A STUDY OF INVENTORY PLANNING AND CONTROL TECHNIQUES IN MANUFACTURING SECTOR OF TOYOTA COMPANY

EXECUTIVE SUMMARY

The project report is aimed at reducing the blockage of capital in inventory by planning and
controlling the quantity of items in inventory. Inventories constitute the principal item in the
working capital of the majority of trading and industrial companies. In inventory , we include
raw materials, finished goods , work in progress , supplies and other accessories. To maintain
the continuity in the operations of a business enterprise , a minimum stock of inventory is
required.
However, the physical control of inventory is the operating responsibility of stores
superintendent and financial personnel have nothing to do about it. But the financial control
of these inventories in all lines of activity in which they comprise a substantial part of the
current assets is a frequent problem in the management of working capital. Management of
inventory is designed to regulate the volume of investment in goods on hand, the type of
goods carried in stock to meet the needs of production and sales while at the same time , the
investment in them is to kept at a reasonable level.

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COMPANY PROFILE : TOYOTA

Segments of business

TOYOTA MOTOR CORPORATION is a Japan-based company mainly engaged in the

automobile business and financial business .The Company operates through three business
segments. The Automobile segment is engaged in the design, manufacture and sale of car
products including passenger cars, minivans and trucks, as well as the related parts and
accessories. The Finance segment is involved in the provision of financial services related to
the sale of the Company's products, as well as the leasing of vehicles and equipment. The
Others segment is involved in the design, manufacture and sale of housings, as well as
information and communication business.

Automotive Operations :
Toyota produces and sells passenger cars, minivans and commercial vehicles, such as trucks.
Toyotas subsidiary, Daihatsu Motor Co., Ltd. (Daihatsu), produces and sells mini-vehicles
and compact cars. Hino Motors, Ltd. (Hino), also a subsidiary of Toyota, produces and sells
commercial vehicles, such as trucks and buses. Toyota also manufactures automotive parts,
components and accessories for its own use and for sale to others. Toyotas vehicles can be
classified into two categories: conventional engine vehicles and hybrid vehicles. Toyotas
product line-up includes subcompact and compact cars, mini-vehicles,
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mid-size, luxury, sports and specialty cars, recreational and sport-utility vehicles, pickup
trucks, minivans, trucks and buses. The Companys subcompact and compact cars include the
four-door Corolla sedan. The Yaris, marketed as the Vitz in Japan, is a subcompact car.
Toyota introduced the micro premium car iQ in October 2008. Mini-vehicles are
manufactured and sold by Daihatsu. Daihatsu manufactures mini-vehicles, passenger
vehicles, commercial vehicles and auto parts. Mini-vehicles are passenger cars, vans or trucks
with engine displacements of 660 cubic centimeters or less. Daihatsu sold approximately 601
thousand mini-vehicles and 182 thousand automobiles on a consolidated basis during fiscal
2009. Toyotas mid-size models include the Camry. Camry models include the Camry Solara
sport coupe.
In North America, Europe and Japan, Toyotas luxury line-up consists primarily of vehicles
sold under the Lexus brand name. Lexus models also include luxury sport-utility vehicles
sold in the United States, such as the GX, the RX, the LX, as well as the SC and the IS F. As
of May 31, 2009, the Lexus brand line-up in Japan includes the LS, GS, IS, RX, SC and IS F.
Toyota brands full-size luxury car, the Crown, was remodeled in February 2008, and the
Crown Majesta was remodeled in March 2009. Toyota also sells the Century limousine in
Japan. In Japan and other markets, Toyota sells the Lexus SC two-door sports coupe, and in
the United States the Scion tC, a sport car model targeted to young drivers.
Toyota sells a variety of sport-utility vehicles and pickup trucks. Toyota sport-utility vehicles
available in North America include the Sequoia, the 4Runner, the RAV4, the Highlander, the
FJ Cruiser and the Land Cruiser, and pickup trucks available are the Tacoma and Tundra. The
Tacoma, the Tundra and the Sequoia are manufactured in the United States. Toyotas product
line-up includes trucks (including vans) up to a gross vehicle weight of five tons and microbuses, which are sold in Japan and in overseas markets. Trucks and buses are also
manufactured and sold by Hino, a subsidiary of Toyota. Hinos product line-up includes large
trucks with a gross vehicle weight of over 11 tons, medium trucks with a gross vehicle weight
of between five and 11 tons, and small trucks with a gross vehicle weight of up to five tons.
Financial Services:
Toyota Financial Services Corporation is Toyotas wholly owned subsidiary, which oversees
the management of Toyotas finance companies worldwide and the expansion into new
automobile related product areas. Toyota Motor Credit Corporation is Toyotas principal
financial services subsidiary in the United States. Toyota also provides financial services in
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32 other countries and regions through various financial services subsidiaries, including
Toyota Finance Corporation in Japan, Toyota Credit Canada Inc. in Canada, Toyota Finance
Australia Ltd. in Australia, Toyota Kreditbank GmbH in Germany and Toyota Financial
Services (UK) PLC in the United Kingdom.
Toyota Motor Credit Corporation provides a range of financial services, including retail
financing, retail leasing, wholesale financing and insurance. Toyota Finance Corporation also
provides a range of financial services, including retail financing, retail leasing, credit cards
and housing loans. Toyotas other finance subsidiaries provide retail financing, retail leasing
and wholesale financing. In October 2008, Toyota established Toyota Financial Services
Vietnam in Vietnam. As of March 31, 2009, approximately 63.6% of Toyotas finance
receivables were derived from financing operations in North America, 14.1% from Japan,
11.0% from Europe, 3.8% from Asia and 7.5% from other areas. Approximately 45% of
Toyotas unit sales in the United States included a financing or lease arrangement with
Toyota during fiscal 2009.
Toyota provides insurance services in the United States through Toyota Motor Credit
Corporations wholly owned subsidiary, Toyota Motor Insurance Services, Inc (TMIS) and its
wholly owned insurance company subsidiaries. Their principal activities include marketing,
underwriting and claims administration. TMIS also provides coverage related to vehicle
service agreements and contractual liability agreements through Toyota dealers to customers.
In addition, TMIS also provides coverage and related administrative services to affiliates of
Toyota Motor Credit Corporation. Toyota dealerships in Japan and in other countries and
regions also engage in vehicle insurance sales. As of March 31, 2009, Toyota Finance
Corporation has approximately seven million card holders, of which approximately 43,000
are Lexus credit card holders.
All Other Operations:
Toyota is involved in a number of other non-automotive business activities. Toyota is also
engaged in the manufacture and sale of prefabricated housing. Toyota also operates a
Japanese-language Website, GAZOO.com. Gazoo was established as a membership Internet
service linking Toyota, its national dealer network and Gazoo members, and has provided
information on new and used Toyota automobiles and related services, as well as online
shopping capabilities. Toyota also offers the theft detection service, the vehicle tracking

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service, the operator support service and so on as standard to enhance services, which is
focused to provide safety and security for G-BOOK and G-Link users.
The Company competes with General Motors, Ford, Chrysler, Honda, Nissan, Volkswagen,
Opel, Renault and Peugeot.

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RESEARCH AND DEVELOPMENT

Toyota coordinates and integrates all development phases, from basic research to forwardlooking technology development and product development to ensure that Toyota rapidly and
continuously develops cutting-edge, high-quality, and appealing vehicles.

1. Basic Research: Development theme discovery and research on basic vehicle-related

technology
2. Forward-Looking and Leading-Edge Technology Development : Technological
breakthroughs related to components and systems. Development of leading-edge components
and systems ahead of competitors
3. Product Development: Primary responsibility for new model development.

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SPAN OF THE COMPANY

Organization Structure of Toyota :

Each firm establishes an organization structure that identifies the responsibilities for
employees and relationship among them. Organizational structure is based on span of
control, organizational height and use of line versus staff position. Toyota follows the matrix
organization structure. The Toyota organization structure is designed to support teamwork.
Toyota followed the power of coordinated team structures (Toyota, 2011). The goal of the
Toyota is setting up the ideal organization structure. It helps to clearly understand the purpose
and objectives of the organization by everyone. Toyota divided the jobs and responsibilities
according to the functions, divisions, department, groups etc.

Matrix structure divides authorities of functions and product structures. In the Toyota
structure, Leaders play a key role in the success of the company. The Toyota has few layers of
the span of control of leader at the bottom of organization. Their philosophy is to separate
responsibility to the lower level. This helps for decision making and smooth flow of
information for achieved the objectives. Team leader and group leaders have three basic
responsibilities. These are supporting of operations, promotional of the system and leading
change. The group leaders play a crucial role in the development of the Toyota structure
(Liker & Hoseus, 2008).

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Comparisons of other Organization Structures:

Traditional Organization Structure: In the traditional organization structure,

organization given authorities and responsibilities on top management. There is no
middle management. This system works effectively in the small companies. Toyota
follows the matrix organization structure. It provides the authorities and
responsibilities of the lower level also. In this structure, employees also participated
of organization decisions and given their suggestions also.

Divisional organization structure: In this structure a team focuses on a

single product or services. So that one division will separate to another division.
There is no
coordination between two divisions. Divisions must be well managed otherwise they
are not success. Lower level is not participated in the organization decisions. Toyota
follow the matrix structure, in this structure members of different groups working
together to develop a new product line .

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HISTORY

Toyota Motor Corporation is a Japanese

automotive manufacturer headquartered in

Toyota, Aichi, Japan. In 2013 the multinational corporation consisted of 333,498 employees
worldwide and, as of January 2014, is the fourteenth-largest company in the world by
revenue. Toyota was the largest automobile manufacturer in 2012 (by production). In July of
that year, the company reported the production of its 200-millionth vehicle. Toyota is the
world's first automobile manufacturer to produce more than 10 million vehicles per year. It
did so in 2012 according to OICA,
[4]

and in 2013 according to company data. As of November 2013, Toyota was the largest
listed company in Japan by market capitalization (worth more than twice as much as #2ranked SoftBank) and by revenue.

