INVENTORY MANAGEMENTPart 1

7/31/2019 INVENTORY MANAGEMENTPart 1

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CHAPTER 1

INTRODUCTION

1.1 INTRODUCTION OF THE PROJECT:

Inventory can notes the value of raw materials consumables; spares, work in

process, finished goods and scrap in which companys funds are invested. The

maintenance manager is not sure, when he requires a spare part one thing that is

certain in spare parts management is its uncertainty. Maintenance managers

tendency is to hoard as many spare parts as possible.

Material manager has to stock raw materials work in process, finished goods,

spare parts, so that production and marketing channels are regularly fed. A marketing

manager has to reduce idle capital locked up inventory to these finance and top

management. His position is certainly not enviable.

In this context of inventory management the firm is faced with the problem of

meeting two conflicting needs.

i)

To maintain a large size of inventory for efficient and smooth productionand sales operations.

ii) To maintain a minimum investment in inventories to maximizeprofitability.

The aim of inventory management, thus, is to avoids excessive and inadequate

levels of inventories and to maintain sufficient inventory for the smooth production

and sales operations.

Ensure continuous supply of materials to facilitate uninterrupted production

maintain sufficient stocks of raw materials in periods of short supply and anticipate

price changes.


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1.2 Scope of the study:

i. The study is completely confined to Nandhini rubber incorporaters.ii. The study focuses on inventory management.

iii. The study is based on various inventory statements prepared by Nandhinirubber incorporaters.

iv. The study has been done only on the current financial aspects of the firm.

1.3 Need for the study:

Inventory Management has acquired a great significance and sound position

in recent years with an objective of profitability & liquidity. The success or failure of

business enterprise largely depends upon the management of inventory management.

No firm can be maintained without inventory management but the requirement of

inventory differs from firm to firm. Inventory management is needed for every

business enterprises because it indicates the liquidity position of the firm. Inventory

management can be maintained to meet the obligations within the operating cycle of

firm.

1.4 Objectives of the study:

1.4.1 Primary objective:

A Study on Inventory management of Nandhini rubber incorporators at

Valasaravakkam

1.4.2. Secondary Objective:

i. To reduce the cost of inventories by suggesting suitable techniques.ii. To classify the various components based on its value and movements.

iii. To identify inventory requirement of the company for the next 5 years.iv. To evaluate the operating efficiency of the firm.


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1.5. Limitations of the study:

i. Suggestions made are only personal opinions. Hence judgment may not beconsidered as ultimate and standard solutions.

ii. The Information available only from secondary dataiii. As in any case time is limited to collect & analyze data, the study is limited

for a period of 5 years only and no sufficient data.

1.6 Research methodology:

Research is simply the process of finding solutions to a problem after a

thorough study and analysis of the situational factors. As per the words of UmaSekaran, research can be defined as an organized, systematic, data based, critical,

objective, scientific inquiry or investigation into a specific problem undertaken with

the purpose of finding answers or solutions to it. Thus certain methods have to be

followed while conducting a research, which is termed as Research Methodology.

Research methodology is the way to systematically solve the research

problem. This study on inventory management is an analytical study because the facts

and information that is readily available are being to make critical evaluations of

inventory management.

.

1.6.1 Research design:

The formidable problem that follows the task of defining the research

problem is the preparation of the design of the research project, popularly known as

the Research Design.

Research design is the blue print or a planned procedure for conducting

research program.

1.6.2 Analytical research:

The researcher has to use facts or information already available and analyze

that fact to make critical evaluations of the inventory management.


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1.6.3 Method of data collection:

The data collection is based on secondary data. The data for the analyses are collected

and gathered from the printed reports of nandhini rubber incorporators like annual

report and store files etc.

1.6.4 Tools and techniques for collection of data:

i. Inventory as a percentage of current assets.ii. Raw materials as % of total inventory.

iii. Finished goods as % of total inventory.iv.

Inventory turnover ratio.

v. Inventory holding period.vi. ABC analysis.

vii. FSN analysis.viii. EOQ

ix. Correlation analysisx. Operating cycle

1.6.5 Statistical Tools Implemented:

i. Trend Analysis

1.6.6 Period of Study:

The period of study will be carried out from last three financial years i.e., from

2007-2011.


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CHAPTER 2

INDUSTRY PROFILE AND COMPANY PROFILE

2.1 INDUSTRY PROFILE:

Rubber is product that is known for its elastic property. Rubber is an

established industry in India. Rubber is a frequently used material today. It is known

for its elastic properties. Rubber can be of two types; natural and synthetic. Rubber is

naturally produced by rubber plants that can be obtained and it can also be produced

synthetically. Rubber industry in India was introduced by the British for commercial

cultivation but the govt. of India has improved the scope of rubber production

considerably. Today rubber and rubber related products are established industries in

India. The following sites will provide you information on rubber

2.1.1 Varieties of rubber:

Natural latex - This is a white fluid obtained from the rubber tree. It contains

small particles of rubber dispersed in an aqueous medium. The aqueous medium also

contains plant proteins which are thought to be responsible for triggering the allergy.

