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Inventory Management Final
Inventory Management Final
INTRODUCTION
INVENTORY MANAGEMENT
INTRODUCTION:
Every enterprise needs inventory for smooth running of its activities it serves as alike
between production and distribution process. There is generally, a time lag between there
cognition of need and its fulfillment. The greater the time lag, the higher requirement for
inventory. It also provided a cushion for future price fluctuations.
In a complex industry like Zuari Cement Industries Limited it studied clearly of how
the thing are being performed and what is the real impact of these on industry and how
effectively is utilized is interested to be known by researches of its great significance in the
research.
6)
Chapter 2
REVIW OF LITERATURE
INVENTORY INTRODUCTION:
The inventories constitute the most significant part of current assets/working capital in
most of the undertaking. Thus, it is very essential to have proper control and management of
inventories.
The purpose Inventory Management is to ensure availability of material in sufficient
quantity as and when required and also to minimize investment in inventories.
Meaning and Nature of Inventory:
In accounting language, inventory may be the stock of insured goods only.
In a manufacturing company concern it may include raw-materials, work-in process and
stores etc.
Inventory includes the following things:
1. Raw-Materials:
Raw-Material from a major into the organization. They are requiring carrying out production
activities uninterruptedly. 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 RawMaterials.
2. Work-in-progress:
The Work-in-progress is that stage of stocks which are in between Raw-Material and finished
goods. The quantum of Work-in-progress depends upon the time taken in the manufacturing
process.
3. Finished Goods:
These are the goods which are ready for the consumers. The stock of finished goods provides a
buffer between production and market. The purpose of maintaining inventory is to ensure proper
supply of goods to customers.
4. Spares:
The stock policies of space fifer from industry to industry. Some industries like transport will
require more spares than the others concerns. The costly spare parts like engines, maintenance
etc., are not discarded after use, rather they are kept in ready position for further use.
All decisions about spares are based on the financial cost of inventory on such spares and the
costs that may arise due to their non availability.
C. The speculative motive: this induces to keep inventories for taking advantage of price
fluctuations, savings in re-ordering costs and quantity discounts.
a) Capital Costs:
Maintaining of inventories results in blocking of the firms financial resources. The firm has
therefore to arrange for additional funds to meet the cost of inventories.
d) Risk of Obsolescence:
The inventories may become obsolete due to improved technology, changes in requirements,
changes in customer tastes etc.,
Lead Time:
A purchasing firm requires sometime to process the order and time is also required by the
Supplying firm to execute the order.
The time in processing the order and then executing it is known as Lead Time.
Rate of Consumption:
It is the average consumption of materials in the factory. The rate of consumption will be
decided on the basis of past experience and production plans.
Nature of Materials:
The nature of materials also affects the minimum level. If a material is required
only against the special orders of the customers then minimum stock will not be required for
such material.
Minimum stock level can be calculated with the help of following formula.
[Minimum Stock Level = Re-ordering Level (Normal X Normal Re-order Period)]
iii.
10
Maximum Level:
It is the quantity of materials beyond which a firm should not exceed its stocks. If the quantity
exceeds maximum level limit then it will be over stocking.
Over stocking will mean blocking of more working capital, more space for store the materials,
more wastage of materials and more changes of losses from obsolescence.
[Maximum Stock = Re-Ordering Level + Re-order Quantity (minimum consumption X
minimum order period)].
iv.
11
Two costs are involved in the determination of this stock outs will occur resulting into
the larger opportunity costs. On other hand, the larger quantity of safety stocks involves
carrying costs.
Ordering Cost:
EOQ = 2CO/I
Where,
C = Consumption of the material in units during a year.
O = Ordering Cost.
I = Carrying Cost or Interest payment on the capital.
12
Category C covers about 705 of the items of materials which contribute only 10% of value of
consumption.
The VED Analysis is used generally for spare parts. Spare parts classified as Vital (V),
essential (E), and Desirable (D).
The Vital spares are a must for running the concern smoothly and these must be stored
adequately.
The E type of spares is also necessary but their stocks may be kept at low figures.
The stocking of D type spares may be avoided at times. If the lead time of these spares
is less, then stocking of these spares can be avoided.
13
Need of Inventory:
Inventories are maintained basically for the operational smoothness which they can be
affected by uncoupling successive stage of production, whereas the monetary value of the
inventory serves as guide to indicate the size of each investment made to achieve this
operational convenience. The materials management departments primary function is to
provide this operational convenience with a minimum possible investment in inventories.
Materials department is accused of both stocks outs as well as large investments in excising a
selective inventory control and application of inventory control techniques. Inventories build to
act as a cushion between supply and demand. It is sufficient to take care of probable delays in
supply as well as probable variations in demand.
The size of inventory depends upon the factors such as size of industry internal lead time
for purchase, suppliers lead time, vendors relations, availability of the materials, and annual
consumption of the materials. Inventory cost can be controlled by applying modern techniques
viz., ABC Analysis, SDE, ESN, HEMC, VED etc., these techniques can be used effectively with
the help of computerization.
14
The cost of ordering and inventory carrying cost are viewed as the supply side costs and help in
the determination of the amount of variations in demand and the delay in supplies which is the
inventory should with stand.
The under stocking and over stocking costs are viewed as the demand side costs and help in the
determination of the amount of variations in demand and the delay in supplies which is the
inventory should with stand.
Whenever an order placed for stock replenishment, certain costs are involved, and, for most
practical purpose it can be assumed that the cost per is constant. The ordering cost may vary
depending upon the type of items, for example raw material like steel production component
like casting in steel plants, support materials in the case of coal industry.
15
Interest on capital,
Storage cost-labor costs, provision of storage area and facilities like bins, racks etc.,
The inventory carrying cost varies and a major portion of this an accounted for the
interest on capital.
16
Advantages:
The FIFO Method has the following advantages:
17
It values stock nearer to current market price since stock is presumed to consisting of the
most recent purchases,
It is based on cost and, therefore, no unrealized profit enters into the financial accounts
of the company,
The method is realistic since it takes into account the normal procedure or utilizing or
selling those materials or goods which have been longest in stock.
Disadvantages:
The method suffers from the following disadvantages:
i.
It involves complicated calculations and hence increases the possibility of clerical errors.
ii.
Comparison between different jobs using the same type of material becomes sometimes
difficult. A job commenced a few minutes after another job may have to bear an entirely
different charge for materials because the first job completely exhausted the supply of
materials of the particular lot.
i.
ii.
iii.
iv.
18
19
production particularly when the frequency of purchases and issue/sales is quite large and the
concern is following perpetual inventory system.
20
21
the first time out, and thus the current costs of materials are matched with the current selling
prices or current revenues. The FIFO method, on the non-current costs of materials are matched
with current selling prices or current revenues. This matching current cost with current revenues
is the essence of the argument for the LIFO method.
