A Study on

INVENTORY MANAGEMENT
With reference to
NCS SUGARS LIMITED

(A Project Synopsis Submitted To JNT University, Kakinada in Partial

Fulfillment for the Award of the Degree)

MASTER OF BUSINESS ADMINISTRATION

Submitted by

MAMIDI SANKARARAO
(Regd. No.09NU1E0021)

Under the guidance of

Asst. Prof. Narendhra Kumar

MBA

DEPARTMENT OF MANAGEMENT STUDIES

P.G.COURSES – M.R.COLLEGE
(Affiliated to Andhra University, Visakhapatnam)
(Accredited with ‘A’ Grade by NAAC)
(Approved by AICTE, Govt. of India, New Delhi).
PHOOL BAUGH,
VIZIANAGARAM-535002

2009-2011

1
 DECLARATION

I, M.SANKARA RAO hereby declare that the project entitled

“INVENTORY MANAGEMENT” with reference to “NCS SUGARS

Ltd, BOBBILLI” is a bonafied record work submitted by me as per the

requirements of Andhra University under the guidance of Assoc Prof.

Dr.O.NARYANA MURTHY, Department Of Management Studies,

VISHAKA INSTITUTE OF TECHNOLOGY AND SCIENCES,

SONTYAM, VISHAKAPATANAM DIST.

I also declare that the work is the result of my own effort and

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

of any Degree.

Date :

Place: Visakhaptnam

(M.SANKARA RAO)

ACKNOWLEDGEMENT
2
 In the presentation of this report, I recall with a sincere gratitude to each
of those who have been a source of immense help and inspiration during the
process of my project work.

I take this opportunity to express my deep sense of gratitude and

indebtedness to Faculty cum Project Guide Mr., B.NARENDHRA sir; for his

cooperation extended to me for the preparation of this project work.

I am profoundly thankful to Mr.N.PRASADHA RAJU garu, Director;

and Head of the Department, Assoc Prof. Dr.O.NARYANA MURTHY garu;

of VISHAKA INSTITUTE OF TECHNOLOGY AND SCIENCES, P.G.

Courses for their helpful comments and information regarding the logic and

documentation of the project.

For the successful completion of my project I would like to thank

Special thanks to my project guide Sri.CH.NAGESWARA RAO

(finance manager, NCS SUGAR IND. LTD) is without his guidance the

completion of the project work would not have been possible.

Lastly, I am thankful to my parents, friends and all those people who

contributed their part in the preparation of this project.

DATE:

PLACE: (M.SANKARA RAO)

3
 CONTENTS

PAGE NO.

CHAPTER 1 INTRODUCTION 06-16

• Meaning and Concept of inventory management

• Rationale of the Study
• Objective of the Study
• Research Methodology
• Contribution of the Study
• Frame work of the Study

CHAPTER 2 PROFILE OF NCS SUGARS LTD. 17-45

• History of SUGARS
• Growth of SUGAR INDUSTRY IN INDIA
• NCS ORGANISATION an overview
• History of NCS SUGARS
• Profile of NCS SUGARS

CHAPTER 3 INVENTORY MANAGEMENT 46-58

• Inventory Management
• Objectives of Inventory Management
• Inventory Management Techniques
• Valuation of Inventories

CHAPTER 4 INVENTROY MANAGEMENT IN NCS SUGARS LTD.

59-80

• Ratio analysis in NCS Sugars Ltd.

• Analysis of Inventory Management

CHAPTER 5 SUMMARY & SUGGESTIONS 81-86

• Summary
• Suggestions
• Findings
• Conclusion

BIBLIOGRAPHY

4
 PREFACE

Professionalism is the requisite in every aspect of life. Two year

academic programs like MBA provide the student with theoretical

knowledge as well as application skills in practical world. A 45 days

project provides such an opportunity where the student gets a chance to

apply his theoretical knowledge in a practical field.

As per my specialization namely marketing and Finance, I got a

chance to have exposure in either. When I was permitted to do my project

work in NCS SUGARS Limited, I felt I got a right platform to enhance

my knowledge.

As there was a lot of risk involved in the trading process in sugar

manufacturing, the study of the concept of Inventory Management is very

useful and important.

5
CHAPTER – 1

INTRODUCTION TO SUGAR INDUSTRY

6
 Sugar Industry is very important to the Indian National economy,
because of its multiple contributions in the shape of employment and
provision of raw materials to other industries. Sugar is made by some
plants to store energy that they don't need straight away, rather like
animals make fat. People like sugar for its sweetness and its energy so
some of these plants are grown commercially to extract the sugar.

Sugar is produced in 121 Countries and global production now

exceeds 120 Million tonnes a year. Approximately 70% is produced from
sugar cane a very tall grass with big stems which is largely grown in the
tropical countries. The remaining 30% is produced from sugar beet a root
crop resembling a large parsnip grown mostly in the temperate zones of
the north.

It had been rightly pointed out by the Late Shri. Fakhrudin Ali
Ahmed when he was Minster for food and agriculture, at the eleventh
annual general meeting of the national federation of co-operative
factories limited. “The co-operative factories in some parts of the country
have become symbol of industrializations in the development of ancillary
industries providing opportunities of employment to the village folk”.
The industry provides employment to about 35 million cultivations and
3.6 lakhs skilled and unskilled workers. Further, it accounts for providing
employment to crores of thousands in the sugar trade, in the transport of
sugarcane and sugar etc. It’s by - products are used as raw materials in
industries such as alcohol, plastics, synthetics, rubber, and fiberboard
Pharmaceuticals, paper, etc. The sugar industry in recent years has begun
to export sugar, thus earning valuable foreign exchange .Besides it
provides Rs. 300 crores in the form of taxes to the exchange consisting
these many facts of important of the industry ,it ranks second among the

7
major consumer industries of this country, next only to cotton, Textile
industry .

The sugar industry is mostly oriented to a single material, namely

sugarcane that forms 60% of the total cost of production. Therefore, the
availability of sugar cane and facilities of transporting raw material of the
sugar mill naturally condition the industry of sugar proximity to. The raw
material is essential because the sucrose content of the sugar cane begins
to decrease soon after the cane is cut obtained as the factories for
generating power use a byproduct during the producing.
Therefore, power is not at all a dominating factor determining the
location of sugar industry. In recent times, techniques feasibility and
economics visibility of the sugar projects have been given importance in
the location of sugar industry. In the words of Dr.M.Mehta, “The location
pattern of the sugar industry is greatly influenced by the character local
distribution depends entirely of physical and Geographical factors, nature
plays a dominant role in the location industry”.

In India, major sugarcane growing states are Uttar Pradesh,

Maharashtra, Karnataka, Gujarat, Tamil Nadu, and Andhra Pradesh.
These six states contribute more than 85% of total sugar production in the
country; Uttar Pradesh and Maharashtra together contribute more than
57% of total production.

Need for the Study

The Industry sectors and the financial system are undergoing rapidly
changes following the process of liberalization and reforms. The
underlying principle behind every reform measure re-orientation of

8
monetary policy techniques, introduction of new money market
instruments and institutions, suggest structural changes in the financial
system and strengthening Regulatory arrangements has been to make the
system more competitive, efficient and profitable.

Every performance indicator seems to reflect the impact of the

reform measures. Profitability of the industry has witnessed a steady
improvement mainly as a result of these measures, Capital adequacy ratios
have crossed the norms prescribed for almost all industries.

The industries have begun to focus on minimizing their asset liability

mismatches and on inventory management. Further, after the enactment of
securitization Act 2002, the industries get a weapon to tackle the challenge
of Non Performing Assets (NPAs).

At this backdrop, it is felt essential to study the financial

performance of the Lead sugar Division, NCS SUGARS Ltd, which is one
of the representatives of the industry system. This is experiencing the
recent reforms.

SUGAR INDUSTRY IN INDIA

India has been known as the original home of sugarcane and sugar.
Indians knew the art of making sugar since the fourth century. However
the advent of modern sugar industry in India dates back to mid 1930's
when a few vacuum pan units were established in the sub-tropical belts of
Uttar Pradesh and Bihar.

Until the mid 50s, the sugar industry was almost wholly confined
to the states of Uttar Pradesh and Bihar. After late fifties or early sixties
the industry dispersed into Southern India, Western India and other parts
of Northern India.
9
 India is the largest consumer and second largest producer of sugar
in the world. The sufficient and well distributed monsoon rains, rapid
population growth and substantial increases in sugar production capacity
have combined to make India the largest consumer and second largest
producer of sugar in the world.

The Indian sugar industry has not only achieved the singular
distinction of being one of the largest producer of white plantation crystal
sugar in the world but has also turned out to be a massive enterprise of
gigantic dimensions. With over 450 sugar factories located throughout
the country, the sugar industry is amongst the largest agro processing
industries, with an annual turnover of Rs150bn. It plays a major role in
rural development and its importance for India stretches far beyond the
role of a sweetener supplier.

The sugar factories located in various parts of the country work as

nuclei for development of rural areas by mobilizing rural resources and
generating employment, transport and communication facilities.

Over 45mn farmers, their dependants and a large mass of

agricultural labor are involved in sugarcane cultivation, harvesting and
ancillary activities constituting 7.5% of the rural population. The sugar
industry employs over 0.5mn skilled and unskilled workmen, mostly
from the rural areas.

Since the beginning of planning era, sugar industry operated under

a policy of partial control in 1950-51 and 1951-52, followed by a
continuous period of six years of decontrol between 1952-53 to 1957-58.
This policy was followed under the pragmatic leadership of the then

10
Minister of Food, Shri Rafi Ahmed Kidwai. However, with his departure,
the perception of decontrol was lost.

After alternating between control and decontrol, the government

adopted the policy of partial decontrol in 1967-68 which has since been
the mainstay of government policy except for two short periods of
decontrol in the 1970's. Under this policy, the government procures 40%
of production at controlled prices based on the Statutory Minimum Price
for sugarcane, for supply through the Public Distribution System and the
balance 60% is allowed to be sold by the mills in free market subject to
the monthly release mechanism. The levy quota for sugar mills has been
brought down from the peak levels of 70% in 1968-69 to the present
levels of 40% as a gradual process of deregulation of sugar industry.

