INDEXS.No: CONTENTS PAGE NO.
1.
INTRODUCTION Scope of the Study Objectives of the Study
Methodology of the Study Limitations of the Study
1-4
2. 3. 4. 5.
INDUSTRY PROFILE COMPANY PROFILE REVIEW OF LITERATURE DATA
ANALYSIS AND INTERPRETATION
5-12 13-28 29-43
44-78 79-81 82-83
6.
CONCLUSION & SUGGESTION BIBLIOGRAPHY
7.
0
1
INVENTORY MANAGEMENT
INTRODUCTION:
Every enterprise needs inventory for smooth running of its
activities. It serves as a link between production and distribution
process. There is, generally, a time lag between the recognition of
a need and its fulfillment. The greater the time lag, the higher
requirements for inventory. It also provides a cushion for future
price fluctuations. In a complex industry like UltraTech Industries
Limited it studied clearly of how the thing are being performed and
what is the real impact of these on industry and how effectively
the inventory is utilized is interested to be known by researcher
because of its great significance in the research.
IMPORTANCE OF THE STUDY: Decisions Relating to Inventories are
taken primarily by executives in productions, purchasing, and
marketing departments. Usually, raw material policies are shaped by
purchasing and production executives, work-in-process inventory is
influenced by the decisions of production executives, and finished
goods inventory policy is evolved by production and marketing
executives. Yet, as inventory management has important financial
implications, the financial manager has the responsibility to
ensure that inventories are properly monitored and controlled. He
has to emphasize the financial point of view and initiate
programmes with the participation and involvement of others for
effective management of inventories.
2
NEED OF THE STUDY:
Every industry on average spends 70% on raw materials
(inventory). Therefore there is a need to know the raw material
cost and also there is great importance to understand the inventory
management system of this industry. The study helps a log to
various departments to take steps to control the inventory
process.
OBJECTIVES OF THE STUDY:
1.
To examine the organization structure of inventory management in
the stores of UltraTech Industries Limited.
2.
To discuss pattern, levels and trends of inventories in
UltraTech Industries Limited.
3.
To understand the various inventory control techniques followed
by studies in UltraTech Industries Limited.
4.
To access the performance of inventory management of the
UltraTech Industries Limited by selected accounting ratios.
5.
To know the inventory control techniques of UltraTech Industries
Limited
3
METHODOLOGY OF THE STUDY:
The study is based on both primary and secondary data. The
primary data has been collected through structured questionnaire
reflecting inventory management practices of UltraTech Industries
Limited.
The collected data is tabulated and suitable interpretation had
been made by considering the data collection through secondary data
like annual reports purchase registers, storage records of the
organization.
LIMITATIONS OF THE STUDY:
The study has the following limitations: 1. The study is limited
only for a period of 5 years i.e., from 2005 06 to 2009 10. 2. 3.
4. The study in the organization is 45 days only. The limitations
of ratio analysis can be applicable of the study. There may be
approximation in calculating ratios and taking the figures from the
annual reports.
4
5
INDUSTRY PROFILE
In the most general sense of the word, a cement is a binder, a
substance which sets and hardens independently, and can bind other
materials together. The word "cement" traces to the Romans, who
used the term "opus caementicium" to describe masonry which
resembled concrete and was made from crushed rock with burnt lime
as binder. The volcanic ash and pulverized brick additives which
were added to the burnt lime to obtain a hydraulic binder were
later referred to as cementum, cimentum, cment and cement. Cements
used in construction are characterized as hydraulic or
non-hydraulic. The most important use of cement is the production
of mortar and concretethe bonding of natural or artificial
aggregates to form a strong building material which is durable in
the face of normal environmental effects. Concrete should not be
confused with cement because the term cement refers only to the dry
powder substance used to bind the aggregate materials of concrete.
Upon the addition of water and/or additives the cement mixture is
referred to as concrete, especially if aggregates have been added.
It is uncertain where it was first discovered that a combination of
hydrated nonhydraulic lime and a pozzolan produces a hydraulic
mixture (see also: Pozzolanic reaction), but concrete made from
such mixtures was first used on a large scale by Roman
engineers.They used both natural pozzolans (trass or pumice) and
artificial pozzolans (ground brick or pottery) in these concretes.
Many excellent examples of structures made from these concretes are
still standing, notably the huge monolithic dome of the Pantheon in
Rome and the massive Baths of Caracalla. The vast system of Roman
aqueducts also made extensive use of hydraulic cement. The use of
structural concrete disappeared in medieval Europe, although weak
pozzolanic concretes continued to be used as a core fill in stone
walls and columns.
6
Modern cementModern hydraulic cements began to be developed from
the start of the Industrial Revolution (around 1800), driven by
three main needs: Hydraulic renders for finishing brick buildings
in wet climates Hydraulic mortars for masonry construction of
harbor works etc, in contact with sea water. Development of strong
concretes. In Britain particularly, good quality building stone
became ever more expensive during a period of rapid growth, and it
became a common practice to construct prestige buildings from the
new industrial bricks, and to finish them with a stucco to imitate
stone. Hydraulic limes were favored for this, but the need for a
fast set time encouraged the development of new cements. Most
famous was Parker's "Roman cement." This was developed by James
Parker in the 1780s, and finally patented in 1796. It was, in fact,
nothing like any material used by the Romans, but was a "Natural
cement" made by burning septaria - nodules that are found in
certain clay deposits, and that contain both clay minerals and
calcium carbonate. The burnt nodules were ground to a fine powder.
This product, made into a mortar with sand, set in 515 minutes. The
success of "Roman Cement" led other manufacturers to develop rival
products by burning artificial mixtures of clay and chalk. John
Smeaton made an important contribution to the development of
cements when he was planning the construction of the third
Eddystone Lighthouse (1755-9) in the English Channel. He needed a
hydraulic mortar that would set and develop some strength in the
twelve hour period between successive high tides. He performed an
exhaustive market research on the available hydraulic limes,
visiting their production sites, and noted that the "hydraulicity"
of the lime was directly
7
related to the clay content of the limestone from which it was
made. Smeaton was a civil engineer by profession, and took the idea
no further. Apparently unaware of Smeaton's work, the same
principle was identified by Louis Vicat in the first decade of the
nineteenth century. Vicat went on to devise a method of combining
chalk and clay into an intimate mixture, and, burning this,
produced an "artificial cement" in 1817. James Frost,orking in
Britain, produced what he called "British cement" in a similar
manner around the same time, but did not obtain a patent until
1822. In 1824, Joseph Aspdin patented a similar material, which he
called Portland cement, because the render made from it was in
color similar to the prestigious Portland stone. All the above
products could not compete with lime/pozzolan concretes because of
fast-setting (giving insufficient time for placement) and low early
strengths (requiring a delay of many weeks before formwork could be
removed). Hydraulic limes, "natural" cements and "artificial"
cements all rely upon their belite content for strength
development. Belite develops strength slowly. Because they were
burned at temperatures below 1250 C, they contained no alite, which
is responsible for early strength in modern cements. The first
cement to consistently contain alite was made by Joseph Aspdin's
son William in the early 1840s. This was what we call today
"modern" Portland cement. Because of the air of mystery with which
William Aspdin surrounded his product, others (e.g. Vicat and I C
Johnson) have claimed precedence in this invention, but recent
analysis of both his concrete and raw cement have shown that
William Aspdin's product made at Northfleet, Kent was a true
alite-based cement. However, Aspdin's methods were "rule-of-thumb":
Vicat is responsible for establishing the chemical basis of these
cements, and Johnson established the importance of sintering the
mix in the kiln. William Aspdin's innovation was counter-intuitive
for manufacturers of "artificial cements", because they required
more lime in the mix (a problem for his father), because they
required a much higher kiln temperature (and therefore more fuel)
and because the resulting clinker was very hard and rapidly wore
down the millstones which were the only available grinding
technology of the time.
8
Manufacturing costs were therefore considerably higher, but the
product set reasonably slowly and developed strength quickly, thus
opening up a market for use in concrete. The use of concrete in
construction grew rapidly from 1850 onwards, and was soon the
dominant use for cements. Thus Portland cement began its
predominant role. it is made from water and sand
Types of modern cement Portland cement Cement is made by heating
limestone (calcium carbonate), with small quantities of other
materials (such as clay) to 1450C in a kiln, in a process known as
calcination, whereby a molecule of carbon dioxide is liberated from
the calcium carbonate to form calcium oxide, or lime, which is then
blended with the other materials that have been included in the mix
. The resulting hard substance, called 'clinker', is then ground
with a small amount of gypsum into a powder to make 'Ordinary
Portland Cement', the most commonly used type of cement (often
referred to as OPC). Portland cement is a basic ingredient of
concrete, mortar and most non-speciality grout. The most common use
for Portland cement is in the production of concrete. Concrete is a
composite material consisting of aggregate (gravel and sand),
cement, and water. As a construction material, concrete can be cast
in almost any shape desired, and once hardened, can become a
structural (load bearing) element. Portland cement may be gray or
white.
9
Portland cement blends These are often available as inter-ground
mixtures from cement manufacturers, but similar formulations are
often also mixed from the ground components at the concrete mixing
plant.
