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Organization study and inventory management

EXECUTIVE SUMMARY

The project report on Organization study, with a topic Supply chain Management is
undertaken at united precision tooltechPvt LtdDharwad.UPT is a company associates from
very high Machine Tools and Tooling Systems field with proven abilities and expertise. UPT
management with its modern manufacturing facilities is today set to offer world-class Tooling
and System with uninterrupted supply chain forming core partners of productivity of every
machine tools, auto-components and systems and general industries in the country . The
methodology of the study includes interactions with the departmental heads, and the other
employees of the organization. This report contains the overview of UPT and its functional
departments and inventory management in UPT. UPT is engaged in manufacturingof
MACHINERY INNER TOOLS.

Every organization needs inventory for smooth running of its activities. It serves as a link
between production and distribution processes. The purpose of inventory management is to
ensure availability of materials in sufficient quantity as and when required and also to
minimizeinvestment in inventories. Raw materials, work in process and finished goods all
represent various forms of inventory. Each type represents money tied up until the inventory
leaves the company as purchased products. Because of the large size of the inventories
maintained by firms, a considerable amount of funds is required to be committed to them. It is
therefore absolutely imperative to manage inventories efficiently and effectively in order to
avoid unnecessary investments. A firm neglecting the management of inventories will be loss
to its long run profitability and may fail ultimately. The reduction in excessive inventories
carries a favorable impact on the companys profitability. The investment in inventories
constitutes the most significant part of current assets/working capital in most of the
undertakings. Thus, it is very essential to have proper control and management of inventories.

The study starts with an introduction to Company, Companys profile, its Vision & Mission,
Achievements and also the need for study, review of literature and objectives are set out for
the study. Research methodology, Data analysis & Interpretation, Findings and Suggestions of
the study follow.

One of the main areas of the project is the analysis part, where the data are analyzed&
interpreted, to find out how the inventories were managed using some inventory controlling

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Organization study and inventory management

techniques like ABC analysis,TrendAnalysis,Economic Order Quantity (EOQ),Inventory


Turnover ratio.

FINDINGS OF THE STUDY

The classification of various components as A, B & C classes using ABC analysis


techniques. From the classification A classes are thoseitems which are less in quantity
i.e. 21.22% but costs about 55.33%. B classes are those which constitutes 31.33% of
total components and costs 32.11%.C classes are those which are about 48% of total
components and costs about 12.56%

The percentage of inventories increases from 2.23 to 27.83 % in the year 2011-
2015.the inventory for the year 2016 is expected to be 34.07% which is again in the
increasing trend, as inventories are treated as current assets. This infers that the
inventory requirement is increasing in the future period also. It shows satisfactory
position of inventories as it implies increasing production & demand for the product.

The inventory turnover ratio from 2011-2013 shows increasing in turnover ratio,
which indicates efficiency in operations and from 2013-2015 its goes on reducing
resulting inefficiency in operation and results into excess inventory.

SUGGESTIONS

The company should avoid over stocking of packing materials as it may result in
obsolescence.
The company should be aware about the various inventory techniques.
They should use optimum amount of investment in inventory.
Awareness of best inventory control to the employee
Use the wrack system in store to avoid more space.
Properly use of the Inventory Techniques i.e ABC, HMT, EOQ ,JIT, Etc....
Use statistical or modern technique in planning / forecasting.
Highly Qualified Manager needs to be managing the Centralized Store .

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Organization study and inventory management

CONCLUSION:

UPT Construction & Machinery Company limited is not meeting the expected sales in the
market and has continued to adopt changes to face competition in the market. The production
adopted at UPT is standard one. The organization provides a good work culture and also
adopted some modern techniques and it has better growth opportunities.
The productions of UPT are standard quality and are accredited with the ISO-9001 quality
certificate. UPT has realized the need of instigating infrastructure facility within the planes to
facility better work environment.

A better inventory management will surely be helpful in solving the problems the company is
facing with respect to inventory and will pave way for reducing the huge investment or
blocking of money in inventory. If they could properly implement and follow the norms and
techniques of inventory management, they can enhance the profit with minimum cost. I wish,
in the coming years, UPT will continue to scale new heights of the success and build much
stronger image in the minds of the customer and promotes goodwill of the company in the
society.

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Organization study and inventory management

1.INTRODUCTION

INDUSTRY PROFILE
The start of organized sector of the Indian machine tool industry took place in early years of
the Second World War. Due to non-availability of imported machine tools, few British owned
general engineering firmstook up their manufacturing in India. This followed the start of
centrally planned economy as reflected in a series of five-year plans. This process of planned
economy resulted in the second phase of Machine Tool Manufacturing with start of Public
Sector Investment in Machine Tools (HMT Ltd.1953). These two initial phases of
development of the Indian machine tool industry saw the production of general purpose
machine tools most of which were produced under technical assistance from foreign
collaborators (Oerlikon, Louden, Ward, Herbert, Jones & Shipman, etc.).
The sixties marked the third phase of machine tool industry, typified by rapid growth in
production and horizontal expansion in types of machine tools (multi spindle automats, gear
cutting machines, SPMs, broaching machines, presses, etc.). The Fourth Phase beginning mid-
eighties saw the advent of the Japanese machine tool makers through licensing arrangements
(Mori-Seiki, Mitsubishi, Hitachi-Seiki, NachiFuji-Koshi, Murata, etc.).
The fifth and current phase began in early nineties after the new policies of Open Market
Economy were introduced, which saw advent of Technocrats. With market share of big
companies, shrinking public sector giants and those of these technocrat owned companies
rising, in-house design capability, entrepreneurial spirit, greater technology friendliness,
operational flexibility and lean managements were combined to give a 6 greater competitive
edge to the technocrats resulting in a significant shift in machine tool production to these
medium-sized companies, away from the bigger ones. Thus, the Indian machine tool industry
has undertaken a long way in the last decade since liberalization and economic reforms were
ushered in. Now, the industry, which had a technology dependent status, boasts of successful
products out of its own R&D efforts. The recent decrease in imports of machine tools was
partly attributed to the growing competitiveness of Indian firms. However, the Indian market
is small and the Indian manufacturers have to build volumes in order to survive at global
markets. This issue is of even greater relevance to a large number of SMEs in the sector where
a large number of enterprises are manufacturing tiny and small component. It was visualized
that in addition to building volumes, the SMEs would also have to upgrade their products and
processes in terms of technology and quality in order to remain competitive at both local and

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Organization study and inventory management

global markets. Thus, the machine tool industry faced the dilemma of whether to remain as
finished product supplier and face competition from large volume players or become sub
-suppliers of components and / orSub-systems to OEMs.
The latent potential of this sector and its inherent strengths lent credence to the belief that the
Indian machine tool industry can become a significant global player and carve a niche for
itself in the high technology sunrise segment of NC/CNC machine tools. However, towards
achieving this status, the industry does need to adopt a visionary approach and aim at a
stretched goal of exponential growth, which must essentially be export-driven.

