Simon Onowa Owizy (2013)1 had done a study on “Effectiveness of Inventory Management in a

Manufacturing Company” in his study examines the essence of effective inventories control and

management to manufacturing companies with particular emphasis on Ama Greenfield Breweries

plc, and he was discovered that inventory management plays a vital role in the manufacturing

company. A well functional inventory management following the recommendations can bring

about proper management thereby enhancing proper and effective production and it will equally

ensure the effective, efficient and adequate use of materials and resources in the manufacturing

company.

Lawrence Imeokparia (2013)(2) had done a study on “Inventory Management System and

Performance of Food and Beverages Companies in Nigeria”. With the objectives of, the

relationship between inventory control systems and how it affects the success of the company,

the relationship between the financial performance of a company and its inventory control

system, and he found that It has been shown that inventory management approaches from

manufacturing organizations can be improved through highest ranking requirement is customer

satisfaction, and through an example of inventory postponement, there are situations where

inventory is not available and part delivery is delayed and orders cannot be fulfilled on time. In

order to meet these requirements, the high manufacturing organization needs to have more

accurate forecasting, and to strengthen its communication with its customers. In order for the

manufacturing industry to work out how to incorporate inventory postponement and inventory

speculation to incorporate consumer demand and to align this consumer demand with the

organization’s supply chain, the forecasting and planning processes needs to be improved This

“can be achieved, and the supply chain performance metrics (and overall firm performance) will

be maximized if the demand forecasting processes are collaborative, sophisticated, oriented

towards the product life cycle, and developed using non-constrained consumer demand data. The

implication of inventory management approaches is that through inventory postponement,

customers are frequently waiting for stock to fulfill their requirements, and in turn puts added

pressure on to the third party logistics provider who faces these inventory management issues

directly with the customers. The implications of this can be negative feedback and negative

customer relationships, as opposed to positive customer relationships if the inventory

management approach adopted a level of inventory speculation, where forecasting would

increase the inventory and would be more likely be available to fulfill the customer’s

requirements.

Kariuki James Ng’ang’a (2013)(3) the study was “an assessment of the factors influencing

effectiveness of inventory control; Ministry of State for Provincial Administration and Internal

Security; Nairobi”. The key findings from the study revealed that: delays in procurement of

goods, frequent stock outs and uncertain change of prices were some of the effects of long

bureaucratic procurement procedure. According to the study inadequate and untimely dispatch of

funds has an effect in inventory control. The study also revealed that unavailability of

stationeries/stores records, lack of specific time or date for both posting stores records, lack of

adequate qualified and well trained staff hinders effective performance. The researcher

recommends that too much red tape and rigid rules and policies should be avoided; current

inventory control practices and procedure need to be reviewed and redesigned. Only qualified

and adequate personnel should be are involved in stock control while adequate funds should be

dispatched on timely manner. Key

Aarti Deveshwar and Dhawal Modi (2011)(4) had done a study on “Inventory Management

Delivering Profits through Stock Management”, with the objectives of key reasons causing

Inventory losses in an Organization, and he has found that the major reason for the problems are

that Unqualified employees in charge of inventory, the mismanagement of inventory and the

unsystematic way o pricing.

Niranjan Mandal and Dutta Smriti Mahavidyalaya, (2010)(5) in their study makes an attempt

to provide an insight into the conceptual side of working capital and to assess the impact of

working capital management on liquidity, profitability and non-insurable risk of ONGC, a

leading public sector enterprise in India over a year period (i.e. from 1998-99 to 2006-07). It

also makes an endeavor to observe and test the liquidity and profitability position of the

enterprise and to study the correlation between liquidity and profitability as well as between

profitability and risk. They may be concluded that working capital management is very much

useful to ensure better productive capacity, good profitability and sound liquidity of an

enterprise, specifically the PSE in India, for managerial decision making regarding the creation

of sufficient surplus for its growth and survival stability in the present competitive and complex

environment.

