MEANING AND NATURE OF INVENTORY Inventory can be referred to as sum of the value of raw materials fuels and lubricants, spare parts, maintenance consumables, semi processed materials and finished goods, stock at any given point of time. In large companies inventory place a most significant part of the current assets. The business has about 15 to 30% of inventories in total assets. Inventory is composed of assets that will be sold in feature in the normal course of business operations. The assets which firms stores as inventory is anticipation of need are raw materials, work in progress and finished goods.

MEANING OF INVENTORY MANAGEMENT Inventory management consists of maintaining for a given financial investment an adequate of something in order to meet and accepted pattern of demand. Inventory considers control over costs of inventory on one hand an handle the size of inventory on other hand. Controlling investments in inventories constitute crucial part in current assets. An efficient inventory controlling system will decide, What to purchase When to purchase How to purchase


Size of purchase And from where to purchase (Suppliers) The main purpose of inventory management is to ensure 1. 2. 3. Required quantity of availability of raw materials Minimize the investments in inventories Maintain reasonable stock levels not excess or not under stocks.

INVENTORY CONTORL Inventory control is the system devised an adopted investments in inventory. It involves inventory decision making with regard to the quantity purchase, fixation of stock levels, maintenance of and continuous stock – taking. OBJECTIVES OF INVENTORY CONTROL Inventory control includes not only of the physical stocks but also of the funds invested on it. That twin objectives of inventory control are, 1. 2. To maintain a balanced inventory. To keep the amount invested in inventory as low as possible without hampering either flow of the production or deliveries of finished goods. for controlling planning and and time of stock records

 To avoid both under stocking and over stocking of inventory.

To eliminate duplication in ordering or replenishing stocks. This is possible with the help of centralized purchasing.


To ensure continues supply of materials, spares and finished goods so that production should not suffer and any time and customers demand should also be met. To design proper structure for inventory management. A clear cut accountability should be fixed at various levels of the organizations. To ensure right quality goods at reasonable prices. Suitable quality standards will ensure proper quality of stocks. The price analysis, the cost analysis will ensure paying of proper prices. To facilitate furnishing of data for short term and long term planning and control of inventory.

NEED FOR INVENTORY MANAGEMENT In this competitive business world each and every business organization need inventory management system for determining what to order, when to order, where and how much to order so that purchasing and storing costs are the lowest possible without affecting production and sales. Thus, inventory management control incorporates the determination of the optimum size of the inventory-how much to be order and when after taking into consideration the minimum inventory cost. The over all inventory management includes design and inventory control organization with proper accountability establishing procedure for inventory handling disposal of scrap, simplification, standardization and codification of inventories, determining the size of inventory holdings, maintaining record points and safety stocks, economic order quantity, ABC analysis and VALUE analysis and finally framing an INVENTORY MANUAL.


To know the analysis of the records of stock levels. 3. The study conducted for a period of 45 days it is may not be detailed in all aspects. internal reports etc… and also interacting with employees of Tecumseh and analysis was made accordingly. 5. 6. 5 . 2. 4. To know the purchasing procedure of the inventories at Tekumseh. To know the analysis of the two bin system.OBJECTIVE OF THE STUDY The main objective of the project work is to study and analyze and preparation INVENTORY MANAGEMENT in Tecumseh India products private Ltd. To know classification of inventories. To know the analysis of the inventory turn over ratio. The objectives are : 1. SCOPE OF THE STUDY The study conducted with available data from the annual reports. To know codification of inventories. 7. To know the analysis of the JIT system of Tecumseh India products private Ltd..

inventory data. 6 . Two bin system. inventory turn over ratio. Problem identification To design a optimum level of inventory to manufactures compressors to the organization .METHODOLOGY To attain the objective of studying the inventory of Tecumseh Products India private Ltd. Secondary Data : The Secondary data has been collected from annual reports of and books. 2. Which is dangerous for the organization. The information has been collected in two ways : 1.The optimum level of inventory avoids excess & deficits inventory. internet (www. ABC analysis.Tecumseh. Primary data Secondary data Primary Data : In Primary data the analysis of purchasing procedure. JIT has made possible by the discussions with various administrative executives and other concerned people of Tecumseh Products India Pvt Ltd. stock levels.

Limitations: 1 2 The study period of 45 days as prescribed by university The study is limited unto the date and information provided by Tecumseh India products private Ltd and its annual reports 3 The report will not provide exact Budgetary System status and position in Tecumseh India products private Ltd. 7 . it may vary from time to time and situation to situation. 5 The accounting procedure and other accounting principles are limited by the company changes in them may vary the actual and budget performance. 4 This report is not helpful in investing in Tecumseh either through disinvestments or capital market.


Tecumseh products company products are grouped into 3 principal industry segments: 1. Mr. Todd W Herrick who has been president and CEO since 1984 Tecumseh India is a preferred supplier to world who of the Ac & Industry in India and in Middle East SAARC Countries Tecumseh products company is a US $ 2 billion cooling giant having a global presence and a global vision with 24 manufacturing locations in 4 continents a cross 100 countries employing over 20000 people it is the world largest independent compressors manufacturing company with 10% market share of the global 150 million units a year compressors Market. compressors products 2. Ray Herrick has passed away in 1973 but vision lived through his son ken the current chairman of the board and his grandson Mr. Ray Herrick a former employee of ford motor company started the company in 1937 the company went into public with an offering of 25000 shares. engine and power 3. pump products 9 .TECUMSEH Mr.

it started operation to offer new state of art AW series to Indian customers subsequently Tecumseh Products Company took over siel group become 100% subsidiary company of Tecumseh Products Company. Siel compressors were the first Indian compressors. shri Ram went into technical collaboration with wasting house US and was named as siel compressors. As soon as Tecumseh took over 10 . which resulted in a great change in the industrial sector. Siddhartha c shriam became the chairman cum managing director (M.TECUMSEH mean CROUNCHING PANTHER derived from chief of the SHAWNEE tribe.ORIGIN OF COMPANY: The company was originally established and registered in 1963 under the name of USHA refrigeration industries limited(URIL) for water cooler air this unit manufacturing compressors conditions and water coolers lala sharat Ramji who was from renowned industrial family of DGM and coromondal group of companies started URIL in 1970 the URIL was changed to shri ram refrigeration limited and the business was divers towards Manufacturing of diesel engines and water coolers shri ram industries played a great role line the field and capture more than 50% of market share in India shri ram industries also kept its hands in Mr. Siddhartha c shriram ram industries also kept its hands in Mr. in the process for survival. Later wasting House stopped manufacturing compressors and steel went into technological collaboration with Techmseh products company USA in 1988. (1768-1813).D) The product saw sea change in the industrial policy.

