A STUDY ON

“INVENTORY MANAGEMENT”

With reference to
ANDHRA PRADESH HEAVY MACHINERY AND ENGINEERING
LIMITED, KONDAPALLI, VIJAYAWADA.

A Project report submitted to Jawaharlal Nehru Technological University,

Kakinada, In partial fulfillment for the award of the degree of
MASTER OF BUSINESS ADMINISTRATION

Submitted by
B.SANDHYA
Regd. No.19NP1E0002

Under the guidance of

Dr. P. SUBBAIAH
PROFESSOR

DEPARTMENT OF BUSINESS ADMINISTRATION

VIJAYA INSTITUTE OF TECHNOLOGY FOR WOMEN
(An ISO 9001-2008 certified institute, Approved by AICTE, Affiliated to JNTU-K)
Enikepadu, Vijayawada-521108.
BATCH: (2019-2021)
 \VIJAYA INSTITUTE OF
TECHNOLOGY FOR WOMEN
DEPARTMENT OF
BUSINESSADMINISTRATION
(An ISO 9001-2008 Certified Institution, Approved by AICTE, Affiliated to JNTU-K)
Enikepadu, Vijayawada-521108

Date:

CERTIFICATE
This is to certify that the project entitled “INVENTORY MANAGEMENT” with
reference to ANDHRA PRADESH HEAVY MACHINERY AND ENGINEERING
LIMITED, KONDAPALLI, VIJAYAWADA” is a bonafide work done by
B.SANDHYA, Reg. No: 19NP1E0002 under my guidance in partial fulfillment of the
requirement for the award of degree of MASTER OF BUSINESS
ADMINISTRATION in VIJAYA INSTITUTE OF TECHNOLOGY FOR
WOMEN, Enikepadu, Vijayawada, Affiliated to JAWAHARLAL NEHRU
TECHNOLOGICAL UNIVERSITY, Kakinada. During the Academic year 2019-2021.

Dr. P. SUBBAIAH Dr. G. CHENCHAMMA

Project Guide Principal

EXTERNAL EXAMINER
 DECLARATION

I Miss. BOVRISETTY SANDHYA had done this study in ANDHRA PRADESH HEAVY
MACHINERY AND ENGINEERING LIMITED, KONDAPALLI, VIJAYAWADA, in
partial fulfillment for the award of the degree of Master of Business Administration. This project
is, written and submitted to the Department of Business Administration. VIJAYA INSTITUTE
OF TECHNOLOGY FOR WOMEN, ENIKEPADU under the guidance of Dr. P.
SUBBAIAH is an original work carried out by me. The findings of this report are based on the
information collected by during the study period. I further state that I am alone responsible for
omissions and commissions, if any.

Place: Enikepadu (B.SANDHYA)

Date: Regd.No.19NP1E0002
 ACKNOWLEDGEMENT

It is of great pleasure to take the opportunity to acknowledge and express my gratitude to all
those who helped me throughout my project work.

I would like to thank Dr. G. CHENCHAMMA, Principal, VIJAYA INSTITUTE OF

TECHNOLOGY FOR WOMEN, for this encouragement and support rendered in taking up
the successful completion of my project work. For valuable guidance and support

My special thanks to Dr. P. SUBBAIAH, Professor, Department of Business

Administration, for his valuable guidance and support for the completion of my project work.

I would like to express my sincere gratitude to the management and staff of “ANDHRA
PRADESH HEAVY MACHINERY AND ENGINEERING LIMITED, KONDAPALLI,
VIJAYAWADA.” for giving permission to do my project work in their organization and
helping me meticulously in all the aspects of my project work.

Finally I would also like to thank all the staff members in the Department of MASTER OF
BUSINESS ADMINISTRATION, VIJAYA INSTITUTE OF TECHNOLOGY FOR
WOMEN for their enduring support throughout my MBA programme.

(Ms. B.SANDHYA)
Reg.No.19NP1E0002
 INDEX

CHAPTER-NO NAME OF THE CHAPTER PAGE-NO

CHAPTER-I INTRODUCTION 1-10

 NEED OF THE STUDY

 SCOPE OF THE STUDY

 OBJECTIVES OF THE STUDY

 METHODOLOGY

 PERIOD OF THE STUDY

 LIMITATIONS OF THE STUDY

CHAPTER-II INDUSTRY PROFIE 11-19

CHAPTER-III COMPANY PROFILE 20-34

CHAPTER-IV THEORATICAL FRAME WORK 35-60

CHAPTER-V DATA ANALYSIS AND INTERPRETATION 61-86

CHAPTER-VI  FINDINGS 87-87

 SUGGESTIONS 88-88

 CONCLUSION 89-89

 BIBILIOGRAPHY 90-90
 LIST OF TABLES

TABLE TABLE NAME PAGE

NO. NO.
2.1 CUSTOMERS IN APHMEL 27
3.1 DIFFERENT TYPES OF INVENTORY CONTROLS 57
OF THERE USES
3.2 MATERIAL GROUP DESCRIPTIONS IN APHMEL 59
5.1 SIZE OF INVENTORY IN APHMEL 63
5.2 INVENTORY TURNOVER RATIO IN APHMEL 65
5.3 INVENTORY HOLDING PERIOD OF APHMEL 67
5.4 COST OF GOODS SOLD RATIO IN APHMEL 69
5.5 WORKING CAPITAL TURNOVER RATIO IN 71
APHMEL
5.6 CURRENT RATIO IN APHMEL 73
5.7 GROSS PROFIT RATIO IN APHMEL 75
5.8 NET PROFIT RATIO IN APHMEL 77
5.9 PERCENTAGE OF FINISHED GOODS IN 79
INVENTORY IN APHMEL
5.10 PERCENTAGE OF RAW MATERIAL IN 81
INVENTORY IN APHMEL
5.11 INVENTORY CONVERSION PERIOD IN APHMEL 83
5.12 DEBTORS CONERSION PERIOD IN APHMEL 84
5.13 GROSS OPERATION CYCLE IN APHMEL 85
 CHAPTER-1
INTRODUCTION
INTRODUCTION TO FINANCIAL MANAGEMENT

Finance in the modern business world is regarded as life and blood of a business enterprise.
Finance function has become so important that it has birth to financial management as a
separate subject is acquiring a universal applicability.

Financial management is that managerial activity which is concerned with the planning and
controlling of the firm’s financial resources. As a separate activity or discipline is of recent
origin it was a branch of economies till 1890. Still today it has no unique body of knowledge
of its own, and it draws heavily on economic for its theoretical concepts.

The subjects of financial management are of interest to both academicians and practicing
managers. It is of interest to academicians because the subject is still containing areas where
controversies exist for which no unanimous solution has been reaching as yet. Practicing
managers are interested in this subject because among the most crucial decision of the firms
are those which relate to finance and understanding of theory of financial management
provides them with conceptual and analytical insights to make skillfully.

The modern thinking management accords a far greater importance to management in

decision making and formulation of policy. Financial management occupies key position in
top management and plays a dynamic role in solving complex management problems. They
are now responsible for shaping the fortunes of the enterprise involved in allocation of
capital.

The focus of financial management was mainly on certain episodic events like formulation,
issuance of capital, major expansion, merger, reorganization and liquidation in the life cycle
of the firm. The approach was mainly descriptive and institutional. The instruments of
financing, the institutions and procedures used in capital markets, and the legal aspects of
financial events formed the core of financial management was viewed mainly from the point
of the investment bankers, lenders and other outsider interests.

Every business organizations has to maintain appropriate funds to meet the long term as well
as short term needs irrespective of nature and size and kind of the firm. Proper funds
maintaining in an enterprise increase the value of the firm.

1
In business organization basis for financial analysis and decision making in financial
analysis and decision making in financial making in financial information is required.
Financial information is needed to predict compare and evaluate the firms earning ability and
aid in economic decision making and investment and finance decision making.

The basic financial statements of great significance to owners’ management and investors and
balance sheet, profit and loss account and cash flow statement. Finance is nothing but drafts,
currency notes, coins and short-term financial instruments which are acquiring the funds in
business and their effective utilization.

DEFINIONS

“Financial management is the application of the planning and control functions of financial
functions”.

----HOW ARD AND UPTON

“Financial management is an area of financial decision making harmonizing individual

motives and enterprise goals”.

----WESTON AND BINGHAM

“Financial management concerned with the efficient use of an important economic resource,
namely capital funds”.

----SOLOMON

“Financial is concerned with the acquisition, financing and management of assets with some
overall goal in mind”. Financial manager has to forecast expected events in business and their
financial implications.

----VANHOME AND WACHOWICZ

2
IMPORTANCE OF FINANCIAL MANAGEMENT

 Financial management helps proper allocation of funds for increasing the

profitability.
 To increase the size of the business enterprise the firm should deals with the
financial management.
 It deals with the separation of owners and management.
 It helps in increasing wealth of the owners and as well as nation.
 Financial management will take sound financial decision.

NATURE AND SCOPE OF FINANCIAL MANAGEMENT:

Estimating financial requirements

The first task of financial management is to estimation of the short term and long term
financial requirements. It is based on the proper financial plans. It may be either long period
of time or short period of time.

Deciding capital structure

Capital structure means build up off a funds in an organization. These funds are receiving
from long term sources. If we want to purchase fixed assets there is a need of determination
of capital structure.

SELECTIONG A PATTERN OF INVESTMENT

After receiving the funds from various sources the next step in invest the amount either fixed
assets or working capital with the help of capital budgeting techniques and working capital
analysis we have to make the invest in a profitable line.

PROPER CASH MANAGEMENT

Cash management is also important task of financial management. It deals with various day
to day expenses like payment of expenses and raw material purchase and payment to
creditors and other expenses for this we have to maintain optimum level of cash balance in
the organization.

3
IMPLEMENTING FINANCIAL CONTROLS:

In effective system if financial management how to use various control devices like ratio
analysis budgetary control and B.E.P analysis etc.

OBJECTIVES OF FINANCIAL MANAGEMENT

1. Profit Maximization,
2. Wealth Maximization,
3. Other Objectives.

1. PROFIT MAXIMIZATION:
The main objective of financial management is profit maximization the financial
manager tries to earn maximum profit for the company in short term he can’t
guarantee profit in the long term because of business uncertainties however a
company can earn maximum profits even in the long term if the finance manager
takes proper financial decisions. He uses the finance of the company property.

2. WEALTH MAXIMIZATION:
Wealth maximization [shareholders value maximization] is also a main objective of
financial management. Wealth maximization means to earn maximum wealth for the
shareholders. He also tries to increase the market value of the share is directly related
to the performance of the company. Better the performance, higher is the market
value of share and vice versa so the financial manager must try to maximize
shareholders values

3. OTHER OBJECTIVES:
 Earnings per share,
 Creation of good will,
 Proper co-ordination,
 Maintaining proper cash flows,
 Proper mobilization

4
SCOPE OF THE FINANCIAL MANAGEMENT

Scope of finance deals with the application of finance knowledge in different areas of
organization. Three most important activities of business firm are:

 Finance
 Production
 Marketing

The firm secures capital it need and employ in its activities which generates returns
on invested capital. A business firm is an entity that engages in activities to perform the
functions of finance, production and marketing.

The raising of capital funds and using them for generating returns and paying returns to the
supplies of funds is called the finance of the firm. The main function of the financial
management is to plan for analyzing and utilizing funds to make the maximum contribution
for the operation of the organization.

It realizes knowledge of the financial market from which the funds are drowned; it realizes
knowledge of how to make sound investment decisions and to simulate efficient operations in
the organizations. A large number of the alternate choices involved in financial decisions.
The choices include the use of internal resources, external funds and long- term funds.

FUNCTIONS OF FINANCIAL MANAGEMENT

Although it may be difficult to separate the finance functions from production, marketing and
other functions, at the functions, at the function that can be readily identified. The functions
of raising funds, investing in assets and distributing returns earned from assets, shareholders
respectively known as financing, investment and dividend decision.

