Inventory Management-yogesh Kulkarni Project

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A

PROJECT REPORT

ON

INVENTORY MANAGEMENT SYSTEM

AT

VARROC POLYMERS PVT.LTD.

D-2, MIDC, WALUJ, AURANGABAD, 431136

SUBMITTED TO

UNIVERSITY OF PUNE

IN PARTIAL FULFILLMENT OF

MASTER OF BUSINESS ADMINISTRATION

SUBMITTED BY

YOGESH.R.KULKARNI

UNDER THE GUIDANCE OF

PROF. JANHAVI PATWARDHAN

NOVEL INSTITUTE OF MANAGEMENT STUDIES

PLOT NO-GP-193G BLOCK MIDC THERMAX CHOWK

CHINCHWAD, PUNE-411019

(ACADEMIC YEAR 2010-2012)


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DECLARATION

I, the undersigned, Mr.YOGESH RAMESHRAO KULKARNI hereby declare that theProject Report entitle INVENTORY MANAGEMENT SYSTEME written and submittedby me to the university of Pune, in partial fulfillment of the requirement for the award of degree of Master Of Business Administration under the guidance of Prof.JANHAVIPATWARDHAN, is my original work and the conclusions are based on the materialcollected by myself.

DATE: / /

PLACE: Chinchwad,

Pune-411019

Signature of the candidate

(Yogesh.R.Kulkarni)


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ACKNOWLEDGEMENT

Success can never be attained without proper guidance

Project in an organization is an experience wherein academicknowledge gained from the institute is applied in a practical manner; Ihad an opportunity to complete my summer project in VARROCPOLYMERS PVT LTD . The project is great source of learning and a good experience as it mademe aware of professional culture and conduct that exits in anorganization and guidance are valuable in all aspect of life especially inan academic field.

I would like to express my gratitude to Mr. Shyam Pande(FM) whomentors me for successful completion of this project.I also must show my deepest gratitude to Director Dr. Ashutosh Misaland Prof. Janhavi Patarwadhan for their valuable suggestion, guidance,and advice in bringing out this project.Also I would like to express my heartfelt thanks to the staff member of Finance Department, Who helped me in the successful completion of thisproject.I will always carry fond of these training days.

Date: / / Place: Chinchwad,Pune-411019

Signature

(Yogesh.R.Kulkarni)


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INDEX

SR.NO. PARTICULARS PAGE NO.

1. Introduction 5

2. Objective Of the Project 7

3. Topic information 8

4. Company Profile 11

5. Theoretical Background 30

6. Research Methodology 52

7. Data Analysis And interpretation 55

8. Findings 69

9. Recommendations 70

10. Conclusion 71


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EXECUTIVE SUMMERY

The Project has been conducted at VARROC POLYMERS PVT LTD.

Varroc Polymers Ltd. was established in 2003.Varroc group are a premier supplierfor the automotive industry with full capabilities in design, development and

manufacturing. Offering complete capabilities integration sets us apart from our

competitors. The objective behind this project is to understand meaning and

importance of Inventory Management. To know various method of inventory

control.Tostutdy the various aspect of inventory management of Varroc Polymers

Pvt ltd.

Inventory Management Systems hav ing a great importance in day to day

management of the firm. Inventory Management is primarily about specifying the

size and placement of stocked goods. Inventory management is required at

different location within a facility or within multiple location of a supply network

to protect the regular and planned course of production against the random

disturbance of running out of materials or goods.

The scope of Inventory Management also concerns the fine lines betweenreplenishment lead times, carrying cost of inventory, asset management, inventoryforecasting, Inventory Valuation, Inventory visibility, Future Inventory Priceforecasting, Physical Inventory, available physical space for Inventory, QualityManagement, Replenishment Returns, and Defective Goods, Demand forecasting.

Balancing these competing requirements leads to optimal inventory levels, whichis an on-going process as the business needs shift and react to the widerenvironment.

Successful inventory management involves balancing the cost of inventorywith the benefits of Inventory. Many small business owner fail to appreciate fully


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the true cost of carrying inventory, which include not only direct cost of storage,insurance and taxes, but also the cost of money tied up in inventory. This fine line

between keeping too much inventory and not enough is not the Managers onlyconcern.

Just in Time (JIT) inventory control is the result of a new emphasis by firmson continuous process improvement. The idea is that inventories are acquired andinserted in production at the exact times they are needed.

In this project the theoretical background includes meaning of inventorymanagement systems. Method of inventory control and supply chain cycle. Thedata analysis includes calculations and projection of future inventory.


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OBJECTIVES

1. To study and Understand the Concept of Inventory Management in Industry

2. To study the inventory turnover

3. To find out the problem areas of inventory control

4. To know the effect of high and low turnover

5. To know how to control the inventory

6. To analyze and calculate the ratio

7. To have the practical knowledge about the organization

8. To make observation and suggestions after understanding

9. Critically analysis of inventory management system

10. To find out the reasons for unsatisfactory result


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TOPIC INFORMATION

Inventory Management refers to the process of managing the stocks of finishedproducts, semi-finished products and raw materials by a firm. Inventory management, if done properly, can bring down costs and increase the revenue of a firm.

How much one should invest in inventory management? The answer to this questiondepends on the volume and value of inventory as a percentage of the total assets of afirm. The importance of inventory management caries according to industries. Forexample, an automobile dealer has very high inventories, sometimes as high as 50percent of the total assets, whereas in the hotel industry it may be as low as 2to 5 percent.

The process of inventory management is a continuous one and there are various kinds of solutions available. It is advisable to employ specialized staff for inventory management.

The inventory management process begins as soon as one has started production andordered raw materials, semi-finished products or any other thing from a supplier.

Once orders have been placed, there is generally a short period of time available to a firmto put an Inventorymanagement plan in place before the supplies are delivered. Inventorymanagement helps a firm to decide in advance where these supplies should be stored. if afirm is getting supplies of small-sized goods, it may not be much of a problem to storethem, but in the case of large goods ,one has to be careful so that the warehousing spaceis optimally utilized.

