CHAPTER 1
INVENTORY MANAGEMENT
EXECUTIVE SUMMARY1. INDUSTRY PROFILE An electrical battery is
one or more electrochemical cells that convert stored chemical
energy into electrical energy. The invention of the first battery
in 1800 by Alessandro Volta. Batteries have become a common power
source for many household and industrial applications. According to
a 2005 estimate, the worldwide battery industry generates US$48
billion in sales each year, with 6% annual growth. Battery market
rising from $20.3 billion in global revenues in 2010 to $30.5
billion by 2015.There are two types of batteries:1) Primary
batteries2) Secondary batteries Major battery manufacturing
industries in India:1. Exide industries2. Standard batteries3. Amco
batteries4. Tudor India5. Amara raja batteries
2. COMPANY PROFILE Amara raja batteries limited (ABBL)
incorporated under the companys act 1956 in 13 Feb. 1985, and
converted into public limited company on 6 September 1990. The
chairman and managing director of the company is Sri.Galla Ram
Chandra Naidu. The company is setting up to Rs.1920 lakhs plant is
in 185 acres in karakambadi village in Tirupathi. The company is
engaged in the business of manufacturing of acid storage batteries.
ARBL comprises of two major divisions viz.
1. Industrial Battery Division (IBD)2. Automotive Battery
Division (ABD) Products: AMARON HI-WAY(FOR TURCKS) AMARON
HARVEST(FOR TRACTORS) AMARON HIGH LIFE(FOR GENERATORS) AMARON
SHIELD (FOR INVERTERS) AMARA RAJA GENPRO (FOR CARS, 3 WHEELERS)
QUANTA (F0R UPS BATTERIES)
Amara raja Group of companies:1. Amara Raja Batteries Limited
(ARBL), Karakambadi, Tirupati.2. Amara Raja Power System Pvt. Ltd.
(ARPSL), Karakambadi, Tirupati.3. Harsha Electronics Pvt. Ltd.
(HEPL), Karakambadi, Tirupati.4. Mangal Electro System Pvt. Ltd.
(MESPL), Petimitta, Chittoor Dist.5. Amara Raja Electronics Pvt.
Ltd. (AREPL), Dighavamagham, Chittoor Dist Introduction to Battery
Manufacturing Process in ARBL: The manufacturing process involved
in production of valve regulated lead acid storage batteries is
mentioned below.a. Grid Castingb. Plate Productionc. Pastingd.
Assemblinge. Formationf. Dispatching
3. TOPIC INTRODUCTION Meaning of inventory Inventory is a
tangible property held for sale, or materials used in a production
process to make a product. The dictionary meaning of inventory is
stock of goods or a list of goods. Inventory measured by rupee
constitutes the major element in the working capital Components of
Inventory
Components of inventoryRaw materialsWork in progressFinished
goods
Inventory management The amount of investment is sometimes more
in inventory than in other assets. About major part of working
capital invested in inventories. A proper purchasing handling,
storing and accounting should form a part of inventory management.
An efficient system of inventory management will determine, What to
purchase How much to purchase From where to purchase, and Where to
store.
Importance Of Inventory Management Inventory helps in smooth and
efficient running of business. Inventories provide service to the
customers immediately. Due to absence of stock, the company may
have to pay high prices because of piece-wise purchasing.
Maintaining of inventory may earn price discount because of bulk
purchasing.
4. RESEARCH METHODOLOGY
Statement of the problem A study on inventory Management at
AMARARAJA BATTERIES LIMITED is undertaken in order to know the
inventory performance and position of the company and to know the
strength and weakness and to assess the profitability of the
company. Inventory a double edged sword is usually an asset of an
organization; if it is not used properly it will become liability.
It is therefore absolutely very important to manage inventories
efficiently and effectively in order to overcome unnecessary
investment and To identify the problems/challenges involved in the
Inventory Management process at AMARARAJA BATTERIES LIMITED.
Need for the Study Every organization needs inventory for smooth
running of its activities. It serves as a link between production
and distribution processes. The investment in inventories
constitutes the most significant part of current assets or working
capital in most of the organizations. The purpose of inventory
management is to ensure availability of materials in sufficient
quantity as and when required and also to minimize investment on
inventories. So, in order to understand the nature of inventory
management of the organization, I undertook this research, to study
the inventory controls for ARBL.
Objectives of the Study To know the existing system of Inventory
Management of ARBL. To know ordering and carrying cost for most
important raw materials of ARBL. To know the inventory turnover of
the ARBL To classify the various components based on its value
Tools and Techniques EOQ (Economic Order Quantity) Stock levels
Inventory Turnover Ratios ABC Analysis VED Analysis Sources of
Data: Primary data: The primary data is collected by the direct
contact with the purchase and stores departments. Secondary data
The secondary data that is required for the study is collected from
the schedules, past notes, budgets, through company websites and
other statements provided by Finance Department of AMARARAJA
BATTERIES LIMITED. Scope of the study The study includes EOQ, ABC
and inventory turnover ratios of raw materials for the five
financial years. The results of the study are applicable to the
inventory of ARBL, IBD-Division, Karakambadi. Limitations1. Current
year data was not provided by AMARARAJA BATTERIES LIMITED.2. The
entire data depends on secondary data.3. Time of study is less to
make a detailed analysis.
Findings The year of 2008-09 where the value also increased
while compared to in the year of 2010-11 in the classified items
are B and C. The A class items where eventually reduced when
compared to 2008-09. As the procurement of the orders is not
according to the requirement of the orders received, a major part
of the inventory is held up as non-moving. The company is not
following a proper policy for ordering of the materials, whenever
customer orders they are placing of order. The store department
depreciation is increased during the year 2006-07 and 2007-08. They
calculated depreciation on dead items also this is affected to
coming loss, Variance and uncertainties in lead time.
Suggestions
The company has to concentrate more on Research and Development
so that it can keep abreast with the latest developments. The
company has to eliminate dead inventory and this has resulted in
decrease profits. Company should strive for getting the right goods
to the right places at the right time for the least cost. Company
has to position inventory items according to risk and opportunity.
Company has to distinguish between bottleneck items, critical items
(high risk, high opportunity)-Product mix. ConclusionThe company
can reduce ordering cost by the following proper inventory
management technique.
INDUSTRY PROFILE
A battery is an electro chemical device in which the free energy
of chemical reaction is converted into the electrical energy
contained in the active materials is converted into electrical by
means of electrochemical oxidation reduction reactions. Inventory
in wider sense, is defined as any idle resource of an enterprise.
It is a physical stock of goods kept for the purpose of future
affairs. The term is generally used to indicate raw materials in
process, finished products, packing, spares and others - stocked in
order to meet expected demand or distribution in the future.
INTRODUCTION TO BATTERY MANUFACTURING PROCESS The manufacturing
process involved in production of maintenance free valve regulated
lead acid storage batteries is explained below.g. Grid Castingh.
Plate Productioni. Pastingj. Assemblingk. Formationl. Dispatcha.
Grid Casting Positive and negative grids required for batteries are
made from different alloys. Besides providing the necessary support
to hold the active material together, the grids serve as a
conductor of current required for the electro chemical reaction
that takes place at the active material/electrolyte interface in
the battery.Girds are obtained by pouring molten lead alloy in to
special water cooled grid moulds. Casting is done on sophisticated
automatic casting machines which control the parameters within
narrow tolerance to produce consistently good quality grids.b.
Plate ProductionThe lead oxide produced by the Barton process is
mixed with water, sulphuric acid and special additives like
synthetic flock and expanders. The paste mixing is done in a tub
mixture. Dry lead oxide along with the additives is added to the
tub. Distilled water is first dispensed into the tub when it is in
rotation. After a fixed quantity of water addition, sulphuric acid
is slowly dispensed into the tub at a slower rate to avoid
temperature rise in the mixer. The lead oxide along with the water
and acid from a thick and crunchy paste. This paste is then moved
and sent to the pasting section.The pasting is done on an automatic
pasting machine. The paste is dumped into a hopper which is located
at the grid feeding end of the pasting machine. Grids are
automatically fed into the machine by a mechanical feeder. The
quantity of paste dispersed through the hopper is mechanically
adjusted and a pasted plated comes out on a conveyor belt at he
other end of the pasting machine.From the pasting machine, the
plates are passed through a flash drier which removes surface
moisture from the plates. Drying is accomplished by recirculation
of heated air, next sent to the curing operation. In this process,
the plates are maintained at a specified temperature and relative
humidity. Curing for positive plate is done in an oven at a
temperature f around 80-90C. The negative plates are cured in a
humidity room at a lower temperature.
c. Assembling The process of assembly is different for power
plus and power stack. Plates are first stacked into groups with the
negative and positive plates alternating with the glass absorbent
separator interspread between the plates. These separators are
wrapped around individual plates. The stacked plates are next
burned together in a group burning machine. In the case of smaller
batteries, this operation is done on a cast on strap machine. The
groups of plates with separator is inverted into a mould wherein a
strap and the inter cell posts are cast separately and placed on
the burning mixture. The positive and negative straps are burned
manually using an oxyacetylene torch. The completed elements are
then introduced into cell jars or battery monoblock containers.
