Department of Admin Sciences,

Allama Iqbal Open University, Islamabad

Selection Criteria and Uses of an appropriate Inventory System

(Financial Accounting)
Presented By: M. Hammad Manzoor (MBA HRM I) Roll No. 508195394 Supervised By: Mr. Attique Rehman (November, 2011)
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M. HAMMAD MANZOOR, MBA HRM - I Roll No. 508195394, Karachi Campus

Department of Admin Sciences,

Allama Iqbal Open University, Islamabad

WELCOME TO THE PARTICIPANTS

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M. HAMMAD MANZOOR, MBA HRM - I Roll No. 508195394, Karachi Campus

Agenda Items for Presentation

Department of Admin Sciences,

Allama Iqbal Open University, Islamabad

Introduction about Author and Project Introduction to the Topic Practical Study Cere-e-Noor Ceramics Data Collection Method / Analysis SWOT analysis Conclusions Recommendations Q & A Session

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M. HAMMAD MANZOOR, MBA HRM - I Roll No. 508195394, Karachi Campus

Introduction about Author and Project Iqbal Open University, Islamabad Allama

Department of Admin Sciences,

Introduction about Author and Project My Self

Introduction about Project Selection Criteria and Uses of an appropriate Inventory System

Philosophy of the project is, How to understand the problem and find out a patent solution
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M. HAMMAD MANZOOR, MBA HRM - I Roll No. 508195394, Karachi Campus

Department of Admin Sciences,

Allama Iqbal Open University, Islamabad

INTRODUCTION

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M. HAMMAD MANZOOR, MBA HRM - I Roll No. 508195394, Karachi Campus

INTRODUCTION

Department of Admin Sciences,

Allama Iqbal Open University, Islamabad

INVENTORY

General

Types of Inventory

Inventory Management

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M. HAMMAD MANZOOR, MBA HRM - I Roll No. 508195394, Karachi Campus

WHAT IS AN INVENTORY

Department of Admin Sciences,

Allama Iqbal Open University, Islamabad

Inventory means List Record Account Register Catalog Supply Stock Range
Inventory means a list compiled for some formal purpose, such as the details of an estate going to probate, or the contents of a house let furnished.

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The term inventory is a designation for goods that are held for sale in the normal course of business, as well as for goods that are in production or are to be placed in production.
M. HAMMAD MANZOOR, MBA HRM - I Roll No. 508195394, Karachi Campus

Department of Admin Sciences,

Allama Iqbal Open University, Islamabad

How Inventory Management fits the Operations Management Philosophy

Operations As a Competitive Weapon Operations Strategy Project Management Process Strategy Process Analysis Process Performance & Quality Constraint Management Process Layout Lean Systems
Supply Chain Strategy Location Inventory Management Forecasting Sales and Operations Planning Resource Planning Scheduling
M. HAMMAD MANZOOR, MBA HRM - I Roll No. 508195394, Karachi Campus

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Inventory Management

Department of Admin Sciences,

Allama Iqbal Open University, Islamabad

Inventory management is the planning and controlling of inventories in order to meet the competitive priorities of the organization. Effective inventory management is essential for realizing the full potential of any value chain. Inventory management requires information about expected demands, amounts on hand and amounts on order for every item stocked at all locations. The appropriate timing and size of the reorder quantities must also be determined.
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M. HAMMAD MANZOOR, MBA HRM - I Roll No. 508195394, Karachi Campus

INVENTORY MANAGEMENT

Department of Admin Sciences,

Allama Iqbal Open University, Islamabad

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M. HAMMAD MANZOOR, MBA HRM - I Roll No. 508195394, Karachi Campus

Classes of Inventory

Department of Admin Sciences,

Allama Iqbal Open University, Islamabad

Classes of Inventory
Merchandise Inventory Manufacturing Inventory

Raw Material Good In process

Finished Goods

Direct Material

Direct Labor

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M. HAMMAD MANZOOR, MBA HRM - I Roll No. 508195394, Karachi Campus

Inventory Control Methods

Department of Admin Sciences,

Allama Iqbal Open University, Islamabad

Inventory Controls Methods

Real Time Inventory

Physical Inventory

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M. HAMMAD MANZOOR, MBA HRM - I Roll No. 508195394, Karachi Campus

Inventory Methods

Department of Admin Sciences,

Allama Iqbal Open University, Islamabad

Inventory Methods

Periodic Inventory System

Perpetual Inventory System

Comparison between Periodic & Perpetual System

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M. HAMMAD MANZOOR, MBA HRM - I Roll No. 508195394, Karachi Campus

Department of Admin Sciences,

Allama Iqbal Open University, Islamabad

Perpetual Inventory System

Large company management. with

Periodic Inventory System

professional Small company, run by owner.