The average capacity of the sugar mills in the industry has

considerably moved up from just 644 ton per day in SY1930-31 to 2656
ton per day. But still the growth in the Indian sugar industry was driven
by horizontal growth (increase in number of units) compared to the
vertical growth witnessed in other countries (increase in average
capacity).

Sugar Industry in India is well developed with a consumer base of

more than billions of people. It is also the second largest producer of
sugar in the world. There are around 45 millions of sugar cane growers in
India and a larger portion of rural laborers in the country largely rely
upon this industry. Sugar Industry is one of the agricultural based
industries. In India it is the second largest agricultural industry.

As to the statistics there were a total number of 571 sugar factories

in India as on March 31, 2005 compared to 138 during 1950-51. These

11
571 sugar mills produce a total quantity of 19.2 million tones (MT).
Sugar production in India increased from 15.5 MT in 1998-99 to 20.1 MT
in 2002-03. Department of Agriculture and Co-operation, sugarcane
production in 2004-05 is estimated at 232.3 MT from 237.3 MT in 2003-
04. Sugarcane production is expected to reach 257.7 MT in 2005-06.

Government of India fixes Statutory Minimum Price (SMP) for

sugarcane according to Clause 3 of the Sugarcane Order. This statutory
Minimum Price is designed through the consent of Commission for
Agricultural Coast and Prices (CACP) and respective state Governments.
For the year 2004-05, the rate was fixed at Rs.74.50 per quintal with a
basic recovery of 8.5%.

Sugar Industry traversed a long way since its inception and gained
importance in the 4 development of the Indian economy. It has faced
niceups in its annual production due to various cyclical and governmental
reasons so the policies of the government changed now and then they
resulting in various resentmenly and agreements from the side of Indian
mills and Sugar consumers.

In Indian consumption of Sugar is substantially increasing with the

increase in population may being a farmer son I would like to know the
condition of Government towards Sugar Industry and nextly as decontrol
is the order of the day since it has been chosen as a mean to study the
Sugar Industry.

The Sugar Industry presents a wonderful opportunity to the

countries if properly or panised and permitted to function without felts.
Sugar Factories not only supply the Sugar requirement in the country but
produce industrial alcohol, a building block for manufacturers at value
added chemicals.
12
DISTINGUISHED FEATURES OF SUGAR INDUSTRIES
FROM THE OTHER INDUSTRIES
In any modern Industrial manufacturing activity, the efficiency of
operations at these basic stages, viz., procurement of raw materials,
prowling of raw materials into finished products and finally disposed at
finished products .In all the matters, cost is primary aspect at which these
operations are being carried out . Optimum utilization at various
functions of production will necessarily result in the least average cost of
production per unit of output. The type of mobility however determines
the price of the finished products Eg., Competitive, Oligopolistic,
Monopolistic etc.,

In Sugar Industry, however the situation is altogether different

firstly; it is a seasonal industry and agro-based industry. Sugar recovery
percent and duration of season are two important functions influencing
the cost of production. Secondly, the Industry is governed for a large part
of is production what is known as Administered prices. The remaining
production is also influenced indirectly by these Administered prices of
sugar. Because of the operation of Administered price system the
Industry has to be examined for costing purpose to fix Administered
prices. Thus, the costs and prices are so interrupted in sugar industry that
when we talk of costs, we in fact, are to discuss about prices also. Hence,
analysis cost Data bristles with certain peculiarities and probabilities,
which are not often faced in other types of industries.

13
OBJECTIVES OF THE STUDY

 To evaluate the financial performance of NCS SUGARS LTD.

 To analyze the profitability and liquidity position of NCS SUGARS
LTD.,
 To identify the strengths and weaknesses of the organization by
properly establishing relationship between items of the balance sheet and
profit and loss account.
 To measure the extent to which the company has been financing its
needs through borrowings.
 To offer suggestions to management for the improvement of
organization’s financial performance.
 To observe how financial management is carrying out in general and
financial analysis.
 To study the Sugar Industry and profile of NCS SUGARS LTD.
 To find out the existing techniques of inventory appraisal in NCS
SUGARS LTD.
 To find whether NCS SUGARS LTD., ensure a continuous supply of
materials to facilitate uninterrupted production.

METHODOLOGY
The relevant information necessary for the study is collected from two
sources namely.
14
  Primary data.
 Secondary data.

Primary data

 It consists of information disclosed by the financial heads of various

authorities of the respective Departments of NCS SUGARS LTD.
 Conducting personal interviews with the concerned office of Financial
Department of NCS SUGARS LTD.

Secondary data

It consists of information obtained from annual reports,

balance sheets and other financial statements, files and other important
documents maintained by the organization. In addition to that, collecting
data from referred text books

 Collection of Required data from annual records of NCS SUGARS

LTD.
 Reference from textbooks and journals relating to financial
Management.

LIMITATIONS

15
 The study has been conducted in a systematic and comprehensive
way so as to make the project work an enviable one. However the topic
under my study is not free from limitations due to these factors.

 Due to the time constraints it is difficult to study the performance of a big

organization of the size Lead Sugar Division, NCS SUGARS LTD.

 The Main source of information is the published annual reports

which are not sufficient to make a proper study.

FRAME WORK OF THE STUDY

The present study is divided into five chapters as described below:

CHAPTER-1 Consists of introduction, Need and significance of the

Study, Objective, Methodology, Limitations, Frame work of
the Study

CHAPTER-2 Consists of brief overview of paper industry,

organization profile of NCS Sugars Ltd.
CHAPTER-3 Describes about the theoretical study of inventory
management,
Techniques of inventory management, and valuation of
inventory.

CHAPTER-4 Deals with the inventory management at NCS

SUGARS LTD.

CHAPTER-5 Deals with the summary and suggestions.

16
CHAPTER – 2

HISTORY OF SUGAR INDUSTRY

17
 The discovery of sugarcane, from which sugar as it is known today,
is derived dates back unknown thousands of years. It is thought to have
originated in New Guinea, and was spread along routes to Southeast Asia
and India. The process known for creating sugar, by pressing out the juice
and then boiling it into crystals, was developed in India around 500 BC.
Its cultivation was not introduced into Europe until the middle-ages,
when it was brought to Spain by Arabs. Columbus took the plant, nearly
held, to the West Indies, where it began to thrive in a most favorable
climate.

It was not until the eighteenth century that sugarcane cultivation

was began in the United States, where it was planted in the southern
climate of New Orleans. The very first refinery was built in New York
City around 1690; the industry was established by the 1830s. Earlier
attempts to create a successful industry in the U.S. did not fare well; from
the late 1830s, when the first factory was built. Until 1872, sugar
factories closed down almost as quickly as they had opened. It was 1872
before a factory, built in California, was finally able to successfully
produce sugar in a profitable manner. At the end of that century, more
than thirty factories were in operation in the U.S. India has been known
as the original home of sugar and sugarcane. Indian mythology supports
the above fact as it contains legends showing the origin of sugarcane.
India is the second largest producer of sugarcane next to Brazil.
Presently, about 4 million hectares of land is under sugarcane with an
average yield of 70 tonnes per hectare.

India is the largest single producer of sugar including

traditional cane sugar sweetness. Khandsari and Gur is equivalent to 26
million tonnes raw value followed by Brazil in the second place at 18.5

18
million tonnes. Even in respect of white crystal sugar, India has ranked
No.1 position in 7 out of last 10 years.

It is thought that cane sugar was first used by man in Polynesia

from where it spread to India. In 510 BC the Emperor Darius of what was
then Persia invaded India where he found "the reed which gives honey
without bees". The secret of cane sugar, as with many other of man's
discoveries, was kept a closely guarded secret while the finished product
was exported for a rich profit.
Sugar was only discovered by western Europeans as a result of the
Crusades in the 11th Century AD. Crusaders returning home talked of this
"new spice" and how pleasant it was. The first sugar was recorded in
England in 1099. The subsequent centuries saw a major expansion of
western European trade with the East, including the importation of sugar.
It is recorded, for instance, that sugar was available in London at "two
shillings a pound" in 1319 AD. This equates to about US$100 per kilo at
today's prices. So it was very much a luxury.

In the 15th century AD, European sugar was refined in Venice,

confirmation that even then when quantities were small, and it was
difficult to transport sugar as a food grade product. In the same century,
Columbus sailed to the Americas, the "New World". It is recorded that in
1493 he took sugar cane plants to grow in the Caribbean. The climate
there was so advantageous for the growth of the cane that an industry was
quickly established.

By 1750 there were 120 sugar refineries operating in Britain. Their

combined output was only 30,000 tons per annum. At this stage sugar
was still a luxury and vast profits were made to the extent. That sugar was
19
called "white gold". Governments recognized the vast profits to be made
from sugar and taxed it highly. In Britain for instance, sugar tax in 1781
totaled £326,000, a figure that had grown by 1815 to £3,000,000. This
situation was to stay until 1874 when the British government, under
Prime Minister Gladstone, abolished the tax and brought sugar prices
within the means of the ordinary citizen.

Sugar beet was first identified as a source of sugar in 1747. No

doubt the vested interests in the cane sugar plantations made sure that it
stayed as no more than a curiosity, a situation that prevailed until the
Napoleonic wars at the start of the 19th century when Britain blockaded
sugar imports to continental Europe. By 1880 sugar beet had replaced
sugar cane as the main source of sugar on continental Europe. Those
same vested interests probably delayed the introduction of beet sugar to
England until the First World War when Britain's sugar imports were
threatened.

Today's modern sugar industry is still beset with government

interference at many levels and throughout the world. The overall pattern
can be seen by investigating the mid 1990. Annual consumption is now
running at about 120 million tonnes and is expanding at a rate of about 2
million tonnes per annum. The European Union, Brazil and India are the
top three producers and together account for some 40% of the annual
production. However most sugar is consumed within the country of
production and only approximately 25% is traded internationally.

India is the second largest producer of sugarcane, next to Brazil the

latter produces primarily raw sugar while India produces almost
exclusively white crystal sugar. In India apart from sugar, other
20
traditional sugarcane sweetness – Khanda – Sari and gur are also
produced for the rural markets. Taking all sweetness sugar khandasari
and gur, India is world’s largest producer of sugar followed by the Brazil
in the second place. There are 582 sugar milks operating in India with an
aggregate installed capacity of 16.2 million tonnes. Of these 205 are in
the private sectors 316 in the co-operative sector and 61 in the public
sector.

