ASSIGNMENT

ON

SUBMITTED TO : SUBMITTED BY :
DR. AJAI PRAKASH AYUSH BISHT
ASSISTANT PROFESSOR MBA SEM 4TH
LUCKNOW UNIVERSITY ROLL NO. 180012135043

1
 ACKNOWLEDGEMENT
I would like to express my special thanks of gratitude to
my professor Dr. Ajai Prakash who gave me the Golden
opportunity to this wonderful project on the topic
“Inventory Management By Flipkart”, which also
helped me in doing a lot of research and I came to know
about so many new things I am really thankful to them.
Secondly, I would also like to thank my parents and
friends which helped me a lot in finalizing this project
within the limited time frame.

AYUSH BISHT
MBA 4TH SEM
(FINANCE)
ROLL NO. 08

2
 INDEX

Sr. Topic Page Remarks

No no.
Inventory
1 1
management
Types of
2 2
Inventory
Motives of
3 Inventory CONFIDENTIAL 3
holding
Inventory
4 4
Costs
Techniques
of
5 5-6
Inventory
Management
Project
6 Report on 7-9
Flipkart
7 References 10

1
 INVENTORY MANAGEMENT

Inventory is the stock of products that a company manufactures for sale and the
components or raw materials that make up the product. Hence, an inventory
comprises of the buffer of raw material, work-in-process inventories and finished
goods.
Inventories are assets of the firm and require investment and hence involve
commitment of firms’ resources. Inventories are an integral part of firms’s
operations. The firm must have an optimum level of inventories .If the inventories
are too big, they become a strain on the resources, however, if they are too
small, the firm may loose the sales. Hence , a financial manager must ensure
that the inventory are properly controlled and managed .
CONFIDENTIAL

Benefits of Inventory Management

1) Increased Sales
Businesses who actively manage their inventory report a 2-10% increase in sales.

2) Increased Information Transparency

Know when items are received, picked, packed, shipped, kitted, manufactured, etc. Also, know
when you need to order more, when you’re over-stocked, or under-stocked.

3) Shorter Lead Times

Businesses who actively manage their inventory report a 50% reduction in lead times.

4) Lower Costs
Effective inventory management practices help result in decreased inventory write-offs, plus
lower inventory holding costs. Carrying extra inventory can be very costly for your firm.

5) Improved Delivery Performance

Real-time inventory updates improve the flow of goods to customers.

1
 COMMON TYPES OF INVENTORIES

Common types of Inventories for most of the business are :

RAW MATERIALS This consists of basic materials that have not yet been
committed to production in a manufacturing firm. Raw materials that are
purchased from firms to be used in the firm’s production operations. The aim of
maintaining raw material inventory is to uncouple the production function from the
purchasing function so that delays in shipment of raw materials do not cause
production delays.

CONFIDENTIAL
WORK-IN-PROGRESS : This includes those materials that have been
committed to the production process but have not been completed. The more
complex and lengthy the production process, the larger will be the investment in
work in process inventory.

FINISHED GOODS : These are completed products awaiting sale. The purpose
of finished goods inventory is to uncouple the production and sale functions so
that it is no longer necessary to produce the goods before a sale can occur.

2
 Motives of Holding Inventory

The motives of holding inventory may be enumerated as :

TRANSACTION MOTIVE: The Company may be required to hold the inventory

in order to facilitate the smooth and uninterrupted production and sale
operations. It may not be possible for the company to procure the raw material
whenever necessary. There may be a time lag between the demand for the
material and its supply. Hence it is needed to hold the raw material inventory.
Similarly, it may not be possible to produce the goods immediately after they are
demanded by the customers. Hence it is needed to hold the finished goods
inventory. They need to hold work in progress may arise due to the production
cycle.

PRECAUTION MOTIVE: In additionCONFIDENTIAL

to the requirement to hold the inventory for
routine transactions, the company may like to hold them to guard against the risk
of unpredictable changes in demand and supply forces. E.g., the supply of raw
material may get delayed due to factors like a strike, transport, disruption, short
supply, lengthy processes involved in the import of raw material etc. hence the
company should maintain sufficient level of inventory to take care of such
situations. Similarly, the demand for finished goods may suddenly increase
(especially in case of the seasonal type of products) and if the company is unable
to supply them, it may mean gain of competition. Hence, the company will like to
maintain a sufficient supply of finished goods.

SPECULATIVE MOTIVE: The Company may like to purchase and stock the
inventory in the quantity which is more than needed for production and sales
purpose. This may be with the intention to get an advantage in term of quantity
discounts connected with bulk purchasing or anticipating price rise.

