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A PROJECT REPORT ON

“INVENTORY MANAGEMENT SYSTEM”
AT

VARROC POLYMERS PVT.LTD. D-2, MIDC, WALUJ, AURANGABAD, 431136
SUBMITTED TO

UNIVERSITY OF PUNE
IN PARTIAL FULFILLMENT OF

MASTER OF BUSINESS ADMINISTRATION
SUBMITTED BY

YOGESH.R.KULKARNI
UNDER THE GUIDANCE OF

PROF. JANHAVI PATWARDHAN NOVEL INSTITUTE OF MANAGEMENT STUDIES PLOT NO-GP-193G BLOCK MIDC THERMAX CHOWK CHINCHWAD, PUNE-411019
(ACADEMIC YEAR 2010-2012)

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DECLARATION

I, the undersigned, Mr.YOGESH RAMESHRAO KULKARNI hereby declare that the Project Report entitle” INVENTORY MANAGEMENT SYSTEME” written and submitted by me to the university of Pune, in partial fulfillment of the requirement for the award of degree of Master Of Business Administration under the guidance of Prof.JANHAVI PATWARDHAN, is my original work and the conclusions are based on the material collected by myself.

DATE: / /

PLACE: Chinchwad, Pune-411019

Signature of the candidate

(Yogesh.R.Kulkarni)

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ACKNOWLEDGEMENT “Success can never be attained without proper guidance”
Project in an organization is an experience wherein academic knowledge gained from the institute is applied in a practical manner; I had an opportunity to complete my summer project in “VARROC POLYMERS PVT LTD.” The project is great source of learning and a good experience as it made me aware of professional culture and conduct that exits in an organization and guidance are valuable in all aspect of life especially in an academic field. I would like to express my gratitude to Mr. Shyam Pande(FM) who mentors me for successful completion of this project. I also must show my deepest gratitude to Director Dr. Ashutosh Misal and Prof. Janhavi Patarwadhan for their valuable suggestion, guidance, and advice in bringing out this project. Also I would like to express my heartfelt thanks to the staff member of Finance Department, Who helped me in the successful completion of this project. I will always carry fond of these training days.

Date: / / Place: Chinchwad, Pune-411019 Signature (Yogesh.R.Kulkarni)

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INDEX

SR.NO.

PARTICULARS

PAGE NO.

1.

Introduction
Objective Of the Project Topic information Company Profile Theoretical Background Research Methodology Data Analysis And interpretation Findings Recommendations Conclusion

5

2.

7

3.

8

4.

11

5.

30

6.

52

7.

55

8.

69

9.

70

10.

71

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EXECUTIVE SUMMERY
The Project has been conducted at “VARROC POLYMERS PVT LTD.” Varroc Polymers Ltd. was established in 2003.Varroc group are a premier supplier for the automotive industry with full capabilities in design, development and manufacturing. Offering complete capabilities integration sets us apart from our competitors. The objective behind this project is to understand meaning and

importance of Inventory Management. To know various method of inventory control.Tostutdy the various aspect of inventory management of Varroc Polymers Pvt ltd. “Inventory Management Systems” having a great importance in day to day management of the firm. Inventory Management is primarily about specifying the size and placement of stocked goods. Inventory management is required at different location within a facility or within multiple location of a supply network to protect the regular and planned course of production against the random disturbance of running out of materials or goods.

The scope of Inventory Management also concerns the fine lines between replenishment lead times, carrying cost of inventory, asset management, inventory forecasting, Inventory Valuation, Inventory visibility, Future Inventory Price forecasting, Physical Inventory, available physical space for Inventory, Quality Management, Replenishment Returns, and Defective Goods, Demand forecasting. Balancing these competing requirements leads to optimal inventory levels, which is an on-going process as the business needs shift and react to the wider environment. Successful inventory management involves balancing the cost of inventory with the benefits of Inventory. Many small business owner fail to appreciate fully

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the true cost of carrying inventory, which include not only direct cost of storage, insurance and taxes, but also the cost of money tied up in inventory. This fine line between keeping too much inventory and not enough is not the Manager’s only concern. Just in Time (JIT) inventory control is the result of a new emphasis by firms on continuous process improvement. The idea is that inventories are acquired and inserted in production at the exact times they are needed. In this project the theoretical background includes meaning of inventory management systems. Method of inventory control and supply chain cycle. The data analysis includes calculations and projection of future inventory.

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OBJECTIVES

1. To study and Understand the Concept of Inventory Management in Industry

2. To study the inventory turnover

3. To find out the problem areas of inventory control

4. To know the effect of high and low turnover

5. To know how to control the inventory

6. To analyze and calculate the ratio

7. To have the practical knowledge about the organization

8. To make observation and suggestions after understanding

9. Critically analysis of inventory management system

10. To find out the reasons for unsatisfactory result

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TOPIC INFORMATION “Inventory Management” refers to the process of managing the stocks of finished products, semi-finished products and raw materials by a firm. Inventory management, if done properly, can bring down costs and increase the revenue of a firm. How much one should invest in inventory management? The answer to this question depends on the volume and value of inventory as a percentage of the total assets of a firm. The importance of inventory management caries according to industries. For example, an automobile dealer has very high inventories, sometimes as high as 50 percent of the total assets, whereas in the hotel industry it may be as low as 2to 5 percent. The process of inventory management is a continuous one and there are various kinds of solutions available. It is advisable to employ specialized staff for inventory management. The inventory management process begins as soon as one has started production and ordered raw materials, semi-finished products or any other thing from a supplier. Once orders have been placed, there is generally a short period of time available to a firm to put an Inventorymanagement plan in place before the supplies are delivered. Inventory management helps a firm to decide in advance where these supplies should be stored. if a firm is getting supplies of small-sized goods, it may not be much of a problem to store them, but in the case of large goods ,one has to be careful so that the warehousing space is optimally utilized. Form invoices to purchase orders, there its lot of paperwork and documentation involved in inventory management. Several software programs are available in market, which help in inventory management. Like a Tally ERP software by using this software any one can control on inventory. Inventory too many small business owners in one of the more visible and tangible aspects of doing business. Raw materials, goods in process and finished goods all represent various forms of inventory. Each type represents money tied up until the inventory leaves the company as purchased products. Likewise, merchandise stocks in retail store contribute to profits only when their sale puts money into the cash register. In a literal sense, inventory refers to stocks of anything necessary to do business. The stocks represent a largeportion of the business investment and must be well managed in order to maximize profits.in fact,manysmall businesses cannot absorb the types of losses arising from poor inventory management.unless inventories are controlled, they are unreliable,inefficient and costly.