As can be seen by the above comments, there is no one best method of valuing
inventories. The method chosen should fit the situations. A physically flow pattern comparable
to FIFO would force one to consider the average method. Concentration on cost flows, as
distinct form physical flows, would force one to consider the LIFO method especially where
appear to be a discernible trend towards rising prices (or falling prices) as has been the case in
our economy during recent years.
As shown above, where is need only for physical quantities since the inventory value is the
physical quantity multiplied by the standard cost. With the cost and value columns disposed off,
a perpetual inventory card can include additional data such as quantities on order, quantities
reserved, and quantities available. These additional data are very useful for inventory and
production control purpose. On the basis of a few calculations concerning actual units costs,
inventories at standard costs could easily be converted into inventories on a FIFO, a LIFO, or an
Average cost basis.
22
INVENTORY OF OBSOLESCENCE:
Obsolete inventories cannot be used or disposed off at values carried on the book,
frequent reviews should be made of all inventories, and when obsolescence is indicated a
request for revaluation should be prepared for approval is management. The difference between
original and obsolete value should be recorded by a charge to an operating account. Inventory
obsolescence, and a credit to inventory. If the material is scrapped that material can be sold at
reduced value or used in areas where is will work less than its original value, the entry would be
only for the amount of write down. Some companies carry a salvage inventory and transfer to it
materials which may be sold or used at reduced values. Where this is done, the entry would be:
Dr. Salvage Inventory
Dr. Inventory Obsolescence
Cr. Raw Material Inventory or Supplies Inventory.
23
Zuari Cement has in own power plant and through which is saves energy consumptions. By this
cost of production reduces and can race the fluctuations in prices.
Inventory cost of any organization also adversely affects by retaining obsolete/scrap and
inventory costs can be reduced by management with an advance planning of procurement of
materials, periodical review of existing spares with reference to the fast consumption,
ascertaining the information regarding the availability of spares in other areas. Holding of extra
inventory will be an additional financial burden to the company due to payment of interest
changes none the materials purchased, diminishing value of materials by keeping them is stores
for a long time, handling charges, spares rent etc.
The Inventories of Zuari Cement mainly during 2005-06 to 2010-11 are as follows:
Year
Quantity
Limestone
Bauxite
Gypsum
2005-06
9,74,490
44,256
21,747
18,101
2006-07
9,53,940
41,872
21,747
18,101
2007-08
9,68,730
43,151
23,091
33,695
2008-09
11,19,980
53,877
27,978
90,577
2009-10
11,22,840
59,790
29,452
1,38,456
2010-11
13,23,801
63,252
31,310
1,46,057
The value of the above Raw Materials for the year 2005-06 to 2010-11 is as follows:
Year
Limestone
Bauxite
Gypsum
Fly ash
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
1,38,53,482
13,85,812
15,71,30,922
16,18,61,868
18,89,17,209
22,26,24,787
2,79,71,903
2,45,60,387
2,34,88,745
2,77,50,163
3,19,79,898
3,55,63,552
1,71,00,574
1,79,86,280
1,96,99,583
2,41,23,722
2,71,11,391
3,30,76,665
6,44,473
12,22,822
25,46,948
76,25,541
1,29,47,144
1,49,25,480
24
Value of imported and indigenous Raw Materials, Stores, Spares Parts and components
consumed during the year
Imported (Rs)
Years
Raw Materials
2005-06
59,30,02,633
45,39,79,698
2006-07
6,661,90,014
7,53,42,109
2007-08
49,13,39,625
13,16,24,912
2008-09
80,04,41,963
9,89,65,107
2009-10
146,43,21,607
8,28,63,063
2010-11
157,09,46,700
5,63,05,296
Years
Raw Materials
2005-06
399,58,69,418
98,49,90,949
2006-07
355,88,75,126
18,91,49,420
2007-08
411,74,05,138
136,56,64,385
2008-09
503,92,81,020
57,80,78,491
2009-10
25
2010-11
498,44,98,872
62,48,90,434
578,12,76,577
333,32,29,062
Indigenous:
CEMENT FACTORY RUNS WITH VARIOUS EQUIPMENTS INSTALLED IN
THE FACTORY
A. NICAL DEPARMENT
Mines
Mechanical
Electrical
Civil
B. COMMERCIAL DEPARTMENTS
Stores
Purchases
Accounts
To run the plant and maintained Equipments Departments require spares. For such requirements
of spares department raise Indents and send the indents to purchase department through stores.
INDENTS:
1. Annual indents for consumable items (stores items),
26
ENQUIRIES:
Enter the price details of enquiry sent in the order processing form
PURCHASE ORDER:
27
Description
Quantity required
Quantity in Stock
Pending Indent/order reference
Quantity
App. Cost
Reason for requirement remarks
When required
Period of issue form stores
PURCHASE DEPARTMENT
ACTIVITY: RECEIVING INDENTS:
Receipt of annual indents for consumable items/stores items from stores department.
Incase of any deficiency, send the information to concerned department for clarification.
ACTIVITY:
28
ACTIVITY:
PREPARATION OF PURCHASE ORDER
Prepare purchase order after finalization of price and other technical terms
mentioning the following details.
Material code
Indent number
Material Specification & Part number
Quantity
Rate
Payment and other terms & Condition.
29
Chapter -3
INDESTRY PROFILE
30
The strength and vitality of Indian cement industry can be gauged by the interest shown
and supports give by World Bank. Considering the excellent. Performance of the industry in
utilizing the loans and achieving the objectives and targets. The World Bank examining the
feasibility of providing a third line of credit for further upgrading the industry in varying areas,
which will make it global. With liberalization policies of Indian government. The industry is
posed for a high growth rates in nineties and the installed capacity is expected to cross 100
million tones and production 90 million tones by 2003 AD.
The industry has fabulous scope for exporting its product to countries like the USA,
UK, Bangladesh Nepal and other several countries. But there are not enough wagons to
transport cement for shipment.
31
obtained not only from hard lime stone but from a lime stone which contain substantial
proportion of clayey.
In 1796. Joseph parker found that module of argillaceous lime stone
made excellent hydraulic cement when burned in the usual manner. After burning the
Product was reduced to a power. This started the natural cement industry.
COMPOSITION OF CEMENT:
32
The ordinary cement contains two basic ingredients, namely, argillaceous and calcareous. In
argillaceous materials the clayey predominates and in calcareous materials the calcium
carbonate predominates.
A good chemical analysis of ordinary cement along with desired range of ingredients.
Ingredients
Percent
Range
Lime (Cao)
62
62-67
Silica (sio2)
22
17-25
Alumina (A12o3)
3-8
3-4
3-4
Magnesia (MgO)
1-3
Sulphar (S)
1-3
Alkalies
0.2-1
The common variety of artificial cement is known as normal setting cement or ordinary cement.
A mason Joseph Aspdn of Leeds of England invented this cement in 1824. he took out a patient
33
for this cement called it PORTLAND CEMENT because it had resemblance in its color
after setting to a variety of stand stone, which is found a abundance in Portland England.