Management and employees want information about items in inventory and the quantities in which specific products are selling.

Accounting records of inventories and specific products sales are not needed in daily operations. Such information is developed primarily for use in annual income tax returns.

Items in inventory have a high per unit Inventory consists of many different kinds cost. of low cost items. Low volume of sales transactions or a High volume of sales transactions and a computerized accounting system manual accounting system lock of full time accounting personnel. Merchandise stored in multiple locations All merchandise stored at the sale site. or in warehouses separate from the sales sites.
M. HAMMAD MANZOOR, MBA HRM - I Roll No. 508195394, Karachi Campus

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Important Terms used in InventoryDepartment of Admin Sciences, Methods Allama Iqbal Open University, Islamabad
Special terms used in dealing with inventory: Stock Keeping Unit (SKU) is a unique combination of all the components that are assembled into the purchasable item. Therefore, any change in the packaging or product is a new SKU. This level of detailed specification assists in managing inventory. Stockout means running out of the inventory of an SKU. "New old stock" (sometimes abbreviated NOS) is a term used in business to refer to merchandise being offered for sale that was manufactured long ago but that has never been used. Such merchandise may not be produced anymore, and the new old stock may represent the only market source of a particular item at the present time.

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M. HAMMAD MANZOOR, MBA HRM - I Roll No. 508195394, Karachi Campus

Important Terms used in InventoryDepartment of Admin Sciences, Methods Allama Iqbal Open University, Islamabad
Business Inventory:
The reasons for keeping stock There are three basic reasons for keeping an inventory:

1.Time - The time lags present in the supply chain, from supplier to user at every stage, requires that you maintain certain amounts of inventory to use in this "lead time." However, in practice, inventory is to be maintained for consumption during 'variations in lead time'. Lead time itself can be addressed by ordering that many days in advance.
2.Uncertainty - Inventories are maintained as buffers uncertainties in demand, supply and movements of goods. to meet

3.Economies of scale - Ideal condition of "one unit at a time at a place where a user needs it, when he needs it" principle tends to incur lots of costs in terms of logistics. So bulk buying, movement and storing brings in economies of scale, thus inventory.
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M. HAMMAD MANZOOR, MBA HRM - I Roll No. 508195394, Karachi Campus

Department Items to be added in Inventory Methods of Admin Sciences, Allama Iqbal Open University, Islamabad

Items to be added in Inventory Methods

Goods in Transit

Segregated Goods

Goods on Consignment

Conditional and Installment Sales

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M. HAMMAD MANZOOR, MBA HRM - I Roll No. 508195394, Karachi Campus

Inventory As Money

Department of Admin Sciences,

Allama Iqbal Open University, Islamabad

Accounting for Inventories

Raw Material

Work in Progress (WIP)

Finished Goods

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M. HAMMAD MANZOOR, MBA HRM - I Roll No. 508195394, Karachi Campus

How Inventory is Valued? Allama Iqbal Open University, Islamabad How inventory is Valued?
First In, First Out (FIFO) Last In, First Out (LIFO) Average Cost
Specific Cost (Actual Cost)

Department of Admin Sciences,

Standard Cost Method

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M. HAMMAD MANZOOR, MBA HRM - I Roll No. 508195394, Karachi Campus

Inventory on Balance Sheet

Department of Admin Sciences,

Allama Iqbal Open University, Islamabad

Assets = Liabilities + Equity.

