A STUDY ON

INVENTORY MANAGEMENT
AT

A.P.PAPER MILLS LIMITED

RAJAHMUNDRY
A project report Submitted in Partial Fulfillment of
The Required for the Award of the Degree of

MASTER OF BUSINESS ADMINISTRATION

OF
ANDHRA UNIVERSITY
Submitted by
M.RAJA SEKHAR
(H.T.No.20854100026)

Under the Esteemed Guidance of

Mr.K.BALA KRISHNA., M.B.A.,
Faculty in management studies.

DEPARTMENT OF MASTER OF BUSINESS ADMINISTRATION

ADITYA INSTITUTE OF P.G STUDIES
(Approved by AICTE, Affiliated to AU, & Accredited by NBA)
Aditya Nagar, ADB Road, SURAMPALEM-533437
2008-10

ADITYA INSTITUTE OF P.G.STUDIES

DEPARTMENT OF BUSINESS MANAGEMENT
( Affiliated To Andhra University)
Aditya Nagar, ADB Road, SURAMPALEM-533437,E.G.Dt
Phones:(08852)252243,252250,cell:9866576662
---------------------------------------------------------------------------------------------------------

CERTIFICATE

This is to certify that the project entitled INVENTORY MANAGEMENT with

reference to A.P.PAPER MILLS LIMITED,RAJAHMUNDRY is the bonafide work done
by Mr.M.RAJA SEKHAR with Regd.no:2085410026 during the period 2008-10 in partial
fulfillment of the requirement for the award of the Degree of MASTER OF BUSINESS
ADMINISTRATION in Aditya institute of P.G studies affiliated to Andhra University is a
record of benefited work carried out by under my guidance and supervision.

Project Guide

Head of the dept.

Mr,K.Bala krishna.

Mr. J.Nagendra Kumar

External Guide

DECLARATION
3

I hereby declare that the project report entitled A STUDY ON INVENTORY

MANAGEMENT with reference to A.P.PAPER MILLS LIMITED, RAJAHMUNDRY
submitted for the degree of Master of Business Administration is my original work and has
not formed the basis for the award of any degree, diploma, associate ship, fellowship (or)
similar other titles. It has not been submitted to any other University or Institution for the
award of M.B.A.

Date:
Place :
(M.RAJA SEKHAR)

ACKNOWLEDGEMENT

I should take the responsibility to acknowledge the following distinguished

personalities who graciously allowed me to carry out this project work successively.
I am also thankful to all other members of the staff for their kind cooperation
in this behalf. Mainly I am very much thankful to Mr. J.Nagendra Kumar, M.B.A, and
Head of the department of management studies.
I am highly thankful to my guide Mr.K.Balakrishna , M.B.A, Faculty in
management studies for her valuable advices and encouragement throughout the course.
I express my deep sense of gratitude to Sri K.V.N.SIVARAM (Organization head
&staff of dept.,of FINANCE) for his kind help and valuable suggestions in preparing this
project and also to office staff members.
I also express my sincere thanks to my friends and classmates for their advice
and suggestions in giving a proper shape to study.

(M.RAJA SEKHAR)

CONTENTS
Page No's
CHAPTER 1:

INTRODUCTION
NEED FOR THE STUDY
OBJECTIVES OF STUDY
METHODOLOGY
LIMITATIONS

CHAPTER 2:
PROFILE OF PAPER INDUSTRY IN INDIA
CHAPTER 3:
PROFILE OF A.P.P.M L.T.D, RAJAHMUNDRY
CHAPTER 4:
THEORETICAL FRAME WORK OF
INVENTORY MANAGEMENT
CHAPTER 5:
DATA ANALYSIS & INTERPRETATION OF INVENTORY
MANAGEMENT @ A.P.P.M L.T.D, RAJAHMUNDRY
CHAPTER 6:
FINDINGS
SUGGESTIONS

Bibliography

CHAPTER- I
INTRODUCTION

INTRODUCTION

Introduction to materials management

Materials management is a 'womb to tomb' concept, is so all encompassing a
multi-role in its functional activities that it would be less difficult to describe it than to define
it.
"Materials management is that coordinated function responsible to plan for, acquire store,
move and control materials (including final products), to optimize usage of facilities,
personnel, capital funds and to provide service to the user in line with the organizational
aims". "The Planning, Organizing, Staffing, Directing and controlling the management of the
'Resource' called 'Materials', as distinct from other well understood resources like Money and
Men".
The Materials management includes the primary responsibilities which
are generally found in the purchasing department, plus all other major procurement
responsibilities, including inventory management, traffic, receiving, warehousing,
surplus and salvage.

Concept of Inventory Management:

The dictionary meaning of "Inventory" is " a detailed list-stock of goods
in this". A practical definition from the material management angle would be "Items of
stores or materials kept in stock to meet future demands of production, repairs, maintenance,
construction etc". Since the materials held in the inventory are idle resource, another
definition of inventory would be "an idle resource of any kind which has an economic
value".
8

Fred Hanssman defined inventory as "An idle resource of any kind, provided that
such resource has economic value".

Types of inventory:
Inventories can be classified as

Raw

Materials:

processed
bulk,

and

which

inventory

are

major

inputs

into

converted

into

output.

to

manufacturing.
other

materials

are

gets

is

Raw

act

They

non-ferrous

as

may

alloys,

be

those
an

items,

purchased

organization

and

The

buffer

function

of

between

be

form

the

raw

materials

procurement

steels,

ferrous

alloys,

timber,

cotton,

chemicals

ores,

to

and

aluminum
etc

to

and
be

stored for manufacturing into finished goods.

Work

in

production
no

Process:
and

better

way

These

remain
to

are

materials

in

inventory

control

work

due
in

in
to

the

intermediate

numerous

progress

factors.

Inventory

than

stages

of

There

is

effective

planning and coordination of manufacturing activities.

Finished
delivery
department

Goods:
to

Finished

customer.
and

Goods

Finished

marketing

are

goods

department.

those
act
The

is to assure a constant supply in the distribution channels

as

goods
buffer
purpose

that

are

between
of

this

ready

for

production
Inventory

Significance of Inventory:
The definition of Inventory from the material management angle would be Items of
stores or materials kept in stock to meet future demands of production, repairs, maintenance,
construction, etc".
In any manufacturing operation, on an average 50 to 60% expenditure is on
materials alone. Also Inventory represents about 20% of the company's assets.
These are one of the most active elements of a business organization.
Investment in physical Inventories often represents a substantial portion of the total
current assets of a company. Hence with the high volume and value of inventory items,
the inevitability of Inventory requires the most effective control over these with
information abut the Inventory on hand, the Inventory on transit and the inventory on
order from the vendor and the status of sales history report, to assure higher
profitability with balancing costs of a stockout against the cost of holding inventory.
One major factor having an important bearing on the inventory is the Inventory
carrying cost, which is made up of, the interest on the money invested on the materials in
stock; warehousing cost including rentals, taxes, insurance, labour cost, overheads like
electricity, water and maintenance; cost of material handling equipment, shrinkage;
evaporation, deterioration or spoilage of the goods, obsolesce, etc. In India this cost varies
from 28% to 32% of the total cost. The impact of this very high cost can be understood better
if we work out the actual figures

10

NEED FOR THE STUDY

Inventories constitute the most significant part of manufacturing concern the objective
of inventory management should be to determine and maintain optimum level of inventory
will be lie between two danger points of excessive and inadequate inventory.

THE MAJOR DANGERS OF OVER INVESTMENTS ARE: 1.Unnecessary tie up of funds and loss of profit.
2.Excessive carrying cost.
3.Risk of liquidity.

THE MAJOR DANGER OF UNDER INVESTMENTS ARE: 1.Production holds up.

2.Failure to meet the delivery commitment.
Thus the need of inventory management is to avoid over and under investments.

IMPORTANCE: -

There are three general motives for holding inventory.

a) Transaction Motive: - Emphasizes the need to maintain inventories to facilitate smooth
production and sales operations.
b) Precautionary Motive: - Necessities holding of inventory t o guard against the risk of
unpredictable changes in demand and supply forces and other factors.
c) Speculative Motive:- Influences the decision to increase or reduce inventory levels to take
advantage of price fluctuatution.

11

OBJECTIVES OF THE STUDY

1. To make a detail study on the existing paper industry

2. To observe the inception to present stage and performance of A.P.P.M.L.T.D

3. Ti study the pattern of organization management and inventory factors of APPM,

Rajahmundry.

4. To analyze the inventory classification and its management and control.

5. To study the relevant costs, cost saving measures and find out drawbacks.

6. To study the general concept of inventory management.

7. To examine the methods and techniques of inventory control in APPM, Rajahmundry.

8. To summarize and suggest the observations.

12

SCOPE OF THE STUDY

1. Inventory management is one of the key areas in finance. It plays main and
important role in the organization.

2. The study concentrates on the methods and techniques are followed by the APPM
Ltd., is for its management.

3. The present study also concentrates on the importance of inventory management.

13

METHODOLOGY

The methodology in this content involves the process of collection of data from
primary and secondary sources and interpreting the same by using the analytical tools and
techniques utilizing the consequent finding to put forward liable and insightful suggestions to
the company.

Primary Data:

A large part of primary data was collected in the course of my interaction with the personnel
concerned departments and also developed in consultation with costing manager, material
manager and officers. The data collected was regarding various aspects of inventory
management like lead-time, ordering cost, carrying cost and working of online computerized
stores system.

Secondary Data:

The secondary source of data is the ISO manual of material department, purchase
department of APPM. Companys annual reports, audit reports, balance sheet and other
company records journals, periodicals on paper and paper products.

14

LIMITATIONS OF THE STUDY

1.Some information is highly confidential so it is very difficult to get the data from the
organization.

2. The result realized are applicable to this firm only the major constraints on this endeavor.
Where the policy of time and information, the scope of the work is confined to the inventory
management rather than material management as a whole.

3. The management of time for project completion is also a factor that limits extensive study
of the nature of projection process and its implications on inventory aspects.

15

CHAPTER- II
PROFILE OF PAPER INDUSTRY IN INDIA

16

INDUSTRY PROFILE
Paper making entered our country through Arabs as an art. Their art was restricted to
some Muslim families as secret. And it has been introduced by Kagazins who lived in
Kashmir and Punjab. The first paper mill was started by William Ververy in 1812 at
Sarampur, with the help of Kagazins. In 1932, four line machines were installed and
introduced in India. Royal Black Paper Mills was started at Herblic in 1870 and was
merged in Titaghur Paper Mills. The preparation of pulp from Bamboo was started in 1912
by the Titaghur paper mills. Later the remaining paper mills were established one by one.
Perhaps in the beginning the Titaghur mills used cottarage a first clean material for making
the best varieties of paper. But subsequently the India Pape Mills relied mainly on Sabai
Grass available in Uttar Pradesh and Nepal. For interior yellow varieties of paper even the
mujngram was used. In early 1950s the total number of paper mills were 17 which has
increased to around 250 mills by 1980. The domestic output of the paper and paper boards
from 1,35,000 metric tones in 1951 to 15,00,000 metric tones in 1985.
The number of paper mills in the past with average capacity is given in table below:

Year

No. of

Installed Capacity

Avg., Capacity

1950-51
1970-71
1980-81
1990-91
1999-2000

Mills
17
55
137
325
406

0.137
0.768
1.816
3.304
6.20

8,050
13,500
11,500
10,000
15,270

The modern art of paper making came to India quite late the foundations of latest
papers industry gained momentum from late 1870s prior to the latest technology, people used
different techniques.

17

Ancient Egyptians (the couriers of paper making to India) used papyrus sheets made
from stem tissue of the plant papyrus. The oldest written sheets, which are present, now a day,
can be dated back to as many as five thousand years. The Aryans used derived and processed
palm leaves and thin bark sheets of the Bhoja patras for writing.

First successful paper mill in India the tata ghar paper mills was established in the
year 1891 in Bangalore, East India from this year onwards, the paper industry in India has
gained much movements and speed through out the country and increased in number

SIZE AND CAPACITY OF PAPER INDUSTRY

The economic size of a paper industry is determined by the availability of raw

materials and density of markets availability of power and transport facilities etc. The
beginning of 1V plan there were only 19 paper and paper board mills with a total annual
capacity of about 1.39 lakh tons and production was 1.34 lakh tons. At present there are 106
mills with total annual capacity of 1394 lakh tons and production is about 11.12 lakh tones
although there has been a several spreading of mills in large dimensions. There are some
units well organized and well equipped with a production capacity of more than 50,000 tons
and units too small with a capacity of 1,000 tons.

In India the growth of paper industry after independence is satisfactory under the
guidance of 5 year plans.
Its growth is reflected by the fact that from a major 17 mills with annual capacity of
1.37 lakh tones. In 1957, the industry has been enlarged to 319 mills with annual capacity of
32.31 lakh tones at the end of 7th 5 year plan.

18

The paper and paper boards production in India during 1951 was 17 units and the total
installed capacity of 1.40 lakh tons, file the production excluding news print is about 1.30 lakh
tons.
And in 1994 the paper and paper board production was 380 units and with the total
installed capacity of 37.09 lakh tons, file the production excluding news print is about 22 lakh
tons. The lack of a large of large investment in their industry by the Indian paper
corporation in the public sector to give importance to the growth of the industry to meet the
requirement to the near future with effect from much 1987 paper industry preview of
MODVAT scheme during the last few years Govt. has made efforts to reduce the
importance of news point and forced the new paper and magazines to use some of the cultural
varieties of paper manufactured by Indian mills.

TYPES OF PAPER PRODUCT

Paper industry supplies various types of paper board, special paper to a no. of uses
which include Government education, companies packing, news paper & magazines etc.
The Indian paper industry produces a number of varieties of papers & paper boards.
These include glassine paper, art paper, carbon papers, insulation papers, draft papers,
maplitho papers, quoted papers, quoted board, duplex boards, triplex boards, straw boards,
paper boards, lottery paper, Xerox paper, decorative paper etc.

PRESENT STATUS
In 1974 Government of India introduced the paper control order to regulate the
prices and qualities of paper boards with the withdrawal of paper control order. The industry
has received some receipt and its hope to achieve higher profitability by producing these
blends of paper and paper board which are supported by terrible demand.

19

A significant term around has been achieved by a large no. of units during the past
two or three years. However, the paper industry put a lot of something conflicting signals
during 1992.
The Government has taken the following step of encourage and enhance production
of paper and paper boards in the country they are
1.

Paper units based on the use of minimum 75% of pulp derived from baggages,
agricultural, residues and other non contravention raw materials have been exempted for
industrial licensing subjected to 10 caution angles.

2.

Manufacture of writing and printing paper and unquoted craft paper containing not less
than 75% by weight of pulp made for rice, wheat, straws, jute, and baggage mix of more
pulps of the above mentioned materials exempted for excise duty.

3.

Import of water paper has been freely allowed without the need import license at low rate
of customs duty (20%). In recent years the Government in other certain concessions with
a review to help the industries to improve its capacity utilization and financial liability.
These include liberalized import of raw materials board sanding of different vacant of
paper .

GEOGRAPHICAL SPREAD OF THE INDUSTRY IN INDIA

State THE
Andhra Pradesh
Assam
Bihar
Gujarat
Haryana
Himachal Pradesh
Jammu & Kashmir
Karnataka

No. of Mills
22
2
4
68
15
6
1
14
20

Installed Capacity (TPY)

414550
220500
25000
935800
149140
53200
5000
345000

Kerala
Madhya Pradesh
Maharashtra
Nagaland
Orissa
Pondicherry
Punjab
Rajasthan
Tamilnadu
Uttar Pradesh
West Bengal
TOTAL

4
21
71
1
9
1
37
7
31
73
18
406

215600
290650
103450
3300
270850
9000
275162
12195
639250
870780
222600
6121327

PAPER PROPERTIES AND USES:

Used in a wide variety of forms, paper and paperboard are characterized by a wide
range of properties. In the thousands of paper varieties available, some properties differ only
slightly and others grossly. The identification and expression of these differences depend
upon the application of standard test methods, generally specified by industry and
engineering associations in the paper making countries of the world.

SUBSTANCE AND QUANTITY MEASUREMENT:

Weight or substance per unit area, called basis weight, is a fundamental property of
paper and paperboard products. From the first uses of paper in the printing trades, it has been
measured in reams, originally 480 sheets (20 quires) but now more commonly 500 sheets
(long reams). The term ream weight commonly signifies the weight of a lot or batch of paper.
Since the printing trades use a variety of sheet sizes, there can be numerous ream weights for
paper having the same basis weight.
To determine basis weight, the sample is brought to equilibrium under standard
conditions (24 C or 75 F; 50 percent relative humidity). The paper specimens must consist
of at least 10 sheets with a total area of not less than about 600 square centimetres (100
square inches). Since the properties of paper change with moisture content, all tests are

21

conducted under standard conditions.

The caliper (thickness) of paper or paperboard in fractions of a millimetre or inch is measured
by placing a single sheet under a steady pressure of 0.49 to 0.63 kilogram per square
centimetre (seven to nine pounds per square inch) between two circular and parallel plane
surfaces, the smaller of which has an area of 1.6 square centimetres (0.25 square inch).

PAPERMAKING:
CHEMICAL PULPING:
The purpose of a chemical pulping process is to break down the chemical structure of
lignin and render it soluble in the cooking liquor, so that it may be washed from the cellulose
fibres. Because lignin holds the plant cells together, chemical pulping frees the fibres and
makes pulp. The pulp must be bleached to produce white paper for printing, painting and
writing. Chemical pulps tend to cost more than mechanical pulps, largely due to the low
yield, 40-50% of the original wood. Since the process preserves fibre length, however,
chemical pulps tend to make stronger paper. Another advantage of chemical pulping is that
the majority of the heat and electricity needed to run the process is produced by burning the
lignin removed during pulping.Papers made from chemical wood-based pulps are also
unhelpfully known as woodfree papers.

The Kraft process produces especially strong, unbleached papers that can be used
directly for bags and boxes but are often processed further, e.g. to make corrugated
cardboard.

MECHANICAL PULPING
There are two major mechanical pulps, thermomechanical pulp (TMP) and
mechanical pulp. The latter is known in the USA as groundwood pulp. In the TMP process,

22

wood is chipped and then fed into large steam-heated refiners where the chips are squeezed
and fibreized between two steel discs. In the groundwood process, debarked logs are fed into
grinders

where

they

are

pressed

against

rotating

stones

and

fibreized

FINISHING:
The paper may then undergo sizing to alter its physical properties for use in various
applications.Paper at this point is uncoated. Coated paper has a thin layer of material such as
china clay applied to one or both sides in order to create a surface more suitable for highresolution halftone screens. (Uncoated papers are rarely suitable for screens above 150 lpi.)
Coated or uncoated papers may have their surfaces polished by calendering. Coated papers
are divided into matt, semi-matt or silk, and gloss. Gloss papers give the highest optical
density in the printed image.

GENERAL MILL-WIDE DESIGN FEATURES:

The following general mill-wide design features have to be considered while designing a
new plant

Transport:The plant should be designed with minimum transport of raw material,

chemicals, fuel, steam and water.

Pipe lengths:Steam water, chemicals and pulp pipe lengths should be minimum to
minimise temperature loss and pressure losses. Plant layout should take care of this.

SOURCE OF POWER FOR NEW PULP AND PAPER MILL:

Cost of electrical energy being about 25% of the manufacturing cost of paper, it is of
vital importance to have a correct choice of inplant generation and utility drawal of power. At
present, the grid power cost exceeds the inplant generation cost in most of the cases. The

23

100% inplant generation is a better option for mill design, considering the utility scenario
obtained in the country, with its vagaries, interruption in availability and higher cost of grid
power.

PUMPS & FANS:

Over-sizing of pumps and fans should be minimised and energy efficient pumps and
fans need to be selected. A detailed write-up on the selection and energy conservation aspects
to be considered in pump and fans are highlighted in Chapter #6 and #7 respectively. A
margin of 10% is considered adequate at design stage.

INSTALLATION OF VARIABLE FREQUENCY DRIVE (AC DRIVE) :

The concept of installation of variable frequency drive (VFD) is picking up in paper
industry. VFDs are recommended wherever speed variation is required from 50 to 100%
range. Several mills abroad are operating with VFD for all the pumps. Indian paper industry
should also explore the possibility of installing VFD for different equipment.
The suggested areas where VFDs can be considered in paper industry are as follows
i) Recovery Boiler
a) Installation of VFD for forced draught fans
b) Installation of VFD for induced draught fan
ii) Washing, Screening and Bleaching
a) Replacement of eddy current drives with VFD for drum washers drives
b) Installation of VFD for primary, secondary and tertiary centricleaners, pumps of
unbleached/bleached pulp.

24

c) Installation of VFD for all dilution pumps of unbleached and bleached sections.

iii) Stock Preparation

a) Installation of VFD for stock pumps to blending chest
b) Installation of VFD for machine chest pumps
iv) Paper Machine
a) Installation of VFD for fan pumps
b) Installation of VFD for secondary and tertiary centricleaner pumps
c) Installation of VFD for mould fan pumps
d) Installation of VFD for save-all clarified water pump
e) Installation of dual speed motors for couch pit and press pit agitators
f) Installation of VFD for MG machine/MF machine hood fans
g) Installation of VFD for coating knife edge blowers
h) Replacement of small steam turbines with DC drives or AC motors with VFDs
v) Raw Water/Recycle Water Pumps
a) Installation of VFD for raw water/recycle water pumps
vi) Effluent Treatment Plant
a) Installation of VFD for roots blower (for agitation purposes)
b) Installation of VFD for final effluent discharge pumps

MOTORS:
Over sizing of motors to be minimised and energy efficient motors are to be planned at the
design stage for the complete mill. Energy efficient motors will give a 2% saving in the
energy input when compared to the motors that were hitherto being used.

