Professional Documents
Culture Documents
G C T M Industry in India has traveled are less, now India is one of the main cotton
manufacturing & exporting cotten in the in india. The cotten in India is with major players and
gadag co operative mill Ltd is one of largest manufacturer of cotten in India.
Inventory is a central process in Manufacturing Unit. This Inventory is concerns to all
departments i.e., from Planning Department to Selling Department in which it passes though
Production Department, HR Department, Logistic Department, Finance Department, Costing
Department, and Commercial Department etc. So managing of Inventory is having wide Scope
in manufacturing Company.
INVENTORY MANAGEMENT
Statement of the problem
Inventory management and its effects on working capital
Management problem
Management is feeling that their huge amount of working capital is held up, so the
management wants to know whether they can reduce it through inventory management.
SUB OBJECTIVES:
1 To study the different accepts of Inventory Management.
METHODOLOGY
Primary Data:
1. Interaction with personnel of the company
2. Direct Observation in Inventory
Secondary Data:
1. Balance Sheet
Tools Used:
MS-Excel has been used for calculations.
INDUSTRY PROFILE
FABRICATION
When used as an industrial term, applies to the building of machines, structures and other
equipment, by cutting, shaping and assembling components made from raw materials. Small
businesses that specialize in metal are called fab shops.
Steel fabrication shops and machine shops have overlapping capabilities, but fabrication
shops generally concentrate on the metal preparation, welding and assembly aspect while the
machine shop is more concerned with the machining of parts.
Metal fabrication is a value added process that involves the construction of machines and
structures from various raw materials. A fab shop will bid on a job, usually based on the
engineering drawings, and if awarded the contract will build the product.
Article I. ENGINEERING
The fabricator may employ or contract out steel detailers to prepare shop drawings, if not
provided by the customer, which the fabricating shop will use for manufacturing. Manufacturing
engineers will program CNC machines as needed.
Plate Metal
Formed And Expanded Metal
o Tube stock, CDSM
o Square stock
o Sectional metals (I beams, W beams, C-channel...)
Welding wire
Hardware
Castings
Fittings
The raw material has to be cut to size. This is done with a variety of tools.
Special band saws designed for cutting metal have hardened blades and a feed
mechanism for even cutting. Abrasive cut-off saws, also known as chop saws, are similar to
miter saws but with a steel cutting abrasive disk. Cutting torches can cut very large sections of
steel with little effort.
Burn tables are CNC cutting torches, usually natural gas powered. Plasma and laser
cutting tables, and Water jet cutters, are also common. Plate steel is loaded on a table and the
parts are cut out as programmed. The support table is made of a grid of bars that can be replaced.
Some very expensive burn tables also include CNC punch capability, with a carousel of different
punches and taps. Fabrication of structural steel by plasma and laser cutting introduces robots to
move the cutting head in three dimensions around the material to be cut.
4. FORMING
Hydraulic brake presses with v-dies are the most common method of forming metal. The
cut plate is placed in the press and a v-shaped die is pressed a predetermined distance to bend the
plate to the desired angle. Wing brakes and hand powered brakes are sometimes used.
Tube bending machines have specially shaped dies and mandrels to bend tubular sections
without kinking them.
Rolling machines are used to form plate steel into a round section.
English Wheel or Wheeling Machines are used to form complex double curvature shapes
using sheet metal.
Fab shops will generally have a limited machining capability including; metal lathes,
mills, magnetic based drills along with other portable metal working tools.
6. Welding
Welding is the main focus of steel fabrication. The formed and machined parts will be
assembled and tack welded into place then re-checked for accuracy. A fixture may be used to
locate parts for welding if multiple weldments have been ordered.
The welder then completes welding per the engineering drawings, if welding is detailed,
or per his own judgment if no welding details are provided.
Special precautions may be needed to prevent warping of the weldment due to heat.
These may include re-designing the weldment to use less weld, welding in a staggered fashion,
using a stout fixture, covering the weldment in sand during cooling, and straightening operations
after welding.
Steel weldments are occasionally annealed in a low temperature oven to relieve residual
stresses.
7. FINAL ASSEMBLY
After the weldment has cooled it is generally sand blasted, primed and painted. Any
additional manufacturing specified by the customer is then completed. The finished product is
then inspected and shipped.
Address of the Head office : M-1 phase- VII, TATA kandra main road, industrial
area ADITYAPUR, JAMSHEDPUR-832109 INDIA.
Fax: 0657-2200010
Tel: 91-657-2408715, 2409041 & 2381346
E-mail: info@apexautoltd.com
Address of the UNIT II : APEX AUTO LTD (UNIT II) Block no: 2
Dharwad Telcon premises, K.I.A.D.B, P.B. Road
Dharwad- 580007, India
Fax: 0836-3293214
ABOUT ORGANIZATION
Apex Auto Limited ("If you can imagine it, We can fabricate it.")
Apex Auto Limited is a publicly quoted company with a number of shareholders, both
Indian and Foreign. Promoted by Mr. Atul Taunk in 1995 with a modest capital outlay of Rs. 342
lakhs, Apex today has a capital outlay of Rs. 1200 lakhs. A growth of over 350% per annum.
