Professional Documents
Culture Documents
CHAPTER-I
INVENTORY MANAGEMENT INTRODUCTION BENFITS OF HOLDING INVENTRIES OBJECTIVES OF INVENTORY MANAGEMENT METHODOLOGY OF THE STUDY LIMITATIONS OF STUDY
CHAPTER- II
INDUSTRY PROFILE
CHAPTER-III
COMPANY PROFILE
CHAPTER-IV
RATIO ANALYSIS
CHAPTER-V
CONCLUSIONS SUGGESTIONS
CHAPTER-VI ANNEXURE
BIBILIOGRAPHY
CHAPTER-I
INVENTORY MANAGEMENT INTRODUCTION BENFITS OF HOLDING INVENTRIES OBJECTIVES OF INVENTORY MANAGEMENT METHODOLOGY OF THE STUDY LIMITATIONS OF STUDY
INTRODUCTION:
Every enterprise needs inventory for smooth running of its activities. It serves as a link between production and distribution process. There is, generally, a time lag between the recognition of a need and its fulfillment. The greater the time lag, the higher requirements for inventory. It also provides a cushion for future price fluctuations. In a complex industry like Kesoram Industries Limited it studied clearly of how the thing are being performed and what is the real impact of these on industry and how effectively the inventory is utilized is interested to be known by researcher because of its great significance in the research. 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 minimize investment in inventories.
Raw Material: Raw material from a major input into the organization. They
are required to carry out production activities uninterruptedly. The quantity 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 raw which are in
between raw materials and finished goods. The materials and Government regulations etc., too affect the stock of raw materials. b)
work in progress depends upon the time taken in the manufacturing process. The quantum of work in progress depends upon the time taken in the manufacturing process. The greater the time taken in manufacturing, the more will be the amount of work in progress.
c)
Consumables: These are the materials which are needed to smoother the
process of production but they act as catalysts. Consumables may be classified according to their consumption add critically. Generally, consumable stores doe not create any supply problem and firm a small part of production cost. There can be instances where these materials may account for much value than the raw materials. The fuel oil may form a substantial part of cost. d)
Finished goods: These are the goods, which are ready for the consumers.
The stock of finished goods provides a buffer between production and market, the purpose of maintaining inventory is to ensure proper supply of goods to customers. e)
Spares: The stock policies of spares fifer from industry to industry. Some
industries like transport will require more spares 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 spares and the costs that may arise due to their non availability.
order quantity, ABC analysis and VALUE analysis and finally framing an INVENTORY MANUAL.
of Kesoram Cements.
with the help of centralized purchasing. a. To ensure continues supply of materials, spares and finished goods so that production should not suffer and any time and customers demand should also be met. b. To design proper structure for inventory management. A clear cut accountability should be fixed at various levels of the organizations.
CHAPTER-II
INDUSTRY PROFILE
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INDUSTRY PROFILE:
By stating productions in 1914 the story of Indian Cement is a stage of continuous growth. Cement is derived from the Latin word Cementam. Egyptians and Romans found the process of manufacturing cement. In England during the first century the hydraulic cement has become more versatile building material. Later on, Portland cement was invented and the invention was usually attributed to Joseph Aspdin of England. India is the worlds 4th largest cement produced after China, Japan and U.S.A. The South Industries have produced cement for the first time in 1904. The company was setup in Chennai with the installed capacity of 30 tones per day. Since then the cement industry has progressing leaps and bounds and evolved into the most basic and progressive industry. Till 1950 1951, the capacity of production was only 3.3 million tones. So far annual production and demand have been growing a pace at roughly 78 million tones with an installed capacity of 87 million tones. In the remaining two years of 8th plan an additional capacity of 23 million tones will actually come up. India is well endowed with cement grade limestone (90 billion tones ) and coal (190 billion tones). During the nineties it had a particularly impressive expansion with growth rate of 10 percent. The strength and vitality of Indian Cement Industry can be gauged by the interest shown and support give by World Bank, considering the excellent performance of the industry in utilizing the loans and achieving the objectives and target. The World Bank is examining the feasibility of providing a third line of credit for further upgrading the industry in varying areas, which will make it global. With liberalization policies of Indian Government. The industry is posed for a high growth rates in nineties and the installed capacity is expected to cross 100 million tones and production 90 million tones by 2003 A.D. The industry has fabulous scope for exporting its product to countries like the U.S.A., U.K., Bangladesh, Nepal and other several countries. But there are not enough wagons to transport cement for shipment.
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12
Composition of Cement:
The ordinary cement contains two basic ingredients, namely, argillaceous and calcareous. In argillaceous materials the clayey predominates and in calcareous materials the calcium carbonate predominates. A good chemical analysis of ordinary cement along with desired range of ingredients.
Ingredients Lime (CaO) Silica (SiO2) Alumina (Al2O3) Calcium Sulphate (CaSO4) Iron Oxide (Fe2O3) Magnesia (MgO) Sulphur (S) Alkalis
Percent 62 22 5 4 3 2 1 1
Range 62 67 17 25 38 34 34 13 13 0.2 1
Outlook The recent change in the budget 2002 2003 relating to fiscal incentives for individual housing and reduction in borrowing cost for this purpose and with the government reaffirmation to accelerate the reform process, infrastructure development should logically get priority leading to increase in demand of cement in coming years. The addition capacity of cement in the pipeline is limited and therefore the demand and supply situations is expected to be more favourable and cement prices are likely to firm up.
