Project Complete Azeez

KS & DL MYSORE SANDAL An ISO 9002-2001 certified company

PART-A

1. EXECUTIVE SUMMARY

This project entitled “The Inventory management and its control at KS&DL” has been

undertaken with the objective of knowing the functioning departments with its management as a

major focus and also techniques used to control inventories of the KS & DL.

The study was conducted in KS & DL Main branch [Bangalore] with the help of secondary data as

main source and primary data was collected by frequent discussion with KS & DL executives and

officials.

This study was conducted mainly on academic ground and hence. It is also suggests that this study

may be considered as a polite study for understanding a detailed project report in KS & DL.

Thus preliminary study will be considered as a successful effort if some of the research findings,

recommendation are proved to be useful to the organization

1. INDUSTRY PROFILE:

AIT COLLEGE. Inventory management & its control Page 1


Soap is one of the commodities which have become an indispensable part of the life of modern

world. Since it is non durable consumer goods, there is a large market for it. The Whole soap

industry is experiencing changes due to innumerable reasons such as government Relations

environment and energy problems increase in cost of raw material etc.

The changing technology and ever existing desire by the individual and the Organization to produce

a better product at a more economical rate has also acted as catalyst for the dynamic process of

change. More and more soap manufactures are trying to capture a commanding market share by

introducing new products. The soap industry in India faces a cut throat competition with

multinational companies dominate the market. They are also facing severe threat from dynamic and

enterprising new entrance especially during 1991-92.

If we look back into the history of soaps & detergents, mankind knew about soaps nearly 2000 years

back i.e. in 70 A.D. when Mr. Elder accidentally discovered the soap, when roasted meat over

flowed on the glow in ashes. This lump like product was soap & had foaming & cleansing character.

In 1192 A.D. the first commercial batch of soaps was made & marketed by M/s Bristol soap market

in London, from there in 1662A.D. the first patent for making soap was taken in London. The world

consumption of soap in 1884A.D. was said to be 2lakh tones p.a.

HISTORY OF THE SOAP

Soap manufacturing was started in North America. Some American companies with well

known names were started 200 years ago. During middle age soap was made at various places in

Italy, France, England & other countries. France became famous & many small factories were

established there.

In India the first soap industry was established by North West soap company in1897 at Meerat

following the swadeshi movement. From 1905 onwards few more factories were setup. They are,

Mysore soap factory at Bangalore

Godrej soap at Bombay

Bengal chemicals

Tata oil mills

1930 lever brothers company

THE INDIAN SOAP INDUSTRY SCENARIO

The Indian soap industry has long been dominated by hand full of companies such as:

1. Hindustan levers limited.



2. Tata oil mills (taken over by HLL)

3. Godrej soaps private limited.

The Indian soap industry continued to flourish very well until 1967-68, but began to

Stagnate & soon it started to recover & experienced a short upswing in 1974.

This increase in demand can be attributed due to;

1. Growth of population.

2. Income & consumption increase.

3. Increase in urbanization.

4. Growth in degree of personal hygiene.

Soap manufacture has 2 classifications, organized and unorganized sectors. KSDL comes

Under organized sector.

PRESENT STATUS

Market scenario: India is the ideal market for cleaning products. Hindustan liver, which towers over

the cleaning business, sells in all over the cleaning business but the tiniest of Indian settlement. The

7.4lakhs tons per annum soap market in India in crawling along at 4% The hope lies in raising Rupee

worth, the potential for which is high because the Indian soap market is pseudo in nature & it is

amazingly complex being segmented not only on the basis of price benefits, but even a range of

emotions within that outlining framework.

PROBLEMS OF SOAP INDUSTRY

Soap industry faces some problems in case of raw materials. The major ingredients are soap

ash, linear alkyl, benzene& sodium. Tripoli phosphate poses number of serious problems in terms of

availability. The demand supply gap for vegetable oil is 1.5 to 2 lakh tons & is met through imports.

In recent times, caustic soda and soap ashes in the cheaper varieties of soaps are quite high.

SLOGAN: “Natural products with exotic fragrance”.

COMPANY PROFILE



BACKGROUND & INCEPTION OF THE COMPANY

HISTORY OF KS&DL:

Karnataka soaps & Detergents Limited, a successor to the government soap factory, which is

one of the premier factories among the Indian soap industries. After World War 1, there was a slump

in the sandal wood export to the west. It dropped a blanket of gloom over business & trading in

India. The Maharaja of Mysore turned this threat in to an opportunity, by sowing the budding seeds

of KS & DL on the out skirts of Koti forest, near Bangalore in 1918.

The project took shape with the engineering skill and expertise of a top-level team with the

inspection of the Diwan of Mysore Late Sir. M. Visvesvaraya & with the service of scientists late Sir

S.G. Shastry, Professor Watson & Dr. Sub rough.

The entire credit goes to Sir. S.G.Shastry, who improved & made the process perfect of

Manufacturing of sandalwood oil & world famous Mysore Sandal Soap.

The factory was started a very small unit near K.R.Circle, Bangalore with the capacity of 100 tons

p.a in 1918. Then, the factory shifted its operations to Rajajinagar industrial area, Bangalore in July

1957. The plant occupies an area of 42 acres (covering soap, detergent & fatty acid divisions) on the

Bangalore-Pune Highway easily accessible by transport services and communication. In November

1918, the Mysore Sandal Soap was put in to the market after sincere effort & experiments were

undertaken to evolve a soap perfume blend using sandal wood oil as the main base to manufacture

toilet soap.

RENAMING OF COMPANY

On Oct 1st 1980, the Government Soap Factory was renamed as “KARNATAKA SOAPS

AND DETERGENTS LIMITED”. The company was registered as a Public Limited company.

Today the company produces varieties of products in toilet Soaps, Detergents, Agarbathis and

Talcum powder. KS&DL has been built up with rich tradition for the quality of its products. Mysore

Sandal Soap is the No: 1 anywhere in the world. The Karnataka state is the original home of the

Sandal oil, which uses Original perfume sandalwood in the manufacturing of Mysore Sandal Soaps.

It is also known as the “FRAGRANT AMBASSADOR OF INDIA”.

TRADEMARK OF MYSORE SANDAL SOAP

The “SHARABHA”



The carving on the cover is the ‘Sharabha’, the trademark of KS&DL. The Sharabha is a

mythological creation from the puranas and embodies the combined virtues of wisdom, courage &

strength, while it is illustrated in its unusual from the body of a lion with head of an elephant. It was

adopted as an official emblem of KS&DL to symbolize the philosophy of the company. The

Sharabha the symbolized power that removed imperfections & impurities. The Maharaja of Mysore

has his official emblem adopted it. And soon took its pride of place as the symbol of the government

Soap factory, of quality that reflects a standard of excellence of Karnataka Soaps & Detergents

Limited.

MILE STONES OF THE COMPANY:

1918 - Government Soap Factory was started by Maharaja of Mysore with the capacity of

112MTs/Annum near Cubbon part, Bangalore and the MYSORE SANDAL SOAP

was introduced into the market for the first time.

1932 - Toilet soap production capacity was enhanced to 750MTs/Annum.

1944 - The second Sandalwood Oil extraction plant was started in Shimoga.

1954 - Foundation stone was laid by Sir M. Visvesvaraya for establishment of new

manufacturing facilities at Rajajinagar, Industrial Suburb, Bangalore.

1957 - Factory was shifted from Cubbon Park to the new premises.

1965 - Started exporting its products to various Countries.

1967 - Celebrated its Golden Jubilee.

1970 - Production capacity was increased to 6000MTs/Annum, in a phase wise with

parallel modernization of various manufacturing equipments.

1974 - Mysore Sales International Limited was appointed as the sole selling agent for

marketing its products.

1975 - Synthetic Detergent plant for manufacture of Detergent cake and Detergent powder

was installed with Italian technology.

1980 - Government Soap Factory was converted into a Public Sector Enterprise and the

Company incorporated on 9th July 1980 and re-named as KARNATAKA SOAPS



& DETERGENTS LIMITED.

1981 - Fatty Acid unit was established to utilize Indigenously available minor seed oils as

the raw material for Soap manufacturing and to produce Glycerine and Stearic acid.

1984 - Expanded the production capacity with modern manufacturing facilities, which was

available at that time to produce 26000MTs/Annum of Toilet soaps with different

variants.

1987 - Company has taken over the marketing activities from M/s. MSIL and established

its own marketing network by opening seven Branches all over India.

1992 - Company has faced very stiff competition after liberalization in the Country from

different multi National Companies. Company was registered with the Board for

Industries and financial reconstruction (BFR) New Delhi, as the Company suffered

heavy losses.

1996 - The BIFR approved the rehabilitation package in September and Company has

taken stringent measures for the Cost control and improving the productivity and

sales. Company started making profits.

1999 - Company was certified with ISO 9001:1994 Certification by BSI for its effective

implementation of Quality Management Systems.

Company has launched MYSORE SANDAL GOLD- 125gms and MYSORE

SANDAL BABY-75gms in the premium segment.

2000 - Company was certified with ISO 14001 Certification by BSI for its effective

implementation Environmental Management System.

2003 - Company has wiped out entire carry forward losses of `.98.00 crores and come out

from BIFR.

Company has made profits continuously every year and it is the only State Public

Sector unit, which has come out of BIFR and making continuous profits in the State.

2004 - The ISO certification was upgraded to ISO 9001:2000.

2008 - Company has introduced Hand wash liquids under the trade name of Herbal Hand

wash and Rose Hand wash liquids. Company has also introduced liquid Detergent

under the trade name of KLEENOL liquid with different variants for Floor wash,

Dish wash and Automobile wash.

2009 - Company has established In-House state of the Art manufacturing facilities for

manufacture and filling of Mysore Sandal Talcum powder and Mysore Sandal Baby

powder. Company has re—introduced the Talcum powder variants with new



outlook of containers.

2010 - The ISO certification was upgraded to ISO 9001:2008.

VISION, MISSION AND QUALITY POLICY:

VISSION

• Keeping pace with globalization, global trends & the State’s policy for using

technology in every aspect of governance.

• Ensuring global presence of Mysore Sandal products while leveraging its unique

strengths to take advantage of the current Tech scenario by intelligent & selective

diversification.

• Secure all assistance & prime status from Government India all Tech alliances.

Further, ensure Karnataka’s pre-eminent status as a proponent & provider of Tech

services to the world, nation, & private sectors.

Karnataka Soaps & Detergents Limited has a clear Vision for all round development of the

Company. This is reflected in the form of a well conceptualized and cogent blue print called VISION

2013. The VISION 2013 sets the goals and milestones and suggests the strategies and plans

necessary to relies the Vision. The Vision of the KS&DL is embodied in the following statement:-

“KARNATAKA SOAPS & DETERGENTS LIMITED WILLLEVERAGE LATEST SOAP

MANUFACTURING TECHNOLOGY & INFORMATION.. TECHNOLOGY BY IMBIBING

PROFESSIONAL MANAGEMENT TECHNIQUES TO IMPROVE ITS FUNCTIONS

ACTIVITIES, TRANSPERENCY, BUSINESS AND TO TRANSFORM ITSELF INTO A

COMPETITOR IN THE FMCG MARKETIN INDIA & ALSO TO SPREAD ITS

FRAGRANCE IH THE FMCG GLOBAL MARKET”.

Mission Statement:

• To serve the National economy.

• To attain self-reliance.

• To promote purity & quality products

• To maintain the Brand loyalty of its customers.



• To build upon the reputation of Mysore sandal soap based on pure sandal oil.

