AiProjecti

On
“STUDYiONiINVENTORYiMANAGEMENTiINiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiK
ANSAIiNEROLACiPAINTSiLTD”.i

SUBMITTEDiBY
GOVINDAiVISHWAKARMA
(MBAi2018-2019)

EnrollmentiNo:i A30201918007
UNDERiTHEiGUIDANCEiOF:
GUIDEiNAME:ANUPiMUNSHI

SUBMITTEDiTO
AMITYiGLOBALiBUSINESSiSCHOOLi(MUMBAI)

1
 DECLARATION

I,iGOVINDAiVISHWAKARMAiStudentiofiAMITYiGLOBALiBUSINESSiSCHOOLihereb
yideclareithatitheiProjectiReportioniSTUDYiiONiINVENTORYiMANAGEMENTiINiKANS
AIiNEROLACiPAINTSiLTDiisibeeniresultiofimyiowniworkiandihasibeenicarriedioutiunderis
upervisioniofiANUPiMUNSHI.

Iideclareithatithisisubmittediworkiisidoneisolelyibyimeianditoitheibestiofimyiknowledge;inoisuc
hiworkihasibeenisubmittedibyianyiotheripersoniforitheiawardiofipostigraduationidegreeioridiplo
ma.i
Iialsoideclareithatiallitheiinformationicollectedifromivariousisecondaryisourcesihasibeenidulyiac
knowledgediinithisiprojectireport.

PLACE:iMUMBAI iiiiiiiiiiiiiiiiiiGOVINDAiVISHWAKARMA

DATE:i29/9/19

2
 iiiiCERTIFICATE

ThisiisitoicertifyithatiGOVINDAiVISHWAKARMAihasisatisfactoryicompleteditheiprojectiw
orkientitled,i“STUDYiONiINVENTORYiMANAGEMENTiINiKANSAIiNEROLACiPAIN
TSiLTD”iisibasedionitheideclarationimadeibyitheicandidateiandimeiassociationiasiaiguideiforic
arryingioutithisiprojectiwork,iIirecommendedithisiprojectiforievaluationiasiaipartiofitheiMBAipr
ogrammeiofiAMITYiGLOBALiBUSINESSiSCHOOL

SIGNATUREiOFiGUIDEi:i

NAMEi:i

DESIGNATIONi:i

ADDRESSi:i

STAMP/SEALiOFiTHEiORGANIZATIONi:

3
 ACKNOWLEDGEMENT

MyidebtsiareimanyiandiIiacknowledgeithemiwithimuchiprideiandidelight.iThisiprojectiReportiw
asiundertakeniforitheifulfilmentiofiMBAiProgrammeipursuingiatiAMITYiGLOBALiBUSINES
SiSCHOOLiIiwouldilikeitoithanksimyiinstituteiandiKANSAIiNEROLACiPAINTSiLTD,iwhic
hihasiprovidedimeitheiopportunityiforidoingithisiprojectiwork.

IiamiextremelyigreatifullitoiANUPiMUNSHIi,iforihisiinvaluableihelpiandiguidanceithroughouti
myiwork.iHeikindlyievincedikeeniinterestiinimyiworkiandifurnishedisomeiusefulicomments,iwh
ichicouldienrichitheiworkisubstantially.

Inifactiitiisiveryidifficultitoiacknowledgeiallitheinamesiandinatureiofihelpiandiencouragementipr
ovidedibyithem.iiIiwouldineveriforgetitheihelpiandisupportiextendedidirectlyioriindirectlyitoime
ibyiall.

GOVINDAiVISHWAKARMA

4
 TABLEiOFiCONTENT

Chapter Particulars PageiNo.

Abstract i6

Introductioni

 Objectivesiofitheistudy
1.  Neediforitheistudy i7
 Scopeiofitheistudy
 Statementiofitheiproblem

2. TheoreticaliBackgroundiofitheiTopic i10

3. CompanyiProfile 40

4. ReviewiofiLiterature 44

ResearchiMethodologyi:
 MethodsiUsed,iSamplingiTechniques
5.  SourcesiofiData i48
 Dataicollection
 ToolsiusediforiAnalysis

6. DataiInterpretationi&iAnalysis i50

Findingsi
7. Observations i77
Conclusions

8. Suggestionsi/iRecommendations 79

9. Limitations 80i

Annexurei(Bibliography) i81

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ABSTRACTi

Inventoryiisitheibusinessilargestiasset.iItiisistockiofiitemiusediinibusiness.iInventoryirepresentio
neiofimostiimportantiassetithatimostibusinessesiposses,ibecauseitheiturnoveriofitheiinventoryire
presentsioneiofitheiprimaryisourcesiofirevenueigenerationiandisubsequentiearningsiforitheicomp
any’sishareholderiandiowners.iInventoryiisiveryivitalitoieveryicompanyithatiisiwithoutiinventor
yinoicompanyiwouldisurvive.iInventoryiisimeantifori‘protection’iandifori‘economy’iinicost.
Keepingiinventoryiofisufficientistockiwillihelpitoifaceileaditimeicomponent,idemandiandisupply
ifluctuationiandianyiunforeseenicircumstanceiinitheiprocurementiofimaterials.iThoughitoihaveii
nventoryiisimust,iinventoryiisisuchiaithingithatiwillipileiupiandicreepiintoitheiareaiofiprofitsitoit
urnithemiasilossesiandicaniputitheicompanyiinired.iItiisitherefore,inecessaryitoihaveiControliov
eriinventoryitoisaveitheicompanyifromipilingiupiinventoriesianditoiavoidilosses.iBetterisaiditha
nidone,iisitheiwordithatisuitsiinventoryiControl.
Theimanagementiofiinventoryiisiaikeyiconcerniofiallibusiness.iIfiaicompany'siinventoryileveliis
itooilow,iitirisksidelaysiinifulfillingiitsicustomer’siorders.iIfitheiinventoryiisitooihigh,iitiisityingi
upidollarsithaticanibeibetteriusediiniotheriareas.iItialsoirisksiobsolescenceiandispoilage.iSuccess
fulibusinessesikeepitheiriinventoryiturnsihigh,ibutialsoikeepitheiriserviceileveliatioriaboveitheiin
dustryistandard.
Inventoryiisiaistockiofigoodsirequiredibyianiorganizationiforiitsisuccessfulioperation.iInventoryi
refersitoimaterialsiprocured,istorediandiusediforidayitoidayifunctioningiofitheiwholeiorganizatio
n.iInventoryiisidirectlyirelateditoiproductioniandimarketingidepartment,istillitheifinanceidepartm
entihasitoiplayiaivitaliroleiinitheimanagementiofiinventory.iTheipurposeiofiinventoryimanagem
entiisitoikeepistockiinisuchiaiwayithatithereiisinoioverstockingioriunderistocking.
Inventoryiisioneiofitheimostiexpensiveiassetsiofimanyicompaniesirepresentingiasimuchiasi50%i
ofitotaliinvestedicapital.iInventoryiControlirelatesitoiaisetiofipoliciesiandiprocedureibyiwhichian
iindustryideterminesiwhichimaterialsiitiwilliholdiinistockianditheiqualityiofieachithatiitiwillicarr
yiinistock.

CHAPTERiNO.i1
6
INTRODUCTIONi

 OBJECTIVESiOFiTHEiSTUDY
 NEEDiFORiTHEiSTUDY
 SCOPEiOFiTHEiSTUDY
 STATEMENTiOFiTHEiPROBLEM

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OBJECTIVESiOFiTHEiSTUDY

1. Toistudyitheiinventoryimanagementibasedionitheiratios
2. Toifindioutitheiimpactiofiinventoryioniworkingicapital.iiiiiiiii
3. Toistudyitheiinventoryimanagementiandiitsieffectiveicontrolithroughivariousitechniques.
4. Toisuggestitheimeasuresiforiimprovingitheiinventoryilevel.

NEEDiFORiTHEiSTUDY
Inventoriesiperformicertainibasicifunctionsiwhichiareioficrucialiimportanceiinitheifirm’siproduc
tioniandimarketingistrategies.iEffectiveiControlioveritheiutilizationiofimaterialsihasimuchibeari
ngioniprofitiandihereiisianiattemptitoistudyitheimanagementiofimaterials.iThisistudyihelpsitheic
ompanyitoidetectiandievaluateiitsiownistrengthiandiweaknessiandialsoigiveirecommendationifor
itheibetteriinventoryimanagement.

WithoutiinventoryimanagementiitiwouldibeidifficultiforianyicompanyitoimaintainiControliandib
eiableitoihandleitheineedsioficustomers.iInventoriesiareinecessaryiforiaifirmitoioperateiefficientl
yiandialmostiallibusinessitransactionsiinvolveitheideliveryiofiaiproductioriservicesiiniexchangei
oficurrency.

SCOPEiOFiTHEiSTUDY
Inventoryiisitheimajorielementiinitheiworkingicapitaliofianyimanufacturingiconcern.iTheiscopei
ofitheipresentistudyiextendsitoiensureiproperiinventoryimanagementiandicostiControl.iItiprovid
esiaiguidelineiforitheimanagementiofitheimaterialsiofitheicompanyiandihelpsitoiintroduceineces
saryichangesiasiandiwhereirequired.
Theiscopeiofiinventoryimanagementiconcernsitheifineilineibetweenireplenishmentileaditime,icar
ryingicostiofiinventory,iassetimanagement,iinventoryiforecasting,iqualityimanagement,ireplenis
hment,ireturnsiandidefectiveigoodsiandidemandiforecasting.iBalancingitheseicompetingirequire
mentsileaditoioptimaliinventoryilevels,iwhichiisianiongoingiprocessiasitheibusinessineedishiftia
ndireactitoitheiwiderienvironment

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STATEMENTiOFiTHEiPROBLEM
Theimanagementiuseimanuallyitoikeepingitheyirecordiofitheistore,ibutitheisystemiisidifficultitoi
maintainidueitoitheicostiofimaterial,ihumanierrors,ilessidataiintegrity,idifficultyiinisearchingiand
iretrievingiproductiandifeasibleilossiofirecordsiandiretrievingifiles.ii

9
CHAPTERiNO.i2
THEORETICALiBACKGROUNDiOFiTHEiTOPIC

Inventoriesiconstituteitheiprincipaliitemiinitheiworkingicapitaliofitheimajorityiofitradingiandiindust
rialicompanies.iIniinventory,iweiincludeirawimaterials,ifinishedigoods,iwork-in-
progress,isuppliesiandiotheriaccessories.iToimaintainitheicontinuityiinitheioperationsiofibusinessie
nterprise,iaiminimumistockiofiinventoryirequired.iHowever,itheiphysicalicontroliofiinventoryiisith
eioperatingiresponsibilityiofistoresisuperintendentiandifinancialipersonnelihaveinothingitoidoiabout
iitibutitheifinancialicontroliofitheseiinventoriesiiniallilinesiofiactivityiiniwhichitheyicompriseiaisub
stantialipartiofitheicurrentiassetsiisiaifrequentiproblemiinitheimanagementiofiworkingicapital.iMan
agementiofiinventoryiisidesigneditoiregulateitheivolumeiofiinvestmentiinigoodsionihand,itheitypes
iofigoodsicarriediinistockitoimeetitheineedsiofiproduction.

CONCEPTiOFiINVENTORYiMANAGEMENT

Theitermiinventoryimanagementiisiusediinitwoiways-
iuniticontroliandivalueicontrol.iProductioniandipurchaseiofficialsiuseithisiwordiinitermiuniticontrol
iwhereasiiniaccountingithisiwordiisiusediinitermiofivalueicontrol.iAsiinvestmentiiniinventoryirepre
sentsiinimanyicases,ioneiofitheilargestiassetiitemsiofibusinessienterprisesiparticularlyithoseiengage
diinimanufacturing,iwholesaleitradeiandiretailitrade.iSometimesitheicostiofimaterialiusediiniproduc
tionisurpassesitheiwagesiandiproductionioverheads.iHence,itheiproperimanagementiandicontroliofi
capitaliinvestediinitheiinventoryishouldibeitheiprimeiresponsibilityiofiaccountingidepartmentibecau
seiresourcesiinvestediiniinventoryiareinotiearningiaireturniforitheicompany.iiRather,ionitheiotherih
and,itheyiareicostingitheifirmimoneyibothiinitermsioficapitalicostsibeingiincurrediandilossiofioppo
rtunityiincomeithatiisibeingiforegone.

OBJECTIVESiOFiINVENTORYiMANAGEMENT

Theibasicimanagerialiobjectivesiofiinventoryicontroliareitwo-fold;ifirst,itheiavoidanceiover-
investmentioriunder-
investmentiiniinventories;iandisecond,itoiprovideitheirightiquantityiofistandardirawimaterialitoit
heiproductionidepartmentiatitheirightitime.iInibrief,itheiobjectivesiofiinventoryicontrolimayibeis
ummarizediasifollows:

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A. OperatingiObjectives:
(1) EnsuringiAvailabilityiofiMaterials:iThereishouldibeiaicontinuousiavailabilityiofiallityp
esiofirawimaterialsiinitheifactoryisoithatitheiproductionimayinotibeihelpiupiwantsiofiany
imaterial.iAiminimumiquantityiofieachimaterialishouldibeiheldiinistoreitoipermitiproduc
tionitoimoveionischedule.
(2) iAvoidanceiofiAbnormaliWastage:iThereishouldibeiminimumipossibleiwastageiofimat
erialsiwhileitheseiareibeingistorediinitheigodownsioriusediinitheifactoryibyitheiworkers.i
Wastageishouldibeiallowediupitoiaicertainileveliknowniasinormaliwastage.iToiavoidiany
iabnormaliwastage,istricticontrolioveritheiinventoryishouldibeiexercised.iLeakage,itheft,i
embezzlementsiofirawimaterialiandispoilageiofimaterialidueitoirust,ibustishouldibeiavoi
ded.
(3) PromotioniofiManufacturingiEfficiency:iIfitheirightitypeiofirawimaterialiisiavailableit
oitheimanufacturingidepartmentsiatitheirightitime,itheirimanufacturingiefficiencyiisialsoi
increased.iTheirimotivationilevelirisesiandimoraleiisiimproved.
(4) AvoidanceiofiOutiofiStockiDanger:iInformationiaboutiiiiavailabilityiofimaterialsishoul
dibeimadeicontinuouslyiavailableitoitheimanagementisoithatitheyicanidoiplanningiforipr
ocurementiofirawimaterial.iItimaintainsitheiinventoriesiatitheioptimumilevelikeepingiini
viewitheioperationalirequirements.iItialsoiavoidsitheioutiofistockidanger.
(5) BetteriServiceitoiCustomers:iSufficientistockiofifinishedigoodsimustibeimaintaineditoi
matchireasonableidemandiofitheicustomersiforipromptiexecutioniofitheiriorders.
(6) Designingipooreriorganizationiforiinventoryimanagement:iClearicutiaccountabilityis
houldibeifixediativariousilevelsiofiorganization.

B.iiFinancialiObjectives:

(1) Economyiinipurchasing:iAiproperiinventoryicontrolibringsicertainiadvantagesiandiecon
omiesiinipurchasingialso.iEveryiattemptihasitoimakeitoieffectieconomyiinipurchasingithr
oughiquantityianditakingiadvantageitoifavorableimarkets.

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(2) ReasonableiPrice:iWhileipurchasingimaterials,iitiisitoibeiseenithatirightiqualityiofimate
rialiisipurchasediatireasonablyilowiprice.iQualityiisinotitoibeisacrificediatitheicostiofilo
weriprice.iTheimaterialipurchasedishouldibeiofitheiqualityialoneiwhichiisineeded.
(3) OptimumiInvestingiandiEfficientiUseioficapital:iTheibasiciaimiofiinventoryicontrolifr
omitheifinancialipointiofiviewiisitheioptimumileveliofiinvestmentiiniinventories.iThereis
houldibeinoiexcessiveiinvestmentiinistock,ietc.iInvestmentiiniinventoriesimustinotitieiup
ifundsithaticouldibeiusediiniotheriactivities.iTheideterminationiofimaximumiandiminimu
mileveliofistockiattemptiinithisidirection.

TYPESiOFiINVENTORY
 Movementiinventories
Movementiinventoriesialsoicallediasitransitioripipelineiinventory.iPipelineiinventoryiexistib
ecauseimaterialicannotibeitransportediinstantaneouslyibetweenipointiofisupplyiandipointiofi
demand.
 Bufferiinventories
Bufferiinventoryialsoicallediasisafetyiinventory.iItsipurposeiisitoicompensateiforiunexpected
ifluctuationsiinisupplyiandidemandiasiwelliasiunpredictableieventsisuchiasipoorideliveryireli
abilityioripooriqualityiofisupplier’siproducts.iGenerallyihigheritheileveliofibufferiinventory,i
theibetteritheifirm’sicustomeriservice.
 Cycleiinventory
Itiisiheldiforitheireasonithationeiorimoreistagesiinitheiprocessicannotisupplyiallitheiitemsiiti
producesisimultaneously.iThisitypeiofiinventoryiresultifromitheineeditoiproduceiproductsiini
batchesiandiamountiofiitidependsionivolumeidecisions.
 Decouplingiinventory
Inventoryiisiuseditoiallowiworkicentersioriprocessesitoioperateirelativelyiindependently.iWh
enisuchiinventoryiareiheldieveniifiaimachineibreaksidownitheiworkiwouldinotistop
 Anticipationiinventory
Thisitypeiofiinventoryiisiaccumulateditoicopeiupiwithiexpectedifutureidemandioriinterruptio
niinisupply.iItiisiaiwayiforimanufacturersitoimaintainiconsistentioperationsiwhenitheideman
diforitheiproductiisilow.

