Inventory Management in SRF

7/27/2019 Inventory Management in SRF

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CONTENTS

o Chapter1o Introduction of the industry

o Chapter2 Objective of the study

o Chapter3o Introduction of the topico Chapter4

Results and discussiono Chapter5

Limitation & findingso Chapter5

Conclusion References Annexure


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CHAPTER1


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INDUSTRY PROFILE

SRF Ltd., earlier called the Sriram Fibers, has evolved into a modern industrial major. Its roots

go back to over a century, with the establishment of the parent company, DCM (Delhi Cloth

Mills) in 1889. Since its inception in 1974, the company has been improving continuously and

has made its mark in the industry.

It is the market leader in its core businesses, namely industrial synthetics and Fluorochemicals. It

also enjoys growing presence in light engineering products,engineering plastics packaging films

and Pharma chemical business.

The company was established in 1970, as Shri Ram Fibres Limitedby DCM Limited as a wholly

owned subsidiary. Its initial focus was on the manufacture of nylon cord fibres for tyres. Its first

manufacturing plant was setup in Manali, nearChennai, in 1973.

Over the years, the company diversified its product offerings into technical textiles, engineering

plastics, chemicals and packaging films. In 1990, it changed its name to SRF Limited.

In 1986, the company setup a joint-venture with Denso,SRF Nippondenso, for the manufacture

of automotive components. This was later spun off as a separate company in 1993. Another

subsidiary, SRF Finance, started in 1986, was sold to GE Capital in 1997. SRF also had a health-

care division which manufactured plastic optical lenses, which was spun off as a separate

company in 1997. SRF Limited was listed in the 2011 Asia'sBest under a Billion list by Forbes

magazine.

SRF today operates from nine plant locations in India and abroad and has attained

market leadership position in many of the products it manufactures. SRFs

relentless focus on TQM techniques has resulted in the company winning the

prestigious Deming Application Prize in 2004 (the first nylon tire cord company

outside Japan to be awarded this prize).
http://en.wikipedia.org/wiki/Chennaihttp://en.wikipedia.org/wiki/Joint-venturehttp://en.wikipedia.org/wiki/Densohttp://en.wikipedia.org/wiki/Asiahttp://en.wikipedia.org/wiki/Forbes_magazinehttp://en.wikipedia.org/wiki/Forbes_magazinehttp://en.wikipedia.org/wiki/Forbes_magazinehttp://en.wikipedia.org/wiki/Forbes_magazinehttp://en.wikipedia.org/wiki/Asiahttp://en.wikipedia.org/wiki/Densohttp://en.wikipedia.org/wiki/Joint-venturehttp://en.wikipedia.org/wiki/Chennai


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SRF PURPOSE

To be an inspired, caring organization

To create extraordinary value for all

To pursue excellence and customer loyalty

To always meet tomorrow's challenges today

" We Wil l M ake Our Nation Proud By Being the Best at What We Do"

SRF VISION

To be one of the most admired business organizations in India, deeply loved by its

people, respected and sought after by its customers and shareholders.

To be World Leader in at least one of its businesses with global operations and

technology leadership.

To be one of the most sought after employers in the country. A Company known for its

people management skills. One that can unlock the talent hidden in each employee and

inspire him or her to take on and accomplish extraordinary future challenges.

To be a shining example of deep commitment and contribution to development of people

and society.

SRF MISSION

Enable customer satisfaction of a high level and a standard higher than that of

competition.

Provide good returns to our shareholders and other financial stakeholders.

Continuously enhance the total quality of life of our employees and help them realize

their potential.

Contribute to the development of the society and the nation.


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SRF CORE BUSINESSES

THE INDUSTRIAL SYNTHETICS BUSINESS, which manufactures Nylon Tyre Cord

Fabric, and is the 7th largest producer of NTCF in the world and the largest in India.

THE COATED FABRICS BUSINESS, which manufactures high quality fabrics used for

non-tyre applications in the international and domestic market.

THE BELTING FABRICS BUSINESS, which manufactures fabric used to make

conveyor belts, and is the 2nd largest producer in the world and the largest in India.

THE FLUOROCHEMICALS BUSINESS, which manufactures Refrigerant Gases and

Choloromethanes, and is the largest producer in India with exports to more than 50

countries.

THE PACKAGING FILMS BUSINESS, which manufactures Biaxially Oriented Poly Ethylene

Terephthalate (BOPET) also called Polyester (PET) Film, is predominantly used in Flexible

Packaging Applications.

THE PHARMA CHEMICALS BUSINESS, which manufactures intermediates/ advanced

intermediates and provides contract research, custom synthesis & contract manufacturing

services to the Pharma Industry.

PROCUREMENT SOLUTIONS & SERVICES: Procurement of indirect materials

requires organizations to identify and deal with countless suppliers based on imperfect

knowledge, in a market that is highly disorganized. SRF eBIZ provides solutions &

services to increase efficiencies in the procurement of these indirect items (also known as

B & C category items).

THE ENGINEERING PLASTICS LIMITED caters to the Nylon engineering plasticsrequirements of companies in the automobiles, white goods, electrical goods, telecom

cables, textile machinery, and electronics sectors. The brands which are famous are

TUFNYL and TUFBET.


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THE FISHNET TWINES is a niche business where as leaders in the branded segment we

sell fishnets, fishing lines, spindles, tapes, nylon belts and straps as well as velcrotapes to

end users in India, Sri Lanka,Uganda and Nigeria.

