Project Report on Inventory Management

INVENTORY MANAGEMENT

INVENTORY MANAGEMENTWITH SPECIAL EMPHASIS ON VARIOUS TECHNIQUES OF

INVENTORY CONTROL

A training report submitted in partial fulfillment of the requirement for the degree

Of

BATCHELORS OF BUSINESS

ADMINISTRATION

(2007-2010)

Submitted by:

DEEPAK AGGARWAL

ROLL.NO. 3901

MULTANI MAL MODI COLLEGE

P A T I A L A

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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 wouldn’t 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.

My first words of thanks go to Mr. Jadish Rao (General Manager) & Mr. Munish Kaushal

(Manager Finance & IT) for giving me the opportunity to work on this project.

I feel highly obliged and indebted to my learned guide Mr. Rixon Singla, Mr. Sunil Sharma,

Mrs. Pooja Sharma, Mr.Usman Ali, Mr.Sumit Bansal, Mr.Virender Kumar, Mr. Anoop

Wadhwa 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 wouldn’t have been possible for me to accomplish this task in time.

Words at my command are inadequate both in form and spirit to express my sincere and

profound gratitude to all these persons for their meticulous guidance, keen supervision, and

constructive criticism. Friendly attitude and whole-hearted help throughout the course of this

project. Their unforgettable, positive approach and freehand acumen made this project

possible.

DEEPAK

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PREFACE

The problem of unemployment is one of our major problems. This problem has been troubling us

ever since we gained independence. One reason for growing unemployment in the country is our

faulty education system. Students are given bookish knowledge without any training for specific

jobs. To solve this problem to some extent training programmes are being introduced. This helps

the students to increase their job perspective. Training can be done in industries, business-houses,

sales and income tax department of various central, state, local, government societies etc.

A project work programme in industry is to get an overall view and exposure of the industry and

its working environment. It enhances the confidence and boosts the morale of the students who go

for their project in the industry. These programmes are included in the curriculum of studies for

development of the personality of the finance students and get a first hand experience about the

working of the industry.

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EXECUTIVE SUMMARY

1st part of the report contains introduction to GSK, which includes company profile showing

the company status, ISO certification etc., Historical background which shows how GSK

comes into being? Then various Packaging stations, Manufacturing process which shows how

Horlicks is manufactured in company? After that there is Supply chain process which shows

that how the Horlicks reaches to the final consumer?

It contains the brief information about the GSK Nabha plant like no. of employees, shift

timings, milk collection centers etc. After this there is product profile, which shows range of

products offered by GSK Consumer Health Care Ltd., Department overview, which shows

how various departments works for the company, Then comes GSK mission which shows

company’s dedication towards the society and an overview about its financial and marketing

implications.

2nd part contains the Research Methodology, which includes justification about the topic

selected, the objective of the study, Unit where the study is conducted, time period for which

the study is conducted. Scope of the study and sources of information (primary as well as

secondary). It also includes various limitations during the course of the project.

3rd part contains the introduction to topic Inventory Management this includes the

information, as to what is Inventory Management all about, the aspects of Inventory

Management, its importance, the objectives for Inventory Control and scope, Inventory Control

techniques, etc. and all this is well supported with the data of GSK.

4th part is about the analysis of the data which includes the present scenario of inventory

management in GSK , NABHA, the ways in which inventory could be utilized, the various

inventory control tact’s such as ABC, FSN, etc.

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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.

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COMPANY PROFILE

Company Glaxo SmithKline Consumer Healthcare Ltd

Head office Gurgaon (Haryana)

Registered Office Nabha (Punjab)

Status Multinational Company.

Originally U.K. Firm

Quality Status AWARDED Latest Version OHSAS

18001, ISO 9001:2000 and

ISO14001:2004

Rajahmundry Plant Received

ISO14001Accreditation and SA8000

Nabha & Sonepat Plant certified for

HACCP (Hazard Analysis Control

Point for Food safety).

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Turnover (2008) Rs. 13955(Millions), 15% increase

as compared to last year.

Export To Bangladesh, Myanmar, Sri Lanka,

Middle east, Nepal, Hong Kong,

Malaysia, Fiji

INTRODUCTION TO GSK

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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, and Biscuits and in addition promotes

and distributes a number of products in diverse categories, including prominent brands such as Eno,

Crocin and Iodex.

GSKCH has a strong marketing and distribution network in India comprising over 1800 wholesalers and

direct coverage of over 4,00,000 retail outlets.

