MIS for Materials Management and

Inventory Control Management

Submitted as a part of course

Management Information Systems

Group No. 6

Name

Rupam Katte

Shaily Kayal

Hrushikesh Kene

Ajit Khanjode

Ajay Kharbade

Vishwajeet Khot

Shubham Khule

Abraham Kiriyanthan

Amit Kirtane

Management Information Systems pg. 1

Management Information Systems pg. 2
 Index

Introduction 3

Models of Inventory Control 16

Inventory Management Software 22

MIS for Material Management 28

Material Management Organization 35

Reports generated 40

Case Study 1 43

Case Study 2 51

Management Information Systems pg. 3

Introduction
Inventory management is a science which deals with specifying the shape and percentage of
stocked goods.

At what price to buy Whether to stock

RM,WIP,FG

Cost Form

Quantity Location
How much to Where to
produce/store produce/Store

Cost, Form, quantity and location are the major aspects of inventory management.

What is Materials Management?

Material management is an approach for planning, organizing, and controlling all those activities
principally concerned with the flow of materials into an organization.
The scope of Materials Management varies greatly from company to company and may include
material planning and control, production planning, Purchasing, inventory control, in-plant
materials movement, and waste management.
It is a business function for planning, purchasing, moving, storing material in an optimum way
which help organization to minimize the various costs like inventory, purchasing, material
handling and distribution costs.

The fundamental objectives of the Materials Management function, often called the famous Rs. 5
of Materials Management, are acquisition of materials and services:
 of the right quality
 in the right quantity
 at the right time
 from the right source
 at the right price

MIS for Materials Management

MIS can be used to facilitate various functions in an organisation by streamlined process flow
methodology. One such function is materials management.
What is Materials Management?

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Material management is an approach for planning, organizing, and controlling all those activities
principally concerned with the flow of materials into an organization.
The scope of Materials Management varies greatly from company to company and may include
material planning and control, production planning, Purchasing, inventory control, in-plant
materials movement, and waste management.

It is a business function for planning, purchasing, moving, storing material in a optimum way
which help organization to minimize the various costs like inventory, purchasing, material
handling and distribution costs.
The fundamental objectives of the Materials Management function often called the famous 5 Rs
of Materials Management, are acquisition of materials and services:

 of the right quality

 in the right quantity
 at the right time
 from the right source
 at the right price

From the management point of view, the key objectives of MM are:

 
 To buy at the lowest price , consistent with desired quality and service
 
 To maintain a high inventory turnover , by reducing excess storage , carrying costs and
inventory losses occurring due to deteriorations , obsolescence  and pilferage
 
 To maintain continuity of supply , preventing interruption of the flow of materials and
services to users
 
 To maintain the specified material quality level and a consistency of quality which
permits efficient and effective operation
 
 To develop reliable alternate sources of supply to promote a competitive atmosphere in
performance and pricing
 
 To minimize the overall cost of acquisition by improving the efficiency of operations and
procedures
 
 To hire, develop, motivate and train personnel and to provide a reservoir of talent
 
 To develop and maintain good supplier relationships in order to create a supplier attitude
and desire furnish the organization with new ideas , products, and better prices and
service
 
 To achieve a high degree of cooperation and coordination with user departments
 

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  To maintain good records and controls that provide an audit trail and ensure efficiency
and honesty
 
 To participate in Make or Buy decisions

Materials Management thus can be defined as that function of business that is responsible for
the coordination of planning, sourcing, purchasing, moving, storing and controlling materials in
an optimum manner so as to provide service to the customer, at a pre-decided level at a minimum
cost.
The broad Materials function has the following as identified and interlinked sub functions:

 To buy at the lowest price , consistent with desired quality and service
 
 To maintain a high inventory turnover , by reducing excess storage , carrying costs and
inventory losses occurring due to deteriorations , obsolescence  and pilferage
 
 To maintain continuity of supply , preventing interruption of the flow of materials and
services to users
 
 To maintain the specified material quality level and a consistency of quality which
permits efficient and effective operation
 
 To develop reliable alternate sources of supply to promote a competitive atmosphere in
performance and pricing
 
 To minimize the overall cost of acquisition by improving the efficiency of operations and
procedures
 
 To hire, develop, motivate and train personnel and to provide a reservoir of talent
 
 To develop and maintain good supplier relationships in order to create a supplier attitude
and desire furnish the organization with new ideas , products, and better prices and
service
 
 To achieve a high degree of cooperation and coordination with user departments
 
 To maintain good records and controls that provide an audit trail and ensure efficiency
and honesty
 
 To participate in Make or Buy decisions

Materials Management thus can be defined as that function of business that is responsible for
the coordination of planning, sourcing, purchasing, moving, storing and controlling materials in
an optimum manner so as to provide service to the customer, at a pre-decided level at a minimum
cost.
The broad Materials function has the following as identified and interlinked sub functions:

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Materials planning and control: Materials required for any operation are based on the sales
forecasts and production plans.
Planning and control is done for the materials taking into account the materials not available for
the operation and those in hand or in pipe line.
This involves estimating the individual requirements of parts, preparing materials budget,
forecasting the levels of inventories, scheduling the orders and monitoring the performance in
relation to production and sales.
Purchasing: Basically, the job of a materials manager is to provide, to the user departments right
material at the right time in right quantity of right quality at right price from the right source.
To meet these objectives the activities undertaken include selection of sources of supply,
finalization of terms of purchase, placement of purchase orders, follow up, maintenance of
relations with vendors, approval of payments to vendors, evaluating, rating and developing
vendors.

Stores: Once the material is delivered, its physical control, preservation, minimization of
obsolescence and damage through timely disposal and efficient handling, maintenance of
records, proper locations and stocking is done in Stores.
Inventory control: One of the powerful ways of controlling the materials is through Inventory
control.

It covers aspects such as setting inventory levels, doing various analyses such as ABC , XYZ etc.
,fixing economic  order quantities (EOQ), setting safety stock levels, lead time analysis and
reporting.

Economic order quantity (EOQ)

It is the order quantity that minimizes total inventory holding costs and ordering costs. It is one
of the oldest classical production scheduling models. 
EOQ applies only when demand for a product is constant over the year and each new order is
delivered in full when inventory reaches zero.

P System
Periodic review system (periodic order system, fixed interval reorder system, order-up-
to system): review on-hand quantity of an item after a stated number of periods (P).
After each review, order an amount equal to a target inventory level (T) minus the current
inventory position (IP) time between orders ("order cycle") is fixed but the order quantity varies.
Review interval (P) may be dictated by supplier or may be calculated based on the economic
order quantity or other considerations.
Q System
Continuous review system: review the on-hand quantity of an item each time an inventory
withdrawal occurs, and decide whether a replenishment order should be placed at that time order
quantity is fixed but the time between orders ("order cycle") varies.

Complexity of Inventory Management

The following are the different functions and processes to be carried out in Inventory
management.
 Replenishment lead time

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  Carrying costs of inventory
 Asset management
 Inventory forecasting
 Inventory valuation
 Inventory visibility
 Future inventory price forecasting
 Physical inventory
 Available physical space for inventory
 Quality management
 Returns and defective goods
 Demand forecasting

A change in one of the factors like Inventory valuation will cause a major change in all the other
factors. So it becomes cumbersome and error prone to manage inventory manually.

Role of MIS in an Inventory System

MIS is a planned System of collecting, processing, storing & disseminating data to carry out
functions of management
 Reports on Inventory Costs
 Reports on Inventory Levels
 Value of Inventory
 Increasing Your Inventory Levels
 Timely, accurate & relevant information for decision making

A management information system organizes all company data in a computerized database. As a

business owner, you can retrieve data from all sections of your company including sales,
manufacturing and inventory to see how efficiently each department is operating. This can tell
you how well your inventory system works with manufacturing and sales

MIS Decision Process

MIS and its organizational subsystems contribute to the decision making process in many ways.
Making decisions is an important part of working in the business environment. Companies often
make decisions regarding operational improvements or selecting new business opportunities for
maximizing the company's profit. Companies develop a decision-making process based on

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individuals responsible for making decisions and the scope of the company's business operations.
A useful tool for making business decisions is a management information system.
The figure shows a generic block diagram of making decision in MIS. There is huge data fed to
MIS processes. These processes optimize and modulate data into information. This information
is fed to the user’s processes modules which gives output (Reports) as required by the user.
Based on these reports, user can take appropriate decisions.