The company was founded by Kiichiro Toyoda in 1937 as a spinoff from his father's
company Toyota Industries to create automobiles. Three years earlier, in 1934, while still a
department of Toyota Industries, it created its first product, the Type A engine, and, in 1936,
its first passenger car, the Toyota AA. Toyota Motor Corporation produces vehicles under 5
brands, including the Toyota brand, Hino, Lexus, Ranz, and Scion. It also holds a 51.2%
stake in Daihatsu, a 16.66% stake in Fuji Heavy Industries, a 5.9% stake in Isuzu, and a
0.27% stake in Tesla, as well as joint-ventures with two in China (GAC Toyota and Sichuan
FAW Toyota Motor), one in India (Toyota Kirloskar), one in the Czech Republic (TPCA),
along with several "nonautomotive" companies. TMC is part of the Toyota Group, one of the
largest conglomerates in the world
The history of Toyota started in 1933 with the company being a division of Toyoda
Automatic Loom Works devoted to the production of automobiles under the direction of the
founder's son, Kiichiro Toyoda. Kiichiro Toyoda had traveled to Europe and the United States
in 1929 to investigate automobile production and had begun researching gasoline-powered
engines in 1930. Toyoda Automatic Loom Works was encouraged to develop automobile
production by the Japanese government, which needed domestic vehicle production, due to
the war with China.In 1934, the division produced its first Type A Engine, which was used in
the first Model A1 passenger car in May 1935 and the G1 truck in August
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1935. Production of the Model AA passenger car started in 1936. Early vehicles bear a
striking resemblance to the Dodge Power Wagon and Chevrolet, with some parts actually
interchanging with their American originals.

Although the Toyota Group is best known today for its cars, it is still in the textile business
and still makes automatic looms, which are now computerized, and electric sewing machines
which are available worldwide
Toyota Motor Co. was established as an independent and separate company in 1937.
Although the founding family's name was written in the Kanji (rendered as "Toyoda"), the
company name was changed to a similar word in katakana (rendered as "Toyota") because the
latter has 8 strokes which is regarded as a lucky number in East Asian culture. Since Kanji are
essentially Chinese characters, in Chinese speaking markets, the company and its vehicles are
still referred to by the original Kanji name but with Chinese pronunciation.
During the Pacific War (World War II) the company was dedicated to truck[citation needed]
production for the Imperial Japanese Army. Because of severe shortages in Japan, military
trucks were kept as simple as possible. For example, the trucks had only one headlight in the
center of the hood. The war ended shortly before a scheduled Allied bombing run on the
Toyota factories in Aichi
Global presence:
Toyota began to expand in the 1960s with a new research and development facility, a
presence in Thailand was established, the 10 millionth model was produced, a Deming Prize,
and partnerships with Hino Motors and Daihatsu were also established. The first Toyota built
outside Japan was in April 1963, at Melbourne, Australia. From 1963 until 1965, Australia
was Toyota's biggest export market. By the end of the decade, Toyota had established a
worldwide presence, as the company had exported its one-millionth unit. The first Japanese
vehicles to arrive in North America were five Land Cruisers in El Salvador in May 1953. The
first Toyotas sent to Europe were two Toyopet Tiaras sent to Finland for evaluation in June
1962, but no sales followed. The first European importer was Erla Auto Import A/S of
Denmark, who brought in 190 Crowns following a May 1963 agreement to become the
distributor for Denmark, Norway, and Sweden. The Netherlands followed in May 1964, and

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after having established toeholds in countries with little or no indigenous automobile

production other markets followed in 1966. In 1968 Toyota established its first European
CKD assembler, Salvador Caetano I.M.V.T. of Portugal.

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COMPANY STRUCTURE

Toyota Announces New Organizational Structure and Executive Chan

Toyota City, Japan, Mar 6, 2013 - (JCN Newswire) - Toyota Motor Corporation (TMC)
announces that it will implement executive, organizational and personnel changes to further
strengthen its management structure toward realizing the Toyota Global Vision announced in
March 2011.
The new structure is based on a review of the organization's way of working and making
decisions, and is aimed at achieving real competitiveness and realizing sustainable growth.
Executive changes will include partial changes to board members, as well as the appointment
of TMC's first outside board members. In addition, the following changes will be made to
TMC's management structure effective April 1, 2013.
1) Business-unit organization :
To clarify operations and earnings responsibility as well as speed up decision-making,
TMC's automotive business will be split into the following four units so that each unit can
apply the most appropriate business model and aim for steady growth: Lexus International
(Lexus business) - Toyota No. 1 (North America, Europe and Japan) - Toyota No. 2 (China,

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Asia & Middle East, East Asia & Oceania; Africa, Latin America & Caribbean) - Unit Center
(engine, transmission and other "unit"-related operations)
Lexus International will continue its role as Lexus' global headquarters, aiming for the
establishment of Lexus as a global premium brand with Japanese roots. -- Toyota No. 1 and
Toyota No. 2 will have executive vice presidents in charge and will oversee all aspects of
Toyota-brand vehicle development, from planning to production to sales. -- Unit Center will
develop globally competitive "unit" components (including major powertrain components
such as engines and transmissions). The executive vice president in charge will oversee all
operations from component planning and development to production technology and
functions aimed at bringing products to market in a prompt and timely manner.
2) Reorganization of region groups :
To improve products and services for and in growing markets, the Asia and Oceania
Operations Group and the Middle East, Africa and Latin American Operations Group will be
reorganized into the East Asia & Oceania Region, the Asia and Middle East Region, the
Africa Region, and the Latin America & Caribbean Region. These new region groups, in
addition to the existing China Region, North America Region, Europe Region, and Japan
Sales Business Group, will total eight, an increase from the previous six. In addition, as part
of ongoing efforts to increase region head "globalization", as is the case currently in Toyota's
Europe operations, a non-Japanese executive - to be titled "CEO" - will be in charge of the
North America Region, the Africa Region, and the Latin America & Caribbean Region.
3) New divisions not belonging to a group :
To promote the making of ever-better cars over the medium-to-long term, the TNGA
Planning Division will be established and the Product & Business Planning Division will be
reorganized. Both divisions will not belong to a group. The TNGA Planning Division will be
in charge of technology-based medium-to-long term product (vehicle and unit components)
strategy and the Product & Business Planning Division will be in charge of market-based
medium-to-long term product strategy.

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Supported by people around the world, Toyota Motor Corporation (TSE: 7203; NYSE: TM),
has endeavoured since its establishment in 1937 to serve society by creating better products.
As of the end of March 2012, Toyota conducts its business worldwide with 50 overseas
manufacturing companies in 27 countries and regions. Toyota's vehicles are sold in more than
160 countries and regions. For more information, please visit www.toyota-global.com.

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INVENTORY PLANNING AND CONTROL

INTRODUCTION

The process of determining the optimal quantity and timing of inventory for the purpose of
aligning it with sales and production capacity. Inventory planning has a direct impact a
company's cash flow and profit margins especially for smaller businesses that rely upon a
quick turnover of goods or materials.
What do we mean by inventory?
The chapter discusses inventory (we use the word interchangeably with the word stock)
predominantly as accumulations of transformed input resource. In fact, usually as
accumulations of material, parts or products. It does however mention the broader use of the
word inventory or stock to denote the organisations stock of people, machines, and other
assets. You often hear economists talking of a stock of resources in this way. From here on
however we use the word exclusively to mean an accumulation of materials.
Stock is both good and bad
The problem with inventory management is that keeping stock has both advantages and
disadvantages.
The advantages include,

1
Inventory
customers to
quickly
and conveniently
(otherwise
you would
have toallows
make everything
as be
theserved
customer
requested
it).
2
Inventory can be used so a company can buy in bulk, which is usually cheaper.

Inventory allows operations to meet unexpected surges in demand.

Inventory is an insurance if there is an unexpected interruption in supply from

outside the operation or within the operation.

Inventory allows different parts of the operation to be decoupled. This means

that they can operate independently to suit their own constraints and convenience
while
the stock of items between them absorbs short-term differences between supply and
demand. In many ways this is the most significant advantage of inventory.
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The disadvantages of inventory include,

It is expensive. Keeping inventory means the company has to fund the gap
between paying for the stock to be produced and getting revenue in by selling it. This
is known
as working capital. There is also the cost of keeping the stock in warehouses or
containers.

Items can deteriorate while they are being kept. Clearly this is significant for
the food industry whose products have a limited life. However, it is also an issue for
any other
company because stock could be accidentally damaged while it is being stored.
Products can become obsolescent while they are being stored. Fashion may change or
commercial rivals may introduce better products.

Stock is confusing. Large piles of inventory around the place need to be

managed. They need to be counted, looked after and so on.

The objectives of inventory planning and control :

Generally the operations objectives of managing the companys inventories include the
following.

Quality products need to be maintained in as good a condition as possible

while they are being stored. For perishable products this means not storing them for
very
long.

Speed inventories must be in the right place to ensure fast response to

customer requests.

Dependability the right stock must be in the right place at the right time to
satisfy customer demand. There is no point having the wrong products in stock.

Flexibility stock should be managed to allow the operation to be flexible.

For example, that may mean keeping sufficient stock to allow the operations
processes to
switch to producing something else and yet being able to satisfy customers during that
period from existing stock levels.