The Sugar Industry has been totally regulated and controlled for
the past 50 years. Sugar is declared as an essential commodity under the
essential commodity act 1955 and a plethora of legislations and control
orders regulate almost every aspect of the industry, with the objective of
increasing production and also making available sugar at affordable
prices to the consumer controls included licensing, administrated price
for sugarcane, reservation of cane areas, control over the price of sugar
and restriction on sale/movement of the by- product molasses were
controlled for a long time.Under the sugar cane control order 1966 the
Government fixes the statutory minimum price for cane every year based
on the recommendations of the commission on Agricultures costs and
price. Sugar is a seasonal industry. The crushing season ranges between
180 and 240 days in a year depending on the location.

LOCATION FACTORS
In recent years, the location factors have influenced the dispersal of
sugar cane cultivated in subtropical regions and the development of cane
in the south is mainly responsible for bringing about location changes in

21
the industry. Further the sugar industry has received greater inputs from
the completion of numerous irrigation projects like the Irwin canal in
Mysore (Karnataka), Nizamsagar and Tungabhadra projects in Madras
(Tamilnadu). Added to this, the discriminatory policies in pursued by the
government are also responsible for the faster rate of the growth of the
industry in the south.

Given transport facilities and access is necessarily dependent up on

the availability of cane in the region .This concentration is substantiated
from observation of the trend of sizes established in different regions of
this country in relation to availability of cane. Comparatively the size of
the sugar mills in Uttar Pradesh, Bihar and Maharastra where continuous
availability of cane is assured is observed to be large. Grant of production
to the Industry in 1931 also helped the units to increase their size. The
average per day crushing capacity of the sugar factories working in our
country varies from 220 tonnes to 3200 tonnes per day. In Uttar Pradesh
and Bihar majority of the sugar mills have a cane crushing capacity of
2500 tonnes of sugar cane per day is considered to be an economical unit,
under the present day working conditions.

Since 1950, the industries growth reveals that not with standing the
controls and regulations, in the industry did grow substantially. While,
the number of factories rise from 139 in 1950 – 51 to 423 in 2000 - 2001
the installed capacity increased ten fold from 69.2 million tonnes to 300
million tonnes in 1999 – 2000; Sugar production swelled from 1.1 million
tonnes to 18.6 million tonnes during the same period. The government
laid down targets for sugar production; consumptions installed capacity
during each of the five year plans and ensured the growth of industry the
growth of industry to meet the steady raise in consumption.
22
SCENERIO OF SUGAR INDUSTRY
India is the largest consumer and second largest producer of sugar
in the world (Source: USDA Foreign Agricultural Service). The Indian
sugar industry is the second largest agro-industry located in the rural
India. The Indian sugar industry has a turnover of Rs. 500 billion per
annum and it contributes almost Rs. 22.5 billion to the central and state
exchange as tax, and excise duty every year (Source: Ministry of Food,
Government of India). It is the second largest agro-processing industry in
the country after cotton textiles. With 453 operating sugar mills in
different parts of the country, Indian sugar industry has been a local point
for socio-economic development in the rural areas.

About 50 million sugarcane farmers and a large number of

agricultural laborers are involved in sugarcane cultivation and ancillary
activities, constituting 7.5% of the rural population. Besides, the industry
provides employment to about 2 million skilled/semi skilled workers and
others mostly from the rural areas. (Source: ISMA Website accessed on
May 16, 2005.) The industry not only generates power for its own
requirement but surplus power for export to the grid based on by-product
bagasse. It also produces ethanol, an ecology friendly and renewable
energy for blending with petrol.

Indian sugar industry has grown horizontally with large number of

small sized sugar plants set up throughout the country as opposed to the
consolidation of capacity in the rest of the important sugar producing

23
countries, where greater emphasis has been laid on larger capacity of
sugar plants.

Gone are those days when industries and its participants were
highly protected with control and protectionism policies. In the process of
liberalization of economic system, decontrolling policies like decontrol of
sugar, steel, fertilizers etc.

Sugar industry is highly subsidized so far it also effects with new

economic – power. The demand for sugar has been increasing due to
increase in its consumption out of changing habits of the people including
common man and the need of the sugar also demands the sugar industry
to meet the internal profit of its production and is to be exported to earn
foreign currency within the changing market.
Sugar cane growers are facing inventory problems. Transportation
problem, marketing problems, many of the growers are illiterates who are
not competent to grow. Sugar cane crop is on scientific lines. The
financial problem is also other important one with which they cannot take
decisions in the time to improve quality and productivity, high
transportation. Costs prices are not increasing in proportion to the
increase in cost of production due to inflationary tendencies.

The sugar producing unit purchase sugar cane from the sugar cane
grower’s. Therefore management of these units have to adopt marketing
concept that is customer orientation.(Growers orientation) Various
incentives are available from the government for developing sugar
industry .But the industry in India is facing several problems.

ECONOMY ROLE
24
 India is one of the largest sugar producing and consuming country
in the world. The sugar industry plays a vital role in rural areas and
provides direct and indirect employment in the country. India emerged as
the largest producer of white sugar in the world.

The central government has already de-licensed. The sugar

productions they purpose to decontrol the release mechanism by
introduction of reduce on sugar price. At present India enjoys second
place in the world sugar production. Central as well as State government
has been getting 140 crores in the form of excess taxes from sugar
industry. The industry has been providing substance to 5.5 lakhs workers
and sustaining about 4.5 crores agricultures. Its total capital investment is
amount to Rs.1560 crores.

The sugar industry has a unique place in Indian economy and rural
development because of its multiple contributions in terms of
employment and provisions of raw materials to other industries. The
sugar industry is the second largest agro based processing industry. Thus
occupies a vital role among the 4 major sugar producing countries in the
world. The other 3 are being USA, Brazil and Cuba.

IMPORTS & EXPORTS OF SUGAR

In view of cost of cane and Sugar production in India, it could not
complete with other favorable countries and to honor commitments and
maintain international standard quality. The sugar exports began in the
year 1958 under the Sugar export promotions act up to middle of 1961.
Government did not subsidize losses on exports and sugar factories got
prorate payment. However in view of substantial quantity of Sugar in
later year’s government stopped subsidizing these losses. The export
25
policy has been largely influenced by the need for earning foreign
exchange.

GROWTH OF SUGAR INDUSTRY

There were only twenty nine factories in India during the year
1931. Protection granted to the industry in 1931 brought tremendous
growth in the number of locations. The number of factories in operation
had grown from 29 to 140 in 1950 – 1951. Out of which 110 factories
were in northern parts of India. During the next decade the number of
factories increased to 174. Out of which 116 factories are in the sub
tropical region of northern India. Finally, the number of factories has
grown from 200 in 1965 to 1966 to 417 in 1994 to 1995 of which 75% of
the factories are located in the northern India.

The industry is predominantly localized in the Uttar Pradesh,

particularly in the districts of Meerut, Saharanpur, Bijmour, Barely,
Muzaffar Nagar Moradabad and Rampur, next Uttar Pradesh. The
industry is mainly concentrated in Maharastra, Bihar and in the eastern
costal districts of Andhra Pradesh. If we refer to the historical event in the
sphere of sugar industry, Uttar Pradesh and Bihar occupied the
predominant position as far as the location pattern of the industry is
concerned, and still these states are enjoying the same position. The
reason of such heavy concentration in the states of Uttar Pradesh enjoys
in respect of cane cultivation is due to the advantages confirmed by the
rich and fertile alluvial soil of the genetic plain, the bulk of which
contains adequate quantities of lime and potash, the pressure of thin
varieties of cane admirable suited in the climate cheap and extensive of
cheap and extensive irrigation facilities. The concentration of sugar cane
crop incompact blocks enables the sugar factories to get fresh suppliers of

26
sugar cane direct from the fields. Moreover, the cost of the cane
cultivation is less and the cultivators are not accustomed to raise
alternative crops like ground nuts, chilies, plantains etc.

STATE WISE SUGAR PRODUCTION

27
 2004
2003- 2005- 2006- 2007- 2008-
STATE -
2004 2006 2007 2008 2009
2005
A.P
Gujarat 1210 886 1203
1048 1276 1924
Karnatak 1252 1066 832
1055 1244 1390
a 1868 1116 1132
1550 2009 2542
Maharast 6219 3175 2303
5613 5264 9013
ra 5651 4552 5152
5260 5564 8352
U.P 1644 921 1475
1839 2138 2426
Tamilnad 586 390 337
593 388 550
u 408 274 270
342 419 483
Punjab 2014 1354 1360
18528 19300 28200
Bihar 5 6 0
All India

Sugar Cane production

28
 Cane production
Year No. of factories
(million tones)
1950-51 138 57.05
1960-61 174 110
1970-71 215 126.37
1980-81 315 154.25
1990-91 385 241.05
2000-01 436 295.96
2001-02 434 297.21
2002-03 453 287.38
2003-04 422 233.86
2004-05 400 237.06
2005-06 455 281.17
2006-07 582 345.31
2007-08 582 329.09
2008-09 582 280

29
ZONE WISE SUGAR FACTORIES IN INDIA 2009 – 10

30
31
32
ANDHRA PRADESH:
1. The Anakapalle 20. Trident Sugars
2. The Etikoppaka 21. Nizam Deccan (Mombogipally)
3. The Thandava 22. Ganapati
4. The Chodavaram 23. The Chittpr
5. NCS Sugars 24. KBD Sugars
6. Sri Vijayarama Gajapathi 25. Sri Venkateswara Sugars
7. GMR Industries 26. Prudential
8. The KCP (Vuyyuru) 27. Sudalagunta Sugars
9. The KCP (Lakshmipuram) 28. The Kovur
10. Delta Sugars 29. Empee
11. Nava Bharat 30. Sarita Sugars
12. Sri Saravaraya 31. Nizam Deccan Muthyampeta)
13. The Andhra Sugars
(Tanuku) 32. NVR Sugars
14. The Andhra (Taduvai) 33. Madhu con Sugars
15. Jeypore Sugars 34. The Kakatiya cement
16. The Andhra (Bhimadole) 35. Sagar Sugars
17. Nizam Deccan
(Shakarnagar) 36. GSR Sugars
18. Nizamabad 37. Rayalaseema Sugars
19. Gayatri Sugars 38. The Cuddapah Sugar

PROBLEMS OF SUGAR INDUSTRY IN INDIA

1. Excessive control:
The industry is suffering from changing of Government policies.
The Government has no fixed policy regarding the price and distribution
of sugar.

