1.

1 INTRODUCTON OF THE STUDY

Inventory can be referred to as sum of the value of raw materials fuels and lubricants, spare parts, maintenance consumables, semi processed materials and finished goods, stock at any given point of time.

In large companies inventory place a most significant part of the current assets. The business has about 15 to 30% of inventories in total assets.

Inventory is composed of assets that will be sold in feature in the normal course of business operations. The assets which firms stores as inventory is anticipation of need are raw materials, work in progress and finished goods.

MEANING OF INVENTORY MANAGEMENT

Inventory management consists of maintaining for a given financial investment an adequate of something in order to meet and accepted pattern of demand. Inventory considers control over costs of inventory on one hand an handle the size of inventory on other hand.

Controlling investments in inventories constitute crucial part in current assets.

An efficient inventory controlling system will decide,

What to purchase When to purchase How to purchase Size of purchase

And from where to purchase (Suppliers)

The main purpose of inventory management is to ensure

1. 2. 3.

Required quantity of availability of raw materials Minimize the investments in inventories Maintain reasonable stock levels not excess or not under stocks.

INVENTORY CONTORL
Inventory control is the system devised an adopted for controlling investments in inventory. It involves inventory planning and decision making with regard to the quantity and time of purchase, fixation of stock levels, maintenance of stock records and continuous stock taking.

1.2 OBJECTIVE OF THE STUDY

The main objective of the project work is to study and analyze and preparation INVENTORY MANAGEMENT in ZUARI Cement.,

Secondary objectives are:

1. 2. 3. 4. 5. 6. 7. Purchasing procedure of the inventories. Classification of inventories. Codification of inventories. Analyze the records of stock levels. Analyze the JIT system of ZUARI Cement. Analyze the two bin system. Analyze the inventory turnover ratio.

1.3 NEED OF THE STUDY:

In this competitive business world each and every business organization need inventory management system for determining what to order, when to order, where and how much to order so that purchasing and storing costs are the lowest possible without affecting production and sales. Thus, inventory

management control incorporates the determination of the optimum size of the inventory-how much to be order and when after taking into consideration the minimum inventory cost.

The overall inventory management includes design and inventory control organization with proper accountability establishing procedure for inventory handling disposal of scrap, simplification, standardization and codification of inventories, determining the size of inventory holdings, maintaining record points and safety stocks, economic order quantity, ABC analysis and VALUE analysis and finally framing an INVENTORY MANUAL.

1.4 RESEARCH METHODOLOGY

To attain the objective of studying the inventory of ZUARI Cement Industries Ltd. The information has been collected in two ways:

1. Primary data 2. Secondary data

Primary Data:
In Primary data the analysis of purchasing procedure, inventory data, inventory turnover ratio, stock levels, ABC analysis, Twobin system, JIT has made possible by the discussions with various administrative executives and other concerned people of ZUARI Cement industries Ltd.

Secondary Data:
The Secondary data has been collected from annual reports of organization, internet (www. birlagroup.com) and books.

Methodology:
For analysis purpose I am used following techniques 1. ABC Analysis, 2. Ratio Analysis 3. EOQ Method etc

Companys competitors are Orient Cement, L&T, Ultratech, and ACC Cement

1.5 Limitations of the study:

1 2 The study period of 45 days as prescribed by university The study is limited unto the date and information provided by ZUARI Cement Industries Ltd and its annual reports 3 The report will not provide exact Budgetary System status and position in ZUARI Cement Industries Ltd; it may vary from time to time and situation to situation. 4 This report is not helpful in investing in ZUARI Cement either through disinvestments or capital market. 5 The accounting procedure and other accounting principles are limited by the company changes in them may vary the actual and budget performance.

2.1

INDUSTRY PROFILE:

INTRODUCTION OF CEMENT:
The basic need of human being is food clothing and shelter love and affection /possession is on never ending process for a human being.

As the time passes on human beings their wants and wishes also changed from ancient times to modern times and among them the living pattern and costruction works also have been changed from temporary construction of house to permanent construction and the basic material used in construction is Cement. Cement the word derived from a Latin word CEMENTTUM means stone chipping such as we used in roman.

Cement the word as per oxford, it is commonly used is any substance applied for soft stocking things. But cement means is most vital and important material for modern constructions. It is a material which sets and hardness when mixed with water. Cement is basically used in construction as a building agent. In ancient times clay bricks and stones have been used for construction works. The Romans were using a binding or a cementing material that would harden and water. The first systematic effort was made by SMEATON who undertook the execution of a new light house in 1756. He observed that production obtained by during lime stone was the best cementing material for work under water. The construction in lost centuries was with Lime that was the main equipment used for construction work. The ancient constructions like Tajmahal, Qutubminar, Mysore Palace, Red fort, Charminar etc., the evidence of lime construction. 5

THE INDIAN CEMENT INDUSTRY:

By staring priduction in 1914 the story of India cement industry is a stage of continuous of growth. India is the fourth largest cement producer after China, Japan and U.S.A. so far annual production and demand has been growing a pace at roughly 68 million tons with an installed capacity of 82 millions tons.

In 1914 as the foundation of stable cement Industry was laid as sun above. It was Indian Cement Company at Porbandar in Gujarat. In 1920, the cement marketing corporation was formed to promote the sale and distribution of cement. A significant development was made in 1930 when all manufacturers mergers together to form the Associated Cement Company Limited. Cement Industry is the major Industry it has taken rapid strides for a modest beginning at porbandar in 1914 to the 1980s with over understanding out of the 60 units, 14 units are in the public sectors remaining units are in private sector. Indian endowed with cement grade lime stones (90 Billion tons ) and coal (190 Billion tons ). The basic raw material required for cement manufacture and self sufficient in manufacturing cement making machineries. During nineties it had a particular impressive expansion with a growth rate of 10%.

The strength and vitality of cement Industry can be gouged by the interest shown and support given by World Bank, considering the excellent performance of the industry in utilizing loans and achieving the objectives and targets. The World Bank is examining the feasibility of providing a third line of credit for further upgrading Industry in varying areas, which will make it global.

Therefore, India today totally installed capacity of over 30 million tons, 6

employing over a 100 thousand people directly and contributing amount of rupees 8 billion to Indias GDP.

TECHNOLOGY:
Cement may be manufactured employing three alternative technologies. 1. 2. The largely out molded well process technology. The more modern dry process that requires only 19% coal utilization. 3. The latest percallinator technology through which optimum utilization may be achieved. Here the calcinatory or raw.

Material is partly or completed carried out before the feud enters the rotator kin besides saving power, the adoption of this technology enable in increase in installed capacity by 30-35%, the 30,000 tons per day plants being setup in the country use this technology.

TECHNOLOGICAL CHANGES:
Continuous technological upgrading and assimilation of latest technology has been going on in the cement industry. Presently 93% of the total capacity in the industry is based on modern and environment friendly dry process technology and only 7% of the capacity is based on old wet and semi-dry process technology.

There is tremendous scope for waste heat recovery in cement plants and there by reduction in emission level. One project for co-generation of power utilizing waste heat in an Insian cement plant is being implemented with Japanese assistance under Green Aid Plan. The induction of advanced technology has helped the industry immensely to conserve energy and fuel and 7

to save materials substantially.

India is also producing different varieties of cement like Ordinary Portland Cement (OPC), Portland Puzzling Cement (PPC), Portland Blast Furnace Slag Cement (PBFS), Oil Well Cement, Rapid Hardening Portland Cement, Sulphate Resisting Portland Cement, White Cement etc. production of these varieties of cement conform to the BIS Specifications. Also, some cement plants have set up dedicated jetties for promoting bulk transportation and export.

