INVENTORY MANAGEMENT OF SALT TRADING

CORPORATION LIMITED

A Project Work Proposal

Submitted By
Name:
T.U. Regd No:
Janamaitri Multiple Campus,
Symbol Number:
Roll No:
Group: Finace

Submitted To:
FACULTY OF MANAGEMENT
TRIBHUVAN UNIVERSITY

In partial fulfillment of the requirements of Business Research Method

for the degree of
BACHELOR OF BUSINESS STUDIES (BBS) 4th Year

Kathmandu, Nepal
March, 20
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CHAPTER -I

INTRODUCTION

1.1 Background

Nepal is a land lock country situated between Asian's two big countries China and India.
Nepal with diminutive per capita income of $ 1004 (World Bank report, ) has been
designated the least developed country. It's predominantly agriculture economy
employees more than 80% of the economically active population only 18% total availed
land without using any modern technology. Therefore regional and rural development
potential of an agriculture country such as Nepal may not be fully realized without a
well-designed and well-financed industrialization strategy. Industrialization plays
crucial role in process of economic development and its importance is as a means of
achieving economic growth and prosperity within the country.

Nepal's trading concern makes a significant contribution to the economic development

of the country. But it has its own problem from internal as well as external environment
membership of Nepal into world trade origination (WTO) and other regional trade
agreement also provide challenges and opportunities to the Nepal's trading enterprises.

Simply, inventory refers to storehouse of any kind of materials finished goods and
products. Inventory represented a large proportion of current assets. Inventory help to
make short-term decision regarding working capital as it is a port of working capital.
No business can exist without proper management of inventory.

A manufacturing company must maintain a certain amount of inventory during

production work in process is material that have been partly fabricated is strongly
influenced by the length of production period, which is the time between placing raw
material in production and completing the finished product. Decreasing the production
period can increase the inventory turn over one means of accomplishing this is new
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techniques such as just in time inventory management. Another means is to buy item
rather than make them.

The main objectives of inventory managements are as follows:

1) To facilitated uninterrupted production.
2) To ensure smooth sales operation.
3) To maintain efficient customer service.
4) To minimize the cost of production.
5) Effective use of capital.
6) To maximize the profit of the origination.

To maintain the large size inventory in a firm considerable funds are required. Both
excessive as well as inadequate inventories are dangerous to any firm. An excessive
inventory ties up the firm's fund and losses the profit. It also increasing carrying cost
and therefore may also run the risk of liquidation.

General motives for inventory management:

Transaction motive

Transaction motive emphasis's the need to maintain inventories to facilitate smooth

production and sales operation.

Precautionary motive

Precautionary motive necessities holding of inventories to guard against the risk of

unpredictable change in demand and supply forces and other factors.

Speculative motive

Speculative motive influences the decision to increase or reduce inventory levels to take
advantages of price fluctuation.

1.2 Profile of the organization

Salt Trading Corporation (STC) was founded in 1963 for the purpose of regularising
the distribution primarily of salt but also sugar, wheat, oil, rice, other grains, tea, LP
gas, paper, coal, tyre for vehicles and many more to the people of Nepal
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1.3 Objectives of the Study

The basic objectives of this study are to analyse the present position of inventory
management. Present procurement and distribution process of Salt and Sugar.
Analyzing the process of inventory management that is followed by STCL is the main
objectives of this study. The specific objectives of this study are as follows:

➢ To analyze the present position of procurement procedure of salt and sugar.

➢ To evaluate the warehouse facilities for varies goods.
➢ To analyse the present position of inventory management system.
➢ To provide recommendation in the basis of findings.

1.4 Rational of the Study

Nepal is the country where most of the people come from the backward area and
going to be in the development or still under developed face. Lot of area people are
facing the problem of unemployment and some part of the people facing the non-
available of basic consumable goods. The company of salt trading is the one of the
private public venture doing the different types of the product supplying to the
nations. In the light of this to know the current position of such public corporation
which are government owned and providing service to the people of nations for basic
consumable good is the important once. This is the rationality of the study. Other area
of rationality is having lot of transaction is the question to do the study. Based on this
researcher study.