Portland blastfurnace cement contains up to 70% ground
granulated blast furnace slag, with the rest Portland clinker and a
little gypsum. All compositions produce high ultimate strength, but
as slag content is increased, early strength is reduced, while
sulfate resistance increases and heat evolution diminishes. Used as
an economic alternative to Portland sulfate-resisting and low-heat
cements. Portland flyash cement contains up to 30% fly ash. The fly
ash is pozzolanic, so that ultimate strength is maintained. Because
fly ash addition allows a lower concrete water content, early
strength can also be maintained. Where good quality cheap fly ash
is available, this can be an economic alternative to ordinary
Portland cement. Portland pozzolan cement includes fly ash cement,
since fly ash is a pozzolan, but also includes cements made from
other natural or artificial pozzolans. In countries where volcanic
ashes are available (e.g. Italy, Chile, Mexico, the Philippines)
these cements are often the most common form in use. Portland
silica fume cement. Addition of silica fume can yield exceptionally
high strengths, and cements containing 5-20% silica fume are
occasionally produced. However, silica fume is more usually added
to Portland cement at the concrete mixer. Masonry cements are used
for preparing bricklaying mortars and stuccos, and must not be used
in concrete. They are usually complex proprietary formulations
containing Portland clinker and a number of other ingredients that
may include limestone, hydrated lime, air entrainers, retarders,
waterproofers and coloring agents. They are formulated to yield
workable mortars that allow rapid and
10
consistent masonry work. Subtle variations of Masonry cement in
the US are Plastic Cements and Stucco Cements. These are designed
to produce controlled bond with masonry blocks. Expansive cements
contain, in addition to Portland clinker, expansive clinkers
(usually sulfoaluminate clinkers), and are designed to offset the
effects of drying shrinkage that is normally encountered with
hydraulic cements. This allows large floor slabs (up to 60 m
square) to be prepared without contraction joints. White blended
cements may be made using white clinker and white supplementary
materials such as high-purity metakaolin. Colored cements are used
for decorative purposes. In some standards, the addition of
pigments to produce "colored Portland cement" is allowed. In other
standards (e.g. ASTM), pigments are not allowed constituents of
Portland cement, and colored cements are sold as "blended hydraulic
cements". Very finely ground cements are made from mixtures of
cement with sand or with slag or other pozzolan type minerals which
are extremely finely ground together. Such cements can have the
same physical characteristics as normal cement but with 50% less
cement particularly due to their increased surface area for the
chemical reaction. Even with intensive grinding they can use up to
50% less energy to fabricate than ordinary Portland cements.
Non-Portland hydraulic cements Pozzolan-lime cements. Mixtures of
ground pozzolan and lime are the cements used by the Romans, and
are to be found in Roman structures still standing (e.g. the
Pantheon in Rome). They develop strength slowly, but their ultimate
strength can be very high. The hydration products that produce
strength are essentially the same as those produced by Portland
cement.
11
Slag-lime cements. Ground granulated blast furnace slag is not
hydraulic on its own, but is "activated" by addition of alkalis,
most economically using lime. They are similar to pozzolan lime
cements in their properties. Only granulated slag (i.e.
waterquenched, glassy slag) is effective as a cement component.
Supersulfated cements. These contain about 80% ground granulated
blast furnace slag, 15% gypsum or anhydrite and a little Portland
clinker or lime as an activator. They produce strength by formation
of ettringite, with strength growth similar to a slow Portland
cement. They exhibit good resistance to aggressive agents,
including sulfate. Calcium aluminate cements are hydraulic cements
made primarily from limestone and bauxite. The active ingredients
are monocalcium aluminate CaAl2O4 (CaO Al2O3 or CA in Cement
chemist notation, CCN) and mayenite Ca12Al14O33 (12 CaO 7 Al2O3 ,
or C12A7 in CCN). Strength forms by hydration to calcium aluminate
hydrates. They are well-adapted for use in refractory
(high-temperature resistant) concretes, e.g. for furnace linings.
Calcium sulfoaluminate cements are made from clinkers that include
ye'elimite (Ca4(AlO2)6SO4 or C4A3 in Cement chemist's notation) as
a primary phase. They are
used in expansive cements, in ultra-high early strength cements,
and in "low-energy" cements. Hydration produces ettringite, and
specialized physical properties (such as expansion or rapid
reaction) are obtained by adjustment of the availability of calcium
and sulfate ions. Their use as a low-energy alternative to Portland
cement has been pioneered in China, where several million tonnes
per year are produced. Energy requirements are lower because of the
lower kiln temperatures required for reaction, and the lower amount
of limestone (which must be endothermically decarbonated) in the
mix. In addition, the lower limestone content and lower fuel
consumption leads to a CO2 emission around half that associated
with Portland clinker. However, SO2 emissions are usually
significantly higher.
12
"Natural" Cements correspond to certain cements of the
pre-Portland era, produced by burning argillaceous limestones at
moderate temperatures. The level of clay components in the
limestone (around 30-35%) is such that large amounts of belite (the
low-early strength, high-late strength mineral in Portland cement)
are formed without the formation of excessive amounts of free lime.
As with any natural material, such cements have highly variable
properties. Geopolymer cements are made from mixtures of
water-soluble alkali metal silicates and aluminosilicate mineral
powders such as fly ash and metakaolin.
13
COMPANY PROFILE
14
COMPANY PROFILE
ULTRATECH CEMENT: UltraTech Cement Limited has an annual
capacity of 18.2 million tonnes. It manufactures and markets
Ordinary Portland Cement, Portland Blast Furnace Slag Cement and
Portland Pozzalana Cement. It also manufactures ready mix concrete
(RMC). UltraTech Cement Limited has five integrated plants, six
grinding units and three terminals two in India and one in Sri
Lanka. UltraTech Cement is the countrys largest exporter of cement
clinker. The export markets span countries around the Indian Ocean,
Africa, Europe and the Middle East. UltraTechs subsidiaries are
Dakshin Cement Limited and UltraTech Ceylinco (P) Limited. The
roots of the Aditya Birla Group date back to the 19th century in
the picturesque town of Pilani, set amidst the Rajasthan desert. It
was here that Seth Shiv Narayan Birla started trading in cotton,
laying the foundation for the House of Birlas. Through India's
arduous times of the 1850s, the Birla business expanded rapidly. In
the early part of the 20th century, our Group's founding father,
Ghanshyamdas Birla, set up industries in critical sectors such as
textiles and fibre, aluminium, cement and chemicals. As a close
confidante of Mahatma Gandhi, he played an active role in the
Indian freedom struggle. He represented India at the first and
second round-table conference in London, along with Gandhiji. It
was at "Birla House" in Delhi that the
15
luminaries of the Indian freedom struggle often met to plot the
downfall of the British Raj. Ghanshyamdas Birla found no
contradiction in pursuing business goals with the dedication of a
saint, emerging as one of the foremost industrialists of
preindependence India. The principles by which he lived were soaked
up by his grandson, Aditya Vikram Birla, our Group's legendary
leader. Aditya Vikram Birla: putting India on the world map A
formidable force in Indian industry, Mr. Aditya Birla dared to
dream of setting up a global business empire at the age of 24. He
was the first to put Indian business on the world map, as far back
as 1969, long before globalisation became a buzzword in India. In
the then vibrant and free market South East Asian countries, he
ventured to set up world-class production bases. He had foreseen
the winds of change and staked the future of his business on a
competitive, free market driven economy order. He put Indian
business on the globe, 22 years before economic liberalisation was
formally introduced by the former Prime Minister, Mr. Narasimha Rao
and the former Union Finance Minister, Dr. Manmohan Singh. He set
up 19 companies outside India, in Thailand, Malaysia, Indonesia,
the Philippines and Egypt. Interestingly, for Mr. Aditya Birla,
globalisation meant more than just geographic reach. He believed
that a business could be global even whilst being based in India.
Therefore, back in his home-territory, he drove single-mindedly to
put together the building blocks to make our Indian business a
global force. Under his stewardship, his companies rose to be the
world's largest producer of viscose staple fibre, the largest
refiner of palm oil, the third largest producer of insulators and
the sixth largest producer of carbon black. In India, they attained
the
16
status of the largest single producer of viscose filament yarn,
apart from being a producer of cement, grey cement and rayon grade
pulp. The Group is also the largest producer of aluminium in the
private sector, the lowest first cost producers in the world and
the only producer of linen in the textile industry in India. At the
time of his untimely demise, the Group's revenues crossed Rs.8,000
crore globally, with assets of over Rs.9,000 crore, comprising of
55 benchmark quality plants, an employee strength of 75,000 and a
shareholder community of 600,000. Most importantly, his companies
earned respect and admiration of the people, as one of India's
finest business houses, and the first Indian International Group
globally. Through this outstanding record of enterprise, he helped
create enormous wealth for the nation, and respect for Indian
entrepreneurship in South East Asia. In his time, his success was
unmatched by any other industrialist in India. That India attains
respectable rank among the developed nations, was a dream he
forever cherished. He was proud of India and took equal pride in
being an Indian. Under the leadership of our Chairman, Mr. Kumar
Mangalam Birla, the Group has sustained and established a
leadership position in its key businesses through continuous
value-creation. Spearheaded by Grasim, Hindalco, Aditya Birla Nuvo,
Indo Gulf Fertilisers and companies in Thailand, Malaysia,
Indonesia, the Philippines and Egypt, the Aditya Birla Group is a
leader in a swathe of products viscose staple fibre, aluminium,
cement, copper, carbon black, palm oil, insulators, garments. And
with successful forays into financial services, telecom, software
and BPO, the Group is today one of Asia's most diversified business
groups.
