A STUDY ON INVENTORY MANAGEMENT OF PONNI SUGARS LIMITED, PALLIPALAYAM PROJECT REPORT Submitted by DHILEEPAN.

M Register No: 088001614017 in partial fulfillment for the award of the degree Of MASTER OF BUSINESS ADMINISTRATION In DEPARTMENT OF MANAGEMENT STUDIES SSM COLLEGE OF ENGINEERING KOMARAPALAYAM-638183 MAY 2010

SSM COLLEGE OF ENGINEERING KOMARAPALAYAM-638183 Department of Management studies PROJECT WORK PHASE II MAY 2010 This is to certify that the project entitled A STUDY ON INVENTORY MANAGEMENT OF PONNI SUGARS LIMITED, PALLIPALAYAM is the bonafide record of project work done by DHILEEPAN.M Register No: 088001614017 of MBA (DEPARTMENT OF MANAGEMENT STUDIES) during the year 2009-2010. -----------------------------------------------------Project Guide -----------------------------------------------------Internal Examiner Examiner External Head of the Department Submitted for the Project Viva-Voce examination held on__________

DECLARATION I affirm that the project work title A STUDY ON INVENTORY MANAGEMENT OF PONNI SUGAR PRIVATE LIMITEDPALLIPALAYAM being submitted in partial fulfillment for the award of MASTER OF BUSINESS ADMINISTRATION is the original work carried out by me. It has not formed the part of any other project work submitted for award of any degree or diploma, either in this or any other University.

DHILEEPAN.M (088001614017) I certify that the declaration made above by the candidate is true

Mr.L. JOTHIBASU MBA.., LECTURER

ACKNOWLEDGEMENT

I am deeply indebted to the management of S.S.M college of Engineering, Komarapalayam, for giving me this ample opportunity to do the training. I feel great pleasure to thank our beloved Chairman Cavalier M.S Mathivanan, M.A, M.Com, M.Phil, F.T.A, H.G.D.M (Lon) AIBM, DIEM, Principal Prof. Dr. A. Subramanian, MR. P. Krishnakumar, BE, MBA, MCSD, M.Phil. Ph.D Director of MBA Department, Esther Gnanapoo MBA, MPhil, Ph.D HOD of MBA department, S.S.M College of Engineering, Komarapalayam, S.S.M School of Management who provided with us all facilities during the course of study. I am also thankful to Mr.L.JOTHI BASU M.B.A., Department of Management studies, for giving us a valuable learning experience by means of this Organizational studies. At the outset I would like to thank Mr. S.SURESH financial manager for their valuable advice and guidance during my project completion, for timely help concerning various aspects of project. I also thanks to all staff members of account department PONNI SUGARS PVT LTD for help me to complete my project. Last but not least, I would like to thank all the respondents, Company staffs, my parents, well wishers and friends who have directly and indirectly helped me to complete this project. DHILEEPAN.M

CONTENTS Chapter No. List of Tables List of Charts Executive summary 1.1 Introduction 1.2 About the Study 1 1.2 About the industry 1.4 About the company Main theme of the project 2.1 objectives of the study 2 2.2 scope and limitations 2.3 methodology 2.4 review of literature 3 Analysis and Interpretation Findings 4 Suggestions Conclusion Bibliography Description Page No.

LIST OF TABLES SL.NO. TITLE PAGE NO.

3.1.1

TABLE SHOWING INVENTORY TO CURRENT ASSET RATIO TABLE SHOWING INVENTORY TURNOVER RATIO TABLE SHOWING RAW MATERIAL TO INVENTORY RATIO TABLE SHOWING FINISHED GOODS TO INVENTORY RATIO TABLE SHOWING CLASSIFICATION OF GOODS ITEM BASED ON THEIR

25

3.1.2

27 29

3.1.3

3.1.4

31

3.1.5

CATEGORY

33

3.1.6

TABLE SHOWING CLASSIFICATION OF GOODS ITEM BASED ON THEIR STOCK VALUE TABLE SHOWING CLASSIFICATION OF GOODS ITEM BASED ON THEIR USAGE

35

3.1.7

37

LIST OF CHARTS SL.NO. 3.1.1 CHART SHOWING INVENTORY TO CURRENT ASSET RATIO 3.1.2 CHART SHOWING INVENTORY TURNOVER RATIO 3.1.3 CHART SHOWING RAW MATERIAL TO INVENTORY RATIO 30 28 26 TITLE PAGE NO.

