54339225.01

%
64.49%
23.5%
12.01%
100

Consumption
42927988.50
6162067.21
5249169.30
54339225.01

%
79.02%
11.34%
10.51%
100

COMPARISON OF CONSUMPTION
60000000
50000000
40000000
30000000

"

West

20000000
10000000
0

TOTAL

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

68

Ccategory. 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 Years Consumption:
After the physical verification all inventory is again checked with the current years
consumption. If in case of any particular item .the current years consumption changes
corresponding to the previous years 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
49527.62
Consumption in fin. year ending March 2008
53054.09

Current Category
B
Proposed Category
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.

69

 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 onehalf of the order quantity:
Category

Annual consumption

No. of Orders

Average Working

Inventory
A

Rs. 3, 00,000

37500

Rs. 30,000

3750

Rs. 3,000

375

Rs. 3, 33, 000

12

41625

TOTAL

OTHER BENEFITS:
Complexity reduction
Optimum utilization of time
Reduction in operating expenses
70

 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 nonmoving(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 Inventorys FSN categorization of items in stores for the month of May 2007 in
which 91 lacks value items are of non moving nature which are not moved within a period of
71

three years and 43 lacks value are of slow moving which is moved within a period of one and
a half year and 64 lacks are of fast moving nature that are frequently moved.
Category

Inventory (Lacks)

Non Moving Inventory

Slow Moving Inventory
Fast Moving Inventory
Total

91
43
64
198

Percentage (%)
51
34
15
100

General Stores Inventory Composition Slow/non/fast moving items

15%

fast moving

slow moving
51%

non moving

34%

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.
72

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 + 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:-

73

 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 minimize 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 too 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
74

discounts are available. Thus, when acquisition cost of a material remains the same, the only
costs to be taken care of are ordering costs and carrying costs.
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
Labor
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 reasonable 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

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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 POs 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.
POs = 100/10
= 10 units.
In this way the whole data is analyzed and current POs are taken out.
ECONOMIC ORDER QUANTITY
Computations done for:
holding cost
ordering cost

76

 poS proposed.
total inventory cost
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. (ANNEXURE 3, 4, 5)
TOTAL HOLDING COST (Existing)
= (ROQ * UNIT VALUE * 15% * LEAD TIME)/30
TOTAL ORDERING COST (Existing)
= EXISTING POs * 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 POs * 25
TOTAL INVENTORY COST (Proposed)
= PURCHASE VALUE (ACQUISITION COST)+TOTAL HC+TORAL OC

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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

Existing
Category
A
B
C

cost
6136034
1510368
659387

TOTAL 83,05,789

Inventory

SAVING
Proposed Inventory cost S
6109275
26759
1497927
12441
647832
11555
82,55,034

50,755

(SEE ANNEXURE 3, 4, 5)
BENEFITS

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.

78

Data Requirements for Inventory Management

To ensure a consistent, centralized and integrated control, as described in the previous
section, a common data model must be built. This will ensure a consistent reporting process
to the inventory database regardless of where the data is stored.
In the event of incomplete record information, the inventory management area must re-solicit,
or advise the responsible asset area of the missing data elements. This reentrant approach
provides a disciplined strategy to build a reliable inventory.
The structure illustrated in the next diagram allows the description of hierarchical
relationships among data centers, systems, components, service organizations, and financial
data. By entering descriptions of the hardware and software system components, along with
information about their status and support data, a database can be built which supports
parent/child relationships.
The figure on the next page shows the interrelationship between component records:
Inventory Management Data Model