17
Board of Directors :: Mr. Kumar Mangalam Birla, Chairman :: Mrs.
Rajashree Birla :: Mr. R. C. Bhargava :: Mr. G. M. Dave :: Mr. N.
J. Jhaveri :: Mr. S. B. Mathur :: Mr. V. T. Moorthy :: Mr. O. P.
Puranmalka :: Mr. S. Rajgopal :: Mr. D. D. Rathi :: Mr. S. Misra,
Managing Director
Executive President & Chief Financial Officer :: Mr. K. C.
Birla
Chief Manufacturing Officer :: R.K. Shah
18
Chief Marketing Officer :: Mr. O. P. Puranmalka
Company Secretary :: Mr. S. K. Chatterjee
Our vision
"To actively contribute to the social and economic development
of the communities in which we operate. In so doing, build a
better, sustainable way of life for the weaker sections of society
and raise the country's human development index."
Mrs. Rajashree Birla, Chairperson, The Aditya Birla Centre for
Community Initiatives and Rural Development Making a difference
Before Corporate Social Responsibility found a place in corporate
lexion, it was already textured into our Group's value systems. As
early as the 1940s, our founding father Shri G.D Birla espoused the
trusteeship concept of management. Simply stated, this entails that
the wealth that one generates and holds is to be held as in a trust
for our multiple stakeholders. With regard to CSR, this means
investing part of our profits beyond business, for the larger good
of society. While carrying forward this philosophy, his grandson,
Aditya Birla weaved in the concept of 'sustainable livelihood',
which transcended cheque book philanthropy. In his view, it was
unwise to keep on giving endlessly. Instead, he felt that
channelising resources to ensure that people have the wherewithal
to make both ends meet
19
would be more productive. He would say, "Give a hungry man fish
for a day, he will eat it and the next day, he would be hungry
again. Instead if you taught him how to fish, he would be able to
feed himself and his family for a lifetime." Taking these practices
forward, our chairman Mr. Kumar Mangalam Birla institutionalised
the concept of triple bottom line accountability represented by
economic success, environmental responsibility and social
commitment. In a holistic way thus, the interests of all the
stakeholders have been textured into our Group's fabric. The
footprint of our social work today straddles over 3,700 villages,
reaching out to more than 7 million people annually. Our community
work is a way of telling the people among whom we operate that We
Care.
Our strategy Our projects are carried out under the aegis of the
"Aditya Birla Centre for Community Initiatives and Rural
Development", led by Mrs. Rajashree Birla. The Centre provides the
strategic direction, and the thrust areas for our work ensuring
performance management as well.
Our focus is on the all-round development of the communities
around our plants located mostly in distant rural areas and tribal
belts. All our Group companies Grasim, Hindalco, Aditya Birla Nuvo,
Indo Gulf and UltraTech have Rural Development Cells which are the
implementation bodies. Projects are planned after a participatory
need assessment of the communities around the plants. Each project
has a one-year and a three-year rolling plan, with milestones and
measurable targets. The objective is to phase out our presence over
a period of time and hand over the reins of further development to
the people. This also enables us to widen our reach. Along with
internal performance assessment
20
mechanisms, our projects are audited by reputed external
agencies, who measure it on qualitative and quantitative
parameters, helping us gauge the effectiveness and providing
excellent inputs. Our partners in development are government
bodies, district authorities, village panchayats and the end
beneficiaries -- the villagers. The Government has, in their 5-year
plans, special funds earmarked for human development and we
recourse to many of these. At the same time, we network and
collaborate with like-minded bilateral and unilateral agencies to
share ideas, draw from each other's experiences, and ensure that
efforts are not duplicated. At another level, this provides a
platform for advocacy. Some of the agencies we have collaborated
with are UNFPA, SIFSA, CARE India, Habitat for Humanity
International, Unicef and the World Bank. Our focus areas Our rural
development activities span five key areas and our single-minded
goal here is to help build model villages that can stand on their
own feet. Our focus areas are healthcare, education, sustainable
livelihood, infrastructure and espousing social causes. The name
Aditya Birla evokes all that is positive in business and in life.
It exemplifies integrity, quality, performance, perfection and
above all character. Our logo is the symbolic reflection of these
traits. It is the cornerstone of our corporate identity. It helps
us leverage the unique Aditya Birla brand and endows us with a
distinctive visual image.
Depicted in vibrant, earthy colours, it is very arresting and
shows the sun rising over two circles. An inner circle symbolising
the internal universe of the Aditya Birla Group, an outer circle
symbolising the external universe, and a dynamic meeting of rays
converging and diverging between the two.
21
Through its wide usage, we create a consistent, impact-oriented
Group image. This undoubtedly enhances our profile among our
internal and external stakeholders.
Our corporate logo thus serves as an umbrella for our Group. It
signals the common values and beliefs that guide our behaviour in
all our entrepreneurial activities. It embeds a sense of pride,
unity and belonging in all of our 130,000 colleagues spanning 25
countries and 30 nationalities across the globe. Our logo is our
best calling card that opens the gateway to the world.
Group companies :: Grasim Industries Ltd. :: Hindalco Industries
Ltd. :: Aditya Birla Nuvo Ltd. :: UltraTech Cement Ltd.
Indian companies :: Aditya Birla Minacs IT Services Ltd. ::
Aditya Birla Minacs Worldwide Limited :: Essel Mining &
Industries Ltd :: Idea Cellular Ltd.
22
:: Aditya Birla Insulators :: Aditya Birla Retail Limited ::
Aditya Birla Chemicals (India) Limited
International companies Thailand :: Thai Rayon :: Indo Thai
Synthetics :: Thai Acrylic Fibre :: Thai Carbon Black :: Aditya
Birla Chemicals (Thailand) Ltd. :: Thai Peroxide Philippines ::
Indo Phil Group of companies :: Pan Century Surfactants Inc.
Indonesia :: PT Indo Bharat Rayon :: PT Elegant Textile Industry ::
PT Sunrise Bumi Textiles
23
:: PT Indo Liberty Textiles :: PT Indo Raya Kimia Egypt ::
Alexandria Carbon Black Company S.A.E :: Alexandria Fiber Company
S.A.E China :: Liaoning Birla Carbon :: Birla Jingwei Fibres
Company Limited :: Aditya Birla Grasun Chemicals (Fangchenggang)
Ltd. Canada :: A.V. Group Australia :: Aditya Birla Minerals Ltd.
Laos :: Birla Laos Pulp & Plantations Company Limited North and
South America, Europe and Asia :: Novelis Inc.
24
Singapore :: Swiss Singapore Overseas Enterprises Pte Ltd.
(SSOE) Joint ventures :: Birla Sun Life Insurance Company :: Birla
Sun Life Asset Management Company :: Aditya Birla Money Mart
Limited :: Tanfac Industries Limited
UltraTech is India's largest exporter of cement clinker. The
company's production facilities are spread across eleven integrated
plants, one white cement plant, one clinkerisation plant in UAE,
fifteen grinding units, and five terminals four in India and one in
Sri Lanka. Most of the plants have ISO 9001, ISO 14001 and OHSAS
18001 certification. In addition, two plants have received ISO
27001 certification and four have received SA 8000 certification.
The process is currently underway for the remaining plants. The
company exports over 2.5 million tonnes per annum, which is about
30 per cent of the country's total exports. The export market
comprises of countries around the Indian Ocean, Africa, Europe and
the Middle East. Export is a thrust area in the company's strategy
for growth. UltraTech's products include Ordinary Portland cement,
Portland Pozzolana cement and Portland blast furnace slag
cement.
Ordinary Portland cement Portland blast furnace slag cement
Portland Pozzolana cement Cement to European and Sri Lankan
norms
25
Ordinary Portland cement Ordinary portland cement is the most
commonly used cement for a wide range of applications. These
applications cover dry-lean mixes, general-purpose ready-mixes, and
even high strength pre-cast and pre-stressed concrete. Portland
blast furnace slag cement Portland blast-furnace slag cement
contains up to 70 per cent of finely ground, granulated
blast-furnace slag, a nonmetallic product consisting essentially of
silicates and alumino-silicates of calcium. Slag brings with it the
advantage of the energy invested in the slag making. Grinding slag
for cement replacement takes only 25 per cent of the energy needed
to manufacture portland cement. Using slag cement to replace a
portion of portland cement in a concrete mixture is a useful method
to make concrete better and more consistent. Portland blast-furnace
slag cement has a lighter colour, better concrete workability,
easier finishability, higher compressive and flexural strength,
lower permeability, improved resistance to aggressive chemicals and
more consistent plastic and hardened consistency.
