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7/27/2019 Inventory Management in SRF
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CONTENTS
o Chapter1o Introduction of the industry
o Chapter2 Objective of the study
o Chapter3o Introduction of the topico Chapter4
Results and discussiono Chapter5
Limitation & findingso Chapter5
Conclusion References Annexure
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CHAPTER1
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INDUSTRY PROFILE
SRF Ltd., earlier called the Sriram Fibers, has evolved into a modern industrial major. Its roots
go back to over a century, with the establishment of the parent company, DCM (Delhi Cloth
Mills) in 1889. Since its inception in 1974, the company has been improving continuously and
has made its mark in the industry.
It is the market leader in its core businesses, namely industrial synthetics and Fluorochemicals. It
also enjoys growing presence in light engineering products,engineering plastics packaging films
and Pharma chemical business.
The company was established in 1970, as Shri Ram Fibres Limitedby DCM Limited as a wholly
owned subsidiary. Its initial focus was on the manufacture of nylon cord fibres for tyres. Its first
manufacturing plant was setup in Manali, nearChennai, in 1973.
Over the years, the company diversified its product offerings into technical textiles, engineering
plastics, chemicals and packaging films. In 1990, it changed its name to SRF Limited.
In 1986, the company setup a joint-venture with Denso,SRF Nippondenso, for the manufacture
of automotive components. This was later spun off as a separate company in 1993. Another
subsidiary, SRF Finance, started in 1986, was sold to GE Capital in 1997. SRF also had a health-
care division which manufactured plastic optical lenses, which was spun off as a separate
company in 1997. SRF Limited was listed in the 2011 Asia'sBest under a Billion list by Forbes
magazine.
SRF today operates from nine plant locations in India and abroad and has attained
market leadership position in many of the products it manufactures. SRFs
relentless focus on TQM techniques has resulted in the company winning the
prestigious Deming Application Prize in 2004 (the first nylon tire cord company
outside Japan to be awarded this prize).
http://en.wikipedia.org/wiki/Chennaihttp://en.wikipedia.org/wiki/Joint-venturehttp://en.wikipedia.org/wiki/Densohttp://en.wikipedia.org/wiki/Asiahttp://en.wikipedia.org/wiki/Forbes_magazinehttp://en.wikipedia.org/wiki/Forbes_magazinehttp://en.wikipedia.org/wiki/Forbes_magazinehttp://en.wikipedia.org/wiki/Forbes_magazinehttp://en.wikipedia.org/wiki/Asiahttp://en.wikipedia.org/wiki/Densohttp://en.wikipedia.org/wiki/Joint-venturehttp://en.wikipedia.org/wiki/Chennai7/27/2019 Inventory Management in SRF
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SRF PURPOSE
To be an inspired, caring organization
To create extraordinary value for all
To pursue excellence and customer loyalty
To always meet tomorrow's challenges today
" We Wil l M ake Our Nation Proud By Being the Best at What We Do"
SRF VISION
To be one of the most admired business organizations in India, deeply loved by its
people, respected and sought after by its customers and shareholders.
To be World Leader in at least one of its businesses with global operations and
technology leadership.
To be one of the most sought after employers in the country. A Company known for its
people management skills. One that can unlock the talent hidden in each employee and
inspire him or her to take on and accomplish extraordinary future challenges.
To be a shining example of deep commitment and contribution to development of people
and society.
SRF MISSION
Enable customer satisfaction of a high level and a standard higher than that of
competition.
Provide good returns to our shareholders and other financial stakeholders.
Continuously enhance the total quality of life of our employees and help them realize
their potential.
Contribute to the development of the society and the nation.
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SRF CORE BUSINESSES
THE INDUSTRIAL SYNTHETICS BUSINESS, which manufactures Nylon Tyre Cord
Fabric, and is the 7th largest producer of NTCF in the world and the largest in India.
THE COATED FABRICS BUSINESS, which manufactures high quality fabrics used for
non-tyre applications in the international and domestic market.
THE BELTING FABRICS BUSINESS, which manufactures fabric used to make
conveyor belts, and is the 2nd largest producer in the world and the largest in India.
THE FLUOROCHEMICALS BUSINESS, which manufactures Refrigerant Gases and
Choloromethanes, and is the largest producer in India with exports to more than 50
countries.
THE PACKAGING FILMS BUSINESS, which manufactures Biaxially Oriented Poly Ethylene
Terephthalate (BOPET) also called Polyester (PET) Film, is predominantly used in Flexible
Packaging Applications.
THE PHARMA CHEMICALS BUSINESS, which manufactures intermediates/ advanced
intermediates and provides contract research, custom synthesis & contract manufacturing
services to the Pharma Industry.
PROCUREMENT SOLUTIONS & SERVICES: Procurement of indirect materials
requires organizations to identify and deal with countless suppliers based on imperfect
knowledge, in a market that is highly disorganized. SRF eBIZ provides solutions &
services to increase efficiencies in the procurement of these indirect items (also known as
B & C category items).
THE ENGINEERING PLASTICS LIMITED caters to the Nylon engineering plasticsrequirements of companies in the automobiles, white goods, electrical goods, telecom
cables, textile machinery, and electronics sectors. The brands which are famous are
TUFNYL and TUFBET.
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THE FISHNET TWINES is a niche business where as leaders in the branded segment we
sell fishnets, fishing lines, spindles, tapes, nylon belts and straps as well as velcrotapes to
end users in India, Sri Lanka,Uganda and Nigeria.
