A STUDY ON

INVENTORY MANAGEMENT

WITH REFERENCE TO

DELTA PAPER MILLS LIMITED, VENDRA

A project report submitted in partial fulfilment of the requirements for the award of the
degree of
MASTER OF BUSINESS ADMINISTRATION
Submitted By

P.VISHNU BHAVYA ROHITHA

Regd.No:181FC01107

Under the esteemed guidance of

Mr.J.N.G SRINIVAS
Asst. Professor

DEPARTMENT OF MANAGEMENT STUDIES

VIGNAN FOUNDATION FOR SCIENCE TECHNOLOGY AND RESEARCH
VADLAMUDI-522213
(2018-2020)
 DECLARATION

I hereby declare that this project entitled “A STUDY ON INVENTORY

MANAGEMENT with reference to DELTA PAPER MILLS LIMITED,

VENDRA” has been prepared by me under the esteemed guidance of Asst

Prof. J.N.G SRINIVAS, VIGNAN FOUNDATION FOR SCIENCE

TECHNOLOGY AND RESEARCH, VADLAMUDI in partial fulfilment of

the award of the degree of MASTER OF BUSINESS ADMINISTRATION for

the year 2018-2020 and this project has not been submitted in part or on whole

to any other University or Institution.

Place: Vadlamudi, P. VISHNU BHAVYA ROHITHA

Date: (Regd.No:181FC01107)
 CERTIFICATE

This is to certify that the project report titled “A STUDY ON

INVENTORY MANAGEMENT with reference to DELTA PAPER MILLS

LIMITED, VENDRA” submitted by P.VISHNU BHAVYA ROHITHA,

Regd.No:181FC01107 to Department of Management Studies, VIGNAN

FOUNDATION FOR SCIENCE TECHNOLOGY AND RESEARCH in

partial fulfilment of the requirement for the degree of Master of Business

Administration is a bonafide record of work carried out by her under my

supervision.

Place: Vadlamudi Asst Prof: J.N.G SRINIVAS

Date:
 ACKNOWLEDGEMENT

In presentation of this I recall with a sincere gratitude for each of those

who have been a source of immense help and inspiration during the process
of my project work.

I express my profound sense of gratitude to Dr. KONERU

KALPANA, Head of the department, Department of Management Studies,
VIGNAN FOUNDATION FOR SCIENCE TECHNOLOGY AND
RESEARCH, for providing all the facilities in the department to do this
project work.

I am thankful to project guide Prof. J.N.G SRINIVAS, Department

of management studies, VIGNAN FOUNDATION FOR SCIENCE
TECHNOLOGY AND RESEARCH, VADLAMUDI for his esteemed
guidance and helping me in the completion of this project

P.VISHNU BHAVYA ROHITHA

4
 INDEX
S NO PARTICULARS PAGE NO

CHAPTER – 1
1 INTRODUCTION
1.1 Meaning Of Inventory 7-8
1.2 Nature Of Inventory 10-11
12-13
1.3 Objectives of Inventory
13-27
1.4 Inventory Management and Inventory Control
28-35
1.5 Theoretical Framework
36
Summary

CHAPTER-2
2 2.1 Literature review 36-37
Summary 38

CHAPTER -3
RESEARCH METHODOLOGY
3.1 Overview Of Research Problem
3 3.2 Objectives Of Study 41
3.3 Need for Study 41
41
3.4 Scope of Study
42
3.5 Source of Information
43
3.6 Significance of the Study 43
3.7 Limitation of Study 44
Summary 45

CHAPTER -4 47-49
4 4.1 Industrial Analysis 50-56
4.2 Development of paper Industry 57-66
4.3 Company Profile

CHAPTER -5 67-84
5 Data Analysis and Interpretation 85
Summary

CHAPTER-6
6.1 Findings 85
6 86
6.2 Suggestions
Bibliography 87-93

5
LIST OF TABLES

Table 5.1: Portion of Inventory in Gross Working Capital

Table 5.2: Inventory levels of Delta Paper Mills Limited for past 5 years:
Table 5.3: ABC quantitative – value analysis:
Table 5.4: Ordering and carrying costs of particular inventory
Table 5.5: EOQ levels of Bagasse and Waste paper
Table 5.6: Comparative analysis of Average inventory and Sales
Table 5.7: Stock Turnover Ratio
Table 5.8: Stock-Holding Days
Table 5.10: Inventory levels of past 5 years and coming 2 years i.e. for 2019 & 2020

LIST OF FIGURES

Figure 1.1: Types of Inventory

Figure 1.2: Inventory Management
Figure 1.3: Economic Order Quantity

LIST OF GRAPHS

Graph 5.1: Portion of Inventory in Gross Working Capital

Graph 5.2: Inventory levels of Delta Paper Mills Limited for past 5 years:
Graph 5.3: ABC quantitative – value analysis:
Graph 5.4: Ordering and carrying costs of particular inventory
Graph 5.5: EOQ levels of Bagasse and Waste paper
Graph 5.6: Comparative analysis of Average inventory and Sales
Graph 5.7: Stock Turnover Ratio
Graph 5.8: Stock-Holding Days
Graph 5.9: Inventory levels of past 5 years and coming 2 years i.e. for 2019 & 2020

6
 CHAPTER – 1
INTRODUCTION

7
INTRODUCTION:

1.1 MEANING OF INVENTORY:

The term inventory refers to the goods (or) materials used by a firm for the purpose of
production & sale. It also includes the items, which are used as supportive materials to
facilitate production.

There are three basic types of inventory:

• Raw material
• Work in progress
• Finished goods

• Raw materials are those items purchased by firms for use in production of
finished product.
• WIP consists of all items currently in the process of production. These are
actually partly manufactured products.
• Finished goods consists of those items which have already been produced but
not yet sold.

In other words, the word ‘Inventory’ doesn’t have same meaning in the USA and
in the UK. In American English and in a business accounting context, the word
‘Inventory’ is commonly used to describe the goods and materials that a business holds
for the ultimate prupose of resale. In American English, the word ‘Stock’ is commonly
used to describe the capital invested in a business, while in British English, the sentence
‘Stock’ shared is used in the same context. In the rest of English speaking world, stock is
more commonly used, although the word ‘Inventory’ is recognized as a synonym. In
British English, the word inventory is more commonly thought of as a list compiled for
some formal purpose, such as the details of an estate going to probate, or the contents of
a house let furnished.

8
9
They are ubiquitous throughout all sectors of the economy. Observation of almost any
company balance sheet, for example, reveals that significant position of its assets
comprises inventories of raw materials, components and sub assemblies within the
production process and finished goods. Most managers don’t like inventories because
they are like money placed in a drawer, assets tied up in investments that are not
producing any return and in fact, incurring a borrowing cost. They also incur costs for
the care of the stored material and are subject to spoilage and obsolescence. In the last
two decades there have been a spate of programs developed by industry, all aimed at
reducing inventory levels and increasing efficiency on the shop floor.

Some of the most popular are conwip, kanban, just-in-time manufacturing, lean
manufacturing, and flexible manufacturing. Nevertheless, in spite of the bad features
associated with inventories, they do have positive purposes. Raw material inventories
provide a stable source of input required for production. A large inventory requires fewer
replenishments and may reduce ordering costs because of economies of scale. In process
inventories reduce the impacts of the variability of the production rates in a plant and
protect against failures in the processes.
Final goods inventories provide for better customer service. The variety and easy
availability of the product is an important marketing consideration, there are other kinds
of inventories, including spare parts inventories for maintenance and excess capacity
built into facilities to take advantage of the economies of scale of construction. Because
of their practical and economic importance, the subject of inventory control is a major
consideration in many situations. Questions must be constantly answered as to when and
how much raw materials should be ordered, when a production order should be released
to the plant, what level of safety stock should be maintained at a retail outlet, or how in-
process inventory is to be maintained in a production process. These questions are
amenable to quantitative analysis with the help of inventory theory.

DEFINITION:

The Institute of Chartered Accountants of India defined Inventory as “tangible

property held (I) for sale in the ordinary course of business or (II) in the process of
production for sale or (III) for consumption in the production of goods or services for
sale including maintenance supplies and consumables other than machinery spares”.

10
NATURE OF INVENTORY:

The major current asset is inventory. The term ‘inventory’ refers to

stocks of the products of a company in manufacturing for sale and components that
make up the product. The store inventory is anticipation of raw materials, work in
progress and finished goods.

Raw materials are those basic inputs that are converted into finished
products through the manufacturing process. Work in process inventory consists of
items currently being used in the production process. Finished goods represent final
or completed products, which are available for sale.

Inventory as a current asset differs from other current asset the views of
concerning the appropriate level of inventory would differ among the different
functional areas. The job of finance manager is to reconcile the conflicting
viewpoints of the various functional areas regarding the appropriate inventory
levels in order to fulfill the overall objectives of maximizing the owner’s wealth.
Inventory management is related to overall objective of the firm.

Types of Inventory:

Raw materials Components Work-in-progress

Finished goods Distribution Inventory Maintenance,

Repairs
&
Operatin
g
Supplies

11
 Figure 1.1: Types of Inventory
1.2 INVENTORY MANAGEMENT:

Figure 1.2: Inventory Management

Inventories constitute the most significant part of the current assets of any
organization. On average inventories are approximately 60% of current assets in public
limited companies in India. Because of the large size of inventories maintained by
ferrous, considerably amount of funds is required to be committed in them. It is therefore,
imperative to manage inventories efficiently and effectively in order to avoid
unnecessary investments in them.

Purchase, production and marketing functions are mainly concerned with the
management of inventories. These functions try to have large stocks of inventories to
facilitate production or marketing of the products. It requires large investment in the
inventories and may increase the cost of product by way of interest on such investment. It is
the prime responsibility of finance function to have a proper management and control over
the investment in inventories, so that it should not be a loss for the business. For this purpose,
the finance function has to take care of maximum and minimum levels of stock of inventories
in the business to have continuity in production process.

12
The Inventory management includes the following areas of management as:

• To decide about the size of inventory i.e., maximum and minimum levels of
inventory.
• To establish timing schedules, procedures and reordering sizes while procuring
the inventories.
• To decide the minimum safety levels of inventory.
• To coordinate the sales, production and inventory policies.
• To provide proper storage facilities.
• To arrange for the procurement, receipt and issue of materials and developing
the forms for recording these transactions.
• To assign responsibilities for carrying out inventory control functions and
• To supervise and reporting of overall activity of inventory management/control.

Thus, Inventory Management ensures proper coordination of activities and

policies regarding procurement, production and marketing of materials/products in order
to achieve better inventory control. Hence, Inventory management includes inventory
control, but inventory control does not mean inventory management.

In large organizations, inventory management is kept under the direct control of

manager materials engineering. The basic duties of the person in charge of inventory
management are listed below:

1. Advising the production manager, in establishing production and material control.

2. Establishing policies and programs for purchasing, receiving and storing material.
3. Preparing budgets to accomplish objectives.
4. Introducing control through comparison of performance against standards.

13
1.3 OBJECTIVES OF INVENTORY MANAGEMENT:

Inventory Management has become very significant process of management in

the present day of manufacturing industry. The basic managerial objectives of inventory
management are:

• To keep inventory at sufficiently high level to perform production and sales

activities smoothly.
• To minimize investment in inventory at minimum level to maximize profitability.

Other objectives of Inventory management are explained as under:

• To minimize carrying cost of inventory.

• To keep investment in inventory at optimum level.
• To reduce the losses of theft, obsolescence and wastage etc.,
• To make arrangement for sale of slow moving item.
• To minimize inventory ordering costs.

Why Organization need to carry inventory?

The need and importance of inventory varies in direct proportion to the idle time
cost of men and machinery and urgency of requirement. If men and machinery in the
factory could, wait and so could customers, materials \would not lie in wait for then and
no inventories need to be carried. But it is highly uneconomical to keep men and
machinery waiting and the requirements of modern life are so urgent that they cannot
wait for materials to arrive after the need for them has arisen. Hence, the organization
needs to carry the inventories.

