a study on inventory classification technique for effective store management at milma

Inventory Classification Techniques For Effective Store Management At Milma

A STUDY ON

“INVENTORY CLASSIFICATION TECHNIQUES FOR EFFECTIVE

STORE MANAGEMENT AT MILMA, PALAKKAD DAIRY.”

MINOR PROJECT REPORT

Submitted to

UNIVERSITY OF CALICUT

In partial fulfillment of the requirement for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION

Submitted by

ABDUL AZEEB P S

(REG NO -LCAMMBA001)

3rd Semester MBA (2012-2013)

LEAD COLLEGE OF MANANGEMET –DHONI, PALAKKAD

Under the guidance of

Mr. RAM KRISHNAN. S

ASSISTANT PROFESOR

LEAD COLLEGE OF MANAGEMENT – DHONI, PALAKKAD

LEAD COLLEGE OF MANAGEMENT


CHAPTER 1

INTRODUCTION



1.1 INTRODUCTION

Stock that a firm keeps to meet its future requirement of production and sales is

called inventory. The basic reason for holding inventory is to keep up the production

activities unhampered. It is neither physically possible nor economically justifiable to wait

for the stock to arrive at the time when they are actually required. Therefore, keeping of

inventory is a must for the efficient working of a business unit. “A STUDY ON

INVENTORY CLASSIFICATON TECHNIQUE FOR EFFECTIVE STORE

MANAGEMENT AT MILMA, PALAKKAD DAIRY” is undertaken in order to know the

inventory controlling techniques for maintaining manufacturing assembly used by the

company and to know inventory performance and position of the company.

This project gives a descriptive outlook of the inventory controlling techniques used in

MILMA, PALAKKAD DAIRY. Presently the company is not using any scientific method of

inventory controlling techniques to manage the inventory. This study mainly aims at

suggesting an inventory controlling technique which will help the company to save its cost

and ensure uninterrupted production. In inventory management, differences between

physical and record inventories continuously plague industry. Methods for reducing these

variations contribute to a reduced risk of stock out, spoilage, and excessive inventory. A

greater understanding of the importance of inventory classification can help solve inventory

management problems as well as increase profitability.

The data collection of this study is done through observation conducted in material and store

department of the company. The collected data’s are analyzed and interpreted by using

simple statistical and analytical tools.



1.2 ORGANIZATION PROFILE

The Indian dairy industry has made rapid progress since independence .A large number of

modern milk and milk products factories have been established. These organized dairies have

been successfully engaged in the routine commercial production of pasteurized milk and milk

products. India is the world’s largest milk producer that is certified by the international dairy

industry. Dairy is a place where handling of milk and milk products is done and technology

refers to the application of scientific knowledge for practical purpose. Dairy technology has

been defined as that branch of dairy science, which deals with the processing of milk and

manufacture of milk products on an industrial scale. In India, dairying has been practiced as a

rural cottage industry since the remote past. Semi-commercial dairying started with the

establishment of military dairy farms and co-operative milk unions throughout the country

towards the end of the nineteenth century. During the earlier years, each household in those

countries maintained its „family cow‟ or secured milk from its neighbor who supplied those

living closed by. As the urban population increased, fewer households could keep cow for

private use.

Gradually farmers within easy driving distance began delivering milk over

regular routes in the cities. This was the beginning of fluid milk-sheds which surround the

large cities of today. Prior to the 1850s most milk was necessarily produced within a short

distance of the place of consumption because of lack of suitable means of transportation and

refrigeration. The Indian dairy industry has made rapid progress since Independence. A large

number of modern milk plants and products factories have since been established. These

organizes dairies have been successfully engaged in the routine commercial production of

pasteurized bottle milk and various Western and Indian dairy products. With modern

knowledge of the protection of milk during transportation, it became possible to locate dairies

where land was less expensive and crops could be grown more economically. In India, the

market milk technology may be considered to have commenced in 1950, with the functioning

of the Central Dairy of Aarey Milk Colony and milk product technology in 1956with the

establishment of AMUL Dairy, Anand. The industry is still in its infancy and barely10% of

our total milk production .The most valuable resources that a dairy business can have are

reliable and productive workers. Today’s tight labor market means that workers have many

employment choices. Dairy producers need to do all they can to keep their best employees

and attract other excellent workers to their team.



A Success story on the Dairy scene in India during the sixties was the farmer-

owned AMUL Co-operative in Anand (Kaira District, Gujarat) with is integrated approach to

production, Procurement, Processing and Marketing on Co-operative line. Over the years,

this evolved itself into a model, based on self rule by farmers ensuring maximum returns to

them. This model came to known as ‘ANAND PATTERN’. The efficiency of the Model was

worth replication. Therefore, a dairy programme called “OPERATION FLOOD’ was

launched in 1970 under the aegis of the National Dairy development Board (NDDB). NDDB

functioned as the technical consultants and the erstwhile Indian Dairy Corporation as the

funding agency. The ideology followed by “PERATION FLOOD’ was the remunerative

linking of rural milk producing centers with the urban demand centers so as to build up a

viable diary industry.

Kerala was included in the second phase of ‘Operation Flood’ (OF II 1980-

1987). The eight southern districts from Trivandrum to Trichur were included in the area of

the project which had a total outlay of Rs. 29 Crores. From 1980 KCMMF was involved in

concentrated spearhead team activities, identification of potential milk collection area,

formation of milk Co-operatives and extension activities. MILMA came into its own on 1-4-

1983 when it took over the revenue earning activities of Procurement and Marketing from the

Govt. in April1983. Encouraged by the response of (OF II), the same areas were included in

the third phase of ‘Operation Flood’ (OF III). This phase had an outlay of Rs.18 crores.

