781e4 Tommorow Print

K.S.
SCHOOL OF BUSINESS MANAGEMENT
The proverb is enough to understand the interdependence of theory and practical on each other. Teaching gives on insight into the theoretical aspects of management, but implementation of theory gives practical knowledge of the management field. Knowledge in itself is a continuous process. Getting practical knowledge is an important thing for any student or firm to enter into the real world. Working smarter seems to be as important as working harder and longer. Hence practical exposure at a Master of Business Administration level offers training in all business aspects. This practical training develops awareness among the management students about the difficulties and challenges in the real corporate world. Apart from this we gain many other benefits like developing our communication skills, understanding the changing business scenario and employees preferences. The project report on Inventory Management & control has also given us a chance to get along with team spirit, which is a prerequisite for completion of any project or task.
K.S.SCHOOL OF BUSINESS MANAGEMENT
We take this opportunity to express our deep sense of gratitude, thanks and regards towards all of those who have directly or indirectly helped us in the successful completion of this project.
We are deeply indebted to Dr. Sarla Achuthan, Director of K.S.School of Business Management, who gave us an opportunity of implying our creativity to blend our theoretical knowledge with our practical learning and exposure. We are very much thankful to our mentors at La-Gajjar Machineries (P) Ltd.Mr. Chandresh Lodaya (Finance Manager) and Ms. Veena Mulchandani & Ms. Pooja Thakkar (Sr. Executive HR).We are also thankful to Ms Khushbu Shah (Asst Manager Accounts) and Mr. Tejas Gajjar (Asst Manager Purchase) who has been great mentors and the project could not have been possible without their constant motivation and guidance. We would also like to thank all faculty members of K. S. School of Business Management for giving their valuable advice which made it possible for us to work effectively as well as efficiently. Last but not the least, we would like to thank the entire staff of the company for their help & support and for excellent hospitality they extended to us during the project
Table of contents
Sr. No. 1. 2. 3. Preface Acknowledgement Introduction 3.1 Objective of the project 3.2 Executive Summery Introduction of La-Gajjar Machineries (P) Ltd. 4.1 Company Profile 4.2 History 4.3 Introduction 4.4 Vision & Mission 4.5 Infrastructure 4.6 Research and Development 4.7 Network 4.8 Quality 4.9 Global Presence 4.10 Future Vista 4.11 Product Range 4.12 Organization Hierarchy Inventory Management 5.1 Meaning 5.2 Objectives of Inventory Management Sales Forecasting Production Planning 7.1 Indent Policy Material Requirement Planning 8.1 Meaning 8.2 Material Planning 8.3 Inventory cost structure 8.4 EOQ 8.5 Maximum stock level 8.6 Minimum stock level 8.7 Reorder level 8.8 Reorder Quantity 8.9 Order System
Topics
1 2 3
Page no.
4.
5. 6. 7.
15 18 21
8.
25
9.
Purchase Management 9.1 Meaning 9.2 Purchase Procedures 9.3 Purchase Department Procedures 9.4 Centralized Purchasing Store Management 10.1 Meaning 10.2 Functions 10.3 Store Department Procedures 10.4 Store Systems 10.5 Store Layout Inventory Management and control 11.1 ABC Analysis 11.2 VED Analysis 11.3 SDE Analysis 11.4 Two-Bin Analysis 11.5 Just-In-Time Ratio analysis 12.1 Overall inventory turnover ratio 12.2 Raw material turnover ratio 12.3 Work-in-process turnover ratio 12.4 Finished goods turnover ratio 12.5 Average Age of Raw Material In Inventory 12.6 Average Age of Finished Goods In Inventory Stock Analysis SWOT Analysis Observations Findings Suggestions Conclusions Bibliography Appendix 19.1 Cash Flow Statement of the last three years 19.2 Profit & Loss A/C Statement of the last three years 19.3 Balance Sheet of last three years
39
52
10.
57
11.
67
12.
13. 14. 15. 16. 17. 18. 19. 20.
74
84 85 87 88
OBJECTIVE OF THE PROJECT

To gain the practical exposure of Inventory Management & Control in submersible pump manufacturing industry. To understand the impact of accurate management of inventory system on the bottom line of the company. To understand the various aspect of inventory management such as sales forecasting, production planning, material requirement planning, purchase management, store management & inventory management & control. To take brief overview of submersible pump manufacturing industry.
We, the students of K.S.School of Business Management have undertaken the Summer Internship Program at the manufacturing plant of La-Gajjar Machineries (P) Ltd. (Amraiwadi), a submersible pumps manufacturing company. As per the companys requirement we have prepared the project report on the Inventory Management & Control. It has been the knowledge enriching experience for us along with the glimpse of corporate exposure. This report helps to understand the various aspect of inventory management such as sales forecasting, production planning, material requirement planning, purchase management, store management & inventory management & control. For inventory control, we have used various techniques like ABC Analysis, VED Analysis, SDE Analysis, Two-Bin Analysis and Just-In-Time. This report also contains Ratio Analysis. On the basis of last 4 years data, company can get the idea regarding inventory and also identify where company needs to concentrate. We have done the stock analysis for the last 3 year to find out the fluctuation in the stock. This type of analysis will help to reduce the cost in inventories and increase the profitability of the company.
La-Gajjar Machineries (P) Ltd. has provided us such a platform for our future. We have learnt many skills which requires for the management leader.
Company profile:
Name of the company La-Gajjar Machineries (P) Ltd.
Registered office
Acidwala Estate, Nagarwel Hanuman Road, Amraiwadi, Ahmedabad-380 026(Gujarat) INDIA
Incorporation Year URL Form of organization Chairman Cum Managing Director
1935 www.lagajjarmachineries.com Private Limited Company Shri Udayan L Gajjar M\S Manubhai & Co. 2nd floor, B wing, Premium House, Navarangpura, Ahmedabad-380 009 M\S Jain Kedia and Sharma, 13, Mill office colony, Ashram road, Ahmedabad-380009 State Bank Of India Laghu Udhyog Branch Bharat Kumar P. Tank. Ahmedabad-380 009
Statutory Auditors
Internal Auditors
Bankers
Company Law Consultants
History:
The La-Gajjar group was founded in 1935, by the Late Laljibhai Jivaram Gajjar (1917-1972), a visionary and industrialist par excellence. The foundation was made through a plant at Naroda in Ahmadabad in the name of forge & blower, manufacturing a unique product known as Hand Blower one of the first of its kind in the country. The humble beginning of 1935 progressed with time and within a span of 2 decades. The plan had acquired the status of being one of the largest in India, manufacturing diverse products such as hand blower, power blower, coupled and mono-block centrifugal pumps as well as electric motors. Within this period, Laljibhai Gajjar groomed the manufacturing and networking process with equal precision, and La-Gajjar products, now of the brand name VARUNA, gained acceptance and acknowledgement across the country as well as with clients abroad. Looking at the potential and demand for the product line, the group commissioned the largest automatic foundry in Ahmedabad way back in the 60s. The La-Gajjar castings were exceptional in their quality of finish, dimensional accuracy and production capacities. In 1981, a few years after the untimely demise of Laljibhai Gajjar, the company La-Gajjar Machineries (P) Ltd. was founded by his son, the late Gautam Laljibhai Gajjar at the Acidwala Estate in Ahmadabads industrial area. The new enterprise brought in bore-well and open-well submersibles into the manufacturing line, but maintained the same principles of quality and precision that had been the hallmark of the la-Gajjar group. Shri Udayan L Gajjar succeeded the legacy and took over as a director for the company in 1987, at the age of 26.As a young understanding of processes and his exceptional curiosity of machines were his only and most essential credentials. The 100 & 150 mm submersible pumps from LGM soon became the most preferred product in the domestic and agricultural segments through the country, in addition to the existing product line of larger pumps that had already gained profound acceptance.
In 1992 Shri Udayan L Gajjar, now managing director, conceptualized the use of oil-filled submersible motors for the 100 mm sector. The motor was an indigenously built marvel, and by 1997 VARUNA oil filled motors became the undisputed forerunner in the 100 mm submersible market. Today, the humble but dedicated beginning of the company has metamorphosed into a giant in the pump industry in India. Its client base has crossed the Indian shores and moved on to numerous countries spanning 4 continents. Laljibhai Gajjar and his product of the VARUNA fame have truly created history.
About the LGM:

La-Gajjar Group is one of Indias pioneer manufacturers and exporter of submersible pump sets and submersible motors, with more than seven decades of market leadership behind it. Its VARUNA brand of pump sets has been a household name across Indias rural, urban and industrial sectors for long. It has also been drawing significant demand in the world markets, thanks to its enduring performance record and engineering superiority. VARUNA brand umbrella encompasses a vast range of products Submersible Pump sets, Centrifugal Monoblock & Jet Pumps, Centrifugal & Coupled Pumps, Peripheral Self Priming Pumps, Electrical Motors, Power Blowers, etc.
Taglines of the LGM:

Defining watercare Water : The Everybody Miracle CONSERVE WATER SERVE THE FUTURE OF HUMAN RACE
Vision:
To Make Varuna A Global Brand By Providing Unmatched Solution For Water Needs; Through Path Breaking Research And Innovative Product Concept.
Mission:
To Constantly Strive Forward In Our Endeavour To Meet And Exceed Our Customers Need And Their Expectation In Terms Of Design ,Quality ,Price &Service.
Infrastructure:
La-Gajjar plants adopt ideal techno-concepts in pumps as they emerge around the world and blend them with the demands of topographical and geo-climatic conditions in its target markets to create ideal product solutions. La-Gajjar plants are founded on an R&D-driven technology platform. This R&D focus, backed by highly trained & skilled technology personnel, enable them to design & develop highly efficient products that have the inherent strength to brave tough working conditions such as sandy regions. It also gives the company a clear edge in comprehensive customization you can order and get a VARUNA Pump that meets your requirements and expectations to the minutes specification in real terms.
Employees:
Workers 675
Supervisor Officer L Management M Management
250 120 37 23
Works:
Units Products Sq. Ft Area
Unit I Unit II Unit III Unit IV Unit V LGP
3/4 Ex. Pack FAB 5+ Rotor 6 CMB
110000 8500 6500 125000 42000 40000
Research and Development:

Research and development division is technologically self-reliant and innovative. They have strong team of R&D department backed by fully equipped hi-tech production unit and efficient team of technocrats and engineers. They believe in developing their products by continuous research and manufacturing quality products. Their R & D team has developed number of products by thorough market research and developing product with integrity.
Network:
La-Gajjar has wide network of more than 2000 dealers and distributors in India. VARUNA pumps are available to customers around the world through a far-flung network of Dealers, Distributors, Service Centers, Export and Representative Offices, strategically located at major centers. Their service centre are available in Agra, Ahmadabad, Bangalore, Baripada, Bhubaneswar, Coimbatore, Gwalior, Indore, Jabalpur, Jaipur, Jodhpur, Kanpur, Karnal, Kolkata, Ludhiana, Nagpur, Patna, Pune, Raipur,Ranchi, Sahidabad, Secunderabad, Udaipur, and Varanasi.
Quality:
La-Gajjar is committed to delivering best quality products to its customers. We believe customer satisfaction is of great significance. They follow stringent quality measures in manufacturing our products and delivering the products on-time. The company has quality mark ISI from Bureau of Indian Standards for Submersible Pumps.
Global Presence
Recently, La-Gajjar collaborated with Oasis Pumps Industry LLC, Dubai, UAE, the dewatering industry leader with a global reputation, to manufacture and supply the pump sets and motor from a plant based in UAE.
Events
La-Gajjar Machineries has recently participated in Sahara Trade Fair in Cairo (Egypt) & Big 5 shows at Dubai (UAE). Exhibition in 2006. La-Gajjar Machineries Pvt. Ltd. has entered into an agreement recently with M/s. Karlington Pumps, Italy to market their products in India and selected countries abroad. It is needless to mention that karlington is one of the premier Pumps and Motors manufactuer in the world.
Future Vista :
As the 21st Century unfolds, La-Gajjar continues as the pioneer and trendsetter, through path breaking research, and innovative product concepts. It contributes significantly to the world communitys attempt to relieve water stress forever.
Product Range:
75-80 mm Submersible Pump set 100 mm Submersible Pump sets 150 mm Submersible Pump sets 4.150 mm Slim Body Submersible Pump sets 200 mm Submersible Pump sets VOSP (Vertical Open well Submersible Pump sets) HMSP (Horizontal Monoblock Submersible Pump sets)
75-80 mm
100 mm
150 mm
4.150 mm
200 mm
HMSP
VOSP
Features:

High technology Low electrical expense Durable and strong body
Brief about Departments:

La-Gajjar has number of departments like Purchase, Store, Quality Control, Production, Sales, Finance, Marketing, HR & admin, Export, Research & Development, Testing and Branch departments.
Organization Hierarchy:
Shri Udayan L. Gajjar (CMD) (Chairman & Managing Director) Shri Bansi P. Gajjar (Executive)( Director) Shri Inder B. Jain (Operation) (Director) Shri Haribhai Talsania (Technical) (Director) Shri S. Satyanarayan (Marketing) (Director)
Mr. Dilip Thakkar (DGM Commercial & HR)
Mr. Joginder Sing Makkad (Sr. Finance Manager)
Mr. Chandresh Lodaya (Finance Manager)
Ms. Khushbu Shah (Pur. A/c) (Asst Manager Accounts)
Ms. Nikita Gandhi (Excise & TDS) (Assistant Manager)
Ms. Ruchi Thakan & Mr. Nirav Bhuva (Banking) (Sr.executi ve)e)
Ms.Smitab en Desai (Sales A/C) (Assistant Manager)
Mr. Haresh Bakraniya (Expense A/C) (Assistant Manager)
Mr. Merajul Haque (Branch A/C) (Assistant Manager)
Meaning:
Inventory:
Inventory means the stock on hand at a particular time of raw materials, in process, finished products, and the like, tangible assets which can be seen, measured and counted. A physical resource that a firm holds in stock with the intent of selling it or transforming it into a more valuable state. A stock of items held to meet unexpected demand.
Type of Inventory:
(a) Production Inventories - These may include all raw materials, components and assemblies used in the manufacture of a product. (b) MRO Inventories Maintenance, repair and operating supplies which are consumed in the production process but which do not become parts of the product. (c) Work in progress Inventories -These are items under various stages of production not yet converted as finished goods. (d) Finished Products Inventories - Finished goods not yet sold or put into use.
Reasons for holding Inventories:

Improve customer service. Meet variations in customer demand. Economies of purchasing. Economies of production. Unplanned shocks (labor strikes, natural disasters, surges in demand, etc.) To maintain independence of supply chain. Temporary price discounts. Hedge against price increases. Take advantage of quantity discount.
[www.sonoma.edu/users/atkint/bus316/CH161Inv1.ppt]
Motives for holding inventories:

The trasaction motive which facilitates continuous production amd timely execution of sales orders. The precaustionery motive which necessities the holding of inventories for meeting the unpredictable changes in the demand and supplies of material. The speculative motive which include to keep inventories for taking the advantage of price fluctuation , saving in re-ordering cost and quantity discounts , etc. [www.scribd.com/doc]
The Objective Of Inventory Management :

Inventory management ensures continuous supply of raw materials and supplies to facilitate uninterrupted production. Maintain sufficient finished goods for smooth sales operation and efficient customer services. Inventory management helps to reduce material handling cost. Minimize the Cost of Purchasing and Storage. To Minimize the Wastage and Loss. Effective Use of Available Capital. To be Helpful in Efficient Purchasing.
Inventory Management includes:

(1) (2) (3) (4) (5) (6) Sales forecasting Production planning Material requirement planning Purchase management Store management Inventory control management
Sales Forecasting - La-Gajjar Machineries (P) Ltd.
Based on historical data
sales forecating
Based on present scenario Based on future planning
Parameter taken into consideration by La-Gajjar Machineries (P) Ltd in sales forecasting (1) Based on historical data: Sales growth of last 5 years: Based on the last 5 years sales, company forecasts next years sales. (2) Based on present scenario : Market Trend: LGM analyzes seasonal variations like (natural conditions), its own market potentials, competitors new developments, new technology, etc. (3) Based on future planning :
Marketing & promotional activities: LGM analyze whether company is going to introduce a new marketing & promotional programs or not. Because these programs help to boost sales. So sales forecasting also depends on the Marketing & promotional activities. Product development: company do sales forecasting based on its planning about new product developments in future. Network development: company do sales forecasting based on its planning about new network developments (A wide network of dealers) in future.
So, proper forecasting is very important for the bottom line of the company.
Indent policy of La-Gajjar Machineries (P) Ltd.:

Purchase department receives sales forecasting from marketing department. On this basis they do production planning.
(1) Indent process: Basic plan :

Indent should be received within 1st to 6th of the month for following month. It is called basic plan. From the 7th of the month, system will not accept any order.
Addition plan :
Addition order is allowed from 7th to 20th of the month for following month. It is called addition plan. Following steps should be checked in additions: To adjust sales stock or any dead stock of distributor or branch against addition. To adjust branch stocks lying above 45 days instruct to make branch transfer.
Addition plan after 20th of the month:

For the urgent requirement of branches and dealers, indent should be received after 20th of the month for following month.
(2) Stock Adjustment:

After receiving indent, below adjustments should be made: Stock adjustment from HO stock or any dead stock of party against indent. To adjust stocks lying at branch level above 45 days against indent and instruct to make branch transfer. To make adjustment of motors and pumps
Final production plan:

After stock adjustment, final plan should be booked in software on 7th of the month and plan summary is sent to HO.
Urgent requirements:
Daily follow up with production people regarding urgency and communicate the same with the parties. To keep details of urgency vs. commitment vs. production and update the same to the management representatives.
(3) Allocation of the Finished Product:

Allocate on the basis of long distance, urgency, priority. Basic allocation priority: 1. C/F (last month carry forward to next month) 2. Basic plan 3. Addition Plan If not follow above basic priorities then, they have to keep records and have to intimate to the management with reasons.
(4) Dispatch:
LGM dispatch on the basis of stock analysis at branch level, stock movement and sales order.
(5) Cancellation:
Cancellation is allowed at any time of the month.
For LGM cancellation, following steps should be taken care: Branch can cancel those orders, which are pending or in stock at HO. To check whether cancelled orders are pending for next month plan, If so, then the next month pending order should be cancelled first.
(6) Stock liquidation:

Following steps should be taken to control inventory. Day to day stock analysis of all parties and liquidation lying at HO. Stock analysis lying at branch level above 45 days and adjustment against confirm orders.
Meaning:
MRP is the scientific way of determining the requirement of raw materials, components, spares and other items that meets the production need within economic investment policies. It is a subset of the overall production planning and control system.
Material planning:
Based on monthly order booking, marketing department gives advance tentative planning for the next month on every 20th & final planning on every 1st of the current month. ERP system calculates quantity of various materials to be purchased from sales plan.
ERP system calculates exact material quantity to be purchased, considering existing stock, In process stock and pending purchase orders. Consolidating material plan is distributed to purchase executives, considering type of material. Concerned purchase executive procure material handled by them.
Consolidated plan items are procured on the basis of minimum stock levels. Material purchased is based on indents received from production department after deducting their semi finished stock from item group
Inventory cost structure:

Calculation of carrying cost:
(In Lakhs.) 2008-09 2009-10 1753.095 2577.51
Particulars Average inventories carrying cost: Salaries of store departments Rent of store building Computer service Administration overheads Other expenses Maintenance of transport vehicles Insurance Total
2007-08 1708.686
27.60 14.02 0.54 0.36 2.15 3.11 5.31

53.07
30.36 19.54 0.59 0.38 2.20 3.88 4.17

61.11
33.4 21.22 0.64 0.38 2.75 5.07 10.18

73.63
Percentage of carrying cost on Average inventories: = carrying cost/ Average inventories*100 2007-08 = 53.07/1708.68 * 100 = 3.11% 2008-09 = 61.11/1753.09*100 = 3.48% 2009-10 = 73.63/2577.51 *100 = 2.85%
Total inventory carrying cost: = Percentage of carrying cost on Average inventories+ interest charges*
2007-08 = 2008-09 = 2009-10 =
3.11% +13.25% = 16.36% 3.48%+13.25% = 16.74% 2.85% +13.25% = 16.11%
Interpretation:
From the above computation, we observed that the change in the carrying cost is approximetely 16% in each year. In year 2009-2010, inventory was increased but carrying cost is decreased. *we have taken SBI CC account interest rate.
Calculation of ordering cost:

Particulars Salaries of purchase departments Purchase order cost* Total 2007-08 9600000 1854000
11454000
2008-09 10680000 2002500 12682500
2009-10 11961600 1890000 13851600
* Purchase order cost includes stationery cost, electricity cost. Follow up cost, etc.
Ordering cost per order: = Total ordering cost/ total no. of orders during year
2007-08 = 2008-09= 2009-10=
11454000/ 4200* = 2727 Rs. 12682500/4200* = 3020 Rs. 13851600/4200 = 3298 Rs.
*In 2009-10, The No. of P.O. was 4200. So, we assume SAME for 2007-08 & 2008-09.
Interpretation:
As the total ordering cost increases, the cost per order also increases.
EOQ: (Economic Order Quantity)

EOQ is the level of inventor order of which inventory cost is minimized.
Assumption of EOQ:
Demand for the product is constant and uniform throughout the period. Lead time is constant. Price per unit of product is constant. Inventory carrying cost is based on average inventory. Ordering cost are constant and All the demand for the product will be satisfied.
Q=
D = Annual demand Co = Ordering/setup costs Ch = Cost of carrying one unit of inventory P = Purchase price
For example,
Order size of winding wire for 2009-10:
Q= = 747 Kg.
Order size of the winding wire should be 747 Kg. At this size, Ordering cost and Carrying cost will be minimum.
EOQ Graphically:
Total cost Carrying cost (Q/2*Ch)
Ordering cost (D*Co/Q)
TC = DP + D/Q*Co + Q/2*Ch
Where, DP = Annual purchase cost of all items D/Q*Co=Annual ordering cost Q/2*Ch=Annual holding cost
TC = 18000*600 + 18000/747*3298 + 747/2*0.2151 = 1, 08, 79,550 Rs. EOQ is the highly useful because it gives answer to the questions i.e. how to place the order? & the frequency with which, the orders are to be placed?
Maximum-Minimum Technique: Maximum (economic) stock level

The level of stock beyond which a firm should not maintain stock. If the firms stock inventory is beyond the maximum level, it is called overstocking. Excess inventory involves heavy cost of inventory because it blocks firms fund in inventory, excess carrying cost and wastage, etc. This is the level of appropriate stock which should be held for an organisation to minimise its costs.
Maximum stock level of winding wire:

= Reorder level + Reorder quantity (normal usage* average delivery time) =3600 +1800- (60*30) = 3600 Kg.
Minimum stock level

The level that needs to be maintained for smooth production is called minimum stock level. It is that minimum inventory, which serve as a safety margin to meet an unanticipated demand and increase in usage, resulting into high demand and or uncontrollable late receipts of incoming inventory.
E.g. Usage : 60 per day

Lead time: 30 days to deliver
Minimum stock level

= Reorder level (normal usage*average delivery time) = 3600-(60*30) = 1800 Kg.
Re-order level
Reorder level is that level of inventory at which order should be placed for replenishing the current stock of inventory. E.g. Minimum stock level : 1800 units Lead time : 30 days to deliver Average usage : 60 Kg.
Re-order level = Minimum stock level + Avg. Usage

= 1800+ (60*30) = 3600 Kg.
Re-order quantity:
Once re-order level is reached, a standard quantity is automatically requested. On receipt of delivery, reorder level reaches to the maximum (economic) stock level. E.g. . Minimum stock level = 1800 units Maximum stock level= 3600 units
Re-order Quantity
= Max SL - Min SL = 3600 1800 = 1800 Kg.
Graphical presentation for winding wire
Max. Stock level(R-OL) (3600 Kg.)
Stock Levels Min. Stock level (1800 Kg.) 30 Days 30 Days Lead time 30 Days Safety stock
Order placed
Order received
Interpretation:
As per the computation, we compute that maximum stock level should be 3600 Kg. At the same level, order should be placed so that it can be received within 30 days. Safety stock of 1800 Kg. should be kept. Once it reaches to the minimum stock level, order can be received so that stock can be replenished to the maximum level.
Order system
Q SYSTEM (Fixed Order Quantity System)
In this, same quantity is ordered every time when an order is placed.
Advantages of Q System:
Each material can be procured in the most economic quantity. Purchasing and inventory control personnel automatically devote attention to the item that is needed only when required. Positive control can easily be exerted to maintain total inventory investment at the desire level simply by manipulating the planned maximum and minimum value.
Disadvantages of Q System:
The orders are raised at irregular intervals which may not be convenient to the suppliers. In case the lead time is very high, say 3 months, and the ordering quantity happens to be ordered again for 1 month, there would be 2 or 3 pending orders with the supplier, so there is possibility that he may supply all orders at a time. The group of items cannot be ordered at a time since the re-order points occur irregularly.
P SYSTEM (Fixed Order period System)

In this, Materials are ordered based on fixed period. Quantity of order varies each time the order is placed.
Advantages of P System:
1. The system works well for materials which exhibit an irregular or seasonal usage and whose purchases must be planned in advance on the basis of sales estimates. 2. The suppliers will also offer attractive discounts as sales are guaranteed. 3. There are fewer chances to have excess inventory.
Disadvantages of P System:
1. If the stock is finished before the time period, then there will be stock out Till the next scheduled order. Alternately, in Fixed Order Quantity System, when inventory reaches reorder point, an order is made that minimize the time during which a stock out might exist. As a result of this drawback, a larger safety stock required.
Order system in LGM:

LGM adopted P System in season. During season, production is done on the basis of production planning. So, purchase is also planned. The purchase of material is generally weekly based (i.e. P system) During off season, the materials are purchased according to their requirement.
Meaning:
Purchasing management directs the flow of goods in a company and handles all data relating to contact with suppliers. Effective purchasing management requires knowledge of the supply chain, business and tax laws, invoice and inventory procedures, and transportation and logistics issues. Although a strong knowledge of the products and services to be purchased is essential, purchasing management professionals must also be able to plan, execute, and oversee purchasing strategies that are conducive to company profitability.
Activities included in purchase management:

Research and development strategies required for the proper selection of materials and sources from which those materials may be brought. The follow up to insure proper delivery. The development of proper procedures, methods, and forms to enable the purchasing department to carry out the established policies. The coordination of the activities of the purchasing department with other departments. Receiving, store-keeping and accounting.
Centralized purchasing:
Centralized purchasing refers to the purchase of materials by a single purchase department. This department is headed and managed by a purchasing manager. Under centralized purchasing, all purchases made by the purchase department to avoid duplication, overlapping and the non-uniform procurements. A company has to follow the centralized purchasing of materials for ensuring proper materials control as well as efficient store keeping. Under this system, the purchasing department purchases the required materials for all the departments and branches of the company. LGM HAVE CENTRALIZED PURCHASING SYSTEM.
Advantages Centralized purchasing:

More trade discount can be availed due to bulk purchase. Centralized purchasing results in lower costs because of the availability of purchase quantity discounts. Economy in recording and systematic accounting of materials. Transportation costs can be reduced because bulk quantity of material is purchased. Centralized purchasing discourages duplications of efforts. Centralized purchasing helps to maintain uniformity in purchase policies. Centralized purchasing helps to minimize the investment in inventory.
Disadvantages Centralized purchasing:

There is need of initial investment in purchasing. There is high need to coordinate purchased parts with production schedules. There is less engineering involvement in procurement decision making.
Purchase Procedure:
MARKET REQUIREMENT
PLANNING
BOM
INSPECTION INTER DEPARTMENT TRANSFER
PO
INWARD
JOB OUT
APPROVED
NOT APPROVED
ACCOUNTING OF BILLS
DEBIT NOTE FINANCIAL EFFECT IS MADE AUTOMATICALLY WHILE MAKING THE ENTRY PAYMENT IS MADE BASED CREDIT TERMS AND AFTER AUTHORISATION OF DIRECTOR
IF BILL RATE>PO RATE
SENT TO THE PARTY
RATE DIFF DRN
END
DRN SENT TO THE PARTY
AUTOMATIC CHEQUE PRINTING AND FINANCIAL EFFECTS IN LEDGER ACCOUNT
END END
Purchase Department Procedure:

1. 2. 3. 4. 5. 6. 7. Material planning Vendor selection Procurement system Job work- sub contracting process Issue of drawing Vendor performance Vendor development
Material planning:
Based on monthly order booking, marketing department gives advance tentative planning for the next month on every 20th & final planning on every 1st of the current month. ERP system calculates quantity of various materials to be purchased from sales plan. ERP system calculates exact material quantity to be purchased, considering existing stock, In process stock and pending purchase orders. Consolidating material plan is distributed to purchase executives, considering type of material. Concerned purchase executive procure material handled by them. Consolidated plan items are procured on the basis of minimum stock levels. Material purchased is based on indents received from production department after deducting their semi finished stock from item group.
Vendor selection:
New supplier is identified through references, business magazines, Internet, etc. Such suppliers are contacted for submission of their part samples. Once their quality is checked, they are invited with their quotation. If necessary, the premises of suppliers are visited by purchase executives for ensuring its capability to fulfill organization needs. Necessary negotiation is done with supplier by purchase head. If supplier gets finalized, name of same is entered in supplier master and that supplier goes into approved supplier list.
Record of supplier approval criteria is maintained in the supplier master. Various approval criteria are (a) Sample approval (b) Production efficiency (c) Market reputation (d) Monopoly supplier (e) Other as necessary Also back up records of such approval process is also maintained for new suppliers.
Procurement system:
After receiving the plan, purchase department act on it. if the item is new, process of vendor sourcing & new vendor selection is done. If vendor is not included in vendor master then same is included after ensuring that it is fulfilling all vendor approval criteria. If particular material is not included in commodity of particular vendor then same is included after ensuring vendor can deliver such material in time of required quality as per our organizational requirements. Purchase order is made with reference to Indent received. Purchase order is given to supplier. Continuous monitoring of pending order is done and necessary follow up is made with vendors. Once all material required by purchase order is received then order is closed.
Job Work sub Contracting Process:

Job contract is made with outsourced process suppliers. Drawings are issued to outsourced suppliers which are received from design department. Supplier representative acknowledgement is taken in drawing issue register at the time of issuing drawings. Requirements are communicated to such suppliers on regular basis as and when need arises. Concerned purchase executive maintain stock records of material lying at outsourced process supplier premises. Also once in quarter, purchase executive conducts vendor audit for checking effectiveness of quality system of vendors in fulfilling Organizational needs.
Issue of Drawing : Drawings are issued to suppliers as and when they are received from Design departments. Signature of suppliers representative is taken in drawing register at the Time of issuing drawings.
Vendor performance: Purchase department evaluates all the materials that are received from suppliers. And purchase department do analysis of defects based on grades. Rejection ( in % ) 0% >0% but <5% >5% but<10% >10% Grade A B C D
Each supplier is informed about his grade on quarterly basis and advised to improve if they are in B/C/D/ grades. This information is given through vendor evaluation letter.
Vendor Development:
LGM acknowledges its vendors as integral to its core family structure. As a strategic partner, developing their process systems and core competence areas is fundamental to LGMs strategy of vendor development. The vendor development activities are managed by the purchase department &technical department of the company.
The programs undertaken by the department for vendor developments:

1. 2. 3. 4. 5. Providing technical know-how & support for process improvements. Providing knowledge of quality norms. To share forecasts and budgeting. Upgrade suppliers ability to compete in global markets. Ease of access at all levels of management.
VENDOR REGISTRATION FORM
Vendor Code : _____
La-Gajjar MACHINERIES PVT. LTD.

Acidwala Estate, Nagarwel Hanuman Road. Amraiwadi, Ahmedabad 380026 Phone: +91 22777485/487, Fax. (079) 22748996, 22742808
Name of the Company
Office Address
Factory Address
Office 1 :
Factory 1 :
Contact Person
2:
2:
3:
3:
Office
Factory
Residence
Telephone
Fax
Mobile
Email
Website
www
Number
Bankers Name
G.S.T. Tin
Date
Number
C.S.T. Tin
Date
Excisable
Yes No.
Excise Number
ECC No. Date :
Excise Range Division : PAN No.
Payment Terms Proprietary Trader Partnership Dealer
Type of Company Please Tick
Job Work Auto. Dir.
Public Ltd Distributor
Turnover Financial
Year : ______________ 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Rs. (In Lacs) : _____________
Product Manufactured
(Attach Extra Sheet, If Necessary) 1 2 List Of Important Customers 3 4 5 6 7 8 9 10
(Attach Extra Sheet, If Necessary)
A) Office
: _____________ B) Tech
: _____________ C) QC/QA Tech. Non Tech Total
: _____________ : _____________ : _____________ : _____________
Factory : _____________ Total : _____________
Non Tech. : _____________ Total : _____________
No. Of Employee
Machine/Facilities Details
Sr. No.
Description
Accuracy Capacity
Make
Year
Nos
Used For
Storage/Handling Facilities Details
QA/Measuring Instruments And Testing Facilities (Attach Extra Sheet Sr. No. Description Accuracy Capacity Make Year Nos Used For
If required)
Vendor Approval System
Yes
No
(Brief Write Up)
Vendor Quality
Incoming Insp. System
Yes
No
Insp. Standards Available
Yes
No
Sample approval System In-House Quality
Yes
No
(Brief Write Up)
Stage wise Process Checks
Yes
No
Separate Rej/Rework handling
Yes
No (Brief Write Up)
Pre delivery Inspection
Yes
No
Customer Quality
Customer Complaint Analysis
Yes
No
Corrective/Preventive Action
Yes
No (Brief Write Up)
Calibration
System of Calibration
Yes
No
Regularly Monitored
Yes
No (Brief Write Up)
Components/Assembly One House Keeping
Yes
No
Stack Oved in Order Maintain House Keeping System 1 2 Yes No
Associate Companies (If any) Annexure Attached 2 3 1
I declare that the information furnished above is correct to the best of my knowledge. I also Undertake to inform You that changes, if any in details mentioned above.
Declaration by Director/Proprietor Authorized by Signature & Seal
Meaning:
Stores it functions as receiving, storing and issuing materials. It involves supervision or the clearance of incoming supplies, to ensure that they are maintained in good conditions, safety and in readiness for use when required while they are in store and issue against authorized requisitions.
Functions of stores:
1. 2. 3. 4. 5. To receive and accounts for them. To highlight stock accumulation, discrepancies and abnormal consumption. To assist in verification and provide supporting information for effective purchase action. To meet demand of the consuming departments by proper issues and account for the consumption. To ensure good housekeeping so that materials handling, materials preservation, stocking, receipt and issue can be done adequately.
Store department procedure:

1. 2. 3. 4. 5. Receipt of materials at stores Issue of material from stores Stock verification Materials identification & preservation Materials are sent outside for job work.
Receipt of materials at stores:

Materials are unloaded at separate area. Store keeper will check purchase order of received materials against suppliers challan. At the time of receipts, store person will check quantity, item description and physical conditions of materials. Once the material is inspected, they put into incoming rack. If there is any shortage found in incoming material then challan is to be deducted or debit note should be made. If material is received in excess then purchase executive is contacted & if approved, excess material is taken in inward. Entry of suppliers challan is done in the stores software. On suppliers challan, the stamp of material received is kept.
QC will give inspection report in computerized format to store department after completion of incoming inspection. If any rejection is found then rejected material is stored in the rejection rack. It is given back to suppliers with delivery challan and gate pass. All accepted incoming material is stored in the racks with proper identification of item code and item description.
Issue of material from stores Issue slip is received from concerned department to issue the materials against requirements mentioned in issue slip.
Stock verification Physical (CYCLE) counting of stocks (Raw materials, Tools and Finished goods) is done in every 3 months. On that basis, they prepares sheet of stocks.
Materials identification & preservation Materials are identified by item code, item description through physical identification or identification at location or tag.
Materials sent outside for job work After instructions from purchase department, materials are sent for job work. Necessary gate pass is prepared manually and annexure form (as per excise requirement) is prepared through system and sent along with materials that are supplied.
Store system
There are three basic ways of locating stocks: 1. Fixed location 2. Random location 3. Zoned location LGM have fixed location store system. The assignment of fixed location (position) is made on the following basis. 1. On the basis of similarity of the items. 2. On the basis of size and frequency of use.
Store Layout of LGM:

Store layout is very important for any organization in inventory management. Its effect is more in movement of inventory. LGM has tree types of layout. Manufacturing site is near to the store so; movement of material is easy & fast.
Aisle
Fig.: LGM LAYOUT
ADVANTAGES OF INVENTORY CONTROL:

(1) (2) (3) (4) (5) (6) Reduction in Investment of Inventory. Proper & efficient use of raw-material. There is no bottleneck in production. Improvement in production and sale. Efficient & optimum use of physical as well as financial resources. Maintenance of adequate inventories reduces the setup cost associated with each production run.
(7) The company that effectively and proactively controls and manages its inventory has a competitive advantage over the company that has an inventory control policies and procedures. (8) Lower inventory cost is a definite advantage for the company that effectively controls its inventory. (9) Well-defined inventory control policies can reduce the labor costs associated with managing the inventory. Each time inventory gets handled, whether to move it from one location to another, to retrieve it for order picking or to put it away for storage, it involves labor. This handling makes up part of the cost associated with managing inventory.
Inventory Control Technique

(1) (2) (3) (4) (5) ABC Analysis VED Classification SDE Classification Two- Bin Technique Just-In-Time
(1) ABC (Always Better Control) Analysis:

ABC analysis is a technique to control inventories. ABC analysis determines how much attention should be given to controlling of inventory of different item. The objective of ABC analysis is to vary the expense associated with maintaining appropriate control according to the potential savings associated with a proper level of such control. For Example, an item having an inventory cost of Rs.100, 000 has more potential for saving expenses related to maintaining inventories than an item with a cost of Rs. 100. The ABC approach is a means of categorizing inventory items into three classes A, B & C according to the potential amount to be controlled.
Guideline in each category:

Items A 1. 2. 3. 4. 5. 6. 7. Very strict control No safety stock (or very low) Frequent ordering Items B Moderate control Low safety stock Once in 3 months Items C Low control High safety stock Bulk Ordering once in 6 months
Accurate forecast in material Estimate base on past data Rough estimate planning Maximum efforts to reduce lead Moderate efforts to reduce lead Minimum efforts to reduce time time lead time To be handled officers. by senior To be handled management Quarterly review by middle Can be full delegated Annual review
Minimization of waste, obsolete ,and surplus (review every 30 days)
ABC Analysis - La-Gajjar Machineries (P) Ltd. For the year 2010-2011
Inventory Items Annual use value descending order in % of total inventory usage Classes
C.I. Casting Copper Ring & Road Seamless Pipe Pig Iron Stamping Winding Wire Round Bar Packing Materials Gun Metal S.S. Parts Sup. En. Copper Wire Flate Cable Other Raw materials Alum. Die. Cast Rotor Mechanical Seal Ball Bearing Stack Stator Impeller with necking Jacket Total 19 Items
990.38 816.23 805.75 753.50 681.47 498.59 496.18 455.60 444.20 444.25 425.36 296.35 238.18 143.67 97.93 70.62 0.864 0.299 0.306 7659.73
12.929 10.656 10.519 9.837 8.896 6.509 6.477 5.947 5.799 5.799 5.554 3.868 3.109 1.876 1.278 0.922 0.011 0.004 0.004 100.00
A A A A A A A A B B B B C C C C C C C
Items A (71.77%) C.I. Casting Copper Ring & Road Packing Materials Pig Iron Round Bar Seamless Pipe Stamping Winding Wire
Items B (21.019%) Flate Cable Gun Metal S.S. Parts Sup. En. Copper Wire
Items C (7.211%) Alum. Die. Cast Rotor Ball Bearing Impeller with necking Jacket Mechanical Seal Other Raw materials Stack Stator
Items A 42.11% Of 19 items 71.77% of Rs. 7659.73 lakhs
Items B 21.05% Of 19 items 21.019% of Rs. 7659.73 lakhs
Items C 36.84% Of 19 items 7.211% of Rs. 7659.73 lakhs
Graphically :
21.02%/21.05% 100 80 60 40 20 0 0 20 40 60 80 100 A Items (8 Items) B Items C Items (4Items) (7 Items) 7.22%/36.84%
71.77%/42.11%
Interpretation:
From above ABC analysis, it is revealed that 42.11% of the items has 71.77% of the value, 21.05% of the item has 21.02% of the value, and 36.84% of the item has 7.22% of the value.
Remarks:
Company should monitor A items very closely but can check on B and C items on a periodic basis. The firm may also choose to count all the A items, then the B items, and finally the C items. Certainly, the counting frequency will vary with the classification of each item. In other words, A item should be counted monthly with audit, B & C, items should be counted quarterly with audit. (Presently stock counting in LGM, is done quarterly with audit). In addition the required accuracy of inventory, records may vary according to classification, with A items requiring the most accurate control & record keeping.
(2) VED classification:

VED classification is done to determine the criticality of an items and its effect on production. V VITAL E ESSENTIAL D DESIRABLE (V) Vital classification of LGM: Vital items are those items which are desirable to smooth production operation. Its shortage may cause havoc & stop work in organization. 1. Round Bar 2. Winding Wire 3. Super enwire 4. Thrust bearing
(E) Essential classification of LGM: Essential items are those items whose stock out adversely affect efficiency of the production system but plant does not stop. There should be sufficiently stocked to ensure regular flow of work. 1. Stamping 2. Flate cable 3. P.P.O. set 4. Shafting 5. S.S. Pipe
(D) Desirable classification of LGM: Desirable items are those items which do not pamper the process of production. Its non availability does not stop the work because it can be easily purchased from the market as when needed. 1. S.S. Parts 2. Packaging Materials 3. Hardware 4. Spare Parts
Remarks:
For V items, appropriate stock of inventory should be maintained to ensure smooth operation. For D items minimum stock is enough.
(3) SDE classification: SDE classification is based on availability of items and very useful in context of scarcity of supply. S SCARCE .
D DIFFICULT E EASY (S) Scarce classification - LGM:
Generally imported and those items which are in short supply.

1. Mechanical Seal ( Italy, Taiwan) 2. Epoxy Powder (D) Difficult classification - LGM: These items which are available indigenously but difficult item to procure. 1. Ball Bearing 2. Oil Seal 3. O-Ring 4. Round Bar (E) Easy classification - LGM: These items are those, which are easily available in the local market. Items like Copper, Gun metal, Flate cable, etc. are easily available in local market.
Remarks:
For S items, appropriate stock of inventory should be maintained, and for D items minimum stock is enough.
(4) Two Bin Technique:

In this system, stock of each item is separated into two bins. One bin contains stock; just enough to last from the date, a new order is placed, until it is received in inventory. The other bin contains a quantity of stock, enough to satisfy probable demand during the period of replenishment. To start with, the stock is issued from the first bin. When the first bin is empty, an order for replenishment is placed, and the stock in the second bin is utilized until the ordered materials are received. Such method is appropriate to ideal conditions in which the rate of consumption is fairly constant and for items, the lead time of which is fairly established and regular.
(5) Just -In -Time System: Just- In -Time (JIT) is a production and inventory control system in which materials are purchased
and units are produced only as needed to meet actual customer demand. In JIT manufacturing system, inventories are reduced to the minimum and in some cases, it is zero. Under ideal condition a company operating at JIT manufacturing system would purchase only enough materials each day to meet that days needs. Moreover, the company would have no goods still in process at the end of the day, and all goods completed during the day would have been shipped immediately to customers. As this sequence suggests, "just-in-time" means that raw materials are received just in time to go into production, manufacturing parts are completed just in time to be assembled into products, and products are completed just in time to be shipped to customers.
(1) Overall inventory turnover ratio

Inventory Turnover Ratio measures the number of times, on average; the inventory is sold and replaced during the fiscal year. Inventory Turnover Ratio measures company's efficiency in turning its inventory into sales. Its purpose is to measure the liquidity of the inventory. It is a test of efficient inventory management. = Cost of Goods Sold (COGS)*/ Inventory Year COGS* Inventory Overall inventory turnover ratio(in times) 3.85 4.41 6.33 3.13
2007 2008 2009 2010
5594.91 8664.012 9771.965 11793.81
1454.12 1963.25 1542.94 3768.92
* COGS - 70% of Gross Sales
Interpretation:
It is revealed that Inventory turnover is 6.33 times in 2009. This implies that in this year companies sales was strong and indication of better inventory management. However, a very high ratio needs careful analysis. It may be the result of a very low-level inventory that results in frequent stock out or too much small order for inventory replacement. In 2010, there was low turnover compared to 2009 because of high inventory. A low ratio indicates unnecessary blockage of fund in inventory. A low ratio may be the result of deliberate excessive purchase in anticipation of future price increase, over valuation of stock etc.
(2) Raw material inventory turnover ratio

