I hereby declare that this project work entitled “Inventory management” (4 Study with reference t0 Chodavaram Co-operative Sugar Limited, Govada Visakhapatnam Andhra Pradesh) submitted by me to the J.N.T. University, Kakinada in partial fulfillment for the award of Degree of MBA is entirely based on my own study is, being submitted for the first time and it has not been submitted to any other university or institution for any degree or diploma Place: Visakhapatnam Signature of the Candidate Date:CHAPTER NO. u IV CONTENTS TITLE OF THE CHAPTER Synopsis Declaration Acknowledgements List of Tables List of Figures INTRODUCTION ORGANISATION PROFILE THEORETICAL FRAMEWORK DATA ANAL’ SUMMARY AND SUGGESTIONS Bibliography PAGE NO. 13-41 42-62 62-93 94.97 98,LIST OF TABLES ‘SNo. | Table No. Name of the Table Page No 1 44 Inventory turnover ratio 68 a 42 Raw material inventory turnover ratio 70 3. 43 Work in progress turnover ratio nn 4 44 Inventory to net working capital "4 5 45 Sundry debtors turnover ratio 16 6. 46 Current ratio 78 7. 4.7 | Working capital turnover ratio 80 8 48 Inventory to current assets ratio 82 9. 49 Average collection period ratio cy 10. 4.10 Cost of goods sold 36 Mm 4.11 | Finished goods to inventory turnover ratio 88 2. 4.12 | Inventory conversion period 90 13, 413 Raw material finished goods levels 92LIST OF FIGURES S.No. | Figure No. Name of the Figure Page No L 41 Inventory turnover ratio graph 69 p: 42 Raw material inventory turnover ratio graph n 3 43 | Work in progress turnover ratio graph 3 4 44 | Inventory to net working capital graph 8 5 45 | Sundry debtors turnover ratio graph n 6 46 |Current ratio graph 9 7. 4.7 | Working capital turnover ratio graph 81 8 48 | Inventory to current assets ratio graph 83 9. 49 | Average collection period ratio graph 85 10 4.10 | Cost of goods sold graph 87 u 4.11 | Finished goods to inventory turnover ratio graph 89 12 4.12 | Inventory conversion period graph on 1B 4.13 | Raw material finished goods levels graph 93CHAPTER-I INTRODUCTIONINTRODUCTION ‘Meaning of finance: If we trace the origin of finance, there is evidence to prove that itis as old as human life on earth. The word finance was originally a French word. In the 18th century, it was adapted by English speaking communities to mean “the management of money.” Since then, it has found a permanent place in the English dictionary. Today, finance is not merely a word else has emerged into an academic di ipline of greater significance Finance is now organized as a branch of Economics, Definition of fi ce In General sense, "Finance is the management of money and other valuables, which can be easily converted into cash." According to Experts, "Finance is a simple task of providing the necessary funds (money) required by the business of entities like companies, firms, individuals and others on the terms that are most favorable to achieve their economic objectives." According to Entrepreneurs, "Finance is concemed with cash. It is so, sinee, every business transaction involves cash directly or indirectly." According to Academicians, "Finance is the procurement (to get, obtain) of funds and effective (properly planned) utilization of funds. It also deals with profits that adequately compensate for the cost and risks borne by the business.” According to F.W.Paish, Finance may be defined as “the position of money at the time it is wanted. Definition of fin: cial management As already discussed, the general meaning of finance refers to providing funds, as and when needed, However, as management function, the term ‘Financial Management” has a distinet meaning Financial management deals with the study of procuring funds and its effective and judicious utilization, in terms of the overall objectives of the firm, and expectations of the aproviders of funds. The basic objective is to maximize the value of the firm, The purpose is to achieve maximization of share value to the owners ie. equity shareholders. ‘The term Financial Management has been defined, differently, by various authors. Some of the authoritative definitions are given below: “Financial Management is concerned with the efficient use of an important economic resource, namely, Capital Funds” —Solomon Scope of financial management: Financial management is concerned with optimum utilization of resourees. Resources are limited, particularly in developing countries like India. So, the focus, everywhere, is to take maximum benefit, in the form of output, from the limited inputs. ‘Traditional Approach: The scope of finance function was treated, in the narrow sense of procurement or arrangement of funds. The finance manager was treated as just provider of funds, when organization was in need of them. The utilization or administering resources was considered outside the purview of the finance function. It was felt that the finance manager had no role to play in decision making for its utilization. Others used to take decisions regarding its application in the organization. Modern Approach: Since 1950s, the approach and utility of financial management has started changing in a revolutionary manner. Financial management is considered as vital and an integral part of overall management ‘The emphasis of Financial Management has been shifted from rising of funds to the effective and judicious utilization of funds. The modern approach is analytical way of ooking into the financial problems of the firm.Objectives of financial management: 1. Profit Maxi ati ‘The modern approach focuses on wealth maximization rather than profit maximization. This gives a longer term horizon for assessment, making way for sustainable performance by businesses. A myopic person or business is mostly concerned about short term benefits. 2. Wealth Maximization: Profit maximization no doubt maximizes profits but in the long run fails to meet the expectations of the shareholders. Shareholders are happy when their investment in the firm grows along with the growth of the firm's revenues. Profit maximization is achieved with the support of all the creditors, Introduction to Inventory Manageme! Inventories are the assets of the firm and require investment and hence involve the commitment of firm’s resources, The inventories need not to be viewed as an ideal asset rather these are an integral part of firm’s operation. But if the inventories are too big, they become a strain on the resources, or if they are too small, the firms lose the sales. ‘Therefore, the firm must have an optimum level of inventories. A term inventory refers to the stock file of the products a firm is offering for sale and the components that make up the product. In other words, inventory is composed of assets that will be showed in future in the normal course of the business operations, Inventory management occupies the most significant position in the structure of working capital. Management of inventory may be defined as the sum of total of those activities necessary for the acquisition, storage, disposal or use of materials. Inventory is one of the important components of current assets. Inventory management is an important area of working capital management, which plays a crucial role in economic operation of the firm. Maintenance of large size of inventories requires a considerable amount of funds to be invested on them. Efficient and effective inventory management is necessary in order to avoid unnecessary and inadequate investment 3A considerable amount of funds is required to be committed in inventories. It is absolutely imperative to manage inventories efficiently and effectively in order to optimize investment in them, Prudent inventory management is one of the challenging tasks of the financial manager. Efficient management of inventory reduces the cost of production and consequently increases the profitability of the enterprise by minimizes the different types of cost of associated with holding inventory. An undertaking, neglecting the management of inventories, will be jeopardizing its long- term profitability and may fail ultimately, The reduetion in inventories carries a favorable impact on the company’s profitability. The efficiency of inventory management in any firms depends on the inventory management practices adopted by it Concept of Inventory Management: ‘The dictionary meaning of “INVENTORY” is “A DETAILED LIST - STOCK OF GOODS IN THIS”. A practical definition fiom the material management angle would be “Items of stores or materials kept in stock to meet future demand of production, repairs, maintenance, construction ete.” Since the materials held in the inventory are idle resources, another definition would be “an idle resource of any kind which has an economic value”. The inventory means and incudes the goods and services being sold by the firm and the raw materials or other components being used in the manufacturing of such goods to be offered to customers whenever demanded by them Every enterprise needs inventory for smooth running of its activities. It serves as a link between production and distribution processes. The greater the time lags, the higher the requirement for inventory, it also provides a caution for future price fluctuation Inventory management is required at different locations within a facility or within multiple locations of a supply network to protect the regular and planned course of production and demand against the random disturbance of running out of materials or goods. ‘© Involves a retailer seeking to acquire and maintain a proper merchandise assortment while ordering, handling and related costs are kept in check.‘© Systems and processes that identify inventory requirements, set targets, provide replenishment techniques and report actual and projected inventory status ‘© Handles all functions related to the tracking and management of material. This would include the monitoring of material moved into and out of stockroom locations and the reconciling of the inventory balances. It also may include ABC analysis, lot tracking, cycle counting support etc. © Management of the inventories, with the primary objective of determining. Controlling stock levels within the physical distribution function to balance the need for product availability against the need for minimizing stock holding and handling costs ‘Types of Inventories: Generally the inventories are classified into three categories and they are as follows: 1. Raw materials 2. Work-in-progress 3. Finished goods 1. Raw Material ‘The raw materials include the materials, which are used in the production process, and every manufacturing firm has to carry certain stock of raw materials in stores. ‘These units of raw materials are regularly issued transferred to production department inventories of raw materials are held to ensure that the production process in not interrupted by a shortage of these materials. 2. Work-i progress: It refers to the raw materials engaged in various purchase of production schedule. ‘The degree of completion may be varying for different units. Some units might have been just introduced; while the work-in-progress refers to partially produced goods3. Finished goods: ‘These are the goods, which are either being purchased by the firm, or are being produced or processed in the firm, These are just ready for sale to customers. Inventories of finished goods arise because of the time involved in production process and the need to meet customer’s demand promptly. If the firms do not maintain a sufficient finished goods inventory, they run the risk of losing sales, as the customers who are unwilling to wait may turn to competitors,NEED FOR THE STUDY ‘The inventory plays a vital role in the efficient operation of a company. It is in the direct touch with manufacturing department and marketing department and material departments in its day to day activity. An efficient inventory management can help to achieve better utilization of this investment with considerable degree of success. Providing all the requited raw materials, consumable stores, components etc., 10 the manufacturing units at the right time and right place, at the lowest possible cost and material handling practices are the principle objectives of stores management Inventory management has attained significant status in present day business and industrial management. ‘The increasing specialization in industry widening range of technical equipments, fast development in science and technological field here forced the inventory management also to innovate and improve its performance and contribute to efficiency and economy in productionSCOPE OF THE STUDY ‘The scope of study in the thesis or research paper is contains the explanation of what information or subjects is being analyzed. Its followed by an explanation of the limitation of the research. Research usually limited in scope by sample size, time and geographic area While the delimitation of study is the description of the scope of study. It will explain why definite aspects of a subject were chosen and why others were excluded.OBJECTIVES OF THE STUDY To make the detail study on the existing sugar industry in general and inventory management in particular to Chodavaram Co-operative Sugar Industry To study the pattern of organization management and inventory factors of Chodavaram Co-operative Sugar Industry ‘To analyse the inventory assification and its management and control To find out the inventory management and procedures in of Chodavaram Co- operative Sugar Industry. ‘To examine the methods and techniques of inventory control in Chodavaram Co- operative Sugar Industry. To summarize and suggest the observations,METHODOLOGY OF THE STUDY The methodology in this content involves the process of collection of data from primary and secondary sources and interpreting the same by using the analytical tools and techniques utilizing the consequent finding to put to put forward liable and insight suggestion to the company. Generally data collection is classified into two categories and they are as follows; 1. Primary Data 2. Secondary Data A. Primary D: Its the data which is collected for the very first time. A large part of primary data was collected in the course of my interaction with the personal concerned department and also developed in consultation with costing manager, material manager and offers. B. Secondary Data: It is the data which is gathered from the past data as further references, The data collected was various aspects of inventory management like lead-time, ordering cost, carrying cost and working of online computerized stores system. ‘The secondary source of data is the ISO manual of material department; purchase department of Chodavaram Co-operative Sugar Industry. ‘+ Company's annual report, audit reports, balance sheet and other company records journalsFRAME WORK OF THE STUDY This project contains 5 chapters. They are explained briefly below. Chapter- methodology and limitations of my project study’ includes the introduction of inventory management, needs, objectives, Chapter-2: It explains about the industry profile and company profile. Chapter-3: It covers the theoretical frame work of inventory management, inventory control, Chapter-4: It presents the analytical study and interpretation of my study. Chapter- the project : It includes summary, findings, suggestions and conclusion about my study of nuLIMITATIONS OF THE STUDY Some information is some highly confidential so it is very difficult to get the data from the organization, ‘The management of time for project completion is also a factor that limits extensive study of the nature of projection process and its implication on inventory aspects More dependency on secondary data The analysis of inventory management is based on information available and if any mistake would be reflected in the study.CHAPTER-II ORGANISATION PROFILEINDUSTRY PROFILE istory of the Sugar Industry Introductio India has been known as the ori inal home of sugar and sugarcane, Indian methodology supports the above fact as it contains legends showing the origin of sugarcane. The growth of sugar industry is full of tales of adventures of the builders of the different emperors from time to time. India is the second largest producer of sugarcane next to Brazil, Presently, above 4 million hectors of land is under sugarcane with an average yield of 70 tons per hectare India is the largest single producer of sugar including traditional sugarcane sweeteners, khahndasari and Gur equivalent to 26 million tons raw value followed by Brazil in the second place at 18.5 million tones. India has ranked No.1 position out of 7 States for last 10 years. During 1998-99 India produced 17.0 million tons (155 lakhs tones white sugar) While Brazil had produced 18.5 million tones. Sugar is made from sugarcane, and was discovered thousands of years ago in New Guinea. And then the route was traced to India and Southeast Asia, India was the first begin with the production of sugar following the process of pressing sugarcane to extract juice and boil it to get crystals. The government of India in 1950-1951 made serious industrial development plans and has set many targets for production and consumption of sugar. These plans by the government projected the license and installment capacity for sugar industry in its five year plans. India is well-known as the original home of sugarcane and sugar. Indian mythology supports the fact that it contains legends showing the origin of sugarcane, Today India is the 2! largest producer of sugarcane next to Brazil. Currently there four million hectares of land under sugarcane with an average yield of 70 tons per hectare. India is the largest producer of sugar including traditional cane sugar sweeteners, Khandsari and Gur equivalent to 26 million tons raw value followed by Brazil in the 32™place at 18.5 million tones. Even in respect of white crystal sugar, India has ranked No.1 position in 7 out of last ten years ‘The traditional sweeteners of India like Gur and Khandsari are consumed mostly by the rural population in the country. In the early 1930s nearly 2/3" of sugarcane production was used for the production of alternate sweeteners like Gur and Khan Sari. As accordingly because of the better standard of living and higher incomes, the sweeteners demand has shifted to white sugar. Currently 1/3" of sugar production is used by Gur and Khandsari sectors. Inthe year 1930, there was an advent of modern sugar processing industry in India which was started with grant of tariff protection to sugar industry. In 1930-31, the number of sugar mills increased from 30 to 135 and in the year 1935-36, production was increased from 1.20 lakh tones to 9.34 lakh tones under the dynamic leadership of private sector. In the year 1950-51, the era of planning for industrial development began and Government laid down targets of sugar production and consumption, licensed and installed capacity, sugar production during each of five year plans, India is the largest sugar consumer and second largest producer of sugar in the world, according to USDA Foreign Agricultural Service. Indian sugar industry has a total turnover of Rs.500 billion per annum and contributes almost Rs.22.5 billion to central and state exchequer as tax, cess and excise duty every ‘ear according to sources of Ministry Of Food and Government of India Sugar industry is regarded second after the textile industry in India as per the Agro- processing industry in the country. The industry currently has 453 operating sugar mills in different parts of the country. Indian sugar industry has always been a focal point for socio-economic development in the rural areas. Today nearly SO million sugarcane farmers and large number of agriculture laborers are involved in the sugarcane cultivation and ancillary contributing to 7.5% of the rural population. Indian sugar industry generates power for its own requirement and even gets surplus power for export to the grid based on byproduct bagasse. There is even production of 4Ethanol, an eco-friendly and renewable energy for blending with petrol. Sugar companies have been established in large sugar growing states like Uttar Pradesh, Maharashtra, Karnataka, Gujarat, Tamil Nadu and Andhra Pradesh are six states contributing more than 85% of total sugar production in the India and $7% of the total production is together contributed by Uttar Pradesh and Maharashtra. Indian sugar industry has been growing horizontally with large number of small sized sugar plants set up throughout India as opposed to the consolidation of capacity in the rest of the sugar producing countries and sellers of sugar, where there is greater concentration on larger capacity of sugar plants ‘Types of sugar industries in India. They are organized sector and unorganized sector. The sugar factories belong to the organized sector and those producers who produce traditional sweeteners fall under the unorganized sector. Gur and Khandsari are the traditional forms of sweeteners. Sugar is a common part of human life. From the time of its invention, refined sugar has been a part of our day-to-day life. Sugar was first produced from sugarcane plants in northern India sometime after the first century, The derivation of the word “sugar” is thought to have been from Sanskrit and Sanskrit literature from India provides the first documentation of the cultivation of sugar cane and manufacture of sugar in the Bengal region of India, The Sanskrit name for a crudely made sugar substance was Gouda, and its meaning is “to make into a ball or to conglomerate.” The history of sugar has five main phases ‘© The extraction of sugar cane juice from the sugarcane plant; and, the subsequent domestication of the plant in tropical Southeast Asia sometime around 8,000 B.C. ‘© The invention of manufacture of cane sugar granules from the sugarcane juice in India a little over two thousand years ago, followed by improvements in refining, the crystal granules in India in the early centuries A.D. ‘© The spread of cultivation and manufacture of cane sugar to the medieval Istamic ‘world together with some improvements of production methods,‘© The spread of cultivation and manufacture of cane sugar to the West Indies and tropical parts of the Americas beginning in the 16th century, followed by more intensive improvements in production in the 17th through 19th centuries in that part of the world ‘© The development of beet sugar, high fructose corn syrup and other sweeteners in the 19th and 20th centuries. Size of the Industry: Today India has 453 sugar mills, those constituting from the Co-operative sector and 134 mills from the Private sector and there are boosting 67 mills in the Public sector. As according to the status there are 571 sugar factories in India as on 31" march, 2017 compared to 453 during 2005-06. These $71 mills have a production of total quantity of 19.2 million tones, There is an increase in sugar production of 15.5 million tons in 2009- 10 to 20.1 million tons in 2012-13, Consumption in 2015-16 is 25 million tones. The country has produced 28.1 million tons of sugar in 2015. Maharashtra, leading sugar producer state has projected sugar output to decline to 8.6 million tons in the 2015-16 marketing year, compared to 10.5 million tons last year. Annual demand is pegged at 54.5 million tones. There are 716 installed sugar factories as on January 2016, with sufficient crushing capacity of to produce around 330 lakh million tons of sugar. This comprises both Co-Operative and Private unit. Early Use of Sugarcane in Indi: Sugarcane is originated in tropical South Asia and Southeast Asia. Different species likely originated in different locations with S. Barberi originating in India and S. Edule and S. Officinarum coming from New Guinea. Originally, people chewed sugarcane raw to extract its sweetness. Indians discovered how to crystallize sugar during the Gupta dynasty, around 350 AD.‘There are lots of mentions in Tamil sangam literatures like Purananuru, Ainkurunuru, Perumpaanaatruppadai, Pattipappalai and Akananuru about cultivation of sugarcane, sugarcane juice extraction using machines and sugar extraction in Tamil land of South India. It is mentioned in puranaanooru (392); the sugar cane is brought to Tamil land in Sanga era from an unknown place. In Purananuru and Ainkurunuru, sugarcane juice extraction with use of huge machineries was compared with the sound made by elephants and the smoke produced during the process of making of sugar spread over a heap of winnowed paddy was like clouds over mountains Indian sailors, consumers of clarified butter and sugar, carried sugar by various trade routes Traveling Buddhist monks brought sugar crystallization methods to China. During the reign of Harsha (r. 606-647) in North India, Indian envoys in Tang China taught sugarcane cultivation methods after Emperor faizhong of Tang (r. 626-649) made his interest in sugar known, and China soon established its first sugarcane cultivation in the seventh century, Chinese documents confirm at least two missions to India, initiated in 647 AD, for obtaining technology for sugar-refining. In South Asia, the Middle East and China, sugar became a staple of cooking and desserts. In the year 1792, sugar rose by degrees to an enormous price in Great Britain. The East India Company was then called upon to lend their assistance to help in the lowering of the price of sugar. On 15 March 1792, his Majesty's Ministers to the British Parliament presented a report related to the production of refined sugar in British India. Lieutenant J. Paterson, of the Bengal establishment, reported that refined sugar could be produced in India with many superior advantages and a lot more cheaply than in the West Indies. Early refining methods involved grinding or pounding the cane in order to extract the juice, and then boiling down the juice or drying it in the sun to yield sugary solids that looked like gravel. The Sanskrit word for "sugar" (shaker) also means "gravel" or "sand". Similarly, the Chinese use the term "gravel sugar" & for what the West knows as "table sugar". Importance of Sugar Industry: ‘The sugar industry is one of the largest Agro based industry in India, next to cotton textile playing an important role in national economy sugar industry holds the pride of place as an instrument of rural reconstruction and development uv