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NEEDiTOiHOLDINGiINVENTORIES
Maintainingiinventoriesiinvolvesityingiupiofitheicompany’sifundsiandiincurrenceiofistorageiand
ihandlingicost.iIfiitiisiexpensiveitoimaintainiinventories,iwhyidoicompaniesiholdiinventories?iT
hereiareithoseigeneralimotivesiforiholdingiinventories;
 Transactionimotive
Accordingitoithisisimotive,ianienterpriseimaintainsiinventoriesitoiavoidibottlenecksiiniitsipr
oductioniandisales.iByimaintainingiinventories,itheibusinessiensuresithatiproductioniisinotii
nterruptediforiwantiofirawimaterials,ionitheiotherihandiandisalesialsoiareinotiaffectedioniacc
ountiofinon-availabilityiofifinishedigoods,ionitheiother.
 Precautionaryimotive
Inventoriesiareialsoiheldiwithiaimotiveitoihaveiaicushioniagainstiunpredictedibusiness.iTher
eimayibeisuddeniandiunexpectedispurtiinidemandiforifinishedigoodsiatitimes.iSimilarly,ither
eimayibeiunforeseenislumpiinitheisupplyiofirawimaterialsiatiaitime.iInibothicases,iaiprudent
ibusinessiworldisurelyilikesitoihaveisomeicushionitoiguardiagainstitheiriskiforisuchiunpredic
tableichanges.
 Speculativeimotive
Anienterpriseimayialsoiholdiinventoriesitoitakeitheiadvantageiofipriceifluctuation.iSuppose,i
ifitheipricesiofirawimaterialsiareitoiincreaseiratheristeeplyitheienterpriseiwouldilikeitoiholdi
moreiinventoriesithanirequirediatiloweriprices.

FACTORSiINFLUENCINGiINVENTORY
Theiinventoryimanagementiofianiorganizationihasianiimpactionitheiwholeisystem.
“Howimuchitoibuyiationetime”iandi“whenitoibyithisiquantity”.iThisitwoifundamentalithingsioni
whichiinventoryiControlidepends.iManyifactorsigovernitheseifundamentalithings.iTheiprimeifac
torsithatigovernitheseitwoifundamentalithingsiare;
 Requirements
 Qualityiinistockiorionistock
 Leaditime

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 Obsolesce

ADVANTAGESiOFiINVENTORYiCONTROL
Hereiareitheifollowingiadvantagesiofiinventoryicontrol-
 Reductioniiniinvestmentiiniinventory.
 Properiandiefficientiuseiofirawimaterials.
 Noibottleneckiiniproduction.
 Improvementiiniproductioniandisales.i
 Efficientiandioptimumiuseiofiphysicaliasiwelliasifinancialiresources.
 Orderingicosticanibeireducediifiaifirmiplacesiaifewilargeiordersiiniplaceiofinumerousismalli
orders.
 Maintenanceiofiadequateiinventoriesireducesitheiset-
upicostiassociatediwithieachiproductionirun.

RISKIANDICOSTIASSOCIATEDIWITHIINVENTORIES

HoldingiofiInventoriesiexposeitheifirmitoiainumberiofirisksiandicosts.

Majoririsksiareiasifollows-

(a) Priceidecline:iTheyimayibeidueitoiincreaseiinimarketisupplyiofitheiproduct,iintroductioni
ofiainewicompetitiveiproduct,iprice-cutibyitheicompetitorsietc.
(b) Productideterioration:iThisimayidueitoiholdingiaiproductiforitooilongiaiperiodioriimpro
peristorageiconditions.
(c) Obsolescence:iThisimayidueitoichangeiinicustomer’sitaste,inewiproductionitechnique,iim
provementsiiniproductidesign,ispecificationsietc.
TheiCostsiofiholdingiinventoriesiareiasifollows-

(a) MaterialiCost:iThisiincludeitheicostiofipurchasingitheigoods,itransportationiandihandlingi
chargesilessianyidiscountiallowedibyitheisupplieriofigoods.
(b) iOrderingiCost:iThisiincludesitheivariablesicostiassociatediwithiplacingianiorderiforithei
goods.iTheifeweritheiorders,itheiloweriwillibeitheiorderingicostsiforitheifirm.

14
(c) CarryingiCost:iThisiincludesitheiexpensesiforistoringiandiiihandlingitheigoods.iIticompri
sesistorageicosts,iinsuranceicosts,ispoilageicosts,icostiofifundsitiediupiiniinventoriesietc.

ESSENTIALiOFiINVENTORYiCONTROLiSYSTEM

Forianiefficientiandisuccessfuliinventoryicontrolithereiareicertainiimportanticonditionsithatiareia
sifollows:

(1) ClassificationiandiIdentificationiofiinventories:iTheiusualiinventoryiofimanufacturingi
firmiincludesiraw-material,istores,iwork-in-
progressiandicomponentietc.iToifacilitateipromptirecordingitheidealing,ieachiitemiofithei
inventoryimustibeiassignediaiparticularicodeinumberiandiitimustibeiclassifiediinisuitable
igroupiorisub-divisions.iABCianalysisiofimaterialiisiveryihelpfuliinithisicontext.
(2) Standardizationiandisimplificationiofiinventories:iiIniorderitoifacilitateiinventoryicon
trol,itheiinventoryilineishouldibeisimplified.iItirefersitoitheieliminationiofiexcessitypesia
ndisizesiofiitems.iSimplificationileadsitoireductioniiniclassificationiofiinventoriesiandiits
icarryingicosts.iStandardization,ionitheiotherihand,irefersitoitheifixationiofistandardsiofir
awimaterialitoibeipurchasediandispecificationiofitheicomponentsianditoolsitoibeiused.
(3) SettingitheiMaximumiandiMinimumilimitsiforieachipartiofiinventory:iTheithirdiste
piinithisiprocessiisitoisetitheimaximumiandiminimumilimitsiofieachiitemiofitheiinventor
y.iItiavoidsitheichancesiofiover-
investmentiasiwelliasirunningiaishortiofianyiitemiduringitheicostiofiproducing.iReorderi
ngipointishouldialsoibeifixedibeforehand.
(4) EconomiciOrderiQuantity:iItiisialsoiaibasiciinventoryiproblemitoidetermineitheiquantit
yiasihowimuchitoiorderiatiaitime.iInideterminingitheiEOQ,itheiproblemiisioneitoisetiaib
alanceibetweenitwoioppositeicosts,inamely,iorderingicostsiandicarryingicosts.iThisiquant
ityishouldibeifixedibeforehand.
(5) AdequateistorageiFacilities:iToimakeitheisystemiofiinventoryicontrolisuccessfuliandief
ficientione,iitiisialsoiessentialitoiprovideitheiadequateistorageifacilities.iSufficientistorag
eiareaiandiproperihandlingifacilitiesishouldibeiorganized.
(6) AdequateiReportsiandiRecords:iInventoryicontrolirequiresitheimaintenanceiofiadequat
eiinventoryirecordiandireports.iVariousiinventoryirecordsimusticontainiinformationitoim
eetitheineedsiofipurchasing,iproduction,isalesiandifinancialistaff.iTheitypicaliinformation
15
 irequirediaboutianyiclassiofiinventoryimayibeirelatingitoiquantityionihand,ilocation,iqua
ntitiesiinitransit,iuniticost,icodeiforieachiitemiofiinventory,ireorderipoint,isafetyilevelietc
.iStatementsiformsiandiinventoryirecordsishouldibeisoidesignedithatitheiclericalicostiofi
maintainingitheseirecordsimustibeikeptiaiminimum.
(7) IntelligentiandiExperiencediPersonnel:iAniimportantirequirementiofisuccessfuliinvent
oryicontrolisystemiisitheiappointmentiofiqualifiediandiexperiencedistaffiinipurchaseiandi
storesidepartment.iMereiestablishmentiofiproceduresianditheimaintenanceiofirecordsiwo
uldinotigiveitheidesirediresultsiasithereiisinoisubstituteiforisincereiandidevotediasiwellia
siexperiencedihands.iHence,itheiwholeiinventoryicontrolistructureishouldibeimannediwit
hitrained,iqualified,iexperiencediandidevotediemployees.
(8) Coordination:iThereimustibeipropericoordinationiofiallidepartmentsiinvolvediinitheipro
cessiofiinventoryicontrol,isuchiasipurchase,ifinance,ireceiving,iapproving,istorageiandiac
countingidepartments.iTheseiallidepartmentsihaveidifferentioutlookiandiobjectsiiniinvent
oryimanagementibutifinancialimanagerihasitoicoordinateithemiall.
(9) Budgeting:iAniefficientibudgetingisystemiisialsoirequired.iPreparationiofibudgetsiconce
rningimaterials,isuppliesiandiequipmentitoiensureieconomyiinipurchasingiandiuseiofimat
erialiisialsoinecessary.
(10) InternaliCheck:iOperatingiofiaisystemiofiinternalicheckiisialsoivitaliiniinventoryimana
gementisoithatiallitransactionsiinvolvingimaterialisuppliesiandiequipmentipurchaseiareip
roperlyiapprovediandiautomaticallyichecked.

FACTORSiAFFECTINGiSTOCKiINVESTMENTiLEVEL

Theseifactorsicanibeiputiinitwoicategories:iGeneraliandiSpecific.i

GeneraliFactors:iTheseifactorsiincludeithoseifactors,iwhichiaffectidirectlyioriindirectlyileveliof
iinvestmentiinianyiasset.iTheseiareiasifollows:

(1) NatureiofiBusiness
(2) SizeiandiscaleiofiBusiness
(3) ExpectediSalesiVolumesi
(4) PriceiLeveliChanges
(5) AvailabilityiofiFunds

16
(6) ManagementiviewiPoint
SpecificiFactors:iTheseifactorsiareidirectlyirelatediwithiinvestmentiinistock.iFollowingiareithei
mainifactors:

(1) SeasonaliCharacteriofiRawiMaterials:iiIfisupplyiofirawimaterialiusediinitheifirmiisisea
sonal,itheifirmiwillirequireimoreifundsiforitheipurchaseiofirawimaterialiduringiseason.iUs
ually,irawimaterialsiareiavailableiaticheaperiratesiduringiitsiproductioniseason.
(2) LengthiandiTechnicaliNatureiofitheiproductioniprocess:iIfiproductioniprocessiisilengthyi
andiofitechnicalinature,ihigheriinvestmentiisirequirediinirawimaterial.iInitheitechnicalinat
ureiproductioniprocess,iqualityicontroliofirawimaterialiisigivenimoreiemphasis.
(3) TermsiofiPurchase:iIfisomeiconcessionsioridiscountiinipriceiorifacilitiesioficreditiareipro
videdibyisuppliersionipurchaseiofirawimaterialsiinihugeiquantityithenitheifirmiisiinspired
iforiexcessiveipurchaseiofigoodsiandihenceicomparativelyimoreiinvestmentiisirequirediin
iinventory.
(4) NatureiofiEndiProduct:iNatureiofiendiproductialsoiinfluencesiinvestmentiiniinventory.iI
fitheiendiproductiisiaidurableigood,ihighiinvestmentiwillibeirequiredibecauseidurableigoo
dsicanibeistorediforiailongiperiod.iOnitheiotherihand,iperishableigoodsicannotibeistoredif
oriailongiperiod.iHence,iinvestmentiiniinventoryiofisuchiproductsiisilow.
(5) iSupplyiConditions:iIfitheisupplyiofirawimaterialiisiregulariandithereiisinoipossibilityiofi
interruptioniinifuture,ihighiinvestmentiiniinventoriesiisinotirequired.
(6) iTimeiFactor:iTheileaditimeiofirawimaterialitimeitokeniiniproductioniprocessiandisaleiofi
productialsoiinfluenceiinvestmentiiniinventories.iLongeritheiperiod,ihigheriwillibeitheiinv
estmentiiniinventories.
(7) LoaniFacilities:iIfirawimaterialsiareipurchasedionicreditioriloanifromitheibankioriotherifi
nancialiinstitutionicanibeiobtainedionitheisecurityiofirawimaterial,ilesseriinvestmentiwoul
dibeirequired.iInitheiabsenceiofisuchiloanifacility,ihigheriinvestmentiwouldibeirequired.
(8) PriceiLeveliFluctuations:iIfithereiareiexpectationsiofipriceiriseiinifutureithenirawimateria
lsimayibeistoreiinihighiquantityiandisoimoreiinvestmentiwouldibeirequired.iOnitheicontra
ry,iifitheipricesiofirawimaterialsiareiexpecteditoigoidowniinifuture,ithenicomparativelyile
sseriinvestmentiwouldibeirequired.

17
INVENTORYiCONTROLiTECHNIQUES
Inventoryiisibeingimaintainediasiaicushioniinisupplyiofimaterialsiforicontinuousiproductioniwit
houticausingistockioutisituation.iThisicushionishouldinotibeisuicidalitoianyiorganization.iTheifo
llowingiscientificitechniquesiandimethodsiareibeingiusediinicontroliofiinventory.
1. InventoryiManagementiTechniques
2. Standardizationi
3. SelectiveiInventoryiControl
4. JustiIniTime
5. PerpetualiInventoryiSystem
6. InventoryiTurnoveriRatio

1. INVENTORYiMANAGEMENTiTECHNIQUES

I. ECONOMICiORDERiQUANTITY:-
Ifitheifirmiisibuyingirawimaterials,iitihasitoidecideilotsiiniwhichiitihasitoibeipurchasedio
nireplenishment.iIfitheifirmiisiplanningiaiproductionirun,itheiissueiisihowimuchiproducti
onitoischedule.iTheseiproblemsiareicallediorderiquantityiproblemsianditheitaskiofitheifir
miisitoidetermineitheioptimumiorieconomiciorderiquantity.
(a) Orderingicosti
Theitermiorderingicostiisiusediinicaseiofirawimaterialsiandiincludesitheientireicostiofiac
quiringirawimaterials.
(b) Carryingicosti:
Costiincurrediforimaintainingiaigivenileveliofiinventoryiisicalledicarryingicost.
EconomiciOrderiQuantityiisigivenibyitheiformula:
EOQi=ii√𝟐𝑨𝑶/𝑪i
Anditheicostiofiinventoryiisigivenibyiformula:
Totalicostiofiinventoryi=i(AixiP)i+i(AixiQ)/EOQi+i(EOQixiC)/i2
Where,iA=iAnnualiConsumptioni(iniunits)
O=iOrderingicostiperiorderi(iniRs)
C=iCarryingicostiperiuniti(iniRs)
P=iPriceiperiuniti(iniRs)

18
 II. ReorderiPoint
Theireorderipointiisithatiinventoryileveliatiwhichianiorderishouldibeiplaceditoireplenishi
theiinventoryi.Toidetermineireorderipoint:
(a) Leaditimeiisitheitimeinormallyitakeniinireplenishingiinventoryiafteritheiorderihasibeenip
laced.
(b) Averageiusage
(c) Economiciorderiquantity

III. Safetyistock
Theidemandiforimaterialimayifluctuateifromidayitoiday.iTheiactualideliveryitimeimayibeidiffer
entifromitheinormalileaditime.iIfitheiactualiusageiincreasesioritheideliveryiofiinventoryiisidelay
editheifirmicanifaceiproblemiofistockiout,iwhichicanibeicostly.iSo,iiniorderitoiguardiagainstithe
istockioutitheifirmimayimaintainiaisafetyiStock.

2. STANDARDIZATIONi:
Standardizationiisiveryiessentialitoicontrolitheiinventory,iasibyistandardizationireductioniinivari
etyiofimaterialsiisipossible.iAndibecauseiofitheireductioniinivarietyitheiadvantagesiareilowicost,
ilowiinventory,ilessistorageistocks,iconservationiofimaterials,ivarietyireduction,ilessipaperiwork
,ieasilyifollowiupiwithisuppliers,ilessinumberiofiorders.
TheiimportanceiofithisifieldihasibeenirecognizedisinceitheidaysiofiF.W.iTaylori,iwhoifirstidrewi
attentioniitoithisifundamentaliineediinianyiorganizationi.Justiasiworkistudyiisinecessaryiprelimi
naryitoiworkisimplificationi,iandiaibasicitechniqueiiforiproductionicontrol,iqualityicontrol,imate
rialsihandlingi,iestimatedicosticontrol,ietc.iStandardizationiisipreliminaryinecessityitoidesigniaib
asicitechniqueionibuildicontroliandistandardizationiprocedure.

3. SELECTIVEiINVENTORYiCONTROLiMANAGEMENT
Anyimanufacturingiorganizationiconsumesifewithousandiitemsiofistores.iAihighidegreeioficontr
oliofiinventoriesiofieachiitemiwould,ithereforeineitheribeipracticaliconsideringitheiworkiinvolve
d,inoriworthwhileisinceialliitemsiareinotiofiequaliimportance.iHenceiitiisidesirableitoiclassifyior
igroupiitemsitoicontrolicommensurateiwithiimportance.iThisiisitheiprincipleiofiselectiveicontrol
iasiapplieditoiinventoriesianditheitechniqueiofigroupingiisitermediasiselectiveitechnique.

19
Selectiveiinventoryimeansivariationiinitheimethodsiofiinventoryicontrolifromiitemitoiitemiandit
hisidifferentiationishouldibeioniselectiveibasisibyiclassification.iAicompanyihasitoistockithousa
ndsiofiitemsiofirawimaterials,istandardiparts,istoresiandispares,isubicontractiitems,itools,istation
aryietc.iToihaveibettericontrolioveritheiinventory/istockionihand,iselectiveiinventoryicontrolitec
hniqueishouldibeiusediiniisolation/ioriiniconjunction.
Thus,iselectiveicontrolimeansiselectingitheiareaioficontrolisoithatirequirediobjectiveiisiachieved
iasiearlyiasipossibleiwithoutianyilostiofitimeidueitoitakingicareiofifulliarea—
 Minimumilossiofienergyiandiefforts.
 Atimaximumicostiwithoutilossiofitime.
Thereiareifollowingiselectiveicontrolitechniques:
 ABCiAnalysis
 FSNiiAnalysis
 XYZiAnalysis
 VEDiAnalysis
 HMLiAnalysis

a) ABCiANALYSIS
ABCiAnalysisiisiaiselectiveicontrolitechniqueiwhichiisirequireditoibeiappliediwheniweiwantitoi
controlivalueioficonsumptioniofitheiitemsiiniRupeesiobviouslyiwheniweiwantitoicontrolivalueio
fitheiconsumptioniofitheimaterialiweimustiselectithoseimaterialsiwhereiconsumptioniisiveryihig
h.
Inianyicompanyimanufacturing,ithereiareinumberiofiitemsiwhichiareiconsumedioritradediitimay
iruniintoithousands.iItiisifoundiafterinumberiofistudiesiforidifferenticompaniesithat—
Valueioficonsumptioniofiitemsi(valueiiniRsi) No.iofiitems Grade
70%ioficonsumption 10%iofino.iofiitems A
20%ioficonsumption 15%iofino.iofiitems B
10%ioficonsumption 75%iofino.iofiitemsi C

Aiitemsitheseiareithoseiitemsiwhichiareifoundihardlyi5%i10%ibutitheiriconsumptionimayiamou
nti70%i75%iofitheitotalimoneyispendionimaterials.