3.1.4 CHART SHOWING FINISHED GOODS TO INVENTORY RATIO 3.1.5 CHART SHOWING CLASSIFICATION OF GOODS ITEM BASED ON THEIR CATEGORY 3.1.6 CHART SHOWING CLASSIFICATION OF GOODS ITEM BASED ON THEIR STOCK VALUE 3.1.7 CHART SHOWING CLASSIFICATION OF GOODS ITEM BASED ON THEIR USAGE 38 36 34 32

ABSTRACT

This project focuses on the inventory management system in the palli palayam ponni sugar factory. A structured questionnaire was framed and various user departments were my respondent. A structured questionnaire was framed to find out the consumption pattern of materials in various user department Various statistical tools and financial ratio were used to find out the turnover ratio performance of the stores. The project was carried on for period of 60 days under professional guidance of faculty and company guide. The project gave a great exposure and through the project I came to know the mechanism involved from raising an indent till receiving material .

CHAPTER I INTRODUCTION 1.1 INTRODUCTION ABOUT THE STUDY Everything has a price; nothing in this world is for free. This statement talks about the goods and services available to consumers and customers alike throughout the globe. The hospital industry is no way an exception to this statement, rather fact. 1.1.1ORIGINS OF THE WORD INVENTORY The word inventory was first recorded in 1601. The french term inventaire, or "detailed list of goods," dates back to 1415. 1.1.2BUSINESS INVENTORY The reasons for keeping stock There are three basic reasons for keeping an inventory: 1. Time - The time lags present in the supply chain, from supplier to user at every stage, requires that you maintain certain amount of inventory to use in this "lead time" 2. Uncertainty - Inventories are maintained as buffers to meet uncertainties in demand, supply and movements of goods. 3. Economies of scale - Ideal condition of "one unit at a time at a place where user needs it, when he needs it" principle tends to incur lots of costs in terms of logistics. So bulk buying, movement and storing brings in economies of scale, thus inventory

Buffer stock is held in individual workstations against the possibility that the upstream workstation may be a little delayed in long setup or changeover time. This stock is then used while that change-over is happening.

INVENTORY MANAGEMENT must tie together the following objectives ,to ensure that there is continuity between functions : Companys Strategic Goals Sales Forecasting Sales & Operations Planning Production & Materials Requirement Planning. Inventory Management must be designed to meet the dictates of market place and support the companys Strategic Plan . The many changes in the market demand , new opportunities due to worldwide marketing , global sourcing of materials and new manufacturing technology means many companies need to change their Inventory Management approach and change the process For Inventory Control . Inventory Management system provides information to efficiently manage the flow of materials , effectively utilize people and equipment , coordinate internal activities and communicate with customers . Inventory Management does not make decisions or manage operations, they provide the information to managers who make more accurate and timely decisions to manage their operations.

Inventory is defined as the blocked Working Capital of an organization in the form of materials . As this is the blocked Working Capital of organization, ideally it should be zero. But we are maintaining Inventory . This Inventory is maintained to take care of fluctuations in demand and lead time. In some cases it is maintained to take care of increasing price tendency of commodities .

Traditional Supply Chain solutions such as Materials Requirement Planning , Inventory Control ,typically focuses on implementing more rapid and efficient systems to reduce the cost of communicating information between and across the Inventory links in the SCM.COM focuses in optimizing the total investment of materials cost and workload for every Inventory item throughout the chain from procurement of raw materials to finished goods Inventory . Optimization means providing a balance of supply to meet the demand at a minimum total cost , Inventory level and workload to meet customers service goal for each items in the link of Inventory Chain .

It is strategic in the sense that top management sets goals . These include deployment strategies ( Push versus Pull ) , control policies , the determination of the optimal levels of order quantities and reorder points and setting safety stock levels . These levels are critical , since they are primary determinants of customer levels.

Keeping in view all concerns , the latest concept of Vendor Managed Inventory is used to optimize the Inventory . We are entering into Vendor Managed Inventory Annual Rate Contracts with manufacturers or their authorized dealers , who maintain Inventory on our behalf and supply the items as and when required .

VMI reduces stock-outs and optimize inventory in supply chain . Some features of VMI include : Shortening of Supply Chain Centralized Forecasting Frequent communication of inventory, stock-outs and planned promotions Trucks are filled in a prioritized order , e.g. items that are expected to stock out have top priority then items that are furthest below targeted stock levels then advance shipments of promotiona item Despite the many changes that companies go through, the basic principles of Inventory Management and Inventory Control remain the same. Some of the new approaches and techniques are wrapped in new terminology, but the underlying principles for accomplishing good Inventory Management and Inventory activities have not changed.

The Inventory Management system and the Inventory Control Process provides information to efficiently manage the flow of materials, effectively utilize people

and equipment, coordinate internal activities, and communicate with customers. Inventory Management and the activities of Inventory Control do not make decisions or manage operations; they provide the information to Managers who make more accurate and timely decisions to manage their operations. The basic building blocks for the Inventory Management system and Inventory Sales Forecasting or Demand Management Sales and Operations Planning Production Planning Material Requirements Planning Inventory Reduction

Any

firm needs to keep enough of its inventory levels to meet the

requirement of the customers. Inventory management in such organization is highly essential as major cash is involved in the inventory. The basic of inventory management is to have a tradeoff between optimum levels of inventory to meet the current requirements and minimizing the companys investment in blocking the opportunity cost of capital.

1.2 INDUSTRY PROFILE SUGAR INDUSTRY India has been known as the original home of sugar and sugarcane. Indian mythology supports the above fact as it contains legends showing the origin of sugarcane. India is the second largest producer of sugarcane next to Brazil. Presently, about 4 million hectares of land is under sugarcane with an average. India is the largest single producer of sugar including traditional cane sugar sweeteners, khandsari and Gur equivalent to 26 million tonnes raw value followed by Brazil in the second place at 18.5 million tonnes. Even in respect of white crystal sugar, India has ranked No.1 position in 7 out of last 10 years. Traditional sweeteners Gur & Khandsari are consumed mostly by the rural population in India. In the early 1930s nearly 2/3rd of sugarcane production was utilised for production of alternate sweeteners, Gur & Khandsari. With better standard of living and higher incomes, the sweetener demand has shifted to white sugar. Currently, about 1/3rd sugarcane production is utilised by the Gur & Khandsari sectors. Being in the small scale sector, these two sectors are completely free from controls and taxes which are applicable to the sugar sector. The advent of modern sugar processing industry in India began in 1930 with grant of tariff protection to the Indian sugar industry. The number of sugar mills increased from 30 in the year 1930 - 31 to 135 in the year 1935-36 and the production during the same period increased from 1.20 lakh tonnes to 9.34 lakh tonnes under the dynamic leadership of the private sector.

1.3 ABOUT THE COMPANY PONNI SUGAR FACTORY is the largest SUGAR maker in India. With a turnover of Rs. 45,555 crore, the company is among the top five highest profit earning corporates of the country. It is a public sector undertaking wholly owned by Government of India and acts like an operating company. Incorporated on January 24, 1973, IT has more than 131,910 employees. The company's current chairman is S.K. Roongta. With an annual production of 13.5 million metric tons,The Government of India owns about 86% of the equity and retains voting control of the Company. Jaggery and Sugar markets, led the farmers to utilise the under lying notion of self help and self reliance, in the Cooperative Societies Act and led to the setting up of cooperative societies and cooperative sugar factories. However the real growth of the cooperative sugar sector started after Indias independence, when the Government decided to industrialise the country by expanding the cooperative sector. The principal of cooperation was assigned an important role for the countrys economic and social development and was given priority over the other sectors. Due to the involvement of farmers right from the inception, the sugar factories were never looked upon as merely processing units of sugarcane, but through the medium of the factories they endeavored for socio-economic, educational and cultural development of the entire area surrounding the sugar factories.

1.3.1WORK FLOW MECHANISM OF INVENTORY:

ACTUAL USER

PURCHASE DEPARTMENT

STORES AND SPARES

FINANCE DEPARTMENT

They are the persons who will generally raise the indent. They may be anydepartment, who is in need of any tools for their use will generally raise the indent. A person inany department alone cannot raise the indent. He has to consult with the senior authority of that particular department after analyzing the issue they will send the matter to the purchase department.

Genesis of Sugarcane and Sugar The Cooperative Societies Act was enacted in India in 1904 with a limited objective to provide cheap credit to the farmers and save them from exploitation of money lenders. It was only in the early 1930s that the cooperative movement penetrated into the sugar sector. The increasingly high rates of interest charged by money lenders and violent fluctuations in the Gur,

Jaggery and Sugar markets, led the farmers to utilise the under lying notion of self help and self reliance, in the Cooperative Societies Act and led to the setting up of cooperative societies and cooperative sugar factories. However the real growth of the cooperative sugar sector started after Indias independence, when the Government decided to industrialise the country by expanding the cooperative sector. The principal of cooperation was assigned an important role for the countrys economic and social development and was given priority over the other sectors. Due to the involvement of farmers right from the inception, the sugar factories were never looked upon as merely processing units of sugarcane, but through the medium of the factories they endeavored for socio-economic, educational and cultural development of the entire area surrounding the sugar factories. The sugar industrys contribution, to the Indian economy is enormous with its total turnover of over Rupees Forty Two thousand crores per year, out of which the cooperative sector of the sugar industry accounts for about Rupees Nineteen thousand five hundred crores. The Indian sugar industry is amongst the

largest tax payers to the Central and State exchequers contributing Rupees Two thousand Two hundred crores per annum out of which the cooperative sector accounts for Rupees One thousand crores. Over fifty million sugarcane farmers and their dependents and a large mass of agricultural labourers are involved in sugarcane cultivation, harvesting and ancillary activity. It is worth mentioning that the industry employs over five lakh skilled and unskilled workers mainly from the rural areas. Thus, over 7.5 per cent of the rural population of India is directly or indirectly dependent on the sugar industry.

Today India is the second largest producer of sugar in the world after Brazil and the cooperative sector is responsible for about 45 per cent of the total production. The role of the cooperative sector of sugar factories in the socioeconomic development of India can hardly be over-emphasized. The role of the cooperative sector is of paramount importance in the present scenario of liberalized economy because it is only the cooperative effort which can make Indian sugar globally competitive. However, for this the Cooperative Sector of the sugar industry should be permitted to function in a democratic manner. There are still some States where the Cooperative Sector sugar factories are managed by the Government appointed Administrators. It is universally acknowledged that India is the homeland of sugarcane and sugar. There are references of sugarcane cultivation, its crushing and preparation of Gur in Atharva Veda as well as Kautaliya's Arthasastra. The scribes of Alexander the Great, who came to India in 327 BC recorded that inhabitants chewed a marvelous reed which produced a kind of honey without the help of

bees. The Indian religious offerings contain five 'Amrits' (elixirs) like milk, curd, ghee (clarified butter),honey and sugar - which indicates how important sugar is not only as an item of consumption but as an item which influences the Indian way of life. It is understood that sugar was initially made in India during fourth and sixth centuries by cutting sugarcane into pieces, crushing the pieces by weight to extract the juice and then boiling it to crystalise.

These crystals were called 'Sarkara' meaning gravel in Sanskrit. The word sugar is a derivative of 'Sarkara'. The larger lumps were called Khand from which the English word 'Candy' is derived. Around 600 AD the Chinese Emperor, Tsai Hang sent an emissary to Bihar - where sugarcane was cultivated for making sugar - to learn the art of making sugar. Therefore it is from India that the art of making sugar went to Persia and subsequently to the world over. Right from start Although sugarcane was being grown in India from time immemorial and sugar produced in lumps during fourth century, there was no sugar industry in India. It is said that the first sugar plant in India was established by the French People at Aska in Orissa in 1824. Not much is known about this factory except that it was maintained by Late James Fredrick Vivian Minchin and that it stopped its operation around 1940. However, the first vacuum pan process sugar plant was set up at Saran in Marhowrah in Bihar in 1904. By 1931-32 there were 31 sugar factories in India all of which were in the private sector.

The total production of sugar at that time was only about 1.5 lakh tonnes, whereas the consumption was about 12 lakh tonnes. To meet the domestic demand of sugar, India had to import sugar mainly from Java (Indonesia).

