koya project on inventory management

MPM MPM Inventory ManagementInventory Management

PART-A

GENERAL INTRODUCTION

There are four important components for running an industrial organization i.e.,

Men, machine, material and money. All these four components have to be employed in

an industry in order to make the manufacturing process to extract the finished products

and marketing it properly to get sales realization with profit.

Profit making is an important goal or an object of any industrial organization. To

attain the maximum profitability utilizing the above set Four M’s to the optimum level.

Money is used for procurement of the material which is required for the production.

During the time of procurement the requirement of the proper material has to be

identified and required quality and quality of material has to be decided in advance.

This is nothing but a process of material procurement planning. The very purpose

of planning of procurement of material is to purchase the good quality material for a most

competitive lowest price. This will help the organization to undertake manufacturing

process most effectively with minimum or nil wastage.

Many times in an industry organization’s improper planning in material

procurement leads to filing up material stock in the form of raw-materials; semi-finished

goods ( W-I-P) unsold finished goods.

The aim of such stock is called inventory.

Any unwanted stock leads to debt capital which cannot be appreciated as good

financial management. Hence, material and money are playing a vital role in the efficient

financial management.

This project is select to have detailed study about the “Financial Planning and

forecasting” which is the one of the important activity in any industrial organization to

reach the organization goal with out much effort. Because, inventory management has to

be definitely considered for the increase of profitability and reduce the unwanted

working capital investment in the process of manufacturing.


INDUSTRIAL PROFILE

The invention of paper

Written communication has been the center of civilization for centuries. Most of

our important records are on paper. Although written has been around for a long time,

paper hasn’t. infact, putting thoughts down in written form wasn’t easy or partial. Earlier

people discovered that they could make simple drawing on the walls of caves which was

a great place for recording thoughts, but wasn’t portable.

Imagine spending hours scratching a massage into a heavy clay table and then

having to transport it, that’s exactly what the Sumerians did around 4000 BC. Although

this form of written communication was not portable, is still wasn’t practical because of

its weight.

For centuries people tried to discover better surface on which to records their

thoughts. Almost everything imaginable was tried. Wood, stone, ceramics, cloth, bark,

mettle, silk, bamboo, and tree leaves were all used as a writing surface at one time or

another.

The word ‘paper’ is derive from the word “papyrus” which is plant found in

Egypt along the lower Nile River. About 5000 years ago, Egyptians created “sheets” of

papyrus by harvesting, peeling and slicing the plant into strips. The strips were then

layered, pounded together and smoothened to make a flat, uniform sheet.

The person credited with inventing paper is Chinese man named Ts’ai Lun. He

took the inner bark of a mulberry tree and bamboo fibers, mixed them with water, and

pounded them with a wooden tool. He then poured this mixer on to a flat piece of

coarsely woven cloth and the water drain though, leaving only the fibers on the cloth.

By the tenth century Arabians were substituting lines fiber for wood and bamboo,

creating a finer sheet of paper. Although paper was of fairly high quality now, the only

way to reproduce written work was by hand, painstaking process.

By 12th century paper making reached Europe. In 1448, Johannes Guttenberg, a

Germen, was credited with inventing printing press. ( it is believed that movable type was

actually invented hundreds of years earlier in Asia ). Book and other important


documents could now be reproduced quickly. This method of printing in large quantities

led to a rapid increase in the demand for paper.

Some of the important development in recent decades is as follows:

01. Multi-stage bleaching of Kraft-paper, lending to availability of fully bleached

Kraft- pulp.

02. Use of chloride-di-oxide for pulp for pulp bleaching permitting higher rightness

with the retention of strength.

03. Coating of paper, while passing through the paper machine dryer section. Greatly

expanding use of coated paper for printing.

04. Use of soluble bases for sulfite pulping permitting pulping of more species wood

by the sulfite process.

05. Bleaching of high yield pulp, ground-wood and semi-chemicals.

06. Wet strength paper use of synthetic resins for economic production of wide

variety of paper that are strong when wet.

07. Multi-stage sulfites pulping permitting greater variety of pulp properties.

08. Continues cooking of Kraft and semi-chemicals pulp making is possible,

reduction in capital and operating cost.

09. High yields pulping: combined chemical and mechanical action to produce pulp

from wood in high yield.

The geographical spread of the industry is given in the following table:

State No of Mills

Andhra Pradesh 39

Assam 2

Bihar 7

Chathisghad 9

Gujarat 91

Haryana 17


Himachal Pradesh 7

Jammu and Kashmir 1

Jharkhand 2

Karnataka 19

Kerala 13

Madhya Pradesh 27

Maharashtra 90

Nagaland 1

Orissa 6

Pond Cheri 7

Punjab 73

Rajasthan 70

Tamil Nadu 34

Uttar Pradesh 94

Uttaranchal 16

West Bengal 26

Total 594

Indian paper industrial scenario:

The paper industry is cyclical in nature: its demand is linked to the level of

economic activity and the supply is influenced by domestic production and as well as

international trade in pulp and paper.

USA ( over 30% ), Western Europe (around 20%), and Japan (12-15%) account

for a major portion of the demand. Global demands add stagnated in 1990-93 at around

250MN TPA with showing down of economic growth. Per capital consumption actually

dropped 3-5% and with dropping demand capacities closed down. The recovery started

in 1993-94 with improvement economic outlook. In 1994-95 international pulp and paper

prices kept rising on the back of growing demand.

India’s per capital consumption is very low at 3 kg against a world average of

over 45 kgs, domestic industry has nearly 600 mills with an aggregate capacity of 3.8


MN tons per annum. Out of 600 mills, 30 are large wood/bamboo based mills, 80 are

agro based and rest are waste paper based. The effective capacity is about 2.6 million

tones as a lot of mills are sick. In the new s print segment total capacity is

around0.4million TPA (MTPA), of this 73% is dominated by four major players in the

public sector while the rest of the capacity is shared by 14 players.

Structure of paper industry;

The industry can be classified on the basis of size, the type of raw materials

consumed and the end product manufactured.

The Indian paper industry comprises of nearly 600 mills with a total capacity of

around 3.8 M TPA. More than 200 mills have capacities of less then 20000 TPA. There

are 12 companies with a capacity of 50,000 TPA and only 2 with 1,00,000 TPA and

above.

Based on the raw material used, the mills can be classified as wood-based ( hard

wood or bamboo ), agro residue based ( baggase and rice / wheat straw ) and news paper

based ( imported waste paper and pulp ).

Structure of paper industry based on end product produced.

Paper and paper board News

print


Structure of paper industry based on Raw materials required for making paper.

Wood Agro based Secondary Waste

Paper

(Hard Wood & Raw-materials & Imported

pulp

Bamboo) (Baggase, Straive Glasses,

Jute waste, Cotton Liners

& Industrial waste)

Future prospectus of paper industry:

Strong demand from packaging segment will drive demand growth for industrial

paper. Establishment of new business area such as telecom and power will lead to

increasing literacy levels, thus improving low per capital consumption of paper (3.2 kgs

p.a). Besides rapid growth in population, enhanced literacy levels, growing quality

consciousness and changing consumer preferences will drive paper demand.

In view high capital costs, expansion of existing units and revivals of sick units

remain the practical option for capacity addition. Also, paper mills in India have to look

for ways to cut down costs to compete with imports.

International paper prices are not expected to prices are not expected to price

substantially over the short medium term. Domestic paper companies will thus continue

to reel under the pressure of reduced margins. However, a depreciating rupee will

marginally protect domestic companies from imports. Due to increased supply, some of

the companies have put their expansion plans on hold or have reduced their investment

opting for lesser capacity expansions.


HISTORICAL PAPER INDUSTRY DEVELOPMENT IN INDIA

Indian paper industry is classified broadly into two categories into two categories

paper and paper bonds then newsprint. The paper and paperboard segment constitutes of

cultural paper, industrial paper and special paper.

Paper industry in India has a long history with the first mill being commissioned

in 1832. The initial development and growth of paper industry till the early nineteenth

century was affected by the shortage of wood (soft wood) in the country. But in 1914, in

development of a process based on bamboo lead rapid growth of domestic industry. By

the end of sixties, the capacity for paper production lagged, demand and imports

increased to approximately 10% of the domestic demand. Most of the domestic

production was concentrated in the hands of a few large mills. By the late sixties, bamboo

as an input to paper industry came under short supply. Taking this into account, the

government of India started encouraging small units based on an agro residue and waste

paper in the seventies. Fiscal incentives were also offered. This lead to spurt in the

number of mills with small capacities.

But from the late eighties industry started facing an oversupply situation lower

price realization and plant closures. The downtrend continued till 1992, when demand

supply situation improved.

From 1993, step with the easing of the worldwide recession in the industry,

investments stated increasing. A booming capital market also helped in raising money for

new capacities. The industry was in a jolly mood up to 1996.

The increase in supply coupled with a worldwide recession has pushed the Indian

paper industry back into down trend. The global cycle was further affected by the Asian

crises, which has reduced demand considerably.

