inventory control management 9886649997

Inventory Control Management

EXECUTIVE SUMMARY

Inventory Management offers comprehensive reporting capabilities to keep you on top of inventory

status. Centralized inventory management consolidates inventory information by tracking lot

numbers, on-hand levels and expiration dates, making the re-ordering process more efficient. It also

enables simultaneous tracking and documenting supplies during studies to reduce redundant data

entry and increase workflow efficiency.

Inventory Management System deals with the maintenance of equipments. Inventory Management is

a discipline that encompasses the principles, concepts and techniques for determining what to order,

when to order and how much to order. The right amount of inventory involves the balance between

what is required to service your customers and what is financially practical.

The three primary functions that characterize the occupation are management, coordination, and

control of inventory and systems of inventory management. Management of inventory records and

relevant details is an important area of concern for every organization, whether it is large or small.

And also calls for efficient planning and maintenance.

The research report ties to explain the inventory control management of the company. Its shows the

techniques used by the company for inventory control. Due to the implementation of new

Inventory Management system, the company is able to manage the flow of material utilizing

the people and equipment, coordinating the internal activities and customer demand. Which

provide the information that makes more accurate and timely decisions to manage the plant

operation.

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Chapter 1

Introduction

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Introduction1.1 BACKGROUND OF THE STUDY

An inventory is the stock of idle resources in a firm, it is a useable resources. It is also an idle resource

unless it is managed efficiently and efficiently and effectively. Inventory is the list of goods and

materials held available in stock in the business. Inventory are held in the order to manage and hide

for the customers the fact that manufacture/supply delay is longer that delivery delay and also to ease

the effect Imperfections in the manufacturing process that lower production efficiencies if Production

capacity stands idle for lack of materials.

In organization, inventories can be of various types:

Manufacturing organizations, typically, have inventories of raw materials, components, sub-

assemblies.

In service Organizations such as banks, financial intuitions, hospitals, etc., the inventory

consists of various items to be used in various service operations.

INVENTORY MANAGEMENT

Inventory management deals with adequate supply of a thing to meet the expected demand pattern

subject to budgeting considerations. The effectiveness of the material Management functions and

production function depends to large extent on inventory Management. Inventory turnover is index of

business performance the inventory is maintained by organizations to avoid the stock out of an item.

A stock out is undesirable for manufactures because it halts the productions process. The investment

in inventory constitutes the most significant part of current assets/working capital in cost of the

undertakings. Thus it is very essential to have proper control and management of Inventories. The

purpose of inventory management is to ensure availability of material in sufficient quantity as and

when required and also to minimize investment in inventories.

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DEFINITION OF INVENTORY MANAGEMENT

“It may be defined as the systematic location storage and recording of goods in such a way that

desired degree of service can be made to the operating steps at minimum ultimate cost”.

REASONS FOR MANAGEMENT FOR INVENTORY

1. Time: The time lags present in the supply chain, from supplier to user at every Stage, requires

that you maintain certain amount of inventory to use in the “lead time”.

2. Uncertainty: Inventories are maintained as buffers to meet uncertainties in demand, supply

and movements of goods.

3. Economies of scale: Ideal condition of “one unit at a time at a place where user Needs it,

when he needs it” principle tends to incur lots of cost in terms of Logistics. So Bulk buying,

movement and storing brings in economies of scale, thus inventory.

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1.2 NATURE OF INVENTORY

Raw material:

Raw material form a major input into the organizations. They are required to carry out production

activities uninterruptedly. The quantity of raw materials required will be determined by the rate of

consumptions and the tine for replenishing the suppliers. The factors like the availability of raw

materials and government regulations, etc. to affect the stock of raw materials.

Work-in-progress:

The work-in-progress is that stage of stocks which are in between raw materials and finished goods.

The raw materials enter the process of manufacture but they are yet to attain a final shape of finished

goods. The quantum of work-in-progress depends upon the time taken in the manufacturing process.

The greater time taken in manufacturing, the more will be the amount of work in progress.

Consumables:

This is the materials which are needed to smoothen the process of production. These materials do not

directly enter production but they act as catalysts Etc. Consumables may be classified according to

their consumption and criticality. Generally, consumable stores do not create and supply problem and

form a small part of production cost. There can be instances where these materials may account for

much value than the raw materials.

Finished goods: These are the goods which are ready for the consumers. The stock of finished goods

provides a buffer between production and market. The purpose of maintaining inventory is to ensure

proper supply of goods to customers. In these concerns there will not be a need for finished goods.

The need for finished goods inventory will be more when production is undertaken in general without

waiting for specific orders.

Spares:

Spares also form a part of inventory. The consumption pattern of raw materials consumables, finished

goods are different from that of spares. The stocking policies of spares are different from industry to

industry. Some industries like transport will requires wore spare than the other concerns, the costly

spare parts like engines, maintenance spares etc. are not discarded after use, rather they are kept in

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ready position for further use. All decisions about spare are based on the financial cost of inventory

such spares and the costs that may arise due to their non-availability.

1.3 OBJECTIVES OF INVENTORY MANAGEMENT

The main objectives of inventory management are operational and financial. The operational and

objectives mean that the materials should be available in sufficient quantity so work is not disruptive

foe want of inventory. The financial objective means that investments in inventories should not

remain idle and minimum working capital should be blocked in it. The following are the objectives of

inventory management.

To ensure continuous supply of materials, spares and finished goods so that production should

not suffer at any time and the customers demand should also be met.

To avoid both over-stocking and under-stocking of inventory.

To maintain investments in inventories at the optimum level as required by the operational

and sales activities.

To keep material cost under control so that they contribute in reducing cost of production and

overall costs.