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 CONCEPT: Inventory management is a very simple concept-don’t have too much stock and don’t have too little. Since there can be substantial costs involved in straying above and below the optimal range, careful inventory management can make a huge difference in profitability of a business. Although the concept is simple the process of getting the right balance can be quite a complex and time consuming. Task with without technology. There are tow fundamental questions that must be answered, in order to manage the inventory of any physical item. Q.1) When to order? Q.2) How much to order?  Types of Inventory

RAW MATERIAL

WORK-IN-PROCESS

TYPES OF INVENTORY

SPARE PARTS

FINISHED GOODS

CONSUMABLE

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 RAW MATERIAL Raw material is something that is acted upon or used by or by human labor or industry, for use as a building material to create some product structure. Often the term is used to denote material that come from nature and is in unprocessed or minimally processed state. Iron are, logs, and crude oil, would be examples’ nonhuman related raw material would include twigs and found objects as used by birds to make nests.  GOODS IN PROCESS Work that has been started but not yet completed. This could be project or creative work.(e.g., book, song, film). In manufacturing this can refer to inventory that has been worked on such that it is no longer viable as raw materials while not yet sellable as a finished products; in this case it is more common to use work in process.  CONSUMABLE Consumable is, something that is capable of being consumed; that may be destroyed, dissipated, wasted, of spent. Consumables are products that consumers buy recurrently,i.e., items which “get used up” discarded. For example consumable office supplies are such products as paper, pens, file folders, post-it notes, computer disks, and toner or ink cartridges. Not included capital goods such as computers, fax machines, and business machines or office furniture.  FINISHED GOODS Finished goods are goods that have completed the manufacturing process but have not yet been sold or distributed to the end user.  SPARE PARTS Spare parts are usually parts to replace others when they break. Surplus components of an automobile or other manufactured goods, kept in inventory for replacement of failed parts.

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COMPANY PROFILE

VARROC POLYMERS PRIVATE LTD.

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VPPL- III Waluj, Aurangabad • Year Of Start :2003

Company

:-

VarrocPolymers.Pvt Ltd

M.D.

:-

Mr. Tarang Jain

Year of Establishment

:-

2003

Location

:-

Head Office, Aurangabad

Business activity

:-

manufacturer and retailer of Automobile spare parts

and global provider of Automobile spare parts.

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VARROC Group of Companies

A) History Of The Company :In the late eighties, as India opened up to liberalization, international companies and markets started looking at India with renewed interest. Amongst other industries, major international automobile and consumer durable companies saw India as a promising business destination and set up state-of-art manufacturing plants here. Varroc Group saw a vast potential in the automobile industry and focused on manufacturing and supplying of different components as well as setting up subassemblies for the booming automobile, consumer durable and white goods industry.

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Varroc created three distinct divisions that would supply quality products to match global standards.
  

Polymer Division Electrical Division Metallic Division

To manage growth in a highly competitive business environment, Varroc follows the principles of
  

Strong Leadership Positive Work Environment Financial Discipline

Varroc's success stems from continuous improvements in
    

Quality Cost Innovation Delivery Service Speed

Varroc is focusing on three critical areas that give it world-class status
  

Efficiency EngineeringExports Exports

VISION We are committed to serve the society by adding value to the Customers, Employees, Suppliers, Shareholders and the Community at large in terms of:

Providing Customer Satisfaction by offering Reliable Products and Services at Competitive Prices

Providing an environment conducive to the development, growth and satisfaction of employees while fulfilling their reasonable aspirations

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Providing adequate returns to the shareholders while nurturing business growth Contributing to the well being of the society and conducting ourselves as a responsible corporate citizen known for integrity and ethics.

CARE: For customers and all stakeholders; for welfare and work-personal life balance of all team members; for the environmental and society. RESPONSIBILITIES: To the timely completion of the jobs as promised; to achieving excellence.

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MANAGEMENT OF VARROC

 Mr.Tarang Jain

Founder& Managing Director

 Mr.S.N.Patil

Director

 Mr.S.K.Kund

DGM

 Mr.A.D.Deshpande

Vice President (Production)

 Mr.D.A.Kulkarni

Vice President(Quality)

 Mr.A.D.Patil

Vice President(R&D)

 Mr. S.V.PandeVice president(Store)

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TABLE

Sr.No 1. 2. 3. 4. 5. 6. VPPL-I VPPL-II VPPL-III VPPL-IV VPPL-GN VPPL-BN

Name of Branch Pune Pune

Location

Aurangabad Aurangabad UttarPradesh Hariyana

Subsidiaries:-Varroc Elastomers Pvt.Ltd.

Aurangabad

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PRODUCT OF VARROC POLYMERS PVT, LTD. Products & Services The main focus of Varroc is to develop technologies and produce products for auto manufacturers that increase the quality, reliability, economy and the sheer satisfaction. Varroc today is one of the most diversified suppliers in the Indian auto component industry. Varroc has got the capabilities of Full Service Supplier in Plastic Molded modules, Machined Forgings & Auto Electrical commodities. We provide customers with unparalleled manufacturing reach and ability. Our approach is solution-based, innovative and built on stringent best practices and commitment to the success of our customers in the global marketplace.

Our flexibility leaves no opportunity unanswered and better ideas are uncovered every day.

Interior & Exterior Trims Underbody/HVAC Parts Radiator/ Engine Parts Inj. Molded Plastic & rubber components. Mirror assembly & Mirror Plates Air Cleaner Assy. PU Foam Pad & Seating System Assy. Multi layer co-extruded thermo plastic sheets.