Karnataka soaps & detergents limited shall strive to achive:-

Rs 235.00 Crores sales turnover during the year 2010-11.

Minimum 10% of savings of costs in various activities during the year 2010-11.

ISO 9002 QUALITY POLICY

KS&DL commits to “customer delight” through Total Quality Management & continues

improvement by involvement of all its employees.

ISO 14001 ENVIRONMENTAL POLICIES OF KS&DL

1. Is committed to preserve the natural environment in the production of its quality products to the

satisfaction of its customer

2. Will comply with all statutory & regulatory requirements pertaining to environment

Stipulated by both state & central authorities.

3. Would invite & implement action to reduce all impacts that are likely to be a source of

Concern to the environment.

4. Would strive & set an example in protection & promotion of an eco-friendly environment.

5. Is committed to prevent & minimize risks to the environment & conserve natural

resources by waging a war against wastes.

6. Will motivate every employee of the company in preserving the environment by

Providing appropriate training.

7. Will make available a copy of environment policy, under environment Management

system on a written request to its manager (Environment & Policy)

PRODUCT PROFILE

KS&DL is the true inheritor of golden legacy of India. Continuing the tradition of

excellence for over eight decades, using only the best East Indian grade Sandalwood oil &

Sandalwood soaps in the world. The products produced at KS&DL are the Soaps, Detergents,

Agarbathies and Sandalwood oil.

PRODUCT RANGE FROM THE HOUSE OF MYSORE SANDAL SOAP



DETERGENTS

KS&DL also manufactures high quality detergents applying the latest spray drying

technology with well balanced formulation of active matters & other builders; they provide the

ultimate washing powder

NAME OF THE PRODUCT UNITS IN GRAMS

Mysore detergent powder 1000

Mysore detergent powder 500

Mysore detergent Cake 125

Mysore detergent cake 250


NAME OF THE PRODUCT UNITS OF

GRAMS

Mysore Sandal Soap 75, 125

Mysore Sandal Classic Soap 75

Mysore Sandal Gold Soap 75, 125

Mysore Sandal Baby Soap 75

Mysore Special Sandal Soap 7 5

Mysore Rose Soap 100

Mysore Sandal Herbal Care

Soap

100, 125

Mysore Jasmine Soap 100

Wave Soap 100

Mysore lavender Soap 150

Mysore Sandal bath tablet 150

Mysore Sandal classic bath

tablet

150

Mysore Jasmine bath tablet 150

Mysore Special Sandal tablet 150

Mysore Sandal rose tablet 150


AGARBATHIS

NAME OF THE PRODUCT

Mysore Sandal Premium

Mysore Sandal Regular

Mysore Rose

Nagachampa

Suprabhatha

Mysore Jasmine

Parijata

Sir M.V.100

Bodhisattva

Venkateshwara

Durga

Ayyappa

Alif Laila

Meditation

TALCUM POWDERS

NAME OF THE PRODUCT UNITS IN GRAMS

Mysore Sandal Talc 20, 50, 100, 300

Mysore Sandal Baby Talc 100, 200, 400

NEW PRODUCT LAUNCHED

1. Wave Turmeric Soap.

2. Wave Hand Wash Liquid Soap.

3. Herbal Care Liquid Soap.

4. Agarbathies – Mysore Sandal 3 – in – 1.

AREA OF OPERATION



GLOBAL FAVOURITES FOR THEIR NATURAL GOODNESS KS&DL has a long tradition

of maintaining the highest quality standards, right from the

selection of raw materials to processing and packaging of the end product. The reason why its

products are much in demand globally & are exported regularly to UAE, Bahrain, /Saudi Arabia,

Kuwait, Qatar, South East Asian countries as well as North America & South America. The

sandalwood oil, of course, is much sought after by the leading perfume houses of the world. All the

toilet soaps of KS&DL are made from oils & fats of vegetable origin & totally free from animal fat.

OWNERSHIP PATTERN

“Wholly owned by Government of Karnataka.”

COMPETITORS INFORMATION AND THEIR MARKET SHARE

in soap Industries

NO. PARTICULARS PERCENTAGES

1. HLL [Hindustan Lever Ltd.] 64%

2. KS&DL 11%

3. Procter & Gamble 10%

4. Godrej soaps 4%

5. Wipro 4.6%

7 Others 6.4%

HLL [Hindu

stan Lever Ltd.]; 64%

KS&DL; 11%

Procter &

Gamble; 10%

Godrej soaps;

4%

Wipro; 5%

Others; 6%

Market Share

HLL [Hindustan Lever Ltd.]

KS&DL

Procter & Gamble Godrej soapsWipro Others

PRESENT STATUS

1. The company has entered into shampoo, dish wash, detergent bar & room refresher.

2. The company is striving to develop new perfumes for soaps detergents, agarbathies &

Shampoo.

2. The company wants to improve the existing products in terms of quality.

INFRASTRUCTURAL FACILITIES



1. Canteen facility

2. Library

3. Car stand

4. Waiting room

ACHIEVEMENTS / AWARD

1. Government of Karnataka Dept of Industries and commerce State Export Promotion

Advisory Board. “EXPORT AWARD” 1974-75

2. Detergent Plant M/s Chemical Bombay have given 1st price for the year 1980-81

3. Geographical Indication GI-2005

4. ISO 9001-2000 in the year 1999

5. ISO 14001-2004 in the year 2000

6. ICWA national award for excellence in cost management 2007

7. Export Award" for the year 2006-07 for Excellence in Exports Market.

8. “National Award for Excellence in Cost Management” & Good Performance for the year 2008.

9. “Chief Minister’s Rathna Award” for the year 2009-10.

WORK FLOW MODEL:



SILOS

(Silos are closed chambers)

Soaps Noodles

Container Mixer

Simplex Plodder

It becomes NOODLES

Milling

It becomes soap ribbons

Duplex plodder

Cutting Machine

Cakes are led to

Stamping Machine

Wrapping machine

Led through the conveyor belt

FUTURE GROWTH AND PROSPECTUS



1. With increase in disposable incomes, growth in rural demand is expected to increase because

consumers are moving up towards premium products. However, in the recent past there has not

been much change in the volume of premium soaps in proportion to economy soaps, because

increase in prices has led some consumers to look for cheaper substitutes.

2. Introduction of anti-bacteria, herbal transparent soap, made out of 33 essential oil based

perfume, Aloe Vera, Vitamin-E etc as additive and suitable for all types of skin and all seasons.

3. Improvement in existing products Mysore Sandal classic improved moisturizers & skin

conditions.

4. Introduction of sandalwood powder in 50gms, 100gms to meet the growing demand for

religious purpose.

5. Introduction of new higher powered detergent powder for institutional sales in bulk packaging.

6. To attain market leadership.

7. Introduction of new trade schemes to increase sales.

8. Aggressive advertisement and publicity as part of sales promotion.

9. Reduction in distribution expenses.

10. Cost-reduction in all areas.

11. Instant decision making in certain procurement activities.

12. Timely introduction and implementation of market driven decisions.

13. Ensuring effective internal control.

McKinsey’s 7S Framework:

According to Waterman, organization change is not simply a matter of structure,

although structure is significant variable in the management of change. Again it is also not a simple

relationship between strategy and structure, although strategy is also a critical aspect. In their view

effective organizational change may be understood to be a complex relationship between strategy,

structure, system, style, skills & shared values. The first three elements- strategy, structure &system

are considered the “hardware” of success. The next four – style skills, staff, and shared values are

called the “software”.



MCKINSEY’S 7S KSDL

This section describes the KSDL profile with reference to 7s of McKinsey namely-

The first 3 factors are referred to as hard while the latter 4 factors are called Soft S. It should

be noted that adherence to this model is not a prerequisite to success: rather it is an

interesting and useful method for evaluating an organization.

1. STRATEGY:

Strategy is about setting corporate goals, defining steps needed to achieve these goals

followed by systematic action and allocation of resources to achieve corporate goals.

STRATEGY AND ITS APPLICATION

The KSDL strategy has the following components: As the company is enjoying the

monopoly in using the pure natural sandalwood oil,in producing the products. and no other

company has such strategy like.

A government of Karnataka Undertaking company,

Having over 9 decades of experience

Involved in the extraction of sandalwood oil

KS&DL have a definite niche in the soap market.

Gifted by the Maharaja of Mysore.

2. STRUCTURE:

It refers to the organization structure and authority/responsibility relationships Organization

structure

STRUCTURE OF ORGANISATION:



A. BASIS OF DEPARTMENTATION

KS&DL is a manufacturing concern of moderately large size. We can see here functions wise

departmentation. It facilitates effective utilization of manpower and resources and it is a simple,

economical and reasonable organization pattern.

B. LEVELS OF ORGANISATION

The organization of KS&DL consists of 4 levels, they are

TOP LEVEL consisting of BOD’s and M.D

SECOND LEVEL consisting of Directors of Finance and Special officers

THIRD LEVEL consisting of senior managers, deputy managers and officers.

FOURTH LEVEL consisting of clerks, Assistants and Attendees.

C .ORGANIZATION CHART OF KS&DL

KS&DL is Functional type of organization. Under this type of organization men with

special abilities in a specialized function are employed. The hierarchy is represented as follows.





3. SYSTEMS:

It refers to Procedures such as information system, manufacturing processes,

budgeting and control processes. Thus are the procedures, processes and competitive

advantages present within the organization

SYSTEMS AND ITS APPLICATION

KSDL has several components in their systems which are explained below:

Public relations: KSDL has a dedicated manpower that deals with image building by

using the production plant with different varitie.

Quality Policy: Constant up gradation of Technical machinery A sophisticated plant was

rebuilt in collaboration with M/S Ballestra of Milan, Italy in 1986 to Develop Human

resources Capabilities and Empowerment are ways to achieve all the objectives.

KSDL has a long-standing tradition of maintaining the highest quality standards right from

the selection of raw materials to processing and packaging of the end product.

4. STYLE:

With in the framework of 7s model style refers to patterns of actions, the way

management behaves and collectively spends its time to achieve organizational goals.

STYLE AND ITS APPLICATION

Developing people: KSDL believes and works to develop the organization by

developing its people, whom it considers as invaluable assets.

Empowerment and autonomy to employees after putting right man in the right job is

KSDL’s way of maintaining and developing highly motivated human resources to achieve

professional competence and to ensure career development of its work force.

5. STAFF:

It refers to the quality of people in the enterprise and their socialization into the

organizational culture. Traditionally staff is treated in not of the two ways. Firstly, there will



be appraisal systems, pay scales and formal training, Secondly, the employee morale,

attitude, motivation and behavior are considered.

STAFF AND ITS APPLICATION

KSDL has several advantages relating to staff.

KSDL has a dedicated work force of 863 professionals, which share the vision of the

KSDL.

Training and Development is a continuous process at KSDL, which has been

intensified to tune the staff to the organizational environment requirements. It also Hire the

qualified technicians and professionals to carry out the project at economical rate.

6. SHARED VALUES [SUPER ORDINTE GOALS]:

Shared values include the core values which are the essential guiding principles and

doctrines and core purpose which encompass the company’s business goals, how it strives to

achieve the, the values it will uphold.

It is the values hared by the members of an organization.

SHARED VALUES AND ITS APPLICATION

The KSDL’s Shared values variables have the following

KSDL’s MISSION AND CORPORATE OBJECTIVES:

To promote purity & quality products

To maintain the Brand loyalty of its customers.

To build upon the reputation of Mysore sandal soap based on pure sandal oil.

Constant up gradation of production plants and System, Developing Human Resources Capabilities

and Empowerment are ways to achieve these objectives.