Achieved by producing thousands of dynamically stressed machined components for the
construction equipment industry
The raison deter of Apex is that the emerging scenario in post liberalized India indicated
that the nation was poised to go in for massive infrastructure building: roads, super highways,
ports, power projects, and so on. This would put immense pressure on manufacturers of earth-
moving equipment. Apex eases the load on them by supporting the industry with precision
engineered sub-assemblies and major assemblies that can go directly into their equipment, such
as revolving frames, main frames, booms, arms, dozers, buckets, and so on.
As a case in point, we're proud to have been entrusted with the single share of business
for all major fabrications that go into the making of TATA Hitachi's top selling excavators, the
EX-60. Over the last 5 years, we have fabricated more than 10,000 components of this particular
model alone.
MISSION
As per customer schedule requirement fulfill it, Deliver on time, every time.
An eye on product quality and integrity
Highest productivity, thereby offering a cost advantage to all our clients.
Why Apex?
Aristotle - Greek inventor of the Science of Logic - recommends studying the theory of 'The 4
Becauses' before making your choice Why Apex for your Machined fabrication ?
Apex uses only prime quality steel sheets and plates procured from leading players in the
industry - Tata Steel and SAIL.
Apex has state of art Material Processing facilities including Indias largest laser cutting
machine. And excellent Production Engineering systems set up by a highly experienced and
technically qualified team of engineers.
Based on our customer's drawings and design, Apex manufactures dynamically stressed
machined fabrications conforming to all the specifications laid down by the customer.
For safety in manufacturing process awards (less accident in manufacturing process) for
continuous 3 years form Telco construction equipment limited
For MINIMUM REJECTION award form Telco construction equipment limited
As per the specification from Telcon the new product is been developed
Article IV. By the highly qualified internal engineering department
Technically qualified and high skilled Merchandising department is another asset of the
company, who plays a major role in executing the orders utmost efficiently to the satisfaction of
Buyers.
1. PROFESSIONALLY MANAGED:
5. IN HOUSE LAB:
They have a lab situated in the major procurement centers, such as in Dharwad and
Jamshedpur to support their quality control team to carryout the various quality tests at all level
onwards to ensure that the product is produced according to their quality in-house.
All the buyers as of today have been working with them since decades and they started with
them on continues basis with enhanced volume. This has given them huge confidence as the
confidence level of their buyers is very high in their products, quality, timely deliveries and
commitment towards work.
They have been awarded for 3 consecutive years for minimum rejection and for safety in
process of manufacturing by Telco construction equipment limited
Apex Auto Ltd Unit II is having a numerous suppliers. They mainly purchase Raw
Materials like MS plates, Bush Stoppers, Seat Curve etc from Indian suppliers.
General
Manager
CEO
Administration Assistant
Material indenting
(As per customer
schedule)
Quotations Comparisons
Best Negotiation
Purchase Order
creation
4. Dispatch Department
The dispatch of materials and finished goods is done in a very efficient way.
This department entrusted with the task of the production of Dozer Blade, Loader
Bucket, Narrow Bucket, Back Hoe Main Frame, Boom, Arm, Counter Weight, Heavy Duty
Bucket, Revolving Frame and Track Frame. From our very inception at Jamshedpur in 1996 and
at Dharwad in 1999, our infrastructural facilities have been meticulously planned out with an eye
towards satisfying the exacting standards of world class players in the Earth Moving Industry.
Lets have a look on the process of manufacturing process in Apex Unit II, basically this
company is heavy fabrication company, they are manufacturing BACK HOE LOADER
COMPONENTD & EXCAVATOR COMPONENTS. Following are the components. JHON
DEER (JD) Boom, Arm, Loader Arm and EXCAVATORS 70, 110, 120, Boom and
EXCAVATORS 70, 110,120 Arm. The below showing is the manufacturing process of
Excavators-70 Boom.
BEVELING OF PLATES
TA 00233/01, TA22033/07,
TA 00233/08
CONTINUE
IN FIXTURE
OUTSUB ASSEMBLY 1ST STAGE
OF FIXTURE
TA 01164/00,
2ND STAGE WELDING TA 00233/27,
TA 00233/01, TA00233/08,
TA00233/05, TA00233/06
TA00233/07
IN FIXTURE
TA 00233/09, TA 00233/10
OUT OF FIXTURE
TA 00233/04
ST
1 STAGE WELDING
LUG FITTING
2ND TA
TA 00233/14, STAGE ASSEMBLY
00233/15,
TA 00233/16,TE
TA20789, TE 20790
00233/17,
TA 00233/03
CONTINUE
INSPECTION
Total length 3720+/- 4mm Rejection/
Top lug distance WRT Boom Rectification
End Bracket, Bottom lug
distance
ASSEMBLY OUT OF
=
FIXTURE
TA 00233/02
ROBOT WELDING
CONTINU
Not Ok
CONTINU
E
OK
REJECTION/
INSPECTIO RECTIFICATION
N
MACHINING
REJECTION/
INSPECTIO RECTIFICATION
N
Not Ok
DRESSING
INSPECTIO RECTIFICATION
Inventory Management
N of BTI Page 20
UT
TESTING
DESPATCH
OK
Not Ok
OK
Not Ok
OK
1. RAW MATERIALS
In every manufacturing process raw materials must required there for APEX AUTO
LTD (UNIT II) purchase raw materials from its main branch at JAMSHEDPUR and form Apex
Auto Ltd (Unit I). Some materials directly comes to Unit II but some materials firstly comes to
3. BEVELING OF PLATES
Some plates beveled by Unit I and those plates are Top rolling plate(TA 00233/01),
Side bend plate LH(TA 00233/07) and side bend plate RH(TA 00233/08)
9. LUG FITTING
In this process Lugs are fitted to the prepared component which are Top lug and
bottom lugs and Top washers lugs and Bottom washer Lugs. Firstly bottom lugs are joined to
each other and then those lugs are attached to the bottom of the prepared component. After
joining the bottom lugs the top lug is joined to the top of prepared component with required
dimension or space so as to complete this process.