The manufacture of Portland cement was started in England around 1825 Belgium and
Germany started the same 1855. American started the same in 1872 and India started in 1904.
The first cement factory installed in Tamilanadu in 1904 by South India limited and then
onwards a number of factories manufacturing cement were started. At present there are more
than 150 factories producing different types of cement.
OUT LOOK:
34
The recent change in the budget 2001-02 relating to fiscal incentives for individual
housing and reduction in borrowing cost for this purpose and with the government reaffirmation
to accelerate the reform process. Infrastructure development should logically get priority
leading to increase in demand of cement in coming years. The addition capacity of cement in
the pipeline is limited and therefore the demand and supply situation is expected to be more
favorable and cement prices are likely to firm up.
51 Nos
Cement plant
99 Nos
Installed company
64.8 mt
Rs.10,000 crore
35
Chose Zuari to confer the Award for Best efforts of an industrial unit in the state to
develop rural economy twice, in the year 1994 as well as in 1998. Zuari also has to its credit
the National Award (shri. S. R. Rangta Award for social Awareness) for the year 1995-96, for
the Best rural Development Efforts made by the company. In the same year Zuari also got the
FAPCCI Award for Best workers welfare Zuari got the first prize for mine Environment and
pollution control for year 1999 too, for the 3 rd year in succession in July, 2001 Zuari annexed
the Vana Mithra Award from the government of Andhra Pradesh.
History
Quality conscious and progressive in its out look, ZUARI CEMENT an OHSAS 08001
company and also joined the select brand of ISO 9001-2000 Companies
The first unit was installed at Basanth Nagar with a capacity of 2.5 lakh TPA (Tones per
annum) incorporating humble supervision, preheated system, during the year 1969.
The second unit followed suit with added a capacity of 2 lakh TPA in 1971
The plant was further expanded to 9 lakh by adding 205 lakh tones in August, 1978, 1.13
lakh tones in January, 1987 and 0.87 lakh tones in September, 1981.
POWER
Singareni collories make the supply of coal for this industry and the power was
obtained from AP TRASCO. The power demand for the factory is about 21 MW. Zuari has got 2
diesel generator sets of 4 MW each installed in the year 1987.
Zuari cement now has a 15 KW capacity plant to facilitate for uninterrupted power
supply for manufactured of cement.
ZUARI CEMENT
36
One among the industrial giants in the country today, serving the nation on the
industrial front Zuari industries limited has a chequered d eventful history is dating back to the
Twenties when the industrial House and Birla acquired it. With only a textile Mill under it
banner in 1924, it grew from strength to strength and spread is its activities to never fields like
Rayon, Pulp, transport paper, Spun pipes and refractory types. Oil mill and Refinery Extraction.
Looking to the wide gap between demand and supply, of a vital commodity cement,
which plays an important role in nation building the Government of India de-licensed the
cement industry in the year 1966 with a view to attract private entrepreneurs to augment the
cement product Zuari rose to the occasion and decided to set up a few cement plant in the
country
The first cement plant of Zuari with a capacity of 2.5 lack tones per annum based on
dry process, was established in 1969 at Basanth Nagar a back ward area in Karim Nagar
District, Andhra Pradesh, and christened in Zuari cement. The second unit followed suit, which
added a capacity of 2.00 lakh tones in 1971. The plant was further expanded to 9.00 lack tones
in August 1978. 1.14 lakh tones in January, 1981 and 0.87 lakh tones in September, 1981.
Zuari cement has outstanding track record of performance and distinguished itself
among all the cement factories in India by bagging the coveted National Award for two
successive year, i.e., in 1985 and 1936, so also the National Award for mines safety for two year
1985-86 and 1986-87. Zuari also bagged NCBMS (National council for cement and Building
materials) National Award for energy conservation for the year 1989.90
Zuari bagged the prestigious Andhra Pradesh state productivit89 also annexed state
award for industrial management in 1988-89 and also Best industrial promotion expansion
efforts in the estate and Yajamanyza Ratna and baste efforts of an industrial unit in the state to
develop rural economy was bagged for it is contribution towards the responsibility of rural and
community development programmers of the year 1991.It also bagged the May Day award of
the government of Andhra Pradesh for the best management and the pundit Jawaharlal Nehru
silver rolling trophy for the industrial productivity efforts in the state of Andhra Pradesh by
FAPCCI and also the Indian Gandhi memorial national award for excellence. Best management
award of the government of Andhra Pradesh for the year 1993
PERFORMANCE:
37
The performance of Zuari Cement industry has been outstanding Achieving over
cent per cent capacity utilization although despite many odds like power cuts and which most
40% was waste due to wagon shortage etc.
The company being a continuous process industry progress with industrial
Performance. The company had a glorious track record for the last 27 years in the industry.
TECHNOLOGY:
Zuari Cement uses most modern technology and computerized control in the plant. A
team of dedicated and well-experienced exports manages the plant. The quality is maintained
much above the bureau of Indian Standards.
The Raw Materials used for manufacturing cement are:
1
Lime
Bauxite
Hematite
Gypsum
stone.
38
For the purpose of Recreation of facility 2 auditoriums were provided for playing
indoor games, cultural function and activities like drama, music and dance etc.
The industry has provided libraries and reading rooms. About 1000 books are
available in the library. All kinds of news paper, magazines are made available.
Cantine is provided to cater to the needs to the employees for supply snacks, tea,
coffee and meals etc.
One English medium and one telugu medium school are provided to meet the
educational requirements.
The company has provided a dispensary with a qualified medical office and
paramedical staff for the benefit of the employees. The employees covered under ESI hospital.
Competitions in sports and games are conducted every year for august 15th,
Independence Day and January 26th Republic day among the employees.
ELECTRICITY:
The power consumption per ton for cement has come down to 108 units against 113
units last year, due to implementation of various energy saving measures. The performance of
captive power plant of this section continues to be satisfactory. Total power generation during
the year was 84 million units last year. This captive power plant is playing a major role in
keeping power costs with in economic levels.
The management has introduced various HRD programs for training and
development and has taken various other measures for the betterment of employees
efficiency/performance
The section has installed adequate air pollution control system and equipment and is
ISO 14001 such has environment management system is under implementation.
39
Zuari cement distinguished itself among all the cement factories in India bagging a No of
awards.
Sl.no.
YEAR
1984
1985
1986
1987
1987-88
1988
1988-89
1989-90
1990-91
10
1991
11
1991
12
1991-92
13
1993-94
14
1995
15
1996
16
1997
17
1997-98
18
1998
19
40
1999
DETAILS
20
2000-01
21
2001
22
2001-02
23
2003
24
2002-03
25
2003
26
July2003
27
2004
28
2004-05
29
2005
30
41
2006
31
2007
In the mines safety week celebrations, under the auspices of the Director General of mines Safety,
Zuari
Basantnagar limestone mines won 2 first prizes environment and pollution control and safe
drilling and blatting
and 14th 2nd prizes for over all performance, productivity, operation and maintenance of machines
publicity/propaganda etc.
