1

Acknowledgement
We would like to express our profound gratitude to our project guide Prof. KAMAL who has so ably guided our research project with his vast fund of knowledge, advice and constant encouragement, which made us, think past the difficulties and lead us to successful completion of the project. We have tried to cover all the aspects of the project & every care has been taken to make the project faultless. We have tried to write the project in our words as far as possible and simplified all the concepts by presenting it in a different form. Well be looking forward in future for such type of project. We are eagerly waiting for fruitful comments & constructive suggestions.

GROUP NO-3
COMPILED BY

INDEX
SR NO 1 2 3 4 5 6 7

INTRODUCTION PURPOSE

TOPIC

PG NO 7-9

OF

INVENTORY 1O-14 15-17 18-24 25-29 30-32 32-33

MANAGEMENT OBJECTIVE OF INVENTORY MANAGEMENT IMPORTANCE OF INVENTORY MANAGEMENT FUNDAMENTAL APPROACHES TO MANAGEMENT INVENTORY COMMON COMPONENTS OF AN INVENTORY MANAGEMENT SYSTEM CLASSIFICATION OF INVENTORY

FUNCTIONS OF INVENTORY

34-37

ROLE OF FINANCE MANAGER IN INVENTORY MANAGEMENT

38-46

10

CASE STUDY

47-48

11

BIBILIOGRAPHY

49

Inventory Management
Introduction: In financial parlance, inventory is defined as the sum of the value of raw materials, fuels and lubricants, spare parts, maintenance consumables, semi-processed materials and finished goods stock at any given point of time. The operational definition of inventory would be: the amount of raw materials, fuel and lubricants, spare parts and semi-processed material to be stocked for the smooth running of the plant. Since these resources are idle when kept in stores, inventory is defined as an idle resource of any kind having an economic value. Inventories are maintained basically for the operational smoothness, which they can affect by uncoupling successive stages of production, whereas the monetary value of inventory serves as a guide to indicate the size of the investment made to achieve this operational convenience. The materials management department is expected to provide this operational convenience with a minimum possible investment in inventories. The objectives of inventory, operational and financial, needless to say, are conflicting. The materials department is accused of both stock outs as well as large investment in inventories. The solution lies in exercising a selective inventory control and application of inventory control techniques.

INVENTORY:A tangible property held finished goods, work in process, raw material including maintenance, and consumables.

MEANING OF INVENTORY:The inventory refers to the stock pile of the product a firm offering for sale 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)

raw materials work-in-progress(semi finished goods) finished goods

(2) (3)

(1).RAW MATERIALS:Inventory contains items 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. (2).WORK-IN-PROCESS: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.

(3).FINISHED GOODS: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 fulfil the over all objectives of maximizing the owners wealth.
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purpose of Inventory Management INVENTORY MANAGEMENT must tie together the following objectives, to ensure that there is continuity between functions: Companys Strategic Goals Sales Forecasting Sales & Operations Planning Production & Materials Requirement Planning.

Inventory Management must be designed to meet the dictates of market place and support the companys Strategic Plan. The many changes in the market demand, new opportunities due to worldwide marketing, global sourcing of materials and new manufacturing technology means many companies need to change their Inventory Management approach and change the process for Inventory Control. Inventory Management system provides information to efficiently manage the flow of materials, effectively utilize people and equipment, coordinate internal activities and communicate with customers. Inventory Management does not make decisions or manage operations; they provide the information to managers who make more accurate and timely decisions to manage their operations.

