A Case Study on

"INVENTORY MANAGEMENT"
at THE KRISHNA DIST, MILK PRODUCERS MUTUALLY AIDED CO-OPERATIVE UNION LTD., VIJAYAWADA
A project report submitted Osmania University, Hyderabad in partial fulfillment for the award of degree of

MASTER OF BUSINESS ADMINISTRATION

Submitted By P.RAJYA LAKSHMI Regd No: (412309672160)
Under The Guidance of

MR.K.SRINIVAS (Asst.professor)

DEPARTMENT OF MASTER OF BUSINESS ADMINISTRATION SANA COLLEGE OF BUSINESS MANAGEMENT (Affiliated to Osmania University, Hyderabad and Approved by AICTE) Kodada-508 206 (2009 -2011)

DECLARATION
This is certify that the report title INVENTRY MANAGEMENT submitted in partial fulfillment for the award of MBA Program of Department of BUSINESS MANAGEMENT OSMANIA UNIVERSITY , HYDERA BAD, was carried out by me under guidance of K . SRINIVAS this has not been submitted to any other university of institution for the award of any degree of diploma or certificate

K SRINIVAS Project Guide Faculty of Business Management Kodad

Md. IRFAN H.O.D. Kodad

(P.RAJYA LAKSHMI)

ACKONWLEDGEMENT
I express my sincere thanks to the department of KDMPMACUL,VIJ, for their kindness of allowing me to under take this project and its employee who lent completion this project study. I express my deep sense of gratitude to the principle Mr. Dr. CHENCHU REDDY and H.O.D. Mr. Md . IRFAN a will wisher of helped me in very aspect. I also express my gratitude to my project guide Mr. K . SRINIVAS other faculty of SANA COLLEGE OF BUSINESS MANAGEMENT for their guidance through project. I express my deepsene of gratitude to Sri. P. SEETHA REAMA REDDY, Director of Finance, Sri. REHMATULLA (Asst. Accounts Officer), Sri . A.B. MALLESWARA RAO Deputy Director (Purchases), Sri . SURYAM, store manager & other Employees KDMPMACUL,VIJ. I am greatly indebted to my guide Mr. K. SRINIVAS sparing his valuable time and sharing his fast experience in successful completion of this project. The Co-Operation I received from the employees of KDMPMACUL,VIJ made it easy to single out individual for acknowledge, I am also thankful to all the staff members of KDMPMACUL,VIJ

P.RAJYA LAKSHMI

CHAPTER -1
INTRODUCTION
Financial management is that managerial activity which is concerned with the planning & controlling of the financial resources. In other words managing the funds of the firm most wisely with a view to maximize the wealth of shareholders. It is concerned with effective use of important economic resources of business firm.

Financial management is concerned with the acquisition. Financing and management of assets with overall goal in mind. Financial manager has to forecast expected events in business and note their financial implication.

Firm anticipating financial needs means estimation of funds required for investment in fixed and current asserts or long term and short term assets.

FINANCIAL MANAGEMENT A modern financial management performs several functions it is difficult to task to identify the functional areas of modern financial management. They are mainly three types as follows. Investment decision Financial decisions Dividend decisions INVESTMENT DECISION 1. A firms investment decisions involve capital expenditures. 2. They are therefore referred as a capital budgeting decision. 3. It commitment of long-term assets that would yield benefits in the future. FINANCIAL DECISIONS 1. It is the second important decision or function to be performed by the financial manager. 2. Decide how to acquire funds and how met the firm's investment needs.

 DIVIDEND DECISION 1. The proportion of profits distribute as a dividends is called the dividend decision. 2. Maximize the market value of the firm's shares is optimum dividend policies.

NEED OF THE STUDY:

This project report entitled "A CRITICAL STUDY ON INVENTORY MANAGEMENT", starts with the necessity of realization of definition, concepts and importance of inventory. Inventory may be defined as usual, but idle resource. If resource may be tangible and physical such as materials then it is termed as inventory. Inventory Management has acquired a great significance and sound position in recent years with an objective of profitability and liquidity. The success or failure of a business enterprise largely depends upon the management of inventory management.

No firm can be maintained without inventory management, but the requirement of inventory differs from firm to firm. Inventory management is needed to every business enterprise because it indicates liquidity position of the firm. The problem of inventory management is one of the maintenance, with in a financial investment, an adequate supply of goods to meet an expected supply of demand pattern. This could be raw-materials, work in progress (semi finished goods) and finished foods.

Moreover inventory can be one of the indicators of the management effectiveness on the material management front. Inventory management deals with determinants if optimal policies and procedure for Procuring of commodities. Inventories constitute, in every business concern, the most significant part of working capital or current assests. Inventories in Indian industries constitute more than 60% of the current assests. Inventories are significant elements in cost process.A management student should properly understand the various aspects. Inventory management if opted for specialization in finance management. Vijaya dairy is big manufacturing unit and the requirement of inventory for each department is very high in an organization like vijaya dairy.

OBJECTIVES OF THE STUDY: PRIMARY OBJECTIVES

To determine and maintain optimum level of inventory management in KRISHNA DISTRICT MILK PRODUCERS MUTUALLY AIDED CO-OPERATIVE UNION LTD.

To find out the reasons for the problems and to evaluate possible ways for resolving the problems.

SECONDARY OBJECTIVES
To minimize the firm's investment in inventories and to maximize profits. TO analyze how inventory is maintained in KDMPMACUL TO access the diary industry in Krishna district and the establishment in KDMPMACUL TO ensure better services to the customer

To study and analyze the various categories of inventory items in KRISHNA DISTRICT MILK PRODUCERS MUTUALLY AIDED CO-OPERATIVE UNION LTD.

SCOPE OF THE STUDY :

o The study is done on inventories help by bulk active division of THE KRISHNA DISTRICT MILK PRODUCERS MUTUALLY AIDED CO-OPERATIVE UNION LTD. o The scope of the study includes ABC analysis of Raw material work in progress and finished goods for five financial years. o This study provides insight to the management of high value items and also brings attention of management towards movement of A class items over period of 5 years.

METHODOLOGY OF THE STUDY:

Primary Data: The primary data, which is collected, is entirely based on the details given by the purchase; stores, production and sales department are mainly concerned in KRISHNA DISTRICT MILK PRODUCERS MUTUALLY AIDED CO-OPERATIVE UNION LTD.

Secondary Data: The secondary data is entirely based on the data obtained for the officers, Managers and staff of KRISHNA DISTRICT MILK PRODUCERS MUTUALLY AIDED CO-OPERATIVE UNION LTD.

Managers and supervisors of the organization have also been interviewed to elicit necessary information on the basis of non-structured schedules. And secondary was collected from the company's manuals and office records pertaining to production, marketing, personal and financial position.

LIMITATIONS OF THE STUDY:

Any study is having of its own advantages and certain disadvantages. Among such few of the limitations are expressed below such as: The reliability of the study depends upon the information furnished by the officials. Due to time constraint it is difficult to go into details of the organization. This study is entirely based on the given by the stores department, purchase department, production department and sales department of KRISHNA DISTRICT MILK PRODUCERS MUTUALLY AIDED CO-OPERATIVE UNION LTD. The study is limited for a period of 8 weeks. Since milk is perishable and it has to be converted into the finished goods within 24 hours, so there will be no operating cycle of this industry.

The study is exclusively done for the stores department inventory items in KDMPMACUL

CHAPTER-II INDUSTRY PROFILE

Industry Scenario: Dairying has been of life in India since the ancient Vedic times. The modern dairy industry took roots in 1950 with the sale of bottled milk in Bombay from array milk colony. The first large scale milk products factory was started in 1945 at Anand a cooperative venture, with the assistance of UNICEF, for the production of milk powder, table butter and ghee. These products were made from the buffalo milk.

The world's largest development program over undertaken, the operation flood undertook the gigantic task of upgrading and modernizing with production, procurement, processing and marketing with the assistance provided by the world bank and other external agencies, designed and implanted by the National Dairy Development Board(NDDB) and the Indian dairy corporation. The project was launched in July 1970. Its basic concept compromises the establishment of co-operative structure on Anand pattern. OPERATION FLOOD-1: Operation flood-1 also referred to as white revolution is a gigantic project profounded by government of India for developing Dairy industry in the country. The operation flood-2 originally meant to be completed in 1975 for its completion at total cost of about Rs.l 16 crores. The operation flood-1 was wholly financed by setting in Indis free metric tones of bottle oil donated out of the surpluses of European Economic Community ANAND PATTERN-1: Under the operation flood-1 the program for increasing milk production was taken up in ice hinterlands of various breeding tracks on Anand pattern and loudly proclaimed with a trample. The cooperative were started originally in 18 of Indian milk shed districts and later on mine more milk shed areas were added to make a total of 27 in 10 states of the country viz, Maharastra, Tamilnadu, Andhra Pradesh , West Bengal, Bihar, Hariyana , Punjab, Uttar Pradesh and Rajasthan. Those dairy co-operatives are based on a model known as Anand pattern of dairy co-operative. Under Anand pattern concept rural co-operative infrastructure was to be built in the village, the milk

producers were and keep their animals. In each participating village, the milk producers were to form their own village dairy co-operative. Thus Anand pattern dairy co-operative union organizes mobile veterinary and artificial insemination counters. In the sphere of co-operativisation the no of Anand pattern organized societies under operation flood was 63121 on April 1st 1991 as age INST 60753 a year ago indicate one that years as many as 2368 new dairy co-operatives were formed. OPERATION FLOOD-2: The operation flood-2 which was started in July 1978 is scheduled to be completed in 1985 at a cost of 483 crores.

A humble attempt has been made in it sufficient appraisal of the achievements made in some sufficient field during operation flood-1. These achievements if as all made particularly the anand pattern dairy co-operative unions are to serve now bedrock of operation flood. Their unions are to act to the starting. Nucleuses for co-operative cluster federation. The main instrument for this gigantic project operation food-2. The average nucleus cluster federation would six districts unions registered and unregistered.

The Indian dairy co-operative, National possible are not required to indicate the basis on which the state wise allocations were made in operation flood-2 up to end of the 11,979 Gujarat state alone got the lion's shares of 1666. 70,00,000 five states Haryana, Bihar, Rajasthan and Andhra Pradesh put together the total disbursement in their case was 1732 lakhs only. This trend is going to be maintained in operation flood-2. OPERATION FLOOD-3: The Indian dairy industry is growing rapidly and may become a string competitor to world dairy powder. The milk sector is the second largest contribution to the agricultural economy in terms of produce phenomenal growth is a result of national airy development board through the operation Flood programs. Operation flood-2 now in its closing phase only consolidated the procurement affords to boost production. The projection for milk output for 200 AD is nearly 90 tones at on 5% growth rate. It is now 5-8% dairy factories established under operation flood, which cover 170 milk sheds can handle 14.3 millions liters milk daily. They have a milk drying capacity of about 696 tones per day.

The rapid growth in milk production did way with import of milk powder except for a (26400 tones) during the brought years NATIONAL DAIRY DEVELOPMENT BOARD: At the time of industrialization at cattle feed factory at kanjari in October 1964. the late sri LALBAHADUR SHASTRY , the Prime Minister of India paid unscheduled visit producers cooperative societies and stated there overnight .He was impressed by the social economic changes brought milk co-operatives in Krishna district and desired to have a National level organization to milk producers co-operative societies replicate anansin other part of the country. Thus the National Dairy Development Board was set up under the empowerment of ministry of agriculture and irrigation, Govt of India in Sep 1965 under the society registration act 1860 and the Bombay trust act 1950.

The president of India nominates the board of directors including chairman, secretary; National Dairy Development Board is the chief of the organization.

ANAND PATTERN DAIRY DEVELOPMENT: The information Anand pattern of milk co-operative was launched with the organization of Krishna district co-operative milk producer's union ltd. In this pattern the function of dairy is milk procurement, processing and marketing are controlled by the milk producers themselves. PLANNING INVESTMENT: 1. 33.43 Crores 2. 247.53 Crores 3. 187.00 Crores 4. 349.00 Crores 5. 116.00 Crores 6. 600.00 Crores DAIRY INDUSTRY IN ANDHRA PRADESH The program dairy industry was mooted with commendable help of the united national international children's emergency fund, food and agriculture organization and freedom from hunger company campaign Organization of the U.K. these organization insisted lot of the establishment of the dairy units at hydria and vijayawada in 1967 and 1969 respectively, which led to pioneer dairy development program in Andhra Pradesh? Later to set cooling and chilling centers have been set up to feed these two gigantic units.

