An Informative Litrature Review on Inventory Control System

Abramovitz and Modigliani (1957)

They highlighted the relationship between capacity utilization and inventory investment. Existing stock of inventories was expected to adjust to the desired levels. Thus the variable, existing stock of inventories, was essential to be negatively related with the desired stock. The result was that there is positive relation among the ratio of inventory to sales and inventory investment. Highratio of stocks to sales in the past suggests requirement of high levels of inventories in the past and promising high investment in inventories in the current period also.

Krishna Murthy (1964)

Study was aggregative and dealt with inventories in the private sector of Indian economy as a whole for the period 1948-61. This study used sales to represent demand for the product and suggested the importance of accelerator. Shortterm rate of interest had also been found to be significant.

R.S. Chadda (1964)

Study had been made on inventory management practices of Indian companies. The analysis suggested application of modern scientific inventory control techniques like operations research. These modern scientific techniques furnish opportunities for the companies, Companies can minimize their investment in inventory but there is continuous flow of production. He argued that industrially advanced countries, like, USA, were engaged in developing highly sophisticated mathematical models and techniques for modernizing and redefining the existing tools of inventory investment.

National Council of Applied Economic Research (NCAER) (1966)

Conducted a study in 1966 regarding working capital management of three industries namely cement, fertilizer and sugar. This study mainly devoted to ratio analysis of composition, utilization and financing of working capital for the period of1959 to 1963. The study reveals that inventory constituted a major portion of working capital i.e. 74.06 per cent in the sugar industry followed by cement industry (63.1%) and fertilizer industry (59.58%). It was observed that inventory had not managed properly. So far as the utilization of working capital was concerned, cement and fertilizer industry had better implementation of working capital. The sugar industry had huge accumulation of stocks so there was inefficient utilization of working capital heavily.

The administrative reforms commission(1967) has made some recommendations for reducing inventory levels. The RBI study group(25) appointed to frame guidelines and to lay down norms for bank credit applicable to all classes of industrial borrowers (popularly known as Tandon Committee Report), has classified inventories prescribing inventory norms for fifteen industries.

The committee on inventory control(26) appointed by Bureau of Public Enterprises (BPE) in 1972 examined inventories of the three public sector undertakings viz, Hindustan Shipyard Limited (HSL), Hindustan Cables Limited (HCL), National Mineral Development Corporation Limited (NMDCL). The committee fixed inventory levels for HSL and made some concrete recommendations to reduce inventory levels in all the three undertakings

Krishnamurty and Sastry (1970)

It is the most comprehensive study on manufacturers’ inventories.They used the CMI data and the consolidated balance sheet data of public limited companies published by the RBI, in order to analyse each of the major components, like the raw materials, goods-in-process and finished goods, for 21 industries over the period ranging from 1946-62. The study was a time series one although there were some inter-industry cross-section analyses that were carried out in the analysis. The Accelerator represented by change in sales, bank finance and short-term interest rate was found to be an important determinant. The utilisation of productive capacity and price anticipations was also found to be relevant in the study.

George (1972)

It was the study on cross section analysis of balance sheet data of 52 public limited companies for the period of 1967- 70. Accelerator, internal and external finance variables were considered in the formulation of equations for raw materials including goods-in-process inventories. However, equations for finished goods inventories conceive only output variable. Deliberation was given on accelerator and external finance variables.

Mishra (1975)

It is the study of six major public sector enterprises. He concluded that (i) inventory constitutes the most important component of working capital of public enterprises (ii) efficiency of working capital funds employed in receivables is terribly low in the selected enterprises and (iii) In all units both the current assets and the quick ratios are greater than their standards. Enterprises need proper control on receivables.

Bansal(1976) in his study on Materials Management: A case Study of Bharat Heavy Electricals Limited, Bhopal Unit, (BHEL), has evaluated the existing systems of inventory management. He emphasises. The need for automatic replenishment system in the undertaking offer studying the application of ABC analysis and EOQ technique of inventory control. He also points out the accumulation of surplus stores and non-moving items in the organization and recommends that the surplus and absolute stores which are no longer required should be disposed off as early as possible at the best available price.

Further, he suggests the preparation of monthly class wise statements on inventories for effective control over them and the introduction of reconciliation system of stores ledgers with account ledgers to avoid misappropriation of stores, and spares for production and operation are above their actual consumption level. The inventories in general are found to be above their routine requirements. The holdings of stores and spares corresponding to two to three years requirements should be considered excess.

Lambrix and Singhvi (1979)

Adopted working capital cycle approach in working capital management, also suggested that investment in working capital can be optimized and cash flows can be improved by reducing the time frame of physical flow starting from the receipt of raw material to the shipment of finished goods, i.e. inventory management, and by improving the terms and conditions on which firm sells goods as well as receipt of cash.

Lal (1981)

He studied Modi Steels Limited as a case study, his study focused on inventory management. He originated a model which involve price variable in inventory management;earlier price variable in inventory was not considered in that company. The analysis recommended solid policies, which would look after internal and external factors, ultimately it would help in bringing in efficient working capital management.