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INVENTORY MANAGEMENT • • • • • INTRODUCTION BENFITS OF HOLDING INVENTRIES OBJECTIVES OF INVENTORY MANAGEMENT METHODOLOGY OF THE STUDY LIMITATIONS OF STUDY
• INDUSTRY PROFILE
• COMPANY PROFILE
• RATIO ANALYSIS
• • CONCLUSIONS SUGGESTIONS
INVENTORY MANAGEMENT • INTRODUCTION • BENFITS OF HOLDING INVENTRIES • OBJECTIVES OF INVENTORY MANAGEMENT • METHODOLOGY OF THE STUDY • LIMITATIONS OF STUDY
Every enterprise needs inventory for smooth running of its activities. It serves as a link between production and distribution process. There is, generally, a time lag between the recognition of a need and its fulfillment. The greater the time lag, the higher requirements for inventory. It also provides a cushion for future price fluctuations. In a complex industry like Kesoram Industries Limited it studied clearly of how the thing are being performed and what is the real impact of these on industry and how effectively the inventory is utilized is interested to be known by researcher because of its great significance in the research. The investment in inventories constitutes the most significant part of current assets / working capital in most of the undertakings. Thus, it is very essential to have proper control and management of inventories. The purpose of inventory management is to ensure availability of materials in sufficient quantity as and when required and also to minimize investment in inventories.
Meaning and Nature of Inventory:
In accounting language, inventory may mean the stock of finished goods only. In a manufacturing concern, it may include raw materials, work- in – progress and stores etc.
Inventory includes the following things:
Raw Material: Raw material from a major input into the organization. They
are required to carry out production activities uninterruptedly. The quantity of raw materials required will be determined by the rate of consumption and the time required for replenishing the supplies. The factors like the availability of raw which are in
There can be instances where these materials may account for much value than the raw materials. The quantum of work in progress depends upon the time taken in the manufacturing process.. The fuel oil may form a substantial part of cost. Consumables may be classified according to their consumption add critically. The stock of finished goods provides a buffer between production and market. which are ready for the consumers. The greater the time taken in manufacturing. maintenance spares etc. Some industries like transport will require more spares than the other concerns. 4 .. c) Consumables: These are the materials which are needed to smoother the process of production but they act as catalysts. b) Work in progress: The work in progress is that stage of stocks quantum of work in progress depends upon the time taken in the manufacturing process. The costly spare parts like engines. consumable stores doe not create any supply problem and firm a small part of production cost. All decisions about spares are based on the financial cost of inventory on such spares and the costs that may arise due to their non – availability. too affect the stock of raw materials. The materials and Government regulations etc.between raw materials and finished goods. the purpose of maintaining inventory is to ensure proper supply of goods to customers. d) Finished goods: These are the goods. the more will be the amount of work in progress. e) Spares: The stock policies of spares fifer from industry to industry. rather they are kept in ready position for further use. Generally. are not discarded after use.
A firm also needs to maintain inventories to reduce ordering cost and avail quantity discounts etc. In the absence of inventories a firm will have to make purchases as soon as it receives orders.BENEFITS OF HOLDING INVENTORIES: Although holding inventories involves blocking of a firm’s and the costs of storage and handling. saving in re – ordering costs and quantity discounts? 5 . 3. It will mean loss of time and delays in execution of orders which sometimes may cause loss of customers and business. 1. There are three main purpose of holding inventories. every business enterprise has to be maintain certain level of inventories of facilitate un – interrupted production and smooth running of business. 2. The transaction motive: Which facilitates continuous production and timely The precautionary motive: Which necessitates the holding of inventories for The speculative motive: Which induces to keep inventories for taking execution of sales order? meeting the unpredictable changes in demand and supplies of materials? advantage of price fluctuations.
The funds may be arranged from own resources or from outsiders. Storage and Handling Costs: Holding of inventories also involves costs on storage as well as handing of materials. there is an opportunity cost of investment while in the later case. 2. 3. 1. The various costs and risks involved in holding inventories are: Capital costs: Maintaining of inventories results in blocking of the firms financial resources. changes in requirements. The storage of costs include the rental of the godown. change in customer tastes etc. 4. the firm incurs a cost. insurance charges etc. competition or general depression in the market. while the inventories are kept. But in both the cased. Risk of Price decline: There is always a risk of reduction in the prices of Risk of Obsolescence: The inventories may become absolute due to improved Risk Determination in quality: The quality of materials may also deteriorate inventories by the supplies. The firm has therefore to arrange for additional funds to meet the cost of inventories. the firm has to pay interest to t he outsiders. technology. 6 . In the former case.RISK AND COSTS OF HOLDING INVENTORIES The holding of inventories involves blocking of firms funds and incurrence of capital and other costs.
economic 7 . simplification. determining the size of inventory holdings. Therefore there is a need to know the raw material cost and also there is great importance to understand the inventory management system of this industry. The main objectives of inventory management are operational and financial.OBJECTIVES OF INVENTORY MANAGEMENT Definition of Inventory Management: Inventory Management is concerned with the determination of optimum level of investment for each components of inventory and the operation of an effective control and review of mechanism. NEED OF THE STUDY: Every industry on average spends 70% on raw materials (inventory). maintaining record points and safety stocks. when to order. The operational objective mean that the materials and spares should be available in sufficient quantity so that work is not disrupted for want of inventory. standardization and codification of inventories. The study helps a log to various departments to take steps to control the inventory process. where and how much to order so that purchasing and storing costs are the lowest possible without affecting production and sales. The financial objective means that inventory should not remain idle and minimum working capital should be locked in it. The over all inventory management includes design and inventory control organization with proper accountability establishing procedure for inventory handling disposal of scrap. Thus. In this competitive business world each and every business organization need inventory management system for determining what to order. 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.
by selected accounting ratios. To design proper structure for inventory management. Kesoram Cements. This is possible of Kesoram Cements. storage records of the organization. 3. To avoid both under stocking and over stocking of inventory. A clear cut accountability should be fixed at various levels of the organizations. 2. To ensure continues supply of materials. with the help of centralized purchasing. To understand the various inventory control techniques followed by studies in To access the performance of inventory management of the Kesoram Cements To know the inventory control techniques of Kesoram Cements. 8 . The primary data has been collected through structured questionnaire reflecting inventory management practices of Kesoram Cements. 6. levels and trends of inventories in Kesoram Cements. OBJECTIVES OF THE STUDY: 1. To examine the organization structure of inventory management in the stores To discuss pattern. 5. The collected data is tabulated and suitable interpretation had been made by considering the data collection through secondary data like annual reports purchase registers. ABC analysis and VALUE analysis and finally framing an INVENTORY MANUAL. 4. To eliminate duplication in ordering or replenishing stocks. spares and finished goods so that production should not suffer and any time and customers demand should also be met.order quantity. b. METHODOLOGY OF THE STUDY: The study is based on both primary and secondary data. a. 7.
There may be approximation in calculating ratios and taking the figures from The study is limited only for a period of 5 years i. The limitations of ratio analysis can be applicable of the study.. 3.LIMITATIONS OF THE STUDY: The study has the following limitations: 1. 08.e. 2. from 2002 – 03 to 2007 – the annual reports. 9 .
CHAPTER-II INDUSTRY PROFILE 10 .