Form invoices to purchase orders, there its lot of paperwork and documentation involvedin inventory management. Several software programs are available in market, which helpin inventory management. Like a Tally ERP software by using this software any one cancontrol on inventory. Inventory too many small business owners in one of the morevisible and tangible aspects of doing business. Raw materials, goods in process andfinished goods all represent various forms of inventory. Each type represents money tiedup until the inventory leaves the company as purchased products.

Likewise, merchandise stocks in retail store contribute to profits only when their sale puts

money into the cash register. In a literal sense, inventory refers to stocks of anythingnecessary to do business. The stocks represent a largeportion of the business investmentand must be well managed in order to maximize profits.in fact,manysmall businessescannot absorb the types of losses arising from poor inventory management.unlessinventories are controlled, they are unreliable,inefficient and costly.


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CONCEPT:

Inventory management is a very simple concept- dont have too much stock and donthave too little. Since there can be substantial costs involved in straying above andbelow the optimal range, careful inventory management can make a huge differencein profitability of a business. Although the concept is simple the process of getting theright balance can be quite a complex and time consuming.

Task with without technology.

There are tow fundamental questions that must be answered, in order to manage theinventory of any physical item.

Q.1) When to order?

Q.2) How much to order? Types of Inventory

RAW MATERIAL WORK-IN-PROCESS

TYPES OF INVENTORY

SPARE PARTS FINISHED GOODS

CONSUMABLE


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RAW MATERIAL

Raw material is something that is acted upon or used by or by human labor orindustry, for use as a building material to create some product structure. Often theterm is used to denote material that come from nature and is in unprocessed orminimally processed state. Iron are, logs, and crude oil, would be examples non -human related raw material would include twigs and found objects as used by birds tomake nests.

GOODS IN PROCESS

Work that has been started but not yet completed. This could be project or creativework.(e.g., book, song, film). In manufacturing this can refer to inventory that hasbeen worked on such that it is no longer viable as raw materials while not yet sellable

as a finished products; in this case it is more common to use work in process. CONSUMABLE

Consumable is, something that is capable of being consumed; that may be destroyed,dissipated, wasted, of spent. Consumables are products that consumers buyrecurrently,i.e., items which get used up discarded. For example consumable officesupplies are such products as paper, pens, file folders, post-it notes, computer disks,and toner or ink cartridges. Not included capital goods such as computers, faxmachines, and business machines or office furniture.

FINISHED GOODS

Finished goods are goods that have completed the manufacturing process but have notyet been sold or distributed to the end user.

SPARE PARTS

Spare parts are usually parts to replace others when they break. Surplus componentsof an automobile or other manufactured goods, kept in inventory for replacement of failed parts.


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COMPANY PROFILE

VARROC POLYMERS PRIVATE LTD .


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VPPL- III

Waluj, Aurangabad

Year Of Start :2003

Company :- VarrocPolymers.Pvt Ltd

M.D. :- Mr. Tarang Jain

Year of Establishment :- 2003

Location :- Head Office, Aurangabad

Business activity : - manufacturer and retailer of Automobile spare parts

and global provider of Automobile spare parts.


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VARROC Group of Companies

A) History Of The Company :-

In the late eighties, as India opened up to liberalization, internationalcompanies and markets started looking at India with renewed interest.

Amongst other industries, major international automobile and consumerdurable companies saw India as a promising business destination and set upstate-of-art manufacturing plants here.

Varroc Group saw a vast potential in the automobile industry and focusedon manufacturing and supplying of different components as well as setting upsubassemblies for the booming automobile, consumer durable and white goodsindustry.


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Varroc created three distinct divisions that would supply quality products tomatch global standards.

Polymer Division Electrical Division Metallic Division

To manage growth in a highly competitive business environment, Varroc follows theprinciples of

Strong Leadership Positive Work Environment Financial Discipline

Varroc's success stems from continuous improvements in

Quality Cost Innovation Delivery Service Speed

Varroc is focusing on three critical areas that give it world-class status

Efficiency EngineeringExports Exports

VISION

We are committed to serve the society by adding value to the Customers,

Employees, Suppliers, Shareholders and the Community at large in terms of:

Providing Customer Satisfaction by offering Reliable Products and Services at

Competitive Prices

Providing an environment conducive to the development, growth and satisfaction

of employees while fulfilling their reasonable aspirations


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Providing adequate returns to the shareholders while nurturing business growth

Contributing to the well being of the society and conducting ourselves as a

responsible corporate citizen known for integrity and ethics .

CARE:

For customers and all stakeholders; for welfare and work-personal life balance of all team members;

for the environmental and society.

RESPONSIBILITIES:

To the timely completion of the jobs as promised; to achieving excellence.


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MANAGEMENT OF VARROC

Mr.Tarang Jain Founder& Managing Director

Mr.S.N.Patil Director

Mr.S.K.Kund DGM

Mr.A.D.Deshpande Vice President (Production)

Mr.D.A.Kulkarni Vice President(Quality)

Mr.A.D.Patil Vice President(R&D)

Mr. S.V.PandeVice president(Store)


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TABLE

Sr.No Name of Branch Location

1. VPPL-I Pune

2. VPPL-II Pune

3. VPPL-III Aurangabad

4. VPPL-IV Aurangabad

5. VPPL-GN UttarPradesh

6. VPPL-BN Hariyana

Subsidiaries:-Varroc Elastomers Pvt.Ltd. Aurangabad


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PRODUCT OF VARROC POLYMERS PVT, LTD.

Products & Services

The main focus of Varroc is to develop technologies and produce products for

auto manufacturers that increase the quality, reliability, economy and the sheer

satisfaction.

Varroc today is one of the most diversified suppliers in the Indian auto component

industry. Varroc has got the capabilities of Full Service Supplier in Plastic Molded

modules, Machined Forgings & Auto Electrical commodities. We provide customers with

unparalleled manufacturing reach and ability. Our approach is solution-based, innovative

and built on stringent best practices and commitment to the success of our customers in

the global marketplace.

Our flexibility leaves no opportunity unanswered and better ideas are uncovered

every day.