While performing these functions, a firm attempts to balance cash inflows and cash outflows.
This is called liquidity decision and we add it to the list of important finance decisions or
functions.

 Investment or long- term asset mix decision

 Financing or capital mix decision
 Dividend or profit allocation decision

5
  Liquidity or short term asset mix decision

A firm performs finance functions simultaneously and continuously in the normal course of
the business. They do not necessarily occur in the sequence. Finance function call for skillful
planning, control and exception of a firm’s activities. Let us note that outset that shareholders
are made better off by a finance decision, which increase value of the shares. Thus while
performing the finance functions the financial manager should strive to maximize the market
value of shares.

INVESTMENT DECISION

Investment decision or capital budgeting involves the decision of allocation of capital or

commitment of funds to long-term assets, which would yield, benefits in future. It is one very
significant aspect is the task of measuring the prospective profitability of new investments.
Future benefits are difficult future; capital budgeting decision involves risk. Investment
proposals should, therefore be evaluated in terms of both expected return and risk, besides the
decision to commit the funds in new investment proposal; capital budgeting also involves
decision of recommitting funds when an asset becomes less productive or non-profitable.

FINANCING DECISION

Financing decision is the second important function to be performed by the financial

manager. Broadly, he must decide when, where and how to acquire funds to meet the firm’s
investment needs, the central issue before him is to determine the proportion of equity and
debt. The mix of debt and equity is known as the firm’s capital structure. The financial
manager must strive to obtain the best financing mix or the optimum capital structure for this
firm.

DIVIDENT DECISION

Dividend decision is the third major financial decision. The financial manager must
decide whether the firm should distribute all profits, or retained them, or distribute portion
and retain the balance. Like the debt policy, the dividend policy should determine in terms of
its impact on the shareholders’ value. Thus, if shareholders are not in different to the firm’s
dividend policy, the financial manager must determine the optimum dividend payout ratio.

6
LIQUIDITY DECISION

Current assets management, which affects a firm’s liquidity, is at another important finances
function, in addition to the management of long- term assets. Current assets should be
managed efficiently for safe guarding the firm.

Against the dangers of insolvency, investment in current asset affects firm’s profitability,
liquidity and risk. A conflict exists between profitability and liquidity current assets, it may
become illiquid. But it would loss profitability, as idle current assets would not earn anything.

Thus, a proper trade-off must be achieved between profitability and liquidity. In order to
ensure that neither insufficient nor unnecessary funds are invested in current assets, the
financial manager should develop sound techniques of managing current assets and make
sure that funds should be made available.

NEED OF THE STUDY

 Every organization needs inventory for smooth running of its activities.

 It serves as a link between production and distribution processes.
 The investment in inventories constitutes the most significant part of current
assets/working capital in most of the undertaking.
 Thus it is very essential to have proper control and management of inventories.
 The purpose of inventory management is to ensure availability of materials in
sufficient quantity as and when required and also to minimize investment in
inventories.
 So, in order to understand the nature of inventory management of the organization, I
took this inventory management as a topic for my project of study.

7
 OBJECTIVES OF THE STUDY

The study titled “INVENTORY MANAGEMENT” has been carried out with the following
objectives.

1. To study the present inventory management system at APHMEL.

2. To study the inventory management policies, techniques and their effectiveness of the
APHMEL.
3. To study the optimum level of inventory required in APHMEL.

SCOPE OF THE STUDY

The scope of my study is confined to one of the key areas of finance i.e. inventory
management. The study concentrates on the methods and techniques followed by ANDHRA
PRADESH HEAVY MACHINERY AND ENGINEERING LIMITED for its inventory
management and its relative merits and demerits.

The study is limited to collecting the financial data published in the annual reports of the
company with reference to the objectives stated above and an analysis of the data with a view
to suggest favorable solutions to the various problems related to Inventory Management.

8
 METHODOLOGY OF THE STUDY

Methodology is systematic procedure of collecting information in order to analyze and verify

a phenomenon. The following are the methodologies’ are using to evaluate the inventory in
Andhra Pradesh Heavy Machinery & Engineering Limited.

DATA COLLECTION

The data has been collected in two forms

1. Primary Data.
2. Secondary Data.

PRIMARY DATA:

The primary data is also called as first in hand data. But it is not applicable for the study of
financial management.

SECONDARY DATA:

The study is entirely based on the data obtained from the officers, managers, and staff of
APHMEL.

Managers and supervisors of the organization have also been interviewed to elicit necessary
information on the basis of non-structured schedules.

And secondary data was collected from the company’s manuals and office records pertaining
to production, marketing, financial position.

9
 LIMITATION OF THE STUDY

The drawbacks which are occurred during the period of the project in ANDHARA
PRADESH HEAVY MACHINERY& ENGINEERING LIMITED, KONDAPALLI can
be explained below:

 The analysis of data is limited to 5 years from 2014 to 2019.

 The financial performance is assessed with the numerical data provided by APHMEL,
KONDAPALLI.
 The important limitation for the study is project time duration that is 6 weeks.
 The reliability of the analysis depends upon the information furnished by the officials.

10
 CHAPTER-II
INDUSTRY PROFILE
 INDUSTRY PROFILE

INTRODUCTION

Engineering industry comprises of chemical, civil, industrial and mechanical engineering

divisions, where civil engineering division basically concerned with the activities like
planning, construction, designing or manufactured of structure. The chemical industry is
concerned with engineering activities like construction, design and operation of plants and
machinery of chemical products like drugs, synthetic rubber etc.

Electrical engineering primary deals with all engineering activities like manufacturing
of devices for generation of electricity of designing devices for transmission of electricity.
This electrical engineering division is also concerned with the designing and manufacturing
of electronic devices including computers and its accessories.

The mechanical engineering division specifically deals with designing and

manufacturing of power plants, engines or related devises and the industrial engineering is
principally concerned with the processing also comprise of fields like aeronautical
engineering where engineering supervision designing or aircraft, missiles etc.

Performance of the engineering sector is linked to the performance of the end user
industries for this sector. The user industries for engineering include power utilities, industrial
majors (refining automotive and textiles), government (public investment) and retail
consumer’s pumps and motors. Many factors contribute to growth of engineering sector in
India.

THE KEY GROWTH DRIVERS ARE

The growth of the key end user sector in India. For example, the domestic sales of
automobiles have grown at the compounded annual growth rate of around 14 percent over the
past four years. Government’s emphasis on power and construction sector has increased for
the past few years and thus increasing the demand for capital goods.
 Further, India is being preferred by global manufacturing companies as an out sourcing
destination due to its lower cost better designing capabilities. Engineering companies thus
have a huge potential for direct exports and outsourcing. The combination of AAB’s global
know-how and India’s highly qualified people enables the India’s subsidiary to produce
world class products.

The Indian subsidiary is a ‘global factory or high voltage 72.5 KV circuit breakers,
medium voltage outdoor circuit breakers and magnetic actuators; it also exports several other
products including transformers. The Indian engineering industry is highly competitive with a
number of players in each segment. A large number of multinational companies such as
commons, ABB and Alfa level have also entered the industry.

The intense competition has led to Indian players developing improved capabilities that
have made them more competitive.

HISTORY OF ENGINEERING

The Indian remaindering industry can be traced roughly to mid-19 th centuries stating
with waging building and structural activities. However, it developer in the real sense only
after independence it gained momentum after the adopting of prop’s Mahanoy his model of
heavy capital goods growth strategy in the second five year plan and subsequent plans. It also
exporting engineering goods like.

The country is currently producing power generation transmission and distribution

equipment.

 Plant and machinery for steel.

 Chemical and fertilizers.
 Cement plants.
 Sugar.
 Paper machinery.
 Electrical and construction machinery.
 Machine tools railway rolling stock.
 Earth moving equipment
 A large number of other industrial goods and consumer durables.
GOVERNMENT MEASURES

A welcome policy change towards giving a boost in the machine tools production was the
inclusion of machine tools in appendix 1 of the industrial policy announced in April 1983.

This is thrown open machine tools manufacturer and fear companies provide the particular
item is not reserved for small scale industries.

 In addition the important policy of 1983-1984 was designed to help machine tools
production. The provision included.
 Those small scale units which export at least 25% of their put and improve proto
types up to Rs.100000.
 All scheduled industries will be the facility of drawing and designs once in a year for
neither value nor exceeding Rs.1000000.
 A technology development fund was created to cover foreign exchange requirement
for import if balancing equipment technical know-how foreign consultancy services
etc.

ENGINEERING THE SECOND INDUSTRIAL REVOLUTION

The second industrial revolution, symbolized by the advent of electricity and mass
production, was drive by many branches of engineering, chemical and electrical engineering
developed in the rise of chemical, electrical and telecommunication industries. Machine
engineers termed the peril off ocean exploration. Aeronautic engineering turned the ancient
dream of flight into a travel convenience for ordinary people.

INDIAN AUTOMOTIVE INDUSTRY OBJECTIVES ARE:

 Exalt the sector as a level of industrial growth and employment and to achieve a high
of addition in the country.
 Promote a globally competitive automotive industry and emerge as global source for
auto components.
 Small, affordable passenger cars and a key center for manufacturing tractors and two
wheelers in the world.
 Ensure a balanced transition to open trade at a minimal risk to the Indian economy
and local industry.
  Conduce incessant modernization of the industry and facilitate indigenous design,
research and development.
 Sector India’s software industry into automotive technology.
 Assist development of vehicles propelled by alternative energy sources.

ABOUT HEAVY ENGINEERING INDUSTRY

HEAVY INDUSTRY

Heavy industry in India comprised of the heavy engineering industry, machine tools
industry, heavy electrical industry, industrial machinery and auto industry. These industries
provide goods and services for almost all sectors of the economy, including power, rail a road
transport, the achieve building industry caters the requirements of equipment for basic
industries such as steel ferrous metals, fertilizers, refineries, petrochemical, shipping, paper,
cement, sugar, etc.

HEAVY ELECTRICAL INDUSTRY

Heavy electrical industry encompasses import industry sectors including power generation,
transmission and distribution equipment. This also cover turbo generation, boilers, turbines,
transformers, switchgears and relays, the performance this industry is closely linked to the
power programmers of the country, the government of India has an ambitious mission of
power for all 2012’ as per working group on power of 11 th pan, a capacity addition of 72000
MW is required. To reach transmission network and inter regional capacity to transmit power
would be essential.

The technology available in India is almost at par with that in the international market
barring few areas of high voltage lines. However, items like CARGO steel and amorphous
cores for low loss transformers are being imported.

TURBINES AND GENERATORS SETS

The capacity established for manufacturer of various kinds of turbines. Such as steam and
hydro turbines including industrial turbines, is more than 7000 MW per annum. Apart from
BHEL which has largest installed capacity. There are other units in the private sector who are
manufacturing turbines for power generation and industrial use. The manufacturing range of
BHEL includes streams turbines, boilers, and generators up to 500 MW for utility and
commercial steam cycle application and is capable of manufacturing steam turbines with
super critical steam cycle paramours and matching generation up to 660 MW size, facilities
are also available for 1000 MW unit size, BHEL has the capacity to manufactured gas
turbines up to 260 MW.

The A.C generators industry in India is adequately catering to the alternative power
requirements of large and small industries, commercial establishment and domestic
manufactures in India are capable of manufacturing A.C generator right from 0.5 KVA and
above with specified voltage rationed the each part.

FIGURE 2.1 TURBINER

BOILERS

Boilers is a pressurized system in which water is vaporized to steam, the desire and product,
but heat transferred form a source of higher temperature usually the products of combination
form burning fuels. Steam thus generated may be used directly a mechanical work, which in
turn may be converted to electrical energy. Although other fluids are sometimes used for this
purpose, water is by far the most common. BHEL is the largest manufacturer of boilers in
their country accounting go around two thirds of market share. It had the capacity to
manufacture differently types of boilers including spare thermal boiler, utility boilers and
other industrial boilers.