There are three general motives of holding inventories:

• The transaction motives which emphasizes the need to maintain inventories to

facilitate smooth production and sale operations.
• The precautionary motive which necessitates holding of inventories to guard
against the risk of unpredictable changes in demand and supply forces and other
factors.
• The speculative motive which influences the decision to increase or reduce
inventory levels to take the advantages of price fluctuations.
• Inventory helps in smooth and efficient running of business.
14
 • Inventory provides service to the customers immediately or at short notice.
• Due to absence of stock, the company may have to high prices because of piece-
wise purchasing. Maintaining of inventory may earn price discount because of
bulk purchase.
• Inventory also acts as a buffer stock when raw materials are received late and so
many sale-orders are likely to be rejected.
• Inventory also reduces product costs because there is an additional advantage of
batching and doing long smooth runny production run.

• Inventory helps in maintaining the economy by absorbing some of the

fluctuations when the demand for a item fluctuates or is erratic.
• Pipeline stocks (also called process and movement inventories) are also necessary
where the significant amount of time is consumed in the transshipment of items
from one location to another.

1.4 INVENTORY MANAGEMENT AND INVENTORY CONTROL:

The concepts of Inventory Management and Inventory Control are different.

Inventory Management ensures proper coordination of activities and policies regarding
procurement, production and marketing of materials/products in order to achieve better
inventory control. Hence, Inventory management includes inventory control, but
inventory control does not mean inventory management. Before understanding these
concepts, the objectives of Inventory Management are to be understand, which are
discussed under two heads, i.e.,

(A) Operating Objectives:

(1) Availability of materials:

The first and the foremost objective of inventory management is to make all types of
materials available at all times whenever they needed by the production departments so that
the production may not be held up for want of materials. It is therefore to maintain a minimum
quantity of all types of materials to move on production on schedule.

15
(2) Minimizing the wastage:

Inventory management has to minimize the wastage at all levels i.e, during its
storage in the go-downs or at work in the factory. Normal wastage, in other words
uncontrollable wastage, should only be permitted. Any abnormal but controllable
wastage should strictly be controlled. Wastage of materials by leakage, theft,
embezzlement and spoilage due to rust, dust or dirt should be avoided.

(3) Promotion of manufacturing efficiency:

The manufacturing efficiency of the enterprise increases if right types of raw

material are made available to production department at the right time. It reduces wastage
and cost of production and improves the morale of the workers.
(4) Better Service to Customers:

In order to meet 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. An uninterrupted flow of production is to be maintained.

(5) Control of Production Level:

Inventory Management have to decide to increase or decrease production level in

right time so that inventory is controlled accordingly. But in odd times, when raw
materials are in short supply, proper control of inventory helps in creating and
maintaining buffer stock to meet any eventuality. Production variations can be avoided
through proper control of inventory.

(6) 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.

16
(B) Financial Objectives:

(1) Economy in Purchasing:

Proper inventory management system brings certain advantages and economies

in purchasing raw materials in bulk quantity and to take advantage of favorable market
conditions.
(2) 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
ensure neither any deficiency of stock of materials nor any excessive investment in
inventories so as to block the capital, which could be used in an efficient manner.
Inventory Management has to set up minimum and maximum levels of inventories to
avoid deficiency or surplus stocks.
(3) Reasonable Prices:

Inventory Management has to ensure the supply of raw materials at a reasonably

low price, but without sacrificing the quality. It helps to reduction of cost of production
and improvement in quality of finished goods in order to maximize the profits of the
organization.

(4) Minimizing Costs:

Minimizing inventory costs such as handling, ordering and carrying costs, etc..,
is one of the main objective of Inventory Management. It helps reduction of inventory
costs in a way that reduces the cost per unit of inventory and thereby reduction of total
cost of production.

INVENTORY CONTROL TECHNIQUES:

Inventory control is a primary part of Inventory Management. It is concerned with

achieving an optimum balance between two competing objectives. The objectives are:

• To minimize investment in inventory.

• To maximize service levels to the forms customers and its own operating
departments.

17
 In achieving the control over inventories, the organization adopts various
methods of inventory control. These includes:

1. Mini-Max plan
2. Two-Bin system
3. Order Cycling system
4. Fixation of various levels
5. Use of Perpetual Inventory system and Continuous Verifications
6. Use of Control Ratios
7. Review of Slow and Non-moving items

(1) Mini-Max Plan:

It is one of the oldest methods of inventory control. Under this plan, a maximum
and minimum for each stock item are specified keeping in view its usage, requirements
and margin of safety required to minimize risks of stock outs. The minimum level
establishes the reorder point and order is placed for the quantity of material, which will
bring it to the maximum level.

The method is very simple and based upon the premise that minimum and
maximum quantity limits for different items can fairly well defined and established.

(2) Two-Bin System:

Under this system, two piles, bundles, or bins are maintained for each item of
stock. The first bin stocks the quantity of inventory, which is sufficient to meet its usage
during the period between receipt of an order and placing of the next order.

The second bind contains the safety stock and the normal quantity used from order
date to delivery date. The moment stock contained in the first bin is exhausted and the
second bin is tapped, a requisition for new supply is prepared and submitted to the
purchasing department. Since no bin-tag (quantity record of materials) card is maintained,
there is absence of perpetual inventory record under this bin.

18
 (3) Order Cycling System:

In the order cycling system, quantities in hand of each item or class of stock are
reviewed periodically say, 30, 60 or 90 days. In the course of a schedule periodic view,
if it is observed that the stock level of a given item will not be sufficient till the next
scheduled review keeping in view its probable rate of depletion, an order is placed to
replenish for its supply. The review period will vary from firm to firm and among
different material in the same firm. Critical items of stock usually require a short review
cycle. Order for replenishing a given stock item is placed to bring it to some desired level,
which is often expressed in relation to number of days or weeks supply.

The schedule periodic review plan does not consider the differences in rate of
usage for different items of stock. As a result, items whose usage has declined will have
surplus stock, whereas some items whose rate of depletion has increased are exhausted

much before the next review date. Moreover, the system tends to make procurement and
purchasing activities reach their peak around the review dates.

(4) Fixation of Various Levels:

Certain stock levels are fixed up for every item of stores so that stocks and
purchases can be efficient controlled. These are:

a) Maximum level: It represents the minimum quantity above which stock should
not be held any time.
b) Minimum level: It represents the minimum quantity of stock that should held
all times.
c) Danger level: Normal issues of stock or usually stopped at this level and made
only under specific instructions.
d) Ordering level: It is the level at which indents should be placed for
replenishing stocks.
e) Ordering quantity: The quantity, which is to be ordered.

19
(A) Maximum Level:

It is normally a matter of policy. The various factors that should be taken into
consideration are:

• Capital outlay: Investment to be made in stores, raw materials and other bulk
items is an important consideration.
• Storage space available.
• Storage and insurance cost.
• Certain materials deteriorate if stored over a long period. This limits the
quantity of maximum stock kept.
• If certain goods are subject to obsolescence, the spare parts and components etc.
of such products stocked should be limited.
• Consumption per annum.
• The lead-time.
Certain goods are seasonal in nature and can be purchased only during specific period.
Hence, maximum level will be fixed for each season.

Formula: Maximum stock level = Re-order level + Re-ordering quantity –

(Minimum Consumption * Minimum Reorder Period)

(B)Minimum Level:

The minimum level is also a matter of policy and is based on

• Consumption per annum.
• Lead Time.
• Production Requirement.

Minimum quantity which can be advantageously purchased. If an item is made to

order then no minimum level is necessary.

Formula: Minimum level = Re-Order level – (Normal Consumption * Normal Re-

Order Period)

20
(C) Danger or Safety Level:

Some times in practical situation, it happens that neither the consumption rate,
nor the lead-time is constant through the year. So in order to face such under taking in
meet out the demands, an extra stock is maintained. The extra stock is called buffer stock.
Material consumption varies from day to day; week-to-week and hence accurate
forecasting is not possible. A safety or reserve stock is kept to avoid stock out.
The desirable safety stock level is that amount which minimizes stock out costs
and carrying costs.

Formula: Buffer or Safety stock level = Ordering Level – (Average Rate of

Consumption * Re-Ordering Point)

(D) Ordering Level:

The annual consumption of an item in addition to the time lag between ordering
and receiving can be collected from past records. Based on these facts and policies, the
ordering level and ordering quantity can be calculated. The order point is to be calculated
keeping in mind, the worst conditions so that minimum a stock is always maintained. The
ordering level should be so fixed that when an indent is placed at the ordering level, the
stock reaches the minimum level when the replenishments received. The ordering level
is calculated from the following factors:

• The expected usage

• The minimum level
• The lead time

Formula: Ordering Level = Minimum Level + Consumption during lag period

(6) Use of perpetual Inventory system and Continuous verification:

The perpetual inventory system records changes in raw materials, work in
progress and finished goods on daily base. Hence, managerial control and preparation of
interim financial statements is easier. Perpetual inventory derived its name because it
indicates the amount of stock on hand at all time. It facilitates verification of stocks at
any time and authenticates the correctness of stock records.
21
Two main functions of perpetual inventory are:
• It records the quantity and value of stock in hand.
• There is continuous verification of physical stock.

Chartered Institute of Management Accountants, London defines Perpetual

Inventory System as “The recording as they occur of receipts, issues and the resulting
balances of individual items of stock in either quantity or value”.
A perpetual inventory usually checked by a Programme of continuous stocktaking
and the two terms are sometimes loosely considered synonymous. ‘Perpetual inventory’
means the system of records, whereas ‘Continuous stocktaking’ means the physical
checking of those records with actual stocks.
The perpetual inventory method has the following advantages:

• The inventory of various items can be easily ascertained. Hence, profit and loss
account and balance sheet can be easily prepared.

• Information regarding material on hand eliminates delays and stoppage in

production

• The investment in stock can reduced to the minimum keeping in view the
operational requirements.
• Because of internal check, the activities of various departments are checked.
Hence, stores records are reliable.
• Production need not be stopped when stock taking is carried out.
• These records give the cost of materials. Hence, management can exercise
control over cost.
• Discrepancies and errors are promptly discovered and remedial action can be
taken to prevent their reoccurrence in the future.
• This method has a moral effect on the staff, makes them disciplined and careful
and acts as check against dishonest actions.
• Loss of interest on capital invested in stock, loss through deterioration,
obsolescence can be avoided.
• Stock figures are available insurance purposes.

22
 • It reveals the existence of surplus, dormant, obsolete and slow moving material
and hence remedial action can be taken.

Limitations:
The bin card and stores ledger may not be up to date and hence cannot be
effectively controlled. Hence, Continuous stocktaking is hampered.

Perpetual inventory system is comprised of

• Bin card
• Priced Stores ledger and
• Continuous stocktaking
Bin Card:
A bin card is a quantitative record of receipts, issues and closing balance of items
of stores. A separate bin card accompanies each item. The bin card is posted as and when
a transaction takes place. Only after the transaction is recorded, the items are
received/issued. On receipt of materials, the quantity is entered in the bin card from the
Goods Received Note in the receipt column and issues to various departments in the
issues column.

Priced Stores Ledger:

The stores ledger is maintained to record all receipt and issues transactions in
respect of materials the quantities and the values are entered in the receipts issues and
balance columns. Additional information regarding quantity on order and quantity
reserved may also be recorded. Separate sheets for each item or continuous may be
maintained. The sheets should be serially numbered to obviate the risk of removal or loss.

Continuous Stocktaking:
The stores accounts reveal what the balance should be and a physical verification
reveals the actual position. Under this system of verification, the total number of man-days
available for verification is calculated. The items to be verified per man-day are selected by
classifying the various items into groups depending upon time required. The stock
verification staffs planned the program and divide the work among them. The plan is such
that all items are verified in the year. Items are small value may be verified twice or more in
a year. Bulky items are usually verified when stocks are comparatively low.

