Indrajafinalveda.docx

A STUDY ON

“INVENTORY MANAGEMENT” WITH SPECIAL REFERENCE TO

“VEDA SEEDS SCIENCES PVT.LTD.” A Project Report Submitted toAcharya Nagarjuna University

In partial fulfillment of the requirements For the award of

MASTER OF BUSINESS ADMINISTRATION

Submitted by DASARI DHARMA TEJA Regd. No: Y16BU29015 Under the Guidance of Mr. ANIL KUMAR M.B.A., M.phil Associate professor POST GRADUATE DEPARTMENT OF MANAGEMENT STUDIES

CHRISTU JAYANTHI JUBILEE COLLEGE (Affiliated to AcharyaNagarjunaUniversity) Vidya Nagar 1st Lane, Guntur

(2015-2017)

POST GRADUATE DEPARTMENT OF MANAGEMENT STUDIES CHRISTUJAYANTHIJUBILEECOLLEGE Vidya nagar 1st lane, Guntur (Affiliated to AcharyaNagarjunaUniversity)

Certificate This is to certify that this is a bonafide record of the project work entitled “A STUDY ON INVENTORY MANAGEMENT WITH SPECIAL REFERENCE TO“VEDA SEEDS SCIENCES PVT.LTD.” Carried out by Mr.D.DHARMA TEJA (Regd.no. Y16BU29015) during the academic year 2015-2017 in partial fulfillment of the requirements for the award of “MASTER OF BUSINESS ADMINISTRATION” of Acharya Nagarjuna University.

Project Guide

Head of the Department

Declaration I here by declare that this project work entitled “INVENTORY MANAGEMENT" has been prepared by me during the academic year 2015-2017 in partial fulfillment of the requirements for the degree of “MASTER OF BUSINESS ADMINISTRATION" by Acharya Nagarjuna University.

I assure that this project is the result of my own effort and that it has not been submitted to any other university for the award of any degree or diploma.

Station: Guntur Date:

(D. DHARMA TEJA)

Acknowledgement I deem it is a great privilege in acknowledging my sincere thanks to all those who has extended their valuable co-operation in completing my project work. At the very outset, I would like to express my sincere thanks to Fr.Y.L.MARREDDY, Principal, ChristuJayanthiJubileeCollege for giving me permission to do this project. I thank Sri. Anil Kumar, Manager for his precious guidance and constant support in completing my project and also the staff in different departments for their co-operation in collection of the data. I would like to express my sincere gratitude and thanks to my project guide Mr. Anil kumar for his continuous guidance and supervision in completion of my project work.

My sincere thanks to all the staff members of Department of management studies, Christu Jayanthi Jubilee P.G College, for their consistent guidance in my project work. I would like to thank my parents and friends who helped me directly or indirectly in the phase of the completion of my project work.

(D.DHARMA TEJA)

CONTENTS P.no CHAPTER-1

01 - 07

INTRODUCTION NEED OF THE STUDY OBJECTIVES OF THE STUDY SCOPE OF THE STUDY RESEARCH METHODOLOGY LIMITATIONS OFTHE STUDY

CHAPTER-2

08 - 22

INDUSTRY PROFILE COMPANY PROFILE

CHAPTER-3

23 - 51

THEORETICAL FRAMEWORK

CHAPTER-4

52 - 80

DATA ANALYSIS AND INTERPRETATION

CHAPTER-5 FINDINGS SUGGESTIONS CONCLUSION BIBLIOGRAPHY

ANNEXURE ANNUAL REPORTS

81 - 84

CHAPTER-I INTRODUCTION

INTRODUCTION

The Dictionary meaning of inventory is stock of goods or list of goods. In accounting language it may mean stock of finished goods only. In a manufactured concern it may include raw material, work in process stores. Every enterprise needs inventory for smooth running of its activities. It serves as link between production and distribution process. There is, generally it time lay, the higher the requirement for inventory. The unforeseen fluctuations in demand and supply of goods also necessitate the need for inventory. It also provides cushion for future price fluctuations. The investments in inventories constitute the most significant part of currents assets and working capital 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 and when required and also to minimize investment in inventories. Inventory management deals with purchasing stocking and issuing of materials to various departments at right time, right quantity and at right quality. The general meaning of inventory is stock of goods or list of goods inventory. In accounting language it means stock of finished goods. For inventory manufacturing concern it includes raw materials, work in progress, consumables finished goods and spares etc.

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COMPONENTS OF INVENTORY Raw material

Work-in-process Consumables Finished products

Stares

and spares

1.

Raw Materials If forms a major input inventory in organization. The quantity of raw materials required will be determined by the rate of consumption.

2.

Work in Progress The work in progress is that stage of stocks, which are in between raw materials and finished goods.

3.

Consumables These are the material, which are needed to smoothen, the process of production. These do not directly go into production, but act as catalyst.

4.

Finished Goods These are the goods, which are ready to sale for the consumers. The stock of finished goods provides as buffer between production and market.

5.

Spares Spare also a part of inventory. The stocking policies differ from industry to industry.

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OBJECTIVE OF THE STUDY As I am committed to implement my research plan effectively and make my study more realistic and comprehensive I have demand the following objectives quite necessary. In other words, the present study is expected to realize the following objectives.  To present the conceptual & theoretical frame work relating to inventory management. .  To determine the monetary value of various issue involved in inventory management.  To suggest various control systems of inventory.  To determine an effective inventory control system.

 To provide various suggestions based on findings.

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NEED OF THE STUDY  To know what are the inventories are high in volume and value because, inventories constitute the most significant part of current assets of large industries in India. In India such as tea plantation, edible vegetable oils, cotton, sugar, jute, inventories form more than 60 % of current assets.  To observe, whether there are unnecessary investments made by the company and give an analysis regarding the prioritization of Inventories.  The study is conducted to know how effectively the company is managing the inventories and give plans to avoid jeopardizing its long run profitability and may fail ultimately.  This study on inventory management is needed by the company in defining the techniques for managing the inventories to determine the effectiveness of inventory on the operations of the company and for avoiding excessive and inadequate levels of inventories.  To know inventory levels of the company and optimum level of the company and productivity of the company.

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SCOPE OF THE STUDY  The study of inventory management of ML GROUP Ltd is a very wide topic and could be a detailed study.  But here it is intended to the author a brief report keeping in view the time factor.  In the study many factors that need detailed analysis could not be discussed in detail because of the limitations regarding length of the project and available time.  The scope of the study has therefore been limited to the analysis of various inventory control technique the performance of inventory management.  The study includes ABC analysis of Raw materials, work in progress and finished goods for financial years and also HML analysis.

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METHODOLOGY OF THE STUDY The following is the methodology of the study. The collection of data is done in two principal sources. They are the following •

Primary data

•

Secondary data

(1) Primary data The primary data needed for the study is gathered through interview with concerned officers and staff, either individually or collectively. Some of the information has been or supplemented with personal conduct.

(2) Secondary data The secondary data needed for the study was collected from published sources such as pamphlets of annul reports, returns and internal books, reference from text book, stores records, Co website, other website and journals of financial management.

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LIMITATIONS OF THE STUDY Any study is having of its own advantages and certain disadvantages. Among such few of the limitations are expressed below such as,  The reliability of the study depends upon the information furnished by the officials.  Due to time constraint it is difficult to go into details of the organization.  This study is entirely based on the given information by the stores department, purchase department, production department and sales department.  The collection information is mainly through secondary data

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CHAPTER-II INDUSTRY PROFILE & COMPANY PROFILE

INDUSTRY PROFILE The prospects of the seed industry would require changes in Government policy, facilitating its development and removing controls and restrictions. In brief seed industry requires a simple policy and legislation on .Historically, the importance of seed has been recognized sine the Vedic times for increasing food production and quality. However organized production and supply of quality seed at the national level stated in 1963 as a consequence of the introduction of hybrid technology during 1961-65.

GROWTH: The release of high yield dwarf varieties of wheat and rice by the mid gave further impetus to the growth of seed industry. This period also saw the constitution of the seed review team, enactment of seeds act, 1996 for regulating the quality of seed and formation of the National Commission of Agriculture. This was the period in which the private sector took significant steps into the seed business. The 1980s, witnessed two more important developments viz.,granting of permission to MRT? / FERA companies for investment in the seed sector in 1987 and the introduction of ―NEW POLICY‖ on seed development in 1983. The new policy on seed development while helping liberalize import of vegetable and flower seeds in general and seeds of other crops in a restricted manner encouraged global seeds companies to enter the seed business of India.

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CURRENT STATUS To supply the seeds necessary for the five hundred thousand Indian Villages is a big problem. Storage, transportation and tin Rely distribution of pure seed from village to village calls for careful organization within the State Department of Agriculture and The willing cooperation of farmers. Indian‘s seed industry has grown in size and level of performance over the past four decades. It represents a blend of private and public sector companies / corporations. The private sector comprises approximately 140 seed companies, which includes national, global, regional and other seed producing and / or selling companies. The industry has made impressive strides from a modest beginning is 1962-63 to over 5lakh hectares in seed production in1995-96. The quantum of seed distributed also grew from 14lakh to 70lakh quintals during this period.