Core Competency
The Indian machine tool industry manufactures almost the complete range of metal-cutting
and metal-forming machine tools. Customized in nature, the products from India comprise
conventional machine tools as well as computer numerically controlled (CNC) machines.
There are other variants offered by Indian manufacturers too, including special purpose
machines, robotics, handling systems, and TPM-friendly machines. One of the significant
developments in machine tool industry in recent times has been the Computer Numerically
Controlled (CNC) machines. Emergence of CNC machine tools and its dominance over the
last few years in the overall product segment stemmed from its value-added features, such as
enhanced productivity, higher precision, increased reliability, better finishing, and improved
aesthetics and design. Achievement of higher growth and increased share of CNC machines in
the overall output surmises the commitment of Indian machine tool manufacturers to
providing competitive manufacturing solutions, now at cost effective prices. In terms of key
product segments, high growth areas for the Indian machine tool industry include turning
centers, machining centers, grinding machines, and cell manufacturing, amongst others. The
other emerging demand is for total manufacturing solutions, whereby users seek to economies
on manufacturing cost and time.

Challenge

In the Indian context, stagnant demand, declining tariff barriers, pressures on margins,
technology obsolescence have all put Fear in the minds of SMEs, fear of their very survival.
In many SMEs, fear is shrouded within the cloak of Uncertainty about the future. There is
also lack of confidence, mentioned by Schrage, that they cant face the future on their own.

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Organization study and inventory management

Such fear psychosis or uncertainty is maximum in this line of business and therefore
differentiates this sector on the very motivation behind its future progress.
1. Technology Obsolescence: Technology obsolescence in the machine tool business is
extremely rapid. Product lifecycles are declining and currently average life cycle is no more
than 3 years! Thus, in a globalized India, SMEs have been and will continue to face challenges
they have not seen before. In the past, most of the products have been a result of Reverse
Engineering. Unlike the Japanese and Koreans, the Indian manufacturers have not graduated
to the next level of Improving the technology of reverse engineered products. Thus, product
technology obsolescence is a major issue facing the Indian machine tools industry today.
2. Higher Resource Requirement: The restricted availability and the inability to raise
resources are common to all types of small businesses. However, the machine tools sector, by
its very nature, is a high financial outlay driven business. Average product costs are greater,
gestation period of investments longer, time to market higher and a purchasing system
not yet fully matured. This entire means greater, than most other businesses, financial resource
requirement. This, in turn, puts the machine tool SMEs in a particular disadvantage.
3. Vendor Linkages: No other business requires such complex level of vendor Linkages as
the machine tools. For materials, electrical, electronics, hydraulics, pneumatics, metallurgy,
tribology, measurement controls the list of myriad technology linkages is endless. This
requires exceptional networking capabilities and plenty of time to be spent by owner of
accompany/CEO himself.
4. Diversity: The business has also a very large diversity. For example, it encompasses over
200 HS codes! (Harmonization Code System) This further enhances the unique complexity of
the business, which is more heterogeneous.

CURRENT REALITY OF INDIAN MACHINE TOOL INDUSTRY


The growing competition and technological developments in this sector are having inevitable
effects on the Indian machine tool industry, as a whole. The Indian machine tool is faced with
typical problems in the emerging globalization scenario as under:
1. Innovation is not happening as fast as it should.
2. Domestic market is too small.
3. Information about market is poor.
4. Lack of training including the concept of 5s.[Seiri (Proper Arrangement and Clearing Up),
Seiton (Orderliness), Seiso (Clean Up), Seiketsu (Standardization), Shinseki (Discipline)]

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Organization study and inventory management

5. Lack of professionalism.
6. Manufacturers sell different designs of machine variety is too large.
7. Manufacturers sell machines not solutions.
8. Information sharing is poor.
9. Absence of a Center of Excellence for R&D.
10. Low volume operations and not able to reap benefits of scale.
11. Country is not industrializing at fast pace.
12. Exports are low.
13. After sales service is poor.
14. Poor product design and image.
15. Prices of machines are high compared to China /Province of Taiwan.
16. Small units cannot spend on R&D.
17. Absence of large number of service providers.
18. High cost of consultants.
19. High cost of production.
20. Input costs are high.
21. Small units have uneconomical procurement costs.
22. No formal channels of communication exit.

Despite the current global recession, the Indian machine tool industry hopes to generate
business enquiries worth Rs 6,000 crore at the Indian machine tool exhibition, IMTEX 2009
which was held here from January 22 to 28. The Indian Machine Tool Manufacturers
Association (IMTMA), which is organized this mega event for the second time in Bangalore
and 14th time in all, believes that the economic revival will happen sometime middle of this
year.

The machine tool industry will survive this phase with the government and the industry
taking policy changing decisions and corrective measures with the larger picture of the
industry in focus, N K Dhand, President, IMTMA said. He told that, the machine tool
industry will survive and grow despite a 5 per cent cancellation in orders from the prospective
customers in the automobile and auto components sector. The industry, which had been
growing at an average 30 per cent over the last five years, is likely to remain flat during the
current financial year, he said.

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Organization study and inventory management

The machine tool industry registered a turnover of Rs 7,600 crore in 2014-15, about 22 per
cent over the previous year. Of this, metalworking machine tools is Rs 2,100 crore, accessories
for mac-hine tools is Rs 1,500 crore and the remaining Rs 4,000 crore is from cutting tools and
tooling systems. The industry size including unorganised players could be of the order of Rs
17,000 crore.

