inventory management report on bmtf final

8/3/2019 Inventory Management Report on BMTF Final

1/16

Inventory Management Report on Bangladesh Machine Tools

Factory Limited (BMTF Ltd)_______________________________________________________________________

_

Introduction

1. Inventory is a quantity or store of goods that is held for somepurpose or use. Inventory may be kept "in-house," meaning on thepremises or nearby for immediate use; or it may be held in a distantwarehouse or distribution center for future use. With the exception offirms utilizing just-in-time methods, more often than not, the term"inventory" implies a stored quantity of goods that exceeds what isneeded for the firm to function at the current time (e.g., within thenext few hours). Inventory management, or inventory control, is anattempt to balance inventory needs and requirements with the need tominimize costs resulting from obtaining and holding inventory. There

are several schools of thought that view inventory and its functiondifferently. Reduction of inventories is the main reason that companieshave sought alternative inventory management methods. In amanufacturing company, the use of specific batches of productionleads to the need for specific inventories at any particular point in theproduction process. Cash flow is improved due to less capitalinvestment in inventory. Less inventory on hand leads to savings inother areas as well, such as smaller space requirements, decreasedmaterial handling costs, decreased record keeping costs, decreasedinsurance and tax obligations, and less scrap and obsolescence.Effective Inventory Management thus enables an organization to meet

or exceed customers' expectations of product availability whilemaximizing net profits or minimizing costs.

Objectives of the study2 The main objective of the study is to discus about the Inventorymanagement system of Bangladesh Machine tools Factory Ltd (BMTFLtd), find out the limitations in terms of implantation of the System andfinally draws the Recommendations to implement latest inventorysystem in the organization.

Need for the study

3. Any renowned company must have a good InventoryManagement system and Inventory Control activities. InventoryManagement and Inventory Control system must be designed to meetthe demands of the marketplace and support the company's strategicplan. Due to worldwide Rapid Technological development, manycompanies need to change their Inventory Management approach and

AK M Khabirul Islam (Student no: 0411082003)

Dept of IPE,BUET

1


2/16



_change the process for Inventory Control. As BMTF Ltd is a state ownedorganization, it is also needed to adjust its approach which warrantnecessary study on Inventory Management system.

Methodology

4. To study and prepare a report on Inventory management ofBMTF Ltd needs various data which are collected through directinterview with assistants and telephone interview with DGM Store,DGM Purchase and Manager planning. Effective inventory managementmethods encompass the following:

a. Item classification

b. Demand planning and forecastingc. Reliability of supplier lead timed. Safety stock and min stocke. Optimum quantity to orderf. Overstock reduction methodsg. Performance indicators

Scope of the study

5. Inventory Management is very important for any company. Itenables the business to meet or exceed expectations of the customer

by making the product readily available. Scope of the study onInventory management is a simple concept that is neither too muchstock nor too little stock. Since there can be substantial costs involvedin straying above and below the optimal range, careful inventorymanagement can make a huge difference in the profitability of abusiness. Although the concept is simple, the process of getting theright balance can be quite a complex and time consuming task withoutthe right technology. study is focusing on identifying the existingpresent system, potential of the companys inventory management,room of improvement, potential barriers to implement andrecommendations.

Limitations.

6. For carrying out the study I have encountered several limitationswhich are given below:

a. Study is based on secondary data only. The analysis isbased on figures present in the internal records only.


Dept of IPE,BUET

2


3/16



_

b. Detail study/report about the whole activities andproduction process could not furnish due to limited time.

c. All data included are collected through personal meetingand telephone, all provided data are verbal and there is noeventual prove of this data.

d. Some of the data they did not provide as these wereconfidential as per their policy

e. Though some information have been collected fromwebsite but not sufficient.

