Inventory Management SRINIVAS REDDY

INVENTORY MANAGEMENT INTRODUCTION
The term inventory originates from the French word inventories and Latin word indentation, which implies a list of things found. The term inventory includes raw materials work in progress finished goods, spares, in generally inventory mean stock, and financial language, inventory means raw materials, work in progress, finished goods. The term inventory includes the following categories of items. 1. Production Inventories: - Raw Materials, parts and components which enter the forms product in the production process. 2. MRO Inventories: - Maintenance, repair, operating suppliers which are consumed in the production process but which dont become part of the product. Eg:- lubricant oil, soap, machine repair parts. 3. Work in Process Inventories: stages in the production operation. 4. Finished Goods Inventory :- Completed products ready for shipment NEED OF THE STUDY Every industry on average spends 70% on raw materials (inventory). Therefore there is a need to know the raw material cost and also there is a great importance to understand the inventory management system of this industry. The study helps a lot to various departments to take steps to control the inventory process. Semi finished products found at various
BOMMA INSTITUTE OF INFORMATICS
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INVENTORY MANAGEMENT
SCOPE OF STUDY This study on inventory management has a wider scope as it assists the firms in Defining the policies for inventory management. Determining the most appropriate inventory management techniques and methods. Determining the economic order quantities, stock outs, safety stock, lead time. In minimizing handling and storing cost. Reduce wastage / scrap / obsolete items.
OBJECTIVES OF THE STUDY The objectives are: 1. To study the present practices observed inventory management and inventory of raw material. 2. To see how far these accomplish the set objectives. 3. To suggest any possible changes and improvements. 4. To present the conceptual theoretical framework relating to inventory management. 5. To conduct a study on existing practices of inventory management in the company. 6. To determine the inventory status of the company and analyze them. 7. To study the inventory valuation methods of the company. 8. To suggest various control systems for inventory management.
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METHODOLOGY OF THE STUDY Sampling techniques There are two basis alternative approaches to sample selection namely. Probability sampling Non-probability sampling.
The executives related to all departments were interviewed on the basis of judgment and convenience of the interviewer which helped the interviewer to get accurate and understand the opinion of the officers and executives. Source of Data The methodology is to study the inventory perception towards cement company with special reference to Sagar Cement it contains. Primary data Secondary data Primary Data Primary data has been collected with the help of the person questionnaires, interviews, enquiry, observations designed and developed for this purpose. The questionnaires has been supplied to all the Officers/ executives to edit the required informati3on. Interviewing technique and personal observation has been used simultaneously to make the study exact and relevant. Secondary Data This data has been collected from previous published records like Annual reports inventory reports, printed statements do the company like wed site etc.
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LIMITATIONS OF THE STUDY As the details of inventory are maintained confidentially. The project deals with fewer areas of inventory As the time spent on project is only one month, it is not possible to go in to detail study of item wise. The project covers the area of stores and spares under inventory management system of the company. The collected information is mainly through secondary data.
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INVENTORY MANAGEMENT INDUSTRY PROFILE

Joesph Aspidin with the invention of cement in the year 1812 has made a great contribution for industrial development. Today, the industry has become one of the major contributors to the national income. China is the first largest cement produce in the world and India stands second. The ex-Factory cement prices in India are the lowest in the world compared to the other. (Excluding the freight). Compared to every other building material, increase in the cement price has been the lowest for the last six years. Also cement is the second largest revenue contributor in terms of excise duty. (3500 corers per Annum). The industry has invested Rs.30000 corers of capital by way of share holders stake and debt from public financial institutions. Yet, the industry has not been able to recover the continuous increase in the input costs. Cement industry today directly employs over 1.5 lakh workers. Over 12 lakh people are directly supported by the industry. The entire industry has been adversely affected by the depressed cement prices. In fast over the last five years, cement price index has declined by 1.1% despite the rise in the recent price, the cement price index is much lower than the index during 1996. But the cement industry the fluctuation of prices is norm. More than 70% of the cement manufacturing units are in red. Ten of the largest cement companies have been declared sick under BIFR. Being a highly captive industry there is a compelling need to attain reasonable returns to service a huge debt burden of over Rs.1500. Cr. In Indian the manufacture of cement was started in Tamil Nadu early in 1904. At present India is one of the top ten cement producing countries in the world. Now there are more than 90 units producing more than 300 million tones of cement per year. Cement industry today has come to a long way from a seller market to a buyer market.
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Cement is one of the basic and essential commodities for building activities and its demand is more than the supply and position is likely to be continued the position has been changed and some of the units are bringing their prices regularly down. Effective from 1982 Feb. 28th government of India has introduced dual pricing policy where by 66.6% of the licensed capacity is to be supplied on the government and surplus producing above 66.6% is available to the manufacturer for sale in the free market. Cement Prices in some countries from last six months.
Rs/Mt(EX- Factory) 2800 1900 2100 2750 3450 4600 0 2000 4000 6000 Rs/Mt(EXFactory)
all countries of the world cement attracts the last amount of taxes. In India cement is One of the highest taxed commodities. The Ex- Factory price in India despite the recent hike is the cheapest in the world. Components of Price: First lets understand which components make up the price of the cement. Power and coal alone account for nearly 60% of the variable costs. Freight and transport costs from another major chunk of the cement prices in different locations. During the last nine years input costs of major component, which contribute to the final price of the cement have risen between 100% to 220%. BOMMA INSTITUTE OF INFORMATICS Page 6
S T IND R H M IL A ON E A IL I X N A ES ND C U IO SA KA ND I IA A
Cement prices nave been fluctuating a great extent over the last few years. In
Cement is one of the highest commodities in India. Levies on cement comprise a whooping 25% to 30% of its price. Practically all major inputs in cement production fall under administered price mechanism. Costs of inputs in cement production have gone up by Rs. 108 per bag during the last decade. On the other hand cement prices during the last five year have infarct come down. Moreover since April 2000 costs on account wages petroleum products, royalty and freight have further increased. CEMENT PRICE DEFLIES INFLATION: Compared to the increase in the prices of other construction materials, cement prices have hardly increased over the last five years. Price index of cement is far below the increase seen in the world price index. Cement prices are driven by demand and supply, cost of production, capital related costs, brand values, grade of cement, distance from source of supply, seasonally and fair return on investment. Cement prices on the country have kept low despite the inflationary pressures. The enthusiastic response of industry to the government policies during the liberalization phase has resulted in greater benefits to the consumer easy availability, best quality, and most competitive price. In the bargain, it is the fair return on the investment that has been the worst hit considering the steep escalation in input costs cement still under priced as bottom lines of many cement companies would reveal. CEMENT INDUSTARY APERSPECTIVE: After the decontrol of the cement industry in the 80s several new and additional capacities were setup. Almost a decade later, when liberalization swept across the country, the government announced several Hugh infrastructure projects.
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Anticipating a massive demand for cement in the coming years, almost 60% of the total cement is consumed by the infrastructure project- the industry went in for a second round of capacity increase. Efficient plans and higher capacity utilization meant greater production. Unfortunately, many of these big government projects are yet to reach the blue print stage. Even housing plans could not fully materialize, as intended by the government. Demand for cement failed to keep pace with supply excess resulted in high unremunerated cement prices. Today the cement industry has an installed capacity of 113 million tones. The cement industry has been reeling under the impact of excessive supplies and uneconomic realization for the lost four years. As a consequence of this, the investment has considerably slowed down and there has hardly been an addition of any fresh capacity in the industry. This bodes ill for the nation, considering the countrys requirement for the massive in fracture development and ever increasing housing requirements. The cement industry has investment value of about Rs 30000 cores out of which almost 15000 cores is in the form of debit from financial institutions and banks. On a conservative estimate, lately the industry has been pasting an annualized loss in excess of Rs 1000 cores. Debits have been turning into non performing assets and share holders value fast encoding. Over 30 companies are in the red. More than 10 of them have been BIFR cases. Many cement companies have decontrolled, no cement plant was economically viable. Growth in the cement industry was insignificant. The industry doing the period was rife with all kinds of ills hoarding black marketing and profiteering if the current trend of the erosion of the net worth of the cement industry continues, the might once again run into dark ages.
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In any economic situation, interest of the consumer and the investor of the capital have to be protected. Consumers long term interests have to be protected. Consumers long term interest is served by getting the product at a competitive out of the efficient economic working of the industry. Indian cement industry has state- of art technology and the production cost is most competitive in the world. The industry can survive only when it gets economic return on the capital employed. India has to implement large infrastructure projects of roads, bridges, ports etc. which will require a massive quantity of cement in the next 10 years. With purchasing power increasing in the rural area and semi urban pockets of the country, housing projects will have to be undertaken an a priority basis. It is therefore, necessary that cement industry in India should remain healthy and fresh capacity to meet the growing demand of the cement. Health of any company requires a fair return on the investment. Then only a company or an industry can protect the interests of its consumers. An industry that fails to earn a fair share of return con never survives in the long run. Ultimately, it will be the retail consumers who will have to bear the brunt. IMPACT OF MINI BUDEGT: Reduction of basic customs on non-cooking coal from 25% to 15% Abolition of special additional of 4% IMPACT: The governments decision to slash basic customs duty on non-cooking coal is expected to benefit the cement. Considering that international prices of non-cooking coal have nearly double in the last 12 months. The reduction in the duty will only provide partial relief to the cement units. Moreover the cement industry largely dependant on local supplies for non-cooking coal. Coal accounts for around 20% of the direct cost of the cement makers. Duty costs coupled with an expected pick-up in. Demand, should help cement companies struggling on both the cost and realization fronts. BOMMA INSTITUTE OF INFORMATICS Page 9
INVENTORY MANAGEMENT COMPANY PROFILE

