4.

1 INVENTORY MANAGEMENT PROCESS :-

i. PO is generated.

ii. Accepted & Confirmed by Vendors & Company.

iii. Vendor Sends the Goods to the Company by Lorry.

iv. When the Lorry reaches the company the documents are verified by
the security and send for further verification Inventory Department.

v. The DEO (Data Entry Operator) verifies the documents such as:
*Gate Pass with Vehicle Details
*Invoice Bill (PO No, Description of Goods, Quantity, Rates, Total
amt, GST No)
*QA (Quality Assurance)
*Truck weight with Loaded.
*The Samples are also taken randomly of material for Quality purpose.

vi. Quality check is done of Samples taken from lorry.

vii. And accepted if are in all parameters.

viii. After Clearance of all department the lorry enters the Company
premises at Warehouse.
 ix. The Stacker Operator and labour unloads the Material in Warehouse
and arrange in proper rack.

x. Simultaneously the DEO enters the Material in SAP and passes GRN
and Records the Rack no and description in BIN CARD in Excel (BIN
CARD is a quantitative record of material received, issued and
balance. It is a table that records the status of goods held in stock).

xi. The Production Department gives the required material list to

warehouse department by filling the Requisition Slip to the RMPM
(Required Material Process Model) department.

xii. The Requisition slip contains material description, quantity, Item Code
& Signature of the Approved Authority.

xiii. The Shift In-charge checks the availability of material in stock

Simultaneously the Production dept in-charge fills the Issue Slip
matching with requisition.

xiv. The Stacker Operator reaches to the given rack no collects the material
and hand over to ODS (One Day Stock) department.
xv. The DEO Issue the material from SAP and Deduct the Material from
BIN Card with proper rack Location.

xvi. The Minimum and Maximum Limits are set for each and every
material in SAP So with they can order the material within the time.
This is last step of Inventory Dept. outward of material from system.
4.1.1 Bin- card :-

4.1.2 Material Requisition Note:-

4.2 CALCULATION OF INVENTORY TURNOVER RATIO

Table 4.2.1
Table Showing Inventory Changes

Years Inventories Inventory changes (%)

2018 2,095.59 100

2019 2,223.44 106.10

2020 2,310.17 103.90

2021 2,907.05 125.84

2022 3,615.80 124.38

Formula:

Inventory changes % = Current year inventory *100

Previous year inventory

Analysis:

From the above table shows percentage of changes in inventories of ITC Ltd.

The 2018 is taken as base year and it is 100%.

In succeeding year, it is increased to 106.10%

In the year 2020 it is decreased to 103.90.

And in the year 2021 there was huge change which is increased by 21.94%.(103.90% -
125.84%).

In the year 2022 there was slightly decrease by 1.49%.

 Graph 4.2.1
Graph Showing Inventory Changes :-

Inventory changes (%)

140
125.84 124.38
120 106.1
100 103.9
100
Percentage

80

60

40

20

0
2018 2019 2020 2021 2022

Year

Interpretation: -

The position of inventories in ITC Ltd. Fluctuating from year to year. From 2018 to
2020 there was slightly change in inventories but in 2021 there was huge change i.e. almost
21.94%. and in 2022 it was slightly reduced.

Table 4.2.2
Table Showing Inventory Turnover Ratio :-
Year Cost of goods sold( in Average inventory (in Inventory Turnover
crores) crores) Ratio (in times)

2018 11,756.21 2,095.59 5.61

2019 13,184.97 2,223.44 5.93

2020 13,121.76 2,310.17 5.68

2021 13,605.07 2,907.05 4.68

2022 14,065.50 3,615.80 3.89

Formula:-

Inventory Turnover Ratio = Cost of goods sold

Average inventory

Average Inventory = Opening Inventory + Closing Inventory

2

Analysis :-

The above table shows the inventory turnover ratio.

In the five years of comparison, the inventory turnover ratio has been gradually decreased.

In the year 2018 it was 5.61 times, and in the year 2022 it decreased up to 3.89 times.

Graph 4.2.2:
Graph Showing Inventory Turnover Ratio

Inventory Turnover Ratio (in times)

140

120
Inventory Turnover Ratio

100

80

60

40

20

0
2018 2019 2020 2021 2022
YEARS
Interpretation:-

From the shown graph, there was decrease in inventory turnover ratio from the year 2019.

This shows less volume of sales. As inventory turnover ratio decreases the sales also
decreases gradually. These outcomes shown not so good situation of the company. This is not
a good sign for the company.

Table 4.2.3: -
Table Showing Inventory Conversion Period (in days):-

Years No. of days in a Inventory Inventory Conversion

year Turnover Ratio Period (in days)
(times)

2018 365 5.61 65

2019 365 5.93 62

2020 365 5.68 64

2021 365 4.68 78

2022 365 3.89 94

Formula:-

Inventory Conversion Period = No. of Days in a Year

Inventory Turnover Ratio
Analysis :
The above table shows the duration of inventory conversion to finished goods.
In the year 2018 and 2020 it was taking 65 - 64 days.
In 2019 it was 62 days.
In 2021 it was 78 days.
And in last year it is increased to 94 days.
 Graph 4.2.3
Graph Showing Inventory Conversion Period (in days):-

Inventory changes (%)

140

120

100

80
DAYS

60

40

20

0
2018 2019 2020 2021 2022
YEAR

Interpretation:
The above graph shows the number of days for conversion of raw materials.
The duration of the inventory conversion is not constant in all the years which means
the sales is also not constant. The company should make an effort to reduce the
number of days of inventory conversion period.
4.3 PROCEDURE OF ACCOUNTS PAYABLE :-

1) Request

2) Quotation

3) Negotiation/ Approval

4) Purchase order

5) Invoice

6) GRN

7) Posting

8) Payment release
4.3.1 CHECKLIST FOR ACCOUNTS PAYABLE :-

Invoice Checklist

Service Supply Capex

PAN - PAN

SAC Code HSN code SAC /HSN code

GST No. GST No. GST No.

Account Assignment Account Assignment Account Assignment

GST rate amount on invoice GST rate amount on invoice GST rate amount on invoice
& PO & PO & PO

PO No./ PO Date & Invoice PO No./ PO Date & Invoice PO No./ PO Date & Invoice
Date Date Date

Material description, Material description, Material description,

Quantity, Rate Quantity, Rate Quantity, Rate

Supporting Documents - -

User department head sign User department head sign User department head sign

JOURNAL ENTRIES PASSED IN BACKGROUND :-

A) Receiving in SAP (MIGO) :-

a) RMPM Inventory A/C......Dr.

To GR/IR A/C

b) Purchase RM A/C .........Dr.

To Purchase Offset A/c
 c) SGST A/c .............. Dr.
CGST A/c ............. Dr.
To GST Clearing A/c

4.4 MATERIAL BALANCING:-

Material balancing means actual stock (physical Stock) compare

with system (SAP) stock. To check that there is proper usage of material is done or not. It
helps to the company to reduce wastage or pilferage, as well as increase production
efficiency. If there is any difference between actual stock and physical stock company can
find the reason as well as responsible person. Whatever variance occurred will be consumed
by the system i.e. record it in the profit & loss A/c. Because of this at the end of the year there
is not big impact on the profit. The material balancing is done on weekly basis (internally
done by the finance executives) as well as at the end of the month (done by the external
auditor).
4.5 TREATMENT OF SCRAP (WASTAGE) :-

Scrap is a left over or residue after a product has been

manufactured. The remnant of material resulting after producing the product is scrap.
Faulty and wrong product designing, substandard or unsuitable raw material,
abnormal machine operation etc are main causes of scraps. Scrap includes bran,
broken wheat, black seeds, stones, plastic bags etc.

Scrap sale accounting entry: -

The above image shows the data entry view of the scrap sale in SAP in
which data entry operator needs to mention information like document number, company
code, document date, posting date, currency etc.

Also, they need to enter the amount, description of the wastages, business area etc.
4.6 ABC Analysis OF Raw Material (Noodles) :-

Table 4.6.1
Table Showing Summary of ABC Analysis of Raw Material:

Category No. Of % Of Items Range Of Annual Usage Total Annual % Of Annual

Items Usage Usage

A 50 18% Above 45,000 93,45,722 80%

B 80 28% Between 10,000 – 44,000 17,31,195 15%

C 153 54% Below 10,000 5,44,010 5%

283

Analysis: -

The above table shows summary of ABC Analysis.

There are 50 items of A category and their annual usage is ₹ 93,45,722.

In B category there are 80 items which has annual usage of ₹ 17,35,195.

And in C category there are 153 items which has annual usage of ₹ 5,44,010
 Pie Chart 4.6.1
Pie Chart Showing ABC analysis of Raw materials

ABC Analysis

A
18%

C
54%
B
28%

Interpretation: -

The above pie chart summary of ABC Analysis.

In A category item 18% of the item’s accounts for 80% of the annual consumption value of
the items.

In B category item 28% of the item’s accounts for 15% of the annual consumption value of
the items.

In C category item 54% of the item’s accounts for 5% of the annual consumption value of the
items.