23
(7) Use of Control Ratios:

Inventory turnover ratio helps management to avoid capital being locked up

unnecessarily. This ratio reveals the efficiency of stock keeping. This ratio will be
indicated in the number of days.

Inventory Turnover Ratio = Cost of material consumed * Days during the period /
((Cost of opening stock + Closing stock) / 2)

(8) Review of Slow & Non-Moving Items:

The money locked up in inventory is the money loss to the business. If more
money is locked up, lesser is the amount available for working capital and cost of carrying
inventory is increase.

Inventory Turnover Ratio should be as high as possible. Lose due to obsolescence

should be eliminated or these items are used in some profitable work. Slow moving stock
should be identified and speedily disposed off. The speed of moving should be increased.

The turnover of different items of stock can be analysed to find out the slow
moving stocks. The percentage of slow moving stores is given by value of slow moving
stores divided by the value of total inventory.

Materials become useless or obsolete due to changes in products, process or

method of design or method of production, slow moving stocks have a low turnover ratio.
Capital is locked up and cost carrying have to be incurred. Hence, management is take
effective steps in minimize losses.

ESSENTIALS OF A GOOD INVENTORY MANAGEMENT

SYSTEM:
An efficient and successful inventory management system possesses the
following essentials:

1. Classification and Identification of Inventories:

24
 The inventory include raw materials, semi finished goods and finished goods and
components of several descriptions. In order to facilitate prompt recording, locating and
dealing, each item of inventory has to be assigned a particular code for proper
identification and has to be divided and sub divided into groups. ABC analysis of
inventory is useful in classification and identification of inventories.

Assignment of definite name to each item of stores is necessary for the identification
of materials. After analysis of all stores items and considering the peculiar nature of each
item, an appropriate name has been assigned to each item these are divided first into larger
and smaller groups. The following are range of items to be held in stock:

• Materials, which are regularly required.

• Materials, which may be required at, short notice when there, are breakdown of
plants.
• Stores, which are not in frequent demand, should not be maintained in huge
quantity provided they are readily available.
• Materials are general stores, which are not operationally vital and are used at
irregular intervals need not be maintained in huge quantity.

2. Standardization and Simplification of Inventories:

In a proper Inventory Management System, standardization of materials is

necessary. Standardization refers to the fixation of standards of materials for the use in
production of finished goods and set the specification of components and tools to be used
in order to control the quality of goods manufactured. Simplification of inventories refers
to the elimination of excess types and sizes of items, which leads to reduction in
inventories and its carrying costs. The following are advantages of standardizing
material: It requires lower holding of materials and lower volume of storage place saves
through reduced expenditure on storing handling of materials. It provides more efficient
purchasing by establishing equivalents between various suppliers. If this practice is
adopted there would be a lesser chance of materials being obsolete. It reduces paper work
for recording transactions.

3. Adequate Storage Facilities:

Adequate storage facilities are necessary to have the proper management of

inventory. It reduces the wastage due to leakage, wear and tear, rust and dust and reduces the
25
wastage of materials due to mishandling. Stores and spares may be deteriorated through
dampness, dryness, heat, cold, dust and dirt, care less handling immethodical stocking etc..,
Proper preventive measures should be taken to avoid such deterioration.

4. Setting Minimum & Maximum Limits, Recorder Points for each

item of Inventory:

In order to avoid over and under investments in inventories, minimum and

maximum limits for each item of inventories are to be fixed. It ensures the availability of
materials during production process, while fixing the minimum and maximum points, re-
order points are to also be fixed before-hand.

5. Fixing Economic Order Quantity:

It is a basic consideration in Inventory Management as how much quantity of a

particular item is to be ordered at a time. In determining the EOQ, the two opposing costs
are balanced i.e., ordering cost and carrying costs.

26
6. Adequate Inventory Records and Reports:

An efficient Inventory Management system requires proper inventory records and

the reports because various inventory records contain information to meet the needs of
purchasing, production, sales etc.., Any particular information regarding any particular
item of inventory may be had from such records. Such information may be about quantity
in hand, in transit and on plants, unit cost, EOQ, reordering points, safety level etc.., for
each item of inventory. Reports and statements should be designed to keep the clerical
cost of maintaining these records at a minimum.

Mere maintenance of records and procedure would not give the desired results
unless the appointment of intelligent and experienced personnel in purchase, production,
and sales department is not made as because that is no substitute for efficient, sincere and
devoted personnel. Hence the whole Inventory Management System should be manned
with trained, qualified, experienced and devoted employees.

FACTORS DETERMINING OPTIMUM LEVEL OF INVENTORY:

The inventory includes stock of raw materials, stock of work in progress and the
stock of finished goods and other accessories. In Inventory Management, the control over
investment in inventory is also an important factor. The main objective of the inventory
management on one hand is to maintain the adequate stock of goods of proper quantity
to meet the requirements of production and sales and on the other hand, to keep the
investment in them at the minimum.

Factors influencing the decision of investment in inventories can be divided into

two parts:

(a) General factors (b) Specific factors

(a) General factors:

These factors include considerations common to the management of all types of

assets – Fixed or Current. Such factors are type and nature of business, anticipated
volume of sales, operation level, price level variations, availability of funds and the
attitude of management.

27
(b) Specific factors:

Such factors those, which influence the decision of investment of inventories

and includes the following:

1. Seasonal Nature of Raw Material and Demand of Finished Goods:

If certain raw material is available during a particular season, but its consumption
continues throughout the year in the firm, the investment in such raw material shall
naturally be heavier to store the stock in order to streamline the production throughout
the year. This is true in agro-based industries like sugar etc. Similarly seasonal industries
purchase raw material in the season and therefore, their investment in raw material
increases in that particular season. Conversely, where demand for goods is uneven, small
or seasonal, the management has to store the finished goods inventory till the demand
season approaches for timely execution of orders and therefore has to follow longer
production runs more even and efficient production scheduling. It requires higher
investment inventories in off-season.

2. Length and Technical Nature of the Production Process:

If production process is such that takes much time in its completion, the
investment in inventories is larger, such as, ship building industry. Moreover, if
production process is of technical nature, even then it requires heavy investment in
inventories.

3. Style Factor in the End product:

The style factor of end product or nature of finished goods determines the size of
investment in inventories. The durability and perishable of the finished product are such
important factors.

4. Terms of Purchase:

If supply of raw material is available on favourable terms that are long credit,
conditions of supply, concession or rebate available etc. The management may have
larger investment in inventories in order to avail of the opportunity of favourable terms.
But, here, the management must consider the cost and benefit effect of ordering raw

28
material in bulk. If on the other hand, raw material is available only on cost terms, the
management will dare not invest heavy amount in inventories.

5. Supply Conditions:
Certainty and regularity in supply of raw material are also important factors in
determining the size of investment from the viewpoint of operating continuity. Suppose, if
the source of material is outside of the country and a ban on imports is feared or supply may
be disturbed due to weather, a great stock of inventory is needed to avoid the risk of being
out of stock. If, on the other hand, the Company relies upon the supplier for regular and
speedy supply of raw material, it may carry very small stock of raw material.
6. Time Factors:
Time is also an important factor in determining the size of inventory and affects
the inventory management in a number of ways:

• Bad time i.e., time lag between indenting and availability of raw material.
• Time lag between purchase of raw material and the commencement of process.
• Time required in production process.
• Average time required for sale of product.
All these exercise their impact on investment in inventories. The longer the time,
the investment in inventories is larger to maintain the flow of the production.

7. Price Level Variation:

If a price increase expected in the near future, the investment in raw material is
greater in a bid to keep the cost of product minimum. On the other hand, if price level is
expected to go down, there is a tendency to purchase the goods in the open market as and
when it is needed.
8. Loan Facilities:
Generally, raw materials are purchased on credit. Moreover, banks advances
credit to the firms against their stock of inventories. If the cost of carrying stock and the
cost of availability of funds is cheaper than the interest payable to the bank, the
investment in inventories is higher.
9. Other Factors:
Other factors like industry wide strike threats, proposed control of raw materials,
rationing or revision of excise duty rates, price control of finished stock etc.., also effects
the investment decisions in inventories.

29
1.5 THEORETICAL FRAMEWORK

1. Re-ordering quantity or Economic Order Quantity (EOQ):

One of the major inventory management problems to be resolved is how much

inventory should be added and when inventory should be added. When inventory is to be
replenished and if the firm is purchasing materials, it has to decide number of lots in
which it has to be purchased on each of replenishment. If the firm is planning a production
run, the issue is how much production to schedule. The problems are called order quantity
problems and the task of the firm is to determine the optimum Economic Order Quantity.

Determining an optimum Economic Order Quantity involves three types of costs.

(a) Ordering Cost

(b) Carrying Cost
(c) Raw material Cost

The Economic Order Quantity is the quantity, which minimizes the total of
ordering and carrying costs.

(a) Ordering Cost:

These include the fixed cost associated with obtaining goods through placing of
an order or purchasing or manufacturing or setting up machinery before starting
production. They include cost of purchase, requisition, follow up, receiving goods,
quality control etc..,

Formula:

Ordering cost = (Annual Requirement (A) * Ordering Cost per order (O))/Quantity
to be ordered (Q)

(b) Carrying Cost:

The cost associated with carrying or holding goods in stock is known as holding
or carrying cost. Holding cost assumed very difficulty with size of inventory as well as
time is held in stock.

30
 Formula:

Carrying cost = (Carrying cost per unit (CH) * Quantity to be ordered (Q)/2
(c) Raw Material Cost:

The cost associated with purchasing of raw materials is called raw material cost.

Formula: Raw Material Cost = Annual Requirement (A) * Price per unit (P)

EOQ Assumptions:

• The forecast/demand for given period, usually for one year is known.
• The usage/demand is even through the period.
• Inventory orders can be replenished immediately.
• There are two distinguishable costs associated with inventories.
• Cost per order is constant regardless of the size of the order.
Cost of carrying cost is fixed percentage of the average value of the inventory

2. ABC Analysis:

With the numerous parts and materials that enter into each and every industrial
products and inventory control lends itself, first and foremost, to a problem of analyze. Such
analytical approach is popularly known as ABC (Always Better Control), which is believed
to have originated in the general electric company of America and based on Pareto’s law.
The ABC analysis is based upon segregation of material for selection control. It measures
the money value, i.e., cost significance of each material item in relation to total cost and
inventory value. The logic behind this kind of analysis is that the management should study
each item of stock in terms of its usage, lead time, technical or other problem and its relative
money values in the total investment in inventories.
31
Critical, i.e., high value items desire very close attention, and low value items need to be
devoted minimum expense and efforts in the task of controlling inventories.

Under ABC analysis, the different items of stock are classified into three categories in
the order of their average inventory investment or based on their annual rupee usage.

Category “A” items:- More costly and valuable items are classified as such items have
large investment.

Category “B” items:- The items having average consumption value are classified as B
items.

Category “C” items:- The items having low consumption value are put as C category.

The important steps involved in segregating material or inventory control are as follows:

i. Find out future use of each item of stock in terms of physical quantities for the
review forecast period.
ii. Determined the price per unit each item.
iii. Determined the total project cost of each item multiplying its expected units to
be use by the price for per unit of such item.
iv. Beginning with the item with the highest total cost, arrange different items in
order of their total cost as computed under step (iii) above.
v. Express the units of each item as a percentage of total costs of all items.

vi. Compute the total cost of each item as a percentage of total costs of all items.
vii. Important points for ABC analysis:
• Whenever the items can be substituted for each other, they should be
substituted for each other, they should preferably be considered as one item.
• More emphasis should be given to the value of consumption and not the cost
per unit.
• While classifying, all items consumed by the organization should be
considered together.
• If it is convenient different items may be classified into only three categories
and labelled as A, B and C respectively depending upon whether they are high
value items, average value items or low value items. If it needs, percentage of
different items may be plotted on chart for better representation.