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Organization study and inventory management

2.ORGANIZATION STUDY

COMPANY PROFILE

HISTORY OF COMPANY

UPT Industries, it all began back in the year 2006. Today, Company has transformed
themselves from a humble manufacturing unit to a multi dimensional industrial engineering
tool manufacturing conglomerate. The journey has undoubtedly been long and challenging.
But by meeting the needs of burgeoning industrial sector and catering to its every demand,
they have been growing and evolving in new direction.

Their manufacturing prowess covers a wide range of cutting tools and precise engineering
tools. And yet what keeps us surging ahead is the love of new challenges, each of which gives
us a chance to showcase our entrepreneurial spirit and sense of enterprise.

UPT Industries is a leading manufacturer and suppliers of high quality engineering tools. We
have been manufacturing high quality engineering tools since 2006 to over 500 companies.
With more than 22 years of staff experience, an organized setup and huge stocks of inventory,
we can promise the best quality and on-time deliveries.

We are a well reputed company in the national market and every year we try to participate in
all the major trade shows around the country. We follow international standards such as DIN,
GS and ANSI in production.

We specialize in developing items as per customers specifications on exclusive basis. We also


offer private branding. We have complete in-house QC including complete testing laboratory
for hardness testing, dimensional checking, accuracy and torque testing facilities, etc.

Leading India manufacturers, suppliers of engineering tools like vises, boring bars,
boring tools, boring heads, precision tools, tool holders, chucking equipments, clamping
equipments, tapping and threading tools, cutting tools, milling cutters, lathe chucks, magnetic
tools, angle plates, punches, chisels, scribers, diamond dressing tools, hobby tools,
watchmaker tools, lubrication equipments etc.

COMPANY PROFILE
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Organization study and inventory management

Name of the Company United Precision Toolings Pvt.Ltd

Year of Establishment 2006

M.D and Chairman Yashkaran Lully - Chairman.

Jasbinder Singh- M.D

Works and Office Address Opp.4th Cross ,Near GIP Kalyan Nagar Dharwad-

580007 Karnataka-India.

Registered Office Hill View , AttikollaDharwad 580007

Tele - fax 0836- 2748264

Email/ Website Email:- sales@upt.co.in

Website:- www.upt.co.in

Renamed United PrecisionTooltechPvt.Ltd.

Trademark
UPT

Nature of the Activity Its Manufacturing tool holding Like:

Collets, Chuck, Adopters, Fixtures, Micro, Boring head, Air


Chuckles, and Sockets

No. of Employees 50 including Staff

Banker State bank Of Mysore.

Turn Over 2.50 Crore Per year

VISION:

To be World Class machinery inner tools Company with High Quality products and Services.

MISSION:
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Organization study and inventory management

To supply best quality products globally, through continuous improvement of Quality of our
Products and Services.

OBJECTIVES

To achieve good quality production and customer satisfaction.


To maintain mutual beneficial relationship with dealers and other business associates.
To focus on providing on time delivery service at competitive reasonable rate.
To have a good and healthy relationship with employees at the organization.
To acquire large market share, by expanding the business.

PRODUCT PROFILE:

1. BORING HEADS:
UPT boring heads give unparalled high precision in tool rooms and in production jobs.

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(fig 2.1)
Varieties
Boring tools
Boring bars
Cartridges
Shanks
Boring and facing heads

2. CNC TOOLING SYSTEM:

(fig 2.2)

Varieties
HSK
CAT
Milling chuck
TG
Straight shank
Coolant series
DAT
Edge fingers
EOC & pull studs

3. DRILL CHUCK ARBORS:

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Organization study and inventory management

(fig 2.3)

Varieties
Key less drill chucks
Key drill chucks
Drill sleeves
Drill chucks arbors

4. COLLETS:

(fig 2.4)

Varieties
ER COLLET CHUCK SERIES
Multi spindle collets

ORGANIZATION STRUCTURE

Managing Director

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Director
Organization study and inventory management

Finance Marketin
Manager g
Manager

Accounta Sales
nt Engineer
Production
Casher Manager Sales Rep

Turning Milling Heat Grinding


Treatment

Supervisor Superviso Supervisor


r Store

Turners Miller Grinders

Store
keeper Assembly

Helper

SERVICES

Our products with high definition of reliability and durability are the specialty of United
Precision tooling. We can undertake any order of specialized collet manufacturing as per
drawings or sample. We are the leading manufacturer uses good quality raw materials with an

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Organization study and inventory management

approach to satisfy you. Our engineers routinely upgrade the process of product manufacturing
due to the involvement of innovation and research.

The quality assurance

We fulfill all customized demand of our clients using innovative specialization in the
manufacturing processes. Spindles, Fixtures, Collet chucks, Collet sleeves and many more are
processed in a specific engineering that lessens the price of the final output. Using our collets
in the machineries can be a matter of advantage. The products are of accurate size, perfect
finish, accurate in degree. Our collets are available in variety of shapes and sizes. Collets we
manufacture are based on metric sizes and inches.

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Organization study and inventory management

DIFFERENT DEPARTMENTS AND THEIR FUNCTIONS

A. HUMAN RESOURCE DEPARTMENT


B. PRODUCTION DEPARTMENT
C. MARKETING DEPARTMENT
D. FINANCE DEPARTMENT

A. HUMAN RESOURCE DEPARTMENT

OWNER/PROPRIETOR

TECHNICAL DIRECTOR/HR MANAGER

ALL EMPLOYEES

It is the branch of personnel department, time office is the key to the personnel department. It
performs the basic function of the personnel departments it maintains the record of the arrival
& departure time of all the staff members including the managerial staff. the person who looks
after the record of the time office is called time keeper. The company issues a digital ID card
which is used to sign in as well as security purpose of the company with fingerprint scanner
which is later analyzed at the time of paying the salary to the individual. The workers are also
required to sign in the attendance register to avoid manipulation or escaping tricks, later the
data is sent to finance department for allocation of the salary.

