Inventory Management (Bommidala Purnaiah Holding)

CHAPTER 1
INTRODUCTION
The Inventory Concept:
Inventory or stock refers to the goods and materials that a business holds for the
ultimate purpose of resale (or repair). Inventory management is a science primarily about
specifying the shape and placement of stocked goods. It is required at different locations
within a facility or within many locations of a supply network to precede the regular and
planned course of production and stock of materials.
According to:
Kotler (2000), inventory management refers to all the activities involved in
developing and managing the inventory levels of raw materials, semi-finished materials
(work-in- progress) and finished good so that adequate supplies are available and the
costs of over or under stocks are low.
Rosenblatt (1977) says: “The cost of maintaining inventory is included in the final price
paid by the consumer. Good in inventory represents a cost to their owner. The
manufacturer has the expense of materials and labor. The wholesaler also has funds tied
up”. Therefore, the basic goal of the researchers is to maintain a level of inventory that
will provide optimum stock at lowest cost.
The dictionary meaning of the word inventory is “Stock of goods”. The term
„Inventory‟ refers to the commodities supplied to an undertaking for the purpose of
consumption in the process of manufacture or of rendering service or for transformation
into products.
To the finance executive, „Inventory‟ can be taken as the value of raw materials,
consumables, spares, work in progress and finished goods in which the company‟s
working capital funds have been invested.
Classification of Inventories:
The Inventories in an Industrial concern is generally classified as following:
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 Raw material Inventory - This is used in manufacturing. When the demand
arises, they are drawn from stores and processed or use value is added during the
process and finally finished product comes out.
 Semi-finished goods - When the material being processed, it may have to wait
between two processes, such material are known as semi-finished goods or semi-
finished material or Work in process inventory.
 Components - The parts used in assembly of product, are known as components.
When these components are purchased from outside, it is known as bought out
components or bought out material.
 Spare parts Inventory - When manufacturing or servicing facility breakdown, it
is to be repaired. In such case, the defective or worn-out parts of the machine are to
be replaced by new one. These new parts of the machine are known as spares or
spare parts.
 Obsolete Inventory - When any facility becomes unserviceable, and it is to be
replaced by a new one, after replacing, the old machine/facility is to disposed.
Such machines, which have become useless, are termed as obsolete inventory.
 Waste, Scrap and rejects - This type of inventory occurs in manufacturing firms
or in service organizations. While processing material, chips are produced and it is
of no use for the organization and it is to be disposed. Similarly, defective
components, which cannot be reprocessed (rejects) and materials which cannot be
used in any way in the organization (waste), all these are to be disposed. They may
not be having any use value for the organization, but they may be reprocessed by
some other organizations to produce a useful product.
Motives for holding Inventories:

Economists have established three motives for holding inventories.
1. Transaction Motive – Firms may require holding certain number of finished
products perpetually in stock for display or demonstration purpose. They may also
hold inventories to meet a sudden demand, thus reducing the delivery tags.
2. Precautionary Motive – Firms may hold inventories for fear of stock outs and
losing its goodwill. Some of the precautionary motives give rise to „safety stock‟
to deal with uncertainty in supply and demand.
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3. Speculative Motive – A firm may also hold both raw materials and finished
products when it expects a price in future, thereby realizing a stock profit.
Inventories held for speculative motive are termed as profit-making inventory. Of
the three motives, precautionary motive requires much attention. Besides
accumulation of inventory due to the three motives mentioned above, inventories
also get accumulated because of inefficient management of working capital. This
type of inventory is called, flabby inventory. In addition, there may be a
contractual reason for holding some inventories.
4. Contractual Requirements – Occasionally it may be necessary to carry a certain
level of inventory to meet a contractual agreement. Some manufacturers require
dealers to maintain a specified level of inventory in order to be the sole
representative in a particular territory.
Inventory Management:
Inventories represent a substantial amount of firm‟s current assets. Proper
management of Inventory is necessary so that this investment does not become too large,
as it would result in blocking capital which could be used in productive aspect in
somewhere else.
Inventory Management covers efficient management of inventories in all its

aspects including Inventory planning and programming, Purchasing, Inventory Control,
receiving, ware Housing and Store keeping, Inventories handling and Disposal of scrap.
In this context of Inventory Management, the firm is faced with the problem of
meeting two conflicting needs.
1. To maintain a large size of inventory for efficient and smooth production and
sales operations.
2. To maintain a minimum investment in inventories to maximize profitability.
The aim of Inventory management, thus, is to avoid excessive and inadequate

levels of inventories and to maintain sufficient inventory for the smooth production and
sales operations.
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NEED FOR THE STUDY
To avoid excessive and inadequate levels of inventories in the company and gain
the customer satisfaction through short time delivery. For maintain sufficient inventory in
the company for the smooth production and sales operations. For running the business
operations of the company in smooth and efficient manner.
Inventory is a necessary evil that every organization would have to maintain for
various purposes. Optimum inventory management is the goal of every inventory planner.
Over inventory or under inventory both cause financial impact and health of the business
as well as effect business opportunities.
Inventory holding is resorted to by organizations as hedge against various external

and internal factors, as precaution, as opportunity, as a need and for speculative purposes.
Inventory is always dynamic. Inventory management requires constant and careful

evaluation of external and internal factors and control through planning and review. Most
of the organizations have a separate department or job function called inventory planners
who continuously monitor, control and review inventory and interface with production,
procurement and finance departments.
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OBJECTIVES OF THE STUDY
 To present the conceptual framework relating to inventory management.

 To conduct a study on existing practices of inventory management in the company.
 To determine the inventory status of the company and analyze them.
 To study the Inventory valuation methods of company.
 To analyses the inventory classifications and its managements and control.
 To examine the method and techniques of inventory control in “BOMMIDALA
PURNAIAH HOLDINGS PVT LTD, Guntur.”
 To know the profitability and activity position of “BOMMIDALA PURNAIAH
HOLDINGS PVT LTD, Guntur.”
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SIGNIFICANCE OF THE STUDY
The study is significant to the following groups.

To the organization:
By this study the organization can get benefits by adopting various methods and
techniques to various problems that they are facing in inventory management.
To the Government:
The government can adopt special policies and strategies for the further
development of such organizations.
To the Researcher:
This study is useful to the researcher, in getting practical knowledge about the
inventory management practices.
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SCOPE OF THE STUDY
Scope of the project is:

 Analysis of inventory levels with respect to BOMMIDALA PURNAIAH
HOLDINGS PVT LTD LIMITED for every inventory holding of stores
consumption and for spares.
 Vintage analysis of stores, normal spares, Material in Transit, Material at site.
 Analysis of important inventory rations e.g. Inventory to working Capital ratio for
each year. To check if Units/work center is carrying excess inventory in stock.
 Review of Non-moving Stock.
 Analyze the in efficiencies that were found during the study and to find the major
causes leading to the negative impact on inventory.
 Highlighting and giving recommendations on processes to eliminate the major
causes.
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LIMITATIONS OF THE STUDY
 To study on efficient inventory control methods can reduce but cannot eliminate
business risk.
 The objectives of better sales through improved service to customer; reduction in
inventories to reduce size of investment and reducing cost of production by
smoother production operations are conflicting with each other.
 To study on purely for academic purpose the to perform under the guidance.
 To examine the method and techniques of inventory control in “BOMMIDALA
PURNAIAH HOLDINGS PVT LTD, RING ROAD, GUNTUR”.
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CHAPTER 2
RESEARCH METHODOLOGY
The following is the methodology of the study. The collection of data is done in
two principle sources. They are as follows:
 Primary data.
 Secondary data.
PRIMARY DATA:
The primary data needed for the study is gathered through concerned officers
some of the information has been verified and supplemented with personal observation.
SECONDARY DATA:
The present study is based on the secondary data sources and the needed data was
collected from published sources such as pamphlets of annual reports, returns and internal
records, reference from text book and journals of financial management.
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CHAPTER 3
REVIEW OF LITERATURE
INVENTORY & INVETORY MANAGEMENT:

The term inventory means a descriptive list of articles. It refers to the stocks of the
product of a firm is offering for sale and the components that make up the product. The
significant part of current assets of large majority of companies are inventories. In
financial parlance inventory is defined as the sum of the values of raw materials, spare
parts semi-processed materials and finished goods at stores. The definition of inventory is
“stock of goods that is held for future use”.
The various forms of inventory are a manufacturing company are raw materials,
work in process finished goods, for control purpose it is very essential to study the
inventory in detail and the reasons for their existence and cause for their sizes are
different.
Raw materials are those basic input that are converted into finished product
through the manufacturing process raw materials inventories are those units which have
been purchased from outside supplier‟s least time vendor relation, availability of material
government import policy in case of imported material.
Work in process inventories semi-manufactured products. They represent products

that need more before they become finished products for sale.
The inventories exit merely because of the production cycle or operations the size
of this inventory is dependent on the production cycle time, the percentage machine
utilization the make or buy policies of the company decoupling with the various stages of
manufacturing.
Finished goods inventories are those completely manufactured products which are
ready for sale stocks of raw materials and work in process facilitate production, while
stock of finished goods is required for smooth marketing operation. Thus inventories
serve as a link between the production and consumption of goods.
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The size also depends on the ability of the marketing department to push the
products the company ability to stick to the delivery schedule of the client the shelf life
and the ware housing capacity. The accuracy and details of the final forecast all the
inventories are geared for future requirements and storage the logical sequence of this
factor is the shelf use of the items stored a factor for consideration in the case of
perishable goods.
INVENTORY CONTROL & MANAGEMENT:

Inventory management refers to an optimum investment in inventories it should
be neither too low to affect the production adversely nor too high to block the funds
unnecessarily. Excess investment in inventories is unprofitable for the business. Both
excess and in inadequate inventories are not desirable. The purpose of inventory
management is to determine and maintain the optimum level of inventory investment.
The management of materials plays a pivotal role as 60% of the capital cost is
attributed to materials alone. Inventories represent aggregate of those items, which are
either held for the sale in the ordinary course of the business, or are in the process of
production for sale in the ordinary course of the business, or are in the process of
production for sale or yet to be utilized consumed in the production of goods and services.
Inventory can be classified as:

 Raw materials
 Work-in-progress
 Finished goods
 Stores and spares
Raw Materials:
Raw materials are those basic inputs that are converted into finished product
through the manufacturing process. Raw materials inventories are those units, which have
been purchased and stored for future productions. A company should maintain adequate
stock of a continuous supply to the factors for an uninterrupted production. If it is not
possible for a company to produce raw materials whenever needed, a time lag exists
between demand for materials and its supply also there will be some uncertainty on
procuring raw materials in time on many occasions.
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The procurement of materials is delayed because of uncertain factors like strike,
transport, disruption or short supply. Therefore the firm should maintain sufficient stock
of raw materials at a given time to streamline production. Other factors which may
necessitate purchasing and holding raw materials are quantity discounts and anticipated
price increase.
The firm may purchase large quantities of raw materials than needed for the
desired production and sales levels to obtain quantity discounts of bulk purchasing. At
times the firm would like to accumulate raw materials in anticipation of price rise.
Work in Progress:
The inventories are semi-finished products. They represent products that need
more work before they become finished products for sale. Work in progress inventory
builds up because of production cycle. Production cycle is the time span between
introduction of raw-materials and emergence of finished products at the completion of
production cycle. Still, production cycle completes, stock of work in progress has to be
maintained. Efficient firms constantly try to make production cycles smaller by
improving their production techniques.
Finished Goods:
Finished goods are the completely manufactured products, which are for sale.
Stocks of raw materials and work in progress facilitate production, while stock of finished
goods is required for smooth marketing operations. Stock of finished goods has to hold
because production and sales are not instantaneous. A firm cannot produce immediately
when customers demand goods. Therefore, to supply finished goods on a regular basis,
their stock has to be maintained for sudden demand from customers. In case the firm sales
are seasonal in nature, substantial finished goods should be kept to meet the peak demand.
Failure to supply products to customers would mean loss to firm‟s sales to competitors.
 The level of finished goods inventories would depend upon the co-ordination
between sales and production as well as on production time. The levels of three
kinds of inventories for a firm depend on the nature of business.
 A manufacturing firm will have substantially high levels of three kinds of
inventories while a retail or wholesale firm will have a very high level of finished
goods inventories and no raw materials or work in progress inventories. Within
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manufacturing firms there will be differences.
 Large Engineering companies produce long production cycle, products therefore
they carry large inventories on the other hand, and inventories of a consumer
product will not be large because of short production cycle and fast turnover.
Firms also maintain a fourth kind of inventory called supplies. Supplies include
office and plant cleaning materials like soap brooms, oil, fuel, light, bulbs, etc.
these materials do not directly enter production, but are necessary for production
process.
STORES AND SPARES:

Stores and spares inventory (include office and plant cleaning materials like soap,
broom, oil, fuel, light, bulb, etc..) are purchased and stored for the purpose of
maintenance of machinery spare also from a part of inventory. The consumption pattern
of raw materials, consumables, finished goods are different from that spares. The stocking
policies of spares are different from industry to industry. Some industries like transport
will require more spares than other concerns. The costly spare parts like engines, maintain
spares etc.,
Inventory Management Practices:

The Inventory Management Practices on the following heads:
1 Organization for Inventory Management.
2 Purchasing
3 Receiving and Inspection of Materials.
4 Stores Management
5 Inventory Control System.
Meaning of Inventory:
Every enterprise needs inventory for smooth running of its activities; it serves as a
link between the recognition of a need and its fulfillment the greater the time leg. The
higher the requirements of inventory, the unforeseen fluctuations in demand and supply
of goods also necessitate the need for inventory. It also serves as a cushion for future
prices fluctuations. The simple meaning of inventory is “stock of goods” or “list of
goods” the word inventory is understood differently by various authors.
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In accounting language it means stock of finished goods only, for a manufacturing
concern it includes raw-materials, work-in-progress, finished goods etc.
Inventories constitute the most significant part of current assets. Many companies
maintain 60% of current assets as inventories. Because of the large size of the inventories
maintained by the firms, a considerable amount of funds is required to be committed to
them. It is therefore absolutely imperative to manage inventories efficiently in order to
avoid unnecessary investment.
A firm neglecting the management of inventories will be failed in its long run
profitability and may fail ultimately. It is possible for a company to reduce its levels of
inventories to a considerable degree within the range of 10 to 20% without any adverse
effect by using simple inventory planning and control techniques. The reduction in excess
inventories has a favorable impact on the profitability of the firm.
OBJECTIVES OF INVENTORY MANAGEMENT:

The objectives of the inventory management are discussed under two heads:
 Operating objectives.
 Financial objectives.
OPERATING OBJECTIVES:
The Operating objectives of Inventory management is further divided as follows –
 Availability of materials: The first and the foremost of inventory management is
make all types of materials available at all times they needed by the production
departments. So that the production may not be held up for want of materials. It is
therefore advisable to maintain the minimum quantity of all types of materials to
move on production schedule.
 Minimizing the wastage: Inventory management has to minimize the wastage at
all levels that is during its storage in the 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.
 Promotion of manufacturing efficiency: The manufacturing efficiency of the
enterprise increases if right types of raw material are made available to production
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department at the right time. It reduces wastage & cost of production & improves
the moral of workers.
 Better service to customers: In order to meet to the demand of the customers, it
is the responsibility of inventory management to produce sufficient stock of
finished goods to execute the orders received from customers.
 Optimum level of inventories: Proper control of inventories helps management
to procure materials in right time in order to run the plant efficiently. Maintaining
the optimum level of inventories keeping in view the operational requirements
avoids the out of stock danger.
FINANCIAL OBJECTIVES:
The Financial objectives of Inventory management is further divided as follows –
 Economy in purchasing: Proper inventory management system brings certain
advantages and economies in purchasing the raw materials. Management makes
every attempt to purchase raw materials in bulk quantity and to take advantage of
favorable market conditions.
 Optimum investment and efficient use of capital: The primary objective of
inventory management, from financial point of view, is to have an optimum level
of investment in inventories. Inventory management has to setup minimum and
maximum levels of inventories to avoid deficiency or surplus stocks.
 Reasonable prices: Inventory management has to ensure the supply of raw
materials at a reasonable low price, but without sacrificing the quality. It helps to
reduction of cost of production and improvement in the quality of finished goods
in order to maximize the profits of the organization.
 Minimizing the costs: Minimizing inventory costs such as handling, ordering and
carrying costs etc is one of the main objective of inventory management. It helps
in reduction of inventory costs in a way that it reduces the costs per unit of
inventory and there by reduction of total cost of production.
ADVANTAGES OF INVENTORY MANAGEMENT:

The advantages gained by the firm by managing the inventory effectively are:
 Introduction of a proper inventory management system helps in keeping the
investment in the inventories as low as feasible.
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 Ensures availability of material by providing adequate protection against
uncertainties of supplies and consumption of materials.
 Allows full advantage of economics of bulk purchases and transportation.
 Leads to reduction in inventory levels.
 Releases more of capital for other operations.
 Adequate customer service.
 Advantage of price discounts by bulk pricing.
 Even out the workloads on the soaps in the face fluctuations demands.
CAUSES OF POOR INVENTORY MANAGEMENT:

There are certain instances, which leads to poor inventory management. They are:
 Over buying without regard to the forecast or proper estimate of demand to take
advantage of favorable market.
 Over production or production of goods much before the customer requires them.
 Over stocking may also result from the desire to provide better service to the
customers. Bulk production or purchase to cut down production costs also will
result in large inventories.
 Cancellation of orders and minimum quantity stipulations by the suppliers may
also give rise to large inventories.
Objectives of Inventory Management:
1. Minimize investment in inventories in order to maximize profits.
2. In order to minimize carrying costs and ordering costs of inventory. To minimize
obsolescence in stores.
3. To avoid excess and inadequate stocks.
4. To provide check against losses of materials.
Nature of Inventories:
Inventories are the stock of the product a company is manufacturing for sale and
components that make up the product. The various forms in which inventories may exist
in a manufacturing company are:
1. Raw materials
2. Work-in-progress
3. Finished goods
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Inventory Decisions:
In an inventory control situation, there are three basic questions to be answered.
They are:
 How much to order? That is to say, what is the optimal quantity of an item that
should be ordered whenever an order is placed?
 When should the order be placed?
 How much safety stock should be kept? Thus, what quantity of an item in excess
of the expected requirements should be held as buffer stock in anticipation of the
variations in its demand and/or the time involved in acquiring fresh supplies.
Inventory Costs:
In determining optimal inventory policy, the criterion most often is the cost
function. The classical inventory analysis identifies four major cost components.
Depending on the structure of an inventory situation, some or all of these are included in
the objective function.
Purchase Costs:
This refers to nominal cost of inventory. It is the purchase price for the items that
are bought outside sources, and the production cost if the items are produced within the
organization. This may be constant per unit, or it may vary as the quantity purchased/
produced increases or decreases. Quite often, situation is found when it may be stipulated
that, for example the unit price is rest 20 for an order unto 100 units and rest 19.50 if the
order is for more than 100 units.
Ordering Costs/ Set-Up Costs:

This category of costs is associated with the acquisition or ordering of inventory.
Firms have to place orders with suppliers to replenish inventory of raw materials. It
includes costs associated with the processing and chasing of the purchase order,
transformation, inspection for quality, expediting overdue orders and so on.
The parallel of the ordering cost when units are produced within the organization
and the cost of acquiring materials consists of clerical costs and costs of stationery. It is
therefore called a set-up cost. The ordering cost is likely and taken to be independent of
the order size.
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Therefore, the unit ordering/setup cost declines as the purchase order/ production
run increases in size. Ordering costs are costs involved in:
1. Preparing a purchase order.
2. Receiving, inspecting and recording the goods received to ensure both quantity
and quality.
Carrying Costs:
They are involved in maintaining or carrying the inventory. It represents the cost
that is associated with storing an item in inventory.
Carrying costs are also known as holding cost or the storage cost. The main
components of this category of carrying costs are:
 Storage cost i.e. tax, depreciation and maintenance of the building, utilities etc.
 Insurance of inventory against fire and theft
 Deterioration in inventory because of pilferage, fire, technical obsolescence, style
obsolescence etc.
 Serving costs such as labor for handling inventory, clerical and accounting costs.
The opportunity cost of funds consists of expenses in raising funds (interest of

capital) to finance the acquisition of inventory. It funds were not locked up in inventory
they would have earned a return.
This is the opportunity cost of funds or the financial cost. The carrying cost and
the inventory size are positively related and move in same direction. If the level of
inventory increases, the carrying costs also increased and vice-versa.
Stock Out Costs:

Stock out cost means the cost associated with not serving the customers. Stock
outs imply shortages. If the stock out is internal (i.e. in the production system) it would
imply that some production is lost, resulting in idle time for men and machines, or that the
work is delayed which might attract some penalty.
While if the stock out is external, it would result in a loss of potential sales and /or
loss of customer goodwill. A shortage can evoke different reactions from customers.
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Types of Inventory Valuation:
VED Analysis:
In VED analysis, the items are classified on the basis of their criticality to the
production process or other service. In the VED classification of materials, V stands for
Vital items without which the production process would come to a standstill. E in the
system denotes Essential items whose stock out would adversely affect the efficiency of
the production system.
Although the system would not altogether stop for want of these items, yet their
non-availability might cause temporary losses in, or dislocation of production.
The D items are the Desirable items which are required but do not immediately
cause a loss to production. The VED analysis is done mainly in respect of spare parts.
HML Analysis:
This is similar to the ABC analysis except that, in this analysis, the items are
classified on the basis of unit value rather than usage value. The item are classified
accordingly as their cost per unit is H-high, M-medium and L-low. This type of Analysis
is useful for keeping control over materials consumption at their department levels.
SDE Analysis:
This uses the criterion of the availability of the items. In this analysis S-stands for
scarce items which are short in supply, D-refers to the difficult items meaning the items
that might available in indigenous market but cannot procured easily, while E represents
easily available items even from local markets.
S-OS Analysis:
S-OS analysis is based on the nature of supplies, wherein S represents the seasonal
items and Os represents the off seasonal items. This classification of items is done with
the aim of determining proper procurement of strategies.
FSN Analysis:
Based on the consumption pattern of the items, the FSN classification calls for
classification of items, as F-Fast Moving, S-Slow Moving and N-Non Moving goods.
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This „speed‟ classification helps in the arrangement of stocks in the stores and in
determining the distribution and handling patterns.
XYZ Analysis:
XYZ analysis is based on the closing inventory value of different items. Items,
whose inventory values are high, are classed as X-items while those with low investment
in them are termed as Z- items. Other items are the Y-items whose inventory value is
neither too high nor too low.
It can be easily visualized that the several types of analysis discussed are not
mutually exclusive. They can be, and often are, used jointly to ensure better control over
materials. For example, ABC and XYZ analysis may be combined to classify and control
depending on whether the items are AX, BY, CZ, AY of and so on. Similarly, XYZ –
FSN combine classification exercise will help in timely prevention of obsolescence.
Reasons For Holding Inventory:

Managing inventories involves lack of funds and inventory holding costs
maintenance of inventory is expensive. There are three general motives for holding
inventories they are:
 Transaction motive
 Precautionary motive
 Speculative motive
Transaction Motive:
The transaction motive emphasizes the need to maintain inventories to facilitate
smooth production and sales operations.
Precautionary Motive:
This motive necessitates holding of inventories to guard against the risk of
unpredictable changes in demand and supply forces and other factors.
Spectaculative Motive:
This influences the decision to increase or reduce inventory levels to take
advantage of price fluctuations.
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Need of Balanced Investment in Inventory:
Management of optimum level of inventory investment is the prime objective of
inventory management. Inadequate or excess investment in inventories is not healthy by
for any firm. The investment in inventories should be sufficient. The optimum level of
investment lies between excess investment and inadequate investment.
Dangers of Excessive Investment in Inventory:

The following are the dangers of excessive investment in inventory:
 Carrying excessive inventory over a long period leads to the loss of quality. It may
not be the possible to sell the inventories in time without loss.
 Excess purchase or storage leads to theft, waste and mishandling of inventories.
 The excessive level of inventories consumes funds of the company, they cannot be
used for any purpose since they have locked in inventory, and they involve an
opportunity.
Dangers of Inadequate Investment in Inventory:

Under investment in inventory is not so healthy one. It has some disadvantages.
They are:
 Inadequate raw materials and work in progress inventories will distribute
production.
 When the firm is not able to produce goods without interruption, that leads the
inadequate storage of finished goods. If finished goods are not sufficient to meet
customer demand, the customers may shift to the competitors, which will lead to
loss of customers permanently.
Cost involved in inventory:

Every firm maintains inventory depending upon requirement and other features of
firm for holding such inventory some cost will be incurred. Minimizing cost is one of the
operating objectives of inventory management. The costs involved in the management of
inventories.
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Cost of ordering:
The cost of ordering includes the cost of acquisitions of inventories. It is the cost
of preparation and execution of an order including cost of paper work and communicating
with the supplier. The ordering cost may have a fixed component, which is not affected
by the order size: and a variable component, which changes with the other size. They
include the following:
 Cost of requisitioning the items (raw materials)
 Cost of preparation of purchase report (i.e., drafting typing, dispatch, potage)
 Cost of transportation of goods
 Cost of receiving and verifying the goods
 Cost of unloading of the goods
 Storage and stocking charges
Carrying cost:
This is the cost incurred in keeping or maintaining an inventory of one unit of raw
materials, work-in-progress or finished goods. Here there are two basic costs involved:
Cost of storage:
It includes cost of storing one unit of raw materials by the firm. This cost may be
for the storage materials. Like rent of spaces occupied by stock, stock for security, cost of
infrastructure, cost of insurance, and cost of pilferage, warehousing costs, handling cost
etc.
Cost of financing:
This cost includes the cost of funds invested in the inventories. It includes the
required rate of return on the investments in inventory in addition to storage cost etc. the
carrying cost include therefore both real cost and opportunity cost associated with the
funds invested in the inventories. The total carrying cost is entirely variable and rise in
directly proportion to the level of inventories carried.
Methods of valuation:
The government of India has given sufficient flexibility for companies to
introduce scientifically developed methods of valuation of their stocks. In order to
prevent malpractices.
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It has been stipulated that such methods must be studied and approved by the
Board of Directors, and must be followed for a minimum prior of three years. The various
methods of valuations available are given below.
1. First in First out [ FIFO]
2. Last –in-First-Out [LIFO]
3. Periodical Simple Average Method.
4. Normal cost / Standard cost method.
5. Weighted average method
6. Replacement price method.
1. FIFO: (First in First Out):

In this case it is assumed that the stores follow the principal that oldest stock
issued first so that stock left out is from the later arrivals. Hence all issues are assumed to
have come out from older stocks. These are valued at old price. The cumulative value of
stock out will give the net value of the existing stock.
2. LIFO: (Last – In – First – Out):

Here stores are issued from the last stock. This means issues have taken place
from later arrivals. Hence all issued are valued as per the price of the latest arrivals to
compute value of stock left in stores.
3. Periodical Simple Average:

In this case after each receipt of material adding the cost of materials in hand with
the cost of material received and dividing the same by the total number of units calculate
the average cost.
4. Normal Cost / Standard Cost Method:

This method is mostly used for manufactured in house. Here the average cost of a
certain lot is calculated and used as cost of items issued. Since this method is used for
items manufactured, one can use standard costing method also for valuation of such
stocks.
23
5. Weighted Average Method:
This method is used when the quantity and price of items vary widely from each
purchase. In this case, the weighted average price is calculated for each item. This price is
used for computing the value of items and those remaining in stock.
6. Replacement Prices Method:

This is a modern method developed by George Tarboro. However, without
application it is difficult to price each item. This has not yet become popular. FIFO, LIFO
and Weighted Average methods are popular and acceptable to the government tax
authorities.
Inventory Control System:

Inventory control keeps track of inventories. It is observed that „too much‟, „too
little‟ or badly balanced inventories are all to be avoided because they cost too much on
many counts. Too much leads to undue carrying charges in the form of taxes, insurance,
storage, obsolescence and depreciation and undue proportion of total working capital is
invested in them.
Objectives of Inventory Control:

Though inventory control may not be treated as an executive function but it is one
of the most important functions in an enterprise. The following are the main objectives of
inventory control.
Better Use of Men Machines and Materials:

In manufacturing system producing for stock the production planning can be done
with an object to have optimum use of resources namely men, machines and materials.
Here the resources can remain engaged during slack period of demand and there will be
no need of generating additional resources in the boom period as then the inventory
enlarged in slack period can utilize.
Protection against fluctuations in output:

Another important function of inventory is to reduce the gap between actual and
scheduled production. In practice, production scheduled cannot be adhered due to a
24
number of reason e.g. sudden breakdowns in supply of raw-materials, machines, labor
strikes etc.
Control of stock volume:

Inventory control is concerned with the size and the value of goods present in
stock. It is responsible to forecast the value of the stock on a regular interval, so that
 Capital invested in inventories does not exceed the funds available for the
purpose.
 The amount invested in inventory is correctly recorded in account books.
 Protection against theft is ensured.
Inventory is maintained due to the following reasons:

To carry reserves in order to prevent stock outs or cost sales.
1. Never having much of anything on hand.
2. To gain economies in purchases by buying items beyond the desired amount.
3. To maintain reserves in stocks for the period of replenishment.
Methods of inventory control:

The fundamental purpose of inventory analysis is to keep the stock of items at
such level that there is a balance between the costs which increase or decrease with the
size of the inventory. This needs determination of:
1) Quantities should be ordered each time and
2) The time at which this order should be placed so that both inventory carrying
coast and the losses. These objectives are accomplished by determining.
a) Economic lot size.
b) Re – order level
a) Economic lot size:

The amount of material procured or quantity produced during one production run
by any enterprise is known as lot size. The quantity to be ordered, whether from inside
sources or from out agencies depends on a number of factors. The size of inventory
depends on lot size. Due to increase in inventory size expenditure on storage,
deterioration etc is likely to increase whereas expenditure on setting up plant,
procurement of materials etc, will increase.
25
Safety or buffer stock:
The demand and supply rates can never be assessed exactly. There is bound to be
discrepancy between actual and estimated demand and supply quantities with fair degree
of uncertainty. The organization with a policy of safeguarding interest. Against these
uncertainties maintain the level of inventory at some desired minimum level.
Re-order level / point:

The concept of re-order point is basically related with lead time demand. The
problem is that demand can never be accurately projected over the lead-time. Once we
know the demand in lead time, re-order level can be easily determined mathematically.
Re-Order Level = Lead Time Demand + Safety Stock.
Organization for inventory management:

In a fairly large size production unit we might be holding stocks worth cores of
rupees and their proper accounting, prevention, security and safety is of paramount
importance. An effective and efficient stores management shall help in improving service
level. Higher inventory is another area of concern to management because it affects the
working capital.
Stores department in order to discharge its functions effectively, it has to have

close interaction and co-ordination with various departments of the organization. The
stores department mainly should have good communication between purchase and
production departments.
Need for holding optimum inventory:

Though inventory of materials is an idle resource (as they are not used
immediately and stocked for future use), almost every business must maintain it for
efficient and smooth running of its operations. If an enterprise has no inventory of
material at all, on receiving a manufacturing order, it will have to place order for purchase
of raw material, wait for arrival and receive of material and then start production.
26
The customer will have to wait for a long period for the delivery of his product
and may frustrated and turn to another manufacturer. Maintaining of inventory becomes
necessary for the following reasons:
 It helps in smooth and efficient running of the production system and the
enterprise. It decouples the production from the customers and vendors.
 It provides services to the customers at a short notice. Timely deliveries may
increase the goodwill of the company.
 In the absence of inventory, the enterprise may have to pay very high prices
because of piecemeal purchasing. Maintaining inventory may earn price discounts
on bulk purchases. It also takes advantage of favorable market.
 It reduces the product cost, since there is an added advantage of batch production
and mass production runs.
 It acts as a buffer stock when raw materials are received late and shop rejects are
too many.
 Bulk purchases reduce the number of orders and hence less clerical work.
 It helps in maintaining economy by absorbing some of the fluctuations when the
demand for an item fluctuates or is seasonal.
Contractual Requirements:
Occasionally it may be necessary to carry a certain level of inventory to meet a
contractual agreement. Some manufacturers require dealers to maintain a specified level
of inventory in order to be the sole representative in a particular territory.
Costs for Holding Inventory:

The three important costs considered in holding inventories are
 Inventory Carrying Cost (or) Stock Holding Cost.
 Procurement Cost or Setup Cost.
 Shortage Cost or Stock-out Cost.
Inventory Carrying Costs or Stock Holding Costs:

They arise on account of maintaining the stocks and the interest paid on the capital
tied up with the stocks. They vary directly with the size of the inventory as well as the
time the item is held in stock.
27
Various components of the stockholding cost are:
 Cost of Storage Space – This consists of rent for the space occupied by the
inventory. Besides space expenses, this will also include heating, lighting and
other atmospheric control expenses.
 Depreciation and deterioration – They are especially important for fashion
items or items undergoing chemical changes during storage. Fragile items such as
crockery which are liable to damage, breakage, etc.
 Pilferage Cost – It depends upon the nature of the item. Valuable items may be
more tempting, while there is hardly any possibility of heavy casting or forging
being stolen.
 Obsolescence Cost – It depends upon the nature of the item in stock. Electronic
and computer components are likely to be fast outdated. Changes in design also
led to obsolescence.
 Handling cost – These include all costs associated with movement of stock, such
as cost of labor, overhead cranes, gantries and other machinery used for this
purpose.
Procurement Cost or Setup Cost:

They include the fixed and variable costs associated with placing of an order. In
case of purchase models, it is known as ordering cost. In case of manufacturing model, it
is known setup cost.
To place an order certain paper work is to be done. The cost of this paper work is
taken as cost of ordering. In case of manufacturing, before starting production, the
machine is to be set up. Only on setting of machine, the material is loaded and the
production is started. The ordering cost is distributed over the items purchased in that
order. Similarly, the setup cost is distributed equally over the products manufactured in
that setup. This cost is also known as replenishment cost.
Shortage Cost or Stock-out Cost:

These costs are associated with either a delay in meeting demands or the inability
to meet it at all. Therefore, shortage costs are usually interpreted in two ways. In case the
unfilled demand can be filled at a later stage (backlog case), these costs are proportional
to quantify that is short as well as the delay time. They represent loss of goodwill and cost
of idle.
28
Inventory Systems:
For an effective inventory management, an efficient inventory system should be
maintained. Thus the importance of inventory systems cannot be neglected in the
Inventory Management. The two important types of inventory systems available are
 Periodic Inventory System.
 Perpetual Inventory System.
 Just-In-Time Inventory System.
Periodic Inventory System:

In this system the quantity and value of inventory is found out only at the end of
the accounting period after having a physical verification of the units in hand. The cost of
materials used or goods sold is obtained by adding the total of inventory purchased during
the period to the value of the inventory in hand in the beginning of the period and
subtracting the value of inventory at the end of the period.
In this system the inventory level is not monitored at all during the time interval
between the orders, so it has the advantage of little or no required record keeping. The
disadvantage is less control.
Perpetual Inventory System:

It is a system of tracking and knowing the value of inventory and quantity of
merchandise on hand at any time by tracking sales, returns and receipts with information
systems. A positive feature of a perpetual system is that inventory level is continuously
monitored, so management always knows the inventory status. This is advantageous for
critical parts or raw materials and supplies. However, it can be costly.
The perpetual inventory system consists of:

a) Bin Cards: Bin cards are printed cards used for accounting the stock of material,
in stores. For every item of materials, separate bin cards are kept. The details
regarding the material such as the name of the material, the part number, the date
of receipt and issue, the reference number, the name of the supplier, the quantity
received and issued, the value of the material, the rate, the balance quantity, etc.
are recorded in the bin cards.
29
b) Stores Ledger: Like bin cards, a stores ledger is maintained to record all the
receipts and issues in respect of materials with the difference that along with the
quantities, the values are entered in the receipt, issue and balance columns.
c) Continuous Stock Taking: The perpetual inventory system is not complete
without a systematic procedure for physical verification of the stores. The bin
cards and the stores ledger record the balances, but their correctness can be
verified by means of physical verification only.
Just-In-Time Inventory System:

Now-a-days organizations are becoming more and more interested in getting
potential gains from making smaller and more frequent purchase orders. In other words,
they are becoming interested in just-in-time purchasing system. Just-In-Time system the
materials arrive exactly when they are needed in the production process. Inventory
remaining in warehouse collects dust and cost instead of revenue. Just-In-Time system
avoids this cost.
Various stock levels in Inventory Management:

The levels of inventory in any organization depend upon several factors including
social, political, economic, ethic, fiscal, governmental policies at the global and national
levels, which determine the demand and supply parameters of an item. At the unit level,
cost, criticality, availability, service level, stock out, lead time, powers of delegation,
consumption pattern, etc. affect the levels. The various stock levels fixed for effective
management of inventories are:
 Minimum level
 Maximum level
 Ordering or reordering level
 Danger level
These levels serve as indices for initiating action on time so that the quantity of
each item of material, i.e. the inventory holding is controlled or managed. Stock levels are
not fixed on a permanent basis but are liable to revision in accordance with the changes in
the factors determining the levels.
30
Minimum Level:
It indicates the lowest figure of inventory balance, which must be maintained in
hand at all times, so that there is no stoppage of production due to non-availability of
inventory. The main considerations for the fixation of minimum level of inventory are as
follows:
 Information about maximum consumption and maximum delivery period in
respect of each item to determine its reorder level.
 Average rate of consumption for each inventory item.
 Average delivery period for each item. This period can be calculated by averaging
the maximum and minimum period.
INVENTORY CLASSIFICATION
INVENTORY CLASSIFICATION
INVENTORY
PROCESS NUMBER & DEMAND

STAGE OTHER
VALUE TYPE
RAW MATERIAL WIP

FINISHED GOODS
31
PROFILE OF THE COMPANY
From its humble beginnings as a tobacco trading company to becoming a

conglomerate with global presence in diversified fields, BBM has come a long way. The
group owes its current stature to its visionary founder and chairperson, B. Purnaiah .
With an unwavering focus on quality and commitment to meeting customer needs, BBM
is today a name to reckon with in Processing as well as Exports of Tobacco and Cigarette.
Taking over as Managing Director in 1950, B. Purnaiah introduced robust strategic and
structural changes in the way the tobacco business was operated and built a brand that‟s
reputed world over for the quality of its produce.
A world traveler with sharp business acumen, he initiated trade talks with Japan as
early as 1952. BBM group is the first Indian tobacco company to export tobacco to Japan
and Hong Kong and to sign a direct trade contract with the then USSR. The company is
also one of earliest Indian promoters of trade with Indonesia. Over the years, BBM has
secured many such international contracts and moved from success to success. Under the
mentoring leadership of its Chairperson, the BBM group has successfully diversified and
witnessed growth from within and outside the tobacco trade. With over 80 years of
expertise and three decades of high-tech advancements, BBM is one of India‟s largest
producers of tobacco products and by- products. Today, the group is India‟s leading
cigarette exporters with an annual production capacity of over 6 billion sticks. With
pioneering international contracts, focus on customer needs and constant technology up
gradation, the group is posting new milestones every year. Enhancing its in-house
capabilities for a lead advantage, the company„s expertise covers the entire tobacco
supply-chain.
BOARD OF DIRECTORS
Mr. RAJA SRINIVAS BOMMIDALA
Mr. Raja Srinivas Bommidala aged 32 is a Commerce Graduate from Andhra
University. He also did his diplomas in Management and Business Computer
Applications and CAD in Textiles and Engineering . He is the son of Late Mr.
Bommidala Purnaiah who is the founder and Ex-Chairman of the Bommidala Group. Mr.
32
Raja Srinivas Bommidala started his career as a Management trainee in Bommidala
Brothers Limited, the group's flagship company and as an Executive Director in Two of
the Group Companies, Circar Tobacco Trader Pvt. Ltd., and Fortune Exports Pvt . Ltd., in
March 1989. He is involved in the development of Business with various Countries.
Bommidala Brothers Ltd., is a Trading House recognized by the Govt. of India for
its outstanding performance in Exports of Tobacco and Drug - Intermediates that are
Manufactured in the company's ultra modern processing and manufacturing facilities. He
is involved in manufacturing the wonder drug CO-Q10 (Co-enzyme Q10) and the
monopoly drug intermediate for it, Solanesol.
Mr. Raja Srinivas along with his father Late Mr. Purnaiah started another
charitable Trust in 1994 by the name, BOMMIDALA AKKAMMA AND PURNAIAH
TRUST. The trust runs a nonprofit Community Hall located at Guntur apart from Charity
to many schools and institutions.
Raja Srinivas is an active member in CII and FICCI the premier business
association chambers of India, He is involved in many social and charitable activities and
is a member in many voluntary organizations like Round Table India. He is a member of
YPO (Young Presidents Organisation) rubbing shoulders with the Fortune 100
Companies across the world.
With the experience gain over several years in the parent group, Mr. Raja Srinivas
along with his father Late Mr. Purnaiah promoted the Bommidala B.P. Group with
Bommidala Purnaiah Holdings Pvt. Ltd., (BPH) as the flagship company. BPH is today
one of the largest exporters of Indian tobacco and has been awarded Export House status
in recognition of its export performance to 27 different Countries. To broad base the
tobacco activity, the group also commenced exports under Tobacco Enterprises of India, a
Company attached with a modern tobacco processing facility
Bommidala B.P. Group under the leadership of Mr. Raja Srinivas has also
ventured into industry with the setting up of two companies namely Bommidala
Filaments Ltd., manufacturer and exporter of PE/PP Ropes and Bommidala Packagings
Ltd., manufacturer of PP Containers for Cosmetic products and lubricants.
33
Mr. K. RAMESH BABU
MR. K. RAMESH BABU aged 36 years is a commerce graduate from Nagarjuna
University. He started his career in 1986 as a Managing Partner in a his family Trading
company dealing with Sugar, Wheat and other edible agricultural produce. In 1990-96 He
joined as Executive Director in Bommidala Agro Products (P) Ltd., a Tobacco Trading,
Processing and Exporting Company and also in this period he works as a Trainee in
Bommidala Brothers Ltd., in the areas of Tobacco manufacturing and Exporting. He was
active in Investments on the Indian stock markets and Realty. At present he looks after
the administration of the Tobacco division.
The group companies:

With expertise developed over five decades in
catering to every aspect of Tobacco trade,
manufacturing, blending, flavor creation and tobacco
community development, the BBM group has created a
formidable name as the Tobacco people.
Continuing in the same spirit of delivering the best to customers, BBM group has
diversified into the other sectors such as bio-pharma, health foods, chemicals, organic
fertilizers, drug derivatives, information technology and financial management services.
The group aims at delivering the best through all its subsidiaries in the tobacco trade as
well the new ventures.
Sun Cured Burley Tobacco (Traditional)

st st
Plantation: October 1 Week to November 1 week
Marketing: May to June
Physical Characteristics:
a) Color: Rich – tan to brown
b) Leaf: Medium to heavy body
Chemical Characteristics:
a) Nicotine : 2.5 to 4.5
b) Sugar : 1.8 to 4.8%
c) Chloride : 0.5 to 2.0%
34
Sun Cured Natu Tobacco(Eluru)
Plantation: October to November
Marketing: April to August
a) Color: Brown to Dark Brown
b) Leaf Size: Medium to Large
b) Sugar : 1.1 to 2.6%
Mainly used for cheroots, snuffpipe tobacco and cigarette blending and, for
hookah paste making.
Fluecured Virginia SLs:

Plantation: Mid October to Mid November
Marketing: February to May
a) Color: Lemon to Orange
b) Leaf Size: Small to Medium
c) Pore Vol: 0.13 (MI/Gm)
d) Filling Value: 2.6 to 3.5(CC/Gm)
b) Sugar : 10 to 17.5%
Chewing Tobacco (Red Chopadia):

a) The Primed Leaf is Sun-cured for 10 to 12 days till
the stem dries and the leaf develops yellow colour.
35
b) The leaf is light to medium bodied and golden – yellow in Colour, later the leaves
are tied into bundles and bulked for developing aroma.
c) Also called Safna, Mostly used forchewing.
d) The export packing ranges from 250 gms –1000 gms ans available in bales of upto
10 kgs.
Traditional Tobacco:
Plantation: Mid October to First Week of November
Marketing: February to April
a) Color: Lemon
b) Leaf Size: Medium to large
b) Sugar : 8.6 to 20.9%
Fluecured Virginia Mysore:

Plantation: Early may
Marketing: September to December
a) Color: Lemon to Orange
b) Leaf Size: large
e) Nicotine : 1.5 to 2.5
f) Sugar : 18 to 27%
g) Chloride : 0.1 to 0.2%
36
Dark Cigarette Tobacco
Plantation:
st
 Monsoon Crop: Mid August – 1 Week of
September
 Winder Crop: Mid Sept to Mid Nov.
 Week of September Winder Crop: Mid Sept to
Mid Nov
Marketing: Monsoon Crop: Feb to March, Winder
Crop: April To June 3
a) Color: Nut Brown
b) Leaf Size: Medium to heavy
c) Pore Vol: 0.07 to 0.20 (MI/Gm)
d) Filling Value: 3.8 to 5.8 (CC/Gm)
b) Sugar : 3.0 to 9.00 %
Indian Tobacco Burley:

Plantation: July Last week to August Last Week
Marketing: November to January
a) Color:Rich–tantoBrown
b) LeafSize:Mediumtolarge
c) PoreVol:0.18to0.28(MI/Gm)
d) FillingValue:5.0to6.2(CC/Gm)
b) Sugar : 3.0 to 9.00 %
37
38
Fluecured Virginia NLS
Plantation: Ealy October
Marketing: February to April
a) Color: Lemon Orange to Orange
b) LeafSize:large
c) PoreVol:0.13(MI/Gm)
d) Filling Value: 2.2 to 2.8 (CC/Gm)
a) Nicotine:1.5to3.0-4.0
b) Sugar:13.8to23.5%
c) Chloride: 0.7 to 1.5%
Chewing tobacco (black chopadia)

 The Primed leaf is Sun-cured and
later fermented in bulk till brown to
dark-brown colour develops.
 The leaf is medium to heavy-bodied.
Used as chewing tobacco.
Production:
 Anand area in Gujarat
39
Packaging and Shipping:
Wide network of warehouses have been
established in the major leaf growing regions of southern
India for leaf purchasing, handling and storage. With a
well-maintained transportation fleet, speed-ability and
efficiency has been optimized. Raw and finished
produce is delivered to and fro, a range of factories,
warehouses and transit points. Effective routing patterns
ensure a smoother and quicker flow of goods.
Modern packaging and packing systems facilitate sealing and securing of the
merchandize. A strong infrastructure and an extensive set of connections with shipping
operatives and in-house freight forwarders have resulted in these logistical dynamics
synchronizing to a scheduled delivery of world-class products worldwide. BBM provides
end-to-end logistics, from the concept stage right up to delivery.
Expertise To Design Blends:

Tobacco has been established with the
commitment to offer the very best to the customers.
The state-of-the-art quality control laboratory,
equipped with nicotine and sugar estimation auto-
analyzer, is well-equipped to help the leaf purchaser
evaluate the quality of a range of tobacco products.
The Research and Development team, in
collaboration with the blending studio have
introduced various blends, from the straight
Virginia, to the American blend for the premium
mainstream and low value cigarettes, and the RYO
& MYO blends for the international market, besides pipe and chewing tobaccos.
The master blenders at the Hilton Tobacco studios offer innovative blending
solutions to meet the specifications of customers from across the globe. Through skillful
blending, repertoires of over 270 premium global blends have been developed.
40
Leaf Threshing:
Premier Tobacco Packers Limited, a BBM
subsidiary, has the most experienced and qualified
leaf purchasers, handlers and leaf classifying teams
from the industry. Expansively engaged in the
processes of cultivation, leaf threshing, cut rag and
the development of new and rare blends, the company
offers a very high degree of quality control and
assurance of a premier product.
Premier Tobacco Packers Limited has set up state-of-the-art green leaf-threshing

plants, at Karedu near Ongole (Centre for Deep South and South Growing areas) and at
Pottur near Guntur (Centre of Cntral and NLS Belts). Superior technology and versatile
leaf processing capabilities produce impulsion in terms of volume and efficiency with a
combined leaf processing capacity of more than 270 tons/day.
Social Responsibility:
Over the years, BBM group has consistently
aided many social welfare programmes and taken
conscious steps towards ensuring practices that do not
adversely affect the environments that we function in.
Wherever possible, the company has fostered
mutually beneficial relationships with the local
communities and contributed to their advancement
through infrastructure and knowledge support. Social,
environmental and corporate issues are some of the causes that the group supports and
funds. A charitable trust, setup with huge funding aids educational and medical
institutions. BBM strongly supports rural-upliftment projects initiated by non-
governmental organizations. The group has also taken care of several eye and cancer
treatments of the under privileged.
The BBM Group has adopted entire townships and provides aid to educational and
medical institutions on an ongoing basis.
41
Research & Development
BBM‟s R&D division holds the rare expertise of implementing the “leaf-control-
process-system”. Very few laboratories have been successful in putting this method into
practice. Through a prudent use of cutting-edge agronomical technologies, the group has
developed capabilities for better yield while producing the finest grades of international
standard leaf. The benefits of advancing technologies, like the cost effective stem
expansion process, are passed on to the customers. The cutting-edge processes ensure that
cigarettes are low tar and low nicotine while preserving the rich flavor for the discerning.
42
PROFILE OF THE COMPANY
BOMMIDALA PURNAIAH HOLDINGS PVT LTD is one of India‟s foremost

private sector companies that has a diversified presence in cigarettes, hotels, paper boards
& specially papers, packaging, Agri- business, branded apparel, packaged foods and
confectionary, greeting cards and other FMCG products.
BOMMIDALA PURNAIAH HOLDINGS PVT LTD‟s Agri- business division is

one of the India‟s largest exporters of agricultural products. BOMMIDALA PURNIAH
Division, part of Agri- business, is the largest buyer, processor and exporter of cigarette
tobacco‟s in India. The efforts of BOMMIDALA PURNIAH in tobacco development and
export marketing have enable India to become the fifth largest producer and eighth largest
exporter of cigarette tobaccos in the world. The division has successfully leveraged
technology up gradation at the farm and processing ends to meet the requirements of
customers for quality and grades.
The Chirala Green leaf threshing factory has state of the art processing lines that
have reached optimum productivity levels in through put and yields. Besides ensuring
superior product quality. These processing lines represent the global benchmark for green
leaf threshing plants.
Looking back in history British American Tobacco Company had set up Indian
leaf tobacco Development Company to handle the procurement of tobacco in India and
actively encourage its growth by farmers. BOMMIDALA PURNIAH had discovered a
promising tobacco growing area in Andhra Pradesh called the south India leaf area
(SILA). Having established growing and buying points, the important mile stone in
BOMMIDALA PURNIAH history was establishment of the processing facility at
GUNTUR in 1922. From hand stemming operations during 1980‟s, today the GLT has
grown into a state of the art green leaf threshing factory with a capacity of 430 tons of
green leaf per a day.
From a subsidiary to cigarette factories of BOMMIDALA PURNAIAH