SRF Ltd also has a wholly owned subsidiary SRF Overseas ltd at Jebel Ali, Dubaiand is

engaged in manufacturing of Tyre Cord Fabric. This was the first overseas initiative of

SRF Group.


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CHAPTER2

OBJECTIVE OF THE STUDY


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OBJECTIVE OF THE STUDY

The project is designed to give an overview of Inventory Management. To determine the changes in the Inventory position of the company. To determine the increase or decrease in Inventory level. To determine the various ratios for analyzing the Inventory level of the company. To spot out strengths & weakness of business. To determine the absolute figures for the last two years


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CHAPTER3

INTRODUCTION OF THE TOPIC


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THEORIES OF INVENTORY MANAGEMENT

Inventory Management

What do you mean by inventory?

Inventory is a list for goods and materials, or those goods and material themselves,

held available in stock by a business.

Management of Inventories is with the primary objective of determining, controlling

stock levels within the physical distribution function to balance the need for product availability

against the need for minimizing stock holding and handling costs.

A subsidiary ledger which is usually used to record the details of individual items of

stock. Inventories can also be used to hold the details of other assets of a business. There are

three types of inventory: Raw materials, work in process and finished goods. Raw materials are

materials and components that are inputs in making final products. Work in process also called

stock in process refers to goods in the intermediate stages of production finished goods consist of

final products that are ready for sale .inventory represents the second largest asset category for

manufacturing companies next only, to plant and equipment he proportion of inventory to total

assets generally consists of 15 to 30 percentage.

Inventories is a list of goods available in stock at warehouses .it is also use for a list of

contains of a household and for a list of testamentary purpose of the possession of someone who

has died in accounting inventory consists as assets.


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Spares and consumables

Spares play an important part of inventories by themselves. Their consumption pattern

defers from that of raw material, consumables and finished goods. They also even keep these

items in a spare which is not easily available. There is the material which act as catalysis in the

production process and are not directly found in to output. This enables the production process to

function smoothly like - fuel, coil, oil, LSHS etc, are the example of the consumables.

Objective of the Inventory Management

The basic responsibility of the financial is to make sure the firms cash flows are

managed efficiently. Efficient management of inventory should ultimately result in the

maximization of the owners wealth. It was indicated that in order to minimizes cash

requirements, inventory should be turned over as quickly as possible, avoiding stock-outs that

might result in closing down the production line or lead to a loss of sales.

The main objective of inventory management consists of two parts.

1. To minimize investment in inventory.2. To meet demand for the product by efficiently organizing the production and sales

operations.

The firm should minimize investment in inventory implies that maintaining inventory involves

costs, such that the smaller the inventory, the lower is the cost to the firm. But inventory also

provide benefits to the extent that facilitate the smooth functioning of the firms.


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Why Inventory Management?

An increased emphasis on liquidity has lead businessman to hold cash and securities in

performance to inventories. Inventories are now often referred to as the grave yard of the

business.

The surplus of the stock has been a principal guide of failure thus lead to change their

view regarding holding of inventories and adopt scientific way of inventory holding. Following

are factor that are following the view of scientific inventory control.

1. Size of Business

The increased size of business establishment has played an important role in modern

large scale enterprise. Often it operates with small profit margin which can be eliminated by

scientific inventories control method.

2. Wide variety and complexityThe wide variety and complexity in modern technology requires conscious inventory

management. The larger the range of requirement, the greater the number of problem of

investment, procurement, storage, holding, accounting, shortage and stock out deterioration etc.

3. Urgency in material requirements

The need and importance of inventories varies in different production with the ideal

time, cost of men, machinery and urgency of requirement. But it is highly uneconomical to keep

a secure and a rapid capital turnover and the most effective means of achieving these objectives

is to control stores.


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A. Cost of Ordering

The activities that are carried out for fulfilling the need for material, which consume

executive time, stationary and communication charges, these are the cost of ordering.

B. Cost of Carrying out Inventories:

The moving factor to control inventory is the cost incurred by holding. It is the cost that

is expressed as percentage of the average investment i.e. capital investment, spoilage

insurance cost.

.

Material Control Techniques

The concept of material control techniques signifies the efficiency of any organization.

The contingent upon having the right material of right quality at right quantity at the right time in

following three areas:

1. Purchase Control

2. Storage Control

3. Warehouse Accounting

1. Purchase Control

This is one of the basic functions of inventory management and forms a major part of it.

It needs considerable expertise not only negotiating but also in the techniques of competitors and

studying of economic trends in respect of materials to be purchased in large quantity to increase

the profit.


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Inventory Management In GNFC:

GNFC is maintaining inventories successfully. There are total 1, 40,000 items in

inventory whose total value is Rs.1 crore (approx.) Bifurcation of inventories percentage wise as

shown below:

TABLE NO: 5

Mechanical Spares 57 %

Catalyst & chemical spares 12 %

Electrical spares 11 %

Instrumentation items 10 %

Other miscellaneous items 10 %

In 57% Mechanical Spare, there are some insured items which are essential and cannot

produce immediately. These items are not come into use daily. These items are very costly and

carrying cost is also high.

Bifurcation of Inventories:DIAGRAM NO: 4

Mechanical Spares

Catalyst & chemical spares

Electrical spares

Instrumentation items

Other miscellaneous items


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GNFC maintain some inventories different ways like use of SAP system.

