G C T M Industry in India has traveled are less, now India is one of the main cotton manufacturing & exporting cotten in the in india. The cotten in India is with major players and gadag co operative mill Ltd is one of largest manufacturer of cotten in India. Inventory is a central process in Manufacturing Unit. This Inventory is concerns to all departments i.e., from Planning Department to Selling Department in which it passes though Production Department, HR Department, Logistic Department, Finance Department, Costing Department, and Commercial Department etc. So managing of Inventory is having wide Scope in manufacturing Company.

“INVENTORY MANAGEMENT” Statement of the problem
“Inventory management and its effects on working capital”

Management problem BSPATIL
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Management is feeling that their huge amount of working capital is held up, so the management wants to know whether they can reduce it through inventory management.

Research problem
As above stated management problem the study was carried to know how inventory management helps in proper maintenance of working capital, so the title of this study is “ inventory management and its effect on working capital”

Objectives of the study
1. To study the inventory management based on the ratios 2. To find out the impact of inventory on working capital. 3. To study the inventory management and its effective control through various techniques. 4. To suggest the measures for improving the inventory level.

Scope of the study
Inventory management being a very important concept in all the company’s having a void coverage often calls for the managerial attention. In the modern times inventory management has become the integral part of the all companies. So all the firm gives special importance for inventory management. The major objective of the study is to examine the effectiveness of inventory management system adopted by Akash industry; the study mainly focuses on the techniques used by the company to control the inventory. The study also covers other areas like the financial ratios for the period of 2004 to 2007.

1 To study the different accepts of Inventory Management.

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Primary Data: 1. 2. Interaction with personnel of the company Direct Observation in Inventory

Secondary Data: 1. 2. 3. 4. 5. Balance Sheet Turnover Statements Monthly Inventory Statements Company Records Internet

Tools Used:
MS-Excel has been used for calculations.



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if not provided by the customer. METAL FABRICATION Metal fabrication is a value added process that involves the construction of machines and structures from various raw materials. but fabrication shops generally concentrate on the metal preparation. RAW MATERIALS Standard raw materials used by metal fabricators are. ENGINEERING The fabricator may employ or contract out steel detailers to prepare shop drawings. Small businesses that specialize in metal are called fab shops. applies to the building of machines. and if awarded the contract will build the product. usually based on the engineering drawings. Manufacturing engineers will program CNC machines as needed. 1. which the fabricating shop will use for manufacturing. Steel fabrication shops and machine shops have overlapping capabilities. A fab shop will bid on a job. BSPATIL Page 4 . welding and assembly aspect while the machine shop is more concerned with the machining of parts. shaping and assembling components made from raw materials. structural frames for buildings and heavy equipment.INVENTORY MANAGEMENT APEX AUTO LTD. and hand railings and stairs for buildings. structures and other equipment. loose parts.. OEM's (Original Equipment Manufacturers) and VAR's (Value-added Reseller) Typical projects include. When used as an industrial term. 2. Fabrication shops are employed by contractors. by cutting.

. are similar to miter saws but with a steel cutting abrasive disk. also known as chop saws. Plasma and laser cutting tables. W beams. Burn tables are CNC cutting torches. The most common way to cut material is by Shearing (metalworking). BSPATIL Page 5 . Plate steel is loaded on a table and the parts are cut out as programmed. The support table is made of a grid of bars that can be replaced. Abrasive cut-off saws. CUTTING AND BURNING The raw material has to be cut to size.. with a carousel of different punches and taps. • • Plate Metal Formed And Expanded Metal o o o Tube stock. Some very expensive burn tables also include CNC punch capability. Special band saws designed for cutting metal have hardened blades and a feed mechanism for even cutting.INVENTORY MANAGEMENT APEX AUTO LTD. Fabrication of structural steel by plasma and laser cutting introduces robots to move the cutting head in three dimensions around the material to be cut. are also common. usually natural gas powered. Cutting torches can cut very large sections of steel with little effort. C-channel. CDSM Square stock Sectional metals (I beams. and Water jet cutters.) • • • • Welding wire Hardware Castings Fittings 3.. This is done with a variety of tools.

or per his own judgment if no welding details are provided. 5. magnetic based drills along with other portable metal working tools. mills. The cut plate is placed in the press and a v-shaped die is pressed a predetermined distance to bend the plate to the desired angle. 4. welding in a staggered fashion. Wing brakes and hand powered brakes are sometimes used. Rolling machines are used to form plate steel into a round section. The formed and machined parts will be assembled and tack welded into place then re-checked for accuracy. English Wheel or Wheeling Machines are used to form complex double curvature shapes using sheet metal. Special precautions may be needed to prevent warping of the weldment due to heat. if welding is detailed.. BSPATIL Page 6 . 6. These may include re-designing the weldment to use less weld. Tube bending machines have specially shaped dies and mandrels to bend tubular sections without kinking them. Welding Welding is the main focus of steel fabrication.INVENTORY MANAGEMENT APEX AUTO LTD. The welder then completes welding per the engineering drawings. metal lathes. A fixture may be used to locate parts for welding if multiple weldments have been ordered. FORMING Hydraulic brake presses with v-dies are the most common method of forming metal. Machining Fab shops will generally have a limited machining capability including.

Straightening of warped steel weldments is done with an Oxy-acetylene torch and is somewhat of an art. The steel will have a net contraction. and straightening operations after welding. primed and painted. A highly skilled welder can remove significant warpage using this technique. in the direction of the sweep. linear sweep. Heat is selectively applied to the steel in a slow.. covering the weldment in sand during cooling. BSPATIL Page 7 .INVENTORY MANAGEMENT APEX AUTO LTD. upon cooling. Steel weldments are occasionally annealed in a low temperature oven to relieve residual stresses. The finished product is then inspected and shipped. using a stout fixture. Any additional manufacturing specified by the customer is then completed. 7. FINAL ASSEMBLY After the weldment has cooled it is generally sand blasted.

.com Nature of the organization : Basically this company is heavy fabrication Company. Road Dharwad. Bistapur. India Fax: 0836-3293214 Tel: 0836-3293214 E-mail: pip@apexautolimited.580007.831001. COMPANY PROFILE Name of the company Address of the Head office : : APEX AUTO LTD M-1 phase.B.I. TATA kandra main road. 2409041 & 2381346 E-mail: info@apexautoltd. JAMSHEDPUR. Address of the UNIT II Dharwad : APEX AUTO LTD (UNIT II) Block no: 2 Telcon premises. BSPATIL Page 8 . They are manufacturing back hoe Loader components and excavator Components Type of organization : Apex auto limited company is private limited Company industrial area ADITYAPUR. INDIA Fax: 91-657-2424526 WEBSITE: www. K.INVENTORY MANAGEMENT APEX AUTO LTD. Fax: 0657-2200010 Tel: 91-657-2408715. JAMSHEDPUR-832109 Address of the registered Office : Nataraj mansion.apexautoltd.

and so on. booms. dozers. Deliver on time. 1200 lakhs. we have fabricated more than 10. arms. we're proud to have been entrusted with the single share of business for all major fabrications that go into the making of TATA Hitachi's top selling excavators. Apex eases the load on them by supporting the industry with precision engineered sub-assemblies and major assemblies that can go directly into their equipment.INVENTORY MANAGEMENT APEX AUTO LTD.. 342 lakhs. buckets.000 components of this particular model alone. We can fabricate it. ports. and so on. super highways. A growth of over 350% per annum. Promoted by Mr. As a case in point. Apex today has a capital outlay of Rs. Over the last 5 years. the EX-60. such as revolving frames.") Apex Auto Limited is a publicly quoted company with a number of shareholders. main frames. power projects. Atul Taunk in 1995 with a modest capital outlay of Rs. VISION To be recognized as a premier QUALITY manufacturer and supplier fabricated components. every time. embodying thus the spirit of commitment and humanity. MISSION • • As per customer schedule requirement fulfill it. both Indian and Foreign. An eye on product quality and integrity Page 9 BSPATIL . ABOUT ORGANIZATION Apex Auto Limited ("If you can imagine it. Achieved by producing thousands of dynamically stressed machined components for the construction equipment industry The raison deter of Apex is that the emerging scenario in post liberalized India indicated that the nation was poised to go in for massive infrastructure building: roads. This would put immense pressure on manufacturers of earthmoving equipment.

