Materials constitute the most significant part of current assets of a large majority of companies. On an average, inventories are approximately 60% to 70% of the current assets in any manufacturing company and 30% to 40% in any construction company. Because of the large size of inventories maintained by firms, a considerable amount of funds are required to be committed to them. It is, therefore, imperative to manage inventories efficiently and effectively in order to avoid unnecessary investment. A firm neglecting the management of inventories will be jeopardizing its long run profitability and may fail ultimately. It is possible for a company to reduce its levels of inventories to a considerable degree without any adverse effect on production and sale, by using simple inventory planning and control techniques. The reduction in excessive inventory carries a favorable impact on a company's profitability. Inventory is the stock of the material and work-in –progress in a construction company is work done for the components that make up the project. Inventory is also known as idle resources as long as it is not utilized. An efficient inventory management requires that a company should maintain an optimum level of inventory where inventory costs are the minimum and at the same time there is no stock out which may result in loss of sale or stoppage of work.
[...] The most useful ratios in effective monitoring and control of inventory management are as follows: 1. LIQUIDITY RATION CURRENT RATIO QUICK RATIO INVENTORY TO CURRENT ASSETS RATIO INVENTORY TO NET WORKING CAPITAL RATIO 2. TURNOVER RATIO INVENTORY TURNOVER RATIO TURNOVER OF STOCK OF MATERIAL INVENTORY TURNOVER OF WORK IN PROGRESS INVNETORY 3. AGE ANALYSIS AVERAGAGEOFSTOCKOFMATERIAL INVENTORY AVERAGE AGE OF WORK IN PROGRESS INVENTORY CURRENT RATIO It is a ratio which expresses the relationship between the total current assets to current liabilities. [...]
[...] The difference between the traditional system of inventory management and control and JIT system is that while in the former we have to keep a reasonable amount of safety stock to met the exigencies of extended lead time, or strike in the supplier's industries, etc., in JIT system almost ‘nil' safety stocks are required as the supply chain has been worked out meticulously and the time schedule is adhered to, by all the suppliers religiously. Under JIT concept as the safety stock of all the components comes down to a minimal level , as the minimal level of inventory is required to be carried to avoid the risk of stock outs, the total inventory carrying cost comes down drastically. [...]
[...] LOCALIZED MATERIAL MANAGEMENT: Localization of procurement activities is a very effective and popular method of materials management and inventory control. Japanese manufacturing industry has effectively used this method in JIT and KAMBAN system of material management. Localization supports the entire model of manufacturing system and also local industrialization. Cost of carriage inward is reduced which will have a direct impact on the cost of materials purchased. Cost of communication is another area where considerable savings can be obtained. Keeping in view this points THE COMPAY, has a decentralized purchasing for the local items and which are available locally i.e., where the suppliers are nearby the particular site. [...]
[...] Hence the study should be revised accordingly The company should put efforts to exercise vigilance against imbalances of materials and work-in-progress which tends to limit the utility of stock The company should actively dispose of goods that are surplus, obsolete or unusable The company should have strict adherence to production schedules The company should develop periodical review system to minimize its expenses on the unwanted materials Better coordination among purchase department, production department, marketing department, and finance department will help in achieving greater efficiency in inventory management Company should develop long term relationship with its vendors. [...]
[...] Factors Influencing Inventory Requirements: Nature of business activity Inventory turnover Method of inventory valuation Management ability to predict disruption Nature of arrangement with suppliers Special circumstances Business cycle Management policy Planning and Programming of the work Programming Techniques COST OF HOLDING MATERIALS: Order cost Cost of carrying inventory Cost of tying up of funds Cost of under stocking Cost of overstocking 1.2 Theoretical Background of the study INVENTORY MANGEMENT AND CONTROL INVENTORY MANAGEMENT involves the development of and administration of Policies, systems and procedures, which will minimize the total cost relative to inventory decisions and related functions such as customer service requirements, project scheduling, purchasing and traffic. [...]
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