WINTER INTERNSHIP PROJECT ON

INVENTORY MANAGEMENT

Under the guidance of Presented by:

Santosh Kumar S. Devya Sinha

Jamshedpur Utilities and Services

Company
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Jamshedpur Utilities and Services Company (Jusco) is India's only comprehensive
urban infrastructure service provider. Carved out of Tata Steel, from its Town
Services Division in 2004, the company's mandate was to convert an obligatory
service into a customer-focused sustainable corporate entity.

Jusco’s core competency is “creation and subsequent operation and maintenance of

urban infrastructure and services”.

ABOUT JUSCO

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The Jamshedpur Utilities & Services Company (JUSCO) provides water and
sanitation services in Jamshedpur, a major industrial center in east India that is
home to Tata steel. Until 2004, a division of TATA steel provided water to the city’s
residents which was further converted into an independent utilities providing
company named JUSCO.
Jamshedpur Utilities & Services Company is today India’s only comprehensive
urban infrastructure service provider. A Tata enterprise, its services focus on the
Tata group purpose “to improve the quality of life of the communities we serve”.
Its services include water, power, infrastructure, public health and horticulture
services. Jusco works alongside civic bodies, large and small industries, local
government bodies, communities and individuals to deliver value through
sustainable solutions.
JUSCO intends to rise to the challenge of meeting India’s need for infrastructure
development in a sustainable manner by anticipating and addressing the country’s
growth needs such that the ability of future generations to meet their own needs is
not compromised.
It has also incorporated a modern system to track & resolve customer complaints
called JUSCO SAHYOG KENDRA (JSK) with the single focus of reducing time
required for resolution of customer complaints and improving the quality of
services provided.
As a result of JUSCO’s dedication, efficiency and service quality improved
substantially over the following years.
JUSCO’s vision is to be preferred provider of water supply and other urban
services throughout India.

FUNCTIONS OF JUSCO
 Ensuring planned development of the city taking into consideration requisite
infrastructure and future growth.

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  Providing and maintaining high quality of service level in respect of water.

Areas of business
 Engineering procurement and construction: Planning,
development and maintenance of township infrastructure.

 Power services division: Operation and maintenance of power

infrastructure and distribution of power.

 Integrated township management: Providing civic and municipal

services in an integrated manner in a full-fledged municipal area.

 Water Supply

ACHIEVEMENTS OF JUSCO

JUSCO, India’s first and only private sector comprehensive urban infrastructure
services provider, is winning contracts all over India, and awards and accolades
from around the world.

 JUSCO was awarded the national urban water Award 2009 in the “citizen
services & governance” category by honorable president of India.

 JUSCO was honored with “Award for TPM Excellence, category A 2008” by
Japan institute of planned maintenance (JIPM).

 JUSCO was conferred with a highly recommended Certification as “one of the

most effective water service provider on the Indian subcontinent “during the
GWI Global water intelligence Award 2008 function held at London.

 5th Asia Water Management Excellence Award at Kuala Lumpur for its
contribution towards the water sector in the Indian subcontinent and Asia.
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 JUSCO’s achievements within Jamshedpur have been so remarkable so
remarkable that in 2005 the city was selected as one of the six around the world
to participate in the United Nations Global Compact Cities Pilot program.

INVENTORY MANAGEMENT
Meaning
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Inventory or stock is the goods and materials that a business holds for the ultimate
goal of resale or repair. Inventory management is a discipline primarily about
specifying the shape and placement of stocked goods.

Types of Inventory
Inventory is generally categorized as raw materials, work-in-progress, and finished
goods.

 RAW MATERIALS
Raw materials are inventory items that are used in the manufacturer's conversion
process to produce components or finished products. These are unprocessed
materials used to produce a good. Examples of raw materials include aluminum
and steel for the manufacture of cars, flour for bakeries production of bread, and
crude oil held by refineries.

 WORK-IN-PROCESS
Work-in-progress inventory is the partially finished goods waiting for completion
and resale; work-in-progress inventory is otherwise known as inventory on the
production floor. For example, a half-assembled airliner or a partially completed
yacht would be work-in-process.

 FINISHED GOODS
Finished goods are products that have completed production and are ready for sale.
Therefore, finished goods inventory is the stock of completed products. These
goods have been inspected and have passed final inspection requirements so that
they can be transferred out of work-in-process and into finished goods inventory.
Retailers typically refer to this inventory as "merchandise". Common examples of
merchandise include electronics, clothes, and cars held by retailers.

Inventory management techniques

1) Identify responsible person

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Identify a dedicated person who can take up the role of an inventory manager. This
will ensure you that someone has a clear overview of your inventory and can give
quick answers about the stock in hand. You might end up with a big mess if there is
no one responsible and several people are performing separate tasks.

