ERP Project

PREPARATION OF ERP INVENTORY MANAGEMENT
Documentation
On
Preparation Of ERP Inventory Management
Under the guidance of Prof. Anand Mohan
By
Rupam Dey
MBA-002, Reg. No.:09291040
1
Index
Sl. Chapter Name Content Page No.
No.
1 Introduction Introduction, 4-8
Objective, Motive
2 Analysis Introduction, Why it is 9-36
required, What is
ERP, Key features,
Inventory
Management module
division, Required
Tools, Important
methods
3 Design Introduction, 37-56
Specimen of :BIN
card, Store
Requisition,Material
Transfer, Material
Analysis, LIFO, FIFO,
Goods Received Note,
Purchase Order and
professional version of
a BIN card and E.O.Q.
system; Images
4 Implementation Introduction, Effective 57-61
sides
5 Decision Seven steps 62-66
6 Bibilography 67
2
ACKNOWLEDGEMENT
I hereby acknowledge that, I have completed the following
project on “Preparation Of ERP Inventory Management System”
based on company inventories programme & I am duly
submitting it in an efficient manner. It has been prepared for the
purpose of maintaining the inventories of the firm easily. I am
very much grateful to Prof. Anand Mohan, who has been a
constant inspiration &under whom I have been able to complete
this project successfully. I also want to thank the faculties’ of
NSHM Business School, Durgapur for their support&
cooperation.
The completion of this project gives me great satisfaction & I

am indebted to NBS for providing me the knowledge regarding
the subject.
3
CHAPTER
1
4
5
Every enterprise needs inventory management system for

smooth running of its activities. It serves as a link between
production and distribution processes. There is, generally a
time lag between the recognition of a need and its fulfillment.
The greater time lag, the higher the requirements of the
inventory. Means it is the statistical data of an enterprise of
their needs and its fulfillment. It also provides a cushion for
future price fluctuation.
Inventory management system offers a complete set of inventory

management, manufacturing, and purchasing capabilities that
will provide you with integrated supply chain management and
control across your entire organization.
6
OBJECTIVES:
Get complete real-time visibility into demand,
supply, costs and fulfillment measures and trends.
Manage margins with a clear view into inventory
costs, turn rates and inventory profitability.
Eliminate manual inventory management processes
and improve vendor satisfaction with a seamless
procure-to-pay process.
Significantly improve your relationships with
suppliers, vendors and partners by providing self
service and real-time visibility.
Effectively and efficiently meet customer demand,
helping drive and maintain superior customer service
levels.
This system helps to avoid over-stocking and under-
stocking of inventory.
To minimizes losses through deterioration, pilferage,
wastages and damages.
It helps to control the cost of production of the
enterprise.
To eliminate duplication in order placing.
7
MOTIVE:
The Transaction Motive which facilitates
continuous production and timely execution of sales
order.
The Precautionary Motive which necessitates the
holding of inventories for meeting the unpredictable
changes in demand and suppliers of materials.
The Speculation Motive which induces to keep
inventories for taking advantage of price
fluctuations, saving in re-ordering cost and quantity
discounts, etc.
The above are the three main motives for the reason an
enterprise maintain the inventory management system.
But besides there have some other motives:
a) Ensuring perpetual inventory control so that
material shown in stock ledgers should actually
lying in stores.
b)Avoiding the gap of continuous supply of raw
material.
c) Clear cut accountability should be fixed at various
levels of the organization.
8
CHAPTER
2
9
10
According to Paul Hamerman, vice president of enterprise

applications at Forrester Research "You need to know what's on
the shelves, what's in the warehouse, and how you re-order
goods to manage the flow of goods throughout the operation.”
According to Ray Wang, senior analyst at Altimeter Group “you

need to account for (inventory) when it's arrived, where you put
it, how long it's been there, how it's been returned or how it's
been put into a product.”
Types of ERP inventory management:
 MRP inventory management system.
 FIFO inventory management system.
 Inventory warehouse management system.
 Purchasing inventory system.
 Forecasting inventory management system.
 E-commerce inventory management system.
 Inventory assets management.
11
WHY INVENTORY MANAGEMENT IS REQUIRED:

While inventory management can be a standalone application,
typically the software is bundled into warehouse management or
supply chain management systems. This ERP inventory
management module is used by retail, distribution and
manufacturing and tied into retail merchandising systems where
users also manage pricing.
What is ERP:
ERP stands for Entrepreneur Resource Management. The word
says it essentialities in an organization. When ERP is related
with the Inventory Management then it means the system or
programme which is related to make proper utilization of the
inventory resources an enterprise have with them at their hand.
This kind of system helps to keep a healthy relation between the
supply and demand of the required material. It can be defined
one kind of real time application of system in the organization.
12
Key features in ERP inventory management modules are:

 Inventory control.
 Build materials and kitting (putting components together as
part of a kit for sale).
 Serial number tracking.
 Bar code printing.
 Valuation features to understand the dollar value of
inventory on hand.
Another feature of ERP inventory management is the ability

to track and manage purchases in order to determine spend
levels.
According to Wang When companies are carrying lots of
inventory, cash management becomes an important factor.
"You need to make sure you're not deploying your capital
inappropriately,"
ERP module has another some facilities, which will
simultaneously describe what the Inventory actually mean:
 Raw Material
 Work-In-Process(W.I.P.)
 Consumables
 Finished Goods
 Spares
13
o Raw Material is the product which actually carries out the

production process. ERP Inventory Management System
defines its regularity and availability.
o W.I.P. is the satge of stock which lies between raw

material and finished goods. It also as a stock to company.
The more stock lies in this stage, the more amount of work
in progress.
o Consumable works as catalysts which directly never

entered into the production process. ERP system can also
define its present situation of their capability as it incurres a
cost to production system.
Ex: The fuel oil for a Pen manufacturing factory.
o Finished Goods is simply understandable. It is ready to use

for the customer. Maintaining ERP for finished goods mean
to ensure proper supply of goods to consumer.
o Spares also form the part of the finished goods. The

consumption of spares is a little different from finished
goods and raw material. It varies from company to
company also. Like transport industry requires more spares
than other industry. They used it and keep it for further use.
So ERP system can give a brief statistics about the spares
also.
14
Inventory Management module is sub divided into

different modules as under:
Inventory Requisition.
Inventory Order Assessment.
Inventory Placing.
Supplier Performa.
Order Received.
Quality checks.
Inventory Bills and Challans.
Minimum Inventory Assessment.
Maximum Inventory Assessment.
Minimum Inventory Assessment

In this particular module the objective is to get the minimum
Inventory requirement from different Departments. A Performa
is prepared in which different departments have to fill up there
minimum inventory requirement in coming 15 days i.e. we are
planning for ahead what will be the inventory requirement in
near future. This assessment will be done by taking into account
the Customers Order received, Inventory in hand, Scrap etc.
Taking all these into account Departments will be filling
Minimum Inventory Requirement.
15
What is Minimum Inventory Requirement?

Minimum Inventory Requirement is that quantity of inventory
below which workers cannot work i.e. it is that quantity of
inventory, which is minimum, required accomplishing the task
of Student. Hence stock of inventory should not go below this
amount.
Maximum Inventory Assessment
In this particular module the objective is to get the maximum
Inventory requirement from different Departments.
A Performa is prepared in which different departments have to
fill up there maximum inventory requirement in coming 15 days
i.e. we are planning for ahead what will be the inventory
requirement in near future. We are taking Maximum Inventory
Requirement for this reason so that to assure that wastage does
not happen and there is no blocking of funds unnecessary. This
assessment will be done by taking into account the Customers
Order received, Inventory in hand, Scrap, Durable goods, Non
Durable goods etc. Taking all these into account Departments
will be filling Maximum Inventory Requirement.
What is Maximum Inventory Requirement?
Maximum Inventory Requirement is that quantity of inventory
above which order for Inventory should not be placed i.e. it is
that quantity of inventory, which is enough to accomplish the
task of Student. The stock of inventory above this quantity will
result in wastage and blocking of funds.
Inventory Requisition
In this particular module the objective is to take the inventory
requirement from different departments of the Student. This is
done by filling up of Inventory Requisition form by different
16
departments. In this particular form the Department head will fill

up the quantity of Inventory required, Grade / quality of
Inventory required etc. Department head should take into
account the minimum inventory required, maximum inventory
required and current inventory available.
Inventory Order Assessment
This is back end program written in Java Servlets. This program
is actually assessing the Inventory requirements of the
Company.
It takes the Input from the Inventory Requisition form and
processes it i.e. it then compares the Inventory demanded by
different departments with the minimum inventory required
according to customers order.
After processing the results it makes the final Inventory
requirement for different departments and then call for Suppliers
list that provides these inventory.
Supplier Performa
In this module the quotation for Inventory requisition is called
from different suppliers. Suppliers will be filling up the Proposal
Form in which they will be stating that:
 How much quantity of goods they can provide?
 In what time?
 What will be pay mode?
 Are they providing Credit?
 What will be the Quantity of goods?
17
All this information will be stored and then will be processed by