20
Biitemsitheseiareithoseiitemsiwhichiareigenerallyi10%i15%iofitheitotaliitemsianditheiriconsum
ptioniamountsitoi10%i15%iofitheimoneyispendionitheimaterials.
Ciitemsitheseiareilargerinumberiofiitemsiwhichiareicheapiandiinexpensiveiandihenceiinsignific
ant.iTheyiareilargeiininumberiofirunningiintoihardlyi5%i10%iofitheitotalimoneyispendsionithei
materials.
‘A’iClassiItems ‘B’iClassiItems ‘C’iClassiItems
(Highiconsumptionivalue) (Moderateiconsumptio (LowiconsumptioniValue)
nivalue)
Veryistricticontrol Moderateicontrol Loseicontrol
Noisafetyistocksioriveryilowisa LowiSafetyistocks Highisafetyistocks
fetyistocks
Maximumifollowiupiandiexped Periodicifollowiup Followiupiandiexpeditingiiniexcep
itingi tionalicases
Rigorousivalueianalysisi 1) Moderateivalueianalysis
I. Minimumivalueianalysis
Mustibeihandledibyiseniorioffic Canibeihandlediibyiman Canibeifullyidelegated
ers agement

b) FSNiANALYSIS
Thisitypeiofianalysisiisimoreiconcernedifromitheipointiofiviewiofimovementiofitheiitemioriissu
eiofitheiitemiunderithisitypeiofianalysis.

‘F’iitemsiareithoseiitems,iwhichiareifastimovingii.e.iniaigiveniperiodiofitime,isayiaimonthioriai
yearitheyihaveibeeniissuediupitillinumberiofiitems.iAlthoughifastimovingidoesinotinecessarilyi
meanithatitheseiitemsiareiconsumediinilargeiitems.

‘S’iitemsiareithoseiitemsiwhichiareislowimovingiinitheisenseithatiinitheiigiveniperiodiofitimeith
eyihaveibeeniissuediiniaiveryilimitedinumberiofitime.

‘N’inonimovingiitemsiareithose,iwhichiareinotiatialliissuediforiaiconsiderableiperiodiofitime.

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Thus,istoresidepartmentiwho’siconcernediwithitheimovingiofiitemsiwouldilikeitoiknowiandiclas
sifyithatitheiitemsiareistoringiinitheicategoriesiFSN.iSoithatitheyicanimanageioperateiandiplanis
toresiactivityiaccordingly.
Foriexample,iforiefficientioperationsiitiwouldibeinecessaryithatifastimovingiitemsiasifariasiposs
ibleishouldibeistorediasineariasipossibleitoitheipointiofiissue.iSoithatiiticanibeiissuediwithimini
mumiofihandling.iAlsoisuchiitemsimustibeistorediatitheifloorileveliavoidingistoringithemiatihig
hiheights.
Similarly,iifitheiitemsiareislowimovingioriissuedionceiiniaiwhileiiniaigiveniperiodiofitimeitheyi
canibeistorediinitheiinterioriofitheistoresiandieveniatitheihigheriheightsibecauseihandlingiofithes
eiitemsibecomesiveryirare.
Furtheriitiisinecessaryiforistoresiinichargeitoiknowiaboutinonimovingiitemsiforivariousireasons:
-
1. Theyimeaniunnecessaryiblockageiofimoneyiandiaffectingitheirateiofireturnsiofitheicompany.
2. Furtheritheyialsoioccupyivaluableispaceiinitheistoresiwithoutianyiusefulnessiandithereforeiit
ibecomesinecessaryitoiidentifyitheseiitemsiandigoiintoidetailsiandifindireasonsiforitheirinon
eimovingiandiifijustifieditoirecommenditoitopimanagementiforitheirispeedyidisposalisoithati
companyioperationsiareiperformediefficiently.
AlsoiinventoryicontrolitoisomeiextenticanialsoibeiexercisedionitheibasisiofiFSNianalysis.
Foriexample,ifastimovingiitemsicanibeicontrolledimoreiseverely,iparticularlyiwhenitheirivalueii
sialsoiveryihigh.iSimilarly,islowimovingiitemsimayinotibeicontrollediandireviewediveyifrequent
lyisinceitheiriconsumptionimayinotibeifrequentianditheirivalueimayinotibeihigh.

c) XYZiANALYSIS
iThisitypeiofianalysisiisicarriedioutifromitheipointiofiviewiofivalueiofibalanceistocksilyingiinith
eistoresifromitimeitoitimeiandiclassifiesiallitheiitemsiasigivenibelow.
‘X’iitemsiareithoseiitemsiwhoseivalueiofibalanceistocksilyingiinitheistockiisiveryihigh.
‘Y’iitemsiareithoseiitemsiwhoseivalueiofibalanceistockiisimoderate.
‘Z’iitemsiareithoseiitemsiwhoseivalueiofibalanceistockilyingiinitheistocksiisiveryilow.
Afteriknowingithisitypeioficlassificationianditheiriitemsicanibeitakenitoicontrolitheisituationiasi
shownibelow:

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o Fromisecurityipointiofiviewihighivalueiitemsimustibeistorediandikeptiunderilockiandikeyiori
ifinotipossibleitheyishouldibeikeptiinisuchiaiwayithatiisialwaysiunderisupervision.iSimilarlyi
arrangementicanibeimadeiforiyiandiziitemsiaccordingly.
o Fromiinventoryicontrolipointiofiviewiweimustiknowiwhyithereiisihighiinventoryifori‘X’iite
ms.iWeishouldireviewiinventoryicontroliprocedureiforieachiandieveryihighiitemibecauseisto
ckishouldibeimaintaineditoitakeicareiofileaditimeiconsumptioniandialsoitoiprovideisafetyisto
cks.iForihighivalueiitemsilyingiinistoresiweishouldireviewitheireasonsiforilongileaditimeiasi
welliasidemandivariationsiandiseeiwhetherileaditimeiconsumptioniandisafetyistocksicanibeir
educed.iThusiproperiinventoryicontroliproceduresicanibeidevelopedionitheibasisiofiXYZian
alysis.
Thusiproperiselectiveicontrolimethodsishouldibeiselecteditoicontrolitheimaterialsiandipreventifr
omifacingiloss,itakingiadvantageiandiknowingiwhatiexactlyiisitoibeidone.

d) VEDiANALYSIS
VEDianalysisiisicarriedioutitoicontrolisituation,iwhichiareicritical.iWheniapplieditoimaterialiini
VEDianalysisiweitryitoiidentifyimaterialiaccordingitoitheiricriticalityitoitheiproduction,iwhichi
meansitheimaterial,iwithoutiwhichitheiiproductioniwillicomeitoistopiandisoionifromithisipointio
fiviewimaterialiclassifiediinithreeicategories:-i
V-iVital
E-iEssential
D-iDesirable
Vitalicategoriesiofitheiitemsiareithoseiitemsiforitheiwantiofiwhichitheiproductioniwillicomeitois
top.iForiexample:i-iPoweriinitheiFactory
Essentialigroupiofiitemsiareithoseiitemsibecauseiofinoniavailabilityiofiwhichitheistockiouticostii
siveryihigh.
Desirableigroupiofiitemsiareithoseiitemsibecauseiofinoniavailabilityiofiwhichithereiisinoiimmed
iateilossiofiproductioniandistockicostiisiveryilessiandiitimayicauseiminoridisruptioniinitheiprodu
ctioniforiaishortitime.

23
e) HMLiANALYSIS
Thisianalysis,ianalysisitheimaterialiaccordingitoitheiripricesianditheniclassifiesithemiasiHiitemi
oriMiitemioriLiitems.
Histandsiforihighiprice,
Mistandsiforimediumipriceiandi
Listandsiforilowiprice.
Sinceipriceiisimoreiconcernediofipurchaseidepartmentimostlyipurchaseidepartmentipeopleianaly
sesitheimaterialiaccordingitoiHMLianalysis.
HMLianalysisimustibeicarriedioutifromianyioneiofitheifollowingiobjectivesiorisomeiofitheiobje
ctiveiasitheicaseimayibei—
 Wheniitiisidesireithatipurchasingiresponsibilityishouldibeidelegateditoirightileveliofipeople.
 WheniitiisidesireditoievolveiipurchasingipoliciesithenialsoiHMLianalysisiisicarriedioutii.e.i
whetheritoipurchaseiiniexactiquantitiesiasirequiredioritoipurchaseiiniEOQioripurchaseionlyi
wheniabsolutelyinecessary.i
 Whenitheiobjectiveiisitoikeepicontroliovericonsumptioniatitheidepartmentilevelitheniauthori
zationitoidrawimaterialsifromitheistoresiwillibeigivenitoihighileveliHiitem,ilowileveliforiLiit
emsiandimediumileveliforiMiitems.
 WheniitiisidesireditoidecideifrequencyiofistockitakingitheniveryifrequentlyiHicategory,ivery
irarelyiLicategoryiandiaveragelyiMicategory.
 Wheniitiisidesireditoiarrangeisecurityiarrangementsiforitheiitems,itheniHiitemsiunderilockia
ndikey,iLiitemsikeepiopenionitheishopiflooriandiunderisupervisioniforiMiitems.

4. JUSTiINiTIMEiINVENTORYiSYSTEM
Keepingiiniviewitheienormousicarryingicostiofiinventoryiinitheistoresiandigoidowns,imanufactu
resiandimerchandisersiareiaskingiforimoreifrequentideliveriesiwithishorteripurchaseiorderileaditi
mesifromitheirisuppliers.iTodayiorganizationsiareibecomingimoreiandimoreiinterestediinigetting
ipotentialigainsifromimakingismalleriandimoreifrequentipurchaseiorders.iIniotheriwords,itheyiar
eibecomingiinterestediinijustiinitimeipurchasingisystem.iJustiinitimeipurchasingi(JIT)iisitheipur
chasingiofimaterialiorigoodsiinisuchiaiwayithatideliveryiofipurchasediitemsiisiassuredibeforeith
eiriuseioridemand.

24
Justiinitimeipurchasingirecognizesitooimuchicarryingicostsiassociatediwithiholdingihighiinvento
ryilevels.iTherefore,iitiadvocatesidevelopingigoodirelationsiwithisuppliersiandimakingitimelyipu
rchasesifromiprovenisuppliersiwhoicanimakeireadyideliveryiofigoodsiavailableiasiandiwheninee
diarises.iEOQimodeliassumesiaiconstantiorderiquantityiwhereasiJITipurchasingipolicyiadvocate
siaidifferentiquantityiforieachiorderiifidemandifluctuates.EOQilaysiemphasisioniorderingicostsit
oiincludeipurchaseicostsiqualityicostsiandistockiout.iJustiinitimeipurchasingitakesiintoiconsidera
tioniallitheseicostsiandimovei–ioutsideitheiassumptionsiofitheiEOQimodel.

AdvantagesiofiJITipurchasing
1. Investmentiiniinventoryiisireducedibecauseimoreifrequentipurchaseiordersiofismalliquantitie
siareimade.
2. Carryingicostiisireducediasiairesultiofilowiinvestmentiiniinventory.
3. Aireductioniinitheinumberiofisuppliersitoibeidealtiwithiisipossible.iOnlyiprovenisuppliersiw
hoicanigiveiquickideliveryiofiqualityigoodsiareigivenipurchaseiorders.iAsiairesultiofithisired
uctioniininegotiationitimeiisipossible.iTheiuseiofilongi–
irunicontractsiwithisomeisuppliersiwithiminimalipaperiworkiinvolvediisipossible.
4. Qualityicostsisuchiasiinspectionicostiofiincomingimaterialsiorigoods,iscrapsiandireworkicost
siareireducedibecauseiJITipurchasingiassuresiquickiandifrequentideliversiofismallisizeiorder
siwhichiresultsiinilowileveliofiinventoriesicausingiminimumipossibleiwastage.iTherefore,iJI
Tipurchasingiisifrequentlyiappliedibyiorganizationsidealingiiniperishableigoods.

5. PERPETUALiINVENTORYiSYSTEM
TheiCharterediInstituteiofiManagementiAccountants,iLondon,idefinesitheiperpetualiinventoryias
i“aisystemiofirecordsimaintainedibyitheicontrollingidepartment,iwhichireflectsitheiphysicalimov
ementsiofistocksianditheiricurrentibalance”.iBindicardsianditheistoresiledgerihelpitheimovement
siofitheistockionitheireceiptsiandiinimaintainingithisisystemiasitheyimakeiairecordiofitoiphysica
limovementsiofitheistockionitheireceiptsiandiissuesiofitheimaterialsiandialsoireflectitheibalancei
initheistores.iThus,iitiisiaisystemiofiascertainingibalanceiafterieveryireceiptiandiissueiofieveryi
materialithroughistockirecorditoifacilitateiregularicheckingianditoiavoidiclosingidownitheifirmif
oristocktaking.iToiensureitheiaccuracyiofiperpetualiinventoryirecordsi(i.e.iBindicardiandistoresil
edger),iphysicaliverificationiofitheistoresiisimadeibyiBindicardsiandistoreiledgerimayidifferifro

25
 mitheiactualibalanceiofistockiasiascertainedibyiphysicaliverification.iItimayibeidoneitoitheifollo
wingiavoidableiandiunavoidableicauses.

6. INVENTORYiTURNOVERiRATEiTECHNIQUE
Oneiimportantitechniqueiofiinventoryicontroliisitoiuseiinventoryiturnoveriratios.iTheseiratiosiar
eicalculateditoiassessitheiefficiencyiiniuseiofiinventories.iFollowingicontroliratiosicanibeicompu
tediforiinventoryianalysis:

(i) InventoryiTurnoveriRatioi=iCostiofigoodsisold/iAverageiInventoryi
WhereiAverageiInventoryi=i(OpeningiInventoryi+iClosingiInventory)/2i

InventoryiTurnoveriRatiosicanibeicalculatediseparatelyiforirawimaterialsiandifinishedigoods
.

(A) RawiMaterialiTurnoveriRatioi=iRawiMaterialiConsumed/iAverageistockiofiRawimaterial.
(B) FinishediGoodsiTurnoveriRatioi=iCostiofiGoodsiSold/iAverageiStockiofiFinishediGoodsi
AverageiAgeiofiinventoryiofiinventoryiTurnoveriiniDaysi=iDaysiduringitheiperiod/iInventor
yiTurnoveriRatio

(i) Averageiinventoryitoitotalicostiofiproductioni=i(AverageiInventory/itotalicostiofiproducti
on)ixi100
(ii) SlowiMovingiStoresitoiTotaliInventoryi=iAverageiCostiofiSlowiMovingiStores/AverageiI
nventory
(iii) InventoryiPerformanceiIndexi=i(ActualiMaterialiTurnoveriRatio/iStandardiMaterialiTurno
veriRatio)ixi100
Theseiratiosiprovideiaibroadiframeworkiforitheicontroliandiprovideitheibasisiforifutureidecis
ionsiregardingiinventoryicontrol.iTheiratiosiprovideiaitoughiindicationiofiwheniInventoryile
velsiareigoingitoibeihigh.iEveniifiitiappearsifromitheiratioithatitheilevelsiareitooihighitherei
mightibeiaiperfectlyigoodireasoniwhyitheileveliofiInventoryiisibeingimaintained.iTheiratiosi
alsoiindicateitheisituationianditrend.iHowever,itheilimitationiofiratiosishouldibeikeptiinimin
d.iTheyiareinotianiendithemselves,ibutionlyitoolsiofisoundiInventoryiManagement.

26
OBJECTIVESIOFIINVENTORYICONTROLIINIORGANIZATION
TheimainiobjectivesiofiInventoryicontroliare:
 Toireduceicapitalilockediup.
 Toiensureithatiproductionidoesinotisuffer
 Toiensureithatisaleiofifinishedigoodsiisinotiaffectedi
 Toiavoidiwideifluctuationsiiniproduction.

ToistudyitheiInventoryiManagementitheiseveraliofiinterviewitechniquesidependingionitheisituati
onsiwereifollowed.iDiscussionsiwereicarriedioutiwithivariousipersonneliofitheicompanyitoistud
yitheifollowingi3ibroadiareas.

A. PURCHASEiCONTROL
B. STORAGEiCONTROL
C. WAREHOUSEiSYSTEMi&iPROCEDURE
Toistudyitheiaboveiairelationshipiandilinkiwasisoughtibetweenitheoryiandipractice.iAnievaluati
oniwasidoneitoieachistageiandisuggestionsiwereialsoimadeitoiimproveitheiexistingiInventoryico
ntrolisystem.
ii
A. PURCHASEiCONTROL
I. PurchaseiDepartment-i
TheiprimeiresponsibilityiofiPurchaseiDepartmentiisitoiarrangeisupplyiofivariousirawimaterials,i
consumables,ispareipartsietc.itoitheiplantiforitheiproductionipurposeianditoitheiotheridepartment
siforimaintenanceiandioperationipurpose.iTheimaterialsishouldibeiprocurediatitheirightipricesifr
omirightisourceiofisupply.

II. PurchaseiProcedure-
Theifollowingiareisomeiofitheiessentialistepsiinithisiregard.

(a) ResponsibilityiforiPurchasesi-iFunctions
AllipurchaseifunctionsishallibeitheiresponsibilityiofitheiMaterialsiManageripostediinitheiplant.i
Theipurchaseifunctionsiiniotheriofficesishallibeihandledibyioneisingleiofficeinominated/designat

27
ediforitheipurpose.iTheiindentersifromivariousidepartmentsishouldirefrainifromiissuingiinquiries
,iinvitingibidsienteringiintoicorrespondenceiorinegotiationiwithivendors/contractors.iAllirequisiti
onsiforipurchaseidulyiprocessediiniaccordanceiwithitheiprocedureilaididown,ihereinafterishouldi
beiforwardeditoiMaterialsiManager/Designatediofficeriforinecessaryiaction.