Natural rubber - This includes all material made from or containing latex. Natural

rubber is made by two processes, the natural rubber latex process (NRL) and the dry

natural rubber process (DNR)

2.1.2 Present Status in India:

With around 6000 unit comprising 30 large scale, 300 medium scale and

around 5600 SSI/tiny sector nits, manufacturing 35000 rubber products, employing

400 hundred thousand people, including around 22000 technically qualified support


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personnel, with a turnover of Rs.200 billions and contributing Rs.40 billions to the

National Exchequer through taxes, duties and other levies, the Indian Rubber Industry

plays a core sector role in the Indian national economy.The industry has certain distinct advantages like:

i. An extensive plantation sectorii. Indigenous availability of the basic raw materials, like natural rubber,

synthetic rubber, reclaim rubber, carbon black, rubber chemicals, fatty acids,

rayon and nylon yarn and so on.

iii. A large domestic market.iv. Availability of cheap labor.v. Training facility in various technical institutes.

vi. On-going economic reforms.vii. Improved living standards of the masses.2.1.3 India and the world

India is the third largest producer, fourth largest consumer of natural rubber and fifth

largest consumer of natural rubber and synthetic rubber together in the world.

Besides, India is the world's largest manufacturer of reclaim rubber. In fact, India and

China are the only two countries in the world which have the capacity to consume the

entire indigenous production of natural rubber and thereby obviate the compulsion

and over dependence on exports of surplus quantity of natural rubber. The plantation

sector with an estimated production of over 630 hundred thousand tones of natural

rubber and a projected production of more than one million tones in near future, helps

radical and rapid growth of the Indian rubber industry. The growth prospect is furtherenlarged by a boom in the vehicle industry, improved living standards of the masses

and rapid over-all industrialization.


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The per capita consumption of rubber in India only 800 grams against 12 to 14 kilos

in Japan, USA and Europe. This envisages tremendous growth prospects of the

industry in the years to come as India is far from attaining any saturation level, so faras consumption of rubber products is concerned.

2.1.4 Range of Products

The wide range of rubber products manufactured by the Indian rubber industry is -

i. Auto tyresii. Auto tubes

iii. automobile partsiv. footwearv. belting

vi. hosesvii. cycle tyres and tubes

2.1.5 Main Sectors:

The rubber industry in India is basically divided in two sectors - tyre and non-

tyre sector produces all types of auto tyres, conventional as well as radial tyres and

exports to advance countries like USA.

The non-tyre sector comprises the medium scale, small scale and tiny units. It

produces high technology and sophisticated industrial products. The small scale

sector accounts for over 50% of production of rubber goods in the non-tyre sector.

Going by share of rubber consumption, automotive tyre sector is the single largest

sector accounting for about 50% consumption of all kinds of rubbers, followed by

bicycles tyres and tubes 15% footwear12%, belts and hoses 6%, camelback and latex

products 7%. All other remaining rubber products put together account for 10%.


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2.1.6 Future Scope

With the saturation in rubber consumption in Western countries and the shift inconsumption of rubber to the Asia Pacific region, the focal points for this decade for

development will be India. The industry is expected to grow at over 8% p.a. in the

coming decade. Taking into account the above prospects, the industry envisaged

annual growth rate of 8% and the per capita consumption of rubber at 0.8 kg. against

14 kg. There exists tremendous scope for expansion and development in coming

years provided basic raw materials, particularly natural and synthetic rubber, are

made available in adequate quantity and at reasonable prices. Consumption of 1.25

million tons of rubber with per capita usage of 1.2 kgs. And exports of rubber goods

worth Rs.30 billion seems possible by the year 2005.

Asia is now the focus of growth in the rubber industry. All the world's natural

rubber is grown in this region namely Thailand, Indonesia, India, Malaysia, Sri Lanka

etc.

The fastest growing economies in the world are here namely China, India,

Korea, Malaysia etc,. World's powerhouse Japan is here. The largest investments in

new synthetic rubber plants are coming up in Asia. Production of all auto majors is

shifting to Asia, even as consumption-wise Asia's share in the world auto market

grows.


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2.2 COMPANY PROFILE

Established in 1995, Nandhini Rubber Inc. is a prominent name among manufacturers

and suppliers of a wide range of automobile rubber components, serving diverse

industrial requirements. The product range include grommets, mats, piston seals, 'w'

seals, 'o' rings, backup rings, gaskets, diaphragms, damper, rubber band and bellows.

