project inventory mba projeat

1.1 INTRODUCTIONGood planning is good inventory management and good inventory management is good financial management. S.K. Kuchal. Inventory comprises stock of raw materials, work-in-process, finished products, stores and components. John HAMPTON treats inventory as "locked up capital". Inventory measured by rupee value constitutes, the major element in the "Working Capital" (approximately 60 percent of current assets) of many business undertaking in India.

DEFINITION OF INVENTORY

"John J. Hampton" defined inventory as The goods for eventual resale by the firm. Inventory, measured by rupee value constitute the major element in the working Capital of many business undertakings. Inventory is the value of raw materials, Consumables, and spares, work-in-process, finished goods and scraps are called as locked up capital. The major determinants of investment in inventory are: Level of sales. Length and technical nature of the production process. Durability vs. Perish ability or styling obsolescence of the product.

Inventory involves two types of costs. The first is "Direct Costs", which is connected to buying and holding of goods and the second is "Indirect Costs" or "Financial Costs". The direct costs includes firstly ordering costs. These costs include cost of placing order, Shipping, handling and quality discount etc., If the firm places few orders frequently, the ordering cost will be higher. Secondly, carrying cost are the costs which are incurred for storing the goods. These costs include the space insurance, obsolescence, spoilage and damages or thefts. The indirect costs include interest paid on the capital tied up in the inventory and the inadequacy of materials involves the cost.

Efficient inventory management reduces levels of inventories to a considerable degree without effect on production and sales by using simple inventory planning and control techniques. An understanding neglecting the management of inventories will be jeopardizing its long run profitability and survival.

Inventory is an idle resource which is usable and has value. It may be men, money, materials, plant acquisition, spares other stocked to meet future demand. A physical resource that a firm holds in stock with the intent of selling it or transforming it into a more valuable state. Raw Materials Works-in-Process Finished Goods Maintenance, Repair and Operating (MRO)

Inventory Management means safeguarding the company's property in the form of inventories and maintaining it at the optimum level, considering the operating requirements and financial resources of the business. Inventory Management emphasizes control over purchases, storage, consumption of materials and determining the optimum level for each item of inventory. The reduction in "an excessive inventory i.e., excesses above the optimum level carries a favorable impact on company's profitability, likewise maintaining inventory below optimum level negatively affects the company's profitability. Hence, inventory management should be comprehensive enough to cover the flow of materials starting from the point when some one makes a request for the purchase, up to the stage when the finished products are sold.

Meaning of Inventory Control

Inventory comprises stock of raw materials, work-in-process, finished goods, stores and components. The aim of inventory control is to achieve maximum efficiency in the management of inventory. "Inventory Control" may be defined as "Safe-guarding of company's property in the form of inventory and maintaining it at the optimum level, considering the operating requirements and financial resources of the business". The definition embraces control over purchases, storage and consumption of materials and determining the optimum level for each item of inventory. The system of control should be comprehensive enough to cover the flow of materials starting from the point when some one makes a request for the purchases up to stage when materials are consumed and their costs compiled and assembled in cost sheet.

Objectives of inventory control

The following purpose should be kept in mind in developing and maintaining a system of control.

Effective use of financial resources available to business i.e. to maintain the investment in inventory at the lowest level consistent with operating requirements.

Avoidance of the "out-of-stock" danger i.e., to provide a supply of required materials with out any delay for efficient and uninterrupted operations.

Reduction to a minimum of the risk through obsolescence.

Economy in purchasing as affected by quantity buying and favorable raw material market.

Storage of inventory with a minimum of handling time and cost and to protect them from losses by theft, fire and damage.

Service to customers i.e., maintaining sufficient stock of finished products to meet reasonable expectations of customers for prompt delivery of their order.

Accurate and regular material reports to management by keeping perpetual inventory and other up to date records.

Techniques of inventory controlThe various techniques used for inventory control are as follows:1. ABC Analysis.2. Level Setting.3. Economic order quantity.4. Proper Purchase Procedure.5. Proper Storage.6. Perpetual Inventory Systems.7. Establishment of a system of Budgets.8. Review of slow and non-moving items.9. Use of radios, e.g. inventory turnover.

Essential requirements of Inventory controlEssential to an adequate control of inventory are the following requirements. there should be proper co-ordination and co-operation between various Concerns, viz., purchasing, departments receiving, inspection, storage, Issues and cost departments. Purchasing should be centralized under the control of a competent Manager.There should be proper planning of materials requirements.There should be proper classification of materials with codes, materials satisfactorily storage control procedures. There should be planned storage control and issues so that there will be delivery of materials upon requisition to departments in the right quantity at the time they are needed.Appropriate records should be maintained to control issues and utilization of stores in production. The system of perpetual inventory should be operated so that it is possible to determine at any time the amount and value of each item of material in stock.Maximum, minimum and re-ordering levels of stocks should be fixed. There should be a system of regular reporting to management regarding materials purchase, storage and utilization. There should be an efficient system of internal audit and internal checks.

ECONOMIC ORDER QUANTITY (EOQ)

The economic order quantity is that inventory level, which minimizes the total of ordering costs and carrying costs.

It is the question, how much to order the quantity when inventory is replenished. If the firm is buying raw materials, the question is to purchase the quantity of each replenishment and if it has to plan for production run, it is how much production to schedule. It may be solved through EOQ. It involves two types of costs:

a. Ordering Cost b. Carrying Cost

a.Ordering Cost

Ordering cost is referred to as the cost of placing an order and securing the supplies. Ordering cost depends upon the number of orders placed and a number of items ordered at a time. Higher will be the ordering cost when frequent orders are placed. Similarly, lesser the ordered quantity, higher the ordering cost.

b.Carrying Cost

Carrying cost or holding cost refers to the cost of keeping the materials which includes capital cost, cost of storage and cost of deterioration and redundancy. Larger the volume of inventory, higher the inventory carrying cost and vice versa.

EOQ for an item is arrived on the following assumptions:

1.Demand is continuous at a constant rate.2. The process continuous infinity.3. No constraints are imposed on qty ordered, storage capacity, budget etc., 4. Replenishment is instantaneous.5. All costs are time invariant. 6. No shortages are allowed.7. Quantity discounts are not available.

EOQ for an item is arrived by the following formula,

EOQ =

Where, EOQ = Economic Order QuantityAC = Annual Consumption of an item CO = Cost of Ordering an order CH = Cost of Carrying one unit / year.

ABC ANALYSIS

The ABC method is an analytical method of stock control which aims at concentrating efforts on those items where attention is needed most. It is based on the Premise that a small number of the items in inventory may typically represent the bulk money value of the total materials used in production process. While a relatively large number of items may represent a small portion of the money value of stores used and that small number of items should be subject to the greatest degree of continuous control under this system, the materials stocked may be classified into a number of categories according to their importance i.e., their value and frequency of replenishment during a period.The first category, we may call it the group of 'A' items, which consists of only a small percentage of total items handled but its combined value may be a large portion of the total stock value. The second category, naming it as group of 'B' items, which may berelatively less important. In the third category consisting of 'C items, all the remaining items of stock may be included which are quite large in number but their value is not high.

Advantages of ABC Analysis

Closer and stricter control on those items which represent a major portion of total stock value. Investment in inventory can be regulated and funds can be utilized in the best possible manner. Saving in stock carrying costs. Helps in maintaining enough safety stock for "C" category of items.