Assets represent a companys resources. Assets can be in the form of cash or other items that have monetary valueincluding inventory. Assets are made up of (a) current assets (assets that are in the form of cash or that are easily convertible to cash within one year such as accounts receivable, securities, and inventory), (b) longer-term assets such as investments and fixed assets (property/plant/equipment), or (c) intangible assets (patents, copyrights, and goodwill). Liabilities represent amounts owed to creditors (debt, accounts payable, and lease-term obligations). Equity represents ownership or rights to the assets of the company (common stock, additional paid-in capital, and retained earnings).
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M. HAMMAD MANZOOR, MBA HRM - I Roll No. 508195394, Karachi Campus

Department of Admin Sciences, Inventory on Income Statement

Allama Iqbal Open University, Islamabad

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M. HAMMAD MANZOOR, MBA HRM - I Roll No. 508195394, Karachi Campus

Department of Admin Sciences,

Allama Iqbal Open University, Islamabad

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M. HAMMAD MANZOOR, MBA HRM - I Roll No. 508195394, Karachi Campus

Department of Admin Sciences,

Allama Iqbal Open University, Islamabad

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M. HAMMAD MANZOOR, MBA HRM - I Roll No. 508195394, Karachi Campus

FIFO Inventory

Department of Admin Sciences,

Allama Iqbal Open University, Islamabad

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M. HAMMAD MANZOOR, MBA HRM - I Roll No. 508195394, Karachi Campus

LIFO Inventory

Department of Admin Sciences,

Allama Iqbal Open University, Islamabad

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M. HAMMAD MANZOOR, MBA HRM - I Roll No. 508195394, Karachi Campus

Average Cost Inventory

Department of Admin Sciences,

Allama Iqbal Open University, Islamabad

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M. HAMMAD MANZOOR, MBA HRM - I Roll No. 508195394, Karachi Campus

Department of Admin Sciences,

Allama Iqbal Open University, Islamabad

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M. HAMMAD MANZOOR, MBA HRM - I Roll No. 508195394, Karachi Campus

Department of Admin Sciences,

Allama Iqbal Open University, Islamabad

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M. HAMMAD MANZOOR, MBA HRM - I Roll No. 508195394, Karachi Campus

Department of Admin Sciences,

Allama Iqbal Open University, Islamabad

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M. HAMMAD MANZOOR, MBA HRM - I Roll No. 508195394, Karachi Campus

Department of Admin Sciences,

Allama Iqbal Open University, Islamabad

Practical Study of

Cera-e-Noor
www.cera-a-noor.com

Manufacturer of finest tableware Ceramics

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M. HAMMAD MANZOOR, MBA HRM - I Roll No. 508195394, Karachi Campus

Department of Admin Sciences,

Allama Iqbal Open University, Islamabad

Cera-e-Noor plant located in the industrial area of city of Hub in Lasbela, Balochistan province of Pakistan

It was acquired by the Hashoo Group in the year 2000.

It is a state-of-the-art facility for the manufacture of crockery (tableware). The plant was designed and commissioned with the collaboration of French ceramic giant, Bernardaud Liamoges and technical/engineering expertise from other major players in the French ceramic industry such as Ceric and Cerlim.

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M. HAMMAD MANZOOR, MBA HRM - I Roll No. 508195394, Karachi Campus

Department of Admin Sciences,

Allama Iqbal Open University, Islamabad

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M. HAMMAD MANZOOR, MBA HRM - I Roll No. 508195394, Karachi Campus

Department of Admin Sciences,

Allama Iqbal Open University, Islamabad

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M. HAMMAD MANZOOR, MBA HRM - I Roll No. 508195394, Karachi Campus

Department of Admin Sciences,

Allama Iqbal Open University, Islamabad

Turn Over Targets

To achieve a target of PKR 222 million (2 million pieces) within the 1st year To achieve a target of PKR 400 million (4 million pieces) within the 2nd year To achieve a target of PKR 1 billion (8 million pieces) within the 3rd year

Profit Oriented Targets

To achieve profit at the rate of 2% within the 1st year 2007-08 To achieve profit at the rate of 4% within the 2nd year of 2008-9 To achieve profit at the rate of 8 % within the 3rd Year of 2008-09

