A PROJCT REPORT

ON
INVENTORY& STORES MANAGEMENT AT

KESORAM CEMENT INDUSTRY LTD

BASANTHNAGAR

Submitted in partial fulfillment for the award of the degree

Of

Master of Business Administration Kakatiya University By

N.ASHOK 10018C-1008

Under the GUIDANCE of Mrs.N.ESHWARAMMA

Department of Commerce and Business Management University Post Graduate College

Godavarikhani, Karimnagar (Dist) (2009-2011)

ACKNOWLEDGEMENT

My deep indebt ness goes to K.C.Jain Sr. President, and Mr. VEDA KUMAR factory manager of kesoram cement industries Ltd, for providing ma an opportunity to perform this task

I would like to express my sincere thanks to Mr. T.SARAIAH finance Manager and Mr. M. THIRUPATHI for their valuable information in preparation of this report and my special thanks to Mr. Harikishan ojha inventory manager. I would like to profound sense of gratitude to my guide Mrs.N.ESHWARAMMA and my sincere thanks to faculty in business management in UNIVERSITY POST GRADUATE COLLEGE Godavarikhani, karimnagar for rendering a big helping hand and for through his perceptual willingness to help me with the intricacies involved in completing my project work. I am also thankful to all the people in the expending their co operation it has been a real experience work and leering in on organization.

N.ASHOK (10018C-1008)

DECLARATIONS

I here by declare that the enclosed project entitled INVENTORY & STORE MANAGEMENT done at BASANTHNAGAR in KESORAM INDUSTRIES LIMITED is submitted to UNIVERSITY POST GRADUATE COLLEGE, GODAVARIKANI in partial fulfillment of MASTER OF BUSINESS ADMINISTRATION, the project is an original work done by me and to the best of my knowledge this work is not submitted to any other university or college for award of any other degree/ diploma.

N.ASHOK (10018C-1008)

CONTENT

TOPICS
ABSTRACT LIST OF TABLES

PAGE NO

CHAPTER- 1 INTRODUCTION CHAPTER- 2 ORGANISATION PROFILE CHAPTER- 3 FRME WORK INVENTORY MANAGEMENT CHAPTER- 4 DATA ANALYSIS AND INTERPRETATION CHAPTER- 5 CONCLSIONS FINDING AND SUGGESTIONS Bibliography Annexure

INVENTORY STORE MANAGEMENT Inventory management is the key selection in the companys point of view. Inventory means the stockpile of the product; a firm is offering the sale and the components that make up the products. The main objective of this study is to manage the inventory well and to analyze the production level with change in the production levels well and to analyze how the companys profit is increased as the changes in the production. A company product is cement product. While produces the cement product performance had been out standing archiving over cent per cent capacity utilization although despite many goods like power cuts and which most 40% was waste due to wagon shortage The company being a continuous process industry works round the clock and has on excellent record of performance archiving over 100% capacity utilization. Kesoram has always combined technical progress with industrial performance. The company had a glorious track record for the lost 27 year in the industry The company follows the ABC analysis, EOQ, Inventory turnover ratio, FIFO and LIFO is ranking the products The information given by me do of 45 days I collect i.e., The information while I have done my project work.

CHAPTER -I INTRODUCTION

INVENTORY MANAGEMENT
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.

Meaning and Nature of Inventory:

In accounting language, inventory may mean the stock of finished goods only. In a manufacturing concern, it may include raw materials, work- in progress and stores etc.,

Inventory includes the following things:

a) 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 materials and Government regulations etc., too affect the stock of raw materials. b) Work in progress: The work in progress is that stage of stocks which are in between raw materials and finished goods. The quantum of 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.

BENEFITS OF HOLDING INVENTORIES Although holding inventories involves blocking of a firms and the costs of storage and handling, every business enterprise has to be maintain certain level of inventories of facilitate un interrupted production and smooth running of business. In the absence of inventories a firm will have to make purchases as soon as it receives orders. It will mean loss of time and delays in execution of orders which sometimes may cause loss of customers and business. A firm also needs to maintain inventories to reduce ordering cost and avail quantity discounts etc.

There are three main purpose of holding inventories. 1. The transaction motive: Which facilitates continuous production and timely execution of sales order. 2. The precautionary motive: Which necessitates the holding of inventories for meeting the unpredictable changes in demand and supplies of materials. 3. The speculative motive: Which induces to keep inventories for taking advantage of price fluctuations, saving in re ordering costs and quantity discounts.