They have a commendable reputation as a supplier of rubber components for

automobiles, chemical, fertilizer, mineral and mines industries for more than a

decade. Rubber is our specialization and we understand the different specialized

requirements of different industries. Their team of engineers and professionals canproduce products that match with the unique and special demands of their clients to

serve them in a better and efficient way.

Recognizing their efforts towards quality products and services, they have been

awarded with the prestigious ISO certification in 2002 and subsequently graduated to

ISO/ TS 16949:2002. Recognizing the importance of the recognition and respect they

are getting from their customers, they are continuously working to improve the

quality and performance of their products.

The company was started by Mr. G. Ashok, a rubber technologist with long industrial

experience with the mission of keeping its customers first. Today, that is what exactly

has happened. Over these years, we have established ourselves as a highly recognized

and reliable brand among our customers, which is a fruit of our quality products,

customization, timely deliveries, cost effectiveness and higher levels of customer

satisfaction.


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2.2.1 Product Application Areas:

Designed keeping in mind the special requirements of their clients, these

products have found wide applications in varied manufacturing industries. Some of

the industries served by them include automobiles, defense, aerospace, hydraulic and

pneumatic system, extreme high temperature applications, cryogenic mid-

performance industrial market, chemical and fluid resistance areas, specific

application areas, environmental resistance Weather/UV/Ozone, Maintenance

applications, OEM and Home appliances.

2.2.2 Mission

Their mission statements reflect their commitment to become a successful and

responsible organization, which includes:

i. To be a unique enterprise by creating new products.ii. To be unsurpassed in terms of quality and price.

iii. To be valued and respected by their customers.iv. To have an innovative approach so as to withstand and defer the competition.v. Supplier of specialty rubber components and services.

In its endeavor to actualize the mission objectives, the company envisions to be a

quality conscious organization, first and foremost, which has further open up avenues

for betterment and growth.

The company is equipped with sophisticated infrastructural facilities to

produce world-class automobile rubber components and products. They have two

manufacturing units, which are equipped with latest machineries and manufacturing

techniques to produce defect free and high performance rubber products. They use the

latest engineering techniques and manufacturing methods to meet stringent

specifications and requirements of their clients.


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Understanding the changing market scenario and the growing demands of

their clients, they spend a big share of their revenues for continuous R&D to keep

pace with changing environment and ever increasing competition. Refining andrevising of products and processes is a major strength of their research team.

Their strategic location enables them to allow better movement of raw

material and finished goods and to serve a wide market. The plants are easily

accessible from the Railway Station, Sea-Port & Air-Port.

Nandhini Rubber Inc, are dedicated to produce superior quality products to

offer maximum customer satisfaction. The company has a well equipped laboratory

backed with qualified rubber technologists with years of experience in the respective

field.

These products are rigorously tested both in-house and at third party reputed

laboratories hardness, tensile strength, hot air, oil and fuel aging at prescribed

temperatures and time.

Some of their specialties, which make us a preferred business partner for our

clients, are:

i. High quality standardsii. A design solution to a design problem

iii. Competitive pricesiv. Timely deliveriesv. Efficient execution of large as well as small orders

vi. They believe in long term business partnerships


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CHAPTER 3

CONCEPTUAL AND THEORITICAL REVIEW

3.1Inventory management:

Every organization (or) enterprise needs inventory for the smooth running of

its activities. It is a link between production and distribution process.

Inventory constitutes the most important part of current assets. It is approximately 60

to 65% of current assets in public ltd companies in India. So that it is very essential to

name a proper control and management on Inventories, for the every organization

must maintain the availability of required materials insufficient quantity as and when

required and also to Minimize inventory investments.

3.1.1 Inventory consists of the following:

i. Raw materialsii. Work in process

iii. Finished goods3.1.2 Raw Materials:

These are basic inputs that converted into finished products through the

Manufacturing process. Raw material inventories are those units which have

Purchased and stored for future products. These are goods which have not yet been

committed to production in a manufacturing firm.

3.1.3 Work-in-Process:

These are semi-manufactured products. They represent products that need

more work before they become finished products for sale. This includes those

materials which have been committed to production process but have yet been

completed.


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3.1.4 Finished Goods:

Inventories are those completely manufactured products which are ready to

sale and to use. In the other hand these are completed products awaiting sale. They

are generally referred to as merchandise inventory.

3.1.5 Need of inventory:

Every firm must maintain adequate inventory or its smooth running of the

business and to give the competition to our competitors and not to loss of customers

and business for that purpose maintenance of adequate Inventory is most needed.

i. To facilitate smooth production and sales operations.ii. To face the risk of variation in demand and supply.

iii. To face the price changes in inventory and quantity discounts.

3.1.6 Effects of holding high stocks

i. Increased storage costii. Increased capital investment, which reduce the capital

iii. Available for other activities and projectiv. Increased risk of obsolescencev. Increased opportunities for obtaining purchases discounts by bulk ordering

vi. Stable production programs, which result in the maintenance of a steady workforce

vii. High level of serviceviii. Reduction in replenishment order costs


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3.1.6 INVENTORY COSTS:

Costs associated with inventories are as follows:

Purchase or acquisition cost:

Goods may be purchased directly or manufactured in house. When it is

purchased, the purchase price net or quantity discounts plus freight, insurance,

loading, unloading, etc., shall be the acquisition cost. For goods manufactured in-

house, the unit cost of production inclusive of factory overheads shall constitute the

acquisition cost.

Ordering or set-up costs:

When goods are outscored the cost are associated writing and placing an

order, following it up with the venders, receiving and inspecting the materials and

cost of all other jobs necessary for taking goods to store shall be treated as ordering

cost. The set-up cost shall include items such as preparing the shop order, scheduling

the work, pre-production inspection, etc.,. Ordering or set-up cost do not vary with

the size of the order but with the number of orders or set ups.

Holding cost:

This cost has two parts:

i. Cost of physical carrying of inventories like storage cost, insurance, rates&taxes, handling, shrinkage, deterioration and obsolescence

ii. Financial cost of funds engaged in inventories which is generally theopportunity cost of alternative investments. Holding cost is found to be

proportional to the value of inventories held, and hence it is assumed to be a

variable cost in inventory management.


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Stock out cost:

As indicated before, this is an implicit cost of lost sales due to shortage of

supplies. It includes such cost as back order costs, lost profit due to loss of present

sales and also cost of losing goodwill of the firm, which affects future sales and

profit.

3.1.7 REASONS FOR HOLDING INVENTORY

i. To stabilize production.ii. To take advantage of price discounts.

iii. To meet the demand during the replenishment period.iv. To prevent loss of orders.v. To keep pace with changing market conditions.

3.1.8 MOTIVES OF HOLDING INVENTORIES

The Transaction Motive which facilitates continuous production and timely

execution of sales orders.

The Precautionary Motive which necessities the holding of inventories for

meeting the unpredictable changes in demand and supplies of materials.

The Speculative Motive which induces to keep inventories for taking

advantage of price fluctuations, saving in re-ordering costs and quantity discounts

etc.,

3.1.9 COSTS ASSOCIATED WITH INVENTORY

i. Production cost.ii. Capital cost.

iii. Ordering cost.iv. Carrying cost.v. Shortage cost.


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3.1.10 INVENTORY CONTROL

The main objective of inventory control is to achieve maximum efficiency inproduction & sales with minimum investment in inventory.

Inventory control is a planned approach of determining what to order, when to order

and how much to order and how much to stock, so that costs associated with buying

and storing are optimal without interrupting production and sales.

3.1.11 BENEFITS OF INVENTORY CONTROL

The benefits of inventory control are:

i. Improvement in customers relationship because of the timely delivery ofgoods and services.

ii. Smooth and uninterrupted production and hence, no stock out.iii. Efficient utilization of working capital.iv. Economy in purchasing.v. Eliminating the possibility of duplicate ordering.

3.1.12 PRINCIPLES OF INVENTORY CONTROL

a. Inventory is only created by spending money for materials and the labour andoverhead to process the materials.

b. Inventory is reduced through sales and scrapping.c. Accurate sales & production schedule forecasts are essential for efficient

purchasing, handing & investment in inventory.

d. Management policies which are designed to effectively balance size andvariety of inventory with cost of carrying that inventory are the greatest factor

in determining inventory investment.


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e. Forecasts help determine when to order materials. Controlling inventory isaccomplished through scheduling production.

f.

Records do not produce control.g. Control is comparative & relative, not absolute. It is exercised through people

with varying experiences and judgment rules & procedures establish a base

from which the individuals can make evaluation and decision.

h. With the consistent practices being followed, inventory control can becomepredictable and properly related to production and sales activity.

3.1.13 Objectives of inventory management:

i. To ensure continuous supply of materials, spares and finished goods so thatproduction should not suffer at any tie and the customers demand should also

be met.

ii. To avoid both over-stocking and under-stocking of inventory.iii. To maintain investment in inventories at the optimum level as required by the

operational ad sales activities.

iv. To keep material cost under control so that they contribute in reducing thecost of production and overall costs.

v. To eliminate duplication in ordering or replenishing stocks. This is possiblewith the help of centralizing purchases.

vi. To minimize losses through deterioration pilferage wastages and damages.vii. To ensure perpetual inventory control so that materials show in stock ledgers

should be actually lying in the stores.

viii. To ensure right quality goods at reasonable prices. Suitable quality standardswill ensure proper quality of stocks. The price analysis, the cost-analysis and

value analysis will ensure payment of proper prices.

ix. To facilitate furnishing of date for short-term and long-term planning andcontrol of inventory


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3.1.14 RATIO ANALYSIS:

Inventory as a percentage of current assets

Generally inventory constitutes the major portion of current assets. It can be

classified as raw materials, work-in-progress and finished goods inventory. A study

on inventory as a percentage of current assets reveals the stock turning capacity of the

company.

