A

PROJECT REPORT

ON

“A STUDY ON ANALYSIS OF INVENTORY MANAGEMENT”

AT

SUBMITTED TOSAVITRIBAI PHULE PUNE UNIVERSITY

IN THE PARTIAL FULFILLMENT OF TWO YEARS FULL TIME

MASTER OF BUSINESS ADMINISTRATION (MBA)

SUBMITTED BY
ROHIT SANJAY SHINDE

(BATCH: 2020-2022)

UNDER GUIDANCE OF
PROF. AVINASH DARBARE

THROUGH

KES’S

PRATIBHA INSTITUTE OF BUSINESS MANAGEMENT

CHINCHWAD, PUNE 411019

1
 DECLARATION

I, Rohit Sanjay Shinde the student of Pratibha Institute of Business Management

Chinchwad. This course of MBA of Pune University consists of four semesters. Every
student has to undergone a project during the academic curriculum of university.

I have by declared that the project is an independent analysis work carried out by me
under the guidance of Prof. Avinash Darbare. This report has not been previously
submitted for any award of any degree of this of any other university.

Place- Chinchwad ROHIT SANJAY SHINDE

Date- (M.B.A. FINANCE)

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 ACKNOWLEDGEMENT

This project is a result of dedicated efforts. It gives me immerse pleasure to prepare this
project report on An Analysis of Inventory Management.

I would like to thank any project guide, PROF. AVINASH DARBARE, for consultative
help and constructive suggestions on the matter in this project.

I am obliged to Finance / Accounts department MISS. MUGDHA SAMANT and staff

members of Aadi enterprises, for the valuable information provided by them in their
respective fields. I am grateful for their cooperation during the period of my project.

I would also like to thank Director of Pratibha Institute of Business Management

and PROF. GURURAJ DANGARE (HOD) for the support I received from him. Lastly
I will also thank my colleagues who helped me in making this project report a successful
one.

Rohit Shinde

MBA 2020-2022

PIBM,

Pune,

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 PRATIBHA INSTITUTE OF BUSINESS MANAGEMENT

Chinchwad, Pune

Department of MBA Ay 2020-22

Project Outline Report for Summer Internship Project

Name of the student – Rohit Sanjay Shinde

Internal Company Guide

Name – Kiran Wagh

Designation – Chief Manager

Beginning date of the Project- 07/11/2021

Completion (Projected) date of Project- 31/12/2021

Specialization- Finance

Title of the project - A STUDY ON ANALYSIS OF INVENTORY

MANAGEMENT

4
 Kamala Education Society's

PRATIBHA INSTITUTE OF BUSINESS MANAGEMENT

Block D- III, Plot No. 3, Behind Mehta Hospital, off Pune Mumbai Road,
Chinchwad Station, Pune, Maharashtra – 411019

Progress Report (2021-2022)

Name: - Rohit Sanjay Shinde

Course: MBA Specialization: - Finance

Roll Number: 157

Address: -“Narayan Kalbhor Chawl Nigdi, Old Mumbai Pune Highway, Hanuman
Mandir Nigdi Pune 411044”.

Email -Id: - rssports111@gmail.com Contact Number: - 7558580455

Duration of the Project: 2 Months

Name of the Company: - Aadi enterprises

Company Address: - Adi enterprises, Gat No, 1551, Sonawane Vasti, Near Gagangiri

Water Plant, Chickali, Pune – 411062.

Name of the external guide: Kiran Thorat Telephone No: - 9579867003

Project commencement date: 07/11/2021

Project completion date: 31/12/2021 Duration of the Project: - 60 Days

Project Title - A STUDY ON ANALYSIS OF INVENTORY MANAGEMENT

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6
7
8
SCHEDULE OF PROJECT SUBMISSION
Date:

SPECIFIC INSTRUCTIONS / REMARKS BY EXTERNAL EXAMINAR

Signature of the Student Signature of the Internal Guide

9
 INDEX

Chapter Titles Page No.

Executive Summary 11- 12

1. Introduction 13- 15

2. Company Profile 16- 23

3. Theoretical 24- 44
Background

4. Literature 45- 48
Review

5. Research 49- 50
Methodology

6. Data Analysis And 51- 58

Interpretation

7. Findings 59- 61
Suggestion

8. Learning From 62- 64

The Project

9. Contribution To The Host Organization 65- 66

10. CONCLUSION 67-68

Bibliography And 68- 69

Reference

Annexure 69

10
EXECUTIVE SUMMARY

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This project named An Analysis of Inventory Management with was carried out at Aadi
enterprises. to analyze and understand movement of Inventory over a period of time the
company in terms of increase or decrease in inventory turnover also its day and relation
with working capital.

The objectives of inventory management are to provide the desired level of customer’s
services, to allow cost – efficient operations, and to minimize the inventory investment.

In inventory is a central process in manufacturing unit. This inventory is concern to all

departments. Planning to sell department etc. So, managing of inventory is having wide
scope in manufacturing company.

First is the analysis of financial management. Three stages of inventory management is

been discussed. Inventory turnover ratio analysis has been done on the basis of three
years of data. Ratios have been discussed to compare inventory management performance
over the years.

Apart from ratios, inventory control techniques:

Namely EOQ and ABC analysis have been used and based on the suggestion had been
given to the organization for improving inventory management.

For Example:

It is suggested that ABC analysis should be conducted regularly and EOQ is needed to be
calculated at least on A category item.

12
CHAPTER 1: INTRODUCTION

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I have great pleasure in presenting my project report. The subject of my internship project
is an analysis of Inventory Management was carried out at AAdi enterprises.

The term inventory refers to the goods or material used by a firm for the purpose of
production and sales. It also includes the items, which are used as a supportive material
to facilitate production. There are three basic types of inventories: Raw material, Work in
progress and Finished goods. Raw materials are the items currently in the process of
production. These are actually partly manufactured products. Finished goods consist of
those items, which have already been produced but not yet sold.

The objective of inventory management is to provide the desired level of customers’

services, to allow cost efficient operations, and to minimize the inventory investment.
Inventory control is also important to maintaining the right balance of stock in your
warehouses. Inventory Management is a practice of tracking and controlling the
inventory orders, its usage and storage along with the management of finished goods that
are ready for sale. There are various types of inventory management techniques which
can help in efficient inventory management. They are ABC analysis, EOQ, VED
analysis, HML etc.

NEED TO HOLD INVENTORIES:

Martin and miller identified three general motives for holding inventories.

TRANSACTION MOTIVE: This refers to the need of maintaining inventory to

facilitate smooth production and sales operations.

PRECAUTIONARY MOTIVE: Precautionary motive for holding inventory is to

provide a safeguard when the actual level of activity is differed than anticipated. This
inventory serves when there is annul predictable change in the demand and supply forces.

SPECULATIVE MOTIVE: This motive influences the decision to increase or decrease

the levels of inventory to take the advantage of price fluctuations.