Management Award of the Government of Andhra Pradesh. Kesoram is also conscious of its social responsibilities. Its rural and community development programmes include adoption of two nearby villages, running an Agricultural Demonstration Farm, a Model Dairy Farm etc., Impressed by these activities, FAPCCI chose Kesoram to confer the Award for Best efforts of an Industrial Unit in the State 14
to Develop Rural Economy twice, in the year 1994 as well as in 1998. Kesoram also has to its credit the National Award (Shri. S.R. Rangta Award for Social Awareness) for the year 1995 1996, for the Best Rural Development Efforts made by the Company. In the same year Kesoram got the First Prize for Mine Environment and Pollution Control for year 1999 too, for the 3rd year in succession in July, 2001 Kesoram annexed the Vana Mithra Award from the Government of Andhra Pradesh. Quality conscious and progressive in its outlook, Kesoram Cement is an OHSAS 08001 Company and also joined the select brand of ISO9001-2000 Companies.
History:
The first unit was installed at Basanthnagar with a capacity of 2.5 lack TPA (tones per annum) incorporating humble supervision, preheated system, during the year 1969. The second unit followed suit with added a capacity of 2 lack TPA in 1971. The plant was further expanded to 9 lack by adding 2.5 lack tones in August, 1978, 1.13 lack tones in January, 1981 and 0.87 lack tones in September, 1981.
Power:
Singareni Colleries makes the supply of coal for this industry and the power was obtained from AP TRANSCO. The power demand for the factory is about 21MW. Kesoram has got 2 diesel generator sets of 4MW each installed in the year 1987. Kesoram cement now has a 15 KW captive power plant to facilitate for uninterrupted power supply for manufactured of cement.
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Electricity:
The power consumption per ton for cement has come down to 108 units against 113 units last year, due to implementation of various energy saving measures. The performance of captive power plant of this section continues to be satisfactory. Total power generation during the years was 84 million units last year. This captive power plant is playing a major role in keeping power costs with in economic levels. The management has introduced various HRD programs for training and development and has taken various other measures for the betterment of employees efficiency / performance. The section has installed adequate air polluting control systems and equipment and is ISO 14001 such as Environment Management System is under implementation.
Awards:
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Kesoram cement bagged many prestigious awards including national awards for productivity, technology, conservation and several state awards since 1984. The following are the some of important awards.
Awards of Kesoram
No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Year 1984 1985 86 1985 86 87 1987 88 1987 89 1988 89 1988 89 1988 89 1989 1989 1988 90 1988 90 1991 1991 Awards Best family planning effort in the state National productivity award Mines safety Best industrial promotion / expansion effort Productivity award Best industrial promoter Expansion effort in the state Award for contribution given for rural economy Best family planning effort Yajmnya Ratna & Best Management Award Community development programs Energy conservation May Day award of the Government of Andhra Pradesh for best management Pandit Jawaharlal Nehru rolling trophy for best national productivity effort Indira Gandhi National Award for Excellence in Industry (Best State minister mineral State State Management Award) Best industrial rebellion award Rural 17 18 1994 95 1995 development chief and environmental National / State State National National State State State State State State State State National State State State
15 16
1993 1994
17
19
1995 96
Best effort of an industrial unit to develop rural economy Shri S.R. Rungta award for social awareness for best rural development efforts. Best workers welfare. Best family welfare award. First prize for mine environment & pollution control for the 3rd year in succession. Vana Mithra award from Andhra Pradesh Government. Best Management Award from Andhra Pradesh Government.
State National
20 21 22 23.
24 25
2001 2008
State State
In this mines safety week celebrations, under the auspices of the Director General of Mines Safety, Kesorams Basanthnagar limestone Mines won 2 first prizes for environment and pollution control and safe drilling and blatting and 14 2nd prizes for over all performance, productivity, operation and maintenance of machines publicity / propaganda etc., This section also bagged the award for Environment Protection in the Godavari River belt, sponsored by the Godavari Pradushna Pariharna Pariyavarana.
Production:
Last 20 years production of Kesoram Cements Industry, Basanthnagar.
Year
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1983 84 1984 85 1985 86 1986 87 1987 88 1988 89 1989 90 1990 91 1991 92 1992 93 1993 94 1994 95 1995 96 1996 97 1997 98 1998 99 1999 2000 2000 2001 2001 2002 2002 2003 2005 2006 2006 2007 2007- 2008
749197 761581 805921 760708 550254 601453 643307 643663 748258 685596 731177 784555 782383 731049 746474 688305 777092 692424 727447 735012 1046466 1056742 1165280
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Note: Production including internal consumption also Cement and clinker production were lower than the previous year mainly because of lower dispatches of cement due to recession prevailing in cement industry with slow down in demand during the year under review. This section had to curtail production due to accumulation of large stocks of clinker. However, sales realization during the second half of the year has improved and it is hoped that prices will stabilize at some reasonable levels.