the program which then taking into account all the above filled
information will finalize the supplier. Inventory ordered should
be cost effective and should be of good quality
Inventory Placing
Now the supplier is selected we have to finally place an order.
We have to fill up order placing form in which we will be filling
up information like Date of Placing of Order, Quality required,
Transportation Mode, Mode of Payment, Advance Payment,
Supplier ID, Department ID, price per Item etc. and the order
will be placed.
Order Received
Next module is Order Received module in this module we will
be recording the Inventory received information. We will be
comparing order placed and order received data i.e. weather
there is uniformity between these two or not. We will be
comparing Date of placing order and Date of receiving order,
Quality of Inventory, Quantity of order received and Quantity of
order placed, Transport mode etc. If there is uniformity in both
then we will be assessing the amount to be paid to the supplier.
We will be taking into account the quantity received, price per
Item and advance paid.
Quality Assessment
We have received order then it have to pass through quality
checks by R&D Department and Department head has to fill up
quality assessment form indicating the quality of goods
received.
18
Inventory Bills & Challans

Last thing in Inventory control is making up of payment. When
we finally make up payment we have to draw bill & challan
indicating the amount paid, mode of payment, Supplier ID,
Receipt ID etc.
19
REQUIREMENT OF THIS SYSTEM

Effective Inventory Management system requires an effective
control system for inventories. A proper inventory system can
not solve the problem of liquidity but also increases the profits.
The followings are the required tools or techniques

of inventory management control:
1. Determination of Stock Levels.
2. Determination of safety stock.
3. Selecting a proper system of ordering inventory.
4. Determination of Economic Order Quantity (E.O.Q).
5. A.B.C. Analysis.
6. V E D Analysis.
7. Inventory Turnover Ratio.
8. Aging Schedule of Inventories.
9. Classification and codification of Inventories.
10. Preparation of Inventory Reports.
11. Lead Time.
12. Perpetual Inventory system.
13. JIT control system.
20
1. Determination of Stock Levels:

An efficient inventory system management requires that a
firm should maintain an optimum level of inventory costs are the
minimum and at the same time there is no stock-out which may
result in loss of production. Various stock levels are discussed as
such.
a) Minimum Level-
This represents the quantity which must be maintained
in hand at all times. Means stock are less than that
then production system will hamper. Following factors
are taken into account while fixing minimum stock
level:
 Lead time
 Rate of Consumption
 Nature of Material
Minimum stock level can be calculated with the help of
following formula
Re-ordering level-(Normal consumption x Normal Re-order

period)
21
b) Re-ordering Level-
When the quantity of stock reaches at a certain level
then the next order should be placed to get materials
again. The order should be sent before Minimum stock
level.
Re-ordering level can calculated by following

formula
Maximum consumption x Maximum re-order period
c) Maximum Level-
It is the measure of quantity of stock which a firm
should not exceeds its stock. If the quantity exceeds
the level it will be overstocking. A firm should avoid
this kind of situation to make the cost of production
lowest. It depends on such factors like:
 The availability of capital
 The maximum requirements of a company or
firm
 The availability of space for storing the materials.
 The rate of consumption of materials during the
lead time
22
 The cost of maintaining the stores.

 The possibility of fluctuation of the prices
 The nature of the materials. If the materials is
perishable in nature then it cannot be stored for
long
 Availability of the materials. If the material is
available for a certain period then it have to be
stored from earlier.
 Restriction imposed by the government.
 The possibility of changes in fashion will also
affects it
The following formula may be used to calculate Maximum
stock level:
Maximum Stock Level= Re-ordering Level+Re-ordering
Quantity-(Minimum Consumption x Minimum Re-ordering
period)
23
d) Danger level-
It is the level beyond which materials should not fall
in any case. If danger level arises then immediate steps
should be taken to replenish the stock even the more
cost is incurred to meet the level.
Danger level is determined with the following

formula:
Danger level=Average Consumption x Maximum re-

order period for emergency purchase
.
e) Average stock level-
This is calculated as such:
Average stock level= Minimum stock level x ½ of re-

order quantity
24
2. Determination of safety stocks:

Safety stock is a buffer to meet some unanticipated increase in
usage. The usage of inventory cannot be perfectly forecasted. It
fluctuates over a period of time. The demand of the materials
may fluctuate and the delay of getting the material may be faced
by a firm or a company. This situation is called the problem of
Stock-Out. In order to avoid such kind of problem the firm may
use the safety stock levels.
3. Ordering System Inventory:
The basic problem of the inventory is to decide the re-order
point. This point indicates when an order should be placed. The
re-order point is determined with the help of these things :
i. Average consumption rate
ii. Duration of lead time
iii. Economic Order Quantity
There are three prevalent system of ordering and a concern can
choose any one of them:
 E.O.Q. system
 Periodic re-order system
 Single order system
25
4. Economic Order Quantity:

A decision about how much to order at time is very significant
in the inventory management system. The quantity which will be
purchasing should neither be higher nor be lower because costs
of buying and carrying materials are too high. Economic Order
Quantity is the size where carrying cost and the ordering cost
per order is same. In determining the E.O.Q. it is assumed that
cost of managing inventory is made up solely of two parts i.e.,
ordering costs and carrying cost.
a) ordering Costs-
These are the cost which are associated with the purchasing
or ordering of materials. The costs include---
 Costs of staff posted for ordering of goods. A purchase
order is processed and then placed with the suppliers.
The labour spent on this process is included in this
cost
 Expenses incurred on transportation of goods
purchased.
 Inspection costs of incoming materials.
 Cost of stationery, typing, postage, telephone charges
etc.
26
b) Carrying cost-
These are the costs of holding the inventories. This costs
will not be incurred if inventories are not carried. The cost
include:
 The cost of capital invested in the inventories. An
interest will be paid on the amount locked-up in
inventories.
 Cost of storage which could have been used for other

purposes.
 The loss of materials due to deterioration and

obsolescence. The material may deteriorate with
passage of time. The loss of obsolescence arises whn
the materials in stock are not usable because of change
in process of product.
 Insurance cost.
 Cost of spoilage in handling of materials.
27
Assumption of EOQ. While calculating the following

assumptions are made.
1) The supply of goods is satisfactory. The goods can be
purchased when these are needed.
2) The quantity to be purchased by the concern is certain.
3) The prices of goods are stable. It results to stabilize
carrying costs.
When above conditions are satisfied then EOQ can be
calculated by the help of following formula
2 AS
EOQ=
√ I
Where A = Annual consumption per year.

S = Cost of placing an order.
I = Inventory carrying costs of one unit.
28
5. A-B-C Analysis:
The materials are divided into a number of categories for
adopting a selective approach for material control. It is generally
seen that in manufacturing concern, a small percentage of items
contribute a large percentage of value of consumption and a
large percentage of items of materials contribute a small
percentage of value. In between these two limits there are some
items which have almost equal percentage of value of materials.
Under A-B-C analysis, the materials are divided into three parts
viz., A, B, and C.
A-B-C analysis helps to concentrate more efforts on category
‘A’ since greatest monetary advantage will come by controlling
this item. This item should be kept under a constant review so
that a substantial material cost may be controlled. The control of
‘C’ items may be relaxed and these stocks may be purchased for
the year. A little more attention should be given towards ‘B’
category items and their purchase should be undertaken at
quarterly or half-yearly intervals.
29
6. VED analysis-
The VED analysis is mainly made for spare parts. The
requirement and urgency of spare parts is different from that of
material. A-B-C analysis may not be properly used for spare
parts. The demand for spares depends upon the performance of
the plant and machinery. Spare parts are classified as Vital (V),
Essential (E), and Desirable (D). The vital spares se must for
running the business the smoothly and these must be stored
adequately. The non-availability of vital parts will cause havoc
in the concern. The E type of spare are also necessary but their
stocks must be kept at low level. The stocking of D level parts
can be avoid sometimes. If the lead time of these spares is less,
then stocking of these spares can be neglected.
The classification of spares under three categories is an

important decision. Wrong classification of any spares will
create difficulties for production department. The classification
of spares should be left to the technical staff because they know
the need , emergency, usage of the spares.
30
7. Inventory Turnover Ratio:

Inventory turnover ratio is calculated to indicate whether
inventory have been used efficiently or not. The purpose is to
ensure the blocking of only required minimum funds in
inventory. The Inventory Turnover Ratio also known as Stock
Velocity. It is normally calculated as sales/average inventory
cost. Inventory conversion period may be calculated to find the
average time taken for clearing the stocks.
Symbolically,
Cost of goods sold

Inventory Turnover Ratio = Average Inventory Cost
Net sales
Or = ( Average ) Inventory
Days∈a year
And Inventory Conversion Period= Inventor y turnover ratio
31
8. Aging Schedule of Inventories:

Classification of inventories to the period (age) of their holding
also helps in identifying slow moving inventories thereby
helping in effective control and management of inventories. The
following table shows aging of inventories of a firm.
AGING SCHEDULE OF INVENTORIES