Started on 20-01-1985 with an installe3d capacity of 200 TPD, promoted by Sri S. Veera Reddy Managing Director, along with highly competent and successful technocrats. Plant machinery is very contemporary and suitable a produce wide variety of cements. Having lime stone mines of highest quality. Mineral available is suitable for all varieties of cements. Inherent strengths are: Highly competent men. Latest generation sophisticated machinery. Highly quality minerals. Which are the three important prerequisites (M3, Men, Machinery, and materials) for any good product. (The fourth M being marketing for successful origination) From the day one, Sagar Cements is a success storey and stood first in all areas of its activities, made big strides and grown rapidly in phases to its present cement capacity of 18100 TPD. Quality consistency is an on going activity at Sagar Cements. Top managements priority is always to implement new technologies with in a time frame even at huge investment and to be one of the best quality cement producing industry in India. Management considers technology up gradation is of highest priority and spent huge amounts towards latest machinery, systems and pollution control equipment. The important recent investments: Latest world best cooler for efficient cooling and better quality( I.K.N.G mbh, Germany) Usage of low ash imported coal. Latest software for process optimization. The result is sagar cements industry is of latest contemporary technology not only when it was installed but also today and known in cement industry circle as one of the highly efficient unit.
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Quality was given the prime importance even during the construction stage of the project itself. The layout planning, equipment sizing, technology absorption etc., were considered purely based on quality aspect of view. The quality control department is accorded highest status in work and produced very high quality cement very consistently. During 98 an amount of Rs.40 lakes was spent for the surveying and quality analysis of the available limestone in our mine. This is helping in planning our mining activities to supply optimum quality limestone to factory, the consistent well designed Raw Mix is helping in producing consistent quality cement. To improve the quality. Rs.30 corers is invested towards new machinery Works are under progress with a budgeted investment of 5.0 corers. Other schemes are also under study. Cement is accepted and appreciated by many Govt institutions and big builders. Company is producing follow grade of cement. 43 Grade ordinary Portland cement. 53 Grade ordinary Portland cement. SRC (sulphate resistant Cement). IRST_40 (Railway sleeper cement). Super grade (Portland pozzolana Cement). Super steel Grade (Blast furnace slag cement). Till date Sagar Cements could produce any specialty cement required by the market for special application. The following are few of the many highly critical constructions made with Sagar cements: Bombay: Vasai Bridge (NBCC). Ircon Project. Thane crecke (Sulphate Resisting cement).
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Chennai: Madras Refineries Ltd. Metropolitan Railway Transport Projects. ( Intercity Railway Bridges) Hyderabad: Buddha Purnima Project. Khirathabad Fly over Bridge.. Railway sleeper cement (IRST_40). Kakinada: Nagarjuna Fertilizers & Chemicals Ltd. Kovvur to Rajamundry Bridge III Vizag: Simhadri Thermal Power project. (E.C.C.C.) H.P.C.L.Project. Rain Calcining Limited (RCL). Khammam: Paleru dam Singarenicolleries ltd., Kothagudem Nalgonda: Dindi Project Jhanphad Hydel power project Vijayawada: Hyderabad Industries limited Kondapally. Sagar Power ( Narsaraopet, atmakur) Irigation Projects.
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Manufacturing process of 43 Grade & 53 Grade OPC. It is produced by grinding of Lime stone, (Calcareous) Bauxite, clay& late rite in suitable proportions in tube ball mill to a fine powder, which is called raw meal. The raw meal is fed to rotary kiln through pre-heater with precalciner system. The raw meal under goes chemical reactions and reaches to sintering temperature (1350 14000 C) and becomes clinker nodules. These clinker nodules are finally dropped in to grate cooler. Here the clinker is cooled from 1300 to 100c and transported to clinker stockpile. During the burning the strength giving clinker compounds are formed i.e., c3s, c2s,c3A, &c4AF.in OPC43 graed clinker the c3s content is low (45%) and in 53 grade clinker the c3s cement is higher (50-55%) . this clinker is ground to stable fineness with 3-4% gypsum in a ball mill. These finally ground is called ordinary Portland cement 43&53 graed. 53 graed cement requires higher fineness than 43 Graed cement to give early strength . 43 graed OPC clinker is made from lower concentration of lime (CaO). 53 Graed OPC clinker requires higher concentration of lime (CaO). Application (products): 43 Grades OPC:Used for general concrete construction works where special properties are not required. Its heat of hydration is lower than 53 grade OPC but offer lower resisistance to sulphate than P.P.C. 53 Grades OPC:Used where high early strength are required. Thos helps in faster construction. The ratio of sand and metal to cement can be higher. Portland Pozzalana Cement:PPC is manufactured by grinding Portland cement clinker (53 Grade) and 15 25% fly with 3-4% gypsum. The fineness of PPC in higher to OPC cements. BOMMA INSTITUTE OF INFORMATICS Page 13
Application: Super grade produces low heat of hydration than 43 grade OPC cements. And greater resistance to the attack of aggressive waters then normal Portland cements. So minimum water required for curing than others cements. It reduces the leaching of calcium hydroxide liberated during the hydration of cement. One of the important reasons for using pozzolzna cements has been the increased resistance they offer to attack by chemical agencies and particularly seawater. Its initial strength may be lower but later strength is higher than normal OPC. Its superior properties are the cause for its present day world wide popularity. Its high resistance and low porosity mad this grade of cement to be very good to constructions in general and highly durable even in costal areas. Sagar Priya Special Grade, IRST_40:Sagar Priya Special Grade ordinary Portland cement confirming to IRST 40 of Indian Railways is made my sagar cements limited which is having full facilities to produce consistent quality to give better strength. The minimum strength after 7 days id maintained more than IRS T-40 standard with 43 Mpa and are progressively increased the 7 days strength. The magnesia content in the lime stone of our mines is below 1% hence the concrete products made out off this cement are sound. The fineness of cement manufactures is consistently above 380M2/Kg. this is achieved due to closed circuit grinding method using O-sepa technology, which eliminates higher size particles completely. Sagar Priya cements works has been inspected by RDSO, LUCKNOW and approved our process and facilities. The cement made as per IRS T-40/1985 is tested by Railway institute of technical and Economical services and recommended to supply for manufacturing process of concrete sleepers. Sagar Priya Sulphate Resisting Portland cement Sagar Priya Sulphate cement generally knows as SRC made to IS, BS & ASTM standards. Selection of limestone in our mining area through surveying, core drilling and sample collection of stone. Separate silo is required to store SRC raw meal iron ore BOMMA INSTITUTE OF INFORMATICS Page 14
fines from Bellary are to be mixed in the raw mill process. Raw meal sample will be checked thoroughly. After confirming to the suitability then only passed to feed to kiln. For manufacturing of SRC clinker low ash coal is required (25-27%) for reducing the alumina content. High blain (3000m2/kg) of cement is to be maintained and separates silo is required to store the SRC. The sulphate resisting properties in SRC are developed by restricting the C3A content to below 5%. So there is no 0 excess C3A left to react with sulphates. Low heat of hydration, less risk of the 3 rmal shrinkage. Applications:SRC can be used in costal areas. Dockyards, Bridges , aqua farm tanks, sewerage and effluent- carrying drains it will protects the structure from sulphate attacks. Suitable for massive constructions suitable where soils having higher percentage of water soluble sulphates, i.e. more than 0.5% at seashore. Penetration of sulphate ions into concrete made with OPc can result in scaling and ultimately in some circumstances to complete disintegration. Storage at the construction site:Cement which is stored unprotected for any considerable length of time absorbs moisture causing lumps formation and resulting in a loss of hardening capacity. So long as the lumps are easily crumbled between the fingers the strength will not be seriously affected. If the cement is not properly stored at the construction site, about 10% of strength is lot in a months time. So the period of storage should always be kept as a short as possible. Leakage: - No Proper Vibration of Concrete. Cracks: Settlement of foundations. Cement & Concrete:Concrete is composed of a course aggregate forming the bulk of the mix, a fine aggregate filling the voids between, and cement and water to bond the whole together. The sand, or fine aggregate, and cement may together be regarded as a mortar in which the coarse aggregate is set. The properties of the concrete depend primarily on the quality and amount of this interstitial mortar and only secondarily on the coarse aggregate. BOMMA INSTITUTE OF INFORMATICS Page 15
As per specification sand contain 5 to 50% of material passing on 52 sieve, the maximum at 30 % the main bulk of the sand, which lies between a no 52 sieve and a 3/16 inch mesh should contain particles of varying size and does not consist predominantly of any one size. The proportions of cement and aggregate in concrete and expressed as one (1) cement. X fine aggregate y coarse aggregate by volume or by weight, or alternatively as the weight of cement per unit volume of mixed concrete. The proper ties of the cement- sand motar, which binds the coarse aggregate together, depends on the proporyion of cement it contains the amount of water used, and on the finess of the sand. The finer the sand,the greater is the surface area it possesses, and hence the larger the proportion of cement required to cover that surface. This is one reason why sand should not be excessively fine and contain much material passing a 100 mesh. An increase in the amount of water above that necessary to give a workable mix renders the mortar weaker and more permeable and increases the volume of voids which will be left empty when the concrete dries out and excess water is removed. If the proportion of the sand in concrete is not sufficient, then is if the mix is over Sand the fragments of coarse aggregate will be separated more than necessary by the excess mortar and the mortar itself will be leaner in cement. The coarse aggregate in concrete is normally quite insert and impermeable and it is the cement mortar which is the point of attack by most destructive agencies, and which forms the channel by which water can permeate in to the concrete. The presence of an excess of this mortar in a weaker condition tends therefore tp lower the resistance of the concrete to attack. The proportion of sand required decreases as the maximum size of the coarse aggregate in creases. As a rough working role about 30 -40% by volume of the aggregate should consist of sand when the maximum size of coarse aggregate is inch, but this proportion has to be adjusted to suit the particular aggregates used. The use seawater is reinforced concrete should be avoided for increases the risk of corrosion of reinforcement. It must never be used for mixing high alumina cement as it has a very adverse effect on the strength. The mixing and placing of concrete also play an important part in determining the quality of the product. The ease with which concrete can be placed depends on the BOMMA INSTITUTE OF INFORMATICS Page 16
