RESEARCH PROJECT REPORT

(MBA- 413)
ON
Inventory management in retail industries
(a case study of vishal mega mart)
Submitted in partial fulfillment of
Master of Business Administration Programme
2007-2009
Of
UTTAR PRADESH TECHNICAL UNIVERSITY LUCKNOW

Under the Supervision of:

Submitted By:

Mr. Manish Dhingra

Name- Omveer Singh

MBA Department

MBA IV SEMESTER

SRMSCET, Bareilly

Roll No-0701470031

Faculty of Management Sciences

Shri Ram Murti Smark College of Engineering and Technology, Bareilly (U.P.)

Shri Ram Murti Smarak College of Engineering & Technology, Bareilly

Faculty of Management Sciences
CERTIFICATE

This is to certify that Mr. Omveer singh student of MBA-IV semester has completed
his Research Project Report TitledInventory management in retail industries(A
case study of vishal mega mart) assigned by MBA Department & under my
supervision.
It is further certified that he has personally prepared this report that is the result of his
personal survey/observation. It is of the standard expected of MBA student and hence
recommended for evaluation.

Mr. Manish Dhingra

(SUPERVISOR)
Above statement is endorsed.

(Prof. S.P.Gupta)
2

ACKNOWLEDGEMENT

Behind every study there stands a myriad of people whose help and contribution make
it successful. Since such a list will be a prohibitively long. I may be excused for
important omissions.
The guidance help and cooperation of my mentor Mr. Manish Dhingra (Faculty of
SRMS CET Bareilly) is being a constant source of motivation.
This is my pleasure to thank Dr. S.P. Gupta (Director General SRMSCET) for being
a source of inspiration, help and co-operation.
This research was a good exposure that will definitely help me in my professional
career.

OMVEER SINGH
M.B.A. Final Year
Roll No: 0701470031
S.R.M.S. CET Bareilly

TABLE OF CONTENTS
CHAPTER 1
1.1.

PAGE NO:
5

INTRODUCTION

About Vishal Mega mart

Products in Vishal Mega mart

12

About Inventory Management

26

CHAPTER 2

41

2.1.

OBJECTIVE OF THE STUDY

42

2.2.

SCOPE OF THE STUDY

42

CHAPTER 3

43

3.1.

44

RESEARCH METHODOLOGY

CHAPTER 4

45

4.1.

46

ANALYSIS AND INTERPRETATION

CHAPTER 5

66

5.1

67

CONCLUSION

CHAPTER 6

68

6.1.

69

SUGGESTIONS

CHAPTER 7

70

7.1

BIBLIOGRAPHY &

71

ANNEXURE

72

CHAPTER 1

COMPANY - PROFILE
ABOUT THE ORGANIZATION
Vishal is one of fastest growing retailing groups in India. Its outlets cater to almost all
price ranges. The showrooms have over 7000 products range which fulfills all your
household needs, and can be catered to under one roof. It is covering about 1282000
sq. ft. in 18 state across India. Each store gives you international quality goods and
prices hard to match. The cost benefits that are derived from the large central purchase
of goods and services are passed on to the consumer.

VISHAL HISTORY AND ACHIEVEMENTS

What started as a humble one store enterprise in 1986 in Kolkata(Erstwhile,
Calcutta) is today a conglomerate encompassing 51 showrooms in 39 cities.
Indias first hyper-market has also been opened for the Indian consumer by
Vishal. Situated in the national capital Delhi this store boasts of the single
largest collection of goods and commodities sold under one roof in India.
The group had a turnover of Rs. 1463.12 million for fiscal 2005, under the
dynamic leadership of Mr. Ram Chandra Aggarwal . The group had of
turnover is 2884.43 million for fiscal 2006 and Rs. 6026.53 million for fiscal
2007.

The groups prime focus is on retailing. The Vishal stores offer affordable
family fashion at prices to suit every pocket. The groups philosophy is integration
and towards this

end

has initiated backward integration in the field of high

fashion by setting up a state of the art manufacturing facility to support its retail
endeavors.
CORPORATE PROFILE
Vishal Retail Ltd. has a factory in Gurgaon, Haryana. This factory has more
than 700 imported machines that have a capacity to manufacturer 150000 pieces
a month. The factory occupies 80000 sq ft of covered space. The Vishal group
indirectly gives employment to more than a 1000 people. These people work in
ancillaries that supply finished goods to the company.
Our 10 warehouses cater to 51 showrooms in 39 cities. It is covering about
1282000 sq. ft. in 18 state across India. Our loyalty programme gives the Indian
consumer of

being

rewarded every time he makes a purchase at any of our

stores anywhere in the country. Consumers can make purchases at any store and
accumulate points at a central level. These points are redeemable at any of our
stores. You can accumulate points even when you make a purchase while traveling

and redeem points at any store. So no matter where you are in India you can
partake in our loyalty programme.

Our dedicated professional Quality Control team ensures the quality

of

our products. Our quality checks start the basic cloth and accessories and end
with our doing a full inspection on the finished items. We believe that Quality
Control is the key to success. Our goal is to give the customer with the best
quality and value for his money.

