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1
“A study of impact of Inventory Management on operating efficiency with special reference to The
Travancore Cochin Chemicals Ltd., Udyogamandal, Cochin”
PROJECT REPORT
Submitted in partial fulfillment of the requirements of the degree of
MASTER OF BUSINESS ADMINISTRATION
Kannur University
ByMr. MUHAMED NIYAS
(Reg. No: A9GMBA1066)
IV Semester MBA
Under the guidance of
Prof. Lakshmi Saju
Chintech School of Management Studies
Chinmaya Institute Of Technology
Kannur
2010
2
CERTIFICATE
This is to certify that the project report entitled
A study of impact of Inventory Management on operating efficiency with special reference to The Travancore
Cochin Chemicals Ltd., Udyogamandal, Cochin.
Is a bona fide record of work done by
MUHAMED NIYAS
(Reg. No.A9GMBA1066)
and submitted in partial fulfillment of the requirements of the degree of Master
Of Business Administration of the Kannur University
Place: Kannur Dr.K.K.FALGUNAN
Date : (PRINCIPAL)
3
CERTIFICATE
This is to certify that the project report entitled
A study of impact of Inventory Management on operating efficiency with special reference to The Travancore
Cochin Chemicals Ltd., Udyogamandal, Cochin.
Is a bona fide record of work done by
MUHAMED NIYAS
(Reg. No.A9GMBA1066)
and submitted in partial fulfillment of the requirements of the degree of Master
Of Business Administration of the Kannur University
Place: Kannur Prof. LAKSHMI SAJU
Date : (Asst. PROFESSOR)
4
DECLARATION
Date:
Muhamed Niyas
IV semester MBA
I hereby declare that the Project entitled “A study of impact of
Inventory Management on operating efficiency with
special reference to The Travancore Cochin Chemicals
Ltd., Udyogamandal, Cochin�” is my original work and it was
under the supervision of Prof.Lakshmi Saju, Asst. Professor, Chintech School
Of Management Study, Kannur.
I also declare that this report has not been submitted by me fully or partially
for the award of any degree, diploma, or any other similar title or recognition
before.
MUHAMED NIYAS
(Reg. No- A9GMBA1066)
5
ACKNOWLEDGEMENT
I am very much grateful to Almighty God who led in the right
way to complete my project work successfully. A deal of time and
much effort have gone into developing and researching this project.
Many people have helped directly and indirectly for the completion
of this project.
I would like to express my sincere thanks to
Dr.K.K.Falgunan, Principal, Chinmaya Institute of technology, for
supporting and encouraging me and also rendering all kind of help to
do the project.
I am indebted to thank Prof. Lakshmi Saju, project
coordinator for helping me in times of distress and confusion in the
course of project work and for her scholarly guidance.
My special thanks to Mr. Jiju Francis, Finance Head,
Travancore Cochin Chemicals Ltd, for providing me with this
permission to undertake studies on recruitment process at Travancore
Cochin Chemicals, Udyogamandal, Cochin.
I wish to express my sincere thanks to Mr. P.C.Sathyan
(Personnel Department HOD) and Mr. Mohanan for their valuable
guidance and continuous encouragement given at every stages of the
project.
Last but not the least; I extend my sincere thanks to my parents,
friends and other faculty members for their moral support and
cooperation.
6
INDEX
CONTENT
Title
Certificates
Declaration
Acknowledgement
Chapter 1: Introduction and Design of the Study
Introduction
Statement of the problem
Objective of the study
Sample design
Methodology and data collection
Tools of analysis
Chapter scheme
Chapter 2: Literature Survey
Chapter 3: Industry Profile And Company Profile
Chapter 4: Analysis and Interpretation Of Data
Chapter 5: Findings, Suggestions and Conclusions
Bibliography
7
CHAPTER-1
INTRODUCTION AND DESIGN OF THE STUDY
8
INTRODUCTION
India is a country of scarce resources and it is primarily responsibility
of each organization whether it is public sector, private sector, or a government
department to ensure optimum utilization of resources for production of goods
and services. Materials have come to occupy a very vital and critical position
in the resource position in the resource position of the country. Inventory
accounts for a major portion of the capital locked up in any organization.
Reduction of inventories will affect the profitability of the organization. The
Indian economy is growing and performance of the manufacturing sector has
regained its growth and it is indeed encouraging. The increased demand for
basic industrial chemicals such as the Chlor-alkali is a reflection of the growth
rate in national economy.
The production of Caustic Soda in the country has increased and several
manufacturers are undertaking new projects or increasing existing capacities in
this sector. So it is likely to increase demand for Caustic Soda and Chlorine
products. The main products of company are Caustic Soda, Hydrochloric Acid,
and Sodium Hypochlorite. Inventory management is a system of reports
maintained by the controlling department which reflect the physical movement
of stock and their current balance. It is the process of deciding what and how
much of various items are to be kept in stock. It also determines the time and
quality of various items to be produced.
In the project it is “A study of impact of Inventory Management on
operating efficiency with special reference to The Travancore Cochin
Chemicals Ltd., Udyogamandal, Cochin”
9
STATEMENT OF THE PROBLEM
Better inventory management and distribution is one key business area
of any company. The company should know what is to be produced and at
which warehouse the available stocks are located. Factors influencing
inventory demand and the interaction between production planning and control
and inventory control are considered as a key parameter of measuring the
efficiency of any manufacturing organization. The efficiency objective is given
more significance than the cost objective in these organizations. Importance of
stocks in an organization, role of stocks in the supply chain and the importance
of inventory management plays a vital role in decision making. Improper
investment in inventory leads to capital blockage as well as stock out
situations. High investment in inventory will result in high interest burden. By
improving the inventory management techniques the interest burden can be
reduced.
Here the problem definition is;
How inventory management affect the operating efficiency of The
Travancore Cochin Chemicals Ltd.?
OBJECTIVE OF STUDY
To find out the impact of inventory management on operating efficiency.
To determine changes in inventory position of the company.
To find out EOQ and reorder level.
To measure turnover, ABC analysis of the Company.
To determine various ratios for analyzing inventory level and operating
efficiency of company.
10
METHODOLOGY AND DATA COLLECTION
Research methodology is a way to systematically solve the research
problem. There are different types of research and they are descriptive
research, analytical research, and exploratory research. In this study I have
used the analytical research because the major purpose of analytical research is
to analyze the state of affairs as it exists at present. Analytical research
includes survey and in-depth analysis of variables. The research plan calls for
gathering primary and secondary data.
One can visualize the fact that a detailed study is required in each
practical situation for better results. Any effort which is directed to such study
for better result is known as research. A system of models, procedure and
techniques used to find the result of research problem is called research
methodology.
RESEARCH DESIGN
The research type is used in this study is “Descriptive research”. A
descriptive research is carried out with specific objective and hence it result in
definite conclusion.
METHODS OF DATA COLLECTION
In this research, the collection of data is from various sources and there
are two types.
1. Primary Data
2. Secondary Data
11
PRIMARY DATA
Primary data collection was mainly done through interaction with the
officials of different departments such as accounts department and stores
department.
SECONDARY DATA
Secondary data was collected from annual reports, books of accounts,
Internet, books, journals, etc.
NATURE OF DATA
Information for this work has been collected from previous records viz.
profit and loss account, stores ledger, and Balance sheet of the past five years.
Both primary and secondary data have been used for the study.
TOOLS OF ANALYSIS
The following tools were used for the purpose of analysis:
Determination of stock level
Determination of EOQ
Inventory turnover ratio
ABC Analysis.
1. STOCK LEVELS:
In order to minimize the unnecessary blocking of the capital in the
material stock and to avoid the interruption in the smooth production process
certain levels of stocks are to be determined in advance. The determination of
12
levels of stock helps in achieving the objectives of the inventory control. The
main stock levels to be determined are:
1. Maximum Stock level
2.Minimum Stock level
3.Average Stock level
4.Re-order level
5.Danger level of buffer stock or safety stock level
MAXIMUM STOCK LEVEL:-
The stock level above which the stock of any raw material is not
allowed to go is called as maximum stock level. It depends upon the
following factors.
� Rate of consumption
� Lead time or reorder period
� Storage capacity
� Availability of working capital
� Economic order quantity
� Carrying cost or holding cost
� Govt. policy
� Re-order level
Maximum Stock Level= Reorder level + Re-order quantity - (Minimum
consumption rate x Minimum lead time)
13
MINIMUM STOCK LEVEL:-
Minimum stock level is the lowest quantity of any raw material which
should always remain as balance in hand i.e. below which the raw material
should not be allowed to fall. It depends upon the following factors:-
� average rate of consumption
� average lead time
� re-order level
It is also called as buffer stock.
Minimum Stock Level = Reorder level – (Normal consumption x Normal
reorder period)
AVERAGE STOCK LEVEL:-
The level which is normally carried by the business looking towards
the nature and the requirements of the business.
Average Stock Level= (Minimum Stock Level + Maximum Stock
Level) /2
OR
(Minimum Stock Level + Re order quantity)/2
REORDER LEVEL:-
The reorder level is that level at which a fresh order should be placed for
the purpose of supply of the raw materials. It depends upon:-
� Lead time
� Rate of Consumption
� EOQ
14
Reorder level=Maximum Consumption Rate x Maximum Lead
Time
DANGER / SAFETY STOCK LEVEL:-
This is a level fixed usually below the minimum level. When the stock
reaches this level, very urgent action for purchase is indicated. This
presupposes that a minimum level contains a cushion to cover such
contingencies.
Reorder level – (Average Rate of Consumption x Average Lead
Time)
2. ECONOMIC ORDER QUANTITY:-
One of the major inventory management problem is to be resolved is
how much inventory should be added when inventory is replenished. If the
firm is buying raw materials, is has to decide lots in which it has to be
purchased on each replenish. If the firm is planning a production run, the
issue is how much production to schedule. These problem, are called order
quantity problems, and the task of the firm is to determine the optimum or
economic order quantity. It is that order quantity lot size which should be
purchased by the business so that the inventory cost of the business becomes
minimum.
___________
EOQ = 2 x C x O
I
Here:-
C is annual consumption, O is ordering cost, and I is carrying cost.
15
3. TURNOVER RATIOS
INVENTORY TURNOVER RATIO
Inventory turnover ratio indicates the number of times inventory
replaced during a given period normally a year. The ratio establishes the
relationship between costs of goods sold and inventory level. The inventory or
stock turnover ratio satisfies the efficiency of the firm’s invernotry
management. It is calculated by dividing the cost of goods sold by the average
inventory.
Inventory turnover ratio = Sales
Closing Inventory
RAW MATERIAL TURNOVER RATIO:-
Raw material turnover ratio = Sales
Raw material
The ratio reflects the rate of utilization of raw material. A higher
turnover ratio indicates higher utilization of raw material. However a very
high ratio is not good from the organization point of view as the same may
lead to bottleneck in production due to stock out of raw material. On the
other hard a low turnover of raw material is an indication of accumulation of
inventory. The efficiency of utilization of raw material can also be judged
from raw material holding period which is determined by dividing the number
of days during the year by inventory turn our ratio.
RAW MATERIAL HOLDING PERIOD
Raw material holding period = 365
Raw material turnover ratio
16
The holding period must not be too high or too low. A high holding
period leads to accumulation of R.M causing high carrying cost in term of
shrinkage in values, pilferage, theft ,administrative cost, were housing
charges, lightening, heating etc. whereas too low holding period leads to high
ordering cost and there may be interruption in production process.
WORK IN PROGRESS TURNOVER RATIO
Work in progress turnover ratio = sales
Work in progress
A higher turnover ratio indicates lower inventory accumulation and vice
versa. Conversion period can also be determined by dividing the number of
days in a year by WIP turnover ratio.
WORK IN PROGRESS HOLDING PERIOD
Work in progress holding period = 365
Work in progress turnover ratio
FINISHED GOODS TURNOVER RATIO
Finished goods turnover ratio = Sales
Finished goods
17
FINISHED GOODS HOLDING PERIOD
Finished goods holding period = 365
Finished goods turnover ratio
A high holding period is not good from the organization point of view as
the same leads to higher working capital requirements.
4. ABC ANALYSIS
It is a system of inventory control. It exercises discriminating control
over different items of stores classified on the basis of the investment involved.
Usually the items are divided into three categories according to their
importance, namely, their value and frequency of replenishment during a
period.
(i) ‘A’ Category of items consists of only a small percentage i.e., about
10% of the total items handled by the stores but require heavy
investment about 70% of inventory value, because of their high
prices or heavy requirement or both.
(ii) ‘B’ Category of items is relatively less important; they may be 20%
of the total items of material handled by stores. The percentage of
investment required is about 20% of the total investment in
inventories.
(iii) ‘C’ Category of items does not require much investment; it may be
about 10% of total inventory value but they are nearly 70% of the
total items handled by store.
18
PRESENTATION OF DATA
Tables and charts are used to present the data.
CHAPTER SCHEME
The project report has been presented in the following format:
The first chapter deals with the introduction and design of the study which
consists of introduction, statement of problem, objectives of the study,
Methodology, tools for data collection, tools of analysis and chapter
scheme.
The second chapter gives a brief description of literature survey.
The third chapter includes industry profile and company profile.
The fourth chapter states the analysis and interpretation of data.
The fifth chapter gives the findings, suggestion and conclusions.
19
CHAPTER 2
LITERATURE SURVEY
20
Literature Review
Some of the studies in the area have been reviewed by the researcher in the
following pages:
According to Webster’s Dictionary (1993), the term “inventory” actually
means a list of items with descriptions and quantities of each. In manufacturing
terms, in addition to manufacturing tools, equipment, raw materials, hardware
and measurement instruments which are the focus in this article, inventories
also include component parts, work-in-process and finished product or goods.
Inventories constitute a major element of working capital. It is, therefore,
important that investment in inventory is property controlled. Inventory
management covers a large number of problems including fixation of
minimum and maximum levels, determining the size of inventory to be carried,
deciding about the issues, receipts and inspection procedures, determining the
economic order quantity, proper storage facilities, keeping check over
obsolescence and ensuring control over movement of inventories.
The main objective of inventory control is to achieve maximum efficiency
in production and sales with the minimum investment in inventory. Inventory
comprises of stocks of materials, components, work-in-progress, and finished
products and stores and spares.
1. Dr. T.P. Ghosh, Director of Studies, ICAI, C-1, Sector-1, NOIDA-
201301 The Institute of Chartered Accountants of India.
21
Stocks have a clear strategic impact, they have a clear effect on the
organizations profit, margins, return on assets and other financial measures of
performance, as well as affecting measures of customer service, such as lead
time, availability, perceived product value and reliability. Their ability to
decouple production and sales is also a factor in long term capacity planning,
production and productivity.
Stocks give a buffer between production and sales, so that these do not
have to match exactly. This gives two considerable benefits. First, smooth
operations are much more efficient than variable one, with easier planning,
regular schedules, routine workflow, fewer changes etc. Second, the
organizations do not have to install enough capacity to match peak sales- with
facilities lying idle and giving low productivity during quieter periods. Any
variation between production and sales is covered by changes in stock. When
production is higher than sales, stock builds up; when sales are higher than
production, stock declines. These changes in stock might be simple
adjustments to the finished goods, or they might be changes to work in
progress caused by varying the speed of operations.
2. Donald waters, Inventory control and management, John Wiley & sons
ltd, The Atrium, Southern gate, Chichester, West Sussex PO198SQ,
England, Page No. 44.
22
Addressing the utility of manufacturing inventory systems in general,
Vollmann, Thomas E. berry, William Lee Whybark and David Cla (1997)
noted that a key management issue is determining the inventory control
system’s performance. They also indicated that in manufacturing industry
performance is measured by such factors as inventory carrying costs and
inventory turnover. But in educational institutions the goal is different. Unlike
manufacturing enterprises which employ inventory systems for commercial
production, educational manufacturing programs employ them for teaching.
Therefore, for educational programs, performance is usually measured in
terms of the system’s benefits to the users, namely: professors, students, staff
etc.
Unlike a traditional tool management system, modern tool inventory
control systems facilitate the management of tools and integrate the database
with other company or school systems. According to Hogan (2000), such a
system provides full information on tool allocation, availability, usage, cost
etc. Such a system also provides a tracking capability and tool quality support
efforts in quality standard requirements. Virtually all the tool inventory
systems investigated in this study have full tracking capability.
2. Vollmann, Thomas E. -berry, William Lee-whybark, David Cla,
Manufacturing Planning And Control Systems, Mcgraw-hill-irwin,
North Ryde (1997).
23
CHAPTER 3
INDUSTRY PROFILE
24
Chemicals are essential to millions of consumer goods, enabling hi-tech
advances in industries as diverse as aerospace, computing, and
telecommunications. The chemical industry comprises companies engaged in
the conversion of raw materials; oil, natural gas, air, water, metals, that are
then used to make a wide variety of consumer goods, as well as inputs for
agriculture, manufacturing, construction, and service industries.
The chemical industry consists of companies engaged in the processing
and refinement of agricultural and industrial chemicals as well as gases.
Chemicals are used to make a wide variety of consumer goods, besides being
necessary in the agriculture, manufacturing, construction, and service
industries. The European Union and the US are home to the world‘s largest
chemical companies.
The chlor-alkali industry forms a significant part of chemical industry.
The chlor-alkali process is an industrial process for the electrolysis of sodium
chloride solution (brine). Depending on the method several products beside
hydrogen can be produced. If the products are separated, chlorine and sodium
hydroxide are the products; by mixing, sodium hypochlorite or sodium
chlorates are produced, depending on the temperature. Globally, the chemical
industry is mainly concentrated in three areas of the world: Western Europe,
North America, and Japan. The European community is the largest producer,
followed by the US and Japan. The chemical industry, one of the largest in the
US is an enterprise worth $674 billion.
INDUSTRY – GLOBAL SCENARIO
In 1850, World Chemical Industries managed to produce synthetic dyes which
were being used in the textile industries. In 1890, production of Sulphuric
Acid, Caustic Soda and Chlorine started at a mess level by the World
25
Chemical Industries. Then came two revolutionary chemical products, the
first one was Rayon which was made from wood fiber and which changed the
total scenario of Textile industry. The second one‘s impact was even larger. It
was Synthetic Fertilizers which led to Green Revolution in agriculture
resulting in drastic improvement in agricultural crop yield.
Chemical industry is nearly a $3trillion global enterprise. Globally, the
chemical industry is mainly concentrated in three areas of the world:
Western Europe, North America, and Japan. The European community is
the largest producer, followed by the US and Japan. The recession had hit
the chemical industry hard. Shying from a lack of demand, chemical
companies shelved their growth strategies. With plants idled or running at
historically low rates, the companies looked for avenues to streamlines
operations and increase productivity. The global chemical industry is,
however, recovering from the recession- hit lows.
Caustic soda prices are currently rising globally as tight inventories in the
European and US markets support higher regional prices and pull price
upwards in other regions. The tight inventories reflect the uneven demand
recovery for chlorine and caustic across regions. As trade flows have become
more dynamic, caustic prices have become more globalized and supply or
demand imbalances in one region affect other regions more quickly than ever
before. China will continue to be the driver of global chlor-alkali capacity
expansion, adding the most capacity. Regional demand growth, particularly in
China, is expected to consume much of this region‘s production. The global economic
recovery will stimulate demand growth for both chlorine derivatives and
caustic soda.
26
INDUSTRY – INDIAN SCENARIO
The chlor-alkali industry forms a significant part of the Indian chemical
industry. The key chemicals in the chlor-alkali industry are
Caustic soda
Chlorine (including liquid chlorine)
Soda ash
Majority of soda ash is used in the glass industry which accounts for 45%
of total consumption. Chemicals and soaps and detergents are other
major end uses, accounting for 25% and 11% of global soda ash
consumption respectively. Soda ash can also replace caustic soda in certain
industries like pulp and paper, water treatment and certain sectors in
chemicals.
The main drivers for the export of Alkali Chemicals are Flakes of Sodium
hydroxide (Caustic Soda), D isod iu m Carbon a te Light (Soda Ash),
Sodium Hydroxide in Aqueous Solution (Soda Lye) and other Disodium
Carbonate. This year India has exported mainly to UAE, Sri Lanka, USA,
Oman, Kenya, and Bangladesh.
Indian Caustic soda industry has been largely able to meet entire
requirement of caustic soda in India. The Indian industry was self-sufficient
in its requirement ever since 1975. Caustic soda has been in the list of imports
permitted under OGL particularly for actual users since 1980-81. The imports
were, however, limited because of the pricing policy of the Indian industry.
The capacities installed by the producers in Chinese Taipei, Indonesia, and
EU (excluding France) are far higher than the requirement in their own
country. Further, with the imposition of anti-dumping duties on a number of
other countries, the producers in the subject countries are finding it
27
lucrative to export top India. The excess capacities in these countries have put
tremendous pressure on the producers to look for markets in these countries.
Resultantly, the exporters from Chinese Taipei, Indonesia, and EU (excluding
France) have quoted very low prices for exports to India. It would also be
relevant to point out that the producers in these countries have at times not
directly offered for supplies to India, substantial volumes have been offered by
traders in third countries for supply of caustic soda originating in these
countries. The offers being by traders, naturally, these traders have taken
care of their margins also. The prices quoted by the producers in these
countries are, therefore, still lower. The petitioners believe that the prices
offered are far below the associated cost of production. Thus, the exporters
from Chinese Taipei, Indonesia, and the EU (excluding France) have
resorted to dumping of caustic soda in the Indian market.
28
COMPANY PROFILE
The Travancore Cochin Chemicals Limited, Udyogamandal is a State Public
Sector Undertaking owned by Government of Kerala. Reflecting the quality
policy of commitment and excellence TCC has a good track record of
operation and healthy industrial relations. A heavy chemical industry engaged
in the manufacture and marketing of Caustic Soda, Chlorine, and allied
chemicals, TCC is accredited with ISO 9001:2008 certification.
HISTORY
The Travancore-Cochin Chemicals Ltd., popularly known as TCC was
established in 1950. The idea of establishing the unit was conceived by M/s
Sheshasayee Brothers the then Managing Agents of FACT.
After the Second World War, M/s Sheshasayee Brothers were under
financial crisis and were unable to make huge investments for modernization.
They approached the Divan of Travancore – Cochin and he took over the
bulk of shares and named as Travancore Mettur Chemicals with FACT
and MCIC (Mettur Chemicals andIndustrial Corporation) as partners. In
1951 the partnership was registered as a Public Limited Company, with the
State Government contributing the major share of equity and the company was
then named as TRAVANCORE-COCHIN CHEMICALS LTD. M/s
Sheshasayee Brothers continued to be the managing agents for the next 10
years. Now the Government of Kerala holds 79% shares of the company.
Commercial production of Caustic Soda from the plant of 20 TPD capacities
was started in 1954 January. TCC is the first unit in India to manufacture
Rayon grade Caustic Soda.
29
STAGES OF GROWTH
1956 – A continuous Caustic Fusion Plant 20 TPD for producing Caustic
Soda Flakes.
1958 – Chlorine Liquefaction Plant
1960 – Capacity enhanced to 30 TPD further to 40 TPD
Established new plant for manufacture of Sodium Hydrosulphate 3 TPD
capacity
1967 – 7 TPD Sodium Hydrosulphate, 60 TPD Caustic Fusion Plant, 4
TPD Iron Free Sodium Sulphate
1975 – Added another 100 TPD Caustic Soda Membrane Unit thereby
increased the production capacity 200 TPD own Water Treatment Plant.
(By 1988, many of the old unit were dismantled)
1997 – 100 TPD Caustic Soda manufacturing unit using Membrane
technology capacity 125 TPD
1998 – New CCF Plant in place of existing 60 TPD
2005 – Addition 25 TPD
2006 – Addition 25 TPD
At present total installed capacity is 175 TPD Caustic Fusion Plant for 100
TPD
VISION
TCC is committed to supply quality chemicals at competitive prices to
customers. Customer satisfaction, concern for environment and safety are
given priorities
30
MISSION
� Utmost level of conservation of all resources including energy
� Cost effectiveness in all the operations
� Regular upgrading of technologies used in processing
� Compliance with laws and statutory regulations
THE OBJECTIVES OF THE COMPANY
The main objectives to be pursued by the company on its incorporation are:
To produce and market chemicals and Caustic Soda economically
and in an environment friendly manner.
To maintain optimum levels of efficiency and productivity and
to secure optimum return on investments.
To maximize profits from projects taken up.
To continuously upgrade the quality of human resources of the
company and to promote organization development.
MILESTONES OF THE COMPANY
Moving with the times, TCC keeps up its technology regularly updated and
continue to be the competitive strength in the chlor-alkali industry. With
expanded plants and higher production capacity, TCC has come out to be the
profitable public sector undertaking. Over the years the company has achieved
recognition and awards for the remarkable performance in the industry with
regard to production, productivity, energy conservation and environmental
protection.
31
1988-89– Best pollution control award under group – Heavy Inorganic Industries in
Kerala, from Kerala State Pollution Control Board.
1989 – Award for Best Performance in Safety in India under –Chemical
Industries group from National Safety council.
1989-90 – Prize for Productivity from Kerala State Productivity
Council.
1993– Best Performance Award for Energy Conservation in the State of
Kerala under group –Chemical and Fertilizers– above 3000 KVA from
Government of Kerala.
1994-95 – Best Performance Award for the Productivity in the State of
Kerala under group – Large Industries from Kerala State Productivity council.
1995-96 – Best Performance Award for the Productivity in the State of
Kerala under group –Large Industries from Kerala State productivity Council.
1998 – Best Performance Award for Energy Conservation in the State of
Kerala under group-major Industries from Energy management
Centre,Government of Kerala.
1998 – Performance Award for Energy Conservation under group ―Chlor-alkali
Sector� from Ministry of Power, Government of India.
2003 – Kerala State Energy Conservation Award (2000) in the category of
Large Scale Industry.
32
2005 – National Energy Conservation Award Chlor-alkali Sector.
2006–Kerala State Energy Conservation
Award.
2008 – Best Pollution Control Award from Kerala State Pollution Control
Board.
2009 – Kerala State Pollution Control Award
(3rdplace)
QUALITY POLICY
The company is committed to enhance customer satisfaction by providing
products and related services complying with a continually improving Quality
Management System.
33
DEPARTMENTS
Operations Department
Materials Department
Marketing Department
Technical Department
HRD / Training Department
Finance Department
Engineering Department
Projects Department
PRODUCT RANGE
The major products of the company are the following
Caustic Soda Lye
Caustic Soda Flakes
Chlorine
Hydrochloric Acid
Sodium Hypochlorite
CUSTOMERS
� Hindustan Lever Limited, Cochin, Kerala
� Indian Rare Earths Ltd., Udyogamandal, Kerala
� Tamil Nadu Paper Mills Limited, Pugalur, Tamilnadu
� Pigments India Ltd., Chalakudy, Kerala
� Indian Oil Corporation, Ernakulam, Kerala
� Mysore Paper Mills Ltd., Bhadravathy, Karnataka
� Fertilizers & Chemicals Travancore Ltd., Ernakulam, Kerala
� Travancore Titanium products Ltd., Trivandrum, Kerala
34
� Kerala Minerals & Metals Ltd., Kollam, Kerala
� Hindustan Zinc Ltd (All units)
� Hindalco Ltd., Ernakulam, Kerala
� Hindustan Newsprint Limited, Kottayam, Kerala
� Kerala Chemicals & Proteins Ltd., Cochin, Kerala
� Hindustan Organic Chemicals Ltd., Ambalamugal, Kerala
� Kerala Water Authority, Trivandrum, Kerala
� Hindustan Insecticides Ltd., Udyogamandal, Kerala
� Cochin Minerals & Rutiles Ltd., Aluva, Kerala
� National Thermal Power Corporation (All Units)
� Binani Zinc Limited, Edayar, Kerala
� Steel Authority of India Ltd. (All Units)
� Karnataka Soaps & Detergents, Mysore, Karnataka
� Nuclear Fuel Corporation Hyderabad, Andhra Pradesh
� Kudramukh Iron Ore Ltd., Mangalore, Karnataka
� GTN Textiles, Hyderabad, Andhra Pradesh
� Kochi Refineries Ltd., Ernakulam, Kerala
35
TCC AT PRESENT
TCC is in the industry over six decades. TCC comes under chemical industry.
TCC is the only chlor-alkali industry in Kerala. In India there are 38 chlor-
alkali units. The industry is known as mother industry as it provides its
finished products not for final consumption but for further production. The
company has helped in attracting user industries due to the assurance in
availability of raw materials. TCC owns 109 acres of land and around 776
people are working in TCC in three shifts. The plants are utilizing full
capacity.
FUTURE PLANS
TCC is in the process of setting up a power project of its own. Electricity is
one of the raw materials for the company. It contributes to about 60% of
the production cost. The company would go for cheaper source of power and
insulate itself from the future tariff hikes of the electric supply utility. A hydel
power project is under consideration of the company at present. Due to high
demand of the products, the company is planning to increase the production
capacity 50 TPD. In addition to the usual products, TCC is planning to
produce Sodium Chlorite and Sponge Iron. These products have high demand
in the market.
The main by-product of the company is Hydrogen. TCC is planning to
supply this Hydrogen to FACT. The company is also planning to start a
distilled water system within the company. The IT sector of the world is
developing in fast. TCC is going to become to become part of it. The company
is planning to start an IT park and community center with the co-operation of
panchayat authority. The construction works are in progress. Two projects,
hydel and coal based are under consideration at present.
36
PRODUCT PROFILE
� CAUSTIC SODA
� Item: CAUSTIC SODA LYE
� Item: CAUSTIC SODA FLAKES
� CHLORINE
� Item: LIQUID CHLORINE
� HYDROCHLORIC ACID
� Item: HYDROCHLORIC ACID
� SODIUM HYPOCHLORITE
� Item: SODIUM HYPOCHLORITE (INDUSTRIAL)
� Item: SODIUM HYPOCHLORITE (DOMESTIC)
RAW MATERIALS;
BARIUM CARBONATE
FLOCULENT
SULPHURIC ACID
HYDRATED LIME POWDER
SODA ASH
SUGAR
FURNACE OIL
SODIUM BISULPHATE
COMMON SALT
HDPE INTER BAG FOR FILLING NaOH FLAKES
HDPE BAG FOR EKO-CLEAN
37
CHAPTER-4
ANALYSIS & INTERPRETATION OF DATA
38
Consu
mption
(in
lakh
s)
I Consumption levels of inventories
Table no: 4.1
Year Rawmaterial
Work inprogress
Finishedgoods
Materialin transit
Storesand spares
Total
2005-2006 280 0 109 161 413 9632006-2007 248 0 308 64 425 10452007-2008 244 17 295 62 400 10182008-2009 535 29 247 90 603 15042009-2010 367 19 590 55 601 1632
Source: secondary data
Chart no: 4.1.1
Consumption level of raw materials
600
500
400
300
200
100
02005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Year
Inference:
This graph shows that the consumption level of raw material from 2005-2006
shows a diminishing trend up to 2007-2008. A positive increase in
consumption during the year 2008-2009 also falls during the year 2009-2010.
39
Consu
mption
(in
lakh
s)
Chart no: 4.1.2
Consumption level of work in progress
35
30
25
20
15
10
5
02005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Year
Inference:
Work-in-progress is a work that has been started but not yet completed. This graph
shows that the work in progress shows nil during the year 2005-06 and 2006-07, and
17 in the year 2007-08, 29 in the year 2008-09, and 19 in the year 2009-10
40
Consu
mption
(in
lakh
s)
Chart no: 4.1.3
Consumption level of finished goods
700
600
500
400
300
200
100
02005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Year
Inference:
This graph shows that the finished goods was 109 in the year 2005-06, 308 in the year
2006-07, 295 in the year 2007-08, 247 in the year 2008-09, and 590 in the year 2009-
10. In the early years the finished goods shows variations and during the year 2009-
2010 it shows an increasing trend.
41
Consu
mption
(in
lakh
s)
Chart no: 4.1.4
Consumption of material in transit
180
160
140
120
100
80
60
40
20
02005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Year
Inference:
This graph shows that the material in transit was 161 during the year 2005-2006 and then
it shows a diminishing trend and reaches 64 in 2006-07, 62 in 2007-08, 90 in
2008-09, and 55 in 2009-10. The up and down variations shows the lowest value in the
year 2009-2010.
42
Consu
mption
(in
lakh
s)
Chart no: 4.1.5
Consumption of stores and spares
700
600
500
400
300
200
100
02005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Year
Inference:
This graph shows that the stores and spares are high in two consecutive years from
2008-2009 and 2009-2010 with 603 and 601 respectively and it was 413 in 2005-06,
425 in 2006-07, and 400 in 4007-08.
43
Consu
mption
(in
lakh
s)
Chart no: 4.1.6
Consumption of total inventories
1800
1600
1400
1200
1000
800
600
400
200
02005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Year
Inference:
This graph shows that during the early years the total consumption of inventories shows
slight fluctuations and from 2008-2010 it shows an increasing trend at very high rates.
The total inventory was 963 during the year 2005-06, 1045 in the year 2006-07, 1018
in the year 2007-08, 1504 in the year 2008-09, and 1632 in the year 2009-10.
44
II Classification of inventories:
Table no: 4.2
Items Total of 5 years % of total inventoryRaw material 1674 27.17Work in progress 65 1.05Finished goods 1549 25.14Material in transit 432 7.01Stores and spares 2442 39.63Total 6162 100
Source: Secondary data
Chart no: 4.2
Percentage of inventories
40%
7%
27%
1%
25%
Raw material
Work in progress
Finished goods
Material in transit
Stores and spares
Inference:
This pie chart shows that among the total inventory 39.63% belong to stores and spares,
27.17% belongs to raw material, 25.14% belongs to finished goods, 7.01% belongs to
materials in transit and 1.05% belongs to work in progress during the last 5 years from
2005-2010
45
Curr
entA
sset(
inla
khs)
III Calculation of Current ratio
The current ratio is calculated using the formulae
Current ratio = Current Asset
Current Liability
Table no: 4.3
Year Current asset Current liability Current ratio2005-2006 3576 5859 0.612006-2007 3717 5583 0.672007-2008 3457 5474 0.632008-2009 3636 4701 0.772009-2010 4007 4898 0.82
Source: Secondary data
Chart no: 4.3.1
Current Asset
41004000390038003700360035003400330032003100
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Year
Inference:
This graph shows that the current asset during the year 2009-2010 is Rs.4, 007 (in
lakhs) which is much higher than its previous year 2008-2009 as Rs.3, 636 (in lakhs) and
the early years was much lower and those years show some fluctuations.
46
Curr
ent Lia
bility
(in
lakh
s)
Chart no: 4.3.2
Current Liability
7000
6000
5000
4000
3000
2000
1000
02005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Year
Inference:
This graph shows that the current liability shows a decreasing trend which was 5859
during the year 2005-2006, reduced to 4898 during the year 2009-2010.
47
Curr
ent R
atio
Chart no: 4.3.3
Current Ratio
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
02005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Year
Inference:
The current ratio shows the ability of the firm to pay off its debt and the healthy
current ratio is 1. Here current ratio is 0.82 during the year 2009-2010 which is not healthy
and as compared to early years it is satisfactory that it is recovering at slow pace.
48
Liq
uid
Asset
(in
lakhs)
IV calculation of Quick ratio:
The Quick ratio is calculated using the formulae
Quick ratio = Liquid Asset
Current Liability
Table no: 4.4
Year Liquid asset Current liability Quick ratio2005-2006 2609 5859 0.452006-2007 2672 5583 0.482007-2008 2439 5474 0.452008-2009 2132 4701 0.452009-2010 2375 4898 0.48
Source: secondary data
Chart no: 4.4.1
Liquid Asset
3000
2500
2000
1500
1000
500
02005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Year
Inference:
This chart shows that the liquid assets shows fluctuations were in it was at its
maximum during the year 2006-2007 with Rs. 2, 672 (in lakhs) and during the year
2008-2009 it was at its minimum ; Rs. 2, 132 (in lakhs). During the year 2009-2010
the liquid asset is Rs. 2, 375 (in lakhs) which shows a positive movement.
49
Quic
kR
atio
Chart no: 4.4.2
Quick Ratio
0.4850.48
0.4750.47
0.4650.46
0.4550.45
0.4450.44
0.435
Quick Ratio
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Year
Inference:
This chart shows that quick ratio is 0.45 during the year 2005-2006, 0.48 in the year
2006-07, 0.45 in the year 2007-08, 0.45 in the year 2008-09, and 0.48 in the year
2009-10.
50
Sal
es
(in
lakh
s)
V Calculation of Inventory turnover ratio
Inventory turnover ratio is calculated using the formulae
Inventory turnover ratio = Sales
Inventory
Table no: 4.5
Year Sales Inventory Inventory turnoverRatio
2005-2006 10877 963 11.292006-2007 12321 1045 11.792007-2008 9390 1018 9.222008-2009 12063 1504 8.022009-2010 10752 1632 6.58
Source: Secondary data
Chart no: 4.5.1
Sales
14000
12000
10000
8000
6000
4000
2000
02005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Year
Inference:
This chart shows that sales show a fluctuation during the last 5 years. During the year
2005-2006 sales was Rs. 10, 877 (in lakhs) which increased to Rs. 12, 321 (in lakhs)
during the year 2006-2007 and again decreased to Rs. 9, 390 (in lakhs) during the
year 2007-2008 and followed by an increase to Rs. 12, 063 (in lakhs) during the year
2008-2009 and again reduced to Rs. 10, 752 (in lakhs) during the year 2009-2010.
51
Inven
tory
turn
ove
rR
atio
Chart no: 4.5.2
Inventory Turnover Ratio
14
12
10
8
6
4
2
02005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Year
Inference:
This chart shows that the inventory turnover ratio was 11.79; at its maximum during
the year 2006-2007 and after wards shows a decreasing trend and reaches 6.58 during
the year 2009-2010 which is the lowest in the period of 5 years.
52
Convers
ion
per
iod
(in
days
)
VI Calculation of Inventory conversion period:
Inventory conversion period is calculated using the formulae
Inventory conversion period = No: of days (365)
Inventory turnover Ratio
Table no: 4.6
Year No: of days Inventory turnoverratio
Inventoryconversion period
2005-2006 365 11.29 322006-2007 365 11.79 312007-2008 365 9.22 402008-2009 365 8.02 462009-2010 365 6.58 55
Source: Secondary data
Chart no: 4.6
Inventory conversion period
60
50
40
30
20
10
02005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Year
Inference:
This chart shows that inventory conversion period was 31 days during the year 2006-
2007 and it increased up to certain extend each year and it reaches to 55 days in the
year 2009-2010
63
Raw
mat
eria
ltu
rno
ver
rati
o
VII Calculation of Raw material turnover ratio:
Raw material turnover ratio is calculated using the formulae
Raw material turnover ratio = Sales
Raw material
Table no: 4.7
Year Sales Raw material Ratio2005-2006 10877 280 38.842006-2007 12321 248 49.682007-2008 9390 244 38.482008-2009 12063 535 22.542009-2010 10748 367 29.28
Source: Secondary data
Chart no: 4.7
Raw Material Turnover Ratio
60
50
40
30
20
10
02005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Year
Inference:
This chart shows that the raw material turnover ratio was 49.68 during the year 2006-
2007 and it reduced to 38.48 during the year 2007-2008 and again reduced to 22.54
during the year 2008-2009 and after wards in 2009-2010 it increased to 29.28
64
Hold
ing
per
iod
(in
day
s)
VIII calculation of Raw material holding period:
Raw material holding period is calculated using the formulae
Raw material holding period = No: of days (365)
Raw material turnover ratio
Table no: 4.8
Year Raw material turnoverratio
Raw material holdingPeriod
2005-2006 38.84 9.262006-2007 49.68 7.242007-2008 38.48 9.352008-2009 22.54 15.972009-2010 29.28 12.29
Source: Secondary data
Chart no: 4.8
Raw Material Holding Period
18
16
14
12
10
8
6
4
2
02005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Year
Inference:
This line chart shows that the raw material holding period was high during the year
2008-2009 with 15.97 and currently it reduced to 12.29 in the year 2009-2010
65
Work
inpro
gre
sstu
rnove
r ra
tio
IX Calculation of Work in progress turnover ratio:
Work in progress turnover ratio is calculated using the formulae
Work in progress turnover ratio = Sales
Work in Progress
Table no: 4.9
Year Sales Work in progress Ratio2005-2006 10877 - -2006-2007 12321 - -2007-2008 9390 17 552.42008-2009 12063 29 415.92009-2010 10748 19 565.6
Source: Secondary data
Chart no: 4.9
Work in Progress Turnover Ratio
600
500
400
300
200
100
02005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Year
Inference:
This chart shows that the work in progress turnover ratio during the years 2005-2007 was
nil and there after it shows variations as 552.4 in the year 2007-2008, 415.9 in the year
2008-2009, and 565.6 in the year 2009-2010
66
Hold
ing
peri
od
(in
day
s)
X Calculation of Work in progress holding period:
Work in progress holding period is calculated using the formulae
Work in progress holding period = No: of days (365)
Work in progress turnover ratio
Table no: 4.10
Year Work in progress turnoverratio
Work in progress holdingPeriod
2005-2006 0 02006-2007 0 02007-2008 552.4 0.652008-2009 415.9 0.862009-2010 565.6 0.63
Source: Secondary data
Chart no: 4.10
Work in Progress Holding Period
10.90.80.70.60.50.40.30.20.1
02005-2006 2006-2007 2007-2008 2008-2009 2009-2010
year
Inference:
This line chart shows that the work in progress holding period was 0.65, 0.86, 0.63,
during the year 2007-2008, 2008-2009, 2009-2010 respectively.
67
Fin
ished
goods
turn
over
rati
o
XI calculation of Finished goods turnover ratio:
Finished goods turnover ratio is calculated using the formulae
Finished goods turnover ratio = Sales
Finished goods
Table no: 4.11
Year Sales Finished goods Ratio2005-2006 10877 109 99.782006-2007 12321 308 402007-2008 9390 295 31.832008-2009 12063 247 48.832009-2010 10748 589 18.25
Source: Secondary data
Chart no: 4.11
Finished Goods turnover Ratio
120
100
80
60
40
20
02005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Year
Inference:
This chart shows that finished goods turnover ratio was 99.78 during the year 2005-
2006 and it reduced to 18.25 during the year 2009-2010 simultaneously.
68
Hold
ing
Per
iod
(in
day
s)
XII Calculation of Finished goods holding period:
Finished goods holding period is calculated using the formulae
Finished goods holding period = No: of days (365)
Finished goods turnover ratio
Table no: 4.12
Year Finished goods turnoverratio
Finished goods holdingPeriod
2005-2006 99.78 42006-2007 40 92007-2008 31.83 112008-2009 48.83 72009-2010 18.25 20
Source: Secondary data
Chart no:4.12
Finished Goods Holding Period
25
20
15
10
5
02005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Year
Inference:
This chart shows that the finished goods holding period was 4 during the year 2005-
2006 and it increased to 11 during the year 2007-2008 and finally it reaches to 20 in the
year 2009-2010.
69
Yea
r
XIII Calculation of Debt equity ratio;
Debt equity ratio is calculated using the formulae
Debt equity ratio = Outside Fund
Share Holder’s fund
Table no: 4.15
Year Outside fund Shareholders fund Ratio2005-2006 5000 2131 2.352006-2007 5162 2131 2.422007-2008 4837 2131 2.272008-2009 4987 2131 2.342009-2010 5249 2131 2.46
Source: Secondary data
Chart no: 4.13.1
Outside Fund
2009-2010
2008-2009
2007-2008
2006-2007
2005-2006
4600 4700 4800 4900 5000 5100 5200 5300
Out side fund (in lakhs)
Inference:
This chart shows that the outside fund or debt or external fund was Rs. 5, 000 (in
lakhs) in the year 2005-2006, and increased to Rs. 5, 162(in lakhs) in the year 2006-
2007, reduced to Rs. 4, 837(in lakhs) in the year 2007-2008, again increased to Rs. 4,
987 (in lakhs), and then increased to Rs. 5, 249 (in lakhs) in the year 2009-2010.
70
Yea
r
Chart no: 4.13.2\
Shareholders Fund
2009-2010
2008-2009
2007-2008
2006-2007
2005-2006
0 500 1000 1500 2000 2500
Share holders fund (in lakhs)
Inference:
This chart shows that the shareholders fund remains the same at Rs. 2, 131 (in lakhs)
during the years from 2005-2010.
71
Yea
r
Chart no: 4.13.3
Debt Equity ratio
2009-2010
2008-2009
2007-2008
2006-2007
2005-2006
2.15 2.2 2.25 2.3 2.35 2.4 2.45 2.5
Debt equity ratio
Inference:
This chart shows that debt equity ratio was 2.35 during the year 2005-2006, 2.42 in the
year 2006-2007, 2.27 in the year 2007-2008, 2.34 in the year 2008-2009, and 2.46 in the
year 2009-2010 which is the maximum in the 5 year span.
72
Net
Pro
fit(in
lakh
s)
XIV Calculation of Net profit ratio:
Net profit ratio is calculated using the formulae
Net profit ratio = Net profit x 100
Sales
Table no: 4.14
Year Net profit Sales Ratio2005-2006 523 10877 4.812006-2007 49 12321 0.402007-2008 28 9390 0.292008-2009 -281 12063 -2.332009-2010 -249 10752 -2.32
Source: Secondary data
Chart no: 4.14.1
Net Profit
600
500
400
300
200
100
0
-100
-200
-300
-400
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Year
Inference:
This chart shows that the net profit during the year 2005-2006 was Rs. 523 (in lakhs), in
the year 2006-2007, net profit reduced to Rs. 49 (in lakhs), again in 2007-2008 net profit
reduced to Rs.28 (in lakhs) and afterwards in 2008-2009 net profit changes to net loss of
Rs. 281 (in lakhs), and further in 2009-2010 net loss increased to Rs. 249 (in lakhs).
73
Net
Pro
fitR
atio
Chart no: 4.14.2
Net Profit Ratio
6
5
4
3
2
1
0
-1 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
-2
-3Year
Inference:
This chart shows that the net profit ratio during the year 2005-2006 was 4.81 and in
2006-2007, it reduced to 0.40, in 2007-2008 again reduced to 0.29, and in the year
2008-2009, net profit ratio shift to -2.33, and further in 2009-2010, again reduced to -
2.32.
74
Yea
r
XV Calculation of EOQ of common salt:
Economic Ordering Quantity is calculated using the formulae
Economic Ordering Quantity = 2 C O
I
Table no: 4.15
Year Annualconsumption
Carrying cost Ordering cost EOQ
2005-2006 90308 158 1250 11952006-2007 99393 142 1250 12652007-2008 72669 118 1300 12652008-2009 81465 139 1350 12572009-2010 83937 85 1350 1632
Source: Secondary data
Chart no: 4.15.1
Annual Consumption of Common Salt
2009-2010
2008-2009
2007-2008
2006-2007
2005-2006
0 20000 40000 60000 80000 100000 120000
Consumption (in MT)
Inferemce:
This chart shows that the annual consumption of common salt shows variations in the
last 5 years and the lowest consumption is in the year 2007-2008 with 72, 669 MT
and the maximum is in the year 2006-2007 with 99, 393 MT. during the year 2009-
2010 the annual consumption of common salt is 83,937 MT.
75
Yea
r
Chart no: 4.15.2
Carrying Cost of Common Salt
2009-2010
2008-2009
2007-2008
2006-2007
2005-2006
0 50 100 150 200
Cost (in lakhs)
Inference:
This chart shows that the carrying cost of common salt goes on decreasing over the years
and the cost in 2005-2006 was Rs. 158 (in lakhs) and it reduced to Rs. 85 (in lakhs) during
the year 2009-2010.
76
Yea
r
Chart no: 4.15.3
Ordering Cost of Common Salt
2009-2010
2008-2009
2007-2008
2006-2007
2005-2006
1200 1220 1240 1260 1280 1300 1320 1340 1360
Cost (in lakhs)
Inference:
This chart shows that the ordering cost of common salt goes on increasing and in the year
2005-2006, the ordering cost was Rs.1, 250 (in lakhs), in 2007-2008, it increased to Rs. 1,
300 (in lakhs), and again in 2008-2010 the ordering cost is Rs. 1, 350 (in lakhs).
77
Yea
r
Chart no: 4.15.4
EOQ of Common Salt
EOQ of Common Salt
2009-2010
2008-2009
2007-2008
2006-2007
2005-2006
0 500 1000 1500 2000
EOQ
Inference:
This chart shows that the economic ordering quantity of common salt was shown
variations in the year 2005-2006, 2006-2007, 2007-2008, 2008-2009 as 1, 195 MT, 1,
265 MT, 1, 265 MT, 1, 257 MT respectively. During the year 2009-2010 it increased to 1,
632 MT.
78
Yea
r
XVI Calculation of EOQ of Aluminium Sulphate:
Economic Ordering Quantity is calculated using the formulae
Economic Ordering Quantity = 2 C O
I
Table no: 4.16
Year Annualconsumption
Carrying cost Ordering cost EOQ
2005-2006 3 18135 1250 12006-2007 7 88105 1250 12007-2008 11 22354 1300 12008-2009 6 30259 1350 12009-2010 8.02 31006 1350 1
Source: Secondary data
Chart no: 4.16.1
Annual Consumption of Aluminium Sulphate
2009-2010
2008-2009
2007-2008
2006-2007
2005-2006
0 2 4 6 8 10 12
Consumption (in MT)
Inference:
This chart shows that the annual consumption during 2005-2006 was 3 MT, in 2006-
2007 the consumption increased to 7 MT, in 2007-2008 the consumption further
increase to 11 MT, in 2008-2009 it reduced to 6 MT, and in 2009-2010 again
increased to 8.02 MT.
79
Yea
r
Chart no: 4.16.2
Carrying Cost of Aluminum Sulphate
Carrying cost of Aluminium Sulphate
2009-2010
2008-2009
2007-2008
2006-2007
2005-2006
0 20000 40000 60000 80000 100000
Cost (in lakhs)
Inference:
This chart shows that the carrying cost of Aluminium Sulphate was Rs.18, 135 (in
lakhs) in the year 2005-2006, then it increased to Rs. 88105 (in lakhs) in the year
2006-2007, then it reduced to Rs. 22, 354 (in lakhs) in the year 2007-2008, and
further increased to Rs. 30, 259 (in lakhs) in 2008-2009, and Rs. 31, 006 (in lakhs) in
2009-2010.
80
Yea
r
Chart no: 4.16.3
Ordering Cost of Aluminium Sulphate
Ordering cost of Aluminium Sulphate
2009-2010
2008-2009
2007-2008
2006-2007
2005-2006
1200 1220 1240 1260 1280 1300 1320 1340 1360
Cost (in lakhs)
Inference:
This chart shows that the ordering cost of Aluminium Sulphate goes on increasing and in
the year 2005-2006, the ordering cost was Rs.1, 250 (in lakhs), in 2007-2008, it
increased to Rs. 1, 300 (in lakhs), and again in 2008-2010 the ordering cost is
Rs. 1,350 (in lakhs).
81
Yea
r
Chart no: 4.16.4
EOQ of Aluminium Sulphate
EOQ of Aluminium Sulphate
2009-2010
2008-2009
2007-2008
2006-2007
2005-2006
0 0.2 0.4 0.6 0.8 1 1.2
EOQ
Inference:
This chart shows that the EOQ of aluminium Sulphate is 0.6 during the year 2005-
2006, 0.45 in the year 2006-2007, 1.13 in the year 2007-2008, 0.73 in the year 2008-
2009, and 0.72 in the year 2009-2010.
82
Yea
r
XVII Calculation of EOQ of Barium Carbonate:
Economic Ordering Quantity is calculated using the formulae
Economic Ordering Quantity = 2 C O
I
Table no: 4.17
Year Annualconsumption
Carrying cost Ordering cost EOQ
2005-2006 673 1310 1250 352006-2007 724 1814 1250 312007-2008 617 1876 1300 292008-2009 486 3755 1350 182009-2010 437 3205 1350 19
Source: Secondary data
Chart no: 4.17.1
Annual Consumption of Barium Carbonate
2009-2010
2008-2009
2007-2008
2006-2007
2005-2006
0 100 200 300 400 500 600 700 800
consumption (in MT)
Inference:
This chart shows that the annual consumption of Barium carbonate in the year 2005-
2006 is 673 MT and then increased to 724 MT in 2006-2007, and decreased
simultaneously to 617 MT in 2007-2008, 486 MT in 2008-2009, and 437 MT in 2009-
2010.
83
Yea
r
Chart no: 4.17.2
Carrying Cost of Barium Carbonate
2009-2010
2008-2009
2007-2008
2006-2007
2005-2006
0 500 1000 1500 2000 2500 3000 3500 4000
Cost (in lakhs)
Inference:
This chart shows that there is a vast change in the carrying cost of Barium carbonate and
the cost in the year 2005-2006 is Rs. 1, 310 (in lakhs), in the year 2006-2007 is Rs. 1,
814 (in lakhs), in the year 2007-2008 is Rs. 1, 876 (in lakhs), in the year 2008-
2009 is Rs. 3, 755 (in lakhs), and in the year 2009-2010 is Rs. 3, 205 (in lakhs).
84
Yea
r
Chart no: 4.17.3
Ordering Cost of Barium Carbonate
2009-2010
2008-2009
2007-2008
2006-2007
2005-2006
1200 1220 1240 1260 1280 1300 1320 1340 1360
Cost (in lakhs)
Inference:
This chart shows that the ordering cost of Barium Carbonate goes on increasing and in the
year 2005-2006, the ordering cost was Rs.1, 250 (in lakhs), in 2007-2008, it increased to
Rs. 1, 300 (in lakhs), and again in 2008-2010 the ordering cost is Rs. 1,
350 (in lakhs).
85
Yea
r
Chart no: 4.17.4
EOQ of Barium Carbonate
2009-2010
2008-2009
2007-2008
2006-2007
2005-2006
0 5 10 15 20 25 30 35 40
EOQ
Inference:
This chart shows that the economic ordering quantity of barium carbonate during the year
2005-2006 is 35, then reducing to 31 in 2006-2007, again reducing to 29 in
2007-2008, again reducing to 18 in the year 2008-2009, and then increasing to 19 in the
year 2009-2010.
86
consum
ption
(in
MT
)
XVIII Calculation of Reorder level of common salt:
Reorder level is calculated using the formulae
Reorder level = Average daily consumption x lead time in days + reorder level
Table no: 4.18
Year Average dailyconsumption
Lead time in days Reorder level
2005-2006 54.54 16 20874.642006-2007 34.67 58 22010.862007-2008 28.16 241 26786.562008-2009 54.49 66 23596.342009-2010 45.96 94 24320.24
Source: Secondary data
Chart no: 4.18.1
Average Daily Consumption of Common Salt
60
50
40
30
20
10
02005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Year
Inference:
This chart shows that the average daily consumption of common salt was 54.54 MT,
34.67 MT, 28.16 MT, 54.49 MT, and 45.96 MT during the year 2005-2006, 2006-
2007, 2007-2008, 2008-2009, and 2009-2010 respectively.
87
Lea
dtim
e(in
day
s)
Chart no: 4.18.2
Lead time in Days
300
250
200
150
100
50
02005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Year
Inference:
This line chart shows that the lead time of common salt was 16 days in the year 2005-
2006, 58 days in the year 2006-2007, 241 days in the year 2007-2008, 66 days in the year
2008-2009 and 94 days in the year 2009-2010.
100
Reord
erle
vel
(In
MT
)
Chart no: 4.18.3
Reorder level of Common Salt
30000
25000
20000
15000
10000
5000
02005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Year
Inference:
The reorder level of common salt was 20, 874 MT in the year 2005-2006,; 22,010 MT
in the year 2006-2007,; 26,786.56 MT in the year 2007-2008,; 23,596 MT in the year
2008-2009, and 24, 320 MT in the year 2009-2010.
101
Consu
mption
(in
MT
)
XIX Calculation of Reorder level of Aluminium Sulphate:
Reorder level is calculated using the formulae
Reorder level = Average daily consumption x lead time in days + reorder level
Table no: 4.19
Year Average dailyconsumption
Lead time in days Reorder level
2005-2006 0.04 11 5.442006-2007 0.04 20 5.82007-2008 0.03 29 5.872008-2009 - - -2009-2010 - - -
Source: Seconary data
Chart no: 4.19.1
Average Daily Consumption of Aluminium Sulphate
0.05
0.04
0.03
0.02
0.01
02005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Year
Inference:
This chart shows that the average daily consumption of Aluminium Sulphate was .04
MT, .04 MT, and .03 MT. during the year 2005-2006, 2006-2007, 2007-2008
respectively. During the years 2008-2010 the usage is recorded as nil.
102
Lea
dtim
e(in
day
s)
Chart no: 4.19.2
Lead time in Days
35
30
25
20
15
10
5
02005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Year
Inference:
This line chart shows that the lead time of Aluminium Sulphate was 11 days in the year
2005-2006, 20 days in the year 2006-2007, and 29 days in the year 2007-2008. In the year
2008-2009 and 2009-2010, the idle time is 0.
103
Reord
erle
vel
(in
MT
)
Chart no: 4.19.3
Reorder Level of Aluminium Sulphate
7
6
5
4
3
2
1
02005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Year
Inference:
The reorder level of Aluminium Sulphate was 5.44 MT in the year 2005-2006,; 5.8
MT in the year 2006-2007,; and 5.87 MT in the year 2007-2008. There is no reorder level
in the year from 2008-2010.
104
Consu
mption
(in
MT
)
XX Calculation of Reorder level of Barium Carbonate:
Reorder level is calculated using the formulae
Reorder level = Average daily consumption x lead time in days + reorder level
Table no: 4.20
Year Average dailyconsumption
Lead time in days Reorder level
2005-2006 1 16 662006-2007 1.369 16 71.9042007-2008 0 0 02008-2009 0.09 17 51.532009-2010 0.12 15 51.8
Source: Secondary data
Chart no: 4.20.1
Average Daily Consumption of Barium Carbonate
1.61.41.2
10.80.60.40.2
02005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Year
Inference:
This chart shows that the average daily consumption of Barium Carbonate was 1 MT,
1.369 MT, 0 MT, 0.09 MT, and 0.12 MT during the year 2005-2006, 2006-2007,
2007-2008, 2008-2009, and 2009-2010 respectively.
105
Lea
dtim
e(in
day
s)
Chart no: 4.20.2
Lead time in Days
18
16
14
12
10
8
6
4
2
02005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Year
Inference:
This line chart shows that the lead time of Barium Carbonate was 16 days in the year
2005-2006, 16 days in the year 2006-2007, 17 days in the year 2008-2009 and 15 days
in the year 2009-2010.
106
Reo
rder
level
(in
MT
)
Chart no: 4.20.3
Reorder Level of Barium carbonate
80
70
60
50
40
30
20
10
02005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Year
Inference:
The reorder level of Barium Carbonate was 66 MT in the year 2005-2006,; 71.904MT
in the year 2006-2007,; 51.53 MT in the year 2008-2009, and 51.8 MT in the year
2009-2010.
107
XXI Banking of ABC items according to usage value:
Table no: 4.21.1
Items Units Unit cost Total cost % oftotal cost
Ranking
Common salt 83937.74 1769.41 148520777.59 61 1Aluminiumsulphate
8.025 7397.89 59368.13 0.2 9
Bariumcarbonate
437.250 17428.829 7620755.83 4 3
Max floc Tfloculent
150 188.7 28305
Floculent 675 108.7 73403.13 0.3 8Hydrated limepowder
10.15 6986.2 70910
Soda ash 335.41 4684.70 4925396.94 2 5Sodiumbisulphate
51.15 20045.03 1025303.65 .4 7
Sulphuric acid 640.15 2063.80 1321146.85Sugar 4750 31.02 147390Furnace oil 2935.861 23823.87 69943577.28 29 2HDPE carboyfor Ecko clean20LT
40 132.34 5293.60 .02 11
HDPE bag forcaustic soda flakes 60 x 90CM
386250 12.919 4990010.98 2 4
HH HDPEliner 65cm x100cm x 200G
387900 4.636 1798679.5 0.7 6
PP multifilament twine840 / 1 x 2 (kg)
300.810 167.46 50374.67 0.2 10
240580693.15 100
Source: Secondary data
ABC analysis of inventory items
Category % of items % 0f valueA 15 80B 35 15C 50 5
108
Table no: 4.21.2
ABC analysis plan
Items in orderof ranking
Itemsno:
% oftotal items
Value Cumulativevalue
CumulativePercentage
% oftotal value
Category
Common salt
Furnace oil
2 20 148520777.59
69943577.28
148520777.59
218464354.87
61
90
90 A
Bariumcarbonate
HDPE bag for caustic soda flakes 60 x 90CM
Soda ash
3 30 7620755.83
4990010.98
4925396.94
22608511.07
23107512.17
236000518.62
94
96
98
7 B
HH HDPEliner 65cm x100cm x200G
Sodium bi sulphate
Floculent
Aluminium sulphate
PP multi filament twine 840 / 1 x 2 (kg)
HDPE carboy for Eckoclean 20 LT
6 50 1798679.5
1025303.65
73403.13
59368.13
50374.67
5293.60
237799198.12
238824501.77
238897904.90
238957273.03
239007647.70
239012941.30
98.7
99.1
99.4
99.6
99.8
100
3 C
Source: Secondary data
109
Inference:
CATEGORY NO:OF ITEMS % OF ITEMS % OF VALUEABC
236
18.1827.2754.54
9073
11 100 100
From the above table, it can be seen that 54.54% of the items come under the
category of ‘C’ class. 27.27% of the items are ‘B’ category and the remaining
items come under the category of ‘A’ category. It is because most of the raw
materials and spare parts using for the production process are relatively
cheaper.
110
CHAPTER -5
FINDINGS, SUGGETIONS AND CONCLUSION
111
FINDINGS
The con su mpt ion level of raw material shows an increasing
trend from 280 (in lakhs) in 2005-06 to 535 (in lakhs) in 2008-09 and a
decrease to 367 (in lakhs) in 2009-10.
The work in progress shows slight variations and it also shows that
the current plant layout is very much effective.
There is an increase in stock of finished goods and it is due to
reduced sales and it will affect the blockage of working capital also.
The level of material in transit is getting reduced at a greater pace and is
due to the reduced sales.
The stores and spares is increasing over years and strict inventory
controls are needed in stores and spares and otherwise leads to blockage
of working capital.
The major portion of inventory held in the raw material, finished goods,
and stores and spares during the span of 5 years.
It is found that the reorder quantity fixed for Common Salt was 20000
MT, Aluminium Sulphate - 5 MT, Barium Carbonate - 50 MT. Here
all these reorder levels are not maintained when calculated in terms
of daily consumption and lead time. Also the EOQ also change over
time..
.
112
From the analysis it is found that the Inventory turnover ratio
shows a decreasing trend and it was 8.02 in 2008-09, and 6.58 in 2009-
10. The inventory conversion period shows an increase from 46 days in
2008-09, and 55 days in 2009-10.
Working capital was -1065 (in lakhs) in 2008-09, and -891 (in lakhs) in
2009-10.
Net profit -281(in lakhs) in 2008-09, and -249 (in lakhs) in 2009-10.
Net profit ratio was -2.33 in 2008-09, and -2.32 in 2009-10
Current asset was 3636 (in lakhs) in 2008-09, 4007 (in lakhs) in 2009-
10. Inventory to current asset ratio was 41.36 in 2008-09, and 40.73 in
2009-10.
Debt equity ratio was 2.34 in 2008-09, and 2.46 in 2009-10.
Most of the raw materials and inventory using for the production process
are relatively cheaper; as a result 98.35% of the items come under the
category of ‘C’ class.
‘A’ category items accounts for 18.18%, ‘B’ category items accounts for
27.27% and the remaining 54.54% accounts for ‘C’ category items.
At the end of financial year 2009-10, 80% of total value of inventory is
contributed by ‘A’ category, 15% by ‘B’ category and 5% by ‘C’
category.
When calculating operating efficiency on the basis of sales, net profit,
and working capital, we can find that sales show variation over the
113
period of 5 years, net profit moves to negative, and working capital also
shows negative values in the span of 5 years. We also found that the
inventory control is not maintained and there exist overstocking of
finished goods, stock and spares, raw material.
114
SUGGESTION
The company should implement new inventory control such as just in
time or SAP so that the unnecessary blocking of raw material and
finished goods can be avoided.
The company should adopt new marketing strategies to capture market.
The increased consumption level of stores and spares is one of the
reason for the shortage of working capital and it must be reduced
Inventory turnover ratio showing a decreasing trend and conversion
period also increases. So the company must adopt strategies in order to
increase sales.
The imbalance between current asset and current liability (working
capital) is being reduced and it shows a good signal
The company should give considerable importance to ‘A’ category items
and the costs of such items should be controlled, so that costs of final
products can reduce.
The management should try to avoid under stocking and over
stocking of inventory and finished goods must be issued without delay
after getting the order.
115
CONCLUSION
In today's competitive business environment, inventory
management has proven to be one of the most critical aspects in each and
every organization. A study was undertaken on the topic ‘A study of impact of
Inventory Management on operating efficiency with special reference to the
Travancore Cochin Chemicals Ltd, Udyogamandal, Cochin. It is an in depth
study of inventory to evaluate the performance of the company in logistics
management. The organizations are holding the stocks to allow for variations
and uncertainty in supply and demand - they give a buffer between the
suppliers and customers, maintaining customer service even when there are
problems in the supply chain. Stocks do not exist in isolation, so the
management has to consider its impact on other parts of the organization.
There are no clear lines between the inventory management and procurement,
supply chain management, warehousing and broader operations.
So, the company has to set inventory management in its overall
importance and explicitly recognizing its importance. It is evident that the
investment in inventory should be fair; it should not be over investment or
under investment. Excess investment in inventory may leads to capital
blockage in the form of inventory and under investment in inventory leads to
stock out situations.
116
BIBLIOGRAPHY
117
BIBLIOGRAPHYBOOKS
1) KOTHARI C.R. Research Methodology, New Age International
publishers New Delhi.
2) David J Piasecki, Inventory Management Explained: A Focus on
Forecasting, Safety Stock and Ordering Systems, Ops Publishers.
3) D. Chandra Bose, INVENTORY MANAGEMENT, Himalaya
Publications, New Delhi.
4) Tony wild, Best Practice in Inventory Management, Penquin
Publishers, USA.
Journals
The Quarterly news letter of Travancore Cochin Chemicals Limited,
Volume 9, Issue 3, September- December 2009.
WEBSITES
1) http://www.inventoryops.com
2) http://www.tcckerala.com/
3) http://www.effectiveinventory.com
4) http://inventoryexplained.com