CHAPTER-I

1.1 INTRODUCTION
Inventory control is vitally important to almost every type of business, whether product
or service oriented. Inventory control touches almost every facets if operations. A proper balance
must be struck to maintain proper inventory with the minimum financial impact on the customer.
Inventory control is the activities that maintain stock keeping items at desired levels. In
manufacturing since the focus is on physical product, inventory control focus on material
control.
Inventory means physical stock of goods, which is kept in hands for smooth and
efficient running of future affairs of an organization at the minimum cost of funds blocked in
inventories. The fundamental reason for carrying inventory is that it is physically impossible and
economically impractical for each stock item to arrive exactly where it is needed, exactly when it
is needed.
Inventory management is the integrated functioning of an organization dealing with
supply of materials and allied activities in order to achieve the maximum co-ordination and
optimum expenditure on materials. Inventory control is the most important function of
inventory management and it forms the nerve center in any inventory management organization.
An Inventory Management System is an essential element in an organization. It is comprised of a
series of processes, which provide an assessment of the organizations inventory.
Every organization (or) enterprise needs inventory for the smooth running of its activities,
it is a link between production and distribution process.

Inventory constitute the most important part of current assets. It is approximately 60 to

65% of current assets in public limited companys in India. So that it is very essential to name a
1

proper control and management on inventories, for that every organization must maintain the
availability of required materials in sufficient quantity as and when required and also to
minimize inventory investments.

Inventory consists of the following

Raw materials

Work-in-process

Finished goods

Raw Materials

These are basic inputs that are converted into finished products.

Work-in-Progress

These are semi-manufactured products

Finished Goods

Inventories are those completely manufactured products which are ready to sale and to use.

Need of Inventory

Every firm must maintain adequate inventory or its smooth running of the business and to
give the competition to our competitors and not to loss of customers and business for that
purpose maintenance of adequate inventory is must.

To facilitate smooth production and sales operations

To face the risk of variation in demand and supply

To face the price changes in inventory and quantity discounts.

Inventory Holding

Holding of inventory involves blocking of a bring funds and the costs of storage and
handling

Holding of inventory helps in separating the process of purchasing, producing and

selling. In case a firm does not hold sufficient stock of raw materials, finished goods etc., the
purchasing of raw materials would taken place only when the firm receives the order form a
customer. It may result in delay in executing the order because of difficulties in obtaining raw
materials, finished goods etc., thus inventory provides caution so that purchasing, production and
sales functions can proceed at optimum speed.

There are three main purposes or motives of holding inventory.

1.

The Translate Motives

Which facilitates continuous production and timely execution of sales orders.

2.

Precautionary Motives
Holding of inventory for meeting the unpredictable changes in demand and supplies of

materials.
3

3.

Speculative Motives
To keep inventory for taking advantage of price fluctuations, saving in the reordering

costs and quantity discounts etc.,

BENEFITS OF HOLDING INVENTORY

1.

1.

Avoiding losses of sales

2.

Reducing ordering costs

3.

Achieving efficient production live/ runs

Avoiding loss of sales
If we maintain sufficient stocks, when over the order will come automatically the

production will stores and there is no loose of customers.

2.

Reducing Ordering Costs

Typing, checking, approving and mailing the order etc., can be reduced if la firm place a
few orders.

3.

Efficient Production runs

Maintenance of large inventories helps a firm in reducing the set-up costs associated with
each product line.

For Eg: If the set up cost is Rs.100 to produce 200 units the cost per units is Rs.0.5 in case the
production is increased 400 units the cost P/U is 0.25

RISKS ASSOICATED WITH INVENTORY HOLDING

1.

1.

Prices of products will decline

2.

Product deterioration

3.

Obsolescence

Prices Decline
This may be due to increase in the market supply of the product, introduction of a new

competitive product, price cutting by the competitors.

2.

Product Detioration
This may be due to holding a product for too long period or improper storage conditions.

3.

Obsolescence
This may be due to change in customers taste.

COST OF HOLDING INVENTORY ARE AS FOLLOWS

1.

1.

Materials cost

2.

Ordering cost

3.

Carrying cost

Materials cost
This includes the cost of purchasing the goods, transportation and handling charges.
5

2.

Ordering Cost
The variable cost associated with placing an order for the goods

3.

Carrying Cost
The expenses for storing the goods.

ESSENTIAL OF GOOD INVENTORY HOLDING SYSTEM

1.

Classification and codification of inventory by allotting proper code numbers to each

item and group and regroup on some basis.

2.

Adequate storage facility

3.

Standardization and simple fiction of inventory in order to maintain quality and

reduce the no. of items

4.

Setting different levels and reorder point for each item of inventory

5.

Fixing economic order quality

6.

Maintain adequate inventory records and reports and statements.

7.

Experienced personnel for handling inventory properly.

INDUSTRY PROFILE
About the industry
We have heard of the traditional manufacture of silk in the Chinese culture. The art of spinning
linen and weaving was not unfamiliar to the Egyptians. It was 3400 BC that Egypt had
developed the art and was running it successfully.

As a competition always creates a better

market, the competitive threat from synthetic fibres resulted in an in-depth research to develop
new and improved sources of natural fibre with greater yields. It further improved the production
and processing methods and modification of fibre yarn or fabric properties. New fibre plants
sprung up and its usage was extensively explored by products.
Textiles also refers to the yarns, threads and wools that can be spun, woven, tufted, tied and
otherwise used to manufacture cloth. The production of Textiles is an ancient art, whose speed
and scale of production has been altered Almost beyond recognition by mass-production and the
introduction of modern manufacturing techniques. An ancient Roman weaver would have a
problem recognizing a plan weave, twill, or satin.
The history of textile market using natural fibres is ancient. Starting from 500 AD the pages of
textile history have grown richer. With inventions and technical advancements to reach where it
stands today. Silk culture was introduced in India in times a ancient as 400 AD, while reports of
spinning of cotton date of Hemp, know perhaps as the oldest fibre plant that originated in southeast Asia, and spreads to china, dates back to 4500 BC.

TEXTILES AS A GROWING INDUSTRY

Textiles and woven fabrics are used worldwide in a wide variety of applications such as the
apparel industry, household textiles, and furnishings medical items, industrial uses and technical
products. The global textile market stands high, with the fabric weaving consumption reaching
about 28 million tons of fibre every year.It has been predicted that global production of woven
products will grow by 25% between 2002 to 2010 reaching more than 35 million tons.
7

TEXTILES MACHINERY
The world economy is imprinted with rich history of the Textiles industry and its evolution and
progress since ages. Weaving is one of the oldest crafts that have surveved till date, dated back to
the Neolithic ages, at most 12000 years back. It is true that mans need for clothing, since first
sign of civilization and the spinning of wool fibre into yarn and the weaving of cloth has led to
development of new technology for the textile industry.

EARLY SPINNING
The early textiles fibres available for spinning into yarn and then weaving into cloth was wool
from the sheep. The spinning process used to be divided into two primary stages. The fluce is
opened to create a silver of fibre which can be drawn out to produce a fine thread. It used to be
then twisted into yarn. The yarn was afterwards wrapped on to a stick a flywheel added at the
lower end to produce a spindle. This led to the development of spinning wheel in India first and
then reached Europe during the late 14th century.

THE LOOM HISTORY

The first loom history is believed to have been simple with a straight tree branch running parallel
to the ground. The lengthwise wrap threads were hung from the branch weighted at their lower
ends and weft threads interlaced to create a rough textured cloth. It was later switched to
horizontal orientation. Leonardo Da Vinci is known to have designed a mechanical loom to be
driven by water power during AD 1080. .

