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INVENTORY MANAGEMENT

SUMMER INTERNSHIP PROJECT


S.S.DEMPO COLLEGE OF COMMERCE AND ECONOMICS

STUDY OF INVENTORY MANAGEMENT


A Joint Venture of Crompton Greaves Ltd. & PPI Adhesive Products Ltd. Ireland

Name: Narendra N Chhetri Roll No: 03

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INVENTORY MANAGEMENT

DECLARATION
I hereby declare that the study entitled INVENTORY MANAGEMENT in the context of CG-PPI ADHESIVE PRODUCTS LIMITED in the partial fulfillment of the requirement for the award of BACHELOR IN BUSINESS ADMINISTRATION is a record of my own work. This study was conducted of Finance Department, Purchase Department and Stores Department, CG-PPI ADHESIVE PRODUCTS LIMITED. The matter embodied in this project report has not submitted to any other University or Institution for the award of degree. This project is my original work and it has not been presented in this manner. This information is purely of academic interest.

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INVENTORY MANAGEMENT

TABLE OF CONTENTS
S. No. 1 2 3 4 5 6 7 8 9 Particulars Acknowledgement Executive Summary About the company History of CG-PPI Adhesive Products Limited Vision and Mission Quality Policy Products Organizational Structure Introduction to the study i.e. INVENTORY MANAGEMENT a) Objectives of Project b) Methodologies c) Limitation to the study Operating Cycle of company Ratio Analysis Analysis of EOQ Safety Stock and Reorder Level Process of Physical Inventory Maintenance ABC analysis Findings Suggestions Conclusion Page No. 4 5 6 7 8 9 10 12 13 13 14 14 15 20 30 35 39 44 46 47 47

10 11 12 13 14 15 16 17 18

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INVENTORY MANAGEMENT

ACKNOWLEDGEMENT
I have great pleasure in expressing my sincere gratitude to Mrs. MAMATA KANE Faculty member of S.S.DEMPO COLLEGE OF COMMERCE AND ECONOMICS COLLEGE for her support in conducting the study. I have an opportunity to express my sincere thanks to Mrs. SONIYA ANGLE (BBA DEPT. HEAD) S.S.DEMPO COLLEGE OF COMMERCE AND ECONOMICS COLLEGE in conducting the study. I have immense pleasure in expressing my gratitude to MR. RAVINDRA MURGAONKAR (OPERATION MANAGER) CG-PPI ADHESIVE PRODUCTS LIMITED for his generosity in allowing me to do the project. My sincere thanks to MR .RANE ( STORE MANAGER) for getting me this opportunity and my sincere thanks to SANJAY SIR (PURCHASE MANAGER) for finding me with necessary details pertaining to my study. At the end, I take this opportunity to express my deepest gratitude to all those people without whose consistent support, co-operation, guidance, encouragement and understanding, this project would never have been successfully completed.

NARENDRA CHHETRI
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INVENTORY MANAGEMENT

EXECUTIVE SUMMARY
Title of the study: The study of Inventory Management As a part of curriculum, every student studying BBA has to undertake a project on a particular subject assigned to him/her. Accordingly I have been assigned the project work on the study of Inventory Management in CG-PPI ADHESIVE PRODUCTS LIMITED In any organization the inventory of materials plays vital role in working capital management. A small saving in the inventory will reflect a vital margin in profit of the organization. Inventory control means the availability of right materials of right quantities coordinated with lead time. Each and every component of inventory is important and managing the inventories to keep in an optimum level is a must. Being an adhesive tape industry CG-PPI ADHESIVE PRODUCTS LIMITED is facing a stiff competition in the market. Since inventory is the major part of their cost of production there is a need for inventory control by way of reducing cost and optimum utilization of materials. Though the company is having certain policies regarding this, still it requires through study of their policy and systems to some extent to understand the inventory management. At CG-PPI Adhesive Products Limited, the Inventory Management has shown increase in the period of study. This shows Inventory is managed effectively and all the other departments are working in perfect co-ordination to ensure the progress of CG-PPI Adhesive Products Limited, but I have given some Suggestions & Conclusions on the basis of my Project Study.

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INVENTORY MANAGEMENT About CG-PPI ADHESIVE PRODUCTS LIMITED

CG-PPI Adhesive Products Limited is a Joint Venture between Crompton Greaves Limited and PPI Adhesive Products Limited, Republic of Ireland, for the Manufacture of Special Purpose Self Adhesive Tapes for Electrical, Electronics, Paper Industry, Shoe Industry, Picture Tube, Automobile and other specialty applications. The Company also offers complete solutions for printed and die cut components and labels. The Factory is located at Kundaim Industrial Estate Goa, which is approximately 17 kms from Panaji, the Capital of Goa. Kundaim Industrial Estate is one of the largest Industrial Estates in Goa and has zero pollution and uninterrupted power supply. The factory has excellent State-of-the-Art Plant and Machinery. Employees are trained to achieve zero defects to meet the stringent requirements of the customers in various segments. The factory has well equipped laboratories with latest equipments to ensure that products are as per the exact requirements of the customer. The Laboratory is manned by experienced and qualified engineers who work arduously for customer satisfaction. The Company has Sales Regional Offices / Dealers Network all over the country, who are backed by Factory trained engineers. The Sales Network interacts with the customers to ensure Win-Win solutions.

