A STUDY ON

INVENTORY MANAGEMENT

ON COCO COLA

In partial fulfillment of the Dissertation

In Semester IV of the Master of Business Administration

Prepared by

BASHPIKA .K

Abstract:
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In the present era, where there is a competitive world in the area of

business it is very important to control various costs to sustain in the
market. And the most importantly customer is to be considered as the most
important part of any business. In such fast moving and rapid environment,
inventory management plays an important role to make a control over the
financial statement of the organization. Inventory involves in the whole
process cycle of the organization as it starts with the shop floor to the top
level management commitment. In this paper, we will discuss and analyze
some of the parameters which directly show the impact of inventory
management to the financial statement of the form. This paper also consists
of different parts where the inventory management concepts are discussed,
different inventory control techniques are discussed, and their
interrelationship with the financial statement of the firm. This paper also
introduces the various costs incurred due to the storage inventory,
economic order quantities, reorder level, shortage costs, and inventory
methods.
Inventory constitutes the most significant part of current assets of
larger majority of Nigerian manufacturing industries. Because of the relative
largeness of inventories maintained by most firms, a considerable sum of an
organizations fund is being committed to them. It thus becomes absolutely
imperative to manage inventories efficiently so as to avoid the costs of
changing production rates, overtime, subcontracting, unnecessary cost of
sales and back order penalties during periods of peak demand. The study
methods employed include the variance analysis, Economic Order Quantity
(EOQ) Model. The answer to the fundamental question of how best an
organization which handles inventory can be efficiently run is provided for in
the analysis and findings of the study. Consequently, recommendations on
the right quantity, quality and timing of material, at the most favorable price
conclude the research study.
As a result to todays uncertain economy, companies are searching for
alternative ways to stay competitive. This study goes through the process of
analyzing the companys current forecasting model and recommending an
inventory control model to help them solve their current issue. As a result,
an Economic Order Quantity (EOQ) and a Reorder Point was recommended
to help them reduce their product stock outs. The shortage of raw material
for production always makes the process discontinuous and reduces the
productivity. The ABC analysis technique for the inventory control system is
first used to identify the most important multiple products and then the
economic order quantity (EOQ) of each product is developed to find their
inventory model equation individually.

Introduction
Inventories are the current assets which are expected to be converted
within a year in the form of cash or accounts receivables. Thus, it is a
significant part of the assets for the business firms. Actually, inventories are
the goods that are stocked and have a resale value in order to gain some
profit. It shows the largest costs for the trading firms, wholesalers and
retailers. Normally, it consists of 2030% of the investment of the total
investment of the firm. Thus, it should be managed in order to avail the
inventories at right time in right quantity. Inventory refers to the stock of the
resources which are held to sales and/or future production. It can be also
viewed as an idle resource which has an economic value. So, better
management of the inventories would release capital productively. Inventory
control implies the coordination of materials controlling, utilization and
purchasing. It has also the purpose of getting the right inventory at the right
place in the right time with right quantity because it is directly connected
with the production.
This implies that the profitability of the firm is directly or indirectly
affected by the inventory management. In this paper, three major steel
manufacturing companies of India are taken for the analysis. Inventory
management is pivotal in effective and efficient organization. It is also vital
in the control of materials and goods that have to be held (or stored) for
later use in the case of production or later exchange activities in the case of
services. The principal goal of inventory management involves having to
balance the conflicting economics of not wanting to hold too much stock.
Thereby having to tie up capital so as to guide against the incurring of costs
such as storage, spoilage, pilferage and obsolescence and, the desire to
make items or goods available when and where required (quality and
quantity wise) so as to avert the cost of not meeting such requirement.
Inventory problems of too great or too small quantities on hand can
cause business failures. If a manufacturer experiences stockout of a critical
inventory item, production halts could result. Moreover, a shopper expects
the retailer to carry the item wanted. If an item is not stocked when the
customer thinks it should be, the retailer loses a customer not only on that
item but also on many other items in the future. The conclusion one might
draw is that effective inventory management can make a significant
contribution to a companys profit as well as increase its return on total
assets. It is thus the management of this economics of stockholding, that is
appropriately being refers to as inventory management. The reason for

greater attention to inventory management is that this figure, for many

firms, is the largest item appearing on the asset side of the balance sheet.

Literature Review
Rich Lavely (1998) asserts that inventory means Piles of Money on
the shelf and the profit for the firm. However, he notices that 30% of the
inventory of most retail shops is dead. Therefore, he argues that the
inventory control is facilitate the shop operations by reducing rack time and
thus increases profit. He also elaborates the two types of inventory
calculations that determine the inventory level required for profitability. The
two calculations are cost to order and cost to keep. Finally, he proposes
seven steps to inventory control. The limitation of this literature is that he
does not outline the calculation method that actually evaluates the
inventory level and cost of handling it.
James Healy (1998) highlights that the distributors carry 1030% of
additional inventory that is unnecessary. These inventories unnecessarily
increase costs and loss of customers, lost of sales and lost profit due to
inefficient inventory management. He points out there is a need to set out
procedures to find out physical inventories to determine the true cost of
handling cost of the inventory. He further points out some misconceptions of
the inventory management such as adequacy of Enterprise Resource
Planning System in handling the inventory, the importance of turns in
measuring the success of the inventory system and confidence on
profitability of using the inventory optimization method. The limitation of
this literature is that it does not give reasons for the causes of the
unnecessary inventory.
Dave Piasecki (2001) presents an inventory model for calculating
the optimal order quantity that Order Quantity method. He points out that
many companies are not using EOQ model because of poor results resulted
from inaccurate data input. He says that EOQ is an accounting formula that
determines the point at which the combination of order costs and inventory
costs are the least. He highlights that EOQ method would not conflict with
the JIT approach. He further elaborates the EOQ formula that includes the
parameters such as annual usage in unit, order cost and carrying cost.
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Finally, he proposes several steps to follow in implementing the EOQ model.

The limitation of this literature is that it does not elaborate further
relationship between EOQ and JIT. It does not associate the inventory turns
with the EOQ formula and fails to mention the profit gain with the quantity is
calculated.

