11 IV April 2023

https://doi.org/10.22214/ijraset.2023.51143
 International Journal for Research in Applied Science & Engineering Technology (IJRASET)
ISSN: 2321-9653; IC Value: 45.98; SJ Impact Factor: 7.538
Volume 11 Issue IV Apr 2023- Available at www.ijraset.com

Role of Inventory Management and Control in A

Manufacturing Company
Mohd Salman1, Monika Bhagat2, Neeraj Kumar3, Prof. Reeta Wattal4
Department of Mechanical Engineering, Delhi Technological University

Abstract: A manufacturing company's performance depends on efficient inventory management and control. Inventory control
and management play a crucial role in meeting customer demand, controlling costs, planning production effectively, ensuring
quality, and managing cash flow. This paper discusses the role of inventory control and management in a manufacturing
company and highlights the key ways in which inventory control and management are important to the success of a
manufacturing company. The system's goal is to bridge the substantial gap between inventory management theory and practice
and let industrial inventory managers conduct effective and successful inventory management.
Keywords: Inventory, challenges, techniques, control and management.

I. INTRODUCTION
Inventory refers to the stock of goods or materials that a business holds for its use or sale. It can include raw materials, work-in-
progress goods, and finished products.

Fig 1: types of inventories

1) Raw Materials: Raw materials are the items purchased for employ in production of finished manufactured goods by a firm.
2) Work in Progress Goods: Work-in progress are all those items currently in the process of production. These are in fact partly
man-made products.
3) Finished Products: Finished goods are all those items, which have been already shaped but not yet sold.
Holding inventories enables the business to segregate the processes of goods acquisition, production, and marketing. Inventory is a
current account because it is a part of the company's operating capital.
Additionally, inventories are thought to be the main source of money. The goal is to increase efficiency where costs are a factor.
Scientific inventory control leads to increased stock levels on the one hand and a significant decrease in life-threatening shortages
on the other.

A. Why is Inventory Management and Control so Important ?

Inventory control and management play a crucial role in the success of a manufacturing company. Here are some of the key ways in
which inventory control and management are important:
1) Meeting Customer Demand: A manufacturing company needs to have sufficient inventory to meet customer demand. If the
company doesn't have the right level of inventory, it may not be able to fulfil the customer orders on time, which can result in
lost sales and dissatisfied customers.
2) Cost Control: Inventory control and management can help a manufacturing company control costs by minimizing the amount of
inventory that is kept on hand. This can reduce the cost of storing and managing inventory, as well as the cost of capital tied up
in inventory.

© IJRASET: All Rights are Reserved | SJ Impact Factor 7.538 | ISRA Journal Impact Factor 7.894 | 3836
 International Journal for Research in Applied Science & Engineering Technology (IJRASET)
ISSN: 2321-9653; IC Value: 45.98; SJ Impact Factor: 7.538
Volume 11 Issue IV Apr 2023- Available at www.ijraset.com

3) Production Planning: Inventory control and management can help a manufacturing company plan its production more
effectively. By keeping track of inventory levels and customer demand, the company can better predict how much inventory it
will need in the future and adjust its production schedule accordingly.
4) Quality Control: Inventory control and management can also help a manufacturing company ensure the quality of its products.
By tracking inventory levels and product performance, the company can identify quality issues and take corrective action to
address them.
5) Cash flow Management: Inventory control and management can help a manufacturing company manage its cash flow by
ensuring that inventory is turned over quickly. This can help the company avoid holding excess inventory for too long, which
can tie up capital and reduce cash flow.

B. Problems Faced by Manufacturing Companies

Inventory management is used to determine the company's inventory performance and position, to identify its strengths and
weaknesses, and to gauge its profitability. The majority of the resources used by the Indian enterprises are included in inventories. An
organization's inventory is an asset, but if it is not managed properly, it can turn into a problem. Therefore, in order to avoid making
unnecessary investments, it is crucial to manage inventories effectively and to pinpoint the issues or difficulties in the inventory
management process. Inventory-related issues affect manufacturing businesses in a variety of ways. Among these are:
1) Overstocking: Overstocking happens when a business keeps more inventory than it requires. This may cause capital to be
restricted, storage expenses to rise, and inventory obsolescence.
2) Stock outs: Stock outs happen when a business runs out of a specific item. Missed production deadlines, lost sales, and unhappy
customers may all result from this.
3) Inaccurate Demand Forecasting: If a business underestimates consumer demand, it may store too much inventory or run out of
supplies, which could result in overstocking or stock outs.
4) Ineffective Inventory Control: Ineffective inventory control can cause inefficiencies in the supply chain, such as longer lead
times, more expensive storage and handling, and a higher risk of stock obsolescence.
5) Insufficient Visibility: Inventory imbalances, stock outs, and overstocking can result from a lack of visibility into inventory levels
throughout the supply chain.