32
 INVENTORY TURNOVER RATIO:

Inventory turnover is an efficiency/activity ratio which estimates the number of times

per period a business sells and replaces its entire batch of inventories. It is the ratio of cost of
goods sold by a business during an accounting period to the average inventories of the
business during the period (usually a year).

Formula

Inventory turnover ratio is calculated using the following formula:

Cost of Goods Sold

Inventory Turnover =
Average Inventories

33
SUMMARY:

The word inventory plays major important role in any industry which is held for sale to earn
profit .Procuring and management of inventory is vital for production A proper planning of
purchasing,handling,storing need to be done inventory should neither too low for production
nor too high it will lead it extra cost of storage. Management should do it effectively and
efficiently because major amount of funds are blocked in form of inventory.it is a form of
current assets in the balance sheet. Inventory management tries to keep the inventory levels
either too high or too low it helps for smooth of operational activities of the production in the
company there by reducing the extra costs like ordering, carrying and managing cost of the
inventory
For the inventory management there are certain inventory control techniques such as VED
analysis, Bin cards, and perpetual inventory Audits, ABC Analysis, EOQ Techniques all
these techniques helps to reduce the transaction costs and availability of raw materials for
production

Of all the inventory techniques available EOQ,ABC Analysis are most popular and essential
techniques for inventory control .EOQ is ordering quantity of raw materials where both
ordering and carrying cost are equal ,it is the quantity of units to be procured for no loss to the
company .ABC Analysis is technique where all the inventory in the organisation are
categorised into three categories for better control based on the quantity and quality of raw
materials

34
35
 CHAPTER - 2

LITERATURE REVIEW

36
2.1 LITERARUE REVIEW:

Dr. Nagendra sohani (2014) conducted the research on inventory levels of company for
three prior months to research and noticed that over stocking and under stocking of raw
materials leading problem in organisation leading to increase in the supply chain cost

Dr. Yellaswamy Ambati (2016) conducted research by analysing inventory details of two
paper mills , founded that inventory and sales should have positive correlation to strike the
balance between inventory sales and profitability.

Dr.Tariq sheakh(2018) founded that inventory must include the items that are just
completed from the production and items that are shipped for the production ,just –in –time
technique should be fallowed foe effective inventory handling

Dr. Vijay Agarwal(2018) founded that agent system in turn proposes support the forecasting
the inventory requirements depending upon the environmental changes, two fold
improvement support system to decrease the inventory levels ,carrying cost and avoiding
overstocking

Atnafu & Balda (2018) conducted the research and stated that firm competitiveness and
competency depend on effective utilisation of inventory, efficient handling of inventory in
organisation

Stephen Aro – Gordon (2016) through his research study stated that many modern inventory
techniques with software application have been emerged for tracking, maintaining the safety,
availability of raw materials is also easy with these modern techniques of inventory
management.

Hong Shen (2017) conducted research of inventory techniques with reference to the
manufacturing company in china he stated that inventory management in the organisation
directly effects the supply chain of company most of activities directly related with procuring,
receiving, maintaining inventory

P.Jonsson &S A Mattson (2006) in their study stated that inventory planning and inventory
control are the part of inventory management of the inventory control techniques economic
ordering quantity plays the major it considers and calculates the reorder levels, maximum and
minimum levels of the inventory

Daniel Atnaf &Assefa Blada (2018) their research provides empirical justification for a
framework that identifies five key dimensions of inventory management practices and
describes the relationship among inventory management practices, competitive advantage,
and organizational performance.

37
Summary

❖ Inventory management is crucial for the efficiency and effectiveness of supply chain
performance of the company leading to profitability of business by optimising the use
of inventory

❖ Proper management of inventory increases competitiveness and competency of the

organisation with overall organisational performance

❖ Modern inventory management techniques has been introduced for effective

management of inventory such as procuring, storing, maintance of raw material

❖ Sales and inventory has direct relationship processing of inventory and sales should
have a relationship such that all finished goods must be sold out without stocking to
increase the profitability of business.

❖ Two folded inventory management systems helps organisation for stocking the material and
demand forecasting of the product based on that inventory can be procured and maintained

❖ Economic ordering quantity and ABC Analysis plays very important role for management of
inventory based on the quantity and value of materials

38
39
 CHAPTER-3
RESEARCH METHODOLOGY

40
RESEARCH METHODOLOGY

3.1 OVERVIEW OF RESEACRH PROBLEM:

Many successful production companies have been implementing the inventory

techniques such as Economic Ordering Quantity, ABC Analysis for the smooth flow of
operations. There is need of inventory management for reducing the extra cost of
production, reduces the ordering, carrying costs and maintenance of inventory, which in
turn leads to profitability of business .The study has been conducted to analyse the
inventory techniques and anticipation of the inventory for the future requirements with
reference to DELTA PAPER MILLS LIMITED

3.2 OBJECTIVES OF THE STUDY

• To analyse the importance of Inventory management with special reference to
Delta Paper Mills Limited, Vendra.

• To analyse and know how Delta Paper Mills Limited is applying ABC
technique for inventory control.

• To understand and measure EOQ (Economic Order Quantity) for the selected
raw material items.
• To know the relationship between inventory and sales through ratio analysis.
• To identify inventory requirement of the company for the next two years.

3.3 NEED FOR THE STUDY

Materials are equivalent to cash and they make up an important part of the total
cost. It is essential that materials should be properly safeguarded and correctly accounted.
Proper control of material can make a substantial contribution to the efficiency of a
business.

The success of a business concern largely depends upon efficient purchasing,

storage, consumption and accounting. Hence a study has been conducted to understand
about the inventory management process, techniques implemented by the Delta Paper
Mills Limited, Vendra.

41
3.4 SCOPE OF THE STUDY
Inventory management is an important part of a business, because inventories are
usually the largest expense incurred from business operations. Most companies will use an
inventory management system that will track and maintain the inventory required to meet
customer demand. Most systems used by companies are linked to the management or
accounting information system increasing the effectiveness of their operations. The firm has
to maintain adequate inventory for smooth production and selling activities. It has to
minimize the investment in inventory to enhance firm’s profitability.

Investment in inventory should neither be excessive nor inadequate. It should just be

optimum. Maintaining the optimum level of inventory is the main aim of inventory
management. Excessive investment in inventory results into more cost of fund being tied up
so that it reduces the profitability, inventories may be misused, lost, damaged and hold costs
in terms of large space and others. At the same time, insufficient
investment in inventory creates stock-out problems, interruption in production and
selling operation. Therefore, the firm may loose the customers as they shift to the
competitors. Financial manager, as he involves in inventory management, should always
try to put neither excessive nor inadequate investment in inventory. The importance or
significance of inventory management could be specified as below:

• Inventory management helps in maintaining a trade-off between carrying costs and

ordering costs which results into minimizing the total cost of the inventory.
• Inventory management facilitates maintaining adequate inventory for smooth
production and sales operations.
• Inventory management avoids the stock-out problem that a firm otherwise
would face in the lack of proper inventory management.
• The scope of Inventory management is very wide that various techniques of
inventory control management like EOQ (Economic Order Quantity) model,
ABC analysis, XYZ analysis, FSN analysis, HML analysis, SDE analysis, VED
analysis, etc.., which helps to reduce cost and to maintain the inventory
effectively.

42
3.5 Sources of Information:
The information for the study is obtained from two sources namely:

1. Primary sources
2. Secondary sources

Primary sources:

It is the information collected directly without any references. Either it is mainly

through interactions with concerned officers and staff, individually or collectively, some
of the information has been verified or supplemented with personal observation. These
sources include:

• Thorough interactions with the various department managers of DPML.

Secondary sources:

This data is from the number of books and records of the company, the annual
reports published by the company and other magazines. The secondary data is obtained
from the following:

• Stores Ledger
• Stores Accounts Records
• Other books and Journals and
• Annual reports of the Company

3.6 SIGNIFICANCE OF THE STUDY:

Inventory management helpful in the following aspects:
• Classification and identification of inventories.
• Standardisation and simplification of inventory.
• Adequate storage facilities.
• Setting minimum and maximum limits, reorder points of inventory.
• Fixing Economic order quantity.
• Maintaining records and reports.

43
3.7 LIMITATIONS OF THE STUDY
• The project covers the area of particular inventory i.e., Bagasse and area of
general inventory i.e., Waste paper and the corresponding inventory control
techniques under inventory management system of the company. It does not
deal with other particular and general inventories of raw materials, finished
goods and work in progress.
• As the details of inventory are maintained confidentially, the project deals with
fewer areas of inventory.
• The study is based on the facts and figures provided by the Company’s annual
reports.

44
SUMMARY:
❖ As the inventory can be readily converted into cash by sale, it is one of current asset
forming part in both balance sheet and working capital. The main purpose of this study
is to analyse inventory levels, implementation, and understanding the inventory control
techniques in the organisation
❖ Through this study we can understand the relation between inventory and sales,
inventory anticipation
❖ Scope of the study limited to only inventory and techniques fallowed for inventory
management
❖ Classification of inventoy,levels of inventory, knowing the reorder points,maintance of
records are significant for this study.
❖ Data is collected from both primary and secondary sources available
❖ Only few areas of inventory are taken into considerations for conducting the study

45
 CHAPTER- 4

COMPANY AND INDUSTRY PROFILE

46
4. 1 INDUSTRY ANALYSIS:
4.1.1 Paper industry and its establishment:
Paper is a commodity, which is important in everyday life. Paper has grown
immensely in importance in such a way that I that became an indicator for a country’s
civilization, since it is mostly depend upon its paper consumption first to understand the
establishment and growth of the paper industry. We had to known in brief about the
introduction and establishment of Paper in the world and it enhance into the Indian soil.
It is equally important and very essential to know about the development and progress of
paper industry in our country as well as in our state.
The word ‘Paper’ is derived from the water plant called ‘PAPYRUS’, that grows
around the Nile river, Egypt. The citizens of Egypt used the bark of Papyrus plant after
cutting and dry it. It was said that ‘T.Jariluru Chin’ had prepared paper with the bark of
the mulberry tree in 105 A.D. In 751 A.D. the Arabs imported the knowledge of paper
making with the help of Chinese. Later, the art of paper making was spread to Europeans
and Central countries of the world.
Paper was highly popularized by the baudhas especially by the “BOKZA MARK”
throughout the world. The first paper mill was started in 1336 A.D. in Germany. Viewing
the tremendous aspect of paper industry, paper mills were started in 1586 in Switzerland
and London. It was spread to all countries of the world in no great amount of time.
The technology used in paper making has made many modifications and was
entirely different from the technology used in the beginning. In the year 1927, Chlorine
gas was used for the bleaching of the pulp. In 1979, ‘Robert Nicholas’, the French
scientist has designed first paper machine in the world. The paper machine used in the
late 1960’s was designed by ‘Lober Deduct and Brimal Drunklin’. The machine used
now a day are quite different and very well advanced both in capacity to produce and the
enormous speed when they are operated.
Another major development came in its way in 1862 when the soda pulping
process was first used in England. The consumption of Rosin and Alvin was started in
1900 A.D. The industry in these days, has gain much development with production
technology.

47
4.1.2 History of Indian paper industry:
Unlike Iron & steel, textile and sugar industry, the paper making industry didn’t
exist in ancient Indian for waiting purpose ancient Indian’s used Bhoja Patras (bark of
tree) and Tal Patras (bark of palm) were used some of the old man scripts and many grand
has preserve up to the present times were written on these materials are not prevalent
now a days. Then modern art of paper making came in India quite late the foundations
of latest paper industry gained momentum from late 1870’s prior to the latest technology,
people used different techniques.

Ancient Egyptians ( the couriers of paper making in India) used papyrus sheets
made from stem tissue of the plant papyrus. The oldest written sheets, which are present,
now a day, can be date back as many as five thousand years. The Aryans used derived
and processed palm leaves and thin bark sheets of Bhopal Parts for writing. First
successful Paper mill in India was ‘Tata Guar’. Paper mills were established in the year
1891 in Bangalore, East India from this year onwards, the paper industry in India gained
much movement and speed throughout the country and increased in number.