VISHAL MEGA MARTS OBJECTIVIES

QUALITY POLICY STATEMENT

"We will deliver defect - free products, services and solutions to meet the
requirements of our external and internal customers the first time every time."

MISSION STATEMENT

We share the

vision and belief that our customers and stakeholders shall be

served only by creating and executing future scenarios in the consumption space
9

leading to economic development.

We will be the trendsetters in evolving delivery formats, creating retail realty,
making consumption affordable for all customer segments for classes and for
masses.
We shall infuse Indian brands

with confidence and renewed ambition.

We shall be efficient, cost- conscious and committed to quality in whatever we

do.
We shall ensure that our positive attitude, sincerity, humility and united
determination shall be the driving force to make us successful.

VISION STATEMENT

Future Group shall deliver Everything, Everywhere, Everytime for Every Indian
Consumer in the most profitable manner.

Core Values

Indianness: confidence in ourselves.

Leadership: to be a leader, both in thought and business.
Respect & Humility: to respect every individual and be humble in our conduct.
10

Introspection: leading to purposeful thinking.

Openness: to be open and receptive to new ideas, knowledge and information.
Valuing and Nurturing Relationships: to build long term relationships.
Simplicity & Positivity: Simplicity and positivity in our thought, business and action.
Adaptability: to be flexible and adaptable, to meet challenges.
Flow: to respect and understand the universal laws of nature.
OUR MANAGEMENT OBJECTIVE
To fuel initiative and foster activity by allowing individuals freedom and action and
innovation in attaining defined objectives.

11

PRODUCTS

12

Our Products

Our Products Categories

HOME FURNISHING
Drawing Room

Door Mat

Bedroom

Bed Sheet

Carpet
Curtains
Kitchen
Apron
Kitchen Napkin

Pillows
Pillow Cover
Bathroom
Bath Mats
Towel Gift Sets

FOOD MART
FOOD & BEVERAGES
Snacks

13

Drinks
- SPORTS & FITNESS
INDOOR GAMES OUTDOOR GAMES
Basket Ball

Cricket Bat

T.T. Bat

Football

Boxing Kit

Lawn Tennis

Swimming Costumes
Water Ball

Tennis Racket
Tennis Ball

Fitness Equip.
Personal Gym
- FOOTWEAR
BOYS

GIRLS

Shoes

Slippers

Sandals
LADIES
Shoes
Slippers

Sandals
MENS
Shoes
Slippers

more...

14

- TELEMART
Communication

Mobile Accessories

Mobile

Mobile Batteries
Mobile Charger
Mobile Dori

MENS
Upper

Lower

Shirt Casual

Jeans(MP)

Shirt Formal
Ethnic & Sports

Cotton Trouser(MPC)
Winter Wear

Night Suits

Suit(WMC)

T-Shirts

Blazer(WMB)

Dupatta

Windcheater(WMW)

Sherwani

Jacket

more...

15

LADIES ACCESSORIES
Upper

Lower

Kurta

Pants Jeans

Skirt Top
Ethnic

Capri
Winter Wear

Nighty

Jackets

Lancha

Stawl

Sharara
Salwar Suit

Blazer
Track Suit

more...

INFANTS
Garments Accessories
Hot Pant
Frock

Bed Sheet
Under Garments

16

Baba Suit

Socks

Winter Wear
Sweater
Pull Over
more...

WOMEN
Sarees

Personal Items

Fancy(SRF)

Cap(LCA)

Synthetics

Socks(Las)

Banarsi
Jewellery

Cosmetics

Necklace

Lip Gloss

Ring

Nail Polish

more...
KIDS BOYS
Lower
Jeans

Sets
Night Suit

Winter Wear
Suit

17

Bermudas

Baba Suit

Dungries

Blazer
Jacket

Upper

Ethnic

Shirt Formal

Kurta- Pyjama

T-Shirt

Sherwani

more...
KIDS GIRLS
Lower
Hot Pant

Sets
Night Suit

Upper

Ethnic

Tops(GWT)

Sharara

Winter Wear
Hipster Set

Frock(GFK) Lancha
more...
TRAVEL ACCESSORIES
Luggages

Portfolio Bags

Suitcase

Shoulder Bags
Executive Bag
School Bags

18

Pouch & Cases

Waist Pouch
Vanity Cases
HOUSEHOLD
AcrylicWare

Copper

Dinner Set

Jug

Home Aids

Pressure Cooker

Floor Wiper

Cooker

Steel
Cake Server
Non Stick
Handi

Sanitary Brush

Pressure Pan

Dosa Tawa

General Plastic

Electrical App.