HISTORICAL BACKGROUND

GlaxoSmithKline Consumer Healthcare Ltd. is a pharmaceutical and healthcare company born out of

the merger of two leading international organizations SmithKline Beecham and GlaxoWellcome. GSK

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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 ".

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

PLANT LOCATIONS IN INDIA

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PRODUCTION STATIONS

FOOD POWDER : NABHA, RAJAHMUNDRY & SONEPAT

BISCUITS : SAHIBABAD

ENO : RAJAHMUNDRY

CROCIN : BANGLORE

IODEX : BANGLORE

PACKING STATIONS

The company started packing Horlicks in ½ Kg and 1kg pouches. Packing machines 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 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

The marketing of the company's products is done through various Regional Sales Offices (RSO) situated

at:

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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 unit’s container or gusseted pouches (GPs).

GSK MISSION

Our global quest is to improve the human life by enabling the people

“TO DO MORE, FEEL BETTER, AND LIVE LONGER”.

People at Glaxo SmithKline consumer healthcare limited are dedicated ourselves to delivering medicines

and products that help million of people around the world LIVE LONGER, HEALTHIER AND

HAPPIER LIVES.

CULTURE

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Successful companies have developed something special that supersedes corporate strategy, market

presence, or technical advantage- distinctive culture. What it is, whether it is important or not, what you

deal with indirectly. Why? Because culture is an intangible shadow. You cannot garb hold of culture. it

has no handles, nothing you can touch directly. Having said all that, it is an important issue GSK’s culture

is the set of norms that create powerful precedents for acceptations around acceptable risk, change

orientation, creative and innovation, group versus individuals effort, customers orientation, extra efforts

ABOUT THE NABHA PLANT

GSK’s Nabha plant is a huge manufacturing unit. Glaxo SmithKline Consumer Healthcare Ltd. is having

three factories, which are at Nabha, Rajahmundry and Sonepat. The factory at Nabha is the mother unit

and products manufactured by this company fall under two categories of consumer healthcare:

The food powder (HORLICKS & BOOST) is manufactured in Nabha. The requirement of workforce

changes with change in production policy. The plant at present employs a work force varying from 1500

to 2000 out of which approximately 1100 are permanent. There is a staff and management of about 145

persons. There is a wage agreement for 3 years. The workers also getting weekly off according to Labors

Act.. The plant runs 365 days a years in 3 shifts daily which work from 5.15 a.m. to 1.15 p.m., 1.15 p.m.

to 9.15 p.m. & 9.15 p.m. to 5.15 a.m.. The office opens 6 days a week.

Nutritional Health Drinks

Gastrointestinal ENO Fruit Salts

Horlicks and its variants

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About 12 Milk collection centers were opened at a radius of about 40km around Nabha, to meet the

requirement of 20 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.

DEPARTMENTAL OVERVIEW

The various departments in GSK Ltd. Nabha are:

OPERATIONAL EXCELLENCE

QUALITYASSURANCE

MANUFACTURING

PROCUREMENT

ENGINEERING

WAREHOUSESUPPLY CHAINMANAGEMENT

HR & A

FINANCE&

I.T.

ENVIORNMENT HEALTH &SAFETY

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MAIN FUNCTIONS OF FINANCE DEPARTMENTS

FINANCE DEPARTMENT

Main Functions of Finance Department Are As Follows: -

Vendor payment

When an article arrives at the gate, an entry permit is made and they are sent to the GOODS INWARD

DISPATCH section (GID). A goods inward from (gif) is filled up and sent to the finance department for

payment .the vendor submit the bill to purchase department .the finance department also receives a hard

copy of the corresponding purchase order (PO). There is online passing and payment system .This

Contains a database of all purchase order issued .these are checked against the bills for the GIF, PO

references after which the bill is posted for production of the payment slips.

Disbursement of salaries

The HR Department sends a compile list of all employees on the payroll together with their monthly

working records .The salaries are paid mainly through the bank to all the employees.

Payment to government bodies

Excise is paid to all suppliers for goods manufactured. The company takes credit of the payment of excise

from the govt. According to the CENVAT. Excise is however paid for the finished goods. Octroi is paid

to Local authorities for goods arriving from outside Nabha. Property tax, insurance and sales tax are also

paid in case of accidents; breakdowns are called for assessment, when a claim is filed. VAT is paid to

Excise and Taxation Department of Punjab.