Size and capacity of paper industry:

The economic size of paper industry is determined by the availability of raw
materials and density of markets availability of power and transport facilities etc…, The
beginning of 1st five year plan there were only 19 paper and paper board mills with a
total annual capacity of 1.39 lakh tons and production was 1.34 lakh tons.

At present there are 106 mills with total capacity of 1349 lakh tons and production is
about 11.12 lakh tons although there has been a several spreading of mills in large
dimensions. There are some units well organized and well equipped with a production
capacity of 50,000 tons and too small with a capacity of 1,000 tons, in India the growth of
paper industry after independence is satisfactory under the guidance of five year plans.

It’s growth is reflected by the fact that from a major 17 mills with annual capacity of
1.37 lakh tons. In 1957, the industry has been enlarged to 319 mills with annual capacity of
32.31 lakh tons at the end of seventh five year plan. The paper and paper boards production
in India during 1951 was 17 units and the total installed capacity of 1.40 lakh tons, file the
production excluding news print is about 1.30 lakh tons.

48
 And in 1994, the paper board production was 380 units and with the total installed
capacity of 37.09 lakh tons, file the production excluding news print is about 22 lakh
tons. The lack of a large investment in their industry by the ‘Indian Paper Corporation’
in the public sector to give importance to the growth of the industry to meet the
requirements to the near with effect from much 1987 paper industry preview of
‘MODVAT’ scheme during the last few years government, had made efforts to reduce
the importance of news point and forced on the news paper and magazines to use some
of the cultural varieties of paper manufactured by Indian mills.

4.1.3Types of paper products:

Paper industry supplies various types of paper board, special paper to a number
of uses which include government education, companies packing, news paper and
magazines etc.., The Indian paper industry produces number of varieties of paper and
paper boards. These include Glassine papers, Art papers, Carbon papers, Insulation
papers, Draft papers, Map Litho papers, Quoted papers, Quoted board, Duplex boards,
Triple boards, Straw boards, Paper boards, Lottery papers, Xerox papers, Decorated
papers, etc..,

4.1.4 Development of paper machine:

The development of paper is the most important milestone in the industry are as
fallows:

1796
Louis Robert, working at the paper mill owned by ledger divot, made his first
model of the continuous paper machine in 1796 near Paris. The first model was very
small and made strips of paper about as wide as tape. He received a French patent for his
machine in 1799, based on drawings he has submitted. Shortly after being awarded the
patent he began construction based on the drawings.

49
1801
Development of paper machine was led by the two, Fourdrinier Brothers, Henry
and Esau, about 1/3 interest in the British patent rights of Robert’s machine. They hired
Bryan Don Kin who took three years to develop first practical paper machine, which was
operations at tow water mill, Hertz, England in 1804. Don Kin’s company continued to
manufacture ad to improve the Fourdrinier machine for many years. His company
supplied most of the early Fourdrinier machines throughout of world.

1809
At about the same time John Dickinson, a colleague and friend of Don Kin, was
working on his cylinder machine, which was refined by 1809, in fact both Dickinson and
Don Kin contribution important idea in each of these machines.

1825
The two brothers John and Christopher Philips of Kent country patented the
Dandy roll in 1825.

1826
M.Canson of Annonay, France put a suction under the wire of the Drinier
machine in 1826, as had already been on cylinder machine, but on cylinder machine but
kept this as a secret.
With the invention of paper machine, the amount of paper that could be
produced was soon limited by the fiber supply since cotton was the main constituent of
paper.

Mid 19th century

During the mid 19th century the technology for converting wood into pulp was
developed, with a plentiful supply of pulp available to the amount of paper production
was then closely related to improvements in paper machine speed.

Thus availability of writing material was always gone hand in hand with
development of society.

50
4.2 Development of paper industry in India:

Art making paper reached in India through Arabs who initially learnt it from
Chinese prisoners when they raided parts of China. Some Indian Muslims might have
learnt it directly when they visited Mongolia. The art of making paper was kept a fairly
guarded secret by few families that initially learnt it. These paper making families were
known as ‘KAGZIS’. These KAGZIS were largely settled in Punjab and Kashmir and
flourished under the patronage of Moghal Empire.

The adoption of the art of paper making could not be wide spread in India.
Because Hindus, which constituted a large majority of population, didn’t like handling
rags and other materials essentials to paper making. Paper forms the basic material for
the written communication. The need for paper was felt because human capability to
memories the accumulated wealth of information and knowledge was limited. The
limitation was overcome by early Aryans settled in North India by the use of
‘Tamarapatra’ (Copper plate), Talapatra etc..,

At the need for writing, surface increased in India, attention was paid to master
the techniques of putting the metals such as lead, copper and bronze to increased use in
this regard. The records suggested that before the advent of machine made paper a
sizeable handmade paper industry flourished in India. Paper was observed to be in
common use almost all over India at the close of Akbar’s region. The records suggest
that before the advent of machine made paper sizeable handmade paper industry
flourished in India. Paper was observed to be in common use almost all over India at the
close of Akbar’s region.

51
4.2.1 Mechanization of Indian paper industry:

1821
Earliest effort at mechanizing Indian paper industry was made by William Carey
in the beginnings of 19th century. William Carey stated a paper mill in 1812 with the help
of local kagzis. The mill was located at Sorampur, West Bengal.

1820
In 1820’s a steam engine for operating beaters.

1832
By 1832, the first Four-Denier type machine was introduced. But transpire of all
efforts the venture did not succeed because of lack of demand for paper government,
apathy.

1867
In 1867, the only Four-Denier machine was transferred to the Royal paper mill at
Bally near Calcutta. This mill increased the number of paper machines to four raising the
mill company to 5000 tons per year. The raw materials used were rags jute cuttings, waste
paper, moons and sabai grass. Tataghar paper mill eventually absorbed this mill.

1882
The upper India cooper mills, the third in the series in the modern mills was
started in Lucknow in 1879, and is oldest existing mills started its production in 1882.

1913
At the beginning of 20th century, India’s production of paper is estimated at
19,000 tons. By 1930 as many as seven mills were in production manufacturing 24,000
tons of paper. The raw materials in common use sabai grass, hemp, jute and imported
spruce and wood pulp.

1916
The paper mill designed entirely to work on bamboo was started in India, 1918. This
is India paper pulp at Naihati. Use of bamboo was further encouraged when durries were
leaved on some of the imported bamboo paper industry protection act, 1925.

52
1935
The improvements in production levels were speeded up towards 1935 with
setting of four new mills.
• Rohtas Industries Limited, Dalmia Nagar.
• Orient Paper mills, Brajraj Nagar.
• Mysore Papermills Limited, Badrawati
• Star Paper mills Limited, Sahranpur.
With the coming of these mills and few others year the paper industry gave
itself
that industrial base which even today forms the nucleus for its future growth.
1938
Second World War provided further impetus to the growth of the Paper industry
availability of the spare parts from foreign countries became difficult. However in spite
of odd’s, paper production increased from about 60,000 tons in 1938 to over 1,00,000
tons by 1945.
1947
In 1947, the varieties of paper (in addition to printing paper, writing paper,
Badami paper, wrapping paper) were in production included craft paper and special
varieties of paper such as blotting paper, bank paper etc.., also imported wood pulp had
been almost wholly submitted by bamboo, sabai grass, waste paper, old rags, cloth
cutting and hemp rope.

4.2.2 Paper classification and its uses:

According to the use of paper it may be broadly classified into two categories:

• The products, which are used for writing and printing, wrapping, packaging.
• The products, which are comparatively thicker and stiffer for the purpose of
packaging, decorating etc.., this paper called as board.

Writing paper: Writing paper is a general trade used to indicate all papers intended
to be written upon. The quality requirements for such kind of papers are hard size, smooth
finish and low transparency.

Example: Cream wove, Cream laid, Azure laid etc..,

53
54
Printing paper: It is a comprehensive term used by printers for the innumerable
varieties of paper suitability for many purposes of production. In general a printing paper
should be a good shade, migrate size and opaque.

Example: Map litho, offset, parchment, photocopier

Wrapping paper: The basic requirement of wrapping paper as that is should be able
to fulfill task of wrapping to contain and protect. Therefore essential requirement of this
paper is its strength.

Example: Poster, Tea yellow, Manila etc..,

Packaging paper: The category of paper includes Craft paper, Linear, Media etc..,
The basic purpose of this is to pack various commodities.

Specialty paper: This paper is specialized to serve a particular purpose. Some of the
specialty papers include Bond papers, MICR, Electrical, Grease proof, Tissue, Cigarette
paper, etc..,

Sickness of the paper units: Though there is large number of small paper units,
many of them are facing the problems of sickness such as absence official recovery plant,
absence of effluent treatment facilities etc.., Because of these problems small paper mills
find it difficult to produce quality paper at low cost. On the other hand, large paper mills
have better equipment and have competitive advantage over small unit. As a result small
paper units unable to compete with large units.

The sickness of small paper units were mainly due to:

• High cost of production and low rate of return.

• Severe competition in this industry.
• Ultimate increase in cost but stagnant price of paper and paper board.
• High rate of interest of loans from financial institutions.
• Increasing if electricity and water charges.
• Availability of raw materials in production time.
• Non availability of coal in require quality and quantity.
• Cluster of mills in particular region, which resulted in demand of raw material.

55
Success factor of Indian paper industry:

The success for the Indian paper industry in the medium and long term will be:
➢
Access to quality and competitive fibre.
➢
Modern technology for improved product quality.
➢
Improved cost competitiveness to meet international competition.

➢
More focused business and product mix approach. Emphasizing the core
strength of each approach.
Working with along the above lines would pre-conceive plenty of joint
effort with in the paper industry itself, between the industry and government as
well as between the industry and it.

56
4.3 COMPANY PROFILE

4.3.1 MANAGEMENT OF DELTA PAPER MILLS LIMITED:

Delta Paper Mills Limited was established in 1975 and suited at Vendra village,
West Godavari district, Andhra Pradesh. The company manufactures writing and printing
papers of different varieties such Cream Wove, White Printing, Azure Wove, Azure Laid,
Duplicating etc.

The Company uses unconventional raw materials like waste material, Paddy
straw and bagasse. It went into commercial production in 1978 with an initial installed
capacity of 9000 MT’s per annum. Subsequently in 1982, the company envisaged
expansion of the capacity to 18,000 MT, successfully completed the same and started the
commercial production during 1988.

The main objective of this establishment was to use Agro residues and cater to
the needs of the farmers. It is the first company to utilize Natural gas supplied by Oil &
Natural Gas Corporation in entire South India. To keep the environmental balances, the
Company has taken up plantation of trees in and around the mill premises. It has got full-
fledged effluent treatment plant. The Company is providing employment for about 2000
persons directly and indirectly mostly to rural youth.

The Company has developed superior quality of paper called “Super Deluxe
Cream Wove” and penetrated into the market with good results. It has a strong marketing
network. The majority of the sales comprises to the government department. Government
textbook department of Andhra Pradesh, Maharastra, Madhya Pradesh, Thailand and
other Central/State government agencies through DGS & D rate contract. The Company
enjoys patronage of private market distributors and also having a brand name and image.
Its “Delta Hasty Duplication Paper and Note Books” are very popular.

In the year 1988, Sri Gokaraju Ganga Raju, Promoter, Head of Laila Group,
Managing Partner of M/s. Chemiloids, Herbal Pharma Extract Unit and an Eminent
Industrialist of Andhra Pradesh has taken over the management of the Company and
turned the corner and achieved its capacity utilization to an extent of 144%. The
management has installed one more paper machine and commissioned the same during
December 2004. With this, the Company’s production level is increased to 42,000 MT
per annum of writing and printing papers.

