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EXECUTIVE SUMMARY

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
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.

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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 companys 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.

SUB OBJECTIVES:
1 To study the different accepts of Inventory Management.

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

Secondary Data:
1. Balance Sheet

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2. Turnover Statements
3. Monthly Inventory Statements
4. Company Records
5. Internet

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

INDUSTRY PROFILE

FABRICATION

When used as an industrial term, applies to the building of machines, structures and other
equipment, by cutting, shaping and assembling components made from raw materials. Small
businesses that specialize in metal are called fab shops.

Steel fabrication shops and machine shops have overlapping capabilities, but fabrication
shops generally concentrate on the metal preparation, welding and assembly aspect while the
machine shop is more concerned with the machining of parts.

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METAL FABRICATION

Metal fabrication is a value added process that involves the construction of machines and
structures from various raw materials. A fab shop will bid on a job, usually based on the
engineering drawings, and if awarded the contract will build the product.

Fabrication shops are employed by contractors, OEM's (Original Equipment


Manufacturers) and VAR's (Value-added Reseller) Typical projects include; loose parts,
structural frames for buildings and heavy equipment, and hand railings and stairs for buildings.

Article I. ENGINEERING

The fabricator may employ or contract out steel detailers to prepare shop drawings, if not
provided by the customer, which the fabricating shop will use for manufacturing. Manufacturing
engineers will program CNC machines as needed.

Article II. RAW MATERIALS

Standard raw materials used by metal fabricators are;

Plate Metal
Formed And Expanded Metal
o Tube stock, CDSM
o Square stock
o Sectional metals (I beams, W beams, C-channel...)
Welding wire
Hardware
Castings
Fittings

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3. CUTTING AND BURNING

The raw material has to be cut to size. This is done with a variety of tools.

The most common way to cut material is by Shearing (metalworking);

Special band saws designed for cutting metal have hardened blades and a feed
mechanism for even cutting. Abrasive cut-off saws, also known as chop saws, are similar to
miter saws but with a steel cutting abrasive disk. Cutting torches can cut very large sections of
steel with little effort.

Burn tables are CNC cutting torches, usually natural gas powered. Plasma and laser
cutting tables, and Water jet cutters, are also common. 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.
Some very expensive burn tables also include CNC punch capability, with a carousel of different
punches and taps. 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.

4. FORMING

Hydraulic brake presses with v-dies are the most common method of forming metal. 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. Wing brakes and hand powered brakes are sometimes used.

Tube bending machines have specially shaped dies and mandrels to bend tubular sections
without kinking them.

Rolling machines are used to form plate steel into a round section.

English Wheel or Wheeling Machines are used to form complex double curvature shapes
using sheet metal.

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5. Machining

Fab shops will generally have a limited machining capability including; metal lathes,
mills, magnetic based drills along with other portable metal working tools.

6. Welding

Welding is the main focus of steel fabrication. The formed and machined parts will be
assembled and tack welded into place then re-checked for accuracy. A fixture may be used to
locate parts for welding if multiple weldments have been ordered.

The welder then completes welding per the engineering drawings, if welding is detailed,
or per his own judgment if no welding details are provided.

Special precautions may be needed to prevent warping of the weldment due to heat.
These may include re-designing the weldment to use less weld, welding in a staggered fashion,
using a stout fixture, covering the weldment in sand during cooling, and straightening operations
after welding.

Straightening of warped steel weldments is done with an Oxy-acetylene torch and is


somewhat of an art. Heat is selectively applied to the steel in a slow, linear sweep. The steel will
have a net contraction, upon cooling, in the direction of the sweep. A highly skilled welder can
remove significant warpage using this technique.

Steel weldments are occasionally annealed in a low temperature oven to relieve residual
stresses.

7. FINAL ASSEMBLY

After the weldment has cooled it is generally sand blasted, primed and painted. Any
additional manufacturing specified by the customer is then completed. The finished product is
then inspected and shipped.

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COMPANY PROFILE

Name of the company : APEX AUTO LTD

Address of the Head office : M-1 phase- VII, TATA kandra main road, industrial
area ADITYAPUR, JAMSHEDPUR-832109 INDIA.
Fax: 0657-2200010
Tel: 91-657-2408715, 2409041 & 2381346
E-mail: info@apexautoltd.com

Address of the registered : Nataraj mansion, Bistapur- 831001,


Office JAMSHEDPUR, INDIA
Fax: 91-657-2424526
WEBSITE: www.apexautoltd.com

Address of the UNIT II : APEX AUTO LTD (UNIT II) Block no: 2
Dharwad Telcon premises, K.I.A.D.B, P.B. Road
Dharwad- 580007, India
Fax: 0836-3293214

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Tel: 0836-3293214
E-mail: pip@apexautolimited.com

Nature of the organization : Basically this company is heavy fabrication


Company. They are manufacturing back hoe
Loader components and excavator
Components
Type of organization : Apex auto limited company is private limited
Company

ABOUT ORGANIZATION

Apex Auto Limited ("If you can imagine it, We can fabricate it.")
Apex Auto Limited is a publicly quoted company with a number of shareholders, both
Indian and Foreign. Promoted by Mr. Atul Taunk in 1995 with a modest capital outlay of Rs. 342
lakhs, Apex today has a capital outlay of Rs. 1200 lakhs. A growth of over 350% per annum.
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, super highways,
ports, power projects, and so on. This would put immense pressure on manufacturers of earth-
moving equipment. 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, such
as revolving frames, main frames, booms, arms, dozers, buckets, and so on.

As a case in point, 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, the
EX-60. Over the last 5 years, we have fabricated more than 10,000 components of this particular
model alone.

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VISION
To be recognized as a premier QUALITY manufacturer and supplier fabricated components,
embodying thus the spirit of commitment and humanity.

MISSION

As per customer schedule requirement fulfill it, Deliver on time, every time.
An eye on product quality and integrity
Highest productivity, thereby offering a cost advantage to all our clients.

Why Apex?

Aristotle - Greek inventor of the Science of Logic - 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.

The 2nd because deals with how is it made ?

Apex has state of art Material Processing facilities including Indias largest laser cutting
machine. And excellent Production Engineering systems set up by a highly experienced and
technically qualified team of engineers.

The 3rd because deals with what is made ?

Based on our customer's drawings and design, 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 ?

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Apex follows the first three precepts so that the end customer gets a world-class product
which will withstand the ultimate test of time.

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

Article III. STRONG PRODUCT DEVELOPMENT

As per the specification from Telcon the new product is been developed
Article IV. By the highly qualified internal engineering department

Article V. STRONG MERCHANDISING TEAM

Technically qualified and high skilled Merchandising department is another asset of the
company, who plays a major role in executing the orders utmost efficiently to the satisfaction of
Buyers.

