INVENTORY MANAGEMENT BY USING FIFO SYSTEM

Abstract

This research work comprises study of inventory management system. In today's manufacturing sector inventory storage and management plays an important role for long-term sustainability of that firm. Inventory Management System, answers the question of how much inventory is needed to buffer against the fluctuations in forecast of demand of the customer and supplier deliveries. The major reason for managing inventory is to maximize customer service, Maximize efficiency of purchasing and Production, Minimizing inventory investment and Maximising Profit. In this research First in First out (FIFO) system is used to optimize the use of raw material for reducing the wastage of raw material due to expiry of the raw material stock. A colour code is been made for every month and issue of raw material to the production department is done according to the colour code only. By doing this raw material wastage is been prevented in the Storage department and hence optimized use of inventory is achieved in the industry.

Full text

RESEARCH ARTICLE
INVENTORY MANAGEMENT BY USING FIFO SYSTEM
*Deepa Sanjay Pandey and Niyati Raut
Department of Mechanical Engineering, Viva Institute of Technology, Virar (east), Maharashtra, India
ARTICLE INFO ABSTRACT
This research work comprises study of inventory management system. In today’s manufacturing sector
inventory storage and management plays an important role for long-term sustainability of that firm.
Inventory Management System, answers the question of how much inventory is needed to buffer
against the fluctuations in forecast of demand of the customer and supplier deliveries. The major reason
for managing inventory is to maximize customer service, Maximize efficiency of purchasing and
Production, Minimizing inventory investment and Maximising Profit. In this research First in First out
(FIFO) system is used to optimize the use of raw material for reducing the wastage of raw material due
to expiry of the raw material stock. A colour code is been made for every month and issue of raw
material to the production department is done according to the colour code only. By doing this raw
material wastage is been prevented in the Storage department and hence optimized use of inventory is
achieved in the industry.
Copyright © 2016 Deepa Sanjay Pandey and Niyati Raut. This is an open access article distributed under the Creative Commons Attribution License, which
permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
INTRODUCTION
Inventory management system and FIFO
Inventory control is vitally important to almost every type of
business, whether product or service oriented. Inventory
control touches almost every facets if operations. A proper
balance must be struck to maintain proper inventory with the
minimum financial impact on the customer. Inventory control
is the activities that maintain stock keeping items at desired
levels. In manufacturing since the focus is on physical product,
inventory control focus on material control. “Inventory” means
physical stock of goods, which is kept in hands for smooth and
efficient running of future affairs of an organization at the
minimum cost of funds blocked in inventories. The
fundamental reason for carrying inventory is that it is
physically impossible and economically impractical for each
stock item to arrive exactly where it is needed, exactly when it
is needed. Inventory management is the integrated functioning
of an organization dealing with supply of materials and allied
activities in order to achieve the maximum co-ordination and
optimum expenditure on materials. Inventory control is the
most important function of inventory management and it forms
the nerve center in any inventory management organization.
An Inventory Management System is an essential element in
an organization. It is comprised of a series of processes, which
provide an assessment of the organization’s inventory. For
example we are considering the inventories in a company
which make washing machines in all these analysis.
*Corresponding author: Deepa Sanjay Pandey
Department of Mechanical Engineering, Viva institute of technology,
Virar (east), Maharashtra, India
You might be less surprised by the pragmatic view many
people have of FIFO working. The vast majority over
whelming accept and embrace FIFO as part and parcel of
getting the job done, as well as a lucrative benefit. But dig
beneath the surface and their views are more nuanced. Half of
all the people we surveyed believe FIFO systems need a major
rethink if they are to be sustainable. We hope this report can
help that rethink to begin in an informed way. FIFO has been
described more than once as a “young man’s game”, with the
emphasis very much on the first two words. Enlightened
employers, who recognise the benefits of a diverse workforce,
will no doubt wish to avoid such an exclusive label – but not
necessarily at all costs. Some simple, cost effective steps can
make a real difference to whether an individual chooses to
stick with the FIFO lifestyle or seek a more stable role
elsewhere.
Literature Review
Dr. Angel Raphella, et al., 2014 goes through the process of
analysing the company’s current forecasting model and
recommend an inventory control model to help them solve
their current issue. Tom Jose, et al, 2013, explains inventory
management as a system to ensure availability of materials in
sufficient quantity as and when required and also to minimize
investment in inventories. So, in order to understand the nature
of inventory management of the organization, they also
analysed different inventory control techniques for efficient
inventory management system. Dr. Ashok Kumar Panigrahi,
2013, studies in depth the inventory management practices of
Indian cement companies and its impact on working capital
efficiency and examined the relationship between inventory
ISSN: 0976-3376
Asian Journal of Science and Technology
Vol.07, Issue, 02, pp.xxxxxxxxx, February, 2016
Available Online at http://www.journalajst.com
ASIAN JOURNAL OF
SCIENCE AND TECHNOLOGY
Article History:
Received xxxxxx, 2015
Received in revised form
xxxxxxxxxxxxx, 2015
Accepted xxxxxxxxxxxxxxx, 2015
Published online xxxxxxxxxxx, 2016
Article History:
Received xxxxxxxxxxxxx, 2015
Received in revised form
xxxxxxxxxxxxxxxxxx, 2015
xxxxxxxxxxxxxxxxxxxxxx, 2015
Published online xxxxxxx, 2016
Key words:
Inventory Management System,
First in First out (FIFO),
Colour Code, etc.