SRF Ltd also has a wholly owned subsidiary SRF Overseas ltd at Jebel Ali, Dubaiand is
engaged in manufacturing of Tyre Cord Fabric. This was the first overseas initiative of
SRF Group.
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CHAPTER2
OBJECTIVE OF THE STUDY
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OBJECTIVE OF THE STUDY
The project is designed to give an overview of Inventory Management. To determine the changes in the Inventory position of the company. To determine the increase or decrease in Inventory level. To determine the various ratios for analyzing the Inventory level of the company. To spot out strengths & weakness of business. To determine the absolute figures for the last two years
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CHAPTER3
INTRODUCTION OF THE TOPIC
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THEORIES OF INVENTORY MANAGEMENT
Inventory Management
What do you mean by inventory?
Inventory is a list for goods and materials, or those goods and material themselves,
held available in stock by a business.
Management of Inventories is with the primary objective of determining, controlling
stock levels within the physical distribution function to balance the need for product availability
against the need for minimizing stock holding and handling costs.
A subsidiary ledger which is usually used to record the details of individual items of
stock. Inventories can also be used to hold the details of other assets of a business. There are
three types of inventory: Raw materials, work in process and finished goods. Raw materials are
materials and components that are inputs in making final products. Work in process also called
stock in process refers to goods in the intermediate stages of production finished goods consist of
final products that are ready for sale .inventory represents the second largest asset category for
manufacturing companies next only, to plant and equipment he proportion of inventory to total
assets generally consists of 15 to 30 percentage.
Inventories is a list of goods available in stock at warehouses .it is also use for a list of
contains of a household and for a list of testamentary purpose of the possession of someone who
has died in accounting inventory consists as assets.
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Spares and consumables
Spares play an important part of inventories by themselves. Their consumption pattern
defers from that of raw material, consumables and finished goods. They also even keep these
items in a spare which is not easily available. There is the material which act as catalysis in the
production process and are not directly found in to output. This enables the production process to
function smoothly like - fuel, coil, oil, LSHS etc, are the example of the consumables.
Objective of the Inventory Management
The basic responsibility of the financial is to make sure the firms cash flows are
managed efficiently. Efficient management of inventory should ultimately result in the
maximization of the owners wealth. It was indicated that in order to minimizes cash
requirements, inventory should be turned over as quickly as possible, avoiding stock-outs that
might result in closing down the production line or lead to a loss of sales.
The main objective of inventory management consists of two parts.
1. To minimize investment in inventory.2. To meet demand for the product by efficiently organizing the production and sales
operations.
The firm should minimize investment in inventory implies that maintaining inventory involves
costs, such that the smaller the inventory, the lower is the cost to the firm. But inventory also
provide benefits to the extent that facilitate the smooth functioning of the firms.
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Why Inventory Management?
An increased emphasis on liquidity has lead businessman to hold cash and securities in
performance to inventories. Inventories are now often referred to as the grave yard of the
business.
The surplus of the stock has been a principal guide of failure thus lead to change their
view regarding holding of inventories and adopt scientific way of inventory holding. Following
are factor that are following the view of scientific inventory control.
1. Size of Business
The increased size of business establishment has played an important role in modern
large scale enterprise. Often it operates with small profit margin which can be eliminated by
scientific inventories control method.
2. Wide variety and complexityThe wide variety and complexity in modern technology requires conscious inventory
management. The larger the range of requirement, the greater the number of problem of
investment, procurement, storage, holding, accounting, shortage and stock out deterioration etc.
3. Urgency in material requirements
The need and importance of inventories varies in different production with the ideal
time, cost of men, machinery and urgency of requirement. But it is highly uneconomical to keep
a secure and a rapid capital turnover and the most effective means of achieving these objectives
is to control stores.
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A. Cost of Ordering
The activities that are carried out for fulfilling the need for material, which consume
executive time, stationary and communication charges, these are the cost of ordering.
B. Cost of Carrying out Inventories:
The moving factor to control inventory is the cost incurred by holding. It is the cost that
is expressed as percentage of the average investment i.e. capital investment, spoilage
insurance cost.
.
Material Control Techniques
The concept of material control techniques signifies the efficiency of any organization.
The contingent upon having the right material of right quality at right quantity at the right time in
following three areas:
1. Purchase Control
2. Storage Control
3. Warehouse Accounting
1. Purchase Control
This is one of the basic functions of inventory management and forms a major part of it.
It needs considerable expertise not only negotiating but also in the techniques of competitors and
studying of economic trends in respect of materials to be purchased in large quantity to increase
the profit.
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Inventory Management In GNFC:
GNFC is maintaining inventories successfully. There are total 1, 40,000 items in
inventory whose total value is Rs.1 crore (approx.) Bifurcation of inventories percentage wise as
shown below:
TABLE NO: 5
Mechanical Spares 57 %
Catalyst & chemical spares 12 %
Electrical spares 11 %
Instrumentation items 10 %
Other miscellaneous items 10 %
In 57% Mechanical Spare, there are some insured items which are essential and cannot
produce immediately. These items are not come into use daily. These items are very costly and
carrying cost is also high.
Bifurcation of Inventories:DIAGRAM NO: 4
Mechanical Spares
Catalyst & chemical spares
Electrical spares
Instrumentation items
Other miscellaneous items
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GNFC maintain some inventories different ways like use of SAP system.