COMPOSITION OF THE NET OPERATING CYCLEDIAGRAM NO: 5


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Material Control Techniques in GNFC

To know the practical use of various inventory control techniques in GNFC following inventory

control techniques were studied and evaluated which are:

1. Codification System

2. Classification of Inventory:

(a)ABC Classification(b) Determination of E.O.Q(c) FSN Classification(d) HML Classification(e) Zero Inventories

3. Determination of Inventories Level:

(a) Minimum Stock Level(b) Maximum Stock Level(c) Re-Order Level

4. Importance Substitution.5. Supply Chain Management & Inventory Control.


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1. Codification System:

Codification system means assigning a unique code or name to each item based on its

use, characteristics, importance and other features. It is the process of allocating a code after

logical grouping and sub grouping considering material type and application.

Principles of Material Code:

There should be adequate provision for future expansion and there should be no duplication. One particular size and type should be at one place only. Description should be brief, very accurate, specification, part number; drawing number

should be quoted whenever required.

Unit of issue and receipts should be given and followed strictly. Code should be understandable by those who have to use it. It should be properly classified for section, classed and group. One unique code for each item represented by single code.

Advantages:

It enable systematic grouping of similar items together. It helps in avoiding duplication of items. Rationalized codification result in variety of reductions. Many firms have successfully

reduced the number of items stock by them.

It avoids confusion caused by the long and unwieldy description and accurately logicallyand logically identifies all items.

It is the starting point for standardization


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It lays the foundation for an efficient purchase organization by helping to fromspecialized commodity base purchase section. Since items are identified by source of

supply, it is possible to bulk them together to take advantages of bulk discount.

Classification of Inventory

The Inventories having huge amount of use in the organization has to be controlled very

strictly and low amount of use should be kept low control.

The main classification of Inventory is as under:

(a)ABC classification(b)Economics Ordering Quantity(c)FSN classification(d)HML classification(e)Zero Inventories

(A) ABC Classification

In most of the inventories a small proportion of items account for a very substantial usage

and large proportion of items accounts for a very small usage. ABC analysis, based on this

empirical reality, advocates in essence a selective approach to inventory control which calls for a

greater concentration of efforts on inventory items accounting for the bulk of usage value.

ABC classification is a basic analytical management tools which enable top management

to direct their efforts where the result will be maximum. This technique properly knows as

ALWAYS BETTER CONTROL has universal application in many areas of human end eavor.

The techniques tires to analyze the distribution of any characteristic by money value of

importance in order to determine its priority.


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TABLE NO: 6

Class A Class B Class C Class

Items value 70% 20% 10%

Number of items 10% 20% 70%

DIAGRAM NO: 6

(B) Economic Order Quantity:

Order quantity is defined as the quantity or its rupee equivalent for which fresh order of

as inventory item is placed. The decision regarding order quantity of various inventory items is

of vital importance in the management of the inventory item of which total of two types of cost

opposing each other will be the minimum at this level, the sum of all cost of on type is exactly

equal to the sum of all the cost of the other type. Thus quantity is often referred to as economic

order quantity, for the purchase. Purchase item and economic lot size for production item.

Items value

A Class

B Class

C Class


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DIAGRAM NO: 7

Determination of EOQ:

The economic order quantity can be determined with the help of the following formula:

EOQ=\|2AB/CI

Where,

A= annual usage in units.

B= buying cost/ordering cost.

C= carrying cost.

I= inventory carrying cost.

Disposal of Non Moving Items Inventory Control Review Meeting Alternative Material Use Circulation of Non Moving / Slow Moving Items list.


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(C) FSN Analysis

In GNFC FSN analysis carried for consumable items, which are used by multi users,

FSN means fast moving (F), slow moving (S), non moving (N) items analysis. The norms

established by GNFC for each items are as follows:

Fast Moving Items:GNFC has norms that fast moving items have the following:

1.It should have more than 5 issue transactions in a year.

2. There should be multi user. Slow Moving Items:

GNFC has norms that slow moving items have the following;

1. Items should have transaction between 1 to 5 time in a year2. There should be multi user.

Non Moving Items:GNFC has norms that are non moving items have the following:

Items have no issue transaction for last 3 years

Items should have some quantity available in all the past three years.

Actions taken for FSN Analysis: Fast Moving Items:

a. Close watch is required of users, availability of short notice, at time maximumwithdrawals etc data are collected and enough care is taken while fixing level.

b. Annual rate contract are made to avoid stock outsc. Frequency of review is mored. Frequent changes of level are made depending upon the importance of plant /

equipments.


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Slow Moving Items:a. For slow moving items, consumption pattern is studied. In some cases either the item are

being used only in shutdown or by limited users only. While fixing level user weightage

is given and it withdrawals. Normally these items are for specific users and levels can be

kept low but user should give their requirement of abnormal requirement of shutdown

etc.

b. Frequency of review is less.

Non Moving Items:a. Normally on closing of the financial year report are prepared for non moving items. This

report is then circulated to all concerned users department and list will be sent to the

stores disposal procedure.

b. Mean while users department study the use of equivalent material against other similarnature material requirement and give their comment.

c. Accordingly excess material declared for disposal will disposed off.