The growing popularity of the concept of Co-operativisation Section has

spurred the authorities into exploring new vistas. The uncovered northern areas from

Palakkad to Kasargode were thus brought under the Co-operative umbrella with the inception

of the NORTHE KERALA DAIRY PROJECT. This Project is funded by the Swiss

Development Co-operation through the National Dairy Development Board. The Motto of

Co-operation of “of the people, by the people and for the people” is foundation of the “three

tier system” followed by the Organization. The Power of the Producer members is felt right

from the grass root village Co-operative Society to the Board governing the State level

Federation through this system of functioning. At the village level we have the Village Milk

Co-operative Societies which have the local milk producers as its members. The Village Co-

operatives unite at Regional level to form Regional Co-operative Milk Producers’ Unions.

These Unions later federate at the State level to form State Federation.



1.3 COMPANY PROFILE

Milma was established in April 1980 by Kerala Co-operative Milk Marketing

Federation (KCMMF). The mission of Milma is ‘Farmer’s Prosperity through consumer

satisfaction’. The objective of Milma is to build up a viable dairy industry in the State and to

provide constant market and stable price to the dairy farmers for their produce. The Malabar

Cooperative Milk Producers’ Union (MCMPU), head quartered at Kozhikode (Calicut) in

Kerala, was started in 1991. It has the 6 Northern Districts of Kerala as its area of operation

and an average milk procurement of 4 lakh litres per day. The Union operates 5 Dairy plants

and 2 Milk Chilling Centers. It has a Milk Products Dairy too. The network of Bulk Milk

Coolers is in fast expansion. Currently a BMC capacity of 2 lakh litres is in place with 75

BMCs installed in the villages. The products comprise Market milk (4 lakh litres per day),

curd (40, 000 Kg /Day), Ghee (150 MT per month), Ice-cream (1500 Litres per day), Peda

(10 MT per month), Butter milk, Milk Lollies, Sterilized flavored milk etc.

MILMA, PALAKKAD DAIRY

Palakkad dairy is one of the three dairies under Malabar Regional Co-operative Milk

producer’s Union(MRCMPU). This dairy was established in 1967 as Palakkad co-operative

milk supply union limited under Madras C-operative society.It is located in kallepully , 5

km away from Palakkad town. In 1983 Kerala Co-operative milk marketing federation.

Malabar Regional Co-operative Milk Producers’ Union (MRCMPU) Limited is a

Union of more than 1000 village level dairy co-operative societies located in the six northern

districts of Kerala State in South India and it is owned by the dairy farmers who are members

of each affiliated society and who live in the area of operation of these societies. The

societies function on the pattern of the societies affiliated to the world famous Anand Milk

Union Ltd. (AMUL) at Anand (Gujarat), India and hence are also known as Anand Pattern

Co-op Societies or “APCOS”. The area of operation of MRCMPU Ltd. comprises of the six

revenue districts of North Kerala, viz Kasaragod, Kannur, Wayanad, Kozhikode,

Malappuram and Palakkad. The Union is affiliated to the state level apex body-Kerala Co-

operative Milk Marketing Federation Ltd (Operating under the trade name MILMA) along

with its sister Unions at Ernakulam and Thiruvananthapuram. The head office of the Union is

located at Peringolam under Kunnamangalam post office near Kozhikode.



MISSION

“Farmers prosperity through customer satisfaction”.

OBJECTIVES OF MILMA

To channelize marketable surplus from rural areas to urban deficit areas to maximize

returns to the producer and provide quality milk and milk products to the customers.

To carry out activities for promoting production, procurement, processing and

marketing of milk and milk product for economic development of farming

community.

To build up farming community

To provide constant market and suitable price to the dairy farmers for their product.

PRODUCTS

Milma–SmartMilk

Contains 1.5 percent fat and 9.0 percent non-fat solids. Ideal for elderly people since

fat content is low. Can also be used for whitening tea/coffee and for the preparation of milk

based drinks like fruit shakes. Fat will not settle at the top since the milk is homogenized.

Available in 500 ml sachets.

MilmaTonedMilk

Contains 3.0 percent fat and 8.5 percent non-fat solids. Ideal for consumption by children in

the form of milk or in the form of brown beverages like Bournvita. Fat will settle at the top if

Milk is kept still for some time. Available in 500 ml sachets.

HomogenisedTonedMilk

Contains 3.0 percent fat and 8.5 percent non-fat solids. Ideal for whitening tea/coffee and for

the preparation of solid curd. Since the milk is homogenised, whitening capacity is more and

less amount of milk will be sufficient for whitening tea/coffee. The milk will not stick to

vessels on heating and hence washing of used vessels is easier. Fat will not settle at the top

since the milk is homogenised. Available in 500 ml sachets.



Milma-RichMilk

Contains 4.5 percent fat and 8.5 percent non-fat solids. Ideal for the preparation of payasam

and sweets. Fat will settle at the top if Milk is kept still for some time since the milk is not

homogenised. Available in 500 ml sachets.

SkimmedMilkCurd

Contains 10 percent non-fat solids. Ideal for making curries. Prepared under hygienic

conditions by fully mechanized processes. Cannot be used as starter-curd for converting milk

into curd. Available in 500 ml sachets.

Milma-Sambharam(ButterMilk)

Contains 4.5 percent total solids and natural flavour extracts. Ideal as thirst quencher during

hot season. Prepared under hygienic conditions using fully mechanized processes. Available

in 200 ml sachets.

MilmaGhee

Contains 99.7 percent milk fat. Manufactured by melting fresh cream under hygienic

conditions. Milma ghee has the ideal golden yellow color due to presence of natural carotene

in cow milk. (In contrast, ghee manufactured from buffalo milk is white in color). No

artificial colors or flavors are added in Milma ghee. Natural aroma and flavor of ghee is

retained since ghee is produced directly from fresh cream instead of going in for melting

stored butter

Milma-sipup

Contains the mixture of flavors, color powders, sugar and this mixture is added to the

milk. Flavors used are chocolate, orange, pineapple, pista etc.