COMPOSITION OF THE NET OPERATING CYCLEDIAGRAM NO: 5
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Material Control Techniques in GNFC
To know the practical use of various inventory control techniques in GNFC following inventory
control techniques were studied and evaluated which are:
1. Codification System
2. Classification of Inventory:
(a)ABC Classification(b) Determination of E.O.Q(c) FSN Classification(d) HML Classification(e) Zero Inventories
3. Determination of Inventories Level:
(a) Minimum Stock Level(b) Maximum Stock Level(c) Re-Order Level
4. Importance Substitution.5. Supply Chain Management & Inventory Control.
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1. Codification System:
Codification system means assigning a unique code or name to each item based on its
use, characteristics, importance and other features. It is the process of allocating a code after
logical grouping and sub grouping considering material type and application.
Principles of Material Code:
There should be adequate provision for future expansion and there should be no duplication. One particular size and type should be at one place only. Description should be brief, very accurate, specification, part number; drawing number
should be quoted whenever required.
Unit of issue and receipts should be given and followed strictly. Code should be understandable by those who have to use it. It should be properly classified for section, classed and group. One unique code for each item represented by single code.
Advantages:
It enable systematic grouping of similar items together. It helps in avoiding duplication of items. Rationalized codification result in variety of reductions. Many firms have successfully
reduced the number of items stock by them.
It avoids confusion caused by the long and unwieldy description and accurately logicallyand logically identifies all items.
It is the starting point for standardization
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It lays the foundation for an efficient purchase organization by helping to fromspecialized commodity base purchase section. Since items are identified by source of
supply, it is possible to bulk them together to take advantages of bulk discount.
Classification of Inventory
The Inventories having huge amount of use in the organization has to be controlled very
strictly and low amount of use should be kept low control.
The main classification of Inventory is as under:
(a)ABC classification(b)Economics Ordering Quantity(c)FSN classification(d)HML classification(e)Zero Inventories
(A) ABC Classification
In most of the inventories a small proportion of items account for a very substantial usage
and large proportion of items accounts for a very small usage. ABC analysis, based on this
empirical reality, advocates in essence a selective approach to inventory control which calls for a
greater concentration of efforts on inventory items accounting for the bulk of usage value.
ABC classification is a basic analytical management tools which enable top management
to direct their efforts where the result will be maximum. This technique properly knows as
ALWAYS BETTER CONTROL has universal application in many areas of human end eavor.
The techniques tires to analyze the distribution of any characteristic by money value of
importance in order to determine its priority.
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TABLE NO: 6
Class A Class B Class C Class
Items value 70% 20% 10%
Number of items 10% 20% 70%
DIAGRAM NO: 6
(B) Economic Order Quantity:
Order quantity is defined as the quantity or its rupee equivalent for which fresh order of
as inventory item is placed. The decision regarding order quantity of various inventory items is
of vital importance in the management of the inventory item of which total of two types of cost
opposing each other will be the minimum at this level, the sum of all cost of on type is exactly
equal to the sum of all the cost of the other type. Thus quantity is often referred to as economic
order quantity, for the purchase. Purchase item and economic lot size for production item.
Items value
A Class
B Class
C Class
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DIAGRAM NO: 7
Determination of EOQ:
The economic order quantity can be determined with the help of the following formula:
EOQ=\|2AB/CI
Where,
A= annual usage in units.
B= buying cost/ordering cost.
C= carrying cost.
I= inventory carrying cost.
Disposal of Non Moving Items Inventory Control Review Meeting Alternative Material Use Circulation of Non Moving / Slow Moving Items list.
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(C) FSN Analysis
In GNFC FSN analysis carried for consumable items, which are used by multi users,
FSN means fast moving (F), slow moving (S), non moving (N) items analysis. The norms
established by GNFC for each items are as follows:
Fast Moving Items:GNFC has norms that fast moving items have the following:
1.It should have more than 5 issue transactions in a year.
2. There should be multi user. Slow Moving Items:
GNFC has norms that slow moving items have the following;
1. Items should have transaction between 1 to 5 time in a year2. There should be multi user.
Non Moving Items:GNFC has norms that are non moving items have the following:
Items have no issue transaction for last 3 years
Items should have some quantity available in all the past three years.
Actions taken for FSN Analysis: Fast Moving Items:
a. Close watch is required of users, availability of short notice, at time maximumwithdrawals etc data are collected and enough care is taken while fixing level.
b. Annual rate contract are made to avoid stock outsc. Frequency of review is mored. Frequent changes of level are made depending upon the importance of plant /
equipments.
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Slow Moving Items:a. For slow moving items, consumption pattern is studied. In some cases either the item are
being used only in shutdown or by limited users only. While fixing level user weightage
is given and it withdrawals. Normally these items are for specific users and levels can be
kept low but user should give their requirement of abnormal requirement of shutdown
etc.
b. Frequency of review is less.
Non Moving Items:a. Normally on closing of the financial year report are prepared for non moving items. This
report is then circulated to all concerned users department and list will be sent to the
stores disposal procedure.
b. Mean while users department study the use of equivalent material against other similarnature material requirement and give their comment.
c. Accordingly excess material declared for disposal will disposed off.
(D) HML Analysis
This method is similarly to ABC classification but in this case instead of
consumption value of items, medium value Items is considered.
As the name implies the material are classification according to their unit price as
high value Items and negotiate the price.