ITEM CLASSIFICATIO DATE OF AMOUNT % OF TOTAL
NAME/CODE N ACQUISITION
AGE
001 0-15 days June 25, 30000 15
2005
002 16-30 days June 10, 60000 30
2005
003 31-45 days May 50000 25
20,2005
004 46-60 days May 5, 40000 20
2005
005 61 and above April 12, 20000 10
2005
32
9. Classification:
The companies are using various kind of inventories at a time in
their production department. Finished goods may be a type,
spares may be a type and etc. the inventories should be classified
and code numbers should be assigned for their identification.
The identification or the short name is essential not only for the
big companies or firm but for the small firms also. Lack of
proper classification mat lead to reduction in production.
10. Inventory reports:

Form effective inventory control management should be kept
informed with the latest stock position of different items. This is
usually done by preparing periodical inventory reports. This
report should contain all information necessary for managerial
action. On the basis of this report manager takes decision
whenever necessary. The more frequently this reports are
prepared the less will be the chances of lapse in the
administration of inventories.
33
11. Lead Time:

Lead time period means the laps between the order time and the
supply time laps. There is a direct relation between lead time
and inventories. Suppose the lead time is of one month, so any
action has taken to bring the materials will take a minimum of
one month. During this time the inventory must be in hand as
consuming department will have to be served from the inventory
held.
12. Perpetual Inventory System:

The stock taking may either be done annually or continuously.
A schedule is prepared to take the stock taking for the various
store bin(store room). One bin is selected at random and the
goods are checked as per shown in the store ledger. Then some
other bin are selected and done the same. The personnel
associated with store keeping are not told of stock taking
programme because store room is chosen randomly. The
Institute of Cost and Management Accounts, London defines
perpetual inventory system as “ a systemof records maintained
by the controlling department, which reflects the physical
movements of stocks and their current balance ”
34
13. Just In Time(JIT) Inventory Control System:

Just In Time philosophy, which aims at eliminating
wastefrom every aspect of manufacturing and its related
activities, was first developed in Japan. Toyota introduced this
technique in 1950’s in Japan, however U.S. companies started
using this technique in 1980.
According to official terminology of C.I.M.A., JIT, is “a
technique for the organization of work flows, to allow rapid,
high quality, flexible production whilst minimizing
manufacturing work and stock level”.
There broadly two aspects-a)just in time production, b)just in
time purchasing.
Just in time inventory control system involves the purchase of
materials in such away that delivery of purchased material is
assuered just before their use of demand. The system implies
that the firm should maintain a minimum of inventory and rely
on suppliers to provide materials just in time to meet the
requirement.
35
SOMR OTHER IMPORTANT METHODS OF

MAINTAINING INVENTORY:
There have some methods without which the inventory
calculation is not complete. They are:
A)First In First Out.(FIFO)
B)Last In First Out.(LIFO)
C)Simple Average Method.
FIFO means the inventory enters first will be using first to

produce the product. It means the date of purchasing is
important here.
LIFO means the late comer inventory will arrived first to the
production department.
In simple average method first all the required raw material is
bought and then price are fixed as per their price average. As the
average price taken the fear of losing money is not their, their
may not be profit but it is sure that there is no loss.
Without this three method there have some other methods like:
 Highest In First method

 Next In First Out method
 Base Stock method
36
CHAPTER
3
37
38
WHAT DO THE DESIGN MEANS:

Design means how the competency of a system should be feel or
understand by a company or the firm who will be demanding for
a Simple Inventory system.
In this chapter we are going to discuss about the process we
have described and discussed so far. If one person says that he
knows the E.O.Q. system formula but he does not even know the
efficiency of the formula then it will become good for nothing.
So for using the Simple Inventory system this is the most usefull
portion.
As we have discussed so far all about the inventory
management means how it can help one firm and how the
decision would be taken on the basis of the different formula;
now it’s the time to show some practical fields where such kind
of application is needed.
In this chapter we will be going to have some practical oriented
problems and search for the solution in the next chapter. During
this we will learn how to use E.O.Q. and other system like LIFO
and FIFO.
39
SPECIMEN OF A BIN CARD:

Simple Inventory
BIN card
Material:Dscription…….. Maximum Level………..
Code………….. Minimum Level………...
Store Ledger Folio No….. Ordering Level…………
Bin No. …………………... Danger Level…………
Normal Quantity of Purchase……
Receipts Issues Balance
Date G.R.N. Quantity Date S. Quantity Date Quantity Audit

Or Req. Notes
Debit No.
No.
40
The specimen form of a Stores Debit notes:
XYZ Ltd.
From Department……… Serial No. ……

Credit job/Work Order No….. Date…………..
Item Description Code Quantit Rate Value Remarks
No. y
Prepared Received Cost Office
by……… by……… Priced by………
Authorized Bin No. …………. Checked
by…… Store Ledger by………
Folio...
Stores Debit Note
41
The specimen of a store requisition:

Lindwal Ltd
Stores Requisition
Department…………. No. ………….
Job Process………….. Date…………
Descriptio Code Quantity Rate Value Remarks
n
Prepared by………. Storeman…………. Cost Office

Authorized by…….. Received by………. Priced by………….
Bin No. ………… Checked by………..
Store Ledger
Folio……………
42
The specimen form of a material transfer note is given below:
ABC Ltd.
Material Transfer Note
From Department………… Job No…….Cr. Serial No…….

To Department…………… Job No…….Dr. Date………….
Description Code Quantity Rate Value Remarks
Prepared by……….. Received by…………. Cost Office

Authorized by………. Priced by…………
Checked by………..
43
The specimen of a material analysis sheet is given below:
Dey’s Ltd.
Material Analysis Sheet
Week ending on……….
Date Requisition Total Jobs Process Production
No. Amt. Overhead
73 74 75 76 1 2 3 Rs.
Rs Rs. Rs. Rs Rs. Rs Rs.
. . .
Total
44
A professional version of Bin Card:

Bin Card
Description: Pigments Bin No.:36
Symbol:X-40 Maximum Level: 50000 kg.
Unit: Kg. Minimum Level: 8000 kg.
Ordering Level: 25000 kg.
Ordered Date Receipts Issues Balan Remarks
ce
No. Quantity Date Challa Quantity(k Re Quantity Quantity
and (kg.) Recd. n No. g.) q. (kg.)
Date No.
15 0f 1000 6.4.0 April
1.4.0 .
2 0 2
1
6.4.02 Reserved 2 25000
2 1 13000 12000
3 2 2000 10000
Job Qty Date
3 40000
No (kg.) issue
d 4 13 30000 3 10000 30000
6 4 5000 25000
6 500 24500 Shortage
7 34500
48 10000 5 4500 30000
45
A very important role in the inventory management system is

plated by the FIFO(First In First First Out) and LIFO(Last In
First Out) method. Below we are trying to show a form of
trading account that how this two method can help to define
profit:
Particulars FIFO LIFO Weighted

Average
Sales:
250 @rs. 64 16000
350 @rs. 70 24500
100 @rs. 74 7400 47900 47900 47900
Opening Stock 3900 3900 3900
Purchase:
100 @rs. 41 4100
200 @rs.50 10000
400 @rs. 51.875 20750 34850 34850 34850
38750 38750 38750
Less: Closing Stock 5187 3900 5000
Cost of Goods Sold 33563 34850 33750
14338 13050 14150

Gross Profit(Sales – Cost of goods
sold)
46
A professional version of using E.O.Q.:

Let firm has following problems
Ordering quantities Price per kg (rs.)
Less than 500 12.00
500 but less than 1600 11.80
1600 but less than 4000 11.60
4000 but less than 8000 11.40
8000 and above 11.20
The annual requirement for the material is 8000 kg. The

ordering cost per order is rs. 12 and the stock holding cost is
estimated at 20% of material cost per annum. It is required to
compute the most economical propose the firm should accepts.
During our discussion on the previous chapter on page no. 26 we

have seen how to calculate the Economic Order Quantity. By
using the method now we can calculate the best economic order
which can be placed. Here we found the efficiency of Simple
Inventory____________________
47
Computation of most economical ordering quantity

1)Ordering quantity size(kg) 400 500 1600 4000 8000
2)Number of Orders
20 16 5 2 1
¿
3)Average Inventory[kg]
200 250 800 2000 4000
4)Value of average inventory
(Average inventory x Price)
2400 2950 9280 22800 44800
5)Annual total cost: Rs. Rs. Rs. Rs. Rs.

a)Cost of Material 96000 94400 91200 92800 89600
b)Ordering cost(No.of orders x 12) 240 192 60 24 12
c)Carrying cost(20% of value of 480 590 1856 4560 8960
average inventory)
96720 95182 94716 95784 98572

Total annual cost(a+b+c)
48
The specimen of a goods received is given below:
XYZ Ltd.
Goods Receive Note
From…………
No. ……………….
Date………………
Delivery Note No ./ Challan No. ………
Item Description Code Purchase Quantity Quantity Quantity Net Rate Value Remarks
No. Order Ordered Received Rejected Quantity
No. received
Transport Bill No. Stores Accounts Reference Inspection

Ledger done by
49
The specimen form of a purchase order is given below:
Dey’s Ltd.
Purchase Order
To,
M/s. …………..(name of suppliers) No. ……
Date……….
Reference No. ………..
Purchase Requisition No….
Dear sir,
Your offer contained in your quotation No. ….Dated….. is
hereby accepted. Please supply the following materials as per the
terms and condition mentioned over leaf:
Ite Cod Descriptio Quantit Rat Valu Deliver Remark

m e n y e e y Date s
No. No.
Exise duty
Sales Tax
Discount allowed
Package Charge
Package to be credited on return Purchase
manager/manager
50
Carriage on Delivery for Dey’s Ltd.