CHALLENGES Implementing of new techniques requires dissemination and training for their beneficial use. To achieve these goal radical changes will be required in the existing extension systems. In many case entirely new approaches for dissemination of knowledge will be required. These will have to be constant learning and up gradation of skills to enable transmission of knowledge to the user .To realization of the prospects of the industry will also changing the government policy, which would facilitate the development of the Indian Agriculture and Seed Industry. The policy must aim at governing greater self discipline and removing controls and restrictions which inhibit growth and development.

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ROLE OF THE GOVERNMENT To achieve self- sufficiency in the production through planned programs, the distribution of quality seed was rightly considered as a key factor by the government. The far-sighted and liberal policies of Government of India has always laid emphasis to build a sound seed industry in the country and has, supported both public and private sector organizations to develop and to meet the increasing seed demand and also to produce surplus stocks require for export .To support expanded activities the National Seed Programs was launched with the financial assistance of the World Bank(International Bank for Development). In order to make available the right quality of seed to the Indian farmers in adequate quantities and at reasonable price in time, the Government of India took various steps including promulgation of Seed Act‖ during 1996 which became operative throughout the country from October 1969.

The main objective of the Act is to produce quality seed of different crop varieties under a system of seed certification and testing is voluntary but the farmers have recognized the importance of quality seed to get higher production with limited resources available at their end .High yielding varieties are being released for cultivation in quick succession by various Agricultural Universities and ICAR institutions through massive research project and screening of planting materials .Steps have been taken during early 1984 to bring seeds within the purview of the Essential Commodities Act to strengthen the regulation of seed.

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PROBLEMS: Many problems are being faced by the seed industries and farmers from many years. A number of Multi National Corporations have stepped into our agricultural country to gain control over the seeds and their distribution. Recently, a new variety of seeds have entered the country. This created many new problems for the seed industry and farmer’s .Generally; a seed may be used either as a food material or as a seed for another crop. But now, the life in the seed is being taken out for making it to be used only as a food material and not as a seed for another crop. These types of seeds are called genetic change or genetic engineering seeds.

For example: BT cotton seed. The farmers are made to purchase those seeds which are manufactured by the corporation for their crops. Once the farmers or industry have used these types of seeds, they face many problems. They have to use only those pesticides which are produced by those associations for protecting their crops from the pests, diseases etc. These types would used by the wide associations .The seed industries in India are facing a big problem with the entering the world wide organizations into the country. Also the production is down grading. In 1992, the experiments conducted by the Monsanto scientist if Perestroika show that these has been approximately 11.5 percent decrease in the production of cotton.

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SEED INDUSTRY IN GLOBAL PERSPECITIVE: The population has been growing at a faster rate in the country .To increase the production accordingly a ―All India Co-coordinated Organization has been established in 1951 with the assistance of―Rockefeller Foundation‖ which belongs to America. As part of this project, it produced new seeds of maize in 1961 and cotton seeds in1971.With a view that the State Governments are unable to meet the demand for seeds correctly; two associations have been established with the help of Rockefeller Foundation. They are ―National Seed Association‖ 1963 and ―State Farm Corporation of India‖, 1969. Due to the ―Development Program which came into existence in 1988, many multinational corporations have stepped into the seed industry .At present there are more than 700 multinational corporations in India Organizing seed business directly or indirectly. 19 multinational companies have been made an agreement with the Indian seed industriesand have been enjoying the leadership in the seed market . SEED INDUSTRY IN INDIA Indian Seeds Industry has grown in size and level of performance over the past four decades. India stands in the 8th position all over the world in the production of different variety of corps. Again in each crop there are thousands of varieties. To coordinate the seeds research centers and private organizations in the country and to support the expanded activities, the ―National Seed Program‖ was launched in 1967 with the financial assistance of the World Bank. In 1960 many private organizations have participated in the production of seeds. Many seed industries have laid a strong foundation in the country.

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Following are some of the major seed industries in India.

1. MICO Seeds Private Limited, Mumbai. 2. Monsanto Holdings Private Limited, Bangalore. 3. Namdhari Seeds Private Limited, Banglore. 4. National Seeds Corporation Limited, New Delhi. 5. Rallis India Limited, New Delhi. 6. Sungros Seeds Limited, Delhi. 7. Cargill Hybrids Private Limited, New Delhi. 8. Pioneer Indian Limited, Kolkata. 9. Proagro Sees Private Limited, Chennai. 10. Sasys Seeds Private Limited, Bangalore. 11. Sinjent India Limited, Pune. 12. Nunhams Seeds Private Limited, Gurgaon.

13

SEED INUDSTRY IN TELUGU STATES In Andhra Pradesh the seed industries are many in number.Though Andhra Pradesh is one among the states in India who have been producing different varieties of crops. It does not have the major seed industries in it when compared to other states. Many seed industries have formed recently in the state. Also the state a growing industrially and there is sample scope and potential for the entry and success of new industries . The crop producing seasons are different for different states. In Andhra Pradesh the crop producing season starts from June and end swith the month of September. The stock to be sold by the seed industries is kept ready during the starting of the year as the period during which the demand will be more fall between March and August. The industries in the state starts the crop again the month June itself. The send industry in the state starts the crops which form the boundaries of it. The selling period for those states will vary. The following are some of the seed industries in Telugu states Indo American Hybrid Seeds (India) Pvt. Ltd., Hyderabad. Seed works India Limited, Hyderabad. MouryaAgri-Tech., Hyderabad. SriramBioseed Genetics India Ltd., Hyderabad. JK Seeds Limited, Secunderabad. Nujiveedu Seeds Limited, Hyderabad. VEDA SEEDS Prviate Limited, Guntur. Venus Crane Seeds Pvt. Ltd., Guntur. 14

COMPANY PROFILE Seed is the basic input to improve the agricultural productivity. In order to develop and supply high quality seeds in crops like Cotton, Corn, Paddy, Pearl Millet, Sunflower, & Vegetables. Veda Seed Sciences Pvt. Ltd was started in 2009 in Hyderabad, Andhra Pradesh (India) and it has been recently shifted to Guntur (A P). Veda is a research driven company and it has 17 acres of R & D land near Guntur for conducting basic Plant breeding research, hybridization program & trials. Veda has excellent manpower in the areas of research, production & marketing.

The company has made Co-Marketing agreement with a reputed company for sale of Bollgard II cotton hybrids (under the license from Monsanto Company, USA) in the states of Telugu states, Maharashtra, Madhya Pradesh, Gujarat, Tamilnadu, Karnataka, Orissa and South Rajasthan in India.

KEY MANAGEMENT Managing Director Dr .P .Chandrasekhar has more than 20 years experience in the areas Plant Breeding & Biotechnology whose qualification is M .Sc (Ag.), Ph.D., He has also wide range of experience in Quality Assurance, Seed Production, Processing, Regulatory approvals, Marketing and Administrative activities of the company.

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Director Tulasi Dharma Charan is the Director (Marketing) who has 16 years experience in seed marketing through Distributor & Dealer network, product promotions by conducting vigorous field promotion activities, product campaigns, brand building of new products etc. Citadel Management Mr. E V P S Krishna and Mr. Vijay Datt are the Directors of the company who have vast experience in Private equity funding & value creation and look after the financial management of the company. Wide range of VEDA Hybrids & OPVs Sl.No. 1

Crop Paddy

2 3 4

Tomato Sunflower Corn

5

Sweet Corn

Hybrid / Improved Variety MTU – 7029, MTU -1010, MTU – 1001, BPT – 5204, IR – 64 PKM – 1, S – 23 Jwala (VHSF – 1001), Savitha (VHSF – 1003) Tarak (VHM – 1021), Vikram (VHM – 1023), Tharang (VHM-1024) Madhurima (VHSC-2041)

6

Sorghum

Shivam (VHSF – 1061)

16

7 8

SSG Pearl millet

Krishna (VHSSG – 2021), Kamadhenu (VHSSG – 2022) Ratna (VHB – 1041)

9 10

Castor Res. Paddy

Narmadha (VHC-2001), Vivek (VHC – 2002) Vijay (VS-3001), Purna (VS – 3002)

11

Red gram

Adhi (VHRG – 1082), Arya (VHRG – 1081)

12

Sesamum

Pooja (VHS – 2082)

13

Hot Pepper

24

Rudra (VHHP – 101), Veda Hot (VHHP – 104), Green Top (VHHP – 102) Tomato Tulasi (VHT – 142), Devaki (VHT – 144) Egg plant Kavya (VHEP – 421), Kiran (VHEP-422), Divya (VHEP – 423) Ridge gourd Aasha (VHRG – 161), Ankitha (VHRG – 163) Bitter gourd Mohini (VHBG – 301), Meena (VHB – 302) Okra Deepthi (VHO – 121), Gopika (VHO – 125) Bottle gourd Karthika (VHBG – 241) Cucumber Rohini (VHC – 221) Musk melon Nitya (VHMM – 201) Water melon Sathya (VHWM – 183) Res. Cluster Veena ( VS – 341) bean Res. Dolichos Swetha (VS – 321)

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Res. Onion

Siri (VS – 401), Nidhi (VS – 402)

26 27

Res. Palak Res. Coriander

Jaya (VS – 361) Rahul (VS – 381)

28

Hybrid cotton

KSCH – 207 BG II, KSCH – 211 BG II, KSCH – 212 BG II, & KSCH – 232 BG II under Co-Marketing.