Cost if possible the total cost of managing stock levels should be minimised

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Stock sometimes has unexpected advantages :

In some organisations stock may increase in value while it is being kept. For example the
two photographs on page 378 give examples of the value-adding characteristic of stock. In
the first one wine is being matured. When it is first harvested the wine is of relatively low
value.
Keeping it in special casks under the right conditions enhances its value considerably.
Similarly the computer monitors illustrated are increasing in value in so much as the ones
which are likely to fail early in their life are being identified. They will therefore not be
shipped to customers and fail in use, which could damage the companys reputation. Another
example is where a company deliberately purchases more stock than it needs because it feels
the availability of the material or the price of the material is likely to change. Of course this is
risky. Many companies have suffered severely by speculative purchasing of this type to avoid
price increases only to see the prices drop.

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NATURE OF INVENTORIES

An inventory is any stock of economic resources that is stored for future use. It is commonly
used to indicate materials, raw materials in progress, finished goods, packing materials,
spares, etc. stocked in order to meet an expected demand or distribution in future. Even
though inventory of materials is an idle resource, in the sense it is not meant for immediate
use, it is almost a necessity to maintain some inventories for the smooth functioning of an
organization.
From the logistics operations point of view, the decision regarding inventory are extremely
crucial. They have a high impact on logistics operations. Inventory decisions are high-risk
because without proper inventory assortment, marketing may find that the sales are lost and
customer satisfaction will decline. Likewise, inventory planning is very crucial for
manufacturing activities as well. Raw material shortages can either shut down a
manufacturing line or it may force modification of production schedules. Again, overstocking
of inventories can also create problems. Overstocks increase cost and reduce the profitability
due 1
to
2

Increased warehousing requirements

Increased working capital requirements

Deterioration in quality of goods

Fear of obsolescence
Increased interest amounts, insurance premiums, taxes etc.

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Types of Inventories:
Several types of inventories are maintained by organizations. Some of the major inventories
are:

Raw materials: Raw materials, required for production of finished products are one of the
basic components of inventory for a manufacture. Shortage of raw materials can cause
production stoppage or change in production Schedule which in turn may result in a shortage
of finished goods. Thus sufficient quantities of raw materials need to be stored to cope with
uncertain situations. However, where shortage of raw materials can disrupt normal
manufacturing operations, excessive inventories can increase inventory carrying costs and
reduce profitability.
Finished Goods: Finished goods are another important part of inventories, especially for the
wholesalers and manufacturers. While holding finished goods inventory, it is important to
have a adequate and not excess stock of inventories as they may incur cost as well as loss if
the excess inventory is not sold out in time.

W.I.P.: Work In Progress (W.I.P.) inventory is often maintained between manufacturing

operations within a plant to avoid production hold ups in case a critical machine or equipment
were to breakdown and also to equalize production flow, since not all manufacturing units
produce at the same rate.
Spare parts: Spare part inventories are mainly held for purpose of coping up with untimely
breakdowns in machinery and facilities. This may form a minor part of the inventory,
however are as necessary as holding raw materials inventory

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OBJECTIVES OF INVENTORY MANAGEMENT

An inventory-control system is the mechanism within a company that is used for efficient
management of the movement and storage of goods and the related flow of information.
Product resellers have access to technology-driven software programs that help optimize
inventory control, which is critical in achieving business success. Getting product to
customers on time and as inexpensively as possible are the main goals of an inventory-control
system.
Avoid Stock-Outs:
Making sure that your customers have access to products when they need or want them is a
key service issue in inventory control. Your system should include a well-outlined
replenishment system, where critical inventory levels at a store result in swift shipments from
your distribution center or directly from a vendor. Given the time and effort put into
promoting products to attract customer interest, you want inventory on hand when they come
to buy.
Avoid Excess Inventory:
Optimized inventory control actually balances a fine line between too much and too little. In
fact, a main reason companies have gone to just-in-time systems and advanced software
solutions is to avoid having excess inventory while trying to meet demand. Carrying too
much inventory in distribution centers or retail stores is costly. It takes up space, employee
time, utility costs and limits floor space for selling. Plus, perishable items or products with
expiration dates must be thrown out if you can't sell them.
Move Goods Efficiently:
Efficiency in inventory means the ability to quickly receive and store products as they come
in and retrieve and ship when they go out. Every extra second spent in these processes adds to
the costs of inventory management. Plus, efficient distribution is a customer satisfaction issue
for trade channel sellers and retailers. Retailers expect suppliers to meet prescribed delivery
timetables, and customers expect customized orders and products to arrive on time.

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Maximize Profit Margins:

Well-managed inventory control is often a key in meeting profit margin objectives. Gross
profit margin is the difference between revenue earned from sales and the costs of goods sold.
Take away fixed costs including buildings, utilities and labor and you get to operating
margin. Investing as little as possible in inventory control while meeting the other objectives
is critical in earning profit and growing your business

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CONTROL OF MATERIALS

An inventory control system is a process for managing and locating objects or materials. In
common usage, the term may also refer to just the software components. Modern inventory
control systems often rely upon barcodes and radio-frequency identification (RFID) tags to
provide automatic identification of inventory objects. In an academic study[1] performed at
Wal-Mart, RFID reduced Out of Stocks by 30 percent for products selling between 0.1 and 15
units a day. Inventory objects could include any kind of physical asset: merchandise,
consumables, fixed assets, circulating tools, library books, or capital equipment. To record an
inventory transaction, the system uses a barcode scanner or RFID reader to automatically
identify the inventory object, and then collects additional information from the operators via
fixed terminals (workstations), or mobile computers.
Applications:

An inventory control system may be used to automate an order fulfillment

process. Such a system contains a list of orders to be received, and then prompts
workers to
pick the necessary items, and provides them with packaging and shipping.

2
3

An inventory system also manages in and outwards material of hardware.

Real-time inventory control systems may use wired, mobile terminals to

record inventory transactions at the moment they occur. A wired LAN transmits the
transaction information to a mobile network.

Physical inventory counting and cycle counting are features of many inventory
control systems which can enhance the organization.

Inventory control is concerned with minimizing the total cost of inventory. In

the U.K. the term often used is stock control.

The1
three main factors in inventory control decision making process are:
The cost of holding the stock (e.g., based on the interest rate).
2
The cost of placing an order (e.g., for row material stocks) or the set-up cost of
production.
3demand.The cost of shortage, i.e., what is lost if the stock is insufficient to meet all

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The third element is the most difficult to measure and is often handled by
establishing a "service level" policy, e. g, certain percentage of demand will be met
from stock
without delay.

The ABC Classification: The ABC classification system is to grouping items according to
annual sales volume, in an attempt to identify the small number of items that will account for
most of the sales volume and that are the most important ones to control for effective
inventory management.
Reorder Point: The inventory level R in which an order is placed where R = D.L, D =
demand rate (demand rate period (day, week, etc), and L = lead time.
Safety Stock: Remaining inventory between the times that an order is placed and when new
stock is received. If there are not enough inventories then a shortage may occur.
Safety stock is a hedge against running out of inventory. It is an extra inventory to take care
on unexpected events. It is often called buffer stock. The absence of inventory is called a
shortage.
Quantity Discount Model Calculation Steps:
1. Compute EOQ for each quantity discount price.
2. Is computed EOQ in the discount range?
3. If not, use lowest cost quantity in the discount range.
4. Compute Total Cost for EOQ or lowest cost quantity in discount range.
5. Select quantity with the lowest Total Cost, including the cost of the items purchased.

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IMPORTANCE OF INVENTORY CONTROL

The benefits or importance of inventory control is listed in following points:

1.Inventory control protects a company from fluctuations in demand of its products.
2.It enables a company to provide better services to its customers.
3.It keeps a smooth flow of raw-materials and aids in continuing production operations.
4.It checks and maintains the right stock and reduces the risk of loss.
5.It helps to minimise administrative workload, manpower requirement and even labour cost.
6.It tries to protect fluctuation in output.
7.It makes effective use of working capital by avoiding over-stocking.
8.It helps to maintain a check on loss of materials due to carelessness or pilferage (stealing).
9.It facilitates cost accounting activities.
10.It avoids duplication in ordering of stock.

The following discussion briefly and lucidly covers all the above-mentioned objectives,
benefits or importance of inventory control.
1. Protects from fluctuations in demand : Many a times, the demand forecast of a product
is not accurate. There is always a small difference between the demand forecast and actual
demand. However, sometimes, there is a big difference between the demand forecast and
actual-demand. So, there are always chances of fluctuations in the demand of a material.
These fluctuations can be adjusted if there are sufficient items in the stock of inventory.
Therefore, proper inventory control protects the company from fluctuations in demand.
2. Better services to customers : If the company maintains a proper inventory of rawmaterials, then it can complete its production in time. So, it can deliver the finished goods to
the customers in time.

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Similarly, if the company has a proper inventory of finished goods, then it can satisfy the
additional demand of the customers. So, inventory control helps the company to deliver
goods at the right time as demanded by the customers. After making timely delivery, the
company can concentrate on giving other services to the customers.
3. Continuity of production operations : Proper inventory control helps to maintain
continuity of production operations. This is because it maintains a smooth flow of raw
materials. So, there are no shortages of raw-materials required for production process.
4. Reduces the risk of loss : Proper inventory control helps to reduce the risk of loss due to
obsolescence (outdated) or deterioration of items. This is because it checks all the items
regularly. Furthermore, it sells all the slow-moving items, in time, at the market prices. It only
maintains the right stock at all times. So, the chances of any item getting outdated is reduced.
5. Minimizes the administrative workload : Proper inventory control helps to minimize the
administrative work load of purchasing, inspection, warehousing, etc. This will reduce the
manpower requirement and will minimize the labour cost too.
6. Protects fluctuation in output : Inventory control tries to reduce the gap between planned
production and actual production. There are cases where the production schedule cannot be
followed because of:

1
2

Sudden breakdown of machines,

Problems in supply of materials,

Sudden labour strikes,

Loss due to failure of power supply, etc.