CHAPTER II 2.1 OBJECTIVE OF THE STUDY Primary objective To examine the inventory management ponni sugar factory. Secondary objective: To analyze the work flow mechanism of procuring, storing, indenting, issuing and other procedures followed in the organization. To analyze the impact of lead time on the cost of inventory in the respective stores and user department. To examine the impact of stock out situation with the user department. To find out the adequate stock maintained in the organization for the future consumption in the stores department of

NEED FOR STUDY

This study draws its parameters on the knowledge of inventory and materials management with reference to the stores and purchase department at pallipalayam ponni sugar plant. In this study we are trying to identify the possibilities of reducing the excess stock and its cost in the stores maintained by the stores and the user department.

2.2 SCOPE OF STUDY:

The study is focused only on materials management in PONNI SUGAR. This study seeks to explain a practical approach to evaluate the effectiveness of inventory management . 1. How is the work flow mechanism? 2. Does there exist a correlation between the receipts and issues of items?

LIMITATION OF THE STUDY:

Every project has its own limitations and some of those encountered during this study are listed below. The study is limited to the store of PALLIPALAYAM,PONNI SUGAR. This study is limited to the consumption pattern of the various user departments. Most of the data collected for the analysis has been extracted from past records hence it is retrospective and some of its has been by means of interviews. The data collected for computation has been in quantitative terms rather than qualitative as it involves cost aspect. Project period is only for 3 months.

2.3 RESEARCH METHODOLOGY Research Methodology is a systematic way of solving the problem. Research is defined as a scientific and systematic search for pertinent information on a specific topic. It is an art of scientific investigation. Research has its special significance in solving various operational & planning problems of business and industry. The scope of research methodology is very wide. 2.3.1 RESEARCH DESIGN: The research design is the basic framework or a plan for a study that guides the collection of data and analysis of data. The design may be a specific presentation of the various steps in the process of Research. These steps include the selection of research problem, presentation of the problem, formulation of the hypotheses, methodology, survey of the literature and documentation,

bibliography, data collection, testing of hypothesis, interpretation, presentation and report writing. In this market survey the design used is descriptive research. ANALYTICAL RESEARCH DESIGN: Analytical research design, the researcher has to use facts or information already available, and analyze these to make a critical evaluation of the performance.

2.3.2 SOURCES OF DATA: Primary Data: Data are collected through personal interviews and discussion with Finance Executives. Data are collected during the course of doing experiments in a research. Data are collected either through direct communication with respondents in one form or another through personal interviews. Secondary Data: Secondary data means data that are already available i.e., they refer to the data which have already been collected and analyzed by someone else. Secondary data about the company are collected from the reports, journals and websites.

2.3.3 TOOLS USED FOR DATA ANALYSIS:

o ABC Analysis o FSN Analysis o XYZ Analysis o Inventory turnover Ratio

ABC ANALYSIS: MEANING: The inventory if an organization generally consists of thousands of items with varying prices, usage rate and lead time. It is neither desirable nor possible to pay equal attention of all items. ABC analysis is a basic analytical tool which enables management to concentrate efforts where results will be greater. The concept applied to inventory is called as ABC analysis Statistics reveal that just a few items account for bulk of the annual consumption of the materials. These few items are called A class items which hold the key to business. The other items known as B & C which are numerous in number but their contribution is less significant. ABC analysis thus tends to segregate the items into three categories A,B&C on the basis of their values. The categorization is made to pay right attention and control demanded by items.

FNS ANALYSIS:

All the items in the inventory are not required at the same frequency. Some are required regularly, some occasionally and some very rarely. FSN analysis classifies items into fast moving, slow moving, and non moving items. FNS analysis divides the items of stores into 4 categories in the descending order of importance of their usage rate. 'F' stands for fast moving items that are consumed in a short span of time. 'N' stands for normal moving items which are exhausted over a period of a year or so. 'S' indicates slow moving items which are not issued at frequent intervals & are expected to be exhausted over a period. 2.3.4INVENTORY TURNOVER RATIO: Kohler defines inventory turnover as a ratio which measures the number of times a firms average inventory is sold during a year. A higher turnover rate indicates that the material in question is a fast moving one. A low turnover rate, on the other hand, indicates over-investment and locking up of working capital on undesirable items. Inventory turnover ratio may be calculated in different ways by changing the numerator, but keeping the same denominator. For instance, the numerator

may ne materials consumed, cost of goods sold or net sales. Based on any one of these, the ratio differs from industry to industry. Stock turnover is measured in terms of the ratio of the value of materials consumed to the average inventory during the period; the ratio indicates the number of times the average inventory is consumed and replenished. By diving no. of days in a year by turnover ratio, the number of days for which the average inventory is held, can be ascertained. Comparing the no. days in the case of two different materials it is possible to know which is fast moving & which us slow moving. On that basis, attempt may be to reduce the amount of capital locked up, and prevent over-stocking of slow moving items.

Inventory Turnover Ratio: Cost of Sales / Average Inventory

Number of Days Inventory = 365 days / inventory turnover ratio.

2.3.5 TYPES OF INVENTORIES: A manufacturing firm generally carries the following types of inventories: Raw materials. Bought out parts. Work-in-process inventory(WIP). Maintenance, repair and operating stores. Tools inventory. Miscellaneous inventory. Goods in transit.

2.3.6 BENEFITS OF INVENTORY CONTROL: The benefits of inventory control are: Improvement in customers relationship because of the timely delivery of goods and services. Smooth and uninterrupted production and hence, no stock out. Efficient utilization of working capital. Economy in purchasing. Eliminating the possibility of duplicate ordering. Inventory is only created by spending money for materials and labour and overhead to process the materials. Inventory is reduced through sales and scrapping. Accurate sales and production schedule forecasts are essential for efficient purchasing, handing and investment in inventory. Management policies which are designed to effectively balance size and variety of inventory with cost of carrying that inventory are the greatest factor in determining inventory investment. Forecasts help determine when to order materials. Controlling inventory is accomplished through scheduling production. Records do not produce control. Controls is comparative and judgment rules and produces establish a base from which the individuals can make evaluation and decision. With the consistent practices being followed, inventory control can become predictable and properly related to production and sales activity.

2.3.7 PRINCIPLES OF INVENTORY CONTROL

2.4 LITERATURE REVIEW INVENTORY: JAMES E.WARD Inventory is the total amount of goods and/or materials contained in a store or factory at any given time. Another definition of inventory is that it can be used to refer to stock on hand at a particular time of raw materials, work in progress, finished goods and merchandise purchased for resale, and the like tangible assets which can be seen, measured and counted. Inventory is a list of goods and materials, or those goods and materials themselves, held available in stock by a business. Other definitions of inventory management Involves a retailer seeking to acquire and maintain a proper merchandise assortment while ordering, shipping, handling, and related costs are kept in check. Systems and processes that identify inventory requirements, set targets, provide replenishment techniques and report actual and projected inventory status.

Handles all functions related to the tracking and management of material. This would include the monitoring of material moved into and out of stockroom locations and the reconciling of the inventory balances. Also may include ABC analysis, lot tracking, cycle counting support etc. Management of the inventories, with the primary objective of determining/controlling stock levels within the physical distribution function to balance the need for product availability against the need for minimizing stock holding and handling costs. See inventory proportionality. Mercado, Ed C. Better inventory management translates directly into better cash flow for businesses. However, in order to successfully manage inventory, businesses must strike a balance between customer demand and the amount of inventory they keep. Hands-On Inventory Management demonstrates principles key to developing an inventory management process, which will meet customer needs while keeping inventory costs at a level reasonable enough to produce a profit. The text explains basic inventory principles, calculations, and techniques using real-world examples.

Different operational situations require different inventory planning and replenishment approaches; hence, this book emphasizes the prerequisites needed for success in a number of different industries. These prerequisites include top management support, a clear definition of responsibilities and alignment of goals throughout the company, as well as uncomplicated item identification.

CHAPTER III ANALYSIS AND INTERPRETATION TABLE 1: 3.1.1INVENTORY TO CURRENT ASSET RATIO

Formula = Average inventory/ Current Asset

Year 2005 2006 2007 2008

Inventory 121.3 282.76 334.71 245.64

Asset 211.75 464.9 435.34 402.23

ratio 0.57 0.61 0.77 0.61

% 57.28453365 60.82168208 76.88473377 61.06953733

2009

349.91

431.32

0.81

81.12538255

INFERENCE: From the above mentioned table it is clear that the ratio of the inventory in the current asset is goes on increasing. The percentage of inventory in the current asset is increased from 57.28 in the 2004 to 81.125 in the current year. And there is nearly 40% Increase in the inventory.

GRAPH1: 3.1.1 INVENTORY TO CURRENT ASSET RATIO

INVENTORY TO CURRENT ASSET

100.00 80.00 60.00 40.00 20.00 0.00 2005 2006 2007 YEAR 2008 2009 inventory to current

TABLE 2: 3.1.2: INVENTORY TURN OVER RATIO

Formula = cost of goods sold/ average inventory

Year cost of goods sold average inventory ratio

2005 2006 2007 2008 2009

555.41 1005.35 770.12 1180.96 1271.53

103.335 173.225 275.74 245.5 228.035

5.37484879 5.80372348 2.79292087 4.8104277 5.57603

INFERENCE: The inventory turnover ratio trend over a period of five year was analyzed and it was found that the inventory turnover ratio has fluctuated every year and has decreased in the following year from 2007 to 2008. This shows that an idle turnover ratio was maintained and this is considered as a positive indicator f operating efficiency and good from the point of view of liquidity. The average inventory turn over days will come around days 80.56

GRAPH 2: 3.1.2 INVENTORY TURN OVER RATIO

INVENTORY TURNOVER RATIO

7 6 RATIO 5 4 3 2 1 0 2005 2006 2007 YEAR 2008 2009 ratio

TABLE 3: 3.1.3 RAW MATERIAL TO INVENTORY RATIO

Formula= Raw material/ average inventory

Year 2005 2006 2007 2008 2009

raw material 329.95 865.28 574.02 699.33 880.68

Inventory 121.3 282.76 334.71 245.64 349.91

Ratio 2.72011542 3.06012166 1.71497714 2.84697118 2.51687577

INFERENCE:

From the above mentioned table it is clear that the ratio of the raw material in the inventory is average. This shows that the production is normal and the raw material constitutes an average of 25% of inventory.

GRAPH 3: 3.1.3 RAW MATERIAL TO INVENTORY RATIO

RAW MATERAL TO INVENTORY

3.5 3 2.5 RATIO 2 1.5 1 0.5 0 2005 2006 2007 YEAR 2008 2009 ratio

TABLE 4: 3.1.4 FINISHED GOODS TO INVENTORY RATIO

Formula= finished goods/ Inventory

Year finished goods inventory Ratio

2005 2006 2007 2008 2009

93.89 252.56 298.93 193.02 263.05

121.3 282.76 334.71 245.64 349.91

0.77403133 0.89319564 0.89310149 0.78578407 0.75176474

INFERENCE: From the table it is clear that finished goods constitute a vital part in the inventory. And the level of the inventory is maintained at an average of nearly 75%

GRAPH 4:

3.1.4 FINISHEDGOODS TO INVENTORY RATIO

FINISHED GOODS TO INVENTORY

1 0.8 0.6 ratio 0.4 0.2 0 2005 2006 2007 2008 YEAR 2009

ABC ANALYSIS:

TABLE 5: 3.1.5CLASSIFICATION OF ITEMS BASED ON THEIR CATEGORY SL.NO 1 2 3 Classification A B C No of items 18 34 8

INFERENCE:

Among the major 60 items of the cold rolling mill 18 items fall under A class. These items have consumption value greater than 70% of total consumption. 34 items fall under B. These items have consumption value of about 20% of total consumption.8 items fall under C. These items have consumption value of about 10% of total consumption.

GRAPH 5: 3.1.5 CLASSIFICATION OF ITEMS BASED ON THEIR CATEGORY

AB C AN ALYSIS
NO OF ITEMS 40 30 20 10 0 A B CATEGORY C

S eries 1

XYZ ANALYSIS:

TABLE 6: 3.1.6CLASSIFICATION OF ITEMS BASED ON THEIR STOCK VALUE

SL.NO 1 2 3

Classification X Y Z

No of items 36 10 14

INFERENCE:

There is 36 items fall under X category. These items have stock value greater than Rs35000. There is 10 items fall under Y category. These items have stock value greater than Rs10000. There is 14 items fall under Z category. These items have stock value less than Rs10,000

GRAPH 6: 3.1.6 CLASSIFICATION OF ITEMS BASED ON THEIR STOCK VALUE

X AN YZ ALYS IS

Se s1 rie

X 0 20 NO OF ITEMS 40

FSN CLASSIFICATION

TABLE 7:

3.1.7 CLASSIFICATION OF ITEMS BASED ON THEIR USAGE

SL.NO

CATEGORY

NO OF ITEMS

Fast moving

20

slow moving

29

non moving

11

INFERENCE:

Around 20 items are considered to be Fast Moving. Around 11 items are considered to be N0n Moving items. Around 29 items are considered to be slow moving.

GRAPH 7: 3.1.7 CLASSIFICATION OF ITEMS BASED ON THEIR USAGE

FSN CLASSIFICATION

30 25 20 NO OF ITEMS 15 10 5 0 Fast moving slow moving non moving CATEGORY Series1

CHAPTER IV 4.1 FINDINGS

The researcher has been able to find out the following important aspects from the study. They are: . Inventory control techniques like ABC analysis, FSN analysis, XYZ analysis, HML analysis are very significant in order to have a good control and management over the large number of inventories kept in the stores. The percentage of inventory in the current asset is increased from 57.28 in the 2004 to 81.125 in the current year. And there is nearly 40% increase in the inventory. This shows that an idle turnover ratio was maintained and this is

considered as a positive indicator of operating efficiency and good from the point of view of liquidity. The average inventory turn over days will come around days 80.56 Among the major 60 items of the cold rolling mill 18 items fall under A class. These items have consumption value greater than 70% of total consumption. 34 items fall under B. These items have consumption value of about 20% of total consumption.8 items fall under C. These items have consumption value of about 10% of total consumption. There is 36 items fall under X category. These items have stock value greater than Rs35000. There is 10 items fall under Y category. These items have stock value greater than Rs10000. There is 14 items fall under Z category. These items have stock value less than Rs10,000 Around 20 items are considered to be Fast Moving. Around 11 items are considered to be N0n Moving items. Around 29 items are considered to be slow moving.

 The inventory stock in no. of days is found to be 80 days i.e., around 3 months which is an indicative of good inventory management.

4.2 SUGGESTIONS The vital suggestions that can be considered for an effective management and control of the inventories at ponni sugar factory pallipalayam.

1. Close control is required for A class items. Class C items account for the bulk of inventory items, and routine controls should be adequate. 2. X items have high stock value. The company should take special effort

of reduce these items. 3. The stock of Fast Moving items has to be taken care, since non availability of these stock will lead to stock out costs. All non availability stock can be examined and immediate dispose of unnecessary Non Moving stock can be made in order to reduce the inventory stock in no. of days. 4. Since the percentage of inventory is more in the current asset the company should regulate the further procurement of inputs. 5. System in the inventory should be standardized 6. Procurement in small lots to avoid heavy fluctuation in the input price

3.3 CONCLUSION

Managing and controlling the inventories, say raw materials, components, spare parts, or finished goods is very significant and indispensable in any organization, since it forms 80 % to 90 % of the working capital of the company. It is therefore, necessary for the officer familiar with ways to control inventories effectively so that there can be efficient allocation of funds and it leads to reduce investment in inventories to the optimum level and leave sufficient funds for more profitable channels which will ultimately result in maximization of the shareholders wealth. The techniques of inventory management help in determining the optimum level of inventory as well as how much should be ordered and when it should be ordered. All these techniques are helpful in efficient management of inventories and balancing the advantages of holding additional inventory against the cost of carrying inventory.

BIBLIOGRAPHY

SI.

Author Name

Book Name &

No.
1 SHARMA R.K. SHASHI K. GUPTA

Publications
Management Accounting Principles and Practices, Kalyani Publishers, Seventh Revised Edition, 1996. Financial Management Vikas Publishing house Pvt Ltd., Seventh Edition, 1997. Financial Management Tata Mc Graw Hill Publishing Company Ltd., New Delhi, 1997. Research Methodology methods Techniques

PANDEY I.M.

KHAN M.Y. JAIN P.K.

KOTHARI C.R.

Wishwa Prakashan, New Delhi, Second Edition. Management Accounting Sultan chand & Sons, Second Edition, 2000.

PILLAI & BHAGAVATHI R.S.N.