INVENTORY is defined as the blocked Working Capital of an organization in the form of materials. As this is the blocked Working Capital of organization, ideally it should be zero. But we are maintaining Inventory. This Inventory is maintained to take care of fluctuations in demand and lead time. In some cases it is maintained to take care of increasing price tendency of commodities or rebate in bulk buying. Traditional Supply Chain solutions such as Materials Requirement Planning, Inventory Control, typically focuses on implementing more rapid and efficient systems to reduce the cost of communicating information between and across the Inventory links in the SCM.COM focuses in optimizing the total investment of materials cost and workload for every Inventory item throughout the chain from procurement of raw materials to finished goods Inventory. Optimization means providing a balance of supply to meet the demand at a minimum total cost , Inventory level and workload to meet customers service goal for each items in the link of Inventory Chain . It is strategic in the sense that top management sets goals. These include deployment strategies (Push versus Pull) , control policies , the determination of the optimal levels of order quantities and reorder points and setting safety stock levels . These levels are critical, since they are primary determinants of customer service levels.

Keeping in view all concerns, the latest concept of Vendor Managed Inventory is used to optimize the Inventory. We are entering into Vendor Managed Inventory, Annual Rate Contracts with manufacturers or their authorized dealers, who maintain Inventory on our behalf and supply the items as and when required. VMI reduces stock-outs and optimize inventory in supply chain. Some features of VMI include : Shortening of Supply Chain Centralized Forecasting Frequent communication of inventory, stock-outs and planned promotions Trucks are filled in a prioritized order , e.g. items that are expected to stock out have top priority then items that are furthest below targeted stock levels then advance shipments of promotional items Despite the many changes that companies go through, the basic principles of Inventory Management and Inventory Control remain the same. Some of the new approaches and techniques are wrapped in new terminology, but the underlying principles for accomplishing good Inventory Management and Inventory activities have not changed. The Inventory Management system and the Inventory Control Process provides information to efficiently manage the flow of materials, effectively utilize people and equipment, coordinate internal activities, and communicate with customers. Inventory Management
10

and the activities of Inventory Control do not make decisions or manage operations; they provide the information to Managers who make more accurate and timely decisions to manage their operations. The basic building blocks for the Inventory Management system and Inventory Control activities are:

SalesForecastingorDemandManagement SalesandOperationsPlanning Production Planning Material Requirements Planning Inventory Reduction The emphases on each area will vary depending on the company and how it operates, and what requirements are placed on it due to market demands. Each of the areas above will need to be addressed in some form or another to have a successful program of Inventory Management and Inventory Control. Inventory is usually a distributors largest asset. But many distributors arent satisfied with the contribution inventory makes towards the overall success of their business:

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The wrong quantities of the wrong items are often found on warehouse shelves. Even though there maybe a lot of surplus inventory and dead stock in their warehouse(s), backorders and customer lost sales are common. The material a distributor has committed to stock isnt available when customers request it. Computer inventory records are not accurate. Inventory balance information in the distributors expensive computer system does not accurately reflect what is available for sale in the warehouse. The return on investment is not satisfactory. The companys profits, considering its substantial investment in inventory, are far less than what could be earned if the money were invested elsewhere.

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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 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 trade off between cost and benefits associated with the levels of inventory. The reasons for keeping stock All these stock reasons can apply to any owner or product stage. Buffer stock is held in individual workstations against the possibility that the upstream workstation may be a little delayed in providing the next item for processing. Whilst some processes carry very large buffer stocks,

13

Toyota moved to one (or a few items) and has now moved to eliminate this stock type. Safety stock is held against process or machine failure in the hope/belief that the failure can be repaired before the stock runs out. This type of stock can be eliminated by programmes like Total Productive Maintenance Overproduction is held because the forecast and the actual sales did not match. Making to order and JIT eliminates this stock type. Lot delay stock is held because a part of the process is designed to work on a batch basis whilst only processing items individually. Therefore each item of the lot must wait for the whole lot to be processed before moving to the next workstation. This can be eliminated by single piece working or a lot size of one. Demand fluctuation stock is held where production capacity is unable to flex with demand. Therefore a stock is built in times of lower utilisation to be supplied to customers when demand exceeds production capacity. This can be eliminated by increasing the flexibility and capacity of a production line or reduced by moving to item level load balancing. Line balance stock is held because different subprocesses in a line work at different rates. Therefore stock will accumulate after a fast sub-process or before a large lot size sub-process. Line balancing will eliminate this stock type.
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Changeover stock is held after a sub-process that has a long setup or change-over time. This stock is then used while that change-over is happening. Where these stocks contain the same or similar items it is often the work practice to hold all these stocks mixed together before or after the sub-process to which they relate. This reduces costs. Because they are mixed-up together there is no visual reminder to operators of the adjacent sub-processes or line management of the stock which is due to a particular cause and should be a particular individuals responsibility with inevitable consequences. Some plants have centralized stock holding across subprocesses which makes the situation even more acute.