RISK AND COSTS OF HOLDING INVENTORIES The holding of inventories involves blocking of a firms fund and incurrence of capital and other costs. The various costs and risks involved in holding inventories are: Capital costs: Maintaining of inventories results in blocking of the firms financial resources. The firm has therefore to arrange for additional funds to meet the cost of inventories. The funds may be arranged from own resources or from outsiders. But in both the cased, the firm incurs a cost. In the former case, there is an opportunity cost of investment while in the later case; the firm has to pay interest to t he outsiders. 1. Storage and Handling Costs: Holding of inventories also involves costs on storage as well as handing of materials. The storage of costs include the rental of the godown, insurance charges etc. 2. Risk of Price decline: There is always a risk of reduction in the prices of inventories by the supplies, competition or general depression in the market. 3. Risk of Obsolescence: The inventories may become absolute due to improved technology, changes in requirements, change in customer tastes etc. 4. Risk Determination in quality: The quality of materials may also deteriorate while the inventories are kept.

Objects of Inventory Management: Definition of Inventory Management: Inventory Management is concerned with the determination of optimum level of investment for each components of inventory and the operation of an effective control and review of mechanism. The main objectives of inventory management are operational and financial. The operational objective mean that the materials and spares should be available in sufficient quantity so that work is not disrupted for want of inventory. The financial objective means that inventory should not remain idle and minimum working capital should be locked in it.

NEED OF THE STUDY: Every industry on average spends 70% on raw materials (inventory). Therefore there is a need to know the raw material cost and also there is great importance to understand the inventory management system of this industry. The study helps a log to various departments to take steps to control the inventory process. In this competitive business world each and every business organization need inventory management system for determining what to order, when to order, where and how much to order so that purchasing and storing costs are the lowest possible without affecting production and sales. Thus, inventory management control incorporates the determination of the optimum size of the inventory-how much to be order and when after taking into consideration the minimum inventory cost. The over all inventory management includes design and inventory control organization with proper accountability establishing procedure for inventory handling disposal of scrap, simplification, standardization and codification of inventories, determining the size of inventory holdings, maintaining record points and safety stocks, economic order quantity, ABC analysis and VALUE analysis and finally framing an INVENTORY MANUAL.

OBJECTIVES OF THE STUDY: 1. 2. 3. 4. 5. 6. 7. To examine the organization structure of inventory management in the stores of Kesoram Cements. To discuss pattern, levels and trends of inventories in Kesoram Cements. To understand the various inventory control techniques followed by studies in Kesoram Cements. To access the performance of inventory management of the Kesoram Cements by selected accounting ratios. To know the inventory control techniques of Kesoram Cements. To avoid both under stocking and over stocking of inventory. To eliminate duplication in ordering or replenishing stocks. This is possible 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.

METHODOLOGY OF THE STUDY: The study is based on both primary and secondary data. The primary data has been collected through structured questionnaire reflecting inventory management practices of Kesoram Cements. The collected data is tabulated and suitable interpretation had been made by considering the data collection through secondary data like annual reports purchase registers, storage records of the organization.

LIMITATIONS OF THE STUDY: The study has the following limitations: 1. 2. 3. The study is limited only for a period of 5 years i.e., from 2002 03 to 2007 08. The limitations of ratio analysis can be applicable of the study. There may be approximation in calculating ratios and taking the figures from the annual reports.

CHAPTER II ORGANISATION PROFILE

ORGANISATION 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.

Cement The Product:

The natural cement is obtained by burning and crushing the stones containing clayey, carbonate of lime and some amount of carbonate of magnesia. The natural cement is brown in color and its best variety is known as ROMAN CEMENT. It sets very quickly after addition of water. It was in the eighteenth century that the most important advances in the development of cement were which finally led to the invention of Portland cement. In 1756, John Sematon showed that hydraulic lime which can resist the action of water can be obtained not only from hard lime stone but from a limestone which contain substantial proportion of clayey. In 1796, Joseph Parker found that modules of argillaceous limestone made excellent hydraulic cement when burned in the usual manner. After burning the product was reduced to a powder. This started the natural cement industry. The artificial cement is obtained by burning at a very high temperature a mixture of calcareous and argillaceous material. The mixture of ingredients should be intimate and they should be in correct proportion. The calcined product is known as clinker. A small quantity of gypsum is added to clinker and it is then pulverized into very fine powder, which is known as cement. The common variety of artificial cement is known as normal setting cement or ordinary cement. A mason Joseph Aspodin of Leeds of England invented this cement in 1824. He took out a patent for this cement called it PORTLAND CEMENT because it had resemblance in its color after setting to a variety of sandstone, which is found a abundance in Portland England. The manufacture of Portland cement was started in England around 1825. Belgium and Germany started the same 1855. America started the same in 1872 and India started in 1904. The first cement factory installed in Tamilnadu in 1904 by South India limited and then onwards a number of factories manufacturing cement were started. At present there are more than 150 factories producing different types of cements.

