"INVENTORY MANAGEMENT"

CHAPTER -1
INTRODUCTION
Financial management is that managerial activity which is concerned with the planning &
controlling of the financial resources. In other words managing the funds of the firm most wisely with
a view to maximize the wealth of shareholders. It is concerned with effective use of important
economic resources of business firm.

Financial management is concerned with the acquisition. Financing and management of assets
with overall goal in mind. Financial manager has to forecast expected events in business and note their
financial implication.

Firm anticipating financial needs means estimation of funds required for investment in fixed
and current asserts or long term and short term assets.

FINANCIAL MANAGEMENT
A modern financial management performs several functions it is difficult to task to identify the
functional areas of modern financial management. They are mainly three types as follows.
 Investment decision
 Financial decisions
 Dividend decisions

 INVESTMENT DECISION
1. A firms investment decisions involve capital expenditures.
2. They are therefore referred as a capital budgeting decision.
3. It commitment of long-term assets that would yield benefits in the future.
 FINANCIAL DECISIONS
1. It is the second important decision or function to be performed by the financial manager.
2. Decide how to acquire funds and how met the firm's investment needs.
 DIVIDEND DECISION
1. The proportion of profits distribute as a dividends is called the dividend decision.
2. Maximize the market value of the firm's shares is optimum dividend policies.
 NEED OF THE STUDY:
This project report entitled "A CRITICAL STUDY ON INVENTORY MANAGEMENT", starts
with the necessity of realization of definition, concepts and importance of inventory. Inventory may be
defined as usual, but idle resource. If resource may be tangible and physical such as materials then it is
termed as inventory. Inventory Management has acquired a great significance and sound position in
recent years with an objective of profitability and liquidity. The success or failure of a business
enterprise largely depends upon the management of inventory management.

No firm can be maintained without inventory management, but the requirement of inventory
differs from firm to firm. Inventory management is needed to every business enterprise because it
indicates liquidity position of the firm. The problem of inventory management is one of the
maintenance, with in a financial investment, an adequate supply of goods to meet an expected supply
of demand pattern. This could be raw-materials, work in progress (semi finished goods) and finished
foods.

Moreover inventory can be one of the indicators of the management effectiveness on the material
management front. Inventory management deals with determinants if optimal policies and procedure
for Procuring of commodities. Inventories constitute, in every business concern, the most significant
part of working capital or current assests. Inventories in Indian industries constitute more than 60% of
the current assests. Inventories are significant elements in cost process.A management student should
properly understand the various aspects. Inventory management if opted for specialization in finance
management. Vijaya dairy is big manufacturing unit and the requirement of inventory for each
department is very high in an organization like vijaya dairy.
 OBJECTIVES OF THE STUDY:
PRIMARY OBJECTIVES
 To determine and maintain optimum level of inventory management in MOTOR GENERAL
SALES PVT. LTD.

 To find out the reasons for the problems and to evaluate possible ways for resolving the
problems.

SECONDARY OBJECTIVES

 To minimize the firm's investment in inventories and to maximize profits.

 TO analyze how inventory is maintained in
 TO ensure better services to the customer
 To study and analyze the various categories of inventory items in MOTOR GENERAL SALES
PVT. LTD.
 SCOPE OF THE STUDY :

o The study is done on inventories help by bulk active division of THE MOTOR GENERAL
SALES PVT. LTD.
o The scope of the study includes ABC analysis of Raw material work in progress and
finished goods for five financial years.
o This study provides insight to the management of high value items and also brings attention
of management towards movement of ‘A’ class items over period of 5 years.
 METHODOLOGY OF THE STUDY:
Primary Data:
The primary data, which is collected, is entirely based on the details given by the purchase; stores,
production and sales department are mainly concerned in MOTOR GENERAL SALES PVT. LTD.

Secondary Data:
The secondary data is entirely based on the data obtained for the officers, Managers and staff of
MOTOR GENERAL SALES PVT. LTD.

Managers and supervisors of the organization have also been interviewed to elicit necessary
information on the basis of non-structured schedules. And secondary was collected from the
company's manuals and office records pertaining to production, marketing, personal and financial
position.
 LIMITATIONS OF THE STUDY:
Any study is having of its own advantages and certain disadvantages. Among such few of the

limitations are expressed below such as:-

 The reliability of the study depends upon the information furnished by the officials.

 Due to time constraint it is difficult to go into details of the organization.

 This study is entirely based on the given by the stores department, purchase department,

production department and sales department of MOTOR GENERAL SALES PVT. LTD.

 The study is limited for a period of 8 weeks.

 CHAPTER-II

COMPANY PROFILE

Motor and General Sales Group, Lucknow

We “Motor & General Sales Pvt. Ltd.”, are a well-renowned firm, that started in the year 1955, at
Lucknow, (Uttar Pradesh, India). Supported by a team of skilled personnel, we are engaged in
manufacturing, retailing, wholesaling and exporting the finest quality Recovery Vehicles, Transformer
Radiator, E Rickshaw, etc. We are exporting these products to UAE, South Africa, Bangladesh, Nepal
and Bhutan. Under the management of our Mentor “Ashutosh Singh (CEO)”, we have achieved
reputed position in the industry.

MGS Group is deeply rooted in automotive sector. With the help of our invaluable experience in
design and state of art manufacturing facility, our products are flourishing remarkably in the market.
With the assistance of our skilled & enthusiastic man power, we assemble our products together
through jigs, fixtures & dies ensuring joining accuracy & interchangeability. We have employed
multitude of value added processes and facilities to enhance the performance of our products.

Over the years of experience and development, we have diversified from our core automotive sector
business into different vertical as power/energy sector, agricultural sector, railway’s product. We have
also integrated a trading arm to cater requirement of raw material, sub-component and other finished
goods

Motor And General Sales Private Limited is a Private incorporated on 26 March 1955. It is classified
as Non-govt company and is registered at Registrar of Companies, Kanpur. Its authorized share capital
is Rs. 25,000,000 and its paid up capital is Rs. 16,900,000. It is inolved in Motion picture, radio,
television and other entertainment activities

Motor And General Sales Private Limited's Annual General Meeting (AGM) was last held on 29
September 2018 and as per records from Ministry of Corporate Affairs (MCA), its balance sheet was
last filed on 31 March 2018.
Directors of Motor And General Sales Private Limited are Divas Gupta, Shivani Gupta, Ram Kishan
Gupta, Vivek Shukla, Raghav Gupta, .

Motor And General Sales Private Limited's Corporate Identification Number is (CIN)
U92111UP1955PTC002572 and its registration number is 2572.Its Email address is
mgslko@rediffmail.com and its registered address is 11 MAHATMA GANDHIROAD LUCKNOW U
P UP 226001 IN , - , .

MGS has been into existence for over 60 years and after great success in the Automobile industry,
with time has diversified into many other industries such as entertainment, education, jewelry and
lifestyle products, retail, fabrication and manufacturing.

Underlying the success of the group is an ethos of commitment to the values of Quality, Service and
Reliability. Continuous innovation, sound modern management practices and close customer
interactions have enabled the Group to consolidate its position.

The Group:- MGS Group was incorporated in 1955 and has been deeply rooted in the automotive
industry ever since. Over the years, the group has diversified into many other industries such as
entertainment, education, jewelry and lifestyle products, retail, fabrication and manufacturing.

MGS is based out of Lucknow, India, spanning over 27 other districts in Uttar Pradesh. It was founded
by Late Shri Hukum Chand Gupta. The group was spearheaded by his son Late Shri Rahul Gupta and
is now being looked after by his wife Mrs. Shivani Gupta and their sons Mr. Divas Gupta and Mr.
Raghav Gupta.

Strategy:- We will……increase profitability through re-allocation of capital towards opportunities

offering more consistent and higher returns

…leverage the MGS brand and our core competencies in automobile, education, healthcare,
entertainment, export and to grow in selected categories and geographies

…build partnerships with key customers and suppliers, both in the business-to-business and business-
to-consumer areas

…strengthen our leadership competencies

 Share Capital & Number of Employees

 Authorized Capital 25,000,000

 Paid up capital 16,900,000

Listing and Annual Compliance Details

Listing status Unlisted

Date of Last Annual General Meeting 29 September 2018
Date of Latest Balance Sheet 31 March 2018
Factsheet

Basic Information
Nature of Business Manufacturer

 Additional Business Exporter

 Wholesaler
 Retailer

Total Number of Employees 101 to 500 People

Year of Establishment 1955

Legal Status of Firm Private Limited Company

Annual Turnover Rs. 50 - 100 Crore

Trade & Market

Export Percentage upto 20%

Statutory Profile
DGFT / IE Code 0602000815

GST No. 09AACCM4306J1ZI

CIN No.

U92111UP1955PTC002572

Packaging/Payment and Shipment Details

 Payment Mode

 Cash
 Cheque
 DD
 Credit Card
 Online

 Shipment Mode
 By Road
 By Cargo

Our Vision

MGS Group strives to be the market leader in the growing commercial, passenger, agricultural and
cargo automotive market.

To meet the world for the future growth, the groups greatest asset is its total commitment to your
satisfaction now and in the future.

Our Mission

To diversify into various upcoming sectors and to grow up with the global liberalizations.
MGS Group is committed to delivering advanced products of superior quality, yet at a competitive
price for complete customer’s satisfaction.

Our Values

1. Deliver on commitments
2. Develop People
3. Depend on each other
4. Delight Customers
 SERVICE / PRODUCT APPLICATION AREAS

Motor And General Sales Private Limited:

Motor and General Sales Pvt Ltd. Is a Commercial VehIcle Dealer (CVD) of TATA MOTORS for
Sales, Service and Spares In Gorakhpur and nearby region.

Motorfab Sales Pvt. Limited:

CVD Sales, Service and Spares In Lucknow and nearby regions.

MGS Autofab Pvt. Limited:

TATA Motors dealership for SCV In Lucknow and nearby regions.

MGS Fab Equipments:

ICV and SCV Sales, Service and Spares In Faizabad, Gonda and nearby regions.

MGS Ford:

MGS Ford Is authorized dealer for Sales, Service and Spares for range of ford cars In Lucknow
and nearby regions.

ARACELI HONDA

ARACELI HONDA Is authorized dealer for Sales, Service and Spares for range of HONDA cars
In Lucknow and nearby regions.

Rkg College:

RKG Educational Institution has been well set up to promote basic education with a difference,
ensuring overall personality development of children from childhood to adult, to meet the current
challenges in professional life.
Manipal Public School:

Manipal Public School with excellent infrastructure, sprawling playgrounds, dedicated staff
members provides a positive and challenging environment for children to develop their natural
talents. Children are encouraged to be creative, independent, inquisitive, and explorative.

Araceli Jewellers:

Araceli is founded with the vision of “Luxury living and loved". This is an exclusive boutique of
collectibles for the discerning few. A Tribute to Lucknow's Culture.We deals in Gold jewelers and
life style silver articles.

Novelty Cinemas:

Novelty Talkies is a multi screen theater located in the heart of Lucknow city of Uttar Pradesh.

Why Us?

We are a unique name in the industry to provide our prestigious clients an exclusive range of
products.

Factors that have made us the most favored choice of the customers are:

 Skilled team of professionals

 On-time delivery
 Well-furnished infrastructural facility
 Client centric approach
 Reasonable price
 Ethical business practices
 Wide distribution network
Brands We Deal In

 Our Manufacturing Brand Is:

 MGS
 MGS Agricare
 OUR PRODUCTS
Tipper 1

A dump truck, known also as a dumper truck or tipper truck is used for taking dumps for
construction. A typical dump truck is equipped with an open-box bed,

Tipper 2
HIGH SIDE LOAD BODY

A dump truck,
known also as a dumper truck or tipper truck is used for taking dumps for construction. A
typical dump truck is equipped with an open-box bed,

PICK UP
A dump truck, known also as a dumper truck or tipper truck is used for taking dumps for
construction. A typical dump truck is equipped with an open-box bed,

Bus

Bus
Intercity Bus
School Bus

Load Body
 CHAPTER- III
INVENTORY MANAGEMENT PRACTICES
The Inventory Management Practices on the following heads:
1. Organization for Inventory Management.
2. Purchasing
3. Receiving and Inspection of Materials.
4. Stores Management
5. Inventory Control System.

MEANINIG OF INVENTORY:
Every enterprise needs inventory for smooth running of its activities; it serves as a link
between the recognition of a need and its fulfillment the greater the time leg. The higher the
requirements of inventory, the unforeseen fluctuations in demand and supply of goods also necessitate
the need for inventory. It also serves as a cushion for future prices fluctuations. The simple meaning of
inventory is "stock of goods" or "list of goods" the word inventory is understood differently by various
authors. In accounting language it means stock of finished goods only, for a manufacturing concern it
includes raw-materials, work-in-progress, finished goods etc
Inventories constitute the most significant part of current assets. Many companies maintain
60% of current assets as inventories. Because of the large size of the inventories maintained by the
firms, a considerable amount of funds is required to be committed to them. It is therefore absolutely
imperative to manage inventories efficiently in order to avoid unnecessary investment. A firm
neglecting the management of inventories will be failed in its long run profitability and may fail
ultimately. It is possible for a company to reduce its levels of inventories to a considerable degree with
in the range of 10 to 20% without any adverse effect by using simple inventory planning and control
techniques. The reduction in excess inventories has a favorable impact on the profitability of the firm.
OBJECTIVES OF INVENTORY MANAGEMENT:
1. Minimize investment in inventories in order to maximize profits.
2. In order to minimize carrying costs and ordering costs of inventory. To minimize obsolescence
in stores.
3. To avoid excess and inadequate stocks.
4. To provide check against losses of materials.

NATURE OF INVENTORIES:
 Inventories are the stock of the product a company is manufacturing for sale and components
that make up the product. The various forms in which inventories may exist in a manufacturing
company are:-
1. Raw materials
2. Work-in-progress
3. Finished goods
RAW MATERIALS
Raw materials are those basic inputs that are converted into finished product through the
manufacturing process. Raw materials inventories are those units, which have been purchased and
stored for future productions. A company should maintain adequate stock of a continuous supply to
the factors for an uninterrupted production. If it is not possible for a company to produce raw materials
whenever needed, a time lag exists between demand for materials and its supply also there will be
some uncertainty on procuring raw materials in time on many occasions.
The procurement of materials is delayed because of uncertain factors like strike, transport,
disruption or short supply. Therefore the firm should maintain sufficient stock of raw materials at a
given time to streamline production. Other factors which may necessitate purchasing and holding raw
materials are quantity discounts and anticipated price increase. The firm may purchase large quantities
of raw materials than needed for the desired production and sales levels to obtain quantity discounts of
bulk purchasing. At times the firm would like to accumulate raw materials in anticipation of price rise.
WORK IN PROGRESS
The inventories are semi-finished products. They represent products that need more work before
they become finished products for sale. Work in progress inventory builds up because of production
cycle. Production cycle is the time span between introduction of raw-materials and mergence of
finished products at the completion of production cycle. Till, production cycle completes, stock of
work in progress has to be maintained. Efficient firms constantly try to make production cycles
smaller by improving their production techniques.
FINISHED GOODS
Finished goods are the completely manufactured products, which are for sale. Stocks of raw
materials and work in progress facilitate production, while stock of finished goods is required for
smooth marketing operations. Stock of finished goods has to hold because production and sales are not
instantaneous. A firm cannot produce immediately when customers demand goods. Therefore to
supply finished goods on a regular basis, their stock has to be maintained for sudden demand from
customers. In case the firm sales are seasonal in nature, substantial finished goods should be kept to
meet the peak demand. Failure to supply products to customers would mean loss to firm's sales to
competitors.
The level of finished goods inventories would depend upon the co-ordination between sales and
production as well as on production time. The levels of three kinds of inventories for a firm depend on
the nature of business.
A manufacturing firm will have substantially high levels of three kinds of inventories while a retail
or wholesale firm will have a very high level of finished goods inventories and no raw materials or
work in progress inventories. Within manufacturing firms there will be differences.
Large Engineering companies produce long production cycle, products therefore they carry large
inventories on the other hand, and inventories of a consumer product will not be large because of short
production cycle and fast turnover. Firms also maintain a fourth kind of inventory called supplies.
Supplies include office and plant cleaning materials like soap brooms, oil, fuel, light, bulbs, etc. these
materials do not directly enter production, but are necessary for production process.
INVENTORY DECISIONS
In an inventory control situation, there are three basic questions to be answered. They are:
 How much to order? That is to say, what is the optimal quantity of an item that should be
ordered whenever an order is placed?
 When should the order be placed?
 How much safety stock should be kept? Thus, what quantity of an item in excess of the
expected requirements should be held as buffer stock in anticipation of the variations in its
demand and/or the time involved in acquiring fresh supplies.
INVENTORY COSTS:
In determining optimal inventory policy, the criterion most often is the cost function. The classical
inventory analysis identifies four major cost components. Depending on the structure of an inventory
situation, some or all of these are included in the objective function.

PURCHASE COSTS:
This refers to nominal cost of inventory. It is the purchase price for the items that are bought
outside sources, and the production cost if the items are produced within the organization. This may be
constant per unit, or it may vary as the quantity purchased/ produced increases or decreases. Quite
often, situation is found when it may be stipulated that, for example the unit price is rest 20 for an
order unto 100 units and rest 19.50 if the order is for more than 100 units.

ORDERING COSTS/ SET-UP COSTS:-

This category of costs is associated with the acquisition or ordering of inventory. Firms have to
place orders with suppliers to replenish inventory of raw materials. It includes costs associated with
the processing and chasing of the purchase order, transformation, inspection for quality, expediting
overdue orders and so on.
The parallel of the ordering cost when units are produced within the organization and the cost of
acquiring materials consists of clerical costs and costs of stationery. It is therefore called a set-up cost.
The ordering cost is likely and taken to be independent of the order size. Therefore the unit
ordering/setup cost declines as the purchase order/ production run increases in size. Ordering costs are
costs involved in:
1. Preparing a purchase order
2. Receiving, inspecting and recording the goods received to ensure both quantity & qty.

CARRYING COSTS:
They are involved in maintaining or carrying the inventory. It represents the cost that is associated
with storing an item in inventory. Carrying costs are also known as holding cost or the storage cost.
The main components of this category of carrying costs are
1. Storage cost i.e. tax, depreciation and maintenance of the building, utilities etc.
 2. Insurance of inventory against fire and theft
3. Deterioration in inventory because of pilferage, fire, technical obsolescence, style obsolescence
etc.
4. Serving costs such as labour for handling inventory, clerical and accounting costs.
The opportunity cost of funds consists of expenses in raising funds (interest of capital) to finance
the acquisition of inventory. It funds were not locked up in inventory they would have earned a return.
This is the opportunity cost of funds or the financial cost. The carrying cost and the inventory size are
positively related and move in same direction. If the level of inventory increases, the carrying costs
also increased and vice-versa.

STOCK OUT COSTS:

Stock out cost means the cost associated with not serving the customers. Stock outs imply
shortages. If the stock out is internal (i.e. in the production system) it would imply that some
production is lost, resulting in idle time for men and machines, or that the work is delayed which
might attract some penalty. While if the stock out is external, it would result in a loss of potential sales
and /or loss of customer goodwill. A shortage can evoke different reactions from customers.

TYPES OF INVENTORY VALUATION:

VED ANALYSIS:
In VED analysis, the items are classified on the basis of their criticality to the production process
or other service. In the VED classification of materials, V stands for Vital items without which the
production process would come to a standstill. E in the system denotes Essential items whose stock out
would adversely affect the efficiency of the production system.
Although the system would not altogether stop for want of these items, yet their nonavailability
might cause temporary losses in, or dislocation of production. The D items are the Desirable items
which are required but do not immediately cause a loss to production. The VED analysis is done
mainly in respect of spare parts.
HML ANALYSIS
This is similar to the ABC analysis except that, in this analysis, the items are classified on the basis
of unit value rather than usage value. The item are classified accordingly as their cost per unit is H-
high, M-medium and L-low. This type of Analysis is useful for keeping control over materials
consumption at their department levels.
SDE ANALYSIS
This uses the criterion of the availability of the items. In this analysis S-stands for scarce items
which are short in supply, D-refers to the difficult items meaning the items that might available in
indigenous market but cannot procured easily, While E represents easily available items even from
local markets.
S-OS ANALYSIS
S-OS analysis is based on the nature of supplies, wherein S represents the seasonal items and Os
represents the off seasonal items. This classification of items is done with the aim of determining
proper procurement of strategies.
FSN ANALYSIS
Based on the consumption pattern of the items, the FSN classification calls for classification of
items, as F-Fast Moving, S-Slow Moving and N-Non Moving goods. This 'speed' classification helps
in the arrangement of stocks in the stores and in determining the distribution and handling patterns.
XYZ ANALYSIS
XYZ analysis is based on the closing inventory value of different items. Items, whose inventory
values are high, are classed as X-items while those with low investment in them are termed as Z-
items. Other items are the Y-items whose inventory value is neither too high nor too low.

It can be easily visualized that the several types of analysis discussed are not mutually exclusive.
They can be, and often are, used jointly to ensure better control over materials. For example ABC and
XYZ analysis may be combined to classify and control depending on whether the items are AX, BY,
CZ, AY of and so on. Similarly XYZ - FSN combine classification exercise will help in timely
prevention of obsolescence.
PURCHASING:
 INTRODUCTION:
The scarcity of raw materials has practicality put the people in purchasing department in a very
tight position. The purchasing department can be in a better position. As of today there are four
different groups of buyers, viz, a) Consumers, b) Middle men, c) Government agencies and d)
Manufacturers. In fact the whole economy is dependent on this group for survival. The second group
comprises such as money collection of traders as wholesalers, retailers, and distributors who buy not
for their own consumption, but to sell to others. The fourth category of purchases includes
manufacturers who convert raw materials, components, consumables and packing materials for use in
industrial establishments where saleable products are produced. The subject of purchasing is discussed
here as it applies to the buying, made by manufacturers.

 DEFINITION:
In its narrow sense, the term "purchasing" refers merely to the act of buying an item at a price.
This very narrow concept of purchasing has been gradually widened during the last 70 days.
According to Alford and Beatty "Purchasing" is the procuring of materials, supplies, machines,
tools and services required for equipment, maintenance and operation of a manufacturing plant".
According to Walters, purchasing function means "The procurement by purchase of the proper
materials machines, equipment and supplies for stores used in the manufacture. Of a product adapted
to marketing in the proper quality and quantity at the proper time and at the lowest price, consistent
with quality desired".
According to Wasting, Fine and Zen "Purchasing is a managerial activity that goes beyond the
simple act of buying. It includes research and development for the proper selection of materials and
sources, follow-up to ensure timely delivery; inspection to ensure both quantity andquality ; to control
receiving , sore keeping and accounting operations related to purchases".

 IMPORTANCE OF PURCHASING:-
 Purchasing function provides materials to the factory without which wheels of machines
cannot move.
 A one percent saving in material cost is equivalent to a 10% increase in turnover. Efficient
buying can achieve this.
  Purchasing manager is the custodian of his firm's purse as he spends more than 50% of his
company earnings on purchases.
 Increasing proportion of one's requirements, are now brought instead of being made as was the
practice in the earlier days. Buying therefore assumes significance.
 Purchasing can contribute to import substitution and save foreign exchange.
 Purchasing is the main factor in the timely execution of industrial projects.
 Materials management organizations that exist now have evolved out of purchasing
departments.
 Other factors like:-
• Postwar shortages
• Cyclical swings of surpluses and shortages and the first rising materials costs.
• Heavy competition.
• Growing worldwide markets have contributed to the importance of purchasing.

 OBJECTIVES OF PURCHASING:
It may be emphasized that some of the functions are the sole responsibility of the purchasing
department, some are shared with order departments and the remaining are the responsibilities in
which the purchasing department has considerable interest.

 RESPONSIBILITIES DELEGATED TO THE PURCHASING FUNCTION:-

1. Obtaining prices
2. Selecting vendors
3. Awarding purchase orders
4. Following up on delivery promises
5. Adjusting and settling complaints
6. Selecting and training of purchasing personnel
7. Vendor relations
METHODS OF PURCHASING:
There are number of methods used by different purchase departments. The methods used
depend on the classification of products in the production system, policy of the organization and
behaviour of the market.

FOLLOWING ARE SOME POPULAR METHODS OF PURCHASING:

 Purchasing according to requirement.
 Purchasing for some definite future period.
 Market purchasing
 Speculative purchasing
 Contract purchasing
 schedule purchasing

1. PURCHASING ACCORDING TO REQUIREMENT:

In this case the order is placed only when there is some need for the product. This method is
appropriate for those items which are not of regular and common use in the production process. These
items are generally not stored in inventories. In such cases the purchasing department should keep a
record of reliable and trustworthy suppliers who were sincere to the organizations in past.

2. PURCHASING FOR SOME DEFINITE FUTURE PERIOD:

This method of purchasing is generally used for those items which are regularly consumed but the
consumption is comparatively low and the price changes for these items are not much.
3. MARKET PURCHASING:
The policy of making the purchases at the time when fluctuations in price of the items provide
advantage to the purchaser is known as market purchasing. This method provides procurement at
lower price and saving in purchase expenses. This method is useful in situations where major price
variations are prominent. Here the purchasing may not relate with the production needs and if the
assessment of price fluctuations is wrong then the organization may suffer losses.
 4. SPECULATIVE PURCHASING:
Here excessive purchases are made when market is low for the item with the hope of earning profit by
selling the items purchased in excess at a higher price. This procedure is most suitable in the case of
staple commodities.
5. CONTRACT PURCHASING:
Here the purchase department enters into agreement with various suppliers to supply the items at
some future period or periodically. In the words of Alford and Beatty, "all purchasing is contract but
the term 'contract purchasing' is applied to that special contract which calls for deferred delivery over a
period of time". According to Spiegel “the purchasing under contact is usually formal for the needed
material, the delivery of which is frequently spread over a period of time". The organization tries to
enter into the contract when prices are comparatively low. Here the supply is ensured per scheduled
requirements as well as there is protection against frequent price fluctuations.
6. SCHEDULED PURCHASING:
It is a scientific method of purchasing. The purchasing is scheduled according to requirements of
various departments of the organizations. Vendors know in advance about the future demand of the
purchaser.
STEPS IN PURCHASING PROCEDURE:
1. Various departments are requested to send their requirements on a proper requisition form this
authorizes the purchase department to procure the requisitioned items i.e. to issue purchase
order.
2. Purchasing department consolidates the requirements from various departments to know the
total requirement for each item.
3. Market exploration is made to locate the goods and services of desired quality and quantity at
reasonable price.
4. Potential suppliers are identified from catalogues, quotations and past records.
5. Purchase order in specified form is prepared and sent to the approved suppliers purchase order
establishing a contractual relationship between buyer and seller.
6. After some time of placing the order, follow up process starts to get quick delivery of the
items. The follow up of procedures implies acceptance of the order and promise to supply the
items on desired date.
7. The items are received by the purchasing department at the time of delivery and the items
received and compared with purchase order.
8. The checking of the delivered goods is done with regard to prices charged and quoted.
9. Approval of the invoice.
10. To ascertain the quality and quantity of the items.
ORGANIZATION OF PURCHASE DEPARTMENT:
The composition of purchase department varies according to the size of the enterprise, its
comparative significance towards procurement and the capability of the purchase personnel. In
organization engaged in Procurement of smaller range of items but from limited number of suppliers
the purchase officer is attached to controller of accounts. In organization with job or batch system of
production, purchasing becomes a complicated exercise and needs regular and through co-ordination
with production department. In such cases the purchase manager is directly attached to production
manager. The size of the purchasing department on the nature of products manufactured by the
organizations, sizes of production runs and type of the manufacturing system.

 RECEIVING AND INSPECTION OF MATERIALS:

RECEIVING MATERIALS:
 INTRODUCTION:
Receivable management refers to the decisions a business makes regarding its overall credit and
collection politics and the evaluation of individual credit applicants. In formulating an optional credit
policy, finance manager must analyze the marginal benefits and costs associated with changes in credit
standards, credit terms, collection efforts etc. Receivable management proves for a firm, both, an asset
and a problem.
 MEANING:
Receiving is an important control point in the material control system. It is sometimes
considered that receiving is a routine clerical work where the materials shipped by the supplies are
received, unpacked, checked and compared with the purchasing and material management, stated that,
"any problem or error in specific purchase transaction should come to light during the receiving
operation". If the problem (shortage in quantity, damaged material, wrong item shipped etc.) is the
detected and corrected during the receiving operation, the cost of to correct the mistake later is much
higher. Many hours are frequently spent in determining what really happened and rectifying the
situation. Hours are required to correct the error that could have been corrected at the receiving station
in minutes.
 RECEIVING PROCEDURE:-
The receiving involves much of the paper work and it varies from firm to firm. However the
key issues involved in the receiving function are commodity described in the following standard
procedure.
The receiving division unloads the goods at the delivery bay and verifies the condition of the
consignment to satisfy that it is not received in a damaged condition. The receiving clerk opens the
consignment and verifies the contents with the packing slip and the purchase order. The details are
recorded in the separate report, which is popularly known as "the goods received note or GR note".
The goods received note is an important document because it is the only document with the firm which
signifies the details of the materialist has received.

INSPECTION OF MATERIALS: ? MEANING AND DEFINITION

Inspection is the process of examining an object for identification or checking it for
verification of quality and quantity in any of its characteristics. It is an important tool for ascertaining
and controlling the quality of a product. In the words of Alford and Beatty "Inspection is the art of
applying tests. Preferably by the aid of measuring appliances to observe whether a given item or
product is within the specified limits of variability or not". According to Sprigged and Ransburg
"Inspection is the process of measuring the qualities of a product or services in terms of established
standard". The standards can be in terms of strength, hardness, shape etc.
The purpose of inspection is to items are produced within the specified items of variability.
Inspection in list broadest sense is the art of comparing materials, product or performances with
established standards. By means of inspection one can take a decision to accept are reject certain item.
The items are accepted if these conform to the given specifications otherwise rejected.
FUNCTIONS OF INSPECTION:
The following are some important functions of inspection:
1. Maintenance of specified standards of the quality of products.
2. Devising means for conducting inspection at lower cost.
3. Segregating spoilt work, which may be salvaged by recuperation.
4. Maintaining inspection equipment in good condition.
5. Detection of defects at source to reduce scraps and defective work.
6. Reporting source of manufacturing troubles to management
 OBJECTIVES OF INSPECTION
Fundamental objectives of inspection are:
1. To safeguard the quality of the finished products by comparing raw-materials, workmanship
and final product with some set standards. It prevents further work being done on semi-finished
product already detected as spoiled.
2. The defective items are located and the factors responsible for this discrepancy in the quality of
the product are then identified to take corrective measures. This results in enhancing the
prestige and confidence of the organization in the eyes of the customer. This results in
enhancing the prestige and confidence of the organizations in the eyes of the consumer.
3. The reduction in the risk and possibility of items not accepted by consumer saves the producer
as well as the consumer from losses if any and also reduces the cost of production.
4. To detect sources of weakness and troubles in the finished product and thus check the work of
designers.

 Essential steps for Inspection

There are five main steps in inspection:
1. Characteristics about which the quality of the items is to be inspected should be carefully
established.
2. A decision regarding when and where the inspection should take place is to be taken.
3. To find that how many items are to be inspected i.e. 100% or sampling inspection. Here the
level of accuracy desired and the nature of the production process are taken into consideration.
 WHERE TO INSPECT:
Inspection may take place right in the processing area or at a separate inspection station. The
choice of location depends on the process flows and on the problems of scheduling the inspection
function which must be treated as yet another operation in the total process. The first line of defense is
worker who can avoid making defects? Then come to inspectors who are usually trained separately
from the workers to obtain benefits of specialization. They are taught to use gauges, test instruments,
micrometers and procedures at which they become increasingly proficient. Some times inspection tolls
cannot be place in the production line. Then the work may Have to leave the normal flow to go to an
inspection. During a production process there are many stages where inspection can be done. The
choice depends mainly on the convenience of the organization as well as it approaches towards the
maintenance of the products quality. In general inspection can be carried out at following location:
1. Items can be inspected either at vendors place or at the purchases premises.
2. Semi-finished items are inspected during the production process.
3. Inspection of finished products.
4. Post-sales quality evaluation.
 FINAL INSPECTION
The finished products are inspected and tested to verify the quality standards. The items found to
defective are not marked. Thus only items of desired specification go into the hands of consumer.
Naturally there are more chances of scrap in this method of inspection as the rejected items cannot be
corrected at this stage or it may be quite expensive to do so.
 STORES MANAGEMENT:
After inspection the purchased materials are taken to store for preservation, it they are meant for
stock. Non-stock items are directly taken to the assembly lines from the inspection. Preservation or
storage is another aspect of materials management. .

 NATURE OF STORES:
Stores or storage is the function of receiving, storing and issuing materials. It involves the
supervision clearance of incoming supplies, to ensure that they are maintained in good condition,
safety and in readiness for use when required, while they are in storage and issuing them against
authorized requisition. In short, it is connected with the physical handling and well- being of the
stocks. It should be mentioned that, stores is not meant for stocking purchased materials alone.
 IMPORTANCE:
Efficient storage of stores yields the following benefits:
1. Ready accessibility of major materials permitting efficient service to users.
2. Efficient space utilization and flexibility of arrangement.
3. A reduced need for materials handling equipment.
4. A minimization of materials deterioration and pilferage.
5. Ease of physical counting.
6. Protecting against waste deterioration, damage and pilferage.
7. Design the buildings physical appearance to create goodwill and to invite business.

 STORAGE SYSTEM:
Choosing the most suitable storage system means dealing with a number of interacting and often
conflicting factors. Inevitably, the degree of mechanization affects layout while the scarcity of space
affects the height to which racking is erected. The need for rapid, intensive order packing means a
need for rapid and easy access to stock.
Fixed location means that, goods of a particular type have a position in the store assigned to them
exclusively. It means that while stock can be found immediately without a complex system for
recording its position there can be considerable waster space, because when stocks of any one item are
low, the space left vacant cannot be filled. The assignment of fixed position to a particular type of
goods is made on any one of the following basis.
1. On the basis of the supplier
2. On the basis of similarity of items.
3. On the basis of the joint issue of the items.
4. On the basis of the size and frequency of use.
 METHODS OF VALUATION:
The government of India has given sufficient flexibility for companies to introduce scientifically
developed methods of valuation of their stocks. In order to prevent malpractices, it has been stipulated
that such methods must be studied and approved by the Board of Directors, and must be followed for a
minimum prior of three years. The various methods of valuation available are given below.
1. First in first out [FIFO]
2. Last-in -first -out [LIFO]
3. Periodical Simple Average Method
4. Normal cost/ Standard cost method
5. Weighted average method
6. Replacement price method

1. FIFO:
In this case it is assumed that the stores follow the principal that oldest stock issued first so that
stock left out is from the later arrivals. Hence all issues are assumed to have come out from older
stocks. These are valued at old price. The cumulative value of stock out will give the net value of the
existing stock.

2. LIFO:
Here stores are issued from the last stock. This means issues have taken place from later
arrivals. Hence all issued are valued as per the price of the latest arrivals to compute value of stock left
in stores.

3. PERIODICAL SIMPLE AVERAGE:

In this case after each receipt of material, adding the cost of materials in hand with the cost of
materials received and dividing the same by the total number of units calculate the average cost. This
process is repeated every time new items are received. This average cost is used for computing the
value of items issued and value of items remaining in the stock.

NORMAL COST / STANDARD COST METHOD: This method is mostly used for items
manufactured in house. Here the average cost of a certain lot is calculated and used as cost of items
issued. Since this method is used for items manufactured, one can use standard costing method also for
valuation of such stocks.

4. WEIGHTED AVERAGE METHOD:

This method is used when the quantity and prices of items vary widely from each purchase. In
this case, the weighted average price is calculated for each item. This price is used for computing the
value of items and those remaining in stock.

5. REPLACEMENT PRICES METHOD:

This is a modern method developed by George Tarboro. However without application it is
difficult to price each item. This has not yet become popular. FIFO, LIFO and Weighted Average
methods are popular and acceptable to the government tax authorities.

 INVENTORY CONTROL SYSTEM: ? INTRODUCTION:

Inventory control keeps track of inventories. It is observed that 'too much', 'too little' or badly
balanced inventories are all to be avoided because they cost too much on many counts. To much leads
to undue carrying charges in the form of taxes, insurance, storage, obsolescence and depreciation and
undue proportion of total working capital is invested in them. "Too little" implies of too frequent
ordering, loss of quantity discounts and higher transportation charges. It may be 'too low' in view of
likely shortages in future or future increases the prices or shortfall in output. Again due to dynamic
and unpredictable environmental situation "Too little" at one time can be very quickly become "Too
much in a subsequent period. Similarly inventory purchased at higher prices remaining unused in stock
or uncancelable order represents loss to the organizations. The balance between 'too much' and 'too
low' can be done by means of effective inventory control. Some of the definitions of inventory control
are:
1. Inventory control is a system of ordering based on the maintenance of the stock in store using
reorder rule based on the stock level.
2. Inventory control is the technique of maintaining the size of the inventory at some desired level
keeping in view the best economic interests of an organization.
3. Inventory control is concerned with various items stocked at predetermined level or within
some safe limits.
 4. Inventory control is that part of a production program which specifies the material
requirements and schedules the order of work to be done.

 OBJECTIVES OF INVENTORY CONTROL:

Though inventory control may not be treated as an executive function but it is one of the most
important functions in an enterprise. The following are the main objectives of inventory control:

 PROTECTION AGAINST FLUCTUATIONS IN DEMAND:

The demand foreseen of any product can never be exact or accurate. There is likely to become
difference that too of varying magnitude, in predicted demand and actual demand of the product. If
sufficient items are available in the inventory, then the fluctuations in demand can be easily adjusted
and the organizations can project it from unforeseen economic losses.

 BETTER USE OF MEN MACHINES AND MATERIALS:

In manufacturing system producing for stock the production planning can be done with an object
to have optimum use of resources namely men, machines and materials. Here the resources can remain
engaged during slack period of demand and there will be no need of generating additional resources in
the boom periods as then the inventory enlarged in slack period can utilize. This will lead to uniform
and proper utilization of resources available with the enterprise.

 PROTECTION AGAINST FLUCTUATIONS IN OUTPUT:

Another important function of inventory is to reduce the gap between actual and scheduled
production. In practice, production scheduled cannot be adhered due to a number of reasons e.g.
sudden breakdown in supply of raw-materials, machines, labour strikes etc.
 CONTROL OF STOCK VOLUME:
Inventory control is concerned with the size and the value of goods present in stock. It is
responsible to forecast the value of the stocks on a regular intervals, so that
 Capital invested in inventories does not exceed the funds available for the purpose.
 The amount invested in inventory is correctly recorded in account books.
 Protection against theft is ensured.
1. CONTROL OF STOCK VOLUME:
Stock analysis is done to be sure that it is in balance and that obsolescence and depreciation are
determines the appropriate size of the inventory keeping in view the interest of

2. The production department as well as of the outside customer and side by side holding down the
costs.
Inventory is maintained due to the following reasons.
1. 1 To carry reserves in order to prevent stock outs or cost sales.
2. 2 Never having much of anything on hand.
3. 3 To gain economies in purchases by buying items beyond the desired amount.
4. 4 To maintain reserves in stocks for the period of replenishment.
Thus a well formulated inventory policy of an enterprise in likely to ensure smooth and efficient
running of production operation providing optimumUtilization of man, machine and material. The
decision regarding the appropriate size of the inventory is of paramount significance.
 LIMITATIONS OF INVENTORY CONTROL:
1. The control of inventories is complex because of the many functions it performs. It should
be viewed as a shared responsibility.
2. The objectives of better sales through improved service to customer, reduction in inventories
to reduce size of investment and reducing cost of production by smoother production
operations are conflicting with each other.

METHODS OF INVENTORY CONTROL:

The fundamental purpose of inventory analysis is to keep the stock of items at such level that
there is a balance between the costs which increase or decrease with the size of the inventory. This
needs determination of
i)quantities should be ordered each time and ii) the time at which this order should be placed so that
both inventory carrying costs and the losses arising out of stock-outs are kept at the minimum. These
objectives are accomplished by determining.
i) Economic lot size
ii) Re-order level
 ECONOMIC LOT SIZE:
The amount of material procured or quantity produced during one production run by any enterprise
is known as lot size. The quantity to be ordered, whether from inside sources or from out agencies
depends on a number of factors. The size of inventory depends on lot size. Due to increase in
inventory size expenditure on storage, deterioration etc, is likely to increase whereas expenditure on
setting up plant, procurement of materials etc, will increase.
Thus with lot size, there are two sets of factors having opposite contribution towards the
expenditure i.e. one encourages the lot size and other discourage. The total cost associated with
particular lot size is a combination of expenditures on all these factors. These opposing forces exhibit
an interesting behavior towards total cost. It is observed that the factors whose costs decrease with lot
size has a tendency at a faster rate than the rate of increase in cost of those factors whose costs
increase with inventory size.

 SAFETY OR BUFFER STOCK:

The demand and supply rates can never be assessed exactly. There is bound to be discrepancy
between actual and estimated demand and supply quantities with fair degree of uncertainty. The
organization with a policy of safeguarding interest. Against these uncertainties maintain the level of
inventory at some desired minimum level. This minimum level of inventory to cover some unforeseen
and uncalled for situations is known as safety or Buffer stock available in inventory when fresh supply
arrives. It is presumed that this stock will be able to, cope with the emergency if and when
experienced. Generally, buffer stock is maintained at the desired level by discontinuous
replenishments at varying intervals of time. Factors effecting choice of Buffer stocks are:
1. Uncertainty in demand.
2. Degree of insurance for any item.
3. Uncertainty in lead time and
4. Size of the batch.
 RE-ORDER LEVEL/POINT:
The concept of re-order point is basically related with lead time demand. The problem is that
demand can never be accurately projected over the lead-time. Once we know the demand in lead time,
re-order level can be easily determined mathematically Re-order Level=Lead Time demand + Safety
Stock.
 ABC (ALWAYS BETTER CONTROL) ANALYSIS:-
ABC analysis is the selective inventory control technique and this is the first step in the inventory
control process. This is the process in which 1000's of different types of inventories are classified to
determine the type an degree of control required for each. This technique is based on the assumption
that the firm should not exercise the same degree of control on the items of inventory.
On the basis of unit price and consumption, various inventory items are categorized into three
classes of this analysis:
A
B
C
"A" group involves the largest investment and inventory control must be rigorous and intensive
and the most sophisticated inventory control technique should be applied to these items. Type "A" is
of higher cost and highly scarce resource without which the production process cannot be imagined,
which will be very less in quantity when compared to the investor level.
"A" type of items are only about 10% in number. But account for 75% of the annual inventory
usage value.
"B" group stands mid-way. It deserves less attention than "A" and more than "C". Employing less
sophisticated techniques can also control it. Type "B" is of moderate cost and moderately important.
These are freely available when compared type "A".
"B" type of items are only about 20% in number. . But account for next 50% of the annual
inventory usage value.
"C" group consists of items of inventory, which involve relatively small investments although the
number of items is fairly large. These items deserve minimum attention.
Type "C" items is of lowest cost and less importance when compared to "A" & "B". As these types
of inventories are freely available in the market and can immediately replace or purchase.
 "C" types of items are about 70% in number. . But account for next 10% of the annual inventory
usage value.
THE VARIOUS TYPES OF SELECTIVE CONTROLS ON THE BASIS "ABC
ANALYSIS":
CATEGORY "A":
1. Tight control
2. Assess exact requirement
3. Frequent reviews
4. Quantity control
5. Regular and item wise expediting
6. Low safety stocks and order point control
7. Reduced and stabilize lead-time
CATEGORY "B":
1. Moderate control
2. Individual postings
3. Assess frequent reviews
4. Less frequent reviews
5. Item wise expediting
6. Medium safety stocks
7. Lead time
8. Stoked at regional or zonal stores
CATEGORY "C":
1. Minimum control
2. Simple checks
3. Estimate appropriate requirements
4. Group postings
5. Infrequent reviews
6. Visual control
7. Limited and periodic expediting
8. Minimum lead-time control
9. Large order size
 10. Stocking at point of view.

• STEPS FOR CONDUCTING ABC ANALYSIS ARE:

1. Obtain unit cost of each manufactured or purchased item in inventory.
2. Obtain the usage in units for each item or estimate the usage over a period of time.
3. Obtain the net value of the usage by multiplying unit cost and the usage.
4. Arrange the items in descending order of the usage value.
5. The no. of items and their values are accumulated on a % of total basis.
6. Roughly divide the total list into 3 groups namely A-items of high usage value which accounts
for 70-75%of the usage value of inventories and about 10-15%. In number B-items of medium
usage value which accounts for the next 15-20% of the usage value .
 WHILE APPLYING THE ABC ANALYSIS, THE FOLLOWING POINTS SHOULD BE
TAKEN INTO CONSIDERATION:
1. Although every part of the item is important for the repair of machine, the items with low value
can be given a loose control.
2. Tight control of the high value stocks must reduce costs sufficiently to more than off set the
increased costs caused by lesser controls on the low value items. When applying the ABC
principle, some high value items, Which will not be required due to being in excess, should
actually be considered for disposal at a worth while price.
3. The ABC analysis in variably involves only items moving items since the annual consumption
value is based on consumption besides unit cost. The items, which are non-moving, have also
been considered separately for retention.

• JUST IN TIME [JIT]:

JIT means that virtually no inventories are held at any stage of production and that the exact
number of units is brought to each successive stages of production at right time. The JIT concept
originated from the Motomachi plant of Toyota in Japan where the system has been perfected and
results achieved. In this concept the plant has a long line of trucks waiting outside with full loads of
automotive parts and components for the assembly line. As soon as one truck comes out at one end of
the plant another gets inside. There is no warehouse for the parts.
The JIT concept assumes certain conditions which are found wanting in our industries. What required
is for its successful implementation all ancillary industries and suppliers of inventory operate in the
vicinity of the main industry to avoid problems of transportation. If the suppliers are located at
considerable distances and there is more than one supplier problems in delivery are bound to arise.
There should be one supplier and the products supplied must be of the best quality to prevent
rejections and consequent delays.

• ORGANIZATION FOR INVENTORY MANAGEMENT:

In a fairly large size production unit we might be holding stocks worth crores of rupees and
their proper accounting, prevention, security and safety is of paramount importance. An effective and
efficient stores management shall help in improving service level. Higher inventory is another area of
concern to management because it affects the working capital. Stores department in order to discharge
its functions effectively, it has to have close interaction and co-ordination with various departments of
the organization. The stores department mainly should have good communication between purchase
and production departments.
Without active integration and cooperation of each of the other departments, it is very difficult
to ensure smooth and efficient functioning of the stores department. But a stores department is
dependent on each of them for its day to day operation. The smooth functioning of either stores
department or the main production units is just not possible without interactive relations. This need has
been merely identified by the Krishna District Vehicles Union stores department and a lot of
negotiations have been taken by stores to have a better working relationship with of these departments.
The inventory refers to stockpile of the products of the firm offering for sale and various components
that make up these products. The inventory consists of raw-materials, work-in-progress, finished
goods and stores & spare parts.

• LIST OF INVENTORY ITEMS IN KRISHNA DISTRICT VEHICLES PRODUCERS

MUTUALLY AIDED CO-OPERATIVE UNION LIMITED:-
1. Vehicles & Vehicles products
2. Cattle Feed.
3. Stores and Packing Materials.
4. Garage and Mechanical Spares.
 5. Feed Raw Materials.
6. Inventory Construction Material.
7. Construction Material.
Inventory consists of a major portion of current assets in any organization. Efficient
management of inventory not only improves the liquidity position, but also reduces excess funds
blocked up in them and their by improving profitability.
Every firm has to maintain sufficient inventory because it establishes a link between production and
sales but the inventory involves balancing of opposing costs, viz. inventory carrying costs and
ordering costs. It is the responsibility of management to formulate appropriate policies and adopt
suitable inventory control techniques to optimize the size of the inventories so that the functions of
production and sales are carried on smoothly at minimum costs.

PURCHASING:
Many variables contribute to the success and development of the organization. One of such
variable is an efficient purchase and material management with a view to make the existing purchase
function most effective comprehensive plan has been prepared regarding.
1. Raising material purchase requisition.
2. Placing Purchase Order.
3. Receipt and Inspection of material.
4. Payments to Suppliers etc.

PURCHASE FUNCTION SYSTEM AND PROCEDURES:

The eligible to raise material requisition for purchase:
1. Deputy General Manager (production).
2. Deputy General Manager (plant).
3. Deputy Director (purchase).
4. Quality Control Officer.
5. Senior Accounts Officer.
CRITERIA OF RAISING MATERIAL REQUISITION:
1. Need of the material to be established.
2. Quantity indicating the period of consumption.
3. Detailed specification including brand preference with due justification.
4. Sources including previous purchase order reference.
5. Approximate value of proposal.
6. Budget provision.
7. Date of requirement.
GUIDELINES TO BE FOLLOWED BY PURCHASE
DEPARTMENT:
Purchase division after satisfying budget provisions will intimate purchase process adhering to
following procedure:

Purchase type needs to be decided based on the financial involvement:-

1. Direct cash purchase allowed up to the value of 500/-.
2. Material value beyond Rs.500/-
o If material is of routine consumption nature annual rate contract to be fixed by annual
tender system.
o In case of specific purchase beyond Rs.500/-up to Rs.l lakh. Order is to be placed if
material is available from publisher/co-operative institutions.
o From other than these institutions, float enquires from Manufactures/ Authorized
distributors/ registered dealers.
1. For large single order rate quotation called from original Manufacturers.
2. Purchase beyond 100000/- should be referred to purchase committee.
3. After getting approval of purchase proposal and type of purchase
- Enquires to be floated with in 24 days.
- Time required to receive quotations is:
 Single quotation time 10 days. Local suppliers quotations time 7 days.
 Periodical supply rate contract annual tenders (based on Lead time) orders are to be placed
depending on requirement as per production schedule responsibility stores.
1. . Processing of quotations:-
1) Quotations opened by purchase division.
i. Comparative statements of prices are prepared (24 hours).
2) Purchase order prepared if rates are reasonable, if not, negotiations or fresh enquires from
alternative sources made.
3) Purchase order raised by purchase division (DM) gets approved from General Manager routing
through audit and accounts. (2 days).
4) After approval of the purchase order gets registered in material requisition register and the copies
are dispatched to:

1. Suppliers
2. Accounts department.
3. User departments
4. Store concerned

5. Follow up and expediting supply: Follow up should be made at least a week before delivered date
given by purchase order.

 MAINTENANCE OF RECORDS AND FILES:-

The purchase department required to maintain various records and files like:-
1) Material purchase requisition record.
2) Purchase orders record.
3) Follow up data record.
4) Suppliers record- address, materials, delivery, quality.
5) Record of black listed supplier's reasons.
6) Commodity record.
7) Contract file.
8) Purchase day book.
 OTHER FORMS AND REPORTS:
Forms that are to be employed are
1) Purchase requisition.
2) Request for quotation.
3) Purchase order.
4) Follow up.
5) Receipt and inspection.

 REPORTS:
Purchase handles a sizeable portion of finance, it is necessary to have some summary reports
periodically available to the management some of these reports are:-
1) Total value of purchase.
2) Allocation of purchase value against major items.
3) Allocation of purchase value against each requisitioning department.
4) Budget for purchase for the next year.
5) Proposal for services of budget in current year

OTHER REPORTS BROUGHT OUT FOR INTERNAL USED:

1) Vendor performance report.
2) Pattern of consumption of material.
3) Pattern of market prices.
4) Lead time report.

 RECEIVING AND INSPECTION OF MATERIALS:

RECEIVING MATERIALS:

Trade credit is an essential marketing tool which acts as a bridge for the movement of goods from
the stage of production to stage of distribution to customers. Trade credit creates receivables which the
firm is Expected to collect in the near future thus the book debts or receivables arising out of credit has
three dimensions. First, it embraces an element of risk which needs to be assessed, since cash sales are
totally risk less. Second, it is based on economic values to the buyer; economic value in goods or
services is passed on immediately at the time of sale while the seller expects an equivalent value to be
received, arises at a future date. But, creation of receivables blocks the firm's funds for the period
between the dates of receipt of payment, which is to be financed out of working capital funds.
This makes the firm to average funds from financial institutions and other sources then receivables
represent investment which constitutes a substantial Portion of current assets of manufacturing &
trading firms. All the incoming materials from the suppliers and other units of organization shall be
received at stores. Arrangement shall be made for unloading and receiving of materials, checking up of
packages opening of packages, checking up materials with details of invoices and P.O., identifying
discrepancies, if, any record keeping, preparation of materials receiving cum inspection reports, hand
over of materials to custody, arranging dispatch of materials, returned to

 INSPECTION OF MATERIALS:
AMPLING:
The sampling method adopted for testing the polyethylene film shall be as per IS:2808-1977
clause-6.

 METHOD OF INSPECTION AND TESTING:

Immediately on receipt of company extruded printed Vehicles pouch firm. 10% of the rolls
received will be weighted at random and if the total quantity as notified weight on the packing tallies
positively. With the regiment observed, the total quantity as notified weight on the packing, prior
ternate deduction based on average weight of 10 rolls will be made on the balance 90% rolls and on
that basis the quantity received will be determined. This weight mint is to be done by quality control
personnel. From each consignment 2% of the film rolls subject to a maximum of 10 rolls will be
picked up at random by the representative of the quality control section and one meter of film from
each roll will be cut and weighted for substance test. The overage higher thickness observed in 10 rolls
of film at random, shall only be taken into account for imposing penalty. The maximum permissible
excess thickness should not be more than 2.5% on average thickness.
It has to be ensured that every item received in store is checked from quality angle. Angle function
of poor quality materials may put the organization to heavy loses, especially, those of components of
vital equipment. Quality plans need to be developed for critical and high consumption value of items.
Inspection can be carried out by independent quality assurance group or by user department,
depending upon set up store, however is required to maintain continued and sustained liaison with
inspection people for prompt inspection.

THE PROFORMA OF INSPECTION MATERIAL IN KRISHNA DISTRICT MI?

PRODUCERS MUTUALLY AIDED CO-OPERATIVE UNION LTD:

THE KRISHNA DISTTRICT VEHICLES PRODUCERS MUTUALLY AIDED CO-OPERATIVE

UNION LIMITED.

Vehicles Products Factory, Vijayawada-9

Material Quality Test/ Performance Report-Requisition Form

SL No. ……………....... Date…………….

GRN No.......................

To
The QCO/DGM (prod/pl)/SAO/DD (P&I) Doc. No:
For/store
Krishna Vehicles Union, Trevino : 01
MPF, Vijayawada-9. Date:
Page No: .1/1
Sir,
Sub: MP3 stores- Material Quality Test/ Performance Report -request-
Reg
Invoice/dc no. From M/s.
Please arrange for Quality Test/ Performance Report of the material received through the
reference cited above
Name of the material Quantity,

Yours faithfully
 STORES MANAGEMENT:
Objectives of stores in KRISHNA DISTRICT VEHICLES PRODUCERS MUTUALLY AIDED
CO-OPERATIVE UNION LIMITED:
1) To disseminates modern concept and techniques of efficient and effective stores management.
2) To disseminates modern concept and techniques of inventory management agreement, there by
ensuring optimum utilization of available resources.
3) To improve services level of stores and inventory management functions.
4) To minimize the losses due to deterioration and obsolescence.
5) To identify and dispose of scrap, surplus and obsolete materials in most economical manner.
6) To develop a cadre of committed professional in stores and inventory management.

FUNCTIONS OF STORES MANAGEMENT:

In the process of generation, transmission and distribution, stores management has to play a
vital role to make to make available required stores and spares at the right time and quantities. Down
time cost of equipment in our case is losses of generation, transmission and distribution of power and
consequential losses to industries and nation as a whole. Stores as such as treated as backbone of
efficient maintenance services, prompt services to the user shall. Therefore the principal objectives of
stores function and this is the most improvement parameter to judge its performance. It is however,
equally desirable to provide these services as economically as possible i.e., to keep the stock at
optimum, conserve and preserve them properly so that both financial and operative objectives are
attained.

Duties of store keeper in KRISHNA DISTRICT VEHICLES PRODUCERS MUTUALLY

AIDED CO-OPERATIVE UNION LIMITED:-
 The items in stores should be placed in such a way that these can be easily located.
 To maintain the store should be placed in such a way that these can be easily located.
 Efficient and effective service to the organization.
 To ensure that materials are issued against authorized resolution only.
 To keep up-to-date record of materials issued, received and balance in stock.
 Planning and execution of stock checking activities.
  Communicate the purchase department about its requirements.
 To maintain efficient and effective material handling system.

LOCATION OF STORE ROOM:

The location of stores in an enterprise should be at a place where handling transportation and the
movement of the material at a minimum level. If there is only single plant or many plants situated in
the same area then it is profitable to have one centralized store to service all production operations.
But in case of plants located at distant places it is desirable to have separate store for each plant.
Sometimes a policy of maintaining centralized stores for individual items is followed by the
management.
 ADVANTAGES:
1) Economy in investments.
2) Reduction in incidental expenses.
3) Less storage space.
4) Better security arrangements to safeguard against pilferage and theft.
5) Less man-power required, due to which reduction in administration costs.
6) More bargaining power required, due to which reduction in administration costs.
7) More bargaining power due to buying in bulk.
8) The variety of items in the inventory can be reduced due to more scope of
standardization of items.

 DISADVANTAGES:
1) More material handling operations.
2) Chances of bottlenecks and delay are likely to be more.
3) More exposed to loss due to natural calamities like fire, rain, dust etc.
METHODS OF VALUATION IN MOTOR GENERAL SALES PVT. LTD:-
The Krishna Vehicles Union has given sufficient flexibility to introduce scientifically
developed methods of valuation of their stocks. In order to prevent malpractices, it has been stipulated
that such methods must be studied and approved by the Board of Directors, and must be followed for a
minimum prior of three years.
1 First-in-First-Out (FIFO)
FIFO:
..' In these cases; it is assumed that the stores follow the principle that oldest stock issued first
so that stock left out is from the later arrivals. Hence all issues are assumed to have come out from
older stocks. These are valued at old price. The cumulative value of stock out will give the net value of
the existing stock.

ORGANIZATION OF STORES DEPARTEMNT:

In small Scale establishments, it is experienced that purchase and stores department are
attached with production department. In organizations where materials control is entrusted to a
materials manager both purchase and stores department is always of subordinate nature and it enjoys
an independent entity. The management of stores should be entrusted to experienced, sincere and
efficient a personnel who is qualified and primarily interested in doing a good stores job.
INVENTORY CONTROL SYSTEM:
Inventory control techniques in KDMPMSCUL:-
All of the items are not of equal importance, a high degree control inventories of each item is
neither applicable not useful. So stores department classify the inventory management to adopt a
selective approach in laying down inventory levels, order quantities and the extent and closeness of the
control be exercised. This is because a general characteristic of most inventories is that some items
have much higher annual usage value than others.
 Here we shall discuss the techniques of selective control like:
1) Re-ordering level,
2) Economic Order Quantity.
3) A.B.C Analysis.
RE-ORDERING LEVEL:
It is a point (if material reaches at this point) where order for fresh supplies of materials are placed
with the suppliers. The point is fixed some where in between the maximum and minimum point in
such a way that quantity is sufficient to meet the requirements of production upon the time fresh
supplies are received.
Re-ordering Level=Minimum Level + (Time in acquiring the materials * Rate of consumption).
ECONOMIC ORDER QUANTITY:
EOQ is an important factor in controlling the inventory, it is a quantity of inventory which can
reasonably be ordered economically at a time. It is also known as 'Standard Order Quantity',
'Economic Lot Size' or 'Economical Ordering Quantity', in determining this point ordering cost and
carrying costs are taken into consideration. Ordering costs are basically the cost of getting an item of
inventory and it storage facilities, property insurance, loss of value through physical deterioration, cost
of obsolescence. Either of these two costs affects the profits of the firm adversely and management
tries to balance these two costs. The balancing or reconciliation point is known as Economic Order
Quantity. And the concept of EOQ applies to the items which are replenished periodically into
inventory in lots covering several periods' needs.
Formulae for calculation of EOQ:

Where as A =Annual Demand

O = Ordering Cost
C = Carrying Cost
ABC ANALYSIS:
ABC Analysis is basic tool, which helps the management to place their efforts where the results
would be useful to the greatest possible extent. The first important step in inventory management is to
have a selective approach to fix-up inventory levels and the extent to which the control can be
exercised. This selective approach mainly depends on the annual consumption of various items. The
technique involves the classification of inventory items into three categories A, B and C. In
descending order or annual consumption and annual monetary value of each item.

CATEGORY- 'A' ITEMS:

Such items have large investment but not much in number i.e., 10% of items account for 70%
of total capital invested in inventory. So more careful and closer control is needed for such items.