14 15 16 17 18 19 20 21 22 23

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R & D, Offices addresses at a Glance  Reg& Corporate Office: Veda Seed Sciences Pvt. Ltd., D.No.6-11-5, Arundel pet 11/2, GUNTUR - 522 002. (A P) Ph.Nos.0863 – 2333397, 2333398, 2333387.  Regional Office :

Veda Seed Sciences Pvt. Ltd., D.No.5-5-559, Plot No.85, Abhyudaya Nagar, Chintalkunta, L.B.Nagar, HYDERABAD – 74.

 R & D Division :

Veda Seed Sciences Pvt. Ltd., Survey No. 84 & 454, Kondaveedu village, YadlapaduMandal, Guntur District, A.P.

 Seed Processing Plant :Veda Seed Sciences Pvt. Ltd., H.No.8-3-35/3/A, Near PindiPullareddy Gardens, Hastinapuram North extent, Sagar Highway, L.B.Nagar, HYDERABAD – 500079

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R&D AND TECHNOLOGY ABSORPTION  Specific area in which R& D carried out by the company-Development of own hybrid seed.  Benefits derived as a result of the above r & d.-Improved quality, improved productivity and process efficiencies.

 Expenditure on R & D.Rs. 3, 49,108 spent under own research and development program during the year.  Technology absorption during the year under review is nil

VISION AND MISSION Vision: VEDA SEEDS believes that the foundation of its business is to provide excellent in its products through high quality and reliability, at economical and competitive prices, efficient services to satisfy the costumers In order to achieve these goals and attain market leader ship , it shall be the objective of every employee to strive to best in the field.

Mission: VEDA SEEDS will serve the global seed industry as suppliers of high quality cost effective time-bound services in manufacturing retailing and sourcing VEDA SEEDS will continuously commit our resources to educate or equip our people with skills , expertise and attitudes by combat global competition secure our domestic markets and jobs and expand our global markets VEDA SEEDS enable our people to realize economic self sufficiency ,self esteem and success and build them as facilitators in the up lifting of our communities

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GOALS & OBJECTIVES The main objective of this study is to study the organization of various department the organizing growth and development of the industry and organization. And also provide present status of the industry and organization, future prospectus of the industry as well as organization .The study also include detailed picture of each departments of emphasizing on marketing, production, human resource, finance ,personnel and management information system department .The study also include specific management problem and come out with possible solution and recommendation.

 To study the organization structure of VEDA SEEDS Pvt. Ltd.,  To know about its product & Activities.  To study of different departments & its function  To study the growth & achievement of each departments.  To know about organization vision, mission and goals.  To know the social economic conditions of work force.  To study the labour welfare activities being practice  To make appropriate suggestions for the improvement of labour welfare.  To develop the organization culture that attracts competent people to the industry.  To suggest various measures to improve the standards of the  employee and to improve the organization‘s social motive.

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Products Profiles: Cotton Hybrids Veda-207 BG II (Tadaakha BG II)  High yielding BG II hybrid cotton  Excellent boll opening  Excellent quality of lint with long staple length, fetches maximum price in the market  Strong main stem which prevents lodging of the plant at maturity stages  Suitable for both light and heavy soils. Also suitable for rainfed areas

Veda-212 BG II (Basant BG II)  High yielding BG II hybrid cotton  Excellent quality of lint with long staple length, fetches maximum price in the market  Easy for picking with full opening of bolls

Veda -232 BG II (Sadanand BG II)  Big bolls with high yielding BG II hybrid cotton  Tolerant to sucking pests like jassids , thrips and mites  Excellent quality of lint with long staple length, fetches maximum price in the market

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CHAPTER-III THEORETICAL FRAME WORK

THEORITICAL FRAME WORK MEANING OF INVENTORY Inventories are resources of any kind having an Economic value. An inventory consists of Raw materials, Work-in-progress, finished goods and stores. Thus inventory control is all about planning and devising procedures to maintain an optimal level of these resources.

Nature of inventory The investment in inventories constitutes the most significant part of current assets / working capital in most of the undertakings. Thus, it is very essential to have proper control and management of inventories. The purpose of inventory management is to ensure availability of materials in sufficient quantity as and when required and also to minimize investment in inventories. Inventory may mean the stock of finished goods only. In a manufacturing concern, it may include raw materials, work-in-progress and stores etc.

Classification of Inventories The Inventories in an Industrial concern is generally classified as following:

 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.

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 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 repaired. 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 to be disposed. Such machines, which have become useless, are termed as obsolete inventory.

 Waste, Scrap and reject 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 the organization and it is to be disposed.

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Need for Holding Optimum Inventory Though inventory of materials is an idle resource (as they are not used immediately and stocked for future use), almost every business must maintain it for efficient and smooth running of its operations. If an enterprise has no inventory of material at all, on receiving a manufacturing order, it will have to place order for purchase of raw material, wait for arrival and receive of material and then start production. The customer will have to wait for a long period for the delivery of his product and may frustrated and turn to another manufacturer. Maintaining of inventory becomes necessary for the following reasons:  It helps in smooth and efficient running of the production system and the enterprise. It decouples the production from the customers and vendors.  It provides services to the customers at a short notice. Timely deliveries may increase the goodwill of the company.  In the absence of inventory, the enterprise may have to pay very high prices because of piecemeal purchasing. Maintaining inventory may earn price discounts on bulk purchases. It also takes advantage of favorable market.  It reduces the product cost, since there is an added advantage of batch production and mass production runs.  It acts as a buffer stock when raw materials are received late and shop rejects are too many.  Bulk purchases reduce the number of orders and hence less clerical work.  It helps in maintaining economy by absorbing some of the fluctuations when the demand for an item fluctuates or is seasonal.

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Motives for holding Inventories Economists have established three motives for holding inventories.  Transaction motive.  Precautionary motive.  Speculative motive.

Transaction motive Firms may require to hold certain amount of finished products perpetually in stock for display or demonstration purpose. They may also hold inventories to meet a sudden demand, thus reducing the delivery tags.

Precautionary motive Firms may hold inventories for fear of stock outs and losing its goodwill. Some of the precautionary motives give rise to ‘safety stock’ to deal with uncertainty in supply and demand.

Speculative motive A firm may also hold both raw materials and finished products when it expects a price in future, thereby realizing a stock profit. Inventories held for speculative motive are termed as profit-making inventory. Of the three motives

Precautionary motive It requires much attention. Besides accumulation of inventory due to the three motives mentioned above, inventories also get accumulated because of inefficient management of working capital. This type of inventory is called, flabby inventory. In addition, there may be a contractual reason for holding some inventories.

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Contractual Requirements Occasionally it may be necessary to carry a certain level of inventory to meet a contractual agreement. Some manufacturers require dealers to maintain a specified level of inventory in order to be the sole representative in a particular territory. Inventory Management Inventories represent a substantial amount of firm’s current assets. Proper management of Inventory is necessary so that this investment does not become too large, as it would result in blocking capital which could be used in productive aspect in somewhere else. Inventory Management covers efficient management of inventories in all its aspects including Inventory planning and programming, Purchasing, Inventory Control, receiving, ware Housing and Store keeping, Inventories handling and Disposal of scrap. In this context of Inventory Management the firm is faced with the problem of meeting two conflicting needs.  To maintain a large size of inventory for efficient and smooth production and sales operations.  To maintain a minimum investment in inventories to maximize profitability. The aim of Inventory management, thus, is to avoid excessive and inadequate levels of inventories and to maintain sufficient inventory for the smooth production and sales operations.

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An effective inventory management should  Ensure continuous supply of materials to facilitate uninterrupted production.  Maintain sufficient stocks of raw materials in periods of short supply and anticipate price changes.

 Maintain sufficient finished goods inventory for smooth sales operations, and efficient customer services.

 Minimize the earnings cost and time. OBJECTIVES OF INVENTORY MANAGEMENT The objectives of the inventory management are discussed under two heads:  Operating objectives.  Financial objectives.

OPERATING OBJECTIVES: The Operating objectives of Inventory management is further divided as follows

 Availability of materials The first and the foremost of inventory management is make all types of materials available at all times they needed by the production departments. So that the production may not be held up for want of materials. It is therefore advisable to maintain the minimum quantity of all materials to move on production schedule

 Minimizing the wastage Inventory management has to minimize the wastage at all levels that is during its storage in the god owns or at work in the factory.

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 Promotion of manufacturing efficiency The manufacturing efficiency of the enterprise increases if right types of raw materials are made available to production department at the right time. It reduces wastage & cost of production & improves the moral of workers.