This section also bagged the award for environment protection in the Godavari river belt,
sponsored by the Godavari Pradushana Pariharana Paryavarana.
PRODUCTION
Last 20 years production of Zuari cements industry, Basanth Nagar.
Year
42
Production in Tunes
1983-84
749797
1984-85
761581
1985-86
805921
1986-87
760708
1987-88
550254
1988-89
601453
1989-90
643307
1990-91
643663
1991-92
748258
1992-93
685596
1993-94
731177
1994-95
784555
1995-96
782383
1996-97
731049
1997-98
746474
1998-99
688305
1999-2000
777092
2000-01
692424
2001-02
727447
2002-03
735012
2005-06
1046166
2006-07
1056742
2007-08
11,99,445
Note: production including internal consumption also cement and clinkerproduction were lower
than the previous year mainly because of lower dispatchesof cement due to recession prevailing
in cement industry with slow down in demand during the year under review. This section had to
curtail production due ton accumulation of large stocks of clinker. However ,sales realization
during the second half of the year has improved and it is hoped that prices will stabilize at some
reasonable levels.
43
Syt.B.K.Birla
Directors
2
Smt. K. G. Maheswari
Shri. B. P. Bajoria
Shri. P. K. Chokesy
(Nominee of I.C.I.C.I)
Shri D. N. Mishra
(Nominee of L.I.C)
Scretary
1
Senior Executives
2
44
Shri D. Tandon
Auditors
1
working capital in most of the undertaking. Thus, it is very essential to have proper control and
management inventories.
The purpose of inventory management is to ensure availability of materials in
sufficient quantity as and when required and also to minimize investment in inventories.
WORK IN PROGRESS:
The work in progress in that stage of stocks which are in between raw material and
finished goods. The quantum of work in progress depends upon the taken the in manufacturing
process. The quantum of work in progress 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
progress.
45
CONSUMABLES:
These are the materials which ae needed to smoother the process of production but
they act as catalysts. Consumables may be classified according to their consumption add
critically. Generally, consumable stores does not supply problem and firm a small part of
production cost. There can be instances where these materials may account for much value than
the raw material. The fuel oil they a substantial part of cost.
FINISHED GOODS:
These are the goods which are ready for the consumers. The stock of finished goods
provides a buffer between production and market, the purpose of maintaining inventory is to
ensure proper supply of goods to customers.
SPARES:
The stock policies of spares fifer from industry to industry. Some industries like
transport will require more spares than the other concerns. The costly spares parts like engines,
maintenance spares etc., are not discarded after use, rather they ae kepy in ready position for
father use.
All decisions about spares are based on the financial cost of inventory on such spares
and the cost that may arise due to their non-availability.
46
time and delays in execution of orders which sometimes may cause loss of customers and
business.
A firm also needs to maintain inventories to reduce ordering cost and avail quantity
discounts etc.
There are three main purpose of holding inventories.
1.
The speculative motive: which induces to keep inventories for taking advantage
Storage
and handling costs: holding of inventories also involves costs on storage as well as handling of
materials. The storage of costs include the rental of the go down, insurance charges etc.
1)
Risk
of
price decline: there is always a risk of reduction in the prices of inventories by the supplies,
competition or general depression in the market.
47
2)
Risk
of
obsolescence: the inventories may become absolute due to improve technology, changes in
requirements, change in customer tastes etc.
3)
Risk
determination in quality: the quality of materials may also deteriorate while the inventories are
kept.
To ensure
continuous supply of materials spares and finished goods so that production should not suffer at
any time and the customers demand should also be met.
1)
To avoid
To
maintain investment in inventories at the optimum level as required by the operational and sales
activities.
3)
To
keep
material cost under control so that they contribute in educing the cost of production and overall
costs.
48
4)
To
eliminate duplication in ordering or replenishing stocks. This is possible with the help of
centralizing purchases.
5)
To
To ensure
perpetual inventory control so that materials shown in stock ledgers should be actually lying in
the stores.
7)
To ensure
right quality goods at responsible prices. Suitable quality standards will ensure proper quality of
stocks. The price analysis, the cost analysis and value-analysis will ensure payment of proper
prices.
8)
To
TOOLS
AND
TECHNIQUES
OF
INVENTORY
MANAGEMENT
A proper inventory control not only helps in solving the acute problem of liquidity but
also increases profit and cause substantial reduction in the working capital of the concern.
The following are the important tools and techniques of inventory management and
control.
1.
DETER
49
a)
MINIM
UM STOCK LEVEL:
It represents the quantity below its stock of any item should not be allowed to fall. Lead
time: a purchasing firm requires sometime to process the order and time is also required by the
supplying firm to execute the order.
The time in processing the order and then executing it is know as lead time
Re-
ordering Level
When the quantity of materials reaches at a certain figure the fresh order is sent to get
materials again: the order is sent before the materials reach minimum stock level.
Re ordering level is fixed between minimum levels.
c)
Maxim
um level
It is the quantity of materials beyond which a firm should not exceeds its stocks. If the
quantity exceeds maximum level limit then it will be over-stocking.
50
Overstocking will mean blocking of more working capita,more space for storing
the materials, more wastages of materials and more chances of losses from obsolescence.
Danger
stock level
It is fixed below minimum stock level. The danger stock level indicates emergencies of
stock position and urgency of obtaining fresh supply at any cost.
Average
stock level:
This stock level indicates the average stock held by the concern.
51
Ordering cost:
It is the cost of placing orders for the purchase of materials.
EOQ can be calculated with the help of the following formula.
EOQ = 2 co/I
Where C=consumption of the material in units during the year
O= ordering cost
I = carrying cost or interest payment on the capital.
4)
A-B-C
5)
VED
52
The vital spares are a must for running the concern smoothly and these must be stored
adequately. The E types of spares are also necessary but their stocks may be kept at low
figures. The stocking of D type spares may be avoided at times. If the lead time of these spares
is less, then stocking of these spares can be avoided
6)
Invento
ry turnover ratio:
Inventory turnover ratios are calculated to indicate whether inventories have been used
efficiently or not.
The inventory turnover ratios also known as stock velocity is normally calculated as
sales / average inventory of cost of goods sold/average inventory.
Inventory conversion period may also be calculated to find the average time taken foe
clearing the stocks. Symbolically.
Days in a year
Inventory conversion period =
53
7)
Classifi
cation of inventories:
The inventories should first be classified can then code number should be assigned for
their identification. The identification of short names is useful for inventory management not
only for large concerns also for small concerns. Lack of proper classification may also lead to
reduction in production.
Generally materials are classified accordingly to their nature such as construction
materials, consumable stocks, spars; lubricants etc. after classification the material are given
code numbers. The coding may be done alphabetically or numerically. The later method is
generally used for coding.
