inventory management in hbl
DESCRIPTION
mba project in Hydrabad pvt ltdTRANSCRIPT
INTRODUCTION
Finance is the lifeblood of business and plays an important role in any
organization. The dictionary meaning of finance is money affairs or the art of
managing or administrating the public money. Hence the name financial
management could be referred to as money management. The function of finance is
not only arranging funds for the business organization but also it includes planning,
forecasting of cash flows, both receipts and payments, rising of funds, allocation of
funds and financial control.
1.1Nature Scope of the study
Entails planning for the future of a person or a business enterprise to ensure
a positive cash flow. It includes the administration and maintenance of financial
assets. Besides, financial management covers the process of identifying and
managing risks. The primary concern of financial management is the assessment
rather than the techniques of financial quantification. A financial manager looks at
the available data to judge the performance of enterprises. Managerial finance is an
interdisciplinary approach that borrows from both managerial accounting and
corporate finance. Some experts refer to financial management as the science of
money management. The primary usage of this term is in the world of financing
business activities. However, financial management is important at all levels of
human existence because every entity needs to look after its finances.
Financial Management Levels
Broadly speaking, the process of financial management takes place at two
levels. At the individual level, financial management involves tailoring expenses
according to the financial resources of an individual. Individuals with surplus cash
or access to funding invest their money to make up for the impact of taxation and
inflation. Else, they spend it on discretionary items. They need to be able to take the
financial decisions that are intended to benefit them in the long run and help them
achieve their financial goals. From an organizational point of view, the process of
financial management is associated with financial planning and financial control.
Financial planning seeks to quantify various financial resources available and plan
the size and timing of expenditures. Financial control refers to monitoring cash
flow. Inflow is the amount of money coming into a particular company, while
outflow is a record of the expenditure being made by the company. Managing this
movement of funds in relation to the budget is essential for a business.
At the corporate level, the main aim of the process of managing finances is
to achieve the various goals a company sets at a given point of time. Businesses
also seek to generate substantial amounts of profits, following a particular set of
financial processes. Financial managers aim to boost the levels of resources at their
disposal. Besides, they control the functioning on money put in by external
investors. Providing investors with sufficient amount of returns on their investments
is one of the goals that every company tries to achieve. Efficient financial
management ensures that this becomes possible. Financial management is broadly
concerned with the acquisition and use of funds by a business firm. The important
tasks of financial management are as follows:
A) Financial Analysis, Planning and Control
Analysis of financial condition and performance
Profit planning
Financial Forecasting
Financial Control
B) Financing
Identification of sources of finance and determination of financing mix.
Cultivating sources of funds and raising funds
Disposition of profits between dividends and retained Earnings.
C) Investing
Management of current Assets
Capital Budgeting
Importance of Financial Management:
Finance is the lifeblood and nerve center of a business, which is very
essential to smooth running of it. Right from the beginning i.e., conceiving an idea
to do business, finance is needed to promote or establish the business, acquire the
fixed assets for expansion of the existing one.
Some important functions of Financial Management:
Financial planning and successful promotion of an enterprise.
Acquisition of funds as and when required at the minimum possible cost.
Proper use and allocation decisions.
Improving the profitability through financial control.
Increasing the wealth of the investor and the nation
Promoting the mobilizing individual and corporate saving.
Financial System:
The purpose of financial management is to help the decision makers to make
the better financial decisions. These decisions are made in the context of a financial
system that both constrains and facilitates them. The financial system comprises a
variety of intermediaries, markets and instruments that are related in a complex
manner .It provide the principal means by which savings are transformed in to
investments. Given its role in the allocation of resources, the efficient functioning
of the financial system is critical to a modern economy.
Functions of the Financial System:
The financial system performs the following interrelated functions that are
essential to modern economy:
It provides a payment system for the exchange of goods and services.
It enables the pooling of funds for undertaking large-scale enterprises.
It provides a mechanism for spatial and temporal transfer of resources.
It provides a way for managing uncertainty and controlling Risk.
It generates information that helps in coordinating
Decentralized decision making.
It helps in dealing with the incentive problem when one
Party has an Informational advantage.
Financial Manager – Job Description
A financial manager is responsible for providing financial advice and
support to clients and colleagues to enable them to make sound business decisions.
Specific settings vary enormously and include both public and private sector
organizations, such as multinational corporations, retailers, financial institutions,
charities, small manufacturing companies and universities. Financial
considerations are at the root of all major business decisions. Clear budgetary
planning is essential for future planning, both short and long term, and companies
need to know the financial implications of any decision before proceeding. In
addition, care must be taken to ensure that financial practices are in line with all
statutory legislation and regulations. Financial managers may also be known as
financial analysts or business analysts.
Typical Work Activities
The roles of financial managers vary significantly. The generic nature of the
job title can be misleading and job descriptions should be scrutinised carefully as
the level and scope of the responsibilities involved in any role coming under the
banner of financial management can differ enormously. In larger companies, for
instance, the role is more concerned with strategic analysis; in smaller
organizations, a financial manager may be responsible for the collection and
preparation of accounts.
1.2 Need for the Study
The Industry sectors and the financial system are undergoing rapidly
changes following the process of liberalization and reforms. The underlying
principle behind every reform measure re-orientation of monetary policy
techniques, introduction of new money market instruments and institutions, suggest
structural changes in the financial system and strengthening regulatory
arrangements has been to make the system more competitive, efficient and
profitable. Every performance indicator seems to reflect the impact of the reform
measures. Profitability of the industry has witnessed a steady improvement mainly
as a result of these measures, Capital adequacy rations have crossed the norms
prescribed for almost all industries. The industries have begun to focus on
minimizing their asset liability mismatches and on risk management. Further, after
the enactment of securitization Act 2002, the industries get a weapon to tackle the
challenge of Non Performing Assets (NPAs). At this backdrop, it is felt essential to
study the financial performance of the Lead Acid Division, HBL Power Systems
Ltd, which is one of the representatives of the industrying system. Which is
experiencing the recent reforms?
1.3 Objectives of the Study
The following are the objectives of the present study titled “Inventory
Management at Hyderabad Batteries Ltd., Pydibhimavaram”.
1. To understand the concept of inventory management in general and
to know about the methods of inventory management in particular,
2. To know the profile of Hyderabad Batteries Ltd located at
Pydibhimavaram, Srikakulam District,
3. To learn the HBL is organizing its inventory management methods
and techniques,
4. To give suggestions if necessary for the better improvement of
inventory management at HBL.
1.4 Methodology of the study
To fulfill the objectives mentioned above, the present study requires both
primary and secondary data. The primary data and the collection of secondary data
details are given as follows:
1 Primary data.
2 Secondary data.
Primary Data
It consists of information disclosed by the financial heads of various
authorities of the respective Departments of H.B.L. Conducting personal interviews
with the concerned officers of financial department at H.B.L battery ltd.
Secondary data:
It consists of information obtained from annual reports. Balance-sheet and
other financial statements are also collected. Files and same other important
documents maintained by the organization. In addition to that, collecting data from
referred text books. Collection of required data from annual records of H.B.L
battery ltd had become necessary. Reference from textbooks and journals relating
to financial management are also included.
1.5 Limitations of the Study
The study has been conducted is a systematic and comprehensive way so as
to make the project work an enviable one. However the topic under my study not is
free from limitations due to these factors. The following are the limitations of the
present study:
1. Due to the time constraints it is difficult to study the performance of a big
organization of the size Lead Acid Division, HBL Power Systems Ltd.
2. The main source of information is the published annual reports which are
not sufficient to make a proper study.
3. The figures in the balance sheet are furnished according to the guidelines
issued by the Reserve Industry of India from time to time. Thus the Study
Looses its significance as the figures over the period may not be
comparable.
1.6 Framework of the Study
Chapter 1 Contains Need For The Study, Objectives Of The Study, Methodology
Of The Study, And Limitations Of The Study.
Chapter 2 Deals With Organization Profile, Company Introduction, Company
Operations And Product Profile, Board Of Directors.
Chapter 3 Provides Theoretical Frame Work Of Inventory Management,
Techniques Of Inventory Management, And Determination Of Safety Stocks,
Benefits Of Inventory Management, Nature Of Inventory Management.
Chapter 4 analyzes Interpretation of Inventory Management.
Chapter 5 has the Summary and Suggestions of the Study.
PROFILE OF HYDERABAD BATTERIES LIMITED, PYDIBHIMAVARAM
2.1 Company Introduction
HBL Power Systems Limited is a public limited company. It was established
in 1977 as a Small Scale Industry but today it has grown into a well-diversified
batteries technologies group. It has its units on the outskirts of Hyderabad.HBL
Power Systems Ltd. is the pioneer in the design, development and manufacture of
specialized batteries and DC systems in India. With over 3 decades of experience in
this field, the company offers a wide range of batteries and associated electronics
providing its customers, custom built solutions to meet critical requirements.
HBL Power Systems Limited is engaged in the manufacturing of widest range of
specialized batteries, electronic equipment and other telecommunication, railways,
aviation, defense, power and other industrial sectors.
The Company’s operations are divided into 3 Segments
Batteries
Electronics
Others
Further, the company is divided into various divisions depending upon the
nature of the product; each division is treated as a separate company, each having
its own funds allocation and manpower in various departments. The company
manufactures various types of batteries viz., VRLA, Tubular, Monobloc, Nickel-
Cadmium, Lithium, Silver-Zinc, and Thermal etc.The electronics segment
comprises of various divisions manufacturing electronic equipment like rectifiers,
IPS etc Apart from batteries and electronics, the company also manufactures
bulletproof jackets, windmills etc. The company has recently taken up railway
singnaling works contracts. The company has 3 divisions catering to the ancillary
needs of the company, material components divisions at Shamirpet, Nandigaon,
Bhoothpure, Kandivalasa and VSEZ (Duvvada) units indulge in various ancillary
activities like sheet metal fabrication making of racks, cutting, bending, plating etc.
Plastic molding division at Nandigaon manufactures various types of boxes, and
cell & battery containers. Annual turnover of the company is around 800 crores.
Profile of Hyderabad Batteries Limited, Pydibhimavaram.
An Overview on HBL:
The Widest range of specialized Direct Current (DC) Power Systems. HBL
IS THE LARGEST MANUFACTURER OF SPECIALIZED BATTERIES in India.
HBL offers to the customers the Most Appropriate Technology based on the
Requirement. from the wide range of batteries
Nickel-cadmium batteries
Silver Zinc batteries
Lead-acid batteries and
Lithium batteries
Chargers for Rechargeable batteries are also manufactured in both TR and
SMR versions from 24Volts to 220Volts. The company has sales of about US $ 50
millions and very substantial Design and Development capabilities. Over 25 years
of Experience in the Domestic Market and over 10 years in Exporting to many
countries including USA, South Korea, West Asia and South East Asia, has given
HBL an understanding of the Customers special varied requirements. Several Major
Customers have found the company’s products to be Reliable over the years and
have placed repeat orders. The company has adequate marketing and service
personnel who can support the customers at short notice. The Triumph-HP series is
a Premium Design Valve Regulated lead acid battery based and features offered by
world class companies. The battery works on the gas recombination principle and
has been designed to meet the requirements of a wide range of applications. This
product has been manufactured under the controls. Established by a for
Quality/Environmental Management system that meets the requirements of ISO
9001-2000: ISO 14001:1996, which has been independently certified by BVQI.
Vision of HBL
To organize India's engineering talent into a globally competitive business.
Whether in manufacturing or in services. We want to become a learning
organization to export technology from India. Our choice is for businesses with
technological barriers and / or engineering intensity. Our location at Hyderabad
makes this vision feasible, because Hyderabad has India's largest cluster of
scientific and technical training institutions providing high caliber Human
Resources.
HBL Offers:
A wide range of individual battery types, in the major technologies of
Nickel Cadmium, Lead Acid, and Silver Zinc along with associated Electronic
Equipment. Conveniently located in Hyderabad, backed-up with processing and
testing facilities to provide full product support and back-ups.An in-depth technical
resource based on years of experience to help you select batteries according to the
requirements. “Off the shelf "products in many popular sizes to meet quick
delivery requirements.Products manufactured to International Standards and
Certified by Independent Testing Agencies.
Certifications and Approvals
Nickel Cadmium:
ISO 9001
ISO 14001
IEC 60623 Certification (CSA)
Bump Test
Vibration Test
Seismic Test
OHSAS 18001 Certification (NCPP & NCFP)
International Railway Industry Standard (IRIS)
Lead Acid:
ISO 9001
ISO 14001
IEC 60896-Part 21 & 22
( Intertek SEMKO) for VRLA single cells and Monblocks
Electronics:
Thyristor Control Rectifiers, DC-DC Convertors,
Defence Chargers
ISO 9001
Social Activities
Medical camps conducted on regular basis
Blood Donation Camps
Sponsorship of Village Schools
Foundation for Girl Child Education
Child Development Programmed in surrounding our Units
Environment Protection Measures:-
Full fledged Effluent Treatment Plant to treat plant waste and Sewage
Reverse Osmosis plant to purify water
Water from Treatment plant used for Gardens
OHSAS 18001 Certified
Approved Battery Recycling plants.
Specifications at a Glance
Positive Plate: Flat pasted type with Lead-calcium High Tin alloy grid to resist
corrosion & longer life.
Negative Plate: Flat pasted type with Lead-calcium alloy grid for maintenance free
characteristics.
Container: High impact Polypropylene co-polymer, ribbed jar design for better
heat dissipation and strength. Flame retardant polypropylene UL 94V0/28% LOI is
optional.
Separator: Low resistance, high porosity and highly Absorbent type Glass mat
Separator (AGM).
2.1: Range and Applications:
Cell Type Capacity
Range
Typical Back- up Typical
Application
L-Low Rate
KPL (Single)
KBL (Block)
11 to 480
8 to 1540
Above 3 Hours Fire Alarm Panels
Emergency
Lighting
Telecommunication
Switchgear
Protection
M-Medium
Rate
KPM (Single)
KBM (Block)
10 to 395
12 to 1460
60 Minutes to
3
Hours
Switchgear
Protection
Instrumentation
And
Process Control
U.P.S
Motive Power
Emergency
Lighting
H-High Rate
Starting
KPM (Single)
KBM (Block)
10 to 265
9 to 930
Below
60 minutes
Generator
U.P.S
Diesel locomotive
Cracking
Electrolyte: High purity Sulphuric acid to maximize shelf life.
Terminals: Lead plated Copper inserts high conductivity.
Safety Valve: Self-Resealing, pressure regulated and explosion proof.
Container and cover sealing: Heat Sealing Method for better joint strength.
Products of HBL:
Nickel Cadmium Pocket Plate Batteries:
HBL offers a very wide range of Nickel Cadmium Pocket Plate Batteries that
match diverse applications and operating conditions.
Benefits:
Exceptionally long life
Adaptability to a wide temperature range
No emission of corrosive gases, Safe from flame & explosion
Minimal maintenance, Low life time cost, quick recharging
Table 2.2: Range and Applications
Cell Series
L-Low Rate
KFL Range
(Single Block)
M-Medium Rate
KFM Range
(Single & Block)
H-High Rate
KFH Range
(Single & Block)
Capacity Range
Ah
20 to 1500
11 to 1391
11 to 1026
11 to 120
Typical Backup
Above 3 hours
60 minutes
to 3 hours
Below
60 minutes
Typical Applications
Fire alarms, Emergency
Lighting, Telecom,Railway
Signaling,
Switchgear protection,
Photovoltaic, Cathodic
Protection.
Switchgear protection,
Emergencylighting, Motive
Power, Train lighting,
Instrumentation
and process
Control, UPS, Electric
vehicles
Generator Starting, UPS,
Diesel
Aircraft/
X – Ultra High
Rage
KFX Range
(Single & Block)
Below
10 minutes
Helicopter
Nickel Cadmium Fiber Plate Batteries
These batteries use Fiber Plate electrodes. The three Dimensional Fiber
Structure in the plate provides a very high conducting density. The Advantages of
this technology is its low internal resistance, high rates of discharge, improved
recharge capability and lower weight with a high cycle life.
Features:
Consistent Voltage Output
Long Service life and reliable Operation
Can be used in extreme temperature zones
Ease of recharging the battery
Low maintenance and low water consumption
Sealed Cylindrical NICKETL CADMIUM Battery Packs
For Defense Communications:
HBL’s Sealed Cylindrical NICAD Batteries are designed incorporating the
latest technology ensuring high standards. They are available in packs using a wide
range of cells from 110mAH to 8000m Ah for various applications.
Applications:
Radio communication User friendly
Easy re-chargeability
Optimal Cell life
Pure Lead-Tin Vrla Monoblocks
The Pure Lead-Tin range offers the customer the highest energy density of
any lead acid battery anywhere. The battery is constructed around a complex thin
plate, pure lead-tin grid which packages more power in a smaller space. The plates
being made of high purity lead last longer, offering excellent life.
Benefits:
Maintenance-free and spill-proof. This enables flexible mounting
Wide operating temperature range (-40o C to + 50oC)
High energy density
Good charge retention leading to long storage life
Low internal resistance ensures quick recharge
Superior raw materials for good performance and life
Excellent deep discharge recovery characteristics
Tubular GEL VRLA Batteries:
The solar powered shelter carry batteries that expose them to higher
temperatures. Net result is the need for a heavy duty, robust, deep cycling battery
that is also less sensitive to high temperature. To meet such rigors of temperatures
and varying pattern of usage, HBL introduces “Tubular Gel VRLA Battery” with
unbeatable combination of “Tubular plate and gelled electrolyte.
Applications:
Wireless: Base Transceiver, station (BTS), Base Switches (MSO), CDMA/3G
base stations, main switches. Applications other than Telecom:
Telecommunications, Solar energy systems, Wind energy systems, Power plants
and substations. Train lighting, Coach Air conditioning and signaling in Railways.
Tubular Ultra Low Maintenance Lead Acid Battery
Tubular LMLA battery is the combination of traditional advantage of tubular
plate with ultra-low-maintenance feature.
Tubular LMLA battery is a preferred choice for the applications with float, semi
cyclic and cyclic operations along with long service life, high cycle life, Partial state
of Charge (PSOC) & deep cycling requirements.
Taurus
The “Taurus” Tubular plate low maintenance lead acid battery is the results of the
strong R&D Expertise gained by HBL over a decade of supplying millions of lead
acid batteries to various applications. “Taurus” batteries offer outstanding reliability
over an expected service life of around 15 years in float applications.
This battery offers very low maintenance, extended topping up frequency due to
low antimony alloy & high acid reservoir.
Stormz
Stormz motive power (Traction) batteries for material handling equipment
provide a very high level of performance and reliability in all industrial truck
applications. These batteries are designed according to the relevant DIN, BS
Standards.
Lithium Batteries
Primary: Lithium Thiony1 Chloride/Lithium Sulphur Di-Oxide
Secondary: Lithium Ion Lithium batteries have been developed with support from
DRDO in the year 1990
Defence Electronics
HBL Microwave is focused on defence electronics. Unlike Batteries and Railway
products where almost all development was done in house.
HBL has collaborated with companies abroad for most of its defence electronics
products.
Radar and Electronic Warfare: Joint venture with ELTA, Israel
Several other such plans are under discussion.
The company’s infrastructure in manufacturing and national sales service network
will be of value in each of these projects because it can be shared
Thyristor Controlled Battery Chargers
HBL Battery chargers use Thyristor switching principle for achieving the
desired DC output. The sophisticated power electronics design and production
facility in the company enables it to meet the specific requirements of its customers.
Applications:
These chargers find use in a variety of applications such as Process
Control, Telecommunications, Emergency Lighting, Switch Gear Protection,
Engine Starting and Power Station Control
Maintenance
These chargers can work for many years, without any special attention Long life
through design and excellent thermal management.
High Reliability
better design and high quality standards ensure absolute reliability of the equipment
and fail safe operation Stackable design minimizes place requirement and enables
faster installation.
Silver Start- Pure Lead Tin VRLA Monoblock Batteries for Civil Aviation:
The “Silver Sart” range of On-board Aircraft starting batteries from HBL
are designed using the Thin-plate Pure Lead tin Technology. Features that make
these batteries the right choice for Aircraft starting
Applications:
Sealed, maintenance-free: no filling of acid or water
Excellent starting capability: very high peak power
Fast-charge capability: 100% recharge in 2 hours
More flying hours: long life.
Operation in very low temperature:-40o C to + 50o C
Nickel Cadmium Pocket Plate Batteries for Aircraft Ground Start:
HBL offers vented type NICAD Pocket Plate High Rate Batteries for
ground starting of MIG Aircrafts. The Batteries are mounted on an electrically
driven trolley unit. It consists of two banks of KPH 140P, each bank consisting of
24 cells.
These Batteries are primarily used for meeting the ground starting and servicing
electric power requirements for MIG Series of aircrafts. Additionally it supplies
critical power to the DC motor as the prime mover of the electrically driven trolley.
Benefits:
Excellent resistance to shock, vibrations, temperature and corrosion.
Exceptionally long and reliable service life
Low maintenance and low life time cost
Flame and explosion proof vent
No sudden death and negligible annual ageing
Quick Recharging and no memory effect.
Defense
Nickel Cadmium Pocket Plate Batteries for Aircraft Ground Start
HBL offers Vented type NICAD Pocket Plate High Rate Batteries for ground
starting of MIG Aircrafts. The Batteries are mounted on an electrically driven
trolley unit. It consists of two banks of KPH 140P, each bank consisting of 24 cells.
These Batteries are primarily used for meeting the ground starting and servicing
electric power requirements for MIG Series of aircrafts.
Benefits:
Excellent resistance to shock, vibrations, temperature and corrosion.
Exceptionally long and reliable service life
Low maintenance and low life time cost
Aircrafts
These Batteries are primarily used for meeting the starting and servicing electric
power requirements for MIG series of aircrafts. The Batteries are mounted on an
electric driven trolley unit. These Batteries use High Rate Fiber Nickel Electrodes
there by giving an excellent Electrical performance. The benefits of these batteries
are low internal resistance, High rates of discharge and improved recharge
capability coupled with long cycle life.
Benefits
Consistent Voltage Output and stable capacity over life time
Long service Life
Ease of handling due to light weight
Fast recharge
Can be used in extreme temperature zones Most reliable
HBL’s Sintered Plastic Bonded Batteries are best suited for applications requiring
high reliability coupled with low maintenance and high performance. The sintered
Plastic Bonded batteries are manufactured using sintered positive plates and Plastic
Bonded negative plates. These are specially designed for High Power Density and
Reduced Water Consumption. These batteries use polypropylene cell containers
with thermally welded lids for high impact resistance.
2.3 Product Profile
Batteries
Nickel Cadmium Sintered Plated batteries
Nickel Cadmium Pocket Plated batteries
Nickel Cadmium Fibre Plated batteries
Silver-zinc aircraft batteries
Silver-zinc torpedo batteries
Sealed Cylindrical Nicked Cadmium batteries
Lithium batteries
Valve Regulated Lead Acid batteries
Sealed Lead Acid batteries
Tubular Vent batteries
Thermal batteries
Monobloc batteries
Electronics
Switch Mode Rectifiers
Integrated Power Supplies
Universal Battery Chargers
Rectifiers
Data Loggers
Thyristor based charged
HFTCs
SSIs
Fuzes
Moving Target Detectors
RF Power Amplifires
BIT Units
2.4 BOARD OF DIRECTORS
Dr.A.J.Prasad Chairman And Managing Director
Mr. Ashok Nagarkatti Director-Battery Technology
Mr.J K Verma Director-Operations
Mrs. Kavitha Prasad Member
Mr.P.Ganapathi Rao Member
Mr. M.S.Rama Krishna Member
Mr. V V Rao Member
Mrs. Preeti Khandelwal Member
Audit Committee :
Mr.P.Ganapathi Rao Chairman
Mrs. Kavitha Prasad Member
Mr. V V Rao Member
M/s Satyanarayana & co.
Charted Accountants
Secundrabad
Auditor
M/s. Narasimha Murthy & co.
Cost Accountants
Hyderabad
Cost Auditors:
Mr. D. Mabu Basha
Registered Offices:
8-2-601,Road no.10,
Banjara Hills,
Hyderabad-500 034
Bankers:
State Bank of India
State Bank of Hyderabad
IDBI Bank Ltd
State Bank of Indore
Location of Plants:
1. Aliabad (V), Shameerpet(M), Ranga Reddy District,
Andhra Pradesh.
2. Nandigoan(V), Kothur(M), Mahabubnagar District,
Andhra Pradesh
3. Seripally(V), Bhoothpur(M), Mahabubnagar District,
Andhra Pradesh.
4. Kandivalasa (V), Poosapaitrega(M), Vizianagaram District,
Andhra Pradesh.
5. VSEZ, Visakhapatnam, Andhra Pradesh.
6. Thumkunta(V), ShameerpetM), Ranga Reddy District,
Andhra Pradesh.
7. Haridwar, Uttarakhand.
8. IMT, Manesar, Haryana.
THEORETICAL FRAMEWORK OF INVENTORY MANAGEMENT
3.1 Meaning and Nature of Inventory
The dictionary meaning of inventory is stock of goods or a list of goods. The
inventory can be defined as the sum of the value of raw materials, fuels and
lubricants, spare parts, maintenance consumables; semi processed materials and
finished goods stock at any given point of time. The term inventory refers to the
study stockpile of the products a firm is offering for sale and the components that
make up the product. The various forms in which inventories exists in a
manufacturing are:
Raw Materials.
Work-in-process (Semi finished goods).
Finished goods.
Consumables.
Spares.
Introduction of Inventory Management
The Dictionary meaning of inventory is stock of goods or list of goods. In
accounting language it may mean stock of finished goods only. In a
manufactured concern, it may include raw material, work-in-process &
Stores.Every enterprise needs inventory for smooth running of its activities. It
serves as a link between production & distribution process. There is, generally a
time lag between the recognition of a need and its fulfillment. The greater the
time lag, the higher the requirements for inventory. The unforeseen fluctuations
in demand and supply of goods also necessitate the need for inventory. It also
provides a cushion for future price fluctuations. The investment in inventories
constitutes the most significant part of current assets/working capital most of the
undertakings. Thus, it is very essential to have proper control and management
of inventories. The purpose of inventory management is to ensure availability of
materials in sufficient quantity as and when required & also to minimize
investment in inventories. Most of the manufacturing industries spend more
than 60% of the money for materials. Materials include raw material, bought out
finished components, semi-finished components, spare parts, work-in-progress.
Even a small saving in material will lead to heavy reduction in production cost.
Inventory management deals with purchasing stocking & issuing of materials to
various departments at right time, right quantity & at right quality. Inventory
management involves controlling the quantity, kind, location, movements and
timings of purchase of various materials used in industry.
Concept Of Inventory Management
The job of the financial management is to reconcile the conflicting
view points of various financial areas regarding the appropriate inventory levels in
order to fulfill the overall objective of maximizing the owner’s wealth. Thus,
inventory management like the management of other current assets should be
related to the overall objective of the firm. Inventories appears in various forms in
manufacturing company raw materials, work in progress, and finished goods. Since
the inventories constitute a large part of current assets, substantial amounts of
money are required to maintain them. In industry like sugar, the raw material cost
is high as 68.75% of total cost. Similarly, about the 90% of working capital is
invested in inventories. Hence, it is necessary for every management to give proper
attention to inventory management. An efficient system of the inventory
management will determine what to purchase, how much to purchase, from where
to purchase and when to store etc.
Raw Materials
The raw material inventory contains items that are purchased by the firm
from others and are converted into finished goods through the manufacturing
process. They are an important input of the final product.
Work-in-proces
The work-in-process inventory consists of items currently being used in the
production process. They are normally semi-finished goods that are at various
stages of production process.
Finished goods
Finished goods inventories are those final or completed products which
are available for sale. The inventory of such goods consists of items that have
been produced but are yet to be sold. These are the goods which are ready for
the customers. The purpose of maintain inventory is to ensure proper supply
of goods to customers.
Consumables
These are the materials which are needed to smoother the process of
production. These materials do not directly enter the production but they act
as catalysts etc. consumables and be classified according their consumption
and critically. There can be instances where these materials may account for
much value than the raw materials.
Spares
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. All decisions about spares are based on the financial
cost of inventory on such spares and the costs that may arise due to their non-
availability.
Benefits of Holding Inventories
A company should maintain adequate stock of materials for a
continuous supply to the factory for an uninterrupted production. Maintaining
inventories involves tying up of company’s funds and incurrence of storage and
handling costs. A firm also needs to maintain inventories to reduce ordering costs
and available quality discounts etc. There are 3 main general motives of holding
inventories:
Transaction Motive
Precautionary Motive
Speculative Motive
Transaction Motive
This motive emphasizes the need to maintain inventories to facilitate smooth
production and sales operations.
Precautionary Motive
This motive is necessitates holding of inventories to guard against the risk of
unpredictable demand and supply forces and other factors.
Speculative Motive
This motive is influenced the decision to increase or reduce inventory
levels to take advantage of price fluctuations.
Objectives of Inventory Management
The main aim of inventory management should be to avoid excessive and
inadequate levels of inventories and to maintain sufficient inventory for the
smooth production and sales operations. The main objectives of inventory
management are operational and financial. Efforts should be made to place an
order at the right time with the right source to acquire the right quantity at the
right price and quality.
The following are the objectives of inventory management:
To ensure continuous supply of raw materials, spares and finished goods
to facilitate uninterrupted production.
To avoid both over stocking and under stocking of inventory.
To maintain sufficient finished goods inventory for smooth sales
operations and efficient customer service.
To maintain a minimum investment in inventories to maximize
profitability.
To minimize loses through determination, pilferage, wastages and
damages.
To minimize the carrying cost and time.
To maintain sufficient stock of raw materials in periods of short supply
and anticipate price changes.
To control investment in inventory and keep it an optimum level.
To design proper organization for inventory management. Clear-cut
accountability should be fixed at various levels of the organization.
Techniques of Inventory Management
In managing inventories, the firm’s objective should be in consonance with
the shareholder, wealth maximization principles. To achieve this principle the
organization should maintain appropriate levels of inventory. Effective inventory
management requires an effective control system for inventories. A proper
inventory control not only helps in solving the acute problem of liquidity but also
increases profits and causes substantial reduction in the working capital of the
concern.
The following are the important tools and techniques of Inventory
Management and control.
Determination of Economic Order Quantity.
Determination of Stock levels.
ABC analysis
VED analysis
Determination of safety stocks.
Selecting a proper system of ordering for inventory.
Inventory turnover ratios
Aging schedule of inventories.
Classification and modifications of inventories.
Preparation of inventory reports.
1) Economic Order Quantity
Every organization will think about how much to order, when ordering the
inventories to solve this problem economic order quantity will fix the appropriate
order size. EOQ is the size of the lot order to be purchased which is economically
viable. This is the quantity of materials which can be purchased at minimum costs.
The EOQ is an optimum quantity of materials to order after consideration of the
following categories of costs, such as ordering costs, carrying costs, stock out costs.
a) Ordering Costs
These are the costs which are associated with the purchasing of ordering of
materials. These costs include:
Costs of placing an order.
Costs of receiving goods.
Transport costs.
Documentation processing costs.
Additional costs of frequent or small quantity orders.
Cost of stationary, typing postage, telephone charges etc.
b) Carrying Costs
These are the costs for holding inventories. These costs will not be incurred
if inventories are not carried. These costs include:
Stores staffing equipment maintenance and running costs.
Handling costs.
Insurance and security costs.
Cost of storage which could have been for other purpose.
Pilferage and damage cost.
Obsolescence and determination costs.
Audit, stock taking or perpetual inventory costs
c) Stock-Out Costs
The stock out costs is associated with running out of stock, includes the
following:
Lost contribution through the lost sale caused by the stock out.
Loss of future sales because customers go elsewhere.
Loss of customer goodwill.
Cost of production stoppages caused by stock out of work in progress of raw
material.
Labor frustration over stoppages.
Extra costs associated with urgent often-small quantity replenishment
purchases.
2) Determination Of Stock Levels
Various levels of inventory are fixed to see that no excess inventory is
carried and simultaneously there will not be any stock out. If the inventory levels
are too little, the firm will face frequent stock outs involving heavy ordering costs
and if the inventory level is too high it will be unnecessary tie-up of capital.
a) Reordering Level
Reorder level is the level of stock availability when a new order should be raised.
The stores department will initiate the purchase material when the stock of material
reaches at this point. This level fixed between the minimum and maximum stock
levels.
The following formula is used for this purpose:
Reorder level = (maximum usage) (maximum lead time).
b) Minimum Stock Level
Minimum stock level is the lower limit below which the stock of any stock
item should not normally be allowed to fall. Their level is also called safety stock or
buffer stock. The main object of establishing this level is to protect against stock out
of a particular stock item and in fixation of which average rate of consumption and
time required for replenishment i.e., lead time are given prime consideration.
Minimum stock level =Reorder level – (average or normal usage * average lead
time).
c) Maximum Stock Level
Maximum level represents the upper limit beyond which the quantity of any
item is not normally allowed to rise to ensure that unnecessary working capital is
not blocked in stock items. Maximum stock level represents the total of safety stock
level and EOQ. Maximum stock level can be expressed in the following
Formula: Maximum stock level = reorder level + economic reordering quantity –
(Minimum usage * minimum lead time)
d) Danger Level
Danger level of stock is fixed below the minimum stock level and if stock reaches
below this level. Urgent action for the replenishment of stock should be taken to
prevent stock out position.
Danger level = Average consumption * lead time for emergency purchases.
e) Average Stock Level
Average stock level is calculated as such:
Average stock level = (Minimum stock level + maximum stock level) /2
(Or)
Minimum stock level +1/2 * ROQ
3) ABC ANALYSIS
In this technique the items of inventory are classified according to value of
usage. This method divides inventory in classes namely.
A: Items in class a constitute the most important class of inventories so far
as the proportion in the total values of inventories is concerned.
B: Items in class B constitute an intermediate position.
C: Items in class C are quite negligible.
It is seen a very small percentage of the items say 15-20% account for the 75-80%
of the total material usage and large number of items say 75-80% of the total items
accounting 15-20% of the monetary value.
4) VED Analysis
The VED analysis is used generally to spare parts. The requirements and
urgency or spare parts is different from that material. The VED system is widely
used classification technique to identify critically of various items for inventory
control. This technique is based on the assumption that a firm need not exercise
same degree of control on all items of inventory. On the basis of critically, the
various items of inventory are categorized into 3 categories.
Vital
Essential
Desirable
Highly critical items like vital requires much closer attention by senior
management compared to that or less critical items. The reorder level depends on
the criticality of the items. For vital items relatively more inventory is maintain
compared to that of criticality level ‘E’. These items are essential but not as much
important as ‘V’ items.
5) Determination of Safety Stocks
Safety stock is a buffer to meet some unanticipated increase in usage. The
usage of inventory cannot be perfectly forecasted. If fluctuated over a period of
time. The demand for materials may fluctuate and delivery of inventory may also be
delayed and in such a situation the firm can face a problem of stock out. The stock-
out can prove costly by affecting the smooth working of the concern. In order to
protect against the stock out arising out of usage fluctuations, firms usually
maintain some margin of safety or safety stocks. The basic problem is to determine
the level of quantity of safety stocks. Two costs are involved in the determination of
this stock i.e., opportunity cost of stock-outs and the carrying costs.
6) Ordering systems of inventory
The basic problem of inventory is to decide the reorder point. This point
indicates when an order should be placed. The reorder point is determined with the
help of these things:
Average consumption rate.
Duration of lead time.
EOQ when the inventory is depleted to lead time consumption the order should
be placed.
There are 3 prevalent systems or ordering and a concern can choose any one of
these:
1. Fixed order quantity system generally known as economic order quantity system.
2. Fixed period order system or periodic reordering system or periodic review
system.
3. Single order and scheduled part delivery system.
7) Inventory Turnover Ratio
An Inventory ratio indicates the efficiency of the firm in producing and
selling its products. These ratios are calculated to indicate whether inventories have
been use efficiently or not. The purpose is to ensure the blocking of only required of
minimum funds in inventory. It is calculated by dividing the cost of goods sold by
the average inventory.
Inventory Turnover Ratio = Cost of goods sold Average inventory.
(Or)
Inventory Turnover Ratio = net sales/average inventory.
Inventory holding period = Days in a year Inventory turnover ratio.
8) Aging Schedule of Inventories
Classification of inventories according to the period (age) of their holding also
helps in identifying slow moving inventories there by helping in effective control
and management of inventories.
9) Classification and Codification Of Inventories
The inventories of a manufacturing concern may consist of raw material;
work in process, finished goods, spares, consumable stocks etc. All these categories
may be classified either according to their nature or according to use. Generally,
materials are classified according to their nature such as construction materials,
consumable stocks, spares, lubricants etc. After classification, the materials are
given code members. The coding may be done alphabetically or numerically. The
later method is generally used for coding. The class of materials is assigned to the
category of materials in that class. The third distinction is needed for the quality of
goods and decimals are used to note this factor.
10) Inventory Reports
From effective inventory control, the management should be kept informed
with the latest stock position of different items. This is usually done by preparing
periodical inventory reports. These reports should contain all information necessary
for managerial action. These reports management takes corrective action wherever
necessary. The more frequently these reports are prepared the less will be the
chances of lapse in the administration of inventories.
Just In Time Inventory Management
The just-in-time inventory control system, originally developed by Taichi Okno of
Japan, simply implies that the firm should maintain a minimal level of inventory
and rely of suppliers to provide parts and components “just-in-time” to meet its
assembly requirements. The major emphasis of just in time philosophy is inventory
management. It begins by identifying the problems and forcing firms to tackle
them. The main tactic used to reveal such problems in inventory reduction. The
just-in-time inventory system, while conceptually very appealing is difficult to
implement because it involves a significant change in the total production and
management system. It requires interalias:
A strong and dependable relationship with suppliers who are geographically not
very remote who are geographically not very remote from the manufacturing
facility.
An easy physical access in the form of enough doors and conveniently located
docks and storage areas to dove tail incoming suppliers to the needs of assembly
line.
It attempts to minimize inventories through small incremental reduction rather than
prescribe particular techniques or methodologies.
Valuation of Inventories
According to accounting standard -2 the valuation of inventories is given by the
Institute of Chartered Accounts of India. Items such as expenses, revenues, or book
debts can be recorded in the books of accounts with a fair degree of accuracy.
However, an element of subjectively is involved in the measurement of items such
as depreciation or inventory value. Methods of valuing the inventory may vary
between different business and even between undertaking within the same trade or
industry.
Taking all these significant aspect into account, this standard deal with:
1) The determination of value at which inventories are carried until related
revenues or recognized.
2) Ascertainment of cost thereof.
3) The circumstances in which carrying amount of inventory is written down
below cost.
Valuation of Inventory Is Critical Importance Reasons
Individual items may not be of significant value but taken together, would
constitute a significant portion of total assets.
Rapid turn over exception being rare or seasonal turn over.
Susceptible to obsolescence and spoilage, slow or fast moving.
Held at different places.
Physical condition.
It may involve varying degrees of estimation.
Inventory is the second largest item after the fixed assets, in financial statements
of manufacturing concerns.
It affects both the results of operations as well as the financial position as
reflected in balance sheet.
Inventories
Inventories are assets
a) Held for the purpose of sale in the ordinary course of business.
b) In the process of production for such sale.
c) In the form of material or supplies to be consumed in production process or in
rendering of services.
Inventory includes the following
a) Goods purchased and held for resale.
b) Finished goods produced for sale.
c) Work in progress generally.
d) Materials, maintenance supply consumables and loose tools awaiting use in
production process.
3) Measurement
The critical operative part of the study is that inventories should be valued at the
lower of a) coast and b) Net reliable value.
Cost Includes
Cost of purchase, net of trade discounts, rebates, duty drawbacks, Convert credit
availed etc.
But, Cost doesn’t include
Selling and distribution cost.
Abnormal wastage, storage cost.
Cost Formulae
In as much as cost do not remain static and vary from time to time, several
types of cost formulae can be used. In inventory valuation, therefore, the question
that is with reference to the flow of production, which inventory has been sold and
which continued to remain in inventory. In this backdrop, inventory valuation
depends on cost flow assumptions such as LIFO, FIFO base stock methods etc., but
the standard favours only 3 methods are as follows:
Specific Identification method.
First in First out Method.
Weighted Average cost method.
Specific Identification Method
This method is also known as specific price method. This is also known as
actual cost method because specific job bears the actual cost of material bought for
the job. When using this method, units in inventory are specifically identified and
each unit cost is identified with a particular invoice. The advantage of this method
is that cost changed to jobs is factual and not notional. Cost of items forming part of
inventory, that are not ordinarily interchangeable as also goods or services produced
and segregated for specific projects, should be assigned by specific identification of
t heir individual costs. This formula has to be applied whenever materials are
purchased and set aside for specific job or work order.
(1)First In First Out
This method is based on the assumptions that the materials, which are
purchased first, are issued first. Issues of materials are priced in the sequence of
incoming order of purchases. The flow of cost of materials should also be in the
same order.Issues are priced on the same basis until the first lot received i.e.,
exhausted, after which the price of the next lot received becomes the basis of cost
for issues. This materials issued are priced at the cost pertaining to the earliest lot,
and as a corollary the inventory in hand is valued a price representing recent
purchases.The FIFO method is most successfully used when
a) Size of raw materials is very large and cost is high.
b) Materials are easily identified as belonging to a particular purchase lot.
c) Not more that two or three different receipts are on material card at one time.
d) Price of materials does not fluctuate widely, so that clerical labour involvement
is minimized.
e) Materials are subject to deterioration and obsolescence.
(2) Weighted Average Cost Method
This is calculated by dividing the total cost of material in stock by the total
quantity of material in stock. Under this method costs are averaged after weighing
by their quantities. The weighted average cost is determined, either at periodical
intervals or each item when fresh materials arrived on purchase. The average cost at
any time is thus balance valued figure divided by the balance unit figure. This
method evens out the effect of widely varying prices of different lots of purchases,
which makes up the stock. There will be no profit or no loss arising out of pricing
issues.
(A)Net Realizable Value
Net Realizable Value is defined as the estimated selling price in the ordinary
course of business less the estimated costs of completion and the estimated costs
necessary to make for sale.
CHAPTER-4
ANALYSIS AND INTREPRETATION OF INVENTORY
MANAGEMENT ON HBL
Now a day’s inventory management is gaining importance in every
organization. A firm’s inventory management reveals its strength against their
smooth flow of production. In any firm inventory management plays a vital role; by
this a firm can achieve its goals. The organization should maintain optimum and
sufficient level of inventory management. The importance of inventory
management can be viewed from the following facts.
There is a 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 remove both over stocking & under stocking
Maintain investments in inventories at the optimum level of as required by
operational sales activities.
Eliminate duplication in ordering or replenishing stocks.
Minimize losses and get profit maximization.
4.1: Inventory Status in HBL Power Systems Ltd
(During the year 2004 to 2010) (Rs In Lakhs)
Year Stores
Spares
Tools
Fixtures
Work-in
progress
Finished
Goods
Raw
Materials
Total
2004-05 64.76 41.71 1585.97 173.90 3,314.81 5,181.15
2005-06 91.79 31.14 2358 298.20 3635.27 6,414.40
2006-07 96.22 39.45 2372 264.97 4741.50 7,514.15
2007-08 131.24 52.20 7483.06 1185.64 8380.06 17,232.20
2008-09 270.88 49.64 5058.16 3373.40 9195.48 17,947.56
2009-10 305.55 51.25 6873.85 1008.95 7538.69 19568.55
Interpretation
From the above table it can be said that the total inventory for the year 2004-05
was 5,181.15 lakhs and has been increased to 6414.40 in the year 2005-06.Due to
the movement of inventory into sales is takes place accordingly.In the year 2006-07
the inventory level indicates of growth to 7514.15, further years continuously
increase in inventory levels into sales slowly by taking the marketing conditions in
consideration. At last in the year 2008-09 increased at 17,947.56 which shows a
good profit position of company.
1. Cost of goods sold
Formula: Cost of Goods Sold = Net Sales – Gross Profit
Table 4.2: Cost of Goods Sold During 2004-10 by H.B.L Company
(In Rs. Lakhs)
Year Net sales Percent
change
Gross
profit
Per cent
change
Costofgoods
sold
Percent
Change
2004-05 28,380 -- 2,772 -- 25,608 --
2005-06 36,798 22.87 3,858 28.14 32,940 22.25
2006-07 51,185 28.10 5,152 25.11 46,033 28.45
2007-08 92,276 44.53 1,108 78.49 82,193 43.99
2008-09 1, 24,390 25.81 13,814 91.9 1, 10,576 25.66
2009-10 132690 28.52 12000 105.85 120786 28.65
Interpretation:
The net sales in the 2004-05 recorded as Rs. 28,380 lakhs, the gross profit for the
same was recorded as Rs. 2,722 crore leading towards the total cost of goods sold in
the same year accounted to Rs. 25.608 lakhs.In the year 2005-06 the sales are
increased to Rs. 36, 798 lakhs which recorded an increase of 22.87 per cent. For
the same year the per cent of change of gross profit recorded at 28.14 per cent with
Rs. 3,858 lakhs leading towards the total cost of goods sold at Rs. 22.25.In the year
2006-07 the sales are increased to Rs 51,185 lakhs which recorded an increase of
28.10 percent. For the same year the per cent of change of gross profit recorded at
25.11 percent with Rs 5,152 lakhs leading towards the total cost of goods sold at Rs
28.45.In the year 2007-08 the sales are increased to Rs 92,276 which recorded an
increase of 44.53 percent. for the year the percentage of change of gross profit
recorded at 78.41percent with Rs 1,108 lakhs leading towards the total cost of
goods sold at Rs43.99In the year 2008-09 the sales are increased to Rs1,24,390
which recorded an decrease to 25.81 for the year the percentage of change of gross
profit recorded at 91.9 percent with Rs13,814 lakhs leading towards the total cost of
goods sold at Rs25.66.
Average Raw Materials
Formula:
Average Raw Materials = (Opening stock + closing stock)/2
4.3: Opening &closing stock of raw materials By HBL Company
(During 2004-10) (Rs in Lakhs)
Year Opening stock
of
Raw materials
Closing stock of
Raw materials
Total
stock of
Raw materials
Opening Ratio Closing Ratio
2004-05 2,040 3,274 5,314 0.623 0.6160
2005-06 3,274 3,635 6,909 0.473 0.526
2006-07 3,635 4,742 8,377 0.433 0.566
2007-08 4,742 8,380 13,122 0.361 0.638
2008-09 8,380 9,195 17,575 0.476 0.528
2009-10 9,630 10,658 25,636 0.576 0.856
Interpretation
from the above table we can come to a conclusion that in the year2005-
06 opening ratio is increased to 24.07and closing ratio is decreased by 14.61,in the
year 2006-07 opening ratio is decreased to 8.4 and closing ratio is decreased to
7.06.in the year 2007-08 the opening ratio is changed as increased to 16.62 and
closing ratio increased to 21.30 .in the year 2008-09 opening stock changed to an
increase of 30.71 and the closing stock is increased to 20.83.
3. Average Work In Progress:-
(Semi-finished goods)
Formula:
Average work in process = opening WIP + closing WIP/2
4.4: Opening &Closing Stock of Work In Progress by HBL (During 2004-10)
(Rs In Lakhs)
Year Opening
Stock of
Work in
Progress
ClosingStockof
Work In Progress
Total
Work in
Progress
Opening
Ratio
Closing
Ratio
2004-05 1,110 1,586 2,696 0.141 0.588
2005-06 1,586 2,358 3,944 0.402 0.597
2006-07 2,358 2,372 4,730 0.498 0.501
2007-08 2,372 7,483 9,855 0.316 0.780
2008-09 7,483 5,058 12,541 0.596 0.403
2009-10 8,743 6,874 15,683 0.876 0.874
Interpretation: from the table 4.4 we can come to conclusion that the opening ratio
is
64.92percent in the year 2005-06 and closing ratio is decreased to 1.50percent.in the
Year 2006-07 the opening ratio is decreased to 19.27 percent and closing ratio is
Increased to16.08.the next year 2007-08opening ratio is increased to 36.54 and
closing
Ratio is also changed increased to 35.76,in the year 2008-09 opening ratio is
increased
Drastically to 46.97percent and closing ratio is also increased to39.10percent than
before years. This is a total over view of closing and opening stock of work in
progress, where the changes occur due to what reasons can find out easily.
4. Average Finished Goods
Formula: Average Finished Goods =
Opening Finished Goods + closing Finished Goods/2
4.5 Opening& closing stock of finished goods by HBL Company
(During 2004-10)
(In Lakhs)
Year Opening
stock of
finished
goods
Closing stock
of finished
goods
Total finished
goods
Opening
ratio
Closing ratio
2004-05 24 173 197 0.121 0.878
2005-06 173 293 466 0.371 0.628
2006-07 298 264 562 0.530 0.469
2007-08 264 1,185 1,449 0.182 0.817
2008-09 1.185 3.373 4.558 0.259 0.740
2009-10 1.865 4.856 5.678 0.965 0.874
Interpretation: from the above table exhibit that the opening and closing stock of
inventory in HBL (finished goods)that in the year 2005-06 opening ratio is
increased to 67 percent and closing ratio is increased to 39.8 percent but in the year
2006-07 the opening ratio is decreased to 30 percent and closing ratio also
decreased to 25.31 percent. In the year 2007-08 opening ratio is increased
to65percent and closing ratio is also increased to 42percent.In the year 2008-09
opening ratio is drastically changed decreased to 42percentand the closing stock
very badly dropped as to9.42percent
5. Raw Material Turnover Ratio
The Raw Material turnover shows how rapidly the raw material is turning
into receivables through sales. Generally a high turnover implies excessive
inventory levels than warranted by production & sales activities.
Formula:
Raw Material Turnover Ratio = Cost of Goods sold /Average raw material.
4.5 Raw material turn over ratio (During 2004-10) (Rs In Lakhs)
Year Sales Inventory
Inventory Turnover
Ratio
2004-05 25608 2657 9.6
2005-06 32940 3455 9.5
2006-07 46033 4189 10.9
2007-08 81193 6561 12.37
2008-09 110576 8788 12.58
2009-10 125683 9857 15.68
Graph representation
Interpretation
The Higher Raw Material Turnover ratio is better for the firm. From the above
graph, that the raw materials turn over (RMTR) ratio in the year 2008-09 is the
highest (12.58) as compared to the past four years. Raw materials turn over ratio
keeps increasing year after year expect in the Year 2005-06.Finally the company is
keeping inventory levels according to their requirements for future production
6. Raw materials holding period
The ratio shows the period till which the company holds the raw material.
When calculated in days this ratio focuses in the number of days till which the
company holds the raw material. The less the number of days of which the company
holds the raw materials, the better it is considered for the firm. It proves the
efficiency with which the firm converts the raw material into finished goods.
Formula: Raw material holding period =
Average Raw materials / cost of goods sold * 360 days
4.6: Raw material Holding Period
(During 2004-10) (Rs In Lakhs)
Year Inventory ratio Inventory
holding period
2004-05 37.35 2657
2005-06 37.35 3454.5
2006-07 32.75 4188.5
2007-08 29.90 6561
2008-09 28.60 8787.5
2009-10 35.60 9.5784
Graph Representation
Interpretation
This ratio shows the period till which a firm holds the raw materials. When
calculated in days the less the raw material holding period (RMHP) the better it is
for the firm. It can be pointed out from the graph that the firm holding the raw
material for 28.60 days in the year 2008-09 where as raw material holding period
was decreasing from the year 2004 to 2008 so reflects the company performance in
a efficiency way on Raw material holding Method.
7. Work In Progress Turnover Ratio
The work in process turn over ratio shows how rapidly the semi
finished goods is turning into receivable through sales. Generally a high turnover is
indicative of good inventory management. A low turn over implies excessive
inventory levels than warranted by production sales activities.
Formula:
Work in process turnover ratio = Costs of goods sold
Average work in process
4.7: Work in progress turns over ratio (During 2004-10) (In Lakhs)
YearCost of
Goods sold
Average
Work-in-process
Work-in-process
Turn over ratio
2004-05 25,608 1,348 18.99
2005-06 32,940 1,972 16.70
2006-07 46,033 2,365 19.46
2007-08 81,193 4,927.5 16.47
2008-09 1,10,576 6,270.5 17.60
2009-10 2,20,675 7,567.8 18.90
Graph Representation
Interpretation:
The higher the turn over ratio, the better it is for the firm. The ratio shows
how fast time work in process goods. The intermediate products are converted into
goods. The work in process turn over ratio is highest in the year2007 (19) but it is
least in 2008 (16). It can be interpreted from graph above; the turn over ratio has
fluctuations from year to year.
8. Work in Process Holding Period
The ratio shows the period till which the company holds the raw material. When
calculated in days this ratio focuses on the number of days till which the company
holds the raw material. The less the number of days for which the company holds in
the raw material the better it is considered for the firm. Since it proves the
efficiency with which the firm converts the raw material into finished goods.
Formula:
Work in progress holding period =
(Average work in process/ Cost of goods) * 360
4.8: Work in progress holding period (During 2004-10)(Rs In Lakhs)
YearAverage work in
processCost of goods sold
Work in process holding
period
(in days)
2004-05 1,348 25,608 19
2005-06 1,972 32,940 22
2006-07 2,365 46,033 19
2007-08 4,927.5 81,193 22
2008-09 6,270.5 1,10,576 20
2009-10 8,065 1,25,268 26
Graph representation:
Interpretation:
It is observed from table
This ratio shows the period till which a firm holds as the semi finished goods. It can
point out firm the graph that the firm has held the work in process goods for 19days
during the year 2004-05. Where it holds the work in progress goods is 18 days in
the year 2006-07. It can be said that work in process holding period has been
consistently fluctuating.
9. Finished Goods Turn Over Ratio:
Finished goods turn over ratio shows how rapidly the finished goods is turning into
receivable through sales. Generally a high turn over is indicative of good inventory
management. A low turnover implies excessive inventory levels than warranted by
production and sales activities.
Formula:
Finished goods turnover ratio = Cost of goods sold / Average finished good
4.9: Finished goods turnover ratio (During2004-10) ( In Lakhs)
YearCost of Goods
Sold
Average Finished
GoodsFinished Good Turn Over Ratio
2004-05 25,608 197 129.99
2005-06 32,940 235.5 139.87
2006-07 46,033 281 163.81
2007-08 81,193 724.5 112.07
2008-09 1,10,576 2,279 48.52
2009-10 1,20,675 2,520 52.65
Graph Representation
Interpretation
It is observed from table, In this case the finished goods turnover ratio is
highest in 2006-07 (163.81) but it is least in 2008-09 (48.52). This is increasing
from 2004 and 2005 years. But while coming to 2009 it was 48.52 This is happened
due to increase in cost of goods sold along with increase in average finished goods.
10. Finished Goods Holding Period:
This ratio shows the period till which the company holds the finished goods. When
calculated in days this ratio focuses on the number of days till which the company
holds the finished goods. The less the number of days for which the company holds
the finished goods the better it is considered for the firm. Since it proves the
efficiency of the firm.
Formula:
Finished goods holding period = (Average finished goods / cost of goods sold)*360
4.10: Finished goods turn over ratio
(During2004-10) (In Lakhs)
YearAverage Finished Goods
Cost of Goods SoldFinished Goods Holding Period(in days)
2004-05 197 25,608 3
2005-06 235.5 32,940 3
2006-07 281 46,033 2
2007-08 724.5 81,193 3
2008-09 2,279 1,10,576 7
2009-10 2,252 99004 5
Graph Representation
Interpretation:
It is observed from above table,
Finished goods holding period is 3days in the year 2005-06 and very less in
comparing to all years. It resembles firm efficiency is good. While comparing with
2009 it is 7 days so efficiency is decrease but sales within 7 days are also good
performance in this competitive world.
11. Gross Profit Ratio:
The Gross Profit Ratio is also called the average mark up ratio. The Gross Profit
Ratio reflects the efficiency with which the firm produces / purchases the goods.
Formula
Gross Profit Ratio = (Gross Profit / sales) * 10
4.11: Gross profit ratio during 2004-10)(In Lakhs)
Graph
Rep resent
atio n
GROSS PROFIT RATIO
0
2
4
6
8
10
12
2004-05 2005-06 2006-07 2007-08 2008-09
YEARS
RATIOS
Year Gross Profit Sales Gross profit Ratio
2004-05 2,772 32,575 8.50
2005-06 3,858 36,798 10.47
2006-07 5,152 51,185 10.06
2007-08 11,082 97,276 11.39
2008-09 11,130 1,24,390 8.95
2009-10 12,052 12547 9.35
Interpretation:
It is observed from table,
Higher the Gross Profit Ratio is better for the firm. From the past five years we can
observe, the highest gross profit earned by the firm is 11.39 in the year 2007-08 and
lowest is 8.50 in the year2004-05. In this case of Gross Profit Ratio of the firm is
fluctuating.
12. Cost of Goods Sold Ratio:
Formula: Cost of goods sold ratio = (cost of goods sold / net sales) * 100
4.12: Cost of goods sold during 2004-10 By HBL Company
( In Lakhs)
Year Cost of goods sold Net sales Cost of goods sold ratio
2004-05 25,608 32,575 78.61
2005-06 32,940 36,798 89.51
2006-07 46,033 51,185 89.93
2007-08 81,193 97,276 83.47
2008-09 1,10,576 1,24,390 88.89
Graph representation
COST OF GOODS SOLD RATIO
0
20
40
60
80
100
2004-05 2005-06 2006-07 2007-08 2008-09
YEARS
RA
TIO
S
RATIOS
Interpretation
It is observed from the above table, that net sales for the year 2006-07 net
sales increased to 51,185.cost of goods sold for the same year is46,033.The
same year that as
Cost of Goods Sold Ratio is high in the year 2006-07 and low in the year 2004-
05.the cost of goods ratio reflects company performance in a positive way only.
13. Inventory Turn over Ratio:
The Inventory Turn over Ratio shows how rapidly the inventory is turning
into receivables through sales. Generally a high inventory turn over is indicative of
good inventory management. A low inventory implies excess inventory levels than
warranted by production and sales activities or a slow moving or obsolete
inventory.
Formula:
Inventory Turnover Ratio = cost of goods sold / average inventory
4.13: Inventory turnover ratio during 2004-10 By HBL
Company
(In Lakhs)
Year Cost of goods sold Average inventoryInventory
Turn over ratio
2004-05 25,608 5,359 4.77
2005-06 32,940 6,767 4.86
2006-07 46,033 7,545 6.10
2007-08 81,193 17,246 4.70
2008-09 1,10,576 17,998 6.14
Graph Representation:
INVENTORY TURNOVER RATIO
0
1
2
3
4
5
6
7
2004-05 2005-06 2006-07 2007-08 2008-09
YEARS
RA
TIO
S
RATIO
Interpretation
It is observed from table, Inventory which is a combination of raw material,
work in process and finished goods naturally, reflects the overall inventory position
of the firm. The more the Inventory Turn over Ratio the faster the inventory is
converted into sales it is better for the firm. In case the Inventory Turn over Ratio is
more in 2008-09 (6.14) and least in 2007-08 (4.70).
14. Inventory Holding Period Ratio
However, the sales do not convert into cash instantly. There is invariably a
time lag between the sales of the sales of the goods and receipt of cash. Technically
this is referred to as a operating cash cycle. The operating cycle include the holding
period of inventory there is a positive relation between these two. If the inventory-
holding period is more automatically the operating cycle will also be extended.
There is positive relation between the operating cycle and the Inventory Holding
Period Ratio, longer the Inventory Holding Period Ratio the larger will be the
operating cycle. Thus to reduce the operating cycle, it is necessary that the
Inventory Holding Period Ratio is should be less.
Formula:
Inventory Holding Period Ratio =
(Average inventory / cost of goods sold) * 360 days
4.14: Inventory holding period ratio during 2004-10
( In Lakhs)
Year Average inventoryCost of goods
sold
Inventory holding period ratio
(in days)
2004-05 5,359 25,608 75.33
2005-06 6,767 32,940 73.95
2006-07 7,545 46,033 59.24
2007-08 17,246 81,193 76.46
2008-09 17,998 1,10,576 58.59
Graph Representation
INVENTORY HOLDING PERIOD RATIO
0
10
20
30
40
50
60
70
80
90
2004-05 2005-06 2006-07 2007-08 2008-09
YEARS
HO
LD
ING
PE
RIO
D
(IN
D
AY
S)
DAYS
Interpretation
It is observed from table
In the above graph the Inventory Holding Period Ratio is least in 2008-09
(58.59days) and highest in 2007-08 (76.46days).so the the Inventory Holding
Period Ratio of the firm resembles a positive way.
Raw Material Consumed Ratio
There is positive relation between the operating cycle and the Inventory
Holding Period Ratio, longer the Inventory Holding Period Ratio the larger will be
the operating cycle. Thus to reduce the operating cycle, it is necessary that the
Inventory Holding Period Ratio is should be less.
Formula:
Raw Material Consumed Ratio = (Raw material consumed / sales) * 100
4.15: Raw Material Consumed Ratio during 2004-10
(Rs. In Lakhs)
Year Raw material consumed Sales Raw material consumed ratio
2004-05 1,245 32,575 3.82
2005-06 320 36,798 0.87
2006-07 1,107 51,185 2.16
2007-08 3,639 92,276 3.94
2008-09 815 1,24,390 0.66
Graprepersentation
Interpretation
In the above graph the Inventory Holding Period Ratio is least in the year 2008-09
(0.66d) and highest in the year 2007-08 (3.94).
The firm utilizing the raw material very quickly it helps to decreases carrying and
ordering costs. This ratio indicates efficiency of firm.
16. Inventory to Working Capital Ratio:
This ratio indicates to know how much of amount using for inventory from
the working capital. Working capital is a capital uses for regular transactions of the
firm. Promoting sufficient funds for inventory helps to keeps smooth promotion of
sales.
Formula:
Inventory to working Capital Ratio = Average Inventory / Working Capital
4.16: Working capital ratio during 2004-09 (Rs. In lakhs)
Year Average inventory Working
Capital
Inventory
to working capital
ratio
2004-05 5359 19210 0.27
2005-06 6767 24977 0.27
2006-07 7545 30417 0.25
2007-08 17246 53550 0.32
2008-09 17998 58678 0.31
Graph Representation
INVENTORY TO WORKING CAPITAL RATIO
0
0.1
0.2
0.3
0.4
0.5
2004-05 2005-06 2006-07 2007-08 2008-09
YEARS
RA
TIO
S
RATIO
Interpretation:
From the above table, we can observe there are increase inventory funds
from
2004 - 2008. In the year 2004, firm providing part of funds for inventory
maintenance
Is 0.27 and in 2009 is 0.31 and working capital so firm concentrating on inventory
management by promoting more funds for smooth production.
4.17: various inventory ratios for 2004 to 2009
Ratio 2004-05 2005-06 2006-07 2007-08 2008-09
Raw Material
Turn Over Ratio9.6 9.5 10.9 12.37
12.58
Raw Material
Holding Period37.35 37.75 32.75 29.09
28.60
Work In Process
Turn Over Ratio18.99 16.7 19.46 16.47
17.6
Work In Process
Holding Period18.95 21.55 18.49 21.84
20.41
Finished Goods Turn
Over Ratio129.99 139.87 163.81 112.07
48.52
Finished Goods
Holding Period2.77 2.57 2.20 3.21
7.42
Inventory To Working Capital
Ratio0.27 0.27 0.25 0.32
0.31
Gross Profit Ratio 8.50 10.48 10.06 11.39 8.95
Cost Of Goods Sold Ratio 78.61 89.51 89.93 83.47 88.89
Raw Materials
Consumed Ratio3.82 0.87 2.16 3.94
0.66
Inventory Turn Over 4.77 4.86 6.10 4.70 6.14
Inventory Holding Period 027 0.27 0.25 0.32 0.31
5.1 summary and suggestions
Entails planning for the future of a person or a business enterprises a
positive cash flow. It includes the administration and maintenance of financial
assets. besides, financial management covers the process of identifying and
managing risks. The primary concern of financial management is the assessment
rather than the techniques of financial quantification. A financial manager looks at
the available data top judge the performance of enterprises. Managerial finance is
an interdisciplinary approach that borrows from both managerial accounting and
corporate finance. some experts refer to financial management at the science of
money management. The primary usage of this term is in the world of financing
business activities However, financial management is important at all levels of
human existence because every entity needs to look after its finances.
Broadly speaking, the process of financial management takes place at two
levels. At the individual level, financial management involves tailoring expenses
according to the financial resources of an individual. Individuals with surplus cash
or access to funding invest their money to make up for the impact of taxation and
inflation. Else, they spend it on discretionary items. they need to able to take the
financial decisions that are intended to benefit them in the long run and help them
achieve their financial goals. From an organizational point of view, the process of
financial management is associated with financial planning and financial control.
Financial planning seeks to quantify various financial resources available and plan
the size and timing of expenditures. Financial control refers to monitoring cash
flow. Inflow is the amount of money coming in to a particular company, while out
flow is a record the expenditure being made by the company. Managing this
movement of funds in relation to the budget is essential for business.
The purpose of financial management is to help the decision makers to make the
better financial decisions. These decisions are made in the context of a financial
system that both constrains and facilitates them. The financial system comprises a
variety of intermediaries, markets and instrument that are related in a complex
manner. It provides the principal means by which savings are transformed in to
investments. Given its role in the allocation of resources, the efficient functioni9ng
of the financial system is critical to a modern economy.
A financial manager is responsible for providing financial advice and
support to clients and colleagues to enable them to make sound business decisions.
Specific settings very enormously and include both public and private sector
organizations, such as multinational corporations, retailers, financial institutions,
charities, small manufacturing companies and universities. Financial considerations
are at the root of all major business decisions. Clear budgetary planning is essential
for future planning. Both short and long term and companies need to know the
financial implications of any decision before proceeding. In addition, care must be
taken to ensure that financial practices are in line with all statutory legislation and
regulations. Financial managers may also be known as financial analysts or
business analysts.
The Industry sectors and the financial system are undergoing rapidly
changes following the process of liberalization and reforms. The underlying
principle behind every reform measure re-orientation of monetary policy
techniques, introduction of new money market instruments and institutions, suggest
structural changes in the financial system and strengthening regulatory
arrangements has been to make the system more competitive, efficient and
profitable. Every performance indicator seems to reflect the impact of the reform
measures. Profitability of the industry has witnessed a steady improvement mainly
as a result of these measures, capital adequacy rations have crossed the norms
prescribed for almost all industries. The industries have begun to focus on
minimizing their asset liability mismatches and on risk management. Further, after
the enactment of securitization Act 2002, the industries get a weapon to tackle the
challenge of Non Performing Assets (NPAs). At this backdrop, it is felt essential to
study the financial performance of the lead Acid Division, HBL Power Systems
Ltd, which is one of the representatives of the Indus trying system. Which is
experiencing the recent reforms?
It consists of information obtained from annual reports. Balance-sheet and
other financial statements are also collected. Files and same other important
documents maintained by the organization. In addition to that, collecting data from
referred text books. Collection of required data from annual records of H.B.L
battery Ltd had become necessary. Reference from textbooks and journals relating
to financial management are also included.
HBL Power Systems Limited is a public limited company. It was
established in 1977 as a small scale industry but today it has grown into a well-
diversified batteries technologies group. It has its units on the outskirts of
Hyderabad. HBL power systems Ltd. Is the pioneer in the design, development and
manufactures of specialized batteries and DC systems in India? With over 3
decades of experience in this field, the company offers a wide range of batteries and
associated electronics providing its customers, custom built solutions to meet
critical requirements.
HBL Power Systems Limited is engaged in the manufacturing of widest
range of specialized batteries, electronic equipment and other telecommunication,
railways, aviation, defence, power and other industrial sectors. Further, the
company is divided into various divisions depending upon the nature of the product,
each division is treated as a separate company, each having its own funds allocation
and manpower in various departments. The company manufactures various types of
batteries viz., VRLA, Tubular, Monobloc, Nickel-Cadmium, Lithium, Silver-Zinc,
and Thermal etc. The electronics segment comprises of various divisions
manufacturing electronic equipment like rectifiers, IPS etc A part from batteries and
electronics, the company also manufacturing bulletproof jackets, windmills etc. the
company has recently taken up railway signaling works contracts. The company has
3 divisions catering to the ancillary needs of the company, material components
divisions at Shamirpet, Nandigaon, Bhoothpure, Kandivalsa and VSEZ (Duvvada)
units indulge in various ancillary activities like sheet metal fabrication making of
racks, cutting, bending, plating etc. plastic molding divisions at Nandigaon
manufactures various types of boxes and cell and battery container. Annual
turnover of the company is around 800 crores.
Charges for Rechargeable batteries are also manufactured in bother TR and
SMR versions 24 Volts to 220 Volts. The company has sales of about US $ 50
millions and very substantial Design and Development capabilities. Over 25 years
of Experience in the Domestic Market and over 10 year in Exporting to many
countries including USA, South Korea, West Asia and South East Asia, has given
HBL an understanding of the customers special varied requirements. Several Major
customers have found the company’s products to be Reliable over the years and
have placed repeat orders. The company has adequate marketing and service
personnel who can support the customers at short notice. The Triumph-HP series is
a Premium Design Valve Regulated lead acid battery based and features offered by
world class companies. The battery works on the gas recombination principle and
has been designed to meet the requirements of a wide range of applications. This
product has been manufactured under the controls. Established by a for
Quality/Environmental Management system that meets the requirements of ISO
9001-2000: ISO 14001:1996, which has been independently certified by BVQI.
A wide range of individual battery types, in the major technologies of nickel
Cadmium, Lead Acid, and Silver Zinc along with associated Electronic
Equipment. Conveniently located in Hyderabad, backed-up with processing and
testing facilities to provide full product support and back-ups. An in-depth
technical resource based on years of experience to help you select batteries
according to the requirements. “Off the shelf” products in many popular sizes to
meet quick delivery requirements. Products manufactured to international
standards and certified by independent testing agencies.
The solar powered shelters carry batteries that expose them to higher
temperatures. Net results are the need for a heavy duty, robust, deep cycling
battery that is also less sensitive to high temperature. To meet such rigors to
temperatures and varying pattern of usage, HBL introduces “Tubular Gel VRLA
Battery” with unbeatable combination of Tubular plate and gelled electrolyte.
These batteries are primarily used for meeting the starting and servicing electric
power requirements for MIG series of aircrafts. The batteries are mounted on an
electric driven trolley unit. These batteries use High Rate Fiber Nickel Electrodes
there by giving an excellent Electrical performance. The benefits of these batteries
are low internal resistance, High rates of discharge and improved recharge
capability coupled with long cycle life.
HBL’s sintered Plastic Bonded Batteries are best suited for applications
requiring high reliability coupled with low maintenance and high performance.
The sintered plastic bonded batteries are manufactured using sintered positive
plates and plastic bonded negative plates. These are specially designed for High
Power Density and Reduced Water Consumption. These batteries use
polypropylene cell containers with thermally welded lids for high impact
resistance. The dictionary meaning of inventory is stock of goods or a list of
goods. The inventory can be defined as the sum of the value of raw materials,
fuels and lubricants, spare parts, maintenance consumables; semi processed
materials and finished goods stock at any given point of time. The term inventory
refers to the study stockpile of the products a firm is offering for sale and the
components that make up the products a firm is offering for sale and the
components that make up the product. The various forms in which inventories
exists in a manufacturing are:
The job of the financial management is to reconcile the conflicting view
points for various financial areas regarding the appropriate inventory levels in
order to fulfill the overall objective of maximizing the owner’s wealth. Thus,
inventory management like the management of other current assets should be
related to the overall objective of the firm. Inventories appear in various forms in
manufacturing company raw materials, work in progress, and finished goods.
Since the inventories constitute a large part of current assets, substantial amounts
of money are required to maintain them. In industry like sugar, the raw material
cost is high as 68.75% of total cost. Similarly, about the 90% of working capital is
invested in inventories. Hence, it is necessary for every management to give
proper attention to inventory management. An efficient system of the inventory
management will determine what to purchase, how munch to purchase, from
where to purchase and when to store etc.
Minimum stock level is the lower limit below which the stock of any stock
item should not normally be allowed to fall. Their level is also called safety stock
or buffer stock. The main object of establishing this level is to protect against
stock out of a particular stock item and in fixation of which average rate of
consumption and time required for replenishment i.e., lead time are given prime
consideration.
Minimum stock level = Reorder level- (average or normal usage* average
lead time).
The VED analysis is used generally to spare parts. The requirements and
urgency or spare parts is different from that material. The VED system is widely
used classification technique to identify critically of various items for inventory
control. This technique is based on the assumption that a firm need not exercise
same degree of control on all items of inventory. On the basis of critically, the
various items of inventory are categorized into 3 categories.
Safety stock is a buffer to meet some unanticipated increase in usage. The
usage of inventory cannot be perfectly forecasted. If fluctuated over a period of
time. The demand for materials may fluctuate and delivery of inventory may also
be delayed and in such a situation the firm can face a problem of stock out. The
stock out can prove costly by affecting the smooth working of the concern. In
order to protect against the stock out arising out of usage fluctuations, firms
usually maintain some margin of safety or safety stocks. The basic problem is to
determine the level of quantity of safety stocks. Two costs are involved in the
determination of this stock i.e., opportunity cost of stock outs and the carrying
costs.
An inventory ratio indicates the efficiency of the firm in producing and
selling its products. These ratios are calculated to indicate whether inventories hae
been uses efficiently or not. The purpose is to ensure the blocking of only
required of minimum funds in inventory. It is calculated by dividing the cost of
goods sold by the average inventory.
The inventories of a manufacturing concern may consist of raw material;
work in process, finished goods, spares, consumable stocks etc. All these
categories may be classified according to their nature such as construction
materials, consumable stocks, spares, lubricants etc. After classification, the
materials are given code members. The coding may be done alphabetically or
numerically. The later method is generally used for coding. The class of materials
is assigned to the category of materials in that class. The third distinction is
needed for the quality of goods and decimals are used to note this factor.
The just-in-time inventory control system, originally developed by Taichi
Okna of Japan, simply implies that the firm should maintain level of inventory
and rely of suppliers to provide parts and components “just-in-time” to meet its
assembly requirements. The major emphasis of just in time philosophy is
inventory management. It begins by identifying the problems and forcing firms to
tackle them. The main tactic used to reveal such problems in inventory reduction.
The just-in-time inventory system, while conceptually very appealing is difficult
to implement because it involves a significant change in the total production and
management system. It requires interalias:
A strong and dependable relationship with suppliers who are
geographically not very remote who are geographically not very remote from the
manufacturing facility. An easy physical access in the form of enough doors and
conveniently located docks and storage areas to dove tail incoming suppliers to
the needs of assembly line. It attempts to minimize inventories through small
incremental reduction rather than prescribe particular techniques or
methodologies.
5.1 Findings
The following are the finding of the present study:
1. The turnover of inventory may be improved in order to reduce inventory
maintenance expenditure and working capital investments over inventory
levels.
2. Adequate supervision an administration is to be exercised for better
inventory control.
3. Material coding system and items verification procedure may be improved
in stores department.
4. There were fluctuations in the grass profit. So necessary actions must take
to reduce express in order to get profits.
5. HBL power systems may adopt latest techniques like just in time (JIT)
concept for supply of materials in the time to need, supply cum application
contracts, where materials are to be produced by the contractor for
fixation, etc., for producing the materials. This saves a lot of investment in
the inventory of stores and spares and avoids further stock out situations.
6. The appropriate action plan for disposal of inventory in HBL power
systems may be taken for making the provisions in the books of accounts
on a systematic manner for writing-off slow and non moving inventories
in the future.
7. HBL power systems is required to fix minimum, maximum, reordering
level in a scientific manner to control the further growth of slow moving
or non moving inventories.
8. In the year 2007-2008 the gross profit is 78.94 and the cost of goods sold
is 43.99 and in the year 2008-2009 gross profit ratio is increased to 91.9%
which causes a slight changes in the percentage of cost of goods sold is
25%.
9. In the year 2008-2009 net sales increased to 25.81 and gross profit also
increased to 91.9% which causes to a change in cost of goods sold is noted
as 25.66%
10. Work in progress turnover ratio is satisfactory. The cost of goods sold is
increasing year by year accordingly average of work in progress also
increase which leads to the automatic increase in the work in progress
ratio.
11. Finished goods turnover ratio is satisfactory. As the cost of goods sold
increased year by year accordingly changes occur in the average finished
goods leads to the increase in the finished goods turnover ratio.
12. As the cost of goods sold has increased from the year 2004-05 to 2008-09,
there is an increase in inventory turnover ratio.
13. The inventory holding system when compared to the previous years is
satisfactory.
BIBLOGRAPHY
Books:
Financial Management :
Financial Management :
Production & Operation Management :
Production & Operation Management :
HBL POWER SYSTEMS LTD
JOURNALS
ANNUAL REPORTS
REPORTS FROM INVENTORY & STORES DEPARTMENT OF HBL power
SYSTEM Ltd.
WEB SITE : www.hbl.com