KSDL has a long-standing tradition of maintaining the highest quality standards right from the

selection of raw materials to processing and packaging of the end product.

7. SKILLS:

It includes the distinctive capabilities and the dominant attributes of the enterprise, which

distinguishes it from its competitors.

SKILLS AND ITS APPLICATION

Friendly and knowledgeable staff: High quality knowledgeable employees at KSDL ensure

continuous focused operations, seeking the best service to customer.



Experience: KSDL has a dedicated and experience staff that are competitive in Production

experience of KSDL in the SOAPS production sector since 1916 is a dominant distinguishing

attribute it leverages for growth.

SWOT ANALYSIS:

STRENGTHS

Only soap in India that contains pure sandal and almond oil.

The factory is located in the heart of the city & has all infrastructure facilities. They require

quick movement of raw materials & finished products. Due to its Proximity, habitation

movement of men and material are easy.

The company has brand loyalty of consumers and has 90% of sandal soap market, foreign

technology to suit indigenous condition due to government participation, little financial crisis

with backup from government.

An ISO 9002 certified company has its own brand image.

An ISO 14001 company, which commits to reserve the natural environment in the production

of its quality products to the satisfaction of its customers.

Diversified product range keeps the company stable.

Two sandalwood oil factories in Shimoga and Mysore, which produce 75% of world’s

sandalwood oil.

WEAKNESS:

Slow growth rate 6.2 growths over 40 years against the product of 80%.

Power intensive: dependent on power may miscarriage here results in under utilization of

capacity.

High labor oriented cause due to excessive labor force.

Defective marketing strategy lacks effective advertising and publicity.

Needs updating with times in terms of plant and machinery.

The large proportion of the target area is upper middle class and upper class people, it

has very few offer to lower middle class.

OPPORTUNITIES

Existence of vast market and huge demand

Traditional benefits that sandal is good for skin.



Government support large production capacity.

Good export market can tap foreign market vigorously.

At present it has Good raw material sources to enhance production.

THREATS:

Competition from other global leaders like HLL.

Government interference may reduce growth potential.

As the company depends on forests for its main raw materials makes the company to find

chemical alternative to sandalwood.

Summary of the latest annual report of the company

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2009 & 10

PARTICULARS SCHEDULE AMT FOR THE YEAR

ENDING 31-3-2010

AMT FOR THE YEAR

ENDING 31-3-2009

INCOME

Sales

Less: excise duty.

Net sales

Other income L

1,789,059,796

141,285,059

1,647,774,737

22,288,309

1,693,919,368

160,215,837

1,533,703,531

60,623,797



Increase /decrease in stock M 53,286,174 70,374,213

1,723,349,221 1,664,701,541

Expenditure

Materials consumed

Other expenditure

Depreciation

N

O

D

775,383,439

799,799,905

4,982,474

801,928,343

734,442,910

3,969,038

1,580,165,818 1,540,340,291

Operating profit/loss 143,183,402 124,361,250

Interest & finance charges. P 8,297,546 7,276,261

PROFIT / LOSS BEFORE TAX

Provision for tax

Current tax

Fringe benefit tax

Deferred tax asset

Dividend tax.

134,885,857

48,000,000

---

8,930,375

2,704,0833

117,084,988

18,500,000

2,128,828

20,358,318

---

PROFIT /LOSS AFTER TAX

Prior period expenditure.

Proposed dividend

Q

93,112,149

1,441,082

15,911,050

116,814,479

14,078,609

---

75,760,017 130,893,088

Profit / brought forward from previous

year.

267,719,129 136,826,041

Profit /carried to balance sheet 343,479,146 267,719,129



BALANCE SHEET AS AT 31ST MARCH 2009 & 10

S

c

n

o

Amount as on 31-03-2010 Amount as on 31-03-2009

1 2 3

Rs.

4

Rs.

5

Rs.

6

Rs.

7

Rs.

8

Rs.

Sources of fund.

1. Share holder fund.

A)share capital

b)reserve surplus

c) Exchange

fluctuation ratio.

A

318,221,000

343,479,146

318,221,000

267,719,129

1,769,358

2.loan funds:

a)secured loan

b)unsecured loan

Total

B

C

80,092,400

83,506,504 163,598,904

825,299,050

107,204,608

83,506,504 190,711,112

778,420,599

APPLICATION OF

FUNDS.

1. Fixed assets.

A) Gross block.

Less: depreciation

b) net block

D

327,262,896

241,431,939

85,830,957

309,623,620

239,847,860

69,775,760

2.Investments E 100 100

3.Deferred tax asset 61,435,241 52,504,866



4.current assets:

Loans& advances

a)inventories

b)s.debtors

c)cash& bank bal

d)loan& advances

e)invst in gratuity

test.

less: c liability&

provisions.

i)liabilities

ii)provisions

net current asset.

F

G

H

I

K

517,605,839

172,641,760

285,359,727

213,953,267

50,000,000

292,361,773

269,166,068

1,239,560,593

561,527,841

678,032,752

407,452,487

163,529,618

255,132,910

215,257,572

50,000,000,0

0

246,650,794

204,956,560

1,091,372,5

87.

451,607,354

639,766,233

Miscellaneous exp

Total

J 16,374,640

Total 825,299,050 778,420,599

Sales of different class of goods

Class of Goods 2009-10 (Rs in lakhs) 2008-09 (Rs in lakhs)

Soaps 15332,06 14808.29

Detergents 940,79 914.96

Sandal oil 73,43 28.37

Agriculture 762,88 588.88

Talcum powder 347,25 262.61

Others 434,16 336.08

Total 17890.59 16939.19

Total turnover of 5years & profit before & after tax

Years Turnover Profit before Tax Profit after Tax

2005-06 11,092.11 236.79 178.79

2006-07 11,958.03 433.57 358.56

2007-08 14,552.85 1179.35 1203.86

2008-09 16,939.19 1170.85 1168.14

2009-10 17,890,59 1348,85 931,112



LEARNING EXPERIENCE:

The learning experience gained by me during the in-plant training was very much

practical oriented. Mostly all the concepts and theories, which is studied in the class. The overall

study of the organization reveals that the company has grown tremendously since its incorporation

from 1918, now it has independent units for manufacturing sandalwood oils, toilet soaps, washing

soaps, detergents, cosmetics and incense sticks. Its initially named Government Soap Factory was

renamed as Karnataka Soaps and Detergents Ltd in 1st October 1980.

Its trademark is “Sharabha”, the slogan stands as “Natural products with exotic fragrance”. The

company is a leading sandalwood soap Manufacturer in the country. Even though they have demand

for their products in both domestic as well as international market, They are not able to establish

themselves as market leaders due to various reasons such as Extensive work force, non-utilization of

installed capacities of manufacturing, lack of proper distribution network, lack of expenditure in the

areas of advertisements and publicity, competitions of various soaps and detergents and lack of

timely decisions.

The company has an effective human resources department where in the employees are given

excellent packages, incentives and extensive care is taken by providing facilities such as canteen,

medical facilities, and extracurricular activities. As it gives insights into the working environment of

an organization. The training has exposed to many facts of an organization and also helped to gain

practical knowledge, which will go a long way in the horizon of our career. It helps to know more

aware of the soap industry and the role played by KSDL.

Structure: got to know how decisions are communicated, the flow of decision process. The way in

which departments are classifieds on the basis of their functioning. The functions of each

departments and its relevance. The way in which the departments are inter-linked and coordinated.

Overall the learning experience was quite good which enabled to experience a slice of the industry.



PART-B

INTRODUCTION

In recent decades businessmen have shown an increasing awareness of the need for precision in

the field of inventory control. In the past, inventories were considered as indication of wealth, even

inventories greatly in excess of the amount needed to carry on the process of production and

distribution were considered beneficial.

Since the advent of modern industries, wealth has become more and more identified with

money. An increased emphasis on the liquidity has led businessman to hold cash and securities in

preference to inventories although the later have an inherent convertibility not possessed by the other

categories. These have been made a strong tendency towards holding the means for purchase of

goods rather than the goods themselves. Large inventories are now viewed with alarm, where as in

former times no one would ever have doubted that such were beneficial.

Every enterprises needs inventory for smooth running its activities. It serves as a link

between production and distribution processes. There is generally, a time lag between the

reorganization of a need and its fulfillment. The greater the time-lag, the higher the requirement for

inventory. The unforeseen fluctuations in demand and supply of goods also necessitate for inventory.

It also provides a cushion for future price fluctuations.

The investments in inventories constitute the most significant part of current assets/working

capital in most of the undertakings. Thus, it is very essential to have proper control and management

of inventories. The purpose of inventory control & its management is to ensure availability of

materials in sufficient quantity as and when required and also to minimize investment in inventories.

BACKGROUND OF THE STUDY

Inventory in general meaning ‘stock of goods, or a list of goods’. The word ‘Inventory’ is

understood differently by various authors. In accounting language it may mean finished goods only.

In a manufacturing concern, it may include raw materials, work in process and stores, etc. To

understand the exact meaning of the word ‘inventory’ we may study it from the usage side or from

the ‘side point of entry’ in the operations. Inventory includes the following things

Raw materials

Work In Progress

Finished goods

Consumable stores and spares



A. RAW MATERIALS:-

They are the inputs of the final products. They are purchased by the firm from others and are

used in the production for converting into finished components. The quantity of raw materials

required will be determined by the rate of consumption and the time required for replenishing the

supplies. The factors like the availability of raw materials and government regulations, etc. too affect

the stock of raw materials.

B. WORK IN PROGRESS:-

This refers to the goods lying in the manufacturing process. They are normally partially

finished or semi-finished goods that are at various stages of production in a multi-stage production

process. The raw materials enter the process of manufacture but they are yet to attain a final shape of

finished goods. The quantum of work-in-process depends upon the time taken in the manufacturing

process. The greater the time taken in manufacturing, the more will be the amount of work-in-

process.

C. FINISHED GOODS:-

These are the final or completed products which are ready for sale. The stocks of finished

goods provide a buffer between production and market. The purpose of maintaining inventory is to

ensure proper supply of goods to customer. In some concerns the production is undertaken on order

basis, in these concerns there will not be a need for finished goods.

The need of finished goods inventory will be more when production is undertaken in general

without waiting for specific order. Work in production, while stock of finished goods is required for

smooth marketing operation. Thus inventory serve as a link between production and consumption.

D. CONSUMABLE STORES AND SPARES:-

These are the goods held for consumption by machines in a manufacturing concern. They

include spare parts, lubricants, cleaning materials, oil, cotton waste etc. They don’t enter into the

final product but they are required for maintaining and running the machines for production purpose.

The levels of the above four kinds of inventories differ depending upon the nature of the

business. For example-A manufacturing firm will have all the four kinds of inventories. But a retailer

or wholesaler will have a high level of inventories of finished goods but they will have no



inventories of raw-materials, spares, maintenance supplies and stores and goods in progress. Further

depending upon the nature of the business, inventories may be durable or non-durable, valuable or

inexpensive, perishable or non-perishable etc.

MEANING AND DEFINITION OF INVENTORY: -

The term ‘Inventory’ refers to the stock of raw-materials, spare parts and finished products held

by a business firm. It is the aggregate quantity of material resources and goods that are idle at a given

point of time. The resources may be of any type; for example men, materials, machinery, money,

when the resources involved in materials or goods in any stage of completion, inventory referred to

as stock. Hence inventory refers to the ‘Stock’ that a business firm keeps to meet its future

requirement of production and sales. Several authors have defined the term Inventory. The most

popular of them are,” The term Inventory includes, Raw materials, Work In Progress, finished

packaging spares and other stock in order to meet an unexpected demand or distribution in the

future.”