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Molding for White Good & consumer electronic components Series Moulds& Pre production Moulds

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DISCOVER 1311

DISCOVER 1312

DISCOVER 1315

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PROCESS OF MANIFACTURING FOAM

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CUSTOMER: As companies increasingly narrow their focus on their true core competencies, the responsibility of maintaining the physical sets and equipment they use in their businesses is moving to the shoulders of the companies who manufacture of service the products, that are the Original Equipment Manufacturers (OEMs) and the operation & Maintenance (O&M) service providers. Maintaining this distributed installed base requires continuous remote monitoring of the equipment since it is impossible for the OEM’s or O&M providers to have their expert teams everywhere. Further, for all discrete industrial equipment end users operating reliability, energy efficiency, and minimal material wastage are the key factors controlling heir operation and maintenance costs that otherwise surpass the capital expenses. The Super Axis remote performance management solution is also very beneficial to multi-plant owners as they can centrally coordinate the proper working of their plants and benchmark them for improvement.

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OUR CUSTOMER’S

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THEORETICAL BACKGROUND  INTRODUCTION Inventories constitute the most significant part of current assets of a majority of companies in India. On an average, inventories are approximately 60% of current assets. Because of large sixe of inventories maintained by firms, a considerable amount of funds is required to be committed to them. It is, therefore, absolutely imperative to manage inventories efficiently and effectively in order to avoid. Unnecessary investment, A firm neglecting the management of inventories will be jeopardizing its long run profitability and may fail ultimately. It is possible for a company to reduce its level of inventories to a considerable degree, e.g, 10 to 20 percent, without any adverse effect on production and sales, by using simple inventory planning and control techniques. The reduction in excessive inventories carries a favorable impact on company’s profitability.

 DEVELOPMENTS IN INVENTORY MANAGEMENT In recent years, two approaches have had a major impact on inventory management: Material Requirements Planning (MRP) and Just-In-Time (JIT and Kan-ban).Their application is primarily within manufacturing but suppliers might find new requirements placed on them and sometimes buyers of manufactured items will experience a difference in delivery. Material requirements planning are basically an information system n which sales are converted directly into loads on the facility by sub-unit and time period. Materials are scheduled more closely, thereby reducing inventories, and delivery times become shorter more predictable. Its primary use is with products composed of many components.MRP systems are practical for smaller firms. The computer system is only one part of the project which is usually long-term taking one to three years to develop. Just-in-time inventory management is an approach which works to eliminate inventories rather than optimize them. The inventory of raw materials and work-inprocess falls to that needed in single day. This is accomplished by reducing setuptimes and lead times so that small lots may be ordered. Suppliers may have to make several deliveries a day or move close to the user plants to support this plan.

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 Nature of inventories Inventories are stock of the product a company is manufacturing for sale and components that make up the product. The various forms in which inventories exist in a manufacturing company are:

 Raw materials These are those basic inputs that are converted into finished product into finished product through the manufacturing process. Raw materials inventories are those units which have been purchased and stored for future productions.

 Work in process These inventories are semi-manufactured products. They represent products that need more work before they become finished for sale

 Finished goods These inventories are those completely manufactured products which are ready for sale stock of raw materials and work-in-process facilitate production while stock of finished goods is required for smooth marketing operations. Thus ,inventories serve as a link between the production and consumption of goods. The levels of three kinds of inventories a firm depend on the nature of its business. A manufacturing firm will have substantially high levels of all three kinds of inventories. Within manufacturing firms, there will be differences.Large heavy engineering companies produce long production cycle products therefore they carry large inventories. Firms also maintain a fourth kind of inventory, supplies or stores and spares. Supplies include office and plant cleaning materials like soap, oil, fuel, light bulbs etc. these materials do not directly enter production, but are necessary for production process. Usually, these supplies are small part of the total inventory and do not involve significant investment. Therefore, a sophisticated system of inventory control may not be maintained for them.

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 Benefit of holding inventories The question of managing inventories arises only when the company holds inventories. Maintaining inventories involves tying up of the company’s funds and occurrence of storage and handling costs. If it is expensive to maintain inventories, why do companies hold inventories?

 There are three general motives for holding inventories:-

 TRANSCATIONS MOTIVE: It emphasizes the need to maintain inventories to facilitate smooth production and sales operations.  PRECAUTIONARY MOTIVE: The necessitates holding of inventories to guard against the risk of unpredictable changes in demand and supply force and other factors.  SPECULATIVE MOTIVE: It influences the decision to increase or reduce inventory levels to take the advantage of price level fluctuations. Company should maintain adequate stock of materials for a continuous supply to the factory for an uninterrupted production. It is not possible for a company to procure raw materials whenever it is needed. A time lag exists between demand for materials and its supply. Also, there exists uncertainty in procuring raw materials in time on many occasions. The procurement of material may be delayed of price rise. Work in process inventory builds up because of the production cycle. Production cycle is the time plan between introduction of raw materials into production and emergence of finished product at the completion of production cycle. Till production cycle completes, stock of WIP has to be maintained. Stock of finished goods to be held because production and sales are not instantaneous. A firm cannot produce immediately when customers demand goods. Therefore, to supply finished goods on a regularbasis, their stock has to be maintained.

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 COST ASSOCIATED WITH INVENTORY (MANAGEMENT)

1. ORDERERING COST: The ordering cost is the price paid for a purchased item, which consists of the cost of the item and any other direct costs associated in getting the item into the plant. These could include such thing as Transportation, Custom duties and Insurance.

2.CARRYING COST: Carrying cost include all expenses incurred by the firm because of the volume of inventory carried.

IT CONSISTS THREE CATEGORIES:

 CAPITAL COSTS:-Money invested in inventory is not available for other usages and as such represents a lost opportunity cost.  STORAGE COST:-Storage inventory requires space, workers, and equipment.  RISK COST:-The risks in carrying inventory are: (1) OBSOLESCENCE- loss of product value resulting from a model or style change or technological development. (2) DAMAGE- Inventory damaged while being held or moved.

(3) PILFERAGE:- goods lost, strayed, or stolen.