To ensure perpetual inventory control so that materials shown in stock ledgers should be

actually lying in the stores.

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1.4 USES OF INVENTORY MANAGEMENT

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ANTICIPATION INVENTORY:

This is the fundamental use of maintaining the inventory of an item. It is to satisfy the customer

demand, i.e., to ensure that no customers is disappointed by not getting the desired item at any point

of time. Enough inventories of items should exist to meet the expected or anticipated demand of

customers.

DECOUPLING OR WORK IN PROGRESS INVENTORY:

These inventories are at times desirable, as in the case of a machine breakdown; the remaining

machines can continue their operations for some time during which the faulty machine can be

corrected. Such inventories are called decoupling inventories.

SEASONAL INVENTORY:

Festivals are bonanza time for most organizations, before which preparations in the form of proper

inventory of items, has to be made to meet the anticipated heavy demand. Inventories of these items

are stocked by firms before the start of the season. Hence, these inventories are called seasonal

inventories.

SAFETY OR BUFFER STOCK:

To protect against fluctuations of demand and abrupt increases in the time taken by the suppliers to

supply the items, some stock known as the safety or buffer stock is maintained in excess of the

anticipation inventory.

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Chapter 2

Company Profile

Company profile

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2.1 DOMESTIC SCENARIO OF STEEL INDUSTRY

The Indian steel industry have entered into a new development stage from 2005-06, riding high on the resurgent economy and rising demand for steel. Rapid rise in production has resulted in India becoming the 5th largest producer of steel.

It has been estimated by certain major investment houses, such as Credit Suisse that, India’s steel consumption will continue to grow at nearly 16% rate annually, till 2012, fuelled by demand for construction projects worth US$ 1 trillion. The scope for raising the total consumption of steel is huge, given that per capita steel consumption is only 40 kg – compared to 150 kg across the world and 250 kg in China.

The National Steel Policy has envisaged steel production to reach 110 million tonnes by 2019-20. However, based on the assessment of the current ongoing projects, both in Greenfield and Brownfield, Ministry of Steel has projected that the steel capacity in the county is likely to be 124.06 million tonnes by 2011-12. Further, based on the status of MOUs signed by the private producers with the various State Governments, it is expected that India’s steel capacity would be nearly 293 million tonne by 2020.

Production

Steel industry was de-licensed and decontrolled in 1991 & 1992 respectively. Today, India is the 7th largest crude steel producer of steel in the world.

In 2008-09, production of Finished (Carbon) Steel was 59.02 million tonnes.

Production of Pig Iron in 2008-09 was 5.299 Million Tonnes.

Last 5 year's production of pig iron and finished (carbon) steel is given below:

(in million tonnes)

Category 2004-05 2005-06 2006-07 2007-08 2008-09

Pig Iron 3.228 4.695 4.993 5.314 5.289

Finished Carbon Steel 40.055 44.544 55.416 58.233 59.02

(Source: Joint Plant Committee)

Imports of Iron & Steel

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Iron & Steel are freely importable as per the extant policy.

Last five years import of Finished (Carbon) Steel is given below:-

Year Qty. (In Million Tonnes)

2004-2005 2.109

2005-2006 3.850

2006-2007(Partly estimated)

4.436

2007-08 6.581

2008-2009(Partly estimated)

5149

(Source: Joint Plant Committee)

Exports of Iron & Steel

Iron & Steel are freely exportable. Advance Licensing Scheme allows duty free import of raw materials for exports.

Duty Entitlement Pass Book Scheme (DEPB) introduced to facilitate exports. Under this scheme exporters on the basis of notified entitlement rates, are granted due credits which would entitle them to import duty free goods. The DEPB benefit on export of various categories of steel items scheme has been temporarily withdrawn from 27th March 2008, to increase availability in the domestic market.

Exports of finished carbon steel and pig iron during the last five years and the current year is as :

Exports (Qty. in Million Tonnes)

Year Finished (Carbon) Steel Pig Iron

2004-2005 4.381 0.393

2005-2006 4.478 0.440

2006-2007(Prov.estimated)

4.750 0.350

2007-2008 4.627 0.560

2008-2009(Prov.estimated)

3.482 0.350

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2.2 INDIAN STEEL INDUSTRY IN A CHANGING GLOBAL SCENARIO THE steel industry in the world, which was characterised as a sunset industry two decades ago, is experiencing a vast change in scenario. The fast developing Chinese steel industry has far outstripped the world steel giants. United States, Russia and Japan, which were leading steel producers, are no more in a position to claim that position. China, producing less than a million tonnes of steel prior to revolution in 1949, has now become the largest steel producer in the world. During 2005 the global steel production stood at 1132 million tonnes, showing a rise of 6 per cent over the last year. The countries in South America, CIS (former Soviet Union) Europe and North America have actually shown negative growth. The Asian continent for the first time produced more crude steel than the rest of the world combined. Major shift has taken place because during 2005 with China producing 349 million tonnes of steel, accounting for 32 per cent of the world steel production. During 2005, Chinese steel production increased by 69 million tonnes i.e. by 25 per cent. Chinese steel output was more than three times that of Japan and four times of USA during 2005. Per capita consumption of steel in the world was estimated to be 170 kg during the year 2005. However in India it stood at only 35 kg during the same year. Indian steel production was 38 million tonnes, which accounted for only 3.4 per cent of the world steel output. In view of the fact that Indian population is 16 per cent of the global population, the production of steel is much lower in India. Although India is the second largest populated country in the world, it ranks eighth in steel production. Steel Authority of India Ltd (SAIL) is ranking 17th among the world’s largest steel producing companies. With stiff competition in the global market, the formation of giant companies to reduce cost and add to profitability has become the regular feature in the industry. Merger and acquisitions have become the order of the day. The recent attempt of the Mittal Steel to acquire Arcelor, a Luxemburg based European company, if succeeds, will make Mittal Steel produce over 110 million tonnes of steel per year, i.e. about 10 per cent of the global steel output. LOW CONSUMPTION OF STEEL India has extremely low level of consumption of steel and the government of India has not made attempts to promote use of more indigenously produced steel. For example, in construction of a house even today more wood is being used than steel which is resulting in cutting down of our valuable forest wealth. The per capita consumption of steel in rural India is a mere 3 kg. The wrong thrust given on export of steel has also resulted in the utter neglect of developing rural market for steel. The government of India adopted a wrong policy of drastic reduction of manpower on the plea of making the steel industry competitive. Voluntary Retirement Scheme (VRS) was