Company profile

7. Bangladesh Machine Tools Factory (BMTF) Ltd. is one of thelargest enterprises of its kind in Bangladesh. It is located at Gazipurabout 40 km away from Dhaka. The factory has an area of 247.66acres with a covered area of 60310sq meter. It was commissioned on11th February 1979. It was a state enterprise of Bangladesh Steel andEngineering Corporation (BSEC) up to 14 July 1994, later on BMTFremains as a state owned limited company but it comes under themanagement of Bangladesh Army in theyear of 2000. BMTF is wellequipped with variety of high production machineries and equipments

for various engineering products. It has basic production facilities likecasting, forging, machining, heat and surface treatment etc. It has aunique vehicle assembly plant where jeep/pickup/truck used byBangladesh Armed forces is assembled. It has thirteen largeproduction shops along with administrative building, training school,residential area etc. This factory has enormous prospects to open upnew avenues with products and services for local and foreign markets.Under the management of Bangladesh Army, BMTF is now reshapingitself to respond to the new challenges.Introduction to BMTFs Inventory management

8. Like all other factory inventories of BMTF also have raw

material, under processed materials, semi finished and finished items

though it does not follow the standard classification of Inventory. BMTF

is capable and already produce Manhole cover for WASA, Swing

hanger, SGCI Insert for Bangladesh railway, Earthing rod, pole fittings,

Side/top mount bracket etc for Rural electrification Board(REB)/DESA.


Dept of IPE,BUET

3


4/16



_Production of Fuel browser/water browser, Assembly works of army

Jeep/pickup, truck, mobile workshop vehicle are also done by BMTF.

Besides these there is also maintenance, repair and operational

supplies (MROS) items that are used in production for ensuring theserviceability of the machine but do not become part of the product.It

has main four division namely, Budget-procurement-marketing (BPM)

division, Production-Planning-Control division (PPC), Production division

and finally Quality control and Quality Assurance division. Activities of

various divisions are given below:

a. PPC division is responsible for yearly production planningand control. As mentioned earlier that at present it works only

basing on the work order of customer. PPC div also prepare thetender documents for participate in the various national andinternational tender.

b. Whenever BMTF win a tender then PPC prepare a finalproduction plan consultation with Production department. Itprepare a inventory of raw materials including some semifinished goods which will be require for completing the scheduled jobs. Normally it does not follow any conventional method ormodel for planning, adding some allowance of the material itplan to purchase as require basis. During this stage PPC div take

the market data from purchase BPM div and little market survey.

c. After preparing the inventory of raw material and semifinished good s with financial effect in consultation with BPMdiv forward to Managing Director (MD) for his financial approvalup to a specific limit beyond the limit MD has to forward to theboard of directors for chairmans approval.

d. After the MD/Chairmans approval BPM div start working,the release the Budget as per the priority set by the PPC, theypurchase the raw material and semi finished goods as per PPR-

2003 consultation with the respective production shop.

e. BPM div purchase the stores in the form of raw materialsand semi finished goods then Central store hose include in itsinventory and prepare material received requisition (MRR) forissuing into the respective shop for productions.


Dept of IPE,BUET

4


5/16



_f. While PPC is preparing the inventory of raw material andsemi finished goods with financial effect in consultation withBPM div they also prepare the maintenance and repair materials

inventory and select the actual process for production.

g. Finally Production div receive the stores from the Centralstore house and start manufacturing as per the specification anddrawing, during the various stage of process they use semifinished goods for getting the finished goods.

h. After completing the production intimate the store, Qualitycontrol div as well as BPM div about the completion of the job.

i. Finally production shop prepare Scrap return memo(SRM)

and intimate to Central store house in turn central store houseintimate to BPM for annual stock balance and prepare the annualbalance sheet of the factory.

ABC analysis

9. Based on Paretos classification all inventory items arecategorize into three groups such as:

a. Class A items are those, about 5-10% of the items accountfor about 50% or more of the dollar usage. Class A items should

receive the most expert attention

b. Class B items are those, about 50% or more of the itemsaccount for most of the remaining 50% of the dollar usage. ClassB items have significant usage and number of skus; they can bemanaged with computer software; with personalized interventionusing exception rules

c. Class C about 40% of the items account for small % of thedollar usage. Class C items must be managed with the simplestdecision systems, with minimal managerial attention.


