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A Report on Inventory management practices in JEMCO Company

Chapter-1 INTRODUCTION

1.1 WHAT DOES INVENTORY MEAN


The raw materials, work-in-process goods and completely finished goods that are considered to be the portion of a business's assets that is ready or will be ready for sale. Inventory represents one of the most important assets that most businesses possess, because the turnover of inventory represents one of the primary sources of revenue generation and subsequent earnings for the company's shareholders/owners.

There are three basic reasons for keeping an inventory:


1. Time - The time lags present in the supply chain, from supplier to user at every stage, requires that you maintain certain amounts of inventory to use in this "lead time." 2. Uncertainty - Inventories are maintained as buffers to meet uncertainties in demand, supply and movements of goods. 3. Economies of scale - Ideal condition of "one unit at a time at a place where a user needs it, when he needs it" principle tends to incur lots of costs in terms of logistics. So bulk buying, movement and storing brings in economies of scale, thus inventory.

Inventory examples
While accountants often discuss inventory in terms of goods for sale, organizations manufacturers, service-providers and not-for-profits - also have inventories (fixtures, furniture, supplies, ...) that they do not intend to sell. Manufacturers', distributors', and wholesalers' inventory tends to cluster in warehouses. Retailers' inventory may exist in a warehouse or in a shop or store accessible to customers. Inventories not intended for sale to customers or to clients may be held in any premises an organization uses. Stock ties up cash and, if uncontrolled, it will be impossible to know the actual level of stocks and therefore impossible to control them. While the reasons for holding stock were covered earlier, most manufacturing organizations usually divide their "goods for sale" inventory into:

Raw materials - materials and components scheduled for use in making a product.

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Work in process, WIP - materials and components that have begun their transformation to finished goods.

Finished goods - goods ready for sale to customers. Goods for resale - returned goods that are salable.

1.2 INVENTORY MANAGEMENT


Inventory management is primarily about specifying the size and placement of stocked goods. It is a commerce stock of goods as well as the merchandise or stock that a stock that a store or a company has on hand. It handles all functions related to the tracking and management of material. Management of the inventories with the primarily objective of determining and controlling stock levels within the physical distribution function to balance the need for minimizing stock handling costs. Inventory management is required at different location within a facility or within a multiple location of a supply network to project the regular and planned course of production against the random disturbance of running out of materials or goods. Inventory management receives extensive coverage in a course on operations management. Nevertheless, it is the firm inventory policy and who is responsible for ensuring the firms overall profitability. Therefore, the role of the inventory manager is to balance the costs and benefits associated with inventory. Because excessive inventory uses cash, efficient management of inventory increases firm value. With effective control and management over inventory stock, as well as accurate visibility and fast efficient fulfilments, comparative pricing can be given on a customer-to-customer basis. INVENTORIES are assets: Held for sale in the ordinary course of business. Held In the process of production for such sale. Or, in the form of materials or efficiency in effective inventory management will always give a competitive edge to the business, regardless of its nature. Or, in the form of materials or supplies to be consumed in the production process or in the rendering of services.

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1.3 BENEFITS OF HOLDING INVENTORIES
Good Management of inventory enables companies to improve their customer service, cash flow and profitability. 1) First, inventory helps in minimizing the risk that the firm will not be able to obtain an input it needs for production. 2) Second, firms may hold inventory because factors such as seasonality in demand mean that customer purchases do not perfectly match the most efficient production cycle. 3) Inventory management minimizes the overall cash investment without an increase in risk, at this level all of the factors that influences the actual inventory investment are reviewed on regular basis. 4) Inventory management and forecasting are strategic issues. Companies that recognize inventory helps in minimizing the risk that the firm will not be able to obtain an input it needs for production. 5) To take advantage of quantity discounts: Suppliers often offer quantity discounts. However, any cost savings must be balanced against higher storage costs, increased risk of damage and the greater cost of financing higher inventory levels. 6) To protect against price increases: Carrying (holding) inventory is one way of hedging against possible price increases. Firms that supply goods against contracted or quoted prices may buy the required inventories and hold them for future use rather than risk a price increase in the future. 7) To avoid inventory shortages: Frequent shortages of inventory may cause customers to look for alternative suppliers. This will reduce sales and profit. 8) Last but not the least, CUSTOMERS SATISFACTION should always be considered as a primary level for every firm. The customers requirement is fully understood and tries to fulfil all its demand. 9) By ordering in large numbers, your business will reduce the cost it incurs. Some of the cost involves when making an order is forms that must be completed, approvals need to be obtained, and the goods arrive must be accepted, inspected and counted. Then, an invoice must be issued and payment must be made. The cost of receiving materials may be varying according to the numbers of orders made. By making bulk orders, the number of orders will reduce and lessen the cost involve. 10) The other benefits of holding inventories are your company can make bulk purchase on raw materials and gain quantity discounts.
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1.4 FUNCTIONS OF INVENTORY MANAGEMENT
1) ALL FUNCTIONS---- It handles all the functions related to the tracking and management of material. 2) PROPER USAGE OF STOCK LEVELS----Primary objective of inventory management is to determine and control stock levels within the physical distribution function. 3) AVAILABILITY OF PRODUCTS----It balances the need for product availability against the need for minimizing stock handling costs. 4) ACTS AS A RETAILER----It involves a retailer seeking to acquire and maintain a proper merchandise assortment while ordering, shipping, handling and retailed costs are kept in check. 5) DEALS IN SEVERAL ACTIVITIES----It concern the fine lines between replenishment lead time, carrying cost of inventory, asset management, involves forecasting, inventory valuation, inventory visibility, future inventory price forecasting, physical inventory,

available physical space for inventory quality management. 6) FLOW OF GOODS----Not only must a business keep track of the goods coming in and going out, it must also track the costs to procure, store, sell and ship these goods. The company must also account for damage, loss, and labour costs associated with handling the merchandise. Inventory management software allows an enterprise to track all of these things, while detailing the precise location of goods to allow for fast and efficient order picking. 7) Replenishment----The business can determine the appropriate ordering times for inventory replenishment with inventory management. 8) Balancing supply and demand: Demand depends upon the requirements of customers relating to time and quantity of products, and is not in the control of the producer. Supply, on the other hand is under the producers control, but has to be economized and also paced with the time and quantity requirements of customer demand. 9) Economies of scale: Economies of scale are obtained by holding large inventories:(a) While purchasing, ordering in large quantities provides cost economies and discounts; (b) transportation economies are obtained by transporting in larger quantities; and, (c) during manufacturing, producing in economic batch quantities lower costs. 10) Overcoming uncertainty: Safety stock of inventory is required to overcome uncertainty of customer demand on the one hand; and, purchasing, receiving, manufacturing, and
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order processing delays on the other. Either of these may result in shortages of products at the time of customer requirements if adequate safety stock of material is not provided for.

1.5 DIFFERENT TYPES OF INVENTORIES A) RAW MATERIALS :Raw materials represent items that will be a component of produced goods. Raw materials are the unprocessed items that are broken down, processed or combined with other materials to create an end product. Raw materials such as logs, crude oil, and iron ore are converted into finished goods which people use every day. The recycling industry has even built itself around making raw materials out of other products. A raw material usually is unprocessed. This means it is in the same form that it has in its natural environment.

VALUATION OF RAW MATERIALS


Raw materials are the part of stocks that have been purchased for further processing but on which no work has yet been done. The valuation of raw materials is more straightforward than that of work in progress. There is no question of cost allocation: raw materials cost what the supplier was paid for them, and this is the value used in balance sheet. The exception to this occur when there is reason to believe that raw materials may be worth less than was paid for them, in which ease they are valued at net realisable value-in the same as other elements of stocks in the same circumstances, Beginning or ending balance of raw materials on hand for an accounting period. It represents items that will be a component of a produced good. The beginning and ending balances of raw materials inventory are shown in the income statement when cost of goods sold is presented. The ending balance is reported in the balance sheet. Where the raw materials charged to the process remains unused at the end of the period, i.e. at the time the process account is being balanced, it forms part of closing inventory for the process. Raw materials used in a process may be: The material that has been received into the process from a previous process. OR

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The material that was directly introduced into that process.

B) WORK IN PROGRESS:Work in progress inventory includes the set at large of unfinished items for product in a production process. These items are not yet completed but either just being fabricated or waiting in a queue for further processing or in a buffer storage. The term is used in production and supply chain management.

Optimal production management aims to minimize work in progress. Work in progress requires storage space, represents bound capital not responsible for investments and carries an inherent risk of earlier expiration of shelf life of the products. A queue leading to a production step shows that the step is well buffered for shortage in supplies from preceding steps, but may also indicate insufficient capacity to process the output from these preceding steps. Work in process or work in progress, is a bit trickier than valuation of raw materials. Certain costs associated with the manufacturing process must be assigned to work in process, depending on what stage of production the raw materials are in. The cost associated will work in process also depends on what inventory valuation method is used, absorption or variable method.