The production of sugar is influenced by the purchasing price of

sugar cane depending upon the cost of cultivation, the inefficiency and

33
uneconomic nature of production in sugar mills to yield and short
crushing season. The high pressure sugar cane and the heavy excise
duties by the government are responsible for the high cost of production
of sugar in India.

2. Under Utilization of by-products:

In sugar production we get two by-products, molasses and bio-gas,
while molasses can be used in alcoholic preparation. These factories are
not well developed in India. And bio-gas can be used in paper industry.
But this is not being utilized properly by our paper industry. In India the
yield of sugar cane per acre and percentage recovery of sugar from cane
juice is very low.
3. Short Crushing Season:
Although the land is utilized throughout the years, crushing
season is limited to 3-4 months in a year. Hence factories have to be
closed for the remaining period. This is making uneconomic too.
4. Obsolescence:
Most of the factories in the private sector were set up five to six
decades ago. Their machinery has by now duplicated. The cost of
production of such units is unduly owing to less mechanical efficiency
and more down time. It will require more money for modernization/
renovation of such factories. The worst handicapped, cropping, the
industry is the low level of productivity due to inadequate irrigation
facilities and ultimately supply of quality seed, material.

5. Technology:
The level of technology in the Indian sugar industry is quite high
and a number of developing countries have borrowed Indian Sugar
technologies. Unfortunately however many of Indian factories had been
34
set up in early 30’s and have become absolute. For these the need of the
hour is modernization, rehabilitation and expanding also. Attention needs
to be paid to cane development.

6. Output trends:
Over production is due to cyclical nature and seasonal conditions
and cultivations of average sugar cane. The fluctuation in the production
of sugar cane is a major problem of the day.

SUGAR INDUSTRY IN A.P:

AP occupies 4th place in respect of sugar growing in the country.
Sugar cane is cultivated in the districts of Srikakulam, Vizag, East
Godavari, West Godavari, Krishna, Nizamabad, Cuddapah, Chittor and
Guntur. The mill at Bodhan in Nizamabad district of AP is the highest
sugar producing unit in Asia.

Three more units were set up under the same management. In our
country total cane under sugar cane 1/4th belongs to AP and this occupies
9th place in the industry.
BRIEF HISTORY OF NCS SUGARS LIMITED
Sri R.G.V.R.K Ranga rao, land lord, Raja of Bobbili and Ex-
Chief Minister for combined states of Tamil Nadu and Andhra Pradesh
had established sugar factory named as “Sri Rama Sugars & Industries
Ltd.” at Bobbili under private sector in the year 1935 with 300 Tonnes
capacity and subsequently expanded to 850 M.T per day crushing
capacity. It is the first sugar industry for combined states of Tamil Nadu
and Andhra Pradesh. He also started another sugar factory near Bobbili
i.e., at Seethanagaram for the benefit of the surroundings cane growers
with 650 M.T per day crushing capacity at Seethanagaram. Due to losses

35
incurred by the factories, the operations are closed in the year 1976 at
Bobbili and 1978 at Seethanagaram respectively.

Then the representation made by the cane growers, local

business people and workmen, the Government of Andhra Pradesh has
taken over the factories and handed over to The Nizam Sugar Factory
Ltd., (Government Company) to run the factory as authorized controller
under Industries Development and Regulation Act. These two factories
were permanently merged with The Nizam Sugar Factory Ltd
(Government Company) in the year 1986 under Act 30 of 1986 by the
former Chief Minister Sri N.T. Ramarao.

Subsequently, The Nizam Sugar Factory Ltd. has changed the

name as The Nizam Sugars Ltd. The Nizam Sugars Ltd., successfully run
the Factories till 1990. Due to old machinery and less crushing capacity
resulting poor performance of the production, The Nizam Sugars Ltd.,
has decided to construct new Sugar Factory in between Seethanagaram
and Bobbili villages for the benefit of both factories, cane gross as well as
workers. Then the Hon’ble Ex-Chief Minister Sri P.janardhan reddy had
laid the foundation stone to start construction of 2500 TCD sugar Factory
at Latchayyapeta in the year 1991.

Accordingly the construction and erection works have been

completed in the year 1995 and the new factory with 2500 TCD capacity
was inaugurated by Hon’ble Ex.Chief Minister Sri.N Chandrababu Naidu
on 28th December 1995 and the factory starts its commercial crushing for
the season 1995-96 season onwards. The Bobbili & Seethanagaram
Sugar Factories were stopped and condemned and sale the machinery at
Bobbili and Seethanagaram.

36
 Due to Privatization policy of the Government of Andhra Pradesh
and the decision of the Government of Andhra Pradesh to privatize entire
The Nizam Sugars Ltd., and implement the same through Implementation
Secretary, Secretariat, Hyderabad.

Accordingly the process of privatization and other matters

entrusted to call tenders and finalization of privatization process as per
the guide lines of the World Bank, through implementation Secretary,
Secretariat, Hyderabad. The NCS Estates (P) Limited has quoted highest
bid and taken over The Nizam Sugars Ltd., sugar unit situated at
Latchayyapeta in the name and style of the NCS Sugars Limited and was
inaugurated the factory on 17th December 2002 under the New
Management

PROFILE OF NCS SUGARS LIMITED

NCS Sugars Ltd. was incorporated on 06th June 2002 for the
purpose of purchasing the core assets and business of Latchayyapeta unit
of Nizam Sugars Ltd (NSL), a Government of Andhra Pradesh
undertaking.

Latchayyapeta unit is one of the sugar mills operated and owned by

NSL. It was set up in the year 1995 with a crushing capacity of 2500
TCD by replacing two units at Bobilli (850 TCD) and Seethanagaram
(600 TCD) that had been taken over by Government of AP in 1986.
Latchayyapeta is the principal industrial employer in the region.

The Sugar Mill is located in the eastern part of AP about 800 Km

north east of Hyderabad and 1 Km to the north of the Village of
Latchayyapeta. It is 6 KM from Bobilli, a town with a population of
75000, in Seethanagaram Mandal, Vizianagaram dist A.P.
37
 Latchayyapeta is well served by transport facilities. It is located
some 115 km north of the airport and one of India’s major seaports at the
city of Visakhapatnam on the Bay of Bengal. The State Highway 34,
between Vizianagaram and Seethanagaram, runs immediately to the west
of the mill, separating the mill lands from the residential colony lands.
Bobilli Railway Station and Bobilli Bus Stand are about 6 km from the
sugar factory.
The existing potential for cane production and supply is of the
order of 3.5 to 4 lakhs mt. Cane development programmes, irrigation and
use of organic and / or chemical agents could increase both the acreage
and yield and supply an additional 50-65,000 mt in a short time horizon.
This level of supply would sustain the 2500 TCD plant at Latchayyapeta,
allowing for 10% of total production to be retained for seed and 1% for
household use by cane growers. The company completed 1st year of
operations on 30th April 2003 with sugarcane crushing of 2.25 lakhs MT.

With a growth that consistently established, now NCS Sugars

Limited is a full fledged sugar manufacturing unit with the state- of – art
technology managed by a crew of professionals from various capacities,
poising towards a crushing capacity up to 6000 TCD.

The plant has been allotted a zone of about 43 000 acres of

agricultural land consisting 17 mandals, 820 villages and about 22 000
potential farmers in the zone. The major thrust is given for cane
development and uplifting farmers’ living standards by increasing their
per capita income. This in turn will result in sufficient quantity of cane
needed for optimum utilization of our facility to crush up to 6000 MT per
day, during the seasons.

38
 NCS Sugars Limited is the first company to import Raw Sugar to
India for the first time during 2004-05 and processed into white sugar,
which has predominantly compensated the domestic need as well. Thus,
NCS has changed the Sugar Manufacturing business from seasonal to
throughout the year.

NCS Sugars Limited has also ventured into co-generation of power

up to 20MV, by using the bagasse from the sugar unit, which is an eco-
friendly venture that could take care of the electricity requirements of AP
TRANSCO.

OBJECTIVES OF THE COMPANY

The objectives of the company set out in the memorandum of association
as under:
 To establish factories for manufacturing of sugar

 To establish the sugar cane units properly and to increase the

production of the sugar cane.

 To supply least variety of cane seeds.

 To give maximum price to suppliers of sugar cane.

39
  To export sugar and other products to the farmers.

 To introduce the agriculture development schemes and other

subsidiary schemes for the farmers.

 Other objectives like facilities for employees and development of

area.

QUALITY POLICY
We are committed to achieve continual improvement and Enhance
satisfaction of customers through:
 Manufacture and supply of consistent quality of Sugar and its by-
products at an optimum cost complying with customer
requirements.

 Generation of reliable power with maximum Plant Load Factor.

 Extending necessary support to cane growers to optimize per acre

yield that would result in larger volumes of supply.

 Continually improving the effectiveness of management systems

and practices.

 Compliance with applicable statutory and regulatory requirements.

 Seeking participation of employees at all levels, to inculcate total

quality culture.
GROWTH OF THE COMPANY
 The factory operations under the new management of NCS Sugars
had commenced on 17th January 2003.
40
  After taking over, NCS Sugars Limited has registered a
phenomenal growth in terms of production and yield.
 During the year 2006-07, the company expanded its existing
capacity of 2500 TCD to 6000 TCD and commissioned a 20 MW
Co-generation plant.
 A 240 KLPD Ethanol Plant is in the pipeline, thereby it becomes a
sugar complex where many activities related to sugar
manufacturing and its by-products would happen.

PRESENT PROJECT OF THE COMPANY

The company is presently manufacturing sugar at its factory at
latchayyapeta. Company manufactures sugar with raw sugar in the off
season due to unavailability of the cane. Company imports raw sugar
from Brazil and it is the first company in India in the sugar production
with importing raw sugar from other country. The capacity of the
company in producing the sugar is 94 bags per day which is increased
from the previous production 86 bags per day. The company target is to
produce 95 bags per day and it’s almost reaches their target and tries to
reach target completely.
The co-generation plant is producing power with the capacity of 20
mw per hour and it continues its same project at present. Company seeks
to establish an ethanol plant in the nearest place of sugar factory and also
seeks to establish another sugar plant to form complex sugar factory.