2) Set Re-order levels

In simple words, re-order levels are the minimum amount of items that must be in
stock at all times. When inventory level goes below the predetermined levels, you
know it’s time to order more. Setting re-order levels will systemize the process of
procuring the products. This decision will be based on how quickly the item sells,
and how long it takes to get back in stock, etc.

3) Categorize your operating inventory

It’s obvious that we are always focused on the high selling items. But while
managing inventory efficiently, we need to give more attention to others items as
well. For this, experts suggest using an ABC analysis to efficiently
manage inventory. This is basically categorizing products that require a lot of
attention from those that don’t. A simple way to do this is to go through the entire
stock list and add each item to one of three categories:
A – high-value items with a low frequency of sales
B – low-value items with a high frequency of sales
C–moderate value items with a moderate frequency of sales

4) JIT
The just-in-time inventory system is a management strategy that aligns raw-
material orders from suppliers directly with production schedules. Companies use
this inventory strategy to increase efficiency and decrease waste by receiving
goods only as they need them for the production process, which reduces inventory
costs.

5) FIFO
FIFO stands for ‘First-in, first-out’. It’s an important concept of inventory
management. It simply means that your oldest stock (that was first entered in the
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system) gets sold first (first-out), not your newest stock. This is particularly
important for perishable products so you don’t end up with unsellable expired
items.

6) Consider Drop Shipping

Drop Shipping simply means direct delivery of goods from the manufacturer to the
retailer or customer. It is really the ideal scenario from an inventory management
perspective. The profits are gained on the difference in amount between the
wholesale price and retail price

7) Forecasting
One of the most important functions of good inventory management is accurately
predicting demand. But it’s not as simple as it sounds; perhaps this is the hardest to
do. There are so many variables involved and things can get quite unpredictable.
Here are a few things that can help you project sales numbers better:
 Previous year’s sales during the same week/month
 Current year’s weekly/monthly/quarterly growth rate
 Confirmed sales from contracts and subscriptions
 Seasonality and holidays
 Planned promotions
 Current trends in the market

8) Barcode Data Collection

The perpetual inventory system is highly dependent on timely and accurate
reporting. Manual reporting can be plagued by delays, errors, missing transactions
and undue burden on the workforce to collect and enter the data.

Inventory valuation methods

Inventory valuation is a key aspect of your inventory management toolkit, because
it allows you to evaluate your Cost of Goods Sold (COGS) and, ultimately, your
profitability. Different inventory valuation methods – such as FIFO, LIFO, and
WAC – can affect your bottom line in different ways, so it’s important to choose
the right method for your business.

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1) First-in-First-Out Method (FIFO)
According to FIFO, it is assumed that items from the inventory are sold in the
order in which they are purchased or produced. This means that cost of older
inventory is charged to cost of goods sold first and the ending inventory consists of
those goods which are purchased or produced later. This is the most widely used
method for inventory valuation. FIFO method is closer to actual physical flow of
goods because companies normally sell goods in order in which they are purchased
or produced.

2) Weighted Average Cost (WAC)

Weighted Average Cost (WAC) method of inventory valuation uses a weighted
average to determine the amount that goes into COGS and inventory. The weighted
average cost method divides the cost of goods available for sale by the number of
units available for sale. The WAC method is permitted under both GAAP
and IFRS accounting.

PROCESS OF INVENTORY MANAGEMENT IN

JUSCO

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 1. Purchase Requisition
A purchase requisition form is a document used by a department to request that the
purchasing department order materials or merchandise. In other words, this form is
used by departments to notify the purchasing department that raw materials are
needed for production or merchandise is needed for the sales floor.

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Process for a Purchase Requisition
While every company has their own processes that are unique to their own
operation, there are basic processes that are relevant to purchase requisitions.
Purchase requisition is initiated from user to procurement.
Here are the four key steps:

1. A need is identified

2. The necessary information is collected

3. A decision on the purchase is made

4. The purchase requisition is compared to the invoice and issued

A draft of a Purchase Requisition

Purchase Requisition includes following criteria:

 Material

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  Quantity

 Unit of Measure

 Expected Value

 Delivery

2. Request for Quote (RFQ)

A request for quote (RFQ) is a type of procurement solicitation in which a
company asks one or more potential outside vendors to submit a quote for the
completion of a specific task or project. Typically, an RFQ seeks an itemized list of
prices for something that is well-defined and quantifiable, such as hardware. An
RFQ allows different contractors to provide a quotation, among which the best will
be selected.
This process is initiated by procurement to supplier. It includes the following:
 Material
 Quantity and Quality requirements – approval of sample required, volume
required monthly/yearly, personnel skills and competencies, quality
requirements and certifications, warranties and guarantees
 Specification- description or part number, quality requirements
 Payment terms
 Delivery

The RFQ Process

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 3. Quotation
Quotations refer to the most recent sale price a stock, bond, or any other asset
traded. In addition, most assets classes also quote the bid and ask price that
determines the final sale price.