TEXTILES MECHANISM
Many important inventions took place during the 16 th century, often having important spin off
effects on other parts of the overall process of textile manufacture. Kays

device

became

immediately unpopular with weavers because of their fear of losing their jobs. It was soon
realized that the use of Kays invention would drastically change the world, make cloth
expensive and more readily available for masses. The first enhancement in the early spinning
machines came in 1737 when Lewis Paul and John Watt invented the roller method of spinning
which made the spinning of yarn possible without having to work it with the fingers.
8

The spinning mule was invented by the Spinner Samuel Crompton, from Boston, after year 1779.
The device combined the features of both the spinning Jenny and the water frame. The
improvement in the spinning technology soon made it possible to produce yarn much faster than
the woven yarn. During the middle of 1780, Edward Cartwright invented the first steam powered
loom to further enhance production.
PRESENT CONDITION OF THE INDUSTRY
The growth of the cotton spinning sector, in terms of capacity, received an impetus in 1991 with
the deli censing of spindle age. Installed spindle age has been rising steadily age has been rising
steadily since then, in 1991, the number of spindles installed was around 26.27 million and the
number of went up to nearly 50 million in 1995 (in the non-SSI units). The total spindles
installed by 2007 are estimated to have gone up to 400 million. However, adverse factors such
as the South Asian Crisis, worldwide economic slowdown and increased costs hit the spinning
industry which could not benefit from the expanded capacity. The phenomenal rise in raw
dimension to the economics of the spinning sector.
All these were reflected in stagnant production in the past eight years. Cotton spun yarn
production (excluding blended and 100 percent

non-cotton yarn! Declined from 2.213

million kg in 1997-98 but recovered to 2.266.86 million kg in 2000-01 liable II). Spindle
capacity utilization, which was 76 percent in 1991-1992, had gone up to 86 percent in 1996-1997
fell to 79 percent in 2004-2005 before bouncing back to 83 percent in 2005-2006.
The share of spinning capacity of South Indian Mills (include small scale spinning units) in All
India capacity is estimated to be around 50 percent. As on march 31, 2006, the spinning capacity
was 57.41 million. During 2005-06, while the power loom sector had consumed around 24
percent was exported.
A major portion of cotton yarn exports is to the non-quota countries. While it started with fine
counts, a wide range of counts are being exported now. In 1991, exports to quota countries were
31.62 million kg and to non-quota countries 89.49 million kg. In 2006, these were 57.41 million
kg and 1521.33 million kg respectively. Thus the percentage of exports to quota countries came
9

down from around 2.6 percent in 1991 to about 17 percent in 2006. during 1994-2006, some of
the major destinations for Indian cotton yarn exports had been South Korea, Bangladesh and
Hong Kong. According to a report on Achieving Breakthrough Growth in Cotton Textile
Export. India has a large and modern spinning industry and a major portion of its capacity is in
the organized sector.
The cotton yarn spinning units could capitalize on the growth in yarn imports expected in key
Asian destinations. According to the Chairman of Southern India Mills Association (SIMA),
there has been a revival both in the domestic and export markets. However, if the revival is to be
sustained, certain issues need to be addressed, he feels.
The Chairman of Textile Export Promotion Council, says a major step needed is to reduce the
cost of production. The cost of almost all components---power, raw material, transport and
labour----has gone up during the last four or five years. The total cost of production of cotton
yarn in ring spinning (80s) in 1995 was about Rs. 178.40 a kg. In 2006, it had shot up to
Rs.1776.54 a kg. In order to make availability raw cotton of good quality at reasonable price, the
price, the thrust is on integrated cotton farming now. On the growth of the industry should get
power at international cost. India has a 24 percent share in the global cotton yarn market and this
can be increased further if the power cost is less, he claims.
There is also a need to increase the productivity to most international competition. Some of the
textile industries can be divided as follows:
Awning, textile
Blankets
Bags or sacks, textile
Blind textile
Canvas goods
Cordage piece good
Rope (except wire rope)
Sail cloth

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 Sewing thread
Soft furnishing
String
Elasticized fabrics
Tarpaulins
Fabrics textile
Tents
Felt (except floor covering)
Textile n.e.c
Glass fibre fabrics
Thread
Household linen
Towels
Lace
Trimming, textile
Narrow fabrics
Yarns
Netting textile
With advent of new techniques in the sphere of production, the meaning of word Textiles has
also undergone some changes. Textiles, therefore really means any materials made from the yarn
either by adopting a process of weaving or knitting.

The textiles industry is very much

complex and have such an important bearing on our daily lives that everyone needs to know
something about them.
In India textiles is the second largest business giving employment field after agriculture and
largest foreign exchange earners. Mumbai is the Manchester of India. Manchester is the city in
U.K. which discovered many Textiles items like automation of handmade into machine made.
Mumbai, Chennai, Delhi, Kolkata, , Ahmedabad, Tirupur,
Bhavani are the main export centers of India.
11

Cannanore, Panipet, Madurai, ,

Industry leaders
KKP Group of companies
KKP Group of companies is located at Namakkal. KKP Group has been serving international
customers for 20 years. The bulk of their customers are Garment manufacturers who are very
fastidious about quality, price & delivery schedule.
It is owned & operated by the family members itself but they promise friendly service and
commitment to customer satisfaction. made-ups, ability to understand the clients needs,
perception of eye catching and attractive designs, deep knowledge and understanding of
technology involved, combined with hands on experience at the shop floor level, contributed to
the growth of clientele and expansion of the group. The product ranges are Cotton Yarn, Grey
Fabrics, and Made-Ups. Mr.K.K.Periyaswamy ventured into textiles by buying a small unit
having a capacity of 2000 spindles in 1983. Today KKP Group has grown from a 2000 spindle
unit to 80000 spindle unit parallel developing in house manufacturing facilities for Weaving and
Made-Ups.
Their passion is to achieve top quality in spinning, weaving and manufacture. The mill was
commissioned in the year 2008 with 12096 spindles as initial stage and finished with 16128
spindles and planned to go up to 32000 spindles within a very short period. The promoters of the
company have a long presence in the weaving industry.
They are into the manufacture of sarees, dhotis, garments, and some textile catering to
international and domestic markets. KKP group of companies is a brand new spinning mill with
state of art machineries from TRUTCHLER, LMW, SAVIO and very well designed with neat &
clean environment which is essential for getting high class yarn quality. The mill is situated in
Namakkal with very strong and vibrant team of Textile Professionals for the production of
POLYESTER VISCOSE blended products with internationally acceptable quality with
"STATE OF THE ART" spinning technology, our infra-structure facilities are on par with
international textile standard.

12

Mouli Spinner Limited

Mouli Spinner Limited (MSL) was set mainly to cater to the Trends in the Manufacture of
Variety of Yarns. Basically, the Managing Directors and Directors of the Company are integrated
in Textile Business more than Twenty five years is well known Brands of Synthetic Fashion
Fabrics and Garments.

MSL is build on the vision of providing customers REAL VALUE FOR MONEY. Mainly our
focus is on Value Addition rather than Volumes. We are known in the Market for our Hosiery,
wary, Twisted and Variety of Fancy Yarns. It has been able to keep its prices Competitive by
controlling the quality. It takes several cost effective measures at all levels of operation.A very
highly dedicated team and best systems was set up in MSL and it is mostly Concentrated on
Improving its product.

Operational efficiency of the spinning mill attained by taking effective preventive maintenance
of the role, improving the work practice and House keeping. A very high transparent and
effective communication at all the levels helped upto win the confidence of workers and get their
co operation in developing our MSL to great. Customer service got top priority, regular feedback
and surveys helped MSL in enhancing customers Relations.It is fully satisfied its customers are
exceeding their expectations and offering their innovative products at most affordable prices.
New Yarns having different blends shades, Structure were developed for the customers should
get Value for Money. Practical approach in decision making and mutually beneficial supplier
relation was the Reasons for the Success of our MSL

Gangotri Textiles Limited

13

Gangotri Textiles Limited, a vertically integrated textile unit has world class in- house facilities
from processing yarn to manufacture of finished garments. It was established at the year of 1989.
With a clear vision, a sense of purpose and sheer hard work, guided by a team of professionals
and steered by an enterprising management, Gangotri continues to diversify its products and
extend its customer reach.
Gangotri began its textile journey with dealings in cotton waste and today its world renowned for
its branded garments-tibre. Under the dynamic leadership of Sri. Manoj Kumar Tibrewal,
Managing Director of the Company, the promoters personify the true spirit of enterprise and
have in just over a decade established reputation par excellence with interests ranging from yarn
to branded apparel. GTL currently has an installed capacity of 5,904 rotors, which makes it a
large- sized player in the organized segment of the OE spinning industry.
GTL's business model is thus spread among home textiles (through open- ended yarn and ring
spun yarn), Knitting (hosiery yarn) and garments (tibre brand trousers). GTL has also set up wind
mills with a total capacity of 3.30 MW and an oil based power generation plant of 2 MW
capacity. The Spinning Division presently has 4 units out of which three units are located in
Tamil Nadu and one unit is located in the state of Maharashtra. The Garment units are also
located in the state of Tamil Nadu.
The Company started its manufacturing operations in the year 199394 for manufacturing lowcount/coarse yarn made from cotton and recycled waste using OE spinning. Over this period the
Company has steadily grown and expanded into other related segments of manufacturing yarn in
fine counts and RTW segment.

Gangotri incorporates the latest technology with hi-tech

machinery to produce the finest variety of textile products.Our range of machinery includes the
latest from world renowned manufacturers like Trutzschler, Elitex, Schlafhorst, Rieter,
Volkmann, LMW Uster and Trumac in the spinning category and Durkopp Adler, Kansai, Juki,
Pegasus, Kumsung, Stalwart and Nagaishing in the ready made garments category.
Emes Textiles

14

Emes Textiles (p) Limited, a vertically integrated textile unit has world class in- house facilities
from processing yarn to manufacture of finished garments. It was established at the year of 1995.
With a clear vision, a sense of purpose and sheer hard work, guided by a team of professionals
and steered by an enterprising management, Emes Textiles (p) Limited continues to diversify its
products and extend its customer reach.
Emes Textiles (p) Limited began its textile journey with dealings in cotton waste and today its
world renowned for its branded garments-tibre. Under the dynamic leadership of

Mr. R.