(D) HML Analysis

This method is similarly to ABC classification but in this case instead of

consumption value of items, medium value Items is considered.

As the name implies the material are classification according to their unit price as

high value Items and negotiate the price.


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As per the company rules:

The items having value greater than or equal to Rs. 1,00,000 are classified as high valueItems.

The items having individual value greater than or equal to Rs. 25,000 and below Rs.1,00,000 is considered to be medium value items.

If the value is less than Rs. 25,000 then it is low value items.

HML analysis value is done for electrical items, instrumentations and other items.

(E) Zero inventories:

GNFC is continuously maintaining the zero inventories of Raw Material like oil and gas.

This is possible because the company has contracted with such suppliers to provide the material

on demand on time.

Lubricants whose 200 liters, 50 to 70 drums are used whose supplier is IOC. GNFC has

negotiated with IOC and provide it accommodation in plant which is known as IOC depot. The

IOC keeps its stock there and when GNFC uses from it when it is needed lubricants only than it

has to pay till that GNFC doesnt need to pay.

The inventory remaining at depot is called the inventory of IOC. On the behalf of IOC,

GNFC had just taken care of it and for that IOC pays GNFC holding charges also. So the

transaction cost of GNFC for lubricant is also reduced. GNFC is also trying for such a depot for

bearing also. For gas also the company has contract with GAIL India ltd, for supply of gas as

requires, lot of saving inventory and its relevant cost is observed due to this.


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Determination of Inventory Level:

The inventory level concept consider store keeping as profit intensive service to

production store keeping should contribute directly to profitability and be concerned with

matter as flow, packing and dispatch.

In the same way that specification is relared to technical needs. so, general level of

stock should be relared to the sales andf production policies of the company.

There are various levels of stock which are established by the GNFC are as follows:

(1)Minimum Level

(2)Maximum Stock Level

(3)Re-order Stock Level

(1)Minimum Level:

This is the level at which any future demands upon the bill will necessary

withdrawals from the reserve stock.

The Minimum stock level is converted to meet exceptional conditions of Demand.

Two months usage of material taken into considerations by the GNFC Ltd. As a

minimum stock level.

(2)Maximum Stock Level:


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This is the Level above which the stock should not be permitted to rise. Eighteen

months consumption of stocks taken into considerations by GNFC Ltd. As a Maximum

stock level.

(3)Re-order Stock Level:

The Point of which the order has to be placed. The Re-order level may not always

be numerically equal to the Economic Order Quantity. It should be regularly reviewed for

paid moving items. For fast factors as change in demand, delivery times or variation in

trend.

(D) Importance Substitution:

GNFC has successfully adopted & exercised these techniques. It has many items /

materials which are imported from abroad. But now, GNFC has started to substitute the imported

item by substituting these items / materials by finding domestic supplier for this product. GNFC

is importing rock phosphate which is used as raw materials. Now GNFC has developed supplier

on domestic market and made contract with him for supply of that raw material.

Procedure Followed:

a. Items are selectedb. It is checked for dimension as well as for material of construction. It is also ifrequired check it with the help of metal analyzer to know exact material ofconstruction. Drawings are developed

c. Local indigenous parties are developed to get it manufactured locally.d. Trials are taken after success it is stopped procuring from abroad


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(E) Supply Chain Management & Inventory Control:

Supply chain management solve the purchasing problem by foregoing the short term

benefit of competitive bidding in order to develop special long term relationship. In exchange the

vendor coincides his production schedule and quantity standards to plant needs thus reducing

uncertainty and hence the need for excess inventories. The release and scheduling process with

the supplier consist of four steps:

a. Make a long term purchase commitment to supplier.b. Give supplier a monthly forecast for a rolling period of six month of production.c. Establishment with a supplier a monthly form release for the next month of production.d. Make an arrangement of supplier on the policy for changing delivery dates.

Inventory Management and Inventory Control Practice:

In all the company they have all types of inventories. But the main important thing is

when and how many times control of the inventories of all the companies is is required. So in

GNFC control of all the inventories is mentioned as under:

The company regularly held the meeting with an agenda of inventory controls. Meeting areheld quarterly, semi quarterly or annually as per the need. The purpose is to see the loopholes

and try to remove it.

Brainstorming is to make control the problem of excess inventory. By arranges such meeting,all the concerned department are informed. The inventory level is maintained with storing

department. These meeting are held as a part of constant performance review.

The company maintained the space and planning for the particular department for example,suppose company has a Pipes and in production department it is required 500 pipes, but here

already company has 200 pipes. So company now requires only 300 pipes and they purchase

it. So in this way company arrange space and plan to maintain it.


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Strength & Weakness of Inventory Management

Strength:

1. Well organized structure of Inventory Management2. Well Defined Policies and Plans.3. Good links with raw material requirements planning and monitoring with annual and

monthly requirements plan.

4. Well Established vendor registration procedure.

Weakness:

1. Non moving items inventory is high. It approx 15% need more clarity and policy plan.2. Disposal activity resulats are not satisfactory.


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CHAPTER3

RESULTS & DISCUSSION


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RESEARCH METHODOLOGY

Research methodology is a way to systematically solve the research problem. It deals with the

objective of a research study, the method of defining the research problem, the type of

hypothesis formulated, the type of data collected, method used for data collecting and analyzingthe data etc. The methodology includes collection of primary and secondary data.

TYPE OF RESEARCH

DESCRIPTIVE RESEARCH

The study follows descriptive research method. Descriptive studies aims at portraying

accurately the characteristics of a particular group or situation. Descriptive research is concerned

with describing the characteristics of a particular individual or a group. Here the researcher

attempts to present the existing facts by collecting data.

5.2 RESEARCH DESIGN

A research design is a basis of framework, which provides guidelines for the rest of

research process. It is the map of blueprint according to which, the research is to be conducted.

The research design specifies the method of study. Research design is prepared after formulating

the research problem.

5.3 SOURCES OF DATA

Data are the raw materials in which marketing research works. The task of data collection begins

after research problem has been defined and research design chalked out. Data collected are

classified :-

Data were collected from the companys annual publications, memorandums ofsettlements, newspapers, journals, websites, and from library books


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DATA INTERPRETATION AND ITS ANALYSIS

Valuation of Inventories:

A. At Plant:

Stores & Spares (including coal) = At weighted average cost.

Raw Materials, Finished Goods & Work in Process = At Lower of Cost or Net RealizableValue. Annual cost is computed on full absorption costing method including material cost

and conversion costs.

Fertilizers of Sub-standard Quality = At Lower of Cost or Net Realizable Value asestimated by the Company. Annual cost is computed on full absorption costing method

including material cost and conversion costs.

B. At Field: Finished Goods = At Lower of Cost or Net Realizable Value. Annual cost is computed on

full absorption costing method including material cost and conversion costs. Costs of

field stocks include freight to the destination.

Fertilizers of Sub-standard Quality = At Lower Costs or Net Realizable Value asestimated by the Company.

Note:Net realizable value is the estimated selling price in the ordinary course of business,

less estimated costs of completion and estimated costs necessary to make the sale.


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Analysis of Inventory Management

The total inventory management of the company includes the raw materials inventory,

work in process inventory, finished goods inventory. The total inventory of the company in

2009-2010 is Rs. 40503.38 lacks. GNFC has total of approx. 214683 different types of

inventories.

TABLE NO: 7

(in lakhs)

Particulars 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Total 26957.87 38846.52 38599.79 43075.71 40503.38

The above graph shows the total inventory management of the company various parts

GRAPH NO: 1

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

50000

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Stores & Spares

Raw Materials

Work in Process

Finished Goods

Total


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The report includes different parts of analysis of the inventory management which is as

follows:

1. Analysis of the composition of inventory.2. Effects of the various inventory ratios.3. Study of the different inventory management techniques4. Find out the inventory management and control practice at GNFC5. The analysis of the report is divided into main four parts, which are

A. Under composition of inventoryB. Various inventory ratiosC. Techniques of inventoryD. Control of inventory

Analysis of inventory managementInventory conversion period is very closely related to the inventory management.

Inventory conversion is the part of the net operating cycle.

1. Raw material conversion period2. Work in process conversion period3. Finished goods conversion period.


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DIAGRAM NO: 8

NET OPERATING CYCLE

GROSS OPERAING CYCLE

INVENTORY CONVERSION

PERIOD

RAW MATERIAL CONVERSION

PERIOD

FINISHED GOODS CONVERSION

PERIOD

WORK IN PROCESS CONVERSION

PERIOD

DEBTOR CONVERSION

PERIOD

PAYABLE DIFFEREDPERIOD


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Raw Material Conversion Period:

Average Raw material Inventory

______________________________

Raw material consumption period

TABLE NO: 8

(in lakhs)

Particulars 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Average R.M. Inventory 4041.72 5274.76 5522.4 6090.595 8270.05

R.M. Consumption per day 214.72 294.78 341.99 343.39 346.56

R.M. Conversion Period 19 days 18 days 16 days 18 days 24 days

GRAPH NO: 2

0

5

10

15

20

25

30

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Raw Material Conversion Period


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Interpretation:

Raw material conversion period is the time period between receiving the raw material and

sending them for production. It is the period of stocking the raw materials for usage. So higher

the ratio lower will be the profit. In the above chart raw material conversion period lies between

15 to 19 days for the last five years. In 2004-2005 it is 15 days which is lowest and so it is good

for the company. But in 2005-2006 it is 19 times which is not good for the company because

higher the ratio the lower will be the profit. In 2008-2009 the ratio is 18 times which is also very

high and so not good for the company. So company should try to reduce it.

Work in Process Conversion Period:

Average WIP Inventory

____________________

Cost of Production

TABLE NO: 9

(in lakhs)

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

Average W.I.P Inventory 2422.75 1793.74 2031.60 2707.93 1110.41

Cost of Production per day 319.38 398.08 461.47 507.88 498.04

W.I.P Conversion Period 8 days 5 days 4 days 5 days 2 days


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GRAPH NO: 3

Interpretation:

Work-in-progress conversion period is the time period when the raw materials are

received for production and the time for their dispatch. The higher the ratio the lower will be the

profitability. In 2007-2008 the ratio is 4 days which is too low and so it is good for the company.

But in 2005-2006 the ratio is 8 days which is too high. But in 2008-2009 the ratio is 5 days

which is low and so good for the company. But as we have not compared it with other companies

any decision cant be taken.

0

1

2

3

4

5

6

7

8

9

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Work in Process Conversion Period


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Finished Goods Conversion Period:

Average finished goods Inventory

______________________________

Costs of goods sold

TABLE NO: 10

(In lakhs)

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

Average Finished Inventory 4351.265 8795.65 11532.51 10332.275 7251.50

Cost of Goods Sold 70.81 84.71 188.63 81.05 39.632

Finished Goods Conversion

Period

61 days 103 days 61 days 127 days 182 days

GRAPH NO: 4

0

20

40

60

80

100

120

140

160180

200

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Finished Goods Conversion Period


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Interpretation:

Finished goods conversion period is the time of storage of finished goods in the

warehouse until they are sold. The higher the ratio the low will be the profit. If we store the huge

stock in warehouse then we are losing the opportunity cost. In 2004-2005 the ratio is 35 days

which increased by 6 days i.e. 41 days in 2005-2006 which is not good. But in 2006-2007 the

ratio is 114 days which indicates that huge stock in laying at the godown and so the company is

losing its profit and so the profit in that year is very low. But in 2008-2009 it is 86 days which is

too high and not good for the company. But as we are not aware about other companies in this

industry any comment about it is not appropriate.

Inventory Conversion Period

TABLE NO: 11

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

R.M. Conversion Period 19 days 18 days 16 days 18 days 24 days

W.I.P. Conversion Period 8 days 5 days 4 days 5 days 2 days

F.G. Conversion Period 61 days 103 days 61 days 127 days 182 days

Inventory Conversion

Period

88 days 126 days 81 days 150 days 208 days


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GRAPH NO: 5

Interpretation:

Inventory conversion period indicates in how much days our inventory gets converted. Inthis ratio we will consider the entire inventory ratio. We will consider all type of inventories i.e.

raw materials, work in process and finished goods. The higher the ratio the higher will be the

profitability. In 2006-2007 the ratio is 137 days which shows that in this year huge amount of

profit the company has earned. So in this year the profit is very high as compared to other year.

But in 2008-2009 the ratio is 109 days which is very huge because the finished goods conversion

period is huge. And so the profit also increased by approx Rs. 15000 (in lacks).

0

50

100

150

200

250

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Inventory Conversion Period


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Various Inventory Ratios:

A. Total Investment in InventoryB. Total Inventory Turnover RatioC. Work in Process Turnover RatioD. Finished Goods Turnover Ratio

A. Total Investment in Inventory:TABLE NO: 12 (in

lakhs)

GRAPH NO: 6

0

10000

20000

30000

40000

50000

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Total Investment in Inventory

Particulars 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Inventory 26957.87 38846.52 38599.79 43075.71 40503.38


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Interpretation:

The above chart indicates the amount of inventory with the company. The lower the

amount the higher will be the profit but higher the amount the lower will be profit. There is

inverse relation between profit and inventory. From the above chart it can be seen that in 2008-

2009 the amount of inventory is Rs. 43089 (in lakhs) due to which the profit also reduced and so

the profit is low in 208-2009.

B. Total Inventory Turnover Ratio:

Total inventory turnover ratio is concerned with the cost of goods sold and average

inventory. Total inventory turnover ratio is shows how many times inventory is replaced during

the year symbolically,

Costs of goods sold (sales)

________________________

Average Inventory


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TABLE NO: 13

(in lakhs)

GRAPH NO: 7

Interpretation:

Inventories represent stocks of readymade goods or raw materials that are needed to be

kept in order to be able to meet the orders of clients. The higher the ratio the higher will be the

profit and lower the ratio lower will be the profit. In GNFC the inventory turnover ratio for the

year 2008-2009 is 6.63 times which is lowest and resulted into low profitability. The highest

ratio is found in 2007-2008 which is 7.95 times and it is very good for the company. But any

decision cant be taken for it because we have just compared the data of past five years of GNFC

only and not of four to five other companies ratios which are coming under this industry.

012345678

9

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Inventory Turnover Ratio

Particulars 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Inventory Turnover Ratio 6.92 times 7.5 times 7.95 times 6.63 times 5.96 times


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C. Work in Process Turnover Ratio:

Work in process turnover ratio is concerned with the cost of goods sold and average work

in process inventory. Work in process turnover ratio shows how many times work in process

inventory is replaced during the year. Symbolically,

Cost of production

___________________

Average WIP Inventory

TABLE NO: 14

(in lakhs)

Particulars 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Work in Process Turnover

Ratio

75 times 137 times 152 times 99 times 224 times


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GRAPH NO: 8

Interpretation:

Work in process indicates the stock withdrawn from warehouse and are yet to getconverted into finished stock. The higher the ratio the higher will be the management efficiency.

In 2007-2008 the ratio is approx 152 times which shows good profitability for the company. But

it reduced to 99 times in 2008-2009 which shows decrease in profitability, company is taking

more time to produce finished goods which is not good for the company.

0

50

100

150

200

250

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Work in Process Turnover Ratio


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D. Finished Goods Turnover Ratio:

Finished goods turnover ratio is concerned with the cost of goods sold and average finished

goods inventory. Finished goods turnover ratio indicates how many times finished goods are

replaced during the year. Symbolically,

Costs of goods sold

____________________________

Average finished goods inventory

TABLE NO: 15

(in lakhs)

Particulars 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Finished Goods Turnover Ratio 42 times 28 times 26 times 26 times 34 times


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GRAPH NO: 9

Interpretation:

Finished goods turnover ratio indicates how much time finished goods gets turnover. The

higher the ratio the more will be the sales and vice versa. But after it subsequently reduces and

lasts to 26 times in 2008-2009 which is not a good sign for the company. It shows that company

is holding huge stock at warehouse.

0

5

10

15

20

25

30

35

40

45

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Finished Goods Turnover Ratio


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CHAPTER4

LIMITATION & FINDINGS


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LIMITATION OF STUDY

Time period of 6 weeks in such big company like GNFC is very small to carry out a biggerproject like inventory management.

Companys employees dont provide enough data for the study.All the data are collected was secondary in nature so loopholes if any would carried forward inthe study.


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FINDINGS

Research Findings:

The study of inventory management at GNFC is conducted to know the various

techniques followed by company to control the inventory management of the company.

In the company the total inventory conversion period for the year 2009-2010which is 208 days

Inventory turnover ratio in the year 2007-2008 (7.95 times) is high. Raw material turnover ratio is lowest in 2009-2010 since last five years i.e. 30times,

Work in process turnover ratio is very high in 2009-2010 which is 224 times. Finished goods turnover ratio is very high in 2005-2006 which is 42 times


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CHAPTER5

CONCLUSION


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CONCLUSION

Raw Material Conversion Period for the company is increased by 6 days in 2009-2010 ascompared to previous year is not a good sign.

Finished Goods Conversion Period in 2009-2010 is highest which 182 days which hasincreased by 55 days as compared to previous year should be reduced.

Since its beginning the company has to incur loss due to damage of machine E-501 anddue to which they had loss of production. So they have to keep this machine in stock.

Most of the employees in the organization are not aware about how to use SAP software.


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BIBLIOGRAPHY

Books

I. M. Pandey, Financial Management, Vikas Publishing Pvt, Ltd, (9th Edition) Pg no: 524,

525, 624 to 639.

Websites

http://www.gnfc.in/aboutus/finance.html http://www.google.com http://www.gnvfc.com http://www.fertilizers1.com/institutions.html http://www.moneycontrol.com/gnfc/financials.html

Other Materials

Annual report of the company Balance Sheet
http://www.gnfc.in/aboutus/finance.htmlhttp://www.google.com/http://www.gnvfc.com/http://www.fertilizers1.com/institutions.htmlhttp://www.moneycontrol.com/gnfc/financials.htmlhttp://www.moneycontrol.com/gnfc/financials.htmlhttp://www.fertilizers1.com/institutions.htmlhttp://www.gnvfc.com/http://www.google.com/http://www.gnfc.in/aboutus/finance.html


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ANNEXURES

BALANCE SHEET AND PROFIT AND LOSS A/C

Profit & Loss account of SRF Pvt.

Ltd.

------------------- in Rs. Cr. -------------------

Mar '10 Mar '09 Mar '08 Mar '07 Mar '0

12 mths 12 mths 12 mths 12 mths 12 mth

Income

Sales Turnover 2,712.78 3,062.28 3,653.44 2,956.67 2,281.3

Excise Duty 98.41 140.50 220.19 217.40 133.7

Net Sales 2,614.37 2,921.78 3,433.25 2,739.27 2,147.5

Other Income -1.39 35.05 44.02 35.90 34.9

Stock Adjustments -97.20 3.63 -13.75 50.77 3.4

Total Income 2,515.78 2,960.46 3,463.52 2,825.94 2,185.9

Expenditure

Raw Materials 1,379.56 1,634.15 1,986.76 1,530.60 1,075.9

Power & Fuel Cost 359.25 376.32 341.60 268.96 263.0

Employee Cost 196.83 221.31 189.29 168.87 133.0

Other Manufacturing Expenses 73.95 93.26 79.15 71.14 52.8


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Selling and Admin Expenses 119.66 114.37 146.84 148.63 125.5

Miscellaneous Expenses 26.31 20.09 21.95 21.45 12.1

Preoperative Exp Capitalised 0.00 0.00 0.00 0.00 0.0

Total Expenses 2,155.56 2,459.50 2,765.59 2,209.65 1,662.5



Operating Profit 361.61 465.91 653.91 580.39 488.4

PBDIT 360.22 500.96 697.93 616.29 523.4

Interest 25.46 28.46 14.15 18.12 37.1

PBDT 334.76 472.50 683.78 598.17 486.3

Depreciation 116.96 119.73 110.52 109.57 88.5

Other Written Off 0.00 0.00 0.00 1.30 1.4

Profit Before Tax 217.80 352.77 573.26 487.30 396.3

Extra-ordinary items 2.09 0.91 2.99 9.88 50.2

PBT (Post Extra-ord Items) 219.89 353.68 576.25 497.18 446.5

Tax 96.05 126.19 203.37 170.72 151.8

Reported Net Profit 123.84 227.52 372.88 326.47 294.7

Total Value Addition 776.00 825.34 778.83 679.04 586.5

Preference Dividend 0.00 0.00 0.00 0.00 0.0


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Equity Dividend 50.51 50.51 66.05 66.05 62.2

Corporate Dividend Tax 8.39 8.58 11.23 11.23 8.7

Per share data (annualised)

Shares in issue (lakhs) 1,554.19 1,554.19 1,554.19 1,554.19 1,464.7

Earning Per Share (Rs) 7.97 14.64 23.99 21.01 20.1

Equity Dividend (%) 32.50 32.50 42.50 42.50 42.5

Book Value (Rs) 133.77 129.59 118.76 101.06 80.3

Source : Dion Global Solutions Limited

Explore GNFC connections
http://connect.in.com/profile/http://connect.in.com/profile/