Dept of IPE,BUET

5


6/16



_

ABC Classification Graph-1

ABC Classification Graph-2

ABC Analysis is a basic analytical management tool which enables topmanagement to place the effort where the result will be greatest. Thistechnique, popularly known as always better control or thealphabetical approach, has universal applications in many areas ofmanaging the inventory. The technique tries to analyze the distribution


Dept of IPE,BUET

6


7/16



_of any characteristic by money value of importance in order todetermine its priority. From the above description and different graphsit seems that A items are a relatively small number of items that

generate a large percent of a companys unit or sales volume andtypically, account for a large percent of the companys inventoryinvestment. B items are the next largest group and the next largestinvestment. C items typically represent a small volume of sales dollarsor volume but the greatest number in terms of number of items. Everyyear BMTF purchase different type of raw material for different project.Following table-1 show the sample raw material requirement for itsManhole cover manufacturing for WASA project in the FY of 2008-2009: Table-2 below classify the items basing on the total % of takausage only and % of items usage is difficult to find out as variousitems are account in various accounting units as all units are assigned

with SKU then easily % of item usage could be find out.

Table-1


Dept of IPE,BUET

Ser No Name of the rawmaterial

A/u Quantity Unit costtaka

Total costtaka

1 Pig IronIngot

Ton 100 30000 3000000

2 Flux kg 100 200 20000

3 Fine Sand Ton 50 15000 7500004 Coarse

sandTon 40 12000 480000

5 Wood Cft 100 2500 250006. Binder Ltr 1500 30 450007 M S Rod ton 2 40000 800008 Molding

itemspcs 10 1600 16000

9 Furnaceitems

pcs 8 4000 32000

7


8/16



_

Table-2

Need for inventory control

10 Successful, well-organized businesses rely heavily on inventorymanagement systems to make certain that adequate inventory levelsare on hand to satisfy their customer demand. The Inventory Controloffers the level of control by serial number tracking, and multi-warehouse support. Inventory Control even features an image librarythat allows you to assign a picture to each sis part. Improved customer

service leads to increased profitability. And, when integrated with theAccounts Receivable and Order Entry modules, Inventory Control cansignificantly boost the customer service levels while operating as thecornerstone of an effective manufacturing or distribution solution. Formore complex project management, Inventory Control can be coupledwith the Job Cost module to help track all inventory-related expensesfor a project. Inventory tracking is enhanced even more when


Dept of IPE,BUET

Items Annualdemand

Indl %

Cumulative%

Unitcosttk

Totalcosttk

Indl%

Cumulative%

Classification

PigIron 100ton 30000 3000000 89.8 A

MSRod

2 Ton 40000

80000 2.3 B

Finesand

50 Ton 15000

75000 2.2 B

Coarssand

40 ton 12000

48000 1.43

C

Binder 1500ltr

30 45000 1.42

C

Furnac

eitems

8 Pcs 4000 32000 1.3 C

Wood 100 cft 2500 25000 1.2 CFlux 100 kg 200 20000 .5 CMoldingitems

10 pcs 1600 16000 .4 C

Total 3341000 8


9/16



_integrated with the Custom Office module, which creates detailedspreadsheets to provide further analysis of inventory performance. TheInventory Control system offers comprehensive reporting capabilities

to keep on at the top of inventory status. It helps to create new orimproved purchasing policies, sales policies, pricing methods, andeven enhanced customer service. For the profitability of the factorythere is no denying fact of inventory control though BMTF at presentare not used to with this controlling system. Following chart showinghow controlling will be effective:

Inventory control Graph-3

Use different forecasting technique

11. Forecasting is a prediction of what will occur in the future. It is anuncertain process that is vital to survival in todays international businessenvironment. Rapid technological advances have given consumers greater

product diversity as well as more information on which they make their productchoices. Managers try to forecast with as much accuracy as possible, but that isbecoming increasingly difficult in todays fast-paced business world. There aretwo types of forecasting methods one Qualitative methods are based on

judgment, opinion, past experience and best guesses. These methods help toprovide reliable guidelines for decision making, but cannot provide totallyaccurate results. Another one, Quantitative methods which are based on


Dept of IPE,BUET

9
http://home.snc.edu/eliotelfner/333/rocks/qual.htmhttp://home.snc.edu/eliotelfner/333/rocks/qual.htm


10/16



_

mathematical methods, time series and regression. Besides these SimpleExponential Smoothing Widely used forecasting technique where newerdata are given more weight than older one .It is applicable both for

Level demand forecasting and trend demand forecasting. DoubleExponential Smoothing used when the demand has an underlyingtrend model. At present BMTF carry out mostly contractual jobs, afterreceiving work order they start work, for this reason there are verylittle scope to use various forecasting technique.

Select best forecasting method

12. Quantitative methods of forecasting are the best method as it

involves calculative figures and which are based on mathematical

methods, time series and regression. But in BMTF no forecasting arepractice normally, Qualitative methods which are based on judgment,

opinion, past experience and best guesses are used rarely.

Apply the different inventory models

13. Demand sometimes behaves in random and irregular ways.Other times it exhibits predictable behavior. There are three maintypes of predictable behavior are :(a) trends, (2) cycles, and(3)seasonal patterns. A trend is a gradual, long-term, upward ordownward movement in demand A seasonal pattern is a repetitive

movement in demand that occurs periodically. Some other model alsocan be applied for finding out the best forecasting price like, Lot for Lotmodel easiest amongst all Simply order the exact amount needed foreach time period Thus inventory holding cost is zero for lot for lot.Periodic Order Quantity rounds up the EOQ expressed in time units andthen order periodically similarly Fixed Order Quantity, Least Unit Costand Part Period Balancing are the important model can be apply also.In BMTF as job is un predictable thats why no particular models isapplied at this time.

Calculate economic order quantity

14. For various project trough out the year, BMTF is buying rawmaterials, from the local as well as international market. One of theprime job of any factory is to determine the optimum or economicorder quantity (or economic lot size). Determining an optimuminventory level involves two types of costs: (a) ordering costs and (b)


Dept of IPE,BUET

10
http://home.snc.edu/eliotelfner/333/rocks/regress.htmhttp://home.snc.edu/eliotelfner/333/rocks/regress.htmhttp://home.snc.edu/eliotelfner/333/rocks/qual.htmhttp://home.snc.edu/eliotelfner/333/rocks/regress.htmhttp://home.snc.edu/eliotelfner/333/rocks/regress.htmhttp://home.snc.edu/eliotelfner/333/rocks/qual.htm


11/16



_carrying costs: The economic order quantity is that inventory level thatminimizes the total of ordering and carrying costs. EOQ = [2(annualusage in unit) (order cost)] 1/2 which has been describe in the following

graph:

EOQ Graph-4

There are many variations on the basic EOQ model. Most useful andcommon variations are given below:

a. Quantity discount logic can be programmed to work inconjunction with the EOQ formula to determine optimum orderquantities. Most systems will require this additionalprogramming.


Dept of IPE,BUET

11


12/16



_b. Additional logic can be programmed to determine maxquantities for items subject to spoilage or to preventobsolescence on items reaching the end of their product life

cycle.

c. When used in manufacturing to determine lot sizes whereproduction runs are very long (weeks or months) and finishedproduct is being released to stock and consumed/sold throughoutthe production run you may need to take into account the ratioof production to consumption to more accurately represent theaverage inventory level.

BMTF normally collect almost all sorts of raw material from the enlistedsupplier and that to as per open tender basis thats why very limited

scope to find out an optimum EOQ.

The re-order level

15. At the beginning of any project BMTF select the contractor forsupplying various raw materials related to the project. If the quantity ismotion time more then raw material may be supplied in 2/3 interval. Asraw material is available initially thats why reorder level are notmaintained as per procedure. The following graph and two formulasare used for the calculation of reorder level or point with or withoutsafety stock:

a. Ordering point or re-order level = Maximum daily or weeklyor monthly usage Lead timea

b. Ordering point or re-order level = Maximum daily or weeklyor monthly usage Lead time + Safety stock


Dept of IPE,BUET

12


13/16



_

Reorder point Graph-5

Safety stock

16. Safety stock (also called buffer stock) is a term used by

logisticians to describe a level of extra stock that is maintained to

mitigate risk ofstock outs (shortfall in raw material or packaging) due

to uncertainties in supply and demand. Adequate safety stock levels

permit business operations to proceed according to their plans Safety

stock is held when there is uncertainty in the demand level or lead

time for the product; it serves as an insurance against stock outs. With

a new product, safety stock can be utilized as a strategic tool until the

company can judge how accurate their forecast is after the first few

years, especially when used with a material requirements planning

worksheet. The less accurate the forecast, the more safety stock is

required. With a material requirements planning (MRP) worksheet a

company can judge how much they will need to produce to meet theirforecasted sales demand without relying on safety stock. However, a

