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A CASE STUDY ON INVENTORY MANAGEMENT USING SELECTIVE CONTROL TECHNIQUES

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Incorporation of appropriate inventory management system plays an important role in determining the financial health of a manufacturing company. In most of the cases, unjustified inventory of raw materials are kept causing certain loss to the
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  A Case Study on Inventory Management Using Selective ControlTechniques Bivash Mallick  1 , Onkar Nath Dutta 2  and Santanu Das 3*1 Department of Mechanical Enineerin, Malla!hum "nstitute of #echnolo$, Bishnupur,%est Benal, Email&  !'mallick(3)rediffmailcom 2 +etired Senior Deput$ Director of Steel uthorit$ of "ndia -imited, +anchi, and .isitin/acult$, 0al$ani overnment Enineerin ollee, 0al$ani 451236, %est Benal, Email& an7alionkarnath)mailcom 3 Department of Mechanical Enineerin, 0al$ani overnment Enineerin ollee, 0al$ani 451236, %est Benal, Email& sdasme)mailcom* orrespondin author  ABSTRACT "ncorporation of appropriate inventor$ manaement s$stem pla$s an important role indeterminin the financial health of a manufacturin compan$ "n most of the cases,un7ustified inventor$ of ra8 materials are kept causin certain loss to the compan$ 0eepinthe a!ove in mind, in the present 8ork, a task is undertaken to find out relevant items thatneed strinent inventor$ manaement in one manufacturin compan$ #he inventor$ of ra8materials is classified into seven cateories of 8hich four cateories of ra8 materials arefound to cover around 4(9 of the total inventor$Since it is difficult to appl$ proper inventor$ control model for each item separatel$ !ecause of its hue variet$, it is necessar$ to find out fe8 sinificant items usin :Selectiveontrol; method B and /SN anal$ses alon 8ith <=> anal$sis are done #he anal$sissho8s the state of the present inventor$ manaement /ollo8in the desire of themanaement, /< stud$ is also undertaken +iorous indent control and consumptioncontrol are stronl$ recommended for items that has ma?imum financial impact and hihdemand in production shops Keywords:  "nventor$ manaement, Selective control, B anal$sis, /SN anal$sis, <=>anal$sis, /< anal$sis 0  ITR!"UCTI! "nventor$ is vital to an oranisation from financial and operational standpoint @rimaril$,it represents a financial investment for an$ compan$, and secondl$, it is essential for the provision of oods and services to the customer ABarlo8, 14C ppropriate inventor$manaement is ver$ important to an industr$, !ecause of involvement of sinificant costreardin ra8 materials "t 8as reported A%aters, 2((3C and ABose, 2((C that a compan$ ma$fail due to maintenance of un7ustified surplus stocks #herefore, optimiation in inventor$manaement is ver$ important in an oraniation to reulate its financial health ADutta,145C, ADutta, 12C and ABose, 2((C%ithout proper control, inventor$ has a tendenc$ to ro8 !e$ond economic limits, tie upfunds and increase the cost of maintenance or the carr$in cost t the same time, the nonavaila!ilit$ involves the cost of stockouts, reorderin costs and additional transit costs"nventor$ control as an interated approach is thus essential for determinin the time, itemAsCand Fuantit$ to indent, and amount of stock, so that purchasin and storin costs !ecomeminimum 8ithout affectin production, distri!ution, functional effectiveness, etc ADutta,12C, A""MM, 2((Cand AMallick et al, 2((4C Selective Inventory Control  Selective control techniFue is aimed at puttin efforts 8here results are 8orth it AMaeeG Boodman, 14C, AS8arup et al, 2((3C and A""MM, 2((C Different selective controltechniFues are suita!le in different situations "t depends upon the nature of inventoriesmaintained !$ an oraniation "n eneral, selective control can !e !roadl$ divided into eihtt$pes after AS8arup et al, 2((3C and A""MM, 2((C, such asiCB Aalso kno8n as l8a$s Better ontrol or @areto;s -a8C, iiCHM- Ahih, medium, lo8C, iiiC.ED A.ital, Essential, Desira!leC, ivCSDE AScarce, Difficult and Eas$ to o!tainC, vCO-/ Aovernment, Open market, -ocal and /orein sourceC, viC/SN A/ast movin, Slo8 movin, Non movinC, viiCSOS ASeasonal and OffSeasonalC, and viiiC<=> A!ased on the value of the inventor$ storedC "n the present 8ork, B, /SN and <=> anal$ses are used for adoptin suita!le strate$ for inventor$ manaement, and these are outlined in the follo8in after AS8arup et al, 2((3C,A""MM, 2((C and AMallick et al, 2((4C 1  ABC Analysis  There are several methods developed to classify materials. One commonmethod used today is ABC analysis. ABC analysis is a method of classifying items on the basis of their relative importance. Thisclassication can be based on monetary value of items, item criticality tothe running of euipment or facility, variations in lead time, uniueness of the item, etc.  ! 0attan G di, 2((IC %hile stud$in the distri!ution of 8ealth and incomein "tal$, .olfredo @areto o!served that a ver$ lare percentae of the total national income8as concentrated in a small percentae of population He e?pressed statisticall$ thisrelationship as I( percent of the income 8as !ein accounted for !$ 2( percent of population#his I(2( relationship, popularl$ kno8n as :@aretoJs -a8;, is e?tended to carr$ out the Bnal$sis #his techniFue is !ased on the value of consumption, and it 8as applied !$ Henr$Dickie /ord in 161    detailed B anal$sis 8as later presented !$ + Bro8n Banal$sis can !e applied to materials manaement, such as, purchasin, receivin, inspection,store keepin and issue of stores, verification of !ills, inventor$ control, value anal$sis, etc@aretoJs principle identifies the :vital fe8 and trivial man$; !ut in B anal$sis, the vitals aremore sharpened as :; items, and in !et8een :.ital fe8; and :trivial man$;, one morecateor$, JBJ items, are considered AS8arup et al, 2((3C, A""MM, 2((C, AN, 2((4C andAMallick et al, 2((4C "n this anal$sis, cumulative consumption values are converted to cumulative percentaesrespectivel$ , B and  classifications are then done !ased on the cumulative percentaefiures #here is no fi?ed rule for the !reak points to divide the inventories Ho8ever,usuall$ it is found out that not more than 1(9 of total num!er of items account for a!out 4(I(9 of the total consumption value, and those are called JJ t$pe items !out 2(9 of theitem accounts for a!out ne?t 162(9 of the total consumption value, and those are called JBJt$pe items, and the rest lare num!er of items cater for a small percentae of consumptionvalue, and those are called :; t$pe items #he nature of distri!ution of consumption value8ill depend upon the industr$ to 8hich an enterprise !elons #he deree of control 8illdepend upon the manaement polic$Maee G Boodman A14C mentioned that Kinventories of consumer oods 8ill t$picall$sho8 a lesser concentration in the top items than 8ill an inventor$ of industrial itemsL@eterson G Silver A14C stated that nature of industr$ affects the distri!ution of usae valueAsame as consumption valueC usin value curves of industrial and consumer inventor$ Ha? G "  andea A1I5C mentioned that hihl$ technoloical industries tend to have small percentaeof class  items #S Analysis %hen anal$sis is carried out on the !asis of the rate of movement of materials in thestores, or on the !asis of rate of consumption pattern of the components, it is kno8n as thefast movin, slo8 movin and nonmovin A/SNC anal$sis #his anal$sis has !een carried outon the !asis of the rate of movement of ra8 materials in the stores Ahar$, 2((5C and ABose,2((C Movement AdemandC of item durin a period is the !asis of this classification #here is noeneral rule for cateoriin an item as fast movin or slo8 movin, !ut several authors havetheir criteria for cateorisation @eterson G Silver A14C suested that if an item has ademand for more than 1( units durin its lead time it should !e treated as fast movin anddemand less than 1( units durin the lead time should !e treated as slo8 movin itemsopalkrishnan G Sandil$a A1I1C suested that an item 8ith >ero issue durin last 2 $earsshould !e treated as nonmovin, up to 1( issues durin past 2 $ears as slo8 movin andmore than 1( issues, as fast movin items $%& Analysis Due to unscientific orderin practices !ased on individual e?periences, there can !e hueinventor$ of different items onsiderin the value of these items stored, manaement ma$desire to identif$ the items 8hich are important considerin the other decision varia!les likeB and /SN, and also the value of the present stock So, another cateor$ namel$ <=>ma$ !e considered !ased on the value of the inventor$ stored .alues of < items are hih8hile > items have lo8 inventor$ values, and = items are havin moderate inventor$ stocks#his anal$sis, therefore, helps to identif$ those fe8 items 8hich account for the lare amountof mone$ locked up in stock, and, to take steps for their liFuidationreduction AS8arup et al,2((3C and ABose, 2((C #his should !e the temporar$ consideration s and 8hen the presentstock 8ill !e depleted, each time the ne8 <=> matri? should !e formulated ctuall$ to !escientific, one ma$ consider the cost of individual item as a decision varia!le !'(ective "n the present 8ork, authors have adopted selective control techniFues to classif$ relevantitems in a manufacturin industr$ !ased on relative sinificance /or this, B and /SN #  anal$ses alon 8ith <=> anal$sis have !een done to recommend suita!le inventor$manaement measures A CAS) STU"% !# I*)T!R% MAA+)M)T USI+ S),)CTI*) C!TR!,T)C-I.U) #he o!7ective of this stud$ is to identif$ of relevant items for inventor$ manaementusin selective control techniFues #his paper anal$ses the data of one financial $earcFuirin the initial kno8lede on functionin of compan$, the pro!lem is discussed 8ithfe8 toplevel e?ecutives of the oraniation Out of such discussions, stud$ of internalreports, and collection of feed!ack throuh Fuestionnaires, it appears that e?istin inventor$ practices prevalent in the oranisation are inadeFuate "t is found from the oraniational data that in the conte?t of total inventor$, the ra8materials take the lion share #he ra8 materials inventor$ ma$ aain !e su!divided into sevencateories in 8hich four cateories of ra8 materials cover around 4(9 of the total ra8material inventor$ namel$ cateor$1, cateor$2, cateor$3 and cateor$5 "n the presentstud$, all those four cateories of ra8 materials comprisin of numerous items areconsidered ctual name of the items are not !ein mentioned in this stud$ for maintaininthe confidentialit$ of the compan$ !ut code names like +%M1, +%M2 etc are used for thisstud$Month 8ise inventor$ anal$sis is carried out in the follo8in si? 8a$s /irst, month 8isefluctuation of total ra8 material "nventor$ is evaluated and sho8n in /i1 Ne?t, month 8isefluctuation of total inventor$ for four cateories specified for the stud$, sho8n in /i2, is prepared Month 8ise fluctuation of cateor$1, 2, 3 and 5 are prepared, and are sho8n in/i3 throuh /i $
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