Jasmine Kaur (2010)(6) did a study which is concerned with the problems that arise in

attempting to manage the Current Assets, Current Liabilities and the interrelation that exists

between them. This is a two-dimensional study which examined the policy and practices of cash

management, evaluate the principles, procedures and techniques of Investment Management,

Receivable and Payable Management dealt with analyzing the trend of working capital

management and also to suggested an audit program to facilitate proper working capital

management in Indian Tyre Industry. He revealed that there is a standoff between liquidity and

profitability and the selected corporate has been achieving a tradeoff between risk and return.

Efficient management of working Capital and its components have a direct effect on the

profitability levels of tire industry.

Kesseven Padachi (2010) (7) in his study used return on total assets as a measure of profitability

and the relation between working capital management and corporate profitability, which is

investigated for a sample of 58 small manufacturing firms, using panel data analysis for the

period 1998 – 2003. The regression result of his study indicates that high investment in

inventories and receivables is associated with lower profitability. The key variables used in the

analysis are inventories days, accounts receivables days, accounts payable days and cash

conversion cycle. His study also reveals significant relationship between working capital

management and profitability has been found in previous empirical work. An analysis of the

liquidity, profitability and operational efficiency of the five industries shows significant changes

and how best practices in the paper industry have contributed to performance. The findings also

reveal an increasing trend in the short-term component of working capital financing.

Andrew Blather wick (2010)(8) in his article stresses the balancing stock inventories, service

delivery mechanisms and retaining requisite profit margin while ensuring customer loyalty. He

admits that one of the highest costs is the stock and requires immediate attention in order to

retain the profit margin. He brings out the problems of lack of involvement and consideration of

marketing and sales department in the inventory system management. They do not give enough

information and feedback regarding the theme or strategy for the inventory department to

prepare for the seasoned promotion. This results in poor customer service, as the customers

cannot get the products they required. He mentions that good inventory management is the

management of inventory to optimize services and profit and required a sophisticated modeling

technique to determine what is the best economic order quantity and the appropriate service

level. The limitation of the literature is that it does not specify how to determine the quantity of

stock and the service level required in order to attain the required profit.

B.J. Grablowsky, (2005) (9) in his paper “Financial management of inventory” surveyed small

business inventory management practices and compared with techniques commonly employed

by large corporations. It appears that smaller firms rely on simple controls. Large businesses

rely more on quantitative techniques, such as EOQ and linear programming, to provide

additional information for decision-making, while small firms are more likely to use

management judgment without the quantitative back-up. Of those small firms which did not use

quantitative methods for determining inventory order and stock levels, the most common

qualitative methods were "past experience" and "executive judgment,".

Vikram Tiwari, SrinageshGavirneni, (2005) (10) in their article “Recoupling Inventory Control

Research and Practice: Guidelines for Achieving Synergy” focused on the widening disconnect

between inventory-control research and practice, people debate the value of incremental theory

building. While practitioners make decisions in a complex and uncoordinated environment,

researchers often adopt a simplistic environment for the sake of rigorous analysis. The

stakeholders‟ mismatched objectives and motivations may cause this lack of synergy.

Controlling and reducing this disconnect would benefit both practitioners and researchers. The

existing empirical analysis of companies‟ business improvements based on academic inventory-

management theories is inconclusive. Even so, some businesses have successfully implemented

inventory theory; however, in most cases, they have greatly modified the inventory models

developed by academics.

Gulsen Aydin Keskin and Coskun Ozkan(2005)(11) in their article “Multiple criteria ABC

analysis with FCM clustering” found a multiple criteria ABC analysis with FCM clustering. The

number of stock keeping units (SKUs) possessed by organizations can easily reach quite a few.

An inventory management policy for each individual SKU is not economical to design. ABC

analysis is one of the conventionally used approaches to classify SKUs. In the classical method,

the SKUs are ranked with respect to the descending order of the annual dollar usage, which is the

product of unit price and annual demand. the few of the SKUs that have the highest annual dollar

usage are in group A and should be taken into account mostly; the SKUs with the least annual

dollar usage are in group C and should be taken into account least; the remaining SKUs are in

group B. In this study, we proposed fuzzy c-means (FCM) clustering to a multicriteria ABC

analysis problem to help managers to make better decision under fuzzy circumstances. The

obtained results show that the FCM is a quite simple and an easily adaptable method to inventory

management.

