INVENTORY MANAGEMENT AND ITS

EFFECTS ON ORGANIZATION

SUBMITTED BY:
1. WAQAS AHMED KHAN (09025)
2. SYED OWAIS AHMED (10001)

SUBMITTED TO:

MR. FAISAL JALAL

ACKNOWLEDGEMENTS
The Study of Inventory Management in Midas Safety in the work wear garment
Sector was undertaken by the students of IBA (as mentioned in title page).
We would like to express our sincerest gratitude to Team MIDAS for their
cooperation, assistance and contribution in successfully executing this study.

December 16, 2015

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SUBJECT: Letter of Transmittal of Our Report

Dear Mr. Faisal Jalal:
Here is the report on the Inventory Management in Midas Safety you asked us to
start working during the session.
As you will see, our report gives a comprehensive idea of the organization.
Management practices, Company Analysis, Vision Statement & Mission Statement
Supply Chain Practices, Work Flow of the Organization and Inventory Management
Practices.
Sincerely Yours,

All Team Members

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WRITERS COMMENTS

This Study of this report Inventory Management in Midas Safety helped us

vigorously in understanding the procedure of forming an organization with
Management perspective having solid Inventory Management System. We learn
benefits of a good and systemized Inventory Management System and how to
measure it.

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I.

PROFILE OF THE ORGANIZATION

MIDAS SAFETY
MIDAS SAFETY is part of a large international group, Midas Safety Solutions. Their
factories are located in Pakistan, Sri Lanka, India and Bangladesh with distribution
offices in Dubai and Sales and Marketing offices in Canada. They are the 4th largest
exporter of safety gloves globally with markets in the USA and Europe. Midas
Safety represents a group of factories which are vertically integrated to control our
use of natural resources like cotton and natural rubber. MIDAS Safety has its
production facilities in Karachi (SGL FB Area and SGL Knitting Unit) and Faisalabad
(SGL Gloves Unit and SGL Spinning Unit), whereas, Beltexco Limited and MIDAS
CLOTHING LIMITED are located in the Karachi Export Processing Zone."

MIDAS SAFETY

MIDAS
COOPERATE &
INDUSTRIAL
CLOTHING

MIDAS
CLOTHING
LTD.

INDUSTRIAL
CLOTHINGS
LTD.

MIDAS SAFETY
LTD.

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MIDAS CLOTHING LIMITED (MCL)

MCL is a part of Work Wear Garment of Shahbaz Group of Companies and
manufactures a wide range of customized work wear garment including woven
industrial clothing, protective wear and outdoor wear.

No. of Floors: 02

No. of Sewing line: 11

No. of Sewing machines: 400

INDUSTRIAL CLOTHING LIMITED (ICL)

No. of Floors: 04

No. of Sewing line: 10

No. of Sewing machines: 400

MIDAS SAFETY LIMITED (MSL)

No. of Floors: 04

No. of Sewing line: 07

No. of Sewing machines: 230

1.

Product Range

High visibility Products (such as jackets and waist coats, bottoms)

Flame Retardant Range (such as fall protection vest, FR jackets, FR

trousers, FR overalls)

Water and oil repellent products

365 Days Corporate Wear (such as Chino trousers with pleats, Combat
trousers with knee pads, jackets etc.)

Industrial Wear (such as vests, jackets, trousers, overalls, bib trousers)

Food Range (such as chef jackets, skull caps, ladies dust coats, aprons
etc.)

Catering Range (such as chef hood, chef jacket etc.)

Medical Range (such as tunics, scrubs etc.)

Knits Range (such as polo shirts, T-shirts etc.)

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2.

Buyers / Customers

Dimensions: Sub customers are;

DHL

Boyd Cooper

NHS

Royal Mail

Skydda

Modyf

Juba

Nv De Ruck Paul

3.

Regular Suppliers

Carrington

Dong Jin

HonFeng

Lucky Textiles

Sapphire

Sarena

Thai Taffeta

WERNERFELT

3M (Reflective Tapes)

A&E Threads

Avery Dennison

HUAMEI Threads

YKK (Zippers)

Zhejiang Weixing

JP Coats (Thread)

China Star

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A GARMENT INDUSTRY

CUTTING DEPARTMENT

FINISHING DEPARTMENT

STITCHING DEPARTMENT

PACKING DEPARTMENT

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II.

MISSION STATEMENT

We are Work Wear Clothing Manufacturer, focused on providing consistent quality

and superior services through operational excellence & a highly motivated
competent team. We act with integrity, uphold meritocracy, ensure social &
environmental compliance and exhibit care for all stakeholders.

III.

VISION

To be one of the leading manufacturers of Work Wear Clothing, renowned for

exceeding customer expectations.

IV.