Since 1990 the paper industry in India, is following global cycle with periods of

over capacity leading to drop in paper prices, lower capacity utilization and slow down

in investments/capacity addition, followed by closure of mill, decreased in demand

supply gap and then back full circle to an increase in paper prices.


BASIC PROBLEMS FACED BY THE NEWSPRINT IN INDIA

The economic liberalization policies initiated by the Narasimha Rao committee

government in 1991 have been carried through vigor in successive years. As a result

industry is on the road to globalization and its getting even more inter wined with the

overseas market.

The sharp rise is pricing during 1973-74 created a paper crisis in the county.

HIGH COST OF PRODUCTION

1. The international price of capital equipment needed by the news print industry has

been souring. Over cost too have been rising quite fast.

2. Power and coal both supplied by the public sector units have risen by 400% in the

last decade.

3. Similarly chemical materials have also risen by similar percentage; royalties on

bamboo and hard wood have been increased by 100% to 700% in the last 6 years

in some states.

4. The acute shortage of local timber and heavy excise duties has burdened the

newsprint industry, which has been struggling all along out and above all these

problems there is services power cut, especially in south India.

Future Prospects of paper industry:

Establishment of new business area such as telecom and power will lead to

increasing literacy levels, thus improving the low per capita consumption of paper

(3.2 KGS per annum). Besides rapid growth in population, enhanced literacy

levels, growing quality consciousness and changing consumer preferences will

drive paper demand.

In view of the high capital costs, expansion of existing units and revival of sick

units remain the practical option for capacity additions. Also, paper mills in India

have to look for ways to cut down costs to compete with imports.

International paper prices are not expected to rise substantially over the short-

medium term. Domestic paper companies will thus continue to reel under the

pressure of reduced margins. However, a depreciating rupee will marginally


protect domestic companies from imports. Due to increased supply, some of the

companies have put their expansion plans on hold or have reduced their

investment opting for lesser capacity expansions.

COMPANY PROFILE

Background and inception of the company

The MPM situated on the bank of river Bhadra at Bjadravathi, Shimoga Dist.,

Karnataka state, was incorporated in the year 1936 as a joint sector company. The

foundation stone was laid by the then Maharaja of Mysore Sri. Krishanarajendra

Wodeyar. It was started with a small capacity of Rs.2.5 million. Since inception, the

MPM never looked back. It went from one threshold of progress to another expanding

its annual capacity to 8000 MT in 1952, then to 18000 MT in 1964 and to 24000 MT in

1972.

In 1976 the company ventured a major expansion project by installing new

machinery to produce 75000 MT of news print per annum and increasing the capacity

from 24000 MT to 30000 MT per annum of writing and printing varieties of paper. The

project was completed during 1981. In 1983, a sugar mill of 2500 TCD was

commissioned and thus MPM become the first largest, single location integrated plant in

the country manufacturing news, writing and printing paper and sugar at a single

location. The integration of sugar mill with paper mill is with the idea of utilizing the by-

products of sugar mill i.e., sugar cane baggase for paper production and avoid

dependence of forest based raw materials and avoid deforestation. With the

commissioning of newsprint project, the company was able to help the country to reduce

imports substantially.

Growth/ history of MPM in chronological order:

Year Activity

1936 Incorporated as a public sector company


1937 Commercial production started with 4000T per annum

1952 First expansion: production increased to 8000T per annum

1964 Second Expansion: production increased to 18000T per annum

1972 Modernization: production increased to 24000T per annum

1976 Major expansion to manufacture 75000T per annum news print and to increase writing & printing paper production from 24000T per annum to 30000T per annum.

1981 commercial production of newsprint started with self power generation of 25MW

1983 commissioning of 2500 tons sugar mill

1993 conversion of stoker fired boilers into SR boilers

1994 refitting of chemical recovery boilers

1998 commencing of 90T/Hr SR boiler along with 3rd extraction cum back pressure turbo generator (TG) of 16MW capacity, thus increasing the self power generation capacity to 41MW

2002 expansion of effluent treatment plant with increased aeration capacity and introduction of post Aeration treatment

2004 Retrofitting of SR evaporators. ISO14001 certificate (for pollution control) and also ISO9001 for quality of product.

VISION MISSION AND ORGANIZATION STRUCTURE OF MPM:

VISION

“Mysore papers mill committed to deliver products and service

to satisfy the needs of customer.”

To make continuous effort to improve quality by continuous training

To actively involve people to contribute toward high productivity through

teamwork and innovation.


To consciously work toward conversion of resources and minimization of

wastes of all forms.

MISION

Creating a vibrant work culture

Customer Satisfaction

Consistent quality

Competitive price.

Enhancing productivity

A GLANCE OF THE ORGANIZATION:

NAME OF THE COMPANY : MYSORE PAPER MILL LTD

TYPE OF THE COMPANY : PUBLIC SECTOR COMPANY

LOCATION : BHADRAVATHI(T),

SHIMOGA(D), KARNATAKA

ESTABLISHMENT : 20TH MAY 1936

COMPANY Reg., No. : 173

PRODUCTS : PAPER AND SUGAR(subsidiary)

RAW MATERIALS : BAMBOO, EUCA, ACACIA, PINE

AND BAGASSE

CAPACITY : 30000T WRITING PRINTING &

SPECIALIT PAPER 75000T

NEWSPRINT 2500T

SUGARCANE CRUSHING

CORPORATE OFFICE : BANGLORE

REGIONAL OFFICE : DELHI, MADRAS, KOLKATTA &

MUMBAI


QUALITY POLICY

MPM shall be reputed, profitable and growth oriented company

employing skills that take pride in satisfying customer needs with superior

products and services.

AREA OF OPERATION

The regional office is situated at 16/5, Ali Asker Road, Bangalore. The

branches offices are situated at New Delhi, Mumbai, Kolkata and Chennai.

COMPETITOR:

Ballarpur Industries Ltd., Maharashtra.

a) Year of starting 1997

b) Annual Capacity – 1.10.00 tones per year

c) Grades of paper

Writing, printing, packing and industrial paper

Rama Newsprint and papers Ltd., Gujarat

a) Year of starting – 1996

b) Annual Capacity – 132-00 Tones per year

c) Grade of paper-- Newsprint

Tamil Nadu Newsprint and paper Ltd., Tamil Nadu


b) Annual Capacity – 180-00 Tonnes per year

c) Grades of paper -- Newsprint, printing and writing

Andrapradesh paper mills Ltd., Andra Pradesh

a) Year of starting 1966


b) Annual capacity 98.5-00 tones per year

c) Grades of Paper--Base paper, wedding and greeting cards

The West coast paper mills Ltd., Dandeli


b) Annual capacity – 157.750.00 metric tones per year

c) Grades of paper--Writing and printing board including MICR and

Copier

d) It is a private company.

CUSTOMER OF THE MPM

M.P.M. News print is used for printing Newspaper in all languages in India. A

few of important customer are as follows,

English News Paper

Times of India

New Indian Express

Deccan herald

The Hindu

The State man

The Tribhuvan

Kannada News Paper

Prajawani

Samyuktha Karnataka

Udayavani

Kannada Prabha

Tamil Paper


Dina malar

Dinakaran

Telugu News Paper

Enadu

Vartha

Andra Bhumi

Marathi News Paper

Sakal

Maharastra times

Samachar

APPLICATION OF MCKENSY’S 7S MODEL

The 7-S framework was developed by the consultant at the Mckensy’s Company, a very well known management consistency firm in USA, towards the end of 1970’s to diagnose the cause of organization problem and to formulate programs for improvement the 7-S framework.

SKILLS:

Structure

Shared values

Strategy Systems

Skills Style

Staff


In Mysore paper mills Ltd employees are to be recruited on the basis of their

Qualifications. Training facilities be provided to be both employees both internal and

external. There are 3 types of labours based on their skills they are

1) skilled labours

2) semi-skilled labours

3) un-skilled labours

STYLE:

The management believes in an open organization. In Mysore paper mills Ltd.

They do not involve employees for taking any decision. The management will be taking

the decision itself may be in any area like production decision, marketing decision.

Management itself takes all finance decisions.

STRATEGY:

The Mysore paper mill limited started on 1st April 1937 in the remote village of

Bhadravathi. There is no perfect mission statement in the MPM but the main aim of the

company will be producing good quality of paper and sugar to the public as well as

providing more number of employment and increase the standard of living of the people.

The Mysore paper mill company’s business philosophy is based of three core

values; they are operational excellence, Customer’s focus and product leadership.

The business strategy emphasizes the following

1. Increase their market shares.

2. Reduced cost of production.

3. Increase company performance.

4. Produce always quality product.

5. To meet social responsibilities.

6. Provide employment opportunity to the people of the area.

7. Meet the national and regional demand of paper and paperboard.

8. Reduce the import of news print from the foreign market.

9. Reduce the import of news print from the foreign market.

10. To manufacture and deal in all kinds of sugar and sugar products


11. To manufacture and deal in all kinds of sugar and sugar products

12. To cultivate and raise grass, timber, wood eucalypt.

13. To grow niligiri plant within the premises of the company. Which

Provide raw materials for the company at low cost.

