Inv & Ratios & ABC

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CHAPTER 1

INTRODUCTION

1.1 INTRODUCTION OF THE STUDY

This study is mainly to analyze the profitability and the value of

consumption of the item. This project is also to know the movement level of item in

organization.

The Inventory Management system and the Inventory Control Process

provides information to efficiently manage the flow of materials, effectively utilize

people and equipment, coordinate internal activities, and communicate with

customers.

Inventory Management and the activities of Inventory Control do not make

decisions or manage operations; they provide the information to firm who make more

accurate and timely decisions to manage their operations.

The emphases on each area will vary depending on the company and how it

operates, and what requirements are placed on it due to market demands. Each of the

areas above will need to be addressed in some form or another to have a successful

program of Inventory Management and Inventory Control.

Inventory management is one of the areas covered by the whole process of

management. The effective use of all manpower is looked after by the personnel

management. Similarly for the balanced growth and efficient running of enterprise, it is

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necessary that material cost, material supply and materials utilization are so controlled

that they lead to

(i) The maximization of production,

(ii) The reduction in the cost of production and distribution.

(iii) The maximization of the margin of profit

This helps the management in reducing materials cost, preventing a large

number of capital being locked up for a longer period and improving capital turnover

ratio.

Material expenditure in different manufacturing industries may differ. But it does

not minimize the importance of material management. It in fact lies in effective savings

in the materials expenditure. Even a small change in the materials cost can lead to a

substantial saving or avert a heavy loss or push the enterprise towards a heavy loss or

adversely affect the profitability of the concern.

Through this project the management in Titan precision engineering can use

various controls.

1. Visual control enables the manager to examine the inventory visually to

determine if additional inventory is required.

2. Tickler controlenables the manager to physically control a small portion of the

inventory each day on a regular basis.

3. Click sheet controlenables the manager to record the item as it is used on a

sheet of paper.

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4. Stub control (used by retailers) enables the manager to retain a portion of the

price ticket when the item is sold.

By doing so, we can effectively and efficiently manage the inventories to execute

the proper activities of the company.

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1.2INDUSTRYPROFILE

The precursor to starting an engineering company. The company was invited to

develop a fitting demonstration of technology on the occasion of the Centenary

celebration of UNIVERSITY OF MADRAS. He made something which was really

futuristic that made people awestruck. A wireless operated car without a driver. It was a

real full size car, a Morris Minor 1954 model with registration number 4216. In

1957, when the electronics of today was not available, he had to depend totally on

available material. The wireless transmitter was a spark plug, the receiver was a radio

set and the entire actuation systems were built using the mechano set (the build it

yourself toy!) The University of Madras awarded a gold medal for his unique

achievement.

Venky Engineering Works was started for full fledged engineering research and

development work.The first product of the company, the Venky Moped is produced. The

engine, transmission and electronic ignition was indigenously developed. The moped

was powered by a 44cc 2 stroke engine developing around 3.5HP. The moped had a

maximum speed of 60 Kmph. The fuel efficiency of 56 Km/l. The company owes

it's automotive knowledgebase to this project.

The first test rig is made. An engine inlet and exhaust valve spring test rig is made

and delivered.The treadmill was the bread and butter product of the company. It was

used for medical as well asathlete training. Used from Indian Defence to all leading

medical institutions

The heart lung machine made open heart surgeries affordable with this piece of

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Indian technology. This machine acts as the lung and heart of the patient undergoing

open heart surgery.

The fist electronically controlled test rig is made. A friction measuring device called

the scale friction test rig, used to evaluate the frictional properties of automotive brake

and clutch friction materials.

The first micro controller based test rig is made. A friction measuring device called the

scale friction test rig, used to evaluate the frictional properties of automotive brake and

clutch friction materials.

Venky Engineering works is divided among the partners and the testing machine /

system integration division is taken. The first computerized, PC based software

controlled test rig is made. Again a friction testing machine called friction coefficient test

rig. The flagship product of Pyramid Precision Engineering. It has sold over 40

machines in India and worldwide.

The biggest machine made in Pyramid Precision Engineering, the Railway brake

dynamometer is delivered. The machine simulates the inertia of a railway wagon on the

railway brake and performs UIC tests.

Pyramid Precision Engineering is incorporated as Pyramid Preicision Engineering

(India) Pvt. Ltd.Independent IT division created. This division will provide software and

integration services to BtoB and BtoC customers.

Cranfield Unit for Precision Engineering (CUPE) was established in 1968 as a

specialist activity to undertake precision machine tool design and development. A mixed

business platform was created including both research and commercial work, bridging

the gap between the academic world and industry.

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Professor Pat McKeown, OBE with senior colleagues identified The Eleven

Principles and Techniques for the Design of High Precision Machines under which

many world leading ultra precision machines and systems are still being produced

today.

In 1987 Cranfield Precision Engineering Ltd (CPE) was formed out of CUPE to

continue the design, development and manufacture of high precision machines and

systems and to exploit the technology on a wider commercial basis.

The manufacture of automotive camshafts was revolutionized by this machine, the

world's first high production rate CNC profile grinder, now manufactured in series

production and sold world-wide by Landis-Lund a Division of UNOVA UK Ltd. Employing

the CUPE Electronic Gear-box principle under high speed computer control.

THE TITAN INDUSTRY

Early 1987, when Indian consumers rated Titan ahead of all other brands as the Most

Admired Brand in India across all product categories (the first ever such survey done by

Brand Equity), it did not surprise people that a 13 year-old had managed to upstage

many older and more well-known brands: it was expected of Titan to achieve such

things, it was so natural.

It was also a fitting tribute to a brand, which had not only revolutionized the Indian

Precision industry, but also brought in world-class benchmarks in product design, quality

and retailing into India.

The industry was dominated by the public sector which had brought in watch

manufacturing into India, enjoyed tremendous goodwill in the market, but had not really

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invested in evolving itself and its consumers: styling still remained basic, choice was

limited.

The watch shops were narrow, dingy and typically located in the older, traditional

markets of the city. You went there only to buy a watch, never to browse, never to

simply check out. Visual merchandising was very much at the stage of "decoration" if

any, and neither the brands nor the retailers saw it as important. The companies

themselves did not have much contact with retailers, preferring to sell through

wholesalers, doing well that way. There was hardly any need for consumer contact or

research. It was a sellers' market.

All this affected the consumers. Watches remained a time-keeping device, so one watch

was enough, thank you. Since the quality of the watch was quite good, it lasted quite a

while, and the consumers did not change it for 10, 15, 20 years. And when they did

change it, they did not pay a high price for the new piece because, what the hell, they

were buying another time-keeping device.

Xerxes Desai's vision was to dramatically alter this perception of consumers, and make

Titan a fashion accessory. He knew that that was the only way that this new brand

would explode the market and wrest control from the dominant HMT. So he and his

team went about breaking all the rules in the category:

Mechanical technology was the norm - Quartz had not really taken off in India. Titan

would go against that and build its line based on quartz. Accuracy would become a

selling-plank.

Styling was basic - This was a constraint imposed by the technology as well the outlook

of the manufacturers. Titan decided to make style a table-stake.

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Choice was limited - You had 200 models to pick from, that was it. Titan decided to

inundate consumers with a wide choice in style, functions and price. The initial range

was 350 models.

Shops were dark, dingy and uninteresting - There was no importance given to

presentation, and therefore no attempt made at it. Titan brought in the concept of

retailing into the watch market, established a network of fine showrooms which would

later become the world's largest network of exclusive watch stores. These stores not

only helped Titan to gain leadership substantially, but also irrevocably altered the retail

landscape of the watch market through a demonstration effect on the traditional dealers.

Advertising was expenditure - Titan saw this as a vital investment. Right from Day 1,

Titan invested significantly in advertising and in that process created a set of memorable

and effective properties over the years.

So Titan, backed by world-class quality created at a world-class plant located just off

Bangalore, backed by the Tata name, was launched into the Indian market on the back

of these new rules. It created waves right in the early days, mesmerised consumers,

demolished competition and rode into the sunset with panache.

Today, in early 21st century India, it is taken for granted that a watch is a fashion

accessory. Titan dominates the market, with a 60% share of the organised sector

market (the total market, including the unorganised sector, is estimated at around 42

million units). Titan's quality record is impressive, its sales and service network is wide

and deep, and its network of exclusive showrooms, The World of Titan, is one of the

most prestigious and visible retail brands in the country, offering world-class levels of

shopping comfort and customer service.

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What is truly amazing about Titan is the sheer scale of its offering and the consequent

choice it offers to multiple segments across taste, age and economic background. Titan

saw this approach as the foundation of its leadership strategy in the early days. Even

the early range had distinct offerings for different requirements: formal watches (gold

plated cases with fine leather straps) for the executive, dress watches (gold plated

cases with ornamental gold plated bracelets) for those with a preference for jewellery,

rugged watches (all steel watches with a skew to functionality) for those whose usage

demanded a certain durability.

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1.3 COMPANY PROFILE

TITAN PROFILE

Back in the early eighties, the Tata Group had identified the watch category as a

potential consumer market for the Tatas to enter. Xerxes Desai, a Tata veteran and the

then MD of Tata Press, was chosen to lead that venture. In those days of pre-

liberalization the watch market, like most consumer markets in India, was way behind

the rest of the world. The technology in vogue was the reliable, but outdated

"Mechanical" technology, which used the unwinding of a mechanical spring to tell time.

Not only was the accuracy of time-keeping not good enough, but the bulky mechanical

movement did not permit the creation of sleek products.

The industry was dominated by the public sector which had brought in watch

manufacturing into India, enjoyed tremendous goodwill in the market, but had not really

invested in evolving itself and its consumers: styling still remained basic, choice was

limited.

The watch shops were narrow, dingy and typically located in the older,

traditional markets of the city. You went there only to buy a watch, never to browse,

never to simply check out. Visual merchandising was very much at the stage of

"decoration" if any, and neither the brands nor the retailers saw it as important. The

companies themselves did not have much contact with retailers

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TITAN PRECISION ENGINEERING PROFILE

The Precision Engineering Division, based on skills and capacities in high

precision, metal and plastic engineering,focuses on exploring businesses in the area of

components for the aerospace industry and dashboard clocks for the automobile

industry. In addition, there is also a team that is involved in machine building and

automation. The Division has successfully executed a robotized automation project for a

major automobile manufacturer, while dashboard clocks continue to be supplied to an

auto major in Europe.The Companys Research and Development has made significant

studies aimed at establishing leadership through cutting-edge technology. Products

based on this are slated for launch during 2004-05.

The Precision Engineering Division (PED), which is the Companys only

B2B enterprise, witnessed good growth during the year.PED manufactures and markets

precision engineered components and sub-assemblies, utilizing highly specialized

skillsinherent in the watch manufacturing arena.The business has successfully acquired

long-term contracts and agreements with reputed global customers in the areas

ofaerospace, automotive and hi-tech sectors such as oil exploration and production.

Specific capabilities required for thesesectors have been added, and the quality systems

put in place have earned accolades from current and potential customers.The Division

has achieved certification for stringent quality management such as AS 9100B for

aerospace segment, TS 16949 for automotive segment, ISO 14000 for environmental

management, etc. The division has also achieved the highest possible

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supplier recognition from Ford the coveted Ford Q1 status.The machine building and

automation business, which is a part of PED, has achieved excellent recognition by

creatinginnovative solutions based on several platforms such as non-contact type online

vibration measurement systems; visionbased high-speed inspection solutions, etc. Our

product range has now moved up the value chain from being suppliers ofstand-alone

equipments to being a provider of end-to-end technology solutions.

The only B2B enterprise of the Company, the Precision Engineering

Division (PED), continued to witness growth this year, serving global automotive,

aerospace, healthcare, telecom and engineering industries with precision engineered

components and subassemblies as well as by providing end-to-end technology solutions

for automation and special purpose stand-alone machines.PED sustained its

momentum on the growth path with a revenue of Rs. 56 crores, having a growth of 46%.

The aerospace unit, during the year, focused on product mix rationalisation to

improve the value addition and also set a program to move up the value chain from

making mere components to critical sub-assembly parts. The Division has become a

member of choice for the Tata Consortium formed to provide integrated solutions for

international customers as well as Defence and offset program.

The Division has sustained stringent quality management system requirements

AS 9100 B for the Aerospace segment with a score of 98%, one of the highest in the

industry circle.

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CHAPTER 2

OVERVIEW OF THE PROJECT

2.1 NEED FOR THE STUDY

The importance of inventory control management cannot be over-emphasized in

this complex industrial world.

It affects not only a particular industry but the entire economic activity of a whole

nation.

Reduction in the materials cost of about 5% is always possible through an efficient

management of materials. It saves 5% of the total cost of the final product.

The materials form the largest single expenditure item in the most of the

manufacturing organization form the inventories usually represent 60%-70% of the total

cost of the final product.

Every organization has its success in the aspects of financial outcomes. The

entire production activity is being carried out with the help of the inventory. It is

essential to estimates the details of stocks and spares in the forthcoming periods of

the organization in its production activity. It is very essential to control the

inventory every year in very organization in order to realize the actual profit or

loss.Hence the inventory system of Titan Industrial limited, a unit of Precision

Engineering considered by the researcher to the inventory control system and its

practice in the organization.

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2.2 OBJECTIVES OF THE STUDY

1. To study the inventory management system in the stores department at Titan

precision engineering, Hosur.

2. To find out the profitability position of the company by calculating ratios.

3. To find out the value of the consumption of the each item by using ABC analysis.

4. To analysis the movement of the item by using FSN analysis.

5. To examine the over consumption of the item in the department.

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2.3 SCOPE OF STUDY

The study is focused only on materials management in Titan precision

Engineering. This study seeks to explain a practical approach to evaluate the

effectiveness of inventory management work flow mechanism and to know the

correlation between the receipts and issues of items, the purpose and usage of these

items in the functioning of the firm.

This study helps to control the demand and supply in future. Through this the

company can manage the important items in excess amount and it will be result in

demand control. It helps in increasing in cash flow by keeping a track of sales over

the year.

In future the company can manage and control the inventory items to make high

profits. The main aim of the study is to control the inventory management system of the

firm by implementing the control methods of inventory and the suggestions that are

given for the moderate level of inventory turnover ratio will maximize the profit in future.

This helps the management in reducing materials cost, preventing a large

number of capital being locked up for a longer period and improving capital turnover

ratio.

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2.4 LIMITATIONS OF THE STUDY

Every project has its own limitations and some of those encountered

during this study are listed below.

1. The study is limited to the stores at Titan precision Engineering, Hosur.

2. This study is limited to the consumption pattern of the various user

departments.

3. The data collected for computation has been in quantitative terms rather than

qualitative as it involves cost aspect.

4. The data is depends on secondary data, and it limited from 2004-2008.

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2.5 RESEARCH METHODOLOGY

INTRODUCTION

Research means a Search for Knowledge. According to Clifford Woody research

comprises, defining and redefining problems, formulating Research hypothesis or

suggested solution; collecting, organizing and evaluating data; making deductions and

reaching conclusions; and at last carefully testing the conclusion to determine whether

or suit the formulated hypothesis Research is analytical .

RESEARCH DESIGN

This study is basically analytical in nature. As the study aims at narration of

existing facts and figures regarding financial position of the company, the research

design adopted in this study has been analytical in nature.

DATA DESIGN

For the purpose of the study the data has collected is purely secondary in

nature,the information collected from journals, abstract of inventory reports trial

balances and balance sheet of the company manuals, websites etc.,

TOOLS FOR ANALYSING DATA

1. Ratio analysis

2. ABC analysis

3. XYZ analysis

4. FSN analysis

5. EOQ analysis

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1.RATIO ANALYSIS

Ratio analysis is widely used tool of financial analysis. Ratios are relationships

expressed in mathematical terms between figures which are connected with each in

some manner.

It is defined as the systematic use of ratios to interpret the financial statements

so that the strengths and weaknesses of a firm as well as its historical performance and

current financial condition can be determined. This relationship can be expressed as

percentages, fractions and proportion of numbers.

Classification of ratios

The use of ratio analysis is not confined to financial managers only. There are

different parties interested in the ratio analysis for knowing the financial position of a firm

for different purposes. In view of different users of ratios, there are many types of ratios

which can be calculated from the information given in the financial statements. For the

particular purpose, the user determines the particular ratios that might be used for

financial analysis.

Ratios can be classified into four broad groups:

Liquidity Ratios

Leverage Ratios

Profitability Ratios

Activity Ratios

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Liquidity (or) Working Capital Ratios

Current Ratio

Liquid Ratio

Absolute Liquidity Ratio

Net Working Capital Ratio

Leverage Ratios

Debt-Equity Ratio

Proprietary Ratio

Solvency Ratio

Interest Coverage Ratio

Profitability Ratios

Gross Profit Ratio

Net Profit Ratio

Operating Profit Ratio

Return On Total Assets

Return On Equity

Return on Investment

Activity Ratios

Inventory Turnover Ratio

Debtors Turnover Ratio

Net Assets Turnover Ratio

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Working Capital Turnover Ratio

2. 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 item 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.

A-items-someone at senior level must be made responsible to regularly

review the consumption of overseas items up to date and accurate records should be

maintain for this items. The inventory of this item must be minimum and the orders

for these items should be staggered. So that timely arrival of these items is insured

attempt must be made to reduce internal and external lead-time of this items. Safety

stocks of these items should be minimum because frequency of ordering this items

are kept high, price discount for this items should not be avail because physical

ordering is very frequent.

B-item-this items should be kept under normal control and goods report

keeping must be maintain. Safety stock of these items can be moderate. Price

discount can be avail and physical stocktaking can also be moderate.

C-items-little control is required for c-items and the job of controlling should be

left lower level people such as those in charge of store. Large quantity or inventories

can be maintain these stock because they are cheap, so as to avoid stock out situation

these items should not kept under lock and key and must be kept at convenient places

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open to all for uses safety. Stock of these items can be sufficient to avoid probability.

Price discount can be avail to purchase in bulk .

3. XYZ ANALYSIS

It confined only to the stock value of the materials in the company.

X stands for item which have high stock value

Y stands for medium stock value

Z stands for low stock value

Since stock value is more concerned of purchase department mostly purchase

department people analyses the material according to XYZ analysis.

XYZ analysis must be carried out from any one of the following objectives or some of

the objective as the case may be.

When the objective is to keep control over consumption at the department

level then authorization to draw materials from the stores will be given to high

level X item, low level for Z items and medium level for Y item.

When it is desired to decide frequency of stock taking then very frequently X

category, very rarely Z category and averagely Y category.

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When it is desired to arrange security arrangements for the items, then X

item under lock and key, Z items keep open on the shop floor and under

supervision for Y items.

4.FSN ANALYSIS

This classification takes into account the pattern of issues from stores. The three

letters stands for Fast moving, Slow moving and Non- moving. It is made on the

basis of how the material has moved during the earlier periods. The materials might

have been bought in large quantities a few years ago and would have become obsolete

over time. These materials have some salvage value

The non moving items can be listed and the list be sent to different

departments which might be interested in these materials to ascertain whether they

still desire storing of these materials in the stores. The items which have become

obsolete can be sold for whatever salvages value they obtain.

5.EOQ ANALYSIS

This is an important item of inventory control to be decided. EOQ depends on many

factors like cost of purchasing and receiving, normal consumption, interest on capital,

availability of storage accommodation, ordering and carrying costs. EOQ is the reorder

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quantity, which is the quantity to be purchased each time an order is placed. It aims at

minimizing both carrying cost and cost of ordering.

Let us consider the purchase of the material required for one year. If they

purchase and stock the entire quantity at a time, the inventory carrying cost will be high.

To avoid high inventory cost, they can purchase material in small quantities.

But in this case they have to place a number of purchase orders. This will

increase the ordering cost. So they have to find out an ordering quantity so that the total

inventory cost (inventory carrying cost + ordering cost) is minimum. This quantity is

known as Economic Order Quantity.

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Ordering Costs:

Ordering costs, usually, refers to the costs of requisitioning, preparation of

purchase order and placing order.

Here, the ordering cost also includes the costs of insurance incurred while the

goods are in transit. These costs are calculated on the basis of the past data and an

approximate figure is arrived.

In BHEL, Ranipet the Purchase Department, Material Planning Department etc.

effect these costs.

Carrying Costs:

In BHEL, Ranipet the carrying costs of materials includes the storage costs

alone. The insurance costs are not included in these because no insurance is being

paid on materials.

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2.6. INVENTORY MANAGEMENT INTROUDCTION

Inventories of materials are needed byall manufacturing organizations big or

small. But inventories tend to become big without proper control. Materials and

inventories serve some social purpose in industries which stems from some economic

motives.

Broadly they may be classified under three groups, viz. speculation,

transaction and precaution. Typically speculative motive which affords ample scope for

holding large amount of inventories is not important for purpose of industrial activity.

The other two motives are more important here. The transaction motive results

from the desire to match inflow and outflow of materials under certain controlled

conditions. Precautionary motive arises out of the inability to predict future demands

precisely and getting the materials ready in time, without incurring some extra costs.

Thus, there also arises the need to maintain some safety or buffer stock in

order to maintain the smooth flow of materials without impairing production. But, as

more and more stocks of materials are held, this not only entails greater investment, but

carrying and other associated costs increase pari passu.

On the other hand, if minimum inventory is held, with the increase in frequency

of buying the cost of ordering and processing increase. Also, the cost of stock-out poses

economic problem. Thus, inventory control is major MM function, which requires the

reduction in materials costs without impairing operational efficiency and, therefore,

needs careful attention.

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The analytical approach to inventory control is fundamentally based on cost-

study. It is balancing of some opposite costs which is well enunciated in EOQ

formulation, but further refinements are necessary as the situation dictates. Sometimes,

there are several costs associated with inventory, but there is always one in one

direction.

The resolution of the problem generally requires two basic questions to be

answered.

1) how often to order.

2) how much and when.

Determining these two basic questions answers precisely requires cost information,

and the solution lies in balancing opposite costs in order to find an optimal solution.

Not, all inventory problems however, demand that these questions be answered.

Sometimes, the inventory problem is so complex that it may not be possible to obtain all

the information necessary. In either case, we may be satisfied with a sub-optimal

solution which seeks to improve the existing condition without concern for the optimal

course of action.

In practice, we might affect large savings without necessarily going through an

optimal course of action. Thus, while inventory control is a major part of materials

activity, reducing inventory does not always ensure operational efficiency. This is where

we must strike balance.

There is necessarily a basic conflict between economic and business

objectives of any industrial undertaking, which are

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1. Larger sales turnover through better customer service

2. Lowering of production costs through smoother production-runs, and

3. Lowering of investment through a reduction in need for inventories

Inventory control ensures that a working balance must be struck between them so

as to obtain the maximum overall costs and efficiency.

EVALUATION OF INVENTORY

The evaluation of materials management can either be done by external

agencies or internally. Within the organization itself, the top management, usually at the

end of the financial year and periodically during the year, evaluated the performance on

the basis of inventory holding and obsolete items.

The user departments evaluate the materials function in terms of the number

and the duration of the stock-out. In a few Indian organizations, committees frequently

review the performance of materials management against the objectives set for the

department.

It is known that suppliers who are evaluated by the materials management

department, in turn, evaluate the materials manager with regard to quality

consciousness, adherence to payment schedule and his importance as well as decision-

making capabilities in the hierarchy.

The order external agencies interested in the performance of a materials

manager are: banks with regard to the credit- worthiness, and professional associations

and national association of materials management with respect to the ethical practices.

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Occasionally, external consultants evaluate the materials management systems to

suggest improvements.

Materials are any commodities used directly or indirectly in production a product

or service such as raw materials, component parts, assemblies and supplies. In the

manufacturing organizations, the important inputs are referred to as 5 Ms. Viz., Men

(Labour), Machines, Money, Materials and Methods. The relative importance among

these five Ms has shifted from time to time. In the beginning of industrialization the focus

was on machines, men (labour) and methods, but in recent years (from 1970 onwards)

the emphasis is on materials. Material is an important and inevitable input of a

production system since the cost of materials and cost on materials (cost incurred in

purchasing and storing the materials) put together account for 50 to 85%of the

production cost depending on the nature of the product and the type of the production

system.

MEANING OF INVENTORY:

Inventories are stock of materials of any kind stored for future use, mainly in the

production process. Thus, todays inventory is tomorrows production. However, semi-

finished goods awaiting use in the next process or finished goods awaiting release for

sale are also included in the broad category of inventories, which are nothing but idle

resources. Therefore, inventories are materials or resources of any kind having some

economic value, either awaiting conversion or use in future.

Apart from these, there are also many indirect materials, such as, maintenance

materials, fuels and lubricants, etc. Which are used in a manufacturing organization.

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They are also classified as inventories of materials for future use. But they differ only in

their use and classification from raw and other direct materials. All of them earn nothing,

yet they are badly required to be stocked and to be used as and when the needs arise.

Definition:

Inventory management is the management of the flow of materials into an

organization to the point where, those materials are converted into the firms end

product(s). (Bailey and Farmer)

Inventory management is the function responsible for the coordination of

planning, sourcing, purchasing, moving, storing and controlling materials in an

optimum manner so as to provide a pre-determined service to the customer s a

minimum cost (P.Gopalakrishnan and M.Sundaresan).

Phases in Inventory Management: There are four principal phases of the

management function.

Phase 1. Planning: The basic planning elements are plans for capacity or

production levels and required inventory levels. Integral to these plans is the sales

forecast for the products. The detailed time sequenced plan called the schedule meets

the sales forecast and inventory requirements.

Phase 2. Material Utilization: This is concerned with the efficiency of the flow of

materials through the plant as finished goods.

Phase 3. Physical: This involves the physical storing, receiving, and issuing of

materials and physical checking of inventory of raw materials work-in-process and

finished goods and record keeping.

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Phase 4. Control or Follow up: This includes the information feed back and

corrective action generated by the information monitoring the production rates, plant

loads; dispatching, expediting and resultant follow up.

TYPES OF INVENTORY:

There are many types of inventory, such as raw materials and production

inventories, components and service parts, as well as work-in-process and finished

goods inventories. All of them do not necessarily require the same treatment and,

therefore, policy with regard to each may also differ, according to their types and need in

different types of industries. They may also may be functionally classified as

Movement inventories

Lot-size inventories

Anticipation inventories

Fluctuation inventories

However, in general, their treatment follows from their needs and cost-benefit analysis.

Thus broadly, inventories may be classified as under:

RAW MATERIALS AND PRODUCTION INVENTORIES:

These are raw materials and other supplies, parts and components which enter

into the product during the production process and generally from part of the product

IN-PROCESS INVENTORY:

These are semi-finished, work-in-progress and partly finished products formed at

various stages of production.

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MRO INVENTORIES:

Maintenance, repairs and operating supplies which are consumed during the

production process and generally do not form part of the product itself are referred to as

MRO inventories.

FINISHED GOODS INVENTORY:

These are complex finished products ready for sale.

Inventories may also be classified on the basis of their functions as under:

MOVEMENT OR TRANSIT INVENTORIES:

It arises because of the time necessary to move stocks from one place to

another. The average amount can be determined mathematically thus:

I = S * T

Where, S represents the average rate of sales and T, the transit time required to move

from one stage to another in a week, and I the movement inventory needed. As for

example, if it takes three weeks to move materials to a warehouse from the plant, and if

the warehouse sells 110 per week, then the average inventory is 110 units *3 weeks

time = 330. In fact, when a unit of finished stock is manufactured and ready for sale, it

must remain idle for three weeks for movement to the warehouse. Therefore, the plant

stock on an average must be equal to three weeks sales in movement.

LOTSIZE INVENTORIES:

In order to keep costs of buying, receiving, inspection, transport, and handling

low, larger quantities are brought than are necessary for immediate need. It is a

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common practice to buy some raw materials in large quantities in order to avail of

quantity discounts.

FLUCTUATION INVENTORIES:

In order to cushion against unpredictable fluctuations in demand these are

maintained. But they are not absolutely essential in the sense that such stocks are

always uneconomical. Rather than taking what they can get, the general practice of

serving the customer well is the reason for holding such inventories.

ANTICIPATION INVENTORIES:

Such inventories are carried to meet predictable changes in demand. In case of

seasonal variations in the availability of some raw materials, it is convenient and also

economical to build up stocks where consumption patterns may be reasonably uniform

and predictable.

Of the types of inventories, discussed above, the lot-size, fluctuation and

anticipation inventories may be said to be organization inventories. As more and more

of these basic types of inventories are carried into stock, less coordination and planning

required. Also less clerical, administrative and other efforts are needed and greater

economies can be obtained in handling, manufacturing and dispatching. But, the

difficulty is that gains are not directly proportional to the size of the inventories

maintained. As the size increases, even if they are efficiently maintained and properly

located, gains from additional stocks become less and less prominent. The cost of

warehousing, obsolescence and capital costs associated with maintaining large

quantities grow at an even faster rate than the inventories themselves. As such, the

basic problem is to strike a balance between the increase in costs and the decline in

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return from holding additional inventories. Striking a balance in a complex business

situation is not easy, simply through intuition alone. Costs, and to be sure, the balancing

of opposite costs, lie at the heart of all inventory control problems, for which cost-

analyses are necessary.

As has already been said, even a typically medium-sized industrial organization

uses 10,000 to 50000 of different items which are carried in inventory. Initial planning

and subsequent control of such inventories can only be accomplished on the basis of

knowledge about them. Consequently, the starting point in inventory management and

control is the development of a stores catalogue, which is more or less comprehensive

and complete in all respects. All inventory items should be carefully described and a

code number should be allotted.

Functions of Inventory Management:

Inventory management functions accomplish the main objective of making

available materials and services ofright quality in the right quantity at the right time

from the right source at the right price.

The major functions of inventory management are:

(i) Material planning and budgeting,

(ii) Procurement of materials,

(iii) Storage of materials,

(iv) Issue of materials,

(v) Inventory control,

(vi) Vendor development,

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(viii) Vendor evaluation and vendor rating,

(viii) Material accounting,

(ix) Materials handling and transportations,

(x)Disposal of scrap,

(xi) Traffic management,

(xii) Logistics management,

(xiii) Purchase analysis and research,

(xiv) Supply chain management.

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CHAPTER: 3

DATA ANALYSIS AND INTERPRETATION

3.1 RATIO ANALYSIS

INVENTORY TO CURRENT ASSET RATIO:

This ratio shows how many times in one accounting

period the company turnover its inventory. It is valuable for spotting under-stockings,

overstocking and obsolescence. Faster turnover of inventory shows positive trend

and a negative trend is when inventory is obsolete. Inventory turnover shows

increase in cash flow by keeping a track of sales over the year. Inventory turnover

reduces warehousing and other related costs.

Average inventory

Inventory to current asset ratio =

Current Asset

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I

TABLE NO.1: INVENTORY TO CURRENT ASSET RATIOS

(Rs in million)

INTERPRETATION

From the above mentioned table it is clear that the ratio of the inventory in

the current asset is goes on increasing. The percentage of inventory in the current asset

is increased from 57.28 in the 2004 to 81.125 in the current year. And there is nearly

40% Increase in the inventory.

year inventory asset ratio percentage

2004 121.3 211.75 0.57 57.28

2005 282.76 464.9 0.61 60.82

2006 334.71 435.34 0.77 76.88

2007 245.64 402.23 0.61 61.06

2008 349.91 431.32 0.81 81.123

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percentag

57.28 60.82

76.88

61.06

81.123

0

20

40

60

80

100

2004 2005 2006 2007 2008

YEAR

PERCENTAGE

CHART NO.1: INVENTORY TO CURRENT ASSET RATIO

INVENTORY TURNOVER RATIO

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This ratio indicates as to how fast the inventory is consumed and can be

highly useful when compared to the past so we are measuring how many times we

turned our inventory over during the year. Generally, a higher inventory turnover ratio is

considered a positive indicator of operating efficiency, since inventory that remains in

place produces no revenue and increases the cost associated with maintaining those

inventories because a higher ratio is generally considered good from the point of view of

liquidity. If inventory is turning too slowly, it could indicate that it may be hampering your

cash flow.

cost of goods sold

ITR =

Average inventory

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TABLE NO.2: INVENTORY TURNOVER RATIO

(Rs in million)

INTERPRETATION

The inventory turnover ratio trend over a period of five year was analyzed

and it was found that the inventory turnover ratio has fluctuated every year and has

decreased in the following year from 2007 to 2008. This shows that an idle turnover ratio

was maintained and this is considered as a positive indicator of operating efficiency and

good from the point of view of liquidity. The average inventory turn over days will come

around days 80.56

yearcost of goods

sold

average

inventory

ratio

2004 555.41 103.335 5.37

2005 1005.35 173.225 5.80

2006 770.12 275.74 2.79

2007 1180.96 245.5 4.81

2008 1271.53 228.035 5.57

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5.375.8

2.79

4.815.57

0

1

2

3

4

5

6

7

1 2 3 4 5

YEAR

RATIO

CHART NO.2: INVENTORY TURN OVER RATIO

DAYS IN INVENTORY

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Number of Days Inventory = 365 days / inventory turnover ratio.

The number of days inventory is also known as average inventory period and

inventory holding period. A high number of days inventory indicates that there is a

lack of demand for the product being sold. A low day in inventory ratio may indicatethat the company is not keeping enough stock on hand to meet demands.

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TABLE NO.3: DAYS IN INVENTORY

INTERPRETATION

From the above mentioned table it is clear that the ratio of the raw material in

the inventory is average. This shows that the production is normal and the raw material

constitutes an average of 50% of inventory.

yearcost of

goods sold

average

inventory

ratioturnover

days

2004 555.41 103.3355.3748487

967.90

2005 1005.35 173.2255.8037234

862.89

2006 770.12 275.742.7929208

7130.68

2007 1180.96 245.5 4.8104277 75.87

2008 1271.53 228.035 5.57603 65.45

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67.9 62.89

130.68

75.8765.45

020

40

60

80

100

120

140

1 2 3 4 5

YEAR

NOO

F

DAYS

CHARTNO.3: INVENTORY TURN OVER DAYS

RAW MATERIAL TO INVENTORY RATIO

Raw materialRaw material to inventory ratio=

Average inventory

TABLE NO.4: RAW MATERIAL TO INVENTORY RATIO

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year raw

material

inventory ratio

2004 329.95 121.3 2.72

2005 865.28 282.76 3.06

2006 574.02 334.71 1.71

2007 699.33 245.64 2.84

2008 880.68 349.91 2.51

INTERPRETATION

From the above mentioned table it is clear that the ratio of the raw material in

the inventory is average. This shows that the production is normal and the raw material

constitutes an average of 25% of inventory.

CHART NO.4: RAW MATERIAL TO INVENTORY RATIO

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2 . 73 . 0

1 . 7

2 . 82 . 5

0

1

2

3

4

1 2 3 4 5

YEA

RATIO

FINISHED GOODS TO INVENTORY RATIO

finished goods

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Finished goods to inventory ratio=Inventory

TABLE NO.5: FINISHED GOODS TO INVENTORY RATIO

year finished

goods

inventory ratio

2004 93.89 121.3 0.77

2005 252.56 282.76 0.89

2006 298.93 334.71 0.89

2007 193.02 245.64 0.78

2008 263.05 349.91 0.75

INTERPRETATION

From the table it is clear that finished goods constitute a vital part in the

inventory. And the level of the inventory is maintained at an average of nearly 75%.

CHART NO.5: FINISHEDGOODS TO INVENTORY RATIO

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0.77

0.89 0.89

0.780.75

0.65

0.7

0.75

0.8

0.85

0.9

0.95

1 2 3 4 5

YEAR

RATIO

3,2 ABC ANALYSIS:

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The data for the analysis of both ABC and XYZ are confined only to the

stocks and materials related to the cold rolling mill. The analysis is based only on the

frequently buying items of the cold rolling mill. It is based on the consumption value

when the consumption is greater than 70% the item comes under the category A.

When the consumption of the item is nearly 20% it comes under the category B. When

the consumption of the item is nearly 10% it comes under the category C.

TABLE NO.6: CLASSIFICATION OF ITEMS BASED ON THEIR

CATEGORY

SL.NO CLASSIFICATION NO OF ITEMS

1 A 18

2 B 34

3 C 8

TABLE NO.7: VALUE OF CONSUMPTION

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Value of

consumption of

items (value in Rs).

No. Of items Grade

70% of consp. 10% of no. Of items A

20% of consp. 15% of no. Of items B

10% of consp. 75% of no. Of items C

TABLE NO.8: ABC ANALYSIS

Description of

material Cost

Book

qty Totalcost Percentage Rank Classification

Sealless pump 24.705 8650 213698.25

1.0

63 34B

Metal machines 18.464 18595 343338.08 1.70795832 44 ATubular anodes 462.432 118 54566.976 0.271447084 13 B

Probe anodes 505.381 428 216303.068 1.076014127 35 B

Strip anodes 465.14 222 103261.08 0.513679172 21 B

Marine Disc

anodes 21430.678 24.206 518750.9917 2.58056162 50A

Ribbon anodes 232.313 7100 1649422.3 8.20516192 57 A

Mesh anodes 315 501 157815 0.785061308 28 B

Ribbon anodes 97989 7.52 736877.28 3.66564548 53 A

Mesh anodes 31169.065 1.668 51990.00042 0.258627746 12 B

Steel anodes 28226.596 0.94 26533.00024 0.13199019 7 BExpanded steel

mesh 28781 1 28781 0.143173016 9B

Carn locks 32180.769 0.52 16733.99988 0.083244405 6 C

Concealed

Hinges 49187.469 23.94 1177548.008 5.857791588 54A

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Semiconductor

and ICs 1266.833 102 129216.966 0.642798469 27B

Capacitors 1271.624 85 108088.04 0.537691209 23 B

Diodes 1751.078 51 89304.978 0.444253606 18 B

Resistors 1650 120 198000 0.984964287 31 BDiodes 3320 29.709 98633.88 0.490660855 20 B

Resistors 4033.296 27 108898.992 0.541725344 24 B

Fuses 6893.714 14 96511.996 0.480105401 19 B

Connectors 11.8 4000 47200 0.234799567 11 B

Brass & Bronze

castings 43.419 2760 119836.44 0.596134413 25B

Aluminium

castings 74.371 141.6 10530.9336 0.052386836 5C

Ductile iron

castings 320.688 564.57 181050.8242 0.900649475 30B

Steel castings 45325.957 2.35 106515.999 0.529870985 53 A

Alloy steel

castings 1.165 7000 8155 0.040567595 3C

Die steel

castings 218.979 1248 273285.792 1.359478512 40B

Precision

castings 48967.419 45.61 2233403.981 11.11021798 59A

Zin castings 298047 7 2086329 10.37858362 58 A

Gun metal

castings 16014 16 256224 1.274603483 39B

Zinc die

castings 1890 630 1190700 5.923217055 55A

steel strap

jumbo 1431

mpw 48420.27 8.673 419949.0017 2.089064491 46

A

neck seal 30258.27 15 453874.05 2.25782692 47 A

grinding wheel

for steel roll 17118.8 5 85594 0.425793097 17B

grinding wheel 36142 6 216852 1.078744826 36 B

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for cast iron roll

coolant oil for

press 120 1780 213600 1.062567534 33B

polishing

compound for

coin blanks 35.65 760 27094 0.134780921 8

B

Gears 1088.657 252 274341.564 1.364730521 41 B

Aircraft parts

AP-A1 6.284 32165 202124.86 1.00548368 32B

Aircraftt parts

AP-A6 55.001 8400 462008.4 2.29829179 48A

Automative Air

conditioner

parts 45.47 6720 305558.4 1.520020766 43

A

Suspension

parts-1& 2 75276 1 75276 0.374465514 16B

Brake drums

BRAKE-1 HUB 155.147 2600 403382.2 2.006651824 45A

CNC machining 51.861 10200 528982.2 2.631457453 51 ACar engine

parts 12900 5 64500 0.320859578 14B

Car pedal parts 54266.5 4 217066 1.079809384 37 B

Car metal parts

CNC-A1 20217 0.198 4002.966 0.019913023 2C

Car matal partsCNC-A14 1052.7 10 10527 0.052367268 4

C

Car matal parts

CNC-A32-1 177.273 11 1950.003 0.009700421 1C

Computerproducts OEM& ODM 58.926 1260 74246.76 0.36934549 15

B

Computermaterials C10 55000 3 165000 0.820803573 29

B

Die & moldcomponents 1821 19 34599 0.172115047 10

B

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Roll work z mill(forged rolls) 35290.175 40 1411607 7.022133751 56

A

rubber wipersleeve 24.836 9350 232216.6 1.15517706 38

B

Gp coil 0.5mm 38306 17.99 689124.94 3.42809826 52 A

(gold) rollgrinding parts 44.282 2730 120889.86 0.601374721 26

B

Electronic partsOEM & ODM 5547.824 51 282939.024 1.407499162 42

B

crane wheel800 dia wearresistant 162480 3 487440 2.424802991 49

A

TOTAL 20102251.68

100.

000

Source (secondary data)

INTERPRETATION

Close control is required for A class items. Class C items account for the bulk

of inventory items, and routine controls should be adequate. Among the major 60

items of the electronic parts,18 items fall under A class. These items have

consumption value greater than 70% of total consumption. 34 items fall under B.

These items have consumption value of about 20% of total consumption.8 items fall

under C. These items have consumption value of about 10% of total consumption.

CHART NO.6: CLASSIFICATION OF ITEMS BASED ON THEIR

CATEGORY

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10 15

75

0

20

40

60

80

A B C

CATEGORY

NOO

FITEMS

3.3 XYZ ANALYSIS:

The data for the analysis of both ABC and XYZ are confined only to

the stocks and materials related to the cold rolling mill. The analysis is based only on the

frequently buying items of the cold rolling mill. It is based on the stock value when the

stock value of the item is greater than 35000 the item comes under the category X.

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When the stock value of the item is greater than 10000 but less than 35000 it comes

under the category Y. When the stock value of the item is less than 10000 it comes

under the category Z.

TABLE NO.9 : CLASSIFICATION OF ITEMS BASED ON THEIR STOCK

VALUE

SL.NO CLASSIFICATION NO OF ITEMS

1 X 36

2 Y 10

3 Z 14

TABLE NO.10 : XYZ ANALYSIS

description of material Cost Book qty TotalcostXyz

analysis

Sealless pump 24.705 8650 213698.25 Z

Metal machines 18.464 18595 343338.08 Z

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Tubular anodes 462.432 118 54566.976 Z

Probe anodes 505.381 428 216303.068 Z

Strip anodes 465.14 222 103261.08 Z

Marine Disc anodes 21430.678 24.206 518750.9917 Y

Ribbon anodes 232.313 7100 1649422.3 Z

Mesh anodes 315 501 157815 Z

Ribbon anodes 97989 7.52 736877.28 X

Mesh anodes 31169.065 1.668 51990.00042 Y

Steel anodes 28226.596 0.94 26533.00024 Y

Expanded steel mesh 28781 1 28781 Y

Carn locks 32180.769 0.52 16733.99988 Y

Concealed Hinges 49187.469 23.94 1177548.008

X

Semiconductor and ICs 1266.833 102 129216.966 Z

Capacitors 1271.624 85 108088.04 Z

Diodes 1751.078 51 89304.978 Z

Resistors 1650 120 198000 Z

Diodes 3320 29.709 98633.88 Z

Resistors 4033.296 27 108898.992 Z

Fuses 6893.714 14 96511.996 Z

Connectors 11.8 4000 47200 Z

Brass & Bronze castings 43.419 2760 119836.44 Z

Aluminium castings 74.371 141.6 10530.9336 Z

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Ductile iron castings 320.688 564.57 181050.8242 Z

Steel castings 45325.957 2.35 106515.999 X

Alloy steel castings 1.165 7000 8155 Z

Die steel castings 218.979 1248 273285.792 Z

Precision castings 48967.419 45.61 2233403.981 X

Zin castings 298047 7 2086329 X

Gun metal castings 16014 16 256224 Y

Zinc die castings 1890 630 1190700 Z

Steel strap jumbo 1431mpw

48420.27 8.673 419949.0017 X

neck seal 30258.27 15 453874.05 Y

grinding wheel for steel roll 17118.8 5 85594 Y

grinding wheel for cast ironroll

36142 6 216852 X

coolant oil for press 120 1780 213600 Z

polishing compound forcoin blanks

35.65 760 27094 Z

Gears 1088.657 252 274341.564 Z

Aircraft parts AP-A1 6.284 32165 202124.86 Z

Aircraftt parts AP-A6 55.001 8400 462008.4 Z

Automative Air conditionerparts

45.47 6720 305558.4 Z

Suspension parts-1& 2 75276 1 75276 X

Brake drums BRAKE-1

HUB155.147 2600 403382.2 Z

CNC machining 51.861 10200 528982.2 Z

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Car engine parts 12900 5 64500 Y

Car pedal parts 54266.5 4 217066 X

Car metal parts CNC-A1 20217 0.198 4002.966 Y

Car matal parts CNC-A14 1052.7 10 10527 Z

Car matal parts CNC-A32-1 177.273 11 1950.003 Z

Computer materials C10 55000 3 165000 X

Die & mold components 1821 19 34599 Z

roll work z mill (forged rolls) 35290.175 40 1411607 X

rubber wiper sleeve 24.836 9350 232216.6 Z

gp coil 0.5mm 38306 17.99 689124.94 X

(gold) roll grinding parts 44.282 2730 120889.86 Z

Electronic parts OEM &

ODM5547.824 51 282939.024 Z

crane wheel 800 dia wear

resistant162480 3 487440 X

TOTAL 20102251.68

Source (secondary Data)

INTERPRETATION

There is 36 items fall under X category. These items have stock value greater

than Rs35000. There is 10 items fall under Y category. These items have stock

value greater than Rs10000. There is 14 items fall under Z category. These

items have stock value less than Rs10,000

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CHART NO.7

CLASSIFICATION OF ITEMS BASED ON THEIR STOCK VALUE

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36

10

14

0

5

10

15

20

25

30

35

40

X Y Z

XYZ VALUE

NOO

FITEMS

3.4 FSN CLASSIFICATION

TABLE NO.9 : CLASSIFICATION OF ITEMS BASED ON THEIR USAGE

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SL.NO CATEGORY NO OF ITEMS

1 Fast moving 20

2 slow moving 29

3 non moving 11

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TABLE NO.11 : FSN ANALYSIS

DESCRIPTION OF

MATERIAL COST BOOK QTY TOTALCOST

FSN

CLASSIFICATION

Sealless pump 24.705 8650 213698.25F

Metal machines 18.464 18595 343338.08 S

Tubular anodes 462.432 118 54566.976S

Probe anodes 505.381 428 216303.068S

Strip anodes 465.14 222 103261.08S

Marine Disc anodes 21430.68 24.206 518750.9917N

Ribbon anodes 232.313 7100 1649422.3 F

Mesh anodes 315 501 157815S

Ribbon anodes 97989 7.52 736877.28S

Mesh anodes 31169.07 1.668 51990.00042N

Steel anodes 28226.6 0.94 26533.00024N

Expanded steel mesh 28781 1 28781N

Carn locks 32180.77 0.52 16733.99988N

Concealed Hinges 49187.47 23.94 1177548.008S

Semiconductor and ICs 1266.833 102 129216.966S

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Capacitors 1271.624 85 108088.04S

Diodes 1751.078 51 89304.978S

Resistors 1650 120 198000 S

Diodes 3320 29.709 98633.88F

Resistors 4033.296 27 108898.992F

Fuses 6893.714 14 96511.996F

Connectors 11.8 4000 47200F

Brass & Bronze castings 43.419 2760 119836.44 F

Aluminium castings 74.371 141.6 10530.9336F

Ductile iron castings 320.688 564.57 181050.8242N

Steel castings 45325.96 2.35 106515.999N

Alloy steel castings 1.165 7000 8155S

Die steel castings 218.979 1248 273285.792F

Precision castings 48967.42 45.61 2233403.981S

Zin castings 298047 7 2086329S

Gun metal castings 16014 16 256224N

Zinc die castings 1890 630 1190700F

steel strap jumbo 1431 mpw 48420.27 8.673 419949.0017

N

neck seal 30258.27 15 453874.05S

grinding wheel for steel roll 17118.8 5 85594S

grinding wheel for cast iron

roll 36142 6 216852S

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coolant oil for press 120 1780 213600S

polishing compound for coin

blanks 35.65 760 27094F

Gears 1088.657 252 274341.564F

Aircraft parts AP-A1 6.284 32165 202124.86F

Aircraftt parts AP-A6 55.001 8400 462008.4F

Automative Air conditioner

parts 45.47 6720 305558.4F

Suspension parts-1& 2 75276 1 75276

S

Brake drums BRAKE-1 HUB 155.147 2600 403382.2N

CNC machining 51.861 10200 528982.2F

Car engine parts 12900 5 64500S

Car pedal parts 54266.5 4 217066S

Car metal parts CNC-A1 20217 0.198 4002.966S

Car matal parts CNC-A14 1052.7 10 10527F

Car matal parts CNC-A32-1 177.273 11 1950.003F

Computer products OEM &

ODM 58.926 1260 74246.76F

Computer materials C10 55000 3 165000S

Die & mold components 1821 19 34599 S

roll work z mill (forged rolls) 35290.18 40 1411607N

rubber wiper sleeve 24.836 9350 232216.6S

gp coil 0.5mm 38306 17.99 689124.94F

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(gold) roll grinding parts 44.282 2730 120889.86S

Electronic parts OEM &

ODM 5547.824 51 282939.024S

crane wheel 800 dia wear

resistant 162480 3 487440S

Source (secondary Data)

INTERPRETATION

Around 20 items are considered to be Fast Moving. Around 11 items are

considered to be Non Moving items. Around 29 items are considered to be slow

moving.

CHART NO.8

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20

29

11

0

10

20

30

40

Fast Moving Slow Moving Non Moving

CATEGORY

NOO

F

ITEMS

CLASSIFICATION OF ITEM BASED ON THEIR USAGE

3.5 ECONOMIC ORDER QUANTITY (EOQ)

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Where,

EOQ - Quantity Per Order (No. of MTs)

A - Annual Requirement (No. of MTs)

S - Ordering Cost Per Order in Rupees

C - Cost of Material Per MT in Rupees

I - Inventory Carrying Cost (Expressed as Percentage)

TABLE NO.12

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ECONOMIC ORDER QUANTITY ANALYSIS

TABLE 13

Sl.No

Description of Materials A C S I (%) EOQ

1 Plate 5x2500x6000ASTM 588

240 43640 13055 4.01 59.84

2 GP Sheet 0.63 Grade275

44 34260 13055 4.01 28.92

3 Flat 50 x 6 GRA 197 26450 13055 4.01 69.64

4 Cheq plate 5 1373 28310 13055 4.01 177.70

5 HR Sheet 3.15 mm IS5986 & E 330

370 28930 13055 4.01 91.26

6 HR Plate 20 mm is 2062GR-AGC sheet LPRC/III-25x410x3000

1817 28497 13055 4.01 203.76

7 HR Sheet 2.0 mm is 2062FE-330

1129 28936 13055 4.01 159.39

8 HR Plate 12 mm is 2062GR-A

1803 28271 13055 4.01 203.78

9 HR Plate 32 mm is 2062GR-B

1225 28772 13055 4.01 166.50

10 HR Plate 10 mm is 2062GR-A 1438 30681 13055 4.01 174.69


2179 27179 13055 4.01 228.48


1347 29091 13055 4.01 173.63


2178 27160 13055 4.01 228.50


1387 27710 13055 4.01 181.85

15 HR Plate 16 mm is 2062

GR-A

1810 28510 13055 4.01 164.16

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EOQ MODEL

SL.NO CATEGORY NO OFITEMS

1Annual Requirement (No. of MTs)

5

2 Ordering Cost Per Order in Rupees 8

3 Cost of Material Per MT in Rupees 2

4Inventory Carrying Cost (Expressed asPercentage)

8

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0123456789

Annual

Requirement

(No. of MTs)

Ordering

Cost Per

Order inRupees

Cost of

Material Per

MT inRupees

Inventory

Carrying

Cost(Expressed

as

Percentage)

CATEGORY

NO

OFITEMS

CHART NO . 9

EOQ MODEL

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CHAPTER 4

SUMMARY OF FINDINGS AND SUGGESTIONS AND CONCLUSIONS

4.1 FINDINGS OF THE STUDY

The researcher has been able to find out the following important aspects from

the study. They are:

1. Titan-precision engineering unit has the largest inventories used for

manufacturing the stainless steel and has materials worth over crore of rupees.

2. Inventory control techniques like ABC analysis, FSN analysis, XYZ analysis,

analysis are very significant in Titan, in order to have a good control and

management over the large number of inventories kept in the stores.

3. The percentage of inventory in the current asset is increased from 57.28 in

the 2004 to 81.125 in the current year. And there is nearly 40% increase in the

inventory.

4. This shows that an idle turnover ratio was maintained and this is considered

as a positive indicator of operating efficiency and good from the point of view of

liquidity. The average inventory turn over days will come around days 80.56

5. Among the major 60 items of the electronic parts,18 items fall under A class.

These items have consumption value greater than 70% of total consumption. 34

items fall under B. These items have consumption value of about 20% of total

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consumption.8 items fall under C. These items have consumption value of about

10% of total consumption.

6. There is 36 items fall under X category. These items have stock value

greater than Rs35000. There is 10 items fall under Y category. These items have

stock value greater than Rs10000. There is 14 items fall under Z category. These

items have stock value less than Rs10,000

7. Around 20 items are considered to be Fast Moving. Around 11 items are

considered to be Non Moving items. Around 29 items are considered to be slow

moving.

8. The inventory stock in no. of days is found to be 80 days i.e., around 3

months which is an indicative of good inventory management.

4.2 SUGGESTIONS

The vital suggestions that can be considered for an effective management and

control of the inventories at Titan-precision engineering are clearly pointed out below:

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1. Close control is required for A class items. Class C items account for the bulk of

inventory items, and routine controls should be adequate.

2. X items have high stock value. The company should take special effort of

reduce these items.

3. The stock of Fast Moving items has to be taken care, since non availability of

these stock will lead to stock out costs. All non availability stock can be examined

and immediate dispose of unnecessary Non Moving stock can be made in order to

reduce the inventory stock in no. of days.

4. Since the percentage of inventory is more in the current asset the company

should regulate the further procurement of inputs.

5. System in the inventory should be standardized

6. Procurement in small lots to avoid heavy fluctuation in the input price

4.3 CONCLUSION

Managing and controlling the inventories, say raw materials, components, spare

parts, or finished goods is very significant and indispensable in any organization, since it

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forms 80 % to 90 % of the working capital of the company. It is therefore, necessary for

the officer familiar with ways to control inventories effectively so that there can be

efficient allocation of funds and it leads to reduce investment in inventories to the

optimum level and leave sufficient funds for more profitable channels which will

ultimately result in maximization of the shareholders wealth.

The techniques of inventory management help in determining the optimum level

of inventory as well as how much should be ordered and when it should be ordered. All

these techniques are helpful in efficient management of inventories and balancing the

advantages of holding additional inventory against the cost of carrying inventory.

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Documents

Inv & Ratios & ABC