TOTAL PRODUCTION:
The cement industry comprises of 125 large cement plants with an installed capacity of 148.28 million tons and more than 300 mini cement plants with an estimated capacity of 11.10 million tons per annum. The Cement Corporation of India, which is a Central Public Sector Undertaking, has 10 units. There are 10 large cement plants owned by various state Governments. The total installed capacity in the country as a whole is 159.38 million tons.

Actual cement production in 2002-03 was 116.35 million tons as against a production of 106.90 million tons in 2001-02, registering a growth rate of 8.84%. Major players in cement production are Ambuja cement, Aditya cement, J K Cement and L & T cement.

Apart from meeting the entire domestic demand, the industry is also exporting cement and clinker. The export of cement during 2001-02 and 2003-04 was 5.14 million tons and 6.92 million tons respectively. Export during AprilMay, 2003 was 1.35 million tons. Major exporters were Gujarat Ambuja Cements Ltd. and L & T Ltd.

The planning commission for the formulation of X Five Year Plan 8

constituted a Working Group on Cement Industry for the development of cement industry. The Working Group has identified following thrust areas for improving demand for cement;

1. 2. 3.

Further push to housing developments programs; Promotion of concrete Highways and roads, and Use of ready-mix concrete in large infrastructure projects.

Cement industry has been decontrolled from price and distribution on 1st march 1989 and de-licensed on 25th July 1991. However, the performance of the industry and prices of cement are monitored regularly. Being a key infrastructure industry, the constraints faced by the Actual cement production in 2002-03 was 116.35 million tons as against a production of 106.90 million tons in 2001-02, registering a growth rate of 8.84%. Major players in cement production are Ambuja cement, Aditya cement, J K Cement and L & T cement. Apart from meeting the entire domestic demand, the industry is also exporting cement and clinker. The export of cement during 2001-02 and 2003-04 was 5.14 million tons and 6.92 million tons respectively. Export during AprilMay, 2003 was 1.35 million tons. Major exporters were Gujarat Ambuja Cements Ltd. and L & T Ltd.

The planning commission for the formulation of X Five Year Plan constituted a Working Group on Cement Industry for the development of cement industry. The Working Group has identified following thrust areas for improving demand for cement; 4. 5. 6. Further push to housing developments programs; Promotion of concrete Highways and roads, and Use of ready-mix concrete in large infrastructure projects. 9

Cement industry has been decontrolled from price and distribution on 1st march 1989 and de-licensed on 25th July 1991. However, the performance of the industry and prices of cement are monitored regularly. Being a key infrastructure industry, the constraints faced by the industry are reviewed in the Infrastructure Coordination Committee meetings held in the Cabinet Secretariat under the Chairmanship of Secretary (Coordination). The 444 Committee on Infrastructure also reviews its performance.

DISTRIBUTION SYSTEM:
Distribution of cement was entirely under Government control until 1982. at present the Industry has to make an agreement towards the levy quota which is to be sold compulsorily to the Government the rest of the output or open market quota may be sold in the open market evolved prices the output lifted by the Government is allocated state wise.

10

2.2 COMPANY PROFILE:

Italcementi Group History Founded in 1864, Italcementi was quoted for the first time on the stock markets, at the Milan Stock Exchange, in 1925, under the name of Societ Bergamasca per la Fabbricazione del Cemento e della Calce Idraulica and has been operating since 1927 under the name of Italcementi Spa. Zuari Cement is part of the Italcementi Group, the fifth largest cement producer in the world and the biggest in the Mediterranean region. With net sales over 6 billion Euros in 2009 and a capacity of 70 million tonnes. Italcementi Group combines the expertise, know-how and culture of a number of companies from more than 22 countries in 4 continents. This includes an industrial network of 63 cement plants, 15 grinding centres, 5 terminals, 134 aggregates quarries and 613 concrete batching units. In India, with its inherent strengths, Italcementi Group's Zuari Cement is committed to give the building industry a cement that is truly international. A commitment to customer satisfaction has seen Zuari Cement grow from a modest 0.5 million tonne capacity in 1995 to 3.5 million tonne today. Zuari Cement is in the process of increasing this capacity to 6 million tonne by 2009 through setting up of a new 5500 tonne per day clinker line at Yerraguntla and a grinding center at Chennai. A captive power plant with a capacity of 43 MW has already been set up at the Company's cement manufacturing facility at Sitapuram.

11

With a 6% market share in the south Indian cement market and sales of about Euro 188 million in 2009, Zuari Cement has chalked out ambitious plans for the future. This includes strengthening its presence in the Maharashtra, Orissa and West Bengal markets. While technology is just one of its strengths, there are many other factors that contribute equally to Zuari's success. These include a high-level organisation and decentralised quality assurance teams to guarantee the full compliance with the customers' expectations. Our History Strong foundations for a company of strength. Zuari entered the Cement business in 1994 to operate the Texmaco Cement Plant. In 1995, Texmacos Plant at Yerraguntla was taken over by Zuari and a Cement Division was formed. The fledging unit came into its own in the year 2001 when Zuari Industries entered into a Joint Venture with the Italcementi Group, the 5th largest producer of Cement in the world , Zuari Cement Limited was born. Zuari Cement took over Sri Vishnu Cement Limited in 2002. Today, the Company is amongst the topmost cement produces in South India.

Zuari and Italcementi. The strength of two :

Zuari Cement is one of the leading cement producers in South India.A fully owned subsidiary of the Euro 6 billion Italcementi Group, Commitment to customer satisfaction has seen Zuari Cement grow from a modest 0.5 million tonne capacity in 1995 to 3.5 million tones today.And earned a place among the most reliable cement producers in the country. Thanks to a careful plan of investments and take-overs of other cement producers, the company expanded, quickly reaching a strong position on the market and becoming the leading cement manufacturer in Italy. 12

After several acquisitions abroad, in 1992 Italcementi achieved important international status with its take-over of Ciments Franais, one of the main global cement producer. In 1997 Italcementi consolidated its verticalisation strategy with the acquisition of Calcestruzzi, thus becoming Italian leader in the ready-mixed concrete sector. In March 1997, all the international companies of the Group gathered under one single corporate identity.

Since 1998 Italcementi Group has been pursuing its internationalisation strategy by acquiring new cement works in Bulgaria, Kazakhstan, Thailand, Morocco, India, Egypt and the United States. Our Management: While professional management and quality workforce ensure superior results, the role played by the core management should not be discounted. With their vision and experience, they make sure that Zuari Cement moves in the right direction. Towards becoming one among the leading cement producers in India. Maurizio Caneppele Managing Director Ramesh Surya Narayana Director Technical Emiliyan Andreev Chief Financial Officer S.SURESH Vice President HR & IR 13

Appotiment of Director Zuari Industries Ltd has informed BSE that the Board of Directors at its meeting held on January 21, 2011 have appointed Mr. Suresh Krishnan, as Additional Director of the Company. With an annual production capacity of approximately 70 million tons of cement, Italcementi Group is the worlds fifth largest cement producer.

The Parent Company, Italcementi S.p.A., is one of Italys 10 largest industrial companies and is included in S&P/MIB Index of the Italian Stock Exchange. Italcementi Groups companies combine the expertise, know how and cultures of 22 countries in 4 Continents boasting an industrial network of 63 cement plants, 13 grinding centres, 5 terminals, 125 aggregates quarries and 614 concrete batching units.