workability of the max. The workability of concrete is measured by various tests such as the slump test. The workability of concrete is influenced by the type and grading of the aggregate as well as other factors. The amount of water required of produce a given slump in a concrete mix increases with the temperature of the mix. This increase from 60-100f raise the water requirement by the order of 10% this results in a lower ultimate strength and increase in the subsequent drying shrinkage. Concrete can be damaged by lack of proper curing. It is essential for the development of high strength that the concrete should be kept moist for a period and nor allowed to dry out rapidly. Once a concrete has been cured under moist condition for a sufficient period, its resistance to attack by chemical action is increased by allowing it to remain in air and dry out. A film of calcium carbonate forms over the surface of the material, blocking the pores and producing a hard and dense surface skin. And additional factor is involved in reinforced concrete where steel bars are embedded in the material. The function of the concrete here is not only to provide a medium to with stand the compressive stresses to which the reinforced concrete member may be subject, but also to protect the steel reinforcement against corrosion. Any corrosion of the reinforcement result in the formation of a film of iron oxide over the metal occupying a volume about 2.2 times that of the iron from which it is formed. The expansion which thus occurs results eventually in the flaking off or cricking of the concrete overlies it. The corrosion hence damages not only the steel but also the concrete. The degree of protection afforded to the reinforcement depends on the impermeability and thickness of the concrete covering it. Reinforced concrete, which is exposed to seawater. Reinforced concrete members may show the cracks arising from deflection under load (or) from shrinkage of concrete. Failures in Concrete Structure:Failures in concrete may be assigned three general causes. Unsuitable materials. Error in preparation, placing curing. Exposure to natural or artificial destructive agents.
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Unsuitable materials:Unsuitable materials group defective cements, defective aggregates, and incorrect proportions of cement and insufficient entrained air to give the required frost resistance and excessive additions of admixtures. Error in preparation, placing curing Poor mixing and the use of too wet or dry mixes with the accompanying troubles of segregation, the last being aggravated by insufficient ramming. Bad jointing two days work, inadequate curing may also be grouped under this head. This shape of the voids present in a fractured surface may give some indication of the consistence of the mix. Small double holes with smooth surface and spherical shape are characteristic or rather wet mixers, while the presence of numerous voids of irregular shape and an uneven distribution of the fine aggregate indicates the use of a mix which has been too dry for the degree of ramming employed. Bad grading of the aggregates is also usually indicated by the appearance of the fractured surface. Aggregates Concrete or mortar is made up of cement, water, and aggregates (store chips and sand) and at times chemical additives. The aggregates, fine (sand) and coarse (stone chips) make up about 75 % of the volume of concrete. Generally sp. Gravity of aggregates 2.4 and 2.90. The aggregates from main matrix of the concrete or mortar. The aggregate particles are hold together by cement matrix, formed out of the past of cement. While the coarse aggregates from the main matrix, the fine aggregates from the filler matrix between the coarse aggregates. With cement and water the entire matrix binds together into a solid mass called concrete. The aggregates may be igneous (granite or basalt) of sedimentary (Lime stone, etc,) rock.
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Selections Factors of Aggregates:Sl.No 1. 2. 3. 4. 5. 6. 7. 8. Factors Influence of concrete property Strength/absorption Durability Bond grip Water demand(strength) Water demand(strength) Bleeding and segregation Strength Water demand bound cohesion and durability. Specific Gravity Chemical stability Surface texture Shape Gradation or particle Size distribution Maximum size Deleterious materials
Quality of Aggregate:The presence of clay, dust, slit or mud in aggregates beyond the permissible limits is harmful, because it results in production of lower strength concrete. Generally grit and dust portions of the aggregate will cause an increase in water demand and subsequent drop in concrete strengths.
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INVENTORY MANAGEMENT AN OVERVIEW
One of the major tasks of any management today is to control inventories. Quite often, it is a massive task; yet it has to be done since the cost of inventories is totally nonvalue producing and is a direct charge on the profits of their company. Let and controlled it can eat away all the profits of the company and drag it into the sick bed. The problem with inventories is that it has several facets and its environment is very complex in nature. TYPES OF INVENTORY: For the purpose of control, it is very essential to study the following four types of inventories in detail:1. Raw Material Inventories 2. MRO Inventories or maintenance, repairs and operating supplies. 3. Work-In- Progress or In-Process Inventories. 4. Finished goods Inventories. Raw Material and Production component: Raw Material and Production component are purchased from outside suppliers and the reason for their existence is to uncouple the purchasing function from the production function. The size of this inventory is dependent upon factors such as internal lead-time for the purchase, supplier lead time, vendor relations and availability of material, government import policy, in the case of imported material, the annual consumption of the material and relative criticality of the material. MROs: MROs are bought out materials required for maintenance of the production process but which do not form part of the finished product. These include petrol, oil and lubricants, machine repair parts, jigs, tools, etc. Work- In-Progress Inventory: Work- In-Progress Inventory might exists merely because of the production cycle time or could also be maintain for decoupling successive manufacturing operations. The decoupling could be employed either for implementing an incentive scheme or to enable each of the production departments to plan independently.
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The size of the inventory is dependent on the production cycle time, the percentage of machine utilization the make / buy policies of the company, the management policy for decoupling the various stages of manufacturing. The Finished Goods Inventory: The Finished Goods Inventory is maintained to assure a free flowing supply to the customer and for this the marketing department insists on the substantial finished goods inventory. The size also depends on the ability of the marketing department to push the product, the companys ability to stick to the delivery schedule of the client.
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FUNCTIONS OF INVENTORY: Inventory has five basic functions. These functions must be understood if inventories are to be analyzed to determine how much inventory is really required. These functions are 1. The lot-size Inventory: Most companies manufacture items in lots rather than at exactly the rate they are required. The main reason relates to productions and efficiency. As a result of this, inventory is excess of immediate requirements will be carried. 2. Fluctuating inventory: This inventory exists because demand or supply fluctuates. Safety stock is fluctuating inventory. 3. Anticipation Inventory: These are the inventories that are built in anticipation of future demand. Anticipation inventory might take the form of an inventory build up during a slack season to keep the labor employed, while providing for demand during the peak season. Inventory build-ups a head of the holiday season, in anticipation of strikes, and to provide initial inventories of new products of new products items are also anticipation inventory. 4. Transportation Inventory: These inventories exist because materials are moved from place to place. A company with a plan in nasik and stock points at Bombay, Calcutta, Chennai and Nagpur, would normally have considerable amounts of inventory in transit between the plant and the stock point warehouses. If the time for rail shipment across the country were two weeks on the average there would be a two weeks supply of inventory in transit. 5. Decoupling Inventories: Such in inventories are needed for meeting our demands during the decoupling period of manufacturing or purchasing. OBJECTIVES FOR INVENTORY CONTROL: The first consideration is the overall objective of the work of stock control. Like all other activities in the company, inventory management has to contribute to welfare of the whole organization. The logistic operation must aim to contribute to profit by servicing the marketing and financial needs of the company.