In such cases, the difference between planned production and actual production can be
bridged by inventories held in stock.
7. Effective use of working capital : Proper inventory control helps to make effective use of
working capital. Inventory control helps in maintaining the right amount of stocks of
materials, components, etc. Over stocking is avoided. Therefore, the working capital will not
be blocked in excess inventory.

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8. Check on loss of materials: Inventory control helps to maintain a check on the loss of
materials due to carelessness or pilferage (stealing). If there is no proper inventory control,
then there are more chances of carelessness and pilferage by the employees, especially in the
store-keeping department.
9. Facilitates cost accounting activities: Inventory control facilitates cost accounting
activities. This is because, inventory control provides a means of allocating materials cost of
products, departments or other operating accounts.
10. Avoids duplication in ordering: Inventory control avoids duplication in ordering of
stock. This is done by maintaining a separate purchase department. This department will do
all the purchasing for the full organisation. No other department is allowed to do purchasing.
So there will not be any duplication in ordering of stock.

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ESSENTIALS OF INVENTORY CONTROL SYSTEM

(1) Classifications and Identification of inventories :

The inventory includes raw materials, semi-finished goods, finished goods and components
etc. of several description. In order to facilitate promtrecording, locating and dealing, each
item of inventory must be assigned a particular code for proper identification and must be
divided and sub-divided in groups. A B C analysis of inventory is very helpful in this regard.
(2) Standardisation and Simplification of Inventories :
In order to control inventories properly, standardization of materials is necessary.
Standardisation refers to the fixation of standards of materials for the use in the production of
finished goods, and sets the specification of components and tools to be used in order to
control the quality of goods manufactured. Simplification of inventories refers to the
elimination of excess types and sizes of types. It leads to reduction in inventories and its
carrying costs.

(3) Adequate Storage Facilities:

Adequate storage facilities are necessary to have the proper control of inventory. It shall
reduce the wastage due to leakage, wear and tear, rust and dust and also reduce the wastage of
martial due to mishandling.
(4) Setting Minimum and Maximum limits :
In order to avoid over and under investment in inventories, minimum and maximum limits
for each item of inventories should be fixed. It also ensures the availability of material during
during production process. While fixing the minimum and maximum points, re-order point
should also be fixed beforehands.

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(5) Fixing Economic Order Quantity:

It is also a basic consideration in inventory control problem as how much quantity of a
particular item should be ordered at a time. In determining the E O Q, the two opposing costs
are to be balanced i.e., ordering costs and carrying costs.
(6) Adequate Inventory Records and Reports :
An efficient inventory control necessitates proper inventory records and reports because
various inventory records contain information to meet the needs of purchasing, production,
sales etc. Any particular information regarding any particular item of inventory may be had
from such records. Such information may be about-quantity in hand, in transit and on plants,
unit cost, EOQ re-ordering points, safety level etc, for each item of inventory. Reports and
statements should be so designed so as to keep the clerical cost of maintaining these records
at a minimum.

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FACTORS AFFECTING STOCK INVESTMENT LEVEL

1. Your investment time frame:

An often seen clich is what we'll refer to as age-based investment risk tolerance. It is
conventional wisdom that a younger investor has a long-term time horizon and can take more
risk. Following this logic, an elderly individual would have low investment risk tolerance.
While this may be true in general, there are certainly a number of other considerations that
come into play. First, we need to consider the investment. Also, when will the capital be
needed? If the time horizon is relatively short, risk tolerance should shift to be more
conservative.
For long-term investments, there is room for more aggressive investing. Be careful, however,
about blindly following conventional wisdom. For example, don't think that just because you
are 65 you must shift everything to conservative investments, such as gilts and low risk
bonds. While this may be appropriate for some, it may not be appropriate for all. With today's
growing life expectancies and advancing medical science, the 65-year-old investor may still
have a 20-year (or more) time horizon.
2. Your risk capital:
Risk capital is money available to invest or trade that will not affect your lifestyle if lost. It
should be defined as liquid capital, or capital that can easily be converted into cash. Available
risk capital and your current net worth should be important considerations when determining
investment risk tolerance. Net worth is simply your assets minus your liabilities. Therefore,
an investor with a high net worth can assume more risk. The smaller the percentage of your
overall net worth the investment or trade makes up, the more aggressive the risk tolerance can
be.
3. Your investment experience:
When it comes to determining your risk tolerance, your level of investing experience must
also be considered. Are you new to investing? Have you been investing for some time? It is
prudent to begin new ventures with some degree of caution, and investing is no different.

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Aim to get some experience under your belt before committing too much capital. Always
remember the old clich and strive for preservation of capital.
4. Your investment objectives :
Your investment objectives must also be considered when calculating how much risk can be
assumed. If you are saving for your retirement, how much risk do you really want to take
with those funds?

5. The actual investment you're considering:

Different investments carry different levels of risk. All investments involve a degree of risk
and returns can never be guaranteed so it is important to choose investments that suit your
circumstances. Below is a table that illustrates a range of investment types and their
associated risks.

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TECHNIQUES IN INVENTORY CONTROL

ECONOMIC ORDER QUANTITY (EOQ)

Economic order quantity (EOQ) is the quantity of a product that should be ordered so as to
minimize the total cost that includes ordering costs and inventory holding costs.
The basic model of EOQ gives the equation to calculate EOQ as follows,

EOQ= ((2* Annual Demand*Co)/Ci )

where,
Co = fixed cost per order or the ordering cost
Ci= Inventory holding cost per unit
This is deduced by differentiating and finding the minima for the equation for the total
annual cost, which comprises of the variable purchase cost, the ordering cost and the
inventory holding cost. But the EOQ does not depend on the purchase cost as it remains
constant for the same annual demand whatever be the order quantity.

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With increasing order quantity, the number of orders to be placed in the year decreases and
thus the ordering cost decreases but at the same time the inventory holding cost goes on
increasing. At the EOQ value, the total cost comprising of both these costs is at its minimum
value.

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VED ANALYSIS

VED Analysis is very useful to categorize items of spare parts and components. In fact, in the
inventory control of spare parts and components it is advisable, for the organization to use a
combination of ABC and VED Analysis. Such control system would be found to be more
effective and meaningful. VED analysis is used mainly for the control of spare parts, where V
stands for vital, E stands for essential and D stands for desirable. Absence of vital spare parts
will immediately affect production, absence of essential spare parts will affect production
after a few hours or so and absence of desirable spare parts will affect production only after a
week or so.

It is the analysis for monitoring and controlling stores and spare parts inventory by
classifying them into three categories, viz, vital, essential and desirable. The mechanics of
VED analysis is similar to that of ABC analysis. Whereas in ABC classification inventories
are classified on the basis of their consumption value and in HML analysis the unit value is
the basis, criticality of inventories is the basis for vital, essential and desirable categorization.

V stands for vital, E for essential, D for desirable. This classification is usually applied
for spare parts to be stocked for maintenance of machines and equipments based on the

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criticality of the spare parts. The stocking policy is based on the criticality of the items. The
vital spare parts are known as capital or insurance spares. The inventory policy is to keep at
least one number of the vital spare irrespective of the long lead-time required for
procurement. Essential spare parts are those whose non-availability may not adversely affect
production. Such spare parts may be available from many sources within the country and the
procurement lead time many not be long. Hence, a low inventory of essential spare parts is
held. The desirable spare parts are those, which, if not available, can be manufactured by the
maintenance department or may be procured from local suppliers and hence no stock is held
usually.

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ABC ANALYSIS

Classification based on Consumption:

Another method of classifying inventory is on the basis of annual consumption value.
Paretos principle can be applied to classify inventories based on consumption value.
Pareto principle : The significant items in a given group normally constitute a small portion
of the total items in a group and the majority of the items in the total will, in aggregate, be of
minor significance.
This way of classification is known as ABC classification.
CLASS A: 10% of total inventories contributing towards 70% of total consumption value.
CLASS B: 20% of total inventories which account for about 20% of total consumption
value.
CLASS
1 C: 70% of total inventories which account for only 10% of total consumption value.
Policy for A items
2
Maximum control
3

Value Analysis

More than one supplier

Control by top executives.

1
6

Policy for B items

Minimum control

Bulk Orders

More items from same supplier

The ABC classification process is an analysis of a range of objects, such as finished products ,items
lying in inventory or customers into three categories. It's a system of categorization, with similarities
to Pareto analysis, and the method usually categorizes inventory into three classes with each class
having a different management control associated : A - outstandingly important; B - of average
importance; C - relatively unimportant as a basis for a control

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scheme. Each category can and sometimes should be handled in a different way, with more
attention being devoted to category A, less to B, and still less to C.

Popularly known as the "80/20" rule ABC concept is applied to inventory management as a
rule-of-thumb. It says that about 80% of the Rupee value, consumption wise, of an inventory
remains in about 20% of the items. This rule , in general , applies well and is frequently used
by inventory managers to put their efforts where greatest benefits , in terms of cost reduction
as well as maintaining a smooth availability of stock, are attained. The ABC concept is
derived from the Pareto's 80/20 rule curve. It is also known as the 80-20 concept. Here,
Rupee / Dollar value of each individual inventory item is calculated on annual consumption
basis.
Thus, applied in the context of inventory, it's a determination of the relative ratios between
the number of items and the currency value of the items purchased / consumed on a repetitive
basis :
1

10-20% of the items ('A' class) account for 70-80% of the consumption

the next 15-25% ('B' class) account for 10-20% of the consumption and

the balance 65-75% ('C' class) account for 5-10% of the consumption

'A' class items are closely monitored because of the value involved (70-80% ).

