INVENTORY AND STORE MANAGEMENT

INTRODUCTION:
Every enterprise needs inventory for sooth running of its activities. It serves as a link
between production and distribution process. There is generally, a time lag between the
recognition of a need and its fulfillment. The greater the time lag, the higher the
requirements for inventory. It also provides a cushion for future price fluctuations.

In a complex industry like Zuari Industries Ltd., it was studied clearly of how the things
are Being performed and what is the real impact of these on industry and how effectively
the inventory is utilized is interested to be known by researcher because of its great
significance in the research.

NEED FOR THE STUDY:

Every industry on an average spends 70% on raw material (inventory). Therefore there is
a need to know the raw material cost and also there is a great importance to understand
the inventory management system of this industry.
The study helps a lot to various departments to steps to control the inventory process.

OBJECTIVES OF THE STUDY:

To maximize the organization structure of inventory management in the stores of

Zuari Cement.

To discuss pattern, levels and trends of inventories in Zuari Cements.

To understand the various inventory control techniques followed by studies in

Zuari Cements.

To access the performance of inventory management of the Zuari Cements by

selected accounting ratios.

To know the inventory control techniques of Zuari Cements.

METHODOLOGY OF THE STUDY:

The study is based on both primary and secondary data. The primary data had
been collected structured questionnaire reflecting inventory management practices of
zuari cements. The collected data is tabulated and suitable interpretation had been made
by considering the data collected through secondary data like annual reports purchase
registers, storage records of the organization.

LIMITATIONS OF THE STUDY:

The study has the following limitations:

The study is limited only for a period of 5 years i.e. from 2000-01 to 2005-06.

The limitations of ratio analysis can applicable to the study.

There may be approximation in calculating ratios and taking the figures from the
annual reports.

The main objectives of inventory management or operational and financial. The

operational objectives means that the material and suffers should be available
insufficient quality so that work is not disrupted for want of inventory.

The assumption of a constant consumption and the instantaneous replenishment of

inventory are of doubtful validity.

The possible there may be unusual and unexpected demand for the stock.
In addition to the above there are computational problems involved.

HISTORY OF INDIAN CEMENT INDUSTRY

By starting production in 1914 the story of Indian cement is a stage of continuous

growth. Cement is derived from Latin word Cemented.
Egyptians and Romans found the process of manufacturing cement in England during 1 st
century the Hydraulic cement has become more versatile building material. Later on, Pat
land cement was invented and the invention was usually attributed to Joseph Asp Din of
England.
India is the worlds 4th largest cement produced after China, Japan & USA. The
South Industries have produced cement for the 1st time in 1904, the most basic and
progressive industry. Till1950-51, the capacity if production was only 3.3 Million tones.
So far annual production and demand have been growing a pace at roughly 78 Million
tones with installed capacity of 78 MT.
In the remaining 2 Years of 8th plan an additional of 23 MT has been planed,
assuming that at least 16 MT will actually come up.
India is well endowed with cement grade limestone (90 Billion Tones) and coal
(190 Billion Tones). During the 90s it had a particularly impressive expansion with
growth rate of 10 %.
The strength and vitality of Indian cement industry can be gauged by interest
shown and support given by World Bank, considering the excellent performance of the
industry in utilizing the loans and achieving the objectives and targets. The World Bank is
examining the feasibility of providing a 3 rd line of credit for further upgrading the
industry varying areas, which we make it global with the liberalization policy of Indian
Govt. The industry is posed for a high growth rate in 90s and the installed capacity is
expected is 199 MT and production 90 MT by 2003.

The industry has fabulous scope for exporting is product to countries like the
USA, UK, Bangladesh, Nepal and other several countries. But there not enough wagons
to transport cement for shipment.

CEMENT-THE PRODUCT:
The natural cement is obtained by burning and crushing the stones containing
clay, carbonate of line and some amount of carbonate of magnesia. The natural cement is
brown in color and its best variety is known as ROMAN CEMENT. It sets very quickly
after addition of water.
It was in the 18th century that the most important advances in the development
were it finally led to the invention of Portland cement.
In 1756, John Seaton showed that Hydraulic lime which can resist the action of
water can be obtained not only from hard limestone but from a limestone which contain
substantial proportion of clay.
In 1756, Joseph Parker found that modules of argillaceous limestone made
excellent hydraulic cement when burned in the usual manner. After burning the product
was reduced to a powder. This started the natural cement industry.
The artificial cement is obtained by burning at a very high temperature a mixture
of calcareous and argillaceous material. The mixture of ingredients should be intimate and
they should be in correct proportion. The claimed product is known as Clinker. A small
quantity of gypsum is added to clinker and it is then pulverized into fine powder, which is
known as CEMENT.
The common variety of artificial cement is known as normal setting cement of
ordinary cement. A mason Joseph Asp Din of leads in England invented in 1824. He took
out a patent for this cement and called it PORTLAND CEMENT because it had

resemblance in its color after setting to a variety or sandstone, which is found in

abundance in Portland England.
The manufacturing of Portland cement was started in England around 1825. Belgium and
Germany started the same in 1855. America started in 1872 and India started in 1904 by
South India Ltd. And then onwards a number of factories producing different types of
cements.

COMPOSITION OF CEMENTS:
The ordinary cement contains two bases ingredients, namely Argillaceous and
Calcareous. In Argillaceous materials the clay predominates and in calcareous materials
the calcium carbonate predominates.
A good chemical analysis of ordinary cement along with desired range of
ingredients.

INGREDIENTS

PERCENT

RANGE

Lime (CaO)

62

62-67

Silica (SiO2)

22

17-25

Alumina (Al2 O3)

3-8

Sulphate 4

3-4

Calcium

(CaSo4)
Iron Oxide (Fe2 O3)

3-4

Magnesia (MgO)

1-3

Sulphur (S)

1-3

Alkalis

0.2-1

INDUSTRY STRUCTURE AND DEVELOPMENT:

With a capacity of 115 MT of large cement plants. Indian cement is the 4 th in world.
However per capital consumption in our country still at only 100kgs against 300kgs of
developed countries and offers significant potential for growth of cement consumption as
well as addition to cement capacity. The recent economic policy announcement by the
government in respect of housing roads, power etc., will increase cement consumptions.

RISKS AND CONCERNS:

Slow down of Indian economy or drop in growth rate of agriculture may adversely
effect the consumption. The recent increase in railway coupled with diesel/petrol price
like will increase the cost of production and distribution, as being bulky, cement is freight
intensive increase in limestone royalty also adds to the cost of production, which
considerably higher than corresponding of many other developing countries.
In our country there is need to under take a massive program of house
construction activity into rural and urban areas, it is impossible to construct a use without
cement and steel. In other wards, cement is one of the basic construction materials and
therefore it is one of the vital elements for the economic development of the nation.
Cement companies

51 nos

Cement plant

99 nos

Installed capacity

64.8mt

Total Investment (approx)

Rs.1000 crores

Management Award of the Govt. of Andhra Pradesh Zuari is also conscious of its
social responsibilities. Its rural and community development programmers include
adoption of too near by villages, running an agriculture demonstrations farm, a model
dairy farm etc., impressed by these activities, FAPCCI choose Zuari to conger the award

10

for Best efforts of and industrial unit in the state to develop rural economy twice, in the
year as well in 1998. Zuari also as to its credit the National Award (Sri S.R.Rungta Award
for Social awareness) for the year 1995-96, for the Best Rural Development and Pollution
Control for the year 1999 too, for the 3rd year succession in July 2001; Zuari annexed the
Vana Mithra Award from the Govt. of Andhra Pradesh.
Quality conscious and progressive in its out look; ZUARI CEMENTS is an
OHSAS 18001 Company7 and also joined the selected brand ISO9001-2000 Companies.

HISTORY:
The 1st unit was installed at Basanth Nagar with capacity of 2.5 Lack TPA (tones
per annum), during the year 1969.
The 2nd unit followed suit with added a capacity of two Lack TPA in 1971.
The plant was further expanded to 9 Lacks by adding of 2.5 Lack terms in August
1978,1.13 Lack tones in January 1981 and 0.87 Lack terms in September in 1981.

POWER:
Singareni Colleries makes the supply of coal for this industry and the Power was
obtained from A.P. Trasnco. The power demand for the factory is about 21 MW. Zuari has
got 2 Diesel generator sets of 2 MW each installed in the year 1987.
Zuari Cement now has a 15 KW captive power plant to facilitate for uninterrupted
power supply for manufactured of cement.