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recklessly implemented which resulted in large number of skilled workers leaving the steel plants. The management resorted to outsourcing of permanent and perennial nature of jobs by giving large number of jobs to contractors violating the solemn commitment given in the National Wage Agreements. As a matter of fact, the VRS route was not to reduce the surplus manpower in the industry but only a ploy to convert regular jobs into contractual jobs.

2.3 PROFILE OF THE COMPANY

1. GENERAL PROFILE :

1.1 Name of the company : M/S.BAJRANGBALI ALLOYS (P) LTD.(ICON STEEL)

1.2 Constitution : Private Limited Company

1.3 Date of incorporation : 3.9.1993

1.4 Sector (Public / Private / Jt.) : Private to be converted to limited company

1.5 Group / House : ICON

1.6 Nature of industry / activity : Manufacture & trading of iron & steel products. The unit makes Steel ingots, iron rods, angles, flats etc for construction industry and pig iron for steel and foundry sector

1.7 Main management personnel Mr. Dindayal Agarwal

1.8 Location :

Regd. Office : MALGODOWN , CUTTACK-753 003

Controlling Office : -Do-

Registered office

Factory (Existing) : NH-5, Manguli Chhack, Choudwar, Cuttack – 754025.

Factory (Under Progress)Suniamohan, Khuntuni, Cuttack.

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2.4 BRIEF HISTORY AND ACHIEVEMENT Bajrangbali Alloys Private Limited was formed on 3.9.1993 to set up a steels casting and rolling mill with the list of promoter directors as given below:

1. Mr. Rajendra Prasad Agarwal. 2. Mr. Dindayal Agarwal.

The Company started commercial production on 2.01.95 in the ingot division. Initially one induction furnace was installed and the unit was manufacturing 3” X 4” X 4’6” size M.S. ingot for the rolling mill sector. One more induction furnace was installed in the year 1997 with the own fund of the promoters/directors.

The company set their own rolling mill section for C.T.D. bar on 9.10.98 The products of the company conform to B.I.S. specification under IS 1786:1985 having license no. CM/L – 513605. The company was also certified as an ISO-9000:2000 Version Company.

The unit has a present production capacity of 18000 M.T. of M.S. ingots and 20000 M.T. of C.T.D, M.S rods on single two shifts basis. With the installation of new rolling mill the capacity has increased by 9800 M.T. to 20000 M.T. from Sept 2006. The capacity utilization has increased from 65.54% in 03-04 to the present level of 93% after availability of adequate working capital. The company has streamlined the ingot division to run the two induction furnace simultaneously which has increased the capacity from 10800 M.T to 18000 M.T. in three shifts. With the installation of new rolling mill the capacity has increased by 20000 M.T. from November 06-07. The capacity is expected to reach 40,000 M.T per annum on double shifts operation. The installed capacity of the proposed induction furnace unit is 24000 M.T. per annum on three shift basis.

The company received various awards from central and state government. The lists are as follows:

1. Special Recognition Award from DCSSI in the year 2000.2. Dhatu Ratna Award in the year 2002 from All India Induction Furnace

Association.3. Rashtriya Udyog Award in the year 2002 from International Integration & Growth

Society.4. Rashtriya Udyog Ratan Award in the year 2002 from Indian Society for Industry

& Intellectual Development Society.

The company is also involved in various community services in the state and sponsors various health camps, blood donation camp. The company also organizing talent hunts competition among school and college students.

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2.5 ESTABLISHMENT

The company has a huge production base at Manguli. The two divisions of the unit e.g. Ingot Division & Rolling Mill Divisions are housed inside the same premises of around 8 acres. However for management purpose these two divisions are separated by boundary wall. The existing infrastructure and staff strength is sufficient for the enhanced capacity. The cost of labour is based on the output and it is under labour contract. The technical manpower with the company is adequate for quality control and maintain production schedule.

The Induction Furnace and MBF –( Micro Blast furnace) project is coming up at a separate location since the present location is just besides a National Highway and the minimum distance of 500 m between the road and the blast furnace is not available at the present location. The area of the plot is 0.67 acres for Induction furnace and 9.3 acres for the MBF plant. The location is beside an existing sponge iron plant. The location is connected by an all weather road and the 33 KV line is also passing nearby. The location is also connected to N.H. 42 on which number of steel plant are coming up. The majority of the infrastructure is being developed in a planned manner at the location. The company at present operates through labour contractor as per the norms of the steels industry. The same source will be utilized for arranging skilled labour. The supervisory staff will be appointed as and when required and they can be accommodated at Choudwer where the entire infrastructure is available.

