Beruflich Dokumente
Kultur Dokumente
Chapter-1 INTRODUCTION
Inventory examples
While accountants often discuss inventory in terms of goods for sale, organizations manufacturers, service-providers and not-for-profits - also have inventories (fixtures, furniture, supplies, ...) that they do not intend to sell. Manufacturers', distributors', and wholesalers' inventory tends to cluster in warehouses. Retailers' inventory may exist in a warehouse or in a shop or store accessible to customers. Inventories not intended for sale to customers or to clients may be held in any premises an organization uses. Stock ties up cash and, if uncontrolled, it will be impossible to know the actual level of stocks and therefore impossible to control them. While the reasons for holding stock were covered earlier, most manufacturing organizations usually divide their "goods for sale" inventory into:
Raw materials - materials and components scheduled for use in making a product.
Page 1
Work in process, WIP - materials and components that have begun their transformation to finished goods.
Finished goods - goods ready for sale to customers. Goods for resale - returned goods that are salable.
Page 2
available physical space for inventory quality management. 6) FLOW OF GOODS----Not only must a business keep track of the goods coming in and going out, it must also track the costs to procure, store, sell and ship these goods. The company must also account for damage, loss, and labour costs associated with handling the merchandise. Inventory management software allows an enterprise to track all of these things, while detailing the precise location of goods to allow for fast and efficient order picking. 7) Replenishment----The business can determine the appropriate ordering times for inventory replenishment with inventory management. 8) Balancing supply and demand: Demand depends upon the requirements of customers relating to time and quantity of products, and is not in the control of the producer. Supply, on the other hand is under the producers control, but has to be economized and also paced with the time and quantity requirements of customer demand. 9) Economies of scale: Economies of scale are obtained by holding large inventories:(a) While purchasing, ordering in large quantities provides cost economies and discounts; (b) transportation economies are obtained by transporting in larger quantities; and, (c) during manufacturing, producing in economic batch quantities lower costs. 10) Overcoming uncertainty: Safety stock of inventory is required to overcome uncertainty of customer demand on the one hand; and, purchasing, receiving, manufacturing, and
M.S. Ramaiah college of arts, science and commerce Page 4
1.5 DIFFERENT TYPES OF INVENTORIES A) RAW MATERIALS :Raw materials represent items that will be a component of produced goods. Raw materials are the unprocessed items that are broken down, processed or combined with other materials to create an end product. Raw materials such as logs, crude oil, and iron ore are converted into finished goods which people use every day. The recycling industry has even built itself around making raw materials out of other products. A raw material usually is unprocessed. This means it is in the same form that it has in its natural environment.
Page 5
B) WORK IN PROGRESS:Work in progress inventory includes the set at large of unfinished items for product in a production process. These items are not yet completed but either just being fabricated or waiting in a queue for further processing or in a buffer storage. The term is used in production and supply chain management.
Optimal production management aims to minimize work in progress. Work in progress requires storage space, represents bound capital not responsible for investments and carries an inherent risk of earlier expiration of shelf life of the products. A queue leading to a production step shows that the step is well buffered for shortage in supplies from preceding steps, but may also indicate insufficient capacity to process the output from these preceding steps. Work in process or work in progress, is a bit trickier than valuation of raw materials. Certain costs associated with the manufacturing process must be assigned to work in process, depending on what stage of production the raw materials are in. The cost associated will work in process also depends on what inventory valuation method is used, absorption or variable method.
WORK IN PROGRESS AS AN ASSET OR A PRODUCTION AS AN ASSET----Where there is an asset under construction is completed. AS A PRODUCT-----Where a product is being manufactured, we consider it to be work in progress till the production process is completed and the finished output is obtained.
WORK IN PROGRESS IN CONSTRUCTION ACCOUNTING Work in progress in constructing accounting identifies the value of construction projects which are currently being worked on by the construction firm. To properly account for each project, four values are needed for each project at the end of any given month (or period).
M.S. Ramaiah college of arts, science and commerce Page 6
C) FINISHED GOODS:A Finished good is a completed part that is ready for a customer order. Therefore, finished goods inventory is the stock of completed products. These goods have been inspected and have passed final inspection requirements so that they can be transferred out of work-in-progress and into finished goods inventory. From this point, finished can be sold directly to their to their final user, sold to retailers, sold to wholesalers, sent to distribution centre or held in anticipation of a customer order. Any item that does not have a parent can be classified as a finished good. By looking at the rolling cart product structure tree example one can determine that the finished goods in this case is a card. FINISHED GOODS INVENTORY:Amount of manufactured product on hand that awaits sale to customers, finished goods inventory represents a current asset in the balance sheet. The income statement shows both beginning finished goods and ending finished goods only if cost of goods sold is calculated. When goods that were in process are completed, the entry is to debit cost of goods sold and credit finished goods. The difference between the sales and cost of goods sold is the gross profit. ACCOUNTING PERIOD: The value of opening stock of finished goods brought forward from the previous period is debited to the process stock account (as opening balance using the opening entry). Debit >>Process Stock account (balance b/d) The value of production comprises during the current period is transferred from the process account to the process account. Debit >>Process Stock account Credit>>Process account
Page 7
Whatever may be the stage of the inventory, it would be treated as an asset at the times of assessing the values of assets and liabilities of the organisation. This can be understood from the fact that all these inventories are considered as a part of what we call closing stock. Since closing stock is treated as an asset, it is shown on the asset side of the balance sheet.
TABLE1.1
BALANCE SHEET OF A COMPANY AS ON----Liabilities Amount(Rs) Amount(Rs) Assets Closing stock: Raw materials Work in 1,25,000 45000 Amount(Rs) Amount(Rs)
1.7 VALUATION>>RATES/METHODS The concept of the rates (methods) for valuation is relevant and applicable to all types of inventories, whether it is raw material or work in progress or finished goods. The three methods most commonly used for valuing inventories are:M.S. Ramaiah college of arts, science and commerce Page 8
1.8 ANALYZING THESE VALUATION METHODS AND EXPLAINING THEIR IMPACT ON THE RECORDS OF THE FINANCIAL STATEMENTS
A.FIRST IN FIRST OUT----The FIFO method assumes that a company uses the goods in the order in which it purchases them. In other words, the FIFO method assumes that the first goods purchased are the first used (manufacturing concern) the first sold (in a merchandising concern). The inventory remaining must therefore represent the most recent purchaser. FIFO often parallels the actual physical flow of merchandise because it generally is good business practice to sell the oldest unit first. That is, under FIFO, companies obtain the cost of ending inventory by taking the unit cost of the most recent purchase and working backwards until all units of inventory have been cost. This is true whether a company computes
Page 9
B.LAST IN FIRST OUT----The LIFO method assumes the cost of the total quantity sold or issued during the month comes from the most recent purchases. That is, the latest goods purchased are the first to be sold. LIFO coincides with the actual physical flow of inventory. The method matches the cost of the last goods purchased against revenue. Under LIFO method, the costs of the latest goods purchased against revenue. Under the LIFO method, the cost of the latest goods purchased against revenue. Under the LIFO method, the costs of the latest goods purchased are the first to be sold. LIFO coincides with the actual physical flow of inventory. The method matches the cost of the last goods purchased against revenue. Under the LIFO method, the costs of the latest goods purchased are the first to be recognized in determining the cost of goods sold. The ending inventory is based on the prices of the oldest units purchased. C.AVERAGE COST METHOD----Under the average cost method, the cost of goods are equally divided, or averaged, among the units of inventory. It is also called the weighted average method. When this method is used, costs are matched against revenue according to an average of the unit of cost of goods sold. The same weighted average unit costs are used in determining the cost of the merchandise inventory at the end of the period. For business in which merchandise sales may be made up of various purchases of identical units, the average method approximates the physical flow of goods. This method requires calculating the average unit cost of the goods in the beginning inventory plus the purchases made in the period. Based on this average unit cost the cost of sales (production) and the ending inventory of the period are determined a. INCOME STATEMENT:--
FIFO----FIFO gives the highest amount of gross profit (hence, net income) because the lower unit costs of the first units purchased are matched against revenues, especially in times of inflation. However in times of falling prices, FIFO will report lowest inventory. It also yields the highest amount of ending inventory and the lowest cost of goods sold. This will give a false impression of paper profit.
LIFO----LIFO gives the lowest amount of net income during inflationary times and the highest net income during price declines. It gives the lowest amount of ending inventory and the highest cost of goods sold.
Page 10
In between FIFO In between FIFO In between FIFO and LIFO and LIFO and LIFO.
SOURCE: INTERNET
B) BALANCE SHEET: FIFO---During periods of inflation, the costs allocated to ending inventory will approximate their current cost. In fact, the balance sheet will report the ending merchandise inventory at an amount that is about the same as its current replacement costs. As inventories are overstated in FIFO, this will affect the total assets and hence the stock holders equity, over standing it. LIFO----In a period of inflation, the costs allocated to ending inventory may be significantly under stated in terms of current costs. This is because more recent are higher than the earlier unit costs. Thus it matches current costs nearly with current revenues. In LIFO, inventories are under stated. This, in turn, affects the stockholders equity by under stating the actual figures. AVERAGE COST METHOD----Average costs approach for series of purchases will be same regardless of direction of price trends. In this effect on the balance sheet, however, it is more like FIFO than LIFO.
Page 11
METHODS
INVENTORY
CURRENT ASSETS
Since prices keep on changing, the three methods yield different amounts for:1. The cost of merchandise sold for the period 2. The gross profit(net income) for the period 3. The ending inventory.
There is also a tax effect that varies with changes in net income among different valuation methods.
Page 12
Customer and supplier can agree on a static minimum and maximum stock level that is always the same in the period. Customer and supplier agree upon a minimum days' supply and a maximum days' supply. The system calculates a minimum and maximum stock level automatically from Customer and supplier agree upon a minimum days' supply and a maximum days' supply Customer and supplier can agree on a static minimum and maximum stock level that is always the same in the period. Customer and supplier agree upon a minimum days' supply and a maximum days' supply maximum stock level automatically from Customer and supplier agreement. DYNAMIC MINIMUM STOCK LEVEL:
Dynamic Minimum Stock Level and Static Maximum Stock Level (Enhanced Safety Stock Planning).We can use the methods AT, AS, BT, and BS of the extended safety stock planning. To configure the calculation of the minimum stock level and maximum stock level, you make settings, depending on the method chosen, either in the location product master of the SAP SNC systems or in the partner-dependent location product settings
Hence the inventory function will not only be applicable to a manufacturing firm, but also to other industries that have stock e.g. the stock of money in a bank available to be distributed to customers, the stock maintained by distributors, retailers etc. The Economic Order Quantity (EOQ) is the number of units that a company should add to inventory with each order to minimize the total costs of inventorysuch as holding costs, order costs, and shortage costs. The EOQ is used as part of a continuous review inventory system, in which the level of inventory is monitored at all times, and a fixed quantity is ordered each time the inventory level reaches a specific reorder point. The EOQ provides a model for calculating the appropriate reorder point and the optimal reorder quantity to ensure the
M.S. Ramaiah college of arts, science and commerce Page 13
A steady turnover in the inventory also helps with expenses like insurance costs and
taxes, thus reducing the overall expense that the company incurs as part of the operational process. One approach that helps to reduce the carrying cost of an inventory is to implement what is known as just in time production. Another way to avoid obsolete inventory is to plan for sales so that the inventory moves more quickly at a discounted rate before it becomes completely obsolete.
Page 14
Page 15
Storage costs Rent/depreciation Labour Overheads (e.g. heating, lighting, security) Money tied up (loss of interest, opportunity cost) Obsolescence costs if left with stock at end of product life) Stock deterioration (lose money if product deteriorates whilst held)
Page 16
ABC CODES: 1. A class" inventory will typically contain items that account for 80% of total value, or 20% of total items. 2. "B class" inventory will have around 15% of total value, or 30% of total items. 3. "C class" inventory will account for the remaining 5% or 50% of the total items. ABC Analysis is similar to the Pareto principle in that the "A class" group will typically account for a large proportion of the overall value but a small percentage of the overall volume of inventory. Another recommended breakdown of ABC classes: 1. "A" approximately 10% of items or 66.6% of value 2. "B" approximately 20% of items or 23.3% of value 3. "C" approximately 70% of items or 10.1% of value
FNSD Analysis
Age of inventory indicates duration of inventory in organization. It shows moving position of inventory during the year. If age of inventory is minimum it means, the turnover position of that particular item of inventory is satisfactory. If the age of any particular item of inventory, it indicates
M.S. Ramaiah college of arts, science and commerce Page 17
'F' stands for fast moving items and stocks of such items are consumed in short span of time. Stocks of fast moving items must be observed constantly and replenishment orders be placed in time to avoid stock-out situations.
'N' means normal moving items and such items are exhausted over a period of a war or so. The order levels and quantities for such items should be on the basis of a new estimate of future demand to minimize the risks of a surplus stock.
'S' indicates slow moving items, existing stock of which would last for two years or more at the current rate of usage but it is still expected to be used up. Slow moving stock must be reviewed very carefully before any replenishment orders are placed.
'D' stands for dead stock and for its existing stock no further demand can be foreseen. Dead stock figures in the inventory represents money spent that cannot be realized but it occupies useful space. Hence, once such items are identified, efforts must be made to find all alternative uses for it. Otherwise, it must be disposed. VED ANALYSIS
The term VED stands for vital, essential and desirable. The method control is primarily used for the control of spare parts. The spare parts are usually classified into Vital, Essential and Desirable keeping in mind the critically to production. While in ABC classification inventories are classified on the basis of their consumptions value in the basis critically of inventories is the basis for vital essential and desirable categorization. The VED analysis is done to determine the critically of an item and its effect on production and other services it is especially used for classification of spare parts.
Page 18
Vital: The spare which are so vital that stock out will stop production for quite some time and where the cost of stock out is very high are known as vital spares. Essential: The spares whose absence can not be treated for more than few hours or a day and the cost of lost production to continue are known as essential spares. Desirable: The spares which are need but there absences even a week or so on will not affect production are known as desirable spares. INVENTORY TURNOVER RATIO What Does Inventory Turnover Mean? A ratio showing how many times a company's inventory is sold and replaced over a period.
The days in the period can then be divided by the inventory turnover formula to calculate the days it takes to sell the inventory on hand or "inventory turnover days". Stock turnover ratio and inventory turnover ratio are the same. This ratio is a relationship between the cost of goods sold during a particular period of time and the cost of average inventory
M.S. Ramaiah college of arts, science and commerce Page 19
FORMULA OF STOCK TURNOVER/INVENTORY TURNOVER RATIO: The ratio is calculated by dividing the cost of goods sold by the amount of average stock at cost.
(a) [Inventory Turnover Ratio = Cost of goods sold / Average inventory at cost] Generally, the cost of goods sold may not be known from the published financial statements. In such circumstances, the inventory turnover ratio may be calculated by dividing net sales by average inventory at cost. If average inventory at cost is not known then inventory at selling price may be taken as the denominator and where the opening inventory is also not known the closing inventory figure may be taken as the average inventory.
(b) [Inventory Turnover Ratio = Net Sales / Average Inventory at Cost] (c) [Inventory Turnover Ratio = Net Sales / Average inventory at Selling Price] (d) [Inventory Turnover Ratio = Net Sales / Inventory] EXAMPLE: The cost of goods sold is $500,000. The opening stock is $40,000 and the closing stock is $60,000 (at cost). Calculate inventory turnover ratio CALCULATION:
Page 20
$60,000)
CHARACTERISTICS:
Spheroid graphite cast iron rolls are structurally characterised by nodular graphite as against flake graphite in the normal cast iron rolls. The matrix is pearlitic in nature. Different levels of hardness are obtained by varying the alloy additions and controlling the cemented in the matrix. These rolls are excellent substitutes for many conventional steel and cast iron due to a combination of superior strength, good wear resistance and resistance to spilling and fire cracking. Adequate water cooling is desirable. APPLICATION:
Roughing and intermediate rolls for blooming, scabbing and wire rod mills. Roughing, intermediate and finishing rolls for rail and structural mills. Finishing rolls for sheets and plate mills. Skin-pass and scale breaker rolls for hot strip mills.
Page 25
CHARACTERISTICS:
The structure consists of graphite nodules in the matrix of binate. These rolls have high hot strength combined with combined with good wear resistance. Sufficient water cooling is a must for satisfactory performance. APPLICATION:
Skin passes and temper mill rolls for cold rolling. Finishing rolls for wire rod and strip mills. FIGURE: 1.2
SOURCE: INTERNET
Page 26
CHARACTERISTICS
The structure consists of graphite nodules in the matrix of binate. These rolls have hot strength combined with good wear resistance. Sufficient water cooling is a must for satisfactory performance.
APPLICATION
Roughing, intermediate and finishing rolls for section and structural mills. Applications include heavy section and rail mills, universal beam mills, medium section mills and billet mills. Roughing rolls for plate and sheet mills. Pilger rolls for seamless tube mills. FIGURE: 1.3
SOURCE: INTERNET
Page 27
CHARACTERISTICS
The graphitic steel rolls are special high carbon steel with carbon content above 1.50%. The rolls are statically cast single poured subjected to special heat treatment and inoculation.
APPLICATION
These rolls are most suitable for medium and heavy section mills, intermediate and finishing stands, rail finishing mills, merchant mills, intermediate stands of bar mills. FIGURE: 1.4
SOURCE: INTERNET
Page 28
CHARACTERISTICS
The matrix of the chilled layer consists of fine pearlite/bainite with a uniform distribution of cementite. Special alloying is done to impart high corrosion resistance and also to obtain a homogeneous structure on the barrel surface for uniform wear resistance.
APPLICATION
Calendar rolls for paper mills. It is also used for mixing, calendaring, cracking and refining in rubber mills. FIGURE: 1.5
SOURCE: INTERNET
Page 29
In broad sense it emphases on the need and the importance of inventory management. Inventory management holds a crucial part in the production business. It is a system which can reduce or increase the profit of the firm. During the last few years the organizations are doing well in these circumstances the proposed project aim to combine the different aspects of the system. The aspect might be internal feature of the organization. It includes workforces, companys infrastructure, brands, reputation etc. In external features it includes political, social, economical, and legal environment. This attempt to lay equal focus on all the aspects and tries to find out the general inventory system for the JEMCO Company.
Page 30
1. Tool of inventory control may differ or all tool mention in inventory may not be used 2. The study is limited to Bangalore plant 3. Data were collected according to the departments accounts as well as company annual report 4. The study was conducted by taking last 5years data.
Raw Materials Inventory is an asset Raw Materials Inventory is increased with a debit Raw Materials Inventory is decreased with a credit
Page 31
Accounts payable Accounts receivable Budgeting and forecasting Business taxes Commercial bank and checking accounts Commercial insurance Financial statements Payroll services
2. Work in progress inventory includes the set at large of unfinished items for product in a production process. These items are not yet completed but either just being fabricated or waiting in a queue for further processing or in a buffer storage. The term is used in production and supply chain management. 3. FINISHED GOODS>>VALUATION: CURRENT PERIOD STOCK----The value of finished goods/stock in a process during a period is ascertained from the process account. It is valued at the normal cost of normal output per unit. OPENING STOCK----The opening stock of a period is nothing but the closing stock of the previous period. There is no special valuation done in relation to opening stock, it is just a figure carried forward from the end of the previous period to the beginning of the current period. In the absence of appropriate information we assume that the opening stock is also valued at the same rates as the current period stock. 4. The three methods most commonly used for valuing inventories are:-
FIFO(FIRST IN FIRST OUT) LIFO(LAST IN FIRST OUT) AVERAGE METHOD FIFO often parallels the actual physical flow of merchandise because it generally is good business practice to sell the oldest unit first. That is, under FIFO, companies obtain the cost of ending inventory by taking the unit cost of the most recent purchase and working backwards until all units of inventory have been cost.
M.S. Ramaiah college of arts, science and commerce Page 32
2.9 Methodology:
The study is based on descriptive and applied research. The efficiency and efficacy of working capital management model in JEMCO Company. The accounting as well as the planning of working capital is thoroughly studied. By using inventory turnover ratio and composition of total inventories, the result of control mechanism has been summarized, which help in identifying the effectiveness of the system under preview. Hence, the ratio and trend has been to arrive at conclusion.
Page 33
3.1 INCEPTION:
JEMCO was originated in the year of 1936 with Belgium collaboration, under the stewardship of LATE BAHADUR SIR INDER SINGH. At the outbreak of World War 2, 1939, the company, diversified into manufacture of rolls for the first time in India. With technical collaboration from Belgium, JEMCO turned out its first finished roll in 1940. This company is famous for the manufacture of rolls and general casting. JEMCOs pioneering roll manufacture played a pivotal role in supporting and setting up numerous steel based industries and rolling mills.
In the year 1990 JEMCO got merged with IS&WP ltd and became its division. In December 03, ISWP was taken over by TATA STEEL having control over approx, 92% of the share holding, JEMCO also became a subsidiary of TATA STEEL and continued to upgrade and perform in its manufacturing domain, sustaining with its agility and innovative capabilities accepting the global challenges. After take over by TATA STEEL, JEMCO re-entered the business of engineering castings. JEMCO casts both types of rolls-metallurgical and non-metallurgical types of rolls. In metallurgical segment JEMCO caste rolls of long period for SAIL and TATA STEEL,JINDAL, ISWP,USHA MARTIN,VSP(and in the field of flat production it makes conventional double poured rolls for SAIL and JINDAL).
Page 34
The companys plant located at JAMSHEDPUR is nearly 5 km from TATANAGAR RAILWAY STATION and is spread over on an area of 97 acres. It is equipped with suitable melting furnace, modern foundry, sophisticated machine shop and a well equipped laboratory having all up to date testing facilities. The plant at present has an installed capacity of 4500 MT for rolls and 1000 MT for engineering castings. Accredited with ISO-9001:2000 Certification, JEMCO is continuously implementing other related activities to improve customer satisfaction. JEMCO has competence and capability to undertake manufacture of custom designed products. JEMCO rolls have been designed to roll steel ingots, blooms, billets, angles, channels, rods, tubes, strips, sheets and other section products. In the non-metallurgical area, JEMCO rolls find wide spread application in rubber, paper, textiles, and asbestos jointing and poly films industries, auto sector, mines and collieries power plants, cement industries defence, railways etc.
Page 35
3.3 MISSION
Improvement of process Improvement in product quality Expansion of market Achievement of customer delight Achievement of cost effectiveness Being a responsible corporate citizen Adopting various methodologies.
Page 36
Page 37
Page 38
The company's history shows that it has passed through many hands before reaching its present position as one of the key players in the Jamshedpur Economy and Business. Jamshedpur Engineering and Machine Manufacturing Co. Ltd started operations in the year 1921 as a European manufacturing concern that dealt in textiles and fabrics. A couple of years down the line in 1923, the company were restructured as the General Engineering Works. Finally, in the year 1934 the company caught the attention of a certain Mr. Jivan Lal Motichand, a business who immediately saw the bright prospects of the company and purchased the same with alacrity. The company was subsequently transferred to Messrs. Indri Singh and Ltd in 1934. After this landmark event, there was no looking back for the company that rapidly burgeoned to reach the pinnacles of success.
Currently, Jamshedpur Engineering and Machine Manufacturing Co. Ltd does thriving business as a machinery store, general as well as roll foundry and pattern shop, roll turning shops and chemical plants and laboratories. A recent milestone in the company's growth chart is the inclusion of Calcutta Minified Works, a factory that manufactured casting for Jute Mills under its wing. In fact, the company is doing phenomenal work to expand its horizon. The top management is totally committed to meet the requirements of the customers by producing specified quality product through a sound quality management system as described in the various sections of this manual and to achieve complete customer satisfaction along with continually improving the quality of the products, system of operations, customer satisfaction and others.
Page 39
JEMCO is the manufacturing of Rolls and Engineering casting in the market. It is the No. 1 company in the Indian Machine manufacturer and is the only company is the well established in International network. The main objectives of the research have done on behalf of Jamshedpur Engineering and Machine manufactures company is:To find out the operating procedure, which follow in marketing department and implement.
The sub objective related to the main objectives are : To find out the problem of the marketing department in Jamshedpur Engineering and Machine manufacturer company To find out the operating procedure in marketing department of JEMCO, which they follows. To find out the various requirement of customer prefer more while purchasing Rolls and Engineering casting. Keeping the main objectives in mind we have find out many facts, which is beneficial for us to come to our conclusion and will also help the company in various ways. The researchers are conducted in the proper and the structured manner to achieve our objective at its best possibilities.
M.S. Ramaiah college of arts, science and commerce Page 40
ITS MAIN OBJECTIVES FOR THE PROPER GROWTH OF THE COMPANY JEMCO dominates in Indian market. JEMCO manufactures many such machines, which are not manufacturer by other company in all over Asia. JEMCO market is growing very fast for its good quality and services. JEMCO is the Brand name for their quality and services. JEMCO create brand image in itself after all it is a subsidiary of TATA STEEL and division of Indian steel And Wire Products Ltd. Training of the employees to communicate to them the importance of meeting the customers as well as statutory and regulatory requirements. Statement of quality policy and quality objectives. Strategic planning sessions to understand the requirements and expectations of the customers, employees and other stake holders. Conducting of management review to ensure proper implementation and maintenance of the quality management system leading to continual improvement in the same. Arranging adequate resources in the form of machine, man power, materials, information and anything else as may be required for maintenance and improvement of the quality management system of the organization.
Page 41
Page 42
B) MACHINE SHOP
JEMCOS machine shop is equipped with a versatile set of machine tools from Japan, Russia, Czechoslovakia, Germany, Italy, and India. These are capable of machining rolls ranging from 20 kgs to 20 tonnes in weight and from 280mm. to 1400 mm, in diameter. The stringent demand of accuracies and designs are met by CNC lathes. Special purpose machines carry out the milling
M.S. Ramaiah college of arts, science and commerce Page 43
WORKING PROCESS: ROUGH TURNING: In this particular step the removal of black material is being done keeping 4 to 5mm finished turning allowance on diameter and keeping 10mm in length respectively. FACING AND TURNING: In this procedure the maximum and main attention is being given to the task of maintaining a proper and accurate length. FINISHED TURNING: the turning diameter will be maintained and given an appropriate size. GRINDING: Grinding wheel will rub the diameter with flow of lubricant. This process gains the final size of the production in polished way as per the demand of the customer. RADIUS FINISHING: After grinding there is step formed in between diameter and radius. This step has been removed by turning on conventional lathe and forming the required profile of radius.
Page 44
Page 45
C) HEAT TREATEMENT The final properties of a roll and casting depend on the heat treatment, which in turn, provides the appropriate strength to it, to perform in the application area. The rolls and engineering casting components are heat treated in special heat treatment furnaces, in which, uniformity of temperature in all the heating zones of the furnace is ensured by special treatment controllers and the rate of heating can be controlled to as lower 2.9c to 100c per hour depending on product characteristic, leading to enhancement of internal properties of the rolls and engineering castings. The heat-treatment programme comprises of low temperature cycles for tempering and stress relieving as well as high temperature cycles for soft annealing and air quenching depending on products quality need. Special quenching facility helps in manufacturing Hadfield steel castings too.
Page 46
Page 47
TYPE: Intermediate roll for sheet v=bar:USES: Sheet bar and billet mills, TISCO.
Characteristics: It is structurally characteristics by nodular graphite as against flake graphite in the normal cast iron roll. The matrix is pear lactic in nature. These rolls are excellent substitute for many conventional steel and cast iron due resistance to spilling and fire cracking. Adequate water cooling is desirable.
Application: Roughing and intermediate rolls for blooming scabbing and wire rod mills. Roughing, intermediate and finishing rolls for rail and structural mills. Finishing roll for sheets and plate mills, skin pass and scale breaker rolls for hot strip mills.
Page 48
Characteristics: The structure consists of graphic nodules in the matrix of binate. These rolls have high hot strength combined with good wear resistance. Sufficient water cooling is a must for satisfactory performance. Application: Skin passes and temper mill rolls for cold rolling. Finishing rolls for wire.
Page 49
Characteristics: These rolls stand between steel and cast iron rolls in carbon content and the structure consists mainly of cemented in a Matrix of partite. The carbide phase in discontinuous throughout the matrix. Application: Roughing, intermediate and finishing rolls for section and structural mills. It includes Heavy section and rail mills, universal beam Mills, medium section mills and billet mills. Roughing rolls for plate and sheet mills. Pilfer rolls for seamless tube mills.
Page 50
Characteristics: The graphite steel rolls are special high Carbon steel and single poured subject to special heat treatment and inculcation. The structure consists of carbides in a pearl tic matrix with free graphite. These roll do not have hardness drop. They have better strength and greater resistance to thermal cracking steel base rolls.
APPLICATION: It is suitable for medium and heavy section mills, intermediate and finishing stands, rail finishing mills, merchant mills intermediate stand of bar mills.
Page 51
TABLE 4.1
YEAR 2007-2008 2008-2009 2009-2010 ANNUAL INVENTORY 5736 7837 9235.46 WORK IN PROGRESS 243.03 1064.06 708.81 % 4.236 13.57 7.67
Page 52
INTERPRETATION: If we consider the figure of the company in the form of work in process consist of average of 8.43% of the total inventory for 3 years and in the year 2008-2009 it has found to be high at 13.57%, because the production decreases so material required also decreased.
Page 53
2) FINISHED GOODS INVENTORY TURNOVER RATIO: Cost of goods sold Average inventory of finished goods
TABLE 4.2
YEAR COST OF GOODS SOLD 21401.01 28033.19 34153.76 AVERAGE INVENTORY OF FINISHED GOODS 387.77 495.99 559.26 RATIO
55 56.5 61
Page 54
ANALYSIS: The table shows the annual report of cost of goods sold which is given in the profit and loss account for the three years 07-08, 08-09 and 09-10 and the three consecutive years report for average inventory of finished goods. The opening and closing balance is being taken and divided by 2 to take out the average balance and after that ratio is being taken out in between the cost of goods sold and average inventory of finished goods and is being compared in the graph. INTERPRETATION: This ratio indicates that how much cost of goods sold out of manufacturing. The ratios i.e. 55, 56.5,61 for the various years 2007-2008, 2008-2009 and 2009-2010. The ratio also shows that how much finished goods is being utilized out of the total cost of goods sold. In the year it is higher with the ratio 61 which shows the increase in finished goods and also increases in cost of goods sold.
Page 55
3) RAW MATERIAL INVENTORY TURNOVER RATIO Annual consumption of raw material Average raw material inventory
TABLE 4.3
YEAR AVERAGE CONSUMPTION OF RAW MATERIAL 11821 17620 20672 AVERAGE RAW MATERIAL INVENTORY 1495.29 2151.185 2751.19 RATIO
7.5
8.19
Page 56
ANALYSIS: The table shows the annual consumption report of raw materials which have been utilised in the year 2007-2008, 2008-2009 and 2009-2010 and the annual report of average raw materials which is being taken out by the opening and closing balance and divided by 2 and finally the ratio is being shown by dividing the annual consumption of raw materials with the average raw material inventory and it is shown in the graph by the year wise distribution.
INTERPRETATION: The above table ratios indicate the raw material consumption over a period of time. In the year 2007-2008 the ratio was 7.9 and it is goes on increases in the year 2008-2009 and again decreases in the year 2009-2010. It shows that material movement has come down and it goes on fluctuating for the three years.
Page 57
4) STOCK IN PROGRESS INVENTORY TURNOVER RATIO: Cost of manufacturing goods Average work in progress inventory
TABLE 4.4
YEAR COST OF MANUFACTURING GOODS 16851.04 23720.47 28342.36 AVERAGE WORK IN PROGRESS INVENTORY 2212.08 3080.56 3966.995 RATIO
Page 58
ANALYSIS: The table shows the annual report of cost of goods manufactured for the three consecutive years 2007-2008, 2008-2009 and 2009-2010 and the report of work in progress inventory in average basis and finally the ratio is being taken out by dividing cost of manufactured goods by average work in progress and the ratio is being shown in the graph. INTERPRETATION: This ratio shows that how much work in progress is held as inventory and total cost for that. Form the year 2007 to 2010 the manufacturing cost volatility and the work in progress is being in the fluctuated form and the resultant ratio is being shown in the graph as how it increases in the year 2008-2009 and again decreases in the year 2009-2010. And among the three years the highest ratio comes for the year 2008-2009 i.e. 7.70 and lower in the year 2009-2010 i.e. 7.14 which shows the cost volatility for both of the years.
Page 59
TABLE 4.5
YEAR 2007-2008 2008-2009 2009-2010 COST OF GOODS SOLD 21401.01 28033.19 34153.76 AVERAGE INVENTORY 4977.03 6786.71 8536.24 RATIO 4.29 4.13 4.00
4.3 4.25 4.2 4.15 4.1 4.05 4 3.95 3.9 3.85 2007-2008 OVERALL INVENTORY 2008-2009 2009-2010
Page 60
ANALYSIS: The table shows the annual report of cost of goods sold for the three consecutive years 20072008, 2008-2009 and 2009-2010 and the average inventory for the years 2007-2008, 2008-2009 and 2009-2010. The balancing figures are higher for the year 2009-2010 for both of cost of goods sold and average inventory. And finally the ratio is being shown by dividing the cost of goods sold by average inventory. INTERPRETATION: This ratio indicates that the investment in inventory is efficiently used or not. Therefore it
explains whether the investment in inventory is within proper limits or not. Comparing the ratios of various year it notified that in year 2010 the ratio has came down to 4.00 with compared to 2008 and 2009.
Page 61
6) AVERAGE AGE OF FINISHED GOODS INVENTORY Average finished goods inventory cost of goods manufactured daily
TABLE 4.6
YEAR AVERAGE FINISHED GOODS INVENTORY 387.77 495.99 559.26 COST OF GOODS MANUFACTURED DAILY 46.80 65.89 78.72 RATIO
Page 62
ANALYSIS: The table shows the cost of manufactured goods which is being calculated by dividing the original figures of cost of goods manufactured by 360 which gives the direct information about the goods manufactured daily for the three consecutive year 2007-2008, 2008-2009 and 2009-2010 and the average finished stock inventory which comes out by the opening balance and closing balance and dividing by 2. And finally the ratio is being taken out by dividing average finished goods inventory by cost of goods manufactured daily. INTERPRETATION: In the year 2007-08 the ratio was higher than other years i.e. 8.28, because in this year another unit merged due to this the ratio for other years drastically reduced. Now it is slowly pushing their inventory to reduce the cost. Here the cost of goods manufactured on the daily basis is being also calculated by dividing the total cost of goods manufactured daily by 360.
Page 63
TABLE 4.7
% 80 95.2 96
100
95
85
80
75
Page 64
TABLE 4.8
YEAR 2007-2008 2008-2009 2009-2010 ANNUAL INVENTORY 5736 7837 9237.46 RAW MATERIAL 1495.29 2151.18 2751.19 % 26.06 27.44 29.78
2009-2010
2007-2008
2008-2009
Page 65
ANALYSIS: The table shows the annual inventory report of the three consecutive years as well as the raw materials utilized for three years and at the same time ratio is being shown by dividing the raw materials by annual inventory which is tabulated in the table and shown in the graph. INTERPRETATION: It is shown that how much composition the raw materials are being used out of the total inventories which is being used for the overall company. In the year 2009-2010 the raw material consumed is high as compared to the three years as because the composition of material was used in a higher ratio. The work of raw material was more for the manufacturing of rolls and machines.
Page 66
9) COMPOSITION OF FINISHED GOODS IN INVENTORY: Finished goods Annual inventory TABLE 4.9 YEAR 2007-2008 2008-2009 2009-2010 ANNUAL INVENTORY 1495.29 2151.18 2751.19 FINISHED GOODS 405.00 450.82 527.62 % 7.06 5.75 5.71
Page 67
ANALYSIS: The table shows the annual report of overall inventory which is used for the three consecutive years i.e. 2007-2008, 2008-2009 and 2009-2010 is utilised by the company for the whole year. And at the same time the finished goods is also being given which is used for the three consecutive years. Finally the ratio is percentage is being given by dividing finished goods by annual inventory and the respective result is being shown for the year in the table and the graph. INTERPRETATION: The composition of finished goods kept is being given and in the year 2007-2008 it was higher as compared to 2009 and 2010 which shows that the goods were used more and the stocked goods were kept as an inventory.
Page 68
TABLE: 4.10
year 2007-2008 2008-2009 2009-2010 Total days 360 360 360 Ratio 5.52 13.50 5.14 Days 65 27 70
Page 69
ANALYSIS: The table shows the total holding inventory period and the total inventory turnover ratio is also being given. The ratio of total holding inventory period is also being given and the number of days is being calculated according to the inventories which are being identified according to the utilization of inventories of the company.
INTERPRETATION: Here the table shows the ratio of total holding period inventory and the number of days for overall year consumption of inventories. Form the above table we can identify that in the year 2009-10 the highest inventory holding period i.e. 70 days and lowest in the year 2008-09 i.e. 27 days. It shows that they dont have proper inventory holding policy.
Page 70
11) WORK IN PROGRESS HOLDING PERIOD 360 Work in progress inventory turnover ratio
TABLE 4.11
year
2007-2008 2008-2009 2009-2010
Total days
360 360 360
Ratio
9.25 23.84 2.56
Days
39 15 141
Page 71
ANALYSIS: The table shows three years holding inventories of work in progress according to the ratio and the number of days by which is consider the stock in progress of the company. The ratio is being taken out by the total holding inventories in which it is seen the actual ratio of stock in progress which is being considered as a main asset of an inventory. The holding period of work in progress turnover ratio is being divided by 360 days i.e. the total number of day. INTERPRETATION: Here in the work in progress holding period is continuously changing i.e. 39, 15, 149 days for the year 2007-08, 2008-09, 2009-10 respectively. It is found that highest is 141 days and lowest is 15days. It shows the ratio and utilization of stock in progress according to the inventories which are used by the company.
Page 72
The inventories seem to contribute a high proportion of companies current asset. This indicates holding of inventory for the firm in putting burden on working capital requirement which can be reduced by better planning of inventory.
The materials storage of the firm looks unhealthy because the share of materials is pretty high in total inventory, when the scares nature of materials is considered the purchase of materials made by the company looks efficient.
The no of days of inventory holding is very high and it is improved year by year.
The company does not fix different inventory levels with the help of scientific formula.
It is found that economic order quantity model is not used to determine the order level.
The break down using 3 categories is traditional approach. A three fold break down is not necessary and is sometimes inconvenient in many cases. Two categories are sufficient, namely A and C group. The B group eliminate, often there is no break down at all. Here top items are important and classification is unnecessary.
Page 73
The average raw material inventory and average work in progress as well as average finished goods comes out by the opening and closing balance of the respective years.
The cost of goods manufactured also comes out in the daily basis by dividing it by 360. I.e. the total number of days.
Page 74
CHAPTER- 6 SUGGESTIONS
Change in design to maximize the use of the standard parts and components which are available off the shelf. Strict adherence to production schedules. Special pricing to disposal of scrap or dormant inventory. Management should give importance for each and every factors that influence inventory. Pricing of inventory should not only in weighted average cost method. Give importance to time line for judging the inventory system. Estimate lead time, safety stock and re order level if supply is not instantaneous also decide about the service level to be provided to customer. Company should sell of its dormant and non moving items. Management should take care about huge inventory, which is lying as dead stock in stores. They should undergo a research process for adopt new technologies. Because of these new technologies some of the items become obsolete. So company should take care of it. The inventories should be kept according to their stock so that later the money cannot be wasted and it should be properly utilised according to the company daily need and by seeing and analysing the last year inventory which is being used. .
Page 75
CONCLUSION
Inventories are common in Indian manufacturing companies. Because of the scarcity of materials required countrys transportation systems and logistic system. So these companies have to maintain minimum stock in their stocks. So when they will go for this minimum stock, they should prefer which is optimal to their organization.
Inventories constitute about 30 to 40 percent of current assets of public limited companies in India. So like that, this JEMCO Company is also not exempted from this. So they should take actions to minimise the inventories. It has more dormant and non moving items, so they should make it scrape and sell.
Effective inventory management helps to optimize the inventory control system. Effective system will definitely helps to decrease the inventory investment cost, holding cost and also increase the profit. So every company should follow a model which reduces the cost and increase the profit. The company should look around the inventory status as it is the main component of the financial state of any organization. It should adopt the possible techniques to hold best inventory management as now also its quiet good.
Page 76
BIBLIOGRAPHY
Secondary data source: Materials Management an integrated approach by P. Gopalkrishnan and M.Sundaresan
Management accounting by
Internet:
Page 77