Milk accounting

Every milk supplier has a code, the first two digits indicating whether the milk is from cow, buffalo and

the next three digits indicating the supplier. Payments are made after 10 days by cheque/MT/DD..

Payment of services

The finance department pays for various services like rent, truck hire etc.

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Capital budgeting

Every department submits an annual budget, which is allocated quarter wise . The concern department

also sends a capital investment proposal, which has to be approved in different forums depending on the

investment required.

DEPARTMENTAL CHART OF FINANCE &IT

Mr. ARUP CHAKROBARTY

Sr. Manager- Finance, IT & Compliance

Surya Kant JainDY.. Manager- FinanceBudgeting, MIS, AuditsAP, Product Costing, OE

financials, Indirect Taxation, Debtors, Site Oxygen

Champion

Vikas GuptaOfficer Finance -

Budgeting, MIS Banking, OE Financials New product Costing, Record Retention

Sumit BansalOfficer Finance-

Central Excise, TCS, Debtors, VAT, eTDS,

service Tax

Rixon SinglaDY. Manager Finance -

Fixed Assets & Capex, Payroll RM, Costing, Insurance, OE

Coordinator.

Pooja Sharmaofficer Finance -

Costing, Raw Material/ FG accounting &

Related Compliance

Sunil SharmaOfficer Finance -

Fixed Assets A/c, Capital WIP, Payroll, Insurance,

Employee Services, EHS, 5 S

Ajay KansalAsst. Manager- FinanceAccounts Payroll, Milk/ DOA/ DOB/ Services/

Freight, Audits, Compliance.

Usman AliOfficer Finance -

DOA, DOB, Services & Related

Compliance, KP co-coordinator

Virender KumarOfficer Finance -

Milk Accounting, Freight Accounting

Mr. Jagdish B. Rao

General Manager- NABHA

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Narinder VermaExecutive IT –

Infrastructure, Servers, Notes Mail, Applications Support, IT Training

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MANUFACTURING PROCESSThe Manufacturing process for Horlicks is as Follows:

1. The First step in the production process involves the mixing of wheat flour with Malted Barley.

2. In The Second step water is added to the above mixture and the material is mashed thoroughly, as

a result of which the outer cover of malted barley is moved and remains after it is called Husk.

3. After mashing the material it becomes thick slurry in which the solid content is above 50%.

4. The fourth step involves the adding up of water to the above mixture.

5. The next stage is the stage of evaporation in which the material is evaporated and the result is

thick slurry of the material in which the solid content is around 80%.

6. After evaporated comes the step of spreading out of material in plates and keeping them in the

oven for about half an hour.

7. Once the material is completely dried, the plates are taken out from the oven and the food item is

scrapped out, which comes out in the from of thin layers. Then the vitamins and other essential

nutrients are added to the food items which is then ground and the result is our final product

HORLICKS.

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:

SUPPLY CHAIN PROCESSThe 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 packing stations)

Wholesalers Sale Depots

RESEARCH METHODOLOGY

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OBJECTIVES OF STUDY

The present study has been undertaken in respect of Glaxo SmithKline at Nabha the main objectives of

study are as follows: -

To know that how a company apply the controlling technique on the inventory.

To know that how the recategorisation of the inventory is done through the ABC analysis.

To know that how the purchase orders have an impact on inventory and hoe it simplifies the

complexity.

To know that how a company actually get the benefit of the controlling technique.

To know that how other techniques can be better applied on the existing controlling technique.

SCOPE OF STUDY

The scope of the study is designed in terms of unit worked, the concept adopted and the period under

focus.

The unit

The study is done in the Finance department & stores department of GlaxoSmithKline Consumer

Healthcare Ltd. at Nabha plant.

The concepts

The concept of various tools and techniques of general inventory control are used and analysed.

The period

The study is supposed to be relating to the period of last year’s consumption i.e. from April 2006- March

2007.

Sources of Data:

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Secondary Data: - The study is based on mainly on the secondary data including Annual Report,

Store Records & for theoretical portion various books.

Primary Data: - The only mode of collecting primary data was the non-structured direct intersection

with the concerned persons of Finance & Stores Department.

INVENTORY

MANAGEMENT(SPECIAL EMPHASIS ON

A, B, C ANALYSIS OF

INVENTORY CONTROL)

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Every business needs inventory for smooth working of its activities. It serves as a link between production

and distribution activities. Inventory the most significant part of current assets.

Large size of inventory 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 consisting raw material, WIP, finished goods, maintenance spare parts a

significant preparation of total assets.