Airline Example:
There is continuous flood of queries and requests for booking of seats for an airline. An airline
has to maintain its information accurately in real-time. MIS processes make the information
structured. Further the processes by user give insights to the management. On the basis of this
information, the management can decide when to change the prices of tickets. When we book an
airline ticket early the ticket, we get a cheaper deal. This is exhaustively dependent on demand
for that ticket. So the prices go on increasing. Just an hour before, the booking through internet is
closed. At this point the prices again drop depending on the number of vacant seats. So managing
the booking of seats till the plane takes off is an essential for optimizing the profit.

Inventory Analysis

ABC Analysis:
ABC analysis is a method of differentiating different activities based on its monetary value and
rate of consumption. It divides all the inventory products into three categories:
Class A items: Items which constitutes only 10-20% of the total inventory but whose cost
contribution is around 50% of the total cost.
Class B items: These items contribute 20-30% by quantity in the inventory but it costs 30% of
the overall inventory budget if the company.
Class C items: The items which are required in high quantity thus, contributing up to 70-80% of
the total inventory. Per head cost of such items is pretty low (generally 20% of the company’s
annual budget).
ABC analysis also takes into account material pricing, material’s credibility, availability of the
material, physical characteristics like size and weight. Depending on the situation and the
importance of above characteristics, classification is made.

Steps followed while classifying the inventory products based on ABC analysis:
The following steps are involved in implementing the ABC analysis:

 1. Classify the items of inventories, determining the expected use in units and the price per unit
for each item.
 2. Determine the total value of each item by multiplying the expected units by its unit price
 3. Rank the items in accordance with the total value, giving first rank to the item with highest
total value and so on.
 4. Compute the ratios (percentage) of number of units of each item to total units of all items and
the ratio of total value of each item to total value of all items.
 5. Combine items on the basis of their relative value to form three categories: A, B and C.
A figure given below demonstrates the use of ABC analysis in the inventory control:

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VED Analysis:
While the ABC analysis takes into consideration the annual consumption value of the product,
the criticality of the material is neglected.
VED Analysis focuses on nuisance value associated with each material. Nuisance value is the
cost incurred by the company due to the non-availability of certain products in its inventory. The
highly critical items whose absence may cost the company dearly are classified separately than
those products whose absence can be dealt with easily. VED ranking may be done on the basis of
the shortage costs of materials, which can be either quantified or qualitatively expressed.

In the inventory management systems, combination of both the analysis methods (ABC and
VED) is used, as it takes into consideration, not only the quantity of the product, but also the
criticality of the product or the loss than can be caused by the absence of that particular product.
The figure below shows the combination of ABC and VED analysis used in the general
inventory management.

V E D

A AV AE AD

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 B BV BE BD

C CV CE CD

A combination of ABC and VED analysis (ABC-VED matrix) can be gainfully employed to
evolve a meaningful control over the material supplies. Category I includes all vital and
expensive items (AV, BV, CV, AE, AD). Category II includes the remaining items of the E and
B groups (BE, CE, BD). Category III includes the desirable and cheaper group of items (CD)

FSN Analysis
FSN analysis Classifies items based on Frequency of Issues/Use or rate of consumption:
The items are classified broadly into three groups: F – means fast moving, S – means Slow
moving, N – means Non-moving items. This form of classification identifies the items frequently
issued; less frequently issued for use and the items which are not issued for longer period, say, 2
years. For instance, the items can be classified as follows: 

         Fast Moving (F) = Items that are frequently issued say more than once a month. 
         Slow Moving (S) = Items that are issued less than once a month. 
         Non-Moving (N) = Items that are not issued\used for more than 2 years.

This classification helps spare parts management in establishing most suitable stores layout by
locating all the fast moving items near the dispensing window to reduce the handling efforts.

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Also, attention of the management is focused on the Non-Moving items to enable decision as to
whether they are required in the future or they can be salvaged. Experience shows that many
industries which are more than 15 years old have more than 50% of the stock as non-moving
spares. Even if a few of them are disposed of and the locked up capital is made available, it will
make available additional working capital to the organization. Action for disposal should be
taken based on the value of each item of spare.
The FSN analysis is conducted generally on the following basis:
 The last date of receipt of the items or the last date of the issue of items, whichever is
later, is taken into account.
 The time period is usually calculated in terms of months or number of days and it pertains
to the time elapsed seems the last movement was recorded.
FSN analysis helps a company in identification of the following

 The items considered to be “active” may be reviewed regularly on more frequent basis.
 Items whose stocks at hand are higher as compared to their rates of consumption.
 Non-moving items whose consumption is “nil” or almost insignificant.
 This analysis can be done for a specified financial period or for a range of dates as specified by
the user. It is possible to do this analysis for a particular Warehouse in a location or for all the
Warehouses in the location. The higher the Average stay (relative) of an item in the Warehouse,
the slower its movement from Inventory. On the contrary a fast moving item will have a shorter
stay in the Warehouse. A very high Consumption rate (relative) implies that the item/variant is a
Fast moving one and a Slow moving item will have a low Consumption rate. FSN Analysis in
Inventory takes in to account both these criterion in determining the final FSN status for an
item/variant.
 For doing this the preliminary steps are 1) the calculation of the Average Stay and the
Consumption rates for all the items/variants involved in the Analysis and 2) the
classifications of the items into F, S and N purely on the basis of Average Stay and
Consumption rate.
The various steps involved in carrying out an FSN analysis are listed out here with an
illustration:
 Let there be 10 items under consideration for the FSN Analysis at the location level. For
Item code.1, the transactions are shown as below. Here, the total period for which the
Analysis is being done is half a month (15 days).
    Step I: Calculation of Average Stay and Consumption rate (for Item1)
 Opening Balance quantity = 50 nos.

Date Receipt Return Adjustment Issue Closing Inv. Holding

Qty. Qty. Qty. Qty. Balance days

1/1/09 10 0 0 0 60 60

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2/1/09 15 7 0 15 67 127

3/1/09 0 0 0 0 67 194

4/1/09 0 0 0 0 67 261

5/1/09 0 0 5 0 72 333

6/1/09 20 0 0 0 92 425

7/1/09 0 0 0 12 80 505

8/1/09 0 4 0 0 84 589

9/1/09 0 0 0 0 84 673

10/1/09 10 0 0 7 87 760

11/1/09 0 0 0 0 87 847

12/1/09 0 0 0 12 75 922

13/1/09 0 0 0 0 75 997

14/1/09 10 0 3 0 82 1079

15/1/09 0 0 0 0 82 1161

Total 65 11 2 46 - -

 Average Stay for the item = Cum. No. of Inv. Holding days / (Total Rcpt. Qty. + Opening
Balance) =   1161/115 =  10.09 days
 Consumption Rate = Total Issue Quantity / Total period duration = 46/15 = 3.06
nos./day 
 Note: 1) For Average stay calculation, the Total Receipt quantity takes into account all
the Receipt transactions carried out in all the Warehouses in the location for which the
FSN analysis is being done.
 2) Total Receipt quantity will include quantity of the item moved in to the Warehouse
through Inter- warehouse transfers also
3) Total Issue quantity will include quantity of the item moved out of the Warehouse
through Inter- warehouse transfers.         
 4) The Average Stay and Consumption rate calculations are done individually for all the
items(in this case 10 items) for which the analysis is being done. Let the Average stay
and Consumption rates be as given below:
Item Average Stay Consumption Rate
code

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 1 10.09 3.06

2 7.5 5.2

3 8.23 4.71

4 4.2 2

5 6 5.1

6 12 5.76

7 8 3.98

8 9.11 4.48

9 11.2 5.23

10 7.21 4

Note: The figures that are bold and underlined correspond to the item for which Average
stay and Consumption rate calculations were illustrated. 
  Step II: FSN Classification on the basis of Average stay of the items.
 The items are arranged on the descending order of their Average stays and the
Cumulative Average stay calculated. 10% of the Cumulative average stay are categorized
as F Class, 20% of the Cumulative average stay for S Class and 70% of the Cumulative
average stay for N Class. 
Item Average Cum. Average Stay % Average FSN Classification
code Stay Stay

6 12 12 14.36 N

9 11.2 23.2 27.77 N

1 10.09 33.29 39.85 N

8 9.11 42.4 50.75 N

3 8.23 50.63 60.61 N

2 7.5 66.13 79.16 S

10 7.21 73.34 87.79 S

5 6 79.34 94.97 F

4 4.2 83.54 100 F

  Step III: FSN Classification on the basis of Consumption rate

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  After arranging the items in the descending order of their Consumption rate, the
Cumulative Consumption rate is calculated. Generally 70% of Cumulative Consumption
rate for F Class, 20% Consumption rate for S Class and 10% Consumption rate for N
Class.
Item Consumption Cum. Consumption % Consumption FSN
code Rate Rate Rate Classification