In 2009 the Group had sales amounting to almost 6 billion Euro. Italcementi, founded in 1864, achieved important international status with the take-over of Ciments Franais in 1992. Following a period of re-organization and integration that culminates in the adoption of a single corporate identity for all Group subsidiaries, the newly-born Italcementi Group began to diversify geographically through a series of acquisitions in emerging countries such as Bulgaria, Morocco, Kazakhstan, Thailand and India, as well as operating in North America. As part of the plan to further enhance its presence in the Mediterranean area, in 2005 the Group boosted its investments in Egypt becoming the market leader.

In 2007 Italcementi acquired full control of the activities in India and signed an agreement to strengthen its position in Kazakhstan while, in 2008, it further 14

strengthened its presence in Asia and the Middle East through the operations in China, Kuwait, Saudi Arabia. In 2009 the Group signed a joint venture in Libya to build a 4 million tons/year cement plant. As a member of the World Business Council for Sustainable Development (WBCSD) Italcementi Group has signed the Cement Sustainability Initiatives Agenda for Action, the first formal commitment that binds a number of world cement industry leaders to an action plan that aims at satisfying present-day needs at the same time as safeguarding the requirements of future generations.

To further confirm its commitment on these issues, the Group has taken over the co-Chairmanship of the Cement Sustainability Initiative for the period 2007-2008.

Our Products Cement for every kind of task Zuari Cement manufactures and distributes its own main product lines of cement .We aim to optimize production across all of our markets, providing a complete solution for customer's needs at the lowest possible cost, an approach we call strategic integration of activities.

Cement is made from a mixture of 80 percent limestone and 20 percent additives. These are crushed and ground to provide the "raw meal, a pale, flour-like powder. Heated to around 1450 C (2642 F) in rotating kilns, the meal undergoes complex chemical changes and is transformed into clinker. Finegrinding the clinker together with a small quantity of gypsum produces cement. Adding other constituents at this stage produces cements for specialized uses. Blended Cements 15

Zuari Blended Cement the eco-friendly, user-friendly cement :

Zuari Blended Cement has been developed in response to todays need for environment-friendly products that are cost-effective, durable and have minimal by-products. Durability is a very important property in concrete. And durability here means concrete that ensures the long life span of structures like homes and residences that are lifetime investments. Since distress of concrete and early failure of structures is a common phenomenon, research over a period of time helped develop various remedial measures that improved durability and cost economics. One of them being blended Portland Cement, with complementary pozzolanic and cementitious materials like fly ash, blast furnace slag, etc. And Zuari Blended Cement is a fine example of it. Our Products Portland Cement Zuari OPC is a high quality cement prepared from the finest raw material. Owing to optimum water demand, it contributes to a very low co-efficient of permeability of the concrete prepared. This improves the density of the concrete matrix and increases the durability of the concrete. Zuari OPC is a high performance cement far exceeding the codal requirement of BIS. It is this very durability that translates into long - lasting residential and commercial constructions of a wide variety.

Zuaris edge:
With these unique advantages, Zuari Cement comes to you in two grades - 43 Grade OPC and 53 Grade OPC.

16

Zuari OPC is a high quality cement prepared from the finest raw material. Owing to optimum water demand, it contributes to a very low co-efficient of permeability of the concrete prepared. This improves the density of the concrete matrix and increases the durability of the concrete. Zuari OPC is a high performance cement far exceeding the codal requirement of BIS. It is this very durability that translates into long - lasting residential and commercial constructions of a wide variety.

Zuari 43 & 53 Grade Ordinary Portland Cement (OPC) - Strong cements for longlasting constructions:

Higher compressive strength Better soundness Lesser consumption of cement for M-20 grade concrete and above Faster deshuttering of form work Reduced construction time Primo Concrete Cement - Concrete Redefined

Primo - The success story:

In 2008 Zuari Cement launched its high-strength cement under the brand name 'Primo Concrete Cement' in Bangalore City. 'Primo' improves the density of the concrete matrix and increases the durability of the concrete, making it an immediate hit among construction and infrastructure projects undertaken in and around Bangalore. Recently Primo was also launched in Kochi and Chennai. An extensive marketing and distribution network across south India concretes Zuari Cement's success story. New products, on the line of the extremely successful 'Primo' launch, will play a significant role in key markets. 17

Primo Concrete Cement - Concrete Redefined:

Primo concrete cement is a high quality cement prepared from the finest raw material. Owing to optimum water demand, it contributes to a very low coefficient of permeability of the concrete prepared. This improves the density of the concrete matrix and increases the durability of the concrete. Primo is a high performance cement far exceeding the codal requirement of IS 12269-1987. It is this very durability that translates into long-lasting residential and commercial constructions of a wide variety, such as dams,canals, highways, roads and flyovers.

Higher compressive strength Better soundness Lesser consumption of cement for M-20 Concrete grade and above Faster deshuttering of form work Reduced construction time

18

Locations CORPORATE OFFICE No. 1, 10th Main, Jeevanbhima Nagar, Bangalore - 560 075 Tel: 080 - 41194408 Fax: 080 - 40302844/ 40302888 E-mail: zclmkt@zcltd.com,zclho@zcltd.com

Works: Sitapuram P.O.Dondapadu Nalgonda - 508 246 Andhra Pradesh Tel: 08683 - 235107 Fax: 08683 - 235229 E-mail: svclspm@zcltd.com

Works: Krishna Nagar P.O. Yerraguntla Kadapa - 516 311 Andhra Pradesh Tel: 08563 - 275104 / 275301 Fax: 08563 - 275164 E-mail: zclygl@zcltd.com

19

Italcementi Group Italcementi Group at a glance With an annual production capacity of approximately 70 million tons of cement, Italcementi Group is the worlds fifth largest cement producer.

The Parent Company, Italcementi S.p.A., is one of Italys 10 largest industrial companies and is included in FTSE/MIB Index of the Italian Stock Exchange.

Italcementi Groups companies combine the expertise, know how and cultures of 22 countries in 4 Continents boasting an industrial network of 59 cement plants, 15 grinding centres, 5 terminals, 373 concrete batching units and 92 aggregates quarries. In 2009 the Group had sales amounting to over 5 billion Euro.

Italcementi, founded in 1864, achieved important international status with the take-over of Ciments Franais in 1992. Following a period of re-organization and integration that culminates in the adoption of a single corporate identity for all Group subsidiaries, the newly-born Italcementi Group began to diversify geographically through a series of acquisitions in emerging countries such as Bulgaria, Morocco, Kazakhstan, Thailand and India, as well as operating in North America. As part of the plan to further enhance its presence in the Mediterranean area, in 2005 the Group boosted its investments in Egypt becoming the market leader.

In 2006 Italcementi acquired full control of the activities in India and signed an agreement to strengthen its position in Kazakhstan while, in 2007, it further strengthened its presence in Asia and the Middle East through the operations in China, Kuwait, Saudi Arabia.

20

As a member of the World Business Council for Sustainable Development (WBCSD) Italcementi Group has signed the Cement Sustainability Initiatives Agenda for Action, the first formal commitment that binds a number of world cement industry leaders to an action plan that aims at satisfying present-day needs at the same time as safeguarding the requirements of future generations. To further confirm its commitment on these issues, the Group has taken over the co-Chairmanship of the Cement Sustainability Initiative for the period 2006-2007. Moreover, Italcementi has been included in The Sustainability Yearbook 2010 the most comprehensive publication on corporate sustainability released yearly by SAM (Sustainable Asset Management).