 Better service to customers In order to meet to the demand of the customers, it is the responsibility of inventory management to produce sufficient stock of finished goods to execute the orders received from customers.

 Optimum level of inventories Proper control of inventories helps management to procure materials in right time in order to run the plant efficiently. Maintaining the optimum level of inventories keeping in view the operational requirements avoids the out of stock danger.

FINANCIAL OBJECTIVE The Financial objectives of Inventory management is further divided as follows -

 Economy in purchasing Proper inventory management system brings certain advantages and economies in purchasing the raw materials. Management makes every attempt to purchase raw materials in bulk quantity and to take advantage of favorable market conditions.

 Optimum investment and efficient use of capital The primary objective of inventory management, from financial point of view, is to have an optimum level of investment in inventories. Inventory Management has to setup minimum and maximum levels of inventories to avoid deficiency or surplus stocks.

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 Reasonable prices Inventory management has to ensure the supply of raw materials at a reasonable low price, but without sacrificing the quality. It helps to reduction of cost of production and improvement in the quality of finished goods in order to maximize the profits of the organization.

 Minimizing the costs Minimizing inventory costs such as handling, ordering and carrying costs etc is one of the main objectives of inventory management. It helps in reduction of inventory costs in a way that it reduces the costs per unit of inventory and there by reduction of the total cost of production.

Advantages of Inventory Management The advantages gained by the firm by managing the inventory effectively are:  Introduction of a proper inventory management system helps in keeping the investment in the inventories as low as feasible.  Ensures availability of material by providing adequate protection against uncertainties of supplies and consumption of materials.  Allows full advantage of economics of bulk purchases and transportation.  Leads to reduction in inventory levels.  Releases more of capital for other operations.  Adequate customer service.  Advantage of price discounts by bulk pricing

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Causes of poor Inventory Management There are certain instances, which leads to poor inventory management. They are:  Over buying without regard to the forecast or proper estimate of demand to take advantage of favorable market.  Over production or production of goods much before the customer requires them.  Over stocking may also result from the desire to provide better service to the customers. Bulk production or purchase to cut down production costs also will result in large inventories.

 Cancellation of orders and minimum quantity stipulations by the suppliers may also give rise to large inventories.

Costs for Holding Inventory The three important costs considered in holding inventories are  Inventory Carrying Cost (or) Stock Holding Cost.  Procurement Cost or Setup Cost.  Shortage Cost or Stock-out Cost.

 Inventory Carrying Costs or Stock Holding Costs They arise on account of maintaining the stocks and the interest paid on the capital tied up with the stocks. They vary directly with the size of the inventory as well as the time the item is held in stock. Various components of the stockholding cost are:

31

 Cost of Storage Space This consists of rent for the space occupied by the inventory. Besides space expenses, this will also include heating, lighting and other atmospheric control expenses.

 Depreciation and deterioration They are especially important for fashion items or items undergoing chemical changes during storage. Fragile items like crockery which is liable to damage, breakage, etc.

 Pilferage Cost It depends upon the nature of the item. Valuable items may be more tempting, while there is hardly any possibility of heavy casting or forging being stolen.

 Obsolescence Cost It depends upon the nature of the item in stock. Electronic and computer components are likely to be fast outdated. Changes in design also led to obsolescence.

 Handling cost These include all costs associated with movement of stock, such as cost of labor, overhead cranes, gantries and other machinery used for this purpose.

 Procurement Cost or Setup Cost They include the fixed and variable costs associated with placing of an order. In case of purchase models it is known as ordering cost. In case of manufacturing model, it is known setup cost. To place an order certain paper work is to be done. The cost of this paper work is taken as cost of ordering.

32

 Shortage Cost or Stock-out Cost These costs are associated with either a delay in meeting demands or the inability to meet it at all. Therefore, shortage costs are usually interpreted in two ways. In case the unfilled demand can be filled at a later stage (backlog case), these costs are proportional to quantify that is short as well as the delay time. They represent loss of goodwill and cost of idle equipment. In case the unfilled demand is lost (no backlog case), these costs become proportional to only the quantity that is short.

TECHNIQUES OF INVENTORY MANAGEMENT The following are the techniques of the inventory management  Economic order quantity.  ABC analysis.  VED classification.  HML Classification.  SDE Classification.  FSN Analysis.  SOS classification.  XYZ Analysis.  Golf classification  MNG Analysis.

33

Economic order quantity A firm should not place either too large or too small orders. On the basis of a trade-off between benefits derived from the availability of inventory and the cost of carrying that level of inventory, the appropriate or optimum level of the order to be placed should be determined. The optimum level of inventory is popularly referred to as the economic order quantity (EOQ). It is also known as economic lot size. The economic order quantity may be defined as that level of inventory order that minimizes the total cost associated with inventory management. I.e. it refers to the level of inventory at which the total cost of inventory comprising acquisition/ordering/set-up costs and carrying cost is minimal. EOQ =

2AO / C

A = Total annual requirement O = Ordering cost per order C = Convey in cost per unit

ABC analysis:Usually a firm has to maintain several types of inventories. It is not desirable to keep same degree of control on all the items. The firm should pay maximum attention to those items whose value is highest. The firm should therefore classify inventories to identify which items should receive the most effort in controlling. This classification is done by the ABC analysis.

34

The ABC analysis technique is based is based on the assumption that a firm should not exercise the same degree of control on all items of inventory. On the basis of the cost involved, the various inventory items are categorized into three classes: i.

‘A’ category.

ii.

‘B’ category.

iii.

‘C’ category.

 Category ‘A’ items - More costly and valuable consumption items are classified as A items. But the ‘A’ category items are very less in volume (generally 20%) when compared to the total volume of inventory.  Category ‘B’ items - The items having average consumption value items are classified as B items. But the ‘B’ category items are very average in volume (generally 30%) when compared to the total volume of inventory.  Category ‘C’ items - The items having less consumption value items are classified as C items. But the ‘C’ category items are very high in volume (generally 50%) when compared to the total volume of inventory.

VED Classification VED – Vital, Essential and Desirable classification is applicable largely to spare parts. Stocking of spare parts is based on strategies different from those of raw materials because of there consumption pattern is different. Here the spare parts are classified in to three categories.

35

 Vital - The spares, the stock out of which even for a short time will stop the production.  Essential - The spares, the absence of which cannot be tolerated for more than a few hours or a day.  Desirable - The desirable spares are those spares which are needed but this absence for even a week or so will not stop the production.

HML Classifications The High, medium and Low (HML) classification follows the same procedure as is adopted in ABC classification. Only difference is that in HML, the classification unit value is the criterion and not the annual consumption value. The items of inventory should be listed in the descending order of unit value and it is up to the management to fix limits for three categories. For examples, the management may decide that all units with unit value of Rs. 2000 and above will be ‘H’ items, Rs. 1000 to 2000 ‘M’ items and less than Rs. 1000 ‘L’ items. The HML analysis is useful for keeping control over consumption at departmental levels, for deciding the frequency of physical verification, and for controlling purchases.

SDE Classification The SDE analysis is based upon the availability of items and is very useful in the context of scarcity of supply. In this analysis, ‘S’ refers to ‘scarce’ items, generally imported, and those which are in short supply. ‘D’ refers to difficult items which are available indigenously but are difficult items to procure. Items which have to come from distant places or for which reliable suppliers are 36

difficult to come by fall into ‘D’ category. ‘E’ refers to items which are easy to acquire and which are available in the local markets.The SDE classification, based on problems faced in procurement, is vital to the lead time analysis and in deciding on purchasing strategies.

FSN Analysis:FSN stands for fast moving slow moving and non-moving. Here, classification is based on the pattern of issues from stores and is useful in controlling obsolescence. To carry out an FSN analysis, the date of receipt or the last date of issue, whichever is later, is taken to determine the number of months, which have lapsed since the last transaction. The items are usually grouped in periods of 12 months.

SOS Classification Raw materials, especially agricultural inputs are generally classified by the seasonal, off-seasonal systems since the prices during the season would generally be lower. The seasonal items which are available only for a limited period should be procured and stocked for meeting the needs of the full year. The prices of the seasonal items which are available throughout the year are generally less during the harvest season. The quantity required of such items should, therefore, be determined after comparing the cost savings on account of lower prices, if purchased during season, with the higher cost of carrying inventories if purchased throughout the year.

37

A Buying and stocking strategy for seasonal items depend on a large number of factors and more and more sophistication is taken place in this sphere and operational techniques are used to obtain optimum results.

XYZ Analysis While the ABC analysis is based on the assumption on value, XYZ analysis is based on the value of inventory undertaken during the closing of annual accounts. X items are those having high value, Y items are those whose inventory values are medium and Z items are those whose inventory values are low. The percentages are similar to ABC analysis. This analysis helps find items with heavy stock.

GOLF Classification The letter stands for Government, Ordinary, Local and Foreign. There are mainly imported items which are channelized through the State Trading Corporation (STC) Minerals and Metals Trading Corporation, etc. Indian Drugs and Pharmaceutical Ltd (IDPL), Mica trading corporation etc. These are special procedures of inventory control which may not applicable to ordinary items as they require special procedures.