SWITCH GEAR AND CONTROL GEAR

Continuous power supply is requirement not only for industry but also for every other use of
electricity. And control gears are indispensable both in manufacturing entire range of circuit
breaker form bulk oil, minimum oil. Air blast, vacuum to sculpture hexafluoride as per
standard specification.

HEAVY ENGINEERING INDUSTRY

TEXTTILE MACHINERY

There over 600 units engaged in the manufacture of textile machineries, their components.
Accessories and spares. And out these about 100 unities are manufacturing the complete
textile machinery. The range includes textile machinery required for sorting. Cording
processing of yarns/fabrics and waving. The industry is gearing item to avail the export target
of garment manufacturers post multiform agreement (MFA).

CEMENT INDUSTRY

Cement plants based on dry processing and recalculating technology for capacities up to 7500
TPD are being manufactured in the country. Modern cement plants are designed for zero time
with high product quality.

SUGAR MACHINERY

Domestic manufactures occupy predominant position in the global scenario and are capable
of manufacturing from concerned department of commissioning stager sugar pants of latest
design for a capacity up to 10000 TCD (tones crushing per day) there are presently 27 units
in the organized sector for the manufacture of complete sugar pants and components with an
installed capacity.
RUBBER MACHINERY

There are at present 19 units in the organized sector for the manufacture of rubber machinery
mainly required for tire tube industry. The range of equipment’s manufactured the country
included inter-mixer, tire curing pressed tube splices bladder curing presses. Tube splices tire
molds tire building machinery. Torment services, bias cutters, rubber injection, molding
machine, bead wire etc.

MATERIAL HANDLING EQUIPMENT

The range of equipment manufactured includes crushing and screening plants. Cole/ore/ash
handling plants and associated equipment such as stacker’s feeders etc. catering to the
growing and rapidly changing needs of the core industries such as coal, cement power, port,
mining fertilizers and steel plants. There are 50 unities in the organized sector for the
manufacture of material handling equipment. Besides, there are number of units operating in
the small-scale sector. The industry is self-sufficient in meeting domestic demand and is also
capable of meeting global competition.

OIL FIELD EQUIPMENT

The petroleum industry in India is undergoing process of liberalization; the industry has been
thrown open for private sector in all major areas of exploration. Production, refining and
marketing, and this have resulted in increased demand for the oil field find related equipment.
Domestic production covers manly the on-shore drilling equipment. Under of offshore
drilling only offshore platforms and some other technological structure are being produced
locally. The major producers of these equipment’s are BHEL, Hindustan shipyard, Meagan
dock and Larsen & turbo.

METALLURGICAL MACHINERY

Metallurgical machinery includes equipment for mineral beneficiations are dressing size
reduction tee plant equipment’s. Foundry 30 Indian public sector aiming global heights
equipment furnaces. At present there are 39 units in the organized sector engaged in the
manufacture of various typed of metallurgical machinery. The existing capacity into the
country is sufficient to meet the demand of this equipment in the country.
Indigenous manufacturers are in position to supply of the equipment for still pants e.g. blast
footraces sinter plants. Coke ovens, tell melting shop equipment continuous casting
equipment, rolling mills & finishing line.

MINING MACHINERY

The major mining equipment are long wall mining equipment, road header, side discharges
loader (SDL), haulage winder ventilation fan, load haul dumper (LHD), coal cutter,
conveyors, battery locos, pumps, friction prop, etc. at the present are 32 manufactures the
equipment of various types, out of these, 17 units manufacture underground mining
equipment. Majority of the mining industry is being met by indigenous manufactures.

DAIRY MACHINERY

At present there are 16 units in the organized sector, both in private and public sector,
manufacturing dairy machinery equipment such as evaporators, milk refrigerators and storage
tanks, milk and cream deodorizers, centrifuges, clarifiers, agitators, homogenizers, spray
dryers and heat exchangers, small scale units are also contributing to the indigenous
production. The spray dryers, plate type heat exchanger and other core equipment on the
equipment because the presence of a by micro crevices resulting from inadequate polish tends
to be the incubation a breeding ground for the bacteria.

MACHINE TOOLS

Machine tool industry is in a position to export general purpose and a standard machine
tool to even industrially advanced countries. During last four decades, the machine tool
industry in India has established a sound base and there are around 160 machine tool
manufacturers in the organized sector as also around 400 units in the small ancillary sector.

The India industry has good design capability and the production of CNS machines
has increased to about 4000 no. per annum. Indian machine tools are manufactured to the
international standard of quality/precision and reliability. A number of collaboration has also
been approved for brining in the latest technology.
INTERNATIONAL CO-OPERATION

The department endeavors to promote international co-operational in the field of heavy

machineries, heavy industries, capital goods and auto sectors and keeps itself abreast with
WTO matters, bilateral/multilateral agreements and other issue concerning the department.
To promote economic co-operation at international level, meetings are arranged at senior
officers/minister level. India has free trade agreements (FTA) with various
organizations/countries such as ASEAN, BIMSTEC, Singapore, Thailand and EU etc. the
department protects the interests of concerned industries by suggesting the retention of
relevant items in the negative list. Recently suggestions were made for retention negative list
free trade area (FTA) with EU; ASEAN; India, Thailand FTA; and India- Singapore
comprehensive economic agreement (CECA). The views on machinery and auto sector for
meeting of the committee on rules of origin (ROO) in WTO, Geneva have also been
conveyed to the department of commerce.

ENGINEERING EXPORTS

The engineering industry has been making the exports front from around Rs.21crore in 1966.
The value of exports of engineering goods rose over Rs.105crore by the end of 60’s and
continued to show and encouraging trend during to 70’s.

 In the period 1971-1975 the value of exports more and trebled doubled in the next 3
years 1982-83 Rs.1250crore was reached.
 The engineering industry has emerged with the leading foreign exchange earners of
the country.

PROJECT EXPORTS:

Though Indian Projects exports has been successful. It is felt that the level of exports don’t
match our capabilities. India has a vast pool of trained man power.

The project exports full under the following categories:

 Turnkey Projects.
 Engineering Contacts.
 Consultancy Service.
 Construction constructs.
 CHAPTER-III

COMPANY PROFILE
COMPANY PROFILE
PROFILE OF APHMEL

APHMEL stands for ANDHRA PRADESH HEAVY MACHINERY AND ENGINEERING

LIMITED which is located at Kondapalli a small village which is famous for toys.
Professionalism is the hall mark of this company from the beginning. It is a subsidiary
company of Singareni collieries company limited (SCCL).

VISION OF APHMEL

“APHMEL is committed to produce right materials to produce and deliver Quality products
and services meeting the requirements of customer through continual improvement by
ensuring customer satisfaction and business growth”.

LOCATION

APHMEL is located at Kondapalli 23kms from Vijayawada the project site is rightly chooses
in 2006acre and with all infrastructure facilities and easily accessible by rail, road and
adequate water facilities, power supply.

A training cell was established at Auto Nagar, Vijayawada for man power development
programmers. From here emerged a vast resource of skill in various disciplines.

FIGURE 2.1 LOCATION OF APHMEL

APHMEL-THE BEGINNING

It is well known that a country’s advancement mostly depends on industrial growth & it
is an index of development of any country. Realizing this some of the prominent citizens of
Krishna district in the year 1976 have dedicated to establish a heavy industry in the district
which was agriculturally rich and was lagging behind industrially with this initiation by some
of the prominent citizens of the districts about 4700citizens. Have contributed Rs.208 Lakhs
towards share capital and citizen and sanctioned required funds to starting APHMEL in
Kondapalli.

The production started in October 1983 with an installed of 3500 tons per annum at cost of
1395.69 lakhs. 1st phase for total outlay of 13601 lakhs is financed by

IDBI-Rs.507LAKHS

ICFI- Rs.200LAKHS

ICICI-

Rs.100LAKHS

In addition to the equity capital of 485 lakhs, machines were purchased from famous
manufacturing like HMT (HINDUSTAN MACHINE TOOLS) and HEC (HINDUSTAN
ENGINEERING COMPANY).

NIDC (National Industrial Development Corporation ltd.,) the reputed consultants were asked
to prepare the APHMEL project report product and consumer mix was identified, industrial
license were obtained and collaborations were signed in record time. Machines were
purchased from world manufacturers like Homma skeda, HMT (Hindustan Machine Tools)
and HEC (Heavy Engineering Corporation). The company become a Govt. Company and on
9th November, 1983. The factory was dedicated to the people by the Honorable Chief
Minister of Andhra Pradesh Mr. N.T. Rama Rao. Thus APHMEL is truly a “people’s
project”.APHMEL is in 206 acres with all infrastructure facilities like railway lines, road
water facilities power supply etc.
INCORPORATION OF APHMEL

On 20th, April 1976 a project committee consisting of officials, non-officials, Businessmen,

Agriculturists and people representing all works of life was formed to promote a heavy
engineering industry in Krishna district and APHMEL was incorporated on 1 st September.
1976.

SHAREHOLDING PATTERNS OF APHMEL

Singareni Coal Collieries ltd(SCCL) 81.54%

Andhra Pradesh Industrial Development Corporation Ltd. 5.79%

(APIDC)

Andhra Pradesh State Government 0.86%

Private shares 11.81%

OBJECTIVES OF APHMEL

APHMEL have to design, develop, manufacture and market Heavy Industrial machinery,
plant and equipment including components and spares and service of poorer, coal mining,
steel chemical, petrol chemical, shipping and engineering industries etc.

 To achieve co-operative with the government in implementing the economic program.

 To utilize the capacities installed effectively.
 To develop exports and market from the point of view of earning foreign need to
maintain imports.
 To maintain and develop technological leadership.
 To increase the profit of the company through proper exports
 To develop the skills of the employees through proper training and development
programmers’.
  To strive for greater reliance through import substitution and research development.
 To develop components managerial personnel capable of meeting projects and growth
objectives of the company.
 To develop the personnel policies that give penalty of opportunity and gain pay to all
inspiring confidence in and respect for management.

ADMINISTRATION

The administration of the company is under the M.D with board of directors. It is public
limited company and governed enterprise. APHMEL is large scale industry.

 Chairman from Singareni collieries co Ltd.

 Managing Director.
 BIFRS Special Director.
 IDBI Nominee Director.
 Director from SCCL.
 Director from Andhra Pradesh Development Corporation.
 Director from BHEL.
 Board of Directors from shareholders.

ACHIEVEMENTS OF THE COMPANY

 In 1991 the company received and aware for best machine produced with indigenous
know how for splitting machine at internal leather trader fair and at madras.
 In 1992-93 the company bagged “productivity award” from ministry of labor from AP
Government.
 In 1994 the company received in research and development from federation of A.P
chamber of commerce and industry.
 In 1995 the company received an award of for “District contribution” towards
increase production and productivity and maintenance of better industrial relation
from labor department to A.P Government.
 The company has been receiving award every year for industrial and agricultural
exhibition society, Vijayawada.
 The company has received International Quality Award from Bid, Makrid, Spain.
PRODUCT RANGE OF APHMEL

The company producing multi production the types of product range are:

1. BULK MATERIAL HANDLING EQUIPMENT

 All types of conveyors.

 Various capabilities of haulages.
 Sinking minces.
 Stackers and recliners.

2. MINING EQUIPMENT

 Road leader.
 Long wall rood system.
 Armored face conveyors.
 Mining haulages.

3. CHEMICAL EQUIPMENT

 Pressure vessels.
 Heat exchangers.
 Detractors.
 Tanks.

4. TEXTILE MACHINERY

 Silk- reeling machines.

 Re- reeling machines.
 5. LEATHER MACHINERY

 Measuring machines.
 Splitting machines.
 Air-jet dusting machines.
 Vacuum dryer.
 Rotary auto spraying and dying machine.

6. POLLUTION CONTROL EQUIPMENT

 Electrostatic precipitators.
 Dusts collectors.
 Fabric filters.

7. GENERAL FABRICATION

 Wing mills.
 Dairy balers.
 Antenna mounts for SHAR center and VSS.