10. INSPECTION
This is an important stage in manufacturing process. In this stage they check total
length of the component. Total length should be 3720mm if there less difference of 4mm then
there is no problem it must not exceed 4mm, then they also check centre point of the component
and top lug distance to the boom and bracket, and bottom lug distance of the components if there
is any problem found then they go for rectification of the component.
14. SETTING
In this process they maintain required dimension in various parts of the components
through the gas heating which includes Organ and Co
15. INSPECTION
In this process they measure the components by using measuring scale, try square,
Vernier and gauges etc.
16. MACHINING
Machining process means removing the rough face as per the standard drawing. In
machining process they have two type of jobs one is milling and the other is boring, in this
process they are using two type of machines one SHW that means hidden control machine and
the other is Fanuc control machine. To reduce heat in the process they are using coolant oil
because it helps to reduce the heat for insert ware and tear and it helps to smooth milling and
boring of the component in machining they are having there stages
1. Rough stage
2. Semi finish
3. Finish Stage
In Ex- 70 boom components are having mainly four bores boss bore must have the size of 75mm
and lug bore must have the size of 55mm and bracket must have 60mm.
19. INSPECTION
In this process they are checking welding defects in the components by using
Ultrasonic Technique (UT) machine, the following are the defects we can find by using UT
machine.
1. Blow Holder area
2. Proper penetration
3. Porsity etc
20. DISPATCH
After completion of all this processes the quality assurance department checks the quality of the
component and after checking they finally dispatch the product so this complete the
manufacturing process of EX-70 boom model.
Apex Auto Limited is in the service of gaints in the field of Excavator manufacturing Co.
TELCON for 6 Years by maintaining a high QUALITY & SKILL. And for its efforts, it has been
certified by TELCON, and other quality maintaing institutions.
The term inventory refers to the stockpile of the products a firm is offering for sale and
the components that make up the product. The assets which firms store as inventory in
anticipation of need are:
INVENTORYMANAGEMENT
INVENTORY MANAGEMENT
V
I
E
W
S Logistic Inventory
Physical Inventory
Management Management
Financial Inventory
Management
The reason behind of dividing these views is: to gather the information very easily and
for easy to understanding of each view thoroughly. Let us see the Meanings of each view one by
one.
Usually, the company is faced with the following conflicting objectives in the area of
inventory management:
Thus, it can be said that the objective of inventory management is to minimize the
investment in inventory without affecting production or sales operations.
Inventory, as a current asset, differs from the other current assets because only financial
managers are not involved. Rather, all the functional areas, finance, Marketing, Product &
Purchasing are involved.
The job of the financial manager is to reconcile the conflicting viewpoints of the various
functional areas regarding the appropriate inventory levels in order to fulfill the overall objective
of maximizing of owners wealth.
Two-Bin System:
Under this system, the inventory items are grouped into two categories. In one group or
bin, sufficient quantity is kept to meet the current requirements over a designated period of item.
In another group or bin, a safety stock is maintained to meet the requirements of inventory at
times when the stock in the first bin is exhausted and re-ordering occurs.
1) Based on Valuation
2) Based on Cost Analysis
3) Based on Financial Statement
1) Based on Valuation
There are number of generally accepted methods of determining the cost of inventories at
the close of the accounting period. The selection of a suitable method assumes significance in
view of the fact that it has a direct bearing on the cost of goods sold and consequently on profit.
Therefore, the method should be selected in the light of probable effects on profits over a period
of years.
Note:
It may not be out of place to mention that once a method is selected, it must be used
consistently and cannot be changed from year to year.
The discussion here of the methods to value inventory should, therefore be viewed in this
perspective.
Under the LIFO method, the cost of goods sold and the value of closing inventory can be
determined only after the final lot of the year has been received. This is because of the
assumption underlying the valuation of inventory, according to this method. As the name LIFO
suggests, the use of inventory is valued on the basis of the inverse sequence of receipts. Since
the LIFO method assumes that the latest item in is the first item out, the current cost of materials
are matched with the current selling price/current revenues. This matching of current costs with
current revenues is the essence of the argument for the LIFO method.