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

Industry Structure and Development:

With a capacity of 115 million tones of large cement plants, Indian cement industry is the fourth largest in the world. However per capita consumption in our country is still at only 100 Kgs against 300 Kgs of developed countries and offers significant potential for growth of cement consumption as well as addition to cement capacity. The recent economic policy announcement by the government in respect of housing, roads, power etc., will increase cement consumption. Opportunities and Threats In view of low per capita consumption in India, there is a considerable scope for growth in cement consumption and creation of new capacities in coming years. The cement industry does not appear to have adequately exploited cement consumption in rural segment where damaged where damaged growth is possible. Landed cost of cement (with import duty) continues to be higher than home market prices but with reduced import duty, increasing imports, may pose a serious threat to the domestic cement industry. 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 favorable and cement prices are likely to firm up.

Risks and concerns Slow down of Indian economy or drop in growth rate of agriculture may adversely affect the consumption. The recent increase in railway freight coupled with diesel / petrol price like will increase the cost of production and distribution, as being dulky, cement is freight intensive increase in Limestone royalty also adds to the cost of production, which is considerably higher than corresponding costs of many other developing countries. In our country there is a need to under take a massive programme of house construction activity into the rural and urban areas. It is impossible to construct a house without cement and steel, in other words, cement is one of the basic construction materials and therefore it is one of the vital elements for the economic development of the nation. India in spite of being the 4th biggest produces of cement in the world has still a very low per capital consumption of cement. Cement companies Cement Plants Installed Capacity Total investment (approx) Total Manpower 51 Nos 99 Nos 64.8 mt Rs. 10,000 crores Over 1.25 Lakhs

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 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.

Environmental and Social Obligations

For environmental promotion and to keep up the ecological balance, this section has undertaken various social welfare programs by adopting ten nearly villages, organizing family welfare camps, surgical camps, children immunization camps, animal health camps, blood donation camps, distribution of fruit bearing trees and seeds, training for farmers etc., were arranged.

Welfare and Recreation Facilities

For the purpose of recreation facility 2 auditoriums were provided for playing indoor games, cultural function and activities like drama, music and dance etc. The industry has provided libraries and reading rooms. About 1000 books are available in the library. All kinds of newspaper, magazines are made available. Canteen is provided to cater to the needs to the employees for supply snacks, tea, coffee and meals etc. One English medium and one Telugu medium school are provided to meet the educational requirements. The company has provided a dispensary with a qualified medical office and paramedical staff for the benefit of the employees. The employees covered under ESI scheme have to avail the medical facilities from the ESI hospital. Competitions in sports and games are conducted every year for August 15, Independence Day and January 26, Republic Day among the employees.

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:
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 15 16 17 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 1993 1994 1994 95 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 Management Award) Best industrial rebellion award Rural development chief minister environmental and mineral conservation award. National State State National National State State State State State State State State National State State State State State /

18 19 20 21 22 23.

1995 1995 96 1996 1996 1996 97 1999

24 25 26 27

2001 2007

Best industrial rebellion award. 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 State National State State State

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 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

Production (in tones) 749197 761581 805921 760708 550254 601453 643307 643663 748258 685596 731177 784555 782383 731049 746474 688305 777092

2000 2001 2001 2002 2002 2003 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010

692424 727447 735012 1046466 1056742 1094685 1124445 1139658

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 of Kesoram Industries Limited

Chairman

 Syt. B.K. Birla 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 Shri O.P. Poddar Shri P.K. Goyenka Shri D. Tandon Auditors Messrs Price Water house Subsidiary Companies of Kesoram Industries Bharat General & Textile Industries Limited KICM Investment Limited Assam Cotton Mills Limited Softshree Estates Limited

CHAPTER III FRAME WORK ON INVENTORY MANAGEMENT

FRAME WORK KESORAM CEMENT

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 Twenties when the Industrial House of Birlas acquired it. With only a Textile Mill under it banner in 1924, it grew from strength to strength and spread its activities to never fields like Rayon, Pulp, Transparent paper, Spun pipes and Refractoriness, Tiers, 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:
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

TOOLS AND TECHNIQUES OF INVENTORY MANAGEMENT A proper inventory control not only helps in solving the acute problem of liquidity but also increases profit and causes substantial reduction in the working capital of the concern. The following are the important tools and techniques of inventory management and control. 1. Determination of stock levels: Carrying of too much and too little of inventory is detrimental to the firm. If 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.

a)

Minimum stock level: It represents the quantity below its stock of any item should not be

allowed to fall. 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 to 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: This stock level indicates the average stock held by the concern. Average stock level = Minimum stock level + x reorder quantity. 2) Determination of Safety Stocks: Safety stock is a buffer to meet some unanticipated increase in usage. The 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) Economic Order Quantity (EOQ): The quantity of material to be ordered at one time is known as economic 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) A B C Analysis: (Always better control analysis): 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) VED Analysis : (Vitally Essential Desire) The VED analysis is used generally for spare parts. Spare parts classified as 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 types 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)

Inventory Turnover ratio: Inventory turnover ratios are calculated to indicate whether inventories

have 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

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

CRITERIA FOR JUDGING THE INVENTORY SYSTEM

While the overall objective of the inventory system is to minimize the cost to the firm at the risk level acceptable to management, the more proximate criteria for judging the inventory system are: Comprehensibility Adaptability 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.

FRME WORK 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 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. 2. 3. 4. The cost of placing a replenishment order. 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) Paper work costs, typing and dispatching an order.

2) 3) 4)

Follow up costs the follow up, the telephones, telex and postal bills etc., Costs involved in receiving of the order, inspection, checking and handling in the stores. Any set up cost of machines charged by the supplier, either directly indicated in quotations or assessed through quotations of various quantities.

5)

The salaries and wages of the purchase department.

Cost of Inventory carrying: This cost in measured as of the unit cost of the item. This measure gives basis for estimating what is actually costs a company to carry stock. This cost includes: 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 bins, racks etc., Transport bills and hamali charges. Allowance for deterioration or spoilages. Salaries of stores staff. Obsolescence. The inventory carrying cost varies and a major portion of this is accounted for by the interest on capital.

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. INVENTORY VALUATION AND COST FLOWS: What is the cost of inventory? 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. Valuation of inventories methods of determination: Although the prime consideration in the valuation of inventories is cost, there are a number of generally accepted methods of determining the cost of inventories at the close of an accounting period. The most commonly used methods are first in first out (FIFO) average, and last in first out (LIFO). The selection of the method for determining cost for inventory valuation is important for it has a direct bearing on the cost of goods sold and consequently on profit. When a method is selected, it must be used consequently and cannot be changed for year to year in order to secure the most favorable profit for each year. THE FIFO METHOD (FIRST IN FIRST OUT METHOD) Under this method it is assumed that the materials or goods first received are the first to be issued or sold. Thus, according to this method, the inventory on a 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) It values stock nearer to current market prices since stock is presumed to be consisting of The most recent purchases.

3) 4)

It is based on cost and, therefore, no unrealized profit enters into the financial accounts of the company. The method is realistic since it takes into account the normal procedure of 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 clerical errors. Comparison between different jobs using the same type of material 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. IV. 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 purchased. Materials are easily identifiable as belonging to a particular purchase lot. The LIFO method (Last in First Out method) 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)

It takes into account the current market conditions while valuing materials issued to different jobs or calculating the cost of goods sold.

2)

The method is base on cost and, therefore, no unrealized profit or loss is made on account of use of this method. The method is most suitable for materials which are of bulky and non

perishable type. Base Stock Method: This method is based on the contention that each enterprise maintains at all times a minimum quantity of materials or finished goods in its stock. This quantity is termed as base stock. The base stock is always valued at this price and its carried forward as a fixed asset. Any quantity over and above the base stock is valued in accordance with any other appropriate method. As this method aims at matching current costs to current sales, the LIFO method will be most suitable for valuing stock of materials or finished goods other than the base stock. The base stock method has advantage of charging out material / goods at actual cost. Its other merits or demerits will depend on the method which is used for valuing materials other than the base stock. Weighted average price method: This method is based on the presumption that once the materials are put into a common bin, they lose their identity. Hence, the inventory consists of no specific batch of goods. The inventory is thus priced on the basis of average priced on the quantity purchased at each price. Weighted average price method is very popular on account of its being based on the total quantity and value of materials purchased besides reducing number of calculations. As a matter of fact the new average price is to be calculated only when a fresh purchase of materials is made in place of calculating it every now and then as is the case with FIFO, LIFO methods.

However, in case of this method different prices of 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. Valuation of inventories impact on the flow of costs: As should be quite evident, the different methods of calculating inventory values will all have their impact on the flow of costs through the balance sheet into the income statement. The dollars that are paid to acquire inventory are always divided between the balance sheet (inventories) and the income statement (cost of goods sold), there is not other place to put them. Thus if the different methods of calculating inventory produce differing inventory values, they will also produce differing cost of goods sold figures, and the differing cost of goods sold figures will naturally produce differing profit figures. In order show the impact of inventory valuation on cost flows, the preceding exhibits are summarized. Each method produces a different figure for the transfer of raw materials to work in process. These differences appear small, but the only reason for this is that the dollar amounts have been kept small to make the illustration workable. With the transfer of materials to work in process, the cost flow or transfer with have its impact on the work in process inventory and the transfer of completed merchandise to finished gods. Ultimately when goods are sold; the varying methods of valuing inventories will have their impact on cost of goods sold and these profits. The effects of the cost flows on cost of gods sold and profits can be accentuated further it the differing methods of valuing inventories are applies to work in process and finished goods. Evaluation of methods What causes the differences? The differences in inventory values and flows for each of the method illustrated result from only one factor, that it, changing purchases prices or

unit costs. If purchase prices had remained stable or unchanged, each method would have produced the same inventory value and cost flow. Cost flows and inventory are exactly the some under stable prices. With a falling price level, the LIFO method produces the highest cost flow and the lowest inventory. With a falling price level, the LIFO method produces the lowest cost flow 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. Evaluation of methods can we justify the differences? The best method of inventory valuation might be specific identification, that is, the units in inventory should be identified with the specific invoices and thus specific unit costs to which they apply. Fortunately, the FIFO method constitutes a very useful approximation to the specific identification method if on can reasonably assume that the actual flow of materials is first-in first-out. This assumption is not unreasonable and thus we have stated the main argument for the FIFO inventory scheme, that is, the physical flow of materials would match the flow of costs under the first in first out method. When the units in inventory are identical, interchangeable and do not follow any specific pattern of physical flow, the average cost system would seen to appropriate. The primary difference between the FIFO and average methods is centered on the physical flow since both methods could involve identical and interchangeable units. The FIFO method fits a first-in first-out physical flow. The average method fits a system which has no specific pattern of physical flow. Finding a situation where there is no specific pattern of physical flow should be quite difficult because of the fact that most inventory items are

subject to deterioration by instituting a person would attempt to reduce such deterioration and any reasonable person would attempt to reduce such deterioration by instituting a physical flow approximating first-in-first-out. The major reason for the use of the average method is something other than the lack of specific physical flow. Ordinarily the LIFO method cannot be justified on the basis of the physical flow of materials. Under conditions of changing prices, the advocate of LIFO says that the only method which matches costs and revenues is the LIFO method. The LIFO method assumes that the latest item is the first item out, and thus the current costs of materials are matched with the other hand, assumes that the first item in is the first 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. Inventories valued at standard cost: A very useful method of valuing inventories is at a standard cost. With a standard cost system is no need of spending a great deal of time and money tracing unit cost through perpetual inventory record.

PERPETUAL INVENTORY CARD UNDER A STANDARD COST SYSTEM

Perpetual inventory Plant: Standard cost: Location: Order Quantity:..... Date Description On order Order Point: .. Available Received Issued On order On hand

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. 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. Inventory cost in relation Kesoram Cements shall to classifieds follows: Inventory can be classified as capital and revenue certain items through titled as capital in nature. Hence, due care is to be take whole drawing the material. Materials which are to be imported from other countries have to be planned well in advance nearly about 24 months are to initiate the proposals for procurement. Similarly some of the items do not require any lead time some they are available in the local market. Cement is highly energy intensive industry, the inputs like power and coal are the major part of the variable cost since Government controls the coal & fuel sector, and increase is rates adversely effects the cement industry. Kesoram cement has it own power plant and through which it saves energy consumption. By this the cost since Government controls the coal & fuel sector, any increase rates adversely effects the cement industry. Inventory cost of any organization also adversely affects by retaining obsolete / scrap and inventory costs can be reduced by management with an advance planning of procurement of materials, periodical reviews of existing spares with reference to the fast consumption, ascertaining the information regarding the availability of spares in other areas. Holding of extra inventory will be an additional financial burden to the company due to payment of interest charges on the materials purchased, diminishing 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)

Years Limestone Bauxite Gypsum Fly ash

2003 04 1042230 49637 23243 5752

2004 05 974490 44256 20703 10301

2005 06 956940 41872 21747 18101

2006 07 968730 431151 23091 33695

2007 08 1239443 64961 38765 159344

The value of the above raw materials for the year 2003 08 are as follows: (Value in Rs.)

Years Limestone Bauxite Gypsum Fly ash

2003 04 122161492 32294775 19613001 28203

2004 05 13853482 27971993 17100574 644473

2005 06 13853482 27971993 17100574 644473

2006 07

2007 08

157130922 243412189 23488745 19699583 2546948 38552277 49061196 20223404

Value of imported and indigenous raw materials, stores, spare parts and components consumed during the year:

Imported Years Raw Materials Stores spare parts and components 522588043 2003 04 95354856 2004 05 59300263 3 52258804 3 2005 06 66619001 4 75345209 2006 07 49133962 5 13162491 2 2007 08 1454235982

42279637

Indigenous

Years Raw Materials Stores spare parts and components

2003 04 110478787 9 611204564

2004 05 399586941 8 981990949

2005 06 355887542 6 189149420

2006 07 411740513 8 136566438 5

2007 08 7906341716

3868715827

CEMENT FACTORY RUNS WITH VARIOUS EQUIPMENTS:

I. TECHNICAL DEPARTMENT 1. MINES

2. 3. 4. II. 1. 2. 3.

