A STUDY THE INVENTORY MANAGEMENT AT RANNA SUGAR LTD

PRODUCTS :

Finished products :

The finished product is sugar, which is produced from the sugar cane. There are 3 varieties of
sugar produced. They are,

S1-30

S2-30

M2-30

By products :

There are three types of by products produced during the manufacturing of sugar from sugar
cane. They are,

Molasses

Bagasses

Fresh mud

Power
Molasses is used as major content in production of wines and other alcoholic products. So it is
sold to liquor industry of income 0.50 crores is earned per month.

Bagasses is also used as one of the by product obtained during the process. It is used as fuel
for boilers to produce steam through which electricity is obtained. The electricity obtained is
used for the factory itself and surplus is sold to KPTCL.

Fresh mud is yet another by product produced during the process. It is sold to farmer
during the process. Which they in turn use it as fertilizer to grow sugar cane. It is also sold to
fertilizer units and also feed to the cattle.

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PROCESS FLOW CHART

Cane Yard

Unloading

Feeder Table

Cane Carrier
Process Flow Chart
Cane Kicker

Leveller

Fibrizer
Meceration water/Imbibition

Bagasse
Mills

Juice Boiler No 1 Boiler No2 Excess Bagasse

Juice weighing scale

PRD Station

Weighed Juice
Distributed to
SO2 Gas Lime Steam power various
J H PRI Heaters Turbine stations

Juice sulphiter Exhaust steam for process

Clarrifier or
JH sec Heaters Settler
Clear Juice
Disposal filter cake
Muddy Juice Oliver
Evaporator
SO2 Gas filters

Super heated wash water/Steam

syrup Syrup Sulphitor

A mols

B m/c

Syrup Tanks
Crystllizer

Vaccum pan B Centrifugal

A Boiling

A m/c Crystilliser
B Sugar B Mols

A Centrifugal
C m/c

White sugar Crystallizer

Grading
To Tanks
C- Sugar Final Mols
Weighing & Godown
packing B and C sugar melted & used to Boil A m/c

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INVENTORY MANAGEMENT:
In modern competitive one of the burning problem of every business and industries that
of cost control and cost reduction. An all pervasive effort for cost control and cost reduction is of
paramount, importance for survival and growth of every industrial enterprises. This is why
inventory management as a scientific device for controlling inventory cost and eliminating
wastage, is now regarded as an integral part of industrial management. Inventory management
does not involve any human factor, as it concerns itself not with men but with inventory.

Meaning of Inventory:
The dictionary meaning of inventory is stock of goods, of a list of
goods; various authors understand the word inventory differently. In accounting language it may
mean stock of initial goods only. In a manufacturing concern, it may include raw materials;
work in process and stores etc. To understand the exact meaning of the word inventory we May
study it from the usage side or from the side point of entry in the operations. Inventory includes
the following things.

1. RAW MATERIALS
Raw material form a major input into the organization. They are required to carry out
production activities uninterruptedly. The liquidity of raw materials required will be
determined by the rate of consumption and the time required for replenishing the supplies.
The factors like the availability of our materials and the government regulations, etc. to affect
the stock of raw materials.

2.WORK IN PROGRESS
The work in progress is that stage of stocks, which are in between the materials and
initial goods. The raw materials enter the process of manufacture but them yet party in a
final shape of initial goods. The quantum of work in progress depends upon the time taken in
the manufacturing process. The greater the time taken in a manufacturing the more will be
the amount of work in progress.

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3.CONSUMABLES:
These are the materials, which are needed to smoothen the process of production. These
materials were not directly enter production but they act as catalysts etc.. Consumables may
be classified according to their consumption and criticality. Generally, consumables stores to
not create any supply problem and form a small part of production costs. They can instances
where these materials may account for much value than the materials. The fuel oil may form
a substantial part of cost.

4.FINISHED GOODS
There are the goods, which are ready for the consumers. The stock of initial goods
provides a buffer between production and market. The purpose of maintaining inventories to
ensure proper supply of goods to customers. In some concerns the production is undertaken
on order basis, in these concerns they will not be need for finished goods the need for
finished goods inventory will be more when production is undertaken in general without
waiting for specific orders.