The 3rd because deals with what is made ? Based on our customer's drawings and design. thereby offering a cost advantage to all our clients.Greek inventor of the Science of Logic . Why Apex? Aristotle . The 2nd because deals with how is it made ? Apex has state of art Material Processing facilities including Indias largest laser cutting machine.recommends studying the theory of 'The 4 Becauses' before making your choice Why Apex for your Machined fabrication ? The 1st because deals with what is it made of ? Apex uses only prime quality steel sheets and plates procured from leading players in the industry .Tata Steel and SAIL. And excellent Production Engineering systems set up by a highly experienced and technically qualified team of engineers.. Apex manufactures dynamically stressed machined fabrications conforming to all the specifications laid down by the customer. The 4th because deals with why is it made thus ? Apex follows the first three precepts so that the end customer gets a world-class product which will withstand the ultimate test of time. BSPATIL Page 10 .INVENTORY MANAGEMENT APEX AUTO LTD. • Highest productivity.

Arvind Gaur. STRONG PRODUCT DEVELOPMENT As per the specification from Telcon the new product is been developed 1.. one is Apex auto Ltd Unit I and the other is Apex auto Ltd Unit II b) Unit I is headed by Mr. PROFESSIONALLY MANAGED: a) Company has two units in Dharwad. Pravat Kumar Rath BSPATIL Page 11 . KEY AWARDS WON  For safety in manufacturing process awards (less accident in manufacturing process) for continuous 3 years form Telco construction equipment limited  For MINIMUM REJECTION award form Telco construction equipment limited SWOT Analysis of the Company APEX AUTO LID KEY STRENGTHS 1. STRONG MERCHANDISING TEAM Technically qualified and high skilled Merchandising department is another asset of the company. Unit II is headed by Mr. who plays a major role in executing the orders utmost efficiently to the satisfaction of Buyers.INVENTORY MANAGEMENT APEX AUTO LTD. 3. By the highly qualified internal engineering department 2.

INVENTORY MANAGEMENT APEX AUTO LTD. BSPATIL Page 12 . 8. FACTORIES ENGINEERED TO PRODUCT SPECIFIC: All their manufacturing units are engineered to product specific and managed by effective and efficient internal engineering department. they have a rigid control on their quality control system where by they ensure that all the raw materials are produced as per their quality standard level before it gets dispatched to their factories. PRE-SHIPMENT INSPECTION TO MAINTAIN ZERO-CLAIM FROM BUYERS: A thorough Inspection by In-house Quality Control team and pre-shipment Inspection by buyer representative for all their products helps company to maintain zero-quality claims position with all their buyers. such as in Dharwad and Jamshedpur to support their quality control team to carryout the various quality tests at all level onwards to ensure that the product is produced according to their quality in-house.. 4. However. IN HOUSE LAB: They have a lab situated in the major procurement centers. which has given quality production consistently. SOURCING OF RAW MATERIALS UNDER VIGILANCE OF QUALITY AUDIT SYSTEM: They source all their raw materials 100% from within India. 6. 7. 5. QUALITY CONTROL SYSTEM: There is an independent quality audit team in process control system in all the factories.

INVENTORY MANAGEMENT APEX AUTO LTD. Telcon construction equipment limited APEX AUTO LTD KEY THREATS More-qualified competitors BSPATIL Page 13 . timely deliveries and commitment towards work. 9.e. APEX AUTO LTD KEY OPPORTUNITIES Chances to get more products to manufacture form the Buyer i.. They have been awarded for 3 consecutive years for minimum rejection and for safety in process of manufacturing by Telco construction equipment limited APEX AUTO LTD WEAKNESS No such entity has been identified so far. quality. CONFIDENCE OF THEIR BUYERS: All the buyers as of today have been working with them since decades and they started with them on continues basis with enhanced volume. This has given them huge confidence as the confidence level of their buyers is very high in their products.



Managing Director General Manager Production Planning & Finance Manager Control Manager ORGANIZATION STRUCTURE CEO Human Resources Assistant General Manager Administration Assistant Production Assistant General Manager Supply Chain Mgmt Head Production department Head Quality Assurance Head Machine Department Head Store Supervisor Production Supervisor Assistant Q. A Machine Operators Page 16 BSPATIL Subordinate Members Workers Helpers ..INVENTORY MANAGEMENT APEX AUTO LTD.

Engineers. they firstly check the organization culture which type of employees needed in organization and they also check employment condition in unit. workers and Fabrication Experts. since it is the human beings that operate it. welfare. draft men. Gas cutters. BSPATIL Page 17 . community development disciplinary actions etc. (As per Indian Factories Act 1948. Diploma Holders.. medical facility etc. This department is concerned with implementation of the plans.. Let’s go through the process of the Recruitment in Apex Auto Ltd Unit II. This department looks after the subsidiaries like recruitment selection training and induction. with the welfare of the plant. stimulating and encouraging them to apply for the job. The above meaning says that every organization want skilled workers so Apex Auto Ltd Unit II also recruit candidates as follows . Personnel Department This department is almost like a human brain. 1. security.INVENTORY MANAGEMENT APEX AUTO LTD. guesthouse.. ITI welders and fitters. with the industrial relations and above all safety and security of the plant and the work force is its prime concerns.) Team Apex Professionally managed with a rich blend of experience and enthusiastic youth. canteen. Recruitment is process of searching the prospecting candidate.

and then they receive the calls then access their CV’s. This schedule) department is guided by the main motto the plant and other departments working. then they check the candidates interest after that they arrange meeting for selection process Selection process position.. and contact search. as per the demand this department does the work of receiving and issuing of materials. Selection is a process of checking the candidate’s knowledge. Let’s have a look on the flow chart of the purchase of raw materials in Apex Unit II Quotations request to one or more vendors according to requirement Quotations Comparisons Best Negotiation Purchase Order creation Purchase Order send to vendor (supplier) BSPATIL Page 18 Follow Up and procure the material for production . 3. So the purchase department does the creation (As per customer of sub contractors and vendors. In manual searching process they search the employee in plan search. Client review adv and Place adv. In order to make the indenting work efficient it has the system ofMaterial sub contractors. Purchase Department Against the approved purchase requisition the department purchases of raw material semi finished goods and Accessories and other needs of the various departments. In advertisement they give firstly the adz’s like Draft Adv. and qualifications etc to select and place the candidate their correct 2. experience.INVENTORY MANAGEMENT APEX AUTO LTD. Skills. Stores Department The raw materials are stored separately under material cell in production department. They are searching the candidates in two ways one is Advertisement and the other is manual searching. identity search. behavior.

Dispatch Department The dispatch of materials and finished goods is done in a very efficient way.120 Arm. The below showing is the manufacturing process of Excavators-70 Boom. our infrastructural facilities have been meticulously planned out with an eye towards satisfying the exacting standards of world class players in the Earth Moving Industry. Heavy Duty Bucket. Narrow Bucket. Boom and EXCAVATORS 70. Arm.Production Department This department entrusted with the task of the production of Dozer Blade. Loader Bucket. 110. Boom. Back Hoe Main Frame.INVENTORY MANAGEMENT APEX AUTO LTD. Arm. Let’s have a look on the process of manufacturing process in Apex Unit II. 110. Revolving Frame and Track Frame. 5. 4. Following are the components. 120. Loader Arm and EXCAVATORS 70. BSPATIL Page 19 . JHON DEER (JD) Boom. they are manufacturing BACK HOE LOADER COMPONENTD & EXCAVATOR COMPONENTS. Counter Weight.. basically this company is heavy fabrication company. From our very inception at Jamshedpur in 1996 and at Dharwad in 1999.

TA 00233/01. IN FIXTURE TA 00233/08 SUB ASSEMBLY 1ST STAGE TA 01164/00. TA00233/08.INVENTORY MANAGEMENT APEX AUTO LTD. TC 00558/02(LH) BEVELING OF PLATES TA 00233/01. Flow chart of Excavator – 70 BOOM END BRACKET ASSEMBLY TC 00558/01(RH). TE 20790 TA 00233/03 CONTINUE Page 20 . TA 00233/27. TA00233/05.. TA22033/07. TA00233/06 TA00233/07 OUT OF FIXTURE 1 STAGE WELDING ST BSPATIL 2ND STAGE ASSEMBLY TE 20789.

INVENTORY MANAGEMENT APEX AUTO LTD. TA 00233/10 TA 00233/04 LUG FITTING TA 00233/14. TA 00233/17. INSPECTION Total length 3720+/. TA 00233/15. CONTINUE OUT OF FIXTURE 2 STAGE WELDING ND IN FIXTURE TA 00233/09. TA 00233/16.. Bottom lug distance Rejection/ Rectification ASSEMBLY OUT OF = FIXTURE TA 00233/02 ROBOT WELDING LEFT OVER WELDING TA 0233/26 FIT AND WELD BSPATIL SETTING Page 21 CONTINU .4mm Top lug distance WRT Boom End Bracket.


