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INVENTORY MANAGEMENT

CHAPTER-1 INTRODUCTION

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Despite its importance to the supply chain, inventory is not universally well understood. It is variously characterized, both positively and negatively, as an economic asset to a nonincome-producing use of capital funds. Only when considered in light of all quality, client service and economic factorsfrom the viewpoints of purchasing, manufacturing, sales and financedoes the whole picture of inventory become clear. No matter the viewpoint, effective inventory management is essential to supply chain competitiveness.

Inventory is a list for goods and materials, or those goods and materials themselves, held available in stock by a business. Inventory are held in order to manage and hide from the customer the fact that manufacture/supply delay is longer than delivery delay, and also to ease the effect of imperfections in the manufacturing process that lower production efficiencies if production capacity stands idle for lack of materials. In other words, Inventory is a quantity or store of goods that is held for some purpose or use (the term may also be used as a verb, meaning to take inventory or to count all goods held in inventory). Inventory may be kept "in-house," meaning on the premises or nearby for immediate use; or it may be held in a distant warehouse or distribution center for future use. With the exception of firms utilizing just-in-time methods, more often than not, the term "inventory" implies a stored quantity of goods that exceeds what is needed for the firm to function at the current time (e.g., within the next few hours).

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WHY KEEP INVENTORY? Why would a firm hold more inventory than is currently necessary to ensure the firm's operation? The following is a list of reasons for maintaining what would appear to be "excess" inventory. MEET DEMAND. In order for a retailer to stay in business, it must have the products that the customer wants on hand when the customer wants them. If not, the retailer will have to back-order the product. If the customer can get the good from some other source, he or she may choose to do so rather than electing to allow the original retailer to meet demand later (through back-order). Hence, in many instances, if a good is not in inventory, a sale is lost forever. KEEP OPERATIONS RUNNING. A manufacturer must have certain purchased items (raw materials, components, or subassemblies) in order to manufacture its product. Running out of only one item can prevent a manufacturer from completing the production of its finished goods. Inventory between successive dependent operations also serves to decouple the dependency of the operations. A machine or workcenter is often dependent upon the previous operation to provide it with parts to work on. If work ceases at a workcenter, then all subsequent centers will shut down for lack of work. If a supply of work-in-process inventory is kept between each workcenter, then each machine can maintain its operations for a limited time, hopefully until operations resume the original center.

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LEAD TIME. Lead time is the time that elapses between the placing of an order (either a purchase order or a production order issued to the shop or the factory floor) and actually receiving the goods ordered. If a supplier (an external firm or an internal department or plant) cannot supply the required goods on demand, then the client firm must keep an inventory of the needed goods. The longer the lead time, the larger the quantity of goods the firm must carry in inventory. A just-in-time (JIT) manufacturing firm, such as Nissan in Smyrna, Tennessee, can maintain extremely low levels of inventory. Nissan takes delivery on truck seats as many as 18 times per day. However, steel mills may have a lead time of up to three months. That means that a firm that uses steel produced at the mill must place orders at least three months in advance of their need. In order to keep their operations running in the meantime, an on-hand inventory of three months' steel requirements would be necessary. HEDGE. Inventory can also be used as a hedge against price increases and inflation. Salesmen routinely call purchasing agents shortly before a price increase goes into effect. This gives the buyer a chance to purchase material, in excess of current need, at a price that is lower than it would be if the buyer waited until after the price increase occurs.

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QUANTITY DISCOUNT. Often firms are given a price discount when purchasing large quantities of a good. This also frequently results in inventory in excess of what is currently needed to meet demand. However, if the discount is sufficient to offset the extra holding cost incurred as a result of the excess inventory, the decision to buy the large quantity is justified. SMOOTHING REQUIREMENTS. Sometimes inventory is used to smooth demand requirements in a market where demand is somewhat erratic. There are three basic reasons for keeping an inventory: 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" Uncertainty - Inventories are maintained as buffers to meet uncertainties in demand, supply and movements of goods. 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.

CONTROLLING INVENTORY Inventory management, or inventory control, is an attempt to balance inventory needs and requirements with the need to minimize costs resulting from obtaining and holding inventory. There are several schools of thought that view inventory and its function differently. These will be addressed later, but first we present a foundation to facilitate the reader's understanding of inventory and its function. Firms that carry hundreds or even

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thousands of different part numbers can be faced with the impossible task of monitoring the inventory levels of each part number. In order to facilitate this, many firm's use an ABC approach. ABC analysis is based on Pareto Analysis, also known as the "80/20" rule. The 80/20 comes from Pareto's finding that 20 percent of the populace possessed 80 percent of the wealth. From an inventory perspective it can restated thusly: approximately 20 percent of all inventory items represent 80 percent of inventory costs. Therefore, a firm can control 80 percent of its inventory costs by monitoring and controlling 20 percent of its inventory. But, it has to be the correct 20 percent.

The top 20 percent of the firm's most costly items are termed "A" items (this should approximately represent 80 percent of total inventory costs). Items that are extremely inexpensive or have low demand are termed "C" items, with "B" items falling in between A and C items. The percentages may vary with each firm, but B items usually represent about 30 percent of the total inventory items and 15 percent of the costs. C items generally constitute 50 percent of all inventory items but only around 5 percent of the costs.

By classifying each inventory item as an A, B or C the firm can determine the resources (time, effort and money) to dedicate to each item. Usually this means that the firm monitors A items very closely but can check on B and C items on a periodic basis (for example, monthly for B items and quarterly for C items).

Another control method related to the ABC concept is cycle counting. Cycle counting is used instead of the traditional "once-a-year" inventory count where firms shut down for a short period of time and physically count all inventory assets in an attempt to reconcile

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any possible discrepancies in their inventory records. When cycle counting is used the firm is continually taking a physical count but not of total inventory. A firm may physically count a certain section of the plant or warehouse, moving on to other sections upon completion, until the entire facility is counted. Then the process starts all over again. The firm may also choose to count all the A items, then the B items, and finally the C items. Certainly, the counting frequency will vary with the classification of each item. In other words, A item may be counted monthly, B items quarterly, and C items yearly. In addition the required accuracy of inventory records may vary according to classification, with items requiring the most accurate record keeping.

There are three types of costs that together constitute total inventory costs: holding costs, set-up costs, and purchasing costs.

HOLDING COSTS. Holding costs, also called carrying costs, are the costs that result from maintaining the inventory. Inventory in excess of current demand frequently means that its holder must provide a place for its storage when not in use. This could range from a small storage area near the production line to a huge warehouse or distribution center. A storage facility requires personnel to move the inventory when needed and to keep track of what is stored and where it is stored. If the inventory is heavy or bulky, forklifts may be necessary to move it around.

Storage facilities also require heating, cooling, lighting, and water. The firm must pay taxes on the inventory, and opportunity costs occur from the lost use of the funds that

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were spent on the inventory. Also, obsolescence, pilferage (theft), and shrinkage are problems. All of these things add cost to holding or carrying inventory. SET-UP COSTS. Set-up costs are the costs incurred from getting a machine ready to produce the desired good. In a manufacturing setting this would require the use of a skilled technician (a cost) who disassembles the tooling that is currently in use on the machine. The disassembled tooling is then taken to a tool room or tool shop for maintenance or possible repair (another cost). The technician then takes the currently needed tooling from the tool room (where it has been maintained; another cost) and brings it to the machine in question.

There the technician has to assemble the tooling on the machine in the manner required for the good to be produced (this is known as a "set-up"). Then the technician has to calibrate the machine and probably will run a number of parts, that will have to be scrapped (a cost), in order to get the machine correctly calibrated and running. All the while the machine has been idle and not producing any parts (opportunity cost). As one can see, there is considerable cost involved in set-up. If the firm purchases the part or raw material, then an order cost, rather than a set-up cost, is incurred. Ordering costs include the purchasing agent's salary and travel/entertainment budget, administrative and secretarial support, office space, copiers and office supplies, forms and documents, longdistance telephone bills, and computer systems and support. Also, some firms include the cost of shipping the purchased goods in the order cost.

PURCHASING COST. Purchasing cost is simply the cost of the purchased item itself. If the firm purchases a part that goes into its finished product, the firm can determine its annual purchasing cost by

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multiplying the cost of one purchased unit (P) by the number of finished products demanded in a year (D). Hence, purchasing cost is expressed as PD. Now total inventory cost can be expressed as: Total = Holding cost + Set-up/Order cost + Purchasing cost or Total = H(Q/2) + S(D/Q) + PD If holding costs and set-up costs were plotted as lines on a graph, the point at which they intersect (that is, the point at which they are equal) would indicate the lowest total inventory cost. Therefore, if we want to minimize total inventory cost, every time we place an order, we should order the quantity (Q) that corresponds to the point where the two values are equal. There are a number of assumptions that must be made with the use of the EOQ. These include: Only one product is involved. Deterministic demand (demand is known with certainty). Constant demand (demand is stable through-out the year). No quantity discounts. Constant costs (no price increases or inflation). While these assumptions would seem to make EOQ irrelevant for use in a realistic situation, it is relevant for items that have independent demand. This means that the demand for the item is not derived from the demand for something else (usually a parent item for which the unit in question is a component). For example, the demand for steering wheels would be derived from the demand for automobiles (dependent demand) but the demand for purses is not derived from anything else; purses have independent demand.

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Recent industry reports show that inventory costs as a percent of total logistics costs are increasing. Despite this rise, many organizations have not taken full advantage of ways for lowering inventory costs. There are a number of proven strategies that will provide payoff in the inventory area, both in client service and in financial terms. Some of these strategies for lowering inventory costs involve having less inventory while others involve owning less of the inventory you have. Regardless of which techniques you employ, proactive inventory management practices will make a measurable difference in your operations.

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FEATURES OF INVENTORY MANAGEMENT Extended Pricing Equip your sales team to improve customer satisfaction and beat the competition by creating flexible pricing options and rules for each customer. With extended pricing you can: Create standard price schemes such as percentage-off, value-off, and net pricing, along with personalized pricing options. Implement powerful date-sensitive functionality for sales and promotions. Navigate the system using drill-down, zoom, and special menu capabilities that offer a fast learning curve and easy visibility into your pricing index. Bill of Materials Increase productivity by providing a superior solution for tracking the components and subassemblies used in light manufacturing and similar production and assembly operations. With bill of materials you can: 1. Define the exact order of your assembly process, up to 10 levels deep. 2. Attach electronic notes to bills to detail exact component use at every assembly level. 3. Track the actual cost for assembled items, plan for future changes, and manage current and past items. 4. Schedule transactions into the future without reserving stock. 5. Cradle-to-Grave Serial/Lot Tracking 6. Transform time-consuming searches into quick, efficient processes by identifying all instances of an item with a single trace. With cradle-to- grave serial/lot tracking you can: 7. Increase visibility into serial/lot number lifecycles. 8. Conduct powerful searches using an items serial or lot number.
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9. Complete widespread searches across all transactions, including bills of materials and customer orders. 10. Consolidate like lot numbers in all lot number entry windows to gain an accurate view of inventory for a given lot numberincluding manufactured date and expiration date without juggling multiple records. 11. Instant Access to Transaction Information 12. Get instant information on all transactions related to any item you define in the inquiry windowsincluding lot number, price levels, and item typeand drill down as needed. Query originating documents, and then drill down for details about Field Service, Project Accounting or Manufacturing documents.

Stock Count and Discrepancy Alerts Maintain an accurate stock count schedule and investigate stock discrepancies quickly with system alerts that notify you when inventory is due for counting or when differences occur between an items reported status and warehouse presence. In-Transit Inventory Transfers Input a middle site into the transfer process to allow for via tracking to prevent salespeople from selling material that isnt currently in the destination warehouse. Accurate inventory quantities at both from site and to site allow more realistic promise dates and improve inventory management. Increased Lot Flexibility Notify employees when a lot is close to its expiration date, so they can determine the best course of action.

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Inventory Control preferences offer optional password protection, so your people can control the selection of expired lots. Detailed Insight into Inventory Usage More effectively analyze sales, transfers, and materials used for manufacturing by drilling down to each transaction that reduces inventory, including those in debited and credited accounts. Access supply and demand information using Allocated and On Order drill downs and view item allocations in existing orders quickly and easily. Narrow search results by providing date ranges for item transaction inquiries. Inventory Management includes the integrated management and control of assigned items of material. The work involves a number of processes such as: Requirements Determination - Planning for and determining current and future supply requirements to meet customer needs; Material Distribution - Planning and determining the distribution and positioning of supplies among major supply stations, stock points, or using activities; Procurement Authorization - Preparing recommendations and directives for the procurement of material, indicating the types of items, quantities, and at all times, the sources; and Funds Management - Analyzing planned or scheduled material requirements and forecasts to determine categories and quantities of items, as well as funds required. Inventory management involves several common elements. Among the more important of these are:

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utilization of increasingly sophisticated electronic data processing systems as integral parts of material control, record, and data communications systems; use of scientific or business type decision rules and formulas to make material control decisions that optimally balance cost and material support effectiveness; development and implementation of various material standardization programs; planning and coordinating material actions to assure properly phased support to major items of equipment and/or weapon systems in test phases, in production, in service, and during phaseout periods; and monitoring the quality of input and output of automated inventory management systems and recommending system and programming changes to improve timeliness, accuracy, and utility of inventory information for users. Inventory Control includes performing one or more of a wide variety of staff or administrative functions such as: Initiating, developing, installing, or administering a control program. Providing guidance on or conducting surveys of supply and inventory management functions. Analyzing, evaluating, revising, or developing new inventory management systems. Developing long-range material support plans. Directing, guiding, or reviewing material support programs, functions, and actions implemented by others; and/or Performing quality assurance and review functions. Inventory specialists satisfy these responsibilities by: Controlling and authorizing funding for material so that the proper kind, quality, and quantity are available at the correct time and place.

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Maintaining records and controls over material in stock, due in, or planned for the distribution system on a quantitative and monetary basis; and Controlling the distribution or redistribution of stock within the supply system. Inventory management work is classified in this series when duties and responsibilities demonstrate that the preponderance of the work requires performing most of the preceding functions and, at least three of the following: Managing items with difficult supply and demand patterns related to seasonal factors, program changes, changes in end-use applications, and similar elements; Making supply system decisions which consider more than the status of an individual item or the problem presented by a particular supply transaction, e.g., interchangeability of items among different equipment or systems; Exercising substantially independent authority to - establish and revise reorder frequencies; establish stock levels for individual items on a selective basis; and manage assigned items in such a manner as to achieve effective supply support while remaining within authorized or available funds; Programming requirements for assigned items, including phasing procurements and deliveries and determining best use of funds saved through judicious management; Reviewing planned work programs, schedules, and other planning data. Advising others regarding major categories of material which will be needed and pointing out material areas most likely to cause difficulties; Planning and coordinating material support for assigned program or project areas including extensive provisioning conferences and personal contacts to negotiate stock

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levels, phased production, changes in work schedules, or other means of alleviating material problems; Serving as a central point of contact and exchange of information for personnel of supply, production, maintenance, and other organizations relative to material support problems affecting an assigned program or project area; Recommending changes in automated data bases and systems of data storage, formats, and reports; and/or Participating in planning for new data processing systems in terms of defining the nature of information required, organizational responsibilities, computer network requirements, and the nature of output desired from inventory management systems.

Objectives of the Study : 1. 2. 3. 4. 5. To evaluate the inventory management practices at Vijaya Dairy. Classification of inventories in accordance with ABC analysis principles. To examine the inventories turnover ratios. Holding periods, proportion of inventory in current assets and analyze their role in terms of positive or negative indications. To analyze year wise consumption of inventory.

Scope of the Study : The study covers inventory position analysis for a period of 5 years. The inventory management is analyzed by taking each and every component of inventories. Since it is a major part of current assets, its proportion to the total current assets are also analyzed. Since inventories will exist in the form of opening stock, work in progress and closing stock. Analysis is made for each item separately.

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CHAPTER-2 RESEARCH METHODOLOGY

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STATEMENT OF THE PROBLEM Inventories in the form of opening stock of raw-materials, work in process and finished products constitutes major proton in the total current assets. Particularly in a process oriented industries, if a firm maintains high volume of inventories than required, gives a negative impression that lot of funds are locked-up in a unproductive way. At the same time if a firm fails to maintain adequate volume of inventories leads to interrupted way of production which is a sign of inefficiency. So, their should be a balance between excessive and inadequate possession of inventories. A firm is expected to maintain optimum level of inventories for a smooth, steady and efficient production activity. In this connection, the study was undertaken as behalf of Vijaya dairy to know the inventory management systems adopted by them and to what extent they are functioning according to the expenditure. Sources of Data : As it is a financial analysis, secondary sources of data are used in the study. This include monthly and yearly production department statements. They are later consolidated in a way that helps for reaching the objectives. The lists of these items are prepared with the help of consolidated purchase statements and payment registers. The overall year wise figures are obtained form the P&L and Balance sheet. Sampling : Convenient sampling method is used in the study. Even though the Vijaya Dairy was running over a period of 30 years, data pertaining to the last 6 years are taken as sampling units.

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Even though there are several variables in the Balance sheet the study was confined only regarding inventories.

Tools used for analysis : Inventories can be analyzed only with the help of inventory management techniques. The tools used are ABC analysis, EOQ Technique, Ratios and percentages. Since pictorial representation helps for quick and easy understand. The data is analyzed with the help of Pie-charts and Bar diagrams. Formulas use for analysis : Inventory Turnover Ratio = Cost of goods sold -------------------------Average Inventory

Cost of goods sold = Sales-Gross Profit Average Inventory = Opening stock + Closing stock --------------------------------------2 365 --------------------------------Inventory Turnover Ratio

Inventory Holding Days =

Limitations of the Study:1. This Study is purely based on the historic data. The accounting principles differs with the valuation of various firms of inventories so, there might be a possibility of minute errors to the findings. 2. The objectives of holding inventories will vary form one firm to other firm. The conclusions are derived form the view point of dairy which deals with highly perishable products.

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CHAPTER-3 INDUSTRY PROFILE

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INDUSTRY PROFILE Introduction: India is predominantly an agrarian economy with more than 75 percent of its population living in villages and depending on agriculture and allied activities for their livelihood, land and cattle have traditionally been the two basic income yielding assets of India farmers. More than 70 percent of the rural households possess a more 21.8 percent of land holdings. In terms of actual numbers, the poor marginal farmers and landless laborers form the largest group of rural milk products. Dairying, especially, benefits the weaker sections and women. The animals can be easily maintained by the family members because of lack of employment opportunities for rural poor. Dairying is one of the most effective instruments for supplementing farmers income and generating employment in rural sector. Dairying is an economically viable occupation. It requires one million rupees to create an employment potential of 290 person-years as against 120-200 person-years for crop production. Milk, the primary product of dairy industry constitutes the most important source of nourishment for both vegetarian and non-vegetarian, for old and young alike. Its importance to consumers is next only to that of their staple food. Here in lies the economic potential of dairying. According to National sample survey, expenditure on milk and milk products constituted 7 percent of total expenditure of urban area. Diary Industry in India : India is a country which has a great culture and customs, praised by all over the world. The sacred Vedas and some religious books stated that Cow is considered as mother of mankind and called as Kamadhenu. In ancient Indian literature cow was

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treated as Worshipped animal. It is still being accepted by most of the communities in India. Dairying the art of rearing Cows and other milk yielding cattle has been internal part of rural society. The genesis of Dairy industry in India is as old as Indian civilization. Around 2000 to 1500 B.C. the Aryans were first to domesticate cattle, using them for farming and consumed their milk as food. It was the East Indians who first domesticated the buffaloes as milk animals and successes. Organized Dairying was shorted in 19th century during the British Regime when military dairy farms were established. Being a profitable venture, dairying attracted the attention of private people and companies who went for the establishment of private diaries in the beginning of 20th century. Establishment of the first Imperial Diary in 1920, Imperial Institute of Animal Husbandry and Dairying in 1923 under the control of Imperial Dairy expert, and the Imperial Council of agricultural Research which now is named as Indian Council of Agricultural Research (ICAR) in 1929 were subsequent significant developments. In 1986, Government of India invented Dr.N.C.Wrigh, Director of Hanneh Dairy Research Institute of United Kingdom, to study the dairying problems and to suggested good measures to dairy development activities. He gave several suggestions including the reconstitution of the Imperial Institute of Animal Husbandry and Dairying. It was latter renamed as Imperial Dairy Institute in 1941. The Government of India created a post of Dairy Development Advisor in 1944 in the place of Imperial Dairy Expert. The development of dairying in the pre-plan period was also marked with the establishment of a number of committees and sub-committees on animal husbandry and Dairy like cattle breeding, fodder development, nutrition, animal diseases, processing and preservation, transportation of milk products, besides education and research to improve the quality of cattle, Production and per capita consumption of milk in India:

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Indias dairy industry is on the threshold of a good many changes that would totally transform the dairy scene and give the needed thrust to its rapid growth. India with an annual milk production of 43.9 millions tones during 1986-87, ranks third in the world after Soviet Union. The milk production is expected to surge forward in the coming years. It crossed 50 million tones target in the year 1989-91. Needless to say that rapid growth of population is the contributory factor for the tardy growth of percapita consumption of milk in India. Dairy Development under operation flood Programmes (OFP) : Diary sector has achieved tremendous growth under operation flood programmes. The Government of India with the co-operation of world food programme (WFP) formulated a project for stimulating milk marketing and dairy development during the fourth plan. Operation flood-I was launched in 1970. The project was originally conceived and formulated by the National Dairy Development Board (NDDB). But as the NDDB was not authorized to transact any financial and commercial activities. The central Government set up the Indian Dairy Corporation (IDC) to execute the project. The five year operation flood project was the worlds biggest milk drive launched in our country. Operation flood-II was a continuation of operation flood-I but has been launched in wider perspective. While the operation flood-I was confined to the development of dairying in four metropolitan cities and the milk supplying areas around them, the scope and objectives of operation flood-II are multi-dimensional. Operation flood-III was implemented during the seventh five year plan period (1985-90) with a total outlay of Rs.6812.90 millions. This project aims at increasing the rural milk procurement to a peak of 183.30 lakh liters per day collected form over 80 lakh milk product families by 1990.

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Dairy Development in A.P. : Andhra Pradesh the Rice Bowl of south and trend setter in Green Revolution is fast becoming the Kamadhenu with excellent potential for milk production and progressive farmers receptive to new technology. All that was needed was a strong organization to mobilize and channels the interest of milk producers towards modern practices, making available technical inputs with in their reach and improve productivity in dairying.

Origin of Dairy Industry in Andhra Pradesh : Organized dairy Industry in Andhra Pradesh had its roots in pilot milk supply scheme in 1960, as prelude for its growth into integrated milk project under UNICEF. It turned into a public sector corporation in 1974 to function as a business organization. It was converted into Dairy Development co-operative Federation in 1981 to implemented Operation Flood Programmes on Anand Pattern through a three tire Co-operative structure i.e, a system through which the infrastructure of milk production, procurement, processing, marketing are owned and managed by the producers themselves to protect their interest with participative management under cooperative concept as : Village level Milk producer co-operative societies District level Milk producer co-operative unions. State level co-operative Federation. Dairy Development Department (1971-73) :

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In order to spread the dairying activities throughout the state, Government of Andhra Pradesh constituted the dairy Development Department in 1971-72. A number of district dairies, chilling centers and cooling centers were established. Government of Andhra Pradesh established an intensive cattle development Block in Telangana area around the twin cities. The main hurdle before the farmers was neither they have good milk animals to maintain economically nor they have finance to invest on Purchasing milk animals. The hurdle was crossed over by the state government by initiating a vigorous programme of advancing loans for the purchase of good milk animals. A.P. DAIRY DEVELOPMENT CORPORATION LIMITED (1973-81) : The period 1973-81 was the crucial for dairy development in the state. In order to infuse more working efficiency and increase the turnover and coverage of dairies, chilling centers and cooling centers, the government of Andhra Pradesh has constituted an autonomous body of Dairy Development Corporation on 14-8-1973 with an authorized share capital of Rs.5 cores. The corporation has been engaged mainly in the procurement of milk from the producers in the area of milk from the producers in the area of respective dairies. Then this was processed and distributed to the consumers in the urban areas. In order to procure milk locally and arrange for the sale of Pasteurized milk in the local towns, district diaries have been established with a capacity ranging from 12,000 liters to 40,000 liters per day. The supplies milk of these dairies is sent to the milk product factories. At the beginning of the project in 1973, there were 15 dairy units with an installed capacity of 6.52 lakh liters per day. At the end of the project period in 1981, the number of 15.57 lakh liters per day. As the years passed Andhra Pradesh District Dairy Cooperative Farmers (APDDCF) built up the infrastructure needed to meet every requirements of dairying, be is procurement of milk form over 8,00,000 dairy farmers spread across Andhra Pradesh or getting it ready for nationwide distribution. It all happened with in the vast Dairy plant network of APDDCF. Through extensive use of high technology and management

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acumen honed to steer such a wide spread operation, and brought propriety to the state many times. The federation has drawn up more comprehensive systems for procurement and processing of milk. A dedicated research cases is actively pursuing ways and means of bettering quality, collaborations with global experts are also being sough, all in attempt to remain at the forefront of modern dairying in India where quality will be the watch word. Reaching out to the world APDDC began its exports thirteen years age and has gained significant ground abroad, it has spread its marketing network in the gulf and is exploring the possibility of exporting dairy products like Butter, Cheese, Cheese spread, UHT milk, sterilized Cream etc., to other countries. The federation has been meeting the tastes of divergent cultures, while bringing back the pleasure of home to Non-resident Indians. Today, APDDCF is in the process of acquiring capabilities to join the big league in dairy technology from USA, UK, Australia, New eland and the Netherlands.

Table District Milk Unions Milk Sheds Milk Product Factories District Dairies Major Dairies Milk Chilling Centres Chilling capacity Processing capacity Milk products factories District dairies Major Diaries Total processing capacity 10 5 7 9 2 63 11.37 17.50 3.24 3.50 24.24 No No No No No No LLPD LLPD LLPD LLPD LLPD

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Milk Collection Routes Milk producers Co-op Societies Milk producers Associations Milk collection centres

421 4270 4958 9228

No No No No

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COMPANY PROFILE Dairy Development Activities in Nellore District The Vijaya Milk Dairy which is the first dairy industry in Nellore District was started in the year 1969 the actual name of Vijaya Milk Dairy is the Nellore District Milk Producers Mutually Aided Co-operative Ltd. The Nellore Dairy was started with initial capacity of 12,000 liters per day mostly to collect milk form surrounding villages. Afterwards due to increase in procurement the handling capacity was expanded to 40,000 liters per day during the year 1979. The milk chilling centre at Kavali was started during the year 1877 with an initial capacity at Venkatagiri was started during the year 1981 with same capacity. During the year 1985, due to increase in milk procurement in the District, they handle capacity of milk chilling centre Kavali and Venkatagiri have been increased from 6,000 liters to 12,000 liters per day. In the year 1986 the Nellore Milk Union was registered under AP Co-operation Societies Act 1964. Due to the further increase in milk procurement the present handling capacity of Nellore Dairy is expanded to 40,000 liters to 75,000 liters per day and milk chilling centre Kavali also expand from 12,000 liters to 20,000 liters per day. Another milk chilling centre do 10,000 liters per day was started in month of October 1995 and subsequently expanded 20,000 liters per day during 1998. At present there are nearly 57,360 milk producers supplying milk to Nellore Union out if which there are small farmers 23,960 marginal farmers 15,030, Agricultural laborers 10,040 and large farmers 8,300.

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The data related to the above development of Nellore dairy has been shown in the following table.

Name of the Unit Nellore Dairy Kavali Dairy Venkatagiri Dairy Duttalur Dairy

Capacity per day 75,000 lts 30,000 lts 12,000 lts 22,000 lts

Present Day 32,000 lts 12,000 lts 12,000 lts 22,000 lts

Peak on any date of the year 39,000 lts 17,000 lts 12,000 lts 22,000 lts

On an average the Nellore dairy collects 2,24,000 Lts of milk per week. The annual sale of By-products on an average will be around 4,10,00,000. At present nearly 110 members are working on permanent basis and 115 members are working on temporary basis in Vijaya Dairy. It is having all the functional departments like finance, marketing, production and H.R. departments.

Product Profile : Today APDDCF offer the widest spectrum of milk products in India, under the brand name VIJAYA. These include ghee, butter, processed cheddar cheese and cheese spread, flavored milk, skim milk in tetra packs, sterilized. Skim milk powder, dairy whitener, cooking butter and Ice-cream, several among these carry the a mark AN attestation of quality by Government of India and the ISI mark of Bureau of Indian standards. The brand VIJAYA is name for quality and quantity. Which makes it a trusted name in millions of households across the country. Inadditon, APDDCF also manufactures products such as sterilized flavored milk, panner Cindigenous cheese, doodh peda, (desiccated milk sweet) and Butter milk which are marketed through a network of Vijaya Dairy parlors and a chain of retailers spread across Andhra Pradesh.

MILK :
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Contains 3.0% fat and 8.5% SNF Contains 6.0% fat and 8.5% SNF Contains 1.5% fat and 8.5% SNF Highly nutritious Pasteurized, standardized /Toned/Double Toned milk. 100% bacteria free and contained no preservatives and additives Packed in polysachets using sophisticated from, fill and seal machines. In case of delayed usage, boil, cool and refrigerate. The availability of milk is high in flush season (Oct-Mar) and the availability of raw-milk is less in lean season (Apr-Sep). The milk contains maximum 6.4% fat and 8.5-8.9% snf in flush season. The milk contains maximum 6.8-7.0% fat and 8.7-8.9% snf in learn season. Finished products and the present selling prices : 1. Full Cream Milk : It contains 6% fat and 9% snf Rs.28 Per Ltr. 2. Toned Milk : It contains 3% fat and 9% snf Rs.24 Per Ltr. 3. Double Toned Milk contains 1.5% fat and 8.5% snf Rs.20 Per Ltr. 4. Ghee 1 kg 195/5. Butter Milk 1 Packet 4/6. Curd-100 ml. Cup 5/7. S.F.M 1 Bottle 12/1.3 INTRODUCTION OF INVENTORY MANAGEMENT : Inventory can be defined as a usable but an idle resource In simple words inventory means stock. It is therefore, absolutely imperative to manage inventories efficiently and effectively in order to avoid unnecessary investment. Any organization, which is involved in economic activity, needs to maintain certain level of inventory. The level of inventory is decided based on :-

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1. The type of market and demand for the end product. 2. The type of production activity. a) Continuous production b) Intermediate production c) Projects production 3. Inventories are bound to be maintained for a) Precautionary Motive b) Speculative Motive c) Transactional Motive Inventory Management : It is the scientific and systematic approach for the procurement and storage of materials required for producing the end-products, with an object of keeping inventories as low as possible without interrupting production flow. The term inventory applies to a manufacturing concern, referring to stock on hand at any given time such as raw materials, work-in-process (semi-finished goods), finished goods and maintenance spares, Inventory means, any item, which was Economic value locked up in materials and is idle resources. Meaning and Nature of Inventory : In a manufacturing concern, it may include raw materials, work-in-process and stores etc. To understand the exact meeting of the word Inventory we may study it from the usage side or from the point of entry in the operations. Inventory includes the following things :a) Raw-materials : Raw-materials form a major input in the organization ? They are required to carryout production activities uninterruptedly. The quality of raw-materials required will be determined by the rate of consumption and the time required for replenishing the supplies. The factors like the availability of raw-materials and government regulations etc., too effect the stock of raw materials.

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b) Work-in-process: The work-in-process is that stage of stocks which are in between raw materials and finished goods. The raw materials enter the process of mature but they are yet to attain a final shape of finished quantum of workin-process depends upon the time taken in the manufacturing process. The greater the time taken in manufacturing. The more will be the amount of workin-process. c) Consumable: These are the materials which are needed to smoothen the process of production. These materials do not directly enter production but they act as catalysts, etc., consumables are classified according to the consumption and critically. Generally, consumable stores do not treate any supply problem and form a small part of production cost. There can be instances where these materials may account for much value than the raw materials. The fuel oil may form a substantial part of cost. d) Finished goods: These are the goods which are ready for the consumers. The stock of finished goods provides a buffer between production and market. The purpose of maintaining inventory is to ensure proper supply of goods to customers. In some concerns the production is undertaken or order basis, in these concerns there will not be a need for finished goods. The need for finished goods inventory will be more when production is undertaken in general without waiting for specific orders. e) Spares: Spares also a part of inventory. The consumption pattern of raw materials, consumables, finished goods are different form that of spares. The stocking policies of spares are different from industry to industry. Some industries like transport will require more spares than the other concerns. The costly spare parts like engines, maintenance spares etc., are a not discarded after use, rather they are kept in ready position for further use. All decision about spares is based on the financial cost of inventory on such spares and the cost that may arise due to their non-availability.

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NEED TO HOLD INVENTORIES : There are three general motives for holding inventories. 1. 2. Transactions motive :- emphasizes the need to maintain inventories to facilitate smooth production and sales operations. Precautionary motive :- necessitates holding of inventories to guard against the risk of unpredictable changes in demand and supply forces and other factors. 3. Speculative motive : Influence the decision to increase or reduce inventory levels to take advantage of price fluctuations. Scope of Financial Management The approach to the scope and functions of financial management is divided, for purpose of exposition, into two broad categories. a) The Traditional approach and b) The Modern approach The Modern approach views the term financial management in a broad sense and provides a conceptual and analytical frame work for financial decision making. The financial management in the modern sense of the firm can be broken into three decisions as functions of finance. 1. The investment decision 2. The financial decision and 3. The divided policy decision. Investment Decision : The investment decision relates to the selection of assets in which funds will be invested by a firm. The assets which can be acquired fall into two broad groups. 1. Long term assets which yield a return over a period of time in future. 2. Short-term or current assets define as those which in the normal course of business or convertible into cash without diminution in value, usually within a

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year. The first of these involving the first category of assets is popularly known in financial literature as capital Budgeting. The aspect of financial decision making with reference to current assets (or) short term assets is popularly termed as Working capital Management and inventory. Overview of financial Management :- Finance may be defined as the art and science of managing money. The major areas of finance are : 3. Financial services and 4. Managerial Finance / Corporate Finance / Financial Management.

While Financial services are concerned with the design and delivery of advice and financial products to individuals, business and governments within the areas of banking and related institutions, personal financial planning, investments, real estate, insurance and so on. Financial Management is concerned with the duties of financial managers in the business form.

Financial Management is an appendage of financial function, with the caution of a complex industrial structure. This function has grown so much that it has given birth to a separate subject Financial Management which is recognized as the most important branch of business administration.

Financial Management is an excellent by means of which resources can be allocated to various projects, depending upon their importance and pay of capacities.

Financial management is the dynamic and evolving science needed in making day to day financial decisions in business of any size. The old concept of finance as treasure ship has broadened to include the new, equally meaningful concept of controllership. While the treasurer keeps track of the money, the companies operations which are measured with a financial yardstick.

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Material Management : Material Management in any industry is primarily concerned with supply, storage and stock control of incoming materials. Materials managements fruitful area for cost control /reduction.

Materials Management tackles the problem of requirement of materials, quality, codification and standardization of materials, cost of materials, procurement of capital goods, delivery and storage of materials, planning & programming, purchasing, subcontracting, receiving and warehousing, pre-purchase value analysis, production control, development and selection of sources of supply of materials, transportation and handling materials, and disposal of scrap, surplus and salvage reuse with object of ensuring that maximum value is obtained from the expenditure of every rupee spent on material.

For greater efficiency it uses modern tools & techniques of forecasting, planning & review, data processing scientific inventory control, value analysis and rationalization, purchase research & appraisal of performance.

Objectives of Materials Managements :a) b) c) d) e) f) g) h) Continuity of Production Economy in capital expenditure Reduce capital Alive to changes Improve quality Reduce Cost Foreign exchange through import substitution Interaction with various departments.

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Return on Investment : The Return on investment is the profits earned per rupee of investment i.e., capital. The capital can be regregted into two parts-fixed & working capital. The fixed capital is one, which is already is sunk in any business. As such, the only scope for improving the return on investment lies in the efficient management of working capital. Since, materials constitute an important part of the working capital and also. Single largest item of expenditure, the return on investment depend on the manner of utilization of materials. Therefore control of inventory assumes greater importance.

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CHAPTER-4 THEORITICAL FRAME WORK

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ABC ANALYSIS:It is a system of inventory control. It exercises discriminating control over different items of stores classified on the basis of the investment involved. Usually the items are divided into three categories according to their importance, namely, their value and frequently of replenishment during a period. i) A category of items consists of only a small percentage i.e. about 10% of the total items handled by the stores but require heavy investment about 70% of inventory value, because of their high prices or heavy requirement or both. ii) B category of items consists of only a small percentage i.e. about 20% of the items of material handled by stores. The percentage of investment required is about 20% of the total investment in inventories. iii) C category of items do not require much investment, i.e., may be about 10% of total investment value but they are nearly 70% of the items handled by store. A category of items can be controlled by using regular system which ensures neither overstocking nor shortage of materials for production. Such a system plans its total material requirements by making budgets. The stocks of materials are controlled by fixing certain levels like maximum level, minimum level and re-order level. A reduction in inventory management costs and carrying cost. To avoid shortage and to minimize heavy investment in inventories, the techniques of value analysis, variety reduction, standardization etc., may be used. In case of B category of items, as the sum involved is moderate, the same degree of control as applied in A category of items is not warranted. The orders for the items belonging to this category may be placed after reviewing their situation periodically.

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For C category of items, there is no need of exercising constant control. Orders for items in this group may be placed either after six months or once in a year, after as certaining consumption requirements. In this case the objective is to economize on regarding ordering and handling costs. Advantages of ABC Analysis : The advantages of ABC analysis are the following. It ensures that, without there being any danger of interruption of production for want of material or stores, minimum investment will be made in inventories of stocks of materials or stock to be carried The cost of placing orders, receiving goods and maintaining stocks is minimized specially if the system is coupled with the determination of proper economic order quantities. ABC analysis underlies a very important principle Vital few : trivial many statistics reveals that just a handful of items account for bulk of the annual expenditure on materials. These few items called the A items therefore hold the key to the business. The other items known as B items are numerous in number but their contribution is less significant.

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TABLE 4.1.1 ABC ANALYSIS

Item Description Packing material Dairy consumables Sugar Chemical & Glassware Polythenefilm Coal Empty Bottles

Annual consumption (units) 54567 1488 2602 45075 42950 380894 16869

Price (cost per unit rupees) 29.30 109.48 24.70 24.80 110.00 2.33 4.00

Annual usage (rupees) 1598805.83 162906.02 64275.00 1117870.64 4724555.40 887483.48 67479.00

Rank 2 5 7 3 1 4 6

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TABLE 4.1.2 4.1.2. Conversion Table: With the help of collected data and after analyzing the inputs interms of their price and usage they are ranked and later they are arranged in A,B,C categories. See table 3.1.2. ABC ANALYSIS Item Description Polythenefilm Packing material Chemical & Glassware Coal Diary consumables Empty bottles Sugar Annual usage 4724555.40 1598905.83 1117870.64 887483.48 162906.02 67479.00 64275.00 Cumulative Annual usage 4724555.40 6323361.23 7441231.87 8328715.35 8491621.37 8559100.37 8623375.37 Cumulative usage (%) 54.79 73.33 86.29 96.58 98.47 99.25 100.00 Category A A B C C C C

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TABLE 4.1.3 4.1.3. Percentages Table : Basing on the previous tables, the input units percentages and annual usage percentages are calculated to each category of items separately. See the table 3.1.3. ABC ANALYSIS No. of units 97517 45075 401853 544445 % of Total 17.9% 8.3% 73.8% 100% Cumulative % of units 17.9% 26.2% 100% Annual usage 6323361.23 1117870.64 1182143.50 8623375.37 % of Total 73.3% 13.0% 13.7% 100% Cumulative % of Costs 73.3% 86.3% 100%

Rank A B C

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GRAPH 4.1.3. ABC ANALYSIS

Y-Axis

X-Axis

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DATA ANALYSIS AND INTERPRETATION

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4.2 DATA ANALYSIS AND INTERPRETATION 4.2.1 Inventory Turnover Ratio Interpretation: The inventory turnover ratio signifies the liquidity of the inventory. A high inventory turnover ratio indicates brisk sales. The ratio is therefore a measure to discover the possible trouble in the form of overstocking or over valuation. The stock position is known as the graveyard of the balance sheet. It the sales are quick such a position would not arise unless the stocks consists of un-saleable items. A low inventory ratio results in blocking of funds in inventory which may ultimately result in heavy losses due to inventory becoming absolute or deteriorating in quality. In the year 2004-05, inventory turnover ratio was 28.27 and in 2005-06 it is increased to 31.31. But it decreased in 200607 to 23.89 due to overstock. This implies blocking of investment. During the year 2007-08 it increased to 92.9. In 2008-09 the inventory turnover ratio increases to 152.2 and in 2009-10 it reaches 187.2. The high inventory turnover ratio indicates efficiency of firms inventory management. Table 4.2.1 (Rs. in cores) Year 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Cost of goods sold 28.56 30.38 23.22 19.51 22.84 24.34 Average Inventory 1.01 0.97 0.67 0.21 0.15 0.13 Inventory Turnover Ratio 28.27 31.31 23.89 92.90 152.20 187.20

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Graph - 4.2.1 Inventory Turnover Ratio

200 180 160 140 120 100 80 60 40 20 0 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

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4.2.2 INVENTORY HOLDING DAYS Interpretation: Inventory holding days express the no. of days it takes to convert the stock into sales. It is called stock conversion period. It is calculated as below. It means in 2004-05 it took 13 days time period to convert stock into sales. In 2005-06 the conversion period is 12 days which is decreased. But in 2006-07 it increases to 15 days. In 2007-08 the stock conversion period is decreased to 4 days, in 2008-09 it was 3 days in 2009-2010 it is 2 days.

Year 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

Cost of goods sold 28.56 30.38 23.22 19.51 22.84 24.34

Inventory Turnover Ratio 28.27 31.31 23.89 92.90 152.20 187.20

Inventory Holding Days 13 12 15 4 3 2

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Graph - 4.2.2 Inventory holding Days

16 14 12 10 8 6 4 2 0 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

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4.2.3 INVENTORY ANALYSIS AT VIJAYA DAIRY Interpretation: It shows the relationship between inventory & current assets. The inventory position in Vijaya Dairy as compared to its current asses are fluctuating. The current assets are decreasing year by year. But the inventory level is fluctuating. It allocates less amount of funds for inventories. Table 4.2.3. Inventory Analysis at Vijaya Dairy (Rs. in crores) Year 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Inventory 0.79 1.15 0.87 1.08 0.28 0.14 0.17 0.09 Current Assets 11.24 11.72 10.09 10.06 5.92 5.82 2.96 4.37 % of Inventories in Current Assets 7.0 9.8 8.7 10.7 4.7 2.4 5.7 2.0

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Graph 4.2.3 Inventory Analysis at Vijaya Dairy

12 10 8 6 4 2 0 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

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4.2.4 TREND AND RATIO ANALYSIS INVENTORY Interpretation: Total inventory consists of raw a materials, work-in-process, finished goods. The percentage of finished goods should be more than proportion of work-in-process and raw materials. So, that the stock should be ready to sale. From the below table in the year 2001-02 the proportion of raw materials is 43.6%, work-in-process is 1% and finished goods are 55.4% in total inventory. In the year 2002-03 & 2007-08, the % of finished goods are 57% and in 2009-10 the % if finished goods are 57.5% which is a very good sing. Table 4.2.4. (Rs. in crores) Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Raw material 26.50 25.07 18.81 24.85 26.24 18.65 15.85 19.90 20.48 % 43.6 42 41 43 44 41 40 41 40 Work in process 0.62 0.76 2.26 1.21 1.24 1.30 1.30 1.30 1.30 % 1 1 5 2 2 3 3 3 2.5 Finished goods 33.63 33.99 24.57 31.80 32.45 25.62 22.62 27.10 29.41 % 55.4 57 54 55 54 56 57 56 57.5 Total 60.75 59.82 45.64 57.86 59.93 45.57 39.77 48.30 51.19

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4.2.4 CHARTS OF TREND AND RATIO ANALYSIS OF INVENTORY 2001-2002

Raw Material Work-in-process Finished goods

43.6% 1% 55.4%

Raw Material Work-in-process Finished goods

2002-2003

Raw Material Work-in-process Finished goods

42% 1% 57%

Raw Material Work-in-process Finished goods

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2003-2004

Raw Material Work-in-process Finished goods

41% 5% 54%

Raw Material Work-in-process Finished goods

2004-2005

Raw Material Work-in-process Finished goods

43% 2% 55%

Raw Material Work-in-process Finished goods

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2005-2006

Raw Material Work-in-process Finished goods

44% 2% 54%

Raw Material Work-in-process Finished goods

2006-2007

Raw Material Work-in-process Finished goods

41% 3% 56%

Raw Material Work-in-process Finished goods

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2007-2008

Raw Material Work-in-process Finished goods

40% 3% 57%

Raw Material Work-in-process Finished goods

2008-2009

Raw Material Work-in-process Finished goods

41% 3% 56%

Raw Material Work-in-process Finished goods

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2009-2010

Raw Material Work-in-process Finished goods

40% 2.5% 57.5 %

Raw Material Work-in-process Finished goods

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TABLE 4.2.5 1. YEAR WISE CONSUMPTION OF WHOLE MILK Interpretation:

Whole milk consumption is amount is high in 2005-06. And after years it is decreasing. In 2007-08 it is 19.90 crores. (Rs. in Crores) Year 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Consumptions 28.70 30.17 20.07 19.90 23.62 22.80

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GRAPH

35 30 25 20 15 10 5 0 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

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2. YEAR WISE CONSUMPTION OF TONED MILK Interpretation:

The Toned milk consumption is fluctuating year by year. The Toned Milk consumption is less in 2005-06 i.e. 5.64 crores and highest in 2009-10 i.e. 7.69 crores. Toned milk is a finished product which consists that the sale of Toned milk is fluctuating and is high in 2009-10. (Rs. in Crores) Year 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Consumption 6.48 5.64 6.80 7.15 5.91 7.69

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GRAPH

9 8 7 6 5 4 3 2 1 0 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

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3. YEAR WISE CONSUMPTION OF SKIM MILK CONSUMPTION Interpretation:

Skim milk is a milk which contains 0.1% of cream of separation. The same is used for tonning. Toned milk & double toned milk. Sometimes it will be used for the increase of SNF. So, it is a work-in-process product. The skim milk slight fluctuations in consumption amount. The least consumption is in 2005-06 i.e. 142.89 lakhs and the highest consumption is in 2009-10 i.e. 275.23 lakhs (Rs. in Lakhs) Year 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Consumption 156.54 142.89 185.22 236.49 231.84 275.23

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GRAPH

300 250 200 150 100 50 0 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

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4. YEAR WISE CONSUMPTION OF CREAM MILK Interpretation:

Cream is also a work-in-process product. It is obtained through the separation of milk. Through separation of milk cream milk and skim milk will be obtained. The year wise consumption of cream is in increasing trend. It has 114.97 lakhs in 2006-07. It is suddenly increased to 166.10 lakhs in 2007-08. (Rs. in Lakhs) Year 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Consumption 110.75 112.43 114.97 166.10 186.93 193.99

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GRAPH

200 180 160 140 120 100 80 60 40 20 0 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

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5. YEAR WISE CONSUMPTION OF GHEE Interpretation:

Ghee is a finished product which is prepared by using cream. Ghee had lot of changes in year wise consumption amounts. It had slight fluctuations during 2004-05 to 2006-2007 from 2006-07 to 2009-10. The ghee consumption is increased double than previous year i.e. 2006-07 it is 41.34 lakhs and in 2007-08 it is 88.2 lakhs. (Rs. in Lakhs) Year 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Consumption 37.09 23.32 41.34 88.2 166.21 244.53

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GRAPH

300 250 200 150 100 50 0 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

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6. YEAR WISE CONSUMPTION OF SMP Interpretation:

SMP means Skim Milk powder. The unprocessed milk is converted into skim milk powder. It can be used for future purpose. The SMP consumption is decreasing year by and in 2009-10 the SMP consumption is nil. It indicates the positive sign. The amount is not blocked in the form of SMP. It had highest consumption in 2004-05 ie. 120.14 lakhs. (Rs. in Lakhs) Year 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Consumption 120.14 97.06 79.81 16.83 0.94 --

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GRAPH

140 120 100 80 60 40 20 0 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

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7. YEAR WISE CONSUMPTION OF DOODHPEDA Interpretation:

Doodhpeda is also a finished product. The year wise consumption is in increasing trend upto 2007-08 i.e. in 2004-05 it is 3.02 and in 2007-08 it is 5.25. Later it is decreased to 4.87 lakhs and then it is reached to 8.47 lakhs in 2009-10. Which is a positive sign. (Rs. in Lakhs) Year 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Consumption 3.02 3.96 4.51 5.25 4.87 8.47

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GRAPH

9 8 7 6 5 4 3 2 1 0 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

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CHAPTER-5 FINDINGS

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FINDINGS: Findings through ABC analysis: 1. All the components specified in table 3.1 are ranked initially by taking price as criteria. There are 7 items and these 7 are ranked according to the total value of each component and its unit cost. It is identified that poluthenefilm stood in the first rank because its cost per unit is highest among remaining 6 and even in its value in terms of annual usage. 2. There is almost 56% difference in per unit of the second ranked component when compared with the first rank component. 3. With respect to percentage of items, C category of items are 73.8%, A category of items are 17.9% and B category of items are 8.3%. 4. With respect to the proportional value of each category of items A category of items occupied 73%, B Category items occupied 13% and C category of items occupied 14%. Findings through inventory turnover ration:A high inventory turnover ratio indicates efficiency of a firm, with respect to this ratio the position of Vijaya Dairy is showing good status. The company inventory turnover ratio is gradually increasing . In 2009-10 it has high inventory turnover ratio 187.20.

Findings regarding inventory holding days:All the three forms of inventories will stay in the firm before they are converted into sales. If inventories are hold more number of days that indicates a lengthy manufacturing cycle. With respect to this point, the position of Vijaya Dairy is good. The inventory holding period is gradually decreasing.

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Findings regarding share of inventories in current assets: Current assets reveals the liquidity position of a firm one of the components in current assets in inventories. When inventories are dedicated from the current assets that figure is to be called as quick asses. By going through the currents assets date from 2002-2003 to 2009-2010. The current assets are decreasing trend. The inventories proportion is fluctuating. The percentage of inventories in current assets are around 10% only.

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CHAPTER-6 SUGGESTIONS

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SUGGESTIONS: 1. The company current assets are decreasing year by year. So, they must try to increase the current assets (cash, bank, bills receivable, debtors, stock). 2. Sales are very important to every organization so, company should try to control the cost of goods sold, by implementing effective inventory management technique in the company to reduce expenditure. 3. The existing manpower and equipments can be utilized effectively to earn profits. The company having the storing capacity is 75,000 Lts. Milk per day but it collects only 32,000 Lts. of milk per day. So, company can procure more raw material milk from the farmers by giving proper payment.

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BIBILOGRAPHY:

1.

Financial Management Theory & Practice Prasasnna Chandra Tata Mc Grawhill 1977.

2. 3. 4. 5. 6.

Financial Management I.M. Pandey Vikas Publications 1999. Management Accounting Practice R.K. Sharma, Seshi K.Gupta. Financial Management Decision making Jon Hampton Practice Hall India 1992. Annual Reports and Accounts of Vijaya Dairy, Nellore. Web site : www.google.com.

VIJAYA MILK & MILK PRODUCTS

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