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IMPORTANCE OF INVENTORY MANAGEMENT

Inventory management refers to the process of managing the stocks of finished products, semifinished products and raw materials by a firm. Inventory management, if done properly, can bring down costs and increase the revenue of a firm. How much one should invest in inventory management? The answer to this question depends on the volume and value of inventory as a percentage of the total assets of a firm. The importance of inventory management varies according to industries. For example, an automobile dealer has very high inventories, sometimes as high as 50 per cent of the total assets, whereas in the hotel industry it may be as low as 2 to 5 per cent. The process of inventory management is a continuous one and there are various kinds of solutions available. It is advisable to employ specialized staff for inventory management. The inventory management process begins as soon as one has started production and ordered raw materials, semi-finished products or any other thing from a supplier. If you are a retailer, then this process begins as soon you have placed your first order with the wholesaler. Once orders have been placed, there is generally a short period of time available to a firm to put an
16

inventory management plan in place before the supplies are delivered. Inventory management helps a firm to decide in advance where these supplies should be stored. If a firm is getting supplies of small-sized goods, it may not be much of a problem to store them, but in the case of large goods, one has to be careful so that the warehousing space is optimally utilized. From invoices to purchase orders, there is lot of paperwork and documentation involved in inventory management. Several software programs are available in market, which help in inventory management. 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 in important activity in the organization.

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NVENTORY MANAGEMENT SOFTWARE (IMS) The Inventory Management Software is designed specially to meet the requirements of medium sized and corporate enterprises. A well organized Business house needs to maintain timely and accurate information about receipt of goods, Sale & Purchase, Disposition, Goods Transfer, and status of stock at any point of time. A precise inventory control system is required to manage the above operations smoothly and accurately. RG InfoTech Inventory Management Software (IMS) provides you this power to control your inventory with centralized stock information and easy to comprehend operation interface. It helps you track every significant piece of information about each inventory item. This provides you with the latest status of your inventory and allows you to effectively edit and update significant information. It supports full customizable company info, logo, tax code and value, invoice number etc. It has easy to create invoice, stock balance & invoice management, item
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category management, staff sales records and staff permission management, backup and restore of stock by its user friendly interface and functionalities. KEY FEATURES:

Complete maintenance of information on each inventory item. Maintenance of component information on each item. Complete transaction history for unlimited time period. Support for multi user functionality. Logical grouping of products according to product type and storage location. Effective and quick Invoice generation. Maintenance and creation of Receipts. Stock balance and reorder management. Predefined and Customized (optional) reports. Tracking of minimum stocking levels through alerts. Easy search options for inventory items. Support for partial payments. Real time balance calculation for each vendor and customer.

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Support for document printing. Management report generation using powerful report wizard. Integration with bulk mailing software for sending offers to customers (OPTIONAL) Integration for Barcode Reader (OPTIONAL)