II. LITERATURE REVIEW

The study done by Naliaka V.W. (2015) revealed that information technology, inventory control systems, inventory lead time and
inventory control practices are important factors in the attainment of competitive advantage of manufacturing firms in Kenya. In
order to increase and enhance competitive advantage, the study advised the company to adopt information technology and inventory
control systems [1]. Maintaining inventory levels and paying for orders may improve an organization's performance, helps
employees develop an understanding of the philosophy behind managing inventories, provides an organisation with enough
resources, and that cutting inventory costs aids in achieving profitability goals. Information exchange, organisational growth,
inventory control, and channel partnerships all have an impact on how well manufacturing companies execute[3]. Because
inventory control practises concentrated on cutting costs and maximising profitability to obtain a competitive edge, they had an
impact on competitiveness. Due to the fact that inventory management may be established or enhanced inside the firm from the
execution of guidelines that are suited to the context of each SMEs, much of the competitive advantage was centred on cost, quality,
and delivery, in line with inventory control practices [4]. In order to manipulate logistics, inventory management is essential. A
strong system requires a defined logistical framework, appropriate inventory implements, and strategies to connect the producing
processes, according to a review of the situation systems for inventory and logistics are interdependent on one another. Inventory
management is necessary for logistics management to carry out its tasks, and an effective logistics system can enhance the working
conditions in the warehouse and operational processes.Joseph Afolabi Oluwaseyi and Morakinyo Kehinde Onifade showed how the
logistics system heavily relies on inventory, and numerous logistics process parts involve inventory activities in their paper[2].
Inventory control procedures are affected by inventory control systems. Both of these elements were present. The inventory control
system improved warehouse procedures for efficiently managing inventories. Instead, inventory control procedures measured
expenses and earnings to determine the effectiveness of the operations.
Consequently, a successful inventory management system would result in reduced expenses and increased profitability [5]. A
method for inventory control affected competitiveness.

© IJRASET: All Rights are Reserved | SJ Impact Factor 7.538 | ISRA Journal Impact Factor 7.894 | 3837
 International Journal for Research in Applied Science & Engineering Technology (IJRASET)
ISSN: 2321-9653; IC Value: 45.98; SJ Impact Factor: 7.538
Volume 11 Issue IV Apr 2023- Available at www.ijraset.com

In keeping with quality-focused competition, inventory control systems provide a strong emphasis on quality assurance and delivery
timing in order to supply customers with high-quality goods at the precise moment they need them. Additionally, shorter cycle
durations could result in faster and more effective product delivery to clients. Stock levels had to be cut, which was necessary to
raise enough stock to satisfy demand. This decrease in stock represented a direct cost reduction and permits an actual rise in
competitiveness [5]. Hong Shen, Qiang Deng, Rebbaca Lao, and Simon Wu (2016) concentrated on enhancing inventory
management to enhance the company's supply chain. One of the most important parts of inventory management is the drop in
inventory. In actuality, having a low inventory level isn't always the best course of action, thus producers must have the right
amount of inventory at the right level [6]. The return on investment from inventory management has improved revenue and profits,
a pleasant work environment, and an improvement in customer satisfaction. Inventory management, according to Plinere, D., and
Borisov, A. (2015), is essential for every business with inventories. Companies keep enough inventory on hand to prevent situations
like overstock and out-of-stock [7]. Inventory control may be improved with proper management, and expenses can be cut for the
business. Jose, T., Jayakumar, A., & Sijo, M. T. (2013) determined the distinction between EOQ & quantity bought. It has been
noted that the corporation does not purchase materials utilising EOQ. Inventory management is therefore not rational. The company
can determine how much inventory it can maintain in back stock annually based on an estimate of its safety stock [8]. Focusing on
inventory management, Atnafu, D., and Balda, A. (2018) discuss the connection between inventory management practises,
competitive advantage, and organisational performance[9].According to the study's data analysis, there is a correlation between
competitive advantages and effective inventory management. Additionally, improved organisational performance provides a
company with more funding to implement different inventory management strategies [10].

