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INVENTORY MANAGEMENT
With reference to
ANDHRA UNIVERSITY
(2015 2017)
DECLARATION
7. BIBLIOGRAPHY 57
CHAPTER-1
INTRODUCTION
1
1. INTRODUCTION
1.1. CONCEPT OF FINANCE:
Finance is regarded as the life blood of business enterprise. Finance is one of the
basic foundations of all kinds of economic activities. Finance is one of the important and
indispensable resources and without financial support no business activity can be
pursued. It is guide for regulating investment divisions and expenditure. The financial
management studies about the process of procuring and optimum utilization of financial
resources with a view to maximize the value of the firm there by the value of the owners
i.e., equity shareholder.
Therefore, it is correct to say that without adequate finance no business can
survive and without efficient financial management no business can prosper and grow.
DEFINITION:
Finance comes from a Latin word Finis. Finance is the process of organizing the flow of
funds so that a business can carry out its objectives in the most efficient manner and
meet its obligations as they fall due
DEFINITION
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1.4. SCOPE OF FINANCIAL MANAGEMENT:
a) Traditional Approach:
The scope of finance function was treated, in the narrow sense of
procurement or arrangement of funds. The finance manager was treated as just
provider of funds, when organization was in need of them.
b) Modern Approach:
The modern approach views the term financial management in a broad
sense and provides a conceptual and analytical frame work for financial decision
making. According to it, the finance function covers both acquisitions of funds as well
as their allocation.
There are mainly 3 functions involved with financial management. They are
Investment Decision:
The investment decision relates to the selection of assets in which funds will be
invested by a firm. The assets which can be acquired fall into 2 broad groups.
Long term assets or Fixed assets.
(Which are used for earning over a long period)
Short term assets or Current assets.
(Which can be converted into cash with in an accounting year)
Finance decision:
The second major decision involved in financial management is the financing of the
firm. The investment decision is broadly concerned with the asset mix (or) the composition
the assets of the firm. The concern of the financing decision is with the financing mix (or)
capital structure (or) leverages. The term capital structure refers to the proportion of debt and
equity capital.
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Dividend Policy Decision:
The third major decision of financial management is the decision relating to the
dividend policy. The dividend decision should be analyzed in relation to the financing
decisions of the firm.
OBJECTIVES OF FINANCIAL MANAGEMENT:
Financial management main aim is to use business funds in such a way that the
earnings are maximized. The main objective of a business is to maximize the owner`s
economic welfare. There are 2 main Objectives of financial management. They are
i) Profit Maximization.
ii) Wealth Maximization.
PROFIT MAXIMIZATION:
Profit earning is the main aim of every economic activity. A business being an
economic institution must earn profit to cover its costs and provide funds for growth. No
business can survive without earnings profits. Profit is the measure of efficiency of a business
enterprise. Profits also survive as a protection against risks which cannot be ensured.
WEALTH MAXIMIZATION:
Wealth maximization is that it reflects the most efficient use of society`s economic
resources and thus leads to maximization of society`s economic wealth.
In this way it is also known as Net present worth maximization approach, it takes
into consideration the time value of money. Its operational features satisfy all the 3
requirements of the suitable operational objectives of financial courses of action. They are
i) Quality of benefits.
ii) Time of benefits.
iii) Exactness.
The wealth maximization objective is consistent with the objectives of
maximization of owner`s economic welfare. The wealth maximization principle implies that
the fundamental objective of a firm should be to maximize the market value of its shares.
Financial planning is the task of determining how a business will afford to achieve
its strategic goals and objectives. Usually, a company creates a financial plan immediately
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after the vision and mission objectives have been set. The financial plan describes each of the
activities, resources, equipment and materials that are needed to achieve these objectives, as
well as the timeframes involved.
FINANCIAL PLANNING ACTIVITY INVOLVES THE FOLLOWING TASKS:
i. Asses the business environment
ii. Confirm the vision and mission objectives.
iii. Identify the type of resources needed to achieve the objectives.
iv. Quantify the amount of resources (labour, equipment, material).
v. Calculate the total cost to create a budget.
vi. Identify any risks and issues with the budget set.
Financial forecasting describes the process by which firms think about and prepare
for the future. The forecasting process provides the means for a firm to express its goals and
priorities and to ensure that they are internally consists. It also assists the firm in identifying
the assets requirements and needs the external financing.
MEANING OF INVENTORY:
Inventories are resources of any kind having an Economic value. An inventory
consists of Raw materials, Work-in-progress, finished goods and stores. Thus inventory
control is all about planning and devising procedures to maintain an optimal level of these
resources. The store inventory is anticipation of raw materials, work in progress and finished
goods.
DEFINITION
Inventory consists of usable but idle resource.
R.L.Ackoff and M.W.Sasieni,
6
The stock of goods, commodities or other economic resources that are stored or
reserved at any given period for future production or for meeting future demand.
Nutshell
NATURE OF INVENTORY:
The term Inventory refers to stock of the products of a company in manufacturing
for sale and components that makeup the product. Raw materials are those basic inputs that
are converted into finished products through the manufacturing process. Work in process
inventory consists of items currently being used in the production process. Finished goods
represents final or completed products, which are available for sale.
Inventory as current asset differs from other current asset the views of concerning the
appropriate level of inventory would differ among the different functional areas. The job of
Finance manager is to reconcile the conflicting view points of the various functional areas
regarding the appropriate inventory levels in order to fulfill the overall objectives of
maximizing the owners wealth. Inventory management is related to overall objectives of the
firm.
DIRECT INVENTORIES:
Direct inventories are those inventories that play a major role in the production and
constitute a vital part of finished goods. These inventories can be easily assigned to specific
physical units. Direct inventories may be categorized into four groups.
a) Raw Materials:
Raw materials are the physical resources to be used in the manufacture of
finished products. They include materials in their natural or raw form. For example, cotton
in the case of textile mill, sugar cane in the case of sugar factory, oil seeds in case of an oil
mill etc., The chief objective of keeping raw materials is to ensure uninterrupted
production in the event of delays in delivery and also to enjoy the economies of large
scale buying.
b) Semi finished goods:
Semi finished goods which are not cent percent (100%) complete in all respects
that is some processing still remains to be done before the product can be sold. For
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example a person who is engaged in the manufacture of furniture, may purchase
unpolished furniture from market and sell it after polishing the same.
c) Finished goods:
Finished goods are complete products that are ready for sale or distribution. For
instance, in case of a hosiery factory, sweaters, shawls etc., are finished products.
d) Spare parts:
It means duplicate parts of a machine. Usually almost all the industrial concerns
maintain spare parts of various machines which they use for manufacture. This will enable
them to ensure smooth running of machines which in turn provide for uninterrupted
production.
INDIRECT INVENTORIES:
Indirect inventories include those items which are unnecessary for manufacturing but
do not become component of the finished goods. They normally include petrol, maintenance
materials, office materials, grease, oil lubricants etc., these inventories are used for ancillary
purpose to the business and cannot be assigned to specific units. These inventories may be
used in the factory, the office or the selling in distribution divisions.
Contractual Requirements:
Occasionally it may be necessary to carry a certain level of inventory to
meet a contractual agreement. Some manufacturers require dealers to maintain a
specified level of inventory in order to be the sole representative in a particular territory.
Inventories constitute the most significant part of the current assets of any
organization. On average inventories are approximately 60 percent of current assets in public
limited companies in India. Because of the large size of inventories maintained by ferrous,
considerably amount of funds is required to be committed in them. It is therefore, absolutely
imperative to manage inventories efficiently in order to avoid unnecessary investments in
them.
Purchase, production and marketing functions are mainly concerned with the
management of inventories. These functions try to have large stocks of inventories to facilitate
production or marketing of the products. It requires large investment in the inventories and
may increase the cost of product by way of interest on such investment. It is the prime
responsibility of Finance function to have a proper management and control over the
investment and inventories, so that it should not be a loss to the business. For this purpose, the
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Finance function has to take care of maximum and minimum level of stock of inventories in
the business to have continuity in production process.
The Inventory Management includes the following areas of management as:
To decide about the size of Inventory, i.e., maximum and minimum levels of
inventory.
To establish timing schedules, procedures and reordering sizes while procuring the
inventories
To decide the minimum safety levels of inventory,
To coordinate the sales, production and inventory policies,
To provide proper storage facilities,
To arrange for the procurement, receipt and issue of materials and developing the
forms for recording these transactions,
To assign responsibilities for carrying out inventory control functions and
To supervise and reporting of overall activity of inventory management/control.
Thus, Inventory Management ensures proper coordination of activities and policies
regarding procurement, production and marketing of materials/products in order to achieve
better inventory control. Hence, Inventory management includes inventory control, but
inventory control does not mean inventory management.
In large organizations, inventory management is kept under the direct control of
manager materials engineering. The basic duties of the person in charge of inventory
management are listed below:
1. Advising the production manager, in establishing production and material control
2. Establishing policies and programs for purchasing, receiving and storing material
3. Preparing budgets to accomplish objectives.
4. Introducing control through comparison of performance against standards
5. Keeping effect with trends, which are likely to affect long-range stocking and purchasing
policies
6. Arranging for purchasing of materials, equipments etc
7. Consulting with engineers about current and proposed product design
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OBJECTIVES OF INVENTORY MANAGEMENT:
Inventory Management has become very significant process of management in the
present day of manufacturing industry. The basic managerial objectives of inventory
management are
To keep inventory at sufficiently high level to perform production and sales activities
smoothly.
To minimize investment in inventory at minimum level to maximize profitability.
To minimize carrying cost of inventory.
To keep investment in inventory at optimum level.
To reduce the losses of theft, obsolescence & wastage etc,.
To make arrangement for sale of slow moving items.
To minimize inventory ordering costs.
SECONDARY SOURCES:
This data is from the number of books and records of the company, the annual reports
published by the company and other magazines. The secondary data is obtained from the
following:
i. Stores Ledger
ii. Bin Cards
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iii. Stores Accounts Records
iv. Other books and Journals and
v. Annual Reports of the company
11
CHAPTER-2
INDUSTRIAL PROFILE
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2. INDUSTRIAL PROFILE
2.1. INTRODUCTION
The Co-Operative movement was spread from England to India and given a statutory
shape way back in 1904 with great enthusiasm and hope. The idea behind the movement has
inspired one and all. It is a movement in which persons having common intellect come
together and help them eliminating the self seeking intermediaries. It is therefore saving
oneself from exploitation and accepting self help as the best policy.
In the year 1892 the Government of Madras appointed one of their Senior FEDRICK
NICHOLOSON to study the method of Land and Agricultural banks which prevailed in
Europe and report how far they could be adopted in Indian conditions, especially in Madras.
Presidency in order to relive rural independence FEDRICK NICHOLOSON after all barring
investigation presented a valuable report in which he recommended Rural Co-Operative
Credit Societies can be started more or less on the lines of the Railfeisn Society in Germany,
to provided for credit on reasonable terms and promote thrift among the rural population. At
the instance of the Government of India, the report of Sir Frederick Nicholson was circulated
among the other provincial Government for consideration and action. Accordingly the Co-
operative Credit Societies Act came into being in 1904.
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2.2. COOPERATION MOVEMENT:
The Cooperative Movement in India started with Cooperative Credit Societies Act 10
of 1904. The agricultural cooperative credit societies were registered under this Act. As this
Act did not provide organization of non-credit cooperative societies such as marketing and
consumer societies, it was replaced with Cooperative Societies Act of 1912. This Act
envisaged promotion of thrift and self help among the agriculturists, artisans who were the
persons of limited means and organization of federal and non-credit cooperative societies.
HISTORICAL EVOLUTION:
A French the Co-operator by name Charles Fourier designed a flag for The Cooperative
Movement ,adopting all the colours of Rainbow and ICA adopted it in 1923.In 1937,ICA
formulated Cooperative Principles .They were reformulated by a committee headed by
prof.D.G.Karve in 1966.Again in 1995,Prof Ian Macpherson's Committee made a reappraisal
and a statement of Cooperative identity with reformulated Principles of Cooperation were
adopted by ICA in Manchester Congress.
By the beginning of the 20th Century, officials of the colonial government perceived
the Indian farmers dependence on usurious moneylenders to be a major cause of their
indebtedness and poverty. At that time the cooperative movement had become well
established in Europe and achieved remarkable success there. Convinced that the cooperative
movement offered the best means of liberating Indian farmers from the crushing burden of
debt and the tyranny of moneylenders, Indian officials began to take active interest in
promoting credit cooperatives in the country. Societies were organised for the first time in the
closing years of the 19th Century.
The passage of the Cooperative Credit Societies Act in 1904, and the enactment of a more
comprehensive Cooperative Societies Act in 1912 marked the beginning of a government
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policy of active encouragement and promotion of cooperatives. This thinking gained wide
acceptance and was adopted as a policy by provincial governments and thereafter,
cooperation became a provincial subject in 1919. The classic study by Frederic Nicholson,
followed by the Edward Law Committee on Cooperative Legislation, confirmed and
reiterated the need for the State to actively promote cooperatives. A decade later, the
Maclagan Committee (1915) advocated that there should be one cooperative for every
village and every village should be covered by a cooperative. The Royal Commission on
Agriculture in India, which submitted its report in 1928, suggested among other things, that
the cooperative movement should continue to focus on expanding rural credit and that the
State should patronize cooperatives and protect the sector. It was the Royal Commission
which made the observation if cooperation fails, there will fail the best hope of rural India.
By this time, the State was already deeply involved in promoting agricultural credit
cooperatives.
The major development during this phase was the role played by the Reserve Bank of India
(RBI). The Reserve Banks concern and involvement in the sphere of rural credit stemmed
from its very statute of incorporation. Specific provisions were made in the Reserve Bank of
India Act, 1934 both for the establishment of an Agricultural Credit Department (ACD) in the
bank and for extending refinance facilities to the cooperative credit system. Emphasis was
laid on setting up, strengthening and promoting financially viable provincial cooperative
banks, central cooperative banks, marketing societies and primary agricultural credit societies
in each province.
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vi) Land Mortgage Cooperative Banks were established in 1938 to provide loans initially
for debt relief and land improvement.
vii) Cooperatives have played an important role in the liberation and development of our
country.
viii) The word Cooperative has become synonymous for dedicated and efficient
management of rural credit system.
ix) Reserve Bank of India started refinancing cooperatives for Seasonal Agricultural
Operations from 1939.
x) From 1948, Reserve Bank started refinancing State Cooperative Banks for meeting the
credit needs of Central Cooperative Banks and through them the Primary Agricultural
Cooperative Societies.
xi) Only 3% of rural families availed farm credit in 1951.
xii) In 1954, the All India Rural Credit Survey Committee recommended strengthening of
DCC Banks and PACS with State partnership and patronage to solve the farmers
financial requirements.
xiii) Registrar of Cooperative Societies became the custodian of Cooperatives from 1962
with the enactment of respective State Acts.
xiv) Reserve Bank introduced Seasonality and Scale of Finance for crop loans and
provided for conversion, re-phasement and re-schedulement to tide over crop loss due
to calamities.
xv) The Primary Agricultural Cooperative Societies became multipurpose.
xvi) Reorganization of PACS into viable units, FSCS, LAMPS started under action
programme of RBI in 1964.
xvii) The finding of All India Rural Credit Review Committee that coverage of cooperatives
is limited to hardly 30% of farmers led to nationalization of Banks. However,
Cooperatives have played a key role in meeting the credit needs of weaker sections of
farmers.
xviii) The establishment of Regional Rural Banks from 1975 has not reduced the problems
of rural credit as they reached only 6% of the farmers.
xix) Cooperatives have contributed their part in the implementation of 20-point programme
and Integrated Rural Development Programme.
xx) Though the Cooperatives were lagging behind in rural credit till 1991, they regained
their prime place with 62% share in rural crop loans between 1991 and 2001.4
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2.4. ESTABLISHMENT OF CO-OPERATIVES
Cooperatives were established to defend ordinary citizens economically against rising
monopolies, to include them in the economy by achieving economies of scale, and to have
some control over the parts of the economy that were affecting them. The cooperative
movement ensures the upliftment of all walks of people, through which without any socio-
economic differences, the giver may become a receiver and after receiving, the receiver may
become a giver.
Veteran leaders like Mahatma Gandhi, Pandit Jawaharlal Nehru, Thanthai Periyar,
Perarignar Anna, Indira Gandhi, Rajiv Gandhi and Kalaignar have at times praised the
importance of cooperative movement and reiterated that Cooperation is prosperity of the
country. Such a great movement had been weakened in the yester years. Cooperative Day
celebration was started in 1924 by the International Cooperative Alliance. The main aim was
to provide a forum for discussing the activities of cooperatives, to find out ways to improve
them, to reach out to the general public and to involve them in development of cooperatives.
In 1955, the Government of India decided that the celebration should be for a week as
cooperative movement is very important for rural development and therefore there was a need
to involve the public more and from that year onwards, cooperative week is being celebrated
from 14th November to 20th November every year.
The road ahead is very difficult but not impossible. This can be achieved if all the
cooperative institutions and their staff and well wishers work with a single objective. Needles
to say, cooperatives are the best mechanism to bring about rural development. In Germany,
Japan, West Europe and even in USA the rural credit and marketing is dominated by
cooperatives, and that is why, they are prosperous. Therefore, we need to support cooperatives
while at the same time we, the staff and officers must work doubly hard to ensure that the
various incentives given by the government to revive cooperatives are properly utilized and
the next year on the same day we proudly proclaim that the cooperatives in Tamil Nadu have
finally arrived as a challenge to private enterprise and as a medium to increase peoples
welfare. The commencement of cooperative week also coincides with the birthday of Late Pt.
Jawaharlal Nehru, the architect of modern India who was well aware of the relevance of
cooperatives in building the nation.
It may be noted that most of the cooperatives in India are unaffected with the impact
of the slow-down.12 Rather the organizations like IFFCO, KRIBHCO, AMUL and other
cooperatives have not only witnessed rapid growth in their turnovers and profits but also have
shown stability and sustainability in the economic slow down. This was possible due to our
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faith and trust in cooperative values and principles. In todays context the cooperative model
based on trust and values is more relevant than the capitalist model where profit is the sole
motive of the organization. The cooperatives have been the most effective and efficient
organization even in the period of slow down as they have diversified in new areas and have
come up with joint ventures of all types. In fact economic slow down has given an
opportunity to cooperatives that they can successfully compete with other from of business
organizations. The cooperative model of economy has proved to be the safe and secure model
which can provide a ray of hope to the common masses. Due to strong roots in the community
in which the cooperatives are embedded, the cooperative model is governed by community
consciousness. The cooperative model of development is unique as it does not depend on
external influences like stock markets. It is a model which is owned and controlled by the
people.
The democratic principles of cooperatives are its life-blood. Every step is taken to
ensure that the cooperatives do not fall prey to the evil influences of market. However, the
present economic crisis shows that the cooperative model of development can fulfill the
aspirations of the common people. The policy initiatives of the government in every field
must explore the possibility of involving cooperatives so that the inherent strengths of
cooperatives are allowed to flourish. The cooperative movement in India has had a very long
and illustrious history. During these 105 years, the movement has diversified manifold and
has played a significant role in bringing about important socio-economic changes in different
sectors of the economy. It is now a major force in important sectors like sugar, dairy, credit
and fertilizers. Several cooperative brands have already become a house-hold name, not only
in India but also abroad. However, with the advent of the market economy, the functioning of
cooperatives has undergone a change. They are now transformed through adoption of
professional, financial and administrative skills. The cooperative movement has proved to be
an effective economic development model, which ensures inclusive growth.
These acts widened the scope of the movement substituting in their preamble for
agriculturists, artisans and persons of limited means as intended beneficiaries, by the words
agriculturists and other persons with common economic needs and Better Living. Better
Business and Better Methods of Production, which opened the door to advantage being taken
even by men of better means. They also conferred enormous powers on the Registrar, such as
compulsory amalgamation and division of Societies .Supersession of erring committees,
surcharge of persons responsible for malfeasance and misfeasance, adjudication of disputes
arising in Societies execution of awards and decisions or orders given by him. In Bombay Act
of 1925,a provision for constitution of Tribunal to entertain appeals against the orders of
Registrar was made.
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When Rural Credit Survey Committee in 1954 recommended for state participation in
Cooperatives at all levels. S.T. Raja Committee was appointed by the Government of India to
suggest amendments to the Cooperative law the committee prepared a Model Act enabling
state participation and appointment of Government nominees on the management of assisted
Cooperative Societies .National Development Council in 1958 reviewed Cooperative
legislation and advised State Governments to remove restrictive provisions in the Cooperative
Law to liberalize it by curtailing certain powers of the Registrar.
In Andhra Pradesh, the above pioneering legislative efforts were followed by the
Andhra Pradesh (Andhra Area) Cooperative Societies Act (Act VI) of 1932.The A.P. (Andhra
Area) Cooperative Land Mortgage Act of 1934.The A.P. (Telangana Area) Cooperative
Societies Act (XVI) of 1952, the Hyderabad Land Mortgage Act, 1349 fasli Amalgamation of
these acts resulted in Andhra Pradesh Cooperative Societies Act 7 of 1964.
The crisis faced by the Cooperative Credit System in the country at present demanded
its restricting and capital infusion. Prof. A.Vaidyanathan's Committee submitted its
recommendations on revitalizing the Cooperative Credit System in December 2004.Andhra
Pradesh Government was the first to accept the recommendation and to enter into a
Memorandum of Understanding (MOU) with the Government of India and NABARD on
29.08.2006.APCS Act 1964 was also amended by an Amendment Act 16 of 2007 whereby the
Cooperative Credit Societies identified under the Revival Package will be governed by
Special Provisions incorporated under Chapter XIII B and Sections 115 C and 115 D.
The movement now has 5.03 Lakh Cooperatives, a membership of 210 Million, a 100%
rural network, 67% coverage of Rural Households, 46.31% of Agricultural Credit, 23.5% of
Fertilizer Production, 51% of Oil Marketed, 55% of Handlooms and 62.5% of storage facility
at village level. There are 21 National Level Cooperative Federations, 361 State Level
Cooperative Federations and 2572 District Level Cooperative Federations in the Country now
.There is no sphere of economic activity which is left untouched by Cooperation.
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CHAPTER-3
COMPANY PROFILE
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3. COMPANY PROFILE
3.1. ABOUT THE COMPANY:
Visakhapatnam Steel Employees Consumers Co. Operative Stores Ltd. Registered (No.B
1890) ON 31-12-1983 under Section 7 of the Andhra Pradesh Co.Op Societies
Act.1964.Started 1984 membership of 51 each shares value@Rs.10/-. Present membership is
18830.
BOARD OF MANAGEMENT:
As Per bye law of the Stores No.14 the Board consist 9 Directors.6 Directors shall be
elected by the General Body out of the President, Vice-President and Secretary were elected 3
Directors Viz Treasurer and 2 Directors shall be nominated by the registrar in consultation
with Chairman cum Managing Director, RINL/Visakhapatnam Steel Plant, VSP. Present
Managing Committee elected on 20.08.2010 for the tenure of 5 years.
3.2. OBJECTS:
i) The encouragement thrift and Self help.
ii) The purchase of necessaries of life for sale in retail to the members, the carrying in
trade for the benefit of the members of the stores and establishment and conduct on
co-operative principals of such lines of work or department of business as may from
time to time be resolved upon by the General Body of members.
iii) The dissemination of the Knowledge of cooperative principles and their realizations.
iv) The doing of all such other things as are incidental or conductive to the attainment of
the above objects.
v) To transact business of necessaries of life in whole sale and sell the same to the
retailers.
vi) To sell the controlled and essential commodities in retail to members and non-
members as per the instructions of the civil supplies authorities.
vii) The services of the cooperative stores may be extended to non members also at the
discretion of and such conditions as may be stipulated by the managing committee.
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3.3. ACTIVITIES:
The Stores activities initially started with LPG Services. Now the Stores business
expanded various types of business like provisions, fancy, exclusive gift, books, stationery,
ice-cream parlor, cloth shop and flour mill through 32 out lets. Stores is arranging seasonal
services like Diwali Crackers Sales during the Diwali Festival Season, Note Books and
Stationery in the School Season all varieties of Cloth material during the Christmas and
Pongal Season. Apart from the above services Stores is supplying pantry items, Stationery, LP
Gas to VSP, contract agencies of VSP, State and Central Government agencies.
STRENGTHS
i) Members support: All members and VSP employees purchase their essential
commodities day to day needs from VSP EMPLOYEES CONSUMERS
COOPERATIVE STORES LTD. ONLY.
ii) Low margin.
iii) It not only sells essential commodities and also sells seasonal goods like Diwali
fireworks.
WEAKNESS
OPPORTUNITIES
i) Members are spread all over the city, so it helps to extend its business through
ii) all over the city .eg:- steel plant, kurmanpalem ,peda gantyada , sanivada,
vadlapudi , laxmanpuram etc.,
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iii) It dominate corporate traders like more, super markets, Reliance, big bazaar in
volume and value than the private traders in the city.
iv) I t sells its Diwali crackers more in volume and value than the private traders in
the city.
THREATS
Above all activities operated with the Staff of 165 out of 51 are Regular 114 are Casual.
The Salaries per month is around Rs.16 lakhs. As per Statutory norms extended the facilities
to employees like PF, ESI, Gratuity, LTC, Uniform Group Personal Accidental Insurance.
Most of the purchase like Rice, Dalls , Oils, etc procured from direct Mills/Companies. Stores
is bulk customer to the HULL Company product, AP oil Fed (Vijaya Oil), Priya Oil and the
Girijan Products .Monthly purchases are around 4 Cores and the Sales Turnover per month is
nearly 4.5 Lakhs.
3.7. CAPITAL:
The Stores Capital Position at present i.e. as on 31-03-2015 Share Capital Rs. 1,15,32,360/-
initial grant from RINL Rs.25,000/- the UDP and other Rs.21,43,895 in total
Rs.1,36,76,255/-.
3.8. INVESTMENTS:
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3.9. INFRASTRUCTURE:
The infrastructures has been arranged from the beginning and up to 31-03-2015 Rs.
1,06,46,237/- for the purpose of furniture, fixtures, computers, counters, flour mill, office
equipment etc.
All counters are linked with centralized server for doing online billing. Stock controls are
being done by this system. Financial Accounting being done through Tally software.
Initial grant from RINL Rs.25000/- in the year 1984. Office accommodation and some of the
out lets (shops) allotted on nominal rent. 50 residential quarters allotted for society staff.
Statutory payments like Income Tax, Sales Tax assessments are upto date. Labor License,
Food License, Explosive License, Food grain license, Market License, Trade license
Insurance etc are having.
AUDIT:
TARGETS:
i) Efforts are made for acquiring the fixed assets at members residential areas.
ii) Efforts are made to improving services to members by the way of Trade deposits and
Online purchases.
iii) Efforts are made for manufacturing of Non-branded items to establishing of small
scale industry.
iv) Efforts are made for getting ISO standard certificate with the help of A.P Cooperation
department.
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3.12. FUNCTIONAL ORGANIZATION STRUCTURE
3.13. PROCEDURES:
ADMINISTRATIVE PROCEDURE:
ACCOUNTS PROCEDURE:
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The work procedure covers of cooperative stores accounting system based o the generally
accepted accounting principles. Analyzing, recording, summarizing of the all executed
financial transaction based on the generally accepted accounting principles (GAAP) and
reporting to its users for decision making, system to maintain accounts depend on the
VSPECCS LTD.
This work procedure covers control of purchase, storage and sales of dalls, Spices, Rice,
Eggs, Note Books, Stationary, HULL & dealer items etc.
COUNTER OPERATIONS:
The counter activities related with stock receipts, sales, cash deposition in bank, stock
transfers, replacement of damages, stock procurement action, control stock outs, shop keeping
and improvement in customer relations.
iii) All counter personal are to be deposit the cash in the bank/office as per the sales.
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CHAPTER-4
THEORITICAL ASPECTS OF
INVENTORY MANAGEMENT
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4. THEORETICAL ASPECTS OF INVENTORY
MANAGEMENT
4.1. INTRODUCTION:
Inventory is a list for goods and materials, or those goods and materials themselves,
held available in stock by a business. It is also used for a list of the contents of a household
and Industries, etc., In accounting inventory is considered an asset. 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.
The inventory management process begins as soon as one has started production and
ordered raw materials, semi-finished products or any other thing from a supplier. If you are a
retailer, then this process begins as soon you have placed your first order with the wholesaler.
Once orders have been placed, there is generally a short period of time available to a firm to
put an inventory management plan in place before the supplies are delivered.
Inventory management helps a firm to decide in advance where these supplies should be
stored .Inventory constitutes the most significant part of current assets to a large majority of
companies in India. On an average inventories are approximately 60% of current assets in
public Limited companies in India. Because of the large size of inventories maintained by the
firms, a considerable amount of funds is required to be committed to them. It is possible for a
company to reduce its levels of inventories to a considerable degree e.g., 10 to20 percent,
without any adverse effect on production and sales, by using simple inventory planning
control and techniques. And at the same time company should not invest excess money in
inventory by managing large size of inventories.
The company may loose the opportunity cost on the excess inventory and also the
carrying cost will increase due to large size of inventories. Therefore it is advisable for the
company to maintain inventory at an optimum level always. There are different techniques
available for the company to maintain optimum level of inventory. As the inventories forms a
major part in COROMANDEL INTERNATIONAL LIMITED, a study is being carried over
on how the inventories are controlled and managed.
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4.2. INVENTORY MANAGEMENT AND INVENTORY CONTROL
The concepts of Inventory Management and Inventory Control are different. Inventory
Management ensures proper coordination of activities and policies regarding procurement,
production and marketing of materials/products in order to achieve better inventory control.
Hence, Inventory management includes inventory control, but inventory control does not
mean inventory management. Before understanding these concepts, the objectives of
Inventory Management are to be understand, which are discussed under two heads, i.e.
AVAILABILITY OF MATERIALS:
The first and the foremost objective of inventory management is to make all types of
materials available at all times whenever they needed by the production departments so that
the production may not be held up for want of materials. It is therefore advisable to maintain a
minimum quantity of all types of materials to move on production on schedule.
Inventory management has to minimize the wastage at all levels i.e., during its storage
in the go-downs or at work in the factory. Normal wastage, in other words uncontrollable
wastage, should only be permitted. Any abnormal but controllable wastage should strictly be
controlled. Wastage of materials by leakage, theft, embezzlement and spoilage due to rust,
dust should be avoided.
The manufacturing efficiency of the enterprise increases if right types of raw material
are made available to production department at the right time. It reduces wastage and cost of
production and improves the morale of workers.
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CONTROL OF PRODUCTION LEVEL:
ECONOMY IN PURCHASING:
REASONABLE PRICES:
Inventory Management has to ensure the supply of raw materials at a reasonably low
price, but without sacrificing the quality. It helps to reduction of cost of production and
improvement in quality of finished goods in order to maximize the profits of organization.
MINIMIZING COSTS:
Minimizing inventory costs such as handling, ordering and carrying costs, etc is one of
the main objective of Inventory Management. It helps reduction of inventory costs in a way
that reduces the cost per unit of inventory and thereby reduction of total cost of production.
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4.5. INVENTORY CONTROL:
Inventory control is a primary part of Inventory Management. It is concerned with
achieving an optimum balance between two competing objectives.
The objectives are
- To minimize investment in inventory
- To maximize service levels to the forms customers and its own operating departments.
In achieving the control over inventories, the organisation adopts various methods of
inventory control
These includes (1) Min-max plan, (2) Two Bin System, (3) Order Cycling System, (4) ABC
Analysis, (5) Fixation of Various Levels, (6) Use of Perpetual Inventory System and
Continuous Verifications, (7) Use of Control Ratios, (8) Review of Slow and Non-Moving
Items.
MIN-MAX PLAN:
It is one of the oldest methods of inventory control. Under this plan, a maximum and
minimum for each stock item are specified keeping in view its usage, requirements and
margin of safety required to minimize risks of stock outs. The minimum level establishes the
reorder point and order is placed for the quantity of material, which will bring it to the
maximum level.
The method is very simple and based upon the premise that minimum and maximum
quantity limits for different items can fairly well defined and established. Considerations like
economic order quantity and identification of high value critical items of stock for special
management attention or not cared for under this plan.
Under this system, two piles, bundles, or bins are maintained for each item of stock.
The first bin stocks the quantity of inventory, which is sufficient to meet its usage during the
period between receipt of an order and placing of the next order. The second bin contains the
safety stock and the normal quantity used from order date to delivery date. The moment stock
contained in the first bin is exhausted and the second bin is tapped, a requisition for new
supply is prepared and submitted to the purchasing department. Since no bin- tag (quantity
record of materials) card is maintained, there is absence of perpetual inventory record under
this bin.
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ORDER CYCLING SYSTEM:
In the order cycling system, quantities in hand of each item or class of stock are
reviewed periodically say, 30, 60 or 90 days. In the course of a schedule periodic review, if it
is observed that the stock level of a given item will not be sufficient till the next scheduled
review keeping in view its probable rate of depletion, an order is placed to replenish for its
supply. The review period will vary from firm to firm and among different material in the
same firm. Critical items of stock usually require a short review cycle. Order for replenishing
a given stock item is placed to bring it to some desired level, which is often expressed in
relation to number of days or weeks supply.
A firm should not place either too large or too small orders. On the basis of a trade-off
between benefits derived from the availability of inventory and the cost of carrying that level
of inventory, the appropriate or optimum level of the order to be placed should be determined.
The optimum level of inventory is popularly referred to as the economic order quantity
(EOQ). It is also known as economic lot size.
The economic order quantity may be defined as that level of inventory order that
minimizes the total cost associated with inventory management.
The mathematical explanation of the is as follows
EOQ is given by Q = (2 * C * 0) / I
Where:
C = annual consumption of the inventory in units
O = cost of placing one order including the cost of receiving the goods i.e
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Cost of getting an item into the firms inventory
Q = quantity per order in units
I = annual carrying cost per unit
The annual carrying costs are equal to the average value of stock held multiplied by carrying
cost per unit and represent as QI / 2. Where
I = annual carrying cost per unit.
ABC ANALYSIS:
All the spares and stores other than the construction meant for specific construction
activities are subjected to consumption analysis covering specific periods. Items Constituting
70% of the total annual consumption by value are classified as A class items. Items
constituting the next 20% of the annual consumption value are classified as B class items.
The remaining moving items constituting 10% of the consumption value are classified C
class items. Very large number of items by numbers falls under this classification whose
consumption value will be very low.
On the basis of the cost involved, the various inventory items are categorized into
three classes:
A category.
B category.
C category.
Here,
Category A items - More costly and valuable consumption items are 20% classified as A
items. But the A category items are very less in volume (generally 20%) when compared to
the total volume of inventory.
Category B items - The items having average consumption value items are classified as B
items. But the B category items are very average in volume (generally 30%) when compared
to the total volume of inventory.
Category C items - The items having less consumption value items are classified as C
items. But the C category items are very high in volume (generally 50%) when compared to
the total volume of inventory.
Inventory holding of each project will also be analyzed with reference to value of the
holding against each item. It is found that about 70% of the total holding would be covered by
very small percentage of items by number, which will be around 10%. This category will be
classified as X class items. Similarly items accounting for the remaining 20% contributing
will be categorized as Y class items and the remaining items will be listed in Z class. This
analysis is usually done for the annual stock review.
i) In ABC analysis consumption value of items for a particular time span is considered.
ii) In XYZ analysis inventory value of item on a particular day will be considered.
iii) All steps in ABC analysis are followed in XYZ analysis.
i) Vital:
a) It is not ready to available in market.
ii) Essential :
a) Can be replaced immediately
b) Lead time for procurement is 1-2 month
iii) Desirable :
a) The item is available at market
b) Lead time at procurement by low level
c) Cost will not much
VED analysis is generally useful for spares parts inventory for companys plant & Machinery
HML CLASSIFICATIONS:
The High, medium and Low (HML) classification follows the same procedure as is
adopted in ABC classification. Only difference is that in HML, the classification unit value is
the criterion and not the annual consumption value.
The items of inventory should be listed in the descending order of unit value and it is
up to the management to fix limits for three categories. For examples, the
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Management may decide that all units with unit value of Rs. 2000 and above will be H
items, Rs. 1000 to 2000 M items and less than Rs. 1000 L items.
The HML analysis is useful for keeping control over consumption at departmental
levels, for deciding the frequency of physical verification, and for controlling purchases.
SDE CLASSIFICATION:
The SDE analysis is based upon the availability of items and is very useful in the
context of scarcity of supply. In this analysis, S refers to scarce items, generally imported,
and those which are in short supply. D refers to difficult items which are available
indigenously but are difficult items to procure. Items which have to come from distant places
or for which reliable suppliers are difficult to come by fall into D category. E refers to
items which are easy to acquire and which are available in the local markets.
The SDE classification, based on problems faced in procurement, is vital to the lead
time analysis and in deciding on purchasing strategies.
FSN ANALYSIS:
FSN stands for fast moving slow moving and non-moving. Here, classification is
based on the pattern of issues from stores and is useful in controlling obsolescence.
To carry out an FSN analysis, the date of receipt or the last date of issue, whichever is
later, is taken to determine the number of months, which have lapsed since the last
transaction. The items are usually grouped in periods of 12 months.
FSN analysis is helpful in identifying active items which need to be reviewed
regularly and surplus items which have to be examined further. Non-moving items may be
examined further and their disposal can be considered.
SOS CLASSIFICATION:
Raw materials, especially agricultural inputs are generally classified by the seasonal,
off-seasonal systems since the prices during the season would generally be lower.
The seasonal items which are available only for a limited period should be procured
and stocked for meeting the needs of the full year. The prices of the seasonal items which are
available throughout the year are generally less during the harvest season. The quantity
required of such items should, therefore, be determined after comparing the cost savings on
account of lower prices, if purchased during season, with the higher cost of carrying
inventories if purchased throughout the year.
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A buying and stocking strategy for seasonal items depend on a large number of factors
and more and more sophistication is taken place in this sphere and operational techniques are
used to obtain optimum results.
MNG ANALYSIS:
All items held in stock will be subjected to non movement analysis segregating the items
for different non movement periods like over 2 years, over 5 years and 10 years so as to
critically analyze the possibility of utilization of these items or otherwise for declaring surplus
especially those items which have not moved for more than 5 years. Materials management
department with the concerned technical departments will jointly do this analysis and separate
list will be prepared, i.e code group wise, for the nonmoving items beyond 5 years on an
annual basis project wise under different code groups and steps would be taken so that the non
moving items are not indented again, until the existing stocks are utilized. Every effort will
be made to keep as low as practicable because this is non productive inventory. Which is
blocking the capital, storage space needing preservation and up keeping efforts and results, in
extra inventory carrying cost. The company reduces the non moving inventory by regular
review for utilization or by declaring as surplus.
4.7. CODIFICATION:
Any organization engaged in production repair or construction is obliged to stock a
large number of items of stores. It is essential to maintain accurate stock records of these
items and also to know their location in store warehouses. The normal way of identifying an
article is by simple description but this method is far from satisfactory. The best way is to list
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out the various items classifying or grouping them in some convenient manner and allotting
each item a code number which if quoted is sufficient to identify the items. Each code number
is unique and represents one single item. By this maintenance of stocks will be carrier records
with the help of data processing machines are able to give any output using these codes. These
are three types of coding system are i.e., Alphabetical, alphanumeric and numerical.
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CHAPTER-VI
DATA SOURCES
PRIMARY SECONDARY
SOURCES SOURCES
42
Here, we can use
i) Inventory turnover ratio
ii) Finished goods turnover ratio
iii) Working capital turnover ratio
iv) Cost of goods sold.
PROVISIONS
43
closing inventories. The ratio indicates the number of times inventory or stock is replaced
during the year. It measure the relationship between goods sold and inventory level. The ratio
can be employed in two ways.
Stock turnover ratio = cost of goods sold / average inventory
WORKING NOTES-1
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COST OF GOODS
YEAR SALES GROSS PROFIT
SOLD
2011-2012 33,13,86,228.32 1,96,74,101.43 31,17,12,126.89
WORKING NOTES-2
The Inventory turnover ratio discloses the information related to Cost of Goods sold
and Average Inventory of VSPECCSL during 2011-2015.It shows highest ratio in the 2011-
2012 that is 17.72 and lowest ratio in the year 2014-2015 the ratio is 10.5.
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CURRENT NET WORKING
YEAR CURRENT ASSETS
LIABILITIES CAPITAL
2011-2012
2,44,25,343.45 2,82,70207.41 -38,44,863.96
2012-2013
3,23,11,970.76 2,85,52,173.86 37,59,796.9
2013-2014
3,89,97,439.81 3,38,89,775.23 51,07,664.58
2014-2015 6,41,51,265.26 7,25,95,990.86 -84,44,725.6
WORKING
AVERAGE NET
COST OF GOODS CAPITAL
YEAR WORKING
SOLD TURNOVER
CAPITAL
RATIO
2011-2012 31,17,12,126.89 11,27,119.52 276.55(H)
2012-2013 36,71,46,235.92 -42,533.53 -8631.92(L)
2013-2014 46,06,17,180.87 44,33,730.74 103.88
2014-2015 45,11,32,059.67 -16,68,530.51 -270.37
The Working Capital Turnover Ratio discloses the information related to Cost of Goods
Sold and Average Net Working Capital of VSPECCSL during the period of 2011-2012. It is
highest in the 2011-2012 that is 276.55 and in next year it has gradually decreased as current
liabilities are more than current assets it has shown negative ratio that is lowest compared to
all the years that is -8631.92.
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5.5. COST OF GOODS SOLD RATIO:
Here we can calculate the Cost of Goods sold ratio which can be obtained cost of
goods sold is divided by Net sales.
It can be shown in the following
Cost of goods sold ratio = cost of goods sold / net sales
COST OF
COST OF GOODS
YEAR SALES GOODS SOLD
SOLD
RATIO
2011-2012 31,17,12,126.89 33,13,86,228.32 0.94(H)
2012-2013 36,71,46,235.92 39,42,01,499.66 0.931(L)
2013-2014 46,06,17,180.87 49,21,77,997.31 0.935
2014-2015 45,11,32,059.67 48,09,90,756.00 0.9378
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The Cost of Goods sold ratio discloses the information related to Cost of Goods sold
and net sales of VSPECCSL during the period of 2011-2015. It is highest in the 2011-2012
that is 0.94 and lowest in 2014-15 the ratio is 0.931.
The organisation VSPCCSL provides goods to their customers with quality and best
price. ABC analysis estimates at what type of products are having consuming by their
consumers. VSPCCSL is using not only one techniques. According to their convenience, they
are following some techniques.
Here the organisation mostly follows ABC analysis and XYZ analysis to know the
position of stock. XYZ shows the actual consumption of stock and ABC is based on
estimation. But both are similar in nature.
Year
Items Value Items Value Items Value Items Value
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INTERPRETATION OF ABC ANALYSIS:
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During the years 2011-15, 50 items value with 5438.65 lakhs which are classified
under A class items under high control which are given more importance as the quantity of
items is less and value of those items is more, and are shown under 80/20 category i.e., 80%
of the value consumption wise and Inventory remains in about 20% of the items. 154 items
value with 4677.28 lakhs which are classified under B class items which requires moderate
control .Here quantity of items and value of items are moderate and shown under 30-40%
category, and also 233 items value with 5155.29 lakhs under C class items which are given
less importance and have less value too which are shown under 5-10% .Here the quantity of
items are more and value of an item is less and these are under less control.
As observed in the below graph the consumption of A is increasing from year to year,
and in similar way Band C are also increasing from year to year gradually but when
compared, the consumption of C items are more than that of B. So the value of C is more
than the value of B.
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5.7. XYZ ANALYSIS
Category X(70% of
Value) Category Y(20% of Category Z(10% of
Total
Value) Value)
YEAR
Items Percent Value Items Percent Value Items Percent Value Items Value
2011-
4 1.5 1936.33 8 7.49 1100.90 85 90.15 11.94 97 3049.18
12
2012-
6 3.2 2049.65 10 8.6 1238.78 88 93.85 13.27 104 3301.7
13
2013-
7 5.3 2913.5 12 10.34 1284.44 83 94.65 8.8 102 4206.79
14
2014-
8 7.4 3047.62 13 11.5 1357.47 85 95.4 9.22 106 4714.66
15
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INTERPRETATION OF XYZ ANALYSIS:
The value of inventory is increasing year by year from 2011-2015 that is from 3049.18
lakhs in 2011-12, to 4714.66 lakhs in 2014-15. Xcategory items are the items which belong to
high selling rate where the number of items are less and the value is more.Where as Y
category items belongs to average selling rate where the items and their value are moderate
and C category items belong to low selling rate.
Here in the above table it is shown as , X category items are taken which are having
higher value i.e., in lakhs and Y category items are taken which are having moderate value
i.e., in lakhs and Z category items are taken which are having the lower value i.e., in
thousands.
Beacuse of this when XYZ analysis is shown graphically the X is above the Y and Z
categories in case of values and Z is shown abov e X andY in case of items.
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CHAPTER 6
54
FINDINGS
i) VISAKHAATNNAM STEEL PLANT EMPLPOYEES CONSUMERS COOPERATIVE
STORES LIMITED., (VSPECCSL) started in 1984 with the Steel plant employees of 54
as members.
ii) The main objective of VSPECCSL is to provide day to day needs to their members on
best price, quality, quantity and availability.
iii) According to my observation VSPECCSL serves its customers with integrity to fulfill the
needs of their members
iv) It not only serves to its members but also to the outside members (Non emloyees of steel
plant) for the same rate and quality. But the variation is swiping charges not free to non
members.
v) Here the organisation holds highest inventory turnover ratio in the year of 2011-2012 but
there is huge downfall in the year 2014-2014. By the comparision of last year ratio, the
average stock was increased by approxiametly 150%. By bholding of this highest amount
of average stock, inventory turnover ratio was declined.
vi) The networking capital of the organisation during the year of 2011-2012 was the highest
ratio. But at the year ending of 2014-2015 it went to defecit. In the year of 2012-2013
there is a defecit of opening net working capital, so the company has to take caution over
its current liabilities.
vii) According to VSPECCSL, sales were gradually increased over 2011-12 to 2013-2014.
But there is a sudden change in cost of goods sold ratios. The ratio between sales and cost
of goods sold would be low when compare to the respective ratios. This says the
organisation is obtained low profit.
viii) Under ABC analysis, during 2012-2013 to 2014-2015 A,B,C category goods are
fluctuating according to their customers tastes and preferences. But VSPCCSL
concentrates on lower class people. If we observe, the graph of no. of items was
fluctuating but their value was increasing.
ix) XYZ analysis shows the no.of items and the consumption value of each stage. Here this
analysis shows at what percentage of amounts were consuming at their resprctive classes.
Here from 2012-2013 to 2013-2014 the total turnover was increased by around 10 times
55
of previous year. They made more concentration on X category of products that carries
70% of value on total inventory value byb holding of 10% of no of items.
x) This organisation main motive is no profit and no loss.
SUGGESTIONS:
The following suggestions may be considered for the better improvement the
financial status of the firm namely VSPECCSL.
1) The company need to reduce the cost of production by reducing carrying cost
associated with inventory.
3) It is better to concentrate on the X category of goods that would leads to 70% of total
consumption tends to 10% of no. of items.
4) The company should about uniform credit facilities to all brokers and any kind if
discrimination must be shown between any two brokers.
6) Not only food products if VSPECCSL also provides Furniture, and Electronic
products, and also provide Medical facilities the organization would gain more profit.
BIBLIOGRAPHY
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i) Financial Management., L.M.Panndey
ii) Financial management and policy, James c. Horne
iii) Basics of financial management, V.K.Bhalla
iv) http://vizagsteelcoopstores.com
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