Subramanian, CEO of the Company, the promoters personify the true spirit of enterprise and
have in just over a decade established reputation par excellence with interests ranging from yarn
to branded apparel. Emes Textiles (p) Limited currently has an installed capacity of 5,904 rotors,
which makes it a large- sized player in the organized segment of the OE spinning industry.
Emes Textiles (p) Limited 's business model is thus spread among home textiles (through openended yarn and ring spun yarn), Knitting (hosiery yarn) and garments (tibre brand trousers).
Emes Textiles (p) Limited has also set up wind mills with a total capacity of 3.30 MW and an oil
based power generation plant of 2 MW capacity. The Spinning Division presently has 4 units out
of which three units are located in Tamil Nadu and one unit is located in the state of Maharashtra.
The Garment units are also located in the state of Tamil Nadu. The Company started its
manufacturing operations in the year 199596 for manufacturing low-count/coarse yarn made
from cotton and recycled waste using OE spinning. Over this period the Company has steadily
grown and expanded into other related segments of manufacturing yarn in fine counts and RTW
segment.
Thangavelu Textile Mills Ltd.,
The unit Thangavelu Textile Mills Ltd., was started during the year 1993 by the promoters who
were already owners of another Textile Mills at Dharmapuri District. The place where it is
started is though situated just six kilometers away from the heart of the city is not improved
financially and in respect of other areas. Besides, the working men and women of this area were

15

dependent for livelihood mainly on building construction work and loading and unloading
works.
Availability of employment for them was irregular and inconsistent which made their livelihood
precarious. When the company was started it had capacity 10,000 spindles and engaged in the
manufacturer of cotton yarn. These products catered to the fabric manufacturer in and around
salem. With the sound knowledge of the promoters, the company could establish its brand.
During 1998, competition among cotton yarn spinning mills grew rapidly. In order to maintain
its performance in the area of sales and profitability, the company explored newer avenues.
It found slightly changing the product mix would be in tune with its existing operations the
product currently being manufactured is supplied to garment manufacturers. The classification
of the product are 40s, 50s, 42s, 52s, 56s in single, double, triple, ply. The ratio of men to women
is 2:1.
MARKET SHARE:
On the growth of the industry should get power at international cost. India has a 24 percent share
in the global cotton yarn market and this can be increased further if the power cost is less, he
claims. There is also a need to increase the productivity to most international competition.
The share of spinning capacity of South Indian Mills (include small scale spinning units) in All
India capacity is estimated to be around 50 percent. As on march 31, 2006, the spinning capacity
was 57.41 million. During 2005-06, while the power loom sector had consumed around 24
percent was exported. A major portion of cotton yarn exports is to the non-quota countries.
While it started with fine counts, a wide range of counts are being exported now. In 1991,
exports to quota countries were 31.62 million kg and to non-quota countries 89.49 million kg. In
2006, these were 57.41 million kg and 1521.33 million kg respectively. Thus the percentage of
exports to quota countries came down from around 2.6 percent in 1991 to about 17 percent in
2006. during 1994-2006, some of the major destinations for Indian cotton yarn exports had been
South Korea, Bangladesh and Hong Kong.
16

According to a report on Achieving Breakthrough Growth in Cotton Textile Export. India has
a large and modern spinning industry and a major portion of its capacity is in the organized
sector. The cotton yarn spinning units could capitalize on the growth in yarn imports expected in
key Asian destinations. According to the Chairman of Southern India Mills Association (SIMA),
there has been a revival both in the domestic and export markets. However, if the revival is to be
sustained, certain issues need to be addressed, he feels. The Chairman of Textile Export
Promotion Council, says a major step needed is to reduce the cost of production. The cost of
almost all components---power, raw material, transport and labour----has gone up during the last
four or five years.
The total cost of production of cotton yarn in ring spinning (80s) in 1995 was about Rs. 178.40 a
kg. In 2006, it had shot up to Rs.1776.54 a kg. In order to make availability raw cotton of good
quality at reasonable price, the price, the thrust is on integrated cotton farming now.

MARKET PERFORMANCE:
All these were reflected in stagnant production in the past eight years. Cotton spun yarn
production (excluding blended and 100 percent

non-cotton yarn! Declined from 2.213

million kg in 1997-98 but recovered to 2.266.86 million kg in 2000-01 liable II). Spindle
capacity utilization, which was 76 percent in 1991-1992, had gone up to 86 percent in 1996-1997
fell to 79 percent in 2004-2005 before bouncing back to 83 percent in 2005-2006. With advent
of new techniques in the sphere of production, the meaning of word Textiles has also
undergone some changes.
Textiles, therefore really means any materials made from the yarn either by adopting a process of
weaving or knitting. The textiles industry is very much complex and have such an important
bearing on our daily lives that everyone needs to know something about them. The growth of the
cotton spinning sector, in terms of capacity, received an impetus in 1991 with the deli censing of
spindle age. Installed spindle age has been rising steadily age has been rising steadily since then,

17

in 1991, the number of spindles installed was around 26.27 million and the number of went up to
nearly 50 million in 1995 (in the non-SSI units).
The total spindles installed by 2007 are estimated to have gone up to 400 million. However,
adverse factors such as the South Asian Crisis, worldwide economic slowdown and increased
costs hit the spinning industry which could not benefit from the expanded capacity. The
phenomenal rise in raw dimension to the economics of the spinning sector.
In India textiles is the second largest business giving employment field after agriculture and
largest foreign exchange earners. Mumbai is the Manchester of India. Manchester is the city in
U.K. which discovered many Textiles items like automation of handmade into machine made.
Mumbai, Chennai, Delhi, Kolkata, , Ahmedabad, Tirupur,

Cannanore, Panipet, Madurai, ,

Bhavani are the main export centers of India.

Estimation of earning
TNPL is setting up a 2 Lakh MT capacity Double Coated Multilayer Board Plant at a capital
outlay of Rs 1500 Crore in Mondipatti Village, Manaparai Taluk, Trichy District. The project is
expected to be completed by December 2015.
During the quarter ended 30/06/2014, TNPL has produced 90297Mts of Paper. The turnover
during the quarter is `479.01 Crore against `503.95 Crore in the previous year. Profit before Tax
(PBT) is ` 36.24 Crore against ` 42.65 Crore in the previous year. `38.03 Crore has been
provided for depreciation and 33.65 Crore for finance charges. Profit after Tax (PAT) is ` 26.23
Crore against `32.18 Crore in the previous year.
Expected growth of industry
Globally, demand of textile is unevenly distributed as nearly 70% of the world's textile is
consumed by 22% of the world's population - in the US, Europe and Japan. The world demand
for textile is expected to grow by around 3.2% annually, reaching an estimated 500 million tons
by 2020, with significant growth coming out of Asia and Eastern Europe. There is a paradigm
shift in the global textile industry, with Asia continuing to grow faster than the rest of world.

18

This trend is expected to continue in 2017, with developing countries expected to grow by 6%.
More significantly, China and India are expected to outpace and register higher than the regional
average growth. Developed countries are expected to report a flat demand growth, as against a
2% decline they saw in the past two years. India is likely to be one of the fastest rising markets at
an estimated 6.5% growth. Such shift in demand, coupled with relatively low per capita
consumption of paper in India offers attractive opportunities for textile industries. The Indian
economy made significant strides over the last few years with gross domestic product (GDP)
projected to grow at an average of 6.5% in 2013-14, keeping the country as one of the fastestgrowing economies of the world. India is the worlds third largest economy in terms of the
purchasing power parity (PPP) and has investments amounting to nearly USD 1 trillion lined up
in partnership with the private sector over the coming years.
The largely broad-based nature of the countrys economy is represented by the fact that
agriculture accounts for 17%, industrial 18% and services-based sectors 65% (Source : IBEF).

19

COMPANY PROFILE
About the company

Name of CEO

Mr. R. Subramanian

Year of Establishment

1996

Nature of Business

Manufacturer & Exporter

Number of Employees

250

Annual Sales (in USD)

1.55 Million

Annual Turnover (in Rs.)