25

INSULATION:
Proper insulation of steam lines, condensate lines, digesters, paper machine sides,
black liquor piping and tanks should be given due consideration at design stage to, to effect
significant energy savings.

CONDENSATE RECOVERY:
The plant should be designed and operated with maximum condensate recovery to
improve the fuel economy and also reduce water consumption.

TRAPPING SYSTEM:
Selection of proper trapping system saves steam considerably. Selection of traps for a
given application is highlighted in Chapter #4.

UTILISE NATURAL LIGHT:

The building should be designed with adequate natural light to minimise artificial
lighting during day time.Use of energy efficient lamps like high pressure sodium vapour
lamps will result in a 40% reduction in energy needed for lighting.

POWER FACTOR IMPROVEMENT:

The power factor in the industry should be maintained at 0.95 or better, to save the
maximum demand drawn from the grid and also obtain effective usage of inplant generation.
The reduced demand on the grid not only reduces energy bill but also saves the national grid
from the "wattless" current and increased utilisation capacity of their equipment. The capacity
of the electrical equipment in mills is utilised better with enhanced power factor. The cost of
installation of capacitors to improve the power factor at 0.9 is paid back in less than a year.

26

CHAPTER- III
PROFILE OF A.P.P.M L.T.D,
RAJAHMUNDRY

27

COMPANY PROFILE
HISTORY: -

The very thought of setting up a paper mills at Rajahmundry was conceived by a

retired forest officer in 1921. The mill was incorporated on 29 th June 1964. The mill was
commenced in the year 1924 and the name of the carnatic paper mills and company limited in
the year 1929. But unfortunately the founder of the mill died in 1930 and the mill was closed.

The mill has much chequered history since many a time it was forced to remain
closed in 1937. M/s Dayaram and sons took over industry but couldnt survive and the
machinery continued to be idle till 1942.

In 1942 M/s Apte and sons took over the management of the mills. Unfortunately the
mill was again closed in 1946, ultimately in the year 1953 the Government of Andhra
Pradesh took over the mill and started running till 1958.

In the year 1958 the planning commission decided to expand factory by investing loan
of 23 crores through French Government. At that time the capacity of the mill was around ten
tons per day, which could not be achieved till it was taken over by the present management.

The state government decided to call and experienced paper manufacturing from the
private sector and handed over some of them consequently. The present management took
over the mill and entered in to the picture.

28

On the 11th July 1964 the mill was transferred to present management. It is one of the
first joint sector enterprise in India with equal participation between the government, public
and the West Coastal Paper mills limited. Dandily of which the Bangur Sommani were
promoters.

The new management has developed the mill production capacity from mere 30 tons
per day to an enormous 35,000 tons per annum in its first phase expansion and completed
expansion in 1969. Again by 1970s the production was increased to 45,000 tons per annum
and by 1978, 75,000 TPA. Later on due to introduction of new technology and modernization
of mills in various ways now its
License capacity= 1,44,447 MT/Year
Installed capacity=98,500 MT/Year

An additional capacity of 55,000 was added in 2000-2001 through acquisition of

coastal papers ltd, making a total of 1,53,500 TPA.

The APPM ltd is now the 4th largest integrated pulp and paper manufacturer in India.

Unit: APPM is an integrated wood based paper mill in Rajahmundry and Unit:
Coastal Papers is a recycled and Agro Based paper mill located at Madhavarayudu Palem,
about 20 KMs from Rajahmundry.

PRODUCT PROFILE:
The company is an approved supplier to coating plants, corrugated box manufactures
textile tubes and comes manufactures battery jacket tubes manufactures foil laminators label

29

printers, computer stationary manufactures multi color printing houses copier units as well as
other users in the paper converting and printing industries.

MANUFACTURING: There are five paper machines having manufacturing capacity ranging from 10TPD to
120 TPD manufacturing different gram ages of paper ranging from 28 to 250 GSM.
To meet the pulp requirement, APPM has an integrated pulp mill with three chippers
of 25 Tons/Hr chipping capacity each and thirteen vertical digesters of about 80 -m 3
capacities each. APPM adopts Kraft (sulpahate) pulping process.
Pulp screening and washing is carried through modern energy efficient belt washing
system of 320 TPD chemi-washer. Bleaching of pulp is carried in two streets of bleach plants
of 150 TPD capacities each. The bleaching sequence adopted is CEPHD in one bleach plant
and C/DEPDEPD/SO2 in the other to produce two grades of bleached pulp that is 83+/- 1%
and 86+/- 1% brightness pulps.
The company has adequate infrastructure viz. Water treatment plant boiler, house and
turbine house to provide uninterruptedly the required utilities like water, steam and power.
The soda recovery sections recover the cooking chemicals in the spent liquor from the pulp
mill.

SOCIAL FORESTRY: APPM could visualize the steep decline in raw material from conventional forests as
early as 80s. To face anticipated difficult days, steps were taken to achieve raw materials
sufficiency and sustained availability in future through:
1.Altering technological parameters to utilize more hardwood.
2.Formulated an ambitious form forestry schemes emphasizing.
3.Conservation of natural resources and healthier environment.

30

4.Massive plantations on marginal and degraded form lands.

5.Create former and eco friendly environment.

Till 2005, form forestry operations have cumulatively covered about 39000 hectares
in the catch-ment areas with an average lead of 200km and about 276 million seedlings have
been distributed to the farmers.

ENVIRONMENT PROTECTION:

Conscious of the importance of health, safety and environment, the company has
taken all necessary and adequate steps for ensuring the health and safety of its employee and
for the installation of pollution control devices like dust collectors and electrostatic
precipitators (ESPs) and utilizing solid wastes like wood/bamboo dust (generated in the
wood chippers area) as auxiliary fuel in coal fired boilers (CFB) and recalcinizing the lime
mud in the rotary lime kiln (RLK) to regenerate the required burnt lime for re-use in the
preparation of cooking liquor.

Effluent after primary and secondary (Activated sludge process) treatment pumped
through two Hume popes to the sand shoals located over 612 acres of land in middle of the
river Godavari with two different elevations at Tutupulanka, 6kms upstream of the factory as
tertiary treatment. NEERI (CPHERI) has provided the total design for this land treatment
system.
This unique system was installed in 1969 at a cost of Rs.60 Lacs. The recurring cost
for making the bunds is about Rs.50lacs annually. This system ensures several conventional

31

treatments through natural, physical, chemical and biological processes in the soil-water-air
matrix.
In 1985, primary treatment system consisting of primary clarifiers was installed at a
capital cost of Rs.112 lacs and an annual recurring cost of Rs.76 lacs. In 1991, secondary
treatment system consisting of activated sludge process was installed at a capital cost of
Rs.160 lacs and an annual recurring cost of Rs.224 lacs to reduce the biological load and also
provide necessary bacterial cultures for accommodating future increase in flows.
The company has taken an all together different approach to eliminate odor problem,
associated with any craft process based paper mill, completely and installed NON
CONDENSABLE GASES (NCG) HANDLING SYSTEM, consisting of collection,
transportation and incineration of NCG.
The system is first of its kind in pulp and paper industry in India to control odor
problem. The Non-Condensable gases from digested and evaporation plants are collected and
incinerated in the existing rotary limekiln. The gases are incinerated in a stand by boiler
whenever the limekiln is not in operation. The system is designed and supplied by M/S And
Ritz Hailstorm Corporation, Finland.

The system is installed at a cost of Rs.5 crores. The system is provided with D.C.S
local instruments, alarms and necessary safety interlocks to ensure safe and trouble free
operation.

RESEARCH AND DEVELOPMENT:

The company has well equipped lab and quality control systems and procedures. The
company R&D Lab is a DSIR (Ministry of Science and Technology, Government of India)
recognized In-house R&D center.

32

For the effective implementation of environment management system a dedicated

environmental call laboratory with all necessary sophisticated monitoring equipments,
instruments and gadgets is available with qualified personnel.

HUMAN RESOURCES DEVELOPMENT: The company has two dedicated training halls in the premises and conducts regular
training programs on occupational health and safety in addition to employee development and
need-based training for all levels of employee.

MANAGEMENT SYSTEM Q.E &SMS ; Unit: APPM is an ISO 9001:2000

ISO14001: 2004&
OHSAS18801:1999 certified company.
Unit: CP is an ISO 9001; 2000 certified company.

OCCUPATIONAL HEALTH CARE: -

The company has well equipped occupational health center managed by doctors and
paramedical staff round-the-clock and has tie ups with local multi specialty hospitals and
trauma centers for emergencies and hospitalization requirements..

AWARDS:

33

1. Best management award 2004-2005 for outstanding contribution in the

maintenance of Industrial relations, Labor Welfare and Productivity from
the Government of Andhra Pradesh.
2. Gold award in the paper sector for outstanding achievement in safety management
award by Greentech Foundations.
3. Silver award in the Paper Sector for outstanding achievement in environment
management presented by Greentech Foundations.
4. In the Year 2005-2006

BOARD OF DIRECTORS; -

L.N.BANGUR.

(Chairman)

Dr.N.TATA RAO
ALKA BANGUR
N.SRINIVASAN
R.K.JOSHI

34

SURENDRA SINGH
R.C.MALL

(IDBI Nominee)
(Executive Director)

M.S.SHEETA L BANGUR (Commercial Director)

EXECUTIVES OF CORPORATE OFFICE: -

Sudhir Bansali , President (Finance)&Chief Finance Officer.

P.B. Naidu
L.M.Hoogon

Sr.Vice President (Commercial)

,

Sr.Vice President (Projects)

K.George Thomas

Sr.Vice President (Marketing)

ShreeyashBangur

Vice-President (Corporate
Planning & Business Development)

M.Samba Shiva Rao

R.K.S.Prasad

General Manager (Commercial)

General Manager (Finance & Accounts)

ORGANISATION STRUCTURE CHART

CHAIRMAN
(L.N.BANGUR)
Board Of Directors

EXECUTIVE DIRECTOR

DIRECTOR COMMERCIAL

(R.C.Mall)

(Sheetal Bangur)

Finance
Marketing

Senior Vice President

35

Operations

(commercial)

Corporate Affairs
Projects
General Manager

General Manager

Of Raw Materials

Commercial

(J.K.Jain)
Forestry Activity Of APPM

(Purchase Activities
Like Straw Baggasse)

FINANCE DEPARTMENT
PRESIDENT
(Sudhir Bansali)

GENERAL MANAGER
(J.K.Jain)

Sr Manager
Accounts

Sr Manager

Sr Manager

Costing

Central Excise

Manager
Sales
Accounts

QUALITY POLICY

To achieve customer satisfaction by:

Meeting the needs and expectations of the customers.

Continually improving the quality of out products, processes, and services.

36

 Communicating to appropriate levels within the organization, the need for

continued commitment

to quality.