2.6 BUSINESS

The demand for steel is on an upward swing for the last four-five years and is expected to continue for the next 7-8 years. The price of the finished product also showed an increasing trend in early part of 05-06 thereafter the price has stabilized. Along with the stabilization of finished product the prices of the raw material has also stabilized. The increase in capacity utilization will cut down the unit production cost and increase the viability of the unit.

The company proposes to set up the MBF project due to the inherent advantages of the project.

1) The process is cost effective and the total budget for setting up the plant is within the investment capacity of the promoters

2) The process uses low grade of iron grades of iron ore (58% of iron) for which the availability is plenty. The sponge iron uses high grade of iron ore (above 62%) , however, MBF process uses low grade of iron grades of iron ore which has a lower off take and lower price.

3) The plant will also use sintering plant which will utilize iron ore powder, which is rich in iron content but available at a lower cost, powder generated at the size reduction mill and factory sweeping for making iron ore briquette.

4) The rated capacity of the MBF plant is 66,000 M.T. and that of the Sintering plant is 60,000 M.T.

5) The waste heat from the blast furnace will be utilised for briquette in the Sintered plant.

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The company opted for the technology from CIMM Group of China; The Chinese group has taken over this project on turnkey basis, which will be ready for commissioning by end this year. With the installation of MBF the company will be able to convert low quality iron ore to high value rolled products. The present consumption of pig iron in the induction furnace is low due to cost consideration. With the installation of own plant the company will have the option of using the sweeping and other casting parts of cast iron molding section (Cast iron Scrap) for its ingot production which will reduce the cost of ingot production and will enable the company to increase its cast iron percentage for ingot production since the costing with Cast iron Scrap is cost effective.

Sr. No.

Facility Licensed Capacity

Installed Capacity

Operating Capacity

1. Billets (Ingot) 55,000 MTPA 42,000 MTPA

(In three Shifts)

42,000 MTPA

(In three Shifts)

2. CTD Bars 55,000 MTPA 40,000 MTPA

(In two Shifts)

40,000 MTPA

(In two Shifts)

3. Pig Iron 66,000 MTPA 66,000 MTPA

(In three Shifts

56,000 MTPA

(In three Shifts)

2.7 PROSPECT OF THE COMPANY

The company is manufacturing construction steel like rods, flats and plates which find extensive use in house building for all section of people. Over the recent years there are huge investment in the household construction section due to the availability of easy, long term finance from bank and housing finance institutions at very competitive rate of interest. The availability of easy finance coupled with economic development; the demand in housing sector for various types of steel products is increasing every day. The Company Intends to market its products through the distribution channel already in place due to 35 years of experience in the steel market of the Directors. The Company has already appointed 102 dealers in the state and 5 nos. in West Bengal, 25 nos. in Bihar, 40 nos. in Up and 12 nos. in A.P. and proposes to market the additional capacity through this existing marketing network.. The company also proposes to appoint 4 sales executives to look after the institutional sale of the products. The overall sales will be under one of the directors for and high value sales will be directly under him. The pig iron will be sold to the mini-steel plants in Orissa, West Bengal, Chhattisgarh, Jharkhand and northern Andhra Pradesh. Since there is a huge demand forecasted for long products on

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account of widening of National Highways, State Highways, Other District Roads (ODR), expansion of railways, etc. Construction of sky roads, sea link project etc, the selling of CTD bars would not be a problem. Furthermore there also exists a huge demand for the product in the housing sector, which is in boom now.

Chapter 3

Research Methodology

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Research Methodology

3.1 STATEMENT OF PROBLEM

Working capital management is a significant aspect in the management of finance of any

organization checking the level of working capital can help easily identify and profitability

position of the firm; and the decisions regarding

a. The level of working capital ,which can be determined ,by the level of current assets

and liabilities

b. The composition of current assets and liabilities

c. Financing of current assets and liabilities are most important and significance in the

financial efficiency of business and also its credit worthiness, which has gained

importance in these days of credit squeeze this fact, has been justified by many

industries, which have failed frequently due to faulty management of working

capital.

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3.2 OBJECTIVES OF THE STUDY

a. To study the pattern and products procedure followed regarding working capital

management in Icon Steel with special reference to ratio analysis.

b. To study the working capital needs of ICON STEEL. To offer suggestions for

improving the working capital management in ICON STEEL.

c. To study the system of

1. management of cash

2. management of accounts receivables and

3. Management of inventories in Icon Steel.

3.3 SCOPE OF THE STUDY

Working capital management includes management of both current assets and current

liabilities .as the time available is limited and the subject is very vital the study is confined to

only the management of current assets.

3.4 METHODOLGY OF STUDY

The methodology that has been adopted while collecting the information and interpretation in

a meaningful way has been to collect information both from primary and secondary sources

viz,

Through the verbal discussions which were held with finance and other department

Through the various books of various authors on the subject of financial management

Through the calculations of various ratio and its comparison with previous year.

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3.5 TOOLS FOR THE COLLECTION OF DATA

Data had been collected from two sources one from report published by Icon Steel and

information has been collected from the executives & library of Icon Steel.

FIELD WORK

Several visits were made to collect the required data from Icon Steel and they extended their

full cooperation in getting information required.

PLAN OF ANALYSIS

Ratio analysis, percentage analyses were for analyzing the data.

3.6 LIMITATION OF THE STUDY

The study is concerned only on one particular topic

The study is purely conducted upon the data which is available as per financial

statement of the company and references drawn and theoretical conclusions arrived at

are based on the basis of information provided by the company.

The period of study was very less as the company could provide the information up to

the year 2007-08 and not for 2008-09 which is in process.

The study contains the data up to the year 2008-09.

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Chapter 4

Data analysis

And

Interpretation

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DATA ANALYSIS AND INTERPRETATION

The investment in inventories constitutes the most significant part of current assets/working

capital in most of the undertakings. Thus, it is very essential to have proper control and

management of inventories. Inventories have been analyzed here through stock turnover ratio

and trend analysis from primary data and secondary data

4.1SIZE OF INVENTORY

Inventory means stock of goods. It covers the stock of raw materials, stores and spares,

work in progress and finished goods.

Table No. 1.1

The below table shows the progressive base year percentage growth of inventory for the

period 2006-09

Rs. in CroresYear Inventory Growth of inventory

2006-2007 34.1214 34.53%

2007-2008 35.0855 35.50%

2008-2009 29.6012 29.95%

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Percentage growth of total inventory = Inventory x 100

Total Inventory

ANALYSIS

The above table shows the percentage growth of inventory. Year 2006-07 is taken as the base

year 30.04%. In 2007-08 it is 30.88%. There is slight increase in the year. In 2008-09 it is

30.87%. There is decrease in the current years.

INTERPRETATION

The position of inventory and its percentage growth were in increasing stage but during

2006-07 it was in decreasing stage but in year 2007-08 both inventory and percentage

growth are in upward trend due to increase in production resulting to increase in sales and

in the current year 2008-2009 decreasing stage.

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4.2 COMPARASION OF INVENTORY VALUE OF PRODUCTION

To determine whether the size of the inventory is inadequate, excessive or short in

relation to requirement of production, percentage relating to value of production with

inventory is worked out.

Value of production can be expressed as sales + closing stock of finished goods and work

in progress + opening stock of finished goods and work in progress.

TREND ANALYSIS

It can be made in relation with value of production. There should be appropriate growth

between inventory and production.

Table No.1.2

The below table shows a comparative position of inventory, value of production for the

period of 2006-2009

Rs in crores Rs in lakhs

Years Inventory Percentage Value of

production

Percentage

2006-2007 34.1214 100 9955.50 100

2007-2008 35.0855 103 12438.23 125

2008-2009 29.6012 88 14256.86 143

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ANALYSIS

The above table shows the comparison of inventory to value of production. Year 2006-07

is taken as base year, inventory is 100% in 2006-07, there is an increase, (103%) in 2007-

08, & again there is slight decrease, (88%) in 2008-09, whereas value of production is

100% in 2006-07, there is increase (125%) in 2007-08, & there is slight increase, (143%)

in 2008-09.

INTERPRETATION

The comparison of inventory to value of production shows inventory is decreasing than

increasing over the years, whereas value of production is increasing in 2 years that 2007-08 and

2008-09.

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4.3 PERCENTAGE OF INVENTORY TO WORKING CAPITAL:

Working capital is the amount of funds used in current operation of business, working

capital need not be in cash, and it can be in form of asset that can be converted into cash

within one year.

Working capital = Current assets - Current liabilities

Table No. 1.3

The below table shows the Percentage of Inventory to Working Capital for the period 2006-09

Years Inventory Working capital Percentage

2006-07 34.12 52.95 64.44

2007-08 35.08 40.80 85.98

2008-09 29.60 40.61 72.88

PERCENTAGE OF INVENTORY TO WORKING CAPITAL = Inventory X 100

Working Capital

As per standard or idle inventory to working capital, the inventory should not observe

more than 75% of working capital.

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ANALYSIS

The above table shows the percentage of inventory to working capital, year 2006-07 is

taken as base year 64.44%, in 2007-08,85.98% and there is a increase in the following

last years. The following current year 2008-09 is 72.88%.

INTERPRETATION

Inventory to working capital, which helps to measure the short term solvency of a

company. The previous year’s inventory to working capital is sufficient but 2007-08 it is

above the standard 75%. This shows it is not good situation for the company. This may be

due to much of inventories is locked up in working capital.

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4.4 PERCENTAGE OF INVENTORY IN CURRENT ASSETS

Inventory generally means stock of good involved in current assets. Current asset is

those assets which change their form and substances and which are converted into cash

during the normal operating cycle of business.

Table No. 1.4

The below table shows the Percentage of Inventory in Current Assets for the period 2006-09

Years Inventory Current assets Percentage

2006-07 34.1214 70.0225 48.73

2007-08 35.0855 81.6621 42.96

2008-09 29.6012 88.1689 33.57

PERCENTAGE OF INVENTORY TO CURRENT ASSETS = Inventory X 100

Current Assets

ANALYSIS

The above table shows the percentage of inventory in current assets. Year 2006-07 is

taken as a base year, 48.73% in 2006-07, 42.96% in 2007-08 and 33.57% in 2008-09.

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INTERPRETATION

It shows amount of inventory in 2006-07 there was an increase in inventories which is

locked up, where as in year 2007-08 there is decrease in inventories and the amount of

inventory is locked up in current asset again. In the year 2008-09 there is decrease in

inventories.

4.5 INVENTORY TURN OVER RATIO OR STOCK TURN OVER RATIO

It indicates the number of times the stock is turned over (sold) during the year. It is a ratio between net sales and average inventory.

Table No. 1.5

The below table shows the percentage of Inventory Turnover Ratio for the period 06-09 Rs. In Crores

Inventory Turnover Ratio = Net Sales

Average Inventory

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Years Net sales

(Rs)

Avg. inventory

(Rs)

Turnover times

2006-2007 98.8111 39.2494 2.51

2007-2008 104.4374 34.6034 3.01

2008-2009 128.6463 32.3433 3.97

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ANALYSIS:

The above table shows the inventory turnover ratio. Year 2006-07 is taken as base year, 2.51

times. In 2007-08, 3.01 times. In 2008-09, 3.97 times and there is slight increase in turnover

time compared to years of 2006-07 and 2007-08.

INTERPRETATION:

The inventory turnover ratio is increasing over the years. In the year 2008-09 there is

improvement in control over inventories than the two previous years 2006-07 and 2007-08.

4.6 RAW MATERIAL TURNOVER RATIO

Annual consumption, it is the consumption of raw materials inventory during the year.

AVERAGE RAW MATERIAL =

(Opening stock of raw material + Closing stock of raw material)

2

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Table No. 1.6

The table below shows the Turnover of Raw Materials inventory for the period 2006-09

Raw Materials Turnover Ratio = Annual Consumption

Average Raw Materials

ANALYSIS

The above table shows the raw turnover ratio. Year 2006-07 is taken as the base year, 3.73 times

and there is gradual increase in succeeding year 2007-08, 6.15 times. In 2008-09, 6.27 time, in

current year it is increasing.

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Years Annual

consumption

Average raw material Turnover times

2006-07 36.7238 9.8576 3.73

2007-08 50.7094 8.2450 6.15

2008-09 54.1433 8.6347 6.27

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INTERPRETATION

The raw material turnover ratio shows the number if times raw material was replaced during the

year, the raw material turnover ratio was fluctuating in 2006-07 to 2007-08, and this shows that

necessary step has been taken to manage the material. In current year it is stabilized.

4.7 STORES AND SPACE TURN OVER RATIO

It is the value of stores and spares inventory consumed during the year.

Average stores and spares =

(Opening stock of stores and spares + closing stock of stores and spares)

2

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Table No. 1.7

The below table shows the turnover of the Stores and Spares Inventory for the period 2006-09

Rs in crores

Stores and Spares Turnover Ratio = Annual Consumption of Stores & Spares

Average Stores & Spares

ANALYSIS:

The above table shows the stores and spares turnover ratio. Year 2006-07 is taken as the base

year, 4.40 times. In 2007-08, 2.24 times it is fluctuating over year. In 2008-09, 2.12 times.

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Years Value of stores and

spares

consumption(RS)

Average stores and spares

(RS)

Turn over times

2006-2007 1.9076 0.4321 4.40

2007-2008 2.0274 0.8963 2.26

2008-2009 2.1063 0.8689 2.12

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INTERPRETATION:

Stores and spares turnover ratio is fluctuating, this shows that there is insufficiency in managing

the stores and spares inventory. So the company has to take necessary steps to maximize its

ratio.

4.8 FINISHED GOODS TURN OVER RATIO

Cost of goods sold = cost of production + administration expenses opening stock of

finished goods - closing stock of finished goods.

Average finished goods =

Opening stock of finished goods + closing stock of finished goods

2

Table No. 1.8

The below table shows the turnover of the Finished Goods for the period 2006-09

Finished Goods Turnover Ratio = Cost of Goods Sold

Avg. Finished Goods

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Years Cost of Goods

Sold

Average Finished Goods Turnover times

2006-07 90.7755 26.4933 5.30

2007-08 72.5255 23.2150 3.54

2008-09 87.6573 24.1400 3.63

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ANALYSIS

The above table shows the finished goods turnover ratio. Year 2006-07 is taken as base

year, 5.30 times, in 2007-08, 3.54 times & in 2008-09, 3.63 times.

INTERPRETATION

Finished goods turnover ratio indicates that there is increase in turnover times in the year

2006-07. This shows that large volume of sales has been accomplished, whereas in the

current year there is low volume of sales accomplished.

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4.9 INVENTORY CONVERSION OF PERIOD

This represents the number of days of which inventories remain before they are issued for

production.

Table No. 1.9

The table below shows the Inventory turnover Conversion in number of days for the

period 2006-09

Years No. of Days

in a year

Inventory Turnover

Ratio

No. of

Days

2006-2007 365 2.51 145

2007-2008 365 3.01 121

2008-2009 365 3.97 92

Inventory Conversion period = Number of days in year

Inventory Turnover Ratio

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ANALYSIS

The above table shows the inventory conversion period. Year 2006-07 is taken as base

year, 145 days, in 2007-08, 121 days & in 2008-09, 92 days.

INTERPRETATION

The inventory conversion period shows decreasing trend in 2007-08 & in current year 2008-09 it

is good for inventory management.

4.10 DURATION OF RAW MATERIAL CONVERSION PERIOD

This represents the number of days for which raw materials remain in inventory before

they are issued for production.

Raw materials consumed per day =

Average raw materials X turnover times of raw materials

365

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Table No. 1.10

The below table shows the Duration of Raw Materials Conversion in number of days for

the period 2006-09

Years Avg Raw Materials R.M Consumed

per Day

No. of

Days

2006-07 9.8576 0.1007 98

2007-08 8.2450 0.1389 59

2008-09 8.6347 0.1483 58

Duration of Raw Materials = Average Stock of Raw Materials

Avg. R.M consumed per Day

ANALYSIS

The above table shows the duration of raw material period. Year 2006-07 is taken as base

year, 98 days, in 2007-08, 59 days & in 2008-09, 58 days.

INTERPRETATION

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The raw material period shows an increasing trend in year 2007-08 & in the current year 2008-09 it is decreased it is a good sign for inventory management.

4.11 DURATION OF STORES AND SPARES CONVERSION PERIOD

This represents the number of days for which stores and spares remains in inventory

before they are issued for production.