WORK IN PROGRESS AS AN ASSET OR A PRODUCTION AS AN ASSET----Where there is an asset under construction is completed. AS A PRODUCT-----Where a product is being manufactured, we consider it to be work in progress till the production process is completed and the finished output is obtained.

WORK IN PROGRESS IN CONSTRUCTION ACCOUNTING Work in progress in constructing accounting identifies the value of construction projects which are currently being worked on by the construction firm. To properly account for each project, four values are needed for each project at the end of any given month (or period).
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a) The sales price (excluding sales tax) for the project b) The total cost estimate for the project c) The costs-to-date d) The billed-to-date

C) FINISHED GOODS:A Finished good is a completed part that is ready for a customer order. Therefore, finished goods inventory is the stock of completed products. These goods have been inspected and have passed final inspection requirements so that they can be transferred out of work-in-progress and into finished goods inventory. From this point, finished can be sold directly to their to their final user, sold to retailers, sold to wholesalers, sent to distribution centre or held in anticipation of a customer order. Any item that does not have a parent can be classified as a finished good. By looking at the rolling cart product structure tree example one can determine that the finished goods in this case is a card. FINISHED GOODS INVENTORY:Amount of manufactured product on hand that awaits sale to customers, finished goods inventory represents a current asset in the balance sheet. The income statement shows both beginning finished goods and ending finished goods only if cost of goods sold is calculated. When goods that were in process are completed, the entry is to debit cost of goods sold and credit finished goods. The difference between the sales and cost of goods sold is the gross profit. ACCOUNTING PERIOD: The value of opening stock of finished goods brought forward from the previous period is debited to the process stock account (as opening balance using the opening entry). Debit >>Process Stock account (balance b/d) The value of production comprises during the current period is transferred from the process account to the process account. Debit >>Process Stock account Credit>>Process account

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1.6 INVENTORIES ARE ASSETS We came across inventories of three kinds: Raw materials Work in progress Finished goods

Whatever may be the stage of the inventory, it would be treated as an asset at the times of assessing the values of assets and liabilities of the organisation. This can be understood from the fact that all these inventories are considered as a part of what we call closing stock. Since closing stock is treated as an asset, it is shown on the asset side of the balance sheet.

TABLE1.1
BALANCE SHEET OF A COMPANY AS ON----Liabilities Amount(Rs) Amount(Rs) Assets Closing stock: Raw materials Work in 1,25,000 45000 Amount(Rs) Amount(Rs)

progress Finished goods SOURCE: INTERNET 1,08,000 2,78,000

1.7 VALUATION>>RATES/METHODS The concept of the rates (methods) for valuation is relevant and applicable to all types of inventories, whether it is raw material or work in progress or finished goods. The three methods most commonly used for valuing inventories are:M.S. Ramaiah college of arts, science and commerce Page 8

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FIFO(FIRST IN FIRST OUT) LIFO(LAST IN FIRST OUT) AVERAGE METHOD In general each method gives a distinct unit rate for valuing the closing inventory. In certain cases, the rates may work out to be the same under two or more methods. Goods sold (or used) during accounting period seldom correspond exactly to the goods bought (or produced) during that period. As a result, inventories either increase or decrease during the period. Companies must then allocate the cost of all the goods available for sale (or used) between the goods that were sold or used and those that are still on hand. The cost of goods available for sale or use is a sum of 1. The cost of goods on hand at the beginning of the period. 2. The cost of goods acquired of produced during the period. The cost of goods sold is the difference between the cost of goods available for sale during the period and the cost of goods on hand at the end of the period. Valuing inventories can be complex. It requires determining the Following: 1. The physical goods to include in inventory (who owns the goods In the transit, consign goods, special sales agreements). 2. The cost to include in inventory (product vs. period cost) 3. Cost flow assumptions to adopt (specific identification: LIFO&FIFO).

1.8 ANALYZING THESE VALUATION METHODS AND EXPLAINING THEIR IMPACT ON THE RECORDS OF THE FINANCIAL STATEMENTS
A.FIRST IN FIRST OUT----The FIFO method assumes that a company uses the goods in the order in which it purchases them. In other words, the FIFO method assumes that the first goods purchased are the first used (manufacturing concern) the first sold (in a merchandising concern). The inventory remaining must therefore represent the most recent purchaser. FIFO often parallels the actual physical flow of merchandise because it generally is good business practice to sell the oldest unit first. That is, under FIFO, companies obtain the cost of ending inventory by taking the unit cost of the most recent purchase and working backwards until all units of inventory have been cost. This is true whether a company computes

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cost of goods sold as it sells goods throughout the accounting period (perpetual system) or as a residual at the end of the accounting period (periodic system).

B.LAST IN FIRST OUT----The LIFO method assumes the cost of the total quantity sold or issued during the month comes from the most recent purchases. That is, the latest goods purchased are the first to be sold. LIFO coincides with the actual physical flow of inventory. The method matches the cost of the last goods purchased against revenue. Under LIFO method, the costs of the latest goods purchased against revenue. Under the LIFO method, the cost of the latest goods purchased against revenue. Under the LIFO method, the costs of the latest goods purchased are the first to be sold. LIFO coincides with the actual physical flow of inventory. The method matches the cost of the last goods purchased against revenue. Under the LIFO method, the costs of the latest goods purchased are the first to be recognized in determining the cost of goods sold. The ending inventory is based on the prices of the oldest units purchased. C.AVERAGE COST METHOD----Under the average cost method, the cost of goods are equally divided, or averaged, among the units of inventory. It is also called the weighted average method. When this method is used, costs are matched against revenue according to an average of the unit of cost of goods sold. The same weighted average unit costs are used in determining the cost of the merchandise inventory at the end of the period. For business in which merchandise sales may be made up of various purchases of identical units, the average method approximates the physical flow of goods. This method requires calculating the average unit cost of the goods in the beginning inventory plus the purchases made in the period. Based on this average unit cost the cost of sales (production) and the ending inventory of the period are determined a. INCOME STATEMENT:--

FIFO----FIFO gives the highest amount of gross profit (hence, net income) because the lower unit costs of the first units purchased are matched against revenues, especially in times of inflation. However in times of falling prices, FIFO will report lowest inventory. It also yields the highest amount of ending inventory and the lowest cost of goods sold. This will give a false impression of paper profit.

LIFO----LIFO gives the lowest amount of net income during inflationary times and the highest net income during price declines. It gives the lowest amount of ending inventory and the highest cost of goods sold.

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AVERAGE COST METHOD----Average costs approach tends to produce cost of goods and ending inventory results by LIFO and FIFO. To the management, higher net income is advantageous: it causes external users to view the company more favorably. In addition, management bonuses, if based on net income, will be higher. Hence during inflationary times, companies prefer using FIFO. TABLE 1.2 INCOME STATEMENT OF VALUATION METHOD METHODS COST OF GOODS ENDING INVENTORY FIFO LIFO AVCO Under stead Over stead Over stead Under stead Over stead Under stead NET INCOME

In between FIFO In between FIFO In between FIFO and LIFO and LIFO and LIFO.

SOURCE: INTERNET

B) BALANCE SHEET: FIFO---During periods of inflation, the costs allocated to ending inventory will approximate their current cost. In fact, the balance sheet will report the ending merchandise inventory at an amount that is about the same as its current replacement costs. As inventories are overstated in FIFO, this will affect the total assets and hence the stock holders equity, over standing it. LIFO----In a period of inflation, the costs allocated to ending inventory may be significantly under stated in terms of current costs. This is because more recent are higher than the earlier unit costs. Thus it matches current costs nearly with current revenues. In LIFO, inventories are under stated. This, in turn, affects the stockholders equity by under stating the actual figures. AVERAGE COST METHOD----Average costs approach for series of purchases will be same regardless of direction of price trends. In this effect on the balance sheet, however, it is more like FIFO than LIFO.

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TABLE 1.3 BALANCE SHEET OF VALUATION METHOD

METHODS

INVENTORY

CURRENT ASSETS

STOCK HOLDER Over stead Under FIFO&LIFO

FIFO LIFO AVCO


SOURCE: INTERNET

Over stead Under stead FIFO&LIFO

Over stead Under stead FIFO&LIFO

Since prices keep on changing, the three methods yield different amounts for:1. The cost of merchandise sold for the period 2. The gross profit(net income) for the period 3. The ending inventory.

There is also a tax effect that varies with changes in net income among different valuation methods.

