inventory and store management heritage

8/10/2019 Inventory and Store Management Heritage

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A PROJECT REPORT ON

INVENTORY AND STORE MANAGEMENT OF

HERITAGE FOODS INDIA LIMITED INDUSTRIES

LIMITED

HYDERABAD

Project Report Sub!tte" !#

P$rt!$% &u%&!%%e#t &or t'e $($r" o&

MASTER OF BUSINESS ADMINISTRATION

SUBMITTED BY

SS)*REENA

Be$r!#+ Ro%% No*,-E./E,,.0

Sree D$t'$ I#1t!tute o& E#+!#eer!#+ 2 Sc!e#ce

3A&&!%!$te" to JNTU4

H5"er$b$"

36,,- 7 ,84
http://mail.google.com/mail/?ui=1&view=att&th=12159422088f3498&attid=0.2&disp=inline&realattid=f_fuwp49ef&zw


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AC)NO9LEDGEMENT

Behind every successful achievement lies great

contribution by those without whom that could have been

achieved to them, although more words of gratitude is

insufficient for their unlimited contribution, I take this

opportunity to revel my heart felt gratitude imprinted deep

within me. I am very much thankful to the finance manager

Mr. RAG! and the staff of "RI#AG" $%%&' I(&IA

)IMI#"& Industries for giving encouragement and their

kind cooperation. I am e*tremely grateful to Mr.

+A)"'AR RA% assistant general manager -IR

R&/ of "RI#AG" $%%&' I(&IA )IMI#"&0 kindly

guiding me without whose kind help it would not have been

possible for me to complete this pro1ect work. I wish to

e*press my sincere thanks to -.%.&/ Guide and also the

management and staff of my college for providing the

guidance and support.

SS)*REENA


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DECLARATIONS

I here by declare that the enclosed pro1ect entitled

2I(3"(#%R4 A(& '#%R" MA(AG"M"(#5 done at

4&"RABA& in "RI#AG" $%%&' I(&IA )IMI#"&

is submitted to 26(#!, 4&"RABA&5 in partial

fulfillment of 2MA'#"R %$ B!'I("''

A&MI(I'#RA#I%(5, the pro1ect is an original work done

by me and to the best of my knowledge this work is not

submitted to any other university or college for award of

any other degree, diploma or fellowship.

SS)*REENA


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ABSTRACT

%ne can readily visuali7e the determination of inventory

8uantities by physical count or by use of perpetual inventory

records. hen this 8uantity is determined it must be multiplied by

a unity cost in order to determine the in inventory value that is

used on financial statement.

#rade and 8uantity are to be e*cluded from unit cost since

these discount e*ist for the purpose of defining the true invoice

cost of merchandise. 9ash discounts, on the other hand, have been

considered as a reward for early payment and a penalty for late

payment. #he 2reward5 has often been interpreted as a loss rather

than a part of unit cost.

In financial parlance, inventory is defined as the sum of the

value of the raw materials, fules and lubricants to maintenance

consumable semi processed materials and finished goods stock at

any giving point of time. #he operational definition of inventory

world be amount of raw materials, fuel and lubricants and semi :

processed materials to be stock for the smooth running of the

plant ; industry.


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CONTENTS

TOPICS PAGE NO*

CHAPTER: I /:.

INTRODUCTION

NEED OF THE STUDY

OBJECTIVE OF THE STUDY

METHODOLOGY OF THE STUDY

LIMITATION OF THE STUDY

CHAPTER: 6 ;:/est appraisal systems to motivate employees

Incentive, bonus and reward systems to encourage employees

"eritage forges ahead with a motto Gadd value to everything you

doG

Sh$"eho%!e"):

Retu"):

=onsistent (ividend ?ayment since ?ublic Issue 2Nanuary

4


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got self employment in rural areas more than 8000 sales agents

associated with the company

Employment for the youth by providing nancial and animal

husbandry support for establishing I*I ($I#IE)

?roducing highly health conscious products for the society

+u$%'t'e) of *$$(e*et -"'.'-%e):

4. =ustomer focus to understand and meet the changing needs

and e!pectations of customers.