Methodology and data collection

All data for this paper is secondary data and taken from various
sources. Some of the sources are from journals, articles, magazines and
referred books from the library. Some data are also downloaded from the
internet through different sources like google, money control and emerald.
All financial data are taken from the money control database for the
completion of my paper. From these collected data from different sources of
secondary data, we interpret these and find the impact of inventory
management on the financial condition of the firm. We have taken three
major steel manufacturing companies of India. We will find the Pearson
correlation coefficient and analyze it to show the impact of inventory
management on the profitability of the firm.
Essential information for this research work were collected through
primary and secondary sources the combinations include:
(i) Interview with some key personnel in the stores, purchasing,
production and inventory departments of the company.
(ii) Observation of the production process was done to see the flow of
goods in the conversion process. Materials handling and storage were also
observed and so was the patrol / inspection procedures.
(iii) Record analysis of relevant data was obtained from the
companys annual report and journals.
(iv)Theoretical background information was gathered through review
of related literature on inventory management.

The data collected were analyzed using three major quantitative

instruments. The simple variance method, the EOQ model and the chisquare
distribution method. The simple variance analysis was used to describe the
data presented.
The EOQ model was used to determine the optimum inventory level
per year, which were considered as the expected value of inventory in the
chisquare calculation. The chisquare technique was used to draw inference
about the variance of distribution with each distribution determined by the
degree of freedom.

Limitations of the Study

There are some certain limitations of this study. It can be listed as:
i. All the data used in this paper are secondary data which has been
taken from different published journals, books and financial data are from
money control database. And this paper is related with the financial
variables so there may be some
ii. This study is based on only three major steel manufacturing
companies. So it may reflect some partial view.
iii. In this study only 5 years is taken as the period of time
commencing from 20102014 which is a short period of time.
iv. Also, inflation is the most crucial factor for financial terms. So, it is
not considered in any type of interpretation.
v. Correlation technique is used as statistical tools to interpret the
data.

Inventory Management
There is need for controlling the inventories for any firm in developing
countries like India. A firm must install some better inventory control
techniques to improve their financial condition. According to Kotler,
inventory management is the technique of managing, controlling and
developing the inventory levels at different stages i.e. raw materials, semifinished goods and finished goods so that there is regular supply of
resources at minimum costs. According to Coyle, inventory management is
the management of the materials in motion and at rest. According to
Rosenblatt, the inventory management costs are the price which is paid by
the customer but it is the cost to the owner. Different authors defined
inventory management in different way.Sometimes, inventory and stock are
considered as the same thing. But there is a slight difference between them.
Stock is the storage of material kept in specified place only. Inventory
management involves all activities which are done for the continuous supply
of materials with optimal costs. Basically, inventory management has two
goals. First goal is to avail the goods at right place in right time. Because it
is very important to keep operations running to give specific service. Second
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goal is to achieve the service level against optimal cost. It is very difficult to
achieve goal against optimal cost. All items cannot be stocked, so there is
need to specify the important goods to be stocked.
The supplies inventories involves the materials required for the
maintenance, repair and operating that do not go to the final product. But it
is also considered as the types of inventories. Thus, inventory management
is also defined as it is the science and art of managing the level of stock of
group of items which incurred least costs and also reach the objectives set
by the top management. So, on the final note the primary objective of
inventory management is to improve the customer satisfaction level. The
secondary objective is to increase the production efficiency. Increasing
production efficiency means that the production control, maintaining the
level of inventory for efficient materials management.

Some Factors Related To Inventory

Management
There are some factors listed below which are essential to be discused
for understanding the concept of inventory management. These activities
are associated with inventory management and to be considered to achieve
its objectives. These factors are:
1. Costs related to inventory.
2. Inventory costing methods.
3. Inventory models.
4. Inventory control techniques.

Costs related to inventory: There are various costs which are related to
the inventories. These costs are incurred due to the inventories. These costs
are:

Purchase cost:
Purchase cost is the cost of purchasing the
inventory items and it depends upon the quantity of the items to be
purchased.
Ordering Cost: It is the cost related to the bringing the inventory to
the production system. It includes all costs which are directly or
indirectly involved in bringing the inventory to the production system.
Costs included in ordering costs are tendering cost, quality inspection
cost, transportation cost etc.
Carrying cost: It is the cost which is associated with costs which are
spent to the storage of the inventory items in the store. It depends
upon the quantity and period of time till when the inventory is to be
stored. It includes storage cost, damage cost, depreciation, handling
cost, insurance cost etc.

Shortage cost: Shortage cost simply means the cost due to the
absence of inventory items in the store. It is associated with the lost
sales. Generally, shortage costs incurred for those items which is
more costly and which incurs more handling costs.

Inventory Costing methods: These are the methods which are used for
give the values to the inventories. These valuation methods can be
explained as:

First In First Out: In this method, the materials coming first will be
considered first and then next consignment will be taken. This method
is useful when the price of material is falling because material charge
to production will be high while the replacement cost will be low.
Last In First Out: It is the method in which materials coming latest
will be considered first. The last consignment is taken first and when it
is exhausted then second last consignment is taken. This method is
more useful when the rice is rising and show a charge to production
which is closely related to current price.
Weighted Average Cost method: In this method, material issued
price is based upon the calculation of weighted average cost of the
material. It is calculated with using formula:

WAC = Value of material in stock/ Quantity in stock

Standard Price method: In this method, a standard price is
predetermined. The price is predetermined for the stated period of time
taken in the account all the factors affecting price such as anticipated
market trends, transportation charges etc. standard prices are
predetermined irrespective of purchase price. Any difference between the
predetermined price and actual price is the material price variance.

Current Price: In this method, material issued is priced at the

replacement or realizable price at the time of issue. So , the cost at
which material could be purchased should be ascertained.

Inventory models:- Among different inventory models EOQ model is most

popular and commonly used inventory model. These models are used to
determine the economic order quantity of the materials to be stored.