The government of Andhra Pradesh started dairy development corporation to interest of milk producers and ensuring adequate supply of fresh milk at reasonable price to the urban consumers as A.P.D.D.C ., come in to the existence on 2nd April 1974. A.P.D.D.C ., providing employment to nearly 20 employees and organism easy many as 87 dairy units including seven milk factories , 13 district dairies, 22 chilling centers , 18 cooling centers and 15 mini cooling centers.

In addition to that the private units have been contributing their little mite in the development of dairy industry M/s Hindustan milk foods that has started a malted milk product factory in Rajamundry. Further to enhance working efficiency and to increase the turnover, the government has constituted on autonomous dairy development corporation on the recommendation measure the dairy industry improving towards massive milk production and milk collection.

DAIRY DEVELOPMENT: In 1960 pilot milk supply scheme was started in the state for the dairy development. Its initial capacity was 100 liters a day at the time of starting. Now its daily collection increased to 11 lakhs liters per day. It is also working as alien between milk producers of the towns by providing reasonable price to the producers to maintain stable market.

A.P.DAIRY DEVELOPMENT CO-OPERTIVE FEDERATION (A.P.D.D.C.F): A.P.D.D.C.F was formed in October, in 1981 to implement operation flood-2 program through active involvement of producers in organization milk production, procurements, processing and marketing on "three-tier". Co-operative structure as per the national government of India. The threetier system consists of primary dairy cooperatives societies 13 village level, cooperative unions at district level and federation at state level. OPERATION FLOOD: In our state operation flood was divided in three types "Anand level". 1. Village level 2. District level 3. State level - D.C.S - M.P.C.V - A.P.D.D.C.F

OPERATION FLOOD PROGRAMME: Indian dairy development corporation own the responsibility of implementations of operation flood programs, which provides money assistance put 70% towards loans and 30% as subsidy. National Dairy Development Corporation selected district of the state for implementation of operation flood. It divided the districts into ten milk collecting mandals.

DISTRICT SELECTED UNDER OPERATION District Milk sheds/unions Krishna Krishna Srikakulam Vishaka Vijayanagaram Vishaka Visakapatnam Vishaka East Godavari Godavari West Godavari Godavari Chitoor Chitoor Kurnool Kurnool Cuddapah Cuddapah Nalgonda Nalgonda Rangareddy Rangareddy Medak Medak Nizamabad Nizamabad

COMPANY` PROFILE
ORIGIN & HISTORY: Organization dairying in Krishna commenced in 1965 with integrated milk project assisted by UNICEF. A milk conversation plan first of its on kind in south India was commissioned in April 1969. The organization of dairy industry took basic changes beginning with husbandry department; it was integrated with project (1960), dairy development (1991), A.P.Dairy development cooperation (1974), A.P. dairy development cooperative federation (1981). Krishna district milk producers cooperative union got registered in 1983district have 450 organized dairy cooperative societies with 67000 member's producers. There are 340 producers' association centers. COMPANY'S MISSION: Farmer's prosperity through technical innovations and customer orientation with specific focus on quality and cost. COMPANY'S VISION: Dairying in the district to be the major instrument of strengthening rural economy & making available safe milk and milk products.

SAILENT FEATURES: 1. 2. 3. 4. 5. 6. 7. Daily average milk procurement: 163794 litres. Turnover of business has reached to 200 crores. Daily milk sales average reached to 1600001itres. Obtained ISO 9001:2000, 14000 and H.A.C.C.P certification. Earning profits and distributing bonus to its members Paying RS.68 crores per year to farmer as cost of milk procured from them. Strengthened the rural economy by avoiding middlemen and making available safe milk and milk products to the consumer. 8. Provided self employment to the rural women.

COMPANY PRIDE: o o o o o o o o o o First powder plant established in south India Largest democratic functionary in the district serving the farming community Having more than RS. 1000 crores grass root level production base. Providing direct and indirect employment to people First dairy to introduce five varieties of liquid milk. Fist dairy to introduce liquid ice cream in tetra brick pack. First dairy cooperative to introduce curd in cups in south India First dairy to introduce butter milk and lassie in tetra brick pack Annual turnover more than RS.121 crores with a continuous growth rate. First dairy to introduce Basundi in cups and milk cake.

MILK PROCUREMENT: Milk is being procured twice a day from about 830 villages in the district organized through 29 routes and 6 chilling centers besides getting raw milk directly to the factory from certain villages in a radius of 50 km around Vijayawada. Among 480 centers, about 431 are registered societies as under Anand pattern.

MILK PRODUCT FACTORY-VIJAYAWADA DATA SPECIFICATION Area occupied by the factory Value of factory building Money given by UNICEF Machinery Investment on equipment Buildings Opened on Workers Date of formation of union Date of transfer of management Of the union Annual turnover 11-4-1969 1538 6-7-1983 8-2-1985 60 crores 600 lakhs 27.3 acres 400 lakhs 53 lakhs

 Production power: Milk Ghee Butter Milk powder Packet filling Refrigeration capacity Contracted maximum demand Processing UNIQUE ACHIEVEMENTS: The company got ISO 9001 and ISO 14000 trademark for its quality of milk. The company recently made record sales of 1.64 lakh Its/day where as its previous sales record was 1.45m lakh Its/ day. S.W.O.T ANALYSIS STRENGTHS 1. Milk production potential in Krishna district substantial. 2. Ability to handle highly perishable product milk. 3. Adequate infrastructure facilities available. 4. Availability of well experienced professionals. 5. Ability to meet any consumer demand for milk and milk products. 6. Ability to offer quality aseptic products with high profitability. 7. Established bondage with farmers. 8. Access to developmental funds and grants. 9. Access to other co-operatives. WEAKNESSES 1. 1 High fixed costs occupyingl 5% of business turnover. 2. Milk and milk products are high priced using competitive edge. 3. Product manufacturing facilities are outdated due to lack of modern facilities. 4. Work culture not compatible with growing for customer service. 5. Employee's skills at various levels require upgradation. 6. Business systems and modern management culture is yet to be adopted. 7. Managers lack of business experience. 500001ts/day 5 tonnes 7tonnes 4tonnes 160000packets/day 1.5tonnes 900 chilling 150000

OPPORTUNITIES: 1. Increased purchasing capacity. 2. Rapid urbanization. 3. Growing food service sector. 4. Responsive state government. 5. Export opportunities for long life aseptic milk. 6. Responsive milk producer base.

THREATS: Intense competition in liquid milk market. Entry of organized private sector. Increasing competition for the marketable surplus milk in rural areas. Employee's resistance to change. SUCCESS STORY: District Krishna is on the river rain track of Krishna a butting Bay of Bengal. Krishna District is known for its quality cattle. In milk cattle population it ranks second in the state. Organized dairying in Krishna commenced in 1965 with integrated Milk product assisted by the UNICEF, a milk conservation plant 1.25 LL Pd was commenced in April, 1969 at VIJAYAWADA. The dairy industry in the District had its beginning under state govt as part of animal husbandry activity. It was integrated milk project (1960), dairy development department (1971), Andhra Pradesh dairy development corporation (1974) and A.P. Dairy Development Co- operative Federation (1981). Union collects milk from about 1 lakh milk producers covering 800 villages organized through 20 routes. District union has 6 milk chilling centers one each operating at Pamarru, Hanuman Junction, Veerankilock, Gudlavalleru, Chillakollu and Tiruvuru with total processing capacity of 1,22 lakh Its/day. It has milk products factory with the facilities to manufacture different milk products. Milk Processing Milk Drying Butter Ghee 2.5 lakhs Its/day 22 MT/day 22 MT/day 18 MT/day

The milk products factory at Vijayawada handles surplus milk from all coastal districts. About 1.73 lakh kgs/day with peak touching 3.18 lakh kgs/day. The factory conserves fat in the shape of white butter usually to the extent of 1000 MTs per year. An Aseptic Packing Station (APS) was set up in the, Milk Products Factory to pack 50000 liters of long the milk (UHT MILK) per day. Union has also 2 cattle feed mixing plants with a total capacity of 50 Mt/day. RANKING OF THE DISTRICT IN ANDHRA PRADESH: Milk production Processing Marketing 3rd 4th 3rd

Krishna district has milk procurement ranging from 45000 kgs to 105000 kgs per day from 1969 to 1998 District being buffalo concentrated has wide procurement fluctuations. The District Cooperative Milk Union provides the following inputs to the farmers for increasing milk production. Premixed cattle feed. Cattle insurance at 2/3 subsidies. Veternity first aid facilities. Fodder seeds at subsidized rates. Animal vaccines & medicines at subsidize prices. AI facilities. Breeding bulls Extension services.

GROWTH OF THE FACTORY: As an integral part of the above project the milk products factory, Vijayawada was commissioned on 11-4-1969. The factory has got an initial handing capacity of 125000 liters in the first stage with provision to handle 250000 liters milk in the second stage. It has crossed the mark of 100000 liters in the very first year of its operation getting admiration form the UNICEF officials. The women has been playing a greater role in the rural dairying i.e. feeding of animals, washing and milking etc To encourage this activity in an organized way the APDCFL of foundation three

district viz., Nalgonda, Krishna and Chittoor already 8 women co-operative societies are organized and 200 new members have been enrolled a part from 1000 women members enrolled in other societies. CHILLING CENTERS: The milk products factory Vijayawada has set up 10 chilling centers which are given under centre have been producing chilled milk for the composition of the various segments of the consumers. Chilling centers are very useful to milk products factory following centers are in Krishna District under the location of milk products factory, Vijayawada. 1. Pamarru 2. Hanuman Junction 3. Veerankilock 4. Gudlavalleru 5. ChillakoJdu 6. Tiruvuru 7. Gannavaram 8. Vuyyuru 9. Kaikaluru 10. Kankipadu Town Vijayawada Machilipatnam Gudivada Total No of selling booths 185 42 25 252 Daily sales(in liters) 68000 4000 1200 73200

INFRASTRUCTURE AND FACILITIES: Milk products factory Vijayawada is located on 27.3 acres of land which houses of dairy plant, Aseptic packing station, Administration office, effluent treatment plant, electrical substation and residential quarters.

Following are the facilities available in Milk products factory Vijayawada and its field centers. A. Milk products factory Vijayawada: S.NO 1 2 3 4 5 6 7 8 B. FIELD: S.NO 1 2 3 4 5 6 Name of the Centre MCC Pamarru MCC Veerankilock MCC Gudlavalleru MCC Hanuman Junction MCC Chillakallu MCC Tiruvuru Unit Lts/day Lts/day Lts/day Lts/day Lts/day Lts/day Total 7 No of computerized milk Collection and testing centers 8 No. of bulk coolers operating (planned to establish ten more) 25 6 Capacity 50000 18000 18000 18000 12000 12000 128000 Name of the Facility Milk processing Milk drying Ghee manufacturing Butter manufacturing UHT Milk packing Milk packing Go down space Butter cold store Unit Lakh Its/day MTs/day MTs/day MTs/day Its/day Its/day MTs MTs Capacity 2.5 22.0 18.0 22.0 45000 200000 3000 500

9 10 11 12 13

DCS having electronic milk testers No. of A.I centers No. of V.F.A centers No. of DCS Organized No. ofMPAs

450 56 240 630 320

14 15 16 17 18

Exclusive women DCSs Farmer members Women members No. of milk routes No of DCS having its own buildings

103 118689 23347 35 400

C. CATTLE FEED: S.NO 1 2 Name of the plant FMP Buddavaram FMP Gudlavalleru Unit M.T.s/day M.T.s/day Capacity 30.0 18.0

MILK PROCESSING AND PRODUCTION: Dairy Manager (I/c production) is heading the production division supported by four dairy managers, 11 Asst. Dairy Managers and other production staff engaged in milk reception , milk processing , Butter making, Ghee making , powder making bi- produc its manufacturing and finished goods section. Production operations begin with milk reception at the dairy dock and continued round the clock. MILK RECEPTION: As soon as milk is arrived at the reception dock either through cans or tankers, the laboratory authorities conduct all the platform / Bacteriological/ Chemical tests and after its quality confirmation the milk is received and sent to storage.