common strategy is to try and reduce the level of safety stock to help

keep inventory costs low once the product demand becomes more

predictable. The amount of safety stock an organization chooses to

keep on hand can dramatically affect their business. Too much safety

stock can result in high holding costs of inventory. In addition, products


Dept of IPE,BUET

13
http://en.wikipedia.org/wiki/Logisticshttp://en.wikipedia.org/wiki/Stockouthttp://en.wikipedia.org/wiki/Lead_timehttp://en.wikipedia.org/wiki/Lead_timehttp://en.wikipedia.org/wiki/Material_requirements_planninghttp://en.wikipedia.org/wiki/Material_requirements_planninghttp://en.wikipedia.org/wiki/Logisticshttp://en.wikipedia.org/wiki/Stockouthttp://en.wikipedia.org/wiki/Lead_timehttp://en.wikipedia.org/wiki/Lead_timehttp://en.wikipedia.org/wiki/Material_requirements_planninghttp://en.wikipedia.org/wiki/Material_requirements_planning


14/16



_which are stored for too long a time can spoil, expire, or break during

the warehousing process. Too little safety stock can result in lost sales

and, thus, a higher rate of customer turnover. As a result, finding the

right balance between too much and too little safety stock is essential.As already mentioned earlier that BMTF collect raw material from its

enlisted contractor and beginning of any project almost all raw

material are made available at the production shop so it is difficult to

find a safety stock for certain items. Following graph explain the

safety stock:

Safety stock Graph-6

Findings

17. BMTF is concentrating on domestic market and every financial

year they achieve a reasonable amount of profit ranging from 4crores to 10 corores Taka, where as yearly turnover rangingfrom 20 crores to 40 crores taka. It has enormous potentialitybut hardly 40% of its capability has been explored sofar.Inventory Management system provides information toefficiently manage the flow of materials, effectively utilizepeople and equipment, coordinate internal activities and


Dept of IPE,BUET

14


15/16



_communicate with customers. Inventory Management does notmake decisions or manage operations; they provide theinformation to managers who make more accurate and timely

decisions to manage their operations. Basing on the existingproduction process and management system, the accumulateddata, personnel interview with the BMTF management andcomparing with the laid down procedure of inventorymanagement following findings can be derived from the abovedescription:

a. At present, BMTF does not classify its rawmaterial/products as per the ABC analysis or any otherrecognizes method.

b. They does not control its inventory as per the procedureand for placing any demand basing on as require basisthey are ordering from the fixed farm.

c. Forecasting method and models are not practice atpresent.

d. Optimum order quantity, reorder point, safety stock etcare not vogue in the organization.

e. Still it has around 60% potentiality underutilized.

Recommendations

18. For more profitability, consistency in production, exposure in thenationaland international market and more remarkable contribution in thenationaleconomy I recommend the following points toimplement:

a. There should be a system where in periodical review (oncein a month or quarterly) of inventory could be carried out so thatthe inventory can be kept under control.

b. There should be strong interdepartmental coordinationbecause scrap of one production shop can be used as rawmaterial of other shop.


Dept of IPE,BUET

15


16/16



_c. Basing on previous record some of the essential rawmaterial can be purchase well before the commencement of thejob, during purchase EOQ, Optimum order quantity, discounted

order quantity, ordering cost, carrying cost, completebackordering, complete lost order, cost of lost order etc shouldbe given due importance.

d. Various types of forecasting methods and inventor modelcan be followed for purchasing raw materials and semi finishedgoods. Proper classification of raw materials also an importantaspect which can be implement immediately.

e. Reorder point ,safety stock, lead time , replenishmentdemand in the various steps of operations can be followed so

that three is no stuck up in production process at the same timeholding cost will be reduced.

Bibliography

Lecture sheets on IPE-6211 By Ms Sudipa,Asst prof,IPE,BUET

Manufacturing Planning and Control System-T E Vollmann

WWW.INVESTOPEDIA.COM

WWW.WISEGEEK.COM

www.mbaguys.net


Dept of IPE,BUET

16
http://www.investopedia.com/http://www.investopedia.com/

inventory management report on bmtf final

Documents