(b) RegistrationiofiVendors
Theipurchaseidepartmentiisiresponsibleiforidevelopingiailistiofiapprovedivendorsiforivariousity
pesiofimaterials,iservices.iAniadvertisementiisiissuediiniallitheileadinginewspapersiinvitingiappl
icationsiinitheiprescribediPerformaiforiregistrationiofisuppliersiandicontractsilistingioutivariousi
typesiofipurchasesiandiservicesithatiareilikelyitoibeimadeiduringitheinextithreeitoifiveiyears.iTh
eiapplicationsireceivediisiscrutinizedibyiaiCommitteeiconsistingiofiairepresentativeifromiTechni
cal,iFinanceiandiPurchaseiDepartmenti(nominatedibyitheiGeneraliManager)ianditoiascertainithe
iresources,icapacityiandiqualityiofiworkmanshipiofivendor.iTheiCommitteeicanialsoicallitheiven
doriandicontractorsiforipersonalidiscussionsiandiseekiclarificationsionitheiapplicationsiandiobtai
nisuchiotheriinformationiasimayibeiconsideredinecessaryibyitheiCommittee.
Theilistiofiapprovedivendorsiandicontractorsishouldibeiupdatediatileastieveryispecifieditimeibyi
issuingiaipressiadvertisement.

(c) RequisitionitoiPurchase/Work
Theiindentersifromitheivariousidepartmentsiwilliraiseiairequisitionicalledithei“MaterialiPurchas
eiRequisition”iforipurchaseiinitheiprescribediPerforma.iItishouldibeiensuredithatitheirequisitioni
foripurchaseishouldibeicompletediiniallirespectsiwithiregardito:
 Descriptioniofitheimaterial/equipment/scopeiofiwork.
 Materialioficonstruction/specification
 Temperature/Pressure/Standardiifianywhereiapplicable.
 Quantityiandiunitiofimeasurement.
 Dateiwhenideliveryiofimaterial/servicesiisirequired.
 Nameiofivendoriinicaseiofitheiitemiisiofiproprietaryinature.
 Estimatedivalueiandibudgetihead.
 Whetheriitemiisiaistockiitem/non-stockiitem.

28
Theirequisitioniforipurchaseiofimaterialsiwhichihaveibeenideclarediasi“stock-
item”iwillibeiraisedibyitheistoresiDepartmentiafteritheiquantityiinistockihasireachedithei“Re-
orderilevel”iasideterminediforitheirespectiveiitems.
Suchirequisitioniamongstiotheriparticularsishouldialsoiindicateithei“minimum”,i“maximum”ian
di“re-
orderilevel”itheidateioniwhichilastisupplyiwasireceivedianditheiaverageiconsumptioniperimonth
isinceilastipurchase.
Theirequisitioniforipurchaseiofi“non-
stock”iitemsiwillibeiinvariablyirootedithroughitheiStore’siDepartmentiwhichiwilliendorseionithe
irequisition,itheiavailability/non-
availability.iInicaseitheiitemiisiavailable,itheiquantityithereiofibeiindicatedionitheipurchaseirequ
isitionisoithatitheiquantityitoibeipurchasedicanibeiadjustedibyitheiMaterialsiManageriiniconsulta
tioniwithitheiindenter.
TheirequisitioniforipurchaseioficapitaliitemsiawardiofiCiviliWork,ierectionicontracts,icontractsif
orirepairsitoiplantiandimachineryiandiequipmentihandlingianditransportationiofimaterials,irepair
/servicingiofiequipmentihiringioficasualilabors.iSelectionioficontractorsiforirepair/maintenancei
ofitownshipiandiplantibuildings,imechanical,ielectrical,iisolation,iprovisioniofiotheriservicesiand
ipaintingijobsionischeduleiofirateivalidiforioneiyeariwillibeisentidirectlyitoitheiMaterialsiManag
eriafteritheisameiareiapprovedibyitheicompetentiauthority.
Allirequisitionsiforipurchaseiofimaterialsioriforiawardiofiworkiasidescribediaboveiwillibeiraised
ibyitheirespectiveidepartments.iTheiDepartmentiManageriwouldiensureithatitheipurchaseirequisi
tionsimustiindicate:
 Theibudgetiprovision.i(ThisiwillibeicheckedibyiF&A)
 Theiamountiutilizediupitoitheipreviousirequisition.
 Theiestimatedivalueiofitheipresentirequisitioniandi
 Theibalanceiavailableiunderitheibudgetiheadiafteribookingitheipresentirequisition.

(d) RecordiandiNumberingiofiRequisitions
Allipurchaseirequisitionsireceivediinitheipurchaseidepartmentishallibeienteredidepartmentiwiseii
niairegisterimaintainediforitheipurpose.iTheiIndentingidepartmentishalliallotiainumberitoieachir
equisitioniandiendorseitheisameioniallicopiesiofitheirequisition.iTheinumberingiprocedureishoul

29
dibeisuchithatitheirequisitionicanibeiidentifiedidepartment-
wise.iTheiPurchaseiDepartmentiwilliissueiaireportibyithei15thiofitheifollowingimonthilistingiou
titheirequisitionsireceivediduringitheipreviousimonthianditheiricurrentistatusiandimailitheisameit
oitheirespectiveiIndentingiDepartments.iAicopyiofitheseireportsiwillibeiputitoitheiGeneraliMana
geriforihisiinformation.iTheiIndentingiDepartmentsiwillireviewitheireportifromitheiPurchaseiDe
partmentiandishalliensureithatitheimissingirequisitionsiareitracediandiareihandedioveritoitheiPur
chaseiDepartmentipromptly.

(e) iEnquiries/InvitationitoiBid
Onireceiptiofitheirequisitionsifromitheivariousidepartments,ienquiriesiareiissuedibyitheiPurchas
eiDepartmentiasiperitheiprocedureidetailedibelow:
 EnquiriesitoibeiissuediinitheiprescribediPerforma.
 Enquiryidocumentiisisuitablyimodifieditoiconformitoitheimaterial/servicesiproposeditoib
eiprocured.
 Enquiryidocumentidescribesiinidetailitheidescriptioniofitheimaterial/servicesitheitechnica
lispecificationsietc.
 Theideliveryitimeianditheivariousigeneraliandispecialitermsiandiconditionsigoverningith
eipurchase/work.i
Theiideaiiniprescribingitheiminimuminumberiofivendorsitoiwhomienquiriesitoibeiissuediandibid
sitoibeiobtainediisitoicreateiaihealthyicompetitioniamongstitheibidders,isoithatisocietyiisiableitoi
procureimaterialsiandiservicesiatitheimostieconomicaliprice.
Openitendersiareiinvitediforiselectingicontractorsiforiperformingimaintenanceiwork,irelatingitoi
civil,imechanicalielectricaliandiinstrumentationiworkiagainstiairateicontracti(SOR)iwhichiwillib
eirenewableieveryiyear.iPressitendersiforiselectingisuchicontractorsiwillibeiadvertisediinioneiofi
localiEnglishiandianotheriinilocalilanguageipaperiwhichihasiaigoodicirculation:iwhereifabricatio
niofiequipmentiorimajorirepairsitoiplantiandimachineryiareiinvolved,itheienquiryifloateditoiallit
heimajorifabrication/repairishopsiforideterminingitheinumberiand/orimodeiofienquiryitoibeiissu
editheirequisitioniisievaluatedionitheibasisiofilastipurchaseiorderioritheipresentiestimatedimarke
tivalueiofitheimaterial/equipmentiwhicheveriisimore.
Notwithstandingitheiforgoing,iinvitationiofibidsibyipressitenderiwillinotibeinecessaryiinirespecti
of:

30
1) Purchaseiofiproprietaryiitems
2) Items,itheipricesiofiwhichiareifixedibyitheiGovernment.
3)
Items,itheiimportiofipurchaseiofiwhichiisicanalizedithroughiaiGovernmentiDepar
tmentioripublicisectoriundertakingiand
4) Items,istandardizediforiparticularibrand/make.
5)
However,iallipurchasesiofiproprietaryiitemsiandisuchiotheriitemsitheipricesiofiw
hichiareifixedibyitheiGovernmentiwillirequireiprioriapprovaliofitheiManagingiDirector/E
xecutiveiCommittee/BoardiofiDirectoriifitheivalueiofisuchipurchaseiexceedsitheidelegate
diauthorityiofitheiGeneraliManager/GroupiManager.
Theicompetentiauthority,iifiheiisisatisfiedimayiwaiveitheiadvertisementiofitendersiforisuchipurc
hases,itheivalueiofiwhichidoesinotiexceeditheipoweridelegateditoihimiforimakingipurchases.iTh
eiGeneraliManager/GroupiManagersiwilliobtainiprioriapprovaliofiE.D./ManagingiDirectoriforiw
aivingiadvertisementiofitendersiwhereitheipurchaseiexceedsihisidelegatediauthority.iTheiGenera
liManager/GroupiManagersimayihoweveriwaiveiadvertisementiofitendersiiniexcessiofitheiridele
gatediauthorityiofitheipurchaseiisirequireditoibeimadeitoimeetianiemergencyiinitheiplant.iInisuc
hicasesipostifactoiapprovaliofitheiManagingiDirectorimayibeiobtainedilater.iNormally,isuchiwai
versimayibeiresorteditoiinitheicaseiofipurchaseiofiproprietaryiitemsioritoicateritoianiemergencyi
initheiplantiwheneveritheicompetentiauthorityiwaivesiadvertisementiinitheipressiforiinvitingibid
s,ireasonsiareirecordediiniwriting.iAimonthlyireportionisuchiwaiversiisisubmitteditoitheiManagi
ngiDirectoriforihisiinformationibyi15thiofitheifollowingimonth.iNILireportishouldialsoibeisubm
ittediinicaseithereiwasinoiwaiveriduringitheiprecedingimonth.

Ifitheitenderiproposalitoibeiadvertisediisiforiaiworkiwhichiinvolvesidesigniandiengineeringiamo
ngstiotherithings.iItiwouldibeipreferableiifitheibidsiareiinvitediinitwoipartsiviz.i(a)iTechnicalian
dicommercialiunpricedibidiandi(b)iPricedibid.iTheidateiofiopeningitheipricedibidiisifixedilaterit
haniunpricedibid.

(f) TimeiAllowediforiSubmissioniofiBids

31
Normallyi2-
3iweeksitimeiisigivenitoitheivendorsiforisubmittingitheiribids.iInicaseiofienquiriesiforiengineeri
ngiciviliandifabricationiworksiwhereicalculationiisiinvolveiandiitiisinotifeasibleitoiobtainitheibi
dsiearly.iTheitimeilimitiforisubmissioniofibidsimayibeiincreaseditoifouriweeks.
Biddersiareiadviceitoiindicateionitheienvelopesicontainingitheibid,itheienquiryinumber,itheidatei
anditimeiofiopeningitheibid.iTheibidsishallibeiaddresseditoiMaterialsiManageriorisuchiotherioff
icerinominateditoiperformipurchaseifunctions.
Extensioniinidueidateimayibeidoneiiniconsultationiwithiindentingidepartment,iifiinadequate/noir
esponseitoienquiry.
(g) ValidityiofiBids
Generallyitheibiddersiareiadviceitoisubmitibidsivalidifori45itoi60idays.iItiisiensuresibyitheiPurc
haseiDepartmentithatitheiordersiareiplacedionitheisuccessfulibidderiwithinitheivalidityiperiodiof
itheibid.iIfiafteriopeningiofitheibids,iitiisiinevitableitoichargeitheispecificationiofimaterial/work,
itheirevisedispecificationsiareicirculateditoiallitheibiddersiwhoirespondediagainstitheioriginalien
quiryiandibidsiwillibeiobtainediaifreshifromiallitheibidders.iHoweverioccasionsiforichangingisp
ecificationsiandiaskingibiddersitoiquoteiaifreshiareirareiandiiniallisuchicasesiprioriapprovaliofit
heiGeneraliManager/GroupiManagerimustibeiobtained.
Theienquiryidocumentistipulatesithatinoibidderiwouldibeialloweditoirevise/alterihisibidiafteriop
eningiofitheibidsiandiwithinitheivalidityiperiod.iInicaseianyibidderirevises/altersihisibid,itheisa
meishallibeirejectedievenithroughitheireviseibidimayiconformitoispecificationiandibeitheilowest
.

(h) OpeningiofiBids
Theibidsireceivediagainstitheiopenitenderiareiopenedionitheidateianditheitimeistipulatediinitheit
enderidocumentiasiunder:
 Alliadvertisedibidsitoibeiopenedipublicly.
 Bidsinotiadvertisedi(published)ibutiwhereiestimatedivalueiisimoreithaniRs.5ilakhibidsish
ouldialsoibeiopenedipublicly.
 ForibidsiwhereivalueiisilessithaniRs.5ilakh,ipubliciopeningiisinotiaimustibutiifirepresent
ativeiofisomeibidders,iwhoiwishitoibeipresentimayibeiallowed..

32
AllibidsireceivediareiopenedibyitheiPurchaseiDepartmentiinitheipresenceiofitheirepresentativesi
fromitheiIndentingiDepartmentiandiFinanceiDepartment.iTheibidsiopenediareiinitiatediandidate
dioniallipagesibyiallitheipersonsiwhoiattenditheibidiopening.iInicaseithereiisianyicuttingiorialter
ationsiinitheiratesiquotedioritoitheiprescribeditermsiandiconditions,itheisameiwillialsoibeiatteste
dibyiallitheipersonsiattendingitheibidiopening.
Allitheipersonsiincludingitheibiddersishouldisigniagainstitheirinameiinitokeniofihavingiattended
itheibidiopening.iBidsiopenediareireadioutitoitheivendorsiwhoiattenditheibidiopening.i`Enquiryi
ResponseiSheet’imayialsoibeifilledigivingidetailsiofitenderienquiryiNumber,iDate,iDueidate,iOp
eningidate,iNumberiofibidsireceivedietc.iandiisisignedibyiorganization’sirepresentative.
Whereiandipricedibidsihaveibeeniinvitediinitwoiparts,ii.e.iunpricediandipricedibids,itheiunprice
dibidsiisiopenedifirst.iAnyiclarifications/additionaliinformationirequiredibyiTenderiCommitteeia
reisoughtiiniwritingifromitheibidders.iTheibiddersiwillihaveiallioptionitoireviseitheipriceiinithei
commercialibidibeforeitheisameiisiopened.iInicaseianyibidderiwantsitoirevise/alteritheibid,iheic
anidoisoiandisubmititheichangesiinitheipriceiiniaiclosedienvelopeibeforeitheidueidate.iTheicom
mercialibidialongiwithianyirevisioniisiopenedionitheiappointedidayianditimeiinitheipresenceiofi
biddersiwhoiwishitoibeipresent.

(i) Late,iInvalidiandiUnsolicitediBids
Allibidsireceivediafteritheiopeningiofibidsiareitreatediasi`Late-
bids’iandiwillibeiignored.iAllilateibidsiareireturneditoibiddersiun-
opened.iBidsiwhichiareinotiaccompaniedibyitheiprescribediearnestimoneyidepositiwillibeitreate
diasi`InvalidiBids’iandiwillibeiendorsediasisuch.iTheitenderidocumentsistipulateithatiearnestimo
neyicanibeidepositedieitheriinicashioribyiaiBankiDraftioriiniformiofiBankiGuaranteeiinitheipres
cribediPerformaiattacheditoitheitenderidocument.i`UnsolicitediBids’iareinoticonsideredinotibeio
penediandievenithoughitheyimayibeitheilowestiwillinotibeientertained.

(j) QuotationiComparisoniStatementi(QCS)
AfteritheitendersiareiopenediaiQuotationicomparisonistatementi(QCS)iisipreparedibyitheiPurcha
seiDepartment.iAllitheibidsireceivediareilistediinitheiQCS.iIn-
validibidsiareilistediiniaiseparateistatementiandiattacheditoitheiQCS.iTheiQCSiisicheckedibyian

33
iofficialiofitheiPurchaseiDepartmenti(notibelowigradei`N’)iandibothitheipersonsiwhoipreparedia
ndicheckeditheiQCSiwillisignitheisame.
TheibidsiconformingitoitheispecificationsiandilowestiinivalueiwillibeiratediinitheiQCS,iasilowes
ti(L1).iSecondilowesti(L2),ithirdilowesti(L3).iAfteritheiQCSihasibeenicheckediandirateditheiPur
chaseiDepartmentiInichargeiforwardsitheisameialongiwithibidsiinioriginalitoitheiIndentingiDepa
rtmentiforitheireviewiofitheibidsiandimakingirecommendationsiforiPurchase.
TheireviewiofiQCSiandiselectioniofisuccessfulibidderiisidoneithroughiaiTenderiCommittee.iThe
iGeneraliManager/GroupiManagerinominatesiaiTenderiCommitteeiconsistingiofiairepresentative
ifromiIndenter’siDepartment,iPurchaseiDepartmentiandiFinanceiDepartment,iPurchaseiDepartm
entiwilliforwarditheirelevantipapers/fileiprioritoitheimeetingitoitheimembersiofitheiTenderiCom
mitteeiisisoirequiredibyithemiforireview.iTheiTenderiCommitteeikeepsiaireturnirecordiofitheirid
iscussionionitheiQCSiasiandiwhenitheyimeet.iTheiTenderiCommitteeimayiobtainianyiclarificati
onsifromitheibiddersiasimayibeinecessary.iAlliclarificationsiareisoughtithroughiPurchaseiDepart
mentionly.iTheiIndentingiDepartmentishallinotienteriintoidirecticorrespondenceiwithitheibidders
.iAlliproposaliforipurchasesidetailedibelowishallibeireferreditoitheiTenderiCommitteei(Asimayi
beiappointedibyiGeneraliManager/GroupiManager)iforireviewiandimakinginecessaryirecommen
dations.

(k) SelectioniofiSuccessfuliBidders
Normallyitheilowestibidiwhichiconformsitoitheispecificationsiisiaccepted.iHowever,iwhileitheil
owestibidievenithoughiconformitoitheispecificationsiisinotiaccepted.iFullijustificationiforiaccept
ingiotherithanilowestibidishallibeirecordediiniwritingiandiapprovaliofitheicompetentiauthorityiw
illibeiobtained.