MECHANICAL ELECTRICAL CIVIL STORES PURCHASE ACCOUNTS

COMMERCIAL DEPARTMENTS

TO RUN THE PLANT AND MAINTAIN EQUIPMENTS DEPARTMENTS REQUIRE SPARES. FOR SUCH REQUIREMENT OF SPARES DEPARTMENTS RAISE INDENTS AND SEND THE INDENTS TO PURCHSE 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.

ENQUIRIES: 1) ENQUIRES WILL BE SENT APPROVED SUN CONTRACTORS.

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) PREPARE PURCHSE ORDER ON SELECTED PARTY.

2)

SEND PURCHASE ORDER COPIES TO PARTY, STORES AND DEPARTMENTS. GOODS RECEIPT NOTE:

1)

RECEIVING GOODS RECEIPT NOTE FROM STORES.

PURCHASE DEPARTMENT: ACTIVITY RECEIVING INDENTS: FLOW CHART: Receipt of annual indents for consumable items / stores items from stores department. Checking of indent number an authority of item, delivery time consumption period. In case of any deficiency, send the information to concerned department for clarification. 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.

PURCHASE DEPARTMENT

PURCHASE ENQUIRY Ms. Sl. No. Material Code Department Quantity Unit When Required

ACTIVITY: FLOATING ENQUIRIES: FLOW CHART: Checking indented items and equipment name. Taking previous suppliers information form previous supply. If new 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 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. 6 All safety precautions are taken while unloading of material like workers should wear safety shoes, helmets, leather head gloves, noise respirator, nose mask. 7 Training is given to workers for unloading Heavy & Bulky material by using 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

Sorting of Delivery challans as below: a. General b. Stationery c. Repairs d. Block

Checking with P.O. and mentioning Material Code, Party Code, Indent No. Department Name on each & every challans.

10 Creation of D.C. entry in system for general materials. 11 Preparation of identification tags for General Materials through system. 12 Preparation of Receipt & Approval Book for General materials. 13 Manual entry of block, stationery, repair materials. 14 Preparation of intimations for block, stationery, repair materials.

ACTIVITY: PHYSICAL VERIFCATION OF GOODS:

15 All D.C. handed over to stores assistant physical verification like measuring, counting and tallying with D.C.s Quantity / Description of the materials by the Stores Assistant. 16 Identification tags to be attached to the verified material. Shortage / Excess / Damages if any found to be noted on challans and inform to section incharge. 17 Preparation of Shortage / Excess / Reports if any sending to parties under copy to purchase / bills sections.

ACTIVITY: APPROVAL OF MATERIAL AND PREPARATION OF GOODS RECEIPT NOTES: 18 Intimation is be sent to all the concerned departments. Showing materials to concern person. 19 Taking approval of the material in receipt & approval book. 20 Preparation general material in receipt & approval book. 21 Preparation general material GRNs through system and stationery / block / repairs GRNs manually. 22 Forwarding true copy to issue section of GRN for general material forwarding 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.

ACTIVITY: REJECTED MATERIALS

23 Rejected materials kept in allotted area of rejected materials. 24 Packing of rejected materials. 25 Preparation of gate passes for rejected materials. 26 Sending back to suppliers through our Hyderabad Office. 27 Sending consignee copy to party vide Register Letter for booking of Register goods to partys other than. ACTIVITY: EXCISE GATE PASSES 28 Sending duplicate for transport copy of excise invoice from suppliers delivery challans. 29 Mentioning A.B. Sl. No. and named of concerned department. 30 Duplicate for transport copy of excise invoice over to bills section for sending the same to Excise Department. 31 Corresponding with supplier. If the Excise Invoice is not found with delivery challans. SACTIVITY: RECEIPTS OF MEDICINES 32 Physical verification of Medicines as per Invoices. 33 Verification of expiry date on medicines. 34 Verification of MRP. 35 Sending shortage / excess note if any found. 36 Taking approval of Medical Officer. 37 Sending Rejection notes if any medicine is rejected. 38 Issuing to dispensary. 39 Bills forwarding to Account Department vide IOM for making the payment.