Interior & Exterior Trims

Underbody/HVAC Parts

Radiator/ Engine Parts

Inj. Molded Plastic & rubber components.

Mirror assembly & Mirror Plates

Air Cleaner Assy.

PU Foam Pad & Seating System Assy.

Multi layer co-extruded thermo plastic sheets.


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Molding for White Good & consumer electronic components

Series Moulds& Pre production Moulds


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DISCOVER 1311

DISCOVER 1312

DISCOVER 1315


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PROCESS OF MANIFACTURING FOAM


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CUSTOMER:

As companies increasingly narrow their focus on their true core competencies, the

responsibility of maintaining the physical sets and equipment they use in their

businesses is moving to the shoulders of the companies who manufacture of servicethe products, that are the Original Equipment Manufacturers (OEMs) and the

operation & Maintenance (O&M) service providers. Maintaining this distributed

installed base requires continuous remote monitoring of the equipment since it is

impossible for the OEMs or O&M providers to have their expert teams everywhere.

Further, for all discrete industrial equipment end users operating reliability, energy

efficiency, and minimal material wastage are the key factors controlling heir operation

and maintenance costs that otherwise surpass the capital expenses. The Super Axis

remote performance management solution is also very beneficial to multi-plant

owners as they can centrally coordinate the proper working of their plants and

benchmark them for improvement.


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OUR CUSTOMERS


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THEORETICAL BACKGROUND

INTRODUCTION

Inventories constitute the most significant part of current assets of a majority of

companies in India. On an average, inventories are approximately 60% of current assets.Because of large sixe of inventories maintained by firms, a considerable amount of fundsis required to be committed to them. It is, therefore, absolutely imperative to manageinventories efficiently and effectively in order to avoid.

Unnecessary investment, A firm neglecting the management of inventories will be jeopardizing its long run profitability and may fail ultimately. It is possible for a companyto reduce its level of inventories to a considerable degree, e.g, 10 to 20 percent, withoutany adverse effect on production and sales, by using simple inventory planning and

control techniques. The reduction in excessive inventories carries a favorable impact oncompanys profitability.

DEVELOPMENTS IN INVENTORY MANAGEMENT

In recent years, two approaches have had a major impact on inventory management:Material Requirements Planning (MRP) and Just-In-Time (JIT and Kan-ban).Theirapplication is primarily within manufacturing but suppliers might find newrequirements placed on them and sometimes buyers of manufactured items willexperience a difference in delivery.

Material requirements planning are basically an information system n which sales areconverted directly into loads on the facility by sub-unit and time period. Materials arescheduled more closely, thereby reducing inventories, and delivery times becomeshorter more predictable. Its primary use is with products composed of manycomponents.MRP systems are practical for smaller firms. The computer system isonly one part of the project which is usually long-term taking one to three years todevelop.

Just-in-time inventory management is an approach which works to eliminateinventories rather than optimize them. The inventory of raw materials and work-in-process falls to that needed in single day. This is accomplished by reducing set-uptimes and lead times so that small lots may be ordered. Suppliers may have to makeseveral deliveries a day or move close to the user plants to support this plan.


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Nature of inventories

Inventories are stock of the product a company is manufacturing for sale andcomponents that make up the product. The various forms in which inventories exist ina manufacturing company are:

Raw materials

These are those basic inputs that are converted into finished product into finishedproduct through the manufacturing process. Raw materials inventories are those unitswhich have been purchased and stored for future productions.

Work in process

These inventories are semi-manufactured products. They represent products that needmore work before they become finished for sale

Finished goods

These inventories are those completely manufactured products which are ready for

sale stock of raw materials and work-in-process facilitate production while stock of finished goods is required for smooth marketing operations. Thus ,inventories serveas a link between the production and consumption of goods.

The levels of three kinds of inventories a firm depend on the nature of its business. Amanufacturing firm will have substantially high levels of all three kinds of inventories. Within manufacturing firms, there will be differences.Large heavyengineering companies produce long production cycle products therefore they carrylarge inventories. Firms also maintain a fourth kind of inventory, supplies or stores

and spares. Supplies include office and plant cleaning materials like soap, oil, fuel,light bulbs etc. these materials do not directly enter production, but are necessary forproduction process. Usually, these supplies are small part of the total inventory and donot involve significant investment. Therefore, a sophisticated system of inventorycontrol may not be maintained for them.


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Benefit of holding inventories

The question of managing inventories arises only when the company holdsinventories. Maintaining inventories involves tying up of the companys funds andoccurrence of storage and handling costs. If it is expensive to maintain inventories,why do companies hold inventories?

There are three general motives for holding inventories :-

TRANSCATIONS MOTIVE:

It emphasizes the need to maintain inventories to facilitate smooth production and salesoperations.

PRECAUTIONARY MOTIVE:

The necessitates holding of inventories to guard against the risk of unpredictable changesin demand and supply force and other factors.

SPECULATIVE MOTIVE:

It influences the decision to increase or reduce inventory levels to take the advantage of

price level fluctuations. Company should maintain adequate stock of materials for acontinuous supply to the factory for an uninterrupted production. It is not possible for acompany to procure raw materials whenever it is needed. A time lag exists betweendemand for materials and its supply. Also, there exists uncertainty in procuring rawmaterials in time on many occasions. The procurement of material may be delayed of price rise. Work in process inventory builds up because of the production cycle.Production cycle is the time plan between introduction of raw materials into productionand emergence of finished product at the completion of production cycle. Till productioncycle completes, stock of WIP has to be maintained. Stock of finished goods to be held

because production and sales are not instantaneous. A firm cannot produce immediatelywhen customers demand goods. Therefore, to supply finished goods on a regularbasis,their stock has to be maintained.


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COST ASSOCIATED WITH INVENTORY (MANAGEMENT)

1. ORDERERING COST:

The ordering cost is the price paid for a purchased item, which consists of the cost of theitem and any other direct costs associated in getting the item into the plant. These couldinclude such thing as Transportation, Custom duties and Insurance.

2.CARRYING COST:

Carrying cost include all expenses incurred by the firm because of the volume of inventory carried.

