Concept: The question tests on the basics of Counting
The word PENCILS is made of 7 different letters. Since E has to be next to I, we consider them as a single Unit.
We now have 6 units (5 letters and 1 unit of E and I)
External arrangements = 6! = 720
Internal arrangements (for E and I) = 2! = 2
Total number of words = 720 * 2 = 1440