1.4 RESEARCH PROBLEM STATEMENT

Every organization faces problems with regards to the storage of inventory, due to which

certain problems like missed deliveries and lack of adequate materials etc arises. The material

and storage department of MILMA, PALAKKAD DAIRY also face such issues. When

discussion was held with concerned authority due to lack of a scientific method of inventory

controlling technique, the proper maintenance of inventory of assembly parts are difficult. So

the study was conducted with respect to inventory management technique which can be

implemented in maintaining the assembly parts of manufacturing machinery.

1.5 OBJECTIVES OF THE STUDY

1.5.1Primary Objective

To study the inventory controlling technique for assembly parts of machinery in MILMA,

PALAKKAD DAIRY.

1.5.2Secondary Objectives

To determine whether the present system of inventory management and control meet

the requirement of the organization.

To suggest and recommend a new system which could meet most of the inventory

requirement of the organization

1.6 RESEARCH METHODOLOGY

The basic concept of research methodology refers to the way in which companies conduct

their research and how they collect the data they need. Whenever a company or organization

needs to investigate a particular area of their business dealings, they need to adopt the most

suitable research methodology for the job.

The research methodology used here is descriptive research, of which the data analysis and

interpretation is done through pie charts.



1.6.1 POPULATION TO BE STUDIED

The population to be studied here is the total assembly items ranging around 30 in numbers.

1.6.2 SAMPLING PROCESS

Sampling process used here is convenient sampling,

1.6.3 DATA COLLECTION METHOD

Data collection method is unstructured questioner and unstructured interview with the

officials and data from the records.

1.6.3.1 (A) Primary data

The primary data is collected through observations and unstructured interview with the

officials.

1.6.3.2 (B) Secondary data

The secondary data is from the files, annual reports, journals, text book, internet websites and

other records. Which have already passed through the statistical process are the secondary

data used.



1.7 SCOPE OF THE STUDY

The overall study can prove or make an outcome which would be helpful in the future for

inventory management of MILMA, PALAKKAD DAIRY. The scientific inventory

management techniques for keeping the assembly parts will always justify the flow of

operations of all the machines without fail. The study makes it easy for the management to

concentrate on the assembly parts which has to be always kept in inventory and which is of

least botheration.

1.8 LIMITATION OF THE STUDY

The primary and major limitation of the study was the time period allotted for the

study which was only 21 days for any research it would have been insufficient, but

still the study has been done to the best of the available time.

The study is related to MILMA, PALAKKAD DAIRY. Only of which no other

population is considered.

The findings and suggestions cannot be generalized due to the presence of trade union

and other things.

The study covered a wide concept hence wide collection and coverage of information

was not easily possible.



CHAPTER 2

REVIEW OF LITERATURE



INVENTORY CLASSIFICATION

Every management problem is a decision problem. Decision is an important

task that all organization has to take. The allocation of resource is a common issue to all

organizations. Organizations have to acquire, allocate and control the factors of production

which are necessary for the achievement of the business’s objectives. Inventory management

as one of the key activities of business logistics, has always been a major pre occupation of

the company’s survival and growth.

Hugo, Bandenhorst-weiss and Van Rooyen (2002): The aim of inventory management is to

hold inventories at the lowest possible cost, given the objectives to ensure uninterrupted

supplies for ongoing operations. When making decision on inventory, management has t find

a compromise between the different cost components, such as the cost of supplying

inventory, inventory holding costs and costs resulting from insufficient inventories.

Ballou (2004): “Inventories are stockpiles of raw materials, suppliers, components, work in

process, and finished goods that appear at numerous points throughout a firm’s production

and logistics channel”

Chase, Jacobs and Aquilano( 2004):Inventory is the stock of any item or resource used in

an organization.

Wild (2002): Inventory control is the activity which organizes the availability of items to the

customers. It coordinates the purchasing, manufacturing and distribution functions to meet

the marketing needs. This role includes the supply of current sale items, new products,

consumables, spare parts, obsolescent items and all other supplies. Inventory enables

accompany to support the customer service, logistic or manufacturing activities in situations

where purchasing or manufacturing of the items is not able to satisfy the demand. Lack of

satisfaction could arise either because of the speed of purchasing or manufacturing is too

protracted, or because quantities cannot be provided without stock.

Gordon Carson: "Inventory control is the process whereby the investment in materials and

parts carried in stocks is regulated, within pre-determined limits set in accordance with the

inventory policy established by the management”.



Richard Pibernik, (2004): In his study “Advanced available-to-promise: Classification,

selected methods and requirements for operations and inventory management” gives the

theoretical framework for the development of models and algorithms supporting order

quantity and due date quoting. At first, alternative generic AATP systems will be identified

on the basis of relevant classification criteria. Based upon this classification, the AATP

planning mechanisms will be detailed for two generic AATP types. On the basis of the

introduced AATP types and the description of selected models we finally derive

requirements, which operations and inventory management have to meet in order to ensure a

successful application of AATP.

Huiskonen (2001): “ The classification of inventory is an essential part of the inventory

management systems, in order to :i) determine the adequate level of managerial attention; ii)

allow the choice of demand forecasting and inventory control methods; and iii) establish

different performance goals at the inventory turnover and service levels between categories.

However, most of the surveyed works use the classification of parts only to choose the

demand forecasting model instead of the inventory control method.”

Zimmerman, (1975): Vilfredo Pareto was an Italian economist who studied wealth and

income. He realized that only 10% of the population held 90% of the wealth. The value of

this realization went unrecognized until the 1930's. In the 30's, the scientific community

applied this principle to inventory management. The similarities between the distribution of

wealth and inventory item value distributions are striking. The value of a small number of

inventory items consume most of the inventory's value, this is the underlying theme of the

ABC principle. Pareto's principle implies that the money saved controlling the lower value

items is available for the management of high value items. Companies which disregard this

simple principle usually encounter a cyclical inventory pattern. This pattern has two

elements: Part 1 – To avert another stock out, management spends a lot of money on

preventive measures. Part 2 – Management’s concern about increased inventory costs sparks

an across the board cost reduction. This cyclical pattern pushes the company into a downward

spiral. To bypass this inventory scenario, managers should categorize inventory into “vital

few” and “trivial many” groups, and concentrate inventory control efforts on the “vital few.”



