inventory and store management

8/10/2019 Inventory and Store Management

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INVENTORY AND STORE MANAGEMENT

INTRODUCTION:

Every enterprise needs inventory for sooth running of its activities. It serves as a link

between production and 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. It also provides a cushion for future price fluctuations.

In a complex industry like Kesoram Industries td., it was studied clearly of how the

things are !eing performed and what is the real impact of these on industry and how

effectively the inventory is utili"ed is interested to be known by researcher because of its

great significance in the research.

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NEED FOR THE STUDY:

Every industry on an average spends $%& on raw material 'inventory(. Therefore there is

a need to know the raw material cost and also there is a great importance to understand

the inventory management system of this industry.

The study helps a lot to various departments to steps to control the inventory process.

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OBJECTIVES OF THE STUDY:

To maximi"e the organi"ation structure of inventory management in the stores of

Kesoram *ement.

To discuss pattern, levels and trends of inventories in Kesoram *ements.

To understand the various inventory control techniques followed by studies in

Kesoram *ements.

To access the performance of inventory management of the Kesoram *ements

by selected accounting ratios.

To know the inventory control techniques of Kesoram *ements.

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METHODOLOGY OF THE STUDY:

The study is based on both primary and secondary data. The primary data had

been collected structured questionnaire reflecting inventory management practices of

kesoram cements. The collected data is tabulated and suitable interpretation had been

made by considering the data collected through secondary data like annual reports

purchase registers, storage records of the organi"ation.


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LIMITATIONS OF THE STUDY:

The study has the following limitations-

The study is limited only for a period of years i.e. from )%%%/%# to )%%/%0.

The limitations of ratio analysis can applicable to the study.

There may be approximation in calculating ratios and taking the figures from the

annual reports.

The main ob1ectives of inventory management or operational and financial. The

operational ob1ectives means that the material and suffers should be available

insufficient quality so that work is not disrupted for want of inventory.

The assumption of a constant consumption and the instantaneous replenishment of

inventory are of doubtful validity.

The possible there may be unusual and unexpected demand for the stock.

In addition to the above there are computational problems involved.


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HISTORY OF INDIAN CEMENT INDUSTRY

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!y starting production in #2# the story of Indian cement is a stage of continuous

growth. *ement is derived from atin word 3*emented4.

Egyptians and 5omans found the process of manufacturing cement in England during # st

century the 6ydraulic cement has become more versatile building material. ater on, 7at

land cement was invented and the invention was usually attributed to 8oseph 9sp :in of

England.

India is the world;s thlargest cement produced after *hina, 8apan < =>9. The

>outh Industries have produced cement for the #st time in #2%, the most basic and

progressive industry. Till#2%/#, the capacity if production was only +.+ ?illion tones.

>o far annual production and demand have been growing a pace at roughly $@ ?illion

tones with installed capacity of $@ ?T.

In the remaining ) Aears of @thplan an additional of )+ ?T has been planed,

assuming that at least #0 ?T will actually come up.

India is well endowed with cement grade limestone '2% !illion Tones( and coal

'#2% !illion Tones(. :uring the 2%;s it had a particularly impressive expansion with

growth rate of #% &.

The strength and vitality of Indian cement industry can be gauged by interest

shown and support given by Borld !ank, considering the excellent performance of the

industry in utili"ing the loans and achieving the ob1ectives and targets. The Borld !ank is

examining the feasibility of providing a +rd line of credit for further upgrading the

industry varying areas, which we make it global with the liberali"ation policy of Indian

Covt. The industry is posed for a high growth rate in 2%s and the installed capacity is

expected is #22 ?T and production 2% ?T by )%%+.

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The industry has fabulous scope for exporting is product to countries like the

=>9, =K, !angladesh, Depal and other several countries. !ut there not enough wagons

to transport cement for shipment.

CEMENT-THE PRODUCT:

The natural cement is obtained by burning and crushing the stones containing

clay, carbonate of line and some amount of carbonate of magnesia. The natural cement is

brown in color and its best variety is known as 35?9D *E?EDT4. It sets very quickly

after addition of water.

It was in the #@thcentury that the most important advances in the development

were it finally led to the invention of 7ortland cement.

In #$0, 8ohn >eaton showed that 6ydraulic lime which can resist the action of

water can be obtained not only from hard limestone but from a limestone which contain

substantial proportion of clay.

In #$0, 8oseph 7arker found that modules of argillaceous limestone made

excellent hydraulic cement when burned in the usual manner. 9fter burning the product

was reduced to a powder. This started the natural cement industry.

The artificial cement is obtained by burning at a very high temperature a mixture

of calcareous and argillaceous material. The mixture of ingredients should be intimate and

they should be in correct proportion. The claimed product is known as *linker. 9 small

quantity of gypsum is added to clinker and it is then pulveri"ed into fine powder, which is

known as *E?EDT.

The common variety of artificial cement is known as normal setting cement of

ordinary cement. 9 mason 8oseph 9sp :in of leads in England invented in #@). 6e took

out a patent for this cement and called it 375T9D: *E?EDT4 because it had

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resemblance in its color after setting to a variety or sandstone, which is found in

abundance in 7ortland England.

The manufacturing of 7ortland cement was started in England around #@). !elgium and

Cermany started the same in #@. 9merica started in #@$) and India started in #2% by

>outh India td. 9nd then onwards a number of factories producing different types of

cements.

COMPOSITION OF CEMENTS:

The ordinary cement contains two bases ingredients, namely 9rgillaceous and

*alcareous. In 9rgillaceous materials the clay predominates and in calcareous materials

the calcium carbonate predominates.

9 good chemical analysis of ordinary cement along with desired range of

ingredients.

INGREDIENTS PERCENT RANGE

ime '*a( 0) 0)/0$

>ilica '>i)( )) #$/)

9lumina '9l) +( +/@

*alcium >ulphate

'*a>o(

+/

Iron xide 'Fe) +( + +/

?agnesia '?g( ) #/+

>ulphur '>( # #/+

9lkalis # %.)/#

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INDUSTRY STRUCTURE AND DEVELOPMENT:

Bith a capacity of ## ?T of large cement plants. Indian cement is the th in world.

6owever per capital consumption in our country still at only #%%kgs against +%%kgs of

developed countries and offers significant potential for growth of cement consumption as

well as addition to cement capacity. The recent economic policy announcement by the

government in respect of housing roads, power etc., will increase cement consumptions.

RISKS AND CONCERNS:

>low down of Indian economyor drop in growth rateof agriculture may adversely

effect the consumption. The recent increase in railway coupled with dieselGpetrol price

like will increase the cost of production and distribution, as being bulky, cement is freight

intensive increase in limestone royalty also adds to the cost of production, which

considerably higher than corresponding of many other developing countries.

In our country there is need to under take a massive program of house

construction activity into rural and urban areas, it is impossible to construct a use without

cement and steel. In other wards, cement is one of the basic construction materials and

therefore it is one of the vital elements for the economic development of the nation.

*ement companies # no;s

*ement plant 22 no;s

Installed capacity 0.@mt

Total Investment 'approx( 5s.#%%% crores

?anagement 9ward of the Covt. of 9ndhra 7radesh Kesoram is also conscious of

its social responsibilities. Its rural and community development programmers include

adoption of too near by villages, running an agriculture demonstrations farm, a model

dairy farm etc., impressed by these activities, F97**I choose Kesoram to conger the

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Kesoram go the prestigious >tate award 3Aa1amanya ratna4 and 3best

?anagement 9ward4 for the year #2@2, so also the F97**I 'Federation of 9.7. *hamber

of *ommerce < Industry( 9ward for !est Family 7lanning effort in the. For the year

#2@$/@@, Kesoram also got the F97**I 9ward for !est Industrial 7romotionGExpansion

effort in the state. In the year #22#, Kesoram also got the ?ayday 9ward of the Covt. of

9ndhra 7radesh for 3!est ?anagement4 and 3pandit 8awaharlal Dehru >ilver 5olling

Trophy4 for 3!est Industrial 7roductivity4 effort in the state, sponsored by F97**I. For

#22+ kesoram got the best.

PERFORMANCE:

The performance of Kesoram Industry has been out standing achieving oven cent

percent utili"ation all though despite many odds like power cuts and which most %& was

waste due to wagon shortage etc.

