A STUDY ON INVENTORY MANAGEMENT IN INSTRUMENTATION LTD, PALAKKAD

SUMMER PLACEMENT PROJECT

submitted byRAIJA.K. R.

REG. NO: 1235F0256under the guidance of

Prof. C.VINOTHA ,MBA, M.PHIL;

in partial fulfillment of the requirements for the award of the Degree of

MASTER OF BUSINESS ADMINISTRATIONof the Bharathiar University, Coimbatore

2012 - 2014

GURUVAYURAPPAN INSTITUTE OF MANAGEMENT

(Affiliated to Bharathiar University)

COIMBATORE - 641 105DECLARATION

I RAIJA.K.R,student of Guruvayurappan Institute of management, Coimbatore, hereby declare that the project work titled A STUDY ON INVENTORY MANAGEMENT IN INSTRUMENTATION LTD, PALAKKAD which is submitted to Bharathiar University in partial fulfillment of the requirements for the degree of Master of Business Administration, is a record of original research work done by me under the guidance of, Prof. C.VINOTHA, MBA,M.PHIL of Guruvayurappan Institute of Management, that this is genuine and has not been submitted elsewhere for any other degree or diploma

PLACE: RAIJA.K.RDATE : REG NO:1235F0256ACKNOWLEDGEMENT

First and Foremost I would like to thank the Almighty, origin of all knowledge, for the abundant blessings he has showered upon me.

I would like to express my sincere gratitude to Dr. VERGHESE MATHEW, B.Sc (Engg), MBA, Ph.D, DGM (Germany) FIIE, Director, Guruvayurappan Institute of Management, Coimbatore.

Dr. THOMAS T. THOMAS, B.Sc , MBA , PGDPR&J , Ph.D, Principal, Guruvayurappan Institute Of Management, for their active support and guidance during the course of my studies in the institute.Words cant describe the source of motivation and inspiration that my faculty guide Ms. C. VINOTHA ,M.B.A, M.Phil has rendered. I thank her for the support, advice and encouragement and without her valuable advices and suggestions this report would not have been successful.With great pleasure i express thanks to Mr.C.BALAKRISHNAN, Deputy Manager (P&A),Mr.T.Radhamohan,SeniorOfficer(P&A),Mr.Ramachandran,Manager(F&A),Mr.A.K.Keshavadas,Junior Officer Accounts(F&A) of Instrumentation Limited,Palakkad for their necessary help and guidence in completion of my project work.

I would like to thank my family, friends and well wishers for their encouragement in completing the project work.

I take this opportunity to extend thank to all who has helped me and encouraged me all throughout in bringing the best of this project.

RAIJA.K.R

Reg No: 1235F0256TABLE OF CONTENTS

CHAPTER NODESCRIPTIONPAGE NO

1.0INTRODUCTION7

1.0.1 INTRODUCTION OF THE STUDY8

1.0.2 NEED OF THE STUDY9

1.0.3 SCOPE OF THE STUDY10

1.0.4 OBJECTIVE OF THE STUDY10

1.1INDUSTRY PROFILE11

1.2COMPANY PROFILE14

1.3THEORETICAL FRAME WORK50

2.0REVIEW OF LITERATURE62

3.0RESEARCH METHODOLOGY68

4.0DATA ANALYSIS AND INTERPRETATION71

5.0FINDINGS AND RECOMMENTATION102

6.0CONCLUSION105

BIBLIOGRAPHY106

LIST OF TABLES

TABLE NOTITLEPAGE NO

4.1.1The percentage of current asset to inventory of ILP.76

4.1.2Inventory Turnover ratio77

4.1.3Inventory Holding Period79

4.1.4Ratio Of Material Consumption To Turnover80

4.1.5Inventory To Current Asset Ratio82

4.1.6Inventory To Workingcapital Ratio84

4.1.7Debtors Turnover Ratio85

4.1.8Creditor Turnover Ratio87

4.1.9Input Output Ratio88

4.1.10Workingcapital Turnover Ratio90

4.2.1Trend Anaysis Of Workingcapital91

4.2.2Trend Analysis Of Cash93

4.2.3Trend Analysis of Debtors94

4.3.1Relationship Between Inventory And Current Asset96

4.3.2Relationship Betweeen Rawmaterial And CurrentAsset97

4.3.3Relationship Between Inventory And Raw material99

LIST OF CHARTS

TABLE NOTITLEPAGE NO

1.2.1Organization Chart Of The Purchase Department23

1.2.2Organization Chart Of Stores Department27

1.2.3Organization Chart Of Receipt Store29

1.2.4Organization Chart Of Component Store32

1.2.5Products Of ILP33

1.2.6Organization Chart Of PPC Department42

1.2.7Organization Chart Quality Control Department46

4.1.1Inventory Turnover ratio78

4.1.2Inventory Holding Period79

4.1.3Ratio Of Material Consumption To Turnover81

4.1.4Inventory To Current Asset Ratio83

4.1.5Inventory To Workingcapital Ratio84

4.1.6Debtors Turnover Ratio86

4.1.7Creditor Turnover Ratio87

4.1.8Input Output Ratio89

4.1.9Workingcapital Turnover Ratio90

4.2.1Trend Anaysis Of Workingcapital92

4.2.2Trend Analysis Of Cash93

4.2.3Trend Analysis Of Debtors94

4.4.1FSN analysis103

DEDICATED

TO GOD ALMIGHTY

MY DEAR PARENTS

AND

FRIENDS1.0 .1 INTRODUCTION TO THE STUDYInventory is the business largest asset .It is stock of item used in business. Inventory represent one of most important asset that most businesses posses, because the turnover of the inventory represents one of the primary sources of revenue generation and subsequent earnings for the companys shareholder and owners.Inventory is very vital to every company that is without inventory no company would survive. Inventory is meant for protection and for economy in cost.Keeping inventory of sufficient stock will help to face lead time component, demand and supply fluctuation and any unforeseen circumstance in the procurement of materials. Though to have inventory is must, inventory is such a thing that will pile up and creep into the area of profits to turn them as losses and can put the company in red. It is therefore, necessary to have Control over inventory to save the company from piling up inventories and to avoid losses. Better said than done, is the word that suits inventory Control.

The management of inventory is a key concern of all business. If a company's inventory level is too low, it risks delays in fulfilling it's customers orders. If the inventory is too high, it is tying up dollars that can be better used in other areas. It also risks obsolescence and spoilage. Successful businesses keep their inventory turns high, but also keep their service level at or above the industry standard.

Inventory is a stock of goods required by an organization for its successful operation. Inventory refers to materials procured, stored and used for day to day functioning of the whole organization. Inventory is directly related to production and marketing department, still the finance department has to play a vital role in the management of inventory. The purpose of inventory management is to keep stock in such a way that there is no overstocking or under stocking.

Inventory is one of the most expensive assets of many companies representing

as much as 50% of total invested capital. Inventory Control relates to a set of policies and procedure by which an industry determines which materials it will hold in stock and the quality of each that it will carry in stock.

Inventory is the largest item in the current assets category and must be accurately counted and valued at the end of each accounting period to determine a companys profit or loss. So the management of inventory is important.Inventory management is the process of efficiently overseeing the constant flow of units into and out of an existing inventory.

Inventory management is a very important function that determines the health of the supply chain as well as the impacts the financial health of balancesheet.Every organization constantly strives to maintain optimum inventory to meet its requirements and avoid over or under inventory that can impact the financial figures.

1.0.2 NEED FOR THE STUDY

Inventories perform certain basic functions which are of crucial importance in the firms production and marketing strategies. Effective Control over the utilization of materials has much bearing on profit and here is an attempt to study the management of materials. This study helps the company to detect and evaluate its own strength and weakness and also give recommendation for the better inventory management.

Without inventory management it would be difficult for any company to maintain Control and be able to handle the needs of customers.Inventories are necessary for a firm to operate efficiently and almost all business transactions involve the delivery of a product or services in exchange of currency.

1.0.3 SCOPE OF THE STUDYInventory is the major element in the working capital of any trading and manufacturing concern. The scope of the present study extends to ensure proper inventory management and cost Control. It provides a guideline for the management of the materials of the company and helps to introduce necessary changes as and where required.