According to average cost method, each purchase is added to inventory and an average
cost determined. Materials are charged into cost of sales at this average until another lot is
received, when a new average unit inventory cost is calculated.
Note: There are so many other than these above methods but most wide usefully methods are
these three so here we discussed those three methods only.
1) Ordering Cost:
It is the fixed cost of placing & receiving an inventory order. Like (a) Preparing a purchase
order or requisition form & (b) receiving, inspecting & reordering goods received to ensure both
quantity & quality. It is also called as setup cost.
2) Carrying Cost:
The second broad category of costs associated with inventory is the carrying costs. They are
involved in maintaining or carrying inventory. The cost of holding inventory may be divided
into two categories.
1. Those that Arise Due to the Storing of Inventory: The main components of this
category of carrying costs are (i) storage cost, that is, depreciation, insurance,
maintenance of the building and utilities; (ii) insurance of inventory against fire and theft;
(iii) deterioration in inventory because of pilferage, fire, technical obsolescence, style
obsolescence and price decline; (iv) serving costs, such as labour for handling inventory,
clerical and accounting costs.
2. The Opportunity Cost of Funds: This consists of expenses in raising funds (interest on
capital) to finance the acquisition of inventory. If funds were not locked up in inventory,
The carrying costs and the inventory size are positively related and move in the same
direction. If the level of inventory increases, the carrying costs also increase and vice-versa.
Total Cost:
The sum of inventory increases, the carrying costs represent the total cost of inventory.
This is compared with the benefits arising out of inventory to determine the optimum level of
inventory.
Therefore EOQ is that level of inventory at which total cost of inventory comprising
ordering cost & carrying costs is the minimum
EOQ = 2AO
C
A= Annual Quantity
O= Ordering Cost
C= Carrying Cost
Assumptions:
1. The firm knows with certainty the annual usage (consumption) of a particular item of
inventory.
2. The rate at which the firm uses inventory is steady over time.
3. The orders placed to replenish inventory stocks are received at exactly that point in
time when inventories reach zero.
Order Point:
Reorder Point:
This is the point at which to order inventory-expressed equation-ally as:
Lead Time in days X daily usage.
Safety Stock:
It implies extra inventories that can be drawn down when actual lead-time and/or usage
rates are greater than expected.
The main requirement for Banker is the Financial Statements of 3 to 5 years. From this
statement it can judge the financial strength of the Company. While analyzing of Financial
Strength of the Company, Inventory is also having its own emphasis role. Because if company is
having less inventory than its requirement then company will get less finance from Banks and
visa-versa. So here high inventory means, high in the sense company should have sufficient
inventory according to its order. Not more than its order.
Let us have a look on some Inventory related Ratios and also some important financial
ratios those, which are related to Inventory. From evaluating of these Financial Ratios, company
can judge the stocks/goods level in Inventory, so that company can get loan from Banks.
The financial statement provides a summarized view of the financial position and
operations of a firm. Therefore, much can be learnt about a firm from a careful examination of its
Financial analysis is the process of identifying the financial strengths and weaknesses of
the firm by properly establishing relationships between the items of the balance sheet and the
profit and loss account. Financial analysis can be under taken by management of the firm, or by
parties out side the firm, viz., owners, creditors, investors and others. The nature of analysis will
differ depending on the purpose of the analyst.
Management of the firm would be interested in every aspect of the financial analysis. It
is their overall responsibility to see that the resources of the firm are used most
effectively and efficiently, and that the firms financial condition is sound.
Trader creditors are interested in firms ability to meet their claims over a very short
period of time.
Investors, who have invested their money in the firms shares, are most concerned about
the firms earnings.
Suppliers of long-terms debt, on the other hand are concerned with the firms long-term
solvency and survival. They analyze the firms profitability over time, its ability to
generate cash to be able to pay interest and repay principal and the relationship between
various sources of funds.
Ratio analysis is a powerful tool of financial analysis. A ratio is defined as the indicated
quotient of two mathematical expressions and as the relationship between two or more things.
In financial analysis ratio is used as a benchmark for evaluating the financial position and
performance of a firm. Ratios help to summarize large quantities of financial data and to make
qualitative judgment about to form a qualitative judgment the focus of financial analysis is on the
key figures in the financial statements and the significant relationships that exist between them.
Types of Ratios:
a. Liquidity Ratios
b. Activity Ratios
c. Profitability Ratios
A. Liquidity Ratios:
Liquidity refers to the ability of the firm to meet its obligations in the Short run, usually
one year. Liquidity ratios measure the ability of the firm to meet its current obligations.
Liquidity ratios by establishing a relationship between cash and other Current assets to Current
obligations provide a quick measure of liquidity. A firm should ensure that it does not suffer
from lack of liquidity, and also that it does not have excess liquidity.
Therefore it is necessary to strike a proper balance between high liquidity and lack of
liquidity. Following are some of the important liquidity ratios:
1. Current Ratio
2. Quick Ratio
3. Net working Capital Ratio
Activity ratios are concerned with measuring the efficiency in asset management.
Sometimes, these ratios are also called efficiency ratios or asset utilization ratios. The efficiency
with which, assets are converted into sales. The greater the rate of turnover or conversion, is the
more efficient the utilization. For this reason, such ratios are also designated as turnover ratios.