The company being a continuous process industry works round the clock and has

an excellent record of performance achieving over #%% capacity utili"ation.

Kesoram has always combined technical progress with industrial performance.

The had a glorious tract record for the last )$ years in the industry.

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TECHNOLOGY:

Kesoram *ement uses most modern technology and the computeri"ed control in

the plant. 9 team of dedicated and well/expanded experts managers the plant. The quality

is maintained much above the bureau of Indian standards.

The raw materials used for manufacturing cement are-

imestone

!auxite

6ematite

Cypsum

Environ!n"#$ #n% &o'i#$ O($i)#"ion&:

For environmental promotion and to keep/up the ecological balance, this section

has under taken various social welfare camps, surgical camps, children immuni"ation

camps, animal health camps, blood donations camps, distribution of fruit bearing and

seeds, training for farmers etc., were arranged.

W!$*#r! #n% R!'r!#"ion F#'i$i"i!&:

For the purpose of recreation facility, two auditoriums were provided for playing

indoor games, cultural function and activities drama, music and dance etc.

The industry has provided libraries and reading rooms. 9bout #%%% books are

available. 9ll kinds of news papers, maga"ines are made available.

*anteen is provided to cater the needs of the employees for supply of snacks, tea, coffee

and meals etc.

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ne English medium and one Telugu medium school are provided to meet the

educational requirements.

The company has provided a dispensary with a qualified ?edical office and

paramedical staff for benefit of the employees covered under E>I scheme has to avail the

medical facilities from the E>I hospital.

*ompetitions in sports and games are conducted every year for 9ugust #th.

Independence :ay and 8anuary )0th, 5epublic :ay among the employees.

ELECTRICITY:

The power consumption per ton for cement has come down to #%@ units against

##+ units last year, due to implementation of various energy saving measures. The

performance of captive power plant of this section continuous to be satisfactory. Total

power generation during the year was @ million units last year. This captive power plant

is playing a ma1or role in keeping power costs with in economic levels.

The management has introduced various 65: programs for Training and

:evelopment and has various other measures for the betterment of employee;s

efficiencyGperformance.

The section has installed adequate air pollution control system and equipment and

I> #%%# such as Environment ?anagement system is under implementation.

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AWARDS:

Kesoram *ement bagged many prestigious awards including Dational awards for

7roductivity, Technology, *onservation and several >tate awards since #2@.

The following are the some of important awards-

SI+NO YEAR AWARDS AWARDS

# #2$0 F97**I award for the !est Family

7lanning Efforts

>tate

) #2$@ F97**I award to !est Industrial

7romotionGExpansions Efforts

>tate

+ #2@ !est Family 7lanning Efforts in the

>tate

>tate

#2@/@0 Dational 7roductivity 9ward Dational

#2@0/@$ ?ines >afety Dational

0 #2@$/@@ !est Industrial 7romotionGExpansions

Efforts

>tate

, #2@@/@2 7roductivity 9ward >tate

@ #2@@/@2 !est Industrial 7romoter >tate

2 #2@@/@2 Expansions Efforts in the >tate >tate

#% #2@2 Aa1amanya 5atna < !est management

9wards

>tate

## #2@2/2% *ommunity :evelopment 7rograms >tate

#) #2@2/2% Energy *onservation Dational

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#+ #22# ?ayday award of the Covt. of 9.7. for

!est ?anagement

>tate

# #22# 7andit 8awaharlal Dehru rolling for the

best Dational 7roductivity effort

>tate

# #22+ Indira Candhi Dational 9ward for

excellence in Industry '!est

?anagement 9ward(

>tate

#0 #22 !est Industrial 5ebellion award >tate

#$ #22/2 5ural :evelopment by *hief ?inister

>tate

>tate

#@ #22 Environment and mineral conservation

award

>tate

#2 #22 !est Industrial 5ebellion award >tate

)% #22/20 !est effort of an Industrial unit to

:evelopment

>tate

)# #220 >ri >.5. 5unta award for social

awareness for best rural :evelopment

efforts

Dational

)) #220 !est Family welfare award >tate

)+ #220/2$ !est workers welfare >tate

) #222 First pri"e for mine environment tate

) )%%# ana ?ithra award from 9.7.

Covernment

>tate

)0 )%%) *ompany has got 6>9> L #@@%#

'ccupational 6ealth and >afety

9ssessment >eries( certification from

:D, Dew :elhi

Dational

)$ )%%$ !est ?anagement 9ward from 9.7. >tate

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Covt.

In the mines safetyweek celebrations, under the auspices of the director general of mines

safety, Kesoram;s !asanthnagar limestone mines won two times #st pri"es for

environment and pollution control and safe drilling and blasting and # times )ndpri"es

for over all 7erformance, 7roductivity, peration and maintenances of machines public/

propaganda etc.

This section also bagged the award for Codavari 7radushana 7ariharana

7ariyavarana.

PRODUCTION:

ast # years production of Kesoram *ement Industry, !asanth nagar.

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YEAR PRODUCTION'in tones(

#22#/2) 0,+,00+

#22)/2+ $,@,)@

#22+/2 0,@,20

#22/2 $,+#,##$

#22/20 $,@,

#220/2$ $,@),+@+

#22$/2@ $,+#,%2

#22@/@2 $,0,$

#222/)%%% 0,@@,+%

)%%%/%# $,$$,%2)

)%%#/%) $,)$,$

)%%)/%+ $,+%,)

)%%+/% $,+,%#)

)%%/% @,),+0)

)%%/%0 2,@,$

)%%0/%$ #%,0,#00

)%%$/%@ #%,0,$)

Dote- 7roduction including internal consumption also.

*ement and *linker production were lower than the previous year mainly because of

lower dispatches of cement due to recession prevailing in cement industry with slow

down in demand during the year under review. This section had to curtail production due

to accumulation of large stocks of kerr. 6owever sale, reali"ation during the )ndhalf of the

fear has improved and it is hope that prices will stabili"e at some reasonable levels.

Dir!'"or& o* K!&or# In%&"ri!& L"%+.

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C/#ir#n:

>yt. !.K. !irla

Dir!'"or&:

>hri. Krishna Copal ?aheshwari

>hri. !hagawathi 7rasad !a1oria

>hri. 7esi Kushru *hoksey

>hri. Deetha ?uker1i 'Dominee of I*I*I !ank td.,(

>hri. :harmanada ?ishra 'Dominee of I*(

>hri. 9mitabha Chosh

>hri. 7rasanta Kumar ?allik

>mt. ?an1ushree Khaitan

>mt. >hiv Kumar 7arik '9lso *ompany >ecretary(

T!# E0!'"iv!&:

>hri. K.*. 8ain

>r. 7resident

*ement >ections < ?anager of the *ompany

Cor1or#"! O**i'!:

>hri. =.>. 9sopa >r. ice 7resident 'Finance(

>hri. >.5. *hamaria >r. ice 7resident '9ccounts < 65:(

>hri. >uresh >harma >r. ice 7resident '*ommercial(

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>hri. C.K. 1ha ice 7resident '>ecretarial(

>hri. ika 9garwal ice 7resident 'taxation(

>hri. Aashwanth ?ishra ice 7resident'internal control(

K!&or# C!!n" S!'"ion:

>hri. >.. Thapadia 8oint 7resident ' finance < 9:?D(

>hri. K.. Darayana 5ao 8oint 7resident 'technical (

>hri. K.K. 7rasad ice/7resident 'mines (

A%i"or&:

?asses price water house

S(&i%i#r2 Co1#ni!& o* K!&or# In%&"ri!&:

#. !harat Ceneral < Textiles Industries td.

). KI*? Investment td.

+. 9ssam *otton ?ills td.

. >oft>hree Estates td.

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INVENTORY INTRODUCTION:

The inventories constitute the most significant part of current assetsGworking

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

management of inventories.

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The purpose Inventory ?anagement is to ensure availability of material in

sufficient quantity as and when required and also to minimi"e investment in inventories.

?eaning and Dature of Inventory-

In accounting language, inventory may be the stock of insured goods only.

In a manufacturing company concern it may include raw/materials, work/in

process and stores etc.

Inventory includes the following things:

3+ R#4-M#"!ri#$&:

5aw/?aterial from a ma1or into the organi"ation. They are requiring carrying 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 5aw/?aterials and Covernment regulations etc., too

affect the stock of 5aw/?aterials.