The class of materials is assigned two digits and then two or three digits are assigned to
the categories of items divided into 15 groups. Two numbers will be category of materials in
that class.
The third distinction is needed for the quality of goods and decimals are used to note this
factor.
8)
Valuati
on of inventories-method of valuations:
FIFO method
LIFO method
Base stock method
Weighted average price method
54
While the overall objective of the inventory system is to minimize the cost to the firm at
the risk level acceptable to management the more proximate criteria for judging the inventory
system are:
1
Comprehensibility
Adaptability
Timeliness
AREA OF IMPROVEMENT:
Inventory management in India can be improved in various ways. Improvement could be
affected through.
55
Introduction:
In financial parlance, inventory is defined as the sum of the value of the raw material,
fuels and lubricants spare parts maintenance consumable, semi-processed materials and finished
goods stock at any giving point of time. The operational definition of inventory would be
amount of raw material, fuel and lubricants , spare pats and semi-processed material to be stock
for the smooth running of the plant/industry.
Need of inventory:
Inventories are maintained basically for the operational smooth less which they can be
affected by uncoupling successive stags of production, whereas the monetary value of the
inventory serves as a guide to indicate the size of the investment made to achieve this
operational convince. The material management department primary function is to provide this
operational convenience with a minimum possible investment in inventories. Materials
departments is accused of both stock outs as well as large investments in inventories. The
solution lies in exercise a selective inventory control and application of inventory control
techniques. Inventories build to act as a cushion between supply and demand. It is sufficient to
take care of probable delays in supply as well as probable variations in demand. The size of the
inventory depends upon the factors such as size of industry internal lead time for purchase,
suppliers lead time, vendor relations availability of the materials annual consumption of the
materials. Inventory cost can be controlled by applying Modern Techniques viz., ABC analysis,
SDE, ESN, HMC, VED etc. these techniques can be used effectively with the help of
computerization.
The total
Stores in
56
Stock
of
Costs involved in receiving of the order, inspection, checking and handling in the
4.
Any set up cost of machines charged by the suppliers, either directly indicated in
stores.
57
The inventory carrying cost varies and a major portion of this is accounted for by the
interest on capital.
58
One can readily visualize the determination of inventory quantities by physical count or
by use of perpetual inventory records. When this quantity is determined, it must be multiplied
by a unity cost in order to determine the inventory value that is used on financial statement.
Trade and quantity discount are to be exclude from unit cost since these discount exist
for the purpose of defining the true invoice cost of merchandise. Cash discounts, on the other
hand, have been considered as a reward for early payment and as a penalty for late payment.
The reward has often been interpreted as a loss rather than as a pat of unit cost. Thus in would
not be difficult to find difference of opinion as to whether invoice cost includes or excludes cash
discount.
When the current replacement cost of material on hand at the close of a year is less
than the actual cost, the inventory value is reduced to replacement cost (current market price).
Thus the acceptable basis inventory valuation is he lower of cost or markers or more properly
the lower of actual cost or replacement cost.
The determination of inventory values is very important from the point of view of the
balances sheet and the income statements since costs not included in the inventory (the balance
sheet) are considered to be expensive and are thus included in the income statements.
59
The value inventory would remain the same even if the perpetual inventory system is
followed.
60
1)
It takes out account the current market conditions while valuing materials issued
The method is based on cost and, therefore , no unrealized profit and on-profit or
61
As should be quite evident, different methods of calculating inventory values will all
have their impact on the flow of costs through the balance sheet into the income statements. The
dollars that are paid to acquire inventory are always divided between the balance sheet
(inventories) and the income statements (cost of goods sold), there is not other place to put
them. Thus if the different methods of calculating inventory produce differing inventory values,
they will also produce differing cost of goods sold figure, and the differing cost of goods sold
will naturally produce differing profit figure.
In order show the impact of inventory valuation on cost flows, the preceding exhibits are
summarized. Each method produces a different figure for the transfer of raw materials to work
in process. The differences appear small, but the only reason for this that the dollar amounts has
been kept small to make the illustration workable.
With the transfer of materials to work in process, the cost flow or transfer with have its
impact on the work in process inventory and the transfer of completed merchandise to finished
goods. Ultimately when goods are sold the varying methods of valuing inventories will have
their impact on cost of goods sold and these profits. The effects of the cost flows on cost of
goods sold and profits can be accentuated further it the differing methods of valuing inventories
are applies to work in process and finished goods.
62
The primary differences between the FIFO and average methods are entered on the
physical flow since both methods could involve identical and interchangeable units. The FIFO
methods fit a first-I first-out physical flow. The average methods fits a system which has no
specific pattern of physical flow. Finding a situation where thee is no specific pattern of
physical flow should be quite difficult because of the fact tha most inventory items are subject
to deterioration by instituting a person would attempt to reduce such deterioration and any
reasonable person would attempt to reduce such deterioration by instituting a physical flow
approximating first-in first-out. The major reason for the use of the average method is
something other than the lack of specific physical flow.
Ordinary the LIFO method cannot be justified on the basis of the physical flow of
materials. Under conditions if changing prices, the advocate of LIFO says that the oly method
which matches costs and revenues is the LIFO method. The LIFO method assumes that the
latest item is the first item out, and thus the current costs of materials are matched with the other
hand, assumes that the first item in is the first item out, and thus the non-current costs of
63
matching currents costs with current revenues is the essence of the argument for the LIFO
method.
As can be seen by the above comments, there is no one best method of valuing
inventories. The method chosen should fir the situation. A physical flow pattern comparable
physical flow pattern would force one to consider the average method. Concentration on cost
flows, as distinct from physical flows, would force to consider the LIFO method especially
where there appears to be a discernible trend towards rising prices for falling prices as has been
the case in our economy during recent years.
Standard Cost:
..
Location:..
Order Quantity
Order Point ..
Date
Description On
order
64
Received
Issued
Available
On order
On hand
As shown above, there is need only for physical quantities since the inventory values is the
physical quantity multified by the standard cost. With the cost and value columns disposed off, a
perceptual inventory card can include additional data such as quantities on order, quantities
reserved, and quantities available. These additional data are very useful
production control purpose. On the basis of a few calculations concerning into inventories on a
FIFO, a LIFO, or an average cost basis. Inventory of obsolescence.
Obsolete inventories cannot be used for disposed off at values carried on the books. Frequent
reviews should be made of all inventories, and when obsolescence is indicated a request for
revaluation should be prepared foe approval by management. The difference between original
and obsolete value should be recorded by a change to an operating account. Inventory
obsolescence, and a credit to inventory. If the material is scrapped, this will be for the full
inventory value or used in area where it will be work less that its original value; the entry would
be only for the amount of write down. Some companies carry a salvage inventory and transfer to
it materials which may be sold or used at reduced values. Where this is done the entry would be;
Dr. Salvage inventory
Dr. Inventory obsolescence. Cr. Raw materials inventory or supplies inventory.