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The following items are required from asset sources to support an integrated Configuration
Management approach.
1. Data Center Record.
This record contains on-line information about the data processing centres, the system name,
location codes, emergency phone numbers, managers, and contact names. The software and
hardware components and system records will refer to this record
2. System Record
This record contains information relative to each processing system within the processing
center. This record should contain the system names by LPAR, location codes, operator
names, and support numbers. Software and hardware components can refer to this record.
3. Service Record
This record contains the service organizations data. Maintaining service organization records
is advantageous when a user is displaying a record of a failing component. This record should
contain the name, location, prime-shift phone number, off-shift phone number, hardware and
software representatives name, contact phone numbers, and a description of the service
organization. Hardware and software components can refer to this record.
4. Financial Record
Helpful information in this record assists in warranty and service incidents. Hardware
financial records contain a user financial id, a financial type, and a description. For software
records the same information is required in addition to a license type record entry.
5. Hardware Components
For hardware component records a consensus must be reached on the hardware types to be
managed. A hardware model record for each hardware type will be created and all common
hardware components will be entered using this template. This record should contain the
following information:

Component ID,
Serial Number,
Generic device type,
Model,
Manufacturer,
Owner,
Install Date,
Location,

Maintenance Vendor,

Contract type,
80

Component status,

Component description.
In some instances a hardware subcomponent record must be entered. A subcomponent can be
thought of as a feature that can be a stand-alone component and has mobility in the inventory
(for example, 3726, 3727, external hard disks). This will allow subcomponents to be removed
or moved from their hardware component or attached to another component. This record
should contain a subcomponent status code and a description.
6. Software Components
For software component records a consensus must be reached as to what level of installed
software will be within the scope of the asset database. For example, is the workstation (PCbased) software to be managed? If so, are we to account for all application software or just
operating system software?
The answers to these questions are linked to what kind of information the user support groups
require to provide service to the client. In a centralized Help Desk environment, all user
application software, including maintenance levels, are maintained. This provides up-to-date
information to the Help Desk personnel about the user environment and adds greatly to their
productivity.
A software model record for each component contains an ID, maintenance level, program
type, status and a description. A typical software record should contain the following
information:
System (application runs on),
Name,

Model,

Vendor,

Serial Number,

Renewal Date,

License Type,

Contract Type,

Maintenance Level,

Description.

7. Feature Components Record

This record identifies associated features and relates these features back to other records.
8. Model Component Record
The industry uses this type record as a productivity tool to greatly enhance the ability to build
large data bases quickly with minimum data entry errors.
Model records themselves do not hold configuration data, but they make the entry of data
easier by allowing the creation of component records from models that hold information
common to a number of components (or subcomponents) of the same type.
The model capability also provides the ability to build one or many relationships between
model features and hardware or software components. Features that are common to many
81

components can be contained in a single model feature record that is referred to by many
component records.
Collecting, Monitoring and Reporting Data
1. Monitoring and Reporting Data
Once the inventory database has been built it will be used to satisfy the following
requirements
Determine bypass and recovery procedures when a failing component has been identified.
Determine the level of a component, and also other components that are affected when a
problem occurs.
Establish relationships between a component and any problem or change record in the
database.
Search for any components meeting specific characteristics, such as all terminals in a network
and the locations to which they are assigned.
Generate reports on specific configuration information, including but not limited to the
following:
- Hardware or software components with related features,
- Physical inventory by location,
- Hardware and software configuration maps, and
- Service reporting for maintenance contracts, warranty, and invoice tracking.
2. Collecting Data
The Record Hierarchy in the following diagram indicates that component records refer to
data centre, system, service, and financial records. These four records are informational
components. This means they must be created prior to creating the component records
(hardware, software). It saves time because these records must be defined before they can be
referenced in component records, which allows you to establish connections as you create the
records.
Inventory Management Tools
Inventory Management uses network definition information, Vital Product Data (VPD), local
configuration databases and, in some cases, discovery applications in order to arrive at
inventory information.
The following list of Inventory Management tools was accumulated after conducting a
general survey of large corporations in the area. The survey solicited information about how

