CHAPTER I

INTRODUCTION
INTRODUCTION

“Sufficient inventories facilitate production activities and help to customer contentment by

provide good quality of service”.

The basic financial aim of inventory management to holding inventory to a minimum level in
related its cost .holding inventory means capital blinded up at both ends of production system.
For a usual manufacturing firm, this impasse in form of raw material at one end of production
system, WIP (or semi finished) goods within it, and utterly finished goods at additional end.
However keeping low inventories means customer may go to other manufacture and company
loses its goodwill.
For a trade firms such as Retail stores inventory refers to reserve of finished goods for sale, as
for a manufacturing firm, the definition of inventory means stock of raw material, WIP and
finished goods. One most important factor having an essential bearing on inventories is cost
incurred on supervision of goods in stock.

The inventory carrying cost is comprises interest on money invested for material in stock
;warehousing cost ,including rentals,taxes,labour ,cost, overheads, electricity bill , water and
maintenance ;cost of material handling equipment ;shrinkage; evaporation deterioration or
spoilage of goods ;obsolescence etc. in India inventory carrying cost varies from 28 to 32
percentage of total cost. That’s why inventory management plan strategies that raise wealth
maximization a company with optimum inventory cost.

Inventory management is very complex and complicated in nature .it is very hard to determine
how stock is stored at optimum level .if company stock too much it locks its capital and if it is
too little its affects its value. Inventory management apply various inventory techniques to
handle these problems such EOQ model, reorder level, just in time etc

In this study we are compare inventory management and analyze which techniques they prefer
and why? In addition, these inventory control techniques impact on management’s decisions.

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1.1 INVENTORY MANAGEMENT

1.1.1 OVERVIEW

Inventories constitute a vital branch of current assets of a company. On an average 50

percentage of current assets are utilized in managements of inventory in India.

A firm keeping more inventory means funds are unnecessary tied up .the firms which do not
keeping inventory may suffer from losses in long run. Because market demand is totally
uncertain. So companies are always tried to find a way between these two criteria. Inventory
control techniques help to company to reduce stock cost up to 10-20 percentages (possible).
Without affecting production and sales activities of a comapny.Therefore inventory control are
applied to reduce carrying cost and enhancing company profitability.

1.1.2 MEANING OF INVENTORY

Inventory means stocks of goods are kept in an organization to smoothen its functioning in
form of finished goods. For a manufacturing concern it is stock of raw material, work in
progress, stores etc.

Inventory includes following items:

 Raw material

 In process material

 Standard components

 Goods support in production process e.g. fuel, tools, coolants, zig and fixture
etc.in brief inventory is money kept in stores in form of raw
material,semifinished and finished products

RAW WORK IN FINISHED

MATERIALS PROGRESS GOODS
.
FIGURE 1

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1.1.3 NATURE OF INVENTORY

Inventories are basically categorizes in following classes

Production inventories: these are of two types
Inventories those are purchased from market like raw material, spare parts and components
Special parts or components manufactures in one own company and kept for stock to use.

MRO inventories or Maintenance, repairs and operating supplies: these are purchase
material kept for maintenance of production cycle but do not form finished goods. These are
petrol, oil, diesel, lubricants, machine tools, repair parts, jigs etc.

Work in progress or in process inventories: these are semi finished goods usually found on
industrial unit floor used in numerous stages of production

Finished goods: These goods are ready for sale. Finished goods are associated with demand
fluctuations whereas raw material and work in progress is related to production process
inventories make a connection amid production and consumption of goods.

The four kinds of inventories are kept according to needs of organizations Manufacturing units
keep more focus on first three kinds of inventories, having long production cycle ,keeping high
stock; whereas retail stores having only finished goods as inventories, the products that have
small production cycle are kept at low inventory with fast turnover cycle.

1.1.4 MEANING OF INVENTORY MANAGEMENT:

As soon as market becomes highly competitive material mangers use inventory management as
tool to control cost. Inventory is a tenure that used to describe unsold goods is waiting for sale
and raw material is waiting for production process in stores of organizations. Generally stocks
are kept within organization, in warehouse near or far, shelves of stores etc.from manufacturing
point of view raw material are kept within factory needed at any time. Inventory management
mainly concern with satisfy the “customer “whether he is outside the organization and a real
customer who pays for what he gets, or inside the organization, user of stores who may be
regarded as customer.

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From viewpoint of small business owners inventories are shown and tangible assets in form of
raw material, WIP, finished products .the working capital locked in inventories, for retail stores
merchandise inventories are only benefit when they add money to cash register. In big business
unit it is not easily to determine inventory. large firm’s keeps inventory to get high profits. But
now a day it is not easy to carry large inventories. in a any organization market manger always
tries to have more product variety and large stock due to demand fluctuation in market and
uncertainty with it. Production manger always main focus on economic cost processing so that
production process bears reasonable cost. Then finance manger main concern about minimum
capital locked in inventory. So to carry all these objectives inventory management is done to
produce and store goods at optimum cost.

So inventory management is collectively functioning of an organization which includes its

methods to organize inventory. Every minute spend on inventory management add to
company‘s value

1.1.5 DEFINITION OF INVENTORY MANAGEMNET:

“Policy practice and technique engaged in maintain the optimum number or amount of each
inventory item.”

“Systems and processes that identify inventory requirements, set targets, provide replenishment
techniques and report actual and projected inventory status.”

“Handles all functions related to the tracking and management of material. This would include
the monitoring of material moved into and out of stockroom locations and the reconciling of
the inventory balances. Also may include ABC analysis, lot tracking, cycle counting support
etc.”

1.2 IMPORTANCE OF INVENTORY MANAGEMNT

Accuracy: with proper inventory management company can find how much inventory on
hand and how is required ,his turns help escaping from product shortage ,and does not bond
too much working capital in inventories.

Organized stores: in companies inventories are held in large quantity, so it is not easy
manage .with inventory management material are placed with proper planning. It is easy to
companies find anything quickly.

Saves time and money: inventory management control cost and speed up work. with it
companies easily determined product on hand, which are ordered, out of stock .hence its saves
company money and time

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 Increases Efficiency: today inventory management is done by software .so it is increase work
efficiency than manual work, focus to employees their concern area.

Goodwill: each and every company in world wants repeated customer, it is only possible if
company meet customer demand at time. inventory management plays very significant role in
this
.
1.2.1 HOW COMPANIES UESE THEIR INVENTORY

Anticipated inventory

Inventory that maintain when there are chances are price discount, ordering cost, shipping
cost make economical to produce in large quantity than its requirement.

Fluctuation inventories:

Inventories that maintained against forecast inaccuracy.

Transportation inventory

Inventory that involved moving products from manufacture unit to warehouse.

Tentative inventory

Tentative inventories are those which maintained to go ahead in the market.

1.3 OBJECTIVES OF INVENTORY MANAGEMNT

Inventory management’s main focus on neither locks working capital too much nor suffers
from inadequate inventory. To find a solution between these two factor inventory management.

 To maintain effective supply of material

 To evade both under-stocking and over stocking.
 To ensure optimum investment in inventories.
 To minimize wastage through corrosion and spoilage
 To keep material cost under control
 To control inventory cost.
 To ensure reasonable cost of goods.
 To design organization for inventory management
 Train the personnel

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1.4 FACTORS AFFECTING INVENTORY MANAGEMENT

There are two basic questions are arises in every inventory management:

How much to buy at one time?

When to buy?

There are two categories of factors which influence inventory management decision are internal
and external factor.

External factor internal factor

Market size production cycle

Government policy technology

Credit availability annual consumption

While external factors are not controllable and internal can be controlled.

Following are factors are influencing inventory management decision in any organization.

Lead time:

Lead time can be defined as time period required for commencement purchase requisition and
getting required inventory .inventories have to take care of average consumption throughout
lead time because it increase inventory.

Relevant cost:
Inventory management is concern about how to control cost .there are following cost occur in
inventory process:

A cost of ordering and inventory carrying cost

Interest paid on capital locked in stock

Cost of warehouse, accounting, holding material.
Insurance cost
Cost of stationary, other consumable material, Salaries of personnel engaged in inventory.

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1.5 SUCCESSFUL INVENTORY MANAGEMENT

Successful inventory management involves balancing the costs of inventory with the benefits of
inventory. Many small business owners fail to appreciate fully the true costs of carrying
inventory, which include not only direct costs of storage, insurance and taxes, but also the cost
of money tied up in inventory. This fine line between keeping too much inventory and not
enough is not the manager's only concern. Others include:

 Maintaining a wide assortment of stock -- but not spreading the rapidly

moving ones too thin;

 Increasing inventory turnover -- but not sacrificing the service level;

 Keeping stock low -- but not sacrificing service or performance.

 Obtaining lower prices by making volume purchases -- but not ending up

with slow moving inventory; and

 Having an adequate inventory on hand -- but not getting caught with obsolete
items.

 The degree of success in addressing these concerns is easier to gauge for

some than for others. For example, computing.
1.6 INVENTORY CONTROL

Inventory means stock of finished goods for retailer and raw material for production system. So
organization always tries to control inventory cost and meet demand effectively .therefore a
type of control system that applies on inventory is called inventory control. It helps to reduce
wastage cost, spoilage, ensure supply smoothness. Inventory control defined as kind of
practices and effort to reduce cost associated with by applying various tools and techniques:

 ABC

 HML

 VED

 XYZ

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  EOQ

1.6.1 ADVANTAGES

 To meet demand effectively and efficiently.

 To make production process smoother.

 Facilitates cost accounting activities.

 Tackle with risk.

 Prevents from over and under inventory practices.

 Reduce setup cost, ordering cost etc.

 Avoiding of duplication in inventory.

1.6.2 DISADVANTAGES

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

 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 ar
more the funds are blocks up with inventory

 Excessive inventories: It will lead to firm losses due to excessive carrying costs the
risk of liquidity. It is also referred as danger level.

 Inadequate Inventory: It is another danger which results is production holds-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.

 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.

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1.6.3 COST INVOLVED IN INVENTORY:

Item cost:

Cost per item plus any other direct cost associated with getting item to the plant holding cost:
holding cost is associated with keep and maintain inventory in storage. It includes rental
charges, insurance, interest paid on capital, other direct expenses.

Capital cost

The higher of cost of capital or opportunity cost for company.

Risk cost

Risk cost includes obsolescence, deteroiation.theft, taxes associated with quantity of inventory.

Ordering cost:

Ordering cost linked to placing order with supplier or in built production. It includes cost of
issue quotations, monitor and receiving of physical stock.

Penalty cost:

The penalty cost is cost per unit associated with dissatisfaction of order when it received. it can
like a chance of missed profit. it occur due

 Back order
 Lostsale

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CHAPTER II

REVIEW OF LITERATURE

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2.1 LITERATURE REVIEW

Success of any industrial undertaking depends upon the 6 m’s 1) Money

2) Manpower 3) Machine 4) Market 5) Material 6) Management

Materials are pivotal importance not less than another M’s. Problems have their root in material
affects the efficiency of all men, machine, money & marketing decisions of the firms and thus
become the grave concern of management at all levels. If there were too much of material
problems like ideal funds lied up in excessive inventory storage and obsolesces difficulties
market pressure would arise. Thus the importance of inventory management is realized. A
number of studies have been done in the field of inventory management by various researchers.
Some of them are given below;

1. Author: - Bern at de William year 2008

This study tells that the main focus of inventory management is on transportation and
warehousing. The decision taken by management despond’s on the traditional method of
inventory control models. The traditional method of inventory management is how much useful
in these days the author tell about it. He is also saying that the traditional method is not a cost
reducing, it is so much expensive. But the managing the inventory is most important work for
any manufacturing unit.

2. Author: - Jon Schreibfeder 1992

He said that it is easy to turn cash into inventory; the challenge is turn inventory back into
cash. In early 1990’s many distributor recognize that they needed help controlling and
managing their largest asset inventory. In response to this need several companies developed
comprehensive inventory management modules and systems. These new package include
many new features designed to help distributors effectively managed warehouse stock. But
after implementing this many distributors do not feel that they have gained control of their
inventory.

3. Author:-Wolf Bagby, Managing inventory

In this study Mr. W.Bagby explains that by managing the inventory it becomes easier for the
organization to meet the profit goals, shorter the cash cycle, avoid inventory shortage, avoid
excessive carrying costs for unused inventory, and improve profitability by decreasing cash

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conversion and adopt JIT system. According to this study companies need to get smart about
inventory. Boosting financial performance is another benefit that comes from better inventory
management. Infect large number of manufacturers enjoy savings and better performance by
choosing the approach of inventory reduction. For this company needs to maximize the cash
flow and profitability and this includes keeping a watchful discerning eye on charge in supply
and demand

4. Author: - Asfaque Ahmed October 12, 2004

(Article from master requirement planning and master production scheduling)

He said that most of the manufacturing company vendors have planning and scheduling
product which assume either infinite production capacity for calculating quantities of row
material and work in progress (WIP) requirements or infinite quantities of raw material and
WIP materials for calculating production capacity. There are many problems with this approach
and how to avoid these by making sure that the product you are buying indeed takes into
account finite quantities of required materials as well as finite capacities of work centers in
your manufacturing facilities.

5. Author:- D.Hoopman April 7, 2003

(Article from inventory planning and optimization)

In this article he said that inventory optimization recognize that different industry have
different inventory profiles and requirements. Research has indicated that solutions are priced
in a large range from tens of thousands of dollars to millions of dollars. In this niche market
sector price is definitely not an indicator of the quality of solution, ROI and usability are
paramount.

6. Author:-Silver, Edward A Dec22, 2002

(Article from production and inventory management journal)

This article considers the context of a population of items for which the assumption underlying
the EOQ derivation holds reasonably well. However as is frequently the cash in practices there
is an aggregate constraint that applies to the population as a whole. Two common forms of
constraints are:

1) The existence of budget to be allocated among the stocks of the items and
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2) A purchasing production facility having the capability to process at most a certain number of
replenishment per year. Because of the constraint the individual replenishment quantities
cannot be selected independently.

5. Author:- Charles Atkinson

(A study on inventory management)

In the study by Mr. Charles Atkinson, he explained the inventory management and assessment
of inventory levels. As per this study inventory management need to address two issue

Part I. How to optimize average inventory levels.

Part II. How to assess (evaluate) inventory levels.

This study tells about what the manager should do and not to do, and how much amount should
be order in one placed orders. Average inventory can be calculated by simplistic method.

Average inventory = beginning inventory +end inv./2

8. Author:-Delaunay C, Sahin E, 2007.

A lot of work has been done but now if we want to go ahead we must have good visibility upon
this field of research. That is why we are focused on frame work for an exhaustive review on
the problem of supply chain management with inventory inaccuracies. The author said that
their aim in this work is also to present the most important criterion that allows a distinction
between the different type of managing the inventory.

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CHAPTER III

Research Methodology
&
Design

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3.1 NEED FOR THE STUDY

Every organization needs inventory for smooth running of its activities. It serves as a
link between production and distribution processes. The investment in inventories constitutes
the most significant part of current assets/working capital in most of the undertakings. Thus, it
is very essential to have proper control and management of inventories. The purpose of
inventory management is to ensure availability of materials in sufficient quantity as and when
required and also to minimize investment in inventories. So, in order to understand the nature
of inventory management of the organization and compare it with other organization to better
understanding how inventory management impacts on company performance, I took this
Inventory Management as a topic for my project, to give findings and suggestions by adopting
and analyzing different inventory control techniques.

3.2 OBJECTIVES OF THE STUDY

Primary objective

 To analyze and compare the existing system of Inventory Management at

Ricela health foods limited and Tara health foods limited.

Secondary objectives

 To study the inventory management based on the ratio analysis.

 To find out the impact of inventory on working capital.

 To study the inventory management and its effective control through various
techniques.

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  To suggest the measures for improving the inventory level.

3.3 SCOPE OF THE STUDY

Inventory management being a very important concept in all the company’s having a void
coverage often calls for the managerial attention. In the modern times inventory management
has become the integral part of the all companies. So all the firm gives special importance for
inventory management. The major objective of the study is to examine the effectiveness of
inventory management system adopted by Ricela health foods limited and Tara foods limited.
The study mainly focuses on the techniques used by the company to control the inventory. The
study also covers other areas like the financial ratios for the period of 2011 to 2016.

3.4 RESEARCH DESIGN

The research design used in this project is Analytical in nature the procedure using,
which researcher has to use facts or information already available, and analyze these to make a
critical evaluation of the performance.

3.4.1 DATA COLLECTION

 Primary Sources
1. Interaction with personnel of the company.
2. Direct Observation in Inventory

 Secondary Sources:

 The data are collected from the annual reports maintained by the company for
the past five years viz., 2011-16.

 Data are collected from the company’s website.

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  Books and journals pertaining to the topic.

 Tools Used:
Inventory ratio analysis.

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CHAPTER IV

Techniques of inventory
management

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4.1 TOOLS AND TECHNIQUES OF INVENTORY MANAGEMENT

A proper inventory control not only helps in solving the acute problem of liquidity but also
increases profit and causes substantial reduction in the working capital of the concern.
The following are the important tools and techniques of inventory management and control.

4.1.1 Determination of stock levels:

Carrying of too much and too little of inventory is detrimental to the firm. If the inventory level
is too little, the firm will face frequent stock outs involving heavy ordering cost and if the
inventory level is too high it will be unnecessary tie up of capital. An efficient inventory
management requires that a firm should maintain an optimum level of inventory where
inventory costs are the minimum and at the same time there is no stock out which may result in
loss or sale or shortage of production

 Minimum stock level:

It represents the quantity below its stock of any item should not be allowed to fall.

 Lead time: A purchasing firm requires sometime to process the order and time is
also required by the supplying firm to execute the order. The time in processing the
order and then executing it is known as lead time.

 Rate of Consumption: It is the average consumption of materials in the factory.

The rate of consumption will be decided on the basis of past experience and
production plans.

 Nature of materials: The nature of material also affects the minimum level. If a
material is required only against the special orders of the customer then minimum
stock will not be required for such material. Minimum stock level can be calculated
with the help of following formula.

Minimum stock level = Reordering level – (Normal consumption x Normal

reorder period)

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Re – ordering Level:
When the quantity of materials reaches at a certain figure then fresh order is sent to get
materials again. The order is sent before the materials reach minimum stock level. Re –
ordering level is fixed between minimum levels to maximum level.

Maximum Level:
It is the quantity of materials beyond which a firm should not exceeds its stocks. If the quantity
exceeds maximum level limit then it will be over – stocking. Overstocking will mean blocking
of more working capital, more space for storing the materials, more wastage of materials and
more chances of losses from obsolescence

𝑴𝒂𝒙𝒊𝒎𝒖𝒎 𝒔𝒕𝒐𝒄𝒌 𝒍𝒆𝒗𝒆𝒍 = 𝑹𝒆𝒐𝒓𝒅𝒆𝒓𝒊𝒏𝒈 𝑳𝒆𝒗𝒆𝒍 𝑹𝒆𝒐𝒓𝒅𝒆𝒓 𝑸𝒖𝒂𝒏𝒕𝒊𝒕𝒚) –

𝑴𝒂𝒙. 𝑪𝒐𝒏𝒔𝒖𝒎𝒑𝒕𝒊𝒐𝒏 𝒙 𝑴𝒊𝒏. 𝒓𝒆𝒐𝒓𝒅𝒆𝒓 𝒑𝒆𝒓𝒊𝒐𝒅

Danger Stock Level:

It is fixed below minimum stock level. The danger stock level indicates emergency of stock
position and urgency of obtaining fresh supply at any cost.

Danger Stock level = Average rate of consumption x emergency delivery

time.

Average Stock Level:

This stock level indicates the average stock held by the concern.

𝒂𝒗𝒆𝒓𝒂𝒈𝒆 𝒔𝒕𝒐𝒄𝒌 𝒍𝒆𝒗𝒆𝒍 = 𝑴𝒊𝒏𝒊𝒎𝒖𝒎 𝒔𝒕𝒐𝒄𝒌 𝒍𝒆𝒗𝒆𝒍 + ½ 𝒙 𝒓𝒆𝒐𝒓𝒅𝒆𝒓 𝒒𝒖𝒂𝒏𝒕𝒊𝒕𝒚

2. Determination of Safety Stocks:

Safety stock is a buffer to meet some unanticipated increase in usage. The demand for
materials may fluctuate and delivery of inventory may also be delayed in such a situation the
firm can be facing a problem of stock out.
In order to protect against the stock out arising out of usage fluctuations, firms usually
maintain some margin of safety stocks.
Two costs are involved in the determination of this stock that is opportunity cost of stock
outs and the carrying costs.

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 If a firm maintains low level of safety frequent stock outs will occur resulting into the
larger opportunity costs. On the other hand, the larger quantity of safety stocks involves
carrying costs.

Safety Stock = (Maximum Lead time- Normal Lead time) * Demand

FIGURE 2

3) Economic Order Quantity (EOQ):

The quantity of material to be ordered at one time is known as economic ordering
quantity.This quantity is fixed in such a manner as to minimize the cost of ordering and
carrying costs.

Total cost material = Acquisition Cost + Cost + Carrying Costs + Ordering Cost.
Carrying Cost:
It is the cost of holding the materials in the store.
Ordering Cost:
It is the cost of placing orders for the purchase of materials.
EOQ can be calculated with the help of the following formula
EOQ = 2CO / I
Where C = Consumption of the material in units during the year
O = Ordering Cost
I = Carrying Cost or Interest payment on the capital.

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 FIGURE 3

4) A – B – C – Analysis: (Always better control analysis):

Under A – B – C Analysis. The materials are divided into 3 categories viz., A, B and C.
Almost 10% of the items contribute to 70% of value of consumption and this category is
called ‘A’ category.
About 20% of the items contribute about 20% of value of category ‘C’ covers about 70%
of items of materials which contribute only 10% of value of consumption

A Class (High Value) B Class (Moderate Value) C Class (Low Value)

1. Tight control on stock levels Moderate control Less control
2. Low safety stock Medium Large
3. Ordered frequently Less frequently Bulk ordering
4. Individual posting in stores Individual Collective posting
5. Weekly control reports Monthly control Quarterly control
6. Continuous effort to reduce lead time Moderate efforts Minimum efforts

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5) VED Analysis: (Vitally Essential Desire)
The VED analysis is used generally for spare parts. Spare parts classified as Vital (V), Essential
(E) and Desirable (D).
The vital spares are a must for running the concern smoothly and these must be stored
adequately. The ‘E’ types of spares are also necessary but their stocks may be kept at low
figures. The stocking of ‘D’ type spares may be avoided at times. If the lead time of these
spares is less, then stocking of these spares can be avoided.

6) Inventory Turnover ratio:

Inventory turnover ratios are calculated to indicate whether inventories have been used
efficiently or not. The inventory turnover ratio also known as stock velocity is normally
calculated as sales / average inventory of cost of goods sold / average inventory.
Inventory conversion period may also be calculated to find the average time taken for clearing
the stocks. Symbolically.

𝒄𝒐𝒔𝒕 𝒐𝒇 𝒈𝒐𝒐𝒅𝒔 𝒔𝒐𝒍𝒅

𝒊𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚 𝒕𝒖𝒓𝒏𝒐𝒗𝒆𝒓 𝒓𝒂𝒕𝒊𝒐 =
𝒂𝒗𝒆𝒓𝒂𝒈𝒆 𝒊𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚 𝒄𝒐𝒔𝒕

𝒅𝒂𝒚𝒔 𝒊𝒏 𝒂 𝒚𝒆𝒂𝒓
𝒊𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚 𝒄𝒐𝒏𝒗𝒆𝒓𝒔𝒊𝒐𝒏 𝒑𝒆𝒓𝒊𝒐𝒅 =
𝒊𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚 𝒕𝒖𝒓𝒏𝒐𝒗𝒆𝒓 𝒓𝒂𝒕𝒊𝒐

7) Just –in-time:
Japanese firms popularized the just-in-time (JIT) system in the world. In a JIT system
material or the manufactured components and part arrive to the manufacturing sites or stores
just few hours before they are put to use. The delivery of material is synchronized with the
manufacturing cycle and speed. JIT system eliminates the necessity of carrying large
inventories, and thus, saves carrying and other related costs of manufacturer. The system
requires perfect understanding and coordination between the manufacturer and supplier
in terms of the timing of delivery and quality of the material. Poor quality material or
complements could halt the production. The JIT inventory system complements the total
quality management (TQM). The success of the system depends on how well a company

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manages its suppliers. The system puts tremendous pressure on suppliers. They will have to
develop adequate system and procedures to satisfactory meet the needs of manufacturers

8) Classification and Codification of Inventories:

The inventories should first be classified can then code numbers should be assigned for
their identification. The identification of short names are useful for inventory management not
only for large concerns but also for small concerns. Lack of proper classification may also lead
to reduction in production.
Generally, materials are classified accordingly to their nature such as construction materials,
consumable stocks, spares, lubricants etc. After classification the materials are given code
numbers. The coding may be done alphabetically or numerically. The later method is generally
used for coding. The class of materials is assigned two digits and then two or three digits are
assigned to the categories of items divided into 15 groups. Two numbers will be category of
materials in that class.
The third distinction is needed for the quality of goods and decimals are used to note
this factor.
9) Valuation of inventories – Method of valuation:
FIFO method
LIFO method
Base Stock method
Weighted average price method

THE FIFO METHOD (FIRST – IN FIRST – OUT METHOD)

Under this method it is assumed that the materials or goods first received are the first to
be issued or sold. Thus, according to this method, the inventory on a particular date is
presumed to be composed of the items which were acquired most recently.
The value inventory would remain the same even if the “perpetual inventory system” is
followed.

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Receipts Issues Balance
Date Quantit Unit Amoun Quantit Unit Amoun Quantit Unit Cost Amoun
y Cost t y Cost t y t
9-Jan 40 Rs.3 Rs.120 - - - 40 RS.3
Rs.120

12-Mar 50 Rs.5 Rs.250 - - - 90 40 @ Rs.370

Rs.3
50 @
Rs.5
15-Mar - - - 80 40 @ Rs.320 10 Rs.5 Rs.50
Rs.5
40 @
Rs.3
7-Jun 100 Rs.7 Rs.700 - - - 110 10 @ Rs.750
Rs.5
100 @
Rs.7
5-Aug - - - 105 10 @ Rs.715 5 Rs.7 Rs.35
Rs.5
95 @
Rs.7
2-Oct 140 Rs.9 Rs.126 - - - 145 5 @ Rs.7 Rs.129
0 5
140 @
Rs9
3-Nov 200 Rs. 12 Rs.240 - - - 345 5 @ RS.7 Rs.369
0 5
140 @

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 Rs.9
200 @ Rs12
- - - 320 5 @ Rs.7 Rs.339 25 Rs.12 Rs.300
5
140 @
Rs9
30-Dec 175 @
Rs.12
TOTA - - - - - Rs.443 - - RS.300
L 0

Cost of Goods Sold Balance Sheet as an

(ending) inventory

Advantage: - The FIFO method has the following advantages.

1) It values stock nearer to current market prices since stock is presumed to be
consisting of
2) The most recent purchases.
3) It is based on cost and, therefore, no unrealized profit enters into the financial
accounts of the company.
4) The method is realistic since it takes into account the normal procedure of utilizing
or selling those materials or goods which have been longer longest in stock

Disadvantages: - The method suffers from the following disadvantages.

1) It involves complicated calculations and hence increases the possibility of clerical
errors.
2) Comparison between different jobs using the same type of material becomes
sometimes difficult. A job commenced a few minutes after another job may have to
bear an entirely different charge for materials because the first job completely
exhausted the supply of materials of the particular lot.
Uses : The FIFO method of valuation of inventories is particularly suitable in the following
circumstances.

26 | P a g e
 I. The materials or goods are of a perishable nature.
II. The frequency of purchases is not large.
III. There are only moderate fluctuations in the prices of materials or goods purchased.
IV. Materials are easily identifiable as belonging to a particular purchase lot.

The LIFO method (Last – in – First – Out method)

This method is based on the assumption that last item of materials or goods purchased
are the first to be issued or sold. Thus, according to this method, inventory consists of
items purchased at the earliest cost.

Advantages: - This method has the following advantages:

1) It takes into account the current market conditions while valuing materials issued to
different jobs or calculating the cost of goods sold.
2) The method is base on cost and, therefore, no unrealized profit or loss is made on
account of use of this method.
The method is most suitable for materials which are of bulky and non – Perishable type.
Base Stock Method:
This method is based on the contention that each enterprise maintains at all times a minimum
quantity of materials or finished goods in its stock. This quantity is termed as base stock. The
base stock is always valued at this price and its carried forward as a fixed asset. Any quantity
over and above the base stock is valued in accordance with any other appropriate method. As
this method aims at matching current costs to current sales, the LIFO method will be most
suitable for valuing stock of materials or finished goods other than the base stock. The base
stock method has advantage of charging out material / goods at actual cost. Its other merits or
demerits will depend on the method which is used for valuing materials other than the base
stock.

Weighted average price method:

This method is based on the presumption that once the materials are put into a common
bin, they lose their identity. Hence, the inventory consists of no specific batch of goods. The
inventory is thus priced on the basis of average priced on the quantity purchased at each price.
Weighted average price method is very popular on account of its being based on the
total quantity and value of materials purchased besides reducing number of calculations. As a
matter of fact the new average price is to be calculated only when a fresh purchase of materials

27 | P a g e
is made in place of calculating it every now and then as is the case with FIFO, LIFO methods.
However, in case of this method different prices of materials are charged from production
particularly when the frequency of purchases and issues/sales in quite large and the concern is
following perpetual inventory system.

Valuation of inventories – impact on the flow of costs:

As should be quite evident, the different methods of calculating inventory values will all have
their impact on the flow of costs through the balance sheet into the income statement. The
dollars that are paid to acquire inventory are always divided between the balance sheet
(inventories) and the income statement (cost of goods sold), there is not other place to put them.
Thus if the different methods of calculating inventory produce differing inventory values, they
will also produce differing cost of goods sold figures, and the differing cost of goods sold
figures will naturally produce differing profit figures.
In order show the impact of inventory valuation on cost flows, the preceding exhibits are
summarized. Each method produces a different figure for the transfer of raw materials to work
in process. These differences appear small, but the only reason for this is that the dollar
amounts have been kept small to make the illustration workable.
With the transfer of materials to work in process, the cost flow or transfer with have its impact
on the work in process inventory and the transfer of completed merchandise to finished gods.
Ultimately when goods are sold; the varying methods of valuing inventories will have their
impact on cost of goods sold and these profits. The effects of the cost flows on cost of gods
sold and profits can be accentuated further it the differing methods of valuing inventories are
applies to work in process and finished goods.

Evaluation of methods – What causes the differences?

The differences in inventory values and flows for each of the method illustrated result from
only one factor, that it, changing purchases prices or unit costs. If purchase prices had remained
stable or unchanged, each method would have produced the same inventory value and cost
flow. Cost flows and inventory are exactly the some under stable prices. With a falling price
level, the LIFO method produces the highest cost flow and the lowest inventory. With a falling
price level, the LIFO method produces the lowest cost flow and highest inventory. The cost
flow under LIFO follows the price level, LIFO produces larger cost flows when prices are
rising and smaller cost flows when prices are falling. A final item to consider is that the average
method produces results which fall between the extremes of LIFO and FIFO.

28 | P a g e
Evaluation of methods – can we justify the differences?
The best method of inventory valuation might be “specific identification”, that is, the units in
inventory should be identified with the specific invoices and thus specific unit costs to which
they apply.
Fortunately, the FIFO method constitutes a very useful approximation to the specific
identification method if on can reasonably assume that the actual flow of materials is first-in
first-out. This assumption is not unreasonable and thus we have stated the main argument for
the FIFO inventory scheme, that is, the physical flow of materials would match the flow of
costs under the first – in first – out method.
When the units in inventory are identical, interchangeable and do not follow any specific
pattern of physical flow, the average cost system would seen to appropriate.
The primary difference between the FIFO and average methods is centered on the physical flow
since both methods could involve identical and interchangeable units. The FIFO method fits a
first-in first-out physical flow. The average method fits a system which has no specific pattern
of physical flow. Finding a situation where there is no specific pattern of physical flow should
be quite difficult because of the fact that most inventory items are subject to deterioration by
instituting a person would attempt to reduce such deterioration and any reasonable person
would attempt to reduce such deterioration by instituting a physical flow approximating first-
in-first-out. The major reason for the use of the average method is something other than the
lack of specific physical flow.
Ordinarily the LIFO method cannot be justified on the basis of the physical flow of materials.
Under conditions of changing prices, the advocate of LIFO says that the only method which
matches costs and revenues is the LIFO method. The LIFO method assumes that the latest item
is the first item out, and thus the current costs of materials are matched with the other hand,
assumes that the first item in is the first item out, and thus the non-current costs of matching
current costs with current revenues is the essence of the argument for the LIFO method.
As can be seen by the above comments, there is no one best method of valuing inventories. The
method chosen should fit the situation. A physical flow pattern comparable to FIFO would
force one to consider the FIFO method. The lack of a discernible physical flow pattern would
force one to consider the average method. Concentration on cost flows, as distinct from
physical flows, would force to consider the LIFO method especially where there appears to be a
discernible trend towards rising prices (or falling prices) as has been the case in our economy
during recent years.

29 | P a g e
Inventories valued at standard cost:
A very useful method of valuing inventories is at a standard cost. With a standard cost system
is no need of spending a great deal of time and money tracing unit cost through perpetual
inventory record.

PERPETUAL INVENTORY CARD UNDER A STANDARD COST SYSTEM

Perpetual inventory Plant: …………………… Standard cost:……………………
Location:……………………………………… Order Quantity:………..………...
Order Point: …………………..…
Available
Date Description On order Received Issued
On order On hand

FIGURE 4
As shown above, there is need only for physical quantities since the inventory values is the
physical quantity multiplied by the standard cost. With the cost and value columns disposed
off, a perpetual inventory card can include additional data such as quantities on order,
quantities reserved, and quantities available. These additional data are very useful for inventory
and production control purpose. On the basis of a few calculations concerning into inventories
on a FIFO, a LIFO, or an average cost basis.

Inventory of Obsolescence:
Absolvent inventories cannot be used or disposed off at values carried on the books. Frequent
reviews should be made of all inventories, and when obsolescence is indicated a request for
revaluation should be prepared for approval by management. The difference between original
and obsolete value should be recorded by a change to an operating account. Inventory
obsolescence, and a credit to inventory. If the material is scrapped, this will be for the full
inventory value or used in areas where it will be work less than its original value, the entry
would be only for the amount of write down. Some companies carry a solvage inventory and
transfer to it materials which may be sold or used at reduced values. Where this is done, the
entry would be:
Dr. Solvage inventory
Dr. Inventory Obsolescence. Cr. Raw Material inventory or Supplies inventory..

30 | P a g e
CRITERIA FOR JUDGING THE INVENTORY SYSTEM
While the overall objective of the inventory system is to minimize the cost to the firm at the
risk level acceptable to management, the more proximate criteria for judging the inventory
system are:
 Comprehensibility
 Adaptability
 Timeliness

Area of improvement:
Inventory management in India can be improved in various ways. Improvements could
be affected through.

Effective Computerization: Computers should not be used merely for accounting purpose but
also for improving decision making.

Review of Classification: ABC and FSN classification must be periodically reviewed.

Improved Coordination: Better coordination among purchase, production, marketing and

finance departments will be help in achieving greater efficiency in inventory management.

31 | P a g e
Development of long term relationship:
Companies should develop long term relationship with vendors. This would help in
improving quality and delivery.

Disposal of obsolete / surplus inventories:

Procedures for disposing obsolete / surplus inventories must be simplified.

Adoption of challenging norms:

Companies should set benchmarks with global competitors and use ideals like JIT to
improve inventory management.

32 | P a g e
CHAPTER V
The profile of selected edible oil companies

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EDIBLE OIL INDUSTRY

Edible oil industry in the India, which is hugely driven by import of edible oils, registered
revenues of INR ~ billion in FY’2016. With an increase in consumption of edible oils in the
country, the revenue of edible oils had inclined by 30.8% compared to FY’2011. Each segment
in the edible oil industry is subject to a gamut of different factors such as price hikes and
change in government policies play an important role in determining their respective revenues.
The edible oil industry in the India has grown at a CAGR of 13.1% from INR 638.4 billion in
FY’2011 to INR ~ billion in FY’2016. The competition in India edible oil market is highly
fragmented owing to the presence of a large number of organized as well as local and
unorganized players. The major players are Cargill, Adani Wilmar, Ruchi Soya, Agrotech
Foods, and others.

India is the second-largest producer of Rice bran oil after China and the country has the
potential to produce more than 1.4 million tonnes of rice bran oil. Rice Bran Oil market in India
is still at its nascent stage, but the segment has showcased immense growth in the past few
years. In FY’2012, the market for Rice Bran Oil in India grew at a sizeable growth rate of
14.0%. Adani Wilmar is the leading player in the Rice Bran oil segment. A large proportion of
the rice bran oil market is dominated by regional and local players

Sunflower oil market in India has showcased a promising growth in revenues during the past
few years. The sunflower oil market revenues during the period FY’2011-FY’2016 has surged
at a healthy CAGR of 3.2%. The market for Sunflower oil in India has been dominated by
Kauleeshwari. Ruchi Soya, Cargill, Adani Wilmar and other players such as Rasoya proteins,
Kaneriya Oil industries, local and regional players as well as imported brands also command a
substantial proportion in the overall market.

Blended Oil market in India has showcased a healthy and steady growth during the span of last
five years from FY’2011-FY’2017. The market for Blended Oil in India has been largely
subjugated by organized players which has accounted for major share in the overall market.
The organized market which incorporates branded players such as Agrotech Foods, Marico and
Adani Wilmar also has a strong regional dominance in the country.

The edible oil market is expected to be dominated by various national and multinational players
due to the increasing import dependence of the country in the near future. Rice bran and
blended oil market are expected to be the fastest growing categories in the entire edible oil
segment with Oils such as Mustard, Sunflower, Groundnut and Cottonseed tend to remain
region specific in the near future with a moderate fluctuation in their prices

34 | P a g e
5.1 RICELA HEALTH FOODS LIMITED:

INTRODUCTION

Ricela health foods limited company starts its business in1992.its sole objective is to producing
and promoting rice bran oil as “World‘s largest cooking oil. Now a day’s Ricela health food
limited becomes largest producer and exporter in the world .as rice bran oil is popular in china,
Russia, Japan because of health benefits associated with it. Now Days Company expands its
business and launches many products.

HISTORY:

Ricela health food limited was incorporated as a private limited company on 13 November
1992and emerged into limited company on 9 november2001.it is an ISO 9001:2008 and
HACCP certified company. A.R.Sharma, chairman of company started company in 1992 with
25 TPD .and now it obtained a capacity of 450TPD with 600 crore turnover. Company uses
modern technology of refining with more emphasis on no uses of harmful acid in refining
process. Today Ricela group has rice bran extraction capacity 3000 tons per day, refining
capacity 600TPD and storage of 40000 million tones.

LOCATION:

Ricela health foods limited set up at village: manawalan, saaron road, Dhuri in district -Sangrur
with corporate office at Ludhiana.

MANAGEMENT

Ricela group of companies is managed by highly qualified, professional and energetic staff.
A.R .SHARMA CMD of company has qualified holding graduate in commence, post graduate
in law and a qualified company secretary from institute of company secretaries of India.
Mr.sharama got the award for PH.D work on Indian food laws in global context –a critique
from Punjab university Chandigarh .under the supervision and guidance company perform very
well from last 18 years.SEA (solvent extractor –a association of India) ‘s former president is
Mr. A.R. Sharma.

35 | P a g e
BOARD OF DIRECTORS:

MR. ACHRUU RAM SHARMA (chairman & managing director)

MR. PARSHOTAM DASS GARG

MR. VIJAY GOYAL

MR. PAWAN KUMAR SINGLA

VISION &MISSION

Ricela’s vision to become a chief player in production and market of health oils. Foods
supplement and nutracuticles .moving ahead Ricela’s focus on develop highly satisfied
customers, partners, more emphasis on develop and protect healthy foods environment.

THE ACTIVITIES

Extraction and processing of rice bran is main work of Ricela’s production unit. in 1993
originally companies rice bran extraction is 80TPD .AS Moving ahead it enhances 200 TPD
more with 25 TPD SETUP OF refining plant. In 1993-34 company‘s turnover 5.39 crore & in
2002-2003 it becomes 139 crore. Again in 2007-2008 it has been rises up at 500 crore. At
present company turnover is 600 crore company expand its business in 1998 it started another
company with A.P. Organics ltd with aim to produce steraic from fatty acid present in rice
bran oil. Rice bran oil is used by many other companies in their products like fritolays

FUTUREPLAN:
Setting up a 400 TPD solvent extraction plant is under plan to expand business in rice bran oil
.the proposal unit is to be set up in end financial year. In order to meet growing demand of rice
bran products .company also leads in export of rice bran products in international market.

36 | P a g e
INFRASTRUCTURE

R & D Lab

As a leading agri-commodity and edible oil player in India, Ricela Oils has focused R&D
initiatives on two fronts
Current production, quality and best practices

Collaborating with farmers to create a bottom up R&D approach

With the aspiration to provide the best to its precious customers, Ricela Oils has set up
to an effective R&D team with an indispensable R&D lab within the Company that envisions
Innovation. The team ensures the quality of the Seeds and crude oil that find its way to the
factory and the purity and edibility of the oil is ascertained of QC before it leaves Company
premises.

FIGURE 6
REFINING UNIT

The entire process

Selection of Seed: Seeds are selected meticulously for the production of best quality edible
oil, rice bran etc.

Kachi Ghani or Crude Oil: The seeds are cleaned and loaded through conveyors into the
crushers under controlled temperature to maintain pungency the residue obtained from
crushers is processed further in the expellers to obtain oil with less pungency. The pungent oil
from the crushers and the less pungent one from the expellers are blended in a pre-defined
proportion to obtain the edible oil of right pungency.

37 | P a g e
FIGURE 7

Solvent Oil: The filtrate from the extractor is sprayed with Hexane and distilled to produce
Solvent Oil. De-oiled cakes formed during the process is exported to cattle feed manufacturers.

Refined Oil: The solvent oil is passed through refineries to obtain crystal clear, de-odorized oil
or refined oil.

.Storage and Packing: The oil produced in the crude, solvent and refined forms and the
Vanaspati are sent to separate storage tanks. From the storage tanks it is routed to the packing
department, where it is directly filled into tins, bottles and pouches mechanically. This state-of-
the-art packing system at Ricela Oils not only makes the packing attractive and durable, but
also gives a profound thought to the purity of the product and health consciousness of the
Indian customers.

ENGYMATIC DEMUGGING SECTION:

Oil phase free of hydra table gums flows to a Centrifugal mixer after heating in a plate heat
exchanger, where it is added with phosphoric acid from acid storage tank by a metering pump.
The mixture is further taken to a Centrifugal mixer where it is added with caustic lye from lye
solution service tank by a metering pump. The caustic solution circuit is completed with
storage tank and recirculation pump. The mixture is then taken to a centrifuge where the non-
hydra table gums and soap stock are separated and are pumped out of the system by a pump via
a soap collecting tank.

FIGURE 8

38 | P a g e
BOTTLE INSPECTION SECTION

Our online visual bottle inspection device perfectly complies with the GMP norms. The
adjustability of its conveyor belt helps the operators to align it with several other machines. On
the other end, the manual inspection is capable of inspecting approximately 80 to 250 vials per
minute. The machine runs on 440volt electrical power and hence delivers high-performance
output. Our Automatic Packaging Conveyors operates with the help of conveyor belts having 3-
speed pulley.

FILLING AND PACKAGING

Plants have an in-house packaging department, which completely meets the Company's
requirements of tin, HDPE jars, pouches and PET bottles. The equipment includes offset
printers, pouch filling machines, tin automatic filling machine and automatic bottle filling
plant.

WAREHOUSE

The newly constructed ware house has area of over 20000 sq. ft and is well arranged to monitor
and move material with ease. All products are bar-coded for efficient identification. Ricela is
well connected by road, sea and air to have excellent supply chain.

TRAINING
RICELA Training Centre provides trainings to all its employees on regular basis. The training
is totally based on skill and personality development to drive individuals and the company
forward.

QUALITY OBJECTIVES OF RICELA

On-time delivery of final product to customer.
· Zero level of non-conformity at In-process and final stage of the product.
· Zero level of customer complaint to enhance customer satisfaction.

39 | P a g e
FACILITIES AND TECHNOLOGY OF RICELA

 Well planned perfume blending set up with the required vessels, tanks and all
relevant accessories.

 Traditional solvent extraction set up for manufacturing special ricela bran oil.

 Well-equipped edible oil manufacturing unit with boiler etc.

 D.M. water plant

 R.O. water plant.

 Well-equipped packaging section having bottles and tubes filing and

wrapping machines.

 Well-equipped cattle feed supplements manufacturing unit.

 Other edible oil unit with automatic filling, capping machines, shrinks
wrapping and labeling machine.

 Bran wax storage tanks

 Quality control laboratory with advanced GC machine and relevant

 Well-equipped in built R&D centre.

 Design and development department which consistently create packaging

design which customers’ purpose and also innovates new designs and present
to them.

 The company has warehouse having a large space and materials handling
equipments and forklift.

 The plant has 12 filling lines and a capacity of 1, 20,000 bottles per shift.

 All the activities of company are done in the world class software SAP
business

40 | P a g e
MANPOWER:
Every department has a highly experienced and qualified team. Company has around 250
skilled workers. The company has 120 experienced hands in the line of sales and marketing
team. The company has a fully equipped training hall which accommodates 50 persons at time
and regular training programs are held at different levels. The training is totally based on skill
and personality development to drive individuals and the company forward.

Description of production process:

FIGURE 9

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SWOT ANALYSIS OF RICELA
STRENGTHS

Available in five different types for different choices.

Rice Bran is number one low absorption oil.

Contains natural plant sterols and approx 25% less oil absorption , less oil per
serving

Help avoid various heart related diseases.

Ricela’s rice bran oil named as world‘s healthiest edible oil.

Good brand backing of Ricela products.

WEAKNESS

No control on price as product is agro based hence price fluctuate according to

commodity market.

Intense competition from existing brands means limited market share.

Brand awareness and marketing lesser than some other brands.

OPPORTUNITIES

Developing other healthy products

Strengthening of Mahakosh portfolio

More advertising to tap the urban market and better rural penetration

THREATS

Change in policy of edible oil by the Government.

More competition from other popular brands.

Brand switching amongst food products can affect brand

42 | P a g e
CODE OF CONDUCT:

 RESPECT FOR OUR PEOPLE.

 RESPECT FOR BUSINESS ASSOCIATES AND COMPETITORS.

 RESPECT FOR TIME,

 RESPECT FOR ENVIRONMENT.

 OCCUPATIONAL HEALTH AND SAFETY.

 NO COMPROMISE WITH FOOD SAFETY AND QUALITY.

 NATIONAL INTEREST.

 BUSINESS WITH SOCIAL RESPONSIBILITY.

AWARDS:

 In 2007, Ricela group of companies got FIRST NATIONAL AWARD from

union ministry of MSME for rice bran processor.

 In 2009 Dr... A.K Sharma got NATIONAL AWARD 2009 for excellent
approach in commercialization of innovative technology.

 In 2012 got state award for set exemplary services in trade and industry.

 In 2016 Dr .A.R.Sharma, CMD of Ricela group of companies receiving

award for “international award for rice bran oil research “from 3rd
international conference in Tokyo, Japan.

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PRESTIGIOUS CUSTOMER:

Ricela group of companies associated with well known companies.

PRODUCTS

Ricela bran n oil fry king Ornozyal

Other products

 deoil bran wax

 cattle feed supplements

44 | P a g e
  acid oil
 sunflower deoil wax
 rice bran gums
 rice bran fatty acid

WHY ONLY “RICELA” RBO??

 “Ricela” Refined Rice Bran Oil is being produced in an ultra-modern processing plant
using the latest technology of physical refining (a technology for which we hold the patent)
which ensures retention of higher levels of naturally present nutraceuticals such as
“Oryzanol & Phyto-sterols”.
 It is being produced following process standards of developed countries which are stricter
than Indian standards wherein only high pressure steam system is used for all indirect
heating requirements in place of mineral oil used by most of the edible oil refineries in
India. Thereby we ensure world class food safety and the product is certified as HACCP
which is an international standard of food safety and the company is also certified as ISO
9001: 2000.
 It has not only been refined properly to make it fully odorless but has also been dew axed
and winterized with the technology supplied by a leading Japanese Company, to make it
non-hazy in winters.
 It passes through stringent quality checks before reaching the consumers.
 It is being produced from rice bran which in turn is being produced from non-GMO
varieties of paddy. Hence “Ricela” Refined Rice Bran Oil is a non-GMO Product.
 It has been declared as the “Best Brand” of Rice Bran Oil by the Globoil India -an
international conference on vegetable oil industry held at Mumbai on 23rd September,
2006.
 Above all, “Ricela” Refined Rice Bran Oil is the product of India’s Highest Production
Award Winning Group Company which have the ability & resources to meet all the
requirements of its customers in terms of quantity & quality.

45 | P a g e
5.2 TARA HEALTH FOODS LIMITED

INTRODUCTION

Tara health foods limited was originally started in 1977 and was taken by its promoters in
2004who’s are Mr.. BALWANT SINGH MD of “Tara health foods limited”.Mr.balwant Singh
has nine years of experience in cattle feed industry. Tara health limited is deals with cooking
oil and cattle feeds. Now Tara health foods limited becomes a leading business in cooking oil
and cattle feed sector. TARA health foods limited is now become northern India’s one of
largest human and animal nutrient product company with its units I rural and urban sector.

HISTORY

The Company was originally incorporated as name Angoora Wool Combers Private limited. In
28 Feb, 1977.its aim to setting up wool comb units. In 1986 the name was converted into RAM
sahai wool comber’s pvt.ltd.. The present MD of company took charge in
2004.Mr..BALWANT SINGH expand business started cattle feed manufacturing at Village
Gajjanmajara (sangrur).later on 2007 company start a refinery plant with capacity of 250TPD
of cooking oil named as “zaitoon tara”.it is ISO9000:2008 certified company now become
leading company in edible oils and cattle feeds.

MANAGEMENT

The day-to-day and the regular affairs of the Company is vested with the Management
Committee which takes care of all the normal activities, supervising and controlling functions
of the company

BOARD OF DIRECTORS:

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Sr. No. Director Designation
1 Mr. Jaswant Singh Non Executive Chairman & Non Independent Director
2 Mr. Balwant Singh Managing Director & Non Independent
Director
3 Mr. Tejinder Singh Whole Time Director & Non Independent
Director
4 Dr. Jaspinder Singh Non Executive Director & Independent
Kolar Director
5 Mr. Parshotam Bansal Non Executive Director & Independent
Director
6 Mr. Rajneesh Kumar Non Executive Director & Independent dir.

ORGANIZATION CHART

Figure

47 | P a g e
VISION AND MISSION:

Tara health foods limited vision on better understanding on customer needs, supplier
distribution as business reaches to top. Its envisage health tomorrow, to people live good life.
We are indomitable to be the India‘s toppest manufacturer of cattle feed and edible oil.

We believe in contributing our commitment to excellence in every aspect of production and

distribution of healthy products. We aspire to discover newer, bigger and brighter horizons for
ourselves, our partners and above all for our consumers. Focus of our company while offering
any product to the customer is health with

SWOT ANALYSIS

Strength Weakness
- Niche product expertise - Low brand awareness outside Punjab and
- Early stage investment Himachal Pradesh
- Good sourcing skills for raw material - Manufacturing cost of the healthier oil
product
- R & D to customize the product to suit is high
Indian
Market Condition - Small size of operations – less leverage with
-Family managed business with high service providers like distributors
involvement of promoters - Cannot meet product demand due to
- Well established manufacturing facilities manufacturing capacity constraints
- Patented process which is difficult to - Funds constraint leading to lower marketing
replicate
for competitors – technological advantage activity
- Brand names already popular in the Punjab - Large amount of borrowings on the books
market
Opportunity Threats
- Good market reach in north India - Larger players are likely to invest
significantly

48 | P a g e
- Medium size customers like Little in marketing and branding
Italy/Dominos’/Pizza Hut have evinced - Protection due to duty differential between
interest in long term arrangement for
purchase of edible oil
- Increasing edible oil demand for branded imports and domestic oil is likely to be
oils reduced

INTELLECTUAL PROPERTY RIGHTS

We use trademarks in order to brand our products as well as to protect them. We have
appointed M/s Mahatma & Co., Trademark & Patent Attorney as our representative for
visioning with Registrar of Trademark, Ludhiana and a Power of Attorney has been executed
in his favor.

Copyrights

The Company has been assigned the following registered Copyrights vide Assignment Deed
dated July 30, 2009, which is under registration with the Registrar of Copyrights:

S. Copyright Regd. Title of Name of the Name of the

Copyright
No. No. Assignor Assignee

1 A-68570/2005 STAR DEVICE Tara Gram Udyog Tara Health Foods

Samiti (Regd.) Ltd.

2 A-68571/2005 TARA DEVICE Tara Gram Udyog Tara Health Foods

Samiti (Regd.) Ltd.

Patents

49 | P a g e
 The following Designs have been registered in the name of Tara Feed Ltd., the erstwhile name
of the company, under the Designs Act, 2000 and the Designs Rule, 2001.

S. design Class Design Date of Certificate no. &

No.
number Registration Date of issue

1 “BOTTLE” 213769 17/12/2007 8282 dated 12/09/08

2 “CONTAINER” 213770 17/12/2007 9159 dated 27/11/08

Products

 Zaitoon Tara Cooking Oil

 Tara Gold Rice Bran Oil
 Tara Lite Rice Bran Oil
 Tara Cotton Cooking Oil
 Tara O' Pure Cooking Oil
 Tara cattle feed
 Rathi no.1
 Tara mineral mixture

MATERIAL:

Raw material

The raw material for cattle/poultry feed entails various oil seeds cakes i.e. soybean, sunflower,
rice bran, mustard etc., maize, bajra, mineral mixtures and molasses as raw material. We are
located in Punjab, which along with its neighboring states has a history of healthy harvest
majority of the food grain types in the country. Punjab is largest rice producing state in India
and Sangrur is the largest rice producing district in Punjab. Rice bran is purchased from the
Rice Millers based within the state of Punjab. This ensures easy availability, competitive
pricing and better quality of rice bran. Similar other raw materials are easily available within the
state of Punjab along with the neighboring states.

The raw materials used for manufacture of poultry feeds are grouped as follows:

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Cereal and grains: maize, rice, wheat, sorghum, bajra, ragi and other millets, broken rice,
germs, middling and damaged wheat that is discarded from the food industry as unfit for human
consumption.
Cakes or Oil meal: groundnut cake, soybean meal, rapeseed meal, sesame meal, sunflower
meal, coconut meal, palm meal are used as protein resources.
Feed of animal origin: meat meal, fish meal, squilla meal, hatchery waste and bone meal are
used. However, farmers face production problems due to bacterial contamination of fish and
meat meal.
By-products: rice bran, rice polish, solvent extracted rice and wheat bran, molasses and salseed
meal are by-products used in poultry feeds.
Minerals and vitamins: poultry feeds are enriched with calcium, phosphorus, trace minerals
such as Fe, Zn, Mn, Cu, CO and I and vitamins A, D3, E, K and B complex.
Feed additives: additives commonly used are antibiotics (usage not banned in India)
prebiotics, probiotics, enzymes, mould inhibitors, toxin binders, anti-coccidial supplements,
acidifiers, amino acids, antioxidants, feed flavours, pigments and herbal extract of Indian origin.
In case of edible oil we require rice bran, olive oil (crude) and cotton seed oil as the raw
materials. We source it from various vendors from within India and outside the country.for
buildup of enough stock of finished goods for the ensuing season. All the raw materials
procured are tested for quality. The test report is generated and recorded for any future
reference. The raw material is released for further processing only if it passes the quality
standard.

Power

Sl.n Location Power Requirement

o.

1 Malerkotla 2000 KW
2 Sitarganj 300 KVA

We have been granted Independent feeder/Continuous Process Industry status (Category – IV)
by the Punjab State Electricity Board vide their letter no. 25209/11/SO/PRC/Tara feed dated

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October 30,2006 and regularized by them vide their letter no. 516/18/SO/PRC dated February 1,
2007, whereby no power cuts are to be imposed on us.

In addition to above we have installed two 500 KVA Diesel generator sets at our
manufacturing facilities as Malerkotla as standby arrangement for uninterrupted power supply.

We do not foresee any problem in obtaining any further sanction of the power required for
running our facilities if and when required.

Energy Conservation

In our refinery approximately 2/3 (two third) of the steam condensate with temperature of 80 –
850 is taken back for steam generation in our Boiler. This ensures hot water supply to Boiler,
and saving of our fuel costs, reducing load on our R.O. system as well as reducing quantity of
effluent water .We required for our operations.

Fuel

We require diesel for running our DG set as well as running our fleet of trucks. We have a
dispensing station within our premises wherein we store diesel required by us for running the
DG Set and operating our fleet of trucks.

We have set up storage tanks for storing the diesel required for plying this fleet of trucks &
tankers. The same is being procured from Indian Oil Corporation with whom we have entered
into an agreement dated October 23, 2006.We do not foresee any problem in sourcing of fuel.

Boilers

We have installed three boilers at our manufacturing facilities at Malerkotla as detailed below:
Steam boiler with an evaporation capacity of 5000kg/hr at 11.04 bar working pressure;

Fluidopac steam boiler with an evaporation capacity of 6000kg/hr at 17.02 bar working
pressure;
Thermic Fluid Heater with a capacity of 15 lacs kilo calories/per hour.
We use rice husk as fuel in our boilers which is easily available within the adjoining areas.

Water

Use water in the manufacturing process at our Malerkotla and Sitarganj plant for certain
operations. The water requirement is being met with the help of two submersible pumps with

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capacity of 15 HP & 20 HP from the bore wells dug by us at Malerkotla. In addition, we have
dug at bore well at Sitarganj.

We have also installed two RO plants with capacity of 8 ton & 6 ton per hour for treating the
water sourced through the bore well. This water is supplied to steam boilers.

We are able to meet our requirement for water for manufacturing and domestic purposes from
the above mentioned source.

Effluent Treatment

For treating effluent we have installed an ETP to treat effluents generated from Solvent
Extraction Plant and the refinery. We have the consent of the concerned Pollution Control
Boards for our existing manufacturing facilities.

MANUFACTURING

Solvent Extraction Plant:

Rice Bran which is available in gunny bags is processed through vibrating screen to remove
undesirable solid particles like stones/metals/threads etc from the bran. After sieving rice bran
is transferred by elevator into toasting kettle to remove excess moisture and for its
conditioning to make it suitable for palletization

The material is transferred to feed conditioners wherein heat and open steam is applied to
make it suitable for palletization which enhances its binding characteristics.

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The Material is transferred for processing to horizontal palletizers for converting powder form
rice bran in to pallets. Pallets are cooled in pallet cooler and material transferred to main
extractor by a Redler Conveyor. In the main extractor mild hot n-hexane is sprayed on the
slow moving bed of pallets by number of spray pumps. In this process hexane extracts oil
from the bran and the oil and hexane mixture called “Miscella” is obtained.

This Miscella is further processed through vacuum distillation to get hexane free rice bran oil.
The hexane vapors are condensed by number of condensers. The condensed hexane is reused
for extraction in the process as explained above.

The hexane rich de-oiled meal is transferred to de-oiled toaster (DT) by a vapor tight
conveyor. In de-oiled toaster heat and open steam is applied to remove hexane from the de-
oiled meal. Condensed hexane is reutilized for the process above mentioned. Residual de-oiled
material is transferred to de-oiled storage godown after cooling and bagging.

FIGURE 12

Cattle Feed:

Various raw materials like rice bran, rice bran DOC, mineral mixture, oil seed cake
extractions, maize grindings, salt etc. are passed through the weighing hopper in order to get
the exact input mixture. It is then processed through the grinder to convert cakes and salts into
a powder form the powder is mixed with molasses and is sent to mixer-1 for mixing. For
advanced uniform mixing the mixture so obtained is sent to mixer-2.The mixture is thereafter
sent through the hopper and blender before doing the final packaging of the product.

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 FIGURE 8

FIGURE 13

Edible Oil Refinery:

Refining of Oil: Refining implies a process of scientifically removing the impurities present
in the edible oil. Oils have two types of impurities (a) oil soluble as colouring matter,
odoriferous compound, free fatty acid, gummy materials etc. (b) other type of impurities are
oil insoluble as sand, seed fragment, dust, straw etc.

Degumming: This process involves addition of phosphoric acid and consequent hydration
with water resulting in hydrolyzing the phosphotides present in the Crude Rice Bran Oil. The
Hydrolyzed Gums formed are separated with ALFA LAVAL Separators. Gums are produced
as a byproduct rendering other oil as degummed.

1st Bleaching: Bleaching is an adsorption phenomenon involves addition of activated

Bleaching Earth and Carbon etc to the heated and dried oil. The colour pigments present in
crude oils are adsorbed on the surface of Bleaching Earth. This oil is filtered by continuous
type of Pressure Leaf Filter. Hence, lighter colour oil is produced leaving behind spent earth
as by product.

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Dewaxing: The purpose of this process is to remove vegetable waxes from the oils. This
process involves controlled and prolonged cooling of oil in the crystallizers. The vegetable
waxes present in oil are crystallized out and filtered by passing through a Filter Press. The
filtered oil is produced as Dewaxed Oil and Crude Hard Waxes are detained as vegetable
waxes.

2nd Bleaching: This process is same as 1st bleaching but it further reduces the colour of the oil.

Deacidification: Deacidification is a phenomenon which is also called Physical Refining of

oils. It involves in heating of oils at 250° C temperature under 1-2 TORR Vacuum. The free
fatty acids present in the oil are distilled off and condensed back. The fatty obtained as by
product leaving behind deacidified oil.

3rd Bleaching: This process is same as 1st and 2nd Bleaching but it further reduces the colour of
oil.

Deodorization: The bleached oil still needs deodorizing to remove impurities, which imparts
objectionable odours or color to the oil. Deodorization is undertaken to remove the
odoriferous bad smelling compounds. In this process oil is heated 220° C to 230° C
temperature under 1-2 TORR Vacuum in a specific designed deodorizer. Thus, we get the
odourless Refined Oil.

Winterization: The purpose of this process is to remove high melting point stearins from the
oil to improve the cloud point of the oil. In this process again the oil is cooled and chilled in
German designed Star Crystallizer. The stearins are formed as crystallized which are
filtered off in plate and frame type filter presses.

Packing and Filling: The refined oil obtained as above is sent to filling section for packing
in different consumer packs i.e. 1 Litre Poly Pouch, 2 Litre Can, 5 Litre Can, 1 Litre Bottle,
15 Kilogram/Litre Tins, etc.

Our Refinery has been so designed that all kind of Vegetable Oils i.e. Mustard Oil, Sunflower
Oil, Cottonseed Oil and Soyabean Oil etc, can be processed. Further, during the refining
process crude gums, crude wax, stearin are received as by-products, which have a ready
market, besides, being a raw material for the cattle feed.

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FIGURE 14

The latest state of art technology is being employed in the refining process whereby apart from
refining the oil, the micro nutrients present in oil are kept intact in their original form. The plant
has been designed to minimize the refining losses and keep the cost of production under control
as compared to general norms of the industry.

We have installed plant & equipment manufactured on the patented design of German company
for winterization of refined oils which removes unwanted steering from oil thereby leading to
Zero Transfers and Zero Cholesterol. The oil is processed in a specialized designed crystallizer
called ‘star crystallizer in which highly sophisticated S.S Coil bundle oscillates through oil in
the crystallizer.

The underlying objective of the crystallization process is to generate a stable crystal which
allows good separation and drainage properties of the liquid phase during filtration. Thus, the
chilling of oil without hammering of formed crystals of stearins to be removed from oil. This
ensures that no zero dead zones exist in the oil present in crystallizer and results in complete
formation of crystals of stearins present in the oil.

Sr. No. Particular Employees

1 Management 12
2 Administrative & Marketing 44
3 Production & Maintenance 79
4 Contract Labour 71
TOTAL 206
The additional requirement of manpower for the proposed projects is as

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 under:
Sl. No. Particulars Proposed Manpower
1 Management 11
2 Administrative & Marketing 98
3 Production & Maintenance 85
Total 194

Manpower

We do not foresee any difficulties in recruiting additional manpower.

Till date we have not experienced any strike, lockout or go-slow at any of our Company’s
premises. We do not have a workmen union. We provide retirement benefits to our employees
by way of provident fund, gratuity and superannuation in compliance with the statutory
requirements.

Fleet of Trucks Presently, we have our own fleet of 35 trucks. The said fleet is being used by
us for delivery of the end products to the dealers/retailers at their doorsteps or at the desired
location. Given our extensive dealer network with some of them located in remote villages we
are better placed to service them efficiently and economically through our own fleet rather than
banking on the truck unions. Necessary approvals from the Petroleum & Explosives Safety
Organization (erstwhile office of Chief Controller of Explosives), Nagpur has been obtained
vide their letter P/HQ/PB/15/1889(P181697) (Renewal No.1) dated November 28, 2008 for
storage of petroleum.

Insurance

Our operations are subject to risks inherent in the cattle/poultry feed, solvent extraction,
refining and blending industry, such as work accidents, fire, earthquake, flood and other force
majeure events, acts of terrorism and explosions including hazards that may cause injury and
loss of life, severe damage to and the destruction of property and equipment and risk
associated with adverse working environmental conditions.

Sales and Marketing

We market our edible oils through different channels to the organized and the unorganized
sector. In the organized sector our strategy is to approach the major retailers to market our
products depending on the segment they specialize in. Tara Gold is sold through all the

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segments and retail format. It has been able to gain market penetration as it is very competitive
in price and quality in relation to the peer set brands. Our pricing strategy has been to be
amongst the lower rung in the segment and in terms of quality matched the best.

Zaitoon Tara is being placed as a niche product and marketed with select organized and
unorganized players. Our target audience has been the markets mainly in high end localities in
Metros and 2 tier cities as the consumers in these markets are health consciousness besides
being fully aware about the health benefits of olive oil.

To cater to the organized, less organized and unorganized retailers we have and are in the
process of setting up distribution points in different states like Delhi, Haryana, Uttaranchal, J
& K, Himachal Pradesh, Chandigarh, Punjab. These distribution points would be serviced
from the production unit in Malerkotla. We have developed distribution network to reach out
to its customers across the northern part of the country to start with. This distribution network
services the urban and rural market alike. Presently we have distributors in Delhi, Punjab;
Himachal Pradesh has its own depots at the major points.

.SALES AND DISTRIBUTION

Distribution Network for Cattle/Poultry Feed

Cattle/poultry feed is sold through a network of dealers/retailers established in the states of

Punjab, Haryana, Uttar Pradesh (UP), Uttaranchal, Bihar and Rajasthan.

Our marketing personnel visits the villages to educate the farmers on the importance of
wellness of the cattle and the various benefits of a balanced diet. This has helped us to establish
a close connectivity with the farmers and helped increase our customer base.

Distribution Channels:

We market our products through Distributors, Marketing Agents and Dealers/ Retailers. The
structure followed by us in various states is as below:

Distributors:

These are single party exclusively appointed for a pre-defined territory. These distributors work
with our staff and are restricted from stock and sale of directly competing brands, depending on
the prevalent market practices. However, the distributors pricing towards the dealers and
retailers is not decided by us.

Dealers/ Retailers:

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The dealers/ retailers are part of the open trade network. These people typically stock all
brands. Our Company freely appoints dealers in the geographical area.

We sell our poultry feed through our Sitarganj facilities and the marketing set up for cattle feed
is used for to caters to the poultry feed market. We have also entered into an agreement with
Tata Chemicals Limited wherein they purchase from us in wholesale quantities of cattle feed
manufactured and supplied by us under their trademark. The relationship between us and Tata
Chemicals is on principal to principal basis. Both of us are at liberty to sell the cattle feed to
customers/consumers without any territorial restrictions.

The agreement entered into is valid for a period of three years from the date of s

Sales Force Training

The sales force training is typically conducted twice a year. It is conducted in a span of a week
to 10 days prior to the commencement of their employment. It is generally a 2-3 days program
which includes technical / product related training as well as sales training. This training is
conducted by external consultants who are recognized experts in this field training and can be
renewed for a further period by mutual consent.

Customer Centric

We are highly customer centric. The sale of cattle feeds largely depends upon the level of
awareness amongst farmers which differs from farmland to farmland. Our sales personnel visit
from time to time dealers/retailers and farmers of different regions based on the schedule drawn
internally. We educate the retailers/farmers on animal hygiene & nutrition and prescribe the
feed required for healthy cattle. Our access to large number of dealers/retailers is a huge barrier
to the new entrants in the industry because such a database built-up requires not huge capital
but years of experience. Our presence in this segment for the last five years has enabled us to
establish ourselves right from grass root levels.

Training and Awareness Programs for Cattle Feed

In case of the cattle feed segment our customers are farmers, we carry out extensive training
and awareness programs amongst them to create awareness about animal hygiene and nutrition
and explain how our cattle feed products help in keeping their cattle healthy. Our focus remains
on educating the farmers about the bad effects on the health on their cattle caused by
unscientific feeding approach. We communicate with farmers to help them understand on the

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right mixture of ingredients for their cattle feed and how our products fall in line with the best
of the quality.

Training and Awareness Programs for Edible Oil

We conduct extensive training and awareness programs to create awareness for our edible oil
products amongst the consumers. Our focus remains on educating people about the bad effects
on the health and wellness caused by the high intake of unhealthy oil and how healthy edible
oil product’s regular use would affect the heart and health in a positive

Competition

Our competition depends on the products being offered by various companies in the organized
segment besides several other factors like quality, price, capacity to deliver etc. Competition
emerges not only from organized sector but also from the unorganized sector and from both
small and big players. In an organized segment we face competition from Ruchi Soya,
Cargill, Markfed, K S Oil, Sanwaria Agro Oil, etc.

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MATERIAL MANAGEMENT AT RICELA HEALTH FOODS LIMITED

Purchase & stores procedure

In inventory management, the purchase department store department plays a major role to be
The effective inventory there must be cooperation of various departments such as purchase
Receiving and inspection stores production and stock control departments.
The main functions of each department are as follows:

Purchase Department
It is responsible for purchase of all necessary goods of proper quality to produces, without
interruption to supply the finished goods.
1) It receives purchase requisitions.
2) Invites quotations or tenders from suppliers with desired quality.
3) Issue purchase orders to the selected supplier.
4) Certify the quality and quantity of order received in specified time
5) Approve purchase invoice for payment after checking invoice for paying after checking
Prices and extensions if any needed.

Material Cost
Materials cost of a job or cost unit can be ascertained by multiplying the quantity consumed for
the job or cost unit by the price of the materials. For ascertaining the quantity consumed for
each job or cost unit we have devised material requisition which will indicate the quantity
required for the job and the job number against which the material cost will be change directly.
For indirect material issued the material requisition will not indicate the job number but the
cost center number will be indicated for charging to relevant cost center as indirect materials.
Thus in order to ascertain material cost.
1. Make valuation of purchase.
2. Make use of proper valuation of material issue and closing stock following different
Method such as, FIFO, LIFO WEIGHTED AVG. Etc.
The purchase price of material is directly obtained from the suppliers receives and have to be
Issued to production before the invoice of materials is received. The rate per unit, total price of
the item as shown in the purchase order plus sundry charges such as delivery and forwarding
charges sales tax, duty etc, may be borne by suppliers, governments controlled prices by
notifications, suppliers, catalogues and circulars may be valuable guides for obtaining rates of
materials.

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Delivery charges may be estimated with reference to the kind of transport with chargesincurred.
The price may also include sales tax, excise duty, fright etc, so the total cost and rate per unit
can be computed and entered in the stores received registered and posted to stores ledger for the
issue of material to production. In some cases material needs adjustment for any discount
allowed charges for transport containers etc.Discounts may be like trade discounts quantity
discount, cash discounts etc. Transportation and storage costs may not include the cost of air,
sea on land transport and other stores costs, where the purchaser has to bear the costs. Cost of
containers with regarded may not make separate charge because of non refundable and also
sales tax, excise duty, insurance etc., all the items are added to Purchase price.

Receiving and Inspection Department

 Receiving all raw materials and other supplies from various suppliers.

 Verify items by count, weight etc., and report any shortage

 Inspect materials and supplied as to quality by analyzing them suitably.

 Inform the purchasing department and accounts department all facts that may
require adjustment with vendor.

 Analyze and give them the code depending up on the type of materials.
Stores keeping Department

 Check and accept all materials form the received department.

 b) Identity each material received with the stock list, check the code number
and place in the respective bins.

 Issue materials and supplies for use upon presentation of authorized

requirement.

 Record quantities received and issued on bin lards or stock ledger cards
consisting the perpetual inventory records.

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Production Department
Make out materials requirement note i.e. requisition of requisite quantity and quality of
Materials at the right moment so the all materials may be available without delay on
production.

 Check and verify that the materials of requisite quantity and quality have
been received and charged to production.

 Keep proper records or materials received and their progress through

different operations or progress.

 Prepare materials return note for excess materials.

 Prepare materials transfer note to cover any transfer of materials.

Inventory Control Department

 In may be a subdivision of the cost accounting department, although in many

concerns, it is a

 Part of the stores keeping department.

 It keeps perpetual inventory records.

 Adjust the stock on receipt of the property authorized adjustment notes.

 Prepare weekly or monthly, statement of receipts, issue, balance and average

consumption of materials both in terms of quantity and value.

RECEIPT AND ISSUE OF INVENTORIES:

Receipt Inventories in to store:

After incoming materials have been examined and approved they are passed on to the
appropriate stores together with the goods received note. Articles are inspected and passed and
on the stores in the usual way. In order to keep the accounting procedure uniform, it is desirable
that a goods received note be prepared for these articles also, the store keeper than places the
Inventory in appropriate bin or shelf and make necessary entries in the receipt column of the
Bin Card. A location code for materials helps in proper store - keeping with greater efficiency,
because stores can be easily identified. It is a part and parcel of stock control procedure.

64 | P a g e
Location code helps in mechanized accounting and safeguard against omission in counting as
verification.
BINCARD

Figure 13
BIN CARD

For each kind of materials or article a Bin Card attached to the bin which each individual’s
materials is stored. A bin card provides a running record of receipts, issues and stock in the
simplest form. An entry will be made at the time of each receipt or issue and new balance will
be extended These cards should agree with the quantities entered in the relevant accounts in the
stores ledge. The main advantage is to enable the stores keeper to ascertain at a glance the
quantity of materials in stock and remind him to place purchase requisition for further suppliers
the ordering level has been reached more over they provide on independent check on stores
ledger and anciently a second perpetual inventory. If the bin card is from three years then the
transactions are made in same card. If Bin Card does not exist new Bin Card to be opened.

Issue of Material from Stores

The storekeeper issue materials on receipt of proper authorized document usually called a
Materials requisition or a specification of material. Material requisition is a document which
authorities and records the issue of materials for use. The materials requisition details the items
required for the showing the quantity, description, and code or past number and the cost center
of job to be charged.

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STORES LEDGER ACCOUNT

Figure 14

Materials returned to Stores

Where materials are issued in excess of requirement the excess quantity is return to the stories
together with materials return note. Since the materials return to store form a works order is a
reduction in the amount recorded as issued, the preferable entry is to enter the number of units
and the value of materials returned and received in a different work in the issue column of the
stores ledger account. These values are deducted from total issues, and amount returned by
each department as shown by materials return note is deducted where return of materials to
stores return of material to stores is a major problem it is customary to use a materials and
supplies journal for keeping records of items
.
MATERIAL RETURN NOTE
FROM: NO:
DEPARTMENT: DATE:
JobNO:

FIGURE 15

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MATERIAL TRANSFER NOTE
NO: DATE:
FROM: TO:
DEPARTMENT: DEPARTMENT:
JOB NO: JOB NO:
ORDER NO:

Valuation of Materials Issues

The fixations of the price at which the materials are issued are to be charged to productions an
important one from the point of view to inventory management. These are numerous factors to
be taken into amount in pricing the material they are.

a) The nature of the business and type of production. The frequency of purchase price
fluctuations and issues of materials.

b) Rang of price fluctuation and value of material issued and size of bath of materials issued.

c) Requirement that purchasing efficiency should be revealed or not.

d) The accuracy with which issues can be computed.

e) The durability of stock i.e. whether it evaporates absorbs moisture or deteriorates quickly.

f) The length of inventory turnover period and quantity of material to be handled with
necessity for maintaining uniformity within an industry.

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MATERIAL MANAGEMENT AT TARA HEALTH FOODS LIMITED
INDENTS:
1) ANNUAL INDENTS FOR CONSUMABLE ITEMS (STORES ITEMS).
2) REGULAR INDENTS RAISED BY CONSUMING DEPARTMENTS.
3) ANNUAL REQUIREMENT OF RAW MATERIALS PROMOP & QC.

ENQUIRIES:
1) ENQUIRES WILL BE SENT APPROVED CONTRACTORS.

ORDER PROCESSING FORM:

1) RECEIVING QUOTATIONS FROM SUB – CONTRACTORS.
2) ENTER THE PRICE DETAILS OF ENQUIRY SENT IN THE
ORDER PROCESSING FORM.
3) SELECTION OF PARTY ON MERIT BASIS.

PURCHASE ORDER:
1) PREPARE PURCHSE ORDER ON SELECTED PARTY.
2) SEND PURCHASE ORDER COPIES TO PARTY, STORES AND
DEPARTMENTS.

GOODS RECEIPT NOTE:

1) RECEIVING GOODS RECEIPT NOTE FROM STORES.

PURCHASE DEPARTMENT:
ACTIVITY RECEIVING INDENTS:
FLOW CHART:
 Receipt of annual indents for consumable items / stores items from stores department.
 Checking of indent number an authority of item, delivery time consumption period.
 In case of any deficiency, send the information to concerned department for
clarification.
 Segregation of indents for attending at C.P.D. and LUDHIANA Office.
 Sent the Ludhiana indents to Ludhiana Office.
 Enter the indents details in indent register.

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PURCHASE DEPARTMENT

PURCHASE ENQUIRY

Ms.
Sl. Material When
Department Quantity Unit
No. Code Required

ACTIVITY: FLOATING ENQUIRIES:

FLOW CHART:
 Checking indented items and equipment name.
 Taking previous supplier’s information form previous supply. If new equipment /
item, information to be taken from concerned department or from competitors /
journals / yellow pages.
 Prepare enquiry to approved sub – contractors through enquiry format.
 If emergency requirement, send the enquiries through fax / e-mail.
 Enter the details of enquiries sent in order processing form.

STORES DEPARTMENT
ACTIVITY: RECEIPTS AND UNLOADING MATERIAL
1 Receiving of Goods through Trunk / Personnel Delivery.
2 Entry of vehicle at Gate Office.
3 Stamping on Dispatch Advise / Delivery challan by Gate Office.
4 Checking of challan / Dispatch Advise with purchase order.
5 Unloading of Goods at allotted place or in case of urgency direct at works site.

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 6 All safety precautions are taken while unloading of material like workers should wear
safety shoes, helmets, leather head gloves, noise respirator, nose mask.
7 Training is given to workers for unloading Heavy & Bulky material by using chain
pulley Blocks, Wire Rope Ceilings, Fork Lift. After UIL receipt acknowledgement
given to driver maintaining Lorry receipts register.
ACTIVITY: PREPARATION OF RECEIPT AND APPROVAL BOOK FOR GENERAL
MATERIAL / D.C. ENTER OF BLOCK, REPAIR AND STATIONARY MATERIAL
MANUALLY IN REGISTER
8 Sorting of Delivery challan as below:
a. General
b. Stationery
c. Repairs
d. Block
9 Checking with P.O. and mentioning Material Code, Party Code, Indent No. Department
Name on each & every challan.
10 Creation of D.C. entry in system for general materials.
11 Preparation of identification tags for General Materials through system.
12 Preparation of Receipt & Approval Book for General materials.
13 Manual entry of block, stationery, repair materials.
14 Preparation of intimations for block, stationery, repair materials.

ACTIVITY: PHYSICAL VERIFCATION OF GOODS:

15 All D.C. handed over to stores assistant physical verification like measuring, counting
and tallying with D.C.’s Quantity / Description of the materials by the Stores Assistant.

ACTIVITY: APPROVAL OF MATERIAL AND PREPARATION OF GOODS

RECEIPT NOTES:
16 Intimation is be sent to all the concerned departments. Showing materials to concern
person.
17 Taking approval of the material in receipt & approval book.
18 Preparation general material in receipt & approval book.
19 Preparation general material GRN’s through system and stationery / block / repairs
GRNs manually.

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 20 Forwarding true copy to issue section of GRN for general material forwarding true copy
to issue section of GRN for General material forwarding true copy of block / Repair /
Stationery GRN to issue section and copy to purchase department.

ACTIVITY: REJECTED MATERIALS

21 Rejected materials kept in allotted area of rejected materials.
22 Packing of rejected materials.
23 Preparation of gate passes for rejected materials.
24 Sending back to suppliers through our corporate office at Ludhiana
25 Sending consignee copy to party vide Register Letter for booking of Register goods to
party’s other than.

ACTIVITY: EXCISE GATE PASSES

26 Sending duplicate for transport copy of excise invoice from suppliers delivery challan.
27 Mentioning A.B. Sl. No. and named of concerned department.
28 Duplicate for transport copy of excise invoice over to bills section for sending the same
to Excise Department.
29 Corresponding with supplier. If the Excise Invoice is not found with delivery challan
.

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 CHAPTER IV

DATA INTERPRETATION
AND

ANALYSIS

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6.1 DATA INTERPRETATION AND ANALYSIS
RICELA HEALTH FOODS LIMITED

CURRENT RATIO:-

It is a ratio, which express the relationship between the total current Assets and current
liabilities. It measures the firm’s ability to meet its current liabilities. It indicates the
availability of current assets in rupees for every one rupee of current liabilities. A ratio of
greater than one means that the firm has more current assets than current liabilities claims
against them. A standard ratio between them is 2:1.
𝒄𝒖𝒓𝒓𝒆𝒏𝒕 𝒂𝒔𝒔𝒆𝒕𝒔
𝐶𝒖𝒓𝒓𝒆𝒏𝒕 𝒓𝒂𝒕𝒊𝒐 =
𝒄𝒖𝒓𝒓𝒆𝒏𝒕 𝒍𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔

Table 1
Year C.A C.L C.R
2011-2012 4563099 2041543 2.23
2012-2013 9599646 3887765 2.47
2013-2014 9077617 2829079 3.21
2014-2015 11003428 3889899 2.83
2015-2016 11946666 4165659 2.87
Source: Accounts Department Ricela health foods limited

Current ratio
3.5
3
2.5
2
1.5 C.R

1
0.5
0
2011-12 2012-13 2013-14 2014-15 2015-16

Chart 1

Interpretation

it is seen from the above chart that during the year 2011- 2012 the current ratio was 2.23,
during the year 2012-2013 it was 2.47 and in the year 2013-2014 it In was 3.21. This shows the

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current ratio increases every year but in the year 2014-2015 the current ratio was dropped to
2.83 due to increase in current liabilities. The year 2014-2015 the current ratio has increases
2.87. The current ratio is above the standard ratio i.e., 2:1. Hence it can be said that there is
enough current assets in Ricela health foods limited. To meet its current liabilities.

6.1.2 PURCHASE OF RAW MATERIAL:

Purchase of raw material (Rice Bran) by Ricela health foods limited in recent years has
increased rapidly. The purchase depends on many factors like to meet the demand of the
suppliers. Increase in the sales of rice bran oil resulted in increased purchase of raw material.
Raw material is bought from the nearby Sheller’s to meet the demand. Purchase of raw material
has increased from 53’50’77’690 crores in 2013 to 188’77’04’264 crores in 2016

Table2
YEAR 2012-13 2013-14 2014-15 2015-16

AMOUNT 53.507769 57.70718 91.91322 188.7704264

Source: Accounts Department Ricela health foods limited

200
180
investment on raw material
160
Amount in (crore)

140
120
100
80
60
40
20
0
2012-13 2013-14 2014-15 2015-16
Years

Chart 2

Interpretation:

1) From the above table it can be understood that the inventory of Ricela health foods
limited was recorded at 53.5077690 crore during the year 2012 – 13 and it is increased to
188.7804264 during the year 2015 – 16.

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2) It shows that there is on increase in the inventory to the more extent of135.272564.

3) The average inventory of Ricela health foods limited was recorded at Rs. 97.97464685

4) The highest investment in inventory was recorded in the years 2015-16.

6.1.3 INVENTORY TURNOVER RATIO:-

Inventory turnover ratio is the ratio, which indicates the number of times the stock is turned
over i.e., sold during the year. This measures the efficiency of the sales and stock levels of a
company. A high ratio means high sales, fast stock turnover and a low stock level. A low stock
turnover ratio means the business is slowing down or with a high stock level.

𝑵𝒆𝒕 𝑺𝒂𝒍𝒆𝒔
𝑰𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚 𝒕𝒖𝒓𝒏𝒐𝒗𝒆𝒓 𝒓𝒂𝒕𝒊𝒐 =
𝒄𝒍𝒐𝒔𝒊𝒏𝒈 𝒊𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚

Table 3

Year Net Sales Closing Inventory Turnover ratio

inventory
2011-12 19542081 1532455 12.75 Times
2012-13 31321229 2161071 14.49 Times
2013-14 27894285 3336430 8.36 Times
2014-15 38496046 2622901 14.68 Times
2015-16 42345651 2360611 17.94 Times
Source: Accounts Department Ricela health foods limited

ITR
20

15

RATIO 10
ITR
5

0
2011-12 2012-13 2013-14 2014-15 2015-16
YEARS

Chart 3

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INTERPRETATION:

It is seen from the above chart that During the year 2011-2012 the Inventory t/o ratio is 12.75
times, in the year 2012-2013 it increased to 14.49 times, But in the year 2013-2014 it
decreased to 8.36 times . There was a subsequent increase in the year 2014-2015 and2015-
2016 to 14.68 times and 17.94 times respectively. This shows the company has more sales.

6.1.4. WORKING CAPITAL TURNOVER RATIO:-

This ratio indicates the number of times the working capital is turned over in the course of the
year. This ratio measures the efficiency with which the working capital is used by the firm. A
higher ratio indicates efficient utilization of working capital and a low ratio indicates
otherwise. But a very high working capital turnover is not a good situation for any firm.

Working Capital Turnover Ratio = Net Sales

Net Working Capital

Table 4
Year Net Sales Net WCTR
Working
Capital
2011-2012 19542081 2521556 7.75 Times
2012-2013 31321229 5711881 5.48 Times
2013-2014 27894285 6248538 4.46 Times
2014-2015 38496046 7113529 5.41 Times
2015-2016 42345651 7781007 5.44 Times
Source: Accounts Department Ricela health foods limited

Working captial ratio

10

4 WCTR

0
2011-12 2012-13 2013-14 2014-15 2015-16
Chart 4

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Interpretation

The working capital t/o ratio is fluctuating year to year that was high in the year 2011-2012,
7.75 times; there was a subsequent decrease in the year 2012-2013 and 2013-2014 to 5.48
times and 4.46 times. But it increases in the year 2014-2015 and 2015-2016 to 5.41 and 5.44
times respectively. This shows the company is utilizing working capital effectively.

6.1.5 SIZE OF INVENTORY:

. Percentage of Inventory over current assets:

In order to know the percentage of inventory over current assets the Ratio of inventory
to current assets is calculated and which is presented in the following table.

𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑜𝑣𝑒𝑟 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑠𝑡𝑠 = ∗ 100
𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡𝑠

Table 5 (Quantity in 000’s (MTs))

YEAR Current Assets Inventories Size
2011-2012 4563099 1532455 33.58%
2012-2013 9599646 2161071 22.51%
2013-2014 9077617 3336430 36.75%
2014-2015 11003428 2622901 23.84%
2015-2016 11946666 2360611 19.76%

40.00%
35.00% SIZE
30.00%
25.00%
20.00%
SIZE
15.00%
10.00%
5.00%
0.00%
2011-12 2012-13 2013-14 2014-15 2015-16

Chart 5
INTERPRETATION:

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The table shows the size of inventory in the selected enterprise during the period of 2011-12, It
is evident from the table that inventory constituted the most important elements of total current
assets in this study as it is found on a an average around 50percent of the total current assets . It
is observed from the table that the size of inventory of Ricela health foods limited increased
36.5% in 2013-14. But thereafter it has decreased again to 19.76% during 2015-16.

6.1.6 INVENTORY HOLDING PERIOD :-

This period measures the average time taken for clearing the stocks. It indicates that how many
days’ inventories take to convert from raw material to finished goods.

𝒅𝒂𝒚𝒔 𝒊𝒏 𝒂 𝒚𝒆𝒂𝒓
𝑖𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚 𝒉𝒐𝒍𝒅𝒊𝒏𝒈 𝒑𝒆𝒓𝒊𝒐𝒅 =
𝒊𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚 𝒕𝒖𝒓𝒏𝒐𝒗𝒆𝒓 𝒓𝒂𝒕𝒊𝒐

Table 6
YEAR Days in a Inventory Inventory Holding
Year Turnover Period
Ratio
2011-12 365 12.75 Times 28.63 Days
2012-13 365 14.49 Times 25.19 Days
2013-14 365 8.36 Times 43.66 Days
2014-15 365 14.68 Times 24.86 Days
2015-16 365 17.94 Times 20.34 Days

Inventory Holding period

50
Inventory
40
D Holding period
a 30
y 20
s
10

0
2011-12 2012-13 2013-14 2014-15 2015-16

Chart 6

INTERPRETATION:

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Inventory holding period fluctuating over the years. It was 28.63 days in the year 2011-2012.
It decreased to 25.19 days in the year 2012-2013, it increased to 43.66 days in the year 2013-
2014, there was a subsequent decrease in the year 2014-2013 and 2014-2015 to 24.86 days and
20.34 days respectively. This shows the company is minimizing these inventory-holding days
thereby to increase the sales.

6.17. FINISHED GOODS TURNOVER RATIO

This ratio indicates the turnover of the finished goods in inventory if the finished goods
turnover is high it means the finished goods are sale as short span of time it will lead to goods
profits for the company. The finished goods turnover is measured with the help of the following
ratio.

𝒄𝒐𝒔𝒕 𝒐𝒇 𝒈𝒐𝒐𝒅𝒔 𝒔𝒐𝒍𝒅

𝑭𝒊𝒏𝒊𝒔𝒉𝒆𝒅 𝒈𝒐𝒐𝒅𝒔 𝒕𝒖𝒓𝒏𝒐𝒗𝒆𝒓 𝒓𝒂𝒕𝒊𝒐 =
𝒇𝒊𝒏𝒊𝒔𝒉𝒆𝒅 𝒈𝒐𝒐𝒅𝒔

Table 7 Quantity in 000’s (MTs)

Years C.o.G sold Finished goods FG TOR
2011-12 630311072 33174266.95 19
2012-13 60937921 57395861.4 15
2013-14 14,26,769.98 54054873.83 18
2014-15 14,26,769.98 64853.18091 20
2015-16 1894818286 126321219.1 15

25
FG TOR
20

15

10
FG TOR
5

0
2011-12 2012-13 2013-14 2014-15 2015-16

Chart 7

INTERPRETATION:

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From the above table it is clear that the raw material turnover ratio in the year 2011-12 is high
up to 19 and in the year 2015-16 is decreases to 15.

Statement showing Economic Order Quantity From 2011 -12 to 2015-16

It provides an insight in to the inventory management with using four inventory

items of the Ricela health foods limited during the period 2011-12 to 2015-16, in this regard
relevant tables , graphs have been framed and analyzed . They are shown here as under.

Table 8 (Quantity in 000’s (MTs))

Item no Inventory YEARS

Item 2010-11 2012-13 2013-14 2013-14 2015-14

1 De-oil 0.048 0.372 330.8 0.483 0.170

cake

2 Seeds 139.7 165.2 136.4 939.7 181.2

3 Rice bran 0.50 484.8 198.5 173.8 402.0

4 Oil 866.2 102.4 118.7 139.7 133.3

Source: secondary data

1000
900 EOQ
800
700
600
De-oil cake
500
Seeds
400 Rice bran
300 Oil
200
100
0
2011-12 2012-13 2013-14 2014-15 2015-16

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CHART 8

6.2 TARA HEALTH FOODS LIMITED:

6.2.1. CURRENT RATIO:

𝒄𝒖𝒓𝒓𝒆𝒏𝒕 𝒂𝒔𝒔𝒆𝒕𝒔
𝒄𝒖𝒓𝒓𝒆𝒏𝒕 𝒓𝒂𝒕𝒊𝒐 =
𝒄𝒖𝒓𝒓𝒆𝒏𝒕 𝒍𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒆𝒔

TABLE 9 (Rs in Lakhs)

YEAR CURRENT CURRENTLIABILITIES RATIO

ASSETS

2011-12 321851.50 161675.61 1.99

2012-13 513696.25 305917.07 1.67

2013-14 499513.62 312138.45 1.60

2014-15 577097.50 320474.12 1.80

2015-16 878082.13 416336.48 2.10

Source: secondary data

RATIO
2.5

1.5
RATIO
1

0.5

0
2011-12 2012-13 2013-14 2014-15 2015-16

CHART 8
INTERPRETATION:

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Current ratio has come down from 1.67 in the year 2011-12 to 1.60 in the year 2010-11.
Through current assets have gone up the rate of increase in current liabilities is greater than of
current assets. This has been responsible for the decrease of current ratio.

6.2.2 INVENTORY TURNOVER RATIO

𝒏𝒆𝒕 𝒔𝒂𝒍𝒆𝒔
𝑖𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚 𝒕𝒖𝒓𝒏𝒐𝒗𝒆𝒓 𝒓𝒂𝒕𝒊𝒐 =
𝒊𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚

TABLE 10 ﴾Rs in Lakhs﴿

YEAR NET INVENTORY RATIO
SALES (Times)

2011-12 895388.37 96862.99 9.24

2012-13 1153495.34 221858.91 5.19

2013-14 1246341.09 152617.82 8.16

2014-15 1425182.75 161844.72 8.80

2015-16 1800342.98 320454.60 5.61

Source: secondary data

RATIO
10

4 RATIO

0
2011-12 2012-13 2013-14 2014-15 2015-16

CHART 9

INTERPRETATION:
The high inventory turnover ratio indicates good inventory management. It may be indicates
under investment in very low level of inventory also. In Tara health foods neither limited
though there is fluctuation in ratio, it is quite normal and is neither to high nor low.

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6.2.3. WORKING CAPITAL TURNOVER:

Sales
WORKING CAPITAL TURNOVER RATIO = ------------------------------
Working capital

Table 10 (Rs in Lakhs)

YEAR SALES W.C RATIO(Times)

2011-12 896976.89 160175.89 5.69

2012-13 1155619.29 207799.18 5.56

2013-14 1248464.94 187375.17 6.66

2014-15 1426769.98 256623.38 5.55

2015-16 1803452.47 461745.65 3.90

Source: secondary data

RATIO
7
6
5
4
RATIO
3
2
1
0
2011-12 2012-13 2013-14 2014-15 2015-16

CHART 10
INTERPRETATION:

An increasing ratio indicates that the working capital has been used more intensively in the
past. On an average the working capital turnover ratios of Tara health foods limited for five
years and further improvise.

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6.2.4 SIZE OF THE INVENTORY

𝐈𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐲
𝐬𝐢𝐳𝐞 𝐨𝐟 𝐢𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐲 = 𝐓𝐨𝐭𝐚𝐥 𝐜𝐮𝐫𝐫𝐞𝐞𝐧𝐭 𝐚𝐬𝐬𝐞𝐬𝐭𝐬*100

Table 11 (Quantity in 000’s (MTs))

Years Inventory Current Assets Size

2011-12 95,787.03 2,93,759.03 32.61%
2012-13 2,13,822.80 4,49,138.04 47.61%
2013-14 1,50,932.67 4,56,344.90 33.07%
2014-15 1,61,844.72 5,77,097.50 20.80%
2015-16 282,34.40 724,468.51 23.89%
Source:secondarydata

Size
50

40

30

20 Size

10

0
2011-12 2012-13 2013-14 2014-15 2015-16

Chart 11
INTERPRETATION:
The table shows the size of inventory in the selected enterprise during the period of
2011-12, It is evident from the table that inventory constituted the most important elements of
total current assets in this study as it is found on a an average around 50percent of the total
current assets . it is observed from the table that the size of inventory of Tara health foods
limited increased 32.6% in 2011-12 to 33.07% in 2012-13 but thereafter it has decreased again
to 23.89% during 2015-16.

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6.2.5 DAYS OF INVENTORY HOLDING PERIOD

𝟑𝟔𝟓
𝒊𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚 𝒉𝒐𝒍𝒅𝒊𝒏𝒈 𝒑𝒆𝒓𝒊𝒐𝒅 =
𝒊𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚 𝒕𝒖𝒓𝒏𝒐𝒗𝒆𝒓𝒓𝒂𝒕𝒊𝒐

Table 12 (Quantity in 000’s (MTs))

Years Number of Inventory Period (Days)
the Turnover
days year ratio

2011-12 365 9.24 40

2012-13 365 5.19 70
2013-14 365 8.16 45
2014-15 365 8.80 41
2015-15 365 5.83 63
Source: secondary data

Period (Days)
80
70
60
d 50
a
40
y Period (Days)
30
s
20
10
0
2011-12 2012-13 2013-14 2014-15 2015-16

Chart 12

INTERPRETATION:

As per the above information it is observed that the company has high period of time in the
year 2012-13. If the inventory turnover ratio increases then the days of the inventory holding is
decreases and vice-versa. it indicates the improvement in the management efficiency in
converting their inventories into sales as fast as possible .

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6.6 FINISHED GOODS TURNOVER RATIO

𝒄𝒐𝒔𝒕 𝒐𝒇 𝒈𝒐𝒐𝒅𝒔 𝒔𝒐𝒍𝒅

𝒇𝒊𝒏𝒊𝒔𝒉𝒆𝒅 𝒈𝒐𝒐𝒅𝒔 𝒕𝒖𝒓𝒏𝒐𝒗𝒆𝒓 𝒓𝒂𝒕𝒊𝒐 =
𝒇𝒊𝒏𝒊𝒔𝒉𝒆𝒅 𝒈𝒐𝒐𝒅𝒔

Table 13 (Quantity in 000’s (MTs))

Years
Cost of Goods Finished goods Finished goods
Table 4.6
sold turnover ratio

2011-12 8,54,776.55 65752.04 13

2012-13 10,90,485.13 57393.95 19
2013-14 11,91,439.36 99286.61 12
2014-15 14,26,769.98 101912.14 14
2015-16 16,48,964.97 149905.906 11

Source: secondary data

Finished goods turnover ratio

25

20

15

10 Finished
goods…
5

0
2011-12 2012-13 2013-14 2014-15 2015-16

Chart 13

INTERPRETATION

From the above table it is clear that the finished goods turnover ratio in the year 2013-14 is
high up to 19 and in the year 2015-16 is decreases to 11.

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6.3. COMPARATIVE ANALYSIS of RICELA AND TARA

6.3.1 CURRENT RATIO:

TABLE 14

Year C.R(Ricela) C.R(Tara)

2011-12 2.23 1.99
2012-13 2.47 1.67
2013-14 3.21 1.60
2014-15 2.83 1.80
2015-16 2.87 2.10

Current Ratio
3.5

2.5

2
Ricela
1.5 Tara
1

0.5

0
2011-12 2012-13 2013-14 2014-15 2015-16

Chart 14

Interpretation:

Current ratio of Ricela health foods limited is greater than Tara health foods limited which
shows Ricela company well managed its resources than Tara health foods limited.

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6.3.2 INVENTORY TURNOVER RATIO

Table 15

Year ITR(Tara) ITR(Ricela )

2011-12 9.24 12.75
2012-13 5.19 14.49
2013-14 8.16 8.36
2014-15 8.80 14.68
2015-16 5.61 17.94

ITR
20
18
16
14
12
10 ITR(ricela)

8 ITR(Tara )

6
4
2
0
2011-12 2012-13 2013-14 2014-15 2015-16

Chart 15

Interpretation

It is seen from above data during past five years Ricela health foods limited have high
inventory turnover ratio .i.e. Company has good inventory management than Tara health foods
limited.

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6.3.3. WORKING CAPITAL TURNOVER:

TABLE 16

YEAR W.C.R(Ricela) W.C.R(Tara)

2011-12 7.75 5.69
2012-13 5.48 5.56
2013-14 4.46 6.66
2014-15 5.41 5.55
2015-16 5.44 3.90

WCTR
9
8
7
6
5
W.C.R(ricela)
4
W.C.R(Tara)
3
2
1
0
2011-12 2012-13 2013-14 2014-15 2015-16

Chart 16

Interpretation:

From above data it is seen in during past five years on average basis the ricela company
has more working capital turnover ratio it means this company well maintain its
resources than Tara health foods limited.

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6.3.4 SIZE OF THE INVENTORY

TABLE 17

Year Size of inventory (Tara) Size of inventory (Ricela)

2011-12 32.61 33.58
2012-13 47.61 22.51
2013-14 33.07 36.75
2014-15 20.80 23.84
2015-16 23.89 19.76

SIZE OF INVENTORY
50
45
40
35
30
25 Size of inventory (Ricela)

20 Size of inventory (Tara)

15
10
5
0
2011-12 2012-13 2013-14 2014-15 2015-16

Chart 17

Interpretation : Tara health foods limited’s size of inventory is greater than Ricela health
foods limited on basis of average of last five years Tara health foods limited have less sale
comparedtoRicelacompany.

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6.3.5 DAYS OF INVENTORY HOLDING PERIOD:

Table 18

Year Days(Ricela) Days(Tara)

2011-12 28 40
2012-13 25 70
2013-14 43 45
2014-15 24 41
2015-16 20 63

inventory holding period

80
70
60
50
DAYS 40
Days(ricela)
30
20 Days(Tara)
10
0
2011-12 2012-13 2013-14 2014-15 2015-16
YEARS

Chart 18

Interpertation:

from above bar graph of five years it shows that Ricela company have less inventory holding
period than Tara health foods ltd.which means that Tara company have less turnover than
Ricela.

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6.3.5 FINISHED GOODS TURNOVER RATIO:

Table 19

Years FGTR(RICELA) FGTR(TARA)

2011-12 19 13
2012-13 15 19
2013-14 18 12
2014-15 20 14
2015-16 15 11

25
FGTR
20

15

FGTR(RICELA)
10 FGTR(TARA)

0
2011-12 2012-13 2013-14 2014-15 2015-16

Chart 19

Interpertation:

From above data Ricela health foods limited have high finished goods turnover than Tara
health foods limited.i.e Ricela Company have more sale than Tara `Company.

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CHAPTER VII

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FINDINGS

 It was founded that the good coordination between the marketing, planning,
procurement, and production and distribution function of higher inventory turnover of
Ricela health foods limited than Tara health foods limited.

 From last five years current ratio of Ricela is better and almost stable than Tara.

 From last five year data inventory turnover of ratio of Ricela have mix trend in
whereas in Tara inventory turnover ratio decreases but in year 2013 both company
have almost equal turnover ratio i.e. 8.10, 8.23 respectively.

 Working capital turnover ratio of Ricela has mix trend i.e. 7.75 in 2012 , 4.45 in 2014
5.23 in 2016 but more than Tara company whose WCTR 5.69 in 2012 ,3.90 in 2016
from last five years.

 Inventory holding period of Ricela is decreasing from last five years except year 2014
(28,25,43,24,20 days )whereas Tara Company have mix trend about inventory holding
period(40,70,45,41,63 days). Currently inventory holding period of Tara is very high
(63 days) which shows its impact on sales.

 Size of inventory of Ricela and Tara has closely related figures.

 Finished goods turnover ratio of Tara Company was high in 2013-14 but after that is
follow a decreasing trend. Whereas Ricela Company finished goods turnover ratio
follow mix trend but better than Tara Company.

 It was founded that the Ricela Company maintains balanced position on Raw material
at cost.

 It was founded that the fluctuating inventory turnover ratio indicates the inefficient
utilization of inventory over the past five years at Tara Company than Ricela.

 There is good relationship between Ricela Company and their distributors, vendors
and sales executives than Tara health foods limited.i.e Ricela health foods limited
have good inventory management and healthy business position.

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SUGGESTIONS

 From the findings it is came to know that Tara health foods limited in the
year 2016 the number of days for holding Raw material is more, it is not
good for the company because it eats unnecessary investment.

 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.

 If we purchase less quantity of materials at a time it will reduce the carrying

cost but increases the ordering cost and vice versa. Therefore optimum
ordering quantity is necessary, which minimizes the cost.

 The companies 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.

 Companies must not go to the Non-moving items as far as possible, because

there will be unnecessary blocking of working capital. This would hinder the
other activities of the organization

 The inventory turnover ratio indicates whether investment in inventory is

within proper limit or not. It also measures how quickly inventory is sold. It
requires maintaining a high turnover ratio than lower ratio. A high ratio
implies that good inventory management and it also reflects efficient business
activities.

 Since Ricela health foods limited has high inventory ratio it will maintain.
Whereas Tara health foods limited has to improve inventory ratio.

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CONCLUSION

A better inventory management will surely be helpful in solving the problems the company is
facing with respect to inventory and will pave way for reducing the huge investment or
blocking of money in inventory. From the analysis we can conclude that the both Companies
can follow the Economic Order Quantity (EOQ) for optimum purchase and it can maintain
safety stock for its components in order to avoid stock-out conditions & help in continuous
production flow. This would reduce the cost and enhance the profit. Also there should be tight
control exercised on stock levels based on ABC analysis. Since the inventory Turnover ratio
of Ricela health foods limited shows the increasing trend, than Tara foods limited there is
more demand for the Ricela’s products than Tara’s products. Inventory management is better
at Ricela than Tara .If they could properly implement and follow the norms and techniques of
inventory management; they can enhance the profit with minimum cost. Inventory
management is very vast topic can extended to further research.

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LIMITATATION OF THE STUDY

 The study is estimated encounter the following constraint

 The managers who concern the study many not be volunteer to respond the needed
information in depth.

 Complexity of inventory system is to the difficulty of gathering information.

SCOPE FOR THE FURTHER STUDY

 To give plan to the company what to order, when to order and how much to order.

 It is useful for deciding operating policy & volume of inventory.

 It helps to develop the policies for the executives in inventory.

 It helps the company what items goods are categorized.

 Project helps to deal with forecasting in inventory.

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REFERENCES

REFERENCES BOOKS

 M Y Khan P K Jain “Financial Management” 4th edition Tata McGraw Hill.

 R.S.N. Pillai V. Bagavathi “Management Accounting” S Chand & Co.

 Martand Telsang “Industrial Engineering & Production Management’s Chand

& Co.

 R. Paneerselvam “Operations Research” Prentice hall Of India Private Ltd.

 S.P. Iyengar “Cost & Management Accounting” Sultan Chand & Sons.

WEB SITES

 www.tarahealthfoods.co.in

 www.ricela.com

 www.inventorymanagementreview.org/inventory_basics/index

 www.inventorymanagementreview.org/inventory_control/index

OTHER REFERENCES:

 Manual records of Ricela health foods limited & Tara health foods limited.

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 Manual of stores department

 Last Five years balance sheets (2011-16)

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