Portland Pozzolana cement Portland pozzolana cement is ordinary
portland cement blended with pozzolanic materials (power-station
fly ash, burnt clays, ash from burnt plant material or silicious
earths), either together or separately. Portland clinker is ground
with gypsum and pozzolanic materials which, though they do not have
cementing properties in themselves, combine chemically with
portland cement in the presence of water to form extra strong
cementing material which resists wet cracking, thermal cracking and
has a high degree of cohesion and workability in concrete and
mortar. "As a Group we have always operated and continue to operate
our businesses as Trustees with a deep rooted obligation to
synergise growth with responsibility." Mr Kumar Mangalam Birla,
Chairman, Aditya Birla Group
26
The cement industry relies heavily on natural resources to fuel
its operations. As these dwindle, the imperative is clear
alternative sources of energy have to be sought out and the use of
existing resources has to be reduced, or eliminated altogether.
Only then can sustainable business be carried out, and a corporate
can truly say it is contributing to the preservation of the
environment. UltraTech takes its responsibility to conserve the
environment very seriously, and its eco-friendly approach is
evident across all spheres of its operations. Its major thrust has
been to identify alternatives to achieve set objectives and thereby
reduce its carbon footprint. These are done through: :: Waste
management :: Energy management :: Water conservation ::
Biodiversity management :: Afforestation :: Reduction in
emissions
Importantly, UltraTech has set a target of 2.96 per cent
reduction in CO2 emission intensity, at a rate of 0.5 per cent
annually, up to 2015-16, with 2009-10 as the baseline year. This
will also include CO2 emissions from the recently acquired ETA Star
Cement and upcoming projects. Our strategy Our projects are carried
out under the aegis of the "Aditya Birla Centre for Community
Initiatives and Rural Development", led by Mrs. Rajashree
Birla.
27
The Centre provides the strategic direction, and the thrust
areas for our work ensuring performance management as well.
Our focus is on the all-round development of the communities
around our plants located mostly in distant rural areas and tribal
belts. All our Group companies Grasim, Hindalco, Aditya Birla Nuvo
and UltraTech have Rural Development Cells which are the
implementation bodies. Projects are planned after a participatory
need assessment of the communities around the plants. Each project
has a one-year and a three-year rolling plan, with milestones and
measurable targets. The objective is to phase out our presence over
a period of time and hand over the reins of further development to
the people. This also enables us to widen our reach. Along with
internal performance assessment mechanisms, our projects are
audited by reputed external agencies, who measure it on qualitative
and quantitative parameters, helping us gauge the effectiveness and
providing excellent inputs. Our partners in development are
government bodies, district authorities, village panchayats and the
end beneficiaries the villagers. The Government has, in their
5-year plans, special funds earmarked for human development and we
recourse to many of these. At the same time, we network and
collaborate with like-minded bilateral and unilateral agencies to
share ideas, draw from each other's experiences, and ensure that
efforts are not duplicated. At another level, this provides a
platform for advocacy. Some of the agencies we have collaborated
with are UNFPA, SIFSA, CARE India, Habitat for Humanity
International, Unicef and the World Bank.
28
Our vision "To actively contribute to the social and economic
development of the communities in which we operate. In so doing,
build a better, sustainable way of life for the weaker sections of
society and raise the country's human development index."
Mrs. Rajashree Birla, Chairperson, The Aditya Birla Centre for
Community Initiatives and Rural Development Making a difference
Before Corporate Social Responsibility found a place in corporate
lexicon, it was already textured into our Group's value systems. As
early as the 1940s, our founding father Shri G.D Birla espoused the
trusteeship concept of management. Simply stated, this entails that
the wealth that one generates and holds is to be held as in a trust
for our multiple stakeholders. With regard to CSR, this means
investing part of our profits beyond business, for the larger good
of society. While carrying forward this philosophy, our legendary
leader, Mr. Aditya Birla, weaved in the concept of 'sustainable
livelihood', which transcended cheque book philanthropy. In his
view, it was unwise to keep on giving endlessly. Instead, he felt
that channelising resources to ensure that people have the
wherewithal to make both ends meet would be more productive. He
would say, "Give a hungry man fish for a day, he will eat it and
the next day, he would be hungry again. Instead if you taught him
how to fish, he would be able to feed himself and his family for a
lifetime." Taking these practices forward, our chairman Mr. Kumar
Mangalam Birla institutionalised the concept of triple bottom line
accountability represented by economic success, environmental
responsibility and social commitment. In a holistic way thus, the
interests of all the stakeholders have been textured into our
Group's fabric.
29
The footprint of our social work today spans 2,500 villages in
India, reaching out to seven million people annually. Our community
work is a way of telling the people among whom we operate that We
Care.
AchievementsAs part of the eighth biggest cement manufacturer in
the world, UltraTech Cement has eleven integrated plants, one white
cement plant, one clinkerisation plant in UAE, 15 grinding units 11
in India, 2 in UAE, one in Bahrain and Bangladesh each and and five
terminals four in India and one in Sri Lanka.. These facilities
gradually came up over the years, as indicated below: 2010 ::
UltraTech Cement Middle East Investments Limited, a wholly owned
subsidiary of the Company has acquired management control of ETA
Star Cement together with its operations in the UAE, Bahrain and
Bangladesh :: The cement business of Grasim demerged and vested in
Samruddhi Cement Limited in May, 2010. Subsequently, Samruddhi
Cement Limited amalgamated with UltraTech Cement Limited in July
2010. 2006 :: Narmada Cement Company Limited amalgamated with
UltraTech pursuant to a Scheme of Amalgamation being approved by
the Board for Industrial & Financial Reconstruction (BIFR) in
terms of the provision of Sick Industrial Companies Act (Special
Provisions) 2004 :: Completion of the implementation process to
demerge the cement business of L&T and completion of open offer
by Grasim, with the latter acquiring controlling stake in the newly
formed company UltraTech
30
2003 :: The board of Larsen & Toubro Ltd (L&T) decides
to demerge its cement business into a separate cement company
(CemCo). Grasim decides to acquire an 8.5 per cent equity stake
from L&T and then make an open offer for 30 per cent of the
equity of CemCo, to acquire management control of the company.
31
32
REVIEW OF LITERATURE
The investment in inventories constitutes the most significant
part of current assets / working capital in most of the
undertakings. Thus, it is very essential to have proper control and
management of inventories. The purpose of inventory management is
to ensure availability of materials in sufficient quantity as and
when required and also to minimize investment in inventories.
Meaning and Nature of Inventory:In accounting language,
inventory may mean the stock of finished goods only. In a
manufacturing concern, it may include raw materials, work- in
progress and stores etc.
Inventory includes the following things:a) Raw Material: Raw
material from a major input into the organization. They are
required to carry out production activities uninterruptedly. The
quantity of raw materials required will be determined by the rate
of consumption and the time required for replenishing the supplies.
The factors like the availability of raw materials and Government
regulations etc., too affect the stock of raw materials. b) Work in
progress: The work in progress is that stage of stocks which are in
between raw materials and finished goods. The quantum of work in
progress depends upon the time taken in the manufacturing process.
The quantum of work in progress depends upon the time taken in the
manufacturing process. The greater the time taken in manufacturing,
the more will be the amount of work in progress.
33
c)
Consumables: These are the materials which are needed to
smoother the process of production but they act as catalysts.
Consumables may be classified according to their consumption add
critically. Generally, consumable stores doe not create any supply
problem and firm a small part of production cost. There can be
instances where these materials may account for much value than the
raw materials. The fuel oil may form a substantial part of
cost.
d)
Finished goods: These are the goods, which are ready for the
consumers. The stock of finished goods provides a buffer between
production and market, the purpose of maintaining inventory is to
ensure proper supply of goods to customers.
e)
Spares: The stock policies of spares fifer from industry to
industry. Some industries like transport will require more spares
than the other concerns. The costly spare parts like engines,
maintenance spares etc., are not discarded after use, rather they
are kept in ready position for further use. All decisions about
spares are based on the financial cost of inventory on
such spares and the costs that may arise due to their non
availability.
BENEFITS OF HOLDING INVENTORIES Although holding inventories
involves blocking of a firms and the costs of storage and handling,
every business enterprise has to be maintain certain level of
inventories of facilitate un interrupted production and smooth
running of business. In the absence of inventories a firm will have
to make purchases as soon as it receives orders. It will mean loss
of time and delays in execution of orders which sometimes may cause
loss of customers and business.
34
A firm also needs to maintain inventories to reduce ordering
cost and avail quantity discounts etc.
There are three main purpose of holding inventories. 1. The
transaction motive: This facilitates continuous production and
timely execution of sales order.
2.
The precautionary motive: Which necessitates the holding of
inventories for meeting the unpredictable changes in demand and
supplies of materials
3.
The speculative motive: Which induces to keep inventories for
taking advantage of price fluctuations, saving in reordering costs
and quantity discounts
RISK AND COSTS OF HOLDING INVENTORIES
The holding of inventories involves blocking of firms funds and
incurrence of capital and other costs. The various costs and risks
involved in holding inventories are: Capital costs: Maintaining of
inventories results in blocking of the firms financial resources.
The firm has therefore to arrange for additional funds to meet the
cost of inventories.
35
The funds may be arranged from own resources or from outsiders.
But in both the cased, the firm incurs a cost. In the former case,
there is an opportunity cost of investment while in the later case;
the firm has to pay interest to t he outsiders.
1.
Storage and Handling Costs: Holding of inventories also involves
costs on storage as well as handing of materials. The storage of
costs include the rental of the godown, insurance charges etc.