57
 For the further development of the quality of paper, full utilization of capacity
and for the pollution abatement, the company has embarked mill development under
which the pulp mill is upgraded for pulping Baggasse by introducing continuous
Digestive system. This has to be done since for abating pollution. Straw pulp can’t be
used as the waste liquour from paddy straw can’t recover the chemical, as well as the fule
value and hence the Company was switched over to the Baggase pulping. This has
improved the requirement of the Baggasse pulp substantially with procuring Baggasse
from the Sugar mills are made its availability has become difficult in view of fact that
most of the sugar mills are using Baggasse for their captive power generation. The
management has the foresight and vision and the anticipation such a situation, have
procured Sugar mills, when the AP Government started disinvesting in co-operative sugar
mills. Delta Sugars Ltd. is one such mill. The management has also installed coal fired
boiler in Delta Sugars Ltd., Hanuman Junction so that Baggasse can released for the use
as raw materials for the Paper mills. Thus, the Company is procuring almost 40-50% of
its Baggasse requirement from its sister concern, Delta Sugars Limited, Hanuman
Junction, besides the procurement of Baggasse from other Sugar Mills in and around
West Godavari district.

The company has also installed a 9.9 MW power plant. In entire South India out
of Agro-based paper mills, the Company is the only mill installed Chemical recovery
plant for abating the pollution. With all these developments, the Company is now
producing at rate of 51,100 MT per annum of Quality Writing and Printing papers.
Recently, the Delta Paper Mills Ltd. started fuel consumption watts were considerably
reduced by 45% by utilizing second team turbine and fuel efficiency boilers.

Delta Paper Mills Ltd. despite of all its problems mostly has been successfully in
completing the expansion and has stated benefitting from some after a delay about 5-6
years. Delta Paper Mills Ltd. is already enjoying a favorable market is operating the mill
around its installed capacity.

58
VISION:

DELTA PAPER MILLS LIMITED, Vendra is committed to satisfy our customers,

for the products we develop and supply with an emphasis on

• Customer requirements at competitive prices.

• Use of Eco friendly systems to the extent possible.
• Continuous process of improvement for betterment in quality.
• Continuous interaction between the Mills, Suppliers, Dealers and Customers.

MISSION:

Delta Paper Mills Ltd. is committed to actively promote the safety, health and
well being of all its personnel. Delta Paper Mills Ltd will ensure that these aspects are
inbuilt and become integral part of its operations and strategic planning.

Delta Paper Mills Ltd also is committed to make available necessary funds, resources
and any such means required to implement the occupational health, safety and welfare
(OHS & W) policy and commits to ensure:

• A safe work culture that minimizes the risk of injury or illness to its personnel.
• Adequate facilities at work places.
• Regular training, instructions and information to all its personnel on OHS & W.
• To meet these provisions Delta Paper Mills Ltd is committed to be:

i) Meet its responsibility of care and well being of all persons in Delta Paper
Mills Ltd’s work places in including visitors, contract workmen, casual
workmen and trainees.
ii) Comply with relevant OHS & W legislation, code of practices and standard.
iii) Implement an effective Hazard Management Policy.
iv) The right of employees to demand for safe working environment and shall
strive to provide the same.
v) Have effective two-way communication with all its employees for a better
and safe work culture.

23

59
4.3.2 OBJECTIVES OF DELTA PAPER MILLS:
• To way the business of manufacturing and dealers to all kind of all and classes
of paper.
• To manufacture and deal in all materials and substances used in the
manufacturing production of treatment of all kinds of paper.
• To buy, to sell, to import, export, process chemically or otherwise treat and to
work out for special purpose of all kinds and classes of paper.
• To plant, cultivate, produce, raise manufacturing purchase of sell, import, export
or otherwise handle or deal in grass timber, wood, bamboo, straw or other
products.
• To carry on the business as stationary printer, publishers, lithographers, offset
printers, steno printers, steno type, photographic printers etc..,

SITE SUITABILITY CONSIDERATION:

The Krishna Godavari Delta is known as the Rice Bowl of India, particularly West
Godavari district comes under the well known Godavari Delta which is the oldest
irrigating navigational networks of canals from the Godavari district. At least all parts of
the districts have wet land, cultivation with two paddy crops per year. Since paddy crop
can be to a large extent of the entire available inputs one could not have asked for a more
suitable location. Other raw materials such as baggage gunny waste, cotton, lintels and
waste paper are procured easily from Rajahmundry, Visakhapatnam, Eluru, Vijayawada
and Hyderabad in Andhra Pradesh. Since the company is well connected with all kinds
of transport facilities never experience any problems in procuring these raw materials.

Coal & chemicals:

Coal needed to produce steam is obtained from the coal mines which are situated
in Andhra Pradesh itself. The lead and other chemicals needed in water purification are
available with coal mines which are situated about 200 Km from the site. Fortunately,
the factory is situated in the proximity of electronic soda & Chlorine plant of Andhra
Pradesh Sugars Ltd near Kovvur which is hardly 60 Kms from the plant. Brunt Lime
could be produced from Pidugurallu of Dhronachalam, lime stone belt in Andhra
Pradesh. However, Udaipur in Rajasthan is the only source of talcum powder which is
another chemical reviewed for any paper unit.

60
Water & power:

The Delta Paper Mills Ltd. Plant rewires 30 million gallons of water per a day
and that has gone up to 60 million after expansion of the plant. The site is located on the
bank of G & V canal of the Godavari. Public water department authorities have indicated
that there is surplus flow of water in canal all the time after meeting the irrigation
requirement. Also the canal level maintained always high. Since it is unused for
navigation, as such there will be no difficulty at all in the allocation of water to this plant.
Since the requirement is do merger for one month a year for maintenance. The minimum
demand be in order of 2500KVA after the second phase.

Labour:

West Godavari District is predominantly an agriculture belt. Agriculture alone

cannot provide full time employment. Besides, the Delta, region has highest population
density. Therefore labor is available in plenty. There are also polytechnic, engineering
and industrial schools in the district and the qualified crafts men will find employment in
the region skilled labour are therefore always available to meet the largest Paper Mills in
the Andhra Pradesh i.e., in Rajahmundry which is 40 miles away from the factory site.
Skilled labour can further be trained in this Paper Mill or the project can draw some
experienced surplus labour from this mill. In general, the people of this area are very
sincere and hardworking.

Transportation:

The factory site is located on the broad gauge railways line of south central
railways connected directly to important cities like Madras, Vijayawada, Hyderabad,
Visakhapatnam and Calcutta etc.., the plant is also connected by road. This is 4 KMs on
the JP road leading from Palakoderu to Nowdure Junction at a distance of about 8 kms
from the Bhimavaram town. There is network of all roads connecting to important
centres. Navigable canal system is another advantages factor for economic transport of
Paddy straw, Caustic soda and Chlorine from Kovvur.

61
4.3.3 TYPES OF THE PRODUCTS IN THE COMPANY:

1. Cream wove:
This type of paper is used for typing notebooks, office books, government books etc..,

2. Azur laid:

This type of paper is used for making charts, cards etc..,

3. Azurwove:

This type of paper is used for typing office work, used usually for rough work.

4. Duplicating paper:

This is used for stencil work cyclostyling etc.., It is very much for rough works, color
paper, vouchers etc..,

5. Colour wove:
This is used for packing bundles, packing and covers manufacturing.

6. Snack Kraft:
It is used for packing bundles, packing and covers manufacturing.

7. Delta Hasthi:
This is the brand name of books used for note books.

ORGANISATIONS STRUCTURE:

Organization structure is the established from relation among parts or components of

the organization. This describes the hierarchy of relationships among various departments,
which are located at different levels of hierarchy the connecting line on this chart show who
is accountable to whom and who is in charge of what department.

Delta Paper Mills are being managed by a Board of directors are at the top level.
The top level chief executive is the managing director, who is assisted by the executive
directors.

62
Dr. Gokaraju Ganga Raju Chairman

Mr. G.V.K. Ranga Raju Managing Director

Mr. G. Rama Raju Executive Director

Mr. M. Subba Raju Director

Mr. Bh. K.K. Kasturi Director

Mr. A. Narasimha Rao Director

Mr. G. Panduranga Raju Director

63
Organization Chart in Delta Paper Mills:

Board of Directors

Chairman

Managing Director

Executive Director

General Manager Vice President (Finance

(Production) & Administration)

Accounts Manager Manager Chief

Manager (Purchases) (Stores) Manager

Manager
(Marketing)

Deputy
Manager

Sales
Officer

Assistant Sales
Officer

Clerk & Typist

64
Raw material and chemicals:

Main raw materials are Paddy and Bagasse miscellaneous materials are waste
paper pulp is the basic raw material for manufacturing process of paper from any raw
material. Pulp is the result of girding, cooling and washing of any of the raw materials.
All types of raw materials mixing in for grading.

Bleaching process is nothing but declaring the pulp with the use of chemicals
where brown colour changes into white colour. They make the individual pulps of each
raw materials i.e., Paddy, Gunny, Baggasse percentage of pulp varies other items lightly
varies as per the required of the quality of paper.

Production process:

Production process starts after the purchase of Paddy straw and Baggasse.
Thousands of orders are placed before mediators not directly from the farmers so that
large lump sum is available from mediators by the way of quotations or tenders.

Delta Paper Mills in case of Baggasse, directions approach nearby Sugar Mills
thereby entering into contracts.

Various stages in paper manufacturing:

The following are the stages involved in paper manufacturing:

Pulping:

Straw cutting passes through conveyors, digesters using stream it is cooled and
then they are washed.

Stock making:

They mix all kinds of pulps up to their individual’s requirements on the basic of
quality of paper to be made coloring is also made as per the requirement.

Paper machine section:

Mixing the pulp in water, sheet formation takes place dewatering drying the sheet.
Calendaring smoothening activity of paper takes place.

65
Rewinding and Cutting:

Cutting on paper into required sizes finishes house. Paper is finished into number
of sheet are termed as 1 realm 1 bale is equal to 50 kgs.

Packaging:

Packaging is done as per the orders warehousing. Here central activities are
performed i.e., duty payment. The movements of trilateral from the factory gate to the
concerned authorities.

Manpower particulars:

In the Delta Paper Mills Ltd., total 1800 employees are working. Among them
200 were office staff. The Company is having the following trade unions:

• Staff and Workers Union.

• Employees and Workers Unions.
• Supervision Employees Union.

Financial position of Delta paper mills:

Delta Paper Mills has an authorized equity share capital of Rs. 13,30,00,000 and
authorized preference share capital of Rs. 86,70,00,000. Both come to 100 crores.
However, the paid up capital of Delta Paper Mills Limited is only Rs. 53,96,57,720 which
come from Rs. 7,26,57,720 of equity capital and Rs. 46,70,00,000 from preference share
capital. The financial figures are taken from the annual reports of the Company. The
Company is running in losses at present and recorded a net loss of Rs. 5,34,38,646 for
the year 2017-2018.