Inventory Management Software Solutions India Lotus Notes Domino Workflow Application developed by Himalayan IT Solutions has several modules. The inventory module is a good one to keep track of the records of sale, purchase and dealer prices of all the items stored in the system. The users can draw the information based on the access rights defined in the system when creating an opportunity, quotation or invoice. With this modern application the management of inventory takes the easiest form. The supply chain is kept up to date always and the customers get no negative cue regarding the company's ability to perform. Our Lotus Notes Domino Workflow Application has a collaborative interface which is useful for any kind of organizations. The managers as well as other employees can draw the required
20

information regarding inventory from the database faster than all other methods and the accuracy of data is fully ensured .The speedy accession provides enough time to hold the customers. Lotus Workflow Application is the most efficient groupware system in the service of business firms. It has been liked by big and small companies alike. The proper tracking of inventory is an important part of business dealings as it showcases a firms potential to serve the customers. Lotus Workflow Application takes into account every aspect of the inventory management and holds up the advantageous position of the organization in the industry. Its use can create a continuous supply chain with the minimum effort and maximum conversion rate of orders. Lotus Notes Domino Workflow Application brings to users the new age collaborative interface cum web application system highly customized and compatible for the requirements of the modern age organizations. The flexibility and speed of functions along with the highly effective database management system makes the administrative works less time consuming and provides greater scope for activities like customer care and implementation of
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new ideas. With its use the effective time for business of the companies is bound to increase in manifolds. In the modern business world delivery process takes several routes. The logistics chain needs to be well maintained; otherwise the companies have fear of losing potential orders and a portion of their profit. Our latest Notebook Application is a ready at hand solution for keeping every detail in the correct order so that nothing important gets overlooked during business dealings. This Application on Inventory module provides the unique opportunity to deal with work pressure and remain mobile in the tidiest way.

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Fundamental approaches to managing Inventory

Traditional Inventory management has been deciding how much to order? And when to order? But challenges of today require inventory managers to find answer to the question where to stock the material as this greatly influences customer satisfaction level. High level of inventory indicates higher customer satisfaction level, but cost of high inventory is obviously high. Hence the modern challenge is high customer satisfaction at minimum inventory. Fixed Order Quantity Approach: Q model The above approach also called Q model signifies that the order quantity can be fixed at a level depending on demand, value and inventory related costs. A stock level called Re Order Level [ROL] is fixed, which triggers ordering. Re Order Level is the lead-time consumption or product of lead-time and demand rate during lead-time. When we follow this approach order quantity is fixed by calculating EOQ and ROL is fixed by calculating lead-time consumption. Inventory cycles can be conceptualized by looking at the figure given below and drawn in the class.

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Constant monitoring is the main disadvantage of this model Salient Features of the above approach 1. Widely used technique 2. Requires constant monitoring of stock levels 3. Suitable for high value and critical items Limited by the assumptions made cost of in transit inventory, volume transportation rates, use of private carriage, etc
Economic Order Quantity and Economic Production Quantity Models for Inventory Management Inventory control is concerned with minimizing the total cost of inventory. In the U.K. the term often used is stock control. The three main factors in inventory control decision making process are:

The cost of holding the stock (e.g., based on the interest rate). The cost of placing an order (e.g., for row material stocks) or the set-up cost of production. The cost of shortage, i.e., what is lost if the stock is insufficient to meet all demand.

The third element is the most difficult to measure and is often handled by establishing a "service level" policy,

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e. g, certain percentage of demand will be met from stock without delay. The ABC Classification The ABC classification system is to grouping items according to annual sales volume, in an attempt to identify the small number of items that will account for most of the sales volume and that are the most important ones to control for effective inventory management. Reorder Point: The inventory level R in which an order is placed where R = D.L, D = demand rate (demand rate period (day, week, etc), and L = lead time. Safety Stock: Remaining inventory between the times that an order is placed and when new stock is received. If there are not enough inventories then a shortage may occur. Safety stock is a hedge against running out of inventory. It is an extra inventory to take care on unexpected events. It is often called buffer stock. The absence of inventory is called a shortage. Quantity Discount Model Calculation Steps:

Compute EOQ for each quantity discount price. Is computed EOQ in the discount range? If not, use lowest cost quantity in the discount range. Compute Total Cost for EOQ or lowest cost quantity in discount range.