III. OBJECTIVES
1) To analyze the inventory management of SACHDEVA ENGINEERING COMPANY.
2) To analyze the control measures taken by Manufacturing Company on their own terms using on inventory management.
3) To analyze the techniques used by the company in inventory management.
4) To suggest the suitable technique to the company to have improved control over the inventory.

A. Sachdeva Engineering Company

Sachdeva Engineers Manufacturer Exporter of Engine components and Automotive spare parts company located in Delhi.
They manufacture spare parts for engines, Agriculture Machinery, tractors, three wheelers, heavy Machinery, Light Commercial
Vehicle. They can develop any Automobile component as per the customer's needs.

IV. METHADOLOGY
The study is based on primary data collected by finance executives of the SACHDEVA Company and secondary data which are
collected from the books, journals, articles and annual reports of the company & websites.ABC Analysis, EOQ, Inventory turnover
ratios & Safety Stock are the techniques used in this paper.

V. RESULTS AND DISCUSSION

The optimum order quantity (EOQ), which is the one that lowers the total of its carrying costs and order, is found using the
inventory management tool known as EOQ.

TABLE I CALCULATION OF EOQ

s.no particulars Demand/per Demand/per Carrying Reorder eoq No of orders
year year cost/unit/year cost/ order last year
1. Cylinder head 10000 10000 300 8000 730.29 15
2. Cam shaft engine 3ld 30000 30000 5 200 1549.19 20
450 3ld 510 sach
3. LD output shaft 95000 95000 15 3000 6164.41 19
4. Hd output shaft 10915 10915 9 2000 2202.52 7
5. Vent plug 3ld 510 45000 45000 4 250 2371.71 23
sach

© IJRASET: All Rights are Reserved | SJ Impact Factor 7.538 | ISRA Journal Impact Factor 7.894 | 3838
 International Journal for Research in Applied Science & Engineering Technology (IJRASET)
ISSN: 2321-9653; IC Value: 45.98; SJ Impact Factor: 7.538
Volume 11 Issue IV Apr 2023- Available at www.ijraset.com

6. Rocket cover 3ld 450 79268 79268 75 4000 2907.79 19

sach
7. Rocket cover 3ld 510 21936 21936 50 3500 1752.43 14
sach
8. Main bear housing 320 320 45 2500 188.56 3
lda 450 3lda 510
sach
9. Cylinder for 68 68 70 1200 48.2 2
lombardini engines
10. Extra fuel device for 200 200 40 1000 100 2
lombardani 510/450
engine
Source: company annual report

Table 1 demonstrates the comparison between the economic order quantity estimated and the number of units of each component
acquired by the organisation. It is discovered that the number of units purchased and the Economic Order Quantity differ. Although
the inventory management at the company is excellent because it uses the Economic Order Quantity technique to buy the materials,
there is still room for improvement.
Safety stock is the reduced surplus inventory that acts as a buffer against an unanticipated rise in consumption brought on by an
unusually high demand and an uncontrollably tardy arrival of incoming product.

TABLE II SAFETY STOCK CALCULATION

s.no particulars Max lead Avg lead Avg Max Demand/per
time time consumers consumers year
1. Cylinder head 90 60 6 12 10000
2. Cam shaft engine 3ld 90 60 120 135 30000
450 3ld 510 sach
3. LD output shaft 90 60 450 500 95000
4. Hd output shaft 90 60 45 60 10915
5. Vent plug 3ld 510 90 60 170 190 45000
sach
6. Rocket cover 3ld 450 90 60 190 250 79268
sach
7. Rocket cover 3ld 510 90 60 65 80 21936
sach
8. Main bear housing 90 60 2 6 320
lda 450 3lda 510 sach
9. Cylinder for 90 60 1 3 68
lombardini engines
10. Extra fuel device for 90 60 2 5 200
lombardani 510/450
engine
Source: company annual report

The safety stock calculation is shown in Table 2. Every product has a safety stock that is calculated. For each product, the actual
demand is shown for a year. The maximum lead time is 90 days, while the typical lead time is 60 days. The organisation learns how
much stock it should keep on hand at any particular time of the year by determining the quantity of safety stock. Safety supplies will
enable the company to handle any situation. It is evident from Table 2 that the organisation is keeping enough safety stock.