High value (A), Low value (C) , intermediary value (B)

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20% of the items account for 80% of total inventory consumption value (Qty
consumed X unit rate)

Specific items on which efforts can be concentrated profitably

Provides a sound basis on which to allocate funds and time

A,B & C , all have a purchasing / storage policy - "A", most critically
reviewed , "B" little less while "C" still less with greater results.

Inventory Control Application: The ABC classification system is to grouping items

according to annual issue value, (in terms of money), in an attempt to identify the small
number of items that will account for most of the issue value and that are the most important
ones to control for effective inventory management. The emphasis is on putting effort where
it will have the most effect.
A Items : These Items are seen to be of high Rupee consumption volume. "A" items usually
include 10-20% of all inventory items, and account for 50-60% of the total Rupee
consumption volume.
B Items : "B" items are those that are 30-40% of all inventory items, and account for 30-40%
of the total Rupee consumption volume of the inventory. These are important, but not critical,
and don't pose sourcing difficulties.
C Items : "C" items account for 40-50% of all inventory items, but only 5-10% of the total
Rupee consumption volume. Characteristically, these are standard, low-cost and readily
available items. ABC classifications allow the inventory manager to assign priorities for
inventory control. Strict control needs to be kept on A and B items, with preferably low safety
stock level. Taking a lenient view, the C class items can be maintained with looser control and
with high safety stock level. The ABC concept puts emphasis on the fact that every item of
inventory is critical and has the potential of affecting ,adversely, production, or sales to a
customer or operations. The categorization helps in better control on A and B items.

In addition to other management procedures, ABC classifications can be used to design

cycle counting schemes. For example, A items may be counted 3 times per year, B items 1 to
2 times, and C items only once, or not at all.

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HML ANALYSIS

The classification is as follows:

High Cost (H) = Item whose unit value is very high
Medium Cost (M) = Item whose unit value is of medium value
Low Cost (L) = Item whose unit value is low
This type of classification helps in implementing proper control such as authorization,
expiry management; identify opportunity to find out a less expensive substitute. Items are
classified into three groups labelled as High Medium Low. The HML analysis is very
similar to the ABC Analysis, the difference being instead of usage value, the price criterion is
used. In their classification, the items used by the company are arranged in descending orders
of their unit price. After this, the management of the company uses its discretion and
judgment to decide the cut off lines for deciding the three categories. For example, the
management may decide that all items of unit price value above Rs 500 should be categorized
as H items, items whose, unit price falls between Rs 50 and Rs 500 should be categorized as
M items and items whose unit price falls below Rs 50 should be categorized as L items. The
categorization therefore is decided by the management.

HML analysis helps an organization to take decisions on the following:

1) It helps to assess the security requirements and the type of storage for high priced items.
For example, expensive ball bearings can be kept under lock and key in a cupboard.
2) The frequency of stock checking is decided on the basis of the cost item. In other words,
more expensive the item, more frequent will be its stock-checking.
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c) A control on purchases and buying policies can be exercised by the company. This means
H and M items will not be ordered in excess of the required minimum quantity. However, in
the case of L items, they may be purchased in bulk in order to avail the benefits of bulk
purchase.
H-M-L analysis is similar to ABC analysis except for the difference that instead of usage
value, price criterion is used. The items under this analysis are classified into three groups that
are called high, medium and low. To classify, the items are listed in the descending order
of their unit price. The management for deciding three categories then fixes the cut-off-lines. For
example, the management may decide that all items of unit price above Rs. 1000/-will of H
category, those with unit price between Rs. 100/- to Rs.1000/- will be of

M category and those having unit price below Rs. 100/- will be of L category.
HML analysis helps to
1

Assess storage and security requirements

To keep control over consumption at the departmental head level

Determine the frequency of stock verification

To evolve buying policies to control purchase

To delegate authorities to different buyers to make petty cash purchase

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SDE ANALYSIS

Classification based on the Scarcity and lead time:

Scarce (S) = Items which are imported and require longer lead time
Difficult (D) = Items which require more than a fortnight but less than 6 months lead time.
Easily available (E) = Items which are easily available
This type of classification helps in reducing the lead time required at least in case of vital and
essential items. Ultimately, this will reduce stock-out costs in case of stock-outs
The SDE analysis is based upon the availability of items and is very useful in the context of
scarcity of supply. In this analysis, S refers to scarce items, generally imported, and those
which are in short supply. D refers to difficult items which are available indigenously but
are difficult items to procure. Items which have to come from distant places or for which
reliable suppliers are difficult to come by fall into D category. E refers to items which are
easy to acquire and which are available in the local markets. The SDE classification, based on
problems faced in procurement, is vital to the lead time analysis and in deciding on
purchasing strategies
S-D-E analysis is based on the problems of procurement namely:
1

Non-availability

Scarcity

Longer lead time

Geographical location of suppliers, and

Reliability of suppliers, etc.

S-D-E analysis classifies the items into three groups called scarce, difficult and easy.
The information so developed is then used to decide purchasing strategies. Scare
classification comprise of items, which are in short supply, imported or canalized through
government agencies. Such items are best to procure limited number of times a year in lieu of
effort and expenditure involved in the procedure for import.

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Difficult classification includes those items, which are available indigenously but are not
easy to procure. Also items, which come from long distance and for which reliable sources do
not exist, fall into this category. Even the items, which are difficult to manufacture and only
one or two manufacturers are available belong to this group. Suppliers of such items require
several weeks of advance notice.
Easy classification covers those items, which are readily available. Items produced to
commercial standards, items where supply exceeds demand and others, which are locally
available, fall into this group.
The purchase department employs S-D-E analysis:
1

To decide on the method of buying

To fix responsibility of buyers

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FSN ANALYSIS

By doing FSN analysis materials can be classified based on their movement from inventory
for a specified period. Items are classified based on consumption and average stay in the
inventory. Higher the stay of item in the inventory, the slower would be the movement of the
material
F Fast Moving
S- Slow Moving
N- Non moving
There following steps in doing the FSN analysis
1

Calculation of average stay and the consumption rate of the material in

warehouse

FSN Classification of materials based on average stay in the inventory

FSN Classification of the material based on consumption rate

Finally classifying based on above FSN analysis.

Classification based on frequency of issues and uses

F, S & N stand for Fast moving, Slow moving and Non moving items.
Fast Moving (F) = Items that are frequently issued/used
Slow Moving (S) = Items that are issued/used less for certain period of time
Non-Moving (N) = Items that are not issued/used for more than certain duration
This type of classification helps to establish and organize proper warehouse layout by
locating all the fast moving items near the dispensing window to reduce the handling efforts.
Also, attention of the management is focused on the Non-Moving items to enable decision as
to whether they are in needs in the future or they can be salvaged or disposed. This will help
to improve organizations capital utilization and cash flow

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JUST IN TIME (JIT)

Just in time (JIT) is a production strategy that strives to improve a business' return on
investment by reducing in-process inventory and associated carrying costs. To meet JIT
objectives, the process relies on signals or Kanban between different points, which are
involved in the process, which tell production when to make the next part. Kanban are
usually 'tickets' but can be simple visual signals, such as the presence or absence of a part on
a shelf. Implemented correctly, JIT focuses on continuous improvement and can improve a
manufacturing organization's return on investment, quality, and efficiency. To achieve
continuous improvement key areas of focus could be flow, employee involvement and
quality.
JIT relies on other elements in the inventory chain as well. For instance, its effective
application cannot be independent of other key components of a lean manufacturing system
or it can "end up with the opposite of the desired result."[1] In recent years manufacturers
have continued to try to hone forecasting methods such as applying a trailing 13-week
average as a better predictor for JIT planning; however, some research demonstrates that
basing JIT on the presumption of stability is inherently flawed.

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The Toyota Production System fulfils customer demand efficiently and promptly by linking
all production activity to real marketplace demand. Just-in-time production relies on finely
tuned processes in the assembly sequence using only the quantities of items required, only
when they are needed. Imagine a process designed to produce six different types of product,
where the total weekly demand for the range of products varies up and down by 25%, and the
daily mix of product types is continuously changing. A planning challenge, but also a typical
scenario in many types of business in which the process (manufacturing or otherwise) has to
continuously respond to demand. Toyota Production System has responded to this reality of
life by developing an approach that can meet the challenge in an efficient, cost-effective way
Just in Time Manufacturing Just in Time Manufacturing (JIT) refers to a system of
manufacturing in which products are not built until the product is ordered and paid for. Some
companies that have successfully implemented JIT include Toyota, Dell and Harley
Davidson. Toyota Toyota is considered by many to be the poster child for JIT success. The
Toyota production strategy is highlighted by the fact that raw materials are not brought to the
production floor until an order is received and this product is ready to be built. No parts are
allowed at a node unless they are required for the next node, or they are part of an assembly
for the next node. This philosophy has allowed Toyota to keep a minimum amount of
inventory which means lower costs. This also means that Toyota can adapt quickly to changes
in demand without having to worry about disposing of expensive inventory. Important
Factors to Toyota Success: Small amounts of raw material inventory must be kept at each
node in production, so that production can take place for any product. These parts are then
replenished when they are used. Accuracy of forecasting is important so the correct amount
of raw materials can be stocked.

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KANBAN

Kanban is a scheduling system for lean and just-in-time (JIT) production. Kanban is a
system to control the logistical chain from a production point of view, and is not an inventory
control system. Kanban was developed by Taiichi Ohno, at Toyota, to find a system to
improve and maintain a high level of production. Kanban is one method through which JIT is
achieved.
Kanban became an effective tool in support of running a production system as a whole, and
it proved to be an excellent way for promoting improvement. Problem areas were highlighted
by reducing the number of kanban in circulation.[clarification needed. One of the main
benefits of Kanban is to establish an upper limit to the work in progress inventory, avoiding
overloading of the manufacturing system. Other systems with similar effect are for example
CONWIP.
In the TPS (Toyota Production System), a unique production control method called the
"kanban system" plays an integral role. The kanban system has also been called the
"Supermarket method" because the idea behind it was borrowed from supermarkets. Such
mass merchandizing stores use product control cards upon which product-related
information, such as a product's name, code and storage location, are entered. Because Toyota
employed kanban signs for use in their production processes, the method came to be called
the "kanban system." At Toyota, when a process refers to a preceding process to retrieve
parts, it uses a kanban to communicate which parts have been used.