CHAPTER IV
DATA ANALYSIS AND INTERPRETATION

RATIO ANALYSIS

The investment on raw materials over a period of 5 years from 2005 to 2010 is presented in the following table. 1. Investment on Raw Materials Year 2005 - 06 2006 - 07 2007 - 08 2008 - 09 2009 - 10 Investment on Raw Material (in crores) 11690.67 49950.88 42950.66 46087.45 93605.78

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 2004 05 99 and it is increased to 93605.78 during the year 2009 10.

2) 3) 4)

It shows that there is on increase in the inventory to the more extent of 80218.98. The average inventory of Kesoram Cement was recorded at Rs.42945.41. The highest investment in inventory was recorded in the years 2009-10

2.

Trend Analysis: 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: Raw Material (in Lacks) 11690.67 49950.88 42950.66 46087.45 93605.78

Year 2005 - 06 2006 - 07 2007 - 08 2008 - 09 2009 - 10

Trend % 87% 373% 315% 344% 699%

Interpretation: 1) The investment on investment has increased in the year 2009 10. And the lost year investment has declared continuously. The percentage in 2007 08 was 315% as compared to years 2006 07 to 2009 10. 2) The trends in inventories show that inventory have been more in the year 2009 10 and then it has shown a downward trend and again it increased to some extent. 3) The investment in inventories has shown fluctuating trend is initial years and 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 to manage its inventory. This ration is calculated by applying the following formula. Cost of goods sold Inventor turn over ration Inventory turn over ration: Year 2005 - 06 2006 - 07 2007 - 08 2008 - 09 2009 - 10 Cost of goods sold 59021.41 121551.71 127533.58 130392.68 311636.92 Avg. Inventory 37975.30 95065.28 12390.06 1333.8.01 160035.93 Ratio 1.55 12.79 10.29 9.78 1.32 = _________________ Average inventory

Interpretation: 1. From the above table 2004 it can be observed that (1) inventory turn over ratio is 8.13 during 2004 2005 and it gradually decreased to 1.55 during 2005 2006. 2. 3. 4. In the year 2009 10 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 2009 10. The average inventory turn over ratio was recorded at 7.3 times during the review period. 4. Inventory conversion period: It may also be of interest to see average time taken for clearing the stocks. This can be possible by calculating inventory conversion period. This period is calculated by dividing the numbers of the days by inventory turn over. This formula may be as: Days in a year (360 days) Inventory conversion period = _____________________ Inventory turnover ratio

Inventory conversion period: (in crores) Year 2005 - 06 2006 - 07 2007 - 08 2008 - 09 2009 - 10 Cost of goods sold 59021.41 121551.71 127533.58 130392.68 311636.92 Avg. inventory 37975.30 95065.28 12390.06 1333.8.01 160035.93 Ratio 1.55 12.79 10.29 9.78 1.32 ICP (Days) 232 28 34 36 272

300 250 200

Interpretation: From the above table it can be identified the following observations: 1) The inventory conversion period was 232 days during the year 2005 06 but it declined to 204 during 2006 - 07, which indicates that the stock has been very quickly converted into sales which mean the company is managing the inventory efficiently.

150 100

2)

The lowest inventory conversion period was recorded at 28 days in the year 2006 07 and the highest inventory conversion was recorded at 272 days in the year 2009 10.

3) 5.

The average inventory conversion period was recorded at 107 days during the review period. Percentage of Inventory over current assets: In order to know the percentage of inventory over current assets the

Ratio of inventory to current assets is calculated and which is presented in the following table. Inventory over current assets ratio = Inventory __________ X 100 Current assets

Percentage of Inventory Over current assets: Year 2005 - 06 2006 - 07 2007 - 08 2008 - 09 2009 - 10 Inventory 11690.67 49950.88 42950.66 46087.45 93605.78 Current Assets 28770.78 53063.75 45598.02 49713.32 86811.49 Ratio (%) 40% 94% 92% 92% 107%

120% 100% 80% 60% 40% 20%

Interpretation: 1)

From the above table it can be understand that the % of inventory over current assets ratio was showing a declining trend for two years 2004 2005.

2) 3)

However from the year2009 10 it is showing an increasing trend. The lowest inventory over current assets ratio was recorded at 40% during the year 2004 06 and the highest inventory over current assets ratio we recorded at 107% during 2009 10.

4)

The average inventory over current assets ratio was recorded at 80%.

6.

Percent of Inventory Over total current assets & fixed assets: Inventory / Current + Fixed assets Inventory Current Assets Ratio (%)

Year

0% 2005-06

200

2005 - 06 2006 - 07 2007 - 08 2008 - 09 2009 - 10

11690.67 49950.88 42950.66 46087.45 93605.78

87468.76 117985.89 112647.26 112637.07 197330.50

13.36% 42.33% 37.50% 40.91% 47.43%

Interpretation: 1) 2) During the year 2004 05 the ratio was 15.35% on it declined to 13.36% in the year 2005 06. From the year 2006 07 it is showing fluctuating trend but as compared to above 2 years it is increasing.