© IJRASET: All Rights are Reserved | SJ Impact Factor 7.538 | ISRA Journal Impact Factor 7.894 | 3839
 International Journal for Research in Applied Science & Engineering Technology (IJRASET)
ISSN: 2321-9653; IC Value: 45.98; SJ Impact Factor: 7.538
Volume 11 Issue IV Apr 2023- Available at www.ijraset.com

TABLE III CLASSIFICATION OF A,B AND C ITEMS IN THE ORGANISATION

s.no Avg no of units Cost per unit Total cost percentage
1. 7000 42 294000 3.95
2. 22000 67 1166000 15
3. 81000 14 1134000 15.2
4. 8000 95.76 766080 10
5. 42000 2.9 121800 1.6
6. 45000 56.4 2538000 35.43
7. 12000 104.7 1256400 16.9
8. 290 350.37 101607.3 1.3
9. 40 335 13400 0.18
10. 170 195 33150 0.44
7424437.3 100
Source: company annual report

100

50

A 67.54

B 25

C 7.47

Source: secondary data

Fig 2: classification of A,B and C items in the company

According to Fig. 2, 67.53% (70% standard) of the objects in the organisation are from Category A, 25% (20% standard) are from
Category B, and 7.47% (10% standard) are from Category C. Although it is obvious that the company correctly applies the ABC
analysis, its inventory management might still be improved.

TABLE IV inventory turnover ratio

year ratio
1 1.12
2 1.64
Source: company annual report

Table 4 shows the increase in trend of stock turnover ratio.

VI. FINDINGS
1) It's set up that the association is following EOQ fashion. The company is working as per the defined EOQ position. Overall the
working of EOQ is reasonable.
2) From the safety stock computation, it can be determined how important force the company can keep in its reserve stock per
annum. Through this analysis it's known that the Sachdeva Engineering is having enough stock at all times
3) Through ABC analysis one comes to know about important particulars in the association. The company is following ABC
fashion of force operation veritably efficiently. There are 67.53% in the A order. B order has 25% and C order has 7.47%.
4) The inventory turnover ratio of the organization is satisfactory. It is according to its standard ratio. The ratio in the first year
was 1.12 which rose to 1.64 in the second year.

© IJRASET: All Rights are Reserved | SJ Impact Factor 7.538 | ISRA Journal Impact Factor 7.894 | 3840
 International Journal for Research in Applied Science & Engineering Technology (IJRASET)
ISSN: 2321-9653; IC Value: 45.98; SJ Impact Factor: 7.538
Volume 11 Issue IV Apr 2023- Available at www.ijraset.com

VII. SUGGESTIONS
The company's current inventory management system is effective, but if it is to be improved, a new inventory management system
needs to be implemented. Additionally, the company ought to explore using more Just In Time (JIT) inventory management
strategies. This method will help the company save time and cut down on the expense of keeping inventory on hand. Given that the
company now practices lean manufacturing, it can now experiment with TQM, Six Sigma, and other production methodologies.

VIII. CONCLUSION
For any manufacturing organization, inventory management is crucial. It aids in the organization's seamless operation of its
operations and lowers the expense of inventory management. It is clear from the data analysis above that Sachdeva engineering
company is quite effective at controlling its inventory. The organization's approaches are assisting it in maintaining a steady flow of
its production activities. The EOQ, safety stock analysis, and ABC analyses are carried out proficiently and successfully. The
inventory turnover ratio is also trending upward, which suggests that the company's revenues are rising annually. In conclusion,
efficient inventory management and control are essential to a manufacturing company's success. Inventory control and management
can help a manufacturing company stay competitive and profitable by ensuring that the company has the proper level of inventory,
controlling costs, successfully planning production, assuring quality, and managing cash flow.

REFERENCES
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