RAW MILK: Milk products factory Vijayawada is directly connected by around 175 villages a radius of around 50 kms around Vijayawada. The milk collected from these villages is collected directly at milk products factory, Vijayawada for which it equipped with a can conveyer, an electrical weighting machine, a dump tank and a straight through can washer with cleaning capacity of 600 cons per hr.

 Chilled Milk : Cilled milk from chilling centers and other stations through milk tankers is received at the and after receiving quality confirmation from laboratory the milk is sent for storage. MILK PROCESSING SECTION: It has 12 storage tanks each of 15000 Its. Four creams vats each of 5000 Its capacity. It is equipped with 3 milk pasteurizer of 20000 Its. Capacity / hour 15000 Its / hour and 10000 Its/ hour respectively.

It also has cream pasteurizers with a capacity of 5000 Its/ hour. Altogether it has milk storage capacity of four lakh Its.

OPERATIONS: Separation of required quantity of whole milk to the extent of demand and with admixture of whole milk /cream and skim milk in required proportions, milk is standardized according to their composition and sent them to the packing or products manufacturing divisions. BUTTER SECTION: It is equipped with three butter churns with drum capacity of 1500 Its each. The cream loaded in the drums is churned for about three hours for separation of liquid butter milk from cream after setting of butter; it was washed with chilled water to remove solids from it. The butter formed is collected and sent back to processing section while the solids in liquid form of butter milk is sent back to processing section for further usage. GHEE SECTION: There are 7 ghee boilers in ghee section each with 1000 Its capacity in which butter is malted for 3 hours at 120 c. After attaining satisfactory flavor, colour etc the ghee is pumped to ghee setting tanks where it is allowed for eight hours for setting of sediment at the bottom of the tank. There are settling tanks each 8000 Its capacity and two storage tanks each 3000 les capacity. Then the ghee is clarified and filtered with fine filters. After obtaining satisfactory report from lab authorities the final filtered ghee is packed in 51t, 21t, lit and 54 It etc. The total capacity of ghee packing is 18.0 M.T per day. BI-PRODUCTS SECTION: All the fresh milk products like butter milk, sweet lassie. Khova, paneer, yoghurt, milk cake are manufactured and packed under strict hygienic and aseptic conditions in this section. POWDER SECTION: It has two powder plants. An alia level makes single effects gravity flow milk evaporator plant with drying capacity of 8. M.T s per day and another valcan level double effect gravity flow milk evaporator plant with drying capacity of 14. M.TS per day are under operation. Fine and superior quality ISI grade SMP is packed in 25 kg, 1 kg and Vi kg packs.

 MILK PACKING: It has the capacity to pack 200000 Its of various varieties of milk per day. It is equipped with eight sachet packing machines each capacity is 150 tubs per hour. Five varieties of milk in Vi It sachets for direct consumers. Cans for institutions are being packed. ASEPTIC PACKAGING STATION (APS): Special officer is heading the APS unit. The APS was established in 1988 with the financial assistance of NDDB in the existing campus of milk products factory, Vijayawada with a total outlay of 22 crores. Milk is treated in high temperature plant for 2-3 seconds at about 1400 C under low pressure followed by rapid cooling. This enables milk to be free of micro organisms which are liable to proliferate during storage. Tetra Brick is a compact, sterile; pilfer proof, unbreakable and long shelf life pack that retains freshness and goodness of milk for 3-4 months. SALES AND MARKETING: Dy.Director (S&M) is heading the sales and marketing wing supported by a sales manager and three Asst. sales Managers with a network of 700 booths, 300 round the clock cold chain parlors. The sales and marketing wing of the union functions round the clock for the distribution and marketing of milk and milk production.

DISTRIBUTION NETWORK: 1) LIQUID MILK DISTRIBUTION: Vijayawada city is divided into 24 zones. Each zone is connected by a separate milk route operating both morning and evening to distribute the milk to the commission agents and cold chain points. 2) PRODUCT DISTRIBUTION: a) Local distribution with in the district: Through distributors, stockiest and retailers. Products are delivered to these Distributors /stockiest /retailers. b) Distribution to outside district: Through stockiest and EX-factory direct sales through out the country.

 PERSONNEL AND HRD: Personnel officer is heading the personnel department. HRD activities are carried out for the benefit of the employees. It is looking after the service/ administration matter of the staff of this union besides implementation of the following Acts for their welfare. 1. 2. 3. 4. 5. 6. 7. 8. 1 Industrial Dispute Act 1947 2 Payment of wages Act 1936 3 Minimum Wage Act 1948 4 Equal Remuneration Act 5 Gratuity 1972 6 Workmen Compensation Act 7 ESI Act 1948 8 Trade Union Act 1926 etc.,

FINANCE: Sr. Accounts officer is heading the finance who is assisted by four Asst. Account Superintendent and finance staff. The union has started its operations independently from 8-02-1985 on wards after taking the fixed assets from the state federation at their book values as on that date. SHARE CAPITAL: Authorized share capital Rs. 500 lakhs. The unions paid up share capital at present are Rs. 106.24 lakhs and Rs. 31.87 lakhs are share suspense waiting for conversion. LONG TERM LOANS: The National dairy development board has provided loans to the union under O.F.2/3 program for capital projects in the union total R.s707.20 lakhs was financed for various projects to the union under70:30 loans cum grant basis.

 ORGANIZATIONAL STRUCTURE: STAFF POSITION: Managing Director 1 Deputy Director 2 Sr. Accounts officer 1 Dairy Managers 6 Asst. Dairy Engineers 2 Quality Control Officers 1 Asst. Dairy Manager 15 Fodder Development Officers 1 Junior Engineers 4 Technical Staff 58 Transport 30 Finance 20 Administration 70 Field Staff 55 Others (Non Technical) 304 TOTAL 570

CHAPTER- III INVENTORY MANAGEMENT PRACTICES

The Inventory Management Practices on the following heads: 1. Organization for Inventory Management. 2. Purchasing 3. Receiving and Inspection of Materials. 4. Stores Management 5. Inventory Control System. MEANINIG OF INVENTORY: Every enterprise needs inventory for smooth running of its activities; it serves as a link between the recognition of a need and its fulfillment the greater the time leg. The higher the requirements of inventory, the unforeseen fluctuations in demand and supply of goods also necessitate the need for inventory. It also serves as a cushion for future prices fluctuations. The simple meaning of inventory is "stock of goods" or "list of goods" the word inventory is understood differently by various authors. In accounting language it means stock of finished goods only, for a manufacturing concern it includes raw-materials, work-in-progress, finished goods etc Inventories constitute the most significant part of current assets. Many companies maintain 60% of current assets as inventories. Because of the large size of the inventories maintained by the firms, a considerable amount of funds is required to be committed to them. It is therefore absolutely imperative to manage inventories efficiently in order to avoid unnecessary investment. A firm neglecting the management of inventories will be failed in its long run profitability and may fail ultimately. It is possible for a company to reduce its levels of inventories to a considerable degree with in the range of 10 to 20% without any adverse effect by using simple inventory planning and control techniques. The reduction in excess inventories has a favorable impact on the profitability of the firm. OBJECTIVES OF INVENTORY MANAGEMENT: 1. Minimize investment in inventories in order to maximize profits. 2. In order to minimize carrying costs and ordering costs of inventory. To minimize obsolescence in stores. 3. To avoid excess and inadequate stocks. 4. To provide check against losses of materials.

NATURE OF INVENTORIES: Inventories are the stock of the product a company is manufacturing for sale and components that make up the product. The various forms in which inventories may exist in a manufacturing company are:1. Raw materials 2. Work-in-progress 3. Finished goods RAW MATERIALS Raw materials are those basic inputs that are converted into finished product through the manufacturing process. Raw materials inventories are those units, which have been purchased and stored for future productions. A company should maintain adequate stock of a continuous supply to the factors for an uninterrupted production. If it is not possible for a company to produce raw materials whenever needed, a time lag exists between demand for materials and its supply also there will be some uncertainty on procuring raw materials in time on many occasions. The procurement of materials is delayed because of uncertain factors like strike, transport, disruption or short supply. Therefore the firm should maintain sufficient stock of raw materials at a given time to streamline production. Other factors which may necessitate purchasing and holding raw materials are quantity discounts and anticipated price increase. The firm may purchase large quantities of raw materials than needed for the desired production and sales levels to obtain quantity discounts of bulk purchasing. At times the firm would like to accumulate raw materials in anticipation of price rise. WORK IN PROGRESS The inventories are semi-finished products. They represent products that need more work before they become finished products for sale. Work in progress inventory builds up because of production cycle. Production cycle is the time span between introduction of raw-materials and mergence of finished products at the completion of production cycle. Till, production cycle completes, stock of work in progress has to be maintained. Efficient firms constantly try to make production cycles smaller by improving their production techniques.

FINISHED GOODS Finished goods are the completely manufactured products, which are for sale. Stocks of raw materials and work in progress facilitate production, while stock of finished goods is required for smooth marketing operations. Stock of finished goods has to hold because production and sales are not instantaneous. A firm cannot produce immediately when customers demand goods. Therefore to supply finished goods on a regular basis, their stock has to be maintained for sudden demand from customers. In case the firm sales are seasonal in nature, substantial finished goods should be kept to meet the peak demand. Failure to supply products to customers would mean loss to firm's sales to competitors. The level of finished goods inventories would depend upon the co-ordination between sales and production as well as on production time. The levels of three kinds of inventories for a firm depend on the nature of business. A manufacturing firm will have substantially high levels of three kinds of inventories while a retail or wholesale firm will have a very high level of finished goods inventories and no raw materials or work in progress inventories. Within manufacturing firms there will be differences. Large Engineering companies produce long production cycle, products therefore they carry large inventories on the other hand, and inventories of a consumer product will not be large because of short production cycle and fast turnover. Firms also maintain a fourth kind of inventory called supplies. Supplies include office and plant cleaning materials like soap brooms, oil, fuel, light, bulbs, etc. these materials do not directly enter production, but are necessary for production process. INVENTORY DECISIONS In an inventory control situation, there are three basic questions to be answered. They are: How much to order? That is to say, what is the optimal quantity of an item that should be ordered whenever an order is placed? When should the order be placed? How much safety stock should be kept? Thus, what quantity of an item in excess of the expected requirements should be held as buffer stock in anticipation of the variations in its demand and/or the time involved in acquiring fresh supplies.

INVENTORY COSTS: In determining optimal inventory policy, the criterion most often is the cost function. The classical inventory analysis identifies four major cost components. Depending on the structure of an inventory situation, some or all of these are included in the objective function.

PURCHASE COSTS: This refers to nominal cost of inventory. It is the purchase price for the items that are bought outside sources, and the production cost if the items are produced within the organization. This may be constant per unit, or it may vary as the quantity purchased/ produced increases or decreases. Quite often, situation is found when it may be stipulated that, for example the unit price is rest 20 for an order unto 100 units and rest 19.50 if the order is for more than 100 units.

ORDERING COSTS/ SET-UP COSTS:This category of costs is associated with the acquisition or ordering of inventory. Firms have to place orders with suppliers to replenish inventory of raw materials. It includes costs associated with the processing and chasing of the purchase order, transformation, inspection for quality, expediting overdue orders and so on. The parallel of the ordering cost when units are produced within the organization and the cost of acquiring materials consists of clerical costs and costs of stationery. It is therefore called a set-up cost. The ordering cost is likely and taken to be independent of the order size. Therefore the unit ordering/setup cost declines as the purchase order/ production run increases in size. Ordering costs are costs involved in: 1. Preparing a purchase order 2. Receiving, inspecting and recording the goods received to ensure both quantity & qty.

CARRYING COSTS: They are involved in maintaining or carrying the inventory. It represents the cost that is associated with storing an item in inventory. Carrying costs are also known as holding cost or the storage cost. The main components of this category of carrying costs are 1. Storage cost i.e. tax, depreciation and maintenance of the building, utilities etc.

2. Insurance of inventory against fire and theft 3. Deterioration in inventory because of pilferage, fire, technical obsolescence, style obsolescence etc. 4. Serving costs such as labour for handling inventory, clerical and accounting costs. The opportunity cost of funds consists of expenses in raising funds (interest of capital) to finance the acquisition of inventory. It funds were not locked up in inventory they would have earned a return. This is the opportunity cost of funds or the financial cost. The carrying cost and the inventory size are positively related and move in same direction. If the level of inventory increases, the carrying costs also increased and vice-versa.