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The aim is not to make all items available at all times as this may well be determinable to the finances of the company. The normal role for stock control is to meet the required demand at a minimum cost. The aim of long term profitability has to be translated into operations and financial targets, which can be applied to daily operations. The purpose of the inventory control function in supporting business activity is to optimize three targets. 1. Customer Service 2. Inventory Cost 3. Operating Cost The first Target Customer service can be considered in several ways, depending on the type of demand. In a general stores environment the service will normally be taken as availability ex stock, where as in a supply to customer specification, the service expected would be delivery on-time against customer requested data. The Second Target Inventory costs, requires a minimum of cash tied up in stock. This target has to be considered carefully, since there is often the feeling that having any stock in the stores for a few months is bad practice. In reality minimizing the stock usually means attending to the major costs; very low value items are not considered a significant problem. Low inventory can also be considered in terms of space or other critical resources. Where the item is voluminous or the stores space restricted, the size of the items will also be a major consideration. The Third Target: Avoiding operating as become more of an issue as focus has been placed on inventory management. The prime operating costs are the stores operations, inventory control, purchasing and associated services. The development of logistics, linking distribution costs with inventory, has added a new set of transportation costs tothe analysis. Optimizing the balance between these three objectives is the focus of inventory control the better the balance greater the profits provided the company.
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MECHANICS OF INVENTORY CONTROL: It would be worth recapitulating the entire process of materials procurement and stocking, before we go into the details of the mechanics of the inventory control. The starting point is the sales forecast, which enables the management to decide how much of what products it will have to produce to meet the demand. There are various factors in this decision, the chief of them are ; 1. Production Capacity 2. Product Mix 3. Raw Material Availability The next point is to make out a bill of materials or a list of all materials that will be required to produce the goods. Production may not necessarily follow a constant pattern throughout the year. There may be for example, lot size production, i.e. a minimum quantity that will make for an economical batch of production. Next, there may be a seasonal production to meet the demands during the particular season. To cite an example, in pharmaceutical industry there are some drugs which are required only in summer and the once that are required in winter. There are only produced for three to four months in a year. In view of these variations in production pattern, there will naturally be a variation in the monthly requirement of materials. Some materials may be required only from Jan to March and none thereafter. Some may be required every alternative month or once in six months only, and so on. This call for the making of a production schedule. The bill of materials when made up, will reflect this schedule precisely not only what materials are required, but also when they are required and in what quantities. Of course, not in all industries can a precisely accurate estimate of materials required be made. There are several industries that depend on other industries for their orders, and production in their case will depend upon the orders, they receive.
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COSTS INVOLVED IN INVENTORY: Holding Costs is the cost associated with carrying or holding the goods in the stock is known as holding or carrying cost. Holding cast is assumed to vary directly with the size of inventory as well as the time for which the item is held in stock. The following components constitute the holding costs: 1. Inventory Capital Cost: This the interest charges over the capital investment. Since this is the most important component, a careful investigation is required to determine its rate. 2. Record Keeping and Administration Cost: This signifies the need of keeping funds for maintaining records necessary administration. 3. Handling Costs: These include all costs associated with movement of stock such as; Cost of Labor, Overhead Cranes, Gantries and other Machinery required for this purpose. 4. Storage Costs: These involve the rent of storage space or depreciation and interest even if the own space is used. 5. Depreciation, Deterioration, Obsolescence Costs: Such costs arise due to the items in stock being out of fashion or the items undergoing chemical changes during storage. 6. Taxies and Insurance Costs: All these costs require careful study and generally amount to 1% to 2% of the invested capital. 7. Purchase or Production Costs: Purchase price per unit item is affected by the quantity purchased due to quantity discount or price breaks. Production cost per unit item depends upon the length of production runs. 8. Salvage Costs or Selling Costs: When the demand for an item is affected by its quantity in stock, the decision model for the problem depends upon the profit maximization criterion and includes the revenue from the sale of the item. Storage Costs or Stock out Costs: Storage Costs or Stock out Costs are the penalty costs that are incurred as a result of running out of stock. These costs due to storage of goods, sales may be lost, goodwill may be lost, either by a delay in meeting the demand or being quite unable to meet the demand at all.
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In the case where the unfulfilled demand for the goods can be satisfied at a later date, these costs are usually assumed to vary directly with the shortage quantity and the delaying time both. On the other hand, if the unfilled demand is lost, shortage scosts become proportional to shortage quantity only. Set-up Costs: Set-up Costs these include the fixed cost associated with obtained goods through placing an order or purchasing or manufacturing or setting up machinery before starting production. So they include costs of purchase, requisition, follow-up, receiving the goods, quality control etc. These are also called order costs or replenishment cost. They are assumed to be independent of the quantity ordered or produced . INVENTORY CONTROL TECHNIQUES Inventory control refers to the regulation of the stock and flow of materials and stores is an efficient, effective and economical manner to meet the needs of manufacturing and trading concerns in order techniques. Economic order quality fixation of stock levels, ABC quality inventory turnover ratio input output ratio analysis , pricing of raw material and valuation of stock are most important. The important tools & technique of inventory agent & control. Determination of stock level:Carrying of too much and too little of inventories is detrimental to the firm. If the inventory level is too little, the firm will face frequent stock. Outs inventory heavy ordering cast and if the inventory level is too high if will be unnecessary tie up of capital. Minimum Level:This represents the quality which must be maintained in hand at all times. If stocks are less than the low level there the work will stop due to shortage of materials. Lead Time:The time taken is processing the order and their executing it is known as lead time. It is essential to maintain some inventory during this period. Rate of consumption:It is the average consumption of materials in the industries. The rate of consumption will be decided on the basis of past experience and production plans. BOMMA INSTITUTE OF INFORMATICS Page 26
Nature of Material:The nature of material also affects the minimum level. If a material is required only agent special orders of the customers then minimum stock will not be required for such materials. Maximum level:The quality of materials beyond which a firm should not exceed its stocks. If the quality exceeds maximum level limit then it will be over stocking maximum stock level will depend upon. The availability of space for strong the materials. The maximum requirements of materials of any point of time. The availability of space for strong the materials. The cost of maintaining the stores. Danger Level:If the danger level arises their immediate steps should be taken to replenish the stock ever if more cost is incurred in arranging the materials. Average stock level:Average stock level = minimum stock level + of re-order quality. EOQ (Economic order quality):Is one of the important techniques used to determine the optimum quality order to be place from the supplies. The main objective of EOQ is minimizes. The cost of ordering and cost of carrying materials and total cost of production. The formula for EOQ is = 2AB/CS
A= Annual Consumption. B= Buying cost per order. C= Cost per unit. S= storage cost per annual. Example:Material Cost Rs. 1.00 Yearly consumption = 16000 Cost of receiving material = 18 BOMMA INSTITUTE OF INFORMATICS Page 27
Storage & caring cost = 20% of Avg inventory. = 2AB/CS 2X1600X18 1X20 2X1600X18 1X20/100 2X1600X18X100 1X20% From the above diagram it is clearly show that the behavior of the = 1700 UNITS
company cost the ordering cost and the same of these two costs, the charring cost various directly with the order size where the ordering cost various inventory the order size. EOQ model is based on the following assumptions: 1. Material cost per unit remains unaffected by order size. 2. Orders will be received on the expiry of lead time. 3. Variable inventory constant throughout the order. 4. Production and sales can be forecast perfectly. SELECTIVE INVENTORY CONTROL:ALWAYS BETTER CONTROL (ABC): ABC Analysis is a basic tool, which helps the management to place their efforts where the results would be useful to the greatest possible extent. The first important step in inventory management is to have a selective approach to fix up inventory levels, order quantities and the extent to which the control can be exercised. The selective approach mainly depends on the annual consumption of various items. For example, the items like nuts and bolts costs less than the items like engines. But we cannot safely stock the items like engines because of their heavy cost, while the items like nut-bolts can easily be stocked. Thus, less control is required for stocking the
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items like nut-bolts etc. But, more emphasis should be given to control the stocking of big items like engines. The investment of such items is substantial, and record keeping is expensive. ABC analysis is a very effective tool for such selective control. This technique involves the classification of inventory items in to three categories A, B, C in descending order of annual consumption and annual monetary value of each item. Based on ABC analysis, and average pattern of percentages of items and percentages of their annual consumption value may be as shown table pare to analysis by the current stock level in good for reducing stock levels, but a more consistent classification is required when focusing on the management of inventory. The end stock does not necessarily show which items are important for the business. In fact there may be some important items where the current level of stock is low because the stores are awaiting an impending delivery. On the other hand some items may have high stock value simply because no one is buying them. It is therefore usual to rank the items according to the annual turnover. The annual turnover is given by,