Directors:
Smt. K.G. Maheshwari Shri. Pramod Khaitan Shri B.P. Bajoria Shri P.K. Chokesy Smt. Neeta Mukerji (Nominee of I.C.I.C.I.) Shri D.N. Mishra (Nominee of L.I.C.) Shri Amitabha Ghosh (Nominee of U.T.I.) Shri P.K. Malik Smt. Manjushree Khaitan
Secretary:
Shri S.K. Parik
Senior Executives:
Shri K.C. Jain (Manager of the Company) Shri J.D. Poddar 20
Auditors:
Messrs Price Water house
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CHAPTER-III
COMPANY PROFILE
COMPANY PROFILE:
One among the industrial giants in the country today, serving the nation on the industrial front Kesoram Industries Limited has a chequered and eventful history dating back to the Twnties when the Industrial House of Birlas acquired it. With only a 22
Textile Mill under it banner in 1924, it grew from strength to strength and spread its activities to never firlds like Rayon, Pulp, Transparent paper, Spun pipes and Refractories, Tyres, Oil Mills and Refinery Extraction. Looking to the wide gap between demand and supply, of a vital commodity, cement, which plays an important role in nation building the Government of India de licensed the Cement Industry in the year 1966 with a view to attract private entrepreneurs to argument the cement product Kesoram rose to the occasion and decided to set up a few cement plants in the country. The first Cement Plant of Kesoram with a capacity of 2.5 lack tones per annum based on dry process, was established in 1969 at Basanthnagar a backward area in Karimnagar District, AdhraPradesh, and christened it Kesoram Cement. The second unit followed suit, which added a capacity of 2.00 lack tones in 1971. The plant was further expanded to 9.00 lack tones by adding 2.5 lack tones in August 1978. 1.14 lack tones in January, 1981 and 0.87 lack tones in September, 1981. Kesoram Cement has outstanding track record of performance and distinguished itself among all the Cement factories in India by bagging the coveted National Productivity Award for two successive years, i.e., in 1985 and 1936, so also the National Awards for Mines Safety for two year 1985 86 and 1986 - 87. Kesoram also bagged NCBMs (National Council for Cement and Building Materials) National Award for Energy Conservation for the year 1989 90. Kesoram got the prestigious State Award Yajamnya Ratna & Best Management Award for the year 1989; so also the FAPCCI (Federation of Andhra Pradesh Chamber of Commerce and Industry) Award for the Best Family planning effort in the State. For the year 1987 88, Kesoram also got the FAPPCI Award for Best Industrial Promotion / Expansion effort in the state. In the year 1991 Kesoram also got the May day Award of the Government of Andhra Pradesh for Best Management and Pandit Jawaharlal Nehru Silver Rolling Trophy for the Best Productivity effort in the State, sponsored by FAPCCI, for 1993 Kesoram got the Best.
PERFORMANCE:
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The performance of Kesoram Cement industry had been outstanding achieving over cent per cent capacity utilization although despite many odds like power cuts and which most 40% was waste due to wagon shortage etc. The Company being a continuous process industry works round the clock and has an excellent record of performance achieving over 100% capacity utilization. Kesoram has always combined technical progress with industrial performance. The company had a glorious track record for the last 27 years in the industry.
TECHNOLOGY:
Kesoram Cement uses most modern technology and the computerized control in the plant. A team of dedicated and well experienced experts manages the plant. The quality is maintained much above the bureau of Indian Standards. The raw materials used for manufacturing cement are: Lime stone Bauxite Hematite Gypsum
1.
the inventory level is too little, the firm will face frequent stock outs involving heavy ordering cost and if the inventory level is too high it will be unnecessary tie up of capital. An efficient inventory management requires that a firm should maintain an optimum level of inventory where inventory costs are the minimum and at the same time there is no stock out which may result in loss or sale or shortage of production.
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a) fall.
Minimum stock level: It represents the quantity below its stock of any item should not be allowed to Lead time: A purchasing firm requires sometime to process the order and time
is also required by the supplying firm to execute the order. The time in processing the order and then executing it is know as lead time. Rate of Consumption: It is the average consumption of materials in the factory. The rate of consumption will be decided on the basis of past experience and production plans. Nature of materials: The nature of material also affects the minimum level. If a material is required only against the special orders of the customer then minimum stock will not be required for such material. Minimum stock level can be calculated with the help of following formula. Minimum stock level Re ordering level (Normal consumption x Normal re order period) b) Re ordering Level: When the quantity of materials reaches at a certain figure then fresh order is sent to get materials again. The order is sent before the materials reach minimum stock level. Re ordering level is fixed between minimum level maximum level. c) Maximum Level: It is the quantity of materials beyond which a firm should not exceeds its stocks. If the quantity exceeds maximum level limit then it will be over stocking. Overstocking will mean blocking of more working capital, more space for storing the materials, more wastage of materials and more chances of losses from obsolescence. Maximum stock level Reordering Level + Reorder Quantity (Maximum Consumption x Minimum reorder period) d) Danger Stock Level: It is fixed below minimum stock level. The danger stock level indicates emergency of stock position and urgency of obtaining fresh supply at any cost. Danger Stock level = Average rate of consumption x emergency delivery time. e) Average Stock Level: 25
This stock level indicates the average stock held by the concern. Average stock level = Minimum stock level + x reorder quantity.