MNG Analysis The grouping of inventory items in this analysis takes place as:

 M- Moving items The items which are consumed from time to time are normally referred to as moving items.

38

 N- Non moving items These items which are not and consumed in last one year are covered under this group.

 G- Ghost items This group refers to such items which neither have been received nor issued during the year. The balance of such items shown in stock registers of the organization will be nil, both at the beginning and at the end of the previous financial year.

Inventory Systems For an effective inventory management, an efficient inventory system should be maintained. Thus the importance of inventory systems cannot be neglected in the Inventory Management. The two important types of inventory systems available are  Periodic Inventory System.  Perpetual Inventory System.  Just-In-Time Inventory System.

Periodic Inventory System In this system the quantity and value of inventory is found out only at the end of the accounting period after having a physical verification of the units in hand. The cost of materials used or goods sold is obtained by adding the total of inventory purchased during the period to the value of the inventory in hand in the

39

beginning of the period and subtracting the value of inventory at the end of the period. In this system the inventory level is not monitored at all during the time interval between the orders, so it has the advantage of little or no required record keeping. The disadvantage is less control.

Perpetual Inventory system It is a system of tracking and knowing the value of inventory and quantity of merchandise on hand at any time by tracking sales, returns and receipts with information systems. A positive feature of a perpetual system is that inventory level is continuously monitored, so management always knows the inventory status. This is advantageous for critical parts or raw materials and supplies. However, it can be costly.

The perpetual inventory system consists of:  Bin Cards.  Stores ledger.  Continuous Stock taking.

Bin cards Bin cards are printed cards used for accounting the stock of material, in stores. For every item of materials, separate bin cards are kept. The details regarding the material such as the name of the material, the part number, the date of receipt and issue, the reference number, the name of the supplier, the quantity received and issued, the value of the material, the rate, the balance quantity, etc. are recorded in the bin card.

40

Stores ledger Like bin cards, a stores ledger is maintained to record all the receipts and issues in respect of materials with the difference that along with the quantities, the values are entered in the receipt, issue and balance columns.

Continuous stock taking The perpetual inventory system is not complete without a systematic procedure for physical verification of the stores. The bin cards and the stores ledger record the balances, but their correctness can be verified by means of physical verification only.

Just-In-Time Inventory System Now-a-days organizations are becoming more and more interested in getting potential gains from making smaller and more frequent purchase orders. In other words, they are becoming interested in just-in-time purchasing system. JustIn-Time system the materials arrive exactly when they are needed in the production process. Inventory remaining in warehouse collects dust and cost instead of revenue. Just-In-Time system avoids this cost.

Various stock levels in Inventory Management The levels of inventory in any organization depend upon several factors including social, political, economic, ethic, fiscal, governmental policies at the global and national levels, which determine the demand and supply parameters of

41

an item. At the unit level, cost, criticality, availability, service level, stock out, lead time, powers of delegation, consumption pattern, etc. affect the levels. The various stock levels fixed for effective management of inventories are  Minimum level.  Maximum level.  Ordering or reordering level.  Danger level. These levels serve as indices for initiating action on time so that the quantity of each item of material, i.e. the inventory holding is controlled or managed. Stock levels are not fixed on a permanent basis but are liable to revision in accordance with the changes in the factors determining the levels.

Minimum level It indicates the lowest figure of inventory balance, which must be maintained in hand at all times, so that there is no stoppage of production due to nonavailability of inventory. The main considerations for the fixation of minimum level of inventory are as follows  Information about maximum consumption and maximum delivery period in respect of each item to determine its reorder level.  Average rate of consumption for each inventory item.  Average delivery period for each item. This period can be calculated by averaging the maximum and minimum period. The formula used for its calculation is as follows:

42

Minimum level of Inventory = Reorder level – (Average rate of consumption * Average time of Inventory delivery).

Maximum Level It indicates the maximum figure of inventory quantity held in stock at any time. The important considerations which should govern the fixation of maximum level for various inventory items are as follows:  The fixation of maximum level of an inventory item requires information about its reorder level. The reorder level itself depends upon its maximum rate of consumption and maximum delivery period. It in fact is the product of maximum consumption of inventory item and its maximum delivery period.  Knowledge about minimum consumption and minimum delivery period for each inventory item should also be known.  The determination of maximum level also requires the figure of economic order quantity.  Availability of funds, storage space, nature of items and their price per unit are also important for the fixation of maximum level.  In the case of imported materials due to their irregular supply, the maximum level should be high.

The formula used for its calculation is as follows: Maximum level of Inventory = Reorder level + Reorder quantity (Minimum consumption * Minimum

43

reorder period)

Reorder level This level lies between minimum and maximum levels in such a way that before the material ordered is received into the stores, there is sufficient quantity on hand to cover both normal and abnormal consumption situations. In other words, it is the level at which fresh order should be placed for replenishment stock. It is set after consideration of the following factors.  Rate of consumption.  Minimum level.  Lead time, i.e. delivery time.  Variation in lead time.

The formula used for its calculation is as follows:

Reorder level = Maximum reorder period * Maximum Usage.

Danger level

 Danger level = Average consumption * Lead time for emergency

44

Purchases.

Objectives of Inventory Valuation The objectives of inventory valuation are discussed here below as follows

 Determination of Income The valuation of inventory is necessary for determining the true income earned by business during a period.

 Determination of Financial position The inventory at the end of period is to be shown as a current asset in the balance sheet of the business. In case of the inventory is not properly valued the balance sheet will not disclose the correct financial position of the business

 Methods of Inventory Valuation Since Inventory is the single largest asset in the balance sheet of most organizations, the valuation of inventory becomes of utmost importance and crucial to the financial executives.

Methods of Valuation of InventoriesThe different methods used for valuation of inventories may be enumerated as follows –

Methods based on Actual cost  First-in-First-out method.

45

 Last-in-First-out method.  Highest-in-First-out method.  Specific identification price.  Base stock price.  Adjusted selling price

Methods based on Average cost  Simple average price.  Weighted average price.

Methods based on Actual cost The methods of actual cost are as follows –

 First-in-First-out Method The First-in-First-out Method of pricing materials is based on the assumption that the materials which are purchases first are issued first. The flow of cost of materials should also be in the same order.

 Last-in-First-out Method This method is just reverse of FIFO. It operates on the assumption that the latest received materials are issued first for production and those received first issued last. The price of the last lot of materials received is used for all the issues until all units from this lot have been issued after which the price of the previous lot received becomes the issue price.

 Highest-in-First-out method

46

Under this method, the highest priced materials are treated as being issued first. The closing inventory is kept at the lowest possible price. It is undervalued in times of rising prices and thus secret reserves are created.

 Specific identification price The specific identification method may be used for inventories of items that are not ordinarily inter-changeable, or for goods manufactured for a specific purpose. This method is best suited for job order industries which carry out individual jobs or contracts against specific orders.

 Base stock price The base stock formula proceeds on the assumption that a minimum quantity of inventory (base stock) must be held at all times in order to carry on business. Inventories up to this quantity are stated at the cost at which the cost at which the base stock was acquired.

 Adjusted Selling price Under this method which is adopted by retailers, inventory is estimated at selling price and to value it at cost, the estimated gross profit is deducted there from. The alternative approach is to deduct current sales from the total goods available for sale at retail price.

Methods based on Average cost The methods of average cost are as follows -

 Simple average price 47

Simple average price is the average of the prices without any regard to quantities. Simple average price is calculated by adding up different prices and then dividing by the number of different prices.

 Weighted average price method Weighted average price is calculated by dividing the total cost of material in stock by the total quantity of material in hand. Under this method, prices are averaged after weighting (i.e. multiplying) by their quantities. The average price at any time is simply the balance value figure divided by the balance units figure.

48

CHAPTER-IV DATA ANALYSIS AND INTERPRETATION

DATA ANALYSIS & INTERPRETATION Inventory Turnover Ratio Inventory turnover ratio indicates the efficiency of the firm in producing and selling its product. It is calculated by dividing cost of goods sold by average inventory. Average inventory consists of opening stock plus closing stock divided by 2. A high inventory turnover ratio indicated that the product is selling well. A low turnover ratio implies poor sales and, therefore, excess inventory.

Inventory turnover ratio= Sales / Average inventory

Avg. Inventory = Opening Stock + Closing Stock 2

Table I Year

Sales

Avg. Inventory

Ratio

2013-14

136047623.10

59817197.80

2.27

2014-15

52196041.25

55110400.63

0.94

2015-16

51917733.60

146362821.20

0.35

2016-17

246137242.30

243224535

0.10

2017-18

416246905.90

348824307.90

1.19

52

Ratio 2.5

2

1.5

Ratio 1

0.5

0 2013-14

2014-15

2015-16

2016-17

2017-18

Interpretation  During the period 2013-14 the inventory turnover ratio of the company was 2.27. It is satisfactory one as the company is able to generate sales around 6 times.  The inventory turnover ratio had been decreased to 0.35 in the year 201516. The reason for this is decrease in turnover which is mainly due to prevailing conditions in the industry  The inventory turnover ratio had been decreased to 0.10 in the year 201617. The reason for this is decrease in turnover which is mainly due to prevailing conditions in the industry. In this year also decreased trend has been there because of floods were effected on the production of cotton  In the year 2017-18, the inventory turnover ratio has been increased to 1.19. The main reason for this is due to increase in turnover and due to fall in average inventory. The reason for fall in average inventory is due minor purchases of the company in the year thus leading to low closing stock.