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Purpose: The purpose of ABC analysis is not to provide different types of service but to provide service with the least amount of cost and effort. S. NO . 1 2 Frequent ordering is Moderate control is Loose control is Class A Items Class B Items Class C Items
required required required Size of order is based Size of order is based Size of order is based on their calculated on their consumption on the level of requirement inventory Procured from many Procured from two or Procured from two sources Requires three sources sources keeping Also, requires keeping No need of keeping consumption is Moderate effort is made Minimum time on No
3 4
records of receipt and records of receipt and any records 5 consumption Moderate effort time Close effort is
made to reduce lead to reduce lead time 6 check on Some checks
made to reduce lead checks are
schedule revision is changes are required on required against any 7 8 9 10 required need need Frequent ordering is Less frequent ordering Bulk required Continual expediting is required Expediting ordering is
required for No expediting
prospective shortages Accurate forecasts Less accurate Appropriate forecast Have high Have average Have low consumption value consumption value consumption value
Saving Time:Applying the Pareto principle is a way of balancing inventory, stock availability and critical resource spent on each item. How the law can be applied depends on what the critical resource is considered to be. The critical resource for all inventory controllers is time, because of large amount of information required and the wide variety and quantity of stock held. The Pareto principle shows that 80% of the time in spent doing 20% of the jobs and a significant time saving can be made if a small reduction can be achieved in BOMMA INSTITUTE OF INFORMATICS Page 30
these jobs. They may be very frequent short jobs or more infrequent, long-winded jobs In ABC analysis the items are classified in three main categories based on their respective usage value: Category A items: More costly and valuable items are classified as A. Such items have large investment but not much in number. Category B items: The items having average annual consumption value are classified as B these items have less importance than A class items, but are much costly to pay more attention on their use. Category C items: The items having low consumption value are put in category C. Such items can be stocked at an operative place where people can help themselves with any requisition formality. Annual usage* unit cost: Limitations of ABC Analysis: 1. ABC analysis doesnt permit precise consideration of all relevant problems of inventory control. 2. If ABC analysis is not updated and reviewed periodically, the real purpose of control may be defeated. 3. The periodic consumption value is the basis for ABC classification. Hence ABC classification can lead to overlooking the needs of spare parts whose criticality is high, but consumption value is low. XYZ Analysis based of inventory value: We know that the basis for ABC classification was the consumption value of the items. But, the basis of the XYZ classification is the closing inventory value of the items. X- Items with high inventory value Y- Items with moderate inventory value Z- Items with low inventory value XYZ classification is usually performed once in a year during the annual stocktaking device. This analysis helps us in identifying the items, which are being stocked extensively.
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XYZ classification can also be combined with the ABC analysis and the controls on the items can be affected as shown in the table: XYZ Classification X Y Z Y to Attempt to convert Items
ABC Classification A B A
X Attempt
Z are within
reduce the stock Z items B Review stock and Items are Consumption more control
control within Review bi-annually
often C Dispose of the Check and maintain Check and maintain surplus items the control the control
VITAL, ESSENTIAL, DESIRABLE (VED) ANALYSIS: The VED Analysis is based on the criticality of the items. If the items are arranged in the descending order of their criticality viz. V- Vital Items E- Essential Items D- Desirable Items Than the more attention is paid to the v-type items. The criticality of an item may be of two-types 1. Technical 2. Environmental
Vital items:
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Such items are those which when required, and not available, they make the whole Classification A- Items V-Items E-Items Constant control and Moderate stocks D-Items Nil stocks
regular follow up B- Items Moderate stocks Moderate stocks Very low stocks C- Items High stock Moderate stocks Low stocks system in operative. For example, a clutch wire is vital item for the speed vehicle like scooter, motorcycle et Essential items: Those items which when demanded, and not available reduce the efficiency of the system are called essential items. For example, Telephone is an essential item. In the case of E-items some risk can be taken. Desirable items: Desirable items are such that even if they are not available, they neither stock the system nor reduce its efficiency but it will be good if they are present in the system. The VED analysis is useful in stock controlling of spare parts required for maintenance. This analysis can also be very useful to capital intensive process industries. Since this analysis is based on the criticality of an item, it can be used in the raw materials, which are rarely available VED can be combined with ABC for the effective management of spare parts. This can be shown in the following table. FSND-ANALYSIS BASED ON USAGE RATE OF ITEMS: In this analysis, items can be classified according to descending order of their usage rate, or movement as follows: F- Fast Moving Items S- Slow moving Items N- Normal Moving Items D-Dead Items In this classification, a close attention is paid to the F-Items, while D Items are transferred to the disposal cell. FSND analysis is particularly useful to combat obsolete items.The cutoff point of four classes are usually indicated in terms of the number of issues in the past 2 to 3 years. For example, No issue in the past two years, may be BOMMA INSTITUTE OF INFORMATICS Page 33
classified in D-category; up to 10 issues during that period in S Category; up to 20 issues in N category and more than 20 issues are put in F- category. The XYZ and FSND both can be combined to control the obsolete items, which are useful in the timely prevention of obsolescence. Classification X- Items F-Items S-Items N-Items Tight inventory Reduction of Stock Quick disposal of control Y- Items to very low level items at optimum price Should as possible Z- Items Can reduce Low level of stock clerical labor by GOLF CLASSIFICATION: These letters stands for Government-Ordinary-Local-Foreign. There are many imported items which are canalized to the State Trading Corporation, MMTC, Indian Drugs and Pharmaceuticals Ltd., Metals Trading Corporation etc. There are special procedures to be followed for procuring such item. As such, ordinary procedures of inventory control may not work in respect of these materials and they would require special treatment. Similarly, items that are available within the country could be treated differently if they were available locally, compared to their being available only in very distant towns or where they have to be specially manufactured. Imported items would be a special class by themselves and have to be accorded a treatment quite unique. be
Normal inventory Low level of stocks control
disposed as early
SOS CLASSIFICATION: Some of the items required may be seasonal in nature and may require special purchasing and stock age strategies. Many commodities, especially the agricultural and seasonal in character, have to be purchased at the appropriate time. BOMMA INSTITUTE OF INFORMATICS Page 34
One can not apply EOQ here. A buying and stocking strategy for seasonal items depends on a large number of factors, and more and more sophistication is taking place in this sphere and mostly operational research techniques are used to obtain optimum results. MUSIC 3D ANALYSIS: A multi unit selective inventory control three dimensional (music 3D) approach has been advocated. This approach considers criticality of the usage, consumption value and lead time in supply; with each factor having two variants critical and non-critical usage, high and low consumption and long and short lead-time, respectively. MODERN INVENTORY TECHNIQUES: Just-in-time (JIT) Journal of business logistics, 1998 by Droge, Cornelia, Germain, and Richard Just in time refers to a collection of practices that eliminate waste. These organization wide practices encompass the entire logistics flow of materials from purchasing through production and distribution. The elements of JIT may include shared product design with suppliers and customers, movement toward single sourcing, proximate suppliers and customers, reduced machine setup times, total preventive maintenance, reliance on analytic tools ( such as pareto charts) to identify source of defects in products and processes, demandpull support and cellular plant layout, among others. The Inventory Effect of JIT JITs inventory effect results from three interrelated processes. The first concerns a focus on product and process quality. The adoption of analytic tools (such as pareto charts) and the inclusion of direct labor to quality improvement programs have a significant effect on inventory levels. Analytic tools are used to spot the sources of defects, whether these sources originate in defective assembly processes, materials, or materials design. These tools become all the more powerful when their use is orchestrated by direct workers in production and logistics whose expertise and knowledge is tapped by quality circles. As sources of defects are identified and remedied, product quality improves, the number of quality control inspectors declines, and more important, the amount of scrap and
