INTRODUCTION

Finance is one the basic foundation of all kinds of economic activities. Financial management is an integral part of overall management; it is not a totally independent area, it is concerned with the acquisition, financing and management of assets with some overall goal in mind. Financial Management is important because it has an impact on all the activities of financial management. The basic objective of Financial Management to maintains of the liquid assets and maximization of the profitability of the firm. Efficient management of every business enterprise is closely linked with efficient management of its finance. The basic objectives of financial management are the maintenance of liquid assets and maximization of the profitability of the firm. Maintenance of liquid assets means that the firm has adequate cash in hand to meet its obligation at all times. A business firm is a profit seeking organization, profit maximization is also well considered to be an important objective of financial management. Financial management is mainly concerned with the proper management of finance function. Risk, cost and control considerations are properly balanced in a given situation and there is optimum utilization of funds. Financial Management emerged as a distinct field of study at the turn 20th century. Financial management as an integral part of overall management is not a totally independent area. It draws heavily on related disciplines and field of study, study such as economics, accounting, marketing, production and quantitative methods. is essentially helps in optimizing the output from a given input of funds. In the present day business world, the field of financial management is becoming more and more wide and complex. With the rise of big corporate conglomerates the job of financial, management has become tougher. The decision function of Financial Management lies on three areas such as the investment decision, the financing and the asset management decision. It helps in profit planning, capital spending, measuring costs, controlling inventories accounts receivables etc. It

Financial management is important is important because it has an impact on all the activities of a firm; its primary responsibility is to discharge the finance function successfully. It touches on all the other business functions all because decisions have financial implications. Concept of Inventory Management: The job of the financial management is to reconcile the conflicting view points of various functional areas regarding the appropriate Inventory levels in order to fulfill the overall objective of maximizing the owners wealth. Thus, Inventory management like the management of other current assets should be related to the overall objective of the firm. Inventories appear in various forms in manufacturing company raw materials, Work in progress, and finished goods. Since the inventories constitute a large part of current assets, substantial amounts of money are required to maintain them. In industry like sugar, the raw material cost is high as 68.75% of total cost. Similarly, about the 90% of working capital is invested in inventories. Hence, it is necessary for every management to give in an annual production capacity of 52,500 tons of High Carbon Coal. AFAL emerged from loss to profit making company. Hence, it appeared very vital to study the activities of AFAL. The study enables this back drop zeal to know the facts which contributed the success of AFAL and to know the financial performance in general and efficient management of its inventory inspired me to take up the study of its Financial Performance through Inventory Management. Concept of Inventory Techniques: An efficient inventory management requires that a firm should maintain an optimum level of inventory, where inventory costs are the minimum and at the same time there is no stock out which may result in loss of sale or stoppages of production. Determination of safety stocks, ordering systems of inventory, Economic Order Quantity (EOQ), ABC Analysis, VED Analysis, XYZ Analysis, Classification and codification of items are the other techniques of inventory management.

Industry at global level With the advent of AOD and VOD technologies, the use of High Carbon Ferro Chrome, for introducing chromium into steel with much improved process economics, was established. However with the world wise standardization of these technologies, not only the use of H.C. Ferro Chrome was established, it was also established that Ferro Chrome, with even 50% chromium content, can be efficiently used in the production of stainless steels & other special alloy steels. This resulted in the arrival of Charge Chrome as the most economic and established medium of chromium addition to steels. About 83 percent of the world chrome ore reserves are found in South Africa. The reserves of high grade coal are also quite substantial. Of the rest 17 percent of the world reserve nearly, 11 percent is accounted for by Zimbabwe alone. The process adopted worldwide for production of charge chrome is smelting of agglomerated ore with low ash coke in a submerged electric arc furnace. Efforts for optimizing the production technique are still continuing. Specific developments have been made in the charge chrome production technology involving the use of 100 percent chromite ore fines, waste heat recovery system/methods, mechanization & automation of the process using computer control methods, etc. Due to rapid depletion of the high grade chrome ore, several manufactures of world repute like Union Carbide, & Kawasaki Steel Company have invested and experimented to establish alternate methods of production, using low grade ore fines. With new plants coming up in India, Sweden, Turkey and South Africa, meeting the demand for Stainless Steel would not be a problem, even with an annual growth rate, of consumption, of 3 percent. Moreover, Acesita in Brazil, Tand Erig in Taiwan and Salem in India, are all expanding their existing capacities. Besides, countries like Cuba, Indonesia, Romania and Greece, etc. intend to start stainless steel production shortly. With respect to the international market, the outlook for Ferro-chrome in stainless steel industries is promising. The annual growth in consumptions of Ferro-chromium is likely to be about 2.5 to 3 percent.

Developments in stainless steel production technologies, like AOD, ASEA SKF ASV, VOD/LOVAC and vacuum metallurgical process have resulted in replacement of LC Fe Cr with HC Fe Cr or charge chrome, for chromium addition in steel. Middle berg Steels and Alloys reports that Western world consumption of charge chrome totaled to 1.856 million tons in 1985 and expected further increase in the consumption to 4.16 million tons by 2010-11. Seven western world countries account for about 80 percent of the world consumption of charge chrome. Japan is the highest consumer with 634,200 tones in 1986. ANDHRA FERRO Alloys Corporation limited was established in 1993 at Garbham village in Vizianagaram district of Andhra Pradesh State. industrial map of basically it is a backward area Today it is a landmark on the and it acted as a catalyst for the socio-

economic development of the village and also the surrounding areas. The plant was located 85 km of north of Vishakhapatnam on the eastern coast of India. The continuous demand for steel in our nation increased the need for production different Ferro alloy in the country or large scale releasing this need for producing Ferro alloy in the country; M/S AFAL alloys corporation ltd. was floated in the year to become the first major producers of Ferro Manganese in the country. Initially, it had three submerged arc electric furnaces producing high carbon Ferro manganese and silicon manganese. In the year 1995, Ferro manganese plant went into production equipped with three 3.6 mva furnaces for the production of high carbon Ferro Manganese and Silicon manganese. In 1995, 9 mva reduction furnace and an 8 mva slag furnaces was commissioned for production of Ferro chrome, which is mainly required to manufacture stainless steel and other special steels. To cope with the increasing demand the company has setup a 9mva furnace in 1997 using its own technical knows low with 100% indigenous equipment. The plant have facilities for raw material handling, metal and slag casting, crushing , sizing and other an will arise a part from furnaces for smelting of ferroalloys.

In the history of AFAL Ltd., (AFAL), this has become the first of its kind and major producers of Ferro manganese in the country. Necessary weighment and charge mixing are also done as per the requirement. The various types of AFAL alloys being produced are: High carbon Ferro chrome, low carbon Ferro chrome, silico chrome, silico manganese & manganese Ferro silico, Ferro manganese etc... Low Ferro chrome was used to be imported by India until 1966 to meet the demand of steel industry then, AFAL has set up a Ferro chrome plant with two furnaces having capacity about 7,000 mt low/high carbon Ferro chrome and substituted the imports so Ferro chrome and meet the domestic demand do along with Ferro manganese production and saved lot of valuable foreign exchange, which has very badly needed for the country. Thus AFAL limited occupies the first position at producer and exporter of Ferro alloys in the country.

NEED FOR STUDY

Inventory Management and Inventory Control must be designed to meet the dictates of the marketplace and support the company's strategic plan. The many changes in market demand, new opportunities due to worldwide marketing, global sourcing of materials, and new manufacturing technology, means many companies need to change their Inventory Management approach and change the process for Inventory Control. Despite the many changes that companies go through, the basic principles of Inventory Management and Inventory Control remain the same. The Inventory Management system and the Inventory Control Process provides information to efficiently manage the flow of materials, effectively utilize people and equipment, coordinate internal activities, and communicate with customers. Inventory Management and the activities of Inventory Control do not make decisions or manage operations; they provide the information to Managers who make more accurate and timely decisions to manage their operations. Steel industry is a major industry where everything has to be done in accordance with standards that are regulating by the Government. Iron and steel sector sheet anchor of the countrys overall industrial growth as it provides an indispensable basic input for the industry. India possesses a large potential development of this industry. The continuous demands for the steel in our nation increasing need for the producing different Ferro Alloys on large scale. The AFAL was incorporated in the 1993 with the government investment 580.51 lakhs in public sector in an annual production capacity of 50,500 tons of High Carbon Chrome. AFAL has emerged from loss to profit making company. Hence, it appeared very vital to study the activities of AFAL. The study enables this back drop zeal to know the facts which contributed the success of AFAL and to know the financial performance in general and efficient management of its inventory inspired me to take up the study of its Financial Performance through Inventory Management.

Some prominent issues should always be taken into account like.

1. The duration of raw material depends on the regularity of supply, transaction time, degree of perish ability, price fluctuations and economic of bulk purchases. 2. The duration of the work in progress stage depends of length of the manufacturing cycle, consistency in capacity utilization different stages and efficient coordination of various inputs. 3. The duration at the finished goods stage depends on the pattern of production and sale.

OBJECTIVE OF THE STUDY

The present study is intended to analyze the practice in working capital management (financial performance) in ANDHRA FERRO ALLOYS Limited through inventory management. The efficiency of the inventory management is determined by the efficiency administration on its various components. The main objectives of this study are:
To study about the High carbon Ferro chrome industry at global and national level with

reference to ANDHRA FERRO ALLOYS LIMITED. To study the general concepts of Inventory management.

To find out the existing techniques of Inventory appraisal in AFAL To measure the operational efficiency of AFAL Alloys Limited

Limited.
To analyze the impact of overall financial performance on Inventory Management in

AFAL Alloys Limited.

To give suggestions, if any for better Inventory Management in AFAL alloys ltd

METHODOLOGY OF THE STUDY

Methodology is a systematic procedure of collecting information in order to analyze and verify a phenomenon. The collection of information is done through two principle source, viz. 1. Primary Data 2. Secondary Data PRIMARY DATA Primary data or information is collected directly through first hand by interviews, seminars and direct academic interaction. Guidelines and necessary information taken from my guide. Personal interview was conducted with the officers of Finance department prior appointment. Some of the information were verified and supplemented through personal observation. The required data has been collected from the Finance Department. SECONDARY DATA The secondary data was collected from already published sources such as pamphlets of annual reports, returns and internal records. Training and development centre of ANDHRA by taking

FERRO ALLOYS Limited also used to collect information related to organizational structure, growth & development of AFAL during the study period. Collection of required data from previous annual records of Ferro alloys Reference from textbooks and business journals relating to financial management Collection of data over the internet Required data has been collected from finance department

LIMITATION OF STUDY
The limitations that came across during the course of this work are listed below: 1. This period of two months is not enough to cover all the aspects. 2. Though the project would be completed successfully a few limitation are expected. As Ferroalloys is multi product manufacturing unit the cycle time of each product varies and it could be a problem to study the inventory management in a limited period. 3. The board officials were busy with internal audit work due to which sufficient time has been available to get more information. 4. Audited Balance Sheet for the Financial Year 2010 -11 is not available; hence analysis of inventory management is restricted up to availability. 5. Since the procedure and policies of the company do not allow disclosing of all financial information the project has to be available data collected with maximum effort. 6. Reliability on usage of secondary data is another limitation.

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FRAME WORK OF THE STUDY

CHAPTER-1:- It deals with introduction to inventory management FERRO ALLOYS INDUSTRY at global and national level, need, objectives, methodology and limitation of the study etc. CHAPTER-2:- It deals with the history and growth of ANDHRA FERRO ALLOYS LTD and its functional departments performance. CHAPTER-3:- It portrays about significance, meaning, nature and various techniques of entire inventory management. CHAPTER-4:-It deals with inventory management practices in Andhra Ferro Alloys Limited. CHAPTER-5:-This chapter shows the summary, findings and suggestions and conclusions of the study.

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FERRO ALLOYS INDUSTRY IN INDIA

Given the global economic slow-down in general and the excess capacity of the steel industry in particular the Ferro alloys industry not just in India but indeed world-wide is going through a very difficult phase. Of course, there are some problems specific to India such as high power rates, infrastructure bottlenecks, etc. During the year under review, the GDP growth rate is estimated at 5.4 % compared to 4 % in the previous year but substantially lower than the 6.4 % growth achieved in 1999-2000. The expected growth was impeded by the unfortunate events of September 11, 2001, terrorist attack on the World Trade Centre in USA and December 13, 2001, terrorist attack on the Parliament in India. The country could have achieved its targeted growth of 6.5 %, had it not been for the slowdown in the Industrial Sector, which posted its growth rate at a mere 3.3 % in 2001-02. Foreign Direct Investment (FDI) increased to US$ 4.8 billion in 2001-02 from US$ 4.5 billion in the previous financial year despite the global economic slowdown. Balance of payments for the first time in 23 years, India has recorded a current account surplus - data released by the Reserve Bank of India (RBI) shows the country ended the year with a current

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surplus of US$ 1.35 billion as against a deficit of US$ 2.58 billion in 2000-01. This is due to a dynamic export performance showed by the Indian exporters. India's foreign exchange reserves have shot up to US$ 54.1 billion during March 2002 from US$ 42.3 billion during March 2001. In the year 2001, world crude steel production was 840 million tones, 1 % less than previous year. The production was down by 11 % in the case of USA, 10 % in case of UK, 3.4 % in Germany, whereas production in P.R. China had gone up by 12 % to14 million tones. Ferro Alloy Industry continued to be affected by the recession with sluggish demand and constraints of high power tariff, Anti-dumping duty on input material - reluctant, and Antidumping duty faced on exports of Ferro Alloys. With the result, the Industry's production has dropped by 8.28 % during 2001-02 at 827,861 tones as compared to 902,628 tons during the previous year. Production of Chrome Alloys and Manganese Alloys has come down by around 21 % and 1 % respectively, during the year. However, Ferro Silicon production has registered an increase of around 13 % .Performance details of Bulk and Noble Ferro Alloys are given in the enclosed Annexure. Domestic market continues to suffer due to excess capacity and drop in prices owing to cutthroat competition. Exports of Bulk Ferro Alloys have also come down drastically by around 41 % in terms of quantity and over 50 % in terms of value. Export during the year was around 152,282 tones as against 269,529 tones and the realization stood at Rs.2731 million as against Rs 5400 million respectively during the previous year. This is mainly because the stainless steel international market has not picked up and the market has shifted to lowest prices. Indian Producers unable to push the exports, also due to high power tariff prevailing in the country. Further, worldwide, producers have cut down their production of Ferro alloys, and accelerated the sales by clearing the accumulated stocks. Prices remained at lower level throughout the year. Added to this, many countries took advantage of the devaluation of their currencies, but in India the devaluation has not taken place to the corresponding level with competing countries. The Industry also faced step motherly treatment from the Government by keeping the import

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Customs duty on Metallurgical Coke at 15 % and reducing it for pig iron and steel producers, to 5 %. The Association has been managing to sustain the Customs Duty on Ferro Alloys at 25% basic for last couple of years, but it would be very difficult to maintain similar status in the coming years with the WTO norms/rules and regulations. Anti-dumping Duty implemented by the Government of USA on exports of Silico Manganese from India, has affected very badly the exports of Silico Manganese during the year. FUTURE OUTLOOK World Steel Industry is currently witnessing revival of global prices and profits have started a swift climb from the beginning of this current year. The estimates of GDP made by the Economic Committee have been projected to be around 2 % in 2002 and 3.4 % in 2003. The recovery of the global economy will result in the corresponding recovery of other industries, i.e., automobile, construction, consumer goods, capital equipment, etc. The consumption of finished steel is expected to be 784 million tons in 2002 and 811 million tons during 2003. Similarly, as per the latest available data, global stainless steel is gaining momentum. China has witnessed a steady increase in stainless steel manufacturing in the recent years and the increase is expected to be more up to 2007. According to CRU, the demand for stainless steel could increase by up to 5 % in 2002. Indian Steel Industry has seen some increase in prices and expected to see better realization during the coming years. Ferro Alloy Industry's main concern is excess capacity and high power tariff in the country, resulting in cut-throat competition and undercutting the prices in the domestic market. Production is expected to remain almost at the same level of 2001-02 or it may drop a bit during the next year, mainly due to closure of a few units in Andhra Pradesh due to increase in wheeling charges for supply of power from NTPC, with the result, the cost of NTPC power has become exorbitant and the operations of the furnaces have become completely unviable.

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The Industry is urging Government to give a level playing field in tune with liberalization by supplying power at international comparable tariff. The high cost of power, the regular increase in cost of Manganese Ore, combined with increase in railway freight have made Indian Ferro Alloys very expensive compared to the availability of the same from other exporting countries. With the result, the exporters in the Industry were unable to compete in the global market and register their due share of export The Government should first remove the cross-subsidization which is still affecting the power intensive industries like Ferro Alloys, which have to bear the additional burden of the Industries like Agriculture. Frankly, in this day and age imports per se cannot be considered a threat because one has to compete globally instead of looking to survive in a protected market. However, there is no doubt a threat from unfair imports. For example, in Ferro silicon we have seen dumping taking place from producers based in countries such as China, Russia, Ukraine, etc. In this connection anti-dumping duty has been imposed by the concerned authority. As long as unfair imports are not taking place the domestic Ferro alloys industry will have to sink or swim based on its own strengths. India cannot be ignored as a Ferro alloys producer because of several reasons such as: 1) Geographical location leading to logistical advantage of supplying to the Far East market in particular 2) Stable democracy with a developed judicial system 3) Significant deposit of chrome ore (if looking at Ferro chrome in particular) However, as there is no denying that there are several problem areas such as high power costs, infrastructure bottlenecks, etc. Having said this there is solutions viz. viable captive power, location close to a port so as to reduce internal transportation costs, etc. Besides, other issues such as high operating costs (telecom, interest rates, etc) are all being addressed slowly but surely as reforms gather pace. The Indian Ferro alloys industry is going to focus more on orebased alloys (Ferro chrome, silico manganese, etc) while power intensive alloys such as Ferro silicon will gradually be phased out

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Raw Materials Consumption the Ferro-alloys market has always been unpredictable but all factors are pointing toward a buoyant 2007. This year's conference will examine the market dynamics in the industry. With the ever increasing growth in consumption of raw materials, where are the new projects and what strategies are in place to fulfill growing demand? Steel Production in 2007 has seen steel production increase by 10.5% on the same period in 2006. China has continued to lead the way, excluding China, global crude steel production only rose by 4.5%. China alone accounted for 34% of growth in 2006. In Europe crude steel production rose by 6.7% compared to the same period last year. Stainless steel production is also predicted to have a strong rate of growth in 2007; last year saw China increase stainless steel output by 68%. Asian production led the way with an increase of 15.1 million tons compared to 10 million tons in Europe and Africa. Insatiable demand for Ferro-chrome from the rapidly growing stainless steel industry is stretching supply from the South African Ferro-chrome miners and India's limit on chrome ore exports have further increased prices. A favorable cost structure and the availability of raw materials is a key concern for everybody involved in the steel and Ferro-alloys industry. The Signs of revival in the fortunes of the steel industry, both globally and domestically, has brought cheer to a largely neglected industry Ferro alloys whose fortunes are inextricably linked with that of steel. Tata Iron and Steel Company's announcement that its board had approved the setting up of a Ferro chrome project at Richards Bay on the east coast of South Africa at a cost of Rs. 200250 cores has given a fillip to the sector. The power cost is about 25 per cent of the power cost in India, where it ranges from Rs. 2.3-3 per unit against Re. 0.46-0.60 per unit in South Africa. The Greenfield venture is expected to go on stream in mid-2004.

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The Tatas plan is to transport the chrome ore from Orissa to South Africa where the plant will convert it into Ferro chrome. There is also the option of sourcing Ferro chrome from South Africa itself, which boasts of largest chrome ore deposits in the world; accounting for well over 50 per cent. Tata Steel itself is one of the largest chrome ore exporters from India, having a 50,000 tone Ferro chrome furnace in Orissa. According to Indian Ferro Alloy Producers' Association (IFAPA), in 2001-02, the Ferro alloy industry continued to be affected by recession with sluggish demand and constraints of high power tariff anti-dumping duty on input material, reluctant, and anti-dumping duty on exports of Ferro alloys. Consequently, the output dropped by 8.28 per cent during 2001-02 to 8.27 lakh tones from 9.02 lakh tones in the previous year. In the mid-1990s, the industry was hit by excess domestic capacity and a demand recession made worse by substantial imports of Ferro alloys by steel exporters. The export slump was attributed to sluggishness in international stainless steel and inability of Indian players to push exports. Worldwide, producers have cut Ferro alloys production and accelerated the sales by clearing stocks. Many countries took advantage of the devaluation of their currencies but in India, devaluation did not take place to the corresponding level of competing countries. The import duty on metallurgical coke was maintained at 15 per cent and a pig iron and steel product was brought down to 5 per cent. Customs duty on Ferro alloys has been maintained at 25 per cent for the last couple of years but this would be increasingly difficult to maintain owing to WTO norms. India was adversely affected by the imposition of anti-dumping duty on export of silico manganese by the U.S. The IFAPA says the industry has sufficient raw material, highly qualified manpower, latest equipment and technology. It is priced out of the international market primarily due to the cost of electricity. It has requested that power should be made available at internationally comparable tariffs, that is, 1-3 U.S. cents per unit, and it is necessary to maintain customs duty

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on alloys at higher levels or sustain it at 25 per cent basic. Besides, prices of raw materials like reluctant and ores are government controlled which increases the price regularly. Chrome ore is utilized in production of Ferro chrome, part of the family of Ferro alloys that are used by the steel industry as de-oxidant and alloying agent. Chrome ore is actually used to make high carbon Ferro chrome, which is a non-substitutable raw material for making of stainless steel. Facing a shortage in domestic availability of chrome and manganese ores, the Ferro alloy industry has been seeking a total ban on export of these ores, much the same way as the steel industry has been campaigning for a ban on export of iron ore. If not a ban, the industry has been seeking that the duty on export of these ore be at least hiked from the present Rs 2,000 a ton to Rs 5,000 a ton to discourage ex

ORGANIZATIONAL PROFILE OF ANDHRA FERRO ALLOYS LIMITED

ANDHRA FERRO ALLOYS Ltd has occupied a significant place in the industrial scenario of the country. M/s Andhra Ferro Alloys Corporation Ltd. was floated in the year 1993 to become the first major producers of Ferro manganese in the country. The year 1995 marked the beginning of Andhra Ferro alloys corporation ltd., at GARBHAM (VIZIANAGARAM) situated at 85 km. north of Visakhapatnam port. Over a period AFAL grew to become Indias largest producers and exporters of tonnage of Ferro Alloys, a position which it has maintained over since. The company, besides 65 Acres land for plant, has built a beautiful town ship in 80 Acres land a beautiful green belt has been developed in and around the industry. The developed plantations are covered with an area of about 60 Acres The existing manpower at works at GARBHAM is about 100 employees and 20 supervisory personnel, beside 585 contract workmen. A stringent quality control for both the products and raw materials is being maintained as per the standards and being supported by a full-fledged inspection and quality control department. AFAL has been accredited under ISO 9001-2000 Std., to maintain its worldwide status as the best producer of quality products.

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AFAL pioneering spirit an vision continued and the company research and development efforts have brought many laurels to its credit to name a few- AFAL developed Ferro silicon magnesium for the first time in the country which had a wide acceptance in the foundry industry, thus saving valuable foreign exchange for the country and also the company has very successfully developed the know-how for production of CHARGE-CHROME by using chrome ore fines as the main raw materials which has been left as a earlier and the L.C. Ferro chrome slag was successfully developed as agro-soil conditioner and traded in the name of BHUSHAKTI The quality management systems have been approved by the IRQS in accordance with the ISO-9001-2000 standard and accredited with the certification. The management has committed for the professional management in the process of which the employees are considered very important and prime resources for the development of the organization. Thus management - envisaged employees participation scheme, suggestion scheme etc. The plants have facilities for raw materials handling, metal & slag casting, crushing, sizing and other ancillaries apart from furnaces for smelting of ANDHRA FERRO ALLOYS. The ALLOYS required for the production of FERRO ALLOYS are manganese ore, chromites and quartz ores with principal elements, Mn, Cr and Si respectively these raw materials are obtained from Andhra Pradesh, Orissa, Madhyapradesh and Bihar etc and trans ported to the work site by rail/road transport the size of raw materials in the range of 40mm to 30mm and stacked in yards, crushed to the required sizes. The various types of Ferro alloys being produced are: HIGH CARBON FERRO CHROME, SILICO CHROME, SILICO MANAGANESE & MAGNESIUM Ferro SILICO, FERRO MANAGANESE ETC., AFAL as a part of pollution control systems has connected two stage venture scrubber systems/bag House units to the furnaces and are being operated to maintain a clean environment in and around the industry. Continuous monitoring is being done to control the pollution levels with in the limits prescribed by the pollution control board besides the above facilities for

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beneficiation and agglomeration of chrome ores have been set up. A pilot plant for sintering of manganese/chrome ore fines and mechanized briquetting plant were also set up.

HISTORY OF FERRO ALLOYS INDUSTRY

The continuous demand for steel in our nation increased the need for producing different Ferro alloys on large scale. Realizing this need for producing Ferro alloys in the country, M/s Andhra Ferro Alloys Corporation Ltd., was floated in the year 1993 to become the first major producers of Ferro manganese in the country. The year 1995 marked the beginning of Ferro alloys corporation ltd., at GARBHAM (VIZIANAGARAM) situated at 85km. north of Visakhapatnam. The Ferro alloys are used as deoxidizers and alloy additives in the steel making process. AFAL has been producing various Ferro alloys in an effort to meet the demands of steel industry. In the year 1995, Ferro manganese plant went in to production equipped with three 7.5MVA Furnaces for the production of high carbon Ferro manganese and for Ferro silicon. 9MVA reduction Furnace and 8 MVA slag Furnace was commissioned for production of Ferro chrome, which is mainly required to manufacture stainless steel and special steels. To cope with the increasing demand, the company has setup a 16MVA Furnace in 2000, using its own technical know-how, and indigenous machinery and equipment. The plants have facilities for raw material handling, metal and slag costing, crushing, sizing and other ancillaries apart from furnaces for melting of Ferro Alloys. The raw material

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required for the production of Ferro Alloys is manganese ore, chromite and quartzite ores with principle elements Mn, Cr and Si respectively, carbonaceous reducing agents such as cokes, coals and flexing agents such as Lime-Stone, Dolomite and Magnetite etc. These raw materials are obtained from Andhra Pradesh, Odisa, Madhya Pradesh and Bihar etc, and transported to the worksite by Rail/Road transport. The sizes of the raw materials are in the range of 40mm to 30mm and stacked in yards, crushed to the required sizes and fed to the electric arc furnaces by trucks, belt conveyors, skip-holts, buckets, tipper cars etc, in sequence with a provision of intermediate storage in the day-bins. Necessary weighment and charge mixing are also done as per the requirement. The various types of Andhra Ferro Alloys being produced are: HIGH CARBON FERRO CHROME, LOW CARBON FERRO CHROME, SILICO CHROME, SILICO MANGANESE AND MAGNESIUM FERRO SILICO, FERRO MANGANESE etc. These Alloys are tapped from electric arc furnaces in Molten State, along with the bye-products which are called slags, casted, removed by EOT cranes and dumpers to finishing yards handled manually/mechanically to the required size, - 25mm to 100mm and transported by Rail/Road Transport to the steel industries in India and exported by ship to foreign countries. AFAL as a part of pollution control systems has connected two stage venture scrubber systems/bag house units to the furnaces and are being operated to maintain a clean environment in and around the industry. Continuous monitoring is being done to control the pollution levels within the limits prescribed by the pollution control board. Besides, the above facilities for beneficiation and agglomeration of chrome ores have been set up. A pilot plant for sintering of manganese/chrome ore fines and mechanized briquetting plant were also set up. A stringent quality control for both the products and raw materials is being maintained as per standards and being supported by a fully fledged inspection and quality control department. AFAL has been accredited under ISO 9001-2000 standard to maintain its worldwide status as the best producer of quality products.

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AFALs pioneering spirit and vision continued and the companys research and development efforts have brought many laurels to its credit. To name a few AFAL developed Ferro silicon magnesium for the first time in the country which had a wide acceptance in the foundry industry, thus saving valuable foreign exchange for the country and also the company has very successfully developed the know-how for the production of CHARGE CHROME by using Chrome ore fines as the main raw materials which was being left as a waste earlier and the L.C.Ferro chrome slag was successfully developed agro-soil conditioner and being traded in the name BHUSHAKTI. The quality management systems have been approved by the IRQS in accordance with the ISO 9001-2000 standard and accredited with the certification. The management has committed for the professional management in the process of which the employees are considered very important and prime resources for the development of the organization. Thus, management envisaged employees participation scheme, suggestion scheme etc. FUNCTIONAL DEPARTMENTS The various departments in the AFAL area follow: MANPOWER/HR PERFORMANCE OF AFAL: Human factor play a vital role in actuating management plans. It is the willingness of human factor to contribute its might and coordinate rationally different levels that give the enterer a combination of successful performance and work culture. Hence it is necessary to manage the functional staff efficiently and effectively. MANPOWER PERFORMANCE OF A FAL (IN THE YEAR MAY-2010) CATEGORY Managerial Supervisory(Tech) Supervisory(Non Tech) Workmen skilled Workmen(Admn) Workmen Permanent Mining employees WORKERS 7 68 36 226 90 114 6

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Total RECRUITMENT:

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AFAL recruits whenever a situation faces vacant a thorough job analysis is taken then the existing employee pool its referred and matched the employee qualities with job specification and if it matches, the employee is assigned the Job, it not found, a candidate will be introduced into the organization.

Basic on the monthly attendance advised by the personal department the financial manager prepares the salary of the employees after affecting all the authorized deductions, the salary particulars are given to all the employees through pay slips. The payment of the wages and salaries for the wage period to the employees through the cooperative central bank through AFAL on 7th,8th,9th and 10th days of the subsequent month. WAGE EMPLOYEMENT:The following are the wage components in AFAL HOUSE RENT ALLOWANCE:All workers who are not allowed quarters or charged to stay in private houses are eligible for H.R.A. At the rate of 12.5% of their basic salary subject to a minimum of Rs 400/- per month. VEHICLE ALLOWANCE:Employees are eligible for vehicle allowance provided they can maintain scooters/cars or motor cycle to attend factory. CYCLE ALLOWANCE:All permanent workers and supervising personnel are eligible for cycle allowance of Rs65/- per month, if they own and use the cycle to come to the factory. PETROL BUNK ALLOWANCE:Petrol bunk allowance of Rs.530/- per, month is paid to clerk stores and purchases section of material department who attend to the issue of petrol and diesel to company vehicles and employee vehicles. UNIFORM ALLOWANCE:-

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Uniform allowance of Rs.450/- per annum is paid annually to certain categories of employee and above NIGHT SHIFT ALLOWANCE:Night shift allowance will be paid rate of Rs12/- to third shift attendee fully by workmen. The eligible workmen are a) Regular b) Unskilled workmen. INCREMENTS:All increments of all the employees will pay in the year.

SPECIAL INCREMENTS:Increments are awarded for employees for the extra-ordinary performances as per description of the management. INCENTIVES:To maximize the productivity directly and indirectly management gives increments to certain employees. THE FOLLOWING ARE INCENTIVES:1. Ferro Manganese Slab Yard incentive 2. Silicon chrome Metal handling incentive 3. Counting charges Incentives BONUS:Annual bonus to all the employees is paid in accordance with provisions of the payment of bonus act 1965. ATTENDANCE BONUS:As per the wage settlement attendance bonus is payable on the basis attendance on quarterly basis for workmen. COMMUNICATION In AFAL they do not have any communication policy but the media of communication are by phone, peons, notice boards, circulars, notes etc GRIEVANCE HANDLING In AFAL mostly grievances are very negligible for familiarities and absentees these grievances are solved through open door and step ladder methods.

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DISCIPLINE MANAGEMENT:For maintaining work force in decent manner and in a disciplined way the AFAL management drafted standing order according to which absenteeism, threat in subordination are major in discipline particles. When misconduct occurs the worker is given a charge sheet and an enquiry is held, at last a warning is given (if it is not a graue nature). The nature of misconduct of due to negligence of the management. The following are some of the misconducts drinking while on duty, sleeping while on duty playing cards while on duty, absentees in etc. TIME OFFICE MANAGEMENT:ATTENDANCE PROCEDURE: In AFAL they take attendance in two ways first to workers they give taken numbers and concern manager will check in the token sheet and secondly to staff and other personals they have to sign in the register and same workers they have to punch their cards. LEAVES:The following are the leaves sanctions in AFAL are as follows: LEAVES Privilege Casuals Sick SHIFT TIMINGS: The shift rotation takes place for every three days. And the shift timing is as follows. 1st 2nd 3rd General SHIFT shift shift shift shift TIMINGS 7.00 am to 2.00 pm 2.00 Pm to 8.00 pm 8.00 pm to 7.00 am 8.30 am to 5.30 pm REGULAR EMPLOYES 18 10 4 CASUAL WORKERS 21 days NO eligibility 8 days UNSKILLED WORKERS 20 days 5 days 4 days

OVER TIME: As per the factories act overtime will be paid double the wages of workers.

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TRADE UNIONS: These are three trade unions in AFAL and are as follows: UNIONS REGULAR: AFAL employees union CONTRACT LABOR: Contract labor union INDUSTRIAL RELATIONS: The union management relation is very cordial and friendly. But sometimes unions roar like lion where as management throws same tasty biscuits. INDUSTRIAL DISPUTES: They are very negligible industrial disputes in AFAL since management tries to solve the problem at the route level only. PERSONAL DEPARMENT FUNCTIONS: The functions of Personal Department can be specified as below: 1) To provide and maintain human resources to meet the organization objectives through manpower planning.
2) Recruitment, selection and placement

AFFILITATION I.N.T.U.C C.I.T.U

3) Promotion and transfer 4) Wage and salary administration 5) Discipline at work 6) Employee welfare 7) Industrial relations matters a) Coordinal industrial relations are ensured by transparent implementations of personal policies personal practices. b) Open communication with the workers, trade union and proper competence. MARKETING DEPARTMENT: FINISHING GOODS HANDLING SIZING AND TRANSPORTATION:

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Finished goods are handled manually or mechanically according to specifications of the orders and transported by means of road or fail with in the country. Some qualities are also exported to Japan, Germany, Korea and USA etc., by ship through Visakhapatnam SALES PERFORMANCE OF FAL (DURING 2004-2010 IN TONNES) YEAR 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 DOMESTICSALES 14536 20662 18447 18832 19656 29865 EXPORTS SALES 22794 25538 11365 18538 26354 19654

PRODUCTION DEPARTMENT: The following are the main products of AFAL in GARBHAM. But at present the 1) High carbon Ferro chrome The plant of AFAL have facilities for raw material, handling, metal and slag casting, sizing and other ancillaries apart from furnaces for smelting of Ferro alloys. AFAL QUALITY POLICY: AFAL shall strive continuously to maintain its worldwide status as the production of best quality Ferro alloys and steel. They will meet the started or implied needs of our international and domestic customers through planned and systematic actions necessary to provide adequate confidence in our customers for our products.

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It shall be achieved by continuous evaluation of factor affecting quality commitment and participation of all the members of the organization. QUALITY CONTROL OF THE AFAL: A stringent quality control for both the products and raw materials is being maintained as per the standards and being supported be a fully fledged in section and quality and quality control department AFAL accredited under. I.S.O. 9002-1994 standards to maintain its worldwide status as the best producer of quality products. The AFAL right from beginning striving to produces best quality of Ferro alloys and steel, to the utmost satisfaction of it national and international customers.

QUALITY CONTROL TECHNIQUES FOLLOWED BY AFAL: PRODUCTION FUNCTIONS: 1) They collect the requirement details from marketing department 2) Preparation of specification chart and material balance 3) Indenting the required raw material 4) They observed and taking clearance from maintenance department. 5) Feeding the furnaces with properly weighted change mix. 6) Continuous of monitory of furnish operations, taking necessary charge mix. 7) Draining out at the melt from the furnish 8) Inspection of the product(meeting specification or not) 9) Proper casting of the melt

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10) Separation of unwanted slag from the metal 11) Handling of the finished products PRODUCTION PERFORMANCE: AFAL manufactures various types of Ferro alloys products like high carbon Ferro chrome, low carbon Ferro chrome, silicon manganese, manganese Ferro silicon, Ferro manganese, RESEARCH AND DEVELOPMENT: AFAL established in its own research and development wing for remarkable technology to produce HIGH CARBON FERRO CHROME, the wonderfully for stainless steel manufactures desired by steel makers all over the world. FINANCE DEPARTMENT IN AFAL: AFAL division having finance department separation, directly connected with the top management. Whole financial department is divided into Management Accounting, Financial Accounting and Costing all the functions are under control finance manager. Most of the operating functions used to carry by the management accounting. Financial controller is the chief of the finance department of AFAL. It is directly associated with the general manager this finance manager is accountable to general manager in management hierarchy. Finance Manager functions are briefly discussed below: 1. PLANNING AND CONTROL To establish coordinate and administer as a part of management a plan for the control of operations. The plan would provide to the extent required in the business profit planning programme for capital investing and for financing sales forecasting and budgeting. 2. REPORTING AND INTERPRETATION

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To compare actual performance with operating plans and standards and to report and interpret the results of operations to the owners of business. To consult with other managers about the financial implications of its actions. 3. PROTECTION OF ASSETS To assure protection of business assets through internal control, internal auditing and assuring proper Insurance Coverage. 4. ECONOMIC APPRAISAL To appraise economic and social forces and Government influences and interpret their effect upon business. Business strategy: Establishing buying policies and controlled research development and extension to ensure that the former economies in ferrochrome is attractive and regain former confidence. Maintain in active environmental people and work through the Ferro chrome government to keep the industry alive. Develop alternative national sources of supply by extending the Ferro chrome growing areas to Orissa, Andhra Pradesh, and Madhya Pradesh etc. Long term loans: Whenever the AFAL wants funds, it can raise through long term loans from bankers and others. Reasonable fate of interest will be charged by debtors on the loans taken by division. Further, the division and to get the loans from outside credits but in the recent past, that practice was stopped and its raising through long term loans from cheque (bankers). Short term borrowing: These are the main and important sources of funds to AFAL nearly 56% of the total sources of funds will be has from this source.

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Debentures: The AFAL division used issued debentures which were wholly subscribed by AFAL these debentures carry 13.58 of interest. Export packing credit: It is an important source of finance to AFAL division on average nearly more than 25% of the sales volume consists of exports based on the export order the fall will get the loan from banks by showing the name at the bank 8.55 of the export order will the loan extended by banks. MANAGEMENT INFORMATION SYSTEM M.I.S has a formidable task of processing massive incoherent communication generated in a enterprise. Systematic if and feel it to every level of management as an aid in its task and functions this miss department in AFAL is individual department. It is observed that emphasis is need to gave financial information system rather than other systems. These reports are communicated to all department head in the origination. FINANCIAL CLIPPING: Financial department used to give more emphasis on management accounting compare to financial accounting. Application or standard casting and budgeting to a large extent. Management information system used to give more emphasis to financial information system than other information system. For the purpose if cost control, four entry systems are adopted. To play a pioneering role as the premier private sector organization market, significant contributions to the prospecting of farmers and agro sectors in India, we will achieve this mission through our people and research and development focus. Establishing buying policies and control R&D and extension to ensure that former confidence.

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Maintain cost competitors in the business exercising leadership, the ability i.e. buy out opting and shortening cycle time in operation. Marketing in Japan, china and U.S.S.R for chrome products. Difference facilities at AFAL works: Ferro manganese plant: Two 7MVA covered rotating submerged are smelting furnaces one 7MVA open top rotating submerged electric smelting furnace. Ferro chrome plant: One 9 MVA open top rotating submerged smelting furnace. One 8MVA open electric are smelting furnace. One 16MVA stationary submerged electric melting furnaces

INVENTORY MANAGEMEMNT
Inventory management, or inventory control, is an attempt to balance inventory needs and requirements with the need to minimize costs resulting from obtaining and holding inventory. There are several schools of thought that view inventory and its function differently. These will be addressed later, but first we present a foundation to facilitate the reader understands of inventory and its function. WHAT IS INVENTORY? Inventory is a quantity or store of goods that is held for some purpose or use (the term may also be used as a verb, meaning to take inventory or to count all goods held in inventory). Inventory may be kept "in-house," meaning on the premises or nearby for immediate use; or it may be held in a distant warehouse or distribution center for future use. With the exception of firms utilizing just-in-time methods, more often than not, the term "inventory" implies a stored

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quantity of goods that exceeds what is needed for the firm to function at the current time (e.g., within the next few hours). The various forms in which inventories exists in a manufacturing are: Raw Materials. Work-in-process (Semi finished goods). Finished goods. Consumables. Spares. Raw Materials: The raw materials inventory contains items that are purchased by the firm from others and are converted into finished goods through the manufacturing process. They are an important input of the final product. Work- in-process: The work-in-process inventory consists of items currently being used in the production process. production process. Finished goods: Finished goods inventories are those final or completed products which are available for sale. The inventory of such goods consists of items that have been produced but are yet to be sold. These are the goods which are ready for the customers. The purpose of maintain of maintain inventory is to ensure proper supply of goods of customers. Consumables: These are the materials which are needed to smoother the process of production. The materials do not directly enter the production but they act as catalysts etc. Consumables and be classified according their consumption and critically. There can be instances where these materials may account for much value than the raw materials. Spares: The consumption pattern of raw materials, consumables finished goods are different from that of spares. The stocking policies of spares are different from industry to industry. All They are normally semi-finished goods that are at various stages of

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decisions about spares are based on the financial cost of inventory on such spares and the costs that may arise due to their non availability. WHY FIRMS KEEP INVENTORY? Why would a firm hold more inventory than is currently necessary to ensure the firm's operation? The following is a list of reasons for maintaining what would appear to be "excess" inventory. MEET DEMAND In order for a retailer to stay in business, it must have the products that the customer wants on hand when the customer wants them. If not, the retailer will have to back-order the product. If the customer can get the good from some other source, he or she may choose to do so rather than electing to allow the original retailer to meet demand later (through back-order). Hence, in many instances, if a good is not in inventory, a sale is lost forever. KEEP OPERATIONS RUNNING? A manufacturer must have certain purchased items (raw materials, components, or subassemblies) in order to manufacture its product. Running out of only one item can prevent a manufacturer from completing the production of its finished goods. Inventory between successive dependent operations also serves to decouple the dependency of the operations. A machine or work center is often dependent upon the previous operation to provide it with parts to work on. If work ceases at a work center, then all subsequent centers will shut down for lack of work. If a supply of work-in-process inventory is kept between each work center, then each machine can maintain its operations for a limited time, hopefully until operations resume the original center. LEAD TIME Lead time is the time that elapses between the placing of an order (either a purchase order or a production order issued to the shop or the factory floor) and actually receiving the goods ordered. If a supplier (an external firm or an internal department or plant) cannot supply the

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required goods on demand, then the client firm must keep an inventory of the needed goods. The longer the lead time, the larger the quantity of goods the firm must carry in inventory. A just-in-time (JIT) manufacturing firm, such as Nissan in Smyrna, Tennessee, can maintain extremely low levels of inventory. Nissan takes delivery on truck seats as many as 18 times per day. However, steel mills may have a lead time of up to three months. That means that a firm that uses steel produced at the mill must place orders at least three months in advance of their need. In order to keep their operations running in the meantime, on-hand inventory of three months steel requirements would be necessary. HEDGE Inventory can also be used as a hedge against price increases and inflation. Salesmen routinely call purchasing agents shortly before a price increase goes into effect. This gives the buyer a chance to purchase material, in excess of current need, at a price that is lower than it would be if the buyer waited until after the price increase occurs. QUANTITY DISCOUNT Often firms are given a price discount when purchasing large quantities of a good. This also frequently results in inventory in excess of what is currently needed to meet demand. However, if the discount is sufficient to offset the extra holding cost incurred as a result of the excess inventory, the decision to buy the large quantity is justified. SMOOTHING REQUIREMENTS Sometimes inventory is used to smooth demand requirements in a market where demand is somewhat erratic. Consider the demand forecast and production schedule outlined in following Table. Demand Produce Month-end inventory January 50 100 50 February 50 100 100 March 0 100 200 April 100 100 200 May 200 100 100 June 200 100 0

Notice how the use of inventory has allowed the firm to maintain a steady rate of output (thus avoiding the cost of hiring and training new personnel), while building up inventory in
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anticipation of an increase in demand. In fact, this is often called anticipation inventory. In essence, the use of inventory has allowed the firm to move demand requirements to earlier periods, thus smoothing the demand. Significance and benefits of inventory management: The purpose of holding inventories is to allow the firm to separate the processes of purchasing, manufacturing, and marketing of its primary products. The goal is to achieve efficiencies in areas where costs are involved and to achieve sales at competitive prices in the marketplace. Within this broad statement of purpose, we can identify specific benefits that accrue from holding inventories. 1. Avoiding Lost Sales: Without goods on hand, which are ready to be sold, most firms would lose business. Some customers are willing to wait particularly when an item must be made to order or is not widely available from competitors. In most cases, however, a firm must be prepared to deliver goods on demand. Shelf stock refers to items that are stored by the firm and sold with little or no modification to customers. An automobile is an item of shelf stock. Even though customers may specify minor variations, the basic item leaves a factory and is sold as a standard item. The same situation exists for many items of heavy machinery, consumer products, and light industrial goods. 2. Gaining Quantity Discounts: In return for making bulk purchases, many suppliers will reduce the price of supplies and component parts. The willingness to place large orders may allow the firm to achieve discounts on regular prices. These discounts will reduce the cost of goods sold and increase the profits earned on a sale. 3. Reducing Order Costs: Each time a firm places an order, it incurs certain expenses. Forms have to be completed, approvals have to be obtained, and goods that arrive must be accepted, inspected, and counted. Later, an invoice must be processed and payment made. Each of these costs will vary with the number of orders placed. By placing fewer orders, the firm will pay less to process each order.

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4. Achieving Efficient Production Runs: Each time a firm sets up workers and machines to produce an item, startup costs are incurred. These are then absorbed as production begins. The longer the run, the smaller the costs to begin producing the goods. 5. Reducing Risk Of Production Shortages: Manufacturing firms frequently produce goods with hundreds or even thousands of components. If any of these are missing, the entire production operation can be halted, with consequent heavy expenses. To avoid starting a production run and then discovering the shortage of a vital raw material or other component, the firm can maintain larger than needed inventories. These benefits arise because inventories provide a "buffer" between purchasing, producing, and marketing goods. Raw materials and other inventory items can be purchased at appropriate times and in proper amounts to take advantage of economic conditions and price incentives. The manufacturing process can occur in sufficiently long production runs and with pre-planned schedules to achieve efficiency and economies. The sales force can respond to customer needs and demands based on existing finished products. To allow each area to function effectively, inventory separates the three functional areas and facilitates the interaction among them.

ROLE OF INVENTORY IN WORKING CAPITAL Inventories are a component of the firm's working capital and, as such, represent a current asset. Some characteristics are important in the broad context of working capital management, including: 1. Current Asset: It is assumed that inventories will be converted to cash in the current accounting cycle, which is normally, one year. In some cases, this is not entirely true, for example, a vintner may require that the wine be aged in casks or bottles for many years. In spite of these and similar problems, we will view all inventories as being convertible into cash in a single year.

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2. Level of Liquidity: Inventories are viewed as a source of near-all cash. For most products, this description is accurate. At the same time, most firms hold some slow-moving items that may not be sold for a long time. With economic slowdowns or changes in the market for goods, the prospects for sale of entire product lines may be diminished. In these cases, the liquidity aspects of inventories become highly important to the manager of working capital. At a minimum, the analyst must recognize that inventories are the least liquid of current assets. For firms with highly uncertain operating environments, the analyst must discount the liquidity value of inventories significantly. OBJECTIVES OF INVENTORY MANAGEMEMNT: The main aim of inventory management should be to avoid excessive and inadequate levels of inventories and to maintain sufficient inventory for the smooth production and sales operations. The main objectives of inventory management are operational and financial efforts should be made to place an order at the right price and quality. The following are the objectives of inventory management: To maintain a large size of inventory for efficient and smooth production and sales operations. To ensure continuous supply of raw materials, spares and finished goods to facilitate uninterrupted production. To avoid both over stocking and under stocking of inventory. To maintain sufficient finished goods inventory for smooth sales operations and efficient customer service. To maintain a minimum investment in inventories to maximize profitability.
To minimize losses through determination, pilferage, wastages and damages.

To minimize the carrying cost and time. To maintain sufficient stock of raw materials in periods of short supply and anticipate price changes. To control investment in inventory and keep in an optimal level. TECHNIQUES OF INVENTORY MANAGEMMENT

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In managing inventories, the firms objectives should be in being consonance with the shareholder, wealth maximization principles. To achieve this principle the organization should maintain appropriate levels of inventory. Effective inventory management requires are effective control system for inventories. A proper inventory control not only helps in solving the acute problem of liquidity but also increase profits and causes substantial reduction in the working capital of the concern. The following are the important tools and techniques of inventory management and control. 1) 2) 3) 4) 5) 6) 7) 8) 9) Determination of Economic Order Quantity. ABC analysis Determination of Stock levels. VED analysis Determination of safety stocks Selecting a proper system of ordering for inventory. Inventory turnover ratios. Aging schedule of inventories. Classification and modifications of inventories.

10) Preparation of inventory reports. ECONOMIC ORDER QUANTITY The economic order quantity (EOQ) refers to the optimal order size that will result in the lowest total of order and carrying costs for an item of inventory given its expected usage, carrying costs and ordering cost. By calculating an economic order quantity, the firm attempts to determine the order size that will minimize the total inventory costs. Total inventory cost = Ordering cost + Carrying cost Total ordering costs = Number of orders x Cost per order =$U/QXF Where U = Annual usage Q = Quantity ordered F = Fixed cost per order Total carrying cost = Average level of inventory X Price Per Unit X Carrying Cost(%)

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Total carrying cost Where

=$Q/2xPxC = $ QPC over 2 Q = Quantity ordered P = Purchase price per unit C = Carrying cost as %

As the lead-time (i.e., time required for procurement of material) is assumed to be zero an order for replenishment is made when the inventory level reduces to zero. The level of inventory will be equal to the order quantity (Q units) to start with. It progressively declines (though in a discrete manner) to level O by the end of period 1. At that point an order for replenishment will be made for Q units. In view of zero lead-time, the inventory level jumps to Q and a similar procedure occurs in the subsequent periods. As a result of this the average level of inventory will remain at (Q/2) units, the simple average of the two end points Q and Zero. From the above discussion the average level of inventory is known to be (Q/2) units. From the previous discussion, we know that as order quantity (Q) increases the total ordering costs will decrease while the total carrying costs will increase. The economic order quantity, denoted by Q*, is that value at which the total cost of both ordering and carrying will be minimized. It should be noted that total costs associated with inventory T= $ UF / Q + $QPC / 2 Where the first expression of the equation represents the total ordering costs and the second expression the total carrying costs. The total cost curve reaches its minimum at the point of intersection between the ordering costs curve and the carrying costs line. The value of Q corresponding to it will be the economic order quantity Q*. We can calculate the EOQ formula. Behavior of costs associated with inventory for changes in order quantity. For order quantity Q to become EOQ the total ordering costs at Q should be equal to the total carrying costs.
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Using the notation, it amounts to stating: UF/Q + QPC / 2 (i.e.) 2UF = QPC or Q = 2UF / PC units To disguise EOQ from other order quantities, we can say: 2 UF* EOQ = Q* PC In the above formula, when `U' is considered as the annual usage of material, the value of Q* indicates the size of the order to be placed for the material, which minimizes the total inventory-related costs. When `U' is considered as the annual demand Q* denotes the size of production run. Suppose a firm expects a total demand for its product over the planning period to be 10,000 units, while the ordering cost per order is $100 and the carrying cost per unit is $2. Substituting these values, EOQ = 2 x10, 000 x100 = 1000 units. 2 Thus, if the firm orders in 1000-unit lot size, it will minimize its total inventory costs. THE ABC ANALYSIS In the case of a manufacturing company of reasonable size the number of items of inventory runs into hundreds, if not more. From the point of view of monitoring information for control it becomes extremely difficult to consider each one of these items. The ABC analysis comes in quite handy and enables the management to concentrate attention and keep a close watch on a relatively less number of items which account for a high percentage of the value of annual usage of all items of inventory. A firm using the ABC system segregates its inventory into three groups - A, B and C. The items are those in which it has the largest dollar investment. The A group consists of the 10 percent of the inventory items that account for 70 percent of the firm's dollar investment. These are the most costly or the slowest turning items of inventory. The B group consists of the items accounting for the next largest investment. The B group consists of the 20 percent of the items accounting for about 20 percent of the firm's dollar investment.

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The C group typically consists of a large number of items accounting for a small rupee investment. C group consists of approximately 70 percent of all the items of inventory but accounts for only about 10 percent of the firm's dollar investment. Such items as screws, nails, and washers would be in this group. Classifying the inventory into A, B, and C items allows the firm to determine the level and types of inventory control procedures needed. Control of the A items should be most intensive due to the high rupee investments involved, while the B and C items would be subject to correspondingly less sophisticated control procedures. DETERMINATION OF STOCK LEVELS Various levels of inventory are fixed to see that no excess inventory is carried and simultaneously there will not be any stock out. If the inventory levels are too little, the firm will face frequent stock outs involving heavy ordering costs and if the inventory levels is too high it will be unnecessary tie-up of capital. 1) Reorder Levels: Reorder level is the level of stock availability when a new order should be raised. The stores department will initiate the purchase material when the stock of material reaches at this point. This level fixed between the minimum and maximum stock levels and the following formula is used for this purpose: Reorder level = (maximum usage) (maximum lead time) 2) Minimum Stock Level Minimum stock level is the lower limit below which the stock of any stock item should not normally be allowed to fall. Their level is also called safety stock or buffer stock. The main object of establishing this level is to protect against stock out of a particular stock item and in fixation of which average rate of consumption and time required for replenishment i.e., lead time are given prime consideration. Min. stock level = reorder level (average or normal usage * average lead time)

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3) Maximum Stock Level Maximum level represents the upper limit beyond which the quantity of any item is not normally allowed to rise to ensure that unnecessary working capital is not blocked in stock items. Maximum stock level represents the total of safety stock level and EOQ. Maximum stock level can be expressed in the following Max. stock level = reorder level + EOQ (Minimum usage * minimum lead time) 4) Danger Level Danger level of stock is fixed below the minimum stock level and if stock reaches below this level. Urgent action for the replenishment of stock should be taken prevents stock out position. Danger level = Average consumption * lead time for emergency purchases 5) Average Stock Level Average stock level is calculated as such: Average stock level: (Minimum stock level + maximum stock level)/2 (Or) (Minimum stock level + * ROQ) VED ANALYSIS The VED analysis is used generally to spare parts. The requirements and urgently or spare parts is different from that material. The VED system is widely used classification technique to identify critically of various items for inventory control. This technique is based on the assumption that a firm needs not exercised same degree of control on all items of inventory. On the basis of critically, the various items of inventory are categorized into 3 categories. 1) Vital 2) Essential 3) Desirable Highly critical items like vital requires much closer attention by senior management compared to that or less critical items. The reorder level depends on the critically of the items.

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For vital items relatively more inventory is maintain compared to that of critically level E. These items are essential but not as much important as V items. DETERMINATION OF SAFETY STOCKS Safety stock is a buffer to meet some unanticipated increase in usage. The usage of inventory cannot be perfectly forecasted. If fluctuated over a period of time. The demand for materials may fluctuate and delivery of inventory may also be delayed and in such a situation the firm can face a problem of stock out. The stock-out can prove costly by affecting the smooth working of the concern. In order to protect against the stock out arising out of usage fluctuations, firms usually maintain some safety or safety stocks. The basic problem is to determine the level of quantity of safety stocks. Two costs are involved in the determination of this stock i.e., opportunity cost of stock-outs and the carrying costs. ORDERING SYSTENMS OF INVENTORY The basic problem of inventory is to decide the reorder point. This point indicates when an order should be placed. The reorder point is determined with the help of these things: a) Average consumption rate. b) Duration of lead time. c) EOQ when the inventory is depleted to lead time consumption the order should be placed. There are 3 prevalent systems or ordering and a concern can choose any one these: 1) Fixed order quantity system generally known as economic order quantity system. 2) Fixed period order system or periodic reordering system or periodic review system. 3) Single order and schedule part delivery system. INVENTORY TURNOVER RATIO An Inventory ratio indicates the efficiency of the firm in producing and selling its products. These ratios are calculated to indicate whether inventories have been use efficiently or not. The purpose is to ensure the blocking of only required of minimum funds in inventory. It is calculated by dividing the cost of goods sold by the average inventory. Inventory Turnover Ratio = Cost of goods sold / Average inventory
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(Or) Net sales / average inventory. Inventory holding period = Days in a year / Inventory turnover ratio. AGING SCHEDULE OF INVENTORIES Classification of inventories according to the period (age) of their holding also helps in identifying slow moving inventories there by helping in effective control and management of inventories. CLASSIFICATION AND CODIFICATION OF INVENTORIES The inventories of a manufacturing concern may consist of raw material; work in process, finished goods, spares, consumable stocks etc. All these categories may be classified either according to their nature or according to use. Generally, materials are classified according to their nature such as construction materials, consumable stocks, spares, lubricants etc. After classification, the materials are given code members. The coding may be done alphabetically or numerically. The latter method is generally used for coding. The class of materials is assigned to the category of materials in that class. The third distinction is needed for the quality of goods and decimals are used to note this factor. INVENTORY REPORTS From effective inventory control, the management should be kept informed with the latest stock position of different items. This is usually done by preparing periodical inventory reports. These reports should contain all information necessary for managerial action. On the basis of these reports management takes corrective action wherever necessary. inventories. JUST IN TIME INVENTORY MANAGEMENT The just-in-time inventory control system, originally developed by Taichi Okno of Japan, simply implies that the firm should maintain a minimal level of inventory and rely of suppliers to provide parts and components just-in-time to meet its assembly requirements. The major The more frequently these reports are prepared the less will be the chances of lapse in the administration of

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emphasis of just-in-time philosophy if inventory management. It begins by identifying the problems and forcing firms to tackle them. The main tactic used to reveal such problems in inventory reduction. The just-in-time inventory system, while conceptually very appealing is difficult to implement because it involves a significant change in the total production and management system. VALUATION OF INVETORIES According to accounting standard1-2 the valuation of inventories is given by the Institute of Chartered Accounts of India. Items such as expenses, revenues, or book debts can be recorded in the books of accounts with a fair degree of accuracy. However, an elements of subjectively is involved in the measurement of items such as depreciation or inventory value. Methods of valuing the inventory may vary between different business and even between undertaking within the same trade or industry. Taking all these significant aspect into account, this standard deal with: 1) The determination of value at which inventories are carried until related revenues or recognized. 2) Ascertainment of cost thereof. 3) The circumstances in which carrying amount of inventory is written don below cost.

REASONS FOR VALUATION OF INVENTORY 1) Individual items may not be of significant value but taken together, would constitute a significant portion of total assets. 2) Rapid turnover exception being rare or seasonal turnover. a) Susceptible to obsolescence and spoilage, slow or fast moving. b) Held at different places. c) Physical condition. d) It may involve varying degrees of estimation.

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e) Inventory is the second largest item after the fixed assets, in progress of raw material. f) It affects both the results of operations as well as the financial position as reflected in balanced sheet. INVENTORIES: 1) Inventories are assets: a) Held for the purpose of sale in the ordinary course of business. b) In the process of production for such sale. c) In the form of material or supplies to be consumed in production process or in rendering of services. 2) Inventory includes the following: a) Goods purchased and held for resale. b) Finished goods produced for sale. c) Work in progress generally. d) Materials, maintenance supply consumables and loose tools awaiting use in production process. 3) Measurement: The critical operative part of the study is that inventories should be valued at the lower of a) Cost b) Net reliable value Cost: The following elements that constitute cost of inventories should be kept in mind. Cost Includes 1) Cost of purchase, net of trade discounts, rebates, duty drawbacks, Convert credit available etc. 2) Cost of conversion. 3) Other costs incurred in bringing the in inventories to their present location and conditions. COST FORMULAE

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In as much as cost do not remain static and vary from time to time, several types of cost formulae can be used. In inventory valuation, therefore, the question that is with reference to the flow of production, which inventory has been sold and which continued to remain in inventory. In this backdrop, inventory valuation depends on cost flow assumption such as LIFO, FIFO base stock methods etc., but the standard favour only 3 methods are as follows: 1) Specific Identification method. 2) First in First out Method. 3) Weighted Average cost method. 1) Specific Identification Method: This method is also known as specific price method. This is also known as actual cost method because specific job bears the actual cost of material bought for the job. When using this method units in inventory are specifically identified and each unit cost is identified with a particular invoice. The advantage of this method is that cost changed to jobs is factual and not notional. Cost of items forming parts of inventory, that are not ordinarily interchangeable as also goods or services produced and segregated for specific projects, should be assigned by specific identification of their individual costs. This formula has to be applied whenever materials are purchased and set aside for specific job or work order.

2) First in First out Method: This method is based on the assumptions that the materials, which are purchased first, are issued first, Issues of materials are priced in the sequence of incoming order of purchases. The flow of cost of materials should also be in the same order. Issued are priced on the same basis until the first lot received i.e., exhausted, after which the price of the next lot received becomes the basis of cost for issues. This materials issued are

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priced at the cost pertaining to the earliest lot, and as a corollary the inventory in hand is valued a price representing recent purchases. The FIFO method is most successfully used when a) Size of raw materials is very large and cost is high. b) Materials are easily identified as belonging to a particular Purchase lot. c) Not more than two or three different receipts are on material card at one time.
d) Materials are subject to deterioration and obsolescence.

e) Price of materials does not fluctuate widely, so that clerical labour involvement is minimized. (3) Weighted Average Cost Method: This is calculated by dividing the total cost of material in stock by the total quantity of material in stock. Under this method costs are averaged after weighing by their quantities. The weighted average cost is determined, either at periodical intervals or each item when fresh materials arrived on purchase. The average cost at any time is thus balance valued figure divided by the balance unit figure. This method evens out the effect of widely varying prices of different lots of purchases, which makes up the stock. There will be no profit or no loss arising out of pricing issues.

ANALYSIS AND INTERPERTATION OF INVENTORY MANAGEMENT IN ANDHRA FERRO ALLOYS

Now-a-days inventory management is gaining importance in every organization. A firms inventory management reveals its strength against their smooth flow of production. In any inventory management plays a vital role, by this a firm can achieve its goals. The

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organization should maintain optimum and sufficient level of inventory management. The importance of inventory management can be viewed from the following facts. 1) There is continuous supply of material spares and finished goods so that production should not suffer at any time and customer are demand should also be met. 2) To remove the both over stocking and under stocking. 3) Maintain investment in inventory at optimum level of as required by the operational sales activities. 4) Eliminate duplication in ordering or replenishing stocks. 5) Minimize lose and get profit maximization Ferro alloys under inventory management: AFAL is multi product, integrated high carbon with capacity of 50500 tones for annum. This makes AFAL, handle and process of huge quantity of material. Also AFAL being a process inventory running 365 days throughout the year 24 hrs. a day it makes costly to afford stopping on the account of non availability stock of materials this calls from efficient inventory management the part of AFAL holds five types of inventory, they are stores and spares and loses tools, working in progress finished goods and raw materials. The stores department can carry out the procurement, storage and control of these inventories. Raw materials: The raw materials are produced and stored by the raw material dept. the raw materials are holding by placing a purchases order is seven days the lead time of AFAL in four days. Stores and spares: The stores and spares are produced stock and stored by stores dept. which is part of purchase dept. Finished goods: The finished goods comprise bloom and bullets and finished goods are the various products mentioned in product mix of AFAL. The finished goods are stocked and controlled by stores dept. INVENTORY STATUS: The Inventory Status gives us the details about the stock levels in the organization which shows the closing and opening of the goods in the organization. The inventory Management shows all type of inventory levels of the organization year by year. This

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gives all the details about the organization structure whether the organization is running in a smooth way or not. This is very helpful to the organization to run the business. This shows a lot of future stock where the stock can be maximized or minimized. TABLE--4.1 YEARS Raw material, Stores % Spares Stock of semi finished goods Finished goods Total 2005-06 11179338 3033296 250000 500700 14963334 2006-07 92128957 6842376 250000 505070 99726403 2007-08 70622241 5311087 250000 808730 76992058 2008-09 63438251 8626221 250000 122191700 194506172 2009-10 108023445 8458279 250000 4707450 121439174

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INVENT ORYS A T TUS

25000000

20000000

15000000

raw m aterial

stores& spare

semi finished g 10000000

finished goods

Total inventory

50000000

0 INTERPRETATION: 2005-06 2006-07 2007-08 2008-09 2009-10 As per the above table, it is clear that the inventory levels of ANDHRA FERRO ALLOYS LTD

showed a fluctuating trend. The spare parts level more or less remained constant. The raw materials are increased from2005-06 to 2008-09. In 2009-10 there is a shortage in the raw materials. The stocks of semi finished goods are also fluctuating. The finished goods also increased continuously from the 2005-06 to 2009-10 To compare the inventory status of the company they shows that the company had increasing their inventory

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RAW MATERIAL TURNOVER RATIO: The ratio includes the efficiency of the firms raw material consumed. It is calculated by material consumed. It is calculated by material consumed divided by average material inventory. Raw material inventory turnover ratio = average inventory/material consumed TABLE--4.2 Year Raw materials in Lacs 111.79 921.28 706.22 634.38 108.02 Rs. Materials consumed Rs. in Lacs 2365.53 4439.77 7566.41 7752.22 5596.31 RMITOR

2005-06 2006-07 2007-08 2008-09 2009-10

0.04 0.20 0.09 0.08 0.01

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RAWMA TERIALTURNOVERRA TIO

RAW MATERIAL TURNOVER RATIO

0.2

0.09

0.08

0.04 0.01

2005-06

2006-07

2007-08

2008-09

2009-10

INTERPRETATION: The above table 4.2 reveals the raw material turnover ratio. In the year 2006-07 the raw material turnover ratio is increased by 0.16 to the previous year 2005-06 and in the year 2007-08 there was a decrease of 0. 11. In the year2008-09 there was a decrease of 0.01 from the previous year 2007-08. In year i.e. 2009-10 there was a further decrease of 0.07 from the previous year 2008-09 overall the raw material turnover ratio in ANDHRA FERRO ALLOYS LTD is fluctuated.

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INVENTORY TURNOVER RATIO: Inventory Turnover Ratio is calculated on the basis of the cost of goods sold and the average inventory of the industry or firm. The Inventory Turnover Ratio is calculated for the stock done in the year where the cost of goods sold is less or more compared to the average inventory done in the opening stock and closing stock. This shows the Inventory turnover ratio to be a utmost priority.

Inventory Turnover Ratio = Cost of Goods Sold/ Average Inventory TABLE-4.3 YEAR 2005-06 2006-07 2007-08 2008-09 2009-10 COST OF GOODS SOLD Rs. in Lacs 6115.28 8468.48 12546.83 10946.20 1799.93 INVENTORY Rs. in Lacs 149.63 997.26 769.72 1945.06 1214.39 RATIO 40.86 8.49 16.30 5.62 14.65

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RA TIO
RATIO 40.86

16.3

14.65

8.49 5.62

.
2005-06 INTERPRETATION: 2006-07 2007-08 2008-09 2009-10

The above table 4.3 indicates the inventory turnover ratio of ANDHRA FERRO ALLOYS LTD. Higher the ratio, greater the efficiency of inventory management. From the above table it is clear that in 2006-07 the ratio is decreased by 31.87 as the inventory is moving fastly and generating sales. Whereas the year 2007-08 the ratio is increased by 7.81 as in the inventory. Where as in the year 2008-09 the ratio is decreased in the inventory from 2007-08 and in the year 2008-09 2009-010 it has decreased by 9.03, however the overall inventory turnover ratio in ANDHRA FERRO ALLOYS LTD is fluctuating.

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INVENTORY TO NET WORKING CAPITAL: The Inventory to Net Working Capital is calculated to know the profit and loss of the organization about the stock of the product which can be calculated year by year. This shows the exact value of the inventory to working capital by calculating average inventory by net working capital. Inventory to Net Working Capital = Average Inventory/Net Working Capital TABLE-4.4 YEAR INVENTORY Rs. in Lacs CURRENT ASSETS Rs. in Lacs 2005-06 2006-07 2007-08 2008-09 2009-10 149.63 997.26 769.72 1945.06 1214.39 1546.65 8594.27 1122.09 1424.78 2383.46 CURRENT LIABILITIES Rs. in Lacs 384.75 1248.97 1624.40 1644.06 1962.44 NET WORKING CAPITA 1161.90 -389.54 -502.31 -219.28 421.02 0.128 -2.56 -1.53 -8.78 2.88 RATIO

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RA TIO
RATIO 2.88

0.128 2005-06 2006-07 2007-08 -1.53 -2.56 2008-09 2009-10

INTERPRETATION:

-8.78 The above table 4.4 indicates the inventory to net working capital ratio of ANDHRA FERRO

ALLOYS LTD. The ratio which is in the years 2006-07 to 2008-09 are in negative status later it may be increased in the current years .How ever there is a weak trend in the ratio level of ANDHRA FERRO ALLOYS LTD .

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SUNDRY DEBTORS AND TURNOVERRATIO: It is the ratio of cost of goods sold

average debtors. A low ratio reflects liberal credit terms granted by borrower and high ratio indicates that accounts are to be settled rapidly. It is an important tool of analysis because a firm can reduce its requirements of current liabilities by relying on its borrowers credit. The extent to which trade debtors are willing to wait for receipt can be approximated by this ratio.

SUNDRY DEBTORS AND TURNOVERRATIO = Debtors/sales TABLE--4.5 YEAR 2005-06 2006-07 2007-08 2008-09 2009-10 SUNDRY DEBTORS 590.90 553.64 567.39 776.48 729.53 SALE 3621.23 4216.51 3987.28 4134.44 3775.16 SDTR 0.16 0.13 0.14 0.18 0.19

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S TR D
SDTR 0.19 0.18 0.16 0.14 0.13

INTERPRETATION: This ratio shows the number of times the debtor are turn over 2005-06 2006-07 2008-09 during a year, At AFAL in the year 2009-10, the 2007-08 high which indicates that the 2009-10 ratio is
management of debtors are more liquid as compared to previous years.

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INVENTORY HOLDING PERIOD: This Ratio is calculated to find out the minimum period that required making order to repurchase of inventory once you made. This ratio also is useful to know the reorder level of the inventory. Inventory Holding Period = 365/ Inventory Turnover ratio Inventory Holding Period = 365 * Average Inventory /Annual Cost of Goods Sold TABLE4.6 YEAR 2005-06 2006-07 2007-08 2008-09 2009-10 INVENTORY TURNOVER RATIO 40.86 8.49 16.30 5.62 14.65 INVENTORY HOLDING PERIOD 8.93 42.99 22.39 66.12 24.91

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INVENT ORYH D OL ING PERIOD

INVENTORY HOLDING PERIOD 66.12

42.99

24.91 22.39

8.93

INTERPRETATION: The above table 4.6 indicates the inventory holding period of AFAL Ltd. From the above table it is 2005-06 that in 2005-06 the inventory holding period is increased by 34 days as 2009-10 evident 2006-07 2007-08 2008-09 inventory became idle for some days. Whereas during the period of 2006-07, to 2009-10 the inventory holding period is decreased by 21in 2007-08.and increased 44 days respectively in 2008-09. And again starts decreasing in the next years. So by overall comparison the inventory holding period is fluctuating in AFAL

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RATIO OF OPENING AND CLOSING RAW MATERIAL TO THE TOTAL RAW MATERIAL: RATIO OF OPENING RAW MATERIAL= RATIO OF CLOSING RAW MATERIAL= OPENING RAW MATERIAL TOTAL RAW MATERIAL CLOSING RAW MATERIAL TOTAL RAW MATERIAL

These ratios are calculated to find out how much percentage that opening material and closing material constituted in the cost of total raw material over the years.

TABLE-4.7 YEARS OPENING Rs. in Lacs CLOSING Rs. in Lacs TOTAL Rs. in Lacs OPENING RATIO CLOSING RATIO

2005-06 2006-07 2007-08 2008-09 2009-10

114.02 111.79 921.28 706.22 634.38

111.79 921.28 706.22 634.38 108.02

225.81 1033.07 1627.5 1340.6 742.4

0.50 0.10 0.56 0.52 0.85

0.49 0.89 0.43 0.47 0.14

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ChartTitle
OPENING RATIO CLOSING RATIO

0.89

0.85

0.56 0.5 0.49 0.50

0.52 0.47

0.1

0.14

INTERPRETATION: The above table 4.7 reveals the opening and closing raw materials in lakhs and in the ratio. 2005-06 2006-07 2007-08 2008-09 2009-10 In the year 2005-06 the ratio values of opening and closing are said to be 0.48 and 0.51 respectively. For the next year 2006-07 there was a decrease in opening by 0.4 and increase by 0.79 to compare the 2005-06. And the next year 2007-08 there was a increase in the ratio of opening by 0.46 and decrease in the closing by 0.39 and in the next year2008-09 the ratio values of opening and closing are said to be 0.52 and 0.47 respectively. And the next year 2009-10 there was an increase in ratio of opening by 0.85 and decrease in closing by 0.14 to compare previous year the ratio of opening is increases 0.33 and the closing of ratio is also decreases 0.33 Over all the organization must have an increase in the raw materials and the raw materials of ANDHRA FERRO ALLOYS LTD are said to be fluctuating

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RATIO OF OPENING AND CLOSING INVENTORY TO THE TOTAL INVENTORY: These ratios are calculated to find out the total share of opening and closing inventory total inventory of the organization over the years. RATIO OF OPENING INVENTORY = RATIO OF CLOSING INVENTORY = OPENING INVENTORY TOTAL INVENTORY CLOSING INVENTORY TOTAL INVENTORY

TABLE-4.8 YEARS OPENING Rs. in Lacs CLOSING Rs. in Lacs TOTAL Rs. in Lacs OPENING RATIO CLOSING RATIO

2005-06 2006-07 2007-08 2008-09 2009-10

152.62 149.63 997.26 769.92 1945.06

149.63 997.26 769.92 1945.06 1214.39

302.25 1146.89 1767.18 2714.98 3159.45

0.50 0.13 0.56 0.28 0.61

0.49 0.86 0.43 0.71 0.38

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OPENING RATIO

CLOSING RATIO

0.86

0.71 0.61 0.56 0.5 0.49 0.50 0.38 0.28

0.13

INTERPRETATION:
2005-06 2006-07 2008-09 The above table 4.8 reveals the opening and closing raw 2007-08 in lakhs and in the ratio. materials 2009-10

In the year 2005-06 the ratio values of opening and closing are said to be 0.50 and 0.49 respectively. 2006-07 In that year the ratio of opening and closing are 0.13 and 0.86 to compare previous years the ratio of opening is decreased by 0.37 and the ratio of closing is increased by 0.37 Therefore the company is maintaining a balance between the opening and closing inventory to the total inventory.

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RATIO OF OPENING AND CLOSING WORK IN PROGRESS TO THE TOTAL WORK IN PROGRESS: These ratios are calculated to find out the total share of opening and

closing work in progress to total work in progress of the organization over the years. RATIO OF OPENING WORK IN PROGRESS = RATIO OF CLOSING WORK IN PROGRESS = Opening Work In Progress Total Work In Progress Closing Work In Progress Total Work In Progress

TABLE-4.9 YEARS OPENING Rs. CLOSING Rs. TOTAL in Lacs in Lacs Rs. in Lacs OPENING RATIO CLOSING RATIO

2005-06 2006-07 2007-08 2008-09 2009-10

2.5 2.5 2.5 2.5 2.5

2.5 2.5 2.5 2.5 2.5

5 5 5 5 5

0.5 0.5 0.5 0.5 0.5

0.5 0.5 0.5 0.5 0.5

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ChartTitle
OPENING RATIO CLOSING RATIO

0.5

0.5

0.5

0.5

0.5

0.50

0.5

0.5

0.5

0.5

2005-06 INTERPRETATION:

2006-07

2007-08

2008-09

2009-10

In the above table, the total opening and closing work in progress are exactly equal year by year where the opening and closing are same in the work done in the organization.

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WORK IN PROGRESS TURNOVER RATIO: FORMULAE:

TABLE-4.10 YEARS COST OF PRODUCTION Rs. in Lacs 2223.13 2451.56 2538.73 2704.09 2433.25 AVERAGE WORK IN PROGRESS Rs. in Lacs 28.63 29.82 30.74 32.36 42.63 WIP TURNOVER RATIO (In Times) 77.65 82.21 82.58 83.56 57.07

2005-06 2006-07 2007-08 2008-09 2009-10

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WORKIN PROG STURNOVERRA RES TIO

WORKIN PROGRESS TURNOVER RATIO 82.21 77.65 82.58 83.56

57.07

INTERPRETATION 2005-06

2006-07

2007-08

2008-09

2009-10

In the above table, The Work In Progress Turnover Ratio is high when compared to other year except 2008-2009. The Work In Progress Increases as year by year and declines in the year 2007-2008. The Work in Progress is less in the year 2009-2010 at 57.07 Where the Work of the going decreasing day by day

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SUMMARY M/S AFAL is continuously growing company producing diversified products. Its diversification of products and services ensure optimal return on investment. It is using highly sophisticated technology. The AFAL industry has a bright future as the demand for it is growing day by day. Its production capacities and productivity is increasing year by year by using quality raw material and efficient production techniques ordering quantity is optimum when there is a tradeoff between ordering cost and carrying cost. If the company follows carrying cost, ordering cost and stock out costs will reduce total raw material cost and suspension of production process will not occur in the plant. The inventory turnover ratio is good and it should be high. To be precise even though the company is in good stage it has to improve year by year and if it continuous with the same trend of performance it can hold the top position in the State.

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FINDINGS
During the year 2005-06, the firms inventory turnover ratio is low (i.e., 6.72 times). A

low inventory turnover ratio indicates an inefficient management of inventory. But during 2006-07 and 2007-08 the inventory turnover ratio is increased.

The AFAL has maintaining the material like bolts, machine spare parts etc in general

stores for long time, it causes the wastage of funds.

There is a rapid decrease in Inventory Turnover Ratio in 2007-08 as compared to the year

2005-06, as well as decrease in 2008-2009 when compared to 2007-2008.

The company has not maintained the conventional liquid assets. The companys work in progress is lower than the conventional rule in all years of the study period. New method of finding the levels of inventory. Sometimes the material is issued and it is not entered in the books. More number of trips due to low carrying capacity carriers.

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SUGGESTIONS
1. M/S AFAL is required to fix minimum, maximum, reordering level in a scientific manner

to control the further growth of slow moving or non moving inventories.

2. The necessary steps are to be taken for using the inventory in a quick manner, so that M/S

AFAL can save its carrying and ordering cost in maximized manner.
3. The appropriate action plan for disposal of inventory in M/S AFAL may be taken for

making the provisions in the books of accounts on systematic manner for write off slow and non moving inventories in the future.
4. The difference between priced stores ledger and bin master /cards, bin stock and physical

stock are to be resolved at the earliest to show the correct position of inventories in M/S AFAL books fall books of accounts which also reduces the inventory figures in the books of accounts. 5. Adequate supervision and administration is to be exercised for better inventory control. 6. Material coding system and items verification procedure may be improved in stores departments.
7. There were fluctuations in the gross profit. So necessary actions must take to reduce

express in order to get profit.

8. Screen based computerization for accounting of stores and spares are not achieved in

many areas, Suitable packages may be used for accounting of stores and spares in M/S AFAL.
9. The turnover of inventory may be improved in order to reduce inventory maintenance

expenditure and working capital investments over inventory levels. 10. The cost of carrying capacity is more so they have to purchase high carrying capacity to get decrease of expenses.

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CONCLUSION In spite of all financial sources M/S AFAL is not in a position to maintain adequate working capital due to fall in high carbon Ferro chrome price in the todays market and also low demand for its products. It is conclude that by analyzing various techniques of Inventory management followed by M/S AFAL, the financial performance may be improved through the specific strategies for turnaround particularly through the proper Inventory management and control because Inventory plays crucial role in any organization profitability contractor for fixation etc for producing the materials. This saves a lot of investment in the Inventory of stores and spares and avoids further stock out situations. The study of INVENTORY MANAGEMENT behavior occupies an important place in financial management. It has never received so much attention as in recent years. Inventory management is concerned with short-term financial discussion and in order to determine the credit and other requirements, bankers, financial institutions government agencies and tax authoritys effective Inventory Management is required. The size of Inventory required by a firm has a much closed linkage with its capacity utilization. The capacity of business enterprises to earn profits depends largely on its ability to manage efficiently its Inventory. In a period of rising capital costs and scare funds. The Inventory is one of the more important areas requiring management review. The transmutation of a company Inventory into income and profits and back into Inventory is one of the most vital aspects of business operations. And a proper relationship must be maintained between the Inventory and fixed capital of an enterprise if operations are to run smoothly. We will hardly find a business firm, which does not require an amount of Inventory.

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BIBLIOGRAPHY Books: Financial management Financial management Production& Operation Management Production& operation Management AFALS LIMITED: JOURNALS ANNUAL REPORTS REPORTS FROM INVENTORY & STORES DEPARTMENT OF FAL WEB SITE: www.AFALsteel.com www.AFALgroup.com : : : : M.Y.KHAN&P.K.JAIN I.M.PANDEY B.S.GOEL KANISHKA BEDI

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