Stores and spares consumed per day =

(Average stores spares X turnover times of spares stores)

365

Table No.1.11

The below table shows the Duration of Stores & Spares Conversion in number of days for the period 2006-09

Years Avg Stores & Spares Stores & Spares Consumed

per day

No. of

Days

2006-07 0.4321 0.0052 83

2007-08 0.8963 0.0055 162

2008-09 0.8689 0.0050 173

Duration of Stores & Spares stage = Average Stock of Stores & Spares

Avg Stores & Spares Consumed per Day

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ANALYSIS

The above table shows the duration of stores and spares period. Year 2006-07 is taken as

base year, 83 days, in 2007-08, 162 days & in 2008-09, 173 days. It is average days,

taken for clearing stock.

INTERPRETATION

The stores and spares period shows an increasing trend & it is not a good sign for inventory of

management.

4.12 DURATION OF FINISHED GOODS

This represents the number of days for which finished goods remain in inventory before

they sold.

Average cost of goods sold per day =

Average finished goods X turnover times of finished goods

365

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Table No. 1.12

The below table shows the Duration of Finished Goods Conversion in number of days for

the period 2006-09

Years Avg Finished Goods Avg Cost of Goods sold per day No. of

Days

2006-07 26.4933 0.3846 67

2007-08 23.2150 0.2251 103

2008-09 24.1400 0.2400 101

Duration of Finished Goods stage = Average Finished Goods Inventory

Avg Cost of Goods sold per Day

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ANALYSIS

The above table shows the duration of finished goods period. Year 2006-07 is taken as

base year, 69 days, in 2007-08, 103 days & in 2008-09,101 days. It is average days, taken

for clearing stock.

INTERPRETATION

The duration of finished goods is high in current year & previous year which requires a step to

gear up the sale.

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4.13 ANALYSIS OF THE COMPANY’S INVENTORY MANAGEMENT

Keeping in view all concerns, the latest concept of vendor managed Inventory is used to Inventory. The company is entering in to vendor managed Inventory, annual Rate contracts with their authorized dealers, who maintain Inventory on their behalf and supply the items required.

VMI, this system reduces stock-outs and optimize inventory in supply chain. Due to the implementation of VMI system, the following outcome has come up in day to day system.

Shortening of Supply chain Centralized Forecasting Frequent communication of inventory , stock-outs and planned promotions Trucks are filled in a prioritized order, e.g. items that are expected to stock out have top

items that are furthest below targeted stock levels then advance shipments of promotional items

Despite the many changes that companies go through, the basic principles of Inventory Many Inventory Control remain the same. Some of the new approaches and techniques are wrap terminology, but the underlying principles for accomplishing good Inventory Management activities have not changed.

After going through the system, it is found that, the Inventory Management System and the inventory Control process provides information to manage the flow of materials, effectively utilize people and equipment, and coordinate with internal communication with customers. Inventory Management and the activities of Inventory Control decisions or manage operations, they provide the information to managers who make more timely decisions to manage their operations.

The inventory Control activities monitor the following operation:-

Sales Forecasting

Sales and Operations Planning

Production Planning

Material Requirements Planning

Inventory Reduction

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The emphases on each area will vary depending on the company and how it operates the requirements which are placed on it due to market demands. To successful program of Inventory Management, the company has introduced many formats for monitoring and reporting.

The company has truthfully implemented the system to visualize the following activities during review meeting.

The wrong quantities of the wrong items are often found on warehouse shelves. Even may be a lot of surplus inventory and dead stock in their warehouse(S), backorders and custom are common. The material a distributor has committed to stock isn’t available when customers

Computer inventory records are not accurate. Inventory balance information in the expensive computer systems does not accurately reflect what is available for sale in the warehouse.

The return on investment in inventory, is far less than what could be earned if the money were invested else.

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Chapter 5

SWOT Analysis of

the Company

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SWOT Analysis of company

5.1 STRENGTH

a. The company is an existing one with proven track record for quality of the products having an established marketing network created over the last 10 years of operation.

b. The directors of the unit are experienced and financially sound and are competent enough to ensure smooth operation.

c. The company has already set up adequate marketing net work in and outside the state.

d. The existing technical & managerial staff has adequate experience for enhanced production, quality control & marketing of steel products and existing staff strength is adequate for proposed sales target.

e. The paid up capital of Rs.605.44 lacs and net worth of Rs.1144.38 lacs in 06-07 is adequate for the enhanced capital structure. The promoters are in the process of further enhancing the capital base for Induction Furnace & MBF Projects

f. The state, due to its huge deposit of minerals and due to the set up of various mineral processing industries, is finding it easier to compete with M.S. products of other states.

g. The promoters have been in the steel trading business for the past many years and enjoy considerable goodwill amongst its customers. Hence it will be easier for the company to sell the output.

5.2 WEAKNESS OF THE COMPANY

a. The unit is predominantly dependent supply of material like sponge iron & pig iron from mother units, and any change in Govt. policy will affect the pricing of different products and which will affect the pricing and consequently the profitability of the unit.

b. Although iron scrap is avail locally, the quality is poor making it unsuitable for processing in induction furnace since electric consumption depends on the quality of the scrap.

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c. The unit depends on transportation by road for incoming & outgoing of raw material and finished products and any disruption in road links will affect the supply line which will severely affect the operation and profitability.

d. The price of the products and transportation cost fluctuate rapidly since it is depended on imports.

e. The product, Billet and Pig Iron- being manufactured by the company, or in the process of implementation, Sponge Iron is being procured from a nearby unit on long term & conversion basis. The company has gained control over majority of raw materials. The inputs are industrial commodity product susceptible to price volatility. However, since BAPL is in a position to control its costs, this will enable the company to survive in the market in a scenario of falling prices.