LAND AND BUILDINGS OF THE COMPANY

41
 The company presently approximately owns 200 acres of land at
latchayyapeta. There the existing sugar units located had the extent of
area covered by buildings in 71.56 acres. The company at present has 13
sugar godowns for storing 10, 00, 00 bags of sugar.
Awards and honors of the company:
NCS Sugars Limited is the recipient of Best Cane Development
award for 2007, presented in R & D workshop at Vijayawada by Acharya
NG Ranga Agricultural University & Commissionerate of sugar,
Government of Andhra Pradesh.
2nd place in Best Cane Development Award by SISSTA-2007.
This is the FIRST Sugar Factory to have associated with 22000 farmers
covering half the district of Vizianagaram.
Board of directors of the company:
Sri N. Nageswara rao Managing Director
Sri N. Murali Director
Sri N. Srinivas Director
Sri Janaki manohar Chief executive

42
 ORGANIZATION AL CHART OF NCS SUGARS
LIMITED

DEPARTMENTS IN THE NCS SUGARS LIMITED

43
  Cane department.
 Process department.
 Engineering department.
 Purchase and stores department.
 Sales department.
 Co-generation department
 Finance department
 Personnel department.
 Electronic data processing center.

CANE DEPARTMENT
The functions of this department are followed by under the
directions of the cane manager. The main function of this department is
procuring raw material and supply to the production department for
crushing to produce sugar. In addition to this function here they give
incentives to the formers and so on.

Key functions:
(Raw Material Supply – Fixing Incentives – Fixing Cane price – Bills
Payment to farmers)
• Procuring and supply of raw material:
• Provide incentives to the farmers:
• Fixing of cane price
• Bills paid through accounting department
Central government fix the price of the sugar cane across India called
as “Fair and remunerative price” (FRP) formerly known as statutory
minimum price(SMP) is rs1312 per tonne and purchase tax rs6o, in

44
addition to this the company paid 378rs to encourage the farmers towards
sugar cane production

CANE PRICE PAID FROM 2005 to 2010

Supportive/off seasonal functions:

 Technology development:
 Controlling methods of sugar cane diseases
 Awareness programs:

PRODUCTION DEPARTMENT
The production department is the key department for the
organizations development if it performs well the company will grow, if
the department not performs well it may be leads to organization wealth
decrease. The entire income incurred to the organization from product
sales only. That’s why this department has such importance. The function
of this department is to produce sugar and its byproducts from the cane as
well as from raw sugar to operate machineries well.

45
 PARTICULARS OF CANE CRUSHED
Duration 2008-09 2009-10
No of Days 175 189
Cane Crushed(Tonnes) 11,96,365 12,83,994
Sugar Produced(Qts) 13,95,11s0 13,93,770
Recovery (%) 11.14 10.85
Turnover (Rs in Lakhs) 22,319 16,792

NCS SUGAR’S LIMITED TOTAL PRODUCTION

Production
Year
(in quintals)

2003-2004 11,26,400
2004-2005 13,09,340
2005-2006 9,23,650
2006-2007 10,75,620
2007-2008 12,24,740
2008-2009 13,95,110
2009-2010 13,93,770

Sugar manufacturing process:

Sugar Cane

Weigh Bridges

Cane carriers

46
 Cane cutter

Mascreation water- Shredder Mills-Bagasse to boiler as fuel (through

water weighing scale)

Raw/Juice (Mixed)

Juice Hearts

Timing –juice treatment tanks- sulphation So2 gas

Clarifies-Filter cake through rotary vaccum filter

Evaporators

Syrup-Sulphited

Vaccum pans

A-1, B-1, B-2, C Massecuites Crystallizers

Centrifugal Machines – (AH, AC, BH, CL, FM, AB, Heavy & Light
Molasses)

Sugar Grader

Sugar bagging (Grade Wise)

47
 Sugar Godowns (For storage)

ENGINEERING DEPARTMENT

This is the department for maintaining all machineries, which are

used in the production process. Here the chief engineer is the head of the
department and he is the responsible person for the function in that
department.
The key function of the engineering department is maintaining of
machineries. The maintaining types are
• Periodic maintenance
• Break down maintenance,
• General maintenance.

Checking of the machineries at time to time and observing the

performance of the machinery in the process function are also the
functions of the department.
Another function of this department is managing production process
machinery installation.

PURCHASE AND STORES DEPARTMENT

This department is managed by material manager. He is the

responsible for all the functions in the department. The main function of
this department is purchasing the general items like material oil, lubricant
of nuts and bolts, electrical items basing on the requirement of general

48
department. The time for item required to supply that item is maximum 1
week; it’s called as pipe line.
The company mostly purchases items from Gujarat, Karnataka.
They prefer brand items only and go to manufacturer directly to purchase.
They go to traders for purchase in few cases. The stores department
function is to store the purchased items safely based on the item or
chemical.

SALES DEPARTMENT

The sales department is controlling by the deputy general manager

(accounts). The company goes to two types of sales as per the central
government orders, those are free sales and levy sales.
Sale
s

Levy Free
sales sales

Levy sales:
10% of the total production is goes to levy sale. This sugar is for
the public distribution. The price for levy sales is fixed by the central
government of India.

Free sales:
90% of the total production of the sugar sold in the form of free
sales. The sales of this sugar are done according to the sales orders given
by the central government.

49
 The central government releases purchasing orders relating to
quantity of sales to be sold on the basis of total production of the sugar in
the completed year.

Functions of this department:

• Issuing gate pass to the Lorries for weighment after receiving the
delivery orders by the deputy general manager.
• Reporting of sales transactions to the deputy general manager
• Record keeping regarding to the sales transactions done in the
company.
• Maintaining accounts.

CO-GENERATION DEPARTMENT

A co-generation plant was established beside the NCS sugar’s

limited. It was commissioned from 17th march 2007. Two departments are
in the co-generation plant one is technical department and the other one is
executive office. Here the Deputy General Manager manages the total co-
generation plant.
The plant total capacity is 20mw/h, and they provide 4.5mw to the
sugar plant in the seasonal period and 1mw in the off season. 10% of the
total production consumed for the axillaries of the co-generation plant
and the remaining should be exported.
The byproduct begasse of sugar production is used as the raw
material for the power generation. Coal is used as raw material while in
the off season. This coal is imports from Indonesia.

50
EXECUTIVE OFFICE
This is the head office of the co-generation plant, total functions which
are not related to technical are done here.

Functions of executive office

Equipment availability:
Here they arrange the equipments to the power generation like
fuel, machinery, man power.

Maintenance of schedules:
The co-generation plant is 24 hours working plant that’s why they
maintain schedules for the workers. Here the workers follow three shifts
A, B, C.
A shift-----6am to 2pm
B shift-----2pm to 10pm
C shift-----10pm to 6am
General shift-----8am to 5pm
Power export and import activities:
The power after consumed by the sugar and co-generation plant is
exports to the other states. The deputy general manager and the other staff
maintain this function

TECHNICAL OFFICE FUNCTIONS

The main function of the technical department is operate and
controlling of the machinery. They operate the machinery from the
separate room by using some panels are control panel, generator panel. In
that panels displays the information regarding to the working of
machineries and power generation based on that information they
operates and control them
51
FINANCE AND ACCOUNTS DEPARTMENT
The main function of financial development is to arrange the funds
for salaries, wages for the employees and daily wages, to arrange
payment to the sugar cane growers for the purchase of other considering
goods, oils, chemicals, spare parts of the machinery and they have to
receive sale proceeds by way of selling products.

Finance Department Chart

Accounting Department

Manager

Finance & Accounts

Asst Manager Finance & Accountants

Asst Accountant Officer

Clerks

52
PERSONNEL DEPARTMENT

The main function of personnel department is to look after with

manpower planning, recruitment, selection, placement, induction,
promotion, and transfer, demotion, separation, lay-off, retrenchment,
training, wage & salary administration.

The personnel functions also include the welfare aspects of labour

are concerned with the conditions of work and elements such as the
provision of canteens, housing, transport, medical, education and health
& safety provisions.

53
 CHAPTER – 3

INTRODUCTION TO INVENTORY MANAGEMENT

54
 The Dictionary meaning of Inventory is Stock of Goods or list of
goods. In accounting language, it may mean stock of finished goods only.
In a manufactured concern, it may include raw material, work-in-process &
Stores. Every enterprise needs inventory for smooth running of its
activities. It serves as a link between production & distribution process.

There is, generally a time lag between the recognition (respect) of a

need and its fulfillment. The greater the time lag, the higher the
requirements for inventory. The unexpected fluctuations in demand and
supply of goods also necessitate (demand) the need for inventory. It also
provides a cushion for future price fluctuations. The investment in
inventories constitutes the most significant part of current assets/working
capital most of the undertakings.

Thus, it is very essential to have proper control and Management of

Inventories. Most of the manufacturing industries spend more than 60% of
the money for materials. Materials include raw material, bought out
finished components, semi-finished components, spare parts, work-in-
progress. Even a small saving in material will lead to heavy reduction in
production cost.

Inventory management deals with purchasing stocking & issuing of

materials to various departments at right time, right quantity & at right
quality. Inventory management involves controlling the quantity, kind,
location, movements and timings of purchase of various materials used in
industry.

OBJECTIVES OF INVENTORY MANAGEMENT

55
 The main aim of inventory management should be to avoid
excessive and inadequate levels of inventories and to maintain sufficient
inventory for the smooth production and sales operations.

The main objectives of inventory management are operational and

financial. Efforts should be made to place an order at the right time with
the right source to acquire the right quantity at the right price and quality.

 To ensure continuous supply of raw materials, spares and finished

goods to facilitate uninterrupted production.
 To avoid both over stocking and under stocking of inventory.
 To maintain sufficient finished goods inventory for smooth sales
operations and efficient customer service.
 To maintain a minimum investment in inventories to maximize
profitability.
 To minimize losses through determination, pilferage, wastages and
damages.
 To minimize the carrying cost and time.
 To maintain sufficient stock of raw materials in periods of short
supply and anticipate price changes.
 To control investment in inventory and keep it an optimum level.

TECHNIQUES OF INVENTORY MANAGEMENT

In managing inventories, the firm’s objective should be in consonance
with the shareholder, wealth maximization principles. To achieve this
principle the organization should maintain appropriate levels of inventory.

Effective inventory management requires an effective control system

for inventories. A proper inventory control not only helps in solving the

56
acute problem of liquidity but also increases profits and causes substantial
reduction in the working capital of the concern.

The following are the important tools and techniques of

Inventory Management and control:

 Determination of Economic Order Quantity.

 Determination of Stock levels.
 ABC analysis
 VED analysis
 Determination of safety stocks.
 Selecting a proper system of ordering for inventory.
 Inventory turnover ratios
 Aging schedule of inventories.
 Classification and modifications of inventories.
 Preparation of inventory reports.
1) ECONOMIC ORDER QUANTITY:

Every organization will think about how much to order, when

ordering the inventories to solve this problem economic order quantity will
fix the appropriate order size. EOQ is the size of the lot order to be
purchased which is economically viable. This is the quantity of materials
which can be purchased at minimum costs. The EOQ is an optimum
quantity of materials to order after consideration of the following
categories of costs, such as ordering costs, carrying costs, stock out costs.

a) Ordering Costs:

57
 These are the costs which are associated with the purchasing of
ordering of materials.

These costs include:

 Costs of placing an order.

 Costs of receiving goods.
 Transport costs.
 Documentation processing costs.
 Additional costs of frequent or small quantity orders.
 Cost of stationary, typing postage, telephone charges etc.

b) Carrying Costs:

These are the costs for holding inventories. These costs will not be
incurred if inventories are not carried. These costs include:

 Stores staffing equipment maintenance and running costs.

 Handling costs.
 Insurance and security costs.
 Cost of storage which could have been for other purpose.
 Pilferage and damage cost.
 Obsolescence and determination costs.
 Audit, stock taking or long-lasting inventory costs

C) Stock-Out Costs:

58
 The stock out costs is associated with running out of stock. This
includes the following:

 Lost contribution through the lost sale caused by the stock out.
 Loss of future sales because customers go elsewhere.
 Loss of customer goodwill.
 Cost of production stoppages caused by stock out of work in
progress of raw material.
 Labour frustration over stoppages.
Extra costs associated with urgent often-small quantity replacement
purchases.

2) DETERMINATION OF STOCK LEVELS:

Various levels of inventory are fixed to see that no excess inventory

is carried and simultaneously there will not be any stock out. If the
inventory levels are too little, the firm will face frequent stock outs
involving heavy ordering costs and if the inventory level is too high it will
be unnecessary tie-up of capital.
a) Reordering Level:

Reorder level is the level of stock availability when a new order

should be raised. The stores department will initiate the purchase material
when the stock of material reaches at this point. This level fixed between
the minimum and maximum stock levels. The following formula is used
for this purpose:

59
 Reorder level = Maximum Usage X Maximum Lead Time.

b) Minimum Stock Level:

Minimum stock level is the lower limit below which the stock of any
stock item should not normally be allowed to fall. Their level is also called
safety stock or buffer stock. The main object of establishing this level is to
protect against stock out of a particular stock item. In fixation of which
average rate of consumption and time required for replenishment i.e., lead
time are given prime consideration.

Minimum stock level =

Reorder level – Average or Normal usage X Average
Lead Time

c) Maximum Stock Level:

Maximum level represents the upper limit beyond which the quantity
of any item is not normally allowed to rise to ensure that unnecessary
working capital is not blocked in stock items. Maximum stock level
represents the total of safety stock level and EOQ. Maximum stock level
can be expressed in the following

Maximum stock level =

Reorder level + Economic Reordering Quantity – Minimum usage X
Minimum Lead Time.

d) Danger Level:

60
 Danger level of stock is fixed below the minimum stock level and if
stock reaches below this level. Urgent action for the replenishment of stock
should be taken to prevent stock out position.

Danger level = Average Consumption X Lead Time for Emergency

Purchases.

e) Average Stock Level:

Average stock level is calculated as such:

Average stock level = (Minimum stock level + Maximum stock level)

2
(or)
Minimum stock level +1/2 X ROQ

3) ABC ANALYSIS:

In this technique the items of inventory are classified according to

value of usage. This method divides inventory in classes namely.

A: Items in class a constitute the most important class of inventories

so far as
the proportion in the total values of inventories is concerned.
B: Items in class B constitute an intermediate position.
C: Items in class C are quite negligible.

It is seen a very small percentage of the items say 15 -20%

account for the 75-80% of the total material usage and large number of
items say 75-80% of the total items accounting 15-20% of the monetary
value.

4) VED ANALYSIS:
61
 The VED analysis is used generally to spare parts. The requirements
and urgency or spare parts is different from that material. The VED system
is widely used classification technique to identify critically of various items
for inventory control. This technique is based on the assumption that a firm
need not exercise same degree of control on all items of inventory.

On the basis of critically the various items of inventory are

categorized into 3 categories.

1) Vital
2) Essential
3) Desirable
Highly critical items like vital requires much closer attention by
senior management compared to that or less critical items. The reorder
level depends on the criticality of the items. For vital items relatively more
inventory is maintain compared to that of criticality level ‘E’. These items
are essential but not as much important as ‘V’ items.

5) DETERMINATION OF SAFETY STOCKS

Safety stock is a buffer to meet some unanticipated increase in

usage. The usage of inventory cannot be perfectly forecasted. If fluctuated
over a period of time. The demand for materials may fluctuate and delivery
of inventory may also be delayed and in such a situation the firm can face a
problem of stock out. The stock-out can prove costly by affecting the
smooth working of the concern. In order to protect against the stock out
arising out of usage fluctuations, firms usually maintain some margin of
safety or safety stocks. The basic problem is to determine the level of
quantity of safety stocks. Two costs are involved in the determination of
this stock i.e., opportunity cost of stock-outs and the carrying costs.

62
6) ORDERING SYSTEMS OF INVENTORY:

The basic problem of inventory is to decide the reorder point. This

point indicates when an order should be placed. The reorder point is
determined with the help of these things:
a) Average consumption rate.
b) Duration of lead time.
c) EOQ when the inventory is depleted to lead time
consumption the order should be placed.

There are 3 prevalent systems or ordering and a concern

can choose any one of these:

 Fixed order quantity system generally known as economic order

quantity system.
 Fixed period order system or periodic reordering system or periodic
review system.
 Single order and scheduled part delivery system.

7) INVENTORY TURN OVER RATIO:

An Inventory ratio indicates the efficiency of the firm in producing
and selling its products. These ratios are calculated to indicate whether
inventories have been use efficiently or not.
The purpose is to ensure the blocking of only required of minimum
funds in inventory. It is calculated by dividing the cost of goods sold by the
average inventory.

Inventory Turnover Ratio = Cost of Goods Sold

Average Inventory
(Or)
Inventory Turnover Ratio = Net Sales/Average Inventory.

Inventory holding period = No.of Days in a year .

63
 Inventory turnover ratio

8) AGEING SCHEDULE OF INVENTORIES:

Classification of inventories according to the period (age) of their
holding also helps in identifying slow moving inventories there by helping
in effective control and management of inventories.

9) CLASSIFICASTION AND CODIFICATION OF

INVENTORIES:
The inventories of a manufacturing concern may consist of raw
material; work in process, finished goods, spares, consumable stocks etc.
All these categories may be classified either according to their nature or
according to use. Generally, materials are classified according to their
nature such as construction materials, consumable stocks, spares, lubricants
etc.
After classification, the materials are given code members. The
coding may be done alphabetically or numerically. The later method is
generally used for coding. The class of materials is assigned to the
category of materials in that class. The third distinction is needed for the
quality of goods and decimals are used to note this factor.

10) INVENTORY REPORTS:

From effective inventory control, the management should be kept
informed with the latest stock position of different items. This is usually
done by preparing periodical inventory reports. These reports should
contain all information necessary for managerial action. These reports

64
management takes corrective action wherever necessary. The more
frequently these reports are prepared the less will be the chances of lapse in
the administration of inventories.

JUST IN TIME INVENTORY MANAGEMENT

The just-in-time inventory control system, originally developed by
Taichi Okno of Japan, simply implies that the firm should maintain a
minimal level of inventory and rely of suppliers to provide parts and
components “just-in-time” to meet its assembly requirements. The major
emphasis of just in time philosophy is inventory management.
It begins by identifying the problems and forcing firms to tackle
them. The main tactic used to reveal such problems in inventory reduction.
The just-in-time inventory system, while conceptually very appealing is
difficult to implement because it involves a significant change in the total
production and management system. It requires

 A strong and dependable relationship with suppliers who are

geographically not very remote who are geographically not very remote
from the manufacturing facility.
 A reliable transportation systems
 An easy physical access in the form of enough doors and conveniently
located docks and storage areas to dove tail incoming suppliers to the needs
of assembly line.
 It attempts to minimize inventories through small incremental reduction
rather than prescribe particular techniques or methodologies.

VALUATION OF INVENTORIES
According to accounting standard-II the valuation of inventories is
given by the Institute of Chartered Accounts of India. Items such as
expenses, revenues, or book debts can be recorded in the books of accounts
65
with a fair degree of accuracy. However, an element of subjectively is
involved in the measurement of items such as depreciation or inventory
value. Methods of valuing the inventory may vary between different
business and even between undertaking within the same trade or industry.
Taking all these significant aspect into account, this standard deals with:
 The determination of value at which inventories are carried until
related revenues or recognized.
 Ascertainment of cost thereof.
 The circumstances in which carrying amount of inventory is written
down below cost.

VALUATION OF INVENTORY IS CRITICAL:

IMPORTANCE REASONS
 Individual items may not be of significant value but taken together,
would constitute a significant portion of total assets.
 Rapid turnover exceptions being rare or seasonal turn over.
 Susceptible to obsolescence and spoilage, slow or fast moving.
 Held at different places.
 Physical condition.
 It may involve varying degrees of estimation.
 Inventory is the second largest item after the fixed assets, in financial
statements of manufacturing concerns.
 It affects both the results of operations as well as the financial position
as reflected in balance sheet.
INVENTORIES

1) Inventories are assets

 Held for the purpose of sale in the ordinary course of Business.
66
 In the process of production for such sale.
 In the form of material or supplies to be consumed in Production
process or in rendering of services.
2) Inventory includes the following

 Goods purchased and held for resale.