Turnover is the primary mode for measuring the extent of efficient employment of assets by
relating the assets to sales. An activity ratio may, therefore, be defined as a test of the
relationship between sales and various assets of a firm. Several activity ratios can be calculated
to judge the effectiveness of asset utilization.
1. Inventory Turnover
2. Assets Turnover
3. Fixed Assets and Current Assets Turnover
Asset Measurement for different methods of inventory valuation:
FIFO Method:
LIFO Method:
According to this method, obviously, the inventory figure would not appear in the
balance sheet at the Current Cost. It will reflect rather the cost of raw materials purchased in the
past year. Assuming rising prices, the inventory value based on the LIFO method would tend to
A possible solution to correct the above distortion in the balance sheet implicit in the
under-valuation of inventory with the LIFO method is a modified/adjusted LIFO method.
The modified method will, thus, serve the needs of correct income determination as well
as correct asset measurement. However, this is subject to a qualification, namely, the current
years purchase (units) should exceed the current years consumption (units). If for reasons such
as strike/lockouts, transportation problems, and so on, the current consumption exceeds the
current purchases, profits will rise. The increase will depend upon the extent of liquidation of
the previous years inventory. This increase in profit is termed as liquidation profit, which is
equal to the difference between the current cost of inventory and the cost of inventory purchased
in the past.
Meaning of Logistics:
In fully export-oriented business this is one of the main department, where this
department gets an approval to sell their goods in foreign countries. And also their main
intention is to maintain all documents of those that are related to the exporting of their products.
Yes, already we have observed about the meaning of Inventory Management in the
Organization. But in fully export oriented business; Inventory Management is a very important
concept. Because every exporter or importer, they do not know about each other who are staying
in other countries.
Before going to detail decision on Banks let us have a look on Commercial Papers. Which are
also parts of financing the working capital requirements of the Companies.
In the recent past, Commercial Papers (CPs) have become one of the best methods for
financing the working capital requirements of the companies.
The companies trying to raise the funds by issuing the CP are regulated by Guidelines for
issue of Commerical Papers (CP), 2000 issued by Reserve Bank of India on October 10, 2000.
These guidelines apply to the companies trying to raise the funds by issuing the CPs. As per
these guidelines, a a company means a company as defined in section 45-I(aa) of Reserve Bank
of India Act, 1934. Section 45-I(aa) of Reserve Bank Act, 1934 defines a company as the
company as the company as defined in section 3 of the companies Act, 1956.
In the Indian circumstances, banks play a very major role in financing the working capital
requirement of the organizations. We will consider the bank as a source for financing the
working capital requirement of the organizations under the following heads:
To obtain the bank credit for financing the working capital requirements, the company is
required to estimate the working capital requirement properly. To estimate the requirement of
working capital requirement properly, the company will be required to estimate its level of
current assets and current liabilities properly, as working capital is the difference between current
assets and current liabilities.
For this, the techniques like ratio analysis, trend analysis etc., can be used by the
company. More accurate the estimation of the level of current assets and current liabilities, more
accurate the estimation of level of current capital. Then, the company will have to approach the
bank along with the necessary supporting data. On the basis of estimates submitted by the
company, the bank may decide the amount of assistance that can be extended. While extending
the working capital assistance, the bank may prescribe the margin money requirement. The
margin money stipulation is made by the banks in order to ensure that borrowing companys own
stake in the business and also to provide the cushion against the possible reduction in the value
of security offered to the bank. The percentage of margin money stipulation may depend upon
the credit standing of the borrowing company, fluctuations in the price of security and the
directives of RBI from time to time. The general principle applicable will be, more dicey the
nature of security, higher of security, higher will be the margin money stipulations.
After deciding the amount of overall assistance to be extended to the company, the bank can
disburse the amount in any of the following forms:
In case of Non-Fund Based Lending, the lending bank does not commit any physical outflow of
funds. As such, the funds position of the lending bank remains intact. The Non-Fund Based
Lending can be made by the banks in two forms:
a. Bank Guarantees
b. Letter of Credit
This inventory process is fully computerized and here paper work is very less. Only
maintaining of documents, which were sent by suppliers as like challans etc., are only here to
maintain as paper documents. Otherwise it is fully computerized. Through computers only Store
Department receives Purchase Order and by computer only they send documents of issuing of
materials to manufacturing unit.
For easy to communicate and planning of production activity, Apex Auto Ltd Unit II has
having only one Godown in Procedures involved in receiving and issuing of materials are as
follows:
1) Godown will first get Purchase Order No..
This PO is comes from Purchase Department. This Purchase Department gives a number
for the each order made by Purchase Department only.
Before placing any order to suppliers they first checks the materials in inventory as to
know about whether materials are available in Inventory or not. If not available in Inventory
then only they will place an order according to the requirement.
In Apex Auto Ltd (Unit II), it is very important to note that: purchase department always
places an order to those materials which have ordered by Customers/buyers of Apex Auto Ltd
(Unit II).