2.
Risk of Price decline: There is always a risk of reduction in
the prices of inventories by the supplies, competition or general
depression in the market.
3.
Risk of Obsolescence: The inventories may become absolute due to
improved technology, changes in requirements, change in customer
tastes etc.
4.
Risk Determination in quality: The quality of materials may also
deteriorate while the inventories are kept.
Objects of Inventory Management Definition of Inventory
Management: Inventory Management is concerned with the
determination of optimum level of investment for each components of
inventory and the operation of an effective control and review of
mechanism. The main objectives of inventory management are
operational and financial. The operational objective mean that the
materials and spares should be available in sufficient quantity so
that work is not disrupted for want of inventory. The financial
objective means that inventory should not remain idle and minimum
working capital should be locked in it.
36
The following are the objectives of inventory management:
1.
To ensure continuous supply of materials, spares and finished
goods so that production should not suffer at any time and the
customers demand should also be met.
2. 3.
To avoid both over stocking and under stocking of inventory. To
maintain investment in inventories at the optimum level as required
by the operational and sales activities.
4.
To keep material cost under control so that they contribute in
reducing the cost of production and overall costs.
5.
To eliminate duplication in ordering or replenishing stocks.
This is possible with the help of centralizing purchases.
6.
To minimize losses through deterioration, pilferages, wastages
and damages.
7.
To ensure perpetual inventory control so that materials shown in
stock ledgers should be actually lying in the stores.
8.
To ensure right quality goods at reasonable prices. Suitable
quality standards will ensure proper quality of stocks. The price
analysis, the cost analysis and value analysis will ensure payment
of proper prices.
9.
To facilitate furnishing of data for short term and long term
planning and control of inventory.
37
TOOLS AND TECHNIQUES OF INVENTORY MANAGEMENT A proper inventory
control not only helps in solving the acute problem of liquidity
but also increases profit and causes substantial reduction in the
working capital of the concern. The following are the important
tools and techniques of inventory management and control. 1.
Determination of stock levels: Carrying of too much and too little
of inventory is detrimental to the firm. If the inventory level is
too little, the firm will face frequent stock outs involving heavy
ordering cost and if the inventory level is too high it will be
unnecessary tie up of capital. An efficient inventory management
requires that a firm should maintain an optimum level of inventory
where inventory costs are the minimum and at the same time there is
no stock out which may result in loss or sale or shortage of
production. a) Minimum stock level: It represents the quantity
below its stock of any item should not be allowed to fall. Lead
time: A purchasing firm requires sometime to process the order and
time is also required by the supplying firm to execute the order.
The time in processing the order and then executing it is known as
lead time. Rate of Consumption: It is the average consumption of
materials in the factory. The rate of consumption will be decided
on the basis of past experience and production plans.
38
Nature of materials: The nature of material also affects the
minimum level. If a material is required only against the special
orders of the customer then minimum stock will not be required for
such material. Minimum stock level can be calculated with the help
of following formula. Minimum stock level Re ordering level (Normal
consumption x Normal re order period) b) Re ordering Level: When
the quantity of materials reaches at a certain figure then fresh
order is sent to get materials again. The order is sent before the
materials reach minimum stock level. Re ordering level is fixed
between minimum level maximum level. c) Maximum Level: It is the
quantity of materials beyond which a firm should not exceeds its
stocks. If the quantity exceeds maximum level limit then it will be
over stocking. Overstocking will mean blocking of more working
capital, more space for storing the materials, more wastage of
materials and more chances of losses from obsolescence. Maximum
stock level Reordering Level + Reorder Quantity (Maximum
Consumption x Minimum reorder period) d) Danger Stock Level: It is
fixed below minimum stock level. The danger stock level indicates
emergency of stock position and urgency of obtaining fresh supply
at any cost. Danger Stock level = Average rate of consumption x
emergency delivery time.
39
e)
Average Stock Level: This stock level indicates the average
stock held by the concern. Average stock level = Minimum stock
level + x reorder quantity.
2)
Determination of Safety Stocks: Safety stock is a buffer to meet
some unanticipated increase in usage. The
demand for materials may fluctuate and delivery of inventory may
also be delayed in such a situation the firm can be facing a
problem of stock out. In order to protect against the stock out
arising out of usage fluctuations, firms usually maintain some
margin of safety stocks. Two costs are involved in the
determination of this stock that is opportunity cost of stock outs
and the carrying costs. If a firm maintains low level of safety
frequent stock outs will occur resulting into the larger
opportunity costs. On the other hand, the larger quantity of safety
stocks involves carrying costs.
3)
Economic Order Quantity (EOQ): The quantity of material to be
ordered at one time is known as economic
ordering quantity. This quantity is fixed in such a manner as to
minimize the cost of ordering and carrying costs. Total cost
material = Acquisition Cost + Cost + Carrying Costs + Ordering
Cost. Carrying Cost:
40
It is the cost of holding the materials in the store.
Ordering Cost: It is the cost of placing orders for the purchase
of materials. EOQ can be calculated with the help of the following
formula EOQ = 2CO / I Where C = Consumption of the material in
units during the year O = Ordering Cost I = Carrying Cost or
Interest payment on the capital.
4)
A B C Analysis: (Always better control analysis): Under A B C
Analysis. The materials are divided into 3 categories viz., A,
B
and C. Almost 10% of the items contribute to 70% of value of
consumption and this category is called A category. About 20% of
the items contribute about 20% of value of category C covers about
70% of items of materials which contribute only 10% of value of
consumption.
5)
VED Analysis: (Vitally Essential Desire) The VED analysis is
used generally for spare parts. Spare parts classified as
Vital (V), Essential (E) and Desirable (D).
41
The vital spares are a must for running the concern smoothly and
these must be stored adequately. The E type of spares is also
necessary but their stocks may be kept at low figures. The stocking
of D type spares may be avoided at times. If the lead time of these
spares is less, then stocking of these spares can be avoided. 6)
Inventory Turnover ratio: Inventory turnover ratios are calculated
to indicate whether inventories have been used efficiently or not.
The inventory turnover ration also known as stock velocity is
normally calculated as sales / average inventory of cost of goods
sold / average inventory.Inventory conversion period may also be
calculated to find the average time taken for clearing the stocks.
Symbolically.
Inventory Turnover Ratio
=
Cost of goods sold __________________________ Average inventory
at cost
And, Inventory conversion period = Days in a year
_____________________ Inventory Turnover ratio
42
7)
Classification and Codification of Inventories:
The inventories should first be classified can then code numbers
should be assigned for their identification. The identification of
short names are useful for inventory management not only for large
concerns but also for small concerns. Lack of proper classification
may also lead to reduction in production. Generally, materials are
classified accordingly to their nature such as construction
materials, consumable stocks, spares, lubricants etc. After
classification the materials are given code numbers. The coding may
be done alphabetically or numerically. The later method is
generally used for coding. The class of materials is assigned two
digits and then two or three digits are assigned to the categories
of items divided into 15 groups. Two numbers will be category of
materials in that class. The third distinction is needed for the
quality of goods and decimals are used to note this factor.
8)
Valuation of inventories Method of valuation: FIFO method LIFO
method Base Stock method Weighted average price method
43
CRITERIA FOR JUDGING THE INVENTORY SYSTEMWhile the overall
objective of the inventory system is to minimize the cost to the
firm at the risk level acceptable to management, the more proximate
criteria for judging the inventory system are: Comprehensibility
Adaptability Timeliness
Area of improvement: Inventory management in India can be
improved in various ways. Improvements could be affected
through.
Effective Computerization: Computers should not be used merely
for accounting purpose but also for improving decision making.
Review of Classification: ABC and FSN classification must be
periodically reviewed.
Improved Coordination: Better coordination among purchase,
production, marketing and finance departments will be help in
achieving greater efficiency in inventory management.
Development of long term relationship: Companies should develop
long term relationship with vendors. This would help in improving
quality and delivery.
44
Disposal of obsolete / surplus inventories: Procedures for
disposing obsolete / surplus inventories must be simplified.
Adoption of challenging norms: Companies should set benchmarks
with global competitors and use ideals like JIT to improve
inventory management.
Inventory cost an overall view:
Introduction: In financial parlance, inventory is defined as the
sum of the value of the raw materials, fuels and lubricants spare
parts maintenance consumable semi processed materials and finished
goods stock at any giving point of time. The operational definition
of inventory would be amount of raw materials, fuel and lubricants,
spare parts and semi processed materials to be stock for the smooth
running of the plant / industry. Need of Inventory: Inventories are
maintained basically for the operational smoothness which they can
be affected by uncoupling successive stages of production, whereas
the monetary value of the inventory serves as a guide to indicate
the size of the investment made to achieve this operational
convenience. The materials management departments primary function
is to provide this operational convenience with a minimum possible
investment in inventories. Materials department is accused of both
stock outs as well a large investment in inventories.
45
The solution lies in exercise a selective inventory control and
application of inventory control techniques. Inventories build to
act as a cushion between supply and demand. It is sufficient to
take care of the requirements of demand till the next supply
arrives. It is sufficient to take care of probable delays in supply
as well as probable variations in demand. The size of the inventory
depends upon the factors such as size of industry internal lead
time for purchase, suppliers lead time, vendor relations
availability of the materials, annual consumption of the materials.
Inventory coat can be controlled by applying Modern Techniques
viz., ABC analysis, SDE, ESN, HMC, VED etc. These techniques can be
used effectively with the help of computerization.
What is meant by inventory cost: A. B. C. The total value of
stores and spares and capital spares. Stores in transit and under
inspection and Stock of finished products. Normally, there are
certain problems in maintaining optimum level of inventory.
Problems of inventory can be resolved by the cost implications.
Costs which are relevant for consideration are discussed in the
following lines;
Basically there are four costs for consideration in developing
and inventory model. 1. 2. 3. 4. The cost of placing a
replenishment order. The cost of carrying inventory. The cost of
under stocking and The cost of over stocking.
46
The cost of ordering and inventory carrying cost are viewed as
the supply side costs and help in the determination of the quantity
to be ordered for each replenishment. The under stocking and over
stocking costs are viewed as the demand side costs and help in the
determination of the amount of variations in demand and the delay
in supplies which the inventory should withstand. Whenever an order
placed for stock replenishment, certain costs are involved, and,
for most practical purpose it can be assumed that the cost per
order is constant. The ordering cost may vary depending upon the
type of items, for example raw material like steel against
production component like castings in steel plants, support
materials in the case of Steel industry.
The cost ordering includes: 1) 2) 3) Paper work costs, typing
and dispatching an order. Follow up costs the follow up, the
telephones, telex and postal bills etc., Costs involved in
receiving of the order, inspection, checking and handling in the
stores. 4) Any set up cost of machines charged by the supplier,
either directly indicated in quotations or assessed through
quotations of various quantities. 5) The salaries and wages of the
purchase department.
47
Cost of Inventory carrying: This cost in measured as of the unit
cost of the item. This measure gives basis for estimating what is
actually costs a company to carry stock.
This cost includes: 1) 2) 3) Interest on capital. Insurance and
tax charges. Storage costs labor costs, provision of storage area
and facilities like bins, racks etc., 4) 5) 6) 7) Transport bills
and hamali charges. Allowance for deterioration or spoilages.
Salaries of stores staff. Obsolescence. The inventory carrying cost
varies and a major portion of this is Accounted for by the interest
on capital. Under stocking cost: This cost is the cost incurred
when an item is out of stock. It includes cost of lost production
during the period of stock out and the extra cost per unit which
might have to be paid for an emergency purchase.
Over stocking cost: This cost is the inventory carrying cost
(which is calculated per year) for a specific period of time. The
time varies in different contexts it could be the lead time of
procurement of entire life time of machine. In the case of one time
purchases, over cost would be = Purchase Price Scrap Price
48
INVENTORY VALUATION AND COST FLOWS:
What is the cost of inventory? One can readily visualize the
determination of inventory quantities by physical count or by use
of perpetual inventory records. When this quantity is determined,
it must be multiplied by a unity cost in order to determine the
inventory value that is used on financial statements. Trade and
quantity discount are to be excluded from unit cost since these
discount exist for the purpose of defining the true invoice cost of
merchandise. Cash discounts, on the other hand, have been
considered as a reward for early payment and as a penalty for late
payment. The reward has often been interpreted as a loss rather
than as a part of unit cost. Thus it would not be difficult to find
difference of opinion as to whether invoice cost includes or
excludes cash discount. When the current replaAutomobial cost of
material on hand at the close of a year is less than the actual
cost, the inventory value is reduced to replaAutomobial cost
(current market price). Thus the acceptable basis inventory
valuation is the lower of cost or market or more properly the lower
of actual cost or replaAutomobial cost. The determination of
inventory values is very important from the point of view of the
balance sheet and the income statement since costs not included in
the inventory (the balance sheet) are considered to be expensive
and are thus included in the income statement.
49
Valuation of inventories methods of determination: Although the
prime consideration in the valuation of inventories is cost, there
are a number of generally accepted methods of determining the cost
of inventories at the close of an accounting period. The most
commonly used methods are first in first out (FIFO) average, and
last in first out (LIFO). The selection of the method for
determining cost for inventory valuation is important for it has a
direct bearing on the cost of goods sold and consequently on
profit. When a method is selected, it must be used consequently and
cannot be changed for year to year in order to secure the most
favorable profit for each year.
THE FIFO METHOD (FIRST IN FIRST OUT METHOD) Under this method it
is assumed that the materials or goods first received are the first
to be issued or sold. Thus, according to this method, the inventory
on a particular date is presumed to be composed of the items which
were acquired most recently. The value inventory would remain the
same even if the perpetual inventory system is followed.
Advantage:- The FIFO method has the following advantages. 1) It
values stock nearer to current market prices since stock is
presumed to be consisting of 2) 3) The most recent purchases. It is
based on cost and, therefore, no unrealized profit enters into the
financial accounts of the company. 4) The method is realistic since
it takes into account the normal procedure of utilizing or selling
those materials or goods which have been longer longest in
stock.
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Disadvantages:- The method suffers from the following
disadvantages. 1) It involves complicated calculations and hence
increases the possibility of clerical errors. 2) Comparison between
different jobs using the same type of material becomes sometimes
difficult. A job commenced a few minutes after another job may have
to bear an entirely different charge for materials because the
first job completely exhausted the supply of materials of the
particular lot. The FIFO method of valuation of inventories is
particularly suitable in The following circumstances. I. II. III.
The materials or goods are of a perishable nature. The frequency of
purchases is not large. There are only moderate fluctuations in the
prices of materials or goods purchased. IV. Materials are easily
identifiable as belonging to a particular purchase lot.
The LIFO method (Last in First Out method) This method is based
on the assumption that last item of materials or goods purchased
are the first to be issued or sold. Thus, according to this method,
inventory consists of items purchased at the earliest cost.
Advantages: - This method has the following advantages: 1) It takes
into account the current market conditions while valuing materials
issued to different jobs or calculating the cost of goods sold. 2)
The method is base on cost and, therefore, no unrealized profit or
loss is made on account of use of this method. The method is most
suitable for materials which are of bulky and non Perishable
type.
51
Base Stock Method: This method is based on the contention that
each enterprise maintains at all times a minimum quantity of
materials or finished goods in its stock. This quantity is termed
as base stock. The base stock is always valued at this price and
its carried forward as a fixed asset. Any quantity over and above
the base stock is valued in accordance with any other appropriate
method. As this method aims at matching current costs to current
sales, the LIFO method will be most suitable for valuing stock of
materials or finished goods other than the base stock. The base
stock method has advantage of charging out material / goods at
actual cost. Its other merits or demerits will depend on the method
which is used for valuing materials other than the base stock.
Weighted average price method: This method is based on the
presumption that once the materials are put into a common bin, they
lose their identity. Hence, the inventory consists of no specific
batch of goods. The inventory is thus priced on the basis of
average priced on the quantity purchased at each price. Weighted
average price method is very popular on account of its being based
on the total quantity and value of materials purchased besides
reducing number of calculations. As a matter of fact the new
average price is to be calculated only when a fresh purchase of
materials is made in place of calculating it every now and then as
is the case with FIFO, LIFO methods. However, in case of this
method different prices of materials are charged from production
particularly when the frequency of purchases and issues/sales in
quite large and the concern is following perpetual inventory
system.
52
Valuation of inventories impact on the flow of costs: As should
be quite evident, the different methods of calculating inventory
values will all have their impact on the flow of costs through the
balance sheet into the income statement. The dollars that are paid
to acquire inventory are always divided between the balance sheet
(inventories) and the income statement (cost of goods sold), there
is not other place to put them. Thus if the different methods of
calculating inventory produce differing inventory values, they will
also produce differing cost of goods sold figures, and the
differing cost of goods sold figures will naturally produce
differing profit figures. In order show the impact of inventory
valuation on cost flows, the preceding exhibits are summarized.
Each method produces a different figure for the transfer of raw
materials to work in process. These differences appear small, but
the only reason for this is that the dollar amounts have been kept
small to make the illustration workable. With the transfer of
materials to work in process, the cost flow or transfer with have
its impact on the work in process inventory and the transfer of
completed merchandise to finished gods. Ultimately when goods are
sold; the varying methods of valuing inventories will have their
impact on cost of goods sold and these profits. The effects of the
cost flows on cost of gods sold and profits can be accentuated
further it the differing methods of valuing inventories are applies
to work in process and finished goods.
Evaluation of methods What causes the differences? The
differences in inventory values and flows for each of the method
illustrated result from only one factor, that it, changing
purchases prices or unit costs. If purchase prices had remained
stable or unchanged, each method would have produced the same
inventory value and cost flow.
53
Cost flows and inventory are exactly the some under stable
prices. With a falling price level, the LIFO method produces the
highest cost flow and the lowest inventory. With a falling price
level, the LIFO method produces the lowest cost flow and highest
inventory. The cost flow under LIFO follows the price level, LIFO
produces larger cost flows when prices are rising and smaller cost
flows when prices are falling. A final item to consider is that the
average method produces results which fall between the extremes of
LIFO and FIFO. Evaluation of methods can we justify the
differences? The best method of inventory valuation might be
specific identification, that is, the units in inventory should be
identified with the specific invoices and thus specific unit costs
to which they apply. Fortunately, the FIFO method constitutes a
very useful approximation to the specific identification method if
one can reasonably assume that the actual flow of materials is
first-in first-out. This assumption is not unreasonable and thus we
have stated the main argument for the FIFO inventory scheme, that
is, the physical flow of materials would match the flow of costs
under the first in first out method. When the units in inventory
are identical, interchangeable and do not follow any specific
pattern of physical flow, the average cost system would seen to
appropriate. The primary difference between the FIFO and average
methods is centered on the physical flow since both methods could
involve identical and interchangeable units. The FIFO method fits a
first-in first-out physical flow. The average method fits a system
which has no specific pattern of physical flow. Finding a situation
where there is no specific pattern of physical flow should be quite
difficult because of the fact that most inventory items are subject
to deterioration by instituting a person would attempt to reduce
such deterioration and any reasonable person would attempt to
reduce such deterioration by instituting a physical flow
approximating
54
first-in-first-out. The major reason for the use of the average
method is something other than the lack of specific physical
flow.
Ordinarily the LIFO method cannot be justified on the basis of
the physical flow of materials. Under conditions of changing
prices, the advocate of LIFO says that the only method which
matches costs and revenues is the LIFO method. The LIFO method
assumes that the latest item is the first item out, and thus the
current costs of materials are matched with the other hand, assumes
that the first item in is the first item out, and thus the
non-current costs of matching current costs with current revenues
is the essence of the argument for the LIFO method. As can be seen
by the above comments, there is no one best method of valuing
inventories. The method chosen should fit the situation. A physical
flow pattern comparable to FIFO would force one to consider the
FIFO method. The lack of a discernible physical flow pattern would
force one to consider the average method. Concentration on cost
flows, as distinct from physical flows, would force to consider the
LIFO method especially where there appears to be a discernible
trend towards rising prices (or falling prices) as has been the
case in our economy during recent years.
Inventories valued at standard cost: A very useful method of
valuing inventories is at a standard cost. With a standard cost
system is no need of spending a great deal of time and money
tracing unit cost through perpetual inventory record.
55
PERPETUAL INVENTORY CARD UNDER A STANDARD COST SYSTEMPerpetual
inventory Plant: Standard cost: Location: Order Quantity:.....
Order Point: .. Available Date Description On order Received Issued
On order On hand
As shown above, there is need only for physical quantities since
the inventory values is the physical quantity multiplied by the
standard cost. With the cost and value columns disposed off, a
perpetual inventory card can include additional data such as
quantities on order, quantities reserved, and quantities available.
These additional data are very useful for inventory and production
control purpose. On the basis of a few calculations concerning into
inventories on a FIFO, a LIFO, or an average cost basis.
56
Inventory of Obsolescence:
Absolvent inventories cannot be used or disposed off at values
carried on the books. Frequent reviews should be made of all
inventories, and when obsolescence is indicated a request for
revaluation should be prepared for approval by management. The
difference between original and obsolete value should be recorded
by a change to operating account. Inventory obsolescence, and a
credit to inventory. If the material is scrapped, this will be for
the full inventory value or used in areas where it will be work
less than its
Original value, the entry would be only for the amount of write
down. Some companies carry a solvage inventory and transfer to it
materials which may be sold or used at reduced values. Where this
is done, the entry would be: Dr. Solvage inventory Dr. Inventory
Obsolescence. Cr. Raw Material inventory or Supplies inventory.
Inventory cost in relation ULTRA TECH shall to classifieds
follows: Inventory can be classified as capital and revenue certain
items through titled as capital in nature. Hence, due care is to be
take whole drawing the material. Materials which are to be imported
from other countries have to be planned well in advance nearly
about 24 months are to initiate the proposals for procurement.
Similarly some of the items do not require any lead time some they
are available in the local market.
57
Cement is highly energy intensive industry, the inputs like
power and Steel are the major part of the variable cost since
Government controls the Steel & fuel sector, and increase is
rates adversely effects the Cement industry. ULTRA TECH has its own
power plant and through which it saves energy consumption. By this
the cost since Government controls the Steel & fuel sector, any
increase rates adversely affects the Cement industry. Inventory
cost of any organization also adversely affects by retaining
obsolete / scraps and inventory costs can be reduced by management
with an advance planning of procurement of materials, periodical
reviews of existing spares with reference to the fast consumption,
ascertaining the information regarding the availability of spares
in other areas. Holding of extra inventory will be an additional
financial burden to the company due to payment of interest charges
on the materials purchased, diminishing value of materials
purchased, diminishing value of materials by keeping them in stores
for a log time, handling charges, spare rent etc., The inventory of
ULTRA TECH mainly includes Limestone, Bauxite, Gypsum, Fly ash.
Inventory in ULTRA TECH during 2005 06 to 2009 10 are as follows:
(Units in m.t)
Years Steel Rubber Plastic fiber
2005 06 1042230 49637 23243 5752
2006 07 974490 44256 20703 10301
2007-08 956940 41872 21747 18101
2008-09 968730 431151 23091 33695
2009-10 1239443 64961 38765 159344
58
Inventory in ULTRA TECH during 2005 06 to 2009 10.
Years Steel Rubber Plastic fiber
2005 06 122161492 32294775 19613001 28203
2006 07 13853482 27971993 17100574 644473
2007-08 13853482 27971993 17100574 644473
2008-09 157130922 23488745 19699583 2546948
2009-10 243412189 38552277 49061196 20223404
Value of imported and indigenous raw materials, stores, spare
parts and components consumed during the year:
250000000 200000000Steel
150000000Rubber
100000000 50000000 0 2004-05 2006-07 2007-08 2008-09 2009-10
Plastic fiber
59
Imported
Years Raw Materials Stores spare parts and components
2005 06 95354856
2006 07 593002633
2007-08 666190014
2008-09 491339625
2009-10 1454235982
522588043
522588043
75345209
131624912
42279637
1.5E+09 1E+09 500000000 0 2005-06 2006-07 2007-08 2008-09
2009-10Raw Materials
Stores spare parts and components
(Imported Raw materials and Stores spare parts and
components)
60
Indigenous
Years Raw Materials Stores spare parts and components
2005 06 1104787879
2006 07 3995869418
2007-08 3558875426
2008-09 4117405138
2009-10 7906341716
611204564
981990949
189149420
1365664385
3868715827
8E+09 7E+09 6E+09 5E+09 4E+09 3E+09 2E+09 1E+09 0 2005-06
2006-07 2007-08 2008-09 2009-10Stores spare parts and components
Raw Materials
Indigenous Raw Materials Stores spare parts and components.
61
Cement factory runs with various equipments:i. technical
department 1. 2. 3. 4. ii. Store Mechanical Electrical Civil
Commercial departments 1. 2. 3. stores purchase accounts
To run the plant and maintain equipments departments require
spares. for such requirement of spares departments raise indents
and send the indents to purchase department through stores.
Indents: 1) 2) 3) Annual indents for consumable items (stores
items). Regular indents raised by consuming departments. Annual
requirement of raw materials promo & QC.
Enquiries: 1) Enquires will be sent approved sun
contractors.
62
Order processing form: 1) 2) Receiving quotations from sub
contractors. Enter the price details of enquiry sent in the Order
processing form. 3) Selection of party on merit basis.
Purchase order: 1) 2) Prepare purchase order on selected party.
Send purchase order copies to party, stores and Departments. Goods
receipt note: 1) Receiving goods receipt note from stores.
Purchase department: Activity receiving indents:
Flow chart:
Receipt of annual indents for consumable items / stores items
from stores department. Checking of indent number an authority of
item, delivery time consumption period.
63
In case of any deficiency, send the information to concerned
department for clarification. Segregation of indents for attending
at C.P.D. and Hyderabad Office. Sent the Hyderabad indents to
Hyderabad Office. Enter the indents details in indent register.
PURCHASE DEPARTMENTPURCHASE ENQUIRY
Ms. Sl. No.
Material Code
Department
Quantity
Unit
When Required
64
ACTIVITY: FLOATING ENQUIRIES: FLOW CHART: Checking indented
items and equipment name. Taking previous suppliers information
from previous supply. If new equipment / item, information to be
taken from concerned department or from competitors / journals /
yellow pages. Prepare enquiry to approved sub contractors through
enquiry format. If emergency requirement, send the enquiries
through fax / e-mail. Enter the details of enquiries sent in order
processing form.
PURCHASE DEPARTMENTORDER PROCESSING FORM
Sl. No.
Indent Ref
Material Code No. Description Size Qty 1 2 3 4 5 6 Remarks
65
ACTIVITY: PREPARATION OF ORDER PROCESSING FROM FLOW CHART:
Receiving quotation against enquiries sent. Enter price and other
of the quotation received from sub contractors in the order
processing from. Mention the earlier purchase details of indented
items against each item in the order processing form if available.
Put up the processing from with enquiry and quotations to head
(purchase). Examine order processing from with decide the sub
contractor to whom purchase order to be placed.
PURCHASE DEPARTMENTPURCHASE ORDER Indent No. Item Code
Sl. No.
Description
Qty
Rate
Unit
Amount
66
ACTIVITY: PREPARATION OF PURCHASE ORDER FLOW CHART: Prepare
purchase order after finalization of price and other technical
terms mentioning the following details. 1. Material code 2. Indent
number 3. Material specification & part number 4. Quantity 5.