Raw material as percentage of total inventory

A study on raw materials as percentage of inventory reveals that how fast

investment in raw materials is turned into sales. A bigger percentage means poor raw

material turnover and vice-versa

Finished goods as % of Total Inventory

Finished goods

------------------ X 100

Total inventory

Total Inventory

------------------ x 100

Current assets

Raw material

------------------ X 100

Total inventory


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Finished goods mean the goods, which are ready to sale after production. A

more finished goods percentage in relation to total inventory means there is a poor

finished goods and vice-versa.

Inventory Turnover Ratio

The cost of goods sold means sales minus gross profit. The average inventory

refers to the simple average of the opening stock and closing stock. The ratio

indicates how fast inventory is sold. A high ratio shows liquidity and vice-versa. A

low ratio would dignify that does not sell fast and stays on the shelf or in the

warehouse for a long.

Inventory Holding Period

This ratio measures the inventory application efficiently of the concern in the

production process. A high inventory turnover ratio means higher production and

sales and vice-versa. Generally firms require higher stock turnover ratio. Data

relating to the inventory holding period is depicted in Inventory turnover ratio.

Cost of goods sold

---------------------

Average inventory

365

-----------------------------

Inventory turnover ratio


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Being a manufacturing concern the company should keep its efforts to

minimize inventory holding period.

3.1.15 ABC Analysis

ABC Analysis or classification which is said to be Always better control.

In this, the higher value items are classified as

A items would be under the tightest control.

B items fall in between tense two categories and require reasonable attention of

management.

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

FEATURES OF ABC ANALYSIS

A Class (High Value) B Class (Moderate Value) C Class (Low Value)

Tight control on stock

levels

Low safety stock

Ordered frequently

Individual posting in

stores

Weekly control reports

Continuous effort to

reduce lead time

Moderate control

Medium

Less frequently

Individual

Monthly control

Moderate efforts

Less control

Large

Bulk ordering

Collective posting

Quarterly control

Minimum efforts


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3.2 RESEARCH REVIEW

According to Reckoner in management is the extensive functionality. It

makes possible successful planning and control of your inventory flow. Reckoner

inventory management maintains an achieve of the entire stock transactions taking

place, providing the company realtime information on inventory level across units.

According to Accounting Standard2 (AS2) issued by the institute of Charted

Accountants of India, inventories are tangible properties such as held for sale in the

ordinary course of business, in the process of production of such sale.

According to Jeffrey Wilke, Vice President and general manager of operation

at Amazon, identified four things Amazon has done to improve customer service

through inventory management.

Increased warehouse capacity quickly .There million squares feet of

warehouse capacity in less than a year , which enable Amazon to develop the

appropriate amount of cycle, safety stock, and anticipation inventories to services to

services its customers.

Introduced state of the art automation and mechanization. The warehouses are

efficient and flexible enough to move item in container size, pallet sizes or lot sizes of

one, thereby reducing handling costs.

Linked order information to a customer archive through information

technology. When a customer places an order for a particular basket of goods, the

system capture the data and adds it to a database of past purchases from that

customers. This capability enables Amazon to forecast future purchases and tailor the

shopping experience the customer receives.


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Replaced the system across the distribution centers where possible. Linking

capacity, automation and information technology allows Amazon to expand in item

of product breadth and in terms of partnerships and alliances. Because the system canbe replaced, Amazon has the capacity to expand in modular fashion as new

warehouse are add.

INVENTORY AS MANAGING INVENTORY BY WOLFE BAGBY

In this review Mr. WOLFE BAGBY explains inventory as managing

inventory to Meet Profit Goals, Shortening the cash cycle, avoiding inventoryshortage, Avoid excessive carrying costs for unused inventory, Improving

profitability by decreasing cash conversion, JIT.

A STUDY ON INVENTORY MANAGEMENT BY CHARLES ATKINSON

In this review Mr. CHARLES ATKINSON explains inventory as inventory

management topics, he explains average inventory levels, and in this topic he

explained about two parts. The first half part of this article covers how to find what

inventory levels should be, and the second half covers how to evaluate it.


