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Study of Procurement Inventory Managemen
Study of Procurement Inventory Managemen
A PROJECT REPORT
Submitted by
of
JUNE 2011
INTERNATIONAL AGRIBUSINESS MANAGEMEN INSTITUTE
ANAND AGRICULTURAL UNIVERSITY
ANAND 388 110
CERTIFICATE
Executive (P & A)
Declaration by Student
formed the basis for the award of any degree, associate ship or other similar
titles.
Glenn, S.J., Kilmer, R.L. and Stevens, T.J. (2001), Supply chain
management and Production Agriculture: A Florida Dairy Study
viii
ACKNOWLEDGEMENT
I express my deepest gratitude to Mr. Sanjay Desai who has made available
his support in all the possible ways. It is a pleasure to thank him for his
guidance, encouragement, and motivation throughout my training period.
This final project would not have been started and much less completed
without the encouragement and support of many people. I take this
opportunity to assert my sense of gratitude towards Mr. Bhavin Kapadia, it
is because of the information he gave which formed the foundation of the
project. Without his help and guidance the project would not have been
completed successfully. Learning from him and working with him would be
always cherished and admired.
My sincere thanks are due to Mr. Jignesh Bhoi, HR, AMUL, for his
cooperation throughout my training period.
I am thankful to all the staff members of AMUL for all the help and
cooperation they gave us.
My sincere sense of gratitude goes to all the IABMI faculty and staff.
And last but not least the support and affection given by my friends and the
time spent with them were truly memorable.
Dhwani Joshi
STUDY OF PROCUREMENT, INVENTORY MANAGEMENT AND
DELIVERY OF ENGINEERING GOODS
ABSTRACT
largest milk producer, accounting for more than 18% of world’s total milk
Inventory management is very necessary for the firm because if the firm has
process. Also, if the firm has higher investment in inventory this would lead
organization.
i
items main electrical and mechanical items are chosen as Amul incurs a
is there?, How much dead stock is there? etc., is required to be found out.
of lead time. The study was carried out in Anand plant of AMUL dairy. For
this study secondary data was used to achieve the stipulated objectives.
There are times in year when due to plant shutdown or maintenance work of
plant, the consumption after its completion increases a lot. The consumption
pattern of electrical and mechanical items are related as when a big machine
procedure, although there are chances of reducing lead time in some steps
iv
LIST OF TABLES
TABLE PAGE
TITLE
NO. NO.
1.1 Major dairy product’s exporters 11
1.2 India’s Milk product Mix 17
Production and per capita availability of Milk in 17
1.3
India
1.4 Breakup of Milk production by species 19
FIGURE PAGE
TITLE
NO. NO.
1.1 Products of AMUL 5
4.1 Material receipt, issues and Stores inventory management 40
4.2 Store procurement procedure 41
4.3 Inventory cycle 49
4.4 Monthly consumption of electrical items 52
4.5 Monthly consumption of mechanical items 53
4.6 Stock value at the end of financial year of electrical items 54
Stock value at the end of financial year of mechanical
4.7 54
items
4.8 Yearly consumption pattern of electrical items 55
4.9 Yearly consumption pattern of mechanical items 56
4.10 Annual purchase of electrical items 57
4.11 Annual purchase of mechanical items 57
4.12 Inventory holding period for electrical items 59
4.13 Inventory holding period for mechanical items 59
4.14 Inventory turnover ratio of electrical items 61
4.15 Inventory turnover ratio of mechanical items 61
LIST OF ABBREVIATIONS
% Percentage
EU European Union
Agri Agriculture
Bn Billion
Co-op Co-operatives
Etc Etcetera
Fig. Figure
$ Dollar
MT Metric Tonn
i.e. That is
Ltd. Limited
No. Number
Rs. Rupees
US United States
Viz. Namely
Company Profile
Amul means “Priceless” in Sanskrit. The Brand name “Amul” is from the
Sanskrit word “Amulya,” was suggested by a quality control expert in
Anand.
