TRAINING REPORT

ON
WORKING CAPITAL MANAGEMENT

In Partial fulfillment of the requirement for the degree of

MASTER OF BUSINESS ADMINISTRATION

(Punjab Technical University, Jalandhar)
Session – 2017-2019

I.K Gujral Punjab Technical University, Jalandhar

Submitted By:

Tina Rani
(MBA- 4th Sem.)
Uni. Roll No. 1718771
 INDEX

Sr.No. Topics Page No.

1 Introduction

2 Company Profile

3 Literature Review

4 Objectives of the Study

5 Research Methodology

6 Data Analysis & Interpretation

7 Recommendations

8 Limitations

9 Conclusion & Implications

10 Bibliography
COMPANY PROFILE
 Company Profile

DOCTOR SEEDS PVT. LTD.

Doctor Seeds Pvt. Ltd. promoted by Dr. R.S Punia, an agriculture technocrat having
vast experience in Seed development and two years research fellowship in one of the top
agriculture Universities of Japan and its family members came into existence in January 1998 to
carry out the business of Agriculture, Horticulture, Planting, Cultivation, Breeding and the
business of growers, processors, dealers, distributors, importers and exporters of all kinds of
vegetable seed varieties. Presently, the company is in the area of production, multiplication,
marketing and import & export of vegetable seeds. It has approximately 170 Hybrids, O.P. &
Selection varieties developed on its own R & D base and handling about 25 vegetable crops. It
has since included field crops also into its fold on the strength of its continuous efforts in
research and development.
It has a very strong presence in India and is exporting its vegetable seeds to the other parts of the
world. In view of the adaptability of its quality seeds, demand for supply is pouring in from all
 over the world including African, European, Latin American countries apart from Asian
Countries where it already has strong presence.

Seed is the most vital input for sustainable and profitable agriculture. The quality and quantity of
every single crop or yield depends on the seeds to a great extent. Keeping this in mind, Doctor
Seeds Pvt. Ltd. brings forth an innovative range of Vegetable Seeds of Beans, Beet Root, Bhindi
(Okra), Capsicum, Coriander, etc. The company has revolutionized the seed industry by making
cultivators and farmers capable of planting high quality vegetables using organic, safe and
productive seeds.

The company is managed by Dr. R.S Punia, who is an agriculture technocrat with huge expertise
in the domain of seed development. He has also done two years research fellowship in the
leading agriculture Universities of Japan. In January 1998, he started the company as a major
Manufacturer, Exporter and Supplier to aid cultivators, growers, processors and exporters to
carry out different businesses of Agriculture, Cultivation, Breeding, Horticulture, Planting.

Membership with the Seed Institutions / Associations

The company is member of the following reputed institutions engaged in the field of seed
production, marketing development:

 Asia Of Pacific Seed Association (APSA)

 International Seed Federation (ISF)
 National Seed Association Of India (NSAI)
 National Seeds Corporation Of India (NSCI)
 Agriculture And Processed Food Products Export Development
Authority (APEDA)

The company is managed by Dr. R.S Punia, who is an agriculture technocrat with huge
expertise in the domain of seed development. He has also done two years research fellowship in
the leading agriculture Universities of Japan. In January 1998, he started the company as a major
Manufacturer, Exporter and Supplier to aid cultivators, growers, processors and exporters to
carry out different businesses of Agriculture, Cultivation, Breeding, Horticulture, Planting.
The quality and quantity of every single crop or yield depends on the seeds to a great extent.
Keeping this in mind, Doctor Seeds Pvt. Ltd. brings forth an innovative range of Vegetable
Seeds of Beans, Beet Root, Bhindi (Okra), Capsicum, Coriander, etc. The company has
revolutionized the seed industry by making cultivators and farmers capable of planting high
quality vegetables using organic, safe and productive seeds.
It is worth mentioning that the Company has its own in - house R & D Centre recognized by
Govt. of India. All the R & D Programs undertaken by the company are under direct control and
supervision of Dr. R.S. Punia, Managing Director, who is Head of the R & D Division of the
Company. Approximately 95% of our products are result of our In - House R & D Centre.
Land Development Corporation has adopted a strategy to improve land productivity by taking
proper care of land and water.
Mr. Jasminder Singh Punia, Director is responsible for Processing and Marketing activities of the
company including its product development efforts. Mr. Punia is responsible for the, business
development including import & export as also expansion efforts of Doctor Seeds Pvt. Ltd. All
the matters pertaining to coordination of business are controlled by him.

