A STUDY ON

INVENTORY MANAGEMENT
With special reference to

HETERO DRUGS PVT LTD, HYDERABAD

In partial fulfillment for the requirement of the Award of the Degree of

MASTER OF BUSINESS ADMINISTRATION

Submitted by

KARRI PRAVEEN KUMAR REDDY

(Regd. No: 17A81E0075)

Under the esteemed Guidance of

E.SURESH MBA
ASST PROFESSOR

DEPARTMENT OF MANAGEMENT STUDIES

SRI VASAVI ENGINEERING COLLEGE
(Affiliated to JNTU, Kakinada)
Petadepalli, Tadepalligudem
2017-2019
 CERTIFICATE

This is to certify that KARRI PRAVEEN KUMAR REDDY,

Regd (17A81E0075), Student of MBA (Finance) at SRI VASAVI ENGINEERING

COLLEGE, PEDATADEPALLI, TADEPALLIGUDEM, during the academic year

2017-2019 has undergone the project work on ‘INVENTORY MANAGEMENT’ in

HETERO DRUGS PVT LTD, HYDERABAD under my supervision and had fulfilled

the requirements concerning the project work.

.

HEAD
Department of management studies
INTERNAL GUIDE

INTERNAL EXAMINER EXTERNAL EXAMINER

 DECLARATION

I, KARRI PRAVEEN KUMAR REDDY, Regd.No..(17A81E0075) Student of SRI

VASAVI ENGINEERING COLLEGE, PETADEPALLI, TADEPALLIGUDEM is
hereby declare that the project report submitted by me to the Head of the department
on “A STUDY ON INVENTORY MANAGEMENT in HETERO DRUGS PVT
LTD., HYDERABAD in fulfillment of the requirement for the MASTER OF
BUSINESS ADMINISTRATION is a record of a bonafied research carried out
by me under the guidance of E.SURESH MBA , I hereby declare that this project
is my own and is prepared basing upon the data and information gathered during
a period of 5 Weeks.

PLACE: TADEPALLIGUDEM

DATE:

K.PRAVEEN KUMAR REDDY

 ACKNOWLEDGEMENT

A Project work is an incredible opportunity for learning and practical application

of knowledge. I consider myself very blissful and honored to have so many wonderful
people lead me throughout the duration of my project work.

I take this opportunity to express my deepest gratitude to E.Suresh MBA, my

project guide & motivator for helping me in carrying out this project.

I express my sincere thanks to Sri Karnam Satish Kumar, General Manager of

Hetero drugs pvt ltd , for rendering valuable information and guidance.

And finally I would like thank to my parents whose remarkable encouragement

has helped me throughout my educational endeavor and in this project work.

I also take this opportunity to thank all those without whose cooperation and guidance
for this project work could not have been completed successful.
 CONTENTS

CHAPTER – I 1-06

INTRODUCTION

OBJECTIVES OF THE STUDY

NEED FOR THE STUDY

METHODOLOGY OF THE STUDY

LIMITATIONS OF THE STUDY
CHAPTER– II 07-32


INDUSTRY PROFILE

COMPANY PROFILE
CHAPTER –III 33-64


THEORETICAL FRAME WORK
CHAPTER – IV 65-81

DATA ANALYSIS AND INTERPRETATION

CHAPTER – V 82-84

FINDINGS

SUGGESTIONS

CONCLUSION

BIBLIOGRAPHY
ANNEXURES 85-90
 INTRODUCTION

Inventory can be referred to as sum of the value of raw materials fuels and

lubricants, spare parts, maintenance consumables, semi processed materials and

finished goods, stock at some random purpose of time.

In extensive organizations stock spot a most huge piece of the present

resources. The business has about 15 to 30% of inventories in total assets.

Stock is made out of advantages that will be sold in highlight in the ordinary

course of business tasks. The benefits which firms stores as stock is expectation of

need are crude materials, work in advancement and completed products.

MEANING OF INVENTORY MANAGEMENT

Stock administration comprises of keeping up for a given money related

speculation a satisfactory of something so as to meet and acknowledged example of

interest. Inventory considers control over costs of inventory on one hand and handles

the size of inventory on other hand.

Controlling investments in inventories constitute crucial part in current

assets. An efficient inventory controlling system will decide,

What to purchase?

When to purchase?

How to purchase?

Size of purchase?

INVENTORY CONTORL

Stock control is the framework formulated a received for controlling interests

in stock. It includes stock arranging and basic leadership with respect to the amount

and time of procurement, obsession of stock dimensions, upkeep of stock records and

persistent stock – taking.

1
 NEED FOR THE STUDY

 The inventory assumes an indispensable job in the efficient

operation of company. Particularly, it is in direct touch with
manufacturing departments, material departments and marketing
department in its day to day activities.
 In all most all industries, about 60% of the Working Capital invited
in the materials. An efficient inventory management can help to
achieve better utilization of this Investment with considerable
degree of success.
 Providing all the required crude materials, consumable stores, parts
etc., to the manufacturing units at the ideal time and perfect spot, at
the most reduced conceivable expense and receiving stock control
measures, using good material handling practices are the principle
objectives of stores management.
 In other words reducing the cost in all spares of the manufacturing
activities will help in increasing the profits of the company.
 The efficient with which the Inventory is managed will invariable
determine the efficiency of the production and levels of profits of
the enterprises.
 Hence “Inventory management” has attained significant status in the
present day business and industrial management.
 In this project an exertion has been made to consider deeply the
inventory system and procedures adopted in the inventory management
of“HETERO DRUGS PVT Ltd.’

2
 SCOPE OF THE STUDY

 The study is done on Inventories.

 The extent of the investigation incorporates ABC Analysis of Raw Materials,

Work-in-Progress, and Finished products for five money related years.

 This study provides insight to the Management of High Value items and also
brings attention of Management towards movement of ‘A’ class items over a
period of five years.

 The study of financial performance and profitability includes particularly on

past five years financial highlights of the company and also the comparison of
the privatization and study also includes the comparison of one year to the
other year

3
 OBJECTIVES OF THE STUDY

 To know the organization structure of inventory management in the stores of

Hetero Drugs.

 To study pattern, levels and trends of inventories in Hetero Drugs.

 To understand the various inventory control techniques followed by studied by

Hetero Drugs.

 To know the performance of inventory management of the Hetero Drugs by

selected accounting ratios.

 To know the inventory control techniques of Hetero Drugs like setting up of

various stock levels, maintaining perpetual inventory system, establishing
proper purchase procedures etc.

4
 METHODOLOGY OF THE STUDY

The study is based on both essential and optional information . The primary
data has been collected through structured questionnaire reflecting inventory
management practices of Hetero Drugs. The collected data is tabulated and suitable
interpretation had been made by considering the data collecting through secondary
data like annual reports purchase registers, storage records of the organization.
To attain the objective of studying the inventory of the company. The information

has been collected in two ways:

 Primary data

 Secondary data

Primary Data:

In Primary data the analysis of purchasing procedure, inventory data,

inventory turnover ratio, stock levels, ABC analysis, Two bin system, JIT has made

possible by the discussions with various administrative executives and other

concerned people of HETERO DRUGS.

(Source: Annual reports of HETERO DRUGS LIMITED)

Secondary Data:

The Secondary data has been gathered from yearly reports of association,

Internet and text book which has been matched with the record obtained from the

Company in order to make a strategic view.

(Source: Annual reports of HETERO DRUGS LIMITED)

5
 LIMITATIONS OF THE STUDY

 The study is limited only for a period 5 years.

 The restrictions of proportion investigation can be applicable of the study.

 There may be approximation in calculating ratios and taking the figure from
the annual reports.

 The study period is limited to five weeks.

 The accounting procedure and other accounting principles are limited by the
company changes in them may vary the actual and budget performance.

6
 PROFILE OF PHARMACEUTICAL INDUSTRY

“The Indian pharmaceutical industry is a success story providing employment for

millions and ensuring that essential drugs at affordable prices are available to the
vast population of this sub-continent”.
Richard Gerster

The Indian Pharmaceutical Industry today is in the front rank of India’s

science-based industries with wide ranging capabilities in the complex field of drug
manufacture and technology. It ranks very high in the third world, in terms of
technology, quality and range of medicines manufactured. From simple headache pills
to sophisticated antibiotics and complex cardiac compounds, almost every type of
medicine is now made indigenously.

Playing a key role in promoting and sustaining development in the vital

field of medicines, Indian Pharma Industry boasts of quality producers and many
units approved by regulatory authorities in USA and UK. International companies
associated with this sector have stimulated, assisted and spearheaded this dynamic
development in the past 53 years and helped to put India on the pharmaceutical map
of the world.

Growth Scenario in 2012

India's pharmaceutical industry is now the third largest in the world in terms of
volume. Its rank is 14th in terms of value. Between September 2010 and September
2012, the total turnover of India's pharmaceuticals industry was US$ 21.04 billion.
The domestic market was worth US$ 12.26 billion. This was reported by the
Department of Pharmaceuticals, Ministry of Chemicals and Pharmacies. As per a
report by IMS Health India, the Indian pharmaceutical market reached US$ 10.04
billion in size in July 2010. A highly organized sector, the Indian Pharma Industry is
estimated to be worth $ 4.5 billion, growing at about 8 to 9 percent annually. Know
more out this in our article on Indian Pharmaceutical Industry- Future Trends Also
check out Pharmaceutical Market Trends 2010.

7
 Leading Pharmaceutical Companies
In the domestic market, Cipla retained its leadership position with 5.27
percent share. Ranbaxy followed next. The highest growth was for Mankind Pharma
(37.2%). Other leading companies in the Indian pharma market in 2010 are:

 Sun Pharma (25.7%)

 Abbott (25%)
 Zydus Cadila (24.1%)
 Alkem Laboratories (23.3%)
 Pfizer (23.6 %)
 GSK India (19%)
 Piramal Healthcare (18.6 %)
 Lupin (18.8 %)

Future Prospects:

The Indian pharmaceuticals market is expected to reach US$ 55 billion in

2020 from US$ 12.6 billion in 2009. This was stated in a report title "India Pharma
2020 Propelling access and acceptance, realizing true potential" by McKinsey &
Company. In the same report, it was also mentioned that in an aggressive growth
scenario, the pharma market has the further potential to reach US$ 70 billion by 2020
Due to increase in the population of high income group, there is every likelihood that
they will open a potential US$ 8 billion market for multinational companies selling
costly drugs by 2017. This was estimated in a report by Ernst & Young. The domestic
pharma market is estimated to touch US$ 20 billion by 2017. The health care market
in India to reach US$ 31.59 billion by 2020. The sale of all types of pharmaceutical
drugs and medicines in the country stands at US$ 9.61 billion, which is expected to
reach around US$ 19.22 billion by 2016. Thus India would really become a lucrative
destination for clinical trials for global giants.
There was another report by RNCOS titled "Booming Pharma Sector in India"
in which it was projected that the pharmaceutical formulations industry is expected
to prosper in the same manner as the pharmaceutical industry. The domestic
formulations market will grow at an annual rate of around 17% in 2016-17, owing to

8
increasing middle class population and rapid urbanization. Read More in Future
Prospects of Indian Pharma Industry.

Characteristics of Indian Pharmaceutical Industry

The Indian Pharmaceutical sector is highly fragmented
with more than 20,000 registered units. It has expanded drastically in the last two
decades.

The pharmaceutical industry in India meets around 70% of the country's

demand for bulk drugs, drug intermediates, pharmaceutical formulations, chemicals,
tablets, capsules, orals and injectibles. There are about 250 large units and about 8000
Small Scale Units, which form the core of the pharmaceutical industry in India
(including 5 Central Public Sector Units). These units produce the complete range of
pharmaceutical formulations, i.e., medicines ready for consumption by patients and
about 350 bulk drugs, i.e., chemicals having therapeutic value and used for production
of pharmaceutical formulations.