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Why use a supermarket concept?

A supermarket stocks the items needed by its customers when they are needed in the quantity
needed, and has all of these items available for sale at any given time.

Taiichi Ohno (a former Toyota vice president), who promoted the idea of Just-in-Time,
applied this concept, equating the supermarket and the customer with the preceding process
and the next process, respectively. By having the next process (the customer) go to the
preceding process (the supermarket) to retrieve the necessary parts when they are needed and
in the amount needed, it was possible to improve upon the existing inefficient production
system. No longer were the preceding processes making excess parts and delivering them to
the next process

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KAIZEN
Kaizen, Japanese for "improvement" or "change for the best", refers to philosophy or
practices that focus upon

continuous improvement of processes in manufacturing,

engineering, and business management. It has been applied in healthcare, psychotherapy,

life- coaching, government, banking, and other industries. When used in the business sense
and applied to the workplace, kaizen refers to activities that continually improve all
functions, and involves all employees from the CEO to the assembly line workers. It also
applies to processes, such as purchasing and logistics, that cross organizational boundaries
into the supply chain.
[3]

By improving standardized activities and processes, kaizen aims to eliminate waste (see
lean manufacturing). Kaizen was first implemented in several Japanese businesses after the
Second World War, influenced in part by American business and quality management
teachers who visited the country. It has since spread throughout the world and is now being
implemented in environments outside of business and productivity
Implementation
The Toyota Production System is known for kaizen, where all line personnel are expected to
stop their moving production line in case of any abnormality and, along with their supervisor,
suggest an improvement to resolve the abnormality which may initiate a kaizen.

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The cycle of kaizen activity can be defined as:

1

Standardize an operation and activities,

Measure the operation (find cycle time and amount of in-process inventory).

Gauge measurements against requirements.

Innovate to meet requirements and increase productivity.

Standardize the new, improved operations.

Continue cycle ad infinitum.

This is also known as the Shewhart cycle, Deming cycle, or PDCA. Other techniques used
in conjunction with PDCA include 5 Whys, which is a form of root cause analysis in which
the user asks "why" a failure occurred five successive times, basing each subsequent question
.

on the answer to the previous There are normally a series of root causes stemming from one
problem, and they can be visualized using fishbone diagrams or table
Apart from business applications of the method, both Anthony Robbins and Robert Maurer
have popularized the kaizen principles into personal development principles. In the book One
Small Step Can Change Your life: The Kaizen Way, and CD set The Kaizen Way to Success,
Maurer looks at how individuals can take a kaizen approach in both their personal and
professional lives

In the Toyota Way Fieldbook, Liker and Meier discuss the kaizen blitz and kaizen burst (or
kaizen event) approaches to continuous improvement. A kaizen blitz, or rapid improvement,
is a focused activity on a particular process or activity. The basic concept is to identify and

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quickly remove waste. Another approach is that of the kaizen burst, a specific kaizen activity
on a particular process in the value stream

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FINANCIAL DATA

FINANCIAL MANAGERS ROLE

The functions of a finance manager can be categorized under the following heads:
1

Forecasting and planning

A finance manager has to forecast and predict the short- and long-term requirement of money
by the business and also forecast the activity levels of the various business operations so that
it preplans what to manufacture and deliver at what price to the customers. The finance
manager has to take these decisions in the light of both the external and internal factors that
affect the business activities.
1

Analysing and evaluating the investment activities

A finance manager needs to understand and evaluate the various activities of the business,
especially the long-term investment activities. He/she needs to understand the costs and
benefits associated with the long-term investments, i.e., their feasibility. As a rule, firms go
for those long-term investment activities which generate positive value for the firm and the
rest are rejected.
1

Coordination and control

A finance manager focuses on the generation of the funds and their allocation to various
organizational activities. The various organizational activities are to be coordinated and
controlled to ensure cost effectiveness and maximum efficiency in terms of value generation.
1

Understanding the finance market

The growth and activeness of the Indian capital market ensures that the finance managers can
gain immensely from the capital market knowledge. The finance managers have to decide the
mode of short-term investments in the money market, and the liquid investments and the

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long-term investments in the stock market. These investments have to be liquid as well as
profitable so that they add value to the firm's invested amount.
1

Risk management

A very important function of a finance manager is to understand risk management of the

business. He/she needs to evaluate the risks the business faces. The various risks faced by the
firm are to be managed proactively and necessary arrangements should be made to eliminate,
reduce and avoid them. He/she also needs to analyse and categorize the various risks faced by
the business.
1

Performance measurement

In the end, a finance manager is supposed to evaluate the performance of his/her firm. The
financial performance of the firm is appraised holistically, activity wise and department wise.
These performance appraisals are evaluated with the set targets to determine positive and
negative deviations, if any.

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VALUATION OF INVENTORY

Inventory valuation is the dollar amount associated with the items contained in a company's
inventory. Initially the amount is the cost of those items. However, under certain situations
the cost could be replaced with a lower dollar amount. The inventory valuation includes all of
the costs to get the inventory items in place and ready for sale. The inventory valuation
excludes the costs of selling and administration.

Since the inventory items are constantly being sold and restocked and since the costs of the
items are constantly changing, a company must select a cost flow assumption. Cost flow
assumptions include first-in, first-out; weighted average; and last-in, first out. The company
must consistently follow its stated cost flow assumption. A manufacturer's inventory
valuation will include the costs of production, namely direct materials, direct labor, and
manufacturing overhead. Manufacturers are also required to consistently follow their cost
flow assumptions.
Inventory valuation is important in that it affects the cost of goods sold reported on the
company's income statement. Inventory is also an important component of a company's
current assets, working capital, and current ratio

Inventory valuation methods - perpetual

The perpetual system records revenue each time a sale is made. Determining the cost of
goods sold requires taking inventory. The most commonly used inventory valuation methods
under a periodic system are:
1.

first-in first-out (FIFO)

2. last-in first-out (LIFO)

3.

average cost or weighted average cost

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These methods produce different results because their flow of costs are based upon different
assumptions. The FIFO method bases its cost flow on the chronological order purchases are
made, while the LIFO method bases it cost flow in a reverse chronological order. The average
cost method produces a cost flow based on a weighted average of goods.
Periodic versus perpetual systems
There are fundamental differences for accounting and reporting

merchandise inventory

transactions under the periodic and perpetual inventory systems. To record purchases, the
periodic system debits the Purchases account while the perpetual system debits the
Merchandise Inventory account. To record sales, the perpetual system requires an extra entry
to debit the Cost of goods sold and credit Merchandise Inventory. By recording the cost of
goods sold for each sale, the periodic inventory system alleviated the need for adjusting
entries and calculation of the goods sold at the end of a financial period, both of which the
perpetual inventory system requires.
In Perpetual Inventory System there must be actual figures and facts.
Using non-cost methods to value inventory. Under certain circumstances, valuation of
inventory based on cost is impractical. If the

market price of a good drops below the

purchase price, the lower of cost or market method of valuation is recommended. This
method allows declines in inventory value to be offset against income of the period. When
goods are damaged or obsolete, and can only be sold for below purchase prices, they should
be recorded at net realizable value. The net realizable value is the estimated selling price less
any expense incurred to dispose of the good.
Methods used to estimate inventory cost
In certain business operations, taking a physical inventory is impossible or impractical. In
such a situation, it is necessary to estimate the inventory cost.
Two very popular methods are
1)- retail inventory method, and
2)- gross profit (or gross margin) method.

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The retail inventory method uses a cost to retail price ratio. The physical inventory is valued
at retail, and it is multiplied by the cost ratio (or percentage) to determine the estimated cost
of the ending inventory.
The gross profit method uses the previous years average gross profit margin (i.e. sales minus
cost of goods sold divided by sales). Current year gross profit is estimated by multiplying
current year sales by that gross profit margin, the current year cost of goods sold is estimated
by subtracting the gross profit from sales, and the ending inventory is estimated by adding
cost of goods sold to goods available for sale....

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RESEARCH METHODOLOGY

The process used to collect information and data for the purpose of making business
decisions. The methodology may include publication research, interviews, surveys and
other research

techniques, and could include both present and historical information

Research Methodology is a way to find out the result of a given problem on a specific matter
or problem that is also referred as research problem. In Methodology, researcher uses
different criteria for solving/searching the given research problem. Different sources use
different type of methods for solving the problem. If we think about the word
Methodology, it is the way of searching or solving the research problem. (Industrial
Research Institute, 2010). According to Goddard & Melville (2004), answering unanswered
questions or exploring which currently not exist is a research. The Advanced Learners
Dictionary of current English lays down the meaning of research as a careful investigation or
inquiry especially through search for new facts in any branch of knowledge. Redmen & Mory
(2009), define research as a systematized effort to gain new knowledge. In Research
Methodology, researcher always tries to search the given question systematically in our own
way and find out all the answers till conclusion. If research does not work systematically on
problem, there would be less possibility to find out the final result. For finding or exploring
research questions, a researcher faces lot of problems that can be effectively resolved with
using correct research methodology (Industrial Research Institute, 2010).
Toyota Motor Corporation is a Japanese multinational corporation and the worlds largest
automaker by sales and production that manufactures automobiles, trucks, buses, and robots
headquartered in Toyota, Aichi, Japan. The company is one of the Japanese big three
challenging American automobile manufacturers along with Nissan Motors and Honda Motor
with high success. The company was founded in 1937 and today has 71,116 employees and
397.05 billion yen

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DATA COLLECTION
Primary data can be collected by using experiments, surveys, questionnaires, interviews,
and observations. If youve already gathered this information, we can then analyze it and then
come up with accurate results based on your needs. But if you havent already gotten this
information together, no problem! We can also help with that step of data collection as well.
Primary data is a type of information that is obtained directly from first-hand sources by
means of surveys, observation or experimentation. It is data that has not been previously
published and is derived from a new or original research study and collected at the source
such as in marketing.