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Select quantity with the lowest Total Cost, including the cost of the items purchased.

ECONOMIC ORDER QUANTITY:One of the 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 to 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
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the following activities. requisitioning, purchase ordering, transport receiving, inspecting and storing(store placement), ordering cost increase in proportion to the number of orders placed the critical and staff costs, however, dont 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 obsolescences. ___________ ____________________ 2*quantity required * ordering cost EOQ (economic order quantity) = -----------------------------------------------Carryi ng cost

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What Are Common Components of an Inventory Management System?

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Inventory Software We carry inventory software for control and tracking of warehouse or point of sale inventory. Bundle our software with barcode scanning hardware for a complete inventory management system solution. Download a free inventory software demo program for your computer.

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or custom label quote request form to find labels that suit your needs.

Classification of Inventories

Production inventories They represent raw materials, parts and components that are used in the process of production. Production inventories include Standard industrial items purchased from outside (also called bought outs) Non-standard items (purchased items) Special items manufactured in the factory itself (also called works made parts or piece parts. MRO inventories They refer to the maintenance; repairs and operation supplies, which are consumed during process of, manufacture but do not become a part of the product. In-process inventories They represent items in the semi-finished condition (i.e. items in the partially completed stage) Goods-In-Transit

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They represent such materials, which have been paid for but have not yet been received by the stores. Risks of Holding Inventory The holding of inventory creates the following risks for a firm The investments committed to a particular inventory combination are not available for alternative uses for the benefit of the firm. The risks in these case is due to the interest cost incurred on this inventory until the investment is recovered, as also the opportunity cost of profit which might have been made in alternative investment The inventory may be pilfered or lost The inventory may become absolute and/ or useless Determination of inventory is another risk for holding inventory.

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Functions of Inventory

The necessity of holding inventory is due to the following functions of inventory: Specialization: A firm can either produce all the required variety products at a plant at one location, or, produce different products at separate plant locations. Locating separately will enable the firm to select the location of each different product manufacturing plant based on the particular requirements of that product, thus achieving specialization efficiencies like geographical facilities and economies of scale. This specialization approach creates inventory at diverse locations. Also, pipeline inventories are created due to transport linkages required between different manufacturing plants and with distribution warehouses. Balancing supply and demand: Demand depends upon the requirements of customers relating to time and quantity of products, and is not in the control of the producer. Supply, on the other hand is under the producers control, but has to be economized and also paced with the time and quantity requirements of customer demand. In order to ensure that customers are not dissatisfied when they demand the required quantity of products, it is necessary to have adequate inventory of products available at all
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times. This is the balancing inventory required due to the different rates of manufacturing and consumption. In case of seasonal products when production has to take place for a longer period of time in advance of the season, production throughout the year ensures lower investments in production capacities while increasing inventory. An example is the production of rainwear throughout the year for the sales which will occur only during the rainy season. Another example of balancing is seasonal production during raw material availability and year-round consumption, which also requires inventory. The example of this is seasonal availability of mango fruit and year-round consumption of mango based products. Economies of scale: Economies of scale are obtained by holding large inventories:(a) While purchasing, ordering in large quantities provides cost economies and discounts; (b) transportation economies are obtained by transporting in larger quantities; and, (c) during manufacturing, producing in economic batch quantities lower costs. Overcoming uncertainty: Safety stock of inventory is required to overcome uncertainty of customer demand on the one hand; and, purchasing, receiving, manufacturing, and order processing delays on the other. Either of these may result in shortages of products at the time of customer requirements if adequate safety stock of