Following the de-licensing of the pharmaceutical industry, industrial licensing for

most of the drugs and pharmaceutical products has been done away with.
Manufacturers are free to produce any drug duly approved by the Drug Control
Authority. Technologically strong and totally self-reliant, the pharmaceutical industry
in India has low costs of production, low R&D costs, innovative scientific manpower,
strength of national laboratories and an increasing balance of trade. The
Pharmaceutical Industry, with its rich scientific talents and research capabilities,
supported by Intellectual Property Protection regime is well set to take on the
international market.

Why India?
Competent workforce: India has a pool of personnel with high managerial and
technical competence as also skilled workforce. It has an educated work force and
English is commonly used. Professional services are easily available.
Cost-effective chemical synthesis: Its track record of development,
particularly in the area of improved cost-beneficial chemical synthesis for various

9
drug molecules is excellent. It provides a wide variety of bulk drugs and exports
sophisticated bulk drugs.
Legal & Financial Framework: India has a 53 year old democracy and hence
has a solid legal framework and strong financial markets. There is already an
established international industry and business community.

Information & Technology:

It has a good network of world-class educational institutions and established
strengths in Information Technology.
Globalization:
The country is committed to a free market economy and globalization. Above
all, it has a 70 million middle class market, which is continuously growing.
Consolidation:
For the first time in many years, the international pharmaceutical industry is
finding great opportunities in India. The process of consolidation, which has become
a generalized phenomenon in the world pharmaceutical industry, has started taking
place in India.
Steps to strengthen the Industry:
Indian companies need to attain the right product-mix for sustained future
growth. Core competencies will play an important role in determining the future of
many Indian pharmaceutical companies in the post product-patent regime after 2005.
Indian companies, in an effort to consolidate their position, will have to increasingly
look at merger and acquisition options of either companies or products. This would
help them to offset loss of new product options, improve their R&D efforts and
improve distribution to penetrate markets.
Research and development has always taken the back seat amongst Indian
pharmaceutical companies. In order to stay competitive in the future, Indian
companies will have to refocus and invest heavily in R&D.

The Indian pharmaceutical industry also needs to take advantage of the recent
advances in biotechnology and information technology. The future of the industry will be
determined by how well it markets its products to several regions and distributes

10
risks, its forward and backward integration capabilities, its R&D, its consolidation
through mergers and acquisitions, co-marketing and licensing agreements.

The Indian pharmaceutical industry is the world's second-largest by volume

and is likely to lead the manufacturing sector of India. India's bio-tech industry
clocked a 17 percent growth with revenues of Rs.137 billion ($3 billion) in the 2015-
16 financial year over the previous fiscal.

Bio-pharma was the biggest contributor generating 60 percent of the industry's

growth at Rs.8, 829 crore, followed by bio-services at Rs.2, 639 crore and bio-agri at
Rs.1,936 crore. The first pharmaceutical company is Bengal chemicals and
pharmaceutical works, which still exists today as one of 5 government-owned drug
manufacturers, appeared in Calcutta in 1930. For the next 60 years, most of the drugs
in India were imported by multinationals either in fully formulated or bulk form. The
government started to encourage the growth of drug manufacturing by Indian
companies in the early 1960s, and with the Patents Act in 1970, enabled the industry
to become what it is today.

This patent act removed composition patents from food and drugs, and though
it kept process patents, these were shortened to a period of five to seven years. The
lack of patent protection made the Indian market undesirable to the multinational
companies that had dominated the market, and while they streamed out, Indian
companies started to take their places. They carved a niche in both the Indian and
world markets with their expertise in reverse-engineering new processes for
manufacturing drugs at low costs. Although some of the larger companies have taken
baby steps towards drug innovation, the industry as a whole has been following this
business model until the present.

11
 TABLE: 2.1

Top 10 Pharmaceuticals in India, as of 2017

Revenue Revenue
Rank Company
2017(Rs crore) 2017(Rs billion)

1 Ranbaxy Laboratories 4,198.96 41.989

Dr. Reddy's
2 4,162.25 41.622
Laboratories

3 Cipla 3,763.72 37.637

4 Sun Pharmaceutical 2,463.59 24.635

5 Lupin Ltd 2,215.52 22.155

6 Aurobindo Pharma 2,081.19 20.801

7 GlaxoSmithKline 1,773.41 17.734

8 Cadila Healthcare 1,613 16.13

9 Aventis Pharma 983.80 9.838

10 Ipca Laboratories 980.44 9.8044

12
In 2002, over 20,000 registered drug manufacturers in India sold $9 billion worth of
formulations and bulk drugs. 85% of these formulations were sold in India while over
60% of the bulk drugs were exported, mostly to the United States and Russia. Most of
the players in the market are small-to-medium enterprises; 250 of the largest
companies control 70% of the Indian market. Thanks to the 1970 Patent Act,
multinationals represent only 35% of the market, down from 70% thirty years ago.

Most pharma companies operating in India, even the multinationals, employ

Indians almost exclusively from the lowest ranks to high level management.
Mirroring the social structure, firms are very hierarchical. Homegrown
pharmaceuticals, like many other businesses in India, are often a mix of public and
private enterprise. Although many of these companies are publicly owned, leadership
passes from father to son and the founding family holds a majority share.

In terms of the global market, India currently holds a modest 1-2% share, but
it has been growing at approximately 10% per year27. India gained its foothold on the
global scene with its innovatively engineered generic drugs and active pharmaceutical
ingredients (API), and it is now seeking to become a major player in outsourced
clinical research as well as contract manufacturing and research. There are 74 U.S.
FDA-approved manufacturing facilities in India, more than in any other country
outside the U.S, and in 2005, almost 20% of all Abbreviated New Drug Applications
(ANDA) to the FDA are expected to be filed by Indian companies21, 27. Growth in
other fields notwithstanding, generics is still a large part of the picture. London
research company Global Insight estimates that India’s share of the global generics
market will have risen from 4% to 33% by 2007.

Product development

Indian companies are also starting to adapt their product development

processes to the new environment. For years, firms have made their ways into the
global market by researching generic competitors to patented drugs and following up
with litigation to challenge the patent. This approach remains untouched by the new
patent regime and looks to increase in the future. However, those that can afford it
have set their sights on an even higher goal: new molecule discovery. Although the
initial investment is huge, companies are lured by the promise of hefty profit margins

13
and the recognition as a legitimate competitor in the global industry. Local firms have
slowly been investing more money into their R&D programs or have formed alliances
to tap into these opportunities.

Small and medium enterprises:

As promising as the future is for a whole, the outlook for small and medium
enterprises (SME) is not as bright. The excise structure changed so that companies
now have to pay a 16% tax on the maximum retail price (MRP) of their products, as
opposed to on the ex-factory price. Consequently, larger companies are cutting back
on outsourcing and what business is left is shifting to companies with facilities in the
four tax-free states - Himachal Pradesh, Jammu & Kashmir, Uttaranchal and
Jharkhand. Consequently a large number of pharmaceutical manufacturers shifted
their plant to these states, as it became almost impossible to continue operating in non
tax free zones. But in a matter of a couple of years the excise duty was revised on two
occasions, first it was reduced to 8% and then to 4%. As a result the benefits of
shifting to a tax free zone were negated. This resulted in, factories in the tax free
zones, to start up third party manufacturing. Under this these factories produced goods
under the brand names of other parties on job work basis.

As SMEs wrestled with the tax structure, they were also scrambling to meet
the July deadline for compliance with the revised Schedule Good Manufacturing
Practices (GMP). While this should be beneficial to consumers and the industry at
large, SMEs have been finding it difficult to find the funds to upgrade their
manufacturing plants, resulting in the closure of many facilities. Others invested the
money to bring their facilities to compliance, but these operations were located in
non-tax-free states, making it difficult to compete in the wake of the new excise tax.

Challenges
All of these changes are ultimately good for the Indian pharmaceutical industry,
which suffered in the past from inadequate regulation and large quantities of spurious
drugs. They force the industry to reach a level necessary for global competitiveness.
However, they have also exposed some of the inadequacies in the industry today. Its
main weakness is an underdeveloped new molecule discovery program. Even after the
increased investment, market leaders such as Ranbaxy and Dr. Reddy’s Laboratories
spent only 5-10% of their revenues on R&D, lagging behind Western pharmaceuticals

14
like Pfizer, whose research budget last year was greater than the combined revenues
of the entire Indian pharmaceutical industry. This disparity is too great to be explained
by cost differentials, and it comes when advances in genomics have made research
equipment more expensive than ever. The drug discovery process is further hindered
by a death of qualified molecular biologists.

R&D
Both the Indian central and state governments have recognized R&D as an
important driver in the growth of their pharma businesses and conferred tax
deductions for expenses related to research and development. They have granted other
concessions as well, such as reduced interest rates for export financing and a cut in
the number of drugs under price control. Government support is not the only thing in
Indian pharma’s favor though companies also have access to a highly developed IT
industry that can partner with them in new molecule discovery.

Labor force
India’s greatest strengths lie in its people. India also boasts of well-educated,
English-speaking labor force that is the base of its competitive advantage. Although
molecular biologists are in short supply, there are a number of talented chemists who
are equally as important in the discovery process. In addition, there has been a reverse
brain drain effect in which scientists are returning from abroad to accept positions at
lower salaries at Indian companies. Once there, these foreign-trained scientists can
transfer the benefits of their knowledge and experience to all of those who work with
them. India’s wealth of people extends benefits to another part of the drug
commercialization process as well. With one of the largest and most genetically
diverse populations in any single country, India can recruit for clinical trials more
quickly and perform them more cheaply than countries in the West. Indian firms have
just recently started to leverage.

15
 BIOTECHNOLOGY
Relationship between pharmaceuticals and biotechnology
Unlike in other countries, the difference between biotechnology and
pharmaceuticals remains fairly defined in India. Bio-tech there still plays the role of
pharma’s little sister, but many outsiders have high expectations for the future. India
accounted for 2% of the $41 billion global biotech market and in 2003 was ranked 3rd
in the Asia-Pacific region and 11th in the world in number of biotechs.45 In 2004-5,
the Indian biotech industry saw its revenues grow 37% to $1.1 billion.2, 9 The Indian
biotech market is dominated by biopharmaceuticals; 75% of 2004-5 revenues came
from biopharmaceuticals, which saw 30% growth last year. Of the revenues from
biopharmaceuticals, vaccines led the way, comprising 47% of sales.

Biologics and large-molecule drugs tend to be more expensive than small-

molecule drugs, and India hopes to sweep the market in biogenerics and contract
manufacturing as drugs go off patent and Indian companies upgrade their
manufacturing capabilities.

Patents
As it expands its core business, the industry is being forced to adapt its
business model to recent changes in the operating environment. The first and most
significant change was the January 1, 2005 enactment of an amendment to India’s
patent law that reinstated product patents for the first time since 1972. The legislation
took effect on the deadline set by the WTO’s Trade-Related Aspects of Intellectual
Property Rights (TRIPS) agreement, which mandated patent protection on both
products and processes for a period of 20 years. Under this new law, India will be
forced to recognize not only new patents but also any patents filed after January 1,
1995. Indian companies achieved their status in the domestic market by breaking
these product patents, and it is estimated that within the next few years, they will lose
$650 million of the local generics market to patent-holders.

In the domestic market, this new patent legislation has resulted in fairly clear
segmentation. The multinationals narrowed their focus onto high-end patients who
make up only 12% of the market, taking advantage of their newly bestowed patent

16
protection. Meanwhile, Indian firms have chosen to take their existing product
portfolios and target semi-urban and rural populations.