HOLDINGS PVT LTD, the division has grown with targets set to exports 50% of its
processed Tobacco in year, due to its continually improving processing capabilities and
expanding customer base.
43
Tobacco Industry:
Tobacco grown in India for over centuries, contributes significantly to the well-
being of the country. From the marginal farmer growing tobacco on irrigated, small land
holdings to retailers in remote corners of India, over 26 million people benefit from their
direct or indirect association with the tobacco industry.
Grown on 'a commercial scale in over 100 countries worldwide, tobacco forn1s a
major part of the socio-economic lifeline of over, 15 developing countries. Besides
creating economic prosperity for rural populations, it generates substantial revenues for
those governments and boosts agro-exports. The global production and consumption of
tobacco continue to grow at an estimated rate of 1.95 and the total market in tobacco
products is valued at US $275 billion-about 78%of India's GDP. Tobacco and export of
tobacco products are a major source of income of developing countries- over 70% of
Malawi's and 40% of Zimbabwe's exports earnings come from tobacco. Brazil and china
also depend 011 tobacco export incomes, which are in the region of US $1.5 billion.
In India, tobacco is a major contributor to agrarian economy, the exchequer and to

agri-exports. Six million farm laborers find gainful employment in tobacco farming. The
tobacco industry provides almost 10% of governments excise collections and 4% 0 f all
agro-exports. While 85% of tobacco consumption worldwide is in the form of cigarettes,
in India it is less than 20%. A skewered taxation policy has restricted cigarette volumes
but ensured that cigarettes account for 87% of revenue generated by the tobacco sector.
So, modest volumes have limited the tremendous revenue potential of cigarettes
and cigarette tobacco. The global import-export trade in tobacco was worth $30 billion in
1994 of which 25% billion was genet\rated by cigarettes. With 78% of Indian tobacco
being non-cigarette types, exports have been correspondingly modest-less than 1 % of the
global trade. What emerges clearly is the opportunity that cigarettes and cigarette
tobaccos offer in tem1S of revenue, improving quality of employment, developing the
rural economy and increasing foreign earnings.
44
The Farmers Friend:
Among commercial crops, tobacco occupies a unique and distinct posits. Tobacco
uses just 0.3% of arable land to yield it of agricultural value nearly 4o/t of India's agro-
exports. No other crop provides such value to the farmer under similar conditions in
India. It is grown in a large number of states with Andhra Pradesh, Karnataka, west
Bengal, Tamil Nadu, Bihar, Utter Pradesh, Orissa and Maharashtra being the major
tobacco providing areas. Andhra Pradesh and Karnataka are the two states growing the
cured Virginia tobacco used in making cigarettes and also the exportable variety.
Tobacco is drought resistant crop grown substantially on non-irrigated soils. More

than 50% of tobacco cultivation takes place in areas without irrigation. This is significant
in a country like India where 70_ of arable land lacks irrigation. At the same time, it is the
only hardly crop that withstood the residual moisture and organic matter during three
consecutive cyclones in Andhra Pradesh and gave the farmer good yields.
It is short-term cash crop compared to other main crops of the region and takes
between four to six months to grow. The tobacco farmer to cultivate other crops for the
rest of the year can use the land. Growing tobacco improves soil fertility there by
increasing the yield of other crops on the same soil. The cigarette tobacco grower receives
regular scientific inputs on improving yield and quality, and developing new varieties
from the private sector as well as the government. The central tobacco research institute
in Rajahmundry, Andhra Pradesh, has played an important part in agricultural research
project that spans six state agricultural universities and six centers under the Indian
council for agricultural research.
Creating Wealth for the Nation:

Though tobacco is a significant contribute to the Indian exchequer, revenue
generation from the segments restricted by the nature of tobacco consumption. Despite
being only 19% of tobacco consumption, Rs.3500 crores out if the Rs.4036 crores (nearly
87%) that accounted at tobacco excise in 1996 was x-accounted by the cigarettes. If all
tobacco consumption was in the form of cigarettes, excise collections would theoretically
have been in the range of Rs.18000crores and would account fit 30% of the government
excise revenues instead of 10% if provides now.
45
Cigarette excise is determining by length and type. Therefore, the King-size
segment (cigarettes longer than 75mm) pays the highest excise Rs.1100 per 1000
cigarettes-and also has the smallest market share only about 15% Excise rates in India
have increased annually. Volumes in the conventional length segment of cigarettes has
shown a small growth of 2.7% since 1993-94 while in sharp contrast the excise revenues
have grown at compound a rate of 10.7%. This volume and revenue growth must be seen
in contrast with the impressive performance of the micro segment (non-filter cigarettes
not exceeding 60mm in length) after duly reduction in March 1994, even though this
reduction was sustained for a brief period of two years. But in India, only 5% of all types
of smoked tobacco products are in the form of filter cigarettes. This share is likely to
shrink further with the budget proposals of a 16% hike in the 70mm filter cigarette
segment, which accounts for 44% of the cigarette industry.
The golden leaf in India yields tremendous promise. It is capable of not only
making a much larger socio-economic contribution at home, but had the ability to make
India emerge as a major player in the world tobacco market. India has the infrastructural
facilities, trained and experienced workforce spanning all stages of tobacco production,
and favorable agro-climate conditions-factors, which undoubtedly augur well. It needs a
progressive tobacco policy to harness these advantages. In order to attain the stated
objectives, the government needs to focus on these fundamentals.
1. The specific duty structure in 1987 should be retained in view of enhanced
revenues it provides and in order to achieve litigation free tax collections.
2. The rate of duty of micro segment should be restored to Rs.60 per 1000 cigarettes,
which has not affected the existing level of industry and fetches major benefits to
excise revenue.
3. Retain single point taxation for cigarettes and discourage levy of luxury and entry
tax by state governments, which contravene the Act of 1957.
4. Excise duty should be reduced by 5%, the weighted average impact of sales taxes
on cigarettes, till the Supreme Court pronounces a judgment on pending cases.
5. Give due consideration to premium segment which provide impetus to the high
quality, exportable tobacco. This will also protect excise erosion on account of
increased smuggling of foreign brands.
6. The cigarette industry should be allowed the benefits of bringing back damaged or
defective goods for reprocessing.
46
Today's world increasingly relies on a. common agenda, particularly in the context
of commerce. In globalize environment, all nations flow with the main stream of internal
trends. India is no exception. It has to convert its threats into competitive advantage to
emerge as a dominant player. Tobacco offers this opportunity to India.
47
CHAPTER 4
RESULTS AND DISCUSSION
1. RAW MATERIAL:
The raw materials include the materials, which are used in the production process,
and every manufacturing firm has to carry certain stock of raw materials in stores. These
units of raw materials are regularly issued or transferred to production department for
production operations. Inventory of raw materials are held to ensure that the production
process is not interrupted by storage of these materials.
Raw Material Trend at Bulk Activities Division
Table – 4.1
(Rs. In 0lakh)
PARTICULARS 2013-14 2014-15 2015-16 2016-17 2017-18
RAW MATERIALS 1560.23 1612.71 1560.68 1490.9 1500.18
Graphical Representation:
RAW MATERIALS
2013-14 2014-15 2015-16 2016-17 2017-18
2. WORK-IN-PROGRESS/ PROCESS:
48
It refers to the raw materials engaged in various phases of production process. The
degree of completion may be varying for different units some units may be 40% finished,
or some other 90% completed.
The value of work in progress involves material costs, the direct wages and
expenses already incurred and the overheads if any. So, work in progress inventory
contains partially produced or completed goods.
The purpose of work-in-progress inventory is to uncouple the various operations

in the production process, so that machine failures and stoppage in operations will not
affected by one annoy
Table – 4.2
(Rs. In lakh)
PARTICULARS 2013-14 2014-15 2015-16 2016-17 2017-18
WORK IN PROCESS 814.25 789.21 863.17 751.65 800.57
Work-in-progress/ process
900
800
700
600
Scale
500
400
300
200
100
0
2013-14 2014-15 2015-16 2016-17 2017-18
Years
49
3. FINISHED GOODS:
In trading, firm purchase is made where as in the manufacturing firm produce or
process the goods. However, it may be. These are goods that are either being purchased
by the firm or are being produced or processed in the firm. These are just ready for sale to
customers.
Inventory of finished goods arise because of the time involved in production

process and to meet customers demand promptly. If the firms do not maintain a
sufficient finished goods inventory, they run the risk of losing sales due to customer
dissatisfaction.
Finished Goods Trend at Bulk Actives Division
Table – 4.3
(Rs in lakh)
G r
a 2013-14 2014-15 2015-16 2016-17 2017-18 p
PARTICULARS
hi c
al
R Finished Goods 855.26 832.56 796.25 756.25 800.51 e
p re
se n
tation:
FINISHED GOODS
2013-14 2014-15 2015-16 2016-17 2017-18
50
VARIOUS TYPES OF RATIOS:
 Inventory turnover ratio
 Raw materials inventory turnover ratio
 Inventory holding period
 Work-in-progress turnover ratio
 Inventory to net working capital ratio
 Sundry debtors turnover ratio
INVENTORY TURNOVER RATIO:

Inventory turnover ratio also known as stock velocity is normally calculated as
sales/average inventory or cost of goods sold/average inventory. It would indicate
whether inventory has been efficiency used or not. The purpose is to see whether only the
required minimum funds have been locked up in the inventory. Inventory turnover
ratio(I.T.R) indicates the number of times the stock has been turned over during the
period and evaluates the efficiency with which a firm is able to manage its inventory. The
figure of inventory at the end of the year should not be taken for calculating stock
velocity because normally the stock at the yearend is low. Generally, efforts are made to
dispose of inventory before the close of the year. So, average inventory should be taken
for calculating stock turnover ratio.
Inventory Turnover Ratio = Cost of goods sold / Average Inventory
RAW MATERIALS TURNOVER RATIO:

The ratio indicates the efficiency of the firm raw materials consumed. It is
calculated by material consumed divided by average material inventory.
Raw Materials Turnover Ratio = Raw Materials Consumed / Average Inventory
51
WORK IN PROGRESS TURNOVER RATIO:
This is enable for the company in establishing the time gap between different
stages in a product cycle and the efficiency with the production cycle gets completed in
case of BOMMIDALA PURNAIAH HOLDINGS PVT. LTD. work in progress inventory
turnover ratio has been gradually increasing over the years. It is calculated from cost of
production divided by average work in progress turnover ratio.
Work in progress turnover ratio = Cost of production / Average work in progress
INVENTORY TO NET WORKING CAPITAL:

Then net working capital is the difference between the current assets and the
current liabilities. When it is negative, Current liabilities exceed Current assets. Raw
materials consist of inventory. The efficient management of inventory indicates firm‟s
efficient performance. The ratio calculated from inventory divided by the net working
capital.
Inventory to net working capital = Average Inventory / Net working capital
SUNDRY DEBTORS AND TURNOVER RATIO:

Debtors turnover indicates the number of times debtors turnover each year.
Generally, the higher the value of debtor turnover, the more efficient is the management
of credit.
Sundry debtors to turnover ratio = Net credit sales / Average Inventory
INVENTORY TURN-OVER RATIO:

Inventory turnover ratio denotes the speed at which the inventory will be
converted into sales, thereby contributing for the profits of the concern. Inventory
turnover ratio indicates the number of times inventory replaces during a period normally a
year. This ratio establishes relationship between cost of goods sold during a given period
and the average amount of inventory held during that period. This ratio reveals the
number of times finished stock is turned over during a given accounting period. Higher
the ratio, the better it‟s because it shows that finished stock is rapidly turned over.
52
On the other hand, a low stock turnover ratio is not desirable because it reveals the
accumulation of obsolete stock, or the carrying of too much stock.
Inventory Turnover Ratio= Cost of goods sold / Average Inventory
Where,
Cost of goods sold = (Opening Inventory + Manufacturing cost) – Closing Inventory
Average Inventory = Opening Inventory + Closing Inventory / 2
In the absence of cost of goods sold & inventory data, the ratio can be calculated
by following formula:
Sales / Closing Inventory
Table – 4.4
Cost of goods sold Average Inventory

Year ITOR
(in cr.) (in cr.)
2013-14 51.63 37.83 3.033371
2014-15 55.79 45.00 3.053908
2015-16 66.63 49.54 2.946737
2016-17 73.01 46.76 3.069254
2017-18 82.74 49.82 2.779723
INVENTORY TURNOVER RATIO
2013-14 2014-15 2015-16 2016-17 2017-18
53
INTERPRETATION:
A high inventory turnover ratio is desirable in every organization, as it is an
indicative of good management. A low inventory turnover ratio implies slow moving or
obsolete inventory. The above table indicates that the inventory turnover ratio of
BOMMIDALA PURNAIAH HOLDINGS PVT LTD in all five years of study is
comparatively fluctuating. The inventory turnover ratio of BOMMIDALA PURNAIAH
HOLDINGS PVT LTD showed a somewhat irregular trend. It is highest that 3.069 in the
year 2016-17. It is increasing from 2014 as the study shows the inventory level falls from
3.069 to 2.77.
So, compare to all years of study from 2013-14 to 2017-18, the inventory turnover
ratio is showing low level which indicates the fluctuations in demand.
54
RAW MATERIAL TURNOVER RATIO:
This ratio indicates the efficiency of the firms raw material consumed. It is
calculated by the material consumed divided by average inventory. The ratio reflects the
rate of utilization of raw materials. A high turnover ratio indicates higher utilization of
raw materials. However, a very high ratio is not good from the organization point of view
as the same way lead to bottleneck in production due to the stock out of raw materials. On
the other hand, a low turnover of raw materials is an indication of underutilization of
inventory.
Raw materials consumed during the year
Raw Material Turnover Ratio =
Average Inventory
Table – 4.5
Year Average Inventory Materials consumed RMITOR

2013-14 37.83 60.91 1.3588402
2014-15 45.00 46.21 1.3539712
2015-16 49.54 63.28 1.3945546
2016-17 46.76 57.83 1.4020884
2017-18 49.82 54.75 1.2975333
RAW MATERIAL TURNOVER RATIO
2013-14 2014-15 2015-16 2016-17 2017-18
55
Interpretation:
This ratio is calculated to know the level of raw materials inventory held by the
firm on an average. It was 1.355 in the year 2013-14, again it is 1.399 in the year 2015-
16, it is increase to 1.402 in the year 2016-17 and again it started down 1.297 in the year
2017-18.
The raw material turnover ratio indicates the efficiency with which the firm
converts raw materials into work in progress. The ratio reflects low turnover ratio of raw
material which is an indication of non-conversion of raw materials into work in progress.
56
WORK IN PROGRESS TURNOVER RATIO:
The work in progress turnover ratio indicates the efficiency with which the firm
converts work in progress into finished goods. This enables the company in establishing
the time gap between different stages in a product cycle and the efficiency with the
production cycle gets completed in case of BOMMIDALA PURNIAH work in progress
inventory turnover ratio has been gradually increasing over the years. It is calculated from
cost of production divided by average work in progress.
Cost of goods manufactured

Work in Progress Turnover Ratio =
Average work in progress
Table – 4.6
Average work in WIPTOR
Year Cost of Production
progress (in times)
2013-14 90.79 100.89 162.4620
2014-15 20.11 104.65 186.5276
2015-16 12.17 112.2 186.3830
2016-17 48.38 124.65 186.5093
2017-18 40.99 132.4 170.2492
57
WORK-IN-PROGRESS TURNOVER RATIO
2013-14 2014-15 2015-16 2016-17 2017-18
INTERPRETATION:
This ratio is calculated to know the level of work in progress inventory held by the
firm on an average. It indicates the efficiency with which the firm converts work in
progress into finished goods. It was 162.46 in the year 2013-14, again it increases to
186.38 in the year 2014-15, it is 186.38 in the year 2015-16 and the study shows
downwards in work in progress turnover ratio in the year 2017-18 and now the rate is
132.4.
It indicates the efficiency of conversion of work in progress into finished goods of

firm is increasing from 2013-14 to 2017-18 based on the demand.
58
INVENTORY TO NET WOKING CAPITAL:
The net working capital is the difference between the current assets and the
current liabilities. When it is negative, current liabilities exceeds current assets. The
efficient management of inventory indicates firms efficient performance. The ratio
calculated from inventory divided by the net working capital.
Inventory to Net Working Capital = Average Inventory / Net working capital

Where,
Net working capital = Current Assets – Current Liabilities
Table – 4.7
Average Current Current Net working

Year ITNWC
Inventory Assets Liabilities capital
2013-14 37.83 14443.57 9101.83 5341.74 1.06
2014-15 45.00 17591.47 10330.73 7260.74 0.91
2015-16 49.54 20928.73 11504.32 9424.41 0.78
2016-17 46.76 23955.03 11681.91 12273.12 0.64
2017-18 49.82 24134.74 14587.86 9546.88 0.89
INVENTORY TO NETWORKING CAPITAL
2013-14 2014-15 2015-16 2016-17 2017-18
59
INTERPRETATION:
With reference to the above table, the ratio in 2013-14 was 1.06 and in the year
2014-15 ratio is 0.91 times, again in the year 2015-16 is decreasing to 0.78, and the next
year 0.89 is increasing. The overall study from 2013-14 to 2017-18 shows the irregular
trend of increases in inventory to net working capital. Inventory to net working capital
indicates decline in performance.
60
DEBTOR TURNOVER RATIO:
Debtors turnover ratio indicates the number of times on the average debtors are
turnover in each year. The higher the value of the ratio, the more is the efficient
management of debtors. It measures accounts receivables in terms of number of days of
credit sales during a particular period. It is a supplementary measure the liquidity of a
firm is mainly computed to judge the efficiency of firms credit policy. The ratio is
calculated by dividing the net credit sales by average debtors. The ratio indicates how
quickly debt / receivables are converted into cash.
Debtor Turnover Ratio = Average Debtors / Net Sales

Where,
Net credit sales = Total sales – sales returns
Table – 4.8
Year Sundry Debtors Sales SDTR
2013-14 986.02 25173.82 0.0392
2014-15 1163.34 29901.27 0.0389
2015-16 2165.36 33238.6 0.0651
2016-17 1722.4 36507.4 0.0472
2017-18 1686.35 36837.39 0.0458
61
DEBTOR TURNOVER RATIO
2013-14 2014-15 2015-16 2016-17 2017-18
INTERPRETATION:
From the above table, it is clear that the organization maintain the credit sales in a
better manner, but in-efficient to convert debtors into cash. The ratio in the year 2013-14
is 0.0392, it is 0.0651 in the year 2015-16 and now it is 0.0458 in 2017-18. The low
sundry debtor turnover ratio indicates the increase of non-performing assets to convert
receivables into cash.
62
INVENTORY HOLDING PERIOD:
The inventory-holding period indicates of inventory and finished goods into sales
in a year. In other words, it holds average inventory for some months or years.
Inventory Holding Period = 360 / Inventory turnover ratio
Table – 4.9
Year Inventory turnover ratio Inventory Holding ratio

2013-14 3.033 118.694362
2014-15 3.054 117.8781925
2015-16 2.947 122.1581269
2016-17 3.069 117.3020528
2017-18 2.78 129.4964029
INVENTORY HOLDING RATIO
2013-14 2014-15 2015-16 2016-17 2017-18
INTERPRETATION:
The above table and graph shows comparative period of inventory holding of the
company. The inventory holding period is gradually increasing trends when comparing
with the last five years now it is increased to 129.496 in 2017-18.
High ratio indicates that the inventory is not transforming into the finished product
and caused for increase of scrap and obsolescence of inventory. In the year 2017-18 it
was increases to 129.496 indicates a decrease of productivity.
63
“Bommidala Purnaiah Holdings Pvt. Ltd.-Tobacco-Bommidala Purniah, Guntur”
Bulk Activities Division Total Inventory Trend:
Table – 4.10
(Rs in lakh)
PARTICULARS 2013-14 2014-15 2015-16 2016-17 2017-18
Tools And Implements 34.73 31.18 51.56 22.93 35.10
Stores And Spares 7.00 9.23 23.01 32.65 24.90
Raw Materials 1560.23 1612.71 1560.68 1490.9 1500.18
Work In Process 814.25 789.21 863.17 751.65 800.57
Finished Goods 855.26 832.56 796.25 756.25 800.51
Total Inventory Trend