5. ?eople involvement to promote team work and tap the potential

of people.

6. +eadership to set constancy of purpose and promote quality

culture trough out the organiation.

7. ?rocess approach to assess the eOciency and e-ectiveness of

each process.

8. )ystems approach to understand the sequence and interaction

of process.

A. &actual approach to decision making to ensure its accuracy.

/.

=ontinual improvement processes for improved business results.

;. (evelopment of suppliers to get right product and services in

right time at right place.

P"o!u.t0M$"&et #')e -e"fo"*$.e:

The total turnover is #s 674 =rores during the nancial

year 500/@0; against the turnover of 5


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"eritage distributes quality milk F milk products in the states of $.?,

Barnataka, Berala F Tamil nadu.

(uring the year 500/@0; liquid milk sales was

#s.5;65utter milk sales have gone up by 781 over 500A@0/.

Out%oo&:

=onsidering the growth potential in the liquid milk

market, the company has drawn plans to increase its market share in

the e!isting markets and to enter into new markets there by doubling

revenues in dairy business in the ne!t 6 years. To achieve this obect,

company is undertaking maor e!pansion in dairy business by inverting

over #s50 crores during 500/@0; and over #s40 crores during the

current year to strengthen the milk procurement.

BRANCHES OF HFIL:

"&I+ has 6 wings. They are

4. (airy


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5. #etail

6. $gribusiness

12 D$'",:

It is the maor wing among all. The dairy products

manufactured by "&I+ are ilk, curd, butter, ghee, avoured milk,

paneer, doodhpeda, ice cream.

32 Ret$'%:

In the retail sector "&I+ has outlets namely J&reshPQ. In

those stores the products sold are vegetables, milkF milk products,

grocery, pulses, fruits etc.

In "yderabad 4< retail shops are there. In >angaloreF

=hennai, 6F7 respectively are there. Totally there are 5A retail shops

are there.

&reshP is a unique chain of retail stores, designed to

meet the needs of the modern Indian consumer. The store rediscovers

the taste of nature every day making grocery shopping a never before

e!perience.

The uniqueF distinctive feature of &reshP is that it

o-ers the widest range of fresh fruits and vegetables which are directly


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hand picked from the farms. &reshness lies in their merchandise and

the customers are always welcomed with fresh fruits and vegetables

no matter what what time they walk in.

42 A("' Bu)'e)):

In this business "&I+ employees will go to farmers and

have a deal with them. Those farmers will sell their goods like

vegetables, pulses to "&I+ only. $nd "&I+ will transport the goods to

retail outlets.

The agricultural professors will e!amine which area is

suitable to import vegetables from and also e!amine the vegetables,

pulses and fruits in the lab. $nd nally they report to the "ead@

$gribusiness. #epresentatives as per the instructions given by the agri

professors will approach the farmers directly and make a deal with

them. It is the process of registering the farmers.


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CHAPTER III

CONCEPTUAL BAC5GROUND

The investment in inventories constitutes the most signicant

part of current assets R working capital in 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 suOcient quantity as and when required and also to

minimie investment in inventories.

Me$'( $! N$tu"e of I/eto",:


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In accounting language, inventory may mean the stock of

nished goods only. In a manufacturing concern, it may include raw

materials, work@ in : progress and stores etc.,

I/eto", '.%u!e) the fo%%o#'( th'():

a3 R$# M$te"'$%9 #aw material from a maor input into the

organiation. They are required to carry out production

activities uninterruptedly. The quantity of raw materials

required will be determined by the rate of consumption and

the time required for replenishing the supplies. The factors

like the availability of raw materials and %overnment

regulations etc., too a-ect the stock of raw materials.

b3 6o"& ' -"o("e))9 The work in progress is that stage of

stocks which are in between raw materials and nished

goods. The quantum of work in progress depends upon the

time taken in the manufacturing process. The quantum of

work in progress depends upon the time taken in the

manufacturing process. The greater the time taken in

manufacturing, the more will be the amount of work in

progress.

c3 Co)u*$b%e)9 These are the materials which are needed to

smoother the process of production but they act as catalysts.

