A STUDY ON

“INVENTORY MANAGEMENT”
WITH SPECIAL REFERENCE TO
“VEDA SEEDS SCIENCES PVT.LTD.”
A Project Report Submitted toAcharya Nagarjuna University

In partial fulfillment of the requirements

For the award of
MASTER OF BUSINESS ADMINISTRATION

Submitted by

DASARI DHARMA TEJA

Regd. No: Y16BU29015

Under the Guidance of

Mr. ANIL KUMAR

M.B.A., M.phil
Associate professor
POST GRADUATE DEPARTMENT OF MANAGEMENT STUDIES
CHRISTU JAYANTHI JUBILEE COLLEGE
(Affiliated to AcharyaNagarjunaUniversity)
Vidya Nagar 1st Lane, Guntur

(2015-2017)
POST GRADUATE DEPARTMENT OF MANAGEMENT STUDIES
CHRISTUJAYANTHIJUBILEECOLLEGE
Vidya nagar 1st lane, Guntur

(Affiliated to AcharyaNagarjunaUniversity)

Certificate
This is to certify that this is a bonafide record of the project work
entitled “A STUDY ON INVENTORY MANAGEMENT WITH SPECIAL
REFERENCE TO“VEDA SEEDS SCIENCES PVT.LTD.”

Carried out by Mr.D.DHARMA TEJA (Regd.no. Y16BU29015) during the

academic year 2015-2017 in partial fulfillment of the requirements for the
award of “MASTER OF BUSINESS ADMINISTRATION” of Acharya Nagarjuna
University.

Project Guide Head of the Department

Declaration
I here by declare that this project work entitled

“INVENTORY MANAGEMENT" has been prepared by me

during the academic year 2015-2017 in partial fulfillment of the

requirements for the degree of “MASTER OF BUSINESS

ADMINISTRATION" by Acharya Nagarjuna University.

I assure that this project is the result of my own effort and

that it has not been submitted to any other university for the award

of any degree or diploma.

Station: Guntur
Date: (D. DHARMA TEJA)
Acknowledgement
I deem it is a great privilege in acknowledging my sincere thanks to

all those who has extended their valuable co-operation in completing my project

work.

At the very outset, I would like to express my sincere thanks to

Fr.Y.L.MARREDDY, Principal, ChristuJayanthiJubileeCollege for giving me

permission to do this project.

I thank Sri. Anil Kumar, Manager for his precious guidance and

constant support in completing my project and also the staff in different

departments for their co-operation in collection of the data.

I would like to express my sincere gratitude and thanks to my project guide Mr.

Anil kumar for his continuous guidance and supervision in completion of my

project work.

My sincere thanks to all the staff members of Department of management

studies, Christu Jayanthi Jubilee P.G College, for their consistent guidance in my

project work.

I would like to thank my parents and friends who helped me directly or

indirectly in the phase of the completion of my project work.

(D.DHARMA TEJA)
 CONTENTS
P.no

CHAPTER-1 01 - 07
INTRODUCTION
NEED OF THE STUDY
OBJECTIVES OF THE STUDY
SCOPE OF THE STUDY
RESEARCH METHODOLOGY
LIMITATIONS OFTHE STUDY

CHAPTER-2 08 - 22
INDUSTRY PROFILE
COMPANY PROFILE

CHAPTER-3 23 - 51
THEORETICAL FRAMEWORK

CHAPTER-4 52 - 80
DATA ANALYSIS AND INTERPRETATION

CHAPTER-5 81 - 84
FINDINGS
SUGGESTIONS
CONCLUSION
BIBLIOGRAPHY

ANNEXURE
ANNUAL REPORTS
 CHAPTER-I
INTRODUCTION
INTRODUCTION

The Dictionary meaning of inventory is stock of goods or list of goods. In

accounting language it may mean stock of finished goods only. In a manufactured

concern it may include raw material, work in process stores.

Every enterprise needs inventory for smooth running of its activities. It

serves as link between production and distribution process. There is, generally it

time lay, the higher the requirement for inventory. The unforeseen fluctuations in

demand and supply of goods also necessitate the need for inventory. It also

provides cushion for future price fluctuations.

The investments in inventories constitute the most significant part of

currents assets and working capital most of the undertaking. Thus, it is very

essential to have proper control and management of inventories. The purpose of

inventory management is to ensure availability of materials in sufficient quantity

and when required and also to minimize investment in inventories.

Inventory management deals with purchasing stocking and issuing of

materials to various departments at right time, right quantity and at right quality.

The general meaning of inventory is stock of goods or list of goods

inventory. In accounting language it means stock of finished goods. For inventory

manufacturing concern it includes raw materials, work in progress, consumables

finished goods and spares etc.

1
COMPONENTS OF INVENTORY

Raw material Work-in-process Consumables Finished products Stares

and spares

1. Raw Materials

If forms a major input inventory in organization. The quantity of raw

materials required will be determined by the rate of consumption.

2. Work in Progress

The work in progress is that stage of stocks, which are in between raw

materials and finished goods.

3. Consumables

These are the material, which are needed to smoothen, the process of

production. These do not directly go into production, but act as catalyst.

4. Finished Goods

These are the goods, which are ready to sale for the consumers. The stock

of finished goods provides as buffer between production and market.

5. Spares

Spare also a part of inventory. The stocking policies differ from industry

to industry.

2
 OBJECTIVE OF THE STUDY

As I am committed to implement my research plan effectively and make my

study more realistic and comprehensive I have demand the following objectives

quite necessary. In other words, the present study is expected to realize the

following objectives.

 To present the conceptual & theoretical frame work relating to inventory

management. .

 To determine the monetary value of various issue involved in inventory

management.

 To suggest various control systems of inventory.

 To determine an effective inventory control system.

 To provide various suggestions based on findings.

3
 NEED OF THE STUDY

 To know what are the inventories are high in volume and value because,

inventories constitute the most significant part of current assets of large

industries in India. In India such as tea plantation, edible vegetable oils,

cotton, sugar, jute, inventories form more than 60 % of current assets.

 To observe, whether there are unnecessary investments made by the

company and give an analysis regarding the prioritization of Inventories.

 The study is conducted to know how effectively the company is managing

the inventories and give plans to avoid jeopardizing its long run

profitability and may fail ultimately.

 This study on inventory management is needed by the company in defining

the techniques for managing the inventories to determine the effectiveness

of inventory on the operations of the company and for avoiding excessive

and inadequate levels of inventories.

 To know inventory levels of the company and optimum level of the

company and productivity of the company.

4
 SCOPE OF THE STUDY

 The study of inventory management of ML GROUP Ltd is a very wide

topic and could be a detailed study.

 But here it is intended to the author a brief report keeping in view the time

factor.

 In the study many factors that need detailed analysis could not be discussed

in detail because of the limitations regarding length of the project and

available time.

 The scope of the study has therefore been limited to the analysis of various

inventory control technique the performance of inventory management.

 The study includes ABC analysis of Raw materials, work in progress and

finished goods for financial years and also HML analysis.

5
 METHODOLOGY OF THE STUDY

The following is the methodology of the study. The collection of data is

done in two principal sources. They are the following

• Primary data

• Secondary data

(1) Primary data

The primary data needed for the study is gathered through interview with

concerned officers and staff, either individually or collectively. Some of the

information has been or supplemented with personal conduct.

(2) Secondary data

The secondary data needed for the study was collected from published

sources such as pamphlets of annul reports, returns and internal books, reference

from text book, stores records, Co website, other website and journals of financial

management.

6
 LIMITATIONS OF THE STUDY

Any study is having of its own advantages and certain disadvantages. Among

such few of the limitations are expressed below such as,

 The reliability of the study depends upon the information furnished by the

officials.

 Due to time constraint it is difficult to go into details of the organization.

 This study is entirely based on the given information by the stores

department, purchase department, production department and sales

department.

 The collection information is mainly through secondary data

7
 CHAPTER-II

INDUSTRY PROFILE
&
COMPANY PROFILE
 INDUSTRY PROFILE

The prospects of the seed industry would require changes in Government

policy, facilitating its development and removing controls and restrictions. In brief

seed industry requires a simple policy and legislation on .Historically, the

importance of seed has been recognized sine the Vedic times for increasing food

production and quality. However organized production and supply of quality seed

at the national level stated in 1963 as a consequence of the introduction of hybrid

technology during 1961-65.

GROWTH:

The release of high yield dwarf varieties of wheat and rice by the mid gave

further impetus to the growth of seed industry. This period also saw the

constitution of the seed review team, enactment of seeds act, 1996 for regulating

the quality of seed and formation of the National Commission of Agriculture. This

was the period in which the private sector took significant steps into the seed

business. The 1980s, witnessed two more important developments viz.,granting of

permission to MRT? / FERA companies for investment in the seed sector in 1987

and the introduction of ―NEW POLICY‖ on seed development in 1983. The new

policy on seed development while helping liberalize import of vegetable and

flower seeds in general and seeds of other crops in a restricted manner encouraged

global seeds companies to enter the seed business of India.