2)
demand for materials may fluctuate and delivery of inventory may also be delayed in such a situation the firm can be face a problem of stock out. In order to protect against the stock out arising out of usage fluctuations, firms usually maintain some margin of safety stocks. Two costs are involved in the determination of this stock that is opportunity cost of stock outs and the carrying costs. If a firm maintains low level of safety frequent stock outs will occur resulting into the larger opportunity costs. On the other hand, the larger quantity of safety stocks involves carrying costs.
3)
ordering quantity. This quantity is fixed in such a manner as to minimize the cost of ordering and carrying costs. Total cost material = Acquisition Cost + Cost + Carrying Costs + Ordering Cost. Carrying Cost: It is the cost of holding the materials in the store. Ordering Cost: It is the cost of placing orders for the purchase of materials. EOQ can be calculated with the help of the following formula EOQ = 2CO / I Where C = Consumption of the material in units during the year O = Ordering Cost I = Carrying Cost or Interest payment on the capital.
4)
Under A B C Analysis. The materials are divided into 3 categories viz., A, B and C. Almost 10% of the items contribute to 70% of value of consumption and this category is called A category. About 20% of the items contribute about 20% of value of category C covers about 70% of items of materials which contribute only 10% of value of consumption.
5)
Vital(V), Essential (E) and Desirable (D). The vital spares are a must for running the concern smoothly and these must be stored adequately. The E type of spares are also necessary but their stocks may be kept at low figures. The stocking of D type spares may be avoided at times. If the lead time of these spares is less, then stocking of these spares can be avoided.
6)
been used efficiently or not. The inventory turnover ration also known as stock velocity is normally calculated as sales / average inventory of cost of goods sold / average inventory. Inventory conversion period may also be calculated to find the average time taken for clearing the stocks. Symbolically. Inventory Turnover Ratio = Cost of goods sold Average inventory at cost Or Net sales = _____________________ (Average) Inventory And, Inventory conversion period = Days in a year ______________________ Inventory Turnover ratio 27
7)
Classification and Codification of Inventories: The inventories should first be classified can then code numbers should be
assigned for their identification. The identification of short names are useful for inventory management not only for large concerns but also for small concerns. Lack of proper classification may also lead to reduction in production. Generally, materials are classified accordingly to their nature such as construction materials, consumable stocks, spares, lubricants etc. After classification the materials are given code numbers. The coding may be done alphabetically or numerically. The later method is generally used for coding. The class of materials is assigned two digits and then two or three digits are assigned to the categories of items divided into 15 groups. Two numbers will be category of materials in that class. The third distinction is needed for the quality of goods and decimals are used to note this factor. 8) Valuation of inventories Method of valuation: FIFO method LIFO method Base Stock method Weighted average price method
Timeliness Area of improvement: Inventory management in India can be improved in various ways. Improvements could be affected through. Effective Computerization: Computers should not be used merely for accounting purpose but also for improving decision making. Review of Classification: ABC and FSN classification must be periodically reviewed. Improved Coordination: Better coordination among purchase, production, marketing and finance departments will be help in achieving greater efficiency in inventory management. Development of long term relationship: Companies should develop long term relationship with vendors. This would help in improving quality and delivery.
Disposal of obsolete / surplus inventories: Procedures for disposing obsolete / surplus inventories must be simplified. Adoption of challenging norms: Companies should set benchmarks with global competitors and use ideals like JIT to improve inventory management.
Inventory cost an overall view Introduction: In financial parlance, inventory is defined as the sum of the value of the raw materials, fuels and lubricants spare parts maintenance consumable semi processed 29
materials and finished goods stock at any giving point of time. The operational definition of inventory would be amount of raw materials, fuel and lubricants, spare parts and semi processed materials to be stock for the smooth running of the plant / industry. Need of Inventory: Inventories are maintained basically for the operational smoothness which they can be affected by uncoupling successive stages of production, whereas the monetary value of the inventory serves as a guide to indicate the size of the investment made to achieve this operational convenience. The materials management departments primary function is to provide this operational convenience with a minimum possible investment in inventories. Materials department is accused of both stock outs as well a large investments in inventories. The solution lies in exercise a selective inventory control and application of inventory control techniques. Inventories build to act as a cushion between supply and demand. It is sufficient to take care of the requirements of demand till the next supply arrives. It is sufficient to take care of probable delays in supply as well as probable variations in demand. The size of the inventory depends upon the factors such as size of industry internal lead time for purchase, suppliers lead time, vendor relations availability of the materials, annual consumption of the materials. Inventory coat can be controlled by applying Modern Techniques viz., ABC analysis, SDE, ESN, HMC, VED etc. These techniques can be used effectively with the help of computerization. What is meant by inventory cost: A. B. C. The total value of stores and spares and capital spares. Stores in transit and under inspection and Stock of finished products.
Normally, there are certain problems in maintaining optimum level of Inventory. Problems of inventory can be resolved by the cost implications. Costs which are relevant for consideration are discussed in the following lines; Basically there are four costs for consideration in developing and inventory model. 1. The cost of placing a replenishment order. 30
2. 3. 4.
The cost of carrying inventory. The cost of under stocking and The cost of over stocking. The cost of ordering and inventory carrying cost are viewed as the supply side
costs and help in the determination of the quantity to be ordered for each replenishment. The under stocking and over stocking costs are viewed as the demand side costs and help in the determination of the amount of variations in demand and the delay in supplies which the inventory should withstand. Whenever an order placed for stock replenishment, certain costs are involved, and, for most practical purpose it can be assumed that the cost per order is constant. The ordering cost may vary depending upon the type of items, for example raw material like steel against production component like castings in steel plants, support materials in the case of coal industry. The cost ordering includes: 1) 2) 3) 4) 5) Paper work costs, typing and dispatching an order. Follow up costs the follow up, the telephones, telex and postal bills etc., Costs involved in receiving of the order, inspection, checking and handling Any set up cost of machines charged by the supplier, either directly The salaries and wages of the purchase department.
1) 2) 3) 4) 5) 6) 7)
Interest on capital. Insurance and tax charges. Storage costs labour costs, provision of storage area and facilities like Transport bills and hamali charges. Allowance for deterioration or spoilages. Salaries of stores staff. Obsolescence. accounted for by the interest on capital.
The inventory carrying cost varies and a major portion of this is Under stocking cost: This cost is the cost incurred when an item is out of stock. It includes cost of lost production during the period of stock out and the extra cost per unit which might have to be paid for an emergency purchase. Over stocking cost: This cost is the inventory carrying cost (which is calculated per year) for a specific period of time. The time varies in different contexts it could be the lead time of procurement of entire life time of machine. In the case of one time purchases, over cost would be = Purchase Price Scrap Price.
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One can readily visualize the determination of inventory quantities by physical count or by use of perpetual inventory records. When this quantity is determined, it must be multiplied by a unity cost in order to determine the inventory value that is used on financial statements. Trade and quantity discount are to be excluded from unit cost since these discount exist for the purpose of defining the true invoice cost of merchandise. Cash discounts, on the other hand, have been considered as a reward for early payment and as a penalty for late payment. The reward has often been interpreted as a loss rather than as a part of unit cost. Thus it would not be difficult to find difference of opinion as to whether invoice cost includes or excludes cash discount. When the current replacement cost of material on hand at the close of a year is less than the actual cost, the inventory value is reduced to replacement cost (current market price). Thus the acceptable basis inventory valuation is the lower of cost or market or more properly the lower of actual cost or replacement cost. The determination of inventory values is very important from the point of view of the balance sheet and the income statement since costs not included in the inventory (the balance sheet) are considered to be expensive and are thus included in the income statement.
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particular date is presumed to be composed of the items which were acquired most recently. The value inventory would remain the same even if the perpetual inventory system is followed. Advantage:- The FIFO method has the following advantages. 1) 2) 3) 4) It values stock nearer to current market prices since stock is presumed to be The most recent purchases. It is based on cost and, therefore, no unrealized profit enters into the The method is realistic since it takes into account the normal procedure of consisting of
financial accounts of the company. utilizing or selling those materials or goods which have been longer longest in stock. Disadvantages:- The method suffers from the following disadvantages. 1) 2) It involves complicated calculations and hence increases the possibility of Comparison between different jobs using the same type of material clerical errors. becomes sometimes difficult. A job commenced a few minutes after another job may have to bear an entirely different charge for materials because the first job completely exhausted the supply of materials of the particular lot. The FIFO method of valuation of inventories is particularly suitable in the following circumstances. I. II. III. purchased. IV. Materials are easily identifiable as belonging to a particular purchase lot. The materials or goods are of a perishable nature. The frequency of purchases is not large. There are only moderate fluctuations in the prices of materials or goods
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This method is based on the assumption that last item of materials or goods purchased are the first to be issued or sold. Thus, according to this method, inventory consists of items purchased at the earliest cost. Advantages:- This method has the following advantages: 1) 2) It takes into account the current market conditions while valuing materials The method is base on cost and, therefore, no unrealized profit or loss is issued to different jobs or calculating the cost of goods sold. made on account of use of this method. The method is most suitable for materials which are of bulky and non perishable type.
materials are charged from production particularly when the frequency of purchases and issues/sales in quite large and the concern is following perpetual inventory system.
and highest inventory. The cost flow under LIFO follows the price level, LIFO produces larger cost flows when prices are rising and smaller cost flows when prices are falling. A final item to consider is that the average method produces results which fall between the extremes of LIFO and FIFO.
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item out, and thus the non-current costs of matching current costs with current revenues is the essence of the argument for the LIFO method. As can be seen by the above comments, there is no one best method of valuing inventories. The method chosen should fit the situation. A physical flow pattern comparable to FIFO would force one to consider the FIFO method. The lack of a discernible physical flow pattern would force one to consider the average method. Concentration on cost flows, as distinct from physical flows, would force to consider the LIFO method especially where there appears to be a discernible trend towards rising prices (or falling prices) as has been the case in our economy during recent years.