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 OBJECTIVE OF INVENTORY MANAGEMENT In the context of inventory management, the form is faced with the problem of meeting two conflicting needs:

1. To maintain a large size of inventories of raw material and WIP for efficient and smooth production and of finished goods for uninterrupted sales operations. 2. To maintain a minimum investment in inventories to maximize profitability. Both excessive and inadequate inventories are not desirable. These are two danger points which the firm a should avoid. The objective of inventory investment. The optimum level of inventory will lie between the two danger points of excessive and inadequate inventories. The firm should always avoid a situation of over investment or under investment in inventories. The major dangers of over investment are:

 Unnecessary tie up of the firm’s funds loss of profit  Excessive carrying costs  Risk of liquidity

The excessive level of inventories consumes funds of the firm, which cannot be used for any other purpose, and thus, it involves an opportunity cost. The carrying costs such as the costs of storage, handling,insurance,recording and inspection, also increases in preparation to the volume of inventory. These costs will impair the firm’s profitability further. Excessive inventories carried for long period increase chances of loss of liquidity. It may not be possible to sell inventories in time and at full value. Raw materials are generally difficult to sell as the holding period increases. Another danger of carrying excessive inventory is the physical deterioration of inventories while in storage. Maintaining an inadequatelevel of inventories is also dangerous. The consequences of under investment in inventories are:

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o Production hold-ups o Failure to meet delivery commitments o Inadequate raw materials and WIP inventories will result in frequent production interruptions. The aim of inventory management is to avoid excessive and inadequate levels of inventories and to maintain sufficient inventory for the smooth production and sales operations. An effective inventory management should: ensure a continuous supply raw materials to facilitate uninterrupted production maintain sufficient stock of raw materials in periods of short supply and anticipate price changes. Maintain sufficient finished goods inventory for smooth sales operation and efficient consumer minimize the carrying cost and time.

 Effective Materials Management Is Essential in Order To: 1. Provide the best service to customers, 2. Produce at maximum efficiency, and 3. Manage inventories at predetermined levels to stabilize investments in inventories. Successful materials management requires the development of a highly integrated and coordinated system involving Sales Forecasting, Purchasing, Receiving, Storage, Production, and actual Sales. Both the theory of costing materials and inventories and the record keeping must be considered.

Costing materials present some important, often complex, and sometime highly controversial questions concerning the costing of materials used in production and the cost of inventory remaining the consumed in a future period. In financial accounting, the subject is usually presented as a problem of inventory valuation ;in cost accounting, the primary problems is the determination of the cost of various materials consumed in production and a proper charge to cost of goods sold.

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 PROCEDURES FOR MATERIAL PROCUREMENT AND USE Although production processes and materials requirements vary, the cycle of procurement and use of materials usually involves the following steps:

1. Engineering and planning determine the design of the product, the materials specifications, and the requirements at each stage of operations. Engineering and planning not only determine the maximum and minimum quantities to run and Bill of Materials for given products and quantities but also cooperate in developing standards where applicable. 2. The production budget provides the Master plan from which details concerningmaterials requirements are eventfully developed.

3. The purchase requisition informs the purchasing agent concerning the quantity and type of materials needed. 4. The purchase order contracts for appropriate quantities to be delivered at specified dates to assure ininterruptedoperations. 5. The receiving report certifies quantities received and may report results of inspection and testing for quantity. 6. The materials requisition notifies the storeroom or warehouse to deliver specified time or is the authorization for the storeroom to issue material to departments. 7. The materials lodger cards record the receipt and insurance of each class of materials and provide a perpetual inventory record.

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(1.)

PURCHASE OF PRODUCTIVE MATERIAL:

The actual purchase of all material is made by usually purchase department headed by a general purchasing agent, in some small and medium size companies, however, department heads or supervisor have authority to purchase materials as the need arises. In any case, systematic procedures should be in writing in order to fix responsibility and to provide full information regarding the ultimate use of materials ordered and received. The purchasing department should receive purchase requisitions for materials, supplies, and equipments; keep informed concerning sources of supply, prices, and shipping and delivery schedules; prepare and place purchase orders; and arranging for adequate and systematic reports between the purchasing, the receiving, and the accounting departments. An additional function of the purchasing department in many enterprises in to verify and approve for payments all invoices received in response to purchase orders placed by the department. This procedure has the advantage of centralizing the verification and approval by the purchasing department may violate sound procedures and later approves the invoice. Consequently, invoice audit and approval in many instances have been made a function of the accounting department, which receives a copy of the purchase order (PO). The purchase order carries all necessary information regarding prices, discount agreement and delivery stipulations, as well as the number of the account to which the order is to be charged. Furthermore, the centralization of invoice approval in the accounting department helps avoid delaying payments beyond the discount period. (2)MATERIAL PURCHASE ORDER FORMS:

The purchase order, sighed by the purchasing agent or other official, is a written authorization to a vendor to supply specified quantities of described goods at agreed terms and at a designated time and place, as a convenience, the vendors order forms may be used; but in typical practice, the order forms are prepared by the purchasing company, and the form is adapted to the particular needs of the purchaser. As a matter of record and accounting control, a purchase order should be issued for every purchase of materials, supplies, or equipment. When a purchase commitment is made by mail, telephone, or a sales representative, the purchase order serves as confirmation to the vendor and places the required documents in the hands of those concerned in the purchasing company. The purchases order gives the vendor a complete description of the goods and services desired the terms, the prices, and the shipping instruction. When necessary,thedescription may
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refer to attached blueprints and specification pages. The original and an acknowledgement copy are sent to the vendor. The acknowledgment cop is a necessary form for contract procedure, because other copies are distributed. The vendor is asked to sign and return the copy to the purchaser, indicating that the order was received and will be delivered according to the specifications enumerated in the purchases order.

(3).RECEIVING THE MATERIALS: The receiving report shows the purchase order number, the account. Number to be charged, the name of the vendor, details relating to transportation, and the quantity and type of the goods receive. the form also provides a space for the inspection department to note either the complete approval of the shipment or the quantity rejected and the reason for the rejection, in inspection does not take place immediately after receipt of the materials, the receiving report is distributed as follows: 1. The receiving department keeps one copy and sends another copy to the purchasing department as notice of the arrival of the materials. 2. All other copies go to the inspection department, and are distributed when inspection is completed. After inspection, one copy of the receiving report, with the inspection result noted thereon is sent to the accounting department, where it is matched with the purchase order and the venders invoice and the paid. Other copies go to various departments such as materials and production planning. One copy accompanies the materials, so that the storekeeper knows the quantity and the kind of materials received.

(4)INVOICE APPOROVAL: The invoice and a copy of the purchase order are filled in the accounting department. When the receiving report with its inspection reports arrives; the receiving report and the invoice are compare to see that materials received meet purchase order specifications as to items, quantities, and price extensions, discount and credit terms, shipping instruction, and other possible conditions. The invoice is found to be correct or has been adjusted because of rejects as noted by the inspection department; the invoice clerk approves it, attaches it to the purchase order and the receiving report, and sends these papers to another clerk for the preparation of the voucher.

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Invoice approval is an important step in materials control procedure, since it certifies that the goods have been received as ordered and the payment can be made. The invoice approval information is often built in to a rubber stamp and each invoice is stamped. (5) CORRECTING INVOICE: o Some of the materials ordered are not received and are not entered on the invoice. In this case no adjustment is necessary, and the invoice may be approved for immediate payment. On the purchase order the invoice clerk will make a notation of the quantity received in place of the quantity order. If the vendor is out of stock or otherwise unable to deliver specified merchandise, and immediate ordering from other sources may be necessary. o Items ordered are not received but are entered on the invoice. In this situation the shortage is noted on invoice and is deducted from the total before payment is approved. A letter to the vendor explaining the shortage is usually in order.

o The seller ships a quantity larger than called for on the purchase order. The purchaser may keep the entire shipment and add the excess to the invoice, if not already invoiced; or the excess may be returned or held, pending instructions from the seller. Some companies issue a supplementary purchase order that authorizes the invoice clerk to pay the over shipment. o Materials of a wrong size are quality, defective parts, and damaged items are received. If the items are returned, a correction on the invoice should be made before payment is approved. It may be advantageous to keep damaged or defective shipments if the seller makes adequate price concessions, or the items may be held subject to the seller’s instructions.

o It may be expedient for a purchaser to pay transportation charges, even though delivered prices are quoted and purchases are not made on this basis. The amount paid by the purchaser is deducted on the invoice, and paid freight bill attached to the invoice as evidence of payment.

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(6).ELECTRONIC DATA RECEIVED AND ISSUED:

PROCESSING

SYSTEM

FOR

MATERIAL

In an electronic data processing system (EDP), the computer-to a great extent replaces the clerk. Upon receipt of the invoice (the source document), the accounts payable clerk enters the account distribution on the invoice. The data are then directly imputed from the invoice to the computer data bank via a terminal device. The data are edited, audited, and merged with the purchase order and the receiving order data, both of which have been stored in computer data bank. The common matching criterion on all documents in the purchase order number. Quantities, monetary value, due dates, terms, and process are matched. When in agreement, the cost data are entered in the accounts payable computer file with a date for later payment. The above procedure deals with the accounts payable phase of a purchase transaction. Of equal importance is the need for posting the data in quantities and values to the materials inventory file in the electronic data processing system (EDP System). The information enters the EDP system form either the invoice or the invoice approval form, which would have to include all computer-withdrawal of materials could also be programmed, so that manual posting to the materials inventory file would be eliminated. The Tally (ERP) enterprise Requirement Planning Software plays a vital role for recording the all transaction related to businesses.

(7). STORAGE AND USE OF MATERIAL: The storage and assistants are responsible for safeguarding the materials, which means that materials and supplies are placed in proper ins or other storage spaces, that they are kept safely until required in production, and that all materials taken form the storeroom are properly requisitioned. It Is good policy to restrict admittance to the storeroom to employees of that department Since the cost of storing and handling materials may be a substantial amount, careful designs and arrangement of storerooms can result in significant cost savings. Materials can be stored according to:

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1. 2. 3. 4.

The materials account number The frequency of use of the item. The factory area where the item is used The nature size and shape of the item.

The practice, no single base is likely to be suitable, but the size and shape of materials usually dictate the basic storeroom arrangement variations can then be introduced, such as placing most frequently used items nearest the point of issue and locating materials used primarily in one factory area nearest that area. Bin Cards or Stock Cards are effective ready references that may be attached to storage bins, shelves, racks, or other containers. Bin cards usually show quantities of each type of materials received, issued, and on hand. They are not a part of the accounting records as such, but they show the quantities on hand in the storeroom at all times and should agree with the quantities on the materials ledger cards in the accounting department.

(8). ISSUING AND COSTING MATERIAL INTO PRODUCTION: To control the quantity and cost of materials, supplies, and a service requires a systematic and efficient system of purchasing, recording, and storing. Equally necessary is a systematic and efficient procedure for issuing materials and supplies.

 MATERIALS REQUISITIONS: The materials requisition, illustrated below, is a written order to the storekeeper to deliver materials or supplies to the place designated or to give the materials to the person presenting a properly executed requisition. It is drawn by someone who has the authority to requisition materials for use in the department. The authorized employee may be a department head, a supervisor, in a computerized system; the computer program will often prepare the requisition in the form of a tabulating card. The materials requisition is the basic form used to withdraw materials’ from the storeroom. Its preparation results in entries in the issued section of the materials ledger card and in posting to the job order cost sheets, production reports pr the
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various expense analysis sheets for individual departments. All withdrawals result in debits to work in process or to control accounts of r factory overhead, marketing expenses, or administrative expenses, and in credits to materials.

 MATERIALS REQUISTITIONED JOURNAL: The ultimate objective in cost accounting is to produce accurate and meaningful figures. These figures can be used for purposes of control and analysis and eventually matched against revenue produced in order to determine net operating income. After the unit cost and total cost of incoming materials are entered in the received section of a materials ledger cards, the next step is to cost these materials as they move either from storeroom to factory as direct materials or indirect or form storeroom to marketing and administrative expense accounts as supplies.  BILL OF MATETIALS (BOM): The bill of materials, a kind of master repulsion, is a printed or duplicated form that lists all the materials and parts necessary for a typical job or production run. Time is saved and efficiency is promoted through the use of a bill of materials. Whena job or production run is started all the materials listed on the bill of materials is a rather cumbersome medium for posting purpose, however data processing improves the procedure by simultaneously. Preparing tabulating cards for materials requisitions. while the storekeeper issues the materials as stated on the bill of materials, the tabulating cards can be processed in the materials lodger section and in the cost department at almost the same time a the materials are used in the factory. A computer program will provide the print outs of the bill of materials and process the information internally to update the accounting records.  MATERIAL COSTING METHOD: The ultimate objective in cost accounting is to produce accurate and meaningful figures. These figures can be used for purposes of control and analysis and eventfully matched against revenue produced in order to determine net operating income. After the unit cost and total cost of incoming materials are entered in the received section of a materials ledger cards, the next step is to cost these materials as they move either from storeroom to factory as direct materials or indirect materials or from storeroom to marketing and administrative expenses accounts as supplies.