Flores and Whybark (1986, 1987):

The traditional ABC classification has generally been based on just one criterion – the annual

dollar usage of the items. However, depending on what part of the organization is concerned;

the criterion of what is most important with respect to inventory items can change .There are

other criteria that represent important considerations for management such as lead time,

obsolescence, availability, substitutability, criticality, reparability, commonality, certainty of

supply, impact of stock-out, inventory cost, number of requests for the item in a year,

scarcity, durability, order size requirement, stock ability, and demand distribution.

Partovi and Anandarajan (2002):

Cohen and Ernst used a statistical technique called cluster analysis to group items across

many dimensions. The main advantage of this approach is that it can accommodate a large

number of combinations of attributes, which are significant for both strategic and operational

reasons. However, this requires substantial data and the use of factor analysis and a clustering

procedure may render this technique impractical in a typical stockroom environment.

Furthermore the clusters themselves must be re-evaluated in order to classify new stock

items. Therefore, there is a chance that previously classified stock may end up being

reclassified differently every time new items are added. This may disturb the inventory

control procedure. In short, their method may pose difficulties for inventory managers.

Partovi & Burton (1993): Proposed a classification method for ABC analysis using the

Analytic Hierarchy Process. In the model, inventory items are ranked based on several

criteria, with weights assigned to each criterion. The three basic steps for this process are (1)

the description of a complex decision problem as a hierarchy, (2) the use of pair-wise

comparisons to estimate the relative weight (importance) of the various elements on each

level of the hierarchy, and (3) the integration of these weights to develop an overall

evaluation of decision alternatives. However, when the number of criteria is increased, the

consistency rate will be very sensitive and reaching a consistent rate will be very difficult.



Guvenir and Erel (1998): Proposed a method to learn the weight vector along with the cut-

off values for multi-criteria inventory classification. The proposed method called genetic

algorithm for multi-criteria inventory classification (GAMIC) used a genetic algorithm to

learn the weights of criteria along with AB and BC cut-off points from pre-classified items.

Once the criteria weights are obtained, the weighted scores of the items in the inventory are

computed similarly to the approach with AHP. Then the items with scores greater than the

AB cut-off value are classified as class A; those with scores between AB and BC as class B;

and the remaining items are classified as class C. This method had the advantages and

disadvantages of the AHP method. In addition, the classification results, to some extent,

depended on the pre-classified items.

Puente et al. (2002): Presented a fuzzy method of classifying different productive items of a

company. Whereas the rankings obtained using the classical method were based on

information about costs and demand over a period of time in the past. This new method

allowed new fuzzy information about the future to be included, thus allowing stricter control

of the fuzzy ‘A-items’ that resulted from this new classification. The authors, however, only

considered two criteria of demand and cost in their study. The authors’ model was in fact a

bi-criteria rather than a multi-criteria model.

Partovi (2002): Presented an artificial neural network for ABC classification of inventory.

They utilized two learning methods in their approach: back propagation and genetic

algorithm. The reliability of their proposed methods was tested by comparing their

classification ability with two data sets. The methods were compared with the multiple

discriminant analysis technique. Their results showed that both proposed methods had higher

predictive accuracy than discriminant analysis. There was no significant difference between

the two learning methods used to develop the artificial neural network. However, the

application of these methods could become cumbersome for inventory managers.



Scholz-reiter, Bernd Heger,(2012): Inventory classification based on ABC-XYZ analysis is

of high importance for strategic supply and inventory control. It is common to perform the

analysis with past consumption data. In this context, the purpose of this study is to test

hypothesis that an integration of demand forecasts can improve the performance of item

classification, in particular the performance of ABC-XYZ analysis.

Design/methodology/approach- For the study, real data of an industrial enterprise in the

mechanical engineering sector (focal company) were analyzed and evaluated .Findings – The

study shows that a comprehensive data analysis of the focal company can recommend a

specific implementation of the ABC-XYZ classification. In contrast to the classic method of

making the ABC-XYZ analysis based on consumption data only, the approach developed in

this paper offers considerable advantages. These are quantifiable in respect to an assumed

optimal reference classification. Originality/value- The evaluation of the results is very

promising and applicable to other branches besides mechanical engineering.

Bhattacharya, Arijit sarkar, Bijan, (Aug2007): A distance based multi criteria consensus

framework on the concepts of ideal and negative ideal solutions is presented for the ABC

analysis of inventory items. This article demonstrates a way of classifying inventory items

using the TOPSIS (Technique for order preference by similarity to ideal solution) model. The

methodology has been applied in a pharmaceutical company located in the heart of Kolkata,

India. The technique takes into account various conflicting criteria having incommensurable

units of measurement. Unit costs, lead time, consumption rate, perishability of items and cost

storing of raw materials have been considered for the case study. By using TOPIS, the items

are ranked in categories A, B, and C. The suitability, practicability and effectiveness of the

TOPIS method used in ABC classification have been judged using the analysis of variance

(ANOVA) technique. A simulation model has been used to compare the proposed model with

that of the traditional ABC classification technique.



Huiskonen and Boyl (2001): The items classification is an essential part of the inventory

management systems, in order to: i)determine the adequate level of managerial attention;

ii)allow the choice of demand forecasting and inventory control methods; and iii)establish

different performance goals at the inventory turnover and service levels between categories.

However, most of the surveyed works use the classification of parts only

to choose the demand forecasting model instead of the inventory control method

Torabi, S.A., Hatefi, S,M., (Sep2012): Organizations classically employ the ABC analysis

to have an efficient control on a large number of inventory items the customary classification

method considers just one criterion, i.e., the annual dollar usage to classify the inventory

items. Recently, several methods have been developed for ABC inventory classification,

especially DEA-like models that account for other important criteria leading to more logical

results in practice. However, these models assume that all criteria are of quantitative type and

hence cannot handle the qualitative criteria which are not stated numerically but as linguistic

terms. To alleviate this shortcoming, this paper proposes a modified version of an existent

common weight DEA-like model by using of some concepts in the current imprecise DEA

(IDEA) models and then applies it for ABC inventory classification in the case where there

exist is both quantitative and qualitative criteria inventory classification (MCIC) problem are

discussed. A case example is also illustrated to demonstrate the applicability of the modified

model in the context of MCIC problem as well as its superiority over existing approaches.