1.5 Research Methodology

The research methodology is the process of arriving to the solution of the problem
through planning and systematic dealing with the collection analysis and interpretation
of the tact's and figures. It refers to the various sequential steps to be adopted by a
researcher who is studying a problem with contain object in a view. The objectives of
this study are to analyze the inventory management of salt trading corporation Ltd.
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For the propose of achieving the objectives the following methodology has been
proposed to the following which includes design nature and source of data collection
instrumental and quantitative technique applied to analyze the data.

1.5.1 Research Design

Research design is the conceptual structure within which the research is conducted.
Hence, the research design is plan structure and the strategy for investigating of the
facts in order to achieve the conclusion. The research design follows in the study is
descriptive as well as analytical, it will be analytical in the lenses that the research will
be analyzing the facts and figures of procurement sales requirement of salt and sugar
quota to determine the STCL's inventory management position and trend.

The research design of this study will be descriptive as well as analytical. This study is
based on secondary data but wherever necessary the primary data are also collected
through interviews with responsible authorities of STCL.

1.5.2 Populations and Sample

All the trading companies listed in the Nepal Stock Exchange are the population of the
study. Salt trading corporation is selected as a sample for the study. A judgmental
approach has been used to select the sample.

1.5. 3 Sources and collection of Data

Primary as well as secondary data have been used to meet the object set in the previous
section. Primary data will be collected through observation and interviews with officers
as well as non-officers of STCL. Secondary data will be collected from annual reports
of STCL. Beside above available journals bulletins, which highlight STCL, are also
studied.

1.5.4 Analytical Tools

The tools of analysis are comparison between demand and supply of major goods that
is distributed by STCL. Further the various approach to inventory management such as
under stocking: overstocking etc. will be done with the help of comparison table.
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Percentage will be used extensively, which comparing the stock figures statistical tools
like mean, standard deviation, coefficient of variation, coefficient of correlation, trend
ratio etc. are also used.

1.6 Review

Some studies have been made in the subject of inventory management but a few studies
have been gone on some studies will be reviewed in this chapter.

Agrawal (1986) made a study relating to the Nepalese Public enterprise. From the study
he found that Nepalese enterprises are not applying appropriate tools and technique for
controlling inventory for their physical as well as financial dimension.

Dhital (1996) conducted a research on a topic of inventory management related to Nepal

Food Corporation. The min objectives propounded by him were:

➢ To analyze the various related variable like purchase, Sales, Demand and food
quota of NFC and to find out their trends.

He used primary and secondary data to fulfill the objectives. He had pointed
out some conclusion based on major findings, which were given below:

➢ Under food grains purchasing, the domestic purchase was more fluctuated and
greater than import.
➢ Primary market purchase was also less than open market purchase, although
the primary market purchase was made the paddy, maize, wheat, pulse but rice
was purchased only in open market.
➢ The relationship between edible cereal production and requirement was
negative.

Basnet (1999) made a study about the inventory management of Himal Cement
Company. Mr Basnet in his thesis expressed his view that, in reality the Himal Cement
Company Limited (HCCL) is not applying the different method or technique of
inventory management. To manage its inventory effectively a firm should use different
tools and techniques like, EOQ, ABC analysis, re-order level etc. in inventory
management, which minimizes the inventory cost consequently will result into positive
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profitability. There is no proper and up to date improvement in inventory management

system in HCLL. So it is better to pay the attention by top-level management to overall
management of purchasing, production, sales and financial dimensions by which HCLL
will run in profitability.

Ojha (1999) has also made a study regarding the profit planning in Public
manufacturing with a comparative study of royal drug Limited (RDL) and herbs
production and processing company (HPPC) one of his major finding of their study was
that they had not adopted optimum inventory policy had not paid due attention while
preparing new material purchase and raw material requirement budget. The use of cost
technology was completely ignored by the RDL.

Shrestha (2000) made a study on inventory management of Royal Drugs Limited. His
main objective was to achieve the objective of Royal Drug Limited, the efficient
management of inventory is essentials. If the royal drug limited applies the scientific
techniques of inventory management, certainty it will cope its objective very
successfully. He further suggested that purchase plan should be prepared for different
type of raw material with the proper co-operation and co-ordination among the
planning, purchasing, storing, production, marketing and selling department to avoid
the excessive investment on inventory. Again he recommends that, the company for
purchasing various types of inventory should apply the popular scientific inventory
management techniques and to minimize the total inventory cost i.e. carrying cost and
holding cost.