Create a Questionnaire

Design a Survey

Choose the Sample

Analyze the Data

Secondary Data Collection

Secondary data comes from resources that have already been published. You may have a
running list of certain sources but there are so many published items in the world, it can be
hard to find the one thing that will make a difference to your project. Collection of data from
secondary sources is a treasure hunt and we are skilled researchers with an eye for diamonds.
We have developed extensive lists of secondary sources of data collection and will utilize
them for your project. Just because something is listed as a secondary source for data
collection doesnt mean that its less important though
Secondary data, is data collected by someone other than the user. Common sources of
secondary data for social science include censuses, organisational records and data collected
through qualitative methodologies or qualitative research. Primary data, by contrast, are
collected by the investigator conducting the research.
Secondary data analysis saves time that would otherwise be spent collecting data and,
particularly in the case of quantitative data, provides larger and higher-quality databases that
would be unfeasible for any individual researcher to collect on their own. In addition,

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analysts of social and economic change consider secondary data essential, since it is
impossible to conduct a new survey that can adequately capture past change and/or
developments.
Secondary Data Collection Has Never Been Easier

Define the Values

Surf the Webpages

Create a Custom Table

Analyze and Interpret

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SECONDARY DATA ANALYSIS AND

INTERPRETATION

CONSOLIDATED BALANCE SHEET

Consolidated Balance sheet

2
Period Ending
58
A
L

Assets
Current Assets
Cash And Cash Equivalents
Short Term Investments
Net Receivables
Inventory
Other Current Assets
Total Current Assets
Long Term Investments
Property Plant and Equipment
Goodwill
Intangible Assets
Accumulated Amortization
Other Assets
Deferred Long Term Asset Charges
Total Assets
Liabilities
Current Liabilities
Accounts Payable
Short/Current Long Term Debt
Other Current Liabilities
Total Current Liabilities
Long Term Debt

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Other Liabilities

11,406,000

10,350,000

10,229,000

Deferred Long Term Liability Charges

14,717,000

11,044,000

9,775,000

6,635,000

6,273,000

7,090,000

241,152,000

237,979,000

228,018,000

Misc Stocks Options Warrants

Redeemable Preferred Stock

Preferred Stock

Common Stock

4,216,000

4,825,000

4,791,000

134,741,000

144,809,000

142,805,000

Minority Interest
Negative Goodwill
Total Liabilities
Stockholders' Equity

Retained Earnings
Treasury Stock

(12,032,000)

(13,800,000)

Capital Surplus

5,851,000

6,691,000

Other Stockholder Equity

(3,782,000)

(14,324,000)

(15,219,000)
6,102,000
(13,812,000)

Total Stockholder Equity

128,994,000

128,201,000

124,667,000

Net Tangible Assets

128,994,000

128,201,000

124,667,000

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CONSOLIDATED INCOME STATEMENT

Consolidated income statement

Period Ending

2013-03-31

2012-03-31

2011-03-31

Total Revenue

234,289,000

225,818,000

229,171,000

Cost of Revenue

197,940,000

199,144,000

200,474,000

36,349,000

26,673,000

28,696,000

22,323,000

22,352,000

23,046,000

Non Recurring

Others

Total Operating Expenses

14,026,000

4,321,000

5,650,000

1,123,000

1,218,000

1,500,000

15,149,000

5,539,000

7,150,000

244,000

279,000

354,000

14,905,000

5,260,000

6,796,000

Income Tax Expense

5,858,000

3,187,000

3,774,000

Minority Interest

(1,288,000)

(1,030,000)

(691,000)

10,217,000

3,446,000

4,925,000

Discontinued Operations

Extraordinary Items

Effect Of Accounting Changes

Other Items

10,217,000

3,446,000

4,925,000

10,217,000

3,446,000

4,925,000

Gross Profit
Operating Expenses
Research Development
Selling General and Administrative

Operating Income or Loss

Income from Continuing Operations
Total Other Income/Expenses Net
Earnings Before Interest And Taxes
Interest Expense
Income Before Tax

Net Income From Continuing Ops

Non-recurring Events

Net Income
Preferred Stock And Other Adjustments
Net Income Applicable To Common Shares

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CONSOLIDATED CASH FLOW

Consolidated Cash Flow

2
Period Ending
Total Cash Flow From Operating Activities
Net Borrowings
Net Income
Investing Activities, Cash Flows Provided By or Used In
Other Cash Flows from Financing Activities
Operating Activities, Cash Flows Provided
ByExpenditures
or Used In
Capital
Total Cash Flows From Financing Activities
Depreciation
Investments
Effect Of Exchange Rate Changes
Adjustments To Net Income
Other Cash flows from Investing Activities
Change In Cash and Cash Equivalents
Changes In Accounts Receivables
Total Cash Flows From Investing Activities
Changes In Liabilities
Financing Activities, Cash Flows Provided By or Used In
Changes In Inventories
Dividends Paid
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Changes In Other Operating Activities
STUDIES
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Operating Activity
1

Ratios

Interpretation

Toyota Motor Corp., short-term (operating) activity ratios

Mar 31, 2013

Mar 31, 2012

Mar 31, 2011

Turnover Ratios
Inventory turnover

12.19

10.79

13.66

Receivables turnover

10.61

8.76

12.30

9.89

7.81

11.86

23.97

32.45

17.16

30

34

27

34

42

30

64

76

57

Less: Average payables payment period

37

47

31

Cash conversion cycle

27

29

26

Payables turnover
Working capital turnover
Average No. of Days
Average inventory processing period
Add: Average receivable collection
period
Operating cycle

Source: Based on data from Toyota Motor Corp. Annual Reports

Ratio
Inventory turnover

Description

The company

An activity ratio calculated as

Toyota Motor Corp.'s inventory

revenue divided by inventory.

turnover deteriorated from 2011 to

2012 but then slightly improved
from 2012 to 2013.

Receivables turnover

An activity ratio equal to revenue

Toyota Motor Corp.'s receivables

divided by receivables.

turnover deteriorated from 2011 to

2012 but then improved from 2012
to 2013 not reaching 2011 level.

Payables turnover

An activity ratio calculated as

Toyota Motor Corp.'s payables

revenue divided by payables.

turnover declined from 2011 to

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2012 but then increased from 2012

to 2013 not reaching 2011 level.
Working capital turnover

An activity ratio calculated as

Toyota Motor Corp.'s working

revenue divided by working capital.

capital turnover improved from

2011 to 2012 but then slightly
deteriorated from 2012 to 2013 not
reaching 2011 level.

Average inventory

An activity ratio equal to the

Toyota Motor Corp.'s average

processing period

number of days in the period

inventory processing period

divided by inventory turnover over

deteriorated from 2011 to 2012 but

the period.

then improved from 2012 to 2013

not reaching 2011 level.

Average receivable

An activity ratio equal to the

Toyota Motor Corp.'s average

collection period

number of days in the period

receivable collection period

divided by receivables turnoverd.

deteriorated from 2011 to 2012 but

then improved from 2012 to 2013
not reaching 2011 level.

Operating cycle

Equal to average inventory

Toyota Motor Corp.'s operating

processing period plus average

cycle deteriorated from 2011 to

receivables collection period.

2012 but then improved from 2012

to 2013 not reaching 2011 level.

Average payables payment

An estimate of the average number

Toyota Motor Corp.'s average

period

of days it takes a company to pay its

payables payment period increased

suppliers; equal to the number of

from 2011 to 2012 but then slightly

days in the period divided by

declined from 2012 to 2013 not

payables turnover ratio for the

reaching 2011 level.

period.
Cash conversion cycle

A financial metric that measures the

Toyota Motor Corp.'s cash

length of time required for a

conversion cycle deteriorated from

company to convert cash invested in

2011 to 2012 but then improved

its operations to cash received as a

from 2012 to 2013 not reaching

result of its operations; equal to

2011 level.

average inventory processing period

plus average receivables collection

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Inventory Turnover
1

Ratios

Interpretation

Inventory Turnover
Mar 31, 2013

Mar 31, 2012

Mar 31, 2011

Selected Financial Data (USD $ in millions, translated from JPY )

Sales of products

222,113

213,066

214,318

18,222

19,738

15,685

Toyota Motor Corp.1

12.19

10.79

13.66

Industry, Consumer Goods

10.06

9.75

10.63

Inventories
Inventory Turnover, Comparison to Industry

2013 Calculations
Inventory turnover = Sales of products Inventories

1=

222,113 18,222

2=

12.19

Ratio
Inventory turnover

Description

The company

An activity ratio calculated as

Toyota Motor Corp.'s inventory

revenue divided by inventory.

turnover deteriorated from 2011 to

2012 but then slightly improved
from 2012 to 2013.

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Operating Cycle
1

Ratios

Interpretation

Operating Cycle
No. of days
Mar 31, 2013

Mar 31, 2012

Mar 31, 2011

Selected Financial Data

Average inventory processing

30

34

27

34

42

30

Toyota Motor Corp.1

64

76

57

Industry, Consumer Goods

67

71

64

period
Average receivable collection period
Operating Cycle, Comparison to Industry

2013 Calculations
Operating cycle = Average inventory processing period + Average receivable collection period

= 30 + 34
= 64
Ratio
Operating cycle

Description

The company

Equal to average inventory

Toyota Motor Corp.'s operating

processing period plus average

cycle deteriorated from 2011 to

receivables collection period.