66
 CHAPTER -5
DATA ANALYSIS AND INTERPRETATION

67
5.0 DATA ANALYSIS AND INTERPRETATION
5.1. Calculation of portion of inventory in Gross Working Capital:
inventory

formula = gross working capital × 100

Gross working capital = Total of current assets – Total of current liabilities Current
assets of Delta Paper Mills Ltd. include Inventory, Trade Receivables, Cash and Cash
equivalents, Short term loans and advances and other current assets.
Illustration:
Year Inventory Total current Portion of
assets
(in lakhs) Inventory in GWC
(in lakhs)
2014 5266.67 11484.71 45.85%
2015 6917.37 11651.07 59.37%
2016 5175.83 11405.01 45.38%
2017 5422.49 10371.72 52.28%
2018 5322.62 11136.34 47.79%
Table 5.1: Portion Of Inventory In Gross Working Capital
Evaluation:
14000

11484.71 11651.07 11405.01

12000 11136.34
10371.72
10000

8000 Inventory (in lakhs)

6917.37

6000 5266.67 5175.83 5422.49 5322.62 Total current assets (in

lakhs)
4000

2000

0
2014 2015 2016 2017 2018

Graph 5.1: Portion Of Inventory In Gross Working Capital

Average portion of inventory in GWC for the past 5 years
45.85 + 59.37 + 45.38 + 52.28 + 47.79 = 50.13%
5

68
Interpretation:
From the above analysis it is interpreted that 45.85%, 59.37%, 45.38%, 52.28%
and 47.79% of Gross working capital is maintained in the form of inventory in the years
2014, 2015, 2016, 2017 and 2018 respectively.
5.2 Inventory levels of Delta Paper Mills Limited for past 5 years:
Illustration:
Particulars Value in lakhs for the years
2014 2015 2016 2017 2018

Raw materials 3518.52 4143.34 3183.05 2909.73 2772.09

Work in 186.21 89.33 684.67 1171 1595.84
Progress
Finished goods 723.19 1840.52 423.39 449.64 57.38
Stores and 828.60 836.39 879.24 887.78 892.98
Spares
Table 4.2: Inventory levels of Delta Paper Mills Limited for past 5 years:
Evaluation:

7000

6000

5000
Stores and Spares
4000 Finished goods

3000 Work in progress

Raw materials
2000

1000

0
2014 2015 2016 2017 2018

Graph 5.2: Inventory levels of Delta Paper Mills Limited for past 5 years:
Interpretation:
From the above graph, it is interpreted that maximum portion of inventory
consists of raw materials for the past 5 years and remaining portion is jointly occupied
by Finished goods, Work-in-progress and Stores & spares.

69
2. Study of ABC analysis as an inventory management technique with
respect to DPML:

On the basis of cost involved, various items of inventory are classified into 3
categories:

1. A, consisting of items with large investment.

2. B, which stands midway between category A and C.
3. C, with relatively small investment but fairly large number of items.
Category A items needs rigorous control, C items require minimum attention and
B items deserve less attention than A but more than C.

List of items of inventory as per ABC analysis:

Category A (High valued items)
➢
Waste material
➢
Raw wood
➢
Bagasse
➢
Packing material
➢
Craft
➢
Wires and pipes

Category B (Moderate valued items)

➢
Paddy straw
➢
Kikkisa
➢
Chlorine and dyes
➢
Misc. chemicals
➢
Woven taps
➢
Oil lubricants
➢
Soft wood
Category C (Low valued items)
➢
Pulp
➢
Coated books
➢
Misc packing material
➢
Bolts
➢
Spare parts

Note: ABC analysis classifies various inventory into three sets or groups of priority that
allocates managerial efforts in proportion of;
The priority the most important items are classified into Category A. Those of
intermediate importance of classified as Category B and remaining items are classified
into Category C. All these items are on Basic items used by Delta Paper Mills Ltd.

70
Category A items having criteria 70% of consumption, whereas Category B items having
criteria 20% of consumption and Category C items having criteria 10% of consumption.
Interpretation:
From the above table, it is interpreted that 6 items of raw materials are classified
under class A, 7 items under class B and 5 items under class C by considering quantity
and value of the items.
5.3 ABC quantitative – value analysis:

Class Number of items Quantity (%) Value (%)

A 6 8.75 65

B 7 20 20

C 5 71.25 15

Table 5.3: ABC quantitative – value analysis:

Evaluation
80
71.25
70 65

60

50

40 Quantity (%)
Value (%)
30
20 20
20 15
8.75
10
0
A B C

Graph 5.3: ABC quantitative – value analysis:

Interpretation:

From the above graph, it is interpreted that class A items consists of 8.75% of
total inventory items with the value of 65%, class B items consists of 20% of total
inventory items with the value of 20% and class C items consists of 71.25% of total
inventory items with the value of 15% whereas the ideal levels of quantity-cost levels as
per ABC analysis is 10%-90%, 20%-20% and 90%-10%.

71
5.4. EOQ technique:

Delta Paper Mills Ltd. manufactures paper mainly through the raw material of
bagasse and waste paper. Data required for the calculation of Economic Order Quantity
of particular inventory (bagasse and Waste paper) is as follows:

YEAR TYPE OF RAW ANNUAL ORDERING CARRYING

MATERIALS DEMAND COSTS COSTS
(IN MT)
(IN LAKHS) (IN LAKHS)

2014 bagasse 7640 950 325

Waste paper 14089 7700 330

2015 bagasse 61281 750 275

Waste paper 21273 10000 498

2016 Bagasse 97382 642 300

Waste paper 22068 10700 390

2017 bagasse 169148 800 324

Waste paper 17704 11500 442

2018 Bagasse 237021 700 310

Waste paper 22355 12300 450

Table 5.4: Ordering and carrying costs of particular inventory

Interpretation:
From the above graph it is interpreted that
• Annual demand of bagasse is 7640 MT, 61281 MT, 97382 MT, 169148 MT and
237021 MT for the years 2014, 2015, 2016, 2017 and 2018 respectively. It can
also be observed that annual demand for the bagasse is drastically increasing from
year to year.
• Annual demand of Waste paper is 14089 MT, 21273 MT, 22068 MT, 17704 MT and
22355 MT for the years 2014, 2015, 2016, 2017 and 2018 respectively. It

72
 can also be observed that annual demand for the Waste paper is at an increasing
trend up to 2016, decreased in 2017 and again started increasing in 2018.
Graph showing Ordering and Carrying costs of particular inventory:

14000
12300
11500
12000
10700
10000
10000
7700
8000 ORDERING COSTS (IN
LAKHS)
6000 CARRYING COSTS (IN LAKHS)

4000

2000 950 750 642 800 700

325 330 275 498 300 390 324 442 310 450
0
2014 2015 2016 2017 2018

Graph 5.4: Ordering and carrying costs of particular inventory

Interpretation:
From the above graph, it is interpreted that,

➢
Ordering costs for bagasse is 950 lakhs,750 lakhs, 642 lakhs, 800 lakhs and 700
lakhs for the years 2014, 2015, 2016, 2017 and 2018 respectively.
➢
Carrying costs for bagasse is 325 lakhs, 275 lakhs, 300 lakhs, 324 lakhs and 310
lakhs for the years 2014, 2015, 2016, 2017 and 2018 respectively.

➢
Ordering costs for Waste paper is 7700 lakhs, 10000 lakhs, 10700 lakhs, 11500
lakhs and 12300 lakhs for the years 2014, 2015, 2016, 2017 and 2018
respectively.
➢
Carrying costs for Waste paper is 330 lakhs, 498 lakhs, 390 lakhs, 442 lakhs and
450 lakhs for the years 2014, 2015, 2016, 2017 and 2018 respectively.

73
Analysis of EOQ technique in Delta Paper Mills Limited is calculated
as follows:

EOQ = _________

Where,

A = Annual Demand

O = Ordering cost

C = Carrying cost

Here, the main raw materials of the Company are bagasse and Waste paper.

For the year 2014

Bagasse EOQ = √2 × 7640 × 950/325

= 211.34 MT

Waste paper EOQ = √2 × 14089 × 7700/330

= 810.8 MT

For the year 2015

Bagasse EOQ = √2 × 61281 × 750/275

= 578.15 MT

Waste paper EOQ = √2 × 21273 × 10000/498

= 924.30 MT

For the year 2016

Bagasse EOQ = √2 × 97382 × 642/300

= 645.5 MT

Waste paper EOQ = √2 × 22068 × 10700/390

= 1100.41 MT

74
For the year 2017

BAGGASSE EOQ = √2 × 169148 × 800/324

= 913.94 MT

WASTE PAPER EOQ = √2 × 17704 × 11500/442

= 959.81 MT

For the year 2018

BAGGASSE EOQ = √2 × 237021 × 780/340

= 1042.83 MT

WASTE PAPER EOQ = √2 × 22355 × 12300/450

= 1105.47 MT

5.5 The EOQ levels of bagasse and Waste paper for the last 5 years is
tabulated below:

Year Bagasse Waste paper

2014 211.34 810.85

2015 578.15 924.30

2016 645.59 1100.41

2017 913.94 959.81

2018 1042.83 1105.47

Table 5.5: EOQ levels of bagasse and Waste paper

75
Evaluation:

1200
1100.41 1105.47
959.81
1000 924.3
810.85
800

600 Bagasse
Waste paper
400
211.34
200

0
2014 2015 2016 2017 2018

Graph 5.5: EOQ levels of bagasse and Waste paper

Interpretation:

From the above graph, it is interpreted that Economic Order Quantity for bagasse
has been multiplied 5 times in 2018 when compared to 2014 whereas the Economic Order
Quantity of Waste paper is constantly increased from 810.85 MT to 1105.47 MT.

76
5.6 Comparative analysis of Average inventory and Sales:

Year Sales (in lakhs) Average inventory (in

lakhs)

2014 22150.97 2606.63

2015 17188.15 3463.25

2016 21840.81 3427.95

2017 23883.98 3046.39

2018 21416.21 2840.91

Table 5.6: Comparative analysis of Average inventory and Sales

Evaluation:

30000

23883.98
25000 22150.97 21840.81 21416.21
20000
17188.15
Sales (in lakhs)
15000
Average inventory (in
10000 lakhs)

5000 2606.63 3463.25 3427.95 3046.39 2840.91

0
2014 2015 2016 2017 2018

Graph 5.6: Comparative analysis of Average inventory and Sales

Interpretation:

From the above graph, it can be observed that the levels of Sales are decreased
from 2014 to 2015 and again increased in 2016 and 2017 and decreased in 2018. It can
be observed that average inventory increased from 2014 to 2015 and decreased in 2016
and goes on decreasing in 2017 and 2018.

77
5.7 Calculation of stock turnover ratio:
Net Sales
Stock turnover ratio = Average Inventory

Where Average Inventory = (Opening inventory + Closing inventory)/2

Year Sales (in lakhs) Average inventory Stock turnover

(in lakhs) Ratio
2014 22150.97 2606.63 8.49
2015 17188.15 3463.25 4.96
2016 21840.81 3427.95 6.37
2017 23883.98 3046.39 7.84
2018 21416.21 2840.91 7.53

Table 5.7: Stock Turnover Ratio

Evaluation:

9 8.49
7.84
8 7.53

7
6.37
6
4.96
5
Stock turnover ratio
4

1
0
2014 2015 2016 2017 2018

Graph 5.7: Stock Turnover Ratio

Interpretation:

From the above graph, it is interpreted that the stock turnover ratio has fallen from
8.49 in 2014 to 4.96 in 2015 and started increasing up to 6.37 in 2016 and 7.84 in 2017
and again started decreasing in 2018 with a ratio of 7.53.

78
5.8 Calculation of stock holding days:
365
Stock holding days = Stock Turnover Ratio

Year 2014 2015 2016 2017 2018

Stock turnover ratio 8.49 4.96 6.37 7.84 7.53

Stock holding days 71 76 77 129 101

Table 5.8: Stock Holding Days

Evaluation:

140
129

120
101
100

76 77
80 71
Stock holding days
60

40

20

0
2014 2015 2016 2017 2018

Graph 5.8: Stock Holding Days

Interpretation:

From the above graph, it is interpreted that the stock holding days are maximum
in the year 2017 at 129 days and minimum in the year 2014 at 71 days. It is to be noted
that the more holding days implies the greater carrying costs.

79
5.9 Estimation of Inventory for years 2019 and 2020 through Trend
Analysis:

There are many techniques to forecast demand. These are broadly classified into
survey method, statistical method and other methods. In order to estimate the inventory
levels of DPML, I am going to use Least Square method, which is one of the statistical
trend projection methods. This technique is most widely used. This method helps to find
a trend line which fitted to a given data. Hence this line is called as line of best fit. The
estimating trend equation of inventory can be written as:

I=X+YT

Where X & Y has to be calculated from past data.

I = Inventory,

T is the year number for which the forecast is made.

To find the values of X & Y, the following 2 equations have to be stated and solved.