53

Inventory to Working Capital Ratio The Inventory to Working Capital ratio measures how well the company is able to generate cash using Working Capital at its current inventory level. An increasing Inventory to Working Capital ratio is 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 payments on Short-Term Liabilities and Accounts Payable.

Inventory to working capital ratio =

Inventory / Working capital. (or)

Inventory / (current assets - current liabilities)

Table II

Year

Inventory

Working Capital

Ratio

2013-14

114,002,011/-

95,680,454/-

1.19

2014-15

80,575,080/-

82,984,423/-

0.97

2015-16

50,956,007/-

113,932,184/-

0.45

2016-17

73,197,800/-

115,467,110/-

0.63

54

2017-18

81,788,844/-

149,768,976/-

0.55

Ratio 1.4

1.2 1 0.8 Ratio

0.6 0.4 0.2 0 2013-14

2014-15

2015-16

2016-17

2017-18

Interpretation  The inventory to working capital ratio in the year 2013-14 was 1.19 which is not a positive sign for the company. The main reason for this is increase in inventory level of the company. As the turnover of the company in this period is high, the company had concentrated in maintaining a high inventory level, thus leading to this negative inventory to working capital ratio.  The ratio further decreased to 0.45 in the year 2015-16. Here we find a fall in tremendous fall in inventory (due to fall in purchases). The ratio 9shows a positive sign.  In the year 2016-17 the ratio has increased to 0.63.This is due to increase in inventory level as there is increase in the purchases made by the company due to changing economic conditions.

55

 In the year 2017-18 the ratio has decreased to 0.55. In this period we find an increase in both inventory and working capital making the ratio satisfactory. The increase in current assets and decrease in current liabilities leads to the increase of working capital.

Inventory to Sales ratio The Inventory to Sales ratio measures the percentage of inventory the company currently has on hand to support the current amount of sales. An increasing Inventory to Sales ratio is generally a negative sign, showing the company may be having trouble keeping inventory down and/or Net Sales have slowed, and can sometimes indicate larger financial problems the company may be facing. Viewing this ratio over several periods reveals the important aspect of the company's ability to manage inventory while attempting to increase sales.

Inventory to Sales Ratio = Inventory / Net Sales

Table III Year

Inventory

Net Sales

Ratio

2013-14

114,002,011/-

442,986,937/-

0.25

2014-15

80,575,080/-

321,524,948/-

0.25

2015-16

50,956,007/-

255,690,814/-

0.19

56

2016-17

73,197,800/-

491,022,488/-

0.14

2017-18

81,788,844/-

508,418,684/-

0.16

Ratio 0.3 0.25 0.2 0.15

Ratio

0.1 0.05 0 2013-14

2014-15

2015-16

2016-17

2017-18

Interpretation  The Inventory to sales ratio in the year 2013-14 was 0.25. The reason for this is increase in inventory which is generally due increase in demand at the market. The increase in sales also controlled this ratio to a certain extent.  The ratio in the year 2014-15 also remains same as in previous year. Here in this we find a fall in both inventory and net sales thus balancing the ratio. But this is not a satisfactory one.  For the period 2015-16 the ratio had fall down to 0.19. This is mainly due to fall in inventory which is due fall in purchases made by the company.  The r

57

 atio in the year 2016-17 is said to be satisfactory as it fall down to 0.14. Here the increase in inventory along with net sales generates a desirable ratio.  The ratio had increased a little bit in the year 2017-18, but it remains satisfactory on a whole because we find a falling trend in the ratio.

Inventory to Current assets ratio: This ratio indicates the relationship between inventory to current assets. Higher the ratio shows that inventory is properly utilized in the organization. Inventory to current assets ratio is calculated as follows:

Inventory to current assets ratio = Inventory / Current assets.

Table IV Year

Inventory

Current assets

Ratio

2013-14

114,002,011/-

201,406,142/-

0.57

2014-15

80,575,080/-

158,371,728/-

0.51

2015-16

50,956,007/-

146,009,789/-

0.34

2016-17

73,197,800/-

167,377,430/-

0.44

2017-18

81,788,844/-

180,413,666/-

0.45

58

Ratio 0.6 0.5 0.4 0.3

Ratio

0.2 0.1 0 2013-14

2014-15

2015-16

2016-17

2017-18

Interpretation  The Inventory to current assets ratio in the year 2013-14 was 0.57. During this period there is high demand in the market thus leading to maintaining of the inventories at a satisfactory ratio i.e. near to 60%.  The inventory to current assets ratio had been decreased to 0.51 in the year 2014-15. This is due to fall in both inventories and current assets. The significant drop in the level of inventory is due falling trend in demand thus leading to fall in purchases and finally on sales. The decrease in sales leads to fall in debtors and in turn on the current assets.  During the period the industry had recovered from lack of demand thus leading to increasing level of inventory. As a result of this we find a substantial increase in the inventory to current assets ratio. The inventory to current assets ratio in the period 2015-16 was 0.44.

59

 Due to improvement in the environmental conditions the inventory to current assets ratio had been increased to 0.45 in the year 2016-17. In this period we find an increase in inventories and current assets.

Inventory to total assets ratio: This ratio shows the relationship between inventories to total assets. Inventory is a part of the current assets of the company. It shows the portion of assets tied up in inventory. Generally, a lower ratio is considered better.

Inventory to total assets ratio = Inventory / Total assets.

Table V Year

Inventory

Total Assets

Ratio

2013-14

114,002,011/-

210,527,277/-

0.54

2014-15

80,575,080/-

165,697,074/-

0.49

2015-16

50,956,007/-

156,069,705/-

0.33

60

2016-17

73,197,800/-

177,822,316/-

0.41

2017-18

81,788,844/-

192,819,503/-

0.42

Ratio 0.6 0.5 0.4 0.3

Ratio

0.2 0.1 0 2013-14

2014-15

2015-16

2016-17

2017-18

Interpretation  During the period 2013-14, the inventory to total assets ratio was 0.54. This is due to rise in inventory resulting due to increase of turnover. The ratio is not a satisfactory one as it is above 0.5.  During the period 2015-16, the ratio had further decreased to 0.33 which is due to tremendous fall in inventory. The reason for this is fall in purchases of the company due to lack of demand in the industry. There is also a fall in total assets which is mainly due to fall of inventory.  During the period 2016-17, the ratio had gone up to 0.41 as a result of increase in inventory. The increase in purchases of the company during the period leads to increase of inventory. The other reasons for increase of total assets are

61

increase in debtors (current assets) and purchase of fixed assets (tractors and cars).  For the year 2017-18 the ratio is almost same as previous year. Here we find an increase in inventory and total assets to same extent. Increase in turnover leads to increase of inventory and debtors.

Quick Ratio Quick ratio is an indicator of a company's short-term liquidity. It is also known as the "acid-test ratio" or the "quick assets ratio". It is obtained by subtracting inventories from current assets and then dividing by current liabilities. The conventional quick ratio is 1:1. Quick ratio

Current assets – Inventory Current liabilities

=

(or) =

Quick assets / Current liabilities.

Table VI Year

Quick Assets

Current Liabilities

62

Ratio

2013-14

120395977.70

134715296.34

0.89

2014-15

154665476.80

151353220.16

1.02

2015-16

225867830.60

38286177314

0.58

2016-17

470599679.60

637834413.27

0.73

2017-18

900517883.80

1000737270.75

0.90

Ratio 1.2 1 0.8 0.6

Ratio

0.4 0.2 0 2013-14

2014-15

2015-16

2016-17

2017-18

Interpretation  The quick ratio of the company in 2013-14 was 0.89; it has been slightly increased to 1.02 in the year 2014-15 and further decreased to 0.58 in the year 2015-16.  The quick ratio had increased to 0.73, in the year 2016-17. At present the current ratio of the company was 0.90 i.e. in the year 2017-18.  It is maximum (1.02) in the year 2014-15, the reason for maximum quick ratio is due to decrease in current liabilities. 63

 It is minimum (0.58) in the year 2015-16, this is mainly due to higher current liabilities.

Current Ratio A liquidity ratio measures a company's ability to pay short-term obligations. If the current assets of a company are more than twice the current liabilities, then that company is generally considered to have good short-term financial strength. If current liabilities exceed current assets, then the company may have problems meeting its short-term obligations. The conventional current ratio is 2:1

64

Current ratio = Current assets / Current liabilities.