6 5.76 5.76 13.24 F

9 5.23 10.99 25.25 F

2 5.2 16.19 37.2 F

5 5.1 21.29 48.92 F

3 4.71 26 59.74 F

8 4.48 30.48 70 F

10 4 34.48 79.23 S

7 3.98 38.46 88.37 S

1 3.06 41.52 95.4 N

4 2 43.52 100 N

  Step IV: Final Classification of items into F,S and N Classes

 For each of the items for which Average stay and Consumption rate were calculated and
FSN classification done individually on the basis of both the Average stay and the
Consumption rate, the final FSN classification is done on the basis of the matrix as shown
below:

FSN (Consumption FSN (Average Stay) Final FSN Classification

Rate)

F F F

F S F

F N S

S F S

S S S

S N N

N F S

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 N S N

N N N

HML Analysis

This classification is based on unit price. According to it items are classified based on their price.
Items are classified into three groups labeled as High – Medium – Low. General benchmark is as
follow: 
         High Cost (H): Item whose unit value is very high, say, Rs.1000/- and above. 
         Medium Cost (M): above Rs.100/- but less than Rs.1000/-. 
         Low Cost (L): Item whose unit value is low, say, less than Rs.100/-.
This type of analysis helps in exercising control at the shop floor level i.e., at the use point.
Proper authorization should be there for replacing a high value spare. Efforts may be necessary
to find out the means for prolonging the life of high value parts through reconditioning and
repair. Also, it may be worthwhile to apply the techniques of value analysis to find out a less
expensive substitute.
The HML analysis is very similar to the ABC Analysis, the difference being instead of usage
value, the price criterion is used. In their classification, the items used by the company are
arranged in descending orders of their unit price. After this, the management of the company
uses its discretion and judgment to decide the cut off lines for deciding the three categories. For
example, the management may decide that all items of unit price value above Rs 500 should be
categorized as H items, items whose, unit price falls between Rs 50 and Rs 500 should be
categorized as M items and items whose unit price falls below Rs 50 should be categorized as L
items. The categorization therefore is decided by the management.
HML analysis helps an organization to take decisions on the following:
a) It helps to assess the security requirements and the type of storage for high priced items. For
example, expensive ball bearings can be kept under lock and key in a cupboard.
b) The frequency of stock checking is decided on the basis of the cost item. In other words, more
expensive the item, more frequent will be its stock-checking.
c) A control on purchases and buying policies can be exercised by the company. This means H
and M items will not be ordered in excess of the required minimum quantity. However, in the
case of L items, they may be purchased in bulk in order to avail the benefits of bulk purchase.

Models of Inventory Control

Several models are available to help determine how much inventory should be brought in to
restock the products or parts. The various types of inventory models are as follows:

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 1. Order frequency based- Models based on the frequency of orders can be included in this
section. The model can be single period or multi-period.
 Single-period ordering occurs when an item is purchased one time, such as a daily
newspaper purchase or holiday season order. This method balances the trade-off
associated with an insufficient order (and the resulting loss in profit) and ordering too
much (and the resulting costs of disposing of the excess).
In a single-period model, the items unsold at the end of the period is not carried over
to the next period. The unsold items, however, may have some salvage values.
Example- Perishable product, Seasonal products such as bathing suits, winter coats,
etc. Newspaper and magazine

 Multi-period ordering balances the trade-off between carrying costs and ordering
costs. In a multi-period model, all the items unsold at the end of one period are
available in the next period.
Example- Computer, Furniture etc.
It can be divided into P system and Q syste
 P System- A periodic review occurs when inventory is ordered at fixed
intervals, such as weekly. This is desirable when vendors make routine visits
to customers and take orders for a complete line of products, or when buyers
want to combine orders to save transportation costs. The order quantity is
determined by subtracting the current inventory position from a maximum
quantity calculated to protect against stockouts during the review period and
lead time. The advantages of P system are simplicity and low cost of
operations for maintainig this system.

 Q System- A reorder point is calculated for each independent demand item.

When inventory levels drop to the reorder point, a signal is sent to replenish
inventory in a fixed quantity amount. The reorder point is equal to the
expected demand during lead time plus safety stock to cover demand in excess

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 of expectations. The advantages of Q system are high control over inventory
and high service level.

2. Demand nature based- Models based on the nature of demand can be included in this
section. The model can be probabilistic or deterministic.
 Probabilistic model- In practice, all demand patterns are uncertain and hence a large
number of inventory systems cannot be modelled using deterministic approaches. The
probabilistic method employs the known economic, geological and engineering data
to produce a collection of approximate stock reserve quantities and their related
probabilities. Each inventory reserve categorization gives a signal of the prospect of
revival.
The advantage of a probabilistic approach lies in the fact that by using values lying
within a bandwidth and modeled by a defined distribution density, the reality can be
modeled better than by using deterministic figures.In probabilistic models, demands
are described by probability distributions based on which inventory is decided.
 Deterministic models of inventory control are used to determine the optimal
inventory of a single item when demand is mostly largely obscure. Under this model
inventory is built up at a constant rate to meet a determined, or accepted, demand.
A deterministic circumstance is one in which the system parameters can be
ascertained precisely. This is also known as a situation of sureness since it is realized
that whatever are ascertained, things are sure to occur the same way. Also the
information about the system under thought should be whole so that the parameters
can be determined with confidence. But this kind of system rarely exists, and it is for
sure that some uncertainty is always associated with the system.
Deterministic optimization models presume the state of affairs to be deterministic and
consequently render the numerical model to optimize on system arguments. Since it
conceives the system to be deterministic, it automatically means that one has full
information about the system.
The order quantity (how much) and reorder point (when) are determined
deterministically by minimizing the total inventory cost that can be expressed as a
function of these two variables.

3. The Economic Order Quantity (EOQ) is the number of units that a company should add
to inventory with each order to minimize the total costs of inventory—such as holding
costs, order costs, and shortage costs. The EOQ is used as part of a continuous review

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 inventory system in which the level of inventory is monitored at all times and a fixed
quantity is ordered each time the inventory level reaches a specific reorder point. The
EOQ provides a model for calculating the appropriate reorder point and the optimal
reorder quantity to ensure the instantaneous replenishment of inventory with no
shortages. It can be a valuable tool for small business owners who need to make decisions
about how much inventory to keep on hand, how many items to order each time, and how
often to reorder to incur the lowest possible costs.
The EOQ model assumes that demand is constant, and that inventory is depleted at a
fixed rate until it reaches zero. At that point, a specific number of items arrive to return
the inventory to its beginning level. Since the model assumes instantaneous
replenishment, there are no inventory shortages or associated costs. Therefore, the cost of
inventory under the EOQ model involves a tradeoff between inventory holding costs (the
cost of storage, as well as the cost of tying up capital in inventory rather than investing it
or using it for other purposes) and order costs (any fees associated with placing orders,
such as delivery charges). Ordering a large amount at one time will increase a small
business's holding costs, while making more frequent orders of fewer items will reduce
holding costs but increase order costs. The EOQ model finds the quantity that minimizes
the sum of these costs.

% Increase in cost Vs Volume

50%
45%
40%
% increase in cost

35%
30%
25%
20%
15%
10%
5%
0%
800
900
1000
1250
1414
1500
1750
2000
2500
2828
3000
3500
4000
4500
5000

4. Pricing based model- Models based on the pricing of inventory can be included in this
section. The model can be fixed price or variable price.

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  In fixed price model the purchse cost does not depend on order quantity and remains
fixed for any quantity
Inventory Cost increases as order quantity increases
 In variable price model the purchase cost is Order Quantity Dependent
As order quantity increases, prices drop and so does material cost and ordering cost
Inventory Cost increases as order quantity increases.

Order Quanity Vs Total Price

2500000

2250000

2000000

1750000

1500000
150316911879206722552443263128193007

5. Other inventory based model- Models based on dependent and independent demand can
be included in this section.
 Independent demand- An inventory of an item is said to be falling into the category of
independent demand when the demand for such an item is not dependent upon the
demand for another item.
Finished goods Items, which are ordered by External Customers or manufactured for
stock and sale, are called independent demand items.
Independent demands for inventories are based on confirmed Customer orders,
forecasts, estimates and past historical data.