 Finished goods produced for sale.
 Work in progress generally.
 Materials, maintenance supply consumables and loose tools awaiting
use in production process.
3) Measurement

The critical operative part of the study is that inventories should be

valued at the lower of a) coast and b) Net reliable value.

Cost:
The following elements that constitute cost of inventories should be
kept in mind. But, Cost doesn’t include
 Selling and distribution costs
 Abnormal wastage & storage costs.


COST FORMULAE

In as much as cost do not remain static and vary from time to time,
several types of cost formulae can be used. In inventory valuation,
therefore, the question that is with reference to the flow of production,
which inventory has been sold and which continued to remain in inventory.

67
 In this backdrop, inventory valuation depends on cost flow
assumptions such as LIFO, FIFO base stock methods etc., but the standard
favours only 3 methods are as follows:

1) Specific Identification method.

2) First in First out Method.
3) Weighted Average cost method.

Specific Identification Method:

This method is also known as specific price method. This is also

known as actual cost method because specific job bears the actual cost of
material bought for the job.

When using this method, units in inventory are specifically identified

and each unit cost is identified with a particular invoice. The advantage of
this method is that cost changed to jobs is factual and not notional. Cost of
items forming part of inventory, that are not ordinarily interchangeable as
also goods or services produced and segregated for specific projects,
should be assigned by specific identification of their individual costs

FIRST IN FIRST OUT

This method is based on the assumptions that the materials, which

are purchased first, are issued first. Issues of materials are priced in the
sequence of incoming order of purchases. The flow of cost of materials
should also be in the same order. Issues are priced on the same basis until
the first lot received i.e., exhausted, after which the price of the next lot

68
received becomes the basis of cost for issues. This materials issued are
priced at the cost pertaining to the earliest lot, and as a corollary the
inventory in hand is valued a price representing recent purchases. The
FIFO method is most successfully used when

 Size of raw materials is very large and cost is high.

 Materials are easily identified as belonging to a particular purchase
lot.
 Not more than two or three different receipts are on material card at
one time.
 Price of materials does not fluctuate widely, so that clerical labour
involvement is minimized.
 Materials are subject to deterioration and obsolescence.

WEIGHTED AVERAGE COST METHOD

This is calculated by dividing the total cost of material in stock by

the total quantity of material in stock. Under this method costs are averaged
after weighing by their quantities. The weighted average cost is
determined, either at periodical intervals or each item when fresh materials
arrived on purchase. The average cost at any time is thus balance valued
figure divided by the balance unit figure. This method evens out the effect
of widely varying prices of different lots of purchases, which makes up the
stock. There will be no profit or no loss arising out of pricing issues.

NET REALIZABLE VALUE

Net Realizable Value is defined as the estimated selling price in the

ordinary course of business less the estimated costs of completion and the
estimated costs necessary to make for sale.

69
70
 CHAPTER – 4

ANALYSIS AND INTREPRETATION OF INVENTORY

MANAGEMENT ON NCS SUGARS LTD.
Now a day, inventory management is gaining importance in
every organization. A firm’s inventory management reveals its strength
against their smooth flow of production.

In any firm inventory management plays a vital role; by this a firm can
achieve its goals. The organization should maintain optimum and sufficient
level of inventory management.
71
 The importance of inventory management can be viewed from the
following facts

 There is a continuous supply of materials, spares and finished goods

so that production should not suffer at any time and the customers demand
should also be met.
 To remove both over stocking & under stocking
 Maintain investments in inventories at the optimum level of as
required by the operational sales activities.
 Eliminate duplication in ordering or replenishing stocks.
 Minimize losses and get profit maximization.

INVENTORY MANAGEMENT AT NCS SUGARS LTD

NCS SUGAR is a process industry. It uses sugar canes raw sugar
and chemicals as its core raw materials. These raw materials pass through
different processes to produce sugar and molasses. In the whole process it
makes use of various chemicals, stores, spares etc. which are included
under the head inventory for NCS Sugars Ltd. NCS Sugars Ltd.
Inventories seldom includes finished goods and work in progress because
it’s production is based upon the quantity ordered.

The various inventories at NCS Sugars Ltd are raw sugar, sugar
canes, bagassess chemicals, packing materials, coal, stores, spears, etc.,

Unlike in the past, today’s business world is highly competitive

and also the steep rise in input, costs added fuel to this fire. To meet these
challenges organizations are forced to practice some of the scientific
management tools. Materials management is one such area which
received due importance due to the face that efficient management of the
materials will directly result in hefty bottom line of companies profit and
72
loss account out of all functions of materials management, inventory
management has been widely accepted and practiced in most of the
Indian business organizations with a view to reduce the cost in materials
inventory of course without interrupting production operations.

As you all will appreciate the fundamental questions to be

answered by any inventory management system are:

• When to place an order.

• For how much quantity.
However, it is needless to say that both the questions are to be answered
by OPTIMIZING the two main costs involved:

 CARRYING COST.
 ORDERING COST.

At NCS Sugars Ltd. the total system of procurement is divided into

two parts for their own convenience. This is represented in the following
diagram.

PURCHASE

CAPITAL PURCHASE REVENUE PURCHASE

Developmental jobs expansion Annual indent

Augmentation Annual shut items

CAPITAL PURCHASE
These purchases are capital in nature.
1. Developmental jobs: When a company undertakes any new
projects for its own development, those come under developmental
jobs. At NCS Sugars Ltd, friction of coating plant is an example of
such developmental jobs.
2. Expansion: Increase in machine capacity, speed, etc, comes under
expansion activities.
3. Augmentation: Modification of machineries, plant, etc are
augmentation activities for a company.

73
REVENUE PURCHASE
These purchases are regular in nature.
1. Annual indent: These are the items purchased annually which are
recommended by the user department to the planning cell.
2. IRP items: These are the items under direct control of purchase
department and there is no need to raise PR for such purchases.
3. Need Based Items: These items are purchased when need for this
item arises through rising of PR.
4. Annul Shut Items: These are the lubricant items which are
required at the time of annual lubrication of machineries.

Inventory control system at NCS Sugars Ltd. is divided into two

broad parts and the techniques used for such inventory management is
defined below with a flow diagram.

INVENTORY MANAGEMENT SYSTEM

PRODUCTION BASED INVENTORY MAINTENANCE BASED INVENTORY

PRODUCTION BASED INVENTORY

Inventory under this head is only used in production process. It
means without these inventories, production is not possible. NCS Sugars
Ltd. has kept only chemicals and dyes under this category. The control
techniques used for these items are illustrated below.

MAINTENANCE BASED INVENTORY

These are the inventory items which a rent used for production purpose rather
they are used to ensure uninterrupted production. These inventories include spare
parts bearings, nut, bolts, o-rings, valves, lubricants, etc. Following are the control
techniques used for these types of items. ABC Analysis, EOQ, ROL, SS, JIT (only
for lubricants).

RATIO ANALYSIS OF INVENTORY

RATIO OF COST OF GOODS SOLD TO SALES

=COST OF GOODS SOLD

TOTAL SALES

74
 This Ratio is calculated to find out how much cost that incurred or producing
and selling of that product and to know at what percentage that cost of sold occupied
in the total cost of the company.

INTERPRETATION:
The table shows the ratio of cost of goods sold to sales. It is observed that
there is a decrease of 13.63% in the ratio of cost of goods sold to sales in the year
(TABLE 4.1)
(TABLE 4.1)
COST OF GOODS SALES Rs
YEAR RATIO
SOLD Rs.in Lacs in Lacs
2005-2006 519.33 585.33 0.89
2006-2007 144.45 624.61 0.23
2007-2008 516.22 633.52 0.81
2008-2009 535.86 665.12 0.81
2009-2010 601.97 760.72 0.79
2004-2005 from the year 2005-2006. But when compared 2004-2005 with 2003-2004
there was a decrease of 1% and the next year there was further decrease of 14% from
the year 2003-2004. In the year 2006-2007 there was an increase of 6.58% in the cost
of sales which is not good as the cost of goods sold must be minimized to the fullest
possible length. But in the year 2007-2008 and 2008-2009 therewas a slight decrease.

75
RATIO OF RAW MATERIAL CONSUMED TOTAL
COST OF THE PRODUCTION

FORMULAE = RAW MATERIAL CONSUMED .

TOTAL COST OF THE PRODUCTION

This Ratio is calculated to find out the total raw material in which amount of
percent that has constituted in the total cost of the production. This ratios also
indicates that importance
(TABLE 4.2)
RAW
TOTAL COST OF
MATERIALS
YEAR PRODUCTION Rs in RATIOS
CONSUMED
Lacs
Rs.in Lacs
2005-
2006 10,482.19 30,905.13 0.34
2006-
2007 11,887.81 32,905.18 0.36
2007-
2008 13,201.14 34,768.78 0.38
2008-
2009 16,011.85 42,598.36 0.38
2009-
2010 18,479.85 48,508.95 0.38

76
INTERPRETATION:
The above table reveals the ratio of the raw material consumed to the total cost
of production. In the year 2004-2005 the ratio is decreased to 2.86% when compared
to previous year 2003-2004. But in the 2005-2006 there was an increase of 5.88% in
the ratio as the c22254.54ost of production increased and in the next year i.e., 2006-
2007 there was a further increase of 5.56% when compared to the previous year and
this trend remained stable for the year 2008-2009.

RATIO OF OPENING AND CLOSING RAW MATERIAL TO THE

TOTAL RAW MATERIAL:
RATIO OF OPENING RAW MATERIAL=

OPENING RAW MATERIAL

TOTAL RAW MATERIAL
RATIO OF CLOSING RAW MATERIAL=
CLOSING RAW MATERIAL
TOTAL RAW MATERIAL
These ratios are calculated to find out how much percentage that opening
material and closing material constituted in the cost of total raw material over the
years.