5+ Wor6-in-1ro)r!&&:

The Bork/in/progress is that stage of stocks which are in between 5aw/?aterial and

finished goods. The quantum of Bork/in/progress depends upon the time taken in the

manufacturing process.

7+ Fini&/!% Goo%&:

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

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

is to ensure proper supply of goods to customers.

8+ S1#r!&:

The stock policies of space fifer from industry to industry. >ome industries like transport

will require more spares than the others concerns. The costly spare parts like engines,

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maintenance etc., are not discarded after use, rather they are kept in ready position for

further use.

9ll 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:

9lthough holding inventories involves blocking of firms funds and the costs of storage

and handling, every !usiness enterprise has to be maintain certain levels of inventories to

facilitate un/interrupted production and smooth running of business.

In the absence of inventories a firm will have to make purchases as soon as it

receives order. It means loss of time and delays in execution of orders with some times

may cause loss of customers and business.

9 firm needs to maintain inventories to reduce ordering cost and quantity

discounts etc.,

These are + main purpose of holding inventories-

9. The transaction motive- which facilities continuous production and timely

execution of sales orderM

!. The transaction motive- which necessitates the holding of inventories for meeting

the unpredictable changes in demand and supply of materialsM

*. The speculative motive- this induces to keep inventories for taking advantage of

price fluctuations, savings in re/ordering costs and quantity discounts.

RISKS AND COSTS OF HOLDING INVENTORIES:

The holding of inventories involves blocking of firm;s funds and incurrence of

capital and other costs.

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The various costs and risks involved in inventories are-

#9 C#1i"#$ Co&"&:

?aintaining of inventories results in blocking of the firms financial resources. The firm

has therefore to arrange for additional funds to meet the cost of inventories.

(9 S"or#)! #n% H#n%$in) Co&"&:

6olding of inventories also involves costs on storage as well as handling of materials.

The storage of costs include the rental of the go down, insurance charges etc.,

'9 Ri&6 o* Pri'! D!'$in!:

There is always a risk of reduction in the prices of inventories by the supplies,

competition or general depression in the market.

%9 Ri&6 o* O(&o$!&'!n'!:

The inventories may become obsolete due to improved technology, changes in

requirements, changes in customer tastes etc.,

3+ Ri&6 %!"!rin#"ion in #$i"2:

The quality of materials may also deteriorate while the inventories are kept.

OBJECTIVES OF INVENTORIES MANAGEMENT:

D!*ini"ion o* Inv!n"or2 M#n#)!!n":

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Inventory ?anagement is concerned with the determination of optimum level of

investment for each component of inventory and the efficient use of components and the

operation of components and the operation of and effective control and review of

mechanism.

The main ob1ectives of Inventory ?anagement are operational and financial. The

operational ob1ective mean that the materials and spares should be available in sufficient

quantity that work is not disrupted for want of inventory.

The financial ob1ective means that investments inventory should not remain Idle

and minimum working capital should be locked init.

T/! *o$$o4in) #r! "/! o(;!'"iv!& o* Inv!n"or2 M#n#)!!n"-

5+ To ensure continuous supply of materials, spares and finished goods so that

production should not suffer at any time and customers demand should also be

met.

7+ To avoid both over/stocking and under/stocking of inventory.

8+ To maintain investment in inventories at the optimal level as required by

operational and sales over all costs.


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?+ To facilitate furnishing of data for short/term and long/term planning and control

of inventory.

TOOLS AND TECHNI@UES OF INVENTORY MANAGEMEN

9 proper inventory control not only helps in solving the acute problem of

liquidity but also increases profit and caused substantial reduction in the working capital

of the concern.

The following are the important tools and techniques of Inventory ?anagement

and control-

3+ D!"!rin#"ion o* S"o'6 L!v!$&:

*arrying of too much and too little of inventory is detrimental to the firm.

If the inventory level is too little, the firm will face frequent stock outs involving heavy

rdering *ost and if the inventory level is too high it will be unnecessary tie up of

capital.

9n efficient Inventory ?anagement requires that a firm should maintain an

ptimum evel of inventory where inventory costs are the minimum and at the same time

there is no stock out which may result in loss or sale or shortage of production.

i+ Mini S"o'6 L!v!$:

It represents the quantity below its stock of any item should not be allowed to fall.

L!#% Ti!:

9 purchasing firm requires sometime to process the order and time is also required by the

>upplying firm to execute the order.

The time in processing the order and then executing it is known as ead Time.

R#"! o* Con&1"ion:

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It is the average consumption of materials in the factory. The rate of consumption will be

decided on the basis of past experience and production plans.

N#"r! o* M#"!ri#$&:

The nature of materials also affects the minimum level. If a material is

required only against the special orders of the customers then minimum stock will not be

required for such material.

?inimum stock level can be calculated with the help of following formula.

Mini S"o'6 L!v!$ R!-or%!rin) L!v!$ Nor#$ Nor#$ R!-or%!r P!rio%9

ii+ R!-Or%!rin) L!v!$:

Bhen the quantity of materials reaches at a certain figures then fresh order

sent to get materials again. The order is sent before the materials reach minimum stock

level.

5e/rdering level is fixed between ?inimum level and ?aximum level.

iii+ M#0i L!v!$:

It is the quantity of materials beyond which a firm should not exceed its stocks. If the

quantity exceeds maximum level limit then it will be over stocking.

ver stocking will mean blocking of more working capital, more space for store the

materials, more wastage of materials and more changes of losses from obsolescence.

M#0i S"o'6 R!-Or%!rin) L!v!$ R!-or%!r @#n"i"2 ini

'on&1"ion ini or%!r 1!rio%9+

iv+ D#n)!r S"o'6 L!v!$:

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It is fixed below minimum stock level.

The :anger stock indicates emergency of stock position and urgency to

obtaining fresh at any cost.

D#n)!r &"o'6 L!v!$ Av!r#)! r#"! o* 'on&1"ion E!r)!n'2 %!$iv!r2 "i!+

v+ Av!r#)! S"o'6 L!v!$:

This stock level indicates the average stock held by the concern.

Av!r#)! S"o'6 L!v!$ Mini &"o'6 $!v!$ Or%!r #n"i"2+

5+ D!"!rin#"ion o* S#*!"2 S"o'6&:

>afety stock is a buffer to meet some unanticipated increase in usage. The demand for

material may fluctuate and delivery of inventory may also be delayed and in such a

situation the firm can face a problem of stock out.

In order to protect against the stock out arising out of usage fluctuations, firms

usually maintain some margin of safety stock.

Two costs are involved in the determination of this stock outs will occur resulting

into the larger opportunity costs. n other hand, the larger quantity of safety stocks

involves carrying costs.

7+ E'onoi' Or%!r @#n"i"2 EO@9:

The quantity of material to be ordered at one time is known as Economic rder Juantity.

The quantity is fixed in such a manner as to minimi"e the cost of ordering and carrying

costs.

To"#$ 'o&" o* M#"!ri#$ A'i&i"ion 'o&" 'o&" C#rr2in) 'o&" Or%!rin) 'o&"+

C#rr2in) Co&"&:

It is cost of holding the material in the store.

Or%!rin) Co&":

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

EJ can be calculated with the help of the following formula.

EO@ 5COI

Bhere,

* N *onsumption of the material in units during a year.

N rdering *ost.

I N *arrying *ost or Interest payment on the capital.

8+ A-B-C An#$2&i& A$4#2& B!""!r Con"ro$ An#$2&i&9

=nder 9/!/* 9nalysis, the materials are divided into + categories vi"., 9, !, and *.

almost #%& of

the items contribute to $% of value of consumption and this category is called a O9;

category.

9bout )% of the items contribute about )%& of value of consumption and this is known

as

category O!H materials.

*ategory O*; covers about $% of the items of materials which contribute only #%& of

value of consumption.


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The stocking of O:; type spares may be avoided at times. If the lead time of these

spares is less, then stocking of these spares can be avoided.

=+ Inv!n"or2 Trnov!r R#"io:

Inventory Turnover 5atios are calculated to indicate whether inventories have been used

efficiently or not.

The Inventory Turnover 5atio also known as stock velocity is normally calculated as

saleGaverage inventory of cost of goods soldGaverage inventory.

Inventory conversion period may also be calculated to find the average time taken for

clearing the stocks.

>ymbolically..