 Dependent demand- If the demand for inventory of an item is dependent upon another
item, such demands are categorized as dependent demand.
Raw materials and component inventories are dependent upon the demand for
Finished Goods and hence can be called as Dependent demand inventories.
Take the example of a Car. The car as finished goods is an held produced and held in
inventory as independent demand item, while the raw materials and components used
in the manufacture of the Finished Goods - Car derives its demand from the demand
for the Car and hence is characterized as dependent demand inventory.
The relationship between independent and dependent demand is depicted in a bill of
materials (BOM), a type of visual diagram that shows the relationship between
quantities. An example is shown in Figure 1-8. Item A is the independent demand
item. All the other items are dependent demand. The quantities that go into the final
item are shown in parentheses. Notice that two units of C are combined with one unit

Management Information Systems pg. 20

 of B to make the final product. Similarly, two units of D and one unit of E are
combined to make one unit of B.

 Dependent demand order quantities are computed using a system called material
requirements planning (MRP), which considers not only the quantities of each of the
component parts needed, but also the lead times needed to produce and receive the
items. For example, 20 units of A means that 20 units of B are needed, as are 40 units
of C; similarly, 40 units of D and 20 units of E are needed. However, the system must
also take into account differences in lead times, as receiving D may have a different
lead time than receiving E. This means that the orders should be placed at different
times. This system can also be tied to costs of goods and can link internal and
external members of the supply chain.

Inventory Management Software

Features
Inventory management software is made up of several key components, all working together to
create a cohesive inventory for many organizations' systems. These features include:

Management Information Systems pg. 21

Order management
Should inventory reach a specific threshold, a company's inventory management system can be
programmed to tell managers to reorder that product. This helps companies avoid running out of
products or tying up too much capital in inventory.
Asset tracking
When a product is in a warehouse or store, it can be tracked via its barcode and/or other tracking
criteria, such as serial number, lot number or revision number. Systems. for Business,
Encyclopedia of Business, 2nd ed. Nowadays, inventory management software often utilizes
barcode, radio-frequency identification (RFID), and/or wireless tracking technology.
Service management
Companies that are primarily service-oriented rather than product-oriented can use inventory
management software to track the cost of the materials they use to provide services, such as
cleaning supplies. This way, they can attach prices to their services that reflect the total cost of
performing them.
Product identification
Barcodes are often the means whereby data on products and orders is inputted into inventory
management software. A barcode reader is used to read barcodes and look up information on the
products they represent. Radio-frequency identification (RFID) tags and wireless methods of
product identification are also growing in popularity.
Inventory optimization
A fully automated demand forecasting and inventory optimization system to attain key inventory
optimization metrics such as:
• Reorder point: the number of units that should trigger a replenishment order
• Order quantity: the number of units that should be reordered, based on the reorder point,
stock on hand and stock on order
• Lead demand: the number of units that will be sold during the lead time
• Stock cover: the number of days left before a stockout if no reorder is made
• Accuracy: the expected accuracy of the forecasts
History
The Universal Product Code (UPC) was adopted by the grocery industry in April 1973 as the
standard barcode for all grocers, though it was not introduced at retailing locations until 1974.
This helped drive down costs for inventory management because retailers in the United States
and Canada didn’t have to purchase multiple barcode readers to scan competing barcodes. There
was now one primary barcode for grocers and other retailers to buy one type of reader for.
In the early 1980s, personal computers began to be popular. This further pushed down the cost of
barcodes and readers. It also allowed the first versions of inventory management software to be
put into place. One of the biggest hurdles in selling readers and barcodes to retailers was the fact
that they didn’t have a place to store the information they scanned. As computers became more
common and affordable, this hurdle was overcome. Once barcodes and inventory management
programs started spreading through grocery stores, inventory management by hand became less
practical. Writing inventory data by hand on paper was replaced by scanning products and
inputting information into a computer by hand.

Management Information Systems pg. 22

Starting in the early 2000s, inventory management software progressed to the point where
businesspeople no longer needed to input data by hand but could instantly update their database
with barcode readers.
Also, the existence of cloud based business software and their increasing adoption by businesses
mark a new era for inventory management software. Now they usually allow integrations with
other business backend processes, like accounting and online sales.
Purpose
Companies often use inventory management software to reduce their carrying costs. The
software is used to track products and parts as they are transported from a vendor to a warehouse,
between warehouses, and finally to a retail location or directly to a customer.
Inventory management software is used for a variety of purposes, including:
• Maintaining a balance between too much and too little inventory.
• Tracking inventory as it is transported between locations.
• Receiving items into a warehouse or other location.
• Picking, packing and shipping items from a warehouse.
• Keeping track of product sales and inventory levels.
• Cutting down on product obsolescence and spoilage.
• Avoiding missing out on sales due to out-of-stock situations.
Manufacturing uses
Manufacturers primarily use inventory management software to create work orders and bills of
materials. This facilitates the manufacturing process by helping manufacturers efficiently
assemble the tools and parts they need to perform specific tasks. For more complex
manufacturing jobs, manufacturers can create multilevel work orders and bills of materials,
which have a timeline of processes that need to happen in the proper order to build a final
product. Other work orders that can be created using inventory management software include
reverse work orders and auto work orders. Manufacturers also use inventory management
software for tracking assets, receiving new inventory and additional tasks businesses in other
industries use it for.
Advantages of ERP inventory management software
There are several advantages to using inventory management software in a business setting.
Cost savings
A company’s inventory represents one of its largest investments, along with its workforce and
locations. Inventory management software helps companies cut expenses by minimizing the
amount of unnecessary parts and products in storage. It also helps companies keep lost sales to a
minimum by having enough stock on hand to meet demand.
Increased efficiency
Inventory management software often allows for automation of many inventory-related tasks.
For example, software can automatically collect data, conduct calculations, and create records.
This not only results in time savings, cost savings, but also increases business efficiency.
Warehouse organization
Inventory management software can help distributors, wholesalers, manufacturers and retailers
optimize their warehouses. If certain products are often sold together or are more popular than
others, those products can be grouped together or placed near the delivery area to speed up the
process of picking. By 2018, 66% of warehouses "are poised to undergo a seismic shift, moving
from still prevalent pen and paper processes to automated and mechanized inventory solutions.

Management Information Systems pg. 23

With these new automated processes, cycle counts will be performed more often and with less
effort, increasing inventory visibility, and leading to more accurate fulfillment, fewer out of
stock situations and fewer lost sales. More confidence in inventory accuracy will lead to a new
focus on optimizing mix, expanding selection and accelerating inventory turns.
Updated data
Up-to-date, real-time data on inventory conditions and levels is another advantage inventory
management software gives companies. Company executives can usually access the software
through a mobile device, laptop or PC to check current inventory numbers. This automatic
updating of inventory records allows businesses to make informed decisions.
Data security
With the aid of restricted user rights, company managers can allow many employees to assist in
inventory management. They can grant employees enough information access to receive
products, make orders, transfer products and do other tasks without compromising company
security. This can speed up the inventory management process and save managers’ time.
Insight into trends
Tracking where products are stocked, which suppliers they come from, and the length of time
they are stored is made possible with inventory management software. By analysing such data,
companies can control inventory levels and maximize the use of warehouse space. Furthermore,
firms are more prepared for the demands and supplies of the market, especially during special
circumstances such as a peak season on a particular month. Through the reports generated by the
inventory management software, firms are also able to gather important data that may be put in a
model for it to be analyzed.
Disadvantages of ERP inventory management software
The main disadvantages of inventory management software are its cost and complexity.
Expense
Cost can be a major disadvantage of inventory management software Many large companies use
inventory management software, but small businesses can find it difficult to afford it. Barcode
readers and other hardware can compound this problem by adding even more cost to companies.
The advantage of allowing multiple employees to perform inventory-management tasks is
tempered by the cost of additional barcode readers. Use of smart phones as QR code readers has
been a way that smaller companies avoid the high expense of custom hardware for inventory
management.
Complexity
Inventory management software is not necessarily simple or easy to learn. A company’s
management team must dedicate a certain amount of time to learning a new system, including
both software and hardware, in order to put it to use. Most inventory management software
includes training manuals and other information available to users. Despite its apparent
complexity, inventory management software offers a degree of stability to companies. For
example, if an IT employee in charge of the system leaves the company, a replacement can be
comparatively inexpensive to train compared to if the company used multiple programs to store
inventory data.