Inventory management means preparing the stock of goods at such I level that neither the stock should be

excessive or inadequate. It is a system, which ensures that right quality of material, is available in the

right quantity at right time and right place with the right amount of investment. Large size of inventory

ensures efficient and smooth production and sales operations, while minimum investment in inventories

maximizes profitability. Both the extreme points are dangerous. An efficient manager always determines

the optimum points in between of the two extremes. Excess installments in the inventory pees danger like

unnecessary the up of firm’s funds and loss of profit excess carrying cost. Risk of liquidity and risk of

physical deterioration of inventories. On the other hand inadequate investment in inventories seeks to

production hold ups failure to meet delivery commitments. Thus, the aim of inventory management is to

balance between the two and maintain sufficient inventories. According to Curry and Frank:

“Because materials constitute such a significant part of product cost and since

this cost is controllable, proper planning, purchasing, handling and accounting

are of great importance”.

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OBJECTIVES OF INVENTORY MANAGEMENT

The main objectives of inventory management are operational and financial. The operational objective

means that the materials and spares should be available in sufficient quantity so that work is not disrupted

for want of inventory. The financial objective means that investments should not remain idle and

minimum working capital should be locked in it.

Ensure sufficient stocks of raw materials in periods of short to ensure continuous supply of materials

spares and finished goods so that production should not suffer at any time and the customer’s demand

should also be met.

To avoid both over- stocking and under-stocking of inventory.

To maintain investments in inventories at the optimum level as required by the operational and sales

activities.

To keep material cost under control so that they contribute in reducing cost of production and overall

costs.

To eliminate duplication in ordering or replenishing stocks. This is possible with the help of

centralizing purchases.

DEFINITION OF INVENTORY

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The dictionary meaning of Inventory is ‘a list of goods’. In a wider sense, inventory can be defined as an

idle resource, which has an economical value. It is however, commonly used to indicate various items of

stores kept in stock in order to meet future demands.

In any organization, there may be following four types of inventory:

a) Raw materials & parts- These may include all raw materials, components and assemblies used in

the manufacture of a product.

b) Consumables & Spares- These may include materials required for maintenance and day-to-day

operations.

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

finished goods.

d) Finished goods- These are the goods that are not yet sold or put into us.

INVENTORY CONTROL

Inventory Control is the art and science of maintaining the stock level of a given group of items, incurring

the least total cost, consistent with other relevant targets and objectives set by the management.

Inventory control refers to “the process whereby the investment in material and parts carried in stock is

regulated within predetermined limits set in accordance with inventory policy established by the

management” (Gordon B. Carson). The activities of Inventory control, thus, include the following:

Determination of limits of inventories to be held.

Determination of inventory policies.

Setting out of investment pattern and its regulation as per individual and collective requirements.

IMPORTANCE OF INVENTORY CONTROL

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The primary objective of inventory control is:

To minimize the idle time caused by shortage of inventory and non- availability of inventories as

per requirements, and

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

Achievement of these objectives will result in more return on capital which is materially the prime

objective of an organization whether commercial or industrial. The formula given below is helpful in

arriving at the return on investment:

RETURN ON CAPITAL = PROFIT

CAPITAL INVESTMENT

In normal circumstances, profit margin depends on external factors like competition over which the

management has little control. Here the question arises how the management controls 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 affected. 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

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The scope of inventory management is vast. It encompasses various functions starting with determination

of the requirement of inventory and ending with the supply of finished products to the users. In widest

sense, functions included in the scope of inventory management can be summarized as:

Determination of inventory requirement and planning its inflow.

Floating tender enquiries.

Identifying suppliers and placing orders for the suppliers.

Inspection of items received

Store keeping and stock control.

Issue, Valuation and Store Accounting.

Warehousing and Distribution.

All these functions are carried out, one after the other, in close sequence. First the periodic requirement of

inventory is determined on the basis of sales forecasts and production plan. At the same time tender

enquiries are floated for identifying the sources of suppliers. Orders are then placed with the suppliers.

When the inventory consignments are received they are inspected to ascertain that items supplied are as

per the specifications given in the order. Items found in order are then stored in bins, racks and containers

to ensure their safety, security and prevent deterioration in quality. Inventory items are issued from stores

to production and other departments as per their demand. Proper records are maintained for the receipt

and issue of all these items. The stores department also maintains the finished goods inventory. Finally

these items are issued to the distributors and dealers as their purchase orders, after obtaining instruction

from the sales department.