1. PROFESSIONALLY MANAGED:

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a) Company has two units in Dharwad, one is Apex auto Ltd Unit I and the other is Apex auto
Ltd Unit II
b) Unit I is headed by Mr. Arvind Gaur, Unit II is headed by Mr. Pravat Kumar Rath

2. FACTORIES ENGINEERED TO PRODUCT SPECIFIC:


All their manufacturing units are engineered to product specific and managed by effective
and efficient internal engineering department.

3. QUALITY CONTROL SYSTEM:


There is an independent quality audit team in process control system in all the factories,
which has given quality production consistently.

4. SOURCING OF RAW MATERIALS UNDER VIGILANCE OF QUALITY


AUDIT SYSTEM:
They source all their raw materials 100% from within India. However, 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.

5. IN HOUSE LAB:
They have a lab situated in the major procurement centers, 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.

6. 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.

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7. 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, quality, timely deliveries and
commitment towards work.

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.

APEX AUTO LTD KEY OPPORTUNITIES


Chances to get more products to manufacture form the Buyer i.e. Telcon construction equipment
limited

APEX AUTO LTD KEY THREATS


More-qualified competitors

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CUSTOMER NAME
Apex auto ltd unit II has having only one customer that is TELCON CONSTRUCTION
EQUIPMENT LTD
SUPPLIERS NAMES
SUPPLIERS NAME LOCATION
A005 AKSHATA ENTERPRISES, HUBLI
A013 ASHA ELECTRICAL & SALES HUBLI
A045 ADITYA ELECTRICAL SALES CORPORATION HUBLI
A051 ANAND AIRLINE ACCESSORIES HUBLI
A052 ABHI ENGINEERING WORKS BANGALORE
A058 AMAR ELECTRICAL WORKS HUBLI
A063 ANDANUR PIPES DISTRIBUTORS DHARWAD
B031 BELGAUM CNC APPLICATIONS PVT. LTD BELGAUM
B036 ESHAK DADA BAMBOOWALA MUMBAI
B038 B. MAHENDRA & BROS DHARWAD
B041 BASAVESHWAR KHANAVALI DHARWAD
B044 BELUR INDUSTRIAL GASES DHARWAD
B045 B.B. ENTERPRISES HUBLI
C003 CHACHRA SERVIUCES JAMSHEDPUR
C004 CHAITANYA SALES PVT. LTD. JAMSHEDPUR
D019 DYNAMIC DRIVES HUBLI
D020 DELTA FURNITURE PRIVATELIMITED CHENNAI
E027 EUREKA FORBES LTD DHARWAD
F003 FABRO-TECH ENGINEERS DHARWAD
G008 GOUTAM MACHINE TOOLS HUBLI
G026 GAYATRIMATA INDUSTRIES DHARWAD
H010 HYDROPACK(INDIA) PVT LTD BELGAUM
I018 INDUS MARKETING BELGAUM
J003 JKAY ENTERPRISES HUBLI
K007 KAMATH ENTERPRISES BELGAUM
K008 KAPILA MARKETING DHARWAD
K010 KARNATAKA MATERIAL TESTING RESEARCH BELGAUM
K036 KULKARNI BOOK STALL & STATIONERIES DHARWAD
M008 MARUTI INDUSTRIAL SERVICE CENTRE BANGALORE
M017 MADRAS HARD TOOLS PVT LTD CHENNAI
M019 MANJUNATH GARMENTS DHARWAD
N016 NAVYA ENTERPRISE HUBLI
O003 OMEGA FABRICATIONS DHARWAD

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P002 PETHE BRAKE MOTOR PVT. LTD RATNAGIRI
P006 PRAXAIR INDIA PVT LTD BANGALORE
P028 PRESSURE CONTROL EQUIPMENT KOLKATTA
P037 PAVAN ELECTRICAL COMPANY HUBLI
R001 R.R. ASSOCIATES HUBLI
R007 RENUKA ENGINEERING WORKS DHARWAD
R035 RITTAL INDIA PVT LIMITED BANGALORE
S019 SONA STEEL ENTERPRISES MUMBAI
S085 SAKSHAM AUTOMATION SYSTEMS HUBLI
S087 SHREE GANESH GAS IMPLEMENTS AND SER HUBLI
T001 TARACK ENGG SERVICES DAVENGIRI
T003 TECHNO COMMERCIAL CORPORATION JAMSHEDPUR
T031 TATA STEEL LIMITED BANGALORE
V001 VALJI & BROTHERS HUBLI
V007 VIJAYSHEER DISEL SALES AND SERVICES HUBLI
V008 VOLTAS LIMITED BANGALORE
V014 VIKAS VIDHUTIKARAN PVT LTD DHARWAD
W006 WELD INDIA CONSULTANCY DELHI
Y003 YALLAPPA HEGGERI DHARWAD

Apex Auto Ltd Unit II is having a numerous suppliers. They mainly purchase Raw
Materials like MS plates, Bush Stoppers, Seat Curve etc from Indian suppliers.

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ORGANIZATION STRUCTURE
Managing Director

General
Manager

Production Planning & Finance Manager


Control Manager

CEO

Human Resources Production


Assistant General Assistant General
Manager Manager

Administration Assistant

Supply Production Quality Machine


Chain Mgmt department Assurance Department
Head Head Head Head

Store Production Assistant Machine


Supervisor Supervisor Q. A Operators

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Subordinate Workers Helpers


Members
1. Personnel Department
This department is almost like a human brain, since it is the human beings that operate it.
This department is concerned with implementation of the plans, with the welfare of the plant,
with the industrial relations and above all safety and security of the plant and the work force is its
prime concerns. This department looks after the subsidiaries like recruitment selection training
and induction, canteen, community development disciplinary actions etc., welfare, security,
guesthouse, medical facility etc., (As per Indian Factories Act 1948.)
Team Apex Professionally managed with a rich blend of experience and enthusiastic
youth, Engineers, Diploma Holders, draft men, ITI welders and fitters, Gas cutters, workers and
Fabrication Experts.
Lets go through the process of the Recruitment in Apex Auto Ltd Unit II.
Recruitment is process of searching the prospecting candidate, 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 , they firstly check
the organization culture which type of employees needed in organization and they also check
employment condition in unit.
They are searching the candidates in two ways one is Advertisement and the other is
manual searching. In advertisement they give firstly the adzs like Draft Adv, Client review adv
and Place adv, and then they receive the calls then access their CVs. In manual searching
process they search the employee in plan search, identity search, and contact search, then they
check the candidates interest after that they arrange meeting for selection process
Selection process Selection is a process of checking the candidates knowledge, behavior, Skills,
experience, and qualifications etc to select and place the candidate their correct position.