TABLE: 2.2

Top 20 Biotechnology Companies in India, 2017

Revenue 2017
Revenue

Rank Company 2017(Rs crore (USD millions

)
)

1 Biocon 646 148.6

2 Serum Institute of India 565 129.9

3 Panacea Biotech 217 50.0

4 Venky's (India) Limited 188 43.2

5 Mahyco Monsanto 166 38.3

6 Novo Nordisk 135 31.0

7 Rasi Seeds 87 20.0

8 Aventis Pharma 84 19.4

9 Bharat Serums 81 18.6

17
 10 Chiron Behring Vaccines 78 17.9

11 GlaxoSmithKline 78 17.9

12 Indian Immunological 72 16.6

13 Shantha Biotech 70 16.1

14 Novozymes 69 15.9

15 Eli Lilly and Company 68 15.7

16 Wockhardt 67 15.4

Bharat Immunological & Biological

17 53 12.3
Corp.

18 Bharat Biological International 41 9.4

19 Advanced Biochemical’s 40 9.1

20 Biological E 36 8.3

USD 1 = Rs 43.5
Source: BioSpectrum Top 20: A threshold crossed

18
Most companies in the biotech sector are extremely small, with only two firms
breaking 100 million dollars in revenues. At last count there were 265 firms registered
in India, over 75% of which were incorporated in the last five years. The newness of
the companies explains the industry’s high consolidation in both physical and
financial terms. Almost 50% of all biotech’s are in or around Bangalore, and the top
ten companies capture 47% of the market. The top five companies were homegrown;
Indian firms account for 62% of the biopharma sector and 52% of the industry as a
whole. The Association of Biotechnology-Led Enterprises (ABLE) is aiming to grow
the industry to $5 billion in revenues generated by 1 million employees by 2009, and
data from the Confederation of Indian Industry (CII) seem to suggest that it is
possible.
Comparison with the U.S.
The Indian biotech sector parallels that of the U.S. in many ways. Both are
filled with small start-ups while the majority of the market is controlled by a few
powerful companies. Both are dependent upon government grants and venture
capitalists for funding because neither will be commercially viable for years.
Pharmaceutical companies in both countries have recognized the potential effect that
biotechnology could have on their pipelines and have responded by either investing in
existing start-ups or venturing into the field themselves. In both India and the U.S., as
well as in much of the globe, biotech is seen as a hot field with a lot of growth
potential.

Relationship with IT
Many analysts have observed that the hype around the biotech sector mirrors
that of the IT sector. Biotech colleges have been popping up around the country eager
to service the pools of students that want to take advantage of a growing industry. The
International Finance Commission, the private investment arm of the World Bank,
called India the “centerpiece of IFC’s global biotech strategy.” Of the $110 million
invested in 14 biotech projects investment globally, the IFC has given $43 million to 4
projects in India. According to Dr. Manju Sharma; former director of the Department
of Biotechnology, the biotech industry could become the “single largest sector for
employment of skilled human resource in the years to come. British Prime Minister
Tony Blair was similarly impressed, citing the success of India’s biotech

19
industry as the reason for his own country’s own biotech opportunities. Malaysia is
also looking to India as an example for growing its own biotech industry.

Government support
The Indian government has been very supportive. It established the
Department of Biotechnology in 1986 under the Ministry of Science and Technology.
Since then, there have been a number of dispensations offered by both the central
government and various states to encourage the growth of the industry. India’s science
minister launched a program that provides tax incentives and grants for biotech start-
ups and firms seeking to expand and establishes the Biotechnology Parks Society of
India to support ten biotech parks by 2010. Previously limited to rodents, animal
testing was expanded to include large animals as part of the minister’s initiative.
States have started to vie with one another for biotech business, and they are offering
such goodies as exemption from VAT and other fees, financial assistance with patents
and subsidies on everything ranging from investment to land to utilities.

Foreign investment
The government has also taken steps to encourage foreign investment in its
biotech sector. An initiative passed earlier this year allowed 100% foreign direct
investment without compulsory licensing from the government In April, a delegation
headed by the Kapil Sibal, the minister of science and technology and ocean
development, visited five cities in the U.S. to encourage investment in India, with
special emphasis on biotech. Just two months later, Sibal returned to the U.S. to unveil
India’s biotech growth strategy at the BIO2005 conference in Philadelphia.

Challenges
The biotech sector faces some major challenges in its quest for growth. Chief
among them is a lack of funding, particularly for firms that are just starting out. The
most likely sources of funds are government grants and venture capital, which is a
relatively young industry in India. Government grants are difficult to secure, and due
to the expensive and uncertain nature of biotech research, venture capitalists are
reluctant to invest in firms that have not yet developed a commercially viable product.
As previously mentioned, India hopes to solve its funding problem by attracting

20
overseas investors and partners. Before these potential saviors will invest significant
sums in the industry, however, there needs to be better scientific and financial
accountability. India is slowly working towards these goals, but it will be a while
before they are up to the standards of Western investors.

India’s biotech firms share another problem with their pharmaceutical cousins:
a lack of qualified employees. Biotech has the additional disadvantage of competing
against IT for ambitious, science-minded students but not being able to guarantee the
same compensation. An aspiring researcher in India needs 7–10 years of education
covering a range of specialties in order to qualify to work in biotech. Even if a student
does choose to go on the biotech path, the ineffectual curriculum at many universities
makes it doubtful as to whether he will be qualified to work in the field once finished.
One estimate shows that 10% of upper-echelon biotech recruits have come from
foreign countries. While this is not a problem, it drives up cost in a country whose
competitive advantage is based on cheap, high-quality labor. Far from ending with
scientists, there is also a shortage of people with knowledge of biotechnology in
related fields like doctors, lawyers, programmers, marketing personnel and others.

While little has been done about the latter half of the employee crunch, the
government has addressed the problem of educated but unqualified candidates in its
Draft National Biotech Development Strategy. This plan included a proposal to create
a National Task Force that would work with the biotech industry to revise the
curriculum for undergraduate and graduate study in life sciences and biotechnology.
The government’s strategy also stated intentions to increase the number of PhD
Fellowships awarded by the Department of Biotechnology to 200 per year. These
human resources will be further leveraged with a”Bio-Edu-Grid” that will knit
together the resources of the academic and scientific industrial communities, much as
they are in the U.S.

21

Major players
Glen mark
Glen mark is a emerging leader of Indian Pharmaceutical market in sales as
well in Research. Soon new chemical entities will hit the market.

Ranbaxy Laboratories
Ranbaxy is the leader in the Indian pharmaceutical market, taking in $1.174
billion in revenues for a net profit of $160 million in 2004. It was the first Indian
pharmaceutical to have a proprietary drug (extended-release ciprofloxacin, marketed
by Bayer) approved by the U.S. FDA and the U.S. market accounts for 36% of its
sales. 78% of Ranbaxy’s sales are from overseas markets; its offices in 44 countries
manage manufacturing in 7 countries and distribution in over 100 countries.

IMS Health estimated that Ranbaxy is among the top 100 pharmaceuticals in
the world and that it is the 15th fastest growing company. By 2012, Ranbaxy hopes to
be one of the top 5 generics producers in the world, and it consolidated its position
with the purchase of French firm RGP Aventis in 2003. Ranbaxy also has higher
aspirations, however, “to build a proprietary prescription business in the advanced
markets”. To this end, it keeps a dedicated research facility in Gurgaon staffed with
over 1100 scientists. They currently have two molecules in Phase II trials and 3-5 in
pre-clinical testing. It spent $75 million in R&D in 2004, a 43% increase over its 2003
expenditure.

Dr. Reddy's Laboratories

Founded in 1984 with $160,000, Dr. Reddy’s was the first Asia-Pacific
pharmaceutical outside of Japan and the sixth Indian company to be listed on the New
York Stock Exchange. It earned $446 million in fiscal year 2005, deriving 66% of this
income from the foreign market. In order to strengthen its global position, Dr. Reddy
acquired UK-based BMS Laboratories and subsidiary Meridian Healthcare. Anji
Reddy is the chairman of Dr.Reddy's.

22
 Although 58% of Dr. Reddy’s revenues come from generic drugs, the
company was committed to WTO-compliance long before the 2005 bill took effect,
and most of these products were already off patent.

Dr. Reddy has long been a research-oriented firm, preceding many of its peers
in setting up a New Drug Development Research (NDDR) in 1993 and out-licensing
its first compound just four years later. Dr. Reddy’s has since out licensed two more
molecules and currently has three others in clinical trials.

Although Dr. Reddy’s is publicly traded, the Reddy family (including

founder/chairman K. Anji Reddy, (son-in-law CEO GV Prasad and son COO Satish
Reddy) holds a hefty 26% share in the company.

Nicholas Piramal
The company led by Asish Mishra grossing $350 million per year, Nicholas
Piramal started its existence with the 1988 acquisition of Nicholas Laboratories and
grew through a series of mergers, acquisitions and alliances. The company has formed
a name for itself in the field of custom manufacturing. It cites its 1700-person global
sales force as another core strength; with its acquisition of Rhodia’s inhalation
anesthetics’ business, Nicholas Piramal gained a sales and marketing network
spanning 90 countries. Nicholas Piramal is well-poised for the challenge of surviving
in the aftermath of product patent protection.

The company has respected intellectual property rights since its inception and
refused to "support generic companies seeking first-to-file or early-to-market
strategies". Instead, it decided to make its own intellectual property and opened a
research facility last November in Mumbai with hopes of launching its first drug in
2010 at a cost of $100,000.

Cipla
Cipla is one of the oldest drug manufacturers in India. It is led by Dr. Yusuf K.
Hamied, Chairman and Managing Director. Cipla burst into the international
consciousness in 2000 with Triomune, an AIDS treatment costing between $300 and
$800 per year that infringed upon patents held by several companies who were selling

23
the cocktail for $12,000 per year. Long before this news, Cipla had been building a
strong global presence, and it now distributes its 800-odd products in over 140
countries.

Privately held Cipla holds a prominent spot in its home country as well; it is
the leader in domestic sales, having just unseated GlaxoSmithKline for the first time
in 28 years. Revenue in 2004 totaled $552 million (using Rs 43.472 = $1) about 75%
of which was derived in India. Cipla did not report having a research program.

Dr. Kiran Mazumdar-Shaw is the Chairman and Managing Director of

BiocoIrish chemicals company seeking to break into the Indian market, Biocon is
now the leading biotech in India, bringing in Rs 646.36 crore (almost $150 million) in
revenue for fiscal year 2004. It initially made its money by producing enzymes, but
Biocon recently decided to become a research-oriented company with the goal of
bringing a proprietary new drug to market.

The company went public in March 2004, and "its shares were oversubscribed
by 33 times on opening day." Eight months later it launched Insugen, a bio-insulin
that is its first branded product. Biocon also has two wholly owned subsidiaries,
Syngene and Clinigene that perform custom research and clinical trials.

Serum Institute of India

Main article: Serum Institute of India
The Serum Institute of India can make the enviable claim that 2 out of every 3
children in the world are immunized with one of their vaccines. It is the world’s
largest producer of measles and DTP vaccines, and its portfolio includes other
vaccines, antisera, plasma products and anticancer compounds. The Serum Institute
earned Rs 565 crore ($130 million) in revenue in fiscal year 2005, selling mainly to
UN agencies and to the Indian government. The Serum Institute is part of the
Poonawalla Group, whose holdings include a horse stud farm and manufacturers of
industrial equipment and components. Dr. Cyrus Poonawalla is the Chairman of the
company.

24
 PROFILE OF HETERO DRUGS

Hetero is a research based global pharmaceutical company focused on

development, manufacturing and marketing of Active Pharmaceutical Ingredients
(APIs), Intermediate Chemicals & Finished Dosages. Ever since its establishment in
1993, Hetero showed a tradition of excellence and deep sense of commitment in
developing cost effective processes to offer wide range of affordable drugs.

Hetero is building on the strengths of vertical integration in discovery

research, process chemistry, API manufacturing, formulation development and
commercialization. Hetero is a leading international supplier with a rich portfolio of
over 200 products from wide range of therapeutic categories both in active
pharmaceutical ingredients and finished dosages.

Hetero’s manufacturing facilities are CGMP compliant meeting global standards

in terms of infrastructure and systems. Majority of them are approved by the various
regulatory authorities of USFDA, WHO-Geneva, Australian TGA, Spanish agency of
medicines & health care products, ANVISA-Brazil, IDA-Netherlands etc.,

With full-fledged marketing capabilities, the company has been able to market
its products in over 138 countries across the globe.
Hetero Drugs, the parent company established in 1993 is one of the largest Indian
pharmaceutical companies with over 2000 crores in revenues and employs more than
5000 employees. Hetero is a vertically integrated pharmaceutical company and is a
leading player in API’s and finished dosages. Hetero supply’s API’s and finished
dosages to major domestic and international generic companies.

Hetero operates in more than 100 countries and its manufacturing facilities
meet various national and international standards including USFDA. Hetero has a
portfolio of more than 200 products and is a leading company in bringing new generic
molecules to the market.

25
About Founder

A Visionary Scientist

"Where the future started yesterday........ Works a day ahead of future...."

Dr. Bandi Parthasaradhi Reddy, Chairman & Managing Director of Hetero

group is academically endowed with a Post Graduate and Doctoral degrees with
distinction in the field of synthetic chemistry. Prior to founding of Hetero Drugs
Limited, Dr. B.P.S Reddy had a stint in leading pharmaceutical companies as the head
of the Research & Development division. His sharp analysis and ability to synthesize
various chemical compounds lead to the discovery of new processes, cost effective
schemes for manufacturing of various pharmaceutical products. During the said
period Dr.B.P.S Reddy has the credit of introducing many new molecules for the first
time in Indian pharmaceutical market.

A visionary the world knows as Dr. B.P.S.Reddy, is the driving force behind
this growing pharmaceutical phenomenon called “HETERO”. Dr.B.P.S.Reddy’s
dream child, Hetero was born in the year 1993 as a small API unit. Today, 17 years
later, the name is synonymous with leadership in pharmaceuticals with more than 18
manufacturing units and 8000 employees. An entity that is grown in stature by virtue
of its combined strength in research, manufacturing and marketing.

Dr.B.P.S.Reddy steered Hetero towards the forefront of global pharmaceutical

industry with his vision to be recognised as an aggressive company that combines its
strength of R&D and manufacturing with definite advantages in terms of cost and
chemistry with a strong emphasis on quality of the products.

Dr. B.P.S.Reddy is now focusing on giving new dimensions to Hetero in terms

of research and innovation programs in discovery research to take the company to
greater heights.

26
Awards & Accolades
Hetero has been scaling new heights on a continual basis. These achievements
have been the result of concerted efforts on the part of different functions within the
organization to achieve the organizational goal of being a leader.

In its path to success, Hetero has seen many a milestone being crossed and
achieved many awards on various fronts. Awards for exemplary work in R&D and
marketing are just a few to name.

A track of few events that saw Hetero reaching its Zenith of glory are:

2009

• Top Pharmexcil Gold Patent award.

• Top Pharmexcil Outstanding Export Performance award in Drugs and

Pharmaceuticals.

2006

• Chemexil Trishul export award for outstanding export performance 2001 Excellence
& National Integration award in recognition of the efforts for excellence with affairs
connected with educational specialties and creating teaching skills besides promoting
harmony at all levels in the college.

1999

• Highest exporter award against stiff competition from internationally recognized

domestic competitors.

27
1998

• Top Chemexil award for Exports.

1996

• National award for "Best Efforts in Research and Development" from the
Department of Scientific and Industrial Research, Ministry of Science and
Technology, Government of India, in the year 1996.

Corporate Social Responsibility is our commitment:

Hetero Group always believes in the concept of giving back to the society to
uplift the living standards in the surrounding society as one of the prime
responsibilities and always took the lead. The Group is committed for implementation
of various CSR initiatives and contributes substantially to the cause.

Hetero Group received appreciation from the Government of Andhra Pradesh,

for its outstanding contribution in the implementation of Corporate Social
Responsibility.

Environment Protection:

 Completed One Million Plantation Programme.

 Taking up Plantation in the surrounding Schools.
 Completed Plantation in newly acquired 15 acres land and a total of 25000
Nos. of saplings made.
 Provided substantial amount to the industrial association for the development
of infrastructure and environment in Kazipally IDA.
 Provision of Biomass Pellets for cooking purpose in place of LPG gas.

28
Social Welfare Programs:

Hetero recognizes its obligations towards the society and as a socially responsible
organization; we strive to take care of the less privileged sections of our society. We
extend our expertise to transform the lives of our people and make a difference to the
society. In this initiative, Hetero has adopted few villages for their overall
development.

 Education:

Hetero assists in setting up of schools for children in the vicinity of the plants,
where there is no access to education facilities, providing financial assistance to the
poor students who have promising academic record and adopts schools for the
following support:

 Infrastructure:

Construction and renovation of schools, classrooms, libraries, provision of

amenities like class room benches, tables and chairs, sanitation facilities and
constructing compound walls for the surrounding schools. Distribution of books and
reading materials to the school libraries along with books and uniforms to the school
going children.

Awarding of Merit scholarships to students and provision of free technical

education in engineering on the eligibility basis.

 Sports:

Sponsors athletes from various educational institutions to participate in

National and International level competitions, organizes sports camps and events in
many villages.

29
 Medical:

Hetero conducts periodical medical camps at various locations in socially

backward areas to provide timely medical assistance to the needy. Hetero also
contributes for the construction of health centres and has liberally donated medicines
to the Government of India, Government of A.P. and to various Hospitals.


Rural Infrastructure:

Hetero adopts villages, for all round development of infrastructure, like roads,
drainages, sanitation, electricity, sponsors religious activities & constructions and
provides safe drinking water facilities, with the installation of R.O. water purification
systems.

Research & Development

Research & Development is the foundation of Hetero’s philosophy of

developing cost-effective, high quality and safe medicines to society. Hetero Research
Foundation is one of the most innovative, productive, and respected scientific research
organizations which are recognized by the Department of Science & Technology,
Government of India.

Hetero Research Foundation (HRF) has a team of over 400 dedicated

scientists working in the areas of Process, Analytical and Discovery Research. R & D
centre conforms to international standards and has advanced equipment for both basic
and applied research.

Process R&D

HRF has developed process for 150 plus molecules for various markets. The
R&D team actively involved in process development, scaling-up technology transfer
and associates with manufacturing team throughout life cycle of product.

30
 HRF has always been emphasizing to ensure that the processes being adopted
for the products are cost effective, safe to handle and with optimum advantage in
terms of yield and quality.

Analytical R&D

Analytical research at HRF is equipped to conduct complete physical and

chemical characterization of API’s/ NCE’s. Further, the team is well versed with
regulatory filings and has vast experience in documentation. The infrastructure
includes advanced instruments like LC-MS-MS, GC-MS, NMR, Powder XRD apart
from several HPLC systems.

Having a strong commitment and experience in

bringing quality medicines to all, Hetero entered into the
pharmacy services as part of its integration strategy.
Having a strong knowledge in this space we believe we
can provide high quality services to our customers.

Less than year after the launch of Hetero Pharmacy in Hyderabad, we scaled
up to more than 100+ pharmacies across AP. We are still growing aggressively to
serve our customers better. Hetero also has its outlets at the prestigious Nizam’s
Institute of Medical Sciences (NIMS) Punjagutta, Hyderabad and GMR
international airport, Hyderabad.

At our pharmacy outlets we provide

Qualified & trained Pharmacists
Helps you comply with prescription instructions. No scope for spurious drugs,
expired medicines and substitution

31
Availability of wide range of medicines
Pharmacy, surgical, disposables, ARV, anti-cancer, life saving and general
Healthcare products by Indian and International companies

Storage as specified
Stocking drugs as per prescribed temperature standards, thereby retaining their
quality and effectiveness

Computerized billing system

Proper display of batch numbers, price & expiry with no waiting time

Low Prices
Special discount on printed M.R.P

Patient education leaf-lets

Health tips & dietary suggestion

32
 INVENTORY MANAGEMENT

Inventories value account for almost fifty five percentage of the cost of
manufacturing, as its miles clean from an evaluation for financial statements of
massive wide variety of personal and public area organizations. So, it vital suitable
approaches for correct manipulate of substances form the time of buy order located
with provider unit they have been fed on well and accounted for.

Definition
The term inventory refers to assets, with the intention to be sold in destiny in
the ordinary path of enterprise operations. The belongings, which the company shops
as stock in anticipation of want, are raw substances, paintings-in-progress or system,
and finished items.

Inventory often constitute a major element of total capital and hence it has
been correctly observed, ‘good inventory management is good financial
management’.

Inventory control is a system, which ensures the provision of the required

quantity at the require item with the minimum amount of capital. Inventories are the
second one biggest belongings class for the producing corporations next to plant and
gadget.
Inventory control includes scheduling, the requirements, purchasing, receiving
and supervise, maintaining stock records and stock control. Inventory control is an
issue of coordination. A proper fabric manipulate facilitates in improving the enter-
output ratio.

33
Types of Inventories
Inventories play a major role in a business or company depending on nature of
the business. The inventories may be classified as under:
 Raw Materials
The raw materials encompass the substances, which are used in the production
technique, and really production firm has to hold certain inventory of uncooked
substances in stores. These units of uncooked materials are often issued or transferred
to production branch for manufacturing operations. Inventory of uncooked substances
are held to make sure that the manufacturing technique is not interrupted through
garage of these substances.

 Work in Process/ Progress

Work in progress refers back to the raw materials engaged in numerous stages
of production manner. The degree finishing touch may be various for distinct gadgets
a few units may be forty% completed, or some other ninety% finished. The fee of
labor in progress involves cloth expenses, the direct wages and expenses already
incurred and the overheads if any so, paintings in progress stock incorporates in part
produced or finished appropriate. The reason of work- in – progress, so that system
screw ups and stoppage in operations will now not suffering from one another.

 Finished Goods

In trading firm purchase are made where as in the manufacturing firm produce
of process the good. However, it may be. These are goods that are either being
purchased by the firm or are being produced or processed in the firm. These are just
ready for sale to customers. Inventory of finished goods arise because of the time
involved in production process and to meet customer’s demand promptly. If the firms
do not maintain a sufficient finished goods inventory, they run the risk of losing sales
due to customer the production and sale can be made directly out of inventory.

34
NEEDS OF INVENTORY CONTROL
If a value accounting machine is to be effective there should be a right
manipulate of stock and resources form the time orders are placed with providers until
they were correctly applied in production.
Materials are equal to coins and that they make up an crucial part of the entire
fee. It is important that substances need to be well safeguarded and successfully
accounted. Proper manage of cloth could make a significant contribution to the
efficiency of a enterprise. The fulfillment of a business difficulty largely relies upon
green shopping, garage, consumption and accounting.
In a large firm the planning and routing department is responsible for
arranging how and where the work is to be done and issue instructions. It set definite
time schedules so that important substances are delivered to the right department in
right time no longer too long before hand neither lest it should interfered with other
paintings nor after they're required as this bring about ideal time.
Business firm keep inventories for different purposes. Every firm big or small
trading or manufacturing has to maintain some minimum level of inventories. Based
on some motives the inventories are maintained.
 Transaction motives
Every company has to hold a few level of stock to satisfy the day – to – day
requirement of sales, production procedure, consumer demand and many others. In
the completed goods in addition to uncooked cloth are saved as inventories for easy
production procedure of the firm.
 Precautionary motive
A firm should maintain some inventory for unforeseen situations additionally
like loss because of natural calamities in a selected region, strikes, lay outs and so on
so the firm have to have some completed items in addition to uncooked – substances
to satisfy circumstances.

 Speculative motive
The company may be made to keep some stock with a purpose to capitalize an
possibility to make earnings due to charge fluctuations.

35
REASONS AND BENEFITS OF INVENTORY
The optimal level to maintaining inventory is subjective matter and depends
upon the features of a particular firm.

Trading firm
In case of a trading company there can be several motives for holding
inventories because of sales activities that need to not be interrupted extra over it now
not constantly viable to procure the products whenever there's a income possibility s
there may be continually a time gap required between buy and sale of goods. Thus
trading concern should have some stock of finished goods in order to undertake sales
activities independent of the procurement schedule.
Similarly, a firm might also have several incentives being offered in phrases of
amount discounts or decrease charge etc via the dealer of goods. There is buying and
selling concern inventory helps in a de- linking between income hobby and also to
capitalize a income of possibility because of purchase make at a discount will result in
lowering the entire cast ensuing in higher earnings for the firm.

Manufacturing firm
A manufacturing firm should have inventory or not only the finished goods,
but also of raw materials and work – in – progress for following reasons.

Uninterrupted production schedule

Every manufacturing firm must have sufficient stock of raw materials in order to have
the regular and uninterrupted production schedule. If there is stock out of raw
materials in order to have the regular and uninterrupted production schedule. If there
is stock out of raw material at any stage of production process then the whole
production may come to a half. This may result in custom dissatisfaction as the goods
cannot be delivered in time more over the fixed cost will continue to be incurred even
if there is no production.
Further work – in- progress would let the production process run smooth. In most of
manufacturing concerns the work in progress is a natural outcome of the production
schedule and it also helps in fulfilling when some sales orders, even if the supply of
raw – materials have stopped.

36
Independent sales activity
Inventory of finished goods is required not only in trading concern but
manufacturing firms should also have sufficient stock of finished goods. The
manufacturing time table is a time ingesting process and in maximum of the instances
goods can't be produced simply after receiving orders. Therefore, every firm has to
keep minimum degree of completed gods so as to supply the gods as quickly because
the order is obtained.

ESSENTIALS OF INVENTORY CONTROL

The important requirements of inventory control are:
 The proper co – ordination among the departments involved in buying, receiving,
examining, coinage, consuming and accounting.
 Centralization of buying underneath the control of competent customer each time
possible.
 Proper scheduling of material requirements.
 Proper type of materials with codes, cloth standardization and simplification.
 The operation of a system of internal takes a look at to make sure that each one
transaction related to substances and device is checked through properly legal and
independent persons.
 The garage of substances is well planned and kept in properly. Planned and saved
in nicely distinct place, situation pt ok shield and supervision.
 The operation of a machine of perpetual stock so that it's miles possible to
determine at any time, the quantity and price of every form of cloth in stock.
 A suitable method of valuation of substances is essential because it impacts the
cost of jobs and the price of last stock of substances.

37
Objectives of Inventory Control
The main objectives of inventory control are:

 To keep a huge length of inventory for green and clean manufacturing and income
operation.

 To keep a minimal investment in inventories to maximize profitability.

 To ensure a continuous supply of raw materials to facilities uninterrupted

production.

 Maintain sufficient completed goods inventory for smooth sales operation and
green customer support.

 Minimize the wearing cost and time

Advantages of Inventory Control

The following are suggested advantages:
 Eliminates wastage in use of fabric.
 It reduces the threat of loss form fraud and robbery.
 To reduce the capital tied up in inventories.
 It reduces fee of garage.
 It furnishes speedy and accurately the price of substances used in numerous
branch.
Disadvantages of Inventory Control
The following are suggested disadvantages:
 Opportunity cost: Every company has to hold stock for that a few investment is
wanted it is referred to as Opportunity fee and deal with the funding in inventory
are greater the price range are blocks up with inventory.
 Excessive inventories: It will lead to firm losses due to immoderate carrying
prices and the danger of liquidity. It is likewise referred as Danger level.
 Inadequate Inventory: It is some other chance which ends up is manufacturing
maintain – up and failure to satisfy shipping commitments. In ok uncooked
materials and paintings – in – procedure inventors will effects in common
manufacturing interruptions. It completed items aren't sufficient customers may
additionally shifts to competition.

38
MATERIAL CONTROL

 Definition of Material Control

 Objectives of Material Control

 Difference between Materials Control and Inventory Control

 Material Purchasing and Purchasing Procedure.

The Primary Objective of cost accounting is price control. This is achieved by

exercising effective control over element of cost of the three elements of costs, i.e.,

material cost, wage cost and expenses, direct material cost is the largest single item of

expenditure and substantial proportion of the costs of an organization.

The term substances consist of bodily commodities used to make the final stop

– product. The raw substances and components are equivalent to cash and they make

up and important part of cost of manufacturing in many cases.

Material Control refers to managerial features which are

directed to ensure that required quantity and quality of material is provided at the

proper time with the minimum amount of capital.

Material Control is affected by co-ordination and control activities related to

 Related to Material Planning.

 Related to Material Sourcing.

 Related to Material Purchasing.

 Related to Stores and Material Handling.

Definition of Material Control:

The Term Material Control means “The regulation of the characteristic of an

employer regarding the procurement, Storage and utilization of substances in such a

manner as to maintain a fair float of production without excessive investment in cloth

stock”.

39
Material control involves the control of the three important functions.
They are:

 Procurement or Purchase Control

 Storage or Stock or Inventory Control and

 Issue or Usage or Consumption Control.

OBJECTIVES OF MATERIAL CONTROL:

The Twin Objectives of Material Control:

a. Avoidance of production delay by maintaining an even flow of

production.

b. Preventing excessive investment in material stock.

Difference between Materials Control and Inventory

Control

The terms materials and inventory are used interchangeably, but they are not

identical. The latter is a wider term covers items like sundry supplies, maintenance

stores, tools and other components, work – in – progress and finished goods. The term

cloth manage and stock manage are not interchangeable. Material manage refers to

managerial function which is directed to ensure that required amount and quality of

cloth is supplied on the proper time with the minimal quantity of capital.

Material control is wider term than inventory control, besides Stock manage

cloth manage includes manage of production and making plans, purchase method,

control of transportation and usage control etc., in which as inventory control referred

to as some of the value of raw materials and fuels and lubricants, spare parts,

maintenance consumables, semi-processed materials and finished goods stock at any

given point of time.

40
ACTIVITY RELATED TO MATERIAL PLANNING

 Identification of Materials

 Quantity and Quality of Materials

 Classification and Codification of Materials

Every Enterprise desires inventory for smooth running

activities. Inventory serves as a link among manufacturing and distribution process of

any employer. Generally a time lag among the recognition of a want and its

fulfillment. The extra the time lags the higher the requirement for stock. The

fluctuations in demand and deliver of goods also necessitate the need for inventory.

In big businesses inventory plays a most vast a part of the modern-day

belongings. The average enterprise has approximately 15-30% of general inventories

in total assets. The important purpose of inventory management is to make sure

availability of substances in sufficient quantity as and when required and additionally

to minimize funding in inventories.

A systemized inventory management will determine

 What to purchase

 When to purchase

 How to purchase

 Size of purchase and

 Where to purchase

41
MATERIAL PURCHASING AND PURCHASING PROCEDURE

Purchase of material is one of the important functions of material

management. At times greater than 50% of the total product fee is fabric. Functions of

Purchase Department are

 Deciding the items to be purchased based on demand.

 Selection of sources of supply.

 Collection the price information.

 Placing the ordered.

 Follow-up the ordered.

 Checking the invoices.

 Maintenance of purchase records.

 Maintenance of vendors’ relations.

PURCHASE PROCEDURE

Purchasing system start with the initiation of buy requisitions and ends with

the receipt of substances in the stores.

CENTERIZED PURCHASING

It is most essential and relevant to massive groups working deferent plants

may additionally or might not be placed at one-of-a-kind locations. For a single

location organization decentralization might be feasible on a very restrained region.

But where the employer, is a more than one flowers working business enterprise.

42
 In the company Centralized purchasing procedure is following to purchase of

materials. It is most important and relevant to large organizations operating

differently.

 Centralized purchasing avoids duplications of efforts and working at cross

purpose from one plant to another.

 Centralized purchasing permits consolidation of order of materials commonly

used for two or more plants. The ultimately results in greater buying power,

favorable contracts and trade agreements.

 Easier to maintain the quality of purchased parts / items through centralized

testing and inspection. It is also possible to conduct testing and inspection

facilities.

 Centralized shopping allows to avail facilities like amount reductions and cash

discounts as a consequence its enables to reduce fee.

43
 PURCHASING ACTIVITIES OF INVENTORY IN
HETERO DRUGS
TABLE: 3.1
SL.
PROCESS SUB ACTIVITY
NO.

1. MATERIAL PROCUREMENT Ordering

PROCESS Execution

Closing – SAP

2. TRANSPORT BILL PASSING Bill Entering

Bill Passing – SAP

3. VENDOR AIDED MATERIAL Material Transfer

RECEIVED AND DISPATCHED Document Entering – SAP

4. VENDOR AIDED Reconciliation – SAP

RECONCILIATION PROCESS Vendor Aid Material Transfer Debit

REJECTION

5. PRE-EN PROCESS Receiving Document

Security

Meetings and Closures

6. NON MOVING IDENTIFICATION Identification through Non moving EN finalized

AND DISPOSAL and disposal approve from finance and dispatch

7. STATIONARY PURCHASING Identifying quotation comparison information

record and P.O.

8. MANAGEMENT INFORMATION Information gather compilation schedule

SYSTEM updation

9. LOGISTICS Material collection and dispatch

(Source of Hetero Drugs Ltd)

44
 In HETERO DRUGS, the materials as purchased on monthly basis from the

various vendors. Schedule made on monthly basis, for every month the suppliers list

is prepared and purchase the require quantity of materials from the selected vendors.

In further purchasing procedure process, i.e., for next month material

management department look after previous month performance of vendors the

performance like, time of delivery, quantity discounts, term of payment, mode of

delivery, quantity of materials and good will of the suppliers in the market.

After the purchase of the substances from the exclusive companies inventory

is checked, the damaged or spoiled materials segregated vendors vise from their

materials are packed, via shipping the rejected materials sent lower back to the

respective providers.

Other than the rejected materials are kept in the stores 1, 2, 3 ------- on the

basis of classification of materials. From the stores department stores are sent to the

production plant, in production plant the raw materials are converted into finished

products, the produced finished products dispatched from the organization to the

market.

STORES DEPARTMENT

Efficient store-maintaining and stock manage in dispensable to the control of

material cost. Goods are received into the stores after inspection and they are held and

issued to production as and when required. The store department rendering service

departments and the accounts departments.

45
 FUNCTIONS OF THE STORE KEEPER

The major features of store keeper are receipt, storage, and difficulty of materials.

There are a few other functions which are identical to these. They are,

 Receive materials into the stores after checking them with the content of goods
received note and inspection report .
 Store the material in the allotted places.
 Maintain the store neat and tidy.
 Protect the material and preserve them in good condition.
 Issue materials only against authorized requisitions.
 Maintain stock levels in respect of every item of stores.

46
 CLASSIFICATION OF INVENTORIES:

TABLE: 3.2
S. No Title Basic Main use

1 ABC(Always Better Control) Value of conception To control raw material,

components and Work –in
Progress inventories in the
normal course of business.
2 HML(High, Medium, Low) Unit rate of the material Mainly to control purchases.

To determine the stocking

3 VED(Vital, Essential, Critically of the component stages of spare parts

Desirable)

Consumption pattern of the

4 FSN(Fast moving, Slow issue To control obsolescence
moving, on - moving)

5 SDE(Scarce, difficult, Easy to Problems faced in Lead time analysis and

obtain) Procurement. purchasing strategies.

6 GOLF(Government Ordinary, Source of the material Procurement strategies.

Local, Foreign Sources)

SOS(Seasonal and Off-

7 Seasonal) Nature of suppliers Procurement/ holding strategies
for seasonal items like
agricultural products.

To evaluation the inventories

and their makes use of at
8 XYZ Value of items in storage. scheduled durations.

47
 Setting various stock levels:
In order to have right manipulate on materials the subsequent Levels are set:
 Re-order Level
 Ordering Level
 Minimum Level
 Average Stock Level
 Danger Level
 Safety Stock Level

A) Re-order Level:
It is the point at which if stock of a particular fabric in save approaches the storekeeper

Ought to initiate the acquisition requisition for sparkling providers of the cloth. This stage is

constant somewhere between the maximum and minimal Levels in this kind of way that the

distinction of the amount of the fabric among the re-ordering stage and the minimal stage will

be enough to meet the necessities of manufacturing up to the time clean deliver of the fabric

is obtained. Reordering stage may be calculated via applying the subsequent formulation.
Reordering Level= Maximum consumption X Maximum re-order level duration.

B) Order Level:
This is the amount of inventory constant among the most and minimum level
of inventory. When this level is reached, it becomes the duty of the store-in-alternate
to refill the stock inside affordable time this level is mostly a little higher than the
minimal level. In order to be organized for such emergencies as atypical consumption
put off in transport of recent resources etc. Whilst solving this level following points
are taken in to Consideration.
 Time required for obtained fresh suppliers
 Possible unexpected requirements which cannot be avoided
 Possible unexpected delays in getting fresh suppliers because of rains
war, about unrest etc.

48
 C) Minimum Level:
Formula for the calculation of minimum Level given by Weldon as follows.
Minimum Level =Re-Ordering Level–(Normal Consumption x Normal Re- order
period)

D) Maximum Level:
Maximum level represents the level beyond, which the stock in hand is not
allowed to exceed. This is because:
 If the stock exceeds this level, it will
 Involves more investment
 Requires more space for storages
 Involves more carrying cost
Excess stock will increase the cost of storage, thereby increasingly selling
cost. Excess stock will involve unnecessary blockade of working capital and prevent
its availability for a more profitable use.
Stock in excess will prevent the management from taking advantages of price
fluxion and favorable market condition.

The fixation of maximum level depends on the following factors:

 Rate of consumption of the material

 Money available
 Storage space available
 Economic order quantity
 Market conditions ,seasonality and price fluctuations
 Possibility of loss due to deterioration

49
The formula for the calculation of Maximum state Level given by Weldon is as

follows:-

Maximum stock level=Re-ordering level+ Re-order quantity – (Minimum

Consumption x Minimum Re-order period)

E) Average Stock Level

The Average stock level is calculated following formula.

Average stock Level= (Minimum Stock Level + Maximum Stock level / 2)

F) Danger Level
This means a level at which normal issues of the material are stopped and
issues are made only specific instructions. The purchases officer will make special
arrangements to get the materials which reach at their danger level so that the
production may not stop due to storage of material.

Danger level= Average Consumption X Maximum re-order period for

Emergency purchase.

Systems of inventory control:

The main system of inventory control is:
a) Perpetual inventory system
b) Double bin system.

a) Perpetual inventory system

Perpetual inventory system consists of :

 Bin cards
 Stores ledger
 Continuous stock taking

50
i) Bin cards
Bin cards are printed cards used for accounting stock of materials in stores.
For every item of materials, separate bin cards are kept by concerns.
ii) Stores leader
Columns Like bin cards, stores ledger is maintained to record all receipts and
issues in respect of materials with the difference that along with the quantities, the
values are entered within the receipt, issue and the balance.
iii) Continuous stock taking:
The perpetual inventory system is not complete without a scientific manner
for physical verification of stores. The bin cards and shops ledger report the balances
but their correctness may be proven through physical verification simplest.
b) Double bin system:
Double bin system is a recently developed technique in certain industries in
respect of low consumption value items, that is, items belonging to class ‘ C ‘ in ABC
analysis. This system separates the stock of each item into two bins, one to store the
quantity equal to minimum quantity and the other to store the remaining quantity.

Economic order quantity:

One of the major inventory management problems to be resolved is how
much inventory should be added when inventory is replenished. If the firm is buying
raw materials. It has to decide lots in which it has to be purchased on cash
replenishment.

51
 If the firm is planning production as per schedule. These problems are called
order quantity problem and the task of the firm is to determine optimum inventory
level involves two types of costs
i) Ordering cost
ii) Carrying cost
The economic order quantity is that inventory level, which minimizes the total of
ordering and carrying costs.

i) Ordering costs:
The term ordering cost is used in case of raw materials (or supplies) and
includes the entire costs of acquiring raw materials. They include costs incurred in
the following activities. Requisitioning, purchase ordering , transporting receiving,
inspecting ,and storing (store placement ),ordering cost increase in proportion to
the number of orders placed the critical and staff costs ,however ,don’t have vary
in proportion to the number orders placed ,and one view is that so long they are
committed cost they need not to be revoked in computing ordering cost

ii) Carrying cost:

Cost incurred for maintaining a given level of inventory are called

carrying cost, .they include storage, insurance, taxes, deterioration and
obsolescence’s.

EOQ (economic order quantity) = 2AS

A=Annual consumption
S=Cost of placing order
I=Inventory carrying cost of one unit

52
Ordering cost and carrying cost:

Table: 3.3

Ordering cost carrying cost

 Requisitioning  Ware housing

 Order placing  Handling
 Transportation  Clerical and staff
 Receiving, inspecting  Insurance
and storing
 Clerical and staff  Deterioration and
obsolescence

Re-order point and safety stock:

a) Re-order point:
The computation of re-order point in the industrial units is expressed in terms
of no. of units per day, multiplied by the lead time in days with adjustments to provide
safety stock

Re-order point =Average daily usage X lead time in days + safety

stock

b) Safety Stock Level:

This level is below the minimum level and represents the stage at
which emergency and immediate steps have to be taken for getting the stock
Replenished.

Application of computers for inventory:

The scope of utility of computers in regions like inventory management is
honestly significant. But not many undertakings in India have applied the computer
for inventory management and other decisions making purposes. The bulk of the
applications are in the areas of mundane pay-roll accounting and billing where the
computer has been turned into an efficient clerk and printing machine.

53
Just- In – Time (JIT) inventory management:
The basic principle of this philosophy is to produce at each manufacturing
stage, only the necessary products at the necessary time in the necessary quantity to
hold the successive manufacturing stages together.
Inventory ratio:
Manufacturing firms generally have four kinds of inventories: (i) Stores and
spares, (ii) Raw materials, (iii) Work –in- process, (iv) Finished goods.

Thus, ratios useful to inventory management are:

 Inventory turnover ratio
 Stores and spares inventory holding period
 Conversion period of work in progress
 Inventory as percentage of current assets
 Inventory to total assets
 Inventory in terms of months cost of production
 No. of days stock in hand ratio
 Return per rupee invested ratio
Aging time table of inventory:
Classification of the stock according with the age additionally
assists in figuring out inventories that are moving slowly in to manufacturing or
income. This calls for figuring out the date of purchase / manufacture of each object
of the inventory.

Inventory Audit:
The industrial units in India particularly face the problem of inventory build-
up and consequent locking up of capital.
Preparation of Inventory Reports:
From effective inventory control the management should be kept informed
with the latest stock position of different items. This is usually done by preparing
periodical inventory reports. These reviews should comprise all information important
of managerial motion. On the premise of those reviews management takes corrective
action wherein ever vital.

54
Lead time:
Lead time is the length that elapses between the recognition of a need and its
success. There is a right away courting among lead time and inventories. The stage of
inventory of an item relies upon up on period of its lead time Lead time has two
components.
a) Administrative lead time
b) Producers
a) Administrative lead time:
From initiation of procurement action till the putting of an order and lead time
for the producer, referred to as shipping lead time from the setting of an order till the
delivery of the ordered material.
b) Producers:
Administrative lead time is in the hands of those who are dealing with
material procurement delivery lead time has to be negotiated on the time of getting
ready buy settlement.
TOOLS AND TECHNIQUES OF INVENTORY CONTROLS

 CLASSIFICATION OF INVENTORY
 CODIFICATION OF INVENTORY
 JIT ANALYSIS
 TWO BIN SYSTEM
 KANBAN
 MILK RUN CONCEPT
 DETERMINATION OF STOCK LEVELS
 INVENTORY TURNOVER RATIOS

CLASSIFICATION OF INVENTORY:

Classification of inventory is of two kinds:

a. Made to stock

b. Made to order

55
In HETERO DRUGS., made to stock procedure is following for the classification of

inventory.

a. MADE TO STOCK

ABC Classification

This is also referred as “Always better control approach” are the “Alphabetic

approach”. ABC Concept of classifying goods in and stock may be very typically

used for exercising effective inventory manage. Under those techniques the gadgets in

inventory are categorized according to the fee of utilization. The higher the value

items have lower safety stocks, because cost of production is very high in respect of

higher value items. The lower value items carry higher safety stocks.

The annual conception analysis of HETERO DRUGS would indicate that

handful of top high value items, less than 10% of the total number will account for a

substantial portion of above 75% of the total consumption value and such vital few

items called A items. Large variety of backside gadgets over 70% of the whole wide

variety account for handiest 10% of the intake cost and known as C category gadgets.

The items that lie between the top and the bottom are referred as B category items.

Under the ABC analysis HETERO DRUGS using a special concept is XYZ analysis

where

ABC represents the value of materials

XYZ represents the consumption of materials

56
The table explanation

TABLE: 3.4

% of Items % of Value Category –1 Category –2

10 75 A X

20 20 B Y

70 10 C Z

(Source of Hetero Drugs Ltd)

PURCHASING PROCEDURE OF ABC ITEMS

A ITEMS – 1 TO 3 DAYS

B ITEMS – 2 TO 5 DAYS

C ITEMS – 7 DAYS OR WEEKLY

XYZ CLASSIFICATIONS

X – (Runner Model) :- Which is presently manufacturing.

Y – (Repeater Model) :- It is used in the manufacturing of vehicles.

Z – (Stranger Model) :- Which are consumed less.

AX – ITEMS – Daily Consumption

AY – ITEMS – Time taken for 2 to 3 days for consumption

AZ – ITEMS – By taking as per order.

57
 ABC analysis helps to concentrate extra efforts on A on the grounds that finest

economic blessings will come by means of controlling those items. An attention ought

to be paid in estimation requirements, buying, keeping safety shares and well storing

of A class substances. These items are stored under a regular evaluate so that a

significant fabric value can be managed.

The control of C items may be relaxed and these stocks may be purchased for

the year. A little greater interest need to take delivery of in the direction of B class

objects and their bought have to be understood quarterly of half every year durations.

HETERO DRUGS following classification of inventory in ABC, XYZ

analysis to maintain a proper stock level according to the flow of the day to day

inventory in the organization. By giving course to the ABC classified inventory it is

easy to identify the inventory from the stores department. It helps to save the time to

choose from the stores department, in selection of the vendors, material holding cost,

estimation in expenditure of working capital, determining in inventory levels and so

on……

CODIFICATION OF INVENTORY:

After the classifying all items of stores, it becomes necessary to allot code

numbers to the classified items. The object of classification of only to allot a symbol

or code number to every item to facilitate easy location and handling.

In HETERO DRUGS the codification of materials done by allotting the

number and alphabets.

Numbering system for HETERO DRUGS

In HETERO DRUGS., each and every part of material consists 10 digit code and code

is divided into 4 different goods.

58
 TABLE: 3.5

X XX XXX XXXX

First Group Second Group Third Group Fourth Group

First Group

The first group will be alphabet (Range A to Z) indicates types of standards

Second Group

This will be a two digit numeric and will be in line with existing part

numbering system and the two digits are the first two digits indicating the vehicles

and associated systems / sub systems.

Third Group

Third Group will be a four digit numerical and will be running serial number

for the type of standard applicable

Fourth Group

This will be a one alphabet will indicate the revision status of the standard.

For Example: - Code for “ASSY RAW” is

08 02 BA 0690N

Where:

08 is RAW system

02 is Sub-System – (Sub System)

B is External Controls

59
A is General

069 is Running Serial Number

0 is HETERO DRUGS Design

N is Color Code

JIT – JUST IN TIME INVENTORY CONTROL

Just in time buying in the purchase of materials and supplies in such a

manner that delivery immediately precedes the demand of use. This will ensure that

stocks are as low as possible. JIT shopping is implemented with the aid of developing

nearer dating with suppliers in order that business enterprise and providers work

collectively operatively. In JIT purchasing, association is made with dealer for greater

common deliveries of smaller portions of materials so that each transport in only

enough to fulfill on the spot production necessities. JIT systems lessen the investment

in raw materials and work in development shares.

JIT shopping encompass financial savings in factory space, large

quantity bargain and reduced paper work springing up from issuing blanket long time

orders to fewer suppliers instead of purchase orders.

Direct Online (DOL) method is following in JIT system. In JIT A Class items

are purchasing and the time between the purchases of these items are 1 to 2 days.

TWO BIN SYSTEM

The material inventory is physically separated into two bins. The quantity

contained in the first is used between the time on order is received and the next order

is placed. During the lead time the quantity contained within the second bin is made

use of the second one bin contains enough stock to cowl the usage among ordering

and delivery plus additional units into the second bin to restore the original quantity

and the remaining quantity is put in the first bin.

60
 This method is maximum suitable to the controlling of low value gadgets i.e., C

class items.

Under Two Bin systems in HETERO DRUGS., KANBAN Cards system is following.

C class items are storing in the bins under KANBAN system.

KANBAN CARD MODEL (BIN CARD)

TABLE: 3.6

KAN BAN TYPE KAN BAN QTY.

PART NO :-

DESCRIPTION :-

STORAGE LOCATION :-

SCHEDULE TO RECEIPT TIME IN

BUYER
DAYS

KAN BAN CARD NO. :-

HETERO DRUGS – VSM

61
MILK RUN CONCEPT

It is a new form of inventory classification using by HETERO DRUGS.

Milk Run Concept is a day-to-day purchasing concept. Here the buyer will

purchase the material according the production, which is for the next one day.

The buyer will first know the safety control stock and then he tells to the

suppliers the estimated trigger value. In milk run concept most effective great licensed

stock might be delivered the purchaser need to expected the lead time and it's far

obligatory as a way to have the manipulate over the lead time. It is direct online

device there could be inspection to be able to store time and inventory handling fee.

A and B class items are considered under the milk run concept.

Advantages:-

 Economical transportable lot (minimum transportation cost per piece)

 No inventory carrying cost at plant and at warehouse.

 It is direct online system (DOL)

 Quality certified stock will be delivered and so no inspection is required.

DETERMINATION OF STOCK LEVELS

Carrying of an excessive amount of and too little of inventories is

determinate to the firm. If the stock level is simply too little, the company will face

common inventory – outs involving heavy ordering value and if the stock level of

stock in which expenses are the minimum and on the same time their ID.No.Stock-

out, which may additionally result in loss of sale or stoppage of production. Various

stock stages are discussed underneath.

62
 MINIMUM STOCK LEVEL

This is the lower limit underneath which the stock of any item should now not

typically be allowed to fall. This is also technically referred to as safety or buffer

inventory. The top concerns in solving the minimal stock degree or safety shares are :

a. Average rate of consumption.

b. Lead time.

Minimum level of stock = Reorder level – (Average rate of consumption x Average

reorder period)

Lead-Time:

A buying firm calls for some time to manner the order and time is likewise

required by using the providing company to execute the order. The time taken

processing the order and the executing it's miles called lead-time. It is crucial to

maintain a few stock for the duration of this era.

Reorder Level:

Reorder level is fixed between the minimum and maximum levels. When

stock of a material reaches at this point, the store keeper should initiate action for the

purchase of material. The reorder level is slightly more than minimum stock level to

guard against

a. Abnormal usage

b. Abnormal delay in supply

Reorder level = Maximum consumption / Maximum period required for delivery

during the period

63
MAXIMUM STOCK LEVEL:

Maximum stock level represents the upper limit beyond which the quantity of

any item is not normally allowed to rise. The main object of establishing this limit is

to ensure that unnecessary working capital is not blocked in stores. Theoretically,

maximum stock level is the sum – total of minimum stock level and economic order

quantity.

Maximum level = Reorder Level + Reordering quantity – Minimum consumption

AVERAGE STOCK LEVEL:

The average stock level is calculated as such:

Average stock = minimum stock level + ½ of re-order quantity

DANGER LEVEL:

This is generally fixed below the minimum stock level. Normal stock should

not be below the minimum level. If it reaches the danger level at any point of time,

urgent action for replenishment of stock must be taken to prevent stock out.

64
 DATA ANALYSIS &INTERPRETATION

INVENTORY TURN OVER RATIO

“A Ratio which measures the range of instances a corporations average inventory is

sold in the course of a 12 months” – Kohler.

Computation of inventory turnover ratios for one of a kind objects of materials

and evaluation of the turnover ratios provide a beneficial steerage for measuring

inventory overall performance. A high turnover rate suggests that the material in

query is a fast moving one.

“Inventory or Stock turnover is measured in phrases of the ratio of the fee of

substances fed on to the average inventory during the length”. The ratio suggests the

variety of time the common inventory is ate up and replenished by way of dividing

wide variety of days for which the common stock is held can be ascertained.

Comparing the quantity of days inside the case of two one of a kind materials,

it is viable to recognized that is rapid moving and which slow on that foundation try

can be made to reduce the quantity of capital locked up and prevent over stocking of

sluggish shifting objects.

Average Inventory = Opening stock + closing stock / 2

Inventory Turnover Ratio = Materials consumed / Average Inventor

Inventory turnover in number of days = No. Of days in a year / Inventory

turnover ratio

65
TABLE: 4.1

YEARS 2017 2016 2015 2014 2013 2012

Opening Inventory
49970 45675 46904 55253 51554 43697
(Rs. In Lakhs)

Closing Inventory
75983 49970 45675 46904 55253 51554
(Rs. In Lakhs)

(Source: Annual reports of HETRO DRUGS LIMITED)

Opening inventory (Rs. In lakhs):

GRAPH NO:4.1

60000

50000

40000 YEARS
Opening Inventory
30000
(Rs. In Lakhs)
20000 Series4

10000

0
2017 2016 2015 2014 2013 2012

INTERPRETATION:
In the year 2017 Opening Inventory has been decreased to 49970 in the year

2012 due to reduce in opening balance 43697.

66
 CLOSING INVENTORY (RS In lakhs):

GRAPH NO:4.2

80000

70000

60000
2017
50000 2016
40000 2015
2014
30000
2013
20000 2012
10000

0
CLOSING INVENTORY

INTERPRETATION:
In the year 2017 Closing Inventory has been decreased to 75983 in the year

2012 due to reduce in balance 51554.

67
 INVENTORY TURNOVER RATIO

TABLE:4.2
YEARS INVENTORY AVERAGE INVENTORY INVENTORY
CONSUMED INVENTORY TURNOVER TURNOVER
(Rupees in (Rupees in RATIO IN NUMBER
Lakhs) Lakhs) OF DAYS
459537.10 49970 + 75983 459537.10 365..
March – 2012 2 62976.5 7.296
= 62976.5 = 7.296 =50.02
March – 2013 335286.52 45675 + 49970 335286.52 366..
2 47822.5 7.01
= 47822.5 = 7.01 = 52.21
March – 2014 250021.84 46904 + 45675 250021.84 365..
2 46389.5 5.389
= 46389.5 = 5.389 = 67.73
March – 2015 211723.1 55253 + 46904 211723.1 365..
2 51078.5 4.24
= 51078.5 = 4.145 = 88.05
March – 2016 235858.13 51554 + 55253 235858.13 365..
2 53403.5 4.41
= 53403.5 = 4.416 = 82.65
March – 2017 221023.23 53697 + 51554 221023.23 366..
2 47625.5 4.64
= 47625.5 = 4.64 = 78.87
(Source: Annual reports of HETRO DRUGS LIMITED)

68
GRAPH NO:4.3

100
88.05
90 82.65
78.87
80
67.73
70
60 52.21
50.02
50
40
30
20
7.296 7.01
10 5.389 4.145 4.416 4.64
0
2012 2013 2014 2015 2016 2017

INVENTORY TURNOVER RATIO INVENTORY TURNOVER IN Number of Days

INTERPRETATION:
Activity Ratio Measure the efficiency or effectiveness with which a firm

manages its resources or assets. They calculate the speed with which various assets, in

which funds are blocked up, get converted into sales. The greater the rate of turnover

COMPUTATION:

Inventory turnover ratio = Cost of goods sold / Average stock

69
TABLE: 4.3
Year Cost of Goods Average Stock Inventory
Sold
2011-2012 18945274 1496782 12.65

2012-2013 19936785 1563478 12.75

2013-2014 20835858 1566212 13.30

2014-2015 27013273 1721206 15.70

2015-2016 29254755 1842908 15.87

2016-2017 35721416 2196588 16.26

(Source: Annual reports of HETRO DRUGS LIMITED

GRAPHICAL REPRESENTATION
GRAPH NO:4.4

40000000
35000000
30000000
2011-2012
25000000
2012-2013
20000000
2013-2014
15000000 2014-2015
10000000 2015-2016
5000000 2016-2017

0
Cost of Goods Average Stock Inventory
Sold

70
INTERPRETATION:

Average Inventory Turnover Ratio is 14.40, which is slightly higher than the

normal ratio. A high level of Inventory Turnover Ratio is an indicative of low level of

inventory, which may result in frequent stock outs. So, a firm does not have to

maintain a moderate level of Inventory Turnover Ratio a high nor a low level is

desirable from company’s view.

71
ABC ANALYSIS:

ABC Analysis is one of widely used inventory control tool. Under this we
have to classify materials according to their importance and concentrate more on
critical items. Importance of any item arises due to the two factors namely,
consumption values and critically in use. Classification of materials according to
importance has its basis on the promise “Vital Few and Trivial Many”.

The classification based on consumption value is called ABC Analysis and the
classification based on the critically of the items is called VED Analysis (Vital,
Essential and Desirable). Periodical consumption values are used as the
basis for ABC Analysis while technical consideration forms the basis for VED
Analysis. ABC is said to denote “Always Better Control”, the method of classification
of materials is also known as “Selective method control”. The basis of analyzing the
annual consumption cost goes after the principle “Vital few and Trivial many”.