3 THERETICAL FRAMEWORK OF STADY

INVENTORY MANAGEMENT ZUARI CEMENTINDUSTRIES 21

INTRODUCTION:
Every enterprise needs inventory for smooth running of its activities. It serves as a link between the production and distribution process. The greater a time lag, the higher the requirement of inventory the unforeseen fluctuation of inventory demand and supply of goods, fluctuating inventory prices, necessitate the need for inventory management.

The investment inventory constitutes the most significant part of the current assets inventory of the under taking. Thus it is very essential to have a proper control and management of inventory.

Meaning and nature of inventory

The general meaning of inventory is stock of goods or list of goods inventory. In accounting language it means stock of finished goods. For inventory manufacturing concern it includes raw materials, work in progress, consumables finished goods and spares etc.

1)

Raw materials:

If forms a major input inventory in organization. The quantity of raw materials required will be determined by the rate of consumption.

2)

Work in Progress :

The work in progress is that stage of stocks, which are in between raw materials and finished goods.

3) Consumables : 22

These are the material, which are needed to smoothen, the process of production. These do not directly go into production, but act as catalyst.

4) Finished Goods : These are the goods, which are ready to sale for the consumers. The stock of finished goods provides as buffer between production and market.

5) Spares: Spares also from a part of inventory. The stocking policies differ from industry to industry.

Inventories cost account for nearly 55 percent of the cost of production, as it is clear from an analysis of financial statements of large number of private and public sector organizations. So, It essential to establish suitable procedures for proper control of materials from the time of purchase order placed with supplier until they have been consumed properly and accounted for.

Definition:
The term inventory refers to assets, which will be sold in future in the normal course of business operations. The assets, which the firm stores as inventory in anticipation of need, are raw materials, work in-progress/process, and finished goods.

Inventory often constitute a major element of a total working capital and hence ft has been correctly observed, 'Good inventory management is good financial management.

Inventory control is a system, which ensures the provision of the required quantity at the required time with the minimum amount of 23

capital.

Inventories are the second largest asset category for the man ufacturing firms next to plant and equipment.

Inventory

control

includes

scheduling,

the

requirements,

purchasing, receiving and inspecting, maintaining stock records and stock control. Inventory control is a matter of coordination. A proper material control helps in improving the input-output ratio.

Objective of inventory management

The main objective of inventory management are operational and financial. The operational object means availability of materials and spares in sufficient quantities for undisturbed flow of production. The financial objective means investments in inventories should not remain idle and minimum working capital should be locked in it.

THE OTHER OBJECTIVES ARE:

1) To ensure continues supply of inventories to the production. 2) To avoid over stocking and under stocking. 3) To maintain optimum level of investment in inventories.

4) To keep material cost under control, to keep low cost of production. 5) To eliminate duplication in ordering or replacing stocks.

6)

To minimize losses through, deterioration, pilferage, wastage and

24

damages. 7) Designing structures for good inventory management. 8) Perpetual inventory control of materials. 9) To ensure right quality of goods at reasonable prices. Analysis of prices cost and value. 10) To facilitate data for short and long term planning and control of Inventory.

a.

Transaction motives: Every firm has to maintain some level of inventory to meet the day -

to-day requirements of sales, production process, customer demand etc. In this finished goods as well as raw material are kept as inventories for smooth production process of the firm.

b.

Precautionary motive :

A firm should keep some inventory for unforeseen circumstances also like loss due to natural calamities in a particular area, strikes, lay outs etc so the firm must have some finished goods as well as raw materials meet circumstances.

c.

Speculative motive:

The firm may be made to keep some inventory in order to capitalize an opportunity to make profit due to price fluctuations.

REASONS AND BENEFITS OF INVENTORY:

25

The optimal level of maintaining inventory is a subjective matter and depends upon the features of a particular firm,

(i)

Trading firm:

In case of a trading firm there may be several reasons for holding inventories because of sales activities that should not be interrupted. More over it is not always possible to procure the goods whenever there is a sales opportunity as there is always a time gap required between purchase and sale of goods. Thus trading concern should have some stock of finished goods in order to undertake sales activities independent of the procurement schedule.

Similarly, a firm may have several incentives being offered in terms of quantity discounts or lower price etc by the supplier of goods. There is trading concern inventory helps in a de-inking between sales activity and also to capitalize a profit of opportunity due to purchase made at a discount will result in lowering the total cost resulting in higher profits for the firm.

(ii)

Manufacturing firm:

A manufacturing firm should have inventory of not only the finished goods, but also of raw materials and work-in-progress for following reasons.

a)

Uninterrupted production schedule: 26

Every manufacturing firm must have sufficient stock of raw materials in order to have the regular and uninterrupted production schedule. If there is stock out of raw materials in order to have the regular and uninterrupted production schedule. If there is stock out of raw material at any stage of production process then the whole production may come to a half. This may result in custom dissatisfaction as the goods cannot be delivered in time more over the fixed cost will continue to be incurred even ff there is no production.

Further work-in-progress would let the production process run smooth. In most of manufacturing concerns the work in progress is a natural outcome of the production schedule and it also helps in fulfilling when some sales orders, even if the supply of raw-materials have stopped. (b) Independent sales activity: Inventory of finished goods is required not only in trading concern but manufacturing firms should also have sufficient stock of finished goods. The production schedule is a time consuming process and in most of the cases goods cannot be produced just after receiving orders. Therefore, every firm has to maintain minimum level of finished goods in order to deliver the goods as soon as the order is received.

ESSENTIALS OF INVENTORY CONTROL: 27

The important requirements of Inventory control are: a) The proper co-ordination among the departments involved in buying, receiving, inspecting, ciorage, consuming and

accounting. b) Centralization of purchasing under the control of competent buyer whenever possible. c) Proper scheduling of material requirements. Proper classification of materials with codes, material

d)

standardization and simplification. e) The operation of a system of internal check to ensure that all transactions involving materials and equipment are checked by properly authorized and independent persons. f) The storage of materials is well planned and kept in properly. Planned and kept in properly designated location, subject to adequate safeguard and supervision.

g)

The operation of a system of perpetual inventory so that it is possible to determine at any time, the amount and value of each kind of material in stock.

h)

A suitable method of valuation of materials is essential because it affects the cost of jobs and the value of closing stock of materials.

Objectives of Inventory Control :

28

The main objectives of inventory control are: I. To maintain a large size of inventory for efficient and smooth production and sales operation.

II. To maintain a minimum investment in inventories to maximize profitability.

III. To ensure a continuous supply of raw materials to facilitate uninterrupted production.

IV. To maintain sufficient stocks of raw materials in periods of short supply and anticipate price change.

V. Maintain sufficient finished goods inventory for smooth sales operation and efficient customer service.

VI. Minimize the carrying cost and time.

VII. Control investment in inventories and keep it at an optimum level.

Advantages of Inventory Control:

The following are suggested advantages: I. Eliminates wastage in use of material, II. It reduces the risk of loss from fraud and theft. III. It helps in keeping perpetual inventory and other records to 29

facilitate

the

preparation

of

accurate

material

reports

to

management, IV. To reduces the capital tied up in inventories, V. It reduces cost of storage, VI. It furnishes quickly and accurately the value of materials used in various department. VII. It prevents delays in production due to lack of materials by supplying, proper quantities at the right time.

Disadvantages of Inventory Control:

Every firm has to maintain optimal level of inventories. It not the following will be the result in form of losses.