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As per the company rules:
The items having value greater than or equal to Rs. 1,00,000 are classified as high valueItems.
The items having individual value greater than or equal to Rs. 25,000 and below Rs.1,00,000 is considered to be medium value items.
If the value is less than Rs. 25,000 then it is low value items.
HML analysis value is done for electrical items, instrumentations and other items.
(E) Zero inventories:
GNFC is continuously maintaining the zero inventories of Raw Material like oil and gas.
This is possible because the company has contracted with such suppliers to provide the material
on demand on time.
Lubricants whose 200 liters, 50 to 70 drums are used whose supplier is IOC. GNFC has
negotiated with IOC and provide it accommodation in plant which is known as IOC depot. The
IOC keeps its stock there and when GNFC uses from it when it is needed lubricants only than it
has to pay till that GNFC doesnt need to pay.
The inventory remaining at depot is called the inventory of IOC. On the behalf of IOC,
GNFC had just taken care of it and for that IOC pays GNFC holding charges also. So the
transaction cost of GNFC for lubricant is also reduced. GNFC is also trying for such a depot for
bearing also. For gas also the company has contract with GAIL India ltd, for supply of gas as
requires, lot of saving inventory and its relevant cost is observed due to this.
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Determination of Inventory Level:
The inventory level concept consider store keeping as profit intensive service to
production store keeping should contribute directly to profitability and be concerned with
matter as flow, packing and dispatch.
In the same way that specification is relared to technical needs. so, general level of
stock should be relared to the sales andf production policies of the company.
There are various levels of stock which are established by the GNFC are as follows:
(1)Minimum Level
(2)Maximum Stock Level
(3)Re-order Stock Level
(1)Minimum Level:
This is the level at which any future demands upon the bill will necessary
withdrawals from the reserve stock.
The Minimum stock level is converted to meet exceptional conditions of Demand.
Two months usage of material taken into considerations by the GNFC Ltd. As a
minimum stock level.
(2)Maximum Stock Level:
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This is the Level above which the stock should not be permitted to rise. Eighteen
months consumption of stocks taken into considerations by GNFC Ltd. As a Maximum
stock level.
(3)Re-order Stock Level:
The Point of which the order has to be placed. The Re-order level may not always
be numerically equal to the Economic Order Quantity. It should be regularly reviewed for
paid moving items. For fast factors as change in demand, delivery times or variation in
trend.
(D) Importance Substitution:
GNFC has successfully adopted & exercised these techniques. It has many items /
materials which are imported from abroad. But now, GNFC has started to substitute the imported
item by substituting these items / materials by finding domestic supplier for this product. GNFC
is importing rock phosphate which is used as raw materials. Now GNFC has developed supplier
on domestic market and made contract with him for supply of that raw material.
Procedure Followed:
a. Items are selectedb. It is checked for dimension as well as for material of construction. It is also ifrequired check it with the help of metal analyzer to know exact material ofconstruction. Drawings are developed
c. Local indigenous parties are developed to get it manufactured locally.d. Trials are taken after success it is stopped procuring from abroad
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(E) Supply Chain Management & Inventory Control:
Supply chain management solve the purchasing problem by foregoing the short term
benefit of competitive bidding in order to develop special long term relationship. In exchange the
vendor coincides his production schedule and quantity standards to plant needs thus reducing
uncertainty and hence the need for excess inventories. The release and scheduling process with
the supplier consist of four steps:
a. Make a long term purchase commitment to supplier.b. Give supplier a monthly forecast for a rolling period of six month of production.c. Establishment with a supplier a monthly form release for the next month of production.d. Make an arrangement of supplier on the policy for changing delivery dates.
Inventory Management and Inventory Control Practice:
In all the company they have all types of inventories. But the main important thing is
when and how many times control of the inventories of all the companies is is required. So in
GNFC control of all the inventories is mentioned as under:
The company regularly held the meeting with an agenda of inventory controls. Meeting areheld quarterly, semi quarterly or annually as per the need. The purpose is to see the loopholes
and try to remove it.
Brainstorming is to make control the problem of excess inventory. By arranges such meeting,all the concerned department are informed. The inventory level is maintained with storing
department. These meeting are held as a part of constant performance review.
The company maintained the space and planning for the particular department for example,suppose company has a Pipes and in production department it is required 500 pipes, but here
already company has 200 pipes. So company now requires only 300 pipes and they purchase
it. So in this way company arrange space and plan to maintain it.
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Strength & Weakness of Inventory Management
Strength:
1. Well organized structure of Inventory Management2. Well Defined Policies and Plans.3. Good links with raw material requirements planning and monitoring with annual and
monthly requirements plan.
4. Well Established vendor registration procedure.
Weakness:
1. Non moving items inventory is high. It approx 15% need more clarity and policy plan.2. Disposal activity resulats are not satisfactory.
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CHAPTER3
RESULTS & DISCUSSION
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RESEARCH METHODOLOGY
Research methodology is a way to systematically solve the research problem. It deals with the
objective of a research study, the method of defining the research problem, the type of
hypothesis formulated, the type of data collected, method used for data collecting and analyzingthe data etc. The methodology includes collection of primary and secondary data.
TYPE OF RESEARCH
DESCRIPTIVE RESEARCH
The study follows descriptive research method. Descriptive studies aims at portraying
accurately the characteristics of a particular group or situation. Descriptive research is concerned
with describing the characteristics of a particular individual or a group. Here the researcher
attempts to present the existing facts by collecting data.