(l) SingleiTender
Whereiiniresponseitoienquiryionlyioneibidiisireceivedianditheipurchaseiorderiisiproposeditoibei
finalizedioniaisingleitender,iapprovaliofitheicompetentiauthorityiisiobtainediasiperitheidelegatio
niofipowers,iwhileiaccordingisuchiapprovalitheicompetentiauthorityirecordsitheijustificationifori
makingitheipurchaseionisingleitenders.

34
(m) Negotiation
Whereitheilowestiacceptableibidireceivediagainstitheienquiryiisiconsideredihighioriwhereithereii
siscopeiforireductioniinipriceiinitheiopinioniofitheiTenderiCommitteei(whichimayibeirecorded)i
andinegotiationsiareiconsideredinecessary.i

Negotiationiisiconductedicommencingiwithitheitechnicallyiacceptableilowestifouribidders.iInico
nductinginegotiationsitheipartiesiareicalledioneiafterianotheristartingiwithitheilowestibidder.iTh
eioriginalilowestibiddericanibeigivenisecondichangeitoiofferifurtherireductioniifitheiotheribidder
sirevisesihisipriceilowerithanitheioriginalibidiofitheilowestibidder.iTheiscopeiofinegotiationicani
beienlargedibeyonditheilowestifouribiddersiinitheifollowingicircumstances:
1)
Ifitheiworkitoibeiawardediisiintendeditoibeisplitiandiawardeditoimoreithanioneic
ontractor.
2)
Ifiairingiisisuspectedianditheinegotiationiwithitheiinitialifourilowestibiddersidoin
otiyieldisatisfactoryiresults.
3)
Ifihigheribidsiareiiniveryicloseiproximityiofitheitwoilowestibidsiandianyichangeii
niquantitiesicanichangeitheiratingiofitheibidders.
Ifiaisingleibidiisireceivediagainstitheiopenienquiry.iTheisameicanibeiacceptediifitheiratesiareico
nsideredireasonable.iOtherwise,inegotiationsiareiheldiwithitheibidderiandiaidecisionitakenieither
itoiacceptitheisingleibidioritoiresortitoire-tender.
Ifiaisingleibidiisireceivediagainstiailimitedienquiryinormallyiitiisirejectediandire-
tenderingiresortedito.iHowever,itheicompetentiauthority,iifiheiisisatisfiedithatiitiwouldibeiinithei
interestiofiOrganization,itoiacceptitheisingleibidireceived.iHeimayidoisoiandirecordireasoniiniw
riting..iSuchibidiisiacceptedionitheirecommendationsiofitheiTenderiCommitteeiandiconcurrencei
ofitheiFinanceiDepartment.

(n) Guarantors
TheiPurchaseiDepartmentiobtainsifromitheivendors/contractorsiBankiguaranteesiinitheiPerforma
iprescribed.

35
  Advanceipayment
 PerformanceiBond
 Freeiissueimaterials
TheiBankiGuaranteeiinirespectiofifreeiissueimaterialsimayibeiwaivedibyitheicompetentiauthorit
yiinisuchicasesiwhereiheiisisatisfiedithatitheimaterialiissueditoitheivendoricontractoriwillinotibei
movedioutiofitheifactory’s/housingicolony’sisecurediworkisite.

(o) AmendmentitoiPurchaseiOrder
Anyichange/amendmentitoitheipurchaseiorder/workiorderishallibeiissuediiniwritingiafteritheisa
meihasibeeniapprovedibyitheicompetentiauthority.iTheiamendmentitoipurchaseiorderishallibeiis
suediinitheiprescribediPerformaiandishallibeinumberediserially.iAllichangeiordersiwhereitheiter
msiandiconditionsiareialterediand/oriwhichihaveifinancialiimplicationsiwillibeiroutedithroughifi
nanceidepartmentiforiconcurrenceibeforeitheisameiisiapprovedibyitheicompetentiauthority.iThei
amendmentsitoitheipurchaseiordersiwillialsoibeiraisediinitheisameinumberiandiwillibeidistribute
diinitheisameimanneriasitheioriginalipurchaseiorder.

(p) RepeatiOrders
Repeatiordersiwithouticallingiforifreshibidsimayibeiplacediagainstipreviousiordersiwithinioneiy
earifromitheidateiofiissueiofioriginaliorder.iNoirepeatiorderishallihowever;ibeiplacediagainstiaip
urchaseiorderiwhichiwasiplacediatihigheripricesiinitheiinterestiofiearlyidelivery.iTheiquantityian
divalueiofitheirepeatiorderishouldinotiexceeditheiquantityiandivalueistipulatediinitheioriginalior
deriandishouldinotibeiresorteditoimoreithanionceiinianyicase.iWhileiplacingitheirepeatiorder,iiti
shouldibeiensuredithatithereihasibeeninoidown-
warditrendiinipricesisinceitheioriginaliorderiwasiplaced.iRepeatiordersishallibeiplacediwithithei
concurrenceiofitheifinanceidepartmentiandiapprovaliofitheicompetentiauthority.iTheiauthorityic
ompetentitoiapproveirepeatiordersiwillibeitheisameiwhichiapproveditheioriginaliorder.

(q) Follow-UpiofiPurchaseiOrders

36
TheiPurchaseiDepartmentishallireceiveiallitheimailifromitheivendorsiandishallireplyitoithemiini
consultationiwithiotheridepartmentsiwheneverinecessary.
TheipurchaseidepartmentishallikeepiIndentingiDepartmentiinformediofitheistatusithroughiperiod
ical/monthlyireports.
TheiPurchaseiDepartmentishallibeiresponsibleiforifollowingiupiofitheipurchaseiorder/contractiw
ithivendorsianditransportersiuntilitheimaterialiisireceivediandiacceptediatitheiplant/stores.

(r)iInspectioniofiMaterial
TheiPurchaseiDepartmentishalliCo-
ordinateiwithiotheridepartmentsiandiarrangesiinspectioniofimaterialsiativendor’sishopsiprioritoi
dispatchiwhereveristipulatediinitheipurchaseiorder.
Inspectioniofimaterialsiiniothericasesishallibeicarriedioutionireceiptiofimaterialsiatiplantisite/sto
resionlyithoseimaterialsiclearedibyitheiinspectioniasiconformingitoipurchaseiorderispecifications
iwillionlyibeitakenionichargeiinistores.iTheipersoniinspectingitheimaterialiwillisignionithei`Stor
esiReceiptiVoucher’iinitakeniofihavingiinspectediandiaccepteditheimaterial.i

(s) Damaged/Short/RejectediMaterials
TheiStoresiDepartmentishallibeiresponsibleiforisendingisuitableiintimationsitoithe:
 Vendoriforimaterialsirejectediifitheisameidoinoticonformitoitheispecificationsimentioned
iinitheipurchaseiorder.
 VendoriandiInsuranceiCompanyiforimaterialireceivedishortioridamaged.
 Whereitheideliveryiofferedibyitheivendoriwasiex-
worksitheiintimationiforidamaged/shortireceiptiofimaterialsiwillibeisentionlyitoitheiInsur
anceiCompany.iTheiintimationitoivendorianditheiInsuranceicompanyiforimaterialireceiv
edishortioridamagediorirejectedishouldisentiasiearlyiasipossibleiafteritheimaterialiisiinsp
ectedibutiinianyicaseinotilaterithaniaiweekifromitheidateiofitheirireceiptiatiplant/site.iAic
opyiofitheiintimationiissuedibyitheiStoreiDepartmentiwillibeiendorsedito:
 FinanceiandiAccountsiDepartmentsiforilodgingitheiInsuranceiclaimiorimakingisuitableir
ecoveryifromitheivendor.
 PurchaseiDepartmentiforifollowingiup,itheireplacementisuppliesioriobtainingitheinon-
deliverediquantity.

37
TheiPurchaseiDepartmentishallibeiresponsibleiforifollowingiupiwithitheivendor,itheireplacemen
tiofimaterialsirejectediorishortisuppliedibyihim.iTheiPurchaseiDepartmentishallievolveiaisuitabl
eisystemisoithatisuitableicommunicationiisiissueditoitheivendoriuntilitheireplacementisupplyiisir
eceivedioriquantityishortideliverediisimadeigoodibyihim.

(t) InsuranceiClaim
TheiAccountsiDepartmentionireceiptiofiaicopyiofitheiletteriissuedibyiStoresiDepartmentimakeia
ndientryiiniairegisterimaintainediforitheipurposeiandishallilodgeisuitableiinsuranceiclaims.iThei
AccountsiDepartmentishallico-
ordinateiwithiotheridepartmentsiwhereverinecessaryiandicollectsitheidetailsiofimaterialsiandioth
ericostsiasimayibeirequirediforipreferringiaiclaim.
(u) CashiPurchase
Cashipurchasesiorimaterialsishouldibeiavoidediasifariasipossible.iCashipurchasesishouldibeireso
rteditoionlyimeetitheiplant’siemergenciesioriwhereiitiwouldinotibeieconomicalitoicalliforiquotat
ionsiowingitoitheismallivalueiofipurchases.
TheiGeneraliManager/GroupiManagerimay,ihowever,iconsiderikeepingiaisuitableiamountiasiIm
perestifundiwithitheiPurchaseiDepartment,iMaintenanceiDepartmentiandiAdministrationiDepart
mentitoienableithemitoimakeicashipurchaseiofiitemsitoimeetitheiurgentiday-to-
dayineedsiofitheiplant.i

(v) BankiGuarantees
TheiFinanceiandiAccountsiDepartmentiisiresponsibleiforisafeicustodyiofiBankiGuaranteesirecei
vedifromivendors/contractors.iTheiFinanceiandiAccountsiDepartmentimaintainsiaiseparateiregis
teriforikeepingirecordsiinitheiPerformaienclosediforiBankiGuaranteeiobtainediagainst:
 Advanceipayment
 Performanceiguarantee
 Freeiissueiofimaterials
TheiBankiGuaranteeiregisteriisireviewedieveryimonthitoiensureithatiallitheiguaranteesiobtainedi
areivalid.iSuchiofitheibankiguaranteesiwhichiareifounditoibeimaturingi/expiringiwillibeireviewe

38
diwithitheirespectiveidepartmentitoiascertainiifianyifurtherirevalidationiwouldibeirequireditoico
nformitoitheidatesioficompletioniofiwork/deliveryiofimaterial.
NormallyitheivalidityiofiBankiGuaranteeishouldibeiasiunder:
 BankiGuaranteeifor:iFromitheidateiofipaymentiuntilitheiadvanceiisiliquidated.
 Performanceiguarantee:iFromitheidateiofipaymentiofiadvanceioricommencementiofiwor
kiwhicheveriisiearlieriuntiliexpiryiofimaintenanceiperiod.
 Freeiissuedimaterial:iiFromitheidateiofiissueiofimaterialiuntilisettlementiofiquantitativeia
ccountiofimaterialiissuediorideliveryiofifabricatediequipmentiwhicheveriisilater.
TheiFinanceiandiAccountsiDepartmentiisiresponsibleiforiissuingiinstructionsitoitheivendor/contr
actoriforiobtainingitheiextensioniofitheiexistingiBankiGuaranteesibeforeiexpiryiofitheiclaimiperi
od.iAisuitableisystemishouldibeiintroducedibyitheiFinanceiandiAccountsiDepartmentitoiensureit
hatiairegularifollow-
upiisidoneiwithitheirespectiveivendors/contractorsiuntilitheiextensionitoiBankiGuaranteesiareire
ceived.iFinanceiandiAccountsiDepartmentialsoiensuresithatiuntiliextensionitoibankiguaranteesia
reireceivedifromivendors/contractorsioniequipmentiamountiisiwithiheldifromirunning/finalipay
mentidueitoitheivendors/contractors.iTheiBankiGuaranteeishallidischargediiniconsultationiwithit
heirespectiveidepartmentiafterireceivingitheiconformableifromithemithatitheimaintenanceiperiod
iunderitheipurchaseiorder/workicontractihasibeenicompletediandithatithereiisinoiclaimiagainstiai
vendor/contractor.iTheiBankiGuaranteeiforiadvanceipaymenticanibeidischargedibyitheiFinancei
andiAccountsiDepartmentiafteriensuringithatitheiadvanceipaidihaveibeeniliquidated/recoveredifr
omirunningifinalipaymentiwhereitheivendor/contractoridoesinoticommunicationiissuediforiexten
dingitheivalidityiofitheibankiFinanceiandiAccountsiDepartmentiwilliinvokeitheibankiguaranteei
beforeiexpiryiofitheiclaimiperiodiaftericonsultingitheirespectiveidepartmentiandiobtainingitheiap
provaliofitheiGeneraliManager/GroupiManager.

(w) Evaluationiofiexistingipurchasingisystem
Aistudyiinianyiorganizationishouldicarriedioutitakingiintoiconsiderationitheiconceptiofitotalimat
erialicontrol,iwhichisignificantithatiefficiencyiofianyiorganizationiisicontingentiuponihavingithe
irightimaterialiofirightiqualityiorirightiplaceiinitheirightiquantityiatitheirightitimeiandiplace.

39
 Rightitime

RightiQuantity RightiQuality

(5Right)
PurchaseiControl

RightiSources
RightiPrice
Supply

iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii

CHAPTERiNO.i3
COMPANYiPROFILE:
Ini1920,iGahaganiPaintsiandiVarnishicameiintoibeingiatiLoweriPareliiniMumbai.iAicenturyilate
r,ithisipainticompanyicontinuesitoibeiinianienviableiposition-
ithatiofibeingitheisecondilargestipainticompanyiiniIndiaiandioneiofitheimostitrustedinamesiinith
eiindustry.

Soiwhatidoesiititakeitoigoifromibeingiairelativelyismallipainticompanyitoibeingiaiheavyweightil
ikeiKansaiiNerolac?

Ititakesihardiworkiandipassion.iItitakesicommitmentiandicourage.iItimeansimarchingiaheadiwith
ifearlessiinnovation.iItiinvolvesitakingirisksiandicelebratingiwhenitheyiwork.iAndigoingibackito
itheidrawingiboardiwhenitheyidoinot.iItimeansibeingikeenlyiattuneditoitheineedsiofitheicustome
r.iAndistillibeingiinvestediinitheienvironment.iItirequiresiinvestingiiniRiandiD,iinitechnology,iin
iyouriworkforce.iMoreiimportantly,iitirequiresitheiunwaveringibeliefiinitheiproductiandiresolute
idetermination.

40
Itiisibecauseiofiallithisiandimore,ithatiKansaiiNerolaciisitheisecondilargesticoatingicompanyiiniI
ndiaiandiaimarketileaderiiniIndustrialiCoatings.
OURIPHILOSOPHY

OuriPhilosophy

Withiaiphilosophyithatiencouragesicompassioniandiaivisionithatihasitremendousiforesight,ithei
wayiaheadihasibeenichartediforisuccessiandigrowth.iOuribeliefiinithemiprovidesiusiwithitheifir
mifoundationitoibuildiouribusinessiandiitiservesiasiaiblueprintitoiguideiusiasiweisurgeiahead.iK
ansaiiPaintsiLtdiorganisationihasilaidioutitheifutureidirection.iWeibelieveithatimagicihappensiw
henipeopleicomeitogetheriwithiaisharedimission,iclearistrategyiandisharedivalues.

Weihaveiembarkedionithisinewijourneyiwithiainewivision,imissioniandiainewisetioficoreivalues
.

VisioniStatement

“Weidesignisolutionsithatiprotect,iinspireianditouchilivesieveryday”.

MissioniStatement

“WeileverageisuperioritechnologyitoicontributeitoiouriCustomersiandiSociety,iiniaisustainablei
manner,iwithiinnovativeiProductsiandiServices,ithroughiaicompetentiworkforce,ibuiltioniaicultu
reiofiCustomeriFocus,iIntegrityiandiRespectitoiouriStakeholders.”

CoreiValues

Ouricoreivaluesiareiairepresentationiofianienthusiasticigroupiofipeople,itogetheriaroundiaisingle
ipurpose.i“icare!”idefinesitheiwayiweiliveiouricoreivaluesieveryday

41
There’sinoilimititoitheipossibilitiesiofigrowthiandidreamsiatiNerolac.iEveryoneiisiencouragedito
ibecomeianiactiveiparticipantiinitheicompany’sistoryiwithitheiricontribution.iThisicanibeiinithei
formiofioriginalityiofithinking,ipracticalityiofiexecutioniandievenijustibyitakingitheionusitoiseei
aniideaithrough.

Weibelieveiweiareiasistrongiasiouriteam.iByicreatingiopeniandilateralichannelsioficommunicati
oniwithiniteamsiandibetweenicross-
functionaliteams,iweiencourageiideaigenerationiandithisiunhinderediflowiofiinformationicouldib
eiwhereiourinextibigiideaicomesifrom.

SUSTAINABILITY

CorporateiSocialiResponsibility
42
Missioni&iPhilosophyiofiCSRifunctioni–
iToicontributeipositivelyitoitheidevelopmentiofitheisocietyibyiactingiasiaigoodineighbour,iconsi
derateiofiothers,iplayingitheiroleiofigoodicorporateicitizeniwithipassioniandicompassion.

CSRiVisioniofitheiCompanyi–
iToistriveitoibeiairesponsibleicorporateibyiproactivelyipartneringiinitheiEnvironmental,iSocialia
ndiEconomiciDevelopmentiofitheicommunitiesithroughitheiuseiofiinnovativeitechnologies,iprod
uctsiasiwelliasiactivitiesibeyondinormalibusiness.

CSRiactivitiesiareigroupedibroadlyiunderitheifiveiumbrellas,inamelyi“LivelihoodiandiSkilliEn
hancement”i(withiexternalipartnersisuchiasiSBI),iRurali/iCommunityiDevelopment”i“Pre
ventiveiHealthiCareiandiSanitation”,i“PromotingiEducation”iandi“EnsuringiEnvironment
aliSustainability”.

KNPLiproactivelyiconvenesitrainingiandicapacityibuildingiinitiativesitoihelpiunemployediyouth
igenerateilivelihoodithroughiworkshops.iTheseisessionsialsoihelpiprofessionalsitoienhanceitheiri
skillilevelisoiasitoiensureitheiskillediworkforceiisiavailableiforitheiNationaliDevelopment.i

KNPLialsoicarriesiouticommunityienrichmentiprograms,isuchiasiHealthicampsiiniruraliarea,ico
nstructioniofitoilets,ibusisheltersiandiboreiwells,iassistingiEducationaliInstitutesiwithiFinanciali
Aidietc.