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INVENTORY MANAGEMENT

History
CG-PPI Adhesive Products Limited is a Joint Venture between Crompton Greaves Limited and PPI Adhesive Products Limited, Republic of Ireland, for the manufacture of Special Purpose Self Adhesive Tapes for Electrical, Electronics, and other specialty applications including printed tapes, precision die cut components and labels. CG is a USD 2 billion engineering conglomerate with an impressive and diverse portfolio of products, solutions and services ranging from high-end power and industrial equipments and solutions, to consumer products and home appliances, addressing myriad needs. Enjoying a reputation of stature for over seven decades, CG, which originates in India, has transformed itself into a global corporation. With a permanent footprint and manufacturing facilities in nine countries across Asia, Europe and North America, CG is fast emerging as a first choice supplier of high quality, smart electrical, industrial and consumer products and solutions all over the world. PPI Adhesive Products Ltd was originally established in 1970 and commenced production at Waterford Industrial Estate in 1971. The company, which is owned and managed by its Irish board of directors, produces a very extensive and sophisticated range of technical self-adhesive tapes for a wide range of applications, notably in the electrical, electronic, aerospace, photographic and audio/video sectors. CG-PPI Adhesive Products Limited, located at Kundaim Industrial Estate Goa, which is approximately 17 kms from Panaji, the Capital of Goa; is built on 17853 sq.mtrs of land and has a built up area of 3600 sq.mtrs. The factory is well equipped with state of the art machinery and laboratory facilities and a dedicated team to serve our customers. The Company has a wide marketing network and dealers throughout the country.

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INVENTORY MANAGEMENT

Vision & Mission VISION


To be one of the globally admired company of choice for Adhesive, Non-Adhesive Tapes, Labels & Packaging Materials.

MISSION
To Create Superior value in the products and services we provide to our Customers. Our Adhesive, Non-adhesive Tapes and Labels will carry the image of Innovation, Satisfaction, State of Art, Trust, respect and value for money.

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INVENTORY MANAGEMENT

Quality Policy of CG-PPI

The Quality Policy of CG-PPI is to understand the customer requirements & is flexible to the changing needs of the customers resulting in a Win-Win relationship. The Company adopts innovative methods to provide cost effective & quality products with timely deliveries & services. The Company continuously motivates its employees to upgrade their skills to attain customer satisfaction. The Quality Policy of CG-PPI is a process of continual improvement in all functions of the organization.

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INVENTORY MANAGEMENT

Products

CG 786 FLEXOMOUNT TAPE

FPF, NPN, NKN Laminates

Glass Cloth Tapes

KAPTON/NOMEX TAPES

Metal Foil Tapes

Polyester Electrical Self Adhesive Tape


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INVENTORY MANAGEMENT

Tapes for Shoe Upper & Leather Industries

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INVENTORY MANAGEMENT

Organizational Structure CEO

OPERATION MANAGER

MARKETING

ACCOUNTS
ASST. MANAGER

QA/R&D

NATIONAL SALES MANAGER SALES COORDINATOR REGIONAL SALES EXECUTIVE ACC. OFFICER

SR. OFF QA

QA TRAINEES

H.R

TAPES

LABELS

MAINTAINANCE

SR. EXECUTIVE PRODUCTN.

SR. EXECUTIVE PRODUCTN.

EXECUTIVE MAINTAINANCE

DTP TECHNICIAN PRODUCTION EXECUTIVE SR. MAINTAINANCE SUPERVISOR PRODUCTION OFFICERS OPERATORS PURCHASE/STORES

OPERV OPERATORS

EXECUTIVE PURCHASE

EXECUTIVE STORES

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INVENTORY MANAGEMENT

INTRODUCTION TO THE STUDY

BACKGROUND OF STUDY

Business motives are to produce, sell and make profit. Inventories are playing vital role in every business whether industrial unit are trading organization. Inventories are very broad term and include the elements whose values are always very high, in any industrial unit. Inventory constitutes major parts, approximately 40% to 80% of gross working capital depending upon the nature and size if the industrial unit. Inventory can be any form which consists of raw material, consumables, and spares, work in process, finished goods.

OBJECTIVES OF PROJECT PRIMARY OBJECTIVE

Overall, the objective is to minimize the investment in inventories by excising selective Inventory control techniques.
SECONDARY OBJECTIVE

1. To study and analyze the performance of inventory management of CG-PPI Adhesive Products Limited 2. To review the system of inventory model and reorder level of raw material. 3. To find out the economic order quantity for Printing Raw Material and consumables. 4. To determine the optimum level of safety stock for Printing Raw Material and Consumables and to fix reorder point.
METHODOLOGY

This methodology is used to preparation of the project. Both primary and secondary data were used for the preparation of project.