As shown above, there is need only for physical quantities since the inventory values is the physical quantity multiplied by the standard cost. With the cost and value columns disposed off, a perpetual inventory card can include additional data such as quantities on order, quantities reserved, and quantities available. These additional data are very useful for inventory and production control purpose. On the basis of a few calculations concerning into inventories on a FIFO, a LIFO, or an average cost basis.
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Inventory of Obsolescence:
Absolvent inventories cannot be used or disposed off at values carried on the books. Frequent reviews should be made of all inventories, and when obsolescence is indicated a request for revaluation should be prepared for approval by management. The difference between original and obsolete value should be recorded by a change to an operating account. Inventory obsolescence, and a credit to inventory. If the material is scrapped, this will be for the full inventory value or used in areas where it will be work less than its original value, the entry would be only for the amount of write down. Some companies carry a solvage inventory and transfer to it materials which may be sold or used at reduced values. Where this is done, the entry would be: Dr. Solvage inventory Dr. Inventory Obsolescence. Cr. Raw Material inventory or Supplies inventory.
value of materials purchased, diminishing value of materials by keeping them in stores for a log time, handling charges, spare rent etc., The inventory of Kesoram cement mainly includes Limestone, Bauxite, Gypsum, Fly ash. Inventory in Kesoram Cement during 2003 04 to 2007 08 are as follows: (Units in m.t)
The value of the above raw materials for the year 2003 08 are as follows: (Value in Rs.)
2007 08
2008 09
Value of imported and indigenous raw materials, stores, spare parts and components consumed during the year: Imported Years Raw Materials 2004 05 95354856 2005 06 2006 07 2007 08 2008 09
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Stores spare parts and components 522588043 522588043 75345209 131624912 42279637
Indigenous
2004 05
2005 06
2006 07
2007 08
2008 09
1104787879 3995869418 3558875426 4117405138 7906341716 611204564 981990949 189149420 1365664385 3868715827
3. 4.
Electrical Civil
II. 1) 2) 3)
To run the plant and maintain equipments departments require spares. For such requirement of spares departments raise indents and send the Indents to purchase department through stores. INDENTS: 1) 2) 3) Annual indents for consumable items (stores items). Regular indents raised by Consuming Departments. Annual Requirement of Raw Materials PROMOP & QC.
ORDER PROCESSING FORM: 1) 2) 3) Receiving quotations from sub contractors. Enter the price details of enquiry sent in the Order processing form. Selection of party on merit basis.
PURCHASE ORDER: 1) 2) 1) Prepare purchase Order on selected party. Send Purchase Order Copies to Party, Stores and departments. Receiving goods receipt note from stores. 42
PURCHASE DEPARTMENT:
ACTIVITY RECEIVING INDENTS: FLOW CHART: Receipt of annual indents for consumable items / stores items from stores Checking of indent number an authority of item, delivery time consumption In case of any deficiency, send the information to concerned department for Segregation of indents for attending at C.P.D. and Hyderabad Office. Sent the Hyderabad indents to Hyderabad Office. Enter the indents details in indent register. department. period. clarification.
Department Quantity
Unit
equipment / item, information to be taken from concerned department or from competitors / journals / yellow pages. Prepare enquiry to approved sub contractors through enquiry format. If emergency requirement, send the enquiries through fax / e-mail. Enter the details of enquiries sent in order processing form.
STORES DEPARTMENT
ACTIVITY: RECEIPTS AND UNLOADING MATERIAL
1 2 3 4 5 6 7 Receiving of Goods through Trunk / Personnel Delivery. Entry of vehicle at Gate Office. Stamping on Dispatch Advise / Delivery challan by Gate Office. Checking of challans / Dispatch Advise with purchase order. Unloading of Goods at allotted place or in case of urgency direct at works site. All safety precautions are taken while unloading of material like workers Training is given to workers for unloading Heavy & Bulky material by using
should wear safety shoes, helmets, leather head gloves, noise respirator, nose mask. chain pulley Blocks, Wire Rope Ceilings, Fork Lift. After UIL receipt acknowledgement given to driver maintaining Lorry receipts register.
ACTIVITY: PREPARATION OF RECEIPT AND APPROVAL BOOK FOR GENERAL MATERIAL / D.C. ENTER OF BLOCK, REPAIR AND STATIONARY MATERIAL MANUALLY IN REGISTER
8 a. b. c. d. Sorting of Delivery challans as below: General Stationery Repairs Block 44
9 10 11 12 13 14
Checking with P.O. and mentioning Material Code, Party Code, Indent No. Creation of D.C. entry in system for general materials. Preparation of identification tags for General Materials through system. Preparation of Receipt & Approval Book for General materials. Manual entry of block, stationery, repair materials. Preparation of intimations for block, stationery, repair materials.
repairs GRNs manually. true copy to issue section of GRN for General material forwarding true copy of block / Repair / Stationery GRN to issue section and copy to purchase department.
23 24 25 26 27
Rejected materials kept in allotted area of rejected materials. Packing of rejected materials. Preparation of gate passes for rejected materials. Sending back to suppliers through our Hyderabad Office. Sending consignee copy to party vide Register Letter for booking of Register
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CHAPTER-IV
RATIO ANALYSIS
RATIO ANALYSIS:
The investment on raw materials over a period of 5 years from 2000 to 2006 is presented in the following table. 47
Interpretation:
1) From the above table it can be understood that the inventory of Kesoram Cement was recorded at 13,386.80 during the year 2003 04 99 and it is increased to 93605.78 during the year 2008 09. 2) 3) 4) It shows that there is on increase in the inventory to the more extent of The average inventory of Kesoram Cement was recorded at Rs.42945.41. The highest investment in inventory was recorded in the years 2007-08 80218.98.
