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INTRODUCTION
After discussing among ourselves and with our Guide Dr. Rajeev N, we happened to
know that it will be better to conduct a survey in various engineering industries in Palakkad
for analysis of their inventory management and major related issues influencing the inventory
management and to establish a relation between inventory management and firm
performance.
Under this circumstance we carried out a survey to explore the inventory management
related issues in the engineering industries of Palakkad.

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LITERATURE-SURVEY
Firm performance
In the business policy literature there are two major streams of research on the
determinants of firm performance. One is based primarily upon an economic condition,
emphasizing the importance of external market factors in determining firm success. The other
line of research builds on the behavioral and sociological paradigm and sees organizational
factors and their fit with the environment as the major determinants of success. Within this
school of thought, little direct attention is given to the firm's competitive position. Similarly,
economic factors also have an influence on the firm performance.

Inventory Management
It concerned with planning, organizing and controlling the flow of materials from their
initial purchase through internal operations to the services points through distribution.
The main aims of inventory management are
To get
1. The right quality
2. The right quantity of suppliers
3. At the right time
4. At the right place
5. For the right cost
The purposes of inventory management are

To gain economy in purchasing

To satisfy demand during period of replenishment
To carry reserve stock to avoid stock out
To stabilize the fluctuations in consumption
To provide reasonable level client services

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The main objectives of inventory managements can be listed as follows

Primary

Secondary

Right place
High turnover
Low procurement and storage cost
Continuity of supply
Consistency in quality
Good supplier relation
Good information system

Forecasting
Inter departmental harmony
Product improvement
Standardization
Make or buy decision
New materials and products
Favorable reciprocal relationships

Four basic needs of inventory management are

To have adequate materials on hand when needed
To pay the lowest possible prices, consistent with quality and value requirement for
purchases materials
To minimize the inventory investments
To operate efficiently
Main elements in inventory management are

Demand estimation
Identify the needed items
Calculate from the trends in consumption during last two years
Review with resources constraints

Types of inventers
1. Raw material inventors: Each and every firm purchase raw material before operations
without any processing on it
2. WIP:( Work In Progress),The raw materials during the processing period is known as
WIP. At that time it will in semi finished state.
3. FG: (Finished Good Inventory) The raw material after the complete processing it is
called as a finished good inventory.

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OBJECTIVES
To study the inventory management practices persuade and their performance in the
engineering industries of Palakkad.
To study the characteristics of the surveyed enterprises.
To explain the major factors influencing the inventory management and to establish a
relation between inventory management and firm performance.

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SCOPE

Inventory management is an important parameter as far as the manufacturing industries

are concerned. If the significant given to inventory management is, it will create an adverse
on the production side and firm performance.
So we decided to conduct a study on the topic Inventory management and firm
performance in the engineering industries in Palakkad.
Under this circumstances we selected a sample of 20 units from varies industrial estate
in Palakkad to study about their inventory management and how this affects the firm
performance.

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METHODOLOGIES
Descriptive Analysis Using Tables and Graphs.
Correlation Analysis
Regression Analysis Using SPSS

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ANALYSIS
General characteristics of studied industries in Palakkad
The analysis provides basic characteristics of engineering Industries with reference to
surveyed of firms in Palakkad. This will facilitate understanding of their manufacturing
process, proccesment analysis etc that influence the current level of energy efficiency and
material management efficiency in proper perspective. Accordingly a descriptive analysis of
the characteristics of the sample units is done in this study.
General characteristics are classified into different groups, general characteristics
comprising of Location, Age, Number of products and Qualification of the entrepreneur.
The chosen industries located at different industrial estates in the city of Palakkad.
The maximum number of industries include in this study from Kanjikode area (NIDA-New
Industrial Development Area). Owing to the fact that this is one of the prominent and biggest
industrial region in the Palakkad city. This is followed by industrial areas such as
Puthupariyaram, Olavakode. The details of the location of the surveyed industries as shown
in the Table 1.
Table 1 : Locations of firms in Palakkad

SL.NO.
1

LOCATION
KANJIKODE

NO OF UNITS
14

% OF UNITS
70

PUDUPARIYARAM

15

3
4

OLAVAKODE
OTHERS

2
1

10
5

20

100

TOTAL

LOCATIONS OF FIRMS IN PALAKKAD

0LAVAKODE

KANJIKODE

15%

PUDUPARIYARAM

OTHERS

5% 10%

70%

Fig 1 : Locations of firms in Palakkad

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Similarly the Age of the surveyed units a maximum number of 9 units where established
between 1990 and 2000, followed by 8 units where between 2000 and 2010. Nearly 5 %
industries were established after 2010. The details of the Age of the surveyed industries are
shown in the Table 2.
Table 2 : Age of surveyed units