8
CURRENT STATUS

To supply the seeds necessary for the five hundred thousand Indian

Villages is a big problem. Storage, transportation and tin Rely distribution of pure

seed from village to village calls for careful organization within the State

Department of Agriculture and The willing cooperation of farmers. Indian‘s seed

industry has grown in size and level of performance over the past four decades. It

represents a blend of private and public sector companies / corporations. The

private sector comprises approximately 140 seed companies, which includes

national, global, regional and other seed producing and / or selling companies.

The industry has made impressive strides from a modest beginning is 1962-63 to

over 5lakh hectares in seed production in1995-96. The quantum of seed

distributed also grew from 14lakh to 70lakh quintals during this period.

CHALLENGES

Implementing of new techniques requires dissemination and training for

their beneficial use. To achieve these goal radical changes will be required in the

existing extension systems. In many case entirely new approaches for

dissemination of knowledge will be required. These will have to be constant

learning and up gradation of skills to enable transmission of knowledge to the user

.To realization of the prospects of the industry will also changing the government

policy, which would facilitate the development of the Indian Agriculture and Seed

Industry. The policy must aim at governing greater self discipline and removing

controls and restrictions which inhibit growth and development.

9
ROLE OF THE GOVERNMENT

To achieve self- sufficiency in the production through planned programs,

the distribution of quality seed was rightly considered as a key factor by the

government. The far-sighted and liberal policies of Government of India has

always laid emphasis to build a sound seed industry in the country and has,

supported both public and private sector organizations to develop and to meet the

increasing seed demand and also to produce surplus stocks require for export .To

support expanded activities the National Seed Programs was launched with the

financial assistance of the World Bank(International Bank for Development). In

order to make available the right quality of seed to the Indian farmers in adequate

quantities and at reasonable price in time, the Government of India took various

steps including promulgation of Seed Act‖ during 1996 which became operative

throughout the country from October 1969.

The main objective of the Act is to produce quality seed of different crop

varieties under a system of seed certification and testing is voluntary but the

farmers have recognized the importance of quality seed to get higher production

with limited resources available at their end .High yielding varieties are being

released for cultivation in quick succession by various Agricultural Universities

and ICAR institutions through massive research project and screening of planting

materials .Steps have been taken during early 1984 to bring seeds within the

purview of the Essential Commodities Act to strengthen the regulation of seed.

10
PROBLEMS:

Many problems are being faced by the seed industries and farmers from

many years. A number of Multi National Corporations have stepped into our

agricultural country to gain control over the seeds and their distribution. Recently,

a new variety of seeds have entered the country. This created many new problems

for the seed industry and farmer’s .Generally; a seed may be used either as a food

material or as a seed for another crop. But now, the life in the seed is being taken

out for making it to be used only as a food material and not as a seed for another

crop. These types of seeds are called genetic change or genetic engineering seeds.

For example: BT cotton seed. The farmers are made to purchase those

seeds which are manufactured by the corporation for their crops. Once the farmers

or industry have used these types of seeds, they face many problems. They have to

use only those pesticides which are produced by those associations for protecting

their crops from the pests, diseases etc. These types would used by the wide

associations .The seed industries in India are facing a big problem with the

entering the world wide organizations into the country. Also the production is

down grading. In 1992, the experiments conducted by the Monsanto scientist if

Perestroika show that these has been approximately 11.5 percent decrease in the

production of cotton.

11
SEED INDUSTRY IN GLOBAL PERSPECITIVE:

The population has been growing at a faster rate in the country .To increase

the production accordingly a ―All India Co-coordinated Organization has been

established in 1951 with the assistance of―Rockefeller Foundation‖ which

belongs to America. As part of this project, it produced new seeds of maize in

1961 and cotton seeds in1971.With a view that the State Governments are unable

to meet the demand for seeds correctly; two associations have been established

with the help of Rockefeller Foundation. They are ―National Seed Association‖

1963 and ―State Farm Corporation of India‖, 1969. Due to the ―Development

Program which came into existence in 1988, many multinational corporations

have stepped into the seed industry .At present there are more than 700

multinational corporations in India Organizing seed business directly or indirectly.

19 multinational companies have been made an agreement with the Indian seed

industriesand have been enjoying the leadership in the seed market .

SEED INDUSTRY IN INDIA

Indian Seeds Industry has grown in size and level of performance over the

past four decades. India stands in the 8th position all over the world in the

production of different variety of corps. Again in each crop there are thousands of

varieties. To coordinate the seeds research centers and private organizations in the

country and to support the expanded activities, the ―National Seed Program‖ was

launched in 1967 with the financial assistance of the World Bank. In 1960 many

private organizations have participated in the production of seeds. Many seed

industries have laid a strong foundation in the country.

12
Following are some of the major seed industries in India.

1. MICO Seeds Private Limited, Mumbai.

2. Monsanto Holdings Private Limited, Bangalore.

3. Namdhari Seeds Private Limited, Banglore.

4. National Seeds Corporation Limited, New Delhi.

5. Rallis India Limited, New Delhi.

6. Sungros Seeds Limited, Delhi.

7. Cargill Hybrids Private Limited, New Delhi.

8. Pioneer Indian Limited, Kolkata.

9. Proagro Sees Private Limited, Chennai.

10. Sasys Seeds Private Limited, Bangalore.

11. Sinjent India Limited, Pune.

12. Nunhams Seeds Private Limited, Gurgaon.

13
SEED INUDSTRY IN TELUGU STATES

In Andhra Pradesh the seed industries are many in number.Though Andhra

Pradesh is one among the states in India who have been producing different

varieties of crops. It does not have the major seed industries in it when compared

to other states. Many seed industries have formed recently in the state. Also the

state a growing industrially and there is sample scope and potential for the entry

and success of new industries .

The crop producing seasons are different for different states. In Andhra

Pradesh the crop producing season starts from June and end swith the month of

September. The stock to be sold by the seed industries is kept ready during the

starting of the year as the period during which the demand will be more fall

between March and August. The industries in the state starts the crop again the

month June itself. The send industry in the state starts the crops which form the

boundaries of it. The selling period for those states will vary. The following are

some of the seed industries in Telugu states Indo American Hybrid Seeds (India)

Pvt. Ltd., Hyderabad.

Seed works India Limited, Hyderabad.

MouryaAgri-Tech., Hyderabad.

SriramBioseed Genetics India Ltd., Hyderabad.

JK Seeds Limited, Secunderabad.

Nujiveedu Seeds Limited, Hyderabad.

VEDA SEEDS Prviate Limited, Guntur.

Venus Crane Seeds Pvt. Ltd., Guntur.

14
COMPANY PROFILE

Seed is the basic input to improve the agricultural productivity. In order to

develop and supply high quality seeds in crops like Cotton, Corn, Paddy, Pearl

Millet, Sunflower, & Vegetables. Veda Seed Sciences Pvt. Ltd was started in

2009 in Hyderabad, Andhra Pradesh (India) and it has been recently shifted to

Guntur (A P). Veda is a research driven company and it has 17 acres of R & D

land near Guntur for conducting basic Plant breeding research, hybridization

program & trials. Veda has excellent manpower in the areas of research,

production & marketing.

The company has made Co-Marketing agreement with a reputed company

for sale of Bollgard II cotton hybrids (under the license from Monsanto Company,

USA) in the states of Telugu states, Maharashtra, Madhya Pradesh, Gujarat,

Tamilnadu, Karnataka, Orissa and South Rajasthan in India.

KEY MANAGEMENT
Managing Director
Dr .P .Chandrasekhar has more than 20 years experience in the areas Plant

Breeding & Biotechnology whose qualification is M .Sc (Ag.), Ph.D., He has also

wide range of experience in Quality Assurance, Seed Production, Processing,

Regulatory approvals, Marketing and Administrative activities of the company.

15
Director
Tulasi Dharma Charan is the Director (Marketing) who has 16 years

experience in seed marketing through Distributor & Dealer network, product

promotions by conducting vigorous field promotion activities, product campaigns,

brand building of new products etc.

Citadel Management
Mr. E V P S Krishna and Mr. Vijay Datt are the Directors of the company who
have vast experience in Private equity funding & value creation and look after the
financial management of the company.

Wide range of VEDA Hybrids & OPVs

Sl.No. Crop Hybrid / Improved Variety

1 Paddy MTU – 7029, MTU -1010, MTU – 1001, BPT – 5204, IR –
64
2 Tomato PKM – 1, S – 23
3 Sunflower Jwala (VHSF – 1001), Savitha (VHSF – 1003)
4 Corn Tarak (VHM – 1021), Vikram (VHM – 1023), Tharang
(VHM-1024)
5 Sweet Corn Madhurima (VHSC-2041)

6 Sorghum Shivam (VHSF – 1061)

16
7 SSG Krishna (VHSSG – 2021), Kamadhenu (VHSSG – 2022)
8 Pearl millet Ratna (VHB – 1041)

9 Castor Narmadha (VHC-2001), Vivek (VHC – 2002)

10 Res. Paddy Vijay (VS-3001), Purna (VS – 3002)

11 Red gram Adhi (VHRG – 1082), Arya (VHRG – 1081)

12 Sesamum Pooja (VHS – 2082)

13 Hot Pepper Rudra (VHHP – 101), Veda Hot (VHHP – 104), Green Top
(VHHP – 102)
14 Tomato Tulasi (VHT – 142), Devaki (VHT – 144)
15 Egg plant Kavya (VHEP – 421), Kiran (VHEP-422), Divya (VHEP –
423)
16 Ridge gourd Aasha (VHRG – 161), Ankitha (VHRG – 163)
17 Bitter gourd Mohini (VHBG – 301), Meena (VHB – 302)
18 Okra Deepthi (VHO – 121), Gopika (VHO – 125)
19 Bottle gourd Karthika (VHBG – 241)
20 Cucumber Rohini (VHC – 221)
21 Musk melon Nitya (VHMM – 201)
22 Water melon Sathya (VHWM – 183)
23 Res. Cluster Veena ( VS – 341)
bean
24 Res. Dolichos Swetha (VS – 321)

25 Res. Onion Siri (VS – 401), Nidhi (VS – 402)

26 Res. Palak Jaya (VS – 361)

27 Res. Coriander Rahul (VS – 381)
28 Hybrid cotton KSCH – 207 BG II, KSCH – 211 BG II, KSCH – 212 BG II,
& KSCH – 232 BG II under Co-Marketing.

17
R & D, Offices addresses at a Glance

 Reg& Corporate Office: Veda Seed Sciences Pvt. Ltd.,

D.No.6-11-5, Arundel pet 11/2,
GUNTUR - 522 002. (A P)
Ph.Nos.0863 – 2333397, 2333398, 2333387.

 Regional Office : Veda Seed Sciences Pvt. Ltd.,

D.No.5-5-559, Plot No.85,
Abhyudaya Nagar,
Chintalkunta,
L.B.Nagar,
HYDERABAD – 74.

 R & D Division : Veda Seed Sciences Pvt. Ltd.,

Survey No. 84 & 454,
Kondaveedu village,
YadlapaduMandal,
Guntur District, A.P.

 Seed Processing Plant :Veda Seed Sciences Pvt. Ltd.,

H.No.8-3-35/3/A, Near PindiPullareddy Gardens,
Hastinapuram North extent,
Sagar Highway,
L.B.Nagar,
HYDERABAD – 500079

18
R&D AND TECHNOLOGY ABSORPTION

 Specific area in which R& D carried out by the company-Development of

own hybrid seed.

 Benefits derived as a result of the above r & d.-Improved quality, improved

productivity and process efficiencies.

 Expenditure on R & D.Rs. 3, 49,108 spent under own research and

development program during the year.

 Technology absorption during the year under review is nil

VISION AND MISSION

Vision:

VEDA SEEDS believes that the foundation of its business is to provide

excellent in its products through high quality and reliability, at economical and

competitive prices, efficient services to satisfy the costumers In order to achieve

these goals and attain market leader ship , it shall be the objective of every

employee to strive to best in the field.

Mission:

VEDA SEEDS will serve the global seed industry as suppliers of high

quality cost effective time-bound services in manufacturing retailing and sourcing

VEDA SEEDS will continuously commit our resources to educate or equip our

people with skills , expertise and attitudes by combat global competition secure

our domestic markets and jobs and expand our global markets VEDA SEEDS

enable our people to realize economic self sufficiency ,self esteem and success

and build them as facilitators in the up lifting of our communities

19
GOALS & OBJECTIVES

The main objective of this study is to study the organization of various

department the organizing growth and development of the industry and

organization. And also provide present status of the industry and organization,

future prospectus of the industry as well as organization .The study also include

detailed picture of each departments of emphasizing on marketing, production,

human resource, finance ,personnel and management information system

department .The study also include specific management problem and come out

with possible solution and recommendation.

 To study the organization structure of VEDA SEEDS Pvt. Ltd.,

 To know about its product & Activities.

 To study of different departments & its function

 To study the growth & achievement of each departments.

 To know about organization vision, mission and goals.

 To know the social economic conditions of work force.

 To study the labour welfare activities being practice

 To make appropriate suggestions for the improvement of labour welfare.

 To develop the organization culture that attracts competent people to the

industry.
 To suggest various measures to improve the standards of the

 employee and to improve the organization‘s social motive.

20
Products Profiles:

Cotton Hybrids

Veda-207 BG II (Tadaakha BG II)

 High yielding BG II hybrid cotton

 Excellent boll opening

 Excellent quality of lint with long staple length, fetches maximum price in
the market

 Strong main stem which prevents lodging of the plant at maturity stages

 Suitable for both light and heavy soils. Also suitable for rainfed areas

Veda-212 BG II (Basant BG II)

 High yielding BG II hybrid cotton

 Excellent quality of lint with long staple length, fetches maximum price in
the market

 Easy for picking with full opening of bolls

Veda -232 BG II (Sadanand BG II)

 Big bolls with high yielding BG II hybrid cotton

 Tolerant to sucking pests like jassids , thrips and mites

 Excellent quality of lint with long staple length, fetches maximum price in
the market

21
 CHAPTER-III
THEORETICAL FRAME WORK
 THEORITICAL FRAME WORK

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.

Nature of inventory

The investment in inventories constitutes the most significant part of

current assets / working capital in most of the undertakings. Thus, it is very

essential to have proper control and management of inventories.

The purpose of inventory management is to ensure availability of materials

in sufficient quantity as and when required and also to minimize investment in

inventories.

Inventory may mean the stock of finished goods only. In a manufacturing

concern, it may include raw materials, work-in-progress and stores etc.

Classification of Inventories

The Inventories in an Industrial concern is generally classified as following:

 Raw material Inventory

This is used in manufacturing. When the demand arises, they are

drawn from stores and processed or use value is added during the process

and finally finished product comes out.

23
 Semi finished goods

When the material being processed, it may have to wait between

two processes, such materials are known as semi finished goods or semi

finished material or Work in process inventory.

 Components

The parts used in assembly of product, are known as components.

When these components are purchased from outside, it is known as bought

out components or bought out material.

 Spare parts Inventory

When manufacturing or servicing facility breakdown, it is to be repaired. In

such case, the defective or worn-out parts of the machine are to be replaced

by new one. These new parts of the machine are known as spares or spare

parts.

 Obsolete Inventory

When any facility becomes unserviceable, and it is to be replaced by

a new one, after replacing, the old machine/facility is to be disposed. Such

machines, which have become useless, are termed as obsolete inventory.

 Waste, Scrap and reject

This type of inventory occurs in manufacturing firms or in service

Organizations. While processing material, chips are produced and it is of no

use for the organization and it is to be disposed.

24
Need for Holding Optimum Inventory

Though inventory of materials is an idle resource (as they are not used

immediately and stocked for future use), almost every business must maintain it

for efficient and smooth running of its operations. If an enterprise has no

inventory of material at all, on receiving a manufacturing order, it will have to

place order for purchase of raw material, wait for arrival and receive of material

and then start production. The customer will have to wait for a long period for the

delivery of his product and may frustrated and turn to another manufacturer.

Maintaining of inventory becomes necessary for the following reasons:

 It helps in smooth and efficient running of the production system and the

enterprise. It decouples the production from the customers and vendors.

 It provides services to the customers at a short notice. Timely deliveries

may increase the goodwill of the company.

 In the absence of inventory, the enterprise may have to pay very high

prices because of piecemeal purchasing. Maintaining inventory may earn

price discounts on bulk purchases. It also takes advantage of favorable

market.

 It reduces the product cost, since there is an added advantage of batch

production and mass production runs.

 It acts as a buffer stock when raw materials are received late and shop

rejects are too many.

 Bulk purchases reduce the number of orders and hence less clerical work.

 It helps in maintaining economy by absorbing some of the fluctuations

when the demand for an item fluctuates or is seasonal.

25
Motives for holding Inventories

Economists have established three motives for holding inventories.

 Transaction motive.

 Precautionary motive.

 Speculative motive.
Transaction motive

Firms may require to hold certain amount of finished products perpetually

in stock for display or demonstration purpose. They may also hold inventories to

meet a sudden demand, thus reducing the delivery tags.

Precautionary motive

Firms may hold inventories for fear of stock outs and losing its goodwill.

Some of the precautionary motives give rise to ‘safety stock’ to deal with

uncertainty in supply and demand.

Speculative motive

A firm may also hold both raw materials and finished products when it

expects a price in future, thereby realizing a stock profit. Inventories held for

speculative motive are termed as profit-making inventory. Of the three motives

Precautionary motive

It requires much attention. Besides accumulation of inventory due to the

three motives mentioned above, inventories also get accumulated because of

inefficient management of working capital. This type of inventory is called,

flabby inventory. In addition, there may be a contractual reason for holding

some inventories.

26
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.

Inventory Management

Inventories represent a substantial amount of firm’s current assets. Proper

management of Inventory is necessary so that this investment does not become

too large, as it would result in blocking capital which could be used in productive

aspect in somewhere else. Inventory Management covers efficient management of

inventories in all its aspects including Inventory planning and programming,

Purchasing, Inventory Control, receiving, ware Housing and Store keeping,

Inventories handling and Disposal of scrap.

In this context of Inventory Management the firm is faced with the problem of

meeting two conflicting needs.

 To maintain a large size of inventory for efficient and smooth production

and sales operations.

 To maintain a minimum investment in inventories to maximize

profitability.

The aim of Inventory management, thus, is to avoid excessive and inadequate

levels of inventories and to maintain sufficient inventory for the smooth

production and sales operations.

27
An effective inventory management should

 Ensure continuous supply of materials to facilitate uninterrupted

production.

 Maintain sufficient stocks of raw materials in periods of short supply and

anticipate price changes.

 Maintain sufficient finished goods inventory for smooth sales operations,

and efficient customer services.

 Minimize the earnings cost and time.

OBJECTIVES OF INVENTORY MANAGEMENT

The objectives of the inventory management are discussed under two

heads:

 Operating objectives.

 Financial objectives.

OPERATING OBJECTIVES:

The Operating objectives of Inventory management is further divided as follows

 Availability of materials
The first and the foremost of inventory management is make all types of

materials available at all times 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 the minimum quantity of all materials to move on production schedule

 Minimizing the wastage

Inventory management has to minimize the wastage at all levels that is

during its storage in the god owns or at work in the factory.

28
 Promotion of manufacturing efficiency
The manufacturing efficiency of the enterprise increases if right types of raw

materials are made available to production department at the right time. It

reduces wastage & cost of production & improves the moral of workers.

 Better service to customers

In order to meet to the demand of the customers, it is the responsibility of

inventory management to produce sufficient stock of finished goods to execute

the orders received from customers.

 Optimum level of inventories

Proper control of inventories helps management to procure materials in right

time in order to run the plant efficiently. Maintaining the optimum level of

inventories keeping in view the operational requirements avoids the out of stock

danger.

FINANCIAL OBJECTIVE

The Financial objectives of Inventory management is further divided as follows -

 Economy in purchasing
Proper inventory management system brings certain advantages and

economies in purchasing the raw materials. Management makes every attempt to

purchase raw materials in bulk quantity and to take advantage of favorable market

conditions.

 Optimum investment and efficient use of capital

The primary objective of inventory management, from financial point of view,

is to have an optimum level of investment in inventories. Inventory Management

has to setup minimum and maximum levels of inventories to avoid deficiency or

surplus stocks.

29
 Reasonable prices

Inventory management has to ensure the supply of raw materials at a

reasonable low price, but without sacrificing the quality. It helps to reduction of

cost of production and improvement in the quality of finished goods in order to

maximize the profits of the organization.

 Minimizing the costs

Minimizing inventory costs such as handling, ordering and carrying costs etc

is one of the main objectives of inventory management. It helps in reduction of

inventory costs in a way that it reduces the costs per unit of inventory and there by

reduction of the total cost of production.

Advantages of Inventory Management

The advantages gained by the firm by managing the inventory

effectively are:

 Introduction of a proper inventory management system helps in keeping the

investment in the inventories as low as feasible.

 Ensures availability of material by providing adequate protection against

uncertainties of supplies and consumption of materials.

 Allows full advantage of economics of bulk purchases and transportation.

 Leads to reduction in inventory levels.

 Releases more of capital for other operations.

 Adequate customer service.

 Advantage of price discounts by bulk pricing

30
Causes of poor Inventory Management

There are certain instances, which leads to poor inventory management.

They are:

 Over buying without regard to the forecast or proper estimate of demand to

take advantage of favorable market.

 Over production or production of goods much before the customer requires

them.

 Over stocking may also result from the desire to provide better service to the

customers. Bulk production or purchase to cut down production costs also will

result in large inventories.

 Cancellation of orders and minimum quantity stipulations by the suppliers may

also give rise to large inventories.

Costs for Holding Inventory

The three important costs considered in holding inventories are

 Inventory Carrying Cost (or) Stock Holding Cost.

 Procurement Cost or Setup Cost.

 Shortage Cost or Stock-out Cost.

 Inventory Carrying Costs or Stock Holding Costs

They arise on account of maintaining the stocks and the interest paid on

the capital tied up with the stocks. They vary directly with the size of the

inventory as well as the time the item is held in stock. Various components of the

stockholding cost are:

31
 Cost of Storage Space
This consists of rent for the space occupied by the inventory. Besides

space expenses, this will also include heating, lighting and other atmospheric

control expenses.

 Depreciation and deterioration

They are especially important for fashion items or items undergoing

chemical changes during storage. Fragile items like crockery which is liable to

damage, breakage, etc.

 Pilferage Cost
It depends upon the nature of the item. Valuable items may be more

tempting, while there is hardly any possibility of heavy casting or forging

being stolen.

 Obsolescence Cost
It depends upon the nature of the item in stock. Electronic and computer

components are likely to be fast outdated. Changes in design also led to

obsolescence.

 Handling cost
These include all costs associated with movement of stock, such as cost

of labor, overhead cranes, gantries and other machinery used for this purpose.

 Procurement Cost or Setup Cost

They include the fixed and variable costs associated with placing of an

order. In case of purchase models it is known as ordering cost. In case of

manufacturing model, it is known setup cost.

To place an order certain paper work is to be done. The cost of this paper

work is taken as cost of ordering.

32
 Shortage Cost or Stock-out Cost

These costs are associated with either a delay in meeting demands or the

inability to meet it at all. Therefore, shortage costs are usually interpreted in two

ways. In case the unfilled demand can be filled at a later stage (backlog case),

these costs are proportional to quantify that is short as well as the delay time.

They represent loss of goodwill and cost of idle equipment. In case the unfilled

demand is lost (no backlog case), these costs become proportional to only the

quantity that is short.

TECHNIQUES OF INVENTORY MANAGEMENT

The following are the techniques of the inventory management

 Economic order quantity.

 ABC analysis.

 VED classification.

 HML Classification.

 SDE Classification.

 FSN Analysis.

 SOS classification.

 XYZ Analysis.

 Golf classification

 MNG Analysis.

33
Economic order quantity

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. I.e. it

refers to the level of inventory at which the total cost of inventory comprising

acquisition/ordering/set-up costs and carrying cost is minimal.

EOQ = 2AO / C

A = Total annual requirement

O = Ordering cost per order

C = Convey in cost per unit

ABC analysis:-

Usually a firm has to maintain several types of inventories. It is not

desirable to keep same degree of control on all the items. The firm should pay

maximum attention to those items whose value is highest. The firm should

therefore classify inventories to identify which items should receive the most

effort in controlling. This classification is done by the ABC analysis.

34
 The ABC analysis technique is based is based on the assumption

that a firm should not exercise the same degree of control on all items of

inventory.

On the basis of the cost involved, the various inventory items are

categorized into three classes:

i. ‘A’ category.

ii. ‘B’ category.

iii. ‘C’ category.

 Category ‘A’ items - More costly and valuable consumption items are

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.

VED Classification

VED – Vital, Essential and Desirable classification is applicable largely to

spare parts. Stocking of spare parts is based on strategies different from those of

raw materials because of there consumption pattern is different. Here the spare

parts are classified in to three categories.

35
 Vital - The spares, the stock out of which even for a short time will stop the

production.

 Essential - The spares, the absence of which cannot be tolerated for more than a

few hours or a day.

 Desirable - The desirable spares are those spares which are needed but this

absence for even a week or so will not stop the production.

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

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

36
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.

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.

37
 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.

XYZ Analysis

While the ABC analysis is based on the assumption on value, XYZ

analysis is based on the value of inventory undertaken during the closing of

annual accounts. X items are those having high value, Y items are those whose

inventory values are medium and Z items are those whose inventory values are

low. The percentages are similar to ABC analysis. This analysis helps find items

with heavy stock.

GOLF Classification

The letter stands for Government, Ordinary, Local and Foreign. There are

mainly imported items which are channelized through the State Trading

Corporation (STC) Minerals and Metals Trading Corporation, etc. Indian Drugs

and Pharmaceutical Ltd (IDPL), Mica trading corporation etc. These are special

procedures of inventory control which may not applicable to ordinary items as

they require special procedures.

MNG Analysis

The grouping of inventory items in this analysis takes place as:

 M- Moving items

The items which are consumed from time to time are normally referred to

as moving items.

38
  N- Non moving items

These items which are not and consumed in last one year are covered

under this group.

 G- Ghost items

This group refers to such items which neither have been received nor issued

during the year. The balance of such items shown in stock registers of the

organization will be nil, both at the beginning and at the end of the previous

financial year.

Inventory Systems

For an effective inventory management, an efficient inventory system should

be maintained. Thus the importance of inventory systems cannot be neglected in

the Inventory Management. The two important types of inventory systems

available are

 Periodic Inventory System.

 Perpetual Inventory System.

 Just-In-Time Inventory System.

Periodic Inventory System

In this system the quantity and value of inventory is found out only at the

end of the accounting period after having a physical verification of the units in

hand. The cost of materials used or goods sold is obtained by adding the total of

inventory purchased during the period to the value of the inventory in hand in the

39
beginning of the period and subtracting the value of inventory at the end of the

period.

In this system the inventory level is not monitored at all during the time

interval between the orders, so it has the advantage of little or no required record

keeping. The disadvantage is less control.

Perpetual Inventory system

It is a system of tracking and knowing the value of inventory and quantity

of merchandise on hand at any time by tracking sales, returns and receipts with

information systems. A positive feature of a perpetual system is that inventory

level is continuously monitored, so management always knows the inventory

status. This is advantageous for critical parts or raw materials and supplies.

However, it can be costly.

The perpetual inventory system consists of:

 Bin Cards.

 Stores ledger.

 Continuous Stock taking.

Bin cards

Bin cards are printed cards used for accounting the stock of material, in

stores. For every item of materials, separate bin cards are kept. The details

regarding the material such as the name of the material, the part number, the date

of receipt and issue, the reference number, the name of the supplier, the quantity

received and issued, the value of the material, the rate, the balance quantity, etc.

are recorded in the bin card.

40
Stores ledger

Like bin cards, a stores ledger is maintained to record all the receipts and

issues in respect of materials with the difference that along with the quantities, the

values are entered in the receipt, issue and balance columns.

Continuous stock taking

The perpetual inventory system is not complete without a systematic

procedure for physical verification of the stores. The bin cards and the stores

ledger record the balances, but their correctness can be verified by means of

physical verification only.

Just-In-Time Inventory System

Now-a-days organizations are becoming more and more interested in

getting potential gains from making smaller and more frequent purchase orders. In

other words, they are becoming interested in just-in-time purchasing system. Just-

In-Time system the materials arrive exactly when they are needed in the

production process. Inventory remaining in warehouse collects dust and cost

instead of revenue. Just-In-Time system avoids this cost.

Various stock levels in Inventory Management

The levels of inventory in any organization depend upon several factors

including social, political, economic, ethic, fiscal, governmental policies at the

global and national levels, which determine the demand and supply parameters of

41
an item. At the unit level, cost, criticality, availability, service level, stock out,

lead time, powers of delegation, consumption pattern, etc. affect the levels. The

various stock levels fixed for effective management of inventories are

 Minimum level.

 Maximum level.

 Ordering or reordering level.

 Danger level.

These levels serve as indices for initiating action on time so that the quantity

of each item of material, i.e. the inventory holding is controlled or managed.

Stock levels are not fixed on a permanent basis but are liable to revision in

accordance with the changes in the factors determining the levels.

Minimum level

It indicates the lowest figure of inventory balance, which must be maintained

in hand at all times, so that there is no stoppage of production due to non-

availability of inventory. The main considerations for the fixation of minimum

level of inventory are as follows

 Information about maximum consumption and maximum delivery period

in respect of each item to determine its reorder level.

 Average rate of consumption for each inventory item.

 Average delivery period for each item. This period can be calculated by

averaging the maximum and minimum period.

The formula used for its calculation is as follows:

42
 Minimum level of Inventory = Reorder level – (Average rate of

consumption * Average time of

Inventory delivery).

Maximum Level

It indicates the maximum figure of inventory quantity held in stock at any time.

The important considerations which should govern the fixation of maximum level

for various inventory items are as follows:

 The fixation of maximum level of an inventory item requires information

about its reorder level. The reorder level itself depends upon its maximum rate

of consumption and maximum delivery period. It in fact is the product of

maximum consumption of inventory item and its maximum delivery period.

 Knowledge about minimum consumption and minimum delivery period for

each inventory item should also be known.

 The determination of maximum level also requires the figure of economic

order quantity.

 Availability of funds, storage space, nature of items and their price per unit are

also important for the fixation of maximum level.

 In the case of imported materials due to their irregular supply, the maximum

level should be high.

The formula used for its calculation is as follows:

Maximum level of Inventory = Reorder level + Reorder quantity

(Minimum consumption * Minimum

43
 reorder period)

Reorder level

This level lies between minimum and maximum levels in such a way that

before the material ordered is received into the stores, there is sufficient quantity

on hand to cover both normal and abnormal consumption situations. In other

words, it is the level at which fresh order should be placed for replenishment

stock. It is set after consideration of the following factors.

 Rate of consumption.

 Minimum level.

 Lead time, i.e. delivery time.

 Variation in lead time.

The formula used for its calculation is as follows:

Reorder level = Maximum reorder period * Maximum Usage.

Danger level

 Danger level = Average consumption * Lead time for emergency

44
 Purchases.

Objectives of Inventory Valuation

The objectives of inventory valuation are discussed here below as follows

 Determination of Income
The valuation of inventory is necessary for determining the true income earned

by business during a period.

 Determination of Financial position

The inventory at the end of period is to be shown as a current asset in the

balance sheet of the business. In case of the inventory is not properly valued the

balance sheet will not disclose the correct financial position of the business

 Methods of Inventory Valuation

Since Inventory is the single largest asset in the balance sheet of most

organizations, the valuation of inventory becomes of utmost importance and

crucial to the financial executives.

Methods of Valuation of InventoriesThe different methods used for valuation

of inventories may be enumerated as follows –

Methods based on Actual cost

 First-in-First-out method.

45
  Last-in-First-out method.

 Highest-in-First-out method.

 Specific identification price.

 Base stock price.

 Adjusted selling price

Methods based on Average cost

 Simple average price.

 Weighted average price.

Methods based on Actual cost

The methods of actual cost are as follows –

 First-in-First-out Method
The First-in-First-out Method of pricing materials is based on the

assumption that the materials which are purchases first are issued first. The flow

of cost of materials should also be in the same order.

 Last-in-First-out Method
This method is just reverse of FIFO. It operates on the assumption that the

latest received materials are issued first for production and those received first

issued last. The price of the last lot of materials received is used for all the issues

until all units from this lot have been issued after which the price of the previous

lot received becomes the issue price.

 Highest-in-First-out method

46
 Under this method, the highest priced materials are treated as being issued

first. The closing inventory is kept at the lowest possible price. It is undervalued

in times of rising prices and thus secret reserves are created.

 Specific identification price

The specific identification method may be used for inventories of items that

are not ordinarily inter-changeable, or for goods manufactured for a specific

purpose. This method is best suited for job order industries which carry out

individual jobs or contracts against specific orders.

 Base stock price

The base stock formula proceeds on the assumption that a minimum quantity

of inventory (base stock) must be held at all times in order to carry on business.

Inventories up to this quantity are stated at the cost at which the cost at which the

base stock was acquired.

 Adjusted Selling price

Under this method which is adopted by retailers, inventory is estimated at selling

price and to value it at cost, the estimated gross profit is deducted there from. The

alternative approach is to deduct current sales from the total goods available for

sale at retail price.

Methods based on Average cost

The methods of average cost are as follows -

 Simple average price

47
 Simple average price is the average of the prices without any regard to

quantities. Simple average price is calculated by adding up different prices and

then dividing by the number of different prices.

 Weighted average price method

Weighted average price is calculated by dividing the total cost of material in

stock by the total quantity of material in hand. Under this method, prices are

averaged after weighting (i.e. multiplying) by their quantities. The average price

at any time is simply the balance value figure divided by the balance units figure.

48
 CHAPTER-IV
DATA ANALYSIS
AND
INTERPRETATION
 DATA ANALYSIS & INTERPRETATION

Inventory Turnover Ratio

Inventory turnover ratio indicates the efficiency of the firm in producing

and selling its product. It is calculated by dividing cost of goods sold by average

inventory. Average inventory consists of opening stock plus closing stock divided

by 2. A high inventory turnover ratio indicated that the product is selling well. A

low turnover ratio implies poor sales and, therefore, excess inventory.

Inventory turnover ratio= Sales / Average inventory

Avg. Inventory = Opening Stock + Closing Stock

Table I
Year Sales Avg. Inventory Ratio

2013-14 136047623.10 59817197.80 2.27

2014-15 52196041.25 55110400.63 0.94

2015-16 51917733.60 146362821.20 0.35

2016-17 246137242.30 243224535 0.10

2017-18 416246905.90 348824307.90 1.19

52
 Ratio
2.5

1.5

Ratio
1

0.5

0
2013-14 2014-15 2015-16 2016-17 2017-18

Interpretation

 During the period 2013-14 the inventory turnover ratio of the company was

2.27. It is satisfactory one as the company is able to generate sales around 6

times.

 The inventory turnover ratio had been decreased to 0.35 in the year 2015-

16. The reason for this is decrease in turnover which is mainly due to

prevailing conditions in the industry

 The inventory turnover ratio had been decreased to 0.10 in the year 2016-

17. The reason for this is decrease in turnover which is mainly due to

prevailing conditions in the industry. In this year also decreased trend has

been there because of floods were effected on the production of cotton

 In the year 2017-18, the inventory turnover ratio has been increased to

1.19. The main reason for this is due to increase in turnover and due to fall

in average inventory. The reason for fall in average inventory is due minor

purchases of the company in the year thus leading to low closing stock.

53
Inventory to Working Capital Ratio
The Inventory to Working Capital ratio measures how well the company is

able to generate cash using Working Capital at its current inventory level. An

increasing Inventory to Working Capital ratio is generally a negative sign,

showing the company may be having operational problems. If a company has too

much Working Capital invested in Inventory, they may have difficulty having

enough Working Capital to make payments on Short-Term Liabilities and

Accounts Payable.

Inventory to working capital ratio = Inventory / Working capital.

(or)
Inventory / (current assets - current liabilities)

Table II

Year Inventory Working Capital Ratio

2013-14 114,002,011/- 95,680,454/- 1.19

2014-15 80,575,080/- 82,984,423/- 0.97

2015-16 50,956,007/- 113,932,184/- 0.45

2016-17 73,197,800/- 115,467,110/- 0.63

54
 2017-18 81,788,844/- 149,768,976/- 0.55

Ratio
1.4

1.2

0.8

Ratio
0.6

0.4

0.2

0
2013-14 2014-15 2015-16 2016-17 2017-18

Interpretation

 The inventory to working capital ratio in the year 2013-14 was 1.19 which is

not a positive sign for the company. The main reason for this is increase in

inventory level of the company. As the turnover of the company in this period

is high, the company had concentrated in maintaining a high inventory level,

thus leading to this negative inventory to working capital ratio.

 The ratio further decreased to 0.45 in the year 2015-16. Here we find a fall in

tremendous fall in inventory (due to fall in purchases). The ratio 9shows a

positive sign.

 In the year 2016-17 the ratio has increased to 0.63.This is due to increase in

inventory level as there is increase in the purchases made by the company due

to changing economic conditions.

55
 In the year 2017-18 the ratio has decreased to 0.55. In this period we find an

increase in both inventory and working capital making the ratio satisfactory.

The increase in current assets and decrease in current liabilities leads to the

increase of working capital.

Inventory to Sales ratio

The Inventory to Sales ratio measures the percentage of inventory the

company currently has on hand to support the current amount of sales. An

increasing Inventory to Sales ratio is generally a negative sign, showing the

company may be having trouble keeping inventory down and/or Net Sales have

slowed, and can sometimes indicate larger financial problems the company may

be facing. Viewing this ratio over several periods reveals the important aspect of

the company's ability to manage inventory while attempting to increase sales.

Inventory to Sales Ratio = Inventory / Net Sales

Table III

Year Inventory Net Sales Ratio

2013-14 114,002,011/- 442,986,937/- 0.25

2014-15 80,575,080/- 321,524,948/- 0.25

2015-16 50,956,007/- 255,690,814/- 0.19

56
 2016-17 73,197,800/- 491,022,488/- 0.14

2017-18 81,788,844/- 508,418,684/- 0.16

Ratio
0.3

0.25

0.2

0.15
Ratio

0.1

0.05

0
2013-14 2014-15 2015-16 2016-17 2017-18

Interpretation

 The Inventory to sales ratio in the year 2013-14 was 0.25. The reason for this

is increase in inventory which is generally due increase in demand at the

market. The increase in sales also controlled this ratio to a certain extent.

 The ratio in the year 2014-15 also remains same as in previous year. Here in

this we find a fall in both inventory and net sales thus balancing the ratio. But

this is not a satisfactory one.

 For the period 2015-16 the ratio had fall down to 0.19. This is mainly due to

fall in inventory which is due fall in purchases made by the company.

 The r

57
 atio in the year 2016-17 is said to be satisfactory as it fall down to 0.14. Here

the increase in inventory along with net sales generates a desirable ratio.

 The ratio had increased a little bit in the year 2017-18, but it remains

satisfactory on a whole because we find a falling trend in the ratio.

Inventory to Current assets ratio:

This ratio indicates the relationship between inventory to current assets.

Higher the ratio shows that inventory is properly utilized in the organization.

Inventory to current assets ratio is calculated as follows:

Inventory to current assets ratio = Inventory / Current assets.

Table IV

Year Inventory Current assets Ratio

2013-14 114,002,011/- 201,406,142/- 0.57

2014-15 80,575,080/- 158,371,728/- 0.51

2015-16 50,956,007/- 146,009,789/- 0.34

2016-17 73,197,800/- 167,377,430/- 0.44

2017-18 81,788,844/- 180,413,666/- 0.45

58
 Ratio
0.6

0.5

0.4

0.3
Ratio

0.2

0.1

0
2013-14 2014-15 2015-16 2016-17 2017-18

Interpretation

 The Inventory to current assets ratio in the year 2013-14 was 0.57. During this

period there is high demand in the market thus leading to maintaining of the

inventories at a satisfactory ratio i.e. near to 60%.

 The inventory to current assets ratio had been decreased to 0.51 in the year

2014-15. This is due to fall in both inventories and current assets. The

significant drop in the level of inventory is due falling trend in demand thus

leading to fall in purchases and finally on sales. The decrease in sales leads to

fall in debtors and in turn on the current assets.

 During the period the industry had recovered from lack of demand thus

leading to increasing level of inventory. As a result of this we find a

substantial increase in the inventory to current assets ratio. The inventory to

current assets ratio in the period 2015-16 was 0.44.

59
 Due to improvement in the environmental conditions the inventory to current

assets ratio had been increased to 0.45 in the year 2016-17. In this period we

find an increase in inventories and current assets.

Inventory to total assets ratio:

This ratio shows the relationship between inventories to total assets.

Inventory is a part of the current assets of the company. It shows the portion of

assets tied up in inventory. Generally, a lower ratio is considered better.

Inventory to total assets ratio = Inventory / Total assets.

Table V

Year Inventory Total Assets Ratio

2013-14 114,002,011/- 210,527,277/- 0.54

2014-15 80,575,080/- 165,697,074/- 0.49

2015-16 50,956,007/- 156,069,705/- 0.33

60
 2016-17 73,197,800/- 177,822,316/- 0.41

2017-18 81,788,844/- 192,819,503/- 0.42

Ratio
0.6

0.5

0.4

0.3
Ratio

0.2

0.1

0
2013-14 2014-15 2015-16 2016-17 2017-18

Interpretation

 During the period 2013-14, the inventory to total assets ratio was 0.54. This is

due to rise in inventory resulting due to increase of turnover. The ratio is not a

satisfactory one as it is above 0.5.

 During the period 2015-16, the ratio had further decreased to 0.33 which is

due to tremendous fall in inventory. The reason for this is fall in purchases of

the company due to lack of demand in the industry. There is also a fall in total

assets which is mainly due to fall of inventory.

 During the period 2016-17, the ratio had gone up to 0.41 as a result of increase

in inventory. The increase in purchases of the company during the period leads

to increase of inventory. The other reasons for increase of total assets are

61
 increase in debtors (current assets) and purchase of fixed assets (tractors and

cars).

 For the year 2017-18 the ratio is almost same as previous year. Here we find

an increase in inventory and total assets to same extent. Increase in turnover

leads to increase of inventory and debtors.

Quick Ratio
Quick ratio is an indicator of a company's short-term liquidity. It is also

known as the "acid-test ratio" or the "quick assets ratio". It is obtained by

subtracting inventories from current assets and then dividing by current liabilities.

The conventional quick ratio is 1:1.

Quick ratio = Current assets – Inventory Current liabilities

(or)
= Quick assets / Current liabilities.

Table VI

Year Quick Assets Current Liabilities Ratio

62
 2013-14 120395977.70 134715296.34 0.89

2014-15 154665476.80 151353220.16 1.02

2015-16 225867830.60 38286177314 0.58
2016-17 470599679.60 637834413.27 0.73

2017-18 900517883.80 1000737270.75 0.90

Ratio
1.2

0.8

0.6
Ratio

0.4

0.2

0
2013-14 2014-15 2015-16 2016-17 2017-18

Interpretation

 The quick ratio of the company in 2013-14 was 0.89; it has been slightly

increased to 1.02 in the year 2014-15 and further decreased to 0.58 in the year

2015-16.

 The quick ratio had increased to 0.73, in the year 2016-17. At present the

current ratio of the company was 0.90 i.e. in the year 2017-18.

 It is maximum (1.02) in the year 2014-15, the reason for maximum quick ratio

is due to decrease in current liabilities.

63
 It is minimum (0.58) in the year 2015-16, this is mainly due to higher current

liabilities.

Current Ratio

A liquidity ratio measures a company's ability to pay short-term

obligations. If the current assets of a company are more than twice the current

liabilities, then that company is generally considered to have good short-term

financial strength. If current liabilities exceed current assets, then the company

may have problems meeting its short-term obligations. The conventional current

ratio is 2:1

64
 Current ratio = Current assets / Current liabilities.

Table VII

Year Current Assets Current Liabilities Ratio

2013-14 126854600.45 97846163.86 1.29
2014-15 153345604.71 141430506.30 1.08
2015-16 157479223.93 135454740.30 1.16
2016-17 227803031.88 152092664.10 1.49
2017-18 449046852.10 383601217.10 1.17

Ratio
1.6

1.4

1.2

0.8
Ratio
0.6

0.4

0.2

0
2013-14 2014-15 2015-16 2016-17 2017-18

Interpretation

 The current ratio in 2013-14 was 1.29; it has been decreased to 1.08 in the year

2014-15 and further increased to 1.16 in the year 2015-16.

 The current ratio had increased to 1.49 in the year 2016-17. At present the

current ratio of the company was 1.17 i.e. in the year 2017-18.

65
 It is maximum (1.49) in the year 2016-17, the reason for maximum current

ratio is due to decrease in current liabilities and increase in current assets.

 It is minimum (1.08) in the year 2014-15, the reason for this is due to high

current liabilities and low current assets.

66
ABC Analysis technique of Inventory management at Veda seeds Pvt
Ltd. for the year 2013-14
Uni % Cumul % Cumul
ts of ative of ative
Sl.
Name of in tot Unit Total Tot Categ
No
the Item qui al % of cost cost al % of ory
.
ntal uni total cos total

s ts units t cost

1. BT cotton 198 6.7 6.77 11,677 23,227, 25. 25.34

seed 9 7 .7/- 010/- 34

BG II 23 0.0 10,281 236,478 0.2

2. 6.85 25.6
cotton seed 8 .6/- /- 6 ‘A’

3. 36.38 78
Bulk seed 29. 5,541. 48,077, 52.
867
4 BT 53 4/- 870/- 40
6

4. Refugee 97 0.3 36.71 5696.5 552,561 0.6 78.6

cottonseed 3 /- /- 0

TCHH -4 1.2 1706.2 617,641 0.6

5. 362 37.95 79.27
BT 4 /- /- 7
188 ‘B’
TCHH -45 0.6 500.4/ 94,075/- 0.1
6. BT 327 4 38.59 - 0 79.37

0
7. CHILLIES 11. 49.72 1346/- 4,401,1 4.7 84.16
SEED 13 70/- 9

67
 TOTAL % OF UNITS
90
80
70
60
50
40
30
20
10
0
category A B C

Series1 Series2

% VALUE OF INVENTORY
90
80
70
60
50
40
30
20
10
0
category A B C

Series1 Series2

68
Interpretation

 There are three items which comes under category A comprises of BT

COTTON SEED, BG II COTTON SEED, BULK SEED 4 BT. These items

cover 78% of total cost and 36% of total volume. These items are to be

controlled strictly and are to be forecasted accurately.

 The B category inventory comprises of four items which occupy about 6% of

total cost and 13% of total volume. These items include Refugee cotton

seed, TCHH -4 BT, TCHH -45 BT, CHILLIES SEED require only a moderate

control.

 There is one item which comes under C category i.e. BHENDI SEED. This

item occupied 16% of total cost and 51% of total volume.

69
ABC Analysis technique of Inventory management at Vedaseeds Pvt
Ltd. for the year 2014-15

Table IX
% Cumul % Cumul
Units of ative of ative
Name
Sl. in tot Unit Total Tot Categ
of the
No. quint al % of cost cost al % of ory
Item
als uni total cos total

ts units t cost

1. BT 915 5.7 5.72 13,01 11,909, 23. 23.82

cotton 2 5/- 557/- 82
seed ‘A’

2. 3619 28.35
TCHH
22. 6,621 23,964, 47.
-4 BT 71.77
63 /- 322/- 95

3. CHILL 724 4.5 32.85 6605/ 4,782,2 9.5 81.33

IES - 57/- 6

SEED ‘B’
4. Refuge 21 0.1 32.98 81.4
e 3 1674/ 35,165/- 0.0
cottons - 7
eed

5. BHEN
DI
‘C’
1071 67. 100 867/- 9,291,4 18. 100
SEED
1 2 66/- 58

70
 % OF TOTAL UNITS
80

60

40

20

0
category A B C

Series1 Series2

% OF TOTAL INVENTORY
80
70
60
50
40
30
20
10
0
category A B C

Series1 Series2

71
Interpretation

 There are two items which comes under category A which comprises of BT

cotton seed, TCHH-4 BT. These items cover 71% of total cost and 24% of

total volume. These items are to be controlled strictly and are to be forecasted

accurately.

 The B category inventory comprises of two items i.e. Chilies seeds, Refugee

cotton seed, which occupy about 10% of total cost and 5% of total volume.

These items require only a moderate control.

 There is one item i.e. BHENDI SEED which comes under C category. This

item occupied 19% of total cost and 71% of total volume. Lose control is

acceptable for these items

72
 ABC Analysis technique of Inventory management at Veda seeds Pvt Ltd. for the
year 2015-16

% Cumulati
% Cumulati
Units of ve
of ve
Sl.N Name of in tota Unit Total Catego
Tot
o. the Item quinta l % of cost cost ry
al % of
ls unit total
cost total cost
s units

1. BT 212 2 2 13,337. 2,827,514 6.8 6.8

cotton 3/- /-
4.9
seed
2. 5 18.1 24.9
TCHH -
14,253/- 7,525,230
4 BT 528 6.95
/-
3. Bulk 3.18 13.3 38.29 ‘A’
seed 4 16,321/- 9
10.13
BT 5,565,557
5,311.2/
341 /-
34.7
Bulk -
seed 9 47.4
3,711 44.83
4. BT 85.75
6
19,710,17
6/-

Refugee
cotton
5. 496 4.63 49.46 4,694/- 2,328,192 5.6 91.35
seed
/-
TCHH - ‘B’
6. 45 BT 59 0.55 50.01 2,253/- 0.32 91.67
132,927/-
7. CHILLI 99 0.92 50.93 1,370.1 0.32 91.99
ES

73
 SEED 4 135,644/-

BHEND
I SEED
8. 5249 49.0 100 634.2/- 3,329,038 8.01 100 ‘C’
7 /-

% OF TOTAL INVENTORY COST

100

80

60

40

20

0
category A B C

Series1 Series2

74
 % OF TOTAL UNITS
60
50
40
30
20
10
0
category A B C

Series1 Series2

Interpretation:

 There are four items which comes under category A these include BT cotton

seed, TCHH -4 BT, Bulk seed 4 BT, Bulk seed 9 BT. These items cover 86%

of total cost and 45% of total volume. These items are to be controlled strictly

and are to be forecasted accurately.

 The B category inventory comprises of three items which occupy about 6% of

total cost and 6% of total volume. These items require only a moderate control

and they include Refugee cotton seed, TCHH -45 BT, chilies seed.

 There is one item which comes under C category i.e. BHENDI SEED. This

item occupied 8% of total cost and 49% of total volume. Loose control is

acceptable for these items.

75
ABC Analysis technique of Inventory management at Veda seeds Pvt Ltd. for the year

2016-17
% Cumulati
Cumulative
% of of ve
Sl.No Name of Units in Unit Catego
total Total cost Tot
. the Item quintals % of total cost ry
units al % of
units
cost total cost

1. BT cotton 262 1.72 1.72 12,167. 3,187,832/ 7.30 7.30

seed 3/- -
122 0.82 2.54 3.80 11.1
BG II 13,624. 1,662,164/
2.
cotton 3/- -
seed 91 0.59 3.13 3.23 14.33 ‘A’

3. TCHH - 4 4616 30.29 33.42 57.8 72.13

15,432. 1,404,330/
BT
2/- -

Bulk seed
4. 5,467.7/ 25,238,90
4 BT
- 3/-

5. Refugee 860 5.64 39.06 5,205.3/ 4,476,575/ 10.2 82.38

cotton - - 5
seed ‘B’

6. 264 1.73 40.79 83.5

CHILLIE
1,853.2/ 489,192/- 1.12
S SEED
-

7. BHENDI 9025 59.21 100 7,201,950/ 16.5 100

‘C’
SEED 798.2/- -

76
 % OF TOTAL UNITS
70

60

50

40

30

20

10

0
category A B C

Series3 Series4 Series1 Series2

% OF TOTAL INVENTORY COST

100

80

60

40

20

0
category A B C

Series3 Series4 Series1 Series2

77
Interpretation

 There are four items which comes under category A and they are BT cotton

seed, bg ii cotton seed, TCHH – 4 BT, Bulk seed 4 BT. These items cover

72% of total cost and 33% of total volume. These items are to be controlled

strictly and are to be forecasted accurately.

 The B category inventory comprises of two items (Refugee cotton seed, chilies

seed) which occupy about 11% of total cost and 7% of total volume. These

items require only a moderate control.

 There is only one item which comes under C category i.e. BHENDI SEED

these generally occupy 17% of total cost and 60% of total volume. Lose

control is acceptable for these items.

78
 ABC Analysis technique of Inventory management at Veda seeds Pvt Ltd. for
the year 2017-18

Cumul Cumul
Units ative ative
% of % of
Sl.N Name of in Total Categ
total Unit cost Total
o. the Item quintal % of cost % of ory
units cost
s total total
units cost

1. BT cotton 978 12.75 12.75 12,453/- 12,179, 40.61 40.61

seed 034/-
2. 442 5.78 18.53 13,342/- 19.66 60.27
BG II cotton 5,897,1
3. 8 0.10 18.63 14,853/- 0.40 60.67
TCHH -4 64/-
4. BT 305 3.98 22.61 5,576/- 5.67 66.34 ‘A’
118,826

Bulk seed 4 /-

BG
1,700,6
80/-

5. CHILLIESS 1260 16.43 39.04 5,119/- 6,449,9 21.50 87.84

EED 40/-
6.
Refugee ‘B’
55 0.72 39.76 1,793/- 0.32 88.16
cotton seed
98,626/
-

7. BHENDI 4618 60.24 100 767.2/- 3,542,9 11.84 100

‘C’
SEED 30/-

79
 % OF TOTAL UNITS
80

60

40

20

0
category A B C

Series1 Series2

% OF TOTAL INVENTORY COST

80

60

40

20

0
category A B C

Series1 Series2

80
Interpretation

 There are four items which comes under category A and they include BT cotton seed,
BG II cotton seed, Bulk seed 4 BG and TCHH -4 BT. These items cover 66% of total
cost and 23% of total volume. These items are to be controlled strictly and are to be
forecasted accurately.
 The B category inventory comprises of two items which occupy about 22% of total
cost and 17% of total volume. These items require only a moderate control and they
include chillies seed, Refugee cotton seed.
 There is only item i.e. cotton seed which comes under C category. These generally
occupy 12% of total cost and 60% of total volume. Lose control is acceptable for
these items.

81
 CHAPTER-V
FINDINGS, SUGGESTIONS
&
CONCLUSION
 FINDINGS

 From the study it has been observed that the inventory to turnover has been
decreasing from 2013-14 to 2015-16 and in the year 2013-14 the turnover ratio is
good when compared to one in the year 2013-14 and 2014-15.
 From the study it was observed that inventory working capital ratio was
fluctuating every year. But there is an overall performance of this ratio is
satisfactory.
 From the study it has been observed that the inventory to sales ratio has been
falling from 2011-12 to 2015-16. The ratio in the year 2016-17 is a satisfactory
one.
 From the study it has been observed that the inventory to current assets ratio has
been falling from 2013-14 to 2014-15. The ratio in the year 2016-17 is not a
satisfactory one.
 From the study it has been observed that the inventory to total assets ratio has been
in a fluctuating pattern between the periods 2014-15 to 2016-17. The ratio is
satisfactory in the year 2016-17 when compared to 2013-14.
 From the study it has been observed that the inventory to total assets ratio has been
raising from 2016-2017 to 2017-2018. Ratio in the year 2017-2018 is satisfactory
one.

81
 SUGGESTIONS

 The Veda seeds Pvt. Ltd. is suggested to maintain strict intensive control and better
inventory management in relation to category ‘A’ items like BT cotton seed, BG II
cotton seed, TCHH -4 BT, Bulk seed 4 BG as the unit cost of these items is also
generally higher when compared to unit costs of other items.
 It is suggested that Veda seeds Pvt. Ltd, is required to give nominal importance and
moderate control in relation to category ‘B’ items like CHILLIES SEED, Refugee
cotton seed as the unit cost of these items are not so high and is medium when
compared to unit cost of other items.
 The Veda seeds Pvt. Ltd .is required to give lower importance in relation to category
‘C’ items like Bhendi seed, as they occupy high volume and there unit cost is very
low when compared to other items.
 The inventory to turnover ratio on an average is above eight times, so it is suggested
that the Veda seeds Pvt. Ltd. is to take the steps so as to maintain the optimum
inventory turnover ratio.
 It is suggested that the Veda seeds Pvt. Ltd. Is required to take necessary steps so as to
maintain the same inventory to working capital ratio as the ratio is satisfactory.

82
 CONCLUSION

The economic life of any company depends on some important financial aspects
like profits, expenses, turnover etc. A careful analysis of these areas is very much
essential for the success and survival of the company. For this purpose Inventory
management with help of technique like ABC analysis is to be carried out. A study of this
type is very much useful to any company to keep in to the different financial aspects and
to take some measures to improve.

In my view the inventory management of the company is supplying vital

information about the inventory of the company in all aspects as per the ABC analysis.
The company as maintain optimum level of inventory as for the requirements and
reached their goals.

83
 BIBLIOGRAPHY

 I.M.Pandey, Financial Management, Vikas Publishing House, 2003.

 M.Y. Khan and P.K.Jain, Financial Management: Text and Problems, Tata
McGraw Hill Publishing Co, 2003.

 S.N.Maheswari, Financial Management, Vikas Publishers, New Delhi, 2003.

 V.K.Bhalla, Financial Management and Policy, Anmol publications Pvt. Ltd.,

New Delhi.

 James C. Van Horne, Financial Management and Policy, Pearson Education,

2004.

84
ANNEXURE
Balance Sheet of Veda seeds sciences Pvt.ltd as on 31-03-2014
Particulars 31-03-2014

Source of funds

Share holders fund

Share capital 1,00,00,000.00

Profit &loss a/c 1,44,28,284.54

Loan funds

Secured loans 9,80,99,516.52

Un secured loans 7,33,134.92

Current liabilities& provisions

Liabilities& provisions 38,28,61,773.14

Other liabilities

Differ tax liability 7,39,444.00

Total funds 50,68,62,153.12

Application of funds

Net Fixed assets 5,77,93,101.02

Current assets, loan& advances

Inventories 21,95,88,087.40

Sundry debtors 22,05,70,852.64

Cash and bank balance 28,50,972.06

Loans and advance 24,46,006.00

prepaid expenses 35,90,934.00

miscellaneous expenditure to the extent of not written of 22,200.00

Total assets 50,68,62,153.12

Balance Sheet Sheet of Veda seeds sciences Pvt.ltd as on 31-03-2015

Particulars 31-03-2015

Sources of funds

Share holders fund

Share capital 1,69,00,000.00

Profit &loss a/c 5,95,15,770.85

Loan funds

Secured loans 13,14,30,609.93

Un secured loans 5,72,698.92

Current liabilities& provisions

Liabilities& provisions 63,78,34,413.27

Other liabilities

Differ tax liability 7,39,444.00

Total funds 84,69,92,936.97

Application of funds

Net Fixed assets 10,48,36,326.27

Current assets,loan&advances

Inventories 26,68,60,982.68

Sundry debtors 43,37,15,019.73

Cash and bank balance 1,27,56,084.79

Loans and advances 2,41,28,575.00

prepaid expenses 45,63,419.50

miscellaneous expenditure to the extent of not written of 1,32,529.00

Total assets 84,69,92,936.97

Balance Sheet Sheet of Veda seeds sciences Pvt.ltd as on 31-03-2016
Particulars 31-03-2016

Source of funds

Share holders fund

Share capital 10,35,00,000.00

Profit &loss a/c 5,02,09,551.41

Loan funds

Secured loans 21,60,59,754.16

Un secured loans 9,10,16,557.00

Current liabilities & provisions

Liabilities provisions 1,00,07,37,270.75

Other liabilities

Differ tax liability 7,39,444.00

Total funds 1,46,22,62,577.32

Application of funds

Net Fixed assets 12,82,90,927.90

Current assets,loan&advances

Inventories 43,07,87,633.20

Sundry debtors 89,63,10,138.16

Cash and bank balance 17,28,258.98

Loans and advances 24,79,487.00

prepaid expenses 25,66,736.00

miscellaneous expenditure to the extent of not written of 99,396.00

Total assets 1,46,22,62,577.32

Balance Sheet Sheet of Veda seeds sciences Pvt.ltd as on 31-03-2017
Particulars 31-03-2017

Source of funds

Shareholders fund

Share capital 10,35,00,000.00

Profit &loss a/c 135371267.59

Secured loans 317952020.43

Un secured loans 164138009

Current liabilities & provisions

Liabilities provisions 1051204671.78

Other liabilities

Differ tax liability 739444

Total funds 1772905412

Application of funds

Net Fixed assets 133946314.50

Investment 49000000

Current assets, loan & advances

Inventories 247870307

Sundry debtors 1041595752.84

Cash and bank balance 194775861.46

Loans and advances 1007903

prepaid expenses 4643011

miscellaneous expenditure to the extent of not written of 66263

Total assets 1772905412

Balance sheet Sheet of Veda seeds sciences Pvt.ltd as on 31-03-2018
Particulars 31-03-2018

Source of funds

Shareholders fund

Share capital 203500000

Profit &loss a/c 16708296.17

Secured loans 292491053.75

Un secured loans 90786472.00

Current liabilities provisions

Liabilities provisions 1301148760.25

Other liabilities

Differ tax liability 73944

Total funds 1905374036

Application of funds

Net Fixed assets 14792231.14

Investment 46600000

Current assets,loan&advances

Inventories 268642921.50

Sundry debtors 1323615071.38

Cash and bank balance 19215800.65

Loans and advances 8728587.00

prepaid expenses 12058981.50

miscellaneous expenditure to the extent of not written of 33.130

Total assets 1905374036