KNPLiisicommitteditoicontributingiiniasimanyibig-
smalliwaysiasipossibleiandiwillicontinueitoicontributeitowardsiIndia’siEconomic,iSocial,iEnviro
nmental,iandiCulturaliProsperityirightifromitheigrassirootilevel.

OuriEnvironment

AtiKansaiiNerolac,itheienvironmentiisicentralitoitheidevelopmentiofitheicompany.iWithidepleti
ngiresourcesiandiaicalliforiconservationiofinaturaliresourcesiarounditheiworld,iconversationiabo
utitheienvironmentiisianiaspectithaticaninoilongeribyiignored.iAndiitiisitheiresponsibilityiofieve
ryicompanyitoiworkiwithitheienvironmentiandimoreiimportantly,iworkitoibetteritheienvironmen
tiwithiniwhichiitioperates.iWeitakeithisiresponsibilityiquiteiseriously.

43
AlliourimanufacturingiplantsiareiISO-
14001icertifiediwhichihelpsitheiorganisationiachieveisoundienvironmentaliperformance.iWithief
ficientiandioptimumiuseiofiresourcesiandibyiencouragingirecycling,iweiareiconstantlyiworkingit
oiimproveiandicontributeitoitheiecosystem.iWeiareialsoikeenlyiawareiofiouriresponsibilitiesitow
ardsiouristakeholdersiandiasiairesult,iKNPLiensuresithatienvironmentaliinformationiisiavailablei
toiallistakeholdersithroughitheiannualienvironmentalireport.

OURISYSTEMS

Withitheiwholeicountryimovingitowardsidigitisation,iitiisitheineediofitheihouritoiinvestiinitheidi
gitaliinfrastructureiofitheicompany.iDigitisationiisifuelingigrowthiandiharnessingiitsipotentialiha
sibecomeiimperativeiinitoday’sicompetitiveiworld.iItiisiwithithisivisionithatiiniFebruaryi2000,i
Nerolaciwasitransformedifromiaifunction-basedilegacyisystemiintoiaiprocess-
basediorganisedisystemibyiinvestingiandiimplementingitheiSAPiR/3isolution.iFurtherimeasuresi
toikeepitheicompanyiabreastiofitheidigitalidevelopmentsiwereialsoitakeniwithitheiimplementatio
nioficoreiSAPiapplicationsilikeiSAPiR/3,iSAPiSupplyiChainiandisupportedidealeriandivendorip
ortals.

Nerolacicontinuesitoiuseienterpriseiresourceiplanningitoolsiandiupgradeithemitoitheilatestiversio
ns.iAllitheiexistingicoreiSAPiapplicationsiareiofitheilatestiversioniandicutting-
edgeiapplicationsiandisolutionsiareibeingisoughtioutiinitheiareasiofiFinance,iMarketingiandiCus
tomeriRelationship,iManufacturing,iCorporateiGovernance,iBusinessiAnalytics,iMobileiandiVe
ndoriportalsietc.

ThisiforesightiinitheiITidepartmentiputsitheicompanyieonsiaheadiandigivesiititheinecessaryiedg
eitoistayionitheipathiofisuccessiandiensureitransparencyitoialliitsistakeholders.

CHAPTERiNO.i4
REVIEWiOFiLITERATURE
Surveyiofitheiavailableiliteratureirelatingitoihisifieldiofistudyiisiaimustiforitheiresearcherisoithat
iheicanikeepihimselfiupdatediinihisifieldiandirelatediareas.iWithoutithisiitiwillinotibeipossibleif
oriairesearcheritoimakeiaiworthwhileicontribution.iReviewiofiliteratureiinithisistudyidealsiwithit
heiimportanceiandinecessityiforiinventoryimanagementiinianiorganization.

44
iInventoryimanagementicanihelpibusinessitoibeimoreiprofitableibyiloweringitheiricostiofigoodsi
soldiandibyiincreasingisales.iInventoryimanagementiisirequirediatidifferentilocationsiofiaisuppl
yinetworkitoiprotectitheiregulariandiplannedicourseiofiproductioniagainstitheirandomidisturbanc
eiofirunningioutiofimaterialsiorigoods..iFollowingiparagraphsireviewitheiavailableiliterature:
 SteveniRonsworthi(2005)imentionediinihisiarticleiInventoryiManagementiReviewithat,i“
whenihavingiinventory,iaicompanyidoesinotieveriwantitoihaveitooimuchiofiaiproduct,inorid
oesiitiwantitoihaveinotienoughiofithatiproductitoimeetidemand.iInventoryimanagementihelp
sitoiensureithatiaiproperiinventoryiisimaintainediatiallitimes.”iStevenialsoisaysithatiaiproperi
inventoryimanagementihasimanyibenefitsiforicompanies.iInventoryimanagementicanihelpim
akeiitisoithatiaicompanyihasitheiexactiinventoryineeded.iNoimore,inoiless.iInventoryimanag
ementiisialsoianieffectiveiwayitoikeepitrackiofiexactlyiwhatiproductsiaicompanyihas.

 PhilipiSlateri(2007)iinihisiarticlei(InventoryiManagementi–
iOneiSizeiDoesiNotiFitiAll)isaysithati“ifithereiisioneigreatimythiiniinventoryimanagementii
tiisithationeisingleitechniqueiwillisolveialliinventoryiproblems.iNotithatipeopleibelieveithati
oneitechniqueiwillisolveialliproblemsiiniallisituationsibutithatiinianyigivenicompanyioneiap
proachiisiallithatiisirequireditoimanageialliinventory.”iiHeialsoipointedioutithat,ithereiisiaiwi
deirangeiofitechniquesiandiapproachesithatipeopleiuseitoimanageiinventory.iTheseiincludeiJ
IT,iABCiandiFSN,iVEDianalysis,iRiskiManagement,isafetyistockiandiEOQ’s.iSometimesith
eyiareiusedioniaistandaloneibasisiandisometimesiiniconjunctioniwithieachiother.iAlliareiwor
thwhileitechniquesiwheniusediappropriately.
 CharlesiAtkinson,iinihisipublicationiPointiofisale,iInventoryiControl,iRetailiandiMoneyi
Managementi(Octoberi25,i2005)iindicatesithatithereiareithreeitypesiofiinventoryithatirequi
reimanagement:irawimaterials,ifinishedigoodsiandiwork-iin-
iprogress.iRawimaterialsicanibeicutidowniiniainumberiofidifferentiways,imostinotablyibyior
deringismalleribatchesiwithimoreifrequencyifromisuppliersi(JIT).iFinishedigoodsiinventories
icanibeicutidowniinimultipleiwaysiasiwell,imostinotablyibyieitheriproducingionlyiwheniyoui
actuallyihaveianiorderi(JIT)ioribyiachievingimoreiaccurateidemandiprojections.
 Expertsiargueithatiinventoryilevelsishouldideclineimarkedlyiasiairesultiofitheiimplementatio
niofiimprovediinventoryimanagementisystemsisuchiasiJIT.iAipaperibyiRajagopalaniandiM
alhotrai“HaveiInventoriesiDeclined:iAniEmpiricaliStudy”i(2001)iindicatesithatiwhileiiti

45
 appearsithatitheigeneralileveliofiinventoriesihasidecreasediacrossialliindustriesisinceithei196
0’s,iitidoesinotiappearithatitheitrendiacceleratediinithei1980’siorithereafter,iasiJIT’sipropone
ntsimightisuggest.i
 AimoreirecentistudyibyiChen,iFrank,iandiWu,iOptimaliControliandiEquilibriumiBehav
ioriofiProduction-
InventoryiSystemi(2003)iindicatesithat,iwhenistudyingiinventoriesioniaifirmileveliinsteadio
fionianiindustryilevel,ithereiappearsitoibeiaisignificantidecreaseiiniinventoriesisincei1980.iH
owever,iChen,iFrankiandiWuifocusionitheieconomyiasiaiwhole.iTheyidoinotifocusioniaipart
iculariindustry,inoridoitheyifocusionidistribution,iasiopposeditoiproductionisystems.ii
 Apartifromitheitoolsianditechniques,iMikeiSchrammi(2009)iinihisiFiveiTipsitoiInventoryi
Managementihasisuggestedicertainitipsitoihaveiaisuccessfuliinventoryimanagement.iTheyia
re.
 Sellitheijunki(eveniifiyouithinkiit’sinotijunk).
 Getiaibankialt,iandiuseiitiforieverything
 Geariupiright.
 Organize.
 Regularimaintenanceiisibetterithaniemergencyicleaning.
 Adam.iJiFeiniinihisiarticleiBuildingiaiLeaniSupplyiChain,(2006)isaidithati“thereiisiaiwid
elyiheld,ibutiinaccurate,iperceptionithatinewitechnologiesihaveiledidirectlyitoideclinesiinithe
iinventory-to-
salesiratio,ianiimportantiindicatoriofi“bufferiinventory”iinitheisupplyichaini.iinitheory,iinfor
mationitechnology-basedisupplyichainipracticesisuchiasijust-in-
time(JIT)iinventoryimanagement,iwarehouseiautomation,ianditheiintroductioniofibaricodesis
houldihaveiallowedicompaniesitoiimproveitheirimanagementiofiordersiandistockpilesiofimat
erials.
 BruceiD.iCaldwelli(2009)ihasimentionedisomeibenefitsiofiABCiAnalysisiinihisiarticleiThei
BenefitsiofiABCiAnalysisiforiInventoryiReduction.iUsingithe”ABC”iconceptitoianalyzei
Controliinventoryiinvestmentianditurnsiisitheisimplestiandimostiefficientimethod.iMostiinve
ntoriesiareimadeiupiofihundredsiandipossiblyithousandsiofiindividualiitemsinecessaryitoima
nufactureiaicompany’siproducts.i

46
 Ashwathappa,iProductionsiandiOperationsiManagementi(2008)ihasistatedithatiinventory
imanagementiinvolvesitheidevelopmentiandiadministrationiofipoliciesi,isystemsiandiprocedu
resiwhichiwilliminimizeitotalicostsirelativeitoiinventoryidecisioniandirelatedifunctionsisuchi
asicustomeriserviceirequirements,iproductionischeduling,ipurchasingianditraffic.
 Lucey,iQuantitativeitechniquesiforiManagementi(2002)idefinediinventoryimanagementia
sitheirecordingiandimonitoringiofistockilevel,iforecastingifutureidemandiandidecidingiwheni
andihowitoiorder.
 JuhiiGonzalesiinihisiarticleiInventoryiControli(1999)isaysiinventoryimanagementiisimaki
ngisureithatiitemsiareiavailableiwhenicustomersicalliforiit,ibutinotitooimuchistocki,isoithatii
nventoryiturnoverigoalsiareimet.
 BardiaiiniAccountingiAndiFinanceiForiManagersi(1988)iopinesithatiforiaifirmitoibeisucc
essful,itheiproportioniofiinventoryitoicurrentiassetishouldibeikeptiatitheiminimum.iAlsoiaihi
ghiinventoryiturnoveriratioiwhichiindicatesifasterimovementiofimaterialsiisiadvantageousitoi
theifirms.iHeialsoipointsioutithatitheiproportioniofifinishedi/isemi-
finishediinventoryishouldibeikeptiatiminimum.
 Khadalwali(1985)ionihisibookiInventoryiManagementiAndiStockiEvaluationirevealedith
atitheiselectediunitsiwereifounditoihaveirecordedisloweriandidecliningiratesiofitransmutation
iofiworkingicapital.iTheimainireasoniresponsibleiforithisisituationiisitheihighishareiofiinvent
oriesiinicurrentiassetsiwhichirangedibetweeni40%iandi70%iwithianiincreasingitrendiduringit
heiperiodiofistudy.
 JainiinihisibookiTheiWorkingiofiStockiExchangesiiniIndiai(1988)ihasihighlightedivariou
sifactsiofiworkingicapitalimanagementiinitheistateiofiRajasthan.iHeiopinedithatitheicashipos
itioniofiworkingicapitalishouldibeiimprovedibyireducingiinventoriesiandiefficienticollectioni
ofidebts.
 Raoi(1990)iiniEquivalenceiofiInventoryiControliModelsievaluatesitheimanagementiofiwo
rkingicapitaliandidegreeiofiefficiencyiofimanagingiinventoriesiinitheimanufacturingiunderta
kingsiofiAndhraiPradeshipublicisector.iTheianalysisiofitheistructureiofiinventoryirevealsitha
tithereiwasioverstockingiwithiregardsitoieachiandieveryicomponentioverstockingiwithiregar
dsitoieachiandieveryicomponentiofiinventoryiinitheiundertakingsiselectediforistudy.
 MohaniReddyiiniManagementiofiWorkingiCapitali(1991)iconsiderediinventoryiformedit
heimajorichunkioficurrentiassetsiofitheisampleiprivateisectorienterprisesistudied.iBiggerient

47
 erprisesiinitheiprivateisectoricarrieditheilargeriinventoriesiasicompareditoitheismalleriones.iI
nventoryiturnoveriratiosihaveishownithatinameiofitheiprivateisectoriunitsicarriedioniinventor
yiundulyiinitheiaggregate.
 KurianiJoseiAerthailiini(1999)iconductediaistudyitoiAnalyzeitheiEfficiencyiofiInventoryi
ManagementiSystemiiniKEL,imamalaiunit.iTheistudyirevealedithatidueitoiimprovediinven
toryimanagement,itheiunitienablesiproperiarrivaliofigoods,ireducingilead-timei
 ArifaiT.iMohammediinihisibookiStoresiandiInventoryiManagementi(2004)iconductedist
udyioniworkingicapitalimanagement,itheisuggestionimadeibyiheriwasithatitheiunnecessaryii
nventoriesishouldibeiavoidediasiitimayicauseilossitoitheiconcern.
 RenjuiMohaniP.Ti(2008)iconductedistudyionistoresiinventoryimanagementiatiCarborund
umiUniversaliLimited.iThereishouldibeistrictiControlioveritheiAiclassiitemsiasiwelliasitheiv
italiitems.iiHighlyitrainediinventoryimanagersiandihigh-
qualityisoftwareiwillihelpimakeiinventoryimanagementiaisuccess.iTheiROIiofiinventoryima
nagementiwillibeiseeniinitheiformsiofiincreasedirevenueiandiprofits,ipositiveiemployeeiatm
osphere,iandianioveralliincreaseioficustomerisatisfaction.
 M.ZiBabaiiandiYi.DalleryiIESM,i(Mayi2005),itheiliteratureidealingiwithiinventoryimanag
ementipoliciesiisiveryirichiandihasigrownifastiduringitheilastiyear;itheyiclassifyitheseipolici
esiintoi2iapproachesiaccordingitoitheitypeiofidemandiinformation.iInitheifirstiapproachithei
policiesisupposeithatithereiisinoiadvanceidemandiinformationianditheidecisionsiareimadeiini
realitimeiusingitheiinventoryidepletion.

CHAPTERiNO.i5

RESEARCHiMETHODOLOGYi

Introduction

48
EffectiveiinventoryiControlsiensureieffectiveiinventoryimanagementithroughiwhichianiorganizat
ionicaniminimizeitheirioveralliprojectsiandiliquidityiofitheirespectiveiconcern.iInidealsiwithithei
analysisiofidataianditheiriinterpretationiforiunderstandingitheiinventoryisystemifollowediatiinstr
umentationiLimited.iTheidataihasibeenicollectedifromitheisecondaryisourcesianditheiinterpretati
onsiareidoneionitheibasisiofitheories

SAMPLINGiINVENTORYiMANAGEMENTiTECHNIQUES

iRatioianalysis

Introduction:iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii

Ratioianalysisiisianiimportantitooliforianalyzingitheicompany'sifinancialiperformance.iRatioiana
lysisiisidefinediasitheisystematiciuseiofiaccountingiratio’siiniorderitoiweighiandievaluateitheiop
eratingiperformanceiofiaifirm.iRatioiisisimplyioneinumberiexpressediinitermsiofianotherinumbe
r.iItirefersitoinumericalirelationshipibetweenitwoifigures.iItiisiobtainedibyidividingioneifigureib
yitheiother.iAccountingiratioiisirelationshipiexpressediinimathematicalitermibetweenitwoirelate
difiguresiinitheifinancialistatements.

Objectiveiofiratioianalysis:

Ratioianalysisiisiaipowerfulitooliofifinancialianalysis.iTheiobjectivesiofiratioianalysisiareisumm
arizediasibelow:

 Ratioiareihelpfuliinijudgingifinancialiperformanceiofianienterpriseioveriaiperiodiofitime
.
 Itimayihelpitheimanagementiinitheitaskiofiplanningiandiforecasting.
 Itiisipossibleitoitestiliquidity,isolvencyiandiprofitabilityiofitheienterpriseithroughitheitec
hniqueiofiratioianalysis.iItihelpsitheimanagementitoitakeidecisioniregardingiinvestment,
ipurchasesietc.
 Itihelpsitoiachieveicoordinationiamongivariousidepartments.
TheiprimaryiobjectiveiofiratioianalysisiisitoiregulateiandiControlisalesiandicostsicalculationiofir
atioiisiaiclericalitaskiwhichirequiresicarefuliselectioniofitheirelevantidataifromitheifinancialistat
ements.iAppropriateiratiositoisuititheipurposesiofianalysisishouldibeicalculatediandiinterpretedi
objectively.

49
Accordingitoinatureiofifunctionsiratiosicanibeiclassifiediasiliquidityiratios,ileverageiratios,iactiv
ityiratios,iprofitabilityiratios.iForianalysisiaboutitheiinventoryimanagementitheiappropriateiratioi
isiactivityiratios.iItiincludes:

 Inventoryiturnoveriratio
 Ratioiofimaterialiconsumptionitoiturnover
 Inventoryitoicurrentiassetsiratio
 Inventoryitoiworkingicapitaliratio
 Cashitoicurrentiassetiratio
 Cashiturnoveriratio
 Debtorsiturnoveriratio
 Creditorsiturnoveriratio
 Inputioutputiratio
 Workingicapitaliturnoveriratio

CHAPTERiNO.i6

DATAiINTERPRETATIONi&iANALYSIS

THEiPERCENTAGEiOFiCURRENTiASSETiTOiINVENTORY.