Products
Beans , Open Pollinated, Beet Root, Bhindi (Okra), Bitter gourd, Bottle gourd, Brinjal,
Broccoli, Cabbage, Capsicum, Carrot, Cauliflower, Chilli, Cluster, Bean (Guwar), Coriander,
Cucumber, Gobi Saron Saag, Knol Khol, Long Melon, Muskmelon, Onion, Paddy, Peas,
Pumpkin, Radish, Ridge gourd, Round Gourd(Tinda), Spinach (Palak), Sponge gourd, Summer,
Squash, Tomato, Watermelon, Zucchini.
INTRODUCTION
MEANING OF INVENTORY
Inventory is a list for goods and materials, or those goods and materials themselves, held

available in stock by a business. It is also used for a list of the contents of a household and for a

list for testamentary purpose of the possessions of someone who has died. In accounting
inventory

is considered an asset

TYPES OF INVENTORIES

Inventories play a major role in a business or depending on nature of the businesses. The

inventories may be classified as under.

(I) Raw Materials

Materials and components scheduled for use in making a product. These are the basic

inputs, which are converted into finished products through manufacturing process. Raw material

inventories are those units, which have been purchased and stored for future production.

.(II) Work in process / Progress

Materials and components that have begun their transformation to finished goods. Materials

issued to the stop floor, which have not yet become finished products they are value added

materials to the extent of labor cost incurred.

(III) Finished Goods

A finished goods is a completed part that is ready for a customer order. These goods have

been inspected and have passed final inspection requirements so that they can be transferred out

of work-in-process and into finished goods inventory. From this point, finished goods can be
sold

directly to their final user, sold to retailers, sold to wholesalers, sent to distribution centers, or
held

in anticipation of a customer order.

STORES & SPARES

The level of four kind of inventory depends upon the nature of the business. Supplies

include office and cleaning materials like soap, brooms, oil, light, blubs etc. these materials do

not directly enter production, but are necessary for production process.

28

NEED OR INVENTORY CONTROL

Transaction motive:

Every firm has to maintain some level of inventory to meet the day-to-day requirement of

sales, production process, customer demand etc. In the finished goods as well as raw material are

kept as inventories for smooth production process of the firm.

Precautionary motive:

A firm should keep some inventory for unforeseen circumstances also like loss due to natural

calamities in a particular area, strikes, lay outs etc so the firm must have some finished goods as

well as raw-materials to meet circumstances.

Speculative motive:

The firm may be made to keep some inventory in order to capitalize an opportunity to make

profit due to price fluctuations.

BASIC REASONS TO KEEPING AN INVENTORY:

There are three basic reasons for keeping an inventory:

1. TIME: The time lags present in the supply chain, from supplier to user at every stage, requires

that you maintain certain amount of inventory to use in this “lead time”.

2. UNCERTAINTY: Inventories are maintained as buffers to meet uncertainties in demand,

supply and movement of goods.

3. ECONOMIES OF SCALE: Ideal condition of “one unit at a time at a place where user needs
it, when he needs it “principle tends to incur lots of costs in terms of logistics. So bulk

buying, movement and storing brings.

29

INVENTORY MANAGEMENT

Inventory management is primarily about specifying the size and placement of stocked

goods.

Inventory management is required at differ locations within a facility or within multiple

locations of a supply network to protect the regular and planned course of production against the

random disturbance of running out of materials or goods. The scope of inventory management

also concerns the fine lines between replenishment lead time, carrying costs of inventory, asset

management, inventory forecasting, inventory valuation, inventory visibility, feature inventory

price forecasting, physical inventory, available physical space for inventory, quality
management,

replenishment, returns and defective goods and demand forecast.

Inventory management involves:

_ Inventory management is the active control program which allows the management of

sales purchases and payment.

_ System and processes that identify inventory requirements, set targets, provide

replenishment techniques and report actual and projected inventory status.

_ Inventory management helps providing a good understanding ground and the capacity to

control financial costs.

_ The Inventory management will control operating costs and provide better understanding.

30

OPERATING CYCLE OF INVENTORY MANAGEMENT

Operating Cycle is the time duration to convert sales after the conversion of resources into
invention, into sales there is difference between current assets and fixed assets. A firm required
many

years to recover initial invests in fixed assets such plant and machinery or land buildings or
furniture

and fixtures etc. On the contrary, investment in current assets such as inventory and books debts
are

realized during the firms operating cycle, which in usually less than a year.