70 Boom is having several steps already you know in the flow chart now below showing manufacturing process in detail 1.. Then these two jointed by the plate Back up plate (TA 00233/19). OK Manufacturing process of Ex-70 Boom Manufacturing process of Ex. After that back up bars are join at the bottom of both 20mm Bkt plates. RAW MATERIALS In every manufacturing process raw materials must required there for APEX AUTO LTD (UNIT II) purchase raw materials from its main branch at JAMSHEDPUR and form Apex Auto Ltd (Unit I). Then the stores department sends materials to production department for production 2. BSPATIL Page 23 . Then they join 20mm Bkt Plate (LH) (TC 00558/02) and TA 00233/11. Some materials directly comes to Unit II but some materials firstly comes to Unit I and after some process it is send to Unit II. BOOM AND BRACKET ASSEMBLY In this process Boom and Bracket assembled or produced.INVENTORY MANAGEMENT APEX AUTO LTD. Here firstly they join 20mm Bkt Plate (RH) (TC 00558/01) and TA00233/22 according to the diagram. then they join one square plate for maintaining required dimensions after welding of all this parts this complete the manufacturing of Boom And Bracket Assembly.

BSPATIL Page 24 . IN FIXTURE In this process firstly prepared Boom and Bracket is joined by using plates such as Cover plate 6mm (TA00233/09) and Cover plate 8mm (TA00233/10). OUT OF FIXTURE FIRST STAGE WELDING After completion of Sub assembly first stage each part is manually weld in this process. 5. After that inside of the BOSS they join BOSS Back up Plate (TA 00233/27). after that there is some place which is empty so that place is been filled by plates Taper side Plate(TA00233/04) 2 plates according to diagram.. So this process finishes boom and bracket assembly. 8. OUT OF FIXTURE In this process second stage welding process is done manually.INVENTORY MANAGEMENT APEX AUTO LTD. after that Side bend plate RH(TA 00233/08) is joined according to diagram so this complete Sub assembly first stage. Side bend plate LH(TA 00233/07) and side bend plate RH(TA 00233/08) 4. 3. 6. IN FIXTURE SUB ASSEMBLY 1ST STAGE In this process one sub assembly will be done in this stage BOSS (TD01164/00) is joined to Top rolling plate (TA 00\233/01) at one side then at the top of the BOSS they join Side bend plate LH (TA 00233/07). Then in the middle of Top rolling plate and Side bend plate they join Gasset plate(TA00233/05) and near to that Bend Gasset plate is joined with required dimension. BEVELING OF PLATES Some plates beveled by Unit I and those plates are Top rolling plate(TA 00233/01). SECOND STAGE ASSEMBLY In this process Back up bar (TE20789) 03 Back up bar(TE20790) are attached in the inside part of Bottom rolling plate (TA00233/03) at the right side with required dimension according to diagram 7.

Firstly they set the programs to the robot for welding the components. 12. ROBOT WELDING Robot is a programmable multiplication. 9. tools or specialized devices are t o carry out specific task. and bottom lug distance of the components if there is any problem found then they go for rectification of the component. LUG FITTING In this process Lugs are fitted to the prepared component which are Top lug and bottom lugs and Top washers lugs and Bottom washer Lugs. 10. Total length should be 3720mm if there less difference of 4mm then there is no problem it must not exceed 4mm. then they also check centre point of the component and top lug distance to the boom and bracket.INVENTORY MANAGEMENT APEX AUTO LTD. In Robot welding processed components are weld by Robot machine. Every component has is its own welding program according to the standard drawing of the components.. after installation of the BSPATIL Page 25 . After joining the bottom lugs the top lug is joined to the top of prepared component with required dimension or space so as to complete this process. 11. Firstly bottom lugs are joined to each other and then those lugs are attached to the bottom of the prepared component. In this stage they check total length of the component. INSPECTION This is an important stage in manufacturing process. manipulate design to material part. ASSEMBLY OUT OF FIXTURE In this process they join one Top cover plate (TA00233/02) to the boom or prepared component according to the standard diagram and they also join ‘M’ plate (TA00233/28) attach to the top lugs so this completes the process of assembly.

Vernier and gauges etc. try square. In machining process they have two type of jobs one is milling and the other is boring. Rough stage 2.\ 13. 16. Mig welding wire is been used by the robot to weld the component.INVENTORY MANAGEMENT APEX AUTO LTD.70 boom starts.. 17. To reduce heat in the process they are using coolant oil because it helps to reduce the heat for insert ware and tear and it helps to smooth milling and boring of the component in machining they are having there stages 1. SETTING In this process they maintain required dimension in various parts of the components through the gas heating which includes Organ and Co 15. INSPECTION BSPATIL Page 26 . Ex – 70 program the welding process of EX. Finish Stage In Ex. Semi finish 3. in this process they are using two type of machines one SHW that means hidden control machine and the other is Fanuc control machine. 14. INSPECTION In this process they measure the components by using measuring scale. MACHINING Machining process means removing the rough face as per the standard drawing. In this process they also join BOSS Reenforcement plate (TA00233/26) at the top and bottom side of the BOSS according to the diagram. LEFT OVER WELDING After completion of the Robot welding there are some spaces left which are weld manually by welders.70 boom components are having mainly four bores boss bore must have the size of 75mm and lug bore must have the size of 55mm and bracket must have 60mm.

INVENTORY MANAGEMENT APEX AUTO LTD. DRESSING Dressing is the very important stage in manufacturing process in this process they clean the components by using grinding machine and sander machine to remove spatters chips etc. Vernier 4. Porsity etc 20. BSPATIL Page 27 . 1. DISPATCH After completion of all this processes the quality assurance department checks the quality of the component and after checking they finally dispatch the product so this complete the manufacturing process of EX-70 boom model. Bore dial gauge 2. Proper penetration 3. here they also fit some items to prepare components to according to standard diagram. it has been certified by TELCON. and other quality maintaing institutions. And for its efforts.. TELCON for 6 Years by maintaining a high QUALITY & SKILL. Micrometer 3. Blow Holder area 2. Measuring scale etc 18. 19. Apex Auto Limited is in the service of gaints in the field of Excavator manufacturing Co. the following are the defects we can find by using UT machine. INSPECTION In this process they are checking welding defects in the components by using Ultrasonic Technique (UT) machine. In this process they use the following instruments to check weather the machining process is properly done or not 1.

The term inventory refers to the stockpile of the products a firm is offering for sale and the components that make up the product.. INVENTORY MANAGEMENT Management of inventory assumes importance due to the fact that investment in inventory constitutes one of the major investments in current assets. (iii) Finished Goods: These represent the finished products ready for sale in the market.INVENTORY MANAGEMENT APEX AUTO LTD. (ii) Work in Process: These represent semi-manufactured products which need further processing before they can be treated as finished products. The assets which firms store as inventory in BSPATIL Page 28 . anticipation of need are: (i) Raw Materials: These represent inputs purchased and store to be converted into finished products in future by making certain manufacturing process on the same.

which does not become a part of final product but are required for production process. light bulbs etc. they form a very minor part of total inventory and do not involve significant investment. They may be in the form of cotton waste. (iv) Stores and Supplies: These represent that part of the inventory. Means emphasis role of Inventory Management in different Sectors. Normally. soaps. brooms.INVENTORY MANAGEMENT APEX AUTO LTD.. INVENTORYMANAGEMENT MANAGEMENT INVENTORY 3 V I E W Physical Inventory Management S Logistic Inventory Management Financial Inventory Management BSPATIL Page 29 . oil and lubricants. Let us have a look on Different Inventory Management Views.

Let us see the Meanings of each view one by one. The first hand as shown in the diagram is that Physical Inventory Management. Whenever requirements comes from the production department. is the main motto of Physical Inventory Management.” Benefits for Holding Inventory: Benefits in Purchasing Benefits in Production Benefits in Work-in-Process Benefits in Sales Objects of Inventory Management: Usually. the company is faced with the following conflicting objectives in the area of inventory management: BSPATIL Page 30 . providing of those required materials in a proper manner & providing those at the specified period.INVENTORY MANAGEMENT APEX AUTO LTD. Inventory Management is consisting of 3 hands. The reason behind of dividing these views is: to gather the information very easily and for easy to understanding of each view thoroughly. Physical Inventory Management Meaning: “Keeping of goods is also a type of management.. Second one is Financial Inventory Management and the last one (third one) is Logistic Inventory Management.