50
 CURRENTiASSET YEARS FIGURE %iOFiINVENTORY

2014-15iii 45.34 187.82%

SUNDRYiDEBTORS 2015-16 63.20 244.86%

2016-17 63.83 240.32%

2017-18 72.24 233.10%

2018-19 65.08 167.99%

2014-15iii iiiiiiiiii.26 1.07%

2015-16 4.74 18.36%

CASHiANDiBANK 2016-17 7.06 26.62%

2017-18 .43 1.38%

2018-19 .10 0.25%

LOANiANDiADVANCES 2014-15iii 8.83 36.58%

2015-16 11.43 44.29%

2016-17 11.42 42.99%

2017-18 13.25 42.75%

2018-19 13.63 35.18%

Inference

Theipercentageiofisundryidebtoritoiinventoryiisihighestiinitheiyeari2014-
15iandilowestiinitheiyeari2016-17iwhereicashiandibankiisihighestiinitheiyeari2014-
15,iloaniandiadvancesiisihighestiini2018-19iandilowestiini2017-2018i

51
INVENTORYiTURNOVERiRATIO

Inventoryiturnoveriratioialsoiknowniasistockiturnoveriratioiestablishesitheirelationshipibetweeni
costsiofigoodsisoldiandiaverageiinventory.iBesidesiitihelpsiinideterminingitheiliquidityiofiaibusi
nessiconcern,ithisiratioiindicatesihowimanyitimesiduringitheiperioditheifirmihasiturnediisiinvent
ory.iItishowsitheirateiatiwhichiinventoriesiareiconvertediintoisalesianditheniintoicash.i

52
 iiiiiiCostiofiGoodsiSold
InventoryiTurnoveri=
iiiiiiAverageiInventory

THEiINVENTORYiTURNOVERiRATIO.

Year Netisales(iniLakhs) Averageiinventory Ratio

(iniLakh)

2014-15iii 75.37 20.36 3.7

2015-16 91.74 24.98 3.67

2016-17 100.21 26.19 3.82

2017-18 101.96 28.77 3.54

2018-19 102.84 34.87 2.94

Inference

Theiinventoryiturnoveriratioiisimaximumiinitheiyeari2014-
15.iHigherivalueiindicateibetteriperformance.iTheicompanyiwasiableitoisellitheiriinventoriesiqui
ckly.i
TheiLowestiInventoryiturnoveriratioiisiini2018-
19.iAilowiinventoryiturnoveriratioiindicatesianiinefficientimanagementiofiinventory.

THEiINVENTORYiTURNOVERiRATIO

53
 THE IiVENTORY TURNOVER RATIO
3.85

3.8

3.75

3.7

3.65

3.6

3.55

3.5

3.45

3.4
2015-16 2016-17 2017-18

INVENTORYiHOLDINGiPERIOD

Inventoryiholdingiperiodishowsiwhetheritheistockiisifastimovingiorinot.iItiisicalculateditoiseeith
eiaverageitimeitakeniforiclearingitheistock.iTheilowerimaterialiholdingishowsiwhetheriisianyisl
owimoving,ifastimovingioridormantistock.iItiisitheiaverageitimeitoiconvertiouritotaliinventoryii
ntoisales.iTheilesseriinventoryiconversioniperiodiitiisiibetteribecauseimoreifastlyitheiinventoryii
siconvertediintoisales.

iiiiiiMaterialiHoldingiPeriod= iiiiiiiiiiDaysiiniaiyear

Inventoryiturnoveriratio

THEiINVENTORYiHOLDINGiPERIOD.

54
 Year Days Averageiinventoryiturnoveriratio(iniLakh) InventoryiHoldingiperiod

2014- 365 3.7 98.64

15iii

2015-16 365 3.67 99.45

2016-17 365 3.82 95.54

2017-18 365 3.54 103.10

2018-19 365 2.94 124.14

Inference

Theiaboveitableishowsithatitheiinventoryiconversioniperiodiforithei5iyearsiInventoryiconver
sioniperiodiisiminimumiini2014-
15iwhichiindicateitheiconversioniofiinventoryitoisalesiisifaster.iMaximumiinventoryiholding
iperiodiisiini2018-19.

INVENTORYiHOLDINGiPERIOD.

ChartiTitle
THE INVENTORY HOLDING PERIOD Series 2 Series 3

5
2 2.8
2 4.4
2.4 3
1.8
103.1
98.64 99.45
95.54

2014-15 2015-16 2016-17 2017-18

55
RATIOiOFiMATERIALiCONSUMPTIONiTOiTURNOVERiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii
iiiiiiiiiiiiiiii

Ratioiofimaterialiconsumptionitoiturnoverimeasuresihowifrequentlyiinventoryitakeniforiproducti
on.iThisiratioishowsitheiproportioniofiexpenditureionimaterialiconsumptionitoiturnover.iItiprovi
desiaimeasurementibetweenitheiamountiofirawimaterialiversesitheiaverageiamountiofirawimater
ialiinitheiinventoryiatianyigivenitime.iAihigheriratioiisigoodifromitheiviewipointiofiliquidity.iIti
isicalculatediasifollows:

iRatioiofimaterialiconsumptionitoiturnoveri=iiiExpenditureionimateriali

Turnover

THEiRATIOiOFiMATERIALiCONSUMPTIONiTOiTURNOVER.

Year Materialiconsumpti Turnover Ratio

on

2014-15iii 31.86 75.38 .422

2015-16 46.49 91.75 .506

2016-17 51.76 100.21 .516

2017-18 48.77 101.96 .478

2018-19 68.06 102.84 .661

Inference

Theiaboveitableishowsiaiincreasingitrendiofiitheiratioiofimaterialiconsuptionitoiturnoverifromi2
014-15itoi2015-16.iIni2016-
17itheiratioiofiimaterialiconsumptionitoiturnoveriisimaximumiwhichiisinotigoodiforiaicompany.
iTheiratioiisiminimumiinitheiyeari2017-18iwhichiisifavourable

56
THEiRATIOiOFiMATERIALiCONSUMPTIONiTOiTURNOVER

Ratioiof Material Consumption to Tournover

0.7

0.6

0.5

0.4

0.3

0.2

0.1

0
2014-15 2015-16 2016-17 2017-18 2018-19

INVENTORYiTOiCURRENTiASSETiRATIO

Inventoryitoicurrentiassetsiratioiestablishesiairelationshipibetweeniinventoryianditheitotalicurren
tiassets.iThereibyianalyzingitheileveliofiinvestmentiiniinventoryiandiconsumptioniofitotalicurre
ntiassets.Itiisicurrentiasssetsiareithoseiresourcesiofifirmiwhichiareieitheriheldiinitheiformioficas
hioriaiexpecteditoibeiconvertediinicashiwithinitheiaccountigiperiod.

iInventoryitoicurrentiassetsiratio=i Inventory

CurrentiAsset

57
THEiINVENTORYiTOiCURRENTiASSETiRATIO.

Year Inventory Currentiassets Ratio

2014-15iii 24.14 79.46 .303

2015-16 25.81 106.10 .243

2016-17 26.56 109.55 .242

2017-18 30.99 117.36 .264

2018-19 38.74 118.99 .325

Inference

Theiinventoryitoicurrentiassetiratioihasiaiincreasingitrendifromi2018-19itoi2017-
18.Itiisimaximumiinitheiyeari2018-
19.Theiloweritheipercentageiofiinventoryitoitheicurrentiassets,itheigreateritheiliquidityioficurren
tiassetiandiversa.iLowiratioiisishowniini2016-17.i

THEiINVENTORYiTOiCURRENTiASSETiRATIO

58
 INVENiORY TO CURRENT ASSET RATIO
0.35

0.3

0.25

0.2

0.15

0.1

0.05

0
2014-15 2015-16 2016-17 2017-18 2018-19

INVENTORYiTOiWORKINGiCAPITAL

Aifirmiisifinanciallyisoundiifiitsiamountiofiinventoryidoesinotiexceeditheiamountiofiworkingica
pital.iThisiratioiisicalculateditoiknowiwhetherithereiisianyioverstockiinitheifirm.Itiisiaiwiseitoire
duceitheitheileveliofiassetitiediupiiniworkingicapitalsinceieachidollarifreediisiaidollarithaticanib
eiuseditoipayidownilong-termidebt,repurchaseishareietc.

Inventoryitoiworkingicapital=iiInventory

WorkingiCapital

INVENTORYiTOiWORKINGiiCAPITAL.

Year Inventory Workingicapital Ratio

2014-15iii 24.14 69.47 .34

2015-16 25.81 87.09 .29

2016-17 26.56 91.11 .29

59
 2017-18 30.99 94.45 .32

2018-19 38.74 88.81 .43

Inference

Inventoryitoiworkingicapitaliratioianalysisiitishowsitheiproportioniofiinventoryiisilessiwhenico
mpareditoiworkingicapital.iTheiproportionsiareihighiinitheiyeari2017-
18iandiloweriinitheiyeari2016-17iandiini2014-2015.i

INVENTORYiTOiWORKINGiCAPITAL

INVENiORY TO WORKING CAPITAL

0.5
0.45
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
2014-15 2015-16 2016-17 2017-18 2018-19

INVENTORY TO WORKING CAPITAL

DEBTORSiTURNOVERiRATIO

60
iItiindicatesihowimanyitimesitheifirmiisicollectingitheicashifromiitsidebtorsitoiwhomifirmisellsii
nicredits.iTradeidebtorsiareiexpecteditoibeiconvertediintoicashiwithiaishortiperiod.iDebtorsiturn
overiratioioriaccountsireceivableiturnoveriratioiiindicatesitheivelocityiofidebticollectioniofiaifir
m.iInisimpleiwordsiitiindicatesitheinumberiofitimesiaverageidebtorsi(receivable)iareiturnediover
iduringiaiyear.

DebtorsiTurnoveriRatioi=i iiiNetiCreditiSalesi

AverageiTradeiDebtors

DEBTORSiTURNOVERiRATIO.

Year Sales Debtors Ratio

2014-15iii 75.37 45.34 .166

2015-16 91.74 63.20 1.45

2016-17 100.22 63.83 1.56

2017-18 101.96 72.24 1.41

2018-19 102.84 65.08 1.58

Inference

Theihigheridebtoriturnoveriratioiisiinitheiyeari2018-
19iwhichiisigoodiforitheicompany.iTheitableishowsianiincreasingitrendifromi2016-
2017iandidecreasediinitheiyeari2017-2018

61
DEBTORSiTURNOVERiRATIO

Debtoi Turnover ratio

1.8

1.6

1.4

1.2

0.8

0.6

0.4

0.2

0
2014-15 2015-16 2016-17 2017-18 2018-19

CREDITORSiTURNOVERiRATIO

Inibusinessioperations,iaifirmihasitoimakeicreditipurchaseiandiincurishortitermiliabilities.iSuppli
ersiofigoodsicreditorsiareilikelyitoitakeiinirepayingiitsitradeicreditors.iForithisipurposes,icreditor
sipayableiturnoveriratioiisicalculated.iTheitwoicomponentsiofitheiratioiareitradeicreditorsiandia
nnualipurchase.

Creditorsiturnioveriratio=neticreditiannualipurchase/tradeicreditors

CREDITORSiTURNOVERiRATIO

Year Purchase Creditors Ratio

2014-15iii 75.37 7.51 4.24

2015-16 91.74 15.17 3.06

2016-17 100.22 14.27 3.62

62
 2017-18 101.96 17.49 2.78

2018-19 102.84 17.43 3.9

Inference

Theianalysisioficreditorsiturnoveriratioireflectsiwhetheritermsioficreditiallowedibyisuppliersiarei
liberaliorinot.iCreditorsiturnoveriratioiisihighestiinitheiyeari2014-2015iwhichiisi4.24.Ini2018-
19ihasiaifavourableicreditoriturnoveriratioiwhichiisi3.9.Creditoriturnoveriratioiisilowestiinitheiy
eari2017-18

CREDITORSiTURNOVERiRATIO

CREDIiORS TURNOVER RATIO

CREDITORS TURNOVER RATIO
4.24
3.9
3.62

3.06
2.78

2014-15 2015-16 2016-17 2017-18 2018-19

63
INPUTiOUTPUTiRATIO

iInventoryiControlicanibeiexercisedibyiuseiofithisiratio.iInputioutputiratioiisitheiratioiofitheiqua
ntityiofiinputiofimaterialitoiproductionianditheistandardimaterialicontentiofitheiactualioutput.

INPUTiOUTPUTiRATIOiFORiILP.

Year Input Output Ratio

2014-15iii 46.05 66.96 .687

2015-16 63.56 85.27 .745

2016-17 73.13 96.25 .759

2017-18 72.54 93.69 .774

2018-19 94.76 102.65 .92

Inference

Theianalysisiofiinputioutputiratioishowsithatiaboveishowsitheitendencyiisifluctuatingiyearibyiye
ar.iThisiisinotifavorableitoitheicompany.iTheiinputioutputiratioiisiincreasingifromi2014-
15itoi2018-2019.Theiratioiisihighestiinitheiyeari2018-2019iwhichiisi0.92

INPUTiOUTPUTiRATIO

64
 INPUTiOUTPUT RATIO
INPUT OUTPUT RATIO

0.92

0.745 0.759 0.774

0.687

2014-15 2015-16 2016-17 2017-18 2018-19

WORKINGiCAPITALiTURNOVERiRATIO

Workingicapitaliturnoveriratioiisitheiratioiwhichishowsinumberiofitimeitheiworkingicapitalirequ
irementsiinisales.iWorkingicapitaliofiaiconcerniisidirectlyirelateditoisales.iItiisiuseditoianalyseih
owieffectivelyiaicompanyiisiusingitheiworkingicapitalitoigenerateisales.

Higheritheiworkingicapitaliturnoveriratioitheibetteriitiisibecauseiitimeansithatitheicompanyiisige
neratingilotiofisalesicompareditoitheimoneyiitiusesitoifunditheisales.

Workingicapitaliturnoveriratio=iiiNetisales

i iiiiNetiworkingicapital.

WORKINGiCAPITALiTURNOVERiRATIOiFORiILP.

Year NetiSales(iniCrore) NetiWorkingicapital(iniCrore) Ratio

2014-15iii 75.37 69.47 1.08

65
 2015-16 91.74 87.08 1.05

2016-17 100.22 90.99 1.10

2017-18 101.96 94.45 1.08

2018-19 102.84 88.90 1.15

Inference

Theiaboveitableishowsithatitheiworkingicapitalirequirementsiofitheifirmiwhichiisihighestiiniyea
ri2018-19ithatiisi1.15iandilowesti1.05iinitheiyeari2015-16.

WORKINGiCAPITALiTURNOVERiRATIO.

WORKIiG CAPITAL TURNOVER RATIO

WORKING CAPITAL TURNOVER RATIO

1.15

1.1

1.08 1.08

1.05

2014-15 2015-16 2016-17 2017-18 2018-19

TRENDiANALYSIS

Theifinancialistatementimayibeianalyzedibyicomputingitrendsibyiseriesiofiincrease.iThisimetho
dideterminesitheidirectioniupwardsioridownwardsiandiinvolvesitheicomputationiofitheipercenta
geirelationshipithatieachistatementiitemibearsitoitheisameiitemiinibaseiyear.iOneiyeariisitakenia
sitheibaseiyear.iUsually,itheifirstiyeariisitakeniasitheibaseiyear.

66
TrendiAnalysisiisitheipracticeioficollectingiinformationiandiattemptingitoispotiaipattern,ioritren
d,iinitheiinformation.iAlthoughitrendianalysisiisiofteniuseditoipredictifutureievents,iiticouldibei
useditoiestimateiuncertainieventsiinitheipasT

Trendipercentagei=icurrentiyeariamount/iBaseiyeariamount*100

TRENDiANALYSISiOFiWORKINGiCAPITAL

TRENDiANALYSISiOFiWORKINGiCAPITAL

i Year Workingicapital(IniCrore) Trendipercentage

2014-15iii 69.47 100

2015-16 87.08 125.35

2016-17 90.99 104.44

2017-18 94.45 103.79

2018-19 88.90 94.12

Inference

Theianalysisishowsithatithereiisianiincreaseiiniworkingicapitalifromi2014-15itoi2015-
16ithenithereiisidecreaseiiniworkingicapitalifromi2017-18itoi2018-19.

67
 TrendiAnalysis of Working Capital
140

120

100

80

60

40

20

0
2013-14 2014-15 2015-16 2016-17

TRENDiANALYSISiOFiCASH

Year Cash(iInilakhs) Trendipercentage

2014-15iii .261 100

2015-16 4.74 181.09

2016-17 7.06 148.94

2017-18 .428 6.06

2018-19 .104 24.29

Inference

Theitrendianalysisioficashishowsiaivastidecreaseiinitheiyeari2017-
2018.Theitrendipercentageionicashihasiaihugeiincreaseionitheiyeari2014-
15iandithenidecreasesirapidlyiini2016-2017.

68
TrendiAnalysisiofiCash

TRENDiANALYSIS OF CASH
100%
90%
80%
70%
60%
AxisiTitle

50%
40%
30%
20%
10%
0%
2013-14 2014-15 2015-16 2016-17 2017-18
TREND ANALYSIS OF CASH 4.3 2.5 3.5 4.5

69
CORRELATIONiANALYSIS

Correlationirefersitoitheirelationshipibetweenianyitwoiorimoreivariables.iTheicorrelationiexpres
sesitheirelationshipioriinterdependenceiofitwoisetiofivariablesiuponieachiotheriinisuchiaiwayitha
titheichangeiinivalueiofioneivariableiareiinisympathyiwithitheichangeiinianotherivariable.iCorre
lationico-
efficientiisiainumericalimeasurementishowingidegreeioficorrelationibetweenitwoivariables.

Correlationianalysisihelpsitoiindicateitheidegreeiofirelationshipibetweenitwoivariables.iThereiar
eisoimanyimethodsiusediforimeasuringicorrelation.