The operation cycle can be said to be the heart of the working capital. The need for

working capital or current assets cannot be over emphasized as already observed. The main

motive of many business firms is to achieve maximum profits, which can be earned depending

upon the magnitude of the sales among other things. However, sales do not convert in to cash

instantly. There is invariable time lag between sale of goods and receipts of cash. Therefore the

need of working capital in the form of current assets to deal with the problem arising good sold.

Therefore, sufficient working capital requires sustaining sales activity. Technically this is refer to

as the operating the cash cycle. The continuous flow form cash to supplies to inventory to

accounts receivable and back into cash what is called operating cycle.

Cash

Debtor’s Raw material

Sales Work in Progress

Finished Goods
The operating cycle of manufacturing company has three phases namely

1. Acquisition of resources

2. Manufacturing products

3. Sale of product

Acquisition of resources:-

In the phase first operating cycle, include phases of raw materials, fuel & power etc.,

which are totally required or manufacturing product

Manufacturing products:-

In the phase 2 of the operating cycle includes conversion of raw material in to work-inprogress

and the work in progress is converted into finished goods.

Sale of product:-
In the phase 3 of the operating cycle may sale the product either for credit is made to

customers.

REASONS AND BENFITS 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 firm there may be several reasons for holding inventories because of

sales activities that should not be interrupted more over it not always possible to procure the
good

whenever there is a sales opportunity there is always a time gap required between purchase 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 may have several incentives being offered in terms of quantity discounts or

lower price etc by the supplier of goods. There is trading concern inventory helps in a de-inking

between sales activity and also to capitalize a profit of opportunity due to purchase make at a

discount will result in lowering the total cast resulting in higher profits for the firm

32

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.

33

ESSENTIALS OF INVENTORY CONTROL

The important requirements of inventory control are:

• A firm needs inventory control system to effectively manage its inventory.

• Proper classification of materials with codes, material standardization and simplification.

• The operation of a system of internal check to ensure that all transactions involving material
and

equipment are checked by properly authorized and independent persons.

• The operation of a system of perpetual inventory so that it is possible to determine at any time,
the

amount and value of each kind o material in stock.

• A suitable method of valuation of materials is essential because it affects the cost of jobs and
the

value of closing stock of materials.

Objectives of Inventory Control

The main objectives of inventory control are:

1. To maintain a large size of inventory for efficient and smooth production and sales

operation.

2. To maintain a minimum investment in inventories to maximize profitability.

3. To ensure a continuous supply of raw materials to facilities uninterrupted production.

4. To maintain sufficient stocks of raw materials in periods of short supply and anticipate price

change.

5. Maintain sufficient finished goods inventory for smooth sales operation and efficient

customer services.

6. Minimize the carrying cost and time.

7. Control investment in inventories and keep it at an optimum level.

34

Advantages of Inventory Control

The following are suggested advantages:

1. Eliminates wastages in use of material.

2. It reduces the risk of loss form fraud and theft.

3. It helps in keeping perpetual inventory and other records to facilitate the preparation of

accurate material reports management.

4. To reduce the capital tied up in inventories.

5. It reduces cost of storage.

Disadvantages of Inventory Control

Every firm has to maintain optimal level of inventories. It not the following will be the result

in form of losses.

1. Opportunity cost : Every firm has to maintain inventory for that some investment is

needed it is known as opportunity cost and handle the investment in inventory are more the funds
are blocks up with inventory.

2. Excessive inventories: It will lead to firm losses due to excessive carrying costs the risk of

liquidity. It is also referred as danger level.

3. Inadequate Inventory: It is another danger which results is production hols-up and failure

to meet delivery commitments. In adequate raw materials and work - in - process inventors will

results in frequent production interruptions. It finished goods are not sufficient customers may

shifts to competitors.

4. Danger due to physical decoration: It is one of the reason with the inventories due to

maintaining stocks at high levels they will be deteriorated due to passage of time, sometimes due

to mishandling or improper storage facilities.

 INVENTORY CONTROL TECHNIQUES

Inventory is being maintained as a cushion in supply of materials for continuous

production without causing stock out situation. This cushion should not be suicidal to

any organization. The following scientific techniques and methods are being used in

control of inventory.