Bone China

Goods
Coffee Mug

Chopper

Soup Set

Bucket

Microwave Oven

Dessert Set

Glass Ware

Thermo Ware

Porcelain

Cup
Lemon Set

Tiffin

Cup & Saucer

Container

LIFESTYLE
Time Zone

Opticals

Gifts & Novelties

19

Ladies Wrist Watch

Ladies Sun Glass

Mens Wrist Watch Mens Sun Glass

Key Chain

Mens Accessories Electric

Perfume/Deo

& Electronics Items

Belts

Battery(ABT)

Wallets

Calculator(EEC)

Spray
Deo

more...
TOYS & GAMES
Soft Toys

Dolls

Cycles & Scooters

Musical Toys

Barbie Doll Cycles

Non-Musical

Other Dolls Scooters

Board Games

Infant Toys

Wooden Blocks

Teether

Puzzles

Swing

Video Games
T.V. Video Game
Hand Video Game

more...
STATIONARY
School
Exam Board

Office
Office File

Paper Mart
Diary

20

Flower Vase

Clay

Punching Machine

File

Party Stuff
Balloons
Ribbons
Our Products

- GARMENTS

MEN

WOMEN

21

BOYS

GIRLS

INFANTS

Home Furnishing

22

Bath Furnishing

Bed Room Furnishing

Covers

Drawing Room

Furnishing

23

Kitchen Furnishing

FOODMART

Chinese & Indian Food

Food & Beverages

HOUSE HOLD

Appliances

Cleaning Aids

24

Gifts & Novelties

Plastic Aids

Thermo Ware

Kitchen Aids

25

INRTODUCTION
(About inventory management)

In our daily life, we observe that a small retailer know roughly the demand of his
customers in a month or a week, and accordingly places orders on the wholesaler to
meet the demand of his customers. But, this is not the case with a manager of a big
departmental store or a big retailer, because the stocking in such cases depends upon
various factors, e.g. demand, time of ordering, lag between orders and actual receipts,
etc. so the real problem is to have a compromise between over-stocking and understocking.
The study of such type of problems is know by the term Material Management
or inventory Control. The inventory control may be defined as follows.
Defintion. The function of directing the movement of goods through the entire
manufacturing cycle from the requisitioning of raw materials to the inventory of
finished goods orderly mannered to meet the object tives of maximum customerservice with minimum investment and efficient (low-cost) plant operation.
The models here limited mainly to the elementary type, because the analytical
study of the other cases be-comes more difficult. After a general discussion of each
indicated type of model, we shall give many interesting solved examples so that all the
neccssary ideas may be clear to the students. We shall also discuss another class of

26

inventory models, namely Inventory Models with price Breaks (i.e. Quantity
Discount Models).

2.1.

WHAT IS INVENTORY ?
In broad sense, inventory may be defined as the stock of goods, commodities or

other cconomic resources that are stored or reserved in order to cnsure smooth and
efficient running of busincss affairs.
The inventory or stock of goods may be kept in any of the following foms:
(i)

Raw material inventory, i.e. raw materials which are kept in stock for
using in the production of goods.

(ii)

Work-in-process inventory, i.e. scmifinished goods or goods in process

which are stored during the production process.

(iii)

Finished goods inventory, i.e. finished good awaiting shipment from the
factory.

(iv)

Inventory also include : furniture, machinery, fixtures, etc. The term

inventory may be classified in two main categories.

1. Direct Inventories :
The items which play a direct role in the manufacture and become an integral
part of finished goods are included in the category of direct inventories. Those
may be further classified into four main groups:
27

(a) Raw material inventories are provided

(i)

for economical bulk purchasing

(ii)

to enable production rate changes

(iii)

to provide production buffer against delays in transportation

(iv)

for seasonal fluctuations.

(b) Work-in-process inventories are provided

(i)

to enable economical lot production

(ii)

to cater to the variety of products

(iii)

for replacement of wastages

(iv)

to maintain uniform production even if amount of sales may vary.

(c) Finished-goods inventories are provided

(i)

for maintaining off-self delivery

(ii)

to allow stabilization of the production level

(iii)

for sales promotion.

(d) Spare parts.

28

2. Indirect Inventories :
Indirect inventories include those items which are nccessarily required for
manufacturing but do not become the component of finished production, like :
oil, grease, lubricants, petrol, office-material, main-tenance material, etc.

2.3

TYPES OF INVENTORY

Basically, there are five type of inventory :

I. Fluctuation Inventories. These have to be carried because sales and

production times cannot be predicted accurately. In real-life problems, three are
fluctuations in the demand and lead-times that affect the production of items.
Such type of reserve stocks or safety stocks are called fluctuation inventories.
II. Anticipation Inventories. These are built up in advance for the scason of targe
of large sales, a promotion programme or a plant shut-down period. In fact,
anticipation store the men and machine hours for future requirements.
III. Cycle (lot-size) Inventories. In practical situations it seldom happens that the
rate of consumption is the same as the rate of production or purchasing. So the
items are procured in langer quantities than they are required. They results in
cycle (or lot-size) inventories.

29

IV. Transportation Inventories. Such inventories exist because the materials are
required to move from one place t another. When the transportation time is
long, the items under transport cannot be served to customers. These inventories
exist solely because of transportation time.
V. Decoupling Inventories. Such inventories are needed for meeting out the
demands during the decoupling period of manufacturing or purchasing.

2.4.