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2. Stores Department
The raw materials are stored separately under material cell in production department; as
per the demand this department does the work of receiving and issuing of materials.
3. 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 order to make the
work efficient it has the system of sub contractors. So the purchase department does the creation
of sub contractors and vendors. This department is guided by the main motto the plant and other
departments working. Lets have a look on the flow chart of the purchase of raw materials in
Apex Unit II

Material indenting
(As per customer
schedule)

Quotations request to one or more


vendors according to requirement

Quotations Comparisons

Best Negotiation

Purchase Order
creation

Purchase Order send to


vendor (supplier)

Follow Up and procure the


material for production

4. Dispatch Department
The dispatch of materials and finished goods is done in a very efficient way.

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5.Production Department

This department entrusted with the task of the production of Dozer Blade, Loader
Bucket, Narrow Bucket, Back Hoe Main Frame, Boom, Arm, Counter Weight, Heavy Duty
Bucket, Revolving Frame and Track Frame. From our very inception at Jamshedpur in 1996 and
at Dharwad in 1999, 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.

Lets have a look on the process of manufacturing process in Apex Unit II, basically this
company is heavy fabrication company, they are manufacturing BACK HOE LOADER
COMPONENTD & EXCAVATOR COMPONENTS. Following are the components. JHON
DEER (JD) Boom, Arm, Loader Arm and EXCAVATORS 70, 110, 120, Boom and
EXCAVATORS 70, 110,120 Arm. The below showing is the manufacturing process of
Excavators-70 Boom.

Flow chart of Excavator 70

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BOOM END BRACKET
ASSEMBLY
TC 00558/01(RH), TC
00558/02(LH)

BEVELING OF PLATES
TA 00233/01, TA22033/07,
TA 00233/08
CONTINUE
IN FIXTURE
OUTSUB ASSEMBLY 1ST STAGE
OF FIXTURE
TA 01164/00,
2ND STAGE WELDING TA 00233/27,
TA 00233/01, TA00233/08,
TA00233/05, TA00233/06
TA00233/07
IN FIXTURE
TA 00233/09, TA 00233/10
OUT OF FIXTURE
TA 00233/04
ST
1 STAGE WELDING

LUG FITTING
2ND TA
TA 00233/14, STAGE ASSEMBLY
00233/15,
TA 00233/16,TE
TA20789, TE 20790
00233/17,
TA 00233/03

CONTINUE
INSPECTION
Total length 3720+/- 4mm Rejection/
Top lug distance WRT Boom Rectification
End Bracket, Bottom lug
distance

ASSEMBLY OUT OF
=
FIXTURE
TA 00233/02

ROBOT WELDING

LEFT OVER WELDING


TA 0233/26
FIT AND WELD

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CONTINU
Not Ok

CONTINU
E
OK
REJECTION/
INSPECTIO RECTIFICATION
N
MACHINING

REJECTION/
INSPECTIO RECTIFICATION
N
Not Ok
DRESSING

INSPECTIO RECTIFICATION
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UT
TESTING
DESPATCH
OK

Not Ok

OK

Not Ok

OK

Manufacturing process of Ex-70 Boom


Manufacturing process of Ex- 70 Boom is having several steps already you know in the flow
chart now below showing manufacturing process in detail

1. 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). Some materials directly comes to Unit II but some materials firstly comes to

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Unit I and after some process it is send to Unit II. Then the stores department sends materials to
production department for production
2. BOOM AND BRACKET ASSEMBLY
In this process Boom and Bracket assembled or produced. Here firstly they join
20mm Bkt Plate (RH) (TC 00558/01) and TA00233/22 according to the diagram. Then they join
20mm Bkt Plate (LH) (TC 00558/02) and TA 00233/11. After that back up bars are join at the
bottom of both 20mm Bkt plates. Then these two jointed by the plate Back up plate (TA
00233/19), 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.

3. BEVELING OF PLATES
Some plates beveled by Unit I and those plates are Top rolling plate(TA 00233/01),
Side bend plate LH(TA 00233/07) and side bend plate RH(TA 00233/08)

4. 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). After that inside of the BOSS they join BOSS Back up Plate (TA
00233/27). 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, after
that Side bend plate RH(TA 00233/08) is joined according to diagram so this complete Sub
assembly first stage.

5. OUT OF FIXTURE FIRST STAGE WELDING


After completion of Sub assembly first stage each part is manually weld in this process.
6. 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. OUT OF FIXTURE
In this process second stage welding process is done manually.

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8. 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), 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.

9. 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. Firstly bottom lugs are joined to
each other and then those lugs are attached to the bottom of the prepared component. 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.

10. INSPECTION
This is an important stage in manufacturing process. In this stage they check total
length of the component. 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, and bottom lug distance of the components if there
is any problem found then they go for rectification of the component.

11. 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.
12. ROBOT WELDING
Robot is a programmable multiplication, manipulate design to material part, tools
or specialized devices are t

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o carry out specific task.
In Robot welding processed components are weld by Robot machine. Firstly they
set the programs to the robot for welding the components. Every component has is its own
welding program according to the standard drawing of the components, after installation of the
Ex 70 program the welding process of EX- 70 boom starts, Mig welding wire is been used by
the robot to weld the component.\

13. LEFT OVER WELDING


After completion of the Robot welding there are some spaces left which are weld
manually by welders. In this process they also join BOSS Reenforcement plate (TA00233/26) at
the top and bottom side of the BOSS according to the diagram.

14. 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
In this process they measure the components by using measuring scale, try square,
Vernier and gauges etc.

16. MACHINING
Machining process means removing the rough face as per the standard drawing. In
machining process they have two type of jobs one is milling and the other is boring, in this
process they are using two type of machines one SHW that means hidden control machine and
the other is Fanuc control machine. 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. Rough stage
2. Semi finish
3. Finish Stage
In Ex- 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.

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17. INSPECTION
In this process they use the following instruments to check weather the machining
process is properly done or not
1. Bore dial gauge
2. Micrometer
3. Vernier
4. Measuring scale etc
18. 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, here they also fit some items to prepare components to according to standard diagram.

19. INSPECTION
In this process they are checking welding defects in the components by using
Ultrasonic Technique (UT) machine, the following are the defects we can find by using UT
machine.
1. Blow Holder area
2. Proper penetration
3. Porsity etc
20. 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.
Apex Auto Limited is in the service of gaints in the field of Excavator manufacturing Co.
TELCON for 6 Years by maintaining a high QUALITY & SKILL. And for its efforts, it has been
certified by TELCON, and other quality maintaing institutions.

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INVENTORY MANAGEMENT
Management of inventory assumes importance due to the fact that investment in
inventory constitutes one of the major investments in current assets.

The term inventory refers to the stockpile of the products a firm is offering for sale and
the components that make up the product. The assets which firms store as inventory in
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.

(ii) Work in Process:


These represent semi-manufactured products which need further processing before they
can be treated as finished products.
(iii) Finished Goods:
These represent the finished products ready for sale in the market.

(iv) Stores and Supplies:

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These represent that part of the inventory, which does not become a part of final product
but are required for production process. They may be in the form of cotton waste, oil and
lubricants, soaps, brooms, light bulbs etc. Normally, they form a very minor part of total
inventory and do not involve significant investment.
Let us have a look on Different Inventory Management Views. Means emphasis role of
Inventory Management in different Sectors.

INVENTORYMANAGEMENT
INVENTORY MANAGEMENT

V
I
E
W
S Logistic Inventory
Physical Inventory
Management Management

Financial Inventory
Management

Inventory Management of BTI Page 27


Inventory Management is consisting of 3 hands. The first hand as shown in the diagram
is that Physical Inventory Management, Second one is Financial Inventory Management and the
last one (third one) is Logistic Inventory Management.

The reason behind of dividing these views is: to gather the information very easily and
for easy to understanding of each view thoroughly. Let us see the Meanings of each view one by
one.

Physical Inventory Management


Meaning:

Keeping of goods is also a type of management. Whenever requirements comes from


the production department, providing of those required materials in a proper manner & providing
those at the specified period, 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:

1. To carry maximum inventory in order to facilitate efficient and smooth production


and sales operations.

2. To minimize investment in inventory for maximize the profitability.

Inventory Management of BTI Page 28


Both over-investment and under investment in inventories is undesirable as both involve the
consequences. The over-investment involves the consequences like:
i) Unnecessary blocking of funds in inventory and hence loss of profit.
ii) Excessive storage and Insurance Cost.
i. Risk of liquidity. The inventories once purchased and stored are normally difficult to
dispose off at the same value.
The under-investment involves the consequences like:
b. If sufficient stock of raw material and work in process is not available, it may result into
frequent interruptions in production.
c. 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.

Thus, it can be said that the objective of inventory management is to minimize the
investment in inventory without affecting production or sales operations.

Inventory, as a current asset, differs from the other current assets because only financial
managers are not involved. Rather, all the functional areas, finance, Marketing, Product &
Purchasing are involved.

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 owners wealth.

Two-Bin System:

Under this system, the inventory items are grouped into two categories. In one group or
bin, sufficient quantity is kept to meet the current requirements over a designated period of item.
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.

Inventory Management of BTI Page 29


Financial Inventory Management
Meaning:

Recording, maintaining and evaluating of stocks in a value terms is known as Financial


Inventory Management. 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.

Financial Inventory Management is again divided into three different categories.

1) Based on Valuation
2) Based on Cost Analysis
3) Based on Financial Statement

1) Based on Valuation

There are number of generally accepted methods of determining the cost of inventories at
the close of the accounting period. 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.
Therefore, the method should be selected in the light of probable effects on profits over a period
of years.

Note:
It may not be out of place to mention that once a method is selected, it must be used
consistently and cannot be changed from year to year.
The discussion here of the methods to value inventory should, therefore be viewed in this
perspective.

Inventory Management of BTI Page 30


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, that is, those received first are issued/consumed first and
value fixed accordingly. The merit of FIFO method is that the physical flow of materials
matches the flow of cost.

Last in First Out (LIFO) Method:

Under the LIFO method, 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. This is because of the
assumption underlying the valuation of inventory, according to this method. As the name LIFO
suggests, the use of inventory is valued on the basis of the inverse sequence of receipts. Since
the LIFO method assumes that the latest item in is the first item out, the current cost of materials
are matched with the current selling price/current revenues. This matching of current costs with
current revenues is the essence of the argument for the LIFO method.

Average Cost Method:

According to average cost method, each purchase is added to inventory and an average
cost determined. Materials are charged into cost of sales at this average until another lot is
received, when a new average unit inventory cost is calculated.

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.

2) Based on Cost Analysis

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Cost of Holding Inventory: -

One operating objective of inventory management is to minimize cost. Excluding the


cost of merchandise, the costs associated with inventory fall into two basic categories: (i)
Ordering or Acquisition or Set-up Costs, and (ii) Carrying Costs. These costs are an important
element of the optimum level of inventory decisions.

1) Ordering Cost:

It is the fixed cost of placing & receiving an inventory order. Like (a) Preparing a purchase
order or requisition form & (b) receiving, inspecting & reordering goods received to ensure both
quantity & quality. It is also called as setup cost.

2) Carrying Cost:

The second broad category of costs associated with inventory is the carrying costs. They are
involved in maintaining or carrying inventory. The cost of holding inventory may be divided
into two categories.

1. Those that Arise Due to the Storing of Inventory: The main components of this
category of carrying costs are (i) storage cost, that is, depreciation, insurance,
maintenance of the building and utilities; (ii) insurance of inventory against fire and theft;
(iii) deterioration in inventory because of pilferage, fire, technical obsolescence, style
obsolescence and price decline; (iv) serving costs, such as labour for handling inventory,
clerical and accounting costs.
2. The Opportunity Cost of Funds: This consists of expenses in raising funds (interest on
capital) to finance the acquisition of inventory. If funds were not locked up in inventory,

Inventory Management of BTI Page 32


they would have earned a return. This is the opportunity cost of funds or the financial
cost component of the cost.

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 the level of inventory increases, the carrying costs also increase and vice-versa.

Total Cost:
The sum of inventory increases, the carrying costs represent the total cost of inventory.
This is compared with the benefits arising out of inventory to determine the optimum level of
inventory.

Economic Order Quantity (EOQ):


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.

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

Inventory Management of BTI Page 33


Where,

A= Annual Quantity

O= Ordering Cost

C= Carrying Cost

Assumptions:

1. The firm knows with certainty the annual usage (consumption) of a particular item of
inventory.

2. The rate at which the firm uses inventory is steady over time.

3. The orders placed to replenish inventory stocks are received at exactly that point in
time when inventories reach zero.

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 of BTI Page 34


Lead Time:
It is the time normally taken in receiving delivery after placing orders with suppliers.

Safety Stock:
It implies extra inventories that can be drawn down when actual lead-time and/or usage
rates are greater than expected.

3) Based on Financial Statement


For having assistance by banks, bankers should first evaluate the followings:
1. Collateral Strength.
2. Inventory Position
3. Some Financial Ratios
4. Payment of all requirements like Income Tax, Wealth Tax, Interests on debt etc.,
5. Agreement papers of all authorized persons like Debenture holders, Shareholders etc.,
6. All required documents.
7. Who is the Buyer and his Countrys relationship etc,

The main requirement for Banker is the Financial Statements of 3 to 5 years. From this
statement it can judge the financial strength of the Company. While analyzing of Financial
Strength of the Company, Inventory is also having its own emphasis role. Because if company is
having less inventory than its requirement then company will get less finance from Banks and
visa-versa. So here high inventory means, high in the sense company should have sufficient
inventory according to its order. Not more than its order.

Let us have a look on some Inventory related Ratios and also some important financial
ratios those, which are related to Inventory. From evaluating of these Financial Ratios, company
can judge the stocks/goods level in Inventory, so that company can get loan from Banks.

The financial statement provides a summarized view of the financial position and
operations of a firm. Therefore, much can be learnt about a firm from a careful examination of its

Inventory Management of BTI Page 35


financial statements as invaluable documents/performance reports. The analysis of financial
statement is, thus an important aid to financial analysis.

The analysis of financial statements is a process of evaluating relationship between


component parts of financial statements to obtain a better understanding of the firms position
and performance.

Tasks of Financial analyst is to:


1) Select the information relevant to the decision under consideration from the total
information contained in financial statement.
2) Arrange the information in way to highlight significant relationships.
3) Interpretation and drawing of inferences and conclusions.
In brief, financial analysis is the process of selection, relation and evaluation.

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. Financial analysis can be under taken by management of the firm, or by
parties out side the firm, viz., owners, creditors, investors and others. The nature of analysis will
differ depending on the purpose of the analyst.
Management of the firm would be interested in every aspect of the financial analysis. It
is their overall responsibility to see that the resources of the firm are used most
effectively and efficiently, and that the firms financial condition is sound.
Trader creditors are interested in firms ability to meet their claims over a very short
period of time.
Investors, who have invested their money in the firms shares, are most concerned about
the firms earnings.
Suppliers of long-terms debt, on the other hand are concerned with the firms long-term
solvency and survival. They analyze the firms profitability over time, its ability to
generate cash to be able to pay interest and repay principal and the relationship between
various sources of funds.

Inventory Management of BTI Page 36


2.Ratio Analysis related to Inventory

Ratio analysis is a powerful tool of financial analysis. A ratio is defined as the indicated
quotient of two mathematical expressions and as the relationship between two or more things.
In financial analysis ratio is used as a benchmark for evaluating the financial position and
performance of a firm. 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.
Types of Ratios:

a. Liquidity Ratios
b. Activity Ratios
c. Profitability Ratios

A. Liquidity Ratios:

Liquidity refers to the ability of the firm to meet its obligations in the Short run, usually
one year. Liquidity ratios measure the ability of the firm to meet its current obligations.
Liquidity ratios by establishing a relationship between cash and other Current assets to Current
obligations provide a quick measure of liquidity. A firm should ensure that it does not suffer
from lack of liquidity, and also that it does not have excess liquidity.

Therefore it is necessary to strike a proper balance between high liquidity and lack of
liquidity. Following are some of the important liquidity ratios:

1. Current Ratio
2. Quick Ratio
3. Net working Capital Ratio

Inventory Management of BTI Page 37


B. Activity Ratios:

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. Inventory Turnover
2. Assets Turnover
3. 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

Inventory Management of BTI Page 38


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
years purchase (units) should exceed the current years 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.

Inventory Management of BTI Page 39


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 companys 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.

So every company, which are exporting or importing of materials, they should


communicate each other through banks only. These banks are listed by Central Bank of that
Nation. In our Country RBI is lists some banks for intermediating purpose and every year RBI
declare some listed Banks as a mediator.

Inventory Management of BTI Page 40


For producing of materials and selling of those materials, every company/business should
need a Working Capital. This Working Capital can also financed by Banks. While in export
oriented business it is slightly different task. Here Banks can acts as financial assistance for Pre-
Shipment and for Post Shipment of Goods.

For having an assistance by banks they should first evaluate followings:


1. Collateral Strength.
2. Inventory Position
3. Some Financial Ratios
4. Payment of all requirements like Income Tax, Wealth Tax, Interest etc.,
5. Agreement papers of all authorized persons like Debentures, Shareholders etc.,
6. All required documents.
7. Who is the Buyer and his Countrys relationship etc,

Before going to detail decision on Banks let us have a look on Commercial Papers. Which are
also parts of financing the working capital requirements of the Companies.

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.

The companies trying to raise the funds by issuing the CP are regulated by Guidelines for
issue of Commerical Papers (CP), 2000 issued by Reserve Bank of India on October 10, 2000.
These guidelines apply to the companies trying to raise the funds by issuing the CPs. As per
these guidelines, a a company means a company as defined in section 45-I(aa) of Reserve Bank
of India Act, 1934. Section 45-I(aa) of Reserve Bank Act, 1934 defines a company as the
company as the company as defined in section 3 of the companies Act, 1956.

In the Indian circumstances, banks play a very major role in financing the working capital
requirement of the organizations. We will consider the bank as a source for financing the
working capital requirement of the organizations under the following heads:

Inventory Management of BTI Page 41


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. To estimate the requirement of
working capital requirement properly, the company will be required to estimate its level of
current assets and current liabilities properly, as working capital is the difference between current
assets and current liabilities.

For this, the techniques like ratio analysis, trend analysis etc., can be used by the
company. More accurate the estimation of the level of current assets and current liabilities, more
accurate the estimation of level of current capital. Then, the company will have to approach the
bank along with the necessary supporting data. On the basis of estimates submitted by the
company, the bank may decide the amount of assistance that can be extended. While extending
the working capital assistance, the bank may prescribe the margin money requirement. The
margin money stipulation is made by the banks in order to ensure that borrowing companys own
stake in the business and also to provide the cushion against the possible reduction in the value
of security offered to the bank. The percentage of margin money stipulation may depend upon
the credit standing of the borrowing company, fluctuations in the price of security and the
directives of RBI from time to time. The general principle applicable will be, more dicey the
nature of security, higher of security, higher will be the margin money stipulations.

Inventory Management of BTI Page 42


Form of Assistance:

After deciding the amount of overall assistance to be extended to the company, the bank can
disburse the amount in any of the following forms:

1. Non-Fund Based Lending


2. Fund Based Lending.

Non Fund Based Lending:

In case of Non-Fund Based Lending, the lending bank does not commit any physical outflow of
funds. As such, the funds position of the lending bank remains intact. The Non-Fund Based
Lending can be made by the banks in two forms:

a. Bank Guarantees
b. Letter of Credit

Fund Based Lending:


In case of Non-Fund Based Lending, the lending bank commits the physical outflow of funds.
As such, the funds position of the lending does not affected. The Fund Based Lending can be
made by the banks in following forms:
a. Loan
b. Overdraft
c. Cash Credit
d. Bills Purchased/Discounted
e. Working Capital Term Loans
f. Packing Credit

Security for Assistance:

Inventory Management of BTI Page 43


The bank may provide the assistance in any of the modes as stated above. But normally no
assistance will be available unless the company offers some security in any of the following
forms.
1) Hypothecation.
2) Pledge
3) Lien
4) Mortgage

Process of Physical Inventory Maintenance in Apex Auto Ltd

Inventory Management of BTI Page 44


Each unit of Apex auto ltd has its own store department that we can call it as Work-in-
process inventory.

This inventory process is fully computerized and here paper work is very less. Only
maintaining of documents, which were sent by suppliers as like challans etc., 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.

For easy to communicate and planning of production activity, 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:

This PO is comes from Purchase Department. This Purchase Department gives a number
for the each order made by Purchase Department only.

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.

In Apex Auto Ltd (Unit II), 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).
So, normally it does not have any stocks in its inventory. For every order from customers
they make a fresh Purchase Order for purchasing of materials. It means whatever the materials
are requiring for present orders, those materials are only they kept as stocks in Inventory.

In some cases, materials may be in Godown, which they call it as Buffer Stock. If
these old stock is matches the requirements of product which has ordered now by its customers,

Inventory Management of BTI Page 45


then purchase Department will sent a notice to Inventory for issuing of those materials. These
old stock may be in form of Raw Material or in form of finished goods. Apex Auto Ltd (Unit II)
always produces more than its requirements. For example if Telcon has ordered for 20 EX- 70
boom then Apex produces 25 EX 70 i.e., 20% more than its requirements. So the remaining or
excesses material they call it as Buffer Stock.

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, which is maintained by security Guard. Guard is not an
employee of an organization. He is a contact-based employee.

When Inventory receives materials it first inspects some samples, so for it, they call up as
Spot Inspection. Here they inspect the following points:

a) Is it our supplier only and is this parcel is for us only?


d. Are these received materials according to the Purchase Order? Like
i. Quantity
ii. Date, etc.,
e. Is it having all required Challans or Invoices and also does it approved by authorized
person?
f. Is it having all required documents like Octroi etc.,
g. Is that Challan consisting the correct information of materials?

After approval of materials by sample inspection, inventory department put these details
in manual book, this documentation is called as Day Book. This daybook is consisting of
information like Challan No., P.O. No., Style No., Description of Materials, Suppliers Name,
transporters Name, and Quantity.

After completing of these processes, materials will send to inspection department. In this
inspection department they inspect in-details of materials. After approval by inspection

Inventory Management of BTI Page 46


department, this inventory department makes one document, which is they call it as Goods
Received Document.

This Goods Received Document is consisting of GR No., Date, GRN Type (In-store),
Mode of Transport, Challan No., Challan Date, Status, Gate Entry No., Gate Entry Date, Priority
No., all Details of Materials and received quantity and actual quantity also enters there.

3. Issuing of Materials

Merchandising Department will send one card called Job Card which it consisting of
all details of materials requires to produce a product. According to that Card Inventory
department should send the materials to manufacturing department.

After receiving of materials by manufacturing department from inventory department


they issue one document about received of materials, quantity, description of materials etc.
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. Then those materials will be return to inventory.

After utilizing of all these materials by manufacturing department they will send one
document called Order Completion Report (OCR). This report consists the information of
Percentage of Utilized Materials for particular order and percentage of wastage of materials.
This report will send to inventory and also to Merchandising Department.

4. Return Back Materials from Manufacturing Units:

Inventory takes those materials, which are return back from manufacturing units because
of excess or surplus occurs while manufacturing of products. This excess or surplus exists
because of purchase department, they always orders 20% more than its requirement to meet the
requirement of next month. So these materials are kept in Inventory as name it as Buffer
stock.

Inventory Management of BTI Page 47


These Buffer Stocks will be utilize when company get the same type of Order. Inventory
issues these materials (Buffer Stock) only when it receives instruction from Merchandising and
purchasing Department.

5. Rejected Materials:

Inspection department make the rejection of materials, when materials are not as per
requirements and not as per the order. These rejected materials are kept in separate section by
Inventory Department.

Inventory department inform to Purchase Department and also notice to Suppliers about
rejection of materials. That is called Rejection Card. In this card it involves Name of
Supplier, Description of Materials, Challan No., Challan Date, Gate Entry No. & Date, No. of
Quantity rejected, Reason for rejection etc.,

Some times supplier may issue new materials in place of rejected materials. Or he may
give some compensation for wrong supply and that is after paying of full payment of materials.

Sections in Inventory:

Inventory is again divided into 5 sections. Each is section handling by only one persons,
with the help of 3 to 4 assistants, who helps in maintaining of materials at specific area. 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

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All raw materials like direct, 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.
D204
Gas tank and cylinders is stored in this section.
D205
All finished goods are stored in this section

Purchasing Procedure of Materials

In Apex they purchase materials at from a multiple Suppliers. There is a reason for
purchase materials from 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. So there must me
no stock outs in the production process

Apex always purchases at bulk but by schedule wise. In other words they purchase
materials at a time for specific order. They make the agreement of supplying materials only at
once. 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.

Inventory Management of BTI Page 49


So it reduces the spaces, which occupies in the Godown. So this method is suitable for
this type of industry because of same orders from customers.

WIP Store

Now we come to the WIP Store. As we have already seen that this Apex is having only
one Godown and every unit is having its own Store Departments. As we know that Work In
Process Store means Semi-finished Goods, here goods are not completed yet and not these are in
fully raw materials form.

So in valuation matter it is having slightly different way. And in Apex it is as follows:


Yes, these goods are includes some labour cost, some other costs. So in valuation of WIP they
valuate at Raw Material Price of that goods PLUS incurred cost to produce till now.

Finished Goods

Valuation of Finished Goods in Apex is at 10% less than Selling Price of those finished
goods. Finished Goods are in the sense these goods should be ready to dispatch.

There is no separate Godown for Finished Goods/Products. Every unit is having its own
Finished Goods Godown. In that Godown only they store these Goods. And dispatching of
these products is directly by each unit. They do not consolidate these goods; they dispatch these
finished products directly by each unit.

Apex auto ltd (Unit II) has only one customer that is Telcon. So they directly supply
finished products to its customers. So it is not necessary to have another Godown for Finished
Goods.

Inventory Management of BTI Page 50


Logistics Inventory Management

There is a department called Logistic Department in Apex Auto Ltd, 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. So Logistic
Department is one of the important front-office Departments, like Marketing Department.

Marketing Department is one, which takes the orders from its customers. And this is
entirely different from Logistic Department. Logistic Department is one, which sells its products
and maintains all documents. But Marketing Department is comes into picture before production
process starts. And Logistic Department comes into picture only after the production process
completes.

Logistic Department is not only taking the approval for selling its products, but also it
will concern for taking loan for its working capital. Banks will provide these working capital
requirements in two senses: one is on Pre-Shipment Loan and another one is Post-Shipment
Loan.

Inventory Management of BTI Page 51


There are so many ways to get loan for working capital requirement. Apex get loan for
Working Capital requirement either through Commercial Papers or through Letter of Credit.
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. the tangible net worth of the company as per latest audited balance sheet is not less than
Rs. 4 Crores.

Note:
Tangible net worth means share capital plus free reserves duly reduced by intangible
assets like accumulated losses, deferred revenue expenditure etc. Free Reserves include share
premium and debenture redemption reserve but do not include revaluation reserve.

2. Company has been sanctioned working capital limits by banks.

3. Borrowed amount of company is classified as a standard asset by the bank.

Commercial Paper is an unsecured promissory note issued at a discount. The rate of


discount is required to be decided by the issuer and is not regulated.

Before the company issues the CPs it is required to obtain satisfactory credit rating from
an approved credit rating agency. Presently, following credit rating agencies have been
approving by RBI for this purpose.

a. Credit Rating Information Services of India Ltd., (CRISIL)

b. Investment Information and Credit Rating Agency of India Ltd., (ICRA)

c. Credit Analysis and Research Ltd., (CARE)

d. FITCH Rating India (P) Ltd.,

Inventory Management of BTI Page 52


The minimum credit rating required is P-2 of CRISIL. If the rating is given by any other
agency, equivalent minimum rating will be required. The rating so obtained by the company
should be current and should not have fallen due for review.

Who can invest in CP:


Following persons can invest in the CP
4. Individuals
5. Banks
6. Corporate Bodies incorporated in India
7. Unincorporated Bodies
8. Non-resident Indians
9. Foreign Institutional Investors

Nature of a CP:
h. A CP can be issued for the maturity period of 7 days to one year.
i. A CP has the denomination of Rs. 5 Lakshs and every single investor should invest
minimum Rs. 5 Lakhs in CP.
j. Every issue of CP, including the renewal, will be considered to be the fresh issue.
k. The amount of CP shall be within the overall limit sanctioned by the Board of Directors. It
can be issued a stand alone product. Banks will be free to adjust the working capital
limits after considering the CPs issued by the Company.

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, 1956.

Procedure for issuing the CPs:

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Every company issuing the CP should appoint a scheduled bank as the Issuing and
Paying Agent (IPA). It will satisfy it-self that company has obtained satisfactory credit rating. It
shall also verify the documents submitted by the issuing company and issue a certificate that the
documents are in order. IPA should also certify that it has valid agreements with the issuing
company.

The issuing company shall arrange to place the CPs on private placement basis with the
inventors. The issuing company shall disclose to the potential investor its financial position.
After the deal is confirmed, the issuing company shall issue physical certificates to the investor.
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. Every issue of CP should be reported
to RBI through the IPA within three days from the date of completion of issue.

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.

Inventory Management of BTI Page 54


Financial Inventory Management

Already we saw about Logistic Inventory Management. Let us see how Apex valuates
the old and rejected stocks in financial terms and also have a look on the inventory ratios.

Valuation method for Old and Rejected Stocks:

Old Stock:
This old stock means excess of materials from specific order. As already viewed in
Physical Inventory Process that, always purchase department purchases 20% more than its
order. 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. If these old stock are after Finishing of production process. Then these are
valuating on selling price of same products to the customer.

In easy words it can be said that if materials are Raw, then taking as Purchasing value for
valuation purpose. If materials are Finished Goods then taking Selling Price as a value for
valuation of Old Stock in Godown.

Rejected Stocks:

Again these are divides into three parts. Rejection of Raw Materials i.e., before sending
to Production Process. Rejection of Materials during the Production Process and Rejection of
Materials after the Production Process that is, Rejection of Finished Goods.

Rejection of Raw Materials is valuating on Purchase value of those materials. Rejection


of WIP Materials then valuate as Purchase Value Plus its partly incurred Costs like Labour,

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Overhead Costs etc., And for Rejection of Finished Goods valuate at Purchase Value and Fully
incurred Costs as said now.
Holding or Ordering Cost

These costs are every important in manufacturing companies to minimize the cost. This
is not applicable to Apex by virtue of its Business activities. Because, let us have a broad view on
statement by following points:

In Apex, they purchase the materials only from multiple supplier.


Because to fulfill the requirements in required time limit.
Apex orders the materials to suppliers only at once and according to the schedule supplier
will supply the materials.

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.

EOQ
EOQ applicability due to the nature of Business as above said is not possible.

Reorder Point:

This is the point is also not having much importance because of nature of Business.
Lead Time
Apex purchases materials from multiple supplier and by on schedule basis to supply
materials. So this is also not applicable in this type of business.

Inventory Management of BTI Page 56


Financial Ratios related to Inventory.
Raw material turnover ratio:
Raw material turnover ratio is velocity at which raw material converted into goods ready
for sale. If raw material turnover ratio is high then company is efficiency converting into finished
goods.
Formula: Material consumed / Average raw material

Raw Material Turnover Ratio


Year Raw material consumed (Rs) Avg R.M Ratio
2008 576,484,922 53,608,082 10.75
2007 371,223,873 36,137,266 10.27
2006 230,779,236 132,002,490 1.74

Inventory Management of BTI Page 57


Ratio

12
10
8
6 Ratio
4
2
0
2008 2007 2006
Years

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.
Formula: 360 /Raw material turnover ratio

Holding period of raw material


Year Total Days Ratio Days
2008 360 10.75 33
2007 360 10.27 35
2006 360 1.74 206

Inventory Management of BTI Page 58


Raw material holding Period

250

200

150
RHP
100
D
A
Y
S

50

0
2008 2007 2006
Years

As the raw material turnover ratio is increasing form to 10.27 for 2007 it indicates that firm is
taking less days for conversion as compared to 2006. In 2006 conversion period was 206 days
but in decreased to 35 days for 2007. This is shown in above graph.
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.I.P converted into goods ready for
sale. If W.I.P turnover ratio is high then company is efficiency converting into finished goods.
Formula:
Cost of production
Average W.I.P

W.I.P turnover ratio


Year Cost of production Avg W.I.P Ratio
2008 849,054,442 36,720,702 23.12
2007 555,094,500 15,010,347 36.98
2006 361,110,197 9,755,839 37.01

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Work in Process Turnover ratio

40
35
30
25
20 Ratio
15
D
A
Y
S

10
5
0
2008 2007 2006
Years

Form above graph we came to know that Work in process turnover ratio is decreasing from 37.01
in 2006 to 23.12 2008. The ratio was high in 2006 as compared to 2007 and 2008. The ratio was
37.01. Indicates that company is converting semi finished into finished goods quickly

Holding period of W.I.P:


It refers to the number of days taken for the production unit to convert semi finished
goods into finish goods.

Formula:
360
W.I.P turnover ratio

Holding period of W.I.P


Year Total Days Ratio Days
2008 360 23.12 15.57
2007 360 36.98 9.73
2006 360 37.01 9.72

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Holding period of W I P

18
16
14
12
10
Ratio
8
6
D
A
Y
S

4
2
0
2008 2007 2006
Years

As the work in process turnover ratio is increasing form 9.72. in 2006 To 15.57 for 2008 it
indicates that firm is taking less days for conversion. Which shown in above graph
Finished goods turnover ratio:
Finished goods turnover ratio is velocity at which finished goods converted into for sale.
If finished goods turnover ratio is high then company is efficient.
Formula:
Cost of goods sold
Average finished goods

Finished goods turnover ratio


Year cost of goods sold Avg F.G Ratio
2008 849,054,442 26,243,339 32.35
2007 555,094,500 19,858,482 27.95
2006 361,110,197 10,940,008 33.01

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Finished Goods Turnover Ratio

34
33
32
31
30
Ratio
29
28
D
A
Y
S
27
26
25
2008 2007 2006
Years

Form above graph we came know that finished goods turnover ratio is decreasing from 33.01 in
2006 to 27.95 for 2007. Indicates that company is selling goods little slowly as compared to
2006 but it is bit fast as compared to 2008. Where the ratio for that particular period was 32.35
decreased to 11.20 for 2008 it is satisfactory. Which shown in above graph.
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. The
normal manufacturing firms have low ratio of inventory total capital employed in the
organization.
Formula: Inventory / Total capital employed

Inventory to capital employed


Total capital
Year Inventory employed Percentage
2008 197,465,069 301,443,215 65.50
2007 121,558,000 145,492,599 83.54
2006 67,994,623 98,333,324 69.14

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Inventory to capital employed

90
80
70
60
50
ICE
40
30
20
10
G
R
C

A
P
E

E
T

0
2008 2007 2006
Years

By observing above graph we can say that the firm investing huge amount in inventories
compared to other assets. It invested 83.54% of its capital in inventory in 2007 where as it
reduced to 65.50% in 2008
Inventory to current asset ratio:
This ratio indicates the relationship between the inventory and current assets. It shows the
percentage of inventory to current assets, which helps the organizations in deciding the current
assets policy which also affect the liquidity position of the organization.
Formula: Inventory / Current assets

Inventory to current asset ratio


Year Inventory current assets Percentage
2008 197,465,069 331,314,504 59.60
2007 121,558,000 237,687,684 51.14
2006 67,994,623 117,022,625 58.10

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Inventory to current asset ratio

62
60
58
56
54 Ratio
52
50

G 48
R
C

A
P
E

E
T

46
2008 2007 2006
Years

The inventory to current assets ratio in the year 2006 was 58.10% and it decreased to 51.14% in
the year 2007 but again it increased to 59.60% in 2008. It shows that the firm investing 59.60%
of its investment is for inventory only.
Inventory to total assets:
This ratio indicates the relationship between the inventory and total assets. The
significance of this ratio is it reflects the portion the inventory as a percentage of the total assets,
which helps the management deciding the utilization remaining resources profitably, 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 197,465,069 990,329,087 19.93
2007 121,558,000 540,916,088 22.47
2006 67,994,623 414,901,234 16.38

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Inventory to total assets

25

20

15
Ratio
10

5
G
R
C

A
P
E

E
T

0
2008 2007 2006
Years

During the year 2006 the rate of inventory to total assets was 16.38% it increased to 22.47% in
2007. But again it reduced to 19.93% in 2008. It indicates that firm investing only 19.93% in
inventory out of total assets.
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.
Formula: Inventory
Working capital

Inventory to working capital


Year Inventory Working capital Percentage
2008 197,465,069 199,345,123 99.05
2007 121,558,000 146,097,210 83.20
2006 67,994,623 46,338,277 146.45

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Inventory to working capital

160
140
120
100
80 Ratio
60
40
G 20
R
C

A
P
E

E
T

0
2008 2007 2006
Years

In the year the ratio was 146.45% in 2006. It decreased to 83.20% for 2007 but it increased it to
99.05% in 2008. It indicates that firm investing huge amount in inventory
FINDINGS:

1. Raw material turnover ratio is increased rapidly in 2007 from 1.74 in 2006 to 10.27 for
2007.

2. As the raw material turnover ratio is increasing form to 10.27 for 2007 it indicates that
firm is taking less days for conversion as compared to 2006.

3.Work in process turnover ratio is decreasing from 37.01 in 2006 to 23.12 2008. The ratio
was high in 2006 as compared to 2007 and 2008.

4.As the work in process turnover ratio is increasing form 9.72. in 2006 To 15.57 for 2008
it indicates that firm is taking less days for conversion

5.Finished goods turnover ratio is decreasing from 33.01 in 2006 to 27.95 for 2007.
Indicates that company is selling goods little slowly as compared to 2006

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but it is bit fast as compared to 2008.

6.Company is selling goods little slowly as compared to 2006 but it is bit fast as compared
to 2008. Where the ratio for that particular period was 32.35

7.The inventory to current assets ratio in the year 2007 was 58.10% and it decreased to
51.14% in the year 2008 but again it increased to 59.60% in 2008. It shows that the firm
investing 59.60% of its investment is for inventory only.

8.During the year 2007 the rate of inventory to total assets was 16.38% it icreased to
22.47% in 2008. But again it reduced to 19.93% in 2009. It indicates that firm investing
only 19.93% in inventory out of total assets.
9.In the year the ratio was 146.45% in 2006. It decreased to 83.20% for 2007 but it
increased it to 99.05% in 2008. It indicates that firm investing huge amount in inventory.

10.As the finished goods turnover ratio is increasing form 10.87 in 2007 to 12.86 for 2008
it indicates that firm is taking less days for sale. In 2008 conversion period was 12.86 days
but in decreased to 11.20 for 2008 it is satisfactory.

Inventory Management of BTI Page 67


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, it is not good for the company because it eats
unnecessary investment. To avoid this problem the following points will help.
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.
Quantity should be ordered as per the demand. We can assume the demand for the
goods from past experience.
We can have more Raw materials which are imported from other countries but carry
reasonable stocks which are available locally.
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. Therefore optimum ordering quantity
is necessary, 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.

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CONCLUSION
After the study, we can came to a conclusion that, effectiveness of inventory management should
improve in all the aspects, hence the industry can still strengthen its position by looking into the
following.

The inventory should be fast moving so that warehouse cost can be reduced.
The finished goods have to be dispatched in feasible time as soon as manufacturing
is completed.
Optimum order quantity should be maintained, hence cost can be minimized.
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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BIBIIOGRAPHY

BOOKS
Financial Management : I.M.Panday

Production Management : K. Ashwatappa

WEBSITES
www.apexautoltd.com
www.google.com

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