5.SPARES
Spares also form of part of inventory. The consumption pattern from materials,
consumables, finished goods are different from that of spares. The stocking policies of
spares for different from industry to industry. Some industries like transport will require
more space than the other concerns. The costly spare parts like engines, maintenance spares
etc. are not discarded after use, rather they are kept in ready position for further use. All
decisions about spares are based on the financial cost of inventory on such and the cast that
may arise due to their non-availability.

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INVENTORY CONTROL TECHNIQUES:

Inventory control techniques are employed by the inventory control. Organization within
the frame work of one of the basic inventory model, viz., fixed order quantity systems or fixed
order period system.
Inventory techniques represent the operations aspects of inventory management and help to
realize the objective of inventory management and its control.
Several techniques of inventory control are in use and it depends on the policy of
the firm product, the techniques most commonly used are

1. Always Better Control (ABC) Classification

2. High, Medium and Low (HML) Classification
3. Vital, Essential and Desirable (VED) Classification
4. Scare, Difficult and Easy to obtain (SDE)
5. Fast moving, Slow moving, and Non moving (FSN)
6. Economic Order Quantity (EOQ)
7. Max minimum System
8. Two bin System
9. Material Requirement Planning (MRP)
10. Just In Time (JIT)
11. Distribution Logistics (DL)

a) ABC Analysis: It is one the widely used techniques for the control of inventory. Objective of
ABC control is to vary the expenses associated with maintaining appropriate control according to
the potential savings associated with the proper level of such a control. A may account for more
than half the total value usage in the inventory. These items required very careful management
and special careful estimates of future usually class C items which in total account for only a few
percent of the total value of usage very little effort should be devoted to forecast the requirement
of items. The inter mediate class B items justify a reasonable but routine effort in forecasting
demands and managing inventory.

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b) HML Analysis: Since the total annual usage is considered in case of ABC Analysis, quite a
few items which fall in B category although the unit cost (cost per unit) is quite high. If controls
are exercised on the basis of ABC only, the importance of these items will be much less than A or
B items even though the inventory or transaction of one unit of these items will mean quite a lot
money. Therefore, it is necessary that the unit cost is also considered in order to find out the
importance of items on the basis of unit cost. Limits of units costs are fixed for high costs items
(H), medium costs items (M) and low cost units (L) and all items are segregated into H, M and L
categories depending on there unit cost.

This analysis is quite useful in deciding the safety stock in relation to the availability of
the material.

c) VED Analysis:
The materials classification on the items is called VED analysis. VED stands for vita,
Essential and Desirable.
Vital items which render the requirement or the whole line operation in the process totally
and immediately inoperative, unsafe and if these items go out of stock or not readily available,
results in losses of whole production of whole period.

E-Essential items which reduce the equipments, performance but not render it
inoperative, results or unsafe, non-availability of items may result in temporary loss of
production or dislocation of production work replacement can be done without any delayed,
without affecting the equipments performance seriously, temporary repairs sometime possible.
D-Desirable items which are mostly non functional and dont effect the performance of the
equipment.

d) FSN Classification :
Materials can be classified on the basis of movement as fast moving slow moving and
non moving FSN according to their consumption patterns. FSN analysis is specially useful to
combat obsolete items whether spare parts, raw material or component. Cut off points of three

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classes are usually in items of number of issues in previous few years depends on the
peculiarities of an individual concern.

e) SDE Analysis:
SDE stands for scarce, difficult and easily available items in the local market. Scarce
items are generally in short supply; usually these are raw material, spare parts and imported
items. Difficult items are not available in local markets, and have to be produced from for off
cities or items for which there are a limited a number of supplies or items for which quantity
suppliers are difficult to get.

The SDE analysis proves to be very useful, in industrial situations where certain materials
are in scare supply, and gives proper guidelines for deciding inventory policies.

f) XYZ Analysis:
For the effective management of stores, the stock can be split as high valued, middle
value or low valued XYZ classification. This technique helps in identifying the items, which
are being extensively stocked. X items are those whose inventory values are high while Z
items are those whose values are low. Understandably Y items fall in between these tow
categories. XYZ classification may be used in the conjunction for the better results.

g) Minimum-Maximum Techniques :
The Minimum maximum system is often used in connation with manual inventory
control system.
The minimum quantities is established in the same way as any re-order point.
The effectiveness of minimum-maximum system is determined by the method and
precision with which the minimum.

h) Two Bin Technique:

One of the oldest system of inventory control is the two bin system, stock of each item is
separated into two bins.