OBJECTIVES OF THE STUDY:

The main objective of inventory management is to maintain inventory at appropriate level
to avoid excessive or shortage of inventory because both the causes are undesirable for
business. Following are the other objectives:

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 1. To understand Inventory Management and Control in the organization through
use of various ratios.
2. To study about the ordering levels for the important components of inventory
3. To understand inventory techniques namely EOQ and ABC analysis.
4. To find out EOQ for some important materials.
5. To find out methods and various categories of material through ABC analysis.
6. To give suggestions for the improvement of the organization inventory
management on the basis of EOQ,ABC and ratio analysis.
7. To evaluate the inventory management practices of Aadi enterprises.

Determination of the type of control required. The basic economic order quantity
there orders point, and Safety stocks. As a matter of fact, the inventory
management techniques are a part of production management. But a familiarity
with them is of great help to the financial managers in planning and budgeting
inventory.

In the internship project I tried to analyze the Inventory ratios and inventory control
techniques of Aadi enterprises, for the last three years from 2019 - 2021. As the parts of
an analysis of inventory management and its circulation, EOQ and ABC analysis with its
conclusion and interpretation and also with the help of graph has been done.

LIMITATION OF THE STUDY:

 The company on account of confidential reports has not disclosed some

figures.
 Although every efforts has been made to collect the relevant information
through the sources available, still some relevant information could not be
gathered.
 Lack of time for completing the study.
 This project report is based on the analysis of three years of data which
may not be sufficient to in some cases.

15
CHAPTER 2 - COMPANY PROFILE

16
THE EVOLUTION:

Aadi enterprises was Formed in 1978.

We have a large, eco-friendly campus with pleasant working conditions.

A number of highly precise CNC Tool & Cutter, CNC Optical Profile Grinder. Spark
Electron Discharge Machine enables us to manufacture custom tools. The manufacturing
processes are carefully controlled by highly accurate measuring instruments. The state-of
art Italian profile projector ensures all profiles are within 0.001 mm accuracy. Safety of
the people 25 well as the equipment is of equal importance

Strict delivery schedule is maintained by implementation of ISO 9001-2008 Standard.

Our employees continuously undergo training programs to sharpen their skills on latest
technologies.

MISSION:
 To achieve global standards in excellence in manufacturing and trading in various
ranges of products and appearance and domestic and international markets, caring
for customer satisfaction.
 Create infrastructure with a skilled human resource and modern technological
base for development of business.
 To register growth step by step and develop strategies to face new challenges in a
liberalized market economy and globalization.
 To generate adequate return on investment to meet the interest of shareholders
and investors by achieving high standards of productivity and quality.
 To enrich and enhance employee’s growth and contribution by fostering groups
corporate culture, values and ethos.

VISION:

 Plan what you need.

 Design as per your needs.
 We will be manufacturing it for you

OBJECTIVES:
1. To study the process of smooth and uninterrupted supply of products.
2. To ensure product availability in all markets.
3. To study & analysis of optimize &utilization of existing infrastructure.
4. To study & understand the sustainability& growth of the company.

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INHERENT STRENGTHS: -
 Survived through turbulent times of industry.
 ISO 9001-2008 standard compliance quality products.
 Strong core technical team and low employee turnover.
 Capacity for flexible designs and small batch sizes.
 Efficient use of infrastructure.

STRATEGIES:
o Taking advantages of liberalization policies, the group has devised
strategies to identify the thrust areas and steels and bearings.
o Diversify into infrastructure areas.
o Add and expand its existing plant capacities.
o Maintain its global standards of excellence.
o Emerge as a key player both in domestic and international markets.

OBLIGATIONS:
Towards Customers and Dealers:

To provide a quality product and spread awareness amongst them for competitive selling
in buyers marked backed by world class customer service.

Towards Employees:

To develop and upgrade their skills through in – house and external training programs
enabling careers progressions and advancement. The inputs for upgrading managerial and
operational skills are provided to meet present and future challenges.

Towards the community:

To ensure environmental protection in and around plant operational areas and promote
development of community by participating in several activities.

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 AN EXTENSIVE PRODUCT RANGE:

1.Solid Carbide Drills

Core Drills

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Brazed Carbide Tipped End Mills

Reamers

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Hole Mills

Side & Face Cutters

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Special Tools

Circular Form Tools

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 MANUFACTURING PROCESS

Raw Material

Chemical & Physical

Test

Follow Procedure
Control of Non-
Confirming Product Store in Raw Material Yard

Cut to sizes as per requirement

Semi-finished goods

Finished Goods

Test Physical
dimensions

Rejection

Controlling

Cutting to Regulate Length & Straightening

Sampling inspection for

Rejection
chemical & physical
properties
Finished
Goods Yard

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CHAPTER 3 – Theoretical Review

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3.1 INTRODUCTION TO INVENTORY MANAGEMENT AND
CONTROL:
In modern competitive world, the major problem and primary responsibility of an
organization, whether it is a public sector, private sector or government
department (business or industry) is to optimize the use of resources. For the
survival and growth of an industrial enterprise, it is highly essential that all the
pervasive efforts are made to minimize and control the total costs, to achieve
higher operational efficiency and profitability of an organization. Inventory is an
important resource of an enterprise. Inventory management is an important
scientific device for controlling inventory and eliminating wastage is considered
an integral part of Industrial management in modern times. Modern management
has started taking more and more interest in “Inventory Management” as
Inventories are highly essential for any enterprise and at the same time it has a
direct impact on the financial resource, as it locks up funds. There is lot of
possibilities to minimize inventory, both in terms of investment as well as quality,
as it is a controllable variable.

Q.1 WHAT IS INVENTORY?

Inventory or stock is the goods and materials that a business holds for the ultimate goal
of resale (or repair).
Inventory management is a discipline primarily about specifying the shape and placement
of stocked goods. It is required at different locations within a facility or within many
locations of a supply network to precede the regular and planned course of production
and stock of materials.
The concept of inventory, stock or work-in-process has been extended from
manufacturing systems to service businesses and projects, by generalizing the definition
to be "all work within the process of production- all work that is or has occurred prior to
the completion of production." In the context of a manufacturing production system,
inventory refers to all work that has occurred – raw materials, partially finished products,
finished products prior to sale and departure from the manufacturing system. In the
context of services, inventory refers to all work done prior to sale, including partially
process in format

DEFINITION OF INVENTORY:

The scope of inventory management concerns the balance between replenishment lead
time, carrying costs of inventory, asset management, inventory forecasting, inventory

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valuation, inventory visibility, future inventory price forecasting, physical inventory,
available physical space, quality management, replenishment, returns and defective
goods, and demand forecasting. Balancing these competing requirements leads to optimal
inventory levels, which is an ongoing process as the business needs shift and react to the
wider environment.
Inventory management involves a retailer seeking to acquire and maintain a proper
merchandise assortment while ordering, shipping, handling and related costs are kept in
check. It also involves systems and processes that identify inventory requirements, set
targets, provide replenishment techniques, report actual and projected inventory status
and handle 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 system, functions to
balance the need for product availability against the need for minimizing stock holding
and handling costs.

Q.2 WHAT IS INVENTORY MANAGEMENT?

When we ask “what is inventory management?” the answer is pretty straight forward.
Inventory management (or stock management) is literally the process of managing a
business’ inventory and stock. It is a part of supply chain management. To further define
inventory management process, we can note that it includes aspects like storage of
inventories, overseeing the orders for stock inventory, and controlling the number of
items in stock.

