A Project on Inventory Control Management Guided By: Dr.

Rajesh Jain

Prepared By:

Darshan Shah -111111 Mauli Shah Palak Gandhi Suruchi Vasu -111131 -111137 -111157

Sushant Jain
Index:

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Objective03 Introduction....03 Case study Companys profile.04 Inventory method used JIT04 Benefits reaped from JIT...05 Gap identification...05 Real time inventory management method.07 Working of real time method.07 Application in ford.08 Benefits derived from it.08

Related work Wal-Mart11 Dell.12

References..13

OBJECTIVES:
To understand and analyze inventory management of the automobile giant FORD

INTRODUCTION:
Inventory can be defined as a Companys Merchandise, Raw Materials, Finished and Unfinished Products that are stored and are yet to be sold. An Inventory is a security for the company but also might prove to be a risk as the company has to bear the loss due to change in price. Hence it becomes necessary to control inventory to have continuous and optimum production, to prevent stock outs as well as wastage due to access of inventory, to minimize the cost of purchase as well as storage of goods, to make the efficient use of invested capital as also to provide quality service to customers. All these can be achieved through an Inventory management / control system. So inventory management can be defined as various accounting and reporting methods that monitors the supplies, raw materials, work in progress and finished goods. There are various inventory control methods, but it varies from company to company, commodity to commodity. There seems to be no perfect or best method to control inventory. A company can only seek to find the best method which reduces its cost, and increases its service levels. Depending on the company and its product line, the inventory management methods may vary from ABC method, Aggregate control method, Safety stock method, just in time method, Real time inventory management system, Vendor managed inventory. In this

report, we have tried to analyze the inventory management system of FORD, the methods they used, what were its advantages and draw backs.

CASE STUDY:
COMPANYS PROFILE:

FORD is one of the oldest car manufacturers of the world. It was started by Henry Ford on 16th June 1903. Its a family owned business and it headquarter is based at Dearborn, Michigan, a suburb of Detroit. Ford introduced methods for large-scale manufacturing of cars and large-scale management of an industrial workforce using elaborately engineered manufacturing sequences typified by moving assembly lines. Henry Ford's methods came to be known around the world as Fordism. Based on annual sales in 2010, ford is second largest automobile manufacturer in US and fourth largest in world. At present ford have its manufacturing operations in Canada, Mexico, the United Kingdom, Germany, Turkey, Brazil, Argentina, Australia, the People's Republic of China, India etc. Fords average aggregate inventory value was $6.5 billion and its inventory supply lasted for 3.51 weeks.

INVENTORY MANAGEMENT SYSTEM USED:

Ford used JIT i.e. just in time inventory management system. JIT is a manufacturing and inventory control system in which materials are purchased and units are produced as per the demand of that particular product. Just in time follows a pull approach as compared to a traditional push approach. Pull approach is a reverse cycle where in productions is taken out in response to consumers order. In reaction to estimated orders, final assembly stage exerts pulls on previous workstation or assembly line. This helps in maintaining required 4

amount of resources and thus practically avoids any stock piles or wastage of inventory. By this, pull approach stations roughly estimated amount of raw materials that would be needed over a projected period of time ( it might be hours, days or a week). Thus customer thus acts as an initiator of order and it ends when the providers ships or delivers the product.

BENEFITS REAPED WITH JIT METHOD:

Ford experienced following benefits by applying just in time method: Low inventory levels, as of result of which cost associated with managing and maintaining those inventories reduced significantly. Since, the amount produced was less, accuracy and precision was more and there were lesser defects and hence more quality. Since it was a customer triggered process, they could customize the product according to the demand of the customer and this resulted in to more customer satisfaction. The entire manufacturing process was highly integrated and worked as a single unit.

GAP IDENTIFICATION:

Ford though enjoyed benefit through JIT it also experienced certain drawbacks. These are as follows:

 Since, practically there was no raw material inventory, and hence no stock to fall back on, minor disruptions even from one supplier paralyzed the entire manufacturing process at very short notice. As for the instance, when US-Canada border was sealed and commercial flights were grounded, Ford had to close down its five plants in North America as the very essential component i.e. the engine of the car was blocked. This delay resulted into loss of many orders. Moreover, when the lines were reopened, shipments were delayed by more than 15 hours because of stringent check on cargos. Even, the cargo shipment cost increased by more than 50% due to fewer cross country flights and hence the less available space for cargo. Even during the service or break down of the cars, the instant part replacement became difficult and generally took time for replacement forcing car to work at sub optimum level. This resulted into decrease in sales, as customer dissatisfaction rose higher each day. At times, when the parts were to be brought to assembly lines, it became difficult to identify the location and the place of the parts.

So for ford the task of maintaining ten thousands of different items became staggeringly complex. They realized that the misplacement of product, delay in the delivery products resulted into loss of productivity halting the production. They felt the need for a real time information system for every container flowing in or out of the workshop. This made them

shift towards the extension of Just in time management system i.e. Real Time Inventory Management System.

REAL TIME INVENTORY MANAGEMENT SYSTEM:

A Real Time Inventory Control System uses wireless, mobile terminals to record the transactions as and when they occur. This data can then be sent over wireless LAN to their central database. Ford Motor Co used a method called RFID (Radio Frequency Identification Method), which is a type of real time inventory management system. RFID is an Automatic Identification Technologies, in which system transmits the identity in the form of a unique serial number of an object wirelessly, using radio waves. The main components of RFID system are: An antenna A Transceiver with decoder A Transponder(tag)

WORKING OF RFID:

Whenever the tag comes in contact with the antenna or card reader the activation signal is generated. The reader then decodes the data that the tag contains like location of the product, specification of products like color, shape, size, date of purchase etc . . . . This is then transmitted to main computer or software with the help of low frequency radio waves. The range of the transmission of the radio waved depends on its frequency and power of use which usually lies in the range from1 inch to 100 inches. This stored information is processed according to the needs of an application. In this way RFID enables the transmission of the data with the help of the reader. A typically RFID tag may contain a microchip that can store as much as 2 kb of information. RFID system has gained popularity mainly due to its ability to track moving objects.

APPLICATIONS OF RFID IN FORD:

Ford company adopted a wireless Real-Time Locating System (RTLS) developed by WhereNet Corp. This system consisted of wireless tags, fixed position antennas and Web enabled software. By using low power radio frequency tags and communications network, this system located and tracked the inventory. The antennas where positioned inside and outside the factory and they received the transmissions transmitted from the tags and delivered the information to the computer attached to it. This was then used to identify the tags location within 10 feet of its exact position. Ford initially implemented this system at their Van Dyke facility in Sterling Heights, which is spread over 250,000 square foot of

area and which produces more than nine million components for Ford trucks and cars. Later Ford and WhereNet then developed a wireless call system which was called as WhereCall to bring the needed parts to the line. Later they also implemented this system to their other plants.

BENEFITS REAPED USING RTLS:

Ford reaped the benefits in all stages of manufacturing process they are as follows: Placing the order of the replenished item/ bringing in the products for assembly line: WhereNet RTLS reliably shows the location of the inventory parts it also assists the line workers in requesting fresh supplies of materials. Initially to bring in the parts to assembly line Japanese Kanban system was used where a paper tag was attached to the batch or the lot of the raw materials. When these raw materials were used up this Kanban tags were removed and sent to the manufacturers for placing their orders. With the help of WhereNet, ford developed the software which helped in improving the efficiency of processes involving material replenishment and enhanced the locating system. Ford placed the WhereCall devices at assembly stations, where the line worker presses its button when the supply of a particular part reaches the replishment level. When the operator presses WhereCall button, a light flashes 10 times and timer begins counting, which helps the worker to know location of activated tags. The plant ceiling that are fitted with local infrastructure of antennas then picks up WhereTag pings and convey the message to WhereNet servers, which determines the location of the call and the required part. This data is sent to Ford's SMART System, which 9