B. PRODUCTION DEPARTMENT

TECHINICAL DIRECTOR

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Organization study and inventory management

PRODUCTION MANAGER

SUPERVISOR

OPERATORS

DRILLING TURNING HEAT TREATMENT GRINDING

The main aim of the production department is the optimum utilization of available resources
and to supply the products on time .this dept aims at the attainment of the objective To plan
and meet the production requirements as per customer specification through continual
improvement in planning, procuring, processing and optimum utilization of resource.

C. MARKETING DEPARTMENT

This department manages the sales of the tools as well as the advertisement. It sells the goods
directly to another business and government entities using the brand name UPT.

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Organization study and inventory management

TECHINICAL DIRECTOR

MARKETING MANAGER

SALES ENGINEER

LIST OF SOME CUSTOMERS

LOCAL NATIONAL

Spicer India pvt.ltd HMT machine tools, Blore& Ajmer


RSB transmission India pvt.ltd SKF India ltd, Blore
Telcon, Airtech IFB industries ltd, Goa
Skytech group Finolex cables ltd, Goa
BDK & Micro finish valves Mico, Blore
Wagner trident electrical ltd NRB bearings, Mumbai
Hardrock attachments etc. BHEL,JSW,JSPL etc.

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D. FINANCE DEPARTMENT

This department takes Care of all the normal calculations and maintenance of their ledgers
with the help of accountant and a casher and also takes care all government requirements
which even include pollution, labour, sales & income tax departments etc.

OWNER/PROPRIETOR

FINANCE MANAGER

PRODUCT DESCRIPTIONS TABLE

No Product Range Application

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Organization study and inventory management

1 Collets Gripping size 3mm to Used to hold cutting tools like


60mm chills and mill etc.

2 Collets holder ---------------- Use to hold collets normally


used on milling Machines

3 Reduction Sockets Mt 1 to Mt 2 Use to hold taper Shank


Drills.

4 CNC Toolings ---------------- Used to CNC Milling


machines.

5 Stub Arbors 160 600 Used to hold side and Face


Cutters and face mill Cutters

6 Micro boring Facing Heads 1000 to 12000 Used for finishes forcing of
per drilled holes and also used
for facing.

7 Pneumatics Chucks 160 to 3150 Used to lathe to hold work


pieces by air pressure.

8 Jaw Cell Centering Chucks 1000 to 3500 Used to lathe to hold work
pieces by air pressure.0

Micro Boring Bars 500 to 2000 Used on CNC milling


machines to finish per -
9
drilled hold but individual
sitting of boring range will be
very less as compared to

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Organization study and inventory management

boring heads.

10 Milling Indexing Fixture --------------- Used to hold work Piece and


for index milling of the same.

PRODUCT DESCRIPTIONS

Micro Boring and facing head for boring machine, jig bores, milling machine radial drilling
machines and lathe.
Hardened and ground collets of all size with various rangers.
Air operated and heating treatment processes.
Pneumatics cylinder of various size lever operated collets chucks.
Muting adopters and adjustable adopters.
Jig grinder attachments.
Hardened and ground collets Clare chucks and collets.
Flash chine tool holders.
Auto grip adopters.
Micro boring bars.
Adjustable adopters

SWOT ANALYSIS

A scan of the internal and external environment is an important part of the strategic planning
process. Environmental factors internal to the firm usually can be classified as strengths (S) or
weaknesses (W), and those external to the firm can be classified as opportunities (O) or
threats (T). Such an analysis of the strategic environment is referred to as a SWOT analysis.
The SWOT analysis provides information that is helpful in matching the firm's resources and
capabilities to the competitive environment in which it operates. As such, it is instrumental in
strategy formulation and selection. The following diagram shows how a SWOT analysis fits
into an environmental scan:

SWOT Analysis Framework

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Organization study and inventory management

1.Strengths

A firm's strengths are its resources and capabilities that can be used as a basis for developing a
competitiveadvantage.

22 years experience of staff

Willingness to take challenges

good reputation among customers

cost advantages from proprietary know-how

manufacture import substitute products

special products manufactured with the expertise of in house design and research

2. Weaknesses

The absence of certain strengths may be viewed as a weakness.

lack of patent protection

Inconsistency in accuracy.

a weak brand name & marketing strategies

training and up gradation of staff knowledge

Poor after sales service

lack of access to resources nearby raw materials bought from distant places

company is not in industrial area so less government facilities

3.Opportunities

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Organization study and inventory management

The external environmental analysis may reveal certain new opportunities for profit and
growth. Some examples of such opportunities include

arrival of new SEZ in Belgaum

loosening of regulations

willingness of workers to grow

situated in dharwad workers are available for less wages compared to industrial areas
nearby

there are many industries which are still unaware of the company in Karnataka region
as they concentrate more on large scale industries

4. Threats

Changes in the external environmental also may present threats to the firm. Some examples of
such threats include:

Competition from international players manufacturing in India.

competitors are rising day by day in their business

new manufacturers sell products at lower price to get large orders

new regulations by government

technology improvement reduces the life cycle of the product which is only 3yr now

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3.REVIEW OF LITERATURE

MEANING OF INVENTORY

Inventory generally refers to the materials in stock. It is also called the idle resource of a
company. Inventories represent those items which are either stocked for sale or they are in the
process of manufacturing or they are in the form of materials which are yet to be utilized.

It also refers to the stockpile of the products a firm would sell in future in the normal course of
business operations and the components that make up the product.

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Organization study and inventory management

Inventory is a detailed list of those movable items which are necessary to manufacture a
product and to maintain the equipment and machinery in good working order.

TYPES OF INVENTORIES

A manufacturing firm generally carries the following types of inventories:

Raw Materials.
Bought out parts.
Work-in-process inventory (WIP).
Finished goods inventories.
Maintenance, repair and operating stores.
Tools inventory.
Miscellaneous inventory.
Goods in transit.
Goods for resale.
Scrap Material.

REASONS FOR HOLDING INVENTORY

To stabilize production.
To take advantage of price discounts.
To meet the demand during the replenishment period.
To prevent loss of orders.
To keep pace with changing market condition
The Transaction Motive which facilitates continuous production and timely execution
of sales orders.