5.3 OPPORTUNITY OF THE COMPANY

a. Induction furnace units based on sponge iron as a major raw material dominate the steel market for construction sector and the demand of the product is increasing every day. Numbers of sponge iron units are coming in Orissa because of its geographical position, vast mineral resources & indigenous technology. With the availability of adequate raw material the increase in capacity will not be difficult.

b. Once the present procurement chain is established the company can take up export of the products for which adequate stocking is essential.

c. Since the company will be operating the plant, on the outskirts of Cuttack town where the land price is comparatively low, there is scope for further growth. Other infrastructure like road, railway and water are abundantly available.

5.4 THREATS OF THE UNIT

a. M.S. products prices are subjected to changes in international price. Sharp fall in price will affect the profitability of the unit.

b. Adverse climatic condition will affect the supply line of the product which will affect the operation and profitability

- Future Potential

The domestic demand-supply scenario is expected to be balanced even though a number of capacity expansions are expected to be implemented by various companies over the next 1-2 years. In this scenario, the player with lower production costs would be in a position to utilize capacities optimally.

As explained earlier, the company enjoys cost advantages, which will enable it to withstand competition

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As the company is well developed unit having both manufacturing and project implementation work simultaneously inside the unit, so the inventory control system is well established and in every sphere the monitoring system has been established to control the cost. The unit is maintaining the standard operating procedure adopting the approved manuals .The details of the format and procedure is explained here with.

CHAPTER 6

Summary of Findings

Suggestions

Conclusion48

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SUMMARY OF FINDINGS

The position of inventory and its percentage growth were in increasing stage but during

2006-07 it was in decreasing stage but in year 2007-08 both inventory and percentage

growth are in upward trend due to increase in production resulting to increase in sales.

The comparison of inventory to value of production shows inventory is decreasing than

increasing over the years, whereas value of production is increasing in 2 years that 2006-

08 and 2008-09.

Inventory to working capital, which helps to measure the short term solvency of a

company. The previous year’s inventory to working capital is sufficient but 2007-08 it is

above the standard 75%. This shows it is not good situation for the company.

It shows amount of inventory in 2006-07 there was an increase in inventories which is

locked up, where as in year 2007-08 there is decrease in inventories and the amount of

inventory is locked up in current asset again. In the year 2008-09 there is decrease in

inventories.

The inventory turnover ratio is increasing over the years. In the year 2008-09 there is

improvement in control over inventories than the two previous years 2006-07 and 2007-

08.

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The raw material turnover ratio shows the number if times raw material was replaced

during the year, the raw material turnover ratio was fluctuating in 2006-07 to 2007-08,

and this shows that necessary step has been taken to manage the material. In current year

it is stabilized.

Stores and spares turnover ratio is fluctuating, this shows that there is insufficiency in

managing the stores and spares inventory. So the company has to take necessary steps to

maximize its ratio.

Finished goods turnover ratio indicates that there is increase in turnover times in the year

2006-07. This shows that large volume of sales has been accomplished, whereas in the

current year there is low volume of sales accomplished.

The inventory conversion period shows decreasing trend in 2007-08 & in current year

2008-09 it is good for inventory management.

The raw material period shows an increasing trend in year 2007-08 & in the current year

2008-09 it is decreased it is a good sign for inventory management.

The stores and spares period shows an increasing trend & it is not a good sign for

inventory of management.

The duration of finished goods is high in current year & previous year which requires a

step to gear up the sale.

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SUGGESTIONS

The sales department should be effective to reduce the stocking in the finished goods

component of inventory. New sales technique should be activated to increase the

sales.

Over stocking and under stocking of raw materials should be controlled by technical

auditors, there should be coordination between production processes department and

inventory handling department for efficient outcome.

Standardization of components should go a long way to reduce the variety of

components to be stocked.

The company should follow EOQ to reduce over stocking of material, purchase at

competitive prices, to reduce the cost of product.

Concentrated effort will be needed to reduce stock of materials, which have not

moved for years, insurance items should be monitored and made certain that they

would meet their purpose when called upon to do so.

The company constitutes a task force to reduce the high value items involving the

heads of the concerned departments like finance, production planning, and material

planning etc, so that judicious decision can be taken in dealing with adverse situation

and avoid unnecessary inventory holding.

The production department should sequence the cycle of operation and stick to the

scheduled dates in all areas. Speed conversion of inventory will reduce the interest

burden and improve the bottom line.

Where items are not likely to be used to obsolesce or technological suppression

disposing off the realizing whatever value influences employees to be sincere in

dealing with suppliers and customers also.

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CONCLUSION

The above suggestion should be considered by the management, this might help them in their efforts

to control inventory. Also the investment in inventories involves locking up of funds and thus

opportunity cost lost to firm because funds available to that extent could have been invested

profitability elsewhere and thus profit of the company would go up to that extent, though sales have

been increased and also little improvement in the different field such as production, inventory

holding, little improvement in the field such as production, inventory holding,, reduction in storage

loss etc, maximum utilization of space should be improved in the proactive trend and production

should be done quickly. The management should periodically review the records particularly the

inventory control and its management the department of material planning and control is must to look

after the level of inventories are fixed depending upon circumstances and avoid unnecessary build up

of stock resulting in locking up of scare funds.

Thus the efficient management of inventory plays a very prominent role in improving the company’s

profitability.

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BIBLIOGRAPHY

LISTS OF BOOKS

1. PRASSANA CHANDRA FINANCIAL MANAGEMENT

2. M.Y. KHAN AND JAIN .P.K FINANCIAL MANAGEMENT

OTHER SOURCES

GOOGLE.COM

COMPANY ANNUAL MAGAZINE

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ANNEXURE

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inventory control management 9886649997

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