Benefits of cloud inventory management software

The main benefits of a cloud inventory management software include:

Management Information Systems pg. 24

Real Time Tracking of Inventory
For startups and SMBs, tracking inventory in real time is very important. Not only can business
owners track and collect data but also generate reports. At the same time, entrepreneurs can
access cloud based inventory data from a wide range of internet enabled devices, including:
smartphones, tablets, laptops, as well as traditional desktop PCs. In addition, users do not have to
be inside business premises to use web based inventory program and can access the inventory
software while on the road.
Cut Down Hardware Expenses
Because the software resides in the cloud, business owners do not have to purchase and maintain
expensive hardware. Instead, SMBs and startups can direct capital and profits towards expanding
the business to reach a wider audience. Cloud based solutions also eliminate the need to hire a
large IT workforce. The service provider will take care of maintaining the inventory software.
Fast Deployment
Deploying web based inventory software is quite easy. All business owners have to do is sign up
for a monthly or yearly subscription and start using the inventory management software via the
internet. Such flexibility allows businesses to scale up relatively quickly without spending a large
amount of money.
Easy Integration
Cloud inventory management software allows business owners to integrate with their existing
systems with ease. For example, business owners can integrate the inventory software with their
e-Commerce store or cloud-based accounting software. The rise in popularity of 3rd party
marketplaces, such as Amazon, eBay and Shopify, prompted cloud-based inventory management
companies to include the integration of such sites with the rest of a business owner's retail
business, allowing one to view and control stock across all channels.
Enhanced Efficiency
Cloud inventory systems increase efficiency in a number of ways. One is real-time inventory
monitoring. A single change can replicate itself company-wide instantaneously. As a result,
businesses can have greater confidence in the accuracy of the information in the system, and
management can more easily track the flow of supplies and products – and generate reports. In
addition, cloud-based solutions offer greater accessibility.
Improved Coordination
Cloud inventory programs also allow departments within a company to work together more
efficiently. Department A can pull information about Department B’s inventory directly from the
software without needing to contact Department B’s staff for the information. This inter-
departmental communication also makes it easier to know when to restock and which customer
orders have been shipped, etc. Operations can run more smoothly and efficiently, enhancing your
customer’s experience. Accurate inventory information can also have a huge impact on your
company’s bottom line. It allows you to see where the bottlenecks and workflow issues are – and
to calculate break-even points as well as profit margins.
 
Disadvantages of cloud inventory management software
Security & Privacy
Using the cloud means that your data is managed by a Third Party provider and there can be a
risk of your data being accessed by unauthorized users.
Dependency

Management Information Systems pg. 25

Since maintenance is managed by the vendor, you are essentially fully dependent on your
provider. Before signing up for an account or purchasing the software, it is essential that you
research on the best providers available in the market to ensure that the vendor is reliable and the
software has all the features that meets your business needs.
Decreased Flexibility
Depending on which Cloud Service Provider you decide to work with, system and software
upgrades will be performed based on their schedule, hence businesses may experience some
limitations in flexibility in the process.
Integration
Not all on-premises systems or service providers can be synced with the cloud software used.

Different Software Examples

1. POS Maid
• POS Maid, a point of service and administrative software for small- to medium-size
businesses, can manage schedules, streamline accounting, and export scheduling and
appointment setting to Excel, front office, and administration.
• POS stands for a single place for everything.
• This software is recommended for small business stores.
• This software feature:-
• Easily fill in your inventory and has complete control over it
• Customer and employee management
• Financial report generation
• Account management
• Low stock alerts etc.

2. iNFLOW Inventory
 inFlow Inventory is an inventory management software which keeps your business
organized and manages all your cumbersome paper work easily.
 This program keeps full track of inventory from purchase till sale.
 This software feature:-
 Product and customer management
 Issue invoice and create purchase order
 Multiple units measurement
 Barcode scanner for accurate inventory management and much more.

Management Information Systems pg. 26

3. ABC Inventory
 ABC Inventory Software is a freeware inventory management application works like
a professional.
 It should be an absolute choice for small and middle level business.
 This software feature:-
 Purchase order management
 Complete inventory track along with barcode, sale and shipping order management
 Scheduling warehouse appointments
 Automatic stock report generation
 Sale quotations

4. BS1 Enterprise Accounting

 BS1 Enterprise Accounting is a freeware program for inventory control and
management which is useful for small business section.
 This program has a very simple interface with very easy to use design.
 It has different departments like accounting, distribution and manufacturing
department which have further sub terms like sales orders, purchase orders, accounts
payable etc.

5. Chronos eStock Card

 Chronos eStock Card Inventory software is a freeware inventory management
application which keeps the complete track of your sales, purchase and warehouse
inventory.
 It supports barcode system.
 This software feature :-
 Detail inventory tracking
 Customizable interface
 Email alerts
 Stock transfer
 Report generation
 Multi-currency conversion

Management Information Systems pg. 27

MIS for Materials Management
MIS can be used to facilitate various functions in an organisation by streamlined process flow
methodology. One such function is materials management.

What is Materials Management?

Material management is an approach for planning, organizing, and controlling all those activities
principally concerned with the flow of materials into an organization.

The scope of Materials Management varies greatly from company to company and may include
material planning and control, production planning, Purchasing, inventory control, in-plant
materials movement, and waste management.

It is a business function for planning, purchasing, moving, storing material in a optimum way
which help organization to minimize the various costs like inventory, purchasing, material
handling and distribution costs.
The fundamental objectives of the Materials Management function, often called the famous 5 Rs
of Materials Management, are acquisition of materials and services:

 of the right quality

 in the right quantity
 at the right time
 from the right source
 at the right price
From the management point of view , the key objectives of MM are :
 

 To buy at the lowest price , consistent with desired quality and service
 To maintain a high inventory turnover , by reducing excess storage , carrying costs and
inventory losses occurring due to deteriorations , obsolescence  and pilferage 
 To maintain continuity of supply , preventing interruption of the flow of materials and
services to users
 To maintain the specified material quality level and a consistency of quality which permits
efficient and effective operation
 To develop reliable alternate sources of supply to promote a competitive atmosphere in
performance and pricing
 To minimize the overall cost of acquisition by improving the efficiency of operations and
procedures
 To hire, develop, motivate and train personnel and to provide a reservoir of talent
 To develop and maintain good supplier relationships in order to create a supplier attitude and

Management Information Systems pg. 28

 desire furnish the organization with new ideas , products, and better prices and service
 To achieve a high degree of cooperation and coordination with user departments
 To maintain good records and controls that provide an audit trail and ensure efficiency and
honesty
 To participate in Make or Buy decisions

Materials Management thus can be defined as that function of business that is responsible for the
coordination of planning, sourcing, purchasing, moving, storing and controlling materials in an
optimum manner so as to provide service to the customer, at a pre-decided level at a minimum
cost.

The broad Materials function has the following as identified  and interlinked sub functions:

Materials planning and control: Materials required for any operation are based on the sales
forecasts and production plans. Planning and control is done for the materials taking into
account the materials not available for the operation and those in hand or in pipe line. This
involves estimating the individual requirements of parts, preparing materials budget, forecasting
the levels of inventories, scheduling the orders and monitoring the performance in relation to
production and sales.

Purchasing: Basically, the job of a materials manager is to provide, to the user departments right
material at the right time in right quantity of right quality at right price from the right source. To
meet these objectives the activities undertaken include selection of sources of supply,
finalization of terms of purchase, placement of purchase orders, follow up, maintenance of
relations with vendors, approval of payments to vendors, evaluating, rating and developing
vendors.
Stores: Once the material is delivered, its physical control, preservation, minimization of
obsolescence and damage through timely disposal and efficient handling, maintenance of
records, proper locations and stocking is done in Stores.

Inventory control: One of the powerful ways of controlling the materials is through Inventory
control. It covers aspects such as setting inventory levels, doing various analyses such as ABC ,
XYZ etc. ,fixing economic  order quantities (EOQ), setting safety stock levels, lead time
analysis and reporting.

Materials Management's scope: The scope is vast.  Its sub functions include Materials planning
and control, Purchasing, Stores and Inventory Management besides others.
Basically, under its scope are :

 emphasis on  the acquisition aspect

 inventory control and stores management
 material logistics, movement control and handling aspect

Management Information Systems pg. 29

  purchasing, supply , transportation , materials handling etc
 supply management or logistics management
 all the interrelated activities concerned with materials

Materials management can thus also be defined as a joint action of various materials activities
directed towards a common goal and that is to achieve an integrated management approach to
planning, acquiring, processing and distributing production materials from the raw material
state to the finished product state.
In its process of managing, materials management has such sub fields as inventory
management, value analysis, receiving, stores and management of obsolete, slow moving and
non-moving items.