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Balance Sheet of SRF Pvt. Ltd. ------------------- in Rs. Cr. -------------------



Sources Of Funds

Total Share Capital 155.42 155.44 155.44 155.44 146.4

Equity Share Capital 155.42 155.44 155.44 155.44 146.4

Share Application Money 0.00 0.00 0.00 0.00 0.0

Preference Share Capital 0.00 0.00 0.00 0.00 0.0

Reserves 1,923.63 1,858.68 1,690.26 1,415.19 1,030.8

Revaluation Reserves 0.00 0.00 0.00 0.00 0.0

Networth 2,079.05 2,014.12 1,845.70 1,570.63 1,177.2

Secured Loans 290.01 102.85 310.46 348.36 267.6

Unsecured Loans 265.05 253.05 3.05 3.22 4.7

Total Debt 555.06 355.90 313.51 351.58 272.3

Total Liabilities 2,634.11 2,370.02 2,159.21 1,922.21 1,449.6




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Application Of Funds

Gross Block 3,084.25 3,028.00 2,750.53 2,677.29 2,137.8

Less: Accum. Depreciation 1,914.90 1,798.51 1,680.30 1,570.96 1,286.7

Net Block 1,169.35 1,229.49 1,070.23 1,106.33 851.1

Capital Work in Progress 1,029.80 419.67 259.21 28.75 48.6

Investments 89.51 332.63 330.44 148.50 218.2

Inventories 405.03 430.76 386.00 388.47 269.5

Sundry Debtors 16.68 288.72 389.68 605.28 430.1

Cash and Bank Balance 40.61 52.02 75.38 29.35 30.0

Total Current Assets 462.32 771.50 851.06 1,023.10 729.7

Loans and Advances 1,379.21 1,246.18 296.90 294.43 621.1

Fixed Deposits 282.78 3.40 76.04 101.13 25.0

Total CA, Loans & Advances 2,124.31 2,021.08 1,224.00 1,418.66 1,375.9

Deffered Credit 0.00 0.00 0.00 0.00 0.0

Current Liabilities 536.73 500.66 588.71 682.79 450.6

Provisions 1,242.15 1,132.19 135.95 97.24 594.5

Total CL & Provisions 1,778.88 1,632.85 724.66 780.03 1,045.1

Net Current Assets 345.43 388.23 499.34 638.63 330.7

Miscellaneous Expenses 0.00 0.00 0.00 0.00 0.9

Total Assets 2,634.09 2,370.02 2,159.22 1,922.21 1,449.6


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Contingent Liabilities 1,102.17 440.04 73.98 98.94 111.1

Book Value (Rs) 133.77 129.59 118.76 101.06 80.3

Source : Dion Global Solutions Limited

Explore GNFC connections

Particulars 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Opening Raw materials 2803.82 5279.61 5269.92 5774.87 6406.32

Closing Raw materials 5279.61 5269.92 5774.87 6406.32 10133.78

Raw materials consumption 77297.37 105123.23 123118.41 123605.5 124761.39

Opening Work in Process 1838.22 3007.29 580.18 3447.03 1968.82

Closing Work in Process 3007.29 580.18 3447.03 1968.82 252.00

Manufacturing expenses 116146.61 148964.9 177802.22 181360 177580.75

Opening Finished goods 4764.67 3937.86 13653.44 9411.58 11252.97

Closing Finished goods 3937.86 13653.44 9411.58 11252.97 3250.04

Purchase of Finished goods 24667.73 40212.52 65054.77 30641.17 6264.59

Distribution & other

expenses

12870.76 15313.18 17751.56 17427.51 23140.49
http://connect.in.com/profile/http://connect.in.com/profile/


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Total Inventory Turnover

Particulars 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Cost of goods sold 183477.88 246727.93 308082.7 270857.57 249289.07

Average Inventory 26516.65 32902.2 38723.16 40837.75 41789.545

Sales 228133.38 295666.61 365344.17 306228.02 271277.75

Gross Profit 44655.5 48938.68 57621.47 35370.45 21988.68

Opening Inventory 26957.87 38846.52 38599.79 43075.71 40503.38


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Work in Process Turnover

Finished Goods Turnover

Particulars 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Sales 228133.38 295666.61 365344.17 306228.02 271277.75

Gross Profit 44655.5 48938.68 57621.47 35370.45 21988.68

Opening Finished Goods 4764.67 3937.86 13653.44 9411.58 11252.97

Closing Finished Goods 3937.86 13653.44 9411.58 11252.97 3250.04

Particulars 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Cost of Goods Sold 183477 88 246727 93 308082 7 270857 57 249289 07

Particulars 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Sales 228133.38 295666.61 365344.17 306228.02 271277.75

Gross Profit 44655.5 48938.68 57621.47 35370.45 21988.68

Opening Work in Process 1838.22 3007.29 580.18 3447.03 1968.82

Closing Work in Process 3007.29 580.18 3447.03 1968.82 252.00

Particulars 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Cost of goods sold 183477.88 246727.93 308082.7 270857.57 249289.07

Average Inventory 2422.75 1793.74 2013.6 2722.93 1110.41

Inventory Management in SRF

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