S. M. Disney and D. R. Towill (2003)(12) in their research “The effect of vendor managed

inventory (VMI) dynamics on the Bullwhip Effect in supply chain” compares the expected

performance of a vendor managed inventory (VMI) supply chain with a traditional “serially

linked” supply chain. The emphasis of this investigation is the impact these two alternative

structures have on the “Bullwhip Effect” generated in the supply chain. We pay particular

attention to the manufacturer's production ordering activities via a simulation model based on

difference equations. VMI is thereby shown to be significantly better at responding to volatile

changes in demand such as those due to discounted ordering or price variations. Inventory

recovery as measured by the integral of time absolute error performance metric is also

substantially improved via VMI. Noise bandwidth, that is a measure of capacity requirements, is

then used to estimate the order rate variance in response to random customer demand. Finally,

the paper simulates the VMI and traditional supply chain response to a representative retail sales

pattern. The results are in accordance with “rich picture” performance predictions made from

deterministic inputs.

Dave Piasecki (2001)(13) in his article he presents an inventory model for calculating optimal

order quantity that used the Economic Order Quantity (EOQ) method. He points out that many

companies are not using the EOQ method due to poor results received resulted from inaccurate

data input. He clarifies that many errors resulted in the calculation of EOQ in the computer

software package are due to the failure of the users in understanding how the data inputs and

system setup that control the output. He says that EOQ is an accounting formula that determines

the point at which the combination of order costs and inventory cost are the least. He highlights

that the EOQ method would not conflict with the Just in Time (JIT) concept. In fact, he explains

that JIT is actually a quality initiative to eliminate wasted steps, wasted material, wasted labor

and other costs; EOQ method is used to determine which components would fit into the JIT

model and what level is economically advantageous for the operation.

Shin, Seungjae; Ennis, Kevin L.; Spurlin, W. Paul (2000)(14) had done a study on “Effect of

Inventory Management Efficiency on Profitability: Current Evidence from the U.S.

Manufacturing Industry"the paper examines financial statement data for U.S. manufacturing firms to

explore the relationship between inventory management efficiency and firm profitability. The results

show that a lower ratio of inventory to sales for a firm is associated with higher profit margin for the firm.

In addition, small size firms can receive a larger benefit (as measured by profitability) from increased

inventory efficiency when compared to medium and large size firms.

Niranjan Mandal and Dutta Smriti Mahavidyalaya, (2000)(15) in their study makes an attempt

to provide an insight into the conceptual side of working capital and to assess the impact of

working capital management on liquidity, profitability and non-insurable risk of ONGC, a

leading public sector enterprise in India over a year period (i.e. from 1998-99 to 2006-07). It

also makes an endeavor to observe and test the liquidity and profitability position of the

enterprise and to study the correlation between liquidity and profitability as well as between

profitability and risk. They may be concluded that working capital management is very much

useful to ensure better productive capacity, good profitability and sound liquidity of an

enterprise, specifically the PSE in India, for managerial decision making regarding the creation

of sufficient surplus for its growth and survival stability in the present competitive and complex

environment.

Fanzine Faze (1999)(16) in his article presents a mathematical model to assist companies in their

decision to switch from the economic order quantity (EOQ) to the Just in Time (JIT) purchasing

policy. He starts by emphasizing the pressure for the companies to change the traditional EOQ

purchasing order to JIT purchasing order. He defines JIT as “to produce and deliver finished

goods just in time to be sold, sub-assemblies just in time to be assembled in goods and purchased

material just in time to be transformed into fabricated parts.” He highlights that the economic

order quantity model focuses on minimizing the inventory costs rather than on minimizing the

inventory. From the mathematic model presented by him, he concludes that JIT can eliminate the

storage, capital, insurance, ordering, and transportation costs. However, it depends on certain

conditions. Under the ideal condition, whereby all the conditions meet, it is economically better

off to choose JIT over EOQ because it results in a simultaneously reduction in purchase price,

holding cost and ordering cost. Nevertheless, in reality the manufacturers produce a large

quantity of items even though they may deliver them in very small quantities to fulfill customers

need. In brief, he explains that JIT will become viable only if the annual demand of inventory

items is lower than the break-even point of the model. The limitation of the literature is that he

only compares the cost saving and the required quantities for choosing the system. However, he

does not compare the turnover and profit resulted from the required quantities.