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 MATERIAL MANAGEMENT: Now a day’s material management is having a great importance and attention throughout all types of organizations. Every enterprise private or public, manufacturing or service has a productive system. “Material Management can be defined as the function responsible for the coordination of planning, sourcing, purchasing, moving, sourcing, purchasing, storming and controlling material in an optimum manner so as to provide a pre-decided service to the customer at a minimum cost”

 OBJECTIVE OF MATERIAL MANAGEMENT

 To optimize/reduce material cost in the light of organizational objectives.  To maintain continuous supply of material so as to support scheduled production.  To have optimum inventory, keeping in mind production scheduling customer services levels and supply side constraints.  To trace and develop new sources of supply.  To develop new sources of supply.  To cut down costs through purchasing research, codification standardization, value analysis, import substitution.  To co-operate with other functions.

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 FUNCTIONS OF MATERIAL MANAGEMENT

 Material Planning and Programming  Purchasing of Material  Receiving and Inspection of Incoming Material  Warehousing  Transportation inwards and Outwards  Inventory Control  Material Handling  Disposal of crap, Obsolete and Surplus Material  Value Analysis  Co-ordination with other Department.

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 THE MORE COMMON METHODS OF COSTING MATERIALS ISSUED AND INVENTORIES ARE:

 FIFO METHOD: The first in first out (FIFO) method cost of costing is used to introduce the subject of materials costing. The FIFO method of costing issued materials follows the principle that materials used should carry the actual experienced cost of the specific units used. The methods assume that materials are issued from the oldest supply in stock and that the cost of those units when placed in stock is the cost of those same units when issued. However, FIFO costing may be used even though physical withdrawal is in a different order. o THIS EXAMPLE IS BASED ON THE FOLLWING TRANSSECTIONS: JULLY-

(1) Beginning balance;800 units @6 per unit (2) Received 200 units @7per unit (3) Received 200 units @8 per unit. (4) Issued 800 units. (5) Received 400 units @ 8 per unit. (6) Issued 500 units. (7) Returned 100 excess units from the factory to the storeroom to be recorded at the latest issued price. (8) Received 600 units @ 9 per unit.

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Calculation for the above transactions would be as follows: FIFO COSTING METHOD JULY Date 1july 4 July 10 July 11 July Balance Particular Beginning balance Received Received Issued Unit Rate 800 units @ 6 200 units @ 7 200 units @ 8 800 units @ 6 200 units @7 200 units @ 8 12 July 20 July Balance Received Issued 400 units @8 200 units @ 7 300 units @ 8 300 units @8 25 July 28 July Balance Returned to storeroom Received 100 units @ 8 600 units @ 9 400 units @ 8 600 units @ 9 Amount 4800 1400 1600 4800 1400 1600 3200 1400 2400 2400 800 5400 3200 5400 8600 4800 6200 3000 7800 Balance

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LIFO METHOD: It’s mean Last in First out. In which the most recently acquired items are assumed to be the first issued the last in first out (LIFO) method of costing materials issued is based on the premise that materials units issued should carry the cost of the most recent purchase, although the physical flow may actually be different. The method assumes that the most recent cost (the approximate cost to replace the consumed units) is most significant in matching cost with revenue in the income determination procedure. Under LIFO procedures, the objective is to charge the cost of current purchases to work in process or other operating expenses and to leave the oldest costs in the inventory. Several alternatives can be used to apply the LIFO method. Each procedure results in different costs for materials issued and the ending inventory, and consequently in a different profit. LIFO Costing Method Example: This example is based on the following transactions July(1). beginning balance: 800 units @ 6 per unit. (2.) Received 200 units @ 7 per unit. (3) Received 200 units @ 8 per unit. (4) Issued 800 units. (5) Received 400 units @ 8 per unit (6) Issued 500 units. (7) Returned 100 excess units form the factory to the storeroom to be recorded at the Latest issued price. (8) Received 600 units @ 9 per unit.
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.

Calculations for the above transactions would be as follows LIFO COSTING METHOD July Date 1 July Particular Beginning balance 4 July 10 July 11 July Received Received Issued 200 units @ 7 200 units @ 8 200 units @ 8 200 units @ 7 400 units @ 6 Balance 12 July 20 July Received Issued 400 @ 6 400 units @ 8 400 units @ 8 100 units @ 6 Balance 25 July Returned to storeroom 28 July Balance Received 600 units @ 9 400 Units @ 6 600 units @ 9 5400 2400 5400 7800 300 units @ 6 100 units @ 6 3200 3200 600 1800 600 3800 1800 1400 1600 1600 1400 2400 5400 2400 5600 7800 Unit Rate 800 units @ 6 Amount 4800 Balance

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STORES

MANUFACTURING
RAO MATERIALS WIP FINISHING GOODS

SUPPLIER

CUSTOMER

Above figure shows that the procedure of supply chain management start with supplier. First the factory have to decide that what to produce? Than after they have to give the order to supplier for raw material. Raw material is the main part of any factory without it any company can’t start their work so first they have to decide about the supplier there are many suppliers available in the market they have to choose any one whichever is good regarding product Quality, Price, Place, Availability, etc  PURCHASE CYCLE: (A).PURCHASE BUDGET: According to the production budget, the consumption budge of each material indication the quality, quality and specification is to be prepared. Based on this, purchase budget is to be prepared talking in to consideration the opening stock of each material needed at end of the year. Further, the factor such as, availability of material received indigenously or to be imported, sources of supply, delivery dates, quantity discounted,

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availability of cash, storage, inspection, receiving and transport facilities etc. are to be considered while preparing the purchase budget. (B)RECEIPT OF PURCHASE REQUISITION: The purchase requisition provides the information in respect of material to be purchased. it is used as a formal request to the purchase department for procuring the various material required by various department. It is prepared in as many copies as particular organization requires. Generally, there copies are prepared. 1. Original copy is sent to the purchasing department. 2. Second copy is retained by the department preparing it. 3. Third copy is kept in the office of approving authority. (C).ISSUE OF ENQUIRY LETTER AND TENDERS: On receipt of purchase requisitions, the purchasing officers will take action for issue of enquiry letter and tenders to the various approve supplier.