65
Cement is highly energy intensive industry, the inputs like power and local are the major part of
the variable cost since government controls the coal & fuel sector, and increase is rates
adversely effects the cement industry.
Zuari cement has it own power plant and through which it saves energy consumption. By this
the cost since government controls the coal & fuel sector, any increase rates adversely affects
the cement industry.
Inventory cost of any organization also adversely affects by retaining obsolete/scrap and
inventory costs can be educed by management with an advance planning of procurement of
materials, periodical reviews of existing spares with references to the fast consumption,
ascertaining the information regarding the availability of spares in other areas. Holding of extra
inventory will be an additional financial burden to the company due to payment of interest
charges on the materials purchased, diminishing value of materials purchased, and diminishing
value of materials by keeping them in stores for a long time, handling charges, space rent etc.
The inventory of Zuari cement mainly includes limestone, bauxite gypsum, fly ash.
Inventory in Zuari cement during 2006-11 are as follows: (unit in mt)
The values of the above raw materials for the year 2003-08 are as follows:
Year
Year
2006-07
2006-07
2007-08
2007-08
2008-09
2008-09
2009-10
2010-11
2009-10
2010-11
Limestone
Limestone
Bauxite
Bauxite
Gypsum
Gypsum
Fly ash
13853482
974490
27971993
44256
17100574
20703
644473
13853482
956940
27971993
41872
17100574
21747
644473
157130922
968730
23488745
431151
19699583
23091
2546948
243412189
1239443
38552277
64961
49061196
38765
20223404
Fly ash
10301
18101
33695
159344
28,59,95,631
- 28,59,95,631
5,99,65,669
5,99,65,669
3,89,40,355
3,89,40,355
Values of
imported and indigenous raw materials, stores, spare parts and component
consumed during the year:
66
Imported:
Raw
2006-07
2007-08
2008-09
2009-10
2010-11
593002633
Material
Stores spare 522588043
parts
and
components
Indigenous:
67
75345209
131624912 42279637
33,96,87,016
Year
2006-07
2007-08
2008-09
2009-10
2010-11
parts
189149420
and
components
1.TECHNICAL DEPARTMENT
1.MINES
2.MECHANICAL
3.ELECTRICAL
68
4.CIVIL
1) COMMERCIAL DEPARTMENT
1.
SRORES
2.
PURCHASE
3.
ACCOUNTS
To run the plant and maintain equipments departments require spares. For such requirements of
spares departments rraise indent and send the indents to purchase departments through stores.
INDENTS:
1) Annual indents for consumable items ( stores items)
2) Regular indents raised by consuming departments.
3) Annual requirements of raw material promop & qc.
ENQUIRIES:
1) Enquires will be sent approved sun contractors.
PURCHASE ORDER:
1) Prepare puchase order on selected party.
69
PURCHASE DEPARTMENT:
ACTIVITY RECEIVING INDENTS:
FLOW CHART:
1
Receipt of annual indents for consumable items/stores items form stores department.
In case of any deficiency, send the information to concerned department for clarification.
URCHASE DEPARTMENT
PURCHASE ENQUIRY
70
Sl.No
Material
Code
Department Quantity
Unit
When
required
PURCHASE DEPARTMENT
ORDER PROCESSING FORM
71
72
PURCHASE DEPARTMENT
PURCHASE ODER
Sl.No
Indent
Item
code
Description
Qty
Rate
Unit
Amount
No
1.
Material code
2.
Indent number
3.
4.
Quantity
5.
Rate
6.
Fill in and attach the purchase order review profama to purchase order.
Send the prepaed puchase order to head (purchases) and competent authority for approval.
PURCHASE DEPARTMENT
AMENDMENT / CANCELLATION OF ORDER
73
Material Code
Material
Price/Quantity/as
per order
Amended
price/Quantity
Review the pending order and follow up the pending order for breakdown requirements.
Send regular reminders to suppliers against pending purchase order every month.
Receive shortage/ excess/ damages report from stores for the material received.
PURCHASE DEPARTMENT
ACTIVITY: IMPORTS:
FLOW CHART:
1
Enter price and other terms of the quotation received from oversea supplier in the order
processing form.
74
Examine order processing from and decide the sub-contractor to whom purchase order to be
place.
8
Prepare purchase order after financilization of price and other technical terms mentioning
Send the prepared purchase order to head purchase and competent authority for approval.
Send the purchase order to over as suppliers.
Send the purchase order copies to stores and concerned department.
Prepare IC documents and submit to bank for onward transmission to overseas supplier.
Receive shipping documents from overseas supplier and send name to clearing agents for
75
STORES DEPARTMENT
ACTIVITY: RECEIPTS AND UNLOADING MATERIAL
Receiving of goods through trunk / personnel delivery.
Entry of vehicle at gate office.
Stamping on dispatch advice with purchase order.
Unloading of goods at allocated place or in case of urgency direct at works site.
All safety precautions are taken while unloading of material like workers should wear safety
shoes, helmets, leather head gloves, noise respirator, nose mask.
Training is given to workers for unloading heavy & bulky material by using chain pulley
blocks, write rope ceilings, fork lift. After UIL receipt acknowledge given to driver maintaining
lorry receipts register.
STORES DEPARTMENT
ACTIVITY: PREPARATION OFRECEIPT AND APPROVAL BOOK FOR GENERAL
MATERIAL / D. C ENTER OG BLOCK. EPAIR ANDSTATIONARY MATERIAL
MANUALLY IN REGISTER
Sorting of delivery challans as bellow:
a. General
b.Stationary
c.Repairs
d.Block
Checking with P.O and mentioning material code. Party code, indent no.
Department name on each & every challans.
Creation of D>C entry in system for general materials through system.
Preparation of receipts & approval book for general materials.
Manual entry of block, stationary, repair materials,
76
STORES DEPARTMENT
ACTIVITY: PHYSICAL VERIFICATION OF GOODS
All D.C handed over to store assistant physical verification like measuring, counting and
tallying with D.Cs Quantity/ description of materials by the stores assistant.
Identification tags to be attached to the verified material. Shortage/ excess / Damages if any
found to be noted on challans and inform to section in charge.
Preparation of shortage / excess/ reports if any sending to parties under copy to purchase / bill
sections.
STORES DEPARTMENT
ACTIVITY: APPROVAL OF MATERIALS AND PREPARATION OF GOODS RECEIPT
NOTES:
Intimation is being sent to all the concerned departments. Showing material to concern person.
Taking approval of the material in receipt & approval book.
Preparation general material GRNs through system and stationery/block/repairs GRNs
manually.
Forwarding true copy to issue section of GRN for general material forwarding true copy to
issue section of GRN for general material forwarding true copy of block/repair/ stationary GRN
to issue section and copy to purchase department.