Inv!n"or2 Trnov!r R#"io Co&" o* Goo%& So$% Av!r#)! Inv!n"or2 #" Co&"

OR9

Inv!n"or2 Trnov!r R#"io N!" S#$!& Av!r#)! Inv!n"or2

Inv!n"or Conv!r&ion 1!rio% D#2& in # Y!#r Inv!n"or2 Trnov!r

R#"io

,+ C$#&&i*i'#"ion #n% Co%i*i'#"ion o* Inv!n"or2:

The inventories should first classify and then code numbers should be assigned foe their

identification. The identification of short names are useful for Inventory ?anagement not

only for large concerns but also for small concerns. ack of proper classification may also

lead to reduction in production.

Cenerally, materials are classified accordingly to their nature such as construction

materials, consumable stocks, spares, lubricants etc. after classification the materials are

given code numbers. The coding may be done alphabetically or numerically. The later

method is generally used for coding.

+#


32/85

The class of materials is assigned two digits and then two of three digits are assigned to

the categories of items divided into # groups. Two numbers will be category of materials

in that class.

The +rddistinction is needed for quality of goods and decimals are used to note factor.

>+ V#$#"ion& o* Inv!n"ori!& M!"/o% o* V#$#"ion:

FIF ?ethod

IF ?ethod

!ase >tock ?ethod

Beighted 9verage 7rice ?ethod.

+)


33/85

CRITERIA FOR JUDGING THE INVENTORY SYSTEM

Bhile the overall ob1ectives of the inventory system is to minimi"e the

cost to be firm at the risk level acceptable to management, the more proximate criteria for

1udging the inventory system are-

*omprehensibility

9daptability

Timelines

Ar!#& o* I1rov!!n":

Inventory ?anagement in India can be improved in various way improvements could be

affected through.

E**!'"iv! Co1"!ri#"ion:

*omputers should not used merely for accounting purpose but also improving :ecision

?aking.

R!vi!4 o* '$#&&i*i'#"ion:

9!* and F>D classification must be periodically reviewed.

I1rov!% Co-or%in#"ion:

!etter *o/ordination among 7urchase, 7roduction, ?arketing and Finance :epartments

will help in achieving greater efficiency in Inventory ?anagement.

D!v!$o1!n" o* Lon) T!r R!$#"ion&/i1:

*ompanies should develop long term relationship with vendors. This would help in

improving quality and delivery.

Di&1o$ o* O(&o$!"! Sr1$& Inv!n"ori!&:

7rocedure for disposing bsolete G >urplus Inventories must be simplified.

++


34/85

A%o1"ion o* C/#$$!n)in) Nor&:

*ompanies should set benchmarks with global competitors use ideals like 8IT to improve

Inventory ?anagement.

INVENTORY COST-AN OVERALL VIEW:

In"ro%'"ion:

In financial parlance, Inventory is defined as the value of the raw

materials, fuels and lubricants spares parts maintenance consumable, semi processed

materials and finished goods stock at any given point of time. The operational definition

of inventory would be amount of raw materials, fuel and lubricants, spare parts and semi

processed materials to be stock for smooth running of the plantGindustry.

N!!% o* Inv!n"or2:

Inventories are maintained basically for the operational smoothness which they

can be affected by uncoupling successive stage of production, whereas the monetary

value of the inventory serves as guide to indicate the si"e of each investment made to

achieve this operational convenience. The materials management departments; primary

function is to provide this operational convenience with a minimum possible investment

in inventories. ?aterials department is accused of both stocks outs as well as large

investments in excising a selective inventory control and application of inventory control

techniques. Inventories build to act as a cushion between supply and demand. It is

sufficient to take care of probable delays in supply as well as probable variations in

demand.

The si"e of inventory depends upon the factors such as si"e of industry internal

lead time for purchase, supplier;s lead time, vendor;s relations, availability of the

materials, and annual consumption of the materials. Inventory cost can be controlled by

+


35/85

applying modern techniques vi"., 9!* 9nalysis, >:E, E>D, 6E?*, E: etc., these

techniques can be used effectively with the help of computeri"ation.

W/#" i& !#n" (2 Inv!n"or2 Co&"

i. The total value of stores and spares and capital spares,

ii. >tores in transit and under inspection and

iii. >tock of finished products.

Dormally, there are certain problems in maintaining ptimal evel of Inventory.

7roblems of inventory can be resolved by the cost implication. *osts which are relevant

for consideration are discussed in the following lines-

!asically there are four costs consideration in developing and inventory model.

The cost of placing a replenishment order,

The cost of carrying inventory,

The cost of under stocking and

The cost of over stocking.

The cost of ordering and inventory carrying cost are viewed as the supply side costs and

help in the determination of the amount of variations in demand and the delay in supplies

which is the inventory should with stand.

The under stocking and over stocking costs are viewed as the demand side costs and help

in the determination of the amount of variations in demand and the delay in supplies

which is the inventory should with stand.

Bhenever an order placed for stock replenishment, certain costs are involved, and, for

most practical purpose it can be assumed that the cost per is constant. The ordering cost

may vary depending upon the type of items, for example raw material like steel

production component like casting in steel plants, support materials in the case of coal

industry.

+


36/85

T/! 'o&" or%!rin) in'$%!&:

7aper work costs, typing and dispatching an order,

Follow up costs, the follow up required to ensure timely supplies includes the

several cost for purchase follow up, the Telephones, Telex and 7ostal bills etc.,

*osts involved in receiving of the order, inspection, checking and handling in the

stores,

9ny set up cost of machines charged by the supplier, either directly indicated in

quotations or assessed trough quotations of various quantity,

The salaries and wages of the purchase department.

Co&" o* Inv!n"or2 C#rr2in):

This cost is measured as of the item. This measure gives basis for estimating what is

actual costs a company to carry stock.

T/i& 'o&" in'$%!&:

Interest on capital,

Insurance and Tax charges,

>torage cost/labor costs, provision of storage area and facilities like bins, racks

etc.,

Transport bills and 6amali charges,

9llowance for deterioration or spoilage,

>alaries of stores staff,

The inventory carrying cost varies and a ma1or portion of this an accounted for the

interest on capital.

+0


37/85

Un%!r S"o'6in) Co&":

The cost is the cost incurred when an item is out of stock. It included cost of lost

production during the period of stock out and the extra cost per unit which might have to

be paid for an emergency purchase.

Ov!r S"o'6in) Co&":

This cost is the inventory carrying cost 'which is calculated per year( for a

specific period of time. The varies in different contexts it could be the time of

procurement of entire life time of machine. In the case of one time purchase,

POv!r 'o&" Pr'/#&in) Pri'! S'r#1 V#$!

INVENTORY VALUATION AND COST FLOWS

W/#" i& "/! 'o&" o* Inv!n"or2

ne can readily visuali"e the determination of inventory quantities by

physical count of by use of perpetual inventory records. Bhen this quantity is determined,

it must be multiplied by a unit cost in order to determine the inventory value that is used

on financial statements.

Trade and quantity discount are to be excluded from unit cost since these

discounts exists for the purpose of defining the true invoice cost of merchandise. *ash

discounts, on other hand, have been considered as a reward has been often interpreted as a

loss rather than as part of unit cost. Thus, it would not be difficult to find difference of

opinion as to whether invoice cost includes cash discount.

Bhen the 3current replacement cost4 of material on hand at the close of a

year is less that the actual cost, the inventory value is reduced to replacement cost

'*urrent market price(. Thus the acceptable basis inventory valuation is the 3ower of

cost or market4 of more properly the 3ower of actual cost or replacement cost4.

+$


38/85

The determination of inventory values is very important from the point of view of the

!alance >heet and the Income >tatement since costs not included in the inventory 'the

!alance >heet( are considered to be expensive and thus included in the Income >tatement.

V#$#"ion o* Inv!n"ori!& M!"/o%& o* D!"!rin#"ion:

9lthough the prime consideration in the valuation of inventories is cost,

there are a number of generally accepted methods of determining the cost of inventories

at the close of an account period. The most commonly used methods are First/in/First out

'FIF( average, and the ast/in/First ut 'IF(. The selection of the method for

determining cost for inventory valuation is important for it has a direct bearing on the cost

of goods sold and consequently on profit. Bhen a method is selected, it must be used

consistently and cannot be changed from year to year in order to secure the most

favorable profit for each year.

THE FIFO METHOD FIRST - IN - FIRST OUT9:

=nder this method it is assumed that the materials or goods first received

are the first to be issued or sold. Thus, according to this method, the inventory on a

particular date is presumed to be composed of the items which were acquired most

recently.

The value inventory would remain the same even if the 37erpetual

Inventory >ystem4 is followed.

+@


39/85

A%v#n"#)!&:

The FIF ?ethod has the following advantages-

It values stock nearer to current market price since stock is presumed to consisting

of the most recent purchases,

It is based on cost and, therefore, no unreali"ed profit enters into the financial

accounts of the company,

The method is realistic since it takes into account the normal procedure or

utili"ing or selling those materials or goods which have been longest in stock+

Di%v#n"#)!&:

The method suffers from the following disadvantages-

i. It involves complicated calculations and hence increases the possibility of clerical

errors.

ii. *omparison between different 1obs using the same type of material becomes

sometimes difficult. 9 1ob commenced a few minutes after another 1ob may have

to bear an entirely different charge for materials because the first 1ob completely

exhausted the supply of materials of the particular lot.

The FIF method of valuation of inventories is particularly suitable in the following

circumstances-

i. The materials or goods are of a perishable nature,

ii. The frequency of purchases is not large,

iii. There are moderate fluctuations in the prices of materials or goods,

iv. ?aterials are easily identifiable as belonging to a particular purchase lot.

+2


40/85

THE LIFO METHOD LAST IN FIRST OUT9:

The method is based on the assumption that last item of materials or goods

purchased are the first to be issued or sold. Thus, accounting to this method inventory

consists of items purchased at the earliest cost.

A%v#n"#)!&:

This method has the following advantages-

9. It takes into account the current market conditions while valuing materials issued

to different 1obs or calculating the cost of goods sold.

!. The method is based on cost and, therefore, no unreali"ed profit or loss is made on

account of use this method.

BASE STOCK METHOD:

This method is based on the contention that each enterprise maintains or finished

goods in its stock, this out of the first lost purchasedH therefore, it is always valued at this

price and is carried forward as a foxed asset. 9ny quantity over and above the !ase >tock

?ethod aims at matching current costs to current sales, the IF method will be most

suitable for valuing stocking material or finished goods other than the !ase >tock. The

!ase >tock ?ethod has advantage of charging out materialsGgoods at actual cost. Its other

merits or demerits will depend on the method which is used for valuing materials other

than the !ase >tock.

WEIGHTED AVERAGE PRICE METHOD:

This method is based on the presumption that once the materials are put into a common

bin, they lose their identity. 6ence, the inventory consists of no specific batch of goods.

%


41/85

The inventory is thus priced on the basis of average prices paid for the goods .Beighted

according to the quantity purchased at each price.

Beighted 9verage 7rice method is very popular on account of its being based on

the total quantity and value of materials purchased besides reducing number of

calculations. 9s a matter of facts the new average price is to be calculated only when a

fresh purchases of materials is made in place of calculating it every now and then as is the

case with FIF, IF methods. 6owever, in case of this method different prices of

materials are charged from production particularly when the frequency of purchases and

issueGsales is quite large and the concern is following perpetual inventory system.

VALUATION OF INVENTORIES IMPACT ON THE FLOW OF

COSTS:

9s should be quite evident, the different methods calculating inventory values will

have their impact on the flow of costs through the !alance >heet into the Income

>tatement. The dollars that are paid acquire inventory are always divided between the

!alance 'Inventories( and the Income >tatement '*osts of Coods >old(, there is not other

place to put to them. Thus if the different methods of calculating inventory produce

different inventory values, they will also produce different *osts of Coods >old figures,

and the differing *osts of Coods >old figures will naturally produce different profit

figures.

In order show the impact of inventory valuation on cost flow, the preceding

exhibits are summari"edH each method produces different figures for the transfer of raw

materials to work in process. These differences appear small, but the only reason for this

that the dollar amounts has been kept small to make the illustration workable.

#


42/85

Bith the transfer of raw materials to work in process, the cost flow or transfer

with have its impact on the work in process inventory and the transfer of completed

merchandise to finished goods. =ltimately when goods are sold, the varying methods of

valuing inventories will have their impact on *osts of Coods >old and these profits, the

effects of the cost flows on costs of goods sold and profits can be accentuated further if

the different methods of valuing inventories are applied to work in process and finished

goods.

EVALUATION OF METHODS W/#" '#&!& "/! %i**!r!n'!&

The best method of inventory valuation might be 3>pecific Identification4, that is,

the unit;s inventory should be identified with the specific invoice and thus specific unit;s

costs to which they play.

Fortunately, the FIF method constitutes a very useful approximation to the

specific identification method if one can reasonably assume that the actual flow of

materials is First/in/First/ut. This assumption is not unreasonable and thus we have

stated the main argument for the FIF inventory scheme, that is, the physical flow of

materials would match the flow of costs under the first/in/First/ut method.

Bhen the units in inventory are identical, interchangeable and do not flow any

specific pattern of physical flow. The average costs system would seem to appropriate.

The primary difference between the FIF and 9verage methods are centered on

the physical flow since both methods could involve identical and interchangeable units.

The FIF method fits a First/in/First/ut physical flow. The average method fits a

system which has no specific pattern of physical flow should be quite difficult because of

the fact that most inventory items are sub1ects to deterioration by instituting a physical

flow approximating FIF. The ma1or reason for the use average method is something

other than the lack of specific physical flow.

)


43/85

rdinarily the IF method cannot be 1ustified on the basis of the physical flow

of materials. =nder conditions of prices, the advocated of IF say that than only method

which matches costs and revenues is the IF method assumes that the latest item is the

first item is the first time out, and thus the current costs of materials are matched with the

current selling prices or current revenues. The FIF method, on the non/current costs of

materials are matched with current selling prices or current revenues. This matching

current cost with current revenues is the essence of the argument for the IF method.

9s can be seen by the above comments, there is no one best method of valuing

inventories. The method chosen should fit the situations. 9 physically flow pattern

comparable to FIF would force one to consider the average method. *oncentration on

cost flows, as distinct form physical flows, would force one to consider the IF method

especially where appear to be a discernible trend towards rising prices 'or falling prices(

as has been the case in our economy during recent years.

Inv!n"ori!& V#$!% #" S"#n%#r% Co&":

9 very useful method of valuing inventories is at a standard cost. Bith a standard cost

system is no need for spending a great deal of and money tanking unit costs trough

perpetual inventory record.

+


44/85

PERPETUAL INVENTORY CARD UNDER A STANDARD COST

SYSTEM:

9s shown above, where is need only for physical quantities since the inventory value is

the physical quantity multiplied by the standard cost. Bith the cost and value columns

disposed off, a perpetual inventory card can include additional data such as quantities on

order, quantities reserved, and quantities available. These additional data are very useful

for inventory and production control purpose. n the basis of a few calculations

concerning actual unit;s costs, inventories at standard costs could easily be converted into

inventories on a FIF, a IF, or an 9verage cost basis.

INVENTORY OF OBSOLESCENCE:

bsolete inventories cannot be used or disposed off at values carried on the book,

frequent reviews should be made of all inventories, and when obsolescence is indicated a

request for revaluation should be prepared for approval is management. The difference

between original and obsolete value should be recorded by a charge to an operating

account. Inventory obsolescence, and a credit to inventory. If the material is scrapped that

7erpetual

Inventory

7lant-QQQQ

ocation-QQ

Q

>tandard

*ost-QQQQQ

rder

Juantity-QQQ

rder

7oint-QQQQ

:ate :escription norder 5eceive Issued Av#i$#($!


45/85

material can be sold at reduced value or used in areas where is will work less than its

original value, the entry would be only for the amount of write down. >ome companies

carry a salvage inventory and transfer to it materials which may be sold or used at

reduced values. Bhere this is done, the entry would be-

:r. >alvage Inventory

:r. Inventory bsolescence

*r. 5aw ?aterial Inventory or >upplies Inventory.

Inv!n"or2 Co&" in R!$#"ion "o K!&or# C!!n" &/#$$ "o C$#&&i*i!%

Fo$$o4&:

Inventory can be classified as capital and revenue certain items through titled as

capital in nature. 6ence, due care is to be taken whole drawing the material.

?aterials which are to be imported from other countries have be planned well in

advance nearly about ) months and to initiate the proposals for procurement.

*ement is highly energy intensive industry, the inputs like power and coal are the

ma1or part of the variable cost since government controls the coal and fuel sector, any

increase rate is adversely affects the cement industry.

Kesoram *ement has in own power plant and through which is saves energy

consumptions. !y this cost of production reduces and can race the fluctuations in prices.

Inventory cost of any organi"ation also adversely affects by retaining

obsoleteGscrap and inventory costs can be reduced by management with an advance

planning of procurement of materials, periodical review of existing spares with reference

to the fast consumption, ascertaining the information regarding the availability of spares

in other areas. 6olding of extra inventory will be an additional financial burden to the

company due to payment of interest changes none the materials purchased, diminishing


46/85

value of materials by keeping them is stores for a long time, handling charges, spares rent

etc.

The Inventories of Kesoram *ement mainly during )%%)/%+ to )%%$/%@ are as

follows-

Y!#r @#n"i"2 Li!&"on! B#0i"! G21&

)%%)/%+ 2,$,2% ,)0 )#,$$ #@,#%#

)%%+/% 2,+,2% #,@$) )#,$$ #@,#%#

)%%/% 2,0@,$+% +,## )+,%2# ++,02

)%%/%0 ##,#2,2@% +,@$$ )$,2$@ 2%,$$

)%%0/%$ ##,)),@% 2,$2% )2,) #,+@,0

)%%$/%@ #+,)+,@%# 0+,)) +#,+#% #,0,%$

The value of the above 5aw ?aterials for the year )%%)/%+ to )%%$/%@ is as follows-

alue of imported and indigenous 5aw ?aterials, >tores, >pares 7arts and components

consumed during the year

I1or"!% R&9

Y!#r Li!&"on! B#0i"! G21& F$2 #&/

)%%)/%+ #,+@,+,@) ),$2,$#,2%+ #,$#,%%,$ 0,,$+

)%%+/% #+,@,@#) ),,0%,+@$ #,$2,@0,)@% #),)),@))

)%%/% #,$#,+%,2)) ),+,@@,$ #,20,22,@+ ),0,2@

)%%/%0 #0,#@,0#,@0@ ),$$,%,#0+ ),#,)+,$)) $0,),#

)%%0/%$ #@,@2,#$,)%2 +,#2,$2,@2@ ),$#,##,+2# #,)2,$,#

)%%$/%@ )),)0,),$@$ +,,0+,) +,+%,$0,00 #,2,),@%

0


47/85

In%i)!no&:

CEMENT FACTORY RUNS WITH VARIOUS E@UIPMENTS

INSTALLED IN

THE FACTORY

Y!#r& R#4 M#"!ri#$& S"or!& S1#r!& #n% Co1on!n"&

)%%)/%+ 2,+%,%),0++ ,+2,$2,02@

)%%+/% 0,00#,2%,%# $,+,),#%2

)%%/% 2,#+,+2,0) #+,#0,),2#)

)%%/%0 @%,%,#,20+ 2,@2,0,#%$

)%%0/%$ #0,+,)#,0%$ @,)@,0+,%0+

)%%$/%@ #$,%2,0,$%% ,0+,%,)20

Y!#r& R#4 M#"!ri#$& S"or!& S1#r!& #n% Co1on!n"&

)%%)/%+ +22,@,02,#@ 2@,2,2%,22

)%%+/% +,@@,$,#)0 #@,2#,2,)%

)%%/% ##,$,%,#+@ #+0,0,0,+@

)%%/%0 %+,2),@#,%)% $,@%,$@,2#

)%%0/%$ 2@,,2@,@$) 0),@,2%,+

)%%$/%@ $@,#),$0,$$ +++,+),)2,%0)

$


48/85

A+ NICAL DEPARMENT

?ines

?echanical

Electrical

*ivil

B+ COMMERCIAL DEPARTMENTS

>tores

7urchases

9ccounts

To run the plant and maintained Equipments :epartments require spares. For such

requirements of spares department raise Indents and send the indents to purchase

department through stores.

INDENTS:

3+ 9nnual indents for consumable items 'stores items(,

5+ 5egular indents raised by consuming departments,

7+ 9nnual requirements of raw materials 75?7 < J*.

EN@UIRIES:

Enquiries will be sent approved sub contractors.

ORDER PROCESSING FORM:

5eceiving quotations from sub/contractors

Enter the price details of enquiry sent in the order processing form

>election of party on merit basis.

PURCHASE ORDER:

@


49/85

7repare purchase order on selected party

>end purchase order copies to party, stores and department.

GOODS RECEIPT NOTE:

5eceiving goods receipt note from stores.

PURCHASE RE@UEST INDENT

SI+ NO+

MAT+ CODE

D!&'ri1"ion

@#n"i"2 r!ir!%

@#n"i"2 in S"o'6

P!n%in) In%!n"or%!r r!*!r!n'!

@#n"i"2

A11+ Co&"

R!#&on *or r!ir!!n" r!#r6&

W/!n r!ir!%

P!rio% o* i&&! *or &"or!&

PURCHASE DEPARTMENT

2


50/85

ACTIVITY: RECEIVING INDENTS:

5eceipt of annual indents for consumable itemsGstores items from stores

department.

*hecking of indent numbers and authority signature.

*hecking department name, specification of item, delivery.

Time consumption period.

Incase of any deficiency, send the information to concerned department for

clarification.

>egregation of indents for attending at cpd 6yderabad office.

Enter the indents details in indent register.

PUCHASE EN@UIRY:

SI+ NO+ M#"!ri#$ 'o%! D!&'ri1"ion @#n"i"2 Uni" W/!n r!ir!%

ACTIVITY:

FLOATING EN@UIRIES:

*hecking indented items and equipment name.

Taking previous suppliers information from previous supply. If new

equipmentGitem,

Information to be taken from concerned department or from competitorsGyellow

pages.

7repare enquiry to approved sub/contractors through enquiry format.

If emergency requirement, send the enquiries through faxGe/mail.

%


51/85

Enter the details of enquires sent in order processing form.

ORDER PROCESSING FORM:

>I

D

.

Indent

5ef.

?aterial

*ode no.

:escription >i"e Juantity # ) + 5emarks

ACTIVITY:

PREPARATION OF ORDER PROCESSING FORM

5eceiving quotations against enquires sent.

Enter price and other terms of the quotations received from

>ub/contractors in the order processing form.

?ention the earlier purchase details of indented items against each item in the

order processing form.

7ut up the order processing form with enquiry and quotations to head 'purchase(.

Examine order processing form and decide the sub/contractor to whom purchase

order to be placed.

PURCHASE ORDER:

SI+NO

+

In%!n"

No+

I"!

'o%!

D!&'ri1"ion @#n"i"2 R#"! Uni" Aon"

#


52/85

ACTIVITY:

PREPARATION OF PURCHASE ORDER

7repare purchase order after finali"ation of price and other technical terms

mentioning the following details.

?aterial code

Indent number

?aterial >pecification < 7art number

Juantity

5ate

7ayment and other terms < *ondition.

AMENDMENT CANCELLATION OF ORDER

?aterial code ?aterial 7riceGquantity as per

order

9mended

price Gquantity

ACTIVITY:

ORDER AMENDMENT. ORDER FOLLOE UP AND INFORM THE

SUPPLIER FOR THE REJECTIONS DAMAGES SHORTAGE:

Issue of amendments in case of modifications to purchase order. 5eview the

pending orders and follow up the pending orders for break down requirement.

)


53/85

>end regular reminders to suppliers against pending purchase orders every month.

5eceive shortage G excess G damage report from stores for the materials received.

Inform the suppliers for the re1ections G damage G excess G shortage.

ACTIVITY:

IMPORTS:

5eceipt of indents for import items from stores department.

Taking previous suppliers information from previous supply. If new equipment G

item, information to taken from concerned department or from competitors G

1ournals G yellow pages.

S!n% !nir2 "o ov!r&!#& &11$i!r:

5eceiving quotations against enquiries sent.

Enter price and other terms of the quotations received from overseas supplier in

the order processing form.

Examining order processing form and decide the sub/contractor to whom purchase

order to be placed.

7repare purchase order after finali"ation of price and other technical terms mentioning the

following details.

#. ?aterial code

). Indent number

+. ?aterial specification and part number

. Juality

. 5ate

0. 7ayment

$. Insurance and other terms and conditions

+


54/85

@. >end the prepared purchase order to head 'purchase( and competent

authority for 9pproval

2. >end the purchase order copies to stores and concerned departments

#%. 5eceive I* from bank and send information to overseas supplier by fax G

e/mail

##. 7repare I* document and submit to bank for onwards transmission to

overseas supplier

#). 5eceive shipping documents from overseas supplier and same clearing for

collection of the material

STORES DEPARTMENT

ACTIVITY:

RECEIPT AND UNLOADING MATERIAL

5eceiving of goods through Truck G 7ersonnel delivery

Entry of vehchile at gate office

>tamping on :ispatch 9dvise G delivery *helan by gate office

=nloading of goods at allotted place or incase of urgency direct at works site.

9ll safety precautions are taken while unloading of material like workers should

wear

>afety shoes, 6elmets, eather Cloves, Doise respiration, Dose ?ask.

Training is given to workers for unloading heavy and bulky material by using

chain


55/85

7ulley blocks. Bire 5ope *lings, Fork ift. 9fter =I receipt acknowledgement given to

driver. ?aintaining orry receipts register.

PREPARATION OF RECEIPT OF AND APPROVAL BOOK FOR

GENERAL MATERIAL D+C+ ENTRY OF BLOCK. REPAIR AND

STATIONARY MATERIAL MANUALLY REGISTER+

>orting of :elivery *helan;s below-

a. Ceneral b. >tationary

c. 5epairs d. !lock

*hecking with 7.. and mentioning ?aterial code, 7arty code, Indent no.,

:epartment name on each and every *helan;s.

*reation of :R*R entry in system for general material.

7reparation of identification Tags for Cen. ?aterials through system.

7reparation of receipt and approval book for Cen. ?aterials.

?anual entry of !lock, >tationary, 5epair ?aterials.

7reparation of intimation for !lock, >tationary, 5epair ?aterials.

PHYSICAL VERIFICATION OF GOODS:

9ll :.*. handed over to stores assistant physical verification like ?easuring,

*ounting and Tallying with :.*.;s quantity G description of the ?aterials by the

>tores ass.

Identification Tags to be attached to the verified materials. >hortage G Excess G

damages in any found to be noted on *helan;s and inform to >ection in charge.

7reparation of >hortage G Excess G 5eports if any sending to parties under copy to

7urchase G !ills >ections.


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APPROVAL OF MATERIAL AND PREPARATION OF GOODS RECEIPT

NOTES:

Intimation is being sent to all the concerned departments. >howing

materials to concern person.

Taking 9pproval of the material in 5eceipt and 9pproval !ook.

7reparation Ceneral material C5D;s through system and >tationary G

!lock G 5epairs C5D are manually.

Forwarding to copy to issue of C5D for Ceneral ?aterials forwarding to

copy a !lock G 5epair G >tationary C5D to issue section and one copy to

purchase department.

REJECTED METERIAL:

5e1ected ?aterials kept in allotted area of re1ected materials

7acking of 5e1ected ?aterials

7reparation of Cate 7asses for 5e1ected ?aterials

>ending back to suppliers through our 6yderabad office

>ending consignee copies to party vide 5eg. etter for booking of 5eg.

Coods to party;s other than.

ECISE GATE PASSSES:

>eparating :uplicate for Transport *opy of Excise Invoice form supplier

:elivery *helan.

0


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@


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DATA ANALYSIS

The investment on 5aw ?aterials over a period of years from )%%)/)%%@ is presented in

the following table.

3+ Inv!&"!n" on R#4 M#"!ri#$&:

YEARS INVESTMENT ON RAW MATERIALS

)%%)/%+ 2,22%.@@

2


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Trend 9nalysis technique is applied to know the growth rate in

investment of raw materials of Kesoram *ement over the review period which is shown

in the following table.

YEAR RAW MATERIAL In L#6/&9 TREND 9

)%%+/% #,+#.$+ #%%

)%%/% ,@@2.%0 #%@.0

)%%/%0 $,+@$.)+ #+@.@2

)%%0/%$ 0,@@.) #0.%2

)%%$/%@ $+,)).)+ #$$.2

0#


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In"!r1r!"#"ion:

i+ The investment on inventory has in the year )%%$/%2 as compared to )%%+/%.

ii+ The trends inventory shows that investment have been more in the year )%%$/%@

iii+ The investment in inventories as shown gradually increased.

7+ Inv!n"or2 Trn ov!r R#"io:

0)


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The 5atio indicates the number of times the stock has been turned over during the

period and evaluates the efficiency with which a firm is able to manage its inventory. This

ratio is calculated by applying the following formulate-

INVENTORY URN OVER RATIO NET SALES AVERAGE INVENTORY

In"!r1r!"#"ion:

YEAR NET SALES AVG+ INVENTORY RATIO

)%%)/%+ #+$2%+.)#) 2#22.+#$ #%.)0

)%%+/% #+%+%.@0+ #0$%2#.$# @.%)

)%%/% ##+2##.2$ #$+$$.$%@ 0.+

)%%/%0 #)2+0).#%% #22%.$)@ 0.2

)%%0/%$ #)#2$$.$)) )#00+.%+$ 0.0

)%%$/%@ #0#+#$$.) ))$#+%.#+ 0.0

0+


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i. The Inventory Turn over 5atio was shown the fluctuating trend during the review

period.

ii. The Turnover 5atio was observed at #%.)0 during the year )%%)/%@.

iii. The average Turn over 5atio was observed at $.).

iv. This 5atio indicates the efficiency of the firm in selling its products. 9 higher ratio

indicates management in inventories.

The above ratio indicates that inventory is getting converted into cash times in year.

8+ Inv!n"or2 Conv!r&ion P!rio%:

It may also be interest to see average time taken for clearing the stocks.

This can be possible by calculating inventory conversion period. This period is calculated

by dividing the number of the days by inventory turnover. This formulate as follows-

INVENTORY CONVERSION PERIOD DAYS IN A YEAR INVENTORY TURN OVER

RATIO

YEAR NET SALES AVG+ STOCK RATIO ICP D#2&9

)%%)/%+ #,+,$,2%+.)#) #,+#,%2)#.)0+ #%.)0 +0

)%%+/% #,+,,%+%.@0+ #0,$,%2#.$# @.%) 0

)%%/% #,#+,2,##.2$ #,$,$$.$%@ 0.+ 0

)%%/%0 #,)2,,+0).#%% #2,2,%.$)@ 0.2 0

0


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)%%0/%$ #,),#2,$$.$)) )#,00,+.%+$ 0.0 0

)%%$/%@ #,0#,+#,$$.) ),)$,#+%.#+ 0.0

In"!r1r!"#"ion:

From the above table it can be identified the following observation-

i. The Inventory *onversion 7eriod was 0.) days during the tear )%%/%0. !ut

declined to )# days during )%%)/%+ which indicates that the stock has been

quickly converted into sales which means the company is managing the inventory

efficiency.

ii. The lowest inventory conversion period was recorded at + days in the year )%%)/

%+ and highest inventory conversion period was recorded at 0 days in year )%%/

%0.

iii. The average inventory conversion period was recorded at # during review period.

0


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In"!r1r!"#"ion:

i. From the above the table it can be understood that the percentage of inventory

over current assets ratio was showing declining trend for ) years )%% and )%%0.

ii. 6owever from the year )%%$/%@ it showing an increasing trend.

iii. The lowest inventory over current assets ratio was recorded at )& during the

year )%%)/%+ and the highest inventory over current assets ratio was recorded at

+2& during the year )%%$/%@.

iv. The average inventory over current assets ratio was recorded at +&.

0$


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From the above table it can be understood that the percentage of inventory

over total assets ratio was showing.

i. :uring the year )%%)/%+ the ratio was #).)& it gradually increased to )%.&.

ii. The lowest inventory over total amounts ratio was recorded at #).)& during the

year )%%)/%+

iii. The highest inventory to current assts ratio was recorded at )%.& during the

year )%%$/%@.

iv. The average inventory to current assts ratio was recorded at #0& during the

reviewperiod.

,+ P!r'!n"#)! o* Inv!n"or2 ov!r Crr!n" Li#(i$i"i!&

In order to know the percentage on Inventory over *urrent iabilities the ratio of

inventory over current liabilities is calculated & which is presented in the following table-

YEAR INVENTORIES CURRENT LIABILITIES RATIO

)%%)/%+ 2,#,22.+#$ )%,+,0$.#@ 0+.@+

)%%+/% #0,$,%2#.$# )%,+,%2.#)+ @).+#

)%%/% #$,,+$$.$%@ ),%2,2#.0@ $).+@

)%%/%0 #2,2,%.$)@ )#,@,%@2.00 2).2

)%%0/%$ )#,00,+.%+$ )+,%$,))$.+) 2+.2

)%%$/%@ ),)$,#+%.#+ )+,$,).00 #%).)#

02


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In"!r1r!"#"ion:

From the following table it can be understood that the percentage of

Inventory over *urrent iabilities ratio was showing a declining trend for only one year

)%%/%.

i. :uring the year )%%)/%+ the ratio was 0)& it gradually increased to #%)&.

ii. The lowest inventory over total amounts ratio was recorded at 0+& during the

year )%%)/%+

$%


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iii. The highest inventory to current liabilities ratio was recorded at #%)& during the

year )%%$/%@.

iv. The average inventory to current liabilities ratio was recorded at @& during the

review period.

>+ Crr!n" R#"io:

In order to know *urrent 5atio the percentage of *urrent 9ssts to *urrent iabilities is

calculated and which is presented in the following table-

CURRENT RATIO CURRENT ASSETS CURRENT LIABILITIES

YEAR CURRENT ASSETS

CURRENT

LIABILITIES RATIO 9

)%%)/%+ +,%0,+$.@+@ )%,+,0$.#@ ).@

)%%+/% ,2,@%).)# )%,+,%2.#)+ ).)

)%%/% 2,$#,++).### ),%2,2#.0@ ).%0

)%%/%0 +,2,#@.% )#,@,%@2.00 ).%0

)%%0/%$ 0+,%0,+).)#) )+,%$,))$.+) ).#

)%%$/%@ 0%,2@,#+).0% )+,$,).00 ).$

$#


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In"!r1r!"#"ion:

From the above table it can be interpreted that the percentage of current assets over

current liabilities ratio i.e. current ratio was showing decreasing trend from year )%%/%.

i. In the year )%%/% the ratio was ).%0 and has increased to ).# in the year )%%/

%0.

ii. The lowest current ratio was recorded at )%%/% which is ).%0 and the highest

current ratio was recorded at ).$+ during the year )%%0/%$.

iii. The average current ratio was recorded at ). during the review period.

$)


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?+ @i'6 R#"io:

The Juick 5atio is the relationship between quick assets to current liabilities

Juick 5atio is more rigorous test of liability position of a firm it is computed by applying

the following formula-

@UICK RATIO @UICK ASSETS CURRENT LIABILITIES

W/!r! @i'6 A&&!"& Crr!n" A&&!"& Inv!n"or2

YEAR

@UICK

ASSETS

CURRENT

LIABILITIES RATIO 9)%%)/%+ +22+.$ )%+0$.#@ #.2

)%%+/% )@@$#%.%# )%+%2.#)+ #.)

)%%/% +))02.%+ )%22#.0@ #.++

)%%/%0 ++220).+#$ )#@%@2.00 #.@

)%%0/%$ #+2@#$.#$ )+%$))$.+) #.$2

)%%$/%@ +0$#%%).% )+$).00 #.

$+


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In"!r1r!"#"ion:

i. From the above table it can be understood as that the percentage of Juick 9ssets

to *urrent iabilities i.e. the Juick 5atio was #.++ in )%%/% and from that year

it showing increasing trend.

ii. The highest quick ratio was recorded #.2 during the year )%%)/%+ and the lowest

quick ratio was recorded at #.++ during the year )%%/%.

iii. The average quick ratio was recorded at #.0% during the review period.

$


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3+ LEVERAGE RATIO:

FIED ASSETS TURN OVER RATIO:

FIED ASSETS TURN OVER RATIO NET SALESNET FIED ASSETS

YEAR SALES IN LAKHS9

NET FIED

ASSETS

RATIO 9

)%%)/)%%+ #+$2.%+ 0%$2.%@ ).)#

)%%+/)%% #+%.+ 0)0$.#% ).#

)%%/)%% #+@2#$.@+ 2%%@.# ).+

)%%/)%%0 #0$).# 022+.%2 ).$

)%%0/)%%$ )#0.@2 ##%#2.%# ).)$

)%%$/)%%@ +%+).#0 #$#@@+. ).%%

$


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In"!r1r!"#"ion:

i+ The fixed assets turn over ratio was showing the fluctuating trend during the

review period.

ii+ The fixed assets turn over ratio is high in the year )%%/%0 compare to all given

financial year all these ratios are less then + but the deal ideal fixed assets turn

over ratio is

iii+ 9 high fixed turn over ratio includes better utili"ation of the firm fixed assets

iv+ The firm fixed asset turn over ratio has to increase, these it is desirable.

$0


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33+ PROFITABILITY RATIO:

NET PROFIT RATIO:

NET PROFIT RATIO NET PROFIT NET SALES

YEAR NET PROFIT NET SALES RATIO

)%%)/)%%+ @%)$.@% 0$)#.)# ##.2

)%%+/)%% #)#.0 #++.+% 2.+)

)%%/)%% $#.00 #++$.)% .2

)%%/)%%0 2)2@. #%##0.)% 0.0+

)%%0/)%%$ ##@%. #$0@.% $.#

)%%$/)%%@ +@++.% )2@$2).)# #).@+

$$


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In"!r1r!"#"ion:

The above ratio shows fluctuating trend during the review period.

i+ In the year )%%$/)%%@ the profit was #).@+& by this we can find that the highest

profit earning financial year is )%%$/%@ compare to the given financial year

ii+ I n the net profit ratio increases the company performance is good and the profit

will be increased.

iii+ The above ratio is satisfactory for all given financial years.

$@


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80/85

In"!r1r!"#"ion:

i+ The above ratio was shown little fluctuating trend during review period

ii+ The ideal debt/equity ratio is )-# the firms seemed to pay a little amount to the

creditors because the firm debit/equity ratios are very less than the ideal debt

equity ratio any year.

iii+ The low debt equity implies that there us a less risk to the creditors and have

sufficient safety margin.

iv+ The company is maintaining a good level of long/term loans.

@%


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@#


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CONCLUSIONS:

verall the inventory of Kesoram *ements is up to the mark.

The production of cement during the year )%%)/%+ was $, )$,$ lakhs which

very high as compared to )%%+/% which is only #,+#.$+ lakhs.

Investment on raw material during the year )%%$/%@ is $+,)).)+ lakhs which very

high as compared to )%%+/% which is only #,+#.$+ lakhs.

The Inventory over ratio shows that the stock has been converted into sales is

only 0.2 times in the year )%%/%0.

In the year )%%/%+ the stock was cleared within +0 days where as it took 0 days

in the years )%%/% and )%%/%0 more days for clearing stock.

The quantity of limestone in the year )%%+/% is 2, +,2% and its value is

#+,@,+,#) but where as in the year )%%)/%+ the quantity was 2,$,2% and the

value is #),)#,0#,2).

In purchase department for of any item it should go through several processes.

This may include receiving indents, floating enquiries, preparation of order

processing form, preparation of purchase order and order follow up and inform the

supplier. ?ost of the time was spent in accounts payable.

In this type of process, it requires more number of employees and supplier should

also wait for the accounts are matched.

This process takes an input, adds values to it and provides an output to an internal

or external customer.

@)


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SUGGESTIONS:

Though the production is higher is the year )%%/% and the sales were very high

i.e., as per inventory conversion period it took )$) days. This shows that were

demand for cement and funds unnecessarily tied up. >o proper demand forecasting

should be done according to that it may be manufactured.

The investment on raw material should be made as per the requirement.

=nnecessary may block up the funds.

Deither too high nor too low Inventory Turnover 5atios may reduce profit

liquidity position of the industry. >o proper balance should be made to increase

profits and to ensure liquidity.

The 5aw ?aterial should be acquired from the right source at right quality and at

right cost.

To reduce the work. The purchasing department may enter the purchase order into

a database did not send a copy to any one. Bhen the merchandise arrived, the

receiving clerk would enter the data base and determine whether the order agreed

with the electronic purchase order.

@+


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inventory and store management

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