I. Opportunity cost: Every firm has to maintain inventory for that some investment is needed it is know as Opportunity cost and handle the investment in inventory are more the funds are blocks up with inventory. II. Excessive inventories: It will lead to firm losses due to excessive carrying costs and the risk of liquidity. It is also referred as Danger level. III. Inadequate Inventory: it is another danger which results is production hold-up and failure to meet delivery commitments .In adequate raw materials and work -in -process inventors will results in frequent production interruptions .It finished goods are not sufficient customers may shifts to competitors. IV. Danger due to physical decoration: It is one of the reason with the inventories due to maintaining stocks at high levels they will be 30

deteriorated

due

to

passage

of

time,

sometimes

due

to

mishandling or improper storage facilities.

Costs involved in inventory:

Every firms maintains inventory depending upon requirement and other features of firm for holding such inventory some cost will be incurred there are as follows: (a) Carrying Cost;

This is the cost incurred in Keeping or maintaining an inventory of one unit of raw materials, work-in -process or finished goods. Here there are two basic cost involved.

(i)

Cost of storage:

It includes cost of storing one unit of raw materials by the firm. This cost may be for the storage of materials. Like rent of spaces occupied by stock, stock for security, cost of infrastructure, cost of insurance, and cost of pilferage, warehousing costs, handling cost etc.

(ii)

Cost of financing:

This cost includes the cost of funds invested in the inventories .It includes the required rate of return on the investments in inventory in addition to storage cost etc. The Carrying cost include there fore both real cost and opportunity cost associated with the funds invested in the inventories. 31

The total carrying cost is entirely variable and rise in directly proportion to the level of inventories carried.

Total carrying cost =(carrying Cost per unit) x (Average inventory)

(b)

Cost of ordering:

The cost of ordering includes the cost of acquisitions of inventories. It is the cost of preparation and execution of an order including cost of paper work and Communicating with the supplier. The total ordering cost is inversely proportion to annual inventory of firm. The ordering cost may have a fixed component, which is not affected by the order size: and a variable component, which changes with the order size.

Total Ordering Cost = (No. Of orders) x (cost per order).

(c)

Cost of stock out:

It is also called as Hidden cost. The stock out is the situation when the firm is not having units of an item in stores but there is a demand for that Item either for the customers or the production department .The stock out refers to zero level inventory .So there is a cost of stock out in the sense that the firm face a situation of lost sales or back orders .The stock outs are quite often expensive. Even the good will of firm also be effected due to customers dissatisfaction and may lose business in case of finished goods, where as in raw materials or work in process can cause the production process to stop and it is expensive because employees will 32

be paid for the time not spend in producing goods.

The carrying cost and the ordering cost are opposite forces and collectively. They determine the level of inventors in a firm.

Total cost =(cost of items purchased) +(Total Carrying and ordering cost)

Valuation of Inventory:
The methods of valuing inventory are combination of the actual cost and replacement cost plans. The chief advantage of the cost or net realizable value rule is that it is conservative. Hence the methods of Valuation of inventory are quite independent of system of mincing.

In balance sheet closing stock is shown under current assets and is also credited to manufacturing or trading accounts. The inventories are valued on the basis as follows. (i) Cost of raw materials in stock may include freight charges and carrying cost. But such cost should not exceed market price, (ii) Work -in -process is generally valued at cost, which includes cost of materials, labor. And the proportionate factory overhead, as it is reasonable according to degree of completion, (iii) Cost of finished goods wound normally to be total or full cost it includes prime cost plus appropriate amount of the overhead. Selling and distribution cost is deducted on the other hand work in progress may be valued at work in progress may be Valued at work cost, marginal cost, prime cost or, even at direct materials. 33

ISSUE PRICING METHODS:

There are two categories: (i) (a) (b) (c) (d) (e) (ii) Cost prices: FIFO (First in First out) LIFO (last in first out) Specific price Base stock price HIFO (highest in first out) Derived from cost prices: (a) Simple average price (b) Weighted average price (c) Periodic simple average price (d) Periodic weighted average price (e) Moving simple average price (f) Moving weighted average price

(iii)

Notional prices:

(a) Standard price (b) Inflated price (c) Re-use price (d) Replacement price

First in First out (FIFO)

34

This is the price paid for the material first taken into stock from which the material to be priced could have been drawn.

Under this method stocks of materials may not be used up in chronological order but for pricing purpose it is assumed that items longest in stock are used up first. The method is most suitable for use where in material is slow-moving and comparatively high unit cost.

Advantages: (i) Price is based on actual cost and not on basis of approximations such as no profits or losses arises by reasons of adopting this method. (ii) The resulting stock balance generally represents fair commercial valuation of stock. (iii) It is based on traditional principles.

Disadvantages: (i) The number of calculations in the stores ledger involved tends to be complicated with increase in clerical error.

(ii)

The cost of consecutive similar jobs will differ if the price changes suddenly,

(iii)

In times of rising prices, the charge to production is unduly low as the cost of replacing the material will be higher.

Last in first out (UFO)

35

This is the price paid for the material last taken into stock from which the materials to be priced could have been drawn. This method also ensure material being issued at the actual cost. Its use is based on the principle that costs should be as closely as possible related to current price level. Under this method production cost is calculated on basis on replacement cost.

Advantages:

(i)

Production is charged at the most recent prices so that it is based on the principle that cost should be related to current price levels.

(ii)

It obviates the necessity for continuously ascertaining the replacement price.

(iii) (iv)

Neither profit nor loss is usually made by using this method. In the times of rising prices there is no wind fall profit as would have been obtained under FIFO method.

Disadvantages: (i) (ii) (iii) Needs more clerical work. Compassion among similar jobs is very difficult. Stock valves relating to prices of the oldest cost on hand may be entirely out of the current replacement prices.

Weighted average price:

36

This is the price which is calculated by dividing the total cost of material in the stock from which the material to be priced have been drawn, by the total quantity of material in the stock. This method differs from all other methods because here issue prices are calculated on receipts of materials and not on issue of materials. Thus as soon as new lot is received a new price is calculated and issues are then taken. Advantages:

(i)

This method is advantageous where the price varies widely as its use even out the effect of these wide variations.

(ii)

The basis of price calculations is a simple one involving only the division of total amount of material in stock by quantity in stock.

(iii)

Calculation of new prices arises only when receipt of stocks are received.

(iv)

Stock records under this method give a fair indication of the stock values, which can be used in financial analysis.

Disadvantages:

This method is completed than simple average because it takes into consideration the total quantities and total costs in stock. (i) (ii) (iii) Profit or loss may be incurred as in simple average price, As LIFO or FIFO this method calls for many calculations, In order to calculate the accurate value of issues the average price must normally be calculated to four to five decimal places. Standard price: 37

It is the predetermination of fixed price on basis of a specification of all factors affecting price like the quantity of materials in hand and to be normally purchased and rate of discount compared with existing price including or excluding freight and ware housing expense. A standard price for each material is set and the actual price paid is compared with standard. It is paid exceeds the standard a loss will be realized if not profit will be obtained.

Advantages: (i) (ii) This method is easy to operate. Comparing the actual prices with the standard price will determine the efficiency of purchase department. (iii) (iv) (v) The effect of price variations is eliminated from job costs. It reduces classical costs by eliminating detailed cost records. In times of inflation or price fluctuations is very difficult to fix a standard price. (vi) This method also incurs a profit or loss on issues and closing stock. Inflated price:

This is the price, which includes a charge designed to cover the cost of contingencies or related costs.

This price includes not only the cost involved in bringing the material to the purchases premises but also the loss due to evaporation and breakage etc. as well as carrying costs

MATERIAL PURCHASING AND PURCHASING PROCEDURE

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Purchase of material is one of the important function of material management. At times more than 50% of the total product cost is material.