So, normally it does not have any stocks in its inventory. For every order from customers
they make a fresh Purchase Order for purchasing of materials. It means whatever the materials
are requiring for present orders, those materials are only they kept as stocks in Inventory.
In some cases, materials may be in Godown, which they call it as Buffer Stock. If
these old stock is matches the requirements of product which has ordered now by its customers,
2) Receiving of Materials
Any materials comes-in or goes-out from the Godown it should be enter in the Gate that
is they call it as Gate Entry, which is maintained by security Guard. Guard is not an
employee of an organization. He is a contact-based employee.
When Inventory receives materials it first inspects some samples, so for it, they call up as
Spot Inspection. Here they inspect the following points:
After approval of materials by sample inspection, inventory department put these details
in manual book, this documentation is called as Day Book. This daybook is consisting of
information like Challan No., P.O. No., Style No., Description of Materials, Suppliers Name,
transporters Name, and Quantity.
After completing of these processes, materials will send to inspection department. In this
inspection department they inspect in-details of materials. After approval by inspection
This Goods Received Document is consisting of GR No., Date, GRN Type (In-store),
Mode of Transport, Challan No., Challan Date, Status, Gate Entry No., Gate Entry Date, Priority
No., all Details of Materials and received quantity and actual quantity also enters there.
3. Issuing of Materials
Merchandising Department will send one card called Job Card which it consisting of
all details of materials requires to produce a product. According to that Card Inventory
department should send the materials to manufacturing department.
After utilizing of all these materials by manufacturing department they will send one
document called Order Completion Report (OCR). This report consists the information of
Percentage of Utilized Materials for particular order and percentage of wastage of materials.
This report will send to inventory and also to Merchandising Department.
Inventory takes those materials, which are return back from manufacturing units because
of excess or surplus occurs while manufacturing of products. This excess or surplus exists
because of purchase department, they always orders 20% more than its requirement to meet the
requirement of next month. So these materials are kept in Inventory as name it as Buffer
stock.
5. Rejected Materials:
Inspection department make the rejection of materials, when materials are not as per
requirements and not as per the order. These rejected materials are kept in separate section by
Inventory Department.
Inventory department inform to Purchase Department and also notice to Suppliers about
rejection of materials. That is called Rejection Card. In this card it involves Name of
Supplier, Description of Materials, Challan No., Challan Date, Gate Entry No. & Date, No. of
Quantity rejected, Reason for rejection etc.,
Some times supplier may issue new materials in place of rejected materials. Or he may
give some compensation for wrong supply and that is after paying of full payment of materials.
Sections in Inventory:
Inventory is again divided into 5 sections. Each is section handling by only one persons,
with the help of 3 to 4 assistants, who helps in maintaining of materials at specific area. Five
sections are as follows:
Sections in Inventory
D201
All bought out items are been stored here and processed to the manufacturing as when required
D202
All consumables and tools and maintenance accessories are been stored in this section
D203
In Apex they purchase materials at from a multiple Suppliers. There is a reason for
purchase materials from multiple suppliers. The reason is if one supplier delays to fulfill the
supply then there must be alternative supplier for it to fulfill the requirement. So there must me
no stock outs in the production process
Apex always purchases at bulk but by schedule wise. In other words they purchase
materials at a time for specific order. They make the agreement of supplying materials only at
once. And they negotiate the price only at once that is before supplying of materials and once
their agreement is over then they provide schedule to supplier to supply the materials at a
specific time and at a specified quantity.
WIP Store
Now we come to the WIP Store. As we have already seen that this Apex is having only
one Godown and every unit is having its own Store Departments. As we know that Work In
Process Store means Semi-finished Goods, here goods are not completed yet and not these are in
fully raw materials form.
Finished Goods
Valuation of Finished Goods in Apex is at 10% less than Selling Price of those finished
goods. Finished Goods are in the sense these goods should be ready to dispatch.
There is no separate Godown for Finished Goods/Products. Every unit is having its own
Finished Goods Godown. In that Godown only they store these Goods. And dispatching of
these products is directly by each unit. They do not consolidate these goods; they dispatch these
finished products directly by each unit.
Apex auto ltd (Unit II) has only one customer that is Telcon. So they directly supply
finished products to its customers. So it is not necessary to have another Godown for Finished
Goods.
There is a department called Logistic Department in Apex Auto Ltd, which is concerning
about selling of goods and maintaining of all documents related to exporting of products and also
taking the permission from banks to sell specific products in specific countries. So Logistic
Department is one of the important front-office Departments, like Marketing Department.
Marketing Department is one, which takes the orders from its customers. And this is
entirely different from Logistic Department. Logistic Department is one, which sells its products
and maintains all documents. But Marketing Department is comes into picture before production
process starts. And Logistic Department comes into picture only after the production process
completes.
Logistic Department is not only taking the approval for selling its products, but also it
will concern for taking loan for its working capital. Banks will provide these working capital
requirements in two senses: one is on Pre-Shipment Loan and another one is Post-Shipment
Loan.
Note:
Tangible net worth means share capital plus free reserves duly reduced by intangible
assets like accumulated losses, deferred revenue expenditure etc. Free Reserves include share
premium and debenture redemption reserve but do not include revaluation reserve.