As you see, the inventory management definition is not complicated. The real question is
how do you do as a retailer; utilize inventory management, meaning what techniques do
you focus on to achieve the best results? Here are a few useful how-to have to use in your
inventory management

Q.3 WHAT IS INVENTORY CONTROL?

Inventory control or stock control can be broadly defined as "the activity of checking a
shop’s stock. However, a more focused definition takes into account the more science-
based, methodical practice of not only verifying a business' inventory but also focusing
on the many related facts of inventory management (such as forecasting future demand)
"within an organization to meet the demand placed upon that business economically.
"Other facets of inventory control include supply chain management, production control,
financial flexibility, and customer satisfaction. At the root of inventory control, however,
is the inventory control problem, which involves determining when to order, how much
to order, and the logistics of those decisions.

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3.2 HISTORY OF INVENTORY MANAGEMENTAND CONTROL:
People have been buying and selling things for centuries, so naturally, that mean
that inventory management has always existed in some form, at least. Obviously,
there were no computers 300 years ago, and certainly no bar code readers, but
people have always tried to simplify the trading process, adopting new
technologies along the way.

 The Early Days - By early days, we don’t mean the middle Ages or even before
that. No, we’re talking more about the period before the Industrial Revolution,
when merchants had to write down purchases and keep an eye on how many items
were sold that day, and how many of them were left. And since they certainly
didn’t have a sales forecasting app, merchants had to forecast future needs
themselves, which was not always accurate, and could easily slow down the
business and cause troubles.

 The Industrial Revolution - One of the events that had the most profound impact
on people throughout history is certainly the Industrial Revolution, which
increased the efficiency and mass production. The businesses grew, and so did
their needs for better inventory management.

 Moving Towards Modern –A forerunner of the modern bar-coding system was

created in the late 1940s and early 1950, and it utilized ultraviolet light-sensitive
ink and a reader. In the late 1960s, the Universal Product Code (UPC) was
created, which improved inventory management systems. As the computer
technology improved, so did the systems, and in the mid and late 1990s, modern
inventory management systems began to be used. One of the amazing
technologies used in today’s inventory management is the use of Radio-frequency
identification, with microchips that transmit product information that contains
everything that’s relevant to a business owner and their employees. Together with
a mobile inventory app, managing your inventory in the 21st century has never
been easier.

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3.3 TYPES OF INVENTORIES–

Inventories play a major role in a business or depending on nature of the businesses. The
inventories may be classified as under.

Raw Materials: Materials and components scheduled for use in making a product. These
are the basic inputs, which are converted into finished products through manufacturing
process. Raw material inventories are those units, which have been purchased and stored
for future production.

Work in process: Progress Materials and components that have begun their
transformation to finished goods. Materials issued to the stop floor, which have not yet
become finished products they are value added materials to the extent of labor cost
incurred.

Finished Goods: Finished goods are a completed part that is ready for a customer order.
These goods have been inspected and have passed final inspection requirements so that
they can be transferred out of work-in-process and into finished goods inventory. From
this point, finished goods can be sold directly to their final user, sold to retailers, sold to
wholesalers, sent to distribution centers, or held in anticipation of a customer order.

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STORES & SPARES:

The level of four kind of inventory depends upon the nature of the business. Supplies
include office and cleaning materials like soap, brooms, oil, light, blubs etc. these
materials do not directly enter production, but are necessary for production process.

BASIC REASONS TO KEEPING AN INVENTORY:

There are three basic reasons for keeping an inventory:

1. TIME: The time lags present in the supply chain, from supplier to user at every
stage, requires that you maintain certain amount of inventory to use in this “lead
time”.

2. UNCERTAINTY: Inventories are maintained as buffers to meet uncertainties in

demand, supply and movement of goods.

3. ECONOMIES OF SCALE: Ideal condition of “one unit at a time at a place where

user needs it, when he needs it “principle tends to incur lots of costs in terms of logistics.
So bulk buying, movement and storing brings.

OPERATING CYCLE OF INVENTORY MANAGEMENT:

Operating Cycle is the time duration to convert sales after the conversion of resources
into invention, into sales there is difference between current assets and fixed assets.
A firm required many years to recover initial invests in fixed assets such plant and
machinery or land buildings or furniture and fixtures etc.
On the contrary, investment in current assets such as inventory and books debts are
realized during the firms operating cycle, which in usually less than a year.
The operation cycle can be said to be the heart of the working capital. The need for
working capital or current assets cannot be over emphasized as already observed.
The main motive of many business firms is to achieve maximum profits, which can be
earned depending upon the magnitude of the sales among other things.
However, sales do not convert in to cash instantly. There is invariable time lag between
sale of goods and receipts of cash. Therefore, the need of working capital in the form of
current assets to deal with the problem arising good sold.
Therefore, sufficient working capital requires sustaining sales activity. Technically this is
referring to as the operating the cash cycle. The continuous flow form cash to supplies to
inventory to accounts receivable and back into cash what is called operating cycle.

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The operating cycle of manufacturing company has three phases
namely:

1. Acquisition of resources.
2. Manufacturing products.
3. Sale of product.

Acquisition of resources:- In the phase first operating cycle, include phases of raw
materials, fuel & power etc., which are totally required or manufacturing product.

Manufacturing products: - In the phase 2 of the operating cycle includes conversion of

raw material in to work-in progress and the work in progress is converted into finished
goods.

Sale of product: -In the phase 3 of the operating cycle may sale the product either for
credit is made to customers.

Reason & Benefits of Inventory: -The optimal level to maintaining inventory is

subjective matter and depends upon the features of a particular firm. Trading firm in case
of a trading firm there may be several reasons for holding inventories because of sales
activities that should not be interrupted more over it not always possible to procure the
good whenever there is a sales opportunity there is always a time gap required between
purchase and sale of goods.
Thus, trading concern should have some stock of finished goods in order to undertake
sales activities independent of the procurement schedule. Similarly, a firm may have
several incentives being offered in terms of quantity discounts or lower price etc. by the
supplier of goods. There is trading concern inventory helps in a de-inking between sales
activity and also to capitalize a profit of opportunity due to purchase make at a discount
will result in lowering the total cast resulting in higher profits for the firm.

Manufacturing firm: -A manufacturing firm should have inventory or not only the
finished goods, but also of raw materials and work -in-progress for following reasons.

Uninterrupted production schedule: Every manufacturing firm must have

sufficient stock of raw materials in order to have the regular and uninterrupted production
schedule. If there is stock out of raw materials in order to have the regular and
uninterrupted production schedule. If there is stock out of raw material at any stage of
production process then the whole production may come to a half. This may result in
custom dissatisfaction as the goods cannot be delivered in time more over the fixed cost
will continue to be incurred even if there is no production.
Further work-in-progress would let the production process run smooth.

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3.4 ESSENTIALS OF INVENTORY CONTROL:

The important requirements of inventory control are:

• A firm needs inventory control system to effectively manage its inventory.
• Proper classification of materials with codes, material standardization and
simplification.
• The operation of a system of internal check to ensure that all transactions involving
material and equipment are checked by properly authorized and independent persons.
• The operation of a system of perpetual inventory so that it is possible to determine at
any time, the amount and value of each kind of material in stock.
• A suitable method of valuation of materials is essential because it affects the cost of
jobs and the value of closing stock of materials.

3.5 IMPORTANCE OF THE STUDY:

Inventory management is a good practice for any company. If you are not keeping a
watchful eye on your inventory or counting stock regularly, you are setting yourself up
for potential inventory errors and challenges. Proper inventory management really can
make or break your business! Keep the following benefits in mind as you weigh the cost
of not implementing an inventory management strategy:

 A good inventory management strategy improves the accuracy of inventory

orders.

Proper inventory management helps you figure out exactly how much inventory
you need to have on-hand. This will help prevent product shortages and allow you
to keep just enough inventories without having too much in the warehouse.

 A good inventory management strategy leads to a more organized

warehouse.

A good inventory management strategy supports an organized warehouse. If your

warehouse is not organized, you will have a hard time managing your inventory.
Many companies choose to optimize their warehouses by putting the highest
selling products together and in easily accessible places in the warehouse. This, in
turn, helps speed up the order fulfillment process and keeps customers happy.

 A good inventory management strategy helps save time and money.

Inventory management can have real-time and monetary benefits. By keeping

track of which products, you have on-hand or ordered, you save yourself the
effort of having to do an inventory recount to ensure your records are accurate. A
good inventory management strategy also helps you save money that could
otherwise be wasted on slow-moving products.

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 A good inventory management strategy increases efficiency and productivity.

Inventory management devices, such as barcode scanners and inventory

management software, can help drastically improve your efficiency and
productivity. These devices will help eliminate manual processes so your
employees can focus on other – more important – areas of the business.

 A good inventory management strategy keeps your customers coming back

for more.

It’s a fact that good inventory management leads to what you are constantly
striving for – repeat customers. If you want your hard-earned customers to come
back for your products and services, you need to be able to meet customer
demand quickly. Inventory management helps you meet this demand by allowing
you to have the right products on-hand as soon as your customers need them.

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3.6 OBJECTIVES OF THE STUDY:

Q.1 What are the objectives of inventory management?

The main objective of inventory management is to maintain inventory at appropriate level

to avoid excessive or shortage of inventory because both the cases are undesirable for
business. Thus, management is faced with the following conflicting objectives:
1. To keep inventory at sufficiently high level to perform production and sales activities
smoothly.
2. To minimize investment in inventory at minimum level to maximize profitability.

Other objectives of inventory management are explained as under:-

1. To ensure that the supply of raw material & finished goods will remain continuous so
that production process is not halted and demands of customers are duly met.
2.To minimize carrying cost of inventory.
3. To keep investment in inventory at optimum level.
4. To reduce the losses of theft, obsolescence & wastage etc.
5. To make arrangement for sale of slow-moving items.
6. To minimize inventory ordering costs.

What are the consequences of over investment & under investment in inventory?

Both over investment and under investment in inventory is undesirable as both have
consequences.

Following are the consequences of over investment:

- Unnecessary blockage of funds in inventory

- Excessive storage is required to store the inventory.
- Excessive insurance cost.

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- Risk of liquidity: Value of the inventory reduces due to the long holding period as the
inventories once purchased are difficult to dispose of at the same value.

Following are the consequences of under investment:

- Under investment in the inventory may cause frequent interruptions in production

process.
- Insufficient stock of finished goods may create problems in meeting customers’
demands and they may shift to the competitors.

3.7 ADVANTAGES OF INVENTORY CONTROL:

The following are suggested advantages:

1. Eliminates wastages in use of material.
2. It reduces the risk of loss form fraud and theft.
3. It helps in keeping perpetual inventory and other records to facilitate the preparation of
accurate material reports management.
4. To reduce the capital tied up in inventories.
5. It reduces cost of storage.

3.8 DISADVANTAGES OF INVENTORY CONTROL:

Every firm has to maintain optimal level of inventories. It not the following will be the
result in form of losses.

1. Opportunity cost: Every firm has to maintain inventory for that some investment
is needed it is known as opportunity cost and handle the investment in inventory are more
the funds are blocks up with inventory.

2. Excessive inventories: It will lead to firm losses due to excessive carrying costs
the risk of liquidity. It is also referred as danger level.

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3. Inadequate Inventory: It is another danger which results is production holds-up
and failure to meet delivery commitments. In adequate raw materials and work - in -
process inventors will result in frequent production interruptions. It finished goods are
not sufficient customers may shift to competitors.

4. Danger due to physical decoration: It is one of the reasons with the

inventories due to maintaining stocks at high levels they will be deteriorated due to
passage of time, sometimes due to mishandling or improper storage facilities.

3.9 COST INVOLVED IN INVENTORY:

Every firm maintains inventory depending upon requirement and other features of firm
for holding such inventory some cost will be incurred there are as follows.

 Carrying Cost: This is the cost incurred in keeping or maintaining an

inventory of one unit of raw materials, work-in-process or finished goods. Here
there are two basic costs involved.

 Cost of Storage: It includes cost of storing one unit or raw materials by the
firm. This cost may be for the storage of materials. Like rent of spaces occupies
by stock, stock for security, cost of infrastructure, cost of insurance, and cost of
pilferage, warehousing costs, handling cost etc.

 Cost of Financing: This cost includes the cost of funds invested in the
inventories. It includes the required rate of return on the investments in inventory
in addition to storage cost etc. The carrying cost include therefore both real cost
and opportunity cost associated with the funds invested in the inventories. The
total carrying cost is entirely variable and rise in directly proportion to the level of
inventories carried.
o Total carrying cost = (carrying cost per unit) X (Average inventory)
 Cost of Ordering: The cost of ordering includes the cost of acquisition if
inventories. It is the cost of preparation and execution of an order including cost

35
 of paper work and communicating with the supplier. The total ordering cost is
inversely proportion to annual inventory of firm. The ordering cost may have a
fixed component, which is not affected by the order size: and a variable
component, which changes with the order size. Total Ordering Cost = (No of
orders) X (cost per order).

 Cost of Stock out: It is also called as hidden cost. The stock out is the
situation when the firm is not having units of an item is stores but there is a
demand for that item either for the customers or the production department.
 The stock out refers to zero level inventories. So, there is a cost of stock out in the
sense that the firm faces a situation of lost sales or back orders. The stock outs are
quite often expensive. Even the good will of firm also be affected due to
customers dissatisfaction and may lose business in case of finished goods, where
as in raw materials or work in process can cause the 36 Production process to stop
and it is expensive because employees will be paid for the time not spine in
producing goods.
 Total Cost = (Cost of items purchased) + (Total Carrying and ordering cost).

3.10 SCOPE OF INVENTORY MANAGEMENT:

IMPACT OF INVENTORY MANAGEMENT AND CONTROL ON THE PROJECT

1. Determination of economic order quantity:

Economic order quantity or economic lot size refers to that number ordered in a single
purchase or number of units should be manufactured in a single run, so that the total costs
— ordering or set up costs and inventory carrying costs are at the minimum. So, the
determination of E.O.Q. is also within the scope of inventory control.

36
2. Formulation of policy:
The policies of investment procurement, storage, handling, accounting, storages and
stock outs, deterioration, obsolescence etc. are to be formulated under the scientific
system of inventory control. What, when and how much of purchasing and fixation of
minimum and maximum levels is also to be determined for a given period of time.

3. Determination of lead time:

By lead time is meant the time that lapses between the raising of an indent by the stores
and the receipt of materials by them. Lead time is of fundamental importance in
determining inventory levels.

4. Effectiveness towards running of store:

The determination of policies of the location, layout and materials and storage handling
equipment’s certainly help in the effective working of stores organization.

5. Organization structure:
After determining of inventory policy, the next step is to decide the location, layout and
types of storehouses. It facilitates the movement of materials and thus minimizes the
storage and handling cost of stores.

6. Determination of safety stock:

Safety stock is defined as the difference between the amount stocked to satisfy demand
during a certain time interval and the mean expected demand for that period. It is for the
purpose of providing protection against depletion. If demand remained constant and lead
tin-; is invariable, there would be no fear of shortages and no need for safely stocks.

7. Minimum material handling and storage cost:

Stores organization activities are arranged in such a manner that the east of bringing in
the store house and issuing from the store house if the various stores, will minimize the
storage and materials handling cost of stores.

VALUATION OF INVENTORY:

The methods of valuing inventory are combination of the actual cost and replacement
cost plans. The chief advantage of the cost or net realizable value rule is that it is
conservative.

37
Hence the methods of valuation of inventory are quite independent of system of mincing.
In balance sheet closing stock is shown under current assets and it also credited to
manufacturing or trading accounts. The inventories are valued on the basis as follows:

I) Cost of raw materials in stock may include freight charges and carrying cost.
But such cost should not exceed market price.

II) Work - in - process is generally valued at cost, which includes cost of

materials, labor. And the proportionate factory overhead, as it is reasonable
according to degrees of completion.

III) Cost of finished goods wound normally to the total or full cost it includes
prime cost-plus appropriate amount of the overhead. Selling and distribution
cost is deducted on the other hand work in progress may be valued at work in
progress may be valued at work cost, marginal cost, prime cost or, even at
direct materials.

Purchase & stores procedure: In inventory management the purchase department store
department plays a major role to be the effective inventory there must be cooperation of
various departments such as purchase receiving and inspection stores production and
stock control departments.

The main functions of each department are as follows:

 Purchase Department:

It is responsible for purchase of all necessary goods of proper quality to

produces, without interruption to supply the finished goods.

1) It receives purchase requisitions.

2) Invites quotations or tenders from suppliers with desired quality.

3) Issue purchase orders to the selected supplier.

4) Certify the quality and quantity of order received in specified time

38
 Material Cost:

Materials cost of a job or cost unit can be ascertained by multiplying the

quantity consumed for the job or cost unit by the price of the materials. For
ascertaining the quantity consumed for each job or cost unit we have devised
material requisition which will indicate the quantity required for the job and
the job number against which the material cost will be change directly.

For indirect material issued the material requisition will not indicate the job
number but the cost center number will be indicated for charging to relevant
cost center as indirect materials.

3.11 Thus in order to ascertain material cost.

1. Make valuation of purchase.

2. Make use of proper valuation of material issue and closing stock following
different method such as, FIFO, LIFO WEIGHTED AVG. Etc.

Receiving and Inspection Department

a) Receiving all raw materials and other supplies from various suppliers.

b) Verify items by count, weight etc., and report any shortage

c) Inspect materials and supplied as to quality by analyzing them suitably.

d) Inform the purchasing department and accounts department all facts that
may require adjustment with vendor.

e) Analyze and give them the code depending up on the type of materials.

Stores keeping Department:

a) Check and accept all materials form the received department.

b) Identity each material received with the stock list, check the code number
and place in the respective bins.

39
c) Issue materials and supplies for use upon presentation of authorized
requirement.

d) Record quantities received and issued on bin lards or stock ledger cards
consisting the perpetual inventory records.

Production Department:

Make out materials requirement note i.e., requisition of requisite quantity and
quality of materials at the right moment so the all materials may be available
without delay on production.

1) Check and verify that the materials of requisite quantity and quality have
been received and charged to production.

2) Keep proper records or materials received and their progress through

different operations or progress.

3) Prepare materials return note for excess materials.

4) Prepare materials transfer note to cover any transfer of materials.

5) Prepare report on scrap for reporting to management.

Inventory Control Department:

In may be a subdivision of the cost accounting department, although in many

concerns, it is a part of the stores keeping department.

A) It keeps perpetual inventory records.

B) Adjust the stock on receipt of the property authorized adjustment notes.

C) Prepare weekly or monthly, statement of receipts, issue, balance and

average consumption of materials both in terms of quantity and value.

40
RECEIPT AND ISSUE OF INVENTORIES:

(a) Receipt Inventories in to store: After incoming materials have been

examined and approved, they are passed on to the appropriate stores
together with the goods received note. Articles are inspected and passed
and on the stores in the usual way. In order to keep the accounting
procedure uniform, it is desirable that a goods received note be prepared
for these articles also, the store keeper than places the inventory in
appropriate bin or shelf and make necessary entries in the receipt column
of the Bin Card. A location code for materials helps in proper store -
keeping with greater efficiency, because stores can be easily identified. It
is a part and parcel of stock control procedure. Location code helps in
mechanized accounting and safeguard against omission in counting as
verification.

41
BIN CARD DESCRIPTION:

MAXIMUM LEVEL: MATERIAL CODE:

MINIMUM LEVEL: LOCATION CODE:

ORDERING LEVEL: BIN NO:

ORDERING QUANTITY: STORES LEDGER NO:

UNITS:

BIN CARD: For each kind of materials or article a Bin Card attached to the bin which
each individual’s materials are stored. A bin card provides a running record of receipts,
issues and stock in the simplest form. An entry will be made at the time of each receipt or
issue and new balance will be extended. These cards should agree with the quantities
entered in the relevant accounts in the stores ledge. The main advantage is to enable the
stores keeper to ascertain at a glance the quantity of materials in stock and remind him to
place purchase requisition for further suppliers the ordering level has been reached more
over they provide on independent check on stores ledger and anciently a second perpetual
inventory. If the bin card is from three years then the transactions are made in same card.
If Bin Card does not exist new Bin Card to be opened.

STORES LEDGER ACCOUNT

42
FORM NO: FOLIO: MATERIALS:
GRADE: MINIMUM LEVEL:
UNITS: ORDERING LEVEL:
CODE NO: ORDERING LEVEL;
MAXIMUM LEVEL:

ISSUE PRICING METHODS:

There Are Two Categories

Cost prices:

(a)FIFO (First in First out)

(b)LIFO (Last in first out)

(c)Specific price

(d)Base stock price

(e)HIFO (highest in first out)

Delivered from cost prices:

(a) Simple average price

(b) Weighted average price

(c) Periodic simple average price

(d) Periodic weighted average price

(e) Moving simple average price

(f) Moving weighted average price

Delivered from cost prices

43
(a) Simple average price

(b) Weighted average price

(c) Periodic simple average price

(d) Periodic weighted average price

(e) Moving simple average price

(f) Moving weighted average price

First in First out (FIFO): This is the price paid for the material first taken into stock
from which the material to be priced could have been drawn. Under this method stocks of
materials may not be used up in chronological order but for pricing purpose it is assumed
that items longest in stocks are used up first.

Last in first out (LIFO): This is the price paid for the material last taken into stock
from which the materials to be priced could have been drawn. This method also ensure
material being issued at the actual cost. Its use is based on the principle that costs should
be as closely as possible related to current price level. Under this method production cost
is calculated on basis on replacement cost.

Weighted average price: This is the price which is calculated by Z dividing the total
cost of material in the stock from which the material to be priced have been drawn, by the
total quantity of material in the stock. This method differs from all other methods because
here issue prices are calculated on receipts of materials and not on issue of materials.
Thus, as soon as new lot is received a new price is calculated and issues are then taken.

Standard price: It is the predetermination of fixed price on basis of a specification of all

factors affecting price like the quantity of materials in hand and to be normally purchased
and rate of discount compared with existing price including or excluding freight and ware
housing expense. A standard price for each material is set and the actual price paid is
compared with standard. It is paid exceeds the standard a loss will be realized if not profit
will be obtained.

44
 CHAPTER -4 LITERATURE
REVIEW

ARTICLE -1

45
Title: A review of inventory management research in major logistics journals: Themes
and future directions

Author(s): Brent D. Williams, (Department of Marketing and Logistics, Sam M. Walton

College of Business, University of Arkansas, Fayetteville, Arkansas, USA), Travis Tokar,
(The Ohio State University, Fisher College of Business, Marketing and Logistics,
Columbus, Ohio, USA)

Citation: Brent D. Williams, Travis Tokar, (2008) "A review of inventory management
research in major logistics journals: Themes and future directions", International Journal
of Logistics Management, The, Vol. 19 Iss: 2, pp.212 - 232

Keywords: Inventory management, Research, Supply chain management

Article type: Literature review

DOI: 10.1108/09574090810895960 (Permanent URL)

Publisher: Emerald Group Publishing Limited

Abstract: Purpose – The purpose of this paper is to provide a review of inventory

management articles published in major logistics outlets, identify themes from the
literature and provide future direction for inventory management research to be published
in logistics journals.

Design/methodology/approach – Articles published in major logistics articles, beginning

in 1976, which contribute to the inventory management literature are reviewed and
cataloged. The articles are segmented based on major themes extracted from the literature
as well as key assumptions made by the particular inventory management model.

Findings – Two major themes are found to emerge from logistics research focused on
inventory management. First, logistics researchers have focused considerable attention on
integrating traditional logistics decisions, such as transportation and warehousing, with
inventory management decisions, using traditional inventory control models. Second,
logistics researchers have more recently focused on examining inventory management
through collaborative models.

ARTICLE -2

46
Title: Risk Aversion in Inventory Management.

Author(s): Xin Chen Department of Industrial and Enterprise Systems Engineering,

University of Illinois at Urbana–Champaign, Urbana, Illinois 61801, xinchen@uiuc.edu
Melvyn Sim Singapore-MIT Alliance and NUS Business School, National University of
Singapore, Singapore,dscsimm@nus.edu.sg David Simchi-Levi Department of Civil and
Environmental Engineering and Engineering System Division, Massachusetts Institute of
Technology, Cambridge, Massachusetts 02139, dslevi@mit.edu Eng Sun Fuqua School
of Business, Duke University, Durham, North Carolina 27708, psun@duke.

Citation: Subject classification: inventory/production: policies, uncertainty; decision

analysis.

Keywords: Inventory management, Research, R Manufacturing, Service, and Service,

and Supply chain operations.

Article type: Literature review Publisher: Online in Articles in Advance September 14,
2007.

Abstract: Purpose – Traditional inventory models focus on risk-neutral decision makers,

i.e., characterizing replenishment strategies that maximize expected total profit, or
equivalently, minimize expected total cost over a planning horizon. In this paper, we
propose a framework for incorporating risk aversion in multi-period inventory models as
well as multi-period models that coordinate inventory and pricing strategies. We show
that the structure of the optimal policy for a decision maker with exponential utility
functions is almost identical to the structure of the optimal risk-neutral inventory (and
pricing) policies. These structural results are extended to models in which the decision
maker has access to a (partially) complete financial market and can hedge its operational
risk through trading financial securities. Computational results demonstrate that the
optimal policy is relatively insensitive to small changes in the decision-makers level of
risk aversion.

A Study of Inventory Management System

47
Case Study

Tariq Husain Sheikh, Govt. Degree college Poonch, tariqsheakh2000@gmail.com

Nazar Sohail, Krukshetra University

Inventory management has to do with keeping precise records of finished goods that are
ready for shipment. This
Often means posting the production of newly completed goods to the inventory totals as
well as subtracting the most
Recent shipments of finished goods to buyers. When the company has a return policy in
place, there is usually a sub-
Category contained in the finished goods inventory to account for any returned goods that
are reclassified or second
Grade quality.
Accurately maintaining figures on the finished goods inventory makes it possible to
quickly convey information
to sales personnel as to what is available and ready for shipment at any given time.
The ROI of Inventory management will be seen in the forms of increased revenue and
profits, positive employee atmosphere, and on overall increase of customer satisfaction.
The next step of the present research will be the application of achieved results of
demand forecasts, safety stock and reorder points into simulation software in order
to achieve more accurate results

48
 CHAPTER -5 RESEARCH
METHODOLOGY

DATA COLLECTION:

49
A. Primary data:
The primary data is collected by observing techniques. The data was
collected with the purpose of evaluation.
B. Secondary data:
 Internal sources
 Periodicals and journals
 Internet
 Annual reports

The presents study is entirely based on the method of secondary data.

The published statistical statements and annual reports etc. the data
which is collected from the firm was available in its annual
statements.

DATA REPRESENTATIONTECHNIQUES:

Use of formula, ratios, table, and bar diagram had been undertaken for
the presentation of data.

Research duration - Two months (June- August)

Research Technique – Analytical research

Research Sample – Annual report of three years (2018-2019)

Research Design- 1. Objectives

2. Data collection

3. Data interpretation

4. Evaluation

5. Findings

6. Suggestion

50
Chapter 6 DATA ANALYSIS AND
INTERPRETATION

1. INVENTORY TURNOVER RATIO:-

Inventory Turnover Ratio= Net Sales/ Inventory

51
Table 6.1

Years Sales(X) Inventory (Y) Ratio (X\Y)

2018-2019 11,16,60,00,000 64,10,36,094 17.41
2019-2020 11,42,50,00,000 72,56,96,891 15.74
2020-2021 12,55,00,00,000 77,08,60,940 16.28

Inventry Ratio (X\Y)

18
17
Ratios

16
15
14
2018-2019 2019-2020 2020-2021
years

Ratio (X\Y)

Figure 6.1

Interpretation:-

 Inventory Turnover Ratio indicates how many times a year inventory is getting
turned into sales.
 The above calculations indicate higher inventory turnover ratios are considered a
positive indicator of effective inventory management. However, a higher inventory
turnover ratio does not always mean better performance. It sometimes may indicate
inadequate inventory level, which may result in decrease in sales.

2. INVENTORY CONVERSION PERIOD:-

Inventory conversion period = 12 Months \52Weeks \365Days/ ITR

52
 Inventory conversion period if 365 days are taken then:

= Days in a year ÷ Inventory turnover ratio

=365 ÷ inventory turnover ratio.

Table 6.2

Years Inventory Turnover Ratio Inventory Conversion

Period (Days)
2018-19 17.41 20.96
2019-20 15.74 23.18
2020-21 16.28 22.42

Inventory Turnover Ratio

18
17.5
17
Axis Title

16.5
16
15.5
15
14.5
Axis Title

2018-19 2019-20 2020-21

Figure 6.2

Interpretation:-

 In above chart Inventory conversion period is less between 20-23 days for the
last three years.
 In 2020- 21 it is 20.96 days which is lowest and so it is good for the company
 Less inventory conversion period is better because faster, we will convert
our inventory into sales, there will be less chance of obsolescence and paying
of over-stocking cost.

3. STOCK RELATION TO WORKING CAPITAL:-

Table 6.3

53
Years Current assets Current Working Stock % of
liabilities Capital Working
Capital
2018-19 4,29,05,59,105 2,77,19,24,568 1,51,86,34,537 64,10,36,094 42.21
2019-20 4,96,24,34,877 3,12,66,05,117 1,83,58,29,760 72,56,96,891 39.52
2020-21 5,26,03,54,604 3,33,01,37,750 1,93,02,16,854 77,08,60,940 40.00

Of Working Capital
6,000,000,000

5,000,000,000

4,000,000,000

3,000,000,000

2,000,000,000

1,000,000,000

0
Current assets Current Working Stock % of Working
liabilities Capital Capital

2018-19 2019 -20 2020 -21

FIGURE 6.3.

Interpretation:-

 In general, the higher a company's working capital, the better. High working
capital is considered a sign of a well-managed company with the potential for
growth. However, some very large companies actually have negative working
capital. This means their short-term debts outweigh their liquid assets
 Inventory was 42.21% of the working capital in the year 2018-2019 which was
more than other two years, 39.52% of the working capital in the year 2019- 20,
and 40% of the working capital in the year2020- 21. Thus, increases in inventory
make working capital increases.

EOQ

During2018-2019: -

54
The firm require below given units of materials for manufacturing product. The
following are the details of their operations during.
2020- 21
Table 6.6: Raw Material
Particulars
Materials 28131kg .
Ordering cost per order Rs.2400
Carrying cost 10%
Purchase price per kg Rs .22

Calculation of EOQ:-

Total units required (D)=28131kg

The ordering cost per order (S) = Rs.2400
Carrying cost per unit (C) = 10%
(i.e.) 10%of 22(H) =Rs.2.2

=√2×28131×2400÷2.2
=√61376727.27
EOQ=Rs .7834

Number of order for the year = D÷EOQ

=28131÷7834
=3.6 orders

During 2019- 20:-

55
 The firm require below given units of materials for manufacturing product. The
following are the details of their operations during 2019- 20.

Table 6.7
Particulars
Materials 44308Kg
Ordering cost per order Rs .2470
Carrying cost 10%
Purchase price per kg 24

Calculation of EOQ:-

Total units required (D) = 44308Kg

The ordering cost per order (S) = Rs .2470
Carrying cost per unit (C) = 10%
(i.e.) 10%of 24(H) =Rs.2.4

=√2×44308×2470

=√91200633.33

EOQ=Rs.9545

Number of order for the year = D÷EOQ

=44308÷9545

=4.64orders

During2020- 21: -

56
 The firm require below given units of materials for manufacturing product. The
following are the details of their operations during2020- 21.

Table 6.8
Particulars
Materials 48050KG
Ordering cost per order RS.2550
Carrying cost 11%
Purchase price per kg 26

Calculation of EOQ:-
Total units required (D) = 48050KG
The ordering cost per order (S) = RS.2550
Carrying cost per unit (C) = 11%
(i.e.) 11%of 26(H) =RS2.8

=√2×48050×2550÷2.8
=√87519642.85
EOQ=RS.9355

Number of order for the year = D÷EOQ

=48050÷9355
=5 ORDERS

TABLE AND GRAPH OF EOQ AND ORDERS:

57
 Table 6.9
Years EOQ (RS.) Orders
2018-19 7834 3.6
2019-20 9545 4.6
2020-21 9355 5

Chart Title
12000

10000

8000

6000

4000

2000

0
2018-19 2019-20 2020-21
EOQ (RS.) 7834 9545 9355
Orders 3.6 4.6 5

EOQ (RS.) Orders

Figure 6.9

Interpretation:-

In above chart the order for the different years is shown. In the year 2106-17 order was
3.6, and there was a higher growth in the order in the future year. Also, the order was
extended to 4.6 in 2019- 20. In the year 2020- 21 orders were increased up to 5. There is
good growth in the number of orders placed.

58
 Chapter-7 FINDINGS AND
SUGGESTIONS

FINDINGS: -

59
INVENTORY TURNOVER RATIO:

 Inventory turnover ratio interpretation indicates there is a decrease in the ratio for
the year 2018 then increase in the ratio for the current year and inventory
conversion period has increased during the year2019- 20. The reason being rising
raw material costs and slowdowns in the sector.


TOTAL INVENTORY IN PERCENTAGE:

 It can be noticed from the above calculation that can significant portion of the
total inventory is in the form of raw material because of it consisted more value
which is more than other.

STOCK RELATION TO WORKING CAPITAL:

 Inventory was 42.21 % of the working capital in the year 2020- 21which was more
than other two years, 39.52% of the working capital in the year 2019- 20. Thus,
increases inventory make working capital increase.

EOQ &ORDERS:

 In the beginning little bit increase in 2019- 20 as compared to last years

afterwards it is almost on steady partly, which are summarized in the Table 6.8.
 In the year 2020- 21orders was 3.6, and there was a higher growth in the order in
the future year. Also, the orders were extended to 4.6 in 2019- 20. In the year
2020- 21 orders were increased up to 5. There are good growths in the orders.

ABC:

 Category A, which includes items constitute 68.57% of the total inventory cost. It
is also more than B and C Category. Also, B category have 39.87 % and C
category have 11.79%. Thus, its shows that a category being the most valuable
items, C being the least value ones.

SUGGESTIONS
60
 As inventory turnover ratio is not showing good position. So, it is required that
some inventory analysis to be undertaken especially company has to check about
the investments in the obsolete inventory steps should be taken to discard them.
 According to ABC analysis, Category A includes 3 components, which
constitutes 68.5% on the total inventory cost. ABC analysis of inventory leads to
certain benefits in the form of the guidance to the manager, about level of control
for each type of items, which are summarized in Table no .6.11.
 JIT should be adopted by the company at least for the high value items.
 A better control decision can be arrived at by using ABC analysis. This analysis
gives a two-dimensional approach taking into consideration cost on one hand and
critically on the other therefore, bringing about more effective and practical
control.
 Company is not calculation EOQ for the materials in the organization so it has
been suggested as that at least for a category item it should be calculated.