2012 but then improved from 2012

to 2013 not reaching 2011 level.

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Average Inventory Processing Period

1

Ratios

Interpretation

Average Inventory Processing Period

Mar 31, 2013

Mar 31, 2012

Mar 31, 2011

Selected Financial Data

Inventory turnover

12.19

10.79

13.66

Average Inventory Processing Period (no. of days), Comparison to Industry

Toyota Motor Corp.1

30

34

27

Industry, Consumer Goods

36

37

34

2013 Calculations
Average inventory processing period = 365 Inventory turnover

= 365 12.19
= 30
Ratio

Description

The company

Average inventory

An activity ratio equal to the

Toyota Motor Corp.'s average

processing period

number of days in the period

inventory processing period

divided by inventory turnover over

deteriorated from 2011 to 2012 but

the period.

then improved from 2012 to 2013

not reaching 2011 level.

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Average Receivable Collection Period

1

Ratios

Interpretation

Average Receivable Collection Period

Mar 31, 2013

Mar 31, 2012

Mar 31, 2011

Selected Financial Data

Receivables turnover

10.61

8.76

12.30

Average Receivable Collection Period (no. of days), Comparison to Industry

Toyota Motor Corp.1

34

42

30

Industry, Consumer Goods

31

34

30

2013 Calculations
Average receivable collection period = 365 Receivables turnover

= 365 10.61
= 34
Ratio

Description

The company

Average receivable

An activity ratio equal to the

Toyota Motor Corp.'s average

collection period

number of days in the period

receivable collection period

divided by receivables turnoverd.

deteriorated from 2011 to 2012 but

then improved from 2012 to 2013
not reaching 2011 level.

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PRIMARY DATA ANALYSIS

Respondents profile Analysis

1. 40 % of the officials belong to the age group of 35 & 50.

2. 60 % of the officials belong to the age group of 25 to 34.
3. 14 % of the officials belong to the age group of above 50.
4. 72 % are male officials.
5. 28 % are female officials.
6. 72 % are graduates & above.
7. 12 % are those who are having technical & professional qualifications.
8. 16 % are undergraduates.
9. 60 % are those who are associated with the field.
10. 25 % are those who are in the managerial & administrative posts.
11. 15 % belongs to the other category.

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QUESTIONNAIRE ANALYSIS

1. Do you know that your company has an inventory management system ?

Yes

74%

No

22%

DO NOT
KNOW/CANNOT SAY

4%

YES
NO
DO NOT KNOW/CANNOT
SAY

Interpretation : The company officials are aware about that company having an inventory
management system. 74 % of the respondents do have this awareness as against 22 % + 4 %
of the respondents who are either not aware or not able to provide any information in this
regard.

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2. Are you aware about inventory management system ?

YES

77%

NO

17%

DO NOT KNOW/CANNOT SAY

6%

YES
NO
DO NOT KNOW/CANNOT
SAY

Interpretation : The awareness level among the company officials

regarding the existence, functioning and applicability of inventory
management sysyem is high that is 77 %, as per the result of the study.

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3. Do you agree that there should be inventory management system in place in any
organization/ company ?
YES

70%

NO

14%

DO NOT
KNOW/CANNOT SAY

16%

YES
NO
DO NOT KNOW/CANNOT
SAY

Interpretation: According to the response to the above question, it appears that

every company/organization should have a system or mechanism in place for managing
their inventory.

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4. For what reason do you feel that there should be an inventory management system in an
organization ?

To smoothen operational requirement

28%

To save time

23%

To maintain accountability &

transparency

31%

Other reasons

16%

To smoothen
operational
requirement
To save time

To maintain
accountabilit
y&
transparency
Other reasons

Do not know/ Cannot say

Interpretation : To everyones surprise, 31 % of the respondents feel that it is for

accountability & transparency purpose that inventory records are maintained & hence the
need for an inventory management system. This is followed by the need for saving time &
the requirement of operational smoothness.

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5. Do you agree that the inventory management system in your company has fulfilled the
needs for which it was evolved ?
Strongly Agree

22%

Agree

49%

Disagree

17%

Strongly DisAgree

9%

Do not know/Cannot
say

3%

Strongly Agree
Agree
Disagree
Strongly DisAgree
Do not know/Cannot say

Interpretation : From the above response, it appears that the inventory management
system has more or less achieved its objectives for which it was in place. This is evident from
the 67 % of the respondents opinion who have either agreed or strongly agreed in favour of
this proposition. However the response of 22 % of the respondents who think otherwise also
speaks something.

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6. What according to you is the major benefit of going for an inventory management system
by your company ?

It has made storage & retrieval of material

easier

38%

Improved sales effectiveness

27%

Reduced Operational cost

19%

Other benefits

11%

Do noy know/ cannot say

5%

It has made
storage &
retrieval of
material easier
Improved
sales
effectivenes
s

Reduced Operational cost

Other benefits

Do noy know/ cannot say

Interpretation: As regards the benefits of having an inventory management system by the

company, the respondents are of the opinion that the major benefit lies in relaxation in terms
of storage and retrieval of material. This is followed by increasing sales effectiveness and
reduction in operational cost. However, all these benefits are interlinked and the spearing
between them is more analytical than anything else.

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7. Do you have skilled professionals in your company for inventory management ?

YES

49%

NO

31%

DO NOT
KNOW/CANNOT SAY

20%

YES
NO
DO NOT KNOW/CANNOT
SAY

Interpretation: Recruitment of skilled professionals well versed with latest inventory

management technology, particularly in automobiles industry is a concern for the company as
it appears that it lacks in this domain.

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8. What category of professionals is managing your company inventory ?

Skilled & trained

33%

Only skilled but not trained

17%

Non skilled but trained professionals

21%

Non skilled & non trained

professionals
Others

26%
3%

Skilled & trained

Only skilled but
not trained
Non skilled but
trained
professionals
Non skilled & non
trained
professionals
Others

Interpretation: As already stated above in the earlier question, availability of trained &
skilled professionals for inventory management needs serious attention of the company.

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9. Do you agree that your company gives more emphasis on software than skilled manpower
with regard to inventory management ?
Strongly Agree

19%

Agree

53%

Disagree

16%

Strongly DisAgree

8%

Do not know/Cannot say

4%

Strongly Agree
Agree
Disagree
Strongly DisAgree
Do not know/Cannot say

Interpretation : The above response gives an impression that the company puts emphasis
on software than skilled manpower for inventory details management.

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10. Do you think that software used by your company is according to the design and needs of
the system ?
Yes

87%

No

11%

Do not know/ Cannot say

2%

Yes
No
Do not know/ Cannot say

Interpretation: The company appears to be using the software according to the system
requirement & design & according to the customers needs.

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11. What is the prime challenge before your company with reheard to inventory management

Lack of trained professionals

42%

Maintenance cost

21%

Changing requirements of customers

27%

Other problems

6%

Do not know/ Cannot say

4%

Lack of
trained
professional
s

Maintenance cost

Changing
requirement
s of
customers
Other problems

Interpretation: Lack of availability professionals coupled with maintenance cost &

changing needs of the customers are perceived to be the inventory challenges before the
company.

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12. What is the future of inventory management system in your company ?

Will continue as a successful
mechanism

44%

May change according to time

34%

Shall collapse

13%

Do not know/ Cannot say

9%

Will continue as a
successful
mechanism

May change
according to time
Shall collapse
Do not know/ Cannot say

Interpretation : The future of inventory management system at Toyota Motor

Corporation appear to pretty good going by the response of our study.

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PROBLEMS AND SUGGESTIONS

PROBLEMS FACED BY THE TOYOTA ORGANIZATION

1) Toyota Motors Manufacturing faces problems with its increasing seat supply.
2) Toyota face the problem of competition.
3) There is no proper sequence & acknowledgement board board for certain items in the
store department. It is not good when external auditing held in company.
4) Providing data for the cost of production to the top level management was difficult.
5) Organization has no record of wastage items. It is not good for operating profit of the
company.
6) The manufacturing and installation time was too much high.
7) Organization facing the problem of lack of proper skilled employees in the production
department.

SUGGESTIONS TO THE ORGANIZATION:

1) The organization must give proper knowledge & training for unskilled employees
about their work.

2) There should proper and accurate record of the wastage so that company can
estimate its cost required for the inventory required for the production.

3) Store manager must give the proper knowledge about the engineering and raw
materials.
4) The Inventory should be placed in an appropriate sequence & acknowledgement.

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CONCLUSION
The goal of the wealth maximization is affected by the efficiency with which
inventory is managed. Inventories constitute about 60 % of current assets of
companies hold inventories in the form of raw materials, WIP & finished goods.
Inventories facilitate smooth production & sales operation to guard against the risk of
unpredictable changes in usage rate & delivery time & to take advantage of price
fluctuations.

Inventories represent investment of a firms funds. The objectives of the inventory

management should be the maximization of the value of the firm. Therefore the firm
should consider:
1

Cost

Return

Risk Factors

In inventory maintenance two types of costs are involved carrying cost & ordering
cost, the firm should minimize the total cost. The firm follows inventory control
techniques as ABC,EOQ & JIT techniques for better holding inventories

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BIBLIOGRAPHY

Management Accounting , Third Edition, M.Y.khan , P.K.Jain , Tata McGraw Hill Publishing Company Ltd.

Financial Management , Ninth Edition , I.M. Pandey ,Vikas Publishing

House Pvt Ltd.

Purchase, Sales & other documents of the Toyota Company.

www.wikipedia.com

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