Degreeioficorrelation

Correlationiexistsiinivariousidegrees:

 Perfectipositiveicorrelation
ifiitiisiperfecticorrelationi,ianiincreaseiinioneivariableiisialwaysifollowedibyiaicorrespondingian
diproportionaliincrease

 Perfectinegativeicorrelation:iItiisinegativeiperfecticorrelation,iifiaidecreaseiinioneivar
iableiisialwaysifollowedibyiaicorrespondingiandiproportionaliincrease.
Correlationiforitheiconcern

Theipresentisectioniaimsiatianalyzingitheicorrelationico-
efficientiunderitheifollowingicombinationiofivariablesitoistudyitheirelationshipiexistingibetween
ithem.

1.iRelationshipibetweeniinventoryiandicurrentiassets.

2.iRelationshipibetweenirawimaterialsiandicurrentiassets.

3.iRelationshipibetweenirawimaterialsiandiinventory.

RELATIONSHIPiBETWEENiINVENTORYiANDiCURRENTiASSETS

Theirelationshipibetweeniinventoryiandicurrentiassetsiisiexplainedibyitheifollowingitable.

70
TABLEiSHOWINGiRELATIONSHIPiBETWEENiINVENTORYiANDiCURRENTiASSE
TS.

Year X X=x-‾x X^2 y Y=y-‾y Y^2 XY

2014- 24.14 -5.1 26.15 79.46 -26.8 718.24 136.68

15iii

2015-16 25.81 -3.44 11.8 106.10 -.17 .02 .58

2016-17 26.56 -2.69 7.2 109.55 3.28 10.7 -8.82

2017-18 30.99 1.74 3.02 117.36 11.28 122.9 19.62

2018-19 38.77 9.52 90.6 118.9 12.63 159.5 120.23

146.27i 670.19 531.35 1011.37 268.29

Correlationico-efficienti‘r’=i∑XY/√∑X^2*√∑Y^2

iiiiiii∑XY=268.29

iiiii∑X^2=138.8

iiiiii∑Y^2=1011.37

iiiiiiir=i268.29/√138.8i*i√i1011.37

iiiiiiii=i-292.27/11.78i*i374.6

ii=i.60

Inference

71
Theitableishowsitheirelationshipibetweeniinventoryiandicurrentiasset.iItishowsithaticorrelationib
etweenitheseitwoivariablesiis.60.ithisiindicatesithatitheseitwoivariablesihaveipositiveicorrelation
.iThatiisiinventoryiandicurrentiassetiareichangediinitheisameidirection.

Hereixirepresentiinventory.

iyirepresenticurrentiasset.

iiiiiiiiiXirepresentsidifferenceiofixivaluesifromiassumedimeaniofixivalues

iiiiiiiiiYirepresentsidifferenceiofiyivaluesifromiassumedimeaniofiyivalues

iiiiiiiiiii⁻xiirepresentsitheiaverageiofixivalues.

iiiiiiiiii⁻yirepresentsitheiaverageiofiyivalues

RELATIONSHIPiBETWEENiRAWiMATERIALiANDiCURRENTiASSETS

Theirelationshipibetweenirawimaterialiandicurrentiassetsiisiexplainedibyitheihelpiofifollowingit
able.

TABLEiSHOWINGiRELATIONSHIPiBETWEENiRAWiMATERIALiANDiCURRENTi
ASSETS.

Year X X=x-‾x X^2 y Y=y-‾y Y^2 XY

2014- 31.86 -17.52 306.95 79.46 -26.8 718.24 470.06

15iii

2015-16 46.49 -2.89 8.35 106.10 -.17 .02 .49

2016-17 51.75 2.37 5.61 109.55 3.28 10.7 7.77

2017-18 48.77 -.16 .372 117.36 11.28 122.9 -6.88

72
2018-19 68.06 18.68 348.94 118.9 12.63 159.5 236.36

21.9 670.19 531.35 1011.37 708.3

Correlationico-efficienti‘r’=i∑XY/√∑X^2*√∑Y^2

∑XY=i708.3

ii∑X^2=i670.19

ii∑Y^2=1011.37

ii=i708.3/√670.19i*i√i1011.37

iii=i708.3∕25.8i*i31.8

iii=i.86

Workinginote:

ii‾x=i∑x/in

iii∑x=in=i5

i‾x=i49.38

X=ix-i‾x

‾y=i∑y/in

i∑y=i313.5

in=i5

‾y=i106.27

Y=iy-i‾y

Inference

73
Theitableishowsitheirelationshipibetweenirawimaterialsiandicurrentiasset.iItishowsithaticorrelati
onibetweenitheseitwoivariablesiisi.60.iThisiindicatesithatitheseitwoivariablesihaveipositiveicorre
lation.iThatiisirawimaterialsiandicurrentiassetiareichangediinitheisameidirection.

Hereixirepresentirawimaterial.

iiiiiiiiiyirepresenticurrentiasset.

iiiiiiiiiXirepresentsidifferenceiofixivaluesifromiassumedimeaniofixivalues

iiiiiiiiiYirepresentsidifferenceiofiyivaluesifromiassumedimeaniofiyivalues

iiiiiiiiii‾xirepresentsitheiaverageiofixivalues.

iiiiiiiiii‾yirepresentsitheiaverageiofiyivalues.

RELATIONSHIPiBETWEENiINVENTORYiANDiRAWiMATERIAL

Theirelationshipibetweeniinventoryiandirawimaterialiisiexplainedibyitheihelpiofifollowingitable.

TABLEiSHOWINGiRELATIONSHIPiBETWEENiINVENTORYiANDiRAWiMATERIA
L.

Year X X=x-‾x X^2 y Y=y-‾y Y^2 XY

2014- 24.14 -5.1 26.15 31.86 -17.52 306.95 89.35

15iii

2015-16 25.81 -3.44 11.8 46.49 -2.89 8.35 15.72

2016-17 26.56 -2.69 7.2 51.75 2.37 5.61 -6.37

2017-18 30.99 1.74 3.02 48.77 -.16 .372 -1.06

74
2018-19 38.77 9.52 90.6 68.06 18.68 348.94 177.8

146.27i 138.8 670.19 275.47

Correlationico-efficienti‘r’=i∑XY/√∑X^2*√∑Y^2

iiii∑XY=i275.47

iiii∑X^2=ii138.8

iiiii∑Y^2=i670.19iiiiiii

iiiiir=i275.47/√138.8*√i670.19

iiiiiiii=i.90

Workinginote:

i‾x=i∑x/in

∑x=i146.25

n=i5

‾x=i29.25

X=ix-i‾x

‾y=i∑y/in

i∑y=in=i5

‾y=i49.38

Y=iy-i‾y

Inference:iTheitableishowsitheirelationshipibetweeniinventoryiandirawimaterials.iItishowsithati
correlationibetweenitheseitwoivariablesiisi.90.ithisiindicatesithatitheseitwoivariablesihaveihighip
ositiveicorrelation.iThatiisiinventoryiandirawimaterialsiareichangediinitheisameidirection.

75
Hereixirepresentirawimaterial.

iiiiiiiiiyirepresentiinventory.

iiiiiiiiiXirepresentsidifferenceiofixivaluesifromiassumedimeaniofixivalues

iiiiiiiiiYirepresentsidifferenceiofiyivaluesifromiassumedimeaniofiyivalues

iiiiiiiiii‾xirepresentsitheiaverageiofixivalues.

iiiiiiiii‾yirepresentsitheiaverageiofiyivalues

INVENTORYiCONTROLiTECHNIQUES
ABCianalysis

OneiofitheiwidelyiuseditechniquesiforiControliofiinventoriesiisitheiABCi(AlwaysiBetteriContro
l)ianalysis.iTheiobjectiveiofiABCiControliisitoivaryitheiexpensesiassociatediwithimaintainingia
ppropriateiControliaccordingitoitheipotentialisavingsiassociatediwithiaiproperileveliofisuchiCont
rol.iTheiABCianalysisiusesithisiprincipleitoidivideiinventoriesiini3iclassesiaccordingitoifundsius
age.

‘A’iitems;iwhichirepresentiabouti10%iofitheitotaliinventoryirangeiandiaccountiforialmosti70%i
ofitheiusageivalue,icalliforiailightiControlisystem.iOrderiquantitiesiandiorderipointsiareicarefull
yidetermined.iCloseiattentioniisipaiditoirecordiaccuratelyiandivariablesicanibeireviewediperiodi
cally.

ii‘B’iitemsiwhichiconstituteiabouti20%iofitheitotaliinventoryirangesiandiaccountifori20%iofithe
iannualiusageivalue,irequiresinormaliControls.iVariablesicanibeireviewediperiodically.

i‘C’iitemsiareitheiremainingi70%iofitheiinventoryiwhichiinvolveionlyiabouti10%iofitheiusageiv
alueirelativelyilooseiControlsiandilessifrequentireviewsisufficientiinitheiricase.ABCianalysisiisi
alsoicallediproportionalipartsivalueianalysisioridemandisupplyimethod.

Here

iGroupiAiconsistiofiinventoryirangingibetweeniRsi9,99,99,999itoiRsi99,99,998

iGroupiBiconsistiofiinventoryirangingibetweeniRsi99,99,999itoiRsi99,998

76
iGroupiCiconsistiofiinventoryirangingibetweeniRsi99,999itoiRsi1iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii
iiiiiiiiiiiiii

TABLEiSHOWINGiABCiANALYSIS

Group Numberiofiitems %iofiitems

A 6 0.028%

B 388 1.83%

C 20721 98.13%

100

Inference

IniABCianalysisii98.13%iofiinventoryibelongsitoigroupiC,i1.83%iofiinventoryibelongsitoigrou
piBiandi0.028%iofiinventoryibelongsitoigroupiA

FSNiAnalysis
FSNistandsiforifastimovingi,islowimovingiandinonimoving.iHereiclassificationiisibasedionithei
patterniofiissuesifromistoresiandiisiusefuliiniControllingiobsolescence.iTheicarryioutiFSNianaly
sisi,itheiisilateri,iisitakenitoidetermineitheinumberiofimonthsi,iwhichihaveielapsedisinceitheilasti
transactions.i

Theiitemsiareiusuallyigroupediiniperiodsiofi12imonths.iFSNiAnalysisiisihelpfuliiniidentifyingia
ctiveiitemiwhichineeditoibeireviewediregularlyiandisurplusiitemsiwhichihaveitoibeiexaminedifu
rther.iNonimovingiitemsimayibeiexaminedifurtherianditheiridisposalicanibeiconsidered.

77
TABLEiINDICATINGiFSNiANALYSIS

Groupi Numberiofiitemsi %iofiitems

F 2210 15.39%

S 3399 23.68%

N 8744 60.92%

14353 100

GroupiF-inventoryirangingibetweeni1iyearitoi2iyear.

GroupiS-2iyearitoi5iyear.

GroupiN-Abovei5iyear

Inference

Herei60.92%iofiinventoryibelongsitoigroupiN,i23.68%iofiinventoryibelongsitoigroupiSiandi15.
39%iofiinventoryibelongsitoigroupiF.

DiagramishowingiFSN

78
CHAPTERiNO.i7

FINDINGS,iOBSERVATIONSi&iCONCLUSION

 Theipercentageioficurrentiassetitoiinventoryisundryidebtors,icashiandibank,iloaniandi
advancesihaveidecreasediinitheiyeari2018-2019.
 Inventoryiturnoveriratioishowsiaifluctuatingitrendioveritheiyears.iItihasibeenidecreas
editoi2.94iiinitheiyeari2018-19iwhichiisinotigoodiforitheicompany
 Inventory conversioniperiodihasiincreaseditoi124idaysiiinitheiiyeari2018-
2019iwhichiindicateitheiconversioniofiinventoryitoisalesiisilower
 Theimaterialiholdingiperiodiisilowiinitheiyeari2014-
15.iItiindicatesithatistockiisifastimovingiandiinitheiyeari2018-
2019iisiveryihighiwhichiisinotiinifavouritoitheicompany.
 Theiratioiofiimaterialiconsumptionitoiturnoveriisimaximumi.667iini2018-
2019iiwhichiisinotigoodiforiaicompany
 Theidebtorsiturnoveriratioishowsiincreasingifromitheiyeari2018-
19iwhichiindicateiefficientimanagementiofidebtorsibyitheicompany.iTheiextensionio
ficreditiandicollectioniofiaccountsireceivableiisiefficient
 Inventoryitoicurrentiassetiratioiisifluctuating.iLowiratioiisigooditoitheicompanyiandii
tiwasishowniini2016-17.iButiini2018-
19itheiratioiincreasesiwhichiisinotigooditoitheicompany.

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  Theiratioitoiinventoryitoiworkingicapitalishowsianiincreasingitrendiwhichiisifavorabl
eitoitheicompany.iItiisimaximumiinitheiyeari2018-
2019ihasiaifavourableieffectionitheicompany.
 Theicreditorsiturnoveriratioiisihighiinitheiyeari2018-
19.iThisiisifavorableitoitheicompany.
 Theianalysisiofiinputioutputiratioishowsithatiaboveishowsitheitendencyiisifluctuating
iyearibyiyear.iThisiisinotifavorableitoitheicompany
 Workingicapitaliturnoveriratioiisihighestiinitheiyeari2018-
2019iwhichiisi0.43iwhichiindicateibetteriiperformance

 Correlationianalysisishowsitheirelationshipibetweenivariousivariablesilikeiinventoryi
andicurrentiasset,irelationshipibetweenirawimaterialiandicurrentiasset,irelationshipibe
tweenirawimaterialiandiinventory.iItishowsiaipositiveicorrelationiwhichihasiaifavour
ableieffect.
 AsiperiABCianalysisiAicategoryi0.028%,iBicategoryiconstitutei1.83%iandiCicategor
yiconstitutei98.13%iofitheitotalinumberiofiitems.
 AsiperiFSNianalysisiFicategoryiofiitemsiconstitutei23.68i%i,iSicategoryiconstitutesi
23.68%iandiNicategoryiconstitutesi60.92%iofitheitotalinumberiofiitems.

CONCLUSION

Thisiprojectioni“Theistudyioniinventoryimanagement”igaveimeianiopportunityitoiunderstandith
eileveliofiinventoryimanagementiinitheiKansaiiNerolacipaintsiLtd.iThisiresearchiwillihelpithei
organizationitoimakeinecessaryimeasureitoitheiinventories.iThisiwillicertainlyibringidownitheic
ausesiofiinventoryiproblemsiandihelpitheimanagementiofiinventories.iTheihighiturnoveriratioiin
dicatesiefficientimanagementiofiinventoryibecauseimoreifrequentlyitheistockisold.iSoitheiorgani
zationishoulditryitoiimproveitheiinventoryiturnoveriratio.

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TheiinventoryisystemifollowedibyitheiKansaiiNerolacipaintsiLtdiisisatisfactoryiwhichiisimainl
yidueitoitheiefficiencyiofiemployees.iTheicurrentistudyihelpedimeitoiunderstanditheicurrentiinv
entoryicontrolimeasuresipracticedibyiKansaiiNerolacipaintsiLtd.iTheicordialiandicorporateirel
ationshipibetweenimanagementiandiemployeesiisitheisecretibehinditheisuccessiofitheicompany.

CHAPTERiNO.i8

SUGGESTIONSi/iRECOMMENDATIONS

 CompanyihaveitoishiftisomeiitemsiofiGroupiBitoiGroupiAiandiCitoiBiforimoreiControli
overitheiinventoryiwhichicanireduceitheiinventoryicost.

 TheiItemsiofiNonmovingigroupi(60.92%)icanibeireduceditoihaveimoreiControlioverithei
inventory

 Perpetualiinventoryisystemiandiperiodicireviewisystemishouldibeiconsiderediseriouslyia
ndialsoiensureithatimaterialsiareicheckedibyiauthorizedipersons

 ItiwillibeimoreibetteriifitheifirmitryitoidecreaseitheiInventoryiConversioniPeriodithrough
iefficientimanagementiofithem.
 Efficientimanagementiofitheidebtorsiandicreditorsihaveitoibeimaintainediwhichiisifavour
ableiforitheidevelopmentiofitheicompany.
 Theihigheriturnoveriratioiindicatesiefficientimanagementiofiinventoryibecauseimoreifreq
uentlyitheistockisold,isoiefficientiistepsihaveitoibeiintroduceditoiimproveitheiinventoryir
atio

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CHAPTERiNO.i9

LIMITATIONSiOFiTHEiSTUDY
 Theistudyiisilimitediforiailimitediperiod.iHenceiresultiobtainedicanibeiappliediforitheis
electediperiod.
 Theistudyiisimainlyidoneiwithitheisecondaryidataiandifiguresidrawnifromiaccountingir
ecords,ithisihasisomeilimitationsiandiitiaffectsitheistudyialso.iii
 Theifinancialiratiosiimplyionlyitheimonitoryiaspectsiofitheifunctionsiofitheifirm.iTheir
atiosicannotibeidirectlyiregardediasiindicatoriofigoodioribadiperformanceiofimanageme
nt.
 Accuracyiandicorrectnessiofitoolsilikeiratioianalysisiisidependsiuponitheiaccuracyiofip
ublishediaccounts.
 Theitimeiavailableiforitheistudyiwasianothericonstrainingifactor.
 Theiinventoryimanagementiofiorganizationiisilimiteditoitheiextentiofiinformationimade
iavailableithroughipublishedidocumentsiandipersonnelidiscussion.

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BIBILIOGRAPHY

BOOKS

 KhaniM.IiandiJainiPK,iBasicifinancialimanagement,iTheiMcGraw-
Hillipublishingicompanyilimited,iNewiDelhi.,2000.
 Aswathappai&iK.ShridharaiBhat,iproductionsiandiOperationsiManagement,iHimalayai
PublishingiHouse,iSecondiedition,2008
 Shashi.K.GuptaiandiR.K.Sharma,ManagementiAccounting,iKalayaniipublishers,11thied
ition,2007
 Dr.S.N.Maheswari,iFinancialiManagement,iSultaniChandi&isons,9thiedition,2004
 D.ChandraiBose,iInventoryiManagement,iPrenticeihalliofiIndiaiPrivateiLimited,iNewi
Delhi.

WEBSITES

 https://www.nerolac.com/our-systems.html#scroll
 https://www.nerolac.com
 http://www.businessidictonary.com/
 http://www.entrepreneur.in/

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ii****************iThankiyou**********************

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