2. Trend Analysis:
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Trend analysis technique is applied to know the growth rate in investment of raw material of Kesoram Cement over the review period which is shown in the following table.
Trend Analysis:
Year 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 Raw Material (in Lacks) 13386.80 11690.67 49950.88 42950.66 46087.45 93605.78
Interpretation:
1) The investment on investment has increased in the year 2008 09. And the lost year investment has declared continuously. The percentage in 2006 07 was 315% as compared to years 2005 06 to 2008 09. 2) 3) The trends in inventories show that inventory have been more in the year 2008 The investment in inventories has shown fluctuating trend is initial years and 09 and then it has shown a downward trend and again it increased to some extent. then it raised to 699% and again showing fluctuating trend.
3. Inventory Turnover Ratio: This ratio indicates the number of times the stock has been turned over during the period & evaluates the efficiency with which a firm is able inventory. This ration is calculated by applying the following formula. 49 to manage its
Cost of goods sold Inventor turn over ration Inventory turn over ration: Year 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 Cost of goods sold 60150.35 59021.41 121551.71 127533.58 130392.68 311636.92 Avg. Inventory 7402.31 37975.30 95065.28 12390.06 1333.8.01 160035.93 Ratio 8.13 1.55 12.79 10.29 9.78 1.32 = _________________ Average inventory
Interpretation:
1. 2005. 2. 3. 4. In the year 2008 09 it is clear that the ratio is very less i.e., he stock is not turned into sales quickly. As compared to all the years the ratio is very less in 2008 09. The average inventory turn over ratio was recorded at 7.3 times during the review period. From the above table 2003 it can be observed that (1) inventory turn over ratio is 8.13 during 2003 2004 and it gradually decreased to 1.55 during 2004
Days in a year (360 days) Inventory conversion period = _____________________ Inventory turnover ratio Inventory conversion period: (in crores) Year 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 Cost of goods sold 60150.35 59021.41 121551.71 127533.58 130392.68 311636.92 Avg. inventory 7402.31 37975.30 95065.28 12390.06 1333.8.01 160035.93 Ratio 8.13 1.55 12.79 10.29 9.78 1.32 ICP (Days) 44 232 28 34 36 272
Interpretation:
From the above table it can be identified the following observations: 1) The inventory conversion period was 232 days during the year 2004 05 but it declined to 204 during 2005 - 2006, which indicates that the stock has been very quickly converted into sales which mean the company is managing the inventory efficiently. 2) The lowest inventory conversion period was recorded at 28 days in the year 2005 06 and the highest inventory conversion was recorded at 272 days in the year 2008 09. 3) The average inventory conversion period was recorded at 107 days during the review period.
5.
Ratio of inventory to current assets is calculated and which is presented in the following table. Inventory 51
Percentage of Inventory Over current assets: Year 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 Inventory 13386.80 11690.67 49950.88 42950.66 46087.45 93605.78 Current Assets 24172.33 28770.78 53063.75 45598.02 49713.32 86811.49 Ratio (%) 55% 40% 94% 92% 92% 107%
INTERPRETATION:
1) 2) 3) From the above table it can be understand that the % of inventory over current However from the year2008 09 it is showing an increasing trend. The lowest inventory over current assets ratio was recorded at 40% during the assets ratio was showing a declining trend for two years 2003 - 2004.
year 2004 05 and the highest inventory over current assets ratio we recorded at 107% during 2008 09. 4) The average inventory over current assets ratio was recorded at 80%.
6.
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Interpretation:
1) 2) 3) During the year 2003 04 the ratio was 15.35% on it declined to From the year 2005 06 it is showing fluctuating trend but as compared to The lowest inventory over total assets ratio was recorded at 13.36% during the 13.36% in the year 2004 05. above 2 years it is increasing. year 2004 05 and the highest inventory ratio was recorded at 43.43% during the year 2008 09. 4) The average inventory to total assets ration was recorded at 32.81% during the review period.
7.
ration of inventory to current liabilities is calculated and which is presented in the following table. Inventory Inventory over current liabilities ratio = __________________ X 100 Current liabilities Percentage of Inventory Over current liabilities: Year 2003 2004 2004 2005 Inventory 13386.80 11690.67 Current liabilities 7862.11 8042.62 Ratio (%) 17% 145%
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Interpretation:
1) 2) 3) 4) 5) From the above table it can be understand that the % inventory over current During the year 2004 05 the ratio was it gradually increased to 145 and there The lowest inventory over total amounts ratio was recorded at 17 during the The highest inventory to current liabilities ratio was recorded at 308 during the The average inventory to current liabilities ratio was recorded at 211 during the liabilities ratio was showing a declining trend for two years 2003 04. is a net increase to the extent of 128. year 2003 04. year 2005 06. review period.
8.