1800
1600
1400
1200
Tools And Implements
Scale
1000
800 Stores And Spares
600 Raw Materials
400 Work In Process
200 Finished Goods
0
2013-14 2014-15 2015-16 2016-17 2017-18
Years
64
ABC Analysis technique of Inventory Management “Bommidala Purnaiah Holdings
Pvt. Ltd.-Tobacco-Bommidala Purniah, Guntur” for the year 2013-14.
Table – 4.11
cumulati
% of
% of ve Cumulative
Name of the Unit
No of units Total % Total Cost % of Total Category
Item Cost Total
Units of total Cost
Cost
units
Tobacco 65832929.06 83.00 83.00 3.50 23 04 15 251.7 94.56 91.72 A
Scrap 6345342.56 8.00 100.00 0.75 47 59 006.92 5.44 100.00 C
TOTAL 7 93 16 782.00 100.00 25 12 35 907.0 100.00
ABC Analysis technique of Inventory Management
100
80
60
40
20
0
Tobacco Scrap
Interpretation:
 There is one item which comes under category A which comprises of Milk, these
items cover 95% of total cost and 80% of total volume. These items are to be
controlled strictly and are to be forecasted accurately.
 The B category inventory comprises of one item i.e. packing materials and bio
products which occupy about 5% of total cost and 10% of total volume. These
items require only a moderate control.
 There is one item i.e. scrap which comes under C category. This item occupied
2% of total cost and 10% of total volume. Lose control is acceptable for these
items.
65
Table – 4.12
% of cumulative % of Cumulative
Name of the Unit
No of units Total % Total Cost Total % of Total Category
Item Cost
Units of total units Cost Cost
Tobacco 6 22 45 313.46 81.00 81.00 4.50 28 01 03 910.6 95.63 92.68 A
Scrap 69 16 145.94 9.00 100.00 1.25 86 45 182.425 4.37 100.00 C
TOTAL 7 68 46 066.00 100.00 30 21 97 154.6 100.00
100
80
60
40
20
0
Tobacco Scrap
Interpretation:
 There is one item which comes under category A which comprises of Milk, these
 The B category inventory comprises of one item i.e. packing materials bio
products‟ which occupy about 2% of total cost and 10% of total volume. These
 There is one item i.e. scrap, which comes under C category. This item occupied
items.
66
Table – 4.13
Name of % of cumulative Unit % of Cumulativ

No of units Total % Total Cost Total Category
the Cost e
Item Units of total Cost % of Total
units Cost
Tobacco 5 95 57 89.00 89.00 3.25 19 35 62 96.58 95.05 A

611.85 238.5
Scrap 26 76 746.6 4.00 100.00 0.70 18 73 722.62 3.42 100.00 C
TOTAL 6 69 18 100.00 20 36 33 100.00

665.00 497.6
100
80
60
40
20
0
Tobacco Scrap
Interpretation:
 There is one item which comes under category A which comprises of Milk these
 The B category inventory comprises of one item i.e. packing materials bio
67
items.
68
Table – 4.14
% of Cumulative % of Cumulative
Name of Unit
the Item Cost
3 53 15
Tobacco 87.00 87.00 3.75 13 24 34 623.2 94.89 93.53 A
899.51
Scrap 20 41 143.65 5.00 100.00 0.90 18 37 029.28 5.11 100.00 C
TOTAL 40822873.00 100.00 141619769.6 100.00
100
80
60
40
20
0
Tobacco Scrap
Interpretation:
 There is one items which comes under category A which comprises of milk these
 The B category inventory comprises of one items i.e. packing materials bio
items.
69
Table – 4.15
% of Cumulative % of Cumulative
Name of the Unit
Item Cost
Tobacco 5 74 07 981.54 91.00 91.00 3.50 20 09 27 935.4 94.44 94.44 A
Scrap 18 92 570.82 3.00 100.00 0.75 14 19 428.11 0.67 100.00 C
21 27 56
TOTAL 6 30 85 694.00 100.00 100.00
503.00
100
80
60
40
20
0
Tobacco Scrap
Interpretation:
 There is one item which comes under category A which comprises of milk these
 The B category inventory comprises of two items i.e. packing materials bio
items.
70
FINDINGS
1. From the study it has been observed that the investment on raw material has been
increase from 2015-16 to 2016-17. In the year 2014-15, 2013-14 to 2016-17 is
falling.
2. From the study it was observed that the inventory turnover ratio decreased
2016-17 to 2015-16. 2016-17 turnover ratios are good then compared to one in the
year of 2015-16.
3. From the study it has been observed that the inventory to working capital ratio
was decreasing from year to year. But there is an overall this ratio is full
satisfactory.
4. From the study it has been observed that the inventory to sales ratio has been
falling from 2015-16 to 2014-15. The ratio in the year 2015-16 is a satisfactory
one.
5. From the study it has been observed that the inventory to current assets ratio has
been sanded from 2015-16 to 2014-15. The ratio in the year 2016-17 is not a
satisfactory one.
6. From the study it has been observed that the Quick ratio. The Company
maintained high liquidity position, which might decrease its profitability. Since
the return assets are very low.
7. From the study it has been observed that the current ratio of “BOMMIDALA
PURNAIAH HOLDINGS PVT LTD-Limited-TOBACCO-BOMMIDALA
PURNIAH, GUNTUR”. It is decreasing for the period of 2013 to 2018. The
company maintains satisfactory current ratio. This is more than idle ratio 2:1 due
the current assets are more than the current liabilities.
71
SUGGESTIONS
1. The investment on raw material is increasing level so it suggested that

“BOMMIDALA PURNAIAH HOLDINGS PVT LTD-Limited-TOBACCO-
BOMMIDALA PURNIAH, GUNTUR” is to take the steps so as to maintain the
optimum investment on raw materials
2. The inventory turnover ratio is increasing level so it suggested that “BOMMIDALA
PURNAIAH HOLDINGS PVT LTD-Limited-TOBACCO-BOMMIDALA
PURNIAH, GUNTUR” is to take the steps so as to maintain the optimum inventory
turnover ratio.
3. It is suggested that the “BOMMIDALA PURNAIAH HOLDINGS PVT LTD-
Limited-TOBACCO-BOMMIDALA PURNIAH, GUNTUR”. Is required to take
necessary steps so as to maintain the same inventory to working capital ratio as the
ratio is satisfactory.
4. As the inventory to sales ratio is optimal, it is suggested for the company to take
necessary actions so as to retain the improve for the better future performance of the
company.
5. It has been suggested that the company needs to maintain the same level of
inventory turnover ratio, which reduces its interest payment default risk.
6. It has been suggested that the company needs to maintain the same level Current
ratio, which is useful to meet current obligation.
7. It has been suggested that the company examined the Quick ratio to the beneficial of
the “BOMMIDALA PURNAIAH HOLDINGS PVT LTD-Limited-TOBACCO-
BOMMIDALA PURNIAH, GUNTUR”.
8. It has been recommend that the company needs to maintain the same level of assets
turnover ratio, which increasing the profit.
72
CONCLUSION
Finally it is concluded that inventory of tobacco in “BOMMIDALA PURNAIAH

HOLDINGS PVT LTD-Limited-TOBACCO-BOMMIDALA PURNIAH, GUNTUR.” It
is very important segment to gain the high profits. Inventory management of engineering
stores is also very important area to the “BOMMIDALA PURNAIAH HOLDINGS PVT
LTD-Limited-TOBACCO-BOMMIDALA PURNIAH, GUNTUR.” It maintains the total
inventory cost is around 5200,000. This inventory management of engineering stores is
marinating mini-max system and VED analyses. Inventory management is the heart of
organization for “BOMMIDALA PURNAIAH HOLDINGS PVT LTD-Limited-
TOBACCO-BOMMIDALA PURNIAH, GUNTUR” and as well as the necessaries too.
Inventory management helps the organization to keep the production without

breaks and it help to the productions of the future. Inventory management will also help
the managers to show their efficiency in the work. It will help the production growth as
well as to minimize the cost of the production and price of the product. It is the area
which is very important to any of the organization and this too.
REFERENCES
 Anil Misra & Rajiv, (2009) “Financial Management”, Oxford University Press,
 I.M. Pandey, (2005) “Financial Management”, Vikas Publishing House Pvt. Ltd,
New Delhi,
 M.Y. Khan & P.K. Jain, (2005 ) “Financial Management”, Tata Mc.Graw Hill,
New Delhi,
 R.K. Sharma, (1999 ) “Financial Management”, Kalyani Publisher New Delhi,.
 P.V. Kulkarni, (1999) “Financial Management”, Himalaya Publishing House,
Mumbai.
 "Inventory Management." SpringerReference (n.d.): n. pag. Web.
 G.Prasad, (2008) “Accounting For Managers”, Jaya Bharat Publishers, Guntur.
73
74
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CHAPTER 1

Motives for holding Inventories:

Inventory Management covers efficient management of inventories in all its

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

Inventory holding is resorted to by organizations as hedge against various external

Inventory is always dynamic. Inventory management requires constant and careful

 To present the conceptual framework relating to inventory management.

The study is significant to the following groups.

Scope of the project is:

INVENTORY & INVETORY MANAGEMENT:

Work in process inventories semi-manufactured products. They represent products

INVENTORY CONTROL & MANAGEMENT:

Inventory can be classified as:

STORES AND SPARES:

Inventory Management Practices:

OBJECTIVES OF INVENTORY MANAGEMENT:

ADVANTAGES OF INVENTORY MANAGEMENT:

CAUSES OF POOR INVENTORY MANAGEMENT:

Ordering Costs/ Set-Up Costs:

The opportunity cost of funds consists of expenses in raising funds (interest of

Stock Out Costs:

Reasons For Holding Inventory:

Dangers of Excessive Investment in Inventory:

Dangers of Inadequate Investment in Inventory:

Cost involved in inventory:

1. FIFO: (First in First Out):

2. LIFO: (Last – In – First – Out):

3. Periodical Simple Average:

4. Normal Cost / Standard Cost Method:

6. Replacement Prices Method:

Inventory Control System:

Objectives of Inventory Control:

Better Use of Men Machines and Materials:

Protection against fluctuations in output:

Control of stock volume:

Inventory is maintained due to the following reasons:

Methods of inventory control:

a) Economic lot size:

Re-order level / point:

Re-Order Level = Lead Time Demand + Safety Stock.

Organization for inventory management:

Stores department in order to discharge its functions effectively, it has to have

Need for holding optimum inventory:

Costs for Holding Inventory:

Inventory Carrying Costs or Stock Holding Costs:

Procurement Cost or Setup Cost:

Shortage Cost or Stock-out Cost:

Periodic Inventory System:

Perpetual Inventory System:

The perpetual inventory system consists of:

Just-In-Time Inventory System:

Various stock levels in Inventory Management:

PROCESS NUMBER & DEMAND

RAW MATERIAL WIP

From its humble beginnings as a tobacco trading company to becoming a

The group companies:

Sun Cured Burley Tobacco (Traditional)

Fluecured Virginia SLs:

Chewing Tobacco (Red Chopadia):

Fluecured Virginia Mysore:

Indian Tobacco Burley:

Chewing tobacco (black chopadia)