5.2 RESEARCH DESIGN
A research design is a basis of framework, which provides guidelines for the rest of
research process. It is the map of blueprint according to which, the research is to be conducted.
The research design specifies the method of study. Research design is prepared after formulating
the research problem.
5.3 SOURCES OF DATA
Data are the raw materials in which marketing research works. The task of data collection begins
after research problem has been defined and research design chalked out. Data collected are
classified :-
Data were collected from the companys annual publications, memorandums ofsettlements, newspapers, journals, websites, and from library books
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DATA INTERPRETATION AND ITS ANALYSIS
Valuation of Inventories:
A. At Plant:
Stores & Spares (including coal) = At weighted average cost.
Raw Materials, Finished Goods & Work in Process = At Lower of Cost or Net RealizableValue. Annual cost is computed on full absorption costing method including material cost
and conversion costs.
Fertilizers of Sub-standard Quality = At Lower of Cost or Net Realizable Value asestimated by the Company. Annual cost is computed on full absorption costing method
including material cost and conversion costs.
B. At Field: Finished Goods = At Lower of Cost or Net Realizable Value. Annual cost is computed on
full absorption costing method including material cost and conversion costs. Costs of
field stocks include freight to the destination.
Fertilizers of Sub-standard Quality = At Lower Costs or Net Realizable Value asestimated by the Company.
Note:Net realizable value is the estimated selling price in the ordinary course of business,
less estimated costs of completion and estimated costs necessary to make the sale.
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Analysis of Inventory Management
The total inventory management of the company includes the raw materials inventory,
work in process inventory, finished goods inventory. The total inventory of the company in
2009-2010 is Rs. 40503.38 lacks. GNFC has total of approx. 214683 different types of
inventories.
TABLE NO: 7
(in lakhs)
Particulars 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Total 26957.87 38846.52 38599.79 43075.71 40503.38
The above graph shows the total inventory management of the company various parts
GRAPH NO: 1
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Stores & Spares
Raw Materials
Work in Process
Finished Goods
Total
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The report includes different parts of analysis of the inventory management which is as
follows:
1. Analysis of the composition of inventory.2. Effects of the various inventory ratios.3. Study of the different inventory management techniques4. Find out the inventory management and control practice at GNFC5. The analysis of the report is divided into main four parts, which are
A. Under composition of inventoryB. Various inventory ratiosC. Techniques of inventoryD. Control of inventory
Analysis of inventory managementInventory conversion period is very closely related to the inventory management.
Inventory conversion is the part of the net operating cycle.
1. Raw material conversion period2. Work in process conversion period3. Finished goods conversion period.
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DIAGRAM NO: 8
NET OPERATING CYCLE
GROSS OPERAING CYCLE
INVENTORY CONVERSION
PERIOD
RAW MATERIAL CONVERSION
PERIOD
FINISHED GOODS CONVERSION
PERIOD
WORK IN PROCESS CONVERSION
PERIOD
DEBTOR CONVERSION
PERIOD
PAYABLE DIFFEREDPERIOD
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Raw Material Conversion Period:
Average Raw material Inventory
______________________________
Raw material consumption period
TABLE NO: 8
(in lakhs)
Particulars 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Average R.M. Inventory 4041.72 5274.76 5522.4 6090.595 8270.05
R.M. Consumption per day 214.72 294.78 341.99 343.39 346.56
R.M. Conversion Period 19 days 18 days 16 days 18 days 24 days
GRAPH NO: 2
0
5
10
15
20
25
30
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Raw Material Conversion Period
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Interpretation:
Raw material conversion period is the time period between receiving the raw material and
sending them for production. It is the period of stocking the raw materials for usage. So higher
the ratio lower will be the profit. In the above chart raw material conversion period lies between
15 to 19 days for the last five years. In 2004-2005 it is 15 days which is lowest and so it is good
for the company. But in 2005-2006 it is 19 times which is not good for the company because
higher the ratio the lower will be the profit. In 2008-2009 the ratio is 18 times which is also very
high and so not good for the company. So company should try to reduce it.
Work in Process Conversion Period:
Average WIP Inventory
____________________
Cost of Production
TABLE NO: 9
(in lakhs)
Particulars 2005-06 2006-07 2007-08 2008-09 2009-10
Average W.I.P Inventory 2422.75 1793.74 2031.60 2707.93 1110.41
Cost of Production per day 319.38 398.08 461.47 507.88 498.04
W.I.P Conversion Period 8 days 5 days 4 days 5 days 2 days
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GRAPH NO: 3
Interpretation:
Work-in-progress conversion period is the time period when the raw materials are
received for production and the time for their dispatch. The higher the ratio the lower will be the
profitability. In 2007-2008 the ratio is 4 days which is too low and so it is good for the company.
But in 2005-2006 the ratio is 8 days which is too high. But in 2008-2009 the ratio is 5 days
which is low and so good for the company. But as we have not compared it with other companies
any decision cant be taken.
