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Literature Review On Inventory Control Management Finance Essay

The Assam Tea Organization is a pioneer in producing high quality tea having its own processing flower with an excellent implication of inventory control. The main goal of this report is to conduct a books review on the inventory control management and the operations in practice of the Assam Tea company processing plant where I was employed.

The company comes with an efficient structure of inventory control and has placed a standard for other companies in the same procedure for the reason that area. The business produces a superior quality tea mostly meant for export in the form of CTC and Orthodox tea. The product of the company is world famous for its high quality taste.

They offer high tech infrastructure in the control plant with an extremely trained staff and productive way if inventory control. They have various systems in the processing plant i. e, starting from the picking right up of green leaves which is the major part of organic material. The company has own plantation unit from where the raw materials is easily available. Moreover they may have tie ups with other local tea gardens to ensure a reliable way to obtain tea leaves. The tea control device is a sophisticated mechanical process works under the rule of operation management and inventory control. The function than it is an essential one which includes to cope with seasonal and cyclical fluctuations of demand persisting on the market. The inventory control must deal with waste products management in the machine by learning the optimum level of demand. The seasonal fluctuations is mainly incorporated with the monsoon season where the development of tea leaves at the peak level. I had been assigned with the responsibility of the associate manager functions in the handling unit.

This survey mainly encounters with the various concept of inventory control and its management undertaken by an organisation with stress on inventory and its own effective control. It handles the cost related to the inventory and its own profile, Usage of probabilistic estimation of demand and overall role of the inventory control in a tea control unit. There are many issues how to improvise the situations and increase the competitiveness related to the problems. The method applied to prepare this report with a higher focus on the textbooks and the web-source related to procedures management. The info accumulated through all the experimentations observed and lastly resorted to website and standard textbook of operations management.

2. Books Review

2. 1 What's inventory

Inventory has a multilevel function in the process unit and the companies used to keep up mainly four level of inventories -

Raw material-This is the unprocessed form of the item that can be utilisied from diverse quantity of suppliers. This form should be used to determine the superior form by removing the supply variability in quality, quanity or time of delivery.

Work-in process(WIP) inventory-This is an intermediary form of inventory when the raw materials undergone a change however, not completed.

Maintanence/repair /operations(MRO) inventory-

2. 2 INVENTORY CONTROL MANAGEMENT

In this part of analysis importance should get "when to order'' and "how much to order''. The model which derive from self-employed demand can be split into three.

1. Basic Economic Order quantity(EOQ) model

2. Development order quantity

3. The quantity discount model

Basic Economic Order Amount model

This is the most typical form of the inventory control strategy. The technique is situated upon following assumptions-

Production order amount model

The model does apply under two situations. First of all, If the order is located there is continuous flow of inventory. Subsequently, the systems are produced and sold together. In the case of Assam Tea Company processing product both these circumstances are prevalent. In such a model daily production rate is set on the basis of daily rate of demand.

It is useful when inventory build up is a continuing process over enough time and assumption of traditional Economic Order conditions contains valid. It is the situation where in fact the ideal order size Q* is projected with an equality in set up cost to keeping cost, The development order number model:

Q=Amount of portions per order

H=Possessing cost per device per year

P=Daily production rate

d=Daily demand rate or consumption rate

t=Span of the creation run in days

The final appearance for optimal degree of inventory Q* is-

Probabilistic model with regular lead time

Probailistic model with regular leadtime is highly relevant. In the presence of uncertain demand, the management of the company faces challenges to keep up adequate service level. The service level can be complimented by the likelihood of a stock out isTo reduce stock out the company can take inventory as safeness stock.

Whereas if Reorder point=ROP=dxL

With the addition of safeness stock, the expression becomes=ROP=dxL+SS

However twelve-monthly stock out costs=The amount of the unit shortxthe probabilityxThe stock out cost per unitxthe variety of requests per year

2. 2 COST OF INVENTORY

In circumstance inventory control analysis there are various costs mixed up in overall process. The expense of inventory is computed by means of unit beliefs. However major portion of the inventory cost can be mentioned as follows-

THE CARRYING COST OF INVENTORY

In this segment of costs of holding components of inventories are included. This is the price of running a warehouse, cost that are incurred on handling and counting, costs involved with special storage area, damage and lost, insurance, tax and wornout costs.