EOQ Model:- As inventory is determined as the most important factor

which affects the operations, then a mathematical model was developed to
control the inventory levels. The most widely used model is EOQ model. It
was first developed by F.W. Haris in 1913 but still R.H. Wilson is given credit
for this model due to his early in-depth analysis. This model is also known as
Wilson EOQ model. According to this model, some costs like ordering costs
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are declined with inventory holdings while some costs like holding costs rise
and thus total inventory cost curve has a minimum point where inventory
costs can be minimized. The economic quantity is the level for inventory
which minimizes the total inventory costs. It is the optimal level of
inventories which satisfies the demand constraints and cost constraints.

Derivation of EOQ formula:-

The derivation of Economic Order Quantity formula is as follows:-

Let us assume,

D = Annual Demand
Co = Ordering cost
Cc = Carrying cost
Q = Quantity

Then,

Annual Stock = Q/2

Total Annual Carrying Cost = Cc.Q/2
No. of orders per annum = D/Q

Fig.1. EOQ model

Annual ordering cost = Co.D/Q

Therefore, total inventory cost = total ordering cost + total carrying cost

Or,
TIC = Cc.Q/2 + Co.D/Q

The order quantity at which the cost will be minimized is obtained by

differentiating total cost with respect to Q. In this problem, Q will be the
economic order quantity.

By differentiating, we get,

d(TIC)/dQ = Cc/2 Co.D/Q2

When cost is minimum thend(TIC)/dQ will be 0.

Then,

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Cc/2 Co.D/Q2 = 0

Or,

Q = (2.Co.D/Cc)1/2

Assumptions of EOQ model:-

There are some assumptions on which EOQ is calculated. These

assumptions are:-

There is known and constant holding cost.

There is a known and constant ordering cost.

The rates of demand are known.

There is known constant price per unit.

No stock-outs are allowed.

Replenishment is made instantaneously.

Inventory control techniques:- There are various techniques used by a

firm to control the inventories. Some of these techniques can be explained
as:-

ABC Analysis:- ABC analysis of inventories represent that the small portion
of material contains bulk amount of money value while a relatively large
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portion of material consists less amount of money value. The money value is
ascertained by multiplying the quantity by unit price. According to this
approach, inventory control of high value items are closely controlled than
low value items. Each item is categorized as A, B and C categories
depending upon the amount spent for the particular item. It may also be
clear with the help of following examples:

A category 5% to 10% of the items represent 70% to 75% of the money

value.
B category 15% to 20% of the items represent 15% to 20% of the money
value.
C category 70% to 80% of the items represent 5% to 10% of the money
value.

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Fig.2. ABC Classification

After classification, the items are ranked by their value and then the
cumulative percentage of the total value against the percentage of item is
noted. A detailed example clearly indicates the figure that 10 per cent of
item may account for 75 per cent of the value, another 10 per cent of item
may account for 15 per cent of the value. The remaining part may account
for 10 per cent of the value. The importance of this tool is that it directs give
attention on the high valued items.

Minimum level:- The minimum level of inventories kept on the different

bases like consumption during the lead time, stock-out costs, customer
irritation and loss of goodwill etc. To continue production it is very essential
to maintain optimal amount of inventories. The stock which takes care for
the fluctuation in demand is known as safety stock. It also governs the
ordering point.

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Maximum level:- The maximum limit beyond which the quantity of any
item is not normally allowed to rise is known as maximum level. It is the
sum of minimum level and EOQ. The amounts to be fixed in maximum level
depend upon the factors like space available, nature of material etc.

Reorder level:- It is the level of the stock at which a purchase requisition is

initiated by the storekeeper for replenishing the stock. This level is set
between the maximum and minimum level in a such way that before
material ordered for are received into the stores. Its fixation depends upon
maximum delivery period and maximum consumption.

Just In Time system:- Japanese firms popularized this technique in order

to reduce the inventory level up to zero to eliminate the inventory costs.
According to this system, the materials arrive at the manufacturing sites just
few hours before they are going to use. This system also eliminates the
necessity of carrying large inventories.

Outsourcing:- Earlier there was tendency of manufacturing companies to

manufacture all parts in-house. Now, more companies are adopting
outsourcing techniques. Outsourcing is a system of buying parts and
components from other companies rather than manufacturing in house.

Computerized Inventory Control System:- It is the modern technique

used for controlling the inventories. It enables a company to track large
items of inventories easily. It is an automatic system of counting inventories,
recording withdrawals and balances. There is an in-built system of placing
order as the computer notices that the reorder point has been reached. The
information system of the buyers and suppliers are linked to each other.

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COMPANYS PROFILE
Introduction of the Coca-Cola Company

The Coca-Cola Company (Coca-Cola), the worlds leading soft drink

maker, operates in more than 200 countries and sells 400 brands of
nonalcoholic beverages. Coca-Cola is also the most valuable brand in the
world. Coca-Cola is a globally recognized successful company. The CocaCola was founded in May of 1886 and continues for more than a century
through the times of war and peace, prosperity and depression and
economic boom and bust. As late as the 1990s, Coca-Cola was one of the
most respected companies in the world, building and known as a very
successful management team. Since 1998, the company has been
struggling with internal weaknesses and external threats.

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The purpose of this case study is to assess the current situation of

Coca-Cola and the industry, evaluate the existing resources.

ENTERPRISE HISTORY AND BACKGROUND

HISTORY
1894 A modest start for a bold idea
In a candy store in Vicksburg, Mississippi, brisk sales of the new fountain
beverage called Coca-Cola

impressed

the store's

owner, Joseph

A.