∑I = NX + Y∑T Equation-1

∑IT = X∑T + Y∑T2 Equation-2

Where N = No. of years for which data is available.

Required information is as follows:

Year Inventory (I) Year Number I*T T2

(T)
2014 5266.67 1 5266.67 1
2015 6917.37 2 13834.74 4
2016 5175.83 3 15527.49 9
2017 5422.49 4 21689.96 16
2018 5322.62 5 26613.1 25
2
Total ∑I = 28104.98 ∑T=15 ∑IT = ∑ T = 55
82931.96

80
Substitute values in equations 1 & 2

Equation 1 28104.98 = 5X + 15Y

Equation 2 82931.96 = 15X + 55Y

In order to solve the above equations, we need to multiply equation 1 with 3 and solve
them.

Equation 1 * 3 84314.94 = 15X + 45Y

Equation 2 82931.96 = 15X + 55Y

1382.98 =0-10Y

Y= -138.29

Substitute the value of Y in equation 1

28104.98 = 5X + 15(-138.29)

= 5X – 2074.35

5X = 26030.63

X = 5206.12

Now we got the values of X and Y

Calculation of inventory for the years 2019 and 2020 by using equation I =

X+YT Inventory for the year 2019

S for the year (T=6) = 5206.12 - 138.29(6)

= 5206.12 - 829.74

= 4376.38

S for the year (T=7) = 5206.12 - 138.29(7)

= 5206.12 – 968.03

= 4238.09

81
5.10 Table showing the Inventory levels of past 5 years and coming 2
years i.e. for 2019 & 2020

Year Inventory (in lakhs)

2014 5266.67
2015 6917.37
2016 5175.83
2017 5422.49
2018 5322.62
2019 4376.38
2020 4238.09

Table 5.10: Inventory levels of past 5 years and coming 2 years i.e. for 2019 &
2020

Evaluation:

8000
6917.37
7000

6000 5175.83
5266.67 5422.49 5322.62
5000 4376.38
4238.09
4000
Inventory (in lakhs)
3000

2000

1000

0
2014 2015 2016 2017 2018 2019 2020

Graph 5.10 : Inventory levels of past 5 years and coming 2 years i.e. for 2019 & 2020

Interpretation:

From the above graph, it is interpreted that inventory for the years 2019 and 2020
is expected to be 4376.38 lakhs and 4238.09 lakhs. This infers that inventory requirement
is decreasing in the future period.

82
 SUMMARY

For every organization, inventory plays crucial role in its profitability. The
Company has to exercise a lot of proper control and proper system of inventory
management to manage such inventories in a profitable way. For this purpose, the
Company may consider techniques like EOQ, JUST IN TIME, ERP etc.., Delta Paper
Mills Ltd. is focusing on the efficient use of techniques like EOQ (Economic Order
Quantity) and ABC (Always Better Control) analysis for managing and controlling
inventory and is following good purchasing procedure. The provision of right goods or
services in right time at right place to the customer improves his satisfaction to a
maximum extent. A proper inventory management system helps definitely to achieve this
objective of the Company and for its continuous improvement.

83
 CHAPTER – 6

FINDINGS AND SUGGESTIONS

84
6.1 FINDINGS

1. I found that DPML is using ABC analysis and EOQ analysis as Inventory
control techniques.
2. The production, commercial and Inventory performance has been improving
with the passage of years.
3. The liquidity position of the company is satisfactory.
4. It is observed that Company is fluctuating its stock value due to the changes in
the demand from the past 5 years.
5. It is found that, the EOQ levels of bagasse and Waste paper increased from 211.34
lakhs and 810.85 lakhs in 2015 to 1042.83 lakhs and 1105.47 lakhs in 2019.
6. It is observed that, whenever there is more demand, there is no sufficient stock
available in the Company. So that the production and delivery of stock becoming
delay and competitors are grabbing the opportunity for selling their products in
the market.
7. It is identified that DPML is maintaining the records, but they are not
concentrating much on physical verification of inventory, and inspecting the
records.
8. Providing enough space and storage equipment like alarmist, shelves, racks,
bins etc..,
9. The Economic Order Quantity for Baggasse has been multiplied 5 times in 2018
when compared to 2014.
10. class A items consists of 8.75% of total inventory items with the value of 65%.
11. class B items consists of 20% of total inventory items with the value of 20%.
12. class C items consists of 71.25% of total inventory items with the value of 15%.
13. Annual demand of Baggasse is 7640 MT, 61281 MT, 97382 MT, 169148 MT
and 237021 MT for the years 2014, 2015, 2016, 2017 and 2018 respectively.

6.2 SUGGESTIONS
85
1. It is suggested to the Company to adopt other inventory control techniques such
as VED and FSN to manage its inventory in a better manner.
2. Because of the fluctuations in demand, it is suggested to follow survey methods
for planning procedure in order to eliminate high inventory costs.
3. It is suggested to the Company that they should maintain sufficient and proper
supply chain management effectively so that they can reduce the carrying costs
of stock.
4. It is guided that the management should look after their employees and has to
maintain healthy relations with their employees and provide proper training. So
that they can have better exposure towards their employees.
5. The Company is required to maintain safety stock for each of its components in
order to avoid stock-out conditions and helps in continuous production flow.
6. It is suggested that Company should concentrating on periodical review (Twice
in a month) on Inventory, so that it can be under control and maintenance and
verification of records can help the organization for its future analysis.

86
 BIBLIOGRAPHY

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Production and Operations Management Paneer selvam

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51

88
 BALANCE SHEET AS AT 31ST MARCH, 2014

Particulars Note As at
No. 31-03-2014(Rs.)
EQUITY AND LIABILITIES
Shareholders’ Funds
Share capital 4 53,96,57,720
Reserves and Surplus 5 24,80,62,490

78,77,20,210

Non-Current Liabilities
Long-term borrowings 6 19,48,98,528
Deferred Tax Liabilities(Net) 7 9,54,45,947

29,03,44,475
Current Liabilities
Short-term borrowings 6 19,22,98,014
Trade payables 8 69,51,96,871
9 8,41,40,892
Other Current liabilities
Short term provisions 10 43,29,079

97,59,64,856

TOTAL 2,05,40,29,541

ASSETS
Non-current Assets
Fixed Assets
Tangible assets 11 84,76,83,247
Capital work-in-progress 11 5,08,59,587
Non-current investments 12 13,64,200
Long term loans and Advances 13 56,50,581

90,80,46,8
Current Assets 91
Inventories 14
Trade Receivables 15 52,66,67,333
Cash and Cash Equivalents 16 41,95,15,169
Short-term loan and Advances 17 6,39,30,543
Other current assets 18 10,95,94,648
2,87,64,233

1,14,84,71,926
TOTAL
2,05,40,29,541

89
 BALANCE SHEET AS AT 31ST MARCH, 2015

Particulars Note As at
No. 31-03-2015(Rs.)

EQUITY AND LIABILITIES

Shareholders’ Funds
Share capital 4 53,96,57,720
5 23,73,58,067
Reserves and Surplus
77,70,15,787

Non-Current Liabilities
Long-term borrowings 6 16,19,28,759
Deferred Tax Liabilities(Net) 7 9,77,94,535

25,97,23,294
Current Liabilities
Short-term borrowings 6 30,88,55,212
8 80,58,26,909
Trade payables
9 7,65,00,815
Other Current liabilities 10 27,57,930
Short term provisions
1,19,39,40,866

TOTAL 2,23,06,79,947

ASSETS
Non-current Assets
Fixed Assets
Tangible assets 11 93,72,79,457
Capital work-in-progress 11 12,03,78,139
Non-current investments 12 22,64,000
Long term loans and Advances 13 56,50,581

1,06,55,72,177
Current Assets
Inventories 14 69,17,37,623
Trade Receivables 15 29,97,19,049
Cash and Cash Equivalents 16 5,29,24,928
Short-term loan and Advances 17 12,07,26,170
Other current assets 18 ---

1,16,51,07,770
TOTAL
2,23,06,79,947

90
 BALANCE SHEET AS AT 31ST MARCH, 2016

Particulars Note As at
No. 31-03-2016(Rs.)
EQUITY AND LIABILITIES
Shareholders’ Funds
Share capital 4 53,96,57,720
Reserves and Surplus 5 17,89,59,397

71,86,17,117

Non-Current Liabilities
Long-term borrowings 6 17,63,58,260
Deferred Tax Liabilities(Net) 7 9,86,27,927

27,49,86,187
Current Liabilities
Short-term borrowings 6 26,29,51,017
Trade payables 8 89,68,81,185
9 5,31,53,987
Other Current liabilities
10 48,80,903
Short term provisions
1,21,78,67,092

TOTAL 2,21,14,70,396

ASSETS
Non-current Assets
Fixed Assets
Tangible assets 11 94,98,72,404
Capital work-in-progress 11 11,24,66,441
Non-current investments 12 22,64,000
Long term loans and Advances 13 63,66,197

1,07,09,69,042
Current Assets
Inventories 14 51,75,83,700
Trade Receivables 15 42,34,84,262
Cash and Cash Equivalents 16 2,72,47,504
Short-term loan and Advances 17 9,94,39,037
Other current assets 18 7,27,46,851

1,14,05,01,354

TOTAL 2,21,14,70,396

91
 BALANCE SHEET AS AT 31ST MARCH, 2017

Particulars Note As at
No. 31-03-2017(Rs.)

ASSETS
Non-Current Assets
Property, Plant and Equipment
Capital Work-in-Progress
Non-Current Investments
Long Term Loans and Advances
Current Assets
Inventories
Trade Receivables
Cash and Cash Equivalents
Short Term Loans and Advances
Other Current Assets
4 91,15,95,643
4 9,95,00,495
5 12,64,000
6 63,66,197
1,01,87,26,335
7 54,22,49,940
8 29,42,07,914
9 5,10,63,134
10 7,64,61,520
11 7,31,90,051
1,03,71,72,559

2,05,58,98,894
TOTAL ASSETS

EQUITY AND LIABILITIES

Equity 12 53,96,57,720
Share Capital 13 14,37,63,649
Reserves and Surplus 68,34,21,369

Non-Current Liabilities
Long Term Borrowings 14 14,53,31,968
15 9,78,86,603
Deferred Tax Liabilities (Net)
24,32,18,571
Current Liabilities
Short Term Borrowings 14 44,02,72,601
Trade Payables 16 63,18,93,439
Other Current Liabilities 17 4,27,28,976
Short Term Provisions 18 1,43,63,938
1,12,92,58,954

TOTAL EQUITY AND LIABILITIES 2,05,58,98,894

92
 BALANCE SHEET AS AT 31ST MARCH, 2018

Particulars Note As at
No. 31-03-2018(Rs.)

ASSETS
Non-Current Assets
Property, Plant and Equipment
Capital Work-in-Progress
Non-Current Investments
Long Term Loans and Advances
Current Assets
Inventories
Trade Receivables
Cash and Cash Equivalents
Short Term Loans and Advances
Other Current Assets
4 87,00,73,750
4 10,55,62,568
5 18,64,100
6 63,66,197
98,38,66,615
7 53,22,62,743
8 46,45,02,413
9 5,88,63,026
10 5,79,92,976
11 13,289
1,11,36,34,447

2,09,75,01,062
TOTAL ASSETS

EQUITY AND LIABILITIES

Equity 12 53,96,57,720
Share Capital 13 9,03,25,003
Reserves and Surplus 62,99,82,723

Non-Current Liabilities
Long Term Borrowings 14 16,40,39,424
15 9,50,61,122
Deferred Tax Liabilities (Net)
25,91,00,546
Current Liabilities
Short Term Borrowings 14 61,36,34,797
Trade Payables 16 51,87,90,780
Other Current Liabilities 17 5,58,73,170
Short Term Provisions 18 2,01,19,046
1,20,84,17,793

TOTAL EQUITY AND LIABILITIES 2,09,75,01,062

93
94