Peter Wanke (1999)(17) in his study “A Conceptual Framework for Inventory Management:

Focusing On Low- Consumption Items”, evaluates the premise of demand adherence to normal

distribution in inventory management models, showing that this can lead to significant

distortions, mainly to stock control of very low and low consumption items, in an attempt to

illustrate the benefits of adopting probability density functions that are more adequate to product

demand characteristics, in terms of total costs of stocks.

C. Clifford Defee, Brent Williams, Wesley S. Randall, Rodney Thomas, (1999) (18) in their

research paper “An inventory of theory in logistics and SCM research", analyzed the theoretical

categories and presented to explain the type and frequency of theory usage. They concluded that

over 180 specific theories were found within the sampled articles. Theories grouped under the

competitive and microeconomics categories made up over 40 per cent of the theoretical

incidences. This does not imply all articles utilize theory. The research found that theory was

explicitly used in approximately 53 per cent of the sampled articles.

James Healy (1999) (19) in his article he highlights that the distributors carry ten to thirty percent

of additional inventory that is unnecessary. These cause unnecessary carrying cost, loss of

customers, lost sales and lost profit due to sloppy and inefficient inventory management. He

points out that there is a need to set out procedures to control physical inventory, to determine

the true cost of carrying inventory and an accurate running report to measure the turns of

inventory. He suggests an inventory optimization method to overcome the above shortfalls. He

then explains that inventory optimization is a process that let distributors reduce the amount of

inventory they carry while improving service levels, ensuring that the right stock is available

when and where it is needed, increasing turns and reducing lost sale opportunities. He further

points out some misconceptions of inventory management such as the adequacy of the Enterprise

Resource Planning System (ERP) in handling the inventory, the importance of turns in

measuring the success of the inventory system and the confidence on profitability of using the

inventory optimization method. He also points out keys to achieve the inventory optimization

goals. The limitation of this article is that it does not give reasons for the causes of the

unnecessary inventory. It gives a general statement and does not explain in details the reasons

behind any cost and profit.

Pradeep Singh (1999)(20) in his study made an attempt to examine the inventory and working

capital management of Indian Farmers Fertilizer Cooperative Limited (IFFCO) and National

Fertilizer Limited (NFL). He concluded that the overall position of the working capital of IFFCO

and NFL is satisfactory. But there is a need for improvement in inventory in case of IFFCO.

However inventory was not properly utilized and maintained by IFFCO during study period. The

management of NFL must try to properly utilize the inventory and try to maintain the inventory

as per the requirements, so that liquidity will not interrupt.

Q. Feng, G. Gallego (1999) (21) had done a Periodic-Review Inventory Model with three

consecutive delivery modes and forecast updates. This paper is concerned with a periodic-review

inventory system with three consecutive delivery modes (fast, medium, and slow) and demand

forecast updates. At the beginning of each period, the inventory level and demand information

are updated and decisions on how much to order using each of the three delivery modes are

made. It is shown that, there is a base-stock policy for fast and medium modes which is optimal.

Furthermore, the optimal policy for the slow mode may not be a base-stock policy in general.

Pawan Kumar (1996) (22) in his article says that Inventories in are viewed by most of the

business world as a large potential role and not as a measure of wealth as was prevalent in old

days. The inventory stocked in excess of demand may lead to drastic price cuts, so as to be

saleable before it becomes worthless because of obsolescence. The inventory stocked less than

the demand may lead to the business out of the market. There is a constant fear in the minds of

businessmen because of uncertainty in the market situations, whether to stock or not to stock.

With rather tight monetary market, optimization of resources through proper inventory control

becomes one of the major challenges for the material managers in every organization. Widening

gulf between theory and practice has become remarkable phenomena in this age of science and

technology. When the frontiers of knowledge are widening and the theory is developing at fast

rate, the practice is lagging far behind. This is probably true about all branches of knowledge and

especially true for inventory management area. Inventories play essential and pervasive role in

almost every sector.