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rework inventory declines. Reductions in work in process inventories lead to a lesser need for safety stock based up on expected defect levels in inventory. . Safety stocks of finished goods may also decline because the expected defect rate is lower. The result is fewer inventories for unanticipated internal delivery delays. Since machines run when they should, fewer inventories is required to accommodate machine breakdowns. Demand-pull support links the quantity produced to the quantity demanded, triggering production only when successive stations demand inventory. Reduced machine set-up time drives down lot sizes, resulting in less average inventory on hand. The third and final inventory related element of JIT is exchange with suppliers. Proximate suppliers shorten inbound supply lines, reducing both the length and the variance in delivery cycles. This ultimately reduces the level of inventory needed to account for late or incomplete delivery. The buyer sharing production plans with suppliers further controls late delivery. Shared buyer seller product design increases the number of people tackling quality issues and increases the probability of design for manufacturability (DFM). ADVANTAGES OF INVENTORY:Inventories often constitute a major element of the total working capital, and hence it has been correctly observed, good inventory. Management is good financial agent. The basic responsibility of the finance manager is to make sure that the firms cash flows are managed efficiently. Efficient management of inventory should ultimately result in the maximization of the owners wealth. The managerial objectives of inventory are two types. Operating Objectives. Financial Objectives.
Operating objectives means that the materials & spares should be available in sufficient quality. These objectives aim at a Vat avoiding the possibility of delay in production. The financial objectives of inventory agent to secure many economics. The objectives and importance of material are very wide.
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Investment is inventories should not remain Idle & minimum working capital should be locked in it. Inventory Turnover Ratio:The ratio is also called as stock turnover ratio; it may be defined as a ratio which measures the number of items affirms average inventory is sold during the year. Inventory turnover ratio = Cast Goods Sold Average inventory Or Sales Revenue Average Inventory Manufacturing Concern = Cast Raw material consumed Avg Value of Raw material in stock Inventory Records:The company is maintaining records in two types. 1. Bin cards 2. Store ledger. Bin Cards:It is only quantitative record of stores receipt, issues and balance and is kept by the store keeper for each item.
Store Ledger:Stores ledger is both quantitative and monetary value record of store receipt issues and balance is prepared as per the cost over wise. The company is marinating the following cost entries. Valuation of Methods:BOMMA INSTITUTE OF INFORMATICS Page 37
The company is following FIFO method other method. FIFO Method;Under this method the pricing of issue is based on a assumption made that the oldest stock is issued first there fore at the time of issue. The rate pertaining to thet will be applied unit the whole lots are exhausted. Advantages:It is beneficial when the prices are falling as actual prices are issued, it reflecting no profit no loss in the pricing. This method is very useful for slow moving materials. Disadvantages:Calculations become complicated due to fluctuation of material prices. More changes of clerical errors due to complicated calculation. Under fluctuating prices, one requisition involves more than one price. In times of raising price this method tends to show the production at low cast since the cost of replacing the material will be higher. LIFO Method:This method is just opposite to FIFO method. The basic assumption here is that most recent receipts are issued first. The prices of the materials to be issued would be the cast price of the last of materials purchased. FIFO method Last in first out method Specify price method Basic stock method etc.
Advantages:It is benefited where the period of rising prices. Under this method latest prices are issued there by leading to lower reported profit hence saving in taxes.
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When there are wide fluxions in price levels this method tends to minimize unrealized gains or losses in inventory. Disadvantages:This method involves more clerical work, which leads to complicated calculations. Due to wide fluctuations of prices, comparison of cost of similar jobs is very difficult.
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RAW MATERIALS CONSUMED BY USING WEIGHTED AVERAGE PRICE METHOD: It takes into account both the prices paid and the quantities purchased at each price during a particular period. The price is calculated as; = Total cost of purchases / Total quantity purchases DETAILS OF RAW MATERIALS CONSUMED (2007-2010) 2007-08 2008-09 2009-10 Quantity Value Quantity Value Quantity Value PARTICULARS Lime Stone Laterite Gypsum Iron-ore Clinker Transportation Slag Fly-ash TOTAL MTS 602577 21057 13876 12599 0 52746 23662 726517 Rs. 51643393 5455237 9617213 3003109 23894565 21607526 6776999 121998042 MTS 557999 36927 14919 1979 0 37544 29175 678543 Rs. 43182820 12869094 11256927 1363916 16727477 13347166 8308748 107056148 MTS 725239 40067 12658 2680 0 0 28845 809489 Rs. 60130427 20394980 9963143 1874025 0 0 9344390 101706965
S.NO 1 2 3 4 5 6 7
GRAPHICAL REPRESENTATION:
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INTERPRETATION ON RAW MATERIAL CONSUMED:
1. Comparing with 2007-2008and 2008-2009raw material, consumed quantity is decreased to the 6.6%. The value also decreased. 2. Comparing with 2007-2008and 2008-2009raw material consumed quantity is increased to the 19.29%. 3. Comparing with 2007-2008and 2008-2009raw material consumed quantity is increased to the 5.96% and value of material is also increased to the 26.74%. 4. Comparing with 2009-2010 and 2009-2010 ram material consumed is decreased to the 8.64% but the value of material increased to the 1.07%.
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BY USING WEIGHTED AVERAGE PRICE METHOD: It takes into account both the prices paid and the quantities purchased at each price during a particular period. The price is calculated as; Total cost of purchases / Total quantity purchases DETAILS OF RAW MATERIALS CONSUMED (2010-2012) 2010-11 2011-12 Quantity Value Quantity Value PARTICULARS Lime Stone Purchased Raw material Laterite(AL) Laterite Gypsum Iron ore Iron - ore sludge Dolomite Slag Fly-ash TOTAL MTS 758012 1857 14049 21134 12521 6450 1594 0 0 42136 Rs. 73072048 1044538 7792568 10723412 11489566 6243243 814926 0 0 16828509 MTS 729474 1002 19657 1601 13724 14369 597 146 93 2953 783616 Rs. 80674608 586836 13019817 935502 16042857 17289921 305126 42311 70841 1252445 130220264
S.NO 1 2 3 4 5 6 7 8 9 10
857753 128908810
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INTERPRETATION ON RAW MATERIAL CONSUMED:
1. Comparing with 2010-2011and 2011-2012 raw material, consumed quantity is decreased to the 6.6%. The value also decreased. 2. Comparing with 2010-2011and 2011-2012 raw material consumed quantity is increased to the 19.29%. 3. Comparing with 2010-2011and 2011-2012 raw material consumed quantity is increased to the 5.96% and value of material is also increased to the 26.74%. 4. Comparing with 2010-2011and 2011-2012 ram material consumed is decreased to the 8.64% but the value of material increased to the 1.07%.
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INVENTORIES BY USING WEIGHTED AVERAGE PRICE METHOD: It takes into account both the prices paid and the quantities purchased at each price during a particular period. The price is calculated as; = Total cost of purchases / Total quantity purchases
INVENTORIES YEAR 2007-08 4246253 9 4323631 7812148 2299089 0 3287468 1 6605349 0 9637743 7 YEAR 2008-09 YEAR 2009-10 YEAR 2010-11 4037216 7 8508184 1556408 0 1393343 0 1787742 2634248 8528720 7878848 4 YEAR 2011-12
S.NO
PARTICULARS
1 2 3 4 5 6 7 8
Stores & Space Raw materials Coal Packing Materials Goods in Transit Work in Progress Finished goods Elovered Energy TOTAL
3812963 4047341 4 5 5384125 6170394 1737790 1068176 0 6 2433166 2769936 0 2005508 0 1627777 3392234 8839991 6 2069280 9863270 8001973 5 0 7451674
470 83279 7109270 16190287 1635482 145657 4223884 1757174 2239956 33301710
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INTERPRETATION ON INVENTORIES: 1. Comparing with usage of the total inventories value with 2007-2008and 20082009is decreased to the 8.27%. 2. Comparing with 2008-2009and 2009-2010the value of the total inventories is decreased to the 9.47%. 3. Comparing with usage of the total inventories value with 2009-2010and 20102011is decreased to the 1.53%. 4. Comparing with usage of the total inventories value with 2010-2011and 20112012 is increased to the 2.02%.
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STORES & SPARES BY USING WEIGHTED AVERAGE PRICE METHOD: It takes into account both the prices paid and the quantities purchased at each price during a particular period. The price is calculated as; = Total cost of purchases / Total quantity purchases STORES & SPARES YEARS AMOUNT 2007-08 42462539 2008-09 38129634 2009-10 40473415 2010-11 40372167 2011-12 47083279
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INTERPRETATION 1. In 2007-08 total value of stores and spares is 4,24,62,539. 2. In 2008-09 total value of stores and stores and spares by comparing with 2007-08. It was decreased with 10.20%. 3. In 2009-10 total value of stores and spares comparing with 2008-09 It was increased with 6.15%. 4. In 2010-11 total value of stores and spaces with comparing 2009-10. It was decreased with 0.25%. 5. In 2011-12 total value of stores and spares with comparing 2010-11. It was increased with 16.62%. 6. By observing base year which is 2007-08 and comparing with current year that is 2011-12. It was increased with 10.88%.
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RAW MATERIALS BY USING WEIGHTED AVERAGE PRICE METHOD: It takes into account both the prices paid and the quantities purchased at each price during a particular period. The price is calculated as; = Total cost of purchases / Total quantity purchases
RAW MATERIALS YEARS AMOUNT 2007-08 4323631 2008-09 5384125 2009-10 6710394 2010-11 8508184 2011-12 7109270
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INTERPRETATION 1. In 2007-08 total value of raw materials is 43, 23, 631. 2. In 2008-09 total value of raw materials by comparing with base year which is 2007-08. It was increased by 24.43%. 3. In 2009-10 total value of raw material by comparing previous year which is 200809. It was increased by 24.63% 4. In 2010-11 total value of raw material by comparing with previous year which is 2009-10. It was increased by 26.79%. 5. In 2011-12 total value of raw materials by comparing previous year which is 2010-11. It was decreased by 16.44%. 6. By observing base year which is 2007-08 and comparing to 2011-12. It was increased by 64.43%
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COAL BY USING WEIGHTED AVERAGE PRICE METHOD: It takes into account both the prices paid and the quantities purchased at each price during a particular period. The price is calculated as; = Total cost of purchases / Total quantity purchases