14. Recycle all the wastage products.

SYSTEMS:

The management believes in the utilization of cutting edge technology of

deliver world class products and services. The company has made huge

investments in technological resources to ensure that products are superior and the

service delivery in terms of these products offering standard.

The system of the Mysore paper mills limited company clearly shows the formal processes and procedures used to manage the organization, including the control system, performance management measurement and reward systems, planning budgeting and information system they follow the bottom to top approach in decision making. That means first they collect the opinion of trade unions based on that the top management take the decision which is better for company.

STAFF:

Staff requirement is designed to ensure that those on board have the primary

focus as customer service with a high level of product and process knowledge and

operation excellence. Induction and training program are designed to conduct for

all employees at regular basis to ensure that these levels are continually enhanced

feed back for continuous improvement in solicited from all understood. Being a

dynamic organization susceptible and the changes are well understood.

Being a dynamic organization to frequent change in policy so as to suit

business needs that require to be a learning organization fulfilled by the systems

and processes which document all changes and feedback received. Development


programmes are conducted by MPM every year only for the persons who are in

the management cadder. Which helps them to improve their skills and

knowledges?

WORK FLOW MODEL:

1. Purchase Orders:

At the first stage the company receives purchase order from its agents. They are

mentioning the product grade, quality, quantity etc.

2. Release Raw Material to Pulp Mill:

The purchase department releases the raw materials to the pulp mill

3. Pulping Process:

In this pulping process the raw material pulping made in pulper with water. It will

undergo cleaning of pulp, refining and addition of required chemicals.


4. Production Process:

The pulps are passes to the paper machine and it passes through solid press water

removal. Then it passes through Dryer machine and it passed change calendar

machine next it passes to the online coating machine

5. Size Cutting:

Then passes to the size cutting machine in this machine they cutting the paper bands

according to the customer requirement

6. Finishing Yard:

The finished yard paper boards are passes to the stores or finishing yard.

7. Packaging:

The next step is packing. The workers pack the paperboards in bundles as orders.

8. Documentation:

Before delivering the paperboard to the customers it should be documented in the

stores ledger.

9. Dispatching:

After documentation in proper ledger, the next process is dispatching the goods to

customers.

BRIEF EXPLANATION ABOUT THE ORGANIZATIONAL STRUCTURE OF

MPM:

The organizational structure of enterprises would depend upon its size, product

manufactured and its fictional divisions. The organizational structure may be flexible.

The company may change its structure according to the needs and suitability.

In MPM Ltd., the Board of directors is having the major position in the company.

The chairman is the chairman cum managing Director (CMD) of the company. He is held

responsible for formulating and implementing the policies, Procedures and rules with the

assistance of Board of Directors appointed by the Government and various financial


institutions. Different functional department heads like production, marketing finance,

and HRD & A etc., also assists him.

The Government appoints the General Manager of HRD & A. He always keeps

contact with all other functional departments for routine administration. He also keeps

direct contact with C.M.D. Each functional department heads are assisted by the

Assistant Managers. The Director of Production is in charge of some divisions’ viz.,

Material, Paper, Pulp, Sugar, Chemical etc., there is always co-ordination between all

functional departments through horizontal communication.

FUNCTIONAL AREAS (DEPARTMENTS) OF MPM:


MICKINEY’S 7 S MODELS

ORGAN IZA TION STRUCTURE OF THE MPM LTD

SHARE HOLDERS

BOARD OF DIRECTORS

CHAIRMAN/MANAGING DIRECTOR

DIRECTOR FOREST DIRECTOR FINANCE

G.M.(Marketing) G.M.(Production) G.M. (H.R. D. & P) COMPANY SECRETARY

AGM.

(MAINT)

AGM (PROJ)

AGM (PB)

(In Change)

AGM

(HRD&P)

AGM

(FIN)Sr. MANAGER

(Mktg)

Sr. MANAGER

(CD)

Sr. MANAGER

(NP) Sr. MANAGER

(IA)

MANAGERS

DEPUTY MANAGERS

ASST. MANAGERS


FINANCE DEPARTMENT

PRODUCTION PROCESS:

Chipper House:-

Chipper house is a place where the different types of wood are cut in to homogeneous

product to heterogeneous and uniform chips.

Activities of Chipper House:-

Receipt of Raw material:-

Raw Material is received in accordance with the production requirement & silo stock of

chips.

CHIEF OF DIRECTOR OF FINANCE

ASST. GENERAL MANAGER

SENIOR FINANCE MANAGER

MANAGER OF CONTROL & BUDGET

MANAGER OF FINANCE IN SALES

MANAGER OF ESTABLISHMENT

MANAGER CORPORATE FINANCE

MANAGER B/P MANAGER MAIN A/C COSTING


Chipping process:-

Different chippers are run for different raw materials. There are two types of chippers

namely disc chippers & drum chipper. There are two drum chippers used for bamboo &

four disc chippers used for hard wood.

Screening & Conveying:-

Here the accepted chips are sent to the digestion and unaccepted chips are screened and

sent for re-processing.

Storage of chips & issue:-

The accepted chips are stored in silo and issued to digestion process whenever required.

Accounting:-

A record of all the above activities is kept in a systematic manner. Chipper house issues

chips to two streams of pulp mills’

MICKINEY’S 7 S MODELSL : IN PROCESS OF RAW MATERIAL

DEPARTMENT:


1. Receipt :

Material loaded vehicle must complete the mill security formalities “Only valid

materials will be accepted”

2. Inspection:

Material type

Material Quality and Quantity.

3. Transit documents verification:

Suppliers particulars

Material Status

Validity of supply

4. Weightment:

Qualification of both received and issued material.

Prioritize the chipper requirement

Store as per need, availability in separate stacks and storage potentiality.

Issue on the basis of requirement of production material mix quality and priority

of period of storage.

5. Yard cleaning:

Cleaning to prepare the area for further storage

Cleaning to ensure better utilization of the materials and minimize storage loss.

6. Yard Safety:

Safety against unfair/ illegal activities like theft.

Prevent material from other damages.

Safety against hazards like stacks collapse, fire etc.

7. Accounting:

Consolidate all the above activities and to generate production report

Budgeting

Stock assessment

Controlling yards loss.

Reports for finance purpose.

SWOT ANALYSIS OF THE COMPANY


SWOT analysis is a tool for auditing an organization and its environment. It is the

first stage of planning and helps marketers to focus and key issue. SWOT analysis it is an

effective way of analyzing the organization potential by identifying strength, weakness to

examine the opportunities and Threats which may affect the organization carrying out an

analysis using SWOT tool will be enough to reveal the changes which can be

implemented easily and gain results.

THE SWOT ANALYSIS OF THE MPM IS A FOLLOWS

STRENGTH

Market leader in paper manufacturing.Technical and experience manpower.

QS9000. ISO9001, ISO14001 (for pollution control) certified company.

Improved infrastructure.

Efficient communication network.

Well planned layout.

Automated and highly sophisticated machines.

Capacity to meet higher demand.

Additional land of 75000 acres for replanting eucalyptus trees.


Good marketing network over all India

Firm is getting raw material quickly for in time production.

Firm is getting raw material cheaply for the production.

WEAKNESS

The cost involved in completion of the product is high.As the company is in process of decreasing the existing manpower., it may lose

opportunity of obtaining.

Creative and enthusiastic people in future development of the company.

As the customer expectations is increasing day by day it has become difficult to

satisfy them completely.

There is a frequent change in the top management due to political interference as

it is a public sector firm.

OPPORTUNITIES

Capacity of meeting higher demand and attain optimum utilization of existing resources.Due to advance in technology there is a scope for recruiting and retaining right

people on right job.

As the company has obtaining six sigma and Qs company has the capability of

achieving global standards’

Forfeiture of paper industry can be directly linked increase level of literacy.

THREATS

Price of raw material is comparatively high.Adopting auto motive machines may cause fear among the existing employees of

the job loss, which may morale and the productivity of employees.

A new entrant is market may dilute the market share of company.


ANALYSIS OF FINANCIAL STATEMENT

SUMMARY OF LATEST ANNUAL REPORT:-

It is very essential to keep written record of all the transaction in appropriate books, which help in calculating the profit and clarifying the financial position of the company with paper control system one can detect the leakage extravagant and misuse of fixed assets. The function of the accounts department is to record the various transaction of the company in financial terms apart from the quantitative records necessary to be maintained.

As per the balance sheet and profit and loss account of the company there is decreasing in sales of Rs 42490.72 lakhs in 2009 and RS.33,742.72 lakhs in 2010 and the company is present academic year it has the loss of Rs. -7,722.56. But the Balance of (-) loss brought forward from previous year shows that the company is going under loss.

Even if we compare it to the previous year loss was Rs -3202.28(1632.94-4835.22) in 2009, now it shows -10,924.86 [(Rs -7722.56)- (-3202.28)] in 2010. It shows that the loss has been increased instead of the decreasing loss / gaining the profit for the company.

The following statement will show the comparison between the previous years, 2009 and 2010. That will base on the balance sheet and the profit & loss account for the previous year and current year.