Before the company issues the CPs it is required to obtain satisfactory credit rating from
an approved credit rating agency. Presently, following credit rating agencies have been
approving by RBI for this purpose.
Nature of a CP:
h. A CP can be issued for the maturity period of 7 days to one year.
i. A CP has the denomination of Rs. 5 Lakshs and every single investor should invest
minimum Rs. 5 Lakhs in CP.
j. Every issue of CP, including the renewal, will be considered to be the fresh issue.
k. The amount of CP shall be within the overall limit sanctioned by the Board of Directors. It
can be issued a stand alone product. Banks will be free to adjust the working capital
limits after considering the CPs issued by the Company.
It will not be out of place to mention here that CP is not treated as deposit as per the provisions
of Section 58-A of the Companies Act, 1956.
The issuing company shall arrange to place the CPs on private placement basis with the
inventors. The issuing company shall disclose to the potential investor its financial position.
After the deal is confirmed, the issuing company shall issue physical certificates to the investor.
Investors shall be given a copy of IPA certificate to the effect that the issuing company has a
valid agreement with the IPA and documents are in order. Every issue of CP should be reported
to RBI through the IPA within three days from the date of completion of issue.
Apex Auto Ltd (Unit II) has setup in Telcon Premises so as we know earlier that Apex
Unit II is having only one customer that is Telcon so for short distance there is no need of logistic
department in Apex Unit II it is handled by Purchase department incharge is Parmod Singh.
Already we saw about Logistic Inventory Management. Let us see how Apex valuates
the old and rejected stocks in financial terms and also have a look on the inventory ratios.
Old Stock:
This old stock means excess of materials from specific order. As already viewed in
Physical Inventory Process that, always purchase department purchases 20% more than its
order. So that remained or excess materials are said to be Buffer Stock
These Old stock are in the form of Raw Materials then valuate it according to purchasing
of those materials. If these old stock are after Finishing of production process. Then these are
valuating on selling price of same products to the customer.
In easy words it can be said that if materials are Raw, then taking as Purchasing value for
valuation purpose. If materials are Finished Goods then taking Selling Price as a value for
valuation of Old Stock in Godown.
Rejected Stocks:
Again these are divides into three parts. Rejection of Raw Materials i.e., before sending
to Production Process. Rejection of Materials during the Production Process and Rejection of
Materials after the Production Process that is, Rejection of Finished Goods.
These costs are every important in manufacturing companies to minimize the cost. This
is not applicable to Apex by virtue of its Business activities. Because, let us have a broad view on
statement by following points:
Yes, Depending on Shorter order cycle Apex can hold entire stock well before order starts
and also Apex can have a full stock at a time before starting process of product of that specific
order.
EOQ
EOQ applicability due to the nature of Business as above said is not possible.
Reorder Point:
This is the point is also not having much importance because of nature of Business.
Lead Time
Apex purchases materials from multiple supplier and by on schedule basis to supply
materials. So this is also not applicable in this type of business.
12
10
8
6 Ratio
4
2
0
2008 2007 2006
Years
Form above graph we come know that raw material turnover ratio is increased rapidly in 2007
from 1.74 in 2006 to 10.27 for 2007. Indicates that company is converting raw material into
finished or semi finished goods very quickly
Holding period of raw material:
It refers to the number of days taken for the production unit to convert raw
material to finish goods.
Formula: 360 /Raw material turnover ratio
250
200
150
RHP
100
D
A
Y
S
50
0
2008 2007 2006
Years
As the raw material turnover ratio is increasing form to 10.27 for 2007 it indicates that firm is
taking less days for conversion as compared to 2006. In 2006 conversion period was 206 days
but in decreased to 35 days for 2007. This is shown in above graph.
Before 2007 there was no production process they were converting semi finished goods
into finished products hence to start their own production process they hold the raw material in
2006
Work in Process Turnover ratio:
Work in process turnover ratio is velocity at which W.I.P converted into goods ready for
sale. If W.I.P turnover ratio is high then company is efficiency converting into finished goods.
Formula:
Cost of production
Average W.I.P
40
35
30
25
20 Ratio
15
D
A
Y
S
10
5
0
2008 2007 2006
Years
Form above graph we came to know that Work in process turnover ratio is decreasing from 37.01
in 2006 to 23.12 2008. The ratio was high in 2006 as compared to 2007 and 2008. The ratio was
37.01. Indicates that company is converting semi finished into finished goods quickly
Formula:
360
W.I.P turnover ratio
18
16
14
12
10
Ratio
8
6
D
A
Y
S
4
2
0
2008 2007 2006
Years
As the work in process turnover ratio is increasing form 9.72. in 2006 To 15.57 for 2008 it
indicates that firm is taking less days for conversion. Which shown in above graph
Finished goods turnover ratio:
Finished goods turnover ratio is velocity at which finished goods converted into for sale.
If finished goods turnover ratio is high then company is efficient.