Functions of Purchase Department

1. Deciding the items to be purchased based on demand. 2. Selection of sources of supply. 3. Collection the price information. 4. Placing the ordered. 5. 6. 7. Follow-up the ordered. Checking the invoices. Maintenance of purchase records.

8. Maintenance of vendors relations.

PURCHASE PROCEDURE

Purchasing procedure start with the initiation of purchase requisitions and ends with the receipt of materials in the stores.

CENTERIZED PURCHASING

It is most important and relevant to large organizations operating deferent plants may or may not be located at different places. For a single place

organization decentralization might be feasible on a very limited place. But where as M & M Ltd., is a multiple plants operating organization.

In Mahindra and Mahindra Centralized purchasing procedure is following to purchase of materials. 39

Centralized purchasing avoids duplications of efforts and working at cross purpose from one plant to another.

Centralized purchasing permits consolidation of order of materials commonly used for two or more plants. The

ultimately results in greater buying power, favorable contracts and trade agreements.

Easier to maintain the quality of purchased parts / items through centralized testing and inspection. It is also possible to conduct testing and inspection facilities.

Centralized purchasing permits to avail facilities like quantity discounts and cash discounts thus its helps to reduce cost.

It is beneficial to vendor also in case the size of order constituted major proportion of his total production capacity

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TECHNIQUES OF INVENTORY MANAGEMENT:

Main problems in inventory management are to answer.

(i)

Are all items of inventory important if not what are items to be given more importance?

(ii)

What should be the size of the order for replenishment be placed?

(iii)

What should be the over level?

To answer these following techniques are used, ABC Analysis Economic Order Quantity VED Analysis RE-ORDER Level Safety Stock Just-in-time Inventory

ABC Analysis:
It is based on proposition that

(ii) (iii)

Managerial items and efforts are scare and limited Some items of inventory are more important than others.

ABC ANALYSIS:

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ABC analysis classifies various inventory into three sets or groups of priority and allocates managerial efforts in proportion of the priority the most important item are classified into class-A, those of intermediate importance are classified as "class-B" and remaining items are classified into class-C'. The financial manager has to monitor the items belonging to monitor the items belonging to different groups in that order of priority and depending upon the consumptions.

The items with the highest value is given top priority and soon and are more controlled then low value item. The re -rational limits are as follows.

Category

% of Items

% of total materials

A B C Procedure:

5-10 10-20 70-85

70-85 10-20 5-10

(i) (ii)

Items with the highest value is given top priority and soon. There after cumulative totals of annual value of consumption are expressed as percentage of total value of consumptions,

(iii)

Then these percentage values are divided into three categories.

ABC analysis helps in allocating managerial efforts in proportion to importance of various items of inventory.

ECONOMIC ORDER QUANTITY:

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After various inventory items are classified on the basis of the ABC analysis the management becomes aware of the type of control that would be appropriate for each of the three categories of the inventory items.

The determination of the appropriate quantity to be purchased in each lot to replenish stock as a solution to the order quantity proble ms necessitates resolution of conflicting goals. Buying in a higher average inventory level will assure,

(i) (ii)

Smooth production / sale operation and. Lower ordering or setup costs. But it will involve higher carrying costs. On the other hand small orders would reduce the carrying cost of inventory by reducing the average inventory level but the ordering costs would increase, as there is a likelihood of interruption in operations due to stock -outs. A firm should not place either too high or small orders on the basis of a trade off between benefits derived from the availability of inventory and the cost of carrying that level of inventory, appropriate or optimum level of order to be placed should be determined. The optimum level of inventory is popularly referred to as the economic order quantity or economic lot size. It may be defined as that level of inventory order that minimizes the total lost associated with inventory management. It is based on some assumptions, which are restrictive.

a.

The firm knows with certainty the annual usage of a particular item of inventory. 43

b. c.

Rate at which the firm uses inventory is steady over time. The orders placed to replenish inventory stocks are received at exactly that point in time when inventories reach zero.

EOQ can be illustrated by (i) (ii) Trial and error approach, Mathematical approach.

Trial and Error approach:

In this approach the procedure of procuring the inventory is assumed the smaller the lot the lower is average inventory and vice versa and high average inventory would involve high carrying costs. This approach is used for determination of EOQ uses different permutations and combinations of lots of inventory purchases so as to find out the least ordering and carrying cost combinations. The carrying cost and

acquisition cost for different sizes of order to purchase inventories are computed and the order size with lowest total cost of inventory is EOQ. Mathematical Approach:

The EOQ quantity can use a short-cut method calculated by following EOQ= EOQ Where, A = Annual usage of inventory B = Buying cost per order 44
2AB C

C = carrying cost per unit

Limitations:
While using EOQ it should be noted that it suffers from shortcomings, which are mainly due to the restrictive nature of the assumptions on which it is based.

The important limitation is assumption of a constant consumption usage and, the instant replenishment of inventory is of doubtful validity

There may be unusual and unexpected demand for stocks to meet such [contingencies the firm has to keen additional inventories like safety stocks. Another weakness is to assume known annual inventories is open to question and there is likelihood of a discrepancy between the actual and expected demand leading to wrong estimate of EOQ.

VED ANALYSIS:

Vital Essential and Desirable analysis is done mainly for control of spare parts keeping in view of the criticality to production.

Vital spares are spare the stock-out of which even for a short time will stop production for quite some time. Essential spares are spares the absence of which cannot be tolerated for more than a few hours a day. Desirable spares are those, which are needed, but their absence for even a week or so will lead to stoppage of production.

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THE RE-ORDER LEVEL:

The re-order level is the level of inventory at which the fresh order for that item must be placed to procure fresh supply. The re -order level depends upon a) Length of time between the placement of an order and receiving the supply. b) The usage rate of the item. The inventory is consta ntly being used up. The rate at which the inventory is being used up. The rate at which the inventory is being used up is called the usage rate.

The reorder level can be determined as follows:

R = M+tu R = Reorder level M = Minimum level of inventory T = Time gap / delivery time U = Usage rate

The reorder level and inventory patterns have be shown as follows:

The figure shows that if the usage rate is constant, the orders are made at even intervals for the same amounts each time and the inventory goes to zero just before an order is received.

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Safety Stock:
The safety stock protects firm from Trade offs due to unanticipated demand for the items level of inventory investment is however increased by the amount of safety stock. Safety level is a scertained in inventory as a part because there is always an uncertainty involved in time lag usage rate or other factor.

Usually smaller the safety level greater the risk of stock -outs. If stocklevels are predictable then there is a chance of stock out occurring. However stock inflows and outflows are unpredictable or lesser predictable it becomes to carry additional safety stock to prevent unexpected stock outs so usage rate is estimated if cost is low then no safety stock is needed.

JUST-IN-TIME INVENTORY:
The basic concept is that every firm should keep a minimum level of inventory on hand, relying suppliers to furnish stock just in time as 47

and when required. JIT helps in emphasizing sufficient levels of stocks to ensure that production will not be interrupted. Although the large inventories may be bad idea due to heavy carrying JIT is a modern approach to inventory management and the goal is essentially to minimize such inventories and there by maximizing the turnover. JIT system significantly reduces inventory-carrying cost by

requiring that the raw materials be procured just in time to be placed into production. Additionally the work in process inventory is minimized by eliminating inventory is minimized by eliminating inventory buffers between different production departments. If JIT is to be implemented successfully there must be a high degree of coordination and co-operation between the supplier and manufacturer and among different production centers. JIT does not appear to have any relation with EOQ however it is in fact alters some of the assumptions of EOQ model. The average inventory level under the EOQ model is defined as Average inventory= 1/2 EOQ + safety level JIT attacks this equation in two ways. (i) (ii) By reducing the ordering cost By reducing the safety stock.

The basic philosophy in JIT is that the benefits, associated with reducing inventory and delivery time to a bare minimum through adjustment in the EOQ model; will more than offset the costs associated with the increased possibility of stock-outs.

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4 DATA ANALYSIS & INTERPRETATION

DETERMINATION OF STOCK LEVELS
Carrying of to much and too little of inventories is determinate to the firm. If the inventory level is too little, the firm will face frequent stock outs involving heavy ordering cost and if the inventory level of inventory where costs are the minimum and at the same time their ID.No.Stock-out, which may result in loss of sale or stoppage of production. below. Various stock levels are discussed

MINIMUM STOCK LEVEL

This is the lower limit below which the stock of any item should not normally be allowed to fall. This is also technically known as safety or buffer stock. The prime considerations in fixing the minimum stock level or safety stocks are :

a. b.

Average rate of consumption. Lead time.

Minimum Stock Level = Reordering level X100

Lead-Time :
A purchasing firm requires some time to process the order and time is also required by the supplying firm to execute the order. The time taken processing the order and the executing it is known as lead-time. It is essential to maintain some inventory during this period.

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Reorder Level :
Reorder level is fixed between the minimum and maximum levels. When stock of a material reaches at this point, the store keeper should initiate action for the purchase of material. The reorder level is slightly more than minimum stock level to guard against

a. Abnormal usage b. Abnormal delay in supply

Reorder level = Maximum consumption during the period X Maximum period required for delivery

MAXIMUM STOCK LEVEL :

Maximum stock level represents the upper limit beyond which the quantity of any item is not normally allowed to rise. The main object of

establishing this limit is to ensure that unnecessary working capital is not blocked in stores. Theoretically, maximum stock level is the sum total of minimum stock level and economic order quantity.

Maximum level = Reorder Level + Reordering quantity Minimum consumption

AVERAGE STOCK LEVEL :

The average stock level is calculated as such : Average stock = minimum stock level + of re-order quantity.

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DANGER LEVEL:
This is generally fixed below the minimum stock level. Normal stock should not be below the minimum level. If it reaches the danger level at any point of time, urgent action for replenishment of stock must be taken to prevent stock out.

ESTIMATION OF STOCK LEVELS :

There are different techniques used in the calculation of the stock levels. Reordering Quantity Reordering Period 2500 units 4 5 weeks

Weekly usage :Maximum usage Normal usage Minimum usage

Reordering Level

900 units 700 units 500 units

= Maximum consumption X Maximum Reordering Period = 900 X 5 = 4500 units.

Ex :-

Consider Load King for calculation purpose. Calculated of the load king vehicle as 500 units.

Normal Daily consumption = 700 units Normal Reorder period Reorder level Minimum usage = 4.5 weeks = 4500 units = 500 units

Minimum Reorder period = 4 weeks Maximum Reorder period = 5 weeks 51

MINIMUM STOCK LEVEL

= = = = Reorder Level (Normal consumption X Normal Reorder Period) 4500 (700 X 4.5) 4500 3150 1350 Units

MAXIMUM STOCK LEVEL

= Reorder Level + Reorder Quantity (Minimum consumption X Minimum Reorder Period) = = = 4500 + 2500 (500 X 4) 7000 2000 5000 Units

AVERAGE STOCK LEVEL

= = = = Minimum stock + of Reordering Quantity. 500 + ( X 2500) 500 + 1250 1750 Units

Minimum Stock Level Average Stock Level Maximum Stock Level

= 1350 Units = 1750 Units = 5000 Units

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INVENTORY TURN OVER RATIO

A Ratio which measures the number of times a firms average inventory is sold during a year Kohler.

Computation of inventory turnover ratios for different items of materials and comparison of the turnover ratios provide a useful guidance for measuring inventory performance. A high turnover rate indicates that the material in

question is a fast moving one. A low turnover rate on the other hand indicates over investments and looking up of working capital on undesirable items.

Inventory or Stock turnover is measured in terms of the ratio of the value of materials consumed to the average inventory during the period. The ratio indicates the number of time the average inventory is consumed and replenished by dividing number of days for which the average inventory is held can be ascertained.Comparing the number of days in the case of two different materials, it is possible to known which is fast moving and which slow on that basis attempt may be made to reduce the amount of capital locked up and prevent over stocking of slow moving items.

Average Inventory = Opening Stock + Closing Stock 2 Inventory turnover ratio = Material consumed Average Inventory Inventory turnover in number of days = Number of days in a year Inventory turnover ratio 53

INVENTORY TURNOVER RATIO

Cost of goods sold INVENTORY TURNOVER RATIO =-----------------------------Average inventory (Rs in 000s) Year 2005-06 2006-07 2007-08 2008-09 2009-10 Cost of goods sold 2210210 2163508 2484589 3044561 4120957
Ratio 9 8 7 6 5 4 3 2 1 0 2005-06 2006-07 2007-08 2008-09 2009-10 5.03 4.09 4.17 4.36 4.09 Ratio

Average inventory Ratio 439610 528333 596074 697949 1008066 5.03 4.09 4.17 4.36 4.09

Interpretation:
The inventory turnover ratio signifies the liquidity of the inventory. A high inventory turnover ratio indicates brisk sales. The ratio is therefore a measure to discover the possible trouble in the form of overstocking or overvaluation. The stock position is known as the graveyard of the balance sheet. If the sales are quick such a position would not arise unless the stocks consist of un-saleable items. A low inventory ratio results in blocking of funds in inventory which may ultimately result in heavy losses due to inventory becoming obsolete or deteriorating in quality.

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INVENTORY HOLDING RATIO

365 INVENTORY HOLDING RATIO=-----------------------------------------Inventory turnover ratio (Rs in 000s)

Year

Days

Inventory turnover ratio

Inventory holding ratio 73 89 88 84 89

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

365 365 365 365 365

5.03 4.09 4.17 4.36 4.09

Inventory holding ratio 100 90 80 70 60 50 40 30 20 10 0

89 73

88

84

89

Inventory holding ratio

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

Interpretation:
Inventory holding days express the No. of days it takes for the stock to get converted into sales. It is called stock conversion period. It is calculated as above. It means that 73 days period of time it took to convert from stock sales in 05-06, 89 days in 06-07, 88 days in 07-08, 84 days in 08-09 and 89 days in 09-10.