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Organization study and inventory management

The Precautionary Motive which necessities the holding of inventories for meeting the
unpredictable changes in demand and supplies of materials.
The Speculative Motive which induces to keep inventories for taking advantage of
price fluctuations, saving in re-ordering costs and quantity discounts etc,.

COSTS ASSOCIATED WITH INVENTORY

Production cost.
Capital cost.
Ordering cost.
Carrying cost.
Shortage cost.

INVENTORY CONTROL

The main objective of inventory control is to achieve maximum efficiency in production &
sales with minimum investment in inventory.

Inventory control is a planned approach of determining what to order, when to order and how
much to order and how much to stock, so that costs associated with buying and storing are
optimal without interrupting production and sales.

BENEFITS OF INVENTORY CONTROL

The benefits of inventory control are:

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Organization study and inventory management

Improvement in customers relationship because of the timely delivery of goods and


services.
Smooth and uninterrupted production and hence, no stock out.
Efficient utilization of working capital.
Economy in purchasing.
Eliminating the possibility of duplicate ordering.

PRINCIPLES OF INVENTORY CONTROL

Inventory is only created by spending money for materials and the labour and overhead
to process the materials.
Inventory is reduced through sales and scrapping.
Accurate sales & production schedule forecasts are essential for efficient purchasing,
handing & investment in inventory.
Management policies which are designed to effectively balance size and variety of
inventory with cost of carrying that inventory are the greatest factor in determining
inventory investment.
Forecasts help determine when to order materials. Controlling inventory is
accomplished through scheduling production.
Records do not produce control.
Control is comparative & relative, not absolute. It is exercised through people with
varying experiences and judgment rules & procedures establish a base from which the
individuals can make evaluation and decision.
With the consistent practices being followed, inventory control can become predictable
and properly related to production and sales activity.

Types of inventory management :


Inventory Management deals essentially with balancing the inventory levels. Inventory
is categorized into two types based on the demand pattern, which creates the need for
inventory.

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Organization study and inventory management

Independent Demand:
When the demand for such an item is not dependent upon the demand for An
inventory of an item is said to be falling into the category of independent
demand another item.
Finished goods Items, which are ordered by External Customers or
manufactured for stock and sale, are called independent demand items.
Independent goods items, which are ordered by External Customers or manufactured
for stock and sale, are called independent demand items.
Dependant Demand:
If the demand for inventory of an item is dependent upon another item, such demands are
categorized as dependant demand.
Raw materials and component inventories are dependent upon the demand for Finished
Goods and hence can be called as Dependentdemand inventories.
While Finished Goods inventories which is characterized by Independent demand, are
managed with sales order process and supply chain management processes and are based
on sales forecasts, the dependentdemand for raw materials and components to manufacture the
finished goods is managed through MRP -Material Resources Planning or ERP - Enterprise
Resource Planning using models such as Just In Time. Kanbanand other concepts. MRP as
well as ERP planning depends upon the sales forecast released for finished goods as the
starting point for further action.

Inventory Costs:
Besides the cost of human resources employed in operations as well as
management.Inventory procurement, storage and management is associated with huge
costs associated with each these function.

Inventory costs are basically categorized into three headings:


1. Order Cost
2. Carrying Cost
3. Shortage or stock out Cost & Cost of Replenishment
a. Cost of Loss, pilferage, shrinkage and obsolescence etc.
b. Cost of Logistics

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c. Sales Discounts, Volume discounts and related costs.

1. Order Cost:
Cost of procurement and inbound logistics costs form a part of Ordering Cost
is dependent and varies based on two factors. The cost of ordering excess and
the Cost of ordering too less.

2. Carrying Cost
Inventory storage and maintenance involves various types of costs namely:
a. Inventor y Storage Cost
b. Cost of Capital
Inventory carrying involves Inventory storage and management either using in
house facilities or external warehouses owned and managed by third party
vendors. In cases, inventory management and process involves extensive use of
Building. Material Handling Equipments, IT Software applications and
Hardware Equipmentscoupled . Managed by Operations and Management Staff
resources.

a.Inventory Storage Cost:


Inventory storage costs typically include Cost of Building Rental and facility
maintenance and related costs. Cost of Material Handling Equipments, IT
Hardware and applications, including cost of purchase, depreciation or rental or
lease as the case may be. Further costs include operational costs, consumables,
communication costs and utilities,

b. Cost of Capital:
Includes the costs of investments, interest on working capital, taxes on inventory
paid, insurance costs and other costs associate with legal liabilities.

The inventory storage costs as well as cost of capital are dependent upon and
varies with the decision of the management to manage inventory in house or
through outsourced vendcrs and third party service providers

Inventory Management Systems:

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Modern days inventory is managed by ERP System, MM modules are deployed which
work in tandem with procurement and other modules. Inventory modules contain
intelligent applications that manage the inventory, help in analysis, categorization and to a
large extent initiate actions and processes based on auto; flouts derived from other
sources.

ERP systems do contain WMS modules, which can be deployed along with the
inventory module to manage the warehouse operations. Basic inventory modules in
ERP do contain location management of inventory but do not support warehousing
operations in detail. WMS System applications are designed to work like an
extension of the inventory system but are stand alone applications that help in
warehousing, control, direct and manage inventory and operations.

In fact a robust system suite comprising of ERP and WMS with interfaces built in
between the two systems can play a major role in managing inventory efficiencies.

Both the systems need to be robust, strong and built to suit the business operations
requirement as well as logistics operations requirements. While the inventory
management efficiencies depend upon the ERP functioning and features, the inventory
operations management is heavily dependent upon WMS System.

WMS system is different from an ERP based inventory system in the sense that
WMS manages inventory but manages inventory operations and warehouse
operations. Though it mirrors the inventory that lies in ERP, the rest of the operations
that are carried out through WMS are different and operations intensive.

This was further replaced by RF scanners, which work in real time basis. Today most of
the warehouse operations are carried on through RF Scanners, which are like the
extension of the WMS cind are connected to the system on real time basis. The
operators can now download tasks, carry out the tasks and upload confirmation of task
completion into the system through RF scanners. This has not only improved
operations efficiencies and ensure better housekeeping but has greatly improved the
inventory as well as data efficiency.

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Both ERP and WMS systems along with IV technology have helped improve
inventory visibility, accuracy and operations efficiency, resulting in faster operations,
leaner inventory and good warehouse management practices.

Inventory Planning - Basic Concepts:


Every organization that is engaged in production, sale or trading of Products holds
inventory in one or the other form. While production and manufacturing organizations hold
raw material inventories, finished goods and spare parts inventories, trading companies
might hold only finished goods inventories depending upon the business model.

When in case of raw material inventory management function is essentially


Total Carrying Cost
dealing with two major functions. First function deals with inventory planning and the
second being inventory
Annualtracking.
CarryingAsCost
inventory planners, their main job consists in
Annual Ordering Cost
analyzing demand EOQ
and deciding
Model when to order and how much to order new inventories.

Traditional inventory management approach consists of two models namely:


Order Quantity
EOQ - Economic Order Quantity
Continuous Ordering
Periodic Ordering
Minimum Total Annual
1. EOQ: Economic Order Quantity method determines the optimal order quantity
that will minimize the total inventory cost. EOQ is a basic model and further

Cost (S)models developed based on this model include production Quantity Model and
Quantity Discount Model.

2. Continuous Order Model: works on fixed order quantity basis where a trigger for
fixed quantity replenishment is released whenever the inventory level reaches
predetermined safety level and triggers re ordering.

3. Periodic System Model: This model works on the basis of


placing order after a fixed period of time.

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EOQ =

D = Annual Demand
C=Carrying Cost
S = Ordering Cost

In this model, the demand increases for production the inventory gets depleted. When the
inventory drops to a critical point the re order process gets triggered. New order is always
place for fixed quantities. On receipt of the delivery against the order the inventory level
goes up.

Using this model, further data extrapolation is possible to determine other factors like how
many orders are to be placed in a year and what is the time lapse between orders etc.

EOQ for Production Lot:


This model is also used to determine the order size and the production lot for an item to be
produced at one stage of production and stored as work in progress inventory to be supplied
to the next state of production or to the customer.

Inventory Control - Inventory Audits and Cycle Counts

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The inventory always moves through supply, chain and goes through various transactions
at various places. The number of transactions and handling that it goes through from the
point of origin to the point of destination is numerous. Therefore it becomes essential
to control inventory.

Inventory control is exercised through inventory audits and cycle counts. An inventory audit
essentially comprises of auditing the books stocks and transactions and matching physical
stocks with the book stock.

Cycle counts: Cycle count refers to the process of counting inventory items available in
physical locations. Depending upon the nature of inventory, number of transactions and
the value of items, cycle count can be carried on periodically or perpetually.

Daily Cycle Count: Normally where the number of SKUs is very high coupled with high
number of transactions and through put, daily cycle count is initiated, where in a certain
percentage of locations or SKUs are counted on daily basis and physical stock is compared
with system stock.

By the end of the month all of the stocks would have been covered once in cycle count.

Quarterly & Half Yearly Cycle Counts: End of the sales quarter or end of half yearly sales,
finished goods and spare parts are normally covered under inventory audit and a 100% cycle count
is carried out.

Wall to Wall Cycle Count: End of financial year and closing of books entails doing
wall to wall cycle count of all stocks lying in all locations and tallying with books of
account. This is a mandatory audit requirement and until stock figures are reconciled,
certified by auditors and published, New Year books of accounts cannot be started a fresh.

INVENTORY CONTROL TERMINOLOGY

Demand:
It is the number of items required per unit of time. The demand may be either
deterministic or probabilistic in nature.

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Order cycle:
The time period between two successive orders is called order cycle.

Lead time:
The length of time between placing an order and receipts of items is called lead time.

Safety stock:
It is also called buffer stock or minimum stock. It is the stock or inventory needed to
account for delays in materials supply and to account for sudden increase in demand due to
rush orders.

Inventory turnover:
If the company maintains inventories equal to 3 months consumption. It means that
inventory turnover is 4 times a year i.e., the entire inventory is used up and replaced 4
times a year.

INVENTORY COST RELATIONSHIPS

There are two major cost associated with inventory. Procurement cost and carrying cost.
Annual procurement cost varies with the numbers of orders. This implies that the procurement
cost will be high, if the item is procured frequently in small lots. The annual procurement cost
is directly proportional to the quantity in stock. The inventory carrying cost decreases, if the
quantity ordered per order is small. The two costs are diametrically opposite to each other. The
right quantity to be ordered is one that strikes a balance between the two opposition costs. This
quantity is referred to as Economic Order Quantity.

ECONOMIC ORDER QUANTITY

MEANING

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A decision about how much to order has great significance in inventory management. The
quantity to be purchased should neither be small nor big because costs of buying and carrying
materials are very high. Economic order quantity is the size of the lot to be purchased which is
economically viable. This is the quantity of materials which can be purchased at minimum
costs. Generally economic order quantity is the point at which inventory carrying costs are
equal to order costs. In determining economic order quantity it is assumed that cost of
managing inventory is made up solely of two parts i.e., ordering cost and carrying cost. The
cost relationships are shown in below figure.

FORMULA FOR CALCULATING ECONOMIC ORDER QUANTITY (EOQ)

Q= the EOQ order quantity. This is the variable we want to optimize. All the other
Variables are fixed quantities.
D= the annual demand of product in quantity per unit time. This can also be known
as a rate.
S= the product order cost. This is the flat fee charged for making any order and is
Independent of Q.
C=Unit cost.
H= Holding cost per unit as a fraction of product cost.

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SAFETY STOCK

MEANING

The economic order quantity formula is developed based on assumption that the demand is
known and certain and that the lead time is constant and does not vary. In actual practical
situations, there is an uncertainty with respect to the both demand as well as lead time. The
total forecasted demand may be more or less than actual demand and the lead time may vary
from estimated time. In order to minimize the effect of uncertainty due to demand and the lead
time, a firm maintains safety stock, reserve stocks or buffer stocks.