Formula:
Cost of goods sold
Average finished goods
34
33
32
31
30
Ratio
29
28
D
A
Y
S
27
26
25
2008 2007 2006
Years
Form above graph we came know that finished goods turnover ratio is decreasing from 33.01 in
2006 to 27.95 for 2007. Indicates that company is selling goods little slowly as compared to
2006 but it is bit fast as compared to 2008. Where the ratio for that particular period was 32.35
decreased to 11.20 for 2008 it is satisfactory. Which shown in above graph.
Inventory to capital employed:
This ratio indicates the relationship between the total capitals employed and inventories it
shows how much capital utilized to invest in the inventories other than the other assets. The
normal manufacturing firms have low ratio of inventory total capital employed in the
organization.
Formula: Inventory / Total capital employed
90
80
70
60
50
ICE
40
30
20
10
G
R
C
A
P
E
E
T
0
2008 2007 2006
Years
By observing above graph we can say that the firm investing huge amount in inventories
compared to other assets. It invested 83.54% of its capital in inventory in 2007 where as it
reduced to 65.50% in 2008
Inventory to current asset ratio:
This ratio indicates the relationship between the inventory and current assets. It shows the
percentage of inventory to current assets, which helps the organizations in deciding the current
assets policy which also affect the liquidity position of the organization.
Formula: Inventory / Current assets
62
60
58
56
54 Ratio
52
50
G 48
R
C
A
P
E
E
T
46
2008 2007 2006
Years
The inventory to current assets ratio in the year 2006 was 58.10% and it decreased to 51.14% in
the year 2007 but again it increased to 59.60% in 2008. It shows that the firm investing 59.60%
of its investment is for inventory only.
Inventory to total assets:
This ratio indicates the relationship between the inventory and total assets. The
significance of this ratio is it reflects the portion the inventory as a percentage of the total assets,
which helps the management deciding the utilization remaining resources profitably, since the
inventory will lock up the huge funds and reduces the profitability of the organization
Formula: Inventory / Total assets
Inventory to total assets
Year Inventory Total assets Percentage
2008 197,465,069 990,329,087 19.93
2007 121,558,000 540,916,088 22.47
2006 67,994,623 414,901,234 16.38
25
20
15
Ratio
10
5
G
R
C
A
P
E
E
T
0
2008 2007 2006
Years
During the year 2006 the rate of inventory to total assets was 16.38% it increased to 22.47% in
2007. But again it reduced to 19.93% in 2008. It indicates that firm investing only 19.93% in
inventory out of total assets.
Inventory to working capital:
This ratio indicates the relationship between inventory to working capital and it
also indicates the amount to inventory tied up in the working capital and it also shows the
efficiency of inventory management.
Formula: Inventory
Working capital
160
140
120
100
80 Ratio
60
40
G 20
R
C
A
P
E
E
T
0
2008 2007 2006
Years
In the year the ratio was 146.45% in 2006. It decreased to 83.20% for 2007 but it increased it to
99.05% in 2008. It indicates that firm investing huge amount in inventory
FINDINGS:
1. Raw material turnover ratio is increased rapidly in 2007 from 1.74 in 2006 to 10.27 for
2007.
2. As the raw material turnover ratio is increasing form to 10.27 for 2007 it indicates that
firm is taking less days for conversion as compared to 2006.
3.Work in process turnover ratio is decreasing from 37.01 in 2006 to 23.12 2008. The ratio
was high in 2006 as compared to 2007 and 2008.
4.As the work in process turnover ratio is increasing form 9.72. in 2006 To 15.57 for 2008
it indicates that firm is taking less days for conversion
5.Finished goods turnover ratio is decreasing from 33.01 in 2006 to 27.95 for 2007.
Indicates that company is selling goods little slowly as compared to 2006
6.Company is selling goods little slowly as compared to 2006 but it is bit fast as compared
to 2008. Where the ratio for that particular period was 32.35
7.The inventory to current assets ratio in the year 2007 was 58.10% and it decreased to
51.14% in the year 2008 but again it increased to 59.60% in 2008. It shows that the firm
investing 59.60% of its investment is for inventory only.
8.During the year 2007 the rate of inventory to total assets was 16.38% it icreased to
22.47% in 2008. But again it reduced to 19.93% in 2009. It indicates that firm investing
only 19.93% in inventory out of total assets.
9.In the year the ratio was 146.45% in 2006. It decreased to 83.20% for 2007 but it
increased it to 99.05% in 2008. It indicates that firm investing huge amount in inventory.
10.As the finished goods turnover ratio is increasing form 10.87 in 2007 to 12.86 for 2008
it indicates that firm is taking less days for sale. In 2008 conversion period was 12.86 days
but in decreased to 11.20 for 2008 it is satisfactory.
c) The company should maintain a safety level and also reordering point so that they
come to know at what time they should order for the supply of material and need
not to suffer from short fall of required material.
The inventory should be fast moving so that warehouse cost can be reduced.
The finished goods have to be dispatched in feasible time as soon as manufacturing
is completed.
Optimum order quantity should be maintained, hence cost can be minimized.
Proper inventory control techniques are employed by the inventory control
organization within the framework of one of the basic models like ABC, HML and
VED etc.
BOOKS
Financial Management : I.M.Panday
WEBSITES
www.apexautoltd.com
www.google.com