THE MYSORE PAPER MILL LIMITEDPPROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2010

( RS in Lakhs)

PARTICULARSFor the year ended

31.03.2010For the year ended

31.03.2009

A INCOME

Sales 33,742.7

2 42,490.7

2

Less: Excise Duty & Cess 761.

42 32,981.3

0 1,142.7

4 41,347.9

8

Other Income 1037.37 3132.59

Variation in stocks -2989.11 259.08

31,029.56

44,739.65


B. EXPENDITURE

Raw Material Consumed 8,139.

07 9,210

.67

Chemical Consumed 3,415.

27 4,641

.05

Stores Consumed 765.

40 90

3.47

Repair & Maintenance 712.

46 1,047

.18

Power and Fuel 10,150.

45 13,680

.67

Labor charges 1,645.

78 1,220

.40

Employee Benefits 8,470.

28 7,042

.33

Administration and Other Expenses 1,222.

55 1,132

.83

Selling Expenses 1,443.

65 78

8.17

Prior Period Adjustment (net) 68.48

36,033.39

569.00

40,235.77

C.Profit for the year before Interest, Depreciation & Taxation -5003.83

4,503.88

D.Interest

1708.86 1,864.19

E.Depreciation

1009.87 994.86

F.Taxation-Fringe Benefit Tax

- 11.89

Net Profit for the year

-7722.56 1,632.94

Add: Balance of Loss (-) brought forward from previous year -3202.28 -4835.22

Balance of Loss (-) carried to Balance Sheet -10924.86 -3202.28


THE MYSORE PAPER MILL LIMITED

BALANCE SHEETAS AT 31ST MARCH 2010( RS in Lakhs)

PARTICULARSFor the year ended

31.03.2009For the year ended

31.03.2008

SOURCE OF FUNDS

A. SHARE HOLDERS FUNDS

Capital 11,889

.34 11,889

.34

Reserve and Surplus 55

4.76 12,444

.10 59

0.11 12,479

.45

B. LOAN FUNDS

Secured Loans 4,331

.57 11,323

.58

Unsecured Loans 16,917

.27 21,248

.84 11,717

.27 23,040

.85

Total A+B 33,692

.94 35,520

.30

APPLICATION OF FUNDS

C. FIXED ASSETS

Gross Block 50,847.

42 50,574.

36

Less : Depreciation 38,612.

96 37,660.

02

NET BLOCK 12,234.4

6 12,914.3

4

Capital Work-in Process 590.

35 12,824.8

1 209.

42 13,123.

76

D. CAPTIVE POWER PLANT ATIONS 5,074.4

8 4,343.

29

E. INVESTMENTS 62.3

3 62.4

4


F.CURRENT ASSETS, LOANS AND ADVANCES

Inventories 10,619.

49 15,893.

91

Sundry Debtors 3,395.

20 5,027.

49

Cash and Bank Balance 1,090.

28 84.1

2

Loans and Advances 2,644.

37 2,625.

86

17,749.3

4 23,631.

38

Less: Current Liabilities and provisions

Current Liabilities 9,031.

26 5,961.

71

Provisions 3,911.

62 3,378.

53

12,942.8

8 4,806.4

6 9,340.2

4 14,291.1

4

22,768.0

8 31,820.

63

G.

MISCELLANEOUS EXPENDITURE ( to the extent not written off or adjusted )

VRS Payments -- 497.

37

H. Profit and loss Account 10924.86 3202.28

TOTAL ( C to H ) 33,692.9

4 35,520.

30


The above statements are shows the company current situation in the market as

well as the financial position that are all discussing below:-

Analysis of financial statement shows that the danger of imputing companies

economics significance to accounting numbers. The financial information can be

extracted from by using various methods they are as follows:

1) financial ratio

2) Du point analysis

3) Standardized financial statements

4) applications of financial analysis

5) Going beyond the numbers

Some of the few methods we taking for interpretation of financial position of the

company.

Current ratio = current assets \ current liabilities

2009 it was 2.53:1 but in the year 2010 it shows that 1.37:1 it shows that current assets is

more than current liabilities .

Gross profit margin ratio =gross profit \ net sales

In 2009 it was 3.84:1 but in the year 2010 it shows that 2.28:1 it shows that gross profit

margin may reduced to nearly 3times.

Net profit margin ratio = net profit \ net sales

In 2009 it was 7.53:1 but in the year 2010 it shows that 3.23:1 it shows that company is not

in a financial sound position.


LEARNING EXPERIENCE

In my Ten weeks of project work in Mysore Paper Mill Ltd., I studied and learnt

many things carried in the organization. This project work helped me in gaining more

knowledge about the work and production carried out in the organization.

There is a strict rules followed in HR department and attendance was taken daily

to check the regularity we were used to stay from morning 9.00 AM to evening 5.0 PM

daily and visit different departments daily accordingly to there schedule.

There was a good reaction and co-operation by the superiors and sub-ordinates in

the Mysore Paper Mill Ltd., . They helped me in collection the information regarding the

different departments and production process.

I got the clear picture about the organizational work carried on and how the work

in allotted and how it is carried out and duties and responsibilities of the employees in the

organization. I observed the work techniques that are studied in subject are implemented

in the organization like welfare facility, training techniques etc,.

Finally this project work gave me the clear idea about the working condition in

the organization which will help me in future days.


PART-B

1. INTRODUCTION:

In recent decade’s businessman have shown an increasing awareness of the need for precision in the field of inventory control.

In the past, inventories were considered as indication of wealth, even inventories greatly in excess of the amount needed to carry on the process of production and distribution were considered beneficial.

Since the advent of modern industries, wealth has become more and more identified with money. An increased emphasis on the liquidity has led businessman to hold cash and securities in preference to inventories although the later have an inherent convertibility not possessed by he other categories. These have been made a strong tendency towards holding the means for purchase of goods rather than the goods themselves. Large inventories are now viewed with alarm, where as in times no one would ever have doubted that such were beneficial.

Every enterprises needs inventory for smooth running its activities. It serves as a link between production and distribution processes. There is generally, a time lag between the recognization of a need and its fulfillment. The grater the time-leg, the higher the requirements for inventory. The unforeseen fluctuations in demand and supply of goods also necessitate for inventories. It also provides a cushion for future price fluctuations.

The investments in inventories constitute the most significant part of current assets/working capital in most of the undertakings. Thus, it is very essential to have proper control and management of inventories. The purpose of inventory control and its management is to ensure availability of materials in sufficient quantity as and when required and also to minimize investment in inventories.

1.2 BACKGROUND OF THE STUDEY:

Inventory in general meaning ‘stock of goods, or a list of goods,’ the word ‘Inventory’ is understood difficultly by various authors. In according language it may mean finished goods only. In a manufacturing concern, it may include raw materials, work in process and stores, etc. To understand the exact meaning of the word ‘inventory’


we may study it from the usage side or from the ‘side point of entry’ in the operations. Inventory includes the following things.

1. raw materials2. work in progress3. finished goods4. Consumable stores and spares.

A. RAW MATERIALS: They are the inputs of the final products. They are purchased by the firm

from others and are used in the production for converting into finished components. 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 government regulations, etc. too affect the stock of raw materials.

B. WORK IN PROGRESS:This refers to the goods lying in the manufacturing process. they are

normally practically finished or semi-finished that are at various stages of production in a multi-stage production process. The raw materials enter the process of manufacture but they are yet to attain a final shape of finished goods. The quantum of work-in-process depends upon the time taken in the manufacturing process. The grater the time in manufacturing, the more will be the amount of work-in-process.

C. FINISHED GOODS:These are the final or completed products which are ready for sale. The

stocks of finished goods provide a buffer between production and market. The purpose of maintaining inventory is to ensure proper supply of goods to customer. In some concerns the production is undertaken on order basis, in these concerns there will not be a need for finished goods. The need of finished goods inventory will be more when production is undertaking in general without waiting for specific order. Work in production, while stock of finished goods is required for smooth marketing operation. Thus inventory serve as a link between production and consumption.

D. CONUMABLE STORES AND SPARES:These are the goods held for consumption by machines in a manufacturing

concern. They include spare parts, lubricants, cleaning materials, oil, cotton waste etc. they don’t enter into the final product but they are required for maintaining and running the machines for production purpose. The levels of the above four kinds of inventories differ depending upon The nature of the business. For example-A manufacturing firm will have all the four


kinds of inventories. But a retailer or wholesaler will have a high level of inventories of finished goods but they will have no inventories of raw materials, spares, maintenance supplies and stores and goods in progress. Further depending upon the nature of the business, inventories may be durable or non-durable, valuable or inexpensive, perishable or non-perishable etc.

Inventory control has been attracting the attention of managers in India for a long time. But with the credit squeeze measures announced by the government of India and the consideration of the recommendations of the committee for inventories top management is deeply a concern with developing suitable norms for inventory control. In this inventory than the other categories.