THE Buying OR CREATE COST

This is the price which is associated with inserting an order and replenishment. This cost includes all the proper execution of orders, establishment cost needed to ensure it, inspection and acquiring cost, handling owner invoice and the cost essential to meet unpredicted situation.

This may be considered a cost of skilled mechanic charged according to his technical standards. There are many arguments whether the price tag on the skilled mechanic is a fixed cost. But Kaplan (1988), all the costs involved in the permanent is virtually adjustable cost where for the reason that period a person can be fired, a herb will come to shutdown.

INSUFFICIENT CAPACITY COST

The cost engaged here is designed to steer clear of the stockout cost. In the case of production process, it's the emergency cost necessary for emergency replacement of the production equipment to improve the productivity level, cost engaged to increase the procedure, rescheduling and assigned work in split up version.

SYSTEM CONTROL COSTS

This is the type of cost made an appearance in the operation process according to selection of decision system. This includes acquisition, storage, maintanence and computation of the data. The treaining instituted by the organization and employee confirmation is also falls in the category costs.

In Assam Tea Corporation, there are a number of costs engaged in different degree of operation processes. The renewable leaves are primarily plucked from the plantation product and allowed to undergo different functions like picking, wilting, bruishing, oxidation/fermentation, firing, yellowing, shaping, drying and healing to get the final product.

In the handling device, one of the major cost incurred by the business is warehousing the tea product as well as the renewable leaves. If the fresh leaves aren't stored properly there's a greater possibility to be dried up and becomes waste materials. The protection plans and taxes are also one of the element.

The cost of inserting an order is one of the significant area of the processing unit. There is an inspection unit in the business which takes bank account of quality control in the unit. There is the cost of technicians expertise in that specific line During the maximum season as the creation process is a complex mechanical one. Through the optimum season, especially during monsoon, there's always extra cost of utilizing extra-capacity, expediate the process. In that situation temporary staff are employed based on shift obligation with overtime bonus must be paid.

The company must bear the cost on information system and its own maintanence as it uses a data warehousing software. With the present environment of immediate change in the technology the company has to provide training for skill enhancement training to its manpower. This has been done with "Tocklai Tea Research Centre'', one of the leading Tea research institute. The training cost and performance research cost is made among the cost.

KEY VARIABLES IN INVENTORY MANAGEMENT

1. REPLENISHMENT Business lead TIME

It is enough time between placing an order and to meet the final demand of the client physically.

2. REORDER POINT

It is the idea of the inventory level where in fact the replenishment of stocked item occurs.

Where ROP=dxL

where d is the demand each day, L is the leadtime for a fresh order in days

3. Safeness STOCK

A buffer stock to meet an unequal demand.

OPERATION PROCESS Product OF TEA

The Assam Tea Company has its control unit for production of CTC() and Orthodox tea in the form of. which account for almost 80% of the key creation whereas the other form of teas are produced at paltry 20%.

The tea handling begins with flushing of tea from Camellia Sinensis(Botanical name of tea) and then it is dried for brewing of tea, oxidization of leaves and, stopping oxidization, drying of leaves, and oxidation has a primary part to bring the final taste of tea.

The company produces variety of tea through different processes which may be visualised using flow-chart diagram.

The process itself starts off from the left hand part of the circulation chart with the operation of stocking into raw material or fresh inexperienced leaves. The handling product of the Assam Tea Firm is highly engaged in creation of dark tea and green tea extract which constitutes 80% of the result whereas other constitutes 20% of the full total production.

For obtaining a dark-colored tea(the red coloured flow chart) as the final product it could be observed in the diagram that after getting the new leaves the procedure undergoes with inside witting, the CTC with full oxidation rolled to the drying device done through desiccation and lastly drying at ideal temperature, the black tea can be acquired.

