A STUDY ON INVENTORY MANAGEMENT

At
ANANTA PVC PIPES PRAVITE LIMITED
ANANTAPUR
Submitted
In the partial fulfilment of the requirements for the award of the degree of
MASTER OF BUSINESS ADMINISTRATION
In
DEPARTMENT OF MANAGEMENT STUDIES
By
MEKALACHERUVU ARAVIND
[Reg. No.14691E0012]
Under the Supervision and Guidance of
Dr.P. NAGARAJ Ph.D

DEPARTMENT OF MANAGEMENT STUDIES

MADANAPALLE INSTITUTE OF TECHNOLOGY & SCIENCE
MADANAPALLE
2014-2016
June 2016

CONTENTS

CHAPTER

CHAPTER - I

TITLE

PAGE

EXECUTIVE SYNOPSIS

NO
2-6

INTRODUCTION

7-23

INDUSTRY PROFILE
CHAPTER

- II

&

24-40

COMPANY PROFILE
CHAPTER

- III

RESEARCH METHODOLOGY

41-43

CHAPTER

- IV

DATA ANALYSIS

44-62

FINDINGS, SUGESTIONS
&
CHAPTER

- V

CONCLUSIONS

63-66

BIBLIOGRAPHY

67-68

Introduction

Inventory Management
Inventory management is primarily about specifying the size and placement of stocked
goods. Inventory management is required at different locations within a facility or within
multiple locations of a supply network to protect the regular and planned course of
production against the random disturbance of running out of materials or goods. The scope of

inventory management also concerns the fine lines between replenishment lead time, carrying
costs of inventory, asset management, inventory forecasting, inventory valuation, inventory
visibility, future inventory price forecasting, physical inventory, available physical space for
inventory, quality management, replenishment, returns and defective goods and demand
forecasting. Balancing these competing requirements leads to optimal inventory levels, which
is an on-going process as the business needs shift and react to the wider environment.
Other definitions of inventory management from across the web:
Involves a retailer seeking to acquire and maintain a proper merchandise assortment while
ordering, shipping, handling, and related costs are kept in check.
Systems and processes that identify inventory requirements, set targets, provide
replenishment techniques and report actual and projected inventory status.
Handles all functions related to the tracking and management of material. This would include
the monitoring of material moved into and out of stockroom locations and the reconciling of
the inventory balances. Also may include ABC analysis, lot tracking, cycle counting support
etc.
Management of the inventories, with the primary objective of determining/controlling stock
levels within the physical distribution function to balance the need for product availability
against the need for minimizing stock holding and handling costs. See inventory
proportionality.
Business inventory
The reasons for keeping stock
There are three basic reasons for keeping an inventory:
1. Time - The time lags present in the supply chain, from supplier to user at every stage,
requires that you maintain certain amount of inventory to use in this "lead time".
2. Uncertainty - Inventories are maintained as buffers to meet uncertainties in demand,
supply and movements of goods.
3. Economies of scale - Ideal condition of "one unit at a time at a place where user needs
it, when he needs it" principle tends to incur lots of costs in terms of logistics. So bulk
buying, movement and storing brings in economies of scale, thus inventory.

All these stock reasons can apply to any owner or product stage.

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

These classifications apply along the whole Supply chain not just within a facility or plant.
Where these stocks contain the same or similar items it is often the work practice to hold all
these stocks mixed together before or after the sub-process to which they relate. This 'reduces'
costs. Because they are mixed-up together there is no visual reminder to operators of the
adjacent sub-processes or line management of the stock which is due to a particular cause and
should be a particular individual's responsibility with inevitable consequences. Some plants
have centralized stock holding across sub-processes which makes the situation even more
acute.
Special terms used in dealing with inventory

Stock Keeping Unit (SKU) is a unique combination of all the components that are
assembled into the purchasable item. Therefore any change in the packaging or
product is a new SKU. This level of detailed specification assists in managing
inventory.

Stockout means running out of the inventory of an SKU.

"New old stock" (sometimes abbreviated NOS) is a term used in business to refer to
merchandise being offered for sale which was manufactured long ago but that has
never been used. Such merchandise may not be produced any more, and the new old
stock may represent the only market source of a particular item at the present time.

Typology
1. Buffer/safety stock
2. Cycle stock (Used in batch processes, it is the available inventory excluding buffer
stock)
3. De-coupling (Buffer stock that is held by both the supplier and the user)

4. Anticipation stock (building up extra stock for periods of increased demand - e.g. ice
cream for summer)
5. Pipeline stock (goods still in transit or in the process of distribution - have left the
factory but not arrived at the customer yet)

6. INVENTORY

PROCESS

Table 1
INPUT

PROCESS

OUTPUT

Raw Materials

Work In Process

Finished Goods

Consumables required for Semi-Finished Production Finished

Goods

processing. Eg. : Fuel, in various stages, lying Distribution

at

Centers

Stationary, Bolts & Nuts with various departments throughout Supply Chain
etc.

required

in like

manufacturing

Production,

Stores,
Assembly,

QC,
Paint

WIP
Final
Shop,

Packing, Outbound Store

etc.
Maintenance

Production

Waste

and Finished Goods in transit

Items/Consumables

Scrap

Packing Materials

Rejections and Defectives

Finished

Goods

with

Stockiest and Dealers

Local

purchased

Items

required for production

Spare

Parts

Stocks

&

Bought Out items

Defectives,

Rejects

and

Sales Returns
Repaired Stock and Parts
Sales Promotion & Sample
Stocks
7.

Inventory examples
While accountants often discuss inventory in terms of goods for sale, organizations manufacturers, service-providers and not-for-profits - also have inventories (fixtures,
furniture, supplies, ...) that they do not intend to sell. Manufacturers', distributors', and
wholesalers' inventory tends to cluster in warehouses. Retailers' inventory may exist in a
warehouse or in a shop or store accessible to customers. Inventories not intended for sale to
customers or to clients may be held in any premises an organization uses. Stock ties up cash
and if uncontrolled it will be impossible to know the actual level of stocks and therefore
impossible to control them.
While the reasons for holding stock are covered earlier, most manufacturing organizations
usually divide their "goods for sale" inventory into:

Raw materials - materials and components scheduled for use in making a product.

Work in process, WIP - materials and components that have begun their
transformation to finished goods.

Finished goods - goods ready for sale to customers.

Goods for resale - returned goods that are salable.

For example:
Manufacturing
A canned food manufacturer's materials inventory includes the ingredients to form the foods
to be canned, empty cans and their lids (or coils of steel or aluminum for constructing those
components), labels, and anything else (solder, glue, ...) that will form part of a finished can.
The firm's work in process includes those materials from the time of release to the work floor
until they become complete and ready for sale to wholesale or retail customers. This may be
vats of prepared food, filled cans not yet labelled or sub-assemblies of food components. It
may also include finished cans that are not yet packaged into cartons or pallets. Its finished
good inventory consists of all the filled and labelled cans of food in its warehouse that it has

manufactured and wishes to sell to food distributors (wholesalers), to grocery stores

(retailers), and even perhaps to consumers through arrangements like factory stores and outlet
centers.
Examples of case studies are very revealing, and consistently show that the improvement of
inventory management has two parts: the capability of the organisation to manage inventory,
and the way in which it chooses to do so. For example, a company may wish to install a
complex inventory system, but unless there is a good understanding of the role of inventory
and its perameters, and an effective business process to support that, the system cannot bring
the necessary benefits to the organisation in isolation.
Typical Inventory Management techniques include Pareto Curve ABC Classification and
Economic Order Quantity Management. A more sophisticated method takes these two
techniques further, combining certain aspects of each to create The K Curve Methodology. A
case study of k-curvebenefits to one company shows a successful implementation.
Unnecessary inventory adds enormously to the working capital tied up in the business as well
as the complexity of the supply chain. Reduction and elimination of these inventory 'wait'
states is a key concept in Lean. Too big an inventory reduction too quickly can cause a
business to be anorexic. There are well proven processes and techniques to assist in inventory
planning and strategy, both at business overview and part number level. Many of the big
MRP/and ERP systems do not offer the necessary inventory planning tools within their
integrated planning applications.

Principle of inventory proportionality

Purpose
Inventory proportionality is the goal of demand driven inventory management. The primary
optimal outcome is to have the same number of days (or hours, etc.) worth of inventory on
hand across all products so that the time of runout of all products would be simultaneous. In
such a case, there is no "excess inventory", that is , inventory that would be left over of
another product when the first product runs out. Excess inventory is sub-optimal because the
money spent to obtain it could have been deployed better elsewhere, i.e. to the product that
just ran out.

The secondary goal of inventory proportionality is inventory minimization. By integrating

accurate demand forecasting with inventory management, replenishment inventories can be
scheduled to arrive just in time to replenish the product destined to run out first, while at the
same time balancing out the inventory supply of all products to make their inventories more
proportional, and thereby closer to achieving the primary goal. Accurate demand forecasting
also allows the desired inventory proportions to be dynamic by determining expected sales
out into the future; this allows for inventory to be in proportion to expected short term sales
or consumption rather than to past averages, a much more accurate and optimal outcome.
Integrating demand forecasting with inventory management in this way also allows for the
prediction of the "can fit" point when inventory storage is limited on a per product basis.
Applications
The technique of inventory proportionality is most appropriate for inventories that remain
unseen by the consumer. As opposed to "keep full" systems where a retail consumer would
like to see full shelves of the product they are buying so as not to think they are buying
something old, unwanted, or stale; and differentiated from the "trigger point" systems where
product is reordered when it hits a certain level; inventory proportionality is used effectively
by just-in-time manufacturing processes and retail applications where the product is hidden
from view.
One early example of inventory proportionality used in a retail application in the United
States is for motor fuel. Motor fuel (e.g. gasoline) is generally stored in underground storage
tanks. The motorists do not know whether they are buying gasoline off the top or bottom of
the tank, nor need they care. Additionally, these storage tanks have a maximum capacity and
cannot be overfilled. Finally, the product is expensive. Inventory proportionality is used to
balance the inventories of the different grades of motor fuel, each stored in dedicated tanks, in
proportion to the sales of each grade. Excess inventory is not seen or valued by the consumer,
so it is simply cash sunk (literally) into the ground. Inventory proportionality minimizes the
amount of excess inventory carried in underground storage tanks. This application for motor
fuel was first developed and implemented by Petrolsoft Corporation in 1990 for Chevron
Products Company. Most major oil companies use such systems today.
Roots

The use of Inventory Proportionality in the United States is thought to have been inspired by
Japanese just-in-time (business) parts inventory management made famous by Toyota Motors
in the 1980s.
High level inventory management
It seems that around about 1880 there was a change in manufacturing practice from
companies with relatively homogeneous lines of products to vertically integrated companies
with unprecedented diversity in processes and products. Those companies (especially in
metalworking) attempted to achieve success through economies of scope - the gains of jointly
producing two or more products in one facility. The managers now needed information on the
effect of product mix decisions on overall profits and therefore needed accurate product cost
information. A variety of attempts to achieve this were unsuccessful due to the huge overhead
of the information processing of the time. However, the burgeoning need for financial
reporting after 1900 created unavoidable pressure for financial accounting of stock and the
management need to cost manage products became overshadowed. In particular it was the
need for audited accounts that sealed the fate of managerial cost accounting. The dominance
of financial reporting accounting over management accounting remains to this day with few
exceptions and the financial reporting definitions of 'cost' have distorted effective
management 'cost' accounting since that time. This is particularly true of inventory.
Hence high level financial inventory has these two basic formulas which relate to the
accounting period:
1. Cost of Beginning Inventory at the start of the period + inventory purchases within
the period + cost of production within the period = cost of goods
2. Cost of goods cost of ending inventory at the end of the period = cost of goods sold
The benefit of these formulae is that the first absorbs all overheads of production and raw
material costs in to a value of inventory for reporting. The second formula then creates the
new start point for the next period and gives a figure to be subtracted from sales price to
determine some form of sales margin figure.
Manufacturing management is more interested in inventory turnover ratio or average days to
sell inventory since it tells them something about relative inventory levels.

Inventory turnover ratio (also known as inventory turns) = cost of goods sold /
Average Inventory = Cost of Goods Sold / ((Beginning Inventory + Ending Inventory)
/ 2)
Average Days to Sell Inventory = Number of Days a Year / Inventory Turn Over Ratio
= 365 days a year / Inventory Turn Over Ratio
This ratio estimates how many times the inventory turns over a year. This number tells us
how much cash/goods are tied up waiting for the process and is a critical measure of process
reliability and effectiveness. So a factory with two inventory turns has six months stock on
hand which generally not a good figure (depending upon industry) whereas a factory that
moves from six turns to twelve turns has probably improved effectiveness by 100%. This
improvement will have some negative results in the financial reporting since the 'value' now
stored in the factory as inventory is reduced.
Whilst the simplicity of these accounting measures of inventory are very useful they are in
the end fraught with the danger of their own assumptions. There are in fact so many things
which can vary hidden under this appearance of simplicity that a variety of 'adjusting'
assumptions may be used. These include:

Specific Identification

Weighted Average Cost

Moving-Average Cost

FIFO and LIFO.

Inventory Turn is a financial accounting tool for evaluating inventory and it is not necessarily
a management tool. Inventory management should be forward looking. The methodology
applied is based on historical cost of goods sold. The ratio may not be able to reflect the
usability of future production demand as well as customer demand.
Business models including Just in Time (JIT) Inventory, Vendor Managed Inventory (VMI)
and Customer Managed Inventory (CMI) attempt to minimize on-hand inventory and
increase inventory turns. VMI and CMI have gained considerable attention due to the success
of third party vendors who offer added expertise and knowledge that organizations may not
possess.

Importance of Inventory Management

Inventory management is important from the view point that it enables to address two
important issues:
1. The firm has to maintain adequate inventory for smooth production and selling activities.
2. It has to minimize the investment in inventory to enhance firm's profitability.
Investment in inventory should neither be excessive nor inadequate. It should just be
optimum. Maintaining optimum level of inventory is the main aim of inventory management.
Excessive investment in inventory results into more cost of fund being tied up so that it
reduces the profitability, inventories may be misused, lost, damaged and hold costs in terms
of large space and others. At the same time, insufficient investment in inventory creates
stock-out problems, interruption in production and selling operation. Therefore, the firm may
loose the customers as they shift to the competitors. Financial manager, as he involves in
inventory management, should always try to put neither excessive nor inadequate investment
in inventory. The importance or significance of inventory management could be specified as
below:
* Inventory management helps in maintaining a trade off between carrying costs and ordering
costs which results into minimizing the total cost of inventory.
* Inventory management facilitates maintaining adequate inventory for smooth production
and sales operations.
* Inventory management avoids the stock-out problem that a firm otherwise would face in the
lack of proper inventory management.
* Inventory management suggests the proper inventory control system to be applied by a firm
to avoid losses, damages and misuses.

Nature of inventories:
Inventories are classified according to uses and point of entry in the alteration is as
follow:

Raw material
Work in process goods
Finished goods &
Spares and consumables.

Raw material:
Raw material and production component are purchased from outside suppliers and the reason
for their existence is to uncouple the purchasing function from the production function. The
size of this inventory is dependent upon factors such as internal lead-time for the purchase,
supplier lead-time, vendor relations, and availability of the material, government import
policy, in the case of imported material, the annual consumption of the material and relative
criticality of the material.
Work-in-progress:
Inventory might exist merely because of the production cycle time or could also be
maintained for decoupling successive manufacturing operations. The decoupling could be
employed either for implementing an incentive scheme or to enable each of the production
departments to plan independently. The size of the inventory is dependent on the production
cycle time, the percentage of machine utilization, the make/buy policies of the company, and
the management policy for decoupling the various stages of manufacturing.
Finished goods:
Inventory is maintained to assure a free flowing supply to the customer and for this the
marketing department insists on the substantial finished goods inventory. The size also
depends on the ability of the marketing department to push the products, the companys
ability to stick to the delivery schedule of the client.
Spares and consumable
Defers from that of raw material, consumable and finished goods. They also even keep
these items in a spare which is not easily available. There is the material which act as
catalysis in Spares play an important part of inventories by themselves. Their
consumption pattern the production process and are not directly found in to output. This
enable the production process and are not directly found in to output. This enables the
production process to function smoothly like-fuel, coil, oil, LSHS etc. are the example of
the consumables.
Role of Inventory Accounting

By helping the organization to make better decisions, the accountants can help the public
sector to change in a very positive way that delivers increased value for the taxpayers
investment. It can also help to incentivise progress and to ensure that reforms are sustainable
and effective in the long term, by ensuring that success is appropriately recognized in both
the formal and informal reward systems of the organization.
To say that they have a key role to play is an understatement. Finance is connected to most, if
not all, of the key business processes within the organization. It should be steering the
stewardship and accountability systems that ensure that the organization is conducting its
business in an appropriate, ethical manner. It is critical that these foundations are firmly laid.
So often they are the litmus test by which public confidence in the institution is either won or
lost.
Finance should also be providing the information, analysis and advice to enable the
organizations service managers to operate effectively. This goes beyond the traditional
preoccupation with budgets how much have we spent so far, how much have we left to
spend? It is about helping the organization to better understand its own performance. That
means making the connections and understanding the relationships between given inputs
the resources brought to bear and the outputs and outcomes that they achieve. It is also
about understanding and actively managing risks within the organization and its activities.
FIFO vs. LIFO accounting
Main article: FIFO and LIFO accounting
When a merchant buys goods from inventory, the value of the inventory account is reduced
by the cost of goods sold (CoG sold). This is simple where the CoG has not varied across
those held in stock; but where it has, then an agreed method must be derived to evaluate it.
For commodity items that one cannot track individually, accountants must choose a method
that fits the nature of the sale. Two popular methods which normally exist are: FIFO and
LIFO accounting (first in - first out, last in - first out). FIFO regards the first unit that arrived
in inventory as the first one sold. LIFO considers the last unit arriving in inventory as the first
one sold. Which method an accountant selects can have a significant effect on net income and
book value and, in turn, on taxation. Using LIFO accounting for inventory, a company
generally reports lower net income and lower book value, due to the effects of inflation. This
generally results in lower taxation. Due to LIFO's potential to skew inventory value, UK
GAAP and IAS have effectively banned LIFO inventory accounting.

Standard cost accounting

Standard cost accounting uses ratios called efficiencies that compare the labour and materials
actually used to produce a good with those that the same goods would have required under
"standard" conditions. As long as similar actual and standard conditions obtain, few problems
arise. Unfortunately, standard cost accounting methods developed about 100 years ago, when
labor comprised the most important cost in manufactured goods. Standard methods continue
to emphasize labor efficiency even though that resource now constitutes a (very) small part of
cost in most cases.
Standard cost accounting can hurt managers, workers, and firms in several ways. For
example, a policy decision to increase inventory can harm a manufacturing managers'
performance evaluation. Increasing inventory requires increased production, which means
that processes must operate at higher rates. When (not if) something goes wrong, the process
takes longer and uses more than the standard labor time. The manager appears responsible for
the excess, even though s/he has no control over the production requirement or the problem.
In adverse economic times, firms use the same efficiencies to downsize, rightsize, or
otherwise reduce their labor force. Workers laid off under those circumstances have even less
control over excess inventory and cost efficiencies than their managers.
Many financial and cost accountants have agreed for many years on the desirability of
replacing standard cost accounting. They have not, however, found a successor.
Theory of Constraints cost accounting
Eliyahu M. Goldratt developed the Theory of Constraints in part to address the costaccounting problems in what he calls the "cost world". He offers a substitute, called
throughput accounting, that uses throughput (money for goods sold to customers) in place of
output (goods produced that may sell or may boost inventory) and considers labor as a fixed
rather than as a variable cost. He defines inventory simply as everything the organization
owns that it plans to sell, including buildings, machinery, and many other things in addition to
the categories listed here. Throughput accounting recognizes only one class of variable costs:
the trully variable costs like materials and components that vary directly with the quantity
produced.
Finished goods inventories remain balance-sheet assets, but labor efficiency ratios no longer
evaluate managers and workers. Instead of an incentive to reduce labor cost, throughput

accounting focuses attention on the relationships between throughput (revenue or income) on

one hand and controllable operating expenses and changes in inventory on the other. Those
relationships direct attention to the constraints or bottlenecks that prevent the system from
producing more throughput, rather than to people - who have little or no control over their
situations.
National accounts
Inventories also play an important role in national accounts and the analysis of the business
cycle. Some short-term macroeconomic fluctuations are attributed to the inventory cycle.
Distressed inventory
Also known as distressed or expired stock, distressed inventory is inventory whose potential
to be sold at a normal cost has or will soon pass. In certain industries it could also mean that
the stock is or will soon be impossible to sell. Examples of distressed inventory include
products that have reached their expiry date, or have reached a date in advance of expiry at
which the planned market will no longer purchase them (e.g. 3 months left to expiry),
clothing that is defective or out of fashion, and old newspapers or magazines. It also includes
computer or consumer-electronic equipment that is obsolescent or discontinued and whose
manufacturer is unable to support it. One current example of distressed inventory is the VHS
format.
In 2001 Cisco write off inventory worth of US $2.25 billion due to duplicate orders. This is
one of the biggest write off of inventory in business history of the world.
Inventory credit
Inventory credit refers to the use of stock, or inventory, as collateral to raise finance. Where
banks may be reluctant to accept traditional collateral, for example in developing countries
where land title may be lacking, inventory credit is a potentially important way of
overcoming financing constraints. This is not a new concept; archaeological evidence
suggests that it was practiced in Ancient Rome. Obtaining finance against stocks of a wide
range of products held in a bonded warehouse is common in much of the world. It is, for
example, used with Parmesan cheese in Italy. Inventory credit on the basis of stored
agricultural produce is widely used in Latin American countries and in some Asian countries.
A precondition for such credit is that banks must be confident that the stored product will be
available if they need to call on the collateral; this implies the existence of a reliable network

of certified warehouses. Banks also face problems in valuing the inventory. The possibility of
sudden falls in commodity prices means that they are usually reluctant to lend more than
about 60% of the value of the inventory

CHAPTER - 2
INDUSTRY PROFILE

Introduction:
Plastic have become synonymous with modern living. It is undoubtedly a product,
which has penetrated extensively into the common mans life. No wonder the industry has
achieved in terms of supply of raw material expansion and diversification of processing
capabilities and manufacturing of processing machinery and equipment.
This versatile material with its superior qualities such as light weight, easy process
ability corrosion resistance, energy conservation, no toxicity etc. many substitute to a large
extent many conventional and costly industrial materials like wood, metal, glass, jute, lather
etc., in the future. The manifold applications of plastics in the field of automobiles,
electronics, electrical, packaging and agriculture give enough evidence of the immense utility
of plastics.
At 80 percent of total requirement for raw material and almost all types of plastic
machines required for the industry are indigenously available. The present investment in all
the three segments of the industry namely production of raw materials, expansion and
diversification of processing capacities, manufacturing of processing machinery and ancillary
equipment is Rs.1250 crores and it provides employment to more than eight lakh people.
On account of their inherent advantage in properties and versatility in adoption and
use, plastics have come to play a vital role in a variety of applications, the world over. In our
country, plastics are used in making essential consumer goods of daily use for common man
such as baskets, shopping bags, water bags, water bottles, school bags, tiffen boxes, hair
combs, tooth brushes, spectacle frames and fountain pens, they also find applications in field
like

packaging,

automobiles,

and

transportation,

engineering,

electronics,

telecommunications, defense, medicine, and building and construction. Plastics are growing
in importance in agriculture and water management.

The Govt. of India recognizing the importance of plastics in agriculture appointed on

march 7th, 1981 a National Committee on the use of plastics in agriculture under the
chairmanship of Dr.G.V.K.Rao. This committee has forecast a tremendous growth of drip
irrigation through a net work of plastic pipes and tubes. In its opinion large scale adoption of
irrigation would lead to sports in demand for PVC pipes, L.D.P.E tubes and polypropylene
emitters. The committee made a number of recommendations for promoting the use of
plastics. The implementation of recommendations would go along away in increasing the
consumption of plastics, which at present is very low. The rigid pipes, flexible pipes and

sheeting, which are being used for agricultural operations to carry out water place to place
and also lining of ponds and reservoirs to reduce seepage and most important in drip
irrigation system.
Export of plastics goods
Plastics have excellent potentialities. Our country is equipped with all

kind of

processing machinery and skilled labor and undoable, and extra to boost export, finished
plastics products will yield rich divided.
Today India exports plastic products to as many as 80 countries all over the world. The
exports, which were stagnant at around rest 60-70 cores per annum double to 129 craters. The
Plastic industry has taken up the challenge of achieving an export target of Rs.17 cores.
Major export markets for plastic products and linoleum are Australia, Bangladesh, Canada,
Egypt, Hong Kong, Italy, Kuwait, Federal Republic of Germany, Sri Lanka, Sweden, Taiwan,
U.K., U.S.A., and Russia.

With view to boosting the export, the plastics and linoleums export promotion council has
urged the government to reduce import duty of plastic raw material, supply indigenous raw
materials at international prices, fix duty, draw backs on weighted average basis and charge
freight rate on plastic products on weights basis instead of volume basis.
Prospects
The Production of various plastics a raw materials in the country is expected to double by the
end of seventh plan, the consumption of commodity plastics including LDPE, HDPE, PP, PS
AND PVC is immense scope for the use of plastics in agriculture, electronics, automobile,
telecommunications and irrigation and thus, the plastic industry is on the threshold of an
explosive growth.
Role of plastics in the national economy
Plastics are got perceived as just simple colorful household products in the mind so common
person. A dominant part of the plastics of the percent and future find their utilization in the
areas.
Agriculture, forestry and water-management.

 Automobile and transportation

Electronics and telecommunications, buildings, construction and.
Food processing and packaging
Power and gas distributor.

Importance Of Pipes Industry

We shall look at the basic data about plastics and particularly those properties, which are so,
fuse in practical working with plastics. Plastics are man-made materials. The oldest raw
material for producing plastics is carbonaceous material obtained from coal tar (benzene,
phenol).
Today the majority of raw materials are obtained from petrol chemical source and they can be
economically produced in large quantities.
Plastics have changed our world and day-by-day they are becoming important. They own
their success to whole series of advantage, which they have over conventional materials such
as:
Lightweight
Excellent mould ability
Attractive colors
Low energy requirements for convention
Low labor and cost of manufacture
Low maintenance & High strength weight ratio

Economic role
Agriculture is the chief occupation in India. For the developing countries like India
modernization of the agriculture practices assumes pivotal places in improving the economic
status and the process of modernization. Includes usage of higher productive plastics
supplement to greater extent manufacturing of tools required for new agricultural practices.

The usage of poly vinyl chloride pipes in agricultural fields, lesser water seepage, which was
predominant in earlier practices, with services of P.V.C pipes, water can be transported
efficiently with lesser from the place of higher potential to the place of lower water potential.
Presently the revolutionary tried in water management speaks much about drip irrigation,
which is developed in Israel and is practiced by all agricultural based nations in the world.
Drip irrigation greatly P.V.C pipes as core tools of implementation with the services of this
sort, P.V.C pipes one way or the other strengthening the hands of countrys economy.
A part with the referred P.V.C pipes supplemented with fitting is used in houses for electrical
connection and other domestic purposes. Apart from these two applications it has got wide
applications even in industrial sectors. P.V.C pipes with much unique heart, chemical and
physical characteristics serve many industrial purposes.
Even characteristics of weight and low price attract many more applications. Rigid PVC
pipes have been manufactured in India from the 60s on imported extrusion lines and there
after indigenous plan were few pipes manufactures upto 1979-83. When many extrusion lines
were imported from batten field, Cincinnati, kraaus-maffi etc. the Govt. allowed the imports
of sophisticated and high output plants, which were not available indigenously.
Pvc pipes in India
Pipes products have found wide acceptance in India and abroad. PVC is one of the more
versatile plastics. It can be extruded, moulded, calendared and thermoformed into a multitude
of furnished products. The PVC resin can be formulated to give a wide range of properties
ranging from hand, tough materials for load bearing application lime pipes, windows and
doors to flexible materials for products a due as wire and cable insulation and shooting and
flooring.
PVC products cater to both interiors and exteriors. In interiors it can be used for flooring,
profile and cable tray, wall covering modular office systems, houses and furniture. For
exteriors it is used for doors and windows, fencing partitions and paneling, roofing and rain
systems.

The other external applications are in the field of irrigation, portable water supplies. In the
field of irrigation there are several methods to irrigate the fields. There are minor irrigation
projects and major irrigation projects apart from individual sources like wells, tube wells,
bore wells. Major irrigation sector small projects will have canals and lift irrigation schemes

etc., will have canals and lift irrigation schemes etc., will have pipelines. Cement and GI
pipes were the pipes used in conventional methods of irrigation. Now-a-days PVC pipes
replaced the conventional pipes and they constituted almost 90% in this respect.
Drip irrigation popular in the agricultural sector especially in the field of horticulture
commercial cropping and green ply houses. The drip irrigation concept is becoming more
popular with its advantages like highly yield, water conversion, less labour cost, less
fertilizer, less past management costs, less power costs and many more advantages. The
demand for this concept is increasing at a place of 30%-40% per annum.
Agriculture a sunrise industry in the Indian economy is mainly dependent on the PVC pipes
for the seawater sector and pumping to their aqua ponds. They are using pipelines of four to
five kilometers of 10-16 diameters pipes.
The state Govt. of A.P is using rigid PVC pipes for the irrigation water supplies for the past
few years. The state Govt. is producing PVC pipes through APSIDC (Andhra Pradesh State
Irrigation Development Corporation) for its lift irrigation schemes. The panchayatraj
department is producing pipes for public water supply schemes. These pipes can be used for
the main distributors, sub-distributors and individual connections.

CHAPTER - 3

COMPANY PROFILE

COMPANY PROFILE
Introduction:
A dynamic entrepreneur Sri S.P.Y.Reddy was established a black pipes manufacturing
company in 1977 and the name of the company is Nandi Pipes Pvt Ltd at Nandyal, Kurnool
district. Anita PVC Pipes Pvt Ltd was incorporated in the year 2002. The factory is situated at
NH-7, Hampapuram village, Raptadu mandal, and Anantapur district and it was taken over by
Nandi Group Company. The company is managed by team of professionals under the
guidance of young, experienced, and well qualified dynamic managing director
Mr.S.Sreedhar Reddy.
Origin:
Rayalaseema is economically backward area in Andhra Pradesh, was rare field
region for industries. A dynamic entrepreneur sir S.P.Y.Reddy who is basically mechanical
engineer started a unit at Nandyal, which manufactures black pipes in 1977. The
determination and hard work of Sri S.P.Y.Reddy helped him to overcome the problems faced
by the company in the initial years, and with financial assistance from local commercial
banks. The company could overcome the problems of the merger and now it is running
smoothly.

Later the company started manufacturing of PVC pipes which terminated the
manufacturing of black pipes. This resulted in the formation of a Pvt. Ltd. company called
SUJALA PIPES PVT.LTD. with Sri S.P.Y.Reddy as the Managing Director.
The only major competitors to the company are Sudhakar pipes, Maharaja Pipes. The
only backdrop to it is the competition from local brands. As the majority of the customers
belong to farmers, they consider the quality. The company has to make aware of the
companys quality standards to them.
S.P.Y.Reddy:
Sri S.P.Y.Reddy locally well known industrialist with the base at nandyal, Kurnool
district who has been successful entrepreneur, he is technically qualified person with B.E
(MEC) from R.E.C (Warangal) and with work experience at BAARC (Bombay). He has
daringly ventured and established industries in and around nandyal from 70s. As years went
of he has established most successfully the following nandi group of companies:

Nandi Milk

Maha Nandi Mineral Water

Nandi Infosys

Nandi Online Services

Anantha PVC Pipes Pvt Ltd.

Integrated Thermos Plastic Ltd.

Nandi PVC Projects.

Promoter:
Sri.S.Sreedhar Reddy, a computer engineer and a student of IIM, Ahemadabad has
been entrusted the management of Anantha PVC Pipes Pvt Ltd., Hampapuram and great
assistance and a great upcoming engineer and industrialist.
Branches:

Pondichery

Bellary

Sangli

Vellore

Goa

Kerala

Coverage:
At present Andhra Pradesh, parts of southern states of Karnataka, Tamilnadu and
Kerala are ambit of Sujala Pipes Pvt Ltd.
The company extended their sales in the below regions are shown below:
1979

Nandyal Region(polypone pipes)

1984.85

Rayalaseema Region (PVC pipes)

1985.86

Telangana Region

1986.87

Karnataka and Andhra Pradesh

1988.91

Tamilnadu and Karnataka

1991.94

Kerala

Sizes
Various sizes ranging from to 10 are offered to customers. Even pipes with different
gauges and sizes are manufactured to suit specified conditions.

Packing
Packing plays less important role into the products like PVC pipes because the hallow
space inside can be utilized. For the purpose of cubic space utilization in trucks while
transport, organization is adopting the technique like pipes in pipes.
Payment period
For monarch brand the company adopts zero credit policy and goods are not delivered
unless cash remittances are made. For monarch and sagar brands credit is entitled up to a
week. The difference between these brands is due to brand image.
Technical details about pvc pipes
Ingredients:
PVC resin
D.B.L.S
T.B.L.S
L.S
C.S
Stearic Acid
Hydro Carbon
Calcium Carbonate

Manufacturing process
The main raw materials are HDPE granules and PP granules. The
manufacturing process for pipes consists of mixing various resins along with the coloring
materials in a mixture and the prepared material is fed to the extruder. In the extruder, the
material is heated to the required politicizing temperature (190deg. centigrade to 230deg.
centigrade) the extruder through the die hard to form the pipe. The hot pipe coming out of the
extruder is cooled in a water bath to retain the final shape.

The pipe coming out of the extruder is guided through the water bath suitable
transaction system. The temperature of the water is maintained by circulating through the
cooling towards and with the help of a chilling plant.

The required length of the pipe is cut with a planetary saw. The cut lengths are titled
by titling units and get corrected in the pipe rack attached to the titling frames. Later they are
stocked separately. The company has entered into a technical with its own processing
technology.

Channels of distribution

Anantha PVC Pipes Pvt Ltd. has got zero level and single level channel of
distribution.
MANUFACTURER

MANUFACTURER

CONSUMER

DEALER

CONSUMER

Anantha PVC Pipes Pvt Ltd. has an extensive network of 350 dealers in Andhra
Pradesh and who are directly serviced by company sales force and 620 dealers in South India.
Transportation:
Transportation vehicles of Anantha PVC Pipes Pvt Ltd. outnumber the fleet of the
competitors vehicle. This unique strength of the organization enables the delivery system to
be efficient. This event helps the dealers to reduce inventory levels to the minimum. The
dealers are also supplemented with the benefit of the lower paid up capital in the form of
inventory.
Anantha pvc pipes pvt ltd:

Anantha PVC Pipes Pvt Ltd. was incorporated in the year Feb 2002. The factory is
situated at NH-7, Hampapuram village, Raptadu mandal, and Anantapur district. It was taken
over by Nandi group company, and it is one of the sister company among the Nandi groups.
Its annual production capacity is 18,000 mts. And it is one of the leading
manufacturers of PVC pipes in south India. This company is equipped with technical
collaboration from Batten field of West Germany. It has made possible few other small
ventures. Pipes are sold under the brand names of MONARCH, KOHINOOR and
KRISHNA.
Anantha PVC Pipes with their good quality, trouble free services, durability and
commercial use are a better choice than mild steel, galvanized steel, cast iron and plastic
pipes.
The company is managed by a term of professionals under the guidance of a young,
experienced and well qualified dynamic managing director Mr. Sreedhar Reddy.
Mission Statement:
The mission statement of Anantha PVC Pipes Pvt Ltd. is as follows:

To be preferred supply chain partner to out customer.

To be recognised as the best in the world at we do.

To create new values in the quality for our customers and employees.

Vision Statement:
The vision statement of Anantha PVC Pipes Pvt. Ltd. is as follows
Creating new values in quality by working together for you
Functional departments of the company:
Financial department:
Through initially the company approached the external source for financial aid, now
the financial status of the company is very sound and is being run only with self finance
excepting for loans taken for hypothecation of machinery and stock from SBI Nandyal.
The company follows cash and carry policy for monarch brand. The product is not
delivered until the cash is paid and financial department with the help of marketing
department looks after these transactions.

Marketing department
Marketing Department is headed by the Executive Director. Marketing Manager is in
charge of all operations who reports to the Executive Director. Marketing Manager and 35
Sales Representatives are under the control of Executive Director. There are also 20 salesmen
who have to report to the sales representatives above them.
Personal Department
The Personal department consists the details of the executives and workers of the
organization. The organization is formed with Sri.S.P.Y.Reddy as the managing Director. Two
Marketing managers, financial managers, public relations officer and quality control officer
who all reports to executive director. Other than executives there are thousands workers in the
organization.
Panel consisting of managing director, executive director and managers of concerned
departments makes the recruitment and selections of persons. Apart from the attractive
salaries company provides health card facilities.
Purchasing department
The perplexing situation i.e. conformed by the manufactures of the PVC pipes is
scarcity of resin. Though the government of India has taken various steps to improve the
supply conditions of PVC resin, the Indian manufactures could meet only 50 percent of
demand and remaining 50 percent is met from imports. The major petrochemical company is
Reliance Petrochemical Ltd.
The lead time for the acquisition of raw materials is 4 days.
The following lines highlight the human resources policies and practices:
Effective utilization of manpower.
To provide good working condition.
To promote industrial development.

Application of pvc pipes

Agriculture and irrigation schemes.

Rural and urban water supplies scheme.

Tube well casing.

Gas and oil supply lines.

Industrial effluent disposal.

Sewerage and drainage scheme.

Air-condition ducting.

Building installations.

Industrial ducting.

CHAPTER- 4

RESEARCH & METHODOLOGY

AND
DESIGN OF THE STUDY

INVENTORY MANAGEMENT
Inventory management, or inventory control, is an attempt to balance inventory needs and
requirements with the need to minimize costs resulting from obtaining and holding inventory.
There are several schools of thought that view inventory and its function differently. These
will be addressed later, but first we present a foundation to facilitate the reader's
understanding of inventory and its function.
WHAT IS INVENTORY?
Inventory is a quantity or store of goods that is held for some purpose or use (the term may
also be used as a verb, meaning to take inventory or to count all goods held in inventory).
Inventory may be kept "in-house," meaning on the premises or nearby for immediate use; or
it may be held in a distant warehouse or distribution center for future use. With the exception
of firms utilizing just-in-time methods, more often than not, the term "inventory" implies a
stored quantity of goods that exceeds what is needed for the firm to function at the current
time (e.g., within the next few hours).
WHY KEEP INVENTORY?
Why would a firm hold more inventory than is currently necessary to ensure the firm's
operation? The following is a list of reasons for maintaining what would appear to be
"excess" inventory.

Table 1

Demand

January
50

February
50

March
0

April
100

May
200

June
200

Produce
Month-end inventory
MEET DEMAND.

100
50

100
100

100
200

100
200

100
100

100
0

In order for a retailer to stay in business, it must have the products that the customer wants on
hand when the customer wants them. If not, the retailer will have to back-order the product. If
the customer can get the good from some other source, he or she may choose to do so rather
than electing to allow the original retailer to meet demand later (through back-order). Hence,
in many instances, if a good is not in inventory, a sale is lost forever.
KEEP OPERATIONS RUNNING.
A manufacturer must have certain purchased items (raw materials, components, or
subassemblies) in order to manufacture its product. Running out of only one item can prevent
a manufacturer from completing the production of its finished goods.
Inventory between successive dependent operations also serves to decouple the dependency
of the operations. A machine or workcenter is often dependent upon the previous operation to
provide it with parts to work on. If work ceases at a workcenter, then all subsequent centers
will shut down for lack of work. If a supply of work-in-process inventory is kept between
each workcenter, then each machine can maintain its operations for a limited time, hopefully
until operations resume the original center.
LEAD TIME
Lead time is the time that elapses between the placing of an order (either a purchase order or
a production order issued to the shop or the factory floor) and actually receiving the goods
ordered.
If a supplier (an external firm or an internal department or plant) cannot supply the required
goods on demand, then the client firm must keep an inventory of the needed goods. The
longer the lead time, the larger the quantity of goods the firm must carry in inventory.
A just-in-time (JIT) manufacturing firm, such as Nissan in Smyrna, Tennessee, can maintain
extremely low levels of inventory. Nissan takes delivery on truck seats as many as 18 times
per day. However, steel mills may have a lead time of up to three months. That means that a
firm that uses steel produced at the mill must place orders at least three months in advance of
their need. In order to keep their operations running in the meantime, an on-hand inventory of
three months' steel requirements would be necessary.

HEDGE
Inventory can also be used as a hedge against price increases and inflation. Salesmen
routinely call purchasing agents shortly before a price increase goes into effect. This gives the
buyer a chance to purchase material, in excess of current need, at a price that is lower than it
would be if the buyer waited until after the price increase occurs.
QUANTITY DISCOUNT
Often firms are given a price discount when purchasing large quantities of a good. This also
frequently results in inventory in excess of what is currently needed to meet demand.
However, if the discount is sufficient to offset the extra holding cost incurred as a result of the
excess inventory, the decision to buy the large quantity is justified.
SMOOTHING REQUIREMENTS
Sometimes inventory is used to smooth demand requirements in a market where demand is
somewhat erratic. Consider the demand forecast and production schedule outlined in Table 1.
Notice how the use of inventory has allowed the firm to maintain a steady rate of output (thus
avoiding the cost of hiring and training new personnel), while building up inventory in
anticipation of an increase in demand. In fact, this is often called anticipation inventory. In
essence, the use of inventory has allowed the firm to move demand requirements to earlier
periods, thus smoothing the demand.
CONTROLLING INVENTORY
Firms that carry hundreds or even thousands of different part numbers can be faced with the
impossible task of monitoring the inventory levels of each part number. In order to facilitate
this, many firm's use an ABC approach. ABC analysis is based on Pareto Analysis, also
known as the "80/20" rule. The 80/20 comes from Pareto's finding that 20 percent of the
populace possessed 80 percent of the wealth. From an inventory perspective it can restated
thusly: approximately 20 percent of all inventory items represent 80 percent of inventory
costs. Therefore, a firm can control 80 percent of its inventory costs by monitoring and
controlling 20 percent of its inventory. But, it has to be the correct 20 percent.
The top 20 percent of the firm's most costly items are termed "A" items (this should
approximately represent 80 percent of total inventory costs). Items that are extremely
inexpensive or have low demand are termed "C" items, with "B" items falling in between A

and C items. The percentages may vary with each firm, but B items usually represent about
30 percent of the total inventory items and 15 percent of the costs. C items generally
constitute 50 percent of all inventory items but only around 5 percent of the costs.
By classifying each inventory item as an A, B or C the firm can determine the resources
(time, effort and money) to dedicate to each item. Usually this means that the firm monitors A
items very closely but can check on B and C items on a periodic basis (for example, monthly
for B items and quarterly for C items).
Another control method related to the ABC concept is cycle counting. Cycle counting is used
instead of the traditional "once-a-year" inventory count where firms shut down for a short
period of time and physically count all inventory assets in an attempt to reconcile any
possible discrepancies in their inventory records. When cycle counting is used the firm is
continually taking a physical count but not of total inventory.
A firm may physically count a certain section of the plant or warehouse, moving on to other
sections upon completion, until the entire facility is counted. Then the process starts all over
again.
The firm may also choose to count all the A items, then the B items, and finally the C items.
Certainly, the counting frequency will vary with the classification of each item. In other
words, A item may be counted monthly, B items quarterly, and C items yearly. In addition the
required accuracy of inventory records may vary according to classification, with A items
requiring the most accurate record keeping.
BALANCING INVENTORY AND COSTS
As stated earlier, inventory management is an attempt to maintain an adequate supply of
goods while minimizing inventory costs. We saw a variety of reasons companies hold
inventory and these reasons dictate what is deemed to be an adequate supply of inventory.
Now, how do we balance this supply with its costs? First let's look at what kind of costs we
are talking about.
There are three types of costs that together constitute total inventory costs: holding costs, setup costs, and purchasing costs.
HOLDING COSTS

Holding costs, also called carrying costs, are the costs that result from maintaining the
inventory. Inventory in excess of current demand frequently means that its holder must
provide a place for its storage when not in use. This could range from a small storage area
near the production line to a huge warehouse or distribution center. A storage facility requires
personnel to move the inventory when needed and to keep track of what is stored and where
it is stored. If the inventory is heavy or bulky, forklifts may be necessary to move it around.
Storage facilities also require heating, cooling, lighting, and water. The firm must pay taxes
on the inventory, and opportunity costs occur from the lost use of the funds that were spent on
the inventory. Also, obsolescence, pilferage (theft), and shrinkage are problems. All of these
things add cost to holding or carrying inventory.
If the firm can determine the cost of holding one unit of inventory for one year ( H ) it can
determine its annual holding cost by multiplying the cost of holding one unit by the average
inventory held for a one-year period. Average inventory can be computed by dividing the
amount of goods that are ordered every time an order is placed ( Q ) by two. Thus, average
inventory is expressed as Q /2. Annual holding cost, then, can be expressed as H ( Q /2).
SET-UP COSTS
Set-up costs are the costs incurred from getting a machine ready to produce the desired good.
In a manufacturing setting this would require the use of a skilled technician (a cost) who
disassembles the tooling that is currently in use on the machine. The disassembled tooling is
then taken to a tool room or tool shop for maintenance or possible repair (another cost). The
technician then takes the currently needed tooling from the tool room (where it has been
maintained; another cost) and brings it to the machine in question.
There the technician has to assemble the tooling on the machine in the manner required for
the good to be produced (this is known as a "set-up"). Then the technician has to calibrate the
machine and probably will run a number of parts, that will have to be scrapped (a cost), in
order to get the machine correctly calibrated and running. All the while the machine has been
idle and not producing any parts (opportunity cost). As one can see, there is considerable cost
involved in set-up.
If the firm purchases the part or raw material, then an order cost, rather than a set-up cost, is
incurred. Ordering costs include the purchasing agent's salary and travel/entertainment
budget, administrative and secretarial support, office space, copiers and office supplies, forms

and documents, long-distance telephone bills, and computer systems and support. Also, some
firms include the cost of shipping the purchased goods in the order cost.
If the firm can determine the cost of one set-up ( S ) or one order, it can determine its annual
setup/order cost by multiplying the cost of one set-up by the number of set-ups made or
orders placed annually. Suppose a firm has an annual demand ( D ) of 1,000 units. If the firm
orders 100 units ( Q ) every time it places and order, the firm will obviously place 10 orders
per year ( D / Q ). Hence, annual set-up/order cost can be expressed as S ( D / Q ).

PURCHASING COST
Purchasing cost is simply the cost of the purchased item itself. If the firm purchases a part
that goes into its finished product, the firm can determine its annual purchasing cost by
multiplying the cost of one purchased unit ( P ) by the number of finished products demanded
in a year ( D ). Hence, purchasing cost is expressed as PD.
Now
Total

total
=

inventory

Holding

cost

cost
+

can

be

Set-up/Order

cost

expressed
+

as:

Purchasing

cost

or
Total = H ( Q /2) + S ( D / Q ) + PD
If holding costs and set-up costs were plotted as lines on a graph, the point at which they
intersect (that is, the point at which they are equal) would indicate the lowest total inventory
cost. Therefore, if we want to minimize total inventory cost, every time we place an order, we
should order the quantity ( Q ) that corresponds to the point where the two values are
equalThe quantity Q is known as the economic order quantity (EOQ). In order to minimize
total inventory cost, the firm will order Q every time it places an order. For example, a firm
with an annual demand of 12,000 units (at a purchase price of $25 each), annual holding cost
of $10 per unit and an order cost of $150 per order (with orders placed once a month) could
save $800 annually by utilizing the EOQ. First, we determine the total costs without using the
EOQ method:
Q = $10(1000/2) + $150(12,000/1000) + $25(12,000) = $306,800
Then we calculate EOQ:
EOQ = 2(12,000)($150)/$10= 600
And we calculate total costs at the EOQ of 600:
Q = $10(600/2) + $150(12,000/600) + $25(12,000) = $306,000

Finally, we subtract the total cost of Q from Q to determine the savings:

$306,800 306,000 = $800
Notice that if you remove purchasing cost from the equation, the savings is still $800. We
might assume this means that purchasing cost is not relevant to our order decision and can be
eliminated from the equation. It must be noted that this is true only as long as no quantity
discount exists. If a quantity discount is available, the firm must determine whether the
savings of the quantity discount are sufficient to offset the loss of the savings resulting from
the use of the EOQ.
There are a number of assumptions that must be made with the use of the EOQ. These
include:

Only one product is involved.

Deterministic demand (demand is known with certainty).

Constant demand (demand is stable through-out the year).

No quantity discounts.

Constant costs (no price increases or inflation).

While these assumptions would seem to make EOQ irrelevant for use in a realistic situation,
it is relevant for items that have independent demand. This means that the demand for the
item is not derived from the demand for something else (usually a parent item for which the
unit in question is a component). For example, the demand for steering wheels would be
derived from the demand for automobiles (dependent demand) but the demand for purses is
not derived from anything else; purses have independent demand.
FIXED-ORDER-QUANTITY MODEL
EOQ is an example of the fixed-order-quantity model since the same quantity is ordered
every time an order is placed. A firm might also use a fixed-order quantity when it is captive
to packaging situations. If you were to walk into an office supply store and ask to buy 22
paper clips, chances are you would walk out with 100 paper clips. You were captive to the
packaging requirements of paper clips, i.e., they come 100 to a box and you cannot purchase
a partial box. It works the same way for other purchasing situations. A supplier may package

their goods in certain quantities so that their customers must buy that quantity or a multiple of
that quantity.
FIXED-ORDER-INTERVAL MODEL
The fixed-order-interval model is used when orders have to be placed at fixed time intervals
such as weekly, biweekly, or monthly. The lot size is dependent upon how much inventory is
needed from the time of order until the next order must be placed (order cycle). This system
requires periodic checks of inventory levels and is used by many retail firms such as drug
stores and small grocery stores.
SINGLE-PERIOD MODEL
The single-period model is used in ordering perishables, such as food and flowers, and items
with a limited life, such as newspapers. Unsold or unused goods are not typically carried over
from one period to another and there may even be some disposal costs involved. This model
tries to balance the cost of lost customer goodwill and opportunity cost that is incurred from
not having enough inventory, with the cost of having excess inventory left at the end of a
period.
PART-PERIOD BALANCING
Part-period balancing attempts to select the number of periods covered by the inventory order
that will make total carrying costs as close as possible to the set-up/order cost.
When a proper lot size has been determined, utilizing one of the above techniques, the
reorder point, or point at which an order should be placed, can be determined by the rate of
demand and the lead time. If safety stock is necessary it would be added to the reorder point
quantity.
Reorder point =
Expected demand during lead time + Safety stock
Thus, an inventory item with a demand of 100 per month, a two-month lead time and a
desired safety stock of two weeks would have reorder point of 250. In other words, an order
would be placed whenever the inventory level for that good reached 250 units.
Reorder point =
100/month 2 months + 2 weeks' safety stock = 250
OTHER SCHOOLS OF THOUGHT IN INVENTORY MANAGEMENT

There are a number of techniques and philosophies that view inventory management from
different perspectives.
MRP AND MRP II
MRP and MRP II are computer-based resource management systems designed for items that
have dependent demand. MRP and MRP II look at order quantities period by period and, as
such, allow discrete ordering (ordering only what is currently needed). In this way inventory
levels can be kept at a very low level; a necessity for a complex item with dependent demand.
JUST-IN-TIME (JIT)
Just-in-time (JIT) is a philosophy that advocates the lowest possible levels of inventory. JIT
espouses that firms need only keep inventory in the right quantity at the right time with the
right quality. The ideal lot size for JIT is one, even though one hears the term "zero
inventory" used.
THEORY OF CONSTRAINTS (TOC)
Theory of constraints (TOC) is a philosophy which emphasizes that all management actions
should center around the firm's constraints. While it agrees with JIT that inventory should be
at the lowest level possible in most instances, it advocates that there be some buffer inventory
around any capacity constraint (e.g., the slowest machine) and before finished goods.

THE FUTURE OF INVENTORY MANAGEMENT

The advent, through altruism or legislation, of environmental management has added a new
dimension to inventory management-reverse supply chain logistics. Environmental
management has expanded the number of inventory types that firms have to coordinate. In
addition to raw materials, work-in-process, finished goods, and MRO goods, firms now have
to deal with post-consumer items such as scrap, returned goods, reusable or recyclable
containers, and any number of items that require repair, reuse, recycling, or secondary use in
another product. Retailers have the same type problems dealing with inventory that has been
returned due to defective material or manufacture, poor fit, finish, or color, or outright "I
changed my mind" responses from customers.

Finally, supply chain management has had a considerable impact on inventory management.
Instead of managing one's inventory to maximize profit and minimize cost for the individual
firm, today's firm has to make inventory decisions that benefit the

DESIGN OF THE STUDY

DESIGN OF THE STUDY

Need for the study

The pipes production serves as the index of the economic development of any
country. Thus PVC Pipes production is very vital from countrys agricultures point of view.
The demand would be growing with increasing technologies and is likely to reach a
staggering level in the decades to come.

On the other hand, the price of pipes has remained stagnant, because prices are
determined by market forces and presently production levels are greater than supply.

A number of industries for the past few years have been finding it difficult to solve the
increasing problems of adopting seriously the management of working capital. Business
concerns intent on developing their business have to use to the utmost, their available
resources for the improvement and development of the business, there by enabling them
profits.

Due to inflationary situation and restrictions imposed on borrowing facility, the

commercial institutions and manufacturing industrial units have been confronting
innumerable difficulties in meeting day-to-day financial needs. Hence effective management
of working capital has become a problem for such organizations and industries. The purpose
of study is to examine, analyze and evaluate working capital management and its components
in ANANTHA PVC PIPES PVT LTD.
Statement of the problem
Working capital is an important aspect of financial management. It plays an essential
role in organizations financial success. The nature of such working capital is very liquid.
Valuation of working capital elements like cash, debtors, stock and creditors itself is a
difficult task for any organization. So there arises a requirement for assessing working capital
requirements, monitoring and managing it, from time to time for greater efficiencies.

Objectives Of The Study

To study the statement of changes in working capital.

To analyze the profitability-liquidity position of the company.

To examine and evaluate the cash, receivables and inventory management

performances.

Tools for analysis

To analyze the data acquired from the secondary sources the following tools are used:

Statement of changes in working capital.

Ratio analysis.

Scope And Period Of The Study

The scope of the study is defined below in terms of concepts adopted and period
under focus.
First, the study management of working capital i.e. gross and net are used in
measuring profitability and liquidity respectively and also to arrive at various objectives of
the study.
Secondly, the study is based on the annual reports of the company for a period of five
years from 2003-04 to 2007-08 (so we study 2004, 2005, 2006, 2007, 2008).
Sources Of Data
The data is collected from the secondary sources of annual and financial statements of
the company.
Limitations

As most of the financial information was considered confidential, the access to the
information was restricted.

The results of the study are limited to the available information.

Due to frequent camps and workload of the staff in the organization much time could
not be spared by them for the project.

The project is based mainly on secondary sources of information.

CHAPTER -5

DATA ANALYSIS
AND
INTERPRETAION:

DATA ANALYSIS AND INTERPRETAION:

1. Investment on raw materials:
The investment on raw material over a period of 5 year from 2009 to 2014 is presented in the
following table.
Table
Years
2009-2010
2010-2011
2011-2012
2012-2013
2013-2014

Raw material(millions)
337.09
370.42
455.96
484.62
549.5

Chart

Chart Title
600
500
400
Raw material(millions)

Series 2

Series 3

300
200
100
0

2009-2010

2010-2011

2011-2012

2012-2013

2013-2014

INTERPRETATION:
1.The investment on raw material over a period of 5 year from 2009 to 2014 every year
increasing
2.compare to all years raw material is 2011-2012 it high increase.

Inventory turnover ratio:

Total inventory turnover ratio is concerned with the cost of goods sold and average
inventory. Total inventory turnover ratio is shows how many times inventory is replaced
during the year symbolically,
Cost of goods sold
Inventory Turnover Ratio= ----------------------Average inventory
INVENTORY TURNOVER RATIO (in billions)TABLE
Years

Cost of goods sold

avg. inventory

Inventory

2009-2010
2010-2011
2011-2012
2012-2013
2013-2014

3.23
3.55
3.85
3.85
4.4

1.14
1.28
1.59
1.65
1.65

Ratio
2.83
2.77
2.42
2.33
2.66

Chart

turnover

4.5
4
3.5
3
2.5
2
1.5
1
0.5
0

Cost of goods sold

avg. inventory
Inventory turnover
Ratio

Interpretation:
1

The performance of pvc pipes ltd in inventory turnover ratio is during the year 2009-2010 is

2
3

better because inventory turnover ratio is 2.83 times.

In the year 2012-13 inventory turnover ratio is not sufficient because the ratio is of2.33 times
When inventory turnover ratio is more times it indicates better performance of the company
and vice-versa.
4. 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
Inventory turnover current assets ratio= ----------------------- * 100
Current assets
CURRENT ASSETS(in billions) TABLE

2009-2010
2010-2011
2011-2012
2012-2013
2013-2014
CHART

Inventory
1.24
1.4
1.53
1.66
1.65

Current assets
3.36
3.57
3.9
4.47
6.79

Ratio (%)
36.90
39.21
39.23
37.13
24.30

40
35
30
25
20
15
10
5
0

Inventory
Current assets
Ratio (%)

Interpretation:
1. The % of inventory in current in current assets is more during year 2011-2012 that is 39.23
2. Increasing the % of inventory in current asset is not good for pvc pipes ltd
3. The lowest % of inventory over current asset is recorded in the year 2013-2014as 24.30it
indicates good position of the company.

6.Percent of Inventory over total current liabilities:

In order to know the percentage of Inventory over current liabilities the ratio of Inventory
to current liabilities is calculated and which is presented in the following table.
Inventory
Percent of Inventory over total current liabilities ratio = --------------------100

Current liabilities
CURRENT LIABILITIES (in billions) TABLE

2009-2010
2010-2011
2011-2012
2012-2013
2013-2014
Chart

Inventory

Current liabilities

Ratio

1.24
1.4
1.53
1.66
1.65

1.81
2.56
2.19
2.96
5.31

68.50
54.68
69.86
56.08
31.07

70
60
50
40

Inventory

30

Current liabilities
Ratio

20
10
0
2009-2010 2010-2011 2011-2012 2012-2013 2013-2014

Interpretation:
From the above table it can be understand that the % inventory over current liabilities ratio
was showing a declining trend for one year 2013-2014The highest inventories to current
liabilities ratio was recorded at 69.86 during the year 2011-2012.
7.CURRENT RATIO:
In order to know the current ratio the percentage of current assets to current liabilities is
calculated and which is presented in the following table.

Current assets
Current ratio=

---------------------Current liabilities

CURRENT RATIO(in billions)TABLE

2009-2010
2010-2011
2011-2012
2012-2013
2013-2014

Inventory(assets)
3.36
3.57
3.9
4.47
6.79

Current liabilities
1.81
2.56
2.19
2.96
5.31

Ratio
1.85
1.39
1.78
1.51
1.27

7
6
5
4
3

Inventory(assets)

Current liabilities

Ratio

2
1
0
2009-2010 2010-2011 2011-2012 2012-2013 2013-2014

8.QUICK RATIO:
The quick ratio is the relationship between quick to current liabilities quick assets is more
rigorous test of liability position of a firm it is computed by applying the following formula.
Quick ratio= Liquid assets/current liabilities
assets=current assets- stock-prepaid exp
QUICK RATIO(in billions)TABLE

2009-2010
2010-2011
2011-2012
2012-2013
2013-2014

Quick assets Liquid

2.12
2.17
2.4
2.81
5.14

Current liabilities
1.81
2.56
2.19
2.96
5.31

Ratio
1.17
0.84
0.079
0.94
0.96

chart
6
5
4
3
2
1
0

INTERPRETATION:

Quick assets Liquid

Current liabilities
Ratio

From the above table the quick ratio 2009-2010is higher than the current liabilities..

From the above table quick assets are lower than current liabilities except 2009-2010.
Various inventory ratios:
a
b
c
d

total investment in inventory

total inventory turnover ratio
work in process turnover ratio
finished goods turnover ratio

total investment in inventory:

Years
Inventory

2009-2010
1.24

(in billions)TABLE
2010-2011
1.4`

2011-2012
1.53

2012-2013
1.66

2013-2014
1.65

Chart

5
4.5
4
3.5

2009-2010

2010-2011

2.5

2011-2012

2012-2013

1.5

2013-2014

1
0.5
0
Inventory

Category 2

Category 3

Category 4

Interpretation:
1. Above table I observed every year investment is up and down process in2010-2011 is
decreased. That is 1.4 billion only.
2. During the five years investment is high that year is 2012-2013 that is i.66 billion.

Total inventory turnover ratio TABLE

Years
2009-2010
2010-2011
2011-2012
2012-2013
2013-2014

Cost of goods sold

3.23
3.55
3.85
3.85
4.4

avg. inventory

Inventory

1.14
1.28
1.59
1.65
1.65

Ratio
2.83
2.77
2.42
2.33
2.66

turnover

Chart
4.5
4
3.5
3
2.5
2

Cost of goods sold

1.5

avg. inventory

Inventory turnover Ratio

0.5
0

Interpretation:
4

The performance of ananta pvc pipes ltd in inventory turnover ratio is during the year 2009-

5
6

2010 is better because inventory turnover ratio is 2.83 times.

In the year 2012-13 inventory turnover ratio is not sufficient because the ratio is of2.33 times
When inventory turnover ratio is more times it indicates better performance of the company
and vice-versa.

Work in process turnover ratio:

Work in process turnover ratio is concerned with the cost of goods sold and average work in
process inventory. Work in process turnover ratio shows how many times work in process
inventory is replaced during the year. Symbolically.
Cost of production
Work in process turnover ratio =
Average wip inventory

__________________

CHAPTER-V

FINDINGS
SUGGESTIONS
CONCLUSION

Findings:

It is observed that, Firms is following weighted average method for evaluating their stock.

The investment on raw material during year 2013-2014549.5 million which is very high as
compared to 2009-2010 which is only 337.09 million.

The inventory turnover ratio during the year 2009-2010 was 2.83 times. It indicates better
performance of the ananta pvc pipes ltd when compare to current year it was 2.66 times.

The inventory conversion period is 10 days during the year 2011-2012,which indicates the
inventory is converted in to sales in less time .Now its is 17 days during the year 2012-2013.it
indicates company performance is not sufficient.

SUGGESTIONS

The company follows weighted average method .it gives best results to evaluate the stock. So
it suggested continuing the same method for future also.

Investment on raw material of ananta pvc pipes ltd (injectable-1) increasing from 2009 to
2014 .it is good sign to the company. But company wants to increase their investment in raw
material because of to meet the future challenges and competencies.

The company inventory turnover ratio is good.i.e. It is suggested to maintain the same and if
possible to improved it.

The company inventory conversion period is more..e. it indicates company performance is

not sufficient. The company is suggested to focus on reducing the conversion period of
inventory to convert into sales.

The company suggested to keep monitoring the price fluctuations and forecast the low prices
for storing higher inventory of critical items.

Conclusion

The study can conclude that the effectiveness of inventory management should improve in all
the aspects, hence the company can still strengthen its position by looking into the following.

The inventory should be fast moving so that warehouse cost can be reduced.

The finished goods have to be dispatched in feasible time as soon as manufacturing is

completed.

BIBLIOGRAPHY
BOOKS

M.Pandy Financial Manamgement, 7th edition , vikas publishing house private

limited ,new Delhi 1995.
2) Khan M.Y(S) john p.k financial management 2 nd edition, tata McGraw hill
1)

publishing co ltd, new Delhi .

3) S.N chary production and operation management 3rd edition Tata McGraw hill
publishing co.ltd,new Delhi.

Websites
www.inflowinventory.com
www.anantapipes.com
www.nandipipse.com