QUALITY POLICY

MIDAS Safety Clothing Division, comprising of three companies namely Midas

Clothing, Industrial Clothing (Pvt.) Ltd., & Midas Safety (Pvt.) Ltd., specializes in
manufacturing, printing & export of knitted & woven garments. Nature of companys
activities puts particular emphasis upon experience, expertise, capability, reliability
and quality.

Quality Policy of the Division is:

To establish MIDAS Safety Clothing Division as a global leader in the manufacturing

and supply of work wear & corporate wear through:

Compliance with customer requirement and total commitment to customer

satisfaction.

Continuous improvement in the quality management system.

Investment in human resources development.

Setting up of environment friendly manufacturing processes.

Setting up of economically viable projects and operations.

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ORGANOGRAM

HR & Admin
Manager

Assist. Admin
& Compliance

Finance
Manager

Accountant

Marketing
Manager

Assistant
Marketing
Manager

Import &
Export
Manager

Logistic
Incharge

Assistant
Accountant

I.E. Executives
I.E. Manager
Training
Department

Cutting
Incharge

CEO

GM

Production
Manager

Fabrication
Manager

Fabric
Inspector
Cutting
Supervisors

Stitching
Incharge

Stitching
Supervisors

Finishing
Incharge

Finishing
Supervisors

Store Incharge

Store Keeper

Knitting &
Dyeing
Incharge

Knitting
Supervisor
Dyeing
Supervisor
Asistant
Merchandiser

Merchandising
Manager

Merchandisers

Sample Master
Purchase
Manager
Cutting Q.C.

Quality
Assurance
Manager

Assistant QA
Manager

Q.A.

Line Q.C.

Finishing Q.C.

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VALUATION OF INVENTORY
The FIFO method, LIFO method and Weighted Average Cost method are three ways
of valuing your inventory. In this lesson we're going to look at all three methods with
examples.
At the end of each period (month or year) one should do a physical inventory count
to determine the number of inventory on hand.
Then you need to place a value on the goods. One would think this would be easy the value of the goods is simply how much they originally cost. Unfortunately there is
a bit more to it than just this.
There are three methods used when valuing the goods that you have on hand at the
end of the period.
1. The First-In-First-Out Method (FIFO)
This method assumes that the first inventories bought are the firestones to be
sold, and that inventories bought later are sold later.
The value of our closing inventories in this example would be calculated as follows:

Using the First-In-First-Out method, our closing inventory comes to $1,100. This
equates to a cost of $1.10 per lollypop ($1,100/1,000 lollypops).

It is very common to use the FIFO method if one trades in foodstuffs and other
goods that have a limited shelf life, because the oldest goods need to be sold before
they pass their sell-by date.
Thus the first-in-first-out method is probably the most commonly used method in
small business. Well, probably...

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2. The Last-In-First-Out Method (LIFO)

This method assumes that the last inventories bought are the firestones to be
sold, and that inventories bought first are sold last.
The value of our closing inventories in this example would be calculated as follows:

Using the Last-In-First-Out method, our closing inventory comes to $1,000. This
equates to a cost of $1.00 per lollypop ($1,000/1,000 lollypops).
The LIFO method is commonly used in the U.S.A.

3. The Weighted Average Cost Method

This method assumes that we sell all our inventories simultaneously.
The weighted average cost method is most commonly used in manufacturing
businesses where inventories are piled or mixed together and cannot be
differentiated, such as chemicals, oils, etc. Chemicals bought two months ago
cannot be differentiated from those bought yesterday, as they are all mixed together.
So we work out an average cost for all chemicals that we have in our possession.
The method specifically involves working out an average cost per unit at each point
in time after a purchase.
In our example above (assuming the weighted average cost method was allowed for
valuing the lollypops), the value of our closing inventories would be calculated as
follows:

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Using the weighted average cost method, our closing inventory amounts to $1,059. This
equates to a cost of $1.06 per lollypop ($1,059/1,000 lollypops).
Oddly enough, the LIFO method is the preferred inventory valuation method in the
United States but is disallowed in non-US countries. The FIFO method and the weighted
average cost method are used in non-US countries. In recent years there have been calls
for the standardization of accounting rules throughout the world, and talk specifically
about disallowing LIFO in the US (or making the rest of the world follow the LIFO
system). As of this writing the matter has not been resolved and the differences in
inventory valuation still exist.

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Inventory Policy
Scope
This policy is applicable on all the Companies of the Group (Midas Group) with in
geographical area of Pakistan.

Measurement of inventory
Inventories are valued at the lower of cost and net realizable value. Cost of finished
goods, both manufactured and purchased, raw material and components is
determined on weighted average basis. The cost of work-in-process and finished
goods includes direct materials, labor and applicable production overheads. Goodsin-transit are valued at cost comprising invoice value and other expenses incurred
thereon.
Net realizable value is the estimated selling price in the ordinary course of business,
less the estimated costs of completion and selling expenses.