Table VII Year

Current Assets

Current Liabilities

Ratio

2013-14

126854600.45

97846163.86

1.29

2014-15

153345604.71

141430506.30

1.08

2015-16

157479223.93

135454740.30

1.16

2016-17

227803031.88

152092664.10

1.49

2017-18

449046852.10

383601217.10

1.17

Ratio 1.6 1.4 1.2 1 0.8

Ratio

0.6 0.4 0.2 0 2013-14

2014-15

2015-16

2016-17

2017-18

Interpretation  The current ratio in 2013-14 was 1.29; it has been decreased to 1.08 in the year 2014-15 and further increased to 1.16 in the year 2015-16.  The current ratio had increased to 1.49 in the year 2016-17. At present the current ratio of the company was 1.17 i.e. in the year 2017-18.

65

 It is maximum (1.49) in the year 2016-17, the reason for maximum current ratio is due to decrease in current liabilities and increase in current assets.  It is minimum (1.08) in the year 2014-15, the reason for this is due to high current liabilities and low current assets.

66

ABC Analysis technique of Inventory management at Veda seeds Pvt Ltd. for the year 2013-14

Sl. No .

1.

2.

Uni

%

Cumul

%

Cumul

ts

of

ative

of

ative

Name of

in

tot

the Item

qui

al

ntal uni

Tot

cost

cost

al

% of

total

cos

total

units

t

cost

% of

ts

BT cotton

198

6.7

6.77 11,677

23,227,

25.

seed

9

7

.7/-

010/-

34

23

0.0

10,281

236,478

0.2

.6/-

/-

6

BG II

6.85

cotton seed

8

Bulk seed

29.

5,541.

48,077,

52.

53

4/-

870/-

40

0.3

36.71 5696.5

552,561

0.6

3

/-

/-

0

1706.2 617,641

0.6

4

/-

7

0.6

500.4/ 94,075/-

Categ

Refugee

867

25.6

97

362

BT

78

1.2

37.95

/-

78.6

79.27 ‘B’

188 TCHH -45 6.

BT

7.

CHILLIES SEED

‘A’

6

cottonseed TCHH -4

ory

25.34

36.38 4 BT

5.

Total

s

3.

4.

Unit

327 0

4

38.59

11. 49.72

0

79.37

4,401,1

4.7

84.16

70/-

9

1346/-

13

67

0.1

TOTAL % OF UNITS 90 80 70 60 50 40 30 20 10 0 category

A Series1

B

C

Series2

% VALUE OF INVENTORY 90 80 70 60 50 40 30 20 10 0 category

A Series1

B Series2

68

C

Interpretation  There are three items which comes under category A comprises of BT COTTON SEED, BG II COTTON SEED, BULK SEED 4 BT. These items cover 78% of total cost and 36% of total volume. These items are to be controlled strictly and are to be forecasted accurately.  The B category inventory comprises of four items which occupy about 6% of total cost and 13% of total volume. These items include Refugee cotton seed, TCHH -4 BT, TCHH -45 BT, CHILLIES SEED require only a moderate control.  There is one item which comes under C category i.e. BHENDI SEED. This item occupied 16% of total cost and 51% of total volume.

69

ABC Analysis technique of Inventory management at Vedaseeds Pvt Ltd. for the year 2014-15 Table IX

Sl. No.

Name of the Item

BT

1.

%

Cumul

%

Cumul

Units

of

ative

of

ative

in

tot

quint

al

% of

als

uni ts

915

cotton

Unit

Total

Tot

cost

cost

al

% of

total

cos

total

units

t

cost

23.82

5.7

5.72 13,01

11,909,

23.

2

5/-

557/-

82

Categ

‘A’

seed 2.

TCHH

3619

-4 BT

3. CHILL

724

28.35 22.

6,621

23,964,

47.

63

/-

322/-

95

4.5

32.85 6605/

4,782,2

9.5

-

57/-

6

IES

71.77

81.33

SEED 4. Refuge

ory

‘B’ 21

e

0.1

32.98

3

81.4 1674/ 35,165/-

cottons

-

0.0 7

eed 5. BHEN DI SEED

1071

67.

1

2

100

867/-

70

9,291,4

18.

66/-

58

100

‘C’

% OF TOTAL UNITS 80 60 40 20 0 category

A

B

Series1

C

Series2

% OF TOTAL INVENTORY 80 70 60 50 40 30 20 10 0 category

A Series1

B Series2

71

C

Interpretation  There are two items which comes under category A which comprises of BT cotton seed, TCHH-4 BT. These items cover 71% of total cost and 24% of total volume. These items are to be controlled strictly and are to be forecasted accurately.  The B category inventory comprises of two items i.e. Chilies seeds, Refugee cotton seed, which occupy about 10% of total cost and 5% of total volume. These items require only a moderate control.  There is one item i.e. BHENDI SEED which comes under C category. This item occupied 19% of total cost and 71% of total volume. Lose control is acceptable for these items

72

ABC Analysis technique of Inventory management at Veda seeds Pvt Ltd. for the year 2015-16

Sl.N o.

Name of

%

Cumulati

Units

of

ve

in

tota

the Item quinta ls

1.

BT

212

cotton

unit

total

s

units

2

2

cost

cost

528

3. Bulk

6.95

13,337.

2,827,514

3/-

/-

14,253/-

16,321/-

al

% of

cost

total cost

6.8

6.8

18.1

24.9

ry

38.29 ‘A’

9 5,565,557

5,311.2/ 34.7

3,711

Catego

/-

BT Bulk seed 9 4. BT

ve

13.3 10.13

341

of

7,525,230

3.18

seed 4

Cumulati

Tot

5

TCHH 4 BT

% of

Total

4.9

seed 2.

l

Unit

%

/-

47.4

44.83

6

85.75

19,710,17 6/Refugee 5.

cotton seed

496

4.63

49.46

4,694/-

2,328,192

5.6

91.35

/‘B’

TCHH 6.

45 BT

59

0.55

50.01

2,253/-

99

0.92

50.93

1,370.1

0.32

91.67

0.32

91.99

132,927/7. CHILLI ES

73

SEED

4

135,644/-

634.2/-

3,329,038

BHEND I SEED 8.

5249

49.0

100

7

/-

% OF TOTAL INVENTORY COST 100 80 60 40 20 0

category

A Series1

B Series2

74

C

8.01

100 ‘C’

% OF TOTAL UNITS 60 50 40 30 20 10 0

category

A Series1

B

C

Series2

Interpretation:  There are four items which comes under category A these include BT cotton seed, TCHH -4 BT, Bulk seed 4 BT, Bulk seed 9 BT. These items cover 86% of total cost and 45% of total volume. These items are to be controlled strictly and are to be forecasted accurately.  The B category inventory comprises of three items which occupy about 6% of total cost and 6% of total volume. These items require only a moderate control and they include Refugee cotton seed, TCHH -45 BT, chilies seed.  There is one item which comes under C category i.e. BHENDI SEED. This item occupied 8% of total cost and 49% of total volume. Loose control is acceptable for these items.

75

ABC Analysis technique of Inventory management at Veda seeds Pvt Ltd. for the year 2016-17

Sl.No

Name of

Units in

.

the Item

quintals

1.

BT cotton seed

2.

% of total units

Cumulative Unit % of total

cost

units

262

1.72

1.72

122

0.82

2.54

BG II

3/-

TCHH - 4

91

0.59

3.13

4616

30.29

33.42

BT Bulk seed

of

ve

Tot al

% of

cost

total cost

7.30

7.30

3.80

11.1

3.23

14.33

57.8

72.13

10.2

82.38

Catego ry

Refugee

860

5.64

39.06

-

15,432. 1,404,330/ 2/-

-

5,467.7/

25,238,90

-

3/-

4 BT

5.

-

3/-

seed

4.

12,167. 3,187,832/

Cumulati

13,624. 1,662,164/

cotton

3.

Total cost

%

5,205.3/ 4,476,575/

cotton

-

-

5 ‘B’

seed 6.

264

1.73

40.79

CHILLIE

83.5 1,853.2/

S SEED 7. BHENDI

‘A’

489,192/-

1.12

9025

59.21

7,201,950/ 16.5

100

SEED

798.2/-

76

-

100

‘C’

% OF TOTAL UNITS 70 60 50 40 30 20 10 0 category

A Series3

B

Series4

Series1

C Series2

% OF TOTAL INVENTORY COST 100 80 60 40 20 0 category Series3

A Series4

B Series1

C Series2

77

Interpretation  There are four items which comes under category A and they are BT cotton seed, bg ii cotton seed, TCHH – 4 BT, Bulk seed 4 BT. These items cover 72% of total cost and 33% of total volume. These items are to be controlled strictly and are to be forecasted accurately.  The B category inventory comprises of two items (Refugee cotton seed, chilies seed) which occupy about 11% of total cost and 7% of total volume. These items require only a moderate control.  There is only one item which comes under C category i.e. BHENDI SEED these generally occupy 17% of total cost and 60% of total volume. Lose control is acceptable for these items.

78

ABC Analysis technique of Inventory management at Veda seeds Pvt Ltd. for the year 2017-18 Cumul Units

% of

Sl.N

Name of

in

o.

the Item

quintal s

total units

Cumul

ative % of

Unit cost

% of

Total

Total

cost

cost

total units

1.