1.3 MEANING AND DEFINITION OF INVENTORY:-

The term ‘Inventory’ refers to the stock of raw-materials, spare parts and finished products held by a business firm. It is the aggregate quantity of material resources and goods that are idle at a given point of time. The resources may be of any type; for example men, materials, machinery, money, when resources involved in materials or goods in any stage of completion, inventory referred to as stock. Hence inventory refers to the ‘stock’ that a business firm keeps to meet its future requirements of production and sales.

Several authors have defined the term Inventory. The most popular of them are, “The term Inventory includes, Raw materials, Work In Progress, finished packaging spares and other stock in order to meet an unexpected demand or distribution in the future.”

1.4 ANALYSIS:

Date and information collected are analyzed using statistical tools, graphs and charts.

2. INTRODUCTION TO COMPANY:

Mysore paper mills Ltd., was established in the year 1937 as a government company later on in 1947. This company has been converted in to public limited company.


The king krishnaraja Wodeyar established this factory to solve unemployment problem for the Badhravathians and for effective utilization of natural resources.

Mysore Paper mills Ltd., is public based manufacturing company which is established at Badhravathi. The company produces and supplying of papers such as news prints. At present the company is meeting the requirement of government departments, private news print industries and various dealers.

2.1 INVENTORY CONTROL SYSTEM:

Inventories are stock of the product a company is manufacturing for sale and components that make up the product. The various forms in which inventories exist in a manufacturing company are raw materials, work in progress, and finished goods. An inventory control system is to be engineered to achieve the basic purpose for which the inventories are created. The fundamental objective of a good inventory control system is to be able to determine, what, when, how much to order, how much to carry in stocks so as to gain economy in purchasing. An inventory system provides the organizational provides the organizational structure and the operating policies for maintaining and controlling goods to be stocked.

Objectives of Scientific Inventory Control System:

The main objective of inventory control management that to be considered by the analyst while designing

1. Continuity of productive operations.2. Effective use of capital.3. Reduction of administrative work load.4. Service to customers.5. Economy in purchasing.6. Reduction of risk of loss.7. Practical system.8. Administrative simplicity.9. To maintain a minimum investment in inventories to maximize profitability.

2.2 STATEMENT OF PROBLEM:

* Lack of new technological information system

* Inefficient handling of inventory materials

* Excessive investment in inventories

* Inadequate inventories


2.3 SCOPE OF STUDY

This study was mainly concentrated on inventory management being adopted by the company. The purchase procedure followed by the company and further actions for satisfying the requirement are analyzed.

The company’s procedure for stores will influence more on the level of inventory of the company. So the study of purchase has vital role to understand the efficient system of the company.

2.4 OBJECTIVES OF THE STUDY

* To assess the efficiency of inventory management in Mysore paper mills Limited.

* To evaluate the inventory control techniques of Mysore paper mills limited.

* To analyze the purchase and stores procedures followed by the company.

2.5 METHODOLOGY

2.5.1 LOCATION OF THE STUDY:

The study had been conducted at Mysore paper mills limited Badhravathi.

2.5.2 SOURCES OF DATA

The methodology followed for collecting information is based on

a) Primary datab) Secondary data

PRIMARY DATA:

The method which was adopted to collect the primary data was personal interview.

To collect the information regarding the inventory control systems of the company direct personal interview and discussions was made with the material manager, marketing manager and sales officer and other staff members.


SECONDARY DATA:

For gathering secondary data various other source were used. They are:

Different accounting records and annual reports and research report of the company.

Published books, magazines, news papers, journals, websites and published annual reports of the company.

Different records related to inventory were collected by stores department i.e. material management stock maintenance.

2.6 LIMITATIONS OF THE STUDY

1. The time constraint which the study has been conducted only for six weeks.2. The expected delivery schedules may not be possible in some monopoly

items. The average level can be fixed after an in depth study.3. Level of accuracy of results of research restricted to the accuracy level.4. The ABC classifications were done for materials and some materials were

selected and studied. The study can be extended to other materials also on the same lines.

3. REVIEW OF LITERATURE

Sl. No

Title Findings Source

1. Inventory control

Practice in (IFFCO)

Inventories constitute second largest item after fixed assets in the financial statement particularly in manufacturing organizations. Proper management of the components is important to maintain and improve the health of the organization.

Dr. Sukhdev Singh, Vol-41, July 2006

2 Bad goods control in food processing units

Inventory control mechanism have to be built to all points of the supply chain after a thorough system study, the control aim at maintaining.

Prof. Mousumi Ghosh Vol-34, No.2 February 1999

3 Inventory The study concentrates on Indian P. Janaki


Management of Indian Commercial Vehicles Industry.

commercial vehicles industry like, BTL,EML and SML using and maintained by more percentage of raw material where as TML and EML using less percentage of raw material and more percentage of sales. It indicates the TML and EML is a more strength compare to BTL, EML and SML.

Ramudu et al, Oct 2006

4 Improving foundry performance through activity based costing

Activity based costing is the current cost management. Activities are a powerful and a useful base for managing and enterprise.

A.N.Roman’s” Vol-40 Year 2005

5. The Reporting System of Foreign Direct Investment in India

FDI is an important driving force for the growth and development of nation there is a big competition among the nations in attracting FDI. FDI and issues relating to its computation provides the much needed foreign exchange to help bridge the balance of trade deficit and technology

K. Ramamoorthy et al, April \-2003

6 Activity Based Cost and Management

Success of ABM depends on the output of an ABC system. ABM can help the business organization in stopping an internal war of numbers. Better understanding of the business taking right strategic decision in the area of product pricing, product sourcing, product pricing, product sourcing, product mix and market segmentation continuous improvement can be achieved through ABC & ABM to succeed in the context of global competitiveness

T Satynaryana July-Dec2005


7 Globalization cost management and supply chain management

Globalization has shifted cost management paradigm form management of cost from producers view point to managing costs for greater customer satisfaction in the global market where value addition refers to value creation per unit cost as the customer sees it and costs refer to cost of customer retention or cost of conversion of a customer in to client

Prof Shymmal Banerjee, Cost Management Accountant, January 2003

4. ANALYSIS AND INTERPRETATION

In this chapter the whole analysis is divided in to three parts. They are

To assess the efficiency of inventory management in Mysore paper mills Limited.

To evaluate the inventory control techniques of Mysore paper mills limited. To analyze the purchase and stores procedures followed by the company.

OBJECTIVE 1

TO ASSESS THE EFFICIENCY OF INVENTORY MANAGEMENT IN MYSORE PAPER MILLS LTD.

Inventory Management and Control Techniques

The literary meaning of the word “inventory” is stock of goods. Every enterprise needs inventory for smooth running of its activities. It serves as a link between production and distribution process. The unforeseen fluctuation in demand and supply of goods also necessitates the need for inventory. It also provides a cushion for future price fluctuations.

The purpose of inventory management is to ensure availability of materials in sufficient quality and quantities as and when required and allow minimizing investment in inventories. Thus it is very essential to have proper control and management of inventory.


Activity Ratios or Turnover Ratios at Mysore paper mills ltd..,

Activity ratios are calculated to measure the efficiency with which the resources of a firm have been employed. These ratios are also called turnover ratios because they indicate the speed with which assets are being turned over into sales.

Some of the turnover ratios that are used to know the efficiency of inventory management in Mysore paper mills lit…, are as follows:

Inventory turnover ratio

Inventory conversion period

Raw material turnover ratio

Stores and spares turnover ratio

Work-in-process turnover ratio

Finished goods turnover ratio

Inventory to working capital ratio

Fixed asset turnover ratio

Inventory Turnover Ratio at Mysore Paper Mills Ltd

Inventory turnover ratio measures the velocity of conversion of stock into sales. Usually, a high inventory turnover velocity indicates efficient management of inventory because more frequently the stocks are sold; the lesser amount of money is required to finance the inventory. A low inventory turnover ration indicates an inefficient management of inventory. A very high turnover of inventory does not necessarily implies higher profits. The profits may be low due to excessive cost incurred in replacing stock in small lots, stock-out situations, selling inventories at very low prices etc.,

The different components of inventory are

Raw materials.

Work-in-process.

Store and spares.

Finished goods.


Table 4.1 Inventory Turnover Ratio (Rs in Lakhs)

Years Cost of goods

sold

Avg. inventory Ratio

2005 37791.16 11004.83 3.43

2006 40331.81 11274.68 3.577

2007 46860.56 12904.125 3.631

2008 44240.68 14802.155 2.989

2009 45692.28 15617.21 2.926

2010 44667.86 13256.66 3.369

Fig 4.1 inventory Turnover Ratio

The inventory turnover ratio was 3.43 in 2005 and it is decreased to 2.926 in

2009 because inventory consumed and production high but in the 2010 it is increase to

3.369 it is not good compared to previous year and also cost (cost of goods sold) is high.


Inventory conversion period

Table 4.2 inventory conversion period (Rs in Lakhs)

Years Days in year Inventory turn

over ratio

Days

2005 365 3.43 106.41

2006 365 3.577 102.04

2007 365 3.631 100.52

2008 365 2.989 122.11

2009 365 2.926 124.74

2010 365 3.369 108.34

Fig 4.2 inventory conversion period

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

This can be possible by calculating the inventory conversion period. The conversion of

stocks was 106.41 days in 2005 but it is 124.74days in 2009 and it is short period taken to


conversion of stocks compared to previous years that is 108.34days in 2010 and it is good

to organization.

Raw material turn over ratio:

It is the ratio with which we can measure the efficiency with which the firm

converts raw materials in to work in progress. Materials consumed can be found out as

opening balance of raw materials plus purchase minus closing balance of raw materials.

Table 4.3 Raw material turn over ratio: (Rs in Lakhs)

Years Sales Raw material Ratio

2005 32128.00 7530.62 4.266

2006 34927.31 9116.53 3.83

2007 41519.00 6609.52 6.282

2008 39405.00 6449.79 6.109

2009 42490.00 9210.67 4.613

2010 33743.00 8139.07 4.146

Fig 4.3 Raw material turn over ratio


This ratio indicates the relationship between the sales and raw materials.

In the year 2005 it was 4.266 and it is increase to 6.282 in 2007 there is strong

relationship between sales and raw materials but in 2010 it is decrease to 4.146 it shows

decrease the efficiency of the firm.

Stores and spares turnover ratio:

Table 4.4 Stores and spares turnover ratio:(Rs in Lakhs)

Years Sales Stores and spares Ratio

2005 32128.00 3255.18 9.869

2006 34927.31 3582.61 9.75

2007 41519.00 3472.37 11.957

2008 39405.00 3589.32 10.978

2009 42490.00 3880.78 10.948

2010 33743.00 3797.60 8.88

Fig 4.4 Stores and spares turnover ratio

This ratio indicates the relationship between the sales and stores and

spares. In the year 2005 it was 9.869 and it is increased to 10.948 in the year 2009 and it


is decrease to 8.88 in 2010. so this origination is not using stores and spares properly so

it is effect to production decreases.

Stock in process turn over ratio:

Table 4.5 Stock in process turn over ratio: (Rs in Lakhs)

years Sales Stock in progress Ratio

2005 32128.00 86.02 373.49

2006 34927.31 86.82 402.295

2007 41519.00 101.25 410.06

2008 39405.00 134.45 293.08

2009 42490.00 142.56 298.05

2010 33743.00 94.31 357.78

Fig 4.5 Stock in process turn over ratio


This ratio shows the relationship between the sales and stock in process. It

was 373.49 in the 2005 but it is decreased to 298.05 in the year 2009. But in the 2010 it is

increased to 357.78 it is not good to organization because stock in process turn over ratio

is should be decrease and stock in process could be increase so it is better to origination.

Inventory to working capital ratio:

Table 4.6 Inventory to working capital ratio: (Rs in Lakhs)

Years Inventory Working capital Ratio

2005 1104.83 6861.55 1.604

2006 11544.45 6441.72 1.792

2007 14263.80 11682.83 1.221

2008 15340.51 10409.35 1.474

2009 15893.91 14291.14 1.112

2010 10619.49 4806.50 2.20

Fig 4.6 Inventory to working capital ratio

This ratio determines the connection between inventories to working capital. It was 1.604


times in 2005 but it is decreased to1.112 times in 2009.but in 2010 it is increased to 2.20

so it is good to organization because the working capital consumption is decreases. (i.e

day to day transaction cost is decrease) so that indicates the organization is good at cost

reduction.

Fixed asset turnover ratio:

Table 4.7 fixed asset turnover ratio:(Rs in Lakhs)

Years Sales Fixed assets Ratio

2005 32128.00 16268.63 1.97

2006 34927.31 15409.83 2.27

2007 41519.00 14660.64 2.83

2008 39405.00 13745.73 2.87

2009 42490.00 12914.34 3.29

2010 33743.00 12234.46 2.76

Fig 4.7 fixed asset turnover ratio


This ratio indicates the extent, which the investment in fixed assets contribution

was 1.97 times in the year 2005. And it has increased to 3.29 in 2009. But in 2010 it is

sudden changes (i.e. decreased) In fixed assets turn over ratio that is 2.76 because of huge

changes in sales so the fixed assets turn over ratio decreased.

ANNUAL PRODUCTION

The following table is shows about the annual production in Metric Tones in the MPM

YEAR PRODUCTION

2005-06 2654.32

2006-07 2784.51

2007-08 2889.51

2008-09 3060.32

2009-10 1797.35

Production activity can be show in the following graph it is easy to understand the capacity of production of the paper in MPM.


OBJECTIVE2

TO EVALUATE THE INVENTORY CONTROL TECHNIQUES OF MYSORE

PAPER MILLS LIMITED.

ABC ANALYSIS

Large number of firms has to maintain several types of inventories. It is not

desirable to keep the same degree of control on all the items. The firm should pay

maximum attention to those items whose value is the highest. The firm should therefore

classify inventories to identify which items should receive the most effort in controlling.

The firm should be selective in its approach to control investment in various types of

inventories.

The high value items are classified as

A-items and would be under the tightest control.

‘B’ items fall into between these 2 categories and require reasonable attention of

management.

‘C’ items represent relatively least value and would be under simple control.

ABC analysis enables to exercise selective control when the materials manager is

confirmed with a large number of items. The significance of this analysis is that it spot

lights attention to be given in respect of the areas like.

Loss

Wastage

Scrap

Quality

Price variance

Usage variance

Inventory turnover etc.


It also helps to determine safety stocks frequently of ordering preparing of

control statements sources from which material is to be procured etc. hence ABC

analysis is one of the best technique of inventory control.

Advantages of ABC analysis:

To minimize purchasing cost and carrying cost

Cost minimization and profit maximization.

Closer and strict control on these items, which represent a high portion of total

stock value.

Ensuring availability of suppliers at all times

Clerical cost can be reduced

Inventory is maintained at optimum level and there by investment in inventory

can be regulated and will be minimum

Equal attention to A B and C items are not desirable as it is expensive

Maintaining enough safety stock for C item

Interpretation

From the ABC analysis Mysore paper mills limited (here took major group

of row materials for the analysis) it is clear that A class items that is high value

item, constitute for 70.88% of annual inventory consumption and B class items

constitute 22.05% of total annual value and 22.22% of total item this class is

called as middle classed value item. When compared to a class this inventory

required less control and C class item constitute 6.976% of total annual value and

55.58% of total item, this is called low value terms. So the control on this

inventory does not require when compare to the A and B class items.

ABC analysis is showing table 4.8, 4.9 & 4.10


Table 4.8 Consumption price Data of 20 Items of Mysore Paper Mills limited.

No.

Of

Items

Item description Price

(per

unit)

Annual

usage

(in MT)

Annual

Consumption

Rank

1 Caustic soda lye 23113 7000 161791000 1

2 Liquid chlorine 8056 4200 33835200 6

3 Burnt lime 5385 23000 123855000 2

4 Hydrogen peroxide 33214 3200 106284800 3

5 Soap stone powder 6000 9000 54000000 4

6 Ferric Alum 6175 600 3705000 12

7 Non Ferric Alum 8086 1500 12129000 9

8 Sodium Silicate 8490 1300 11037000 10

9 Hydrochloric acid 4112 420 1727040 15

10 Sulphur 11151 160 1784160 14

11 Rosine 20000 500 10000000 11

12 Plastic Plug (no’s) 6.25 432000 2700000 13

13 Colors 128 750 96000 18

14 Gum tape (no’s) 51 10800 550800 16

15 Mother liquor 1152 22440 25850880 8

16 M P steam 1200 390 468000 17

17 Reel Core (no’s) 400 132000 52800000 5

18 A T will Gunny Bags 62 425000 26350000 7


(no’s)

Table 4.9 Revised table with items arranged according to their respective ranks

No

Of

Items

Item

description

Annual

consumption

value

Cumulative

annual

consumption

value

Cumulative

Annual

consumption

Percentage

Category

1 Caustic soda lye 161791000 161791000 25.72% A

2 Burnt lime 123855000 285646000 19.69% A

3 Hydrogen

peroxide

106284800 391930800 16.89% A

4 Soap stone

powder

54000000 445930800 8.58% A

5 Reel Core (no’s) 52800000 498730800 8.39% B

6 Liquid chlorine 33835200 532566000 5.37% B

7 A T will Gunny

Bags (no’s)

26350000 558916000 4.18% B

8 Mother liquor 25850880 584766880 4.11% B

9 Non Ferric Alum 12129000 596895880 1.92% C

10 Sodium Silicate 11037000 607932880 1.75% C

11 Rosine 10000000 617932880 1.58% C

12 Ferric Alum 3705000 621637880 0.58% C


13 Plastic Plug

(no’s)

2700000 624337880 0.42% C

14 Sulphur 1784160 626122040 0.28% C

15 Hydrochloric

acid

1727040 627849080 0.27% C

16 Gum tape (no’s) 550800 628399880 0.087% C

17 M P steam 468000 628867880 0.074% C

18 Colors 96000 628963880 0.015% C

Table 4.10 Summary of ABC Analysis of 18 Items

No of

items

% of

items

Range of

annual

usage

Total

annual

usage

Percentage

annual

usage

Category

4 22.22 Above Rs

110000000

445930800 70.88% A

4 22.22 Between

15400000

8640000

138836080 22.05% B

10 55.55 Below Rs

8000000

44197000 6.976% C


ECONOMIC ORDERING QUANTITY:

One of the major inventory management problems to be resolved is how much

inventory should be added when inventory is replenished. The EOQ should be applied to

Mysore paper mills ltd for the purpose of many units should be issued for production

department as per production schedule. The will involves the ordering cost and carrying

cost. For analyzing the EOQ techniques company’s 2 years raw materials data should be

taken it should be presented and calculated.

It is the fixed quantity of material which is ordered when the stock comes down to a reorder level, so that cost of purchasing is equal to cost of storage making the total inventory cost minimum.

There are various ways of determining the EOQ, such as setting out a tabulation of cost for various order quantities until the minimum cost is determined or by formula or by using a graph. The most convenient way is the following formula:

EOQ = √ 2 * Cost of placing an order * Demand for the period Purchase price per unit * cost of storage as % of total landed cost

The EOQ applied to Mysore paper mills ltd raw materials for 2 years. The

company’s EOW units will be varied in 2 year because of quantities issued to the

production department will be change the year after year. If the consumption rates will

increase the quantities of raw materials should also be increased for the production. The

every item in EOQ techniques presented in table will be used for paper production.

In 2008 the quantity should be minimum units 9503, when compare to year 2009

is units 10032. If the company is ordering as well as carrying cost will also increase every

year and these cost are different for different items in the company.

The ordering and carrying cost will be the main elements for the paper

manufacturing units. If the companies carrying cost will occurred by way of loss due to

pilferages, wastages and breakages in the sores and the ordering cost will occur by way of

transportation of items from one place to another place. Economic Ordering and

Quantity is shown in table 4.11.


Table 4.11 calculation of Economic Ordering Quantity for two years:

No of

Items

Items 2010:

EOQ=√2AO/C

Units 2009:

EOQ=√2AO/C

Units

1 Caustic soda

lye

√2*7000*120/0.8 1449 √2*7800*100/0.70 1493

2 Liquid

chlorine

√2*4200*110/0.8 1075 √2*4400*110/0.80 1100

3 Burnt lime √2*23000*80/1 1918 √2*27000*80/1 2079

4 Hydrogen

peroxide

√2*3200*100/0.65 992 √2*3000*100/0.65 961

5 Soap stone

powder

√2*9000*120/0.75 1697 √2*8500*110/0.75 1579

6 Ferric Alum √2*600*110/0.65 451 √2*1500*100/0.75 632

7 Non Ferric

Alum

√2*1500*100/0.60 708 √2*1600*100/1 566

8 Sodium

Silicate

√2*1300*120/0.75 645 √2*2000*100/0.87 678

9 Sulphur √2*160*40/1 114 √2*250*45/0.90 158

10 Hydrochloric

acid

√2*420*50/0.75 237 √2*500*50/0.75 258

Total 10032 9503


VED ANALYSIS:

This classification is usually applied for spare parts to be stocked for maintenance of machines and equipment based on the criticality of the spare parts. The stocking policy is based on criticality of the items. The vital spare parts are those which can cause stoppage of the plant if not available usually such spare parts are known as capital or insurance spares.

The inventory policy is to keep at least one number of vital spares irrespective of its value. Also spare parts be supplied by manufacturer are treated as

Vital spare, the stock of which even for as short time will stop production for

quite same time and where the cost of stock out is very high are known as

vital spares.

Essential spares, the absence for which cannot be tolerated for more than a

few hours a day and cost of low production is high and which are essential for

the production to continue are known as essential spares.

Desirable spares, those which are needed but their absence for even a will not

lead to stop spare of production.

Interpretation

From VED analysis Mysore paper mills limited (Here took major group of raw materials

for the analysis) It is clear the ‘V’ class item for vital usage of items. It constitute for

85.7% annual inventory consumption of total items of 40% and E class items that is

essential of usage of materials the total annual usage is 11.9% of total consumption 30%

and this class is called as medium class usage item and D class of usage items this

constitute 2.3% of total usage of item. This shown in Table 4.12.

Table 4.12 VED Usage Data on 10 Items

No.

of

Items

Items Description Annual

Usage

Rank Cumulativ

e of Annual

Usage

CAU% Rank

category


1 Caustic soda lye 7000 3 7000 13.89% V

2 Liquid chlorine 4200 4 11200 8.33 V

3 Burnt lime 23000 1 34200 45.65 V

4 Hydrogen peroxide 3200 5 37400 6.35 E

5 Soap stone powder 9000 2 46400 17.86 V

6 Ferric Alum 600 8 47000 1.19 D

7 Non Ferric Alum 1500 6 48500 2.97 E

8 Sodium Silicate 1300 7 49800 2.58 E

9 Hydrochloric acid 420 9 50220 0.83 D

10 Sulphur 160 10 50380 0.31 D

Table 4.13 Summary of VED Analysis for Ten Items

No of items % of items Total annual usage % of annual usage Category

4 40 43200 85.7 V

3 30 6000 11.9 E

3 30 1180 2.3 D


HML ANALYSIS:

The high, medium and low classification follows the same procedure as if adopted in

ABC classification only difference is that in HML, the classification unit value is a

criteria and not the annual consumption value.

The items are inventory should be listed in the descending order of unit value and it is up

to the management to fix limits for three categories.

HML analysis is useful for keeping control or consumption at departmental levels for

deciding the frequency of the physical verification and for controlling purchase.

Interpretation:

It is clear that H class items that is high value price items, constitute for 60.03% of annual

inventory consumption price, and M class item that is medium level value price that

constitute 31.19% of total annual price and L class items that is low price items constitute

8.78% T this shows in Table 4.14, Table 4.15 respectively.

Table 4.14 Calculation of HML analysis

No of

items

Items

consump

tion

Price

per

unit

Annual

usage

Annual

consump

tion

R

a

n

k

Cumulative

annual

price

%

unit

price

Rank

categ

ory

1 Caustic

soda lye

2311

3

7000 1617910

00

2 23113 20.31 H

2 Liquid

chlorine

8056 4200 3383520

0

6 31169 7.08 M


3 Burnt

lime

5385 23000 1238550

00

9 36554 4.73 L

4 Hydroge

n

peroxide

3321

4

3200 1062848

00

1 69768 29.19 H

5 Soap

stone

powder

6000 9000 5400000

0

8 75768 5.27 L

6 Ferric

Alum

6175 600 3705000 7 81943 5.42 L

7 Non

Ferric

Alum

8086 1500 1212900

0

5 90029 7.10 M

8 Sodium

Silicate

8490 1300 1103700

0

4 98519 7.46 M

9 Hydrochl

oric acid

4112 420 1727040 1

0

102631 3.61 L

10 Sulphur 1115

1

160 1784160 3 113782 9.8 M


Table 4.15 Summary of HML analysis for ten items

No. of items % of items Total annual

price

% of annual

price

Category

2 20 56327 49.50 H

4 40 35783 31.44 M

4 40 21672 19.04 L

OBJECTIVE 3

TO ANALYSE THE PURCHASE AND STORES PROCEDURES FOLLOWED

BY THE COMPANY

The purchasing function occupies a vital and unique poison in the organization of

manufacturing industry. Because purchasing is one of the main functions in success of a

modern manufacturing concerns.

Mass production industries like Mysore paper mills ltd.., since they relay upon a

continuous flow of right materials, demand for an efficient purchasing division.

Under purchase procedure analysis this study considered only, purchasing

procedure for stores, spares, components and raw materials which constitute inventory in

the company. These items constitute a major portion of the total inventories in a

company they include the items needed for proper operation, repair and maintenance

during manufacturing cycle.

Objectives of the purchase Department

The company purchase department stands for following objectives, in order to achieve

competitive advantage in material procurement

i) To procure right material


ii) To procure material in right quantities

iii) To procure material in right quantities

iv) To procure from right and reliable sources

v) To procure material economically, i.e. right or reasonable price.

vi) To receive and deliver materials at

Right place, and at

Right time.

The purchase procedure

Steps involved in the complete purchasing cycle of materials.

i. Recognition of need, receipt and analysis of purchase requisition.Whenever a department needs an item, it is officially brought the notice of the purchasing department. Purchase requisition forms the basis for action by the purchasing department.

ii. Sending purchase requisition to Head OfficeIn second stage the company stores department sends all orders to head office, for purchase of required materials.

iii. Selection of possible sources of supplyThis process consists of selecting a fair number of vendors in accordance with established guidelines, from whom quotations will be requested.

iv. Making request for QuotationsIn this stage, request for quotations is made on prescribed quotation forth to all selected (possible) sources of supply.

v. Receipt and analysis of Quotations After receiving a number of quotations from different suppliers, they are studied and a comparative statement of rates and other terms and conditions mentioned in the quotations is prepared.

vi. Selection of right source of supply The comparative statement as prepared in step (vi)above serves as good guide in selecting the right source of supply.

vii. Issuing purchase orderAfter selecting the right supplier, a purchase order is dispatched to them, to supply respective materials.