INVENTORY DECISIONS

The managers must take two basic decisions in order to accomplish the
functions of inventory. The decisions made for every item in the inventory are:
(i)

How much amount of an item should be ordered when the inventory of

that item is to be replenished ?

(ii)

When to replenish the inventory of that item ?

30

2.5.

HOW TO DEVELOP AN INVENTORY MODEL?

As explained earlier, inventory models are concerned with two main decisions:
how mush to order at a time and when to order so as to minimise the total cost ?
The sequence of basic steps required for developing an inventory model may be
organised as follows :
Step 1.

First take the physical stock of all the inventory items in an

organization.

Step 2.

Then, classify the stock of items into various categories. Although

several methods are available to classify the inventories; but the
selected method must serve the objectives of inventory
management. For example, inventory items may be classified as
raw mterials, work-in process, purchased components, consumable
stores and maintenance spares, and finished goods, etc.

Step 3.

Each of above classifications may be further divided intoseveral

groups. For example, consumable stores and main tenance spares
can be further divided into the following groups:

Step 4.

after classification of inventories, each item should be assigned a

suitable code. Coding system should be flexible so that new items
may also be permitted for inclusion.

31

Step 5.

Since the number of items in an organization is very large, separate

inventory management model should be developed for each
category of items.

Step 6.

Use A-B-C or V-E-D classification (as discussed in the next

chapter) which provide a basis for a selective control of inventories
through formulation of suitable inventory policies for each
category.

Step 7.

Now decide about the inventory model to be developed. For

example, fixed-order-quantity system may be developed for A

class and high valued B class items, whereas periodic review

system may be developed for low valued B class and C class
itmes.
Step 8.

For this, collect date relevant to determine ordering cost, shortage

cost, inventory carrying cost. Etc.

Step 9.

Then, make an estimate of annual demand for each inventory item

and their prevailing market price.

Step 10.

Estimate lead-time, safety stock and reorder level, if supply is not

instantaneous. Also, decide about the service-level to be provided
to the customers.

Step 11.

Now develop the inventory model.

32

Step 12.

Finally, review the position and make suitable alterations, if

required, due to current situations or constrains.

Before we procced to discuss inventory mokels, it is very desirable to

consider briefly the costs involved in the inventory decisions.

1. Holding Cost (C1). The cost associated with carrying or

holding the goods in stock is known as holding or carrying or holding the goods in
stock is known as holding or carrying cost which is usually denoted by C1 per unit of
goods for a unit of time. Holding cost is assumed to vary directly with the size of
inventory as well as the time the item is held in stock. The following components
constitute the holding cost :

(i)

invested Capital Cost. This is the interest change over the capital investment.
Since this is the most important component, a careful investigation is
required to dctermine its rate.

(ii)

Record-keeping and administrative. Cost th signifies the need of keeping

funds of maintaining the records and necessary administration.

(iii)

Handling Costs. These. Include all costs associated with mve-ment of stock,
such, such as cost of labour, over head cranes, gantries and other machinery
required for this purpose.
33

(iv)

Storage Costs. These involve the rent to storage space or depreciation and
interest even if the own space is used.

(v)

Storage Costs. These involve the rent of storage space or depreciation and
interest even if the own space is used.

(vi)

Taxes and Insurance Costs. All these costs require careful study and
generally amounts to 1% to 2% of the invested capital.

(vii)

Purchase price or Production Costs. Purchased price per unit item is

affected by the quantity purchased due to quantity discounts orprice-breaks.
Production cost per unit item depends upon the length of production runs.
For long smouth production runs this cost is lower duc to more efficiency of
men and machines. So the order quantity must be suitably modified to take
the advantage of these price discounts.
If p is the purchase price of an item and I is the stock holding cost per unit
time expressed as a fraction of stock value (in rupees), then the holding cost
C1 = IP.

(viii) Salvage Costs or Seling Price. When the demand for an item is affected by
its quantity in stock, the decision model of the problem depends upon the
profit maximization criterion and includes the revenue (sales tax & etc.)
from the sale of the item. Generally, salvage costs are combined with the
storage costs and not considered independently.

34

2.

Shortage Costs or Stock-out Costs (C2). The penalty costs that are in incurred
as a result of running out of stock (i.e., shortage) are known as shortage or
stock-out costs. These are denoted by C2 per unit of goods for a specified
period.

These costs arise due to shortage of goods, sales may be lost, good will may be
lost either by a delay in meeting the demand or being quite unable to meet the
demand at all. In the case where the unfilled demand for the goods can be
satisfied at a latter date (backlog case), these costs are usually assumed to vary
directly with the shortage quantity and the delaying time both. on the other
hand, if the unfilled demand s lost (no backlog case), shortage costs become
proportional to shortage quantity only.

3.

Set-up Costs (C3). These include the fixed cost associated with obtaining
goods through placing of an order or purchasing or manufacturing or setting up
a machinery before starting production. So they include costs of purchase,
requisition, follow-up, receiving the goods, quality control, etc. these are also
called order costs or replenishment costs, usually denoted by C3 per production
run (cycle). They are assumed to be independent of the quantity ordered or
produced.

35

2.6.

WHY INVENTORY IS MAINTAINED ?

As we aware of the fact that the inventory is maintained for efficient and
smooth running of business affairs. If a manufacturer has no stock of goods at
all, on receiving a sale-order he has to place an order for purchasse of raw
materials, wait for their receipt and then start his production; thus, the
customers will have to wait for a long time for the delivery of the goods and
may turn to other suppliers. This results in a heavy loss of business. So it
becomes necessary to maintain an inventory because of the following reasons :
3.1.

Inventory helps in smooth and efficient running of business.

3.2.

Inventory provides service to the customers immediately or at a short notice.

3.3.

Due to absence of stock, the company may have to pay high prices because of
picce-wise purchasing. Maintaining of inventory may earn proce discount
because of bulk-purchasing.

3.4.

Inventory also acts as a buffer stock when raw materials are received late and so
many sale-orders are likely to be rjected.

3.5.

Inventory also reduces product costs because there is an additional advantage of

batching and long smooth running production runs.

3.6.

Inventory helps in maintaining the economy by absorbing some of the

fluctuations when the demand for an item fluctuates or is seasonal.

36

3.7.

Pipeline stocks (also called process and movement inventories) are also
necessary where the significant amount of time is consumed in the transshipment of items from one location to another.

Mathematically, the problem of maintaining the inventory arises due to the fact
that if a person (e.g., a big retailer) decides to have a large stock, his holding
cost C1 increases but his shortage cost C2 and set-up cost C3 decrease. On the
other hand, if he has small stock, his holding cost C1 decreases but shortage
cost C2 and set-up cost C3 increase. Similarly, if he decides to order very
frequently, his ordering cost increases while other costs may decrease. So it
becomes necessary to have a compromise between over-stocking and understocking by making optimum (most favourable) decisions by controlling the
value of some variables which are at our desposal.

2.7.

VARIABLES IN INVENTORY PROBLEM

We shall now proceed to classify the variables which are involved in an

inventory problem.
The variables used in any inventory model are of two types :
(a) Controlled variables,
(b) Uncontrolled variables.
37

Controlled Variables :

The following are variables that may be controlled separately or in

combination:

1)

How much quantity acquired (by purchase, production, or some other means).
This may be adjusted for each type of resources separately or for all items
collectively in one of the following ways :
(i)

The quantity to be ordered should be q quantity units;

(ii)

The quantity to be ordered should be such as to raise the stock level to

S quantity units;

(iii)

The quantity to be ordered should be such as to raise the stock level on

hand and on order to z.

2.

The frequency or timing of acquisition. How often or when to replenish the

inventory ?
The inventory should be replenished when
(i)

The amount in stock is equal to or below S quantity units;

Or

(ii)

The amount in stock and the amount of order are equal to or below z;

Or

(iii)

at every t time units.

38

3.

The completion stage of stocked items.

More finished the goods, lesser the delay in meeting the demands. But, on the
other hand higher will be the cost of holding them in stock. Lesser finished the
stock items, longer the time in meeting the demands, consequently lesser the
cost of holding in stock.
Most of the inventory models involve only first two types of control- led
variables.

Uncontrolled Variables :

The following are the principal variables the may not be controlled.
(1)

The holding costs (C1), shortage or penalty costly (C2), set-up costs (C3).

(2)

Demand (the number of items required per period).

We note that it is not necessarily the amount sold, because some demand
may go unfilled because of shortages or delays. It is, in fct, the demand that
would be sold if all that is required were available. The demand pattern of
items may be either deterministic or probabilistic.
In the deterministic case, it is assumed that the quantities needed ovedr
subsequent periods of time are known exactly. Further, the known demand
may be fixed or variable with time. Such demands are called static and
dynamic repectively.
39

The probabilistic demand occurs when the demand over a certain period of
time is not know with certainty; but its pattern can be described by a known
probability distribution. A probabilistic demand may be either stationary or
non-stationary over time.

3. Lead time [the time between placing on order and its arrival in stock]. If the
lead time is known and is not equal to zero, and if demand is
deterministic, all that one requires to do is to order in advance by an amount of
time equal to the lead time. While there is no need to order in advance, if the
lead time is zero.

If, however, the lead time is a variable that is known only prob abilistically, the
question of when to order is more difficult one. If either the demand or the lead
time is known only probabistically, the amount and the timing of replenishment
is found by considering expected costs of holding and shortage over the lead
time required.

4.

Amount delivered (supply of goods).

The supply of goods may be instantaneous or spread over a period of time. If a
quanitity q is ordered for purchase or production, the amount delivered may
vary around q with a know probability density function.
40

CHAPTER 2

41

Objective of the study

To know and examine the various inventory control techniques followed by
Vishal mega mart.
To determine how effective is the inventory management system of vishal mega
mart in optimizing the inventory costs and managing efficiently their
replenishment system.

Scope of the study

The study will be helpful in knowing the present system of inventory
management followed in Vishal mega mart and it will help in exploring and
how they can manage their inventory more effectively and smoothen their
replenishment system.