BT cotton seed

2. 3.

12.75

12.75

12,453/-

442

5.78

18.53

13,342/-

8

0.10

18.63

14,853/-

12,179, 034/5,897,1

TCHH -4 4.

BT

Categ % of

ory

total cost

978

BG II cotton

ative

40.61

40.61

19.66

60.27

0.40

60.67

5.67

66.34

21.50

87.84

0.32

88.16

64/305

3.98

22.61

5,576/-

118,826

‘A’

/-

Bulk seed 4 BG

1,700,6 80/-

5.

CHILLIESS

1260

16.43

39.04

5,119/-

6,449,9

EED

40/-

6. Refugee

55

0.72

39.76

1,793/-

cotton seed

‘B’

98,626/ -

7.

BHENDI

4618

60.24

100

767.2/-

SEED

3,542,9 30/-

79

11.84

100

‘C’

% OF TOTAL UNITS 80 60 40 20 0

category

A Series1

B

C

Series2

% OF TOTAL INVENTORY COST 80

60 40 20 0 category

A Series1

B

C

Series2

80

Interpretation  There are four items which comes under category A and they include BT cotton seed, BG II cotton seed, Bulk seed 4 BG and TCHH -4 BT. These items cover 66% of total cost and 23% of total volume. These items are to be controlled strictly and are to be forecasted accurately.  The B category inventory comprises of two items which occupy about 22% of total cost and 17% of total volume. These items require only a moderate control and they include chillies seed, Refugee cotton seed.  There is only item i.e. cotton seed which comes under C category. These generally occupy 12% of total cost and 60% of total volume. Lose control is acceptable for these items.

81

CHAPTER-V FINDINGS, SUGGESTIONS & CONCLUSION

FINDINGS  From the study it has been observed that the inventory to turnover has been decreasing from 2013-14 to 2015-16 and in the year 2013-14 the turnover ratio is good when compared to one in the year 2013-14 and 2014-15.  From the study it was observed that inventory working capital ratio was fluctuating every year. But there is an overall performance of this ratio is satisfactory.  From the study it has been observed that the inventory to sales ratio has been falling from 2011-12 to 2015-16. The ratio in the year 2016-17 is a satisfactory one.  From the study it has been observed that the inventory to current assets ratio has been falling from 2013-14 to 2014-15. The ratio in the year 2016-17 is not a satisfactory one.  From the study it has been observed that the inventory to total assets ratio has been in a fluctuating pattern between the periods 2014-15 to 2016-17. The ratio is satisfactory in the year 2016-17 when compared to 2013-14.  From the study it has been observed that the inventory to total assets ratio has been raising from 2016-2017 to 2017-2018. Ratio in the year 2017-2018 is satisfactory one.

81

SUGGESTIONS  The Veda seeds Pvt. Ltd. is suggested to maintain strict intensive control and better inventory management in relation to category ‘A’ items like BT cotton seed, BG II cotton seed, TCHH -4 BT, Bulk seed 4 BG as the unit cost of these items is also generally higher when compared to unit costs of other items.  It is suggested that Veda seeds Pvt. Ltd, is required to give nominal importance and moderate control in relation to category ‘B’ items like CHILLIES SEED, Refugee cotton seed as the unit cost of these items are not so high and is medium when compared to unit cost of other items.  The Veda seeds Pvt. Ltd .is required to give lower importance in relation to category ‘C’ items like Bhendi seed, as they occupy high volume and there unit cost is very low when compared to other items.  The inventory to turnover ratio on an average is above eight times, so it is suggested that the Veda seeds Pvt. Ltd. is to take the steps so as to maintain the optimum inventory turnover ratio.  It is suggested that the Veda seeds Pvt. Ltd. Is required to take necessary steps so as to maintain the same inventory to working capital ratio as the ratio is satisfactory.

82

CONCLUSION The economic life of any company depends on some important financial aspects like profits, expenses, turnover etc. A careful analysis of these areas is very much essential for the success and survival of the company. For this purpose Inventory management with help of technique like ABC analysis is to be carried out. A study of this type is very much useful to any company to keep in to the different financial aspects and to take some measures to improve. In my view the inventory management of the company is supplying vital information about the inventory of the company in all aspects as per the ABC analysis. The company as maintain optimum level of inventory as for the requirements and reached their goals.

83

BIBLIOGRAPHY

 I.M.Pandey, Financial Management, Vikas Publishing House, 2003.

 M.Y. Khan and P.K.Jain, Financial Management: Text and Problems, Tata McGraw Hill Publishing Co, 2003.

 S.N.Maheswari, Financial Management, Vikas Publishers, New Delhi, 2003.

 V.K.Bhalla, Financial Management and Policy, Anmol publications Pvt. Ltd., New Delhi.

 James C. Van Horne, Financial Management and Policy, Pearson Education,

2004.

84

ANNEXURE

Balance Sheet of Veda seeds sciences Pvt.ltd as on 31-03-2014 Particulars

31-03-2014

Source of funds Share holders fund Share capital

1,00,00,000.00

Profit &loss a/c

1,44,28,284.54

Loan funds Secured loans

9,80,99,516.52

Un secured loans

7,33,134.92

Current liabilities& provisions Liabilities& provisions

38,28,61,773.14

Other liabilities Differ tax liability

7,39,444.00

Total funds

50,68,62,153.12

Application of funds Net Fixed assets

5,77,93,101.02

Current assets, loan& advances Inventories

21,95,88,087.40

Sundry debtors

22,05,70,852.64

Cash and bank balance

28,50,972.06

Loans and advance

24,46,006.00

prepaid expenses

35,90,934.00

miscellaneous expenditure to the extent of not written of

22,200.00

Total assets

50,68,62,153.12

Balance Sheet Sheet of Veda seeds sciences Pvt.ltd as on 31-03-2015 Particulars

31-03-2015

Sources of funds Share holders fund Share capital

1,69,00,000.00

Profit &loss a/c

5,95,15,770.85

Loan funds Secured loans

13,14,30,609.93

Un secured loans

5,72,698.92

Current liabilities& provisions Liabilities& provisions

63,78,34,413.27

Other liabilities Differ tax liability

7,39,444.00

Total funds

84,69,92,936.97

Application of funds Net Fixed assets

10,48,36,326.27

Current assets,loan&advances Inventories

26,68,60,982.68

Sundry debtors

43,37,15,019.73

Cash and bank balance

1,27,56,084.79

Loans and advances

2,41,28,575.00

prepaid expenses

45,63,419.50

miscellaneous expenditure to the extent of not written of

1,32,529.00

Total assets

84,69,92,936.97

Balance Sheet Sheet of Veda seeds sciences Pvt.ltd as on 31-03-2016 Particulars

31-03-2016

Source of funds Share holders fund Share capital

10,35,00,000.00

Profit &loss a/c

5,02,09,551.41

Loan funds Secured loans

21,60,59,754.16

Un secured loans

9,10,16,557.00

Current liabilities & provisions Liabilities provisions

1,00,07,37,270.75

Other liabilities Differ tax liability

7,39,444.00

Total funds

1,46,22,62,577.32

Application of funds Net Fixed assets

12,82,90,927.90

Current assets,loan&advances Inventories

43,07,87,633.20

Sundry debtors

89,63,10,138.16

Cash and bank balance

17,28,258.98

Loans and advances

24,79,487.00

prepaid expenses

25,66,736.00

miscellaneous expenditure to the extent of not written of

99,396.00

Total assets

1,46,22,62,577.32

Balance Sheet Sheet of Veda seeds sciences Pvt.ltd as on 31-03-2017 Particulars

31-03-2017

Source of funds Shareholders fund Share capital

10,35,00,000.00

Profit &loss a/c

135371267.59

Secured loans

317952020.43

Un secured loans

164138009

Current liabilities & provisions Liabilities provisions

1051204671.78

Other liabilities Differ tax liability

739444

Total funds

1772905412

Application of funds Net Fixed assets

133946314.50

Investment

49000000

Current assets, loan & advances Inventories

247870307

Sundry debtors

1041595752.84

Cash and bank balance

194775861.46

Loans and advances

1007903

prepaid expenses

4643011

miscellaneous expenditure to the extent of not written of

66263

Total assets

1772905412

Balance sheet Sheet of Veda seeds sciences Pvt.ltd as on 31-03-2018 Particulars

31-03-2018

Source of funds Shareholders fund Share capital

203500000

Profit &loss a/c

16708296.17

Secured loans

292491053.75

Un secured loans

90786472.00

Current liabilities provisions Liabilities provisions

1301148760.25

Other liabilities Differ tax liability

73944

Total funds

1905374036

Application of funds Net Fixed assets

14792231.14

Investment

46600000

Current assets,loan&advances Inventories

268642921.50

Sundry debtors

1323615071.38

Cash and bank balance

19215800.65

Loans and advances

8728587.00

prepaid expenses

12058981.50

miscellaneous expenditure to the extent of not written of

33.130

Total assets

1905374036