0
1
2
3
4
5
6
7
8
9
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Work in Process Conversion Period
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Finished Goods Conversion Period:
Average finished goods Inventory
______________________________
Costs of goods sold
TABLE NO: 10
(In lakhs)
Particulars 2005-06 2006-07 2007-08 2008-09 2009-10
Average Finished Inventory 4351.265 8795.65 11532.51 10332.275 7251.50
Cost of Goods Sold 70.81 84.71 188.63 81.05 39.632
Finished Goods Conversion
Period
61 days 103 days 61 days 127 days 182 days
GRAPH NO: 4
0
20
40
60
80
100
120
140
160180
200
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Finished Goods Conversion Period
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Interpretation:
Finished goods conversion period is the time of storage of finished goods in the
warehouse until they are sold. The higher the ratio the low will be the profit. If we store the huge
stock in warehouse then we are losing the opportunity cost. In 2004-2005 the ratio is 35 days
which increased by 6 days i.e. 41 days in 2005-2006 which is not good. But in 2006-2007 the
ratio is 114 days which indicates that huge stock in laying at the godown and so the company is
losing its profit and so the profit in that year is very low. But in 2008-2009 it is 86 days which is
too high and not good for the company. But as we are not aware about other companies in this
industry any comment about it is not appropriate.
Inventory Conversion Period
TABLE NO: 11
Particulars 2005-06 2006-07 2007-08 2008-09 2009-10
R.M. Conversion Period 19 days 18 days 16 days 18 days 24 days
W.I.P. Conversion Period 8 days 5 days 4 days 5 days 2 days
F.G. Conversion Period 61 days 103 days 61 days 127 days 182 days
Inventory Conversion
Period
88 days 126 days 81 days 150 days 208 days
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GRAPH NO: 5
Interpretation:
Inventory conversion period indicates in how much days our inventory gets converted. Inthis ratio we will consider the entire inventory ratio. We will consider all type of inventories i.e.
raw materials, work in process and finished goods. The higher the ratio the higher will be the
profitability. In 2006-2007 the ratio is 137 days which shows that in this year huge amount of
profit the company has earned. So in this year the profit is very high as compared to other year.
But in 2008-2009 the ratio is 109 days which is very huge because the finished goods conversion
period is huge. And so the profit also increased by approx Rs. 15000 (in lacks).
0
50
100
150
200
250
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Inventory Conversion Period
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Various Inventory Ratios:
A. Total Investment in InventoryB. Total Inventory Turnover RatioC. Work in Process Turnover RatioD. Finished Goods Turnover Ratio
A. Total Investment in Inventory:TABLE NO: 12 (in
lakhs)
GRAPH NO: 6
0
10000
20000
30000
40000
50000
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Total Investment in Inventory
Particulars 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Inventory 26957.87 38846.52 38599.79 43075.71 40503.38
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Interpretation:
The above chart indicates the amount of inventory with the company. The lower the
amount the higher will be the profit but higher the amount the lower will be profit. There is
inverse relation between profit and inventory. From the above chart it can be seen that in 2008-
2009 the amount of inventory is Rs. 43089 (in lakhs) due to which the profit also reduced and so
the profit is low in 208-2009.
B. Total Inventory Turnover Ratio:
Total inventory turnover ratio is concerned with the cost of goods sold and average
inventory. Total inventory turnover ratio is shows how many times inventory is replaced during
the year symbolically,
Costs of goods sold (sales)
________________________
Average Inventory
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TABLE NO: 13
(in lakhs)
GRAPH NO: 7
Interpretation:
Inventories represent stocks of readymade goods or raw materials that are needed to be
kept in order to be able to meet the orders of clients. The higher the ratio the higher will be the
profit and lower the ratio lower will be the profit. In GNFC the inventory turnover ratio for the
year 2008-2009 is 6.63 times which is lowest and resulted into low profitability. The highest
ratio is found in 2007-2008 which is 7.95 times and it is very good for the company. But any
decision cant be taken for it because we have just compared the data of past five years of GNFC
only and not of four to five other companies ratios which are coming under this industry.
012345678
9
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Inventory Turnover Ratio
Particulars 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Inventory Turnover Ratio 6.92 times 7.5 times 7.95 times 6.63 times 5.96 times
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C. Work in Process Turnover Ratio:
Work in process turnover ratio is concerned with the cost of goods sold and average work
in process inventory. Work in process turnover ratio shows how many times work in process
inventory is replaced during the year. Symbolically,
Cost of production
___________________
Average WIP Inventory
TABLE NO: 14
(in lakhs)
Particulars 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Work in Process Turnover
Ratio
75 times 137 times 152 times 99 times 224 times
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GRAPH NO: 8
Interpretation:
Work in process indicates the stock withdrawn from warehouse and are yet to getconverted into finished stock. The higher the ratio the higher will be the management efficiency.
In 2007-2008 the ratio is approx 152 times which shows good profitability for the company. But
it reduced to 99 times in 2008-2009 which shows decrease in profitability, company is taking
more time to produce finished goods which is not good for the company.
0
50
100
150
200
250
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Work in Process Turnover Ratio
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D. Finished Goods Turnover Ratio:
Finished goods turnover ratio is concerned with the cost of goods sold and average finished
goods inventory. Finished goods turnover ratio indicates how many times finished goods are
replaced during the year. Symbolically,
Costs of goods sold
____________________________
Average finished goods inventory
TABLE NO: 15
(in lakhs)
Particulars 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Finished Goods Turnover Ratio 42 times 28 times 26 times 26 times 34 times
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GRAPH NO: 9
Interpretation:
Finished goods turnover ratio indicates how much time finished goods gets turnover. The
higher the ratio the more will be the sales and vice versa. But after it subsequently reduces and
lasts to 26 times in 2008-2009 which is not a good sign for the company. It shows that company
is holding huge stock at warehouse.
0
5
10
15
20
25
30
35
40
45
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Finished Goods Turnover Ratio
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CHAPTER4
LIMITATION & FINDINGS
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LIMITATION OF STUDY
Time period of 6 weeks in such big company like GNFC is very small to carry out a biggerproject like inventory management.
Companys employees dont provide enough data for the study.All the data are collected was secondary in nature so loopholes if any would carried forward inthe study.
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FINDINGS
Research Findings:
The study of inventory management at GNFC is conducted to know the various
techniques followed by company to control the inventory management of the company.
In the company the total inventory conversion period for the year 2009-2010which is 208 days
Inventory turnover ratio in the year 2007-2008 (7.95 times) is high. Raw material turnover ratio is lowest in 2009-2010 since last five years i.e. 30times,
Work in process turnover ratio is very high in 2009-2010 which is 224 times. Finished goods turnover ratio is very high in 2005-2006 which is 42 times
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CHAPTER5
CONCLUSION
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CONCLUSION
Raw Material Conversion Period for the company is increased by 6 days in 2009-2010 ascompared to previous year is not a good sign.
Finished Goods Conversion Period in 2009-2010 is highest which 182 days which hasincreased by 55 days as compared to previous year should be reduced.
Since its beginning the company has to incur loss due to damage of machine E-501 anddue to which they had loss of production. So they have to keep this machine in stock.
Most of the employees in the organization are not aware about how to use SAP software.
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BIBLIOGRAPHY
Books
I. M. Pandey, Financial Management, Vikas Publishing Pvt, Ltd, (9th Edition) Pg no: 524,
525, 624 to 639.
Websites
http://www.gnfc.in/aboutus/finance.html http://www.google.com http://www.gnvfc.com http://www.fertilizers1.com/institutions.html http://www.moneycontrol.com/gnfc/financials.html
Other Materials
Annual report of the company Balance Sheet
http://www.gnfc.in/aboutus/finance.htmlhttp://www.google.com/http://www.gnvfc.com/http://www.fertilizers1.com/institutions.htmlhttp://www.moneycontrol.com/gnfc/financials.htmlhttp://www.moneycontrol.com/gnfc/financials.htmlhttp://www.fertilizers1.com/institutions.htmlhttp://www.gnvfc.com/http://www.google.com/http://www.gnfc.in/aboutus/finance.html7/27/2019 Inventory Management in SRF
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ANNEXURES
BALANCE SHEET AND PROFIT AND LOSS A/C
Profit & Loss account of SRF Pvt.
Ltd.
------------------- in Rs. Cr. -------------------
Mar '10 Mar '09 Mar '08 Mar '07 Mar '0
12 mths 12 mths 12 mths 12 mths 12 mth
Income
Sales Turnover 2,712.78 3,062.28 3,653.44 2,956.67 2,281.3
Excise Duty 98.41 140.50 220.19 217.40 133.7
Net Sales 2,614.37 2,921.78 3,433.25 2,739.27 2,147.5
Other Income -1.39 35.05 44.02 35.90 34.9
Stock Adjustments -97.20 3.63 -13.75 50.77 3.4
Total Income 2,515.78 2,960.46 3,463.52 2,825.94 2,185.9
Expenditure
Raw Materials 1,379.56 1,634.15 1,986.76 1,530.60 1,075.9
Power & Fuel Cost 359.25 376.32 341.60 268.96 263.0
Employee Cost 196.83 221.31 189.29 168.87 133.0
Other Manufacturing Expenses 73.95 93.26 79.15 71.14 52.8
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Selling and Admin Expenses 119.66 114.37 146.84 148.63 125.5
Miscellaneous Expenses 26.31 20.09 21.95 21.45 12.1
Preoperative Exp Capitalised 0.00 0.00 0.00 0.00 0.0
Total Expenses 2,155.56 2,459.50 2,765.59 2,209.65 1,662.5
Mar '10 Mar '09 Mar '08 Mar '07 Mar '0
12 mths 12 mths 12 mths 12 mths 12 mth
Operating Profit 361.61 465.91 653.91 580.39 488.4
PBDIT 360.22 500.96 697.93 616.29 523.4
Interest 25.46 28.46 14.15 18.12 37.1
PBDT 334.76 472.50 683.78 598.17 486.3
Depreciation 116.96 119.73 110.52 109.57 88.5
Other Written Off 0.00 0.00 0.00 1.30 1.4
Profit Before Tax 217.80 352.77 573.26 487.30 396.3
Extra-ordinary items 2.09 0.91 2.99 9.88 50.2
PBT (Post Extra-ord Items) 219.89 353.68 576.25 497.18 446.5
Tax 96.05 126.19 203.37 170.72 151.8
Reported Net Profit 123.84 227.52 372.88 326.47 294.7
Total Value Addition 776.00 825.34 778.83 679.04 586.5
Preference Dividend 0.00 0.00 0.00 0.00 0.0
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Equity Dividend 50.51 50.51 66.05 66.05 62.2
Corporate Dividend Tax 8.39 8.58 11.23 11.23 8.7
Per share data (annualised)
Shares in issue (lakhs) 1,554.19 1,554.19 1,554.19 1,554.19 1,464.7
Earning Per Share (Rs) 7.97 14.64 23.99 21.01 20.1
Equity Dividend (%) 32.50 32.50 42.50 42.50 42.5
Book Value (Rs) 133.77 129.59 118.76 101.06 80.3
Source : Dion Global Solutions Limited
Explore GNFC connections
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Balance Sheet of SRF Pvt. Ltd. ------------------- in Rs. Cr. -------------------
Mar '10 Mar '09 Mar '08 Mar '07 Mar '0
12 mths 12 mths 12 mths 12 mths 12 mth
Sources Of Funds
Total Share Capital 155.42 155.44 155.44 155.44 146.4
Equity Share Capital 155.42 155.44 155.44 155.44 146.4
Share Application Money 0.00 0.00 0.00 0.00 0.0
Preference Share Capital 0.00 0.00 0.00 0.00 0.0
Reserves 1,923.63 1,858.68 1,690.26 1,415.19 1,030.8
Revaluation Reserves 0.00 0.00 0.00 0.00 0.0
Networth 2,079.05 2,014.12 1,845.70 1,570.63 1,177.2
Secured Loans 290.01 102.85 310.46 348.36 267.6
Unsecured Loans 265.05 253.05 3.05 3.22 4.7
Total Debt 555.06 355.90 313.51 351.58 272.3
Total Liabilities 2,634.11 2,370.02 2,159.21 1,922.21 1,449.6
Mar '10 Mar '09 Mar '08 Mar '07 Mar '0
12 mths 12 mths 12 mths 12 mths 12 mth
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Application Of Funds
Gross Block 3,084.25 3,028.00 2,750.53 2,677.29 2,137.8
Less: Accum. Depreciation 1,914.90 1,798.51 1,680.30 1,570.96 1,286.7
Net Block 1,169.35 1,229.49 1,070.23 1,106.33 851.1
Capital Work in Progress 1,029.80 419.67 259.21 28.75 48.6
Investments 89.51 332.63 330.44 148.50 218.2
Inventories 405.03 430.76 386.00 388.47 269.5
Sundry Debtors 16.68 288.72 389.68 605.28 430.1
Cash and Bank Balance 40.61 52.02 75.38 29.35 30.0
Total Current Assets 462.32 771.50 851.06 1,023.10 729.7
Loans and Advances 1,379.21 1,246.18 296.90 294.43 621.1
Fixed Deposits 282.78 3.40 76.04 101.13 25.0
Total CA, Loans & Advances 2,124.31 2,021.08 1,224.00 1,418.66 1,375.9
Deffered Credit 0.00 0.00 0.00 0.00 0.0
Current Liabilities 536.73 500.66 588.71 682.79 450.6
Provisions 1,242.15 1,132.19 135.95 97.24 594.5
Total CL & Provisions 1,778.88 1,632.85 724.66 780.03 1,045.1
Net Current Assets 345.43 388.23 499.34 638.63 330.7
Miscellaneous Expenses 0.00 0.00 0.00 0.00 0.9
Total Assets 2,634.09 2,370.02 2,159.22 1,922.21 1,449.6
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Contingent Liabilities 1,102.17 440.04 73.98 98.94 111.1
Book Value (Rs) 133.77 129.59 118.76 101.06 80.3
Source : Dion Global Solutions Limited
Explore GNFC connections
Particulars 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Opening Raw materials 2803.82 5279.61 5269.92 5774.87 6406.32
Closing Raw materials 5279.61 5269.92 5774.87 6406.32 10133.78
Raw materials consumption 77297.37 105123.23 123118.41 123605.5 124761.39
Opening Work in Process 1838.22 3007.29 580.18 3447.03 1968.82
Closing Work in Process 3007.29 580.18 3447.03 1968.82 252.00
Manufacturing expenses 116146.61 148964.9 177802.22 181360 177580.75
Opening Finished goods 4764.67 3937.86 13653.44 9411.58 11252.97
Closing Finished goods 3937.86 13653.44 9411.58 11252.97 3250.04
Purchase of Finished goods 24667.73 40212.52 65054.77 30641.17 6264.59
Distribution & other
expenses
12870.76 15313.18 17751.56 17427.51 23140.49
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Total Inventory Turnover
Particulars 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Cost of goods sold 183477.88 246727.93 308082.7 270857.57 249289.07
Average Inventory 26516.65 32902.2 38723.16 40837.75 41789.545
Sales 228133.38 295666.61 365344.17 306228.02 271277.75
Gross Profit 44655.5 48938.68 57621.47 35370.45 21988.68
Opening Inventory 26957.87 38846.52 38599.79 43075.71 40503.38
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Work in Process Turnover
Finished Goods Turnover
Particulars 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Sales 228133.38 295666.61 365344.17 306228.02 271277.75
Gross Profit 44655.5 48938.68 57621.47 35370.45 21988.68
Opening Finished Goods 4764.67 3937.86 13653.44 9411.58 11252.97
Closing Finished Goods 3937.86 13653.44 9411.58 11252.97 3250.04
Particulars 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Cost of Goods Sold 183477 88 246727 93 308082 7 270857 57 249289 07
Particulars 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Sales 228133.38 295666.61 365344.17 306228.02 271277.75
Gross Profit 44655.5 48938.68 57621.47 35370.45 21988.68
Opening Work in Process 1838.22 3007.29 580.18 3447.03 1968.82
Closing Work in Process 3007.29 580.18 3447.03 1968.82 252.00
Particulars 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Cost of goods sold 183477.88 246727.93 308082.7 270857.57 249289.07
Average Inventory 2422.75 1793.74 2013.6 2722.93 1110.41