COMPETITORS

The competitors of APHMEL are:

 MC. KNALLY BS
 HARAT
 Kali material handling
 ELECON
 Hindustan
 MANC (Mining and Machinery Corporation)
 HEC (Heavy Engineering Corporation)
 VOEST-ALPINE
 Production Plant
PRODUCTION PLANT

The production plant has 5 sections namely,

1. Heavy machine shop,

2. Light machine shop,
3. Fabrication,
4. Assembly,
5. Painting

FOREIGN COLLABORATION

The company has following foreign collaboration

1. M/s Environment elements corporation, USA for manufacturing of air pollution control
equipment like electrostatic precipitation fabric and dusters collectors.
2. M/s Grave and co; USA for water pulling control equipment.
3. M/s Vests-alpine, Austria for the manufacture of road equipment.
4. M/s JJ Harvey, UK for embodying plants.
5. M/s Roberts Ltd. UK for chemical equipment.
6. M/s Takraf, East Germany for scarps.
7. M/s Licencenintoring, USSR for long wall roof supporting system.
TABLE 2.1 CUSTOMERS IN APHMEL

S.NO Product Customers

1 Material Coal India Ltd. Singareni collieries co. Ltd. Naively lignite
handling corporation Ltd. Western coal field Ltd. Madras port trust.
equipment National mineral development com. Vizag steel project.
2 Size deduction Bharat Heavy Electrical Ltd
equipment
3 Chemical BHEL, Bharat heavy plants & vessels, Nagarjuna fertilizers&
equipment chemical Ltd.
4 Silk reeling Director sericulture of A.P, Tamilnadu & Manipur
equipment
5 Leather Pay yam cement corporation of India Ltd. A.P pollution control
Machinery board Ferro alloys corporate Ltd.
6 Pollution Andhra state electricity board, Pan yamcements,
Control Cementcorporation of India, Andhra Pradesh pollution control
equipment board. Ferro alloys corporation Ltd.
7 Road headers Coal India Ltd, Singareni collieries co. Ltd,South eastern coal
fields Ltd, North coal fields Ltd. Western coal Ltd.

8 General Visakhapatnam steel project, Vikramsarabai research center.

engineering
PROFILE OF HUMAN RESORCE DEPARTMENT

The human resource department activity insides hiring, training, recruitment, selection, and
performance appraisal.

Recruitment

The department head shall inform the requirement of personnel based on availability of
vacancies in his department to personnel department with vice chairman and managing
directors’ approval. The recruits were done by notification, newspapers as well as by
emolument exchange Vijayawada.

Selection

In the industry the candidates selected for and by so many ways, in the respective executive
selection have been done by written test & viva.

HUMAN RESOURCE ELEMENTS

Man power

The company at present in manned by 531 employees & they did not want or recruit any
more.

Salary and wage administration

The wage structure of the employees is government by memorandum of settlement entry into
between and the unions of the company. The wage revision is done once in every 4 years at
the memorandum of understanding. The employees are dividing into officers/supervisors and
workers and among workmen there are 7 grades based on their cadre wages/ salary fixed.

Welfare measures

The welfare of the workmen, canteen is running on subsidiary rater mutually agreed and for
transportation buses and cars are run by the company.
Safety measures

Personnel protection equipment such as goggles, safety shoes, gloves, masks, aprons,
paves/rubber protective clothing car duffs etc. and a safe environment are provided.

Marketing Department

Marketing manager gets the information from assistant meeting manager and he is headed by
sales representatives and salesmen.

Marketing mix and advertising particulars of APHMEL shows the departments,

Effective management of the marketing department in the organization. The channels of
distribution from users to get its products to the pace of ingredients in the marketing mix in
APHMEL it takes the orders from the customers directly and after production it delivers the
produced products to the ordered customers according to their contract.

Place

The channels of distribution from users to get its products to the pace of ingredients in the
marketing mix in APHMEL it takes the orders from the customers directly and after
production it delivers the produced products to the ordered customers according to their
contract.

Production Department

The production department includes the activities of machine maintenance, equality

control, process planning, industrial engineering, fabrication, Heavy mining shop, light
machine shop, civil maintains projects, and electrical maintenance tool room and assembles.
Monthly they prepare the work in progress report, production performance report on major
hauls, rejection and reworks, annul reports, production/dispatch/stick statement.

People involved in operation control are by manager, engineers, Asst. Engineers they require
detailed report comparing actual performance of the product scheduled and highlighting area
bottle necks occurs.
Financial Department

Though initially the company approached the external sources for financial aid, now the
financial status of the company is very sound and is being run only with self-finance
expecting for loans taken on hypothecation of machinery and stock from SBI, Vijayawada.

The financial department is headed by the financial manager with the help of four
account officers and others clerks of the department. The company follows cash in paid and
these transactions are looked after by financial department with the help of marketing
department.

Philosophy of APHMEL

APHMEL has shown very good track record. The primary focus has been an engineer &
technology. The future of marketing is somewhat depressed having come in focus in the
recent past. The company philosophy is eagerly to provide the market technological and
economical utility. APHMEL believe that the only indication for marketing technology is to
provide. The market economic utility is immediate and long term benefit. The market
technology is through products, intermediates, process and project.

ANDHRA PRADESH HEAVY MACHINRY AND

ENGINEERING LIMITED KONDAPALLI

TIMINGS OF WORKING HOURS

MONDAY TO SATURDAY

6:00 AM TO 2:00PM

2:00 PM TO 10:00PM

10:00PM TO 6:00PM
 FIGURE IN APHMEL PERSONNEL DEPARTMENT

APHMEL Personnel Department Chart

CHAIRMAN

- Managing Director

Chief Personal Manager

Security Department Medical Department Industrial Engineering depar

Personal Welfare

Deputy Manager
Security Medic
al
Office Deputy
Assistant Officer Manag
Assistant er
Security Staff Nurse
Inspector
Assistant Officer
Junior Officer
Junior
Security Guards
Staff
Nurse
 FIGURE 2.3 SWOT ANALYSIS APHMEL

STRENGTHS

WEAKNESSES
SWOT OPPORTUNITIES

THREATS

SWOT ANALYSIS OF APHMEL: Company has good strength and good market
opportunities for coming out of the present crisis

STRENGTHS

1. Good modern manufacturing facilities backed up by excellent quality.

2. Quality of product.
3. Corporate leadership.
4. Quality approved by international agencies.
5. Committed labor.
6. Good collaboration.
7. Disciplined dedicated and skilled work force.
8. Company has got good reputation for its quality workmanship of its products.
WEAKNESS

1. Inadequate marketing strengths

2. Location of the plant which is coming in the way of recruitment high quality of
managerial staff.

OPPORTUNITIES

1. Expanding engine, engineering base particularly in the public sector.

2. Market for road headers going to pick up after 2/3 years when the company will have
a good share of the market.

THREATS

1. High turnover is leading to continuous up gradation of skills

2. Customers presently are not confident about the delivery commitment by APHMEL
because of its poor financial position and so are not willing to place orders.
 CHAPTER-IV

THEORETICAL FRAME WORK

INVENTORY

Every enterprise needs inventory for smooth running of its activities; it serves as a link
between the recognition of a need and its fulfillment the greater the time lag. The higher the
requirement for inventory, the unforeseen fluctuations in demand and supply of goods also
necessitate the need for inventory. It also serves as a cushion for future prices fluctuations.

MEANING OF INVENTORY

The simple meaning of inventory is “stock of goods” or “list of goods” the word is
understood differently by various authors. In accounting language it means stock of finished
goods only, for a manufacturing concern it includes raw-material, work-in-progress, finished
goods etc.

Inventory is an idle stock of physical goods that contain economic value, and are held in
various forms by an organization in its custody awaiting packing, processing,transformation,
use or sale in future point of time

Inventories constitute the most significant part of current assets. Many companies maintain
60% of the current assets as inventories. Because of the large size of inventories maintained
by the firms, a considerable amount of funds is required to be committed to them. It is
therefore absolutely imperative to manage inventories efficiently in order to avoid
unnecessary investment.

A firm neglecting the management of inventories will be failed in its long run profitability
and may fail ultimately. It is possible for a company to reduce its level of inventoried to a
considerable degree within the range of 10 to 20% without any adverse effect by using
inventory planning and control techniques. The reduction in excess inventories has to
favorable impact on the profitability of the firm.
DEFINITION

“Policies, procedures, and techniques employed in maintaining the optimum number or

amount of each inventory item. The objective of inventory management is to provide
uninterrupted production, sales, and/or customer-service levels at the minimum cost. Since,
for many firms, inventory is the largest item in the current assets category, inventory
problems can and do contribute to losses or even business failures. It is also called inventory
control.

FEATURES OF INVENTORY

A comparison of inventory with other positive components of working capital would reveal
that it has some special features of its own.

 On an average, it accounts for lion’s share of firm’s investment on working capital.

 The risk factor in holding inventory generally is higher than that of holding other
items of current assets.
 Although holding of a more and more inventory may be desirable from the point of
view of functional managers, it affects adversely short-term liquidity.
 It involves many types of cost associated with it viz., acquisition cost, carrying cost,
short cost, etc.,
 It is only of current assets, which has direct influence on the prices, and income of a
firm.
 It involves almost all the functional areas of management, via; purchasing,
production, marketing and financing.
COMPONENTS OF INVENTORY

The various forms in which inventories exit in a manufacturing form are, raw material, work-
in progress, finished goods and stored spares.

FIGURE 3.1 COMPONENTS OF INVENTORY

COMPONENTS OF INVENTORY

RAW MATERIAL WORK IN PROCESS

STORES & SPARESFINISHED PRODUCTS

 RAW MATERIAL
Raw materials are those inputs that are converted into finished goods through the
manufacturing process. These forms a major input for manufacturing a product. In
otherworld’s, they are very much needed for uninterrupted production.
 WORK- IN PROGRESS
Work-in progress is that stages of stocks that are between raw material and finished
goods. Work- in progress inventories are finished products. They represent the
products that need to undergo some other process to become finished goods.
 FINISHED PRODUCTS
Finished products are those products, which are ready for sale. The stock of finished
goods provided a buffer between production and market.
  STORES & SPARES
Stores & Spares inventory are purchased and stored for the purpose of maintenance of
machinery.

INVENTORY MANAGEMENT

Businesses must keep a careful rein on their inventories. Having too much inventory and/or
not having enough stock is considered primary direct causes of business failures.

Inventory Management is “the practice of planning, directing and controlling inventory

so that it contributes to the business’ profitability”.Inventory management can help
business be more profitable by lowering their cost of goods sold and/or by increasing sales.

Inventory Management is “making sure that items are available when customers call for
it, but not too much stock so that inventory turnover goals are met”

INVENTORY MANAGEMENT MOTIVES

There are three general motives for holding inventories.

FIGURE 3.2 INVENTORY MANAGEMENT MOTIVES

INVENTORY
MANAGEMENT
MOTIVES

TRANSACTION MOTIVE PRECAUTIONARY MOTIVESPECULATIVE MOTIVE

  TRANSACTION MOTIVE
Transaction motive includes production of goods and sale of goods. Transaction
motive facilitates uninterrupted production and delivery of order at a given time .
 PRECAUTIONARY MOTIVE
This motive necessitates the holding of inventories for unexpected changes in demand
and supply factors.
 SPECULATIVE MOTIVE
This compels to hold some inventories to take the advantage of changes and getting
quantity discounts.

IMPORTANCE OF INVENTORY MANAGEMENT

Inventory plays a crucial role in every firm as follows:

1. It helps in maintaining a tradeoff between carrying costs and ordering costs which
result into minimizing the total cost of inventory
2. It avoids the stock-out problems that a firm otherwise would face in the lack of
proper inventory management
3. Inventory can be in complete state or incomplete state features
4. Inventory is held to facilitate future consumption, sale or further processing/value
addition.
5. All inventory resources have economic value and can be considered as asset of the
organization.
6. Inventory management suggests the proper inventory control system to be applied
by a firm to avoid losses, damages and misuses.
7. Inventory is always dynamic. It requires constant and careful evaluation of external
and internal factors and control through planning and review.
OBJECTIVES OF INVENTORY MANAGEMENT

The following are the objectives of inventory management

1. To ensure continuous supply of materials, spares and finished goods so that production
should not suffer at any time and the customers demand should also be met.