STOCK OUT COSTS: Stock out cost means the cost associated with not serving the customers. Stock outs imply shortages. If the stock out is internal (i.e. in the production system) it would imply that some production is lost, resulting in idle time for men and machines, or that the work is delayed which might attract some penalty. While if the stock out is external, it would result in a loss of potential sales and /or loss of customer goodwill. A shortage can evoke different reactions from customers.

TYPES OF INVENTORY VALUATION: VED ANALYSIS: In VED analysis, the items are classified on the basis of their criticality to the production process or other service. In the VED classification of materials, V stands for Vital items without which the production process would come to a standstill. E in the system denotes Essential items whose stock out would adversely affect the efficiency of the production system. Although the system would not altogether stop for want of these items, yet their nonavailability might cause temporary losses in, or dislocation of production. The D items are the Desirable items which are required but do not immediately cause a loss to production. The VED analysis is done mainly in respect of spare parts. HML ANALYSIS This is similar to the ABC analysis except that, in this analysis, the items are classified on the basis of unit value rather than usage value. The item are classified accordingly as their cost per unit is H-

high, M-medium and L-low. This type of Analysis is useful for keeping control over materials consumption at their department levels. SDE ANALYSIS This uses the criterion of the availability of the items. In this analysis S-stands for scarce items which are short in supply, D-refers to the difficult items meaning the items that might available in indigenous market but cannot procured easily, While E represents easily available items even from local markets. S-OS ANALYSIS S-OS analysis is based on the nature of supplies, wherein S represents the seasonal items and Os represents the off seasonal items. This classification of items is done with the aim of determining proper procurement of strategies. FSN ANALYSIS Based on the consumption pattern of the items, the FSN classification calls for classification of items, as F-Fast Moving, S-Slow Moving and N-Non Moving goods. This 'speed' classification helps in the arrangement of stocks in the stores and in determining the distribution and handling patterns. XYZ ANALYSIS XYZ analysis is based on the closing inventory value of different items. Items, whose inventory values are high, are classed as X-items while those with low investment in them are termed as Zitems. Other items are the Y-items whose inventory value is neither too high nor too low.

It can be easily visualized that the several types of analysis discussed are not mutually exclusive. They can be, and often are, used jointly to ensure better control over materials. For example ABC and XYZ analysis may be combined to classify and control depending on whether the items are AX, BY, CZ, AY of and so on. Similarly XYZ - FSN combine classification exercise will help in timely prevention of obsolescence.

PURCHASING: INTRODUCTION: The scarcity of raw materials has practicality put the people in purchasing department in a very tight position. The purchasing department can be in a better position. As of today there are four different groups of buyers, viz, a) Consumers, b) Middle men, c) Government agencies and d) Manufacturers. In fact the whole economy is dependent on this group for survival. The second group comprises such as money collection of traders as wholesalers, retailers, and distributors who buy not for their own consumption, but to sell to others. The fourth category of purchases includes manufacturers who convert raw materials, components, consumables and packing materials for use in industrial establishments where saleable products are produced. The subject of purchasing is discussed here as it applies to the buying, made by manufacturers. DEFINITION: In its narrow sense, the term "purchasing" refers merely to the act of buying an item at a price. This very narrow concept of purchasing has been gradually widened during the last 70 days. According to Alford and Beatty "Purchasing" is the procuring of materials, supplies, machines, tools and services required for equipment, maintenance and operation of a manufacturing plant". According to Walters, purchasing function means "The procurement by purchase of the proper materials machines, equipment and supplies for stores used in the manufacture. Of a product adapted to marketing in the proper quality and quantity at the proper time and at the lowest price, consistent with quality desired". According to Wasting, Fine and Zen "Purchasing is a managerial activity that goes beyond the simple act of buying. It includes research and development for the proper selection of materials and sources, follow-up to ensure timely delivery; inspection to ensure both quantity andquality ; to control receiving , sore keeping and accounting operations related to purchases". IMPORTANCE OF PURCHASING: Purchasing function provides materials to the factory without which wheels of machines cannot move. A one percent saving in material cost is equivalent to a 10% increase in turnover. Efficient buying can achieve this.

 Purchasing manager is the custodian of his firm's purse as he spends more than 50% of his company earnings on purchases. Increasing proportion of one's requirements, are now brought instead of being made as was the practice in the earlier days. Buying therefore assumes significance. Purchasing can contribute to import substitution and save foreign exchange. Purchasing is the main factor in the timely execution of industrial projects. Materials management organizations that exist now have evolved out of purchasing departments. Other factors like: Postwar shortages Cyclical swings of surpluses and shortages and the first rising materials costs. Heavy competition. Growing worldwide markets have contributed to the importance of purchasing. OBJECTIVES OF PURCHASING: It may be emphasized that some of the functions are the sole responsibility of the purchasing department, some are shared with order departments and the remaining are the responsibilities in which the purchasing department has considerable interest.

RESPONSIBILITIES DELEGATED TO THE PURCHASING FUNCTION:1. Obtaining prices 2. Selecting vendors 3. Awarding purchase orders 4. Following up on delivery promises 5. Adjusting and settling complaints 6. Selecting and training of purchasing personnel 7. Vendor relations

METHODS OF PURCHASING: There are number of methods used by different purchase departments. The methods used depend on the classification of products in the production system, policy of the organization and behaviour of the market.

FOLLOWING ARE SOME POPULAR METHODS OF PURCHASING: Purchasing according to requirement. Purchasing for some definite future period. Market purchasing Speculative purchasing Contract purchasing schedule purchasing

1. PURCHASING ACCORDING TO REQUIREMENT: In this case the order is placed only when there is some need for the product. This method is appropriate for those items which are not of regular and common use in the production process. These items are generally not stored in inventories. In such cases the purchasing department should keep a record of reliable and trustworthy suppliers who were sincere to the organizations in past.

2. PURCHASING FOR SOME DEFINITE FUTURE PERIOD: This method of purchasing is generally used for those items which are regularly consumed but the consumption is comparatively low and the price changes for these items are not much. 3. MARKET PURCHASING: The policy of making the purchases at the time when fluctuations in price of the items provide advantage to the purchaser is known as market purchasing. This method provides procurement at lower price and saving in purchase expenses. This method is useful in situations where major price variations are prominent. Here the purchasing may not relate with the production needs and if the assessment of price fluctuations is wrong then the organization may suffer losses.

4. SPECULATIVE PURCHASING: Here excessive purchases are made when market is low for the item with the hope of earning profit by selling the items purchased in excess at a higher price. This procedure is most suitable in the case of staple commodities. 5. CONTRACT PURCHASING: Here the purchase department enters into agreement with various suppliers to supply the items at some future period or periodically. In the words of Alford and Beatty, "all purchasing is contract but the term 'contract purchasing' is applied to that special contract which calls for deferred delivery over a period of time". According to Spiegel the purchasing under contact is usually formal for the needed material, the delivery of which is frequently spread over a period of time". The organization tries to enter into the contract when prices are comparatively low. Here the supply is ensured per scheduled requirements as well as there is protection against frequent price fluctuations. 6. SCHEDULED PURCHASING: It is a scientific method of purchasing. The purchasing is scheduled according to requirements of various departments of the organizations. Vendors know in advance about the future demand of the purchaser. STEPS IN PURCHASING PROCEDURE: 1. Various departments are requested to send their requirements on a proper requisition form this authorizes the purchase department to procure the requisitioned items i.e. to issue purchase order. 2. Purchasing department consolidates the requirements from various departments to know the total requirement for each item. 3. Market exploration is made to locate the goods and services of desired quality and quantity at reasonable price. 4. Potential suppliers are identified from catalogues, quotations and past records. 5. Purchase order in specified form is prepared and sent to the approved suppliers purchase order establishing a contractual relationship between buyer and seller. 6. After some time of placing the order, follow up process starts to get quick delivery of the items. The follow up of procedures implies acceptance of the order and promise to supply the items on desired date. 7. The items are received by the purchasing department at the time of delivery and the items received and compared with purchase order. 8. The checking of the delivered goods is done with regard to prices charged and quoted. 9. Approval of the invoice. 10. To ascertain the quality and quantity of the items.

ORGANIZATION OF PURCHASE DEPARTMENT: The composition of purchase department varies according to the size of the enterprise, its comparative significance towards procurement and the capability of the purchase personnel. In organization engaged in Procurement of smaller range of items but from limited number of suppliers the purchase officer is attached to controller of accounts. In organization with job or batch system of production, purchasing becomes a complicated exercise and needs regular and through co-ordination with production department. In such cases the purchase manager is directly attached to production manager. The size of the purchasing department on the nature of products manufactured by the organizations, sizes of production runs and type of the manufacturing system. RECEIVING AND INSPECTION OF MATERIALS: RECEIVING MATERIALS: INTRODUCTION: Receivable management refers to the decisions a business makes regarding its overall credit and collection politics and the evaluation of individual credit applicants. In formulating an optional credit policy, finance manager must analyze the marginal benefits and costs associated with changes in credit standards, credit terms, collection efforts etc. Receivable management proves for a firm, both, an asset and a problem. MEANING: Receiving is an important control point in the material control system. It is sometimes considered that receiving is a routine clerical work where the materials shipped by the supplies are received, unpacked, checked and compared with the purchasing and material management, stated that, "any problem or error in specific purchase transaction should come to light during the receiving operation". If the problem (shortage in quantity, damaged material, wrong item shipped etc.) is the detected and corrected during the receiving operation, the cost of to correct the mistake later is much higher. Many hours are frequently spent in determining what really happened and rectifying the situation. Hours are required to correct the error that could have been corrected at the receiving station in minutes.

RECEIVING PROCEDURE:The receiving involves much of the paper work and it varies from firm to firm. However the key issues involved in the receiving function are commodity described in the following standard procedure. The receiving division unloads the goods at the delivery bay and verifies the condition of the consignment to satisfy that it is not received in a damaged condition. The receiving clerk opens the consignment and verifies the contents with the packing slip and the purchase order. The details are recorded in the separate report, which is popularly known as "the goods received note or GR note". The goods received note is an important document because it is the only document with the firm which signifies the details of the materialist has received.

INSPECTION OF MATERIALS: ? MEANING AND DEFINITION Inspection is the process of examining an object for identification or checking it for verification of quality and quantity in any of its characteristics. It is an important tool for ascertaining and controlling the quality of a product. In the words of Alford and Beatty "Inspection is the art of applying tests. Preferably by the aid of measuring appliances to observe whether a given item or product is within the specified limits of variability or not". According to Sprigged and Ransburg "Inspection is the process of measuring the qualities of a product or services in terms of established standard". The standards can be in terms of strength, hardness, shape etc. The purpose of inspection is to items are produced within the specified items of variability. Inspection in list broadest sense is the art of comparing materials, product or performances with established standards. By means of inspection one can take a decision to accept are reject certain item. The items are accepted if these conform to the given specifications otherwise rejected. FUNCTIONS OF INSPECTION: The following are some important functions of inspection: 1. Maintenance of specified standards of the quality of products. 2. Devising means for conducting inspection at lower cost. 3. Segregating spoilt work, which may be salvaged by recuperation. 4. Maintaining inspection equipment in good condition. 5. Detection of defects at source to reduce scraps and defective work. 6. Reporting source of manufacturing troubles to management

 OBJECTIVES OF INSPECTION Fundamental objectives of inspection are: 1. To safeguard the quality of the finished products by comparing raw-materials, workmanship and final product with some set standards. It prevents further work being done on semi-finished product already detected as spoiled. 2. The defective items are located and the factors responsible for this discrepancy in the quality of the product are then identified to take corrective measures. This results in enhancing the prestige and confidence of the organization in the eyes of the customer. This results in enhancing the prestige and confidence of the organizations in the eyes of the consumer. 3. The reduction in the risk and possibility of items not accepted by consumer saves the producer as well as the consumer from losses if any and also reduces the cost of production. 4. To detect sources of weakness and troubles in the finished product and thus check the work of designers. Essential steps for Inspection There are five main steps in inspection: 1. Characteristics about which the quality of the items is to be inspected should be carefully established. 2. A decision regarding when and where the inspection should take place is to be taken. 3. To find that how many items are to be inspected i.e. 100% or sampling inspection. Here the level of accuracy desired and the nature of the production process are taken into consideration.