Inventory Valuation guideline

Principle
Inventory must be valued at the end of every reporting period to ensure a fair and
representative view. Factors that require a valuation reserve to be created are:
a) Quantity risk
b) Technical risk
c) Price risk
The total amount of valuation reserve for quantity and technical risks must not
exceed 90% of the acquisition or production costs except chemicals where 100%
provision may be created. This amount is the least we expect to recover as salvage
value.

Quantity Risk:
The basis for assessing the quantity risk is the inventory ageing (i.e. the time since
inventory in in stock)

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Valuation reserves shall be computed and recorded category wise according to the
following table:
S.
No.

1.
2.

3.

4.

5.

6.

Ageing

Up to 3
months
More
than 3
months
More
than 6
months
More
than 1
year
More
than 2
years
More
than 3
years

Any
other
material

Spares &
Maintenance

Chemicals*

Packaging
Material

Fabric

Yarn

0%

0%

0%

0%

0%

0%

0%

0%

0%

15%

0%

0%

20%

0%

0%

25%

10%

10%

40%

25%

50%

75%

25%

25%

70%

50%

100%

90%

50%

50%

90%

75%

90%

90%

For chemicals where expiry period is less than 2 years at the time of procurement,
specific provision shall be recorded in due consideration to the expiry period.
For slow-moving items, i.e. inventory items whose consumption did not exceed 10%
of actual quantities on hand during the past twelve months (excluding spare parts),
an annual physical inventory check shall be performed at the time of regular periodic
inventory and a report submitted to the relevant Business Unit Head by warehouse
in-charge for a decision for disposal or otherwise.

a) Technical Risk
A technical risk exists when inventories become technically obsolete due to new
company or third-party developments, or they have defects. Technical risk may also
arise where inventories are associated with a specific order, by postponement of an
order or by bankruptcy proceedings as an example.
For simplification purposes, the same valuation percentages as for quantity risks can
be used. If possible, the percentage for technical risk may be established as early as
a month before the balance sheet date and applied to the balance as of the balance
sheet date. For obsolete items a valuation reserve up to 90% may be recorded

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except for chemicals where 100% provision may be recorded. Obsolete items are
items which are no longer able to be sold or used in the production process.
Provision for technical risk shall be recorded in the same month where triggering
event arose.

b) Price Risk
If the market price of a finished goods inventory item is less than its recorded cost
(after reserves for quantity and technical risks have been established), the inventory
item is recorded at the market price. The term market in the phrase lower of cost
and market means current replacement cost.
The valuation reserve for price risk shall be calculated by BU management in
accordance with the lower of cost and market principle.

Recording:
On at least quarterly basis inventory valuation reserves shall be created in
accordance with the provisions above
Warehouse department in coordination with Business Unit head shall prepare
working for recording of valuation reserve in accordance with this policy. The related
JV approved in accordance with LOAM, shall be forwarded to relevant Finance
Department.

The said policy will be subjected to review by the Advisory Board after six months of
implementation

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WORK FLOW

Goods Receipt

Start

Receiving of
Material

Delivery
Challan

Purchase

System

Quality

Stores

MIDAS SAFETY

If Material fail
By QC

Entry in system-GRN is finalized which is linked

with the purchase order through system. The
final print out of GRN is taken out after having
QC accept QC Pass comments only.

If Material Pass
By QC, then stack
respective location

Get GRN print

with signing
authorities

End

Inform to purchase
and material
return to supplier

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IDT (Inter Departmental Transfer)

Stores

Stores

MIDAS SAFETY

Start

Request Raised

Dispatch material
To concern unit

End

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Material Return Note

System

Stores

MP / Quality

MIDAS SAFETY

Start

Manual MRN
generated

Material stack at
designated
location

Material Check
against MRN

MRN Feed in
system

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MIR for Stock Material (Fabric)

System

Stores

Cutting dept

MIDAS SAFETY

Start

System generated
MIR Raised

Receive material
as per MIR

Material pick from

location as per
MIR

Prepare Packing
List

MIR issuance
posted in system

End

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MIR for Stock Material (Trims)

Start

Material request
by MP to Stores

Material pick from

location as per
MIR

Ready Box
Preparation

System

Quality

Stores

Market Place

MIDAS SAFETY

Inspect Ready
Box by Quality

MIR issuance
posted in system

End

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Rejections of Incoming Materials

Start

Receive Material
from Supplier

Purchase

Quality

Stores

MIDAS SAFETY

End

Material
Inspection offer to
QA

Inform to
Purchase

Material
Inspection

If Material is not
OK by Quality

Inform to supplier
for recall material

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