Enhancing the awareness and competence of human resources through

training and

development processes, and

Establishing and reviewing our objectives for quality and synergy with
overall business goals

R.C.Mall,
Executive Director.
Date:01\08\2005
THE ANDHRA PRADESH PAPER MILL LIMITED.
ENVIRONMENTAL POLICY

The Andhra Pradesh paper mills limited remained to:

1.

Adopting environment friendly and non-polluting processes based on

techno-economic liability.

2.

Complying with applicable legal and other requirements to which the

company subscribes, related to environmental aspects.

3.

Conseving chemicals, coals, limestone, power, steam and water.

37

4.

Improving the competence of employees for effective

5.

implementation of environmental management system.

6.

Promoting and propagating social and form forestry, and

7.

Reviewing environmental performance periodically for achieving

continual improvement.
R.C.Mall,

Date:01\10\2008.

Executive Director.

PAPER MAKING PROCESS; -

The main constant of paper is cellulose. It is mainly available in wood, Agro based
and waste paper residues such as BAGASSE; JUTE, MESTA and STRAW cotton through
easily available in the country is too expensive to be used for producing paper.

PROCESS INVOLVED IN PAPER MAKING:

RAW MATERIALS
CHIPPING
PULPING
BLEACHING
ADDITIVES
38

 REMOVING WATER
FINAL PRODUCT.

1. RAW MATERIALS OF PAPER INDUSTRY: Paper is made up of the following raw materials
Softwood: Like spruce end pine which have a long fiber.
Hardwood: Short Fiber lot very suitable for paper making guineas trouble
in Bursting and chipping Eucalyptus acacia, Albizza and wattle these are
more suitable hard wood trees for paper making and do have a very rare of
growth.
Grasses: Several types of long grasses like bamboo, sabai grass, sarkanda
etc., are used.
Straw in India: Rice, Wheat Straw has been reported as suitable for
papermaking.
Cotton Linter: It is a seed hair from cotton plant after extracting cotton
only. Small proportion of raw cotton in form of short fiber linter comes
directly to paper mill.
Cotton rags: This gives more strength in paper or paperboard.
Linen: Linen fiber is derived from the bust tissue of the stem of the flax
plant cultivated extensively in USA, RUSSIA, HUNGARY, FRANCE,
BELGIUM, and IRELAND.
Manila: Fiber occurs in the leaves of a plant of the plantain family that
grow in the Philippines Islands.

39

 Waste Paper: The demand of waste paper for manufacturing of paper is

increasing every day. Utilizing of this wood reduces load on demand of fresh fiber. About
80% of the waste paper is used in the manufacture of paperboard. Small-scale units depend
almost entirely on waste paper as raw material.
Raw Material

Source

Casuarinas

Coastal area (Vizag, East Godavari & West

Godavari Districts)

Subabul

Prakasam District and recently from

Mixed Hardwood

Tamilnadu.
East and West Godavari Districts.

Bamboo

Madhya Pradesh, Maharashtra,Orissa, and

Seeleru.

2.CHIPPING:
In paper making process chipping is most important.The wood can be cut down
into small segments. The optimum size of segment is from 5mm to 35mm. Between this is
called as screened chips. The size of the segment below 5mm is no useful, it is called as dust,
and the above size of 35mm is again sent for rechipping.
Veco Plan Chippers:
No.of chippers= 3
Capacity (each)=25 tons per hour
Storage Capacity= 800 Metric Tons
Conveying

3.PULPING:
It is obtained by removing lignin and other impurities from the wood and other raw
materials used by a working process (Lignin is the glue that hobbles the fibers of the wood in
40

the three forms). The cooking process requires wood, bamboo or other raw material chips.
The chips are loaded into a digester and cooking liquor is added. Then by pressure-cooking
the wood, bamboo or other fibers are separated from other unwanted ingredients. Either batch
digester is used in cooking.
The chips and liquor are pumped to the top of the digester is pressurized to 160pm or
more .As the chip passes downward the cooking liquor penetrates the chip after about 45
minutes or more as per the raw material. The chips have to be passed through the
impregnation zone where not liquor 3400 F is circulated through the chips for heating .The
actual pulping occurs at 3550 F in about 90 minutes a period is known as the cooking period.
After passing through the cooking zone the chips, which have not become pulp are washed
with weak liquor from washing stages that flow with the chemical process.

These are two types:

1.Sulphate process (Alkaline process).
2.Sulphite process (Acid process).
The sulphate process may dissolve some hard woods with difficulties on the other
hand the Sulphate Process most of the chemicals are covered and reused.

BLEACHING CHEMICALS:

Chlorine(C)
Sodium hydroxide(E)
Chlorine dioxide (D)
Hydrogen peroxide (P)
Hypo (H)
Sulphur dioxide (SO2)
Sulphuric acid
Caustic soda
Sodium sulphate
41

4. ADDITIVES
The additives are added to paper pulp addition of fibers like clay and calcium
carbonate is very common and besides acting as fibers they add brightness to the paper.
These additives must be freely ground. Additives like dyes, and pigments are also added.
Other fibers are Titanium Dioxide, Barium Sulphate and Zinc Sulphate.

STOCK PREPERATION CHEMICALS: -

Rosin, Alum, Gum, Dyes, Whitening Agent, Starch, Caustic, Talcum etc.,

5. REMOVING WATER: Removing water is the best important stage, for this the pulp is passed through a
rapidly moving wire mesh called four diners. The objective is to recover

93-95% of the

water in the finished paper.

As the paper flows along with the wire mesh and water is drained along the way, a
dandy roller near the mesh helps to smooth out the paper. The dandy roller will improve the
formation of the paper web by application of pressure. When the paper reaches the end of the
wire mesh it is transferred to a felt blanket that along it through may steams heated dryers to
remove the excess (water) moisture.
In the process the paper gets some glaze like coating also. Then it is made to pass
through a series of calendar stocks. The calendars are series of polished from rollers staked
one on top of the other. The rough, which the finished paper will pass to smooth down. The
next step is rewinding on a metal of fiber core.

6. FINAL PRODUCT: 42

The last stage after this is sheeting or rolling, testing, and packing.Paper
manufacturing is highly polluting. Discharge of processed water contains toxic pollutants like
bark fibers, wood debriefs, and lignin other suspended solids. Air pollution also takes place at
the pulping stage. With the release of toxic gasses containing oxides of sulphur and nitrogen
and releases the nitrogen and carbon oxides by burning of coal to steam.
The setting up of water treatment plant and chemical recovery system is economically
feasible only for large plants. There fore with the stricter enforcement of pollution control
norms by the Government of INDIA, many small firms are finding it difficult to continue
operations.
The cost of production for small paper mill is higher than that for large mills. The
later get the benefit of lower energy costs by using Co-generation facility, chemical recycling
etc.

The benefit of lower fixed cost capital cost per ton of installed capacity for small
paper mills is more than made up by higher variable operating cost, further small units are
also more polluting.

PLANTS & MACHINES

ASHA MACHINE
This is the oldest machine from which the mill starts running with a capacity of one
per day and later it was developed to 30 tones per day. Now this paper machine produces the
product like MG white post of GSM (grams per square meter) 50 &500 MG deluxe rubber,
craft of GSM 48,MG white poster (NS) of GSM 480, MG white posts (TD) and MG pink
manila.

ABHA MACHINE

43

This is also old machine. It produces MG white posters MGDP craft; MG pink man
idle and MG white posters of GSM 48 and standards of 480 &500.

AGRAJA MACHINE
This is also re constructed and computerized machine. This is also having computer
scanner and it produced MGWP bind paper special MGW lower special, MGW lower picture
poster, MGW white cover paper of GSM 200, MGW yellow covers of GSM 120, and pink
cover of GSM 175 and this machine is having a production capacity of 75 tons per day.

ANUPAMA MACHINE
This is the biggest and new machine fully computerized and this produce quality of
paper and this produces develops map litho cream core, SS microprint white house, Andhra
Economical copies of GSM 78, Deluxe special and SS map litho and this is having a
production capacity of 120 tons per day.
Steam required

= 9 10 MT

Power

=1600 1650 Units

Water

=145 150 Cu.M

Effluent (Waste) Water produced = 140 145 Cu.M

Electricity used by mill = 85% Self Generated (Rs. 1.20 per unit)
15% Purchased (Rs. 4.00 per unit)

TYPES OF PAPER PRODUCTS: -

Paper industry supplies various types of paperboard. Special paper to a number of end
users which include Government Education, campus, packing, new papers, magazines etc,.

44

45

PRODUCT CLASSIFICATION OF INDIAN PAPER INDUSTRY

INDIAN PAPER INDUSTRY

Paper and paper board

Newspaper

STANDARD

Cultural

Industrial

Writing

Printing

Cream move

Map litho off set

Azure laid

Photocopier

Cream laid
Bond

Cover
Color print
Bond

Straw
Mill
Grey

Wrapping
Posts
Tea Yellows

Media
Liner

APSR

Sack raft

Duplicate

Bond
Micro
Tissue
Air mail

Duplex

Glassine

Triplex

Kraft

Marla

Brown
File

Packing

Twist Wrap
Pulp

46

GISSED

Board

Specialty

CHAPTER- IV
THEORETICAL FRAME WORK OF
INVENTORY MANAGEMENT

INVENTORY MANAGEMENT

47

INTRODUCTION: --

Inventory is composed of assets that will be sold in future in the course of Business
operations. The assets which firms store as inventory anticipation of needs are
1. Raw Material
2. Work In- Process
3. Finished Goods
The raw material inventory contains items that are purchased by the firm from others
and are converted into finished goods through the manufacturing process. They are an
important input of the final product. The inventory management like the management of other
current assets should be related to the over all objective of the firm (objective is maximizing
the owners wealth).

Basic concepts to control the inventory:

1. Determination of the type of control required.

2. Economic order quality.

3. Reorder point.

4. Safety stock.

OBJECTIVES: Inventory should be turned over as quickly as possible. It should, at the same time
ensure sufficient Inventories to satisfy production and sales demand.

48

 To avoid the Break down situations.

The objective of inventory management consists of two counter balancing
parts.
1. To minimize the firms investments in inventory.
2. To meet a demand for the product by efficiently organizing the firms productions and sales
operations.
An optimum level of inventory should be determined on the basis of the trade-off
between costs and benefits associated with the levels of inventory.

HOLDING INVENTORY (Minimize the cost): The cost associated with inventory, fall into two categories.
1. Ordering/ Acquisition / Setup costs.
2. Carrying cost.

1. ORDERING COST: Firms have to place orders with suppliers to replenish inventory of raw materials.
The ordering costs involved in
a) Preparing a purchase order / requisition.
b) Receiving, Inspecting and Recording the goods received to ensure both
quantity and quality.

The cost of acquiring materials consists of clerical costs and costs of

stationary.

2. CARRYING COST: -

49

Acquisition of a larger quantity would increase the cost associated with the
maintenance of inventory in carrying cost. The cost of holding inventory may be divided into
two categories.

A) Arise due to storing the inventory: -The main components of the category of carrying costs are
a) Storage cost: - That is tax depreciation insurance maintenance of the building and utilities.
b) Insurance of the inventory against fire and theft.
c) Deterioration in inventory because of pilferage, fire, technical obsolescence, style
obsolescence, and price decline.
d) Serving costs: Such as labor for handling inventory, clerical and accounting costs.

B) The opportunity cost of funds / Financial cost / Component of the cost :This consists of expenses of in rising funds (interest on capital) to finance the
acquisition of inventory.
If the level of inventory increases, the carrying costs also increase and vice versa. The
sum of the order and carrying costs represents the total cost of the inventory

BENEFITS OF HOLDING INVENTORY :Inventories perform certain basic functions, which are of crucial importance in the
firms' production and marketing strategies.

50

The basic function of inventories is to act as a buffer activity of a firm, so that all do
not have to be pursued at exactly the same rate.

THE KEY ACTIVITIES ARE: Purchasing.

Production.
Selling.

If in the short term they are rigidly related the three key activities cannot be carried
out efficiently. Inventories permit short run relaxation so that each activity may be pursued
efficiently.
Inventories enable firms in the short run to produce at a rate greater than purchase of
raw materials and vice versa or to sell at a greater than production and vice versa.
The effects of maintaining inventory (uncoupling)

1. BENEFITS IN PURCHASING: a) A firm can purchase bulk quantities than is warranted by usage in production or sales level.
This will enable it to avail of discounts that are available on bulk purchase. It will
lower the ordering cost, as fewer acquisitions would be made (Saving in cost). b) Firms can
purchase goods before anticipated or announced price increases. This will lead to a decline in
the cost of production.

2. BENEFITS IN PRODUCTION: Production can be carried on at a rate higher or lower than the sales rate. This would
be of special advantage to firms (to fix) with seasonal sales patter.

51

The sales rate will be higher than the production rate during a peak season and lower
during the off-season. The firm is either to produce at a level to meet the actual demand i.e.,
higher production during peak season and lower production during off season or produce
continuously throughout the year and build up inventory which will sold during the period of
seasonal demand.

3. BENEFITS IN SALES: The maintenance of inventory also helps firms to enhance its sales efforts.
a) If there are no inventories of finished goods the level of sales will depend upon the level
of current production. A firm will not be able to meet demand instantaneously.
b) If the firm has inventory, actual sales will not have to depend on lengthy manufacturing
process. Thus inventory serves to bridge the gap between the current production and actual
sales.
c) The inventory in work-in-process performs two functions.
It is necessary because production processes are not instantaneous. The amount of
such inventory depends upon technology and the efficiency of production.
By holding less inventory cost can be minimized, but there is a risk that the operations
will be distributed, as the emerging demands cannot be met. On the other hand, by holding a
large inventory the chances of disruption of operations are reduced but the cost will increase.

TECHNIQUES: The major problem areas that comprise the heart of inventory control are.

1) CLASSIFICATION PROBLEM (ABC ANALYSIS): -

52

The ABC system is a widely used classification technique to identify various items of
inventory for purpose of inventory control.

This technique is based on the assumption that a firm should not exercise the same
degree of control on all item of inventory on the basis of cost involved the various inventory
items are categorized as
A category items.
B category items.
C category items.
The items included in group A involve the largest investment. There fore
inventory control should be the most rigorous and intensive and the most sophisticated
inventory control techniques should be applied to these items.
The firm should direct most of its inventory control efforts to the items included in
this group. The items comprising B group account for 20% of investments in inventory.
They deserve less attention than A, but more than C which involves only 10% of the total
value although number wise its share is as high as 55%.

ADVANTAGES: 1. Easy allocation of funds to different items in an organization.

2. Easy classification of items according to priority significance.
3. It ensures closer control on costly items in which large amount of capital has
been invested.
4. It helps in developing a scientific method of controlling inventories clerical
not can be reduced and stock is maintained at optimum level.

53

FORMULA:

Annual usage value = Demand or

x Unit Price

Consumed items

LIMITATIONS: -

1. ABC analysis in order to be fully effective should be carried out with standardization
and codification.
2. It indicates nothing about profitability and criticality.
3. ABC analysis should be reviewed periodically so that changes in price and
consumption are taken into account.

2) ECONOMIC ORDER QUANTITY: -

The economic order quantity may be defined as that level of inventory order that
minimizes the total cost associated with inventory management.

How much inventory should be bought in one lot less than one order on each
replenishment? Should the quantity to be purchased be large or small? Or should the

54

requirement of materials during a given period of time in installments or in several small

lots? Such inventory problems are called order quality problems.

Buying the large quantities implies a higher average inventory level, which will assure
1. Smooth production or sales operations, and
2. Lower ordering or set up costs. But it will involve higher carrying cost. The optimum
level of inventory is popularly referred to as the EOQ (Economic Lot Size).

ASSUMPTIONS: -

1. The firm knows with certainty the annual usage (consumption) of a particular item of
inventory.
2. The rate at which the firm uses inventory is steady over time.
3. The orders placed to replenish inventory stocks are received at exactly that point in
time when inventories reach zero.
4. Procurement cost is assumed linearly related to number of orders.

The quantity to be ordered depends upon two factors i.e.,

1. The acquisition cost.
2. The cost processing material.

FORMULA:

EOQ =

2ab

55

CS
EOQ = Economic Order Quantity
a

= Annual Consumption

= Buying Cost Per Order

= Cost Per Unit

= Storage and Carriage Costs

3) RE-ORDER LEVEL (POINT) :Re-order level is mainly depending on lead demand. It may be defined as that level of
inventory when fresh order should be placed with the suppliers for producing additional
inventory equal to the EOQ. This level lies between the minimum level and maximum level.

Lead time means it is the gap between placing an order and time of actual supply.

LEAD TIME :

Servicing time + Delivery time +

Receiving time

RE-ORDER LEVEL :

Lead -time in days X Average daily usage

of inventory.

ASSUMPTIONS :1. Constant daily usage of inventory.

2. Fixed lead-time.

a) Minimum level:
56

It is the level below which stock of materials is never to fail.

Normal

Normal

Minimum level = Reorder level consumption X reorder

level

b) Maximum level:

It is the stock level above which stock should not be allowed to rise.

Reorder + Reorder _ Minimum

Maximum level = level

quantity

consumption

X Minimum
reorder
period

c) Danger level:
Danger level is below the minimum quantity. It is a level at which normal issue
of the material are stocked.

Average rate

Emergency

Danger level = of consumption X supply time

d) Average stock level:

57

Minimum
Average stock level = stock level + Order quantity

4). SAFETY STOCK (BUFFER STOCK): -

The effect of increased usage and slower delivery would be a shortage of inventory.
That is, the firm would face a stock out situation. It would disrupt the production schedule
and alienate the customers.

There fore be well advised to keep a sufficient safety margin by having additional
inventory to guard against stock out situation. Such stocks are called safety stocks.

D. PRICING OF MATERIAL ISSUED: --

Each and every item in the stores has some values associated with, if materials are
issued to different jobs or work orders from the stores. These jobs or work orders are changed
with the value of materials issued to them. But the stock of materials consists of different
consignments received at different dates a price. It become necessary to decide about the
prices when materials are issued to it.

METHODS:
First In First Out.
Last In First Out.

58

 Base Stock.
Simple Average.
Weighted Average Method.

1) FIFO (First In First Out): -

The issues are priced in order of purchase material received first is issued first. The
oldest price is applied first to value the issued material. When the material having the oldest
price is fully exhausted. The next oldest price items are issued and the corresponding price
are used in valuation.
The method is simple and easy to apply in practice it.
There is a place for clerical errors in frequent price fluctuations.

ADVANTAGES: -

I. Materials are issued at actual cost hence balancing of stores ledger becomes easy
number. Adjustment for profit or losses is necessary on account of arbitratory
valuation of material.
II. Method is appropriate for those items that are likely to deteriorate of become absolute
with time.
III. It tends to keep the value of inventory hearer the current market price as well as cost.

DISADVANTAGES: -

59

I. Issue price of the same item may be different if used by different departments and
used for different lots.
II. For pricing one requisition more than one price has often to be adopted.
III. When the processes are fluctuated the effect of current market price is not revealed in
the cost of issues.

2) WEIGHTED AVERAGE METHOD: -

A price, which is calculated by dividing the total cost of material in the stock from
which the materials could be drawn by the total quantity of the materials in that stock.

F S N: This is another inventory control report, which gives the details of movement of the
items based on the report. The management can make decision whether to stock or dispose of
the old items, which are not likely to be used. The report tells whether an item is Fast
moving or Slow moving or Non-moving type. The definition of F/ S/ N items, are the
number of issues in a given period can be dynamically changed.

Bin means a rack container or space when goods are kept for each kind of material an
inventory tag is attached to the Bin card is maintained. A Bin card is a quantitative record of
Receipts, Issues and closing balance of each item of stores. The Bin cards are used not only
for entering receipts and issues but also for controlling the stack by watching maximum and
minimum level stated on the card.

60

When the ordering level is reached the shopkeeper has to send the requisition for the
further supplies. For each entry, whether relating to receipts and record in the balance
columns. It should agree with the physical in Bin card stores ledger account.

CONTROLS OF PRODUCTION AND SERVICE PROVISION

PROCEDURE FOR ISSUE OF MATERIAL TO USER DEPARTMENTS

Purpose: To define the method for issue of material from bins stores area or storage yard to
user departments.

Method :
1. Material should be drawn by the user departments form stores against stores issue
vouchers (SIRs) duly signed by authorized person.

61

2. Stores issues vouchers should contain description of the material cost center code,
material code, unit of measurement and quantity of material required and the name of user
departments.

3.

All materials should be issued on FIFO basis except in case of any specific

requirements form the user departments.

4. Issue of material should be done only form-accepted material lying in stores.

5. The concerned stores section head are authorized to issue Material against (SIRs)

6.

In case of particle or non-availability of the requisitioned material items, the

concerned section head should be intimated the requisitioning authority accordingly.

7.Prior to issue of material the concerned stores assistants clerks should record the
SIR number of received consignment on to the SIR.

8.The material items issued should be updated on to the computer system by

concerned stores assistants or clerks. Copy of SIR should be sent to stores A/c.

9.Material required by contactors in connection with companys work should be issue

as per terms of the contract and an appropriates SIR against proper cash, Credit bills.

10. Concerned stores section head should maintain SIRs in the sequence of code.

62

11.List of personal authorized to requisition material through SIR should be as annexed

to this procedure.

IDENTIFICATION AND TRACEABILITY

PROCEDURE FOR MATERIAL IDENTIFICATION
Purpose :
1. To define the method of identifying material stored in various storage areas.
2. To define the method of establishing traceability of purchased material.
3. To define the method of identifying the inspection status of stored material.

Method :
1. To identify the various stored material, In each case the material should be
identified for its Name and Code no .
No

TYPE OF MATERIAL

METHOD

01
02
03

Bulk Material
Material in Bins
Material in Racks

IDENTIFICATION
Display Board
Tags for the Bins
Tags for the Material

OF

2. TRACEABILITY OF PURCHASED MATERIAL :

a) The purchased martial which are accepted for issue are stored in designated
location, duly identified by their SIR No.
b) The material should be issued for use or further processing after recording the SIR
No on the concerned stores issue voucher (SIR).
c) Traceability should be established for purchased material through the chain of SIR
to SIR and SIR to suppliers batch no.