TPIPL is an ISO and 9001 certified American based company Tecumseh India is a 100% subsidiary 10 Tecumseh products company USA. This plant has a technology development center with full R&D facility. The plant has the manufacture capacity of 300 units per day. Hyderabad plant: The Hyderabad plant is on a 54 acres land at the Balanagar industrial belt 15km away from Hyderabad city on highway line going towards HMT Limited Narsapur road at Hyderabad TPIPL manufacture air conditioner form 100 BTU to 6lakhs BTU (British Thermal Unit) and compressors for deep freezer. which is world only full line. bottle coolers and water coolers which are considered to be world’s no 1 in 150 million compressor market a year. independent manufacturing locations is 4 continents across 100 countries employing over 19000 people.TPIPL has gained core expertise in R&D AW assembly and AW machine shops such that it acquired a lion’s shae compressors marked by gaining a 50% share. In India it has 20 sales office and an extensive network of over 200 dealers and move than 600 registered small scales industries. The plant is also supported by two service centers AW service center and MC service center and MC service center Hyderabad plant has six regional offices among which four offices are metro cities The 11 .the company stopped manufacturing water coolness and restricted its production to CFC/hermetically sealed compressor.

• In 1998 the turnover for the year was Rs. BLUESTAR.50 Crores. This plant also has network of about 177 dealers across the nation and his preferred supplies to key original equipment manufactures like LG.. VOLTAS.14. Employees for the current year are: Permanent Worker 402 Staff Officers RSO 185 156 45 Total To-Dated 2006 Employees is: 788 12 .14 Crores and PBT of Rs. TPIPL Hyderabad has total of 829 permanent employees. Hyderabad. Besides there are branch officers and depots located in prime cities across the country. • In 1997 Tecumseh fully acquired SRI.TPIPL Hyderabad plant was successful in getting the ISO 9001 certification for maintaining quality of compressor in 1994 and for eco friendly environment maintenance the company has ISO 14001 certification . etc.111. 10. GODERJ. HITACHI.remaining tow are at Ahmadabad and secunderabd.28 Crores with on operational profit of Rs. VIDDEOCON. • Company not only meets its target but also increase it market share and company think about amalgamates. AMTRIX. FEDDERS.

AW. a) Effluent Treatment Plant b) Tree Plantation c) Biological Treatment Plant 13 .000-29.000(expanding) • The plant is certified company with ISO 9001-2000 version.Company have 1000 of contact Worker. Products: Air conditioning (12. AC Compressors Business: • The Capacity is 3. 5000 BTU per/h Compressors Compressors manufactured at Hyderabad: • AW series. ISO 14001 • Models Ac applications AW • Certification VDE.AWQ AWA etc • Rotaries (to be introduced in 2003) The management has started development activates in the following areas.00. It is divided as Badali or Special Badali.

A new project under the name of VIBHAV ROTARY PROJECT is under construction this completer by the month of july 2005 on completion of this project. with a production of 10. they have a capacity of about a million compressors. which employs about 2500 people. head Tecumseh India.000 units per day with this projects. 200 Crores (Approximately) This state of the art plant for manufacturing of non-CFC compressors will be one of the best compressors facilities in Asia. Mr. the production starts form January of 2006.d) Rain water harvesting is to increase the group water level and TPIPL has the distinctions of being the first organization in this regard. the market share of production of compressors of Tecumseh increase to 15% BALLABGARH PLANT At Faridabad. 14 . e) Vermin culture is the process of utilizing canteen food wastage for converting in to natural manual. This plant is being relocated to an integrated unit a Ballagarh with an investment of Rs. Managing Director. in North India.Vipin Sondhi. This is located on a 21 acre land on the DelhiMathura National Highway.

93 Crores. but since taken over. • The company acquired the compressor business from WOIL by taking over the plant & equipment of the compressors division at Faridabad and the entire facilities of Ballabgarh excluding the plastic division of WOIL. after take over of compressor division of Whirlpool of India Limited. did not materialized the turnover has been less which led to net 15 . • The company was incorporated on Jan 30.Tecumseh India a 100% subsidiary of Tecumseh product company USA wills continue its mission of offering the latest compressors to the discerning India customers. • The company is in process of implementing a major expansion diversification programmed at Ballabgarh to enable the manufacture of Compressor once the project implemented by 1988 the company would be the pioneer in manufacturing environment.1997 & operational commenced since 14th July 1997. The company recorded a turnover of Rs. Tecumseh India is the manufacturing of compressors in the country catering to segments of segments air-conditioners. domestic and commercial refrigeration and is a leading player with growing Indian market for compressors in all the segments. Crores since taken over till 31st Dec 1997 since purchase by WOIL loss Rs. the • company supplies to WOIL its requirement of compressor. 4. • The acquisition was funded by equity.

16 . • With capacity of 1. It is our goal to be the global leader in all of the markets which we choose to participate we will pursue disruptive technologies to redefine our products.6.500.000 • Models MLA .98 Crores against turnover of RS 26. and Own limitation. • TIE models • MLA models • MLA CRA model TPIPL vision: We are not going to simply provide compressors are going to provide customer solution”. R-134 a certified plant. • The net loss recorded was RS.92 Crores during 1997. Refrigiration+Commercial Business: • Plant is certified ISO 9001.87 Crores against RS.4.• In 1998 the company recorded a turnover of 99.12 Crores for the period July 1997 to Dec 1997.TIE PRODUCTS Domestic refrigeration (330-1200 BTU per hr) and Commercial (700 -3000 BTU per hr) Compressors manufactured at ballabgarh . Wire drawing facilities.

• Our origination will modify itself in response to change in environment at a pace and amount of change that can be made without eliminating or impeding our on going effectiveness • Incisive • Incisive continuous continuous strategic strategic thinking thinking will will be be will well communicated and shared by the organization communicated and shared by the organization Our commitments: KEY BUSINESS ACTIVITIES: 17 . engines. electronics and controls. flood handling related components and services to provide comprehensive solution for our customers needs compressors. electrical.TPIPL mission : We will leverage our global expertise in mechanical.6 SIGMA and LEAN. • We will be best in class and the most effective cost producer by utilizing the principles of TQM. pumps. electrical motors.

 And aspiration stated. expectation. implied or latent 18 .  Meet business and financial commitments. IMAGE: To build up a high degree of customers confidence by sustaining international markets in regard to supply of spare parts and after sale Service. The HRD policy of Tecumseh is manifested in the code of conduct of TPIPL listed Respect and mutual trust Integrity and fairness in all matters Team work Best customer service     TPIPL QUALITY POLICY: Committed to total customer satisfaction by meeting their needs. Set the world industry standard of excellence for customer satisfaction achieve total quality  To attain and surpass global quality and reliability standards for our products.  Maintain clear technology leadership  Market share leadership with focus on customer needs.

 Striving to provide products and service of global quality standard and to reach a position of leadership in the field of operations. TPIPL ENVIRONMENT POLICY: The vision of Tecumseh India is to be serene green and eco friendly co-operation resources for benefit at large  Among others this can be achieved through allocation of company wide priority for sustainable development with total involvement and commitment.  Continuous improvement across the organization an up gradation of product technology and process supportive environment. setting new values.  Variable earning sharing of value addition  Agreement process organization needs  Non conformance reporting audits 19 carrying out all its operation natural contributing to preservation of environment and .  The approach will be through proper systems and procedures and total involvement of employee’s vendors and other business associates.  Evaluation and up gradation of current technology products and raw materials for minimization handling and disposal of solid liquid and gaseous waster  Realization of tangible objective and target set for continual improvement to control and prevent pollution and conserve resources. at least cost to society share be the means to achieve the goals.

 Open house//communication meeting  Team assessment and feed back  Changing life sty les. TPIPL’S SEVEN DEADLYSINS: a) Inconsistent product quality b) Slow response to market place. • Use all the required personal protective equipment • Adopt safe working methods • Take a proactive interest in maintaining safety standards. c) Lack of innovate competitive product d) Un competitive cost structure e) Inadequate employee involvement f) Unresponsive customer service 20 . SAFETY POLICY: • Education and training • Creating a safe working environment • Providing adequate and required personal protective equipment • Updating safety rules and procedures • Continuous improvement through safety audits Risk assessment Audits The Employees and all other share: • Follow safety rules and procedures.

g) Ineffective resource allocation STATEGIES&PROCESS AT TPIPL:  Work place improvement. QUALITY IMPROVEMENT MEASURES: Yours company’s Hyderabad &ballabgarh plant are ISO 9001 (version 2000) certification.  Rain water harvesting is increase the ground water level and TPIPL has distinction of being of first organization in this regard. Your company is constantly meeting the quality requirement of Domestic& International customers.  Creativity club  KRA’S (improvement/suggestions) The management has started development activities in the following areas.  Semi culture is the process of utilizing canteen food wastage for converting into natural manure. Environmental protection & Conservation of Natural resources:  During the year. ISO 14001 first Annual Assessment after Recertification Audit carried out by the corporate Director of 21 .  Tree plantation.  Efficient treatment plant.

 I MECO BULLOWS components cleaning equipment have been introduced in EOU for effective cleaning of components ot minimize water & chemicals. 22 .  Energy factory canteen renovation & new kitchen equipment installation.  Construction of new septic tank for effective treatment of sewage water.  Export oriented unit is completely R-134 a compatible plant.Environment control Hyderabad unit had scored 95 points and reveal any non conformities  During Annual C0mpliance Assurance review carried out by the corporate Director of Environment control Hyderabad unit had scored 95 points and Ballabgarh unit had scored 89 points of 115 for 2004 The following conservation measures were undertaken by your company.  Usage of De-mineralized water in place of Municipal/Bore water in process.

 Mezzanine floor fabrication &erection to install Dehydration oven.  LPG yard renovation to Accommodate 5 ton LPG bullet to cater pre treatment plant requirements. Specific areas in which R & D carried out by the company  Designed and development high out by the energy efficient compressors of the existing and higher cooling capacity  Improvement in product quality  Introduced AW 1000 q Compressor for small size air conditioners 2. Benefits derived as a result of above R&D:  Development of new products  Improvement in product quality  Optimization of processing parameters  Improved customer satisfaction and developed new customers  Lower power expense for the customer thus reducing his recurring ex peen 3) Future plan of action:  Design improvements  High efficiency low noise compressors  Enhanced range of compressors 23 . RESEARCH AND DE VELOPMENT: 1.

 Product ionization of newly developed refrigerator compressor 1) Efforts: Technology absorption and innovation company has focused on innovation and is working on a refrigeration compressor, which would be equivalent or better than the best available in the global market . It has upgradedits test lab facilities and reduced its dependence on foreign test labs. This gives indigenous capability to develop, test and launch new products. 2) Benefits: Derived as a result of the above efforts is product improvement, cost reduction, product development import substitution etc. Departments of TPIPL: • Rotary project(new) • Human resource development • It • Welfare department • FCD • CTS&S--• TDC • Attendance and pay office(A&PO) • Electronic data processing (EDP) • Provident fund and credit cooperative society(PF&CCS) • Maintenance and engineering department(MED)


• EOU • Logistics • Quality control department • AW PRESS shop • Aw machine shop • Dispensary • Canteen • Chemical and technological laboratories • Legal compliance and going beyond setting new standards • Stores • Material and purchase • Accounts and audit

Products of Tecumseh: Tecumseh products are grouped into 3 principal industry segments • Compressor products • Engine and power train products • Pump products New products from Tecumseh: AW 1000QC COMPRESSRS Compact 1-ton compressors


Ideal for Compact RAC units Products from the well known AW series of compressors Silent and efficient Very well accepted by the market AE 2415 AK Compressors: A huge energy saving compressors that cuts power bills compact and light weight Wide voltage range Manufactures with state of technology Dependable friend for all deep freezers Finance management: 1), cadres 2). Functions of Finance Department Milestones: 1961: 1962: 1964: 1966: 1967: 1969: 1986: Technical collaboration with wasting house electrical The name IRI was changed to USHA Refrigeration

international company USA. Industrial Limited Started production of Wasting house compressors, this The name of USHA refrigeration industries limited was Manufacturing of water coolers was added. Added manufacturing of diesel engines pumps sets started marketing electronics voltage connectors is known as SRX again changed to shri ram refrigeration industries limited



Added manufacturing of room air conditioners entered

into technical collaboration agreement with Tecumseh products company USA worlds largest manufacturer of air conditioning compressors. 1990: Discontinued manufacturing of diesel engines. The company expanded the rage of room air conditioners and launched split air conditioners. 1992: siel. 1993: First company in India to get world bank aid to phase out CFC refrigerants under the Montréal protocol 1994: its 1995: 1996: 1999: 2001: 2002: 2003: TPIPL HYDERABD has been awarded the ISO 9001 for quality man agent system by BVQI Set up world class compressor manufacturing plant to 100% acquisition (20 million equity shares) by TPIPL TPIPL certified for ISO 14001 by UL India Won National award for excellence in energy Shri Ram Refrigeration Industries ltd was merged with

increase volume and range of Tecumseh compressors.

management. Won Genentech Environment excellence silver award Won Genentech Environment excellence silver award for outstanding achievement in environment for outstanding achievement in environment management. award 2004:

management. TPIPL has achieved the prestigious National award for excellence energy efficient unit conducted by CII at Chennai.


Back ground to revision of ISO 9001 standards 2. health and safety 5. Overview of 9001:2000 a) Scope b) Application normative reference c) Terms and definitions 28 . CERTIFICATIONS:ISO 9001-2000 VERSION: As Tecumseh is ISO 9001-2000 certified company it makes all the employees aware of the OSO norms. Concepts used in the new standard.2005: Won Genentech safety award. 3. 4. The topics covered under this training program are 1. Process based quality management system model. Alignment with other standard for example ISO –EMS 14000.

Management responsibility: It includes  Management commitment  Customer focus  Quality policy  Quality objectives  Responsibility and authority  Communication  Management review 29 . Concept of continual improvement Under overview of 9001-2000 the program also include information on five clauses 1. Quality management system: It includes a) General requirement b) Quality management c) Documents requirement d) Control of document e) Control of records 2. Key definitions in new standards 7.6.

Resource management: It includes: a) Provision of resources b) Human resource competence and awareness and training c) Infrastructure d) Work environment 4. Data analysis III. Control of non conforming product II. Measurements analysis and improvement Monitoring and measurement of a) Customers b) Internal audit c) Procedures d) Product I. Product realization: It includes a) Planning of public relations b) Customer related process c) Customer communication design d) Purchasing e) Control of production f) Service provision g) Control of monitoring h) Measuring devices 5.3. Corrective actions and improvements 30 .

CHAPTER III CONCEPTUAL FRAMEWORK 31 .IV. Thus making all the employees aware of these standards it will be easy for the organizations to produce quality products. They know about record maintenance and its importance. Preventive action Due to exposure to ISO 9001-2000 norms and requirement the employees know how to carry out their work.

the higher the requirement of inventory the unforeseen fluctuation of inventory demand and supply of goods. fluctuating inventory prices. of 32 . The investment inventory constitutes the most significant part of the current assets inventory of the under taking. necessitate the need for inventory management. It server as a link between the production and distribution process. INTRODUCTION: Every enterprise needs inventory for smooth running of its activities. Thus it is very essential to have a proper control and management inventory.INVENTORY MANAGEMENT Tecumseh Products India Private Limited. The greater a time lag.

quantity of the rate of consumption. which are needed to smoothen.Meaning and nature of inventory The general meaning of inventory is stock of goods or list of goods inventory. These do not directly go into production. The raw materials required will be determined by 2) Work in Progress : The work in progress is that stage of stocks. work in progress. 33 . the process of production. For inventory manufacturing concern it includes raw materials. 3) Consumables : These are the material. consumables finished goods and spares etc. which are in between raw materials and finished goods. 1) Raw materials: If forms a major input inventory in organization. but act as catalyst. In accounting language it means stock of finished goods.

So. which will be sold in future in the normal course of business operations. 'Good inventory management is good financial management’. Inventories cost account for nearly 55 percent of the cost of production. The stocking policies differ from industry to industry. 34 . It essential to establish suitable procedures for proper control of materials from the time of purchase order placed with supplier until they have been consumed properly and accounted for. work-in-progress/process. Inventory often constitute a major element of a total working capital and hence ft has been correctly observed. are raw materials. and finished goods. as it is clear from an analysis of financial statements of large number of private and public sector organizations. The stock of finished goods provides as buffer between production and market.4) Finished Goods : These are the goods. 5) Spares: Spares also from a part of inventory. Definition: The term inventory refers to assets. which the firm stores as inventory in anticipation of need. which are ready to sale for the consumers. The assets.

To avoid over stocking and under stocking. The operational object means availability of materials and spares in sufficient quantities for undisturbed production. THE OTHER OBJECTIVES ARE: 1) 2) To ensure continues supply of inventories to the production. purchasing. Objective of inventory management The main objective of inventory management are operational and financial. receiving and inspecting. flow of The financial objective means investments in inventories should not remain idle and minimum working capital should be locked in it.Inventory control is a system. Inventory control includes scheduling. maintaining stock records and stock control. Inventories are the second largest asset category for the manufacturing firms next to plant and equipment. which ensures the provision of the required quantity at the required time with the minimum amount of capital. the requirements. A proper material control helps in improving the input-output ratio. Inventory control is a matter of coordination. 35 .

7) 8) 9) Designing structures for good inventory management. wastage and damages. NEED FOR INVENTORY CONTROL: If a cost accounting system is to be effective there must be a proper control of inventory and supplies form the time orders are placed with suppliers until they have been effectively utilized in production. To minimize losses through. and value. Analysis of prices cost 10) To facilitate data for short and long term planning and control of inventory. 36 . 5) 6) To eliminate duplication in ordering or replacing stocks. To keep material cost under control.3) 4) To maintain optimum level of investment in inventories. deterioration. pilferage. To ensure right quality of goods at reasonable prices. to keep low cost of production. Perpetual inventory control of materials.

In a large firm the planning and routing department is responsible for arranging how and where the work is to be done and issue instructions. Proper control of material can make a substantial contribution to the efficiency of a business. Precautionary motive: 37 . Based on some motives the inventories are maintained. consumption and accounting. In this finished goods as well as raw material are kept as inventories for smooth production process of the firm. a. storage.Materials are equivalent to cash and they make up an important part of the total cost. Every firm big or small trading or manufacturing has to maintain some minimum level of inventories. It is essential that materials should be properly safeguarded and correctly accounted. Business firm keep inventories for different purposes. production process. Transaction motives: Every firm has to maintain some level of inventory to meet the day-to-day requirements of sales. It sets definite time schedules so that necessary materials are delivered to the proper department in proper time not too long before hand neither lest it should interfere with other work nor after they are required as this result in idle time. The success of a business concern largely depends upon efficient purchasing. b. customer demand etc.

REASONS AND BENEFITS OF INVENTORY: The optimal level of maintaining inventory is a subjective matter and depends upon the features of a particular firm. lay outs etc so the firm must have some finished goods as well as raw-materials tc meet circumstances. strikes. Speculative motive: an opportunity to make profit due to price The firm may be made to keep some inventory in order to capitalize fluctuations.A firm should keep some inventory for unforeseen circumstances also like loss due to natural calamities in a particular area. c. More over it is not always possible to procure the goods whenever there is a sales opportunity as 38 . (i) Trading firm: In case of a trading firm there may be several reasons for holding inventories because of sales activities that should not be interrupted.

If there is stock out of raw materials in order to have the regular and uninterrupted production schedule. (ii) Manufacturing firm: A manufacturing firm should have inventory of not only the finished goods. 39 . Thus trading concern should have some stock of finished goods in order to under take sales activities independent of the procurement schedule. This may result in custom dissatisfaction as the goods cannot be delivered in time more over the fixed cost will continue to be incurred even ff there is no production. (a) Uninterrupted production schedule: Every manufacturing firm must have sufficient stock of raw materials in order to have the regular and uninterrupted production schedule. If there is stock out of raw material at any stage of production process then the whole production may come to a half. Similarly. but also of raw materials and work-inprogress for following reasons.there is always a time gap required between purchase and sale of goods. There is trading concern inventory helps in a deinking between sales activity and also to capitalize a profit of opportunity due to purchase made at a discount will result in lowering the total cost resulting in higher profits for the firm. a firm may have several incentives being offered in terms of quantity discounts or lower price etc by the supplier of goods.

consuming and accounting. (b) Independent sales activity: Inventory of finished goods is required not only in trading concern but manufacturing firms should also have sufficient stock of finished goods.Further work-in-progress would let the production process run smooth. ciorage. even if the supply of raw-materials have stopped. ESSENTIALS OF INVENTORY CONTROL: The important requirements of Inventory control are: a) The proper co-ordination among the departments involved in buying. e) The operation of a system of internal check to ensure 40 . The production schedule is a time consuming process and in most of the cases goods cannot be produced just after receiving orders. Therefore. material standardization and simplification. inspecting. c) Proper scheduling of material requirements. In most of manufacturing concerns the work in progress is a natural outcome of the production schedule and it also helps in fulfilling when some sales orders. b) Centralization of purchasing under the control of competent buyer whenever possible. every firm has to maintain minimum level of finished goods in order to deliver the goods as soon as the order is received. receiving. d) Proper classification of materials with codes.

that all transactions involving materials and equipment are checked by properly authorized and independent persons. f) The storage of materials is well planned and kept in properly. 41 . g) The operation of a system of perpetual inventory so that it is possible to determine at any time. Objectives of Inventory Control: The main objectives of inventory control are: i. To maintain a large size of inventory for efficient and smooth production and sales operation. To maintain a minimum investment in inventories to maximize profitability. h) A suitable method of valuation of materials is essential because it affects the cost of jobs and the value of closing stock of materials. Planned and kept in properly designated location. subject to adequate safeguard and supervision. the amount and value of each kind of material in stock. iii. ii. To ensure a continuous supply of raw materials to facilitate uninterrupted production.