11 ..S. considering the excellent performance of the industry in utilizing the loans and achieving the objectives and target. Japan and U.INDUSTRY PROFILE: By stating productions in 1914 the story of Indian Cement is a stage of continuous growth. Cement is derived from the Latin word “Cementam”. The strength and vitality of Indian Cement Industry can be gauged by the interest shown and support give by World Bank. So far annual production and demand have been growing a pace at roughly 78 million tones with an installed capacity of 87 million tones. Egyptians and Romans found the process of manufacturing cement. During the nineties it had a particularly impressive expansion with growth rate of 10 percent.. India is well endowed with cement grade limestone (90 billion tones ) and coal (190 billion tones). With liberalization policies of Indian Government.3 million tones. Portland cement was invented and the invention was usually attributed to Joseph Aspdin of England. In the remaining two years of 8th plan an additional capacity of 23 million tones will actually come up.D. which will make it global. Till 1950 – 1951.A. Since then the cement industry has progressing leaps and bounds and evolved into the most basic and progressive industry. Nepal and other several countries.S.A. In England during the first century the hydraulic cement has become more versatile building material. The industry has fabulous scope for exporting its product to countries like the U. The World Bank is examining the feasibility of providing a third line of credit for further upgrading the industry in varying areas. But there are not enough wagons to transport cement for shipment.K. The company was setup in Chennai with the installed capacity of 30 tones per day. the capacity of production was only 3. India is the world’s 4th largest cement produced after China. U. The South Industries have produced cement for the first time in 1904. Bangladesh. The industry is posed for a high growth rates in nineties and the installed capacity is expected to cross 100 million tones and production 90 million tones by 2003 A. Later on.
The manufacture of Portland cement was started in England around 1825. 12 . He took out a patent for this cement called it “PORTLAND CEMENT” because it had resemblance in its color after setting to a variety of sandstone. After burning the product was reduced to a powder.Cement – The Product: The natural cement is obtained by burning and crushing the stones containing clayey. It was in the eighteenth century that the most important advances in the development of cement were which finally led to the invention of Portland cement. A small quantity of gypsum is added to clinker and it is then pulverized into very fine powder. John Sematon showed that hydraulic lime which can resist the action of water can be obtained not only from hard lime stone but from a limestone which contain substantial proportion of clayey. The common variety of artificial cement is known as normal setting cement or ordinary cement. In 1756. carbonate of lime and some amount of carbonate of magnesia. Belgium and Germany started the same 1855. This started the natural cement industry. It sets very quickly after addition of water. which is known as cement. The mixture of ingredients should be intimate and they should be in correct proportion. The artificial cement is obtained by burning at a very high temperature a mixture of calcareous and argillaceous material. At present there are more than 150 factories producing different types of cements. Joseph Parker found that modules of argillaceous limestone made excellent hydraulic cement when burned in the usual manner. The first cement factory installed in Tamilnadu in 1904 by South India limited and then onwards a number of factories manufacturing cement were started. America started the same in 1872 and India started in 1904. which is found a abundance in Portland England. The calcined product is known as clinker. The natural cement is brown in color and its best variety is known as “ROMAN CEMENT”. In 1796. A mason Joseph Aspodin of Leeds of England invented this cement in 1824.
13 . namely. will increase cement consumption. roads. A good chemical analysis of ordinary cement along with desired range of ingredients. Ingredients Lime (CaO) Silica (SiO2) Alumina (Al2O3) Calcium Sulphate (CaSO4) Iron Oxide (Fe2O3) Magnesia (MgO) Sulphur (S) Alkalis Percent 62 22 5 4 3 2 1 1 Range 62 – 67 17 – 25 3–8 3–4 3–4 1–3 1–3 0. The cement industry does not appear to have adequately exploited cement consumption in rural segment where damaged where damaged growth is possible..2 – 1 Industry Structure and Development: With a capacity of 115 million tones of large cement plants.Composition of Cement: The ordinary cement contains two basic ingredients. The recent economic policy announcement by the government in respect of housing. Indian cement industry is the fourth largest in the world. However per capita consumption in our country is still at only 100 Kgs against 300 Kgs of developed countries and offers significant potential for growth of cement consumption as well as addition to cement capacity. Landed cost of cement (with import duty) continues to be higher than home market prices but with reduced import duty. there is a considerable scope for growth in cement consumption and creation of new capacities in coming years. Opportunities and Threats In view of low per capita consumption in India. may pose a serious threat to the domestic cement industry. argillaceous and calcareous. In argillaceous materials the clayey predominates and in calcareous materials the calcium carbonate predominates. increasing imports. power etc.
cement is one of the basic construction materials and therefore it is one of the vital elements for the economic development of the nation. which is considerably higher than corresponding costs of many other developing countries.. 10. infrastructure development should logically get priority leading to increase in demand of cement in coming years. India inspite of being the 4th biggest produces of cement in the world has still a very low per capital consumption of cement. cement is freight intensive increase in Limestone royalty also adds to the cost of production. Impressed by these activities. The recent increase in railway freight coupled with diesel / petrol price like will increase the cost of production and distribution. Risks and concerns: Slow down of Indian economy or drop in growth rate of agriculture may adversely affect the consumption. a Model Dairy Farm etc.000 crores Over 1. Kesoram is also conscious of its social responsibilities. Cement companies Cement Plants Installed Capacity Total investment (approx) Total Manpower 51 Nos 99 Nos 64. In our country there is a need to under take a massive programme of house construction activity into the rural and urban areas. The addition capacity of cement in the pipeline is limited and therefore the demand and supply situations is expected to be more favourable and cement prices are likely to firm up. FAPCCI chose Kesoram to confer the Award for “Best efforts of an Industrial Unit in the State 14 .8 mt Rs. running an Agricultural Demonstration Farm. It’s rural and community development programmes include adoption of two nearby villages.25 Lakhs Management Award of the Government of Andhra Pradesh. as being dulky. It is impossible to construct a house without cement and steel. in other words.Outlook The recent change in the budget 2002 – 2003 relating to fiscal incentives for individual housing and reduction in borrowing cost for this purpose and with the government reaffirmation to accelerate the reform process.
The second unit followed suit with added a capacity of 2 lack TPA in 1971.R. were arranged. Kesoram Cement is an OHSAS 08001 Company and also joined the select brand of ISO9001-2000 Companies. 2001 Kesoram annexed the “Vana Mithra” Award from the Government of Andhra Pradesh. In the same year Kesoram got the First Prize for Mine Environment and Pollution Control for year 1999 too. blood donation camps. Environmental and Social Obligations: For environmental promotion and to keep – up the ecological balance. organizing family welfare camps. Kesoram has got 2 diesel generator sets of 4MW each installed in the year 1987. 1981. in the year 1994 as well as in 1998. The power demand for the factory is about 21MW. S. 1978. for the 3rd year in succession in July. Kesoram also has to its credit the National Award (Shri. for the Best Rural Development Efforts made by the Company. 1981 and 0.. this section has undertaken various social welfare programs by adopting ten nearly villages. preheated system. Quality conscious and progressive in its outlook. Kesoram cement now has a 15 KW captive power plant to facilitate for uninterrupted power supply for manufactured of cement.to Develop Rural Economy” twice. The plant was further expanded to 9 lack by adding 2. animal health camps. 1.13 lack tones in January. training for farmers etc. 15 . Rangta Award for Social Awareness) for the year 1995 – 1996. distribution of fruit bearing trees and seeds.5 lack TPA (tones per annum) incorporating humble supervision. children immunization camps. History: The first unit was installed at Basanthnagar with a capacity of 2.87 lack tones in September. Power: Singareni Colleries makes the supply of coal for this industry and the power was obtained from AP TRANSCO. during the year 1969.5 lack tones in August. surgical camps.
. Awards: 16 . Canteen is provided to cater to the needs to the employees for supply snacks. The management has introduced various HRD programs for training and development and has taken various other measures for the betterment of employees efficiency / performance. One English medium and one Telugu medium school are provided to meet the educational requirements. due to implementation of various energy saving measures. The performance of captive power plant of this section continues to be satisfactory.Welfare and Recreation Facilities: For the purpose of recreation facility 2 auditoriums were provided for playing indoor games. Independence day and January 26. tea. The section has installed adequate air polluting control systems and equipment and is ISO 14001 such as Environment Management System is under implementation. Total power generation during the years was 84 million units last year. magazines are made available. cultural function and activities like drama. coffee and meals etc. Electricity: The power consumption per ton for cement has come down to 108 units against 113 units last year. The company has provided a dispensary with a qualified medical office and paramedical staff for the benefit of the employees. Competitions in sports and games are conducted every year for August 15. The industry has provided libraries and reading rooms. All kinds of newspaper. About 1000 books are available in the library. Republic Day among the employees. The employees covered under ESI scheme have to avail the medical facilities from the ESI hospital. music and dance etc. This captive power plant is playing a major role in keeping power costs with in economic levels..
conservation and several state awards since 1984. The following are the some of important awards. technology.Kesoram cement bagged many prestigious awards including national awards for productivity. 17 . Awards of Kesoram No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Year 1984 1985 – 86 1985 – 86 – 87 1987 – 88 1987 – 89 1988 – 89 1988 – 89 1988 – 89 1989 1989 1988 – 90 1988 – 90 1991 1991 Awards Best family planning effort in the state National productivity award Mines safety Best industrial promotion / expansion effort Productivity award Best industrial promoter Expansion effort in the state Award for contribution given for rural economy Best family planning effort Yajmnya Ratna & Best Management Award Community development programs Energy conservation May Day award of the Government of Andhra Pradesh for best management Pandit Jawaharlal Nehru rolling trophy for best national productivity effort Indira Gandhi National Award for Excellence in Industry (Best State minister mineral State State Management Award) Best industrial rebellion award Rural 17 18 1994 – 95 1995 development chief and environmental National / State State National National State State State State State State State State National State State State 15 16 1993 1994 conservation award. Best industrial rebellion award.
Best Management Award from Andhra Pradesh Government. Year Production (in tones) 18 . First prize for mine environment & pollution control for the 3rd year in succession. sponsored by the Godavari Pradushna Pariharna Pariyavarana. Best family welfare award. State National 20 21 22 23. Production: Last 20 years production of Kesoram Cements Industry. This section also bagged the award for Environment Protection in the Godavari River belt. Best workers welfare. under the auspices of the Director General of Mines Safety. Basanthnagar. Kesoram’s Basanthnagar limestone Mines won 2 first prizes for environment and pollution control and safe drilling and blatting and 14 2nd prizes for over all performance. 1996 1996 1996 – 97 1999 State State State 24 25 2001 2008 State State In this mines safety week celebrations.19 1995 – 96 Best effort of an industrial unit to develop rural economy Shri S. productivity. Vana Mithra award from Andhra Pradesh Government. Rungta award for social awareness for best rural development efforts. operation and maintenance of machines publicity / propaganda etc.R..
2008 749197 761581 805921 760708 550254 601453 643307 643663 748258 685596 731177 784555 782383 731049 746474 688305 777092 692424 727447 735012 1046466 1056742 1165280 19 .1983 – 84 1984 – 85 1985 – 86 1986 – 87 1987 – 88 1988 – 89 1989 – 90 1990 – 91 1991 – 92 1992 – 93 1993 – 94 1994 – 95 1995 – 96 1996 – 97 1997 – 98 1998 – 99 1999 – 2000 2000 – 2001 2001 – 2002 2002 – 2003 2005 – 2006 2006 – 2007 2007.
K. Pramod Khaitan Shri B.K.I. Jain (Manager of the Company) Shri J. Mishra (Nominee of L.D.K.P.K. Malik Smt.Note: Production including internal consumption also Cement and clinker production were lower than the previous year mainly because of lower dispatches of cement due to recession prevailing in cement industry with slow down in demand during the year under review. Parik Senior Executives: Shri K.C. Chokesy Smt. B.T. Birla Directors: Smt.C. Poddar 20 .G. K.N.) Shri P. sales realization during the second half of the year has improved and it is hoped that prices will stabilize at some reasonable levels.) Shri Amitabha Ghosh (Nominee of U. This section had to curtail production due to accumulation of large stocks of clinker.I. Manjushree Khaitan Secretary: Shri S. Maheshwari Shri.I.C. Bajoria Shri P.C. Directors of Kesoram Industries Limited: Chairman: Smt. Neeta Mukerji (Nominee of I.I. However.) Shri D.
Poddar Shri P. Tandon Auditors: Messrs Price Water house Subsidiary Companies of Kesoram Industries: Bharat General & Textile Industries Limited KICM Investment Limited Assam Cotton Mills Limited Softshree Estates Limited 21 .K.P. Shri O. Goyenka Shri D.
One among the industrial giants in the country today, serving the nation on the industrial front Kesoram Industries Limited has a chequered and eventful history dating back to the Twnties when the Industrial House of Birlas acquired it. With only a 22
Textile Mill under it banner in 1924, it grew from strength to strength and spread its activities to never firlds like Rayon, Pulp, Transparent paper, Spun pipes and Refractories, Tyres, Oil Mills and Refinery Extraction. Looking to the wide gap between demand and supply, of a vital commodity, cement, which plays an important role in nation – building the Government of India de – licensed the Cement Industry in the year 1966 with a view to attract private entrepreneurs to argument the cement product Kesoram rose to the occasion and decided to set up a few cement plants in the country. The first Cement Plant of Kesoram with a capacity of 2.5 lack tones per annum based on dry process, was established in 1969 at Basanthnagar a backward area in Karimnagar District, AdhraPradesh, and christened it Kesoram Cement. The second unit followed suit, which added a capacity of 2.00 lack tones in 1971. The plant was further expanded to 9.00 lack tones by adding 2.5 lack tones in August 1978. 1.14 lack tones in January, 1981 and 0.87 lack tones in September, 1981. Kesoram Cement has outstanding track record of performance and distinguished itself among all the Cement factories in India by bagging the coveted National Productivity Award for two successive years, i.e., in 1985 and 1936, so also the National Awards for Mines Safety for two year 1985 – 86 and 1986 - 87. Kesoram also bagged NCBM’s (National Council for Cement and Building Materials) National Award for Energy Conservation for the year 1989 – 90. Kesoram got the prestigious State Award “Yajamnya Ratna” & “Best Management Award” for the year 1989; so also the FAPCCI (Federation of Andhra Pradesh Chamber of Commerce and Industry) Award for the Best Family planning effort in the State. For the year 1987 – 88, Kesoram also got the FAPPCI Award for Best Industrial Promotion / Expansion effort in the state. In the year 1991 Kesoram also got the May day Award of the Government of Andhra Pradesh for “Best Management” and “Pandit Jawaharlal Nehru Silver Rolling Trophy for the Best Productivity effort in the State, sponsored by FAPCCI, for 1993 Kesoram got the Best.
The performance of Kesoram Cement industry had been outstanding achieving over cent per cent capacity utilization although despite many odds like power cuts and which most 40% was waste due to wagon shortage etc. The Company being a continuous process industry works round the clock and has an excellent record of performance achieving over 100% capacity utilization. Kesoram has always combined technical progress with industrial performance. The company had a glorious track record for the last 27 years in the industry.
Kesoram Cement uses most modern technology and the computerized control in the plant. A team of dedicated and well – experienced experts manages the plant. The quality is maintained much above the bureau of Indian Standards. The raw materials used for manufacturing cement are: Lime stone Bauxite Hematite Gypsum
TOOLS AND TECHNIQUES OF INVENTORY MANAGEMENT:
A proper inventory control not only helps in solving the acute problem of liquidity but also increases profit and causes substantial reduction in the working capital of the concern. The following are the important tools and techniques of inventory management and control.
Determination of stock levels:
Carrying of too much and too little of inventory is detrimental to the firm. If
the inventory level is too little, the firm will face frequent stock outs involving heavy ordering cost and if the inventory level is too high it will be unnecessary tie up of capital. An efficient inventory management requires that a firm should maintain an optimum level of inventory where inventory costs are the minimum and at the same time there is no stock out which may result in loss or sale or shortage of production.