Two-Bin System: BSPATIL Page 31 . Excessive storage and Insurance Cost. To carry maximum inventory in order to facilitate efficient and smooth production and sales operations. finance.. differs from the other current assets because only financial managers are not involved. i. The job of the financial manager is to reconcile the conflicting viewpoints of the various functional areas regarding the appropriate inventory levels in order to fulfill the overall objective of maximizing of owner’s wealth. If sufficient stock of finished goods is not available it may not be possible for the company to serve the customers properly and they may shift to the competitors. The inventories once purchased and stored are normally difficult to dispose off at the same value. all the functional areas. Thus. 1. Marketing. Inventory. Product & Purchasing are involved. Risk of liquidity. The under-investment involves the consequences like: b. it can be said that the objective of inventory management is to minimize the investment in inventory without affecting production or sales operations. The over-investment involves the consequences like: i) ii) Unnecessary blocking of funds in inventory and hence loss of profit. as a current asset. If sufficient stock of raw material and work in process is not available. 2. c. To minimize investment in inventory for maximize the profitability.INVENTORY MANAGEMENT APEX AUTO LTD. Rather. Both over-investment and under investment in inventories is undesirable as both involve the consequences. it may result into frequent interruptions in production.

In one group or bin.INVENTORY MANAGEMENT APEX AUTO LTD.” Financial Inventory Management is again divided into three different categories. In another group or bin. a safety stock is maintained to meet the requirements of inventory at times when the stock in the first bin is exhausted and re-ordering occurs. Financial Inventory Management Meaning: “Recording. Under this system. sufficient quantity is kept to meet the current requirements over a designated period of item. BSPATIL Page 32 .” In other words valuation of stocks. and controlling of ordering and holding costs and also maintaining of sufficient valued stocks in Inventory is known as Financial Inventory Management. 1) 2) 3) 1) Based on Valuation Based on Cost Analysis Based on Financial Statement Based on Valuation There are number of generally accepted methods of determining the cost of inventories at the close of the accounting period. the inventory items are grouped into two categories.. maintaining and evaluating of stocks in a value terms is known as Financial Inventory Management. The selection of a suitable method assumes significance in view of the fact that it has a direct bearing on the cost of goods sold and consequently on profit.

the current cost of materials are matched with the current selling price/current revenues. those received first are issued/consumed first and value fixed accordingly. it must be used consistently and cannot be changed from year to year. that is. The merit of FIFO method is that the physical flow of materials matches the flow of cost. Average Cost Method: BSPATIL Page 33 . Note: It may not be out of place to mention that once a method is selected.INVENTORY MANAGEMENT APEX AUTO LTD. the use of inventory is valued on the basis of the inverse sequence of receipts. As the name LIFO suggests. Therefore. First In First Out (FIFO) Method: The FIFO method of valuation of inventory is based on the assumption that the inventory is consumed in chronological order. This matching of current costs with current revenues is the essence of the argument for the LIFO method. Last in First Out (LIFO) Method: Under the LIFO method. This is because of the assumption underlying the valuation of inventory. the cost of goods sold and the value of closing inventory can be determined only after the final lot of the year has been received.. Since the LIFO method assumes that the latest item in is the first item out. according to this method. The discussion here of the methods to value inventory should. the method should be selected in the light of probable effects on profits over a period of years. therefore be viewed in this perspective.

Materials are charged into cost of sales at this average until another lot is received. inspecting & reordering goods received to ensure both quantity & quality. It is also called as setup cost. and (ii) Carrying Costs.. BSPATIL Page 34 . According to average cost method. Excluding the cost of merchandise. Note: There are so many other than these above methods but most wide usefully methods are these three so here we discussed those three methods only. the costs associated with inventory fall into two basic categories: (i) Ordering or Acquisition or Set-up Costs. Like (a) Preparing a purchase order or requisition form & (b) receiving. when a new average unit inventory cost is calculated. These costs are an important element of the optimum level of inventory decisions.INVENTORY MANAGEMENT APEX AUTO LTD. each purchase is added to inventory and an average cost determined. 2) Based on Cost Analysis Cost of Holding Inventory: One operating objective of inventory management is to minimize cost. 1) Ordering Cost: It is the fixed cost of placing & receiving an inventory order.

1. style obsolescence and price decline. fire. They are involved in maintaining or carrying inventory. Those that Arise Due to the Storing of Inventory: The main components of this category of carrying costs are (i) storage cost. technical obsolescence. insurance. depreciation. The Opportunity Cost of Funds : This consists of expenses in raising funds (interest on capital) to finance the acquisition of inventory. Total Cost: The sum of inventory increases. 2) Carrying Cost: The second broad category of costs associated with inventory is the carrying costs. Linking of Costs based and Physical Based Inventory Management: The carrying costs and the inventory size are positively related and move in the same direction. If funds were not locked up in inventory. clerical and accounting costs. (ii) insurance of inventory against fire and theft. the carrying costs also increase and vice-versa.INVENTORY MANAGEMENT APEX AUTO LTD. such as labour for handling inventory. If the level of inventory increases. Economic Order Quantity (EOQ): BSPATIL Page 35 . 2. The cost of holding inventory may be divided into two categories. This is the opportunity cost of funds or the financial cost component of the cost. maintenance of the building and utilities. they would have earned a return. (iv) serving costs. This is compared with the benefits arising out of inventory to determine the optimum level of inventory. (iii) deterioration in inventory because of pilferage.. the carrying costs represent the total cost of inventory. that is.

INVENTORY MANAGEMENT APEX AUTO LTD.. Therefore EOQ is that level of inventory at which total cost of inventory comprising ordering cost & carrying costs is the minimum Formulae for calculating Economic Order Quantity: EOQ = 2AO C Where. A= Annual Quantity O= Ordering Cost C= Carrying Cost Assumptions: BSPATIL Page 36 . How much inventory should be bought in a lot? Should the quantity to be purchased be large or small? Should the requirements of material during a given period (say 6 months or 1 year) be acquired in one lot or should it be acquired in installments or in several small lots? Such inventory problems are called Order quantity problems.

Order Point: Reorder Point: This is the point at which to order inventory-expressed equation-ally as: Lead Time in days X daily usage.INVENTORY MANAGEMENT APEX AUTO LTD. Based on Financial Statement Collateral Strength. 2. The firm knows with certainty the annual usage (consumption) of a particular item of inventory. 3) 1. 1. 3. The orders placed to replenish inventory stocks are received at exactly that point in time when inventories reach zero. Page 37 For having assistance by banks. Safety Stock: It implies extra inventories that can be drawn down when actual lead-time and/or usage rates are greater than expected. The rate at which the firm uses inventory is steady over time. bankers should first evaluate the followings: BSPATIL . Lead Time: It is the time normally taken in receiving delivery after placing orders with suppliers..

. Interests on debt etc. The financial statement provides a summarized view of the financial position and operations of a firm. From this statement it can judge the financial strength of the Company. So here high inventory means. company can judge the stocks/goods level in Inventory. While analyzing of Financial Strength of the Company. Who is the Buyer and his Country’s relationship etc. Inventory Position Some Financial Ratios Payment of all requirements like Income Tax. Wealth Tax. much can be learnt about a firm from a careful examination of its financial statements as invaluable documents/performance reports. The main requirement for Banker is the Financial Statements of 3 to 5 years. which are related to Inventory. 7. Tasks of Financial analyst is to: BSPATIL Page 38 . 2. Because if company is having less inventory than its requirement then company will get less finance from Banks and visa-versa. All required documents.INVENTORY MANAGEMENT APEX AUTO LTD. 4. 3. thus an important aid to financial analysis. Agreement papers of all authorized persons like Debenture holders.. Shareholders etc. The analysis of financial statements is a process of evaluating relationship between component parts of financial statements to obtain a better understanding of the firm’s position and performance. Therefore.. Let us have a look on some Inventory related Ratios and also some important financial ratios those. From evaluating of these Financial Ratios. 5. high in the sense company should have sufficient inventory according to its order. so that company can get loan from Banks. Inventory is also having its own emphasis role. The analysis of financial statement is. Not more than its order. 6.

INVENTORY MANAGEMENT APEX AUTO LTD. relation and evaluation.Ratio Analysis related to Inventory Ratio analysis is a powerful tool of financial analysis. viz. ♦ Suppliers of long-terms debt. ♦ Management of the firm would be interested in every aspect of the financial analysis. A ratio is defined as “the indicated quotient of two mathematical expressions” and as “the relationship between two or more things.. and that the firm’s financial condition is sound.” In financial analysis ratio is used as a benchmark for evaluating the financial position and BSPATIL Page 39 . or by parties out side the firm. financial analysis is the process of selection. In brief. ♦ Investors. Financial analysis is the process of identifying the financial strengths and weaknesses of the firm by properly establishing relationships between the items of the balance sheet and the profit and loss account. Interpretation and drawing of inferences and conclusions. investors and others. 2. The nature of analysis will differ depending on the purpose of the analyst. They analyze the firm’s profitability over time. ♦ Trader creditors are interested in firm’s ability to meet their claims over a very short period of time. who have invested their money in the firm’s shares. owners. creditors. Financial analysis can be under taken by management of the firm. 1) 2) 3) Select the information relevant to the decision under consideration from the total information contained in financial statement. are most concerned about the firm’s earnings. Arrange the information in way to highlight significant relationships.. It is their overall responsibility to see that the resources of the firm are used most effectively and efficiently. on the other hand are concerned with the firm’s long-term solvency and survival. its ability to generate cash to be able to pay interest and repay principal and the relationship between various sources of funds.

Liquidity ratios by establishing a relationship between cash and other Current assets to Current obligations provide a quick measure of liquidity. Liquidity Ratios Activity Ratios Profitability Ratios A. Net working Capital Ratio B. Quick Ratio 3. Types of Ratios: a. Liquidity ratios measure the ability of the firm to meet its current obligations. Following are some of the important liquidity ratios: 1. Liquidity Ratios: Liquidity refers to the ability of the firm to meet its obligations in the Short run.. c. A firm should ensure that it does not suffer from lack of liquidity. Therefore it is necessary to strike a proper balance between high liquidity and lack of liquidity. Activity Ratios: BSPATIL Page 40 . and also that it does not have excess liquidity. usually one year. Ratios help to summarize large quantities of financial data and to make qualitative judgment about to form a qualitative judgment the focus of financial analysis is on the key figures in the financial statements and the significant relationships that exist between them. b. performance of a firm.INVENTORY MANAGEMENT APEX AUTO LTD. Current Ratio 2.



Activity ratios are concerned with measuring the efficiency in asset management. Sometimes, these ratios are also called efficiency ratios or asset utilization ratios. The efficiency with which, assets are converted into sales. The greater the rate of turnover or conversion, is the more efficient the utilization. For this reason, such ratios are also designated as turnover ratios. Turnover is the primary mode for measuring the extent of efficient employment of assets by relating the assets to sales. An activity ratio may, therefore, be defined as a test of the relationship between sales and various assets of a firm. Several activity ratios can be calculated to judge the effectiveness of asset utilization.

1. 2. 3.

Inventory Turnover Assets Turnover Fixed Assets and Current Assets Turnover

Asset Measurement for different methods of inventory valuation:
FIFO Method: Under this method, as noted earlier, inventory is valued on the assumption of chronological cost flow. This implies that the unused/unsold inventory consists of the most recent purchases and, therefore, can be assumed to be valued at current cost. The vale of inventory as show in the balance sheet would reflect the current cost, if FIFO method were used. LIFO Method: According to this method, obviously, the inventory figure would not appear in the balance sheet at the Current Cost. It will reflect rather the cost of raw materials purchased in the past year. Assuming rising prices, the inventory value based on the LIFO method would tend to


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be undervalued. For example inventory purchased as early as six years or more. In that situation, the inventory figure included in the balance sheet would be actually the price paid on the purchase of inventory six years ago. In a period of rising prices, this value would naturally be grossly out of line with the currently prevailing price. This would imply that the balance sheet would not reflect the current worth of the inventory. That the inventory value will not be correct is another way of saying that the balance sheet will present a distorted picture of the affairs of the firms. A possible solution to correct the above distortion in the balance sheet implicit in the under-valuation of inventory with the LIFO method is a modified/adjusted LIFO method. The modified method will, thus, serve the needs of correct income determination as well as correct asset measurement. However, this is subject to a qualification, namely, the current year’s purchase (units) should exceed the current year’s consumption (units). If for reasons such as strike/lockouts, transportation problems, and so on, the current consumption exceeds the current purchases, profits will rise. The increase will depend upon the extent of liquidation of the previous years’ inventory. This increase in profit is termed as liquidation profit, which is equal to the difference between the current cost of inventory and the cost of inventory purchased in the past.


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Logistics Inventory Management
Meaning of Logistics: Logistics is the Organization of Services and Supplies. In other words, logistics is making and taking the permission for sell/exporting the company’s products in foreign countries. In fully export-oriented business this is one of the main department, where this department gets an approval to sell their goods in foreign countries. And also their main intention is to maintain all documents of those that are related to the exporting of their products. Logistics Inventory Management: Yes, already we have observed about the meaning of Inventory Management in the Organization. But in fully export oriented business; Inventory Management is a very important concept. Because every exporter or importer, they do not know about each other who are staying in other countries.


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5. In our Country RBI is lists some banks for intermediating purpose and every year RBI declare some listed Banks as a mediator. Which are also parts of financing the working capital requirements of the Companies. While in export oriented business it is slightly different task. 4. every company/business should need a Working Capital. This Working Capital can also financed by Banks. Interest etc. 3.. 7. 2000.. they should communicate each other through banks only. which are exporting or importing of materials. For producing of materials and selling of those materials. 2000 issued by Reserve Bank of India on October 10.. Who is the Buyer and his Country’s relationship etc. Here Banks can acts as financial assistance for PreShipment and for Post Shipment of Goods. So every company. 6. Before going to detail decision on Banks let us have a look on Commercial Papers. Shareholders etc. Collateral Strength. For having an assistance by banks they should first evaluate followings: 1. BSPATIL Page 44 . Wealth Tax. Agreement papers of all authorized persons like Debentures. 2. Commercial Papers (CPs): In the recent past. Commercial Papers (CPs) have become one of the best methods for financing the working capital requirements of the companies. Inventory Position Some Financial Ratios Payment of all requirements like Income Tax. These banks are listed by Central Bank of that Nation. The companies trying to raise the funds by issuing the CP are regulated by Guidelines for issue of Commerical Papers (CP).INVENTORY MANAGEMENT APEX AUTO LTD. All required documents.

Then. To estimate the requirement of working capital requirement properly. While extending the working capital assistance. For this. 1956. the company will have to approach the bank along with the necessary supporting data. More accurate the estimation of the level of current assets and current liabilities. The margin money stipulation is made by the banks in order to ensure that borrowing company’s own stake in the business and also to provide the cushion against the possible reduction in the value of security offered to the bank. On the basis of estimates submitted by the company. banks play a very major role in financing the working capital requirement of the organizations.. as working capital is the difference between current assets and current liabilities. The percentage of margin money stipulation may depend upon the credit standing of the borrowing company. We will consider the bank as a source for financing the working capital requirement of the organizations under the following heads: Amount of Assistance To obtain the bank credit for financing the working capital requirements. the company is required to estimate the working capital requirement properly. a a company means a company as defined in section 45-I(aa) of Reserve Bank of India Act. the bank may prescribe the margin money requirement. In the Indian circumstances. the bank may decide the amount of assistance that can be extended. 1934. the techniques like ratio analysis. Section 45-I(aa) of Reserve Bank Act. fluctuations in the price of security and the BSPATIL Page 45 . As per these guidelines. These guidelines apply to the companies trying to raise the funds by issuing the CPs. trend analysis etc.. the company will be required to estimate its level of current assets and current liabilities properly. 1934 defines a company as the company as the company as defined in section 3 of the companies Act. more accurate the estimation of level of current capital. can be used by the company.INVENTORY MANAGEMENT APEX AUTO LTD.

the lending bank does not commit any physical outflow of funds. the bank can disburse the amount in any of the following forms: 1.. Non-Fund Based Lending Fund Based Lending. Non Fund Based Lending: In case of Non-Fund Based Lending. directives of RBI from time to time. higher will be the margin money stipulations.” Form of Assistance: After deciding the amount of overall assistance to be extended to the company. Bank Guarantees Letter of Credit Fund Based Lending: BSPATIL Page 46 . the funds position of the lending bank remains intact. The general principle applicable will be. b. higher of security.INVENTORY MANAGEMENT APEX AUTO LTD. The Non-Fund Based Lending can be made by the banks in two forms: a. “more dicey the nature of security. 2. As such.

INVENTORY MANAGEMENT APEX AUTO LTD. c. the funds position of the lending does not affected. In case of Non-Fund Based Lending. f. b. As such. d.. The Fund Based Lending can be made by the banks in following forms: a. But normally no assistance will be available unless the company offers some security in any of the following forms. 1) 2) 3) 4) Hypothecation. e. Loan Overdraft Cash Credit Bills Purchased/Discounted Working Capital Term Loans Packing Credit Security for Assistance: The bank may provide the assistance in any of the modes as stated above. Pledge Lien Mortgage BSPATIL Page 47 . the lending bank commits the physical outflow of funds.