1.9 Determination of Minimum and Maximum Stock Level


Minimum and maximum stock levels are stock limits for the customer location product that the customer agrees upon with the supplier. The projected stock must not fall below the minimum stock level. The maximum stock level is the maximum quantity of stock that is to be on hand at the customer. You can use different methods to determine these stock parameters. The following applications use the minimum stock level and the maximum stock level:

Supply Network Inventory Replenishment planning

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STATIC MINIMUM AND MAXIMUM STOCK LEVEL:

Customer and supplier can agree on a static minimum and maximum stock level that is always the same in the period. Customer and supplier agree upon a minimum days' supply and a maximum days' supply. The system calculates a minimum and maximum stock level automatically from Customer and supplier agree upon a minimum days' supply and a maximum days' supply Customer and supplier can agree on a static minimum and maximum stock level that is always the same in the period. Customer and supplier agree upon a minimum days' supply and a maximum days' supply maximum stock level automatically from Customer and supplier agreement. DYNAMIC MINIMUM STOCK LEVEL:

Dynamic Minimum Stock Level and Static Maximum Stock Level (Enhanced Safety Stock Planning).We can use the methods AT, AS, BT, and BS of the extended safety stock planning. To configure the calculation of the minimum stock level and maximum stock level, you make settings, depending on the method chosen, either in the location product master of the SAP SNC systems or in the partner-dependent location product settings

1.10 DETERMINATION OF ECONOMIC ORDER QUANTITY


How much stock should we have of a particular product at any point of time? The basic function of inventory is to insulate the production process or the inbound supply process (in our case) from changes in the environment (or demand fluctuations).

Hence the inventory function will not only be applicable to a manufacturing firm, but also to other industries that have stock e.g. the stock of money in a bank available to be distributed to customers, the stock maintained by distributors, retailers etc. The Economic Order Quantity (EOQ) is the number of units that a company should add to inventory with each order to minimize the total costs of inventorysuch as holding costs, order costs, and shortage costs. The EOQ is used as part of a continuous review inventory system, in which the level of inventory is monitored at all times, and a fixed quantity is ordered each time the inventory level reaches a specific reorder point. The EOQ provides a model for calculating the appropriate reorder point and the optimal reorder quantity to ensure the
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instantaneous replenishment of inventory with no shortages. It can be a valuable tool for small business owners who need to make decisions about how much inventory to keep on hand, how many items to order each time, and how often to reorder to incur the lowest possible costs. 1. The ordering cost is constant. 2. The rate of demand is constant 3. The lead time is fixed 4. The purchase price of the item is constant i.e. no discount is available 5. The replenishment is made instantaneously; the whole batch is delivered at once. EOQ is the quantity to order, so that ordering cost + carrying cost finds its minimum.

A) INVENTORY CARRYING COST

A steady turnover in the inventory also helps with expenses like insurance costs and
taxes, thus reducing the overall expense that the company incurs as part of the operational process. One approach that helps to reduce the carrying cost of an inventory is to implement what is known as just in time production. Another way to avoid obsolete inventory is to plan for sales so that the inventory moves more quickly at a discounted rate before it becomes completely obsolete.

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B) INVENTORY HOLDING COST In business management, holding cost is money spent to keep and maintain a stock of goods in storage. The most obvious holding costs include rent for the required space; equipment, materials, and labor to operate the space; insurance; security; interest on money invested in the inventory and space, and other direct expenses. Some stored goods become obsolete before they are sold, reducing their contribution to revenue while having no effect on their holding cost. Some goods are damaged by handling, weather, or other mechanisms. Some goods are lost through mishandling, poor record keeping, or theft, a category euphemistically called shrinkage. Holding cost also includes the opportunity cost of reduced responsiveness to customers' changing requirements, slowed introduction of improved items, and the inventory's value and direct expenses, since that money could be used for other purposes. While it is possible to measure the components of holding cost, it is common to estimate them as at least one-third the value of the stored goods per year. If opportunity cost is included, it is reasonable to use one-half the value of stored goods as their holding cost. The effect of reducing the value of inventory by $1,000,000 reveals the effect holding cost has on its owner. If holding cost is set at one-third of the inventory's value, $333,333 becomes available for other purposes. At the higher rate, $500,000 becomes available. Whether that money is added to net income Holding costs (Variable costs varies with quantity):

Storage costs Rent/depreciation Labour Overheads (e.g. heating, lighting, security) Money tied up (loss of interest, opportunity cost) Obsolescence costs if left with stock at end of product life) Stock deterioration (lose money if product deteriorates whilst held)

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ABC ANALYSIS ABC analysis is a business term used to define an inventory categorization technique often used in materials management. It is also known as Selective Inventory Control. ABC analysis provides a mechanism for identifying items that will have a significant impact on overall inventory cost, while also providing a mechanism for identifying different categories of stock that will require different management and controls. When carrying out an ABC analysis, inventory items are valued (item cost multiplied by quantity issued/consumed in period) with the results then ranked. The results are then grouped typically into three bands. These bands are called ABC codes.

ABC CODES: 1. A class" inventory will typically contain items that account for 80% of total value, or 20% of total items. 2. "B class" inventory will have around 15% of total value, or 30% of total items. 3. "C class" inventory will account for the remaining 5% or 50% of the total items. ABC Analysis is similar to the Pareto principle in that the "A class" group will typically account for a large proportion of the overall value but a small percentage of the overall volume of inventory. Another recommended breakdown of ABC classes: 1. "A" approximately 10% of items or 66.6% of value 2. "B" approximately 20% of items or 23.3% of value 3. "C" approximately 70% of items or 10.1% of value

FNSD Analysis

Age of inventory indicates duration of inventory in organization. It shows moving position of inventory during the year. If age of inventory is minimum it means, the turnover position of that particular item of inventory is satisfactory. If the age of any particular item of inventory, it indicates
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the slow moving of stock which may be due to lower demand for the product, inefficiency in shocking policy, excessive stocking etc. The excessive investment in stocks means, high investment is locked-up in inventory leads to lower profitability of the firm due to excess carrying costs. FNSD analysis divides the items into four categories in the descending order of their usage rate as follows:

'F' stands for fast moving items and stocks of such items are consumed in short span of time. Stocks of fast moving items must be observed constantly and replenishment orders be placed in time to avoid stock-out situations.

'N' means normal moving items and such items are exhausted over a period of a war or so. The order levels and quantities for such items should be on the basis of a new estimate of future demand to minimize the risks of a surplus stock.

'S' indicates slow moving items, existing stock of which would last for two years or more at the current rate of usage but it is still expected to be used up. Slow moving stock must be reviewed very carefully before any replenishment orders are placed.

'D' stands for dead stock and for its existing stock no further demand can be foreseen. Dead stock figures in the inventory represents money spent that cannot be realized but it occupies useful space. Hence, once such items are identified, efforts must be made to find all alternative uses for it. Otherwise, it must be disposed. VED ANALYSIS

The term VED stands for vital, essential and desirable. The method control is primarily used for the control of spare parts. The spare parts are usually classified into Vital, Essential and Desirable keeping in mind the critically to production. While in ABC classification inventories are classified on the basis of their consumptions value in the basis critically of inventories is the basis for vital essential and desirable categorization. The VED analysis is done to determine the critically of an item and its effect on production and other services it is especially used for classification of spare parts.

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Vital: The spare which are so vital that stock out will stop production for quite some time and where the cost of stock out is very high are known as vital spares. Essential: The spares whose absence can not be treated for more than few hours or a day and the cost of lost production to continue are known as essential spares. Desirable: The spares which are need but there absences even a week or so on will not affect production are known as desirable spares. INVENTORY TURNOVER RATIO What Does Inventory Turnover Mean? A ratio showing how many times a company's inventory is sold and replaced over a period.

The days in the period can then be divided by the inventory turnover formula to calculate the days it takes to sell the inventory on hand or "inventory turnover days". Stock turnover ratio and inventory turnover ratio are the same. This ratio is a relationship between the cost of goods sold during a particular period of time and the cost of average inventory
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during a particular period. It is expressed in number of times. Stock turnover ratio / Inventory turnover ratio indicates the number of time the stock has been turned over during the period and evaluates the efficiency with which a firm is able to manage its inventory. This ratio indicates whether investment in stock is within proper limit or not. Components of the Ratio: Average inventory and cost of goods sold are the two elements of this ratio. Average inventory is calculated by adding the stock in the beginning and at the end of the period and dividing it by two. In case of monthly balances of stock, all the monthly balances are added and the total is divided by the number of months for which the average is calculated.

FORMULA OF STOCK TURNOVER/INVENTORY TURNOVER RATIO: The ratio is calculated by dividing the cost of goods sold by the amount of average stock at cost.

(a) [Inventory Turnover Ratio = Cost of goods sold / Average inventory at cost] Generally, the cost of goods sold may not be known from the published financial statements. In such circumstances, the inventory turnover ratio may be calculated by dividing net sales by average inventory at cost. If average inventory at cost is not known then inventory at selling price may be taken as the denominator and where the opening inventory is also not known the closing inventory figure may be taken as the average inventory.