 WHERE TO INSPECT: Inspection may take place right in the processing area or at a separate inspection station. The choice of location depends on the process flows and on the problems of scheduling the inspection function which must be treated as yet another operation in the total process. The first line of defense is worker who can avoid making defects? Then come to inspectors who are usually trained separately from the workers to obtain benefits of specialization. They are taught to use gauges, test instruments, micrometers and procedures at which they become increasingly proficient. Some times inspection tolls cannot be place in the production line. Then the work may Have to leave the normal flow to go to an inspection. During a production process there are many stages where inspection can be done. The choice depends mainly on the convenience of the organization as well as it approaches towards the maintenance of the products quality. In general inspection can be carried out at following location: 1. Items can be inspected either at vendors place or at the purchases premises. 2. Semi-finished items are inspected during the production process. 3. Inspection of finished products. 4. Post-sales quality evaluation. FINAL INSPECTION The finished products are inspected and tested to verify the quality standards. The items found to defective are not marked. Thus only items of desired specification go into the hands of consumer. Naturally there are more chances of scrap in this method of inspection as the rejected items cannot be corrected at this stage or it may be quite expensive to do so. STORES MANAGEMENT: After inspection the purchased materials are taken to store for preservation, it they are meant for stock. Non-stock items are directly taken to the assembly lines from the inspection. Preservation or storage is another aspect of materials management. . NATURE OF STORES: Stores or storage is the function of receiving, storing and issuing materials. It involves the supervision clearance of incoming supplies, to ensure that they are maintained in good condition, safety and in readiness for use when required, while they are in storage and issuing them against authorized requisition. In short, it is connected with the physical handling and well- being of the stocks. It should be mentioned that, stores is not meant for stocking purchased materials alone.

 IMPORTANCE: Efficient storage of stores yields the following benefits: 1. Ready accessibility of major materials permitting efficient service to users. 2. Efficient space utilization and flexibility of arrangement. 3. A reduced need for materials handling equipment. 4. A minimization of materials deterioration and pilferage. 5. Ease of physical counting. 6. Protecting against waste deterioration, damage and pilferage. 7. Design the buildings physical appearance to create goodwill and to invite business. STORAGE SYSTEM: Choosing the most suitable storage system means dealing with a number of interacting and often conflicting factors. Inevitably, the degree of mechanization affects layout while the scarcity of space affects the height to which racking is erected. The need for rapid, intensive order packing means a need for rapid and easy access to stock. Fixed location means that, goods of a particular type have a position in the store assigned to them exclusively. It means that while stock can be found immediately without a complex system for recording its position there can be considerable waster space, because when stocks of any one item are low, the space left vacant cannot be filled. The assignment of fixed position to a particular type of goods is made on any one of the following basis. 1. On the basis of the supplier 2. On the basis of similarity of items. 3. On the basis of the joint issue of the items. 4. On the basis of the size and frequency of use.

 METHODS OF VALUATION: The government of India has given sufficient flexibility for companies to introduce scientifically developed methods of valuation of their stocks. In order to prevent malpractices, it has been stipulated that such methods must be studied and approved by the Board of Directors, and must be followed for a minimum prior of three years. The various methods of valuation available are given below. 1. First in first out [FIFO] 2. Last-in -first -out [LIFO] 3. Periodical Simple Average Method 4. Normal cost/ Standard cost method 5. Weighted average method 6. Replacement price method

1. FIFO: In this case it is assumed that the stores follow the principal that oldest stock issued first so that stock left out is from the later arrivals. Hence all issues are assumed to have come out from older stocks. These are valued at old price. The cumulative value of stock out will give the net value of the existing stock.

2. LIFO: Here stores are issued from the last stock. This means issues have taken place from later arrivals. Hence all issued are valued as per the price of the latest arrivals to compute value of stock left in stores.

3. PERIODICAL SIMPLE AVERAGE: In this case after each receipt of material, adding the cost of materials in hand with the cost of materials received and dividing the same by the total number of units calculate the average cost. This process is repeated every time new items are received. This average cost is used for computing the value of items issued and value of items remaining in the stock.

NORMAL COST / STANDARD COST METHOD: This method is mostly used for items manufactured in house. Here the average cost of a certain lot is calculated and used as cost of items

issued. Since this method is used for items manufactured, one can use standard costing method also for valuation of such stocks.

4. WEIGHTED AVERAGE METHOD: This method is used when the quantity and prices of items vary widely from each purchase. In this case, the weighted average price is calculated for each item. This price is used for computing the value of items and those remaining in stock.

5. REPLACEMENT PRICES METHOD: This is a modern method developed by George Tarboro. However without application it is difficult to price each item. This has not yet become popular. FIFO, LIFO and Weighted Average methods are popular and acceptable to the government tax authorities. INVENTORY CONTROL SYSTEM: ? INTRODUCTION: Inventory control keeps track of inventories. It is observed that 'too much', 'too little' or badly balanced inventories are all to be avoided because they cost too much on many counts. To much leads to undue carrying charges in the form of taxes, insurance, storage, obsolescence and depreciation and undue proportion of total working capital is invested in them. "Too little" implies of too frequent ordering, loss of quantity discounts and higher transportation charges. It may be 'too low' in view of likely shortages in future or future increases the prices or shortfall in output. Again due to dynamic and unpredictable environmental situation "Too little" at one time can be very quickly become "Too much in a subsequent period. Similarly inventory purchased at higher prices remaining unused in stock or uncancelable order represents loss to the organizations. The balance between 'too much' and 'too low' can be done by means of effective inventory control. Some of the definitions of inventory control are: 1. Inventory control is a system of ordering based on the maintenance of the stock in store using reorder rule based on the stock level. 2. Inventory control is the technique of maintaining the size of the inventory at some desired level keeping in view the best economic interests of an organization. 3. Inventory control is concerned with various items stocked at predetermined level or within some safe limits.

4. Inventory control is that part of a production program which specifies the material requirements and schedules the order of work to be done. OBJECTIVES OF INVENTORY CONTROL: Though inventory control may not be treated as an executive function but it is one of the most important functions in an enterprise. The following are the main objectives of inventory control: PROTECTION AGAINST FLUCTUATIONS IN DEMAND: The demand foreseen of any product can never be exact or accurate. There is likely to become difference that too of varying magnitude, in predicted demand and actual demand of the product. If sufficient items are available in the inventory, then the fluctuations in demand can be easily adjusted and the organizations can project it from unforeseen economic losses. BETTER USE OF MEN MACHINES AND MATERIALS: In manufacturing system producing for stock the production planning can be done with an object to have optimum use of resources namely men, machines and materials. Here the resources can remain engaged during slack period of demand and there will be no need of generating additional resources in the boom periods as then the inventory enlarged in slack period can utilize. This will lead to uniform and proper utilization of resources available with the enterprise. PROTECTION AGAINST FLUCTUATIONS IN OUTPUT: Another important function of inventory is to reduce the gap between actual and scheduled production. In practice, production scheduled cannot be adhered due to a number of reasons e.g. sudden breakdown in supply of raw-materials, machines, labour strikes etc. CONTROL OF STOCK VOLUME: Inventory control is concerned with the size and the value of goods present in stock. It is responsible to forecast the value of the stocks on a regular intervals, so that Capital invested in inventories does not exceed the funds available for the purpose. The amount invested in inventory is correctly recorded in account books. Protection against theft is ensured.

1. CONTROL OF STOCK VOLUME:

Stock analysis is done to be sure that it is in balance and that obsolescence and depreciation are determines the appropriate size of the inventory keeping in view the interest of

2. The production department as well as of the outside customer and side by side holding down the costs. Inventory is maintained due to the following reasons. 1. 1 To carry reserves in order to prevent stock outs or cost sales. 2. 2 Never having much of anything on hand. 3. 3 To gain economies in purchases by buying items beyond the desired amount. 4. 4 To maintain reserves in stocks for the period of replenishment. Thus a well formulated inventory policy of an enterprise in likely to ensure smooth and efficient running of production operation providing optimumUtilization of man, machine and material. The decision regarding the appropriate size of the inventory is of paramount significance. LIMITATIONS OF INVENTORY CONTROL: 1. The control of inventories is complex because of the many functions it performs. It should be viewed as a shared responsibility. 2. The objectives of better sales through improved service to customer, reduction in inventories to reduce size of investment and reducing cost of production by smoother production operations are conflicting with each other.

METHODS OF INVENTORY CONTROL: The fundamental purpose of inventory analysis is to keep the stock of items at such level that there is a balance between the costs which increase or decrease with the size of the inventory. This needs determination of i)quantities should be ordered each time and ii) the time at which this order should be placed so that both inventory carrying costs and the losses arising out of stock-outs are kept at the minimum. These objectives are accomplished by determining. i) Economic lot size ii) Re-order level ECONOMIC LOT SIZE:

The amount of material procured or quantity produced during one production run by any enterprise is known as lot size. The quantity to be ordered, whether from inside sources or from out agencies depends on a number of factors. The size of inventory depends on lot size. Due to increase in inventory size expenditure on storage, deterioration etc, is likely to increase whereas expenditure on setting up plant, procurement of materials etc, will increase. Thus with lot size, there are two sets of factors having opposite contribution towards the expenditure i.e. one encourages the lot size and other discourage. The total cost associated with particular lot size is a combination of expenditures on all these factors. These opposing forces exhibit an interesting behavior towards total cost. It is observed that the factors whose costs decrease with lot size has a tendency at a faster rate than the rate of increase in cost of those factors whose costs increase with inventory size. SAFETY OR BUFFER STOCK: The demand and supply rates can never be assessed exactly. There is bound to be discrepancy between actual and estimated demand and supply quantities with fair degree of uncertainty. The organization with a policy of safeguarding interest. Against these uncertainties maintain the level of inventory at some desired minimum level. This minimum level of inventory to cover some unforeseen and uncalled for situations is known as safety or Buffer stock available in inventory when fresh supply arrives. It is presumed that this stock will be able to, cope with the emergency if and when experienced. Generally, buffer stock is maintained at the desired level by discontinuous replenishments at varying intervals of time. Factors effecting choice of Buffer stocks are: 1. Uncertainty in demand. 2. Degree of insurance for any item. 3. Uncertainty in lead time and 4. Size of the batch.

RE-ORDER LEVEL/POINT:

The concept of re-order point is basically related with lead time demand. The problem is that demand can never be accurately projected over the lead-time. Once we know the demand in lead time, re-order level can be easily determined mathematically Re-order Level=Lead Time demand + Safety Stock. ABC (ALWAYS BETTER CONTROL) ANALYSIS:ABC analysis is the selective inventory control technique and this is the first step in the inventory control process. This is the process in which 1000's of different types of inventories are classified to determine the type an degree of control required for each. This technique is based on the assumption that the firm should not exercise the same degree of control on the items of inventory. On the basis of unit price and consumption, various inventory items are categorized into three classes of this analysis: A B C "A" group involves the largest investment and inventory control must be rigorous and intensive and the most sophisticated inventory control technique should be applied to these items. Type "A" is of higher cost and highly scarce resource without which the production process cannot be imagined, which will be very less in quantity when compared to the investor level. "A" type of items are only about 10% in number. But account for 75% of the annual inventory usage value. "B" group stands mid-way. It deserves less attention than "A" and more than "C". Employing less sophisticated techniques can also control it. Type "B" is of moderate cost and moderately important. These are freely available when compared type "A". "B" type of items are only about 20% in number. . But account for next 50% of the annual inventory usage value. "C" group consists of items of inventory, which involve relatively small investments although the number of items is fairly large. These items deserve minimum attention. Type "C" items is of lowest cost and less importance when compared to "A" & "B". As these types of inventories are freely available in the market and can immediately replace or purchase. "C" types of items are about 70% in number. . But account for next 10% of the annual inventory usage value.

THE VARIOUS TYPES OF SELECTIVE CONTROLS ON THE BASIS "ABC ANALYSIS": CATEGORY "A": 1. Tight control 2. Assess exact requirement 3. Frequent reviews 4. Quantity control 5. Regular and item wise expediting 6. Low safety stocks and order point control 7. Reduced and stabilize lead-time CATEGORY "B": 1. Moderate control 2. Individual postings 3. Assess frequent reviews 4. Less frequent reviews 5. Item wise expediting 6. Medium safety stocks 7. Lead time 8. Stoked at regional or zonal stores CATEGORY "C": 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Minimum control Simple checks Estimate appropriate requirements Group postings Infrequent reviews Visual control Limited and periodic expediting Minimum lead-time control Large order size Stocking at point of view.