The safety stock is defined as the additional stock of material to be maintained in order to
meet the unanticipated increase in demand arising out of uncontrollable factors. In simple it
tells about which is used to protect against uncertainties. Because it is difficult to predict the
exact amount of safety stock to be maintained, by using statistical methods and simulation, it
is possible to determine the level of safety stock to be maintained.

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DETERMINATION OF SAFETY STOCK

If the level of safety stock is maintained is high, it locks up the capital and there is a
possibility of risk of obsolescence. On the other hand, if it is low, there is a risk of stock out
because of which there may be stoppage of production. When the variation in lead time is
predominant, the safety stock can be computed as:

Safety Stock = (Maximum Lead time- Normal Lead time) * Demand

SAFETY STOCK

The service level of inventory thus depends upon the level safety stocks. Large the safety
stocks, there is a lesser risk of stock out and, hence, higher service level. Sometimes higher
service levels are not desirable as they result in increase in costs, thus, fixing up a safety stock
level is critical. Using past date regarding the demand and lead time data, reliability of
suppliers and service level desired by management, safety stock can be determined with
accuracy.

ABC ANALYSIS

MEANING
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The inventory of an organization generally consists of thousands of items with varying prices,
usage rate and lead time. It is neither desirable nor possible to pay equal attention of all items.

ABC analysis is a basic analytical tool which enables management to concentrate its efforts
where results will be greater. The concept applied to inventory is called as ABC analysis.

Statistics reveal that just a few items account for bulk of the annual consumption of the
materials. These few items are called A class items which hold the key to business. The other
items known as B & C which are numerous in number but their contribution is less significant.
ABC analysis thus tends to segregate the items into three categories A,B& C on the basis of
their values. The categorization is made to pay right attention and control demanded by items.

ADVANTAGES

This approach helps the manager to exercise selective control & focus his attention
only on a few items.
By exercising strict control on A class items, the materials manager is able to show the
results within a short period of time.
It results in reducer clerical costs, saves time and effort and results in better planning
and control and increased inventory turnover.
ABC analysis, thus, tries to focus and direct the effort based on the merit of the items
and, thus, becomes an effective management control tool.

FEATURES OF ABC ANALYSIS

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A Class (High Value) B Class (Moderate Value) C Class (Low Value)

1. Tight control on Moderate control Less control


stock levels
Medium Large
2. Low safety stock
3. Ordered Less frequently Bulk ordering
frequently
4. Individual posting
Individual
in stores Collective posting
5. Weekly control Monthly control
Quarterly control
reports
6. Continuous effort
to reduce lead Moderate efforts
Minimum efforts
time

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FSN ANALYSIS

All the items in the inventory are not required at the same frequency. Some are required
regularly, some occasionally and some very rarely. FSN analysis classifies items into fast
moving, slow moving, non moving items.

INVENTORY TURNOVER RATIO

Kohler defines inventory turnover as a ratio which measures the number of times a firms
average inventory is sold during a year. A higher turnover rate indicates that the material in
question is a fast moving one. A low turnover rate, on the other hand, indicates over-
investment and locking up of working capital on undesirable items.

Inventory turnover ratio may be calculated in different ways by changing the numerator, but
keeping the same denominator. For instance, the numerator may be materials consumed, cost
of goods sold or net sales. Based on any one of these, the ratio differs from industry to
industry.

Stock turnover is measured in terms of the ratio of the value of materials consumed to the
average inventory during the period. the ratio indicates the number of times the average
inventory is consumed and replenished. By diving no. of days in a year by turnover ratio, the
number of days for which the average inventory is held, can be ascertained.

Comparing the no. days in the case of two different materials, it is possible to know which is
fast moving & which is slow moving. On that basis, attempt may be made to reduce the
amount of capital locked up, and prevent over-stocking of slow moving items.

Net sales
Inventory turnover ratio=
Avg .inventory

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4. RESEARCH AND DESIGN

Objectives of the study


o To have knowledge about the various techniques involved in inventory management.
o To understand and evaluate the inventory management procedures of UPT Pvt. Ltd.
o To bring balance between theory and practice.
o To give practical touch to the theory aspect which have studied in class room.
o To suggest if any suggestion to present inventory management methods.

Methodology of study
The study was conducted at UPT Pvt. Ltd. To proceed with the topic Inventory
management. The method was followed through interaction with the material manager
concerned executives and from records.

o The primary data is collected through discussion and interaction


o The secondary data is collected from records and through various websites.
o Duration of study : 6 weeks

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5. ANALYSIS & INTREPRETATION

ABC ANALYSIS

MEANING

The ABC system is a widely used classification technique to identify various items of
inventory for purposes of inventory control. On the basis of unit cost involved, the various
items are classified into 3 categories:

(1) A, consisting of items with the large investment,


(2) C, with relatively small investments but fairly large number of items and
(3) B, which stands mid-way between category A & C.

Category A needs the most rigorous control, C requires minimum attention and B
deserves less attention than A but more than C.
Sl Items Amount(Rs
no Name(OD) ) A B C
180/36 200
16 180/364 216873.6 4 D2 70
EN
10 100 86659.2 100 190 8100
8 90 84611.1 90 105 150
EN
193
5 65 83880 65 2 80
19 200 D2 64462 50 160
17 190 52128 127 36
13 105 49091.58 200
11 EN 1932 38110 45
4 50 37529.8 40
12 127 32752.2
6 70 17151.8
9 EN 8100 16707.6
14 150 15116.4
7 80 12392.4
15 160 11724.9
1 Kousali
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18 200 9768
3 45 6885
2 40 6334.2
Organization study and inventory management

Items Amount(Rs) Percentage(%) Percentage(%) Classification

4 4,7
2,025.8 21.10 55.33 A

6 2,74,072.58 B
31.57 32.11

9 1,07,187.78 C
47.36 12.56

19 8,53,286.16
100 100

ABC Analysis
100

80

60 Amount%

40

20

0
0.5 1 1.5 2 2.5 3 3.5

(Chart 5.1)

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The above table shows the classification of various components as A, B & C classes using
ABC analysis techniques. From the classification A classes are those items which are less in
quantity i,e 21.22% but costs about 55.33%. B classes are those which constitutes 31.33%
of total components and costs 32.11%.C classes are those which are about 48% of total
components and costs about 12.56%