Rate 6. Payment and other terms & conditions Stipulation of
terms of test certificate / ibr / manufactures certificate where
applicable. Fill in and attach the purchase order review proforma
to purchase order. Send the prepared purchase order to head
(purchase) and competent authority for approval. Send the purchase
order to identified approved sub contractor. Send the purchase
order copies to store and concerned departments. Enter the details
of purchase order in purchase order register.
67
PURCHASE DEPARTMENT AMENDMENT / CANCELLATION OF ORDER
Material Code
Material
Price / Quantity as per Order
Amended Price / Quantity
ACTIVITY: ORDER AMENDMENT, ORDER FOLLOW UP AND INFORM THE
SUPPLIER FOR THE REJECTIONS / DAMAGES / SHORTAGES: FLOW CHART:
Issue of amendments in case of modification to purchase order.
Review the pending order and follow up the pending order for
breakdown requirement. Send regular reminders to suppliers against
pending purchase order every month. Receive shortage / excess /
damages report from stores for the material received. Information
the supplier for the rejections / damage / excess / shortage.
68
PURCHASE DEPARTMENT
ACTIVITY: IMPORTS: FLOW CHART: Receipt of indents for import
items from stores department. Taking previous / item, information
to be taken from concerned department or from competitors /
journals / Yellow pages. Send enquiry to overseas supplier.
Receiving quotations against enquiries sent. Enter price and other
terms of the quotations received from overseas supplier in the
order processing form. Examine order processing form and decide the
sub contractor to whom purchase order to be placed. Prepare
purchase order after finalization of price and other technical
terms mentioning the following details.
69
1) Material code 2) Indent number 3) Material specification
& part number 4) Quantity 5) Rate 6) Payment 7) Insurance and
other terms and conditions.
Send the prepared purchase order to head (purchase) and
competent authority for approval.
Send the purchase order to overseas supplier. Send the purchase
order copies to stores and concerned departments. Prepare IC
documents and submit to bank for onward transmission to overseas
supplier.
Receive shipping documents from overseas supplier and send same
to clearing agents for collection of the material.
70
STORES DEPARTMENTACTIVITY: RECEIPTS AND UNLOADING MATERIAL
Receiving of Goods through Trunk / Personnel Delivery. Entry of
vehicle at Gate Office. Stamping on Dispatch Advise / Delivery
challan by Gate Office. Checking of challans / Dispatch Advise with
purchase order. Unloading of Goods at allotted place or in case of
urgency direct at works site. All safety precautions are taken
while unloading of material like workers should wear safety shoes,
helmets, leather head gloves, noise respirator, nose mask. Training
is given to workers for unloading Heavy & Bulky material by
using chain pulley Blocks, Wire Rope Ceilings, Fork Lift. After UIL
receipt acknowledgement given to driver maintaining Lorry receipts
register.
71
STORES DEPARTMENTActivity: preparation of receipt and approval
book for general material / d.c. enter of block, repair and
stationary material manually in register Sorting of Delivery
challans as below: a) General b) Stationery c) Repairs d) Block
Checking with P.O. and mentioning Material Code, Party Code, Indent
No. Department Name on each & every challans. Creation of D.C.
entry in system for general materials. Preparation of
identification tags for General Materials through system.
Preparation of Receipt & Approval Book for General materials.
Manual entry of block, stationery, repairs materials. Preparation
of intimations for block, stationery, repairs materials.
72
STORES DEPARTMENTACTIVITY: PHYSICAL VERIFCATION OF GOODS: All
D.C. handed over to stores assistant physical verification like
measuring, counting and tallying with D.C.s Quantity / Description
of the materials by the Stores Assistant. Identification tags to be
attached to the verified material. Shortage / Excess / Damages if
any found to be noted on challans and inform to section incharge.
Preparation of Shortage / Excess / Reports if any sending to
parties under copy to purchase / bills sections.
73
STORES DEPARTMENTACTIVITY: APPROVAL OF MATERIAL AND PREPARATION
OF GOODS RECEIPT NOTES: Intimation is be sent to all the concerned
departments. Showing materials to concern person. Taking approval
of the material in receipt & approval book. Preparation general
material in receipt & approval book. Preparation general
material GRNs through system and stationery / block / repairs GRNs
manually. Forwarding true copy to issue section of GRN for general
material forwarding true copy to issue section of GRN for General
material forwarding true copy of block / Repair / Stationery GRN to
issue section and copy to purchase department.
STORES DEPARTMENTACTIVITY: REJECTED MATERIALS Rejected materials
kept in allotted area of rejected materials. Packing of rejected
materials. Preparation of gate passes for rejected materials.
Sending back to suppliers through our Hyderabad Office. Sending
consignee copy to party vides Register Letter for booking of
Register goods to partys other than.
74
STORES DEPARTMENTACTIVITY: EXCISE GATE PASSES Sending duplicate
for transport copy of excise invoice from suppliers delivery
challans. Mentioning A.B. Sl. No. and named of concerned
department. Duplicate for transport copy of excise invoice over to
bills section for sending the same to Excise Department.
Corresponding with supplier. If the Excise Invoice is not found
with delivery challans.
STORES DEPARTMENTACTIVITY: RECEIPTS OF MEDICINES Physical
verification of Medicines as per Invoices. Verification of expiry
date on medicines. Verification of MRP. Sending shortage / excess
note if any found. Taking approval of Medical Officer. Sending
Rejection notes if any medicine is rejected. Issuing to dispensary.
Bills forwarding to Account Department vide IOM for making the
payment.
75
76
RATIO ANALYSIS
The investment on raw materials over a period of 5 years from
2004 to 2009 is presented in the following table. 1. Investment on
Raw Materials: Year Investment on Raw Material crores) 2005 2006
2006 2007 2007 2008 2008 2009 2009 -2010 11690.67 49950.88 42950.66
46087.45 93605.78 (in
Interpretation: 1) From the above table it can be understood
that the inventory of was recorded at 11,690.67 during the year
2005 06 and it is increased to 93605.78 during the year 2009 10. 2)
It shows that there is on increase in the inventory to the more
extent of 81915.11. 3) 4) The average inventory of ULTRA TECH was
recorded at Rs.48857.08. The highest investment in inventory was
recorded in the years 2009-10
77
2.
Trend Analysis: Trend analysis technique is applied to know the
growth rate in investment of
raw material of ULTRA TECH over the review period which is shown
in the following table.
Trend Analysis: Raw Material Lacks) 11690.67 49950.88 42950.66
46087.45 93605.78 (in
Year
Trend %
2005 2006 2006 2007 2007 2008 2008 2009 2009 -2010
87% 373% 315% 344% 699%
Trend analysis technique is applied to know the growth rate in
investment of raw material of ULTRA TECH Cement. (From2005-06 to
2009-10)
78
Interpretation: 1)
The investment on inventory has increased in the year 2007
08. And the lost year investment has declared continuously. The
percentage in 2005 06 was 315% as compared to years 2005 06 to 2007
08. 2) The trends in inventories show that inventory have been more
in the year 2007 08 and then it has shown a downward trend and
again it increased to some extent. 3) The investment in inventories
has shown fluctuating trend is initial years and then it raised to
699% and again showing fluctuating trend. 3. Inventory Turnover
Ratio: This ratio indicates the number of times the stock has been
turned over during the period & evaluates the efficiency with
which a firm is able to manage its inventory. This ration is
calculated by applying the following formula. Cost of goods sold
Inventor turn over ration = _________________ Average inventory
Inventory turn over ration: Year 2005 2006 2006 2007 2007 2008 2008
2009 2009 -2010 Cost of goods sold 59021.41 121551.71 127533.58
130392.68 311636.92 Avg. Inventory 37975.30 95065.28 12390.06
1333.8.01 160035.93 Ratio 1.55 12.79 10.29 9.78 1.32
79
Interpretation: 1. From the above table it can be observed that
(1) inventory turnover ratio is
8.13 and it gradually decreased to 1.55 during 2005 2006. 2. In
the year 2009 10 it is clear that the ratio is very less i.e., his
stock Is not turned into sales quickly. 3. 4. As compared to all
the years the ratio is very less in 2009 10. The average inventory
turn over ratio was recorded at 7.3 times during the
review period.
4.
Inventory conversion period: It may also be of interest to see
average time taken for clearing the stocks.
This can be possible by calculating inventory conversion period.
This period is calculated by dividing the number of the days by
inventory turns over. This formula may be as: Days in a year (360
days) Inventory conversion period = _____________________ Inventory
turnover ratio
80
Inventory conversion period: (in crores) Cost of goods sold
59021.41 121551.71 127533.58 130392.68 311636.92
Year
Avg. inventory
Ratio
ICP (Days)
2005 2006 2006 2007 2007 2008 2008 2009 2009 -2010
37975.30 95065.28 12390.06 1333.8.01 160035.93
1.55 12.79 10.29 9.78 1.32
232 28 34 36 272
Interpretation: From the above table it can be identified the
following observations: 1) The inventory conversion period was 232
days during the year, which indicates that the stock has been very
quickly converted into sales which mean the company is managing the
inventory efficiently. 2) The lowest inventory conversion period
was recorded at 28 days in the year 2005 06 and th