Baral (2000) made a study regarding "A Case study of Gandaki Noodles Private
Limited" he came to know that the factory is following neither economic order model
in its purchasing decision nor ABC analysis is in inventory management.

Joshi (2001) studied on the topic of inventory management of Herbs processing and
production co. Ltd. He found the following problems in the area of inventory
management in the HPPCL like-

➢ What types of inventory problems do they face?

➢ Do they have any plan for inventory?
➢ What are the bases for such plan?
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➢ Are there any plans and policies to increase profit, reduce expenditures through
improving size of inventory in future, If yes, what, if no, why?

He set some objectives, which are given below:

➢ Identify present position of inventory in HPPCL.

➢ What types of problems faced by HPPCL in the management cost and profit
that should be identified.
➢ Provide the appropriate recommendation and suggestion improvement of
inventory management in HPPCL on the basis of above study and findings.

He concluded after study, if the company want to be success, it was necessary

to apply the theoretical and practical methods in collection, production, distribution
management, marketing, proper remuneration and rewards and punishment etc. The
company had given extra facilities and inspiration to the farmer to produce the raw
materials to reduce the loss of inventory expenses. Transportation high charge and loss
of company would reduce if the company were able to fulfill desired raw materials from
private resources.

The purpose of the research work is quite from the studies made by the above persons.
This study little bit different than previous studies it may be the first research study in
the field of inventory management taking the case study of working capital and closing
stock of trading public enterprises.

Sigdel (2002) has studied about the inventory management of agricultural Input
Corporation for his degree thesis. Some major points stated by Mr. Sigdel are reviewed
below.

The main objective of the study is to analyze the present system of inventory
management in agriculture Inputs Corporation or zonal basis. This study is based up on
quality as well as price aspects.

➢ To study the present procurement procedure transportation faculties of chemical

goods.
➢ To study the warehouse facilities for various fertilizers.
➢ To analyze present positions of inventory management.
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➢ And to provide suggestions based on findings.

The major procurement procedures are through inviting global tender through
negotiation, through aid/assistance from donor agencies/countries and through
negotiation/agreement of two governments. Besides other ways of AIC prefers
procurement through inviting global tender because other procedures are not reliable
and costly.

He concluded that AIC is not using scientific models of inventory management.

Although they do not calculate EOQ for the easy supply of chemical fertilizer they order
in lots of 1000 to 2000m ton. This is positive aspect of inventory management. There
is no evidence of taking trade discount by AIC. Lead-time is also not calculated
properly. Generally it takes 3 to 6 months to receive an order after the order placement,
Reorder point is also not fixed. Regarding butter stock, although AIC has capacities
warehouse throughout the country.

Bhandari (2002) studied on the subject of "A Case Study of multi Food Industry (P)
Limited Balaju Industrial District, Kathmandu " his main objectives if to analyse the
following

➢ To access the maintained inventories and other consequences on cost and profit.
➢ To find out the applied techniques and to manage the inventories in the factory.
➢ To present and analyze the inventory management system of MFI.
➢ To compare sales revenue and production cost.
➢ To suggest proper inventory models of MFI based on the analysis.

He finds that the company has not determined the re-order level, maximum stock level.
The company used direct method for purchasing of raw materials and producing of
models. Sometimes the company suffers the shortage of inventory, which is imported
from third country. Inventory turnover ratio of the company was not satisfactory.

Pandey (2002) on his degree thesis on Gorkhapatra Corporation Stress that for a good
inventory system to maintain a suitable level of inventory so as to able to fulfill the
corporation requirement on time. The rules for maintaining proper stock of inputs as
discussed previously are necessary to know the answer about how much to buy and
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when to buy. The models example and formula as depicted previously are necessary for
every business to reduce unnecessary cost incurred on ordering and carrying cost of the
inventory. Moreover, it is evident from previous discussion that the unnecessary costs
involved in ordering and carrying can be reduced to a certain level by the use of models,
formulas etc.

1.7 limitation of the study

Following are the limitation:

• Based on secondary data.
• Limited sectors and techniques used.
• Time limitations.
• Accuracy of secondary data based.
• Time periods of the data taken.

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Bajracharya, P. (1993). Management Problem in Public Manufacturing in Nepal.

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Bose, De L. J. (n.d.) Production Management. New Delhi: Prentice Hall India Ltd.

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Dangol, R. M. (1995). Financial Management: Theory and Practice. Kathmandu:

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