IT CONSISTS THREE CATEGORIES:

CAPITAL COSTS :-Money invested in inventory is not available for other usagesand as such represents a lost opportunity cost.

STORAGE COST :-Storage inventory requires space, workers, and equipment.

RISK COST :-The risks in carrying inventory are:

(1) OBSOLESCENCE - loss of product value resulting from a model or style changeor technological development.

(2) DAMAGE - Inventory damaged while being held or moved.

(3) PILFERAGE :- goods lost, strayed, or stolen.


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OBJECTIVE OF INVENTORY MANAGEMENT

In the context of inventory management, the form is faced with the problem of meeting two conflicting needs:

1. To maintain a large size of inventories of raw material and WIP for efficient andsmooth production and of finished goods for uninterrupted sales operations.

2. To maintain a minimum investment in inventories to maximize profitability.Both excessive and inadequate inventories are not desirable. These are two dangerpoints which the firm a should avoid. The objective of inventory investment. The

optimum level of inventory will lie between the two danger points of excessiveand inadequate inventories. The firm should always avoid a situation of overinvestment or under investment in inventories. The major dangers of overinvestment are:

Unnecessary tie up of the firms funds loss of profit Excessive carrying costs Risk of liquidity

The excessive level of inventories consumes funds of the firm, which cannot be usedfor any other purpose, and thus, it involves an opportunity cost. The carrying costssuch as the costs of storage, handling,insurance,recording and inspection, alsoincreases in preparation to the volume of inventor y. These costs will impair the firmsprofitability further. Excessive inventories carried for long period increase chances of loss of liquidity. It may not be possible to sell inventories in time and at full value.Raw materials are generally difficult to sell as the holding period increases. Anotherdanger of carrying excessive inventory is the physical deterioration of inventorieswhile in storage. Maintaining an inadequatelevel of inventories is also dangerous. Theconsequences of under investment in inventories are:


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o Production hold-ups

o Failure to meet delivery commitments

o Inadequate raw materials and WIP inventories will result in frequentproduction interruptions. The aim of inventory management is to avoidexcessive and inadequate levels of inventories and to maintain sufficientinventory for the smooth production and sales operations. An effectiveinventory management should: ensure a continuous supply raw materials tofacilitate uninterrupted production maintain sufficient stock of raw materials inperiods of short supply and anticipate price changes. Maintain sufficientfinished goods inventory for smooth sales operation and efficient consumerminimize the carrying cost and time.

Effective Materials Management Is Essential in Order To:

1. Provide the best service to customers,2. Produce at maximum efficiency, and3. Manage inventories at predetermined levels to stabilize investments in inventories.

Successful materials management requires the development of a highly integrated andcoordinated system involving Sales Forecasting, Purchasing, Receiving, Storage,Production, and actual Sales. Both the theory of costing materials and inventories and therecord keeping must be considered.

Costing materials present some important, often complex, and sometime highlycontroversial questions concerning the costing of materials used in production and thecost of inventory remaining the consumed in a future period. In financial accounting, the

subject is usually presented as a problem of inventory valuation ;in cost accounting, theprimary problems is the determination of the cost of various materials consumed inproduction and a proper charge to cost of goods sold.


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PROCEDURES FOR MATERIAL PROCUREMENT AND USE

Although production processes and materials requirements vary, the cycle of procurement and use of materials usually involves the following steps:

1. Engineering and planning determine the design of the product, the materialsspecifications, and the requirements at each stage of operations. Engineering andplanning not only determine the maximum and minimum quantities to run and Billof Materials for given products and quantities but also cooperate in developingstandards where applicable.

2. The production budget provides the Master plan from which details

concerningmaterials requirements are eventfully developed.

3. The purchase requisition informs the purchasing agent concerning the quantity andtype of materials needed.

4. The purchase order contracts for appropriate quantities to be delivered at specifieddates to assure ininterruptedoperations.

5.

The receiving report certifies quantities received and may report results of inspection and testing for quantity.

6. The materials requisition notifies the storeroom or warehouse to deliver specifiedtime or is the authorization for the storeroom to issue material to departments.

7. The materials lodger cards record the receipt and insurance of each class of materials and provide a perpetual inventory record.


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(1.) PURCHASE OF PRODUCTIVE MATERIAL:

The actual purchase of all material is made by usually purchase department headed by ageneral purchasing agent, in some small and medium size companies, however,department heads or supervisor have authority to purchase materials as the need arises. Inany case, systematic procedures should be in writing in order to fix responsibility and toprovide full information regarding the ultimate use of materials ordered and received.The purchasing department should receive purchase requisitions for materials, supplies,and equipments; keep informed concerning sources of supply, prices, and shipping anddelivery schedules; prepare and place purchase orders; and arranging for adequate andsystematic reports between the purchasing, the receiving, and the accountingdepartments. An additional function of the purchasing department in many enterprises into verify and approve for payments all invoices received in response to purchase ordersplaced by the department. This procedure has the advantage of centralizing theverification and approval by the purchasing department may violate sound proceduresand later approves the invoice. Consequently, invoice audit and approval in manyinstances have been made a function of the accounting department, which receives a copyof the purchase order (PO ). The purchase order carries all necessary informationregarding prices, discount agreement and delivery stipulations, as well as the number of the account to which the order is to be charged. Furthermore, the centralization of invoiceapproval in the accounting department helps avoid delaying payments beyond thediscount period.

(2)MATERIAL PURCHASE ORDER FORMS:

The purchase order, sighed by the purchasing agent or other official, is a writtenauthorization to a vendor to supply specified quantities of described goods at agreedterms and at a designated time and place, as a convenience, the vendors order forms maybe used; but in typical practice, the order forms are prepared by the purchasing company,and the form is adapted to the particular needs of the purchaser. As a matter of record andaccounting control, a purchase order should be issued for every purchase of materials,supplies, or equipment. When a purchase commitment is made by mail, telephone, or asales representative, the purchase order serves as confirmation to the vendor and placesthe required documents in the hands of those concerned in the purchasing company. Thepurchases order gives the vendor a complete description of the goods and services desiredthe terms, the prices, and the shipping instruction. When necessary,thedescription may


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refer to attached blueprints and specification pages. The original and anacknowledgement copy are sent to the vendor. The acknowledgment cop is a necessaryform for contract procedure, because other copies are distributed. The vendor is asked tosign and return the copy to the purchaser, indicating that the order was received and will

be delivered according to the specifications enumerated in the purchases order.