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One bin contains stock, just enough to last from the data a new order is placed until it is
received in inventors.

The other bin contains quantities of stock, enough to satisfy probable demand during the
period of replenishment

i) Material Requirement Planning (MRP):

MRP is a new solution to an old problem having stock of materials a lowers on hand
when heeded without carrying excess inventory.
j) E.O.Q. Model : There are two basic questions relating to inventory management
1. What should be the size of the order
2. At what level should the order be placed.
To answer this question the economic order quantity model is helpful. General E.O.Q.
includes 3 types of costs, that are carrying cost, ordering cost & shortage cost.
i) Just in Time : The management of inventory has become very sophisticated in recent years. In
certain industry the production process it self lends to just in time (J I T) inventory control. As
the name implies, the idea is that the inventories are acquired and inserted in the production at
the exact time they are needed. This requires efficient purchasing, very reliable and an efficient
purchasing, very reliable and an efficient inventory handling system. One thing that has made
this possible is advent of instant information through sophisticated computer networks. The
coordination of varies suppliers in an efficient manner is known as supply chain management.

j) Distribution Logistics: An exciting and profit promising way of using systems logistics in
planning and control is the expansion of inventory control to include other factors. This system is
referred to here as distribution logistics. In its advance form. It treats the entire logistics of
business ranging from sales forecasting through purchasing and processing materials and
inventorying to shipping the finished goods as a single system.
The goal is usually to optimize the total cost of the system in operation while furnishing
a desire to level of customer service meeting certain constrains such as financially limited
inventory levels.

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ABC Analysis : These important items usually designated as class A may account for more
than half the total value usage in the inventory. These items require very careful management
and special careful estimates of future usually class C items which in total account for only a few
percent of the total value of usage very little effort should be devoted to forecast the requirement
of items. The inter mediate class B items justify a reasonable but routine effort in forecasting
demands and managing inventory.

The ABC approach means of category inventory items into three class, A, B and C
according to potential amount to be controlled.

A - Items, which are the 10%

B - Items, which are the 20%
C - Items, which are the 70%

A.B.C. Analysis

A.B.C. analysis is a selective technique of controlling different items of inventory. In

actual practice, thousands of items are included in business as inventories. But all these
items are not equally important. According to this technique, only those items of
inventory are paid more attention which are significant for business. According to this
technique, all items are classified into 3 categories A.B. and C. In A category those
items are taken which are very precious and their quantity .

ABC ANALYSIS - 1
One of the most important considerations of control is the value of annual consumption of
inventory items in a year.

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Only a small number of inventory items consume a very large share of inventory consumption
during the year.
A little larger number of inventory items covers a moderate share of annual inventory
consumption.
A very large number of items just cover a very small share of annual inventory consumption.
These facts gave birth to the concept of ABC analysis.

ABC ANALYSIS 2
It has been observed that in an industrial unit only 10% of items have 70% of the annual
inventory consumption.

20% of the items have 20% of annual inventory consumption, and

70% of the items have only 10% of the annual inventory consumption.

Since 70% of the annual consumption of inventory is covered by only 10% of the items in the
inventory, these items deserve highest attention and are classified as A items

Similarly 20% of the items covering 20 % of the inventory investment are B class items.

Balance 70% of the inventory items are termed as C class items.

STEPS IN ABC ANALYSIS:

The steps in computing ABC analysis are:

a .Determine the annual usage in units for each item for the past one-year.

b. Multiply the annual usage quantity with the average unit price of each item to calculate the
annual usage in for each item.

c. Item with highest volume usage annually is ranked first. Then the next lower annual usage
item is listed till the lowest item is listed in the last.

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Arrange the items in the inventory by cumulative annual usage and by cumulative
percentage. Categorize the items in A, B , and C categories..

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