Minimodule batteries pass through the intercell welding stage
wherein adjacent elements in the battery are interconnected by
welding the respective lead posts through a hole in the partition
of the plastic. The welding is accomplished by a two-stage process.
The welding electrodes will press on the lead alloy posts in the
first stage. Under the pressure the lead extrudes through the hole
in the partition of the container. When the two posts make contact,
a very high welding current is passed which fuses and welds the two
parts. The weld is next tested on a shear tester. This internal
cell welding operation is not necessary for the large single cell
units. These cells are connected externally to suit various
configurations by using lead plated copper connectors. The
batteries next pass through the process of a cover sealing on a
heat sealing machine. Here, a plastic cover is heat sealed onto the
plastic container. The sealing is accomplished by melting the
bottom surfaces of the cover and top surface of the container with
the help of heating plates and then pressing the two parts together
allowing the molten plastic to fuse together and form a leak proof
joint. Batteries are further checked on a leak tester to confirm
the soundness of the sealing operation. This test consists of
pressurizing the cell or battery and immersing in a water tank then
batteries are subjected to Formation.d. Formation The assembled
batteries are filled with a specified grades and quantity of
sulphuric acid and left on stand to enable the absorbent separators
to soak. Then electricity is passed through the grids for
formation. During the formation, the active material on the
positive plate is converted into lead oxide and is converted into
spongy lead on the negative plate. Time of formation and charging
current depends on the size and the number of the plates. After
formation, the batteries are cleaned and the resealable vent plugs
are fixed. Finished operations like labeling, stamping final
cleaning and inspection are being carried out before packing. The
mini-modules can be kept on mild steel racks or inside the system
as per the requirement. e. Dispatch After completing the battery
manufacturing, packed and labeled to that battery and transport to
the various places.f. PastingAmong all the stages, we are mainly
concentrating on the pasting of the plates. In pasting process we
have some stages: The main aim of this process is to improve the
life, performance and storage capacity of the battery. We achieve
this by doing the process of curing and drying of the plates at
some constant temperature. Curing Process:TEMPERATURE46C
HUMIDITY100%
DURATION16hrs
For curing the plates, we need to maintain the Constant
Temperature and Humidity at some set value for some duration of
time.Intermediate Drying Process:TEMPERATURE49C
HUMIDITY50%
DURATION8hrs
Dry Cycling: This is the final process where we maintain 0%
Humidity and 80C temperature to eliminate the moisture.
How Battery Works: When your place the in your cars ignition and
turn the ignition switch ON a signal sent to the battery. Upon
receiving the signal, the battery takes energy that it has been
strong in chemicals form and releases it as electricity power is
used in crank the engine. The batteries also release energy to
power the cars light and other accessories. It is the only device,
which can store electrical energy in the form of chemical energy,
and science it is called as a storage battery.
Sealed Maintenance Free (SMF) battery: Sealed maintenance free
(SMF) batteries technology is leading the battery industry in the
recent years in automobile industry and battery sector around the
globe. SMF batteries come under the rechargeable battery category
so it can be used a number of times the life of a battery. SMF
batteries are more compact then the wet type batteries. It can be
at any position, these batteries are very popular for portable
power requirements and space constraint applications. The
replacement market, on the other hand, is much longer. The
replacement market is characterized by the presence of large
unorganized sector, which constitutes around 55-60% of the total
replacement market. This is possible due to low capital entry
barrier. These players have the advantage of inapplicability of
exercise duties and sales tax.
Industrial Batteries: Industrial batteries can be basically
classified into main categories: Automotive Batteries Stationary
Batteries The automotive batteries are used in electric vehicles
and forklifts. The stationary batteries used in Telecom, Railway
and power industries have registered a growth in excess of 20% and
this trend in likely to be continuing in the next 5 years. The
industrial segment is highly technology is an important factor land
is vital for brand reference. The total demand for the industrial
battery segment is met by indigenous production with a small saves
of about 10% of by imports. The demand for industries has grown
slowly & steadily.
Recycling of Batteries: Battery acid is recycled neutralizing it
into water of converting it to sodium soleplate for laundry
manufacturing. Cleaning the battery cases, melting the plastics and
reforming it into pellets recycle plastic. Lead, which makes up 50%
of every battery, is melted, poured into slabs and purified.
Prospectus of SMF/VRLA Batteries in India:The following factors are
influencing demand of VRLA Technology batteries: Entry of
multinationals in telecom industry. DOTS policy decision to upgrade
the overall technology base. Constraints in the use of conventional
battery in radio paging and cellular segments.
Telecom: The government policy to increase the capacity from 10
million lines by 2006 increased the demand for storage batteries
considerably. The value added services like radio paging and
cellular will increase the demand for storage batteries in future
considerably. Railway:In railways, the estimated demand is based on
the annual post production which comes to 2500 numbers by railways
itself and 1000 numbers more by various other segments, plus
replacements demand and annual requirements for railway
electrification. Power Sector:In power sector the estimated 90
private power projects which are expected to produce 40000 MV with
approximate capital outlay of Rs.1, 40, 000 cores would keep the
industry figured brighter in the coming years. The demand for VRLA
batteries is in creased due to its performance over the
conventional batteries. So it is more acceptable to the
consumers.
Value Regulator Lead Acid Batteries: In the recent years in
automobiles industry and battery sector around the globe VRLA
batteries have become the preferred choice in various applications
such as uninterrupted power supply, emergency lights, security
systems and weighting scales. VRLA batteries are leak-proof,
explosion resistant and having life duration of 15-20 years. These
batteries with stand the environment conditions due to high
technology, in built in the batteries. Each cell is housed in power
coated steel tray making them convenient to transport and
installation. So transits damages are minimized in case of these
batteries.
General manufacturing process of a battery in ARBL
COMPANY PROFILE
Amara Raja Batteries Ltd Amara Raja Batteries Ltd incorporated
under the Companies act 1956 in February 1985, and converted into
public limited company on 6thSeptember 1990. Amara Raja Batteries
Ltd is established by Mr. Rama Chandra N. Galla & the Chairman
of Amara Raja Batteries LTD; He is a post graduate engineer with
over 16 years experience in power systems as an electrical engineer
in Nuclear and conventional source power generating stations across
the USA. He holds an M.S. Degree in system science from Michigan
state university. Ramachandra Galla worked in various capacities
such as Sr. Electrical Engineer, Electrical Project Engineer, and
Sr. Electrical Project Engineer for Sergeant & Lundy, Chicago,
USA. He was involved in various Nuclear power plant projects. Amara
Raja is having a technological Joint Venture with Johnson Controls
INC (JCI), USA in the year 1991 who owns 26% stake in the company.
JCI is a Leading battery manufacture in USA. Johnson Controls is a
Fortune 500 company and also the largest manufacturer of lead acid
batteries in North America and a leading global supplier to major
automobile manufacturers and industrial customers. Amara Raja has
its Registered Office and Head Office at Karakambadi near Tirupati
in A.P. Karakambadi is located at an approximate distance of 12 kms
from Tirupati. The manufacturing campus at Karakambadi is one of
the most beautifully landscaped campuses and boasts of state of the
art manufacturing facilities. Amara Raja has demonstrated its
commitment to offer optimum system solution of the highest quality
and has become the largest supplier of standby power systems to
core India utilities such as the Indian Railways, Department of
Telecommunications, Electricity Boards and major power generations
companies.
About Johnson Controls Johnson controls inc. ranking 136th among
the fortune 500 companies in the world a largest battery
manufacturer in North America and second largest in the world.
Forbes magazine praised it as Americas Best Technology Users. It
had won the General Motors Supplied of the Year award as well as
the Manufacturing Excellence award by National Association of
Manufacturers. Being a leader in Auto Battery Market it become the
OEM (Original Equipment Manufacturer) Supplier to Daimler Chrysler,
Ford, Honda, Nissan and Toyota. Its after market includes Auto
Zone, Interstate Battery, Sears and Wall-Mart. Amara Raja has
demonstrated its commitment to offer optimum system solutions of
the highest quality its and has become the largest supplier of
standby power systems to core Indian utilities such as the Indian
Railways, Department of Telecommunications, Extensive plans have
been charted out for the future, wherein the company undertaken to
become the most preferred supplier for power back-up systems.Amara
Raja has offered time tested world-class technology and processes
developed on International standards be it high integrity VRLA
systems like Power Stack and Power Plus of the recently launched
high performance UPS battery KOMBAT & AMARON HI-LIFE automotive
batteries that are the products of the collaborative batteries
efforts of engineers at Johnson patrols Inc. and Amara Raja. Amara
Raja has offered time tested world-class technology and processes
developed on international standards be it high integrity VRLA
systems like power stack and power plus or the recently launched
high performance UPS battery KOMBA T & AMARON HI-LIFE
automotive batteries that are the products of the collaborative
batteries efforts of engineers Johnson controls Inc. ARBL comprises
of two major divisions viz., I. Industrial Battery Division
(IBD)II. Automotive Battery Division (ABD)I. Industrial Battery
Division (IBD) Amara Raja has become the benchmark in the
manufacture of Industrial batteries. India as one of the largest
and fastest growing markets for Industrial batteries in the world
and Amara Raja is leading in the front with an 80% market share for
standby VRLA batteries. It is also having the facility for
producing plastic components required for Industrial batteries.
ARBL is the first company in India to manufacture VRLA batteries
(SMF). The company has set-up Rs.1920 Lakhs plant in 18 acres in
Karakambadi village, Renigunta Mandal. The project site is notified
under B category.Capacity: The capacity of IBD is 75 million ah.
Customer Base: Telecom: Our Batteries power almost half of BSNL /
MTNL exchanges. 70% of the Private Basic Service providers'
exchanges (Siemens) More than 70% of the Cellular service
providers' exchange (Nokia, Eric son) Telecom customers include:
All ITI (Indian Technology Institutions) plants for In-house and
switch requirements. BSNL / MTNL All NT Switch OEMs viz., Lucent,
Alcatel, Siemens, Nokia, Ericsson etc., All C-DOT switch OEMs viz.
BEL, BHEL, CGL, UTL, etc. All private Basic and Cellular service
providers And all Network Integrators Power Control We provide
Back-Up critical installations in Power generating Units and
provide back-up power for transmission and distribution
sub-stations like: Raichur Thermal Power station North Chennai
Thermal Power station3. ARBL is an approved vendor for NTPC
(National Thermal Power Corporation Ltd) / NHPC (National Hydro
Power Corporation) and Power Grid Corporation Oil & Gas ARBL
provides integrated solutions for renewable energy back-up power
for ONGC's offshore platforms. The island of Lakshadweep is powered
through Amara Raja Power Systems. Also provide back-up power for
low power transmitters for Doordarshan. Motive Power ARBL is the
country's first manufacturer of maintenance-free traction batteries
used in Forklifts and Pallet trucks.
Our Customers:APC (American Power Control), Siemens (All type of
power Supply Products) Eg: Switch Boards, Alstom (Power Projects)
E.g.: Metro Line Delhi, Compton Greaves etc (Power Products).
Defense ARBL introduced new technologies for back-up power in
Defense, Police and Paramilitary communication systems.
UPS & EPABX: ARBL is the preferred suppliers for all leading
UPS back-up manufacturers like APC, Numeric (India), DB Power,
APLab, and Electronics & Controls etc. Our UPS batteries are
the fastest growing battery brand since its launch in July 2002
with a nation-wide footprint of Sales and Service points and over
300, 000 batteries in use at over 10,000 customer sites. Railways
ARBL pioneered the use of maintenance-free batteries in the Indian
Railways. Over 50 % of Indian Railways' II and III Tier
self-generation Air-conditioned coaches are powered by ARBL. Over
40% of Railway's Signaling and Telecom power supply solutions are
provided by ARBL. Competitors The major competitors for Amara Raja
Batteries products are Exide Industries Ltd., Hyderabad Batteries
LTD., and GNB.II. AUTOMOTIVE BATTERY DIVISION (ABD)ARBL has
inaugurated its automotive plant at Karakambadi in Tirupati on
September 24th 2001 this plant is part of the most completely
integrated battery manufacturing facility in India with all
critical components, including plastics sourced in house from
existing facilities in site. In this project Amara Raja strategic
alliance partners Johnson controls, USA have closely worked with
their Indian components required for automotive batteries.
CAPACITY: With an existing production capacity of 5 lakh units of
automotive batteries the new Greenfield plant will now be able to
produce 3.5 million Batteries per annum. This is the first phase in
the enhancement of Amara Raja production which the company has
invested Rs.75 crores. In the next phase at an additional cost of
Rs.25 Crores. Production capacity will increase to 5 million units
estimated to complete around 1 year. After that ARBL will become
the single largest facility for battery manufacture in Asia.
PRODUCTS: Some of the products of ABD are Amaron Highlife Amaron
Harvest Amaron Shield Amaron Hi-way Customers ARBL has prestigious
OEM (Original Equipment manufacture) clients like FORD general
motors, Daewoo motors, Mercedes Benz Daimler CHRYSLER, Maruti Udyog
ltd premier Auto Ltd., and recently acquired a preferential
supplier alliance with Ashok Leyland, Hindustan motors, Telco,
Mahindra & Mahindra and Swaraz Mazda, Hyundai. Competitors:
Exide industries Standard batteries Amco batteries Tudor India
Amara raja batteries Hyderabad batteries
AMARA RAJA GROUP OF COMPANIES1. Amara Raja Batteries Limited
(ARBL0), Karakambadi, Tirupati.2. Amara Raja Power System Pvt. Ltd.
(ARPSL), Karakambadi, Tirupati.3. Harsha Electronics Pvt. Ltd.
(HEPL), Karakambadi, Tirupati.4, Mangal Electro System Pvt. Ltd.
(MESPL), Petimitta, Chittoor Dist.5. Amara Raja Electronics Pvt.
Ltd. (AREPL), Dighavamagham, Chittoor Dist. Mile Stones of Amara
Raja Batteries Ltd:1985 DEC - Foundation stone laid for Amara
Raja.1992 MAY - Designed & implemented the most advanced
battery manufacturing facility in India1997 FEB - Received the ISO
9001 certification1997 DEC - Commissioned own plastics & tool
room sections1997 DEC - Joint venture with Johnson Controls 1999
MAY - Received QS 9000 certification2000 JAN - Launched Amaron
automotive batteries2001 APRIL- launched the new corporate logo2001
SEP - Awarded the ISO 14001 certification New Corporate Logo
launched2002 MAY - Commissioned phase 1of new automotive battery
plant, with capacity of 2million 2002 JULY - Launched Quanta UPS
batteries2002 AUG - Launched Amaron Hiway and Harvest batteries2004
MAR - Received Ford World Excellence Award2004 SEPT - Launched
Amaron PRO, GO and FRESH automotive batteries2004 OCT - OE
agreement with Maruti Udyog Ltd.2005 JUN - OE agreement with
Hyundai motors.2005 - NK series Limited edition batteries Launch
ARBLs Future Plans Maximizing the exports Emerge as global player
Constant up gradation of products. Stream of new models. Constant
stress on improving productivity. Awards for Amara Raja Batteries
ltd Automotive Product of the year 2000 by Overdrive Creative
Advertiser of the year '02 by ABBY Ford "World Excellence Award"
Ford Q1 Award ISO-9001 in 1997RWTUV QS 9000 in 1999RWTUV ISO/TS
16949 in 2004RWTUV Quality benchmarks Best Business Practices as
per JCI ISO 14001 in 2002RWTUV Part of the world's largest battery
manufacturing alliance - Johnson Controls Inc., USA Largest
manufacturer of standby VRLA batteries in South Asia Pioneered the
widely used VRLA batteries for industrial application in India
Amara Raja Batteries Ltds Strengths: Proven technology from GNB and
Johnson Control Inc being a pioneer Strong and well organized
customer base. Full-organized infrastructure in place.
Manufacturing facilities perceived as a benchmark in India.
Complete range of VRLA batteries.
MISSION AND VISION Mission Mission, mantra, way of thinking,
philosophy, what we live for call it what you want, you'll find it
below. Introduce yourself to the way we think. "To transform our
spheres of influence and to improve the quality of life by building
institutions that provide better access to better opportunities,
goods and services to more peopleall the time.
Vision-2025 Through the amararaja way and through ensuring
progressive partnership we will be a global leader in. batteries
and battery technologies and dominant player in Indian Ocean.
INTRODUCTION 1.1 Introduction Management must be concerned with
all aspects of the firms operations including production of goods,
delivery of services, sales, marketing activities and supporting
functions such as personal training and data processing to handle
these responsibilities most firms make extensive use of financial
data and reports. As businesses become larger and more complex
finance assumed the responsibility of dealing with problems and
decisions associate with managing firms assets.Inventory in wider
sense, is defined as any idle resource of an enterprise. It is a
physical stock of goods kept dept for the purpose of future
affairs. The term is generally used to indicate raw materials in
process, finished products, packing, spares and others stocked in
order to meet expected demand or distribution in the future.
Inventories constitute the major element in the working capital of
many business enterprises. Inventories constitute the most
significant part of current assets of large majority of companies
in India. On an average, inventories are approximately 60 % of
current assets in public limited companies in India. Because of the
large size of inventories maintained by firms, a considerable
amount of funds is required to be committed to them. It is
impossible for a company reduces its levels of inventories to a
considerable degree, e.g., 10- 20 %, without any adverse effect on
production and sales, by using simple inventory planning and
control techniques. The reduction in excessive inventories carries
a favorable impact on a companys profitability.
Meaning of inventory Inventory is a tangible property held for
sale, or materials used in a production process to make a product.
The dictionary meaning of inventory is stock of goods or a list of
goods. Meaning of Inventory management Inventory management
involves the control of assets being produced for the purpose of
sale in the normal course of the companys operations.
Definition of Inventory The term inventory has been defined by
The American institute of Accountants, As the aggregate of those
items of tangible personal property which are held for sale in the
ordinary course of business, process of production for sales
control currently consumed in the production of goods or service to
be available for sale.
Definition of inventory management:-Good planning is good
inventory management and good inventory management is good
financial management.-S. K. Kuchal Inventory is a list for goods
and materials, or those goods and materials themselves, held
available in stock by a business. It is also used for a list of the
contents of a household and for a list for testamentary purposes of
the possessions of someone who has died.
Nature of Inventories Inventories are stock of the product a
company is manufacturing for sale and components that make a
product. The various forms in which inventories exist in a
manufacturing company are: raw materials, work in process &
finished goods. Raw Materials: Raw materials are those basic inputs
that are converted into finished product through the manufacturing
process. Raw materials inventories are those units which have been
purchased and stored for future productions. Work-in-process:
Work-in-process inventories are semi-manufactured products. They
represent products that need more work before they become finished
products for sale. Finished Goods: Finished goods inventories are
those completely manufactured products which are ready for sale.
Stocks of raw materials and work-in-process facility production,
while stock of finished goods is required for smooth marketing
operations. Thus, inventories serve as a link between the
production and consumption of goods.
Importance of Inventory Sufficient inventory for production sale
process. Proper determination of profit True financial position
Methods of inventory valuation FIFO LIFO HIFO BASE STOCK METHOD
INFLATED PRICE METHOD SPECIFIC IDENTIFICATION METHOD AVERAGE COST
MARKET PRICEThe ARBL using the FIFO method for physical issue and
weighted average method for valuation. Inventory Management
Techniques In managing inventories, the firms objective should be
in consonance with the shareholders wealth maximization principle.
To achieve this, the firm should determine the optimum level of
inventory. Efficiently controlled inventories make the firm
flexible. Inefficient inventory control results in unbalanced
inventory and inflexibility the firm may sometimes run out of stock
and sometimes may pile up unnecessary stocks. This increases the
level of investment and makes the firm unprofitable. Some of the
techniques are as follows: EOQ (Economic order quantity) The
economic order quantity is that inventory level, which minimizes
the total of ordering costs and carrying costs. It is the question,
how much to order the quantity when inventory is replenished. If
the firm buying raw materials, this is to purchase the quantity of
each replacement and if it has to plan for production run, it is
how much production to schedule. It may be solved through EOQ.
EOQ = 2AO / CWhere A = Quantity required O = Ordering cost C =
Carrying cost ABC Analysis (Activity Based Control) This is one of
the widely used techniques to identify various items of inventory
for the purpose of inventory control. It is very effective and
useful tool for classifying monitoring and control of inventories a
firm should not keep same degree of control on all the items of
inventories. It is based on paretols law. It is also known as
selectivity inventory control. The firm should put maximum control
on those items whose value is the highest with the comparison of
other two items the technique concentrated on important items and
is also known as control by importance and exception.Under ABC
analysis the materials are divided into three categories A, B,
C.Past experience have shown that 15 % of the items contributes to
70 % of value of consumption and this category is called A.About 30
% of the items to contribute to 20 % of value of consumption and
this category are called B.Category C covers about 55 % of items
materials which contribute only 10 % of value of consumption. FSN
Analysis (fast, slow, non moving) Fast moving, slow moving &
non moving classification is based on the pattern of issues from
stores and is useful in controlling obsolescence. Date of receipt
or last date of issue, whichever is later is taken to determine the
no. of months which have lapsed since the last transaction. The
items are usually grouped in periods of 12 months it has to avoid
investments in non moving or slow items. It is also useful in
facilitating timely control. For analysis, the issues of items in
past two or three years are considered. If there are no issues of
an item during the period, it is N items, then up to certain limit,
say 10 15 issues in the period, the item is S item. The items
exceeding such limit of no. of issues during the period are F
items. The period of consideration & the limiting no. of issues
vary from organization to organization. VED Analysis VED: Vital,
Essential & Desirable classification VED classification is
based on the criticality of the inventories. A vital item its
storage makes cause havoc & stops the work in organization.
They are stocked adequately to ensure smooth operations.Essential
items here, responsible risk can be taken. If not available, the
plant does not stop; but the efficiency of operations is adversely
affected due to expediting expanses. They should be sufficiently
stocked to ensure regular flow of work.Desirable items its non
availability does not stop the work because they can be easily
purchased from the market as & when needed. They may be stocked
very low or not stocked. Ratio Analysis The ratio analysis is one
of the most powerful tools of financial analysis. It is the process
of establishing and interpreting various ratios. It is with the
help of ratios that the inventory management can be analyzed. More
clearly and decision made from such analysis. Following ratios are
used in the study. INVENTORY MANAGEMENT CONCEPT & CONTEXT
Inventory Management The amount of investment is sometimes more
in inventory than in other assets. About 90% part of working
capital invested in inventories. A proper planning of purchasing,
handling, storing and accounting should form a part of inventory
management. An efficient system of inventory management will
determine, What to purchase How much to purchase From where to
purchase, and Where to store.
Components of Inventory
Components of inventory
Work in progressStores and sparesFinished productsRaw
materials
Raw materials: Raw materials are those inputs that are converted
into finished goods through a manufacturing or conversion process.
These form a major input for manufacturing a product.Work In
Progress: Work in progress is a stage of stocks between raw
materials and finished goods. Work in progress inventories are
semi-finished products. They represent products that need to under
go some other process to become finished goods.Finished Products:
Finished products are those products, which are completely
manufactured and ready for sale. The stock of finished goods
provides a buffer between production and market.Stores And Spares:
Stores and spares inventory are purchased and stored for the
purpose of maintenance of machinery. Need to Hold Inventories They
are three general motives for holding inventories. Transaction
motive: Transaction motive includes production of goods and sale of
goods. Transaction motives facilities uninterrupted production and
delivery of order at a given time. Precautionary motive: This
motive necessitates the holding of inventories for unexpected
changes in demand and supply factors. Speculative motive: This
compels to hold some inventories to take the advantage of changes
in prices and getting quantity discounts.
Importance Of Inventory Management Inventory helps in smooth and
efficient running of business. Inventories provide service to the
customers immediately. Due to absence of stock, the company may
have to pay high prices because of piece-wise purchasing.
Maintaining of inventory may earn price discount because of bulk
purchasing. Inventory also acts as buffer stock when raw materials
are received late and so many sales orders are likely to be
rejected. Inventory also reduces product costs because there is an
additional advantage of batching and long smooth running production
runs.
Types of Inventory Movement inventories Buffer inventories
Anticipation inventories Decoupling inventories Cyclic inventories
Movement Inventories Movement inventories are also called transit
(or) pipeline inventories. Their existence owes to the fact that
transportation time is involved n transferring substantial amount
of resources. An industrial town by trains, Then the coal, while in
the transit cannot provide any service to the customers for power
generation. Buffer Inventories Buffer inventories are held to
protect against the uncertainties of demand and supply. An
organization generally knows the average demand for various items
that it needs. The actual demand may not exactly match the average
and could hell exceed it. To meet with this kind of situation
inventories may be held in excess of the average for expected
demand. Similarly the average delivery time may be known. But
unpredictable events could cause the actual delivery time to be
more than the average. Thus excess stock might be kept in order to
meet demand during the time for which the delivery is delayed.
These inventories which are in excess of those necessary just to
meet the average demand, held for protecting against the
fluctuations in demand and lead-time are known as safety stocks.
Anticipation Inventories Anticipation inventories are held for the
reason that a future demand for the product is anticipated.
Production of specialized crackers well before Dewily, Umbrellas
and raincoats before rains, fans while summers are approaching.
Decoupling Inventories The Decoupling inventory is to be
decoupled (or) disengage, different parts of the production system.
Different machines and people normally work at different rates some
slower and faster.A machine, for example might be producing half
the output of the machine on which the item being handled is to be
processed. The next inventories in between the various machines are
held in order to disengage the processing on those machines in the
absence of such inventories, different machines and people cannot
work simultaneously on a continuous basis. When such inventories
are held, then even if a machine breakdowns, the work on others
would not stop. Cycle InventoriesCycle inventories are held for the
reason that purchases are usually made in lots rater than for the
exact amounts which may be needed at a point of time. If purchases
are made exactly as and when the item is required, there would be
no cycle inventories.But practically, purchases are made in lots,
the reason being that if purchases are made frequently and in small
numbers then the cost involved in obtaining the items would be very
large. Meaning of Inventory Control:Inventory control is a system,
which ensures the provisions of the required quality of inventories
of required quality at the required time with the minimum amount
investment. Thus the function of inventory control is to obtain the
maximum inventory turn over with sufficient stock to meet all
requirements. Purpose of Inventory Control: The need of controlling
inventory is expressed as below. To improve customer services.
Permits purchase and transaction economics. Transportation
economics. Hedge against price fluctuations. Production economics.
Hedge against demand uncertainties. Protects against demand and
lead time uncertainties. Factors Influencing Inventory Control: To
control the inventory How much to buy at one time? When top buy
this quantity?Following four fundamentals factors govern for these
questions. Requirements break down time wise. Quantity in stock or
on order. Procurement time or lead time. Obsolescence. Factors to
be considered when establishing the Control Levels: Average
consumption or production requirements Reordering periods-the time
between raising an order and receiving delivery of goods. Storage
space available Market conditions Likely life of stock-bearing in
mind the possibility of loss through determination or obsolescence
and The cost of placing orders including generating and checking
the necessary paper work as well as physical checking and handling
procures.The key issue for a business is to identify the fast and
slow movers with the objectives of establishing optimum stock
levels for each category and, therefore minimize the cash tied up
in stocks. Control policies should include designating
responsibility for raising and authorizing orders, signing delivery
notes and authorizing payment of invoices.
Stores (or Material) RecordsThe bin cards an the stores ledger
are the two important stores records that are generally kept for
making a record of the various items of stores.a) Bin Card. A bin
card makes a recode of the receipt and issue of material and is
kept for each item of stores carried. Quantity of stores received
is entered in the receipt column and the quantity of stores issued
is recorded in the issue column of the bin card and a balance of
the quantity of stores is taken after every receipt or issue, so
that the balance at any time can readily seen. These cards are
maintained by the storekeeper and the storekeeper is answerable for
any difference between the physical stock and the balance shown in
the bin card. These cards are used not only for recording receipts
and issues of stores but also assist the storekeeper to control the
stock. For each item of stores, minimum quantity, maximum quantity
and ordering quantity are stated on the card. By seeing the bin
card, the storekeeper can send the material requisition for the
purchase of material in time. A bin card is also known a bin tag or
stock card and is usually hung up or placed in shelf, rack or bin
where the material has been kept. Bin cards can also be in the form
of loose sheets which can be maintained in a ledger kept in the
stores.b) Double Bin System. Some concerns divide the bin, rack or
shelf (where material has been kept) in two parts, namely, the
smaller part to store the quantity equal to the minimum quality and
the other part to store the remaining quantity. The quantity in the
smaller part is not issued so long as the quantity is available in
the other part. This system helps in exercising stores control in
an effective way as it facilitates physical verification and
services as a signal when it becomes necessary to use the quantity
kept in the smaller part. Stores Ledger. This ledger is kept in the
costing department and is identical with the bin card except that
receipts, issues and balances are shown along with their money
values. This contains an account for every item of stores and makes
a record of the receipts, issues and the balances, both in quantity
and value.
Bin Card vs. Stores Ledger. The difference between a bin card
and the stores ledger can be summarized as follows:
Bin CardStores Ledger
1. A record of quantities only.2. Maintained by the
storekeeper.3. Normally posted just before the transaction takes
place.4. Each transaction is individually posted.
1. A record of both quantities and values.2. Maintained by the
Costing department.3. Always posted after the transaction takes
place.4. Transactions may be summarized
Other Factors Involved In Inventory Analysis:
Demand: Demand is the number of units required per period and
may be either known exactly or known exactly or known in terms of
probabilities or be completely unknown. Further if the demand is
known, it may be either fixed or variable per unit time. Problems
in which demand is known and fixed are called deterministic
problems whereas those problems in which demand is assumed to be
random variables are called stochastic or probabilistic problems.
Lead Time:The time gap between placing of an order and its actual
arrival in the inventory of an item demands upon the length of its
lead time. The longer the lead time the higher is the average
inventory. Lead time has two components namely. Administrative lead
time-from initiation of procurement action until the placing of an
order. Delivery leads time-placing of an order until the delivery
of the ordered materials.
Order Cycle:The time period between placements of two successive
orders is referred to an order cycle. They may be placed on the
basis of the following two types of inventory review systems.
Stock LevelsFor efficient material control and to avoid
overstocking and under stoking of materials, an important
requirement is to decide upon various levels of materials these
levels are maximum level, minimum level and re-order level. By
making action on the basis of these levels, each item of material
will automatically be held with in appropriate limits of control.
These levels are not permanent but need revision according to the
changes in the factors which determine these levels. Factors: The
following factors help in the fixation of these levels. Rate of
consumption of materials. Lead the time, i.e., time lag. Storage
capacity. Availability of funds investment in inventories. Cost of
storage. Risk of loss due to deterioration theft fire etc. Seasonal
factors- certain materials are cheaply available during certain
seasons. Fluctuations in market prices. Insurance costs. Maximum
Level:The maximum stock level is that quantity of materials above
which the stock of any item should not generally be allowed to go
up. This maximum level may be exceeding in certain special cases.
For instance, if a particular lot is purchased at a reasonably low
price, the maximum level is crossed. This level is fixed after
taking into account such factors as: Rate of consumption of
material. Amount of capital needed and available. Storage space
available. Incidence of insurance costs which may be important for
some materials. Costs of storing above normal stock. Risk of
obsolescence and deterioration and Re-order quantity. Danger
Level:It is that level below which stock not be allowed to except
under emergency conditions. When stock reaches this level urgent
action for purchases is initiated. Danger level = Average
consumption *Maximum re-order period for emergency purchases.Danger
level is below the minimum level. But some firms prefer to fix the
danger level above the minimum level and below the re-order level.
However fixing danger level below the minimum level is meant for
taking corrective action where as fixing it above the minimum level
is for preventive action.The formula for computing maximum level is
follows:Maximum level= Re-order level + Re-order quantity-(Minimum
Consumption* Minimum re-order period) Minimum Level:The minimum
level is that level of stock below it should be normally be allowed
to fall. This is essentially a safety stock and will not normally
be touched. In case of nay item falling below this level, there is
danger of stoppage in production and, therefore, management should
give top priority to the acquisition of new supplies. This level is
fixed after the consideration if the following factors. Rate of
consumption, and The time required under top priority to acquire
enough supplies to avoid a stoppage in production.Minimum Level =
Re-order level (Normal Consumption* Normal reorder period).
Re-order Level:This is that level of materials at which a new order
for materials is to be placed. In other words this is the level at
which a purchase requisition is made out. It is fixed after the
consideration of the following factors. Rate of consumption.
Minimum level. Delivery time. Variation in delivery time.Re-order
level = (Maximum Consumption * Maximum re-order period).
Average stock level:Average stock level = Minimum level + (1/2
of Re-order quantity).Average stock level = (1/2) * (Minimum level
+ Maximum level).
Methods of Materials Issue:
First In First Out (FIFO):The materials which are received first
are issued first and therefore there flow of cost of materials
should also be in the same order. Issues are priced at the same
basis until the first batch received is used up after which the
price of the next batch received becomes the issue price. Upon this
batches being fully used for pricing and so on. In other words, the
materials issued are priced at the oldest cost price listed in the
store ledge account and consequently the materials in hand are
valued at the price of the latest purchase. In Amara Raja batteries
they are First in First Out method for issuing of raw materials
from stores to the production/manufacturing unit. Last In First Out
(LIFO):The latest receipts of materials are issued first for
production and the earlier receipts are issued last. It uses the
price of the last batch received for al the issues until all units
from this batch have been issued after witch the price of the
previous batch received becomes the issue price. Usually however, a
new delivery is received before the first batch in fully used, in
which case the new delivery price becomes the last in price and is
used for pricing issues until either the batch exhausted or a new
delivery is received.
Highest In First Out (HIFO):In this method, issues are always
valued at the highest price of the receipt. This rate continues
either until the material at that high price is exhausted, after
which the next highest price is used a until a new batch of
materials is received at a rate which is higher than the previous
high rate. Closing stock under this method airwaves remains at the
minimum cost. This method however has not been widely adopted.
Tools and Techniques / Controls of Inventory Management
Financial manager should aim at determination of optimum inventory
level based on costs and benefits to maximize shareholders wealth.
Inventory management problems can be handling by mathematical
techniques. The major problem areas are, classification problem to
determine the type of control required, order quantity problem, and
order point problem, determination of safety stocks. But these are
more suitable parts of production and operation management.
Financial manager needs to be familiar with these techniques
because of inventory management involves financial costs use of
particular technique depends on the convenience of the company.
These inventory control techniques may be used by to provide
maximum customer service at a minimum cost. Some of inventory
control techniques are ABC Analysis EOQ FSN Ratio analysis ABC
Analysis is an important factor in controlling the inventory. It is
very effective and useful tool for classifying monitoring and
control of inventories. The firm should not keep same degree of
control on all the items of inventory. It is based on paretols law;
It is also known as selective inventory control. The firm should
put maximum control on those items whose value is the highest, with
the comparison of the other two items. The technique concentrates
on important items and also known as control by importance and
exception usually a firm has to maintain several types of
inventories for proper control of they firm should have to classify
inventories in the instance of their relative value. Hence it is
also known as proportional value analysis.Under ABC Analysis the
materials are divided into three categories like A,B,C 10% of the
items contributes to 70% of value consumption this category is
called A Category. About 20% of the items contribute to 20% of
value of consumption this is known as category B materials category
C Covers about 70% of items of materials which contribute only 10%
of value of consumption.A-B-C Analysis helps to concentrate more
efforts on category A. An attention should be paid in estimating
requirements purchasing, maintaining safety stock and properly
storing of A category materials. These items are kept under a
constant review so that a substantial material cost may be
controlled.The control of C items may be relaxed and these stocks
be purchased for the year. A little more attention should be given
towards B Category items and their purchase should be undertaken at
quarterly (or) half yearly.Table 2.1.1: Classification of A, B
&C itemsClassNo. of itemsValue of items (x)
A1070
B2020
C7010
Economic Order QuantityEOQ is an important factor in controlling
the inventory. It is a quantity of inventory which can reasonably
be ordered economically at a time. It is also known as standard
order quantity.Ordering cost, and carrying costs are taken in to
consideration ordering cost are basically the cost of getting an
item of inventory and it includes the cost of placing an order
carrying includes cost of storage facilities.Meaning of EOQ:
Economic Order Quantity refers to that level of inventory at which
the total cost of inventory is minimum. The total inventory cost
comprising ordering and carrying cost. Shortage costs are excluded
in adding total cost of inventory due to the difficulty in
computation of shortage cost EOQ also known as Economic lot
size.Assumptions Demand for the product is constant and uniform
throughout the period. Head time is constant Price per unit of
product is constant Inventory holding cost is based on average
inventory Ordering costs are constant All demands for the product
will be satisfied.EOQ formulaEOQ can be obtained by adopting two
methods. Trail and error approach Simple mathematical formula.The
formula is EOQ = 2AO C Where, A = Annual usage C= Carrying cost per
unit O = Ordering cost per unitThe above formula will not be
sufficient to determine EOQ when more complex cost equations are
involved. EOQ applicable both the single items and to any group of
stock items with similar holding and ordering costs. Its use causes
the sum of the two costs to be lower than under any other system of
replenishment. FSN ClassificationUnder this technique inventory is
classified based on movement of inventories from stores. FSN stands
for fast moving (F), slow moving(S), and Non-moving (N). This
technique particularly involved in inventory useful for avoiding
obsolescence. Whether a particular inventory is fast moving or not
the date of receipt or last date of issue, whichever is later, is
taken, which have lapsed since the last transaction.The items are
usually grouped in periods of 12 months. Active moving inventory
need to be reviewed regularly and surplus items. Which have to be
examined further Non-moving items may be examined further and their
disposal can be considered. Ratio Analysis The ratio analysis is
one of the most powerful tools of financial analysis. It is the
process of establishing and interpreting various ratios. It is with
the help of ratios that the inventory management can be analyzed.
More clearly and decision made from such analysis. Following ratios
are used in the study.1) Inventory Turnover Ratioa) Raw Materials
Turnover Ratiob) Work-In-Progress Turnover Ratioc) Finished Goods
Turnover Ratio2) Raw Material Holding Period3) Work-In-Progress
Holding Period4) Finished Goods Holding Period5) Inventory Holding
Period1) Inventory Turnover Ratio: inventory turnover ratio is a
ratio that establishes the relationship between cost of sales and
average inventory. It indicates whether the investment in inventory
is within proper limit or not.
Cost of goods sold Inventory Turnover Ratio =
-------------------------------------- Average inventory
Opening stock + Closing stock Average inventory =
----------------------------------------- 2a) Raw Materials
Turnover Ratio Cost of Materials ConsumedRaw Materials Turnover
Ratio = ----------------------------------------- Average stock of
raw materials
b) Work-In-Progress Turnover Ratio Cost of goods manufactureWork
In Progress Turnover Ratio =
------------------------------------------ Average stock of work in
progress
c) Finished Goods Turnover Ratio Cost of goods soldFinished
Goods Turnover Ratio = ------------------------------- Average
Stock of finished goods
2) Raw Materials Holding Period Days in a yearRaw Materials
Holding Period = ---------------------------------------- Raw
Materials Turnover Ratio
3) Work-In-Progress Holding Period Days in a
yearWork-In-Progress Holding Period =
------------------------------------------- Work-In-Progress
Turnover Ratio
4) Finished Goods Holding Period Days in a yearFinished Goods
Holding Period = ------------------------------------------
Finished Goods Turnover Ratio
5) Inventory Holding Period Days in a yearInventory Holding
Period = ------------------------------------------- Inventory
Turnover Ratio
DATA ANALYSIS &INTERPRETATION
A. ABC ANALYSIS: TABLE 4.1 ABC Classifications for the year
(2006-2007)ClassValue% of valueCumulative %Items
A168031525454102
B87855152983151
C527605017100327
30864717
GRAPH 4.1 Graphical Representation of ABC analysis
INTERPRETATION:In the year 2006-07 , there Are 102 items which
constitutes their value of 54%, in the total value which comes
under Acategory.151 items which constitutes 29% in the total value
which comes under B category and 327 items which constitutes 17% in
the total value which comes under C category.
TABLE 4.2 ABC classification for the year
(2007-2008)ClassValue%cumulative %Items
A67963606909069
B6330760898124
C15382542100385
75832620
GRAPH 4.2 Graphical Representation of ABC analysis
INTERPRETATION:In the year 2007-08 , there Are 69 items which
constitutes their value of 90%, in the total value which comes
under Acategory.124 items which constitutes 8% in the total value
which comes under B category and 385 items which constitutes 2% in
the total value which comes under C category.
TABLE 4.3 ABC classifications for the year (2008-2009)
ClassValue%cumulative %Items
A73880742919192
B6858300899176
C8626671100310
81601709
GRAPH 4.3 Graphical Representation of ABC analysis
INTERPRETATION:In the year 2008-09 , there Are 92 items which
constitutes their value of 91%, in the total value which comes
under Acategory.176 items which constitutes 8% in the total value
which comes under B category and 310 items which constitutes 1% in
the total value which comes under C category.
TABLE 4.4 ABC classifications for the year (2009-2010)
classvalue%cumulative %Items
A375515268969610
B1204949539936
C39357101100532
391500473
GRAPH 4.4 Graphical Representation of ABC
analysisINTERPRETATION:
In the year 2009-10 , there Are 10 items which constitutes their
value of 96%, in the total value which comes under Acategory.36
items which constitutes 3% in the total value which comes under B
category and 532 items which constitutes 1% in the total value
which comes under C category.
TABLE 4.5 ABC classification for the year (2010-2011)
ClassValue% of valueCumulative %Items
A61,060,68142.8740342.874037
B52,913,62937.1535480.0275665
C28,444,50919.972441001378
Total142,418,8191001450
GRAPH 4.5 Graphical Representation of ABC analysis
INTERPRETATION:In the year 2010-11 , there Are 7 items which
constitutes their value of 42.87% in the total value which comes
under Acategory.65 items which constitutes 37.15% in the total
value which comes under B category and 1378 items which constitutes
19.97% in the total value which comes under C category.
B. Ratio analysis:4.6 Raw material turnover ratio
PERIODRAW MATERIAL CONSUMED (Rs)AVERAGE RAW MATERIAL (Rs)RATIO
VALUE
2006-07393781245422633314617.39
2007-08779479467546627007516.71
2008-09845305526347593432417.76
2009-1098625897552312948818.85
2010-1110983459834569154881819.30
4.6. Graphical Representation of Raw material turnover ratio
INTERPRETATION: In the above data indicates that raw material
turnover ratio is 17.39 times in the year 2006-07 and it is
decreased 16.71 in the year 2007-08.then it is increase to 17.76 in
the year 2008-09, again it is increased to 18.85 in the year
2009-10 again it is increased to 19.30 in the year 2010-11.it can
be conclude that raw material turnover ratio has improved even with
increased requirement of raw material and business
volatilities.
4.7 WORK-IN-PROCESS TURNOVER RATIO
PERIODCOST OF PRODUCTION (Rs)AVERAGE WORK-IN- PROCESS (Rs)RATIO
VALUE
2006-07478061787125310398518.89
2007-08923695605847812124219.32
2008-09992811385458120825117.08
2009-1010878654391623328567717.45
2010-1112656892562675823651418.73
4.7Graphical Representation of work in process turnover
ratio
INTERPRETATION: In the above data indicates that work-in-process
ratio is 19.32 times in the year 2007-08 and it is decreased to
17.80 in the year 2008-09. Then it is increase to 17.45 in the year
2009-2010, again it is increased to 18.73 in the year 2010-11. We
can conclude that Work-in-progress turnover ratio has improved in
the year 2010-11 compare to previous.
4.8 FINISED GOODS TURNOVER RATIOPERIODCOST OF GOODS SOLD
(Rs)AVERAGE FINISED GOODS (Rs)RATIO VALUE
2006-2007595801640412085939849.29
2007-20081083325690427779772638.99
2008-20091317723004738904356333.87
2009-201013945268712389041356335.85
2010-201114256394874395689741236.03
4.8Graphical Representation of finished goods turnover Ratio
INTERPRETATION: In the above data indicates that finished goods
turnover ratio is 49.29 times in the year 2006-07 and it is
decreased 38.99 in the year 2007-2008.then it is decrease to 33.87
in the year 2008-09, again it is increased to 35.85 in the year
2009-10, again it is increased to 36.03 in the year 2010-11.it can
be conclude that finished goods turnover ratio has improved even
with increased requirement of finished goods and business
volatilities.
4.9 INVENTORY TURNOVER RATIOPERIODNET SALES (Rs)AVERAGE
INVENTORY(Rs)RATIO VALUE
2006-200759580164047468378187.97
2007-20081083325690414325245607.56
2008-20091317723004717758021897.42
2009-201073541240054603219001012.19
2010-201192190112510718672001012.82
4.9 Graphical Representation of Inventory turnover Ratio
INTERPRETATION: In the above data indicates that inventory
turnover ratio is 7.97 times in the year 2006-07 and it is
decreased 7.56 in the year 2007-08. Then it is decrease to 17.42 in
the year 2008-09. It is increased to 12.19 in the year 2009-2010
again it is increased to 12.82 in the year 2010-11. It can be
conclude that inventory turnover ratio has improved even with
increased requirement of inventory and business
volatilities.COMPARISION OF TURNOVER RATIOS:
4.10 STATEMENT SHOWING COMPARISION OF TURNOVER RATIOSTURNOVER
RATIO2006 072007 - 082008 - 092009 - 102010 - 11
Raw material17.3916.7117.7618.8519.30
Work-in-process18.8919.3217.0817.4518.73
Finised goods49.2938.9933.8735.8536.03
Inventory7.977.567.4212.1912.82
INTERPRETATION: In the above data indicates the inventory
turnover ratio is Decreased some extent increased to year by year
like 2006-07, 2007-08 and 2008-09.But it is increase in the year
2009-10 and 2010-11. Inventory turnover ratio is declined for year
by year. That is company production is also declined subsequently
sales are also declined. 4.11 RAW MATERIALS HOLDING PERIOD
PERIODNO.OF DAYSRAW MATERIAL TURNOVER RATIOHOLDING PERIOD(In
days)
2006-200736517.3920.98
2007-200836516.7121.84
2008-200936517.7620.55
2009-201036518.8519.36
2010-201136519.3018.91
INTERPRETATION: The above table indicates that the raw material
holding period for the financial year 2006-07 is 21 days, for
2007-08 is 22 days for 2008-09 is 21 days for 2009-10 is 19 days
and the financial year 2010-11 is 19 days.4.12 WORK-IN-PROCESS
HOLDING PERIOD PERIODNO.OF DAYSWORK-IN-PROCESS TURNOVER
RATIOHOLDING PERIOD
2006-0736518.8919.32
2007-0836519.3218.89
2008-0936517.0821.37
2009-1036517.4520.91
2010-1136518.7319.48
INTERPRETATION: The above table indicates that the
work-in-process holding period for the financial year 2006-07 is
19.32 days, for 2007-08 is 18.89 days for 2008-09 is 21.39 days for
2009-10 is 20.91 days and the financial year 2010-11 is 19.48
days.4.13 FINISED GOODS HOLDING PERIODPERIODNO.OF DAYSFINISED GOODS
TURNOVER RATIOHOLDING PERIOD
2006-0736549.297.40
2007-0836535.9910.14
2008-0936533.8710.77
2009-1036535.8510.18
2010-1136533.0311.05
INTERPRETATION: The above table indicates that the finished
goods holding period for the financial year 2006-07 is 7.4 days,
for 2007-08 is 9.36 days for 2008-09 is 10.77 days for 2009-10 is
10.18 days and the financial year 2010-11 is 10.13
days.4.14INVENTORY HOLDING PERIODPERIODNO.OF DAYSINVENTORY TURNOVER
RATIOHOLDING PERIOD
2006-073657.9745.79
2007-083657.5648.28
2008-093657.4249.19
2009-1036512.1929.94
2010-1136512.8228.47
INTERPRETATION: The above table indicates that the Inventory
holding period for the financial year 2006-07 is 45.79 days, for
2007-08 is 48.28 days for 2008-09 is 49.19 days for 2009-10 is
29.94 days and the financial year 2010-11 is
28.47days.4.15COMPARISION OF HOLDING PERIODHOLDING
PERIOD2006-072007-082008-092009-102010-11
RAW MATERIAL20.9821.8420.5519.3618.91
WORK-IN-PROCESS19.3218.8921.3720.9119.48
FINISED GOODS7.4010.1410.7710.1811.05
INVENTORY7.977.567.4212.1912.82
INTERPRETATION: The above table indicates the raw material,
work-in-process, finished goods and inventory holding period is
little change to year by year like 2006-07, 2007-08, 2008-09,
2009-10 and 2010-11 respectively.
C.EOQ Analysis4.16 ECONOMIC ORDER QUANTITY ON YEAR (2006-07)
DescriptionAnnual consumptiontotal Ordering costcarrying
costEOQ
9075-6CL WINDOW GREY TRAY76,216,3202680011.78588889.4
FRPPCPV0 DARK GREY COLOUR75,391,4632200010.012575608.24
1775-6CL WINDOW GREY TRAY19,118,1602680012.65284616.57
PRESSURE RELIEF VALVE VENT
SEAL(PS)11,267,376202009.56218209.23
SULPHURIC ACID(CP)1.245 @27 Deg.C10,889,934286006.5309566.5
26Ah PPCP SILVER COVER9,767,363106001.08138468.39
42Ah PPCP SILVER COVER7,627,955106002.78241184.61
Rubber sleeve for 20X2mm connector5,646,62095203.56173781.18
BLACK MASTER BATCH3,169,6362260010.45117088.91
BARIUM SULPHATE2,291,535160004.56126810.67
PVC Shim Roll 175(W) x 0.3(T)2,161,964196002.2196270.9
.
INTERPRETATION:In the year 2006-07 indigeneous items like
windows grey trey, dark grey color are having high EOQ. Sulphuric
acid is slightly increased. So that you can see the EOQ for all
items. 17 ECONOMIC ORDER QUANTITY ON YEAR
(2007-08)4.DescriptionConsumptionValuetotal Ordering cost
(Rs)carrying cost(Rs)EOQ
9075-6CL WINDOW GREY TRAY10,531,424.00
2400011.78206,976.03
FRPPCPV0 DARK GREY COLOUR8,441,492.872000010.01183,663.38
1775-6CL WINDOW GREY TRAY5,628,480.002260012.65141,814.13
SULPHURIC ACID(CP)1.245 @27
Deg.C1,646,499.10198009.5682,584.66
PRESSURE RELIEF VALVE VENT
SEAL(PS)1,313,875.91254006.50101,333.33
42Ah PPCP SILVER COVER699,216.9692001.08109,144.79
PVC Shim Roll 175(W) x 0.3(T)562,956.3084002.7858,326.97
26Ah PPCP SILVER COVER478.0076503.561,433.29
BLACK MASTER BATCH2,042.472010010.452,803.06
BARIUM SULPHATE10,364.11130004.567,687.23
Rubber sleeve for 20X2mm connector3,062.00150002.206,461.77
of Economic 4. 18 Graphical Representation Order Quantity
Interpretation:In the year 2007-08 graph you can see that window
grey trey, sulphuric acid,were used in a lot as compared to 2006-07
the window grey trey carrying cost was as same. Where it shows
effect on increase in consumption of rawmaterial, this inturn
results in increase in EOQ. Total inventory cost will be
increased.4.19 ECONOMIC ORDER QUANTITY ON YEAR (2008-09)
DescriptionAnnual consumptiontotal Ordering cost(Rs)carrying
cost(Rs)EOQ
FRPPCPV0 DARK GREY COLOUR10,715,683.2925,000.0011.78213266.3
1775-6CL WINDOW GREY TRAY10,219,086.6818,000.0010.01191708
9075-6CL WINDOW GREY TRAY6,811,081.4721,200.0012.65151093.5
PRESSURE RELIEF VALVE VENT
SEAL(PS)1,131,695.1018,000.009.5665281.03
26Ah PPCP SILVER COVER636,410.1821,400.006.5064734.19
42Ah PPCP SILVER COVER623,422.818,500.001.0899061.27
PVC Shim Roll 175(W) x 0.3(T)616,506.387,500.002.7857675.58
BARIUM SULPHATE505,350.788,500.003.5649124.21
BLACK MASTER BATCH250,111.2319,000.0010.4530157.82
SULPHURIC ACID(CP)1.245 @27
Deg.C137,294.7715,000.004.5630054.1
Rubber sleeve for 20X2mm connector
123,520190002.2014606.5
4. 20 Graphical Representation of Economic Order Quantity
Interpretation:In the year 2008-09 graph you can see that window
grey trey, sulphuric acid,were same in a lot as compared to 2007-08
the window grey trey was as same.as there was no change in
cosumption value, and ordering cost, there is no change in EOQ
value. The effect of EOQ is same as 2007-2008.
4.21 ECONOMIC ORDER QUANTITY ON YEAR (2009-2010)
DESCRIPTIONANNUAL COSUMPTIONORDERING COST(Rs)CARRYING
COST(Rs)EOQ
1775-6CL WINDOW GREY TRAY116528912850012.56229963.7861
9075-6CL WINDOW GREY TRAY102563652160011.25198455.1375
FRPPCPV0 DARK GREY COLOUR88110522250013.5171377.2836
PRESSURE RELIEF VALVE VENT
SEAL(PS)2250653201459.6596936.9270
26Ah PPCP SILVER COVER837520232127.5571762.1425
42Ah PPCP SILVER COVER72562396002.0582438.3335
PVC Shim Roll 175(W) x 0.3(T)69845286542.8265473.7434
BARIUM SULPHATE58269592003.2557436.4880
BLACK MASTER BATCH3658402245010.8538909.3428
SULPHURIC ACID(CP)1.245 @27 Deg.C125612162505.527244.3155
INTERPRETATION In the year 2009-10 indigeneous items like
windows grey trey, dark grey color are increased a lot such that
sulphuric acid.was slightly increased. As the usage of raw
materials increased, consumption value will automatically
increased, all this will show effect on increase in EOQ value, so
that inventory cost will increses.
4.21 ECONOMIC ORDER QUANTITY ON YEAR (2010-2011)
DESCRIPTIONANNUALCONSUMPTIONORDERING COST(Rs)CARRYING
COST(Rs)EOQ
Frppcpv0 dark grey color125623852356014.25201011.0250
Pressure relief valve vent
seal(ps)106325462154510.5208887.3944
1775-6cl window grey tray95632512950013.5204438.1296
9075-6cl window grey tray85634212356012.12182463.0704
42Ah PPCP SILVER COVER956425123654.0576420.5231
26Ah PPCP SILVER COVER912362204508.6565680.6126
Barium sulphate653245102364.8552510.6403
Black master batch4652132156011.8541143.9631
PVC Shim Roll 175(W) x 0.3(T)72589695603.9659201.6148
Sulphuric acid(cp)1.245 @27 Deg.C225631156306.5532815.0614
INTERPRETATION
In the year 2010-11 indigeneous items like windows grey trey,
frppcpvo dark gray colour are increased a lot such that sulphuric
acid.was slightly increased. So that you can see that EOQ has
increased a lot.it shows effect on increase in consumption value,
where it increses inventory cost of raw materials.
Comparing the EOQ of all the years:
Description2006-072007-082008-092009-102010-2011
9075-6CL WINDOW GREY
TRAY588889.4206,976.03213266.3198455.13182463.0704
FRPPCPV0 DARK GREY
COLOUR575608.24183,663.38191708171377.28201011.0250
1775-6CL WINDOW GREY
TRAY284616.57141,814.13151093.5229963.786204438.1296
PRESSURE RELIEF VALVE VENT
SEAL(PS)218209.2382,584.6665281.0396936.9270208887.3944
SULPHURIC ACID(CP)1.245 @27
Deg.C309566.5101,333.3364734.1827244.315532815.0614
26Ah PPCP SILVER
COVER138468.39109,144.7999061.2771762.142565680.6126
42Ah PPCP SILVER
COVER241184.6158,326.9757675.5882438.333576420.5231
Rubber sleeve for 20X2mm connector173781.181,433.2949124.21
BLACK MASTER
BATCH117088.912,803.0630157.8238909.342841143.9631
BARIUM SULPHATE126810.677,687.2315663.9857436.488052510.6403
PVC Shim Roll 175(W) x
0.3(T)196270.96,461.7765473.743459201.6148
Graphical Representation
INTERPRETATION:
If you see the comparison of all the years you can find that
window grey trey was imported a lot from out and the cost we spent
on that particular item was more than any other item. It shows its
effect on total consumption value of EOQ.
FINDINGS
The ABC analysis increase for the year of 2006-2011 where the A
category increase lot while comparing to B and C class items. The
Raw material turnover ratio is comparing to 2006-2007 Ratio is
17.39% times and they again increased to 19.30% in the year of
2010-2011. The work in process turnover Ratio is while comparing to
past data in year of 2007-08 at value 19.32% and the year of
2010-11 is value decreased to 18.73%. Finished goods turnover Ratio
is the year of 2006-2007 indicates 49.29% and 2010-2011 increase to
36.03%. Inventory turnover Ratio in the year 2006-2007 is 7.97%
times and 2010-2011 is the value increase to 12.82% Comparison of
turnover Ratio is inventory turnover decrease some extend but the
year is 2006-2009 increase and the again increase in the year is
2009-2011 so the company production is also decline subsequently
sales are decrease. The comparison of holding periods the above
indicates all the Ratios are investment holding periods, the period
of 2006-2011 little changes respectively. The EOQ analyses in the
year of 2010-2011 indigenous items like window grey trey are
increase lot of such the sulpharic acid so it affects increase in
consumption value.
SUGGESTIONS
The company has to concentrate more on Research and Development
so that it can keep abreast with the latest developments. The
company has to eliminate dead inventory and this has resulted in
decrease profits. Company should strive for getting the right goods
to the right places at the right time for the least cost. Company
has to position inventory items according to risk and opportunity.
Company has to distinguish between bottleneck items, critical items
(high risk, high opportunity)-Product mix. The company to take the
care of the production level they should maintain the following
terms are, Reducing cost Improving quality Improving performance
Improve delivery Adding flexibility Increase innovations
CONCLUSION
The company can reduce ordering cost by the following proper
inventory management.
JIT is not about automation. It not only eliminates waste but
also helps for controlling inventory by providing the environment
to perfect and simplify the processes. It is collection of
techniques used to improve operations. It can be a new production
system that is used to produce goods and services.
When the JIT principles are implemented successfully,
significant competitive advantages are realized, JIT principles can
be applied to all parts of an organization; order taking,
purchasing, operations, distribution, sales, accounting, design,
etc..,
ELIMINATION OF WASTEJIT usually identifies seven prominent types
of waste to be eliminated: Waste from over production. Waste of
waiting/idle time. Transportation waste. Inventory waste Processing
waste Waste of motion Waste from products defects.Where the JIT
concept is implemented?Transfer of plastic moulds from plastic
manufacturing unit to automotive battery division.Transfer of
finished components from Mangle Precision Products to industrial
battery division.
BIBLIOGRAPHY
I M Pandey; Financial Management , Ninth Edition-2004, Vikas
Publishing House Pvt Ltd, New Delhi.
Dr. Pradip Kumar Sinha; Financial Management- Tools and
Techniques, EXCEL BOOKS, New Delhi.
S N Maheswari & S K Maheswari ; Financial Accounting ,
Fourth Revised & Enlarged Edition 2005, Vikas Publishing House
Pvt Ltd, New Delhi.
M Y Khan & P K Jain; Financial Management-Text problems and
Cases, Fifth Edition, Tata McGraw-hill Publishing Company Limited,
New Delhi.
Sudhindra Bhatt; Financial Management, Second Edition, EXCEL
BOOKS, New Delhi.
Website Sources: www.amararaja.co.in.
Google search.
Madanapalle Institute of Technology and Science,
Madanapalle.Page 1