(3).RECEIVING THE MATERIALS:

The receiving report shows the purchase order number, the account. Number to becharged, the name of the vendor, details relating to transportation, and the quantity andtype of the goods receive. the form also provides a space for the inspection department tonote either the complete approval of the shipment or the quantity rejected and the reason

for the rejection, in inspection does not take place immediately after receipt of thematerials, the receiving report is distributed as follows:

1. The receiving department keeps one copy and sends another copy to thepurchasing department as notice of the arrival of the materials.

2. All other copies go to the inspection department, and are distributed wheninspection is completed. After inspection, one copy of the receiving report, withthe inspection result noted thereon is sent to the accounting department, where it ismatched with the purchase order and the venders invoice and the paid. Othercopies go to various departments such as materials and production planning. Onecopy accompanies the materials, so that the storekeeper knows the quantity andthe kind of materials received.

(4)INVOICE APPOROVAL:

The invoice and a copy of the purchase order are filled in the accounting department.When the receiving report with its inspection reports arrives; the receiving report and theinvoice are compare to see that materials received meet purchase order specifications asto items, quantities, and price extensions, discount and credit terms, shipping instruction,and other possible conditions. The invoice is found to be correct or has been adjustedbecause of rejects as noted by the inspection department; the invoice clerk approves it,attaches it to the purchase order and the receiving report, and sends these papers toanother clerk for the preparation of the voucher.


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Invoice approval is an important step in materials control procedure, since it certifies thatthe goods have been received as ordered and the payment can be made. The invoiceapproval information is often built in to a rubber stamp and each invoice is stamped.

(5) CORRECTING INVOICE :

o Some of the materials ordered are not received and are not entered on the invoice.In this case no adjustment is necessary, and the invoice may be approved forimmediate payment. On the purchase order the invoice clerk will make a notationof the quantity received in place of the quantity order. If the vendor is out of stock or otherwise unable to deliver specified merchandise, and immediate orderingfrom other sources may be necessary.

o Items ordered are not received but are entered on the invoice. In this situation the

shortage is noted on invoice and is deducted from the total before payment isapproved. A letter to the vendor explaining the shortage is usually in order.

o The seller ships a quantity larger than called for on the purchase order. Thepurchaser may keep the entire shipment and add the excess to the invoice, if notalready invoiced; or the excess may be returned or held, pending instructions fromthe seller. Some companies issue a supplementary purchase order that authorizesthe invoice clerk to pay the over shipment.

o Materials of a wrong size are quality, defective parts, and damaged items arereceived. If the items are returned, a correction on the invoice should be madebefore payment is approved. It may be advantageous to keep damaged or defectiveshipments if the seller makes adequate price concessions, or the items may be heldsubject to the sellers instructions.

o It may be expedient for a purchaser to pay transportation charges, even thoughdelivered prices are quoted and purchases are not made on this basis. The amountpaid by the purchaser is deducted on the invoice, and paid freight bill attached tothe invoice as evidence of payment.


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1. The materials account number2. The frequency of use of the item.3. The factory area where the item is used4. The nature size and shape of the item.

The practice, no single base is likely to be suitable, but the size and shape of materialsusually dictate the basic storeroom arrangement variations can then be introduced,such as placing most frequently used items nearest the point of issue and locatingmaterials used primarily in one factory area nearest that area.

Bin Cards or Stock Cards are effective ready references that may be attached tostorage bins, shelves, racks, or other containers. Bin cards usually show quantities of each type of materials received, issued, and on hand. They are not a part of theaccounting records as such, but they show the quantities on hand in the storeroom at

all times and should agree with the quantities on the materials ledger cards in theaccounting department.

(8). ISSUING AND COSTING MATERIAL INTO PRODUCTION:

To control the quantity and cost of materials, supplies, and a service requires asystematic and efficient system of purchasing, recording, and storing. Equallynecessary is a systematic and efficient procedure for issuing materials and supplies.

MATERIALS REQUISITIONS:

The materials requisition, illustrated below, is a written order to the storekeeper todeliver materials or supplies to the place designated or to give the materials to theperson presenting a properly executed requisition. It is drawn by someone who hasthe authority to requisition materials for use in the department. The authorizedemployee may be a department head, a supervisor, in a computerized system; thecomputer program will often prepare the requisition in the form of a tabulatingcard.

The materials requisition is the basic form used to withdraw materials from thestoreroom. Its preparation results in entries in the issued section of the materialsledger card and in posting to the job order cost sheets, production reports pr the


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various expense analysis sheets for individual departments. All withdrawals resultin debits to work in process or to control accounts of r factory overhead, marketingexpenses, or administrative expenses, and in credits to materials.

MATERIALS REQUISTITIONED JOURNAL:

The ultimate objective in cost accounting is to produce accurate and meaningfulfigures. These figures can be used for purposes of control and analysis and eventuallymatched against revenue produced in order to determine net operating income.

After the unit cost and total cost of incoming materials are entered in the receivedsection of a materials ledger cards, the next step is to cost these materials as theymove either from storeroom to factory as direct materials or indirect or formstoreroom to marketing and administrative expense accounts as supplies.

BILL OF MATETIALS (BOM):

The bill of materials, a kind of master repulsion, is a printed or duplicated formthat lists all the materials and parts necessary for a typical job or production run. Timeis saved and efficiency is promoted through the use of a bill of materials. Whena jobor production run is started all the materials listed on the bill of materials is a rathercumbersome medium for posting purpose, however data processing improves theprocedure by simultaneously. Preparing tabulating cards for materials requisitions.while the storekeeper issues the materials as stated on the bill of materials, thetabulating cards can be processed in the materials lodger section and in the costdepartment at almost the same time a the materials are used in the factory. Acomputer program will provide the print outs of the bill of materials and process theinformation internally to update the accounting records.