1. Inventory Management Techniques

2. Standardization

3. Selective Inventory Control

4. Just In Time

5. Perpetual inventory system

6. Droshipping

7. Inventory turnover ratio

2.1.7.1 INVENTORY MANAGEMENT TECHNIQUES

1. Economic Order Quantity

If the firm is buying raw materials, it has to decide lots in which it has to be

purchased on replenishment. If the firm is planning a production run, the issue is

how much production to schedule. These problems are called order quantity problems,

and the task of the firm is to determine the optimum or economic order quantity.

(a) Ordering cost:

 The term ordering cost is used in case of raw materials and includes

the entire costs of acquiring raw materials.

(b) Carrying cost:

Cost incurred for maintaining a given level of inventory is called

carrying cost.

Economic Order Quantity is given by the formula:

𝟐𝑨𝑶
EOQ = √ 𝑪

And the total cost of inventory is given by the formula:

Total cost of inventory = (A×P) + (A×O) + (EOQ×C)

EOQ 2

Where A = Annual consumption (in units)

O = Ordering cost per order (in Rs)

C = Carrying cost per unit (in Rs)

P = Price per unit (in Rs)

2. Reorder Point

The reorder point is that inventory level at which an order should be placed to

replenish the inventory. To determine reorder point:

 (a) Lead time is the time normally taken in replenishing inventory after the

order has been placed.

(b) Average usage

(c) Economic order quantity

3. Safety stock

The demand for material may fluctuate from day to day. The actual delivery time

may be different from the normal lead time. If the actual usage increases or the

delivery of inventory is delayed the firm can face problem of stock out, which can

be costly. So, in order to guard against the stock out the firm may maintain a safety

stock.

2.1.7.2 STANDARDIZATION

Standardization is very essential to control the inventory, as by standardization

reduction in variety of material is possible. And because of the reduction in variety the

advantages are low order cost, low inventory, less storage stocks, conservation of

materials, variety reduction, less paper work, easy follow up with suppliers, less number

of orders.

The importance of this field has been recognized since the days of F.W. Taylor,

who first drew attention to this fundamental need in any organization. Just as work

study is necessary preliminary to work simplification, and a basic technique for

production control, quality control, materials handling, estimated cost control, etc.,
“Standardization “ are preliminary necessity to design a basic technique on build control

and standardization procedure.

2.1.7.3 SELECTIVE INVENTORY CONTROL MANAGEMENT

Any manufacturing organization consumes few thousand items of stores. A high

degree of control on inventories of each item would, therefore neither be practical

considering the work involved, nor worthwhile since all items are not of equal

importance. Hence, it is desirable to classify or group items to control, commensurate

with importance. This is the principle of selective control as applied to inventories and

the technique of grouping is termed as selective technique.

Selective inventory means variation in the methods of inventory control from

items to item and this differentiation should be on selective basis by classification. A

company has to stock thousands of items of raw materials, standard parts, stores and

spares, sub contract items, tools, stationery etc. To have better control over the

inventory/ stock on hand, selective inventory control technique should be used in

isolation/ or in conjunction.

Thus selective control means selecting the area of control so that required objective is

achieved as early as possible without any lost of time due to taking care of full area –

 Minimum lost of energy and efforts.

 At minimum cost without loss of time.

There are following selective control techniques:

* ABC Analysis

* FSN Analysis

* XYZ Analysis

* VED Analysis

* HML Analysis

a) ABC ANALYSIS

ABC analysis is a selective control technique which is required to be applied when we

want to control value of consumption of the item in rupees obviously when we want to

control value of the consumption of the material we must select those materials where

consumption is very high.

In any company manufacturing, there are number of items which are consumed or traded

it may run into thousands. It is found after number of studies for different companies

that –

Value of consumption of No. Of items Grade

items (value in Rs).

70% of consumption 10% of no. Of items A

20% of consumption 15% of no. Of items B

10% of consumption 75% of no. Of items C

A items these are those items which are found hardly 5% 10% but their consumption

may amount 70% 75% of the total money spend on materials.

B items these are those items which are generally 10% 15% of he total items and their

consumption amounts to 10% 15% of the money spend on the materials.

C items these are large number of items which are cheap and inexpensive and hence

insignificant. They are large in number s running into hardly 5% 10% of the total

money spends on materials.

'A' Class Items ‘B’ Class Items 'C Class Items

(High consumption value) (Moderate consumption (Low consumption value)
value)

1. Very strict control 1. Moderate control 1. Loose control.

2. No safety stocks or very 2. Low safety stocks. 2. High safety stocks

Low safety stocks.