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INVENTORY MANAGEMENT

COLLECTION OF PRIMARY DATA

The researcher approaches various functional heads in charge of purchase, production, finance and Stores and collected related information for the study. The data was collected by me based on observation technique personally. The researcher has done physical inspection of stores and stock levels.
COLLECTION OF SECONDARY DATA

1. Data for the previous year was obtained from the records of the company. 2. The stores of CG-PPI Adhesive Products Limited consists various inventories of raw materials, consumables, spares packing material etc. the range of inventories are wide and consists about more than hundred items. Hence, the focus was turned mainly to consumables and raw materials. The elements were selected after considering its usage value, importance and contribution towards production.
TOOLS FOR ANALYSIS

1. Ratio Analysis 2. Operating Cycle Analysis 3. ABC Analysis


LIMITATIONS OF THE STUDY

Due to confidentiality of the data and year ending constraint CG-PPI Adhesive Products Limited I could not able to collect the required data required for this study. As the company is a closely held one and its policy of disclosing data to the outsiders is restricted. Hence the collection of fully fledged data could not be achieved.

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INVENTORY MANAGEMENT
ANALYSIS AND INTERPRETATION ANALYSIS OF THE PERFORMANCE OF INVENTORY MANAGEMENT OF CG-PPI Adhesive Products Limited Operating cycle analysis Operating cycle is one of the important factors in determining the working capital of a concern. Inventories are playing major role in operating cycle. The level of current assets needed for a business significantly depends upon the length of the operating cycle. The longer the operating cycle, the larger will be a compan ys requirements for funds for various stages of the operating cycle. The length of operating cycle of a business is influenced by, 1. Nature of business. 2. Production policies. 3. Terms of purchase and sale. 4. Transportation bottlenecks. 5. Business cycle fluctuations. Inventories constitute 90% of the working capital in many organizations. Hence, managing the working capital is synonymous with controlling inventories.

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INVENTORY MANAGEMENT

Operating Cycle CG-PPI Adhesive Products Limited (For the period of 2011-12)

Particulars Annual Sales Manufacturing Expenses Cost of Material consumed Employee Benefit Finance Cost Depreciation Other Expenses

Amount 14,53,70,444

8,19,87,792 1,40,79,168 2,83,904 35,77,679 2,53,42,598 12,52,71,141

Purchase of Material Opening Stock of Raw Material Closing Stock of Raw Material Opening Stock of Work in Process Closing Stock of Work in Process Opening Stock of Finished Goods Closing Stock of Finished Goods Sundry Debtors Opening Sundry Debtors Closing

8,18,55,789 43,08,249 40,15,901 43,10,941 81,01,568 25,15,000 13,40,000 6,81,85,847 5,42,76,291

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1) Consumption of Raw Material = Opening Stock of Raw Material + Purchase + Closing Stock of Raw Material = 43,08,249 + 8,18,55,789 + 40,15,901 = 8,21,48,137 Daily Rate consumption in 365 days per year = 8, 21, 48,137/365 = 2, 25,063.38 Average Stock of Raw Material = Opening stock of R.M. + Closing Stock of R.M. 2 = 43, 08,249 + 40, 15,901 = 83, 24,150 = 41, 62,075 2 2 Average no. of R.M. in stock = 41, 62,075 = 18.49 days 2, 25,063.38 The credit allowed to Raw Material = 60 So, the Raw Material cycle = 18.49-60 = -41.51

2) Raw Material to Finished Goods Value of finished goods manufacturing during the year = Opening WIP + Raw Material consumed + Manufacturing Expenses Closing WIP = 43,10,941 + 8,21,48,137 + 12,52,71,141 81,01,568 = 20,36,28,651 Average value of Production per day= 20,36,28,651/ 365 = 5,57,886.71

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Average Stock of WIP = Opening WIP + Closing WIP = 43,10,941 + 81,01,568 2 2 = 1, 24, 12,509 = 62, 06,254.5 2 Average Consumption Period = 62, 06,254.5 = 11.12 5, 57,886.71 3) Average period of finished goods held in stores = Opening finished goods + cost of finished goods during the year + distribution expenses closing finished goods = 22,15,000 + 20,36,28,651- 13,40,000 = 20,44,93,651 Value of finished goods sold/day = 20,44,93,651 / 365 days = 5,60,256.57 Average stock of finished goods is = 25,15,000 + 13,40,000 = 19,27,500 2 Average period for which finished goods have remained in stores = 19, 27,500/5, 60, 256. 57 = 3.44 days

4) Credit Collection Period


The daily sales = 14,53,70,444 \ 365 = 3,98,275.18 Average debtors = 6,81,85,847+5,42,76,291 = 6,12,31,069 2 Time for collection = 6,12,31,069 = 153.74 days 3,98,275.18

Therefore the total operation cycle = - 41.51 + 11.12 + 3.44 + 153.74 = 126.79 days 365 days/ 126.79 = 2.87 times

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INVENTORY MANAGEMENT
Operating Cycle CG-PPI Adhesive Products Limited (2011-12)

Debtors

Finished Goods

Cash

Work In Process
Inference

Raw Material

CG-PPI Adhesive Products Limited operating cycle is 126 days. It shows the working capital turned over about times a year. CG-PPI Adhesive Products Limited have almost identical days inventory outstanding. For most companies, their total operating cycle periods are, typically, considerably shorter than the almost 4-month periods evidenced here. Our assumption is that this circumstance does not imply poor inventory management but rather reflects product line and industry characteristics. This company may be obliged to carry large, high-value inventories in order to satisfy customer requirements.