MATERIAL COSTING METHOD:

The ultimate objective in cost accounting is to produce accurate and meaningful

figures. These figures can be used for purposes of control and analysis and eventfullymatched against revenue produced in order to determine net operating income.

After the unit cost and total cost of incoming materials are entered in the receivedsection of a materials ledger cards, the next step is to cost these materials as theymove either from storeroom to factory as direct materials or indirect materials or fromstoreroom to marketing and administrative expenses accounts as supplies.


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MATERIAL MANAGEMENT:

Now a days mat erial management is having a great importance and attention throughoutall types of organizations. Every enterprise private or public, manufacturing or servicehas a productive system.

Material Management can be defined as the function responsible for the coordination of planning, sourcing, purchasing, moving, sourcing, purchasing, storming and controllingmaterial in an optimum manner so as to provide a pre-decided service to the customer at aminimum cost

OBJECTIVE OF MATERIAL MANAGEMENT

To optimize/reduce material cost in the light of organizational objectives.

To maintain continuous supply of material so as to support scheduled production.

To have optimum inventory, keeping in mind production scheduling customer

services levels and supply side constraints.

To trace and develop new sources of supply.

To develop new sources of supply.

To cut down costs through purchasing research, codification standardization, value

analysis, import substitution.

To co-operate with other functions.


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FUNCTIONS OF MATERIAL MANAGEMENT

Material Planning and Programming

Purchasing of Material

Receiving and Inspection of Incoming Material

Warehousing

Transportation inwards and Outwards

Inventory Control

Material Handling

Disposal of crap, Obsolete and Surplus Material

Value Analysis

Co-ordination with other Department.


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Calculation for the above transactions would be as follows :

FIFO COSTING METHOD

JULY

Date Particular Unit Rate Amount Balance

1july Beginning balance 800 units @ 6 4800

4 July Received 200 units @ 7 1400 7800

10 July Received 200 units @ 8 1600

11 July Issued 800 units @ 6 4800

Balance 200 units @7 1400 3000

200 units @ 8 1600

12 July Received 400 units @8 3200 6200


Balance 300 units @ 8 2400 4800

300 units @8 2400

25 July Returned tostoreroom

100 units @ 8 800


Balance 400 units @ 8 3200 8600

600 units @ 9 5400


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LIFO METHOD:

Its mean Last in First out. In which the most recently acquired items are assumed tobe the first issued the last in first out (LIFO) method of costing materials issued isbased on the premise that materials units issued should carry the cost of the mostrecent purchase, although the physical flow may actually be different. The methodassumes that the most recent cost (the approximate cost to replace the consumedunits) is most significant in matching cost with revenue in the income determinationprocedure. Under LIFO procedures, the objective is to charge the cost of currentpurchases to work in process or other operating expenses and to leave the oldest costsin the inventory. Several alternatives can be used to apply the LIFO method. Eachprocedure results in different costs for materials issued and the ending inventory, andconsequently in a different profit.

LIFO Costing Method Example:

This example is based on the following transactions

July-

(1). beginning balance: 800 units @ 6 per unit.

(2.) Received 200 units @ 7 per unit.

(3) Received 200 units @ 8 per unit.

(4) Issued 800 units.

(5) Received 400 units @ 8 per unit

(6) Issued 500 units.

(7) Returned 100 excess units form the factory to the storeroom to be recorded at the

Latest issued price.

(8) Received 600 units @ 9 per unit. .


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Calculations for the above transactions would be as follows

LIFO COSTING METHOD

July

Date Particular Unit Rate Amount Balance

1 July Beginning

balance

800 units @ 6 4800




200 units @ 7 1400

400 units @ 6 2400 5400

Balance 400 @ 6 2400



100 units @ 6 600 3800

Balance 300 units @ 6 1800 1800

25 July Returned to

storeroom

100 units @ 6 600


Balance 400 Units @ 6 2400 7800

600 units @ 9 5400


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49

Above figure shows that the procedure of supply chain management start with supplier.First the factory have to decide that what to produce? Than after they have to give theorder to supplier for raw material. Raw material is the main part of any factory without itany company cant start their work so first they have to decide about the s upplier thereare many suppliers available in the market they have to choose any one whichever isgood regarding product Quality, Price, Place, Availability, etc

PURCHASE CYCLE:

(A).PURCHASE BUDGET:

According to the production budget, the consumption budge of each materialindication the quality, quality and specification is to be prepared. Based on this, purchasebudget is to be prepared talking in to consideration the opening stock of each materialneeded at end of the year. Further, the factor such as, availability of material receivedindigenously or to be imported, sources of supply, delivery dates, quantity discounted,

STORES

SUPPLIER CUSTOMER

MANUFACTURINGRAO WIP FINISHING

MATERIALS GOODS


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availability of cash, storage, inspection, receiving and transport facilities etc. are to beconsidered while preparing the purchase budget.

(B)RECEIPT OF PURCHASE REQUISITION:

The purchase requisition provides the information in respect of material to bepurchased. it is used as a formal request to the purchase department for procuring thevarious material required by various department. It is prepared in as many copies asparticular organization requires. Generally, there copies are prepared.

1. Original copy is sent to the purchasing department.

2. Second copy is retained by the department preparing it.

3. Third copy is kept in the office of approving authority.

(C).ISSUE OF ENQUIRY LETTER AND TENDERS:

On receipt of purchase requisitions, the purchasing officers will take action forissue of enquiry letter and tenders to the various approve supplier.

(D.)CALLING OR QUOTATIONS AND ITS RECEPITS:

The quotations will be obtained by purchasing officer. Record of prices and

quotations for all material should be kept in scheduled form.

(E)FINILIZATION OF QUOTATIONS AND PLANING ORDERS ONSUPPLY:

All the quotations for each material are to be tabulated and comparative statementof quotations is to be prepared. This will enable the purchasing officer to know thelowest acceptable quotations are to be finalized and purchase order is to be preparedorder is to be prepared and sent to the supplier.