R.L Ballard (1996)(23) in his article presents how inventory can best be monitored and measured

in the warehouse. He mentions that inventory control is treated as the management function,

whereas the monitoring of stock is regarded as supervisory function. However, he highlights that

the monitoring and measurement process is often overlooked and thus resulted in unreliability of

the data for the decision making of management. He further stresses that the need for rapid and

accurate monitoring and measurement of inventory becomes vital in these competitive business

world. He explains that monitoring and measuring of inventory is not just stock checking, but is

about knowing at all time, everything that needs to be known about the stock to ensure the

effective control of inventory. The whole process should be known rather than just the stock. In

addition, he categorizes the stock information into fixed information, variable information and

derived information in order to describe the properties, status, quantity and location of inventory.

The limitation of the literature is that it doesn’t consider the monitoring and measurement of the

damage, obsolete or stolen inventory. It also fails to explain the cost incurred and profit gain

resulted from the effective monitoring and measuring process.

Donald S. Allen(1995)(24) His study support the anecdotal evidence that inventory management

methods in the United States have changed significantly over the past decade or two, which is

evident in the reduced business inventory-to-sales ratio, driven almost entirely by lower

inventories of work-in-process, and materials and supplies rather than finished goods. The

impact of these changes in inventory management techniques on business cycles is ambiguous.

All other things being equal, inventory management innovations should reduce the probability of

unintended accumulation. But as long as firms overestimate or underestimate future demand,

inventory cycles will persist. And if cutbacks in production are required to reduce inventory then

the resulting reduction in income could result in lower demand and further inventory buildup.

Inventory management innovations are not a panacea for all the business cycles. In the long run

these innovations in Inventory management can contribute to a faster response of production to

changes in demand. It can in turn reduce the boom-bust cycle in the economy.

Richard A. Lancioni& Keith Howard (1978) (25) in their study considers the inventory

management as an extremely important function to any business, the inadequacies in control can

result in serious problems. If inventories are managed in an inefficient manner, it is likely to

result in delays in production, dissatisfied customers, or curtailment of working capital.

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Charles J. Bodenstab (1996)(19) in his article presents an idea of managing the customer’s

inventory for them. He explains that there are many advantages by doing so. First, the

competitors will find it difficult to make any inroads into the relationship between the company

and its customers. Secondly, cost for issuing purchase order can be eliminated, reducing

administrative cost and inventory investment if the system is managed well. However, he admits

that there are problems associated with the above concept. First of all, the customer has to be

large in order to be cost effective. Secondly, a cost effective system to manage the transferring of

sales and ordering information shall be established. Lastly, there should be an efficient inventory

management system that assimilates the customer’s data and order the recommended product to

maintain a high service level. The limitation of this article is that it does not maintain the cost to

manage the customers’ warehouse, as the stocks shall be physically counted to check the stock.

The article also fails to include any increase in profit compared to the normal method.

Ramachandran and Janakiraman (2009) analyzed the relationship between working capital

management efficiency and earnings before interest and tax of the paper industry in India. The

study revealed that cash conversion cycle and inventory days had negative correlation with

earnings before interest and tax, while accounts payable days and accounts receivable days

related positively with earnings before interest and tax. All the above studies provide us a solid

base and give us idea regarding working capital management and its components. They also give

us the results and conclusions of those researches already conducted on the same area for

different countries and environment from different aspects. On basis of these researches done in

different countries, we have developed our own methodology for research.

Koti Reddy and Raghav Baheti (2010) in their study seeks to examine current policies and

practices of working capital management at Saregama India Limited and tries to identify the

strengths and weaknesses of the company; the opportunities it has and the threats it faces. It

contains a detailed analysis of the various factors affecting the working capital requirements of

the company and the impact they have on its profitability. The study concludes by suggesting

solutions to address the concern areas that have been identified. The company is recommended

to focus on digital sales, incentivize cash sales, follow a forecasting model that captures the

tastes and preferences of consumers and strictly implement its credit policy.