(b) [Inventory Turnover Ratio = Net Sales / Average Inventory at Cost] (c) [Inventory Turnover Ratio = Net Sales / Average inventory at Selling Price] (d) [Inventory Turnover Ratio = Net Sales / Inventory] EXAMPLE: The cost of goods sold is $500,000. The opening stock is $40,000 and the closing stock is $60,000 (at cost). Calculate inventory turnover ratio CALCULATION:

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Inventory Turnover Ratio (ITR) = 500,000 / 50,000* = 10 times This means that an average one dollar invested in stock will turn into ten times in sales *($40,000 = $50,000 SIGNIFICANCE OF ITR: Inventory turnover ratio measures the velocity of conversion of stock into sales. Usually a high inventory turnover/stock velocity indicates efficient management of inventory because more frequently the stocks are sold, the lesser amount of money is required to finance the inventory. A low inventory turnover ratio indicates an inefficient management of inventory. A low inventory turnover implies over-investment in inventories, dull business, poor quality of goods, stock accumulation, accumulation of obsolete and slow moving goods and low profits as compared to total investment. The inventory turnover ratio is also an index of profitability, where a high ratio signifies more profit a low ratio signifies low profit. Sometimes, a high inventory turnover ratio may not be accompanied by relatively a high profit. Similarly a high turnover ratio may be due to underinvestment in inventories. It may also be mentioned here that there are no rule of thumb or standard for interpreting the inventory turnover ratio. The norms may be different for different firms depending upon the nature of industry and business conditions. However the study of the comparative or trend analysis of inventory turnover is still useful for financial analysis. 1.12 HOW A GOOD MANAGEMENT USE INVENTORY IN A BETTER WAY Inventory management is primarily about specifying the size and placement of stocked goods. Inventory management is required at different locations within a facility or within multiple locations of a supply network to protect the regular and planned course of production against the random disturbance of running out of materials or goods. The scope of inventory management also concerns the fine lines between replenishment lead time, carrying costs of inventory, asset management, inventory forecasting, inventory valuation, inventory visibility, future inventory price forecasting, physical inventory, available physical space for inventory, quality management, replenishment, returns and defective goods and demand forecasting. Balancing these competing
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requirements leads to optimal inventory levels, which is an on-going process as the business needs shift and react to the wider environment. Inventory management involves a retailer seeking to acquire and maintain a proper merchandise assortment while ordering, shipping, handling, and related costs are kept in check. Systems and processes that identify inventory requirements, set targets, provide replenishment techniques and report actual and projected inventory status. Handles all functions related to the tracking and management of material. This would include the monitoring of material moved into and out of stockroom locations and the reconciling of the inventory balances. Also may include ABC analysis, lot tracking, cycle counting support etc. Management of the inventories, with the primary objective of determining/controlling stock levels within the physical distribution function to balance the need for product availability against the need for minimizing stock holding and handling costs. Despite what many data processing salespeople will tell you, computers do not provide solutions to inventory management problems. Computers are tools. They must be used in the proper business environment in order to work effectively. This environment is comprised of several elements. All of them must be present in order for your new inventory management system to live up to its potential. If your system is not performing up to this potential, be sure you have implemented each of the following characteristics of good inventory management: 1. Protect your company against theft Make sure that the only people in your warehouse belong in your warehouse. Pilferage is a larger problem than most distributors realize. 2. Establish an approved stock list for each warehouse Most dead inventory is "D.O.A" (dead on arrival). Order only the amount of non-stock or special order items that your customer has committed to buy. Before adding an item to inventory, try to get a purchase commitment from your customer. If this is not possible, inform the salesperson who requests the item that he or she is personally responsible for half the carrying cost of any part of the initial shipment that isnt sold within nine months. 3. Assign and use bin locations Assign primary and surplus bin locations for every stocked item. All picking and receiving documents should list the primary bin location (in either characters or a bar code). With correct bin locations on documents, order picking is probably the least complicated job in your warehouse. Assign inexperienced people to this
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task and your most experienced warehouse workers to receiving inventory and stock management. 4. Record all material leaving your warehouse There should be appropriate paperwork for every type of stock withdrawal. Under no circumstances should material leave the warehouse without being entered in the computer. Eliminate "no charge/no paperwork" material swaps. Product samples should be charged to a salespersons account until they are either returned to stock or charged to the customer. 5. Process paperwork in a timely manner All printed picking documents should be filled by the end of the day. Stock receipts should be put away and entered in the computer system within 24 hours of arrival. 6. Set appropriate objectives for your buyers Buyers should be judged and rewarded based on the customer service level, inventory turns, and return on investment for the product lines for which they are responsible. 7. Make sure every employee is aware of the cost of bad inventory management Inventory loss through theft, breakage, or loss must be paid for with net profit dollars. If your net profit before taxes is 4%, it takes $2,500 in new sales to make up for a $100 merchandise loss! 8. Ensure that stock balances are accurate and will remain accurate Implement a comprehensive cycle counting program. A good cycle counting program can replace your traditional year-end physical inventory. 9. Determine the most advantageous replenishment path for each item in each warehouse Assign one of these "paths" to each item in each warehouse: a. Distributive purchasing The warehouse replenishes stock with a purchase order issued directly to the vendor b. Central Warehousing The stock of one warehouse is replenished with a stock transfer from a central warehouse c. Cooperative Purchasing Several branches "pool" their needs and issue one vendor purchase order in order to meet the vendor minimum order within a reasonable amount of time 10. Specify guidelines for setting the reorder method another purchasing parameters to maximize inventory turns and minimize stock outs: a. Minimum/Maximum quantities b. Economic order quantities c. Order up to a specific stock level
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d. Safety stock quantities e. Preseason buys 11. Document replenishment procedures: a. Line buys b. Non-stock items c. Price-break purchasing d. Preseason buys e. Importing material

1.13 ROLLS AND MACHINERY INDUSTRY


Roll manufacturing is generally considered as metallurgy of compromise which necessitates the manufacture of rolls with the optimum combination of divergent properties, such as, superior strength; better finishing ability and resistance to wear, spilling, fire cracking and breakage. JEMCOS above belief is inbuilt in its roll manufacturing processes to achieve customers need based requirement. JEMCO also cater the steel industries, engineering industries, power plants and automobile industries for various grades of engineering castings as per the specified size, shape and quality in various grades like alloy steel, cast iron, SG iron, cast steel and also Hi-manganese castings ( Hadfield steel). JEMCO offers knowledge backed various quality rolls and engineering castings for specific application. ROLLS a) Clear and definite chill rolls for bars, flats, strips, rods and wires. b) Indefinite chill or grain Iron rolls for structural particularly in intermediate and finishing stands. c) Spheroid Graphite iron or ductile iron rolls for a wide range of applications. d) Double Poured Rolls for strips, bars, rods, wires, flats, schlep and small sections. e) Cast Steel/Steel Based rolls for primary mills, including graphitic rolls. f) Chilled iron, SG iron rolls for paper, rubber, paint and other non metallurgical industries. ENGINEERING CASTINGS a) Various casting components for blast furnace, coke plant, sinter plant, slag granulation and drying plant, different mills, waste re-cycling plant, ld shop etc of steel industries.
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b) Components of Sponge Iron Plants like support rollers, tyres, gears, combined bearing housing etc. c) Castings for mines and collieries, crushers, Ferro Manganese plants etc. d) For automobiles Industries, Defence, cements industries.

SPHEROIDICAL GRAPHITE CAST IRON ROLLS (PEARLITIC)

CHARACTERISTICS:

Spheroid graphite cast iron rolls are structurally characterised by nodular graphite as against flake graphite in the normal cast iron rolls. The matrix is pearlitic in nature. Different levels of hardness are obtained by varying the alloy additions and controlling the cemented in the matrix. These rolls are excellent substitutes for many conventional steel and cast iron due to a combination of superior strength, good wear resistance and resistance to spilling and fire cracking. Adequate water cooling is desirable. APPLICATION:

Roughing and intermediate rolls for blooming, scabbing and wire rod mills. Roughing, intermediate and finishing rolls for rail and structural mills. Finishing rolls for sheets and plate mills. Skin-pass and scale breaker rolls for hot strip mills.

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ACCICULAR SPHEROIDAL GRAPHITE CAST IRON ROLLS

CHARACTERISTICS:

The structure consists of graphite nodules in the matrix of binate. These rolls have high hot strength combined with combined with good wear resistance. Sufficient water cooling is a must for satisfactory performance. APPLICATION:

Skin passes and temper mill rolls for cold rolling. Finishing rolls for wire rod and strip mills. FIGURE: 1.2

SOURCE: INTERNET

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ALLOY STEEL BASED ROLLS

CHARACTERISTICS

The structure consists of graphite nodules in the matrix of binate. These rolls have hot strength combined with good wear resistance. Sufficient water cooling is a must for satisfactory performance.

APPLICATION

Roughing, intermediate and finishing rolls for section and structural mills. Applications include heavy section and rail mills, universal beam mills, medium section mills and billet mills. Roughing rolls for plate and sheet mills. Pilger rolls for seamless tube mills. FIGURE: 1.3

SOURCE: INTERNET

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GRAPHITE STEEL CAST ROLLS

CHARACTERISTICS

The graphitic steel rolls are special high carbon steel with carbon content above 1.50%. The rolls are statically cast single poured subjected to special heat treatment and inoculation.

APPLICATION

These rolls are most suitable for medium and heavy section mills, intermediate and finishing stands, rail finishing mills, merchant mills, intermediate stands of bar mills. FIGURE: 1.4

SOURCE: INTERNET

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ROLLS FOR PAPER MILLS

CHARACTERISTICS

The matrix of the chilled layer consists of fine pearlite/bainite with a uniform distribution of cementite. Special alloying is done to impart high corrosion resistance and also to obtain a homogeneous structure on the barrel surface for uniform wear resistance.

APPLICATION

Calendar rolls for paper mills. It is also used for mixing, calendaring, cracking and refining in rubber mills. FIGURE: 1.5

SOURCE: INTERNET

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A Report on Inventory management practices in JEMCO Company CHAPTER-2 RESEARCH DESIGN


2.1 Title of the project:
INVENTORY MANAGEMENT PRACTICES OF JEMCO COMPANY

2.2 Statement of the problem:

In broad sense it emphases on the need and the importance of inventory management. Inventory management holds a crucial part in the production business. It is a system which can reduce or increase the profit of the firm. During the last few years the organizations are doing well in these circumstances the proposed project aim to combine the different aspects of the system. The aspect might be internal feature of the organization. It includes workforces, companys infrastructure, brands, reputation etc. In external features it includes political, social, economical, and legal environment. This attempt to lay equal focus on all the aspects and tries to find out the general inventory system for the JEMCO Company.

2.3 Scope of the study:


This project work involves the study of inventory management in the JEMCO Company, Jamshedpur. It also analyses capacity of division in the maintaining inventory control system. Further the study will try to look on the procedures followed by them in holding inventory in brief.

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2.4 Objective of the study:
1. To study the structure and profile of the organization. 2. To study the existing system of materials management in the organization. 3. To know the importance of effective inventory management in the organization. 4. To study the need for the effective system of inventory management. 5. To study the methods, procedures and source of material procurement. 6. To critically analysis the existing procedure relating to material storage, purchase inventory control etc. 7. To study appreciate the difficulties in managing inventory and management to large industries like JEMCO company. 8. To study the various techniques adopted by the department for inventory control to achieve the use of ratios analysis as a tool for measuring the effectiveness of inventory management

2.5 Limitations of the study:

1. Tool of inventory control may differ or all tool mention in inventory may not be used 2. The study is limited to Bangalore plant 3. Data were collected according to the departments accounts as well as company annual report 4. The study was conducted by taking last 5years data.

2.6 Operational definitions of concepts:


1. It is all about the inventory asset which contains of raw materials, work in progress and finished goods.

Raw Materials Inventory is an asset Raw Materials Inventory is increased with a debit Raw Materials Inventory is decreased with a credit

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METHODS TO CALCULATE INVENTORY TURNS OF A RAW MATERIAL: In book keeping and business accounting:

Accounts payable Accounts receivable Budgeting and forecasting Business taxes Commercial bank and checking accounts Commercial insurance Financial statements Payroll services

2. Work in progress inventory includes the set at large of unfinished items for product in a production process. These items are not yet completed but either just being fabricated or waiting in a queue for further processing or in a buffer storage. The term is used in production and supply chain management. 3. FINISHED GOODS>>VALUATION: CURRENT PERIOD STOCK----The value of finished goods/stock in a process during a period is ascertained from the process account. It is valued at the normal cost of normal output per unit. OPENING STOCK----The opening stock of a period is nothing but the closing stock of the previous period. There is no special valuation done in relation to opening stock, it is just a figure carried forward from the end of the previous period to the beginning of the current period. In the absence of appropriate information we assume that the opening stock is also valued at the same rates as the current period stock. 4. The three methods most commonly used for valuing inventories are:-

FIFO(FIRST IN FIRST OUT) LIFO(LAST IN FIRST OUT) AVERAGE METHOD FIFO often parallels the actual physical flow of merchandise because it generally is good business practice to sell the oldest unit first. That is, under FIFO, companies obtain the cost of ending inventory by taking the unit cost of the most recent purchase and working backwards until all units of inventory have been cost.
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Under LIFO method, the costs of the latest goods purchased against revenue. Under the LIFO method, the costs of the latest goods purchased are the first to be sold. LIFO coincides with the actual physical flow of inventory. Under the average cost method, the cost of goods is equally divided, or averaged, among the units of inventory. It is also called the weighted average method. When this method is used, costs are matched against revenue according to an average of the unit of cost of goods sold.

2.7 Types of research plus tools for data collection:


1. Source of data and tabular figure comes out from the balance sheet of the company. 2. The inventories sources are from the schedule and trading and profit & loss account of the company. 3. The three year balance sheet, profit & loss account, schedule of different inventories.

2.8 Reference period:


I had done internship in JEMCO Company and prepared a report on inventory management practices for the tenure of one month.

2.9 Methodology:
The study is based on descriptive and applied research. The efficiency and efficacy of working capital management model in JEMCO Company. The accounting as well as the planning of working capital is thoroughly studied. By using inventory turnover ratio and composition of total inventories, the result of control mechanism has been summarized, which help in identifying the effectiveness of the system under preview. Hence, the ratio and trend has been to arrive at conclusion.

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A Report on Inventory management practices in JEMCO Company CHAPTER-3 COMPANY PROFILE

3.1 INCEPTION:
JEMCO was originated in the year of 1936 with Belgium collaboration, under the stewardship of LATE BAHADUR SIR INDER SINGH. At the outbreak of World War 2, 1939, the company, diversified into manufacture of rolls for the first time in India. With technical collaboration from Belgium, JEMCO turned out its first finished roll in 1940. This company is famous for the manufacture of rolls and general casting. JEMCOs pioneering roll manufacture played a pivotal role in supporting and setting up numerous steel based industries and rolling mills.

In the year 1990 JEMCO got merged with IS&WP ltd and became its division. In December 03, ISWP was taken over by TATA STEEL having control over approx, 92% of the share holding, JEMCO also became a subsidiary of TATA STEEL and continued to upgrade and perform in its manufacturing domain, sustaining with its agility and innovative capabilities accepting the global challenges. After take over by TATA STEEL, JEMCO re-entered the business of engineering castings. JEMCO casts both types of rolls-metallurgical and non-metallurgical types of rolls. In metallurgical segment JEMCO caste rolls of long period for SAIL and TATA STEEL,JINDAL, ISWP,USHA MARTIN,VSP(and in the field of flat production it makes conventional double poured rolls for SAIL and JINDAL).

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The companys plant located at JAMSHEDPUR is nearly 5 km from TATANAGAR RAILWAY STATION and is spread over on an area of 97 acres. It is equipped with suitable melting furnace, modern foundry, sophisticated machine shop and a well equipped laboratory having all up to date testing facilities. The plant at present has an installed capacity of 4500 MT for rolls and 1000 MT for engineering castings. Accredited with ISO-9001:2000 Certification, JEMCO is continuously implementing other related activities to improve customer satisfaction. JEMCO has competence and capability to undertake manufacture of custom designed products. JEMCO rolls have been designed to roll steel ingots, blooms, billets, angles, channels, rods, tubes, strips, sheets and other section products. In the non-metallurgical area, JEMCO rolls find wide spread application in rubber, paper, textiles, and asbestos jointing and poly films industries, auto sector, mines and collieries power plants, cement industries defence, railways etc.

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3.2 VISION
To make JEMCO a 100 crore company, through continual improvement and business expansion in rolls and casting and diversification in manufacturing of zinc aluminium alloys. Be a vibrant organization with a culture of continuous learning. Delighting stake holders and adhering to TATA VALUES.

3.3 MISSION
Improvement of process Improvement in product quality Expansion of market Achievement of customer delight Achievement of cost effectiveness Being a responsible corporate citizen Adopting various methodologies.

3.4 CORE VALUES


Honesty and integrity Credibility Customer focus Agility Commitment to all stakeholders Continual improvement

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3.4 NATURE:
JEMCO is a medium scale engineering company which has the capacity to produce 4000-5000 metric tonne of rolls and engineering casting. JEMCO as a pioneer roll manufacture played a pivotal role in supporting and setting up of numerous steel based industries and rolling mills. Recently the company has diversified into the business of zinc conversion. Their main customers are SAIL and all Tata groups of industries. JEMCO has its workers union affiliated with I.N.T.C (International trade union congress). At present the strength of the employee is 400.

3.6 COMPETITORS: GBI(KOLKATTA) BHARAT ROLLS(KOLKATTA) TAYO(KOLKATTA)

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3.7 BOARD OF DIRECTORS

PLATINUM JUBILEE OF JEMCO.

TABLE 3.1 OFFICIAL POST IN JEMCO


OFFICIAL POST Chairman Managing director General manager of operation General manager of information technology General manager of finance General manager of mechanics General manager of project Source: secondary data Mr. A.BASU Mr. INDRAJEET NANDI Mr. JK SINGH NAMES Mr. AM MISHRA Mr. PRADEEP SRIVASTAVA Mr. CHANDAN BANARJEE Mr. SHARAN

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3.8 FUTURE PROSPECTS OF THE COMPANY
Jamshedpur Engineering and Machine Manufacturing Company Limited is one of the many eminent companies that have mushroomed in the city of Jamshedpur. The strategic location of the company in an industrial belt endowed with a major rail head coupled with the rich deposits of iron ore, coal, limestone and manganese in the vicinity are some of the factors that are ascribed to the growth and success of the company.

The company's history shows that it has passed through many hands before reaching its present position as one of the key players in the Jamshedpur Economy and Business. Jamshedpur Engineering and Machine Manufacturing Co. Ltd started operations in the year 1921 as a European manufacturing concern that dealt in textiles and fabrics. A couple of years down the line in 1923, the company were restructured as the General Engineering Works. Finally, in the year 1934 the company caught the attention of a certain Mr. Jivan Lal Motichand, a business who immediately saw the bright prospects of the company and purchased the same with alacrity. The company was subsequently transferred to Messrs. Indri Singh and Ltd in 1934. After this landmark event, there was no looking back for the company that rapidly burgeoned to reach the pinnacles of success.

Currently, Jamshedpur Engineering and Machine Manufacturing Co. Ltd does thriving business as a machinery store, general as well as roll foundry and pattern shop, roll turning shops and chemical plants and laboratories. A recent milestone in the company's growth chart is the inclusion of Calcutta Minified Works, a factory that manufactured casting for Jute Mills under its wing. In fact, the company is doing phenomenal work to expand its horizon. The top management is totally committed to meet the requirements of the customers by producing specified quality product through a sound quality management system as described in the various sections of this manual and to achieve complete customer satisfaction along with continually improving the quality of the products, system of operations, customer satisfaction and others.

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QUALITY POLICY: Manufacturing and supplying of rolls and other engineering castings as per customer requirements and market demand. Continual improvement in quality, delivery, process and market share and realization through effective implementation of the quality management system.

JEMCO is the manufacturing of Rolls and Engineering casting in the market. It is the No. 1 company in the Indian Machine manufacturer and is the only company is the well established in International network. The main objectives of the research have done on behalf of Jamshedpur Engineering and Machine manufactures company is:To find out the operating procedure, which follow in marketing department and implement.

The sub objective related to the main objectives are : To find out the problem of the marketing department in Jamshedpur Engineering and Machine manufacturer company To find out the operating procedure in marketing department of JEMCO, which they follows. To find out the various requirement of customer prefer more while purchasing Rolls and Engineering casting. Keeping the main objectives in mind we have find out many facts, which is beneficial for us to come to our conclusion and will also help the company in various ways. The researchers are conducted in the proper and the structured manner to achieve our objective at its best possibilities.
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First we have find out the operating procedures of marketing department in JEMCO. Then we know that through the customer requirement and prepare Standard operating procedure some step should be including in their operating procedure. We prepared structured questionnaire and data has been collected from all over respondents by interviews. With the help of past operating procedure, we prepare Standard operating procedure. By making various graphs and lists. We have tried our best way to make our research analysis more specific and clear to all.

ITS MAIN OBJECTIVES FOR THE PROPER GROWTH OF THE COMPANY JEMCO dominates in Indian market. JEMCO manufactures many such machines, which are not manufacturer by other company in all over Asia. JEMCO market is growing very fast for its good quality and services. JEMCO is the Brand name for their quality and services. JEMCO create brand image in itself after all it is a subsidiary of TATA STEEL and division of Indian steel And Wire Products Ltd. Training of the employees to communicate to them the importance of meeting the customers as well as statutory and regulatory requirements. Statement of quality policy and quality objectives. Strategic planning sessions to understand the requirements and expectations of the customers, employees and other stake holders. Conducting of management review to ensure proper implementation and maintenance of the quality management system leading to continual improvement in the same. Arranging adequate resources in the form of machine, man power, materials, information and anything else as may be required for maintenance and improvement of the quality management system of the organization.

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3.9 BUSINESS OPERATIONS:
JEMCO has the best combination of melting furnaces to manufacture different grades and types of customaries castings. The two arc furnaces of 10 MT and 5 MT are used to manufacture high strength alloy iron, high quality SG iron and alloy steel rolls. The 8 MT main frequency coreless induction furnaces are used for small and medium size cast iron, steel and SG rolls. These manufacturing of various grades of engineering casting. The dual track induction furnace of 0.750 MT and 1.5 MT is used for high alloyed low weight castings and rolls. These furnaces also provide highly alloyed shekel metal for static as well as spun cast rolls.

A) FOUNDRY AND MELTING:


JEMCO has well equipped modern foundry with facilities to cater needs of rolls and engineering casting. The foundry is equipped to produce a comprehensive range of rolls and shaped castings in cast iron, alloy iron, Spheroid Graphite iron and steel. It ensures that the products are manufactured as per the specified requirements. In foundry the finished products are identified and traced throughout the whole process. It ensures the effective and corrective utilization of raw materials, consumables, and accessories in line with production schedules based on the orders.

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CASTING: There are modern facilities for preparation of moulds and cores to produce rolls and engineering casting with maximum yield. All rolls and engineering castings are either, bottom, middle or top poured with specified ingrate/runners/copes to achieve desired quality requirements. All nodular irons rolls and castings are poured with special ladle inoculation after manufacturing treatment to ensure high strength requirements. Special process is used for all steel and steel based rolls and castings to ensure internal soundness, appropriate grain size and structure for making the products absolutely free cavities and porosities. Depicted, developed, specified processes and methods have been institutionalized for achieving the quality requirements for achieving the quality requirements of products of various grades(SG, ADAMITE, DOUBLE poured-IC(shell)/GI(core), double poured-IC(shell)/SG(core),IC,NC,HC rolls and various castings). Synchronization between all activities and sub processes are maintained to build desired properties in products.

B) MACHINE SHOP
JEMCOS machine shop is equipped with a versatile set of machine tools from Japan, Russia, Czechoslovakia, Germany, Italy, and India. These are capable of machining rolls ranging from 20 kgs to 20 tonnes in weight and from 280mm. to 1400 mm, in diameter. The stringent demand of accuracies and designs are met by CNC lathes. Special purpose machines carry out the milling
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operations. Specially designed duplex milling machines are used for cutting clover leaf wobblers, flat and keyways. Fluting and special grooving are done through suitably designed fixtures. Specified tolerances and desired surface finish are obtained through sophisticated grinding machines. CAD/CAM technology is available for translating the customers drawings to internal standard as well as direct programming of the CNC lathes for finishing machining.

WORKING PROCESS: ROUGH TURNING: In this particular step the removal of black material is being done keeping 4 to 5mm finished turning allowance on diameter and keeping 10mm in length respectively. FACING AND TURNING: In this procedure the maximum and main attention is being given to the task of maintaining a proper and accurate length. FINISHED TURNING: the turning diameter will be maintained and given an appropriate size. GRINDING: Grinding wheel will rub the diameter with flow of lubricant. This process gains the final size of the production in polished way as per the demand of the customer. RADIUS FINISHING: After grinding there is step formed in between diameter and radius. This step has been removed by turning on conventional lathe and forming the required profile of radius.

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MILLING: When a roll fixed in the mill on mill stand the roll has been given drive by different types of arrangement. In the milling machine the arrangements for driving the roll has been or given the shape.

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MILLING OPERATION: Flat milling- (Plano miller) Keyway milling- (Horizontal boring machine) Drilling- (Drilling machine:-radial or universe) Boring- (Horizontal and Vertical machine) Wobblers Tapping- (Universal boring machine) Hand finishing- (Made and prepared by hand) Inspection Dispatch

C) HEAT TREATEMENT The final properties of a roll and casting depend on the heat treatment, which in turn, provides the appropriate strength to it, to perform in the application area. The rolls and engineering casting components are heat treated in special heat treatment furnaces, in which, uniformity of temperature in all the heating zones of the furnace is ensured by special treatment controllers and the rate of heating can be controlled to as lower 2.9c to 100c per hour depending on product characteristic, leading to enhancement of internal properties of the rolls and engineering castings. The heat-treatment programme comprises of low temperature cycles for tempering and stress relieving as well as high temperature cycles for soft annealing and air quenching depending on products quality need. Special quenching facility helps in manufacturing Hadfield steel castings too.

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3.10 PRODUCT PROFILE OF JEMCO

1) Indefinite chill cast Iron Rolls

2) Spheroid graphite cast Iron Rolls (Pearl tic).

3) Spheroid graphite cast Iron Rolls (Acicular).

4) Double poured indefinite chill cast Iron Roll (Spun Cast).

5) Double poured indefinite chill cast Iron Roll (Static Cast).

6) Nichillied cast Iron Rolls.

7) Clear chill/Alloy clear chill Iron Rolls.

8) Steel based Rolls/Adamite.

9) Alloy vast Steel Rolls.

10) Graphite Steel Rolls.

11) Rolls for Rubber mill (Hollow Rolls).

12) Rolls for paper mill (Hollow Rolls).

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1. SPHERICAL GRAPHITE CAST IRON ROLLS (PEARLISTIC):

TYPE: Intermediate roll for sheet v=bar:USES: Sheet bar and billet mills, TISCO.

Characteristics: It is structurally characteristics by nodular graphite as against flake graphite in the normal cast iron roll. The matrix is pear lactic in nature. These rolls are excellent substitute for many conventional steel and cast iron due resistance to spilling and fire cracking. Adequate water cooling is desirable.

Application: Roughing and intermediate rolls for blooming scabbing and wire rod mills. Roughing, intermediate and finishing rolls for rail and structural mills. Finishing roll for sheets and plate mills, skin pass and scale breaker rolls for hot strip mills.

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2) ACICULAR SPHERICAL GRAPHICAL CAST IRON ROLLS: TYPE: Finishing roll for merchant mill: USES: Skin-pass mill, Rourkela.

Characteristics: The structure consists of graphic nodules in the matrix of binate. These rolls have high hot strength combined with good wear resistance. Sufficient water cooling is a must for satisfactory performance. Application: Skin passes and temper mill rolls for cold rolling. Finishing rolls for wire.

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3) ALLOY STEEL BASED ROLLS: TYPE: Roughing roll for section mill USES: Billet mill, ASP, Durgapur.

Characteristics: These rolls stand between steel and cast iron rolls in carbon content and the structure consists mainly of cemented in a Matrix of partite. The carbide phase in discontinuous throughout the matrix. Application: Roughing, intermediate and finishing rolls for section and structural mills. It includes Heavy section and rail mills, universal beam Mills, medium section mills and billet mills. Roughing rolls for plate and sheet mills. Pilfer rolls for seamless tube mills.

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4) FINISHING ROLLS: TYPE: Finishing rolls for section mills : USES: Section mill, DSP. Durgapur.

Characteristics: The graphite steel rolls are special high Carbon steel and single poured subject to special heat treatment and inculcation. The structure consists of carbides in a pearl tic matrix with free graphite. These roll do not have hardness drop. They have better strength and greater resistance to thermal cracking steel base rolls.

APPLICATION: It is suitable for medium and heavy section mills, intermediate and finishing stands, rail finishing mills, merchant mills intermediate stand of bar mills.

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CHAPTER- 4 DATA ANALYSIS AND INTERPRETATION


1) COMPOSITION OF WORK IN PROGRESS IN INVENTORY: Work in progress Annual inventory

TABLE 4.1
YEAR 2007-2008 2008-2009 2009-2010 ANNUAL INVENTORY 5736 7837 9235.46 WORK IN PROGRESS 243.03 1064.06 708.81 % 4.236 13.57 7.67

SOURCE: FINANCIAL STATEMENTS OF COMPANY.

GRAPH4.1 COMPOSITION OFWORK IN PROGRESS IN INVENTORY


16 14 12 10 8 6 4.236 4 2 0 2007-2008 2008-2009 2009-2010 7.67 COMPOSITION OFWORK IN PROGRESS IN INVENTORY 13.57

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ANALYSIS: The table shows the annual inventory report and work in progress report for the three consecutive year 07-08, 08-09 and 09-10. And the percentage is being taken out by dividing annual inventory and work in progress by seeing the three years data. The calculation is being done by seing and analyzing the data for the total composition of work in progress.

INTERPRETATION: If we consider the figure of the company in the form of work in process consist of average of 8.43% of the total inventory for 3 years and in the year 2008-2009 it has found to be high at 13.57%, because the production decreases so material required also decreased.

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2) FINISHED GOODS INVENTORY TURNOVER RATIO: Cost of goods sold Average inventory of finished goods

TABLE 4.2
YEAR COST OF GOODS SOLD 21401.01 28033.19 34153.76 AVERAGE INVENTORY OF FINISHED GOODS 387.77 495.99 559.26 RATIO

2007-2008 2008-2009 2009-2010

55 56.5 61

SOURCE: FINANCIAL STAEMENT OF THE COMPANY.

GRAPH4.2 FINISHED GOODS INVENTORY TURNOVER RATIO


100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2007-2008 2008-2009 2009-2010 FINISHED GOODS INVENTORY TURNOVER RATIO

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ANALYSIS: The table shows the annual report of cost of goods sold which is given in the profit and loss account for the three years 07-08, 08-09 and 09-10 and the three consecutive years report for average inventory of finished goods. The opening and closing balance is being taken and divided by 2 to take out the average balance and after that ratio is being taken out in between the cost of goods sold and average inventory of finished goods and is being compared in the graph. INTERPRETATION: This ratio indicates that how much cost of goods sold out of manufacturing. The ratios i.e. 55, 56.5,61 for the various years 2007-2008, 2008-2009 and 2009-2010. The ratio also shows that how much finished goods is being utilized out of the total cost of goods sold. In the year it is higher with the ratio 61 which shows the increase in finished goods and also increases in cost of goods sold.

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3) RAW MATERIAL INVENTORY TURNOVER RATIO Annual consumption of raw material Average raw material inventory

TABLE 4.3
YEAR AVERAGE CONSUMPTION OF RAW MATERIAL 11821 17620 20672 AVERAGE RAW MATERIAL INVENTORY 1495.29 2151.185 2751.19 RATIO

2007-2008 2008-2009 2009-2010

7.9 8.19 7.5

SOURCE: FINANCIAL STATEMENT OF THE COMPANY.

GRAPH 4.3 RAW MATERIAL INVENTORY TURNOVER RATIO

7.5

7.9 2007-2008 2008-2009 2009-2010

8.19

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ANALYSIS: The table shows the annual consumption report of raw materials which have been utilised in the year 2007-2008, 2008-2009 and 2009-2010 and the annual report of average raw materials which is being taken out by the opening and closing balance and divided by 2 and finally the ratio is being shown by dividing the annual consumption of raw materials with the average raw material inventory and it is shown in the graph by the year wise distribution.

INTERPRETATION: The above table ratios indicate the raw material consumption over a period of time. In the year 2007-2008 the ratio was 7.9 and it is goes on increases in the year 2008-2009 and again decreases in the year 2009-2010. It shows that material movement has come down and it goes on fluctuating for the three years.

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4) STOCK IN PROGRESS INVENTORY TURNOVER RATIO: Cost of manufacturing goods Average work in progress inventory

TABLE 4.4
YEAR COST OF MANUFACTURING GOODS 16851.04 23720.47 28342.36 AVERAGE WORK IN PROGRESS INVENTORY 2212.08 3080.56 3966.995 RATIO

2007-2008 2008-2009 2009-2010

7.63 7.70 7.14

SOURCE: FINANCIAL STATEMENT OF THE COMPANY.

GRAPH 4.4 STOCK IN PROCESS INVENTORY TURNOVER RATIO


7.7 7.6 7.5 7.4 7.3 7.2 7.1 7 6.9 6.8 2007-2008 2008-2009 2009-2010 STOCK IN PROCESS INVENTORY TURNOVER RATIO

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ANALYSIS: The table shows the annual report of cost of goods manufactured for the three consecutive years 2007-2008, 2008-2009 and 2009-2010 and the report of work in progress inventory in average basis and finally the ratio is being taken out by dividing cost of manufactured goods by average work in progress and the ratio is being shown in the graph. INTERPRETATION: This ratio shows that how much work in progress is held as inventory and total cost for that. Form the year 2007 to 2010 the manufacturing cost volatility and the work in progress is being in the fluctuated form and the resultant ratio is being shown in the graph as how it increases in the year 2008-2009 and again decreases in the year 2009-2010. And among the three years the highest ratio comes for the year 2008-2009 i.e. 7.70 and lower in the year 2009-2010 i.e. 7.14 which shows the cost volatility for both of the years.

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5) OVERALL INVENTORY TURNOVER RATIO: Cost of goods sold Average inventory

TABLE 4.5
YEAR 2007-2008 2008-2009 2009-2010 COST OF GOODS SOLD 21401.01 28033.19 34153.76 AVERAGE INVENTORY 4977.03 6786.71 8536.24 RATIO 4.29 4.13 4.00

SOURCE: FINANCIAL STATEMENT OF THE COMPANY.

GRAPH 4.5 OVERALL INVENTORY TURNOVER RATIO

4.3 4.25 4.2 4.15 4.1 4.05 4 3.95 3.9 3.85 2007-2008 OVERALL INVENTORY 2008-2009 2009-2010

OVERALL INVENTORY TURNOVER RATIO

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ANALYSIS: The table shows the annual report of cost of goods sold for the three consecutive years 20072008, 2008-2009 and 2009-2010 and the average inventory for the years 2007-2008, 2008-2009 and 2009-2010. The balancing figures are higher for the year 2009-2010 for both of cost of goods sold and average inventory. And finally the ratio is being shown by dividing the cost of goods sold by average inventory. INTERPRETATION: This ratio indicates that the investment in inventory is efficiently used or not. Therefore it

explains whether the investment in inventory is within proper limits or not. Comparing the ratios of various year it notified that in year 2010 the ratio has came down to 4.00 with compared to 2008 and 2009.