The various activities represent these four functions:

 Planning and control

 Purchasing
 Value analysis and
 Physical distribution
 The Purpose of Materials Management is:
 To gain economy in purchasing
 To satisfy the demand during period of replenishment
 To carry reserve stock to avoid stock out
 To stabilize fluctuations in consumption
 To provide reasonable level of client services

The Objectives of Materials Management can be classified into Primary and Secondary
objectives:

Primary Objectives:

 Right price
 High turnover
 Low procurement
 & storage cost
 Continuity of supply
 Consistency in quality
 Good supplier relations
 Development of personnel
 Good information system

Secondary Objectives:

Management Information Systems pg. 30

 Forecasting
 Inter-departmental harmony
 Product improvement
 Standardization
 Make or buy decision
 New materials & products
 Favorable reciprocal relationships

Objectives of Materials Management

 To ensure continuous and uninterrupted production or operation by maintaining steady flow

of material
 To achieve above in efficient & economical manner
 To effect economies in cost of mfg. by purchasing material of right Quality, Quantity, Time,
Source and Price.
 To affect economies in cost incurred after purchase through – Storage, processing,
warehousing till finished goods stage.
 To reduce working capital requirement through proper and scientific Inventory management
 To be aware & alive to the changes in market in respect of new products
 To improve the quality of manufactured goods by use of better raw material or components
and thereby increase the competitiveness of such goods put on sale.
 To increase the competitiveness of manufactured goods by reducing their price through cost
reduction and value analysis
 To save on Forex by import substitution
 To ensure co-operation among all departments to meet material management objectives
 To conserve material resources within organization – contributing to conservation of
National resources
Basic Principles of Material Management:

 Planning
 Organizing
 Staffing
 Directing
 Controlling
 Reporting
 Budgeting
 Sound purchasing methods
 Skillful and hard poised negotiations
 Effective purchase system

Management Information Systems pg. 31

  Should be simple
 Must not increase other costs
 Simple inventory control programme
 Elements of material management Planning
 Demand estimation
 Identify the needed items
 Calculate from the trends in Consumption
 Review with resource constraints
 Procurement.
 Objectives of procurement system
 Acquire needed supplies as inexpensively as possible
 Obtain high quality supplies
 Assure prompt and dependable delivery
 Distribute the procurement workload to avoid period of idleness and overwork
 Optimize inventory management through scientific   procurement procedures
 Procurement cycle
 Review selection
 Determine needed quantities
 Reconcile needs and funds
 Choose procurement method
 Select suppliers
 Specify contract terms
 Monitor order status
 Receipt and inspection
 Methods in Procurement Process and Negotiation Strategies
 Open tender
 Restricted or limited tender
 Negotiated procurement
 Direct procurement
 Rate contract
 Spot purchase
 Risk purchase
 Many Suppliers Strategy
 Few Suppliers Strategy
 Points to remember while purchasing
 Proper specification
 Invite quotations from reputed firms

Management Information Systems pg. 32

  Comparison of offers based on basic price, freight and insurance, taxes and levies
 Quantity and payment discounts
 Payment terms
 Delivery period, guarantee
 Procurement of equipment
 Latest technology
 Availability of maintenance and repair facility, with minimum down time
 Post warranty repair at reasonable cost
 Upgradeability
 Reputed manufacturer
 Availability of consumables
 Low operating costs
 Installation 
 Proper installation as per guidelines
 Storage
 Store must be of adequate space
 Materials must be stored in an appropriate place in a correct way
 Group wise and alphabetical arrangement helps in identification and retrieval
 First-in, first-out principle to be followed
 Monitor expiry date
 Follow two bin or double shelf system, to avoid stock outs
 Reserve bin should contain stock that will cover lead time and a small safety stock

Importance of Material Management:

Management Information Systems pg. 33

The main objectives of materials management are to reduce material cost, to purchase, receive,
transport and store materials efficiently and to reduce the related cost, to cut down costs through
simplification, standardization, value analysis, import substitution, to trace new sources of
supply and to develop cordial relations with them in order to ensure continuous supply at
reasonable rates, to reduce investment tied in the inventories for use in other productive
purposes and to develop high inventory turnover ratios. Basically, objectives of material
management are classified into primary and secondary objectives. Primary objectives include
efficient materials planning, buying or Purchasing, procuring and receiving, storing and
inventory control, supply and distribution of materials, quality assurance, good supplier and
customer relationship and improved departmental efficiency. General secondary objectives of
material management are efficient production scheduling, to take or buy decisions, prepare
specifications and standardization of materials, to assist in product design and development,
forecasting demand and quantity of materials requirements, quality control of materials
purchased, material handling, use of value analysis and value engineering, developing skills of
workers in materials management and smooth flow of materials in and out of the organization.

There are numerous functions of material management. The basic function to accomplish
primary objectives is materials requirements planning which is essential operation in
multinational companies. The advance technique of "Just in Time" is used which has no
inventory. Another function of material management is purchasing which has to be performed
successfully with its suppliers. The success depends on the competence by which this particular
function of purchasing and procuring the requisite materials at appropriate time will be done
and its availability is assured. In order to get success in purchasing function, organizations must
consider that the requisition of material is needed by proper authority to initiate its purchase. It

Management Information Systems pg. 34

 is important to select appropriate supplier for the materials requisitioned, before placing an
order. Company must negotiate about the price of the material from the supplier and it will be
purchased at the cheapest price. The quality of material must be assured and should not be
compromised with the cost of the material. The material should be purchased of right quantity
and right quality at proper time at the cheapest cost. It is recommended to set the proper
purchase policy and procedure. Other function of material management is inventory planning
and control which explains that the materials should be purchased and brought in the stores just
before it enters the production or sold out so that inventory cost is negligible. The zero
inventories are the perfect planning. There are three types of inventories such as raw materials,
purchased goods and finished parts and components.

Material Management Organization

The overall objectives of an organization tend to be achieved most efficiently when the
organization is structured by grouping similar activities together.
The process begins by dividing the total operation into its basic functional components. Each
component, in turn, is divided into a number of sub-functions.

The process is continued until each individual job encompasses a reasonable number of related
tasks. The basic aim is to have a system that is functionalized, has proper control over the
activities and is well coordinated. Materials Management provides an integrated systems
approach to the co-ordination of the materials activities and the control of total material costs.
Obviously, the MM organization is derived from its fundamental objectives.

Materials Management Organization – basic:

Managing Director

Director- Director – Director – Director-

Operations Commercial Finance Sales & Marketing

Production Head Maintenance Head Materials Head Commercial Head Finance Head Accounting Head Head sale Head -Marketing

Contracts
Management Information Systems Management pg. 35
 Legal

Some basics of Organization & Organization Chart -

 Organization is to be structured to meet the objectives of the company
 Organization must have depth & structural arrangement set up in logical manner
 All activities related to each other should be grouped under one department
 Activities may be grouped product wise ,customer wise, facilities wise or using any other
criterion
 There should be clear demarcation of activities

Materials Management organization based on function –

Material Head

Stores
Purchase In-charge & Inventory Traffic In-Charge
In- charge

Store Keeper StoreKeeper-

Buyer 1 Buyer 2 Imports
-Store A storeB

Material Management based on Location –

Management Information Systems Corporate pg. 36

Material Head
Material Manager Material Manager Material Manager
Plant A Plant B Plant C
(reporting for (reporting for (reporting for
day to day day to day day to day
functions to functions to functions to
Works Manager) Works Manager) Works Manager)

Various Sub-systems of MIS

Procurement system: A procurement system is typically a computerized system designed to
manage the procurement process. Procurement is a term used to describe purchasing activity for
a business or organization. There are two primary types of procurement systems: electronic
procurement and standard procurement. Both types of systems are widely available and are often
included in an enterprise resource planning (ERP) or accounting software product.

The primary concept of procurement is that advanced planning, scheduling, and group buying
will result in cost savings, more efficient business operation, and therefore increased
profitability. A procurement system is used to manage this process, providing turnaround time
for invoices, tracking of total spending by commodity type, as well as financial commitments
and cash flow management. The complete implementation of a procurement system usually
results in significant changes to the existing business process, as the system will require
certain internal controls and procedures to be in place.