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INVENTORY MANAGEMENT

Ratio analysis
Ratio analysis is a power tool of financial analysis. A ratio is defined as indicated quantity of two mathematical expressions. Ratios help to summarize large quantities of financial data and to make qualitative judgment about the firm financial performance. Ratio can be compared with sum standards. A company may select either of the following standards of comparison. Ratios calculated from the past financial statement of the same firm. Competitors of the industry to which the firm belongs.

Activity ratio / turnover ratio


Activity ratios are employed to evaluate the efficient with which the firm manages and utilize its asset. These ratios are called turnover ratio because they indicate the speed with which assets are being converted or turned over into sales. A proper balance between sales and assets generally reflects how efficiently the assets are managed. The following informations have been collected from the financial indicators for the past two years as mentioned below:

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INVENTORY MANAGEMENT

MANUFACTURING COST OF CG-PPI Adhesive Products Limited

Particulars

2010-11

2011-12

Sales Purchase: Raw Material Consumables Expenditure: Cost of Material Consumed Employee Benefit Finance Cost Depreciation & Amortization Other Expenses

14,03,58,405

14,53,70,444

43,08,249 8,31,644

40,15,901 14,17,426

7,69,75,810 1,03,15,351 1,13,887 16,83,765 2,57,29,616

8,19,87,792 1,40,79,168 2,83,904 35,77,679 2,53,42,598

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INVENTORY MANAGEMENT DETAILS OF STOCKS


Particulars Rupees

Particulars
Raw Material Consumables WIP Finished Goods TOTAL

2010-11
43,08,249 8,31,644 43,10,941 13,40,000 1,07,90,834

2011-12
40,15,901 14,17,426 81,01,568 25,15,000 1,60,49,895

Inferences:
1) In 2011-12 raw material inventory has decreased nearly 2, 92,348 compared to previous years. This indicates that company is getting quick cash flow in company and it is a quite good sign for the company. 2) In 2011-12 investment in raw material is quite low. In spite of that there is a massive increase in Finished good. Its very good sign for the company. 3) In 2011-12 work in process of the company has been increased even though the investment in raw material is low compared to previous year. It means that company is maintains a good inventory through modern techniques such as Computerized e.t.c.

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INVENTORY LEVEL 2010-11


50 45 40 35 30 25 2010-11 20 15 10 5 0 Raw Material Consumables WIP Finished Goods

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INVENTORY LEVEL 2011-12


90 80 70 60 50 40 30 20 10 0 Raw Material Consumables WIP Finished Goods 2011-12

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INVENTORY MANAGEMENT

COST OF GOODS SOLD

PARTICULARS Raw Material Used


Purchases (+) Opening Stock (-) Closing Stock

2010-11

2011-12

7,50,43,445 63,33,556 43,08,249

8,18,55,789 43,08,249 40,15,901

Total Manufacturing Cost Cost of Material Consumed Employee Benefit Finance Cost Depreciation & Amortization Other Expenses Total
Opening WIP Closing WIP Cost of Production Opening FG Closing FG Cost of Goods Sold

7,70,68,752

8,21,48,137

7,69,75,810 1,03,15,351 1,13,887 16,83,765 2,57,29,616


11,48,18,429 82,65,151 43,10,941 11,87,72,639 13,10,000 25,15,000 11,75,67,639

8,19,87,792 1,40,79,168 2,83,904 35,77,679 2,53,42,598


12,52,71,141 43,10,941 81,01,568 12,14,80,514 25,15,000 15,40,000 12,24,55,514
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INVENTORY MANAGEMENT
Average stock of Inventory Particulars Opening Stock Closing Stock TOTAL Average Stock 2010-11 86,19,190 1,21,17,469 2,07,36,659 1,03,68,329.5 2011-12 1,21,17,469 90,10,210 2,11,27,679 1,05,63,839.5

Average Stock of Raw Material Inventory Particulars Opening Stock Closing Stock TOTAL Average Stock 2010-11 63,33,556 43,08,249 1,06,41,805 53,20,902.5 Raw Material Consumption Particulars Opening Stock (+) Purchases (-) Closing Stock Total 2010-11 63,33,556 7,50,43,445 43,08,249 7,70,68,752 2011-12 43,08,249 8,18,55,789 40,15,901 8,21,48,137 2011-12 43,08,249 40,15,901 83,24,150 41,62,075