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CHAPTER-4

DATA ANALYSIS AND INTERPRETATION

4.1 RATIO ANALYSIS

4.1.1 Table showing on Inventory as a percentage of current assets

Interpretation:

The data provided in the above table shows an inventory as a

percentage of current assets. The ratio has been decreased from 5.32% in 2007 to

4.16% in 2011. This is because total current assets are increased from 2009 to 2011.

Year Total

Inventory

Current assets Inventory as a %

of currents assets

2007 12,31,806 2,31,69,105.04 5.32%

2008 7,58,882 2,80,34,883 2.71 %

2009 8,82,302 2,44,18,221 3.61 %

2010 12,87,442 2,87,30,906 4.48 %

2011 15,12,842 3,63,56,571 4.16 %


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Therefore the overall stock turnover ratio of the company has been inferred average

performance.

Chart showing on Inventory as a percentage of current assets:

CHART 4.1.1

0

1

2

3

4

5

6

2007 2008 2009 2010 2011

Inventory as percentage of current assets

inventory as % of currentassets


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4.1.2. Table showing on raw material as percentage of total inventory

Year Raw material Totalinventory Raw material as% of inventory

2007 6,03,037 12,31,806 48.96%

2008 1,50,882 7,58,882 19.88 %

2009 6,12,486 8,82,302 69.42 %

2010 8,08,270 12,87,442 62.78 %

2011 7,41,292 15,12,842 49 %

Interpretation:

The data in the above figure clearly shows the % of raw materials over

the total inventory which shows higher improvement from 2007 to 2009, again the

ratio has been decreased from 69.42% in 2009 to 49% in 2011 due to decrease in raw

materials. Therefore the overall raw material as % of total inventory ratio of the

company has been fairly good.


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Chart showing on raw material as percentage of total inventory

Chart 4.1.2

0

10

20

30

40

50

60

70

80

2007 2008 2009 2010 2011

Raw material as a percentage of total inventory

RM%


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4.1.3 Table showing on finished goods as a percentage of total inventory

Interpretation:

The data in the above table shows the performance regarding the % of finished goods

over the total inventories. The ratio increased from 51.04% in 2007 to 80.12% in

2008 but it decreased in the next two years when compared to 2008 due to decrease in

Year Finished

goods

Total

inventory

Finished goods

as a % of total

inventory

2007 6,28,769 2,31,806 51.04 %

2008 6,08,000 7,58,882 80.12 %

2009 2,69,816 8,82,302 30.52 %

2010 4,79,172 12,87,442 37.22 %

2011 7,71,549 15,12,842 51 %


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finished goods. Again it has been increased from 37.22% in 2010 to 51% in 2011. On

the whole there is better finished goods turnover as compared to raw materials

turnover of the company.

Chart showing on finished goods as a percentage of inventory

Chart 4.1.3

0

10

20

30

40

50

60

70

80

90

2007 2008 2009 2010 2011

Finished goods as a percentage of inventory

FG as a % of inventory


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4.1.4. Table showing on Inventory turnover ratio

Interpretation:

The data in the above table indicates a number of times a firms average inventory is

sold during the year. The ratio has been increased from 0.1954 in 2007 to .3772 in

2009 again it has been decreased in 2011 from .3772 to .3294.Therefore there is no

efficient management of inventory.

Year Cost ofgoods sold

AverageInventory

Inventoryturnover ratio

2007 2,59,16,382 13,26,444 0.1954

2008 2,61,34,860 9,95,344 0.2628

2009 3,09,52,306 8,20,592 0.3772

2010 3,74,37,657 10,84,872 0.3451

2011 4,61,22,694 14,00,142 0.3294


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Chart showing on inventory turnover ratio

Chart 4.1.4

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

2007 2008 2009 2010 2011

Inventory turnover ratio

inventory turnover ratio


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4.1.5 Table showing on inventory holding period

Year Days in aYear Inventoryturnover ratio Inventoryholding period

2007 365 19.54 18.67

2008 365 26.28 13.89

2009 365 37.72 9.68

2010 365 34.51 10.58

2011 365 32.94 11.08

Interpretation:

The data in the above table says the number of days for which the inventory is held in

the company. The maximum inventory holding period of 19 days in 2007 and a

minimum of 9 days in 2009 and again the holding period are increased to 11 days in

2011.However; there is average inventory turnover performance in the company.


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Chart showing on inventory holding period

Chart 4.1.5

0

2

4

6

8

10

12

14

16

18

20

2007 2008 2009 2010 2011

Inventory holding period

inventory turnover period


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4.2 TREND ANALYSIS

4.2.1MEANING

Regression means dependence and involves estimating the values of a

dependent variable Y, from an independent variable X.

Y=a+bX

a=Y/n

b=XY/X^2

4.2.1 TABLE SHOWING ON INVENTORY TREND

YEAR

(x)

Inventories

(Rs.)

Y

X

X=x-2009

X2

XY

(Rs)

2007 1231806 -2 4 -2463612

2008 758882 -1 1 -758882

2009 882302 0 0 0

2010 1287442 1 1 1287442

2011 1512842 2 4 5025684

TOTA

L()

5673274 0 10 3090632

a =y/n

=5673274/5

=1134655

b =xy/x2

= 3090632/10

=309063.2


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Y=a+bx

2012 =1134655+309063(3)=1134655+92789

=2061844

2013 = 1134655+309063(4)

=2370907

2014 = 1134655+309063(5)

=2679970

2015 =1134655+309063(6)

= 2989033

2016 =1134655+309063(7)

=3298096

Interpretation:

The above calculation reveals that the inventories requirement of the

company increase to the next five years


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Chart showing on inventories of Next five Years:

Chart 4.2.1

0

500000

1000000

1500000

2000000

2500000

3000000

3500000

2012 2013 2014 2015 2016

INVENTORIES

INVENTORIES


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4.3EOQ ANALYSIS:

4.3.1Table showing the economic order quantity:

S.NO PARTICULARS QTY OC CC EOQ

Ordered

qty

no.of

orders/yr

Frequency

of

orders(days)

1 N-854 0 5 3 0 0 0 0

2 Rubaloy-73 360 5 3 34 30 11 34

3 EPDM-4570 4500 6 4 118 377 38 10

4 EP-3090EM 100 6 4 18 8 6 64

5 EPDM-8340 0 6 4 0 0 0 0

6 EPDM-6485 400 7 4 35 33 11 32

7 EPDM-4331A 200 6 4 25 26 8 46

8 KNB-35L 1100 6 4 59 95 19 19

9 RMA 400 6 4 35 36 11 32

10 NEOPRENE'W 1500 9 6 68 126 22 17

11 B-30 300 9 6 31 26 10 37

12 NITRILE 553 2000 5 3 79 167 25 14

13 AR-801 700 16 10 47 58 15 24

14 RECLAIM 0 1 1 0 0 0 0

15 SBR 1502 800 6 4 50 67 16 23

16 SILICONE 300 7 4 31 25 10 37

17 ACTIVE Z/O 10 5 3 6 16 2 204

18 ADC-21 0 10 6 0 0 0 0

19 B,PIGMENT 2 3 2 2 0 1 456

20 BLUE 1 4 3 2 0 1 645

21

BROWN

FACTICE 100 3 2 18 19 6 64

22 COCO3 1300 0 0 64 108 20 18

23

CALCIUM

OXIDE 30 1 1 10 13 3 118

24

CALCINIED

CLAY 50 0 0 12 4 4 9125 CBS 100 8 5 18 19 6 64

26 CM-CUP 5 11 7 4 0 1 288

27 DRT 20 17 11 8 10 3 144

28 GF 150 2 1 22 25 7 53

29

GREEN

COLOUR 5 14 9 4 0 1 288


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30 MF 3300 2 1 101 275 33 11

31 BF 5 3 2 4 0 1 288

32 ALSTIN BLACK 350 1 1 33 33 11 34

33 WROX 40 0 11 7 0 0 0 0

34 MI WAX 50 3 2 12 13 4 91

35 MBT 100 6 4 18 20 6 64

36 MB'S 30 6 4 10 3 3 118

37 MO 70 3 2 15 10 5 77

38 MIZ 1 9 6 2 0 1 645

40 MTBLACK 150 4 2 22 15 7 53

41 NAL2 20 14 9 8 3 3 144

42 NAT,CRUMB 1 5 3 2 0 1 645

43 EBDM CRUMB 10 16 10 6 1 2 204

44NU GUARD445 10 34 22 6 1 2 204

45 DEH 1 14 9 2 0 1 645

46 VAX 200 3 2 25 17 8 46

47 FLEX-13 1 9 6 2 0 1 645

48 PINK CLAY 1000 0 0 56 83 18 20

49 PUST AID 200 4 3 25 17 8 46

50 POTASIUM 5 14 9 4 0 1 288

51 POVERENE 20 4 3 8 2 3 144

52 PPT SILICA 300 15 10 31 25 10 37

INTERPRETATION

In the above table the EOQ & the no. of orders purchased per year for various

components are calculated. The calculated EOQ is compared with each component

purchased in the organization. It is found that, there is a variation in the EOQ &

number of quantities purchased. It is understood that the company is not following

EOQ for purchasing the materials & therefore the inventory management is not

satisfactory.


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4.4 FSN ANALYSIS

4.4.1MEANING

All the items in the inventory are not required at the same frequency. Some

are required regularly, some occasionally and some very rarely.

FSN classifies items into Fast moving, Slow moving and Non-moving.

4.4.2Table showing on fast moving items:

FAST MOVING ITEMS

O Ring 06027

O Ring 25001

Socket cover Telco

Socket cover Zen

Socket covers (YC5)

Cover CHL

Damper N3040172

Damper N7040052

HT CAP

One hole

Rib bend

Rubber tube 100MM

Rubber tube 50MM

Rubber seal


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4.4.3Table showing on slow moving items:

SLOW MOVING ITEMS

Gum seal green

Gum seal newTerminal cover

Grommet 5394

Cap dia 45mm

Grommet 521274

Grommet 143843

Cap dia 50mm

Bell type grommet

Rubber cap starter motor

Grommet N 40191

Grommet H 40153


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4.4.4Table showing on non moving items:

NON MOVING ITEMS

Cap rubber 14.5

Blue gum seal

Dummy seal brown

Grommet 4 hole

Grommet 5 hole

7 hole grey


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4.4.5 TABLE SHOWING ON FSN ANALYSIS

Categories Total No. items in Classes Percentage

F 16 44%

S 14 39%

N 6 17%

Total 36 100

INTERPRETATION:

In the above table shows the classification of various components as FSN

items using FSN analysis techniques based on movements. From the classification F

items are those which moves fast and constitutes 44% of total components. S items

are those which move slowly constitutes 39% of total components and N items are

those which non-moving items 17% of total components. It is good as the company

maintains high percentage in moving items.


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Chart showing on FSN analysis:

Chart 4.4

0

5

10

15

20

25

30

35

40

45

50

F S N

FSN ANALYSIS

PERCENTAGE


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4.5. OPERATING CYCLE:

4.5.1 Raw materials holding period

Particulars 2007 2008 2009 2010 2011

Opening

stock

841013.1 603037 150882 612486 808270

Add:

purchase

25727105 25661936 31075806 37842797 46348094

26568118 26264973 31226688 38455283 47156364

Less:

closing

stock

603037 150882 612486 808270 741292

Raw

material

consumed

25965081 26114091 30614202 37647013 46415072

Raw

material

consumed /

day

72125.23 72539.14 85039.45 104575 128930.8

Raw

material

inventory

603037 150882 612486 808270 741293

Raw

material

holding day

8.360972 2.080008 7.202375 7.729091 5.749544


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4.5.2 WORK IN PROGRESS CONVERSION PERIOD

Particulars 2007 2008 2009 2010 2011

Cost of

production 24373706 27046498 25871811 37943313 46652271

Cost of

production

per day

67704.74 75129.16 7186614 105398.1 1295896

Work in

progress

251508 243200 107926 191669 308620

WIP holding

days 3.714777 3.237092 1.501764 1.818524 2.381518


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4.5.3 FINISHED GOODS STORAGE PERIOD

Particulars 2007 2008 2009 2010 2011

cost of

goods sold 25916382 26134860 30952306 37437657 46122694

Cost of

goods sold

per day

71989.95 72596.83 85978.63 103993.5 128118.6

Total stock

of finished

goods

628769 608000 269816 479172 771549

Finished

stock

holding in

days

8.734122 8.375021 3.138175 4.607711 6.022147


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4.5.4 NET OPERATING CYCLE

Interpretation:

The table shows that the operating cycle goes on negative value because due to

creditors payment period is more.

Particulars 2007 2008 2009 2010 2011

Raw

material

holding

period

8 2 7 7 5

Work in

progress

conversion

period

4 3 2 2 2

Finishedgoods

storage

period

9 8 3 5 6

Debtors

collection

period

122 134 124 105 109

Gross

operating

cycle

143 147 136 118 122

Less:

creditorspayment

period

129 432 279 209 263

Net

operating

cycle

14 -285 -143 -91 -141


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Chart showing net operating cycle:

Chart 4.5

-300

-250

-200

-150

-100

-50

0

50

2007 2008 2009 2010 2011

Net operating cycle


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4.6 CORRELATION ANALYSIS:

4.6.1Table showing on Correlation between Inventory and sales

(Rs. in lakhs)

Year

Inventory

(X)

sales(Y)

X2

Y2

XY

2006-2007 13.26 515.46 175.8 265740 6835

2007-2008 9.95 560.18 99 313802 5574

2008-2009 8.20 604.24 67.24 365106 4955

2009-2010 10.85 802.50 117.7 644006 8707

2010-2011 14 992.21 196 984481 13891

TOTAL 56.26 3474.59 655.74 2573135 39962

XY - X * Y

r =

X - (X) Y - (Y)

N N

= -2746.4

(22.27) (-1378.08)

= -2746.4

-30689

r = 0.089

INTERPRETATION:

Correlation analysis between inventory and sales shows positive correlation

which means when inventory value increases sales also increase and vice-versa.


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Documents

INVENTORY MANAGEMENTPart 1