(TABLE 4.3)
TOTAL
OPENING CLOSING OPENING CLOSING
YEAR Rs.in
Rs.in Lacs Rs.in Lacs RATIO RATIO
Lacs
2005- 1,796.55 2,630.07 4,426.62 0.41 0.59
77
 2006
2006-
2007 2,630.07 2,001.24 4,631.31 0.57 0.43
2007-
2008 2,001.24 2,607.68 4,608.92 0.43 0.57
2008-
2009 2,607.68 3,160.02 5,767.70 0.45 0.55
2009-
2010 3,160.02 6,482.09 9,642.11 0.33 0.67

INTERPRETATION:
The above table reveals the opening and closing raw material in lacs and in the
ratio. In the year 2004-2005 the ratio values of opening and closing are said to be 0.41
and 0.59 respectively. For the next year 2005-2006 there was an increase in the ratio
of opening by 39.02% and decrease in the closing by 27.12%. And in the next year
2006-2007 there was a decrease of 24.56% in opening and closing ratio increased by
32.56%. In the year 2006-2007 the opening ratio decreased by 24.56% and the closing
ratio increased by 32.56% with comparisons of the previous year 2005-2006. And in
the year 2007-2008 opening has increased by 4.65% and decrease by 3.51% and in the
year 2008-2009 it was increase of 8.89% in opening material and decrease of 7.27 in
closing material it is good for the company. Overall the organization must have an

78
 increase in the raw materials and the raw materials of NCS sugars are said to be
fluctuating

RATIO OF OPENING AND CLOSING WORK IN PROGRESS TO

THE TOTAL WORK IN PROGRESS:
RATIO OF OPENING WORK IN PROGRESS =

Opening Work In Progress

Total Work In Progress

RATIO OF CLOSING WORK IN PROGRESS =

Closing Work In Progress

Total Work In Progress

These ratios are calculated to find out the total share of opening and closing
Work In Progress total work in progress.

OPENING CLOSING TOTAL OPENING CLOSING

YEAR
Rs.in Lacs Rs.in Lacs Rs.in Lacs RATIO RATIO
2005-
2006 750.28 643.25 1,393.53 0.54 0.46
2006-
2007 643.25 753.67 1,396.92 0.46 0.54
2007-
2008 753.67 696.18 1,449.85 0.52 0.48
2008-
2009 696.18 710.06 1,406.24 0.50 0.50
2009-
2010 710.06 801.42 1,511.48 0.47 0.53

79
INTERPRETATION:
The above table reveals the opening and closing work in progress in lacs and
in the ratio. In the year 2004-2005 the ratio values of opening and closing are said to
be 0.54 and 0.46 respectively. It shows that there was an increase of 10.20% in the
opening ratio and 9.8% decrease in the closing ratio within it compared to the
previous year 2003-2004. And in the year 2005-2006 there was a decrease of 14.81%
in the opening and increasing of 17.39% in the closing. In the year 2006-2007
opening has increased by 13.04% closing decreased by 11.11% and in the year 2007-
2008 opening has decrease by 3.85% and closing has increased by 4.17%. In the year
2008-2009 opening has increased by 6% and closing decreased by 6%. Overall all the
companies’ ratio of opening and closing work in progress to total work in progress is
said to be fluctuating.

80
 RATIO OF OPENING AND CLOSING INVENTORY TO
THE TOTAL INVENTORY: (w.r.t. FINISHED GOODS)
RATIO OF OPENING INVENTORY = OPENING INVENTORY
TOTAL INVENTORY

RATIO OF CLOSING INVENTORY = CLOSING INVENTORY

TOTAL INVENTORY

These ratios are calculated to find out the total share of opening and closing
inventory total inventory of the organization over the years.

OPENING CLOSING TOTAL OPENING CLOSING

YEAR
Rs.in Lacs Rs.in Lacs Rs.in Lacs RATIO RATIO
2005-
2006 625.91 1,340.98 1,966.89 0.32 0.68
2006-
2007 1,340.98 1,273.33 2,614.31 0.51 0.49
2007-
2008 1,273.33 1,520.44 2,793.77 0.46 0.54
2008-
2009 1,520.44 2,218.79 3,739.23 0.41 0.59
2009-
2010 2,218.79 2,253.51 4,472.30 0.50 0.50

81
INTERPRETATION:
The above table reveals the opening and closing inventory in lacs and in the
ratio. In the year 2004-2005 the opening ratio is decreased by 59.49% and the closing
is increased by 195.65% with compared to the previous year. And in the next year
2005-20056 there was an increase of 59.38% in the opening and decrease of 27.94%
in the closing. In the final year 2006-2007 the opening ratio is decreased by 9.8% and
closing ratio is increased by 10.20% when compared with 2005-2006. And in the year
2007-2008 he opening has decreased by 10.87% and closing has increased by 8.47%.
In the year 2008-2009 the ratio has increased by 21.95% at the opening and it has
decreased by 15.25% at the closing.

INVENTORY TURNOVER RATIO

INVENTORY TURNOER RATIO = COST OF GOODS SOLD
AVERAGE INVENTORY

This Ratio is calculated to find out whether how much percentage of inventory
that are consumed and how much that should be stored and ordered for a particular
period of time.
COST OF
AVERAGE INVENTORY
GOODS
YEAR INVENTORY TURNOVER
SOLD Rs.in
Rs in crore RATIO(In Times)
crore
519.
2005-2006 33 62.81 8.27
477.
2006-2007 45 66.98 7.13
516.
2007-2008 22 68.42 7.54
535.
2008-2009 86 81.11 6.61
601.
2009-2010 97 93.00 6.47

INTERPRETATION:

82
 The above table indicates the inventory turnover ratio of NCS Sugars LTD.
Higher the ratio, greater the efficiency of inventory management. From the above
table it is clear in the year 2004-2005 the ratio is increased 11.77% as the inventory is
moving fastly and generating sales. Where as in the year 2005-2006 the ratio is
decreased by 13.80% inventory as compared with 2004-2005 and in the year 2006-
2007 there was an increase 5.89% when compared to the previous year 2005-2006
and in the year 2007-2008 it has decreased by 12.47% and in 2008-2009 the ratio has
decreased by 1.97% however the overall inventory turnover ratio in NCS Sugars Ltd.
is fluctuating.

INVENTORY HOLDING PERIOD RATIO

INVENTORY HOLDING PERIOD= 365 .

Inventory Turnover Ratio

This Ratio is calculated to find out the minimum period that

required making order to repurchase of inventory once you made. This
ratio also is useful to know the reorder level of the inventory.

83
 (TABLE 4.7)
INVENTORY INVENTORY
YEAR DAYS TURNOVER HOLDING PERIOD
RATIO(In Times) (IN DAYS)
2005-2006 365 8.26 44
2006-2007 365 7.12 51
2007-2008 365 7.54 48
2008-2009 365 6.60 55
2009-2010 365 6.47 56

INTERPRETATION:

The above table shows the inventory the inventory holding period
of NCS Sugars Ltd. is not constant it is fluctuating but the fluctuation is
not so high it can be accepted. The change high in the year 2003-2004 it’s
around 14 days.

Generally the sales will have a affect on the inventory holding

period if the sales are said to be more then the inventory holding period is
said to be very los where as high when there will be an low sale of the
product that is being manufactured.

84
RATIO OF MATERIAL CONSUMED:

FORMULAE

RAW MATERIALS = MATERIALS CONSUMED

AVERAGE RAW MATERIAL

MATERIALS CONSUMED =
OPENING+PURCHASES-CLOSING OF RAW MATERIALS

(TABLE 4.8)
RAW AVERAGE
RAW MATERIAL
MATERIALS RAW
YEAR TURNOVER RATIO
CONSUMED MATERIALS
(IN TIMES)
Rs.in Lacs Rs in Lacs
85
2005- 10,482. 2,213.
2006 19 31 4.74
2006- 11,887. 2,315.
2007 81 66 5.13
2007- 13,201. 2,304.
2008 14 46 5.73
2008- 16,011. 2,883.
2009 85 06 5.55
2009- 18,479. 3,241.
2010 85 04 5.70

INTERPRETATION:

The above table reveals the raw material turnover ratio. In the year
2004-2005 there was a decrease of 3%. In the year 2005-2006 there was
an increase of 8.23% from the previous year 2004-2005.

In the year 2006-2007 there was a further increase of 11.69% from

the previous year 2005-2006 and in the year 2007-2008 there was a slight
decrease by 3.14% and in the year 2008-2009 there was an increase by
2.63% overall there is said to be an increasing trend with low rate of
decrease.

Therefore the raw material turnover ratio is said to be in an

increasing way and increase is said to be a favorable one to the
organization in respect of raw materials.

86
87
WORK IN PROGRESS TURNOVER RATIO

FORMULAE
WORK IN PROGRESS = COST OF PRODUCTION
AVERAGE WORK IN
PROGRESS

COST OF PRODUCTION =

(MATERIAL CONSUMED+OTHERS MANUFACTURING

EXPENSES + OPENING WIP)-CLOSING WIP

(TABLE 4.9)
AVERAGE
COST OF WIP TURNOVER
WORK IN
YEAR PRODUCTION RATIO (IN
PROGRESS
Rs.in Lacs TIMES)
Rs in Lacs
2005-
2006 30,905.13 696.77 44.35
2006-
2007 32,905.18 698.46 47.11
2007-
2008 34,768.78 724.93 47.96
2008-
2009 42,598.36 703.12 60.58
2009-
2010 48,508.95 755.74 64.19

88
INTERPRETAION:

The above table reveals the work in progress turnover ratio. In the
year 2004-2005 there was a drastic increase of 22.68% in the ratio which
is said to be not favorable for the company. In the next year 2005-2006
there was an increase of 6.20% when compared to the year 2004-2005. In
the final year 2006-2007 there was an increase in the ratio by 1.8% when
compared to the previous year 2005-2006. And in the year 2007-2008
there is increase of 26.3%. And in the year 2008-2009 the ratio was
increase by 6%.

Therefore the work in progress turnover ratio of the company is

said to be increasing and it has to be brought down to the minimum level.

89
90
CHAPTER – 5

SUMMARY

91
 FINDINGS
 The NCS Sugars and Industries Corporation Ltd has

maintaining the material like bolts, machine spare parts etc in

general stores for long time, it causes the wastage of funds.

 There is a rapid decrease in Inventory Turnover Ratio

in 2008-09 as compared to the year 2007-08.

 The company has not maintained the conventional

liquid assets.

 The company’s work in progress is lower than the

conventional rule in all years of the study period.

92
  Inventory turnover ratio of the company also

decreased in the year 2008-09 as compared to 2007-08.

 New method of finding the levels of inventory.

 Sometimes the material is issued and it is not entered

in the books.

 More number of trips due to low carrying capacity

carriers.

SUGGESTIONS

 The company NCS Sugars and Industries Corporation Ltd

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CONCLUSION

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