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TREND ANALYSIS

MEANING

Regression means dependence and involves estimating the values of a dependent


variable Y, from an independent variable X.
Y = a + bx

Where a= y b x b = xy n x y
x2- nx2

CALCULATION OF INVENTORY TREND

Inventories
YEAR (Rs.) X X2 XY
(x) Y X=x-2013 (Rs)
2011 1,44,290 -2 4
-2,88,580
2012 3,62,150 -1 1 -3,62,150
2013 7,32,790 0 0 0
2014 14,17,931 1 1 14,17,931
2015 17,95,116 2 4 35,90,232

TOTAL() 44,52,277 0 10 43,57,433

x = x/n = 0/5 = 0

y = y/n =44,52,277/5 = 8,90,455.4

b = xy n x y = 43, 57,433- 5 * 0 = 4,35,743.3


x2- nx2

a = y b x = 8,90,455.4 4,35,743.3* 0 = 8,90,455.4


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Organization study and inventory management

y = a + bx
= 8,90,455.4+4,35,743.3x

The forecast of inventory for the year 2016 is computed by substituting x = 2016 in the above
equation.
=8,90,455.4+4,35,743.3 x
=8,90,455.4+4,35,743.3(x-2013)
=8,90,455.4+4,35,743.3 (2016-2013)
=8,90,455.4+4,35,743.3 (3)
=21,97,685.3

Therefore inventory for the year 2016 will be approximately Rs. 21, 97,685.3

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INVENTORIES PERCENTAGE

Years Inventories Percentage


2011 1,44,290 2.23
2012 3,62,150 5.61
2013 7,32,790 11.36
2014 14,17,931 18.98
2015 17,95,116 27.83
2016 21,97,685 34.07

TOTAL 64,49,962 100

Percentage
120

100

80
Percentage
60

40

20

0
2011 2012 2013 2014 2015 2016 TOTAL

(Chart 5.2)

ANALYSIS&INTERPRETATION:

In the above table shows the percentage of inventories increases from 2.23 to 27.83 %
in the year 2011-2015.the inventory for the year 2016 is expected to be 34.07% which is again
in the increasing trend, as inventories are treated as current assets. This infers that the
inventory requirement is increasing in the future period also. It shows satisfactory position of
inventories as it implies increasing production & demand for the product.

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INVENTORIES TURNOVER RATIO

MEANING
This ratio is calculated to consider the adequacy of the quantum of capital and its justification
for investing in inventory. A firm must have reasonable stock in comparison to sales. It is the
ratio of net sales and the average inventory. This ratio helps the financial manager to evaluate
inventory policy. This ratio reveals the number of times finished stock is turned over during a
given a accounting period.

The formula for the ratio is = Netsales

Avg. Inventory

Inventories Turnover Ratio

Calculation of inventory to sales

Inventory to sales

Year Inventory(in rupees) Sales(in rupees) Percentage

2011-12 3,62,150 41,15,662 11.15%

2012-13 7,32,790 1,41,60,614 19.37%

2013-14 14,17,931 1,23,44,200 8.74%

2014-15 17,95,116 1,40,17,146 7.80%

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Percentage
20.00%

15.00%

10.00% Percentage

5.00%

0.00%
2011-12
2012-13
2013-14
2014-15

(Chart 5.3)

ANALYSIS&INTERPRETATION:

In the above table shows inventory turnover ratio for the past years. The ratio from 2011-2013
shows increasing in turnover ratio, which indicates efficiency in operations and from 2013-
2015 its goes on reducing resulting inefficiency in operation and results into excess inventory.

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6. FINDINGS OF THE STUDY

The classification of various components as A, B & C classes using ABC analysis


techniques. From the classification A classes are those items which are less in quantity
i.e. 21.22% but costs about 55.33%. B classes are those which constitutes 31.33% of
total components and costs 32.11%.C classes are those which are about 48% of total
components and costs about 12.56%

The percentage of inventories increases from 2.23 to 27.83 % in the year 2011-
2015.the inventory for the year 2016 is expected to be 34.07% which is again in the
increasing trend, as inventories are treated as current assets. This infers that the
inventory requirement is increasing in the future period also. It shows satisfactory
position of inventories as it implies increasing production & demand for the product.

The inventory turnover ratio from 2011-2013 shows increasing in turnover ratio,
which indicates efficiency in operations and from 2013-2015 its goes on reducing
resulting inefficiency in operation and results into excess inventory.

SUGGESTIONS

The company should avoid over stocking of packing materials as it may result in
obsolescence.
The company should be aware about the various inventory techniques.
They should use optimum amount of investment in inventory.
Awareness of best inventory control to the employee
Use the wrack system in store to avoid more space.
Properly use of the Inventory Techniques i.e ABC, HMT, EOQ ,JIT, Etc....
Use statistical or modern technique in planning / forecasting.
Highly Qualified Manager needs to be managing the Centralized Store .

7. CONCLUSION:
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UPT Construction& Machinery Company limited is not meeting the expected sales in the
market and has continued to adopt changes to face competition in the market. The production
adopted at UPT is standard one. The organization provides a good work culture and also
adopted some modern techniques and it has better growth opportunities.
The productions of UPT are standard quality and are accredited with the ISO-9001 quality
certificate. UPT has realized the need of instigating infrastructure facility within the planes to
facility better work environment.

A better inventory management will surely be helpful in solving the problems the company is
facing with respect to inventory and will pave way for reducing the huge investment or
blocking of money in inventory. If they could properly implement and follow the norms and
techniques of inventory management, they can enhance the profit with minimum cost.I wish,
in the coming years, UPTwill continue to scale new heights of the success and build much
stronger image in the minds of the customer and promotes goodwill of the company in the
society.

BIBLIOGRAPHY

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REFERENCES

Production and Operation Management.


By Aswathappa
5th Edition
Financial Management
By Khan and Jain
5th Edition
Tata Publication
Statistics for management
By Richard Levin
7th Edition
Website:
www.upt.co.in
www.goole.com
www.wikipedia.com

www.inventorymanagementreview.org/inventory_basics/index

http://chandoo.org/wp/2014/10/01/abc-inventory-analysis-using-excel

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