SL.NO

YEAR OF ESTD

NO. OF UNITS

% OF UNITS

1
2
3
4
TOTAL

<1990
1990-2000
2000-2010
>2010

2
9
8
1
20

10
45
40
5
100

AGE OF SURVEYED UNITS

<1990

1990-2000

5%

2000-2010

>2010

10%

40%
45%

Fig 2 : Age of surveyed units

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Similarly maximum number of manufacturing units produced fasteners and some are
focusing on MS ingots, nearly 15 % entrepreneur concentrating on polymers, and others
followed by bars and steel rods etc. The details of products manufacturing in surveyed
industries are shown in Table 3.
Table 3 : Product Varieties

SL.NO
1
2
3
4

PRODUCT
NAME
POLYMERS
FASTENERS
MS INGOTS
OTHERS
TOTAL

NO. OF UNITS

% OF TOTAL
UNITS

3
6
6
5
20

15
30
30
25
100

PRODUCT VARIETIES
POLYMERS
15%

OTHERS
25%

FASTENERS
30%

MS INGOTS
30%

Fig 3 : Product varieties

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The qualification of entrepreneur has a significant influence on the quality of the product
manufactured. There for the study probed this issue also and found that maximum of
entrepreneurs are Diploma holders, some are degree and followed by B.tech holders. The
details of the Qualification of entrepreneur in surveyed industries as shown in Table 4.
Table 4 : Qualification of entrepreneur

SL.NO

QUALIFICATION

NO. OF UNITS

DEGREE

% OF TOTAL
UNITS
30

DIPLOMA

40

B.TECH

15

OTHERS

15

20

100

TOTAL

QUALIFICATION OF ENTERPRENEUR
OTHERS
15%
B.TECH
15%

DEGREE
30%

DIPLOMA
40%

Fig 4 : Qualification of entrepreneur

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From the surveyed firm a detailed analysis of size characteristic is done, which include size
of labour force, current investment (capital) and value of production and turn over. The detail
of the number of employees of the surveyed industries as shown in the Table 5.
Table 5 : No of Employees

SL. NO

NO. OF
EMPLOYEES
0-15
16-30
30-45
>45

1
2
3
4

NO.OF UNITS
9
5
3
3
20

TOTAL

% OF TOTAL
UNITS
45
25
15
15
100

NO. OF EMPLOYEES
>45
15%

0-15
45%

31-45
15%

16-30
25%

Fig 5 : No of Employees

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The study probed that most of the firms started with a capital investment ranging from 21100 lakhs, some small scale entrepreneurs having capital investment less than 20 lakhs and a
very few are having capital investment above 200 lakhs. The details of the capital investment
of the surveyed industries as shown in the Table 6.
Table 6 : Capital Investment

SL.NO

CAP.
INVESTMENT(LAKHS)

NO. OF UNITS

% OF TOTAL
UNITS

1
2
3
4

<20
21-100
101-200
>200

3
11
3
3
20

15
55
15
15
100

TOTAL

CAPITAL INVESTMENTS
<20 LAKHS

21-100 LAKHS

15%

101-200 LAKHS

>200 LAKHS

15%

15%

55%

Fig 6 : Capital Investment

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Turnover describes current status of the particular firm and it also indicates whether the
firm is running in feasible mode or not. The study probed that most of the surveyed firms are
having turn over in the range 50-250 lakhs, a moderate amount are having turnover in the
range 250-500 lakhs and a very few are having turnover less than 50 lakhs. The details of the
turnover of the surveyed industries as shown in the Table 7
Table 7 : Turnover

SL.NO

TURNOVER(LAKHS)

NO. OF UNITS

% TO TOTAL
UNITS

1
2
3
4

< 50
50- 250
250- 500
>500

3
7
5
5
20

15
35
25
25
100

TOTAL

TURNOVER
<50 LAKHS

50-250 LAKHS

250-500 LAKHS

>500 LAKHS

15%

25%

35%

25%

Fig 7 : Turnover

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Next issue probed in this study is functional characteristics consisting of material input,
technology in uses, method of marketing, purchasing of energy inputs (energy details,
supplementary fuel).
The surveyed industrial units face serious problems regarding material management are
1. Non-availability of quality material
2. Transportation problems
3. Stock out problems
4. Availability of inferior quality material from other countries and states
Any how a joint action for material pro requirements and marketing even though a good
proposal to implement was rejected by the entrepreneurs. The details of the source of supply
of materials used in the surveyed industries as shown in the Table 8
Table 8 : Source of supply of materials