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6) AVERAGE AGE OF FINISHED GOODS INVENTORY Average finished goods inventory cost of goods manufactured daily

TABLE 4.6
YEAR AVERAGE FINISHED GOODS INVENTORY 387.77 495.99 559.26 COST OF GOODS MANUFACTURED DAILY 46.80 65.89 78.72 RATIO

2007-2008 2008-2009 2009-2010

8.28 7.52 7.10

SOURCE: FINANCIAL STATEMENT OF THE COMPANY.

GRAPH 4.6 AVERAGE AGE OF FINISHED GOODS INVENTORY


100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2007-2008 2008-2009 2009-2010 AVERAGE AGE OF FINISHED GOODS INVENTORY

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ANALYSIS: The table shows the cost of manufactured goods which is being calculated by dividing the original figures of cost of goods manufactured by 360 which gives the direct information about the goods manufactured daily for the three consecutive year 2007-2008, 2008-2009 and 2009-2010 and the average finished stock inventory which comes out by the opening balance and closing balance and dividing by 2. And finally the ratio is being taken out by dividing average finished goods inventory by cost of goods manufactured daily. INTERPRETATION: In the year 2007-08 the ratio was higher than other years i.e. 8.28, because in this year another unit merged due to this the ratio for other years drastically reduced. Now it is slowly pushing their inventory to reduce the cost. Here the cost of goods manufactured on the daily basis is being also calculated by dividing the total cost of goods manufactured daily by 360.

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7) INVENTORY TO CURRENT ASSET Annual inventory Total current asset

TABLE 4.7

YEAR 2007-2008 2008-2009 2009-2010

ANNUAL INVENTORY 5736 7837 9235.46

TOTAL CURRENT ASSET 7163 8226.02 9530.63

% 80 95.2 96

SOURCE: FINANCIAL STATEMENT OF THE COMPANY.

GRAPH 4.7 INVENTORY TO CURRENT ASSET

100

95

90 INVENTORY TO CURRENT ASSET

85

80

75

70 2007-2008 2008-2009 2009-2010

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8) COMPOSITION OF RAW MATERIALS IN INVENTORY Raw material Annual inventory

TABLE 4.8
YEAR 2007-2008 2008-2009 2009-2010 ANNUAL INVENTORY 5736 7837 9237.46 RAW MATERIAL 1495.29 2151.18 2751.19 % 26.06 27.44 29.78

SOURCE: FINANCIAL STATEMENT OF THE COMPANY

Graph 4.8 composition of raw materials in inventory

2009-2010

2007-2008

2008-2009

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ANALYSIS: The table shows the annual inventory report of the three consecutive years as well as the raw materials utilized for three years and at the same time ratio is being shown by dividing the raw materials by annual inventory which is tabulated in the table and shown in the graph. INTERPRETATION: It is shown that how much composition the raw materials are being used out of the total inventories which is being used for the overall company. In the year 2009-2010 the raw material consumed is high as compared to the three years as because the composition of material was used in a higher ratio. The work of raw material was more for the manufacturing of rolls and machines.

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9) COMPOSITION OF FINISHED GOODS IN INVENTORY: Finished goods Annual inventory TABLE 4.9 YEAR 2007-2008 2008-2009 2009-2010 ANNUAL INVENTORY 1495.29 2151.18 2751.19 FINISHED GOODS 405.00 450.82 527.62 % 7.06 5.75 5.71

SOURCE: FINANCIAL STATEMENT OF THE COMPANY

GRAPH 4.9 COMPOSITION OF FINISHED GOODS IN INVENTORY

2007-2008 2008-2009 2009-2010

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ANALYSIS: The table shows the annual report of overall inventory which is used for the three consecutive years i.e. 2007-2008, 2008-2009 and 2009-2010 is utilised by the company for the whole year. And at the same time the finished goods is also being given which is used for the three consecutive years. Finally the ratio is percentage is being given by dividing finished goods by annual inventory and the respective result is being shown for the year in the table and the graph. INTERPRETATION: The composition of finished goods kept is being given and in the year 2007-2008 it was higher as compared to 2009 and 2010 which shows that the goods were used more and the stocked goods were kept as an inventory.

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10) TOTAL HOLDING INVENTORY 360 Inventory turnover ratio

TABLE: 4.10
year 2007-2008 2008-2009 2009-2010 Total days 360 360 360 Ratio 5.52 13.50 5.14 Days 65 27 70

GRAPH 4.10 TOATAL HOLDING INVENTORY


70 60 50 40 30 20 10 0 2007-2008 2008-2009 2009-2010 toatal holding inventory

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ANALYSIS: The table shows the total holding inventory period and the total inventory turnover ratio is also being given. The ratio of total holding inventory period is also being given and the number of days is being calculated according to the inventories which are being identified according to the utilization of inventories of the company.

INTERPRETATION: Here the table shows the ratio of total holding period inventory and the number of days for overall year consumption of inventories. Form the above table we can identify that in the year 2009-10 the highest inventory holding period i.e. 70 days and lowest in the year 2008-09 i.e. 27 days. It shows that they dont have proper inventory holding policy.

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11) WORK IN PROGRESS HOLDING PERIOD 360 Work in progress inventory turnover ratio

TABLE 4.11
year
2007-2008 2008-2009 2009-2010

Total days
360 360 360

Ratio
9.25 23.84 2.56

Days
39 15 141

SOURCE: FINANCIAL STATEMENT OF THE COMPANY.

GRAPH 4.11 WORK IN PROGRESS HOLDING INVENTORY


160 140 120 100 80 60 40 20 0 2007-2008 2008-2009 2009-2010 work in progress holding inventory

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ANALYSIS: The table shows three years holding inventories of work in progress according to the ratio and the number of days by which is consider the stock in progress of the company. The ratio is being taken out by the total holding inventories in which it is seen the actual ratio of stock in progress which is being considered as a main asset of an inventory. The holding period of work in progress turnover ratio is being divided by 360 days i.e. the total number of day. INTERPRETATION: Here in the work in progress holding period is continuously changing i.e. 39, 15, 149 days for the year 2007-08, 2008-09, 2009-10 respectively. It is found that highest is 141 days and lowest is 15days. It shows the ratio and utilization of stock in progress according to the inventories which are used by the company.

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CHAPTER-5: SUMMARY OF FINDINGS:

The inventories seem to contribute a high proportion of companies current asset. This indicates holding of inventory for the firm in putting burden on working capital requirement which can be reduced by better planning of inventory.

The materials storage of the firm looks unhealthy because the share of materials is pretty high in total inventory, when the scares nature of materials is considered the purchase of materials made by the company looks efficient.

The no of days of inventory holding is very high and it is improved year by year.

The company does not fix different inventory levels with the help of scientific formula.

It is found that economic order quantity model is not used to determine the order level.

The break down using 3 categories is traditional approach. A three fold break down is not necessary and is sometimes inconvenient in many cases. Two categories are sufficient, namely A and C group. The B group eliminate, often there is no break down at all. Here top items are important and classification is unnecessary.

Company is not having inventory holding policy.

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The cost volatility also fluctuates according to the goods manufactured and it varies from year to year.

The average raw material inventory and average work in progress as well as average finished goods comes out by the opening and closing balance of the respective years.

The cost of goods manufactured also comes out in the daily basis by dividing it by 360. I.e. the total number of days.

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CHAPTER- 6 SUGGESTIONS

Change in design to maximize the use of the standard parts and components which are available off the shelf. Strict adherence to production schedules. Special pricing to disposal of scrap or dormant inventory. Management should give importance for each and every factors that influence inventory. Pricing of inventory should not only in weighted average cost method. Give importance to time line for judging the inventory system. Estimate lead time, safety stock and re order level if supply is not instantaneous also decide about the service level to be provided to customer. Company should sell of its dormant and non moving items. Management should take care about huge inventory, which is lying as dead stock in stores. They should undergo a research process for adopt new technologies. Because of these new technologies some of the items become obsolete. So company should take care of it. The inventories should be kept according to their stock so that later the money cannot be wasted and it should be properly utilised according to the company daily need and by seeing and analysing the last year inventory which is being used. .

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CONCLUSION

Inventories are common in Indian manufacturing companies. Because of the scarcity of materials required countrys transportation systems and logistic system. So these companies have to maintain minimum stock in their stocks. So when they will go for this minimum stock, they should prefer which is optimal to their organization.

Inventories constitute about 30 to 40 percent of current assets of public limited companies in India. So like that, this JEMCO Company is also not exempted from this. So they should take actions to minimise the inventories. It has more dormant and non moving items, so they should make it scrape and sell.

Effective inventory management helps to optimize the inventory control system. Effective system will definitely helps to decrease the inventory investment cost, holding cost and also increase the profit. So every company should follow a model which reduces the cost and increase the profit. The company should look around the inventory status as it is the main component of the financial state of any organization. It should adopt the possible techniques to hold best inventory management as now also its quiet good.

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BIBLIOGRAPHY

Secondary data source: Materials Management an integrated approach by P. Gopalkrishnan and M.Sundaresan

Financial Management by I.M.Pandey

Management accounting by

Internet:

Company website www.google.com

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