Always Better Control This is based on cost criteria. It helps to exercise selective control when confronted with large number of items it rationalizes the number of orders, number of items & reduce the inventory. About 10 % of materials consume 70 % of resources About 20 % of materials consume 20 % of resources About 70 % of materials consume 10 % of resources

ABC

Maintaining close control Maintains moderate controlMaintains loose control

Size of order based on calculated requirementSize of order based on usageSize of order based on level of inventory

Procurement from many sourcesProcured from two or three sourcesProcured from two sources

Keeps records of receipt and use Keep records of receipt and useNo records are kept

More effort to reduce lead time Moderated effortMinimum effort

Close checks on schedule revisionSome checks on changes in needNo checks against need

Frequent orderingLess frequent orderingBulk ordering

Continual expeditingExpediting for prospective shortagesNo expediting

Accurate forecastsLess accurate forecastsApproximate forecasts

Low safety stock for less than two weeksLarge safety stock up to 2 to 3 monthsLarge safety stock for more than 3 months

High consumption valueAverage consumption ValueLow consumption value

INVENTORY TURNOVER RATIO

Inventory Turnover Ratio indicates the efficiency of the firm in producing and selling its product. It is calculated by dividing the cost of goods soled by the average inventory:

Cost of goods sold Inventory Turnover = --------------------------- Average Inventory

The Average Inventory is the average of opening and closing balances of inventory. In a manufacturing company inventory of finished goods is used to calculate inventory turnover.

Components of Inventory

The manufacturing inventory consists of two more components: (i) raw materials and (ii) Work-in-Process. An analyst may also be interested in examining the efficiency with which the firm converts raw materials into Work-in-Process and Work-in-Process into finished goods. That is, the analyst would like to know the levels of raw materials inventory and work-in-process inventory held by the firm on an average. The raw materials inventory should be related to materials consumed and work-in-process to the cost of production. Thus:

Raw materials Material ConsumedInventory turnover = -----------------------------------------Average Raw material inventory

Work in process Cost of productionInventory turnover = -------------------------------------Avg.Work in process inventory

Finished goods Cost of goods soldTurnover Ratio = ---------------------------Avg.Finished goods

Inventory Average inventoryholding period = ------------------------- x 365 Cost of goods sold

Materials Consumed can be found as opening balance of raw material plus purchases minus closing balances of raw material. Cost of Production is determined as material consumed plus other manufacturing expenses plus opening balances of work-in-process. In the absence of information of material consumed or cost production, raw material and work-in-process inventories may be related to sales.

The inventory turnover shows how rapidly the inventory is turning into receivable through sales. Generally, a high inventory turnover is indicative of goods inventory management. A low inventory turnover implies excessive inventory levels than warranted by production and sales activities or a slow-moving or obsolete inventory. A high level of sluggish inventory amounts to unnecessary tie-up of funds reduced profit and increased cost.

If the obsolete inventory is written off, this will adversely affect the working capital and liquidity position of the firm. However, a relatively high inventory turnover should be carefully analyzed a high inventory turnover may be the result of a very low level of inventory which results in frequent stock outs: the firm may be form hand-to-mouth. The turnover will also be very high if the firm replenishes its inventory in too many small lot sizes. The situation of frequent stock outs and too many small inventory replacements are costly for the firm. Thus, too high and too low inventory turnover ratios should be investigated further. The computation of inventory turnovers for individual components of inventory may help to detect the imbalanced investments in the various inventory components.

Efficient inventory management reduces levels of inventories to a considerable degree without effect on production and sales by using simple inventory planning and control techniques. An understanding neglecting the management of inventories will be jeopardizing its long run profitability and survival.