Current Ratio:
In order to know the current ratio the percentage of current assets to current
liabilities is calculated and which is presented in the following table. Current assets Current Ratio = _____________________ Current liabilities 54
Calculation of Current Ratios: Year 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 Inventory 24172.33 28770.78 53063.75 45598.02 49713.32 86811.49 Current liabilities 7862.11 8042.62 16204.14 16204.14 17728.22 36253.41 Ratio (%) 3.07% 3.57% 3.27% 3.06% 2.80% 2.39%
Interpretation:
1) 2004 05. 2) 3) 4) In the year 2003 04 the ratio was 3.07% and has increased to 3.57% in The lowest current ratio was recorded at 2008 09 which is 2.39% and the The average current ratio was recorded at 3.02% during the review period. the year 2004 05. highest current ratio was recorded at 3.57% during the year 2004 05. From the above table it can be interpreted that the % of current assets over
current liabilities ratio i.e., current ratio was showing a decreasing trend from year
9.
Quick Ratio:
The quick ratio is the relationship between quick to current liabilities quick
assets is more rigorous test of liability position of a firm it is computed by applying the following formula. Quick ratio = Quick assets / Current Liabilities 55
Where Quick assets = Current Assets Inventory Year 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 Inventory 10785 17080 3112 3347 3625 3207 Current liabilities 7862.11 8042.62 16204.14 16204.14 17728.22 36253.41 Ratio (%) 1.37% 2.12% 0.002% 0.22% 0.20% 0.08%
Interpretation:
1) From the above table it can be understand as that the % of quick assets to current liabilities i.e., the quick ratio was 0.002% in 2005 06 and from that year it is showing increasing trend. 2) 3) The highest quick ratio was recorded at 2.12% during the year 2004 05 The average quick ratio was recorded at 0.66 during the and the lowest quick ratio was recorded at 0.002% during the year 2005 06.
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CHAPTER-V
CONCLUSIONS
CONCLUSIONS:
1) Over all the inventory of Kesoram Cements is up to the mark.
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2)
The production of clinker and cement during 2003 2004 was 7,47,436
and 7,77,092 respectively which is higher as compared to 2008 2009 which is 6,87,373 and 7,27,447. 3) 4) 5) 6) Investment on raw material is 93605.78 lakhs which very high as compared The inventory turn over ratio shows that the stock has been converted into In the year 2005 06 the stock was cleared within 28 days whereas it took Year 2004 05 is not showing sample profits. This is because of cement to 2008 09 which is only 460870.45 lakhs. sales is only 1.32 times. 232 days in the year 2004 2005 which took more days for clearing stock. prices have been continuously under pressure due to persistent mismatch between supply and demand. 7) The quantity of limestone in the year 2006 07 is 9,53,940 and its value is 13,85,34,812 but whereas in the year 2004 05 the quantity was 9,74,490 and the value is 12,21,61,492. 8) In purchase department for want of any item it should go through several processes. This may include receiving indents, floating enquiries, preparation of order processing form, preparation of purchase order and order follow up inform the supplier. Most of the time was spent in accounts payable. 9) 10) In this type of process, it requires more number of employees and supplier This process takes an input, adds value to it and provides an output to an should also wait for until the accounts are matched. internal or external customer
SUGGESTIONS
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1)
Though the production is higher is the year 2004 05 and the sales were
very high i.e., as per inventory conversion period it took 272 days. This shows that there is demand for cement and the funds unnecessarily tied up. So, proper demand forecasting should be done and according to that it may be manufactured. 2) 3) The investment on raw material should be made as per the requirement. Neither too high nor too low inventory turnover ratios may reduce profit Unnecessary investment may block up the funds. and liquidity position of the industry. So, proper balance should be made to increase profits and to ensure liquidity. 4) 5) The raw material should be acquired from the right source at right quality The process that was being used by Kesoram Cements with the purchasing and at right cost. department should undergo changes, so that, it seeks enhance the celerity of the delivery of a product without compromising its quality by improving the utilization of materials, labour and equipment. 6) To reduce the work, the purchasing department may enter the purchasing order into database and did not send a copy to any one. When the merchandise arrived, the receiving clerk would enter the database and determine whether the order agreed with the electronic purchase order. If it did, payment was authorized to be made at the appropriate time. If it didnt match, the order would be returned until if it is agreed by the Kesoram Cement. If it institutes Invoice less purchasing where the supplier did not need to send an invoice to be paid. This generally simplifies the process for all concerned. As a result, it would able to reduce the work of its accounts payable department.
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CHAPTER-VI
BIBLIOGRAPHY
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BIBLIOGRAPHY:
1) Financial Management, ByIMPande, Vikas Publishing Houses pvt ltd
2006, 9th edition. 2) Financial Management, By Prasanna Chandra, Tata McGraw Hill
Publishing company ltd 2005, 5th edition. 3) 4) 5) Total Quality Management, By PN Mukherjee, Prentice Hallindia. 2006. Companys Stores Management Companys Annual Report
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ANNEXURES
VED EOQ ABC Analysis FIFO LIFO BSM WAPM Vitally Essential Desire Economic Order Quantity Always Better Control Analysis First in First out Method Last in first out Method Base Stock Method Weighted Average Price Method
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