Raw material inventory turnover ratio measures the number of times, on average; the raw material is converted into WIP. The ratio reflects the rate of utilization of raw material. A higher turnover ratio indicates higher utilization of raw material. However, a very high ratio is not good from the organization point of view as the same may lead to bottleneck in the production due to stock out of raw material. On the other hand, a low turnover of raw material is an indication of accumulation of raw material inventory.
= Annual consumption of raw material/ Raw material inventory

Year Annual Raw material Raw material consumption of raw Inventory inventory turnover material ratio (in times) 5205.32 609.65 8.54 6305.87 458.05 13.77 6680.72 544.37 12.27 9746.18 1240.17 7.86
2007 2008 2009 2010
Interpretation:
It is revealed that in 2008, Raw material turnover ratio was 13.77 times. This resulted in lower accumulation of inventory. So less money was blocked in this year. But in 2010, there was a lower ratio which is an indication of accumulation of inventory.
Remark:
The holding period of raw material must not be too high or too low because it leads to accumulation of raw material causing high carrying cost in term of shrinkage in values, pilferage, theft ,administrative cost, warehousing charges, lightening, heating etc. whereas too low holding period leads to high ordering cost and there may be interruption in production process.
(3) Work-in-progress (WIP) inventory turnover ratio

WIP inventory turnover Ratio measures the number of times, on average; the WIP is converted into finished goods. High turnover of WIP is an indication of lower accumulation of WIP inventory.
= Cost of manufacture/Work-in-progress inventory

Year Cost of Work-in-progress manufacture inventory 6745.02 8966.17 9964.43 12771.18 556.57 718.38 588.67 1632.85 Work-in-progress inventory turnover ratio (in times) 12.12 12.48 16.93 7.82
2007 2008 2009 2010
Interpretation:
It is revealed that in 2009, the WIP turnover ratio was 16.93 times. It indicates that less money was blocked in this year.
(4) Finished goods inventory turnover ratio

Finished goods inventory turnover Ratio measures the number of times, on average; the finished goods converted into sales. High turnover indicates efficient inventory control, sound sales policies, trading in quality goods, reputation in the market, better competitive capacity and so on. Low turnover suggests the possibility of stock comprising of obsolete items, slow moving products, poor selling policy, over investment in stock etc.
= Gross sales/Finished goods Inventory

Finished goods Inventory 556.57 718.38 588.67 1632.85 Finished goods inventory turnover ratio( in times)
14.36 17.23 23.71 10.32
Year 2007 2008 2009 2010
Gross sales 7992.73 12377.16 13959.95 16848.30
Interpretation:
It is revealed that in 2009, finished goods turnover ratio was 23.71. This indicates that in this year holding period of finished goods was less. So less money is blocked in this year compared to other years.
Remark:
Insufficient level of inventory is dangerous because it may be responsible for the loss of business opportunity. Thus, for each item of stock, minimum average and maximum levels should be fixed carefully.
(5) Average age of raw material in inventory It indicates numbers of days that requires raw materials convert into WIP. = Raw material inventory/Average daily purchase of raw materials
Raw material inventory 609.65 458.05 544.37 1240.16 Average daily purchase of R.M. 14.840 16.861 18.532 28.616 Average age of raw material in inventory (in days) 41.08 27.17 29.38 43.34
Year 2007 2008 2009 2010
Interpretation :
Here in LGM, it is noticed that in 2008 & 2009, they have significantly increased the management of their inventory compared to 2007. In 2010, Average of raw materials in inventory was 43.34 days. This long holding period indicates that more money was blocked in raw materials.
(6) Average age of finished goods in inventory

It indicates that the numbers of days required for Finished Goods to convert into sales.
= Finished goods inventory/Average COGS manufacture per day

Average COGS Manufacture per day 18.15 27.97 31.01 37.23 Average age of Finished Goods in Inventory (in days) 14.66 27.27 11.89 18.26
Year 2007 2008 2009 2010
Finished Goods Inventory 266.20 762.80 368.75 679.76
Interpretation:
It is revealed that in 2009, Average age of finished goods in inventory is 12 days. This implies that in this year companys sales was strong and indication of better inventory management. In the year 2008, average age is high compared to other years because finished goods inventory takes more days to convert into sales. This indicates that there is unnecessary blockage of fund in inventory.
Stock analysis for the year 2007-2008: (In lakhs)

Particulars Stores &spares RM FG WIP TOTAL Jun-07 155.39 869.34 258.23 116.23 1399 -11% Sep-07 144.27 723.25 279.26 99.2 1246 -6 % Dec -o7 126.4 463.38 175.15 411.67 1176.6 66% Mar-08 12.4 458.04 762.8 718.38 1951.62
2500
Investments in stock
2000 1500 1000 500 0

Stores &spares RM FG Inventaries WIP TOTAL
Jun-07 Sep-07 DEC -o7 Mar-08
Interpretation:
From the above chart, it is noticed that high inventory was blocked in 1st & 4th quarters as compared to other quarters. In 2nd quarter, total inventory was decreased by 11% than 1st quarter. But In 3rd quarter it was decreased by 6% & in 4th quarter total stock was increased by 66% than 3rd quarter. It happened because of seasonal fluctuation in demand.

Particulars Store &spare RM FG WIP Total Jun-08 194.67 701.45 276.2 383.98 1556.3 5.98% Sep-08 123.27 707.37 388.08 430.58 1649.3 -18.14% Dec-08 Mar-09 122.42 16.27 563.25 541.36 123.87 368.75 540.54 588.66 1350.08 1515.04 12.21%
1800 1600 Investments in stock 1400 1200 1000 800 600 400 200 0 Store &spare RM FG Inventories WIP TOTAL Jun-08 Sep-08 Dec-08 Mar-09
Interpretation:
From the above chart, it can be seen that high inventory was blocked 2nd quarter because st in these quarter, total inventory was increase by 5.98% than 1 quarter. But In 3rd quarter decreased by 18.14 % & in 4th quarter total stock was increased by 12.21 % than 3rd quarter. From the above calculation we can that in year 2008-2009, seasonal fluctuation of demand had a less effect on inventory.

Particulars Store & spares RM FG WIP Total Jun-09 1407.78 458.25 Sep-09 33.91 1127.91 599.29 738.2 Dec-09 78.02 1065.29 830.4 775.62 2749.33 30% Mar-10 15.69 1240.16 679.76 1632.85 3568.46
1866.03 2499.31 33.94 % 10 %
4000 3500 Investments in stock 3000 2500 2000 1500 1000 500 0
Store & spares RM FG WIP TOTAL
Jun-09 Sep-09 Dec-09 Mar-10
Inventories
Interpretation:
In above chart, it is noticed that the investments was increased by 33.94%, 10% and 30% respectively in the following quarters. In 2010, more money was blocked in inventory. Because in this year, LGM had targeted more sales.

Particulars Store & spares RM FG WIP Total Jun-10 212.07 1614.91 1257.47 780.96 Sep-10 146.37 1599.78 1465.7 863.74 Dec-10 133.51 1396.59 1758.1 809.07 Mar-11 33.86 1553.55 1495.66 1922.63
3865.41 4075.59 4097.27 5005.7 5.44% 0.53% 22.17%
6000
Investments in stock
5000 4000 3000 2000 1000 0 Store & spares RM FG WIP Inventories Total Jun-10 Sep-10 Dec-10 Mar-11
Interpretation :
From the above chart, it is noticed that high inventory was blocked in 4th quarters. And LGM has done more or less similar investment in inventory in earlier quarters. In 2nd quarter, total inventory was increased by 5.44% than 1st quarter. But In 3rd quarter, an investment was increased by 0.53%. in 4th quarter the investment was increased by 22.17% These had happened because of seasonal fluctuation.
Quarter wise stock analysis:

June Quarter: (In lakhs)
Particulars Store & Spares RM* FG WIP Total Jun-07 155.39 869.34 258.23 116.23 1399.19 Jun-08 Jun-09 Jun-10 194.67 212.07 701.45 1407.78 1614.91 276.2 458.25 1257.47 383.99 780.96 1556.31 1866.03 3865.41 11.23% 19.9% 107.15%
4000 investments in inventories 3000 2000 1000 0 Jun-07 Jun-08 Jun-09 Jun-10
Store & Spares
RM
FG
invenrories
WIP
Total
*RM in 2009 includes stores & spares and WIP stocks.
Interpretation:
Above chart reveals that in June 2010, the Investment was higher (around 38 corers) as compared to June 2009 because of increase in the sales. The investment in June-08, was increased by 11.23% compared to June 2007, followed by increase of 19.9 % in June-09, & 107.15% in June -10. LGM did overstock in june-2010 to achieve targeted sales.
September Quarter: (In lakhs)

Particulars Store & spares RM FG WIP Total
4500 4000 3500 3000 2500 2000 1500 1000 500 0 Store & spares RM FG inventories WIP Total
Sep-07 144.27 723.25 279.25 99.2 1245.97
Sep-08 126.28 707.37 388.08 430.58 1652.31
Sep-09 33.91 1127.91 599.29 738.2 2499.31
Sep-10 146.37 1599.78 1465.7 863.74 4075.59 32.61% 51.26% 63.07%
investments in investments
Sep-07 Sep-08 Sep-09 Sep-10
Interpretation:
In the above chart, it is noticed that the September quarter of each year, investment in inventory increases gradually to meet targeted sales. The investment in Sept- 08 was increased by 32.61%, followed by 51.26%, & 63.07% respectively in Sept09 & Sept- 10.
December Quarter: (In lakhs)

Particulars 103.64% Stores & spare RM FG WIP Total Dec-07 126.4 463.37 175.15 411.67 1176.59 Dec-08 122.42 563.25 123.87 540.54 1350.08 Dec-09 78.02 1065.29 830.4 775.62 2749.33 Dec-10 133.51 1396.59 1758.1 809.07 4097.27 14.75% 49.03%
4500 investments in inventories 4000 3500 3000 2500 2000 1500 1000 500 0 Stores & spare RM FG WIP Total
invenrories
Interpretation:
Above chart indicates that in Dec.-10, the investment is higher (around 40 corers) compared to Dec. 2009. The investment in Dec-08 was increased by 14.75%, followed by 103.64%, & 49.03% respectively in Dec 09 & Dec 10.
March Quarter: (AS PER AUDITED BALANCE SHEET) (In lakhs)

Particular Store & spares Packing material RM FG WIP Total Mar-08 12.4 6.52 458.04 762.8 718.38 1958.14 Mar-09 16.27 26.3 541.36 368.75 588.66 1541.34 Mar-10 15.69 36.97 1240.16 679.76 1632.85 3605.43 133.91 % Mar-11 33.86 42.74 1553.55 1495.66 1922.63 5048.44 40%
-21.28 %
6000 investments in inventories 5000 4000 3000 2000 1000 0 Store & spares Packing material RM FG
Mar-08 Mar-09 Mar-10 Mar-11 WIP Total
inventories
Comparing the average stock with sale of March:

Particulars Sales of March Average Stock stock (in %) = March-08 12377.16 1443.31 5 .15% March-09 13959.95 1517.68 75.98% March-10 16848.30 2670.78 59.54% March-11 21839 4260.99 Increase in
Increase in sales (in %) =
Interpretation:
Above chart indicates that, in Mar. -11, the Investment in stock was higher (around 50 crores) as compared to march quarters of other year because LGM wanted to meet targeted sales. If we compare the sales of March with the average inventory then in March-2009, the increase in sales is high as compared to increase in stocks. This implies better inventory management. But in March -2010, increase in stock was more than increase in sale. In March2010, The Stock was increased by 59.54% but it did not reflected next years sales. So, this notification needs careful analysis.
SWOT analysis is an extremely useful tool for understanding and decision making for all sorts of situations in the organization. It is an acronym for strength, weakness, opportunity and threat. It provides the good framework for reviewing strategy, position and direction of the company.
SWOT Analysis of LGM: Strengths:

VARUNA brand umbrella encompasses a vast range of products Submersible Pump sets, Centrifugal Monoblock & Jet Pumps, Centrifugal & Coupled Pumps, Peripheral Self Priming Pumps, Electrical Motors, Power Blowers, etc. LGM has a very efficient and professional management team. La-Gajjar Machineries (P) Ltd. ISO 9001:2000 which shows the sign of better quality production and environment concern for its surrounding. Any customer in country could not be more than 25 Kms away from Varuna dealers or 50 Kms from varuna service outlets. This strength is unmatched in the country within the pump trade. Well spread network for distribution as well as service support. LGM has 24 branches across the country. And it has more than 2000 dealers in India. LGM have the trained human resources. The infrastructure of the LGM is well made. LGM have a strong global market position. LGM have adopted customer oriented approach.
Weaknesses:
LGM involves itself in less of promotional activities.
Opportunities:
LGM have opportunity to expand especially in the emerging market such as, china, Russia, etc where population and demand is accelerating. Increased demand for agriculture pump sets. Increased demand for domestic pump sets because of high rise in construction industry in urban area.
Threats:
LGM faces lots of intense competition from big as well as small players. LGM has threat in certain items which are imported and are in short supply like , mechanical seal, epoxy powder, etc. There is a threat from new entrants.
We have observed that PRESENTLY LGM managing its inventory in following ways: By making Stock adjustment from HO stock or any dead stock of party against indent. By making adjustments in stocks, lying at branch level above 45 days against indent and they instruct the branch to make branch transfer.
By making adjustment in motors and pumps. Company have invented a new method of P.O.Q (Purchase Order Quantity) in which dealer can give their orders between 1st to 15th of the month for the next month and can get 2% of discount. But if they cancel the order, 1% debit note is made by LGM against them. So that POQ system helps to make proper planning for inventory. LGM make day to day stock analysis of all parties.
In year 2010, overall inventory turnover was low as compared to the earlier years because of high inventory. A low ratio indicates unnecessary blockage of fund in inventory. On the basis of stock analysis, we can say that fluctuation of demand have a more effect on inventory. Raw material turnover ratio, WIP turnover ratio and Finished goods turnover ratio was low in 2010 as compared to earlier years. From the ABC analysis, we come to know that there is a difference A, B, & C class items. So, A items are more important for the company. There is a positive correlation between sales to inventory. There is a good relationship between company and their vendors, dealers and sales executives. Sales forecasting, Material requirement planning and production planning, etc have a impact on inventory.
Suggestion to the LGM:

1. A item should be counted monthly with audit, B & C, items should be counted quarterly with audit. (Presently stock counting in LGM, is done quarterly with audit) Because A items requires the most accurate control & record keeping. 2. For C Class items, LGM can adopt TWO- BIN Technique.
Empty
Full
Order placed
start using from these bin
Advantage of using Two-Bin technique for C group inventories:

This technique helps to reduce the ordering cost because company does not have to give small orders for inventory replenishment. The value of C group inventories is very low. So less money is blocked in inventories. It will reduce the chances of stock out. But it can be possible, If LGM can use its additional storage facilities. If LGM give proper attention in making P.O. of proper quantity (considering lead time). 3. LGM can adopt Vendor Managed Inventory (VMI) system for items like ball bearing, which are supplied by exclusive dealer. Because Vendor-managed inventory (VMI) is a family of business models in which the buyer of a product provides certain information to a supplier of that product and the supplier takes full responsibility for maintaining an agreed inventory of the material, usually at the buyer's consumption location (usually a store).
Advantage of using VMI:

One of the keys to making VMI work is shared risk. Often if the inventory does not sell, the vendor (supplier) will repurchase the product from the buyer. It will reduce the chance of stock out and reduces inventory in the supply chain.
4. There are many items like - Dowell, which are purchased by LGM from dealers & sub- dealers. To reduce the cost of this item, it can be purchased directly from manufacturer. 5. The company can manifold number of vendor for those items like ball bearing, round bar, etc. which have exclusive dealer. 6. LGM can adopt Just-In Time system in those items like - string, hardware, etc. which have minimum lead time and available in local market. 7. Pending of rejected items is the one of the main reason of overstock in LGM.
8. LGM had made wrong sales forecasting in 2010, so that in this year investment in stock was more compared to earlier years.
9. It has been predicted that if company is planning to achieve more sale it may require huge amount of inventory in future. So the company has to arrange capital to meet future requirement. 10. There should be proper communication between purchase and production department
On the basis of the study, we conclude that inventory is the one of the most important asset of the company and company must concentrate on the all aspect of inventory management and control. Inventory is constantly changing as quantities are sold and replenished. Hence it can be understood that efficient inventory management can take the company to new heights and inefficient inventory management can ruin the company. Too litle inventory may not be able to provide the service levels required by customer due to stockout resulting in lowered logistical performance. Too much inventory, on the other hand, will increase costs and reduce profitability. A firms different functional area may view inventory differently. For instance, marketing wants high inventories over a broad range of products to allow quick response to customer demands. Manufacturing wants high inventories to support long productions runs and also to ensure that there will not be production stoppage due to non-availability of raw materials and components parts. Also, manufacturing want to gain advantage of economics of scale by producing large batches of product, so that the per unit fixed costs can be reduced. Finance generally prefers low inventories so as to increase inventory turnover ratio, reduce current assets and increase return on assets. Integrated logistics concurs with the point of view of finance. High inventory increase inventory carrying costs, warehousing costs, packaging costs and material handling costs. Both finance and integrated logistics recognize the need for some inventory which should be optional. We would finally like to conclude our project with high feeling of having gained enormous knowledge. This includes thanks giving not only to the valued cooperation of the company but also our professors who gave us such wonderful opportunity to learn so much about practical aspect of life.
WWW.GOOGLE.COM WWW.SCRIBD.COM WWW.SLIDESHARE.COM WWW.LAGAJJARMACHINERIES.COM PROUCTION & OPERATION MANAGEMENT K. Aswathappa & K. Shridhara Bhatt Himalaya Publishing House FINANCIAL MANAGEMENT I M Pandey Vikas Publishing House Pvt. Ltd
Annual Reports Of The Company for the year2006-07, 2007-08, 2008-09, 2009-10 Company Profile
Findings: From last three Years the Net working capital of company is increasing. Raw Material Conversion Period, Work in Process Conversion Period and Finished good Conversion period of the year 2009-10 is increased as compared to year 2008-09. Stock turnover ratio, which determine the ability of management with which it can move the stock, is decreased in year 2009-10, which was increased in year 2008-09 as compared to year 2007-08.
FINDINGS Company is maintaining zero safety stock it cause production loss. The inventory turnover is in decreasing order in 2008-09 it is 3, but in 2009-2010 it is 2.4. By ABC Analysis we can say that there is a little difference between A B & C class items
so every product is important for company. There is positive correlation between sales to inventory. The percentage of raw material from total inventory is 23.94% in 2009 and 19.73% at 2010. The percentage of finished goods, semi finished good, packaging material from total inventory is 34% ,5%,37% in 2009 but in 2010 40%, 4%, 34%. Companys aim to achieve more sale it may require huge amount of inventory in future. Company is concentrating on domestic market and first time they achieve the target of 10 crore, that is good sign of establishment of domestic market. Economic order quantity (EOQ) in year 2009 is 109.526 units EOQ for year 2010 is 320.76 units, it shows that company can place more orders at one time. There is good relationship between company and their distributors, vendors and sales executives.
con
A firms different functional areas may view inventory differently. For instance, marketing wants high inventories over a broad range of products to allow quick response to customer demands. Manufacturing wants high inventories to support long productions runs and also to ensure that there will not be nay production stoppage due to non-availability of raw materials and components parts. Also, manufacturing want to gain advantage of economics of scale by producing large batches of product, so that the per unit fixed costs can be reduced. Finance generally prefers low inventories so as to increase inventory turn-over ratio, reduce current assets and increase return on assets. Integrated logistics concurs with the point of view of finance. High inventory increase inventory carrying costs, warehousing costs, packaging costs and material handling costs. Both finance and integrated logistics recognize the need for some inventory which should be optional. For all this, inventory management can opt JUST IN TIME process, which we think is the best option for any organization.
Too litle inventory may not be able ot provide the service levels required by customer due to stockout resulting in lowered logistical performance. Too much inventory, on the other hand, will increase costs and reduce profitability.
1111111111111
111111 FINDINGS Company is maintaining zero safety stock it cause production loss. The inventory turnover is in decreasing order in 2008-09 it is 3, but in 2009-2010 it is 2.4. By ABC Analysis we can say that there is a little difference between A B & C class items so every product is important for company. There is positive correlation between sales to inventory. The percentage of raw material from total inventory is 23.94% in 2009 and 19.73% at 2010. The percentage of finished goods, semi finished good, packaging material from total inventory is 34% ,5%,37% in 2009 but in 2010 40%, 4%, 34%. Companys aim to achieve more sale it may require huge amount of inventory in future. Company is concentrating on domestic market and first time they achieve the target of 10
crore, that is good sign of establishment of domestic market. Economic order quantity (EOQ) in year 2009 is 109.526 units EOQ for year 2010 is 320.76 units, it shows that company can place more orders at one time. There is good relationship between company and their distributors, vendors and sales executives. techshristi.com SUGGESTION S There can be a system where in periodical review (twice in a month) of inventory could be carried out so that the inventory can be kept under control. There should be periodical review of movement of items so that any non moving items can be identified and suitable action can be done. At present the company is maintaining zero safety stock for all items, if the safety stock is maintained for important items, delay in production can be eliminated and orders
can be supplied in time which will result in a better credibility in both international and domestic market. It has been predicted that if company is planning to achieve more sale it may require huge amount of inventory in future. So the company has to arrange capital to meet future requirement. It is suggested that they can have close monitoring of receipts and issue for A class items in order to have control of inventory. To increase the inventory turnover ratio by increasing the sales level and maintaining the required level of inventory. To maintain the Re-order level, Min-stock level and Economic order quantity company should consider the demand of the product. There should be proper communication between purchase and production department.
There is no communication from dispatch section to store department, about quantity wasted. Feedback about the quantity wasted will help the store department to forecast future requirements and to focus on minimum possible waste. techshristi.com Improve the minimum value of product C up to 5%-8% in total sale value by increasing market level of these products. It helps to get min return on investment in these products as soon as possible. There is one warehouse for keeping the finished good and packaging material and packaging material are not arranged in good manner so it should be in order wise. techshristi.com CONCLUSION Inventory control is exercise when you order an item. If you do a poor job then everything after is inventory correction
GORDON GRAHAM Inventory is the physical asset of a company that can create problem if there is shortage, while in production and also if its in excess even after production. Inventory is constantly changing as quantities are sold and replenished. Hence it can be understood that efficient inventory management can take the company to new heights and inefficient inventory management can ruin the company. Company is highly concentrated on domestic market, it increase the market level of company because trend of domestic market is changing. The study on Inventory management in SFP Sons (India) Pvt. Ltd about A BC analysis for items is predicting future inventory requirements etc. From the study it is predicted that future sales have to be achieved and inventory level have to be maintained. ABC Analysis was carried out to identify the fast moving and important items.
The company has to periodically review the inventory to avoid production loss. The results of the study can be further extended for future research. BIBLIO

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K.S.

SCHOOL OF BUSINESS MANAGEMENT

K.S.SCHOOL OF BUSINESS MANAGEMENT

K.S.SCHOOL OF BUSINESS MANAGEMENT

K.S.SCHOOL OF BUSINESS MANAGEMENT

13. 14. 15. 16. 17. 18. 19. 20.

K.S.SCHOOL OF BUSINESS MANAGEMENT

OBJECTIVE OF THE PROJECT

K.S.SCHOOL OF BUSINESS MANAGEMENT

K.S.SCHOOL OF BUSINESS MANAGEMENT

K.S.SCHOOL OF BUSINESS MANAGEMENT

Acidwala Estate, Nagarwel Hanuman Road, Amraiwadi, Ahmedabad-380 026(Gujarat) INDIA

Incorporation Year URL Form of organization Chairman Cum Managing Director

Company Law Consultants

K.S.SCHOOL OF BUSINESS MANAGEMENT

K.S.SCHOOL OF BUSINESS MANAGEMENT

K.S.SCHOOL OF BUSINESS MANAGEMENT

About the LGM:

Taglines of the LGM:

K.S.SCHOOL OF BUSINESS MANAGEMENT

K.S.SCHOOL OF BUSINESS MANAGEMENT

K.S.SCHOOL OF BUSINESS MANAGEMENT

Supervisor Officer L Management M Management

Unit I Unit II Unit III Unit IV Unit V LGP

3/4 Ex. Pack FAB 5+ Rotor 6 CMB

110000 8500 6500 125000 42000 40000

K.S.SCHOOL OF BUSINESS MANAGEMENT

Research and Development:

K.S.SCHOOL OF BUSINESS MANAGEMENT

K.S.SCHOOL OF BUSINESS MANAGEMENT

K.S.SCHOOL OF BUSINESS MANAGEMENT

High technology Low electrical expense Durable and strong body

Brief about Departments:

K.S.SCHOOL OF BUSINESS MANAGEMENT

Mr. Dilip Thakkar (DGM Commercial & HR)

Mr. Joginder Sing Makkad (Sr. Finance Manager)

Mr. Chandresh Lodaya (Finance Manager)

Ms. Khushbu Shah (Pur. A/c) (Asst Manager Accounts)

Ms. Nikita Gandhi (Excise & TDS) (Assistant Manager)

Ms.Smitab en Desai (Sales A/C) (Assistant Manager)

Mr. Haresh Bakraniya (Expense A/C) (Assistant Manager)

Mr. Merajul Haque (Branch A/C) (Assistant Manager)

K.S.SCHOOL OF BUSINESS MANAGEMENT

K.S.SCHOOL OF BUSINESS MANAGEMENT

Reasons for holding Inventories:

K.S.SCHOOL OF BUSINESS MANAGEMENT

Motives for holding inventories:

The Objective Of Inventory Management :

Inventory Management includes:

K.S.SCHOOL OF BUSINESS MANAGEMENT

K.S.SCHOOL OF BUSINESS MANAGEMENT

K.S.SCHOOL OF BUSINESS MANAGEMENT

Sales Forecasting - La-Gajjar Machineries (P) Ltd.

Based on historical data

K.S.SCHOOL OF BUSINESS MANAGEMENT

K.S.SCHOOL OF BUSINESS MANAGEMENT

K.S.SCHOOL OF BUSINESS MANAGEMENT

K.S.SCHOOL OF BUSINESS MANAGEMENT

Indent policy of La-Gajjar Machineries (P) Ltd.:

(1) Indent process: Basic plan :

Addition plan after 20th of the month:

(2) Stock Adjustment:

Final production plan: