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A PROJCT REPORT ON INVENTORY& STORES MANAGEMENT AT KESORAM CEMENT INDUSTRY LTD BASANTHNAGAR
Submitted in partial fulfillment for the award of the degree
Of
Master of Business Administration
Kakatiya University
By
N.ASHOK
10018C-1008
Under the GUIDANCE of
Mrs.N.ESHWARAMMA
Department of Commerce and BusinessManagement
University Post Graduate College Godavarikhani, Karimnagar (Dist) (2009-2011)
ACKNOWLEDGEMENT
My deep indebt ness goes to K.C.Jain Sr. President, and Mr. VEDA
KUMAR factory manager of kesoram cement industries Ltd, for providing ma an
opportunity to perform this task
I would like to express my sincere thanks to Mr. T.SARAIAH finance
Manager and Mr. M. THIRUPATHI for their valuable information in preparation
of this report and my special thanks to Mr. Harikishan ojha inventory manager. I
would like to profound sense of gratitude to my guide Mrs.N.ESHWARAMMA
and my sincere thanks to faculty in business management in UNIVERSITY
POST GRADUATE COLLEGE Godavarikhani, karimnagar for rendering a big
helping hand and for through his perceptual willingness to help me with the
intricacies involved in completing my project work. I am also thankful to all the
people in the expending their co operation it has been a real experience work and
leering in on organization.
N.ASHOK (10018C-1008)
DECLARATIONS
I here by declare that the enclosed project entitled “INVENTORY &
STORE MANAGEMENT” done at BASANTHNAGAR in KESORAM
INDUSTRIES LIMITED is submitted to “UNIVERSITY POST
GRADUATE COLLEGE, GODAVARIKANI” in partial fulfillment of
“MASTER OF BUSINESS ADMINISTRATION”, the project is an original
work done by me and to the best of my knowledge this work is not submitted to
any other university or college for award of any other degree/ diploma.
N.ASHOK (10018C-1008)
CONTENT
TOPICS PAGE NO
ABSTRACT
LIST OF TABLES
CHAPTER- 1
INTRODUCTION
CHAPTER- 2
ORGANISATION PROFILE
CHAPTER- 3
FRME WORK INVENTORY MANAGEMENT
CHAPTER- 4
DATA ANALYSIS AND INTERPRETATION
CHAPTER- 5
CONCLSIONS FINDING AND SUGGESTIONS
Bibliography
Annexure
INVENTORY STORE MANAGEMENT
Inventory management is the key selection in the company’s point of view. Inventory means the stockpile of the product; a firm is offering the sale and the components that make up the products.
The main objective of this study is to manage the inventory well and to analyze the production level with change in the production levels well and to analyze how the company’s profit is increased as the changes in the production.
A company product is cement product. While produces the cement product performance had been out standing archiving over cent per cent capacity utilization although despite many goods like power cuts and which most 40% was waste due to wagon shortage
The company being a continuous process industry works round the clock and has on excellent record of performance archiving over 100% capacity utilization. Kesoram has always combined technical progress with industrial performance. The company had a glorious track record for the lost 27 year in the industry
The company follows the ABC analysis, EOQ, Inventory turnover ratio, FIFO and LIFO is ranking the products The information given by me do of 45 days I collect i.e., The information while I have done my project work.
CHAPTER -I INTRODUCTION
INVENTORY MANAGEMENT
INTRODUCTION:
Every enterprise needs inventory for smooth running of it’s activities. It
serves as a link between production and distribution process. There is, generally,
a time lag between the recognition of a need and its fulfillment. The greater the
time lag, the higher requirements for inventory. It also provides a cushion for
future price fluctuations.
In a complex industry like Kesoram Industries Limited it studied clearly
of how the thing are being performed and what is the real impact of these on
industry and how effectively the inventory is utilized is interested to be known
by researcher because of its great significance in the research.
The investment in inventories constitutes the most significant part of current
assets / working capital in most of the undertakings. Thus, it is very essential to
have proper control and management of inventories.
The purpose of inventory management is to ensure availability of
materials in sufficient quantity as and when required and also to minimize
investment in inventories.
Meaning and Nature of Inventory:
In accounting language, inventory may mean the stock of finished goods
only. In a manufacturing concern, it may include raw materials, work- in –
progress and stores etc.,
Inventory includes the following things:
a) Raw Material: Raw material from a major input into the organization.
They are required to carry out production activities uninterruptedly. The
quantity of raw materials required will be determined by the rate of
consumption and the time required for replenishing the supplies. The
factors like the availability of raw materials and Government regulations
etc., too affect the stock of raw materials.
b) Work in progress: The work in progress is that stage of stocks which are
in between raw materials and finished goods. The quantum of work in
progress depends upon the time taken in the manufacturing process. The
quantum of work in progress depends upon the time taken in the
manufacturing process. The greater the time taken in manufacturing, the
more will be the amount of work in progress.
c) Consumables: These are the materials which are needed to smoother the
process of production but they act as catalysts. Consumables may be
classified according to their consumption add critically. Generally,
consumable stores doe not create any supply problem and firm a small part
of production cost. There can be instances where these materials may
account for much value than the raw materials. The fuel oil may form a
substantial part of cost.
d) Finished goods: These are the goods, which are ready for the consumers.
The stock of finished goods provides a buffer between production and
market, the purpose of maintaining inventory is to ensure proper supply of
goods to customers.
e) Spares: The stock policies of spares fifer from industry to industry. Some
industries like transport will require more spares than the other concerns.
The costly spare parts like engines, maintenance spares etc., are not
discarded after use, rather they are kept in ready position for further use.
All decisions about spares are based on the financial cost of inventory on
such spares and the costs that may arise due to their non – availability.
BENEFITS OF HOLDING INVENTORIES
Although holding inventories involves blocking of a firm’s and the
costs of storage and handling, every business enterprise has to be maintain
certain level of inventories of facilitate un – interrupted production and smooth
running of business. In the absence of inventories a firm will have to make
purchases as soon as it receives orders. It will mean loss of time and delays in
execution of orders which sometimes may cause loss of customers and business.
A firm also needs to maintain inventories to reduce ordering cost and avail
quantity discounts etc.
There are three main purpose of holding inventories.
1. The transaction motive: Which facilitates continuous production and
timely execution of sales order.
2. The precautionary motive: Which necessitates the holding of
inventories for meeting the unpredictable changes in demand and supplies of
materials.
3. The speculative motive: Which induces to keep inventories for taking
advantage of price fluctuations, saving in re – ordering costs and quantity
discounts.
RISK AND COSTS OF HOLDING INVENTORIES
The holding of inventories involves blocking of a firms fund and
incurrence of capital and other costs.
The various costs and risks involved in holding inventories are:
Capital costs: Maintaining of inventories results in blocking of the firms
financial resources. The firm has therefore to arrange for additional funds to meet
the cost of inventories.
The funds may be arranged from own resources or from outsiders. But in
both the cased, the firm incurs a cost. In the former case, there is an opportunity
cost of investment while in the later case; the firm has to pay interest to t he
outsiders.
1. Storage and Handling Costs: Holding of inventories also involves costs
on storage as well as handing of materials. The storage of costs include
the rental of the godown, insurance charges etc.
2. Risk of Price decline: There is always a risk of reduction in the prices of
inventories by the supplies, competition or general depression in the
market.
3. Risk of Obsolescence: The inventories may become absolute due to
improved technology, changes in requirements, change in customer tastes
etc.
4. Risk Determination in quality: The quality of materials may also
deteriorate while the inventories are kept.
Objects of Inventory Management:
Definition of Inventory Management: Inventory Management is
concerned with the determination of optimum level of investment for each
components of inventory and the operation of an effective control and review of
mechanism.
The main objectives of inventory management are operational and
financial.
The operational objective mean that the materials and spares should be
available in sufficient quantity so that work is not disrupted for want of
inventory.
The financial objective means that inventory should not remain idle and
minimum working capital should be locked in it.
NEED OF THE STUDY:
Every industry on average spends 70% on raw materials (inventory).
Therefore there is a need to know the raw material cost and also there is great
importance to understand the inventory management system of this industry.
The study helps a log to various departments to take steps to control the
inventory process.
In this competitive business world each and every business organization
need inventory management system for determining what to order, when to
order, where and how much to order so that purchasing and storing costs are the
lowest possible without affecting production and sales. Thus, inventory
management control incorporates the determination of the optimum size of the
inventory-how much to be order and when after taking into consideration the
minimum inventory cost.
The over all inventory management includes design and inventory control
organization with proper accountability establishing procedure for inventory
handling disposal of scrap, simplification, standardization and codification of
inventories, determining the size of inventory holdings, maintaining record
points and safety stocks, economic order quantity, ABC analysis and VALUE
analysis and finally framing an INVENTORY MANUAL.
OBJECTIVES OF THE STUDY:
1. To examine the organization structure of inventory management in
the stores of Kesoram Cements.
2. To discuss pattern, levels and trends of inventories in Kesoram
Cements.
3. To understand the various inventory control techniques followed by
studies in Kesoram Cements.
4. To access the performance of inventory management of the Kesoram
Cements by selected accounting ratios.
5. To know the inventory control techniques of Kesoram Cements.
6. To avoid both under stocking and over stocking of inventory.
7. To eliminate duplication in ordering or replenishing stocks. This is
possible with the help of centralized purchasing.
a. To ensure continues supply of materials, spares and finished
goods so that production should not suffer and any time and
customers demand should also be met.
b. To design proper structure for inventory management. A clear cut
accountability should be fixed at various levels of the
organizations.
METHODOLOGY OF THE STUDY:
The study is based on both primary and secondary data.
The primary data has been collected through structured questionnaire
reflecting inventory management practices of Kesoram Cements. The collected
data is tabulated and suitable interpretation had been made by considering the
data collection through secondary data like annual reports purchase registers,
storage records of the organization.
LIMITATIONS OF THE STUDY:
The study has the following limitations:
1. The study is limited only for a period of 5 years i.e., from 2002 – 03 to
2007 – 08.
2. The limitations of ratio analysis can be applicable of the study.
3. There may be approximation in calculating ratios and taking the figures
from the annual reports.
CHAPTER – II
ORGANISATION
PROFILE
ORGANISATION PROFILE
By stating productions in 1914 the story of Indian Cement is a stage of
continuous growth. Cement is derived from the Latin word “Cementam”.
Egyptians and Romans found the process of manufacturing cement. In England
during the first century the hydraulic cement has become more versatile building
material. Later on, Portland cement was invented and the invention was usually
attributed to Joseph Aspdin of England.
India is the world’s 4th largest cement produced after China, Japan and U.S.A.
The South Industries have produced cement for the first time in 1904. The company
was setup in Chennai with the installed capacity of 30 tones per day. Since then the
cement industry has progressing leaps and bounds and evolved into the most basic
and progressive industry. Till 1950 – 1951, the capacity of production was only 3.3
million tones. So far annual production and demand have been growing a pace at
roughly 78 million tones with an installed capacity of 87 million tones.
In the remaining two years of 8th plan an additional capacity of 23 million tones
will actually come up.
India is well endowed with cement grade limestone (90 billion tones) and coal
(190 billion tones). During the nineties it had a particularly impressive expansion
with growth rate of 10 percent.
The strength and vitality of Indian Cement Industry can be gauged by the interest
shown and support give by World Bank, considering the excellent performance of
the industry in utilizing the loans and achieving the objectives and target. The World
Bank is examining the feasibility of providing a third line of credit for further
upgrading the industry in varying areas, which will make it global. With
liberalization policies of Indian Government. The industry is posed for a high growth
rates in nineties and the installed capacity is expected to cross 100 million tones and
production 90 million tones by 2003 A.D.
The industry has fabulous scope for exporting its product to countries like the
U.S.A., U.K., Bangladesh, Nepal and other several countries. But there are not
enough wagons to transport cement for shipment.
Cement – The Product:
The natural cement is obtained by burning and crushing the stones
containing clayey, carbonate of lime and some amount of carbonate of magnesia.
The natural cement is brown in color and its best variety is known as “ROMAN
CEMENT”. It sets very quickly after addition of water.
It was in the eighteenth century that the most important advances in the
development of cement were which finally led to the invention of Portland
cement.
In 1756, John Sematon showed that hydraulic lime which can resist the
action of water can be obtained not only from hard lime stone but from a
limestone which contain substantial proportion of clayey.
In 1796, Joseph Parker found that modules of argillaceous limestone
made excellent hydraulic cement when burned in the usual manner. After
burning the product was reduced to a powder. This started the natural cement
industry.
The artificial cement is obtained by burning at a very high temperature a
mixture of calcareous and argillaceous material. The mixture of ingredients
should be intimate and they should be in correct proportion. The calcined product
is known as clinker. A small quantity of gypsum is added to clinker and it is then
pulverized into very fine powder, which is known as cement.
The common variety of artificial cement is known as normal setting
cement or ordinary cement. A mason Joseph Aspodin of Leeds of England
invented this cement in 1824. He took out a patent for this cement called it
“PORTLAND CEMENT” because it had resemblance in its color after setting to
a variety of sandstone, which is found a abundance in Portland England.
The manufacture of Portland cement was started in England around 1825.
Belgium and Germany started the same 1855. America started the same in 1872
and India started in 1904. The first cement factory installed in Tamilnadu in 1904
by South India limited and then onwards a number of factories manufacturing
cement were started. At present there are more than 150 factories producing
different types of cements.
Composition of Cement:
The ordinary cement contains two basic ingredients, namely, argillaceous
and calcareous. In argillaceous materials the clayey predominates and in
calcareous materials the calcium carbonate predominates.
A good chemical analysis of ordinary cement along with desired range of
ingredients.
Ingredients Percent Range
Lime (CaO) 62 62 – 67
Silica (SiO2) 22 17 – 25
Alumina (Al2O3) 5 3 – 8
Calcium Sulphate (CaSO4) 4 3 – 4
Iron Oxide (Fe2O3) 3 3 – 4
Magnesia (MgO) 2 1 – 3
Sulphur (S) 1 1 – 3
Alkalis 1 0.2 – 1
Industry Structure and Development:
With a capacity of 115 million tones of large cement plants, Indian
cement industry is the fourth largest in the world. However per capita
consumption in our country is still at only 100 Kgs against 300 Kgs of developed
countries and offers significant potential for growth of cement consumption as
well as addition to cement capacity. The recent economic policy announcement
by the government in respect of housing, roads, power etc., will increase cement
consumption.
Opportunities and Threats
In view of low per capita consumption in India, there is a considerable
scope for growth in cement consumption and creation of new capacities in
coming years.
The cement industry does not appear to have adequately exploited cement
consumption in rural segment where damaged where damaged growth is
possible.
Landed cost of cement (with import duty) continues to be higher than
home market prices but with reduced import duty, increasing imports, may pose
a serious threat to the domestic cement industry.
Outlook
The recent change in the budget 2002 – 2003 relating to fiscal incentives
for individual housing and reduction in borrowing cost for this purpose and with
the government reaffirmation to accelerate the reform process, infrastructure
development should logically get priority leading to increase in demand of
cement in coming years. The addition capacity of cement in the pipeline is
limited and therefore the demand and supply situations is expected to be more
favorable and cement prices are likely to firm up.
Risks and concerns
Slow down of Indian economy or drop in growth rate of agriculture may
adversely affect the consumption. The recent increase in railway freight coupled
with diesel / petrol price like will increase the cost of production and distribution,
as being dulky, cement is freight intensive increase in Limestone royalty also
adds to the cost of production, which is considerably higher than corresponding
costs of many other developing countries.
In our country there is a need to under take a massive programme of
house construction activity into the rural and urban areas. It is impossible to
construct a house without cement and steel, in other words, cement is one of the
basic construction materials and therefore it is one of the vital elements for the
economic development of the nation.
India in spite of being the 4th biggest produces of cement in the world has
still a very low per capital consumption of cement.
Cement companies 51 Nos
Cement Plants 99 Nos
Installed Capacity 64.8 mt
Total investment (approx) Rs. 10,000 crores
Total Manpower Over 1.25 Lakhs
Management Award of the Government of Andhra Pradesh. Kesoram is
also conscious of its social responsibilities. It’s rural and community development
programmes include adoption of two nearby villages, running an Agricultural
Demonstration Farm, a Model Dairy Farm etc., Impressed by these activities,
FAPCCI chose Kesoram to confer the Award for “Best efforts of an Industrial
Unit in the State to Develop Rural Economy” twice, in the year 1994 as well as in
1998. Kesoram also has to its credit the National Award (Shri. S.R. Rangta Award
for Social Awareness) for the year 1995 – 1996, for the Best Rural Development
Efforts made by the Company. In the same year Kesoram got the First Prize for
Mine Environment and Pollution Control for year 1999 too, for the 3rd year in
succession in July, 2001 Kesoram annexed the “Vana Mithra” Award from the
Government of Andhra Pradesh.
Quality conscious and progressive in its outlook, Kesoram Cement is an
OHSAS 08001 Company and also joined the select brand of ISO9001-2000
Companies.
History
The first unit was installed at Basanthnagar with a capacity of 2.5 lack
TPA (tones per annum) incorporating humble supervision, preheated system,
during the year 1969.
The second unit followed suit with added a capacity of 2 lack TPA in
1971.
The plant was further expanded to 9 lack by adding 2.5 lack tones in
August, 1978, 1.13 lack tones in January, 1981 and 0.87 lack tones in September,
1981.
Power
Singareni Colleries makes the supply of coal for this industry and the
power was obtained from AP TRANSCO. The power demand for the factory is
about 21MW. Kesoram has got 2 diesel generator sets of 4MW each installed in
the year 1987.
Kesoram cement now has a 15 KW captive power plant to facilitate for
uninterrupted power supply for manufactured of cement.
Environmental and Social Obligations
For environmental promotion and to keep – up the ecological balance,
this section has undertaken various social welfare programs by adopting ten
nearly villages, organizing family welfare camps, surgical camps, children
immunization camps, animal health camps, blood donation camps, distribution of
fruit bearing trees and seeds, training for farmers etc., were arranged.
Welfare and Recreation Facilities
For the purpose of recreation facility 2 auditoriums were provided for
playing indoor games, cultural function and activities like drama, music and
dance etc.
The industry has provided libraries and reading rooms. About 1000 books
are available in the library. All kinds of newspaper, magazines are made
available.
Canteen is provided to cater to the needs to the employees for supply
snacks, tea, coffee and meals etc.
One English medium and one Telugu medium school are provided to
meet the educational requirements.
The company has provided a dispensary with a qualified medical office
and paramedical staff for the benefit of the employees. The employees covered
under ESI scheme have to avail the medical facilities from the ESI hospital.
Competitions in sports and games are conducted every year for August
15, Independence Day and January 26, Republic Day among the employees.
Electricity
The power consumption per ton for cement has come down to 108 units
against 113 units last year, due to implementation of various energy saving
measures. The performance of captive power plant of this section continues to be
satisfactory. Total power generation during the years was 84 million units last
year. This captive power plant is playing a major role in keeping power costs
with in economic levels.
The management has introduced various HRD programs for training and
development and has taken various other measures for the betterment of
employees efficiency / performance.
The section has installed adequate air polluting control systems and
equipment and is ISO 14001 such as Environment Management System is under
implementation.
Awards:
Kesoram cement bagged many prestigious awards including national
awards for productivity, technology, conservation and several state awards since
1984. The following are the some of important awards.
Awards of Kesoram
No YearAwards National /
State
1 1984Best family planning effort in the state
State
2 1985 – 86National productivity award National
31985 – 86 –
87Mines safety National
4 1987 – 88Best industrial promotion / expansion effort
State
5 1987 – 89Productivity award State
6 1988 – 89Best industrial promoter State
7 1988 – 89Expansion effort in the state State
8 1988 – 89Award for contribution given for rural economy
State
9 1989 Best family planning effort State
10 1989Yajmnya Ratna & Best Management Award
State
11 1988 – 90Community development programs
State
12 1988 – 90 Energy conservation National
13 1991May Day award of the Government of Andhra Pradesh for best management
State
14 1991Pandit Jawaharlal Nehru rolling trophy for best national productivity effort
State
15 1993 Indira Gandhi National Award State
for Excellence in Industry (Best Management Award)
16 1994 Best industrial rebellion award State
17 1994 – 95
Rural development chief minister environmental and mineral conservation award.
State
18 1995Best industrial rebellion award.
State
19 1995 – 96Best effort of an industrial unit to develop rural economy
State
20 1996Shri S.R.Rungta award for social awareness for best rural development efforts.
National
21 1996 Best workers welfare. State22 1996 – 97 Best family welfare award. State23. 1999 First prize for mine
environment & pollution control for the 3rd year in succession.
State
24 2001 Vana Mithra award from Andhra Pradesh Government.
State
25 2007 Best Management Award from Andhra Pradesh Government.
State
2627
In this mines safety week celebrations, under the auspices of the Director
General of Mines Safety, Kesoram’s Basanthnagar limestone Mines won 2
first prizes for environment and pollution control and safe drilling and
blatting and 14 2nd prizes for over all performance, productivity, operation
and maintenance of machines publicity /propaganda etc.,
This section also bagged the award for Environment Protection in the
Godavari River belt, sponsored by the Godavari Pradushna Pariharna
Pariyavarana.
Production
Last 20 years production of Kesoram Cements Industry, Basanthnagar.
Year Production (in tones)
1983 – 84 749197
1984 – 85 761581
1985 – 86 805921
1986 – 87 760708
1987 – 88 550254
1988 – 89 601453
1989 – 90 643307
1990 – 91 643663
1991 – 92 748258
1992 – 93 685596
1993 – 94 731177
1994 – 95 784555
1995 – 96 782383
1996 – 97 731049
1997 – 98 746474
1998 – 99 688305
1999 – 2000 777092
2000 – 2001 692424
2001 – 2002 727447
2002 – 2003 735012
2005 – 2006 1046466
2006 – 2007 1056742
2007 –2008 1094685
2008 – 2009 1124445
2009 –2010 1139658
Note: Production including internal consumption also Cement and
clinker production were lower than the previous year mainly because
of lower dispatches of cement due to recession prevailing in cement
industry with slow down in demand during the year under review.
This section had to curtail production due to accumulation of large
stocks of clinker. However, sales realization during the second half
of the year has improved and it is hoped that prices will stabilize at
some reasonable levels.
Directors of Kesoram Industries Limited
Chairman
Syt. B.K. Birla
Directors
Smt. K.G. Maheshwari
Shri. Pramod Khaitan
Shri B.P. Bajoria
Shri P.K. Chokesy
Smt. Neeta Mukerji
(Nominee of I.C.I.C.I.)
Shri D.N. Mishra
(Nominee of L.I.C.)
Shri Amitabha Ghosh
(Nominee of U.T.I.)
Shri P.K. Malik
Smt. Manjushree Khaitan
Secretary
Shri S.K. Parik
Senior Executives
Shri K.C. Jain (Manager of the Company)
Shri J.D. Poddar
Shri O.P. Poddar
Shri P.K. Goyenka
Shri D. Tandon
Auditors
Messrs Price Water house
Subsidiary Companies of Kesoram Industries
Bharat General & Textile Industries Limited
KICM Investment Limited
Assam Cotton Mills Limited
Softshree Estates Limited
CHAPTER – III
FRAME WORK ON
INVENTORY MANAGEMENT
FRAME WORK
KESORAM CEMENT
One among the industrial giants in the country today, serving the
nation on the industrial front Kesoram Industries Limited has a chequered and
eventful history dating back to the Twenties when the Industrial House of
Birlas acquired it. With only a Textile Mill under it banner in 1924, it grew
from strength to strength and spread its activities to never fields like Rayon,
Pulp, Transparent paper, Spun pipes and Refractoriness, Tiers, Oil Mills and
Refinery Extraction.
Looking to the wide gap between demand and supply, of a vital
commodity, cement, which plays an important role in nation – building the
Government of India de – licensed the Cement Industry in the year 1966 with
a view to attract private entrepreneurs to argument the cement product
Kesoram rose to the occasion and decided to set up a few cement plants in the
country.
The first Cement Plant of Kesoram with a capacity of 2.5 lack tones
per annum based on dry process, was established in 1969 at Basanthnagar a
backward area in Karimnagar District, AdhraPradesh, and christened it
Kesoram Cement. The second unit followed suit, which added a capacity of
2.00 lack tones in 1971. The plant was further expanded to 9.00 lack tones by
adding 2.5 lack tones in August 1978. 1.14 lack tones in January, 1981 and
0.87 lack tones in September, 1981.
Kesoram Cement has outstanding track record of performance and
distinguished itself among all the Cement factories in India by bagging the
coveted National Productivity Award for two successive years, i.e., in 1985
and 1936, so also the National Awards for Mines Safety for two year 1985 –
86 and 1986 - 87. Kesoram also bagged NCBM’s (National Council for
Cement and Building Materials) National Award for Energy Conservation for
the year 1989 – 90.
Kesoram got the prestigious State Award “Yajamnya Ratna” & “Best
Management Award” for the year 1989; so also the FAPCCI (Federation of
Andhra Pradesh Chamber of Commerce and Industry) Award for the Best
Family planning effort in the State. For the year 1987 – 88, Kesoram also got
the FAPPCI Award for Best Industrial Promotion / Expansion effort in the
state. In the year 1991 Kesoram also got the May day Award of the
Government of Andhra Pradesh for “Best Management” and “Pandit
Jawaharlal Nehru Silver Rolling Trophy for the Best Productivity effort in the
State, sponsored by FAPCCI, for 1993 Kesoram got the Best.
Performance:
The performance of Kesoram Cement industry had been
outstanding achieving over cent per cent capacity utilization although despite
many odds like power cuts and which most 40% was waste due to wagon
shortage etc.
The Company being a continuous process industry works round the
clock and has an excellent record of performance achieving over 100%
capacity utilization.
Kesoram has always combined technical progress with industrial
performance. The company had a glorious track record for the last 27 years in
the industry.
Technology:
Kesoram Cement uses most modern technology and the computerized
control in the plant. A team of dedicated and well – experienced experts
manages the plant. The quality is maintained much above the bureau of Indian
Standards.
The raw materials used for manufacturing cement are:
Lime stone
Bauxite
Hematite
Gypsum
TOOLS AND TECHNIQUES OF INVENTORY MANAGEMENT
A proper inventory control not only helps in solving the acute problem
of liquidity but also increases profit and causes substantial reduction in the
working capital of the concern.
The following are the important tools and techniques of inventory
management and control.
1. Determination of stock levels:
Carrying of too much and too little of inventory is detrimental to the
firm. If the inventory level is too little, the firm will face frequent stock outs
involving heavy ordering cost and if the inventory level is too high it will be
unnecessary tie up of capital.
An efficient inventory management requires that a firm should
maintain an optimum level of inventory where inventory costs are the
minimum and at the same time there is no stock out which may result in loss
or sale or shortage of production.
a) Minimum stock level:
It represents the quantity below its stock of any item should not be
allowed to fall.
Lead time: A purchasing firm requires sometime to process the order
and time is also required by the supplying firm to execute the order.
The time in processing the order and then executing it is know as lead
time.
Rate of Consumption: It is the average consumption of materials in
the factory. The rate of consumption will be decided on the basis of past
experience and production plans.
Nature of materials: The nature of material also affects the minimum
level. If a material is required only against the special orders of the customer
then minimum stock will not be required for such material.
Minimum stock level can be calculated with the help of following
formula.
Minimum stock level – Re – ordering level – (Normal consumption x
Normal re – order period)
b) Re – ordering Level:
When the quantity of materials reaches at a certain figure then fresh
order is sent to get materials again. The order is sent before the materials reach
minimum stock level.
Re – ordering level is fixed between minimum level to maximum level.
c) Maximum Level:
It is the quantity of materials beyond which a firm should not exceeds
its stocks. If the quantity exceeds maximum level limit then it will be over –
stocking.
Overstocking will mean blocking of more working capital, more space
for storing the materials, more wastage of materials and more chances of
losses from obsolescence.
Maximum stock level – Reordering Level + Reorder Quantity –
(Maximum Consumption x Minimum reorder period)
d) Danger Stock Level:
It is fixed below minimum stock level. The danger stock level indicates
emergency of stock position and urgency of obtaining fresh supply at any cost.
Danger Stock level = Average rate of consumption x emergency delivery
time.
e) Average Stock Level:
This stock level indicates the average stock held by the concern.
Average stock level = Minimum stock level + ½ x reorder quantity.
2) Determination of Safety Stocks:
Safety stock is a buffer to meet some unanticipated increase in usage.
The demand for materials may fluctuate and delivery of inventory may also be
delayed in such a situation the firm can be face a problem of stock out.
In order to protect against the stock out arising out of usage
fluctuations, firms usually maintain some margin of safety stocks.
Two costs are involved in the determination of this stock that is
opportunity cost of stock outs and the carrying costs.
If a firm maintains low level of safety frequent stock outs will occur
resulting into the larger opportunity costs. On the other hand, the larger
quantity of safety stocks involves carrying costs.
3) Economic Order Quantity (EOQ):
The quantity of material to be ordered at one time is known as
economic ordering quantity.
This quantity is fixed in such a manner as to minimize the cost of
ordering and carrying costs.
Total cost material = Acquisition Cost + Cost + Carrying Costs +
Ordering Cost.
Carrying Cost:
It is the cost of holding the materials in the store.
Ordering Cost:
It is the cost of placing orders for the purchase of materials.
EOQ can be calculated with the help of the following formula
EOQ = 2CO / I
Where C = Consumption of the material in units during the year
O = Ordering Cost
I = Carrying Cost or Interest payment on the capital.
4) A – B – C – Analysis: (Always better control analysis):
Under A – B – C Analysis. The materials are divided into 3 categories
viz., A, B and C.
Almost 10% of the items contribute to 70% of value of consumption
and this category is called ‘A’ category.
About 20% of the items contribute about 20% of value of category ‘C’
covers about 70% of items of materials which contribute only 10% of value of
consumption.
5) VED Analysis : (Vitally Essential Desire)
The VED analysis is used generally for spare parts. Spare parts
classified as Vital (V), Essential (E) and Desirable (D).
The vital spares are a must for running the concern smoothly and these
must be stored adequately. The ‘E’ types of spares are also necessary but their
stocks may be kept at low figures. The stocking of ‘D’ type spares may be
avoided at times. If the lead time of these spares is less, then stocking of these
spares can be avoided.
6) Inventory Turnover ratio:
Inventory turnover ratios are calculated to indicate whether inventories
have been used efficiently or not.
The inventory turnover ration also known as stock velocity is normally
calculated as sales / average inventory of cost of goods sold / average
inventory.
Inventory conversion period may also be calculated to find the average
time taken for clearing the stocks. Symbolically.
Inventory Turnover Ratio = Cost of goods sold
__________________________
Average inventory at cost
Or
= Net sales
_____________________
(Average) Inventory
And, Inventory conversion period = Days in a year
______________________
Inventory Turnover ratio
7) Classification and Codification of Inventories:
The inventories should first be classified can then code numbers should
be assigned for their identification. The identification of short names are
useful for inventory management not only for large concerns but also for small
concerns. Lack of proper classification may also lead to reduction in
production.
Generally, materials are classified accordingly to their nature such as
construction materials, consumable stocks, spares, lubricants etc. After
classification the materials are given code numbers. The coding may be done
alphabetically or numerically. The later method is generally used for coding.
The class of materials is assigned two digits and then two or three
digits are assigned to the categories of items divided into 15 groups. Two
numbers will be category of materials in that class.
The third distinction is needed for the quality of goods and decimals
are used to note this factor.
8) Valuation of inventories – Method of valuation:
FIFO method
LIFO method
Base Stock method
Weighted average price method
CRITERIA FOR JUDGING THE INVENTORY SYSTEM
While the overall objective of the inventory system is to minimize the
cost to the firm at the risk level acceptable to management, the more
proximate criteria for judging the inventory system are:
Comprehensibility
Adaptability
Timeliness
Area of improvement:
Inventory management in India can be improved in various ways.
Improvements could be affected through.
Effective Computerization: Computers should not be used merely for
accounting purpose but also for improving decision making.
Review of Classification: ABC and FSN classification must be periodically
reviewed.
Improved Coordination: Better coordination among purchase, production,
marketing and finance departments will be help in achieving greater efficiency
in inventory management.
Development of long term relationship:
Companies should develop long term relationship with vendors. This
would help in improving quality and delivery.
Disposal of obsolete / surplus inventories:
Procedures for disposing obsolete / surplus inventories must be
simplified.
Adoption of challenging norms:
Companies should set benchmarks with global competitors and use
ideals like JIT to improve inventory management.
FRME WORK
Inventory cost – an overall view
Introduction:
In financial parlance, inventory is defined as the sum of the value of
the raw materials, fuels and lubricants spare parts maintenance consumable
semi – processed materials and finished goods stock at any giving point of
time. The operational definition of inventory would be amount of raw
materials, fuel and lubricants, spare parts and semi – processed materials to be
stock for the smooth running of the plant / industry.
Need of Inventory:
Inventories are maintained basically for the operational smoothness
which they can be affected by uncoupling successive stages of production,
whereas the monetary value of the inventory serves as a guide to indicate the
size of the investment made to achieve this operational convenience. The
materials management departments primary function is to provide this
operational convenience with a minimum possible investment in inventories.
Materials department is accused of both stock outs as well a large investments
in inventories. The solution lies in exercise a selective inventory control and
application of inventory control techniques. Inventories build to act as a
cushion between supply and demand. It is sufficient to take care of the
requirements of demand till the next supply arrives. It is sufficient to take care
of probable delays in supply as well as probable variations in demand.
The size of the inventory depends upon the factors such as size of
industry internal lead time for purchase, supplier’s lead time, vendor relations
availability of the materials, annual consumption of the materials. Inventory
coat can be controlled by applying Modern Techniques viz., ABC analysis,
SDE, ESN, HMC, VED etc. These techniques can be used effectively with the
help of computerization.
What is meant by inventory cost:
A. The total value of stores and spares and capital spares.
B. Stores in transit and under inspection and
C. Stock of finished products.
Normally, there are certain problems in maintaining optimum level of
Inventory. Problems of inventory can be resolved by the cost implications.
Costs which are relevant for consideration are discussed in the following lines;
Basically there are four costs for consideration in developing and
inventory model.
1. The cost of placing a replenishment order.
2. The cost of carrying inventory.
3. The cost of under stocking and
4. The cost of over stocking.
The cost of ordering and inventory carrying cost are viewed as the
supply side costs and help in the determination of the quantity to be ordered
for each replenishment.
The under stocking and over stocking costs are viewed as the demand
side costs and help in the determination of the amount of variations in demand
and the delay in supplies which the inventory should withstand.
Whenever an order placed for stock replenishment, certain costs are
involved, and, for most practical purpose it can be assumed that the cost per
order is constant. The ordering cost may vary depending upon the type of
items, for example raw material like steel against production component like
castings in steel plants, support materials in the case of coal industry.
The cost ordering includes:
1) Paper work costs, typing and dispatching an order.
2) Follow up costs the follow up, the telephones, telex and postal bills
etc.,
3) Costs involved in receiving of the order, inspection, checking and
handling in the stores.
4) Any set up cost of machines charged by the supplier, either directly
indicated in quotations or assessed through quotations of various
quantities.
5) The salaries and wages of the purchase department.
Cost of Inventory carrying:
This cost in measured as of the unit cost of the item. This measure
gives basis for estimating what is actually costs a company to carry stock.
This cost includes:
1) Interest on capital.
2) Insurance and tax charges.
3) Storage costs – labour costs, provision of storage area and facilities
like bins, racks etc.,
4) Transport bills and hamali charges.
5) Allowance for deterioration or spoilages.
6) Salaries of stores staff.
7) Obsolescence.
The inventory carrying cost varies and a major portion of this is
accounted for by the interest on capital.
Under stocking cost:
This cost is the cost incurred when an item is out of stock. It includes
cost of lost production during the period of stock out and the extra cost per
unit which might have to be paid for an emergency purchase.
Over stocking cost:
This cost is the inventory carrying cost (which is calculated per year)
for a specific period of time. The time varies in different contexts – it could be
the lead time of procurement of entire life time of machine. In the case of one
time purchases, over cost would be = Purchase Price – Scrap Price.
INVENTORY VALUATION AND COST FLOWS:
What is the cost of inventory?
One can readily visualize the determination of inventory quantities by
physical count or by use of perpetual inventory records. When this quantity is
determined, it must be multiplied by a unity cost in order to determine the
inventory value that is used on financial statements.
Trade and quantity discount are to be excluded from unit cost since
these discount exist for the purpose of defining the true invoice cost of
merchandise. Cash discounts, on the other hand, have been considered as a
reward for early payment and as a penalty for late payment. The “reward” has
often been interpreted as a loss rather than as a part of unit cost. Thus it would
not be difficult to find difference of opinion as to whether invoice cost
includes or excludes cash discount.
When the “current replacement cost” of material on hand at the close
of a year is less than the actual cost, the inventory value is reduced to
replacement cost (current market price). Thus the acceptable basis inventory
valuation is the “lower of cost or market” or more properly the “lower of
actual cost or replacement cost”.
The determination of inventory values is very important from the point
of view of the balance sheet and the income statement since costs not included
in the inventory (the balance sheet) are considered to be expensive and are
thus included in the income statement.
Valuation of inventories – methods of determination:
Although the prime consideration in the valuation of inventories is
cost, there are a number of generally accepted methods of determining the cost
of inventories at the close of an accounting period. The most commonly used
methods are first – in first out (FIFO) average, and last – in first – out (LIFO).
The selection of the method for determining cost for inventory valuation is
important for it has a direct bearing on the cost of goods sold and consequently
on profit. When a method is selected, it must be used consequently and cannot
be changed for year to year in order to secure the most favorable profit for
each year.
THE FIFO METHOD (FIRST – IN FIRST – OUT METHOD)
Under this method it is assumed that the materials or goods first
received are the first to be issued or sold. Thus, according to this method, the
inventory on a particular date is presumed to be composed of the items which
were acquired most recently.
The value inventory would remain the same even if the “perpetual
inventory system” is followed.
Advantage:- The FIFO method has the following advantages.
1) It values stock nearer to current market prices since stock is
presumed to be consisting of
2) The most recent purchases.
3) It is based on cost and, therefore, no unrealized profit enters into
the financial accounts of the company.
4) The method is realistic since it takes into account the normal
procedure of utilizing or selling those materials or goods which
have been longer longest in stock.
Disadvantages:- The method suffers from the following disadvantages.
1) It involves complicated calculations and hence increases the
possibility of clerical errors.
2) Comparison between different jobs using the same type of material
becomes sometimes difficult. A job commenced a few minutes
after another job may have to bear an entirely different charge for
materials because the first job completely exhausted the supply of
materials of the particular lot.
The FIFO method of valuation of inventories is particularly suitable in
the following circumstances.
I. The materials or goods are of a perishable nature.
II. The frequency of purchases is not large.
III. There are only moderate fluctuations in the prices of materials or
goods purchased.
IV. Materials are easily identifiable as belonging to a particular
purchase lot.
The LIFO method (Last – in – First – Out method)
This method is based on the assumption that last item of materials or
goods purchased are the first to be issued or sold. Thus, according to this
method, inventory consists of items purchased at the earliest cost.
Advantages:- This method has the following advantages:
1) It takes into account the current market conditions while valuing
materials issued to different jobs or calculating the cost of goods
sold.
2) The method is base on cost and, therefore, no unrealized profit or
loss is made on account of use of this method.
The method is most suitable for materials which are of bulky and non –
perishable type.
Base Stock Method:
This method is based on the contention that each enterprise maintains
at all times a minimum quantity of materials or finished goods in its stock.
This quantity is termed as base stock. The base stock is always valued at this
price and its carried forward as a fixed asset. Any quantity over and above the
base stock is valued in accordance with any other appropriate method. As this
method aims at matching current costs to current sales, the LIFO method will
be most suitable for valuing stock of materials or finished goods other than the
base stock. The base stock method has advantage of charging out material /
goods at actual cost. Its other merits or demerits will depend on the method
which is used for valuing materials other than the base stock.
Weighted average price method:
This method is based on the presumption that once the materials are
put into a common bin, they lose their identity. Hence, the inventory consists
of no specific batch of goods. The inventory is thus priced on the basis of
average priced on the quantity purchased at each price.
Weighted average price method is very popular on account of its being
based on the total quantity and value of materials purchased besides reducing
number of calculations. As a matter of fact the new average price is to be
calculated only when a fresh purchase of materials is made in place of
calculating it every now and then as is the case with FIFO, LIFO methods.
However, in case of this method different prices of materials are charged from
production particularly when the frequency of purchases and issues/sales in
quite large and the concern is following perpetual inventory system.
Valuation of inventories – impact on the flow of costs:
As should be quite evident, the different methods of calculating
inventory values will all have their impact on the flow of costs through the
balance sheet into the income statement. The dollars that are paid to acquire
inventory are always divided between the balance sheet (inventories) and the
income statement (cost of goods sold), there is not other place to put them.
Thus if the different methods of calculating inventory produce differing
inventory values, they will also produce differing cost of goods sold figures,
and the differing cost of goods sold figures will naturally produce differing
profit figures.
In order show the impact of inventory valuation on cost flows, the
preceding exhibits are summarized. Each method produces a different figure
for the transfer of raw materials to work in process. These differences appear
small, but the only reason for this is that the dollar amounts have been kept
small to make the illustration workable.
With the transfer of materials to work in process, the cost flow or
transfer with have its impact on the work in process inventory and the transfer
of completed merchandise to finished gods. Ultimately when goods are sold;
the varying methods of valuing inventories will have their impact on cost of
goods sold and these profits. The effects of the cost flows on cost of gods sold
and profits can be accentuated further it the differing methods of valuing
inventories are applies to work in process and finished goods.
Evaluation of methods – What causes the differences?
The differences in inventory values and flows for each of the method
illustrated result from only one factor, that it, changing purchases prices or
unit costs. If purchase prices had remained stable or unchanged, each method
would have produced the same inventory value and cost flow.
Cost flows and inventory are exactly the some under stable prices.
With a falling price level, the LIFO method produces the highest cost flow and
the lowest inventory. With a falling price level, the LIFO method produces the
lowest cost flow and highest inventory. The cost flow under LIFO follows the
price level, LIFO produces larger cost flows when prices are rising and
smaller cost flows when prices are falling. A final item to consider is that the
average method produces results which fall between the extremes of LIFO and
FIFO.
Evaluation of methods – can we justify the differences?
The best method of inventory valuation might be “specific
identification”, that is, the units in inventory should be identified with the
specific invoices and thus specific unit costs to which they apply.
Fortunately, the FIFO method constitutes a very useful approximation
to the specific identification method if on can reasonably assume that the
actual flow of materials is first-in first-out. This assumption is not
unreasonable and thus we have stated the main argument for the FIFO
inventory scheme, that is, the physical flow of materials would match the flow
of costs under the first – in first – out method.
When the units in inventory are identical, interchangeable and do not
follow any specific pattern of physical flow, the average cost system would
seen to appropriate.
The primary difference between the FIFO and average methods is
centered on the physical flow since both methods could involve identical and
interchangeable units. The FIFO method fits a first-in first-out physical flow.
The average method fits a system which has no specific pattern of physical
flow. Finding a situation where there is no specific pattern of physical flow
should be quite difficult because of the fact that most inventory items are
subject to deterioration by instituting a person would attempt to reduce such
deterioration and any reasonable person would attempt to reduce such
deterioration by instituting a physical flow approximating first-in-first-out.
The major reason for the use of the average method is something other than
the lack of specific physical flow.
Ordinarily the LIFO method cannot be justified on the basis of the
physical flow of materials. Under conditions of changing prices, the advocate
of LIFO says that the only method which matches costs and revenues is the
LIFO method. The LIFO method assumes that the latest item is the first item
out, and thus the current costs of materials are matched with the other hand,
assumes that the first item in is the first item out, and thus the non-current
costs of matching current costs with current revenues is the essence of the
argument for the LIFO method.
As can be seen by the above comments, there is no one best method of
valuing inventories. The method chosen should fit the situation. A physical
flow pattern comparable to FIFO would force one to consider the FIFO
method. The lack of a discernible physical flow pattern would force one to
consider the average method. Concentration on cost flows, as distinct from
physical flows, would force to consider the LIFO method especially where
there appears to be a discernible trend towards rising prices (or falling prices)
as has been the case in our economy during recent years.
Inventories valued at standard cost:
A very useful method of valuing inventories is at a standard cost. With
a standard cost system is no need of spending a great deal of time and money
tracing unit cost through perpetual inventory record.
PERPETUAL INVENTORY CARD UNDER A STANDARD COST
SYSTEM
Perpetual inventory Plant: …………………… Standard cost:……………………
Location:……………………………………… Order Quantity:………..………...
Order Point: …………………..…
Date Description On order Received IssuedAvailable
On order On hand
As shown above, there is need only for physical quantities since the
inventory values is the physical quantity multiplied by the standard cost. With
the cost and value columns disposed off, a perpetual inventory card can
include additional data such as quantities on order, quantities reserved, and
quantities available. These additional data are very useful for inventory and
production control purpose. On the basis of a few calculations concerning into
inventories on a FIFO, a LIFO, or an average cost basis.
Inventory of Obsolescence:
Absolvent inventories cannot be used or disposed off at values carried
on the books. Frequent reviews should be made of all inventories, and when
obsolescence is indicated a request for revaluation should be prepared for
approval by management. The difference between original and obsolete value
should be recorded by a change to an operating account. Inventory
obsolescence, and a credit to inventory. If the material is scrapped, this will be
for the full inventory value or used in areas where it will be work less than its
original value, the entry would be only for the amount of write down. Some
companies carry a solvage inventory and transfer to it materials which may be
sold or used at reduced values. Where this is done, the entry would be:
Dr. Solvage inventory
Dr. Inventory Obsolescence. Cr. Raw Material inventory or Supplies
inventory.
Inventory cost in relation Kesoram Cements shall to classifieds follows:
Inventory can be classified as capital and revenue certain items through
titled as capital in nature. Hence, due care is to be take whole drawing the
material.
Materials which are to be imported from other countries have to be
planned well in advance nearly about 24 months are to initiate the proposals
for procurement.
Similarly some of the items do not require any lead time some they are
available in the local market.
Cement is highly energy intensive industry, the inputs like power and
coal are the major part of the variable cost since Government controls the coal
& fuel sector, and increase is rates adversely effects the cement industry.
Kesoram cement has it own power plant and through which it saves
energy consumption. By this the cost since Government controls the coal &
fuel sector, any increase rates adversely effects the cement industry.
Inventory cost of any organization also adversely affects by retaining
obsolete / scrap and inventory costs can be reduced by management with an
advance planning of procurement of materials, periodical reviews of existing
spares with reference to the fast consumption, ascertaining the information
regarding the availability of spares in other areas. Holding of extra inventory
will be an additional financial burden to the company due to payment of
interest charges on the materials purchased, diminishing value of materials
purchased, diminishing value of materials by keeping them in stores for a log
time, handling charges, spare rent etc.,
The inventory of Kesoram cement mainly includes Limestone,
Bauxite, Gypsum, Fly ash.
Inventory in Kesoram Cement during 2003 – 04 to 2007 – 08 are as
follows: (Units in m.t)
Years 2003 – 04 2004 – 05 2005 – 06 2006 – 07 2007 – 08
Limestone 1042230 974490 956940 968730 1239443
Bauxite 49637 44256 41872 431151 64961
Gypsum 23243 20703 21747 23091 38765
Fly ash 5752 10301 18101 33695 159344
The value of the above raw materials for the year 2003 – 08 are as
follows: (Value in Rs.)
Years 2003 – 04 2004 – 05 2005 – 06 2006 – 07 2007 – 08
Limestone 122161492 13853482 13853482 157130922 243412189
Bauxite 32294775 27971993 27971993 23488745 38552277
Gypsum 19613001 17100574 17100574 19699583 49061196
Fly ash 28203 644473 644473 2546948 20223404
Value of imported and indigenous raw materials, stores, spare parts
and components consumed during the year:
Imported
Years 2003 – 04 2004 – 05 2005 – 06 2006 – 07 2007 – 08
Raw Materials 95354856 593002633 666190014 491339625 1454235982
Stores spare
part’s and
components
522588043 522588043 75345209 131624912 42279637
Indigenous
Years 2003 – 04 2004 – 05 2005– 06 2006 – 07 2007 – 08
Raw Materials 1104787879 3995869418 3558875426 4117405138 7906341716
Stores spare
part’s and
components
611204564 981990949 189149420 1365664385 3868715827
CEMENT FACTORY RUNS WITH VARIOUS EQUIPMENTS:
I. TECHNICAL DEPARTMENT
1. MINES
2. MECHANICAL
3. ELECTRICAL
4. CIVIL
II. COMMERCIAL DEPARTMENTS
1. STORES
2. PURCHASE
3. ACCOUNTS
TO RUN THE PLANT AND MAINTAIN EQUIPMENTS DEPARTMENTS
REQUIRE SPARES.
FOR SUCH REQUIREMENT OF SPARES DEPARTMENTS RAISE
INDENTS AND SEND THE INDENTS TO PURCHSE DEPARTMENT
THROUGH STORES.
INDENTS:
1) ANNUAL INDENTS FOR CONSUMABLE ITEMS (STORES
ITEMS).
2) REGULAR INDENTS RAISED BY CONSUMING DEPARTMENTS.
3) ANNUAL REQUIREMENT OF RAW MATERIALS PROMOP & QC.
ENQUIRIES:
1) ENQUIRES WILL BE SENT APPROVED SUN CONTRACTORS.
ORDER PROCESSING FORM:
1) RECEIVING QUOTATIONS FROM SUB – CONTRACTORS.
2) ENTER THE PRICE DETAILS OF ENQUIRY SENT IN THE
ORDER PROCESSING FORM.
3) SELECTION OF PARTY ON MERIT BASIS.
PURCHASE ORDER:
1) PREPARE PURCHSE ORDER ON SELECTED PARTY.
2) SEND PURCHASE ORDER COPIES TO PARTY, STORES AND
DEPARTMENTS.
GOODS RECEIPT NOTE:
1) RECEIVING GOODS RECEIPT NOTE FROM STORES.
PURCHASE DEPARTMENT:
ACTIVITY RECEIVING INDENTS:
FLOW CHART:
Receipt of annual indents for consumable items / stores items from
stores department.
Checking of indent number an authority of item, delivery time
consumption period.
In case of any deficiency, send the information to concerned
department for clarification.
Segregation of indents for attending at C.P.D. and Hyderabad Office.
Sent the Hyderabad indents to Hyderabad Office.
Enter the indents details in indent register.
PURCHASE DEPARTMENT
PURCHASE ENQUIRY
Ms.
Sl.
No.
Material
CodeDepartment Quantity Unit
When
Required
ACTIVITY: FLOATING ENQUIRIES:
FLOW CHART:
Checking indented items and equipment name.
Taking previous supplier’s information form previous supply. If
new equipment / item, information to be taken from concerned
department or from competitors / journals / yellow pages.
Prepare enquiry to approved sub – contractors through enquiry
format.
If emergency requirement, send the enquiries through fax / e-mail.
Enter the details of enquiries sent in order processing form.
STORES DEPARTMENT
ACTIVITY: RECEIPTS AND UNLOADING MATERIAL
1 Receiving of Goods through Trunk / Personnel Delivery.
2 Entry of vehicle at Gate Office.
3 Stamping on Dispatch Advise / Delivery challan by Gate Office.
4 Checking of challans / Dispatch Advise with purchase order.
5 Unloading of Goods at allotted place or in case of urgency direct at
works site.
6 All safety precautions are taken while unloading of material like
workers should wear safety shoes, helmets, leather head gloves, noise
respirator, nose mask.
7 Training is given to workers for unloading Heavy & Bulky material by
using chain pulley Blocks, Wire Rope Ceilings, Fork Lift. After UIL
receipt acknowledgement given to driver maintaining Lorry receipts
register.
ACTIVITY: PREPARATION OF RECEIPT AND APPROVAL BOOK
FOR GENERAL MATERIAL / D.C. ENTER OF BLOCK, REPAIR
AND STATIONARY MATERIAL MANUALLY IN REGISTER
8 Sorting of Delivery challans as below:
a. General
b. Stationery
c. Repairs
d. Block
9 Checking with P.O. and mentioning Material Code, Party Code, Indent
No. Department Name on each & every challans.
10 Creation of D.C. entry in system for general materials.
11 Preparation of identification tags for General Materials through
system.
12 Preparation of Receipt & Approval Book for General materials.
13 Manual entry of block, stationery, repair materials.
14 Preparation of intimations for block, stationery, repair materials.
ACTIVITY: PHYSICAL VERIFCATION OF GOODS:
15 All D.C. handed over to stores assistant physical verification like
measuring, counting and tallying with D.C.’s Quantity / Description of
the materials by the Stores Assistant.
16 Identification tags to be attached to the verified material. Shortage /
Excess / Damages if any found to be noted on challans and inform to
section incharge.
17 Preparation of Shortage / Excess / Reports if any sending to parties
under copy to purchase / bills sections.
ACTIVITY: APPROVAL OF MATERIAL AND PREPARATION OF
GOODS RECEIPT NOTES:
18 Intimation is be sent to all the concerned departments. Showing
materials to concern person.
19 Taking approval of the material in receipt & approval book.
20 Preparation general material in receipt & approval book.
21 Preparation general material GRN’s through system and stationery /
block / repairs GRNs manually.
22 Forwarding true copy to issue section of GRN for general material
forwarding true copy to issue section of GRN for General material
forwarding true copy of block / Repair / Stationery GRN to issue
section and copy to purchase department.
ACTIVITY: REJECTED MATERIALS
23 Rejected materials kept in allotted area of rejected materials.
24 Packing of rejected materials.
25 Preparation of gate passes for rejected materials.
26 Sending back to suppliers through our Hyderabad Office.
27 Sending consignee copy to party vide Register Letter for booking of
Register goods to party’s other than.
ACTIVITY: EXCISE GATE PASSES
28 Sending duplicate for transport copy of excise invoice from suppliers
delivery challans.
29 Mentioning A.B. Sl. No. and named of concerned department.
30 Duplicate for transport copy of excise invoice over to bills section for
sending the same to Excise Department.
31 Corresponding with supplier. If the Excise Invoice is not found with
delivery challans.
SACTIVITY: RECEIPTS OF MEDICINES
32 Physical verification of Medicines as per Invoices.
33 Verification of expiry date on medicines.
34 Verification of MRP.
35 Sending shortage / excess note if any found.
36 Taking approval of Medical Officer.
37 Sending Rejection notes if any medicine is rejected.
38 Issuing to dispensary.
39 Bills forwarding to Account Department vide IOM for making the
payment.
CHAPTER – IV
DATA ANALYSIS
AND
INTERPRETATION
RATIO ANALYSIS
The investment on raw materials over a period of 5 years from 2005 to
2010 is presented in the following table.
1. Investment on Raw Materials
Year Investment on Raw Material (in crores)
2005 - 06 11690.67
2006 - 07 49950.88
2007 - 08 42950.66
2008 - 09 46087.45
2009 - 10 93605.78
Interpretation:
1) From the above table it can be understood that the inventory of
Kesoram Cement was recorded at 13,386.80 during the year 2004 – 05
99 and it is increased to 93605.78 during the year 2009 – 10.
2) It shows that there is on increase in the inventory to the more extent of
80218.98.
3) The average inventory of Kesoram Cement was recorded at
Rs.42945.41.
4) The highest investment in inventory was recorded in the years 2009-10
2. Trend Analysis:
Trend analysis technique is applied to know the growth rate in
investment of raw material of Kesoram Cement over the review period which
is shown in the following table.
Trend Analysis:
YearRaw Material (in
Lacks)Trend %
2005 - 06 11690.67 87%
2006 - 07 49950.88 373%
2007 - 08 42950.66 315%
2008 - 09 46087.45 344%
2009 - 10 93605.78 699%
Interpretation:
1) The investment on investment has increased in the year 2009 – 10.
And the lost year investment has declared continuously. The
percentage in 2007 – 08 was 315% as compared to years 2006 – 07 to
2009 – 10.
2) The trends in inventories show that inventory have been more in the
year 2009 – 10 and then it has shown a downward trend and again it
increased to some extent.
3) The investment in inventories has shown fluctuating trend is initial
years and then it raised to 699% and again showing fluctuating trend.
3. Inventory Turnover Ratio:
This ratio indicates the number of times the stock has been turned over
during the period & evaluates the efficiency with which a firm is able to
manage its inventory. This ration is calculated by applying the following
formula.
Cost of goods sold
Inventor turn over ration = _________________
Average inventory
Inventory turn over ration:
YearCost of goods
soldAvg. Inventory Ratio
2005 - 06 59021.41 37975.30 1.55
2006 - 07 121551.71 95065.28 12.79
2007 - 08 127533.58 12390.06 10.29
2008 - 09 130392.68 1333.8.01 9.78
2009 - 10 311636.92 160035.93 1.32
Interpretation:
1. From the above table 2004 it can be observed that (1) inventory turn
over ratio is 8.13 during 2004 – 2005 and it gradually decreased to
1.55 during 2005 – 2006.
2. In the year 2009 – 10 it is clear that the ratio is very less i.e., he stock
is not turned into sales quickly.
3. As compared to all the years the ratio is very less in 2009 – 10.
4. The average inventory turn over ratio was recorded at 7.3 times during
the review period.
4. Inventory conversion period:
It may also be of interest to see average time taken for clearing the
stocks. This can be possible by calculating inventory conversion period. This
period is calculated by dividing the numbers of the days by inventory turn over.
This formula may be as:
Days in a year (360 days)
Inventory conversion period = _____________________
Inventory turnover ratio
Inventory conversion period: (in crores)
YearCost of
goods sold
Avg.
inventoryRatio ICP (Days)
2005 - 06 59021.41 37975.30 1.55 232
2006 - 07 121551.71 95065.28 12.79 28
2007 - 08 127533.58 12390.06 10.29 34
2008 - 09 130392.68 1333.8.01 9.78 36
2009 - 10 311636.92 160035.93 1.32 272
0
50
100
150
200
250
300
2005-06 2006-07 2007-08 2008-09 2009-10
Interpretation:
From the above table it can be identified the following observations:
1) The inventory conversion period was 232 days during the year 2005 –
06 but it declined to 204 during 2006 - 07, which indicates that the
stock has been very quickly converted into sales which mean the
company is managing the inventory efficiently.
2) The lowest inventory conversion period was recorded at 28 days in the
year 2006 – 07 and the highest inventory conversion was recorded at
272 days in the year 2009 – 10.
3) The average inventory conversion period was recorded at 107 days
during the review period.
5. Percentage of Inventory over current assets:
In order to know the percentage of inventory over current assets the
Ratio of inventory to current assets is calculated and which is presented in the
following table.
InventoryInventory over current assets ratio = __________ X 100
Current assets
Percentage of Inventory Over current assets:
Year Inventory Current Assets Ratio (%)
2005 - 06 11690.67 28770.78 40%
2006 - 07 49950.88 53063.75 94%
2007 - 08 42950.66 45598.02 92%
2008 - 09 46087.45 49713.32 92%
2009 - 10 93605.78 86811.49 107%
0%
20%
40%
60%
80%
100%
120%
2005-06 2006-07 2007-08 2008-09 2009-10
Interpretation:
1) From the above table it can be understand that the % of inventory over
current assets ratio was showing a declining trend for two years 2004 -
2005.
2) However from the year2009 – 10 it is showing an increasing trend.
3) The lowest inventory over current assets ratio was recorded at 40%
during the year 2004 – 06 and the highest inventory over current assets
ratio we recorded at 107% during 2009 – 10.
4) The average inventory over current assets ratio was recorded at 80%.
6. Percent of Inventory Over total current assets & fixed assets:
Inventory / Current + Fixed assets
Year Inventory Current Assets Ratio (%)
2005 - 06 11690.67 87468.76 13.36%
2006 - 07 49950.88 117985.89 42.33%
2007 - 08 42950.66 112647.26 37.50%
2008 - 09 46087.45 112637.07 40.91%
2009 - 10 93605.78 197330.50 47.43%
Interpretation:
1) During the year 2004 – 05 the ratio was 15.35% on it declined to
13.36% in the year 2005 – 06.
2) From the year 2006 – 07 it is showing fluctuating trend but as
compared to above 2 years it is increasing.
3) The lowest inventory over total assets ratio was recorded at 13.36%
during the year 2005 – 06 and the highest inventory ratio was recorded
at 43.43% during the year 2009 – 10.
4) The average inventory to total assets ration was recorded at 32.81%
during the review period.
7. Percentage of Inventory over current liabilities:
In order to know the percentage of inventory over current liabilities the
ration of inventory to current liabilities is calculated and which is presented in
the following table.
Inventory
Inventory over current liabilities ratio = __________________ X 100
Current liabilities
Percentage of Inventory Over current liabilities:
Year InventoryCurrent
liabilitiesRatio (%)
2005 - 06 11690.67 8042.62 145%
2006 - 07 49950.88 16204.14 308%
2007 - 08 42950.66 16204.14 284%
2008 - 09 46087.45 17728.22 259%
2009 - 10 93605.78 36253.41 258%
Interpretation:
1) From the above table it can be understand that the % inventory over
current liabilities ratio was showing a declining trend for two years
2004 – 05.
2) During the year 2005 – 06 the ratio was it gradually increased to 145
and there is a net increase to the extent of 128.
3) The lowest inventory over total amounts ratio was recorded at 17
during the year 2004 – 05.
4) The highest inventory to current liabilities ratio was recorded at 308
during the year 2006 – 07.
5) The average inventory to current liabilities ratio was recorded at 211
during the review period.
8. Current Ratio:
In order to know the current ratio the percentage of current assets to
current liabilities is calculated and which is presented in the following table.
Current assets
Current Ratio = _____________________
Current liabilities
Calculation of Current Ratio’s:
Year InventoryCurrent
liabilitiesRatio (%)
2005 – 06 28770.78 8042.62 23.57%
2006 – 07 53063.75 16204.14 3.27%
2007 – 08 45598.02 16204.14 3.06%
2008 – 09 49713.32 17728.22 2.80%
2009 – 10 86811.49 36253.41 2.39%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
2005-06 2006-07 2007-08 2008-09 2009-10
Interpretation:
1) From the above table it can be interpreted that the % of current
assets over current liabilities ratio i.e., current ratio was showing a
decreasing trend from year 2005 – 06.
2) In the year 2004 – 05 the ratio was 3.07% and has increased to
23.57% in the year 2005 – 06.
3) The lowest current ratio was recorded at 2009 – 10 which is 2.39%
and the highest current ratio was recorded at 23.57% during the
year 2005 – 06.
4) The average current ratio was recorded at 3.02% during the review
period.
9. Quick Ratio:
The quick ratio is the relationship between quick to current liabilities
quick assets is more rigorous test of liability position of a firm it is computed
by applying the following formula.
Quick ratio = Quick assets / Current Liabilities
Where Quick assets = Current Assets – Inventory
Year InventoryCurrent
liabilitiesRatio (%)
2005 - 06 17080 8042.62 2.12%
2006 - 07 3112 16204.14 0.002%
2007 - 08 3347 16204.14 0.22%
2008 - 09 3625 17728.22 0.20%
2009 - 10 3207 36253.41 0.08%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
2005-06 2006-07 2007-08 2008-09 2009-10
Interpretation:
1) From the above table it can be understand as that the % of quick
assets to current liabilities i.e., the quick ratio was 0.002% in 2006
– 07 and from that year it is showing increasing trend.
2) The highest quick ratio was recorded at 2.12% during the year
2005 – 06 and the lowest quick ratio was recorded at 0.002%
during the year 2006 – 07.
3) The average quick ratio was recorded at 0.66 during the review
period.
CHAPTER – V
CONCLUSIONS
&
SUGGESTIONS
Conclusions:
1) Over all the inventory of Kesoram Cements is up to the mark.
2) The production of clinker and cement during 2003 – 2004 was
7,47,436 and 7,77,092 respectively which is higher as compared to
2006 – 2007 which is 6,87,373 and 7,27,447.
3) Investment on raw material is 93605.78 lakhs which very high as
compared to 2006 – 07 which is only 460870.45 lakhs.
4) The inventory turn over ratio shows that the stock has been
converted into sales is only 1.32 times.
5) In the year 2004 – 05 the stock was cleared within 28 days whereas
it took 232 days in the year 2004 – 2005 which took more days for
clearing stock.
6) Year 2004 – 05 is not showing sample profits. This is because of
cement prices have been continuously under pressure due to
persistent mismatch between supply and demand.
7) The quantity of limestone in the year 2006 – 07 is 9,53,940 and its
value is 13,85,34,812 but whereas in the year 2004 – 05 the
quantity was 9,74,490 and the value is 12,21,61,492.
8) In purchase department for want of any item it should go through
several processes. This may include receiving indents, floating
enquiries, preparation of order processing form, preparation of
purchase order and order follow up inform the supplier. Most of the
time was spent in accounts payable.
9) In this type of process, it requires more number of employees and
supplier should also wait for until the accounts are matched.
10) This process takes an input, adds value to it and provides an output
to an internal or external customer.
Suggestions:
1) Though the production is higher is the year 2004 – 05 and the sales
were very high i.e., as per inventory conversion period it took 272
days. This shows that there is demand for cement and the funds
unnecessarily tied up. So, proper demand forecasting should be
done and according to that it may be manufactured.
2) The investment on raw material should be made as per the
requirement. Unnecessary investment may block up the funds.
3) Neither too high nor too low inventory turnover ratios may reduce
profit and liquidity position of the industry. So, proper balance
should be made to increase profits and to ensure liquidity.
4) The raw material should be acquired from the right source at right
quality and at right cost.
5) The process that was being used by Kesoram Cements with the
purchasing department should undergo changes, so that, it seeks
enhance the celerity of the delivery of a product without
compromising its quality by improving the utilization of materials,
labour and equipment.
6) To reduce the work, the purchasing department may enter the
purchasing order into database and did not send a copy to any one.
When the merchandise arrived, the receiving clerk would enter the
database and determine whether the order agreed with the
electronic purchase order.
If it did, payment was authorized to be made at the appropriate
time. If it didn’t match, the order would be returned until if it is agreed by the
Kesoram Cement.
If it institutes “Invoice less purchasing” where the supplier did not
need to send an invoice to be paid.
This generally simplifies the process for all concerned. As a result, it
would able to reduce the work of its accounts payable department.
BIBLIOGRAPHY
1. Financial Management By IM Pandey
Vikas Publishing Houses pvt ltd
2006, 9th edition.
2. Financial Management By Prasanna Chandra
Tata McGraw Hill Publishing company ltd
2005, 5th edition.
3. Total Quality Management By PN Mukherjee
Prentice –Hallindia.
2006, edition.
4. Company’s Stores Management
5. Company’s Annual Report
ANNEXURES
VED - Vitally Essential Desire
EOQ Economic Order Quantity
ABC Analysis Always Better Control Analysis
FIFO First in First out Method
LIFO Last in first out Method
BSM Base Stock Method
WAPM Weighted Average Price Method