3. Maximum follow up and 3. Periodic follow up 3. Follow up and expediting

Expediting in exceptional cases

4. Rigorous value analysis 4. Moderate value analysis 4. Minimum value analysis

5. Must be handled by senior 5. Can be handled by 5. Can be fully delegated

officers management

b) FSN ANALYSIS

This type of analysis is more concerned from the point of view of movement of the

item or issue of the item or issue of the item under this type of analysis.
 ‘F’ items are those items, which are fast moving i.e. in a given period of

time, say a month or a year they have been issued up till number of items. Although

fast moving does not necessarily mean that these items are consumed in large quantities.

‘S’ items are those items which are slow moving in the sense that in the

given period of time they have been issued in a very limited number of time

‘N’ non moving items are those, which are not at all issued for a

considerable period of time.

Thus, stores department whose concerned with the moving of items would like to

know and classify that the items are storing in the categories FSN. So that they can

manage operate and plan stores activity accordingly.

For example, for efficient operations it would be necessary that fast moving items as

far as possible should be stored as near as possible to the point of issue. So that it can

be issued with minimum of handling. Also such items must be stored at the floor level

avoiding storing them at high heights.

Similarly, if the items are slow moving or issued once in a while in a given

period of time they can be stored in the interior of the stores and even at the higher

heights because handling of these items becomes very rare.

Further it is necessary for stores in charge to know about non moving items for

various reasons:
 1. They mean unnecessary blockage of money and affecting the rate of returns of

the company.

2. Further they also occupy valuable space in the stores without any usefulness and

therefore it becomes necessary to identify these items and go into details and find

reasons for their non moving and if justified to recommend to top management

for their speedy disposal so that company operations are performed efficiently.

Also inventory control to some extent can also be exercised on the basis of FSN

analysis.

For example, fast moving items can be controlled more severely, particularly when their

value is also high. Similarly, slow moving items may not be controlled and reviewed

very frequently since their consumption may not be frequent and their value may not be

high.

c) XYZ Analysis

This type of analysis is carried out from the point of view of value of balance stocks

lying in the stores from time to time and classifies all the items as given below.

‘X ‘items are those items whose value of balance stocks lying in the stock are very

high.

‘Y’ items are those items whose value of balance stock is moderate.

‘Z’ items are those items whose value of balance stock lying in the stocks is very low.
After knowing this type of classifications and their items can be taken to control the

situation as shown below:

1] From security point of view high value items must be stored and kept under lock

and key or if not possible they should be kept in such a way that they are always

under supervision. Similarly arrangement can be made for y and z items accordingly.

2] From inventory control point of view we must know why there is high inventory for

‘X’ items. We should review inventory control procedure for each and every high item

because stock should be maintained to take care of lead time consumption and also to

provide safety stocks. For high value items lying in stores we should review the reasons

for long lead time as well as demand variations and see whether lead time consumption

and safety stocks can be reduced. Thus proper inventory control procedures can be

developed on the basis of XYZ analysis.

Thus proper selective control methods should be selected to control the materials and

prevent from facing loss, taking advantage and knowing what exactly is to be done.

d) VED ANALYSIS

VED analysis is carried out to control situation, which are critical. When applied to

material in VED analysis we try to identify material according to their criticality to the

production, which means the material, without which the production will come to stop

and so on from this point of view material classified into three categories.

V vital,

E essential,
 D desirable.

Vital categories of the items are those items for the want of which the production will

come to stop. For e.g. Power in the factory.

Essential group of items are those items because of non availability of which the stock

out cost is very high.

Desirable group of items are those items because of non availability of which there is

no immediate loss of production and stock cost is very less and it may cause minor

disruption in the production for a short time.

e) HML ANALYSIS

This analysis, analysis the material according to their prices and then classifies them as

H items or M items or L items.

H stands for high price,

L stands for low price and

M stands for medium price.

Since price is more concerned of purchase department mostly purchase department

people analyses the material according to HML analysis.

HML analysis must be carried out from any one of the following objectives or some of

the objective as the case may be.

  When it is desire that purchasing responsibility should be delegated to right level

of people.

 When it is desired to evolve purchasing policies then also HML analysis is

carried out i.e. whether to purchase in exact quantities as required or to purchase

in EOQ or purchase only when absolutely necessary.

 When the objective is to keep control over consumption at the department level

then authorization to draw materials from the stores will be given to high level H

item, low level for L items and medium level for M item.