SL.NO

SOURCE OF SUPPLY

NO. OF UNITS*

% TO TOTAL UNITS

SUPPLY WITHIN
STATE
SUPPLY WITHIN
NEARBY STATE
SUPPLY WITHIN
INDIA
OVERSEAS
TOTAL

20

15

42.86

11

31.43

2
35

5.71
100

2
3
4

*most of the surveyed firms depends more than one source for their raw material collection

SOURCE OF SUPPLY OF MATERIALS

SUPPLY WITHIN STATE

SUPPLY WITHIN NEARBY STATE

SUPPLY WITHIN INDIA

OVERSEAS
6%
20%

31%

43%

Fig 8 : Source of supply of materials

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Surveyed firm to a large extend depend on electrical energy for their production purpose.
A majority of surveyed firms commented that their major energy related problems are
1. Power failure
2. Three phase billing
3. Lack of voltage
Due to energy crisis many industrial units relay on alternate fuels such as diesel, coal,
firewood and details are shown in table 9.
Table 9 : Alternate Fuel Used

SL. NO
1
2
3
4

ALTERNATE
FUEL USED

NO. OF UNITS

% TO TOTAL
UNITS

3
4
2
11
20

15
20
10
55
100

DIESEL
COAL/FIRE WOOD
QUENCHED OILS
NOT USED
TOTAL

ALTERNATE FUEL USED

DIESEL
15%
COAL/FIRE
WOOD
20%

NOT USED
55%

QUENCHED OIL
10%

Fig 9 : Alternate fuel used

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Another important characteristics analyzed in this study is the organizational

characteristics comparing physical and interactive features of units.
The mode of interaction practiced energy industries in Palakkad shows a lack of interaction
(shown in table 10)
Table 10: Mode of interaction practiced by industries
Interaction mode

No. of Units

Formal
a) Association meeting

b) Industry promotion
ceremony
c) Seminars, conference,
workshops/exhibitions etc.

0
2

Informal

Nil

13

An important channel of information among industries is the interaction of entrepreneur

among themselves, for industries located in industrial estates, there is scope for interactions.
However the present study found that the willingness to interact with fellow entrepreneurs is
virtually absent.

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The bar diagram shown below represents the correlation analysis between Capital
investment and Turnover of the surveyed firms. From the analysis we seen that the Capital
investment mainly depends the year of establishment of the firm. Certain industries
established after 2005 from our survey shows that the capital investment is more than the
turnover. Many of the firms from our survey has a dominancy on turnover when comparing
with capital investment.

CAP. INVESTMENT(LAKH)
TURN OVER(LAKHS)
3500
3000
2500
2000
1500
1000
500
0
1

9 10 11 12 13 14 15 16 17 18 19 20

Fig 10

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The relationship between amount spent on energy and turn over can be viewed from the
following bar diagram .From the table it is understood that amount spent on energy is a main
parameter which effect turnover of the firm. For certain companies it is comparable value
with that of turnover, and for certain companies, the amount spent on energy is very small
and huge turn over which is due to services.

TURN OVER(LAKHS)
ENERGY AMOUNT(LAKHS)
800
700
600
500
400
300
200
100
0
1

9 10 11 12 13 14 15 16 17 18 19 20

Fig 11

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Once the firm has decided on the foremost issues of which product it wants to produce
and the location of the industry, the next important step is to select appropriate technology
and equipment to produce the same. In addition to this the source of raw material has to be
decided upon. Since the productivity of the company mainly depends upon the quality of the
product manufactured by the firm, for which the availability of good quality raw material is
necessary.
From our survey we seen that the main part of turnover is shared by amount spend on raw
materials. The correlation analysis between amount spend on raw material and turnover is as
shown below.