Advantages of Inventory Control: The following are suggested advantages: I. To reduces the capital tied up in inventories. Control investment in inventories and keep it at an optimum level. It reduces the risk of loss from fraud and theft. V. It helps in keeping perpetual inventory and other records to facilitate the preparation of accurate material reports to management. IV. Eliminates wastage in use of material. III. Minimize the carrying cost and time. It furnishes quickly and accurately the value of 42 . v. II.iv. Maintain smooth service. sufficient sales finished goods inventory for operation and efficient customer vi. vii. To maintain sufficient stocks of raw materials in periods of short supply and anticipate price change. VI. It reduces cost of storage.

Opportunity cost: Every firm has to maintain inventory for that some investment is needed it is know as Opportunity cost and handle the investment in inventory are more the funds are blocks up with inventory. Danger due to physical decoration: It is one of the reason with the inventories due to maintaining stocks at high levels they will be deteriorated due to passage of time. It is also referred as Danger level III. Excessive inventories: It will lead to firm losses due to excessive carrying costs and the risk of liquidity. Disadvantages of Inventory Control: Every firm has to maintain optimal level of inventories. VII. It not the following will be the result in form of losses. It prevents delays in production due to lack of materials by supplying.In adequate raw materials and work -in inventors results frequent interruptions . Inadequate Inventory: it is another danger which results is production -process hold-up and will failure in to meet delivery production commitments .materials used in various department. some times due to mishandling or improper storage 43 . IV. I. II. proper quantities at the right time.It finished goods are not sufficient customers may shifts to competitors.

cost of infrastructure. Like rent of spaces occupied by stock. handling cost etc. warehousing costs. Here there are two basic cost involved. The Carrying cost include there fore both real cost and 44 . (i) Cost of storage: It includes cost of storing one unit of raw materials by the firm. cost of insurance. This cost may be for the storage of materials.facilities. stock for security. This is the cost incurred in Keeping or maintaining an inventory of one unit of raw materials. work-in -process or finished goods. Costs involved in inventory: Every firms maintains inventory depending upon requirement and other features of firm for holding such inventory some cost will be incurred there are as follows: (a) Carrying Cost. (ii) This Cost of financing: cost includes the cost of funds invested in the inventories . and cost of pilferage.It includes the required rate of return on the investments in inventory in addition to storage cost etc.

which changes with the order size. which is not affected by the order size: and a variable component. The total ordering cost is inversely proportion to annual inventory of firm. (c) Cost of stock out: 45 .opportunity cost associated with the funds invested in the inventories. The total carrying cost is entirely variable and rise in directly proportion to the level of inventories carried. Total Ordering Cost = (No. It is the cost of preparation and execution of an order including cost of paper work and Communicating with the supplier. The ordering cost may have a fixed component.Of orders) x (cost per order). Total carrying cost = (carrying Cost per unit) x (Average inventory) (b) Cost of ordering: The cost of ordering includes the cost of acquisitions of inventories.

They determine the level of inventors in a firm. The carrying cost and the ordering cost are opposite forces and collectively. Total cost =(cost of items purchased) +(Total Carrying and ordering cost) Valuation of Inventory: The methods of valuing inventory are combination of the actual cost and replacement cost plans.The stock out refers to zero level inventory . The chief advantage 46 .The stock outs are quite often expensive.It is also called as Hidden cost. where as in raw materials or work in process can cause the production process to stop and it is expensive because employees will be paid for the time not spend in producing goods. The stock out is the situation when the firm is not having units of an item in stores but there is a demand for that Item either for the customers or the production department . Even the good will of firm also be effected due to customers dissatisfaction and may lose business in case of finished goods.So there is a cost of stock out in the sense that the firm face a situation of lost sales or back orders .

prime cost or. Selling and distribution cost is deducted on the other hand work in progress may be valued at work in progress may be Valued at work cost. marginal cost. But such cost should not exceed market price. even at direct materials. which includes cost of materials. And the proportionate factory overhead.  Cost of finished goods wound normally to be total or full cost it includes prime cost plus appropriate amount of the overhead. Hence the methods of Valuation of inventory are quite independent of system of mincing.of the cost or net realizable value rule is that it is conservative. labor.  Work -in -process is generally valued at cost. ISSUE PRICING METHODS: 47 . The inventories are valued on the basis as follows. In balance sheet closing stock is shown under current assets and is also credited to manufacturing or trading accounts.  Cost of raw materials in stock may include freight charges and carrying cost. as it is reasonable according to degree of completion.

48 .There are two categories: (i) (a) (b) (c) (d) (e) (ii) Cost prices: FIFO (First in First out) LIFO (last in first out) Specific price Base stock price HIFO (highest in first out) Derived from cost prices: Simple average price Weighted average price Periodic weighted average price Moving simple average price (a) (b) (d) (e) (c)Periodic simple average price (f) Moving weighted average price (iii) Notional prices: (a) (b) (d) Standard price Inflated price Replacement price (c)Re-use price First in First out (FIFO) This is the price paid for the material first taken into stock from which the material to be priced could have been drawn.

49 . The number of calculations in the stores ledger involved tends to be complicated with increase in clerical error. iii. iii. Price is based on actual cost and not on basis of approximations such as no profits or losses arises by reasons of adopting this method. Advantages: i. ii. The method is most suitable for use where in material is slow-moving and comparatively high unit cost. The cost of consecutive similar jobs will differ if the price changes suddenly. Disadvantages: i. ii.Under this method stocks of materials may not be used up in chronological order but for pricing purpose it is assumed that items longest in stock are used up first. The resulting stock balance generally represents fair commercial valuation of stock. It is based on traditional principles. In times of rising prices. the charge to production is unduly low as the cost of replacing the material will be higher.

Disadvantages: 50 . iv. ii. iii. Last in first out (LIFO) This is the price paid for the material last taken into stock from which the materials to be priced could have been drawn. Under this method production cost is calculated on basis on replacement cost. Advantages: i. This method also ensure material being issued at the actual cost. Neither profit nor loss is usually made by using this method. Production is charged at the most recent prices so that it is based on the principle that cost should be related to current price levels. It obviates the necessity for continuously ascertaining the replacement price. Its use is based on the principle that costs should be as closely as possible related to current price level. In the times of rising prices there is no wind fall profit as would have been obtained under FIFO method.

Compassion among similar jobs is very difficult. This method differs from all other methods because here issue prices are calculated on receipts of materials and not on issue of materials. The basis of price calculations is a simple one involving only the division of total amount of material in stock by quantity in stock. iii. iii. This method is advantageous where the price varies widely as its use even out the effect of these wide variations. iv. 51 . ii. which can be used in financial analysis. ii.  Weighted average price: This is the price which is calculated by dividing the total cost of material in the stock from which the material to be priced have been drawn. Advantages: i. Needs more clerical work. by the total quantity of material in the stock. Stock records under this method give a fair indication of the stock values. Calculation of new prices arises only when receipt of stocks are received.i. Thus as soon as new lot is received a new price is calculated and issues are then taken. Stock valves relating to prices of the oldest cost on hand may be entirely out of the current replacement prices.

Advantages: i. ii. As LIFO or FIFO this method calls for many calculations. 52 . This method is easy to operate. iii.  Standard price: It is the predetermination of fixed price on basis of a specification of all factors affecting price like the quantity of materials in hand and to be normally purchased and rate of discount compared with existing price including or excluding freight and ware housing expense.Disadvantages: This method is completed than simple average because it takes into consideration the total quantities and total costs in stock. Comparing the actual prices with the standard price will determine the efficiency of purchase department. In order to calculate the accurate value of issues the average price must normally be calculated to four to five decimal places. A standard price for each material is set and the actual price paid is compared with standard. ii. Profit or loss may be incurred as in simple average price. It is paid exceeds the standard a loss will be realized if not profit will be obtained. i.

It reduces classical costs by eliminating detailed cost records. This method also incurs a profit or loss on issues and closing stock. The effect of price variations is eliminated from job costs. as well as carrying costs. which includes a charge designed to cover the cost of contingencies or related costs This price includes not only the cost involved in bringing the material to the purchases premises but also the loss due to evaporation and Breakage etc.iii.  Inflated price: This is the price. iv. In times of inflation or price fluctuations is very difficult to fix a standard price. 53 . v. vi.

For a single place organization decentralization might be feasible 54 . Placing the ordered. Functions of Purchase Department 1.MATERIAL PURCHASING AND PURCHASING PROCEDURE Purchase of material is one of the important function of material management. Checking the invoices. 5. 6. Collection the price information. Maintenance of purchase records. Selection of sources of supply. PURCHASE PROCEDURE Purchasing procedure start with the initiation of purchase requisitions and ends with the receipt of materials in the stores. 4. Maintenance of vendors relations. 2. CENTERIZED PURCHASING It is most important and relevant to large organizations operating deferent plants may or may not be located at different places. Deciding the items to be purchased based on demand. 7. Follow-up the ordered. 3. 8. At times more than 50% of the total product cost is material.

 It is beneficial to vendor also in case the size of order constituted major proportion of his total production capacity The ultimately results in greater buying power.on a very limited place.  Centralized purchasing avoids duplications of efforts and working at cross purpose from one plant to another. favorable 55 .  Centralized purchasing permits to avail facilities like quantity discounts and cash discounts thus its helps to reduce cost. In Mahindra and Mahindra Centralized purchasing procedure is following to purchase of materials. It is also possible to conduct testing and inspection facilities. is a multiple plants operating organization.  Centralized purchasing permits consolidation of order of materials commonly used for two or more plants..  Easier to maintain the quality of purchased parts / items through centralized testing and inspection. But where as M & M Ltd. contracts and trade agreements.

TECHNIQUES OF INVENTORY MANAGEMENT: Main problems in inventory management are to answer. (i) (ii) (iii) Are all items of inventory important if not what are items to be given more importance? What should be the size of the order for replenishment be placed? What should be the over level? To answer these following techniques are used.  Economic Order Quantity  ABC Analysis  VED Analysis  RE-ORDER Level  Safety Stock  Just-in-time Inventory 56 .

ABC ANALYSIS: ABC analysis classifies various inventory into three sets or groups of priority and allocates managerial efforts in proportion of the priority the most important item are classified into class-A. The financial manager has to monitor the items belonging to monitor the items belonging to different groups in that order of priority and depending upon the consumptions. 57 . The items with the highest value is given top priority and soon and are more controlled then low value item.ABC Analysis: It is based on proposition that (ii) (iii) Managerial items and efforts are scare and limited Some items of inventory are more important than others. those of intermediate importance are classified as "class-B" and remaining items are classified into class-C'. The rerational limits are as follows.

ECONOMIC ORDER QUANTITY: After various inventory items are classified on the basis of the ABC analysis the management becomes aware of the type of control that would be appropriate for each of the three categories of the inventory items. ABC analysis helps in allocating managerial efforts in proportion to importance of various items of inventory.Category A B C % of Items 5-10 10-20 70-85 % of total materials 70-85 10-20 5-10 Procedure: (i) (ii) Items with the highest value is given top priority and soon. (iii) Then these percentage values are divided into three categories. 58 . There after cumulative totals of annual value of consumption are expressed as percentage of total value of consumptions.

The firm knows with certainty the annual usage of a particular item of inventory. It is based on some assumptions. A firm should not place either too high or small orders on the basis of a trade off between benefits derived from the availability of inventory and the cost of carrying that level of inventory. which are restrictive. a. The optimum popularly referred to as the economic order quantity or economic lot size. Buying in a higher average inventory level will assure. (i) (ii) Smooth production / sale operation and Lower ordering or setup costs. level appropriate of inventory or is optimum level of order to be placed should be determined.The determination of the appropriate quantity to be purchased in each lot to replenish stock as a solution to the order quantity problems necessitates resolution of conflicting goals. On the other hand small orders would reduce the carrying cost of inventory by reducing the average inventory level but the ordering costs would increase. It may be defined as that level of inventory order that minimizes the total lost associated with inventory management. b. Rate at which the firm uses inventory is steady over 59 . But it will involve higher carrying costs. as there is a likelihood of interruption in operations due to stock-outs.

The carrying cost and acquisition cost for different sizes of order to purchase inventories are computed and the order size with lowest total cost of inventory is EOQ. d. This approach is used for determination of EOQ uses different permutations and combinations of lots of inventory purchases so as to find out the least ordering and carrying cost combinations. c. The orders placed to replenish inventory stocks are received at exactly that point in time when inventories reach zero.  Trial and Error approach: In this approach the procedure of procuring the inventory is assumed the smaller the lot the lower is average inventory and vice versa and high average inventory would involve high carrying costs.time.  EOQ can be illustrated by (i) (ii) Trial and error approach.  Mathematical Approach: 60 . Mathematical approach.

The important limitation and. 61 .The EOQ quantity can use a short-cut method calculated by following EOQ= EOQ = 2AB C Where. which are mainly due to the restrictive nature of the assumptions on which it is based. is the assumption instant of a constant of consumption usage replenishment inventory is of doubtful validity There may be unusual and unexpected demand for stocks to meet such [contingencies the firm has to keen additional inventories like safety stocks. Another weakness is to assume known annual inventories is open to question and there is likelihood of a discrepancy between the actual and expected demand leading to wrong estimate of EOQ. A = Annual usage of inventory B = Buying cost per order C = carrying cost per unit Limitations: While using EOQ it should be noted that it suffers from shortcomings.

The re-order level depends upon a) b) Length of time between the placement of an order and receiving the supply. Essential spares are spares the absence of which cannot be tolerated for more than a few hours a day. The usage rate of the item. Desirable spares are those. Vital spares are spare the stock-out of which even for a short time will stop production for quite sometime. which are needed. The inventory is constantly being used up. The rate at which the inventory is being used up is called the 62 . but their absence for even a week or so will lead to stoppage of production. THE RE-ORDER LEVEL: The re-order level is the level of inventory at which the fresh order for that item must be placed to procure fresh supply.VED ANALYSIS: Vital Essential and Desirable analysis is done mainly for control of spare parts keeping in view of the criticality to production. The rate at which the inventory is being used up.

the orders are made at even intervals for the same amounts each time and the inventory goes to zero just before an order is received. The reorder level can be determined as follows: R = M+tu R = Reorder level M = Minimum level of inventory T = Time gap / delivery time U = Usage rate The reorder level and inventory patterns have be shown as follows: The figure shows that if the usage rate is constant.usage rate. 63 .

Safety Stock: The safety stock protects firm from Trade offs due to unanticipated demand for the items level of inventory investment is however increased by the amount of safety stock. However stock inflows and outflows are unpredictable or lesser predictable it becomes to carry additional safety stock to prevent unexpected stock outs so 64 . Safety level is ascertained in inventory as a part because there is always an uncertainty involved in time lag usage rate or other factor. Usually smaller the safety level greater the risk of stockouts. If stock-levels are predictable then there is a chance of stock out occurring.

Although the large inventories may be bad idea due to heavy carrying JIT is a modern approach to inventory turnover. relying suppliers to furnish stock just in time as and when required. JIT helps in emphasizing sufficient levels of stocks to ensure that production will not be interrupted.usage rate is estimated if cost is low then no safety stock is needed. JIT system significantly reduces inventory-carrying cost by requiring that the raw materials be procured just in time to management and the goal is essentially to minimize such inventories and there by maximizing the 65 . JUST-IN-TIME INVENTORY: The basic concept is that every firm should keep a minimum level of inventory on hand.

be placed into production. JIT does not appear to have any relation with EOQ however it is in fact alters some of the assumptions of EOQ model. associated with reducing inventory and delivery time to a bare minimum through adjustment in the EOQ model. (i) (ii) By reducing the ordering cost By reducing the safety stock. will more than offset the costs associated with the increased possibility of stockouts. The average inventory level under the EOQ model is defined as Average inventory= 1/2 EOQ + safety level JIT attacks this equation in two ways. Additionally the work in process inventory is minimized by eliminating inventory is minimized by eliminating inventory buffers between different production departments. 66 . If JIT is to be implemented successfully there must be a high degree of coordination and co-operation between the supplier and manufacturer and among different production centers. The basic philosophy in JIT is that the benefits.


The prime considerations in fixing the minimum stock level or safety stocks are : a.DETERMINATION OF STOCK LEVELS Carrying of to much and too little of inventories is determinate to the firm. which may result in loss of sale or stoppage of production. Various stock levels are discussed below. 68 . If the inventory level is too little. b.Stock-out. Lead time. the firm will face frequent stock – outs involving heavy ordering cost and if the inventory level of inventory where costs are the minimum and at the same time their ID. This is also technically known as safety or buffer stock. MINIMUM STOCK LEVEL This is the lower limit below which the stock of any item should not normally be allowed to fall. Average rate of consumption.No.

It is essential to maintain some inventory during this period.Minimum Stock Level = Reordering consumption X Normal Reorder Period) Lead-Time : level - (Normal A purchasing firm requires some time to process the order and time is also required by the supplying firm to execute the order. Abnormal usage b. When stock of a material reaches at this point. maximum stock level is the sum – total of minimum stock level and economic order quantity. Reorder Level : Reorder level is fixed between the minimum and maximum levels. Theoretically. Abnormal delay in supply Reorder level = period required delivery Maximum consumption X during the period Maximum for MAXIMUM STOCK LEVEL : Maximum stock level represents the upper limit beyond which the quantity of any item is not normally allowed to rise. The time taken processing the order and the executing it is known as lead-time. The reorder level is slightly more than minimum stock level to guard against a. the store keeper should initiate action for the purchase of material. 69 . The main object of establishing this limit is to ensure that unnecessary working capital is not blocked in stores.

Calculated of the load king compressor as 500 units. DANGER LEVEL : This is generally fixed below the minimum stock level. urgent action for replenishment of stock must be taken to prevent stock out.Consider “Load King” for calculation purpose. ESTIMATION OF STOCK LEVELS : There are different techniques used in the calculation of the stock levels. If it reaches the danger level at any point of time. 70 . Normal stock should not be below the minimum level.Maximum level = Reorder Level + Reordering quantity – Minimum consumption. AVERAGE STOCK LEVEL : The average stock level is calculated as such : Average stock = minimum stock level + ½ of re-order quantity. Ex :. Reordering Quantity Reordering Period Weekly usage :Maximum usage Normal usage Minimum usage 900 units 700 units 500 units 2500 units 4 – 5 weeks Reordering Level = Maximum consumption X Maximum Reordering Period = 900 X 5 = 4500 units.

Normal Daily consumption = 700 units Normal Reorder period Reorder level Minimum usage Minimum Reorder period Maximum Reorder period MINIMUM STOCK LEVEL = = = = Reorder Level – (Normal consumption X Normal 4500 – (700 X 4.5 weeks = 4500 units = 500 units = 4 weeks = 5 weeks Reorder Period) MAXIMUM STOCK LEVEL = Reorder Level + Reorder Quantity – (Minimum Reorder consumption X Minimum Period) = = = 4500 + 2500 – (500 X 4) 7000 – 2000 5000 Units AVERAGE STOCK LEVEL 71 .5) 4500 – 3150 1350 Units = 4.

A low turnover rate on the other hand indicates over investments and looking up of working capital on undesirable items. it is possible to known which is fast moving and which slow on that basis attempt may be made to reduce the amount of capital locked up and prevent over stocking of slow moving items. “Inventory or Stock turnover is measured in terms of the ratio of the value of materials consumed to the average inventory during the period”. Comparing the number of days in the case of two different materials. A high turnover rate indicates that the material in question is a fast moving one. The ratio indicates the number of time the average inventory is consumed and replenished by dividing number of days for which the average inventory is held can be ascertained.= = = = Minimum stock + ½ of Reordering Quantity. Computation of inventory turn over ratios for different items of materials and comparison of the turnover ratios provide a useful guidance for measuring inventory performance. 72 . 500 + (½ X 2500) 500 + 1250 1750 Units Minimum Stock Level = 1350 Units Average Stock Level = 1750 Units Maximum Stock Level= 5000 Units INVENTORY TURN OVER RATIO “A Ratio which measures the number of times a firms average inventory is sold during a year” – Kohler.

36 1008066 4.Average Inventory = Opening Stock + Closing Stock 2 Inventory turnover ratio = Material consumed Average Inventory Inventory turnover in number of days = Number of days in a year Inventory turnover ratio INVENTORY TURNOVER RATIO Cost of goods sold INVENTORY TURNOVER RATIO =-----------------------------Average inventory (Rs in 000’s) Average Ratio inventory 358048 7.09 Year 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 Cost of goods sold 2563442 2210210 2163508 2484589 3044561 4120957 73 .16 439610 5.09 596074 4.03 528333 4.17 697949 4.

09 4.36 84 2007-08 365 4.03 4.09 Ratio INVENTORY HOLDING RATIO 365 INVENTORY HOLDING RATIO=--------------Inventory turnover ratio (Rs in 000’s) Year Days Inventory turn Inventory over ratio holding ratio 2002-03 365 7.36 4.76 5.17 4.09 89 74 .17 88 2006-07 365 4.16 51 2003-04 365 5.09 89 2005-06 365 4.03 73 2004-05 365 4.Ratio 9 8 7 6 5 4 3 2 1 0 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 7.

23 75 .Inventory holding ratio 100 90 80 70 60 50 40 30 20 10 0 73 51 89 88 84 89 Inventory holding ratio 200203 200304 200405 200506 200607 200708 INVENTORY ANALYSIS AT TECUMSEH INDIA PRODUCTS PVT.01 1688733 45.09 1500977 42.40 1078274 52.LTD Year 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 Inventory 495036 561630 630518 765380 1250752 1312456 (Rs in 000’s) Current assets % in inventory &CA 909946 54.32 2307604 54.20 2504689 55.

09 54. In Lakhs) 2008 4997 0 7598 3 2007 4567 5 4997 0 2006 4690 4 4567 5 2005 5525 3 4690 4 2004 5155 4 5525 3 2003 43697 51554 INVENTORY TURNOVER RATIO YEARS INVENTOR AVERAGE INVENTOR Y INVENTOR Y CONSUME Y TURNOVE D (Rupees (Rupees in R RATIO in Lakhs) Lakhs) INVENTOR Y TURNOVE R IN NUMBER OF DAYS 76 .23 % in inv entory &CA 42.32 YEARS Opening Inventory (Rs.4 52. In Lakhs) Closing Inventory (Rs.01 45.% in inv entory &C A 60 50 40 30 20 10 0 1 2 3 4 5 6 7 8 54.2 55.

296 = 50..March – 2008 March – 2007 March – 2006 March – 2005 March – 2004 March – 2003 459537.145 235858.13 221023.5 = 5. 4..5 = 4. 5.5 46904 + 45675 2 = 46389.5 55253 + 46904 2 = 51078. 7.10 335286.027 366. 7..1 51078.41 = 82.23 47625.65 366.5 51554 + 55253 2 = 53403.21 365.416 221023.5 45675 + 49970 2 = 47822.01 250021.10 62976. 4..64 365. 4.389 211723.87 77 .52 47822.5 459537.01 = 52.05 365.389 = 67.5 53697 + 51554 2 = 47625.24 = 88.5 = 7.84 46389.5 = 4..23 49970 + 75983 2 = 62976.64 = 78.5 = 7.5 = 4.84 211723..73 365.52 250021.13 53403.1 235858.296 335286.

01 4.416 5.296 % OF INVENTORY 2003 2004 2005 2006 2007 2008 YEARS INVENTORY TURNOVER RATIO INVENTORY TURNOVER RATIO % OF INVENTORY 8 7 6 5 4 3 2 1 0 2003 7.01 4.64 4.145 7.389 4.416 5.145 7.389 4.296 2004 2005 2006 2007 2008 YEARS INVENTORY TURNOVER RATIO 78 .INVENTORY TURNOVER RATIO 8 7 6 5 4 3 2 1 0 7.64 4.

05 67.027 2003 2004 2005 2006 2007 2008 YEARS INVENTORY IN NUMBER OF DAY 79 .73 52.21 50.87 82.INVENTORY IN NUMBER OF DAY 100 I NVENTORY IN NUMB E RO F DAY S 80 60 40 20 0 78.65 88.

2007. the stock turnover ratio is gradually decreasing and the inventory faced a bad position in these three years. 80 .87 82.INVENTORY IN NUMBER OF DAY 100 INVENTORY IN NUMBER OF DAYS 80 60 40 20 0 2003 78. In the year 2006.296 and the inventory in number of days is low. And from 2003. 2004. 2008. This position indicates that the stocks are fast moving and get converted in to sales quickly.21 50. the stock turnover ratio continuously increased from 5.38 to 7.65 88.73 52.027 2004 2005 2006 2007 2008 YEARS INVENTORY IN NUMBER OF DAY INERPRETATION: A high turnover ratio indicates that the material in question is a fast moving one and also a low amount of stocks are replacing stocks in large number of installment.05 67. 2005.

885 YEAR MARCH 31ST 2006 MARCH 31ST 2007 MARCH 31 ST 2008 P R O D U C TI O N & 40000 35000 30000 25000 20000 15000 10000 5000 0 2006 COMPRESSOR PRODUCTION & DISPATCH Production Dispatch DISPATCH 2007 YEARS 2008 81 .UNITS ) 25.766 33.UNITS) 25.416 33.COMPRESSOR PRODUCTION AND DISPATCH COMPRESSOR PRODUCTION (QUANTITY IN MIL.797 34.630 COMPRESSOR DISPATCH (QUANTITY IN MIL.186 33.

This indicates that the consuming storage cost is very low and risk related to preservation of the stock is very less. In march 31st 2006 the difference between the compressor production and dispatched is 381 and in march 31st 2005 the close stock in the go down is also dispatched from the organization and as well as in the year 2007 31st march the stored compressors are dispatched from the company. 82 .INERPRETATION: The inflow of raw materials and dispatch of finished goods from the organization is in good position.


Inventory valuations is followed in weighted average method based on cost concept of the project costing is undertaken. The reasons for non moving of inventory from stores are studied. 3.e 2003-2004 to 2007-2008 is not sufficient to conclude the inventory positions of the company as well taken up to study for a period of 6 weeks Is too less still we strived out best in exploiting the present inventory positions of the company 2. The analysis is carried out for a period of five years i. 6. Some items are found to be slow and non moving the slow moving items are spare and consumable goods hence whenever necessary arises these items are being used non moving items are also found in the inventory. The high inventory turnover ratio at indicates efficiency of the firms inventory management 7. The inventory is different items of production hence ABC analysis and two bin system are followed 4. The material consumption was also increasing simultaneously with sales.FINDINGS On the personnel interaction with the financial department as well as with the primary and secondary arrived they are : 1. 84 . 5. Due to MOQ(Minimum order quantity) clause these items procured extra than the requirement.

The companies utilization of inventory in generating sales is good they yearly holing of all types of inventory is decreasing this is positive trend 9. The company efficiency in turning the inventory is increasing the company’s utilization of inventory in generating sales is good the yearly holing of all types of inventory is decreasing this is positive trend.8. 10. The company s efficiency in turning its inventory is increasing. 85 . The over all inventory position of the company is satisfactory.


In the classification of ABC items XYZ procedure is following in Tecumseh Plant has launched the different type of KANBAN card system for class C items. The system of inventory management in Tecumseh India products private The organization is basically and From the various calculations assembling unit and thus inventory place a most significant role in the decision making process.296% this position indicates that the stocks are fast moving and get converted into sales quickly in Tecumseh India Products Private Limited Finally we conclude that Tecumseh India products Private limited plant the inventory system is very good with high Japanese techniques. Class A & B items are consider under the just in time philosophy as the procurement time has been reduced up to greater extent by the proper co-ordination of buyer and supplier.To days business scenario inventory management is becoming very crucial part of the organization. It is increased from 5. There is great improvement in the inventory turnover ratio from 3 years. reducing the lead time and also the large quantity discount because the stock are kept for 1 – 3 days. as a result it reduce investment in raw material. 87 .38 to 7. and figures relating to inventory management it is clear that the inventory classification of A items are maintain for 1 – 3 days. limited very effective.


Maheshwari Khan & Jain www.msn.N.D. Vashist S. Thrivadi Websites: www.* * * * * Cost Accounting – Cost Accounting Cost Accounting Financial Management Cost Management Accounting V. Saxena C.P. Iyenger 89 .P.yahoofinance.

Sign up to vote on this title
UsefulNot useful