Quotation in purchasing is called request for quotation (RFQ) or draft purchase

order. It's an early stage of purchase order which there are no confirmation yet
from the supplier about the price or the availability of the product. It initiates
between supplier and procurement.

Quotations include the following:

 Material

 Quantity

 Specification

 Delivery

 Rate per unit

 Payment Term/ Methods

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 4. Negotiation
Negotiation in the purchasing process which covers the period from which the first
communication is made between the buyer and the supplier until the final signing
of the contract.
A purchasing professional must aim to be successful in
their negotiations with suppliers to obtain the best price with the best conditions for
every item that is purchased.

Negotiation Objectives:
Purchasing staff should enter all negotiations with clearly defined objectives.
Without having objectives the possibility for the purchasing professional to
concede on price, quality or service is significantly raised. The negotiator should
enter into discussions with the vendor with precise objectives that they wish to
achieve for their company.

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The objective should not be absolute and should allow for some flexibility. For
example, a negotiator may have worked with the vendor on their objectives on
price and service, but not quality. When the vendor starts to discuss quality, the
negotiator should refrain from any agreement where they are without a set
objective.

5. Purchase Order
When there is a confirmation by the supplier about the prices and availability if the
products then purchase order occurs.

A purchase order is a formal request or instruction from a purchasing organization

to a vendor or a plant to supply or provide a certain quantity of goods or services at
or by a certain point in time.

6. Goods Receipt Note (GRN)

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Record of goods received at the point of receipt. This record is used to confirm all
goods have been received and often compared to a purchase order before payment
is issued.

Goods receipt note (GRN)

Purchase order

Challan or Invoice

Storage Location
7. Reservation
This means that a request has been made to the warehouse to keep materials ready
for withdrawal at a later date and for a certain purpose. This simplifies and
accelerates the goods receipt process.
A reservation for goods issue can be requested by various departments for various
account assignment objects (such as cost center, order, asset, etc.)
The purpose of a reservation is to ensure that a material will be available when it
is needed. It also serves to simplify and accelerate the goods issue process and
prepare the tasks at the point of goods issue.
It is also important that reservations are taken into account by Material
Requirements Planning (MRP), which means that required materials are procured
in time if they are out of stock.

8. Store Verification Procedure

Weekly stock verification is done by the store personal. Stock verification at Jusco
is done by internal corporate auditor on half-yearly basis.
However an annual stock verification is also done by external agency through
Finance & Accounting.

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 The list of items to be verified is generally taken out by inspecting agency
from SAP. After obtaining a list of items for verification, the balance as per the
statement generated is to be verified with the physical balance available at the
respective storage location. After verification of Stock, the inspecting agency
prepares the stock verification report. If any discrepancy is observed, it is required
to be noted in the verification report and signed jointly by the person conducting
the verification and store-in-charge of the location.

9. Regular, Slow-moving, Obsolete, and Damaged

item
 Regular Items are monitored based on minimum stock level (MSL) based on
monthly average consumption and ROP is set to maintain the buffer stock.
 Procurement / Departments declare the materials not in transaction for last 1
year to be considered as slow-moving items. To check the requirement of the
above said slow-moving materials, these materials are offered to all the other
departments. If a potential user is identified, these materials are transferred
to the storage location of the potential user.
 The Remaining materials are then declared as “Obsolete”.

10. Write-Off
The Write-off sanction is taken from CFO based on proper identification and
authentication of obsolete materials which are then written-off from the accounts
books. These obsolete materials are then auctioned, identifying the best buyer of
these obsolete materials. It does not go as materials, they are sold as scrap.
Damaged/ broken materials shall be disposed off after obtaining approval from
CFO.

11. Documentation at stores

The following documents are maintained at stores:

Folders

Authorization Letters
Material Reservation
Risk register document
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Stock Verification report (Auditor)
Weekly stock verification Report
Good Receipt invoice

Registers

Material incoming register

PROPOSED STORES PROCESS

GOODS RECEIPT
(Suppliers logistics route , customers as free
issued, lease).

Materials Requiring Materials not

Entry at security
Weighment requiring
gate weighment

Identification and
traceability

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Store Verification Procedure
Documentation
(Issue through at stores
SAP, Tally, other sources)
 Difference between old procedure and modified
procedure of inventory management

 In the old method the distribution channel was a concern of only the
inventory management department, which originated from the head of
department and ended with the store supervisor. Contradicting to this in the
modified procedure the distribution channel is a concern of all the sectional
heads, heads of department, financial analyst, stores in charge as well the
finance & accounts.

 Records were maintained through the use of sap and excel in the old
procedure, where as in the new one data is maintained through sap or tally
and excel.

 Sr DGM ensures the implementation of the old procedure where as in the

modified procedure CFO ensures effective implementation.

 In the modified method weighment is done in order to record the tare weight
to assess the net weight.

 In the new procedure process of sap and tally is mentioned as to how

materials are to be issued.

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