Priceless
Invaluable
Precious
The moppet who put Amul on India's breakfast table with the baseline
simply said, “Utterly Butterly Delicious Amul”
1
The Logo of AMUL
Symbol of Amul is a ring of four hands, which coordinate each other. The
actual meaning of this symbol is coordination of hand of different people by
whom this union is now at top.
Milk Segment
Local Dairy - Annapurna dairy in Baroda, Dudh Sagar milk in Mehsana etc.
are private vendors.
Ice-cream Segment
Chocolate Segment
Pizza Segment
Butter Segment
Milk Additives
Cadbury - Bournvita
Mogar Plant
Anand Plant
The products are buttermilk, powder, liquid milk, ghee. It was established in
1973.
Kanjari Plant
The products are cattle feed. Old plant was established in 1964 & new plant
in 1980.
Khatraj Plant
It is situated between Nadiad-Mahemdabad. The product produced by this
plant is cheese.
Chilling Center
Kapadvanj, Undel, & Balasinor
Satellite Dairy
Balasinor, Undel, Pune
Animal Insemination
Industry Profile
International Scenario
The annual world trade in milk products (excluding intra-EU) amounts to 33
Million tonnes, valued at US$ 10 billion. Barely 6 to 7% of the world milk
production is traded internationally. The bulk of the world dairy trade is in
cheese, butter and powder. A growing shift towards cheese is expected in
the near future. Two dynamic products with a substantial projected growth
in the coming years are yoghurt and dessert.
The international dairy trade is dominated by four players - EU, New
Zealand, Australia and USA - which together accounts for 85% of all
exports. New Zealand and Australia export as much as 80% and 50% of
their milk production respectively. The Asia-Pacific region has been and
will remain a net milk importer in the foreseeable future. It accounts for the
bulk of milk powder imports and half of the imports of condensed and
evaporated milk. In contrast, most cheese imports go from developing
countries to developed countries such as Japan and the United States. The
dairy industry is regulated in most countries through various ways. Imports
are commonly restricted, and exports frequently subsidized. High dairy price
supports in many countries are put in place to stimulate production to the
extent that subsidies for exports are necessitated to maintain domestic dairy
programmes.
In the United Kingdom, all the milk produced by farmers is procured by the
cooperatives. Private dairies are required to buy their milk requirement from
cooperatives. New Zealand has no private sector dairy plants. As
Kenya‟s 90 per cent of dairies in the east while West Germany and 100 per
cent in Denmark, Netherlands and Sweden are in the cooperative sector. In
the United States, 70 per cent of the dairy industry is cooperative. Dairy
programmes are subject to more Government participation or regulation
than most other domestic agricultural industries in the USA. There are also
Federal Milk Marketing Orders and movement barriers in the USA for
orderly marketing control, which is associated with stabilizing fluid milk
prices, providing secure and dependable markets for individual dairy
farmers, primarily for the fluid market and improving the balance of market
power between farmers and handlers. In the emerging liberalized global
scenario, trade-distorting agricultural policies have been the focus of the
GATT multilateral trade negotiations. With the liberalization of agricultural
trade under the new GATT regime, the heavy subsidies prevalent in the
dairy sector in the countries of EU as well as in the USA will have to be
brought down in the next few years. The international dairy scene World
milk production was estimated to be around 688 million tonnes in 2008,
about 1.7 per cent higher than in the previous year. Prices of skimmed milk
powder and butter in the international market fell significantly during the
year. In January 2009, prices of dairy commodities in the European
countries fell below intervention levels and prompted a fresh declaration of
export subsidies. However, by March 2009, prices started rising again.
a) Government/Semi-Government
b) Cooperatives
c) Private Sector
With the exception of a few units the processing industry is largely involved
either in liquid pasteurized milk of conversion of milk to milk powder and
ghee. Value addition, consequently, is low. Instead of producing value
added products the domestic processors continue to fight for a share of
reducing domestic market of milk powders for reconstitution. Most domestic
processors do not have the quality or the marketing knowledge to access the
international markets.
The Indian dairy industry has aimed at better management of the national
resources to enhance milk production and upgrade milk processing
involving new innovative technologies. Multinational dairy giants can also
make their foray in the Indian dairy market in this challenging scenario and
create a win-win situation for both.
Dairy Cooperatives account for the major share of processed liquid milk
marketed in the country. Milk is processed and marketed by 170 Milk
Producers' Cooperative Unions, which federate into 15 State Cooperative
Milk Marketing Federations.
Productivity
To increase milk production it will be necessary to focus on improving
productivity through a more scientific approach. NDDB has entered into
collaboration with various institutions to produce high genetic merit bulls
for the entire country through progeny testing programmes for five breeds
viz., Murrah, Mehsana, pure Holstein Friesian (HF), HF crossbred and
Jersey crossbred. Genetic improvement programmes for the Rathi and
Kankrej cattle breeds continue to be implemented in their native tracts. As
feed accounts for about 70 per cent of the cost of milk production, NDDB
initiated steps to intensify the dissemination of various technologies that add
value to feed and reduce the cost of milk production. This included ration
balancing advisory services at village level. A record number of more than
10 million doses of semen were produced and sold during the year by
India‟s highest ranked frozen semen stations: Sabarmati Ashram Gaushala,
Bidaj in Gujarat and Animal Breeding Centre, Salon in Uttar Pradesh. These
stations are operated with technical assistance from NDDB.
The main aim of the Indian dairy industry is only to better manage the
national resources to enhance milk production and upgrade milk processing
using Innovative technologies.
Some areas of Indian dairy industry can be toned up by the evocation of
differentiated technologies and equipment from overseas. These include:
Better operational ratios are required to amend the yields and abridge
wastage, lessen fat/protein losses during processing, control production
costs, save energy and broaden shelf life. The adoption of GMP (Good
Manufacturing Practices) and HACCP (Hazard Analysis Critical Control
Points) would help produce milk products adapting to the international
standards.
Packaging
Another area that can be improved is the range of packing machines for the
manufacture of butter, cheese and alike. Better packaging can assist in
retaining the nutritive value of products packed and thus broaden the shelf
life. A cold chain distribution system is required for proper storage and
transfer of dairy products.
Value-added Products
The Indian dairy industry has aimed at better management of the national
resources to enhance milk production and upgrade milk processing
involving new innovative technologies. Multinational dairy giants can also
make their foray in the Indian dairy market in this challenging scenario and
create a win-win situation for both.
Table No. 1.2: India's Milk Product Mix
COMPOSITION PERCENTAGE
Fluid Milk 46.0%
Ghee 27.5%
Butter 6.5%
Curd 7.0%
Khoa (Partially Dehydrated Condensed Milk) 6.5%
Milk Powders, including IMF 3.5%
Paneer&Chhana (Cottage Cheese) 2.0%
Others, including Cream, Ice Cream 1.0%
Sources-: IDA, 2009
In 1998, India achieved the distinction of becoming the world‟s largest milk
producer. Milk production in the year 2000 was 81 million tonnes representing
14% of the world‟s production. In the year 2000 India‟s milk production grew
almost 4.2% as against the world‟s average growth of less than 1%. India is
well set to retain its position as the world‟s top milk producer.
BREAKUP OF MILK PRODUCTION BY SPECIES
Others 4% 3.4%
India has almost 90 million milk animals. As illustrated in the table above.
54% of India‟s milk comes from the buffalo. Only 42% comes from the cow
as against the world‟s average of 85%. This matter has significance
for exports since the world‟s preference is for products made from cow‟s
milk.
INVENTORY MANAGEMENT
Inventory generally refers to the stock of raw material, which have some
economical value. In this sense inventory management would refer to the
management of current assets and other materials inside the
organization. Inventory management is very necessary for the firm because
if the firm has lesser investment in inventory, this would lead to
unavailability of materials when required. This would ultimately lead to
interruption in production process. However, if the firm has higher
investment in inventory this would lead to unnecessary locking up of funds
in inventory, thus reducing the working capital. Hence the inventory should
be managed properly in every organization.
Inventory together with receivable and cash and bank balance constitute
around 30% of the total current assets in effective control of all these factors
can increase the profitability of the organization.
Inventory Control:-
Proper control of inventory not only solves the acute problem of liquidity,
but also increase the annual profits and causes substantial deduction in
working capital of the firm. Various measure have been introduced for the
inventory control.
ABC analysis of inventory is based on the concept that the item of higher
values but small in number are watched more closely and looked after by
number of the top management team, whereas the items of lower value but
in large number may not call for strict control and are in charge of junior
executives. The items of the middle category are moderately controlled by
the middle management. In the Amul ABC analysis is not followed as all
items are given equal attention and importance and they are managed by all
managers respectively.
There are three basic reasons for keeping an inventory:
1. Time - The time lags present in the supply chain, from supplier to user at
every stage, requires that you maintain certain amounts of inventory to
use in this "lead time."
2. Uncertainty - Inventories are maintained as buffers to meet uncertainties
in demand, supply and movements of goods.
3. Economies of scale - Ideal condition of "one unit at a time at a place
where a user needs it, when he needs it" principle tends to incur lots of
costs in terms of logistics. So bulk buying, movement and storing brings
in economies of scale.
Project Objective
Nature Of Inventory
Raw Materials: These are goods, which have not yet been committed
to production in a manufacturing firm. They may consist of basic raw
materials or finished components.
Work In Progress: This includes those materials, which have been
committed to production process but have not yet been completed.
Finished Goods: These are completed products awaiting sale. They
are the final output of the production process in a manufacturing firm.
Supplies: These materials are of low value and they do not enter the
production process directly.
Need To Hold Inventory
The following are some of the benefits, which we can obtain from proper
management of inventories:
The research has the fresh and updated information, which ultimately be
helpful for the company to expand its working to a wider extent through
acute steps. It will help the company to mitigate the risk of competition from
rivals by this updated and valuable information. This can be utilized by the
company as a competitive advantage in the race of becoming the leader in
this sector.
Company wants below mentioned objectives to be fulfilled:
1. Study Procurement process of Engineering goods.
2. Study Inventory Management of Engineering goods.
3. Study the lead time of selected Engineering goods.
4. To provide suggestions to reduce lead time.
Source of data
Secondary data were collected to meet the objective of the study. Major
Secondary data was collected from ERP system of Engineering Store of
AMUL Dairy, Anand plant. Some of the data was collected from Magazines,
Books, Reports, websites. As well as data from Employees working in
purchase and store department were collected.
Analytical tools
Mainly tabulation analysis and graphical presentation will be used to achieve
the objective of the study.
Formula used
Inventory holding period indicates how quickly a company is turning
over its inventory.
Inventory holding period= (Average inventory*360)/cost of goods sold
Separate out the monthly issue detail each material wise as well as section wise.
All the detail data regarding holding the material was gathered. Analyzer also
calculated Inventory Holding period, Inventory Turnover Ratio, Annual Purchase
of engineering items in Dairy. Analyzer selected top twenty-three items which
were repeatedly consumed (high frequency) for last three consecutive years in the
dairy and noted their lead times.
Scope:
Limitations:
Plants covered
In order to synchronize and simplify, the following plants of the main plant
in Anand were selected:
31
Indent
Enquiry generation
Supplier Quotation
Comparative Statement
Purchase Order
Indent
1. The indent for the procurement of packing, ingredient and raw material
should be raised in the standard format of organization on monthly
requirement basis.
2. Separate indents for assets/consumables/non-consumables of different
categories should be raised in standard format.
3. The indenter must route through approving authorities.
4. The indent should contain all the details like item code, item description,
quantity, appx. value, suggested supplier, proposed time frame of
material receipt etc., to process requirement in right direction.
5. The indent must indicate detailed specifications and reliable sources of
supply – if known.
6. Requirements of Assets, Capital Goods, etc. involving estimated value
beyond different levels would have to be approved at different
hierarchies like, Purchase Itself, Managerial Levels, General Manager,
Managing Director, Chairman, Board resolution etc., respectively.
Enquiry Generation
The enquiry is floated to registered, approved, reputed and introduces
suppliers. Each requirement is processed with enquiry through system
generated specific indentified enquiry number, which comes to trace use
reference later in next process and thereafter too.
Supplier Quotation
Quotations sent by various suppliers contain different quality, price, terms
and conditions of supply and time component therein.
Comparative Statement
Recommendations:
Generally in comparative statement the recommendation of supplier is
practiced as above. However, in case where indenter has specific preference,
their suggestions are taken on comparative statement for processing
purchase to competitive supplier or to go with the suggested product brand
only.
Table No. 4.1 Sanctioning Authorities
Value Approval
Note:
Purchase Order
A supplier starts sending the material by Road /Rail / Air / Sea to buyer’s
destination as per buyer’s requirement and in required frequency. An invoice
indicating relevant purchase order No, description of material despatched,
quantity with tare weight, No of bags, truck No, Challan, Rate, Total value
of material etc. shall be sent to buyer at Anand office as a claim for payment.
Such copies may also accompany the consignment arriving.
Payment
On receipt of GR and invoice from the supplier, all these documents are
clubbed and after proper entry of invoice data in ERP system, the payment
voucher (price difference statement) is processed & generated. The
deductions/ additions if any in bill amounts under various heads are operated
through ERP system which generates price difference statement cum
payment voucher. After necessary checking and signing the voucher is
forwarded to audit section and is posted in the system after it is audited.
Rejection of material
In case material is rejected by user as per their official report even by phone,
the same is immediately informed to the supplier, followed by official
intimation to lift back the same within stipulated period with or without
replacement as may be decided & conveyed to the supplier. Late lifting of
rejected material attracts devised storage charges. Rejected materials are
returned only after payment of required loading & unloading charges.
With changing business scenario, it is always buyer’s policy who may also
decide whether or not to keep allowing retest analysis.
Cancellations / extensions
Table No. 4.2 Various stages and processing time for Indigenous sources
7. Delivery time *
Note:
Minimum time for getting a material in store is generally 20-30 days from
the receipt of indent in purchase section. It may take vary sometimes
depending upon factors not in control of suppliers.
Material Receipt, Issues and Stores Inventory Management:
STORES DEPARTMENT
STORE
ENGINEERINGMISCELLANEOUS
GENERAL CATEGORY
CATEGORY CATEGORY
SCRAP HANDLING
S.
G.R. Approve by Q.C/G.R Forward to P.Bill IndenterFor Billing Procedure
G.R Preparation
R
E
N
T
Net Stock/ Periodic Physical Verification
Stock Receipt [ + ] Stock Issue [ - ]
Material receipt:
Material issue:
Material return:
Once material issued to user department and due to some valid reason if it
cannot use the material for a long then the material is being returned to
stores department on an authorized “Material Return Note”(MRN) in the
form of enclosed format. Stores department take back the material and make
data entry in the system and the stock get increased by the MRN quantity.
Other than the internal user department, if one store / unit is in need of any
material, it sends a requisite to another store / unit. And if the store
department have the material, it issues the physical material and transfers it
through the system also.
Material issue other than the dairy:
Material rejection:
Gate pass:
No material can be taken out of Factory premises without a properly
authorized Gate Pass. Stores / concerned department shall issue a Gate Pass
either of following types.
Same process is undergone for butter carton, ghee and powder corrugated
boxes and tins for printing and packing arrangements.
Scrap handling:
1. Each and every department is sending solid waste to the scrap yard,
along with the note describing the type and the quantity of the scrap,
which is handled by the stores department.
2. These scrap is kept to the prefix area only. Here different cages are
allocated to the different type of scraps. Stores department is keeping
records of all the receipt and sale of the scrap.
3. When the scrap is being received at the scrap yard, the scrap personnel
check the quantity and make receipt of the scrap. The stores department
is responsible for the sale of scrap.
4. For the sale of scrap, annual contract is given by purchase section to
different parties at a fixed rate.
5. At the time of sale these parties deposited advance amount at account
section and after that take the delivery of scrap from stores scrap yard.
Store is issuing scrap by issuing gate pass, DC and manual sale bill.
6. The final bill is being issued by the account section. At every quarter
and end of the year physical verification is done by the auditors.
Since prompt payment of the amount due to the suppliers builds the
credit worthiness of the organization in the market, all concerned viz. the
Purchase, Purchase Bill shall ensure that the payment of all bills within
30 days as per terms and conditions.
All the invoices from suppliers is being received in Purchase Bill
Section. The Purchase Bill Section is entering all the invoices as and
when received in a Computerized Bill Tracking System. The invoices
received in the Stores, KSD Khatraj, FCM Mogar, and CFF Kanjari
along-with consignments will also be redirected to Bill passing Section.
The Stores will send “Goods Receipt Cum Test Reports” (GR/TR) to
Purchase Billing Section once the Testing / Inspection formalities are
complete.
The Purchase Billing Section is verifying the invoices, with
Corresponding Purchase Orders, Goods Receipt Cum Test Reports
(GR/TR) etc. and process the supplier’s invoices for payment.
The payments are made by cheque payable at par. The Purchase bill
section will process the Invoice as per the terms and conditions
mentioned in the Purchase Order.
On receiving the materials in store the Store Supervisor/Keeper shall
immediately inform the indenter, over phone, of the arrival of materials
in store. The indenter shall promptly inspect materials or arrange
inspection by a Competent Officer and give a certificate. The supplier
has to issue the Test Report with each consignment and in case of
packaging material he should provide the food grade certificate.
To study Inventory management of engineering goods:
INDENT
(PLANT)
RECEIPT (STORE)
Electrical Mechanical
Plants Capital Dead stock
items items
Amul Satellite
56,036 26,250
Dairy, Pune
Animal
3,730 1550.00
Husbandary
Amul-Ii
2,50,493 26,03,535
Process
Amul-Iii
2,39,101 14,99,688 57,46,541
Process
Balasinor
19,809 1,41,777
Chilling center
Cambay
1,00,201 1,50,096
Satellite Dairy
Flavoured
1,63,000 1,07,141 8,30,594
Milk
Food Complex
9,220
Mogar
Kapadwanj
Chilling 25,295 5,42,099
Centre
Kheda
39,283
Satellite Dairy
Rmrd 58,540
Transport 1,662 43,752
Socities 1,654
ELECTRICAL
1,20,00,000.00
1,00,00,000.00
80,00,000.00
60,00,000.00
40,00,000.00
20,00,000.00
-
April May June July Aug Sept Octo Nov Dec Janu Febr Mar
ustemb ber emb emb aryuarych ererer
2010-11 3,62 9,04 2,69 4,16 6,93 2,47 3,47 19,8 8,32 3,25 13,2 7,98
2009-10 3,76 3,05 50,3 8,52 3,56 81,4 10,8 2,47 2,97 6,44 3,24 46,7
2008-09 4,63 7,89 11,0 3,34 8,55 17,2 3,05 10,0 29,9 7,35 3,71 25,9
-
April May June July Aug Sept Octo Nov Dec Janu Febr Mar
ust emb ber emb emb ary uary ch
2010-11 48,9 25,5 29,2 60,8 98,0 2e3r, 25,0 3e6r, 2e8r, 23,6 35,4 27,7
7 4 5
2009-10 22,7 12,7 1,07 39,8 31,4 31,2 38,9 20,2 32,0 14,2 24,1 21,7
2008-09 6,98 19,1 32,9 15,2 31,0 37,5 21,5 29,6 78,1 43,2 18,6 51,2
ELECTRICAL
5000000.00
4500000.00 4575193.00
4000000.00
3500000.00
3000000.00
2500000.00
2000000.00 2270947.00
1500000.00
1000000.00 1377116.00 1435984.76
500000.00
0.00
2007-082008-092009-102010-11
Fig. 4.6 Stock value at the end of financial year of electrical items
MECHANICAL
6000000.00
5543003.00
5000000.00 4851979.00
4000000.00 4179788.00
3000000.00 3123264.00
2000000.00
1000000.00
0.00
2007-08 2008-09 2009-10 2010-11
Fig. 4.7 Stock value at the end of financial year of mechanical items
In the above graph the end stock value of electrical and mechanical items for
four consecutive years namely 2007-08, 2008-09, 2009-10, 2010-11, is
shown, from it we can interpret that in case of electrical items more end
stock was there in 2008-09, due to less consumption, and because of this in
2009-10 there was a very low end stock. In case of mechanical items there is
an stagnant increase in end stock value till 2009-10, the reason may be due
to more demand and less production.
25000000.00
20000000.00
15000000.00
Rs.
10000000.00
5000000.00
0.00
2008-09 2009-10 2010-11
year
year
20000000
18000000
16000000
14000000
12000000
Rs. 10000000
8000000
6000000
4000000
2000000
0
2008-09 2009-10 2010-2011
ELECTRICAL 15581855 19145499 8562599
MECHANICAL
45000000
44000000
43000000
42000000
Rs. 41000000
40000000
39000000
38000000
37000000
2008-09 2009-10 2010-2011
MECHANICAL 40285385 40372743 44981358
80
60
40
20
0
2008-09 2009-10 2010-11
ELECTRICAL 92.811 47.952 59.545
MECHANICAL
HOLDING PERIOD IN DAYS
50
40
30
20
10
0
2008-09 2009-10 2010-11
MECHANICAL 37.232 47.153 37.763
Above graphs show the inventory holding period for electrical and
mechanical engineering items, it can be interpreted that in case of electrical
items there is an increase of holding period in 2008-09 but is gradually
decreasing, while in case of mechanical items as compared to 2008-09 there
is an increase in holding period in 2009-10. The reasons may be economic
recession, obsolete inventory, poor sales and marketing, a change of
customer taste or bad inventory management.
A ratio showing how many times a company's inventory is sold and replaced
over a period. It measures the relationship between the cost of goods sold
and the inventory level. A high inventory turnover ratio indicated that the
product is selling well. However, it also requires careful analysis because a
high inventory ratio may be indicative of underinvestment in or very low
level of inventory which may lead to firm being out of stock and incurring
high “stock out cost”. A very low inventory ratio is dangerous as well since
it shows excessive inventory and higher carrying cost in terms of interest on
funds locked up, rental space, deterioration etc.
Average inventory
8
7
6
5
4
3
2
1
0
2008-09 2009-10 2010-11
ELECTRICAL 3.88 7.51 6.05
10
9
8
7
6
5
4
3
2
1
0
2008-09 2009-10 2010-11
MECHANICAL 9.67 7.63 9.53
From above table we can tell a total time period from Indenting to Payment.
Here in all the procedures from asking for price list of product to sending
P.O in every work couriers are sent to supplier for asking of quotations, or
even for sending the purchase order. Where 3 – 4 days are wasted and it is
costly. Here, I suggest use of e-mails and faxs for sending P.O and for
asking for Quotations.
A lot of time is required to check all the documents by both the parties
like supplier needs to check P.O, invoices etc., instead of them scanned
documents can be kept.
Systems like JIT (Just In Time) system may not work in case of Amul as
many break-down occurs but a system like Just Before Time may work
alongwith a software that itself sends an indent to the supplier as soon as the
minimum level of stock is reached, it saves time and money.
V. SUMMARY AND CONCLUSION
65
locations and the reconciling of the inventory balances. Also may include
ABC analysis, lot tracking, cycle counting support etc. Management of the
inventories, with the primary objective of determining/controlling stock
levels within the physical distribution function to balance the need for
product availability against the need for minimizing stock holding and
handling costs.
FINDINGS: