a project report on effectiveness of inventory management and its cost control at birla hindal-co
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To examine the effectiveness of inventory management and its cost control at Hindal co
TABLE OF CONTENTS:
SL. NO.
CHAPTERS PAGE NO.
1. Introduction 1 – 6
2. Company Profile 7 – 36
3. Inventory Analysis 37 – 54
4. Inventory Ratio Analysis 55 – 73
5. Inventory Practices at Hindalco Industries Ltd. 74 – 78
6. Findings & Suggestion 79 - 82
Conclusion
Bibliography
Annexure
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Introduction to Inventory Management
Importance of Inventory Management
Objectives of the Study
Scope of study
Sources of data
Tools used
Limitations of study
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INVENTORY MANAGEMENT CONCEPT:
Introduction: Inventory Management is very important area of production management
and plays a vital role in the economic operations of a concern. It has been defined a
variety of ways and most of the definition stress the importance of control element in
achieving cost effectiveness. Irrespective of the range of particular discipline which may
have to be applied within the functional fields in meeting the needs of individuals
situation.
According to Prichard and Eagle, inventory management can be defined as “the
sum total of those activities necessary for their aquition storage, sales, disposal or use of
inventory.
Inventory management, impact is an integral part of production, planning and
control which, according to Charles A. Kepke, may be defined as the co-ordination of
series of function according to a plan which will economically utilize plant, facilities and
regulate the orderly movement of goods through their entire manufacturing cycle, from
procurement of all materials to the shipping of finished goods at pre-determined rate. The
scope of inventory management is not restricted to technique of regulating the movement
of inventories and it rather converts the entire range of functions, which affects the flow,
conversion, quality and cost of inventories.
It can be inferred from the above definitions of inventory management that there
are two guiding principles in inventory management.
Adequate inventory has to be maintained to avoid the stock out and causing
consequent production held up and the customer’s dissatisfaction
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Excessive investment in inventory items must be avoided as it increases the
carrying and results in loss of profit.
In view of these principles it may be inferred that for manufacturing
concern, inventory management is the significant aspect of production and
financial planning and control.
IMPORTANCE OF INVENTORY MANAGEMENT:-Investment in inventory normally accounts for about 1/3 value of the total assets
and for an average manufacturing concern, cost of inventory represents about one half of
the product cost. Because inventory constitutes such a significant part of product cost 7
since the cost is controllable, proper planning, purchasing, handling, accounting and
control of inventories is of great significance.
Inventory management is now great significance in a view of imperative need for
productivity growth. Optimal utilization of all available resources and avoidance of all
types of waste especially in case of raw materials is required for an ambitious
programmer of economic growth.
The importance of inventory management lies in the fact that many significant
effort for the reducing the materials cost will go along way in improving the profitability
and rate return on investment.
Following are the benefits of optimum inventory management:
It provides a check against the loss of materials through carelessness or pilferage.
Inventory management ensures an adequate supply of materials, stores, spares etc.
Minimizes the stock out and shortages an avoids a costly interruption in
operations.
It reduce length of manufacturing cycle to the minimum.
It enables the management make cost and consumption between operations and
periods.
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OBJECTIVES OF THE STUDIES: The major objective of the study is to examine the effectiveness of inventory
management and its cost control.
Some of the other objectives of the studies are:
To study the working of Hindalco Industry Ltd., Belgaum
To study the inventory management based on the ratios
To study the inventory management and its effective control through various
techniques.
SCOPE OF THE STUDY :-Inventory management being a very important concept in all the company’s
having a void coverage often calls for the managerial attention. In the modern times
inventory management has become the integral part of the all companies. So all the firm
give special importance for inventory management. The major objective of the study is to
examine the effectiveness of inventory management system adopted by Hindalco
Industry Ltd., Belgaum. The study mainly focuses on the techniques used by this
company to control the inventory. The study also covers other areas like the financial
ratios for the period of 2001 to 2006.
SOURCES OF DATA:-Sources of Data can be understood as the sources of the means from which the
information is collected. Data originally collected in the process of the investigation are
known as the primary data, those collected by the other persons is known as the
secondary data.
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The sources from which the original investigation is known as the primary
sources. On the other hand the sources did itself collected the data but took from other
primary source is known as the secondary data. The information for this project is
collected from both primary and the secondary sources.
The information is collected from the secondary sources like internet,
annual records, so these are the main sources of data from which the information is
collected for the preparation of this project.
TOOLS USED:Inventory turn over ratio: it indicates the number of times obtained by
dividing the cost of sales by the average sales.
Where,
Inventory turn over ratio = Cost of goods sold divided by average inventory.
Cost of goods sold = Sales – Gross Profit
Inventory conversion period.
This ratio indicates number of days taken to convert the inventory.
Where,
Inventory conversion period = 365 /inventory turn over ratio
Duration of Raw Materials Stage: This indicates the number of days taken for
the production unit to convert the raw materials to finish goods.
Where,
Duration of raw materials = average raw materials . Average raw materials consumed per day
Raw Material Turn over Ratio:
This ratio indicates may help in determining stock holding policy in respect of
raw materials. It is also helpful in finding out the consumption pattern of raw materials.
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Where,
raw material turn over ratio = Cost of goods sold
Average raw material
Raw material consumed = Opening stock of materials+purchases–closing
stock of materials
Average Raw materials = Opening stock + closing stock
2
Inventory to current assets ratio.
This ratio express the relation between the stock and the current assets. It
lights as how much amounts per rupee of current assets are represent by stock.
Where,
Inventory to current assets = Inventory
Current assets
Inventory to Capital Employed Ratio:
This ratio indicates how much capital utilized to invest in inventories other
than the other assets,
Where,
Inventory to capital employed = Inventory
Total Capital Employed
Inventory to Total Asset Ratio:
This ratio indicates the significance of this ratio is it reflects the portion
inventory as percentage of total assets, which helps the management utilization of
remaining resources profitability.
Where,
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Inventory Total assets = Inventory
Total Assets
Limitations of the Study:
The collection of information and methods are mentioned above are subject to
variation from time to time the project duration of 60 days only to inventory
management.
One limitation which could be mention here is, as there are some techniques of
cost control.
It was not possible to collect information regarding the some techniques
used the company. But important techniques were considered for the
study.
Data regarding inventory cost control is not available for this study
Only five years data is used for the analysis of the study .
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HINDALCO INDUSTRIES
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Hindalco Industries Limited, a flagship company of the Aditya Birla Group, is structured
into two strategic businesses — aluminium and copper — and is an industry leader in
both segments. A non-ferrous metals powerhouse, close to global scale, it ranks among
India's top 10 companies in terms of market capitalization.
Hindalco commenced its operations in 1962 with an aluminium facility at
Renukoot in eastern Uttar Pradesh. Over the years, it grew into the largest integrated
aluminium manufacturer in the country. With an eye to build size and scale, Hindalco
acquired in FY 2000 a majority stake in Indian Aluminium Company Limited (Indal) -
having a major presence in downstream aluminum products and a leader in special
alumina from Alcan of Canada.
In August 2004, the boards of Hindalco and Indal approved a Scheme of
Arrangement wherein all the assets of Indal other than the foil unit at Kollur in Andhra
Pradesh were to be demerged into Hindalco. This has come into effect retrospectively
from 1 April 2004.
Hindalco is Asia's largest primary producer of aluminium, and among the most
cost-efficient producers globally. In India, Hindalco enjoys a leadership position in
primary aluminium and downstream products. Smelters are located at Hirakud, Orissa,
with a captive power plant and coal mines, and at Alupuram, Kerala. Rolled product
manufacturing facilities are located at Belur and Taloja and an extrusion plant at
Alupuram.
The company's R&D centers are located at Belgaum, Renukoot and Taloja. The
government of India’s Department of Scientific and Industrial Research (DSIR) has
recognized these. Hindalco's units are ISO 9001 and 14001 certified, while several have
also attained the OHSAS 18001 - the occupational health and safety certification. On the
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export front, the company has been accorded a 'Trading House' status by the Indian
government.
As a member of the Aditya Birla Group, Indal is a part of a $6 billion corporation,
with a market cap of $5 billion. The Group’s multi-cultural, multi-lingual workforce of
72,000 employees belongs to 20 different nationalities and its products and services reach
across more than 100 countries. Its flagship companies include Hindalco, Grasim, Indian
Rayon and Indo Gulf.
Indal along with Hindalco and its Copper Division forms a non-ferrous metals
powerhouse of global size and scale, with the Hindalco-Indal combine providing
opportunities for synergy and strong market position.
INDIAN ALUMINIUM COMPANY, LIMITED (INDAL):-(Now part of Hindalco industries)
India’s foremost aluminium producer and a member of the country’s leading business
house – the Aditya Birla Group. A partner to Hindalco, India’s largest aluminium
producer, together forming a non-ferrous metals powerhouse. With technical know-how
acquired from its original promoter, Alcan Aluminium Limited, Canada (now Alcan
Inc.), Indal has brought aluminium to touch every aspect of modern day industry and life
in India.
Complete Capabilities in Aluminium:INDAL's facilities cover a wide range of operations: bauxite mining, alumina refining,
aluminium smelting with captive power generation to downstream rolling of sheet, foil
and other semi fabricated products. With technological expertise of over 60 years of
experience in the aluminium industry in India, INDAL is a market leader in the upstream
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range of standard and Speciality alumina products in India, providing applications for
refractors, ceramics and electrical industries.
In the downstream segment, INDAL is the largest manufacturer of rolled products in
India with the widest range of extrusions, meeting the requirements of different industrial
applications such as building, transportation, consumer durables, packaging and
telecommunication.
Creating and Adding Value:Established in 1938, Indal operates across the value chain from bauxite mining to
alumina refining, smelting and rolling. A nationwide spread of plants, mines and offices
gives Indal the advantage of being in proximity to various regional markets within and
outside the country. The Company’s plants and mines are certified with ISO 9001, ISO
14001 and OHSAS 18001 certifications for quality, environment, safety and health.
Indal enjoys a leading market position in India for Speciality alumina chemicals and
value-added products of aluminium sheet, foil and extrusions.
The Indal units comprise two smelters, one located at Hirakud, Orissa, with a captive
power plant and coal mines, and the other at Alupuram, Kerala, two sheet plants at Belur,
West Bengal, and Taloja, Maharashtra, and an extrusions unit at Alupuram. The
Company's two DSIR recognized R&D centers are located at Belgaum and Taloja.
SUBSIDIARIES & JOINT VENTURES:
Utkal Alumina International Limited (UAIL): The joint venture company is a
subsidiary of Indal, which holds 55% equity, while the balance is held by Alcan Inc. of
Canada. The proposed alumina refinery is to be set up in Doragurha in the Rayagada
district of Orissa, to produce one million tone per annum of alumina, sourcing bauxite
from the rich reserves at Baphlimali, in Rayagada, Orissa.
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Suvas Holdings Private Limited (SHPL): A subsidiary in which Indal holds 51%
equity stake, based on an MOU with Laxmi Organics Industries Limited (LOIL) and
SHPL; with the intent to operate mini hydel power plants in Maharashtra for captive
consumption at the Taloja Sheet and Kalwa Foil Plants. The Power Project is subject to
endorsement of its viability by an ongoing feasibility study.
Some recent milestones:
In April 2005, the company entered into MoUs with the Orissa and Jharkhand
governments for setting up a Greenfield alumina facility and aluminium facility
respectively, in the states.
In August 2004, the boards of Hindalco and Indal approved a scheme of arrangement
in which all assets of Indal other than the foil unit at Kollur in Andhra Pradesh were
to be demerged into Hindalco. This came into effect from 1 April 2004.
In FY 2002, Hindalco acquired the copper business of Indo Gulf Corporation
Limited, a Group company. Over the last two years, with a strategic intent to achieve
vertical integration, the copper business of Hindalco has acquired two captive copper
mines in Australia — Nifty and Mt. Gordon.
In FY 2000, Hindalco acquired a majority stake in Indian Aluminium Company
Limited (Indal), an Alcan Canada Group Company, which had a major presence in
downstream aluminium products and is a leader in Speciality alumina chemicals.
SHARE HOLDERS PATTERN:-
CATEGORY NO. OF
SHAREHOLDERS
PERCENTAGE OF
SHAREHOLDERS
Promoters 53066724 74.62
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UTI & Mutual Funds 3445869 4.85
Bank & Financial
Industries
5538870 7.79
FII’s 768050 1.08
NRI / OBC’S 128174 .18
GDR’S 304658 .43
Corporate’s 1509401 2.12
Individual’s 6145767 8.64
State Govt. 204469 .29
Total 71111982 100
Hindalco Industries Key Products & their Locations:
companykey products and
brandslocations capacities country
Hindalco
Industries
Ltd.
alumina
chemicals
Renukoot (Uttar Pradesh),
Muri (Jharkhand),
Belgaum (Karnataka)
114,5000 tpa India
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primary
aluminium
Renukoot (Uttar Pradesh),
Hirakud (Orissa),
Alupuram (Kerala)
424,000 tpa
extrusions Renukoot,
Alupuram
21,700 tpa
rolled products Belur,
Taloja,
Renukoot
170,000 tpa
wire rods Renukoot,
Alupuram
50,000 tpa
aluminium foil Silvassa
(Dadra & Nagar Haveli),
Kalwa
11,000 tpa
aluminium wheels Silvassa
(Dadra & Nagar Haveli)
300,000 tpa
*Indal
(subsidiary
of
Hindalco)
foil rolling Kollur (Andhra Pradesh) 3,000 tpa India
SOME ACHIVEMENT’S OF HINDALCO AS FACTFILE
India’s largest aluminium producer.
Market share of 48 per cent.
One of the lowest-cost producers of aluminium in the world.
Over 58 per cent of sales in value-added products.
Fully integrated aluminium plant at Renukoot, UP.
Aluminium wheels plant at Silvassa, in Dadra & Nagar Haveli.
Foil plants at Silvassa and Kalwa.
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Foil unit of Indal at Kollur ISO 9001:2000 and 14001 certified .
Alumina refining capacity of 114,5000 tpa.
Aluminium metal producing capacity of 424,000 tpa.
Captive power generation of 887.2 mw.
VISION“To be a premium metals major,
Global in size and reach,
With a passion for excellence”
MISSION“To relentlessly pursue the creation of superior
Shareholder value by exceeding customer
Expectations profitability,
Unleashing employee potential and being a
Responsible corporate citizen adhering to our
Values”
SOCIAL VISION“To actively contribute to the social and economic
Development of the communities in which
We operate and beyond.
In so doing build a better, sustainable
Way of life for the weaker sections of society
And help rise the country’s Human Development Index.”
VALUES
Integrity:
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Honesty in every action.
Commitment:
On the foundation of integrity, doing whatever it takes to deliver, as promised
Passion:
Missionary Zeal, arising out of an emotional engagement with work.
Seamlesssness:
Thinking and working together across functional silos, hierarchy levels business and
geographies.
Speed:
Responding to stakeholders with a sense of urgency.
QUALITY POLICY
We, at Hindalco Industries Limited, are committed to pursue and sustain
excellence through continual improvement in all our activities.
To achieve these goals, we shall:
Meet and exceed the expectations of customers with speed, ensuring reliable
and consistent customer service.
Associate with Suppliers to ensure high quality of inputs through proactive
partnership.
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Improve effectiveness of Quality Management System with emphasis on in-
process control.
Foster teamwork, educate, train, motivate and involve employees in achieving
the Quality Objectives.
Establish viable modernisation of manufacturing facilities and encourage
technological innovations.
Provide value for money and be globally competitive.
ENVIRONMENTAL & ENERGY POLICY
We, at Hindalco Industries Limited – a premier name in Aluminium & Copper,
operating across the process chain form mining to semi-fabricated products – stand
committed to continually strengthen our energy efficiency and environmental
performance in order to achieve Sustainable Development.
To achieve this, we shall
Institutionalise an Energy & Environmental Management System across all
production & operational activities, which can be monitored through periodic
audits.
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Comply with all applicable legislations and go beyond wherever technolo-
economically viable.
Enhance material efficiency, achieve high process/equipment productivity and
adopt pollution prevention practices.
Adopt energy efficient and cleaner technologies; appropriate to the region in
which we operate and in line with our future growth and diversification plans.
Promote use of non-conventional and renewable every, waste heat recovery
and incorporate technological interventions to reduce Green House Gases
(GHG) from our operations.
Reduce open land storage of wastes, and take active measures to promote
industrial recycling and re-use.
Work in partnership with regulatory authorities, relevant suppliers, contractors
and stakeholders to meet the requirements of the policy.
OCCUPATIONAL HEALTH & SAFETY POLICY
We, at Hindalco Industries Limited, value people as our most important resource
and are committed to achieve excellence in health and safety management by providing a
safe and healthy work environment, at all locations.
To achieve these goals, we shall:
Inculcate a sense of responsibility related to occupational health & safety,
amongst all levels of employees.
Use safe and better technology for ensuring and upgrading health and safety
standards.
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Develop, sustain and continually improve safe work practices and standards to
safeguard employees, contractors, community and assets.
Comply with all prevalent statutory and regulatory requirements related to
occupational health and safety.
Promote and enhance safety awareness and consciousness amongst all
employees, through training and development.
Monitor and review health and safety management systems and working
conditions, periodically.
This policy shall be made available to all employees, suppliers, customers, community
and other stakeholders.
CORPORATE SOCIAL RESPONSIBILITY POLICY
We, the employees of Hindalco Industries Limited are committed to realise our
Groups Social vision to actively contribute to the socio-economic development of the
underprivileged communities around us for a better, sustainable way of life and thereby
help raise the country’s Human Development Index.
While adopting the principles of Sustainable Development, we shall strive to
work in partnership with the community, government and other stakeholders.
We shall fulfil our responsibility as a good corporate citizen through a
comprehensive plan, which will focus on:
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Health, Sanitation and Family Welfare.
Primary & Adult Education.
Sustainable Livelihood through income generation, agriculture based
programmes including Watershed Development.
Women’s Empowerment through self-help Groups.
Infrastructural Development & Support.
Expousing Social Causes.
With the overall aim of building long term socio-economic self reliance among the
communities in which we operate.
Strategic ObjectivesThe Company recognizes that the conduct and effectiveness of an organization are
mainly anchored to the quality of its workforce. In order to fulfill its purpose and to
achieve its objectives the company requires commitment and dedication of its employees
who place high value not only in the interest of the company but also in the interest of
other individual entities
The objectives are:
To operate at a level of profitability, which will ensure the long term
economic viability of the company by providing a return on equity, which
compares favorably with other industries of similar capital intensity and risk
which will enable the company to attract adequate to support its growth.
To aspire towards a high level of operating, technical and marketing
excellence, and to make the optimum use of assets, which will ensure a strong
competitive position in the markets served by the company.
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To strive to satisfy customers by integrating there needs into the company
products and services with efficiency and professionalism and to give the best
value to them by promoting quality products.
To improve the process of managing the company affairs through proper
planing, timely implementation of plans and regular performance reviews.
To sustain an organization of able and committed employees and to provide
them with opportunities for growth and advancement.
To foster a culture of innovation with the application of new ideas and
methods to solve business problems and seize opportunities.
To recognize and seek to balance the interest of shareholders, employees,
customers, suppliers, government as well as the public at large.
To uphold the highest standards of integrity in the conduct of all phases of
business.
SECRET OF SUCCESS:
The Board of Directors of Hindalco and Indal in their respective meetings today
have approved a scheme of arrangement between the two Companies, which entails the
demerger of all the businesses of Indal with the exception of the business pertaining to
the foil plant at Kollur, into Hindalco. The scheme of arrangement is subject to necessary
approvals, and will take effect retrospectively from 1 April 2004 when sanctioned by the
courts. According to Mr. Kumar Mangalam Birla, Chairman of the Aditya Birla
Group, “Hindalco owns nearly 97 percent equity in Indal. I believe that the time is
opportune to take this strategic stake to its logical conclusion. We would like to bring the
maximum focus and harness all possible synergies to attain even higher levels of growth
and enhance stakeholder value.”
Over the last four years, both Hindalco and Indal have worked in tandem for the
growth and development of the aluminium sector. Both Hindalco and Indal have posted
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path-breaking results. Such a move would help in leveraging their combined strength
even further said Mr. D. Bhattacharya, Managing Director, and Hindalco.
Future outlookThe company’s business strategy is to ensure profitable growth in the future will
be through: Realization of synergy gain with Hindalco to ensure better market position,
combining Indal’s strengths in Alumina and down stream segments with Hindalco’s
advantage in primary metal.
Higher assets utilization across plant location, particularly leveraging the benefits
of the upgraded rolling mills as well as taking steps to optimize use of idle physical
infrastructure assets and enriched product mix for higher returns from existing assets.
Strengthening of exports with an emphasis on consolidating Indal’s presence in existing
market while tapping new regions for export of value added product viz., especially
alumina and downstream sheet, foil and extrusions. Cost control efforts including better
logistics, higher operating efficiencies and improved working capital management.
Strategic growth plansAll capex plans pertaining to Indal, for which a sum of Rs.2000 crore has been
earmarked, will be undertaken as planned under the aegis of Hindalco.
Among these are:
The expansion of its metal capacity to 100,000 MT per annum,
Its power generating capacity to reach 267.5 MW at Hirakud,
Ramping up the alumina plant at Muri to 500,000 MT per annum and
Enhancing the special alumina chemical capacity to 127,000 MT per annum at
Belgaum.
TAKE A VIEW OF HINDALCO INDUSTRIES BELGAUM.HISTORY OF THE PLANT (Belgaum works)
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The INDAL plant at Belgaum was established in 1968 and started operations on
the 7th November 1970. It is situated about 6 Kms., from Belgaum City, beside the
National Highway. It has a total area of 1400 acres.
This was the only unit of INDAL, which started with both the facilities - Alumina
Plant and Smelter Plant. The main products of this unit are Alumina Hydrate, Calcined
metallurgical grade alumina and Special grades of aluminas and Hydrate. The Alumina
Plant was set up with a capacity of 1,60,000 tons of Alumina per year and Smelter Plant
had a capacity of 73,000 tons of metal per year. Due to the hike in the power rates, the
potlines in the Smelter had to be de-energized in 1995. The subsidiary of Smelter plant –
Carbon Paste and Block Plant is still in operation. Owing to increased demand of hydrate,
aluminas and Speciality chemicals in the export market, the Alumina Plant was expanded
in several stages and currently operates at about 3,40,000 T of Hydrate (as Alumina) per
annum.
The Specials plant – a branch of Alumina plant manufacturing specialty grades of
hydrate and Alumina is being operated at 60 KT per annum. The raw material-Bauxite is
brought from Durgmanwadi Mines 120 Kms from Belgaum. About 70% of the total
production are exported. The Carbon Paste and Block Plant is operated using imported
raw materials (Carbon Pitch Coke) from Korea.
Marketing of Hydrates and Aluminas is a major business objective, both at the
domestic and International Levels. The non-metallurgical grade Aluminas, also termed as
‘Special Alumina Chemicals’, find wide usage in diverse industries such as high-grade
refractors, zeolite, alum, plastics, paper, industrial ceramics and high-tension insulators.
PRODUCTS OF HINDALCO – BELGAUM:CHEMICALS (Aluminium Capacity 14,01,000 TPA)
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The chemicals units comprise bauxite mining at lohardaga (Jharkhand),
Durgmanwadi (Maharashtra), the alumina refineries at Muri (Jharkhand) and Belgaum
(Karnataka), including facilities for specialty grade alumina chemicals.
ALUMINUM
Metal & Power (Metal capacity 1,10,10,000 TPA captive power 67.5 MW) Indal’s
smelters are located at Hirakund (Orissa) & Alupuram (Kerala).
SHEET
Indal’s sheet rolling mills are located at Bellur (West Bengal) and Taloja
(Maharashtra). The continuos caster at Hirakund (Orissa) Provides Comcast coils
for cold rolling at Bellur.
FOIL & PACKAGING
The foil plant is located at Kalwa (Maharashtra) is equipped with the latest
microprocessor based gauge control system to ensure world class rolling of foil and state
of the art converting equipment.
EXTRUSIONS
Indal’s extrusions unit based at Alupuram (Kerala) offers the widest range of
alloys and shapes in India.
PRODUCTS
The main products of Alumina Plant, Special Products & Carbon Paste & Block
Plant are as under:
Aluminium Hydrate
Calcined Alumina
Vanadium Sludge
Various Grades of Alumina & Hydrate produced as Special Products.
Carbon Paste & Blocks.
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SPECIAL PRODUCTS
Alumina can be broadly divided into two types-Metallurgical and Non-
Metallurgical Grades. Metallurgical grade alumina is being used for the production of
aluminium. While Speciality grade hydrate & alumina is used for various other
applications like fusion, grinding media, tiles, refractory, high tech ceramics, filler in
SMC/DMC compound, Alum, Glass etc.
The Belgaum Works is divided into the following Departments:Alumina operations and production
Specials
Alumina R&D
Alumina mechanical
Boiler house
Machine shop
Garage
PPC
CPBP
Civil & pump house
EPD
Alumina electrical E & I
Smelter R&D
Smelter mechanical
Smelter electrical
Smelter sales
GM office
HR
Accounts
Purchase
Traffic
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Stores
Exim
Dispatch
Systems
W.C.M
BRDC
Corporate
In all there are around 777 employees, who include the management, workers
these all are full time enrolled people.
MARKETING
Indal (Now part of Hindalco) has no marketing division at Belgaum works, all of
Indal (now part of Hindalco) units the units work independently, and for the sales and
marketing there are separate centers which co-ordinate with all the units and look into the
sales and marketing of the products. The sales office is in Bangalore, Delhi, and
Hydreabad.
FINANCE (ACCOUNTS DEPARTMENT)
This department handles all financial transactions, costing and billing operations
negotiation process, maintaining and preparing various invoices, payments and receipts
are the to major areas of operation done by this department. In addition taxation cash loan
normal and statuary payments expenses, this section handles advances and other
operations relating to banks.
OPERATIONS
The main operations are based in the CPBP, Alumina and special products. These
departments are the core for the manufacturing of Alumina carbon block, carbon paste
and special products. These departments comprise of smaller departments and each of
these 3 major departments has a department head.
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The majority of the people are working in Alumina, CPBP and Special products
departments, and the work is carried out in shifts.
RESEARCH AND DEVELOPMENT:
INDAL’s (now Hindalco) R&D centers at Belgaum and Taloja are recognized by
the department of Scientific and industrial research (DSIR). The Belgaum R & D center
carries out studies on ores, alumina and specially grades and carries out overseas
assignments in collaboration with ALCAN. The R & D lab has the status of “Center of
Excellence” for predicting organic behavior in refineries. A joint technical development
program with ALCAN is under execution in the field of raw materials. Both the R & D
centers have attained ISO 9001 & 9002 certification, with the Belgaum R&D center
having recently adopted the revised ISO 9001:2000 standard.
Over the last five years, about rupees 560 million has been spent on R &D – a
testimony to INDAL’s commitment towards developing new applications for
alumina/aluminum, optimizing manufacturing process and ensuring environmental
friendliness.
HUMAN RESOURCE DEPARTMENT
Belgaum works has a separate HR Department, which looks into the daily
administration and also into the specific and nitty gritty of the company, it is the bridge
between the production, employees, management and the outside world. This department
is concerned with implementation of the plans, with the welfare of the plant, with the
industrial relations and above all safety and security of the plant and the work force is its
prime concerns. This department looks after the subsidiaries like recruitment selection
training and induction, canteen community development disciplinary actions ESI,
welfare, security, guesthouse medical facility etc.
INTERNATIONAL TRADE DEPARTMENT
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Indal’s alumina, chemicals, sheet, foil, extrusions & carbon products all complete in
export markets, particularly across the Indian Ocean, from East Coast of Africa across the
middle cost, south East Asia and the far east. New market in Europe, U.S.A. China,
Japan & Australia are also being explored.
OTHER VARIOUS DEPARTMENTS:
Commercial Department
Stores Department
Purchase Department
Accounts Department
Dispatch Department
Accounts Department
Other departments are:
Traffic Department
Exports Department
Project Department
EPD Department
Legal Cells
Systems Department
Environment Department
Work Managers Office
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Engineering Department
Production Department: (BAYER’S PROCES)
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ORGANISATION STRUCTURE
Indal’s organization is structured into Strategic Business Units (SBU’s) each responsible
for its own production, technology development and marketing, drawing upon centralized
service functions in Corporate Finance, Human Resource Development, Corporate
Affairs, Planning & Monitoring, Legal, Engineering Projects & Materials Management,
Secretarial & Investor Services and Infocom.
The heads of each business and function along with the Chief Operating Officer
constitute the Management Committee. This Committee formulates strategic plans and
policies to take the business forward and monitors/reviews implementation of the
Company’s Strategic Business Plans.
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ORGANISATION STRUCTURE
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WORLD CLASS MANUFACTURING ACTIVITIES: WCM
WCM is a competitive strategy that aims for shareholder’s value creation enough focus
on sustainable and superior QCEIP performance and other parameters. The objective of
our WCM initiative is to successfully compete with any organization in which every
employee from top to bottom is working towards making that organization the best in its
particular field. It is based on the idea that each person is an expert in his or her own job,
and by synergizing the collective thinking power, creativity and job knowledge of
everyone in the organization, we can accomplish this objective.
One cannot seek cultural change in a business like manner. It is not something that can
be bought or installed like computer software. Developing a culture is like planting a
garden. It takes time. It requires vision, planning and systematic & disciplined
application of skill & effort. We could understand that the task is by no means easy, as
part of the problem is duality of WEM philosophy that stresses both on Instrumental and
the inspirational. The inspirational is essential for sustaining the initial flush of
enthusiasm.
Main Purposes of WCM Workshop are:
Build up the Top Management Will, thus getting a Commitment form them.
To introduce and proliferate the concepts, tools and techniques of World Class
Manufacturing at all levels.
Develop Leads (known as Champions of Change) to further proliferate the WCM
Concepts in plant once the Conference Cum Workshop is over.
Establish a common language amongst the Champions of Change.
Develop a Culture for Excellence involving People, and creating a Mindset for doing
quality work in all that we do, everytime, and all the time.
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WCM (WORLD CLASS MANUFACTURING)
A main aspect of the company, it is moving towards building a WCM unit in the
organization. Below is the WCM model of the company.
ZERO DEFECTS
ZERO LOSSES
ZERO BREAKDOWNS
ZERO POLLUTION
ZERO ACCIDENTS
ZERO CUSTOMER COMPLAINTS
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EIGHT DIMENSIONS:
1. Waste Elimination (MUDA): Waste is anything which customer does not look for or
pay for. Any activity, which is not adding any value to business, is considered as
MUDA.
2. Work Environment (5s): It stands for good house keeping concepts and is
considered the basis for continuous productivity and quality improvements Respect
Standards and cultivates good habits.
The 5s Stands for:
Sorting
Systematic Arrangement
Spick & Span
Serene Atmosphere
Self Discipline
3. Just In Time: The prime goal of just in time is the achievement of Zero Inventories
not just within the confines of a single organization but ultimate through.
4. Equipment Effectiveness / TPM: It is an innovative approach to maintenance that
Optimized Equipment Effectiveness, Minimizes waste promote, Zero Accidents, Zero
Breakdowns & Zero Pollution- through team activities involving all levels of
employees.
5. Customer Driven (Internal & External): This dimension ensures customer delight,
both internal as well as external in enables understanding of customer expectations of
our products / services.
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6. Strategic Quality Management (SQM): It is the process of establishing long-term
quality goals and defining the approach to meet these goals. It is centered on quality
based on the participation of all its members and aiming at long-term success through
customer’s satisfaction and benefits to the members of organization and society.
SQM is developed, implemented and led by the upper management. Here, we
integrate quality into strategic planning.
7. Liaison and Understanding: Liaison is co-ordination/communication between the
two extreme ends, liaison needs proper scheduling to achieve the satisfaction of your
customer liaison and understanding therefore is most essential. The need for liaison
and understanding is to meet the immediate demand of the market.
8. Information, Systems, Technology & Cash Flow: Keeping upto date with
information from various sources the suppliers, customers, competitors, employees
and other stake holders is extremely necessary for managing the business systems for
effective manufacturing, continuous up-gradation of technology and effective cash
flow are the basic requirements and WCM.
AWARDS & RRECOGNISATION
1987: Nathaneal V Davis Alcan Safety Owl for best
Safety performance.
1996: National Award for Energy Conservation (Aluminium Sector) from
ministry of Power, Government of India.
2001: National Energy Conservation Award for Belgaum.
2003: Greentech Gold Award for Environment Management.
2004: Greentech Gold Award for Safety.
MAJOR PLAYERS
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5The Industry is oligopolistic in nature with three players in the sector
National Aluminium Co Ltd. (NALCO), Hindalco Industries Ltd. (HINDALCO), Sharat Aluminium Co Ltd. (SALCO), The Indian Aluminium Co Ltd. (INDAL) & The Madras Aluminium Co Ltd. (MALCO)
INDAL, which is popularly known as Indian Aluminium Co Ltd., is one of the 20th largest public Ltd. Co., in India. Indal engaged in all phases of the Aluminium Industry from bauxite mining through smelting to manufacture of a wide range of finished aluminium product.
CUSTOMERS HUBHYDRATES:
Asian Bentonite, Indonesia, Malaysia, Philippines, Korea Oman Chemicals IOSK Singapore Thai Acids: Bangkok – Thailand Ta-Shain: Taiwan Kel Chemicals: Kenya
ALUMINA: New Co. Ag.Switzerland Hydro Aluminium: Stabckk (Norway) Gerald Metals: Switzerland Glencore AG: Zurich (Switzerland)
CARBON PASTE & BLOCK PLANT: Balco Nalco V.B.C. Ferra Alloys: Andhra Pradesh Iran Ferro Silices: Iran
SWOT Analysis of Hindalco Industries Limited, Belgaum WorksSTRENGTH:
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Integrated Operations from Bauxite Mining, Alumina Refining & Specials.Dominate Player in Domestic Market in Specialty Alumina & Hydrates.Established Export Presence in 30 Countries.Highly Competent, Committed & Skilled Operatives & Technical Personnel.Among the Best in Specific Energy Consumption in Alumina Industry.
WEAKNESS:Non-Global Scale of Operations.High Exposure to Furnace Oil as majors Source of Energy Input.High Cost of State Grid Electrical Energy & Supply interruptions.Higher Cost of Logistics & Inward and Outward Material movement 100% by Road.Alumina Quality More Suited to HSS Technology, which is getting phased out.There is not proper inventory control system.
OPPORTUNITIES:Growing Speciality Alumina & Hydrate Market.Changes In Speciality Market Structure with two Major Global Players Vacating the Market.Growing Metallurgical Alumina Demand.Lower Investment Cost for Brownfield Expansion.They adopts sophisticated software then their company will be increase its profitability
THREATS:Inadequate Bauxite Reserves for operations both at current level & for Expansion.Cyclical Metallurgical Alumina Prices Causing Wide Fluctuations in Profitability.Cyclical & Rising Furnace Oil Prices.Social & Environmental Issues Related to Red Mud Disposal & Storage.
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Inventory Management
Description of Inventory Control
Effective Cost Control Techniques
INVENTORY MANAGEMENT:
In modern competitive one of the burning problem of every business and
industries that of cost control and cost reduction. An all pervasive effort for cost control
and cost reduction is of paramount, importance for survival and growth of every
industrial enterprises. This is why inventory management as a scientific device for
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controlling inventory cost and eliminating wastage, is now regarded as an integral part of
industrial management. Inventory management does not involve any human factor, as it
concerns itself not with men but with inventory.
Meaning of Inventory:
The dictionary meaning of inventory is stock of goods, of a list of goods;
various authors understand the word inventory differently. In accounting language
it may mean stock of initial goods only. In a manufacturing concern, it may
include raw materials; work in process and stores etc. To understand the exact
meaning of the word ‘inventory’ we May study it from the usage side or from the
side point of entry in the operations. Inventory includes the following things.
1. RAW MATERIALS
Raw material form a major input into the organization. They are required
to carry out production activities uninterruptedly. The liquidity 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 our
materials and the government regulations, etc. to affect the stock of raw
materials.
2. WORK IN PROGRESS
The work in progress is that stage of stocks, which are in between the materials
and initial goods. The raw materials enter the process of manufacture but them yet
party in a final shape of initial goods. The quantum of work in progress depends
upon the time taken in the manufacturing process. The greater the time taken in a
manufacturing the more will be the amount of work in progress.
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3. CONSUMABLES:
These are the materials, which are needed to smoothen the process of production.
These materials were not directly enter production but they act as catalysts etc..
Consumables may be classified according to their consumption and criticality.
Generally, consumables stores to not create any supply problem and form a small part
of production costs. They can instances where these materials may account for much
value than the materials. The fuel oil may form a substantial part of cost.
4. FINISHED GOODS
There are the goods, which are ready for the consumers. The stock of initial
goods provides a buffer between production and market. The purpose of maintaining
inventories to ensure proper supply of goods to customers. In some concerns the
production is undertaken on order basis, in these concerns they will not be need for
finished goods the need for finished goods inventory will be more when production is
undertaken in general without waiting for specific orders.
5. SPARES
Spares also form of part of inventory. The consumption pattern from materials,
consumables, finished goods are different from that of spares. The stocking policies
of spares for different from industry to industry. Some industries like transport will
require more space than the other concerns. The costly spare parts like engines,
maintenance spares etc. are not discarded after use, rather they are kept in ready
position for further use. All decisions about spares are based on the financial cost of
inventory on such and the cast that may arise due to their non-availability.
PURPOSE-BENEFITS OF HOLDING INVENTORIES:
Although holding inventories involves blocking of firms funds and the cost of
storage and handling, every business enterprise has to maintain a certain level of
inventories to facilitate uninterrupted production and smooth running of business. In the
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absence of inventories a firm will have to make purchases as soon as it receives orders. It
will mean loss of time and delays in execution of orders, which sometimes may cause
loss of customers and business (stock out). Therefore also needs to maintain inventories
to reduce ordering costs and avail liquidity discounts etc.. Generally speaking, there are
three main purposes or motives of holding inventories.
1. THE TRANSACTION MOTIVE: Which facilitates continuous production and
timely execution of sales orders.
2. THE PRECAUTIONARY MOTIVE : Which necessitates the holding of inventories
for meeting the unpredictable changes in demand and supplies of materials.
3. THE SPECULATIVE MOTIVE: Which induces to keep inventories for taking
advantage of price fluctuations, saving in the ordering costs and quantity discounts etc.
RISK AND COST OF HOLDING INVENTORIES:The holding of inventories involves blocking of a firm’s funds and incurrence of
capital and other costs. It also exposes the firm to certain risks; the various parts risks
involved in holding inventories are as below
1. CAPITAL COSTS
Maintaining of inventories result in blocking of the firm's financial resources.
The firm has therefore to arrange for add both the cases the firm incurs a cost. In the
former case, there is an opportunity cost of investment while in the latter case; the
firm has to interest to the outsiders
2. STORAGE AND HANDLING COSTS
Holding of inventory is also involves costs on storage as well as handling of
materials. The storage costs include the rental of the godown, insurance initial funds
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to meet the cost of inventories. The funds may be arranged from own resources or
from outsider. But in charges etc
3. RISK OF PRICE DECLINE
There is always a risk of reduction in the prices of inventories by the suppliers in
holding inventories. This may be due to increased market supplies, competition or
general depression in the market.
4. RISK OF OBSOLESCENCE
The inventories may become obsolete due to improve technology, changes in
requirements, change in customers taste etc.
5. RISK DETERIORATION IN QUALITY
The quality of the materials may also deteriorate while in the inventories are kept
in stores.
INVENTORY MANAGEMENT:
The investment in inventory is very high in most of the undertakings increased in
a manufacturing wholesale and retail trade. The amount of investment is sometimes more
in inventory than in other assets. In India, a study of 29 major industries has revealed
that the average cost of materials is 64 paise and the cost of labour and overhead is 36
paise in a rupee. In industries like Sugar, the materials cost is as high as 68.75% of the
total cost. About 90% of part of working capital is invested in inventories. It is
necessary for every management to give proper attention to inventory management. The
proper planning of purchasing handling, storing and accounting should form a part of
inventory management. An efficient system of inventory management will determine (a)
what to purchase (b) how much to purchase (c) from where to purchase (d) where to store
etc.
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There are conflicting interests of different departmental heads over the issue of
inventory. The finance manager will try to invest less in inventory because for him it is
an idle investment, whereas production manager will emphasis to acquire more and more
inventories as he does not want any interruption in production due to shortage of
inventory. The purpose of inventory management is to keep the stocks in such that
neither there is over stocking nor under-stocking. The over stocking will mean a
reduction of liquidity and targeting off other production processed: under stocking on the
other hand will result in stoppage of work on the investment in inventory should be kept
in reasonable limits.
OBJECTS OF INVENTORY MANAGEMENT:
The main objectives of inventory management or operational and finances the
operational objectives mean that the materials and the spares should be Honorable in the
sufficient liquidity is so that work is not disrupted for want of infantry. The finance
object means that investments in inventories should be remain idle and minimum
working capital should be locked in it the following are the objectives of inventory
management.
1. To ensure continuous supply of materials spares and finished goods so that production should not suffered at any time and the customers demand should also be met.
2. To avoid both over stocking and under-stocking inventory.
3. To maintain investments in inventory is at the optimum level as required by the operational and sales activities.
4. To keep material cost and control so that they contribute in reducing cost of production and overall costs.
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5. To eliminate duplication in ordering or replenishing stocks. This is possible with the help of centralizing purchases.
6. To minimize losses through deterioration, pilferage, wastages and damages.
7. To design proper organization for inventory management. A clear-cut accountability should be fixed at various levels of the organization.
8. To ensure perpetually inventory control so that materials shown in stock ledgers should be actually lying in the stores.
9. To ensure right quality goods at reasonable prices. Suitable quality standards will ensure property quality of stocks. To the price analysis will ensure payment of proper prices.
10. To facilitate furnishing of data for short-term and the long-term planning and control of inventory.
PURPOSE-BENEFITS OF HOLDING INVENTORIES
Although holding inventories involves blocking of firms funds and the cost of
storage and handling, every business enterprise has to maintain a certain level of
inventories to facilitate uninterrupted production and smooth running of business. In the
absence of inventories a firm will have to make purchases as soon as it receives orders. It
will mean loss of time and delays in execution of orders, which sometimes may cause
loss of customers and business (stock out). Therefore also needs to maintain inventories
to reduce ordering costs and avail liquidity discounts etc.. Generally speaking, there are
three main purposes or motives of holding inventories.
1. THE TRANSACTION MOTIVE: Which facilitates continuous production and
timely execution of sales orders?
2. THE PRECAUTIONARY MOTIVE : Which necessitates the holding of inventories
for meeting the unpredictable changes in demand and supplies of materials.
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3. THE SPECULATIVE MOTIVE: Which induces to keep inventories for taking
advantage of price fluctuations, saving in the ordering costs and quantity discounts etc?
RISK AND COST OF HOLDING INVENTORIES:
The holding of inventories involves blocking of a firm’s funds and incurrence of
capital and other costs. It also exposes the firm to certain risks; the various parts risks
involved in holding inventories are as below
1. CAPITAL COSTS
Maintaining of inventories result in blocking of the firm's financial resources.
The firm has therefore to arrange for add both the cases the firm incurs a cost. In the
former case, there is an opportunity cost of investment while in the latter case; the
firm has to interest to the outsiders
2. STORAGE AND HANDLING COSTS
Holding of inventory is also involves costs on storage as well as handling of
materials. The storage costs include the rental of the godown, insurance initial funds
to meet the cost of inventories. The funds may be arranged from own resources or
from outsider. But in charges etc
3. RISK OF PRICE DECLINE
There is always a risk of reduction in the prices of inventories by the suppliers in
holding inventories. This may be due to increased market supplies, competition or
general depression in the market.
4. RISK OF OBSOLESCENCE
The inventories may become obsolete due to improve technology, changes in
requirements, change in customers taste etc.
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5. RISK DETERIORATION IN QUALITY
The quality of the materials may also deteriorate while in the inventories are kept
in stores.
MATERIALS MANAGEMENT MODULE
Objective: To provide the requisite materials at the right time, Right place and at an optimum cost.
Order Status details Production Plan Bill of materials details Production Cycle Time Procurement Lead time Stage of Material Requirement ROL for Non-Project Materials Part No. Name and Code. Details of Equivalent Part No’s Details of Shelf Life Items Details of items pending inspection Details of insurance claims Details of Dispatch advices Vendor directory and Rating Approval of PC/MPC Concerned CFA Purchase order details Technical Acceptance exists or not Budget Provision Receipt of Materials Issue of Materials Utilization of Customer Store Re-classification details Stock Transfer details Stock Verification Not Advances O/S details BOI Procured Against Indents BOI Utilized Against HAL Fab items
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Production Hold up details Hours planned for subcontract Cumulative loading for sub-contract Details of established sources Bill of Material Utilization Factor (P Factor) Price Catalogue Details Vendor price catalogue and Discount Details Items planned for Indigenization Planned time for completion
INVENTORY CONTROL:
Inventory control includes performing one or more wide various of staff or
administrative functions such as
1. Initiating, developing, installing or administrating a control program.
2. Developing long range material support plans
3. Analyzing, evaluating, revising new inventory management systems.
4. Providing guidance on or conducting surveys of supply and inventory
management function.
Responsibility of inventory specialists:
Controlling and authorizing finding for material so that the proper kind,
quality and quantity is available at the correct time and place.
Maintaining records and controls over material in stock, planned for
distribution system.
They decide upon inventory level
Kinds and fixation of inventory level:
The various levels fixed for effective inventory control are as follows
MINIMUM LEVEL:
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It represents the quantity below which the inventory of any item should not be
allow to fall, in other words an enterprise must maintain minimum quantity of stocks. The
following factors should be considered in order to fix minimum stock level
Reorder level
Lead time
Average rate of consumption of material
Where,
Minimun level =Reordr level-Aerage consumption*lead time
Maximum level
It represents the level beyond, which the stock in hand is not allowed to
exceed .This is because of the cost involved in holding more than required stock.
RE ORDER LEVEL:
When the quantity of materials reaches at a certain figure the fresh order is tended
to get materials again. The order is sent before the materials reaches minimum stock
level. The reordering level or ordering level is fixed at between the minimum level and
maximum level. The rate of consumption, number of days required replacing the stocks
and maximum quantity of materials required on any day are taken into account while
fixing the reordering level. The ordering level is fixed with the following formula.
Re order level = maximum consumption X maximum Re-order period.
MAXIMUM LEVEL:
It is the quantity of materials beyond which the firm should not exceed its stocks
if the quantity exceeds maximum level limit then it will be over stocking. Your firm
should avoid over stocking because it will result in high material costs. Over stocking
will mean blockading of more working capital, more space for storing the materials, more
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wastages of materials and more chances of losses from obsolescence. Maximum stock
level will depend upon the following factors.
1. The availability of capital for the purchase of materials.
2. The maximum requirements of materials at any point of time.
3. The availability of space for storing the materials.
4. The rate of consumption of materials storing lead-time.
5. The cast of maintaining the store.
6. The possibility of fluctuation in prices.
7. The nature of materials. If the materials or perishable in nature then they
cannot miss told for long.
8. Availability of materials. If the materials are available only during
seasons then they will have two bestowed for the rest of the period.
9. Restrictions imposed by the government sometimes government fixes the
maximum quantity of materials, which a concerned can store. The limited
fixed by the government will become the limiting factor and maximum
level cannot be fixed the more than this limit.
10. The possibility of changing in fashions will also affect the maximum level.
Maximum stock level = reordering level + reordering quantity - (minimum
consumption X minimum reordering period)
SAFETY LEVEL:
The consumption rate of materials and lead time don’t remain constant and
therefore to guard against the uncertainty, an extra stock is always maintained which is
known as safety stock.
A safety stock of materials is maintained as insurance against stock depletion due
to increase usage or unusually long delivery times, which cause the stock to fall below
minimum level. The main objective behind keeping safety stock is minimizing stock out
cost.
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INVENTORY CONTROL TECHNIQUES:
Inventory control techniques are employed by the inventory control. Organization
within the frame work of one of the basic inventory model, viz., fixed order quantity
systems or fixed order period system.
Inventory techniques represent the operations aspects of inventory management
and help to realize the objective of inventory management and its control.
Several techniques of inventory control are in use and it depends on the
policy of the firm product, the techniques most commonly used are:
1. Always Better Control (ABC) Classification
2. High, Medium and Low (HML) Classification
3. Vital, Essential and Desirable (VED) Classification
4. Scare, Difficult and Easy to obtain (SDE)
5. Fast moving, Slow moving, and Non moving (FSN)
6. Economic Order Quantity (EOQ)
7. Max – minimum System
8. Two bin System
9. Material Requirement Planning (MRP)
10. Just In Time (JIT)
11. Distribution Logistics (DL)
a) ABC Analysis: It is one the widely used techniques for the control of inventory.
Objective of ABC control is to vary the expenses associated with maintaining appropriate
control according to the potential savings associated with the proper level of such a
control. A may account for more than half the total value usage in the inventory. These
items required very careful management and special careful estimates of future usually
class C items which in total account for only a few percent of the total value of usage
very little effort should be devoted to forecast the requirement of items. The inter mediate
class B items justify a reasonable but routine effort in forecasting demands and managing
inventory.
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b) HML Analysis: Since the total annual usage is considered in case of ABC Analysis,
quite a few items which fall in B category although the unit cost (cost per unit) is quite
high. If controls are exercised on the basis of ABC only, the importance of these items
will be much less than A or B items even though the inventory or transaction of one unit
of these items will mean quite a lot money. Therefore, it is necessary that the unit cost is
also considered in order to find out the importance of items on the basis of unit cost.
Limits of units costs are fixed for high costs items (H), medium costs items (M) and low
cost units (L) and all items are segregated into H, M and L categories depending on there
unit cost.
This analysis is quite useful in deciding the safety stock in relation to the
availability of the material.
c) VED Analysis:
The materials classification on the items is called VED analysis. VED stands for
vita, Essential and Desirable.
Vital items which render the requirement or the whole line operation in the
process totally and immediately inoperative, unsafe and if these items go out of stock or
not readily available, results in losses of whole production of whole period.
E-Essential items which reduce the equipment’s, performance but not render it
inoperative, results or unsafe, non-availability of items may result in temporary loss of
production or dislocation of production work replacement can be done without any
delayed, without affecting the equipment’s performance seriously, temporary repairs
sometime possible.
D-Desirable items which are mostly non –functional and don’t effect the performance of
the equipment.
d) FSN Classification :
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Materials can be classified on the basis of movement as fast moving slow moving
and non moving –FSN according to their consumption patterns. FSN analysis is specially
useful to combat obsolete items whether spare parts, raw material or component. Cut –off
points of three classes are usually in items of number of issues in previous few years
depends on the peculiarities of an individual concern.
e) SDE Analysis:
SDE stands for scarce, difficult and easily available items in the local market.
Scarce items are generally in short supply; usually these are raw material, spare parts and
imported items. Difficult items are not available in local markets, and have to be
produced from for off cities or items for which there are a limited a number of supplies or
items for which quantity suppliers are difficult to get.
The SDE analysis proves to be very useful, in industrial situations where certain
materials are in scare supply, and gives proper guidelines for deciding inventory policies.
f) XYZ Analysis:
For the effective management of stores, the stock can be split as high valued,
middle value or low valued – XYZ classification. This technique helps in identifying the
items, which are being extensively stocked. ‘X’ items are those whose inventory values
are high while ‘Z’ items are those whose values are low. Understandably ‘Y’ items fall in
between these tow categories. XYZ classification may be used in the conjunction for the
better results.
g) Minimum-Maximum Techniques :
The Minimum –maximum system is often used in connation with manual
inventory control system.
The minimum quantities is established in the same way as any re-order point.
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The effectiveness of minimum-maximum system is determined by the method and
precision with which the minimum.
h) Two Bin Technique:
One of the oldest system of inventory control is the two bin system, stock of each
item is separated into two bins.
One bin contains stock, just enough to last from the data a new order is placed
until it is received in inventors.
The other bin contains quantities of stock, enough to satisfy probable demand
during the period of replenishment
i) Material Requirement Planning (MRP):
MRP is a new solution to an old problem having stock of materials a lowers on
hand when heeded without carrying excess inventory.
j) E.O.Q. Model : There are two basic questions relating to inventory management
1. What should be the size of the order
2. At what level should the order be placed.
To answer this question the economic order quantity model is helpful. General
E.O.Q. includes 3 types of costs, that are carrying cost, ordering cost & shortage cost.
GOAL
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i) Just in Time : The management of inventory has become very sophisticated in recent
years. In certain industry the production process it self lends to just in time (J I T)
inventory control. As the name implies, the idea is that the inventories are acquired and
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inserted in the production at the exact time they are needed. This requires efficient
purchasing, very reliable and an efficient purchasing, very reliable and an efficient
inventory handling system. One thing that has made this possible is advent of instant
information through sophisticated computer networks. The coordination of varies
suppliers in an efficient manner is known as supply chain management.
j) Distribution Logistics: An exciting and profit promising way of using systems
logistics in planning and control is the expansion of inventory control to include other
factors. This system is referred to here as distribution logistics. In its advance form. It
treats the entire logistics of business – ranging from sales forecasting through purchasing
and processing materials and inventorying to shipping the finished goods as a single
system.
The goal is usually to optimize the total cost of the system in operation while
furnishing a desire to level of customer service meeting certain constrains such as
financially limited inventory levels.
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Introduction
Ratio Application to Inventories
MEANING OF RATIOS:
Generally speaking a ratio is simply on require expressed in terms of another and those it
is an assessment of one number in relation to the another.
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An analysis of financial statement with the help of ratio may be termed as “ratio
analysis”
In other wards ratio analysis implies the process of computing determining and
presenting the relationship of items and group o items of financial statement.
1) Inventory Turnover Ratio:
Years Cost of Good sold Avg. Inventory Inventory Turn
Ratio
01-02 29219 6094.66 4.79 : 1
02-03 29074 6199.27 4.68 : 1
03-04 28357 5122.71 5.53 : 1
04-05 32015 5977.85 5.35 : 1
05-06 42868 6314.97 6.78 : 1
S. No.
Ratio Formula Interpretation
01 Inventory turnover Ratio
This ratio indicates the speed
Cost of Goods Sold
Average Inventory
The inventory turnover
ratio in the year 2001-
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at which the inventory is
converted into sales which
contributed into sales which
contributed to the profits of
the organization
Cost of goods sold
means sold means,
Average Inventory:
Sales – Gross Profit
Opening St*.+Closing St.
2
02 was 4.79, 2002-03
it was 4.38, but
increased in the year
2003-04 and also
2004-05. In the last
year it was increased
to 6.78. A high ratio is
a profit to the
organization and a low
ratio would be signify
that inventory doesn’t
stays long time.
* St - Stock
GRAPH : 1
GRAPH SHOWING INVENTORY TURNOVER RATIO
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4.79 4.685.53 5.35
6.78
0
1
2
3
4
5
6
7
8
2001-2002 2002-2003 2003-2004 2004-2005 2005-2006
Year
Tim
es
2) INVENTORY CONVERSTION PERIOD:
Table showing the Inventory conversion Period:Year Inventory Conversion Period (in days)
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2001-2002 76days
2002-2003 78days
2003-2004 66days
2004-2005 68days
2005-2006 53days
S.
No.
Ratio Formula Interpretation
01 Inventory Conversion
period. This ratio
indicates the number of
days taken to convert the
inventory. This ratio is
useful deciding
organizations efficiency
and also helps the
organization is knowing
its own efficiency to
improve its financial
area.
365 (days)
Inventory Turnover Ratio
Inventory conversion
period during the
year 2002 was 76
days while it
increased to 78 days
in 2003, and it
decreased to 66 days
in 2004. And it
increased to 68 days
in the year 2005.
And there after it
decreased to 53 days
in 2006.
GRAPH -2
INVENTORY CONVERSTION PERIOD
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76 78
66 68
53
0
10
20
30
40
50
60
70
80
90
2001-2002 2002-2003 2003-2004 2004-2005 2005-2006
Year
Tim
es
3) DURATION OF RAW MATERIAL STAGE:
Table Showing Average Raw Materials and Average Raw Materials Consumed per day and Duration:
Year Average Raw Raw Materials Duration (In
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Materials
(Amount in
Lakhs.)
Consumed Per day
(amount in Lakhs.)days)
2001-2002 3571.22 180.00 19
2002-2003 3436.35 197.99 17
2003-2004 3045.83 214.56 14
2004-2005 3700.91 248.81 15
2005-2006 3636.12 317.26 11
S.
No.
Ratio Formula Interpretation
03 Duration of raw material
stage : The number of days
taken for the production unit
to convert raw material to
finish goods.
Average raw material
Average raw material
Consume per day
The trend of RM Stage
in the 2001 It was 35
days. And Then It is
decreased to 33 days
and than It was
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i) Average raw materials
ii) Average raw materials
consume per day indicate
days for consumption.
Opening St.+ Closing St.
2
increased to 48 days
and against It was
decreased to 36 days
and 25 days in the year
2004-2005.
Division should
concoction decreasing
the Duration of raw
materials Stage since
It Extends period from
creditors and also the
interest cost
GRAPH - 3
DURATION OF RAW MATERIAL STAGE
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4. RAW MATERIAL TURNOVER RATIO
Year Average Raw Materials (Amount in Lakhs)
Raw Materials Turnover Ratio
2001-2002 3571.22 8.18: 1
2002-2003 3436.35 8.46: 1
2003-2004 3045.83 9.31: 1
2004-2005 3700.91 8.65: 1
2005-2006 3636.12 11.78: 1
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S. No.
Ratio Formula Interpretation
04. Raw material Turnover ratio is velocity at which raw material converted into goods ready for sale. If raw material turnover ratio is high then company is efficiency converting into finished goods.
Cost of goods sold :
Average Raw Material
Cost of Goods Sold
Average Raw materials
Sales – Gross Proft
Opening St. + Closing St.
2
Interpretation: Raw material Turnover Ratio in the year 2002 was 8.18:1 times, which is increased to 8.46:1times in the year 2003 and again it increased to 9.31:1 in the year 2004, was decreased to 8.65:1 and again increased to 11.78:1times in the year 2006. It indicates high efficiency to convert the finished goods.
GRAPH - 4
RAW MATERIAL TURNOVER RATIO
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8.18 8.469.31
8.65
11.78
0
2
4
6
8
10
12
14
2001-2002 2002-2003 2003-2004 2004-2005 2005-2006
Year
Tim
es
5. INVENTORY TO CAPITAL EMPLOYED: Meaning: This ratio indicates the relationship between the total capitals
employed and inventories it shows how much capital utilized to invest in the inventories
other than the other assets. The normal manufacturing firms have low ratio of inventory
to total capital employed in the organization.
Year Inventory (in Lakhs)
Total capitalemployed
Percentage
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2001-2002 6518.91 15,000 0.4345%2002-2003 5879.64 16,900 0.3479%2003-2004 4365.79 15,300 0.2853%2004-2005 7589.38 18,800 0.4036%2005-2006 5040.56 19,800 0.2545%
S. No.
Ratio Formula Interpretation
05. The inventory to capital employed ratio: it shows how much capital utilized to invest in the inventories other than the other assets.
Capital Employed
Inventory
Total Capital Employed
Equity Cap. + Preference Cap +Res & Ser + long term borrowings – fixiticious asset
In the year 2002 & 2005 the ratio of Inventory to Total capital employed were very high i.e0.4345 & 0.4036 times, but there after it went decreasing to 0.2545 times during the year 2006.
GRAPH -5
INVENTORY TO CAPITAL EMPLOYED:
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0.4345
0.3479
0.2853
0.4036
0.2545
00.050.10.150.20.250.30.350.40.450.5
2001-2002 2002-2003 2003-2004 2004-2005 2005-2006
Year
In ti
mes
6. INVENTORY TO CURRENT ASSETS RATIO:
Year Inventory (in Lakhs)
Current Assets (in Lakhs) Percentage
2001-2002 6518.91 9893.67 65.88
2002-2003 5879.64 9156.83 64.21
2003-2004 4365.79 7236.12 60.33
2004-2005 7589.38 10073.25 75.34
2005-2006 5040.56 1098.26 55.40
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S.
No.
Ratio Formula Interpretation
06. Inventory to current
asset ratio indicates the
relationship between the
inventory and current
assets. It shows the
percentage of inventory
to current assets, which
helps the organizations
in deciding the current
assets policy, which also
affect the liquidity
position of the
organization.
Inventory
Current Assets
The inventory to
current assets ratio in
the year 2002 was
65.88% and in the year
2003 was decreased to
64.21% and again it
decreased to 60.33 %
in the year 2004 but it
increased of 75.34% in
the year 2005. There
after it was decreased
to 55.40%.
GRAPH – 6
INVENTORY TO CURRENT ASSETS RATIO:
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65.88 64.2160.33
75.34
55.4
0
10
20
30
40
50
60
70
80
2001-2002 2002-2003 2003-2004 2004-2005 2005-2006
Year
In p
erce
ntag
e
7. INVENTORY TO TOTAL ASSETS RATIO :
Year Inventory (in Lakhs)
Total Assets (in Lakhs) Percentage
2001-2002 6518.91 10,000 65.18
2002-2003 5879.64 10,600 55.46
2003-2004 4365.79 11,100 39.33
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2004-2005 7589.38 12,700 59.75
2005-2006 5040.56 15,600 32.31
SL. No.
