invntry ppt

A PROJECT REPORT

ON“INVENTORY CONTROL

OF PADMESH BEVERAGES, A LICENSEE OF PARLE AGRO- AN EMPERICAL STUDY”

SUBMITTED BY- GUIDED BY:Neha Sharma Ms. Gauri SahuMBA(3RD Semester) Faculty GuideSpecialization: Finance AIMS

WHAT LIES AHEAD……

1. COMPANY PROFILE

2. OBJECTIVE OF THE STUDY

3. RESEARCH AND METHODOLOGY

4. INTRODUCTION TO INVENTORY CONTROL

5. DATA ANALYSIS AND INTERPRETATION

6. FACTS AND FINDINGS

7. RECOMMENDATIONS8. CONCLUSION

COMPANY PROFILE OF PADMESH BEVERAGES

• Name of firm: Padmesh Beverages- a licensee of Parle Agro

• Business type: Manufacturing firm

• Established : 2003

• Initial installed capacity of plant : 15,00,000 cases (9 million litres)

• Present capacity: 15.85 million litres.

• Products manufactured: Frooti, Appy, Appy Fizz, Bailley etc

• Padmesh Beverages was one of the first in setting up fruit based industry in organised sector in the north-east.

OBJECTIVE OF THE STUDY

To examine the inventory turnover ratio of Padmesh Beverages-a licensee of Parle Agro.

To analyze the tools and techniques of inventory management in the organization.

To determine the Economic Order Quantity (EOQ) of the product (Frooti) manufactured by Padmesh Beverages.

To study the inventory valuation method followed by Padmesh Beverages- licensee of Parle Agro.

To study the effect of layout used by Padmesh Beverages on inventory management.

RESEARCH AND METHODOLOGY

• Research design: Descriptive research design was adopted for the study considering the objectives of the study.

• Area of study: Padmesh Beverages- licensee of Parle Agro was selected as the area of study.

• Sources of data: The entire study was based on primary as well as secondary data.

Secondary Data: Internet, books, etc were thoroughly used for secondary data. Primary Data: Primary data were collected by personal interview with the officials of Padmesh Beverages- licensee of Parle Agro.

• Research tool: Data were collected with the help of interaction with the owners, plant manager, staffs and executives of Padmesh Beverages- licensee of Parle Agro and also with the formulas by calculating EOQ, Inventory turnover ratio and Re-order level.

ELEMENT: executives and the staffs of the organisation are the element of this survey.

UNIT: the officials and their organisation are taken as the sampling units.

EXTENT: The study has been conducted in Guwahati, Assam.

INTRODUCTION TO INVENTORY CONTROL

INVENTORY CONTROL :

Inventory control is the coordination and supervision of the supply, storage, distribution, and recording of materials to maintain quantities adequate for current needs without excessive oversupply or loss.

In other words, Inventory control can be defined as the sum total of those activities necessary for the acquisition, storage, sale, disposal or use of inventories

CLASSIFICATION OF INVENTORIES USED IN THE ORGANISATION

Direct inventories: are those items that play a direct role in the in the manufacturing of goods and services. Direct inventories include:

DIRECT INVENTORIES

RAW MATERIALS

WORK IN PROGRESS

FINISHED GOODS

DATA ANALYSIS AND INTERPRETATION

1. INVENTORY TURNOVER RATIO OF PADMESH BEVERAGES:Inventory turnover ratio with respect to Padmesh Beverages for the year 2011-2012.

INVENTORY RATIO

INVENTORIES CLOSING STOCK RAW-MATERIAL 6,06,25,355.66STOCK-IN-PROCESS 6,38,971.60 FINISHED GOODS 1,93,98,435

TOTAL INVENTORIES 8,06,62,762.26 SALES UPTO MARCH, 2012 = 33, 86, 60,114.28

Calculation of inventory turnover ratio

INVENTORY TURNOVER = RATIO

NET SALES

AVERAGE INVENTORY

Average inventory = (Opening Stock + Closing Stock)

2

(96728125.64 + 80662762.26) =

2

= 88695443.95 INVENTORY TURNOVER = RATIO

33, 86, 60,114.28

88695443.95

= 3.82 (approx)

2. ECONOMIC ORDER QUANTITY (EOQ) OF FROOTI:ECONOMIC ORDER QUANTITY OF FROOTI MANUFACTURED BY PADMESH BEVERAGES:

FOR FROOTI ORDERING COST(PER CASE)  

Quantity Amount (Rs )

200ml 273

500ml 488

1200ml 528

1.5 litre 414

CARRYING COST= Rs 2/ case

EOQ =

HERE,•A  =  Demand for the year•Cp  =  Cost to place a single order•Ch  =  Cost to hold one unit inventory for a year• * = ×

EOQ FOR 200 ML:

EOQ = √ (2 x 1500000 x 273) / 2 = 20236.10 cases

EOQ FOR 500 ML: EOQ = √ (2 x 1500000 x 488) / 2 = 27055.49 cases

EOQ FOR 1200 ML:

EOQ = √ (2 x 1500000 x 528)/2 = 28142.49 cases

EOQ FOR 1.5 Litres:

EOQ = √ (2 x 1500000 x 414)/ 2 = 24919.87 cases

3.VALUATION METHOD BY PADMESH BEVERAGES:

The valuation method of inventory management used by Padmesh Beverages, a licensee of Parle Agro is the First-in-first-out (FIFO) method.

First-in-first-out (FIFO): for perishable and non-perishable materials:First-in-first-out system supposes to be followed after products are issued. This means the materials are used by ranking as order, on the other hand the most perishable are used first and the least perishable are used last than the stock will always be fresh.

4. LAYOUT USED BY PADMESH BEVERAGES AND ITS EFFECT ON INVENTORY MANAGEMENT:

The type of layout used by Padmesh Beverages is Product Layout or Line Layout.Product Layout: A Product Layout is a part of the manufacturing process which allows for the repetitive assembly of highly standardized products. When a manufacturing operation utilized product layout, production work can be layout in a straight line with labour and equipment subdivided in a smooth line.

5 RE-ORDER OF PADMESH BEVERAGES, A LICENSEE OF PARLE AGRO:

CALCULATION: Re-order level maintained by Padmesh Beverages for the year 2011-2012.

Re-order level= Average consumption x (lead time + safety stock) HERE, TOTAL CONSUMPTION = 15, 00,000 LEAD TIME= 15 days SAFETY STOCK= 7500 (6% of total consumption).

AVERAGE CONSUMPTION= Total consumption

12

15,00,000

12 =

= 1,25,000 units

The re-order below is calculated on the basis of average consumption: Re-order level= average consumption x (lead time + safety stock)

                                           = (1,25,000 x 15) + 7500

= (18,75,000 + 7500)

= 18,82,500 units

FINDINGSAs per the analysis done the inventory turnover ratio of 2011-2012 of the organization is 3.82 (approx) which is quite low and not touching the satisfactory level.

According to the analysis done for the Economic Order Quantity it’s found that the carrying cost is very low compared to the ordering cost. And thus the EOQ for every bottle is high. Thus the company prefers to keep a high stock.The First in first out method of valuation of inventory is considered to be the best method for a beverage manufacturing unit as some goods which are of perishable nature need to be sold out first.

The layout used by Padmesh Beverages (i.e. product layout) doesn’t have excess of ill-effects on the inventories.

The re-order level is that level of materials at which a new order for supply of materials is to be placed. This reorder level of the firm is 18,82,500 units.

RECOMMENDATIONS As the turnover is not satisfactory for the year 2011-2012. Therefore it’s better to reduce the amount of inventory that the organization purchases at one time. The organization shouldn’t keep huge number of inventory at

their disposal. It will lead to a low turnover and that indicates you have a lot of money tied up in stock for long periods of time, which is not good for cash flow.

As it is a beverage manufacturing unit, the FIFO, valuation method used by the organization is perfect and they should continue with the same.

Padmesh Beverages shouldn’t change their layout process as this layout will help reducing the cost of Padmesh beverages as it is quite cost effective and also through the use of product layout the production is faster which ultimately reduces the lead time.

In certain circumstances (e.g. Variable demand, ordering cost etc) the EOQ calculations may not be accurate. Therefore the organization has to be very cautious while calculating or analyzing the re-order level of the stocks.

CONCLUSION If the organizational goal is to make the business more profitable, it must increase efficiency and reduce costs. As a manufacturing firm, inventory is the largest investment which is made. The Careful classification of the inventory, and continuing analysis of those classifications, can play a vital role in maintaining cost at the efficient levels which had been established as an organizational goal. Payroll is an immediate expense of any business. The time investment is done in inventory management it will pay immediate and long-term dividends by reducing the amount of time the employees spend performing their tasks. Inventory control is a constant requirement of doing business successfully. The procedures for pulling, receiving, and replenishing stock should be established, with considerations made for a particular organizational environment. These procedures should be enforced as law in the company: inventory accuracy is developed only through adherence to consistent practices and procedures. Inventory management involves more than immediate and reactionary decisions that affect the business. Inventory management requires that the firm establish and enforce procedures that will serve as tools in utilizing the system on a daily basis in the most efficient manner to produce most profits for the company.

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