=onsumables may be classied according to their

consumption add critically. %enerally, consumable stores doe

not create any supply problem and rm a small part of

production cost. There can be instances where these

materials may account for much value than the raw materials.

The fuel oil may form a substantial part of cost.


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d3 F'')he! (oo!)9 These are the goods, which are ready for

the consumers. The stock of nished goods provides a bu-er

between production and market, the purpose of maintaining

inventory is to ensure proper supply of goods to customers.

BENEFITS OF HOLDING INVENTORIES

$lthough holding inventories involves blocking of a rms and

the costs of storage and handling, every business enterprise has to be

maintain certain level of inventories of facilitate un : interrupted

production and smooth running of business. In the absence of

inventories a rm will have to make purchases as soon as it receive

orders. It will mean loss of time and delays in e!ecution of orders which

sometimes may cause loss of customers and business.

$ rm also needs to maintain inventories to reduce ordering

cost and avail quantity discounts etc.

There are three main purpose of holding inventories.

4. The t"$)$.t'o *ot'/e9 Dhich facilitates continuous

production and timely e!ecution of sales order.

5. The -"e.$ut'o$", *ot'/e9 Dhich necessitates the holding of

inventories for meeting the unpredictable changes in demand

and supplies of materials.

6. The )-e.u%$t'/e *ot'/e9 Dhich induces to keep inventories

for taking advantage of price uctuations, saving in re : ordering

costs and quantity discountsS

RIS5 AND COSTS OF HOLDING INVENTORIES

The holding of inventories involves blocking of a rms funds

and incurrence of capital and other costs.


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The various costs and risks involved in holding inventories are9

=apital costs9 aintaining of inventories results in blocking of

the rms nancial resources. The rm has therefore to arrange for

additional funds to meet the cost of inventories.

The funds may be arranged from own resources or from

outsiders. >ut in both the cased, the rm incurs a cost. In the former

case, there is an opportunity cost of investment while in the later caseL

the rm has to pay interest to t he outsiders.

4. Sto"$(e $! H$!%'( Co)t)9 "olding of inventories also

involves costs on storage as well as handing of materials. The

storage of costs include the rental of the godown, insurance

charges etc.

5. R')& of P"'.e !e.%'e9 There is always a risk of reduction in the

prices of inventories by the supplies, competition or general

depression in the market.

6. R')& of Ob)o%e).e.e9 The inventories may become absolute

due to improved technology, changes in requirements, change in

customer tastes etc.

7. R')& Dete"*'$t'o ' 7u$%'t,9 The quality of materials may

also deteriorate while the inventories are kept.

Ob8e.t) of I/eto", M$$(e*et


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A. To minimie loses through deterioration, pilferages, wastages

and damages.

/. To ensure perpetual inventory control so that materials shown in

stock ledgers should be actually lying in the stores.

;. To ensure right quality goods at reasonable prices. )uitable

quality standards will ensure proper quality of stocks. The price :

analysis, the cost analysis and value : analysis will ensure

payment of proper prices.


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$9 M''*u* )to.& %e/e%:

It represents the quantity below its stock of any item should not

be allowed to fall.

Le$! t'*e9 $ purchasing rm requires sometime to process

the order and time is also required by the supplying rm to e!ecute the

order.

The time in processing the order and then e!ecuting it is know

as lead time.

R$te of Co)u*-t'o9 It is the average consumption of

materials in the factory. The rate of consumption will be decided on the

basis of past e!perience and production plans.

N$tu"e of *$te"'$%)9 The nature of material also a-ects the

minimum level. If a material is required only against the special orders

of the customer then minimum stock will not be required for such

material.

inimum stock level can be calculated with the help of

following formula.