2. To avoid both over–stocking and under–stocking of inventory.

3. To maintain investment in inventories at the optimum level as required by the operational

and sales activities.

4. To keep material cost under control so that they contribute in reducing the cost of
production and overall costs.

5. To eliminate duplication in ordering or replenishing stocks. This is possible with the help
of centralizing purchases.

6. To minimize losses through deterioration, pilferages, wastages and damages.

7. To ensure perpetual inventory control so that materials shown in stock ledgers should be
actually lying in the stores.

8. To ensure right quality goods at reasonable prices. Suitable quality standards will ensure
proper quality of stocks. The price–analysis, the cost analysis and value–analysis will ensure
payment of proper prices.

9. To facilitate furnishing of data for short–term and long–term planning and control of
inventory.

10. To ensure better service to customers

 TYPES OF INVENTORY

TYPES

Raw Semi- Components Spare parts Obsolete Waste,Scrap

material finished Inventory Inventory and Rejects

 Raw Material Inventory – This is used in manufacturing. When the demand arises,
they are drawn from stores and processed or use value is added during the process
and finally finished product comes out.

 Semi-finished goods– When the material being processed, it may have to wait
between two processes, such materials are known as semi- finished goods or semi-
finished material or Work in process inventory.

 Components- The parts used in assembly of product are known as components.

When these components are purchased from outside, it is known as bought out
components or bought out material.

 Spare parts Inventory- When manufacturing or servicing facility breakdown, it is to

be required. In such case, the defective or worn-out parts of the machine are to be
replaced by new one. These new parts of the machine are known as spares or spare
parts.

 Obsolete Inventory- When any facility becomes unserviceable, and it is to be

replaced by a new one, after replacing, the old machine/facility is too disposed. Such
machines, which have becomes useless are termed as obsolete inventory.
  Waste, Scrap and rejects- This type of inventory occurs in manufacturing firms or
in service organizations. While processing material, chips are produced and it is of no
use for organization and it is to be disposed. Similarly, defective components, which
cannot be reprocessed and materials which cannot be used in any way in the
organization, all these are to be disposed.

INVENTORY DECISIONS

In an inventory control situation, there are three basic questions to be answered. They
are:

 How much order? That is to say, what is the optimal quantity of an item that should
be ordered whenever an order is placed?
 When should the order be placed?
 How much safety stock should be kept? Thus, what quantity of an item in excess of
the expected requirements should be held as buffer stock in anticipation of the
variations in its demand and/or the time involved in acquiring fresh supplies.

INVENTORY COSTS

In determining optimal inventory policy, the criterion most often is the cost function. The
classical inventory analysis identifies four cost components. Depending on the structure of an
inventory situation, some or all of these are included in the objective function.

FIGURE: 4.4 INVENTORY COSTS

INVENTORY COSTS

PURCHAS ORDERIN CARRYIN STOCK

E COST G COST G COST OUT COST
PURCHASE COST

This refers to nominal cost of inventory. It is the purchase price for the items that are bought
outside sources, and the production cost if the items are produced within the organization.
This may be constant per unit, or it may vary as the quantity purchased/produce increases or
decrease. Quite often, situation is found when it may be stipulated that, for example the unit
price is rest 20 for an order up to 100 and rest 19.50 if the order is for more than 100 units.

If the unit cost is constant, it neither does nor affects the inventory control decisions
because whether all the requirements are produced just once or whether they are obtained in
installments, the total amount of money involved would be the same. However we do
consider the quantity discounts when they occur, because they effect these decisions.

ORDERING COST/SET-UP COSTS

This category of costs is associated with the acquisition or ordering of inventory.

Firms have to place orders with suppliers to replenish inventory of raw material. It includes
costs associated with the processing and placing of purchase order, transformation, inspection
for quality, expending overdue orders and so on. The parallel of ordering cost when units are
produced within the organization and the cost of acquiring material consists of clerical costs
and costs of stationery. It is therefore called a set-up cost. The ordering cost is likely and
taken to be independent of the order size.

Therefore the unit ordering/set up cost declines as the purchase order/production runs
increases in size.

Ordering costs are costs involved in:

 Preparing a purchase order

 Receiving, inspecting and recording the goods received to ensure both quantity and
quality.
CARRYING COSTS

They are involved in maintaining or carrying the inventory. It represents the cost that is
associated with storing an item in inventory. Carrying costs are also known as holding cost or
the storage cost. The main components of this category costs are storage cost i.e. tax,
depreciation, and maintenance of the building, utilities etc. insurance of inventory against fire
and theft deterioration in inventory because of pilferage, fire, technical obsolescence, style
obsolescence etc. serving costs such as labor for handling inventory, clerical and accounting
costs.

The opportunity cost of funds consists of expenses in raising funds (interest of capital) to
finance the acquisition of inventory they would have earned a return. This is the opportunity
cost of funds or the financial cost. The carrying cost and the inventory size are positively
related and move in same direction. If the level of inventory increases, the carrying costs also
increases and vice-versa.

STOCK OUT COSTS

Stock out cost means the cost associated with not serving the customers. Stock outs imply
shortages. If the stock out is internal (i.e. in the production system) it would imply that some
production is lost, resulting in idle time for men and machines, or that the work is delayed
which might attract some penalty. While if the stock out is external, it would result in a loss
of potential sales and/or loss of customer good will. A shortage can evoke different reactions
from customers.

It would result in a back order or lost sales. In case of back order the sales are not lose,
they are only delayed. When the new shipment arrives, a customer who was denied earlier
would be immediately supplied the goods. But it would involve costs like packing and
shipment costs. On the other hand, when the sales are lost forever, it is difficult to assess the
costs involved in terms of profit on potential sales lost, profit lost on whatever the customer
would have bought in all future periods in case he decided not to turn to the organization for
anything in future.
INVENTORY CONTROL

Inventory control renders to the process whereby the investment in material and parts carried
in stock is regulated within predetermined limits set in accordance with the inventory policy
established by the management. The inventory control therefore forms established by the
management. The inventory control therefore forms the basis of material control. The
material control is activity oriented process whereas inventory control is the management
process and the later is the firms step to be followed by former.

Inventory control refers to a planned method of purchasing and string the material at
lowest possible cost without affecting the sales scheduled. Inventory control therefore, is a
scientific method of determining what, when and how much to purchase and how much to
have to stock for a given period of time.

INVENTORY CONTROL TECHNIQUES

A proper inventory control not only helps in solving the acute problem of liquidity but also
increases profit and causes substantial reduction in the working capital of the concern.
FIGURE 4.5 INVENTORY CONTROL TECHNIQUEES

INVENTORY CONTROL TECHNIQUES

SELECTIVE INVENTORY CONTROL

INVENTORY
onom MANAGEMEN
T
TECHNIQUES

1. ABC Analysis 1. EOQ (Economic

2. XYZ Analysis Order Quantity)
3. FSN Classification A. Ordering Cost
4. S-OS Analysis B. Carrying Cost
5. S-D-E Analysis 2. System of Re-ordering
6. VED Classification A. Ordering Level
7. HML Analysis B. Minimum Level
C. Average Stock Level
D. Danger Level
E. Safety stock level
The following are the important tools and techniques of inventory management and control.

I. SELECTIVE INVENTORY CONTROL

1. ABC ANALYSIS (Always Better Control)

The Analysis is a technique to analyze the items by their value and consumed more
frequently and some may be less frequently and some are consumed rarely.
Depending upon the rate of consumption and the value of items are divided into three
groups.
Under A–B–C Analysis. The materials are divided into 3categories viz., A, B and C.
 Those contribute 10% of the items only but account for 70% of value of
consumption cost and this category is called ‘A’ category. These are most
costly and will have high usage value.
 About 20% of the items contribute about 20% of value of category is called
‘B’ category. These items will have medium usage value.
 ‘C’ covers about 70% of items of materials which contribute only 10% of
value of consumption. These are low usage value items.

2. XYZ ANALYSIS
XYZ analysis is based on the closing inventory value of different items. Items, whose
inventory values are high, are classed as X-items, while those inventory value is
neither too-high nor too-low are termed as Y-items. Other items are the Z-items with
low investment in them.
It can be easily visualized that the several types of analysis discussed are not
mutually exclusive. For example ABC and XYZ analysis may be combined to classify
and control depending on whether the items are AX, BY, CZ, AY of and so on.
Similarly XYZ-FSN combine classification exercise will help in timely prevention of
obsolescence.
3. FSN ANALYSIS
Based on the consumption pattern of the items, the FSN classification calls for
classification of items are F- Fast Moving, S- Slow Moving, N- Noon Moving goods.
This ‘speed classification helps in the arrangement of stocks in the stores and in the
stores and in determining the distribution and handling patterns.

4. S-OS ANALYSIS
S-OS analysis is based on the nature of supplies, where in S- represents the Seasonal
items and OS represents the Off Seasonal items. This classification of items is done
with the aim of determining proper procurement of strategies.

5. S-D-E ANALYSIS
This uses the criterion of the availability of the items. In this analysis S stands for
scarce items which are short in supply. D refers to the difficult items meaning the
items that might available in indigenous market but cannot procure easily while E
represents easily available items even from local markets.

6. VED ANALYSIS
In VED analysis, the items are classified on the basis of their criticality to the
production process or other service. In VED classification of materials, ‘V’ stands for
Vital items without which the production process would come to a standstill. ‘E’ in
the system denotes essential items whose stock out would adversely affect the
efficiency of the production system.

7. HML ANLYSIS
This is similar to the ABC analysis except that, in this analysis, the items are
classified on the basis of unit value rather than value. The items are classified
accordingly as their cost per unit is H-High, M-Medium and L- Low. This type of
analysis is useful for keeping control over material consumption at their department
levels.
II. INVENTORY MANAGEMENT TECHNIQUES

 ECONOMIC ORDER QUANTITY

Economic order quality is defined as the quality of inventories to be ordered each tie
that minimizes the total inventory cost. Inventory cost comprise the ordering or set-up
cost and carrying or holding cost less discount if any. In this way, EOQ is an
inventory management tool, which shows quantity to be ordered each time that
involves the minimum cost. Normally, the ordering cost and carrying cost are equal at
the point of EOQ.

Thus,EOQ is the quantity that minimizes the total inventory cost. It is also known as
‘standard order quality’, economic lot size or economic ordering quality or optimum
ordering quality.

Assumptions of EOQ Model:

 Demand for the product is constant and uniform throughout the period.
 Lead time is constant.
 Price per unit of product is constant.
 Inventory holding cost based on average inventory.
 Ordering costs are constant.

Types of inventory cost

They are two types of inventory cost.

They are:

1. Ordering cost,

2. Carrying cost.

Ordering costs: The term ordering cost is used in case of raw material and includes
the entire costs of acquiring raw materials. They include costs incurred in the
following activities Requisitioning, purchasing, ordering, transport receiving,
inspecting and storing, and ordering cost increase in proportion to the number of
orders placed, and one view is that so long as they are committed cost they need not to
be revoked in computing ordering cost.
 Carrying costs: It is the of holding a unit of inventory. Carrying cost is calculated on
the basis of average inventory. When the number of orders increase, then total
amounts of carrying cost decrease and vice-versa.

Assumptions of EOQ Model

 Demand for the product is constant and uniform throughout the period.
 Lead time is constant.
 Price per unit of product is constant.
 Inventory holding cost based on average inventory.
 Ordering costs are constant.

EOQ FORMULA

For calculating of EOQ we have adopted simple short cut method .

This formula is

EOQ =
√2AO/CC

Where A = Annual usage,

O= Ordering cost per order

CC= Carrying cost per unit

CC= Price per unit x Carrying cost per unit in percentage

The above simple formula will not be sufficient to be determining EOQ when more complex
cost equations are involved.
LIMITATIONS OF EOQ

Apart from the above application it has its own limitations that are mainly due to the
restrictive nature of the assumptions on which it is based.