70 Million

PRODUCT PROFILE
Home Furnishings

Curtains

Cushion covers

Table linen

Mats & throws

20

Kitchen linen

Bed linen

Towels

Bed sheet sets

Cotton napkins

Cotton bags

Mens garments

Hotel linens

Hospital bed linens

Flexible intermediate bulk containers

OTHER PRODUCT PROFILES ARE AS FOLLOWS:

Bed Sheet Sets
As a trusted Cotton Bed Sheet Sets Manufacturer, it offers an exclusive collection of Bed Sheet
Sets. Its Bedding Sheet Sets are fabricated from the premium quality fabric to assure their easy
washing and maintaining. Bedroom Sheet Sets provided by it are available in varied attractive
designs and patterns to suit the ambience of its bedroom.
Cotton Napkins
It provides a large range of wonderful Cloth Napkin that is available in plethora of colors and
designs. Its Cotton Napkins are manufactured from the finest quality cotton, under the guidance
of experts. Organic Cotton Napkins, provided by it, are available in a variety of colors and
designs. Its Cotton Cloth Napkins are the fine blend of contemporary trends and imagination
that compliment any kind of decor.
Cotton Bags
It unveil a huge assortment of lovely Printed Cotton Bags that is in high demand in the market
for quality and utility. Its Cotton Shopping Bags are made up of superior quality cotton using

21

latest methods of production. Eco Friendly Cotton Bags, provided by it, are easy to wash and do
not loose their colors.
Men's Garments
It offers a wide variety of Men's Garments that are fabricated from quality cloth & material. Its
collection of men's Fashion Garments includes Full Sleeves Shirt, Half Sleeves Shirt, Formal
Shirts, Casual and Design Shirts skillfully stitched and comfortable to wear.

Hotel Linens
The company is listed at the apex in the list of the prominent Hotels Fine Linen Exporters from
Tamil Nadu, India. The Hotel Linen, offered by it, is widely demanded in the market as no
alternative is available in terms of quality and look. It specializes in manufacturing bedspreads,
bed linens and hotel supplies.
Hospital Bed Linens
It offers VAT and Reactive Dyed Hospital Bed Linen which is well renowned for highly
absorbent quality. It is listed at the apex in the list of the forefront Hospital Bed Sheets Linen
Manufacturers in India. The use of optimum quality fabrics in the manufacturing of the Hospital
Linen Products ensures lightweight, softness, easy wash and long lasting life.

Infrastructure
Knowing the fact that the progress of a company lies in its infrastructural base, we have
developed a robust infrastructure unit. Its sound infrastructural base is well furnished with latest
technology machines and equipments that assist us in providing high quality products to the
market. To bridge the gap between the need and supply, we constantly update the methodology
of production.

22

NEED FOR THE STUDY

Every organization needs inventory for smooth running of its activities. It serves as a link
between production and distribution processes. The investment in inventories constitutes the
most significant part of current assets/working capital in most of the undertakings. Thus, it is
very essential to have proper control and management of inventories. The purpose of inventory
management is to ensure availability of materials in sufficient quantity as and when required and
also to minimise investment in inventories. So, in order to understand the nature of inventory
management of the organization, I took this Inventory Management as a topic for my project, to
give findings and suggestions by adopting and analyzing different inventory control techniques.

23

CHAPTER-II
REVIEW OF LITERATURE

2.1 MEANING OF INVENTORY

Inventory generally refers to the materials in stock. It is also called the idle resource of a
company. Inventories represent those items which are either stocked for sale or they are in the
process of manufacturing or they are in the form of materials which are yet to be utilized.
It also refers to the stockpile of the products a firm would sell in future in the normal
course of business operations and the components that make up the product.
Inventory is a detailed list of those movable items which are necessary to manufacture a
product and to maintain the equipment and machinery in good working order.

2.2 TYPES OF INVENTORIES

A manufacturing firm generally carries the following types of inventories:

24

Raw Materials.

Bought out parts.

Work-in-process inventory (WIP).

Finished goods inventories.

Maintenance, repair and operating stores.

Tools inventory.

Miscellaneous inventory.

Goods in transit.

Goods for resale.

Scrap Material.

2.3 REASONS FOR HOLDING INVENTORY

To stabilize production.

To take advantage of price discounts.

To meet the demand during the replenishment period.

To prevent loss of orders.

To keep pace with changing market conditions.

2.4 MOTIVES OF HOLDING INVENTORIES

The Transaction Motive which facilitates continuous production and timely execution of
sales orders.

The Precautionary Motive which necessities the holding of inventories for meeting the
unpredictable changes in demand and supplies of materials.

The Speculative Motive which induces to keep inventories for taking advantage of price
fluctuations, saving in re-ordering costs and quantity discounts etc.,.

2.5 COSTS ASSOCIATED WITH INVENTORY

25

Production cost.

Capital cost.

Ordering cost.

Carrying cost.

Shortage cost.

2.6 INVENTORY CONTROL

The main objective of inventory control is to achieve maximum efficiency in production
& sales with minimum investment in inventory.
Inventory control is a planned approach of determining what to order, when to order and
how much to order and how much to stock, so that costs associated with buying and storing are
optimal without interrupting production and sales.
2.7 BENEFITS OF INVENTORY CONTROL
The benefits of inventory control are:

Improvement in customers relationship because of the timely delivery of goods and

services.

Smooth and uninterrupted production and hence, no stock out.

Efficient utilization of working capital.

Economy in purchasing.

Eliminating the possibility of duplicate ordering.

2.8 PRINCIPLES OF INVENTORY CONTROL

Inventory is only created by spending money for materials and the labour and overhead to
process the materials.

Inventory is reduced through sales and scrapping.

26

Accurate sales & production schedule forecasts are essential for efficient purchasing,
handing & investment in inventory.

Management policies which are designed to effectively balance size and variety of
inventory with cost of carrying that inventory are the greatest factor in determining
inventory investment.

Forecasts help determine when to order materials. Controlling inventory is accomplished

through scheduling production.

Records do not produce control.

Control is comparative & relative, not absolute. It is exercised through people with
varying experiences and judgment rules & procedures establish a base from which the
individuals can make evaluation and decision.

With the consistent practices being followed, inventory control can become predictable
and properly related to production and sales activity.

2.9 INVENTORY CONTROL TERMINOLOGY

Demand:
It is the number of items required per unit of time. The demand may be either
deterministic or probabilistic in nature.
Order cycle:
The time period between two successive orders is called order cycle.
Lead time:
The length of time between placing an order and receipts of items is called lead time.
Safety stock:
It is also called buffer stock or minimum stock. It is the stock or inventory needed to
account for delays in materials supply and to account for sudden increase in demand due to
rush orders.
27

 Inventory turnover:
If the company maintains inventories equal to 3 months consumption. It
means that inventory turnover is 4 times a year i.e., the entire inventory is used up and
replaced 4 times a year.
2.10 INVENTORY COST RELATIONSHIPS
There are two major cost associated with inventory. Procurement cost and carrying
cost. Annual procurement cost varies with the numbers of orders. This implies that the
procurement cost will be high, if the item is procured frequently in small lots. The annual
procurement cost is directly proportional to the quantity in stock. The inventory carrying cost
decreases, if the quantity ordered per order is small. The two costs are diametrically opposite to
each other. The right quantity to be ordered is one that strikes a balance between the two
opposition costs. This quantity is referred to as Economic Order Quantity.
2.11 ECONOMIC ORDER QUANTITY
MEANING
A decision about how much to order has great significance in inventory management.
The quantity to be purchased should neither be small nor big because costs of buying and
carrying materials are very high. Economic order quantity is the size of the lot to be purchased
which is economically viable. This is the quantity of materials which can be purchased at
minimum costs. Generally economic order quantity is the point at which inventory carrying costs
are equal to order costs. In determining economic order quantity it is assumed that cost of
managing inventory is made up solely of two parts i.e., ordering cost and carrying cost. The cost
relationships are shown in below figure.
FORMULA FOR CALCULATING ECONOMIC ORDER QUANTITY (EOQ)

28

Economic Order Quantity

Costs

Annual Total Cost

Annual Inventory Carrying Cost
Annual Ordering Cost
Q* Economic Order Quantity
Order Quantity

2.12 SAFETY STOCK

MEANING
The economic order quantity formula is developed based on assumption that the demand
is known and certain and that the lead time is constant and does not vary. In actual practical
situations, there is an uncertainty with respect to the both demand as well as lead time. The total
forecasted demand may be more or less than actual demand and the lead time may vary from

29

estimated time. In order to minimize the effect of uncertainty due to demand and the lead time, a
firm maintains safety stock, reserve stocks or buffer stocks.
The safety stock is defined as the additional stock of material to be maintained in order
to meet the unanticipated increase in demand arising out of uncontrollable factors.
In simple it is tells about which is used to protect against uncertainties.
Because it is difficult to predict the exact amount of safety stock to be maintained, by
using statistical methods and simulation, it is possible to determine the level of safety stock to be
maintained.