A purchase order once accepted by the vendor constitutes a contract for the delivery of the articles in accordance with terms of purchase agreement.

viii. Follow-Up and expediting the orderAfter placing the order, the purchase service selection maintains contact with the vendor, in order to take corrective actions such as transferring some of the orders to some other suppliers.

ix. Analyzing receiving reports and processing discrepancies and rejectionsReceiving reports are compared with purchase order in order to find discrepancies. Discrepancies found if any during inspection as regards the quantity or quantity of the received material should be promptly bought to the notice of the supplier.

x. Checking and approving vendors invoices for paymentInvoices should be checked to ensure that, the correct material has been supplied, according to agreed terms and conditions. After confirming the above, the payment is made to the vender for the value of materials received.

Functions of store department.

I. To receive materials and equipments and to check item for identification.

II. To record the receipt of materialsIII. To correct positioning of all materials and supplies in the store.IV. To maintain stocks safely and in good condition by taking all

precautions to ensure that they do not suffer from damage, pilfering or deterioration.

V. To issue items to the users only on the receipt of authorize store requisitions.

VI. To record and update receipts and issues of materials.VII. To plan store for optimum utilization of the cubic space i.e.

length, breadth and height.VIII. To ensure that the required materials are located easily

IX. To initiate purchase cycle at the appropriate time so that the materials require are never out of stock.

To co-ordinate and co-operate to the full extent with the purchasing, manufacturing, inspection and production planning and control departments.


FINDINGS:

Inventory control system: As per the study, raw material has increase the efficiency of the inventory and drastically has reduced the transportation cost.

The company should take in to account of existing stock level when it changes the design or when it introduces new model otherwise absolute and non moving stocks will increase due to frequent changes.

The employees are very rude behavior and they do not have courtesy to speak with subordinates and trainees (visitors).

The Middle class employees are inefficiency and ineffectiveness towards work.

They do not have proper advanced knowledge to prepare books of accounts.

Implementation of latest technological systems entrepreneur resource planning software packages as discussed will cater to the additional information requirements of the company which in turn will improve the efficiency of management of inventory control systems.

For making ABC analysis usually companies consider value and consumption. In Mysore Paper Mill Ltd., they also consider the value and consumption of raw materials. This is one of the best evaluations of ABC analysis in which the company has developed.

The employees are not interest to give any information to trainees.

There is no co-ordination between employees.

The company is making open order for the whole year to the supplier and the plants according to monthly schedule produce the inventories.

The stores should be according to the needs of the company this will provide effective safe and good storage system.

The company should adopt latest technology to provide a competitive product which can control inventory and increase profitability of the company.


RECOMMENDATION:

There is always a threat from the domestic players and a potential threat from the

MNC is for the MPM so it is desirable to contract effective barriers to reduce

competition.

The MPM should also concentrate on the diversification so as to ensure expansion

and to utilize the unexploited opportunities.

As the dealers are not satisfied by the margin offered by the company, it should

increase the margin for the dealers who have been utilized both for selling and

collecting marketing information.

The company should also target on the high customers who from the customer

base from the MNCs.

The company should invest on more on R&D to come up with new varieties of

paper in a cost effective manner.

The company has use various technologically advanced media such as the

internet, mobile, advertising and digital displays to promote its products apart

from the conventional media.

It should periodically contract its dealers and customer and should review its

performance.

SUGGESTIONS:

As per the study inventory management and its implementation in Mysore Paper Mill ltd.., it was revealed that management of the inventories play strong role in the success of the organization.


Implementation of better and new information system entrepreneur resource planning, software packages, as discussed will cater to the additional information requirements of the company which in turn will improve the efficiency of management of inventory control system.

For making ABC analysis usually companies consider value and consumption. In Mysore Paper Mill Ltd.., they also consider the value and consumption of the raw materials. This is one of the best evaluation of ABC analysis in which the company has developed.

The store should be moderate according to the needs of the company. This will provide effective, safe and good storage system.

The company is making open order for the whole year to the supplier and the plants according to monthly schedule produce the inventories.

The company should follow the first in first in first out method in issuing the materials to the production department.

These materials issuing practices are doing well and have more contribution towards effective material management. It helps a lot in achieving effective inventory control over the materials in the company.

The Company which is give more concentrate on employees benefit for the current year (i.e. the employees benefit which increased compared to previous year) that has to be reduce.

The company which gives more cash discount on sales so this is not good for organization.

Employers do not use any set of safety helmets and also. So it makes

compulsory use of safety helmets while doing the work which helps to the

efficiency and health of employees.

The company can consider by producing the other varieties of paper like cards,

drawing paper etc.

Excessive labor in certain department they should try to remove the labor.

CONCLUSION:

The control of inventories is complex of many fluctuation and forms. Inventory are the results of all fluctuation areas (i.e. production, marketing, purchasing.) with in the organization. The control of inventories represents a shared responsibility and viewed as such. Any set of roles used for inventory controls in revalued regularly in Mysore paper mills ltd..,


In Mysore paper mills ltd.., the purchase and stores department are handling inventory inefficiently in the organization due to the problem of inadequate technology and inexperienced employees. They are maintaining ancient method of books of accounts and it carried high cost and there is no proper utilization of funds. The major factor which is effect the whole organization that is conflict (agency cost) which is high.

The MPM ltd…, which is run good at production, apart from that the other over heads (i.e. factory, office and administration, and selling and distribution expenses.) are high. So the company should reduce the cost which helps to improve the organization.

It is government undertaking. It is running in loss. Due to the above condition. I wish this company a grand success in the years to come.

5. ANNEXURE

Profit and loss account and Balance Sheet are shown below:

31st the profit and loss account for the year ended march 2010

(Rs. In lakhs)

particulars For the year ended 31-3-2010

For the year ended 31-3-2009

Income 42490.72

sales 33742.72 1142.74

Less: excise duty 761.42

32981.30 41347.98

Other income 1037.37 3132.59

Variation in stock -2989.11 259.08

total 31029.56 44739.65

Expenditure

Raw materials consumed

8139.07 9210.67


Chemicals consumed 3415.27 4641.05

Stores consumed 765.40 903.47

Repairs & maintenance

712.46 1047.18

Power and fuel 10150.45 13680.67

Labour charges 1645.78 1220.40

Employee benefits 8470.29 7042.33

Administration and other expenses

1222.55 1132.83

Selling expenses 1443.65 788.17

Prior period adjustment

68.48 569.00

total 36033.39 40235.77

Profit/loss for the year before interest, depreciation & taxation

-5003.83 4503.88

Interest 1708.86 1864.19

depreciation 1009.87 994.86

Taxation-fringe benefit tax

0.00 11.89

Net Profit/loss for the year

-7722.56 1632.94

Add: balance of loss(-) brought forward from previous year

-3202.28 -4835.23

Balance of loss(-) carried to balance sheet

-10924.86

-3202.28


THE MYSORE PAPER MILLS LIMITED

BALANCE SHEET AS AT 31 MARCH 2010

(Rs. In Lakhs)

particulars As at 31-03-2010 As at 31-03-2009

SOURCE OF FUNDS

A. SHARE HOLDERS FUNDS

Capital 11889.34 11889.34

Reserves and surplus 554.76 590.11

12444.10 12479.45

B. LOAN FUNDS

Secured loans 4331.57 11323.58

Unsecured loans 16917.27 11717.27

21248.84 23040.85

Total (A+B) 33692.94 35520.30

APPLICATION OF FUNDS:

C. FIXED ASSETS

Gross block 50847.42 50574.36

Less: depreciation 38612.96 37660.02

NET BLOCK 12234.46 12914.34

Capital work-in progress 590.35 209.42

12824.81 13123.76

D. CAPTIVE FOREST PLANTATIONS

5074.48 4343.29


E. INVESTMENTS 62.33 62.44

F. CURRENT ASSETS, LOANS AND ADVANCES:

Inventories 10619.49 15893.91

Sundry debtors 3395.20 5027.49

Cash and bank balances 1090.28 84.12

Loans and advances 2644.37 2625.86

17749.34 23631.38

Less: current liabilities and provisions:

Current liabilities 9031.26 5961.71

provisions 3911.62 3378.53

12942.88 9340.24

Net current assets 4806.46 14291.14

Total 22768.08 31820.63

G. MISCELLANEOUS EXPENDITURE

VRS payment-note: 4.13 0.00 497.37

H. Profit and loss account 10924.86 3202.28

TOTAL (C to H) 33692.94 35520.30


5. BIBLIOGRAPHY

WEBSITES: www.mpm.co.in www.mysorepapermill.co.in

Paper mill monthly magazines.

MPM quarterly magazines.

73rd , 74th and 75th annual reports. (till 2010)

Cost accounting- Jawaharlal- TMH, 3/e, 2003

Production &operation mgt – k. Sridhar Bhat.

Production &operation mgt – prof. K. Aswathappa,

http://www.mysorepapermill.co.in/

http://www.mpm.co.in/

koya project on inventory management

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