INVENTORY MANAGEMENT-

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CONSTRAINTS & PROBLEMS

CONSTRAINTS

Constraints of inventory management vary from organization to organization depending upon various

variables; some of them are as under:-

a) Whether the demand for the goods is one time (static) or of repetitive nature (dynamic). In GSK

all the non-stock items are treated of static nature and stock items of dynamic nature.

b) In case of demands of dynamic (repetitive) items, whether future requirements can be assessed

with certainty or uncertainty or under risk (probability). Also, whether the demand is fixed over a

time or is variable.

c) Whether the material is manufactured in house or is to be purchased through outside suppliers.

d) Whether the lead-time during which material can be arranged is fixed or is variable.

PROBLEMS

On one hand, inventories are idle and valuable resources i.e. capital remains locked up in the inventories,

which can be used for other productive purposes, but on the other hand they are desirable to satisfy

manufacturing, maintenance or operation requirement of the organization. Hence 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?

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VARIOUS INVENTORY MANAGEMENT TECHNIQUES

Various techniques employed for controlling stock levels are:

a) Selective Management: - In this technique, various items of stores are classified in various

classifications depending upon their consumption value, unit price, criticality for the organization,

source of supply, purchasing problems, rate of withdrawals from the stores, seasonality and stores

balances on a particular date. Different approaches of control are being followed for different

types of items.

Two such classifications ABC & FSN are followed in GSK

b) Management by Exception: - In this technique, items with certain exceptions are tackled on

different points of time. For example, overstock items; surplus items and inactive items may

require more attention.

In GSK management by exception is followed for such goods that are

stock outs for some period.

c) Rationalization: - Techniques of standardization and variety reduction are used to minimize lead-

time of the material, and reduce unnecessary inventory carrying costs.

d) Value Analysis: - Functions performed by the materials are analyzed and alternative designs/raw

materials are suggested to achieve the same function at minimum cost.

e) Computerization: - Computer outputs can be used for scientific forecast of demand to solve

many inventory models, providing optimum safety and for controlling funds.

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GENERAL STORE INVENTORY

General store is a major part of the inventory in all the concerns. It provides the information regarding

how much material we can purchase, and how much material we can keep in store such as it is helpful to

provide the information regarding all levels. The major part of working capital of all the concern spent in

General store inventory.

NATURE OF GENERAL INVENTORY IN GSK

Inventories are stock of the product a company is manufacturing for sale and components that make up

the product. The various forms in which inventories exist in a manufacturing company are: raw materials,

work in progress, finished goods & stores and spares.

Raw materials are those basic inputs that are converted into finished product through the manufacturing

process. Raw material inventories are those units, which have been purchased and stored for future

productions.

In GSK Malted Barley, Wheat flour, Skim Milk Product (SMP), Fine Crystalline Sugar (FCS),

Roasted Malted Barley, Calcium, Potassium, Sodium, Vitamin Flavors etc., are main raw

materials.

Work-in-process. The work-in-process is that stage which is in between raw material and finished goods.

The raw material enters the process of manufacture but they are yet to attain a final shape of finished

goods. The quantum of work-in-process depends upon the time taken in the manufacturing process. The

greater the time taken in manufacturing, the more will be the amount of work in process.

In GSK at Nabha there is no work in progress.

Consumables. These are the materials, which is needed for smooth process of production. These

materials do not directly enter in the production but they act as catalysts, etc. consumables may be

classified according to their consumption and criticality. Generally, consumables stores do not create any

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supply problems and form a small part of production cost. There can be instance where these materials

may account for much value than the raw materials The fuel oil may form a substantial part of cost.

In GSK Nabha Polythene, Drum Seal, Tape roll, Label, Cleansing Agent, Hand gloves, Oil,

Chemical, Coal, etc. are examples of some consumables.

Finished goods. These are the goods, which are ready for the customers. The s tock of finished goods

provides a buffer between production and market. The purpose of maintaining inventory is to ensure

proper supply of goods to customers. In some concerns the production is undertaken on the order basis, in

general without waiting for specific orders.

In GSK main finished goods are Horlicks, Boost, Vanilla Horlicks, Elachi Horlicks, Boost

intermediate, Horlicks high fat, Junior Horlicks DHA, mother Horlicks DHA etc. are products,

which are produced for consumption in India. Mother Horlicks DMI and Junior Horlicks DMI are

products manufactured for export package and send to Bangladesh.

Spares. Spares also form a part of inventory. The consumption pattern of raw material, consumables,

finished goods are different goods are different form that of spares. The stocking policies of spares are

different from industry to industry. Some industry like transport will require more spares than other

concern. Costly spare parts like engines, maintenance spares etc. are not discarded after use, rather they

are kept in ready position for further use. All decision about spares is based on the financial cost of

inventory on such spares and the costs that may arise due to their non-availability

In GSK examples of Spares are Barring, V-Bolt etc.

Stock of raw-material, work-in-process and stores and spares facilitate production, while stock of

finished goods is required for smooth marketing operations. Thus inventories serve as a link between the

production and consumption of goods.

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GENERAL STORE INVENTORY IN GSK

General store is that which the part of the production becomes indirectly. Without such inventory no

production will be there. This store inventory includes: -

Polythene bags

Consumables like diesel etc.

Cleaning material like nitric acid, caustic soda etc.

Floor cleaning towels

Spare parts of the machines

Inventory required under GMP (Good Manufacturing Practices) like uniform, hand gloves, mouth

covers, safety shoes etc.

Under the general store inventory total no. of items are 2472, which have the ABC classification.

Their total consumption value is Rs. 54339226.01. It includes 99 items, some of which don’t have

any classification because these items are used as and when required during the year as such do not

fall under any category and some are capital related spares. (See Annexure)

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ABC ANALYSIS

ABC analysis is a basic analytical materials management tools. Fundamentally ABC analysis may be

applied to any branch of management with 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

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once a year and various stock levels i.e., minimum level, ordering level etc. may not be adhered to. All the

time, efforts and costs saved on the C group items by not having an elaborate control can be usefully

utilized on the A and B group items.

A-B-C Analysis: This analysis is based upon PARETO PRINCIPLE, according to which in many

situations, majority of the activity (70 to 80%) is governed by very few (10 to 20) attributes. Hence if all

the stock items are analyzed in terms of their annual consumption, major part of total consumption value

on a GSK (about 70-80%) is of only few high consumption value items (say 10-20%). These items may

be classified as A category.

15 to 20% of total consumption is represented by another 15 to 20% items that may be classified as B

category.

Remaining 5 to 10% consumption is represented by a large no. of small consumption value items, which

may be classified as C category.

Actually ABC classification depends upon management decision. In GSK it is decided that-

All high consumption value items, which represent 70% of total issues, will be classified as A

category.

Items, which represent 20% of total issue, will be classified as B category.

All remaining items are of C category.

For the purpose of Inventory Control, A category items are most important. Therefore, they are closely

monitored at highest level at very frequent intervals.

Stock physical verification in GSK

For A category items is carried out every six months;

For B category items every year and

Once in two years for C category items.

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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 ANALYSIS PATTERN

SR.NO. SUMMARY OF CONTROL ITEMS A ITEMS B ITEMS C

1 Control Tight Moderate Loose

2 Requirement Exact Exact Estimate

3 Postings/Recording Individual/ Individual/ Group/ Complete Complete None

4 Check of revisions Close Some Little

5 Quality Control Exact Exact Approximate

6 Expediting Regular Some No

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PREPARATION OF PROPOSALS

For preparing the proposals under the different conditions following steps have been taken: -

Firstly check that according to the unit value in which category the item is falling.

See that according to the consumption value which category is best suited to the item.

Then out of the two put the items in the upper category.

For example: -

Item Code Per unit value Consumption value

S30028 754.51 22492.71Proposed Category

C B

According to Unit value it should fall in ‘C’ category but according to Consumption value it should fall in ‘B’ category.

Therefore, it will fall in ‘B’ category.

Item code Per unit value Consumption valueS92314 6824.45 6827.23Proposed Category A B According to Unit value it should fall in ‘A’ category but according to Consumption value it should fall in ‘B’ category.

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Therefore, it will fall in ‘A’ category.

Proposal for the year 2009

In the year 2009, this proposal is prepared to recategorise the inventory according to the current inventory

Stock, taking into consideration the changes in the unit value and the consumption value of the inventory.

The results of the proposal for the year April 2008-March 2009 are as follows:-

PROPOSAL (1): As per Unit Value Rs. 6000 & Consumption Value Rs. 60000 (ANNEXURE 1)

1. According to No. of Items

Category Proposed No. of items % of items

A 269 10.88%

B 455 18.41%

C 1748 70.71%

TOTAL 2472 100

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2. According to Consumption Value

Category Consumption Value %A 44745851.09 82.35%B 5985626.63 11.02%C 3607747.29 6.63%

TOTAL 54339225.01 100

No. of items

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Existing status of inventory as on March 2009

Existing criteria: Per Unit Value Rs. 5000 & Consumption Value Rs.50000

1. According to No. of items

CategoryExisting No. of items %

A 297 12.01%B 581 23.50%C 1594 64.49%

TOTAL 2472 100

General store items cat. A, B, C (VALUES)

Category

Val

ue

in

Per

cen

tag

e

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2. According to Consumption ValueCategory

ConsumptionValue %

A 44147223 81.29%B 5818917.82 10.7%C 4373084.19 8.05%

TOTAL 54339225.01 100

No

. of

Item

sV

alu

e in

P

erc

enta

ge

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PROPOSAL 1:CHANGES FROM THE EXISTING CATEGORY

Thus the exercise has lead to movement of 10.88% of total inventory to “A” category

as against 12.01% in the existing status with the little difference in the percentage of

items in the said category. Also there is movement of almost 18.41% & 70.71% of

total inventory to “B” & “C” categories as against 23.5% & 64.49% respectively in

the existing situation.

Category No. of items (E) % of items (E) No. of items (P) % of items (P)

Category

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A297 12.01% 269 10.88%

B 581 23.5% 455 18.41%

C 1594 64.49% 1748 70.71%

TOTAL 2472 100 2472 100


On the same way, as per the proposal consumption value of near about 82% 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 11.01% & 6.60% as against 23.5% & 12.01% respectively in the

existing category.

CategoryExistingConsumption %

Proposed Consumption %

A 44147223 64.49% 44745851.09 82.30%

Category

No

. o

f It

em s

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B 5818917.82 23.5% 5985626.63 11.01%C 4373084.19 12.01% 3607747.29 6.60%

TOTAL 54339225.01 100 54339225.01 100


CONCLUSION: The Existing criteria applied in stores is correct as it follows the ‘pareto principle’ it

shows that maximum consumption of minimum no. of items comes under ‘A’ category and minimum

consumption value items with maximum no. of items falls under ‘C’ category. But some changes are

required in the same as shown above i.e. some items are required to move between all the three

categories.

IMPLEMENTATION OF THE PROPOSAL

For actual implementation of the selected proposal again some analysis is carried on.

Category

Val

ue

in

Per

cen

tag

e

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Physical verification:

First of all physical verification of the whole inventory is done. Under this each and every item of the

inventory is verified with the books. For this purpose concerned person goes to the stores and does the

verification.

Current Year’s Consumption:

After the physical verification all inventory is again checked with the current year’s consumption. If in

case of any particular item .the current year’s consumption changes corresponding to the previous year’s

consumption then it can be proposed in another category, then that proposal is acceptable.

For instance:

Item Code: S05013

Consumption in fin. year ending March 2007 Current Category 49527.62 BConsumption in fin. year ending March 2008 Proposed Category 53054.09 A

In this way all the items are analyzed and a final report is prepared.

ADVANTAGES OF ABC ANALYSIS

A strict control is exercised on the items, which represent a high percentage of the material costs .

Managerial time is spent on ‘A’ items whereas clerical staff with least managerial supervision can

handle ‘C’ items and sometimes ‘B’ items. Equal attention to all the items of stores is not desirable

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because it will not be a cost effective option for the firm. Concentrating on all the items of stores is

likely to have a defused effect on all the items, irrespective of the value of

consumption.Therefore,ABC analysis should be followed to give due attention to the items, which

they deserve, keeping in view their value of consumption.

Investment in inventory is reduced to the minimum possible level because a reasonable quantity of

’A’ items representing a significant portion of the materials costs is purchased.

To reduce investment in materials, close control of ‘A’ items contributes much more than close

control of ‘C’ items.

Storage cost is reduced, as a reasonable quantity of materials, which account for high percentage

of value of consumption, will be maintained in the stores.

With the introduction of the ABC analysis, management time is saved because attention is

required to be paid only to some of the items rather than on all items

It becomes possible to concentrate all effort in areas, which need genuine efforts.

It is most effective and economical method as it is based on selective approach.

It helps in placing the orders, deciding the quantity of purchase, safety stock, etc., thus saving the

enterprise from unnecessary stock-cuts or surpluses and their resultant consequences. This may be

well shown by an example where average inventory is one-half of the order quantity:

Category Annual consumption No. of Orders Average Working Inventory

A Rs. 3,00,000 4 37500 B Rs. 30,000 4 3750 C Rs. 3,000 4 375

TOTAL Rs. 3,33,000 12 41625

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Keeping the same no. of orders per year, viz., 12 inventories, can reduced by 39% merely by segregating items according to their usage value as shown below:

Category Annual consumption No. of Orders Average Working Inventory

A Rs. 3,00,000 8 18750 B Rs. 30,000 3 5000 C Rs. 3,000 1 1500

TOTAL Rs. 3,33,000 12 25250

OTHER BENEFITS:

Complexity reduction

Optimum utilization of time

Reduction in operating expenses

Reduction in stock outs

Reduction in refusals

Quantity discounts

FSN CLASSIFICATION

ABC Classification is on the basis of consumption value of an item and does not give any importance to

the criticality of the item and therefore, only ABC Classification is not adequate. Classification done on

the basis on the movement of the items in the storehouse is known as FSN, where the items are classified

as fast moving (F),slow moving(S) and non-moving(N),items .This classification is done on the basis of

consumption pattern of the items under analysis. This analysis is useful in case of obsolete items. Previous

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year issues is a guiding factor for FSN analysis previous two years issues are taken into consideration for

a decision whether the items stocked in storehouse are fast moving ,slow moving or non moving.

Fast moving:-Items being issued more than 15 times a year may be placed in ‘F’ category. Certainly such

analysis and limits of issue vary from one organization to another organization.

Slow moving:-Items up to a certain limit say 10-15 issues in a year may be classified as ‘S’ items.

Non-moving:-If there is no issues of a particular item during the past few years, naturally they will be

classified as ‘Zero issue items’ and under this method of analysis these items will be classified as ‘N’

items.

In GSK items, under FSN categorizing is done on the following criteria :-

Fast moving:-The items which are very frequently moved in one year are included in the fast moving

category.

Slow moving:-The items which are moved from stores for a period of one and a half year.

Non-moving:-The items which are not issued from stores for more than three years.

In GSK Inventory’s FSN categorization of items in stores for the month of April 2008 in which 61 lacs

value items are of non moving nature which are not moved within a period of three years and 110 lacs

value are of slow moving which is moved within a period of one and a half year.

Category Inventory (Lacs) Percentage (%)

Non Moving Inventory 60.66 35.57

Slow Moving Inventory 109.87 64.43

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Total 170.5 100

FINDINGS AND SUGESSTIONS

After conducting a deep study on the whole process of the ABC Recategorisation, I found certain facts

regarding the ABC analysis which are as follows: -

FINDINGS:

Many items are there in the stores, which although lying in general stores but don’t have any category

in spite of having consumption value.

Some items have no consumption value but their minimum quantity is more than twice.

Some modern techniques of inventory management like JIT, VED etc., which can help in reducing

investment in inventory, is absent.

Items, which are written off in the books, are lying in the stores and in any year if again their need

arises they are written back in the books.

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.

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 don’t fall under any category, should be treated separately.

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.

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At last I would like to say that there is proper control of inventory in the organization. Inventory

management is done at par. Proper accounts & records are maintained of each and every item, better

techniques are applied. 5S technique is implemented fully in GSK.

BIBLIOGRAPHY

SECONDARY DATA:

ANNUAL REPORT OF THE COMPANY

BOOKS

GUPTA SHASHI K., SHARMA R.K., FINANCIAL MANAGEMENT, Kalyani Publishers,

Edition 2005, pp 10.41-10.54

JAIN S.P., NARANG K.L. & DHINGRA T.R., COST ACCOUNTING-Principles and

Practices, 1974, pp 8-25

CHANDRA PRASANA, FINANCIAL MANAGEMENT- THEORY & PRACTICE, Tata Mc-

Grew Hill, New Delhi, 4th edition, 2004.

SHARMA K.R., QUANTITATIVE TECHNIQUES AND OPERATIONS RESEARCH,

Kalyani Publishers, 1990, pp 589-631.

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PRIMARY DATA:

WEB SITES:

www.gsk.com

www.gsk-India.com

www.Glaxosmithkline-ConsumerHealthcareindialtd.html

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http://www.Glaxosmithkline-ConsumerHealthcareindialtd.html/

http://www.gsk-India.com/

http://www.gsk.com/

Project Report on Inventory Management

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