TURN OVER(LAKHS)
MAT. AMOUNT(LAKHS)
800
700
600
500
400
300
200
100
0
1

9 10 11 12 13 14 15 16 17 18 19 20

Fig 12

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The amount spent on the labour is the second most serious factor that alter turnover after
material amount. The relationship between the turnover and the amount spent on labour of
surveyed firms is as shown below

TURN OVER(LAKHS)
LABOUR AMT.(LAKHS)
800
700
600
500
400
300
200
100
0
1

10 11 12 13 14 15 16 17 18 19 20

Fig 13

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Energy Efficiency(%)
90
80
70
60
50
40
30
20
10
0
1

10 11 12 13 14 15 16 17 18 19 20

Energy Efficiency(%)

Fig 14

Material Management Level(%)

70
60
50
40
30
20
10
0
1

10 11 12 13 14 15 16 17 18 19 20

Material Management Level(%)

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Fig 15

Importance Given to Energy Audit

Procedure(%)
90
80
70
60
50
40
30
20
10
0
1

10

11

12

13

14

15

16

17

18

19

20

17

18

19

20

Importance Given to Energy Audit Procedure(%)

Fig 16

Raw Material Related Problem(%)

45
40
35
30
25
20
15
10
5
0
1

10

11

12

13

14

15

16

Raw Material Related Problem(%)

Fig 17

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Demand Variability of the Material(%)

90
80
70
60
50
40
30
20
10
0
1

10

11

12

13

14

15

16

17

18

19

20

Demand Variability of the Material(%)

Fig 18

Demand Forecasting(%)
80
70
60
50
40
30
20
10
0
1

10

11

12

13

14

15

16

17

18

19

20

Demand Forecasting(%)

Fig 19

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REGRESSION ANALYSIS

Variables Entered/Removed (b)

Model

Variables
Variables
Entered
Removed
1
MA (a)
a. All requested variables entered.
b. Dependent variable : VA

Method
Enter

Model summery (b)

Model

R square

1
.869 (a)
a. Predictors : (constant), MA
b. Dependent variable : VA

Adjusted R
square
.740

.755

Std. Error of
the estimate
122.9965

Coefficients (a)
Mode

Unstandardized
Coefficients
B

(constant)
MA

-31.777
.492

Std.
Error
33.822
.068

Standardized
Coefficients
Beta

.869

Sig.

-.940
7.233

.361
.000

a. Dependent variable : VA

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INFERENCE
A survey study is conducted in the engineering industries of Palakkad and the following
results were obtained.
The study probed the following aspects of engineering industries in Palakkad
from a sample of 20 industries such as
General characteristics
Location of industries
Age of surveyed units
Manufacturing products
Size of labour force
Functional and organizational characteristics
After analyzing this major characteristics, a good number of variables influencing
inventory management and firm performance were emerged from this study like interactions
with supplier, interactions with customer, quality of alternate energy fuel, raw material
availability, demand forecasting frequency and raw material ordering frequency, etc.

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CONCLUSIONS
We conducted a survey based on the topic an exploratory study of Inventory
management and firm performance in the engineering industries in Palakkad . For the studies
purpose 20 industries were selected and the descriptive, correlation & regression analysis is
done based on the collected data.
After analyzing this major characteristics, a good number of variables influencing the
inventory management were obtained. Interactions with supplier, interactions with customer,
quality of alternate energy fuel, raw material availability, demand forecasting frequency and
raw material ordering frequency, etc.
The major problems regarding the inventory management and firm performance are listed
below
Power failure is the most tedious problems as far as production industries are
concern why because all of they are having primary energy source is
electricity
The new implemented three phase billing system has a bad impact on these
industries
25%power reduction in power supply
Lack of good quality raw material
Transportation problem
Increment in price of raw materials
From the surveyed industries the most of the industries are situated in Kanjikode. Most
of them are established in between 1990-2000. The major product varieties among these
industries are MS ingots and Fasteners. Most of the entrepreneurs are belong into diploma &
some are B.tech graduates. Most of the firms having number of employees in the range 1-15
there is dominancy in the capital investment in the range 21-100 lakhs & most of them are
not at all depending secondary fuel to a major extent.
The regression analysis shows a value 0.750 for adjustable R Square. This means that the
value added element is specifically (74%) influenced by the material cost .This indicates that
material cost can affect the performance of the firm.

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REFERENCES

1. DETERMINANTS OF FIRM PERFORMANCE: THE RELATIVE

IMPORTANCE OF ECONOMIC AND ORGANIZATIONAL FACTORS
GARY S. HANSEN
Graduate School of Management, University of Washington, Seattle, Washington,
U.S.A.
BIRGER WERNERFELT
Alfred P. Sloan School of Management, Massachusetts Institute of Technology
2. INNOVATIVE SYSTEM DESIGN AND ENGINEERING
ISSN 2222-1727 (PAPER) ISSN 2222-2871 (ONLINE)
IRAWATI NAIK
Bharati Vidyapeeth Deemed University
College of Engineering, Pune, India
Himanshu Naik
Bharati Vidyapeeth Deemed University
College of Engineering, Pune, India
3. www.wikipedia.org

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