COAL YEARS AMOUNT 2007-08 7812148 2008-09 17377900 2009-10 10681766 2010-11 15564080 2011-12 16190278
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INTERPRETATION 1. In 2007-08 the total value of coal is 78, 12, 148 2. In 2008-09 the total value of coal is increased by the comparing base year which is 2007-08 is 122.44% 3. In 2009-10 the total value of coal by comparing with previous year which is 200809. It was decreased by 38.53% 4. In 2010-11 the total value of coal by observing with previous year 2009-10. It was increased by 45.70% 5. In 2011-12 the total value of coal by comparing with the base year which is 201011. It was increased by 4.02% 6. By observing the total value of coal by observing from 2007-08 to 2011-12. It was increased by 107.24%
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PACKING MATERIAL BY USING WEIGHTED AVERAGE PRICE METHOD: It takes into account both the prices paid and the quantities purchased at each price during a particular period. The price is calculated as; = Total cost of purchases / Total quantity purchases
PACKING MATERIAL YEARS AMOUNT 2007-08 2299089 2008-09 2433166 2009-10 2769936 2010-11 1393343 2011-12 1635482
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INTERPRETATION: 1. In 2007-08 the total value of packing material is 22, 99, 089. 2. In 2008-09 the total value of packing material is comparing with base year which is 2007-08. It was increased by 5.83% 3. In 2009-10 the total value of packing material is compared with previous year which is 2008-09. It was increased by 13.84%. 4. IN 2010-11 the total value of packing material is compared with base year which is 2009-10. It was decreased by 49.69% 5. In 2011-12 the total value of packing material is compared with the previous year which is 2010-11. It was increased by 17.37%. 6. By observing the total value of packing material from 2007-08 to 2011-12. It was decreased by 28.86%
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GOODS IN TRANSIT BY USING WEIGHTED AVERAGE PRICE METHOD: It takes into account both the prices paid and the quantities purchased at each price during a particular period. The price is calculated as; = Total cost of purchases / Total quantity purchases
GOODS IN TRANSIT YEARS AMOUNT 2007-08 0 2008-09 0 2009-10 0 2010-11 0 2011-12 145657
INTERPRETATION: By observing from 2007-08 to 2011-12 the total value of goods in transit is increased 145%.
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WORK IN PROGRESS BY USING WEIGHTED AVERAGE PRICE METHOD: It takes into account both the prices paid and the quantities purchased at each price during a particular period. The price is calculated as = Total cost of purchases / Total quantity purchases
WORK IN PROGRESS YEARS AMOUNT 2007-08 32874681 2008-09 20055080 2009-10 7451674 2010-11 1787742 2011-12 4223884
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INTERPRETATION:
1. In 2007-08 the total value of work in progress is 3, 28, 74, 681. 2. In 2008-09 the total value of work in progress comparing with the base year which is 2007-08. It was decreased by 38.99% 3. In 2009-10 the total value of work in progress comparing with the previous year, which is 2008-09. It was decreased by 62.84% 4. In 2010-11 the total value of work in progress comparing with the previous year which is 2009-10. It was decreased by 76%. 5. In 2011-12 the total value of work in progress comparing with the previous year which is 2010-11. It was increased by 136.26% 6. By observing from 2007-08 to 2011-12 the total value of work in progress by 87.15%
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FINISHED GOODS BY USING WEIGHTED AVERAGE PRICE METHOD: It takes into account both the prices paid and the quantities purchased at each price during a particular period. The price is calculated as; = Total cost of purchases / Total quantity purchases
FINISHED GOODS YEARS AMOUNT 2007-08 6605349 2008-09 1627777 2009-10 2069280 2010-11 2634248 2011-12 1457174
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INTERPRETATION: 1. In 2007-08 the total value of finished goods is 66, 05, 349. 2. In 2008-09 the total value of finished goods comparing with base year which is 2007-08. It was decreased by 75.35%. 3. In 2009-10 the total value of finished goods comparing with previous year which is 2008-09. It was increased by 27.12% 4. In 2010-11 the total value of finished goods comparing with previous year which is 2009-10. It was increased by 27.3% 5. In 2011-12 the total value of finished goods comparing with previous year which is 2010-11.It was decreased by 33.29% 6. By observing from 2007-08 to 2011-12 the value of finished goods is decreased by 73.39%.
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DELIVERED ENERGY BY USING WEIGHTED AVERAGE PRICE METHOD: It takes into account both the prices paid and the quantities purchased at each price during a particular period. The price is calculated as; = Total cost of purchases / Total quantity purchases
DELIVERED ENERGY YEARS AMOUNT 2007-08 0 2008-09 3392234 2009-10 9863270 2010-11 8528720 2011-12 239956
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INTERPRETATION: 1. In 2008-09 the total value of delivered energy is 33, 92, 234. 2. IN 2009-10 the total value of delivered energy compared with base year which is 2008-09.It was increased by 190.76% 3. In 2010-11 the total value of delivered energy comparing with previous year which is 2009-10 decreased by 3.53% 4. In 2011-12 the total value of delivered energy comparing with previous year which 2010-11. It was decreased b 73.73% 5. By observing with from base year to 2011-12 the delivered energy is decreased by 33.96%
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A-B-C ANALYSIS OF AN INVENTORY A-B-C ANLAYSIS OF AN INVENTORY(2005-2007) PARTICULARS Stores & Spares Work in Progress Coal Finished Goods Raw Material Packing Material Goods in Transit 2007-08 44.06 34.1 8.11 6.85 4.49 2.39 0 B A GRADE PARTICULARS Stores & Spares Work in Progress Coal Raw Material Delivered energy Packing Material Finished Goods Goods in Transit 100 2008-09 43.13 22.69 19.66 6.09 3.84 2.75 1.84 0 100 C B A GRADE
A-B-C ANLAYSIS OF AN INVENTORY (2005-2008) BOMMA INSTITUTE OF INFORMATICS Page 61
2007 -08 50.18 13.35 12.32 9.31 8.39 B A GRA DE 2008 -09 51.12 19.75 10.83 10.8 3.34 2.27 1.77 0 C B Raw Material Work in Progress Delivery Entry Finished goods Packing Material Goods in Transit 100 8.84 5.25 2.79 2.19 0.18 0.18 100 C B A GRA DE 2009 -10 58.87 20.15 A GRA DE
PARTICULARS Stores & Spares Coal Delivered energy Work in Progress Raw Material
PARTICULARS Stores & Spares Coal Delivered energy Raw Material Finished Goods Work in Progress
PARTICULARS Stores & Spares Coal
Packing Material Finished Goods Goods in Transit
3.46 2.59 0 100
Packing Material Goods in Transit
INTERPRETATION:
1. First, calculate the consumption values of the items of materials. 2. Arrange them in ascending order with the help of the financial statements 3. Calculate percentage to total quantity and percentage to total value 4. Categorize the materials in to ABC categories based on the above percentage given.
WEIGHTED AVERAGE PRICE
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WEIGHTED AVERAGE PRICE METHOD (2007-2012) S.NO 1 2 3 4 5 6 7 8 PARTICULARS Stores & Spares Raw Material Coal Packing Material Goods in Transit Work in Progress Finished Goods Delivered Energy TOTAL 2007-08 2008-09 2009-10 2010-11 44.06 4.49 8.11 2.39 0 34.1 6.85 0 100 43.13 6.09 19.66 2.75 0 22.69 1.84 3.84 100 50.58 8.39 13.35 3.46 0 9.31 2.59 12.32 100 51.24 10.8 19.75 1.77 0 2.27 3.34 10.83 100 2011-12 58.57 8.84 20.15 2.03 0.18 5.25 2.19 2.79 100
The price of issue is calculated by using the units in stock as the weights. A new price has to be calculated every time a fresh lot is received. All issues are taken at this price until a new lot is received. This method is advantageous when prices fluctuate widely. PERIODIC WEIGHTED AVERAGE PRICE It takes into account both the prices paid and the quantities purchased at each price during a particular period. The price is calculated as = Total cost of purchases / Total quantity purchases
COST OF GOODS SOLD
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2007-08 cast of goods sold = 1, 11, 18, 31, 603 2008-09 cast of goods sold = 1, 12, 03, 59, 310 2009-10 cast of goods sold = 1, 53, 77, 19, 469 2010-11 cast of goods sold = 2, 47, 14, 33, 454 2011-12 cast of goods sold = 2, 74, 61, 83, 129
INVENTORY TURNOVER OF STOCK TURNOVER RATIO: BOMMA INSTITUTE OF INFORMATICS Page 64
Every firm has to maintain a certain level to inventory of finished goods. To be able to meet the requirements of the business but the level of inventory should be neither too high nor too low. If is harmful to hold more inventory for the following reasons: i. It unnecessarily products capital which can otherwise be profitably used somewhere else. ii. Over stocking will require more warehouse space. So, more rent will be paid iii. There are chances of obsolescence of stocks. Consumers will prefer foods of latest design etc. iv. Slow disposal of stocks will mean slow recovery of cash also which advert affect liquidity. v. There are chances of deterioration in quantity if the stocks are held for more periods Inventory Turnover Ratio = Cost of goods sold / Avg. Inventory at cost The year 2008-09: = 1120359310 / 92388677 = 12.13 times Stock Velocity = 365 / 12.13 = 30.09 days The year 2009-10 = 1537719469 / 84209826 = 18.26 times Stock Velocity = 365 / 18.26 = 19.98 days The year 2008 09 : = 2471433454 / 79404109.5 = 31.12 times Stock Velocity = 365 / 31.12 = 10.72 days The year 2011-12: = 2746183129 / 79586736.5 = 34.51 times Stock Velocity = 365 / 34.51 = 10.57 days INTERPRETATION:
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It is also called as stock turnover ratio. It indicates the no of times the average stock is being sold during a given accounting period. It establish the relationship between the cost of goods sold during a given period and the average amount of inventory out standing during the period the higher the inventory turnover ratio, the better is the performance of the firm in selling its stocks. Inventory Turnover Ratio = Cost goods sold / Average Stock Average Stock = Opening stock + Closing stock / 2 Inventory Turnover Ratio in 2008-09 is 12.13 times this means during this year; the average stock is being sold 12.13 times and its inventory holding period is 30days. Inventory Turnover Ratio in 2009-10 is 18.26 times. This means during this year; the average stock is being sold 18.26 times and its inventory holding period is 19 days. Inventory Turnover Ratio in 2010-11 is 31.12 times. This means during this year the average stock is being sold 31.12 times and its inventory holding period is 11 days. Inventory Turnover Ratio in 2011-12 is 34.51 times. This means during this year the average stock is being sold 34.51 times and its inventory holding period is 10days.
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INVENTORY MANAGEMENT FINDINGS

From the graph of stores and spares we see that there is a considerable variation in the year of 2007-12. As it is represented in the graph of stores and spares that the stores and spares usage in the year 2007-08. It was decreased with 10.20% and it was not constant. It was vary year by year i.e. one year is very high usage and another following year it is very low usage. From the graph of raw materials we observe that consumables have increased from 16.44% in 2008 to 64.43% in 2008. Usage of raw materials is very high. It is observed from the graph of work in progress that they are fluctuations as it is work in progress and maintain in the inventory only when required. From the graph of good in transits have lot of variation from 2005 to 2010. It was increased 100% From the total graph we can observe significantly that there is variation in the average cost involved during the year of 2007 to 2008 and 2009 to 2010 gradually increase from there to the end of the respective years.
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INVENTORY MANAGEMENT SUGGESTIONS

Route selection- selection of route is very important to reduce the transportation lead time and also for fixation of transportation rate. Access to the supplier to the mines will reduce the fluctuations in the inventory costs. Following music 3D technique will reduce the lead times involved in recognizing and coding the materials especially in the spare parts inventory. Introducing the new trends like JIT for some slow moving materials will definitely show a positive impact on the costs and the variations in the average costs.
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INVENTORY MANAGEMENT BIBLIOGRAPHY

1. Inventory Management by R.k Sharma & Shashi.k.Gupta. 2. Donald W. Dobler and David N. Burt, Purchasing and Supply Management, 6th Edition, Tata McGraw-Hill Publishing Ltd, New Delhi, 1996. 3. P. Gopalakrishnan and M. Sundaresan, Materials Management, PHI Pvt Ltd, New Delhi, 1999. 4. S D Sharma, Operations Research, 14th Edition, Kedar Nath Ram Nath And Co, Meerut, 2004-2005. 5. Sagar Cement Annual Inventory Report 2008 09.
Web Sites:www.findarticle.com www.sagarcementltd.com
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Inventory Management SRINIVAS REDDY

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INVENTORY MANAGEMENT INTRODUCTION

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INVENTORY MANAGEMENT INDUSTRY PROFILE

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INVENTORY MANAGEMENT COMPANY PROFILE

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made to reduce lead to reduce lead time 6 check on Some checks

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Normal inventory Low level of stocks control

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A-B-C ANLAYSIS OF AN INVENTORY (2005-2008) BOMMA INSTITUTE OF INFORMATICS Page 61

PARTICULARS Stores & Spares Coal

Packing Material Finished Goods Goods in Transit

3.46 2.59 0 100

Packing Material Goods in Transit