DETERMINATION OF SAFETY STOCK

If the level of safety stock is maintained is high, it locks up the capital and there is a
possibility of risk of obsolescence. On the other hand, if it is low, there is a risk of stock out
because of which there may be stoppage of production. When the variation in lead time is
predominant, the safety stock can be computed as:
Safety Stock = (Maximum Lead time- Normal Lead time) * Demand

SAFETY STOCK

30

The service level of inventory thus depends upon the level safety stocks. Large the
safety stocks, there is a lesser risk of stock out and, hence, higher service level. Sometimes
higher service levels are not desirable as they result in increase in costs, thus, fixing up a safety
stock level is critical. Using past date regarding the demand and lead time data, reliability of
suppliers and service level desired by management, safety stock can be determined with
accuracy.

2.13 ABC ANALYSIS

MEANING
The inventory of an organization generally consists of thousands of items with varying
prices, usage rate and lead time. It is neither desirable nor possible to pay equal attention of all
items.
ABC analysis is a basic analytical tool which enables management to concentrate its
efforts where results will be greater. The concept applied to inventory is called as ABC analysis.
Statistics reveal that just a few items account for bulk of the annual consumption of the
materials. These few items are called A class items which hold the key to business. The other
31

items known as B & C which are numerous in number but their contribution is less significant.
ABC analysis thus tends to segregate the items into three categories A,B & C on the basis of
their values. The categorization is made to pay right attention and control demanded by items.

FEATURES OF ABC ANALYSIS

A Class (High Value)
B Class (Moderate Value)
1. Tight control on Moderate control

C Class (Low Value)

Less control

stock levels
2. Low safety stock

Medium

Large

3. Ordered frequently

Less frequently

Bulk ordering

4. Individual posting in Individual

Collective posting

stores
5. Weekly

control Monthly control

Quarterly control

6. Continuous effort to Moderate efforts

Minimum efforts

reports
reduce lead time
ADVANTAGES

This approach helps the manager to exercise selective control & focus his attention only
on a few items.

By exercising strict control on A class items, the materials manager is able to show the
results within a short period of time.

It results in reducer clerical costs, saves time and effort and results in better planning and
control and increased inventory turnover.

ABC analysis, thus, tries to focus and direct the effort based on the merit of the items
and, thus, becomes an effective management control tool.

32

2.14 FSN ANALYSIS

All the items in the inventory are not required at the same
frequency. Some are required regularly, some occasionally and some
very rarely. FSN analysis classifies items into fast moving, slow
moving, non moving items.

2.15 INVENTORY TURNOVER RATIO

Kohler defines inventory turnover as a ratio which measures the number of times a
firms average inventory is sold during a year.
A higher turnover rate indicates that the material in question is a fast moving one. A low
turnover rate, on the other hand, indicates over-investment and locking up of working capital on
undesirable items.
Inventory turnover ratio may be calculated in different ways by changing the numerator,
but keeping the same denominator. For instance, the numerator may be materials consumed, cost
of goods sold or net sales. Based on any one of these, the ratio differs from industry to industry.
Stock turnover is measured in terms of the ratio of the value of materials consumed to the
average inventory during the period. the ratio indicates the number of times the average

33

inventory is consumed and replenished. By diving no. of days in a yeat by turnover ratio, the
number of days for which the average inventory is held, can be ascertained.
Comparing the no. days in the case of two different materials, it is possible to know
which is fast moving & which is slow moving. On that basis, attempt may be made to reduce the
amount of capital locked up, and prevent over-stocking of slow moving items.
Net sales
Inventory turnover ratio =
Avg. inventory

No. of days in a year

Inventory velocity =
Inventory turnover ratio

2.16 A STUDY ON INVENTORY MANAGEMENT BY RAMYA

In this review Miss. RAMYA, who as done the project about Inventories at WOIL, it is
constitute the most significant part of the current assets of a large majority of companies in India.
Raw materials, goods in process and finished goods all represent various forms of inventory.
Each type represents money tied up until the inventory leaves the company as purchased
products. Because of the large size of the inventories maintained by firms, a considerable amount
of funds is required to be committed to them. It is therefore absolutely imperative to manage
inventories efficiently and effectively in order to avoid unnecessary investments. One of the most
critical and time-consuming aspects of manufacturing is managing the tasks of maintaining
sufficient amounts of materials on hand at all times. One of the main areas of the project is the
analysis part where the data obtained from the existing study is been utilized. For the analysis
part, ABC analysis was carried out. The norms were fixed for each of the inventory part taken
into account for the project. There by the inventory to be kept for the production of each model
was also arrived at.
34

2.17 A REPORT ON INVENTORY MANAGEMENT BY VIJAYARAMAN

In this review Mr. VIJAYARAMAN .R, who as done the project about A report Inventory
at WOIL, an Inventory Management System is an essential element in an organization. It is
comprised of a series of processes which provide an assessment of the organizations inventory.
The Inventory Management System also aids the organization in achieving its goals and
objectives with the primary focus on adding value for the customers. The management of
inventory adds value for customers (quality, speed, flexibility, and cost), and this is the primary
consideration of the Operations Management System. Inventory management is possibly one of
the richest areas of operations management, with many tools and techniques available to help
managers run their processes as effectively as possible.
In this project he made an analysis for Export Oriented Units (EOU) and fixing norms for
Coffee Maker, Coffee Grinder, Grind Mill & Micro Oven. After finishing analysis he compares
between the Suggested norms and Existing norms. He also made an analysis of Washing
Machine and their norms for different classification of Washers at WOIL. Finally he used
correlation with Statistical Tools. He also classified EOUs & Washers products with ABC
Classification.
2.18 INVENTORY AS MANAGING INVENTORY BY WOLFE BAGBY
In this review Mr. WOLFE BAGBY explains inventory as Managing inventory to Meet
Profit Goals, Shortening the cash cycle, avoiding inventory shortage, Avoid excessive carrying
costs for unused inventory, Improving profitability by decreasing cash conversion, JIT.
Getting smart about inventory
When a manufacturing firm works to gain greater control over management of its
inventory, it helps to know what this means for a company. For starters, maximizing a
manufacturers cash flow and profitability includes keeping a watchful, discerning eye on
changes in supply and demand, which means simultaneously scrutinizing external factors
that might affect supply and demand.
Shortening the cash conversion cycle
35

Much of this can be accomplished when manufacturers update their scheduling

systems. The Web-based nature of an inventory management system allows Electronic
data interchange of projected demand and vendor requirements are transmitted
throughout the distribution network. This, in turn, keeps the networks, production and
deliveries in near real-time synchronization with the latest network inventory, forecast
and actual demand information. Another way to shorten the cash conversion cycle is to
have clear channels of communication with vendors. Still, advanced inventory
management software is nothing without a strong internal supply chain, especially when
loyal employees who want to work on behalf of the companys goals support it.
Avoiding inventory shortage
Most manufacturers recognize that supplier inventories are important. Even
though more stock means higher total costs, the alternative is often too little stock which
tends to put the brakes on operations. This means negative impact in more ways than one.
One obvious way to take precautions for avoiding inventory shortage is by using more
than one vendor in particular areas of the supply chain.
Avoid excessive carrying costs for unused inventory
Most companies need to reduce inventory in whatever way seems most
reasonable, considering the variables faced by the manufacturer. This isnt to say that
manufacturing firms will be eliminating warehousing anytime soon. But, it is important
to note that drastic reductions in inventory costs are available to most any company that
wants better control. Much of this effort deals with building collaborative relationships
with suppliers to the point where most inventory-related matters can be worked out.
Consignment inventory is another way to save inventory costs. Give someone else the
responsibility for moving inventory so it doesnt cost the manufacturer as much to hold
onto it
Improving profitability by decreasing cash conversion

36

Boosting financial performance is another benefit that comes from better

inventory management. In fact, a large number of manufacturers enjoy significant savings
and better performance by choosing the approach to inventory reduction that works best
for them. One vital measurement for determining how effectively a manufacturers
inventory management system is operating is referred to as inventory turnover.
Essentially, it measures how efficiently inventory moves through the organization. In fact,
manufacturing executives are told never to underestimate the importance of inventory
turns. Gaining better control over accounts receivables policies is another popularly
reported approach for using inventory to improve profitability. Depending upon the
nature of business, early or on-time payment discounts can be the incentive for moving
inventory faster.
JIT
For years, American manufacturers have strived for improved inventory
management systems. The closer they get to carry zero inventories, the closer they get to
reach the manufacturing efficiency. Such thinking, combined with todays available
technology, has brought inventory management systems to a new level. Manufacturers
can now meet their customers demand without incurring the costs and burdens that come
from stocking excess inventory. Features such as effective forecasting, vendor
management and data management control make it possible for manufacturers to achieve
a much higher rate of efficiency. These features enable manufacturers to seek to manage
inventory as a financial investment, as well as a method for putting more money in their
pockets.
2.19 A STUDY ON INVENTORY MANAGEMENT BY CHARLES ATKINSON
In this review Mr. CHARLES ATKINSON explains inventory as inventory management
topics, he explains average inventory levels, in this topic he explained about two parts. The first
half part of this article covers how to find what inventory levels should be, and the second half
covers how to evaluate it..
Average Inventory Levels
37

Part I: How to Optimize Average Inventory Levels?