Biedenharn. He began bottling Coca-Cola to sell, using a common glass

bottle called a Hutchinson. Biedenharn sent a case to Asa Griggs Candler,
who owned the Company. Candler thanked him but took no action. One of
his nephews already had urged that Coca-Cola be bottled, but Candler
focused on fountain sales.
1899 The fi rst bottling agreement
Two young attorneys from Chattanooga, Tennessee believed they could build
a business around bottling Coca-Cola. In a meeting with Candler, Benjamin
F. Thomas and Joseph B. Whitehead obtained exclusive rights to bottle CocaCola across most of the United States (specifically excluding Vicksburg) -- for
the sum of one dollar. A third Chattanooga lawyer, John T. Lupton, soon
joined their venture.
1900-1909 Rapid growth
The three pioneer bottlers divided the country into territories and sold
bottling rights to local entrepreneurs. Their efforts were boosted by major
progress in bottling technology, which improved efficiency and product
quality. By 1909, nearly 400 Coca-Cola bottling plants were operating, most
of them family-owned businesses. Some were open only during hot-weather
months when demand was high.
1916 Birth of the contour bottle

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Bottlers worried that the straight-sided bottle for Coca-Cola was easily
confused with imitators. A group representing the Company and bottlers
asked glass manufacturers to offer ideas for a distinctive bottle. A design
from the Root Glass Company of Terre Haute, Indiana won enthusiastic
approval in 1915 and was introduced in 1916. The contour bottle became
one of the few packages ever granted trademark status by the U.S. Patent
Office. Today, it's one of the most recognized icons in the world - even in the
dark!
1920s Bottling overtakes fountain sales
As the 1920s dawned, more than 1,000 Coca-Cola bottlers were operating in
the U.S. Their ideas and zeal fueled steady growth. Six-bottle cartons were a
huge hit after their 1923 introduction. A few years later, open-top metal
coolers became the forerunners of automated vending machines. By the
end of the 1920s, bottle sales of Coca-Cola exceeded fountain sales.
1920s and 30s International expansion
Led by long-time Company leader Robert W. Woodruff, chief executive
officer and chairman of the Board, the Company began a major push to
establish bottling operations outside the U.S. Plants were opened in France,
Guatemala, Honduras, Mexico, Belgium, Italy, Peru, Spain, Australia and
South Africa. By the time World War II began, Coca-Cola was being bottled in
44 countries.

1940s Post-war growth

During the war, 64 bottling plants were set up around the world to supply
the troops. This followed an urgent request for bottling equipment and
materials from General Eisenhower's base in North Africa. Many of these
war-time plants were later converted to civilian use, permanently enlarging
the bottling system and accelerating the growth of the Company's
worldwide business.
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1950s Packaging innovations

For the first time, consumers had choices of Coca-Cola package size and
type -- the traditional 6.5-ounce contour bottle, or larger servings including
10-, 12- and 26-ounce versions. Cans were also introduced, becoming
generally available in 1960.
1960s New brands introduced
Following Fanta in the 1950s, Sprite, Minute Maid, Fresca and TaB
joined brand Coca-Cola in the 1960s. Mr. Pibb and Mello Yello were
added in the 1970s. The 1980s brought diet Coke and Cherry Coke,
followed by POWERADE and DASANI in the 1990s. Today hundreds of
other brands are offered to meet consumer preferences in local markets
around the world.

1970s and 80s Consolidation to serve customers

As technology led to a global economy, the retailers who sold Coca-Cola
merged and evolved into international mega-chains. Such customers
required a new approach. In response, many small and medium-size bottlers
consolidated to better serve giant international customers. The Company
encouraged and invested in a number of bottler consolidations to assure
that its largest bottling partners would have capacity to lead the system in
working with global retailers.
1990s New and growing markets
Political and economic changes opened vast markets that were closed or
underdeveloped for decades. After the fall of the Berlin Wall, the Company
invested heavily to build plants in Eastern Europe. And as the century
closed, more than $1.5 billion was committed to new bottling facilities in
Africa.

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21st Century
The Coca-Cola bottling system grew up with roots deeply planted in local
communities. This heritage serves the Company well today as people seek
brands that honor local identity and the distinctiveness of local markets. As
was true a century ago, strong locally based relationships between CocaCola bottlers, customers and communities are the foundation on which the
entire business grows.

Mission and Objectives

Mission
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Coca-Cola declares the purpose as a company and serves as the standard

against actions and decisions:
To refresh the world
To inspire moments of optimism and happiness
To create value and make a difference.

Vision
The vision of Coca-Cola is the framework for their guides of every aspect of
its business. It is presented in 6Ps:
1. People: Be a great place to work where people are inspired to be the best
they can be.
2. Portfolio: Bring to the world a portfolio of quality beverage brands that
anticipate and satisfy people's desires and needs.
3. Partners: Nurture a winning network of customers and suppliers, together
we create mutual, enduring value. 4. Planet: Be a responsible citizen that
makes a difference by helping build and support sustainable communities.
5. Profit: Maximize long-term return to shareowners while being mindful of
our overall responsibilities.
6. Productivity: Be a highly effective, lean and fast-moving organization.

coca cola head quarters

The Coca-Cola

Headquarters is

campus

in Midtown

Atlanta, Georgia that is home to The Coca-Cola Company. The most visible
building on the site is a 29-story, 403foot (122.8 m) high One Coca-Cola
Plaza. Located on the corner of North Avenue and Luckie Street, the building
was completed in 1979. The architect was FABRAP and the designer Tom
Pardue.
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The building and complex is located across the street from Georgia Institute
of Technology and Midtown Atlanta.
In May 2011, to celebrate the 125th anniversary of Coca-Cola, a
projection screen was made for the building that would display various Coke
ads through the years and also transformed the building into a huge cup of
ice which then was "filled" with Coke.

In INDIA, its head office is situated in Gurgaon, Haryana

Markets

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Worldwide share and Geographical distribution

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Brand wise Market Share

TARGET MARKET OF COCA-COLA

Coca-Cola takes every customer as target and potential who is thirsty.

All age groups are being targeted but the most potential is the age
group from 18-25 that covers around 40% of total age segment.

AGE:

The target market for the Coca-Cola is based on age. The

audience of Coca-Coal is youngster or youth.

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It has wide range of targeting. It ranges from the age of 15-25 and
reaches to 40.

Their targeting is not based gender but the results show that both
genders like this product and use it.

GENDER: Coca-Cola segments INDIAN market with a percentage

ratio of 58% females and 42% males.

Life style; busy life style( face shortage of time) and mobile
generation.

Family; dependent on their family.

Occupation; students and family oriented people.

NATURE: Fun loving and entertainment loving.

SOCIO ECONOMIC STATUS: Upper lower and lower class

MARKET SEGMENTATION OF COCA-COLA

Coca-Cola serves its products using mass market technique. Which

obviously falls in undifferentiated marketing and undifferentiated
marketing means no segmentation, but there are minor factors on
which we can say that the coke segments its products and then
targets the customers somehow.

These factors are as follows.

GEOGRAPHIC SEGMENTATION:

INTERNATIONALLY: Coke segments its products country wise and

region wise.

The most important things is the taste and quality.

It varies according to the taste and income level of the people in that
country. I.e.: third world countries are given low quality and taste

CLIMATIC: In coke marketing, main idea is to serve it cold, so we

that they focus on hot areas of the world.
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i.e.: ASIA and Middle East etc and their sale increase in summer.

LOCALY: In INDIA the coke segments more in urban and suburban

areas as compare to rural areas.

DEMOGRAPHIC:
AGE:

Coke segments the small children introducing tastes like

vanilla, lime and cherry. They focus children from 4-12.

Coke specifically target younger than older.
FAMILY TYPE: Coke introduces its economy pack and thats how the
focus family and groups.
INCOME: Coke segments different income levels by packing.
For small income people it has small returnable glass bottle.
For middle people it has small non-returnable bottle.
For higher income people it has Coke Tin.
PSYCHOGRAPHIC:
All psychographics variables the social class, lifestyle, occupation,
level of education and personality Coke segments everyone.
But again its there packaging which is different for different
consumers.
BEHAVIORAL:
OCCASION: Coca-Cola segments different occasions which are
celebrated in the country.
EID & DIWALI has become an international event identity of the
culture of INDIA.
The credit for making celebrations available for almost everyone
largely goes to Coca-Cola Company.

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FINANCIALS

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FINANCIAL STATEMENTS

Contd

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Servings per person

Global Workforce

Market Capitalization

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Investors Info: Stock Information

stock Split History

MEANING AND DEFINITION:

The concept of inventory management as known today is radically
different from what it was just a few years ago. Untill the last decade, Indian Industry needed
maximum production since there existed sellers market for almost all products. Cost was not
serious problem that it is today, for there was somebody ready, willing and able to buy the
products as soon as it was available.
Excess manufacturing costs were simply passed along to the buyer in
the form of higher prices. In this environment, the emphasis was on the successful production
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man and it was not unusual to find Inventory Management getting a secondary place with in
the production function.
Over the last decade or so we have been witnessing slow reversal of
this situation as the supply is catching up with the demand and the market is turning from
sellers to buyers market. For the first time, Indian industry is trying to compete in the world
wide markets which demand low cost and high quality products.
Meeting this kind of competition has become a major concern of
business today and solution of the problem demands most efficient use of manufacturing
resources of men, money, materials count for more than half the total money spent by any
business, inventory management has assumed significant importance.

Prof. Peter F. Drucker has defined the purpose of business as To create the customer.
Logically, objective of inventory management is then to provide maximum customer service,
this however, cannot be done without regard to the competitive capability of business, as it is
only this capability demands that inventory management ensures maximum plant efficiency
and minimum inventory investment.
A typical inventory management system is represented in the figure. The principle inputs to
such a system are:
Forecast of demand both long term and short term for the products.

3
1

Current demand for the products

Measurable characteristics of products and items such as cost, lead time, essentially set up
time and so on.
Management policies-as regard carrying charges, level of service and rate of response to
changes in customer demand.

MANAGEMENT POLICIES

Forecast of

Inventory

Demand

Management System

Order Point

Inventory
Control
Syste

Order Quantity or
Operating level

Characteristics
(Cost, lead time,
bulk Essentiality,
setup)

This information forms the basis for various decisions concern the order quantity and
operating level, which in turn from the basis of inventory control system.
Inventories are essential for sales, and sales are necessary for profits. Actual
inventory control is generally not under the direct control of the financial manager. Rather, in
manufacturing companies, production people typically have control over inventories. Where
as in retail concerns this control is exercised by the merchandising people. However the
financial manager is vitally concerned with inventory levels, for he or she has responsibility
for tracking factors which affect the overall profitability of the firm and because inventories
generally amount to some 20-40% of the total assets, poor inventory control will hurt the
firm`s profitability.
Inventory management has an affect on the cash conversion cycle. One of the components of
the cash conversion cycle is the inventory conversion period, the average length of time
required to convert raw materials into finished goods and then to sell these goods. Naturally,
the larger the amount of inventories held, the inventory conversion period hence the longer
cash conversion cycle.

OBJECTIVES OF INVENTORY:
Inventory management involves the control of the current assets, namely raw materials, work
in progress and finished goods.
The main object is to minimize the total cost and indirect cost associated with holding
inventories.

PURPOSE OF INVENTORY:
at competitive prices.Holding inventory is cost effective and helps
to achieve the sales

The other purpose of holding inventory is:

To ensure prompt delivery
To avail quantity discounts.
To reduce the order costs
To avoid production shortage
To achieve efficient production runs.

WHY FIRMS HOLD INVENTORIES:

Inventory forms a link between the production and sales
of a product. A manufacturing company must maintain a certain amount of inventory, known
as work in progress during production. Although other types of inventory in transit, raw
materials and finished goods inventories are not necessary in the strictest sense, they allow
firm to be flexible. Inventory in transit that is inventory between various stages of
production or shortage permits efficient production scheduling and utilization or resources.
Without this type of inventory, each stage of production would have to wait for the preceding
stage to complete a unit. The possibility of resultant delays and idle time gives the firm an
incentive to maintain in transit inventory.

Avoid Losses of Sales

Purchasing

Gain Quality Discount

Firms hold Inventory to

Producing

Reducing order cost

Selling

Achieve efficient produc

CLASSIFIATION OF INVENTORIES:
Inventories are usually as:
a) Raw materials
b) Bought-out components or subassemblies
c) Semi finished goods or work-in-progress or work-in-process
d) Consumable stores
e) Maintenance spares parts
f) Finished goods stored or in transit warehouse or customers

The raw material inventory contains items that are purchased by the firm from others and are
converted in to finished good through the manufacturing (production process. They are an
important input of the final product. The work-in-process inventory consists of items
currently being used in the production process. They are normally semi-finished goods that
are various stages of production in a multi-stage production process.
Finished goods represent final or completed products which are available for sale. The
inventory of such goods consists of items that have been produced are yet to be sold.
Inventory, as a current asset, differs from other current assets because only financial
managers are not involved. Rather, all the functional areas, finance marketing, production,
and purchasing, are involved. The views concerning the appropriate level of inventory world
differ among the different functional areas. The job of the financial managers is to reconcile
the conflicting viewpoints of the various functional areas regarding the appropriate inventory
levels in order to fulfill the overall objective of maximizing the owner`s wealth. Thus,
inventory management of other current assets, should be related to the overall objective firm.
As a matter of fact, the inventory management techniques are a part of production
management. But a familiarity with them is of great of the financial managers in planning and
budgeting inventory.

Inventories constitute the most significant part of current assets of a large majority of
companies in India. On an average, inventories are approximately 60 percent of current assets
in public limited companies in India. Because of the large size of inventories maintained by
firms a considerable amount of fund is required to be committed to them. It is, therefore,
absolutely imperative to manage inventories efficiently and effectively in order to avoid
unnecessary investment.

MOTIVES IN HOLDING INVENTORIES:

Generally three motives are there involved in holding inventories

Transaction motive: It emphasizes the need to maintain inventory, to facilitate smooth

production and sales operations (called transaction inventory).

Precautionary motive: It necessitates the holding of inventories to guard against the

risks of unpredictable changes in demand and supply process (called precautionary
inventory).

Speculative motive: It influences the decision to increase or reduce inventory levels to

take advantage or price fluctuations (called speculative inventory).

BENEFITS OF HOLDING INVENTORY:

The second element in the optimum inventory decision deals with the benefits associated
with holding inventory. The major benefits of holding inventory are basic functions of
inventory. In other words, inventories perform certain basic functions of which are critical
importance in the firm`s production and marketing strategies.
The basic function of inventory is to act as a buffer to decouple or uncouple the various
activities of a firm so that all do not have to the pursued at the exactly the same rate. The key
activities are purchasing, production and selling.

Benefits in purchasing:

In the first place a firm can purchase larger quantities than is warranted by usage in
production or the sales level. This will enable it avail of discounts that are available on bulk
purchases. Moreover, it will lower the ordering costs as fewer acquisitions would be made.
There will, thus be a significant saving in the costs. Second firm can purchase goods before
anticipated or announced price increases.
Inventories thus serves as a hedge against price increases as well as shortage of raw materials.
Finished goods inventory serves to uncouple production and sale. This enables production
and sales. That is production can be carried on at a rate higher or lower than the sales rate.
This would be special advantage to the firm with seasonal sales pattern. Thus inventory helps
a firm to reduce the cost of discontinuous in the production process; this is possible because
production is kept as inventory to meet future demands. Thus, inventory helps firm to coordinate its production scheduling so as to avoid disruptions and accompanying expenses.

Benefits in sales:
The maintenance of inventory also helps a firm to enhance its sales efforts. For one thing, if
there are no inventories of finished goods, the level of sales will depend upon the level of
current production. A firm will not be able to meet demand instantaneously. Thus inventory
serves to bridge the gap between current production and actual sales. A related aspect is that
inventory serves as a competitive marketing tool to meet customers demand.
By holding fewer inventories, cost can be minimized but there is a risk that the operations
will be disturbed as the emerging demands cannot be met. The appropriate level of inventory
should be determined in terms of a trade-off between the benefits and cost associated with
maintaining inventory.

3
0

TYPES OF INVENTORY COSTS:

The cost factor must be considered while taking decision regarding inventories.
Inventory cost includes ordering cost, carrying cost, out of stock or shortage cost &
capacity cost.
Each of these comprises several elements as shown below:
Ordering Costs:
a) Preparing a purchase order.
b) Processing payments.

INVENTORY CONTROL DECISION:

One of the major concerns of a purchase manager is to reduce the cost of inventory. At the
same time too little of inventory might result in shortage and consequent production holdup.
Hence one of the major decisions in purchase is the optimum quantity of order. Due to
environmental influences beyond the control of manager, the performance and activities often
do not adhere to planned targets. Control is therefore brought in, through feedback, so that
corrective are initiated, wherever deviation exceeds accepted limits.
Inventory control may therefore be defined as application of control theory in
managing inventory with predetermined levels. Inventory is storage of goods and maintaining
of stocks. In manufacturing, inventories mean keeping items in stocks. Considered under this
sense, inventory control can be visualized as techniques of maintaining stock keeping items at
desired levels. A schematic inventory cycle is shown below.

INVENTORY CYCLE

Production

Stores

Demand
Dues in

Inspect & accept

Supplies

Receiving

Inventory In
Hand

Place
Order

Net order

Issues

Quantity

tenders

Receive
quotation

Tender
evaluation

INVENTORY CONTROL TECHNIQUES:

Inventory

control

techniques

are

employed

by

the

inventory control organizations within the frame work of one of the basic
inventory models, viz., fixed order quantity system or fixed order period system;
Inventory control techniques represent the operational aspect of inventory
management & control.
Several techniques of inventory control are in use & it
depends on the convenience of the firm to adopt any of the techniques. The
techniques should cover all the items of inventory and all the stages, i.e., from the
stage of receipt from suppliers to the stage of their use. The techniques most
commonly used the following:

I.
II.

Always better control (ABC) classification.

High, medium & low (HML) classification.

III.

Vital, essential & desirable (VED) classification.

IV.

Scarce, difficult & easy to obtain (SDE).

V.
VI.

Fast moving, slow moving & non-moving (FSN).

Economic order quantity (EOQ).

VII.

Max-Minimum systems.

VIII.

Two bin system

DATA PRESENTATION ANALYSIS

The inventory policy of Nigeria Bottling Company PLC, Ilorin can only be appreciated in
the context of its peculiar circumstances as the leading soft drink bottling company
and one of the seventeen functional plants of the company within the country. It then
implies that whatever policy is adopted at the plant level must take into consideration
the overall companys objectives. The main determinant of the companys inventory
policy is the national economy itself in which the demand of their product stands as
another factor. According to Ilorin Plant managers, the company is constantly
reviewing performance as a unit of the economy; thus what happens in the economic
environment affects the policies and strategies of the company as a whole and the
plants as subsets.

The companys objective is to maintain quality, increase market shares and

profitability. This implies that enough inventories should be available to enhance
continuous production. This fact also determines the levels of inventory, which the
company keeps. Storage space is no barrier to operational activities of the industry as
it has a very large storage space located within the plant premises. Orders for
materials are obtained by request or by direct allocation from the head-quarters office
in Lagos.

The company operations three sets of stores, the raw material stores the finished
goods stores and the spare parts machinery stores. A store manager who
operationally works in conjunction with production manager, since most of the
products are used by his department alongside with bottling department heads the
raw material store. However, the store manager is responsible directly to the plant
manager and the bottling manager.

The finished goods store is headed by the sales manager assisted by the bottling
manager. The bottling manager helps to confirm the total of bottles produced on
regular basis. The sales manager takes responsibility as soon as production is
completed.

The spare parts store is headed by the Plant engineer, the raw materials that are
stored include the following: -

(a)
Sugar: This is obtained locally from Dangote Nigeria Ltd. And sometimes
imported from oversea if need be. They are stored in bags, which are stacked in

pellets arranged in such a way as to facilitate easy stock taking. A maximum of 10,000
bags of sugar can be stored. Insectucotors are installed in the store keep off bees and
other insects.

(b)
Concentrates: The concentrates are got from Coca-Cola international while their
chemicals are imported from Levants London. They come in syrup forms stored in
bottles and put in worms, which are built within the materials store at temperature of
between 40c and 100c.
(c)
Crown Corks: They are supplied locally by Crown Product Limited, Ijebu-Ode. The
Crown Corks are kept in polythene bags and tore in cases, safe from dust and
moisture, which bring about rusting.

Data Presentation and Interpretation

The preceding section dwells on quantitative information of the plant. Here the data
are entirely quantitative as collected from the accounts department, bottling
department and the store.

Table 1 show the total sales of the company in Naira value for five years (2000-2004).
The company witnessed a surplus for the five years

Table1:Sales(inMillions)

Years
BudgetedSales
ActualSales
Variance(N)

inmillions(N)
inmillions(N)

2000
85.00
86.45
1.45

2001
94
95

2002
100
101
.25
1.25

2003
110
113
.14

3.14

understudy, because there was a positive variation in each of the years. Positive
variation indicates good performance on the part of the company while negative
variation indicates poor performance, since the basic objective of any profit-making
company is to maximize sales.

Table 2 show the volume of production of the brands of the company's products that is
coke, fanta , and sprite. The variance reflects the inability of the company to meet its
target for a period of four years (2001-2004) out of the five years understudy. Upon
interview, the operations manager explained that this had no negative impact on the
overall profit, as it is part of the company's policy to plan in excess of forecast so that
even when actual production does not equal budget, it is of no negative consequence.

Table2:Salesincreates(VolumeofProduction)

Years
BudgetedSales
ActualSales
Variance(N)

inmillions(N)
inmillions(N)

2000
4,500,000
4,500,000
0
2001
4,750,000
3,950,000
800,000
2002

4,900,000
4,700,000
200,000
2003
4,950,000
3,756,621
1,193,397
2004
5,150,000
5,100,000
50,000

Table 3 show the overall production cost in value. It reveals that the actual cost of
production for the five years under study were above the budgeted cost. This was due
to in-crease in the prices of raw materials, incessant increase in fuel price, technology
and labour and the resulting effect of inflation in the Nigeria Economy. This has gone a
long way to affect

Table3:Productioncost(inMillionsofNaira)

Years
BudgetedSales
ActualSales
Variance(N)

inmillions(N)
inmillions(N)

2000
12
12.50

0.5
2001
20
21.76
1.76
2002
27
28.50
1.50
2003
35
36.14
1.14
2004
41
41.50
0.5

company's profit negatively during those periods of sky-rocketing inflation level.

Data Analysis and Hypothesis Testing

The data in tables 4, 5, 6 show the usage rate of Nigeria Bottling Company's raw
materials (that is sugar, concentrates and crown cork / bottles). The data were used to
determine the observed frequency value using the economic order quantity (EOQ)
formula. The expected frequency was determined by finding the average of all the
observed frequency. The chi-square value was then determined at 5% confidence level
and 4 degree of freedom, see tables 4, 5 and 6.

Table4:Sugar

Years
Annual
No.of
Materials
Ordering
Carrying

{N}
EOQ

demandin
orders
unit
costper
costasa
value
(000)
(000)
(000)
(000)

(000)

cost
order
%ofunit

O
E
(OE)2
(OE)2

(000)

2000
840
3
320
7
4%
12.8
30.31
29.46
0.72
0.0244

2001
900
3
360
8
4%
14.4
31.62
29.46
4.67
0.1585

2002
950
3
410
9
5%
20.5
28.89
29.46
0.32
0.0109

2003
1010
3
480

11
6%
28.8
27.78
29.46
2.82
0.0957

2004
1070
3
520
12
6%
31.2
28.69
29.46
0.59
0.0200

2=0.3095

Table5:Concentrates

Years
Annual
No.of
Materials
Ordering
Carrying
{N}
EOQ

demandin
orders
unit
costper
costasa
value
(000)
(000)
(000)
(000)

(000)

cost
order
%ofunit

O
E
(OE)2

(OE)2

(000)

2000
450
3
210
8
3%
6.3
35.80
43.19
54.61
1.26

2001
600
3
220
10
3%
6.6
42.64
43.19
0.30
0.0069

2002
700
3
230
12
4%

9.2
42.73
43.19
0.21
0.0049

2003
720
3
240
13
4%
9.6
44.16
43.19
0.94
0.0218

2004
800
3
250
20
5%
12.5
50.60
43.19
54.91
1.271

2=2.5646

PERPETUAL INVENTORY SYSTEM:

The Chartered Institute of Management Account. London, define the perpetual
inventory as A system of records maintained by the controlling department, which
reflects the physical movements of stock and their current balance. Bin cards and the
stores ledger help the management in maintaining this system as they make a record
of the physical movements of the stock on the receipts and issues of the materials
and also reflect the balance in the stores. To ensure the accuracy of perpetual
inventory records (i.e. bin cards stores ledger), physical verification of the stores is
made by a programmer of continuous stocktaking.
AVOIDABLE CAUSES:
Clerical mistakes, i.e. wrong posting, non-posting of entries, wrong
casting etc. such errors can be corrected and actual balance can
agree with book balance by making the required correction in bin cards
of stores ledger.

Pilferage in material handling.

Carelessness in material handling.

Short or over-issue of materials.

UNAVOIDABLE CAUSES:

Actual Balances may be less due to shrinkage and evaporation.

Actual balance may be more due to absorption of moisture.

Actual balance may be less due to breakdown of fire, riots etc.

Materials may be lost due to breaking up bulk material into smaller parts for issue.

For example, some iron is lost due to breaking up big rods into smaller parts.

A decreasing view is observed in the period of holding under above analysis of the inven

INVENTORY TURNOVER RATIO:

Inventory Turnover ratio

Cost of goods sold

Average inventory

Cost of Goods Sold

Average Inventory

Sales - Gross Profit

(Opening Stock Inventory + Closing Stock Inventory)

2
Particulars

2008-2009

2009-2010 2010-2011

2011-2012

2012-2013

Sales

1061

1187

1382

1576

1872

Gross Profit

173

144

69

62

207

Cost of Goods Sold

888

1043

1313

1514

1665

Opening Stock

69

127

195

157

198

Closing Stock

127

195

157

198

162

Average Inventory

98

161

176

178

180

9.06

6.47

7.46

8.50

9.25

(Sales Gross Profit)

Inventory :

Inventory

Turnover

Ratio

INVENTOR
TIO

Interpretation:
The inventory turnover ratio has decreased from 9.06 to 6.47 from the year
2008-2009 to 2009-2010 which shows the efficient management of
inventory.
The Inventory Turnover ratio has increased from 6.47 to 7.46 from the year
2009-2010 to 2010-2011 which shows that the inventory is efficiently
managed. The ITR (Inventory Turnover Ratio) has increased from 7.46 in the
year 2010-2011 to 8.50 in the year 2011-2012 this indicates that the
inventory is managed in a good manner. In the similar way the ITR has
increased from 8.50 in the year 2011-2012 to 9.25 in the year 2012-2013
which indicated that the inventory has been managed effectively.

Findings
The findings as presented above in all the three cases show that we should
reject the alternative hypotheses and accept the null hypotheses. Our
analysis also shows that the company operates a policy of making orders on
a quarterly basis within a period of one year. Also it can be as well observed
that the company does not always adopt the EOQ model in placing orders for
its raw materials and this account for the variations between the calculated
EOQ and the expected order sizes of the company. For at least three years
out of the five years under study, the expected value was greater than the
observed value for each product. We, thus, concluded that inventory usage
depends on sales that means as sales increases, inventory usages should
also be on the increase.
The researchers have found that Cement and sand is fast moving throughout
the year. It is also very clear that Gravel, Bricks and Steel are given less
importance in the stock. Materials management unit should also pay
attention to sales growth over the years and thus take into consideration.
More sophisticated techniques may be used to handle inventory
management problem more efficiently and effectively. It is vivid that the EOQ
of Bricks is high during the month March and low in October. During the
month of July the EOQ of Gravel is high and Steel is low. Also during
November EOQ of Steel is high and Sand is low. EOQ of Cement is high in the
month of April and low in February.
The sales and marketing department of the company should pay closer
attention to the growth pattern of inventory usage and incorporate it in sales
forecasting technique The researchers have found that Steel being more
valuable is considered high among the inventory. Cement comes under the
average category. Bricks, Sand and Gravel are in the lowest category of the
inventory. The management can expand the Godown for storing the
inventory. Effort must be made by the management to strike an optimum
investment in inventory since it costs much money to tie down capital in
excess inventory. The management can take some measures for controlling
wastage of raw inventories. Emphasis can be normally placed on the
economic order quantity model because it was seen to be in the best interest
of organization to maintain an optimal level of materials in store. ABC may
be maintained strictly.

Conclusion And Recommendations

Inventory is the most important part of any business especially for
manufacturing companies. It is hidden costs which are to be controlled for
sustaining in present competitive market. Apart of costs, customer
satisfaction is also the most important factors for the businesses. Inventory
management also improves the level of customer satisfaction because
customer wants product at least time as possible. So, a manufacturing firm
must install the optimal inventory control techniques or improve their asset
turnover as much as possible. Also, by different analysis it is concluded that
inventory turnover ratio is correlated with the net profit of the companies.
The inventory turnover ratio of JSW Steel is better than the other two
companies. Hence, from different findings it is concluded that there is impact
of inventory management on the financial condition of the firm. Some
recommendations are also for these companies according to the
interpretation of the data available.
Inventory management has become highly developed to meet the rising
challenges in most corporate entities and this is in response to the fact that
inventory is an asset of distinct feature. The inventory management situation
of the Nigeria Bottling Company, Ilorin Plant has been revealed using the
EOQ model. It was also seen that the company through a wellbuilt policy is
able to handle its idle stock without incurring unnecessary costs. A basis for
inventory planning and control was also provided in this study. Though
looking through the inventory policy of the company, it can be said to be
dynamic to some extent but the analysis and findings have revealed the
need to remedy some situations in the company's management of inventory.
The study thus suggests some recommendations to remedy certain defects
in the company inventory policy and if these recommendations are
implemented, the company's inventory management situation will attain a
greater height. First, emphasis should be normally placed on the economic
order quantity model because it was seen to be in the best interest of
manufacturing companies to maintain an optimal level of materials in store,

the level that minimizes total cost of investment in inventory. To achieve this
successfully, different costs, which are associated with inventory, should be
segregated and accumulated in such a way that EOQ can be easily
determined.
Secondly, in the analysis we also mentioned that there was a positive
relationship between inventory and sales and between inventory and
production cost. This does not imply that inventory automatically determines
production costs or sales and viceversa. However, it does show that
inventory levels can be a useful indication of what level of sales to expect. It
is thus recommended that the sales and marketing department of the
company should pay closer attention to the growth pattern of inventory
usage and incorporate it in sales forecasting technique.