82

they performed Problem, Change, and Inventory Management and what techniques and tools
were used to accomplish tasks in the two areas that follow.
Products specifically mentioned, were approved by the vast majority of participants. We also
list major Inventory Management functions that can be fulfilled by any number of products,
but do not specifically mention a product by name.
1. Asset Management at the System to Server Level
The major components that provide the collection and reporting vehicles for Inventory
Management from the system level out to the network server level include:
2. VTAM and NetView
VTAM and some specialized features of NetView are responsible for maintaining the
necessary linkages to the physical asset, whether it is within the system complex or out to the
server level on the network.
3. Centralized Data Bases
All assets and their associated information are stored in a centralized database. Editing and
browsing capability are available through an on-line menu driven, front-end that provides
restricted security access, if necessary. This security is provided through any number of hostbased security packages
4. Network Configuration Application (NCA) / MVS
NCA/MVS is a useful tool for migrating existing stand-alone (PC-based) inventory control
databases to host-based formats. It should be noted that in some cases conversion utilities
have been written to convert these stand-alone environments into a data base file structure.
5. Enterprise Physical Connection Tool (EPCT)
EPCT is a useful product for building configuration databases and producing physical and
logical diagrams. The figure below illustrates the usage of these tools within the process.

83

Objectives
1. To understand the process of inventory in Glaxo Smith Kline.
2. To understand the various technique used in inventory control in Glaxo Smith Kline.
3. To understand the process of arranging inventory such a way that in any case of need we
can get the required product as fast as possible and particularly efficient.
4. To understand which computerized management service is being used

Research Methodology
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While making a study we very often look for what type of research methodology is to be used
in this type of study. For implementation of a proper research methodology we have to first
understand the meaning of research.
Research is a process with the help of which new concepts arises. It is the increase in the
actual knowledge stock. It can be called as movement from known to unknown and viceversa. It is also a continuous process. It is a scientific as well as systematic process, which
includes defining and redefining the problem to develop hypothesis, to collect and define the
information/data, to analysis the information and bring out the mother of Discovery.
Data collection
The word data means any raw information, which is either quantitative or qualitative in
nature, which is of practical or theoretical use. The task of data collection begins after a
research problem has been defined and research design chalked out. While deciding about the
method of data collection, the researcher should keep in mind that there are two types of data
primary and secondary.
Primary data: This is those, which are collected afresh and for the first Time, and thus happen to be original
in character. There are many ways of data collection of primary data like observation method,
interview method, through schedules, pantry Reports, distributors audit, consumer panel etc.
The Team Managers and employees of both the Department were consulted to get
information about procedure of both the online and off line share trading.
Questionnaire method
For the collection of primary data I used questionnaire method. A formal list of questions,
which are to be asked, is prepared in a questionnaire and questions are asked on those bases.
There are some merits and demerits of this method. These as under: Merits: -1. Low cost even when universe is large.
2. It is free from bias of interviewer.
3. Respondents have proper time to answer.
4. Respondents who are not easily approachable can also be reachable
Analysis and interpretation of data

I have taken 50 People they have fill up the questionnaire and given response is as follows:1. What are the categories of items stored?
Contents

%
85

1. Raw materials

70%

2. Finished goods

30%

Categories stored

30%

Raw materials
Finished Goods

70%

Inference
From the above chart we can say that 70% of goods stored are in form of raw materials and
30% of finished goods.
2. Do you use a computerized inventory system?
Contents

No. of persons
86

Yes
No

50
0

100%
0

Yes
No

100

Inference
From the above chart we can say that 50 persons say inventory system is computerized.

3. Do you have Full access computerized inventory management system or its divided in
prospective heads?

87

Contents
1.Its divided among heads
2.Its full
3.Cant say

No. of persons
30
10
10

%
60%
20%
20%

Access to the System

Its divided among heads

20%

Its full

20%

60%

.Cant say

Inference
From above chart we came to know that 60% people have limited access according to their
posts, 20% people who have full access and similarly and 20% people cant say anything
about it.
4. Does management review and follow up reports of inventory turnover, ageing, write
downs, physical inventory adjustments, replacement inventory?
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Contents
1.Yes
2.No
3.cant say

No. of persons
45
3
2

%
90%
6%
4%

Management reports

6%

4%
yes
No
Can't say

90%

Inference
From above chart we came to know that 90% of people say yes management review and
follow up reports, similarly 6% say no, and 4% cant say about it.
5. How inventory is categorized in your company?
89