displays it on touch-screen computer. This helps in re-stocking of that part and avoiding stock-out situations and lag time. It also eliminates the replenishment workers job of picking the Kanban cards. System offered ford great flexibility and optimum material stocks for smooth operation. Through its use, Ford has achieved great benefits, like more efficient utilization of labor, increase in cost savings from $200,000 to $500,000 per facility over hard-wired systems, faster installation, and enhanced reliability. Tracking the individual components in the warehouse: It is challenging to track the location of the individual components and raw materials that are utilized in the manufacturing process. But, this was made possible by WhereNet by attaching a pager size WhereNet transmitting tag. Each tag carried a bar code associated with that item. This tag transmitted its location every four minutes to update the warehouse management system about its current location. Also this tag technology was not just restricted to one plant but it facilitated the movement of parts among different Ford locations. This system thus enabled them to track each item in the plant so that it became easy for the personnel to locate that item when needed.

Identifying the position and location of finished goods: It was very difficult to identify the position of a particular finished truck or cars in the crowded parking lot, as it was too time consuming. Ford and WhereNet developed a vehicle inventory management system named wheresoft.

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It provides visibility and management of vehicles from final assembly to shipping, thus making it easy to locate a particular vehicle. By implementing VIMS Ford was able to locate their needed vehicle within a matter of seconds which earlier took them hours. Generally a manufacturer spent about $1 million each year to locate and manage inventory within its delivery chain. But by implementing the VIMS they were able to reduce this amount to a great extent.

RELATED STUDY:
WALMART: Wal-Mart being into retailing business, the emphasis of Wal-Mart has always been on reduction of its purchasing cost & thus offering the best price to its customer. So, company initially adopted bulk buying method. Due to excess inventory more storage space was required. As a result cost of maintaining those inventories also went higher resulting into reducing profits. Moreover, certain consumable items also deteriorated resulting into loss for the company. So, then on company shifted to real time inventory management system. Wal-Mart invested heavily in IT & communications systems in order to effectively track sales & merchandise inventories in stores. Wal-Mart has set up its own Satellite communication system through which by sitting in front of the computer screen in satellite room , the information about different stores are made available. The total of days bank credit sales can be known and if there is something urgent to communicate to store and distribution centers, it can be easily send out there through satellite transmissions.

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Wal-Mart also networks its main suppliers through the computer system. For example, the company entered into collaboration with P&G and developed an automated recording system, which Linked all computer between P&G in stores & other distribution centers. The computer system at walmart identifies an item low in stock and sent signal to P&G and the item is delivered. Thus through this Wal-Mart was able to monitor its stock labels constantly and P&G could also lower its cost. DELL: Whenever any person discusses low inventory levels, the name of Dell is bound to come. The main reason for Dell to keep new inventory is because computers depreciate at very higher rate and thus if stored for long period it losses a ton of value. So to minimize the inventory dell used just in time method, where orders for raw materials and other essential components were placed only after the receiving the order from the customer. It was observed that during 1991 the inventory of the dell use to sit for around 11 weeks on an average, which reduced to around 1 week in 2001 after adoption of this method. By this way dell was able to cut its cost by 9%. Just in time method was successful in dells case as it had local vendors unlike ford who also had cross country vendors.

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REFERENCES:

www.ct-clic.com www.tuition.com.hk/dictionary/i.htm www.sixsigmasystems.com http://www.aimglobal.org/members/news/templates/template.aspx? articleid=3007&zoneid=14 http://www.activewaveinc.com/applications_inventory_control.php http://www.informationweek.com/news/6506597 http://www.inventorymanagementreview.org/2005/09/dell_computers_.html

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