Project Report

PROJECT
REPORT
2019-2020
A
PROJECT REPORT
ON
“INVENTRY MANAGMENT”
UNDERTAKEN AT
“H M A AGRO INDUSTRIES LIMITED”
C/O ZAKARIA AGRO PVT LTD
IN PARTIAL FULFILMENT OF
POST GRADUATE DIPLOMA IN MATERIAL MANAGMENT

MIT SCHOOL OF DISTANCE EDUCATION, PUNE.
SUBMITTED BY
MD KAMRAN AZAM
Student Registration No. : MIT2018N00021 MIT SCHOOL OF DISTANCE EDUCATION PUNE - 411038
YEAR2019-2020
DECLARATION
I hereby declare that this project report entitled“INVENTRY MANAGMENT”is a bonafide record
of the project work carried out by me during the academic year2018-2020, in fulfillment of the requirements for the
award of POST GRADUATE DIPLOMA
IN MATERIAL MANAGMENT (PGDM) of MIT School of Distance Education, Pune.
This work has not been under taken or submitted elsewhere in connection with any other academic
course.
(MD KAMRAN AZAM)
Signature:
Student ID:MIT2018N00021
ACKNOWLEDGEMENT
I would like to take this opportunity to express my sincere thanks and gratitude to ABDULLAH RIYAZ of H M A
AGRO INDUSTRIES LIMITED for giving me an opportunity to do my project work in your esteemed organization
and it has indeed been a great learning and enjoyable experience.
I would like to express my deep sense of gratitude and profound thanks to all staff members of (H M A AGRO
INDUSTRIES LIMITED C/O ZAKARIYA AGRO PVT LTD) for their kind support and cooperation which
helped me in gaining lots of knowledge and experience to do my project work successfully.
At last but not least, I am thankful to my Family and Friends for their moral support, endurance and
encouragement during the course of the project
(Students’ Name and Signature)

MD KAMRAN AZAM
Student ID: MIT2018N0021

ABSTRACT
NEED OF THE STUDY:

This project report entitled "INVENTORY MANAGEMENT", starts with the necessity of realization of definition,
concepts and importance of inventory. Inventory may be defined as usual, but idle resource. If resource may be tangible and
physical such as materials then it is termed as inventory. Inventory Management has acquired a great significance and
sound position in recent years with an objective of profitability and liquidity. The success or failure of a business enterprise
largely depends upon the management of inventory management.
No firm can be maintained without inventory management, but the requirement of inventory differs from firm to firm.
Inventory management is needed to every business enterprise because it indicates liquidity position of the firm. The
problem of inventory management is one of the maintenance, with in a financial investment, an adequate supply of goods to
meet an expected supply of demand pattern. This could be raw-materials, work in progress (semi-finished goods) and
finished Goods.
Moreover inventory can be one of the indicators of the management effectiveness on the material management front.
Inventory management deals with determinants if optimal policies and procedure for Procuring of commodities. Inventories
constitute, in every business concern, the most significant part of working capital or current assets. Inventories in Indian
industries constitute more than 60% of the current assets. Inventories are significant elements in cost process. A
management student should properly understand the various aspects. Inventory management if opted for specialization in
material management. H M A AGRO INDUSTRIES LTD is big manufacturing unit and the requirement of inventory for
each department is very high in this organization.
TABLE OFCONTENTS
Chapter No. Title Page No.
1 Introduction 2
2 Organizational Profile 3 to 7
3 Project Objectives and Scope 8 to 38
4 Data Analysis and Interpretation 39 to 47
5 Conclusion / Findings 48
6 Suggestions /Recommendations 49
7 References /Bibliography 50
1
CHAPTER – 1
INTRODUCTION
Inventory management is that managerial activity which is concerned with the planning & controlling of the
material. In other words managing the Material of the firm most wisely with a view to maximize the Production. It is
concerned with effective use of material of business firm.
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CHAPTER – 2
ORGANISATIONAL PROFILE
• HMA AGRO Industries Ltd. was established in year 2008 and commissioned in 2010. Providing “Wholesome Healthy
FROZEN MEAT FOODS Products ,poultry feed supplement and tallow . Company has several Integrated UNITS cum
processing plan. Organization has integrated plants comprising of hygienically maintained Production cum Processing
Units. Organization is being responsible for environment and society so takes full onus for solid waste management liquid
waste management through ETP. HMA Agro Industries Ltd. has plants at Aligarh, Bihar, and Agra in the state of Uttar
Pradesh along with in Derabassi in the state of Punjab in India. HMA Agro Industries Ltd. is approved by Agricultural &
Processed Food Products Export Development Authority (APEDA), Ministry of Commerce, Govt. of India and Food
Safety and Standards Authority of India (FSSAI), Ministry of Health and Family Welfare, Govt. of India. HMA is
embedded with all standards e.g. HACCP, GMP, ISO 9001:2015 (QMS), ISO 14001:2015(EMS), ISO 22000:2005
(FSMS), ISO 18001:2007(OHSAS) Certified Company.
• COMPANY'S MISSION:
Exports of frozen meat food through technical innovations and customer orientation with specific focus on quality and cost.
SAILENT FEATURES:
1. Daily average tallow production: 9ton.
2. Daily average poultry feed production: 12ton.
3. Daily average frozen meat production: 32ton
4. Turnover of business has reached to 250 crores.
5. Earning profits and distributing bonus to its members
6. Strengthened the rural economy by avoiding middlemen.
7. Provided self-employment to the rural men women.
COMPANY PRIDE:
o First Dream project land acquire in Bihar.
o Providing direct and indirect employment to people.
o First plant to produced white tallow and poultry feed protein 48%.
o In frozen meat production it has gain second position in India.
o Annual turnover more than RS.250 crores with a continuous growth rate.
RAW MATERIAL – PROCUREMENT:
Live animal is being procured from all over district of Bihar.
 DATA SPECIFICATION
Area occupied by the factory 25 acres
Value of factory building 400 lakhs
 Machinery
Investment on equipment 10 crores
 Buildings
Opened on 31-11-2017
Workers 200
 Production power:
Tallow 9ton/day
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Poultry feed 12tones/day
Frozen food 32tonnes
Refrigeration capacity 80tonnes
 UNIQUE ACHIEVEMENTS:
 The company got ISO 9001:2015 (QMS), ISO 14001:2015(EMS), and ISO 22000:2005 (FSMS), ISO 18001:2007
trademark for its quality of products.
 The company recently made record sales of 65tones/day where as its previous sales record was 50 tons/ day.
S.W.O.T ANALYSIS
STRENGTHS
1. Frozen food production potential in Araria district substantial.
2. Ability to handle highly perishable product frozen food.
3. Adequate infrastructure facilities available.
4. Availability of well experienced professionals.
5. Ability to meet any consumer demand quality.
6. Ability to offer quality aseptic products with high profitability.
7. Access to other co-operatives.
WEAKNESSES
1. High fixed costs occupying l5% of business turnover.
2. Products are high priced using competitive edge.
3. Product manufacturing facilities are outdated due to lack of modern facilities.
4. Work culture not compatible with growing for customer service.
5. Low wages paid by labor contractor.
6. Employee's skills at various levels require up gradation.
7. Business systems and modern management culture is yet to be adopted.
8. Managers lack of business experience.
OPPORTUNITIES:
1. Increased purchasing capacity.
2. Rapid urbanization.
3. Growing food service sector.
4. Responsive state government.
THREATS:
 Intense competition in market.
 Entry of organized private sector.
 Employee's resistance to change.
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 GROWTH OF THE FACTORY:
As an integral part of the above project the H M A AGRO factory was commissioned in 2010. The factory has got an
initial handing capacity of 50tones in the first stage with provision to handle 100tones in the second stage.
 CHILLING CENTERS:
The frozen food products factory has set up 5 freezing centers which are given under center have been producing frozen
food for the composition of the various segments of the consumers. Freezing centers are very useful to frozen products.
Factories are as follow
1. Aligarh
2. Derabassi
3. Bihar
4. Agra
5. Nader
6. Rampur
 INFRASTRUCTURE AND FACILITIES:

Factory is located on 25 acres of land, Aseptic packing station, Administration office, refrigeration plant effluent treatment
plant, electrical substation, boiler plant and residential quarters.
Following are the facilities available in factory and its field centers.
 PROCESSING AND PRODUCTION:

Production Manager is heading the production division supported by four asst managers, Managers and other
production staff engaged in reception, finished goods section. Production operations begin with raw material reception and
continued round the clock.
 RECEPTION:
As soon as carcass is arrived from chilling unit at the reception dock through line, the laboratory authorities& checker
conduct all the Bacteriological & PH tests and after its quality confirmation the carcass is derailed for separation of its
bones.
OPERATIONS:
Separation of required quantity of different products to the extent of demand proportions, product is standardized
according to their composition and sent them to the blast.
 FROZEN SECTION:
It is equipped with packing of 10kg, 25kg of packet in carton box. After cooking in blast unit at (-28degree Celsius)
about 18hours.after blast opening it is wrapped in polybags then pack in export quality carton box.
 COLD STORAGE SECTION:
Material received from frozen section is sent in cold storage where about -18 degree Celsius is maintained.
 DISPATCH SECTION:
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In this section carton packet is loaded in refrigerated van for export.
 RENDERING SECTION:
Rendering is a unit where offal and bones are rendered and cooked in batch cooker. There are two major products like
tallow and poultry feed supplement are obtained in this section.
 TALLOW AND POULTRY FEED SECTION:
Poultry feeds are being packed in 50kg of bags & tallow are filled in tallow tank (capacity 100ton).
 BI-PRODUCTS SECTION:
All the byproducts from animal slaughter is clean here.
 SALES AND MARKETING:
Dy.Director (S&M) is heading the sales and marketing wing supported by a sales manager and Asst. The sales and
marketing wing of the union functions round the clock for the distribution and marketing of production.
DISTRIBUTION NETWORK:
a) Through distributors, stockiest.
b) Direct sales to china and gulf countries.
 PERSONNEL AND HRD:
Personnel officer is heading the personnel department. HRD activities are carried out for the benefit of the employees. It
is looking after the service/ administration matter of the staff of this union besides implementation of the following Acts for
their welfare.
1. Industrial Dispute Act 1947
2. Payment of wages Act 1936
3. ESI Act 1948
4. Trade Union Act 1926 etc.
5. Minimum Wage Act 1948
6. Equal Remuneration Act.
7. Gratuity 1972
8. Workmen Compensation Act.
FINANCE:
Sr. Accounts officer is heading the finance who is assisted by four Asst.
 ORGANIZATIONAL STRUCTURE:
STAFF POSITION:
Managing Director 1
Deputy Director 1
Sr. Accounts officer 1
Production Managers 2
Asst. Engineers 2
Quality Control Officers 1
Asst. Manager 5
Junior Engineers 4
Technical Staff 32
Finance 5
Administration 15
Others (Non Technical) 304
TOTAL 373
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CHAPTER – 3
PROJECTOBJECTIVES
The Inventory Management Practices on the following heads:
1. Organization for Inventory Management.
2. Purchasing
3. Receiving and Inspection of Materials.
4. Stores Management
5. Inventory Control System.
SCOPE OF PROJECT
Every enterprise needs inventory for smooth running of its activities; it serves as a link between the recognition of a
need and its fulfillment the greater the time leg. The higher the requirements of inventory, the unforeseen fluctuations in
demand and supply of goods also necessitate the need for inventory. It also serves as a cushion for future prices
fluctuations. The simple meaning of inventory is "stock of goods" or "list of goods" the word inventory is understood
differently by various authors. In accounting language it means stock of finished goods only, for a manufacturing concern it
includes raw-materials, work-in-progress, finished goods etc.
Inventories constitute the most significant part of current assets. Many companies maintain 60% of current assets as
inventories. Because of the large size of the inventories maintained by the firms, a considerable amount of funds is required
to be committed to them. It is therefore absolutely imperative to manage inventories efficiently in order to avoid
unnecessary investment. A firm neglecting the management of inventories will be failed in its long run profitability and
may fail ultimately. It is possible for a company to reduce its levels of inventories to a considerable degree within the range
of 10 to 20% without any adverse effect by using simple inventory planning and control techniques. The reduction in
excess inventories has a favorable impact on the profitability of the firm.
NATURE OF INVENTORIES:
Inventories are the stock of the product a company is manufacturing for sale and components that make up the
product. The various forms in which inventories may exist in a manufacturing company are:-
1. Raw materials
2. Work-in-progress
3. Finished goods
RAW MATERIALS
Raw materials are those basic inputs that are converted into finished product through the manufacturing process. Raw
materials inventories are those units, which have been purchased and stored for future productions. A company should
maintain adequate stock of a continuous supply to the factors for an uninterrupted production. If it is not possible for a
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company to produce raw materials whenever needed, a time lag exists between demand for materials and its supply also
there will be some uncertainty on procuring raw materials in time on many occasions.
The procurement of materials is delayed because of uncertain factors like strike, transport, disruption or short supply.
Therefore the firm should maintain sufficient stock of raw materials at a given time to streamline production. Other factors
which may necessitate purchasing and holding raw materials are quantity discounts and anticipated price increase. The firm
may purchase large quantities of raw materials than needed for the desired production and sales levels to obtain quantity
discounts of bulk purchasing. At times the firm would like to accumulate raw materials in anticipation of price rise.
WORK IN PROGRESS
The inventories are semi-finished products. They represent products that need more work before they become finished
products for sale. Work in progress inventory builds up because of production cycle. Production cycle is the time span
between introduction of raw-materials and emergence of finished products at the completion of production cycle. Till,
production cycle completes, stock of work in progress has to be maintained. Efficient firms constantly try to make
production cycles smaller by improving their production techniques.
FINISHED GOODS
Finished goods are the completely manufactured products, which are for sale. Stocks of raw materials and work in
progress facilitate production, while stock of finished goods is required for smooth marketing operations. Stock of finished
goods has to hold because production and sales are not instantaneous. A firm cannot produce immediately when customers
demand goods. Therefore to supply finished goods on a regular basis, their stock has to be maintained for sudden demand
from customers. In case the firm sales are seasonal in nature, substantial finished goods should be kept to meet the peak
demand. Failure to supply products to customers would mean loss to firm's sales to competitors.
The level of finished goods inventories would depend upon the co-ordination between sales and production as well as
on production time. The levels of three kinds of inventories for a firm depend on the nature of business.
A manufacturing firm will have substantially high levels of three kinds of inventories while a retail or wholesale firm
will have a very high level of finished goods inventories and no raw materials or work in progress inventories. Within
manufacturing firms there will be differences.
Large Engineering companies produce long production cycle, products therefore they carry large inventories on the other
hand, and inventories of a consumer product will not be large because of short production cycle and fast turnover. Firms
also maintain a fourth kind of inventory called supplies. Supplies include office and plant cleaning materials like soap
brooms, oil, fuel, light, bulbs, etc. these materials do not directly enter production, but are necessary for production process.
INVENTORY DECISIONS
In an inventory control situation, there are three basic questions to be answered. They are:
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 How much to order? That is to say, what is the optimal quantity of an item that should be ordered whenever an
order is placed?
 When should the order be placed?
 How much safety stock should be kept? Thus, what quantity of an item in excess of the expected requirements
should be held as buffer stock in anticipation of the variations in its demand and/or the time involved in acquiring
fresh supplies.
INVENTORY COSTS:
In determining optimal inventory policy, the criterion most often is the cost function. The classical inventory analysis
identifies four major cost components. Depending on the structure of an inventory situation, some or all of these are
included in the objective function.
PURCHASE COSTS:
This refers to nominal cost of inventory. It is the purchase price for the items that are bought outside sources, and the
production cost if the items are produced within the organization. This may be constant per unit, or it may vary as the
quantity purchased/ produced increases or decreases. Quite often, situation is found when it may be stipulated that, for
example the unit price is rest 20 for an order unto 100 units and rest 19.50 if the order is for more than 100 units.
ORDERING COSTS/ SET-UP COSTS:-

This category of costs is associated with the acquisition or ordering of inventory. Firms have to place orders with
suppliers to replenish inventory of raw materials. It includes costs associated with the processing and chasing of the
purchase order, transformation, inspection for quality, expediting overdue orders and so on.
The parallel of the ordering cost when units are produced within the organization and the cost of acquiring materials
consists of clerical costs and costs of stationery. It is therefore called a set-up cost. The ordering cost is likely and taken to
be independent of the order size. Therefore the unit ordering/setup cost declines as the purchase order/ production run
increases in size. Ordering costs are costs involved in:
1. Preparing a purchase order
2. Receiving, inspecting and recording the goods received to ensure both quantity & qty.
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CARRYING COSTS:
They are involved in maintaining or carrying the inventory. It represents the cost that is associated with storing an item
in inventory. Carrying costs are also known as holding cost or the storage cost. The main components of this category of
carrying costs are
1. Storage cost i.e. tax, depreciation and maintenance of the building, utilities etc.
2. Insurance of inventory against fire and theft
3. Deterioration in inventory because of pilferage, fire, technical obsolescence, style obsolescence etc.
4. Serving costs such as labour for handling inventory, clerical and accounting costs.
The opportunity cost of funds consists of expenses in raising funds (interest of capital) to finance the acquisition of
inventory. It funds were not locked up in inventory they would have earned a return. This is the opportunity cost of funds or
the financial cost. The carrying cost and the inventory size are positively related and move in same direction. If the level of
inventory increases, the carrying costs also increased and vice-versa.
STOCK OUT COSTS:

Stock out cost means the cost associated with not serving the customers. Stock outs imply shortages. If the stock out is
internal (i.e. in the production system) it would imply that some production is lost, resulting in idle time for men and
machines, or that the work is delayed which might attract some penalty. While if the stock out is external, it would result in
a loss of potential sales and /or loss of customer goodwill. A shortage can evoke different reactions from customers.
TYPES OF INVENTORY VALUATION:

VED ANALYSIS:
In VED analysis, the items are classified on the basis of their criticality to the production process or other service. In the
VED classification of materials, V stands for Vital items without which the production process would come to a standstill.
E in the system denotes Essential items whose stock out would adversely affect the efficiency of the production system.
Although the system would not altogether stop for want of these items, yet their no availability might cause temporary
losses in, or dislocation of production. The D items are the Desirable items which are required but do not immediately
cause a loss to production. The VED analysis is done mainly in respect of spare parts.
HML ANALYSIS
This is similar to the ABC analysis except that, in this analysis, the items are classified on the basis of unit value rather
than usage value. The item are classified accordingly as their cost per unit is H-high, M-medium and L-low. This type of
Analysis is useful for keeping control over materials consumption at their department levels.
SDE ANALYSIS
This uses the criterion of the availability of the items. In this analysis S-stands for scarce items which are short in
supply, D-refers to the difficult items meaning the items that might available in indigenous market but cannot procured
easily, While E represents easily available items even from local markets.
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S-OS ANALYSIS
S-OS analysis is based on the nature of supplies, wherein S represents the seasonal items and Os represents the off
seasonal items. This classification of items is done with the aim of determining proper procurement of strategies.
FSN ANALYSIS
Based on the consumption pattern of the items, the FSN classification calls for classification of items, as F-Fast
Moving, S-Slow Moving and N-Non Moving goods. This 'speed' classification helps in the arrangement of stocks in the
stores and in determining the distribution and handling patterns.
XYZ ANALYSIS
XYZ analysis is based on the closing inventory value of different items. Items, whose inventory values are high, are
classed as X-items while those with low investment in them are termed as Z- items. Other items are the Y-items whose
inventory value is neither too high nor too low.
It can be easily visualized that the several types of analysis discussed are not mutually exclusive. They can be, and often
are, used jointly to ensure better control over materials. For example ABC and XYZ analysis may be combined to classify
and control depending on whether the items are AX, BY, CZ, AY of and so on. Similarly XYZ - FSN combine
classification exercise will help in timely prevention of obsolescence.
PURCHASING:
 INTRODUCTION:
The scarcity of raw materials has practicality put the people in purchasing department in a very tight position. The
purchasing department can be in a better position. As of today there are four different groups of buyers, viz, a) Consumers,
b) Middle men, c) Government agencies and d) Manufacturers. In fact the whole economy is dependent on this group for
survival. The second group comprises such as money collection of traders as wholesalers, retailers, and distributors who
buy not for their own consumption, but to sell to others. The fourth category of purchases includes manufacturers who
convert raw materials, components, consumables and packing materials for use in industrial establishments where saleable
products are produced. The subject of purchasing is discussed here as it applies to the buying, made by manufacturers.
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 DEFINITION:
In its narrow sense, the term "purchasing" refers merely to the act of buying an item at a price. This very narrow
concept of purchasing has been gradually widened during the last 70 days.
According to Alford and Beatty "Purchasing" is the procuring of materials, supplies, machines, tools and services
required for equipment, maintenance and operation of a manufacturing plant".
According to Walters, purchasing function means "The procurement by purchase of the proper materials machines,
equipment and supplies for stores used in the manufacture. Of a product adapted to marketing in the proper quality and
quantity at the proper time and at the lowest price, consistent with quality desired".
According to Wasting, Fine and Zen "Purchasing is a managerial activity that goes beyond the simple act of buying. It
includes research and development for the proper selection of materials and sources, follow-up to ensure timely delivery;
inspection to ensure both quantity and quality ; to control receiving , sore keeping and accounting operations related to
purchases".
 IMPORTANCE OF PURCHASING:-
 Purchasing function provides materials to the factory without which wheels of machines cannot move.
 A one percent saving in material cost is equivalent to a 10% increase in turnover. Efficient buying can achieve this.
 Purchasing manager is the custodian of his firm's purse as he spends more than 50% of his company earnings on
purchases.
 Increasing proportion of one's requirements, are now brought instead of being made as was the practice in the earlier
days. Buying therefore assumes significance.
 Purchasing can contribute to import substitution and save foreign exchange.
 Purchasing is the main factor in the timely execution of industrial projects.
 Materials management organizations that exist now have evolved out of purchasing departments.
 Other factors like:-
• Postwar shortages
• Cyclical swings of surpluses and shortages and the first rising materials costs.
• Heavy competition.
• Growing worldwide markets have contributed to the importance of purchasing.
 OBJECTIVES OF PURCHASING:
It may be emphasized that some of the functions are the sole responsibility of the purchasing department, some are shared
with order departments and the remaining are the responsibilities in which the purchasing department has considerable
interest.
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 RESPONSIBILITIES DELEGATED TO THE PURCHASING FUNCTION:-
1. Obtaining prices
2. Selecting vendors
3. Awarding purchase orders
4. Following up on delivery promises
5. Adjusting and settling complaints
6. Selecting and training of purchasing personnel
7. Vendor relations
METHODS OF PURCHASING:
There are number of methods used by different purchase departments. The methods used depend on the
classification of products in the production system, policy of the organization and behavior of the market.
FOLLOWING ARE SOME POPULAR METHODS OF PURCHASING:

 Purchasing according to requirement.
 Purchasing for some definite future period.
 Market purchasing
 Speculative purchasing
 Contract purchasing
 schedule purchasing
1. PURCHASING ACCORDING TO REQUIREMENT:

In this case the order is placed only when there is some need for the product. This method is appropriate for those items
which are not of regular and common use in the production process. These items are generally not stored in inventories. In
such cases the purchasing department should keep a record of reliable and trustworthy suppliers who were sincere to the
organizations in past
2. PURCHASING FOR SOME DEFINITE FUTURE PERIOD:
This method of purchasing is generally used for those items which are regularly consumed but the consumption is
comparatively low and the price changes for these items are not much.
3. MARKET PURCHASING:
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The policy of making the purchases at the time when fluctuations in price of the items provide advantage to the
purchaser is known as market purchasing. This method provides procurement at lower price and saving in purchase
expenses. This method is useful in situations where major price variations are prominent. Here the purchasing may not
relate with the production needs and if the assessment of price fluctuations is wrong then the organization may suffer
losses.
4. SPECULATIVE PURCHASING:
Here excessive purchases are made when market is low for the item with the hope of earning profit by selling the items
purchased in excess at a higher price. This procedure is most suitable in the case of staple commodities.
5. CONTRACT PURCHASING:
Here the purchase department enters into agreement with various suppliers to supply the items at some future period or
periodically. In the words of Alford and Beatty, "all purchasing is contract but the term 'contract purchasing' is applied to
that special contract which calls for deferred delivery over a period of time". According to Spiegel “the purchasing under
contact is usually formal for the needed material, the delivery of which is frequently spread over a period of time". The
organization tries to enter into the contract when prices are comparatively low. Here the supply is ensured per scheduled
requirements as well as there is protection against frequent price fluctuations.
6. SCHEDULED PURCHASING:
It is a scientific method of purchasing. The purchasing is scheduled according to requirements of various departments of
the organizations. Vendors know in advance about the future demand of the purchaser.
STEPS IN PURCHASING PROCEDURE:
1. Various departments are requested to send their requirements on a proper requisition form this authorizes the
purchase department to procure the requisitioned items i.e. to issue purchase order.
2. Purchasing department consolidates the requirements from various departments to know the total requirement for
each item.
3. Market exploration is made to locate the goods and services of desired quality and quantity at reasonable price.
4. Potential suppliers are identified from catalogues, quotations and past records.
5. Purchase order in specified form is prepared and sent to the approved suppliers purchase order establishing a
contractual relationship between buyer and seller.
6. After some time of placing the order, follow up process starts to get quick delivery of the items. The follow up of
procedures implies acceptance of the order and promise to supply the items on desired date.
7. The items are received by the purchasing department at the time
of delivery and the items received and compared with purchase
order.
8. The checking of the delivered goods is done with regard to prices
charged and quoted.
9. Approval of the invoice.
10. To ascertain the quality and quantity of the items.
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ORGANIZATION OF PURCHASE DEPARTMENT:
The composition of purchase department varies according to the size of the enterprise, its comparative significance
towards procurement and the capability of the purchase personnel. In organization engaged in Procurement of smaller range
of items but from limited number of suppliers the purchase officer is attached to controller of accounts. In organization with
job or batch system of production, purchasing becomes a complicated exercise and needs regular and through co-ordination
with production department. In such cases the purchase manager is directly attached to production manager. The size of the
purchasing department on the nature of products manufactured by the organizations, sizes of production runs and type of
the manufacturing system.
 RECEIVING AND INSPECTION OF MATERIALS:

RECEIVING MATERIALS:
 INTRODUCTION:
Receivable management refers to the decisions a business makes regarding its overall credit and collection politics and
the evaluation of individual credit applicants. In formulating an optional credit policy, finance manager must analyze the
marginal benefits and costs associated with changes in credit standards, credit terms, collection efforts etc. Receivable
management proves for a firm, both, an asset and a problem.
 MEANING:
Receiving is an important control point in the material control system. It is sometimes considered that receiving is a
routine clerical work where the materials shipped by the supplies are received, unpacked, checked and compared with the
purchasing and material management, stated that, "any problem or error in specific purchase transaction should come to
light during the receiving operation". If the problem (shortage in quantity, damaged material, wrong item shipped etc.) is
the detected and corrected during the receiving operation, the cost of to correct the mistake later is much higher. Many
hours are frequently spent in determining what really happened and rectifying the situation. Hours are required to correct
the error that could have been corrected at the receiving station in minutes.
RECEIVING PROCEDURE:-
The receiving involves much of the paper work and it varies from firm to firm. However the key issues involved in
the receiving function are commodity described in the following standard procedure.
The receiving division unloads the goods at the delivery bay and verifies the condition of the consignment to satisfy
that it is not received in a damaged condition. The receiving clerk opens the consignment and verifies the contents with the
packing slip and the purchase order. The details are recorded in the separate report, which is popularly known as "the goods
received note or GR note". The goods received note is an important document because it is the only document with the firm
which signifies the details of the materialist has received.
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INSPECTION OF MATERIALS: MEANING AND DEFINITION
Inspection is the process of examining an object for identification or checking it for verification of quality and
quantity in any of its characteristics. It is an important tool for ascertaining and controlling the quality of a product. In the
words of Alford and Beatty "Inspection is the art of applying tests. Preferably by the aid of measuring appliances to observe
whether a given item or product is within the specified limits of variability or not". According to Sprigged and Ransburg
"Inspection is the process of measuring the qualities of a product or services in terms of established standard". The
standards can be in terms of strength, hardness, shape etc.
The purpose of inspection is to items are produced within the specified items of variability. Inspection in list
broadest sense is the art of comparing materials, product or performances with established standards. By means of
inspection one can take a decision to accept are reject certain item. The items are accepted if these conform to the given
specifications otherwise rejected.
FUNCTIONS OF INSPECTION:
The following are some important functions of inspection:
1. Maintenance of specified standards of the quality of products.
2. Devising means for conducting inspection at lower cost.
3. Segregating spoilt work, this may be salvaged by recuperation.
4. Maintaining inspection equipment in good condition.
5. Detection of defects at source to reduce scraps and defective work.
6. Reporting source of manufacturing troubles to management
 OBJECTIVES OF INSPECTION
Fundamental objectives of inspection are:
1. To safeguard the quality of the finished products by comparing raw-materials, workmanship and final product with
some set standards. It prevents further work being done on semi-finished product already detected as spoiled.
2. The defective items are located and the factors responsible for this discrepancy in the quality of the product are then
identified to take corrective measures. This results in enhancing the prestige and confidence of the organization in
the eyes of the customer. This results in enhancing the prestige and confidence of the organizations in the eyes of
the consumer.
3. The reduction in the risk and possibility of items not accepted by consumer saves the producer as well as the
consumer from losses if any and also reduces the cost of production.
4. To detect sources of weakness and troubles in the finished product and thus check the work of designers.
 Essential steps for Inspection
There are five main steps in inspection:
1. Characteristics about which the quality of the items is to be inspected should be carefully established.
2. A decision regarding when and where the inspection should take place is to be taken.
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3. To find that how many items are to be inspected i.e. 100% or sampling inspection. Here the level of accuracy
desired and the nature of the production process are taken into consideration.
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 WHERE TO INSPECT:
Inspection may take place right in the processing area or at a separate inspection station. The choice of location depends
on the process flows and on the problems of scheduling the inspection function which must be treated as yet another
operation in the total process. The first line of defense is worker who can avoid making defects? Then come to inspectors
who are usually trained separately from the workers to obtain benefits of specialization. They are taught to use gauges, test
instruments, micrometers and procedures at which they become increasingly proficient. Sometimes inspection tolls cannot
be place in the production line. Then the work may have to leave the normal flow to go to an inspection. During a
production process there are many stages where inspection can be done. The choice depends mainly on the convenience of
the organization as well as it approaches towards the maintenance of the products quality. In general inspection can be
carried out at following location:
1. Items can be inspected either at vendors place or at the purchases premises.
2. Semi-finished items are inspected during the production process.
3. Inspection of finished products.
4. Post-sales quality evaluation.
 FINAL INSPECTION
The finished products are inspected and tested to verify the quality standards. The items found to defective are not
marked. Thus only items of desired specification go into the hands of consumer. Naturally there are more chances of scrap
in this method of inspection as the rejected items cannot be corrected at this stage or it may be quite expensive to do so.
 STORES MANAGEMENT:
After inspection the purchased materials are taken to store for preservation, it they are meant for stock. Non-stock items
are directly taken to the assembly lines from the inspection. Preservation or storage is another aspect of materials
management. .
 NATURE OF STORES:
Stores or storage is the function of receiving, storing and issuing materials. It involves the supervision clearance of
incoming supplies, to ensure that they are maintained in good condition, safety and in readiness for use when required,
while they are in storage and issuing them against authorized requisition. In short, it is connected with the physical handling
and well- being of the stocks. It should be mentioned that, stores is not meant for stocking purchased materials alone.
 IMPORTANCE:
Efficient storage of stores yields the following benefits:
1. Ready accessibility of major materials permitting efficient service to users.
2. Efficient space utilization and flexibility of arrangement.
3. A reduced need for materials handling equipment.
4. A minimization of materials deterioration and pilferage.
5. Ease of physical counting.
6. Protecting against waste deterioration, damage and pilferage.
7. Design the buildings physical appearance to create goodwill and to invite business.
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 STORAGE SYSTEM:
Choosing the most suitable storage system means dealing with a number of interacting and often conflicting factors.
Inevitably, the degree of mechanization affects layout while the scarcity of space affects the height to which racking is
erected. The need for rapid, intensive order packing means a need for rapid and easy access to stock.
Fixed location means that, goods of a particular type have a position in the store assigned to them exclusively. It means
that while stock can be found immediately without a complex system for recording its position there can be considerable
waster space, because when stocks of any one item are low, the space left vacant cannot be filled. The assignment of fixed
position to a particular type of goods is made on any one of the following basis.
1. On the basis of the supplier
2. On the basis of similarity of items.
3. On the basis of the joint issue of the items.
4. On the basis of the size and frequency of use.
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 METHODS OF VALUATION:
The government of India has given sufficient flexibility for companies to introduce scientifically developed methods of
valuation of their stocks. In order to prevent malpractices, it has been stipulated that such methods must be studied and
approved by the Board of Directors, and must be followed for a minimum prior of three years. The various methods of
valuation available are given below.
1. First in first out [FIFO]
2. Last-in -first -out [LIFO]
3. Periodical Simple Average Method
4. Normal cost/ Standard cost method
5. Weighted average method
6. Replacement price method
1. FIFO:
In this case it is assumed that the stores follow the principal that oldest stock issued first so that stock left out is
from the later arrivals. Hence all issues are assumed to have come out from older stocks. These are valued at old price. The
cumulative value of stock out will give the net value of the existing stock.
2. LIFO:
Here stores are issued from the last stock. This means issues have taken place from later arrivals. Hence all issued
are valued as per the price of the latest arrivals to compute value of stock left in stores.
3. PERIODICAL SIMPLE AVERAGE:
In this case after each receipt of material, adding the cost of materials in hand with the cost of materials received
and dividing the same by the total number of units calculate the average cost. This process is repeated every time new items
are received. This average cost is used for computing the value of items issued and value of items remaining in the stock.
NORMAL COST / STANDARD COST METHOD: This method is mostly used for items manufactured in house. Here
the average cost of a certain lot is calculated and used as cost of items issued. Since this method is used for items
manufactured, one can use standard costing method also for valuation of such stocks.
4. WEIGHTED AVERAGE METHOD:
This method is used when the quantity and prices of items vary widely from each purchase. In this case, the
weighted average price is calculated for each item. This price is used for computing the value of items and those remaining
in stock.
5. REPLACEMENT PRICES METHOD:
This is a modern method developed by George Tarboro. However without application it is difficult to price each
item. This has not yet become popular. FIFO, LIFO and Weighted Average methods are popular and acceptable to the
government tax authorities.
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 INVENTORY CONTROL SYSTEM:? INTRODUCTION:
Inventory control keeps track of inventories. It is observed that 'too much', 'too little' or badly balanced inventories are
all to be avoided because they cost too much on many counts. Too much leads to undue carrying charges in the form of
taxes, insurance, storage, obsolescence and depreciation and undue proportion of total working capital is invested in them.
"Too little" implies of too frequent ordering, loss of quantity discounts and higher transportation charges. It may be 'too
low' in view of likely shortages in future or future increases the prices or shortfall in output. Again due to dynamic and
unpredictable environmental situation "Too little" at one time can be very quickly become "Too much in a subsequent
period. Similarly inventory purchased at higher prices remaining unused in stock or cancelable order represents loss to the
organizations. The balance between 'too much' and 'too low' can be done by means of effective inventory control. Some of
the definitions of inventory control are:
1. Inventory control is a system of ordering based on the maintenance of the stock in store using reorder rule based on
the stock level.
2. Inventory control is the technique of maintaining the size of the inventory at some desired level keeping in view the
best economic interests of an organization.
3. Inventory control is concerned with various items stocked at predetermined level or within some safe limits.
4. Inventory control is that part of a production program which specifies the material requirements and schedules the
order of work to be done.
 OBJECTIVES OF INVENTORY CONTROL:

Though inventory control may not be treated as an executive function but it is one of the most important functions
in an enterprise. The following are the main objectives of inventory control:
 PROTECTION AGAINST FLUCTUATIONS IN DEMAND:

The demand foreseen of any product can never be exact or accurate. There is likely to become difference that too of
varying magnitude, in predicted demand and actual demand of the product. If sufficient items are available in the inventory,
then the fluctuations in demand can be easily adjusted and the organizations can project it from unforeseen economic
losses.
 BETTER USE OF MEN MACHINES AND MATERIALS:
In manufacturing system producing for stock the production planning can be done with an object to have optimum use
of resources namely men, machines and materials. Here the resources can remain engaged during slack period of demand
and there will be no need of generating additional resources in the boom periods as then the inventory enlarged in slack
period can utilize. This will lead to uniform and proper utilization of resources available with the enterprise.
 PROTECTION AGAINST FLUCTUATIONS IN OUTPUT:

Another important function of inventory is to reduce the gap between actual and scheduled production. In practice,
production scheduled cannot be adhered due to a number of reasons e.g. sudden breakdown in supply of raw-materials,
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machines, labour strikes etc.
 CONTROL OF STOCK VOLUME:

Inventory control is concerned with the size and the value of goods present in stock. It is responsible to forecast the
value of the stocks on a regular intervals, so that
 Capital invested in inventories does not exceed the funds available for the purpose.
 The amount invested in inventory is correctly recorded in account books.
 Protection against theft is ensured.
1. CONTROL OF STOCK VOLUME:

Stock analysis is done to be sure that it is in balance and that obsolescence and depreciation are determines the
appropriate size of the inventory keeping in view the interest of
2. The production department as well as of the outside customer and side by side holding down the costs.
Inventory is maintained due to the following reasons.
1. 1 To carry reserves in order to prevent stock outs or cost sales.
2. 2 Never having much of anything on hand.
3. 3 To gain economies in purchases by buying items beyond the desired amount.
4. 4 To maintain reserves in stocks for the period of replenishment.
Thus a well formulated inventory policy of an enterprise in likely to ensure smooth and efficient running of production
operation providing optimum Utilization of man, machine and material. The decision regarding the appropriate size of the
inventory is of paramount significance.
 LIMITATIONS OF INVENTORY CONTROL:
1. The control of inventories is complex because of the many functions it performs. It should be viewed as a shared
responsibility.
2. The objectives of better sales through improved service to customer, reduction in inventories to reduce size of
investment and reducing cost of production by smoother production operations are conflicting with each other.
METHODS OF INVENTORY CONTROL:

The fundamental purpose of inventory analysis is to keep the stock of items at such level that there is a balance
between the costs which increase or decrease with the size of the inventory. This needs determination of
i)quantities should be ordered each time and ii) the time at which this order should be placed so that both inventory carrying
costs and the losses arising out of stock-outs are kept at the minimum. These objectives are accomplished by determining.
i) Economic lot size
ii) Re-order level
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 ECONOMIC LOT SIZE:
The amount of material procured or quantity produced during one production run by any enterprise is known as lot size.
The quantity to be ordered, whether from inside sources or from out agencies depends on a number of factors. The size of
inventory depends on lot size. Due to increase in inventory size expenditure on storage, deterioration etc. is likely to
increase whereas expenditure on setting up plant, procurement of materials etc., will increase.
Thus with lot size, there are two sets of factors having opposite contribution towards the expenditure i.e. one
encourages the lot size and other discourage. The total cost associated with particular lot size is a combination of
expenditures on all these factors. These opposing forces exhibit an interesting behavior towards total cost. It is observed
that the factors whose costs decrease with lot size has a tendency at a faster rate than the rate of increase in cost of those
factors whose costs increase with inventory size.
 SAFETY OR BUFFER STOCK:
The demand and supply rates can never be assessed exactly. There is bound to be discrepancy between actual and
estimated demand and supply quantities with fair degree of uncertainty. The organization with a policy of safeguarding
interest. Against these uncertainties maintain the level of inventory at some desired minimum level. This minimum level of
inventory to cover some unforeseen and uncalled for situations is known as safety or Buffer stock available in inventory
when fresh supply arrives. It is presumed that this stock will be able to, cope with the emergency if and when experienced.
Generally, buffer stock is maintained at the desired level by discontinuous replenishments at varying intervals of time.
Factors effecting choice of Buffer stocks are:
1. Uncertainty in demand.
2. Degree of insurance for any item.
3. Uncertainty in lead time and
4. Size of the batch.
 RE-ORDER LEVEL/POINT:
The concept of re-order point is basically related with lead time demand. The problem is that demand can never be
accurately projected over the lead-time. Once we know the demand in lead time, re-order level can be easily determined
mathematically Re-order Level=Lead Time demand + Safety Stock.
 ABC (ALWAYS BETTER CONTROL) ANALYSIS:-
ABC analysis is the selective inventory control technique and this is the first step in the inventory control process. This
is the process in which 1000's of different types of inventories are classified to determine the type an degree of control
required for each. This technique is based on the assumption that the firm should not exercise the same degree of control on
the items of inventory.
On the basis of unit price and consumption, various inventory items are categorized into three classes of this analysis:
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A
B
C
"A" group involves the largest investment and inventory control must be rigorous and intensive and the most
sophisticated inventory control technique should be applied to these items. Type "A" is of higher cost and highly scarce
resource without which the production process cannot be imagined, which will be very less in quantity when compared to
the investor level.
"A” type of items is only about 10% in number. But account for 75% of the annual inventory usage value.
"B" group stands mid-way. It deserves less attention than "A" and more than "C". Employing less sophisticated
techniques can also control it. Type "B" is of moderate cost and moderately important. These are freely available when
compared type "A".
"B" types of items are only about 20% in number. . But account for next 50% of the annual inventory usage value.
"C" group consists of items of inventory, which involve relatively small investments although the number of items is
fairly large. These items deserve minimum attention.
Type "C" items are of lowest cost and less importance when compared to "A" & "B". As these types of inventories are
freely available in the market and can immediately replace or purchase.
"C" types of items are about 70% in number. . But account for next 10% of the annual inventory usage value.
THE VARIOUS TYPES OF SELECTIVE CONTROLS ON THE BASIS "ABC ANALYSIS":
CATEGORY "A":
1. Tight control
2. Assess exact requirement
3. Frequent reviews
4. Quantity control
5. Regular and item wise expediting
6. Low safety stocks and order point control
7. Reduced and stabilize lead-time
CATEGORY "B":
1. Moderate control
2. Individual postings
3. Assess frequent reviews
4. Less frequent reviews
5. Item wise expediting
6. Medium safety stocks
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7. Lead time
8. Stoked at regional or zonal stores
CATEGORY "C":
1. Minimum control
2. Simple checks
3. Estimate appropriate requirements
4. Group postings
5. Infrequent reviews
6. Visual control
7. Limited and periodic expediting
8. Minimum lead-time control
9. Large order size
10. Stocking at point of view.
• STEPS FOR CONDUCTING ABC ANALYSIS ARE:

1. Obtain unit cost of each manufactured or purchased item in inventory.
2. Obtain the usage in units for each item or estimate the usage over a period of time.
3. Obtain the net value of the usage by multiplying unit cost and the usage.
4. Arrange the items in descending order of the usage value.
5. The no. of items and their values are accumulated on a % of total basis.
6. Roughly divide the total list into 3 groups namely A-items of high usage value which accounts for 70-75%of the
usage value of inventories and about 10-15%. In number B-items of medium usage value which accounts for the
next 15-20% of the usage value.
 WHILE APPLYING THE ABC ANALYSIS, THE FOLLOWING POINTS SHOULD BE TAKEN INTO
CONSIDERATION:
1. Although every part of the item is important for the repair of machine, the items with low value can be given a loose
control.
2. Tight control of the high value stocks must reduce costs sufficiently to more than offset the increased costs caused
by lesser controls on the low value items. When applying the ABC principle, some high value items, which will not
be required due to being in excess, should actually be considered for disposal at a worthwhile price.
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3. The ABC analysis in variably involves only items moving items since the annual consumption value is based on
consumption besides unit cost. The items, which are non-moving, have also been considered separately for
retention.
• JUST IN TIME [JIT]:

JIT means that virtually no inventories are held at any stage of production and that the exact number of units is
brought to each successive stages of production at right time. The JIT concept originated from the Motomachi plant of
Toyota in Japan where the system has been perfected and results achieved. In this concept the plant has a long line of trucks
waiting outside with full loads of automotive parts and components for the assembly line. As soon as one truck comes out
at one end of the plant another gets inside. There is no warehouse for the parts.
The JIT concept assumes certain conditions which are found wanting in our industries. What required is for its successful
implementation all ancillary industries and suppliers of inventory operate in the vicinity of the main industry to avoid
problems of transportation. If the suppliers are located at considerable distances and there is more than one supplier
problems in delivery are bound to arise. There should be one supplier and the products supplied must be of the best quality
to prevent rejections and consequent delays.
• ORGANIZATION FOR INVENTORY MANAGEMENT:
In a fairly large size production unit we might be holding stocks worth crores of rupees and their proper accounting,
prevention, security and safety is of paramount importance. An effective and efficient stores management shall help in
improving service level. Higher inventory is another area of concern to management because it affects the working capital.
Stores department in order to discharge its functions effectively, it has to have close interaction and co-ordination with
various departments of the organization. The stores department mainly should have good communication between purchase
and production departments.
Without active integration and cooperation of each of the other departments, it is very difficult to ensure smooth and
efficient functioning of the stores department. But a stores department is dependent on each of them for its day to day
operation. The smooth functioning of either stores department or the main production units is just not possible without
interactive relations. This need has been merely identified by the Krishna District Milk Union stores department and a lot of
negotiations have been taken by stores to have a better working relationship with of these departments.
The inventory refers to stockpile of the products of the firm offering for sale and various components that make up these
products. The inventory consists of raw-materials, work-in-progress, finished goods and stores & spare parts.
• LIST OF INVENTORY ITEMS IN H M A AGRO INDUSTRIES LIMITED:-
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1. Meat products
2. Poultry Feed.
3. Stores and Packing Materials.
4. Garage and Mechanical Spares.
5. Feed Raw Materials.
6. Inventory Construction Material.
7. Construction Material.
Inventory consists of a major portion of current assets in any organization. Efficient management of inventory not
only improves the liquidity position, but also reduces excess funds blocked up in them and their by improving profitability.
Every firm has to maintain sufficient inventory because it establishes a link between production and sales but the inventory
involves balancing of opposing costs, viz. inventory carrying costs and ordering costs. It is the responsibility of
management to formulate appropriate policies and adopt suitable inventory control techniques to optimize the size of the
inventories so that the functions of production and sales are carried on smoothly at minimum costs.
PURCHASING:
Many variables contribute to the success and development of the organization. One of such variable is an efficient
purchase and material management with a view to make the existing purchase function most effective comprehensive plan
has been prepared regarding.
1. Raising material purchase requisition.
2. Placing Purchase Order.
3. Receipt and Inspection of material.
4. Payments to Suppliers etc.
PURCHASE FUNCTION SYSTEM AND PROCEDURES:

The eligible to raise material requisition for purchase:
1. Deputy General Manager (production).
2. Deputy General Manager (plant).
3. Deputy Director (purchase).
4. Quality Control Officer.
5. Senior Accounts Officer.
CRITERIA OF RAISING MATERIAL REQUISITION:

1. Need of the material to be established.
2. Quantity indicating the period of consumption.
3. Detailed specification including brand preference with due justification.
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4. Sources including previous purchase order reference.
5. Approximate value of proposal.
6. Budget provision.
7. Date of requirement.
GUIDELINES TO BE FOLLOWED BY PURCHASE
DEPARTMENT:
Purchase division after satisfying budget provisions will intimate purchase process adhering to following procedure:
Purchase type needs to be decided based on the financial involvement:-
1. Direct cash purchase allowed up to the value of 500/-.
2. Material value beyond Rs.500/-
o If material is of routine consumption nature annual rate contract to be fixed by annual tender system.
o In case of specific purchase beyond Rs.500/-up to Rs.l lakh. Order is to be placed if material is available
from publisher/co-operative institutions.
o From other than these institutions, float enquires from Manufactures/ Authorized distributors/ registered
dealers.
1. For large single order rate quotation called from original Manufacturers.
2. Purchase beyond 100000/- should be referred to purchase committee.
3. After getting approval of purchase proposal and type of purchase
- Enquires to be floated within 24 days.
- Time required to receive quotations is:
 Single quotation time 10 days. Local suppliers’ quotations time 7 days.
 Periodical supply rate contract annual tenders (based on Lead time) orders are to be placed depending on requirement as
per production schedule responsibility stores.
1. Processing of quotations:-
1) Quotations opened by purchase division.
i. Comparative statements of prices are prepared (24 hours).
2) Purchase order prepared if rates are reasonable, if not, negotiations or fresh enquires from alternative sources made.
3) Purchase order raised by purchase division (DM) gets approved from General Manager routing through audit and
accounts. (2 days).
4) After approval of the purchase order gets registered in material requisition register and the copies are dispatched to:
1. Suppliers
2. Accounts department.
3. User departments
4. Store concerned
5. Follow up and expediting supply: Follow up should be made at least a week before delivered date given by purchase
order.
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 MAINTENANCE OF RECORDS AND FILES:-
The purchase department required to maintain various records and files like:-
1) Material purchase requisition record.
2) Purchase orders record.
3) Follow up data record.
4) Suppliers record- address, materials, delivery, quality.
5) Record of black listed supplier's reasons.
6) Commodity record.
7) Contract file.
8) Purchase day book.
 OTHER FORMS AND REPORTS:

Forms that are to be employed are
1) Purchase requisition.
2) Request for quotation.
3) Purchase order.
4) Follow up.
5) Receipt and inspection.
 REPORTS:
Purchase handles a sizeable portion of finance, it is necessary to have some summary reports periodically available to
the management some of these reports are:-
1) Total value of purchase.
2) Allocation of purchase value against major items.
3) Allocation of purchase value against each requisitioning department.
4) Budget for purchase for the next year.
5) Proposal for services of budget in current year
OTHER REPORTS BROUGHT OUT FOR INTERNAL USED:

1) Vendor performance report.
2) Pattern of consumption of material.
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3) Pattern of market prices.
4) Lead time report.
 RECEIVING AND INSPECTION OF MATERIALS:

RECEIVING MATERIALS:
Trade credit is an essential marketing tool which acts as a bridge for the movement of goods from the stage of
production to stage of distribution to customers. Trade credit creates receivables which the firm is expected to collect in the
near future thus the book debts or receivables arising out of credit has three dimensions. First, it embraces an element of
risk which needs to be assessed, since cash sales are totally risk less. Second, it is based on economic values to the buyer;
economic value in goods or services is passed on immediately at the time of sale while the seller expects an equivalent
value to be received, arises at a future date. But, creation of receivables blocks the firm's funds for the period between the
dates of receipt of payment, which is to be financed out of working capital funds.
This makes the firm to average funds from financial institutions and other sources then receivables represent investment
which constitutes a substantial Portion of current assets of manufacturing & trading firms. All the incoming materials from
the suppliers and other units of organization shall be received at stores. Arrangement shall be made for unloading and
receiving of materials, checking up of packages opening of packages, checking up materials with details of invoices and
P.O., identifying discrepancies, if, any record keeping, preparation of materials receiving cum inspection reports, handover
of materials to custody, arranging dispatch of materials, returned to
 INSPECTION OF MATERIALS:
AMPLING:
The sampling method adopted for testing the polyethylene film shall be as per IS: 2808-1977 clause-6.
 METHOD OF INSPECTION AND TESTING:

Immediately on receipt of company extruded printed polythene and carton. 10% of the goods received will be weighted
at random and if the total quantity as notified weight on the packing tallies positively. With the regiment observed, the total
quantity as notified weight on the packing, prior ternate deduction based on average weight of 10 rolls will be made on the
balance 90% rolls and on that basis the quantity received will be determined. This weight mint is to be done by quality
control personnel. From each consignment 2% of the film rolls subject to a maximum of 10 rolls will be picked up at
random by the representative of the quality control section and one meter of film from each roll will be cut and weighted
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for substance test. The overage higher thickness observed in 10 rolls of film at random, shall only be taken into account for
imposing penalty. The maximum permissible excess thickness should not be more than 2.5% on average thickness.
It has to be ensured that every item received in store is checked from quality angle. Angle function of poor quality
materials may put the organization to heavy losses, especially, those of components of vital equipment. Quality plans need
to be developed for critical and high consumption value of items. Inspection can be carried out by independent quality
assurance group or by user department, depending upon set up store, however is required to maintain continued and
sustained liaison with inspection people for prompt inspection.
THE PROFORMA OF INSPECTION MATERIAL IN H M A AGRO INDUSTRIES LTD:
H M A AGRO INDUSTRIES LTD C/O ZAKARIA AGRO PVT LTD ARARIA, BIHAR.
Material Quality Test/ Performance Report-Requisition Form
SL No. ……………....... Date…………….

GRN No.......................
To
The QCO/DGM Doc. No:
For/store,
H M Agro indu ltd. Date:
Page No: .1/1
Sir,
Sub: General &carton stores- Material Quality Test/ Performance Report -request-
Reg
Invoice/dc no. From M/s.
Please arrange for Quality Test/ Performance Report of the material received through the reference cited above
32
Name of the material Quantity of material
Yours faithfully
 STORES MANAGEMENT:
Objectives of stores in H M AAGRO INDUSTRIES LIMITED:
1) To disseminates modern concept and techniques of efficient and effective stores management.
2) To disseminate modern concept and techniques of inventory management agreement, thereby ensuring optimum
utilization of available resources.
3) To improve services level of stores and inventory management functions.
4) To minimize the losses due to deterioration and obsolescence.
5) To identify and dispose of scrap, surplus and obsolete materials in most economical manner.
6) To develop a cadre of committed professional in stores and inventory management.
FUNCTIONS OF STORES MANAGEMENT:
In the process of generation, transmission and distribution, stores management has to play a vital role to make to
make available required stores and spares at the right time and quantities. Down time cost of equipment in our case is losses
of generation, transmission and distribution of power and consequential losses to industries and nation as a whole. Stores as
such as treated as backbone of efficient maintenance services, prompt services to the user shall. Therefore the principal
objectives of stores function and this is the most improvement parameter to judge its performance. It is however, equally
desirable to provide these services as economically as possible i.e., to keep the stock at optimum, conserve and preserve
them properly so that both financial and operative objectives are attained.
Duties of store keeper in H M A AGRO INDUSTRIES LIMITED:-

 The items in stores should be placed in such a way that these can be easily located.
 To maintain the store should be placed in such a way that these can be easily located.
 Efficient and effective service to the organization.
 To ensure that materials are issued against authorized resolution only.
 To keep up-to-date record of materials issued, received and balance in stock.
 Planning and execution of stock checking activities.
 Communicate the purchase department about its requirements.
 To maintain efficient and effective material handling system.
LOCATION OF STORE ROOM:

The location of stores in an enterprise should be at a place where handling transportation and the movement of the material
at a minimum level. If there is only single plant or many plants situated in the same area then it is profitable to have one
centralized store to service all production operations. But in case of plants located at distant places it is desirable to have
33
separate store for each plant. Sometimes a policy of maintaining centralized stores for individual items is followed by the
management.
 ADVANTAGES:
1) Economy in investments.
2) Reduction in incidental expenses.
3) Less storage space.
4) Better security arrangements to safeguard against pilferage and theft.
5) Less man-power required, due to which reduction in administration costs.
6) More bargaining power required, due to which reduction in administration costs.
7) More bargaining power due to buying in bulk.
8) The variety of items in the inventory can be reduced due to more scope of standardization of items.
 DISADVANTAGES:
1) More material handling operations.
2) Chances of printed polybags and delay are likely to be more.
3) More exposed to loss due to natural calamities like fire, rain, dust etc.
METHODS OF VALUATION IN H M AGRO INDUSTRIES LTD:-

The Krishna Milk Union has given sufficient flexibility to introduce scientifically developed methods of valuation
of their stocks. In order to prevent malpractices, it has been stipulated that such methods must be studied and approved by
the Board of Directors, and must be followed for a minimum prior of three years.
1 First-in-First-Out (FIFO)
FIFO:
..' In these cases; it is assumed that the stores follow the principle that oldest stock issued first so that stock left out
is from the later arrivals. Hence all issues are assumed to have come out from older stocks. These are valued at old price.
The cumulative value of stock out will give the net value of the existing stock.
ORGANIZATION OF STORES DEPARTEMNT:

In small Scale establishments, it is experienced that purchase and stores department are attached with production
department. In organizations where materials control is entrusted to a materials manager both purchase and stores
department is always of subordinate nature and it enjoys an independent entity. The management of stores should be
entrusted to experienced, sincere and efficient a personnel who is qualified and primarily interested in doing a good stores
job.
INVENTORY CONTROL SYSTEM:
34
Inventory control techniques in H M A AGRO IND LTD:-
All of the items are not of equal importance, a high degree control inventories of each item is neither applicable not
useful. So stores department classify the inventory management to adopt a selective approach in laying down inventory
levels, order quantities and the extent and closeness of the control be exercised. This is because a general characteristic of
most inventories is that some items have much higher annual usage value than others.
35
Here we shall discuss the techniques of selective control like:
1) Re-ordering level,
2) Economic Order Quantity.
3) A.B.C Analysis.
RE-ORDERING LEVEL:
It is a point (if material reaches at this point) where order for fresh supplies of materials are placed with the suppliers.
The point is fixed somewhere in between the maximum and minimum point in such a way that quantity is sufficient to meet
the requirements of production upon the time fresh supplies are received.
Re-ordering Level=Minimum Level + (Time in acquiring the materials * Rate of consumption).
ECONOMIC ORDER QUANTITY:
EOQ is an important factor in controlling the inventory; it is a quantity of inventory which can reasonably be
ordered economically at a time. It is also known as 'Standard Order Quantity', 'Economic Lot Size' or 'Economical Ordering
Quantity', in determining this point ordering cost and carrying costs are taken into consideration. Ordering costs are
basically the cost of getting an item of inventory and it storage facilities, property insurance, loss of value through physical
deterioration, cost of obsolescence. Either of these two costs affects the profits of the firm adversely and management tries
to balance these two costs. The balancing or reconciliation point is known as Economic Order Quantity. And the concept of
EOQ applies to the items which are replenished periodically into inventory in lots covering several periods' needs.
Formulae for calculation of EOQ:
Whereas A =Annual Demand

O = Ordering Cost
C = Carrying Cost
36
ABC ANALYSIS:
ABC Analysis is basic tool, which helps the management to place their efforts where the results would be useful to the
greatest possible extent. The first important step in inventory management is to have a selective approach to fix-up
inventory levels and the extent to which the control can be exercised. This selective approach mainly depends on the annual
consumption of various items. The technique involves the classification of inventory items into three categories A, B and C.
In descending order or annual consumption and annual monetary value of each item.
CATEGORY- 'A' ITEMS:

Such items have large investment but not much in number i.e., 10% of items account for 70% of total capital
invested in inventory. So more careful and closer control is needed for such items.
CATEGORY- 'B' ITEMS:

The items having low consumption value are put in category 'B'. Nearly 20% of the items in an inventory account for 20%
of the total investment. These items have less importance than 'A' class items, but are much costly to pay more attention on
their use. These items require less degree of control than those in category 'A'. Statistical sampling is generally useful to
control them.
CATEGORY- 'C ITEMS:

The items having medium consumption value are put in category 'C. Nearly 70% of the items in an inventory account for
20% of the total investment. Such items can be stocked at an operative place. These items can be charged to an overhead
account. In fact, lose control of 'C items increase their investment and expenditure as a shelf wear, obsolescence and
wasteful use, but this will not be so much in saving the recording costs.
37
CHAPTER – 4
DATA ANALYSIS ANDINTERPRETATION
PROCEDURE FOLLOWED IN H M A AGRO INDUSTRIES LIMITED FOR TO PERFORM 'ABC ANALYSIS
FOR STOCK
Whenever the items can be substituted for each other, they should be preferable considered as on item.
More emphasis should be given to the value of consumption and not to the cost per unit of items.
CLASS OF ITEMS
Sl.No A B C
1 Polythene Film Meat, offal Powder items
2 Ammonia Gas Nitric Acid Stickers
3 Pp. woven bag Poultry feed Dry sludge
4 Carton Boxes Meat Offal
5 Keep records of Keep records of No records are Kept
Receipt and use Receipt and use
6 More effort to reduce Moderate effort Minimum effort
7 Close checks on Some checks on No checks need more
Schedule revision For poultry feed in need than 2 months
less than 2 weeks up to 1-2 months
8 Frequent ordering Less frequent ordering Bulk ordering
9 Accurate forecasts Less accurate Approximate
forecasts forecasts
10 Low safety stock for Large safety stock up Large safety stock
less Than 2 weeks to 2-3 months more than 3 months
11 High consumption Average consumption Low value
value value
38
DATA ANALYSIS AND INTERPRETATION
SIZE OF INVENTORY:
The size of inventory depends on several factors such as sales volume, capacity of plant, availability of raw-
materials, fluctuations in prices of raw-materials and finished goods, length of production cycle etc. generally progressive
organization inventory levels continuously increase as increase in sales and production. As already stated the prime
objective of inventory management is to optimize size of inventory so that smooth performance of production and sales are
possible. Increase in size of inventory involves extra cost apart from adversely effecting profitability and liquidity. The size
of networking capital is measured with the help of following ratio. As H M A AGRO INDUSTRIES LIITED C/O
ZAKARIA AGRO PVT LTD is only three years old .so data analyses is done as per three years only.
Inventory
Size of Inventory = ................................
Total Current Assets
INVENTORY 2016-17
S.NO PRODUCTS AMOUNT
1 Meat and meat products 11,64,15,812.90
2 Stores & Packing Materials 1,58,50,112.04
3 Mechanical, electrical &plumbing Spares 65,46,601.92
4 Raw Materials 47,63,876.00
Total 14,35,76,394.00
INVENTORY 2017-18
Total 12,92,90,831
INVENTORY 2018-19
Total 15,31,32,851
39
CURRENT ASSETS 2016-17
5 Cash in Hand 14,15,525.25
6 Cash/ Cheque 26,04,025.70
7 Balance with Scheduled Banks 4,92,45,465.57
8 In Fixed Deposits 45,81,849.00
9 Sundry debtors 6,87,09,698.73
10 Advances to Employees 11,01,701.39
11 Advantages to Purchases 48,26,009.91
12 Pre-Paid Expenses/Taxes 10,64,891.00
Total 27,71,25,570

6 Cash in Hand 20,69,031.75

7 Cash/ Cheque 32,51,051.55
8 Balance with Scheduled Banks 9,98,84,590
9 In Fixed Deposits 1,13,77,867.00
40
Total 293,504,552

6 Cash in Hand 14,36,332.25

7 Cash/ Cheque 77,11,542.90
8 Balance with Seheduled Banks 12,46,40,643.05
9 In Fixed Deposits 89,23,153.00
Total 345,828,536
Inventory
Size of Inventory = x100
Total Current Assets
YEAR INVENTORY Current Assets Size

2016-17 143,576,394 277,125,570 51.80%
2017-18 129,290,831 293,504,552 44.05%
2018-19 153,132,851 345,828,536 44.27%
The results of size of inventory ratio as applied to H M A AGRO INDUSTRIES LIITED C/O ZAKARIA AGRO PVT
LTD: Table 5.1
YEAR INVENTORY CURRENT ASSETS SIZE

2016-17 14,35,76,394 277,125,570 51.80%
41
2017-18 12,92,90,831 293,504,552 44.05%
2018-19 15,31,32,851 345,828,536 44.27%
SIZE
60.00%
51.80%
50.00%
44.05% 44.27%
40.00%
30.00% SIZE
20.00%
10.00%
0.00%
2016-17- 2017-18 2018-19
INTERPRETATION:
The table shows the size of inventory in the selected enterprise during the period of 2016-2019s. It is evident from
the table that inventory constituted the most important element of total Current Assets in this study as it is found on an
average around 52 percent of the total Current Assets. It is observed from the table that the size of inventory in H M A
AGRO INDUSTRIES LTD C/O ZAKARIA AGRO PVT LTD has gradually decreased & increase from 51.80 % TO
44.05% in 2016-18 & increased in 2018-19 from 44.05% to 51.27% period.
• REASON:
This is due to fluctuations in prices and monopoly supplier.
• SUGGESTION:
It is better to start own animal supplier team for alternative supplier.
INVENTORY TURNOVER RATIO:
The lists of all varieties of stocks with the company are treated as stocks. This relationship expresses the frequency
with which average level of inventory is turned over through operations. If the ratio is high it means that stock is converted
into sale as short span of time. It will lead to good profits for the company. If the inventory is moving quickly then the short
term solvency of the company is also in very good condition. The inventory turnover ratio can be used as valuable measure
of selling efficiency and inventory quality of the company. The turnover ratio is measured with the help of the following
ratio:
Cost of Goods Sold
Inventory Turnover Ratio = ---------------------------
Average Inventory
42
The result of this ratio is applied to H M A AGRO INDUSTRIES LTD C/O ZAKARIA AGRO PVT LTD:
COST OF GOODS 2016-17
S.NO PARTICULARS AMOUNT

1 Frozen meat 83,03,28,496.55
2 Sale of tallow 8,46,24,637.92
3 Sale of poultry feed supplements 45,25,27,825.15
4 By Sale of offal 5,97,30,709.00
5 By Conversion& process Charges 80,11,555.00
Total 1435223224
SALES - GROSS PROFIT

1,435,223,224 - 277,125,570 = 1,158,097,654

1 Frozen meat 101,96,33,984.00
2 Sale of tallow 6,87,74,625.50
4 By Sale of offal 6,03,38,522.25
5 By Conversion & process Charges 31,77,292.00
Total 1,637,446,747
1,637,446,747 - 293,504,552 = 1,343,942,195

1 Frozen meat 118,22,48,093.25
2 Sale of tallow 3,56,32,842.00
4 By Sale of offal 7,46,38,750.50
5 By Conversion & process Charges 1,66,60,011.50
Total 1,719,585,460

1,719,585,460 - 345,828,536 = 1,373,756,924
43
Average Inventory 2016-17
Particulars Amount
Opening Stock
Finished Stock of frozen Meat 7,71,65,529.12
Poultry Feed and tallow 16,62,391.25
Purchase of raw material 1,02,000.00
Total 789,29,920.04
Closing Stock
Finished Stock of frozenMeat 11,55,04,647.65
poultry Feed and tallow 6,50,880.75
Total 116,155,528
= Opening Stock + Closing Stock /2
= 97,542,724
Particulars Amount
Opening Stock
Finished Stock of Meat 11,55,04,647.65
Purchase of raw material 2,04,97,875.00
Total 136,653,403.40
Closing Stock
Total 954,28,162.13
= 116,040,783
Particulars Amount
Opening Stock
Purchase of raw material 2,64,08,847.00
Total 121,837,009.13
Closing Stock
Total 130,044,362.12
= 125,940,686
44
Table 5.2
YEARS COST OF GOODS AVG INVENTORY RATIO(TIMES)
SOLD
2016-17 1,158,097,654 97,542,724 11.87

2017-18 1,343,942,195 116,040,783 11.58
2018-19 1,373,756,924 125,940,686 10.90
RATIO(TIMES)
13
12.5
12
11.87 11.58 RATIO(TIMES)
11.5
11 10.90
10.5
2016-17 2017-18 2018-19
INTERPRETATION:-
From the above table it is observed that the inventory turnover ratio has decreased every year. It has decreased from
11.87 times to 11.58 times from the year 2016-17 to 2017-18. It is a test of efficient inventory management. If the company
has higher the ratio, the better is the performance of the company. If the inventory turnover ratio is higher the operating
cycle becomes faster and finally it will lead to higher profits for the company.
DAYS OF INVENTORY HOLDING:

The reciprocal of inventory turnover ratio gives average inventory holding in percentage term. When the number of
days in a year (say 365) is divided by inventory turnover, we obtain days of inventory holdings. The size of the days of
inventory holding is measured with the help of the following ratio.
45
365
Days of Inventory Holding = ----------------------------
Inventory Turnover Ratio
The results of this ratio as applied to H M A AGRO INDUSTRIES LTD C/O ZAKARIA AGRO PVT LTD:
Table 5.3
Year No of Days in Year Inventory Turnover Period(Days)
Ratio
2016-17 365 11.87 30
2017-18 365 11.58 31
2018-19 365 10.90 33
Period(Days
)
3
3 33
3
2 31
3
30
1
3
0 Period(Days
2 )
9
2
8
2
7
2
6 2016- 2017- 2018-
17 18 19
46
CHAPTER – 5
CONCLUSION
Here an attempt is made to draw conclusion based on the study of HMA AGRO INDUS LTD C/O ZAPL.
The study revealed the following
 The HMA Ltd. Have maintain slight standard Inventory levels
 The HMA Ltd. EOQ levels were satisfactory.
 The HMA Ltd. ABC Analysis was satisfactory
 The HMA Ltd. RAW material turnover was satisfactory
Over all HMA AGRO INDU Ltd. Financial performance was positive.
47
CHAPTER – 6
SUGGESTIONS /RECOMMENDATIONS
a. A plan should be drawn to store the surplus poultry feed supplements for rainy seasons.
b. The company should introduce continuous stock verification system for all the materials.
c. The company should introduce some of the major inventory classification methods like XYZ analysis and
FSN analysis for better control of inventories.
d. The composition of current assets is dominated by inventory and other current assets in this regard it is
advised to the company to maintain a balance among the different components of current assets.
e. It is better to start own Procurement for raw material which has monopoly supplier, so that mediator Cost
reduce and can have materials in time.
48
CHAPTER – 7
REFERENCES / BIBLIOGRAPHY
S.NO TITLE AUTHOR PUBLISHER YEAR
1. Financial Dr. Murugesan MIT 2018
accounting & Narayanaswamy
analysis
2. Production Prof.Kalicharan MIT 2019
Planing & Sabat
control
OTHER REFERENCES:
1. Manuals of HMA AGRO.
2. Manuals of Stores Department.
3. Three year Balance sheets (2016-17).
4. HMA agro website.
5. Google .
49
MIT Campus, Ex-Servicemen Colony, S.No.124, Paud Road,
Kothrud, Pune411038.
• PhoneNo.:+91(020)7722017705 • Website:www.mitsde.com
50

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PROJECT

POST GRADUATE DIPLOMA IN MATERIAL MANAGMENT

(MD KAMRAN AZAM)

(Students’ Name and Signature)

Student ID: MIT2018N0021

NEED OF THE STUDY:

 INFRASTRUCTURE AND FACILITIES:

 PROCESSING AND PRODUCTION:

ORDERING COSTS/ SET-UP COSTS:-

STOCK OUT COSTS:

TYPES OF INVENTORY VALUATION:

FOLLOWING ARE SOME POPULAR METHODS OF PURCHASING:

1. PURCHASING ACCORDING TO REQUIREMENT:

 RECEIVING AND INSPECTION OF MATERIALS:

 OBJECTIVES OF INVENTORY CONTROL:

 PROTECTION AGAINST FLUCTUATIONS IN DEMAND:

 PROTECTION AGAINST FLUCTUATIONS IN OUTPUT:

 CONTROL OF STOCK VOLUME:

1. CONTROL OF STOCK VOLUME:

METHODS OF INVENTORY CONTROL:

• STEPS FOR CONDUCTING ABC ANALYSIS ARE:

• JUST IN TIME [JIT]:

PURCHASE FUNCTION SYSTEM AND PROCEDURES:

CRITERIA OF RAISING MATERIAL REQUISITION:

 OTHER FORMS AND REPORTS:

OTHER REPORTS BROUGHT OUT FOR INTERNAL USED:

 RECEIVING AND INSPECTION OF MATERIALS:

 METHOD OF INSPECTION AND TESTING:

THE PROFORMA OF INSPECTION MATERIAL IN H M A AGRO INDUSTRIES LTD:

SL No. ……………....... Date…………….

Duties of store keeper in H M A AGRO INDUSTRIES LIMITED:-

LOCATION OF STORE ROOM:

METHODS OF VALUATION IN H M AGRO INDUSTRIES LTD:-

ORGANIZATION OF STORES DEPARTEMNT:

Whereas A =Annual Demand

CATEGORY- 'A' ITEMS:

CATEGORY- 'B' ITEMS:

CATEGORY- 'C ITEMS:

CURRENT ASSETS 2017-18

3 Stores & Packing Materials 2,33,09,360.60

4 Mechanical, electrical &plumbing Spares 52,39,362.62

5 Raw Materials 50,29,186.62

6 Cash in Hand 20,69,031.75

CURRENT ASSETS 2018-19

3 Stores & Packing Materials 1,44,03,819.59

4 Mechanical, electrical &plumbing Spares 37,97,118.86

5 Raw Materials 47,90,586.09

6 Cash in Hand 14,36,332.25

YEAR INVENTORY Current Assets Size

LTD: Table 5.1

YEAR INVENTORY CURRENT ASSETS SIZE

COST OF GOODS 2016-17

S.NO PARTICULARS AMOUNT

SALES - GROSS PROFIT

COST OF GOODS 2017-18

S.NO PARTICULARS AMOUNT

COST OF GOODS 2018-19

S.NO PARTICULARS AMOUNT

SALES - GROSS PROFIT

= Opening Stock + Closing Stock /2

Average Inventory 2017-18

= Opening Stock + Closing Stock /2

Average Inventory 2018-19