 When it is desired to decide frequency of stock taking then very frequently H

category, very rarely L category and averagely M category.

 When it is desired to arrange security arrangements for the items, then H item

under lock and key, L items keep open on the shop floor and under supervision

for M items

2.1.7.3 JUST IN TIME INVENTORY SYSTEM

Keeping in view the enormous carrying cost of inventory in the stores and go downs,

manufacturers and merchandisers are asking for more frequent deliveries with shorter

purchase order lead times from their suppliers. Now days organizations are becoming

more and more interested in getting potential gains from making smaller and more

frequent purchase orders. In other words, they are becoming interested in just in time

purchasing system. Just in time purchasing (JIT) purchasing is the purchase of material
or goods in such a way that delivery of purchased items is assured before their use or

demand.

Just in time purchasing recognizes too much carrying costs associated with holding high

inventory levels. Therefore, it advocates developing good relations with suppliers and

making timely purchases from proven suppliers who can make ready delivery of goods

available as and when need arises. EOQ model assumes a constant order quantity

whereas JIT purchasing policy advocates a different quantity for each order if demand

fluctuates. EOQ lays emphasis on ordering and carrying costs but inventory management

extends beyond carrying and ordering costs to include purchase costs quality costs and

stock out. Just in time purchasing takes into consideration all these costs and move—

outside the assumptions of the EOQ model.

Advantages of JIT purchasing

1. Investment in inventory is reduced because more frequent purchase orders of small

quantities are made.

2. Carrying cost is reduced as a result of low investment in inventory.

3. A reduction in the number of suppliers to be dealt with is possible. Only proven

suppliers who can give quick delivery of quality goods are given purchase orders . As a

result of this reduction in negotiation time is possible. The use of long—run contracts

with some suppliers with minimal paper work involved is possible.

4. Quality costs such as inspection cost of incoming materials or goods , scraps and

rework costs are reduced because JIT purchasing assures quick and frequent delivers of

small size orders which results in low level of inventories causing minimum possible

wastage. Therefore, JIT purchasing is frequently applied by organizations dealing in

perishable goods.

2.1.7.4 PERPETUAL INVENTORY SYSTEM

The Chartered Institute of Management Accountants, London, defines the perpetual

inventory as “a system of records maintained by the controlling department, which

reflects the physical movements of stocks and their current balance”. Bind cards and the

stores ledger help the movements of the stock on the receipts and in maintaining this

system as they make a record of to physical movements of the stocks on the receipts
and issues of the materials and also reflect the balance in the stores. Thus, it is a

system of ascertaining balance after every receipt and issue of materials through stock

record to facilitate regular checking and to avoid closing down the firm for stocktaking.

To ensure the accuracy of perpetual inventory records (i.e. Bin card and stores ledger),

physical verification of the stores is made by bin cards or stores ledger may differ from

the actual balance of stock as ascertained by physical verification. It may be done to the

following avoidable and unavoidable causes.

Dropshipping

Dropshipping is a business model, it allows to sell and ship commodities without owning and
stocking them. This technique of inventory management eliminates the cost of inventory holding
all together.
The Dropshipping process is very simple:
Following are the benefit of dropshipping:
a. Low startup costs
b. Low inventory cost
c. Low cost of fulfillment of orders
d. Sell and test more products with less risk

3.I. Inventory turnover ratio

Inventory turnover ratio is used to ascertain the rate at which the company’s inventory is
converted to cash. A company with higher inventory ratio is considered to have the effective
sales strategy. It is generally measured using inventory period which is the average inventory
divided by average cost of goods is sold

*Average Inventory is the opening balance of the inventory plus the closing balance divided by
2.
A high inventory turnover ratio indicates efficient management of inventory and goods are fast
moving.

3.II. Inventory Outstanding Days

Inventory Outstanding days represent the average number of days it takes for an entity to sell the
inventory. It is the number of days the inventory stored in the warehouse before it is sold to the
customer.
. Operating Cycle
Operating cycle is the number of days it takes for an entity to sell the inventory and collect cash
from the customers. This is termed as operating cycle because it is the process of purchasing
inventories, selling them, recovering cash from customers, using that cash to purchase
inventories and so on is repeated as a cycle

*It is the average days taken to sell the inventory i.e (365/ Inventory Turnover ratio)
+ This is the number of days for realizing the receivables i.e. (365/ account receivable turnover
ratio)
A short operating cycle is good as it ensures the entity’s cash is held up for a shorter period.