42

CHAPTER 3

43

RESEARCH METHODOLOGY FOR REPORT

Type of research:
The type of research conducted is Conclusive-Descriptive research design.
Type of data:
1) Primary data:is collected by personal interviewing the concerned
authority(Store manager Vishal Megamart).
2) Secondary data: reports and website of the organization.
Research tool: personal interview with store manager of Vishal

Megamart.
On the basis of interview the appropriate interpretations are made .

44

CHAPTER 4
(ANALYSIS & INTERPRETATION)

45

Q.1)Does your organization follow any scientific inventory management

technique?
a)Yes
b)No
Ans.Yes

INTERPRETATION:
They follow scientific techniquies for inventory management in Vishal Mega
Mart,Bareilly.

46

Q.2)What inventory management methods do you follow?

a)EOQ (Economic order quantity)
b)Selective inventory control techniques
1. ABC
2. FSN
3. XYZ
4. VED
5. HTML
Ans.

INTERPRETATION:
In Vishal Megamart for optimizing the inventory cost the quantitative techniques such
as EOQ is followed and some selective inventory control techniquies like ABC
Analysis & FSN are used for keeping goods according to their value and consumption
rate.

47

Q.3)On what basis the method is selected for managing inventory?

a)Universal
b)Product category wise
Ans.Product category wise

INTERPRETATION:
According to the product categories they applied various techniques such as ABC &
FSN.As there are number of product categories in vishal megamart like HOME
FURNISHING ITEMS,SPORTS &FITNESS EQUIPMENTS,FOOTWEAR,MOBILE
PHONES,TRAVEL ACCESSORIES,STATIONARY,GARMENTS etc.

48

Q.4)Which type of ordering system is followed?

a)Periodic ordering system b)Fixed quantity ordering system.
Ans.Periodic ordering system

INTERPRETATION:
In Vishal Megamart Periodic Ordering system is used in which ordering time is fixed
but order quantity are not fixed.As in Vishl Mega Mart they sent their orders every
week as per the requirements.
.

49

Q.5)Do you use any technology or software for managing inventory?If

yes,Please mention

Ans.Yes,SAP Software and RFID Chips

INTERPRETATION:
The chain of superstores, Vishal Mega Mart, has selected SAP to improve its business
processes and create a strong and adaptive environment for business growth and
profitability. This state-of-the-art system will enhance critical processes including
global sourcing, distribution, logistics, product innovation, inventory visibility,
financial transparency, compliance and point-of-sales data management.

50

Q.6)How much percentage of inventory cost is reduced by following these

techniquies?
a)10% -20%
b)20%-30%
c)30%-50%
Ans.20%-30%

INTERPRETATION:
The store manager said that by using various inventory control techniques they able to
reduce total inventory cost by 20%-30%.

51

INVENTORY MANAGEMENT TECHNIQUIES USED IN VISHAL

MEGAMART BAREILLY
On account of my personal interview with store manager, it is found that the vishal
mega mart in Bareilly followed the following techniquies for managing the inventory.

2. PERIODIC ORDERING SYSTEM

The ordering system used is P system also known as Periodic Review system or
fixed Interval system. In this system the size of order quanitity may vary with
fluctuation in demand but the ordering interval is fixed.
It is based on periodic reordering of all items. With every cycle the stock of each item
is brought up to its level, which is dependent on the cycle, the replenishment period,
and the consumption rate. When the replenishment period and demand rate do not
change, the reorder quantity obviously increases with the cycle time, so that short
cycles are required if rapid turnover of stock is desirable
Advantages over Two Bin System
All orders for replenishment are issued at the same time.
Ordering mechanism is reqular and not subject to sporadic arrivals of warning
signals from the store.

Disadvantages:

52

 Usually more stock is held when this system is adopted than with the 2-bin
system. Following variations of ordering cycle system are possible.
(i)

All items one cycle

All the items are replenished in every cycle. This is useful when the number of
items is not too large, and differences in demand are not very significant.
However, in this system the average stock level tends to increase with the
number of items.
(ii)

Multicycles

The items are divided into groups and each group has its own ordering cycle,
independent of the other groups. The groups are formed either by selecting
goods that to be ordered from the same vendor or by taking items with similar
demand characteristics.
The system is adopted when the stores have to deal with a large number of
items.
In case of some daily needs items mostly those which are edible and perishable like
vegetable oils, spices, milk, butter, etc. they make local purchases from nearby
markets like shyamgang, kutubkhana mandi, etc.