(F). REFEIPT AND INSPECTION OF MATERIAL:

The receiving department or section is responsible for talking charge of theincoming material, checking and verifying their quotations, inspecting them as regards


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their quality. If they are in order, the goods are considered suitable for acceptance; thereceiving department prepares a receiving Report or material inward note.

The material Inward Note contains the following information. The serial number and data. Suppliers name and address. Description, code and quantity goods received. Order No, Bin No, Inspection Report.

(G). PAYMENT

The invoice received from the supplier is sent to the stores accounting section tocheck authenticity and mathematical accuracy. The quantity and price are also checkedwith reference to goods received note and purchase order respectively. The storeaccounting section after checking its accuracy finally certifies and passes the invoice forpayment.


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RESEARCH METHODOLOGY

RESEARCH INTRODUCTION:

When we talk of research methodology, we not only talk of the research methods but alsothe comparison of the logic behind the methods, we used in this context of our researchstudy and explain why we are using a particular method or technique and why using theothers. It may be understood as a science of studying how research is donesystematically. in this, we study the various steps that are generally adopted by researcherin studying his research problem along with the logic behind them. The present study isbased upon the case study method of research to investigate p rocedures at micro level asthe study is analyzing probing in nature, thus, entirely based on the secondary at gathered

through the annual reports of the industry therefore it provides a historical perspective of decisions.

RESEARCH

Research refers to search for knowledge. Research is an original contribution to theexisting stock of knowledge making for its advancement. It is the pursuit of truth withthe help of study, observation, comparison and experiment. In short, the search forknowledge through objective and systematic method of finding solution of theproblem is research.

RESEARCH METHODS

Research methods may be understood as those methods/techniques that are used forconduction of research. All those methods which are used by the researcher during thecourse of studying his research problem are termed as research methods.

Keeping in view, the research methods can be put into following three groups:

In the first group we include those methods which are concerned with thecollection of data. These methods will be used where the data alreadyavailable are sufficient to arrive at the required solution.

The second group consists of those statistical techniques which are used toestablish relationships between the data and the unknown.

The third group consists of those methods which are used to evaluate theaccuracy of the obtained results.


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COLLECTION OF DATA

There are several ways of collecting the appropriate data which differ considerably incontext of money, cost, time and other sources at the disposable of the researcher.

There are two types of data:

PRIMARY DATA

Primary data are those which are collected afresh and for the first time, and thushappened to be original in character. In case of descriptive research, research performssurvey whether sample survey or census survey, thus we obtain primary data eitherthrough:

Observation Direct communication with respondent Personal interview

PRIMARY DATA

DATA

SECONDARY DATA


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SECONDARY DATA

Secondary data are those which have already been collected by someone else andhave already been passed through statistical process.

In this project report, both types of data have been used. Mainly, secondary data isused such as annual reports of last three years of Varrocpolymers.pvt.ltd.

Research is a purposive investigation of hypothetical propositions. Research as aprocess involves defining and redefining problems, hypothesis formation,organizing and evaluating data, deriving deductions, inferences and conclusions,after careful testing.


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DATA ANALYSIS AND INTERPRITATION

INCRERSES IN SALES

(The Sale of Year 2007-08 is 11.55 cr.)

Year Sales % Increases in sale2008-09 12.20 cr 5.62%2009-10 13.04 cr 6.88%2010-11 13.84 cr 6.13%

Working Notes:

% Increses in sales

Sales of present Year Sales of last year

Sales of last Year X 100

For year 2008-09

12.20 11.55

11.55 X 100

= 5.62%


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For year 2009-10

13.04- 12.20

12.20 X 100

= 6.88%

For year 2010-11

13.84 13.04

13.04 X 100

= 6.13 %


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GRAPHICAL PRESENTATION

INTERPRETATION:

From the above data it can be seen that the Percentage increases in Sales

In the year 2008-09 it was 5.62



The Sales of Varroc Polymers Ltd. Has increase every year as compare to the last year.

The gross percentage increase in sales is low in the year 2010-11 as compared to 2009-10. But the percent growth in sales is always above 6% showing a consistence in thegrowth of the company.

12.02 13.04 13.84

5.626.88 6.13

0

5

10

15

20

25

2008-09 2009-10 2010-11

Chart Title

% increse in sales

sales in Cr


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CONSUMPTION OF RAW MATERIAL

(Value in Rs.)

Year Sales Raw-MaterialConsumption

% of Raw-MaterialConsumption

2008-09 12.20 cr 8.12 66.552009-10 13.04 cr 8.20 62.882010-11 13.84 cr 8.35 60.33

WORKING NOTES:

% of raw material Consumption

Raw material consumption

Sales X 100

For year 2008-09

08.12

12.20 X 100

= 66.55


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For year 2009-10

08.20

13.04 X 100

= 62.88

For year 2010-11

08.35

13.84 X 100

= 60.33


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GRAPHICAL PRESENTATION

INTERPRETATION :

From above data it can be seen that the consumption of raw material is decreasing

In the year 2008-09 it was 8.12 cr i.e.66.55



The raw material cost should be minimum which help to minimize the production cost.The raw material cost of Varroc polymers Ltd. Is decreasing every year which is a goodsign for the growth of organization.

12.0213.04

13.84

8.12 8.28.35

0

2

4

6

8

10

12

14

16

2008-09 2009-10 2010-11

Sales In Rs Raw material consumption


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INVENTORY TURNOVER RATIO :

Inventory turnover ratio indicates how quickly inventory is used for production. The

greater the ratio the shorter would be the duration of inventory at the factory. It iscalculated by dividing cost of goods sold by the average inventory.

Cost of sale

INVENTORY TURNOVER RATIO =

Average stock

Usually a high inventory turnover ration indicates efficient management of the inventoryBecause more frequently the goods are sold; the lesser amount of money is required tofinance the inventory. A low ration indicates an inefficient management of inventory.