conversion period and firms‟ profitability. The results
indicated that there is a significant negative linear relationship
between inventory conversion period and profitability.
Lawrence Imeokparia, 2013, explored the relationship between
inventory management and control and performance and Food
and Beverages companies in Nigeria also Secondary data were
obtained from annual financial reports and accounts of Food
and Beverages companies listed on the Nigerian Stock
Exchange. Scott Grant Eckert, 2007, examines inventory
management and the role it plays in improving customer
satisfaction and looks at how food companies have been under
pressure to streamline their inventory systems, and the
consequences of such actions. They also outlined the
methodology used in the research and concluded the
limitations of the research as well as suggestions for further
research.
Problem Definition
The storage department keeps all the information of the raw
material which is to be used during production. There was no
proper record of the incoming raw material. Only numbering
was given to the raw material lot. Because of this, whenever
there is need of raw material in the production department, the
lot which was kept in the front row were been supplied to the
production cell. Hence the stocks which were kept backside
was overseen, and hence the stock gets expired after some
days. In this way wastage in the storage cell arises because of
expiry of the raw material ordered. Hence the main problem
faced by storage cell was managing the raw material properly.
There was an urgent need to reduce the wastage of raw
material in the storage cell due to expiry.
Proposed Methodology
For achieving a proper utilization of the inventory an
inventory optimization process was developed. In this process
the following steps are to be followed:
 Inward Process
There should be a change in the inward process which includes
proper numbering, to the raw material and a GRN is prepared
whose data should match with the PO given by the purchase
department. Description, shelf life and lot number is given to
each raw material roll. Proper sampling of the raw material is
done and the samples are send for testing in the quality control
department.
Figure showing FIFO system
 Material Issue
Pick list is should be given by the planning department to the
store for giving the raw material to the production department.
The new system followed by storage cell is First in first out
(FIFO) system for material issue to production department.
Excess Material gets returned to the store after use. Pallets are
used for transfer goods.
 Rejection Management
If there is any specification problem in the incoming of
material, physical Damage or wrong supply of the raw
material is given, then the material is rejected. The rejected
material is been kept in a room and given back to the supplier.
Material is fully wasted if any machining problem arises or
material falls during handling. If the core of the roll is
damaged then it is repaired in the core making machine.
CASE STUDY
This case study includes, finding solution to the problems
arising in the company during machining and also enhancing
the productivity. Problems which are raised in the case study
are:
Inventory optimization system,
Company Profile
Skanem AS, one of the largest label manufacturing companies
in Europe has acquired Interlabels and the company is now a
joint venture between Skanem and the Indian promoters of
Interlabels. This joint venture will operate under Interlabels’
existing management. Headquarters is located at Stavanger,
Norway. The alliance with a global leader like Skanem will
ensure that Interlabels maintains a strong focus on innovation
and leadership in the region. Skanem’s global presence and
expertise combined with Interlabels’ local knowledge,
experience and coverage will make this Company a formidable
force in the Indian label industry. With its partnership in
Interlabels, it now has 14 label sites in 10 countries.
Inventory detail
In storage cell FIFO system is applied for reducing the loss in
the raw material due to expiry. Before implementing FIFO
system the total running meters of wastage of raw material
was:
Month of September
Material Running meters of raw material
Paper
60,000
Plastic 52,695
Foil 40,524
Month of October
Material
Running meters of raw material
Paper
72,485
Plastic 68,445
Foil 36,487
Month of November
Material Running meters of raw material
Paper
54,447
Plastic 62,478
Foil 24,775