 STEPS FOR CONDUCTING ABC ANALYSIS ARE: 1. Obtain unit cost of each manufactured or purchased item in inventory. 2. Obtain the usage in units for each item or estimate the usage over a period of time. 3. Obtain the net value of the usage by multiplying unit cost and the usage. 4. Arrange the items in descending order of the usage value. 5. The no. of items and their values are accumulated on a % of total basis. 6. Roughly divide the total list into 3 groups namely A-items of high usage value which accounts for 70-75%of the usage value of inventories and about 10-15%. In number B-items of medium usage value which accounts for the next 15-20% of the usage value . WHILE APPLYING THE ABC ANALYSIS, THE FOLLOWING POINTS SHOULD BE TAKEN INTO CONSIDERATION: 1. Although every part of the item is important for the repair of machine, the items with low value can be given a loose control. 2. Tight control of the high value stocks must reduce costs sufficiently to more than off set the increased costs caused by lesser controls on the low value items. When applying the ABC principle, some high value items, Which will not be required due to being in excess, should actually be considered for disposal at a worth while price. 3. The ABC analysis in variably involves only items moving items since the annual consumption value is based on consumption besides unit cost. The items, which are non-moving, have also been considered separately for retention. JUST IN TIME [JIT]: JIT means that virtually no inventories are held at any stage of production and that the exact number of units is brought to each successive stages of production at right time. The JIT concept originated from the Motomachi plant of Toyota in Japan where the system has been perfected and results achieved. In this concept the plant has a long line of trucks waiting outside with full loads of automotive parts and components for the assembly line. As soon as one truck comes out at one end of the plant another gets inside. There is no warehouse for the parts. The JIT concept assumes certain conditions which are found wanting in our industries. What required is for its successful implementation all ancillary industries and suppliers of inventory operate in the vicinity of the main industry to avoid problems of transportation. If the suppliers are located at

considerable distances and there is more than one supplier problems in delivery are bound to arise. There should be one supplier and the products supplied must be of the best quality to prevent rejections and consequent delays. ORGANIZATION FOR INVENTORY MANAGEMENT: In a fairly large size production unit we might be holding stocks worth crores of rupees and their proper accounting, prevention, security and safety is of paramount importance. An effective and efficient stores management shall help in improving service level. Higher inventory is another area of concern to management because it affects the working capital. Stores department in order to discharge its functions effectively, it has to have close interaction and co-ordination with various departments of the organization. The stores department mainly should have good communication between purchase and production departments. Without active integration and cooperation of each of the other departments, it is very difficult to ensure smooth and efficient functioning of the stores department. But a stores department is dependent on each of them for its day to day operation. The smooth functioning of either stores department or the main production units is just not possible without interactive relations. This need has been merely identified by the Krishna District Milk Union stores department and a lot of negotiations have been taken by stores to have a better working relationship with of these departments. The inventory refers to stockpile of the products of the firm offering for sale and various components that make up these products. The inventory consists of raw-materials, work-in-progress, finished goods and stores & spare parts. LIST OF INVENTORY ITEMS IN KRISHNA DISTRICT MILK PRODUCERS MUTUALLY AIDED CO-OPERATIVE UNION LIMITED:1. Milk & Milk products 2. Cattle Feed. 3. Stores and Packing Materials. 4. Garage and Mechanical Spares. 5. Feed Raw Materials. 6. Inventory Construction Material. 7. Construction Material.

Inventory consists of a major portion of current assets in any organization. Efficient management of inventory not only improves the liquidity position, but also reduces excess funds blocked up in them and their by improving profitability. Every firm has to maintain sufficient inventory because it establishes a link between production and sales but the inventory involves balancing of opposing costs, viz. inventory carrying costs and ordering costs. It is the responsibility of management to formulate appropriate policies and adopt suitable inventory control techniques to optimize the size of the inventories so that the functions of production and sales are carried on smoothly at minimum costs.

PURCHASING: Many variables contribute to the success and development of the organization. One of such variable is an efficient purchase and material management with a view to make the existing purchase function most effective comprehensive plan has been prepared regarding. 1. Raising material purchase requisition. 2. Placing Purchase Order. 3. Receipt and Inspection of material. 4. Payments to Suppliers etc.

PURCHASE FUNCTION SYSTEM AND PROCEDURES: The eligible to raise material requisition for purchase: 1. Deputy General Manager (production). 2. Deputy General Manager (plant). 3. Deputy Director (purchase). 4. Quality Control Officer. 5. Senior Accounts Officer.

CRITERIA OF RAISING MATERIAL REQUISITION: 1. Need of the material to be established. 2. Quantity indicating the period of consumption.

3. Detailed specification including brand preference with due justification. 4. Sources including previous purchase order reference. 5. Approximate value of proposal. 6. Budget provision. 7. Date of requirement. GUIDELINES TO BE FOLLOWED BY PURCHASE DEPARTMENT: Purchase division after satisfying budget provisions will intimate purchase process adhering to following procedure:

Purchase type needs to be decided based on the financial involvement:1. Direct cash purchase allowed up to the value of 500/-. 2. Material value beyond Rs.500/o If material is of routine consumption nature annual rate contract to be fixed by annual tender system. o In case of specific purchase beyond Rs.500/-up to Rs.l lakh. Order is to be placed if material is available from publisher/co-operative institutions. o From other than these institutions, float enquires from Manufactures/ Authorized distributors/ registered dealers. 1. For large single order rate quotation called from original Manufacturers. 2. Purchase beyond 100000/- should be referred to purchase committee. 3. After getting approval of purchase proposal and type of purchase - Enquires to be floated with in 24 days. - Time required to receive quotations is: Single quotation time 10 days. Local suppliers quotations time 7 days. Periodical supply rate contract annual tenders (based on Lead time) orders are to be placed depending on requirement as per production schedule responsibility stores.

1. . Processing of quotations:1) Quotations opened by purchase division. i. Comparative statements of prices are prepared (24 hours).

2) Purchase order prepared if rates are reasonable, if not, negotiations or fresh enquires from alternative sources made. 3) Purchase order raised by purchase division (DM) gets approved from General Manager routing through audit and accounts. (2 days). 4) After approval of the purchase order gets registered in material requisition register and the copies are dispatched to:

1. Suppliers 2. Accounts department. 3. User departments 4. Store concerned

5. Follow up and expediting supply: Follow up should be made at least a week before delivered date given by purchase order. MAINTENANCE OF RECORDS AND FILES:The purchase department required to maintain various records and files like:1) Material purchase requisition record. 2) Purchase orders record. 3) Follow up data record. 4) Suppliers record- address, materials, delivery, quality. 5) Record of black listed supplier's reasons. 6) Commodity record. 7) Contract file. 8) Purchase day book.

OTHER FORMS AND REPORTS: Forms that are to be employed are 1) Purchase requisition.

2) Request for quotation. 3) Purchase order. 4) Follow up. 5) Receipt and inspection. REPORTS: Purchase handles a sizeable portion of finance, it is necessary to have some summary reports periodically available to the management some of these reports are:1) Total value of purchase. 2) Allocation of purchase value against major items. 3) Allocation of purchase value against each requisitioning department. 4) Budget for purchase for the next year. 5) Proposal for services of budget in current year

OTHER REPORTS BROUGHT OUT FOR INTERNAL USED: 1) Vendor performance report. 2) Pattern of consumption of material. 3) Pattern of market prices. 4) Lead time report. RECEIVING AND INSPECTION OF MATERIALS: RECEIVING MATERIALS:

Trade credit is an essential marketing tool which acts as a bridge for the movement of goods from the stage of production to stage of distribution to customers. Trade credit creates receivables which the firm is Expected to collect in the near future thus the book debts or receivables arising out of credit has three dimensions. First, it embraces an element of risk which needs to be assessed, since cash sales are totally risk less. Second, it is based on economic values to the buyer; economic value in goods or services is passed on immediately at the time of sale while the seller expects an equivalent value to be received, arises at a future date. But, creation of receivables blocks the firm's funds for the period between the dates of receipt of payment, which is to be financed out of working capital funds.

This makes the firm to average funds from financial institutions and other sources then receivables represent investment which constitutes a substantial Portion of current assets of manufacturing & trading firms. All the incoming materials from the suppliers and other units of organization shall be received at stores. Arrangement shall be made for unloading and receiving of materials, checking up of packages opening of packages, checking up materials with details of invoices and P.O., identifying discrepancies, if, any record keeping, preparation of materials receiving cum inspection reports, hand over of materials to custody, arranging dispatch of materials, returned to INSPECTION OF MATERIALS: AMPLING: The sampling method adopted for testing the polyethylene film shall be as per IS:2808-1977 clause-6. METHOD OF INSPECTION AND TESTING: Immediately on receipt of company extruded printed milk pouch firm. 10% of the rolls received will be weighted at random and if the total quantity as notified weight on the packing tallies positively. With the regiment observed, the total quantity as notified weight on the packing, prior ternate deduction based on average weight of 10 rolls will be made on the balance 90% rolls and on that basis the quantity received will be determined. This weight mint is to be done by quality control personnel. From each consignment 2% of the film rolls subject to a maximum of 10 rolls will be picked up at random by the representative of the quality control section and one meter of film from each roll will be cut and weighted for substance test. The overage higher thickness observed in 10 rolls of film at random, shall only be taken into account for imposing penalty. The maximum permissible excess thickness should not be more than 2.5% on average thickness. It has to be ensured that every item received in store is checked from quality angle. Angle function of poor quality materials may put the organization to heavy loses, especially, those of components of vital equipment. Quality plans need to be developed for critical and high consumption value of items. Inspection can be carried out by independent quality assurance group or by user department, depending upon set up store, however is required to maintain continued and sustained liaison with inspection people for prompt inspection.

THE PROFORMA OF INSPECTION MATERIAL IN KRISHNA DISTRICT MI? PRODUCERS MUTUALLY AIDED CO-OPERATIVE UNION LTD:

THE KRISHNA DISTTRICT MILK PRODUCERS MUTUALLY AIDED COOPERATIVE UNION LIMITED.
Milk Products Factory, Vijayawada-9 Material Quality Test/ Performance Report-Requisition Form SL No. ....... GRN No....................... Date.

To The QCO/DGM (prod/pl)/SAO/DD (P&I) For/store Krishna Milk Union, MPF, Vijayawada-9. Trevino : Date: Page No: Sir, Sub: MP3 stores- Material Quality Test/ Performance Report -requestReg Invoice/dc no. From M/s. Please arrange for Quality Test/ Performance Report of the material received through the reference cited above Name of the material Quantity, .1/1 01 Doc. No:

Yours faithfully STORES MANAGEMENT:

Objectives of stores in KRISHNA DISTRICT MILK PRODUCERS MUTUALLY AIDED COOPERATIVE UNION LIMITED: 1) To disseminates modern concept and techniques of efficient and effective stores management. 2) To disseminates modern concept and techniques of inventory management agreement, there by ensuring optimum utilization of available resources. 3) To improve services level of stores and inventory management functions. 4) To minimize the losses due to deterioration and obsolescence. 5) To identify and dispose of scrap, surplus and obsolete materials in most economical manner. 6) To develop a cadre of committed professional in stores and inventory management.

FUNCTIONS OF STORES MANAGEMENT: In the process of generation, transmission and distribution, stores management has to play a vital role to make to make available required stores and spares at the right time and quantities. Down time cost of equipment in our case is losses of generation, transmission and distribution of power and consequential losses to industries and nation as a whole. Stores as such as treated as backbone of efficient maintenance services, prompt services to the user shall. Therefore the principal objectives of stores function and this is the most improvement parameter to judge its performance. It is however, equally desirable to provide these services as economically as possible i.e., to keep the stock at optimum, conserve and preserve them properly so that both financial and operative objectives are attained.

Duties of store keeper in KRISHNA DISTRICT MILK PRODUCERS MUTUALLY AIDED CO-OPERATIVE UNION LIMITED: The items in stores should be placed in such a way that these can be easily located. To maintain the store should be placed in such a way that these can be easily located. Efficient and effective service to the organization. To ensure that materials are issued against authorized resolution only. To keep up-to-date record of materials issued, received and balance in stock. Planning and execution of stock checking activities. Communicate the purchase department about its requirements. To maintain efficient and effective material handling system.