Purchase Order follow up system: A purchase order is a legally binding document between a
supplier and a buyer. It details the items the buyer agrees to purchase at a certain price point. It
also outlines the delivery date and terms of payment for the buyer. Purchase order computer
systems have made the purchasing process more efficient and allow for better inventory and
payment tracking. Once the buyer submits the order, an in-progress purchase is created. The
order's status remains in-progress until the ordered items have been received by the buyer's
warehouse. Once the inventory is physically received, it is typically scanned into inventory and
matched to the proper purchase order. The purchase order is marked as processed or requiring
payment. The buyer completes its responsibility for the purchase when it remits payment. To
ensure accurate credit for payment, the payment should indicate the PO number or company
account number.

Management Information Systems pg. 37

Similarly there are dedicated systems available for Bill passing, payment and receipt accounting
work. Also material accounting issue system is there to take care of material issues on shop floor or
at site.

MRP system: Material requirements planning (MRP) is a production planning, scheduling,

and inventory control system used to manage manufacturing processes. Most MRP systems are
software-based, while it is possible to conduct MRP by hand as well.
An MRP system is intended to simultaneously meet three objectives:

 Ensure materials are available for production and products are available for delivery to

customers.
 Maintain the lowest possible material and product levels in store
 Plan manufacturing activities, delivery schedules and purchasing activities.
Inventory Control System: An inventory control system is a process for managing and locating
objects or materials. In common usage, the term may also refer to just the software components.
Modern inventory control systems often rely upon barcodes and radio-frequency
identification (RFID) tags to provide automatic identification of inventory objects. 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 reader to automatically identify the inventory object, and
then collects additional information from the operators via fixed terminals (workstations),
or mobile computers.[1]
The new trend in inventory management is to label inventory and assets with QR Code, and use
smartphones to keep track of inventory count and movement. These new systems are especially
useful for field service operations, where an employee needs to record inventory transaction or
look up inventory stock in the field, away from the computers and hand-held scanners.
Database for MM

 Master data base

 Working data base- records of transactions
 Purchasing
 Stores & Inventory

Activities Covered by MM
 Purchasing
 Receipt vs order
 Reminders
 Verification- Invoice, PO

Management Information Systems pg. 38

  Outstanding
 Estimations
 Forecasting
 Info on suppliers, prices, past POs
 RFQ, Release of PO’s
 Monitoring call offs and delivery schedules
 Analyze consumption data and project future requirement based on past data
 Study past data on prices to forecast future trend
 Inventory and Material Planning
 Valuation of Inventory
 Inventory planning and material budgeting
 Fix operating levels- Min, Max , Reorder

Activities Covered by Computerization

 Stocks- compute, update, monitor and value
 Prepare consumption reports, and inventory report.
 Stock adjustment based on physical stocktaking
 Stores Management
 Record Receipts & issues
 Update inspection reports

Reports for Management

 Analysis of PO
 Vendor wise data
 Item wise data
 Consumption report
 Transaction reports
 Aging Analysis
 Purchase Past History
 Vendor delivery record
 Material price variance

ERP Systems
ERP systems typically include the following characteristics:
 An integrated system that operates in real time (or next to real time), without relying on
periodic updates.
 A common database, which supports all applications.
 A consistent look and feel throughout each module.

Management Information Systems pg. 39

  Installation of the system without elaborate application/data integration by the
Information Technology (IT) department.

Other Softwares
 SAP
 MIS Solutions
 Ariba
 Kalido
 Made2Manage
 QA Software
 Online Consultant
 Power Purchase

Types of reports you can generate in inventory management

Commonly used enquiries in inventory management

 Reorder Report: This is ideal for viewing all of your products and their associated
suppliers, along with the relevant stock level information. The report enables you to see
when your stock is running low, so you can determine when you need to replenish stock.

 Transaction Enquiry: This is ideal for anyone who wants to view a list of
transactions based on the filters available. This filters include: transaction type, warehouse,
product or reference.

 Margin Enquiry: This report is ideal for anyone who wants to view sales, credit
lines, and turnover and profit information.

 Sales Enquiry: This report can provide you with simple sales information, regardless
of their status (parked, completed or deleted). You can use a number of filters to refine your
search.

 Backorder Enquiry: This is ideal for admin staff to manage the creation and
deployment of shipments.

Types of reports (MICROs)

Management Information Systems pg. 40

 1. Stock status reports: As and when the orders are placed, the number of stock required to
be shipped will be turned into ‘Stock Committed’ status.
2. Warehouse user activity report: Keeping track of what’s happening in your stock storage
house is of much importance. User Activity Log tracks every action of a user in a
inventory management network so that the activities can be retrieved for future reference.
3. Consumers-based orders: Customers order history can be retrieved to know each
customer-specific demands, time of purchase and average order value so that you can
have you stocks replenished accordingly.
4. Sales reports: Orders can be analyzed based on sales reps which provides a clarity over
every individual’s sales performance.

Types of reports (MACROs)

1. Product Movement Summary Report – shows the Products’ traffic in the Inventory
System within a given period of time. It includes the Quantities On Hand, number of
products that went In and Out of the inventory, Cost and Stock On Hand.
2. Product Movement Details Report – shows the Products’ detailed traffic in the Inventory
System within a given period of time. It includes Reference numbers and which location
it went in and went out.
3. Balance Sheet – shows the summary of each account’s financial position including
Opening & Closing Balances.
4. Job Costing Details – shows the list of materials sent to a job within a given period of
time. Report details include Quantity, Price and applicable Tax.

3 Great Inventory Management Reports for Small Businesses

Companies in a product-oriented business usually struggle to manage inventory at optimum

levels. There’s a constant tug-of-war going on between the need to have sufficient product to
fulfill demand, and the desire to avoid the very costly pitfalls associated with overstocking.

This issue is often tougher for small business owners, trying to manage inventory without senior
management expertise and sophisticated tools at their disposal. Additionally, without
professional purchasing personnel, a business owner is more prone to the pitfalls of “deals” –
buy more when the price is good, without relating that to the question of how long the “more”
will sit on the shelf, or how much slow-moving or dead stock actually costs.

Management Information Systems pg. 41

To help with this issue, here are 3 really useful inventory management reports that can help the
small business owner in making better decisions about inventory levels, what to purchase, and
more particularly what to get rid of.

1. Inventory Ranking Report

This type of report ranks your products in descending order by gross margin generated over the
past year (or other appropriate period), and compares the profitability with the holding cost. It’s
really useful to see which products are occupying more space in your warehouse and more value
on your balance sheet than is justified by their contribution to profits. While you have to factor in
other criteria in deciding on products to cut or reduce, this at least gives you an objective starting
point for your evaluation.

2. Inventory “Hits” Report

The word “hits” brings back memories of Top 40 charts to this old codger, but in this case we’re
not talking music. The word “hits” here means the number of times over the reporting period that
the item has appeared on an invoice, and this is again compared with the holding value and costs,
to identify products that appear very infrequently while constituting a significant chunk of
inventory on hand. Ideally this should be used in conjunction with the ranking report.

3. Daily Average Sales Reports

These type of reports will show average daily sales (in units) over different periods, for example,
last month, last quarter and last year, usually side by side. This helps to uncover trends. A
common flaw in some software is that these reports only show items that have sales in the
periods in question – ideally we should see all items that have either been sold, or that remain on
hand, and their current inventory levels and value. This can help identify products where reorder
levels and purchasing policies should be reviewed.

Management Information Systems pg. 42

HOW IT ALL STARTED

 Started by Michael Dell (19 at that time) in his dorm room at the University of Texas in
1984 with $1000.
 Company headquartered in Round Rock, Texas, U.S.A.
 Its revenue is around US$ 63.07 billion in 2012.
 In 2001, became the No. 1 computer systems company in the world.
 At present (2013), it is the third largest PC vendor in the world after HP and Lenovo.

DELL SUPPLIERS AND PRODUCTS

PRODUCT LINE

 Desktop computers
 Notebook computers
 Network servers
 Workstations
 Storage products
 Dell offers a total of 1.6 million different possible product configurations for all its
product lines

SUPPLIERS

 MICROSOFT - for Windows

Management Information Systems pg. 43

  INTEL - for micro processors
 NVIDIA - for Graphic chips
 SONY - for monitors

HOW DO THEY DO IT?

Dell’s success is a combination of:

 Direct Sales
 Inventory Management
 Supplier Integration

Together these allow for maximum effectiveness with minimum cost.

DELL DIRECT SELLING

New Value Chain: Dell had no in-house stock of finished goods inventories unlike competitors
using the traditional value chain model

Pull Mechanism: It did not have to wait for resellers to clear out their own inventories before it
could push new models into the marketplace (typically operated with 60-70 days stock)

Personalization: Customers got the satisfaction of having their computers customized to their
particular liking

Management Information Systems pg. 44

DELL DIRECT MODEL

Dell Computer’s direct model departed from the industry’s historical rules on several fronts:

 The company outsourced all components but performed assembly.