3
 Inventory Costs

There are three types of costs that must be considered in setting inventory levels:

HOLDING\CARRYING COST: They are expenses such as storage, handling,

insurance, taxes, obsolescence, theft, and interest on funds financing the goods.
These charges increase as inventory levels rise. To minimize carrying costs,
management makes frequent orders of small quantities. Holding costs are
commonly assessed as a percentage of unit value, rather than attempting to
derive monetary value for each of these costs individually. This practice is a
reflection of the difficulty inherent in deriving a specific per unit cost, for example,
obsolescence or theft. CONFIDENTIAL

ORDERING COSTS: Ordering costs are those fees associated with placing an
order, including expenses related to personnel in purchasing department,
communications, and the handling of related paper work. Lowering these costs
would be accomplished by placing small number of orders, each for a large
quantity. Unlike carrying costs, ordering expenses are generally expressed as a
monetary value per order.

STOCK-OUT COSTS: They include sales that are lost, both short and long term,
when a desired item is not available; the costs associated with back ordering the
missing item; or expenses related to stopping the production line because a
component part has not arrived. These charges are probably the most difficult to
compute, but arguably the most important because they represent the costs
incurred by customers when an inventory policy falters. Failing to understand
these expenses can lead management to maintain higher inventory levels than
customer requirements may justify

4
 7 MOST EFFECTIVE
INVENTORY MANAGEMENT
TECHNIQUES

There are various types of inventory management techniques which can help in
efficient inventory management. They are as follows :

ABC ANALYSIS
ABC analysis stands for Always Better Control Analysis. It is an inventory
management technique where inventory items are classified into three categories
namely: A, B, and C. The items in A category of inventory are closely controlled
as it consists of high-priced inventory which may be less in number but are very
expensive. The items in B category are relatively lesser expensive inventory as
CONFIDENTIAL
compared to A category and the number of items in B category is moderate so
control level is also moderate. The C category consists of a high number of
inventory items which require lesser investments so the control level is minimum.

JUSTIN TIME (JIT) METHOD

In Just in Time method of inventory control, the company keeps only as much
inventory as it needs during the production process. With no excess inventory in
hand, the company saves the cost of storage and insurance. The company
orders further inventory when the old stock of inventory is close to replenishment.
This is a little risky method of inventory management because a little delay in
ordering new inventory can lead to stock out situation. Thus this method requires
proper planning so that new orders can be timely placed.

MATERIAL REQUIREMENTS PLANNING (MRP) METHOD

Material Requirements Planning is an inventory control method in which the
manufacturers order the inventory after considering the sales forecast. MRP
system integrates data from various areas of the business where inventory
exists. Based on the data and demand in the market, the manager would
carefully place the order for new inventory with the material suppliers.

ECONOMIC ORDER QUANTITY (EOQ) MODEL

Economic Order Quantity technique focuses on taking a decision regarding how
much quantity of inventory should the company order at any point of time and
when should they place the order. In this model, the store manager will reorder

5
the inventory when it reaches the minimum level. EOQ model helps to save the
ordering cost and carrying costs incurred while placing the order. With the EOQ
model, the organization is able to place the right quantity of inventory.

MINIMUM SAFETY STOCKS

The minimum safety stock is the level of inventory which an organization
maintains to avoid the stock-out situation. It is the level when we place the new
order before the existing inventory is over. Like for example, if the total inventory
in an organization is 18,000 units, they place a new order when the inventory
reaches 15,000 units. Therefore, the 3,000 units of inventory shall form part of
the minimum safety stock level.

VED ANALYSIS
VED stands for Vital Essential and Desirable. Organizations mainly use this
technique for controlling spare parts of inventory. Like, a higher level of inventory
is required for vital parts that are veryCONFIDENTIAL
costly and essential for production. Others
are essential spare parts, whose absence may slow down the production
process, hence it is necessary to maintain such inventory. Similarly, an
organization can maintain a low level of inventory for desirable parts, which are
not often required for production.

FAST, SLOW & NON-MOVING (FSN) METHOD

This method of inventory control is very useful for controlling obsolescence. All
the items of inventory are not used in the same order; some are required
frequently, while some are not required at all. So this method classifies inventory
into three categories, fast-moving inventory, slow-moving inventory, and non-
moving inventory. The order for new inventory is placed based on the utilization
of inventory.

Inventory management is an essential part of every business. With an effective

inventory management system in place, the business can significantly reduce its
various costs like warehousing cost, inventory carrying cost, ordering cost, cost
of obsolescence, etc. It improves the supply chain of the business. Managers are
able to forecast the level of production at which they need to place new orders for
inventory. Hence, organizations should take all the necessary steps to maintain
an effective inventory management and control system.