3)

The lowest inventory over total assets ratio was recorded at 13.36% during the year 2005 06 and the highest inventory ratio was recorded at 43.43% during the year 2009 10.

4)

The average inventory to total assets ration was recorded at 32.81% during the review period.

7.

Percentage of Inventory over current liabilities: In order to know the percentage of inventory over current liabilities the

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 2005 - 06 2006 - 07 2007 - 08 2008 - 09 2009 - 10 Inventory 11690.67 49950.88 42950.66 46087.45 93605.78 Current liabilities 8042.62 16204.14 16204.14 17728.22 36253.41 Ratio (%) 145% 308% 284% 259% 258%

350% 300% 250%

Interpretation: 1)

200% 150% 100% 50%

From the above table it can be understand that the %

inventory over current liabilities ratio was showing a declining trend for two years 2004 05. 2) 3) 4) 5) 8. Current Ratio: During the year 2005 06 the ratio was it gradually The lowest inventory over total amounts ratio was The highest inventory to current liabilities ratio was The average inventory to current liabilities ratio was increased to 145 and there is a net increase to the extent of 128. recorded at 17 during the year 2004 05. recorded at 308 during the year 2006 07. recorded at 211 during the review period. 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

0% 2005-06

200

Current Ratio

= _____________________ Current liabilities

Calculation of Current Ratios: Year 2005 06 2006 07 2007 08 2008 09 2009 10 Inventory 28770.78 53063.75 45598.02 49713.32 86811.49 Current liabilities 8042.62 16204.14 16204.14 17728.22 36253.41 Ratio (%) 23.57% 3.27% 3.06% 2.80% 2.39%

25.00%

20.00%

Interpretation: 1)

15.00%
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 2005 06.

10.00%

2) 3)

In the year 2004 05 the ratio was 3.07% and has increased to 23.57% in the year 2005 06. The lowest current ratio was recorded at 2009 10 which is 2.39% and the highest current ratio was recorded at 23.57% during the year 2005 06.

4)

The average current ratio was recorded at 3.02% during the review period.

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 Current liabilities 8042.62 16204.14 16204.14 17728.22 36253.41 Where Quick assets = Current Assets Inventory Year 2005 - 06 2006 - 07 2007 - 08 2008 - 09 2009 - 10 Inventory 17080 3112 3347 3625 3207 Ratio (%) 2.12% 0.002% 0.22% 0.20% 0.08%

2.50%

2.00%

Interpretation: 1)

1.50%
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 2006 07 and from that year it is showing increasing trend. The highest quick ratio was recorded at 2.12% during the year

2)

1.00%
3) period.

2005 06 and the lowest quick ratio was recorded at 0.002% during the year 2006 07. The average quick ratio was recorded at 0.66 during the review

0.50%

0.00% 2005-06

200

CHAPTER V
CONCLUSIONS & SUGGESTIONS

Conclusions:
1) 2) Over all the inventory of Kesoram Cements is up to the mark. The production of clinker and cement during 2003 2004 was 7,47,436 and 7,77,092 respectively which is higher as compared to 2006 2007 which is 6,87,373 and 7,27,447.

3) 4) 5)

Investment on raw material is 93605.78 lakhs which very high as compared to 2006 07 which is only 460870.45 lakhs. The inventory turn over ratio shows that the stock has been converted into sales is only 1.32 times. In the year 2004 05 the stock was cleared within 28 days whereas it took 232 days in the year 2004 2005 which took more days for clearing stock.

6)

Year 2004 05 is not showing sample profits. This is because of cement 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 should also wait for until the accounts are matched. This process takes an input, adds value to it and provides an output to an internal or external customer.

Suggestions:
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. Unnecessary investment may block up the funds. Neither too high nor too low inventory turnover ratios may reduce profit 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 and at right cost. The process that was being used by Kesoram Cements with the purchasing 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.

BIBLIOGRAPHY

1.

Financial Management

By IM Pandey
Vikas Publishing Houses pvt ltd 2006, 9th edition.

2.

Financial Management

By Prasanna Chandra
Tata McGraw Hill Publishing company ltd 2005, 5th edition.

3.

Total Quality Management

By PN Mukherjee
Prentice Hallindia. 2006, edition.

4. 5.

Companys Stores Management Companys Annual Report

ANNEXURES

VED EOQ

Vitally Essential Desire Economic Order Quantity Always Better Control Analysis First in First out Method Last in first out Method Base Stock Method

ABC Analysis FIFO LIFO BSM WAPM

Weighted Average Price Method