In this part, it provides a brief description for how optimal inventory levels for materials
are kept. Essentially, this section can serve as a starting point for inventory managers. The First
thing he determines the ideal inventory levels is a material's Economic Order Quantity (EOQ).
This is the amount one should be ordering when you place orders.
Next he determines Safety Stock (SS). This is the amount that you should have remaining
when the EOQ arrives. This should be intuitive because safety is what you have when your
shipment arrives and when the order arrives (EOQ) it gets added to the safety stock.
It is clear that average minimum and maximum level because you might not receive the
EOQ exactly when you planned to and therefore may have more or less. On average you should
have the SS amount when you receive shipments. Between these two average minimum and
maximum values lies your long-term average inventory.
Part II: How to Assess (evaluate) Inventory Levels?
Average Inventory can be calculated by Simplistic Method.
Most methods of accounting take the beginning inventory of a period, add it to the ending
inventory of a period, and divide by 2. This essentially provides the mathematical average for a
given month.
Avg. Inventory = (Beginning Inventory+ (Beginning Inventory + Units Produced-Units
Sold))/2
Or more simply:
Avg. Inventory = (Beginning Inventory + Ending Inventory)/2

38

CHAPTER-III
OBJECTIVES OF THE STUDY
PRIMARY OBJECTIVE

To analyse the efficiency of Inventory Management of Sree Nikhita Fabric.

SECONDARY OBJECTIVE

To identify optimum level of inventory which minimizes the cost.

To identify the safety stock level for various components.

To classify the various components based on its value and movements.

To identify inventory requirement of the company for the next year.

39

LIMITATIONS OF THE STUDY

The entire analysis applies only to Sree Nikhita Fabric,Karur.

The study takes into account only the quantitative data and the qualitative aspects were not
taken into account.

The assumption made in the EOQ and Safety stock formulas restrict the use of the formula.
In practice, unit cost, lead time, requirements of inventory items are not accurately
predictable. Rate of consumption varies in many cases. As such application of the formula
often becomes a difficult and complicated matter.

ABC analysis is not one time exercise and items are to be reviewed and recategorised
periodically.

40

SCOPE FOR THE FURTHER STUDY

To give plan to the company what to order, when to order and how much to order.

It is useful for deciding operating policy & volume of inventory.

It helps to develop the policies for the executives in inventory.

It helps the company what items goods are categorized.

Project helps to deal with forecasting in inventory.

41

CHAPTER-IV

RESEARCH METHODOLOGY

4.1 RESEARCH
Research is a process in which the researcher wishes to find out the end result for a given
problem and thus the solution helps in future course of action. The research has been defined as
A careful investigation or enquiry especially through search for new facts in branch of
knowledge

4.2 RESEARCH DESIGN

The research design used in this project is Analytical in nature the procedure using, which
researcher has to use facts or information already available, and analyze these to make a critical
evaluation of the performance.

42

4.3 DATA COLLECTION

Primary Sources

1.

Data are collected through personal interviews and discussion with FinanceExecutive.

2.

Data are collected through personal interviews and discussion with Material
Planning- Deputy Manager.

Secondary Sources
1.

The data are collected from the annual reports maintained by the company for the past six
years viz., 2009-2014

2.

Data are collected from the companys website.

3.

Books and journals pertaining to the topic.

4.4 TOOLS USED IN THE ANALYSIS

Economic Order Quantity.

Safety Stock.

ABC Analysis.

FSN Analysis.

Linear Regression method.

Inventory turnover ratios.

4.5 PERIOD OF STUDY

The period of the study at Sree Nikhita Fabric is for two month.

43

CHAPTER-V
DATA ANALYSIS AND INTERPRETATION
5.1 ECONOMIC ORDER QUANTITY (EOQ)
MEANING
Economic Order Quantity is the Inventory management technique for determining
optimum order quantity which is the one that minimises the total of its order and carrying costs.
TABLE 5.1.1 ECONOMIC ORDER QUANTITY

Sl.
No.
1.
2.
3.
4.

Components

Demand
Per year

Bearing - Ball Sealed

6006
Bearing - Ball Sealed 6205 - Swift
Drive assly - NBO - China
(Agitator) - 2 pin drive
Drive assly - ECO Dlx NBO - China (Impeller)

Re-Order Carrying
Cost/ Cost/unit EOQ
order
/year

No. of
No. of
order
units
Ordered per year

3,60,000

12,200

66,272.17 30,000

5.43

48,000

6,200

17,251.09

4,000

2.78

1,44,000

1,700

36

3,687.82

12,000

39.05

96,000

1,700

36

3,011.09

8,000

31.88

44

5.
6.
7.

Driven Pulley - NBO China (Same pulley)

2,40,000
Machine timer - Eco Dlx
(Ningbo) - With buzzer
(S60)
30,000
Machine timer - Eco Dlx
(Ningbo) - Without buzzer
(SI 60)
42,000

1,700

36

4,760.95

20,000

50.41

1,700

7,141.43

2,500

4.20

1,700

8,449.85

3,500

4.97

8.

Heater (WW)

21,600

4,700

10,075.71

1,800

2.14

9.

Heater (Chandini)

9,600

6,200

7,714.92

800

1.24

10.

Pig tail connector-3.0

3,60,000

6,200

47,244.05 30,000

7.62

11.

Pig tail connector-3.8

1,80,000

6,200

33,406.59 15,000

5.39

12.

Seal drive tube - Swift

42,000

6,200

16,136.91

3,500

2.60

13.

Seal tub support - Swift

42,000

6,200

16,136.91

3,500

2.60

14.

WW Motor - Welling

90,000

6,200

18

7,874.01

7,500

11.43

15.

Splash Motor

42,000

6,200

18

5,378.97

3,500

7.81

16.

Motor - Jeamo

3,00,000

65,200

18

46,619.02 25,000

6.44

17.

Clamp tub
Suspension Spring Assly
FLT 70 (Fimstud)

66,600

10,100

25,935.69

5,550

2.57

7,200

10,000

8,485.28

600

0.85

1,800

15,400

5,264.98

150

0.34

20.

Door Lock - High End

Door Lock, Low End,
FLT70

1,800

15,400

5,264.98

150

0.34

21.

Ball Bearing-Outer, FLT70

3,600

8,400

5,499.09

300

0.65

22.

3,600

8,400

5,499.09

300

0.65

23.

Ball Bearing-Inner, FLT70

Heating Element ,
High/Mid End,FLT70

1,800

8,400

3,888.44

150

0.46

24.

Heater Low end

1,800

8,400

3,888.44

150

0.46

25.

Pressostat, FLT70

3,600

8,400

5,499.09

300

0.65

26.

1,800

8,900

4,002.50

150

0.45

27.

Timer T2-EC6018-FLT
Oil Distribution Actuator,
FLT70

1,800

7,900

3,770.94

150

0.48

28.

Nut Push In, FLT70

21,600

16,400

18,821.26

1,800

1.15

29.

Heater Clip,FLT70
Bellow, FLT70

3,600
3,600

7,750
84,300

2
2

5,282.05
17,420.68

300
300

0.68
0.21

18.
19.

45

30.

32.

Shock Absorber Assy,

FLT70
Universal Motor Assy,
Mid&High End,FLT70

33.

Motor Low end

1,800

57,200

18

3,382.31

150

0.53

34.

Window Glass,FLT70

3,600

23,100

18

3,039.74

300

1.18

35.

1,800

20,100

6,014.98

150

0.30

1,800

7,700

3,722.90

150

0.48

37.

Drain Pump, FLT

On / Off Switch Low end
(Push button switch)
Thermostat Variable, Low
End, FLT70

1,800

8,500

3,911.52

150

0.46

38.

Poly V Belt,FLT70

1,800

1,700

1,749.29

150

1.03

39.

Tub Sealing, FLT70

3,600

1,700

2,473.86

300

1.46

40.

SS Coil

2,40,000

52,200

18

37,309.52 20,000

31.

36.

7,200

9,800

8,400.00

600

0.86

1,800

49,200

18

3,136.88

150

0.57

6.43

ANALYSIS & INTERPRETATION :

In the above table the EOQ & the no. of orders purchased per year for various
components are calculated. The calculated EOQ is compared with the no. of units of each
component purchased in the organization. It is found that, there is a variation in the EOQ & no.
of unit purchased. It is understood that the company is not following EOQ for purchasing the
materials & therefore the inventory management is not satisfactory.

46

5.2 SAFETY STOCK

MEANING
Safety stocks are the minimum additional inventory which serve as a safety margin to
meet an unanticipated increase in usage resulting from an unusually high demand and an
uncontrollable late receipt of incoming inventory.