Items held in the group can be classified into A, B and C respectively

based on their annual consumption values. It has been found in a large number of
organization about 10 % of the items contribute to 70% of the annual consumption
value, 20% of the no. of items contribute about 20% of the annual consumption value
and the remaining 70% value of the items contribute 10% of the annual consumption
value . Hence consumption value need to be controlled at the highest level and these
are A items. The control of bottom 70% of the items that contribute only 10% of the
annual consumption value that are denoted as C items can be delegated to the lowest
decision making levels ,while the middle B items can be controlled by the middle
levels of personnel .
72
 The following figures bring out clearly the concept of ABC
Analysis:-
TABLE: 4.4
Category Value Item % % of Annual
A Item 10 70
B Item 20 20
C Item 70 10
(Source: Annual reports of HETRO DRUGS LIMITED)

GRAPH NO:4.5

% of Annual

80
60

40 % of Annual
20
0
A Item B Item C Item

73
Problem:
A company is considering a selective inventory control using the following
data.

TABLE:4.5
Items Units Unit Cost (Rs)
1 6000 4.00
2 61200 0.05
3 16800 2.10
4 3000 6.00
5 55800 0.20
6 22680 0.50
7 26640 0.65
8 14760 0.40
9 20520 0.40
10 90000 0.10
11 29940 0.30
12 24660 0.50
(Source: Annual reports of HETRO DRUGS LIMITED)

74
Solution:

TABLE:4.6
Items Units % of Total Unit Cost Total % of
Units Rs. Cost Total Cost
Rs.
A 3 16800 4.52 2.10 35280 21.43
1 6000 1.61 4.00 24000 14.58
4 3000 0.81 6.00 18000 10.94
7 26640 7.16 0.65 17316 10.52
14.10% 57.47%

B 12 24660 6.63 0.50 12330 7.49

6 22680 6.10 0.50 11340 6.89
5 55800 15.00 0.20 11160 6.78
10 90000 24.19 0.10 9000 5.47
11 29940 8.05 0.30 8982 5.46
9 20520 5.51 0.40 8208 4.99
65.48% 37.08%

C8 14760 3.97 0.40 5904 3.59

2 61200 16.45 0.05 3060 1.86
20.42 5.45%

(Source: Annual reports of HETRO DRUGS LIMITED)

75
 Total Cost (Rs)
GRAPH NO:4.6

INTERPRETATION:
Assuming the ABC analysis of selective control is indicated.
Arrange the data for presentation to the management.
The total cost and total units indecating in rupees

76
 Total Percentage (%)
GRAPH NO:4.7

INTERPRETATION:
Assuming the ABC analysis of selective control is indicated.
Arrange the data for presentation to the management.
The total units and totel cost indecating to persentage

77
Problems on EOQ (ECONOMIC ORDER QUANTITY):

Problem 1: A manufacturing company has an expected usage of 50000 units of

certain product during the next year. The cost of processing an order is Rs 20 and the

carrying cost per unit is Rs 0.50 for one year. Lead time on an order is five days and

the company will keep a reserve of two days usage. You are required to calculate (a)

economic order quantity and (b) the reorder point. (Assume 250-day year).

Solution:

(a) The economic order quantity is:

(b) The reorder point is:

Daily usage = 50000 ÷ 250 = 200 Units

Reorder Point = Safety stock + Lead time × Usage

= 2(200) + 5(200) = 400 + 1000 =1400

78
Problem 2: a customer has been ordering 5000 units at the rate of 1000 units per
order during last year. The production cost is Rs 12 per unit-Rs 8 for material and

labour and Rs 4 overhead cost. It cost Rs 1500 to set up for one run of 1000 units and

inventory carrying cost is 20% of the production cost. Since this customer may buy

at least 500 units this year, the company would like to avoid making five different

production runs. Determine the most economic production run.

Solution:

The most economic run is:

79
ESTIMATION OF STOCK LEVELS

There are different techniques used in the calculation of the stock levels.

Reordering Quantity - 2500 units

Reordering Period - 4 – 5 weeks

Weekly usage :-

Maximum usage - 900 units

Normal usage - 700 units

Minimum usage - 500 units

Reordering Level = Maximum consumption X Maximum Reordering Period

= 900 X 5 = 4500 units.

Ex :- Consider “Load King” for calculation purpose.

Calculated of the load king vehicle as 500 units.

Normal Daily consumption = 700 units

Normal Reorder period = 4.5 weeks

Reorder level = 4500 units

Minimum usage = 500 units

Minimum Reorder period = 4 weeks

Maximum Reorder period = 5 weeks

80
MINIMUM STOCK LEVEL

= Reorder Level – (Normal consumption X Normal Reorder Period)

= 4500 – (700 X 4.5)

= 4500 – 3150

= 1350 Units

MAXIMUM STOCK LEVEL

= Reorder Level + Reorder Quantity – (Minimum consumption X

Minimum Reorder Period)

= 4500 + 2500 – (500 X 4)

= 7000 – 2000

= 5000 Units

AVERAGE STOCK LEVEL

= Minimum stock + ½ of Reordering Quantity.

= 500 + (½ X 2500)

= 500 + 1250

= 1750 Units

Minimum Stock Level = 1350 Units

Average Stock Level = 1750 Units

Maximum Stock Level = 5000 Units

81
 SUMMARY

Today’s business scenario inventory management is becoming very crucial

part of the organization.

The system of inventory management in HETERO DRUGS very effective.

The organization is basically and assembling unit and thus inventory place a

most significant role in the decision making process.

From the various calculations and figures relating to inventory management it

is clear that the inventory classification of A items are maintain for 1 – 3 days, as a

result it reduce investment in raw material, reducing the lead time and also the large

quantity discount because the stock are kept for 1 – 3 days.

In the classification of ABC items XYZ procedure is following in HETERO

DRUGS. Plant has launched the different type of KANBAN card system for class C

items. Class A & B items are consider under the just in time philosophy as the

procurement time has been reduced up to greater extent by the proper co-ordination of

buyer and supplier.

There is great improvement in the inventory turnover ratio from 3 years. It is

increased from 5.38 to 7.296% this position indicates that the stocks are fast moving

and get converted into sales quickly in HETERO DRUGS. Finally we conclude that

HETERO DRUGS plant the inventory system is very good with Indian techniques.

82
 FINDINGS

The major finding of the project is Average Inventory Turnover Ratio is 15.30,
which is slightly higher than the normal ratio.


A high level of Inventory Turnover Ratio is an indicative of low level of
inventory, which may result in frequent stock outs. So, a firm does not have to

maintain a moderate level of Inventory Turnover Ratio a high nor a low level

is desirable from company’s view.

Items held in the stores can be grouped into class A, B and C

respectivelybased on their Annual Consumption Values. It has been found

in a large number of organization the about 10% of the items contribute to

70% of the annual consumption value, 20% of the number of items contribute

about 20% of the annual consumption value and the remaining 70% of the

items contribute 10% of the annual consumption value.

The items fall under B category may be dispensed within record keeping

thesystem. This will help in saving time, money and labor without

endangering production schedule.

83
 SUGGESTIONS

Suggestions must take from all department of the organization for proper
maintaining of stock.

Inventory management is to keep the stock in such a way that neither there is
over-stocking.

Under stocking will result in stoppage of work the investment in inventory
management should be kept in reasonable limits.

A preventive measure there should be a regular monitoring mechanism at the
stage of procurement, whether there is a control exercised in purchasing

materials in line with estimates, to have a better control on the inventory

levels.

A regular reporting system on inventory should be placed to highlight on
carrying costs and opportunity cost.

Organization needs to upgrade of the technology, which in turn increase
effective utilization of raw material.

Organization has to pay attention on the amount of % raw material on cost of
production, which is high when compared.

84
 BIBLIOGRAPHY

S.NO NAME OF THE NAME OF THE PUBLISHER

AUTHOR BOOK

1 IM PANDEY FINANCIAL Vikas publishing house ltd,

MANAGEMENT
2006- 9th edition

2 PRASANNA FINANCIAL Tata McGraw–Hill publishing

CHANDRA MANAGEMENT
company ltd

2005- 5th edition

3 KHAN&JAIN FINANCIAL Tata Mc Graw -Hill publishing

MANAGEMENT company ltd

4 S.S.S. KUMAR FINANCIAL Vikas

MANAGEMENT

5 Dr.S.N.MAHESWARI FINANCIAL Sultan Chand

MANAGEMENT

WEB:

WWW.HETERO DRUGSHYD.COM

www.financial-management.com

85
 HETERO DRUGS

Balance Sheet AS ON 31st March 2012

AS ON

PARTICULARS SCHEDULE 31-03-2011

RUPEES
1.SOURCES OF FUNDS :

Share Holders Funds: 4091002

Share capital A 151200

Share money deposit 1989921

Reserves & Surplus B 6232123

Loan Funds: 4522490

Secured Loans C 51600

Un secured Loans D 5574090

_____________________

TOTAL E _______10806013 _______

II. APPLICATION OF FUNDS:

Fixed Assets: 10493397

Gross Block F 5280695

Less: Depreciation 6212702

Net Block G 8420536

5815068
Current Assets , Loans &
Advances
3605425
Less: Current
Liabilities & N
Provisions
10806013
Net Current Assets

Notes on Accounts

TOTAL

86
 HETERO DRUGS

Balance Sheet AS ON 31st March 2013

AS ON

PARTICULARS SCHEDULE 31-03-2012

RUPEES
1.SOURCES OF FUNDS :

Share Holders Funds: 4092006

Share capital A 151200

Share money deposit 1989921

Reserves & Surplus B 6233127

Loan Funds: 5533491

Secured Loans C 51588

Un secured Loans D 5585079

________________________

TOTAL _______ 11818207 ________

II. APPLICATION OF FUNDS:

 Fixed Assets:

Gross Block E 13493397

Less: Depreciation 6280695

Net Block F 7212702

G 10420536
Current Assets , Loans &
Advances
5815038
Less: Current
Liabilities & N 4605498
Provisions

Net Current Assets

11818207
Notes on Accounts

TOTAL

87
 HETERO DRUGS

Balance Sheet As At 31st March 2014

AS ON

PARTICULARS SCHEDULE 31-03-2013

RUPEES
1. SOURCES OF FUNDS :
2. Share Holders Funds:
A 4092002
Share capital
B 151200
Share money deposit
C 1752300
Reserves & Surplus
D 5995500

Loan Funds:
6936885

Secured Loans
51588

Un secured Loans ___ 6988473___

TOTAL E 12983973 ___

II. APPLICATION OF FUNDS:

1. Fixed Assets: F

Gross Block 16307792

Less: Depreciation G 7248860

Net Block 9058932

11992295
2. Current Assets , Loans &
Advances
N

Less: Current
Liabilities & 8067254
Provisions

Net Current Assets

3925041
Notes on Accounts
12983973

TOTAL

88
 HETERO DRUGS
Balance Sheet As At 31st March 2015
AS ON

PARTICULARS SCHEDULE 31-03-2014

RUPEES
I. SOURCES OF FUNDS

I. :Share Holders Funds: A 4092002

Share capital 151200

Share money deposit B 4738737

Reserves & Surplus C 8981937

2. Loan Funds: D 5924033

Secured Loans 51588

Un secured Loans 5975621

C Differed Tax Liability E 0____

TOTAL 14957558__

II. APPLICATION OF FUNDS: F

1. Fixed Assets: 18731575

Gross Block G 8427549

Less: Depreciation 1030402

Net Block 15743266

2. Current Assets , Loans & Advances 11089734

Less: Current Liabilities & H 4653532

Provisions
0
Net Current Assets
__________________
3. Miscellaneous Expenditure
( to the extent not written off or adjusted )
14957558

Notes on Accounts

TOTAL

89
 HETERO DRUGS
Balance Sheet As On 31st March 2016
AS ON

PARTICULARS SCHEDULE 31-03-2015

RUPEES
I. SOURCES OF FUNDS :

I. Share Holders Funds: A 4092002

Share capital 1701200

Share money deposit B 4148248

Reserves & Surplus C 9941448

ii. Loan Funds: D 27286092

Secured Loans 51588

Unsecured Loans 27337680

C. Differed Tax Liability 1622079

TOTAL E 38901207

II. APPLICATION OF FUNDS: 38031221

iii. Fixed Assets: 10228465

Gross Block F 27802756

Less: Depreciation 22020278

Net Block G 10965827

iv. Current Assets , Loans &

Advances
11054451
Less: Current Liabilities &
Provisions H

Net Current Assets

44000
v. Miscellaneous Expenditure
( to the extent not written off or __________________
adjusted)
Notes on Accounts O 38901207

TOTAL

90