CONTINUOUS FLOW FOR OPTIMAL RESULTS

FINISHEDPRODUCTINVEN-TORY

CASHFLOW

INVEST-MENTSALES

1.2 INDUSTRY PROFILEIndia has emerged as the fourth largest steel producing nation in the world, as per the recent figures release by World Steel Association in April 2011. In 2010, India was the 5th largest producer, after China, Japan, USA and Russia had recorded a growth of 11.3% in steel production as compared to 2009. Overall domestic crude steel production grew at a compounded annual growth rate of 8.4% during 2011-12 to 2009-10. The Indian steel industry accounted for around 5% of the worlds total production in 2010.Total crude steel production in India for 2010-11 was around 69 million tonnes and its expected that the crude steel production in capacity in the country will increase to nearly 110 million tonne by 2012-13. Further, if the proposed expansion plans are implemented as per schedule, India may become the second largest crude steel producer in the world by 2015-16. The demand for steel in the country is currently growing at the rate of over 8% and it is expected that the demand would grow over by 10% in the next five years. However, the steel intensity in the country remains well below the world levels. Our per capita consumption of steel is around 110 pounds as compared to 330 Pounds for the global average. This indicates that there is a lot of potential for increasing the steel consumption in India. Immense growth potential in Indian Steel Sector Domestic crude steel production grew at a compounded annual growth rate of 8.4% in the last few years. Crude steel production capacity of the country is projected to be around 110 million tonne by 2012-13. 222 Memorandum of Understandings (MOU) have been signed with various states for planned capacity of around 276 million tonnes by 2019-20. Investments at stake are to the tune of $187 billion in the Steel sector. Increase in the demand of steel in India is expected to be 14% against the global average of 5-6% due to its strong domestic economy, massive infrastructure needs and expansion of industrial production. Demand of steel in the major industries like infrastructure, construction, housing, automotive, steel tubes and pipes, consumer durables, packaging and ground transportation. Target for $ 1 trillion of investments in infrastructure during the 12th Five Year Plan. Infrastructure projects (like Golden Quadrilateral and Dedicated Freight Corridor) will give boost to the demand in the steel sector in near future. Projected New Greenfield & up-gradation of existing Airport shall keep the momentum up. Increased demand of specialized steel in hi-tech engineering industries such as power generation, automotive petrochemicals, fertilizers etc.India, the world's fourth largest steel maker, logged 5.86 per cent growth in production in 2012-13 - the highest among major global producers, World Steel Association has said. According to WSA, India produced 78.12 million tonne (MT) steel during the fiscal as against 73.39 MT in 2011-12.China had produced the maximum steel during the fiscal at 726.33 MT, almost half of the world's total output of 1,521 MT; but India outpaced the neighbor in the rate of growth. Production in China grew by 5.39 per cent during 2012-13 over 689.192 MT in 2011-12. Global production grew by 1.59 per cent during the fiscal.World's second largest steel maker Japan produced 107.30 MT in 2012-13, clocking 0.78 per cent growth over 106.46 MT produced in the previous fiscal.The US, the world's third largest steel producing nation, clocked a negative rate, down 1.61 per cent, during the fiscal at 86.94 MT compared to 88.36 MT a year ago.Russia produced 69.56 MT steel in 2012-13, recording just 0.17 per cent growth over the previous fiscal. South Korea has also clocked a de-growth of 1.62 per cent to produce 68.15 MT steel during the year.In 2011 India became the fourth largest steel-producing nation in the world with production of over 74 million tonnes (MT). However, it has a very low per capita consumption of steel of around 59 kgs as against an average of 215 kgs of the world. This wide gap in relative steel consumption indicates that the potential ahead for India to raise its steel consumption is high. Being a core sector, steel industry tracks the overall economic growth in the long term. Also, steel demand, being derived from other sectors like automobiles, consumer durables and infrastructure, its fortune is dependent on the growth of these user industries. The Indian steel sector enjoys advantages of domestic availability of raw materials and cheap labour. Iron ore is also available in abundant quantities. This provides major cost advantage to the domestic steel industry, with companies like Tata Steel being one of the lowest cost producers in the world. The Indian steel industry is largely iron-based through the blast furnace (BF) or the direct reduced iron (DRI) route. Indian steel industry is highly consolidated. About 60% of the crude steel capacity is resident with integrated steel producers (ISP). But the changing ratio of hot metal to crude steel production indicates the increasing presence of secondary steel producers (non integrated steel producers) manufacturing steel through scrap route, enhancing their dependence on imported raw material.Overall the global steel industry witnessed steady growth during 2011. The growth in global steel demand was driven by increased demand from key steel end-user industries including infrastructure, construction and automotive, especially in the emerging markets; in spite of financial turbulence in the Euro zone, weak private demand in the United States and events in Japan and the Middle East. In 2011, the global steel demand is estimated to have increased by 6% to reach a new high of 1,373 MT, 13% above the pre crisis levels in 2007. Global steel consumption grew from 1.302 MT in 2010 to 1373 MT. Emerging nations accounted for 72% of global consumption, at 980 MT in 2011 up from 928 MT in 2010. Growth was led by the emerging economies, notably China (6% up) and India (4% up), where new demand records were set. In the developed economies, demand levels remained 15-25% below 2007 levels. Europe saw steel demand increase by 5% and North America by 9% in 2011, but steel demand in Japan fell by 3%, as the impact of the earthquake and subsequent tsunami was felt on the manufacturing activity. The growth in 2011 can be segregated in two halves. In the first half of 2011, global steel consumption grew relatively faster, underpinned by infrastructure construction and manufacturing activity. In the second half of 2011, steel consumption was lower than in the first half due to moderate economic growth in China, the United States and Europe. In 2011, global steel output reached 1.5 billion tonnes, an increase of 7% compared to 2010 and a new record for world crude steel production. All major steel producing countries apart from Japan and Spain showed growth in 2011. Growth was particularly strong in Turkey, South Korea and Italy.ProspectsGovernment delays in allocating coal blocks for captive consumption by steel manufactures is seriously hurting the competitive edge of Indian steel sector. The same story is with iron ore. There are delays in allocating iron ore mines as well as approval for mining licenses. As a result no new investment on the ground in the steel sector is happening to add new steel capacities. There are delays in land acquisition for Greenfield projects and environment approvals in India. There is thus delay in converting the intent into project on ground especially in the area of expansion and modernization. This impedes growth of domestic steel capacity creation. The Indian steel sector may face threat from cheap imports, now that the import duties on steel in India are amongst the lowest in the world. Import pressures could consequently lead to pressure on margins of the domestic companies on account of lower steel realisations. However, if the Indian government increases the import duty on steel products, domestic steel industry could get protection to an extent. But since India has already agreed to the WTO norms, it might become difficult for the government to increase duties substantially. Looking ahead, global steel market developments are likely to remain generally positive, but with lower growth in 2012 compared to 2011. In the first few months of 2012, apparent steel demand remained muted due to the uncertain economic climate. For 2012 as a whole, global steel demand is forecast to grow by a further 4% to reach 1,422 MT. China, India and other emerging markets will continue to drive demand but recent market developments suggest likely slackening of demand. This is primarily due to the recent changes in the monetary policy in China to reduce bank credit and improve asset quality as well as lower growth forecast in India. While USA and Japan is expected to continue its recovery, steel demand in Europe is expected to fall. Going forward, we remain apprehensive about the continuation of the strong performance by steel companies. We believe that volume growth would be visible in the years to come, largely due to the continuation of infrastructure spending (including housing), strong demand from the auto sector, which could help in driving demand for value added steel products like CR (cold roll) steel and exports. We expect realizations to remain under pressure on account of excessive supplies. However, a recovery in steel prices could be sooner if steel producers across the globe take continuous efforts at curtailing production.

1.3 COMPANY PROFILESBQ STEELS LIMITEDIS SETTING UP A NEW INTEGRATED STEEL PLANT WITH A CAPACITYOF 5,00,000 TPA IN NELLORE DISTRICT OF ANDHRA PRADESH.SBQ Steels Limited, manufacturers of Pig Iron, Sponge Iron, Steel Billets, Blooms, Bars, and Wire Rods, caters to the steel requirements of automobile and engineering sectors, and also to the nuclear power industry, in India and abroad.Promoted by RKKR Steels, one of South India's oldest and largest steel manufacturers, SBQ Steels produces high quality products at cost-effective prices.SBQ Steels Limited, part of RKKR Group, is a fully integrated Special Bar Quality Alloy Steel manufacturer - from iron ore to ready-to-market products. Incorporated in the year 2007, the steel plant has a capacity of 0.5 million tonus per annum (MTPA).Located in Nellore District, Andhra Pradesh, the plant is one of the most modern steel plants in South India equipped with the state-of-the-art technologies. The steel plant is strategically located to cater to the needs of customers across the country.SBQ Steels will be able to fulfill the gap in demand and supply of Special Bar Quality Alloy Steel. The company uses best quality iron ore from Hospet and Bellary mines. Coal is imported from Australia to produce metallurgical coke in-house to assure the best quality of Pig Iron. An in-house chemical laboratory and quality control department ensures product quality.With its good logistic support, SBQ Steels can meet the needs and expectations of its customers in terms of deliveries even at short notice.Latest TechnologiesWith the aim to lower production costs and improve the efficiencies, SBQ Steels has implemented latest technologies.Implementation of SAP Better MIS Faster Decision Making Lower Inventory Costs Accurate Costing for Better PricingCoke Oven Plant