53

TYPES OF INVENTORY CONTROL TECHNIQUES

Inventory can be controlled by these two techniques: (a) Qualitative techniques, (b)
Quantitative techniques.
In vishal megamart Bareilly Qualitative aspect of inventory is considered.
QUALITATIVE TECHNIQUES
They consist of selective control methods bases on Pareto 80-20 principle, which
states that there are a critical few and trivial many. According to this all the items all
the items of an industry are classified into some broad groups on certain basis and the
attention is paid to their control accordingly. It is not practical to monitor inexpensive
items with the same intensity of care as very expensive items. Some of the popular
classifications selective control techniques are as follows:
ABC classification
FSN classification

54

ABC classification
ABC stands for always better control. The items on hand are classified into A,B,C
and types on the basis of the value in terms of capital or annual Rupees usage (i.e.,
Rupees value per unit multiplied by annual usage rate), and then allocates control
efforts accordingly. Thus, the items with high value and low volume are kept in Atype, items with low value and high volume are kept in C-type, and the items with
moderate value and moderate volumes belong to the B-type gets the moderate
attention. Typically, three classes of items are called: A (very important), B
(moderately important), and C (least important).
The actual number of categories varies from organization to organization,
depending on the extent to which a firm wants to differentiate the control efforts. With
three classes of items, A items generally account for about 15 to 20 percent of the
number of items in inventory but about 60 to 70 percent of the Rupees usage. At the
other end of the scale, C items might account for about 60 percent of the number of
items but only about 10 percent of the Rupees usage of an inventory.
A type items should receive close attention through frequent reviews of
amounts on hand and control over withdrawals to make sure that customer service
levels are attained. The C type items should receive lesser control (e.g. two-bin
systems, bulk orders), and the B type items should have controls that lie between the
two extremes.

55

FSN Classification
In this method, the items are classified according to the rate of consumption. Thus, the
materials can be fast (F), show (S) and non-moving types (N). F-type materials get the
maximum attention, and the N- type the minimum for their control and procurement.
This concept is also applying in Vishal mega mart retail store. Let the different items
in Vishal megamart are: mobile phones, cosmetics,footwears,jewellery,suitcase,ladies
wrist watch,toys,household appliances, shaving blades, Rice, pulse, salt, sugar, tea
wound plasters, and dry-fruits.
According to FSN, they can be classified as
F = Rice, pulse, salt, sugar, tea and some other daily needs items are consumed almost
daily at relatively faster rate and they need more attention to avoid stock-out situation
in the store specially if some unexpected demands of customers.
S = suitcase,ladies wrist watch,toys,household appliances,Mobile phones , are
consumed at a moderate speed and need moderate attention.
N =,jewellery,and some costlier items are consumed at a very negligible rate and need
attention. They can be bought and can be consumed leisurely when need arises.
The same concept can be extended to industrial or war situation. For example, the
bullets are fast moving items but a nuclear bomb is almost a non-moving item. In fact
it may never be used but it consumes lot of revenue. Such items are sometimes called
insurance items as they ensure a kind of deterred and may prevent a war between two
nations just by their presence.
56

TRANSPORTATION SYSTEM IN VISHAL MEGAMART

They have their own logistics and transport facilities for carrying the goods into and
out of the store. Those items which are remain Unsold are sent back to the central
distribution centre or head office.

STORE MANAGEMENT

It is concerned with carrying the right kind of material in right quantity (neither in
excess nor in short supply), providing it quickly as when require, keeping it safe
against any kind of deterioration, pilferage and to carryout the efficient performance
of all these functions at lowest possible cost.
In Vishal Mega mart Bareilly, there is a single distribution centre/store/warehouse
which is located at second floor. It has a store manager. The various functions which
are performed by the store manager are as follows.

57

STORE FUNCTIONS
1) Receipt
Store receives from both outside and internal divisions also. The outside receipts
system starts with the placement of order by various departments, a copy of which is
sent to the stores which is maintained in chronological order.
Further the head office while dispatching the goods normally send an advice note to
the stores which contains the information regarding the date of dispatch, transport
details, description of the consignment and value of the consignment.
Another document known as consignment note is prepared by transport carrier and
is sent to store concerns.
On actual delivery the receiving department unpacks the goods and tallys it with the
previous document. There is a inside each package packing slip detailing the contents
in the package.
2) Storage System
The identification or codification of the items can be done in the following ways.
a) Arbitrary approach
b) Symbolic approach
c) Use of engineering drawing numbers

58

Storage system
a) physical system / location
b) closed store system
c) open store system
d) random access store system
3) Record system
All recording of items in SAP that is computerized system which records all items
which comes in distribution centre from head office.

4) Issue system
The distribution centre in Vishal Mega mart issues goods to the respective floors as
per the requirement of each floor.

Accounting for materials

I. FIFO Method
II. LIFO Method
III. Average cost Method
IV. Replacement price Method/Market price Method
V. Standard Price Method
VI. Actual Price Method
VII. Inflated price Method

59

5) Physical Verification of Materials

Some time the book balance and physical quantity does not tally. The important
reasons for such discrepancy are.
i.

Wrong recording in the SAP

ii.

Placement of the material in wrong bin.

iii.

Mixing in adjacent container

iv.

Losses due to pilferage and damage etc.

There are two popular Methods of stock verification.

1) Periodic Inventory Verification
2) Perpetual Inventory verification

60

Technologies used for managing inventory in VISHAL MEGAMART

BAREILLY
1. Vishal Mega Mart selects SAP solution
The chain of superstores, Vishal Mega Mart, has selected SAP to improve its business
processes and create a strong and adaptive environment for business growth and
profitability. This state-of-the-art system will enhance critical processes including
global sourcing, distribution, logistics, product innovation, inventory visibility,
financial transparency, compliance and point-of-sales data management.

2. RFID
Although many companies are now using sophisticated Warehouse Management
Systems integrated with Supply Chain Systems, Enterprise Systems, and Electronic
Data Interchange (EDI), the movement and tracking of goods through the
manufacturing and supply chain process is still a complex procedure which is difficult
to manage. In many instances, the goods being distributed to the retailer must go
through one or more third party distribution processes, before they reach their final
destination.
Currently, most material tracking systems employ two-dimensional barcodes that must
be close to and within the "line of sight" of the barcode reader. This requires manual

61

scanning or a conveyor-like process to position the barcode and scanner. Barcodes can
run the risk of getting wet or scratched due to mishandling or a harsh environment,
which often prevents accurate reading by the scanner. Manual intervention is labor
intensive, costly, and error-prone. In addition, scheduled scanning or manual methods
cannot ensure the inventory remains up-to-date, due to oversights, errors, and internal
shrinkage.
With ActiveWave's RFID solution, inventory can be updated in real time without
product movement, scanning or human involvement. Our fully automated system
allows inventory status to be determined, and shipping & receiving documents to be
generated automatically. The system could also trigger automatic orders for products
that are low in inventory.
Benefits of using ActiveWave RFID Systems:

Provides total asset visibility

Gives full inventory history

Allows reduced inventory-stocking levels

Facilitates "Just-in-Time" deliveries

Provides full process control for products in the facility

Reduces lead-time

Shortens cross docking time

Speeds up sort/pick rate

62

Reduces shelf space

Provides higher-level security

Reduces errors

Reduces overall cost of operations

63

Inventory control system

An inventory control system is an integrated package of software and hardware
used in warehouse operations, and elsewhere, to monitor the quantity, location and
status of inventory as well as the related shipping, receiving, picking and putaway
processes.
In common usage, the term may also refer to just the software components.
Modern inventory control systems rely upon barcodes, and potentially RFID tags, to
provide automatic identification of inventory objects. In an academic study performed
at Wal-Mart, RFID reduced Out of Stocks by 30 percent for products selling between
0.1 and 15 units a day. Inventory objects could include any kind of physical asset:
merchandise, consumables, fixed assets, circulating tools, library books, or capital
equipment. To record an inventory transaction, the system uses a barcode scanner or
RFID readerto automatically identify the inventory object, and then collects additional
information from the operators via fixed terminals (workstations), or mobile
computers.
An inventory control system may be used to automate a sales order fulfillment
process. Such a system contains a list of order to be filled, and then prompts workers
to pick the necessary items, and provides them with packaging and shipping
information.

64

Real time inventory control systems use wireless, mobile terminals to record
inventory transactions at the moment they occur. A wireless LAN transmits the
transaction information to a central database.
Physical inventory counting and cycle counting are features of many inventory control
systems which can enhance the organization.

65

CHAPTER 5

66

CONCLUSION
In the conclusion it can be said that the Vishal Mega mart Bareilly is using various
qualitative as well as quantitative inventory management techniques like
EOQ,ABC,FSN etc for different product categories and they also uses SAP solution
and RFID Chips which helps in effective Management of Inventory. On the basis of
findings and analysis the overall Conclusion can be drawn as the Vishal Megamart
Bareilly is able to reduce the Inventory cost as well as efficiently managing their
replenishment system.

67

CHAPTER 6

68

SUGGESTIONS

Even though the inventory cost is reduced by the different qualitative and
quantitative techniquies used but they should also go in much detail of even
small product caegories.
In case of periodic Ordering system it may leads to the stock out situation due
to uneven demand, so they should follow the perpetual system which keeps
track of removals from inventory on a continuous basis. When the amount on
hand reaches a predefined minimum quantity, a fixed quantity is then ordered.
This system provides continuous monitoring of Inventory withdrawals and the
setting of optimal order quantity.

69

CHAPTER 7

70

BIBLIOGRAPHY
BOOKS
1)Operation Research
By:S.D Sharma
2)Operation Research
By:V.K Kapoor
3)Supply Chain Management
By:D.K Agrawal.

WEBSITES
1) en.wikipedia.org
2) www.inventorymanagement.com
3) www.invatol.com
4)www.vishalmegamart.net.in

71

QUESTIONNAIRE

Q.1)Does your organization follow any scientific inventory management

technique?
a)Yes
b)No
Q.2)What type of inventory management technique do you follow?
a)EOQ (Economic order quantity)
b)Selective inventory control techniques
1. ABC
2. FSN
3. Others
4.
Q.3)On what basis the method is selected for managing inventory?
a)Universal
b)Product category wise
Q.4)Which type of ordering system is followed?
a)Periodic ordering system b)Fixed quantity ordering system.
Q.5)Do you use any technology or software for managing inventory?If yes,Please
mention
Q.6)How much percentage of inventory cost is reduced by following these
techniquies?
a)10% -20%
b)20%-30%
c)30%-50%

72

73