Sales Targets
To achieve a target net sales of Rs. 222 million within the1st year of 2007-08 Expand the number of dealers by 10 % To achieve a target net sales of Rs. 400 million within the 2nd year of 2008-09 Expand the number of dealers by 30 % To achieve a target net sales of Rs. 1billion within the 3rd year of 2009-10 Expand the number of dealers by 50 %
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M. HAMMAD MANZOOR, MBA HRM - I Roll No. 508195394, Karachi Campus

Department of Admin Sciences,

Allama Iqbal Open University, Islamabad

Inventory control Methodology Used by Cere e Noor

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M. HAMMAD MANZOOR, MBA HRM - I Roll No. 508195394, Karachi Campus

Department of Admin Sciences,

Allama Iqbal Open University, Islamabad

Inventory methods Used by Cere e Noor:

Inventory Methods used by Cere e Noor are as follows; Periodic Inventory Method Used by Cere e Noor: Periodic Inventory method is used by Cere e Noor. They generally carry out the periodic inventory by physical inventory at the end of each month. In
periodic Inventory methodology of the Cere e Noor, the store department is responsible for maintain all the records for the material received and issued by the Store Department.

FIFO (First In & First Out) Method Used by Cere e Noor: Another method used by Cere e Noor is the First In & First Out (FIFO) method). This method is worked out for the items that are to utilize at the earliest as we can. In the FIFO technique, the sensitive material holds by the store department is to utilized first. The utilization of the different colors for the ceramics preparation, generally few color brands are very sensitive for utilization, due to temperature and light exposure. FIFO technique is sometime applied in such cases.
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M. HAMMAD MANZOOR, MBA HRM - I Roll No. 508195394, Karachi Campus

Department of Admin Sciences,

Allama Iqbal Open University, Islamabad

Merits & Strengths:

Premier local manufacturer of porcelain tableware. Part of the elite Hashoo group -the owners and operators of two leading chains of hotels namely Marriott and Pearl Continental Ability (knowledge, skills and facility) to manufacture hard porcelain.

Demerits and Deficiencies:

Inventory management system is not equipped with the advance technologies, like modern instruments to maintain the sensitive material (paints). No modern alarming system has yet been installed with Hashoo group; the old alarming system in use generally generates the request which is not required by the purchaser. Plant is geared towards small volumes and labor intensive manufacturing resulting high. Cost of manufacturing Quality is acceptable but consistency needs to be ensured. Further improvement in quality is necessary to compete with top International brands. Lack of Decal Development Facility. Lack of original designs Lack of brand awareness in relevant markets Lack of planning strategy for Inventory Management.
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M. HAMMAD MANZOOR, MBA HRM - I Roll No. 508195394, Karachi Campus

Department of Admin Sciences,

Allama Iqbal Open University, Islamabad

Opportunities:
Huge growing domestic market Growing purchasing power of people within the economy More and more consumers are becoming brand conscious Modern lifestyles markets are growing.

Threats:
Growing Manufacturing Power of China (they can do reasonable quality at low cost) Increasing energy costs.(Oil & Electricity) Increasing prices of raw material Political stability is at a decline.

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M. HAMMAD MANZOOR, MBA HRM - I Roll No. 508195394, Karachi Campus

Department of Admin Sciences,

Allama Iqbal Open University, Islamabad

Recommendations:
Enhance the planning strategy for inventory management. Better alarming system should be installed. Receiving management should be improved enough, so that no illegal store keeping could be made at arriving place (main gate) Enhance the manufacturing plant capacity to get the maximum number Enhance the brand design Enhance HRD to meet the appropriate professional needs for onward competition Administration department needs to address for of hiring experienced professionals of the relevant trade. The emphasis of the company emphasized is work progress, nor on the personality grooming of an individual, which could be helpful for company operation smooth conduction and helping out for better prospectivity in the form of his personal growth and motivation to company. Sophisticated inventory plan should be prepared to meet the order in a more proficient way.

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M. HAMMAD MANZOOR, MBA HRM - I Roll No. 508195394, Karachi Campus

Department of Admin Sciences,

Allama Iqbal Open University, Islamabad

Thanks for your patience ,,,,,,

Q & A Session

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M. HAMMAD MANZOOR, MBA HRM - I Roll No. 508195394, Karachi Campus