Process of Physical Inventory Maintenance in Apex Auto Ltd Each unit of Apex auto ltd has its own store department that we can call it as Work-inprocess inventory.. For easy to communicate and planning of production activity.INVENTORY MANAGEMENT APEX AUTO LTD. which were sent by suppliers as like challans etc. Only maintaining of documents. This inventory process is fully computerized and here paper work is very less. are only here to maintain as paper documents. Otherwise it is fully computerized. Through computers only Store Department receives Purchase Order and by computer only they send documents of issuing of materials to manufacturing unit.. Apex Auto Ltd Unit II has having only one Godown in Procedures involved in receiving and issuing of materials are as follows: 1) Godown will first get Purchase Order No. Purchase Order Number: BSPATIL Page 48 ..

Guard is not an employee of an organization. Apex Auto Ltd (Unit II) always produces more than its requirements. those materials are only they kept as stocks in Inventory.INVENTORY MANAGEMENT APEX AUTO LTD. For example if Telcon has ordered for 20 EX. It means whatever the materials are requiring for present orders. which they call it as “Buffer Stock”. Before placing any order to suppliers they first checks the materials in inventory as to know about whether materials are available in Inventory or not. If not available in Inventory then only they will place an order according to the requirement.. then purchase Department will sent a notice to Inventory for issuing of those materials. If these old stock is matches the requirements of product which has ordered now by its customers. These old stock may be in form of Raw Material or in form of finished goods. it is very important to note that: purchase department always places an order to those materials which have ordered by Customers/buyers of Apex Auto Ltd (Unit II). In Apex Auto Ltd (Unit II).e.. 2) Receiving of Materials Any materials comes-in or goes-out from the Godown it should be enter in the Gate that is they call it as “Gate Entry”.70 boom then Apex produces 25 EX – 70 i. For every order from customers they make a fresh Purchase Order for purchasing of materials. In some cases. normally it does not have any stocks in its inventory. So. which is maintained by security Guard. 20% more than its requirements. So the remaining or excesses material they call it as “Buffer Stock”. He is a contact-based employee. This PO is comes from Purchase Department. BSPATIL Page 49 . This Purchase Department gives a number for the each order made by Purchase Department only. materials may be in Godown.

.” Here they inspect the following points: a) Is it our supplier only and is this parcel is for us only? d. Received Document”. Challan Date.INVENTORY MANAGEMENT APEX AUTO LTD.” This daybook is consisting of information like Challan No. No. Mode of Transport. Description of Materials. Is it having all required documents like Octroi etc. Style No. this inventory department makes one document. Supplier’s Name... e. and Quantity. P. When Inventory receives materials it first inspects some samples. Is that Challan consisting the correct information of materials? After approval of materials by sample inspection. which is they call it as “ Goods BSPATIL Page 50 . inventory department put these details in manual book. GRN Type (In-store). 3. Issuing of Materials After approval by inspection department.O.. Date... Is it having all required Challans or Invoices and also does it approved by authorized person? f.. Gate Entry No. g. all Details of Materials and received quantity and actual quantity also enters there.. Quantity ii. This Goods Received Document is consisting of GR No. Priority No.. In this inspection department they inspect in-details of materials. they call up as “Spot Inspection.. this documentation is called as “Day Book. Status. etc. Challan No. materials will send to inspection department. transporter’s Name. After completing of these processes. Gate Entry Date. so for it. Date. Are these received materials according to the Purchase Order? Like i.

” These Buffer Stocks will be utilize when company get the same type of Order. which are return back from manufacturing units because of excess or surplus occurs while manufacturing of products. they always orders 20% more than its requirement to meet the requirement of next month. 5. According to that Card Inventory department should send the materials to manufacturing department. quantity. After receiving of materials by manufacturing department from inventory department they issue one document about received of materials. Manufacturing Department uses these materials for manufacturing purpose. In manufacturing process sometimes it may happens like some materials get damages and some are not fully matches with requirements. 4.INVENTORY MANAGEMENT APEX AUTO LTD. This excess or surplus exists because of purchase department. Rejected Materials: BSPATIL Page 51 . description of materials etc. Then those materials will be return to inventory.. Inventory issues these materials (Buffer Stock) only when it receives instruction from Merchandising and purchasing Department. So these materials are kept in Inventory as name it as “ Buffer stock. This report will send to inventory and also to Merchandising Department. After utilizing of all these materials by manufacturing department they will send one document called “Order Completion Report” (OCR). Merchandising Department will send one card called “ Job Card” which it consisting of all details of materials requires to produce a product. Return Back Materials from Manufacturing Units: Inventory takes those materials. This report consists the information of Percentage of Utilized Materials for particular order and percentage of wastage of materials.

semi finished goods are stored in this section and processed to the manufacturing as when required and old stock and rejected items are also stored in this section. of Quantity rejected. Inspection department make the rejection of materials.. No. & Date..” In this card it involves Name of Supplier. Five sections are as follows: Sections in Inventory D201 All bought out items are been stored here and processed to the manufacturing as when required D202 All consumables and tools and maintenance accessories are been stored in this section D203 All raw materials like direct. Some times supplier may issue new materials in place of rejected materials. who helps in maintaining of materials at specific area. Each is section handling by only one persons. These rejected materials are kept in separate section by Inventory Department.INVENTORY MANAGEMENT APEX AUTO LTD. Gate Entry No. with the help of 3 to 4 assistants. Sections in Inventory: Inventory is again divided into 5 sections. Or he may give some compensation for wrong supply and that is after paying of full payment of materials. That is called “Rejection Card.. D204 Gas tank and cylinders is stored in this section. Description of Materials. Challan No. Challan Date. D205 BSPATIL Page 52 . Inventory department inform to Purchase Department and also notice to Suppliers about rejection of materials. Reason for rejection etc. when materials are not as per requirements and not as per the order.

which occupies in the Godown. They make the agreement of supplying materials only at once. In other words they purchase materials at a time for specific order. There is a reason for purchase materials from multiple suppliers. So this method is suitable for this type of industry because of same orders from customers. So there must me no stock outs in the production process Apex always purchases at bulk but by schedule wise.INVENTORY MANAGEMENT APEX AUTO LTD. And they negotiate the price only at once that is before supplying of materials and once their agreement is over then they provide schedule to supplier to supply the materials at a specific time and at a specified quantity. All finished goods are stored in this section Purchasing Procedure of Materials In Apex they purchase materials at from a multiple Suppliers. The reason is if one supplier delays to fulfill the supply then there must be alternative supplier for it to fulfill the requirement. BSPATIL Page 53 .. So it reduces the spaces.

There is no separate Godown for Finished Goods/Products. They do not consolidate these goods. here goods are not completed yet and not these are in fully raw materials form. So it is not necessary to have another Godown for Finished Goods. As we have already seen that this Apex is having only one Godown and every unit is having its own Store Departments. some other costs.INVENTORY MANAGEMENT APEX AUTO LTD. So they directly supply finished products to its customers. Finished Goods Valuation of Finished Goods in Apex is at 10% less than Selling Price of those finished goods. And dispatching of these products is directly by each unit. these goods are includes some labour cost.. they dispatch these finished products directly by each unit. Every unit is having it’s own Finished Goods Godown. In that Godown only they store these Goods. WIP Store Now we come to the WIP Store. Finished Goods are in the sense these goods should be ready to dispatch. Apex auto ltd (Unit II) has only one customer that is Telcon. So in valuation of WIP they valuate at Raw Material Price of that goods PLUS incurred cost to produce till now. And in Apex it is as follows: Yes. So in valuation matter it is having slightly different way. As we know that Work In Process Store means Semi-finished Goods. BSPATIL Page 54 .