Terms on payment
51
Now there have some images used in company to maintain the

inventory:
52
This below form is to about the billing of a company:
53
The below image is showing a software for maintaining

inventory:
54
This form is about to collect data about the person who buys or
holds or responsible for inventory:
55
The following shows the way in which inventory records are

kept in a firm:
56
The following form are used when any projects are under taken:
57
CHAPTER
4
58
59
Through out the session we have discussed a proper inventory

management which is measure of a good company. The
company which can maintain its inventory properly can achieve
a great success in their business. The best concept of
implementing inventory management system is cost
minimization and profit maximization.
See, the system was designed so that when materials hit the
safety stock level, it was time to reorder. Despite information
in the system that very clearly alerts users that it is time to
reorder by saying "NOW!" again when it is time to reorder,
there were still issues regarding the actual reordering. There
was even a countdown by the system that allows users to know
how many days they have left until they have to reorder. It was
really quite clear.
So as per the practical problems in managing this kind of

situation the thing like E.O.Q. can help me a lot. One important
thing is that now a days in the era of internet the data can be
send through EDI(Electronic Data Interchange).
60
The factors that prevent improvements in the inventory

management system are not usually related to the ERP software
tools that are purchased and implemented, but rather to the way
the company is organized and managed. Reduction in inventory
requires business process change--and it is at that point that
organizational structure, employees, and the internal audit
department come into play.
Inventory is the most difficult working capital component to
manage because many of the contributing "owners" that affect it
are cross-functional. Because no single functional area owns the
inventory process, the involvement of the internal audit
department is likely to be valuable.
The technique of inventory proportionality is most appropriate
for inventories that remain unseen by the consumer. As opposed
to "keep full" systems where a retail consumer would like to see
full shelves of the product they are buying so as not to think they
are buying something old, unwanted, or stale; and differentiated
from the "trigger point" systems where product is reordered
when it hits a certain level; inventory proportionality is used
effectively by just-in-time manufacturing processes and retail
applications where the product is hidden from view.
61
There are some effective sides of implementation:

 Less risk and less costs.
 Capital Cost
 Storage and Handling Cost
 Risk of price decline
 Risk of obsolescence
 Risk deterioration in quality

 Quick calculation of closing stock
 Helpful in formulating purchase policies
 Check on stores personnel
 Helpful in production planning
 Investments under check
 Errors and shortage are easily declared
 Increasing efficiency of Organisation
 The right quantities of materials are purchased or produced
at the right time
 Investment in inventory are reduced
 Wastes are eliminated
62
 Carrying and holding cost of inventory reduced as because

of less inventory
 Reduction in cost of quality such as inspection, cost of
delayed delivery, early delivery, processing documents etc.
resulting into overall reduction in cost.
63
CHAPTER
5
64
65
Effective internal audit assessments of company inventory

management systems can be defined by a seven-step process.
1. Obtain management commitment. Management must clearly
communicate the company's vision, strategy, and short- and
long-term goals and objectives. Many functional areas impact
inventory, yet no one functional area owns the inventory
process. To improve the inventory management system, senior
management must lead the way; be highly visible; communicate
clearly; and deliver focused, full-time leadership.
2. Develop process objectives and deploy the team. The internal
audit department should identify an internal audit representative
and a representative from each functional area, including sales
and marketing, engineering, purchasing, planning and
production, and finance and cost accounting.
Once the team for each functional area has been established, the
group should determine process objectives, milestones, and due
dates. An illustration of typical process objectives by functional
area can best be described in the "Value Chain" section of the
"Inventory Management" chart on pages 42-43.
3. Identify the process. The team should identify and evaluate all
the inventory-related activities within the functional area.
Benchmark data should then be acquired for all key processes or
activities, and comparisons should be made between current
activities and those of the "best in class
4. Define the process. Team members should familiarize
themselves with the processes that affect inventory for each
functional area. The team should then diagram the process and
66
document its impact on the company's inventory. Every step of

the process should be included. Sticky notes on a wall may be a
useful tool for creating the diagram.
5. Measure the process. The team should define performance
measurements based on knowledge gathered in steps 3 and 4.
Performance measurements act as agents of change; as the old
saying goes, "What gets measured, gets done." Unfortunately,
many companies have far too many performance measures and
far too few that are relevant to their strategy. Pour key ground
rules should define performance measurements:
* Accessibility: The data required must be readily available.
* Simplicity: The performance driver must be understandable.
* Relevance: The performance driver must support the defined
strategy and must be actionable. It must be tied to the strategic
goal and not simply applied within a functional area. Can it pass
the "so what" question to get to the next level?
* Reliability: The performance driver must be predictable. Can it
be influenced by uncontrollable factors? Performance
measurements should also:
* Provide managers and employees with critical information
about efficiency and effectiveness of business operations.
* Serve as a foundation for continuous improvement initiatives.
* Be valid and statistical.
* Be tied to compensation.
67
6. Assess for improvement. The team should evaluate the results

of the functional process reviews and determine a rough order
magnitude for potential inventory reduction and increased
operational efficiencies.
7. Communicate the results. The team should communicate the
results of the functional review to each functional area manager
and request feedback on the assessment. The internal audit
department may then consolidate the assessment results from
each functional area and prepare a consolidated operational
report with a recommended action plan to upper management.
68
BIBILOGRAPHY
DURING MY DOCUMENTATION THE FOLLOWING

SITES AND THE CONTENTS HELP ME A LOT:
1. " http://findarticles.com/p/articles/mi_m4153/is_6_57/ai_69759746/
2. http://www.roseindia.net/blog/2008/01/04/erp-inventory-
management/
3. http://en.wikipedia.org/wiki/Inventory
4. http://www.google.co.in/images?hl=en&gbv=2&tbs=isch
%3A1&sa=1&q=inventory+management+form&aq=f&aqi
=&aql=&oq=&gs_rfai=&start=0
5. FINANCIAL MANAGEMENT by Shashi K. Gupta, R.K.
Gupta, Neeti Gupta.(Kalyani Publication)
69

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PREPARATION OF ERP INVENTORY MANAGEMENT

Preparation Of ERP Inventory Management

Under the guidance of Prof. Anand Mohan

MBA-002, Reg. No.:09291040

The completion of this project gives me great satisfaction & I

Every enterprise needs inventory management system for

Inventory management system offers a complete set of inventory

According to Paul Hamerman, vice president of enterprise

According to Ray Wang, senior analyst at Altimeter Group “you

WHY INVENTORY MANAGEMENT IS REQUIRED:

Key features in ERP inventory management modules are:

Another feature of ERP inventory management is the ability

o Raw Material is the product which actually carries out the

o W.I.P. is the satge of stock which lies between raw

o Consumable works as catalysts which directly never

o Finished Goods is simply understandable. It is ready to use

o Spares also form the part of the finished goods. The

Inventory Management module is sub divided into

Minimum Inventory Assessment

What is Minimum Inventory Requirement?

departments. In this particular form the Department head will fill

 How much quantity of goods they can provide?

 What will be pay mode?

 Are they providing Credit?

 What will be the Quantity of goods?

All this information will be stored and then will be processed by

Inventory Bills & Challans

REQUIREMENT OF THIS SYSTEM

The followings are the required tools or techniques

1. Determination of Stock Levels:

Re-ordering level-(Normal consumption x Normal Re-order

Re-ordering level can calculated by following

Maximum consumption x Maximum re-order period

 The cost of maintaining the stores.

Danger level is determined with the following

Danger level=Average Consumption x Maximum re-

Average stock level= Minimum stock level x ½ of re-

2. Determination of safety stocks:

4. Economic Order Quantity:

 Cost of storage which could have been used for other

 The loss of materials due to deterioration and

 Cost of spoilage in handling of materials.

Assumption of EOQ. While calculating the following

Where A = Annual consumption per year.

The classification of spares under three categories is an

7. Inventory Turnover Ratio:

Cost of goods sold

8. Aging Schedule of Inventories:

AGING SCHEDULE OF INVENTORIES

10. Inventory reports:

11. Lead Time:

12. Perpetual Inventory System:

13. Just In Time(JIT) Inventory Control System:

SOMR OTHER IMPORTANT METHODS OF

FIFO means the inventory enters first will be using first to

 Highest In First method

WHAT DO THE DESIGN MEANS:

SPECIMEN OF A BIN CARD:

Date G.R.N. Quantity Date S. Quantity Date Quantity Audit

The specimen form of a Stores Debit notes: