EXECUTIVE SUMMARY
G C T M Industry in India has traveled are less, now India is one of
the main cotton manufacturing & exporting cotten in the in india. The
cotten in India is with major players and gadag co operative mill Ltd is
one of largest manufacturer of cotten in India.
Inventory is a central process in Manufacturing Unit. This Inventory
is concerns to all departments i.e., from Planning Department to Selling
Department in which it passes though Production Department, HR Department,
Logistic Department, Finance Department, Costing Department, and Commercial
Department etc. So managing of Inventory is having wide Scope in
manufacturing Company.
"INVENTORY MANAGEMENT"
Statement of the problem
"Inventory management and its effects on working capital"
Management problem
Management is feeling that their huge amount of working capital is
held up, so the management wants to know whether they can reduce it through
inventory management.
Research problem
As above stated management problem the study was carried to know how
inventory management helps in proper maintenance of working capital, so the
title of this study is " inventory management and its effect on working
capital"
Objectives of the study
1. To study the inventory management based on the ratios
2. To find out the impact of inventory on working capital.
3. To study the inventory management and its effective control through
various techniques.
4. To suggest the measures for improving the inventory level.
Scope of the study
Inventory management being a very important concept in all the
company's having a void coverage often calls for the managerial attention.
In the modern times inventory management has become the integral part of
the all companies. So all the firm gives special importance for inventory
management. The major objective of the study is to examine the
effectiveness of inventory management system adopted by Akash industry; the
study mainly focuses on the techniques used by the company to control the
inventory. The study also covers other areas like the financial ratios for
the period of 2004 to 2007.
SUB OBJECTIVES:
1. To study the different accepts of Inventory Management.
METHODOLOGY
Primary Data:
1. Interaction with personnel of the company
2. Direct Observation in Inventory
Secondary Data:
1. Balance Sheet
2. Turnover Statements
3. Monthly Inventory Statements
4. Company Records
5. Internet
Tools Used:
MS-Excel has been used for calculations.
INDUSTRY PROFILE
FABRICATION
When used as an industrial term, applies to the building of machines,
structures and other equipment, by cutting, shaping and assembling
components made from raw materials. Small businesses that specialize in
metal are called fab shops.
Steel fabrication shops and machine shops have overlapping
capabilities, but fabrication shops generally concentrate on the metal
preparation, welding and assembly aspect while the machine shop is more
concerned with the machining of parts.
METAL FABRICATION
Metal fabrication is a value added process that involves the
construction of machines and structures from various raw materials. A fab
shop will bid on a job, usually based on the engineering drawings, and if
awarded the contract will build the product.
Fabrication shops are employed by contractors, OEM's (Original
Equipment Manufacturers) and VAR's (Value-added Reseller) Typical projects
include; loose parts, structural frames for buildings and heavy equipment,
and hand railings and stairs for buildings.
ENGINEERING
The fabricator may employ or contract out steel detailers to prepare
shop drawings, if not provided by the customer, which the fabricating shop
will use for manufacturing. Manufacturing engineers will program CNC
machines as needed.
RAW MATERIALS
Standard raw materials used by metal fabricators are;
Plate Metal
Formed And Expanded Metal
o Tube stock, CDSM
o Square stock
o Sectional metals (I beams, W beams, C-channel...)
Welding wire
Hardware
Castings
Fittings
3. CUTTING AND BURNING
The raw material has to be cut to size. This is done with a variety of
tools.
The most common way to cut material is by Shearing (metalworking);
Special band saws designed for cutting metal have hardened blades and
a feed mechanism for even cutting. Abrasive cut-off saws, also known as
chop saws, are similar to miter saws but with a steel cutting abrasive
disk. Cutting torches can cut very large sections of steel with little
effort.
Burn tables are CNC cutting torches, usually natural gas powered.
Plasma and laser cutting tables, and Water jet cutters, are also common.
Plate steel is loaded on a table and the parts are cut out as programmed.
The support table is made of a grid of bars that can be replaced. Some very
expensive burn tables also include CNC punch capability, with a carousel of
different punches and taps. Fabrication of structural steel by plasma and
laser cutting introduces robots to move the cutting head in three
dimensions around the material to be cut.
4. FORMING
Hydraulic brake presses with v-dies are the most common method of
forming metal. The cut plate is placed in the press and a v-shaped die is
pressed a predetermined distance to bend the plate to the desired angle.
Wing brakes and hand powered brakes are sometimes used.
Tube bending machines have specially shaped dies and mandrels to bend
tubular sections without kinking them.
Rolling machines are used to form plate steel into a round section.
English Wheel or Wheeling Machines are used to form complex double
curvature shapes using sheet metal.
5. Machining
Fab shops will generally have a limited machining capability
including; metal lathes, mills, magnetic based drills along with other
portable metal working tools.
6. Welding
Welding is the main focus of steel fabrication. The formed and
machined parts will be assembled and tack welded into place then re-checked
for accuracy. A fixture may be used to locate parts for welding if multiple
weldments have been ordered.
The welder then completes welding per the engineering drawings, if
welding is detailed, or per his own judgment if no welding details are
provided.
Special precautions may be needed to prevent warping of the weldment
due to heat. These may include re-designing the weldment to use less weld,
welding in a staggered fashion, using a stout fixture, covering the
weldment in sand during cooling, and straightening operations after
welding.
Straightening of warped steel weldments is done with an Oxy-acetylene
torch and is somewhat of an art. Heat is selectively applied to the steel
in a slow, linear sweep. The steel will have a net contraction, upon
cooling, in the direction of the sweep. A highly skilled welder can remove
significant warpage using this technique.
Steel weldments are occasionally annealed in a low temperature oven to
relieve residual stresses.
7. FINAL ASSEMBLY
After the weldment has cooled it is generally sand blasted, primed and
painted. Any additional manufacturing specified by the customer is then
completed. The finished product is then inspected and shipped.
COMPANY PROFILE
Name of the company : APEX AUTO LTD
Address of the Head office : M-1 phase- VII, TATA kandra main road,
industrial area ADITYAPUR, JAMSHEDPUR-
832109 INDIA.
Fax: 0657-2200010
Tel: 91-657-2408715, 2409041 & 2381346
E-mail:
[email protected]
Address of the registered : Nataraj mansion, Bistapur- 831001,
Office JAMSHEDPUR, INDIA
Fax: 91-657-2424526
WEBSITE: www.apexautoltd.com
Address of the UNIT II : APEX AUTO LTD (UNIT II) Block no: 2
Dharwad Telcon premises, K.I.A.D.B, P.B. Road
Dharwad- 580007, India
Fax: 0836-3293214
Tel: 0836-3293214
E-mail:
[email protected]
Nature of the organization : Basically this company is heavy
fabrication
Company. They are manufacturing back hoe
Loader components and excavator
Components
Type of organization : Apex auto limited company is
private limited
Company
ABOUT ORGANIZATION
Apex Auto Limited ("If you can imagine it, We can fabricate it.")
Apex Auto Limited is a publicly quoted company with a number of
shareholders, both Indian and Foreign. Promoted by Mr. Atul Taunk in 1995
with a modest capital outlay of Rs. 342 lakhs, Apex today has a capital
outlay of Rs. 1200 lakhs. A growth of over 350% per annum. Achieved by
producing thousands of dynamically stressed machined components for the
construction equipment industry
The raison deter of Apex is that the emerging scenario in post
liberalized India indicated that the nation was poised to go in for massive
infrastructure building: roads, super highways, ports, power projects, and
so on. This would put immense pressure on manufacturers of earth-moving
equipment. Apex eases the load on them by supporting the industry with
precision engineered sub-assemblies and major assemblies that can go
directly into their equipment, such as revolving frames, main frames,
booms, arms, dozers, buckets, and so on.
As a case in point, we're proud to have been entrusted with the single
share of business for all major fabrications that go into the making of
TATA Hitachi's top selling excavators, the EX-60. Over the last 5 years, we
have fabricated more than 10,000 components of this particular model alone.
VISION
To be recognized as a premier QUALITY manufacturer and supplier fabricated
components, embodying thus the spirit of commitment and humanity.
MISSION
As per customer schedule requirement fulfill it, Deliver on time,
every time.
An eye on product quality and integrity
Highest productivity, thereby offering a cost advantage to all our
clients.
Why Apex?
Aristotle - Greek inventor of the Science of Logic - recommends studying
the theory of 'The 4 Becauses' before making your choice Why Apex for your
Machined fabrication ?
The 1st because deals with what is it made of ?
Apex uses only prime quality steel sheets and plates procured from
leading players in the industry - Tata Steel and SAIL.
The 2nd because deals with how is it made ?
Apex has state of art Material Processing facilities including Indias
largest laser cutting machine. And excellent Production Engineering systems
set up by a highly experienced and technically qualified team of engineers.
The 3rd because deals with what is made ?
Based on our customer's drawings and design, Apex manufactures
dynamically stressed machined fabrications conforming to all the
specifications laid down by the customer.
The 4th because deals with why is it made thus ?
Apex follows the first three precepts so that the end customer gets a
world-class product which will withstand the ultimate test of time.
KEY AWARDS WON
For safety in manufacturing process awards (less accident in
manufacturing process) for continuous 3 years form Telco construction
equipment limited
For MINIMUM REJECTION award form Telco construction equipment limited
SWOT Analysis of the Company
APEX AUTO LID KEY STRENGTHS
STRONG PRODUCT DEVELOPMENT
As per the specification from Telcon the new product is been developed
By the highly qualified internal engineering department
STRONG MERCHANDISING TEAM
Technically qualified and high skilled Merchandising department is
another asset of the company, who plays a major role in executing the
orders utmost efficiently to the satisfaction of Buyers.
1. PROFESSIONALLY MANAGED:
a) Company has two units in Dharwad, one is Apex auto Ltd Unit I and the
other is Apex auto Ltd Unit II
b) Unit I is headed by Mr. Arvind Gaur, Unit II is headed by Mr. Pravat
Kumar Rath
2. FACTORIES ENGINEERED TO PRODUCT SPECIFIC:
All their manufacturing units are engineered to product specific and
managed by effective and efficient internal engineering department.
3. QUALITY CONTROL SYSTEM:
There is an independent quality audit team in process control system in
all the factories, which has given quality production consistently.
4. SOURCING OF RAW MATERIALS UNDER VIGILANCE OF QUALITY AUDIT SYSTEM:
They source all their raw materials 100% from within India. However,
they have a rigid control on their quality control system where by they
ensure that all the raw materials are produced as per their quality
standard level before it gets dispatched to their factories.
5. IN HOUSE LAB:
They have a lab situated in the major procurement centers, such as in
Dharwad and Jamshedpur to support their quality control team to carryout
the various quality tests at all level onwards to ensure that the product
is produced according to their quality in-house.
6. PRE-SHIPMENT INSPECTION TO MAINTAIN ZERO-CLAIM FROM BUYERS:
A thorough Inspection by In-house Quality Control team and pre-shipment
Inspection by buyer representative for all their products helps company to
maintain zero-quality claims position with all their buyers.
7. CONFIDENCE OF THEIR BUYERS:
All the buyers as of today have been working with them since decades and
they started with them on continues basis with enhanced volume. This has
given them huge confidence as the confidence level of their buyers is very
high in their products, quality, timely deliveries and commitment towards
work.
They have been awarded for 3 consecutive years for minimum rejection and
for safety in process of manufacturing by Telco construction equipment
limited
APEX AUTO LTD WEAKNESS
No such entity has been identified so far.
APEX AUTO LTD KEY OPPORTUNITIES
Chances to get more products to manufacture form the Buyer i.e. Telcon
construction equipment limited
APEX AUTO LTD KEY THREATS
More-qualified competitors
CUSTOMER NAME
Apex auto ltd unit II has having only one customer that is TELCON
CONSTRUCTION EQUIPMENT LTD
SUPPLIERS NAMES
"SUPPLIERS NAME "Location "
"A005 AKSHATA ENTERPRISES, "HUBLI "
"A013 ASHA ELECTRICAL & SALES "HUBLI "
"A045 ADITYA ELECTRICAL SALES CORPORATION "HUBLI "
"A051 ANAND AIRLINE ACCESSORIES "HUBLI "
"A052 ABHI ENGINEERING WORKS "BANGALORE "
"A058 AMAR ELECTRICAL WORKS "HUBLI "
"A063 ANDANUR PIPES DISTRIBUTORS "DHARWAD "
"B031 BELGAUM CNC APPLICATIONS PVT. LTD "BELGAUM "
"B036 ESHAK DADA BAMBOOWALA "MUMBAI "
"B038 B. MAHENDRA & BROS "DHARWAD "
"B041 BASAVESHWAR KHANAVALI "DHARWAD "
"B044 BELUR INDUSTRIAL GASES "DHARWAD "
"B045 B.B. ENTERPRISES "HUBLI "
"C003 CHACHRA SERVIUCES "JAMSHEDPUR "
"C004 CHAITANYA SALES PVT. LTD. "JAMSHEDPUR "
"D019 DYNAMIC DRIVES "HUBLI "
"D020 DELTA FURNITURE PRIVATELIMITED "CHENNAI "
"E027 EUREKA FORBES LTD "DHARWAD "
"F003 FABRO-TECH ENGINEERS "DHARWAD "
"G008 GOUTAM MACHINE TOOLS "HUBLI "
"G026 GAYATRIMATA INDUSTRIES "DHARWAD "
"H010 HYDROPACK(INDIA) PVT LTD "BELGAUM "
"I018 INDUS MARKETING "BELGAUM "
"J003 JKAY ENTERPRISES "HUBLI "
"K007 KAMATH ENTERPRISES "BELGAUM "
"K008 KAPILA MARKETING "DHARWAD "
"K010 KARNATAKA MATERIAL TESTING RESEARCH "BELGAUM "
"K036 KULKARNI BOOK STALL & STATIONERIES "DHARWAD "
"M008 MARUTI INDUSTRIAL SERVICE CENTRE "BANGALORE "
"M017 MADRAS HARD TOOLS PVT LTD "CHENNAI "
"M019 MANJUNATH GARMENTS "DHARWAD "
"N016 NAVYA ENTERPRISE "HUBLI "
"O003 OMEGA FABRICATIONS "DHARWAD "
"P002 PETHE BRAKE MOTOR PVT. LTD "RATNAGIRI "
"P006 PRAXAIR INDIA PVT LTD "BANGALORE "
"P028 PRESSURE CONTROL EQUIPMENT "KOLKATTA "
"P037 PAVAN ELECTRICAL company "HUBLI "
"R001 R.R. ASSOCIATES "HUBLI "
"R007 RENUKA ENGINEERING WORKS "DHARWAD "
"R035 RITTAL INDIA PVT LIMITED "BANGALORE "
"S019 SONA STEEL ENTERPRISES "MUMBAI "
"S085 SAKSHAM AUTOMATION SYSTEMS "HUBLI "
"S087 SHREE GANESH GAS IMPLEMENTS AND SER "HUBLI "
"T001 TARACK ENGG SERVICES "DAVENGIRI "
"T003 TECHNO COMMERCIAL CORPORATION "JAMSHEDPUR "
"T031 TATA STEEL LIMITED "BANGALORE "
"V001 VALJI & BROTHERS "HUBLI "
"V007 VIJAYSHEER DISEL SALES AND SERVICES "HUBLI "
"V008 VOLTAS LIMITED "BANGALORE "
"V014 VIKAS VIDHUTIKARAN PVT LTD "DHARWAD "
"W006 WELD INDIA CONSULTANCY "DELHI "
"Y003 YALLAPPA HEGGERI "DHARWAD "
Apex Auto Ltd Unit II is having a numerous suppliers. They mainly
purchase Raw Materials like MS plates, Bush Stoppers, Seat Curve etc from
Indian suppliers.
ORGANIZATION STRUCTURE
1. Personnel Department
This department is almost like a human brain, since it is the human
beings that operate it. This department is concerned with implementation
of the plans, with the welfare of the plant, with the industrial relations
and above all safety and security of the plant and the work force is its
prime concerns. This department looks after the subsidiaries like
recruitment selection training and induction, canteen, community
development disciplinary actions etc., welfare, security, guesthouse,
medical facility etc., (As per Indian Factories Act 1948.)
Team Apex Professionally managed with a rich blend of experience and
enthusiastic youth, Engineers, Diploma Holders, draft men, ITI welders and
fitters, Gas cutters, workers and Fabrication Experts.
Let's go through the process of the Recruitment in Apex Auto Ltd Unit II.
Recruitment is process of searching the prospecting candidate,
stimulating and encouraging them to apply for the job. The above meaning
says that every organization want skilled workers so Apex Auto Ltd Unit II
also recruit candidates as follows , they firstly check the organization
culture which type of employees needed in organization and they also check
employment condition in unit.
They are searching the candidates in two ways one is Advertisement
and the other is manual searching. In advertisement they give firstly the
adz's like Draft Adv, Client review adv and Place adv, and then they
receive the calls then access their CV's. In manual searching process they
search the employee in plan search, identity search, and contact search,
then they check the candidates interest after that they arrange meeting for
selection process
Selection process Selection is a process of checking the
candidate's knowledge, behavior, Skills, experience, and qualifications etc
to select and place the candidate their correct position.
2. Stores Department
The raw materials are stored separately under material cell in
production department; as per the demand this department does the work of
receiving and issuing of materials.
3. Purchase Department
Against the approved purchase requisition the department purchases of
raw material semi finished goods and Accessories and other needs of the
various departments. In order to make the work efficient it has the system
of sub contractors. So the purchase department does the creation of sub
contractors and vendors. This department is guided by the main motto the
plant and other departments working. Let's have a look on the flow chart of
the purchase of raw materials in Apex Unit II
4. Dispatch Department
The dispatch of materials and finished goods is done in a very
efficient way.
5.Production Department
This department entrusted with the task of the production of
Dozer Blade, Loader Bucket, Narrow Bucket, Back Hoe Main Frame, Boom, Arm,
Counter Weight, Heavy Duty Bucket, Revolving Frame and Track Frame. From
our very inception at Jamshedpur in 1996 and at Dharwad in 1999, our
infrastructural facilities have been meticulously planned out with an eye
towards satisfying the exacting standards of world class players in the
Earth Moving Industry.
Let's have a look on the process of manufacturing process in Apex
Unit II, basically this company is heavy fabrication company, they are
manufacturing BACK HOE LOADER COMPONENTD & EXCAVATOR COMPONENTS. Following
are the components. JHON DEER (JD) Boom, Arm, Loader Arm and EXCAVATORS 70,
110, 120, Boom and EXCAVATORS 70, 110,120 Arm. The below showing is the
manufacturing process of Excavators-70 Boom.
Flow chart of Excavator – 70
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Manufacturing process of Ex-70 Boom
Manufacturing process of Ex- 70 Boom is having
several steps already you know in the flow chart now below showing
manufacturing process in detail
1. RAW MATERIALS
In every manufacturing process raw materials must required there for
APEX AUTO LTD (UNIT II) purchase raw materials from its main branch at
JAMSHEDPUR and form Apex Auto Ltd (Unit I). Some materials directly comes
to Unit II but some materials firstly comes to Unit I and after some
process it is send to Unit II. Then the stores department sends materials
to production department for production
2. BOOM AND BRACKET ASSEMBLY
In this process Boom and Bracket assembled or produced. Here firstly
they join 20mm Bkt Plate (RH) (TC 00558/01) and TA00233/22 according to the
diagram. Then they join 20mm Bkt Plate (LH) (TC 00558/02) and TA 00233/11.
After that back up bars are join at the bottom of both 20mm Bkt plates.
Then these two jointed by the plate Back up plate (TA 00233/19), then they
join one square plate for maintaining required dimensions after welding of
all this parts this complete the manufacturing of Boom And Bracket
Assembly.
3. BEVELING OF PLATES
Some plates beveled by Unit I and those plates are Top rolling
plate(TA 00233/01), Side bend plate LH(TA 00233/07) and side bend plate
RH(TA 00233/08)
4. IN FIXTURE SUB ASSEMBLY 1ST STAGE
In this process one sub assembly will be done in this stage BOSS
(TD01164/00) is joined to Top rolling plate (TA 00\233/01) at one side then
at the top of the BOSS they join Side bend plate LH (TA 00233/07). After
that inside of the BOSS they join BOSS Back up Plate (TA 00233/27). Then in
the middle of Top rolling plate and Side bend plate they join Gasset
plate(TA00233/05) and near to that Bend Gasset plate is joined with
required dimension, after that Side bend plate RH(TA 00233/08) is joined
according to diagram so this complete Sub assembly first stage.
5. OUT OF FIXTURE FIRST STAGE WELDING
After completion of Sub assembly first stage each part is manually
weld in this process.
6. SECOND STAGE ASSEMBLY
In this process Back up bar (TE20789) 03 Back up bar(TE20790) are
attached in the inside part of Bottom rolling plate (TA00233/03) at the
right side with required dimension according to diagram
7. OUT OF FIXTURE
In this process second stage welding process is done manually.
8. IN FIXTURE
In this process firstly prepared Boom and Bracket is joined by using
plates such as Cover plate 6mm (TA00233/09) and Cover plate 8mm
(TA00233/10), after that there is some place which is empty so that place
is been filled by plates Taper side Plate(TA00233/04) 2 plates according to
diagram. So this process finishes boom and bracket assembly.
9. LUG FITTING
In this process Lugs are fitted to the prepared component which are
Top lug and bottom lugs and Top washers lugs and Bottom washer Lugs.
Firstly bottom lugs are joined to each other and then those lugs are
attached to the bottom of the prepared component. After joining the bottom
lugs the top lug is joined to the top of prepared component with required
dimension or space so as to complete this process.
10. INSPECTION
This is an important stage in manufacturing process. In this stage
they check total length of the component. Total length should be 3720mm if
there less difference of 4mm then there is no problem it must not exceed
4mm, then they also check centre point of the component and top lug
distance to the boom and bracket, and bottom lug distance of the components
if there is any problem found then they go for rectification of the
component.
11. ASSEMBLY OUT OF FIXTURE
In this process they join one Top cover plate (TA00233/02) to the
boom or prepared component according to the standard diagram and they also
join 'M' plate (TA00233/28) attach to the top lugs so this completes the
process of assembly.
12. ROBOT WELDING
Robot is a programmable multiplication, manipulate design to
material part, tools or specialized devices are t
o carry out specific task.
In Robot welding processed components are weld by Robot machine.
Firstly they set the programs to the robot for welding the components.
Every component has is its own welding program according to the standard
drawing of the components, after installation of the Ex – 70 program the
welding process of EX- 70 boom starts, Mig welding wire is been used by
the robot to weld the component.\
13. LEFT OVER WELDING
After completion of the Robot welding there are some spaces left
which are weld manually by welders. In this process they also join BOSS
Reenforcement plate (TA00233/26) at the top and bottom side of the BOSS
according to the diagram.
14. SETTING
In this process they maintain required dimension in various parts of
the components through the gas heating which includes Organ and Co
15. INSPECTION
In this process they measure the components by using measuring scale,
try square, Vernier and gauges etc.
16. MACHINING
Machining process means removing the rough face as per the standard
drawing. In machining process they have two type of jobs one is milling and
the other is boring, in this process they are using two type of machines
one SHW that means hidden control machine and the other is Fanuc control
machine. To reduce heat in the process they are using coolant oil because
it helps to reduce the heat for insert ware and tear and it helps to smooth
milling and boring of the component in machining they are having there
stages
1. Rough stage
2. Semi finish
3. Finish Stage
In Ex- 70 boom components are having mainly four bores boss bore must have
the size of 75mm and lug bore must have the size of 55mm and bracket must
have 60mm.
17. INSPECTION
In this process they use the following instruments to check weather
the machining process is properly done or not
1. Bore dial gauge
2. Micrometer
3. Vernier
4. Measuring scale etc
18. DRESSING
Dressing is the very important stage in manufacturing process in this
process they clean the components by using grinding machine and sander
machine to remove spatters chips etc, here they also fit some items to
prepare components to according to standard diagram.
19. INSPECTION
In this process they are checking welding defects in the components
by using Ultrasonic Technique (UT) machine, the following are the defects
we can find by using UT machine.
1. Blow Holder area
2. Proper penetration
3. Porsity etc
20. DISPATCH
After completion of all this processes the quality assurance
department checks the quality of the component and after checking they
finally dispatch the product so this complete the manufacturing process of
EX-70 boom model.
Apex Auto Limited is in the service of gaints in the field of
Excavator manufacturing Co. TELCON for 6 Years by maintaining a high
QUALITY & SKILL. And for its efforts, it has been certified by TELCON, and
other quality maintaing institutions.
INVENTORY MANAGEMENT
Management of inventory assumes importance due to the fact that
investment in inventory constitutes one of the major investments in current
assets.
The term inventory refers to the stockpile of the products a firm is
offering for sale and the components that make up the product. The assets
which firms store as inventory in anticipation of need are:
(i) Raw Materials:
These represent inputs purchased and store to be converted into
finished products in future by making certain manufacturing process on the
same.
(ii) Work in Process:
These represent semi-manufactured products which need further
processing before they can be treated as finished products.
(iii) Finished Goods:
These represent the finished products ready for sale in the market.
(iv) Stores and Supplies:
These represent that part of the inventory, which does not become a
part of final product but are required for production process. They may be
in the form of cotton waste, oil and lubricants, soaps, brooms, light bulbs
etc. Normally, they form a very minor part of total inventory and do not
involve significant investment.
Let us have a look on Different Inventory Management Views. Means
emphasis role of Inventory Management in different Sectors.
Inventory Management is consisting of 3 hands. The first hand as
shown in the diagram is that Physical Inventory Management, Second one is
Financial Inventory Management and the last one (third one) is Logistic
Inventory Management.
The reason behind of dividing these views is: to gather the
information very easily and for easy to understanding of each view
thoroughly. Let us see the Meanings of each view one by one.
Physical Inventory Management
Meaning:
"Keeping of goods is also a type of management. Whenever
requirements comes from the production department, providing of those
required materials in a proper manner & providing those at the specified
period, is the main motto of Physical Inventory Management."
Benefits for Holding Inventory:
Benefits in Purchasing
Benefits in Production
Benefits in Work-in-Process
Benefits in Sales
Objects of Inventory Management:
Usually, the company is faced with the following conflicting
objectives in the area of inventory management:
1. To carry maximum inventory in order to facilitate efficient and
smooth production and sales operations.
2. To minimize investment in inventory for maximize the profitability.
Both over-investment and under investment in inventories is undesirable
as both involve the consequences. The over-investment involves the
consequences like:
i) Unnecessary blocking of funds in inventory and hence loss of profit.
ii) Excessive storage and Insurance Cost.
i. Risk of liquidity. The inventories once purchased and stored are
normally difficult to dispose off at the same value.
The under-investment involves the consequences like:
a. If sufficient stock of raw material and work in process is not
available, it may result into frequent interruptions in production.
b. If sufficient stock of finished goods is not available it may not be
possible for the company to serve the customers properly and they may
shift to the competitors.
Thus, it can be said that the objective of inventory management is to
minimize the investment in inventory without affecting production or sales
operations.
Inventory, as a current asset, differs from the other current assets
because only financial managers are not involved. Rather, all the
functional areas, finance, Marketing, Product & Purchasing are involved.
The job of the financial manager is to reconcile the conflicting
viewpoints of the various functional areas regarding the appropriate
inventory levels in order to fulfill the overall objective of maximizing of
owner's wealth.
Two-Bin System:
Under this system, the inventory items are grouped into two
categories. In one group or bin, sufficient quantity is kept to meet the
current requirements over a designated period of item. In another group or
bin, a safety stock is maintained to meet the requirements of inventory at
times when the stock in the first bin is exhausted and re-ordering occurs.
Financial Inventory Management
Meaning:
"Recording, maintaining and evaluating of stocks in a value terms is
known as Financial Inventory Management." In other words valuation of
stocks, and controlling of ordering and holding costs and also maintaining
of sufficient valued stocks in Inventory is known as Financial Inventory
Management."
Financial Inventory Management is again divided into three different
categories.
1) Based on Valuation
2) Based on Cost Analysis
3) Based on Financial Statement
1) Based on Valuation
There are number of generally accepted methods of determining the
cost of inventories at the close of the accounting period. The selection
of a suitable method assumes significance in view of the fact that it has a
direct bearing on the cost of goods sold and consequently on profit.
Therefore, the method should be selected in the light of probable effects
on profits over a period of years.
Note:
It may not be out of place to mention that once a method is selected,
it must be used consistently and cannot be changed from year to year.
The discussion here of the methods to value inventory should, therefore be
viewed in this perspective.
First In First Out (FIFO) Method:
The FIFO method of valuation of inventory is based on the assumption
that the inventory is consumed in chronological order, that is, those
received first are issued/consumed first and value fixed accordingly. The
merit of FIFO method is that the physical flow of materials matches the
flow of cost.
Last in First Out (LIFO) Method:
Under the LIFO method, the cost of goods sold and the value of
closing inventory can be determined only after the final lot of the year
has been received. This is because of the assumption underlying the
valuation of inventory, according to this method. As the name LIFO
suggests, the use of inventory is valued on the basis of the inverse
sequence of receipts. Since the LIFO method assumes that the latest item
in is the first item out, the current cost of materials are matched with
the current selling price/current revenues. This matching of current costs
with current revenues is the essence of the argument for the LIFO method.
Average Cost Method:
According to average cost method, each purchase is added to inventory
and an average cost determined. Materials are charged into cost of sales
at this average until another lot is received, when a new average unit
inventory cost is calculated.
Note: There are so many other than these above methods but most wide
usefully methods are these three so here we discussed those three methods
only.
2) Based on Cost Analysis
Cost of Holding Inventory: -
One operating objective of inventory management is to minimize cost.
Excluding the cost of merchandise, the costs associated with inventory fall
into two basic categories: (i) Ordering or Acquisition or Set-up Costs, and
(ii) Carrying Costs. These costs are an important element of the optimum
level of inventory decisions.
1) Ordering Cost:
It is the fixed cost of placing & receiving an inventory order. Like (a)
Preparing a purchase order or requisition form & (b) receiving, inspecting
& reordering goods received to ensure both quantity & quality. It is also
called as setup cost.
2) Carrying Cost:
The second broad category of costs associated with inventory is the
carrying costs. They are involved in maintaining or carrying inventory.
The cost of holding inventory may be divided into two categories.
1. Those that Arise Due to the Storing of Inventory: The main components
of this category of carrying costs are (i) storage cost, that is,
depreciation, insurance, maintenance of the building and utilities;
(ii) insurance of inventory against fire and theft; (iii)
deterioration in inventory because of pilferage, fire, technical
obsolescence, style obsolescence and price decline; (iv) serving
costs, such as labour for handling inventory, clerical and accounting
costs.
2. The Opportunity Cost of Funds: This consists of expenses in raising
funds (interest on capital) to finance the acquisition of inventory.
If funds were not locked up in inventory, they would have earned a
return. This is the opportunity cost of funds or the financial cost
component of the cost.
Linking of Costs based and Physical Based Inventory Management:
The carrying costs and the inventory size are positively related and
move in the same direction. If the level of inventory increases, the
carrying costs also increase and vice-versa.
Total Cost:
The sum of inventory increases, the carrying costs represent the
total cost of inventory. This is compared with the benefits arising out of
inventory to determine the optimum level of inventory.
Economic Order Quantity (EOQ):
How much inventory should be bought in a lot? Should the quantity to
be purchased be large or small? Should the requirements of material during
a given period (say 6 months or 1 year) be acquired in one lot or should it
be acquired in installments or in several small lots? Such inventory
problems are called Order quantity problems.
Therefore EOQ is that level of inventory at which total cost of
inventory comprising ordering cost & carrying costs is the minimum
Formulae for calculating Economic Order Quantity:
EOQ = 2AO
C
Where,
A= Annual Quantity
O= Ordering Cost
C= Carrying Cost
Assumptions:
1. The firm knows with certainty the annual usage (consumption) of a
particular item of inventory.
2. The rate at which the firm uses inventory is steady over time.
3. The orders placed to replenish inventory stocks are received at
exactly that point in time when inventories reach zero.
Order Point:
Reorder Point:
This is the point at which to order inventory-expressed equation-
ally as:
Lead Time in days X daily usage.
Lead Time:
It is the time normally taken in receiving delivery after placing
orders with suppliers.
Safety Stock:
It implies extra inventories that can be drawn down when actual lead-
time and/or usage rates are greater than expected.
3) Based on Financial Statement
For having assistance by banks, bankers should first evaluate the
followings:
1. Collateral Strength.
2. Inventory Position
3. Some Financial Ratios
4. Payment of all requirements like Income Tax, Wealth Tax, Interests
on debt etc.,
5. Agreement papers of all authorized persons like Debenture holders,
Shareholders etc.,
6. All required documents.
7. Who is the Buyer and his Country's relationship etc,
The main requirement for Banker is the Financial Statements of 3 to 5
years. From this statement it can judge the financial strength of the
Company. While analyzing of Financial Strength of the Company, Inventory
is also having its own emphasis role. Because if company is having less
inventory than its requirement then company will get less finance from
Banks and visa-versa. So here high inventory means, high in the sense
company should have sufficient inventory according to its order. Not more
than its order.
Let us have a look on some Inventory related Ratios and also some
important financial ratios those, which are related to Inventory. From
evaluating of these Financial Ratios, company can judge the stocks/goods
level in Inventory, so that company can get loan from Banks.
The financial statement provides a summarized view of the financial
position and operations of a firm. Therefore, much can be learnt about a
firm from a careful examination of its financial statements as invaluable
documents/performance reports. The analysis of financial statement is,
thus an important aid to financial analysis.
The analysis of financial statements is a process of evaluating
relationship between component parts of financial statements to obtain a
better understanding of the firm's position and performance.
Tasks of Financial analyst is to:
1) Select the information relevant to the decision under consideration
from the total information contained in financial statement.
2) Arrange the information in way to highlight significant
relationships.
3) Interpretation and drawing of inferences and conclusions.
In brief, financial analysis is the process of selection, relation and
evaluation.
Financial analysis is the process of identifying the financial
strengths and weaknesses of the firm by properly establishing relationships
between the items of the balance sheet and the profit and loss account.
Financial analysis can be under taken by management of the firm, or by
parties out side the firm, viz., owners, creditors, investors and others.
The nature of analysis will differ depending on the purpose of the analyst.
Management of the firm would be interested in every aspect of the
financial analysis. It is their overall responsibility to see that
the resources of the firm are used most effectively and efficiently,
and that the firm's financial condition is sound.
Trader creditors are interested in firm's ability to meet their
claims over a very short period of time.
Investors, who have invested their money in the firm's shares, are
most concerned about the firm's earnings.
Suppliers of long-terms debt, on the other hand are concerned with
the firm's long-term solvency and survival. They analyze the firm's
profitability over time, its ability to generate cash to be able to
pay interest and repay principal and the relationship between various
sources of funds.
2.Ratio Analysis related to Inventory
Ratio analysis is a powerful tool of financial analysis. A ratio is
defined as "the indicated quotient of two mathematical expressions" and as
"the relationship between two or more things." In financial analysis ratio
is used as a benchmark for evaluating the financial position and
performance of a firm. Ratios help to summarize large quantities of
financial data and to make qualitative judgment about to form a qualitative
judgment the focus of financial analysis is on the key figures in the
financial statements and the significant relationships that exist between
them.
Types of Ratios:
a. Liquidity Ratios
b. Activity Ratios
c. Profitability Ratios
A. Liquidity Ratios:
Liquidity refers to the ability of the firm to meet its obligations
in the Short run, usually one year. Liquidity ratios measure the ability
of the firm to meet its current obligations. Liquidity ratios by
establishing a relationship between cash and other Current assets to
Current obligations provide a quick measure of liquidity. A firm should
ensure that it does not suffer from lack of liquidity, and also that it
does not have excess liquidity.
Therefore it is necessary to strike a proper balance between high
liquidity and lack of liquidity. Following are some of the important
liquidity ratios:
1. Current Ratio
2. Quick Ratio
3. Net working Capital Ratio
B. Activity Ratios:
Activity ratios are concerned with measuring the efficiency in asset
management. Sometimes, these ratios are also called efficiency ratios or
asset utilization ratios. The efficiency with which, assets are converted
into sales. The greater the rate of turnover or conversion, is the more
efficient the utilization. For this reason, such ratios are also
designated as turnover ratios. Turnover is the primary mode for measuring
the extent of efficient employment of assets by relating the assets to
sales. An activity ratio may, therefore, be defined as a test of the
relationship between sales and various assets of a firm. Several activity
ratios can be calculated to judge the effectiveness of asset utilization.
1. Inventory Turnover
2. Assets Turnover
3. Fixed Assets and Current Assets Turnover
Asset Measurement for different methods of inventory valuation:
FIFO Method:
Under this method, as noted earlier, inventory is valued on the
assumption of chronological cost flow. This implies that the unused/unsold
inventory consists of the most recent purchases and, therefore, can be
assumed to be valued at current cost. The vale of inventory as show in the
balance sheet would reflect the current cost, if FIFO method were used.
LIFO Method:
According to this method, obviously, the inventory figure would not
appear in the balance sheet at the Current Cost. It will reflect rather
the cost of raw materials purchased in the past year. Assuming rising
prices, the inventory value based on the LIFO method would tend to be
undervalued. For example inventory purchased as early as six years or
more. In that situation, the inventory figure included in the balance
sheet would be actually the price paid on the purchase of inventory six
years ago. In a period of rising prices, this value would naturally be
grossly out of line with the currently prevailing price. This would imply
that the balance sheet would not reflect the current worth of the
inventory. That the inventory value will not be correct is another way of
saying that the balance sheet will present a distorted picture of the
affairs of the firms.
A possible solution to correct the above distortion in the balance
sheet implicit in the under-valuation of inventory with the LIFO method is
a modified/adjusted LIFO method.
The modified method will, thus, serve the needs of correct income
determination as well as correct asset measurement. However, this is
subject to a qualification, namely, the current year's purchase (units)
should exceed the current year's consumption (units). If for reasons such
as strike/lockouts, transportation problems, and so on, the current
consumption exceeds the current purchases, profits will rise. The increase
will depend upon the extent of liquidation of the previous years'
inventory. This increase in profit is termed as liquidation profit, which
is equal to the difference between the current cost of inventory and the
cost of inventory purchased in the past.
Logistics Inventory Management
Meaning of Logistics:
Logistics is the Organization of Services and Supplies. In other
words, logistics is making and taking the permission for sell/exporting the
company's products in foreign countries.
In fully export-oriented business this is one of the main department,
where this department gets an approval to sell their goods in foreign
countries. And also their main intention is to maintain all documents of
those that are related to the exporting of their products.
Logistics Inventory Management:
Yes, already we have observed about the meaning of Inventory
Management in the Organization. But in fully export oriented business;
Inventory Management is a very important concept. Because every exporter
or importer, they do not know about each other who are staying in other
countries.
So every company, which are exporting or importing of materials, they
should communicate each other through banks only. These banks are listed
by Central Bank of that Nation. In our Country RBI is lists some banks for
intermediating purpose and every year RBI declare some listed Banks as a
mediator.
For producing of materials and selling of those materials, every
company/business should need a Working Capital. This Working Capital can
also financed by Banks. While in export oriented business it is slightly
different task. Here Banks can acts as financial assistance for Pre-
Shipment and for Post Shipment of Goods.
For having an assistance by banks they should first evaluate followings:
1. Collateral Strength.
2. Inventory Position
3. Some Financial Ratios
4. Payment of all requirements like Income Tax, Wealth Tax, Interest
etc.,
5. Agreement papers of all authorized persons like Debentures,
Shareholders etc.,
6. All required documents.
7. Who is the Buyer and his Country's relationship etc,
Before going to detail decision on Banks let us have a look on Commercial
Papers. Which are also parts of financing the working capital requirements
of the Companies.
Commercial Papers (CPs):
In the recent past, Commercial Papers (CPs) have become one of the
best methods for financing the working capital requirements of the
companies.
The companies trying to raise the funds by issuing the CP are
regulated by Guidelines for issue of Commerical Papers (CP), 2000 issued by
Reserve Bank of India on October 10, 2000. These guidelines apply to the
companies trying to raise the funds by issuing the CPs. As per these
guidelines, a a company means a company as defined in section 45-I(aa) of
Reserve Bank of India Act, 1934. Section 45-I(aa) of Reserve Bank Act,
1934 defines a company as the company as the company as defined in section
3 of the companies Act, 1956.
In the Indian circumstances, banks play a very major role in financing
the working capital requirement of the organizations. We will consider the
bank as a source for financing the working capital requirement of the
organizations under the following heads:
Amount of Assistance
To obtain the bank credit for financing the working capital
requirements, the company is required to estimate the working capital
requirement properly. To estimate the requirement of working capital
requirement properly, the company will be required to estimate its level of
current assets and current liabilities properly, as working capital is the
difference between current assets and current liabilities.
For this, the techniques like ratio analysis, trend analysis etc.,
can be used by the company. More accurate the estimation of the level of
current assets and current liabilities, more accurate the estimation of
level of current capital. Then, the company will have to approach the bank
along with the necessary supporting data. On the basis of estimates
submitted by the company, the bank may decide the amount of assistance that
can be extended. While extending the working capital assistance, the bank
may prescribe the margin money requirement. The margin money stipulation
is made by the banks in order to ensure that borrowing company's own stake
in the business and also to provide the cushion against the possible
reduction in the value of security offered to the bank. The percentage of
margin money stipulation may depend upon the credit standing of the
borrowing company, fluctuations in the price of security and the directives
of RBI from time to time. The general principle applicable will be, "more
dicey the nature of security, higher of security, higher will be the margin
money stipulations."
Form of Assistance:
After deciding the amount of overall assistance to be extended to the
company, the bank can disburse the amount in any of the following forms:
1. Non-Fund Based Lending
2. Fund Based Lending.
Non Fund Based Lending:
In case of Non-Fund Based Lending, the lending bank does not commit any
physical outflow of funds. As such, the funds position of the lending bank
remains intact. The Non-Fund Based Lending can be made by the banks in two
forms:
a. Bank Guarantees
b. Letter of Credit
Fund Based Lending:
In case of Non-Fund Based Lending, the lending bank commits the physical
outflow of funds. As such, the funds position of the lending does not
affected. The Fund Based Lending can be made by the banks in following
forms:
a. Loan
b. Overdraft
c. Cash Credit
d. Bills Purchased/Discounted
e. Working Capital Term Loans
f. Packing Credit
Security for Assistance:
The bank may provide the assistance in any of the modes as stated above.
But normally no assistance will be available unless the company offers some
security in any of the following forms.
1) Hypothecation.
2) Pledge
3) Lien
4) Mortgage
Process of Physical Inventory Maintenance in Apex Auto Ltd
Each unit of Apex auto ltd has its own store department that we can
call it as Work-in-process inventory.
This inventory process is fully computerized and here paper work is
very less. Only maintaining of documents, which were sent by suppliers as
like challans etc., are only here to maintain as paper documents. Otherwise
it is fully computerized. Through computers only Store Department receives
Purchase Order and by computer only they send documents of issuing of
materials to manufacturing unit.
For easy to communicate and planning of production activity, Apex
Auto Ltd Unit II has having only one Godown in Procedures involved in
receiving and issuing of materials are as follows:
1) Godown will first get Purchase Order No..
Purchase Order Number:
This PO is comes from Purchase Department. This Purchase Department
gives a number for the each order made by Purchase Department only.
Before placing any order to suppliers they first checks the materials
in inventory as to know about whether materials are available in Inventory
or not. If not available in Inventory then only they will place an order
according to the requirement.
In Apex Auto Ltd (Unit II), it is very important to note that:
purchase department always places an order to those materials which have
ordered by Customers/buyers of Apex Auto Ltd (Unit II).
So, normally it does not have any stocks in its inventory. For every
order from customers they make a fresh Purchase Order for purchasing of
materials. It means whatever the materials are requiring for present
orders, those materials are only they kept as stocks in Inventory.
In some cases, materials may be in Godown, which they call it as
"Buffer Stock". If these old stock is matches the requirements of product
which has ordered now by its customers, then purchase Department will sent
a notice to Inventory for issuing of those materials. These old stock may
be in form of Raw Material or in form of finished goods. Apex Auto Ltd
(Unit II) always produces more than its requirements. For example if
Telcon has ordered for 20 EX- 70 boom then Apex produces 25 EX – 70 i.e.,
20% more than its requirements. So the remaining or excesses material they
call it as "Buffer Stock".
2) Receiving of Materials
Any materials comes-in or goes-out from the Godown it should be enter
in the Gate that is they call it as "Gate Entry", which is maintained by
security Guard. Guard is not an employee of an organization. He is a
contact-based employee.
When Inventory receives materials it first inspects some samples, so
for it, they call up as "Spot Inspection." Here they inspect the following
points:
a) Is it our supplier only and is this parcel is for us only?
c. Are these received materials according to the Purchase Order? Like
i. Quantity
ii. Date, etc.,
d. Is it having all required Challans or Invoices and also does it
approved by authorized person?
e. Is it having all required documents like Octroi etc.,
f. Is that Challan consisting the correct information of materials?
After approval of materials by sample inspection, inventory department
put these details in manual book, this documentation is called as "Day
Book." This daybook is consisting of information like Challan No., P.O.
No., Style No., Description of Materials, Supplier's Name, transporter's
Name, and Quantity.
After completing of these processes, materials will send to inspection
department. In this inspection department they inspect in-details of
materials. After approval by inspection department, this inventory
department makes one document, which is they call it as "Goods Received
Document".
This Goods Received Document is consisting of GR No., Date, GRN Type
(In-store), Mode of Transport, Challan No., Challan Date, Status, Gate
Entry No., Gate Entry Date, Priority No., all Details of Materials and
received quantity and actual quantity also enters there.
3. Issuing of Materials
Merchandising Department will send one card called "Job Card" which
it consisting of all details of materials requires to produce a product.
According to that Card Inventory department should send the materials to
manufacturing department.
After receiving of materials by manufacturing department from
inventory department they issue one document about received of materials,
quantity, description of materials etc. Manufacturing Department uses
these materials for manufacturing purpose. In manufacturing process
sometimes it may happens like some materials get damages and some are not
fully matches with requirements. Then those materials will be return to
inventory.
After utilizing of all these materials by manufacturing department
they will send one document called "Order Completion Report" (OCR). This
report consists the information of Percentage of Utilized Materials for
particular order and percentage of wastage of materials. This report will
send to inventory and also to Merchandising Department.
4. Return Back Materials from Manufacturing Units:
Inventory takes those materials, which are return back from
manufacturing units because of excess or surplus occurs while manufacturing
of products. This excess or surplus exists because of purchase department,
they always orders 20% more than its requirement to meet the requirement of
next month. So these materials are kept in Inventory as name it as "Buffer
stock."
These Buffer Stocks will be utilize when company get the same type of
Order. Inventory issues these materials (Buffer Stock) only when it
receives instruction from Merchandising and purchasing Department.
5. Rejected Materials:
Inspection department make the rejection of materials, when materials
are not as per requirements and not as per the order. These rejected
materials are kept in separate section by Inventory Department.
Inventory department inform to Purchase Department and also notice to
Suppliers about rejection of materials. That is called "Rejection Card."
In this card it involves Name of Supplier, Description of Materials,
Challan No., Challan Date, Gate Entry No. & Date, No. of Quantity rejected,
Reason for rejection etc.,
Some times supplier may issue new materials in place of rejected
materials. Or he may give some compensation for wrong supply and that is
after paying of full payment of materials.
Sections in Inventory:
Inventory is again divided into 5 sections. Each is section handling
by only one persons, with the help of 3 to 4 assistants, who helps in
maintaining of materials at specific area. Five sections are as follows:
Sections in Inventory
D201
All bought out items are been stored here and processed to the
manufacturing as when required
D202
All consumables and tools and maintenance accessories are been stored in
this section
D203
All raw materials like direct, semi finished goods are stored in this
section and processed to the manufacturing as when required and old stock
and rejected items are also stored in this section.
D204
Gas tank and cylinders is stored in this section.
D205
All finished goods are stored in this section
Purchasing Procedure of Materials
In Apex they purchase materials at from a multiple Suppliers. There
is a reason for purchase materials from multiple suppliers. The reason is
if one supplier delays to fulfill the supply then there must be alternative
supplier for it to fulfill the requirement. So there must me no stock outs
in the production process
Apex always purchases at bulk but by schedule wise. In other words
they purchase materials at a time for specific order. They make the
agreement of supplying materials only at once. And they negotiate the
price only at once that is before supplying of materials and once their
agreement is over then they provide schedule to supplier to supply the
materials at a specific time and at a specified quantity.
So it reduces the spaces, which occupies in the Godown. So this
method is suitable for this type of industry because of same orders from
customers.
WIP Store
Now we come to the WIP Store. As we have already seen that this Apex
is having only one Godown and every unit is having its own Store
Departments. As we know that Work In Process Store means Semi-finished
Goods, here goods are not completed yet and not these are in fully raw
materials form.
So in valuation matter it is having slightly different way. And in
Apex it is as follows: Yes, these goods are includes some labour cost, some
other costs. So in valuation of WIP they valuate at Raw Material Price of
that goods PLUS incurred cost to produce till now.
Finished Goods
Valuation of Finished Goods in Apex is at 10% less than Selling Price
of those finished goods. Finished Goods are in the sense these goods
should be ready to dispatch.
There is no separate Godown for Finished Goods/Products. Every unit
is having it's own Finished Goods Godown. In that Godown only they store
these Goods. And dispatching of these products is directly by each unit.
They do not consolidate these goods; they dispatch these finished products
directly by each unit.
Apex auto ltd (Unit II) has only one customer that is Telcon. So
they directly supply finished products to its customers. So it is not
necessary to have another Godown for Finished Goods.
Logistics Inventory Management
There is a department called Logistic Department in Apex Auto Ltd,
which is concerning about selling of goods and maintaining of all documents
related to exporting of products and also taking the permission from banks
to sell specific products in specific countries. So Logistic Department is
one of the important front-office Departments, like Marketing Department.
Marketing Department is one, which takes the orders from its
customers. And this is entirely different from Logistic Department.
Logistic Department is one, which sells its products and maintains all
documents. But Marketing Department is comes into picture before
production process starts. And Logistic Department comes into picture only
after the production process completes.
Logistic Department is not only taking the approval for selling its
products, but also it will concern for taking loan for its working capital.
Banks will provide these working capital requirements in two senses: one
is on Pre-Shipment Loan and another one is Post-Shipment Loan.
There are so many ways to get loan for working capital requirement.
Apex get loan for Working Capital requirement either through Commercial
Papers or through Letter of Credit. Apex is taking loan for Working Capital
Requirements from Axis Bank.
Who can issue the CP:
A company will be eligible to issue the CP provided:
1. the tangible net worth of the company as per latest audited balance
sheet is not less than Rs. 4 Crores.
Note:
Tangible net worth means share capital plus free reserves duly
reduced by intangible assets like accumulated losses, deferred revenue
expenditure etc. Free Reserves include share premium and debenture
redemption reserve but do not include revaluation reserve.
2. Company has been sanctioned working capital limits by banks.
3. Borrowed amount of company is classified as a standard asset by the
bank.
Commercial Paper is an unsecured promissory note issued at a
discount. The rate of discount is required to be decided by the issuer and
is not regulated.
Before the company issues the CPs it is required to obtain
satisfactory credit rating from an approved credit rating agency.
Presently, following credit rating agencies have been approving by RBI for
this purpose.
a. Credit Rating Information Services of India Ltd., (CRISIL)
b. Investment Information and Credit Rating Agency of India Ltd., (ICRA)
c. Credit Analysis and Research Ltd., (CARE)
d. FITCH Rating India (P) Ltd.,
The minimum credit rating required is P-2 of CRISIL. If the rating is
given by any other agency, equivalent minimum rating will be required. The
rating so obtained by the company should be current and should not have
fallen due for review.
Who can invest in CP:
Following persons can invest in the CP
4. Individuals
5. Banks
6. Corporate Bodies incorporated in India
7. Unincorporated Bodies
8. Non-resident Indians
9. Foreign Institutional Investors
Nature of a CP:
g. A CP can be issued for the maturity period of 7 days to one year.
h. A CP has the denomination of Rs. 5 Lakshs and every single investor
should invest minimum Rs. 5 Lakhs in CP.
i. Every issue of CP, including the renewal, will be considered to be the
fresh issue.
j. The amount of CP shall be within the overall limit sanctioned by the
Board of Directors. It can be issued a "stand alone" product. Banks
will be free to adjust the working capital limits after considering the
CPs issued by the Company.
It will not be out of place to mention here that CP is not treated as
deposit as per the provisions of Section 58-A of the Companies Act, 1956.
Procedure for issuing the CPs:
Every company issuing the CP should appoint a scheduled bank
as the Issuing and Paying Agent (IPA). It will satisfy it-self that
company has obtained satisfactory credit rating. It shall also verify the
documents submitted by the issuing company and issue a certificate that the
documents are in order. IPA should also certify that it has valid
agreements with the issuing company.
The issuing company shall arrange to place the CPs on private
placement basis with the inventors. The issuing company shall disclose to
the potential investor its financial position. After the deal is
confirmed, the issuing company shall issue physical certificates to the
investor. Investors shall be given a copy of IPA certificate to the effect
that the issuing company has a valid agreement with the IPA and documents
are in order. Every issue of CP should be reported to RBI through the IPA
within three days from the date of completion of issue.
Apex Auto Ltd (Unit II) has setup in Telcon Premises so as we know
earlier that Apex Unit II is having only one customer that is Telcon so for
short distance there is no need of logistic department in Apex Unit II it
is handled by Purchase department incharge is Parmod Singh.
Financial Inventory Management
Already we saw about Logistic Inventory Management. Let us see how
Apex valuates the old and rejected stocks in financial terms and also have
a look on the inventory ratios.
Valuation method for Old and Rejected Stocks:
Old Stock:
This old stock means excess of materials from specific order. As
already viewed in Physical Inventory Process that, always purchase
department purchases 20% more than its order. So that remained or excess
materials are said to be "Buffer Stock"
These Old stock are in the form of Raw Materials then valuate it
according to purchasing of those materials. If these old stock are after
Finishing of production process. Then these are valuating on selling price
of same products to the customer.
In easy words it can be said that if materials are Raw, then taking
as Purchasing value for valuation purpose. If materials are Finished Goods
then taking Selling Price as a value for valuation of Old Stock in Godown.
Rejected Stocks:
Again these are divides into three parts. Rejection of Raw Materials
i.e., before sending to Production Process. Rejection of Materials during
the Production Process and Rejection of Materials after the Production
Process that is, Rejection of Finished Goods.
Rejection of Raw Materials is valuating on Purchase value of those
materials. Rejection of WIP Materials then valuate as Purchase Value Plus
its partly incurred Costs like Labour, Overhead Costs etc., And for
Rejection of Finished Goods valuate at Purchase Value and Fully incurred
Costs as said now.
Holding or Ordering Cost
These costs are every important in manufacturing companies to
minimize the cost. This is not applicable to Apex by virtue of its
Business activities. Because, let us have a broad view on statement by
following points:
In Apex, they purchase the materials only from multiple supplier.
Because to fulfill the requirements in required time limit.
Apex orders the materials to suppliers only at once and according to
the schedule supplier will supply the materials.
Yes, Depending on Shorter order cycle Apex can hold entire stock well
before order starts and also Apex can have a full stock at a time before
starting process of product of that specific order.
EOQ
EOQ applicability due to the nature of Business as above said is not
possible.
Reorder Point:
This is the point is also not having much importance because of nature
of Business.
Lead Time
Apex purchases materials from multiple supplier and by on schedule
basis to supply materials. So this is also not applicable in this type of
business.
Financial Ratios related to Inventory.
Raw material turnover ratio:
Raw material turnover ratio is velocity at which raw material
converted into goods ready for sale. If raw material turnover ratio is high
then company is efficiency converting into finished goods.
Formula: Material consumed / Average raw material
"Raw Material Turnover Ratio "
"Year "Raw material consumed "Avg R.M "Ratio "
" "(Rs) " " "
"2008 "576,484,922 "53,608,082 "10.75 "
"2007 "371,223,873 "36,137,266 "10.27 "
"2006 "230,779,236 "132,002,490"1.74 "
Form above graph we come know that raw material turnover ratio is increased
rapidly in 2007 from 1.74 in 2006 to 10.27 for 2007. Indicates that company
is converting raw material into finished or semi finished goods very
quickly
Holding period of raw material:
It refers to the number of days taken for the production unit
to convert raw material to finish goods.
Formula: 360 /Raw material turnover ratio
"Holding period of raw material "
"Year "Total Days "Ratio "Days "
"2008 "360 "10.75 "33 "
"2007 "360 "10.27 "35 "
"2006 "360 "1.74 "206 "
As the raw material turnover ratio is increasing form to 10.27 for 2007 it
indicates that firm is taking less days for conversion as compared to 2006.
In 2006 conversion period was 206 days but in decreased to 35 days for
2007. This is shown in above graph.
Before 2007 there was no production process they were
converting semi finished goods into finished products hence to start their
own production process they hold the raw material in 2006
Work in Process Turnover ratio:
Work in process turnover ratio is velocity at which W.I.P converted
into goods ready for sale. If W.I.P turnover ratio is high then company is
efficiency converting into finished goods.
Formula:
Cost of production
Average W.I.P
"W.I.P turnover ratio "
"Year "Cost of production "Avg W.I.P "Ratio "
"2008 "849,054,442 "36,720,702 "23.12 "
"2007 "555,094,500 "15,010,347 "36.98 "
"2006 "361,110,197 "9,755,839 "37.01 "
Form above graph we came to know that Work in process turnover ratio is
decreasing from 37.01 in 2006 to 23.12 2008. The ratio was high in 2006 as
compared to 2007 and 2008. The ratio was 37.01. Indicates that company is
converting semi finished into finished goods quickly
Holding period of W.I.P:
It refers to the number of days taken for the production unit to
convert semi finished goods into finish goods.
Formula:
360
W.I.P turnover ratio
"Holding period of W.I.P "
"Year "Total Days "Ratio "Days "
"2008 "360 "23.12 "15.57 "
"2007 "360 "36.98 "9.73 "
"2006 "360 "37.01 "9.72 "
As the work in process turnover ratio is increasing form 9.72. in 2006 To
15.57 for 2008 it indicates that firm is taking less days for conversion.
Which shown in above graph
Finished goods turnover ratio:
Finished goods turnover ratio is velocity at which finished goods
converted into for sale. If finished goods turnover ratio is high then
company is efficient.
Formula:
Cost of goods sold
Average finished goods
"Finished goods turnover ratio "
"Year "cost of goods sold "Avg F.G "Ratio "
"2008 "849,054,442 "26,243,339 "32.35 "
"2007 "555,094,500 "19,858,482 "27.95 "
"2006 "361,110,197 "10,940,008 "33.01 "
Form above graph we came know that finished goods turnover ratio is
decreasing from 33.01 in 2006 to 27.95 for 2007. Indicates that company is
selling goods little slowly as compared to 2006 but it is bit fast as
compared to 2008. Where the ratio for that particular period was 32.35
decreased to 11.20 for 2008 it is satisfactory. Which shown in above graph.
Inventory to capital employed:
This ratio indicates the relationship between the total capitals
employed and inventories it shows how much capital utilized to invest in
the inventories other than the other assets. The normal manufacturing firms
have low ratio of inventory total capital employed in the organization.
"Inventory to capital employed "
"Year "Inventory "Total capital "Percentage"
" " "employed " "
"2008 "197,465,069 "301,443,215 "65.50 "
"2007 "121,558,000 "145,492,599 "83.54 "
"2006 "67,994,623 "98,333,324 "69.14 "
Formula: Inventory / Total capital employed
By observing above graph we can say that the firm investing huge
amount in inventories compared to other assets. It invested 83.54% of its
capital in inventory in 2007 where as it reduced to 65.50% in 2008
Inventory to current asset ratio:
This ratio indicates the relationship between the inventory and
current assets. It shows the percentage of inventory to current assets,
which helps the organizations in deciding the current assets policy which
also affect the liquidity position of the organization.
Formula: Inventory / Current assets
"Inventory to current asset ratio "
"Year "Inventory "current assets "Percentage "
"2008 "197,465,069 "331,314,504 "59.60 "
"2007 "121,558,000 "237,687,684 "51.14 "
"2006 "67,994,623 "117,022,625 "58.10 "
The inventory to current assets ratio in the year 2006 was 58.10% and it
decreased to 51.14% in the year 2007 but again it increased to 59.60% in
2008. It shows that the firm investing 59.60% of its investment is for
inventory only.
Inventory to total assets:
This ratio indicates the relationship between the inventory and
total assets. The significance of this ratio is it reflects the portion the
inventory as a percentage of the total assets, which helps the management
deciding the utilization remaining resources profitably, since the
inventory will lock up the huge funds and reduces the profitability of the
organization
Formula: Inventory / Total assets
"Inventory to total assets "
"Year "Inventory "Total assets "Percentage "
"2008 "197,465,069 "990,329,087 "19.93 "
"2007 "121,558,000 "540,916,088 "22.47 "
" 2006 "67,994,623 "414,901,234 "16.38 "
During the year 2006 the rate of inventory to total assets was 16.38% it
increased to 22.47% in 2007. But again it reduced to 19.93% in 2008. It
indicates that firm investing only 19.93% in inventory out of total assets.
Inventory to working capital:
This ratio indicates the relationship between inventory to
working capital and it also indicates the amount to inventory tied up in
the working capital and it also shows the efficiency of inventory
management.
Formula: Inventory
Working capital
"Inventory to working capital "
"Year "Inventory "Working capital"Percentage"
"2008 "197,465,069 "199,345,123 "99.05 "
"2007 "121,558,000 "146,097,210 "83.20 "
"2006 "67,994,623 "46,338,277 "146.45 "
In the year the ratio was 146.45% in 2006. It decreased to 83.20% for 2007
but it increased it to 99.05% in 2008. It indicates that firm investing
huge amount in inventory
FINDINGS:
1. Raw material turnover ratio is increased rapidly in 2007 from 1.74 in
2006 to 10.27 for 2007.
2. As the raw material turnover ratio is increasing form to 10.27 for 2007
it indicates that firm is taking less days for conversion as compared to
2006.
3.Work in process turnover ratio is decreasing from 37.01 in 2006 to 23.12
2008. The ratio was high in 2006 as compared to 2007 and 2008.
4.As the work in process turnover ratio is increasing form 9.72. in 2006 To
15.57 for 2008 it indicates that firm is taking less days for conversion
5.Finished goods turnover ratio is decreasing from 33.01 in 2006 to 27.95
for 2007. Indicates that company is selling goods little slowly as compared
to 2006
but it is bit fast as compared to 2008.
6.Company is selling goods little slowly as compared to 2006 but it is bit
fast as compared to 2008. Where the ratio for that particular period was
32.35
7.The inventory to current assets ratio in the year 2007 was 58.10% and it
decreased to 51.14% in the year 2008 but again it increased to 59.60% in
2008. It shows that the firm investing 59.60% of its investment is for
inventory only.
8.During the year 2007 the rate of inventory to total assets was 16.38% it
icreased to 22.47% in 2008. But again it reduced to 19.93% in 2009. It
indicates that firm investing only 19.93% in inventory out of total assets.
9.In the year the ratio was 146.45% in 2006. It decreased to 83.20% for
2007 but it increased it to 99.05% in 2008. It indicates that firm
investing huge amount in inventory.
10.As the finished goods turnover ratio is increasing form 10.87 in 2007 to
12.86 for 2008 it indicates that firm is taking less days for sale. In 2008
conversion period was 12.86 days but in decreased to 11.20 for 2008 it is
satisfactory.
SUGGESTIONS:
a) From the findings it is came to know that in the year 2006 the number
of days for holding Raw material is more, it is not good for the
company because it eats unnecessary investment. To avoid this problem
the following points will help.
Purchase Raw Materials at the time when the stock reaches the minimum
level.
The purchases should not cross the Maximum limit otherwise the stock
kept in stores idle.
Quantity should be ordered as per the demand. We can assume the demand
for the goods from past experience.
We can have more Raw materials which are imported from other countries
but carry reasonable stocks which are available locally.
b) If we purchase less quantity of materials at a time it will reduce the
carrying cost but increases the ordering cost and vise versa.
Therefore optimum ordering quantity is necessary, which minimizes the
cost.
c) The company should maintain a safety level and also reordering point
so that they come to know at what time they should order for the
supply of material and need not to suffer from short fall of required
material.
CONCLUSION
After the study, we can came to a conclusion that, effectiveness of
inventory management should improve in all the aspects, hence the industry
can still strengthen its position by looking into the following.
The inventory should be fast moving so that warehouse cost can be
reduced.
The finished goods have to be dispatched in feasible time as soon as
manufacturing is completed.
Optimum order quantity should be maintained, hence cost can be
minimized.
Proper inventory control techniques are employed by the inventory
control organization within the framework of one of the basic models
like ABC, HML and VED etc.
BIBIIOGRAPHY
BOOKS
Financial Management : I.M.Panday
Production Management : K. Ashwatappa
WEBSITES
www.apexautoltd.com
www.google.com
-----------------------
Ratio
Years
2006
CONTINUE
CONTINUE
INSPECTION
INSPECTION
DRESSING
INSPECTION
UT TESTING
REJECTION/ RECTIFICATION
REJECTION/ RECTIFICATION
RECTIFICATION
DESPATCH
MACHINING
SETTING
LEFT OVER WELDING
TA 0233/26
FIT AND WELD
ROBOT WELDING
ASSEMBLY OUT OF FIXTURE
TA 00233/02
Rejection/ Rectification
INSPECTION
Total length 3720+/- 4mm Top lug distance WRT Boom End Bracket, Bottom lug
distance
=
CONTINUE
CONTINUE
LUG FITTING
TA 00233/14, TA 00233/15,
TA 00233/16, TA 00233/17,
IN FIXTURE
TA 00233/09, TA 00233/10
TA 00233/04
OUT OF FIXTURE
2ND STAGE WELDING
2ND STAGE ASSEMBLY
TE 20789, TE 20790
TA 00233/03
OUT OF FIXTURE
1ST STAGE WELDING
IN FIXTURE
SUB ASSEMBLY 1ST STAGE
TA 01164/00, TA 00233/27,
TA 00233/01, TA00233/08,
TA00233/05, TA00233/06 TA00233/07
BEVELING OF PLATES
TA 00233/01, TA22033/07,
TA 00233/08
BOOM END BRACKET ASSEMBLY
TC 00558/01(RH), TC 00558/02(LH)
Follow Up and procure the material for production
Purchase Order send to vendor (supplier)
Purchase Order creation
Best Negotiation
Quotations Comparisons
Quotations request to one or more vendors according to requirement
Material indenting
(As per customer schedule)
Helpers
Assistant
Q. A
Machine Department Head
Machine Operators
Production Supervisor
Store Supervisor
Subordinate
Members
Workers
Quality Assurance Head
Supply Chain Mgmt Head
Production department
Head
Administration Assistant
Finance Manager
Production Planning & Control Manager
General
Manager
C E O
Production
Assistant General
Manager
Human Resources
Assistant General
Manager
Managing Director
Financial Inventory Management
Logistic Inventory Management
Physical Inventory Management
3
V
I
E
W
S
INVENTORY MANAGEMENT
2007
2008
12
10
8
6
4
2
0
Ratio
ICE
P
E
R
C
E
N
T
A
G
E
Years
2006
2007
2008
90
80
70
60
50
40
30
20
10
0
Inventory to capital employed
Inventory to working capital
0
20
40
60
80
100
120
140
160
2008
2007
2006
Years
P
E
R
C
E
N
T
A
G
E
Ratio
Inventory to total assets
0
5
10
15
20
25
2008
2007
2006
Years
P
E
R
C
E
N
T
A
G
E
Ratio
Inventory to current asset ratio
46
48
50
52
54
56
58
60
62
2008
2007
2006
Years
P
E
R
C
E
N
T
A
G
E
Ratio
Finished Goods Turnover Ratio
25
26
27
28
29
30
31
32
33
34
2008
2007
2006
Years
D
A
Y
S
Ratio
Holding period of W I P
0
2
4
6
8
10
12
14
16
18
2008
2007
2006
Years
D
A
Y
S
Ratio
Work in Process Turnover ratio
0
5
10
15
20
25
30
35
40
2008
2007
2006
Years
D
A
Y
S
Ratio
RHP
D
A
Y
S
Years
2006
2007
2008
250
200
150
100
50
0
Raw material holding Period