SORES DEPARTMENT
ACTIVITY: REJECTED MATERIALS
Rejected materials kept in allocated area of rejected materials.
Packing of rejected materials.
Preparation of gate passes for rejected materials.
Sending back to supplies through our Hyderabad office.
77
Sending consignee copy to party vides Register Letter for booking of Register goods to partys
other than.
STORES DEPARTMENT
ACTIVITY: EXCISE GATE PASSES
Sending duplicate for transport copy of excise invoice from suppliers delivery challans.
Mentioning A.B.S 1. No. and named of concerned department.
Duplication for transfer copy of excise invoice over to bills section for sending the same to
excise department.
Corresponding with supplier. If the excise invoice is not found with delivery challans.
STORES DEPARTMENT
ACTIVITY: RECEIPTS OF MEDICINES
Physical verification of medicines as per invoices.
Verification of expiry date on medicines.
Verification of MRP
Sending shortage/ excess note if any found.
Taking approval of Medical Officer.
Sending rejection notes if any medicines is rejected.
Issuing to dispensary.
Bills forwarding to Account Department vide for making the payment.
78
Chapter -4
Company Profile
79
80
production and demand have been growing a pace at roughly 78 Million tones with installed
capacity of 78 MT.
In the remaining 2 Years of 8th plan an additional of 23 MT has been planed, assuming
that at least 16 MT will actually come up.
India is well endowed with cement grade limestone (90 Billion Tones) and coal (190
Billion Tones). During the 90s it had a particularly impressive expansion with growth rate of 10
%.
The strength and vitality of Indian cement industry can be gauged by interest shown and
support given by World Bank, considering the excellent performance of the industry in utilizing
the loans and achieving the objectives and targets. The World Bank is examining the feasibility
of providing a 3rd line of credit for further upgrading the industry varying areas, which we make
it global with the liberalization policy of Indian Govt. The industry is posed for a high growth
rate in 90s and the installed capacity is expected is 199 MT and production 90 MT by 2003.
The industry has fabulous scope for exporting is product to countries like the USA, UK,
Bangladesh, Nepal and other several countries. But there not enough wagons to transport
cement for shipment.
CEMENT-THE PRODUCT:
The natural cement is
obtained by burning and crushing the stones containing clay, carbonate of line and some amount
of carbonate of magnesia. The natural cement is brown in color and its best variety is known as
ROMAN CEMENT. It sets very quickly after addition of water.
It was in the 18th century that the most important advances in the development were it
finally led to the invention of Portland cement.
81
In 1756, John Seaton showed that Hydraulic lime which can resist the action of water
can be obtained not only from hard limestone but from a limestone which contain substantial
proportion of clay.
In 1756, Joseph Parker found that modules of argillaceous limestone made excellent
hydraulic cement when burned in the usual manner. After burning the product was reduced to a
powder. This started the natural cement industry.
The artificial cement is obtained by burning at a very high temperature a mixture of
calcareous and argillaceous material. The mixture of ingredients should be intimate and they
should be in correct proportion. The claimed product is known as Clinker. A small quantity of
gypsum is added to clinker and it is then pulverized into fine powder, which is known as
CEMENT.
The common variety of artificial cement is known as normal setting cement of ordinary
cement. A mason Joseph Asp Din of leads in England invented in 1824. He took out a patent for
this cement and called it PORTLAND CEMENT because it had resemblance in its color after
setting to a variety or sandstone, which is found in abundance in Portland England.
The manufacturing of Portland cement was started in England around 1825. Belgium and
Germany started the same in 1855. America started in 1872 and India started in 1904 by South
India Ltd. And then onwards a number of factories producing different types of cements.
COMPOSITION OF CEMENTS:
The ordinary cement contains two bases ingredients, namely Argillaceous and
Calcareous. In Argillaceous materials the clay predominates and in calcareous materials the
calcium carbonate predominates.
A good chemical analysis of ordinary cement along with desired range of ingredients.
82
INGREDIENTS
PERCENT
RANGE
Lime (CaO)
62
62-67
Silica (SiO2)
22
17-25
3-8
Sulphate 4
3-4
Calcium
(CaSo4)
Iron Oxide (Fe2 O3)
3-4
Magnesia (MgO)
1-3
Sulphur (S)
1-3
Alkalis
0.2-1
Chapter-5
Data analysis Interpretation
83
ANALYSIS
The investment on raw material over a period of 5 years form 2003 to 2008 preseted in the
following table.
84
Year
2005-2006
13386.80
2006-2007
11690.67
2007-2008
49950.88
2008-2009
42950.66
2009-2010
2010-2011
46087.45
93605.78
Interpretation:
1)Form the above table it can be understood that the inventory of Zuari Cement was recorded at
13,386.80 during the year 2005-06 and it is increased to 93605.78 during the year 2010-11.
2)It shows that there is on increase in the inventory to the more extent of 80218.98
3)The average inventory of Zuari Cement was recorded at Rs.42945.41
4)The highest investment in inventory was recorded I the year 2010-11
2)Trend analysis:
Trend analysis technique is applied to know the growth rate in investment of raw material of
Zuari Cement over the review period which is shown in the following table.
Trend analysis:
Year
Trend(%)
2005-2006
13386.80
100
2006-2007
11690.67
87
2007-2008
49950.88
373
2008-2009
42950.66
315
2009-2010
2010-2011
46087.45
93605.78
344
699
85
Interpretation:
1)
The investment on investment has increased in the year 2010-11. and the lost yea
investment has declared continuously. The percentage in 2009-10 was 315% as compared to
year 2007-08 to 2010-11.
2)
The trends in inventories show that inventory have been more in the year 2010-11 and then
The investment I inventories has sown fluctuating trend is initial years and then it raised
86
Avg . inventory
Ratio
2005-2006
60150.35
7402.31
8.13
2006-2007
59021.41
37975.30
1.55
2007-2008
121551.71
95065.28
12.79
2008-2009
127533.58
12390.86
10.29
2009-2010
2010-2011
130392.68
211636.92
13338.01
160035.93
9.78
1.32
Interpretation:
1) From the above table 2005 it can be observed that (1) inventory turn over ratio is 8.13
during 2005-06 and its gradually decreased to 1.55 during 2006-07.
2) In the year 2006-11 it is clear that the ratio is very less i.e., his stock is not turned in to sales
quickly.
3) As compared to all the year the ratio is very less in 2010-11.
87
4) The average inventory turn over ratio was recorded at 7.3 times during the review period.
4.Inventory Conversion Period: (in corers)
Year
Cost
of
Ratio
ICP(days)
sold
2005-2006 60150.35
7402.31
8.13
44
2006-2007 59021.41
37975.30
1.55
232
2007-2008 121551.71
95065.28
12.79
28
2008-2009 127533.58
12390.86
10.29
34
2009-2010 130392.68
2010-2011 211636.92
13338.01
160035.93
9.78
1.32
36
272
Interpretation:
1.