61
 Chapter-8 LEARNING FROM
THE PROJECT

In my internship project with Aadi enterprises on the topic Inventory Management

and Control I learnt how an inventory is necessary in any production process and how
to maintain it so that it can lead to lower the cost of production. By working with the
organization, it was seen that they were not aware about the techniques of inventory

62
 management and control after I worked together and explained about various
techniques of managing and controlling and started implementing it practically the
results were seen to be having tremendous changes.

The techniques really was so important to being practiced as the efficiency and
effective use of material was necessary. As our management team was trying it for
the first time it was difficult as they were experiencing a whole new technique and
even their perception and mindset was a negative part but still when I compared the
data of months and years it was clearly a change that was there.

1 INVENTORY TURNOVER RATIO:-

 Inventory Turnover Ratio indicates how many times a year inventory is getting
turned into sales.
 The above calculations indicate higher inventory turnover ratios are considered
a positive indicator of effective inventory management. However, a higher
inventory turnover ratio does not always mean better performance. It
sometimes may indicate inadequate inventory level, which may result in decrease
in sales.

2. INVENTORY CONVERSION PERIOD:-

 Inventory conversion period is the part of cash conversion cycle. If this period is
very high, it will increase the time to complete the cash conversion cycle. It
means, there will be more liquidity risk in that level of inventory.
 After adding average collection period and deducting average payment period,
we can take good decision relating to inventory level.

3. INVENTORY COMPARES WITH RAW MATERIAL, SEMI –

FINISHED GOODS AND FINISHED GOODS:-

 The reason for this is mainly the nature of the business Aadi enterprises is
involved in the production of special purpose of material due to high degree of
customization which sometimes required high value raw material.

4. EOQ:-

63
  The Economic Order Quantity (EOQ) is the number of units that a company
should add to inventory with each order to minimize the total costs of inventory—
such as holding costs, order costs, and shortage costs. The EOQ is used as part of
a continuous review inventory system in which the level of inventory is monitored
at all times and a fixed quantity is ordered each time the inventory level reaches a
specific reorder point. The EOQ provides a model for calculating the appropriate
reorder point and the optimal reorder quantity to ensure the instantaneous
replenishment of inventory with no shortages.
 The EOQ model assumes that demand is constant, and that inventory is depleted
at a fixed rate until it reaches zero. At that point, a specific number of items arrive
to return the inventory to its beginning level. Since the model assumes
instantaneous replenishment, there are no inventory shortages or associated costs.

5. ABC ANALYSIS:-

ABC analysis is an approach for classifying inventory items based on the items’
consumption values. Consumption value is the total value of an item consumed over a
specified time period, for example a year. The approach is based on the Pareto principle
to help manage what matters and is applied in this context:

 Items are goods where annual consumption value is the highest. Applying the Pareto
principle (also referred to as the 80/20 rule where 80 percent of the output is
determined by 20 percent of the input), they comprise a relatively small number of
items but have a relatively high consumption value. So, it’s logical that analysis and
control of this class is relatively intense, since there is the greatest potential to reduce
costs or losses.
 B items are inter classed items. Their consumption values are lower than A items but
higher than C items. A key point of having this interclass group is to watch items
close to an item and C item classes that would alter their stock management policies if
they drift closer to class A or class C. Stock management is itself a cost.

64
Chapter -9 CONTRIBUTION TO
THE HOST ORGANISATION

65
My contribution for my internship project with Aadi enterprises for the topic inventory
management and control was using various techniques of managing inventory and
controlling the wastage that is effectively and efficiently using the material so that it
could reduce the cost of production or the material cost.

The techniques such as EOQ and ABC analysis benefited the organization in:-

 Lower inventory cost

 Minimizes storage and holding costs
 Specific to the business
 Accurate product cost
 Information about cost behavior
 Tracing of activities for the cost object
 Tracing of overhead costs
 Better decision making
 Cost management
 Use of excess capacity and cost reduction, etc.

66
 Chapter -10 CONCLUSION

The inventory turnover ratio measures the efficiency of the business in the managing and
selling its inventory. This ratio gauges the liquidity of the firm’s inventory. Also main
objectives of the project report are, to understand Inventory Management in the
organization through uses of various ratios and to understand inventory control
techniques namely EOQ and ABC analysis.

Generally, a higher inventory turnover ratio is considered a positive indicator of

operating efficiency, since inventory that remains in place produces no revenue and
increases the costs associated with remaining those inventories. Inventory control is
exercise when you order an item. If you do a poor job then everything after is inventory
correction.

Inventory is the physical asset of a company that can create problem if there is a shortage,
while in production also if it’s in excess even after production. The inventory is
constantly changing as quantities are sold and replenished. Hence it can be understood
that efficient inventory management can take the company to the new heights.

67
 Chapter-11 BIBLIOGRAPHY
AND REFERENCES

Books:

1.Author. J. R. TONYARNOLD, STEPHEN N. CHAPMEN,R.V. RAMAKRISHNAN

9Fifth edition) Introduction to materials management published by person education
(page no .242)

2. Author .l.c. JHAMB (preface by first edition ) Inventory management published by

Everest Publishing house 25 glorious years of excellence education ( page no .
56,75,280,485)

Web sources:

 https://www.tradegecko.com/inventory-management/inventory-control
 https://en.wikipedia.org/wiki/Inventory_control
 https://www.slideshare.net/GurpreetTamber3/inventory-management-and-control
 https://www.amcap.com.au/inventory-management-control/
 http://priteshhaldankarworld.blogspot.com/
 http://www.google.com
 http://www.raymond.in
 http://www.moneycontrol.com
 http://www.slideshare.net
 http://www.wikipedia.com


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 Chapter-12ANNEXURE

Aadi enterprises Amount (Rs)

Particulars 2018-19 2019- 20 2020- 21

Sales 11.16,60,00,000 11,42,50,00,000 12,55,00,00,000

Inventory 64,10,36,094 72,56,96,891 77,08,60,940

Raw Material 42,68,32,467 47,02,28.897 53,48,05,354

Semi Finish 7,30,08,110 10,56,72,007 10,11,30,313

Goods

Finished Goods 14,11,95,517 14,97,95,987 13,49,25,273

Current Assets 4,29,05,59,105 4,96,34,34,877 5,26,03,54,604

Current 2,77,19,24,568 3,12,66,05,117 3,33,01,37,750

Liabilities

69
Goods Received Note

70
Material Requisition

71
Bills of Material:

72
 Questioner

1. How to minimize carrying cost of inventory?

2. How to minimize investment in inventory at minimum level to maximize

profitability?

3. What steps should be taken to improve sales of slow-moving item?

4. How to reduce the losses of theft, obsolescence & wastage etc.?

5. What are the consequences of over investment & under investment in

inventory?

6. Various techniques to eliminate the wastages in use of material?

7. How to understand Inventory Management and Control in the organization

through use of various ratios?

8. How to find out EOQ for some important materials?

9. How to find out methods and various categories of material through ABC
analysis?

10. How to evaluate the inventory management practices of Aadi enterprises?

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END

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