Introduction:

The concept of inventory management dates back to 1915, when F.N. Harris developed a very simple and useful model of an inventory problem. It was quite natural for the inventory problem to be among the first selected for mathematical analysis, because it was a wide spread problem which was seen as being more structured and having a potentially more profitable pay off than the other problems.

Any inventory system requires the collection and processing of large quantity of data. However, the introduction of computer in 1950s brought down the cost of handling data which was quite high during pre-computer days, thereby renewed interest in inventory theory and marked the beginning of an era, in which, sophisticated large scale inventory systems became as common place in industry.

Inventory is defined as an idle resource of any kind that has potential economic value and considered as locked up capital. A practical definition from the materials management angle would be “item of store or materials kept in stock to meet future demands of production, repairs, maintenance, construction etc”.

Materials play an important role in Railways both in production of new assets and in the operation and maintenance of the existing assets. Therefore their continuous availability is a prime requirement for uninterrupted working. In improving profitability, reduction of input costs is a major parameter and since expenditure on men and machine is more or less fixed, the only field where economy may be possible is management of materials. How much does it cost an organization to fulfill its material requirements both as cost of the material, inputs and logistic of making them available was an almost unexplored field in Indian Railways (IR) in the early 50’s. Today it is regarded as one of the important areas of materials management where applications of modern techniques are giving rich dividends.

Expenditure on purchase of materials on Indian Railways needed for operation, maintenance and production, etc. is of magnitude of 11,000 crores, which include 37% stores for operation, repairs and maintenance, 2% stores for construction, 38% stores for manufacture of rolling stock. Indian Railways has 215 stores depots spread all over stocking 2.8 lakhs item, are the main hubs of inventory holding.

Need for inventory: 

Theoretically, if supplies of materials can be so arranged as to meet exactly the operational needs for day to day, there will hardly be any need for keeping inventory. It is impossible to obtain material with zero time lag. To overcome the fluctuation of supply and demand, inventory has to be maintained. Inventory serves as a cushion and protects the system against the fluctuation of demand and supply.

Aim for inventory control: 

Low inventories will result in payment of less interest charges on capital locked up and also release the much wanted and same capital for alternative uses. It has to be remembered that opportunity cost of capital in the hands of an efficient business executive is not just equal to bank interest but many times more.
It is in the interest of organization to keep inventory holding at the lowest possible level consistent with the service. Inventory management on Indian Railways has helped save thousands of crores of rupees from being invested in materials.

Types of inventory: 

Inventory on Railways can be classified according to its usage and its point of entry into operation i.e. raw materials, work in process, finished goods, tools, consumables, spares etc. which are briefly summarized as under :

– Raw materials are major input, which gets converted into final output. Any breakdown in supply will result in production stoppage in the workshop/production units. Usually their annual usage value is also quite high.

– Consumables are materials, which assist the production or maintenance but do not figure significantly in the final output i.e. cotton waste, brooms, welding electrodes, paints, stationery, etc.

– Work in progress are materials in intermediate stages of production and remain in inventory due to protective buffer, economic lot production awaiting