 Constant usage: This may not be possible to predict, if usage varies unpredictably, as it
often does, no formula will work well.
 Faulty basic information: Ordering and carrying costs is the base for EOQ
calculation. It assumes that ordering cost is constant per order is fixed, but actually
varies from commodity to commodity.
 Costly calculations: In many cases, the cost estimation cost of possession and
acquisition and calculating EOQ exceeds the savings made by buying that quantity.
 System of Re-ordering: System of re-ordering including the following levels:

Ordering level
It is the level of stock at which to storekeeper initiate the purchase requisitions for
fresh supplies of material. The fresh order must be made before the actual touches the
minimum level.
Reorder level = maximum consumption x maximum re order level period

Minimum level
It is also known as ‘buffer stock’, ‘safety stock’, minimum limit’ or
‘Minimum stock’, this represents the minimum quantity of material which must be
kept in hand at all the times. Such level of material is fixed so that production may not
be held up due to shortage of material.
Average stock level
Average stock level refers the normal or moderate stock level. It is calculated as
under Average stock level= minimum stock level + EOQ
Danger level
This means levels at which issues are made only under specifies instructions. The
purchase officers will make special arrangements to get the material which reach at
their danger level so that the production may not stop due to storage of material.
Danger level= Average consumption x maximum reorder period for emergency
purchase.
 Safety stock level
This level is below the minimum level and represents the stage at which emergency
and immediately steps have to take for getting the stock replenish

METHODS OF VALUTION

The government of India has given sufficient flexibility for companies to introduce
scientifically developed methods of valuation of their stocks. In order to prevent
malpractices, it has been stipulated that such methods must be studied and approved by the
Board of Directors, and must be followed for a minimum prior of three years.

The various methods of valuation available are given below

 FIGURE 4.6 METHODS OF VALUTION

First- in first-out (FIFO)

Last- in first- out (LIFO)

Periodical Simple
Average Method

METHODS

Normal Cost/ Standard

Cost Method

Weighted Average Method

Replacement Price Method

FIRST- IN FIRST- OUT (FIFO)

In this case it is assumed that the stores follow the principal that oldest stock issued first so
that stock left out is from the later arrivals. Hence all issues are assumed to have come out
from oldest stocks. These are valued at old price. The cumulative value of stock out will give
the net value of the existing stock. Under this method it is assumed that the material or goods
first received are the first to be issued or sold. Thus according to this method, the inventory
on a particular date is presumed to compose of the items which were acquired most recently.

Advantages

The FIFO method has the following advantages

 It value stock nearer to current market prices since stock is presumed to be consisting.
 The most recent purchases.
 It is based on cost and therefore, no unrealized profit enters into the financial accounts
of the company.
 The method is realistic since it takes into account the normal procedure of utilizing or
selling those materials or goods which have been longest in stock.

Disadvantages

The method suffers from the following disadvantages

 It involves complicated calculations and hence increases the possibility of clerical

errors.

The FIFO method of valuation of inventories is particularly suitable in the following

circumstances

 The materials or goods are of a perishable nature.

 When the frequency of purchase is not large.
 There are only moderate fluctuations in the prices materials for goods purchased
materials are easily identifiable as belonging to a particular purchase lot.
LAST-IN FIRST-OUT (LIFO)

Here stores are issued from the last stock. This means issues have taken place from later
arrivals. Hence all issued are valued as per the price of the latest arrivals to compute value of
stock left in stores. This method is based on the assumption that last item of materials or
goods purchased are the first to be issued or sold. Thus, according to this method, inventory
consists of items purchased at the earliest cost.

Advantages

This method has the following advantages

 It takes into account the current market conditions while valuing materials issued to
different jobs or calculating the cost of goods sold.
 The method is based on cost and, therefore, no unrealized profit or loss is made on
account of use of this method.
 The method is most suitable for materials which are of a bulky and nonperishable
type.

PERIODICAL SIMPLE AVERAGE

In this case after each receipt of material, adding the cost of materials in hand with the cost of
materials received and dividing the same by the total number of units calculate the average
cost. This process is repeated every time new items are received. This average cost is used
for computing the value of items issued and value of items remaining in the stock.

NORMAL COST/STANDARD COST METHOD

This method is mostly used for items manufactured in house.Here the average of certain lot is
calculated and used as cost of items issued. Since this method is used for items manufactured,
one can use standard costing method also for valuation of such stocks.

WEIGHTED AVERAGE METHOD

This method is used when the quantity and prices of items vary widely from each purchase.
In this case, the weighted average price is calculated for each item. This price is used for
computing the value of items and those remaining in stock.
REPLACEMENT PRICES METHOD

This is modern method developed by George Tarboro. However without application it is

difficult to price each item. This has not yet become popular. FIFO, LIFO and Weighted
Average methods are popular and acceptable to the government tax authorities.

SELECTIVE INVENTORY CONTROL

APHMEL has to maintain several types of stores and spares inventories. It is not desirable to
keep some degree of control on all items. The firm should pay maximum type of attention to
that value highest. They should therefore, classify inventories to which items receive the most
effect in controlling.
TABLE 3.1 DIFFERENT TYPES OF INVENTORY CONTROLS OF
THERE USES

Types of control Criteria Main Use

ABC Value of consumption nothing to To control raw material
Also know always better do with the unit value of item. components and work in
control. preservers in nominal course of
business.
HML Unit price of the materials this Mainly to control purchases.
High, Medium, Low opposite of ABC or does not take
consumption account.
VED Critically of the item To determine the stock levels of
Vital,Essential, Desirable spare parts.
SED Purchasing problems regard to Lead time analysis and
Scarce, Difficult, and Easy availability purchasing strategies.
to obtain
G.O.L.F Source of supply materials. Procurement strategies.
Gout, Open Market, Local
and Foreign source
F.S.N.C Consumption pattern of the To control obsolesce
Fast moving, Slow component
moving, Non moving
SOS Nature of supplies and seasonally. Procurement and holding
Seasonal and Off Seasonal strategies for seasonal items like
agricultural products.
XYZ Inventory value of items in sale. To review the inventories, their
High, Medium, Low uses etc… at scheduled intervals
inventory value items.
INVENTORY CONTROL

APHMEL has separate section called ICC through SAP system. The ICC will control the
whole stock proceedings and the main objective is to minimize the orders on the bases of
consumption pattern and its lead time. By SAP system ever thing will be disclosed in the
company i.e. issuing and receipts and pricing orders of that on the basis of available material
in thestores and consumption during the year base on lead on lead time they will approach
purchase department. They minimum lead time of consumables is one month on the basis of
safety stock.

GOODS RECEIPTS NOTE

 Cost Center
 Auditing
 Requisition required
 Purchasing Department
 Quotation Raised
 Goods Purchased

Here APHMEL is purchasing Department are divided into 2 groups. These two
groups are each group deal with some items of range of items, which loads accountability
and responsibility when the order is made items are purchased stores A/C is field, partial;
A/C is credited.

CONTROL TECHNIQUES USED IN APHMEL

 FSN Analysis (Fast, Slow, Nonmoving).

 ABC Analysis.
 JIT (Just In Time).
 EOQ (Economic Order Quantity)
TABLE 3.2 MATERIAL GROUP DESCRIPTIONS IN APHMEL

Material Code Description

01 Raw Material
02 Chemicals
03 Dyes
04 Work Shop Spares
05 Plant and Machinery

06 Rubber tires/Compiling
07 Automobile Spares
08 Plant and Machinery (Unit-II)
09 General items

10 Chain pull blocks, Hoists EDT, Crane

11 Electrical Spares
12 Furniture and Fixers
13 Tools
14 Instrumentation
15 Laboratory
16 Fire fighting

17 Pipes & Fittings

18 Packing Material
19 Fuel
20 Air Compressor Spares
21 Wits & Felts
22 Bearings
23 Medical
24 Bolts & Nuts

25 Instrumentation
26 Water Treatment, Plant Spares

27 Pump Mill Spares

28 Welding Material

29 Iron & Steel

30 Valves & Spares

31 Casting Roads, Shafts, Bushes

32 Pump Spares/ Gear Box Spares
33 Oils & Lubricants
34 Paints/Brushes
35 Building Material

36 Chains, Gears

37 Belting

ABC ANALYSIS

ABC Analysis is a technique of exercising selective control over inventory items. The
technique is based on this assumption that a company should not exercise the degree of
control on items which are less costly.

The smaller numbers of high consumption value item are called an item. The medium
consumption value items are B items

The largest number of least consumption items is C items classification. The 12000
items only 8000 are analyzed into A-B-C classification, but this industry follows the
techniques FSN Analysis. APHMEL once up on an item this technique is using. But ABC is
not applicable in APHMEL.

JIT (JUST IN TIME INVENTORY)

The JIT is the technique specially adopted by APHMEL for the fulfillment of requisition of
spare parts through baring bank system. By this system there is no need to invest money by
investor. The fulfillment will be within days of the need the data about the needs of spares are
required for this technique. The data from purchasing consumption, saving re-ordering is
required.
 CHAPTER-V
DATA ANALYSIS AND INTERPRETATION
 DATA ANALYSIS AND INTERPRETATION

Data collection is the systematic recording of information data analysis involves

working uncover patterns and trends in data sets; data interpretation involves explaining.
Before the data can be tabulated meaningful categories must established and coded. The
answer thus collected is processed eliminating intermediate stirs. The analysis is the
application of resource to understand and interpret data that have been collected. In this Study
as simple descriptive research is used, where in analysis involves determining consistent
patterns and summarizing the appropriate details.

There are three objectives of the data analysis

The purpose of any study is to the decision by interpreting the information, so as to the
conclusions relevant for decision. The purpose of the study is to help decision by providing a
historical record for managerial decisions. Analysis of data is a process of inspecting,
cleaning, transforming, and Modeling data with the goal of high lighting useful information,
suggesting Conclusions, and supporting decision making. Data analysis has multiple Facets
and approaches, encompassing drives techniques under a variety of names, in different
business science, and social science domains.

In fairly large size production unit we might be holding stocks worth crores of rupees and
their proper accounting, preservation, security and safety is of paramount important. An
effective and efficient stores management shall help in improving service level. Higher
inventory is another area of concern to management because it affects the working capital.
Stores department in order to discharge its functions effectively, it has to have close
interaction and co-ordination with various departments of the organization. The stores
department mainly should have good communication between purchase department and
production departments. It should have co-ordination with purchase department since its job
starts from where purchase stops their jobs. Besides it should also have co-ordination with
production department.
 Data interpretation can be defined as “the application of statistical procedures to
analyze specific observed or assumed facts from a particular study” data Interpretation is
something that is pretty common in education circles. Data Interpretation is used as a means
to understand a student’s grasp of the subject. It is very important to understand how to
interpret data in order to do well in this tests it is especially important in case of students
planning to study Finance and mathematics. An interpretation question will usually contain a
Chart or a graph. It will also contain some data or even sets of data which the Student has to
analyze and come to a conclusion. When you are solving an Interpretation question you will
have to understand what the graph or chart means.

In this chapter an attempt is made to present the data related to inventory management of
APHMEL. The secondary data collected from the company from 2015 to 2019 (5 years).
Based on the information available the following ratios are worked out:

 Size of Inventory
 Inventory Turnover Ratio
 Inventory Holding Period
 Cost of Goods Sold Ratio
 Working Capital Turnover Ratio
 Current Ratio
 Gross Profit Ratio
 Net Profit Ratio
 Percentage of Finished goods
 Percentage of Raw materials
 Gross Operating Cycle in ICP+DCP
SIZE OF INVENTORY

The inventory depends on several factors such as sales volume, capacity of plant, availability
of raw materials, fluctuations in price of raw materials and finished goods, length of cycle
etc. generally progressive organization inventory levels continuously increase as increase
sales and production. As already stated the prime objective of performance of production and
sales are possible.