For implementing FIFO firstly proper printing plan of the
production department is been given to the storage cell.
Because of this plan, supply of raw material to the production
department becomes easy and correct raw material is been
supplied to the machine for the purpose of machining. Raw
material is been transferred to the machines with the help of
pallets. Also the arrangement of the storage cell was changed.
Proper racks were made to keep the raw material. Workers
were trained to use FIFO system and also the use of pallets for
transfer of goods from one place to another. Fast moving raw
material was kept down. Fast moving raw materials are the
materials which are used on an urgent basis or which are used
for repeated orders. Slow moving jobs are usually kept on the
upper racks. Slow moving job consist of the raw material
which are not been used frequently. Proper Description, shelf
life and lot number is given to each raw material roll.
A training session was kept by Mr Kamal Sharma, for the
workers of storage cell for successfully implementing FIFO.
The training was kept at 3.00 pm on 26/11/15 at the
conference room of skaneminterlabels.
The points covered in the training were:
 Looking into the record of raw material wastage in the last
three months.
 Discussing the reason for loss in the raw material.
 Suggesting FIFO system to solve the issue.
 Making the workers understand the FIFO system.
 Also for material issue a colour code was given to all the
workers and makes them understand the importance of the
colour code, so that they can use it in a better way.
 Also it was decided to put up the colour code on the notice
board of the storage cell.
 The meeting was concluded by encouraging the workers
for giving out there best in work.
People who all attended the meeting were:
Mr Anil khadgir (Storage Head)
Mr Anantgoriwale (Production Head)
All the workers of the second shift.
The colour code which was given to the workers is:
Colour Code
Colour Month
January
February
March
April
May
June
July
August
September
October
November
December
These colour labels are pasted on each of the raw material lot
coming in that particular month. The unused raw material
comes back to the storage cell from the production department.
Whenever there is a requirement of a raw material from the
production department the workers follows the colour code
and issue the raw material of the month which comes before.
They first look in the lot of unused raw material that whether
that raw material with a colour code of any early month is
there or not, if the Material is available the worker firstly issue
that lot first and the remaining, if required is taken from the
new lot ordered.
In this way the raw material is prevented from getting expired.
The old lot of raw material is used first and then only new lot
is been used. The colour codes help the worker to identify the
lot on a month wise basis. Hence by implementing FIFO the
reduction in raw material is reduced in the following manner.
It has been observed that implementing FIFO helped in the
reduction of major losses in the company i.e., the loss of raw
material.
Conclusion
On concluding this case study it is clear that for enhancing
productivity and for proper machining of the jobs in a
manufacturing firm, some manufacturing tools are to be
applied. In the storage cell raw materials were getting wasted
due to expiry of the large stocks of it. On implementing FIFO
system for inventory management the raw material wastage in
the firm has been reduced. Implementation of FIFO became
easy by following the colour code for month wise use of
inventory stock.
REFERENCES
Dr. Angel Raphella, S, et al, 2014. Inventory Management- A
Case Study, International Journal of Emerging Research
in Management and Technology, Volume 3, Issue 3, pp-94-
102
Tom Jose, V. et al, 2013 , Analysis of Inventory Control
Techniques; A Comparative Study, International Journal
of Scientific and Research Publications, Volume 3, Issue 3,
pp-1-6
Dr. Ashok Kumar Panigrahi, 2013. Relationship Between
Inventory Management And Profitability: An Empirical
Analysis Of Indian Cement Companies, Asia Pacific
Journal of Marketing & Management Review, Volume 2,
Issue 7, pp-107-120
Lawrence Imeokparia, 2013, Inventory Management System
and Performance of Food and Beverages Companies in
Nigeria, IOSR Journal of Mathematics, Volume 6, Issue 1,
pp-24-30
Scott Grant Eckert, 2007, Inventory Management and Its
Effects on Customer Satisfaction, Journal of Business and
Public Policy, Volume 1, Issue 3, pp-1-13
Month of December
Material Running meters of raw material
Paper
24,748
Plastic 13,576
Foil 4,995
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