Logistics Inventory Management There is a department called Logistic Department in Apex Auto Ltd. And this is entirely different from Logistic Department. which sells its products and maintains all documents. Marketing Department is one.. So Logistic Department is one of the important front-office Departments. Banks will provide these working capital BSPATIL Page 55 . but also it will concern for taking loan for its working capital. which takes the orders from its customers. But Marketing Department is comes into picture before production process starts. Logistic Department is not only taking the approval for selling its products. Logistic Department is one. like Marketing Department. which is concerning about selling of goods and maintaining of all documents related to exporting of products and also taking the permission from banks to sell specific products in specific countries. And Logistic Department comes into picture only after the production process completes.INVENTORY MANAGEMENT APEX AUTO LTD.

following credit rating agencies have been BSPATIL Page 56 . Company has been sanctioned working capital limits by banks. deferred revenue expenditure etc. (CRISIL) Presently. Borrowed amount of company is classified as a standard asset by the bank.INVENTORY MANAGEMENT APEX AUTO LTD. Commercial Paper is an unsecured promissory note issued at a discount. There are so many ways to get loan for working capital requirement. Before the company issues the CPs it is required to obtain satisfactory credit rating from an approved credit rating agency. Free Reserves include share premium and debenture redemption reserve but do not include revaluation reserve. Credit Rating Information Services of India Ltd. requirements in two senses: one is on Pre-Shipment Loan and another one is Post-Shipment Loan.. 3. Note: Tangible net worth means share capital plus free reserves duly reduced by intangible assets like accumulated losses. The rate of discount is required to be decided by the issuer and is not regulated.. the tangible net worth of the company as per latest audited balance sheet is not less than Rs. a. approving by RBI for this purpose. 2. Apex is taking loan for Working Capital Requirements from Axis Bank. Who can issue the CP: A company will be eligible to issue the CP provided: 1. 4 Crores. Apex get loan for Working Capital requirement either through Commercial Papers or through Letter of Credit.

The rating so obtained by the company should be current and should not have fallen due for review. Individuals 5. The amount of CP shall be within the overall limit sanctioned by the Board of Directors.INVENTORY MANAGEMENT APEX AUTO LTD. Every issue of CP. A CP has the denomination of Rs. k. i. including the renewal. (ICRA) c. If the rating is given by any other agency.... 5 Lakshs and every single investor should invest minimum Rs. It can be issued a “stand alone” product. A CP can be issued for the maturity period of 7 days to one year. b. Investment Information and Credit Rating Agency of India Ltd. Banks 6. FITCH Rating India (P) Ltd. Foreign Institutional Investors Nature of a CP: h. BSPATIL Page 57 . j. 5 Lakhs in CP.. Who can invest in CP: Following persons can invest in the CP 4. Credit Analysis and Research Ltd. Unincorporated Bodies 8. (CARE) d. Non-resident Indians 9. equivalent minimum rating will be required. will be considered to be the fresh issue. Corporate Bodies incorporated in India 7. Banks will be free to adjust the working capital limits after considering the CPs issued by the Company. The minimum credit rating required is P-2 of CRISIL.

. It shall also verify the documents submitted by the issuing company and issue a certificate that the documents are in order. BSPATIL Page 58 . It will satisfy it-self that company has obtained satisfactory credit rating. It will not be out of place to mention here that CP is not treated as deposit as per the provisions of Section 58-A of the Companies Act. Investors shall be given a copy of IPA certificate to the effect that the issuing company has a valid agreement with the IPA and documents are in order. The issuing company shall disclose to the potential investor its financial position. Procedure for issuing the CPs: Every company issuing the CP should appoint a scheduled bank as the Issuing and Paying Agent (IPA). IPA should also certify that it has valid agreements with the issuing company. After the deal is confirmed. 1956. The issuing company shall arrange to place the CPs on private placement basis with the inventors. Apex Auto Ltd (Unit II) has setup in Telcon Premises so as we know earlier that Apex Unit II is having only one customer that is Telcon so for short distance there is no need of logistic department in Apex Unit II it is handled by Purchase department incharge is Parmod Singh. the issuing company shall issue physical certificates to the investor.INVENTORY MANAGEMENT APEX AUTO LTD. Every issue of CP should be reported to RBI through the IPA within three days from the date of completion of issue.

always purchase department purchases 20% more than its order. Financial Inventory Management Already we saw about Logistic Inventory Management. If these old stock are after Finishing of production process. Valuation method for Old and Rejected Stocks: Old Stock: This old stock means excess of materials from specific order. Then these are valuating on selling price of same products to the customer. As already viewed in Physical Inventory Process that. Let us see how Apex valuates the old and rejected stocks in financial terms and also have a look on the inventory ratios. So that remained or excess materials are said to be “Buffer Stock” These Old stock are in the form of Raw Materials then valuate it according to purchasing of those materials. BSPATIL Page 59 .INVENTORY MANAGEMENT APEX AUTO LTD..

If materials are Finished Goods then taking Selling Price as a value for valuation of Old Stock in Godown.INVENTORY MANAGEMENT APEX AUTO LTD. In easy words it can be said that if materials are Raw.  Apex orders the materials to suppliers only at once and according to the schedule supplier will supply the materials. Rejection of Finished Goods. Rejection of Materials during the Production Process and Rejection of Materials after the Production Process that is.. This is not applicable to Apex by virtue of its Business activities. And for Rejection of Finished Goods valuate at Purchase Value and Fully incurred Costs as said now.  Because to fulfill the requirements in required time limit. EOQ BSPATIL Page 60 . Rejection of WIP Materials then valuate as Purchase Value Plus its partly incurred Costs like Labour. Rejected Stocks: Again these are divides into three parts.. they purchase the materials only from multiple supplier. Holding or Ordering Cost These costs are every important in manufacturing companies to minimize the cost. Rejection of Raw Materials i. Yes. Depending on Shorter order cycle Apex can hold entire stock well before order starts and also Apex can have a full stock at a time before starting process of product of that specific order. Rejection of Raw Materials is valuating on Purchase value of those materials. Overhead Costs etc. let us have a broad view on statement by following points:  In Apex. Because.. then taking as Purchasing value for valuation purpose. before sending to Production Process.e.

Lead Time Apex purchases materials from multiple supplier and by on schedule basis to supply materials.INVENTORY MANAGEMENT APEX AUTO LTD. BSPATIL Page 61 . Reorder Point: This is the point is also not having much importance because of nature of Business.. EOQ applicability due to the nature of Business as above said is not possible. So this is also not applicable in this type of business.

74 BSPATIL Page 62 .M 576.. Raw material turnover ratio: Raw material turnover ratio is velocity at which raw material converted into goods ready for sale.608.082 36. Financial Ratios related to Inventory.27 1.779.490 Year 200 8 200 7 200 6 Ratio 10.922 371.INVENTORY MANAGEMENT APEX AUTO LTD.484.75 10.137. Formula: Material consumed / Average raw material Raw Material Turnover Ratio Raw material consumed (Rs) Avg R.002.223.266 132.873 230. If raw material turnover ratio is high then company is efficiency converting into finished goods.236 53.

Formula: 360 /Raw material turnover ratio Holding period of raw material Year Total Days Ratio Days 2008 360 10.INVENTORY MANAGEMENT APEX AUTO LTD.27 35 2006 360 1. Ratio 12 10 8 6 4 2 0 2008 2007 Years 2006 Ratio Form above graph we come know that raw material turnover ratio is increased rapidly in 2007 from 1.74 in 2006 to 10.27 for 2007. Indicates that company is converting raw material into finished or semi finished goods very quickly Holding period of raw material: It refers to the number of days taken for the production unit to convert raw material to finish goods.75 33 2007 360 10..74 206 BSPATIL Page 63 .

This is shown in above graph.I.P converted into goods ready for sale. Raw material holding Period 250 200 150 100 D A Y S 50 0 2008 2007 Years 2006 RHP As the raw material turnover ratio is increasing form to 10.P W.I. Formula: Cost of production Average W.I.27 for 2007 it indicates that firm is taking less days for conversion as compared to 2006.12 BSPATIL Page 64 .P turnover ratio is high then company is efficiency converting into finished goods.I.INVENTORY MANAGEMENT APEX AUTO LTD.054. In 2006 conversion period was 206 days but in decreased to 35 days for 2007.P turnover ratio Year Cost of production Avg W. If W.720. Before 2007 there was no production process they were converting semi finished goods into finished products hence to start their own production process they hold the raw material in 2006 Work in Process Turnover ratio: Work in process turnover ratio is velocity at which W.442 36..I.702 23.P Ratio 2008 849.

197 15.01 in 2006 to 23. Indicates that company is converting semi finished into finished goods quickly Holding period of W.010.98 37. The ratio was high in 2006 as compared to 2007 and 2008.I.12 2008.01. 2007 2006 555.500 361..INVENTORY MANAGEMENT APEX AUTO LTD. The ratio was 37.110.P turnover ratio BSPATIL Page 65 . Formula: 360 W.I.094.839 36.P: It refers to the number of days taken for the production unit to convert semi finished goods into finish goods.347 9.755.01 Work in Process Turnover ratio 40 35 30 25 20 D A Y S 15 10 5 0 2008 2007 Years 2006 Ratio Form above graph we came to know that Work in process turnover ratio is decreasing from 37.

I.INVENTORY MANAGEMENT APEX AUTO LTD.57 9.P Year 2008 2007 2006 Total Days 360 360 360 Ratio Days 23.73 9. Which shown in above graph Finished goods turnover ratio: BSPATIL Page 66 .12 36.57 for 2008 it indicates that firm is taking less days for conversion.01 15..98 37. in 2006 To 15.72. Holding period of W.72 Holding period of W I P 18 16 14 12 10 8 6 4 2 0 Ratio D A Y S 2008 2007 Years 2006 As the work in process turnover ratio is increasing form 9.

054.339 19.094. If finished goods turnover ratio is high then company is efficient.95 33.500 361.940.482 10.G 26.858. Finished goods turnover ratio is velocity at which finished goods converted into for sale.INVENTORY MANAGEMENT APEX AUTO LTD.442 555.. Formula: Cost of goods sold Average finished goods Finished goods turnover ratio Year cost of goods sold 2008 2007 2006 849.35 27.110.008 Ratio 32.243.01 Finished Goods Turnover Ratio 34 33 32 31 30 29 D A Y S 28 27 26 25 2008 2007 Years 2006 Ratio BSPATIL Page 67 .197 Avg F.

54 67. Where the ratio for that particular period was 32.000 145.324 69. Which shown in above graph.443.558.14 BSPATIL Page 68 .95 for 2007.623 98.599 83.INVENTORY MANAGEMENT APEX AUTO LTD.35 decreased to 11.215 65.994.50 121. The normal manufacturing firms have low ratio of inventory total capital employed in the organization.492.465.01 in 2006 to 27. Indicates that company is selling goods little slowly as compared to 2006 but it is bit fast as compared to 2008.. Formula: Inventory / Total capital employed Inventory to capital employed Total capital Year 2008 2007 2006 Inventory employed Percentage 197.333.069 301. Inventory to capital employed: This ratio indicates the relationship between the total capitals employed and inventories it shows how much capital utilized to invest in the inventories other than the other assets.20 for 2008 it is satisfactory. Form above graph we came know that finished goods turnover ratio is decreasing from 33.

Inventory to capital employed 90 80 70 60 50 40 30 20 10 0 ICE P E R C E N T A G E 2008 2007 Years 2006 By observing above graph we can say that the firm investing huge amount in inventories compared to other assets.314.50% in 2008 Inventory to current asset ratio: This ratio indicates the relationship between the inventory and current assets.54% of its capital in inventory in 2007 where as it reduced to 65.000 67.558.684 117.14 58. It shows the percentage of inventory to current assets.069 121.022..623 current assets 331. Formula: Inventory / Current assets Inventory to current asset ratio Year 2008 2007 2006 Inventory 197.INVENTORY MANAGEMENT APEX AUTO LTD.687. which helps the organizations in deciding the current assets policy which also affect the liquidity position of the organization.10 BSPATIL Page 69 .465.60 51.625 Percentage 59.504 237. It invested 83.994.

INVENTORY MANAGEMENT APEX AUTO LTD.60% in 2008.994.465.10% and it decreased to 51.14% in the year 2007 but again it increased to 59.623 414.901. Inventory to current asset ratio 62 60 58 56 54 52 50 P E R C E N T A G E 48 46 2008 2007 Years 2006 Ratio The inventory to current assets ratio in the year 2006 was 58.47 2006 67. Inventory to total assets: This ratio indicates the relationship between the inventory and total assets.93 2007 121.000 540. since the inventory will lock up the huge funds and reduces the profitability of the organization Formula: Inventory / Total assets Inventory to total assets Year Inventory Total assets Percentage 2008 197.069 990.087 19.234 16. The significance of this ratio is it reflects the portion the inventory as a percentage of the total assets.329. It shows that the firm investing 59.38 BSPATIL Page 70 . which helps the management deciding the utilization remaining resources profitably.558.916.60% of its investment is for inventory only..088 22.

Inventory to working capital: This ratio indicates the relationship between inventory to working capital and it also indicates the amount to inventory tied up in the working capital and it also shows the efficiency of inventory management.994.623 Working capital 199.345.INVENTORY MANAGEMENT APEX AUTO LTD.277 Percentage 99.097.069 121.123 146.210 46. Formula: Inventory Working capital Inventory to working capital Year 2008 2007 2006 Inventory 197..38% it increased to 22.20 146. But again it reduced to 19.000 67.465.05 83.93% in 2008.47% in 2007.558.338. It indicates that firm investing only 19. Inventory to total assets 25 20 15 10 5 P E R C E N T A G E Ratio 0 2008 2007 Years 2006 During the year 2006 the rate of inventory to total assets was 16.93% in inventory out of total assets.45 Page 71 BSPATIL .

It decreased to 83. As the raw material turnover ratio is increasing form to 10.74 in 2006 to 10.45% in 2006.27 for 2007 it indicates that firm is taking less days for conversion as compared to 2006. Raw material turnover ratio is increased rapidly in 2007 from 1. It indicates that firm investing huge amount in inventory FINDINGS: 1.20% for 2007 but it increased it to 99. BSPATIL Page 72 .INVENTORY MANAGEMENT APEX AUTO LTD.27 for 2007.. 2. Inventory to working capital 160 140 120 100 80 60 40 20 0 2008 2007 Years 2006 P E R C E N T A G E Ratio In the year the ratio was 146.05% in 2008.

93% in inventory out of total assets. BSPATIL Page 73 .The inventory to current assets ratio in the year 2007 was 58.60% of its investment is for inventory only. 8.93% in 2009.12 2008.95 for 2007.47% in 2008.Company is selling goods little slowly as compared to 2006 but it is bit fast as compared to 2008.01 in 2006 to 27. In 2008 conversion period was 12. The ratio was high in 2006 as compared to 2007 and 2008.20 for 2008 it is satisfactory. It shows that the firm investing 59.86 for 2008 it indicates that firm is taking less days for sale.INVENTORY MANAGEMENT APEX AUTO LTD.60% in 2008. 9. 3.14% in the year 2008 but again it increased to 59.05% in 2008.As the work in process turnover ratio is increasing form 9.As the finished goods turnover ratio is increasing form 10.72.87 in 2007 to 12.35 7.Finished goods turnover ratio is decreasing from 33.In the year the ratio was 146. 6. But again it reduced to 19. 10. It indicates that firm investing huge amount in inventory.01 in 2006 to 23.Work in process turnover ratio is decreasing from 37.20% for 2007 but it increased it to 99. Where the ratio for that particular period was 32. It decreased to 83.38% it icreased to 22. Indicates that company is selling goods little slowly as compared to 2006 but it is bit fast as compared to 2008.57 for 2008 it indicates that firm is taking less days for conversion 5.. 4.10% and it decreased to 51. in 2006 To 15. It indicates that firm investing only 19.45% in 2006.During the year 2007 the rate of inventory to total assets was 16.86 days but in decreased to 11.

We can assume the demand for the goods from past experience. To avoid this problem the following points will help. BSPATIL Page 74 . it is not good for the company because it eats unnecessary investment.. • • Purchase Raw Materials at the time when the stock reaches the minimum level. The purchases should not cross the Maximum limit otherwise the stock kept in stores idle.INVENTORY MANAGEMENT APEX AUTO LTD. • Quantity should be ordered as per the demand. SUGGESTIONS: a) From the findings it is came to know that in the year 2006 the number of days for holding Raw material is more.

• • The inventory should be fast moving so that warehouse cost can be reduced. • We can have more Raw materials which are imported from other countries but carry reasonable stocks which are available locally. Therefore optimum ordering quantity is necessary. BSPATIL Page 75 . which minimizes the cost. c) The company should maintain a safety level and also reordering point so that they come to know at what time they should order for the supply of material and need not to suffer from short fall of required material. we can came to a conclusion that. The finished goods have to be dispatched in feasible time as soon as manufacturing is completed. CONCLUSION After the study.INVENTORY MANAGEMENT APEX AUTO LTD. hence the industry can still strengthen its position by looking into the following. b) If we purchase less quantity of materials at a time it will reduce the carrying cost but increases the ordering cost and vise versa. effectiveness of inventory management should improve in all the aspects..

M. BIBIIOGRAPHY BOOKS • • Financial Management : I. Ashwatappa Page 76 BSPATIL .INVENTORY MANAGEMENT APEX AUTO LTD. hence cost can be minimized.Panday Production Management : K.. • • Optimum order quantity should be maintained. Proper inventory control techniques are employed by the inventory control organization within the framework of one of the basic models like ABC. HML and VED etc.


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