LOCATION OF STORE ROOM: The location of stores in an enterprise should be at a place where handling transportation and the movement of the material at a minimum level. If there is only single plant or many plants situated in the same area then it is profitable to have one centralized store to service all production operations. But in case of plants located at distant places it is desirable to have separate store for each plant. Sometimes a policy of maintaining centralized stores for individual items is followed by the management. ADVANTAGES: 1) Economy in investments. 2) Reduction in incidental expenses. 3) Less storage space. 4) Better security arrangements to safeguard against pilferage and theft. 5) Less man-power required, due to which reduction in administration costs. 6) More bargaining power required, due to which reduction in administration costs. 7) More bargaining power due to buying in bulk. 8) The variety of items in the inventory can be reduced due to more scope of standardization of items. DISADVANTAGES: 1) More material handling operations. 2) Chances of bottlenecks and delay are likely to be more. 3) More exposed to loss due to natural calamities like fire, rain, dust etc.

METHODS OF VALUATION IN KRISHNA DISTRICT MILK PRODUCERS MUTUALLY AIDED CO-OPERATIVE UNION LTD:-

The Krishna Milk Union has given sufficient flexibility to introduce scientifically developed methods of valuation of their stocks. In order to prevent malpractices, it has been stipulated that such methods must be studied and approved by the Board of Directors, and must be followed for a minimum prior of three years. 1 FIFO: ..' In these cases; it is assumed that the stores follow the principle that oldest stock issued first so that stock left out is from the later arrivals. Hence all issues are assumed to have come out from older stocks. These are valued at old price. The cumulative value of stock out will give the net value of the existing stock. First-in-First-Out (FIFO)

ORGANIZATION OF STORES DEPARTEMNT: In small Scale establishments, it is experienced that purchase and stores department are attached with production department. In organizations where materials control is entrusted to a materials manager both purchase and stores department is always of subordinate nature and it enjoys an independent entity. The management of stores should be entrusted to experienced, sincere and efficient a personnel who is qualified and primarily interested in doing a good stores job. INVENTORY CONTROL SYSTEM: Inventory control techniques in KDMPMSCUL:All of the items are not of equal importance, a high degree control inventories of each item is neither applicable not useful. So stores department classify the inventory management to adopt a selective approach in laying down inventory levels, order quantities and the extent and closeness of the control be exercised. This is because a general characteristic of most inventories is that some items have much higher annual usage value than others.

Here we shall discuss the techniques of selective control like: 1) Re-ordering level, 2) Economic Order Quantity. 3) A.B.C Analysis. RE-ORDERING LEVEL: It is a point (if material reaches at this point) where order for fresh supplies of materials are placed with the suppliers. The point is fixed some where in between the maximum and minimum point in such a way that quantity is sufficient to meet the requirements of production upon the time fresh supplies are received. Re-ordering Level=Minimum Level + (Time in acquiring the materials * Rate of consumption). ECONOMIC ORDER QUANTITY: EOQ is an important factor in controlling the inventory, it is a quantity of inventory which can reasonably be ordered economically at a time. It is also known as 'Standard Order Quantity', 'Economic Lot Size' or 'Economical Ordering Quantity', in determining this point ordering cost and carrying costs are taken into consideration. Ordering costs are basically the cost of getting an item of inventory and it storage facilities, property insurance, loss of value through physical deterioration, cost of obsolescence. Either of these two costs affects the profits of the firm adversely and management tries to balance these two costs. The balancing or reconciliation point is known as Economic Order Quantity. And the concept of EOQ applies to the items which are replenished periodically into inventory in lots covering several periods' needs. Formulae for calculation of EOQ:

Where as A =Annual Demand O = Ordering Cost C = Carrying Cost

ABC ANALYSIS: ABC Analysis is basic tool, which helps the management to place their efforts where the results would be useful to the greatest possible extent. The first important step in inventory management is to have a selective approach to fix-up inventory levels and the extent to which the control can be exercised. This selective approach mainly depends on the annual consumption of various items. The technique involves the classification of inventory items into three categories A, B and C. In descending order or annual consumption and annual monetary value of each item.

CATEGORY- 'A' ITEMS: Such items have large investment but not much in number i.e., 10% of items account for 70% of total capital invested in inventory. So more careful and closer control is needed for such items.

CATEGORY- 'B' ITEMS: The items having low consumption value are put in category 'B'. Nearly 20% of the items in an inventory account for 20% of the total investment. These items have less importance than 'A' class items, but are much costly to pay more attention on their use. These items require less degree of control than those in category 'A'. Statistical sampling is generally useful to control them.

CATEGORY- 'C ITEMS: The items having medium consumption value are put in category 'C. Nearly 70% of the items in an inventory account for 20% of the total investment. Such items can be stocked at an operative place. These items can be charged to an overhead account. In fact, loose control of 'C items increase their investment and expenditure as a shelf wear, obsolescence and wasteful use, but this will not be so much in saving the recording costs.

PROCEDURE FOLLOWED IN KRISHNA DISTRICT MILK PRODUCERS MUTUALLY AIDED CO-OPERATIVE UNION LIMITED FOR TO PERFORM 'ABC ANALYSIS FOR STOCK

Whenever the items can be substituted for each other, they should be preferable considered as on item. More emphasis should be given to the value of consumption and not to the cost per unit of items.

CLASS OF ITEMS Sl.No 1 2 3 A Polythene Film Ammonia Gas Curd Boxes 4 Keep records Cups, B Ghee items Nitric Acid Lids, Basundi spoons of Keep records of No records are Kept cups C Powder items SFM Stickers & SFM Bottles

Receipt and use 5 6 More effort to reduce Close checks

Receipt and use Moderate effort Minimum effort

on Some checks on ghee No checks need more need upto 2-3 than 3 months

Schedule revision For in less than 2 weeks 7 8 Frequent ordering Continual expediting

months Less frequent ordering Bulk ordering Expediting for No expediting

prospective shortage 9 Accurate forecasts Less forecasts 10 Low safety stock for Large less Than 2 weeks 11 High value safety accurate Approximate forecasts stock Large safety stock

upto 2-3 months

more than 3 months

consumption Average consumption Low value value

DATA ANALYSIS AND INTERPRETATION SIZE OF INVENTORY:

The size of inventory depends on several factors such as sales volume, capacity of plant, availability of raw-materials, fluctuations in prices of raw-materials and finished goods, length of production cycle etc. generally progressive organization inventory levels continuously increase as increase in sales and production. As already stated the prime objective of inventory management is to optimize size of inventory so that smooth performance of production and sales are possible. Increase in size of inventory involves extra cost apart from adversely effecting profitability and liquidity. The size of networking capital is measured with the help of following ratio. Inventory Size of Inventory = ................................ Total Current Assets

INVENTORY 2005-06 S.NO

1 2 3 4 5

PRODUCTS

AMOUNT
11,64,15,812.95 6,50,880.70 1,58,50,112.04 65,46,601.92 47,63,876.31 14,42,27,283.90

Milk & Milk Products Cattle Feed and Seeds Stores & Packing Materials Mechanical & Garage Spares Feed Raw Materials Total

INVENTORY 2006-07 S.NO

1 2 3 4 5

PRODUCTS

AMOUNT
9,57,12,921.63 4,40,075.00 2,33,09,360.60 52,39,362.62 50,29,186.62 12,97,30,906.50

Milk & Milk Products Cattle Feed and Seeds Stores & Packing Materials Mechanical & Garage Spares Feed Raw Materials Total

INVENTORY 2007-08 S.NO

1 2 3

PRODUCTS

AMOUNT
13,01,41,326.23 4,91,944.00 1,44,03,819.59

Milk & Milk Products Cattle Feed and Seeds Stores & Packing Materials

4 5

Mechanical & Garage Spares Feed Raw Materials Total

37,97,118.86 47,90,586.09 15,36,24,794.70

INVENTORY 2008-09 S.NO

1 2 3 4 5

PRODUCTS

AMOUNT
11,28,39,476.42 13,55,364.00 1,32,24,600.32 42,00,291.38 37,35,576.19 13,53,55,308.30

Milk & Milk Products Cattle Feed and Seeds Stores & Packing Materials Mechanical & Garage Spares Feed Raw Materials Total

INVENTORY 2009-10 S.NO

1 2 3 4 5

PRODUCTS

AMOUNT
15,22,23,908.00 10,42,833.00 1,78,07,488.78 33,14,434.20 38,75,404.75 17,82,64,068.70

Milk & Milk Products Cattle Feed and Seeds Stores & Packing Materials Mechanical & Garage Spares Feed Raw Materials Total
CURRENT ASSETS 2005-06

S.NO
1 2 3 4 5 6 7 8 9 10 11 12 13 Milk & Milk Products Cattle Feed and Seeds

PRODUCTS

AMOUNT
11,64,15,812.95 6,50,880.70 1,58,50,112.04 65,46,601.92 47,63,876.31 14,15,525.25 26,04,025.70 4,92,45,465.57 45,81,849.00 6,87,09,698.73 11,01,701.39 48,26,009.91 10,64,891.00 Total 27,77,73,454.45

Stores & Packing Materials Mechanical & Garage Spares Feed Raw Materials Cash in Hand Cash/ Cheque Balance with Seheduled Banks In Fixed Deposits Sundry debtors Advances to Employees Advantages to Purchases Pre-Paid Expenses/Taxes

CURRENT ASSETS 2006-07

S.NO
1 2 3 4 5 6 7 8 9 10 11 12 13 Milk & Milk Products Cattle Feed and Seeds

PRODUCTS

AMOUNT
9,57,12,921.63 4,40,075.00 2,33,09,360.60 52,39,362.62 50,29,186.62 20,69,031.75 32,51,051.55 9,98,84,590 1,13,77,867.00 4,42,01,029.07 8,82,840.45 41,38,886.93 14,08,424.00 Total 29,69,44,628.10

Stores & Packing Materials Mechanical & Garage Spares Feed Raw Materials Cash in Hand Cash/ Cheque Balance with Seheduled Banks In Fixed Deposits Sundry debtors Advances to Employees Advantages to Purchases Pre-Paid Expenses/Taxes

CURRENT ASSETS 2007-08

S.NO
1 2 3 4 5 6 7 8 9 10 11 12 13 Milk & Milk Products Cattle Feed and Seeds

PRODUCTS

AMOUNT
13,01,41,326.23 4,91,944.00 1,44,03,819.59 37,97,118.86 47,90,586.09 14,36,332.25 77,11,542.90 12,46,40,643.05 89,23,153.00 3,99,00,770.98 6,31,743.95 80,32,029.72 14,19,470.00 Total 34,63,20,480.10

Stores & Packing Materials Mechanical & Garage Spares Feed Raw Materials Cash in Hand Cash/ Cheque Balance with Seheduled Banks In Fixed Deposits Sundry debtors Advances to Employees Advantages to Purchases Pre-Paid Expenses/Taxes

CURRENT ASSETS 2008-09

S.NO
1 2 3 4 5 6 7 8 9 10 11 12 13 Milk & Milk Products Cattle Feed and Seeds

PRODUCTS

AMOUNT
11,28,39,476.42 13,55,364.00 1,32,24,600.32 42,00,291.38 37,35,576.19 16,67,725.50 8,25,790.04 6,87,25,312.00 5,99,58,670.00 5,57,10,699.98 5,25,992.80 37,60,327.22 2,69,743.00 Total 32,67,99,568.80

Stores & Packing Materials Mechanical & Garage Spares Feed Raw Materials Cash in Hand Cash/ Cheque Balance with Seheduled Banks In Fixed Deposits Sundry debtors Advances to Employees Advantages to Purchases Pre-Paid Expenses/Taxes

CURRENT ASSETS 2009-10

S.NO
1 2 3 4 5 6 7 8 9 10 11 12 13 Milk & Milk Products Cattle Feed and Seeds

PRODUCTS

AMOUNT
15,22,23,908.00 10,42,833.00 1,78,07,488.78 33,14,434.20 38,75,404.75 1,07,160.25 14,52,536.51 8,88,55,874.69 8,98,32,804.00 4,91,66,473.49 6,82,578.80 30,59,910.56 6,62,527.00 Total 41,20,83,934.00

Stores & Packing Materials Mechanical & Garage Spares Feed Raw Materials Cash in Hand Cash/ Cheque Balance with Seheduled Banks In Fixed Deposits Sundry debtors Advances to Employees Advantages to Purchases Pre-Paid Expenses/Taxes

