A SUMMER TRAINING PROJECT REPORT

ON

ANALYTICAL STUDY OF INVENTORY MANAGEMENT OF

SUBMITTED FOR THE PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE AWARD OF

MASTER OF BUSINESS ADMINISTRATION(FINANCE)

UNDER THE GUIDANCE OF UNDER THE SUPERVISION OFPROF. PRABHAKAR SHUKLA MR. R.B. PANDEY (FACULTY OF MANAGEMENT) HEAD (FINANCE)

SUBMITTED BYPUSHPAK TRIPATHI

ROLL NO. # 0817270071MBA (2008-10)

LLOYD INSTITUTE OF MANAGEMENT & TECHNOLOGY

PLOT NO. 11, KNOWLEDGE PARK- II, GR. NOIDA (U.P)

CONTENTS PAGE NO.

1- ACKNOWLEDGEMENT

2- PREFACE

3- EXECUTIVE SUMMARY

CHAPTER ONE: INTRODUCTION 1-95

LITERATURE REVIEW 2-93

CAMPANY’S PROFILE 2-17

INVENTORY MANAGEMENT - AN INTRODUCTION 18-42

MODERN INVENTORY CONTROL TECHNIQUES OF NTPC 42-50

INVENTORY STRUCTURE, ECONOMIC LOT SIZE MODEL AND

INVENTORY COST 51-61

PLACING FORMAL PURCHASE ORDER AND GOING TO FOLLOW

UP DELIVERY 62-76

AUTOMATION - REQUIREMENT OF STOCK CONTROL SYSTEM 77-93

PROJECT OBJECTIVE 94

NEED OF THE PROJECT 95

SCOPE OF THE PROJECT 95

CHAPTER TWO: RESEARCH METHODOLOGY 96-100

RESEARCH DESIGN 98

DATA COLLECTION SOURCES 98-99

DATA COLLECTION METHODS 99

DATA COLLECTION INSTRUMENTS 99

SAMPLING PLAN 99-100

ASSUMPTIONS OF THE PROJECT 100

CHAPTER THREE: FINDINGS & ANALYSIS 101-105

CHAPTER FOUR:

CONCLUSIONS AND REOMMENDATIONS 106-111

CONCLUDING WORDS 107-108

RECOMMENDATIONS 109-110

LIMITATIONS 111

CHAPTER FIVE: BIBLIOGRAPHY 112-113

BIBLIOGRAPHY 113

APPENDIX 114-117

QUSTIONNAIRE 115-117

ACKNOWLEDGEMENT

One of the most pleasant aspects of writing an acknowledgement is the opportunity to thank

all those who have contributed to it. Unfortunately, the list of expression of gratitude- no

matter how extensive – is always incomplete and inadequate. This acknowledgement is no

exception.

First of all, I wish to express my sincere thanks to Prof. Prabhakar Shukla -Faculty LIMT,

Greater Noida, for guiding me in the right direction in the course of this project, where his

valuable support and knowledge came handy to me in all respects. Because of his inspiring

guidance, motivation, positive criticism, continuous encouragement and untiring supervision

this work could be brought to its present shape.

I would like to thank all of them who in one way or the other have helped me.

Pushpak Tripathi

PREFACE

INVENTORY is a list of goods and materials, or those goods and materials themselves, held

available in stock by a business.

Inventory are held in order to manage and hide from the customer the fact that manufacture

delay is longer than delivery delay, and also to ease the effect of imperfections in the

manufacturing process that lower production efficiencies if production capacity stands idle

for lack of materials.

Inventories also play an important role in national accounts and the analysis of the business

cycle. Some short-term macroeconomic fluctuations are attributed to the inventory cycle.

I am very much grateful to Sri E.P.Das, General Manager Operations & Sri S. B. Singh,

DGM (P&A), NTPC for providing me opportunity for practical Training at Division –

Unchahar. I also extend my sincere gratitude for Sri R.B. Pandey, Head of Fin. & A/C.

EXECUTIVE SUMMARY

Inventories Companies hold inventories in the form of raw materials, work-in process and

finished goods. Inventories represent investment of a firm’s funds.

The objective of the inventory management should be the maximization of the value of the

firm. The firm should therefore consider: (a) costs, (b) return, and (c) risk factors in

establishing its inventory policy.

Transaction Motive to Hold Inventory for facilitating smooth production and sales

operation.

Precautionary Motive to Hold Inventory to guard against the risk of unpredictable

changes–in usage rate and delivery time.

Speculative Motive to Hold Inventory to take advantage of price fluctuations.

Ordering Costs requisition, placing of order, transportation, receiving, inspecting and

storing and clerical and staff services. Ordering costs are fixed per order. Therefore, they

decline as the order size increases.

Carrying Costs warehousing, handling, clerical and staff services, insurance and taxes.

Carrying costs vary with inventory holding. As order size increases, average inventory

holding increases and therefore, the carrying costs increase.

Economic Order Quantity (EOQ) The firm should minimise the total cost (ordering plus

carrying). The economic order quantity (EOQ) of inventory will occur at a point where the

total cost is minimum. The following formula can be used to determine

EOQ = (2 AO/C ) 1/2 =Q*

where A is the annual requirement, O is the per order cost, and c is the per unit carrying cost.

The economic order level of inventory, Q* , represents maximum operating profit, but it is

not optimum inventory policy.

Optimum Inventory Policy The value of the firm will be maximized when the marginal

rate of return of investment in inventory is equal to the marginal cost of funds. The

marginal rate of return (r) is calculated by dividing the incremental operating profit by the

incremental investment in inventories, and the cost of funds is the required rate of return

of suppliers of funds.

Reorder Point The inventory level at which the firm places order to replenish inventory is

called the reorder point. It depends on (a) the lead time and (b) the usage rate. Under

perfect certainty about the usage rate, and instantaneous delivery (i.e., zero lead time), the

reorder point will be equal to: Lead time x Usage rate.

Safety Stock In practice, there is uncertainty about the lead time and/or usage rate.

Therefore, firms maintain safety stock which serves as a buffer or cushion to meet

contingencies.

In that case, the reorder point will be equal to: Lead time x Usage rate + Safety stock.

The firm should strike a trade-off between the marginal rate of return and marginal cost

of funds to determine the level of safety stock.

Total Quality Management (TQM) System Large number of companies there days follow

the total quality management (TQM) System which requires companies to adopt JIT and

computerized system of inventory management.