Inventory conversion period was 232 days during 2006-07 but it decreased to 204 during
2006-07, which indicates that the stock has been very quickly converted into sales which mean
the company is managing the Interpretation:
From the above table 2005 it can be observed that (1) inventory turn over ratio is 8.13 during
2003-04 and its gradually decreases to 1.55 during 2006-07. Efficiently.
2.
The lowest inventory conversion period was recorded at 28 days in the year 2007-08 and
the highest inventory conversion was recorded at 272 days in the year 2010-11.
88
2.
The average inventory conversion period was recorded at 107 days during the review
period.
Inventory
------------------- *
Current ratio
100
Year
Inventory
Current assets
Ratio(%)
2005-2006
13386.80
24172.33
55
2006-2007
11690.67
28770.78
40
2007-2008
49950.88
53063.75
94
2008-2009
42950.66
45598.02
92
2009-2010
2010-2011
46087.45
93605.78
46713.32
86811.49
92
107
89
Inventory
Current assets
Ratio(%)
2005-2006
13386.80
87167.64
15.35
2006-2007
11690.67
87468.76
13.36
2007-2008
49950.88
117985.89
42.33
2008-2009
42950.66
112647.26
37.50
2009-2010
2010-2011
46087.45
93605.78
112637.07
197330.5
40.91
47.43
90
Interpretation:
1)During the year 2006-07 the ratio was 15.35% on its declined to 13.36% in the year 2006-07.
2)From the year 2007-08 it is showing fluctuating trend but as compared to above 2 years it is
increasing.
3)The lowest inventory over total assets ratio was recorded at 13.36% during the year 2007-08
and the highest inventory ratio was recorded at 43.43%during the year 2010-11.
3) The average inventory to total assets ratio was recorded at 32.81% during the review period.
Inventory
Current assets
Ratio (%)
2005-2006
13386.80
7862.11
17
91
2006-2007
11690.67
8042.62
145
2007-2008
49950.88
16204.14
308
2008-2009
42950.66
14876.45
284
2009-2010
2010-2011
46087.45
93605.78
17728.22
36253.41
259
258
Interpretation:
1) From the above table it can be understand that the 17% of inventory over current liabilities
ration was showing a declining trend for two years 2009-2010.
2) During the year 2010-2011 the ratio was it gradually increased to 145 and there is a net
increase to the extent of 128.
3) The lowest inventory over total amounts ratio was recorded at 14 during the year 20092010.
4) The highest inventory to current liabilities ratio was recorded at 308 during the year 200708.
5) The average inventory to current liabilities ratio was recorded at 211 during the review
period.
92
Current Ratio:
In order o know the current ratio the percentage of current assets to current liabilities is
calculated and which is presented in the following table.
Current ratio =
Current assets
---------------------------Current liabilities
Year
Current assets
Current liabilities
Ratio (%)
2005-2006
24172.33
7862.11
3.07
2006-2007
28770.78
8042.62
3.57
2007-2008
53063.75
16204.14
3.27
2008-2009
45598.02
14876.45
3.06
2009-2010
2010-2011
49713.32
86811.49
17728.22
36253.41
2.80
2.39
Interpretation:
1)From the above table it can be interpreted that the 3.07% of current assets over current
liabilities ratio i.e., current ratio was showing a decreasing trend from year 2006-07.
93
2) In the year 2005-06 the ratio was 3.07 and has increased to 3057 in the 2006-07.
3) The lowest current ratio was recorded at 2008-09 which is 2.39% and the highest ratio was
recorded at 3.57 during the year 2006-07.
4) The average current ratio was recoded at 3.02 during the review period.
9. Quick ratio:
The quick ratio is the relationship between quick to current liabilities quick assets is
more rigorous test of liability position of a firm it is computed by applying the following
formula.
Quick ratio= current assets-current liability
Where quick assets = current assets-inventory
Year
Quick assets
Current liabilities
Ratio(%)
2005-2006
10785
7862.11
1.37
2006-2007
17080
8042.62
2.12
2007-2008
3112
16204.14
0.02
2008-2009
3347
14876.45
0.22
2009-2010
2010-2011
3625
3207
17728.22
36253.41
0.20
0.08
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Interpretation:
1)From the above table it can be understand as that the % of quick assets to current liabilities
i.e., the quick ratio 0.002 in 2008-09 and from that year it is showing increasing trend.
2) The highest quick ratio was recorded at 2.12 during the year 2006-07 and the lowest quick
ratio was recorded at 0.002 during the year 2007-08.
3) The average quick ratio was recorded at 0.66 during the review period.
SUGGESTION:
1)Though the production is higher is the year 2007-08 and the sales were very high i.e., as per
inventory conversion period it took 272 days. This shows that there is demand for cement and
the funds unnecessarily tied up. So, proper demand forecasting should be done and according to
that it may be manufactured.
2)The investment on raw material should be made as per the requirement. Unnecessary
investment may block up the funds.
3)Neither too high nor too may inventory turnover ratios reduce profit and liquidity positions of
the industry. So, proper balance should be made to increase profit and to ensure liquidity.
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4)The raw material should be acquired from the right source at right quality and at right cost.
5)The process that was being used by Zuari Cement with the purchasing department should
undergo changes, so that, it seeks enhance the celerity of the delivery of a product without
compromising its quality by improving the utilization of material, labour and equipment.
6) To reduce the work, the purchasing department may enter the purchasing order into a
database and did not send a copy to any one. When the merchandise arrived, the receiving clerk
would enter the database and determine whether the order agreed with the electronic purchase
order.
CONCLUSION:
1) Over all the inventory of Zuari Cement is up to the mark.
2) The production of clinke4r and cement during 2004-05 was 7,47,436 and 7,77,092
respectively which is higher as compared to 2008-09 which is 6,87,373 and 7,27,447
respectively.
3) Investment on aw material are 93605.78 lakh which very high as compared to 2005-06
which is only 460870.45 lakh.
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4) The inventory turn over ratio shows that the stock has been converted into sales is only 1.32
times.
5) In the year 2006-07 the stock was cleared with in 28 days where as it took 232 days in the
year 2003-04 which took more days for clearing stock.
6) Year 2005-06 is not showing sample profits. This is because of cement prices have been
continuously under pressure due to persistent mismatch between supply and demand.
7) The quantity of limestone in the year 2008-09 is 9,53,940 and its value is 13,85,34,812 but
where as in the year 2007-08 the quantity was 9,74,490 and the value is 12,21,61,492.
8) In this type process, it requires more number of employees and supplier should also wait for
until the accounts are matched.
9) This process takes an input, adds value to it and provides an out put to an internal or external
customer.
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BIBLIOGRAPHY
1)
FINANCIAL MANAGEMENT
----By I.M Pandey
2)
FINANCIAL MANAGEMENT
---- By Prasanna Chandra
3)
4)
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