CATEGORY- 'B' ITEMS:

The items having low consumption value are put in category 'B'. Nearly 20% of the items in an
inventory account for 20% of the total investment. These items have less importance than 'A' class
items, but are much costly to pay more attention on their use. These items require less degree of
control than those in category 'A'. Statistical sampling is generally useful to control them.

CATEGORY- 'C ITEMS:

The items having medium consumption value are put in category 'C. Nearly 70% of the items in an
inventory account for 20% of the total investment. Such items can be stocked at an operative place.
These items can be charged to an overhead account. In fact, loose control of 'C items increase their
investment and expenditure as a shelf wear, obsolescence and wasteful use, but this will not be so
much in saving the recording costs.
 FINANCIAL RATIOS RELATED TO INVENTORY.
Raw material turnover ratio:

Raw material turnover ratio is velocity at which raw material converted into goods ready for
sale. If raw material turnover ratio is high then company is efficiency converting into finished goods.

Formula: Material consumed / Average raw material

Raw Material Turnover Ratio

Year Raw material consumed (Rs) Avg R.M Ratio

2008 576,484,922 53,608,082 10.75

2007 371,223,873 36,137,266 10.27

2006 230,779,236 132,002,490 1.74

Ratio

12

10

6 Ratio

0
2008 2007 2006
Years

Form above graph we come know that raw material turnover ratio is increased rapidly in 2007 from
1.74 in 2006 to 10.27 for 2007. Indicates that company is converting raw material into finished or semi
finished goods very quickly
Holding period of raw material:

It refers to the number of days taken for the production unit to convert raw material to
finish goods.

Formula: 360 /Raw material turnover ratio

Holding period of raw material

Year Total Days Ratio Days

2008 360 10.75 33

2007 360 10.27 35

2006 360 1.74 206

Raw material holding Period

250

200

D 150
RHP
A 100

Y 50

S 0
2008 2007 2006
Years

As the raw material turnover ratio is increasing form to 10.27 for 2007 it indicates that firm is taking
less days for conversion as compared to 2006. In 2006 conversion period was 206 days but in
decreased to 35 days for 2007. This is shown in above graph.

Before 2007 there was no production process they were converting semi finished goods into
finished products hence to start their own production process they hold the raw material in 2006
Work in Process Turnover ratio:

Work in process turnover ratio is velocity at which W.I.P converted into goods ready for sale.
If W.I.P turnover ratio is high then company is efficiency converting into finished goods.

Formula:

Cost of production

Average W.I.P

W.I.P turnover ratio

Year Cost of production Avg W.I.P Ratio

2008 849,054,442 36,720,702 23.12

2007 555,094,500 15,010,347 36.98

2006 361,110,197 9,755,839 37.01

Work in Process Turnover ratio

40
35
30

D 25
20 Ratio
A
15
Y 10
5
S
0
2008 2007 2006
Years

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

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

Formula:

360

W.I.P turnover ratio

Holding period of W.I.P

Year Total Days Ratio Days

2008 360 23.12 15.57

2007 360 36.98 9.73

2006 360 37.01 9.72

Holding period of W I P

18
16
14
12
D 10
Ratio
8
A
6
Y 4
2
S 0
2008 2007 2006
Years
As the work in process turnover ratio is increasing form 9.72. in 2006 To 15.57 for 2008 it indicates
that firm is taking less days for conversion. Which shown in above graph

Finished goods turnover ratio:

Finished goods turnover ratio is velocity at which finished goods converted into for sale. If
finished goods turnover ratio is high then company is efficient.

Formula:

Cost of goods sold

Average finished goods

Finished goods turnover ratio

Year cost of goods sold Avg F.G Ratio

2008 849,054,442 26,243,339 32.35

2007 555,094,500 19,858,482 27.95

2006 361,110,197 10,940,008 33.01

 Finished Goods Turnover Ratio

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

Form above graph we came know that finished goods turnover ratio is decreasing from 33.01 in 2006
to 27.95 for 2007. Indicates that company is selling goods little slowly as compared to 2006 but it is
bit fast as compared to 2008. Where the ratio for that particular period was 32.35

decreased to 11.20 for 2008 it is satisfactory. Which shown in above graph.

Inventory to capital employed:

This ratio indicates the relationship between the total capitals employed and inventories it
shows how much capital utilized to invest in the inventories other than the other assets. The normal
manufacturing firms have low ratio of inventory total capital employed in the organization.

Inventory to capital employed

Total capital
Year Inventory employed Percentage

2008 197,465,069 301,443,215 65.50

2007 121,558,000 145,492,599 83.54

Formula: 2006 67,994,623 98,333,324 69.14 Inventory /
Total capital employed

Inventory to capital employed

90
80
P 70
E 60
50
R ICE
40
C 30
20
E 10
N 0
2008 2007 2006
T
Years
A

E
 By observing above graph we can say that the firm investing huge amount in inventories compared
to other assets. It invested 83.54% of its capital in inventory in 2007 where as it reduced to 65.50% in
2008

Inventory to current asset ratio:

This ratio indicates the relationship between the inventory and current assets. It shows the
percentage of inventory to current assets, which helps the organizations in deciding the current assets
policy which also affect the liquidity position of the organization.

Formula: Inventory / Current assets

Inventory to current asset ratio

Year Inventory current assets Percentage

2008 197,465,069 331,314,504 59.60

2007 121,558,000 237,687,684 51.14

2006 67,994,623 117,022,625 58.10

 Inventory to current asset ratio

62
P 60
58
E
56
R 54 Ratio
52
C
50
E 48

N 46
2008 2007 2006
T Years
A

The inventory to current assets ratio in the year 2006 was 58.10% and it decreased to 51.14% in the
year 2007 but again it increased to 59.60% in 2008. It shows that the firm investing 59.60% of its
investment is for inventory only.

Inventory to total assets:

This ratio indicates the relationship between the inventory and total assets. The
significance of this ratio is it reflects the portion the inventory as a percentage of the total assets, which
helps the management deciding the utilization remaining resources profitably, since the inventory will
lock up the huge funds and reduces the profitability of the organization

Formula: Inventory / Total assets

Inventory to total assets

Year Inventory Total assets Percentage

 2008 197,465,069 990,329,087 19.93

2007 121,558,000 540,916,088 22.47

2006 67,994,623 414,901,234 16.38

Inventory to total assets

25
P
20
E

R 15
Ratio
C 10

E 5

N 0
2008 2007 2006
T
Years
A

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

Inventory to working capital:

This ratio indicates the relationship between inventory to working capital and it also
indicates the amount to inventory tied up in the working capital and it also shows the efficiency of
inventory management.
Formula: Inventory

Working capital

Inventory to working capital

Year Inventory Working capital Percentage

2008 197,465,069 199,345,123 99.05

2007 121,558,000 146,097,210 83.20

2006 67,994,623 46,338,277 146.45

Inventory to working capital

160
P 140
120
E
100
R
80 Ratio
C 60
40
E
20
N 0
2008 2007 2006
T
Years
A

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

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

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

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

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

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

but it is bit fast as compared to 2008.

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

7.The inventory to current assets ratio in the year 2007 was 58.10% and it decreased to 51.14%
in the year 2008 but again it increased to 59.60% in 2008. It shows that the firm investing
59.60% of its investment is for inventory only.
8.During the year 2007 the rate of inventory to total assets was 16.38% it icreased to 22.47% in
2008. But again it reduced to 19.93% in 2009. It indicates that firm investing only 19.93% in
inventory out of total assets.

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

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

a) From the findings it is came to know that in the year 2006 the number of days for
holding Raw material is more, it is not good for the company because it eats unnecessary
investment. To avoid this problem the following points will help.
 Purchase Raw Materials at the time when the stock reaches the minimum level.
 The purchases should not cross the Maximum limit otherwise the stock kept in stores
idle.
 Quantity should be ordered as per the demand. We can assume the demand for the goods
from past experience.
 We can have more Raw materials which are imported from other countries but carry
reasonable stocks which are available locally.
b) If we purchase less quantity of materials at a time it will reduce the carrying cost but
increases the ordering cost and vise versa. Therefore optimum ordering quantity is
necessary, which minimizes the cost.

c) The company should maintain a safety level and also reordering point so that they come
to know at what time they should order for the supply of material and need not to suffer
from short fall of required material.
 CONCLUSION

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

 The inventory should be fast moving so that warehouse cost can be reduced.
 The finished goods have to be dispatched in feasible time as soon as manufacturing is
completed.
 Optimum order quantity should be maintained, hence cost can be minimized.
 Proper inventory control techniques are employed by the inventory control organization
within the framework of one of the basic models like ABC, HML and VED etc.
 BIBIIOGRAPHY

BOOKS

 Financial Management : I.M.Panday

 Production Management : K. Ashwatappa

WEBSITES

www.apexautoltd.com

www.google.com