Study on Material Management at Pharma Company

A STUDY ON MATERIAL MANAGEMENT AND CONTROL AT GROUP PHARMACEUTICALS LTD, MALUR
CHAPTER -1
INTRODUCTION
1.1 INTRODUCTION TO MATERIALS

Materials are one of the important basic items in production. Materials cost
constitutes the first and the most important elements of cost. It is used in any
manufacturing industry. The word material cover raw-materials, semi-finished
materials, spare parts and components consumable store and packing materials.
As materials constitute a very significant of total cost of finished product in

most of the manufacturing industries, a proper recording and control over the
material costs is essentials. Material represents large investment of capital and a
substantial percentage of cost of production. Therefore, there exists an obvious need
for effective material management in a organization. Material management
considers both the theory of costing materials and inventories and machines of cost
calculations and record keeping.
1.2 TYPES OF MATERIALS
In any manufacturing industry the materials are classified into two types they are:
A. Direct materials.
B. Indirect materials.
A. Direct materials: Direct materials are those materials, which can be

identified or readily traced with the cost objective which may be a project, a group of
products a customer an order or a project. A direct material is capable of being
obviously linked with the cost objective. Materials are classified as direct because of
their importance rather than physical conclusion is the end product. Direct materials
have the following features.
DR.AMBEDKAR INSTITUTE OF MANAGEMENT STUDIES.BANGALORE Page 1

• Specific purpose: Material passing from one process to another requires a

specific material. Therefore materials are used for a specific job or a
production order.
• Production process: Material passing from one process to another

process where in the finished materials of one process becomes raw materials
for next process. The materials passes through the entire production process up
to the end product obtained.
• Acquisition expenses: Charges incurred for acquiring the materials for

production purposes charges as freight, taxes and acquisition charges.
B. Indirect materials: Indirect materials are material traceable to finished

product. Examples are oils greases, waste materials, blooms, rags, cleaning materials.
Sometimes the cost of materials is difficult to assign therefore it is treated as indirect
materials.
1.3 REQUISITES FOR MAINTAINING RECORDS FOR

MATERIAL CONTROL
A proper recording and control over the material costs is essential because of
the following reasons.
• Determination of quality of product
The exact quality of the specification of materials required should be

determination according to the required quality of the product. If superior
quality of materials were purchased it would mean higher cost due to high
prices. If the quality of materials purchased is too low, the product will be of
lower quality.
• Price influenced by cost
The price paid should be the minimum possible otherwise the higher
cost of the finished products would make the product uncompetitive in the
market due to its higher price for the product.

• Prevent from interruption
There should be no interruption in the product process for want of

materials and stores including oil for a machine. Sometimes there will be out of
stock situation may lead to stoppage of machines.
• Fixation of levels
Based on the type and requirement materials are valued and level
are fixed this is mainly to control materials as per the usage and amount
invested.
• Avoid unnecessary locked up to funds
There should be no over stocking of materials because that would result

in lots of interest charges, higher go down charges, determination in
quality and losses.
1.4 MATERIAL MANAGEMENT
Material management is a function responsible for coordinating of planning,

sourcing, purchasing, moving, storing and controlling materials in a useful manner so
as to provide predetermined services to the customer at a minimum cost. Every
material manager should try to apply proper material planning, purchasing, handling,
storing, and materials so as to achieve the desired objective of stock holding costs.
This has necessitated professional management function which demands an ability to
bring together conflicting and yet interrelated functions via, materials planning,
purchasing, receiving and inspection, stores, inventory control, scrap and surplus
disposal. The economic pressures in the form of inflation and credit squeeze have
placed exacting demands on the materials manager. The important advantages of
integrated materials management are better accountability, better performance and
better growth and adaptability to electronic data processing.

1.5 DEFENITION OF MATERIAL MANAGEMENT

Materials management can thus also be defined as a joint action of various
materials activities directed towards a common goal and that is to achieve an
integrated management approach to planning, acquiring, processing and distributing
production materials from the raw material state to the finished product state.
1.6 SCOPE OF MATERIAL MANAGEMENT

The scope material management is vast. Its sub functions include Materials
planning and control, purchasing, stores and inventory management besides others.
Basically,
Under its scope are:

1. Emphasis on the acquisition aspect.
2. Inventory control and stores management.
3. Material logistics, movement control and handling aspect.
4. Purchasing, supply, transportation, materials handling etc.
5. Supply management or logistics management.
6. All the interrelated activities concerned with materials.
1.7 OBJECTIVES OF MATERIAL MANAGEMENT

To identify personnel authorized, responsible and verify the activities of
materials management function for effective functioning of quality system. The
objective of materials management may be subdivided into primary and secondary
objective.
The primary objective is as follows
• Maintaining continuity of supply with consistency of quality.
• Minimizing investments in inventories.
• Assuring a high inventory turnover.

The secondary objective is
• Material cost reduction through simplification, standardization, value analysis

inventory control etc.,
• Co-coordinating the functions of planning, scheduling, storage, materials

handling traffic etc.,
• Development of personnel relating to materials management.
1.8 FUNCTIONS OF MATERIAL MANAGEMENT
The functions of materials management include:
• Material requirement planning [MRP]
• Purchasing
• Receiving and inspection of materials
• Stores
• Materials handling
• Dispatch of finished goods
A. Material requirement planning
The activities involved in material requirement planning are as under:
• Requirement planning of materials
• Indent amendments generation
• Material clearance
• Fixation of target sales
• Production planning

B. Purchasing
The activities involved in purchasing process are as under:
• Receipt of indent and amendment and registration
• Tender
• Placement of purchase order
• Follow up purchase order
• Vendor performance evaluation
• Insurance coverage
• Licensing for imported items
• Clearance of imported consignments
C. Receiving and inspection of materials
The activities involved in inspection process are as follows:
• Quality checking
• Checking sample in laboratory
• Comparing samples with actual specification in purchase order
• Checking the required utility for consumption purpose
• Inspecting quality of materials before placing bulk orders
• Rejecting samples if the does not match with the specification
D. Stores
Stores function consists of the following activities:
• Materials receipt and identification
• Recording in related documents

• Insurance coverage
• Storage, preservation and issue of materials
• Classification and codification of materials
• Physical verification
• Inventory control
E. Materials handling
Materials handling function consists of following activities:

• Procurement of materials
• Delivery of materials at plant
• Finished products handled at the time of packing
• Dispatch of finished products
F. Dispatch of finished products
The activities included are:
• Selection of transport carriers
• Disposal of scrap
• Dispatch of goods at warehouse
1.9 ORGANIZATION CHARTOF MATERIAL MANAGEMENT

Material management is structured on the basis of functions such as stores, transport,
receiving and purchase and inventory control. Stores for manufacturing divisions will
be under one individual who will report of the material management. All purchasing
activities will be again under one individual who will report to the chief material
managers.

The organization chart of material management is as follows.
MANAGING DIRECTOR
Director Director
Personnel Material Director
Director Marketing
Director \ Production Finance
Inventory
Purchasing Receiving Stores
Control
1.10 MATERIAL CONTROL
Material control is the regulation of the function of organization, relations to

the procurement's, storage and usage and of materials in such a way as to maintain in
such a way as to maintain an even flow of production without excessive investment in
material stock.
1.11 MEANING AND DEFINITION
Material control is defined as “safeguarding of company’s property in the

form of materials by a proper system of recording and also maintain them at the
optimum level considering operating requirements and financial resources of the
business”.
1.12 ADVANTAGES OF MATERIAL CONTROL

The material control system is follows:
• Effect purchases of materials of the right quality consistent with the standards
prescribed in respect of the finished products.
• To process materials with acceptable commercial term with a view to effecting

maximum economy in the cost of buying.
• To make available on assured supply of materials, so as to keep the cycle of

production going without any interruption.
• To ensure effective utilization of materials
• To prevent overstocking of materials and the consequent locking of working

capital.
1.13 MATERIAL CONTROL
Production planning and control
Preparation of detailed of products and materials required to be purchased in

order to realize linked production programs or sales forecast approved by the top
management. Control of loading and other activities to be carried out concurrently to
avoid holdups in production.
Storage exercises
Control of physical materials exercising control over materials in stock to prevent

physical deterioration of theft etc.
Inventory planning and control
Control over policies and procedures to regulate systematically the materials kept in
stock.
External transport

Control of efficient usage of external transport activities. These activities are

concerned with the movement of materials from suppliers to the manufactures and
from the manufactures to customers.
Internal transport and materials handling
Control over the efficient use of materials transport and materials instruments.
The internal transport and material handling tools are used for movement of materials
from one point to another within factory premises.
Therefore proper materials control results in continuous production activities which is

all supported by other activities such as purchasing, stores, accounting, control and
consumption. Proper delivery and usage of materials can make the production
activities a successful completion.
1.14 INVENTORY
Inventories constitute the most significant part of current assets of a large majority of
companies in India. On an average, inventories are approximately 60 per cent of
current assets in public limited companies in India. Because of the large size of
inventories maintained by firms, a considerable amount of funds is required to be
committed to them. It is, therefore, absolutely imperative to manage inventories
efficiently and effectively in order to avoid unnecessary investment. A firm neglecting
the management of inventories will be jeopardizing its long-run profitability and may
fail ultimately. It is possible for a company to reduce its levels of inventories to a
considerable degree, e.g., 10 to 20 per cent, without any adverse effect on production
and sales, by using simple inventory planning and control techniques. The reduction
in ‘excessive’ inventories carries a favourable impact on a company’s profitability.
1.15 PROBLEMS RELATING TO INVENTORY
In the context of inventory management, the firm is faced with the problem of
meeting two conflicting needs:

• To maintain a large size of inventories of raw material and work-in-process for

efficient and smooth production and of finished goods for uninterrupted sales
operations.
• To maintain a minimum investment in inventories to maximize profitability.
Both excessive and inadequate inventories are not desirable. These are two danger
points within which the firm should avoid. The objective of inventory management
should be to determine and maintain optimum level of inventory investment. The
optimum level of inventory will lie between the two danger point of excessive and
inadequate inventories.
The firm should always avoid a situation of over investment or under-investment in

inventories. The major dangers of over investment are: (a) unnecessary tie-up of the
firm’s funds and loss of profit, (b) excessive carrying costs, and (c) risk of liquidity.
1.16 LEVEL OF INVENTORIES
Maintaining and inadequate level of inventories is also dangerous. The consequences

of under-investment in inventories are (a) production hold-ups and (b) failure to meet
delivery commitments. An effective inventory management should
• Ensure a continuous supply of raw materials to facilitate uninterrupted

production.
• Maintain sufficient stocks of raw materials in periods of short supply

and anticipate price changes.
• Maintain sufficient finished goods inventory for smooth sales operation, and
efficient customer service.
• Minimize the carrying cost and time, and
• Control investment in inventories and keep it at an optimum level. Ideally, the

material control must ensure that the following requirements are fully met:

• There should be proper coordination and cooperation between various

departments dealing in materials; viz., purchasing department, stores
department, receiving and inspecting department, accounting department, etc.
• There should be central purchasing department under the control of a

competent and expert purchase manager.
• There should be proper classification and codification of materials.
• Materials requirements should be properly planned.
• The perpetual inventory system should be operated so that up-to-date

information is available about the quantity of materials in stock.
• Adequate records should be introduced to control materials during production

and quantities manufactured for stock.
• The storage of all materials should be well-planned subject to adequate

safeguards and supervision.
• The various stocks levels like minimum, maximum, etc., should be fixed for
each item of material.
• Purchase of materials should be controlled through budgets.
• An efficient system of internal audit and internal check should be operated so

that all transactions involving materials are checked by reliable and
independent persons.
• There should be regular reporting to management regarding purchases, issues

and stock of materials. Special reports should be prepared for obsolete items,
spoilage, returns to suppliers, abnormal losses, etc.
1.17 NEED TO HOLD INVENTORIES
Maintaining inventories involves tying up the company’s funds and incurrence of

storage and handling costs. If it is expensive to maintain inventories, why do
companies hold inventories? There are three general motives for holding inventories.

Transaction motive emphasizes the need to maintain inventories to facilitate smooth

production and sales operations.
Precautionary motive necessitates holding of inventories to guard against the risk of

unpredictable changes in demand and supply forces and other factors.
Speculative motive influences the decision to increase or reduce inventory levels to

take advantage of price fluctuations.
A company should maintain adequate stock of material for continuous supply to the
factory for an uninterrupted production. If is not possible for a company to procure
raw materials whenever it is needed.
1.18 TYPES OF INVENTORY
Inventories may be held for a variety of purposes, but general, there are five types of
inventories that an organization can use for serving these purpose. There are:
Movement of inventories: Movement of inventories are also called transit or pipeline

inventories. Their existence owns to the fact that transaction time is involved in
transferring substantial amount of resources.
Buffer inventories: buffer inventories are held to protect against the uncertainties of
demand and supply. And organization generally knows the average demand for
various items that it needs.
Anticipation inventories: anticipation inventories are held for the reason that a future
demand for the product is anticipated.
Decoupling inventories: the idea of the decoupling inventories is to decouple,

disengage, different parts of the production system. As we can observe easily,
different machines or equipment and people normally work at different rates-some
slower and some faster.
Cycle inventories: cycle inventories are held for the reason that purchases are usually
made in lots rather than for the exact amounts which may be needed at a point of time.
Of course if all purchases are made exactly as and when the item is required, there

would be no cycle inventories. But, practically, then the cost involved in obtaining the
items would be very large.
1.19 INVENTORY COSTS
In determining an optimal inventory policy, the criterion most often is the cost
function. The classical inventory analysis identifies four major cost components.
Depending on the structure of an inventory situation, some, or all, of these are
included in the objective function.
Purchase cost: This refers to the nominal cost of inventory. It is the purchase
price for the items that are bought from outside sources, and the production cost if
the items are purchased within the organization. This may be constant per unit, or
it may vary as the quantity purchased or produced increases or decreases.
Ordering cost or set-up cost: The term ordering costs is used in case of raw
materials (of supplies) and includes the entire costs acquiring raw materials. They
include costs incurred in the following activities: requisitioning, purchase
ordering, transporting, receiving, inspecting, and storing (store placement).
Ordering costs increase in proportion to the number of orders placed.
3. Carrying costs: costs incurred for maintaining a given level of inventory are
called carrying costs. They include storage, insurance, taxes, deterioration and
obsolescence. The storage costs comprise cost of storage space (warehousing), stores
handling costs and clerical and staff service costs (administrative costs) incurred in
recording and providing special facilities such as fencing, lines, racks etc.
Ordering cost Carrying costs
Requisitioning Warehousing
Order placing Handling
Transporting Clerical and staff
Receiving, inspecting and storing Insurance
Clerical and staff Deterioration and obsolescence

Stock out costs: stock out cost means the cost associated with not serving the
customers. Stock outs imply shortages. If the stock out is internal it would imply that
some production is lost. While if the stock out is external, it would result in a loss of
potential sales and/or loss of customer goodwill.
1.20 STOCK LEVELS
One of the major objectives of a system of material control is to ensure that there are
no ‘under stocking’ and ‘overstocking’. A scientific approach to achieve this objective
is to adopt a system of stock levels. These levels are maximum level, minimum level.
Re-order level and re-order quantity.
Maximum level: the maximum stock level is the level above which stocks should not
normally be allowed to rise. It is the maximum quantity of a material that may be in
store. The following factors are considered while fixing this level
1. Rate of consumption of the material 5. Cost of storage space available,

2.Insurance costs,
3. Amount of capital needed, 6. Bulk purchase of seasonal materials,
4. Risk of obsolescence and deterioration, 7. Re-order quantity for the material.
Formula: Re-order level + Re-order quantity – (minimum consumption * minimum

re-order period)
Minimum level: minimum level is that below which stock should not normally be
allowed to fall. In case any item of materials fall below this level, there is a danger of
stoppage in production and top priority should be given to the purchase of new
materials. I setting this level, the following factors must be taken into account.
• Rate of consumption of material,
• Time required obtaining delivery of the new materials,
• Re-order level.
Formula: Re-order level –(Normal consumption* Normal re-order period)

Re-order level: this is that level of material at which a new order for material is
placed. It is at this level that purchase requisition is made out. This level is above
minimum level but below maximum level. It is after a consideration of the following
factors:
• Rate of consumption of material,
• Minimum level,
Lead time or delivery time, i.e., the normally taken from the time of raising purchase
requisition to receipt of materials.
Formula: (Maximum consumption × Maximum re-order period)
Danger level: this is a level at which normal issue of material are stopped and urgent
action is taken for purchase of materials so that production is not interrupted due to
shortage of materials.
Formula: Average or normal consumption * Maximum re-order period for emergency

purchases
Average stock level: average stock level is calculated by the following formula:
Average stock level = minimum level + maximum level
Average stock level may also be computed by the following formula:

Average stock level = minimum level + ½ (Re-order quantity)
1.21 SELECTIVES APPROACHES TOINVENTORY CONTROL
In practice, all items of inventory cannot, and need not, be controlled with
equal attention. An effective inventory calls for an understanding and knowledge of
the nature of inventories. Here we shall consider the following types: ABC; JIT; Out
sourcing; Computerized Inventory control systems; VED; HML; SDE; S-OS; FNS;
XYZ;

1. Re-order quantity (or Economic Order Quantity)
Re-order quantity is the quantity to be ordered whenever materials are to be

purchase. By setting this quantity, the buyer is saved the task of re-calculating how
much he should buy each time he orders. This quantity may, of course, be revised if
circumstances warrant it.
Re-order quantity is sometimes known as economic order quantity because it is the

quantity which is most economical to order. In other words, economic order quantity
is the size of the order which gives maximum economy in purchasing any material
and ultimately contributes towards maintaining the material at the minimum cost. It
equates the cost of ordering with the cost of storage of materials.
Economic order quantity may be determined by the following formula:
EOQ = 2.A.B/C.S Where EOQ = Economic order quantity
A = Annual consumption
B = Buying cost per order

C = Cost of unit of materials
S = Storage and carrying cost percentage of cost
Alternatively, EOQ = 2.A.B/S Where S = Storage cost per unit per annum
2. ABC Inventory Control System
The firm should be selective in its approach to control investment in various types of
inventories. This analytical approach is called the ABC analysis and tends to measure
the significance of each item of inventories in terms of its value. The high-value items
are classified as ‘A items’ and would be under simple control. ‘C items’ represent
relatively least value and would be under simple control. ‘B items’ fall in between
these two categories and require reasonable attention of management. The ABC
analysis concentrates on important items and is also known as control by importance
and exception (CIE). As the items are classified in the importance of their relative
value, this approach is also known as proportional value analysis (PVA).
The following steps are involved in implementing the ABC analysis:
• Classify the items of inventories, determining the expected use in units and the
price per unit for each item.
• Determine the total value of each item by multiplying the expected units by its
unit’s price.
• Rank the items in accordance with the total value, giving first rank to the item
with highest total value and so on.
• Compute the ratios (percentage) of number of units of each item to total units
of all items and the ratio of total value of each item to total value of all items.
• Combine items on the basis of their relative value to form three categories- A,
B & C.
3. Just –in-time (JIT) Systems
Japanese firms popularized the just-in-time system in the world. In a JIT system
material or the manufactured components and parts 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 or carrying large inventories and thus, saves eliminates the necessity of
carrying large inventories. The system requires perfect understanding and
coordination between the manufacturer and suppliers in items of the timing of
delivery and quantity of the material. Poor quality materials or components could halt
the production. The JIT inventory system complements the total management (TQM).
The success of the system depends on how well a company manages its suppliers. The
system puts tremendous pressure on suppliers. They will have to develop adequate
systems and procedures to satisfactory meet the needs of manufactures
4. Out – sourcing
A few years ago there was a tendency on the parts of many companies to manufacture
all components in-house. Now more and more companies are adopting the practice
out-sourcing. Out-sourcing is a system of buying parts and components from outside

rather than manufacturing them internally. Many companies develop a single source
of supply, and many others help developing small and middle size suppliers of
components that they require.
5. Computerized inventory control systems
More and more companies, small or large size, are adopting the computerized system
of controlling inventories A computerized inventory control system enables a
company to easily track large items of inventories. It is an automatic system of
counting inventories, recording withdrawals and revising balance. There is an in-
built system of placing order as the computer notices that the reorder point has been
reached. The computerized inventory system is inevitable for large retail stores, which
carry thousands of items. The computer information of the buyers and suppliers are
link to each other. As soon as the supplier’s computer receives an order from the
buyers system, the supply process is activated.
6. VED Analysis
In VED analysis, the items are classified on the basis of their critically to the
production processor other services. In the VED classification of materials, V stands
for vital items without which the production would come to a standstill. E in the
system denotes essential item whose stock out adversely affect the efficiency of the
production system. Although the system would not altogether stop for want of these
items, yet their non-availability might cause temporary losses in, or location of,
production. The D items are the desirable items which are required but not
immediately cause a loss of production. The VED analysis is done mainly in respect
of spare part.
7. HML Analysis
This is similar to the ABC analysis except that, in this analysis, the items are
classified on the basis of unit cost rather than their usage value. The items are
classified accordingly as their cost for unit is H-high, M-medium, or L-low. This type
of analysis is useful for keeping control over materials consumption at the
departmental level.

8. SDE Analysis
This uses the criterion of the availability of items. In this analysis, S stands for scarce
item which are in short supply. D refers to the difficult items-meaning the items might
be available in the indigenous market but cannot be procured easily; while E
represents easily available items, from the local markets may be.
9. S-OS analysis
S-OS analysis is based on the nature of suppliers, wherein S represents the

seasonable items and OS represents the Off-seasonable items. This classification of
item is done with the aim of determining proper procurement strategies.
10. FSN Analysis
Based on the consumption pattern of the items, the FSN classification calls for
classification of items, as Fast-moving, Slow-moving, non-moving. Some analysts
classify the items as FNSD; Fast –moving, Normal-moving, Slow-moving, and Dead
(or non-moving). This ’speed’ classification helps in the arrangement of starts in the
stores and in determining the distribution and handling patterns.
11. XYZ Analysis
XYZ analysis is based on the closing inventory value of different items. Items, whose
inventory values are high, are classed as X items while those with low investment in
them are termed as Z items. Other items are the Y items whose inventory value is
neither too high not too low.
1.22 CHARACTERISTICS OF INVENTORIES
• It represents a financial investment of a company
• It is a part of the goods sold and are therefore a business expenses
• In an inventory use storage space require handling insurance and

sometimes deteriorate becomes absolute or gets lost or stolen
• The availability of the right time at the right item is necessary for
operating any production process or satisfying a demand by a customer for
a finished product

• Inventories are not self-correcting. They must be managed effective and

management requires measure of performance.
1.23 METHODS OF PRICING MATERIAL ISSUES
It should be noted that methods discussed here are methods of pricing the issue of
materials and not the methods of physically issuing materials.
Some of the important methods of pricing issues are as follows:
1. FIRST-IN-FIRST-OUT (FIFO)
This method is based on the assumption that materials which are purchased first are
issued first. It uses the price of the first batch of materials purchased for all issues
until all units from this batch have been issued. After the first batch is fully issued, the
price of the next batch received becomes the issue price.
ADVANTAGES
The following advantages are claimed for FIFO method:
• This method is based on a realistic assumption that materials which are

received first are issued first.
• Materials are issued at actual cost. Thus, no unrealized profit or loss results
from the use of this method.
• Closing stock valuation is at cost as well as at the latest market prices.
• This method is quite simple to operate and easy to understand.
DISADVANTAGES
• Materials are not changed at the current market prices. Therefore, in times of
rising prices, charge to production is unduly low.
• This method sometimes produces unfair results as between one job and
another. For example, materials purchased @ Rs. 10 may be issued to job A,
but materials issued to similar hog B may be from a later supply which is @
Rs. 12. This makes comparisons difficult because two similar jobs started at
the same time may show different costs.
• When transactions are large in number and the price fluctuates very
frequently, the method involves more calculations and increases the possibility
of errors.
2. LAST-IN-FIRST-OUT(LIFO)
The method is just reverse of FIFO. It is based on the assumption that last
purchases of materials are issued first and earlier receipts are issued in the last.
LIFO method uses the price of the last batch received for all issues until all units
from this batch have been issued. After that, price of the previous batch received
is used.
The students should note that in actual practices materials issued to production
may not be from the latest lot purchase. This is only a book-keeping method and
must not be confused with physical method of issue used by the storekeeper who
always tries to issue the oldest stock first. Two important points of this method are
• Issues are pieced at actual cost and latest prices paid
• Closing stock is valued at the old prices and is completely out of line with
current prices.
ADVANTAGES
• This method has following advantages
• The value of materials issued is closely related to current market prices
• As materials are issued at actual cost, it does not result in any unrealized profit
or loss.
• When prices are rising, the higher prices of the lost recent purchases are
charged to production.
• This reduces profit figure and results in income- tax saving.
DIS-ADVANTAGES
• Although stock is valued at cost, the price is that of the earliest purchased, so
that stock value does not represent its current value.

• This method is not realistic as it does not conform to the physical flow of
materials.
• Like FIFO, in this method also, the materials cost of similar jobs may differ
simply because the prior job exhausted the supply of lower prices stock. This
renders comparisons between jobs difficult.
• When prices fluctuate very often, the calculation complicates the stores
account and increases the possibility of clerical errors.
3. AVERAGE COST METHODS

These methods are based on the assumption that when materials purchased in
different lots are stored together, their identity is lots, and therefore, these should be
changed at an average price. Basically, average prices are of two types- simple
average and weighted average.
4. SIMPLE AVERAGE METHOD
Simple average price is calculating by adding all the different prices and dividing by
the number of such prices. It does not account quantities of materials while computing
average price. For instance, when 100 units are purchase@ Rs.9 per unit and 900 units
are purchased @ Rs.7 per unit, the simple average price will be = (9+7)/2 = Rs. 8.The
only advantage of this method is that it is simple to understand and easy to operate.
DIS-ADVANTAGES
• Materials are not charged out at actual cost. Thus, unrealized profit or loss will
usually arise out of pricing.
• This method is unscientific and usually produces unsatisfactory results. The

value of closing stock may be a negative figure which is quite absurd.
5. WEIGHED AVERAGE METHOD
This method gives due weight to the qualities held at each price when calculating the
average price. The weighted average price is calculated by dividing the total cost of
material in stock from which the material to be priced could have been drawn, by that

total quantity of material in that stock. The simple formula is that weighted average
price at any time is the balance value figure divided by the balance units figure.
ADVANTAGES
• This method evens out the effect of widely varying prices of different
purchases.
• The new issue price is calculated only at the time of each new purchase and
not at the time of each. This reduces the work of making calculations.
• No unrealized profit or loss arises.
DISADVANTAGES
Its main disadvantages are:
• Where receipts are numerous, this method requires a good deal of

calculations.
• Issue prices generally run to a number of decimal points.
• Materials are not issued at the current market prices.
1.24 STORES- KEEPING
In manufacturing companies, a large part of money invested is represented by stocks.

Therefore, a good store keeping is a noteworthy feature of a well-run business.
Suitably trained and experienced personnel should be in charge of store department.
The stores function involves both safeguarding the materials as well as maintaining
up-to-date stores records.
1.25 OBJECTIVES OF GOOD STORE KEEPING
• Economical use of storage space,
• Protection of materials against fire and theft,
• Immediate location of materials required,
• Up-to-date stores records,
• Facilitating perpetual inventory,
• Speedy receipts and issue of materials,
• Avoiding Over-stocking and under-stocking.

1.26 STORES RECORDS
The stores are of two types
• Perpetual Inventory records and
• Documents
1. Perpetual Inventory Records
These records show the movement of stores, i.e. the receipt of materials, issues of
materials to production departments and also current in stock. Bin card and store
ledgers are the two basic perpetual inventory records.
• BIN CARD (STOCK CARD): A bin is a container in which materials is kept. A

bin card is a quantitative record of receipts, issues and closing balances of
material items in store but it does not contain information about the prices of
materials.
• TWO BIN SYSYTEMS: In this system two bins are maintained for each item of
store. One bin constitute the main or the regular bin from which materials are
issued and the other bin contain the minimum stock from which issues are made
when stock in the regular bin is exhausted.
• STORES LEDGER: This ledger is maintained in the cost accounting

department. Like bin cards, the stores ledger records all receipt and issue
transactions in respect of materials. But the difference is that stores ledger keeps
records of the quantities as well as prices of materials. Separate ledger folios are
maintained in the stores ledger for each items of material.
The stores ledger is one of the basic records for material accounting in the cost
system. There are mainly three sections in the ledger, i.e., receipts, issues and
balance, each of these with appropriate sub-divisions showing Ref. No.,
Quantity, Unit price and Total Cost. The entries in the receipt and issues columns
are made from the same documents which are used for posting in bin card, i.e.,
goods received Note and Stores Requisition Note, etc
Difference between bin card and stores ledger are

• Bin Card is a record of quantity only whereas Store ledger records both
quantity and money value
• Bin Card is maintained by the store keeper whereas stores ledger is kept in the
cost office
• Posting in Bin Card normally takes place before the transaction takes place
while in stores ledger; it is posted after the transaction.
1.27 DOCUMENTS AUTHORISING MOMENTS OF MATERIALS
• Goods Received Note
A reference was made to this note in the purchase procedure discussed earlier. A copy
of goods received note is send to the storekeeper along with the materials for his
records. The storekeeper uses this document for posting on the receipt side of the bin
card.
• Store Requisition Note (or materials Requisition Note)
It is a document which is used to authorize and record the issue of materials from
store. The storekeeper should issue materials on the presentation of dually authorized
stores requisition note. It should be appreciated that this is a key document in virtually
all costing systems and serves the dual purpose of:
• Authorizing the storekeeper to issue material, and
• Providing a written record of usage of materials
• Bill of Materials ( Specification of Materials)
It is a mater requisition which lists all the materials required for the completion of job.
So, a bill of materials is a special form of stores requisition note which is generally
used by departments having standard material requirements are a comparatively fixed
list of materials.
The main advantages of using bill of materials are:

It eliminates the need for preparing separate material requisition notes for
various types of materials required for a particular job. This saves time and
promotes efficiency.
• The storekeeper can be given advance warning of requirements of materials

usually not available in store. It thus avoids delay in production.
• When pre-printed forms of bill of materials are used in standard type of

output, it serves a lot for clerical labour and risk of errors is reduced.
• Material return Note
When materials issued are in excess of requirements, the unused materials

are returned to stores together with a Material Return Note. This note is similar to
Material Requisition Note, but normally printed in a different colour for a easy
identification. When materials are received back in the stores, these should be placed
in an appropriate bins and entries made in the bin card.
• Materials Transfer note
Materials note have to be sometimes transferred from one job to another. This may be
both because excess materials were issued to a job and surplus materials are directly
transferred to another job or because materials issued to a less urgent job are
transferred to a more urgent job. When such transfers are not permitted, the surplus
materials are returned to the stores and then re-issued to another job. This results in
extra transport costs. Thus, when materials are bulky, such transport costs may be
heavy which can be avoided if direct transfers are permitted.
• Material Abstract ( Material Issue Analysis Sheet)
Material abstract is defined by CIMA, UK as “a document which is classified record

of materials issues, returns and transfers”. In other words, all Material Requisitions,
Material Return Note and Material Transfer Notes are analysed periodically by the
Cost accounting department to ascertain the material cost of each job.

1.28 INVENTORY TURNOVER RATIO
This is the ratio of materials consumed during the year to the average stocks of raw
materials. Its formula is as follows:
Stock Turnover Ratio = Cost of materials consumed during the period
Average Stock of materials during the period

CHAPTER-2
RESEARCH DESIGN
2.1 MEANING
Research design is blue print for collection measurement and analysis of data. It
involves decision regarding what, where, when, how much, what means, concerning
an enquiry or a research study.
It always begins with a question or a problem. Its purpose is to find answers to

questions through the application of systematic and scientific methods. Thus,
research is the systematic approach towards purposeful investigation. This needs
formulating a hypothesis, collections either in the form of a solution or certain
generalizations.
2.2 DEFINITION
According to Jihad Cook “A research design is the arrangement of conditions for

collection and analysis of data in the manner that aims to combined relevance to
research process with economy in procedure”.
2.3 TITLE OF THE STUDY
“A STUDY ON MATERIAL MANAGEMENT AND CONTROL”

CONDUCTED AT GROUP PHARMACEUTICALS LTD, MALUR
2.4 STATEMENT OF THE PROBLEM
The problem selected to the analysis is “to study the effectiveness of material
management and control” at GROUP PHARMACEUTICALS LTD, Malur. The
effectiveness of the prevailed inventory system is analyzing simultaneously
efficiency of the manufacturing firm.
It is concerned with the management of inventories as well as efficiency in cost

reduction. The variation of prices of raw materials are also seems very difficult for the

smooth functioning in to account for the analysis as these two aspects relates to
material management.
2.5 SCOPE OF THE STUDY
Since the topic has a wide scope in every manufacturing sector, the research was
undertaken at GROUP PHARMACEUTICALS LTD MALUR
2.6 OBJECTIVES OF THE STUDY
• To study material control management
• To study the problems in managing material management at GROUP

PHARMACEUTICALS LTD
• To analyse the material control system at GROUP PHARMACEUTICALLTD
• To analyse the material control data
2.7 NEED OF THE STUDY
Inventory management system provides information to efficiently manage the flow of

material, effectively utilize and equipment, coordination, internal activities and
communicative with customers. Inventory management does not make decisions or
manage operations they provide the information to managers who make more
accurate and timely decisions. The following can be stated as the need for the study.
• To determine the inventory and inventory position of the firm
• To know the progress and process of Inventory position of the firm
• To know how to maintain optimum level of inventory in an organization
• To find out different ratios of the firm related to Inventories and to check their
effects
• The study is needed because the management must see that excessive
investment in inventory should be minimized and at the same time it should
protect the company from the problem of stock out.
2.8 SOURCES OF DATA COLLECTION

After identifying the research problem we have to determine the specific information
required to solve the problem. Now the task is to look for the type of sources of data
which may yield desired results. The data can be classified into two types:
Primary Data: The primary data was collected through discussion with the officials
of finance and stores department.
Secondary Data: For gathering secondary data various other sources were used.
• Different accounting records of the company
• Text books and other case studies
• Files relating to the inventory reports, annual reports etc
• Gathering information from the past records and exhibits of products of

GROUP PHRMACEUTICALS LTD and from Internet.
2.9 TOOLS USED FOR DATA ANALYSIS
To analyse the company’s annual report which are relevant to inventory, the Ratio
analysis has been undertaken as a tool in this study. Different ratios related to
inventory management have been used, and the variations of the ratios are shown
through the various graphs.
2.10 REVIEW OF LITARATURE
According to Arnold, J. R. and Chapman (2004), materials management can define as

an organizing function responsible for planning and controlling the materials flow.
This means that the materials management is a planned procedure that involves from
the initial purchasing, delivery, handling and minimization of waste of the material
with the purpose to ensuring the quality, quantity and time of the requirement should
meet accordingly.
Material management are the activities involved to plan, control, purchase, expedite,
transport, store, and issue in order to achieve an efficient flow of materials and that

the required materials are bought in the required quantities, time, quality and at an
acceptable price. (Stukhart ,1995)
2.11 LIMITATIONS OF THE STUDY

The study of material management and control at GROUP PHARMACEUTICALS
LTD MALUR has some Limitations as every study has its own limitations
 Time constraint.
 Not ready to disclose the information.
 Financial constraint.
 Tools constraint.
 Money constraint.
 Period of study is very less.
 Due to the above analysis, in certain cases has been done for the company as a
whole. While in case of this study it is constraint only to sunil agro foods ltd,
Bangalore.
 The study is confined to only one company.
 Analysis in the study will be dependent on the information supplied by the
company.
 The information available was limited, as is confidential.
 The present study has the normal limitations of time, funds and other facilities
commonly faced by single student researcher.
2.12 Overview of the Chapter Scheme or Design of the

Study:
Chapter-1: Introduction
This chapter includes meaning, definition, objectives, characteristics, steps,

advantages, disadvantages and the subject background of the research topic. And it
explains the theoretical background of the project.

Chapter-2: Research Design:
This chapter deals with the design of the study, statement of the problem, objectives
of the study, scope of the study, plan of the analysis, sources of data collection, and
limitations of the study and overview of chapters.
Chapter-3: Company Profile:
In this chapter covers introduction to industry, Industrial background of the study,

Origin of the industry, Growth of the industry, Present status of the industry,
Competitors, Products, Services, Background inspection of the company, Nature of
the business carried vision, mission.
Chapter-4: Data Analysis and design:
This part deals with data collected to study unit cost incurred in traditional This
entire data has been summarized into tables and charts depending upon the
necessity. Each of them of analyzed to arrive at valid finding and interference.
Chapter-5: Summary of Findings and conclusion.
This chapter deals with the finding of the study during the analysis. The entire
findings are based on the observation methods which were adopted to undertake the
study and also it deals with the analysis of contribution statement.
Chapter-6: Suggestion, and Recommendation
This chapter deals with our own suggestion given to the company.
Bibliography:
The reference made from Journals, company’s financial statement, through

websites, company’s brochure, magazines, text books, is listed in this chapter.

CHAPTER 3
3.1 INDUSTRY PROFILE
The Indian pharmaceutical sector has come a long way, being almost non-existent
before 1970 to a prominent provider of health care products, meeting almost 95 per
cent of the country's pharmaceuticals needs.
The Industry today is in the front rank of India’s science-based industries with wide
ranging capabilities in the complex field of drug manufacture and technology. It ranks
very high in the third world, in terms of technology, quality and range of medicines

manufactured. From simple headache pills to sophisticated antibiotics and complex

cardiac compounds, almost every type of medicine is now made indigenously.
Playing a key role in promoting and sustaining development in the vital field of
medicines, Indian Pharma Industry boasts of quality producers and many units
approved by regulatory authorities in USA and UK. International companies
associated with this sector have stimulated, assisted and spearheaded this dynamic
development in the past 53 years and helped to put India on the pharmaceutical map
of the world.
The Indian Pharmaceutical sector is highly fragmented with more than 20,000
registered units with severe price competition and government price control. It has
expanded drastically in the last two decades.
There are about 250 large units that control 70 per cent of the market with market
leader holding nearly 7 per cent of the market share and about 8000 Small Scale Units
together which form the core of the pharmaceutical industry in India (including 5
Central Public Sector Units). These units produce the complete range of
pharmaceutical formulations, i.e., medicines ready for consumption by patients and
about 350 bulk drugs, i.e., chemicals having therapeutic value and used for production
of pharmaceutical formulations.
Following the de-licensing of the pharmaceutical industry, industrial licensing for

most of the drugs and pharmaceutical products has been done away with.
Manufacturers are free to produce any drug duly approved by the Drug Control
Authority. Technologically strong and totally self-reliant, the pharmaceutical industry
in India has low costs of production, low R&D costs, innovative scientific manpower,
strength of national laboratories and an increasing balance of trade.
Corporate Catalyst India India’s Pharmaceutical Industry The total Indian production
constitutes about 13 per cent of the world market in value terms and, 8 per cent in
volume terms. The per capita consumption of drugs in India, stands at US$3, is
amongst the lowest in the world, as compared to Japan- US$412, Germany- US$222
and USA- US$191.

The pharmaceutical industry is of interest to the field of law and economics for two,
related, reasons. First, the usual issues of structure, conduct and performance when
applied to the pharmaceutical industry must take into account its unusually high rate
of R&D, which implies a high rate of technical change, critical importance of patent
protection, potential for market power and novel price and product competitive
strategies. This raises interesting positive and normative issues related to prices,
profits and public policy.
The future structure of the industry, as it adapts to changing technology and

regulation, is another interesting question with no certain answers. The emerging
technologies of biotechnology and genomics are transforming the nature of R&D and
comparative advantage within the industry. Small firms play an increasingly
important role in the development of new drugs and new R&D technologies.
Biotechnology and gene therapy have raised important safety and ethical issues for
regulation. The alliances that link biotech firms with each other and with large
pharmaceutical companies raise interesting questions related to agency and the nature
of the firm.
3.2 INDUSTRY STRUCTURE
Rising research and development (R&D) expenditures by pharmaceutical companies

are, in part, a consequence of changing industry structure, particularly the rise of the
biotechnology sector. The creation of a market for biomedical science and increased
vertical competition within the industry are likely to spur innovation and raise
productivity, but they also could induce socially wasteful spending and weaken
academic science. With innovation increasingly dependent on financially vulnerable
firms and complex contractual arrangements, R&D investment might be becoming
more sensitive to price controls or other cost containment measures.
 Blockbuster Drugs
A blockbuster drug is defined as a drug generating more than $1 billion a year,

and blockbuster drugs account for roughly one-third of the value in
pharmaceutical sales. These drugs include Lipitor and Celebrex by Pfizer and
Prilosec and Maximum by AstraZeneca, which combine for more than $19
billion in sales alone. Because of the immense cost of bringing a new drug to
market, these firms rely on the patents for these drugs to prevent the production
of generics and ensure high prices.
 Patents, Generics and Blockbuster Drugs
The structure of the industry is currently designed so that pharmaceutical

companies can market their products to different nations at different prices. In
the U.S., unsurprisingly, people pay much higher prices for brand medication
than do those in other countries. As a result, America has seen an increase in
the illegal smuggling of pills from Canada to the United States. This is
especially prevalent for on-brand, expensive drugs (such as Lipitor by Pfizer,
which can be 40 percent cheaper in Canada).
3.3 Players in the Market
 Ranbaxy Labs
 Dr Reddy’s Labs
 Cipla
 Nicholas Piramal
 Sun Pharma
 Lupin
 Cadila Healthcare
 Torrent Pharma
 Glenmark
 Biocon
3.4 Industry Volume
India’s pharmaceuticals industry looks set for a solid long-term growth. It already
ranks fourteenth in the global league table, with sales of almost US$19 billion in
March 2009.10 However, PwC estimates that it will rise to approximately US$50
billion by 2020 – a 163% in the space of eleven years.11 Indeed, in our report,
Pharma 2020: The vision, we anticipate that India will be one of the industry’s top 10
markets by 2020. This growth will be driven by the expanding economy and
increasing per capita GDP. In 2008, India’s middle class constituted 13% of the
population, according to the National Council of Applied Economic Research.12
While this remains a fairly small proportion of the total population, it represents a
substantial increase from a mere 3% in 1995.13 If the economy continues to grow
faster than those of the developed world and the literacy rate keeps rising, around a
third of the population (34%) is expected to join the middle class in the near future.14
While these consumers still earn substantially less than their US or European
counterparts, they are rapidly acquiring the buying power necessary to afford modern
healthcare, particularly if purchasing power parity is considered.
One source estimates that at least 60 million Indians – a market as big as the UK – can
already afford to buy Western medicines.15 Aggressive pricing strategies will be
necessary, however, to make in-roads into India’s price sensitive market. India’s
federal Government currently mandates price controls on essential drugs, however,
these are under review. Price controls are carried out on certain drugs by virtue of the
Drugs Price Control Order (DPCO), supervised by the National Pharmaceutical
Pricing Authority (NPPA).
The 347 price controlled drugs included in 1979 were reduced to 143 in 1987.16 At
present, 74 bulk drugs are covered under the DPCO.17 The Government’s draft
pharmaceutical policy in 2006 sought to expand the scope of essential drugs and
evoked a sharp reaction from the industry. They argued that it would adversely affect
R&D activities in India, as companies would stay away from investing in new drugs.
To date, no further action on the proposed policy changes have been taken and it
currently looks unlikely that the DPCO will be expanded.
The Indian Government’s Department of Pharmaceuticals has also initiated operations

for a peoples’ medicines shop, called ‘Jan Aushadhi,’ in various locations. These
shops sell generic medicines at much cheaper rates than the price of corresponding
branded medicines.18 Some multinational pharma companies are already taking
measures to reach a larger patient population by reducing drug prices and increasing
affordability.

3.5 Current Scenario:
The industry has enormous growth potential. Factors listed below determine the rising
demand for pharmaceuticals.
 The growing population of over of a billion

 Increasing income
 Demand for quality healthcare service
 Changing lifestyle has led to change in disease patterns, and increased demand
for new medicines to combat lifestyle related diseases.
India's pharmaceutical market grew at 15.7 per cent during December 2011. Globally,
India ranks third in terms of manufacturing pharma products by volume. According to
McKinsey, the Pharmaceutical Market is ranked 14th in the world. By 2015 it is
expected to reach top 10 in the world beating Brazil, Mexico, South Korea and
Turkey. More importantly, the incremental market growth of US$ 14billion over the
next decade is likely to be the third largest among all markets. The US and China are
expected to add US$ 200bn and US$ 23bn respectively.
McKinsey & Company’s report, “India Pharma 2020: Propelling access and
acceptance, realizing true potential,” predicted that the Indian pharmaceuticals market
will grow to US$55 billion in 2020; and if aggressive growth strategies are
implemented, it has further potential to reach US$70 billion by 2020. While, Market
Research firm Cygnus’ report forecasts that the Indian bulk drug industry will expand
at an annual growth rate of 21 percent to reach $16.91 billion by 2014. The report also
noted that India ranks third in terms of volume among the top 15 drug manufacturing
countries.
Further, McKinsey reports Healthcare grew from 4 per cent of average household
income in 1995 to 7 per cent in 2005 and is expected to grow to 13 per cent by 2025.
Diagnostics Outsourcing / Clinical Trials: According to the estimates, the

Indian diagnostics and labs test services, in view of its growth potential, is expected to
reach Rs159.89 billion by FY2013. The Indian market for both therapeutic and

diagnostic antibodies is expected to grow exponentially in the coming years. Further,

more than 60% of the total antibodies market is currently dominated by diagnostic
antibodies.
Some of the major Indian pharmaceutical firms, including Sun Pharma, Cadilla
Healthcare and Primal Life Sciences, had applied for conducting clinical trials on at
least 12 new drugs in 2010, indicating a growing interest in new drug discovery
research. The Indian pharmaceutical industry is now discovering new opportunities
of growth inclinical research, contract research, manufacturing and innovation
opportunities. This pathcan lead the Indian pharmaceutical industry to huge success
endeavours.
 Global pharmacies expected to launch 200-250 new drugs over next 8-10 years
totalling an estimated US$ 3-5 billion
 FDI inflow grew over six fold from US$ 60.7 mn in 2003 to US$ 340 mn, in
fiscal year 2004
 Bristol Myers Squibb, Boehringer Ingelheim and Eisai without Indian presence
earlier, have made recent foray
 Indian firms tying up with foreign companies to in-license drugs Corporate
Catalyst India India’s Pharmaceutical Industry
3.6 RESERCH & DEVELOPMENT
R&D is the key to the future of pharmaceutical industry. The pharmaceutical

advances for considerable improvement in life expectancy and health all over the
world are the result of a steadily increasing investment in research. There is
considerable scope for collaborative R & D in India. India can offer several strengths
to the international R&D community. These strengths relate to availability of
excellent scientific talents who can develop combinatorial chemistry, new synthetic
molecules and plant derived candidate drugs.
The R & D expenditure by the Indian pharmaceutical industry is around 1.9 per cent
of the industry’s turnover, which is a little low as compared to foreign research based
pharmaceutical companies. However, now that India is entering into the Patent
protection area, many companies are spending relatively more on R & D. When it

comes to clinical evaluation at the time of multi-center trials, India is providing a

strong base considering the real availability of clinical materials in diverse therapeutic
areas.
According to a survey by the Pharmaceutical Outsourcing Management Association

and Bio/Pharmaceutical Outsourcing Report, pharmaceutical companies are utilizing
substantially the services of Contract Research Organizations (CROs).
Indian Pharmaceutical Industry, with its rich scientific talents, provides cost-effective
clinical trial research. It has an excellent record of development of improved, cost-
beneficial chemical syntheses for various drug molecules. Some MNCs are already
sourcing these services from their Indian affiliates.
3.7 Product development
For years, firms have made their ways into the global market by researching generic
competitors to patented drugs and following up with litigation to challenge the patent.
This approach remains untouched by the new patent regime and looks to increase in
the future. Corporate Catalyst India India’s Pharmaceutical Industry However, those
that can afford it have set their sights on an even higher goal new molecule discovery.
Although the initial investment is huge, companies are lured by the promise of hefty
profit margins and the recognition as a legitimate competitor in the global industry.
Small and medium enterprises
The excise structure changed so that companies now have to pay a 16 per cent tax on
the maximum retail price of their products, as opposed to on the ex-factory price.
Consequently, larger companies are cutting back on outsourcing and what business is
left is shifting to companies with facilities in the four tax-free states - Himachal
Pradesh, Jammu & Kashmir, Uttaranchal and Jharkhand. SMEs have been finding it
difficult to find the funds to upgrade their manufacturing plants, resulting in the
closure of many facilities.
In terms of the global market, India currently holds a modest 1-2 per cent share, but it
has been growing at approximately 10 per cent per year. India gained its foothold on
the global scene with its innovatively-engineered generic drugs and active
pharmaceutical ingredients (API), and it is now seeking to become a major player in

outsourced clinical research as well as contract manufacturing and research.
Domestic Demand: The industry has enormous growth potential. Factors listed
below determine the rising demand for pharmaceuticals.
 The growing population of over of a billion

 Increasing income
 Demand for quality healthcare service
Changing lifestyle has led to change in disease patterns, and increased demand for
new medicines to combat lifestyle related diseases More than 85 per cent of the
formulations produced in the country are sold in the domestic market. India is largely
self-sufficient in case of formulations. Some life saving, new generation under-patent
formulations continue to be imported, especially by MNCs, which then market them
in India. Overall, the size of the domestic formulations market is around Rs160 billion
and it is growing at 10 per cent per annum.
Demand for drugs for treatment of lifestyle-related diseases such as diabetes,

cardiovascular diseases, and central nervous system are on the increase. There are
around 700,000 new cases of cancer each year and total of around 2.5 million cases. It
is estimated that there are around 40 million people in India with diabetes and the
number is rising, 5.1 million HIV/AIDS patients, and 14 million tuberculosis cases.
According to industry reports, while the Indian pharmaceutical industry witnessed a
growth of 7 percent, the cardio-vascular segment recorded 15 to 17 percent growth
and anti-diabetes segment of over 10-12 percent growth.
Historically, the low cost of domestically produced drugs together with government
controlled prices, and the absence of patent regulations had made the market less
attractive Corporate Catalyst India India’s Pharmaceutical Industry for foreign
players. With the new patent laws in place the market scenario will change. Indian
market will become attractive for foreign company.
According to CARE research demand triggers for the growth are:

 Between 2010 and 2015 patent drugs worth US$171 bn are estimated to go off-
patent leading to a huge surge in generic products.
 High margin pharma export business is expected to grow at a higher rate than
domestic market given increased in outsourcing activities.
 Increased M&A activities is set to consolidate the market which widens
geographic reach, strengthens distribution network and venture into new
therapeutic segments.
 Indian companies files the highest number of ANDA’s with USFDA leading to
greater chances of approvals and thereby increasing export to regulated markets
especially the US.
 There are currently approximately 175 USFDA and nearly 90 UK-MHRA
approved pharma manufacturing plants in India which can supply high quality
pharma products globally.
 Growth from rural markets will outstrip overall pharma market growth, albeit at
lower margins, given lower penetration of 18-19% coupled with rising income
level and awareness.
 Biopharmaceuticals is another potential high growth segment for Indian pharma
growing at double digit driven by the vaccines market.

 3.8 ORGANISATION PROFILE AND PRODUCT PROFILE
Group Pharmaceuticals Limited was incorporated on 1st of June 1980 as a Private

Limited Company and subsequently the company changed its status to Public Limited
Company on 21st of April 1993. Group Pharmaceuticals Limited is a closely held
unlisted Company. Group Pharmaceuticals Limited is engaged in the manufacturing
and marketing of medicinal products since 1980 for domestic and International
markets.
In view of the business, Group Pharmaceuticals Limited has incorporated a new plant
with all advanced technologies and sophisticated equipments, complying with WHO,
current good manufacturing products (CGMP) and Schedule M, at KIADB Industrial
area, Malur, Kolar District.

.The site is about 53 Kms away from Bangalore city and 20 KMS from Hoskote, on
the road that is connecting Old Madras Road and New Madras Road. The nearest
Railway station is at Malur, which is only 1.5Km away from the plant.3
A team of personal of various disciplines and pharmacists are working towards

meeting the customer’s requirements and the objective of continuous improvement in
quality.
Group Pharmaceuticals Limited has complimentary production facilities, good

marketing network and foreign collaborations too. The company has geared up to
march ahead in facilitating its consumers with all the latest developments that has
taken place in the pharma market with Dental and Oral care products in particular.
Group Pharmaceuticals Limited has completely fulfilled the obligatory

documentations, clearances, certificates, registrations as per the current rules and act
in the enforcement. Company has good, qualified and experienced personnel
accountable for these matters.
3.9 Mission:
To help dental care specialists and other specialists, prevent, cure and alleviate the
suffering of millions, in the area of basic health requirements.
In support of this, company committed to:
 Creating an image of a leading healthcare and dental care company in India.

 Serving the healthcare fraternity with customized and innovative products.
 Providing reasonable and appreciating returns to our investors.
 Being recognized as a trustworthy and transparent organization by our
stakeholders.
 Providing challenging and rewarding career opportunities to our employees
with the spirit of participation, care and empowerment.
 Being driven by a missionary zeal, to encourage social awareness and progress
in healthcare, through community services.

3.10 GOALS OF COMPANY:-
 To be punctual to work to reduce absents not wasting time.

 To be punctual at work.
 Sorting tools and documents at right place in clean way.
 Work effectively.
 Think constructively.
 Judge wisely.
 Maintaining cleanliness in work.
 Increasing productivity.
3.11 MILE STONES:
Over the years, GROUP has built a strong name for itself in the field of Dental and
Oral care, both in its manufacturing and marketing capabilities. Group Manufactures
and Markets a wide range of Dental and Oral hygiene products like Desensitizing
Toothpaste/ Oral Rinse, Anaesthetics, Astringent Gels, Denture Adhesive Cream and
Cleansing Tablets, APF Gels, etc.
 Potassium Nitrate for the treatment of Sensitive Teeth was introduced to the
Indian market by GROUP.
 We became the First Company in India to manufacture and market Denture
Cleansing Tablets.
 GROUP was the First Company to introduce Desensitizing Oral Rinse
Therapy in India.
 GROUP was the first company to launch NovaMin in India , a new and
innovative breakthrough technology for the treatment of Sensitive teeth
 GROUP is the first company in India to introduce a low abrasive , bleach –
free whitening toothpaste powered with enzymes .
 These, along with many other innovations in the field of Dental and Oral care
strongly embedded our presence in this growing Dental Market.
3.12 Facilities:

 The core production area, warehouse (includes raw & packaging materials &
finished goods area) & water system in the ground floor, utilities (AHU and
chiller) in the first floor.
 The foundation of the facility has been given anti termite treatment. The
terrace has been treated with waterproof compounds. The periphery of
building is constructed of brick walls, cement masonry and reinforced
concrete cement (RCC) roof. The following of the manufacturing areas,
primary & secondary packing areas and the corridors are coated with non-
shrinking hard coating of resin (epoxy resin). Wall to floor and wall to ceiling
covings ensure easy cleaning of CGMP area.
 The corridors are designed to enhance viewing of the manufacturing
operations without physically entering the processing areas. All doors and the
windows are flushed to the wall and have a smooth finish. Each processing
area is provided with an independent flush door. All entrance points to the
facility have list of authorized entry of personnel.
 There are separate storage areas for raw materials, packing materials, printed
packaging materials and finished goods. UPS system provides lighting in the
Manufacturing and Packing Area during power failures. All the during,
electrical lines and utility lines are either taken above the false ceiling or
concealed within the wall. All the luminaries are flushed with the ceiling
control panels and the switches are flushed with the wall.
3.13 Operational area:
Group pharmaceuticals limited was incorporated in 1980 as a private limited and

subsequently the company changed its status to public limited company on 1993. It
has its head quarter in Mumbai. The process of manufacturing is the primary function
of this organization. It begins with the arrival of raw material and ends when the final
product is finished goods that are ready for sale in the market. In Group
Pharmaceutical, which is a manufacturing industry is producing both Health and
Dental products but Group is identified by producer of Dental and Oral care products.
GROUP has made its own contribution with a wide range of well-known products in

the segment of Dental Care, Antimicrobials, NSAIDs, Analgesics, Nutritionals,

Cough and cold remedies and Psychotropic products.
3.14 Product Profile:-
Few industries in the country can claim to have achieved a more remarkable record
of growth and development than the Pharmaceutical Industry, especially in the field
of oral care products. Pharmaceutical Industry, by manufacturing wide range of
preventive and curative medicines, has played an important role in raising the general
health standards of the Indian mazes.
3.15 Health Care Products:
1. Aminol-Ds (Analgesic, Antipyretic suspension)
2. Aminol drops (Analgesic, Antipyretic drops)
3. Azoo 250(Antibiotic)
4.Azoo 500(Antibiotic)
5. Euspas (Anti spasmodic tablets)
Health Care
Aminol-DS
Product Name : Azoo 250

ProductSegment
Name : :Aminol
Health care – DS
SegmentProduct : :Health care
Antibiotic
Product Composition : :Analgesic, Antipyretic suspension
Composition
Each Formula : (Therapeutic) :
tablet contains :
Acetaminophen
Azithromycin : :250 mg / 5ml
250 mg
Packing :60ml bottle
Azoo 250
Aminol
Drops
Product Name : Aminol Drops

Segment : Health Care
Product : Analgesic, Antipyretic drops
Composition :
Each ml contains :
Paracetamol : 100 mg
Packing : 15 ml bottle
Azoo-500
Product Name : Azoo 500

Segment Health care
Product Antibiotic
Composition
Each tablet contains
Azithromycin 500 mg
Packing 3 X 5 tablets
Euspas
Product Name : Euspas
Segment : Health care
Product : Anti spasmodic tablets
Composition Formula : :
(Therapeutic)
Each Tablet contains :
Dicyclomine HCL : 20mg
Paracetamol : 500mg
Packing : 10X10 tablets
3.16 Dental Product
Aclaim Tooth Paste

Aclaim Tooth paste contains neon particles of

hydroxyaoatite which is similar to natural hydroxyapatite of tooth. claim toothpaste
offers immediate and long lasting relief from tooth sensitivity by the penetration of
nanohydroxy apatite particles deeply in to the dentinal tubles and occludes them.
Aclaim also forms a bio-mimetic layer on the surface of the open dentinal tubles for
additional protection. Aclaim toothpaste also offers remineralisation by filling up the
micro cracks of the enamel. Aclaim toothpaste is available in 70gm tube with nice
peppermint flavour claim
AMFLOR Oral Rinse
AMFLOR Oral Rinse is the trusted partner during fixed orthodontic

treatment. AMFLOR OR contains Amine Fluoride which is an organic fluoride.
AMFLOR OR actively spreads over the tooth surfaces and demineralises the enamel
very effectively. AMFLOR OR is very useful to prevent decalcification under and
around the orthodontic bands and brackets and to inhibit white spot lesions.
AMFLOR OR also prevents plaque &provide antimicrobial action to maintain proper
oral hygiene. AMFLOR OR is available in convenient monthly pack of 450 ml
AMFLOR TOOTH PAST
Amflor Toothpaste contains Amine Fluoride which is

a new generation organic fluoride. Amflor toothpaste offers Active Rematerializing

action for superior results. Amflor toothpaste offers better demineralization as

compared to inorganic fluorides like sodium mono fluorophosphates or sodium
fluoride. Amflor toothpaste provides long term protection and has got superior anti-
bacterial effect. Amflor toothpaste is available in 50gm & 100gm packs.
Oral Rinse AMFLOR
AMFLOR Oral Rinse is the trusted partner during fixed orthodontic treatment.
AMFLOR OR contains Amine Fluoride which is an organic fluoride. AMFLOR OR
actively spreads over the tooth surfaces and rematerializes the enamel very
effectively. AMFLOR OR is very useful to prevent decalcification under and around
the orthodontic bands and brackets and to inhibit white spot lesions. AMFLOR OR
also prevents plaque & provide antimicrobial action to maintain proper oral hygiene.
AMFLOR OR is available in convenient monthly pack of 450ml.
Company Sales in US $Mn Market Share in %

Cipla 6,368.06 6.51
Ranbaxy Lab 5,687.33 8.73

Dr Reddy's Labs 5,285.80 4.70
LupinLtd 4,527.12 3.54
AurobindoPharma 4,229.99 3.16
Sun Pharma 1,985.78 2.93
Cadila Health 2,213.70 2.77
Piramal Health 1,619.74 2.51
Matrix Labs 1,894.30 2.43
Wockhardt 651.72 2.01
3.17 Competitors Analysis

3.18Polices of the Organization
Quality policy of the Company
“To provide consistently high quality products in the field of health care that can meet
the expectation of the medical professional and the consumer. This is being achieved
by cumulative efforts from the top management to the lowest cadre of the workmen
by maintaining preset working standards aimed at defect prevention rather than defect
detection.” Our quality products are achieved through
 The best available resources

 Well trained personnel
 Good manufacturing practices
 Stringent specification
Hence, Group Pharmaceuticals are totally committed to quality.
Responsibilities of the Quality Assurance:
 Preparation of Quality Systems and procedures.

 Review and approval of product design and development and scale up
 Review and approval of production and quality control documentation for

compliance with CGMP and GLP requirements.
 Review and approval of the controls on the quality of starting materials
intermediates and finished products.
 Critical monitoring of manufacturing environment.
 Review of batch production records, and quality control records, packaging
records and release of batches.
 Handling of deviation reports.
 Handling of product complaints and product recalls.
 Review of stability data and shelf-life of products.
 Process validations.

ORGANAISATIONAL CHART /FUNCTIONAL CHART No.1.5
CEO/BA
MD/SON
GMTEC MANAGER PLANT MANAGER
Q.A MANAGER Q.C

Production Maintenance Dispatch Production
Assistant
Q.A ASSISTAN PACKING STORE MAINTENANCE PACKING
SENIOR QC
SENIOR
QC WORK MEN
PRODUCTION
HRD MANAGER
COMPUTER
Assistant Manager
SECURITY
COMPUTER
Employees
OPERATOR

Group Pharmaceuticals has Functional structure. They diversify the work with
different departments, where each store has an in-charge and the approach is top to
bottom. There is less opportunity for workers say their views and interact with higher
authority.
3.20 Board of Directors:
Directors Designation
Dr. B.S. Mahadev Managing Director
Mr. Rajesh kapoor GM Corporate QA & RA
Mr. Promodkumar Jain GM Corporate QC
Mr.A.T.Rao Sr. Manager-Production
Mr.Gopal Krishna Sr. Asst Manager QA
3.21Group Pharmaceuticals Ltd, Malur
Brief information
Group Pharmaceuticals Limited was incorporated on 1st of June 1980 as a Private

Limited Company and subsequently the company changed its status to Public Limited
Company on 21st of April 1993. Group Pharmaceuticals Limited is a closely held
unlisted Company. Group Pharmaceuticals Limited is engaged in the manufacturing
and marketing of medicinal products since 1980 for domestic and International
markets.
In view of the business, Group Pharmaceuticals Limited has incorporated a new plant
with all advanced technologies and sophisticated eqipments, complying with WHO,
GMP and Schedule M, at KIADB Industrial area, Malur, Kolar District.

The site is about 53 Kms away from Bangalore city and 20 KMS from Hoskote, on
the road that is connecting Old Madras Road and New Madras Road. The nearest
Railway station is at Malur, which is only 1.5Km away from the plant.3
A team of personal of various disciplines and pharmacists are working towards

meeting the customers requirements and the objective of continuous improvement in
quality.
Group Pharmaceuticals Limited has complimentry production facilities, good

marketing network and foreign collaborations too. The company has geared up to
march ahead in facilitating its consumers with all the latest developments that has
taken place in the pharma market with Dental and Oral care products in particular.
Name &Address of the Registered Office:
Group Pharmaceuticals Limited,
W/46 (B) MIDC, Tarapur 401506
Thane Dist. INDIA
Tel:+91 (0)2525-272108
Fax:+91(0)2525-274036
Name & Address of the Administrative Office:
Group Pharmaceuticals Limited,
DevrajBldg, ‘A’ Wing,
4th Floor, S.V. Road, Goregaon(W), Mumbai – 400062, INDIA
Pharmaceutical manufacturing activities as licensed by national/local authorities:
Group Pharmaceuticals Limited has completely fulfilled the obligatory

documentations, clearnces, certificates, registrations as per the current rules and act in
the enforcement. Company has good, qualified and experienced personnel
accountable for these matters.

Group Pharmaceuticals Limited is permitted to manufacture Drugs &cosmetics

preparations from Drug Control Department, Govt. of Karnataka, Bangalore, India
under License No.KTK/25/452001, KTK/28/339/2003 and KTK/32/268/2006.
Other manufacturing activities carried out on the site:
Group Pharmaceuticals Limited does not have any other manufacturing actibities in
the above said premises apart from those stated in 1.5. Group Pharmaceuticals limited
is completely dedicated for Pharma manufacturing business.
Name and address of the site, including telephone, fax and 24hrs.
Telephone Numbers:
Group Pharmaceuticals Limited

Plot No 41, KIADB, Industrial Area,
Malur, Kolar Dist-563130, Karnataka. INDIA
Tel: +91(0)8151-234237
Fax: +91(0)8151-235084
Email: groupmalur@grouppharma.in
Contact Person :Mr.vijay
Mobil: 9620340359

CHAPTER- 4
DATA ANALYSIS AND INTERPRETATION
The analysis and component part of financial statement to obtain a better

understanding of the firm’s position and performance. The financial analysis is one of
key figures in the financial statements and the significant relationships that exist
between them. That financial and interpretation of financial statement is to judge their
meaning and significance. An opinion is formed in respect of the final statements are
recognized and divided in to suitable forms.
The interpretation involves the explanation of financial facts in a simplified manner. It

also involves the comparisons for similar figures on different periods. Interpretation
which follows analysis of final statement is an attempt to reach a logical conclusion
regarding the position and progress of business on the basis of analysis .The analysis
and interpretation of financial data given in the financial statements are necessary to
draw conclusions or to form an opinion about certain facts.
Inventory turnover ratio which is also called stock turnover ratio or stock velocity
establishes the relationship between the cost of goods sold during a given period and
the average of the costs of opening and closing stocks. As the computational
procedure of the ratio differs from trading concerns to manufacturing concerns, from
seasonal industries to other industries, it is necessary to deal with it exhaustively and
separately as far as possible. Manufacturing concerns acquire raw-materials and use
them for the purpose of producing goods and services which are finally sold to
customers. As a result, the inventory of a manufacturing company companies of not
only the finished goods but also the raw-materials and the work-in-progress. It is
therefore useful to break-up the inventory turnover ratio (which is equal to the cost of
goods sold divided by the average inventory) into its main constituent Parts so that
light may be through on the level of efficiency or otherwise at its various points.

The ratios which can be used are presented below:
Inventory Turnover Ratio (Raw-material)
= Cost or raw-materials Consumed during the year
Average stock of raw-materials
Where,
Cost of raw-materials consumed during the year
= (Opening stock of raw-materials + Purchase of raw-material made during the

period)-(Closing stock of raw-material)
Average stock of raw-material
= Opening stock of raw-materials + Closing stock of Raw-materials
1. STOCK TURNOVER RATIO
Inventory or stock turnover ratio indicates the efficiency of firm’s inventory

management. This ratio gives the rate at which stocks are converted into sales and
then into cash. A low inventory turnover ratio is an indicator of dull business,
accumulation of inventory, over investment in inventory or unsalable goods etc.
Generally speaking, a high stock turnover ratio is considered better as it indicates that
more sales are being produced by each rupee of investment in stock but a higher stock
turnover ratio may not always be an indicator of favourable results.
It may be the result of a very low level stock which results in frequent out-of-stock
positions. Such situation prevents the company from meeting customer’s demands
and the company cannot earn maximum profits.

Year Inventory Growth of the total inventory
2013-14 2,20,89,773 100
2014-15 4,25,06,523 192
2015-16 6,58,93,495 298
TABLE 1: Showing progressive base year percentage growth of total
inventory from 2013-16
ANALYSIS:
In the above table year 2013-14 is taken as the base year. The fluctuation is shown
that there is gradual increase in the inventory year by year. In the year 2013-14 the
inventory was 100% in the year 2015-16 it came to 298%

GRAPH: 1
Progressive base year percentage growth of total inventory

from2013-16
350
300
250
200
Inventory
Growth of the total inventory
150
100
50
0
2013-14 2014-15 2015-16
INTERPRETATION:
The above graph shows the aggressive attitude of the GROUP

PHARMACEUTICALS LTD in relation to investment in inventory. There is a huge
increase in the inventory. This will directly affect the overall working capital of the
company and production process.

TABLE 2:
The inventory turnover ratio from 2013-16
Year Cost of goods sold Average inventory Turnover times
2013-14 23,13,640 1,10,44,886 20.94
2014-15 47,54,029 2,12,53,261 22.36
2015-16 86,06,524 3,29,46,747 26.12
ANALYSIS:
In the year 2013-14 the inventory turnover ratio was 20.94 times. Then there is a
gradual increase in the next 2 years. In the year 2014-15 it increased to 22.36, in the
year 2015-16 the inventory turnover ratio is 26.12.The ratio indicates the efficiency of
the GROUP PHARMACEUTICALS LTD in selling its product. In the year 2013-1 4
shows the highest turnover. This indicates the efficient use of inventory.

GRAPH 2:
Inventory turnover ratio from 2013-2016
Chart Title
30.00
25.00
20.00
15.00 INVENTORY TURN OVER RATIO
10.00
5.00
0.00
2013-14 2014-15 2015-16
INTERPRETATION:
Inventory turnover indicates the number of times the stock has been turned ever
during the period and evaluated the efficiency with which a firm is able to manage its
inventory. This ratio indicates the efficiency of the firm in selling its product. When
the ratio goes on increasing it means that the firm is selling more compare to previous
year.
The year 2013-14 shows the highest turnover. This shows the company is converting
the raw material in to finished goods by increasing the cost of inventory. It shows the
company having more demand.

TABLE 3:
The inventory to working capital from 2013-16
Year Inventory Working capital Percentage
2013-14 2,20,89,773 10,23,71,984 21.16
2014-15 4,25,06,523 20,62,74,123 20.60
2015-16 6,58,93,495 29,50,61,759 22.32
ANALYSIS:
In the year 2013-14 the inventory was 21.16% of total working capital, in the year
2014-15 the inventory slightly decreased to 20.32%. Then in the year 2015-16 the
inventory to working capital increased to 22.32%

GRAPH 3:
The inventory to working capital from 2013-16
Chart Title
22.5
22
21.5
21 Percentage
20.5
20
19.5
2013-14 2014-15 2015-16
INTERPRETATION:
The inventory should not exceed 75% of working capital. In all the year percentage of
inventory to working capital is less than 30% this shows that GROUP
PHARMACEUTICALS LTD is concentrating on other current assets of ready cash,
so they have to increase the investment in inventory to sell more products and earn
more money.

TABLE 4:
Material consumed to total inventory from2013-16
Year Material consumed Inventory Ratio
2013-14 1,22,26,941 2,20,89,773 55.35
2014-15 2,94,63,175 4,25,06,523 69.31
2015-16 3,11,98,777 6,58,93,495 47.34
ANALYSIS:
The material consumption ratio indicates whether the material consumed is equal or
low in the figure of inventory. In the year 2013-14 consumption rate was 55.35%, it
gradually increased to 69.31% in the next year, then it decreased to 47.34% in the
year 2015-16.

GRAPH 4:
Material consumption rate on the total inventory from 2013-16
Chart Title
80
70
60
50
40 Material Consumption Ratio
30
20
10
0
2013-14 2014-15 2015-16
INTERPRETATION:
This chart shows consumption rate is higher in the year 2014-15 which has
69.31% compared to other year.The company’s material consumption is less
than 50% in the year 2015-2016, so the company should try to increase the
consumption rate to increase the profit ratio.

TABLE 5:
Inventory Total current assets from 2013-16
Year Inventory Current Percentage

assets
2013-14 2,20,89,773 11,09,16,886 19.92
2014-15 4,25,06,523 21,95,65,340 19.35
2015-16 6,58,93,495 43,57,37,692 15.12
Analysis:
In the year 2013-14 the inventory was 19.92% of total current assets, in the year
2014-15 rates were decreased to 19.35% and in the year 2015-16 it has further
reduced to 15.12% on the total current assets. It shows the decreasing nature of
percentage of inventory on current assets.

GRAPH 5:
Inventory on the total current assets from 2013-16
output percentage
15.12
19.92 2013-14
2014-15
2015-16
19.35
INTERPRETATION:
This chart clearly shows the inventory usage is increasing over the year but it
is decreasing in percentage use of inventory on the total current assets. This
means company is concentrating towards other current assets for short cash
other than inventory.

TO ASSESS THE INPUT OUTPUT RELATIONSHIP

BETWEEN RAW MATERIAL AND FINISHED GOODS
TABLE 6:
Year Raw materials Production of Output

(mt) Tiles(mnsq m) percentage
2013-14 54,463.23 2374.65 4.36
2014-15 1,46,370.87 11,775.5 7.83
2015-16 3,80,000.00 35,728.0 9.40
Finished goods to raw material in GROUP PHARMACEUTICALS LTD
ANALYSIS:
In the year 2013-14 Group pharmaceuticals ltd was used 54,463.23 metric tons of
raw material to produce 2374.65 mn of sq meter, it increased its production capacity
to 1, 46,370.87 producing 11,775.5 metric tons of tiles, there is huge growth in the
percentage of output compare to the year 2013-14. Then in the year 2014-15 company
further increase its production capacity to 3, 80,000.00 metric tons at this time
company has produces 35,728.0 metric tons of tiles. The percentage of output has
increased to 9.40% from 7.83% in the last year 2013-14.

GRAPH 6:
Finished goods to raw material in GROUP PHARMACEUTICALS

LTD
output percentage
10
9.4
9
8 7.73
7
6 output percentage
5
4.36
4
3
2
1
0
2013-14 2014-15 2015-16
INTERPRETATION:
This chart shows that the company’s crushing capacity is increasing over the period
and it also shows there is a increasing trend in production of tiles but it is less
comparing to raw material trend.
The company has to redesign its production process design to get more advantage.

TABLE 7:
CURRENT RATIO IN GROUP PHARMACEUTICALS 2013-16
Formula current ratio = Current assets

Current liabilities
CURRENT CURRENT CURREN

YEAR LIABILITIES ASSETS T RATIO
2013-14 11,09,16,886 5,83,77,308 1.9
2014-15 21,95,65,340 13,72,28,337 1.6
2015-16 43,57,37,692 14,52,45,897 3

Analysis:
In the year 2013-14 the current ratio was 1.9% of total current assets & current
liabilities, in the year 2014-15 rates were decreased to 1.6% and in the year 2015-16 it
has further increase to 3% on the total current Ratio. It shows the increase nature of
percentage of current Ratio.

GRAPH-7
CURRENT RATIO IN GROUP PHARMACEUTICALS 2013-16
CURRENT RATIO
1.9
2013-14
2014-15
3 2015-16
1.6
INTERPRETATION:
This chart clearly shows the current ratio year but it is decreasing in
percentage use of current asset and current liabilities on the total current ratio.
This means company is concentrating towards current ratio.

TABLE 8:
OTHER CURRENT RATIO IN GROUP PHARMACEUTICALS 2013-16
Formula other current ratio = Other Current assets
OTHER CURRENT OTHER CURRENT

YEAR ASSETS SALES RATIO
2013-14 16167535 5794815 2.79
2014-15 16067235 6722692 2.39
2015-16 17766912 6629444 2.68
Sales
Analysis:
In the year 2013-14 the other current ratio was 2.79% of total other current assets /
sales, in the year 2014-15 rates were decreased to 2.39% and in the year 2015-16 it
has further increase to 3% on the total current Ratio. It shows the increase nature of
percentage of current Ratio.

GRAPH-8
OTHER CURRENT RATIO IN GROUP PHARMACEUTICALS 2013-16
OTHER CURRENT RATIO
2.68 2.79 2013-14

2014-15
2015-16
2.39
INTERPRETATION:
This chart clearly shows the other current ratio year but it is decreasing in percentage
use of current asset and sales on the total other current ratio. This means company is
concentrating towards other current ratio.

TABLE 9:
NETWORKING CAPITAL IN GROUP PHARMACEUTICALS 2013-16
Formula N.W.C% = Net working capital *100
Sales
YEAR SALES N.W.C N.W.C%

650372.053
2013-14 5794815 9 8.91
1409369.39
2014-15 6722692 2 4.77
451597.002
2015-16 6629444 7 14.68
Analysis:
In the year 2013-14 the Networking Capital was 8.91% of total Networking Capital ,
in the year 2014-15 rates were decreased to 4.77% and in the year 2015-16 it has
further increase to 14.68% on the total Network Ratio. It shows the increase nature of
percentage of Networking Ratio.

GRAPH 9:
NETWORKING CAPITAL IN GROUP PHARMACEUTICALS 2013-16
16
14
12
10
N.W.C%
8
0
2013-14 2014-15 2015-16
INTERPRETATION:
This chart clearly shows the Networking capital year but it is increasing in percentage
use of networking capital ratio. This means company is concentrating towards
networking capital.

TABLE 10:
TOTAL INVENTORY AND AVERAGE INVENTORY IN GROUP

PHARMACEUTICALS 2013-16
YEAR TOTAL INVENTORY AVG INVENTORY

2013-14 22089773 11044886
2014-15 42506523 21253261
2015-16 65893495 32946747

Analysis:
In the year 2013-14 the Average inventory was 1104886 of total Average
inventory , in the year 2014-15 rates were increase to 21253261 and in the year 2015-
16 it has further increase to 32946747 on the total Average invenory . It shows the
increase nature of percentage of Networking Ratio.

GRAPH 10:
TOTAL INVENTORY AND AVERAGE INVENTORY IN GROUP

PHARMACEUTICALS 2013-16
70000000
60000000
50000000
40000000
TOTAL INVENTORY
AVG INVENTORY
30000000
20000000
10000000
0
2013-14 2014-15 2015-16
INTERPRETATION:
This chart clearly shows the Total inventory and average inventory year but it is
increasing in total inventory. This means company is concentrating towards total
inventory and average inventory.

CHAPTER-5
SUMMARY OF FINDINGS, CONCLUSIONS & SUGGESTIONS
FINDINGS :
Materials constitute a very significant of total cost of finished product in most of the
manufacturing industries, a proper recording and control over the material costs is
essentials. Material represents large investment of capital and a substantial percentage
of cost of production.
Materials Management has necessitated professional management function which

demands an ability to bring together conflicting and yet interrelated functions via,
materials planning, purchasing, receiving and inspection, stores, inventory control,
scrap and surplus disposal. The economic pressures in the form of inflation and credit
squeeze have placed exacting demands on the materials manager. The important
advantages of integrated materials management are better accountability, better
performance and better growth and adaptability to electronic data processing.
Following observations were made on the basis of the study undertaken in this
organisation:
• The growth rate in inventory which stood at Rs. 2,20,89,773 in 2014-15, rise
to Rs. 6,58,93,495 in 2015-16, indicating an increasing from 100% in 2014-15
to 298% in 2015-16, is an indication that company has been investing in
inventory in order to facilitate smooth flow of production.
• The inventory turnover ratio indicates the rapidity with which the stocks are
consumed by an organisation. In this case, the stock turnover ratio was 20.94
in 2015-16, which raised to 26.12 times, indicating a high rate of stock
turnover. This proves that the stocks are not idling and the company has been
using the materials purchased frequently.
• Working capital is the excess of current assets over current liabilities.

Working capital includes inventory also. A high amount of working capital

indicates ability of the company to repay its current liabilities. It is also the
situation of solvency of the company to repay its short term debts. The
inventory to working capital ratio was 21.16% in 2015-16 rose to 22.32% in
2013-14 is a condition of solvency of the company.
• Materials consumed rose from Rs. 1, 22, 26,941 in 2015-16 to Rs. 3,11,98,177
in 2013-14, indicates that the company’s production activities are clearly
scheduled and hence the demand for more amount of materials required for
production.
• Current assets include inventory also. The ratio of inventory to current assets
was 19.92% in 2013-14 decreased to 15.12% in 2015-16. In terms of rupee
value, it was Rs. 2, 20, 89,773 in 2010-11 reduced to Rs. 6,58,93,495 in 2015-
16.
General findings are:
• It is a company private company, so it has to follow the rules made by the

Board of Director.
• The production is based on the old technology, which leads to more waste in
the production process.
• The company using computerized system (tally ERP 9) for accounts

maintaining.
• There is a mismatch between production and sales activity.
• The company should clearly be aware about competitors in order to gain

competency.
• The company is under utilizing its capacity.
• Presently company is running under huge loss.
• There is no proper system for inventory valuation.
• The company is using tender form of purchasing materials & selling of tiles.
• The plant is designed on the basis of Product / Line layout.

• More efforts for improvement are required in every field of administration.
• Tiles manufacturing process is old compare to other tiles manufacturing units.
• In our opinion and according to the information and explanations given to us,
the
• Company has maintained proper records to its inventory. The discrepancies

notice on Physical verification is made based on best estimates.

CONCLUSION
GROUP PHARMACEUTICALS LTD Factory is leading manufacturer of tiles in

this part of the state. They are contributing to the development of the country as a
whole. Our country needs more such units who can help in it develop. So that we can
be a better and a bigger player in all the industrial sectors of the world. Today’s
market place is changing rapidly. Competition from around the corner the corner and
around state is increasing. Their policy is to market quality products and to meet
customer satisfaction and to attain quality leadership.
Proper material management will add to the profitability of the company by way of
reducing losses due to purchase, storekeeping and issue of materials. Proper timing of
materials is necessary along with levels setting for different materials, to avoid over
stocking, unnecessary locking up of capital and also efficient use of working capital.
The success of any organization depends on recruiting the prospective employee on

training adopted for the development of skills and knowledge of the employee so the
management identifies the weakness of the problem and gives solution to those
problems through training and better performance appraisal for the performance. It
facilitates to develop the employee as well as organization.

SUGGESTIONS
As per the study on inventory management and its implementation in GROUP

PHARMACEUTICALS Limited MALUR, it was revealed that management of the
Inventories needs more attention.
• Framing strategy for retain in the market.
• Company has to utilize the available raw material.
• Improve in engineering work (process designing)
• Company has to maintain good quality in sugar
• Company has to give clear training & development to improve the

efficiency of employees.
• The company should avoid over stocking of raw materials as it may result
in obsolete.
• Computerization of all the sections is necessary
• Company has to study the competitor’s strategy of production to sustain in

the market
• Bin cards should be used in the stores as it will give up to date balance
stocks
• Company has to introduce scientific method on inventory system to

control the inventories in a best way.
• Company need moderate of stores section.
• Company has to improve the technique of ABC analysis to classify the

materials and products in nice manner.
The company has to follow the first in first out method in issuing the materials to the
parties,

BIBLIOGRAPHY
Sl.no BOOK NAME AUTHOR NAME PUBLISHER EDITION YEAR
1. Cost Ravi M. kishore TAXMANN 4rd 2013

management PUBLICATIONS
2. Basic M.Y.Khan P.K.Jain TATA 2nd 2011
financial McGRAW HILL
management
3. Financial I.M.Pandey VIKAS 10th 2011
management
4. Financial DR.S.N. SULTAN 13th 2007

management Maheshwari CHAND &
SONS
WEBSITES:
 WWW.UNITEX APPARELS.COM
 WWW.GOOGLE.COM
 Company website(www.GROUP PHARMACEUTICALS
LTD.com)
 www.wikipedia.com

BALANCE SHEET OF GROUP PHARMACEUTICALS

LTD ON 31-MARCH-2015
EQUITY &LIABILITIES NOTE AMOUNT(RS) ASSETS NOTE AMOUNT(RS)
NO NO
SHARE HOLDER NONCURRENT
FUND ASSET
a. Share A. Fixed assets 10
capital 3 13,57,34,510 a. tangible 2,33,52,80,395
b. Reserves& 4 1,63,05,94,989 assets
surplus b. intangible 39,61,639
assets
NON-CURRENT c. capital- 4,80,01,632
LIABILITES work-in-
a. long-term 5 88,50,43,933 progress
borrowings B. non-current 11 20,24,08,207
b. deferred tax 6 9,04,29,627 investments
liabilities C. long-term 12 21,12,19,783
c. other long 7 1,11,90,654 loans
term &advances
liabilities D. other non- 14.2 2,39,35,294
d. long-term 8 1,28,78,892 current asset
provisions
CURRENT ASSETS
A. inventories 13 1,24,68,51,274
CURRENT B. trade 14.1 72,36,16,646
LIABILITIES receivables
a. short-term 9 73,96,68,808 C. cash and 15 8,13,12,025
borrowings bank
b. trade 7 1,10,53,60,966 balance 12,31,44,32
payable D. short-term 12 7
c. other 39,36,14,957 loans &
current 7 advances
liabilities 1,12,81,119 E. others 14.2 1,60,67,235
d. short-term 8 current
provisions assets
TOTAL 5,01,57,98,455 TOTAL 5,01,57,98,455

BALANCE SHEET OF GROUP PHARMACEUTICALS LTD ON

31-MARCH-2014
LIABILITIES NOTE AMOUNT ASSETS NOTE AMOUNT
NO (RS.) NO (RS.)
EQUITY &LIABILITES NONCURRENT
ASSET
SHARE HOLDER FUND A. Fixed assets 10
a. share capital 3 13,57,34,510 a. tangible assets 2,27,46,71,443
b. reserve & surplus 4 1,61,81,71,322 b. intangible assets 60,03,809
c. capital-work- 18,32,50,815
progress
NON-CURREENT
LIABILITES B. Non-current 11 20,24,08,207
a. long term borrowings 5 82.68.03.298 investments C. Long-
term loans and 12 18,73,71,880
b. deferred tax liabilities 6 6,74,40,981 advances
c. other long term D. Other non-current 14,2 59,29,396
liabilities 7 25,89,859 assets
d. long term provisions 8 1,35,60,937

CURRENT ASSETS
a. Inventories 12
b. Trade receivables 14.1 1,32,28,34,362
CURRENT LIABILITES c. Cash &bank 15 73,37,26,376
balance 7,88,83,270
a.short term borrowings 9 97,63,91,139 d. Short-term loans 12
&advances 12,37,69,218
b.trade payables 7 1,07,13,55,542 e. Other current 14.2
c.other current liabilities 7 38,37,47,658 assets 1,77,66,912
d. short term provisions 8 4,08,20,443
TOTAL 5,01,57,98,455 TOTAL 5,01,57,98,455



STATEMENT OF P&L ACCOUNT FOR THE YEAR ENDING 31-MARCH-

2013&2014
PARTICULARS AMOUNT(RS) AMOUNT(RS)

31-MARCH-2014 31-MARCH-2013
1.REVENUES FROM OPERATIONS(GROSS)Less: 6,34,41,90,931 6,20,49,13,281
Excise duty 49.74.87.665 46,78,88,731
REVENUE FROM OPERATIONS(NET) 5,84,67,03265 5,73,70,24,550
1,46,16,549 3,10,80,148
2. OTHER INCOME
5,86,13,19,814 5,76,81,04,698
3.TOTAL REVENUE
4. EXPENSES
96,60,12,366 99,72,51,785
a. cost of materials consumed
1,42,07 ,97,338 1,62,81,75,210
b. purchase of stock-in-trade
7,26,94,626 (28,49,57,875)
c. decreases\increases in inventories
56,12,33,914 54,44,89,272
d. employees benefits expenses
24,23,12,630 25,01,84,071
e. finance costs
49,41,38,646, 18,55,64,506
f. depreciation & amortization expenses
2,35,82,57,027 2,27,30,48,587
e. others expenses 5,81,54,46,547 5,59,37,55,555
TOTAL EXPENSES 4,58,73,268 17,43,49,913
5. PROFIT BEFORE TAX(3-4) - -
6. EXCEPTIONAL ITEMS 4,58,73,268 17,43,49,913
7. PROFIT BEFORE TAX(4-5)
8. TAX EXPENSES 97,64,000 34,88,400
Current tax (97,64,000) (34,88,400)
Less: MAT credit entitlement - -
2,27,88,646 7,83,16,086
Deferred tax 26,17,994 (222,96,207)
Income tax adjustment for earlier year 2,02,66,628 9,83,29,264
9. PROFIT/LOSS AFTER TAX(7-8)
10. EARNINGS PER SHARE 1.49 7.24
a. Basic 1.48 7.24
b. Diluted


Study on Material Management at Pharma Company

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Study on Material Management at Pharma Company

Uploaded by

Copyright:

Available Formats

A STUDY ON MATERIAL MANAGEMENT AND CONTROL AT GROUP PHARMACEUTICALS LTD, MALUR

1.1 INTRODUCTION TO MATERIALS

As materials constitute a very significant of total cost of finished product in

1.2 TYPES OF MATERIALS

A. Direct materials: Direct materials are those materials, which can be

DR.AMBEDKAR INSTITUTE OF MANAGEMENT STUDIES.BANGALORE Page 1

• Specific purpose: Material passing from one process to another requires a

• Production process: Material passing from one process to another

• Acquisition expenses: Charges incurred for acquiring the materials for

B. Indirect materials: Indirect materials are material traceable to finished

1.3 REQUISITES FOR MAINTAINING RECORDS FOR

• Determination of quality of product

The exact quality of the specification of materials required should be

• Price influenced by cost

DR.AMBEDKAR INSTITUTE OF MANAGEMENT STUDIES.BANGALORE Page 2

• Prevent from interruption

There should be no interruption in the product process for want of

• Avoid unnecessary locked up to funds

There should be no over stocking of materials because that would result

1.4 MATERIAL MANAGEMENT

Material management is a function responsible for coordinating of planning,

DR.AMBEDKAR INSTITUTE OF MANAGEMENT STUDIES.BANGALORE Page 3

1.5 DEFENITION OF MATERIAL MANAGEMENT

1.6 SCOPE OF MATERIAL MANAGEMENT

Under its scope are:

1.7 OBJECTIVES OF MATERIAL MANAGEMENT

The primary objective is as follows

• Maintaining continuity of supply with consistency of quality.

• Minimizing investments in inventories.

• Assuring a high inventory turnover.

DR.AMBEDKAR INSTITUTE OF MANAGEMENT STUDIES.BANGALORE Page 4

The secondary objective is

• Material cost reduction through simplification, standardization, value analysis

• Co-coordinating the functions of planning, scheduling, storage, materials

• Development of personnel relating to materials management.

1.8 FUNCTIONS OF MATERIAL MANAGEMENT

The functions of materials management include:

• Material requirement planning [MRP]

• Receiving and inspection of materials

• Dispatch of finished goods

A. Material requirement planning

The activities involved in material requirement planning are as under:

• Requirement planning of materials

• Indent amendments generation

• Fixation of target sales

DR.AMBEDKAR INSTITUTE OF MANAGEMENT STUDIES.BANGALORE Page 5

The activities involved in purchasing process are as under:

• Receipt of indent and amendment and registration

• Placement of purchase order

• Follow up purchase order

• Vendor performance evaluation

• Licensing for imported items

• Clearance of imported consignments

C. Receiving and inspection of materials

The activities involved in inspection process are as follows:

• Checking sample in laboratory

• Comparing samples with actual specification in purchase order

• Checking the required utility for consumption purpose

• Inspecting quality of materials before placing bulk orders

• Rejecting samples if the does not match with the specification

Stores function consists of the following activities:

• Materials receipt and identification

• Recording in related documents