3. INSPECTION STATUS OF STORED MATERIAL

No

INSPECTION STATUS

METHOD OF IDENTIFICATION

63

01

Under Inspection

Under Inspection
Display

02
03

Receipt TPG
Board

(Yellow)

Inspected and Accepted

(Yellow)
Accepted

Inspected and Rejected

(Green)
Rejected

(Green)
Rejected tag

(Green)

(Pink)

PROCEDURE

FOR

BINING

AND

STORAGE

OF

INSPECTED

MATERIAL
Method :
1. Purchased materials should be stored and issued for

further processing only after

acceptance of the material by the concerned departments, on the SIR.

2. Bulk Material.
2.1 If the SIR Indicator conformance to specifications, the stores officer shall.
Replace the under Inspection display board / tag identifying the
consignment, with accepted indicator ( Green Colour ).
Updater the computer system for stock control.
Send the accounts copy of SIR to stores A/Cs.
File the stores copy of SIR in accepted SIRs file.
2.2 If the SIR indicator non conformance to specifications, the section head should.
Replace the Under Inspection display board / tag identifying the consignment
with a rejected indicator ( Pink Colour ).
Send the Accounts Copy of SIR to stores A/Cs.
File the stores copy of the SIR in Rejected SIR file.

64

3.NON BULK MATERIALS :

3.1 If the SIR indicates conformance to specifications, the stores officer should.
More the material form the under inspection area to its designated bin stores area
along with he receipts tag.
Update the computer system for stock control.
Send the accounts copy of the SIR to stores A/Cs.
File the stores copy of the SIR in accepted SIRs file.

3.2 Non Bulk materials form different consignments should be stored separately,
along with their respective receipt tags, to facilitate FIFO issue.

If the SIR indicator non conformance to specifications, the stores officer should.
Identify the material with rejected tag ( Pink Colour ).
More the materials to a designated quarantine area.
Send the accounts copy of SIR to stores A/Cs.
File the stores copy of SIR in rejected SIRs file.

4. The concerned stores heads should periodically review the quarantine area, to ensure
prompt return of the material, back to the supplier.

5. The concerned stores officers should ensure that the storage facilities provided for the
materials are capable of preventing damage and deterioration.

65

6. Bulk material for specific projects and any materials received for specific
requirements from departments should be considered non stock items.

Such

materials should not be under the custody of materials departments and should be
handed over to the concerned user departments.

7. All hazardous materials should be stores separately, as per prevalent statutory

regulations.

8. All Rubber components should be stores in Air conditioned rooms.

9. The storage godowns should be provided with proper ventilation.

10. Each stores area should have a location map, clearly indicating the various storage
locations, such maps shall be prommently displayed.

PRESERVATION OF PRODUCT :

PROCEDURE FOR PERIODIC VERFICATION OF QUALITY DETERATION OF

STORED MATERIALS.

Purpose :
The purpose of this procedure is to define the method for periodic verification of
quality detraction of stored material.

Method :

66

1. Periodic verification of the quality of stored products should be carried out together
with the periodic verification of the quantities (perceptual inventory) by the stores
personnel.

2. Periodic quality verification should be carried out jointly by a representative

( inspecting person ) each form laborators, process and stores once in a quarter in
warranty, material departments may call for quality verification by inspection
personnel.

3. Head (materials) should initiates head (Quality) and head (Production) about the
scheduled of periodic quality verification them to depute suitable representation.

4. Periodic quality verification should include, at minimum.

Mix up consignments.
Storage period.
Visual characteristics such as watering of chemicals, de-coloration resting (for steel)
cracking for rubber items etc.,

5. The laboratory representative may call for detailed inspection of any particular
material based on observation of verification detailed.

6. Laboratory representative should identify such material requiring detailed inspection

during this verification through a red tag, and max the same to quarantine area.

67

7. Observation of periodic quality verification should be recorded on periodic quality

verification report Including the laboratory test report in an and approved by head
(quality ).

8. Head (Materials) and Head (Quality ) should initate appropriate counter measure and
corrective preventive action on the findings of periodic quality verification report.

SCHEDULES OF PERIODIC QUALITY VERIFICATION OF MATERIAL

S.No

NAME OF MATERIAL

DURATION

Raw Material

VERFICATION
4 months

Chemicals

4 months

Dyes

4 months

Lubricants

4 months

Paints / wariness

4 months

Rubber products

4 months

Packing Material

4 months

Cement

4 months

Iron and Steal

4 months

10

FRP Chemicals

4 months

11

Belt Jointing Solutions

4 months

OF

PURCHASE ( CORPORATE OFFICE )

The purchase department at corporate office form part of the commercial departs. It
is vested with the responsibility of ensuring continuity in supply of non fibrous Raw material,

68

Chemicals, Pulp, Waste paper packaging materials, Machinery spars and other general items
required for the organization.
To discharge the responsibilities of the department it managed by qualified and
experience personnel headed by Head (Purchase) under the guidance of chief of commercials.

QUALITY OBJECTIVES

S.No

QUALITY OBJECTIVE

MEASURABLE INDICATOR

01

To procure material at the Right

Age analysis of conversion of procurement

times

indent to purchases order on monthly basis and

review by chief of commercial.

02

To procure material at the of

Analysis of % of SIR s cleared without non

specified quality

-conformity alert notes once in a quarter for

improvement.

03

To procure material at right price

Variance between minimum quotation and

purchase order price on a case- to- case basis.

04

From right Source

Analysis of % of purchased Material with

respect to adequate supply sources on adequate
supply source on annual basis.

69

FLOW CHART OF ACTIVITIES

Selection

Indents receipt.

and
approval

Verification for completeness of indents.

of venders
Floating enquiries through enquiry-cum quotation format.
Receipt of response.
Completion and evaluation of offers received.
Negotiations.

Submission of proposals for approval to competent.

Authority depending upon the value of the proposal.

Preparation of purchase orders as per approval note.
Verification of completeness and authorization.

Purchase orders.
Release of purchase orders.
Follow up for discrepancy in supplies-if any.

Follow up for timely deliveries.

70

Co-ordination with finance department for release of payments to venders.

CHAPTER- V
DATA ANALYSIS & INTERPRETATION OF
INVENTORY MANAGEMENT @ A.P.P.M
L.T.D, RAJAHMUNDRY

71

ANALYSIS AND INTERPRETATION

ANALYSIS: In APPM total 70,000 items are used on different areas such as Auto Stores,
Chemical Stores, General Stores and MSP Stores.
For the analysis purpose, the data is gathered from all these stores; only 10 items are
concerned to know which item comes under which category (ABC analysis).
The 10 items annual consumption is taken into account from the last 3 tears.
The APPM follows the ABC analysis for the control of inventory. Depending on the
annual consumption or the total value of the item is taken into consideration. It is plot
possible to the same consumption item is maintained all the years. It must be changed from
time to time. Depending on the requirement and availability and consumption it is changed.
So items are stored for 4 months of duration because of seasonal and off seasonal effect.
Such as in rainy season the availability of limestone is very less, so the stock before the
season commence.
For analyzing the items annual consumption is taken for calculation.
INVENTORY POLICIES FOLLOWED BY APPM: -

72

1. Finished goods are valued at cost or market value which ever is less.
2. Stocks of raw materials, spare parts, material in transit etc., are valued at cost. After
providing for obsolescence cost, it includes expnces of procurement, excise and
customs and is met of creditors CAN VAT scheme.
3. Work-in- process is valued at cost which includes material, direct labor and over
heads.
4. Scrape is valued at established realizable value.
THE APPM LTD., MATERIALS MANAGEMENT SYSTEM: Monthly Stock Ledger Between The Period 01/04/2006-31/03/2007
Stores Ledger Account (Under FIFO System)
Name of Office: Stores Office

Max. Level

Code:

Min. Level

Bin card No:

Re-order Level
Table 6.1

Purchases

Date
Units

Issues

Price
Units

Amount

Units

Price Units

Balance (opening/closing)
Amt

Units

Price
Units

Amount

2006
April 1st
15th

-98

-70

-6860

---

---

---

93.55
93.55
98.00

70
70
70

6548.50
6548.50
6860.00

30th

--

--

--

97.50

93.55X70 +
3.95X70

6825

94.05

70

6583.5

May 15th

37.00

70

2590.00

--

--

--

94.05
37.00

70
70

6583.5
2590.00

--

--

--

114.50

94.05X70 +
20.45X70

8015

16.55

70

1158.50

30th

Jun 15th

115

70

8050.00

--

--

--

16.55
115.00

70
70

1158.50
8050.00

--

--

--

104.50

16.55X70 +
87.95X70

7315

27.05

70

1893.50

30th

Jul 15th
30th

124

70

8680

--

--

--

27.05
124.00

70
70

1893.50
8680.00

--

--

--

114.50

27.05X70 +
87.45X70

8015

36.55

70

2558.50

73

-131

70

9170

--

Aug 15th
--

--

--

95.00

-36.55X70 +
70.45X70

th

30

-138

70

9660

--

--

--

--

95.00

Sep 15th

60.55X70 +
34.45X70

th

30

7490
--

36.55
131.03

70
70

2558.50
9170.00

60.55

70

4238.50

60.55
138.00

70
70

4238.50
9660.00

103.55

70

7248.50

6650

Date
Units

Purchases
Price
Amount
Units

Issues
Units

Price Units

74

Amt

Balance (opening/closing)
Units
Price
Amount
Units

Oct 15th

121

70

8470

--

--

--

103.55
121.00

70
70

7248.50
8470.00

30th

--

--

--

101.00

101.00X70

7070

2.55
121.00

70
70

178.5
8470.00

57.00

70

3990.00

--

--

--

2.55
121.00
57.00

70
70
70

178.5
8470.00
3990.00

--

--

--

98.00

2.55X70 +
95.45X70

6860

25.55
57.00

70
70

1788.50
3990.00

94

70

6580.00

--

--

--

25.55
57.00
94.00

70
70
70

1788.50
3990.00
6580.00

--

--

--

115.00

25.55X70 +
57.00X70 +
32.45X70

8050

61.55

70

4308.50

61.55
219.00

70
70

4308.50
15330.00

182.55

70

12778.50

Nov 15th

30th

Dec 15th

30th

Jan 15

th

30th

Feb 15th

30th

Mar 15th

30th

219

70

15330

--

--

--

--

--

--

98.00

61.55X70 +
36.45X70

6859.5

54

70

3780

--

--

--

182.55
54.00

70
70

12778.50
3780.00

--

--

--

67.50

67.50X70

4725

115.05
54.00

70
70

8053.50
3780.00

137.9

70

9653

--

--

--

--

--

--

114.05

114.05X70

7983.5

115.05
54.00
137.90
1.00
54.00
137.90

70
70
70
70
70
70

8053.50
3780.00
9653.00
70.00
3780.00
9653.00

Total closing stock is 192.90 units amount is 13503.

75

THE APPM LTD., MATERIALS MANAGEMENT SYSTEM: Monthly Stock Ledger Between The Period 01/04/2007-31/03/2008
Stores Ledger Account (Under FIFO System)
Name of Office: Stores Office
Max. Level
Code:
Min. Level
Bin card No:
Re-order Level
Table 6.2
Purchases

Date
Units

Price
Units

Issues

Amount

Units

Price Units

Balance (opening/closing)
Amt

Units

Price
Units

Amount

2007
April 1st
15th

-78.00

-68

-5304

---

---

---

80.00
80.00
78.00

65
65
68

5200.00
5200.00
5304.00

30th

--

--

--

90.00

80.00X65 +
10.00X68

5880

68.00

68

4624.00

50.00

67

3350.00

--

--

--

68.00
50.00

68
67

4624.00
3350.00

30th

--

--

--

102.00

68.00X68 +
34.00X67

6902

16.00

67

1072.00

Jun 15th

100

67.50

6750.00

--

--

--

16.00
100.00

67
67.50

1072.00
6750.00

30th

--

--

--

80.00

16.00X67 +
64.00X67.5

5392

36.00

67.50

2430.00
2430.00
10200.00

May 15th

Jul 15th

150

68.00

10200.00

--

--

--

36.00
150.00

67.50
68.00

30th

--

--

--

94.00

36.00X67.5 +
58.00X68

6374

92.00

68

6256.00

Aug 15th

110

68

7480

--

--

--

92.00
110.00

68
68

6256.00
7480.00

30th

--

--

--

98.00

92.00X68 +
6.00X68

104.00

68

7072.00

Sep 15th

120

69

8280

--

104.00
120.00

68
69

7072.00
8280.00

30th

--

--

--

110.00

114.00

69

7866.00

-104.00X68 +
6.00X69

76

6664
--

7486

Purchases

Date
Units

Issues

Price
Units

Amount

Units

Price Units

Balance (opening/closing)
Amt

Units

Price
Units

Amount

Oct 15th

115

69

7935

--

--

--

114.00
115.00

69
69

7866.00
7935.00

30th

--

--

--

90.00

90.00X69

6210

24.00
115.00

69
69

1656.00
7935.00

80.00

70

5600.00

--

--

--

24.00
121.00
80.00

69
69
70

1656.00
7935.00
5600.00

--

--

--

130.00

24.00X69 +
106.00X69

8970

15.00
80.00

69
70

1035.00
5600.00

90

70

6300.00

--

--

--

15.00
80.00
90.00

69
70
70

1035.00
5600.00
6300.00

--

--

--

120.00

15.00X69 +
80.00X70 +
25.00X70

8385

65.00

70

4550.00

65.00
150.00

70
70

4550.00
10500.00

105.00

70

7350.00

Nov 15th

30th

Dec 15th

30th
150

70

10500

--

--

--

--

--

--

110.00

65.00X70 +
45.00X70

7700.0

Jan 15th

th

30

20

70

1400

--

--

--

105.00
20.00

70
70

7350.00
1400.00

--

--

--

80.00

80.00X70

5600

25.00
20.00

70
70

1750.00
1400.00

141.0

70

9870

--

--

--

25.00
20.00
141.00

70
70
70

1750.00
1400.00
9870.00

93.50

70

6545.00

92.50

92.50X70

Feb 15th

30th

Mar 15th
--

--

--

6475.0

30th

Total closing stock is 93.50 units amount is 6545.00

THE APPM LTD., MATERIALS MANAGEMENT SYSTEM: Monthly Stock Ledger Between The Period 01/04/2008-31/03/2009
77

Stores Ledger Account (Under FIFO System)

Name of Office: Stores Office
Max. Level
Code:
Min. Level
Bin card No:
Re-order Level
Table 6.3
Purchases

Date
Units

Price
Units

Issues

Amount

Units

Price Units

Balance (opening/closing)
Amt

Units

Price
Units

Amount

2008
April 1st
15th

-70.00

-61

-4270

---

---

---

95.00
95.00
70.00

60
60
61

5700.00
5700.00
4270.00

30th

--

--

--

100.00

95.00X60 +
5.00X61

6005

65.00

61

3965.00

May 15th

50.00

61

3050.00

--

--

--

65.00
50.00

61
61

3965.00
3050.00

--

--

--

100.00

65.00X61 +
35.00X61

6100

15.00

61

915.00

30th

Jun 15th

100

60.00

6000.00

--

--

--

15.00
100.00

61
60.00

915.00
6000.00

--

--

--

75.00

15.00X61 +
60.00X60.00

4515

40.00

60.00

2400.00

30th

Jul 15th

120

61.00

7320.00

--

--

--

40.00
120.00

60.00
61.00

2400.00
7320.00

--

--

--

80.00

40.00X60.00+
40.00X61

4840

80.00

61

4880.00

--

80.00
120.00

61
63

4880.00
7560.00

100.00

63

6300.00

100.00
120.00

63
62

6300.00
7440.00

110.00

62

6820.00

30th

Aug 15th

120

63

7560

--

--

--

--

--

100.00

80.00X61 +
20.00X63

30th

Sep 15th
30th

120

62

7440

--

--

--

--

110.00

-100.00X63 +
10.00X62

78

6140
--

6920

Purchases

Date
Units

Issues

Price
Units

Amount

Units

Price Units

Balance (opening/closing)
Amt

Units

Price
Units

Amount

Oct 15th

110

63

6930

--

--

--

110.00
110.00

62
63

6820.00
6930.00

30th

--

--

--

90.00

90.00X62

6820

20.00
110.00

62
63

1240.00
6930.00

70.00

64

4480.00

--

--

--

20.00
110.00
70.00

62
63
64

1240.00
6930.00
4480.00

--

--

--

100.00

20.00X62 +
80.00X63

6280

30.00
70.00

63
64

1890.00
4480.00

80

65

5200.00

--

--

--

30.00
70.00
80.00

63
64
65

1890.00
4480.00
5200.00

--

--

--

120.00

30.00X63 +
70.00X64 +
20.00X65

7670

60.00

65

3900.00

60.00
150.00

65
65

3900.00
9750.00

110.00

65

7150.00

Nov 15th

30th

Dec 15th

th

30

150

65

9750

--

--

--

--

--

--

100.00

60.00X65 +
40.00X65

6500.0

Jan 15th

30th
40

65

2600

--

--

--

110.00
40.00

65
65

7150.00
2600.00

--

--

--

100.00

100.00X65

6500

10.00
40.00

65
65

650.00
2600.00

90

65

5850

--

--

--

10.00
40.00
90.00

65
65
65

650.00
2600.00
5850.00

80.00

65

5200.00

60.00

60.00X65

Feb 15th

30th

Mar 15th
--

--

--

th

30

79

3900.0

Prob): - Perform the ABC analysis from the following samples

of 2006/2007.

Items
Caustic Soda
Starch Modified
China Clay
S Sodium Sulphate
Emery Type Roll
Hot Melt Glue
Asbestos Gasket
Bearings
Chains
Copying Items

Annual
Consumption

Unit cost

40320
600
27500
433
30510
433
85
3500
859
237

67
260
13.65
61.25
5.50
170
432
102
18.50
15

Amount
2701440
156000
375375
26520
167805
73610
36720
357000
15892
3555

Table 6.4
Source: Primary Data provided by APPM
Table 6.5

Solution: Items

Caustic Soda
China Clay
Bearings
Emery Type Roll
Starch Modified
Hot Melt Glue
Asbestos Gasket
Sodium Sulphate
Chains
Copying Items

Usage

No.of

Usage

Usage Value

Value

Items

Value of

in

Cumulative

Percentage

frequency
2701440
3076815
3433815
3601620
3757620
3831230
3867950
3894470
3910362
3913917

69.00
78.61
87.73
92.02
96.00
97.88
98.82
99.50
99.90
100

2701440
375375
357000
167805
156000
73610
36720
26520
15892
3555

1
2
3
4
5
6
7
8
9
10

Source: Primary Data provided by APPM

80

Prob): - Perform the ABC analysis from the following samples of 2007/2008.
Table 6.6
Source: Primary Data provided by APPM

Items
Caustic Soda
Starch Modified
China Clay
S Sodium Sulphate
Emery Type Roll
Hot Melt Glue
Asbestos Gasket
Bearings
Chains
Copying Items

Annual
Consumption

Unit cost

35910
8000
18500
663
38450
499
91
2725
891
205

67
260
13.65
61.25
5.50
170
432
102
18.50
15

Amount
2405970
2080000
252525
40609
211475
84830
39312
277950
16484
3075

Table 6.7

Solution: Items

Usage
Value

Caustic Soda
Starch Modified
Bearings
China Clay
Emery Type Roll
Hot Melt Glue
Sodium Sulphate
Asbestos Gasket
Chains
Copying Items

2405970
2080000
277950
252525
211475
84830
40609
39312
16484
3075

No.of
Items

1
2
3
4
5
6
7
8
9
10

Source: Primary Data provided by APPM

81

Usage
Value of
Cumulative
frequency
2405970
4485970
4763920
5016445
5227920
5312750
5353359
5392671
5409155
5412230

Usage Value
in
Percentage
44.45
82.88
88.02
92.68
96.59
98.16
98.91
99.63
99.94
100

Prob): - Perform the ABC analysis from the following samples

of 2008/2009.
Table 6.8

Items
Caustic Soda
Starch Modified
China Clay
S Sodium Sulphate
Emery Type Roll
Hot Melt Glue
Asbestos Gasket
Bearings
Chains
Copying Items

Annual
Consumption

Unit cost

24360
7500
34850
633
54700
383
78
4425
1000
129

67
260
13.65
61.25
5.50
170
432
102
18.50
15

Amount
1632120
1950000
475702
38772
300850
65110
33696
451350
18500
1935

Source: Primary Data provided by APPM

Table 6.9

Solution: Items

Usage
Value

Starch Modified
Caustic Soda
China Clay
Bearings
Emery Type Roll
Hot Melt Glue
Sodium Sulphate
Asbestos Gasket
Chains
Copying Items

1950000
1632120
475702
451350
300850
65110
38772
33696
18500
1935

No.of
Items

1
2
3
4
5
6
7
8
9
10

Source: Primary Data provided by APPM

82

Usage
Value of
Cumulative
frequency
1950000
3582120
4057822
4509172
4810022
4875132
4913904
4947600
4966100
4968035

Usage Value
in
Percentage
39.25
72.10
81.67
90.76
96.81
98.12
98.91
99.50
99.96
100

INTERPRETATION

FIFO system is not properly used by the company. Because it requires proper
super vision and control due to lack of it is FIFO system maintaining is critical.

Spares are used under weighted average system. At present most of the
items are issued under this system.

By comparing the same items of, annual consumption of 2005,2006,2007

perform the ABC analysis. By comparing all the years the items are not same for all
the years.