Jasmine Kaur (2010) did a study which is concerned with the problems that arise in attempting

to manage the Current Assets, Current Liabilities and the interrelation that exists between them.

This is a two-dimensional study which examined the policy and practices of cash management,

evaluate the principles, procedures and techniques of Investment Management, Receivable and

Payable Management dealt with analyzing the trend of working capital management and also to

suggested an audit program to facilitate proper working capital management in Indian Tyre

Industry. He revealed that there is a standoff between liquidity and profitability and the selected

corporate has been achieving a tradeoff between risk and return. Efficient management of

working Capital and its components have a direct effect on the profitability levels of tyre

industry.

for increasing the industrial growth of a country.

findings of the fixed effect model reveal that average days in inventory and average day’s

receivable both have a significant impact on return on assets.

stable marketing environment. Our research contributes for the opposite situations: with

imperfect or deceiving data.

LIFO

Table No.4.13.a

THE ISSUE OF MATERIAL 2014 APRIL

Date Particulars Quantity Cost/Unit

02 April 2014 Opening Stock 11000 140

04 April 2014 Issued 2000 140

08 April 2014 Issued 2500 140

09 April 2014 Issued 50 140

12 April 2014 Issued 25 140

14 April 2014 Issued 2500 140

16 April 2014 Issued 500 140

17 April 2014 Issued 500 140

19 April 2014 Issued 1000 140

24 April 2014 Issued 1000 140

25 April 2014 Received 10000 140

25 April 2014 Issued 25 140

26 April 2014 Issued 50 140

27 April 2014 Received 10000 146

30 April 2014 Issued 850 140

30 April 2014 Issued 150 144

INTERPRETATION

Based on the above table the company received raw materials in the month the April

2014 in different rate (144-146) and company issued materials to production department at the

rate of 144 and 146 company issued materials to the production department in the month of April

2014 from the previous month the company always maintains FIFO method for the issue of

materials. So no out dated materials are stocked. The always issue new materials to production

department.

Table No. 4.14.a

ISSUE OF MATERIAL MAY 2014

DATE PARTICULARS QUANTITY COST/UNIT

02 MAY2014 OPENING STOCK 11000 140

04 MAY2014 ISSUED 2000 140

08 MAY2014 ISSUED 2500 140

09 MAY2014 ISSUED 50 140

12 MAY2014 ISSUED 25 140

14 MAY2014 ISSUED 2500 140

16 MAY2014 ISSUED 500 140

17 MAY2014 ISSUED 500 140

19 MAY2014 ISSUED 1000 140

24 MAY2014 ISSUED 1000 140

25 MAY2014 RECEIVED 10000 144

25 MAY2014 ISSUED 25 140

26 MAY2014 ISSUED 50 140

27 MAY2014 RECEIVED 10000 146

30 MAY2014 ISSUED 850 140

30 MAY2014 ISSUED 150 144

INTERPRETATION

Based on the above table the company received raw materials in the month the May2014

in different rate (144-146) and company issued materials to production department at the rate of

144 and 146 company issued materials to the production department in the month of May2014

from the previous month the company always maintains FIFO method for the issue of materials.

So no out dated materials are stocked. The always issue new materials to production department.

Table No.4.15.a

ISSUE OF MATERIAL JUNE 2014

Date Particulars Quantity Cost/unit

02 June2014 Opening stock 9850 144

05June2014 Issued 1000 144

08 June2014 Issued 1000 144

09 June2014 Issued 50 144

11June2014 Issued 100 144

13June2014 Issued 1000 144

15June2014 Issued 2500 144

18June2014 Issued 1500 144

20 June2014 Issued 2000 144

22June2014 Issued 700 144

25June2014 Issued 1500 146

30June2014 Issued 1000 146

INTERPRETATION

Based on the above table the company received raw materials in the month the June 2014

in different rate (146-153) and company issued materials to production department at the rate of

146, 150 and 153. Company issued materials to the production department in the month of June

2014, from the previous month the company always maintains FIFO method for the issue of

materials. So no out dated materials are stocked. The always issue new materials to production

department.