 It eliminated retailers and shipped directly from its factories to end customers.
 It took customized orders for hardware and software over the phone or via the Internet.
 It designed an integrated supply chain linking Dell’s suppliers very closely to its
assembly factories and order-intake system

Management Information Systems pg. 45

THREE GOLDEN RULES OF DELL

Always
Disdain inventory
listen
Never to Customers
Sell Indirect

KEY TO SUCESSES - MINIMUM INVENTORY

 BUILD-TO-ORDER MODEL
 DIRECT TO SELL
 INVENTORY MANAGEMENT is primarily about specifying the size and placement of
stocked goods. 

1. Just-in time inventory management - 3 days.

2. Focus on speed of inventory delivery process.

Dell Inventory Management

BUILD TO ORDER

 While others produce to stock – Dell on contrary gets the order and payment first only
then it starts to build
 Enabling customization to each and every customer
 Dell did not need any research on what customers need it heard directly from the buyers
 Others had to maintain Inventories, Retail Channels, Middle-men, Distribution, etc.

Management Information Systems pg. 46

  To avoid long lead times and buffer against demand variability
 Revolvers or Supplier Logistics Centers (SLCs) are warehouses located within a few
meters of DELL’s Merge Center, to keep inventory on hand
 Each Revolver is shared by more than one supplier
 DELL does not own the inventory in the revolvers, it is owned by suppliers only who pay
rent for the SLC & charged to DELL indirectly through component pricing

Inventory Model

 DELL has a Vendor Managed Inventory arrangement

 Suppliers keep track of how much to order and when to order while DELL sets its target
levels
 DELL withdraws as and when needed every two hours and prepares quarterly scorecards
for suppliers

VALUE CHAIN PROGRAM

 Value Chain helps extend DELL’s direct sales approach into the supply chain
 The goal of the value chain is to increase the speed & quality of the information flow
between DELL and its suppliers
 The portal, valuechain.dell.com acts as a secure extranet for exchange of current data,
forecast data, new product ideas and other dynamic information

Suppliers Selection and Evaluation:

Management Information Systems pg. 47

 Selection Evaluation

Quality Cost
Price Delivery
Delivery Availability of
Response to Feedback technology
Velocity of Inventory
Internet handling ability

Advantages of this model:

 Returns grew disproportionately carrying cost & obsolete stock is avoided

 Saves a lot of cost thus prices drop by 3% per month
 Reduced handling cost

Customer Service:

 Service became a feature of DELL’s strategy in 1986

 Contracted with local service providers to handle customer requests and queries, on next-
day basis
 Free on-site service for a year after purchase

DELL’s motivation for rethinking Direct Sell

Business Model

Limitations of direct sell model in emerging markets:

 Buying Habit
 No access to internet
 Lack of online payment

Management Information Systems pg. 48

Management Information Systems pg. 49
SWOT Analysis

Its bad news for PC manufacturers, a new study predicts that the rise in sales of tablets and
smartphones will directly and negatively affect the sales of PC

Sales of tablets last year saw a 70% increase

Management Information Systems pg. 50

Case Study 2
Customer Centric Materials Management -A Case Study of ECIL

EClL-An Overview

Electronics Corporation of India Ltd. (ECIL) is a Public Enterprise under the Department of
Atomic Energy established with the purpose of supporting India’s Nuclear Power Programme
and help the country achieve self-reliance in professional electronics. Over the years the
company evolved itself into a multi-product and multi-disciplinary organisation with focus on
Computers, Control Systems and Communications. In the post-liberalisation scenario, the
compulsions of global competition on local soil guided its Vision, Mission and Objectives as
follows:

Vision 
To help the country achieve self-reliance in Strategic Electronics.

Mission
To strengthen the status as a valued national asset in the area of Strategic Electronics meeting the
requirements of Atomic Energy, Defence, Space, Civil Aviation, Security and such other sectors
of strategic importance.

Objectives 

1. To strengthen the technology base and thereby the capability to combat technology denials
2. To promote creativity and innovation and realise higher levels of operational efficiency
through actionable learning
3. To attain and maintain world-class competitiveness by pursuing global benchmarks
4. To lay down plans and programmes for effective succession at senior management level
5. To consistently ensure a customer-centric organisational culture
6. To achieve steady growth in business performance and generate reasonable internal resources 

The operations are therefore focussed towards meeting the requirements of Strategic Electronics
in the Nuclear, Defence, Security and such other sectors of National Importance.

The Crisis 

The post-liberalisation period of 90s was characterised by intense competition from both the
MNCs and private sector. The impact of the globalisation process and the sanctions in the wake
of Pokhran-11 experiments have brought the company to the brink of sickness in 1998-99. ECIL
suffered a loss of Rs.10 crore in 1997-98 and a substantial loss of Rs.60 crore in 1998-99. The

Management Information Systems pg. 51

net worth of the company was badly eroded and ECIL had to be reported to BIFR.

The Initiatives in Materials Management

The Company had to initiate a number of innovative measurers to tide over the crisis. Material
costs constituting around 55-60 % of the total cost, it became imperative for the company to
introduce a host of innovative practices in the area of materials management. These initiatives
need to be in consonance with the nature of global electronics business characterised by high rate
of obsolescence, falling prices, high quality inputs and global sourcing. More over the business
environment of ECIL is different even from other PSUs as there is no assured market, customer-
driven requirements and threat of denials. It is against this background that the entire supply
chain is addressed and briefed below are the salient aspects of this process:

Supplier Communication

It was ensured that the requirements of the customers of ECIL are clearly communicated to the
suppliers, thus making the latter jointly responsible for ensuring customer satisfaction. This is
done through constant touch with the suppliers to indicate the priorities through written and
verbal means and by hosting vendor meets Vendor Development and Quality Assurance
The suppliers were continuously provided all the support during product development and
engineering, prototype testing, evaluation, qualification and guidance in the implementation of
ISO 9000 Quality Management system and other industry standards and practices. Emphasis was
on prevention rather than detection and correction. Suppliers are encouraged to imbibe the
culture of ‘Ownership of Quality’ as?

Inventory Control

The scheduling of placement of orders and receipt of materials was streamlined to ensure
efficient inventory management covering such requirements as timely availability of material,
minimisation of waste and surplus due to obsolescence etc.

Negotiations and Payments

Suppliers are involved right from the tender stage to offer the most competitive terms to the
customers in terms of quality, cost and delivery. Mutually beneficial payment terms are
negotiated and strictly adhered to.

Management Information Systems pg. 52

Implementation of IT

All the processes involved in Integrated Materials Management are fully computerised for
speedy disposal of material requisitions, resulting in substantial reductions in lead times across
various operations.

The Results

These simple initiatives were implemented effectively resulting in incredible results that
culminated in the historic turnaround of the company that brought wide recognition and national
awards like SCOPE award for Outstanding Performance and Contribution to Public Sector
Management. Specifically the following achievements were realised.

Between 1998-99 and 2002-03

1. Turnover shot up from Rs. 250 crore to Rs. 1000 crore

2. Profitability reversed from a loss of Rs. 60 crore to a profit of 130 crore
3. Net worth increased from Rs. 7 crore to Rs. 309 crore
4. Loans Outstanding and Statutory Out standings became nil
5. Inventory levels and Sundry Debtors demonstrated efficient Working Capital Management
6. Substantial cost Reductions were realised through negotiations and improved quality levels
across various processes
7. Procurement lead-times reduced substantially from about 60 days to 30 days Customer
Satisfaction Index improved phenomenally from 66% to 95%
8. MoU rating of ’Excellent’ has been achieved and is maintained and
9. Image of the company enhanced remarkably.

Future Plans

The multi-disciplinary competencies and capabilities of ECIL coupled with the Strategic Sectors
it has chosen, is bound to give the company a competitive advantage to succeed in the national
market but explore avenues in the international market. Many of its products have been
identified for export promotion and the brilliant performance of the Electronic Voting Machines
in the recent general elections established its export worthiness with many countries evincing
interest in the product. While all the processes under materials management are fully
computerised, plans are underway to install a fully IT enabled Supply Chain Management
including e-procurement. The company is fully aware of the competitive global environment
surrounding it in the high technology electronics and is focussing continuously on enhancing its
technology base and enriching its skill base to strengthen its status as a valued national asset.

Management Information Systems pg. 53