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material is not provided for. If such material stock outs are not frequent occurrences, the customer may look elsewhere leading to a last order at the very least, or a lost customer. This uncertainty results in buffer stocks being created between (a) supplier and purchasing, (b) purchasing and production, (c) production and marketing, (d) marketing and distribution, (e) distribution and intermediary, (f) intermediary and customer, in order to avoid stock outs.
Inventory Management and Inventory Control must be designed to meet the dictates of the marketplace and support the company's strategic plan. The many changes in market demand, new opportunities due to worldwide marketing, global sourcing of materials, and new manufacturing technology, means many companies need to change their Inventory Management approach and change the process for Inventory Control. Despite the many changes that companies go through, the basic principles of Inventory Management and Inventory Control remain the same. Some of the new approaches and techniques are wrapped in new terminology, but the underlying principles for accomplishing good Inventory Management and Inventory activities have not changed. The Inventory Management system and the Inventory Control Process provides information to efficiently manage the flow of materials, effectively utilize people and equipment, coordinate internal activities,
34

and communicate with customers. Inventory Management and the activities of Inventory Control do not make decisions or manage operations; they provide the information to Managers who make more accurate and timely decisions to manage their operations. The basic building blocks for the Inventory Management system and Inventory Control activities are: Sales Forecasting or Demand Management Sales and Operations Planning Production Planning Material Requirements Planning Inventory Reduction The emphases on each area will vary depending on the company and how it operates, and what requirements are placed on it due to market demands. Each of the areas above will need to be addressed in some form or another to have a successful program of Inventory Management and Inventory Control.

35

ROLE OF FINANCE MANAGER IN INVENTORY MANAGEMENT

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 minimizing the total inventory cost. The techniques of inventory management are very useful in data mining. The cases the board frame works for maintaining 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 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 managed well. Effect would be reduce

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inventory investment and increase the firms prospects of making profits.