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INVENTORY ANALYSIS AT ZUARI (Rs in 000s) Year Inventory Current assets % in inventory &CA
2005-06 2006-07 2007-08 2008-09 2009-10

561630 630518 765380 1250752 1312456

1078274 1500977 1688733 2307604 2504689

52.09 42.01 45.32 54.20 55.23

3000000 2500000 2000000 Inventory 1500000 1000000 500000 0 2005-06 2006-07 2007-08 2008-09 2009-10 Current assets % in inventory &CA

Interpretation:
It shows the relationship between inventory & Current assets. The inventory position in ZUARI Cement has to level of inventories as compare to current assets in the increasing trend it has found that the current assets level has increased year by year and the inventory being part of it has also increased. It fluctuates certain intervals. This is due to increase in liquidity involving Cash and Bank balances. 56

YEARS Opening Inventory (Rs. In Lakhs) Closing Inventory (Rs. In Lakhs)

2010 49970

2009 45675

2008 46904

2007 55253

2006 51554

75983

49970

45675

46904

55253

INVENTORY TURNOVER RATIO

INVENTORY YEARS CONSUMED (Rupees in Lakhs) AVERAGE INVENTORY (Rupees in Lakhs) 49970 + 75983 March 2010 459537.10 2 = 62976.5 45675 + 49970 March 2009 335286.52 2 = 47822.5 46904 + 45675 March 2008 250021.84 2 = 46389.5 55253 + 46904 March 2007 211723.1 2 = 51078.5 51554 + 55253 March 2006 235858.13 2 = 53403.5 INVENTORY TURNOVER IN NUMBER OF DAYS 365.. 7.296 = 50.027 366.. 7.01 = 52.21 365.. 5.389 = 67.73 365.. 4.24 = 88.05 365.. 4.41 = 82.65

INVENTORY TURNOVER RATIO 459537.10 62976.5 = 7.296 335286.52 47822.5 = 7.01 250021.84 46389.5 = 5.389 211723.1 51078.5 = 4.145 235858.13 53403.5 = 4.416

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INVENTORY TURNOVER RATIO % OF INVENTORY 8 7 6 5 4 3 2 1 0 7.01 5.389 4.416 4.145 7.296

2006

2007 2008 YEARS

2009

2010

INVENTORY TURNOVER RATIO

% OF INVENTORY 8 7 6 5 4 3 2 1 0

INVENTORY TURNOVER RATIO 7.01 5.389 4.416 4.145 7.296

2006

2007 2008 YEARS

2009

2010

INVENTORY TURNOVER RATIO

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INVENTORY IN NUMBER INVENTORY IN NUMBER OF DAY 100 80 60 40 OF DAYS 20 0 2006 2007 2008 YEARS 2009 2010 82.65 88.05 67.73 52.21 50.027

INVENTORY IN NUMBER OF DAY

INVENTORY IN NUMBER INVENTORY IN NUMBER OF DAY 100 OF DAYS 80 60 40 20 0 2006 2007 2008 YEARS 2009 2010 82.65 88.05 67.73 52.21 50.027

INVENTORY IN NUMBER OF DAY

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INERPRETATION:
A high turnover ratio indicates that the material in question is a fast moving one and also a low amount of stocks are replacing stocks in large number of installment. In the year 2008, 2009, 2010, the stock turnover ratio is gradually decreasing and the inventory faced a bad position in these three years. And from, 2006, 2007, the stock turnover ratio continuously increased from 5.38 to 7.296 and the inventory in number of days is low. This position indicates that the stocks are fast moving and get converted in to sales quickly.

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CEMENT PRODUCTION AND DISPATCH

YEAR CEMENT PRODUCTION (QUANTITY IN MIL.TONNES) 19,587 21,254 25,797 34,186 33,630 CEMENT DISPATCH (QUANTITY IN MIL.TONNES ) 19,682 21,385 25,416 33,766 33,885

MARCH 31ST 2006 MARCH 31ST 2007 MARCH 31ST 2008 MARCH 31ST 2009 MARCH 31ST 2010

40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 MARCH MARCH MARCH MARCH MARCH 31ST 31ST 31ST 31ST 31ST 2006 2007 2008 2009 2010 CEMENT PRODUCTION (QUANTITY IN MIL.TONNES) CEMENT DISPATCH (QUANTITY IN MIL.TONNES )

INERPRETATION:
The inflow of raw materials and dispatch of finished goods from the organization is in good position. In march 31st 2008 the difference between the vehicle production and dispatched is 381 and in march 31st 2007 the close stock in the go down is also dispatched from the organization and as well as in the year 2009 31st march the stored vehicles are dispatched from the company. This indicates that the consuming storage cost is very low and risk related to preservation of the stock is very les 61

5.1 FINDINGS
Most of the respondents were aware by the friends and relatives (48%).Advertisements (28%) also helped in providing information to the respondents. 82% of the respondents were aware of ZUARI Cement brand. In advertisement media newspapers (56%) were much affective and television (38%) was also a major advertising media. Many factors like family members advertising were responsible for influencing the customers to buy ZUARI Cement. Factors effecting buying decision of a customers brand name was preferred first. Picture clarity is also a one of the feature which attracted to buy a television. Considered as a factor effecting the buying decision of the customer. Price, Design, warranty, service help in purchasing theTecumseh. 6% of the customers were very much satisfied with LG Television. Whereas 58% was satisfied with ZUARI Cement. 39% of the respondents were satisfied with the service of the ZUARI Cement Compressors. After sales service at door step 38% was one of the factors which help the purchaser to buy aZUARI Cement . Prompt service 52% also help to attract the purchaser. 54% of the respondents considered the price of theZUARI Cement . As higher where as only 8% considered as economical and 38% of the respondent said it as reasonable. Digital sound system was also one which helps in a prospective purchaser to buy the ZUARI Cement .

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5.2 SUGGESTIONS:
On the personnel interaction with the financial department as well as with the primary and secondary datas the following are the conditions and suggestions arrived. They are: 1) The analysis is carried out for a period of five years i.e., 2005-06 to

2009-2010 is not sufficient to conclude the Inventory position of the company as we have taken up to study for a period of 6 weeks is too less still we strived out best in exploiting the present inventory position of the company. 2) Inventory valuation is followed in weighted average method based

on cost concept of the project costing is undertaken. 3) The inventory is different items of production; hence A-B-C

analysis and Two Bin System are followed. 4) Some items are found to be slow and non-moving. The slow-

moving items are spare and consumable goods; hence whenever necessity arises these items are being used. Non-moving items are also found in the inventory. 5) The reasons for Non-moving of Inventory from stores are studied.

Due to MOQ (Minimum Order Quantity) clause these items procured extra than the requirement. 6) The high inventory ratio indicates efficiency of the firms inventory management. 7) The material consumption was also increasing simultaneously with sales. 8) The companys efficiency in turning its inventory is increasing. The companys utilization of inventory in generating sales is good. The yearly holding of all types of inventory is decreasing. This is positive trend. 9) The overall inventory position of the company is satisfactory.

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5.3 CONCLUSION:
Today business scenario inventory management is becoming very crucial part of the organization. The system of inventory management in ZUARI

CEMENT Limited very effective. The organization is basically and assembling unit and thus inventory place a most significant role in the decision making process. From the various calculations and figures relating to inventory

management it is clear that the inventory classification of A items are maintain for 1 3 days, as a result it reduce investment in raw material, reducing the lead time and also the large quantity discount because the stock are kept for 1 3 days. In the classification of ABC items XYZ procedure is following in ZUARI Cement Plant has launched the different type of KANBAN card system for class C items. Class A & B items are consider under the just in time philosophy as the procurement time has been reduced up to greater extent by the proper coordination of buyer and supplier. There is great improvement in the inventory turnover ratio from 3 years. It is increased from 5.38 to 7.296% this position indicates that the stocks are fast moving and get converted into sales quickly in ZUARI CEMENTLIMITED, Finally we conclude that ZUARI plant the inventory system is very good with high Japanese techniques.

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BIBILOGRAPHY: * Cost Accounting V.K. Saxena C.D. Vashist * Cost Accounting S.P. Iyenger

Cost Accounting

S.N. Maheshwari

Financial Management Khan & Jain

Cost Management Accounting R.P. Thrivadi

Websites: www.google.com www.yahoofinance.com www.zuaricements.com www.msn.com www.birlacements.com

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