“In short inventory means stock of materials or goods held by a concern to meet its future

requirements of production and sale.”

IMPORTANCE OF INVENTORY:-

Inventory constitutes the largest component of current assets in many organizations. Poor

management of inventories therefore may result in business failures. A stock out creates an

unpleasant situation for the organization in case of a manufacturing organization could, in

extreme cases, bring production process to a half, conversely, if a firm carries excessive

Inventories the added carrying cost may represent the difference between profit and loss.

Efficient inventory control therefore, can significantly contribute to the overall profit-position of the

organizations.

PURPOSE/ BENEFITS OF HOLDING INVENTORY:-

Every business enterprise has to maintain a certain level of inventories to facilitate

uninterrupted production and smooth running of business. These are three main purpose or motives

of holding inventories. They are as under

Transaction motives: emphasis’s the need to maintain inventories to facilitate smooth

production and sales operation, which facilitates continuous production and timely execution

of sales order.


ANTICIPATIONINVENTORY

FLUCTUATING INVENTORY

LOT-SIZE INVENTORY

MOVEMENT INVENTORY

PRODUCTION INVENTORY

IN-PROCESS INVENTORY

M.R.O. INVENTORY

FINISHED GOODS INVENTORY


Precautionary motive: which necessitates holding of inventories to guard against the risk of

unpredictable changes in demand and supply forces and other factors?

Speculative motive: which influences the decision to increase or reduce inventory levels to

take advantage of price fluctuation savings in re-ordering costs and quantity discounts, etc?

TYPES OF INVENTORIES:-

1.

Anticipation Inventory:-

Such inventories are carried to meet predictable changes in demand. In case of seasonal

variations in the availability of some raw materials; it is convenient and also economical to build up

stocks where consumption pattern may be reasonably uniform.

2. Fluctuating Inventory:-

Demand fluctuates overtime and it is not possible to predict it accurately. Business firms

maintain reserve stocks to meet unexpected demand and thereby to avoid risk of losing sales. These

safety stocks are known as fluctuating inventory. There is a time gap between production and use of

certain products. The goods produced in one season are held in stock for sale and used throughout

the year.

3. Lot-Sizes Inventory: - In order to keep costs of buying receipts, inspection, transport and

handling charges low, large quantity are bought for immediate need. It is a common practice to buy

some raw materials in large quantities in order to avail quantity of discounts.

4. Movement or Transit Inventory:- Raw materials and finished goods move from one place to

another. Some amount of inventory is always in transit. Longer the transportation period, greater is

the amount of transport and inventories. The average amount can be determined mathematically:

I=S *T

Where, S = the average rate of sales (weekly average)

T = transit time required to move from one stage to another in a week

I = the movement of inventory needed

5. Production Inventory:-



Raw materials and other parts and components which enter into the product during the

production process and generally form part of the product are called Production inventories.

6. In-Process Inventory:-

Semi-finished Work In Progress and partly finished products formed at various stages of

production are In-Process inventories.

7. M.R.O. Inventory:-

These inventories are maintenance repairs and operating supplies, which are consumed

during the production process and generally, do not form part of the product itself. E.g.: - Oils and

Lubricants, Machinery and Plants, etc.

8. Finished Goods Inventory:-

Completed finished products ready for sale are finished goods inventories.

Major Dangers of Over-Investments in Inventory:-

Block of firm’s funds in Inventory

Excessive carrying costs

Risk of Liquidity

The excessive level of inventories consumes the funds of the firm and cannot be used for any

other purpose. The carrying cost such as the cost of storage, handling, insurance, recording

and inspection also increases in proportion to the volume of inventory. Excessive inventories

carried for a long period brings down the liquidity of the firm.

Problem of Inadequate Inventories:-

1. Inadequate raw materials and work in progress will result in stoppage of production.

2. If the finished goods inventories are insufficient to meet the demands of the customers, they may

shift to other competitors which will amount to a permanent loss to the firm.

An effective inventory management should avoid both these extreme situations namely, over

Investment and under investment in inventories.

MEANING OF INVENTORY MANAGEMENT:-

Inventory management covers a much wider field. The inventory management is concerned

with the entire range of functions with effect to the flow, conservation and utilization, the quality and

the costs of materials. It is that aspect which is concerned with the activities involved in the

acquisition and storage of all materials directly and indirectly employed in the production of the

finished products. These activities include material planning, programming functions such as

customer service requirements, etc. Viewed in that perspective, Inventory management is broad in

scope and affects a great number of activities in the organization. Because of these numbers, inter



relationship inventory management stresses the need for integrated information flow and decision

making as it relates to inventory policies and overall systems.

Inventory control on the other hand is defined in a narrow sense than inventory management and

pertains primarily to the administration of established policies, systems and procedures. For example,

the actual steps taken to maintain the stock levels or stock records refer to inventory control.

FACTORS INFLUENCING INVENTORY MANAGEMENT AND CONTROL:-

Several factors influence inventory management and control. The principal effects of these

factors are reflected mostly strongly in the levels of inventory and the degree of control planned in

the inventory control system. The factors include, type of product, type of manufacture, volume of

output and others.

TYPE OF PRODUCT:-

Among the factors influencing inventory management and control, the Type of product is

fundamental. If the material used in the manufacture of the product has a high value, when

purchased. If the material used in the product is in a short supply or is auctioned by the government,

this may influence the purchase of this material and stock maintained.

The manufacture of standard products as compared to custom-made items still influence

inventories as materials needed to manufacture a standard product is easy to obtain and a close

control on the stock is not necessary whereas materials required to produce made-to-order items need

strict control to ensure that no item is lost in the process of manufacture. Such materials and tools are

of special and expensive nature and loss of any small part will hold up the production.

TYPE OF MANUFACTURE:-

Besides type of product, ‘Type of manufacture’ also influences inventory management and

control where, continuous manufacture employed at the rate of production is the key factor. Here

inventory control is of major importance and in reality controls the production of the product. The

economic advantage in this type of manufacture is the uninterrupted operation of the machines and

assembly lines in the plant.

VOLUME:-

The Volume of product to be made as represented by the rate of production may have little

effect on the complexity of the inventory problems. Literally, millions of bases for light bulbs are

manufactured even involving the control of only two principal items of raw materials. On the other

hand, the manufacture of large locomotives involves the planning and control of thousands of items

in inventory. Both the inventory problem and the difficulty of controlling production increases with

the number of component parts of the product and not with the quantity of products to be made.



1.8 BENEFITS OF INVENTORY MANAGEMENT AND CONTROL:-

Proper management and control of inventories will result in the following benefits for the

organization:-

Inventory control ensures an adequate supply of materials, stores, etc., minimizes stock-out

and shortages and avoids costly interruptions in the operations.

It keeps down investment in inventories, inventory carrying costs and obsolescence losses to

the minimum.

It facilitates economical purchasing through the measurement of requirement on the basis of

recorded experience.

It eliminates duplication in ordering or in replenishing stocks by centralizing the sources from

which purchase requisitions emanate.

It permits a better utilization of avoidable stocks by facilitating inter-department transfers

within a company.

It provides a check against the loss of materials through carelessness or pilferage.

It facilitates cost allotting activities by producing a means for allocating material cost to

production department or other operating accounts.

It enables management to make cost and consumption comparison between operations and

periods.

It serves as a means for identifying and disposal of inactive and obsolete items of stores.

Perpetual inventory values provide consistent and reliable basis for preparing financial

statements.

PROCESS OF INVENTORY MANAGEMENT AND CONTROL:-

As mentioned earlier, inventory management and control refers to the planning for optimum

quantities of materials at all stages in the production cycle and evoking technique, which would

ensure the availability of planned inventories.

Four steps are involved in the process. They are:-

1. Determination of optimum inventory levels and procedures of this review and adjustments.

2. Determination of degree of control that is required for the best results.

3. Planning and design of the inventory control system.

4. Planning of the inventory control organization.

1. Optimum Inventory Levels:-

Determination of inventory that an organization should hold is a, significant but difficult task.

Too much of inventory results in locking up of working capital accompanied by increased carrying



costs. Excess inventories however, guarantee uninterrupted supply of materials and components, to

meet customers’ demand.

2. Degree of Control:-

The second aspect of inventory management is to decide just how much control is needed to

realize the objectives of inventory management. The difficulty is best overcome by classification of

inventory on the bases of value popularly called ABC, VED, FSN analysis and other methods are

useful in deciding the degree of control. More importance should be given also for items of high

consumption.

3. Planning and Design of the Inventory System:-

Inventory system provides the organizational structure and the operating policies for

maintaining and controlling goods to be inventoried. The system is responsible for ordering and

receipt of goods ,tinning the order placement and keeping track of what has been ordered, how much

and from whom, further the system must provide follow up to enable the system of answering of

question as, has the vendor received the order? Has it been shipped? Are the hems correct? Are the

procedures established for re-ordering or returning undesirable merchandise?

4. Organizational Arrangement:-

The last aspect of inventory management and control is to determine an organization

structure to handle inventory. Organizationally speaking inventory control function is assigned to

materials management or production planning and control.

Attaching inventory control to material management activity is feasible in organizations were

integrated material management is in practice. There is strong justification for such an arrangement

as inventory control is part of material activity and all material functions must be integrated into one

group.

Assigning inventory control function to production planning and control however has

advantages. Production planning and control department will be in a better position to plan its

production schedule with the knowledge of inventory under its control. Besides, the production

planning and control department will be able to issue timely requisitions for replenishment of stocks

used in the production operation. And logically speaking it is the production department, which is the

user of inventories, and the same department must be held responsible for controlling them.

Inventory Control Technique Tools:-

Inventory control techniques are employed by the inventory control organization. Inventory

control techniques represent the operational aspect of inventory management and help realize the

objectives of inventory management & control several techniques of inventory control are in use and

it depends on the convenience of the firm to adopt any of the techniques. What should be stressed



however is the need to cover all items of inventory & all stages from the stage of receipt from

suppliers to the stage of their use.

Inventory Control Techniques:-

A. ABC classification

B. HML classification

C. VED classification

D. SDE classification

E. FSN classification

F. Level Setting

G. Two Bin System

H. Material Requirement planning

I. Physical verification of Stock

J. Just-In-Time (JIT) technique

A. ABC (Always Better Control) classification:-

One of the widely used techniques for control of inventories is ABC analysis. The objectives

of ABC control is to vary the expenses associated with maintaining appropriate control according to

the potential savings associated with a proper level of such control.

ABC analysis consists of the classification of materials into categories, A, B & C on the basis

of their value. Items of high value and comparatively less in number are included in ‘A’ category.

Generally, they constitute about 70% of the total value and about 15% of the total number. Items of

low value and large in number are included in ‘C’ category.

Generally, they account for about 70% of the total value and about 60% of the total number. Items of

moderate value and moderate in number are included in ‘B’ category. They account for about 20%of

the total value and 25% of the total number.

Items of ‘A’ category are subject to strict control with regard to purchase, storage and use.

Items of ‘B’ category are not subject to much control. The objective of this analysis is to reduce the

investment of inventory, the cost of inventory control and also loss of inventory.

B. HML (High Medium and Low) classification:-



The HML classification follows the same procedure as adopted in ABC classification. Only

difference is that in HML classification, the unit value is the criterion and not the consumption value.

The items of inventory should be listed in descending order of unit value and it is up to the

management to fix limits for the three categories.

Ex:-The management may decide that, the units with unit value of Rs.2,500 and above will be

‘H’ items, Rs.1000 to Rs.2500 ‘M’ items and less than Rs.1000 ‘L’ items.