M''*u* )to.& %e/e% Re o"!e"'( %e/e% No"*$%

.o)u*-t'o ; No"*$% "e o"!e" -e"'o!9

b9 Re o"!e"'( Le/e%:


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Dhen the quantity of materials reaches at a certain gure then

fresh order is sent to get materials again. The order is sent before the

materials reach minimum stock level.

#e : ordering level is !ed between minimum level ma!imum

level.

.9 M$;'*u* Le/e%:

It is the quantity of materials beyond which a rm should not

e!ceeds its stocks. If the quantity e!ceeds ma!imum level limit then it

will be over : stocking.

'verstocking will mean blocking of more working capital, more

space for storing the materials, more wastage of materials and more

chances of losses from obsolescence.

M$;'*u* )to.& %e/e% Reo"!e"'( Le/e% < Reo"!e" +u$t't,

M$;'*u* Co)u*-t'o ; M''*u* "eo"!e" -e"'o!9

!9 D$(e" Sto.& Le/e%:

It is !ed below minimum stock level. The danger stock level

indicates emergency of stock position and urgency of obtaining fresh

supply at any cost.

D$(e" Sto.& %e/e% = A/e"$(e "$te of .o)u*-t'o ;

e*e"(e., !e%'/e", t'*e2

e9 A/e"$(e Sto.& Le/e%:


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This stock level indicates the average stock held by the

concern.

A/e"$(e )to.& %e/e% = M''*u* )to.& %e/e% < > ; "eo"!e"

7u$t't,2

39 Dete"*'$t'o of S$fet, Sto.&):

)afety stock is a bu-er to meet some unanticipated increase in

usage. The demand for materials may uctuate and delivery of

inventory may also be delayed in such a situation the rm can be face

a problem of stock out.

In order to protect against the stock out arising out of usage

uctuations, rms usually maintain some margin of safety stocks.

Two costs are involved in the determination of this stock that is

opportunity cost of stock outs and the carrying costs.

If a rm maintains low level of safety frequent stock outs willoccur resulting into the larger opportunity costs. 'n the other hand,

the larger quantity of safety stocks involves carrying costs.

49 E.oo*'. O"!e" +u$t't, EO+9:

The quantity of material to be ordered at one time is known as

economic ordering quantity.

This quantity is !ed in such a manner as to minimie the cost

of ordering and carrying costs.

Tot$% .o)t *$te"'$% = A.7u')'t'o Co)t < Co)t < C$"",'( Co)t)

< O"!e"'( Co)t2


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C$"",'( Co)t:

It is the cost of holding the materials in the store.

O"!e"'( Co)t:

It is the cost of placing orders for the purchase of materials.

E'K can be calculated with the help of the following formula

E'K 5=' R I

Dhere = =onsumption of the material in units during the

year

' 'rdering =ost

I =arrying =ost or Interest payment on the capital.

?9 A B C A$%,)'): A%#$,) bette" .ot"o% $$%,)')9:

Under $ : > : = $nalysis. The materials are divided into 6

categories vi., $, > and =.

$lmost 401 of the items contribute to /01 of value of

consumption and this category is called V$ category.

$bout 501 of the items contribute about 501 of value of

category V= covers about /01 of items of materials which contribute

only 401 of value of consumption.

@9 VED A$%,)') : V't$%%, E))et'$% De)'"e9


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= Net )$%e)

A/e"$(e9

I/eto",

A! I/eto", .o/e")'o -e"'o! = D$,) ' $

,e$"

I/eto", Tu"o/e"

"$t'o

9 C%$))'.$t'o $! Co!'.$t'o of I/eto"'e):

The inventories should rst be classied can then code

numbers should be assigned for their identication. The identication

of short names are useful for inventory management not only for large

concerns but also for small concerns. +ack of proper classication may

also lead to reduction in production.

%enerally, materials are classied accordingly to their nature

such as construction materials, consumable stocks, lubricants etc.

$fter classication the materials are given code numbers. The coding

may be done alphabetically or numerically. The later method is

generally used for coding.


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The class of materials is assigned two digits and then two or

three digits are assigned to the categories of items divided into 48

groups. Two numbers will be category of materials in that class.

>4 V$%u$t!o# o& !#?e#tor!e1 7 Met'o" o& ?$%u$t!o#=

$I$% method

)I$% method

Base 'tock method

eighted average price method

CRITERIA FOR JUDGING THE INVENTORY SYSTEM

hile the overall ob1ective of the inventory system is to minimi7e the cost to the

firm at the risk level acceptable to management, the more pro*imate criteria for 1udging

the inventory system ares certificate where

applicable.

$ill in and attach the purchase order review proforma to purchase order.

'end the prepared purchase order to head -purchase/ and competent authority

for approval.

'end the purchase order to identified approved sub : contractor.

'end the purchase order copies to store and concerned departments.

"nter the details of purchase order in purchase order register.

PURCHASE DEPARTMENT

AMENDMENT / CANCELLATION OF ORDER

M$ter!$% Co"e M$ter!$%Pr!ce u$#t!t5

$1 per Or"er

Ae#"e" Pr!ce

u$#t!t5


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ACTIVITY= ORDER AMENDMENT ORDER FOLLO9 UP AND INFORM THE

SUPPLIER FOR THE REJECTIONS DAMAGES SHORTAGES=

FLO9 CHART=

Issue of amendments in case of modification to purchase order.

Review the pending order and follow up the pending order for breakdownre8uirement.

'end regular reminders to suppliers against pending purchase order every

month.

Receive shortage ; e*cess ; damages report from stores for the material

received.

Information the supplier for the re1ections ; damage ; e*cess ; shortage.

PURCHASE DEPARTMENT

ACTIVITY= IMPORTS=

FLO9 CHART=

Receipt of indents for import items from stores department.


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#aking previous ; item, information to be taken from concerned department or

from competitors ; 1ournals ; 4ellow pages.

'end en8uiry to overseas supplier.

Receiving 8uotations against en8uiries sent.

"nter price and other terms of the 8uotations received from overseas supplier

in the order processing form.

"*amine order processing form and decide the sub : contractor to whom

purchase order to be placed.

=repare purchase order after finali7ation of price and other technical terms

mentioning the following details.

?/ Material code

@/ Indent number

/ Material specification part number

/ uantity

C/ Rate

D/ =ayment

E/ Insurance and other terms and conditions.

'end the prepared purchase order to head -purchase/ and competent authority

for approval.

'end the purchase order to overseas supplier.


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'end the purchase order copies to stores and concerned departments.

=repare I9 documents and submit to bank for onward transmission to overseas

supplier.

Receive shipping documents from overseas supplier and send same to clearing

agents for collection of the material.

STORES DEPARTMENT

ACTIVITY= RECEIPTS AND UNLOADING MATERIAL

Receiving of Goods through #runk ; =ersonnel &elivery.


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"ntry of vehicle at Gate %ffice.

'tamping on &ispatch Advise ; &elivery challan by Gate %ffice.

9hecking of challans ; &ispatch Advise with purchase order.

!nloading of Goods at allotted place or in case of urgency direct at works site.

All safety precautions are taken while unloading of material like workers

should wear safety shoes, helmets, leather head gloves, noise respirator, nose

mask.

#raining is given to workers for unloading eavy Bulky material by using

chain pulley Blocks, ire Rope 9eilings, $ork )ift. After !I) receipt

acknowledgement given to driver maintaining )orry receipts register.

STORES DEPARTMENT


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ACTIVITY= PREPARATION OF RECEIPT AND APPROVAL BOO) FOR

GENERAL MATERIAL D*C* ENTER OF BLOC) AND STATIONARY

MATERIAL MANUALLY IN REGISTER

'orting of &elivery challans as below

inventory and store management heritage

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