Table 5.2.1 Safety stock

Sl. No.

Max. Lead
Normal
Safety
Time
Lead Time Demand Stock

Components
1.

Bearing - Ball Sealed 6006

0.27

0.166

2.

Bearing - Ball Sealed - 6205 Swift

0.27

0.166

3.

Drive assly - NBO - China (Agitator) - 2 pin drive

0.27

0.166

4.

Drive assly - ECO Dlx - NBO - China (Impeller)

0.27

0.166

47

3,60,000 37,440
48,000

4,992

1,44,000 14,976
96,000

9,984

5.

0.27

0.166

0.27

0.166

30,000

3,120

7.

Driven Pulley - NBO - China (Same pulley)

Machine timer - Eco Dlx (Ningbo) - With buzzer
(S60)
Machine timer - Eco Dlx (Ningbo) - Without buzzer
(SI 60)

0.27

0.166

42,000

4,368

8.

Heater (WW)

0.27

0.166

21,600

2,246.4

9.

Heater (Chandini)

0.27

0.166

9,600

998.4

10.

Pig tail connector-3.0

0.27

0.166

3,60,000 37,440

11.

Pig tail connector-3.8

0.27

0.166

1,80,000 18,720

12.

Seal drive tube Swift

0.27

0.166

42,000

4,368

13.

Seal tub support Swift

0.27

0.166

42,000

4,368

14.

WW Motor Welling

0.27

0.166

90,000

9,360

15.

Splash Motor

0.27

0.166

42,000

4,368

16.

Motor - Jeamo

0.27

0.166

17.

Clamp tub

0.27

0.166

66,600

6,926.4

18.

Suspension Spring Assly FLT 70 (Fimstud)

0.27

0.166

7,200

748.8

19.

Door Lock - High End

0.27

0.166

1,800

187.2

20.

Door Lock, Low End, FLT70

0.27

0.166

1,800

187.2

21.

Ball Bearing-Outer, FLT70

0.27

0.166

3,600

374.4

22.

Ball Bearing-Inner, FLT70

0.27

0.166

3,600

374.4

23.

Heating Element , High/Mid End,FLT70

0.27

0.166

1,800

187.2

24.

Heater Low end

0.27

0.166

1,800

187.2

25.

Pressostat, FLT70

0.27

0.166

3,600

374.4

26.

Timer T2-EC6018-FLT

0.27

0.166

1,800

187.2

27.

Oil Distribution Actuator, FLT70

0.27

0.166

1,800

187.2

28.

Nut Push In, FLT70

0.27

0.166

21,600

2,246.4

29.

Heater Clip,FLT70

0.27

0.166

3,600

374.4

30.

Bellow, FLT70
Shock Absorber Assy, FLT70

0.27
0.27

0.166
0.166

3,600
7,200

374.4
748.8

6.

48

2,40,000 24,960

3,00,000 31,200

31.
32.

Universal Motor Assy, Mid & High End,FLT70

0.27

0.166

1,800

187.2

33.

Motor Low end

0.27

0.166

1,800

187.2

34.

Window Glass,FLT70

0.27

0.166

3,600

374.4

35.

Drain Pump, FLT

0.27

0.166

1,800

187.2

36.

On / Off Switch Low end (Push button switch)

0.27

0.166

1,800

187.2

37.

Thermostat Variable, Low End, FLT70

0.27

0.166

1,800

187.2

38.

Poly V Belt,FLT70

0.27

0.166

1,800

187.2

39.

Tub Sealing, FLT70

0.27

0.166

3,600

374.4

40.

SS Coil

0.27

0.166

2,40,000 24,960

ANALYSIS & INTERPRETATION :

In the above table, safety stock for the various components calculated are shown. Actual
demand is given for each component for a period of 1 year and the lead-time is calculated at a
maximum of 100 days & normal of 60 days and these were converted into per annum. So, from
calculation of safety stock, we can able to determine how much the company can hold the
inventory in reserve stock per annum.

5.3 ABC ANALYSIS

MEANING
The ABC system is a widely used classification technique to identify various items of
inventory for purposes of inventory control. On the basis of unit cost involved, the various items
are classified into 3 categories:
(1) A, consisting of items with the large investment,
(2) C, with relatively small investments but fairly large number of items and
(3) B, which stands mid-way between category A & C.
49

Category A needs the most rigorous control, C requires minimum attention and B deserves less
attention than A but more than C.
A Class (High Value)
Drive assly - NBO - China (Agitator) - 2 pin drive
Drive assly - ECO Dlx - NBO - China (Impeller)
Wash timer - Eco Dlx (Ningbo) - With buzzer (S60)
Heater (WW)
Heater (Chandini)
WW Motor - Welling
Splash Motor
Motor - Jeamo
Heating Element, High/Mid End,FLT70
Heater Low end
Timer T2-EC6018-FLT
Oil Distribution Actuator, FLT70
Bellow, FLT70
Thermostat Variable, Low End, FLT70
B Class
(Moderate
Value)
Universal Motor
Assy,
Mid & High
End,FLT70
Motor Low end
Bearing - Ball Sealed - 6006
Window Glass,FLT70
Bearing - Ball Sealed - 6205 - Swift
Drain Pump, FLT
Wash timer - Eco Dlx (Ningbo) - Without buzzer (SI 60)
Door Lock - High End
Door Lock, Low End, FLT70
Ball Bearing-Outer, FLT70
Ball Bearing-Inner, FLT70
Seal drive tube - Swift
Seal tub support - Swift
Pressostat, FLT70
Shock Absorber Assy, FLT70
On / Off Switch Low end (Push button switch)
SS Coil
Poly V Belt,FLT70

50

C Class (Low Value)

Driven Pulley - NBO - China (Same pulley)
Pig tail connector-3.0
Pig tail connector-3.8
Clamp tub
Suspension Spring Assly FLT 70 (Fimstud)
Nut Push In, FLT70
Heater Clip,FLT70
Tub Sealing, FLT70
Table 5.3.1 ABC ANALYSIS

Categories

Total No. Items in Classes

Percentage

18

45

14

35

20

40

100

Total

ANALYSIS & INTERPRETATION :

51

The above table shows the classification of various components as A, B & C classes
using ABC analysis techniques based on unit value. From the classification A classes are those
whose unit value is more than Rs.100 and constitutes 45% of total components. B classes are
those whose unit value is between Rs.25-100 constitutes 35% of total components and C classes
are those whose unit value is less than Rs.25 constitutes 30% of total components. It is good that
the company maintains its inventories based on its value using controlling techniques.

Chart 5.3.1 ABC Analysis

50
45
40
35
30
25
45
20
35
15
10

20

5
0
A

5.4 FSN ANALYSIS

MEANING

All the items in the inventory are not required at the same frequency. Some are required
regularly, some occasionally and some very rarely.
FSN classifies items into Fast moving, Slow moving and Non-moving.
52

FAST MOVING ITEMS

Bearing - Ball Sealed - 6006

Bearing - Ball Sealed - 6205 - Swift
Drive assly - NBO - China ( Agitator ) - 2 pin drive
Drive assly - ECO Dlx - NBO - China ( Impeller )
Driven Pulley - NBO - China ( Same pulley )
Wash timer - Eco Dlx ( Ningbo ) - With buzzer ( S60 )
Wash timer - Eco Dlx ( Ningbo ) - Without buzzer ( SI 60 )
Heater ( WW )
Heater ( Chandini )
Pig tail connector-3.0
Pig tail connector-3.8
Seal drive tube - Swift
Seal tub support - Swift
WW Motor - Welling
Splash Motor
Motor - Jeamo
SS Coil

53

SLOW MOVING ITEMS

Clamp tub
Suspension Spring Assly FLT 70 ( Fimstud)
Door Lock - High End
Door Lock, Low End, FLT70
Ball Bearing-Outer, FLT70
Ball Bearing-Inner, FLT70
Heating Element , High/Mid End,FLT70
Heater Low end
Pressostat, FLT70
Timer T2-EC6018-FLT
Water Distribution Actuator, FLT70
Nut Push In, FLT70
Heater Clip,FLT70
Bellow, FLT70
Shock Absorber Assy, FLT70
Universal Motor Assy, Mid & High End,FLT70
Motor Low end
Window Glass,FLT70
Drain Pump, FLT
On / Off Switch Low end ( Push button switch )
Thermostat Variable, Low End, FLT70
Poly V Belt,FLT70

54

Table 5.4.1 FSN ANALYSIS

Categories

Total No. items in Classes

Percentage

17

43

23

57

40

100

Total
ANALYSIS & INTERPRETATION :

In the above table shows the classification of various components as FSN items using
FSN analysis techniques based on movements. From the classification F items are those which
moves fastly and constitutes 43% of total components. S items are those which moves slowly
constitutes 57% of total components and N items are those which doesnt move (Non-moving
items). According to data given, there is no Non-moving items. It is not good as the company
maintains low percentage in moving items.