While for green teaTthe green colored flow graph) after steaming and panning it is rolled to get the desirable form and finally dried to get green tea extract. The complete system of operation can be split into following important parts-

1. Picking

A terminal bud and two leaves are plucked from Camelia Sinensis.

2. Wilting

With an oxidation done in the presence of enzyme, the tea leaves are wilted to eliminate the excess drinking water from leaves.

3. Brushing

To expediate oxidation, the tea leaves are let to land in buckets and rolled over by wheels.

4. Oxidation/Fermentation

The major procedure of oxidation was to breakdown the the chlorophil and relax the tannin, as the leaves are maintained in a environment control room.

5. Get rid of green/Firing

To stop the oxidation at desired level and bring back the flavor this task is performed.

6. Yellowing

It is performed in an in depth pot after firing to acquire beverage of yellow tea.

7. Shaping

After yellowing it is rolled into stripe wrinkles

8. Drying

This is done to get the ultimate product or tea for sale.

PROBLEMS RELATED WITH INVENTORY CONTROL IN TEA Handling UNIT

In the tea business it's the monsoon which has a direct effect on the production of the green tea leaves which is the primary raw material for the processing. In case, there may be good rainfall the yield of the leaves goes up and supply becomes steady. For the reason that season the creation device of the tea garden is at increased stress with low business lead time which means shorter time space in the production system to hold back, move, que and set-up and run time for each component produced. On the other hand, when there is low rainfall, the creation of renewable leaves drops and lead time is more as the resource movement is less.

However, risk factor is present before high development, the tea leaves needs extra care so that it should not expose to moisture and if so extra manpower is needed on shift responsibility basis to expedite the procedure. Within the Assam Tea Company processing unit, the production and sales takes place within a day. In this situation creation order quabtity model is pertinent as the organization is getting its raw materials over a period of time inside a day which immediately originates from the plucking unit. An optimum degree of Q* is computed to control the inventory.

Recommendations

In the view of the above mentioned discussion an optimum level of inventory can be obtained by lowering the waste material in the following steps.

1. Inventory Planning

An ideal inventory planning may take place with the appearance of new one immediately after the last product sold/dispatched.

2. Establish order cycles

In circumstance of business with seasonal cycles it's important to establish a relationship of demand between vendors and suppliers.

3. Balance Inventory level

Inventory level should be balanced looking into the matters related to advertise and budget.

4. Review Stocks

The shares should be evaluated as the obsolete one is equivalent to a useless capital.

5. Follow up of stocks

The management should take the key decision about disposal, replacement and discontinuance of different inventory platform.

INVENTORY PLANNING DECISION IN TABULAR FORMAT

COST AS WELL AS OTHER IMPORTANT FACTORS

SERVICE REQUIREMENT

CUSTOMER Purchasing CHARACTERISTICS

In this category, the most important part is customer anticipations and competitive practices, time management and influence on customer.

Order characteristics include order timing and size, information about large orders on the basis of standing requests.

In the tea handling unit, the client always is prompt method as the order must reach the marketplace and meet the price fluctuation in the auction market.

DEMAND PATTERNS

SUPPLY SITUATION

Demand pattern is often governed by variability and seasonality. Another important part is presence of substitutes and capacity to forecast.

The green tea leaves as a listing effected by variability of the elements condition and effected by rainfall which establishes produce of the tea leaves which is the three quarter of the month the source is streamlined and one 1 / 4 is with no production. The occurrence of swap is low

and as there exists high fluctuation in the market forecasting is not a simple task.

This a challenging part as to thin down the business lead time, the processing unit has to avoid any throw away. At exactly the same time reliability depends upon the stream of the inventory with the same flexibility can be made certain with additional employees on call which can also expidiate the procedure.

COST FACTOR

NATURE OF THIS PRODUCT

Again the price factor is governed by stock out cost which is also a probabilistic measure, addititionally there is cost of holding and space

The characteristics of the merchandise is perishable and wetness will make it obsolete

OTHER ISSUES

In the tea control unit the crucial point is power supply and mechanical efficiency.

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