Average Work in Process Particulars Opening WIP Closing WIP Total Average 2010-11 82,65,151 43,10,941 1,25,76,092 62,88,046 2011-12 43,10,941 81,01,568 1,24,12,509 62,06,254.5

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INVENTORY MANAGEMENT
1) Inventory Turnover Ratio = Cost of Goods sold Average stock of inventory

2010-11 11, 75, 67,639 1, 03, 68,329.5 11.33 times

2011-12 12, 24, 55,514 1, 05, 63,839.5 11.5 times

Day of Inventory holding = 365/ Inventory turnover

2010-11
365/11.33 = 32.21 days

2011-12
365/11.5 = 31.73 days

2) Material Consumption Ratios = Raw Material Consumed/Average Raw Material


Inventory

2010-11
= 7, 70, 68,752

2011-12
= 8, 21, 48,137

53, 20,902.5 = 14.48 times


Days of Holding Inventory = 365/14.48 = 25.20

41, 62,075
= 19.73 times

= 365/19.73 = 18.49

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INVENTORY MANAGEMENT

The companys work in process may also be analyzed in order to know how efficiently the firm converts the WIP into finished goods.

Work In Process Inventory Turnover Ratio = Cost of Production Average WIP inventory

2010-11 = 11, 87, 72,639/ 62, 88,046 = 18.8 times

2011-12 = 12, 24, 55,514 / 62, 06,254.5 = 19.73 times

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Turnover Ratio

Ratios Inventory turnover ratio Material turnover ratio Work in process turnover ratio

2010-11 (in times) 11.33

In days 20102011 32.21 25.20 19.41

2011-12(in times) 11.5 19.73 19.73

In days 20112012 31.73 18.49 18.49

14.48
18.8

1) CG-PPI Adhesive Products Limited is maintaining an average of 60 days as inventory 2) In respect to material turnover, holding of inventory has been decreased from 25 days to 18 days. Material turnover times have been increased from 14 to 19 times. 3) The company turns its work in process into finished goods within 18 to 19 days in the year 2010-11 and 2011-12 but the turnover period is remained same in both years.

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INVENTORY MANAGEMENT
ANALYSIS OF THE ECONOMIC ORDER QUANTITY

Economic order quantity is the size of the order representing standard quality of the material and it is the one for which the aggregate of the costs of procuring the inventory and the costs of holding the inventory is minimum. There are two types of cost under EOQ 1) Ordering Cost 2) Carrying Cost 1) Ordering Cost: The term ordering cost is used in case of raw materials and includes the entire cost of acquiring raw materials. They include cost incurred in the following activities: requisitioning, purchase ordering, transporting, receiving, inspecting and storing (Store Department). 2) Carrying Cost: Cost incurred for maintaining a given level of inventory are called Carrying Costs. They include storage, insurance, taxes, deterioration, and obsolescence. EOQ Uses 1) EOQ is useful to decide how many inventories should be added when inventory is replenished. 2) It is useful in deciding lot sizes, which will reduce both ordering and carrying costs. 3) By using EOQ the optimum inventory level can be maintained, which will reduce the investment in inventories.

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INVENTORY MANAGEMENT

ECONOMIC ORDER QUANTITY FOR CONSUMABLES

[Note: 1 Ton= 907.185kgs]

1) Name of the Item: Polyamide Film 1 MIL / 25 MIC Item Code: 11027 Annual Usages: 3600 KGs Ordering Costs: Rs 2750 Carrying Costs: Rs 82.50 EOQ= 2*Annual Usage *Ordering Cost Carrying Cost

2*3600*2750 82.50

= 1, 98, 00,000 82.50 = 2, 40,000 = 489.89 or Approx 490

No. of order per year= 3600/490= 7.34

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INVENTORY MANAGEMENT
2) Name of the Item: Toluene Item Code: 13002 Annual Usages: 12 tons = 10886.2 KGS Ordering Costs: Rs 80 p.liter Carrying Costs: Rs 2.4 EOQ= 2AO C 2*10,886.2*80 2.4

17, 41,792 2.4

7, 25,746.66

= 851.9 i.e. 852 approx No. of order per year= 10886.2 KGS/852=12.77= approx 13

3) Name of the Item: Silicon Resin PSA 595 Item Code: 12031 Annual Usages: 15 tons = 13607.8 KGS Ordering Costs: Rs 380 p.liter Carrying Costs: Rs 11.4 EOQ= 2AO/C = 2*13,607.8*380 11.4

= 9, 07,186.66 = 952.46 or 952 approx

No. of order per year= 13607.8/952=14.29


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4) Name of the Item: Cotton Fabric Item Code: 11289 Annual Usages: 30,000 sq. meter Ordering Costs: Rs 37.25 Carrying Costs: Rs 1.12 EOQ= 2AO/C = 2*30,000*37.5 1.12

2, 00,892.85

= 448.21

No. of order per year= 30,000/448.21=66.93 5) Name of the Item: Adicryl AP 505 Item Code: XXX020 Annual Usages: 15 tons= 13607.8 KGS Ordering Costs: Rs 140 Carrying Costs: Rs 4.2 EOQ= 2AO/C = 2*13,607.8*140 4.2

= 9, 07,186.66 No. of order per year= 13,607.8/952=14.2 = 952.46 or 952 approx

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INVENTORY MANAGEMENT

Item No. 1

Item Description

Item Code

EOQ

No. of Order per year 7

Polymide Film 1 MIL / 25 11027 MIC

490

2 3 4 5

Toluene Silicon Resin PSA 595 Cotton Fabric Adicryl AP 505

13002 12031 11289 XXX020

852 952 448 952

13 14 66 14.2

ECONOMIC ORDER QUANTITY

Inferences 1) Toluene, Silicon Resin PSA 595 and Adicryl AP 505 can be purchase at bulk in order
to reduce ordering cost. 2) Cotton Fabric most order per year in order to reduce carrying and ordering cost.

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INVENTORY MANAGEMENT

SAFTY STOCK & REORDER LEVEL FOR RAW MATERIALS PRINTING Reorder Level
Reorder level is that inventory level at which an order should be placed to replenish the inventory. the term re-order point may be defined as same as above that level of inventory when fresh order should be placed with the suppliers for producing additional inventory equal to the EOQ. The re-order level would be established at appoint such that the stock in hand would be just sufficient to meet the demand during the lead line. To determine the re-order point with certainty we should know: (a) Lead time (b) Usage (c) EOQ Lead Time: The time between ordering a replenishment of an item and actually receiving the item in to inventory is referred to as lead time. If lead time is zero then no need for placing the order in advance. If the lead time exists and also demands known, then it is required to place an order in advance by an amount of time equal to the lead time. If the lead time is low, then a small stock is required. But if lead safety time is significant then the company will have to maintain higher safety stock level to avoid stock out. Thus the capital tied up in inventory will be high. Average Usage Average usage is the important used in reordering level. Average usage is consumption of materials is utilization of the resource to its maximum extent during a particular period say week, month, or year. Average consumption is arrived by dividing consumption during a particular period into the period taken for study. Safety Stock Safety stocks are maintained to minimize the effect of unascertained in demand on lead time. The safety stock may be defined as the minimum additional inventory to secure as a safety margin or cushion to meet on unanticipated increase in usage resulting from various uncontrollable factors. In case of imported items the safety stock component of
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INVENTORY MANAGEMENT
the inventory is likely to be large.

ANALYSIS OF SAFETY STOCK AND REORDER LEVEL FOR RAW MATERIALS PRINTINGS DETAILS OF STOCK

S. No.

Item Name

Item code

Average Lead Monthly time in Consumption days Normal 1400 KGS 15

Maximum Rate per Lead time unit in Days 30 136

Polyester Film 25 MIC Fiber Glass Fabric 461 S Natural Rubber PLC II Escorez 1204 Adcryl AP 505

11001

11102

3500 MTS

20

30

80.1

12026

500 KGS

20

30

215

4 5

12165

800 KGS

15 10

30 20

175 143

XXX020 1000 KGS

Safety stock = (MLT- LT) X A MLT = Maximum lead time LT = Lead time in days A =Average monthly consumption

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INVENTORY MANAGEMENT

Determining the safety stock position for Raw Material Printings S. No. 1 2 3 4 5 Item Name Polyester Film 25 MIC Fiber Glass Fabric 461 S Natural Rubber PLC II Escorez 1204 Adcryl AP 505

Calculations (30-15)/30*1400 (30-20)/30*3500 (30-20)/30*500 (30-15)/30*800 (20-10)/30*1000

Safety Stock 700 KGS 1,166.66 MTS 166.66 KGS 400 KGS 333.33 KGS

Inferences
From the above table it is necessary to keep the above quantity of items as safety stock to provide for average consumption during any increase in lead time from the normal lead time.

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INVENTORY MANAGEMENT
Fixing reorder level for Raw Material Printings ROL = LT X A + SS ROL = reorder level LT = lead time A = average monthly consumption SS = safety stock S. No. 1 2 3 4 5 Item Name Polyester Film 25 MIC Fiber Glass Fabric 461 S Natural Rubber PLC II Escorez 1204 Adcryl AP 505

Calculations (15/30*1400)+700 (20/30*3500)+1167 (20/30*5000)+167 (15/30*800)+400 (15/30*1000)+1000

ROL 700 KGS 3500 MTS 500 KGS 800 KGS 833.33 KGS

Inferences
1) From the table it can be explained that the company should fix its reorder level as per the calculated level. 2) Item Fiber Glass Fabric 461 S and Natural Rubber needs close control with regards to replenishing and its lead time is longer and quantity required is more per month. 3) It can be understood clearly that the reorder quantity increase with the corresponding increase in lead time.

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INVENTORY MANAGEMENT
Process of Physical Inventory Maintenance
CG-PPI Adhesive Products Limited has its own store department that we can call it as Work-in-process inventory. This inventory process is fully computerized and here paper work is very less. Only maintaining of documents, which were sent by suppliers as like challans etc., are only here to maintain as paper documents. Otherwise it is fully computerized. Through computers only Store Department receives Purchase Order and by computer only they send documents of issuing of materials to production department. For easy to communicate and planning of production activity, CG-PPI Adhesive Products Limited has having only one Godown in Procedures involved in receiving and issuing of materials are as follows: 1) Godown will first get Purchase Order No..

Purchase Order Number: This PO is comes from Purchase Department. This Purchase Department gives a number for the each order made by Purchase Department only. Before placing any order to suppliers they first check the materials in inventory as to know about whether materials are available in Inventory or not. If not available in Inventory then only they will place an order according to the requirement. In CG-PPI Adhesive Products Limited it is very important to note that: purchase department always places an order to those materials which have ordered by Customers/buyers of CG-PPI Adhesive Products Limited. So, normally it does not have any stocks in its inventory. For every order from customers they make a fresh Purchase Order for purchasing of materials. It means whatever the materials are requiring for present orders, those materials are only they kept as stocks in Inventory. In some cases, materials may be in Godown, which they call it as Buffer Stock. If these old stock is matches the requirements of product which has ordered now by its customers,
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then purchase Department will sent a notice to Inventory for issuing of those materials. These old stock may be in form of Raw Material or in form of Work in Process. CG-PPI Adhesive Products Limited always produces more than its requirements. For example if Polyester tape has ordered for 100 and there is only 80., 20% more than its requirements. So the remaining or excesses material they call it as Buffer Stock.

2)

Receiving of Materials

Any materials comes-in or goes-out from the Godown it should be enter in the Gate that is they call it as Gate Entry, which is maintained by security Guard. Guard is not an employee of an organization. He is a contract-based employee. When Inventory receives materials it first inspects some samples, so for it, they call up as Spot Inspection. Here they inspect the following points:

a) Is it our supplier only and is this parcel is for us only? a. Are these received materials according to the Purchase Order? Like i. Quantity ii. Date, etc., b. Is it having all required Challans or Invoices and also does it approved by authorized person? c. Is it having all required documents like Octroi etc., d. Is that Challan consisting the correct information of materials? After approval of materials by sample inspection, inventory department put these details in manual book; this documentation is called as Day Book. This daybook is consisting of information like Challan No., P.O. No., Style No., Description of Materials, Suppliers Name, transporters Name, and Quantity.

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After completing of these processes, materials will send to inspection department. In this inspection department they inspect in-details of materials. After approval by inspection department, this inventory department makes one document, which is they call it as Goods Received Document.

This Goods Received Document is consisting of GR No., Date, GRN Type (In-store), Mode of Transport, Challan No., Challan Date, Status, Gate Entry No., Gate Entry Date, Priority No., all Details of Materials and received quantity and actual quantity also enters there.

1) Issuing of Materials Merchandising Department will send one card called Job Card which it consisting of all details of materials requires to produce a product. According to that Card Inventory department should send the materials to manufacturing department. After receiving of materials by manufacturing department from inventory department they issue one document about received of materials, quantity, description of materials etc. Manufacturing Department uses these materials for manufacturing purpose. In manufacturing process sometimes it may happens like some materials get damages and some are not fully matches with requirements. Then those materials will be return to inventory. After utilizing of all these materials by manufacturing department they will send one document called Order Completion Report (OCR). This report consists the information of Percentage of Utilized Materials for particular order and percentage of wastage of materials. This report will send to inventory and also to Merchandising Department.

4.

Return Back Materials from Manufacturing Units:

Inventory takes those materials, which are return back from manufacturing units because of excess or surplus occurs while manufacturing of products. This excess or surplus
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exists because of purchase department, they always orders 20% more than its requirement to meet the requirement of next month. So these materials are kept in Inventory as name it as Buffer stock. These Buffer Stocks will be utilize when company get the same type of Order. Inventory issues these materials (Buffer Stock) only when it receives instruction from Merchandising and purchasing Department.

5.

Rejected Materials:

Inspection department make the rejection of materials, when materials are not as per requirements and not as per the order. These rejected materials are kept in separate section by Inventory Department. Inventory department inform to Purchase Department and also notice to Suppliers about rejection of materials. That is called Rejection Card. In this card it involves Name of Supplier, Description of Materials, Challan No., Challan Date, Gate Entry No. & Date, No. of Quantity rejected, Reason for rejection etc., Sometimes supplier may issue new materials in place of rejected materials. Or he may give some compensation for wrong supply and that is after paying of full payment of materials.

Purchasing Procedure of Materials In CG-PPI Adhesive Products Limited they purchase materials at from a multiple Suppliers. There is a reason for purchase materials from multiple suppliers. The reason is if one supplier delays to fulfill the supply then there must be alternative supplier for it to fulfill the requirement. So there must be no stock outs in the production process.

CG-PPI Adhesive Products Limited always purchases at bulk but by schedule wise. In other words they purchase materials at a time for specific order. They make the agreement of some supplying materials only at once. And they negotiate the price

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according to market condition and once their agreement is over then they provide schedule to supplier to supply the materials at a specific time and at a specified quantity. So it reduces the spaces, which occupies in the Godown. So this method is suitable for this type of industry because of same orders from customers.

WIP Store Now we come to the WIP Store. As we have already seen that this CG-PPI Adhesive Products Limited is having only one Godown and company is having its own Store Departments. As we know that Work In Process Store means Semi-finished Goods, here goods are not completed yet and not these are in fully raw materials form. So in valuation matter it is having slightly different way. And in CG-PPI Adhesive Products Limited it is as follows: Yes, these goods are includes some labour cost, some other costs. So in valuation of WIP they valuate at Raw Material Price of those goods PLUS incurred cost to produce till now.

Finished Goods Valuation of Finished Goods in CG-PPI Adhesive Products Limited is at 10% less than Selling Price of those finished goods. Finished Goods are in the sense these goods should be ready to dispatch. There is no separate Godown for Finished Goods/Products. Every unit is having its own Finished Goods Godown. In that Godown only they store these Goods. And dispatching of these products is directly by company. They do not consolidate these goods; they dispatch these finished products directly by company.

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ABC ANALYSIS

ABC analysis classifies inventory items in three categories based on their values. Always better control is its real meaning. Items of high value but small in number are classified as A item, which would be under a strict control. Moderate value and size are classified as B items and the management should pay reasonable attention. Small value items would require simple control. The values also relatively low in this type of items. Advantages of ABC Analysis. 1. Facilitates selective control and thereby saves time. 2. Eliminates lot of unnecessary paper work. 3. Facilities control over usage of stores materials which ultimately results in cost and there by inventory control. Limitations of ABC Analysis i) Low value purchases frequently require more items and thereby reduce the time available for value analysis, vendor investigation. ii) Classifications of items should be reviewed and updated periodically otherwise the very approach of control may be defected.

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SELECTIVE INVENTORY CONTROL TOOL The company pays its attention only A class items of raw material analysis for its over all inventory system. But the company is in a situation to group its important inventories in ABC analysis. Procedure of ABC analysis Actual inventory usage basis ABC analysis on actual inventory holding Basis with the following steps i) Determine the period in respect if which the usage is to be computed. ii) Determine the actual consumption value of selected period. iii) Average the items in descending order placing first the item having the highest value. Reason for selection of actual inventory holding Basis In CG-PPI Adhesive Products Limited the emphasis is placed on the Actual inventory holding basis with a view to avoid stock outs. S. No. 1 2 3 TOTAL Inventory Nature Raw Material with high value Consumables and spares Packing Materials Class A B C Annual Value (in lakhs) 925 25 10 960 % of annual value 96% 3% 1% 100%

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Findings
1) Company is incurring more expenditure on inventory because of holding high level of stock. 2) Working capital blocked in the inventory for 31 days (one month) which is a quite healthy sign for an organization. Perfect inventory levels are good for the company because they represent an investment is medium. It also rises the company up to height should price begin to rise. 3) Safety stock should be increased in case of Polyester Film 25 MIC, Fiber Glass Fabric 461 S, Natural Rubber PLC II, Escorez 1204 and Adcryl AP 505 because average consumption and safety stock is half of monthly consumption. 4) Modern inventory control techniques are followed by the company. 5) Item Fiber Glass Fabric 461 S and Natural Rubber needs close control with regards to replenishing and its lead time is longer and quantity required is more per month. 6) In respect to material turnover, holding of inventory has been decreased from 25 days to 18 days. It is very good sign for the company because there is an optimum investment in inventory

Suggestions
1) It may suggest that proper reorder level for consumables and raw materials printing may be maintained so that, the company can prevents the over stock or stock out level. 2) As it was understood from the study that the company maintaining safety stock which is not adequate to certain materials. So to avoid stock out the safety stock may be maintained at optimum level. 3) To reduce the inventory cost such as carrying cost, ordering cost it is suggested that the company can apply EOQ model to all the materials, consumables and tools to the extent possible. The reorder level should be placed at the right time, based on the raw material availability in the store.

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6) In order to reduce the expenditure and to maintain inventories at optimum level, it is necessary to implement proper planning, budgeting and coordination among all functional departments. 7) The review can be made to all the material available in the store to avoid the unnecessary dumping of materials, so the company can save the storage cost and space. 8) The production department may introduce the new technique called vendor quality management to ensure the standardized quality in the finished product. The concept is adopted in all leading companies. 9) To reduce the lead time and to save ordering cost it may be suggested to localize certain important items instead of importing from other country. This will give a chance for increasing employment opportunities to our people.

CONCLUSION
Inventory control means the availability of right materials of right quantities coordinated with lead time. Each and every component of inventory is important and managing the inventories to keep in an optimum level is a must. Being a tape industry CGPPI is facing a stiff competition in the market. Since inventory is the major part of their cost of production there is a need for inventory control by way of reducing cost and optimum utilization of materials. Though the company is having certain policies regarding this, still it requires through study of their policy and systems to some extent to understand the inventory management.

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