SIZE Inventory Size of Inventory = Total Current Assets x100

YEAR 2005-06 2006-07 2007-08 2008-09 2009-10

INVENTORY 14,42,27,283.90 12,97,30,906.50 15,36,24,794.70 13,53,55,308.30 17,82,64,068.70

Current Assets 27,77,73,454.45 29,69,44,628.10 34,63,20,480.10 32,67,99,568.80 41,20,83,934.00

Size 51.92% 43.68% 44.35% 41.41% 43.25%

The results of size of inventory ratio as applied to KRISHNA DISTRICT MILK PRODUCERS MUTUALLY AIDED CO-OPERATIVE UNION LIMITED:

Table 5.1 YEAR 2005-06 2006-07 2007-08 2008-09 2009-10 INVENTORY 14,42,27,283,9 12,97,30,906,5 15,36,24,794,7 13,53,55,308,3 17,82,64,068,7 CURRENT ASSETS 27,77,73,454,45 29,69,44,628,1 34,63,20,480,1 32,67,99,568,8 41,20,83,934,0 SIZE 51.92% 43.68% 44.35% 41.41% 43.25%

SIZE 60.00% 51.92% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 2005-06 2006-07 2007-08 2008-09 2009-10 SIZE 43.68% 44.35% 41.41% 43.25%

INTERPRETATION: The table shows the size of inventory in the selected enterprise during the period of 20052010s. It is evident from the table that inventory constituted the most important element of total Current Assets in this study as it is found on an average around 52 percent of the total Current Assets. It is observed from the table that the size of inventory in KRISHNA DISTRICT MILK PRODUCERS MUTUALLY AIDED CO-OPERATIVE UNION LIMITED has gradually decreased and increased from 48.21% TO 44.27% in 2005-2006 & increased in 2007-08 from 44.27% to 51.92% in the study period & also gradually decreased from 51.92% to 43.68% in 2007-2009 & increased in 2010 from 43.68% to 44.35% In the study period. REASON: This is due to fluctuations in prices and monopoly supplier. SUGGESTION: It is better to start own manufacturing unit or opt. for alternative supplier.

INVENTORY TURNOVER RATIO: The lists of all varieties of stocks with the company are treated as stocks. This relationship expresses the frequency with which average level of inventory is turned over through operations. If the ratio is high it means that stock is converted into sale as short span of time. It will lead to good profits for the company. If the inventory is moving quickly then the short term solvency of the company is also in very good condition. The inventory turnover ratio can be used as valuable measure of selling efficiency and inventory quality of the company. The turnover ratio is measured with the help of the following ratio:

Cost of Goods Sold Inventory Turnover Ratio = --------------------------Average Inventory The result of this ratio is applied to KRISHNA DISTRICT MILK PRODUCERS MUTUALLY AIDED CO-OPERATIVE UNION LIMITED:

COST OF GOODS 2005-06 S.NO 1 2 3 4 5 PARTICULARS Sale of Pasteurized Milk Sale of UHT Milk Sale of Bi-Products By Sale of Cattle Feed By Conversion Charges Total AMOUNT 83,03,28,496.55 8,46,24,637.92 45,25,27,825.15 5,97,30,709.00 80,11,555.00 143,52,23,223.62

SALES 1435223223.62

GROSS PROFIT 263510297.46 = 1171712926.24

COST OF GOODS 2006-07 S.NO 1 2 PARTICULARS Sale of Pasteurized Milk Sale of UHT Milk AMOUNT 101,96,33,984.00 6,87,74,625.50

3 4 5

Sale of Bi-Products By Sale of Cattle Feed By Conversion Charges Total SALES 163,74,46,747.00 -

48,55,22,323.45 6,03,38,522.25 31,77,292.00 163,74,46,747.00 GROSS PROFIT 29,10,57,211.96 = 134,63,89,524.00

COST OF GOODS 2007-08 S.NO 1 2 3 4 5 PARTICULARS Sale of Pasteurized Milk Sale of UHT Milk Sale of Bi-Products By Sale of Cattle Feed By Conversion Charges Total AMOUNT 118,22,48,093.25 3,56,32,842.00 41,04,05,763.00 7,46,38,750.50 1,66,60,011.50 171,95,85,460.00

SALES 171,95,85,460.00

GROSS PROFIT 32,65,51,326.36 = 139,30,34,134.19

COST OF GOODS 2008-09 S.NO 1 2 3 4 5 PARTICULARS Sale of Pasteurized Milk Sale of UHT Milk Sale of Bi-Products By Sale of Cattle Feed By Conversion Charges Total AMOUNT 142,66,04,822.25 7,34,75,439.00 49,80,01,850.83 8,97,79,087.00 80,92,315.00 209,59,53,514.00

SALES 209,59,53,514.00

GROSS PROFIT 33,67,96,345.76 = 175,91,57,168.00

COST OF GOODS 2009-10 S.NO 1 2 3 4 5 PARTICULARS Sale of Pasteurized Milk Sale of UHT Milk Sale of Bi-Products By Sale of Cattle Feed By Conversion Charges Total AMOUNT 170,22,53,004.77 4,91,60,591.50 55,96,05,494.25 9,07,58,323.50 1,17,95,410.00 241,35,72,823.00

SALES 241,35,72,823.00

GROSS PROFIT 37,66,54,533.43 = 203,69,18,290.00 Average Inventory 2005-06

Particulars Opening Stock Finished Stock of Milk Cattle Feed and Seeds Purchase of Milk Products Total Closing Stock Finished Stock of Milk Cattle Feed and Seeds Total = = Opening Stock + Closing Stock /2 97491724.38

Amount 7,71,65,529.12 16,62,391.25 1,02,000.00 789,29,920.37 11,55,04,647.65 6,50,880.75 116,155,528.40

Average Inventory 2006-07 Particulars Opening Stock Finished Stock of Milk Cattle Feed and Seeds Purchase of Milk Products Total Closing Stock Finished Stock of Milk Cattle Feed and Seeds Total = = Opening Stock + Closing Stock /2 105,791,845.26 Amount 11,55,04,647.65 6,50,880.75 2,04,97,875.00 136,653,403.40 9,49,88,087.13 4,40,075.00 954,28,162.13

Average Inventory 2007-08 Particulars Opening Stock Finished Stock of Milk Cattle Feed and Seeds Purchase of Milk Products Total Closing Stock Finished Stock of Milk Cattle Feed and Seeds Total = = Opening Stock + Closing Stock /2 112,736,262.18 Average Inventory 2008-09 Particulars Opening Stock Finished Stock of Milk Cattle Feed and Seeds Purchase of Milk Products Total Closing Stock Finished Stock of Milk Cattle Feed and Seeds Total = = Opening Stock + Closing Stock /2 149,959,064.3 Amount 12,95,52,418.23 4,91,944.00 5,66,74,464.00 186,718,826.23 11,18,43,938.42 13,55,364.00 113,199,302.42 Amount 9,49,88,087.13 4,40,075.00 2,64,08,847.00 121,837,009.13 12,95,52,418.23 4,91,944.00 130,044,362.12

Average Inventory 2009-10 Particulars Opening Stock Finished Stock of Milk Cattle Feed and Seeds Purchase of Milk Products Total Closing Stock Finished Stock of Milk Cattle Feed and Seeds Total = = Opening Stock + Closing Stock /2 179,199,398.7 Amount 11,18,43,938.42 13,55,364.00 9,25,53,546.00 205,752,848.42 15,16,03,116.00 10,42,833.00 152,645,949.00

Table 5.2 YEARS COST OF GOODS AVG INVENTORY SOLD 2005-06 2006-07 2007-08 2008-09 2009-10 1171712926.24 1346389535.24 1393034134.19 1759157168 2036918290 97491724.38 105791845.26 112736262.18 149959,064,3 179199398,7 12.01 12.72 12.35 11.73 11.36 RATIO(TIMES)

RATIO(TIMES) 13 12.5 12.01 12 11.5 11 10.5 2005-06 2006-07 2007-08 2008-09 2009-10 11.73 11.36 RATIO(TIMES)

12.72 12.35

INTERPRETATION:From the above table it is observed that the inventory turnover ratio has decreased every year. It has increased from 9.56 times to 12.72 times from the year 2005-06 to 2009-10. It is a test of efficient inventory management. If the company has higher the ratio, the better is the performance of the company. If the inventory turnover ratio is higher the operating cycle becomes faster and finally it will lead to higher profits for the company.

DAYS OF INVENTORY HOLDING: The reciprocal of inventory turnover ratio gives average inventory holding in percentage term. When the number of days in a year (say 365) is divided by inventory turnover, we obtain days of inventory holdings. The size of the days of inventory holding is measured with the help of the following ratio: 365 Days of Inventory Holding = ---------------------------Inventory Turnover Ratio

The results of this ratio as applied to KRISHNA DISTRICT MILK PRODUCERS MUTUALLY AIDED CO-OPERATIVE UNION LIMITED:

Table 5.3 Year No of Days in Year Inventory Turnover Period(Days) Ratio 2005-06 2006-07 2007-08 2008-09 2009-10 365 365 365 365 365 12.01 12.72 12.35 11.73 11.36 30 28.69 29.55 31.11 32.13

Period(Days) 33 32 31 30 30 29 28 27 26 2005-06 2006-07 2007-08 2008-09 2009-10 28.69 29.55 Period(Days) 31.11

32.13

INTERPRETATION: From the table the trend of inventory holding period of the company. It is understood that the days of inventory holding has gradually decreased from 38days to 30 days, because the inventory turnover ratio and the inventory holding period are interrelated. If the inventory turnover ratio increases than the days of the inventory holding decreases and vice-versa. It indicates the improvement in the management efficiency in converting their inventories into sales as fast as possible.

FINDINGS:

1. It is important to study the size of Inventory Management of any enterprise. It decides the need for best owing attention in the management of this component. In the enterprise under the study Inventory formed a major percentage of total assets. It varied between the lowest of 55 percent and the highest of 60 percent to total assets. 2. The composition of current assets is dominated by inventory and receivable in 2001-02 the composition of current assets are dominated by inventory and other current assets. 3. The inventory index and growth rate of KDMPMACUL is so even for instance the annual growth of KDMPMACUL is negative. 4. The receivable index in KDMPMACUL is highly uneven. In some year it is highly positive and in some year it is negative. The unevenness is not good. 5. Some of the inventories are ordered on the basis of minimum stock or reorder level. 6. There is no particular method has been followed for valuing the particular type of inventories. Fast Moving stocks. Slow Moving stocks. Seasonal stocks. Vital Items.

A valuation at inventories is entirely based on both manual valuation and computer valuation.

SUGGESTIONS: a. A plan should be drawn to use the surplus milk in some seasons for the manufacturers of long-lived bi-products. b. The company should introduce continuous stock verification system for all the materials. c. The company should introduce some of the major inventory classification methods like XYZ analysis and FSN analysis for better control of inventories. d. The composition of current assets is dominated by inventory and other current assets in this regard it is advised to the company to maintain a balance among the different components of current assets. e. It is better to start own manufacturing unit for materials like which has monopoly supplier, so that Ordering Cost and Carrying Costs reduce and can have materials in time.

CONCLUSION Here an attempt is made to draw conclusion based on the study of KDMPMACU Ltd. The study revealed the following The KDMPMACU Ltd. Have maintain slight standard Inventory levels The KDMPMACU Ltd. EOQ levels was satisfactory. The KDMPMACU Ltd. ABC Analysis was satisfactory The KDMPMACU Ltd. RAW material turnover was satisfactory

Over all KDMPMACU Ltd. Financial performance was positive.

 BIBILOGRAPHY

S.NO 1.

TITLE Financial Management

AUTHOR Prasanna Chandra Khan & Jain

PUBLISHER TMH New Delhi

YEAR 2001

2.

Financial Management

TMH New Delhi

2001

3.

Financial Management

V.K.Bhalla

ANMOL, Delhi

New 1998

4.

Production operation Management

& S.N.Charry

TMH New Delhi

2000

5.

Production operation Management

& B.L.Goel

Pragathi, Delhi

New 2001

OTHER REFERENCES: 1. Manuals of KDMPMACUL. 2. Manuals of Stores Department. 3. Five year Balance sheets (2003-08). 4. Krishna Milk Union at a Glance.