11

ZUARI CEMENTS:
One among the industrial giant in the country today, serving the nation on the
industrial front Zuari Industries Ltd. Has a cheered and eventful History was dating back
to the 20s when the industrial house if Birlas acquired it. With only a Textile, Mill under it
banner in 1924, it grew from strength and spread its activities to never fields like Rayon,
Pulp Transparent paper, Spun pipes and refractoriness, Tires, Oil mills and refinery
extract on.
Looking to the wild gap between demand and supply, of a vital commodity,
cement, which plays an important role in nation-building, the Govt. of India de-licensed
the cement industry in the year 1966, with a view to attract private entrepreneurs to
augment the cement production Zuari rose to the occasion and decided to set up a few
cement plants in the country.
The first cement plant of Zuari with a capacity of 2.5 Lack tones per annum based
on dry process was established in 1969 in Basanth Nagar a backward area in Karimnagar
Dist, A.P. and christened it Zuari Cement. The 2nd followed suit with added a capacity of
2.00 Lack tones in 1971. The plant was further expanded to 9 Lack tones by adding 2.5
Lack in August 1978, 1.13 Lack terms in January 1981 and 0.87 Lack tones in September
1981.
Zuari cement has outstanding track record of performance and distinguished
among all the cement factories in bagging the coveted national awards for mines safety
for 2 years 1985-86 and 1986-87. Zuari also bagged NCBMs (National Council for
Cement and Building Materials), national award for energy conservation for the year
1989-90.
Zuari go the prestigious State award Yajamanya ratna and best
Management Award for the year 1989, so also the FAPCCI (Federation of A.P. Chamber

12

of Commerce & Industry) Award for Best Family Planning effort in the. For the year
1987-88, Zuari also got the FAPCCI Award for Best Industrial Promotion/Expansion
effort in the state. In the year 1991, Zuari also got the Mayday Award of the Govt. of
Andhra Pradesh for Best Management and pandit Jawaharlal Nehru Silver Rolling
Trophy for Best Industrial Productivity effort in the state, sponsored by FAPCCI. For
1993 zuari got the best.

PERFORMANCE:
The performance of Zuari Industry has been out standing achieving oven cent
percent utilization all though despite many odds like power cuts and which most 40% was
waste due to wagon shortage etc.
The company being a continuous process industry works round the clock and has
an excellent record of performance achieving over 1005 capacity utilization.
Zuari has always combined technical progress with industrial performance. The
had a glorious tract record for the last 27 years in the industry.

13

TECHNOLOGY:
Zuari Cement uses most modern technology and the computerized control in the
plant. A team of dedicated and well-expanded experts managers the plant. The quality is
maintained much above the bureau of Indian standards.
The raw materials used for manufacturing cement are:

Limestone

Bauxite

Hematite

Gypsum

Environmental and social Obligations:

For environmental promotion and to keep-up the ecological balance, this section
has under taken various social welfare camps, surgical camps, children immunization
camps, animal health camps, blood donations camps, distribution of fruit bearing and
seeds, training for farmers etc., were arranged.

Welfare and Recreation Facilities:

For the purpose of recreation facility, two auditoriums were provided for playing
indoor games, cultural function and activities drama, music and dance etc.
The industry has provided libraries and reading rooms. About 1000 books are
available. All kinds of news papers, magazines are made available.
Canteen is provided to cater the needs of the employees for supply of snacks, tea, coffee
and meals etc.
One English medium and one Telugu medium school are provided to meet the
educational requirements.

14

The company has provided a dispensary with a qualified Medical office and
paramedical staff for benefit of the employees covered under ESI scheme has to avail the
medical facilities from the ESI hospital.
Competitions in sports and games are conducted every year for August 15 th.
Independence Day and January 26th, Republic Day among the employees.

ELECTRICITY:
The power consumption per ton for cement has come down to 108 units against
113 units last year, due to implementation of various energy saving measures. The
performance of captive power plant of this section continuous to be satisfactory. Total
power generation during the year was 84 million units last year. This captive power plant
is playing a major role in keeping power costs with in economic levels.
The management has introduced various HRD programs for Training and
Development and has various other measures for the betterment of employees
efficiency/performance.
The section has installed adequate air pollution control system and equipment and
ISO 14001 such as Environment Management system is under implementation.

15

AWARDS:
Zuari Cement bagged many prestigious awards including National awards for
Productivity, Technology, Conservation and several State awards since 1984.

The following are the some of important awards:

SI.NO YEAR

AWARDS

1976

FAPCCI award for the Best Family State

1978

Planning Efforts
FAPCCI award to Best Industrial State

1984

Promotion/Expansions Efforts
Best Family Planning Efforts in the State

1985-86

State
National Productivity Award

National

1986-87

Mines Safety

National

1987-88

Best Industrial Promotion/Expansions State

1988-89

Efforts
Productivity Award

State

1988-89

Best Industrial Promoter

State

1988-89

Expansions Efforts in the State

State

10

1989

Yajamanya Ratna & Best management State

11

1989-90

Awards
Community Development Programs

State

12

1989-90

Energy Conservation

National

13

1991

Mayday award of the Govt. of A.P. for State

1991

Best Management
Pandit Jawaharlal Nehru rolling for the State

14

AWARDS

best National Productivity effort

16

15

1993

Indira Gandhi National Award for State

excellence

in

Industry

(Best

16

1994

Management Award)
Best Industrial Rebellion award

17

1994-95

Rural Development by Chief Minister State

18

1995

State
Environment and mineral conservation State

19

1995

award
Best Industrial Rebellion award

20

1995-96

Best effort of an Industrial unit to State

1996

Development
Sri S.R. Runta award for social National

21

State

State

awareness for best rural Development

22

1996

efforts
Best Family welfare award

State

23

1996-97

Best workers welfare

State

24

1999

First prize for mine environment & State

pollution control for the 3rd year in

25

2001

succession
Vana Mithra

26

2002

Government
Company has got OHSAS 18801 National
(Occupational

award

Health

from

and

A.P. State

Safety

Assessment Series) certification from

27

2007

DNV, New Delhi

Best Management Award from A.P. State
Govt.

17

In the mines safety week celebrations, under the auspices of the director general of mines
safety, Zuaris Basanthnagar limestone mines won two times 1 st prizes for environment
and pollution control and safe drilling and blasting and 14 times 2 nd prizes for over all
Performance, Productivity, Operation and maintenances of machines public-propaganda
etc.
This section also bagged the award for Godavari Pradushana Pariharana
Pariyavarana.

PRODUCTION:

Last 15 years production of Zuari Cement Industry, Basanth nagar.

YEAR

PRODUCTION (in tones)

1991-92

6,43,663

1992-93

7,48,258

1993-94

6,85,596

18

1994-95

7,31,117

1995-96

7,84,555

1996-97

7,82,383

1997-98

7,31,049

1998-89

7,46,474

1999-2000

6,88,305

2000-01

7,77,092

2001-02

7,27,447

2002-03

7,30,254

2003-04

7,35,012

2004-05

8,24,362

2005-06

9,84,574

2006-07

10,46,166

2007-08

10,56,742

Note: Production including internal consumption also.

Cement and Clinker production were lower than the previous year mainly because of
lower dispatches of cement due to recession prevailing in cement industry with slow
down in demand during the year under review. This section had to curtail production due
to accumulation of large stocks of kerr. However sale, realization during the 2 nd half of the
fear has improved and it is hope that prices will stabilize at some reasonable levels.

Directors of Zuari Industries Ltd.,

Chairman:

Syt. B.K. Birla

Directors:

19

Shri. Krishna Gopal Maheshwari

Shri. Bhagawathi Prasad Bajoria

Shri. Pesi Kushru Choksey

Shri. Neetha Mukerji (Nominee of ICICI Bank Ltd.,)

Shri. Dharmanada Mishra (Nominee of LIC)

Shri. Amitabha Ghosh

Shri. Prasanta Kumar Mallik

Smt. Manjushree Khaitan

Smt. Shiv Kumar Parik (Also Company Secretary)

Team Executives:

Shri. K.C. Jain

Sr. President

Cement Sections & Manager of the Company

Corporate Office:

Shri. U.S. Asopa

Sr. Vice President (Finance)

Shri. S.R. Chamaria

Sr. Vice President (Accounts & HRD)

Shri. Suresh Sharma

Sr. Vice President (Commercial)

Shri. G.K. Ojha

Vice President (Secretarial)

Shri. Vika Agarwal

Vice President (taxation)

Shri. Yashwanth Mishra

Vice President (internal control)

20

Zuari Cement Section:

Shri. S.V. Thapadia

Joint President ( finance & ADMN)

Shri. K.L. Narayana Rao

Joint President (technical )

Shri. K.K. Prasad

Vice-President (mines )

Auditors:
Masses price water house

Subsidiary Companies of Zuari Industries:

1. Bharat General & Textiles Industries Ltd.
2. KICM Investment Ltd.
3. Assam Cotton Mills Ltd.
4. SoftShree Estates Ltd.

21

INVENTORY INTRODUCTION:
The inventories constitute the most significant part of current assets/working
capital in most of the undertaking. Thus, it is very essential to have proper control and
management of inventories.
The purpose Inventory Management is to ensure availability of material in
sufficient quantity as and when required and also to minimize investment in inventories.
Meaning and Nature of Inventory:

22

In accounting language, inventory may be the stock of insured goods only.

In a manufacturing company concern it may include raw-materials, work-in
process and stores etc.
Inventory includes the following things:

1. Raw-Materials:
Raw-Material from a major into the organization. They are requiring carrying out
production activities uninterruptedly. The quantity 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
affect the stock of Raw-Materials.

2. Work-in-progress:
The Work-in-progress is that stage of stocks which are in between Raw-Material and
finished goods. The quantum of Work-in-progress depends upon the time taken in the
manufacturing process.

3. 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.

4. Spares:
The stock policies of space fifer from industry to industry. Some industries like transport
will require more spares than the others concerns. The costly spare parts like engines,
maintenance etc., are not discarded after use, rather they are kept in ready position for
further use.
All decisions about spares are based on the financial cost of inventory on such spares and
the costs that may arise due to their non availability.
23

BENEFITS OF HOLDING INVENTORIES:

Although holding inventories involves blocking of firms funds and the costs of storage
and handling, every Business enterprise has to be maintain certain levels of inventories to
facilitate un-interrupted production and smooth running of business.
In the absence of inventories a firm will have to make purchases as soon as it
receives order. It means loss of time and delays in execution of orders with some times
may cause loss of customers and business.
A firm needs to maintain inventories to reduce ordering cost and quantity
discounts etc.,
These are 3 main purpose of holding inventories:
A. The transaction motive: which facilities continuous production and timely
execution of

sales order?

B. The transaction motive: which necessitates the holding of inventories for meeting
the unpredictable changes in demand and supply of materials?
C. The speculative motive: this induces to keep inventories for taking advantage of
price fluctuations, savings in re-ordering costs and quantity discounts.

RISKS AND COSTS OF HOLDING INVENTORIES:

The holding of inventories involves blocking of firms funds and incurrence of
capital and other costs.
The various costs and risks involved in inventories are:

a) Capital Costs:

24

Maintaining of inventories results in blocking of the firms financial resources. The firm
has therefore to arrange for additional funds to meet the cost of inventories.

b) Storage and Handling Costs:

Holding of inventories also involves costs on storage as well as handling of materials.
The storage of costs include the rental of the go down, insurance charges etc.,

c) Risk of Price Decline:

There is always a risk of reduction in the prices of inventories by the supplies,
competition or general depression in the market.

d) Risk of Obsolescence:
The inventories may become obsolete due to improved technology, changes in
requirements, changes in customer tastes etc.,

1. Risk determination in quality:

The quality of materials may also deteriorate while the inventories are kept.

OBJECTIVES OF INVENTORIES MANAGEMENT:

Definition of Inventory Management:
Inventory Management is concerned with the determination of optimum level of
investment for each component of inventory and the efficient use of components and the

25

operation of components and the operation of and effective control and review of
mechanism.
The main objectives of Inventory Management are operational and financial. The
operational objective mean that the materials and spares should be available in sufficient
quantity that work is not disrupted for want of inventory.
The financial objective means that investments inventory should not remain Idle
and minimum working capital should be locked init.

The following are the objectives of Inventory Management:

2. To ensure continuous supply of materials, spares and finished goods so that
production should not

suffer at any time and customers demand should also be

met.
3. To avoid both over-stocking and under-stocking of inventory.
4. To maintain investment in inventories at the optimal level as required by
operational and sales over all costs.
5. To keep material cost under control so that they contribute in reducing the cost of
production and over all costs.
6. To eliminate duplication in ordering or replenishing stocking. This is possible with
the help of centralizing purchases.
7. To ensure perpetual inventory control so that materials shown in stock ledgers
should be actually lying in the stores.
8. To ensure right quality goods at reasonable prices. Suitable quality standards will
ensure proper quality of stock. The price analysis, the cost analysis and value
analysis will ensure payment of proper prices.
9. To facilitate furnishing of data for short-term and long-term planning and control
of inventory.

26

TOOLS AND TECHNIQUES OF INVENTORY MANAGEMEN

A proper inventory control not only helps in solving the acute problem of
liquidity but also increases profit and caused substantial reduction in the working capital
of the concern.
The following are the important tools and techniques of Inventory Management
and control:

1. Determination of Stock Levels:

Carrying of too much and too little of inventory is detrimental to the firm.
If the inventory level is too little, the firm will face frequent stock outs involving heavy
Ordering Cost and if the inventory level is too high it will be unnecessary tie up of
capital.
An efficient Inventory Management requires that a firm should maintain an
Optimum Level of inventory where inventory costs are the minimum and at the same time
there is no stock out which may result in loss or sale or shortage of production.

i. Minimum Stock Level:

It represents the quantity below its stock of any item should not be allowed to fall.

Lead Time:
A purchasing firm requires sometime to process the order and time is also required by the
Supplying firm to execute the order.
The time in processing the order and then executing it is known as Lead Time.

Rate of Consumption:
It is the average consumption of materials in the factory. The rate of consumption will be
decided on the basis of past experience and production plans.

Nature of Materials:

27

The nature of materials also affects the minimum level. If a material is

required only against the special orders of the customers then minimum stock will not be
required for such material.
Minimum stock level can be calculated with the help of following formula.
[Minimum Stock Level = Re-ordering Level (Normal X Normal Re-order Period)]

ii. Re-Ordering Level:

When the quantity of materials reaches at a certain figures then fresh order
sent to get materials again. The order is sent before the materials reach minimum stock
level.
Re-Ordering level is fixed between Minimum level and Maximum level.

iii.

Maximum Level:

It is the quantity of materials beyond which a firm should not exceed its stocks. If the
quantity exceeds maximum level limit then it will be over stocking.
Over stocking will mean blocking of more working capital, more space for store the
materials, more wastage of materials and more changes of losses from obsolescence.
[Maximum Stock = Re-Ordering Level + Re-order Quantity (minimum
consumption X minimum order period)].

iv.

Danger Stock Level:

It is fixed below minimum stock level.

The Danger stock indicates emergency of stock position and urgency to

obtaining fresh at any cost.
28

[Danger stock Level = Average rate of consumption X Emergency delivery time].

v. Average Stock Level:

This stock level indicates the average stock held by the concern.
[Average Stock Level = Minimum stock level = X Order quantity].

2. Determination of Safety Stocks:

Safety stock is a buffer to meet some unanticipated increase in usage. The demand for
material may fluctuate and delivery of inventory may also be delayed and in such a
situation the firm can face a problem of stock out.
In order to protect against the stock out arising out of usage fluctuations, firms
usually maintain some margin of safety stock.
Two costs are involved in the determination of this stock outs will occur resulting
into the larger opportunity costs. On other hand, the larger quantity of safety stocks
involves carrying costs.

3. Economic Order Quantity (EOQ):

The quantity of material to be ordered at one time is known as Economic Order Quantity.
The quantity is fixed in such a manner as to minimize the cost of ordering and carrying
costs.
Total cost of Material = Acquisition cost + cost + Carrying cost + Ordering cost.
Carrying Costs:
It is cost of holding the material in the store.

Ordering Cost:

It is the cost of placing orders for the purchase of materials.

EOQ can be calculated with the help of the following formula.

EOQ = 2CO/I

29

Where,
C = Consumption of the material in units during a year.
O = Ordering Cost.
I = Carrying Cost or Interest payment on the capital.

4. A-B-C Analysis (Always Better Control Analysis)

Under A-B-C Analysis, the materials are divided into 3 categories viz., A, B, and C.
almost 10% of
the items contribute to 705 of value of consumption and this category is called a A
category.
About 205 of the items contribute about 20% of value of consumption and this is known
as
category B; materials.
Category C covers about 705 of the items of materials which contribute only 10% of
value of consumption.

5. VED Analysis: (Vitality Essential Desire)

The VED Analysis is used generally for spare parts. Spare parts classified as Vital
(V), essential (E), and Desirable (D).

The Vital spares are a must for running the concern smoothly and these must be
stored adequately.

The E type of spares is also necessary but their stocks may be kept at low
figures.

The stocking of D type spares may be avoided at times. If the lead time of these
spares is less, then stocking of these spares can be avoided.

6. Inventory Turnover Ratio:

30

Inventory Turnover Ratios are calculated to indicate whether inventories have been used
efficiently or not.
The Inventory Turnover Ratio also known as stock velocity is normally calculated as
sale/average inventory of cost of goods sold/average inventory.
Inventory conversion period may also be calculated to find the average time taken for
clearing the stocks.
Symbolically..
[Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory at Cost]

(OR)
[Inventory Turnover Ratio = Net Sales / Average Inventory]
[Inventor Conversion period = Days in a Year / Inventory Turnover
Ratio]
7. Classification and Codification of Inventory:
The inventories should first classify and then code numbers should be assigned foe their
identification. The identification of short names are useful for Inventory Management not
only for large concerns but also for small concerns. Lack of proper classification may also
lead to reduction in production.
Generally, materials are classified accordingly to their nature such as construction
materials, consumable stocks, spares, lubricants etc. after classification the materials are
given code numbers. The coding may be done alphabetically or numerically. The later
method is generally used for coding.
The class of materials is assigned two digits and then two of three digits are assigned to
the categories of items divided into 15 groups. Two numbers will be category of materials
in that class.

31

The 3rd distinction is needed for quality of goods and decimals are used to note factor.

8. Valuations of Inventories Method of Valuation:

FIFO Method
LIFO Method
Base Stock Method
Weighted Average Price Method.

CRITERIA FOR JUDGING THE INVENTORY SYSTEM

32

While the overall objectives of the inventory system is to minimize the

cost to be firm at the risk level acceptable to management, the more proximate criteria for
judging the inventory system are:

Comprehensibility

Adaptability

Timelines

Areas of Improvement:
Inventory Management in India can be improved in various way improvements could be
affected through.

Effective Computerization:
Computers should not used merely for accounting purpose but also improving Decision
Making.

Review of classification:
ABC and FSN classification must be periodically reviewed.

Improved Co-ordination:
Better Co-ordination among Purchase, Production, Marketing and Finance Departments
will help in achieving greater efficiency in Inventory Management.

Development of Long Term Relationship:

Companies should develop long term relationship with vendors. This would help in
improving quality and delivery.

Disposal of Obsolete / Surplus Inventories:

Procedure for disposing Obsolete / Surplus Inventories must be simplified.

Adoption of Challenging Norms:

33

Companies should set benchmarks with global competitors use ideals like JIT to improve
Inventory Management.

INVENTORY COST-AN OVERALL VIEW:

Introduction:
In financial parlance, Inventory is defined as the value of the raw
materials, fuels and lubricants spares parts maintenance consumable, semi processed
materials and finished goods stock at any given point of time. The operational definition
of inventory would be amount of raw materials, fuel and lubricants, spare parts and semi
processed materials to be stock for smooth running of the plant/industry.

Need of Inventory:
Inventories are maintained basically for the operational smoothness which they
can be affected by uncoupling successive stage of production, whereas the monetary
value of the inventory serves as guide to indicate the size of each investment made to
achieve this operational convenience. The materials management departments primary
function is to provide this operational convenience with a minimum possible investment
in inventories. Materials department is accused of both stocks outs as well as large
investments in excising a selective inventory control and application of inventory control
techniques. Inventories build to act as a cushion between supply and demand. It is
sufficient to take care of probable delays in supply as well as probable variations in
demand.
The size of inventory depends upon the factors such as size of industry internal
lead time for purchase, suppliers lead time, vendors relations, availability of the
materials, and annual consumption of the materials. Inventory cost can be controlled by
applying modern techniques viz., ABC Analysis, SDE, ESN, HEMC, VED etc., these
techniques can be used effectively with the help of computerization.
34

What is meant by Inventory Cost?

i. The total value of stores and spares and capital spares,
ii. Stores in transit and under inspection and
iii. Stock of finished products.
Normally, there are certain problems in maintaining Optimal Level of Inventory.
Problems of inventory can be resolved by the cost implication. Costs which are relevant
for consideration are discussed in the following lines:
Basically there are four costs consideration in developing and inventory model.

The cost of placing a replenishment order,

The cost of carrying inventory,

The cost of under stocking and

The cost of over stocking.

The cost of ordering and inventory carrying cost are viewed as the supply side costs and
help in the determination of the amount of variations in demand and the delay in supplies
which is the inventory should with stand.
The under stocking and over stocking costs are viewed as the demand side costs and help
in the determination of the amount of variations in demand and the delay in supplies
which is the inventory should with stand.
Whenever an order placed for stock replenishment, certain costs are involved, and, for
most practical purpose it can be assumed that the cost per is constant. The ordering cost
may vary depending upon the type of items, for example raw material like steel
production component like casting in steel plants, support materials in the case of coal
industry.

The cost ordering includes:

Paper work costs, typing and dispatching an order,
35

 Follow up costs, the follow up required to ensure timely supplies includes the
several cost for purchase follow up, the Telephones, Telex and Postal bills etc.,
Costs involved in receiving of the order, inspection, checking and handling in the
stores,
Any set up cost of machines charged by the supplier, either directly indicated in
quotations or assessed trough quotations of various quantity,
The salaries and wages of the purchase department.

Cost of Inventory Carrying:

This cost is measured as of the item. This measure gives basis for estimating what is
actual costs a company to carry stock.

This cost includes:

Interest on capital,

Insurance and Tax charges,

Storage cost-labor costs, provision of storage area and facilities like bins, racks
etc.,

Transport bills and Hamali charges,

Allowance for deterioration or spoilage,

Salaries of stores staff,

The inventory carrying cost varies and a major portion of this an accounted for the
interest on capital.

Under Stocking Cost:

36

The cost is the cost incurred when an item is out of stock. It included cost of lost
production during the period of stock out and the extra cost per unit which might have to
be paid for an emergency purchase.

Over Stocking Cost:

This cost is the inventory carrying cost (which is calculated per year) for a
specific period of time. The varies in different contexts it could be the time of
procurement of entire life time of machine. In the case of one time purchase,

[Over cost = Purchasing Price Scrap Value]

INVENTORY VALUATION AND COST FLOWS

What is the cost of Inventory?
One can readily visualize the determination of inventory quantities by
physical count of by use of perpetual inventory records. When this quantity is determined,
it must be multiplied by a unit cost in order to determine the inventory value that is used
on financial statements.
Trade and quantity discount are to be excluded from unit cost since these
discounts exists for the purpose of defining the true invoice cost of merchandise. Cash
discounts, on other hand, have been considered as a reward has been often interpreted as a
loss rather than as part of unit cost. Thus, it would not be difficult to find difference of
opinion as to whether invoice cost includes cash discount.
When the current replacement cost of material on hand at the close of a
year is less that the actual cost, the inventory value is reduced to replacement cost
(Current market price). Thus the acceptable basis inventory valuation is the Lower of
cost or market of more properly the Lower of actual cost or replacement cost.

37

The determination of inventory values is very important from the point of view of the
Balance Sheet and the Income Statement since costs not included in the inventory (the
Balance Sheet) are considered to be expensive and thus included in the Income Statement.

Valuation of Inventories Methods of Determination:

Although the prime consideration in the valuation of inventories is cost,
there are a number of generally accepted methods of determining the cost of inventories
at the close of an account period. The most commonly used methods are First-in-First out
(FIFO) average, and the Last-in-First Out (LIFO). The selection of the method for
determining cost for inventory valuation is important for it has a direct bearing on the cost
of goods sold and consequently on profit. When a method is selected, it must be used
consistently and cannot be changed from year to year in order to secure the most
favorable profit for each year.

THE FIFO METHOD (FIRST - IN - FIRST OUT):

Under this method it is assumed that the materials or goods first received
are the first to be issued or sold. Thus, according to this method, the inventory on a
particular date is presumed to be composed of the items which were acquired most
recently.
The value inventory would remain the same even if the Perpetual
Inventory System is followed.

38

Advantages:
The FIFO Method has the following advantages:

It values stock nearer to current market price since stock is presumed to consisting
of the most recent purchases,

It is based on cost and, therefore, no unrealized profit enters into the financial
accounts of the company,

The method is realistic since it takes into account the normal procedure or
utilizing or selling those materials or goods which have been longest in stock.

Disadvantages:
The method suffers from the following disadvantages:
i.

It involves complicated calculations and hence increases the possibility of clerical

errors.

ii.

Comparison between different jobs using the same type of material becomes
sometimes difficult. A job commenced a few minutes after another job may have
to bear an entirely different charge for materials because the first job completely
exhausted the supply of materials of the particular lot.

The FIFO method of valuation of inventories is particularly suitable in the following

circumstances:

i.
ii.

The materials or goods are of a perishable nature,

The frequency of purchases is not large,

iii.

There are moderate fluctuations in the prices of materials or goods,

iv.

Materials are easily identifiable as belonging to a particular purchase lot.

39

THE LIFO METHOD (LAST IN FIRST OUT):

The method is based on the assumption that last item of materials or goods
purchased are the first to be issued or sold. Thus, accounting to this method inventory
consists of items purchased at the earliest cost.

Advantages:
This method has the following advantages:
A. It takes into account the current market conditions while valuing materials issued
to different jobs or calculating the cost of goods sold.
B. The method is based on cost and, therefore, no unrealized profit or loss is made on
account of use this method.

BASE STOCK METHOD:

This method is based on the contention that each enterprise maintains or finished
goods in its stock, this out of the first lost purchased; therefore, it is always valued at this
price and is carried forward as a foxed asset. Any quantity over and above the Base Stock
Method aims at matching current costs to current sales, the LIFO method will be most
suitable for valuing stocking material or finished goods other than the Base Stock. The
Base Stock Method has advantage of charging out materials/goods at actual cost. Its other
merits or demerits will depend on the method which is used for valuing materials other
than the Base Stock.

WEIGHTED AVERAGE PRICE METHOD:

This method is based on the presumption that once the materials are put into a common
bin, they lose their identity. Hence, the inventory consists of no specific batch of goods.

40

The inventory is thus priced on the basis of average prices paid for the goods .Weighted
according to the quantity purchased at each price.
Weighted Average Price method is very popular on account of its being based on
the total quantity and value of materials purchased besides reducing number of
calculations. As a matter of facts the new average price is to be calculated only when a
fresh purchases of materials is made in place of calculating it every now and then as is the
case with FIFO, LIFO methods. However, in case of this method different prices of
materials are charged from production particularly when the frequency of purchases and
issue/sales is quite large and the concern is following perpetual inventory system.

VALUATION OF INVENTORIES IMPACT ON THE FLOW OF

COSTS:
As should be quite evident, the different methods calculating inventory values will
have their impact on the flow of costs through the Balance Sheet into the Income
Statement. The dollars that are paid acquire inventory are always divided between the
Balance (Inventories) and the Income Statement (Costs of Goods Sold), there is not other
place to put to them. Thus if the different methods of calculating inventory produce
different inventory values, they will also produce different Costs of Goods Sold figures,
and the differing Costs of Goods Sold figures will naturally produce different profit
figures.
In order show the impact of inventory valuation on cost flow, the preceding
exhibits are summarized; each method produces different figures for the transfer of raw
materials to work in process. These differences appear small, but the only reason for this
that the dollar amounts has been kept small to make the illustration workable.

41

With the transfer of raw materials to work in process, the cost flow or transfer
with have its impact on the work in process inventory and the transfer of completed
merchandise to finished goods. Ultimately when goods are sold, the varying methods of
valuing inventories will have their impact on Costs of Goods Sold and these profits, the
effects of the cost flows on costs of goods sold and profits can be accentuated further if
the different methods of valuing inventories are applied to work in process and finished
goods.

EVALUATION OF METHODS What causes the differences?

The best method of inventory valuation might be Specific Identification, that is,
the units inventory should be identified with the specific invoice and thus specific units
costs to which they play.
Fortunately, the FIFO method constitutes a very useful approximation to the
specific identification method if one can reasonably assume that the actual flow of
materials is First-in-First-Out. This assumption is not unreasonable and thus we have
stated the main argument for the FIFO inventory scheme, that is, the physical flow of
materials would match the flow of costs under the first-in-First-Out method.
When the units in inventory are identical, interchangeable and do not flow any
specific pattern of physical flow. The average costs system would seem to appropriate.
The primary difference between the FIFO and Average methods are centered on
the physical flow since both methods could involve identical and interchangeable units.
The FIFO method fits a First-in-First-Out physical flow. The average method fits a
system which has no specific pattern of physical flow should be quite difficult because of
the fact that most inventory items are subjects to deterioration by instituting a physical
flow approximating FIFO. The major reason for the use average method is something
other than the lack of specific physical flow.

42

Ordinarily the LIFO method cannot be justified on the basis of the physical flow
of materials. Under conditions of prices, the advocated of LIFO say that than only method
which matches costs and revenues is the LIFO method assumes that the latest item is the
first item is the first time out, and thus the current costs of materials are matched with the
current selling prices or current revenues. The FIFO method, on the non-current costs of
materials are matched with current selling prices or current revenues. This matching
current cost with current revenues is the essence of the argument for the LIFO method.
As can be seen by the above comments, there is no one best method of valuing
inventories. The method chosen should fit the situations. A physically flow pattern
comparable to FIFO would force one to consider the average method. Concentration on
cost flows, as distinct form physical flows, would force one to consider the LIFO method
especially where appear to be a discernible trend towards rising prices (or falling prices)
as has been the case in our economy during recent years.

Inventories Valued at Standard Cost:

A very useful method of valuing inventories is at a standard cost. With a standard cost
system is no need for spending a great deal of and money tanking unit costs trough
perpetual inventory record.

43

PERPETUAL INVENTORY CARD UNDER A STANDARD COST

SYSTEM:

Perpetual

Standard

Inventory

Cost:_____

Plant:____

Order

Location:__ Quantity:___
_

Order

Date

Point:____
Description

Onorder Receive Issued

Available

As shown above, where is need only for physical quantities since the inventory value is
the physical quantity multiplied by the standard cost. With the cost and value columns
disposed off, a perpetual inventory card can include additional data such as quantities on
order, quantities reserved, and quantities available. These additional data are very useful
for inventory and production control purpose. On the basis of a few calculations
concerning actual units costs, inventories at standard costs could easily be converted into
inventories on a FIFO, a LIFO, or an Average cost basis.

INVENTORY OF OBSOLESCENCE:
Obsolete inventories cannot be used or disposed off at values carried on the book,
frequent reviews should be made of all inventories, and when obsolescence is indicated a
request for revaluation should be prepared for approval is management. The difference
between original and obsolete value should be recorded by a charge to an operating
account. Inventory obsolescence, and a credit to inventory. If the material is scrapped that

44

material can be sold at reduced value or used in areas where is will work less than its
original value, the entry would be only for the amount of write down. Some companies
carry a salvage inventory and transfer to it materials which may be sold or used at
reduced values. Where this is done, the entry would be:
Dr. Salvage Inventory
Dr. Inventory Obsolescence
Cr. Raw Material Inventory or Supplies Inventory.

Inventory Cost in Relation to Zuari Cement shall to Classified Follows:

Inventory can be classified as capital and revenue certain items through titled as
capital in nature. Hence, due care is to be taken whole drawing the material.
Materials which are to be imported from other countries have be planned well in
advance nearly about 24 months and to initiate the proposals for procurement.
Cement is highly energy intensive industry, the inputs like power and coal are the
major part of the variable cost since government controls the coal and fuel sector, any
increase rate is adversely affects the cement industry.
Zuari Cement has in own power plant and through which is saves energy consumptions.
By this cost of production reduces and can race the fluctuations in prices.
Inventory cost of any organization also adversely affects by retaining
obsolete/scrap and inventory costs can be reduced by management with an advance
planning of procurement of materials, periodical review of existing spares with reference
to the fast consumption, ascertaining the information regarding the availability of spares
in other areas. Holding of extra inventory will be an additional financial burden to the
company due to payment of interest changes none the materials purchased, diminishing
value of materials by keeping them is stores for a long time, handling charges, spares rent
etc.

45

The Inventories of Zuari Cement mainly during 2002-03 to 2007-08 are as

follows:

Year

Quantity

Limestone

Bauxite

Gypsum

2002-03

9,74,490

44,256

21,747

18,101

2003-04

9,53,940

41,872

21,747

18,101

2004-05

9,68,730

43,151

23,091

33,695

2005-06

11,19,980

53,877

27,978

90,577

2006-07

11,22,840

59,790

29,452

1,38,456

2007-08

13,23,801

63,252

31,310

1,46,057

The value of the above Raw Materials for the year 2002-03 to 2007-08 is as follows:

Year

Limestone

Bauxite

Gypsum

Fly ash

2002-03
2003-04
2004-05
2005-06
2006-07
2007-08

1,38,53,482
13,85,812
15,71,30,922
16,18,61,868
18,89,17,209
22,26,24,787

2,79,71,903
2,45,60,387
2,34,88,745
2,77,50,163
3,19,79,898
3,55,63,552

1,71,00,574
1,79,86,280
1,96,99,583
2,41,23,722
2,71,11,391
3,30,76,665

6,44,473
12,22,822
25,46,948
76,25,541
1,29,47,144
1,49,25,480

Value of imported and indigenous Raw Materials, Stores, Spares Parts and components
consumed during the year

Imported (Rs)

46

Years

Raw Materials

Stores Spares and Components

2002-03

59,30,02,633

45,39,79,698

2003-04

6,661,90,014

7,53,42,109

2004-05

49,13,39,625

13,16,24,912

2005-06

80,04,41,963

9,89,65,107

2006-07

146,43,21,607

8,28,63,063

2007-08

157,09,46,700

5,63,05,296

Indigenous:
Years

Raw Materials

Stores Spares and Components

2002-03

399,58,69,418

98,49,90,949

2003-04

355,88,75,126

18,91,49,420

2004-05

411,74,05,138

136,56,64,385

2005-06

503,92,81,020

57,80,78,491

2006-07

498,44,98,872

62,48,90,434

2007-08

578,12,76,577

333,32,29,062

CEMENT FACTORY RUNS WITH VARIOUS EQUIPMENTS

INSTALLED IN
THE FACTORY

47

A. NICAL DEPARMENT

Mines

Mechanical

Electrical

Civil

B. COMMERCIAL DEPARTMENTS

Stores

Purchases

Accounts

To run the plant and maintained Equipments Departments require spares. For such
requirements of spares department raise Indents and send the indents to purchase
department through stores.

INDENTS:
1. Annual indents for consumable items (stores items),
2. Regular indents raised by consuming departments,
3. Annual requirements of raw materials PROMP & QC.

ENQUIRIES:

Enquiries will be sent approved sub contractors.

ORDER PROCESSING FORM:

Receiving quotations from sub-contractors

Enter the price details of enquiry sent in the order processing form

Selection of party on merit basis.

PURCHASE ORDER:
48

Prepare purchase order on selected party

Send purchase order copies to party, stores and department.

GOODS RECEIPT NOTE:

Receiving goods receipt note from stores.

PURCHASE REQUEST / INDENT

SI. NO.
MAT. CODE
Description
Quantity required
Quantity in Stock
Pending Indent/order reference
Quantity
App. Cost
Reason for requirement remarks
When required
Period of issue form stores

PURCHASE DEPARTMENT

49

ACTIVITY: RECEIVING INDENTS:

Receipt of annual indents for consumable items/stores items from stores

department.

Checking of indent numbers and authority signature.

Checking department name, specification of item, delivery.

Time consumption period.

Incase of any deficiency, send the information to concerned department for

clarification.

Segregation of indents for attending at cpd Hyderabad office.

Enter the indents details in indent register.

PUCHASE ENQUIRY:

SI. NO.

Material code

Description

Quantity

Unit

When required

ACTIVITY:

FLOATING ENQUIRIES:

Checking indented items and equipment name.

Taking

previous

suppliers

information

from previous

supply. If new

equipment/item,

Information to be taken from concerned department or from competitors/yellow

pages.

Prepare enquiry to approved sub-contractors through enquiry format.

If emergency requirement, send the enquiries through fax/e-mail.

50

Enter the details of enquires sent in order processing form.

ORDER PROCESSING FORM:

SI

Indent

Material

Description Size

Ref.

Code no.

Quantity

1 2 3 4 Remarks

O.

ACTIVITY:

PREPARATION OF ORDER PROCESSING FORM

Receiving quotations against enquires sent.
Enter price and other terms of the quotations received from
Sub-contractors in the order processing form.
Mention the earlier purchase details of indented items against each item in the
order processing form.
Put up the order processing form with enquiry and quotations to head (purchase).
Examine order processing form and decide the sub-contractor to whom purchase
order to be placed.

PURCHASE ORDER:
SI.NO

Indent

Item

No.

code

Description

51

Quantity

Rate

Unit Amount

ACTIVITY:
PREPARATION OF PURCHASE ORDER
Prepare purchase order after finalization of price and other technical terms
mentioning the following details.
Material code
Indent number
Material Specification & Part number
Quantity
Rate
Payment and other terms & Condition.

AMENDMENT / CANCELLATION OF ORDER

Material code

Material

Price/quantity
order

as

per Amended
price /quantity

ACTIVITY:
ORDER AMENDMENT, ORDER FOLLOE UP AND INFORM THE
SUPPLIER FOR THE REJECTIONS / DAMAGES / SHORTAGE:
Issue of amendments in case of modifications to purchase order. Review the
pending orders and follow up the pending orders for break down requirement.

52

Send regular reminders to suppliers against pending purchase orders every month.
Receive shortage / excess / damage report from stores for the materials received.
Inform the suppliers for the rejections / damage / excess / shortage.

ACTIVITY:
IMPORTS:

Receipt of indents for import items from stores department.

Taking previous suppliers information from previous supply. If new equipment /

item, information to taken from concerned department or from competitors /
journals / yellow pages.

Send enquiry to overseas supplier:

Receiving quotations against enquiries sent.

Enter price and other terms of the quotations received from overseas supplier in
the order processing form.

Examining order processing form and decide the sub-contractor to whom purchase
order to be placed.

Prepare purchase order after finalization of price and other technical terms mentioning the
following details.
1. Material code
2. Indent number
3. Material specification and part number
4. Quality
5. Rate
6. Payment
7. Insurance and other terms and conditions

53

8. Send the prepared purchase order to head (purchase) and competent

authority for Approval
9. Send the purchase order copies to stores and concerned departments
10. Receive IC from bank and send information to overseas supplier by fax /
e-mail
11. Prepare IC document and submit to bank for onwards transmission to
overseas supplier
12. Receive shipping documents from overseas supplier and same clearing for
collection of the material

STORES DEPARTMENT
ACTIVITY:
RECEIPT AND UNLOADING MATERIAL

Receiving of goods through Truck / Personnel delivery

Entry of vehchile at gate office

Stamping on Dispatch Advise / delivery Chelan by gate office

Unloading of goods at allotted place or incase of urgency direct at works site.

All safety precautions are taken while unloading of material like workers should
wear

Safety shoes, Helmets, Leather Gloves, Noise respiration, Nose Mask.

Training is given to workers for unloading heavy and bulky material by using
chain

54

Pulley blocks. Wire Rope Clings, Fork Lift. After UIL receipt acknowledgement given to
driver. Maintaining Lorry receipts register.

PREPARATION OF RECEIPT OF AND APPROVAL BOOK FOR

GENERAL MATERIAL / D.C. ENTRY OF BLOCK, REPAIR AND
STATIONARY MATERIAL MANUALLY REGISTER.
Sorting of Delivery Chelans below:
a. General

b. Stationary

c. Repairs

d. Block

Checking with P.O. and mentioning Material code, Party code, Indent no.,

Department name on each and every Chelans.

Creation of D>C> entry in system for general material.

Preparation of identification Tags for Gen. Materials through system.

Preparation of receipt and approval book for Gen. Materials.

Manual entry of Block, Stationary, Repair Materials.

Preparation of intimation for Block, Stationary, Repair Materials.

PHYSICAL VERIFICATION OF GOODS:

All D.C. handed over to stores assistant physical verification like Measuring,
Counting and Tallying with D.C.s quantity / description of the Materials by the
Stores ass.

Identification Tags to be attached to the verified materials. Shortage / Excess /

damages in any found to be noted on Chelans and inform to Section in charge.

Preparation of Shortage / Excess / Reports if any sending to parties under copy to

Purchase / Bills Sections.

55

APPROVAL OF MATERIAL AND PREPARATION OF GOODS RECEIPT

NOTES:
Intimation is being sent to all the concerned departments. Showing
materials to concern person.
Taking Approval of the material in Receipt and Approval Book.
Preparation General material GRNs through system and Stationary /
Block / Repairs GRN are manually.
Forwarding to copy to issue of GRN for General Materials forwarding to
copy a Block / Repair / Stationary GRN to issue section and one copy to
purchase department.

REJECTED METERIAL:

Rejected Materials kept in allotted area of rejected materials

Packing of Rejected Materials
Preparation of Gate Passes for Rejected Materials
Sending back to suppliers through our Hyderabad office
Sending consignee copies to party vide Reg. Letter for booking of Reg.
Goods to partys other than.
EXCISE GATE PASSSES:
Separating Duplicate for Transport Copy of Excise Invoice form supplier
Delivery Chelan.
56

 Mentioning A.B. SI No. and name Concerned Department.

Duplicate for Transport copy of Excise Invoice is handed over to Bills
section for sending the same to Excise Department.
Corresponding with supplier, if the Excise Invoice is not found with
Delivery Chelans.

RECEIPT OF MEDICINES:

Physical verification of Medicines as per Invoices

Verification of Expiry date on Medicines
Verification of MRP
Sending shortage / Excess not if any found
Taking approval of Medical officer
Sending Rejection Notes in any Medicine is Rejected
Issuing to Dispensary
Bills forwarding to Accounts Department vide room for making the payment.

57

58

DATA ANALYSIS
The investment on Raw Materials over a period of 5 years from 2005-20011 is presented
in the following table.

1. Investment on Raw Materials:

YEARS

INVESTMENT ON RAW MATERIALS

2005-2006

49,9950.88

59

2006-2007

41,315.73

2007-2008

44,889.06

2008-2009

57,387.23

2009-2010

64,488.20

2010-2011

73,522.23

Interpretation:
i.

From the above table it can be understood that the inventory of Zuari Cement was
recorded at 499950.88 during the 2005-06 and it increased 73522.23 in 2010-11.

ii.

It shows that there is no increase in the investment of inventory to extent of

33571.353.

iii.

The average inventory of Zuari Cement was recorded at Rs. 55258.83.

iv.

The highest investment in inventory was recorded in year 2010-11.

2. Trend Analysis:

60

Trend Analysis technique is applied to know the growth rate in

investment of raw materials of Zuari Cement over the review period which is shown in
the following table.

YEAR
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010

RAW MATERIAL (In Lakhs)

TREND (%)

41,315.73

100

44,889.06

108.6

57,387.23

138.89

64,488.2

156.09

73,522.23

177.95

61

Interpretation:
i.

The investment on inventory has in the year 20010-11 as compared to 2006-07.

ii.

The trends inventory shows that investment have been more in the year 2010-11

iii.

The investment in inventories as shown gradually increased.

3. Inventory Turn over Ratio:

62

The Ratio indicates the number of times the stock has been turned over during the
period and evaluates the efficiency with which a firm is able to manage its inventory. This
ratio is calculated by applying the following formulate:

[INVENTORY URN OVER RATIO = NET SALES / AVERAGE INVENTORY]

YEAR
2005-2006
2006-2007

NET SALES

AVG. INVENTORY

RATIO

13447903.212

915994.317

10.26

13444030.863

1675091.714

8.02

11394151.947

1744377.708

6.53

12955362.100

1995505.728

6.49

14219577.722

2166535.037

6.56

16131774.542

2427130.135

6.65

2007-2008
2008-2009
2009-2010
2010-2011

Interpretation:

63

i.

The Inventory Turn over Ratio was shown the fluctuating trend during the review
period.

ii.

The Turnover Ratio was observed at 10.26 during the year 2005-011.

iii.

The average Turn over Ratio was observed at 7.42.

iv.

This Ratio indicates the efficiency of the firm in selling its products. A higher ratio
indicates management in inventories.

The above ratio indicates that inventory is getting converted into cash 5 times in year.

4. Inventory Conversion Period:

It may also be interest to see average time taken for clearing the stocks.
This can be possible by calculating inventory conversion period. This period is calculated
by dividing the number of the days by inventory turnover. This formulate as follows:
[INVENTORY CONVERSION PERIOD = DAYS IN A YEAR / INVENTORY TURN OVER
RATIO]

YEAR
NET SALES
2005-2006
1,34,47,903.212
2006-2007
1,34,44,030.863
2007-2008
1,13,94,151.947
2008-2009
1,29,55,362.100

AVG. STOCK

RATIO

ICP (Days)

1,31,0921.263

10.26

36

16,75,091.714

8.02

46

1,74,477.708

6.53

56

19,95,505.728

6.49

56

64

2009-2010
1,42,19,577.722

21,66,535.037

6.56

56

1,61,31,774.542

24,27,130.135

6.65

55

2010-2011

Interpretation:
From the above table it can be identified the following observation:
i.

The Inventory Conversion Period was 56.24 days during the tear 2008-09. But
declined to 21 days during 2005-06 which indicates that the stock has been
quickly converted into sales which means the company is managing the inventory
efficiency.

ii.

The lowest inventory conversion period was recorded at 35 days in the year 200506 and highest inventory conversion period was recorded at 56 days in year 200809.

iii.

The average inventory conversion period was recorded at 41 during review period.
65

5. Percentage of Inventory Turnover Current Assets

In order to know the percentage of inventory over Current Assets the ratio of
inventory to current assets is calculated and which is presented in the following table:
[INVENTORY OVER CURRENT ASSETS RATIO = INVENTORY / CURRENT ASSETS X
100]

YEAR
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010
2010-2011

INVENTORY
1,31,09,221.263
16,75,091.714
17,44,377.708
19,95,505.728
21,66,535.037
24,27,130.135

CURRENT ASSETS
53,06,374.838
45,59,802.215
49,71,332.111
53,95,148.045
63,06,352.212
60,98,132.64

66

RATIO (%)
24.7
36.74
35.09
36.99
34.35
39.8

Interpretation:
i.

From the above the table it can be understood that the percentage of inventory
over current assets ratio was showing declining trend for 2 years 2008 and 2009.

ii.

However from the year 2010-11 it showing an increasing trend.

iii.

The lowest inventory over current assets ratio was recorded at 24% during the
year 2005-06 and the highest inventory over current assets ratio was recorded at
39% during the year 2010-11.

iv.

The average inventory over current assets ratio was recorded at 34%.

67

6. Percentage of Inventory over Total Current Assts & Fixed

Assts:
[INVENTORY OVER TOTAL CURRENT ASSTS & FIXED ASSTS = INVENTORY + FIXED
ASSTS]

YEAR
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010
2010-2011

INVENTORY
1310921.263
1675091.714
1744377.708
1995505.728
2166535.037
2427130.135

CURRENT ASSTS
10706804.18
10639210.49
11227734.99
11290687.42
12005660.78
11812970.08

Interpretation:

68

RATIO (%)
12.24
15.74
15.54
17.67
18.04
20.55

From the above table it can be understood that the percentage of inventory
over total assets ratio was showing.
i.

During the year 2005-06 the ratio was 12.24% it gradually increased to 20.55%.

ii.

The lowest inventory over total amounts ratio was recorded at 12.24% during the
year 2005-06

iii.

The highest inventory to current assts ratio was recorded at 20.55% during the
year 2010-11.

iv.

The average inventory to current assts ratio was recorded at 16% during the

review period.

7. Percentage of Inventory over Current Liabilities

In order to know the percentage on Inventory over Current Liabilities the ratio of
inventory over current liabilities is calculated % which is presented in the following table:

YEAR
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010
2010-2011

INVENTORIES CURRENT LIABILITIES

RATIO

9,15,994.317

20,53,647.518

63.83

16,75,091.714

20,35,059.123

82.31

17,44,377.708

24,09,951.568

72.38

19,95,505.728

21,48,089.665

92.9

21,66,535.037

23,07,227.432

93.9

24,27,130.135

23,74,524.646

102.21

69

Interpretation:
From the following table it can be understood that the percentage of
Inventory over Current Liabilities ratio was showing a declining trend for only one year
2004-05.
i.

During the year 2005-06 the ratio was 62% it gradually increased to 102%.

ii.

The lowest inventory over total amounts ratio was recorded at 63% during the
year 2005-06

iii.

The highest inventory to current liabilities ratio was recorded at 102% during the
year 2010-11.

70

iv.

The average inventory to current liabilities ratio was recorded at 84% during the
review period.

8. Current Ratio:
In order to know Current Ratio the percentage of Current Assts to Current Liabilities is
calculated and which is presented in the following table:

[CURRENT RATIO = CURRENT ASSETS / CURRENT LIABILITIES]

YEAR
2005-2006

CURRENT

CURRENT

ASSETS

LIABILITIES

RATIO (%)

53,06,374.838

20,53,647.518

2.58

45,59,802.215

20,35,059.123

2.24

49,71,332.111

24,09,951.568

2.06

53,95,148.045

21,48,089.665

2.06

63,06,352.212

23,07,227.432

2.51

60,98,132.640

23,74,524.646

2.57

2006-2007
2007-2008
2008-2009
2009-2010
2010-2011

71

Interpretation:
From the above table it can be interpreted that the percentage of current assets over
current liabilities ratio i.e. current ratio was showing decreasing trend from year 2007-08.
i.

In the year 2007-08 the ratio was 2.06 and has increased to 2.51 in the year 200809.

ii.

The lowest current ratio was recorded at 2007-08 which is 2.06 and the highest
current ratio was recorded at 2.73 during the year 2009-10.

iii.

The average current ratio was recorded at 2.45 during the review period.

72

9. Quick Ratio:
The Quick Ratio is the relationship between quick assets to current liabilities
Quick Ratio is more rigorous test of liability position of a firm it is computed by applying
the following formula:
[QUICK RATIO = QUICK ASSETS / CURRENT LIABILITIES]

Where Quick Assets = Current Assets Inventory

YEAR
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010
2010-2011

QUICK

CURRENT

ASSETS
3995453.575
2884710.501
3226954.403
3399642.317
4139817.175
3671002.505

LIABILITIES
2053647.518
2035059.123
2409951.568
2148089.665
2307227.432
2374524.646

73

RATIO (%)
1.94
1.42
1.33
1.58
1.79
1.54

Interpretation:
i.

From the above table it can be understood as that the percentage of Quick Assets
to Current Liabilities i.e. the Quick Ratio was 1.33 in 2007-08 and from that year
it showing increasing trend.

ii.

The highest quick ratio was recorded 1.94 during the year 2005-06 and the lowest
quick ratio was recorded at 1.33 during the year 2007-08.

iii.

The average quick ratio was recorded at 1.60 during the review period.

10. LEVERAGE RATIO:

74

FIXED ASSETS TURN OVER RATIO:

[FIXED ASSETS TURN OVER RATIO = NET SALES/NET FIXED ASSETS]

NET FIXED
YEAR

SALES ( IN LAKHS)

RATIO (%)

2005-2006

134479.03

ASSETS
60794.08

2.21

2006-2007

134440.3

62647.10

2.14

2007-2008

138917.83

59008.51

2.35

2008-2009

156572.14

56993.09

2.74

2009-2010

251645.89

110519.01

2.27

2010-2011

344032.16

171883.45

2.00

75

Interpretation:
i.

The fixed assets turn over ratio was showing the fluctuating trend during the
review period.

ii.

The fixed assets turn over ratio is high in the year 2008-09 compare to all given
financial year all these ratios are less then 3 but the deal ideal fixed assets turn
over ratio is 5

iii.

A high fixed turn over ratio includes better utilization of the firm fixed assets

iv.

The firm fixed asset turn over ratio has to increase, these it is desirable.

76

11. PROFITABILITY RATIO:

NET PROFIT RATIO:

[NET PROFIT RATIO = NET PROFIT / NET SALES]

YEAR
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010
2010-2011

NET PROFIT

NET SALES

RATIO

8027.80

67214.21

11.94

12541.56

134543.30

9.32

7441.66

135375.20

5.49

9298.54

140116.20

6.63

11850.44

157648.40

7.51

38335.04

298792.21

12.83

77

Interpretation:
The above ratio shows fluctuating trend during the review period.
i.

In the year 2010-2011 the profit was 12.83% by this we can find that the highest
profit earning financial year is 2010-11 compare to the given financial year

ii.

I n the net profit ratio increases the company performance is good and the profit
will be increased.

iii.

The above ratio is satisfactory for all given financial years.

78

12. SOLVENCY RATIO:

DEBT AND EQUITY RATIO:

[DEBIT-EQUITY RATIO= LONG TERM DEBIT /SHARE HOLDER FUNDS]

LONG-TERM

SHARE HOLDER

YEAR

RATIO

2005-2006

DEBTS
9917.06

FUNDS
34869.39

0.28

2006-2007

19112.77

36491.77

0.52

2007-2008

15399.8

33881.86

0.45

2008-2009

15356.31

33878.40

0.45

2009-2010

20079.43

34848.27

0.57

2010-2011

24594.52

60869.28

0.40

79

Interpretation:
i.

The above ratio was shown little fluctuating trend during review period

ii.

The ideal debt-equity ratio is 2:1 the firms seemed to pay a little amount to the
creditors because the firm debit-equity ratios are very less than the ideal debt
equity ratio any year.

iii.

The low debt equity implies that there us a less risk to the creditors and have
sufficient safety margin.

iv.

The company is maintaining a good level of long-term loans.

80

81

CONCLUSIONS:

Overall the inventory of Zuari Cements is up to the mark.

The production of cement during the year 2002-03 was 7, 27,447 lakhs which
very high as compared to 2003-04 which is only 41,315.73 lakhs.

Investment on raw material during the year 2007-08 is 73,522.23 lakhs which very
high as compared to 2003-04 which is only 41,315.73 lakhs.

The Inventory over ratio shows that the stock has been converted into sales

is

only 6.49 times in the year 2005-06.

In the year 200-03 the stock was cleared within 36 days where as it took 56 days
in the years 2004-05 and 2005-06 more days for clearing stock.

The quantity of limestone in the year 2003-04 is 9, 53,940 and its value is
13,85,34,12 but where as in the year 2002-03 the quantity was 9,74,490 and the
value is 12,21,61,492.

In purchase department for of any item it should go through several processes.

This may include receiving indents, floating enquiries, preparation of order
processing form, preparation of purchase order and order follow up and inform the
supplier. Most of the time was spent in accounts payable.

In this type of process, it requires more number of employees and supplier should
also wait for the accounts are matched.

This process takes an input, adds values to it and provides an output to an internal
or external customer.

82

SUGGESTIONS:

Though the production is higher is the year 2004-05 and the sales were very high
i.e., as per inventory conversion period it took 272 days. This shows that were
demand for cement and funds unnecessarily tied up. So proper demand forecasting
should be done according to that it may be manufactured.

The investment on raw material should be made as per the requirement.

Unnecessary may block up the funds.

Neither too high nor too low Inventory Turnover Ratios may reduce profit
liquidity position of the industry. So proper balance should be made to increase
profits and to ensure liquidity.

The Raw Material should be acquired from the right source at right quality and at
right cost.

To reduce the work. The purchasing department may enter the purchase order into
a database did not send a copy to any one. When the merchandise arrived, the
receiving clerk would enter the data base and determine whether the order agreed
with the electronic purchase order.

83

84

BIBLIOGRAPHY:

FINANCIAL MANAGEMENT

- SHARMA& GUPTA

COST AND MANAGEMENT ACCOUNTING

- S.K. MAHESHWARI

FINANCIAL MANAGEMENT

- PRASANNACHANDRA

COST AND MANAGEMENT ACCOUNTING

- P.K. JAIN

FINANCIAL ACCOUNTING

- R.P. THRIVEDI

WWW.ZUARICEMENT.COM.
WWW.CEMENTINDUSTRIES.COM
FINANCIAL MANAGEMENT

- M.Y. KHAN

85