If particular item comes under A Category for the year but in the forth
coming year it is not remaining as the A category item. It may be change due to
annual consumption or value. It comes under B category or C. this process also
followed to remaining B and C category items.

83

Graph 6.1 (a)

Graph 6.1(b)

84

Graph 6.1(c)

85

Graph 6.1(d)

86

Graph 6.1(e)

87

Graph 6.1(f)

CHART: ABC ANALYSIS

88

U
s
a
g
e
v
a
l
u
e
i%
n

100
90
80
70
60
50
40
30
20
10
0

10

20

30

40

50

60

70

80

90

100

Value of cost in %

A items merit a tightly controlled inventory system with constant

attention by the purchase manager and stores management.
B items formalised inventory system with periodic attention by
purchase and stores management.
C items use a simpler system designed to cause the least trouble for the
purchase and stores department

Calculation of EOQ
Problem:
Average Consumption of all types of Material

89

36,00,000 per annum

Average Unit Cost

360

Carrying Cost (equal to Cost of Capital)

15%

Ordering Cost

1500

Solution:
EOQ = Squrt( 2AB/CS)
= Squrt( 2* 10000*1500/ 360*0.15)
= Squrt( 300,00,000/ 360*0.15)
= Squrt ( 5,55,555)
= 745 Units
Total Cost of Inventory at EOQ
= Squrt ( 2*ABCS)
= Squrt ( 2*10000*1500*360*0.15)
= Squrt ( 16200,00,000)
= Rs 40,250/Interpretation
As APPM is using various types of raw materials it not possible to calculate EOQ
for each of the products. Hence average consumption during 5 years period is taken as
approximate basis.

The results provide the fact that each time an order is made the economic size of
such order will be 700 800 Units. In between the individual components it may vary up to
500 1000 units.

INVENTORY CONTROL IN APPM. LTD.,

90

INTRODUCTION: Companies based on the type of manufacturing special department and separate stores
maintain different groups of inventories and particular staff to particular areas is maintained.
They are,
1. General Stores
2. MSP Stores
3. Auto Stores
4. Chemical Stores
The material department is based at Rajahmundry, is a part of administration
function to serve the user departments.
The department initials purchase indent for pulp waste paper process chemical as per
Annual budgeted requirements and capital items regularly required spares of machinery also
indented by this department so as to maintain the user specified minimum stock levels storage
and issue of all types of material. Whether or not directly related to a material department
also performs papermaking.

MATERIALS DEPARTMENT, MANUAL PROCEDURES, QUALITY

MANAGEMENT SYSTEM ISO 9001; 2000.

OVERVIEW: -

91

The materials department, which is based at Rajahmundry, is a part of administration

fun to serve the user departments. The department initials purchase indents for pulp,
wastepaper, process chemicals as per annual budgeted requirements and capital items.

Regularly required machinery spare are also indented b this department, So as to

maintain the user specified minimum stock levels. Storage and issue of all types of materials.
A local purchase section with in the department, handles the purchasing activities of
general item and job contracts with local source of supply for fabrication and machine of
engineering components.

Other activities under preview of this department are disposal of scrap of miscellaneous
items, movement of goods with in the mill. Compliance to government legislation on
exercise, MODVAT etc.,

The storage areas for maintaining stock of various materials are separately unmarked
depending on the type of materials stored manual as well as mechanical means are employed
for material movement. An Online computerized system, which is in the process of
development aids quirks processing of receipts storage and issue.

ACTIVITIES; Indenting of material

Procurement of material
Receipt of material
Inspection of material
Storage approved material

92

Return or Replacement of rejected materials

Issue of materials
Disposal of materials

FUNCTIONS: 1.

Proper selection of Raw material.

2.

Inspection.

3.

Distribution of raw materials to different unit.

4.

Utilization of raw material at proper time.

5.

Planning the re-order level.

6.

Transportation and material handling

MATERIALS DEPARTMENT ORGANISATION CHART

COMMERCIAL HEAD

MATERIALS HEAD

93

Dy materials head.

Section head
(central
receipts and
excise)

Section head

Stores assets/
clerks/
supervisors

Stores assets/
clerks/ supervisors

(Indents issue)

Section head
(chemicals)

Stores assets/
clerks/
supervisors

Section head local

purchase

Purchase assets
clerks

94

Section
head
disposal

Disposal
assets/ clerks/
supervisor

OBJECTIVES:

To achieve optimum inventory by proper planning and control initiating action to

subject in department for procurement of materials at right time, right quantity and right
quality, also proper storage and issue of materials to meet the requirement of user
departments for un interpreted activities.

1.The total storage inventory not to exceed Rs.15 crores .

a) Chemicals, dyes, raw materials, fuels Rs.5 crores.
b) General or engineering store includes Rs.10 crores.
2. Lead time required for raising procurement indent.
With drawings

9 days

Without drawings

3 days

3.Clearence of stores in world report (sir) From the date of receipt of material not
exceed 15days
4.No of stock outs in a month not to exceed : Zero
(1)

Chemicals, dyes, raw materials, fuel, packing material and process

items.

(2)

General maintained spares etc 300items

5.No of discrepancies with in the stores not to exceed 5% of the total

item.
A category item 2%
B category item 3%
C category item 5%

95

6.awarness on E.M.S to all the person at (stores) materials department by way of

monthly training programme
7.No of training session in a quarter (one each for month for office or junior staff or
workers)---3sessions
8.To maintain good stores keeping and to improve methods for handling of material in
order to bring down the accidents to zero.

96

PURCHASING PROCESS PROCEDURE FOR SUPPLIER RATING:

Purpose: To define the method of evaluating the performance of approved vendor.
Scope: The procedure covers the rating of supplier the following items
Caustic type
Chlorine
Fortified resin
Limestone
Burnt lime
Normal / high brightness soap, stone powder.
Sodium sulphate
Starch
Whitening agent
Ferric and non-ferric alum
Wires or felts
Knives
Refiner plates.

METHOD: 1. Equation of performance of supplier in respect of the item indicated in these scope of
procedure should be carried out on two parameters viz quality performance and delivery
performance.
2. Input for quality performance and delivery performance should be form the stores
inward report (SIRs).

97

CHAPTER- VI
FINDINGS
SUGGESTIONS

SUMMARY

98

This study is carried out with the prime objective of understanding the inventory
management practices of A.P.P.M. Ltd., inventory management refers to an optimum
investment in inventories. It should be neither inadequate nor excessive. This study mostly
concerns the inventory decisions of A.P.P.M. Ltd., that is how much to order, that is, what is
the optimal quality of an item that should be ordered, when should be order be placed and
also how much safety stock should be kept. Thus what quantity of an item in excess of the
expected requirement should be held as buffer stock in anticipation of the variations in its
demand and or the time involved in acquiring fresh supplies is the essence of inventory
management.

Purchasing procedure and storing procedure of raw material, Work-in-process and

finished goods in A.P.P.M. Ltd., the study also relates to such aspects as which type of
materials are used and which type of inventory management techniques are used to exercise
the inventory control.

Inventory management techniques include various aspects as Economic Order

Quantity, Safety stock and Re-order point which are employed to regulate the inadequate and
excessive inventory in A.P.P.M. Ltd.

FINDINGS

99

1. There is a lack of inventory classification system based on a variety of practical norms

like consumption rate importance in production.

2.

Lead-time for the items was very high. It is high in A Class items.

3.

The system computers must be further improved which will reduce workload is not any
proper policy for control inventory norms. For example: consumption rate.

4.

The codification followed has resulted in frequent misunderstanding of material

requisition orders.

5.

There is no proper and good communication between the purchases and stores
department, which cause procedural delays.

6.

Conversion period was also varying from time to time that

is conversion from raw

material to finished goods.

7.

The company is not follows the EOQ (economic order quantity) in issuing the raw

material.

8.

Company is follows FIFO (first in first out) to issuing the raw materials to the

production, weighted average method for issuing spares, and remaining is issued at valued at
cost.

9.

The company has been minimizing the investment to maximizing the profitability.

100

10. The company has been maintained 3 types of inventories. Such as, ABC categories

11. Materials department and Bin cards system maintain in APPM to control the inventory.

12. The company maintains separate accounts for spares, chemicals and various categories of
inventory.

13.

The APPM pays the sales tax at four percentage (4%) and Excise tax at various
percentages such as (8%, 10%, 12%, 14%, 16%, 18% and 25%).

14. The company follows the MODVAT scheme. This scheme was introduced by the central
government. The main object of the scheme is pay the single tax rather than various
taxes.

SUGGESTIONS

1.

Finding

of

items

that

reached

the

re-order

level

and

raise the procurement of Indent is done by the stores clerk. But this can be done by the
system itself by setting the appropriate system software programmed. It will reduce
the workload.

101

2.

Investment in fast moving and non-moving items is high and it must be reduced freely
available items are also maintained at stock levels. Excess investment in the available
items must be reduced as the transportation is at

advanced stage. So no need to

maintain them at large quantity.

3.

Centralization of stores in names itself indicating, but actually there is a diversified

stores located at different places, which will lead to lack of communication and high
overheads and maintained charges. So they must come under one roof.

4. Simple codification procedure may exist of correct the occurrence in the existing system.

5.

Suppliers are located at a distance from the company. Suppliers are scattered all over
North India that resulted in higher lead-time. So there is a need to locate the local
suppliers.

6. For efficient inventory management proper item classifications system is necessary that is
establish of ABC and VED analysis.

7.

Conversion period of raw materials to finished goods is varying from time to time. This
variation can be reduced by better co-ordination of the activities of all departments
concerned.

8.

The sundry expenses like telephone charges and traveling expenses must reduce the
ordering cost.

102

9.

For effective inventory management following techniques have to be followed

VED analysis vital, essential and desirable categories

F.S.N analysisfast moving, slow moving and non-moving.
HLM analysis-- high cost, low cost, and medium cost.
SOS analysis-- seasonal and off- seasonal analysis.
GOLF analysis-- government, ordinary, local and foreign sources of
availabilities of inventory.

10.

To use the old material or FIFO (first in first out) first the storage godowns must have twoway door systems, through one door storage is loaded and from the other storage is
unloaded of raw materials.

103

BIBLIOGRAPHY
AUTHOR
I.M. PANDEY

KHAN & JAIN

R.P. RASTUGI
PRASANNA
CHANDRA
B.S.GOEL

BOOK TITLE
FINANCIAL
MANAGEMENT

PUBLISHER
VIKAS PUBLISHING
HOUSE PVT LTD.,

FINANCIAL

1990 Edition
TATA MC GRAW

MANAGEMENT
FINANCIAL

1998 Edition
KITAB MAHAL

MANAGEMENT
FINANCIAL

2000 Edition
S.CHAND

MANAGEMENT
INVENTORY

2002 Edition
Kalayani Publishers

MANAGEMENT

2002 Edition

Magazines: FINANCE INDIA

CAPITAL MARKET

WEB SITES: www.andhra paper.com

104