55

Chart 5.4.1 FSN Analysis

60
50
40
30
20
10
0
F

5.5 TREND ANALYSIS

MEANING
Regression means dependence and involves estimating the values of a dependent variable
Y, from an independent variable X.
Y = a + bx
b = xy n x y

Where a= y b x;

x2- nx 2

56

Table 5.5.1 CALCULATION OF INVENTORY TREND

YEAR
(x)

Inventories
(Rs.)
Y

2003

9,17,88,514

-2

2004

8,66,68,300

-1

-18,35,77,028
-8,66,68,300

2005
2006

20,37,85,550
17,58,61,213

0
1

0
1

0
17,58,61,213

2007

17,22,82,014

34,45,64,028

TOTAL()

73,03,85,591

10

25,01,79,913

X
X=x-2005

X2

XY
(Rs)

x = x/n = 0/5 = 0
= y/n = 73,03,85,591/5 = 14,60,77,118.2

b = xy n x y

x2- nx

25,01,79,913- 5 * 0 * 73,03,85,591 =2,50,17,991.3

10-5*0

a = y b x = 14,60,77,118.2 2,50,17,991.3 * 0 = 14,60,77,118.2

y = a + bx
= 14,60,77,118.2 + 2,50,17,991.3 x
The forecast of inventory for the year 2008 is computed by substituting x = 2008 in the above
equation.
=14,60,77,118.2 + 2,50,17,991.3 x
=14,60,77,118.2 + 2,50,17,991.3 (x-2005)
=14,60,77,118.2 + 2,50,17,991.3 (2008-2005)
=14,60,77,118.2 + 2,50,17,991.3 (3)
=14,60,77,118.2 + 7,50,53,973.9
=22,11,31,092.1
Therefore inventory for the year 2008 will be approximately Rs.22,11,31,100
57

Table 5.5.2 INVENTORIES PERCENTAGE

Years

Inventories

Percentage

2003

9,17,88,514

9.65

2004

8,66,68,300

9.15

2005

20,37,85,550

21.40

2006

17,58,61,213

18.50

2007

17,22,82,014

18.10

2008

22,11,31,100

23.20

TOTAL

95,15,16,691

100

ANALYSIS & INTERPRETATION :

In the above table shows the percentage of inventories increases from 9.65 to 18.10 in the
year 2003-2007. the inventory for the year 2008 is expected to be 23.20 which is again in the
increasing trend. This infers that the inventory requirement is increasing in the future period also.
It shows satisfactory position of inventories as it implies increasing production & demand for the
product.

58

Chart 5.5.2 TREND OF INVENTORY

70
60
50
40
30
20
10
0
2003

2004

2005

2006

59

2007

2008

5.6 INVENTORIES TURNOVER RATIO

MEANING
This ratio is calculated to consider the adequacy of the quantum of capital and its
justification for investing in inventory. A firm must have reasonable stock in comparison to sales.
It is the ratio of net sales and the average inventory. This ratio helps the financial manager to
evaluate inventory policy. This ratio reveals the number of times finished stock is turned over
during a given a accounting period.
The formula for the ratio is

Net sales

Avg. Inventory

Table 5.6.1 Inventories Turnover Ratio & Velocity

Net Sales
(Rs.)

Avg. Inventory
(Rs.)

Ratio

Velocity
(in Days)

2003
2004
2005

12,30,05,134
16,06,43,669
11,73,30,581

8,42,09,371
8,92,28,407
14,52,26,925

1.46: 1
1.80: 1
0.80: 1

250
203
456

2006
2007

55,53,74,571
79,11,78,220

18,98,23,381
17,40,71,613

2.92: 1
4.5: 1

125
81

Year

ANALYSIS & INTERPRETATION :

In the above table shows inventory turnover ratio for the past years. The ratio is showing
increasing trend from1.46 to 4.5 in the year 2003 to 2007, except in the year 2005 which shows
only 0.80 times.
Whereas in the velocity of inventories shows less in 2007 as compared to 2003 which is
81 days in 2007 and 250 days in 2003 except in the year 2005 which is 456 days. This shows that
the inventories are easily converted into sales within the shortest period i.e. the company was
able to sell Rs. 4.5 by investing rupee one in the stock in 2007.

60

CHAPTER-VI
6.1 FINDINGS OF THE STUDY
It is found that, there is a variation in the EOQ & no. of unit purchased. It is understood
that the company is not following EOQ for purchasing the materials. So, the inventory
management is not satisfactory.
From calculation of safety stock, we can able to determine how much the company can
hold the inventory in reserve stock per annum.
From the classification A classes are those whose unit value is more than Rs.100 and
constitutes 45% of total components. B classes are those whose unit value is between
Rs.25-100 constitutes 35% of total components and C classes are those whose unit value
is less than Rs.25 constitutes 30% of total components. It is good that the company
maintains its inventories based on its value using controlling techniques.
From the classification F items are those which moves fastly and constitutes 43% of total
components. S items are those which moves slowly constitutes 57% of total components
and N items are those which doesnt move (Non-moving items). According to data given,
there is no Non-moving items. It is not good as the company maintains low percentage in
fast moving items in compared to Slow moving inventories based on movements using
controlling techniques.
From the calculation it shows, that the percentage of inventoried increases from 9.65 to
18.10 in the year 2003-2007. the inventory for the year 2008 is expected to be 23.20
which is again in the increasing trend. This indicates increasing efficiency of the
management.

61

 The ratio is showing increasing trend from1.46 to 4.5 in the year 2003 to 2007, except in
the year 2005 which shows only 0.80 times. Whereas in the velocity of inventories shows
less in 2007 as compared to 2003 which is 81 days in 2007 and 250 days in 2003 except
in the year 2005 which is 456 days. This shows that the inventories are easily converted
into sales within the shortest period i.e. the company was able to sell Rs. 4.5 by investing
rupee one in the stock in 2007.

62

6.2 SUGGESTIONS AND RECOMMENDATIONS

According to EOQ, as the company does not follow EOQ for its purchasing, the company
can be adjusted to order materials. This will reduce the cost & help to enhance the profit
of the company.
The company is required to maintain safety stock for its components in order to avoid
stock-out conditions & help in continuous production flow.
Under ABC analysis, the management must have more control on A than B&C, because
A class constitutes more(45%) of higher values. There should be tight control exercised
on stock levels, to avoid deterioration. This is done through maintaining low safety stock,
continuous check on schedules & ordered frequently in inventories, in order to avoid over
investment of working capital.

63

 The company must not go to the Non-moving items as far as possible, because there will
be unnecessary blocking of working capital. This would hinder the other activities of the
organization.
The past data shows increase in inventory the company is also expecting more
inventories for future period i.e. 2008. The management is required to maintain the same
inventory trend in the forth coming year also.
The inventory turnover ratio indicates whether investment in inventory is within proper
limit or not. It also measures how quickly inventory is sold. It requires to maintain a high
turnover ratio than lower ratio. A high ratio implies that good inventory management and
it also reflects efficient business activities.

CONCLUSION
A better inventory management will surely be helpful in solving the problems the
company is facing with respect to inventory and will pave way for reducing the huge investment
or blocking of money in inventory. From the analysis we can conclude that the Company can
follow the Economic Order Quantity (EOQ) for optimum purchase and it can maintain safety
stock for its components in order to avoid stock-out conditions & help in continuous production
flow. This would reduce the cost and enhance the profit. Also there should be tight control
exercised on stock levels based on ABC analysis & maintain high percentage in fast moving
items in inventories as per on FSN analysis for efficient running of the inventory. Since the
inventory Turnover ratio shows the increasing trend, there will be more demand for the products
in the future periods. If they could properly implement and follow the norms and techniques of
inventory management, they can enhance the profit with minimum cost.

64

BIBLIOGRAPHY
REFERENCES BOOKS

M Y Khan P K Jain Financial Management 4th edition Tata McGraw Hill.

R.S.N. Pillai V. Bagavathi Management Accounting S Chand & Co.

Martand Telsang Industrial Engineering & Production Management S Chand & Co.

R. Paneerselvam Operations Research Prentice hall Of India Private Ltd.

B.M. Lall Nigam I.C. Jain Cost Accounting Prentice hall Of India Private Ltd.

S.P. Iyengar Cost & Management Accounting Sultan Chand & Sons.

65

 WEB SITES

www.whirlpoolindia.com

www.inventorymanagementreview.org/2005/06/safety_stock

www.inventorymanagementreview.org/inventory_basics/index

www.inventorymanagementreview.org/justintime/index

www.inventorymanagementreview.org/inventory_control/index

66