The manufacturing process used in the plant is Eco-Friendly Stamp Charged process of CFRI. The stamp charging technology basically involves formation of a stable coal cake with finely crushed coal (85-90% - 3mm) by mechanically stamping outside the oven and pushing the cake thus formed inside the oven for carbonization. Coal moisture is maintained at 8-10% for the formation of cake. Due to stamping, bulk density of charge increases by 30-35% causing significant improvement in mecum indices and CSR values of coke. Oven productivity increases by 10-12%Direct-Reduced Iron (DRI) PlantThe primary function of this plant is to produce DRI from iron ore in a rotary kiln. Direct-reduced iron (DRI), also called sponge iron, is produced from direct reduction of iron ore (in the form of lumps, pellets or fines) by a reducing gas produced from natural gas or coal. The reducing gas is a mixture majority of Hydrogen (H2) and Carbon Monoxide (CO) which acts as reducing agent. This process of directly reducing the iron ore in solid form by reducing gases is called direct reduction.In the process of production of sponge iron, the raw materials (iron ore, feel coal and lime stone /dolomite) are fed to the rotary kiln through feed tube in a pre-determined ratio. Due to inclination and rotary motion of the kiln the material moves from the feed end of the kiln to the discharge end. The fine coal is blown counter currently from the discharge end of the kiln to maintain the required temperature and the carbon concentration in the bed. Air is blown in the zones to maintain the required temperature profile. The material and the hot gases move in the counter current direction, and as a result iron ore gets pre-heated, and reduces gradually by the time it reaches the discharge end.Sinter PlantSinter Plant - engaged in delivering sinter product by agglomerating the finer particles of iron ore to a porous mass by incipient fusion within the mass itself. It is the function of the sintering plant to process fine grain raw material into coarse grained iron ore sinter for charging the blast furnace Meticulously prepared mixtures are created consisting of fine ore, concentrates, extras, and under sizes arising from screening lumpy burden components at the blast furnace. Ferriferous fine grain discharged from the production chain of the entire steel works are also put into the mixtures. By igniting suitable fuel, iron ore sinter is produced by down draft process.Mini Blast Furnace (MBF)MBF has a working volume of 250 cum and produces about 700 tons liquid hot metal per day for steel making and casting pigs in pig casting machine.The purpose of a blast furnace is to chemically reduce and physically convert iron oxides into liquid iron called "hot metal". The blast furnace is a huge, steel stack lined with refractory brick, where iron ore, coke and limestone are dumped into the top, and preheated air is blown into the bottom. The raw materials require 6 to 8 hours to descend to the bottom of the furnace where they become the final product of liquid slag and liquid iron. These liquid products are drained from the furnace at regular intervals. The hot air that was blown into the bottom of the furnace ascends to the top in 6 to 8 seconds after going through numerous chemical reactions.MBF is provided with full-fledged instrumentation and control system distributed both locally and in the MBF control room, supported by automation back up.Pig Casting MachinePurpose of this machine is to cast hot metal into pigs.Steel Melting Shop Electric Arc Furnace Ladle Furnace Vacuum Degassing Billet casterRolling Mill Reheating Furnace Rolling Mill Bar & Section Mill Finishing FacilitiesSBQ Steels produces both basic grade as well as foundry grade suitable for steel producers and foundries respectively.The Special Bar Quality Alloy Steel, the final product, will mainly be used in auto & auto ancillary industry, viz - Forgings, Heat Treatment Steels, Ball Bearing Steel, Engineering Sector, Components & Seamless Pipe manufacturing sector and as well as Construction steel consisting of Structural Steel/RE-bars.Pig IronPig iron is the intermediate product of smelting iron ore with coke, usually with limestone as a flux. Pig iron has very high carbon content, typically 3.54.5%, which makes it very brittle and not useful directly as a material except for limited applications.Pig iron comprises three main types: Basic Grade Pig Iron, used mainly in electric arc steelmaking, Foundry Grade Pig Iron used mainly in the manufacture of grey iron castings in cupola furnaces, and Nodular Pig Iron (SG) used in the manufacture of ductile iron castings. Pig iron contains at least 92% Fe. Other constituents are typically: Pig Iron Carbon (%)Silicon (%)Manganese (%)Sulphur (%)Phosphorus (%) Basic Grade3.5 - 4.51.5 Max0.5 - 1.00.05 Max0.12 Max Foundry Grade 3.5 - 4.51.5 - 3.50.5 - 1.00.05 Max0.12 Max SG Grade 3.5 - 4.50.05 Max0.05 Max0.05 MaxBilletsBillet is a section of steel used for rolling into bars, rods and sections. Billets can be directly produced by continuous casting.Special Bar Quality Alloy Steel(SBQ)SBQ represents a wide variety of higher-quality carbon and alloy bars that are used in the forging, machining and cold-drawing industries for the production of automotive parts, hand tools, electric motor shafts and valves. SBQ or Engineering Steel generally contains more alloys than merchant quality and commodity grades of steels bars, and is produced with more precise dimensions and chemistry.Structural SteelStructural steel is steel construction material, a profile, formed with a specific shape or cross section and certain standards of chemical composition and strengthRolling Mill Product SpecificationsRebars: 10 to 36 mm diaWire Rod :5.5 to 12 mm sizeSBQ Steels' integrated steel plant has the capacity to produce 1,50,000tonnes of sponge iron, 5,00,000 tonnes of steel billets and blooms, and nearly 6,00,000 tonnes of bars and wire rods.As a responsible corporate citizen, SBQ Steels has taken effective measures in the areas of resource conservation, pollution prevention and water treatment.The company has installed water treatment plants, where the effluent water is treated and converted into potable water for gardening purposes.Adhering to its core beliefs, SBQ Steels has taken up many social welfare activities for the benefits of the nearby villages. The company regularly conducts health camps in the rural areas. SBQ Steels gives priority to utilize the available local resources; it provides employment opportunities for the locals. The company also plans to build schools for the underprivileged.The company has built health care centers and township for the benefits of its employees.

2.1 NEED FOR THE STUDY

In todays competitive scenario especially in the manufacturing sector, the management of inventory is given the highest importance. Organizations are in the process of implementing various techniques in order to maintain inventory at an optimum level. Hence this study is undertaken to look into various aspects of inventory management of sbq steels ltd., The choice of area of the study for the project work was given after initial study of company's operations and the system of working. Though the company has several departments, the prime area of my interest was in Finance. Every firm must maintain adequate inventory for its smooth running of the business and to give the competition and want to use of customers and business for that purpose maintenance of adequate inventory is must. To facilitate smooth production and sales operations. To face the risk of variation in demand and supply. To face the price changes in inventory and quantity discounts.

As the global inventory scenario is moving at very fast pace. sbq steels ltd., being a manufacturing concern had huge number of items and the inventory constitutes of variety of items. There is a need for the system to be devised on value basis. So that effective control can be exercised on inventory.

2.2 OBJECTIVES OF THE STUDY

Primary Objective To study about Inventory Management of sbq steels ltd.,

Secondary Objectives: To study the raw materials for the better control. To study out how much quantity should be ordered (EOQ) and to make a comparative study during the last three years. To study the inventory turnover of the company. To study the minimum and maximum consumption level of the raw material of the company. To draw the conclusion and offer feasible suggetions to improve the efficiency of Inventory management in sbq steels ltd.

2.3 SCOPE OF THE STUDY

The rate of turnover or uses of inventory is an excellent measure of the performance and rate of the wages of manufacturing companies. Everywhere there is a drive to do much better than was previously through possible.

sbq steels ltd., 85% of raw materials are imported and other B and C class elements are specially items made for them only. Lead times and bench quantity for an imported material is high like 70 days from the date of order. Hence adopting required strategies and techniques to maintain balanced inventory is inevitable to contribute to the bottom line.

80% of raw materials are imported. High lead time for imported raw material.

2.4 RESEARCH METHODOLOGYThe present study is based on both Primary Data Secondary Data

Primary DataFirst hand information was collected from experts of Finance department on their course of actions towards collections.

Secondary DataThe second hand information was collected from annual reports, schedules, budgets,companywebsite (www.sbqsteels.com), and previous reports etc.

2.5 LIMITATIONS OF THE STUDYTime period for the study has been limited to make a detailed analysis i.e. only 8 weeks.80% of raw materials are imported.Much of the data is collected from secondary source and the analysis is made on five years data only.Only important materials would take into the consideration because of there is no time for getting the full fledged materials list while in the limited period.