6
 REPORT ON FLIPKART’S INVENTORY
MANAGEMENT
HISTORY :

Flipkart was founded in 2007 by Sachin Bansal and Binny Bansal, both alumni of
the IndianInstitute of Technology Delhi. They worked for Amazon.com, and left to
create their newcompany incorporated in October 2007 as Flipkart Online
Services Pvt. Ltd. The first productthey sold was the book Leaving Microsoft to
Change The World to a customer from Hyderabad.Flipkart now employs more
than 33,000 people.

When Flipkart started its operations, they had employed the CONSIGNMENT
MODELof procurement. In this model, the retailer (in this case Flipkart) holds the
inventory owned by the supplier, andCONFIDENTIAL
buys it from the supplier only when it is sold
to the end consumer. Since the channel was new and unproven, this was the
most risk-free way to operate. Later this was discontinued andinventory was
purchased to ensure superior delivery times and customer satisfaction. But with
foreign direct investment (FDI) favouring the marketplace model in April 2013,
Flipkart changed its business model to MARKETPLACE MODEL .With a
marketplace model, Flipkart no longer has an inventory of its own, rather buyers
can deal with sellers directly and the delivery will be done by Flipkart. At present,
the entire inventory of Flipkart is being managed by WS Retail which is flipkart’s
pet project. While WS Retail will continue to be one of the sellers, Flipkart has
added more than 50 sellers to its list.

Procurement of items could be for:

Inventory: These items are pre-ordered based on previous sales data to stock
as inventory. This category includes items with relatively low demand elasticity,
fast selling items and items with relatively long shelf life.

Just in-time: Items procured just-in-time are used to serve immediate

outstanding orders. Items with low or unpredictable demand are typically
procured on an order-to-order basis. Just-in-time procurement is also used for
expensive items or products that have seen slow sales growth.As of now, the
number of orders served from the inventory is roughly 75%, with 25% orders
being served by procuring just-in-time. Procuring just-in-time is comparatively
more expensive as the volumes for such orders are low, and the supplier
discount offered therefore is considerably lower. However when ordering for

7
inventory, bulk purchase is made and hence a much better price is realised.
Therefore the company would ideally like to move to a ratio of 9:1
Ratio of orders served through inventory to those procured just-in-time.
As a caveat however, there is an inherent trade-off between the company’s long
term objective of reducing just-in-time procurement, and its motto of “Consumer
Delight”. This is because in Order to maximise consumer delight, the company
would have to strive to serve all types of Consumer orders and provide them with
the maximum possible variety of products, which would require just-in-time
procurement since many products have limited demand and cannot be stored
as inventory. However, operational efficiency demands rationalisation of product
line and choosing one’s customers.

CONFIDENTIAL

Sourcing at Flipkart is conducted at two levels:

• Regional: By Regional Procurement Teams

• Centre: By the Central Procurement Team

Each regional procurement team has a network of local suppliers for made-to-
stock as well as on on-demand(JUST IN-TIME)procurement. They also have
visibility of the stock for different SKUs
with these suppliers, as last updated on the procurement team’s system by these
suppliers. From Flipkart’s perspective:

8
Stock out: Defined as when the product is unavailable in the inventory (held in
warehouses) as well as Flipkart’s suppliers (as last updated)
The central procurement team has visibility of all the regional procurement
teams‟ views, and therefore can monitor the stock levels for their suppliers all
over the country. The central team’s focus is on bigger suppliers with a country-
wide reach.

INVENTORY MANAGMENT

The inventory stocks are replenished whenever it goes below REORDER POINT.
The company employs FIFO(FIRST IN FIRST OUT) method for its inventory
management, under which for any shipment request to a particular warehouse
the oldest inventory items are shipped first. This makes a lot of sense especially
for the electronics items since the technology becomes obsolete very quickly.
With respect to determining what items to store in the warehouse and what items
to be procuredfrom vendors, Flipkart uses LONG TAIL CONCEPT, which is
nothing but selling a large number ofunique items with relatively small quantities.
CONFIDENTIAL
Flipkart orders such items on adhoc basis and usually don’t keep inventory of
such items since the demand for such items is very less and thereby minimizing
overall distribution and inventory costs.

9
 REFERENCES

• https://www.managementstudyguide.com/inventory-costs.htm
• https://www.qsstudy.com/business-studies/motives-of-holding-
inventory
• https://efinancemanagement.com/costing-terms/inventory-
management-techniques
• https://businessjargons.com/inventory-control-system.html
• http://cmuscm.blogspot.com/2014/09/flipkarts-inventory-
management.html
CONFIDENTIAL

10
CONFIDENTIAL

11