Flores and Whybark, (1988): multiple criteria classification is developed by first creating a

matrix with one criterion evaluated on the horizontal axis and the other criteria on the vertical

axis. Managers may use any combination of criteria when evaluating a part's classification.

Thus, each part will have an A, B, or C classification under each criterion. After combining

the ABC classifications for the two criteria, the part will fall into one of the nine matrix cells.

Each of the nine matrix cells will have a different treatment rule associated with it. Having

nine different treatment rules is likely to increase inventory management costs and inventory

errors. With this in mind, the next step is to pull the items onto the diagonal so that they fall

into the AA, BB, or CC cells. This method is also called as dual criterion method.



Huh et al. (2000): A-B-C: Analysis was evolved on the principle of graduated control

stringency. The degree of control was equated with the frequency of reviews of a given

inventory record. Controlling tightly means reviewing frequently, which tends to determine

order quantity? A-items would be reviewed frequently and order in small quantities to keep

inventory investment low. B-items less, C-items still less. But this approach does not take

into account the fact that sometimes a low-valued small item of critical nature needs as much

attention as high-valued A-class item, so that inventories also need to be classified according

to Vital, Essential and Desirable (V -E-D), which in essence means that stress is more on

importance rather than on value Again, inventories may also be classified according to Fast-

moving, Slow-moving and Non-moving items in order to see the rapidity of their use and

toweed out the unnecessary ones. This is aimed at keeping the total inventory size down and

reduces investment.

Keyes and Babai (2009:) proposed an additional category of items D, in the ABC

Classification, composed of the critical parts of just launched products, defined subjectively,

which should be kept in inventory and in this category for the first six months of their

“lifetime”. Once the matter of the initial order has been discussed, we will consider hereafter

the normal or repetitive phase of spare parts life cycle. The relevant aspect to be studied in

the next section is the inventory control; basically answering the questions of when and how

much to replace of each part.

Martin and Stanford( 2007) :The ABC inventory classification process is an analysis of a

range of distinct items, referred to as stock keeping units (SKUs), such as finished products

into three categories: A – outstandingly important; B – of average importance; C – relatively

unimportant, as a basis for an inventory control 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 even less to C. The larger firms, with larger inventory investments, will often use a 12-

class system.



CHAPTER 3

DATA ANALYSIS AND INTERPRETATION



3.1: TOTAL ASSEMBLIES USED IN THE PRODUCTION PLANT OF MILMA,

PALAKKAD DAIRY.

5% 4%4%

8%11%

13%

19%9%

17%

2%

1% 1%1%1%1%1%1% 1%

TOTAL ASSEMBLY ITEMS

3 ply Ghee Cartons for 100ml

3 ply Ghee Cartons for 200ml

3 ply Ghee cartons for 500ml

Curd Film

Flex Spout Pet Jar 100mlPVC Heat Shrink Lables500ml

Sachet Trays

Wide Mouth PP Polymer Jar200ml

Ghee Tins-15kg

2 Core 1Sq.mm SMS Union Gasket 1"SSAlen csk Screw6*20 MS Plate Washer1"SSAlen csk Screw6*25 Capacitor 2.5 MFDTrolly Wheel Oil Seal

Chart No: 3.1

INFERENCE:

From the study it is found that, Wide Mouth PP Polymer Jar 200ml, Flex Spout, 3Ply Ghee

Cartons for 100ml, Pet Jar 100ml and PVC Heat Shrink Labels 500ml constitute the major

portion of the assembly items with each constituting 17%, 11%, 19%, 13% and 9%

respectively.



3.2: CLASSIFICATION OF TOTAL INVENTORY ON THE BASIS OF

INTRODUCTION OF FSN

Table No: 3.1

35%

45%

20%

CLASSIFICATION OF TOTAL INVENTORY

FAST MOVINGSLOW MOVINGNON MOVING

Chart No: 3.2

INFERENCE: From the study it is found that out of the total assembly parts, 35% is fast

moving items, 45% is slow moving items and 20% non moving items. This in terms shows

the inefficiency in proper usage of a scientific classification tool in managing inventory.


ITEM PERCENTAGE

FAST MOVING 35

SLOW MOVING 45

NON MOVING 20

TOTAL 100


3.3: THE PERCENTAGE OF FAST MOVING ITEMS IN THE TOTAL INVENTORY

ITEM PERCENTAGE

Fast Moving 35

Others 65

Total 100

Table No: 3.2

35%

65%

FAST MOVING ITEMS

Fast MovingOthers

Chart No: 3.3

INFERENCE: From the study it is found that the constituent percentage of fast moving

items out of the total inventory is 35%.Even though it is not put under any classification

which in terms results in inefficiency of store department in handling inventory.



3.4: CONSTITUENT PERCENTAGE OF WIDE MOUTH PP POLYMER JAR IN

TOTAL FAST MOVING ITEMS

Table No: 3.3

16%

84%

CONSTITUENT PERCENTAGE OF WIDE MOUTH PP POLYMER JAR

Wide Mouth PP Polymer Jar 200mlOthers

Chart No: 3.4

INFERENCE: It can be easily inferred from the study that of the total fast moving items

16% is Wide Mouth PP Polymer Pet Jar of 200ml.Whic in terms shows that Wide mouth PP

Polymer Jar of 200ml is a fast moving item and it should be kept in high priority.


ITEM PECENTAGE

Wide Mouth PP Polymer Jar

200ml

16

Others 84

Total 100


3.5: CONSTITUENT PERCENTAGE OF PVC SHRINK LABELS IN TOTAL FAST

MOVING ITEMS

ITEM PERCENTAGE

PVC Shrink Labels 500ml 18

Others 82

Total 100

Table No: 3.4

18%

82%

CONSTITUENT PERCENTAGE OF PVC SHRINK LABELS

PVC Shrink Labels 500mlOthers

Chart No: 3.5

INFERENCE: The survey clearly shows that of the total fast moving items 18% is PVC

Shrink Labels for 500ml.Even though it is not marked under any classification which in terms

results in inefficiency due to stock out.



3.6: CONSTITUENT PERCEENTAGE OF PET JAR 100ML IN TOTAL FAST

MOVING ITEMS

ITEM PERCENTAGE

Pet Jar 100ml 13

Others 87

Total 100

Table No: 3.5

13%

87%

CONSTITUENT PERCEENTAGE OF PET JAR

Pet Jar 100mlOthers

Chart No: 3.6

INFERENCE: From the study it is found that out of the total fast moving items 13% is Pet

Jar of 100ml,which indicate that it is an item that must be kept under high priority, even

though it is not put under the classification of fast moving items, which in terms results in

inefficiency in meeting the demand .



3.7: CONSTITUENT PERCENTAGE OF SACHET TRAYS IN TOTAL FAST

MOVING ITEMS

Table No: 3.6

10%

90%

CONSTITUENT PERCENTAGE OF SACHET TRAYS

Sachet TraysOthers

Chart No: 3.7

INFERENCE: It is clear from the study that the constituent percentage of Sachet Trays out

of the total fast moving inventory is 10%, even though it is not classified as fast moving

inventory item, which in terms result in uncertainties in production.


ITEM PERCENTAGE

Sachet Trays 10

Others 90

Total 100


3.8: CONSTITUENT PERCENTAGE OF 3PLY GHEE CARTON IN TOTAL FAST

MOVING ITEMS

ITEM PERCENTAGE

3ply Ghee Cartons for 100ml 9

Others 91

Total 100

9%

91%

CONSTITUENT PERCENTAGE OF 3PLY GHEE CARTON

3ply Ghee Cartons for 100mlOthers

Chart No: 3.8

INFERENCE:

It can be easily inferred that of the total fast moving items 5% is consisted of 3Ply Ghee

Cartons.which shows that, 3ply ghee cartons can be marked as an item of moderate prioriy

under fast moving items, so that the risk of uncertanity can be kicked off.



3.9: SLOW MOVING ITEMS IN THE TOTAL INVENTORY

ITEM PERCENTAGE

Slow Moving 45

Others 55

Total 100

Table No: 3.8

45%55%

SLOW MOVING ITEMS

SLOW MOVING OTHERS

Chart No: 3.9

INFERENCE: It can be easily inferred that of the total items 45% is slow moving items and

the rest is 55%. It shows the necessity of bringing a control in stocking these items, so that

loss due to over stock of materials can be avoided.



3.10: CONSTITUENT PERCENTAGE OF GHEE TIN FOR 15KG IN TOTAL SLOW

MOVING ITEMS

ITEM PERCENTAGE

Ghee Tin for 15kg 14

Others 86

Total 100

Table No: 3.9

14%

86%

CONSTITUENT PERCENTAGE OF GHEE TIN FOR 15KG

Ghee Tin for 15kgOthers

Chart No: 3.10

INFERENCE:

From the study it was found that of the total slow moving items 17% is, Ghee Tin for 15kg.

This in terms shows that, Ghee Tin for 15kg is a slow moving item and the stocking of this

item should be controlled so that loss due to non usage can be avoided.



3.11: CONSTITUENT PERCENTAGE OF 2 CORE 1SQ.MM IN TOTAL SLOW

MOVING ITEMS

ITEM PERCENTAGE

2 Core 1Sq.mm 12

Others 88

Total 100

Table No: 3.10

12%

88%

CONSTITUENT PERCENTAGE OF 2CORE 1SQ.MM

2 Core 1sq mmOthers

Chart No: 3.11

INFERENCE: It can be easily inferred from the study that of the total slow moving items

12% is constituted of 2 core1Sq.mm. This shows that 2 core 1sq.mm is to be classified as a

slow moving item and need to be brought out under control.



3.12: CONSTITUENT PERCENTAGE OF NON MOVING ITEMS IN THE TOTAL

INVENTORY

ITEM PERCENTAGE

Non Moving 20

Others 80

Total 100

Table No: 3.11

20%

80%

NON MOVING ITEMS

Non Moving Others

Chart No: 3.12

INFERENCE

From the study it has been found that 20% of the total inventory is constituted of non moving

items. This in term shows the importance of bringing a classification so that, the assembly

items which are less used can be identified and bring a control on their purchase.



3.13: CONSTITUENT PERCENTAGE OF ALUMINIUM FOILS IN TOTAL NON

MOVING ITEMS

ITEM PERCENTAGE

Aluminum Foils 14

Others 86

Total 100

Table No: 3.11

14%

86%

CONSTITUENT PERCENTAGE OF ALUMINIUM FOIL

Aluminium Foil

Others

Chart No: 3.13

INFERENCE: From the study it was found that the constituent percentage of Aluminium

Foils in total non moving items is 14%. This indicates that Aluminium Foil is to be classified

as a non moving item, so that the purchase of this item can be monitored to ensure non useful

storage.



3.14: CONSTITUENT PERCENTAGE OF SILICOCN ALSTONE IN TOTAL NON

MOVING ITEMS

ITEM PERCENTAGE

Silicon Alstone 9

Others 91

Total 100

Table No: 3.13

9%

91%

CONSTITUENT PERCENTAGE OF SILICOCN ALSTONE

Silicon AlstoneOthers

Chart No: 3.14

INFERENCE: It can be inferred that the constituent percentage of Silicon Alstone is 9%.

This in terms shows the necessity of classifying this item as nonmoving for bringing better

control in reducing storage cost.



3.15: CONSTITUENT PERCENTAGE OF CHECK VALVE IN TOTAL NON

MOVING ITEMS

ITEM PERCENTAGE

Check Valve 1

Others 99

Total 100

Table No: 3.14

1%

99%

CONSTITUENT PERCENTAGE OF CHECK VALVE

Check VlveOthers

Chart No: 3.15

INFERENCE: From the study it has been found that of the total non moving items the

constituent percentage of check valve is 1%.This in terms shows that, Check Valve is a non

moving item which needs only less preference in storage.



3.16 SWOT ANALYSIS

The study of this SWOT analysis shows that the ‘strengths’ and ‘opportunities’ far outweigh

‘weaknesses’ and ‘threats’. Strengths and opportunities are fundamental and weaknesses and

threats are transitory.

3.16.1 STRENGTH

Determine an organization’s strong points. This should be from both internal and external

customers. Strength is a “resource advantage relative to competitors and the needs of the

markets a firm serves or expects to serve”. Following are the strengths of MILMA.

Large space for storage of materials.

Well equipped store.

Good brand name in Kerala market.

Strike free campus.

Part of a Leader in the market for Cattle Feed.

Sufficient and capable marketing personnel.

Continuous profit making company thus financially healthier organization.

No labor problems, hence no man days left...

Employs best professionals in the field.

3.16.2 WEAKNESS

Determine an organization’s weaknesses, not only from its point of view, but also more

importantly, from customers. Although it may be difficult for an organization to acknowledge

its weaknesses it is best to handle the bitter reality without procrastination. A weakness is a

“limitation or deficiency in one or more resources or competencies relative to competitors

that impedes a firm’s effective performance.

No sophisticated equipments for handling of materials.

Perishable commodity.

Not much service rendered to dairy cattle health care.



Low productivity of cattle.

Recruitment and selection is done through P.S.C. The power is not in the hands of

H.R department.

Unable control the procurement price and selling price.

Absorbing a significant portion of the increase in the ingredient costs by itself.

Lack proper campaigns to popularize milk and milk based products.

Frequent complaints especially on the packing by the consumers.

Promotional measures are non-aggressive.

Lack of public relations programmers.

3.16.3 OPPORTUNITIES

Another major factor is to determine how organizations can continue to grow within the

marketplace. After all, opportunities are everywhere, such as the changes in technology,

government policy, social patterns, and so on. An opportunity is a major situation in a firm’s

environment. Key trends are one source of opportunities. Identification of a previously

overlooked market segment, changes in competitive or regulatory circumstances,

technological changes, and improved buyer or supplier relationships could represent

opportunities from the firm. Following are the opportunities of MILMA.

Scope for improvement in inventory control using scientific tools.

Scope of increasing consumption of Milk

The company can tap newer markets because the company has its own potential,

Company has enough facility for future expansion.

No restrictions on capacity installation and expansion,

Scope for innovations in product development, packaging and presentation.

Expanding market will see creation of enormous job and self employment

opportunities.

Opening of the world market offers opportunities for utilization of byproducts of the

SS dairy industry for manufacturing value added products for import substitution.



3.16.4 THREATS

A threat is a major unfavorable situation in a firm’s environment. Threats are key

impediments to the firm’s current or desired position. The entrance of new competitors, slow

market growth, increased bargaining power of key buyers or suppliers, technological

changes, and new or revised regulations could represent threats to a firm’s success. Main

threats of MILMA are,

General recession in the market.

Disappearance of valuable indigenous breeds

More bargaining power of customers and suppliers.

Global competition.

Lack of awareness among farmers about the quality parameters, including

microbiological and chemical contaminants as well as residual antibiotics.

A parallel economy is thriving on adulterated liquid milk including synthetic milk in

certain pockets which needs to nip in the bud

Reducing cattle population.

Reduction on agriculture land.

Kerala is offering maximum consumer price for Milk compared to neighboring states.

The cheap milk from neighboring states takes away the market for fluid milk.

Liberalization of dairy industry.

3.17 PORTERS FIVE FORCES ANALYSIS

The Porter’s five forces model is an analysis of the structure or the industry, it should be

undertaken in order to find effective sources of competitive advantage. Therefore, in order to

analyze the competitive environment of MILMA, Porter’s five forces analysis has been done.

3.17.1 THREAT OF NEW ENTRANTS



It would be very difficult for the new company to enter this industry because MILMA

has established brand name, distribution channels and high capital investment.

Need of high end and sophisticated technology requirements is pausing the entry of

new players.

MILMA have high brand loyalty among customers - So the threat of new entry is very

low for MILMA.

3.17.2 BARGAINING POWER OF BUYERS

The buyers of MILMA have variety of choice. There many milk supplying companies

in Kerala. So, the bargaining power of buyers is high.

They can switch from one company to another since the switching cost is very low

because the cost of milk is almost same in every company.

3.17.3 BARGAINING POWER OF SUPPLIERS

The supplier population in this industry has low to moderate bargaining power

because of the following reasons.

Milk is a highly perishable item so the farmers can’t keep it for long time.

They can’t find a market for the excess milk produced daily.

3.17.4 THREAT OF SUBSTITUTE PRODUCTS

There is not much substitute in this case. Milk powder is another option but it is

always in the shade of doubt for the customers.

Buyers have fewer propensities to substitute MILMA products.

So the threat of substitute is low in MILMA.

3.17.5 RIVALRY AMONG EXISTING COMPETITORS

MILMA is able to maintain a competitive edge over other companies because of its

uninterrupted deliveries and timely availability.

MILMA is holding a monopolistic position in Kerala with its large market share.



3.18 PESTLE ANALYSIS

A scan of the external macro environment in which the firm operates can be expressed in

terms of the following factors:

Political

Economic

Social

Technological

Legal

Environmental

The acronym PEST is used to describe a framework for the analysis of these macro

environmental factors. A PEST analysis fits into an overall environmental scan.

3.18.1 POLITICAL FACTORS

Political factors include Government regulations and legal issues and definite both formal and

informal rules under which the firm must operate. Some examples include:

Employee Laws

Tax policy

Environment regulations

Political stability

Political factors affect MILMA to a certain extent.

3.18.2 ECONOMIC FACTORS

Economic factors affect the purchasing power of potential customers and the firm’s cost of

capital. The following are example of factors in the macro economy:



Economic growth

Interest rates

Exchange rates

Inflation rate

These economic factors play a remarkable role in MILMA.

3.18.3 SOCIAL FACTORS

Social factors include the demographic and cultural aspects of the external macro

environment. These factors affect customer’s needs and the size of potential markets. Some

social factors include:

Health consciousness

Population growth

Age distribution

Career attitudes

Emphasis on safety

3.18.4 TECHNOLOGICAL FACTORS

Some technological factors include:

R&D activity

Automation

Technology incentives

MILMA don’t have a R&D department.

3.18.5 ENVIRONMENTAL FACTORS

MILM is known for its quality and purely vegetarian product. Green labeling is ensured in all

its products. MILMA is a socially responsible company and should take due care in proper

disposal.



3.18.6 LEGAL FACTORS

PFA act

Labels

Trade mark

IPR

Go –Green

CHAPTER 4

SUMMARY, FINDINGS AND SUGGESTIONS



4.1 SUMMARY

A study on inventory classification technique for effective store management at MILMA,

PALAKKAD DAIRY has revealed much information regarding the store department and the

management of assembly parts, and how it can be made more effective. Presently the

company is not using any scientific method of inventory controlling techniques to manage the

inventory. This study mainly aims at suggesting an inventory controlling technique which

will help the company to save its cost and ensure uninterrupted production. In inventory

management, differences between physical and record inventories continuously plague

industry. Methods for reducing these variations contribute to a reduced risk of stock out,

spoilage, and excessive inventory. A greater understanding of the importance of inventory

classification can help solve inventory management problems as well as increase profitability.

The data collection of this study is done through observation conducted in material and store

department of the company. The other information available for this study was the company’s

records and manuals. This study gives an insight to the company’s inventory management

and helps to design a new method for improving the present system of inventory control.

The solution to the problem statement i.e. developing a new technique of FSN analysis would

helps the management of the company to manage and control the inventory requirements and

thus ensure regular and uninterrupted production.



4.2 FINDINGS

1. From the study it was found that, MILMA, PALAKKAD DAIRY is not using any

scientific method of inventory classification. The total inventory can be classified as fast

moving, slow moving, and nonmoving items, which shows the inefficiency of stores

department in handling inventory (Ref: Chart 3.2 and Table 3.1)

2. Around 35% of total inventory is fast moving items. Even though it is not brought under

any classification, this in terms indicates the chance of the company getting into the risk of

stock out (Ref: Chart 3.3 and Table 3.2)

4. Around 16% of total fast moving items consist of Wide Mouth PP Polymer Jar of

200ml,Which in terms shows that Wide mouth PP Polymer Jar of 200ml is a fast moving

item and it should be kept in high priority. Even though it is not classified as a fast moving

item (Ref: Chart 3.4 and Table 3.3)

5. Around 18% of total fast moving items consist of PVC Shrink Labels, even though it is not

classified as a fast moving item. If this item is not classified under fast moving item it may

results in interruption in operation.(Ref: Chart 3.5 and Table 3.4)

6. The constituent percentage of total slow moving items is 45%. Which in terms indicates

the chance of the company to face the risk of surplus inventory, if not these items are

identified and classified.(Ref: Chart 3.9 and Table 3.9)

7. The amount non moving items account 20% of the total inventory. Even though, it is not

brought under any classification. If not a better classification of inventory is made, the

company will have to face problems like dead stock in the warehouse, backorders and lost

sales etc. (Ref: Chart 3.12 and Table 3.11)



4.3 SUGGESTIONS

The following suggestions are proposing in front of the company after having a detailed study

of the inventory classification and controlling techniques of the company.

1. The company has to implement a scientific method of inventory classification so that

efficiency in operations can be improved.

2. The company can make use of FSN or ABC analysis for better inventory controlling and

management.

3. There is a need to develop a system of inventory monitoring and controlling the inventory

management system and that can be carrying out on a regular basis like keeping a log book.

4. The entire process of inventory management can be made better by allotting the

supervisory authority to a specific class of people.

5. The arrival and departure of materials into and out of the store needs to be properly

recorded and the same can be revised at regular intervals.

6. Remove unqualified employees in charge of inventory.

7. The changes in market need to be analyzed so that over reaction to demand and there by

overstock of materials which leads the company to be a victim to the “Bull Whip effect” can

be avoided.



BIBLIOGRAPHY

BOOKS:

1. Inventory Management Strategy and Analysis, Krajewski and L P Rutman, New

Delhi, Pearson Education.

2. Production and Operations Management, Chase R B. New Delhi, McGraw-Hill.

JOURNALS:

1. Brent D. Williams, Travis Tokar, 2008 "A review of inventory management research

in major logistics journals: Themes and future directions", International Journal of

Logistics Management, Vol. 19 Issue: 2.

2. Battacharya, Arijit sarkar, Bijan – International Journal of Production Research;

Aug2007, Vol. 45 Issue 15.

3. Pohlen, Terrance l, Coleman, B. SAM Advanced Mnagement Journal; Spring2005,

Vol. 70.

4. Richard Pibernik, Operations Management (2004)

5. Schoz-Reiter, Bernd Heger, International journal of Productivity and Performance

Management; 2012 Vol.61 Issue 4.

6. Torabi , S.A; Hatefi, S.M.- Computers and Industrial Engineering; Sep2012, Vol. 63

Issue 2.

7. Vikram Tiwari, Srinagesh Gavirneni, 2004 ASP, The Art and Science of Practice:

Recoupling Inventory Control Research and Practice: Guidelines for Achieving

Synergy, Interfaces, Vol. 37, No. 2, March-April 2007.

WEBSITES:

1. http://www.milma.com

2. http://www.managementparadise.com/forms/elements-logistics-logs/200333

inventory-control-techniques.html



3. http://www.wikipedia.org/wiki/abc-analysis.