3.1 REVIEW OF LITERATURE

ABC ANALYSISABC analysis is a basic analytical management tool which enables top management to place the efforts where the results will be greatest. ABC analysis is a technique which is used to classify the items in store based on the demand of the stock. The NCCPL uses several types of inventories. Inventory Management is an attempt to control the quantity and value of the inventory. Inventory Management process starts with classification of different type of inventories to determine the degree of control required for each. The ABC system is widely used technique to identity various items of inventory for purposes of Inventory Management. This technique is based on the assumption that a firm should not exercise the same degree of control on all items of inventories. It should rather keep a more rigorous control on items.CATEGORIES OF ABC ANALYSISIn ABC analysis the items are classified in three main categories based on their respective consumption value.1. Category A items:The items, which are most costly and valuable, are classified as A nearly 10% of the total number of items stored will account for 70% of total value of all items stocked.2. Category B items:The items having average consumption value are classified as B nearly 20% of total number of items will account for 20% of total value statistical sampling is general useful to control them.3. Category C items:The items having low consumption value are put in category C nearly 70% of total number of items will account for 10% total value. Generally these items are slow and non-moving items in the stores, which are frequently used for production process but with more quantity.

PROCEDURE FOR DEVELOPING AN ABC ANALYSIS List each item carried in inventory by number or some other designation. Determine the annual volume of usage and rupee value of each item. Multiply each items annual volume of usage by its rupee value. Compute each items percentage of the total inventory in terms of annual usage in rupees. Select the top 10% of all items which have the highest rupee percentages and classify them as A items. Select the next 20% of all items with the next highest rupee percentages and designate those B items. The next 70% of all items with the lowest rupee percentages are C items.

ADVANTAGES OF ABC ANALYSIS This analysis has helped in reducing the clerical costs and resulted in better planning and improved inventory turnover. By this method materials manager is able to control inventories and show visible results in a short span of time. It becomes possible to concentrate all efforts in areas, which needed genuine efforts. It is the most effective and economical method as it is based on selective approach. It helps in placing orders, deciding the quantity of purchase, safety stock etc., this saving the enterprise from unnecessary stock outs or surplus and their resultant consequences.STOCK LEVELFor effective material control and to avoid overstocking and under stocking of materials, an important requirement is to decide upon various levels of materials these are maximum level, minimum level and re-order level. By taking action on the basis of these levels, each item of material will be automatically be held with in appropriate limits of control.. These levels are not permanent but revision according to the changes in the factors, which determine these levels.

FACTORS Rate of consumption of materials Lead-time Storage Capacity Availability of funds for investment in inventories Cost of storage Risk of loss due to theft, fire etc., Seasonal factors Fluctuations in market prices Insurance costs

MAXIMUM LEVELImprested system or Maximum level system reordering is made at regular time intervals. The maximum level of each item is predetermined. At a particular fixed period, say after one week, a fresh collective order for all the times will be placed. This level is fixed after taking into account some factors. Rate of consumption of materials Amount of capital needed and available Storages space available Cost of storing above normal stock Risk of obsolescence and deterioration and Re-order quantity

THE FORMULA FOR COMPUTING MAXIMUM LEVEL IS:

Maximum Level = Re-order level + Re-order quantity (Minimum consumption* Minimum re-order period)

MINIMUM LEVELIn this system, when the inventory items reaches to a predetermined minimum level, it is replenished by the fresh purchases up to the predetermined maximum level. The minimum level serves as a reordering point. The fresh order is placed for that much quantity which shows deficiency in maximum level. This level is fixed by considering the following factors. Rate of consumption The time required under top priority conditions to acquire enough supplies to avoid a stoppage in production.THE FORMULA FOR COMPUTING MINIMUM LEVEL IS:

Minimum Level = Re-order level (Normal consumption * Normal re-order period)

RE-ORDER LEVELThe prescription of re-order level (ROL) is an important technique of Inventory Management. It fundamentally deals with when to order to replenish the inventories. Re-order level is predetermined point, and when the existing stock of inventories reaches this point or falls below it, the purchase action is initiated to replenish them.The Re-order level is decided for each important item of inventory on the basis of following considerations Lead time Average periodic consumption (Daily consumption) Safety stockRE-ORDER LEVEL IS DECIDED AS UNDER:

ROL = (Lead time * Average daily consumption) + Safety stock

ECONOMIC ORDER QUANTITYEOQ is an important technique of Inventory Management. EOQ prescribes the size of the order at which the ordering cost and the inventory carrying cost will be the minimum. Re-order quantity is some times known as economic order quantity (EOQ), because it is the quantity, which is most economic to order. In other words, EOQ is the size of the order. This gives maximum economy in purchase of any materials and ultimately contributes towards maintaining the material at an optimum level and at the minimum cost. It equates the cost of ordering with the cost of storing materials.ORDERING COSTIt consists of the cost of paper work for placing an order like use of paper, typing, posting, filling etc., the cost of the staff involved in this work, the costs incidental to order like follow-up, receiving, inspection etc., Ordering costs includes 1. Cot of placing an order with a vendor of materials Preparing a purchase order Processing payments Start-up scarp generated the material2. Ordering from the plant Machine setup Start-up scarp generated from getting a production run started.Ordering cost is ascertained as under:

Annual Requirement (R)Order sizeX Cost per orderO.C. =

CARRYING COSTCosts incurred for maintaining a given level of inventory are called Carrying Cost. They include the cost of store keeping (stationery, salaries, rent, material handling cost etc.,) interest on capital locked up in stores, the incidence of insurance cost, risk of obsolescence, determined and wastage of materials, evaporation etc., When the inventories are stored it involves following types of costs: Interest cost due to locking up of funds Cost of storage space Cost of insurance and taxes.

Total Carrying cost is ascertained as under:

T.C.C. = Average Inventory X Per unit carrying cost

ECONOMIC ORDER QUANTITY IS ASCERTAINED AS UNDER:

2 X Quantity required X Ordering costCarrying costE.O.Q =

INVENTORY TURNOVER RATIOTurnover of materials is a ratio of materials consumed during a period to the average stock of materials during the period. It indicates the rate of consumption of materials. The turnover of different types of materials may be compared to detect those items, which do not move regularly. This enables the management to avoid keeping capital locked up in undesirable items of materials. Inventory Turnover indicates the efficiency of the firm in producing and selling its product. Turnover of materials is often measured by the following formula:

Cost of goods soldAverage InventoryInventory Turnover =

Materials consumed = Opening stock + Purchases Closing stock

Opening stock + Closing stock2Average Inventory =

Materials consumed during the yearAverage InventoryInventory Turnover Ratio = 4.DATA ANALYSIS AND INTERPRETATIONS

Inventory Management Techniques

In managing inventory the firms objective should be in consonance with the shareholders, wealth maximization principle. To achieve this, the firm should determine the optimum level of inventory. Efficiency controlled inventories make the firm flexible. Inefficient inventory controlled inventories make the firm flexible. In efficient inventory control results in unbalanced inventory and inflexibility the firm may sometimes run out of stock and sometimes may pile up unnecessary stocks. This increases the level of investment and makes the firm unprofitable.

To manage inventories efficiency, answers should be sought to the following two questions: How much should be ordered? When should it be ordered?

The first question, how much to order, relates to the problem of determining Economic Order Quantity (EOQ), and is answered with an analysis of costs of certain level of inventories. The second question, when to order, arises because. Of uncertainty and as a problem of determining the re-order point.

Economic Order Quantity (EOQ)

One of the major inventory management problem to be resolved is how much inventory should be added when inventory in replenished. If the firm is buying raw materials, it has to decide lots in which it has to be purchased with each replenishment. If the firm is planning a production run, the issue is how much production to schedule (or how much to make). These problems are called order quantity problem, and the task of the firm is to determine the optimum or economic order quantity (a) Ordering cost (b) Carrying cost. The Economic Order Quantity is that inventory level which minimizes the total of ordering cost and carrying cost.

EOQ for an item is arrived by the following formula,

EOQ =

Where, EOQ = Economic Order QuantityAC = Annual Consumption of an item CO = Cost of Ordering an order CH = Cost of Carrying one unit / year.

Ordering CostThe term ordering cost is used in case of raw materials (or supplies) and includes the entire costs of acquiring raw materials. They include costs incurred in the following activities: requisitioning, purchase ordering, transporting, receiving, inspecting and storing (store placement) ordering costs increase in proportion to the number of orders placed. The clerical and staff costs, however, do not have to vary in proportion to the number of order placed. And one view is that so long as they are committed costs, they need not be reckoned in computing ordering cost. Alternatively, it may be argued that as the number of orders increases, the clerical and staff force released now can be used in other departments. Thus, these costs may be included in the ordering costs. It is the more appropriate to include clerical and staff costs on a pro rata basis.

Carrying Cost

Cost incurred to maintaining a given level of inventory are called carrying costs. The including storage, insurance, taxes, deterioration and obsolescence. The storage costs comprise cost of storage space (warehousing cost), storage handling costs and clerical and staff service costs (administrative costs) incurred in recording and providing special facilities such as fencing, lines, racks etc.,

Ordering Costs and Carrying Cost

Ordering CostsCarrying Cost

Requisitioning Storage

Purchase Ordering Insurance

Transporting Taxes

Receiving, Inspecting & StoringDeterioration

Clerical and StaffObsolescence

INTERPRETATION:

Carrying costs vary with inventory size. This behavior is contrary to that ordering cost which decline with increases in inventory size. The economic size of inventory would thus depend on trade-off between carrying costs and carrying cost.

TABLE NO.1ECONOMIC ORDER QUANTITY (2011-2012)DescriptionAnnualConsumptionOrderingCostCarryingCostEOQ

LEAD-A132827193.27395.63.339561035767009.1

LEAD-B10667526.615400.300133651195923.4

LEAD-C5238997.962890.131719665151622.2

LEAD-D362802426.4221558.9044508031343638

LEAD-E82222161.0953022.362562052607488

LEAD-F151503021.7103053.990497753884577.9

LEAD-G90219604.1852612.646367148598927.9

LEAD-H75688159.8442101.948271607571933.1

LEAD-I51622360.527621.297897061468733.1

767009.1195923.41343638607488884577.9598927.9571933.1468733.10200000400000600000800000100000012000001400000MATERIALSECONOMIC ORDER QUANTITY (2011-2012)LEAD-ALEAD-BLEAD-CLEAD-DLEAD-ELEAD-FLEAD-GLEAD-HLEAD-IORDERS

INTERPRETATIONThe above data indicates in the year 2012 indigenous items like Lead-A and Lead-C are increased based on the company orders and the EOQ respectively.TABLE NO. 2ECONOMIC ORDER QUANTITY (2012-2013)

DescriptionAnnualconsumptionOrderingcostCarryingcostEOQ

LEAD-A197502159.60726415.81230149425982.047

LEAD-B23815321.449231.033302007206267.324

LEAD-C8056951.102810.324606244118106.85

LEAD-D371790043.101190014.59495924778638.569

LEAD-E91534338.8437394.066062402410296.427

LEAD-F166562629.3476576.882704027608770.442

LEAD-G99352279.4033214.515980384382263.058

LEAD-H79324194.96140503.031998152857415.895

LEAD-I52048334.7019102.070089408309913.538

425982.0477206267.3246118106.85778638.5699410296.4271608770.4427382263.0582857415.8952309913.53890100000200000300000400000500000600000700000800000900000MATERIALSECONOMIC ORDER QUANTITY (2012-2013)LEAD-ALEAD-BLEAD-CLEAD-DLEAD-ELEAD-FLEAD-GLEAD-HLEAD-IORDERS

INTERPRETATIONThe above table shows in the year 2013 indigenous items like Lead-A, Lead-D and imported items like Lead-F, Lead-H increased as compared to the year 2011 respectively.

TABLE NO. 3ECONOMIC ORDER QUANTITY (2013-2014)

DescriptionAnnualconsumptionOrderingCostCarryingcostEOQ

LEAD-A75939897627700.8218192932262568.412

LEAD-B122876107580.134980812371490.1401

LEAD-C1014547014610.8874424416495.46548

LEAD-D1486665394150.123427151999862.5682

LEAD-E2480825608200.2383439311306525.806

LEAD-F1226377083550.114488865872086.4981

LEAD-G772013881800.077529479598729.1058

LEAD-H361428073210.032430905845860.8362

LEAD-I1283485326930.1170282971232910.711

2262568.412371490.140116495.46548999862.56821306525.806872086.4981598729.1058845860.83621232910.71105000001000000150000020000002500000MATERIALSECONOMIC ORDER QUANTITY (2013-2014)LEAD-ALEAD-BORDERSLEAD-CLEAD-DLEAD-ELEAD-FLEAD-GLEAD-HLEAD-IINTERPRETATIONThe above table shows in the year 2014 indigenous items like Lead-A, Lead-D and imported items like Lead-F, Lead-H decreased as compared to the year 2012 respectively.

TABLE NO. 4COMPARISON OF ECONOMIC ORDER QUANTITY

DESCRIPTION2011-20122012-20132013-2014

LEAD-A767009.1425982.04772262568.412

LEAD-B195923.4206267.3246371490.1401

LEAD-C151622.2118106.8516495.46548

LEAD-D1343638778638.5699999862.5682

LEAD-E607488410296.42711306525.806

LEAD-F884577.9608770.4427872086.4981

LEAD-G598927.9382263.0582598729.1058

LEAD-H571933.1857415.8952845860.8362

LEAD-I468733.1309913.53891232910.711

COMPARISON OF ECONOMIC ORDER QUANTITY05000001000000150000020000002500000LEAD-ALEAD-B LEAD-DLEAD-CLEAD-ELEAD-FLEAD-GLEAD-ILEAD-HMATERIALS2010-20112011-20122012-2013ORDERS

INTERPRETATIONIn the year 2014 the items like Lead-A, Lead-B's EOQ and company orders are increased when compared to previous years. In the year 2013 Lead-E, Lead-F, Lead-Gs EOQ and Company Orders are decreased when compared to 2012 respectively.

TABLE NO. 5

ABC ANALYSIS (2011-2012)

ClassQuantity% of QtyNo. ofitems% of ItemsCumulative %Value% of ValueCumulative%

A2339352939.33550.755287009138830442470.5870.58

B1134970619.0818233.47432024239977030920.3390.91

C2473595941.59+6396621001788135749.09100

Total594791941006621966888307100

ABC Analysis (2011-2012)

INTERPRETATION:In the year 2011-2012, there are 5 items which constitutes 5% and 70.58% in the total value which comes under "A" category, 18 items which constitutes 23% and 20.33% in the total value which comes under "B" category and 639 items which constitutes 662% and 9.09% in the total value which comes under "C" category.

TABLE NO. 6


ClassQuantity% of QtyNo. ofitems% of itemsCumulative %Value% of ValueCumulative%

A-71318-1.6790.335320420.3353204239570604484970.5170.51

B179589841.69240.894187781.2295082114241908999720.3690.87

C258272259.98265198.77049181005122321919239.13100

Total43073021002684561171129769100


INTERPRETATION:In the year 2007-2008, there are 9 items which constitutes 0.33% and 70.51% in the total value which comes under "A" category, 24 items which constitutes 0.89% and 20.36% in the total value which comes under "B" category and 2651 items which constitutes 98.7% and 9.13% in the total value which comes under "C" category.

TABLE NO. 7


ClassQuantity% of QtyNo. ofitems% of ItemsCumulative %Value% of ValueCumulative%

A1039648044.97120.4270462630.42704626316748893371.7371.73

B673239029.1290.3202846980.7473309614272335718.390.03

C598739725.91278999.25266904100232738179.97100

Total231162671002810233486107100


INTERPRETATIONIn the year 2013-2014, there are 12 items which constitutes 0.42% and 71.73% in the total value which comes under "A" category, 9 items which constitutes 0.32% and 18.3% in the total value which comes under "B" category and 2789 items which constitutes 99.2% and 9.97% in the total value which comes under "C" category.

TABLE NO.8


Turnover Ratio

2010-11

2011-12

2012--13

2013-14

2014-15

Raw Materials 7.378.5411.4715.2917.4

Work in Process 10.079.610.6213.3816.18

Finished Goods 16.7812.0413.1624.6315.42

Inventory 3.115.12.893.324.26

TABLE NO.9

RAW MATERIALS TURNOVER RATIO

Turnover Ratio2010-112011-122012-132013-142014-15

Raw Materials 7.378.5411.4715.2917.4

7.378.5411.4715.2917.4024681012141618Times2008-092009-102010-112011-122012-13YearsRAW MATERIALS TURNOVER RATIORaw Materials 2011 2012 2013 2014 2015

INTERPRETATIONThe above data indicates raw material turnover Ratio is 7.37 times in the year 2011 and it is increased continuously to 15.29 in the year 2012. Then, it is increased to 17.4 in the year 2015.

TABLE NO. 10

WORK IN PROCESS TURNOVER RATIO

Turnover Ratio2010-112011-122012-132013-142014-15

Work in Process10.079.610.6213.3816.18

10.079.610.6213.3816.18024681012141618Times2008-092009-102010-112011-122012-13YearsWORK IN PROGRESS TURNOVER RATIOWork in Process 2011 2012 2013 2014 2015INTERPRETATIONThe above data indicates work-in-process turnover ratio is 10.07 times in the year. But, it is decreased to 9.6 in the year 2010.Then, it is increased to 10.62 in the year 2011 and 16.18 in the year 2015.

TABLE NO. 11FINISHED GOODS TURNOVER RATIO

Turnover Ratio2010-112011-122012-132013-142014-15

Finished Goods16.7812.0413.1624.6315.42

16.7812.0413.1624.6315.420510152025Times2008-092009-102010-112011-122012-13YearsFINISHED GOODS TURNOVER RATIOFinished Goods 2011 2012 2013 2014 2015

INTERPRETATIONThe above data indicates finished Goods ratio is 16.78 times in the year 2010. But, it is decreased continuously to 13.16 in the year 2011. Then, it is increased to 24.63 in the year 2012.

TABLE NO. 12


Turnover Ratio2010-112011-122012-132013-142014-15

Inventory3.115.12.893.324.26

2011 2012 2013 2014 20153.115.12.893.324.260123456Times2008-092009-102010-112011-122012-13YearsINVENTORY TURNOVER RATIOInventory INTERPRETATIONThe above data indicates inventory turnover ratio is 3.11 times inthe year 2010. But, it is increased to 5.1 in the year 2011. Then, it is decreased to 2.09 in the year 2013. Again it is increased to 3.32, 4.26 in the year 2014 and 2015 respectively.Inventory turnover ratio declined for year by year that is company production is also declined. Subsequently sales are also declined.

TABLE NO. 13COMPARISON OF TURNOVER RATIO

Turnover Ratio2010-112011-122012-132013-142014-15

Raw Materials 7.378.5411.4715.2917.4

Work in Process 10.079.610.6213.3816.18

Finished Goods 16.7812.0413.1624.6315.42

Inventory 3.115.12.893.324.26

0510152025TIMES2008-092009-102010-112011-122012-13YEARSCOMPARISON OF TURNOVER RATIOSRaw Materials Turnover RatioWork in Process Turnover RatioFinished Goods Turnover RatioInventory Turnover Ratio 2011 2012 2013 2014 2015

INTERPRETATIONThe above data indicates inventory turnover ratio is 3.11 times in the year 2011. But, it is increased to 5.1 in the year 2012. Then, it is decreased to 2.89 in the year 2013.Inventory turnover ratio declined for year by year that is company production is also declined. Subsequently sales are also declined.

TABLE NO. 14INVENTORY HOLDING PERIOD

Inventory

2010-11

2011-12

2012-13

2013-14

2014-15

Raw Materials 4942312421

Work in Process 3638342722

Finished Goods 2230271523

Inventory 1167112510885

TABLE NO. 15RAW MATERIALS HOLDING PERIOD

Inventory2010-112011-122012-132013-142014-15


494231242105101520253035404550Times2008-092009-102010-112011-122012-13YearsRAW MATERIALS HOLDING PERIODRaw Materials 2011 2012 2013 2014 2015INTERPRETATIONInventory holding period is 49 days in the year 2011. But, it is decreased to 42 days in the year 2012. Then, it is decreased continuously to 21 days in the year 2015 respectively.

TABLE NO. 16WORK IN PROCESS HOLDING PERIOD

Inventory2010-112011-122012-132013-142014-15


36383427220510152025303540Times2008-092009-102010-112011-122012-13YearsWORK IN PROCESS HOLDING PERIODWork in Process 2011 2012 2013 2014 2015INTERPRETATIONWork-in-process holding period is 36 days in the year 2011. But, it is increased to 38 days in the year 2012. Then, again it is decreased continuously to 22 days in the year 2015 respectively.

TABLE NO. 17

FINISHED GOODS HOLDING PERIOD

Inventory2010-112011-122012-132013-142014-15


2230271523051015202530Times2008-092009-102010-112011-122012-13YearsFINISHED GOODS HOLDING PERIODFinished Goods 2011 2012 2013 2014 2015INTERPRETATIONFinished Goods holding period is 22 days in the year 2011. But, it is increased to 30 days in the year 2012. Then, again it is decreased to 15 days in the year 2014 and increased to 23 days in the year 2015 respectively.

TABLE NO. 18INVENTORY HOLDING PERIOD

Inventory2010-112011-122012-132013-142014-15




Inventory 1167112510885

1167112510885020406080100120140Times2008-092009-102010-112011-122012-13YearsINVENTORY HOLDING PERIODInventory 2011 2012 2013 2014 2015INTERPRETATIONInventory holding period is 116 days in the year 2011. But, it is decreased to 71 days in the year 2012. Then, it is increased continuously to 108 days in the year 2014 and decreased to 85 days in the year 2015 respectively.

TABLE NO. 19COMPARISON OF INVENTORY HOLDING PERIOD

Inventory2010-112011-122012-132013-142014-15




Inventory 1167112510885

020406080100120140TIMES2008-092009-102010-112011-122012-13YEARSCOMPARISON OF INVENTORY HOLDING PERIODRaw Materials Turnover RatioWork in Process Turnover RatioFinished Goods Turnover RatioInventory Turnover Ratio 2011 2012 2013 2014 2015INTERPRETATIONThe above data indicates inventory holding period is 49 days in the year 2011. But, it is decreased to 42 days in the year 2012. Then, it is decreased continuously to 21 days in the year 2015 respectively.

SAFETY STOCK

Safety stocks are held to protect against the uncertainties of demand and supply. An organization generally knows the average demand for various items that it needs. However, the actual demand may not exactly match the average and could well exceed it. To meet this kind of a situation, inventories may be held in excess of the average for expected demand. Similarly, the average delivery time (that is, the time elapsing between placing an order and having the goods in stock ready for use, and technically called as the lead time) may be known. But unpredictable events could cause the actual delivery time to be more than the average. Thus, excess stocks might be kept in order to meet the demand during the time for which the delivery is delayed. These inventories which are in excess of those necessary just to meet the average demand (during the average lead time period), held for protecting against the fluctuations in demand and lead time.

Safety stocks should be as small as possible for A materials, since those materials have a high value, which means that even small stocks would generate a high inventory value. For C parts also, the safety stocks shouldnt be too high, but they can contain more buffers than the A material stocks because the value of C materials is lower. A materials should be regularly procured in short order cycles. C materials can be procured weekly or monthly in fixed lot sizes.

Lead time is the period that elapses between the recognition of a need and its fulfillment. There is a direct relationship between lead time and inventories.Lead time has two components:(a) Administrative lead time(b) Delivery lead time

For example the safety stocks are determined in table below:

SAFETY STOCK FOR PE ITEMS

DESCRIPTIONANNUALCONSUMPTION LEADTIMEPER DAYREQ.SAFETYSTOCK

PE-A257016055 Days7042387310

PE-B75430860 Days2067124020

PE-C41395265 Days113473710

PE-D11920850 Days32716350

PE-E43158070 Days118282740

PE-F5774448 Days1587584

PE-G67560065 Days1851120315

SAFETY STOCK FOR LEAD ITEMS

DESCRIPTIONANNUALCONSUMPTION (MT)LEADTIMEPER DAYREQ.SAFETYSTOCK

LEAD-A5182857 Days1428094

LEAD-B937255 Days261430

LEAD-C902450 Days251250

LEAD-D277248 Days8384

LEAD-E670845 Days18810

LEAD-F490860 Days13780

LEAD-G8440 Days0.239

LEAD-H254445 Days6.97315

LEAD-I280850 Days8400

LEAD-J67255 Days2110

LEAD-K61248 Days296

SAFETY STOCK FOR AGM ITEMS

DescriptionAnnual Consumption(Kgs)LeadTimePer DayReq.SafetyStock

AGM A62966457172598325

AGM B893285724513965

AGM C0000

AGM D870365723813566

AGM E673325718410488

AGM F0000

AGM G2407257663762

AGM H26457157

AGM I876485724013680

AGM J705657191083

AGM K 40000571327524

AGM L650765717810146

AGM M0000

AGM N1243257341938

AGM O 759965720811856

AGM P1263657351995

AGM Q0000

AGM R0000

AGM S 1099257301710

AGM T59405716912

AGM U0000

AGM V2275257623534

AGM W 786057221254

5.1 FINDINGS Variance and uncertainties in lead time.Good quality of materials is supplied to stores.Gradual increase in the inventory (levels) consumptions.As the procurement of the orders is not according to the requirement of the orders received, a major part of the inventory is held up as non-moving.The stores department depreciation is increased during the year 2010-2011 and 2011-2012. They calculated depreciation on dead items also this is affected to coming loss.Do not have well defined out bound logistics system.Have not been implementing any evolved technique in material or stores management like two bin system or Just in Time.

5.2 SUGGESTIONS

The company has to concentrate more on Research and Development so that it can keep abreast with the latest Developments.Weekly inventory report should be prepared without fail. This helps to ensure quality, controlling of materials, eliminations of exclusive wastage scrap, spoilage and defective and detailed information of the materials in the stores.The company has to maintain sufficient stocks of finished products to meet reasonable expectations of customers for prompt delivery of their orders. The company has to eliminate dead inventory as depreciation is charged even on the dead inventory and this has resulted in decrease profits. Company should strive for "getting the right goods to the right places at the right time for the least cost". Company has to position inventory items according to risk and opportunity. Company has to distinguish between bottleneck items, critical Items (high risk, high opportunity).

CONCLUSIONSThe company can reduce ordering cost by the following proper inventory management technique like Just in Time (JIT)JUST-IN-TIMEIt is philosophy of continuous improvement in which non value adding activities (or wastes) are identified and removed for the purpose of:1)Reducing Cost2)Improving Quality3)Improving performance4)Improving Delivery5)Adding Flexibility6)Increase InnovationsJIT is not about automation. It not only eliminates waste but also helps for controlling inventory by providing the environment to perfect and simplify the processes. It is collection of techniques used to improve operations. It can also be a new production system that is used to produce goods and services.When the JIT principles are implemented successfully, significant competitive advantages are realized. JIT principles can be applied to all parts of an organization: order taking, purchasing, operations, distribution, sales, accounting, design, etc.,

ELIMINATION OF WASTEJIT usually identifies seven prominent types of waste to be eliminated:a)Waste from over production.b)Waste of waiting/idle time.c)Transportation waste.d)Inventory waste.e)Processing waste.f)Waste of motion.g)Waste from product defects. Where the JIT concept is implemented?Transfer of plastic moulds from plastic Manufacturing Unit to Automotive Battery Division.Transfer of Finished components from Mangal Precision Products to Industrial Battery Division.

Inventory control is the Life System control needed for continuous operation in all businesses. Inventory can be compared to the life blood of the human body. Just as used-up red and white cells need replacement in the human body in the correct quantity and quality at the right time for continuous operation.

BIBLIOGRAPHY

REFERENCE BOOKSS.P. JAIN, K.L. NARANG (2003),"Advanced Accountancy"10 Edition, Kalyani Publishers, Ludhiyana.I.M. PANDEY (2002),"Financial Management"8th Edition, Vikas Publishing House Pvt. Ltd., New Delhi.R.K. SHARMA, SHASHI K. GUPTA," Management of Accounting"2nd Edition, Kalyani Publishers, Ludhiyana.PRASANNA CHANDRA (2002),"Financial Management"5th Edition, Tata-McGraw hill Publishing Company Ltd., New Delhi.M.Y. KHAN and P.K. JAIN,"Management Accounting", Tata McGraw Hill Publishing Company Limited, New Delhi.

JOURNALSThe ICFAI journal of applied financeFinance India (Indian Institute of Finance)Investment Monitor

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