The order is sent before the materials reach minimum stock level. Maximum stock level – Reordering Level + Reorder Quantity – (Maximum Consumption x Minimum reorder period) d) Danger Stock Level: It is fixed below minimum stock level. If a material is required only against the special orders of the customer then minimum stock will not be required for such material.a) fall. The rate of consumption will be decided on the basis of past experience and production plans. Re – ordering level is fixed between minimum level maximum level. Nature of materials: The nature of material also affects the minimum level. c) Maximum Level: It is the quantity of materials beyond which a firm should not exceeds its stocks. more space for storing the materials. Minimum stock level can be calculated with the help of following formula. e) Average Stock Level: 25 . Rate of Consumption: It is the average consumption of materials in the factory. Minimum stock level: It represents the quantity below its stock of any item should not be allowed to Lead time: A purchasing firm requires sometime to process the order and time is also required by the supplying firm to execute the order. Danger Stock level = Average rate of consumption x emergency delivery time. The time in processing the order and then executing it is know as lead time. If the quantity exceeds maximum level limit then it will be over – stocking. Minimum stock level – Re – ordering level – (Normal consumption x Normal re – order period) b) Re – ordering Level: When the quantity of materials reaches at a certain figure then fresh order is sent to get materials again. Overstocking will mean blocking of more working capital. more wastage of materials and more chances of losses from obsolescence. The danger stock level indicates emergency of stock position and urgency of obtaining fresh supply at any cost.
2) Determination of Safety Stocks: Safety stock is a buffer to meet some unanticipated increase in usage. Average stock level = Minimum stock level + ½ x reorder quantity. On the other hand. Total cost material = Acquisition Cost + Cost + Carrying Costs + Ordering Cost. Ordering Cost: It is the cost of placing orders for the purchase of materials. Two costs are involved in the determination of this stock that is opportunity cost of stock outs and the carrying costs. EOQ can be calculated with the help of the following formula EOQ = 2CO / I Where C = Consumption of the material in units during the year O = Ordering Cost I = Carrying Cost or Interest payment on the capital. If a firm maintains low level of safety frequent stock outs will occur resulting into the larger opportunity costs. 4) A – B – C – Analysis: (Always better control analysis): 26 . Carrying Cost: It is the cost of holding the materials in the store. firms usually maintain some margin of safety stocks. the larger quantity of safety stocks involves carrying costs. This quantity is fixed in such a manner as to minimize the cost of ordering and carrying costs. 3) Economic Order Quantity (EOQ): The quantity of material to be ordered at one time is known as economic ordering quantity. The demand for materials may fluctuate and delivery of inventory may also be delayed in such a situation the firm can be face a problem of stock out.This stock level indicates the average stock held by the concern. In order to protect against the stock out arising out of usage fluctuations.
The vital spares are a must for running the concern smoothly and these must be stored adequately.. The materials are divided into 3 categories viz. About 20% of the items contribute about 20% of value of category ‘C’ covers about 70% of items of materials which contribute only 10% of value of consumption. B and C.Under A – B – C Analysis. Inventory conversion period = Days in a year ______________________ Inventory Turnover ratio 27 . Essential (E) and Desirable (D). Symbolically. A. 5) VED Analysis : (Vitally Essential Desire) The VED analysis is used generally for spare parts. Inventory Turnover Ratio = Cost of goods sold Average inventory at cost Or Net sales = _____________________ (Average) Inventory And. If the lead time of these spares is less. 6) Inventory Turnover ratio: Inventory turnover ratios are calculated to indicate whether inventories have been used efficiently or not. Almost 10% of the items contribute to 70% of value of consumption and this category is called ‘A’ category. Inventory conversion period may also be calculated to find the average time taken for clearing the stocks. The stocking of ‘D’ type spares may be avoided at times. The ‘E’ type of spares are also necessary but their stocks may be kept at low figures. Spare parts classified as Vital(V). then stocking of these spares can be avoided. The inventory turnover ration also known as stock velocity is normally calculated as sales / average inventory of cost of goods sold / average inventory.
materials are classified accordingly to their nature such as construction materials. The third distinction is needed for the quality of goods and decimals are used to note this factor. consumable stocks. Lack of proper classification may also lead to reduction in production. lubricants etc. After classification the materials are given code numbers. The class of materials is assigned two digits and then two or three digits are assigned to the categories of items divided into 15 groups. spares. 8) Valuation of inventories – Method of valuation: FIFO method LIFO method Base Stock method Weighted average price method CRITERIA FOR JUDGING THE INVENTORY SYSTEM: While the overall objective of the inventory system is to minimize the cost to the firm at the risk level acceptable to management.7) Classification and Codification of Inventories: The inventories should first be classified can then code numbers should be assigned for their identification. The identification of short names are useful for inventory management not only for large concerns but also for small concerns. Generally. The coding may be done alphabetically or numerically. The later method is generally used for coding. the more proximate criteria for judging the inventory system are: Comprehensibility Adaptability 28 . Two numbers will be category of materials in that class.
Development of long term relationship: Companies should develop long term relationship with vendors. Improvements could be affected through. Adoption of challenging norms: Companies should set benchmarks with global competitors and use ideals like JIT to improve inventory management. Effective Computerization: Computers should not be used merely for accounting purpose but also for improving decision making. marketing and finance departments will be help in achieving greater efficiency in inventory management. production. Improved Coordination: Better coordination among purchase. Review of Classification: ABC and FSN classification must be periodically reviewed. This would help in improving quality and delivery. Inventory cost – an overall view Introduction: In financial parlance. inventory is defined as the sum of the value of the raw materials. fuels and lubricants spare parts maintenance consumable semi – processed 29 . Timeliness Area of improvement: Inventory management in India can be improved in various ways. Disposal of obsolete / surplus inventories: Procedures for disposing obsolete / surplus inventories must be simplified.
B.. there are certain problems in maintaining optimum level of Inventory. 30 . The operational definition of inventory would be amount of raw materials. Materials department is accused of both stock outs as well a large investments in inventories. ABC analysis. Normally. The total value of stores and spares and capital spares. 1. spare parts and semi – processed materials to be stock for the smooth running of the plant / industry. fuel and lubricants. HMC. VED etc. Problems of inventory can be resolved by the cost implications. The size of the inventory depends upon the factors such as size of industry internal lead time for purchase. The solution lies in exercise a selective inventory control and application of inventory control techniques. C. whereas the monetary value of the inventory serves as a guide to indicate the size of the investment made to achieve this operational convenience. Basically there are four costs for consideration in developing and inventory model. annual consumption of the materials. ESN. The materials management departments primary function is to provide this operational convenience with a minimum possible investment in inventories. supplier’s lead time. It is sufficient to take care of probable delays in supply as well as probable variations in demand.materials and finished goods stock at any giving point of time. These techniques can be used effectively with the help of computerization. SDE. What is meant by inventory cost: A. Costs which are relevant for consideration are discussed in the following lines. vendor relations availability of the materials. Inventories build to act as a cushion between supply and demand. Stores in transit and under inspection and Stock of finished products. Need of Inventory: Inventories are maintained basically for the operational smoothness which they can be affected by uncoupling successive stages of production. Inventory coat can be controlled by applying Modern Techniques viz. It is sufficient to take care of the requirements of demand till the next supply arrives. The cost of placing a replenishment order.
The cost of carrying inventory. The cost ordering includes: 1) 2) 3) 4) 5) Paper work costs. Whenever an order placed for stock replenishment. either directly The salaries and wages of the purchase department. This measure gives basis for estimating what is actually costs a company to carry stock. indicated in quotations or assessed through quotations of various quantities. inspection. the telephones.2. The cost of ordering and inventory carrying cost are viewed as the supply side costs and help in the determination of the quantity to be ordered for each replenishment. in the stores. and. telex and postal bills etc. support materials in the case of coal industry. certain costs are involved. Follow up costs the follow up. 4.. The cost of under stocking and The cost of over stocking. The under stocking and over stocking costs are viewed as the demand side costs and help in the determination of the amount of variations in demand and the delay in supplies which the inventory should withstand. Costs involved in receiving of the order. for example raw material like steel against production component like castings in steel plants. checking and handling Any set up cost of machines charged by the supplier. The ordering cost may vary depending upon the type of items. This cost includes: 31 . Cost of Inventory carrying: This cost in measured as of the unit cost of the item. for most practical purpose it can be assumed that the cost per order is constant. 3. typing and dispatching an order.
over cost would be = Purchase Price – Scrap Price. Allowance for deterioration or spoilages.. Salaries of stores staff. Insurance and tax charges.1) 2) 3) 4) 5) 6) 7) Interest on capital. Storage costs – labour costs. INVENTORY VALUATION AND COST FLOWS: What is the cost of inventory? 32 . provision of storage area and facilities like Transport bills and hamali charges. accounted for by the interest on capital. racks etc. It includes cost of lost production during the period of stock out and the extra cost per unit which might have to be paid for an emergency purchase. bins. Obsolescence. The inventory carrying cost varies and a major portion of this is Under stocking cost: This cost is the cost incurred when an item is out of stock. In the case of one time purchases. The time varies in different contexts – it could be the lead time of procurement of entire life time of machine. Over stocking cost: This cost is the inventory carrying cost (which is calculated per year) for a specific period of time.
Cash discounts. Thus it would not be difficult to find difference of opinion as to whether invoice cost includes or excludes cash discount. When the “current replacement cost” of material on hand at the close of a year is less than the actual cost. When a method is selected. and last – in first – out (LIFO). have been considered as a reward for early payment and as a penalty for late payment. the inventory value is reduced to replacement cost (current market price). The selection of the method for determining cost for inventory valuation is important for it has a direct bearing on the cost of goods sold and consequently on profit. The determination of inventory values is very important from the point of view of the balance sheet and the income statement since costs not included in the inventory (the balance sheet) are considered to be expensive and are thus included in the income statement. When this quantity is determined. Trade and quantity discount are to be excluded from unit cost since these discount exist for the purpose of defining the true invoice cost of merchandise. it must be multiplied by a unity cost in order to determine the inventory value that is used on financial statements. the inventory on a 33 . THE FIFO METHOD (FIRST – IN FIRST – OUT METHOD) Under this method it is assumed that the materials or goods first received are the first to be issued or sold. The most commonly used methods are first – in first out (FIFO) average. Thus the acceptable basis inventory valuation is the “lower of cost or market” or more properly the “lower of actual cost or replacement cost”.One can readily visualize the determination of inventory quantities by physical count or by use of perpetual inventory records. it must be used consequently and cannot be changed for year to year in order to secure the most favorable profit for each year. there are a number of generally accepted methods of determining the cost of inventories at the close of an accounting period. on the other hand. Thus. according to this method. Valuation of inventories – methods of determination: Although the prime consideration in the valuation of inventories is cost. The “reward” has often been interpreted as a loss rather than as a part of unit cost.
IV. therefore. utilizing or selling those materials or goods which have been longer longest in stock. The FIFO method of valuation of inventories is particularly suitable in the following circumstances. The frequency of purchases is not large. The value inventory would remain the same even if the “perpetual inventory system” is followed. becomes sometimes difficult. I. It is based on cost and. There are only moderate fluctuations in the prices of materials or goods The LIFO method (Last – in – First – Out method) 34 . 1) 2) It involves complicated calculations and hence increases the possibility of Comparison between different jobs using the same type of material clerical errors. 1) 2) 3) 4) It values stock nearer to current market prices since stock is presumed to be The most recent purchases. A job commenced a few minutes after another job may have to bear an entirely different charge for materials because the first job completely exhausted the supply of materials of the particular lot.The FIFO method has the following advantages. Advantage:. no unrealized profit enters into the The method is realistic since it takes into account the normal procedure of consisting of financial accounts of the company. The materials or goods are of a perishable nature. Materials are easily identifiable as belonging to a particular purchase lot.The method suffers from the following disadvantages.particular date is presumed to be composed of the items which were acquired most recently. purchased. Disadvantages:. III. II.
Any quantity over and above the base stock is valued in accordance with any other appropriate method. Advantages:. inventory consists of items purchased at the earliest cost. therefore.This method is based on the assumption that last item of materials or goods purchased are the first to be issued or sold. As this method aims at matching current costs to current sales. made on account of use of this method.This method has the following advantages: 1) 2) It takes into account the current market conditions while valuing materials The method is base on cost and. Hence. As a matter of fact the new average price is to be calculated only when a fresh purchase of materials is made in place of calculating it every now and then as is the case with FIFO. Weighted average price method: This method is based on the presumption that once the materials are put into a common bin. LIFO methods. they lose their identity. Thus. This quantity is termed as base stock. according to this method. Its other merits or demerits will depend on the method which is used for valuing materials other than the base stock. However. The method is most suitable for materials which are of bulky and non – perishable type. The base stock method has advantage of charging out material / goods at actual cost. Weighted average price method is very popular on account of its being based on the total quantity and value of materials purchased besides reducing number of calculations. the LIFO method will be most suitable for valuing stock of materials or finished goods other than the base stock. the inventory consists of no specific batch of goods. Base Stock Method: This method is based on the contention that each enterprise maintains at all times a minimum quantity of materials or finished goods in its stock. no unrealized profit or loss is issued to different jobs or calculating the cost of goods sold. The inventory is thus priced on the basis of average priced on the quantity purchased at each price. The base stock is always valued at this price and its carried forward as a fixed asset. in case of this method different prices of 35 .
the preceding exhibits are summarized. With the transfer of materials to work in process. The dollars that are paid to acquire inventory are always divided between the balance sheet (inventories) and the income statement (cost of goods sold). Valuation of inventories – impact on the flow of costs: As should be quite evident. each method would have produced the same inventory value and cost flow. but the only reason for this is that the dollar amounts have been kept small to make the illustration workable.materials are charged from production particularly when the frequency of purchases and issues/sales in quite large and the concern is following perpetual inventory system. the cost flow or transfer with have its impact on the work in process inventory and the transfer of completed merchandise to finished gods. that it. the different methods of calculating inventory values will all have their impact on the flow of costs through the balance sheet into the income statement. Cost flows and inventory are exactly the some under stable prices. With a falling price level. Evaluation of methods – What causes the differences? The differences in inventory values and flows for each of the method illustrated result from only one factor. With a falling price level. Each method produces a different figure for the transfer of raw materials to work in process. the LIFO method produces the lowest cost flow 36 . The effects of the cost flows on cost of gods sold and profits can be accentuated further it the differing methods of valuing inventories are applies to work in process and finished goods. In order show the impact of inventory valuation on cost flows. the LIFO method produces the highest cost flow and the lowest inventory. there is not other place to put them. and the differing cost of goods sold figures will naturally produce differing profit figures. If purchase prices had remained stable or unchanged. the varying methods of valuing inventories will have their impact on cost of goods sold and these profits. Ultimately when goods are sold. Thus if the different methods of calculating inventory produce differing inventory values. they will also produce differing cost of goods sold figures. changing purchases prices or unit costs. These differences appear small.
The FIFO method fits a first-in first-out physical flow. the advocate of LIFO says that the only method which matches costs and revenues is the LIFO method. interchangeable and do not follow any specific pattern of physical flow. the FIFO method constitutes a very useful approximation to the specific identification method if on can reasonably assume that the actual flow of materials is first-in first-out. A final item to consider is that the average method produces results which fall between the extremes of LIFO and FIFO. The LIFO method assumes that the latest item is the first item out. This assumption is not unreasonable and thus we have stated the main argument for the FIFO inventory scheme. When the units in inventory are identical. the units in inventory should be identified with the specific invoices and thus specific unit costs to which they apply. the average cost system would seen to appropriate. that is. The major reason for the use of the average method is something other than the lack of specific physical flow.and highest inventory. LIFO produces larger cost flows when prices are rising and smaller cost flows when prices are falling. Under conditions of changing prices. The cost flow under LIFO follows the price level. assumes that the first item in is the first 37 . that is. The average method fits a system which has no specific pattern of physical flow. the physical flow of materials would match the flow of costs under the first – in first – out method. Evaluation of methods – can we justify the differences? The best method of inventory valuation might be “specific identification”. Fortunately. and thus the current costs of materials are matched with the other hand. Ordinarily the LIFO method cannot be justified on the basis of the physical flow of materials. The primary difference between the FIFO and average methods is centered on the physical flow since both methods could involve identical and interchangeable units. Finding a situation where there is no specific pattern of physical flow should be quite difficult because of the fact that most inventory items are subject to deterioration by instituting a person would attempt to reduce such deterioration and any reasonable person would attempt to reduce such deterioration by instituting a physical flow approximating first-in-firstout.
PERPETUAL INVENTORY CARD UNDER A STANDARD COST SYSTEM Perpetual inventory Plant: …………………… Standard cost:…………………… Location:……………………………………… Order Quantity:………. a perpetual inventory card can include additional data such as quantities on order.………. a LIFO. there is need only for physical quantities since the inventory values is the physical quantity multiplied by the standard cost. quantities reserved. With a standard cost system is no need of spending a great deal of time and money tracing unit cost through perpetual inventory record. and thus the non-current costs of matching current costs with current revenues is the essence of the argument for the LIFO method. or an average cost basis. On the basis of a few calculations concerning into inventories on a FIFO... The method chosen should fit the situation. A physical flow pattern comparable to FIFO would force one to consider the FIFO method. there is no one best method of valuing inventories. and quantities available. The lack of a discernible physical flow pattern would force one to consider the average method.. Inventories valued at standard cost: A very useful method of valuing inventories is at a standard cost. 38 . Date Description On order Order Point: …………………. These additional data are very useful for inventory and production control purpose. Concentration on cost flows..item out. As can be seen by the above comments. would force to consider the LIFO method especially where there appears to be a discernible trend towards rising prices (or falling prices) as has been the case in our economy during recent years. as distinct from physical flows.… Available Received Issued On order On hand As shown above. With the cost and value columns disposed off.
diminishing 39 . and a credit to inventory. Raw Material inventory or Supplies inventory. Solvage inventory Dr. Frequent reviews should be made of all inventories. Inventory obsolescence. any increase rates adversely effects the cement industry. the entry would be only for the amount of write down. Inventory Obsolescence. this will be for the full inventory value or used in areas where it will be work less than its original value. due care is to be take whole drawing the material. Some companies carry a solvage inventory and transfer to it materials which may be sold or used at reduced values. Inventory cost of any organization also adversely affects by retaining obsolete / scrap and inventory costs can be reduced by management with an advance planning of procurement of materials. Where this is done. the entry would be: Dr. The difference between original and obsolete value should be recorded by a change to an operating account. and increase is rates adversely effects the cement industry. periodical reviews of existing spares with reference to the fast consumption. Hence.Inventory of Obsolescence: Absolvent inventories cannot be used or disposed off at values carried on the books. By this the cost since Government controls the coal & fuel sector. Materials which are to be imported from other countries have to be planned well in advance nearly about 24 months are to initiate the proposals for procurement. Similarly some of the items do not require any lead time some they are available in the local market. ascertaining the information regarding the availability of spares in other areas. Cement is highly energy intensive industry. If the material is scrapped. and when obsolescence is indicated a request for revaluation should be prepared for approval by management. Inventory cost in relation Kesoram Cements shall to classifieds follows: Inventory can be classified as capital and revenue certain items through titled as capital in nature. the inputs like power and coal are the major part of the variable cost since Government controls the coal & fuel sector. Cr. Holding of extra inventory will be an additional financial burden to the company due to payment of interest charges on the materials purchased. Kesoram cement has it own power plant and through which it saves energy consumption.
Bauxite. Fly ash. spare parts and components consumed during the year: Imported Years Raw Materials 2004– 05 95354856 2005 – 06 2006 – 07 2007 – 08 2008 – 09 593002633 666190014 491339625 1454235982 40 . spare rent etc.. Inventory in Kesoram Cement during 2003 – 04 to 2007 – 08 are as follows: (Units in m.) Years Limestone Bauxite Gypsum Fly ash 2004– 05 122161492 32294775 19613001 28203 2005 – 06 13853482 27971993 17100574 644473 2006 – 07 13853482 27971993 17100574 644473 2007 – 08 2008 – 09 157130922 243412189 23488745 19699583 2546948 38552277 49061196 20223404 Value of imported and indigenous raw materials.t) Years Limestone Bauxite Gypsum Fly ash 2004– 05 1042230 49637 23243 5752 2005 – 06 974490 44256 20703 10301 2006 – 07 956940 41872 21747 18101 2007 – 08 968730 431151 23091 33695 2008 – 09 1239443 64961 38765 159344 The value of the above raw materials for the year 2003 – 08 are as follows: (Value in Rs. diminishing value of materials by keeping them in stores for a log time. stores. The inventory of Kesoram cement mainly includes Limestone.value of materials purchased. Gypsum. handling charges.
2.Stores spare part’s and components 522588043 522588043 75345209 131624912 42279637 Indigenous Years Raw Materials Stores spare part’s and components 2004– 05 2005 – 06 2006 – 07 2007 – 08 2008 – 09 1104787879 3995869418 3558875426 4117405138 7906341716 611204564 981990949 189149420 1365664385 3868715827 CEMENT FACTORY RUNS WITH VARIOUS EQUIPMENTS TECHNICAL DEPARTMENT: 1. Mines Mechanical 41 .
For such requirement of spares departments raise indents and send the Indents to purchase department through stores.3. Enter the price details of enquiry sent in the Order processing form. INDENTS: 1) 2) 3) Annual indents for consumable items (stores items). 42 GOODS RECEIPT NOTE: . 1) 2) 3) COMMERCIAL DEPARTMENT: Stores Purchases Trends To run the plant and maintain equipments departments require spares. Stores and departments. Send Purchase Order Copies to Party. ORDER PROCESSING FORM: 1) 2) 3) Receiving quotations from sub – contractors. Regular indents raised by Consuming Departments. 4. ENQUIRIES: 1) Enquiries will be sent approved sun contractors. PURCHASE ORDER: 1) 2) 1) Prepare purchase Order on selected party. Selection of party on merit basis. Annual Requirement of Raw Materials PROMOP & QC. Electrical Civil II. Receiving goods receipt note from stores.
Sent the Hyderabad indents to Hyderabad Office. clarification. delivery time consumption In case of any deficiency.D. department. period. send the information to concerned department for Segregation of indents for attending at C. No. Enter the indents details in indent register. Material Code When Required Department Quantity Unit ACTIVITY: FLOATING ENQUIRIES: FLOW CHART: • Checking indented items and equipment name. 43 .P. and Hyderabad Office. PURCHASE DEPARTMENT PURCHASE ENQUIRY Sl.PURCHASE DEPARTMENT: ACTIVITY RECEIVING INDENTS: FLOW CHART: Receipt of annual indents for consumable items / stores items from stores Checking of indent number an authority of item.
• Taking previous supplier’s information form previous supply. leather head gloves. Sorting of Delivery challans as below: General Stationery Repairs Block 44 . b. d. Checking of challans / Dispatch Advise with purchase order. noise respirator. STORES DEPARTMENT ACTIVITY: RECEIPTS AND UNLOADING MATERIAL 1 2 3 4 5 6 7 Receiving of Goods through Trunk / Personnel Delivery. c. ACTIVITY: PREPARATION OF RECEIPT AND APPROVAL BOOK FOR GENERAL MATERIAL / D. send the enquiries through fax / e-mail. Wire Rope Ceilings. helmets. Stamping on Dispatch Advise / Delivery challan by Gate Office. If new equipment / item. All safety precautions are taken while unloading of material like workers Training is given to workers for unloading Heavy & Bulky material by using should wear safety shoes. • • • Prepare enquiry to approved sub – contractors through enquiry format. Enter the details of enquiries sent in order processing form. REPAIR AND STATIONARY MATERIAL MANUALLY IN REGISTER 8 a. If emergency requirement. Entry of vehicle at Gate Office. Fork Lift. After UIL receipt acknowledgement given to driver maintaining Lorry receipts register. information to be taken from concerned department or from competitors / journals / yellow pages. chain pulley Blocks.C. Unloading of Goods at allotted place or in case of urgency direct at works site. ENTER OF BLOCK. nose mask.
C. and mentioning Material Code.O. ACTIVITY: APPROVAL OF MATERIAL AND PREPARATION OF GOODS RECEIPT NOTES: 18 19 20 21 22 Intimation is be sent to all the concerned departments. entry in system for general materials.’s Quantity / Description of the materials by the Stores Assistant. Preparation general material in receipt & approval book. Preparation of identification tags for General Materials through system. Party Code. Creation of D. Shortage / Excess / Preparation of Shortage / Excess / Reports if any sending to parties under copy Damages if any found to be noted on challans and inform to section incharge. repairs GRNs manually. ACTIVITY: PHYSICAL VERIFCATION OF GOODS: 15 All D. stationery. Preparation of Receipt & Approval Book for General materials. true copy to issue section of GRN for General material forwarding true copy of block / Repair / Stationery GRN to issue section and copy to purchase department. Showing materials to Taking approval of the material in receipt & approval book.C. handed over to stores assistant physical verification like measuring. repair materials. Indent No. Preparation general material GRN’s through system and stationery / block / Forwarding true copy to issue section of GRN for general material forwarding concern person. 16 17 Identification tags to be attached to the verified material. Manual entry of block. Preparation of intimations for block. counting and tallying with D. ACTIVITY: REJECTED MATERIALS 45 . Department Name on each & every challans.C. stationery.9 10 11 12 13 14 Checking with P. to purchase / bills sections. repair materials.
ACTIVITY: EXCISE GATE PASSES 28 29 30 31 Sending duplicate for transport copy of excise invoice from suppliers delivery Mentioning A. the same to Excise Department. 46 . Verification of MRP. Sending consignee copy to party vide Register Letter for booking of Register goods to party’s other than. and named of concerned department. Issuing to dispensary. Duplicate for transport copy of excise invoice over to bills section for sending Corresponding with supplier. SACTIVITY: RECEIPTS OF MEDICINES 32 33 34 35 36 37 38 39 Physical verification of Medicines as per Invoices. Sl. Verification of expiry date on medicines. Sending back to suppliers through our Hyderabad Office. Bills forwarding to Account Department vide IOM for making the payment. Sending Rejection notes if any medicine is rejected.23 24 25 26 27 Rejected materials kept in allotted area of rejected materials. Taking approval of Medical Officer. No.B. Packing of rejected materials. challans. If the Excise Invoice is not found with delivery challans. Sending shortage / excess note if any found. Preparation of gate passes for rejected materials.
CHAPTER-IV RATIO ANALYSIS RATIO ANALYSIS: The investment on raw materials over a period of 5 years from 2000 to 2006 is presented in the following table. 47 .
Trend Analysis: 48 . The highest investment in inventory was recorded in the years 2007-08 80220.127.116.11945. 2) 3) 4) It shows that there is on increase in the inventory to the more extent of The average inventory of Kesoram Cement was recorded at Rs.80 11690.98.78 during the year 2008 – 09. 2.386.45 93605.78 Interpretation: 1) From the above table it can be understood that the inventory of Kesoram Cement was recorded at 13.67 49950.88 42950.80 during the year 2003 – 04 99 and it is increased to 93605.66 46087. Investment on Raw Materials Year 2003 – 2004 2004 – 2005 2005 – 2006 2006 – 2007 2007 – 2008 2008 – 2009 Investment on Raw Material (in corers) 13386.
And the lost year investment has declared continuously. The percentage in 2006 – 07 was 315% as compared to years 2005 – 06 to 2008 – 09. 2) 3) The trends in inventories show that inventory have been more in the year 2008 The investment in inventories has shown fluctuating trend is initial years and – 09 and then it has shown a downward trend and again it increased to some extent. Trend Analysis: Year 2003 – 2004 2004 – 2005 2005 – 2006 2006 – 2007 2007 – 2008 2008 – 2009 Raw Material (in Lacks) 13386.Trend analysis technique is applied to know the growth rate in investment of raw material of Kesoram Cement over the review period which is shown in the following table. then it raised to 699% and again showing fluctuating trend. Inventory Turnover Ratio: This ratio indicates the number of times the stock has been turned over during the period & evaluates the efficiency with which a firm is able inventory.66 46087.67 49950. This ration is calculated by applying the following formula.45 93605.78 Trend % 100% 87% 373% 315% 344% 699% Interpretation: 1) The investment on investment has increased in the year 2008 – 09. 49 to manage its .88 42950.80 11690. 3.
13 1. The average inventory turn over ratio was recorded at 7. 4.29 9.92 Avg. 2005. 3. In the year 2008 – 09 it is clear that the ratio is very less i.79 10. From the above table 2003 it can be observed that (1) inventory turn over ratio is 8.78 1.58 130392.06 1333. Inventory conversion period: It may also be of interest to see average time taken for clearing the stocks.55 during 2004 – 4. he stock is not turned into sales quickly.30 95065.Cost of goods sold Inventor turn over ration Inventory turn over ration: Year 2003 – 2004 2004 – 2005 2005 – 2006 2006 – 2007 2007 – 2008 2008 – 2009 Cost of goods sold 60150..01 160035.71 127533.8. This period is calculated by dividing the number of the days by inventory turn over.28 12390. As compared to all the years the ratio is very less in 2008 – 09.32 = _________________ Average inventory Interpretation: 1. This formula may be as: 50 .35 59021. 2.31 37975. This can be possible by calculating inventory conversion period.93 Ratio 8.68 311636.e.55 12. Inventory 7402.13 during 2003 – 2004 and it gradually decreased to 1.3 times during the review period.41 121551.
41 121551. Percentage of Inventory over current assets: In order to know the percentage of inventory over current assets the Ratio of inventory to current assets is calculated and which is presented in the following table. Inventory 51 .01 160035.92 Avg.8.2006.31 37975.93 Ratio 8.68 311636. which indicates that the stock has been very quickly converted into sales which mean the company is managing the inventory efficiently.06 1333.13 1.32 ICP (Days) 44 232 28 34 36 272 Interpretation: From the above table it can be identified the following observations: 1) The inventory conversion period was 232 days during the year 2004 – 05 but it declined to 204 during 2005 .78 1.35 59021. 2) The lowest inventory conversion period was recorded at 28 days in the year 2005 – 06 and the highest inventory conversion was recorded at 272 days in the year 2008 – 09.79 10. inventory 7402. 5.29 9.28 12390.Days in a year (360 days) Inventory conversion period = _____________________ Inventory turnover ratio Inventory conversion period: (in crores) Year 2003 – 2004 2004 – 2005 2005 – 2006 2006 – 2007 2007 – 2008 2008 – 2009 Cost of goods sold 60150. 3) The average inventory conversion period was recorded at 107 days during the review period.55 12.30 95065.71 127533.58 130392.
6.36% 52 .35% 13.88 42950. 4) The average inventory over current assets ratio was recorded at 80%.Inventory over current assets ratio= __________ X 100 Current assets Percentage of Inventory Over current assets: Year 2003 – 2004 2004 – 2005 2005 – 2006 2006 – 2007 2007 – 2008 2008 – 2009 Inventory 13386.78 53063. The lowest inventory over current assets ratio was recorded at 40% during the assets ratio was showing a declining trend for two years 2003 .2004.02 49713.45 93605.33 28770.80 11690.80 11690.76 Ratio (%) 15.64 87468.49 Ratio (%) 55% 40% 94% 92% 92% 107% INTERPRETATION: 1) 2) 3) From the above table it can be understand that the % of inventory over current However from the year2008– 09 it is showing an increasing trend. year 2004 – 05 and the highest inventory over current assets ratio we recorded at 107% during 2008 – 09.75 45598.67 Current Assets 87168.78 Current Assets 24172. Percent of Inventory Over total current assets & fixed assets: Inventory / Current + Fixed assets Year 2003 – 2004 2004 – 2005 Inventory 13386.66 46087.67 49950.32 86811.
Percentage of Inventory over current liabilities: In order to know the percentage of inventory over current liabilities the ration of inventory to current liabilities is calculated and which is presented in the following table. above 2 years it is increasing. 7.07 197330.43% during the year 2008 – 09.33% 37.66 46087.11 8042.67 Current liabilities 7862. year 2004 – 05 and the highest inventory ratio was recorded at 43.45 93605.50% 40.36% in the year 2004 – 05.78 117985.91% 47.36% during the 13.80 11690.81% during the review period.88 42950.50 42. 4) The average inventory to total assets ration was recorded at 32.2005 – 2006 2006 – 2007 2007 – 2008 2008 – 2009 49950.26 112637.35% on it declined to From the year 2005 – 06 it is showing fluctuating trend but as compared to The lowest inventory over total assets ratio was recorded at 13.43% Interpretation: 1) 2) 3) During the year 2003 – 04 the ratio was 15.89 112647.62 Ratio (%) 17% 145% 53 . Inventory Inventory over current liabilities ratio = __________________ X 100 Current liabilities Percentage of Inventory Over current liabilities: Year 2003 – 2004 2004 – 2005 Inventory 13386.
88 42950. Current assets Current Ratio = _____________________ Current liabilities 54 . year 2005 – 06. Current Ratio: In order to know the current ratio the percentage of current assets to current liabilities is calculated and which is presented in the following table.78 16204.14 16204. is a net increase to the extent of 128.14 17728.22 36253.41 308% 284% 259% 258% Interpretation: 1) 2) 3) 4) 5) From the above table it can be understand that the % inventory over current During the year 2004 – 05 the ratio was it gradually increased to 145 and there The lowest inventory over total amounts ratio was recorded at 17 during the The highest inventory to current liabilities ratio was recorded at 308 during the The average inventory to current liabilities ratio was recorded at 211 during the liabilities ratio was showing a declining trend for two years 2003 – 04. year 2003 – 04. review period.2005 – 2006 2006 – 2007 2007 – 2008 2008 – 2009 49950. 8.45 93605.66 46087.
07% 3. Quick Ratio: The quick ratio is the relationship between quick to current liabilities quick assets is more rigorous test of liability position of a firm it is computed by applying the following formula.57% during the year 2004 – 05.78 53063.07% and has increased to 3.. Quick ratio = Quick assets / Current Liabilities 55 .80% 2.14 16204.62 16204.11 8042.57% in The lowest current ratio was recorded at 2008 – 09 which is 2.41 Ratio (%) 3.06% 2. 2) 3) 4) In the year 2003 – 04 the ratio was 3. highest current ratio was recorded at 3.Calculation of Current Ratio’s: Year 2003 – 2004 2004 – 2005 2005 – 2006 2006 – 2007 2007 – 2008 2008 – 2009 Inventory 24172.49 Current liabilities 7862.57% 3.39% Interpretation: 1) 2004 – 05.39% and the The average current ratio was recorded at 3. the year 2004 – 05.02 49713. current ratio was showing a decreasing trend from year 9.14 17728.33 28770. From the above table it can be interpreted that the % of current assets over current liabilities ratio i.02% during the review period.22 36253.e.32 86811.27% 3.75 45598.
14 16204.14 17728.11 8042.62 16204.e. 2) 3) The highest quick ratio was recorded at 2.002% during the year 2005 – 06.22 36253.12% 0. 56 .Where Quick assets = Current Assets – Inventory Year 2003 – 2004 2004 – 2005 2005 – 2006 2006 – 2007 2007 – 2008 2008 – 2009 Inventory 10785 17080 3112 3347 3625 3207 Current liabilities 7862.20% 0.22% 0.41 Ratio (%) 1.08% Interpretation: 1) From the above table it can be understand as that the % of quick assets to current liabilities i.37% 2. the quick ratio was 0.12% during the year 2004 – 05 The average quick ratio was recorded at 0..66 during the and the lowest quick ratio was recorded at 0.002% 0.002% in 2005 – 06 and from that year it is showing increasing trend.
CHAPTER-V CONCLUSIONS CONCLUSIONS: 1) Over all the inventory of Kesoram Cements is up to the mark. 57 .
3) 4) 5) 6) Investment on raw material is 93605.77. it requires more number of employees and supplier This process takes an input.490 and the value is 18.104.22.168 times. 9) 10) In this type of process. preparation of purchase order and order follow up inform the supplier.492.45 lakhs.092 respectively which is higher as compared to 2008 – 2009 which is 6.447.74. 7) The quantity of limestone in the year 2006 – 07 is 9. sales is only 1. 8) In purchase department for want of any item it should go through several processes. This is because of cement to 2008 – 09 which is only 460870.34. floating enquiries. 232 days in the year 2004 – 2005 which took more days for clearing stock. prices have been continuously under pressure due to persistent mismatch between supply and demand.53.2) The production of clinker and cement during 2003 – 2004 was 7. This may include receiving indents.78 lakhs which very high as compared The inventory turn over ratio shows that the stock has been converted into In the year 2005 – 06 the stock was cleared within 28 days whereas it took Year 2004 – 05 is not showing sample profits.436 and 7. internal or external customer SUGGESTIONS 58 . preparation of order processing form. Most of the time was spent in accounts payable.373 and 7.85.27. adds value to it and provides an output to an should also wait for until the accounts are matched.61.87.812 but whereas in the year 2004 – 05 the quantity was 9.940 and its value is 13.
labour and equipment. the purchasing department may enter the purchasing order into database and did not send a copy to any one. and liquidity position of the industry. 59 . 6) To reduce the work. Neither too high nor too low inventory turnover ratios may reduce profit Unnecessary investment may block up the funds. 4) 5) The raw material should be acquired from the right source at right quality The process that was being used by Kesoram Cements with the purchasing and at right cost. so that. it would able to reduce the work of its accounts payable department. If it did. as per inventory conversion period it took 272 days. the receiving clerk would enter the database and determine whether the order agreed with the electronic purchase order. So.1) Though the production is higher is the year 2004 – 05 and the sales were very high i. 2) 3) The investment on raw material should be made as per the requirement. proper demand forecasting should be done and according to that it may be manufactured. As a result. This shows that there is demand for cement and the funds unnecessarily tied up. proper balance should be made to increase profits and to ensure liquidity. If it institutes “Invoice less purchasing” where the supplier did not need to send an invoice to be paid. If it didn’t match. This generally simplifies the process for all concerned. the order would be returned until if it is agreed by the Kesoram Cement. So. When the merchandise arrived. it seeks enhance the celerity of the delivery of a product without compromising its quality by improving the utilization of materials.. department should undergo changes. payment was authorized to be made at the appropriate time.e.
CHAPTER-VI BIBLIOGRAPHY 60 .
2) Financial Management. 2006. Prentice –Hallindia. Company’s Stores Management Company’s Annual Report 61 .BIBLIOGRAPHY: 1) Financial Management. ByIMPande. Vikas Publishing Houses pvt ltd 2006. By PN Mukherjee. By Prasanna Chandra. 5th edition. 9th edition. Tata McGraw Hill Publishing company ltd 2005. 3) 4) 5) Total Quality Management.
ANNEXURES VED EOQ ABC Analysis FIFO LIFO BSM WAPM Vitally Essential Desire Economic Order Quantity Always Better Control Analysis First in First out Method Last in first out Method Base Stock Method Weighted Average Price Method 62 .
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