Just-In-Time Inventory Management Strategy & Lean Manufacturing Overview of Just-in-Time Inventory Management Just-in-time is a movement and idea that has gained wide acceptance in the business community over the past decade. As companies became more and more competitive and the pressures from Japans continuous improvement culture, other firms were forced to find innovative ways to cut costs and compete. The idea behind JIT, or lean manufacturing, is to have the supplies a firm needs at the exact moment that they are needed. In order to accomplish this goal a firm must constantly be seeking ways to reduce waste and enhance value. A recent survey of senior manufacturing executives showed that 71% used some form of JIT in their processes (Pragman). This simple statistic illustrates that JIT is here to stay and also that firms must constantly be searching for ways to cut costs and achieve an advantage. JIT is one way to achieve that end result. In order to understand how JIT works a common vocabulary needs to be established from which to further discuss the topic and gain insight into why so many firms have adopted it. As previously stated, one
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of the key components of JIT is to reduce waste and add value. There are several activities that a company must monitor as targets for reducing waste. Among these are, excessive waste times, inflated inventories, unneeded people or material movement, unnecessary processing steps, numerous variabilities throughout a firm's activities and any other non-value adding activity. A key example of this is a new plant that Caterpillar is bringing on-line in the near future. By reducing the number of times a bucket had to be repositioned while it was being welded, Caterpillar was able to reduce the amount of time the bucket spent in the welding line, reduce labor costs by limiting idle time at the welding station and increase the efficiency of the entire manufacturing process. The layout and inventories that are part of a JIT strategy may seem the most logical steps to reduce waste and increase value. By simply redeveloping the layout of certain facilities a firm can reduce the time it takes for supplies to get to the next step in process and cut costs associated with that movement. One way to do this is to have work-in-progress close to the next station in the manufacturing chain. Couple this with lowering inventories and a powerful combination is formed to reduce costs. In lowering inventories a firm can reap numerous benefits; batch sizes, set-up times and safety stock are all reduced, ergo costs are trimmed and value is added. But in order to achieve these things a firm must be willing to accept the problems that these actions can either uncover or
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create. Dell Computers participates in both of these activities and they are now the industry leader. Dell has warehouse space at their manufacturing facilities in which suppliers keep parts directly on-site which is the quintessential JIT layout. In addition, Dell is constantly working to achieve "JIT" inventories of only four days and in doing so are constantly uncovering and solving supply chain problems. Going hand-in-hand with maintaining Just In Time inventory levels is JIT scheduling. By working to reduce inventory to the lowest possible working levels, a firm must constantly be adjusting its schedule of ordering and delivering. In doing so, communication both up and down the supply chain is critical. Frequent orders are placed for supplies and small production runs are constantly being initiated. In order to achieve this breakneck pace of order/production schedule, a firm must constantly be making small changes to orders/production and recognize that kanbans are of incredible importance. Possibly the single piece of JIT that has the most relevance to a study of supply chain management is the partnerships that are essential to making JIT truly work. A firm cannot implement a JIT system by itself; it must have the complete cooperation of its entire supply chain. The sheer amount of information that is needed for a JIT system to operate well demands partnerships to be formed and nurtured, almost to the point at which an entire supply chain operates as one
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firm. Examples of these kinds of partnerships are everywhere in today's business world. XYZ-Company allows its key suppliers to work directly at their manufacturing sites and place orders as needed for the parts that that supplier supplies. By example Dell has its suppliers store raw materials directly at the manufacturing plants. Other concepts of Just In Time also need to be introduced in order to have a discussion about what truly makes Just In Time a worthy endeavor. By the 1980s the Japanese had achieved manufacturing greatness by practicing continuous improvement, in that a firm is constantly working to improve in every facet of its business functions. To do this a firm must always increase quality, look for innovative ways to solve problems and increase focus on the quality of its suppliers. All of these are cornerstones of a modern JIT system. Lastly, getting the workforce to buy into a JIT lean manufacturing system is important because without the dedication of the workforce, any endeavor is sure to fail. There are several ways to achieve workforce commitment. A simple way is to cross train the workforce members outside of their normal business function and help increase an employee's problem solving ability. In doing so a firm is empowering its workforce to think about their function in a new way while looking for ways to improve and giving them an overall view of the entire firm, not just their single job. When this is coupled with the support of management, an increase in resources to solve problems, and an
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increase in employee roles and responsibility, a workforce will feel empowered and work to make Just In Time a success for the business. Strengths of JIT There is a lot of strength in incorporating JIT lean manufacturing in a company. JIT makes production operations more efficient, cost effective and customer responsive. JIT allows manufacturers to purchase and receive components just before they're needed on the assembly line, thus relieving manufacturers of the cost and burden of housing and managing idle parts. In that respect, company spokesman for Dell Venancio Figueroa, says "With our pull-to-order system, we've been able to eliminate warehouses in our factories and have improved factory output by double by adding production lines where warehouses used to be" (Songini, 2000). The benefit of carrying smaller amounts of inbound, in-process, and finished goods inventory exists regardless of the firm's operating context (size, production technology, etc.). Just In Time appeals to many companies because it helps prevent manufacturers from being stuck with inventory that may become obsolete. JIT was initially developed and justified based on cost reduction and quality improvement dimensions. Now, companies view JIT as providing an approach to achieving excellence in the elimination of waste (thought of as all things that do not add value to the product), as well as making the company more responsive to short-term customer
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demand patterns. JIT manufacturing can be a real money-saver for a company. Companies are not only more responsive to their customers, but they also have less capital tied up in raw materials and finished goods inventory, allowing companies to optimize their transportation and logistics operations (UPS, 2003). Overall, JIT manufacturing results in lower total system costs and improved product quality. With JIT, some plants have reduced inventory more than fiftypercent and lead time more than eighty-percent (Droge, 1998). JIT is lowering costs and inventory, reducing waste, and raising the quality of products. Weaknesses of JIT Just as JIT has many strong points, there are weaknesses as well. "In just-in-time, everything is very interdependent. Everyone relies on everybody else" (Greenberg, 2002). Because of this strong interdependence with JIT, a weakness in the supply chain caused by a JIT weakness can be very costly to all linked in the chain. JIT processes can be risky to certain businesses and vulnerable to the supply chain in situations such as labor strikes, interrupted supply lines, market demand fluctuations, stock outs, lack of communication upstream and downstream in the supply chain and unforeseen production interruptions.

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Labor strikes, stock outs, and port lockouts can quickly disrupt an entire supply chain while JIT processes are in place. "Adhering to the just-in-time concept can be expensive in times of emergency such as at ports" (Greenburg, 2002). When a ship arriving from Asia full of supplies cannot make it to shore, the company using JIT generally has very little inventory to compensate for the emergency. This lack of inventory is exactly what makes JIT so great to companies in reducing costs, yet making it risky as well by in some cases not having enough buffer inventories to react and keep the supply chain moving. Every year markets experience seasonal demand fluctuations as well as fluctuations due to demand from disasters or other unforeseen events. "Just-in-time delivery leaves retailers and manufacturers with little inventory as the holiday season approaches" (Greenberg, 2002). Relying solely on JIT systems would leave supply chains in shock due to the overwhelming seasonal market demand at different times of the year for seasonal products. Not all products should be produced with JIT systems in place. Custom made items will not work well with JIT as JIT systems respond best to mass produced and highly automated production items. Communication is king in a JIT rich supply chain. There is a risk involved with JIT when there is a communication breakdown and the company cannot get the right amount of supplies needed to keep the just43

in-time system running smoothly. Technology is playing a big role in JIT number, however, the reliance on technology can lead to breakdowns in the IT systems that can be costly to work around and go back to the 'pencil and paper' methods of doing supply/inventory demand calculations. Companies should always have backup systems in place to help thwart the possibility of technology or communication breakdown. Weaknesses in JIT systems are very important to recognize. "From Cisco routers to Dell computers to the Gap's leather pants, companies have found their justin-time manufacturing systems have let them down" (Johnson, 2001). Companies must strongly evaluate the pros and cons of implementing JIT systems. The effects and risk to their supply chain must also be heavily considered. Although JIT has its weaknesses, in most cases, the benefits outweigh the risks to the JIT enabled company. Planning for and recognizing when things may go wrong with the JIT system are vital for the success of JIT implementation across all areas of supply chains.

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Case study
A Study on INVENTORY MANAGEMENT with reference to THE JAYPORE SUGARS COMPANY LTD Inventory constitutes the most significant part of current assets of a large majority of companies in India. On an average, inventories are approximately 60 percentages of current assets in public limited companies in India. Because of the large size of inventories maintained by firms; a considerable manage of funds is required to be committed to them. A firm neglecting the management of inventories will be jeopardizing its long run profitability and may decree, eg, 10to20 per cent with out any adverse effect on production and sales. Inventory consists of raw materials, packing materials, consumables, stores and spares, work in process and finished goods. The raw materials, work-in-process goods, and completely finished goods that are considered to be the portion of a businesss assets that is ready or will be ready for sale. Inventory represents one of the most important assets that most businesses posses, because the turnover of inventory represents one of the primary sources of revenue generation and subsequent earnings for the companys share holders/owners.

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Sugar industry is peculiar in nature i.e., the entire production activity is carried on in about 4to5 months period commencing from November and ending March. Sugar cane is the major raw material for sugar production .sugar cane is an agricultural product and the companys do not have 100 per cent control over the supply of sugar cane to the sugar factories, because of the yield of sugar cane depends on so many climatic condition, which are beyond the control of farmers and management. Stocking of raw materials i.e., sugar cane is only maximum of one days production requirement. Hence, raw material stock as percentage to the total raw material consumed will be taken out at the end of the season and only little quantity is in working process which will be reprocessed in the subsequent season.

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BIBILIOGRAPHY

Http://en.wikipedia.org/wiki/inventory

Http://www.finmanagementsource.com/categor y/

Accounting-management/cost accounting/inventory management Advanced financial management-m.com paper 2 (Sheth publication)

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