INVENTORY TURNOVER RATIO

Year OpeningStock of

Inventory

ClosingStock of

Inventory

AverageStock of

Inventory

Sales GrossProfit

Cost of Sales

InventoryTurnover

Ratio

2008-09

00.23cr 00.41cr 00.32cr 12.20cr 1.85cr 10.35cr 32.34

2009-10

00.41crc 00.65cr 00.53cr 13.04cr 2.3cr 10.74cr 20.26

2010-11

00.65cr 00.91cr 00.78cr 13.84cr 2.65cr 11.39cr 14.62


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WORKING NOTES:

Cost of Goods Sold = Sales Gross profit

For year 2008-09

Cost of Goods of Sold = 12.20-1.85

= 10.35

For Year 2009-10

Cost of Goods Sold = 13.04- 2.03

= 10.74

For year 2010-11

Cost of Goods Sold = 13.84- 2.65

= 11.39


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Opening Stock + Closing Stock

Average Stock =

2

For Year 2008-09

00.23 + 00.41

Average stock =

2

= 0.32

For Year 2009-10

00.41 + 00.65

Average Stock =

2

= 0.53

For Year 2010-11

00.65 +00.91

Average Stock =

2

= 0.78


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Cost of Sale

Inventory Turnover Ratio =

Avg. Stock

For Year 2008-09

10.35

Inventory Turnover Ratio = X 100

00.32

= 32.34

For Year 2009-10

10.74

Inventory Turnover Ratio =

00.53

= 20.26

For Year 2010-11

11.39

Inventory Turnover Ratio=

00.78

= 14.60


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GRAPHICAL REPRESENTATION:

INTERPRETATION

From the above data it can be seen that the inventory turnover ratio is declining

In the year 2008-09 Inventory turnover ratio was 32.34

In the year 2009-10 Inventory turnover was 20.26

In the year 2010-11 Inventory turnover was 14.60

Inventory turnover ratio shows the efficiency in sales of the company. Inventory turnoverratio of Varroc Polymers pvtLtd.Is decreasing every year which shows that the sale of company is not satisfactory.Varroc Polymers pvt Ltd. Should take action to improve itssales.

32.34

20.2614.6

0

5

10

15

20

25

30

35

2008-09 2009-10 2010-11

INVENTORY TURNOVER RATIO


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INVENTORY HOLDING PERIOD

The reciprocal of inventory turnover gives inventory holding in percentage term when thenumber of days in a year is divided by turnover, we obtain days of inventory holdings.

360

Inventory Conversion Period =

Inventory Turnover Ratio

INVENTORY HOLDING PERIOD

Year No. of Days in aYear

Inventory turnoverRatio

Inventory HoldingPeriod

2008-09 360 32.34 11.13

2009-10 360 20.26 17.76

2010-11 360 14.60 24.65

Working Notes:

No. of days in a year

Inventory holding Period =

Inventory turnover ratio

For year 2008-09

360

Inventory holding period =

32.34

=11.13


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For Year 2009-10

360


20.26

= 17.76

For Year 2010-11

360


14.60

= 24.65


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INTERPRETATIONFrom the above table and graph it can be seen that the inventory holding period inincreasing every year.

In the year 2008-09 Inventory holding period was 11.13



Inventory holding period of Varroc Polymers Ltd. Is increasing which is not a good signfor the company. Inventory holding period should be minimum it shows the period thatrequired for converting the inventory into cash.

0

5

10

15

20

25

30

2008-09 2009-10 2010-11

Inventory Holding Period

Inventory Holding Period


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FINDINGS

From the data analysis, it is clear that the raw material cost is decreasing which is good

for the growth of organization. In 2008-09 it was 66.55 which decreased In year 2009-10to 62.88 and decreased to 60.33 in 2010-11. This is satisfactory.

From the analysis of inventory ratio it is found the inventory turnover ration is decliningevery year.in 2008-09 inventories turnover ratio was 32.34 in 2009-10 it declined to18.92 and in 2010-11 it again decreased to 13.32 which shows that the selling condition

of company is not so good.

Inventory conversion period (Inventory holding period) is increasing which is not goodsign as it takes long period to convert the inventory in to cash. In a year 2008-09 holdingperiod was 16.13 days which was very good , but in 2009-10 it increased 17.76 days and itagain raised to 24.65 days in 2010-11 which leads to more capital block again inventory.


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RECOMMONDATION

Company should adopt Economic order Quality (EOQ) technique to maintain the

inventory.

To reduce the cost of deterioration condition of store department should be

improved.

To reduce lead time of inventory, those who are outside vendor which take more

time to supply material apart form that company should order form local vendor

which supplies same material in same rate.

A company customer schedule is accepted on monthly basis. It indicates that

company order raw material for month which is long period to hold material

which increase unnecessary cost of holding and carrying for that it is require that

to reduce period of order inventory on weekly basis. Which reduce holding cost

Company should use the just in Time.(JIT) technique to control on inventory cost.

It means company should demand raw material as an when it require.


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CONCLUSION

From the above research study it is clear that overall condition of inventorymanagement is not satisfactory as it shows inventory turnover ratio decreasingevery year, in the year 2008-09 it was 32.34 then in the year 2009-10 it decreasedto 20.26 & again in the year 2010-11 it falls to 14.60 which shows poor sellingcondition.

Inventory holding period is increasing every year, in 2008-09 it was 11.13 days, in2009-10 increased with high difference of 17.76 days & in 2010-11 inventoryholding period again increased to 27.02 days, so the lot of working capital blockedinto storage of inventory.

Briefly stated that inventory management is not proper, it should be improved.


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BIBLIOGRAPHY

Books

I.M.Pandey, Financial Management Visas publishing House

Pvt.Ltd. New Delhi, eight editions.

Rustogi.R.P. Financial Management (Theory, Concept, and

Problems) Golgotha publishing Co. New Delhi, Second Revised

Edition.

Khan M.Y. & Jain P.K, Financial Management Tata McGraw -

Hill Publishing Co. Ltd., New Delhi. Fifth Edition.

Websites:

www.Varrocgroup.in

www Wikipedia org

Inventory Management-yogesh Kulkarni Project

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