The scope of inventory management concerns the fine line between replenishment lead time, carrying cost of inventory, asset management,inventory forecasting,quality management, replenishment, returns and defective goods and demand forecasting.Balancing these competing requirements lead to optimal inventory levels, which is an ongoing process as the business need shift and react to the wider environment

1.0.4 OBJECTIVE OF THE STUDY

PRIMARY OBJECTIVES

To study the tools and technique of inventory management adopted at Instrumentation Limited.

SECONDARY OBJECTIVES

To analyse effectiveness of inventory management.

To study the inventory Control measures in inventory management

Analysis of inventory management by using ratio analysis.

To study the inventory management procedure

1.1 INDUSTRY PROFILE

Instrumentation is defined as the art and science of measurement and Control of process variables within a production or manufacturing area .An instrument is a device that measures a physical quantity such as flow, temperature, level, distance, angle, or pressure. Instruments may be as simple as direct reading thermometers or may be complex multi-variable process analyzers.

Instruments are often part of a Control system in refineries, factories, and vehicles. The Control of processes is one of the main branches of applied instrumentation. Instrumentation can also refer to hand held devices that measure some desired variable. Diverse handheld instrumentation is common in laboratories, but can be found in the household as well. For example, a smoke detector is a common instrument found in most western homes.

A valve is a device that Controls the flow of a fluid. Today valve can Control not only the flow but the rate, the volume, the pressure or the direction of liquids, gases, dry materials, through a pipeline or similar passage way. They can turn on and off, regulate, modulate, or isolate. They can rough in size from a fiction of an inch to as large as 30 feet in diameter and can vary in complexity from a simple brass value available at the local hardware stock to a precision designed ,highly sophisticated coolant system Control Valve, made of an exotic metal alloy in a nuclear reactor

Valves can Control flow of all types from the thinnest gas to highly corrosive, super heated steam, abrasive sherries, toxic gases and radioactive materials. They can handle temperature from cryogenic region to molten and pressure from highly vacuum to thousands of pounds per square inch.

The valve is one of the most basic and indispensable components of our modern technological society. It is essential to virtually all manufacturing process and very energy production and supply system, yet it is one of the oldest products known to man with a history of thousands of years.

Instrumentation can be used to refer to the field in which, instrument technicians and engineers work, or can refer to the available methods of measurement and Control and the instrument, which facilitate them.

For core industries like power , oil, gas ,petro chemical equipment which will help to function and chemical etc. There is a good need for Control and instrumentation equipment which will help to function industries smoothly. A wide range of electronics equipment and instruments are needed for Control and measurement of the flow of gas, oil, valves, pressure, welding valves, etc are used.

It is a very comparative industry where new technological development are concern which will in function requires heavy instruments in Research and Development (R&D) facilitate for the companies engaged in this field face high level of competition. But there is good demand for these producers in the global market in the highly industrialized world.

1.1.1 INSTRUMENTATION INDUSTRY IN INDIA

The Indian instrumentation industry is in for a sea change. From an age where there was development of analytical instrumentation mainly in the Department of Atomic Energy (DAE) and CSIR labs due to sanctions, very few of these technologies were commercialised. But with new and emerging trends which are industry-specific instrumentation like trace analysis instruments, fiber optic-based instruments and life-science instruments developing, there is a need for a technology plan which will foster closer relationship between the industry and academia, felt industry experts.

A technology plan will help to focus on newer technologies in generating IPR; playing the role of funding agencies and providing incentives for commercialisation of indigenously developed technologies. Since instrumentation is multi-disciplinary, there is a vast scope for design-related activities, especially OEM manufacturing.

Further, with the laboratories going in for automation, there is a huge potential for application-specific instruments. The estimated market size for instrumentation industry is about Rs 500-600 crore and Indian companies have a share of about Rs 100 crore and growing at 10-15% annually.

In the analytical instrument segment used for chemical analysis like liquids, solids and gases - the global market is estimated at around $24 billion, growing at around 7-8% and the highest growth has been in the life science sector. Some of the top companies contributing include Applera, Thermo Electron, Agilent Technologies, Perkin Elmer, Qiagen.

India stood among the lowest in usage of instrumentation compared to its GDP (0.17%) in the mid 80s. Due to the above gaps in technology, local instruments are found to be considerably behind in performance, facilities, ease-of-use, ergonomy, appearance and ruggedness. This gap cannot be bridged without greater attention of local research, development, product innovation, and high quality production.

A few of the Indian industrial units are at most putting 2 to 3 personnel to the task of development. Even then, these personnel are ot left to be dedicated to development but are often drawn into other duties. The facilities put aside are marginal and R & D often has to wait for QC and other departments to free-up the facilities for tem. In the face of in pouring of imported technology, the Indian industry has an inhibited outlook and hardly any long-term perspective for its in-house ressers Manufacturers Institutions

1.2 COMPANY PROFILEINSTRUMENTATION LIMITED is a public sector unit which was established in the year 1964 at Kota, Rajasthan as its head quarters. The company was established for the manufacture of wide range of electronic and pneumatic instruments in collaboration with renowned leaders like Toshiba, Japan ; H&B Germany.

The second unit of INSTRUMENTATION LTD was set up in PALAKKAD in 1974 in technical collaboration with the International reputed firm M/S YEMATEKE HONEYWELL COMPANY LTD, JAPAN for the manufacture of industrial Control Valves. The main products manufactured are global type Control Valves, safety relief valves, butterfly valves and allied items. The market served is process industries like refineries, petro chemicals, power plant, fertilizers plant, etc.

The company is a Govt. of India enterprise. It was established to satisfy the increased demand for a high technology instrumentation schemes. The company started with the turnover of about 2crores in 1988-1989. Inspite of stiff competition from about 9 competitors who have entered the field in the recent past, the company could achieve a high growth.

IL, PALAKKAD is the first Control Valve manufacture in India to receive ISO 9001 certification and recertified for upgraded 2000 version in Feb 2004.The company has adopted latest manufacturing technology of Japan. The valves are designed and manufactured in conformation with International pressure vessel codes. The unit has taken up development and manufacture of critical components for special projects for Ministry of Defence as a part of its diversification plan.

To update the technology of design work, computer aided design system has been established. The company has given due importance in R&D right from inspection stage. The R&D center have developed a number of products, some of which have won innovation awards. Main strength of IL, PALAKKAD was steady and rapid absorption of technology leading to faster indigenization. Based on the technology obtained through collaborators, in house developments could take place which in turn added to product range significantly, such developments served to rapidly reduce countries dependence on import.

The performance of the unit is exemplary since its inception. The unit enjoys leadership in Control Valve segment of process instrumentation in India. There is a separate division for repair of Control Valves of any make. This is benefited too much company in avoiding shutting of plant for want of repair. The manufacturing facility and testing of valves is treated as one of the best in the world. The company produces around 10000 valves per year.

The company has branches and regional offices extensively to cater to sales and timely after sales support. The unit conducts regular customer education programmes for the benefit of customers, executives, and supervisory staff at Palakkad. Theoretical and practical knowledge is imparted to the participants to carryout preventive maintenance as well as minor modifications or renovation. Recently Indian Oil Corporation has selected IL training team to impart training to customer at Oman.

The unit has full fledged after sales service department which is adequately stocked with inventory spare parts and is in a position to respond to all sorts of problems with regard to various types of valve within the shortest possible time.The company has been taking active part in curriculum development in the local engineering college and in medical aid and has set up a cancer detection centre at Palakkad. A team of highly qualified, well trained and dedicated employees make the operations of the company profitable and the life of the employees meaningful and colorful. The industrial relations are at its best in the unit.All activities of IL, PALAKKAD from order registration to dispatch have been computerized in a most modern style. 1.2.1 VISION

Manufacture and supply quality products to customer.1.2.2 MISSION High level customer satisfaction through better quality products and timely delivery

Excellence with economy.

Production and greater productivity of company growth and national prosperity.

Team work and mutual trust.

Respect and concern for individuals.

1.2.3 OBJECTIVE

To carry on in india or any other part of the world all kind of business of manufacturing,storing,packaging,distribution,transporting,repairing,maintaing,trading of all kind of Control Valves.

Manufacturing of all kind of low product for dedicated application across wide ranging related to fluid Control & Control Valve.

Testing and calibration of all types of Control Valves and allied products are for simulation of field parameters. Special testing like dynamic response setting, nelium leak testing, radio graphic inspection etc are in hi-tech CBV test laboratory for importing distinct advantages

1.2.4 SWOT Analysis

Strength

Product is of high quality

Morale of employee is very high

Financial level of company is good

R&D is strong

Monopoly in production of Control ValveWeakness

High employee turnover

Lack of cordination among group

No systematic internal checking

Lack of technical upgradation

Lack of departmentalisation

Lack of computer & internal facilitesOpportunity

Wide spread demand for product

Efficiency of workers can be enhanced

Plant capacity can be enhanced

Increased future collaboration with yamatake ltd

Negotitation to extend its export matters

Threat

Competition

Technological changes

1.2.5 LOCATION OF THE FIRM

INSTRUMENTATION LTD, PALAKKAD is located in the National Highway 47 at distance of 40km west of Coimbatore city in Tamilnadu and 8km east of Palakkad city in the state of Kerala.

1.2.6 ISO CERTIFICATIONInstrumentation Limited Palakkad, is the first Control Valve manufacturer in India to receive ISO 9001 certification and recertified for upgraded 2000 version in February 2004.

1.2.7 VARIOUS DEPARTMENTS

The following are the various departments in IL

Commercial department

Engineering department

Design department

Production and Planning department

Material management department

Ancillary department

Production department

Plant maintenance department

Quality Control department

IT department

Finance and accounts department

Personnel and administrative department

Civil department

Security department

1.2.8 MAJOR CLIENTS

Bharat Heavy Electricals Limited (BHEL)

TATA Consulting Engineers

National Thermal Power Corporation

Steel Authority of India Limited (SAIL)

Cochin Refineries

Larson and Tubro

Reliance Industries

State Electricity Boards of All States

Kerala minerals and metals limited

Keltron

GAIL

IOCL

ACC

FEDO

Chemtex engineering

Larson & Tubro

Cochin refineries

1.2.9 TRADE UNIONS

There are two trade unions in the company, they are

INTUC

CITU

1.2.10 FACILITIES1.2.10.1 TECHNICAL EXPERTISE/AFTER SALES SERVICEBeing in the field of Control Valves for the last 30+ years, ILP have got the best manpower trained in the fields of research, design, application engineering, manufacturing, testing, field claim abatement techniques and these personnel invariably get together to suggest optimum design features for solving problems faced during commissioning or normal operation of plants.

We have also a full fledged after- sales service department which is adequately stocked with inventory of spare parts and are in a position to respond to all sorts of problems with regard to various types of valves within shortest possible time.Besides, an extensive network of Branch Offices and Regional offices is available to cater to sales and timely after-sales support.

1.2.10.2 CUSTOMER-EDUCATION PROGRAMME

Regular customer education programmes for the benefit of both Executive and supervisory levels are conducted at Palakkad. In these programmes, theoretical and practical knowledge is imparted to the participants in order to carry out preventive maintenance as well as minor modifications/ renovations that might be required at a later stage.

Recently, Indian Oil Corporation Ltd. has selected our training team to impart training to customers at OMAN.

1.2.10.3 MANUFACTURING FACILITIES

The facilities for manufacture and testing of valves - Control Valves, Butterfly Valves, Rotary Plug Valves, Safety Relief Valves, Pressure Reducing Valves, Bellows Sealed Valves, Electrical Actuators etc. - established at Palakkad plant are one of the best in this part of the world.

ILP is the only company in India to have all in-house facility to manufacture globe type Control Valves ranging from " to 30" size and rating up to ANSI 2750 special class and Butterfly valves up to size 2400 NE.

A team of Engineers and Technicians trained for the past so many years are available to bring out the best quality product. The plant is also equipped with sophisticated CNC lathes, CNC drilling, machining centre and vertical turret lathe with a swing of 4.3 Meter, roller burnishing machine, vertical turret lathes and productivity is of a very high order ensuring quality and reliability.

A Clean room facility is created for manufacturing of Bellows Sealed Valves. We have with us special NC machines which not only ensure very high degree of accuracy but also repeatability and higher productivity. It is a fact that many leading valve manufacturers in the world have started buying castings from India. Instrumentation Ltd,Palakkad can claim for having developed many of the sources for supply of castings for Control Valve requirements.

It enjoys a much better rapport with the suppliers to bring out the best quality aspects to the castings. More so, because the proximity to the supplier is well enjoyed by way of frequent interaction with the foundries right from the stage of pattern making through mould making and pouring and hence, ILP is fully aware of the actual quality levels of the castings procured by them which may not be the case of the people who do not have the facility to keep a close watch of such critical castings.

1.2.10.4 RESEARCH AND DEVELOPMENTR&D Centre is equipped with the state-of-the-art CAD/CAM facilities. This centres' work stations are supplied by Hewlett Packard loaded on which are the SDRC Ideas Software for Design, modelling and FEM analysis along with 'Solid Works' for solid modelling.

This workstation is connected to PCs with AutoCAD 2005 on Windows 2000 network. This workstation is directly connected to a CNC machine supplied by HEYLIGENSTAEDT, Germany, for computer aided manufacturing.Bellows sealed valves developed through in-house R&D were awarded the Import Substitution Award by the Government of India for 1990-91.

1.2.10.5 TESTING

The Quality Assurance and Inspection Standards adopted by INSTRUMENTATION LIMITED conform to the latest international standards and all the products moving out of Palakkad plant bear a stamp of high degree of quality and reliability. Excellent test facilities are available where hydrostatic testing of large size valves can be conducted with ease.

Many of these test facilities include presses, providers apart from variety of fixtures, test flanges designed and manufactured over the years. Some of the special tests conducted by IL/facilities include dynamic response testing, helium leak testing, radiographic inspection, ultrasonic and magnetic particle testing, CV test etc.

1.2.10.6 INFORMATION TECHNOLOGY CENTRE

Complete business application starting from business enquiry, order processing till after sales service are computerised on the latest state of- the- art technology power PC rupees 6000 machine supplied by IBM, whose backbone is the world renowned RDBMS ORACLE 7.33 and D2K as front end.

1.2.10.7 PURCHASE DEPARTMENT

Purchase department is an important function of material management as the moment an order is placed for the purchase of materials. A substantial portion of the companys working capital is committed which effects the cash flow position of the company.

In IL, PALAKKAD, the purchase department plays important role because purchasing has its effect on every vital factor concerning the manufacture, quality, cost, efficiency and prompt delivery of goods to customers. Its function is to procure materials, supplies, services, machines and tools at the most favourable terms consistent with maintaining the desired standard of quality. The head of this department is known as the purchase manager

Chart 1.2.1:Organization chart of the purchase department is as follows

Senior Manager (Material)

Manager (Material)

Engineer (Material)

Objectives Of Purchase Department

To make continuous availability of materials.

To make purchase competitively and wisely at the most economical price.

To purchase proper quality of materials.

To develop good suppliers relationships.

To develop alternate source of supply.

To adopt most advantageous method of purchase to ensure smooth delivery of materials from suppliers.

To serve as an information centre on the materials, knowledge relating to prices, sources of supply, specification, mode of delivery, etc.

Receiving purchase requisition

A purchase requisition is a form used as a formal request to the purchasing department to purchase materials. This form is prepared by the store keeper for regular stock materials and by the departmental head for special materials not stocked at regular items. The requisition is approved by an executive, such as the plant superintendent or work manager, in addition to the one originating the requisition.

The purchase requisition is generally prepared in triplicate. The original copy is sent to the purchase department. The duplicate kept by the storekeeper or the department which initiates the requisition and the triplicate is sent to the authorizing executive.The purchase requisition initiated by the storekeeper for regular items of materials is called regular purchase requisition and the purchase requisition prepared by the departmental head for special materials is known as special or occasional purchase requisition.

Regular purchase requisitions are prepared when the items of materials reach at the ordering levels ie, the level at which the order for replenishment should be placed. This is done with a view to avoid the shortage of materials and make available uninterrupted supply of materials to jobs of department.

Exploring the sources of supply and choosing the suppliers.

A source of supply of materials must be selected after a receipt of the purchase requisition. The purchase department usually maintains for every group of materials a list of the suppliers names and addresses. Quotations may be invited from these suppliers by issuing tenders to them. On receipt of the quotation from the suppliers a comparative statement of various quotations received should be prepared and the desirable suppliers should be selected.

While selecting the suppliers to whom order is to be given for the purchase of materials, the purchase department should keep in mind 1) manufacturing capacities 2) reliability of the suppliers 3) financial condition of the suppliers 4) the management of the supplying firm 5) price quoted 6) quantity for which price quoted is applicable 7) terms of payment 8) terms of delivery and 9) specifications to which the products are manufacture.

Thus, the suppliers from whom materials are purchased should be dependable and capable of supplying materials of uniform quality at right time at reasonable prices. The purchase manager should maintain all the necessary records keeping in mind the most important objectives of the purchase rate at proper time to help smooth running of the production function.Preparation of purchase order

After choosing the supplier, the purchase department prepares a purchase order for the supply of stores. The order is the written authorization to the suppliers to supply the particular materials or material. Purchase order is a document which gives the authority to the receiving departments to receive the materials ordered for and the accounts department to accept the bill from the suppliers for payment.

Three to five copies of purchase order are prepared depending upon the size of the organization.

The original copy is sent to the suppliers

One copy is sent to the receiving department

One is to the person who invited the purchase requisition

One copy is sent to the accounting department

The last copy is retained by the purchase department for future reference

Receiving and inspecting materials

In this organization a separate receipt and inspection department independent of stocking location should be set up to receive and inspect materials. There are various functions performed by receipt and inspection department.

Maintenance of purchase order files.

Receiving, unloading and unpacking the materials delivered by the suppliers under delivery channel. Checking quantity and physical condition of materials received.

Checking quality of materials received.

After checking the quality of materials, the department will submit a report as to the quality and if some materials are rejected the reason there of.

Checking and passing of bills for payment When the invoice is received from the supplier, it is sent to the store accounting section to check both the authenticity and the arithmetic accuracy. The quantity and price mentioned in the invoice are checked with the reference to stock received not and the purchased order respectively. Having thus verified the invoice in all respect, the stores accounting section certifies and passes the invoice for payment.

Various other functions of purchase department of INSTRUMENTATION LTD are;

Co-ordination of sales and production through budgetary Control techniques.

Maintenance of adequate internal Control over the material acquired by means of reliable book and physical inventory.

Fixation of responsibility for the purchase of materials.

Simplifying the paper work.

Selection of personal for purchase of materials.

The purchase department is fully informed about the various sources of supply of materials, stores and plant, etc. This department is also responsible for planning the delivery of materials to ensure uninterrupted suppliers.

In INSTRUMENTATION LTD, PALAKKAD purchase functions are carried out by two divisions.

Foreign purchase department Indigenous purchase department

These departments procure materials from outside suppliers. The foreign department purchase materials from foreign suppliers and indigenous department from domestic suppliers.

1.2.10.8 STORES DEPARTMENT

Stores are the reservoir of materials for uninterrupted production. The stores department plays a very important role in the organization. This helps in minimizing production cost and providing effective service. In this organization the bully and heavy stores should be stored nearest to the department requiring them in order to minimize the labour and transportation charges. In this way, planned location of the stores department will avoid delay in the movement of materials to the department in which there are needed. Efficient store keeping helps us to protect the raw materials from losses due to damage and pilferage and avoid overstocking and understocking ensure effective material Control.

Functions of Stores Department

To receive and store raw material

To store non confirming material and prevent unauthorized use

To store consumables like welding cod, paining, etc.

To receive all components delivered by customers or suppliers.

Chart 1.2.2: ORGANISATION CHART OF STORES DEPARTMENT Senior Manager

Manager (purchase)

Deputy Manager (Store)

Supervisors

Store keeper

Security

TYPES OF STORES

Centralized store

De-centralized store

Centralized store with sub store

Centralized store

In this central store, the materials are received by and issued from one stores department. All materials are kept at one central store. In this better Control can be exercised over stores because all stores are housed in one department. Better layout of stores is possible. Less storage space as stores are kept to a minimum. Less botheration is inventory checks at all the stores located in one place. But in this store there is increases transportation cost because one central store may not be near to every department of the organizations. There is a greater risk in case of fire breakdown in transport may stop production in departments.

De-centralized stores

In this type of stores, independent stores are situated in various departments. Handling of stores is undertaken by the store keeper in each department. The departments requiring stores can drawn from this respective store situated in this department. The disadvantage of centralized stores can be eliminated if there are decentralized stores. Such type of stores set up to meet the requirements of materials of each production because of the heavy expenditure involved.

Central stores with sub stores

In this organization, departments are situated at a distance from the central store, so in order to keep the transportation cost and handling charges to minimum, sub stores should be situated near production departments. For each item of materials, a quantity is determined and this should be kept in stock in sub store at the beginning of any period. At the end of the period the storekeeper of each sub store will requisition from the central store the quantity of the material consumed to bring the stock up to the predetermined quantity.

Besides, the department may be divided into six components and they are;

Receipt store

Component store

Raw material store General/ Holding store

Quarantine store

Tool/production store

Chart 1.2.3 :Organization chart-Receipt store

Head of the department Officer in chargeSupervisor in charge

Supporting staff Supporting staff

receipt group documentation group

1.2.10.9 RECEIPT STORE

The store receives all the materials from the vendors. Documents started from this store.

Functions of Receipt store;

Receive all incoming products delivered by suppliers / customers.

Compare the quantity of materials as vouched by the supplier/ customers and intimate discrepancies, if any to the concerned procurement agency To provide intimation to concerned procurements agency in case of excess supply of items.

Prepare and sent relevant voucher to quality Control for the received products.

Receive vouchers back from quality Control department credit accepted product to Raw material store component store and non accepted product to quarantine store.

The goods can be received in three ways;

Through transport (Arranged by company or supplier)

Courier is by

Door delivery

Collect from the office.

Personality (hand to hand)

The payment is made by COD (cash on delivery) or on credit.

1.2.10.10 COMPONENT STORE

Functions To store fully machined components, sub assemblers and accessories.

To maintain ROL items as per desired items

To periodically check the condition of shelf life items for deterioration and take suitable actions.

To insure timely receipt and issue of materials for production.

To increase training is provided to all employees.

1.2.10.11 RAW MATERIAL STORE

This store is used to store raw materials like bar stock, casting, forging, pipes, etc and semi-finished component used for production.

Functions

To store raw materials like bar stocking, casting, forging, pipes, etc and semi finished components.

To monitor the stock levels as per ROL and raise indents whenever the level reach ROL as requested by PPC.

MCV machined items from sub contractors are credited to the store by MCV ( Mechanized Credit Voucher)

1.2.10.12 GENERAL STORE/ HOLDING STORE

Functions

To store tools, production consumables like welding rods, paints, etc and stationery.

To monitor the stock level as per the ROL and raise indent whenever the levels reach ROL

The materials are issued when MWV (Material Withdrawal Voucher) is given to store which contains the code no description units etc. The inspection of stock is once in six months1.2.10.13 QUARANTINE STOREFunctions To receive non accepted materials from receipt store, bill further ordered

To store non confirming material and prevent any unauthorized use.

1.2.10.14 WASTE MANAGEMENTScraps are dumped in the scrap yard by issuing MRV (Material Return Voucher). It disposes by giving tenders and sale it for a normal value.

Chart 1.2.4:Organization chart of Component store, raw material store and holding store

Senior Manager (Material)

Senior Engineer

Component / Raw material Store Holding Store

Senior Foreman ISO

OA / Progress man SK/SSM SR

Advantages of having store department

Correct knowledge of the location of different items.

Easy accessibility of the items.

Easy measurement and movement of material handling equipments and men.

Reduce spoilage of material at stores.

Ensure proper utilization of available store.

1.2.10.15 PRODUCTION FUNCTION

Chart 1.2.5: PRODUCTS OF INSTRUMENTATION LTD, PALAKKAD

PRODUCT PROFILE

CONTROL VALVE NUCLEAR VALVE SAFETYRELIEF VALVE ALLIEDPRODUCTS GLOBE TYPE VALVES

FLOW NOZZLE

BUTTERFLY VALVES

ORIFICE PLATE

CONTROL VALVES

It is a valve with pneumatic, hydraulic and electric or other externally powered actuators that automatically, fully or partially opens or closes the valves to a position directed by signals transmitted from Controlling instruments. A Control Valve plays a very important part in automatic Control of modern plants which depends on the correct distribution and Control of following liquids or gases.

The Control Valve has got basically two units namely an external actuators and the valve body assembly. The valve shell constitutes still and firm parts. The materials for valve bodies are cost iron, carbon steel, charm moly belnum, nickel steel, stainless steel, etcBUTTERFLY VALVES

Butterfly Valve is a Control Valve that utilizes a rotatable disk or a vane as a valve closure member. It is the most common type of rotary valve used for Control. Its face to face dimension is less so that it can be installed in a lesser space. Butterfly Valve may be of water type (without flange) or flange type. They are designed based on American water works authority (AWWA) standard. Different parts of a valve are disk body, shaft seat, etc.

Types: soft sealed valve with no leakage metal to metal seals with standard leakage.SAFETY AND RELIEF VALVES Safety And Relief Valves are designed to protect systems or vessels from excessive pressure. The relief valves are designed to release excessive pressure in systems containing incompressible fluids where there is no chance of explosion under over pressure. Safety Valves are designed to provide immediate relief of over pressure with any fluid particularly compressible fluids which could cause explosion of work.

Electrical Actuators

Types: Linear and rotary type for ON-OFF and regulating duty

Manual Actuators

Types: Linear and rotary actuators with gearbox and hand wheel

Flow elements

Types: orifice plate, flow nozzle, virtual tubes

Special valves and products

Below seated valves: In collaboration with M/S SEGAULE, S A France pressure rating up to ANSI 2500 16S, Bellows available in materials like SS316L, Hastelloy c, Inconel, Monel, etc

Antis urge valves: (VAZ) special high pressure drop valve for gas service in pressure rating of ANSI 2500 lbs with LO-dh trim and class 4 leakage

Teflon valve: For extreme corrosive conditions

High pressure drop Valve: For liquid application with high pressure drop services from inches to 6 inches size. Rating ANSI 150 to ANSI 2500 lbs. Special anti cavitations cascade trim

Pilot operated Valve: From inches to 6 inches size pressure rating ANSI 2500 lbs leakage class 51.2.10.16 MATERIAL HANDLING

The system concept in material handling.The system approach to handling is distinguished by its disregard of the traditional regard boundaries of function and departments. Thus more detailed investigation and analysis make it easier to diagnosis, conceptualism design and evaluate complex columniation of sophisticated hard work, organizational inter relationships and infrastructure flow. Usually results in an integrated composite of facilities, activities and information flow and encompasses as much of the total problem environment as is feasible and economical.

System procedure

The procedure for analyzing a material handling problem from system point of view is more comprehensive. The general phases and step involved are as follows:

Problem Identification

Identify the problem Determine the scope of the problem

Define the problem

Establish objectives

Problem Investigation

Determine what data to collect

Establish waste plan and schedule

Collect data

Develop weigh and analysis data

System synthesis

Structure alternate system

Select feasible system

System Design

Define proposed system

Develop and design system components

System Implementation

Procedure equipment

Training of personnel

Installation of equipment

Present material handling systems

The material is bought by truck and unloaded by using cranes (in heavy bay) force lift and also by hand, casting are placed in the yard outside the machine shop where each suppliers has been allotted separate area. Heavy casting are moved by force lift, jumpos and trolleys.

Receipt store inspect the supplied materials for length, number and quantity, as may be the case. These items are stored in specific locations. Racks are provided for stored materials are offered to quality Control for inspection. Casting is pre-inspected. Normal shortage period is about ten days. Some of the components are sent for rework.Casting is either given to such contractors done by Ancillatory department or machine in the shop itself. In the shop casting are given rough machining. The handling is done by force lift and crane.

1.2.10.17 CODING OF COMPONENTS

Coding is the name of components using some codes. The objective of coding is to classify components by their feature and to code these features so that components having similar code number possess similar feature.Then the spare part is using an alphabet followed by the drawing number. Then the item number of products is written in the code.

Followed by the material code and the serial process which is denoted in two spares in code.

In the total code will have approximately sixteen entities (both number and alphabet)

B 01 001 E Drawing No 1 660

Where,

B Economic year

01 Component number

001 Serial numberE Spare parts

1 Item number

660 Material code

40 Special process

After operation in fabrication shop the parts require finish machining. This is done on lathe. The transportation is done by Jumbos and Trolley.The actuators is assembled separately for different sixes area using EOT, EOTs and JIB cranes are used for handling the parts.

Some finished components required for assembly are collected by production planning and Control department (PPC) from the component stores and kept bit mashed in separate bins. Finished goods brought for calibration using EOTs.The calibrated products are taken to the painting room. These products are hung from the hook provided on a rail. Rollers are provided for easy handling.

After painting products are kept on floor. At time of dispatch, the products brought to packing area. EOTs are used for all movements and for holding the products while packing.The trucks are brought near the packaging area and the packed products are loaded using EOTs.

1.2.10.18 PRODUCTION PLANNING AND CONTROL DEPARTMENTThe PPC department interacts with various departments to plan the production process and keep tracking the progress for the timely execution of orders.This department receives production request from the commercial department. It immediately prepares the bill of materials and here subsequently material procurement requisition (MPR) is being sent to the concerned procurement agencies. Without the order from the production planning & Control department no production is commenced in the production department.

FUNCTIONS OF PPC

To review contracts ant to plan schedule and monitor production

To co-ordinate special testing and to give work order and drawings to works department

To provide information and current production status to commercial department.

ChART 1.2.6: Organization of PPC department is as follow

ASSISTANT GENERAL MANAGER

SENIOR MANAGER (WORKS AND PPC) MANAGER

DEPUTY MANAGER (PPC)

DEPUTY MANAGER (WORKS)

SENIOR ENGINEER (ASSEMBLY)ENGINEER (ASSEMBLY)

1.2.10.19 PRODUCTION DEPARTMENT

INSTRUMENTATION LIMITED, PALAKKAD is following the traditional method of manufacturing which is process specification of production. In this type the same types of machines are grouped together.

Chart 1.2.6:The Organization chart of Production Department

SENIOR MANAGER MANAGER

DEPUTY MANAGER (PPC)

DEPUTY MANAGER (WORKS)

SERVICE ENGINEER (ASSEMBLY)

ENGINEER (FAB)

SUPERVISOR

WORKERS

PERMANENT WORKERS TEMPORARY WORKERS

In INSTRUMENTATION LIMITED, PALAKKAD 75% of total production is Control Valves and remaining are flow nozzles, butterfly valves, etc, safety valves, etc.

Control Valves are mainly used for regulating the flow fluids through pipes.The main works of production department is to transform drawings, specifications, materials and instructions into saleable is products and to do so with the most efficient use of machines and men available.The production department mainly divided into two sections;

Machine shop

Assembly shop

MACHINE SHOP

Machine shop performs the following functions;

To receive orders from PPC

To study drawings and technology sheet

To get necessary components from raw materials store

To load schedule and monitor processing of jobs on machines

To offer machined components to quality control

Monitor result of inspection

To return scrapped materials to store

To store and issue fitting tools, measuring instrument to sub contractors

To credit accepted components to component store The intimate general stores of the tools and consumables to be maintained in record level

The machine shop consists of about 24 lathes, 4 milling machines, 8 drilling machines, 6 grading machines and CNCs. All the CNCs are located in the right end of the machine shop, which is a separate chain.

The capacity and specification of each machine are different. Vertical turret lathe are used for machinery very big components, which cannot be done in ordinary lathes. Machines have provision for holding more than one tool.

ASSEMBLY SHOP

Functions:

To carry out assembling

To plan schedule and monitor the assembling of pids

To offer components to quality Control

To get the result of various test in final production

To identify finished products in unique manner

To pare, then sent to the assembling sections where they assembled, welded, painted, etc after collaboration the products are inspected by inspection manager.

The objections of inspections are;

To detect and isolate facility material or work and so to prevent waste

To prevent further works being done on pieces already specified

To protect the firms reputation by reducing the number of complaints from customers The test may be chemical or physical simpler and cheaper, complex and costly.Rejected materials are recorded on a routine document which copies are passing to stores department. A further copy being retained by the production department concerned and constituted all authority to draw new suppliers. The products are then packed in wooden container are too heavy, cranes are used for lifting the containers into truck. QUALITY POLICY OF INSTRUMENTATION LIMITED, PALAKKADOur quality policy of INSTRUMENTATION LIMITED, PALAKKAD is to supply quality products as per customers requirement. It enhances customers satisfaction through continual improvement backed by timely after sales service.

A customer is the most important visitor to our premises.

He is not dependent on us. We depend on him.

He is not an interruption to our work. He is the purpose of it.

He is not an outside to our premises. He is a part of it.

We are not doing a favour in servicing him. He is doing as favour in giving us an opportunity to do so.

Companys advice to employees regarding quality

You are an important person of this organization. You are the maker of the quality products.

INSTRUMENTATION LTD, PALAKKAD, quality policy is to give total satisfaction to their customers through design, manufacture and supply of products backed by after sales service and customers education.The total quality system ensures that the products are manufactured completely in accordance with all requirements applicable safely codes, engineering and quality standards and customer satisfaction. This system has been documented as quality policy in quality assurance manual.

Quality objectives

Internal integration through effective communication.

Sharing responsibility through empowering.

Continuous updating of products and manufacturing technology.

Prompt after sales service.

Developing reliable vendors through interaction and education.

Continuous up gradation of employees skills.

Coding of components

Coding is the naming of component using some codes. The objective of coding is to classify components by their features and to code their features so that components having similar code number process similar feature.

In total code will have approximately sixteen entities (both number and alphabets)

B01001E (Drawing number) 166040

B01001EDrawing No 1

660

Where; B- Economic year

Component number

001 serial numberE- Spare parts

1 item number

660-material code

40-special processChart 1.2.7: QUALITY CONTROL DEPARTMENT CHART SENIOR MANAGER (QC)

MANAGER (QC)

ENGINEER (QC)

SUPERVISORWORKERS (QC)

The quality assurance and inspection standards adopted by INTRUMENTATION LTD, PALAKKAD confirm to the latest International standard and all the products moving out of PALAKKAD plant bear a high stamp of degree of quality and reliability.

Excellent facilities are available where hydrastic testing of large size valve can be conducted with care. Many of these testing facilities include pressure provided apart from variety of fixtures, test flange designed and manufactured over the years.

The main function is to ensure that quality products are supplied.Quality Control department function in two areas is;

Inward Quality Control

Assembly Quality ControlInward Quality Control

It carries out of the testing of incoming items.

Assembly Quality Control

It carries out testing to finished products.The test may be chemical, or physical, simple and cheap or complex and costly. Quality department follows the norms based on ISO-9001. This follows the international plant standard like American Standards for Material Engineering (ASME), American Water Works Authority (AWWA). Dush International Standard (DIS).

Quality period slip

It includes;

Engineering Register

Order acknowledgement.

Production request.

Delivery chelan.

Packing slip

Warranty card.

Invoice.

Service report. International Information request.

Inter office Memo.

Product credit voucher.

Customer purchase order file.

Quality assurance certificate.

INSRUMENTATION Limited has achieved a record turnover of Rs 100 crore in 2009-10 according to a statement by general manager of the unit, Sri N.K Srivastava. The company has also recorded a provisional profit of Rs 22 crore.

The unit in Palakkad is being expended to handle bigger and critical valves weighting upto 25 tones.During the 20010-11 fiscal, the unit has manufactured and supplied 2800 mm size butterfly valves for the Vizard Steel Plant and 24 inch Control Valves for Pragathi 660 MW power plant in New Delhi. The turnover and order booking targets for the 2010-11 fiscal is Rs 120 crore and Rs 130 crore respectively.

1.3 THEORETICAL FRAMEWORK1.3.1 INVENTORYA physical resource that a firm holds in stock with the intent of selling it or transforming it into a more valuable state.The dictionary meaning of inventory is stock of goods.In accounting language it may mean stock of finished goods only.In manufacturing concern, it may include raw material, work in process and stores, etc.

International Accounting Standard Committee defines inventory as tangible property held for sale in the ordinary course of business, in the process of production for such sale or to be consumed in the process of production of goods or services for sale .The American Institue Of Certified Public Account(AICPA) defines inventory in the sense of tangible goods,which are held for sale in the process of production and available for ready consumptionTheraw materials,work-in-process goodsandcompletely finished goods that are considered to bethe portion of a business's assets those are ready or will be readyfor sale. Inventory represents one of the mostimportant assets thatmost businesses possess, because the turnover of inventoryrepresentsone of theprimary sources ofrevenuegenerationand subsequent earnings for the company's shareholders/owners.

1.3.2 INVENTORY MANAGEMENTInventory is an asset that is owned by a business that has the express purpose of being sold to a customer. This includes items sold to end customers or distributors. It includes raw materials, work in process, and finished goods. The management of inventory is a key concern of all businesses. If a company's inventory level is too low, it risks delays in fulfilling it's customers orders.

If the inventory is too high, it is tying up dollars that can be better used in other areas. It also risks obsolescence and spoilage. Successful businesses keep their inventory turns high, but also keep their service level at or above the industry standard

Inventory management is a science primarily about specifying the shape and percentage of stocked goods. It is required at different locations within a facility or within many locations of a supply network to precede the regular and planned course of production and stock of materials..

1.3.3 FUNCTIONS OF INVENTORY Inventory is required to meet the anticipated customer demand. Customer generally does purchasing without any pre-information to the seller or producer. Many times, he is undecided about the model, make or quantity of the purchase.

He would like to see the performance of all the available models.

After judging his need and expenditure, he would select one piece. It is almost impossible to know how many pieces of a product would be needed each day. Therefore, inventory serves as a buffer to the anticipated demand.

Inventory guards against stock-out situations. There could be many exogenous factors due to which the arrival of raw material may be delayed. Inventory works as the safety stock for such situations. Inventory ensures smooth flow of production process. Satisfaction of customer is dependent on the timely availability of finished goods and spare-parts. Inventory plays an important role in it.

Inventory management is a high priority area in industry or service sector. This is due to conflicting role of inventory. For example, the salesman wants high level of inventory to keep the promises and quick delivery. On the other hand, warehousing people of the same industry will prefer lower finished goods inventory so that less storage space is needed Ordering costs, the cost associated with individual order such typing, approving, mailing, ect. Can be reduced, to great extent, if the firm places large orders rather than several small orders.

1.3.4 INVENTORY CATEGORIES

The various forms in which inventories exist are;

Raw materials

Raw material are inventory items that are used in the manufacturers conversion process to produce components,subassemblies or finished goods.The purpose of holding raw material is to ensure uninterrupted production in the event off delaying delivery.The amount of raw material to be kept by the firm depends on various factors such as speed with which raw materials are to be ordered and procured and uncertainity in the supply of these raw materials.

Work-in-process

It includes partly finished goods and material held between manufacturing stages.It can also stated that those material which are used in the production process but are not finally converted into final products are work-in-progress. Raw materials are realized from inventory and moved to a work center. Direct labour or machines are used to add value by putting the parts together as subassemblies, assemblies and then into final product.

Finished goodsFinished goodsis the completed part that is ready for the customers to order. It help to reduce the risk associated with stoppage in output on the account of strikes,breakdown,shortage of materials etc. Consumables

Consumables are the products that consumers buy recurrently that is items which get used up or discarded.It contain the items that will eventually be consumed during the normal operation of institution.

Stores and spares

This category includes those product which are accessories to the main products produced for the main purpose of sale.

1.3.5 TYPES OF INVENTORY Movement inventories

Movement inventories also called as transit or pipeline inventory.Pipeline inventory exist because material cannot be transported instantaneously between point of supply and point of demand.

Buffer inventories

Buffer inventory also called as safety inventory.Its purpose is to compensate for unexpected fluctuations in supply and demand as well asunpredictable events such as poor delivery reliability or poor quality of suppliers products.Generally higher the level of buffer inventory , the betterthe firms customer service.

Cycle inventory

It is held for the reason that one or more stages in the processcannot supplyall the items it produce simultaneously.This type of inventory result from the need to produce products in batches and amout of it depends on volume decisions.

Decoupling inventory

Inventory is used to allow work centers or processes to operate relatively independently.When such inventory are held even if a machine breaks down the work would not stop Anticipation inventoryThis type of inventory is accumulated to cope up with expected future demand or interruption in supply.It is a way for manufacturers to maintain consistent operations when the demand for the product is low.1.3.6 NEED TO HOLDING INVENTORIES

Maintaining inventories involves tying up of the companys funds and incurrence of storage and handling cost. If it is expensive to maintain inventories, why do companies hold inventories? There are those general motives for holding inventories;

Transaction motive

According to this s motive, an enterprise maintains inventories to avoid bottlenecks in its production and sales. By maintaining inventories, the business ensures that production is not interrupted for want of raw materials, on the other hand and sales also are not affected on account of non-availability of finished goods, on the other.

Precautionary motive

Inventories are also held with a motive to have a cushion against unpredicted business. There may be sudden and unexpected spurt in demand for finished goods at times. Similarly, there may be unforeseen slump in the supply of raw materials at a time. In both cases, a prudent business world surely likes to have some cushion to guard against the risk for such unpredictable changes.

Speculative motiveAn enterprise may also hold inventories to take the advantage of price fluctuation. Suppose, if the prices of raw materials are to increase rather steeply the enterprise would like to hold more inventories than required at lower prices.

1.3.7OBJECTIVE OF INVENTORY MANAGEMENT

The main objective of inventory management is to maintain inventory at appropriate level so that it is neither excessive nor short of requirement .Thus, management is faced with 2 conflicting objectives.

To keep inventory at sufficiently high level to perform production and sales activities smoothly.

To minimizeinvestment ininventory at minimum level to maximize profitability.

Both in adequate & excessive quantities of inventory are undesirable for business. These mutually conflicting objectives of inventory management can be explained is from ofcostsassociated with inventory and profits accruing from it low quantum of inventory reducescostsand high level of inventory saves business from being outof stock& helps in runningproduction&sales activities smoothly.The objectives of inventory management can be explained in detail as under:-

To ensure that the supply of raw material & finished goods will remain continuous so thatproductionprocess is not halted and demands of customers are duly met.

Minimizing inventory cost such as ordering , handling & carrying costTo keepinvestmentin inventory at optimum level. Proper Control of inventories help management to procure materials in time in order to run the plan efficiently.

To reduce the losses of theft, obsolescence & wastage etc.

To make arrangement for sale of slow moving items.

To minimize inventory orderingcosts.

Promotion of manufacturing efficiency:The manufacturing efficiency of the enterprise increases if the right type of raw material are made available to the production department at the right time.

1.3.8 FACTORS INFLUENCING INVENTORY

The inventory management of an organization has an impact on the whole system.

How much to buy at onetime and when to by this quantity. This two fundamental things on which inventory Control depends. Many factors govern these fundamental things. The prime factors that govern these two fundamental things are;

Requirements

Quality in stock or on stock

Lead time

Obsolesce

1.3.9 INVENTORY CONTROL TECHNIQUESInventory is being maintained as a cushion in supply of materials for continues production without causing stock out situation. This cushion should not be suicidal to any organization. The following scientific techniques and methods are being used in Control of inventory.

Inventory management technique

Standardization

Selective inventory Control

Just in time

Perpetual inventory system

Inventory turnover1.3.10 INVENTORY MANAGEMENT TECHNIQUES Economic Order QuantityEOQ is an important factor in Controlling the inventory.It is a quantity of inventory which can be reasonably be ordered economically in time.It is also known as Standard order quantity.In determining this ordering cost & carryong cost are taken into consideration Ordering cost;

The term ordering cost is used in case of raw-materials and includes the entire cost of acquiring materials. It basically the cost of getting an item of inventory and it includes the cost of placing the order

Carrying costCost incurred for maintaining a given level of inventory is called carrying cost.

Reorder point

The order point is that inventory level at which an order should be placed to replenish the inventory. To determine reorder point Lead time,the time normally taken in replenishing inventory after the order has been placed and Economic order quantity should be known.

Reorder Level= Lead time demand + Safety stock

Safety stock

The demand for material may fluctuate from day to day. The actual delivery time may be different from the normal lead time. If the actual usage increase or the delivery of the inventory is delayed the firm can face problem of stock out, which can be cost, which can be costly. So in order to guard against the stock out the firm may maintain a safety stock. Maximum level

It is not the function of industry to carry stock in excess of what is required for current operations, as otherwise the industry will be takingover the functions of trader.Material Control requires laying down the upper limit of stock abovre which the stocks will not rise , such limit is maximum limit

Maximum stock level = Reorder level + Reorder quantity (Minimum consumption during reorder period * minimum reorder period) Minimum level

This is the level below which stocks should not be fall.Carrying of minimum stock avoids a situation of stocks out resulting in stoppage of production.This stock is buffer stock or safety stock to be used under abnormal conditions or in emergencies and are taken care of fluctuations in the lead time

Minimum stock level=reorder level- (Average consumption rate * Average lead time)

Danger Level Danger level is the level below which actual stock of material should not be allowed to fall under normal situations.If the actual stockof material falls below danger level, there is imminent danger in the stopage of production.

Danger Level = Minimum Consumption* Minimum Reorder Period Average stock level

Average stock level indicates the average stock held by the enterprise during the year.

Average Stock Level = ( Minimum Level +Maximum Level)/21.3.11 STANDARDIZATION

Standardization is very essential to Control the inventory, as by standardization reduction is variety of material is possible. And because of the reduction in variety the advantage is low order cost, low inventory, less storage stock, conservation of material, variety reduction, less paper work, easy follow with suppliers, less number of orders.

The importance of this field has been recognized since the days of F.W Taylor who first drew attention to this fundamental need in any organization. Just as work study is necessary preliminary to work specification, and the basic technique for production Control, quality Control, material handling, estimated cost Control, etc.Standardization preliminary necessity to design a basic technique on build Control and standardization procedure.Perpectual inventory system is a method of recording the store balance after every receipt and issue to facilitate a regular checking and to prevent the closing down for stocktaking.After every recipt or issue the entry is made in the bin card and the balance is adjusted.1.3.12 SELECTIVE INVENTORY CONTROLSelective inventory means variation in the methods of inventory Control from items to item and this differentiation should be on selective basis by classification. A company has to stock thousands of items of raw materials, standard parts, stores and spares, sub contract items, tools, stationary etc. to have better Control over the inventory selective inventory Control technique should used in isolation/or in conjunction.

The selective Control mean selecting the area of Control so that required objective is achieved as early as possible without any lost of time due to taking care of full area-

Minimum lost of energy and efforts.

At minimum cost without loss of time.The following are the selective Control technique;

ABC analysis

FSN analysis

VED analysis

ABC analysis

ABC analysis is a selective Control technique which is required to be applied when we want to Control value of consumption of the items in rupees obviously when we want to Control value of the consumption of the material we must select those materials where consumption is very high.

In any company manufacturing, there are number of items which are consumed or traded it may run into thousands. It is found after number of studies for different companies :

Value of consumption of items (value in Rs)No. of itemsGrade

70% of consumption10% of no. of itemsA

20% of consumption15% of no. of itemsB

10% of consumption75% of no. of itemsC

A items these are those items which are found hardly 5% 10% but their consumption may amount 70% 75% of total money spend on materials.

B items these are those items which are generally 10% 15% of the total items and their consumption amount 10% 15% of total money spend on materials.C items these are large number of items which are cheap and in expensive and hence in significant. They are large in numbers running into hardly 5% 10% of total money spend on material.

FSN analysis

This type of analysis is more concerned from the point of view of movement of the item or issue of the item under this type of analysis.

F items are those items, which are fast moving i.e.in a given period of time, say a month or year they have been issued up till number of items. Although fast moving does not necessarily mean that these items are consumed in large quantities.

S items are those items which are slow moving in the sense that in the given period of time they have been issued in a very limited number of time.

N non moving items are those, which are not at all issued for a considerable period of time.

Thus, stores department whose concerned with the moving of items would like to know and classify that the items are storing in the categories FSN. So that they can manage operate and plan stores activity accordingly.

VED analysis

VED analysis is carried out to Control situation, which are critical. Identify material according to their criticality to the production, which means the material, without which the production will come to stop and so on from this point of view material classified into three categories.

V - Vital categories of the items are those items for the want of which production will come to stop.

E Essential group of items are those items because of non availability of which the stock out cost is very high.

D Desirable group of items are those items because of non availability of which there is no immediate loss of production and stock cost is very less and it may cause minor disruption in the production for a short time. 2.0 REVIEW OF LITERATURE Survey of the available literature relating to his field of study is a must for the researcher so that he can keep himself updated in his field and related areas. Without this it will not be possible for a researcher to make a worthwhile contribution. Review of literature in this study deals with the importance and necessity for inventory management in an organization.

Inventory management can help business to be more profitable by lowering their cost of goods sold and by increasing sales. Inventory management is required at different locations of a supply network to protect the regular and planned course of production against the random disturbance of running out of materials or goods.. Following paragraphs review the available literature:

2.1 Mansi Aggarwal (2006) in his article An Introduction to Inventory Management said that the primary and foremost step in inventory management is acquiring accurate information for inbound operations. The information so gained in advance can be a crucial factor in improving the inbound productivity. Setting up of an advanced inbound strategy and execution framework can be done without too much of re-engineering effort for the supply chain. The perfect way to commence is to make the best use of information available and establish a set of rules and regulations to harness the information efficiently.

2.2 Steven Ronsworth(2005) mentioned in his article Inventory Management Review that, when having inventory , a company does not ever want to have too much of a product, nor does it want to have not enough of that product to meet demand. Inventory management helps to ensure that a proper inventory is maintained at all times. Steven also says that a proper inventory management has many benefits for companies. Inventory management can help make it so that a company has the exact inventory needed. No more , no less. Inventory management is also an effective way to keep track of exactly what products a company has. 2.3 Philip Slater (2007)in his article (Inventory Management One Size Does Not Fit All) says that if there is one great myth in inventory management it is that one single technique will solve all inventory problems. Not that people believe that one technique will solve all problems in all situations but that in any given company one approach is all that is required to manage all inventory. He also pointed out that, there is a wide range of techniques and approaches that people use to manage inventory. these include JIT, ABC and FSN,VED analysis, Risk Management, safety stock and EOQs. sometimes they are used on a standalone basis and sometimes in conjunction with each other. All are worthwhile techniques when used appropriately.

2.4 Charles Atkinson , in his publication Point of sale,Inventory Control,Retail and Money Management (October 25 , 2005) indicates that there are three types of inventory that require management: raw materials, finished goods and work- in- progress. Raw materials can be cut down in a number of different ways, most notably by ordering smaller batches with more frequency from suppliers (JIT). Finished goods inventories can be cut down in multiple ways as well, most notably by either producing only when you actually have an order (JIT) or by achieving more accurate demand projections.

2.5 Experts argue that inventory levels should decline markedly as a result of the implementation of improved inventory management systems such as JIT. A paper by Rajagopalan and Malhotra Have Inventories Declined : An Empirical Study (2001) indicates that while it appears that the general level of inventories has decreased across all industries since the 1960s, it does not appear that the trend accelerated in the 1980s or thereafter, as JITs proponents might suggest.

2.6 A more recent study by Chen,Frank, and Wu , Optimal Control and Equilibrium Behaviour of Production-Inventory System(2003) indicates that, when studying inventories on a firm level instead of on an industry level, there appears to be a significant decrease in inventories since 1980. However , Chen, Frank and Wu focus on the economy as a whole. They do not focus on a particular industry, nor do they focus on distribution, as opposed to production systems.

2.7 Apart from the tools and techniques, Mike Schramm(2009) in his Five Tips To Inventory Management has suggested certain tips to have a successful inventory management. They are.

Sell the junk (even if you think its not junk).

Get a bank alt, and use it for everything

Gear up right.

Organize.

Regular maintenance is better than emergency cleaning.

2.8 Adam. J Fein in his article Building a Lean Supply Chain,(2006) said that there is a widely held, but inaccurate, perception that new technologies have led directly to declines in the inventory-to-sales ratio, an important indicator of buffer inventory in the supply chain . in theory, information technology-based supply chain practices such as just-in-time(JIT) inventory management, warehouse automation, and the introduction of bar codes should have allowed companies to improve their management of orders and stockpiles of materials.

2.9 Bruce D. Caldwell (2009) has mentioned some benefits of ABC Analysis in his article The Benefits of ABC Analysis for Inventory Reduction.Using the ABC concept to analyze Control inventory investment and turns is the simplest and most efficient method. Most inventories are made up of hundreds and possibly thousands of individual items necessary to manufacture a companys products. 2.10 Ashwathappa, Productions and Operations Mnagement(2008) has stated that inventory management involves the development and administration of policies , systems and procedures which will minimize total costs relative to inventory decision and related functions such as customer service requirements, production scheduling, purchasing and traffic.

2.11 Lucey, Quantitative techniques for Management(2002) defined inventory management as the recording and monitoring of stock level, forecasting future demand and deciding when and how to order.

2.12 Juhi Gonzales in his article Inventory Control (1999) says inventory management is making sure that items are available when customers call for it, but not too much stock , so that inventory turnover goals are met.

2.13 Bardia in Accounting And Finance For Managers(1988) opines that for a firm to be successful, the proportion of inventory to current asset should be kept at the minimum. Also a high inventory turnover ratio which indicates faster movement of materials is advantageous to the firms. He also points out that the proportion of finished / semi-finished inventory should be kept at minimum.

2.14 Khadalwal(1985) on his book Inventory Management And Stock Evaluation revealed that the selected units were found to have recorded slower and declining rates of transmutation of working capital. The main reason responsible for this situation is the high share of inventories in current assets which ranged between 40% and 70% with an increasing trend during the period of study.

2.15 Jain in his book The Working Of Stock Exchanges in India (1988) has highlighted various facts of working capital management in the state of Rajasthan. He opined that the cash position of working capital should be improved by reducing inventories and efficient collection of debts.

2.16 Rao(1990) in Equivalence of Inventory Control Models evaluates the management of working capital and degree of efficiency of managing inventories in the manufacturing undertakings of Andhra Pradesh public sector. The analysis of the structure of inventory reveals that there was overstocking with regards to each and every component overstocking with regards to each and every component of inventory in the undertakings selected for study.

2.17 Mohan Reddy in Management of Working Capital(1991) considered inventory formed the major chunk of current assets of the sample private sector enterprises studied. Bigger enterprises in the private sector carried the larger inventories as compared to the smaller ones. Inventory turnover ratios has shown that name of the private sector units carried on inventory unduly in the aggregate..

2.18 Kurian Jose Aerthail in (1999) conducted a study to Analyze the Efficiency of Inventory Management System in KEL , mamala unit. The study revealed that due to improved inventory management, the unit enables proper arrival of goods, reducing lead-time

2.19 Arifa T. Mohammed in his book Stores and Inventory Managememt(2004) conducted study on working capital management, the suggestion made by her was that the unnecessary inventories should be avoided as it may cause loss to the concern.

2.20 Renju Mohan P.T (2008) conducted study on stores inventory management at Carborundum Universal Limited. There should be strict Control over the A class items as well as the vital items. Highly trained inventory managers and high-quality software will help make inventory management a success. The ROI of inventory management will be seen in the forms of increased revenue and profits, positive employee atmosphere , and an overall increase of customer satisfaction.

2.21 M.Z Babai and Y .Dallery IESM, (May 2005), the literature dealing with inventory management policies is very rich and has grown fast during the last year, they classify these policies into 2 approaches according to the type of demand information. In the first approach the policies suppose that there is no advance demand information and the decisions are made in real time using the inventory depletion.

3. 0 RESEARCH METHODOLOGY

INTRODUCTION

Research is a systematized effort to gain new knowledge.Research is an art of scientific investigation. According to Clifford woody, Research comprises, defining and redefining problems, formulation hypothesis of suggestion solution, collecting, organizing and evaluating to determine whether they fit the formulation hypothesis.

A research is the systematic investigation into and study of materials and sources in order to establish facts and reach new conclusion.

3.1 RESEARCH DESIGNThe present project describes the existing inventory system followed at Instrumentation Limited. The research design used as analysis in nature of analytical. A research design is the determination and statement of general research approach or strategy adopted for a particular project.

It is the heart of planning. The research design adopted for the study is analytical in nature.It is the specification of methods and procedures for acquiring the information needed.The research design used in the study is descriptive research.

3.2 DATA COLLECTIONThe source which are used mainly on secondary sources of data which is collected from the audited books of accounts of ILP, Annual reports and financial statements prepared and published by the concern.Journals , books and websites have been referred to have an overview about the company.

3.3 PERIOD OF STUDY

The period of study covered from the year from 1st April 2007 - 31st march 2008 to 1st April 2011-31st march 2012

3.4 TOOLS USED

Financial ratio

Correlation

Trend analysis

Inventory Techniques

3.5 LIMITATIONS OF THE STUDY

The study is limited for a period of five years. Hence result obtained can be applied for the selected period.

The study is mainly done with the secondary data and figures drawn from accounting records, this has some limitations and it affects the study also.

The financial ratios imply only the monitory aspects of the functions of the firm. The ratios cannot be directly regarded as indicator of good or bad performance of management.

Accuracy and correctness of tools like ratio analysis is depends upon the accuracy of published accounts.

The time available for the study was the another constraining factor.

The inventory management of ILP is limited to the extent of information made available through published documents and personnel discussion.4.0 DATA ANALYSIS A