The HML analysis is useful for keeping control over consumption at departmental levels, for

deciding frequency of physical verification and for controlling purchases.

C.VED (Vital Essential and Desirable) classification:-

While in ABC classification, inventories are classified on the basis of their consumption

value and in HML analysis, unit value is the basis; criticality of inventories is the basis for VED

categorization. The VED analysis is done to determine the criticality of an item and its effect on

production and other services. It is specially used for classification of spare parts. If a part is vital, it

is given ‘V’ classification, if it is essential, then it is given ‘E’ classification and if it is not so

essential, then it is given ‘D’ classification. For ‘V’ items, a large stock of inventory is generally

maintained, while for ‘D’ items, minimum stock is enough.

D.SDE (Scarce Difficult and Easy) classification:-

The SDE analysis is based upon the availability of items and is very useful in the context of

scarcity of supply. In this analysis, ‘S’ refers to Scarce items, generally imported, and those which

are in short supply. ‘D’ refers to difficult to obtain items, which are available indigenously but are

difficult to produce. Items which have come from distant places or if reliable suppliers are difficult to

come by, fall in ‘D’ category. ‘E’ refers to items which are easy to acquire and which are available in

the local markets.

The SED classification based on problem faced in procurement is vital to lead time analysis

and in deciding on purchasing strategies.

E.FSN (Fast-moving Slow-moving and Non-moving) classification:-

FSN stands for Fast-moving, Slow-moving and Non-moving goods. Here, classification is

based on the pattern of issue from stores and useful in controlling obsolescence. To carry out FSN

analysis, the date of receipt or the last date of issue whichever is later, is taken to determine the



number of months which have moved since the last transaction. The items are usually grouped in

period of 12 months.

FSN analysis is helpful in identifying cut-off items which need to be moved regularly and

surplus items which have to be examined further. Non-moving items may be examined further and

their disposal can be considered.

F. Level Setting:-

It involves setting-up of inventory levels such as, Maximum level, Minimum level, Re-order

level, Danger level, Average stock level. The above levels are calculated when a store-keeper places

an indent for fresh stock and also to avoid over-stocking of any material. At the same time to ensure

follow-up to sufficient materials to production process. The main purpose of fixing the levels is to

control the investment on inventories.

1. Minimum level:-

a. This is the limit below which the stock should not be allowed to fall. It is fixed on the

basis of average consumption and average lead-time required for measuring the item.

The main purpose of fixing this level is to ensure adequate check for continuous

production and sales.

Minimum level=Re-Order Level (ROL)-(Normal consumption * Normal Re-Order Period)

2. Maximum level:-

a. This is the limit or level beyond which the stock of an item should not exceed. This

level is fixed for avoiding over-stocking of materials and its associated risks.

Maximum level=Re-Order Quantity (ROQ)-(Minimum consumption * Minimum order

period)

3. Re-Order level:-

a. It is the point fixed between maximum and minimum level at which the storekeeper

has to initiate action to obtain fresh supplies of materials.

b. This point will usually be slightly higher than the minimum stock to cover such

emergencies as abnormal usage or unexpected delay in supply. Re-Ordering level

depends on lead time, rate of consumption and economic order quantity.

Reorder level=Maximum consumption*Maximum reorder period.

4. Danger level:-

a. It is the level below the minimum level. When the stock reaches this danger level,

urgent purchase action is necessary. As the normal lead-time is not available, it is



necessary to resort to unorthodox purchase procedure resulting in higher purchase

cost.

b. Danger level=Minimum consumption*Emergency reorder period.

5. Average stock level:-

It is the stock level between the Minimum level and Maximum level of stock.

Avg. Stock level=Maximum level + Minimum level

2

G. Economic Order Quantity (EOQ):-

It can be described as the basis for how much to buy. It is the oldest and most widely known

inventory model. It dates back to 1915. The purpose of using EOQ model is to find that particular

quantity of order with minimum total inventory costs. EOQ is the technique which solves the

problem of the materials manager. EOQ is the order size at which the total cost, comprising ordering

cost and carrying cost, is the least. EOQ will be fixed at a level where the total of ordering cost will

be minimum.

EOQ can be calculated by a mathematical formula:-

EOQ = √ 2AO

C

Where, A = annual consumption of units

O = ordering cost per order

C = carrying cost per unit per annum

H. Two-Bin System:-

It is mainly adapted to control ‘O’ group inventories. In the Two-bin system, stock of each

item is separated into two bins. One bin contains stock to last till the date of placing a new order. The

other bin contains a certain quantity of stock that will be sufficient to satisfy probable demand during

the period of replenishment stock first issued from the 1st bin. When the 1st bin is empty, an order of

replenishment is made and the stock in the 2nd bin is utilized until the order material is received.

I. Just-In-Time (JIT):-

The concept JIT means that, virtually no inventories are held at any stage of production and

the exact numbers of units are brought to each successive stages of production at the right time. It is

also called, ‘Zero inventories’. The concept JIT was started in the ‘Motto Machi’ plant of Toyota

Corporation, Japan, where the system has been perfected and results achieved. The plant has a long

line of Trucks waiting outside with full load of automobile parts for the assembly line. As soon as



one truck comes out from one end of the plant, another truck gets inside. There is no warehouse for

the parts. In India, the Maruti Udyog Ltd. has adopted JIT.

J. Bin Cards and Stores Ledger:-

a) Bin card :-

Bin is a place, rack or cupboard where materials are stored. Each bin has a card to show the

position of the stock in the bin. It is known as ‘Bin Card’. It has bin number, materials issue,

materials requisition numbers, balance of stock and remarks.

The bin card thus indicates ready stock position of an item at any moment. Entries are made

usually by stores personnel.

b) Stores Ledger :-

Stores ledger contains the same columns which a bin card has but, in addition the, the amount

of columns for pricing receipts and issues of materials are provided. Stores ledger shows at any time,

the value on band. The ledger is maintained in stores as well as cost office to provide a crosscheck on

the stores personnel. Entries in the stores ledger are supported by goods received note, materials

requisition, etc.

Inventory Valuation:-

Many methods of material costing and inventory valuation have come into use among the

more common methods of costing material and valuing inventories are:

1. First In First Out Method [FIFO]

Here the earliest acquired stock is assumed to be used first. The stock is assumed to use

first. The stock, which is bought, first is issued first. In other words the principle is that the

materials are issued in this order and at the price of their original purchase.

This method is claimed to be accurate for the reasons that the material are charged into

production at actual cost in the order of receipt. The closing inventories are valued at the most

recent prices. If the closing inventory balance includes material at several different prices, the

problem of considerable clerical work is involved.

This method assumes that the order in which materials are received in the stores is the order

in which material are issued from the stores. Hence the material which is issued first is priced on

the basis of the cost of material received earliest, soon and so forth

The advantage of this method

The pricing of material is perhaps consistent with the practice of issuing oldest material first

followed in many manufacturing organization.



The value of material in stock is fairly close to current cost.

The disadvantage of this method

The issue of material at different prices complicates stores accounting.

Comparisons of job costs become difficult when similar jobs may be charged with different

prices for the same materials.

In a period of rising prices, the charge of production is low. The tends to inflate reported

profile, increase tax burden and push up dividends as a consequence the firm is sapped

financially.

2. Last in first out method [LIFO]

This method is opposite of the FIFO method. It assumes that the material, which is acquired,

last is issued first. Hence material issues are priced on the basis of the cost of the recent

purchases.

The advantage with this method is

The cost of production reflects the current cost of material better.

In the period of rising prices, reported profits are depressed is conserved.

The disadvantage with this method is

The issue of material at different prices complicates store account.

Pricing of material is not consistent with the material first.

Comparison of job becomes when similar jobs may be for the same material at

different price

3. Weighted cost average method

Under this method issues are priced at the weighted average cost of material in stock [the

weight being proportional to quantities.].To get an up to date weighted average cost figures, a

new weighted average cost is calculated each time delivery is received.

Advantages of this method are

It leads to smooth out price fluctuations.

It provides a fairly acceptable figure for stock value.

The limitation of this method may be medium involved in calculating the weighted average cost each

time a new delivery is obtained.

4. Standard Price [Cost] Method:-

Under this method a standard price is predetermined when materials are purchased the

stock account is debited with the standard price. The difference between the actual price and

standard price is carried to a variance account. Material issued is charged as per standard price.



Advantage of this method

All material issue price identically. The possibility of jobs using the same material

being charged with different costs, a problem with the FIFO or LIFO method does

not exists.

Stock accounting is fairly amplified. There is no need for specific price attribute to

specific issue of materials.

Disadvantage of this method

Determining the standard price may be somewhat difficult; particularly when price

tend to increase somewhat unpredictable are characters by wide fluctuation.

The issue of how variance should be treated may be thorny.

5. Current price method:-

According to this method issue are priced replacements or realizable price at their time of issue.

Advantage of this method

It is easy to calculate the price at which the issues are to be made.

A particular purchase at a higher or lower rate does not disturb the price to a great

extent because in the price it is averaged out.

Simplicity is the greatest advantage of this method.

Disadvantage of this method

Material cost does not represent actual cost price.

When prices fluctuate considerably, this method will give very incorrect result.

This method does not give regard to quantities of material held at each price.

Financial Managers Role in Inventory Management

For a majority of the companies, the inventory represents a substantial investment. The

inventory program is part of the planning budget, which often falls within the financial area. As

management becomes increasingly aware of the necessity of inventory control, ultimate

responsibility is placed more and more in the hand of the financial manager who is playing an

increasingly important role in determine the nature of control involved exercised the methods of

balancing the relative cost involved and measurement of performance of inventory control. He may

be having supervisory authority in this area or he may be a member of policy committee with board

responsibilities. In smaller firm, he often participates even more directly in the management of

inventories.

Though the corporate financial officer may not be directly concerned with inventory policies the

inventory policies have a direct and important bearing on the financial need of the firm. The financial



officer can do good job of anticipating change in the need for funds if he thoroughly understands the

implication of changing inventory policies where financier are a LIMITING factor.

Good Inventory Management is Good Financial Management

The greater the opportunity cost of funds invested in inventory the greater the incentive to reduce

the lead time required receiving inventory once an order is placed. The greater the efficiency with

which the firm manages its inventory, the lower the required investment in inventory. Inventories

should be under constant review.

The financial office should pay attention to the following aspects in inventory management:

Action taken against imbalance of raw materials and goods in process inventory that may

limit the utility of stock that item which is in short supply. Here one appreciate the common

saying that the strength of its weakness link.

The full safety against shortage of inventory has a prohibitive cost. There should, however be

reasonable procurement lead-time assumption and safety stock level.

Production schedule, as far as possible, should be firmly adhered for reducing inventory of

raw material and work in progress goods. In case of changes of production schedules,

purchasing department should set early notification.

There should b an efficient system to dispose of goods that are obsolescence, surplus or

unusable for production.

Continuous efforts have been to be made to shorten the production cycle. The longer

production run should be worth the cost and rich of the extra inventory investment.

Literature review

From process selection to supplier selection: a case study about an accessory purchasing department

exploring JIT and/or VMI process collaboration with their suppliers.

University essay from Högskolan i Jonkoping/Internationally Handelshögskolan; Högskolan i

Jonkoping/Internationella Handelshögskolan



Author: Mette Eisensö; Liselott Dahl; [2007] Abstract: For many retailers, manufacturers, and

wholesalers, inventory is their single largest investments of corporate assets. Problems such as stock-

outs and bullwhip effect due to sales fluctuation and poor visibility are normal for manufactures.

Unnecessary activities, in the purchasing process internally and externally, such as double order

handling, cost both money and time. It is widely known that firms no longer can compete effectively

in isolation of their suppliers and other entities. The future success of many businesses depends on

co-operation and the co-ordination of efforts; making Supply Chain Management important. JIT and

VMI are two of the philosophies that have been used to update supply chain relationships and

management. By recognising your own supply weaknesses, the need for a supply strategy and a

purchasing portfolio which classify suppliers emerges.

There is an interest in examining what possible benefits and drawbacks, JIT and VMI collaboration

can bring and how they differ from each other. In order to have a successful collaboration and

implementation, it is important to know what basis to choose suppliers on and understand what needs

to be in place, internally and externally, before starting either a JIT or VMI relationship with

different suppliers.

An inductive method was used in order to transform the literature review into a case study research.

Explanatory and exploratory strategy was combined as well as qualitative and quantitative data

collection such as oral interviews and written questionnaires. The case study was carried out at an

accessory purchasing department at a large production company referred to as the “Focal company”

in this thesis. Also, participating in the study were selected suppliers of the Focal company.

The literature review and the case study data was analyzed which led to the results that:

• JIT and VMI can shorten lead time, improve quality and relationships if used properly, otherwise it

can lead to increased inventory levels.

• Key factors for enabling JIT and VMI are common goals, management commitment, accurate

information and suitable software systems.

• Suitable suppliers for JIT and VMI are companies that have equal dependency and/or have

interdependency and are willing and able to contribute to the competitive advantage of the buying

firm.



• Supplier selection criteria are price, quality, delivery, flexibility, reliability organizational culture,

structure and strategy.

• Implementation of JIT is not an option today at the Focal company.

. With a few IT-system updates, a little bit of education and training the Focal company and most of

the suppliers in this study are ready for VMI.

• Because of the good balance of power and dependence in the relationships between the Focal

company and their suppliers there is a good chance of a successful outcome.

• The Focal company’s rating criteria are well correlating with the literatures findings, which further

support that they are ready to select suppliers for integrated relationships.

RESEARCH DESIGN OF THE STUDY

INTRODUCTUON

Inventory management involves the control of assets being produced for the sale in the normal

course of the company’s operation. Inventories can be used to refer to the stock on hand at a



particular time of raw material. Goods in process of manufacture and finished goods. The goal of

effective inventory management is to minimize the total cost, direct & indirect that is associated with

holding inventories. However the importance of inventory management to the company depends

upon the investment in inventory.

STATEMENT OF PROBLEM

Every business firm big or small has to maintain inventory and it constitute an integral part of the

working capital. It has been estimated that inventory in Indian industries constitute a significant

portion of current asset inventories require a significant investment not only to acquire them but also

hold them investment in inventory is said to be idle but it is unavoidable in any organization

manufacturing or trading so inventory cost has become necessary.

OBJECTIVES

1. To study the effectiveness of inventory management over the past years by conducting ratio

analysis, inventory performance indication by analyzing the data using tables.

2. To study the inventory management as it exists in KS&DL.

3. To find suggestion for improving the efficiency in inventory management.

SCOPE OF THE STUDY

1. The prime importance of the study is to analysis the maintenance and control of inventory.

How goods are classified and codified in KS&DL

2. The study attempts to find out the existing techniques used in KS&DL maintain efficient

transportation including the function of supplying and receiving.

3. The study attempts to find out the consumption of material in production process.

METHODOLOGY:-

The data of study was collected with the help of interviews and discussion with reference

of records maintained in the stores and material department.

Primary data:-The primary data are to be collected through the records maintained by the

firm.

Secondary data:-Are to be collected from company’s annual reports, journal books and

websites.

Location of the Study

The study was done at Karnataka Soaps & Detergents ltd. Bangalore



TOOLS OF ANALYSIS

The tools and techniques were used for the study. Are different types of ratios belonging to different

groups are calculated and the trend of each ratio over the years is worked out graphs are drawn for a

better understanding of concepts and theories.

REFERENCE PERIOD:-

A period of 5 years will be taken into consideration for conducting this study.

Limitations of the study

As we have no access to other records of the company except annual report, the interpretation

of records is not complete.

Since the company doesn’t follow a particular recognized technique of inventory control,

practical understanding of inventory control techniques is not possible.

Due to the busy schedule of the executives, data was collected mainly from the secondary

sources. However, sufficient primary data was also available.

The balance sheet ratios cannot be fully relied upon as the balance sheet shows the financial

position as on a particular date.

Difference in definitions of basic concepts renders the comparison incomplete. Hence ratio

values might vary significantly.

Usually the ratios are calculated upon the past financial statements which are no indicators of

future

Data Analysis and Interpretation

1.1 GROWTH OF INVENTORY

Inventory means stock of goods. It covers the stock of raw materials, stores and spares, work in

progress and finished goods.

Table No. 1.1



Table showing the progressive base year percentage growth of inventory for this

2005-06 inventories is treated as Base year

period 2009-10 Rs. in Crores

year Inventory Growth of inventory

2005-06 34.1214 17.835

2006-07 35.0855 18.339

2007-08 29.6012 15.472

2008-09 40.7452 21.297

2009-10 51.7605 27.055

Percentage growth of total inventory = Inventory x 100

Total Inventory

2005-06 2006-07 2007-08 2008-09 2009-100.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

17.83% 18.34%15.47%

21.30%

27.06%

Inventory growth

Inventory growth

ANALYSIS

The above table shows the percentage growth of total inventory. Year 2005-06 is taken a base

year. 17.835%during the year of 2005-06, the increase of inventory in the year 2006-07 is

18.339%, in the year 2007-08 there is a decrease of inventory percentage to 15.472%, in the year

2008-09 the inventory percentage is increased to 21.297%, in the current year the inventory

percentage increase to 27.055%.



INTERPRETATION

The position of inventory & its percentage were decreasing in the year 2007-08. The percentage of

inventory decrease in the year 2007-08 is due to decrease in production. In the year 2008-09 the

percentage of inventory growth is increased & its huge increase in the current year.

PERCENTAGE OF INVENTORY TO WORKING CAPITAL

Working capital is the amount of funds used in current operation of business, working

capital need not be in cash, and it can be in form of asset that can be converted into cash within

one year.

Working capital = Current assets - Current liabilities

Table No. 1.2

Table showing the Percentage of Inventory to Working Capital for the period 2006-10

Rs. in Crores

Years Inventory Working capital Percentage

2005-06 34.12 43.12 79.13

2006-07 35.08 40.80 85.98

2007-08 29.60 43.62 67.86

2008-09 40.74 63.98 63.68

2009-10 51.76 67.80 76.34

PERCENTAGE OF INVENTORY TO WORKING CAPITAL = Inventory x 100

Working Capital

As per standard or idle inventory to working capital, the inventory should not observe more than

75% of working capital.

GRAPH NO 1.2



2005-06 2006-07 2007-08 2008-09 2009-100

20406080

10079.13 85.98

67.86 63.6876.34

percentage

percentage

year.

percentage

ANALYSIS

From the above table shows the percentage of inventory to working capital, year 2005-06 is

79.13 in 2006-07, 85.98 and in 2007-08, 67.86 in 2008-09, 63.68 and in current year its 76.34

its not under control as of standard is 75%

INTERPRETATION

Inventory to working capital which helps to measure the short term solvency of a company, in the year

2007-08 & 2008-09 inventory working capital is sufficient but in the year 2005-06 , 2006-07,& 2009-10

it is above the 75%. This shows it is not good situation of the company. This may be due to much of

inventories is locked up in working capital .

PERCENTAGE OF INVENTORY IN CURRENT ASSETS

Inventory generally means stock of good involved in current assets. Current asset are those

assets which change their form and substances and which are converted into cash during the

normal operating cycle of business.

Table No. 1.3

Table showing the Percentage of Inventory in Current Assets for the period 2006-10

Rs. in Crores

Years Inventory Current assets Percentage

2005-06 34.1214 70.0225 48.73



2006-07 35.0855 81.6621 42.96

2007-08 29.6012 91.1689 32.47

2008-09 40.7452 109.1372 37.33

2009-10 51.7605 123.956 41.75

PERCENTAGE OF INVENTORY TO CURRENT ASSETS = Inventory x 100

Current Assets

Graph.No.1.3

Chart showing the percentage of inventories in current assets for the period 2006-10

2005-06

2006-07

2007-08

2008-09

2009-10

0

10

20

30

40

50

6048.73

42.96

32.4737.33

41.75

percentage

percentage

ANALYSIS

The above table shows the percentage of inventory in current assets for year 2006-10 the 48.73%

in 2005-06 and it is in decreasing from year to year, 42.96% in 2006-07 and thereafter it

decreases to 32.47% in 2007-08, and it increase to 37.33% in 2008-09, & now increased to 41.75

% in 2009-10.

INTERPRETATION

It shows the amount of inventory in 2005-06 there was an increase in inventories, where as in the

succeeding year there is decrease in inventories & in the year 2008-09 there is a increase & in current

year also its increase compare to the previous year.



INVENTORY TURN OVER RATIO OR STOCK TURN OVER RATIO

It indicates the number of times the stock is turned over (sold) during the year. It is a ratio

between net sales and average inventory

Table No. 1.4

Table showing the percentage of Inventory Turnover Ratio for the period 2006-10

Rs. In Crores

Inventory Turnover Ratio = Net Sales

Average Inventory

Graph. No 1.4

2005-06 2006-

07 2007-08 2008-

09 2009-10

00.5

11.5

22.5

33.5

44.5

2.89 2.97

4.343.76

3.18

Inventory turn over ratio.

turnover times

ANALYSIS

The above table shows the inventory turnover ratio. Year 2005-06 is taken as base year 2.89

times. In 2006-07 2.97 times, in 2007-08 4.34 and there is decrease in times for 1 year. In 2008-

09, 3.76 times and there is decrease in turnover time compared to year 2007-08 & once again

reduced to 3.18 times in the current year


Years Net sales Avg. inventory Turnover times

2005-06 98.8111 34.1214 2.89

2006-07 104.4374 35.0855 2.97

2007-08 128.6462 29.6012 4.34

2008-09 153.3703 40.7452 3.76

2009-10 164.7774 51.7605 3.18


INTERPRETATION

The inventory turnover ratio is increasing over the year. In the year2007-08 there is improvement in

control over inventories than the previous year. But there is a decrease to 3.76 in the year 2008-09 &

in the current year it decrease to 3.18 times.

STORES AND SPARES TURN OVER RATIO

It is the value of stores and spares inventory consumed during the year.

Average stores and spares =

(Opening stock of stores and spares + closing stock of stores and spares)

2

Table No. 1.5

Table showing the turnover of the Stores and Spares Inventory for the period 2006-10

Rs in cores

Stores and Spares Turnover Ratio = Annual Consumption of Stores & Spares

Average Stores & Spares

Graph No. 1.5


Years Value of stores and

spares consumption

Average stores

and spares

Turn over times

2005-06 1.9076 1.5259 1.25

2006-07 2.0274 1.9675 1.03

2007-08 1.0313 1.5294 0.67

2008-09 0.8691 0.9502 0.92

2009-10 1.3257 1.0974 1.20


2005-06 2006-07 2007-08 2008-09 2009-100

0.2

0.4

0.6

0.8

1

1.2

1.4 1.25

1.03

0.670000000000013

0.92

1.2

TURNOVERTIMES

TURNOVERTIMES

ANALYSIS

The above table shows the stores & spares turnover ratio. Year 2005-06 is taken as the base year 1.25

times. It is decrease to 1.03times in 2006-07, in 2007-08 it decrease to 0.67 times , In the year 2008-09

it increase to 0.92 times & in current year it increase to 1.2 times.

INTERPRETATION

Stores & spares turnover ratio is increasing from the year 2008-09 it shows there is a sufficient

managing in the stores& spares inventory. & the company should maintain this for a long time.

INVENTORY CONVERSION PEROID

This represents the number of days of which inventories remain before they are issued for

production.

Table No. 1.6

Table showing the Inventory turnover Conversion in number of days

For the period 2005-09

Years No. of Days

in a year

Inventory Turnover

Ratio

No. of

Days

2005-06 365 2.89 126

2006-07 365 2.97 123

2007-08 365 4.34 84

2008-09 365 3.76 97

2009-10 365 3.18 115



Inventory Conversion period = Days in a year

Inventory Turnover Ratio

Graph no.1.6

2005-06

2006-07

2007-08

2008-09

2009-10

0 20 40 60 80 100 120 140

126

123

84

97

115

inventory conversion period.

no of days

The above table shows the inventory conversion period. Year 2005-06 is taken as base year 126

days. In 2006-07, 123 days. In 2007-08, 84 days. In 2008-09, 97 days and in 2009-10 its 115

days.

INTERPRETATION

The inventory conversion period shows the decreasing trend in the year 2007-08 & the base year 2005-

06 it is good for the inventory management.

RAW MATERIAL Turnover Ratio

This represents the number of times the Raw material inventory turned over during

a year. It indicates the firms efficiency in manufacturing its product.

Raw materials turn Over Ratio = Net Sales

Average Raw materials

Table No. 1.7



Table showing the Raw Materials Turnover Ratio

Years Net Sales Average raw materials Ratios

2005-06 98.8111 9.8576 10.02

2006-07 104.4374 8.2450 12.66

2007-08 128.6462 5.3810 23.90

2008-09 153.3703 6.5946 23.26

2009-10 164.774 11.8806 13.869

Average Raw Materials = Opening Stock Raw Materials + closing stock raw materials

2

Graph no 1.7

2005-06 2006-07 2007-08 2008-09 2009-100

5

10

15

20

25

10.02 12.66

23.9 23.26

13.869

Raw material turn over ratio

ANALYSIS

The above table shows the duration of raw materials turnover ratio. The year 2005-06 is taken as the

base year the 10.02 times in the 2005-06,12.66 times in the year 2006-07, 23.90 time in the year 2007-

08, 23.26 times in the year 2008-09, & 13.869 times in the current year.

INTERPRETATION

The raw material turnover ratio shows the increasing trend in the year 2007-08 which is doubled

compared to the base year. But in the 2008-09 & in the current year it decreasing .it shows the slow

movement of raw materials.

Duration of raw materials conversion period.



This represents the number of days for which raw materials remain in inventory before they are

issued for production.

Raw Materials Consumed per Day = Average Raw Materials X Turnover Times of

Raw Materials

365

Table No. 1.8

Table showing the Duration of Raw Materials Conversion period for the period 2004-09

Rs. in Crores

Years Average Raw

Materials

R.M Consumed

per Day

No. of

Days

2005-06 9.8576 0.1005 98

2006-07 8.2450 0.1389 59

2007-08 5.3810 0.1483 36

2008-09 6.5946 0.1660 40

2009-10 11.8806 0.4514 26

Duration of Raw Materials = Average Stock of Raw Materials

Avg. R.M consumed per Day

Graph no.1.8

2005-06

2006-07

2007-08

2008-09

2009-10

0 10 20 30 40 50 60 70 80 90 100

98

59

36

40

26

no of days

no of days



ANALYSIS:-

The above table shows the raw materials conversion period. The 2005-06 is taken as the base year 98

days. 59days in the year 2006-07, 36 days in the year 2007-08, 40 days in the year 2008-09, & in the

current year 26 days.

INTERPRETATION:-

The raw materials conversion period is in the decreasing trend from the base year to year 2007-08,but

in the year 2008-09 it slightly increased , in the current year again it decreased to 36 days. so the raw

material conversion period is in decreasing trend which is the good sign of inventory management.

.

WORK IN PROGRESS Inventory Turnover ratio

This indicates the number of times the work in progress inventory turned over(related to sales)

during the year. It tells the firms efficiency in manufacturing & selling its product.

Work in progress inventory turnover ratio = Net Sales

Average W.I.P

Table No.1.9

Table showing Work in Progress turnover ratio for the period 2006-10

Years Net Sales Average Work in

Progress

Turnover ratio

2005-06 98.8111 1.3724 71.99

2006-07 104.4374 1.1757 88.83

2007-08 128.6462 1.2929 99.50

2008-09 153.3703 2.3630 64.90

2009-10 164.7774 3.3441 49.27

Average W.I.P =Opening W.I.P + Closing W.I.P

2

Graph no1.9



2005-06

2006-07

2007-08

2008-09

2009-10

020406080

100

71.9988.83 99.5

64.9 49.27

0

WIP turn over ratio

WIP turn over ratio

ANALYSIS

The above table shows the ratio of work in progress. Year 2005-06 is taken as base year,

71.99 times. In 2006-07, 88.83 times, In 2007-08, 99.5 times, In 2008-09, 964.9 times in 2009-10

its 49.27 times.

INTERPRETATION

The WIP ratio is increased till the year 2007-08. But in the year 2008-09 & in the current year its

decreasing. It shows the company is not succeeding in control of work in progress in inventory.

FINISHED GOODS TURNOVER RATIO:

This represents the number of times the finished goods inventory turn over sales during a year.

This ratio indicates the efficiency of the firm in selling its products

Table No. 1.10



Table showing Finished Goods Turnover ratio for the period 2005-09

Finished Goods Turnover ratio = Net sales

Average Finished Goods Inventory

Graph No.1.10

2005-06 2006-07 2007-08 2008-09 2009-1001234567

3.73 4.49 5.33 6.07 5.4

fineshed goods turn over ratio

turn over ratio

ANALYSIS

The above table shows the duration of finished turnover ratio. Year 2005-06 is taken as

base year 3.73 times, in 2006-07, 4.49 times, in 2007-08, 5.33 times. & in 2008-09, 6.07 times &

in current year its 5.4 times it is increase compare to base year.

INTERPRETATION

The duration of finished goods turnover ratio is good and it is more than when compare to

base year so it tells the efficiency of the firm in selling its product till the year 2008-09 but

compare to previous year ratio the current year ratio is decrease to 5.4.


Years Net Sales Average finish goods Turnover ratio

2005-06 98.8111 26.4933 3.73

2006-07 104.4374 23.2151 4.49

2007-08 128.6462 24.1400 5.33

2008-09 153.3703 25.2652 6.07

2009-10 164.7774 30.4672 5.40


TOOLS AND TECHNIQUE OF INVENTORY MANGEMENT AND ITS CONTROL

USED BY KARNATAKA SOAP AND DETERGENT LTD

Effective Inventory Management requires an effective control system of inventory .A

proper inventory control not only helps in solving problem but also increasing the profit.

The following are the tools and technique of inventory management and control used

KS&DL

1. Determination of stock levels: An efficient inventory management requires that a firm

should maintain an optimum level of inventory where inventory costs are minimum and

at the same there is no stock out which may result in loss of sale or stoppage of

production, various stock levels are discuss as such,

a) Minimum level: This represent the quantity which must be maintained in hand at

all times. If stock is less than the minimum level then the work will stop due to

shortage of materials

Minimum Stock Level = Re-ordering - (Normal Consumption X Normal Reorder Point)

1. Maximum level: It is the quantity of materials beyond which a firm should not exceed its stocks.

If the quantity exceed maximum level limit then it will be over stocking. A firm should avoid over

stocking because it results in high material cost.

Maximum Stock Level = Re-ordering Level – Reordering Qty (Minimum Consumption X

Minimum Reordering Period)

2. Lead time: A purchasing firm requires some time to process the order and time is also

requires by the supplying firm to execute the order. The time taken is processing the order

and then executing it is known as Lead Time.

3. Rate of consumption: It is the average consumption of material in the factory.

Item wise Inventory Level in days in Karnataka Soaps & Detergents Ltd



Sl.

No.

Name of the

Material

Services

Inventory Level in Days

Oil & Fats Minimum

Stock

Maximu

m Stock

Lead

Time

Remarks

1. Palm fats acid

distillate

60 120 90 -

2. Palm Kernel

fatty distillate

60 120 90 Single

Source

3. Rice Bran Oil 15 30 15 Single

Source

4. Soap Nobles 60 120 90 -

5. Palm fatty acid

distillate soap

nobles

60 90 30 Seasonal

6. Imported

Aromatic Oil

60 90 30 Seasonal

Sl. No. Name of the Material

Services


Perfumery Material Minimum

Stock

Maximum

Stock

Lead

Tim

e

Remarks

1. ABBALIDE/Alpha

damaslone

30 45 30 -

2. ACETY long felon 30 45 30 -

3. Ally corporate 30 30 30 -

4. Almond oil 30 30 30 -

5. Camphor 30 30 30 -

6. Benzyl Propionale 30 45 30 -

7. Clove Leaf Oil 60 90 60 Single Source

8. Stem on 30 45 30 Single Source



Sl. No. Name of the

Material Services


Chemical Minimu

m Stock

Maximum

Stock

Lead

Time

Remarks

1. AB Red oil 30 45 30 -

2. Acid Slurry 30 45 30 -

3. Bull color pase 30 45 30 -

4. CMCCarbolic

methyolicelluses

60 120 30 Seasonal

5. Calicle/Dolomite 60 120 30 Seasonal

6. Common Salt 60 120 30 Seasonal

7. Glycerin 30 30 30 -

8. Liquid Paraffin 30 30 30 -

9. Oil Dark Brown 30 45 30 -

10. Oil Green 30 45 30 -

DETERMINE SAFETY OF STOCK

SAFETY STOCK:- The usages of inventory cannot be perfectly forecasted if fluctuation once 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. In order to protect stock

out, arising out of fluctuations, firms usually maintain some margin of safety or safety stocks are

maintained.

SAFETY STOCK MAINTAINED IN KS&DL FOR DIFFERENT STORES


Sl. No. Name of the Materials Inventory Level in Days

Oil & Fats Safety Stocks

1. Rice Bran Oil 30

2. Soap Nooble 90

3. Palm Kernel Fatty Distillate 90


SELECTION OF PROPER ORDERING PURCHASE PROCEDURE

FOR INVESTMENT IN KS&DL

1. Purchase planning.

2. Purchase procedure.

3. Purchase guidelines/General guidelines to control the inventory of raw material.

1. Purchase planning: - It is an important function. If purchase of material is not carefully

planned it will lead to piling unnecessary stock, which will increase the working capital.

The purchase department has to first set the target dates when the material should be

kept for production. With these target dates the purchase planning department has to work

backwards and calculate, when the material should be ordered, which is nothing but

calculation of lead time.

The basic steps for preparing purchase planning are the production and provision

program, revenue, capital expenditure, budgeting and sales order.

2. Purchase procedure:-

The following are the steps undergone for purchase of material.

The user department/ production department raises on indent to material department.

Production department provides the detailed information regarding the requisition of

materials.

The material department prepares the bill of material with the information regarding the

requisition of materials. The different types of material i.e., oil and fats material,

chemicals material, engineering material etc, quantity, quality required is specified in this

note called Bill of Material.

The material department forwards the bill of materials to the stores department.


Sl. No. Name of the Materials Inventory Level in Days

Packing Materials Safety Stocks

1. Cellophane Paper 45

2. MRS Wrapper 30

3. Adhesive Gum 30


The store department after considering the stock level in the stores and the bill of material

prepares a statement of material required for production department. This statement is

known as Revised Requisition Note.

Even after this, the purchase negotiation committee considering 5 members like Quality

Control Department, Accounts Department, Material Department and Stock Department

will decide the requisition of material.

After this step the Material Department will send an enquiry letter of material to their

suppliers or they will call by the way of open tender with in the presence of representative

like Store Manager, Material Manager and Finance Manager. This supplier would register

in KSDL and quoted price will be announced.

The Material Department prepares comparative statement of rate by considering with

their terms and conditions. Based on this statement make a list of price lower1,

lower2 and lower3 among this they check existing one suppliers if any new suppliers.

Suppliers send the required material to Stores Department based on quotation.

The stores department receives the material based on purchase order and raises goods

received report and goods received note, which signed by competitive authorities.

The stores department sends the material for inspection/verification which is done by Quality

Control Department and also Production Department should certify the material.

The Stores Department sends G.R.N to Accounts Department for payment of bill made for

materials.

The accounts department after verifying the note and stock received release the payment

GENERAL GUIDE LINES GIVEN BY KSDL TO CONTROL OF RAW MATERIAL

Marketing department has to give annual budgetary production plan to the production

department 2 months in advance.

Production department has to prepare and send the annual bill of material.

Material department has to send the tentative bill of material to the Stores department to

plan for procurement.

Material department after following the KTPP Act (Karnataka Transport Purchase

Procedure) action to be taken for procurement.

Stores department has to give final bill of material after scrutinizing the closing stock

during the weeks/months.

After following the procurement procedures the inventory should be monitored as per the

norms indicated in Annexure.



Material department and Stores department has to closely monitor the closing stock at

stores and plan for the procurement.

In case of any urgency demand/changes for any product by the Marketing department,

the requirement of material to be discussed in purchase negotiation committee and the

recommendation of the P.N.C to be sent for approval of the competent authority.

Critical items like dyes and color has to be procured twice in a year to maintain

consistency in color.

Procurement of material like PFAD, PKFAD soap, nobles, sandal wood oil, caustic soda,

acid slurry will depend upon the price advantage, storage facility and the management

decision.

The quality of materials to be purchased depending upon the minimum order quantities which

will be decided by P.N.C.

ABC ANALYSIS USED IN KSDL

ALWAYS BETTER CONTROL

All inventory items are categorized as ‘A’, ‘B’ & ‘C’ items. The total consumption of item

materials for the previous years will be arranged in descending order and items according by the

values the first 10, 00,000 and above of total consumption are taken as ‘A’ class items. The items

accounting for above 2, 00,000 and above within 10, 00,000 value of total consumption are taken

as ‘B’ class items. The items accounting for below 2, 00,000 value of total consumption are taken

as ‘C’ class items.

Strict control for commitment, receipt and consumption would be exercised on ‘A’ category

items. The purchase budget for the budget year will be complied in detail for ‘A’ category items

and under major groups for ‘B’ and ‘C’ category. The internal audit department conduct their

visit strictly attempt once in a year for an items once in two to three year for B & C items

respectively.

Advantages of ABC

This approach helps the material manager to exercise selective control and focus his

attention only on few items.

By concentrative on ‘A’ class items the material manager is able to control inventories

and show visible results in a short spare of time.

It reduces the clerical cost and resulted in better planning and improved inventory.



Disadvantages of ABC

As ABC analysis is based on grades of different items, this gradation may include a lot of

subjective elements.

The result of ABC analysis should be received and updated which is not easy.

KARNATAKA SOAPS AND DETERGENTS LTD FOLLOWS THE ABC ANALYSIS

TECHNIQUE OF INVENTORY MANAGEMENT.

ABC Analysis (Always Better Control) segregated on the basis of value in Rs.

A Class Items B Class Items C Class Items

Consumption worth Rs.

10,00,000 & above p.a.

Consumption worth Rs.

2,00,000 & below

10,00,000 p.a.

Consumption worth

below Rs.2,00,000 p.a.

Palms, fatty acid distillate Solvents Camphor

Soap nobles Items other than solvents Benzyl propionale

Imported aromatic chemicals Almond oil Common salt

Indigenous items AB Red oil Liquid paraffin

Rice bran acid oil Blue color paper Glycerin

Clove leaf oil Oil dark brown White clay

Stemon Oil green White oil

Acid slurry Soda ash Sandal wood oil bottle

Silicon Water soluble yellow MS gold pouches

Cellophane paper Tactaric acid Wrappers

CLASSIFICATION AND CODIFICATION OF INVENTORIES IN KS&DL

Classification of Inventory is done on group wise and codifications are directly identified.

The inventories of a manufacturing concern may consist of raw materials, stores & spares; work

in process, finished goods etc. The inventories are classified according to their nature/group.

VALUATION OF INVENTORIES IN KS&DL

Weighted average method is used in this factory the total cost of all the materials is divided

by the total number of items in stock. The price calculated in this way will be used for issue of



materials up to the time a fresh purchase has not been made. After a fresh purchase, the quality

will be added to the earlier balance quality and material cost will be added to the earlier cost. A

fresh price is calculated by the number of units of stock after the purchase.

SUMMARY OF FINDINGS, SUGGESTIONS AND CONCLISION

Based on the study “Inventory Management and its Control” conducted at Karnataka Soaps and

Detergents limited, Bangalore, following are the

Findings

A material planning is done based on orders obtained from different customers. The material

requirement plan processed is to give exact requirements of material to be produced.

All material is stored in right condition at respective locations and the company has items

which are slow moving and non-moving, which are disposed off at regular intervals.

Verification of high value material in holding store is conducted in accordance with

predetermined programmers.

Vendors are rated based on their performance with respect to deliver a quantity price

standard.

The received materials are inspected as per standard plan is finished products are tested on

100% basis material is released and handled properly.

The inventory turnover ratio of the company is showing a decrease trend from previous year

where as in current year there is a decrease in control over its inventories.

The raw material turnover ratio shows an increasing trend in years but in year 2008-09 its

decreasing & in current year it is drastic decrease compare to the previous year turn over

ratio. It shows the slow movement of raw materials.

Stores and spares turnover times is fluctuating. But in the year 2008-09 its increasing This

show there is sufficient managing in the stores and spares inventory from the last year.

The inventory conversion period shows decreasing trend in 2007-08 & in base year 2004-

05 it is good for inventory management.

There is slight decrease in the turnover ratio, so there will be higher inventory accumulated in

this area and higher working finance is tied up.

The duration of finished goods turnover ratio is good its increased when compare to base

year so it tells the efficiency of the firm in selling its product.

The funds collected from various sources are utilized for current and fixed assets.

The scrap obtained in the process is comparatively very low.

The entire department of KSDL is computerized.



SUGGESTION

The sales department should be effective to reduce the stocking in the finished goods

component of inventory. New sales technique should be activated to increase the sales.

Over stocking and under stocking of raw materials should be controlled by technical auditors,

there should be coordination between production processes department and inventory

handling department for efficient outcome.

Standardization of components should go a long way to reduce the variety of components to

be stocked.

The company should follow EOQ to reduce over stocking of material, purchase at

competitive prices, to reduce the cost of product.

Concentrated effort will be needed to reduce stock of materials, which have not moved for

years, insurance items should be monitored and made certain that they would meet their

purpose when called upon to do so.

The company constitutes a task force to reduce the high value items involving the heads of

the concerned departments like finance, production planning, and material planning etc, so

that judicious decision can be taken in dealing with adverse situation and avoid unnecessary

inventory holding.

The production department should sequence the cycle of operation and stick to the scheduled

dates in all areas. Speed conversion of inventory will reduce the interest burden and improve

the bottom line.

CONCLUSION

The performance of KS&DL in the financial year 2008-09 was acceptable.. The turnover of the

company has been increased in the financial year 2009-10. But there is a decrease in the profit after

tax of the company by (-20.29 %.)

In KS&DL rate of inventory represents a very significant proportion of current assets .The size of the

inventory is increasing year after which indicate inefficient inventory management in ks&dl. So

necessary steps have to be taken by management. To excise control over the inventories of the

company further. They have to adopt new techniques and new methods of production process in

order to increase production of the company. Hence there is considerable scope for improvements in

inventory management in KS&DL



ANNEXURES

PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED

PARTICULARS SCHEDULE AMT FOR THE YEAR

ENDING 31-3-2010

AMT FOR THE YEAR

ENDING 31-3-2009

INCOME

Sales

Less: excise duty.

Net sales

Other income L

1,789,059,796

141,285,059

1,647,774,737

22,288,309

1,693,919,368

160,215,837

1,533,703,531

60,623,797

Increase /decrease in stock M 53,286,174 70,374,213

1,723,349,221 1,664,701,541

Expenditure

Materials consumed

Other expenditure

Depreciation

N

O

D

775,383,439

799,799,905

4,982,474

801,928,343

734,442,910

3,969,038

1,580,165,818 1,540,340,291

Operating profit/loss 143,183,402 124,361,250

Interest & finance charges. P 8,297,546 7,276,261

PROFIT / LOSS BEFORE TAX

Provision for tax

Current tax

Fringe benefit tax

Deferred tax asset

Dividend tax.

134,885,857

48,000,000

---

8,930,375

2,704,0833

117,084,988

18,500,000

2,128,828

20,358,318

---



PROFIT /LOSS AFTER TAX

Prior period expenditure.

Proposed dividend

Q

93,112,149

1,441,082

15,911,050

116,814,479

14,078,609

---

75,760,017 130,893,088

Profit / brought forward from previous

year.

267,719,129 136,826,041

Profit /carried to balance sheet 343,479,146 267,719,129

Balance sheet for the year ended 31-03-010

S

c

n

o

Amount as on 31-03-2010 Amount as on 31-03-2009

1 2 3

Rs.

4

Rs.

5

Rs.

6

Rs.

7

Rs.

8

Rs.

Sources of fund.

1. Share holder fund.

A)share capital

b)reserve surplus

c) Exchange

fluctuation ratio.

A

318,221,000

343,479,146

318,221,000

267,719,129

1,769,358

2.loan funds:

a)secured loan B 80,092,400 107,204,608



b)unsecured loan

Total

C 83,506,504 163,598,904

825,299,050

83,506,504 190,711,112

778,420,599

APPLICATION OF

FUNDS.

1. Fixed assets.

A) Gross block.

Less: depreciation

b) net block

D

327,262,896

241,431,939

85,830,957

309,623,620

239,847,860

69,775,760

2.Investments E 100 100

3.Deferred tax asset 61,435,241 52,504,866

4.current assets:

Loans& advances

a)inventories

b)s.debtors

c)cash& bank bal

d)loan& advances

e)invst in gratuity

test.

less: c liability&

provisions.

i)liabilities

ii)provisions

net current asset.

F

G

H

I

K

517,605,839

172,641,760

285,359,727

213,953,267

50,000,000

292,361,773

269,166,068

1,239,560,593

561,527,841

678,032,752

407,452,487

163,529,618

255,132,910

215,257,572

50,000,000,0

0

246,650,794

204,956,560

1,091,372,5

87.

451,607,354

639,766,233

Miscellaneous exp

Total

J 16,374,640

Total 825,299,050 778,420,599

Biblography.

Financial Management- I.M.Pandey, Vikas Publishing House Pvt.Ltd.

Financial Management- Prasanna Chandra.

Financial Management- B.S.Raman, United Publishers.

Management Accounting- M.N.Arora, 1st edition, Himalaya Publishing House.



Website: http:// www.mysoresandal.com


http://www.mysoresandal.com/

Documents

Project Complete Azeez