Ratio Formula Interpretation
07. Inventory to Total Assets indicates the relationship between the Inventory and Total Assets. The Significance of this ratio is it reflects the Portion the Inventory as a percentage of the Total Assets, which helps the management deciding the utilization of remaining resources profitably. Since the inventory will lock up the huge funds and reduces the profitability of the organization.
Total Assets:
Inventory
Total Assets
Fixed Asset + Current Asset
During the year 2002 the rate of inventory to total assets was 65.18% and decreased to a less 55.46% and again it was decreased to 39.33%. It was fluctuating from 59.75and 32.31% during the year 2005 & 2006 respectively.
GRAPH – 7
INVENTORY TO TOTAL ASSETS RATIO
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65.18
55.46
39.33
59.75
32.31
0
10
20
30
40
50
60
70
2001-2002 2002-2003 2003-2004 2004-2005 2005-2006
Year
In p
erce
ntag
e
8. Inventory to Working Capital Ratio
Year Inventory (In lakhs)
Working capital( in lakhs)
Ratio
2001-2002 6518.91 6613.41 0.9852002-2003 5879.64 6273.53 0.9372003-2004 4365.79 4200.55 1.0392004-2005 7589.38 6046.49 1.2552005-2006 5040.56 4279.12 1.177
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S.
No.
Ratio Formula Interpretation
08. This ratio indicate the
relationship between
Inventory to working
capital and it also indicates
the amount to inventory
tied up in the corking
capital And it also shows
the efficiency of Inventory
Management.
Working Capital
Inventory
Working Capital
Current Assets
Current Liability
In the year 2002 it was
0.985 times of the
working capital, in the
year 2003 it was 0.937
times decreased and in
the year 2004 it was
increased to 1.039
times and then
increased in 2005 it
was 1.255. And there
after it is decreased to
1.177 in the year 2006.
GRAPH -8
Inventory to Working Capital Ratio
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0.985 0.9371.039
1.2551.177
0
0.2
0.4
0.6
0.8
1
1.2
1.4
2001-2002 2002-2003 2003-2004 2004-2005 2005-2006
Year
In ti
mes
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AT
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INVENTORY MANAGEMENT
INTRODUCTION:
In Managing inventories the firms objectives should be in consonance with
shareholders wealth maximization principles. To achieve this the firm should determine
the optimum level of inventory. Efficiently controlled inventories make the firm flexible.
In efficient inventory control results in flexibility.
The firm may run-out of stock and some time may file up unnecessary stocks.
This increase the level of investment and makes the firm unprofitable.
The Hindalco Industries Ltd. following are the some techniques used for the
effective cost control of inventory.
ABC Analysis : These important items usually designated as class A may account for
more than half the total value usage in the inventory. These items require very careful
management and special careful estimates of future usually class C items which in total
account for only a few percent of the total value of usage very little effort should be
devoted to forecast the requirement of items. The inter mediate class B items justify a
reasonable but routine effort in forecasting demands and managing inventory.
The ABC approach means of categoring inventory itmes int three class, A, B and
C according to potential amount to be controlled.
A - Items, which are the 15%
B - Items, which are the 20%
C - Items, which are the 65%
S. No. A B C
1 Tyres Shaft Slaver Causing belt
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2. Shells Pump Shafts Loveiay Coupling
These are the items which are classified on the bases of its annual consumption.
These items indicates
A - These are the items indicates consumption is slow.
B - These are the items indicates mediate consumption
C - These are the items indicates high consumption
F. S. N. CLASSIFICATION:Material can be classified on the basis of movement as fast moving, slow moving
and non moving items such as
Sl. No. F S N
1 Soars, Guage glass
2 Oil and Lubricant C. I. impeller
3 Cylinders Rubber packing
4 Welding rods
V. E. D. CLASSIFICATION:The material’s classification based on the items is called V.E.D. Analysis. V.E.D.
stands for V= Vital, E = Essential, D = Desirable.
Sl. No. V E D
1 Seat Kit Piston ring Casing cover
2 Speed Belt B. Cylinder Pressure plate
Vital items which render the equipment or the whole line operation in the process
totally and immediate in operative, unsafe items go out of stock or not ready available,
results in loses or whole production period.
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E -Essential items which redues the equipments, performance but not render it on
operative results.
D -Desirable items which are mostly non-functional and did not effect the
performance of the equipmen ts.
FIFO AND LIFO CLASSIFICATION: These are the items which are classified on the bases of its range. Fifo indicates
first in first out. Lifo items indicates last in first out.
Sl No. Items
1. Fevicol
2 Paints
3 Lubricant
4 Masks
5 V -Belts
Bin Card Systems:The bin card is the name of the materials and code number give to that particular
items must be written the received consignment of items were written in the balance
column. The Bin Card shows the stock materials of particular itmes.
Specification copy of Bin Card:
Hindalco Ltd.,
Bin Card Hindalco Industry Ltd.
Mat Code No.
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Description Location
Suppliers No. 1, 2, 3
Receipt Issue Balance
Date Qty. Column Qty. Column Doc No.
Total Bin Cards = 30,000
Present Bin Cards = 18,000
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AND
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FINDINGS & CONCLUSIONThis project can be concluded by saying that inventory management and its cost
control is one of the important areas where the companies have to give more importance.
Inventories constitute the large part of the current assets of the company. The
manufacturing companies hold inventories in the form of raw materials, work in process
and the finished goods. There are mainly three motives behinds holding the inventories,
the are;
To facilitate the smooth functioning
To guard against the risk of unpredictable changes in the usage rate and delivery
period.
Take the advantage of price fluctuation.
The financial analysis in this project helps in identifying the inventory utilization
of its resources and its profitability.
I) INVENTORY TURNOVER RATIO:
Comparative Statement:
Sl Ratio 2001-02 2002-03 2003-04 2004-05 2005-06
I. Inventory Turnover ratio: This ratio indicates the speed at which inventory is converted into salesWhere, Cost of goods sold Inventory
* Cost of goods sold 29219 29074 28357 32015 42868
* Avg. inventory Turnover
Ratio 6094.66 6199.27 5122.71 5977.35 6314.97
* Inventory Turnover Ratio 4.79 4.68 5.53 5.35 6.78
Interpretation : The inventory turnover ratio in the year 2001-02 was 4.79, 2002-03 it
was 4.38, but increased in the year 2003-04 and also 2004-05. In the last year it was
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increased to 6.78. A high ratio is a profit to the organization and a low ratio would be
signify that inventory doesn’t stays long time.
II) INVENTORY TO CAPITAL EMPLOYED:
Comparative Statement:
Sl. Ratio 2001-02 2002-03 2003-04 2004-05 2005-2006
I Inventory to capital Employed Ratio:
It indicates how much capital utilized to invest in the inventories than the other assets
Where,
Inv. Capital Employed = Inventory . Total Capital Employed
* Inventory 6508.91 5879.64 4365.79 7589.38 5040.56
* Total Capital Employed 150 169 153 188 198
* Percentage 43.45% 34.79% 28.53% 40.36% 25.45
Interpretation: In the year 2002 & 2005 the ratio of Inventory to Total capital employed
were very high i.e0.4345 & 0.4036 times, but there after it went decreasing to 0.2545
times during the year 2006.
In the last year decreased to 25.45%, it indicates not satisfactory to the company.
The company is not utilized all the capital employed properly.
III) INVENTORY TO TOTAL ASSETS RATIO:
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Comparative Statement:
Sl. Ratio 2001-02 2002-03 2003-04 2004-05 2005-2006
I Inventory to the total assets ratio: It indicates significance of this ratio is it reflects the portion the inventory as percentage of total assets Where, Inventory Total Assets
* Inventory 6518.91 5879.64 4365.79 7589.38 5040.36
* Total Assets 10.000 10.600 11.100 12.700 15.600
* Percentage 65.18% 55.46% 39.33% 59.75% 32.31%
Interpretation: During the year 2002 the rate of inventory to total assets was 65.18%
and decreased to a less 55.46% and again it was decreased to 39.33%. It was fluctuating
from 59.75 and 32.31% during the year 2005 & 2006 respectively.
IV) A company has been using ABC cost control techniques, but this techniques old
process because an ABC having a old materials kept a long period in a stock.
V) The company is not introduce any IT systems for the reduction of men power and
time consumption.
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SUGGESIONS
After the analysis, suggestion could be as follows.
i) Inventory turnover ratio of Hindalco Industries Ltd., in the year
2005-2006 is satisfied but company should try
Minimize inventory
Keep the level of inventory according to market demand
ii) They have to implement E.R.P. software.
iii) The company should follow the E.O.Q. Model.
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B I B L I O G R P H Y
Financial Management : I. M. Panday
Theory and Practices of : B. K. Mishra
Inventory Management
Production Management : K. Ashwatappa
Web-Site : www.hindalco.com
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