(D.)CALLING OR QUOTATIONS AND ITS RECEPITS: The quotations will be obtained by purchasing officer. Record of prices and quotations for all material should be kept in scheduled form.

(E)FINILIZATION OF QUOTATIONS AND PLANING ORDERS ON SUPPLY: All the quotations for each material are to be tabulated and comparative statement of quotations is to be prepared. This will enable the purchasing officer to know the lowest acceptable quotations are to be finalized and purchase order is to be prepared order is to be prepared and sent to the supplier.

(F). REFEIPT AND INSPECTION OF MATERIAL: The receiving department or section is responsible for talking charge of the incoming material, checking and verifying their quotations, inspecting them as regards

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their quality. If they are in order, the goods are considered suitable for acceptance; the receiving department prepares a receiving Report or material inward note.

The material Inward Note contains the following information.     The serial number and data. Suppliers name and address. Description, code and quantity goods received. Order No, Bin No, Inspection Report.

(G). PAYMENT The invoice received from the supplier is sent to the stores accounting section to check authenticity and mathematical accuracy. The quantity and price are also checked with reference to goods received note and purchase order respectively. The store accounting section after checking its accuracy finally certifies and passes the invoice for payment.

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RESEARCH METHODOLOGY

 RESEARCH INTRODUCTION: When we talk of research methodology, we not only talk of the research methods but also the comparison of the logic behind the methods, we used in this context of our research study and explain why we are using a particular method or technique and why using the others. It may be understood as a science of studying how research is done systematically. in this, we study the various steps that are generally adopted by researcher in studying his research problem along with the logic behind them. “The present study is based upon the case study method of research to investigate procedures at micro level “as the study is analyzing probing in nature, thus, entirely based on the secondary at gathered through the annual reports of the industry therefore it provides a historical perspective of decisions. RESEARCH Research refers to search for knowledge. Research is an original contribution to the existing stock of knowledge making for its advancement. It is the pursuit of truth with the help of study, observation, comparison and experiment. In short, the search for knowledge through objective and systematic method of finding solution of the problem is research. RESEARCH METHODS Research methods may be understood as those methods/techniques that are used for conduction of research. All those methods which are used by the researcher during the course of studying his research problem are termed as research methods. Keeping in view, the research methods can be put into following three groups:  In the first group we include those methods which are concerned with the collection of data. These methods will be used where the data already available are sufficient to arrive at the required solution.  The second group consists of those statistical techniques which are used to establish relationships between the data and the unknown.  The third group consists of those methods which are used to evaluate the accuracy of the obtained results.

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COLLECTION OF DATA There are several ways of collecting the appropriate data which differ considerably in context of money, cost, time and other sources at the disposable of the researcher. There are two types of data:

PRIMARY DATA

DATA

SECONDARY DATA
PRIMARY DATA Primary data are those which are collected afresh and for the first time, and thus happened to be original in character. In case of descriptive research, research performs survey whether sample survey or census survey, thus we obtain primary data either through:  Observation  Direct communication with respondent  Personal interview

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SECONDARY DATA Secondary data are those which have already been collected by someone else and have already been passed through statistical process. In this project report, both types of data have been used. Mainly, secondary data is used such as annual reports of last three years of Varrocpolymers.pvt.ltd. Research is a purposive investigation of hypothetical propositions. Research as a process involves defining and redefining problems, hypothesis formation, organizing and evaluating data, deriving deductions, inferences and conclusions, after careful testing.

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DATA ANALYSIS AND INTERPRITATION

INCRERSES IN SALES (The Sale of Year 2007-08 is 11.55 cr.) Year 2008-09 2009-10 2010-11 Sales 12.20 cr 13.04 cr 13.84 cr % Increases in sale 5.62% 6.88% 6.13%

Working Notes:

% Increses in sales Sales of present Year – Sales of last year Sales of last Year X 100

For year 2008-09 12.20 – 11.55 11.55 X 100

= 5.62%

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For year 2009-10 13.04- 12.20 12.20 X 100

=

6.88%

For year 2010-11 13.84 – 13.04 13.04 X 100

= 6.13 %

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GRAPHICAL PRESENTATION

Chart Title
25

20 6.88 15 5.62 % increse in sales 10 12.02 13.04 13.84 sales in Cr 6.13

5

0 2008-09 2009-10 2010-11

INTERPRETATION:

From the above data it can be seen that the Percentage increases in Sales In the year 2008-09 it was 5.62 In the year 2009-10 it was 6.88 In the year 2010-11 it was 6.13 The Sales of Varroc Polymers Ltd. Has increase every year as compare to the last year. The gross percentage increase in sales is low in the year 2010-11 as compared to 200910. But the percent growth in sales is always above 6% showing a consistence in the growth of the company.

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CONSUMPTION OF RAW MATERIAL (Value in Rs.) Year 2008-09 2009-10 2010-11 Sales 12.20 cr 13.04 cr 13.84 cr Raw-Material Consumption 8.12 8.20 8.35 % of Raw-Material Consumption 66.55 62.88 60.33

WORKING NOTES: % of raw material Consumption Raw material consumption Sales X 100

For year 2008-09

08.12 12.20 X 100

= 66.55

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For year 2009-10

08.20 13.04 X 100

= 62.88

For year 2010-11

08.35 13.84 X 100

= 60.33

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GRAPHICAL PRESENTATION

16 14 12.02 12 10 8.12 8 6 4 2 0 2008-09 2009-10 Sales In Rs 2010-11 Raw material consumption 8.2 8.35 13.04 13.84

INTERPRETATION: From above data it can be seen that the consumption of raw material is decreasing In the year 2008-09 it was 8.12 cr i.e.66.55 In the year 2009-10 it was 8.20 cr i.e.62.88 In the year 2010-11 it was 8.35 cr i.e.60.33

The raw material cost should be minimum which help to minimize the production cost. The raw material cost of Varroc polymers Ltd. Is decreasing every year which is a good sign for the growth of organization.

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INVENTORY TURNOVER RATIO: Inventory turnover ratio indicates how quickly inventory is used for production. The greater the ratio the shorter would be the duration of inventory at the factory. It is calculated by dividing cost of goods sold by the average inventory.

Cost of sale INVENTORY TURNOVER RATIO = Average stock

Usually a high inventory turnover ration indicates efficient management of the inventory Because more frequently the goods are sold; the lesser amount of money is required to finance the inventory. A low ration indicates an inefficient management of inventory.

INVENTORY TURNOVER RATIO

Year

Opening Closing Average Stock of Stock of Stock of Inventory Inventory Inventory 00.23cr 00.41crc 00.65cr 00.41cr 00.65cr 00.91cr 00.32cr 00.53cr 00.78cr

Sales

Gross Profit 1.85cr 2.3cr 2.65cr

Cost of Sales 10.35cr 10.74cr 11.39cr

Inventory Turnover Ratio 32.34 20.26 14.62

200809 200910 201011

12.20cr 13.04cr 13.84cr

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WORKING NOTES: Cost of Goods Sold = Sales – Gross profit For year 2008-09 Cost of Goods of Sold = 12.20-1.85 = 10.35 For Year 2009-10 Cost of Goods Sold = 13.04- 2.03 = 10.74

For year 2010-11 Cost of Goods Sold = 13.84- 2.65 = 11.39

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Opening Stock + Closing Stock Average Stock = 2

For Year 2008-09 00.23 + 00.41 Average stock = 2 = 0.32 For Year 2009-10 00.41 + 00.65 Average Stock = 2 = 0.53

For Year 2010-11 00.65 +00.91 Average Stock = 2 = 0.78

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Cost of Sale Inventory Turnover Ratio = Avg. Stock For Year 2008-09 10.35 Inventory Turnover Ratio = 00.32 X 100

= 32.34 For Year 2009-10 10.74 Inventory Turnover Ratio = 00.53

= 20.26 For Year 2010-11 11.39 Inventory Turnover Ratio= 00.78

= 14.60

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GRAPHICAL REPRESENTATION:
35 30 25 20 15 10 5 0 2008-09 2009-10 2010-11 INVENTORY TURNOVER RATIO 32.34 20.26 14.6

INTERPRETATION From the above data it can be seen that the inventory turnover ratio is declining In the year 2008-09 Inventory turnover ratio was 32.34 In the year 2009-10 Inventory turnover was 20.26 In the year 2010-11 Inventory turnover was 14.60

Inventory turnover ratio shows the efficiency in sales of the company. Inventory turnover ratio of Varroc Polymers pvtLtd.Is decreasing every year which shows that the sale of company is not satisfactory.Varroc Polymers pvt Ltd. Should take action to improve its sales.

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INVENTORY HOLDING PERIOD The reciprocal of inventory turnover gives inventory holding in percentage term when the number of days in a year is divided by turnover, we obtain days of inventory holdings.

360 Inventory Conversion Period = Inventory Turnover Ratio INVENTORY HOLDING PERIOD Year 2008-09 2009-10 2010-11 No. of Days in a Year 360 360 360 Inventory turnover Ratio 32.34 20.26 14.60 Inventory Holding Period 11.13 17.76 24.65

Working Notes: No. of days in a year Inventory holding Period = Inventory turnover ratio For year 2008-09 360 Inventory holding period = 32.34 =11.13
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For Year 2009-10 360 Inventory holding period = 20.26

= 17.76

For Year 2010-11 360 Inventory holding period = 14.60

= 24.65

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Inventory Holding Period
30 25 20 15 10 5 0 2008-09 2009-10 2010-11

Inventory Holding Period

INTERPRETATION From the above table and graph it can be seen that the inventory holding period in increasing every year. In the year 2008-09 Inventory holding period was 11.13 In the year 2009-10 Inventory holding period was 17.76 In the year 2010-11 Inventory holding period was 24.65

Inventory holding period of Varroc Polymers Ltd. Is increasing which is not a good sign for the company. Inventory holding period should be minimum it shows the period that required for converting the inventory into cash.

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FINDINGS

From the data analysis, it is clear that the raw material cost is decreasing which is good for the growth of organization. In 2008-09 it was 66.55 which decreased In year 2009-10 to 62.88 and decreased to 60.33 in 2010-11. This is satisfactory.

From the analysis of inventory ratio it is found the inventory turnover ration is declining every year.in 2008-09 inventories turnover ratio was 32.34 in 2009-10 it declined to 18.92 and in 2010-11 it again decreased to 13.32 which shows that the selling condition of company is not so good.

Inventory conversion period (Inventory holding period) is increasing which is not good sign as it takes long period to convert the inventory in to cash. In a year 2008-09 holding period was 16.13 days which was very good, but in 2009-10 it increased 17.76 days and it again raised to 24.65 days in 2010-11 which leads to more capital block again inventory.

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RECOMMONDATION

 Company should adopt Economic order Quality (EOQ) technique to maintain the inventory.  To reduce the cost of deterioration condition of store department should be improved.  To reduce lead time of inventory, those who are outside vendor which take more time to supply material apart form that company should order form local vendor which supplies same material in same rate.  A company customer schedule is accepted on monthly basis. It indicates that company order raw material for month which is long period to hold material which increase unnecessary cost of holding and carrying for that it is require that to reduce period of order inventory on weekly basis. Which reduce holding cost  Company should use the just in Time.(JIT) technique to control on inventory cost. It means company should demand raw material as an when it require.

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CONCLUSION  From the above research study it is clear that overall condition of inventory management is not satisfactory as it shows inventory turnover ratio decreasing every year, in the year 2008-09 it was 32.34 then in the year 2009-10 it decreased to 20.26 & again in the year 2010-11 it falls to 14.60 which shows poor selling condition.  Inventory holding period is increasing every year, in 2008-09 it was 11.13 days, in 2009-10 increased with high difference of 17.76 days & in 2010-11 inventory holding period again increased to 27.02 days, so the lot of working capital blocked into storage of inventory.

Briefly stated that inventory management is not proper, it should be improved.

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BIBLIOGRAPHY  Books

 I.M.Pandey, “Financial Management” Visas publishing House Pvt.Ltd. New Delhi, eight editions.  Rustogi.R.P. “Financial Management” (Theory, Concept, and Problems) Golgotha publishing Co. New Delhi, Second Revised Edition.  Khan M.Y. & Jain P.K, “Financial Management Tata McGraw Hill Publishing Co. Ltd., New Delhi. Fifth Edition.

Websites: www.Varrocgroup.in www.Wikipedia.org.

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