Increase in size of inventory involves extra cost apart from adversely effecting profitability
and liquidity. The size of networking capital is measured with the help of following ratio

SIZE OF INVENTORY=
INVENTORY/TOTAL CURRENT
TABLE 5.1 SIZE OF INVENTORY IN APHMEL

YEAR INVENTORY TOTAL CURRENT SIZE OF

ASSETS INVENTORY

2014-2015 200284486 519296514 39%

2015-2016 302669296 601921499 50%
2016-2017 193546015 737524801 26%
2017-2018 148753000 739038000 20%
2018-2019 211092000 802613000 26%
(SOURCE: ANNUAL REPORTS OF APHMEL FROM THE YEAR 2014 TO 2019)
FIGURE 5.1 SIZE OF INVENTORY IN APHMEL

SIZE OF INVENTORY
60%

50%

40%

30%
SIZE OF INVENTORY

20%

10%

0%

2014-20152015-20162016-20172017-20182018-2019

(SOURCE: ANNUAL REPORTS OF APHMEL FROM THE YEAR 2014 TO 2019)

INTERPRETATION

The above table and the figure show the size of inventory in the selected enterprise during the
period 2014 to 2019. It was evident from the table that inventory constituted the most
important element of total current assets in the study as it was found on an average 26% of
the total assets. It was observed from the table that the size of inventory in APHMEL has
gradually decreased. But in 2019 the size of inventory was increased by 6% from 20% to
26%.
INVENTORY TURNOVER RATIO

The list of all varieties of stocks with the company was treated as stocks. This relationship
expresses the frequency with which average level of the inventory was turned over through
operations. If the ratio was high it means the stock was converted into sale as short span of
time. It will lead to good profits for the company. If the inventory was moving quickly then
the short term solvency of the company was also in very good condition. The inventory
turnover ratio can be used as valuable measure of selling efficiency and inventory quality of
the company. The turnover ratio was measured with the help of the following ratio.

INVENTORY TURNOVER RATIO= COST OF GOODS SOLD/AVERAGE INVENTORY

Cost of goods sold= (Opening stock+ Purchases+Direct expenses- Closing stock)

Average inventory= (Opening stock+Closing stock)/2

The result of the ratio as applied to APHMEL

TABLE 5.2 INVENTORY TURNOVER RATIO IN APHMEL

YEAR COST OF GOODS AVERAGE RATIO(TIMES)

SOLD INVENTORY
2014-2015 377935942 201630520 1.8
2015-2016 449617660 251476891 1.7
2016-2017 510314731 248107655 2.1
2017-2018 404445015 171149507 2.3
2018-2019 460063000 179922500 2.5
(SOURCE: ANNUAL REPORTS OF APHMEL FROM THE YEAR 2014 TO 2019)
FIGURE 5.2 INVENTORY TURNOVER RATIO IN APHMEL

INVENTORY TURNOVER RATIO

3

2.5

1.5
INVENTORY TURNOVER RATIO

0.5

0
2014-2015 2015-2016 2016-2017 2017-2018 2018-2019

(SOURCE: ANNUAL REPORTS OF APHMEL FROM THE YEAR 2014 TO 2019)

INTERPRETATION

From the above table it was observed that the inventory turnover ratio has been increased to
some extent and it was decreased after increased from year to year. It has decreased from 1.8
times to1.7 times from the year 2014-15 to 2015-16, and after onwards it has increased to
2.1,2.3 and 2.5 times for the period 2016-17,2017-18 and 2018-19 respectively. If the
inventory turnover ratio was higher the operating cycle becomes faster and finally it will lead
to higher profits to the company.
INVENRORY HOLDING PERIOD

The reciprocal of inventory turnover ratio gives average inventory holding % term. When the
number of days in a year was divided by the inventory turnover, we obtain days of inventory
holdings. The size of the days of inventory holding was measured with the help of the
following ratio.

INVENTORY HOLDING PERIOD=365/INVENTORY TURNOVER RATIO

TABLE 5.3 INVENTORY HOLDING PERIOD OF APHMEL

YEAR NO. OF DAYS IN A INVENTORY PERIOD(DAYS)

YEAR TURNOVER
RATIO
2014-15 365 1.8 203
2015-16 365 1.7 214
2016-17 365 2.1 173
2017-18 365 2.3 158
2018-19 365 2.5 146
(SOURCE: ANNUAL REPORTS OF APHMEL FROM THE YEAR 2014 TO 2019)
FIGURE 5.3 INVENTORY HOLDING PERIOD IN APHMEL

INVENTORY HOLDING PERIOD

250

200

150

INVENTORY HOLDING PERIOD

100

50

0
2014-152015-162016-172017-182018-19
(SOURCE: ANNUAL REPORTS OF APHMEL FROM THE YEAR 2014 TO 2019)

INTERPRETATION

From the above diagram the trend of inventory holding period of the company. It was
understand that the days of inventory holding has increased from 203days to 214 days in the
2014-15 and 2015-16 respectively. Later it has decreased gradually for the remaining periods
because the inventory turnover ratio increases then the days of the inventory holding
decreases and vice-versa. It indicates the improvement in the management efficiency in
converting their inventories into sales as fast as possible.
COST OF GOODS SOLD RATIO

The cost of goods sold ratio as follows

The formula for calculating cost of goods sold ratio was as follows

COST OF GOODS SOLD= COST OF GOODS SOLD/NET SALES

TABLE 5.4 COST OF GOODS SOLD RATIO IN APHMEL

YEAR COST OF GOODS NET SALES COST OF GOODS

SOLD SOLD RATIO
2014-15 377935942 737008087 0.51
2015-16 449617660 820691980 0.54
2016-17 510314731 1010203176 0.50
2017-18 404445015 742953000 0.54
2018-19 460063000 830790000 0.55
(SOURCE: ANNUAL REPORTS OF APHMEL FROM THE YEAR 2014 TO 2019)
FIGURE 5.4 COST OF GOODS SOLD RATIO IN APHMEL

COST OF GOODS SOLD RATIO

0.56
0.55
0.54
0.53
0.52
0.51
0.5
0.49 COST OF GOODS SOLD RATIO
0.48
0.47

2014-152015-162016-172017-182018-19

(SOURCE: ANNUAL REPORTS OF APHMEL FROM THE YEAR 2014 TO 2019)

INTERPRETATION

Cost of goods sold ratio of APHMEL period of 2014-15 to 2018-19.

 During the period of 2014-15 the cost of goods sold ratio was 0.51 it was the second
lowest ratio for the APHMEL.
 During the period for the year 2015-16 the cost of goods sold ratio was 0.54 this
reason for this due to increase in turnover compared to previous year.
 During the period for the year 2016-17 the cost of goods sold ratio was 0.50 was the
lowest ratio for the APHMEL.
 During the period for the year 2017-18 the cost of goods sold ratio was 0.54 was the
second highest ratio for the year
 During in period for the year 2015-16 and the year 2017-18 the cost of goods sold
ratio was same.
 During the year 2018-19 the cost of goods sold ratio was 0.55 was the highest cost of
goods sold ratio for the APHMEL.
 The cost of goods sold ratios as under, it was 0.51in 2014-15, and 0.54,0.50,0.54,0.55
are the ratios for the per the periods 2015-16,2016-17,2017-18,2018-19 respectively.
WORKING CAPITAL TURNOVER RATIO

The inventory to working capital ratio measures how well the company was able to generate
using the working capital as its current inventory level. An increasing inventory to working
capital ratio was generally a negative sign, showing the company may be having operational
problems. If a company has too much working capital invested in inventory, they may have
difficulty having enough working capital to make payment on short-term liabilities and
account payables.

The formula for calculating working capital turnover was as follows

NET WORKING CAPITAL=CURRENT ASSETS-CURRENT LIABILITIES

WORKING CAPITAL TURNOVER RATIO=COST OF
GOODS SOLD/NET WORKING CAPITAL

TABLE 5.5 WORKING CAPITAL TURNOVER RATIO IN APHMEL

YEAR NET WORKING COST OF GOODS WORKING

CAIPTAL SOLD CAPITAL
TURNOVER
RATIO
2014-15 194049722 377935942 1.94
2015-16 266333011 449617660 1.68
2016-17 335340951 510314731 1.52
2017-18 529281000 404445015 076
2018-19 611137000 460063000 0.75
(SOURCE: ANNUAL REPORTS OF APHMEL FROM THE YEAR 2014 TO 2019)
FIGURE 5.5 WORKING CAPITAL TURNOVER RATIO IN APHMEL

WORKING CAPITAL TURNOVER RATIO

2.5

1.5
WORKING CAPITAL TURNOVER
RATIO
1

0.5

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

(SOURCE: ANNUAL REPORTS OF APHMEL FROM THE YEAR 2014 TO 2019)

INTERPRETATION

Working capital turnover ratio of APHMEL period of 2014 to 2019

 Working capital turnover ratio discloses the information related to cost, cost of goods
sold and average net working capital.
 The highest cost for the working capital ratio 2014-15 the ratio value was 1.94 it was
the year the higher value of amount that company.
 The second highest cost for the working capital ratio 2015-16 the ratio value was
1.68.
 During the period 2016-17 working capital turnover ratio was 1.52
 During the year 2017-18 working capital turnover ratio was 0.76 it was the second
lowest cost of working capital turnover ratio for the year.
 The lowest cost of working capital turnover ratio in the year 2018-19 it was 0.75
values for the APHMEL.
CURRENT RATIO

Current ratio establishes relation between current assets and current liabilities.

The objective is to measure the safety margin available for short term creditors. In others
words the objective of computing this ratio is to measure the ability of the firm to meet the
short term obligation and to reflect the short term financial strength of a firm.

CURRENT RATIO=CURRENT ASSETS-CURRENT LIABILITIES

TABLE 5.6 CURRENT RATIO IN APHMEL

YEAR CURRENT CURRENT CURRENT RATIO

ASSETS LIABILITIES
2014-15 519296514 325246792 1.59
2015-16 601921499 335588488 1.79
2016-17 737524801 402183850 1.83
2017-18 739038000 209757000 3.52
2018-19 802613000 191476000 4.19
(SOURCE: ANNUAL REPORTS OF APHMEL FROM THE YEAR 2014 TO 2019)
FIGURE 5.6 CURRENT RATIO IN APHMEL

CURRENT RATIO
4.5
4
3.5
3
2.5
2

CURRENT RATIO

1.5
1
0.5
0

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

(SOURCE: ANNUAL REPORTS OF APHMEL FROM THE YEAR 2014 TO 2019)

INTERPRETATION

Current ratio of APHMEL for the period of 2014-15 to 2018-19

Current ratio discloses the information related to current assets and current liabilities of
APHMEL during the period of 2014 to2019. From the above table it can understand that the
company current ratio has gradually increased. The current ratios for periods 2014-15,2015-
16, 2016-17, 2017-18 and 2018-19 were the 1.59, 1.79, 1.83, 3.52 and 4.19 respectively. 4.19
is the highest current ratio of the company.
GROSS PROFIT RATIO

Gross profit ratio establishes the relation between gross profit and sales. The main objective
of computing this ratio is to determine the efficiency with which production/purchase
operations and selling operations are carried on. It is used to compare profitability product
wise.

The gross profit ratio was as follows

GROSS PROFIT RATIO= GROSS PROFIT/SALES*100

TABLE 5.7 GROSS PROFIT RATIO IN APHMEL

YEAR GROSS PROFIT SALES GROSS PROFIT

RATIO
2014-15 94576349 737008087 12.83
2015-16 111683383 820691980 13.60
2016-17 197147614 1010203176 19.51
2017-18 37126000 742953000 4.99
2018-19 33196000 830790000 3.99
(SOURCE: ANNUAL REPORTS OF APHMEL FROM THE YEAR 2014 TO 2019)
FIGURE 5.7 GROSS PROFIT RATIO IN APHMEL

GROSS PROFIT RATIO

25

20

15

GROSS PROFIT RATIO

10

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

(SOURCE: ANNUAL REPORTS OF APHMEL FROM THE YEAR 2014 TO 2019)

INTERPRETATION

 Gross profit ratio discloses the information related to current assets and current
liabilities of APHMEL during the period of 2014 to 2019
 The highest gross profit ratio in the year was 2016-17 the value was 19.51 in the
company of APHMEL because of heavy turnover ratio
 The lowest gross profit ratio in the year was 2018-19 was 3.99 in the company of
APHMEL because of low turnover ratio
 There was the difference between all the year of the gross profit ratio of this company
based on the performance of the company
 There must have difference between the years of gross profit of the company
 The gross profit ratio for the year 2014-15 was 12.83 and for the years 2015-16,2016-
17 were 13.60, 4.99 respectively
NET PROFIT RATIO

Net profit ratio is the relation between net profit and net sales. The main objective of
computing this ratio is to determine the overall profitability due to various factors such as
operational efficiency. Net profit ratio is calculated as follows

NET PROFIT RATIO=NET PROFIT AFTER

TAX/NET SALES*100

TABLE 5.8 NET PROFIT RATIO IN APHMEL

YEAR NET PROFIT NET SALES NET PROFIT

RATIO
2014-15 71940184 737008087 9.76
2015-16 77594543 820691980 9.45
2016-17 136492667 1010203176 13.51
2017-18 25042000 742953000 3.37
2018-19 25492000 830790000 3.06
(SOURCE: ANNUAL REPORTS OF APHMEL FROM THE YEAR 2014 TO 2019)
FIGURE 5.8 NET PROFIT RATIO IN APHMEL

NET PROFIT RATIO

16

14

12

10
NET PROFIT RATIO
8
6

0 2014-152015-162016-172017-182018-19
-132013-142014-152015-16

(SOURCE: ANNUAL REPORTS OF APHMEL FROM THE YEAR 2014 TO 2019)

INTERPRETATION

 The highest net profit ratio in the year 2016-17 value was 13.51 in the company of
APHMEL because of heavy turnover ratio
 The lowest net profit ratio in the year 2018-19 value was 3.06 in the company
of APHMEL because of low turnover ratio
 There was the difference between the all the year of the net profit ratios of this
company based on the performance of APHMEL
 There must have difference between the years of net profit of the company
 Net profit ratio for the years 2014-15, 2015-16 and 2016-17 were 9.76, 9.45 and 3.37
respectively.
PERCENTAGE OF FINISHED GOODS IN INVENTORY

A firm can’t produce immediately when customers demand goods. Therefore to supply
finished goods on a regular basis, their stock has to be maintained for sudden demand from
customers. In case firm sales are seasonal in nature, substantial finished goods should be kept
to meet the peak demand.

% OF FINISHED GOODS IN
INVENTORY=FINISHED GOODS/INVENTORY*100

TABLE 5.9 PERCENTAGE OF FINISHED GOODS IN INVENTORY IN

APHMEL

YEAR INVENTORY FINISHED GOODS % OF FG IN

INV=FG/I*100
2014-15 200284486 7111766 3%
2015-16 302669296 7448994 2%
2016-17 193546015 9954280 5%
2017-18 148753000 6987000 5%
2018-19 211092000 7971000 4%
(SOURCE: ANNUAL REPORTS OF APHMEL FROM THE YEAR 2014 TO 2019)
FIGURE 5.9 PERCENTAGE OF FINISHED GOODS IN INVENTORY
IN APHMEL

% OF FG IN INV=FG/I*100
6%

5%

4%

3%
% OF FG IN INV=FG/I*100

2%

1%

0%
2014-152015-162016-172017-182018-19

(SOURCE: ANNUAL REPORTS OF APHMEL FROM THE YEAR 2014 TO 2019)

INTERPRETATION

From the above diagram it was observed that the % of finished goods in inventory for the
periods 2014-15,2015-16 and 2016-17 were 3%,2% and 4%respectively. And for the
remaining periods of 2017-18 and 2018-19 the ratio is constant of 5% for both periods.

80
PERCENTAGE OF RAW MATERIALS IN INVENTORY

Raw materials are those basic inputs that are converted into finished product through the
manufacturing process. Raw material inventories are those units which have been purchased
& stored for future productions a company should maintain adequate stock of continuous
supply to the factors for an uninterrupted production.

% OF RAW MATERIALS IN
INVENTORY=RAW
TABLE MATERIALS/INVENTORY
5.10 PERCENTAGE OF RAW MATERIAL IN INVENTORY IN
X 100
APHMEL

YEAR INVENTORY RAW MATERIAL %OF RAW

MATERIAL IN
INV=RM/INV*100
2014-15 200284486 44196252 22%
2015-16 302669296 129459553 43%
2016-17 193546015 53487036 28%
2017-18 148753000 49451000 33%
2018-19 211092000 67647000 32%
(SOURCE: ANNUAL REPORTS OF APHMEL FROM THE YEAR 2014 TO 2019)

81
FIGURE 5.10 PERCENTAGE OF RAW MATERIAL IN INVENTORY
IN APHMEL

%OF RAW MATERIAL IN INV=RM/INV*100

50%
45%
40%
35%
30%
25%
20%
15% %OF RAW MATERIAL IN
10% INV=RM/INV*100
5%
0%

2014-152015-162016-172017-182018-19

(SOURCE: ANNUAL REPORTS OF APHMEL FROM THE YEAR 2014 TO 2019)

INTERPRETATION

The percentage of raw materials in inventory increased to 43% during the year 2015-16 and
the percentage of raw materials to inventory show as decreasing trend in 2016-17, it
increased in 2017-18 & again decreased in 2018-19.

82
GROSS OPERATION CYCLE

The firm’s gross operating cycle can be determined as inventory period and conversion
period.

ICP: It was the time period to convert raw materials into finished goods. It can be calculated
as follows

INVENTORY ONVERSION PERIOD= INVENTORY/SALES*100

TABLE 5.11 INVENTORY CONVERSION PERIOD IN APHMEL

YEAR INVENTORY SALES ICP=I/SALES*100

2014-15 200284486 737008087 99days
2015-16 302669296 820691980 134days
2016-17 193546015 1010203176 70days
2017-18 148753000 742953000 73days
2018-19 211092000 830790000 93days
(SOURCE: ANNUAL REPORTS OF APHMEL FROM THE YEAR 2014 TO 2019)

83
DCP: debtor’s conversion period was the average time taken to convert debtors into cash.
DCP represents the average collection period.

DEBTORS CONVERSION PERIOD= DEBTORS/CREDIT SALES *100

NOTE: credit sales are assumed as net sales

TABLE 5.12 DEBTORS CONERSION PERIOD IN APHMEL

YEAR DEBTORS SALES DCP=Dr./Cr.

SALES*100
2014-15 317154045 737008087 157days
2015-16 297085211 820691980 132days
2016-17 448172012 1010203176 162days
2017-18 516127000 742953000 253days
2018-19 432411000 830790000 190days
(SOURCE: ANNUAL REPORTS OF APHMEL FROM THE YEAR 2014 TO 2019)

84
GROSS OPERATING CYCLE (GOC):

Gross operating cycle is calculated as follows

GROSS OPERATING CYCLE = INVENTORY CONVERSION

PERIOD+
TAABLE 5.13 DEBTORS CONVERION
GROSS OPERATION PERIOD
CYCLE IN APHMEL

YEAR ICP DCP GOC=ICP+DCP

2014-15 99days 157days 256
2015-16 134days 132days 266
2016-17 70days 162days 232
2017-18 73days 253days 326
2018-19 93days 190days 283
(SOURCE: ANNUAL REPORTS OF APHMEL FROM THE YEAR 2014 TO 2019)

85
FIGURE 5.13 GROSS OPERATING CYCLE IN APHMEL

GOC=ICP+DCP
350

300

250

200
GOC=ICP+DCP
150
100

50

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

(SOURCE: ANNUAL REPORTS OF APHMEL FROM THE YEAR 2014 TO 2019)

INTERPRETATION

Gross operating cycle in APHMEL was initially increased from 256 to 266 days during the
periods 2014-15, 2015-16, and later it declines to 232days in the period 2016-17 & again it
starts decline from 326days to 283days during the period of 2017-18, 2018-19.

86
 CHAPTER-VI

FINDINGS, SUGGESTIONS
&
CONCLUSION
 FINDINGS

The performance in ANDHRA PRADESH HEAVY MACHINERY AND

ENGINEERING LIMITED was well designed and had induced some wonderful concept.
But after the study it would be based out that some aspects make feel the employees that its
systems has be more effective, some opinions views of employees that are reflected.

1. The size of inventory was showing declined till 2018. There was an increase of 6% in
2019. It power that the organization was increased of stock level in terms of
inventory.
2. Inventory turnover ratio was showing an increased trend. It enables the organization
was increasing sales in relation to production.
3. The size of the days of inventory holding was showing decreased trend. It proves that
the organization was successful in handling the inventory in 2019.
4. The percentage of finished goods was 4%. It proves that the organization have
adequate maintenance of finished goods in order to meet the customer demand.
5. The percentage of raw materials in inventory also shows that the organization have
adequate maintenance of stock level in terms of inventory.
6. Inventory conversion period was sometimes increased and sometimes decreased. It
proves that the organization must concentrate on introduction of sophisticated
technology for production.
7. GOC was initially increased from 256 days to 266days during the period 2014 to
2016, later it starts decline from 266 to 232days during the period 2016-17. It
increased from 232 to 326days during the period 2017-18 and later it decreased from
326 to 283days during the period 2018-19. It proves that the organization had
concentrate on the things like inventory management and sales.
 SUGGESTIONS

1. There was no particular method has been followed for valuing the particular type of
inventories. The company has to introduce proper methods for valuing the
inventories.
2. Most of the times inventory was not sufficient at the time of production. The company
has to maintain adequate level of inventory.
3. Bin cards have to be maintained in APHMEL to know the location of stock, its
current stock available, the issues of receipts of materials etc.
4. The company should introduce stock verification system for all the materials.
5. The company should introduce some of the major inventory classification XYZ for
better control of the inventory.
6. As a whole the inventory management in the company was good. If proves that the
stores department and production department was performing efficiently in the
organization.
7. Conversion period of raw materials to finished goods was varying from time to time,
the variation can be reduced by better co-ordination of the activities of all departments
concerned.
8. The sundry expenses like telephone charges and travelling expense must reduce the
ordering cost.
9. For effective inventory management the above techniques have to be followed by
APHMEL Company.
 CONCLUSIONS

The ANDHRA PRADESH HEAVY MACHINERY AND ENGINEERING LIMITED

liquidity position was quite good with high rate of liquidity levels and it maintains a low rate
of cash balances which was not satisfactory. The composition of current assets was
dominated by inventory.

1. It was important to study the size of inventory management of any enterprise. It

decides the need for owing attention in the management of this component.

2. The composition of current assets was dominated by inventory.

3. Some of the inventories are ordered on the basis of minimum stock reorder level.

4. As whole the financial position of the company was good it proves the management
efficiency in the organization.

5. The company can also introduce some of the major classification like XYZ analysis
and FSN analysis for better control of the inventory.

6. Inventory issues can be done on LIFO or FIFO basis but pricing was done on
weighted average method
BIBILIOGRAPHY
 BIBILOGRAPHY

Sl.No. Book Title Author Publisher Year Page. No

1. Financial Prasanna TMH, New 2001 112-115

Management Chandra Delhi

2. Financial Khan & Jain TMH, New 2001 152-157

Management Delhi 182-194
3. Financial V.K. Bhalla ANMOL, New 1998 52-68
Management Delhi

4. Production & S.N. Charry TMH, New 2000 83-91

Operations Delhi 115-120
Management
5. Financial I.M. Pandey TMH, New 2001 170-210
Management Delhi

Journals:

Booklets and other publication on the progress of APHMEL.

WEBLLIOGRAPHY

www.google.co.in

www.wikipedia.com

www.inventorymanagement.com

www.financialexpres.com