Contents
1.ABC Analysis( Normally
used)
2.XYZ Analysis(Rarely Used
3.VED analysis (most rarely
used

No. of persons
46

%
92%

3
1

6%
2%

catgorisation of items

ABC Analysis( Normally

used)
XYZ Analysis(Rarely
Used
VED analysis (most
rarely used

Inference
From above chart we came to know that In gsk ABC method is being used according to 92%
people, similarly XYZ method is used in only rare cases according to 6% people and VED
method is very much rarely used according to 2% of people rest depends upon situation to
situation.
6. Where is inventory stored?
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Contents
1. In General store dep.
2.Warehouses
3.Special silos

No. of Persons
20%
20%
10%

%
40%
40%
20%

Inventory Stored

In General store dep.

20%
40%

Warehouses
Special silos

40%

Inference
From above chart we came to know that 40% of people say inventory is stored in General
stores and 40% say in warehouses and 20% say in special silos.
7. What kinds of systems are used to prevent unauthorized access to these locations?
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Contents
1.Hightech security cameras
2.fingerprint entry system
3.security guards

No. of persons
35
10
5

%
70%
20%
10%

Security system overview

10%

Hightech security
cameras

20%

fingerprint entry system

security guards

70%

Inference
From above table we came to know that 70% of people think there are high-tech security
cameras, 20% of people say there are fingerprints scanning authorization system,
similarly 10% say there are security guards.

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8. How goods are being distributed to required places?

Contents
1. Through trolleys( Small
material
2. Through Trucks( heavy
duty
engineering
materials)
3. Through people (basic
stationary)

No. of persons
30

%
60%

10

20%

10

20%

Distribution of inventry items

Through trolleys( Small

material

20%
20%

60%

Through Trucks( heavy

duty engineering
materials)
Through people (basic
stationary)

Inference
From above chart we came to know that 60% people say trolleys are used similarly
20% say through trucks, and 20 % other say through people.

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9. Who approves goods returned by customers?

Contents
Store manager
Basics operational head

No. of persons
45
5

%
90%
10%

10%

store manager
Basics operational head

90%

Inference
From above chart we came to know that 90% person say goods approves by store
manager 10% say approves basics operational head.

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10. . What action is taken if quantities counted by two separate teams disagree?
Contents
Pv (physical verification)
Report matching

No, of persons
45
5

%
90%
10%

Difference in Calculation of inventory

10%
pv
Report matching

90%

Inference
From above topic we came to know that 90% people say physical verification is to be
done if there are differences

95

Findings
1. From above data collection and interpretation we are able understand the process of
inventory management being used in GSK, In Gsk ABC analysis is being primarily used,
where goods are being categorized.

2. After analysis we are also able to know how this system works and we are also able to
know how goods are being categorized so that they can be easily available when required.
3. Products are stored with proper barcodes and all system is computerized we just have to
enter what we need then system will tell this item is placed at this particular area and in
this way we can get our required need fulfilled in a fast and efficient way.
4. We also came to know about how the computerized system is being operated and used.
Basically Microsoft office Tools are being used such as Word excel etc.

96

SUGESSTIONS:
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 dont fall under any category, should be treated separately.
New Inventory management system softwares must be used as they are more fast
reliable and intelligent than other softwares such as fishbowl inventory, E-turns
remote inventory Control system etc.

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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.
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.

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BIBLIOGRAPHY
http://www.gsk-ch.in/Products.aspx
http://www.gsk-ch.in/Facilities.aspx
http://www.gsk-ch.in/GSKSpirit.aspx
http://www.businessdictionary.com/definition/inventory-management.html
http://www.yourarticlelibrary.com/inventory-control/6-most-important-techniques-ofinventory-control-system/26159/
http://en.wikipedia.org/wiki/Inventory_control_system
http://www.capterra.com/inventory-control-software/
http://www.softwareadvice.com/inventory-management/

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