S

A STUDY ON INVENTORY MANAGEMENT
CONTENTS
SL NO 1. CHAPTERS INTRODUCTION INDUSTRY PROFILE 2. REASEARCH DESIGN PG NO 8-49 50-54 55-60
3.
COMPANY PROFILE
61-90
4.
DATA ANALYSIS AND INTERPRETATION
91-123
5.
SUMMARY AND FINDINGS
124-126
6.
SUGGESTIONS AND CONCLUSIONS
127-129
7. APPENDIX AND ANNXURE INDIAN ACADEMY

Page 1
TABLE NO Table (1)
TITLE OF TABLE TABLE SHOWING THE AVERAGE STOCK OF RAW MATERIALS 2009-12
PAGE NO 92
Table (2)
TABLE SHOWING THE AVERAGE WORK-IN-PROGRESS FOR THE PERIOD OF 2009-2012
94
Table (3)
TABLE SHOWING THE AVERAGE FINISHED GOODS INVENTORY FOR A PERIOD OF 2009-2012
96
Table (4)
TABLE SHOWING THE INVENTORY TO TOTAL ASSET RATIO FOR THE PERIOD OF 2009-2012
98
Table (5)
TABLE SHOWING THE ACID TEST RATIO FOR THE PERIOD OF 20092012
100
Table (6)
TABLE SHOWING THE CURRENT RATIO FOR THE PERIOD OF 2009-12
102
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Table (7) TABLE SHOWING THE CURRENT ASSETS RATIO TO SALES RATIO FOR THE PERIOD OF 2009-12 104
Table (8)
TABLE SHOWING THE AVERAGE INVENTORY TO CURRENT ASSETS FOR THE PERIOD OF 2009-12
106
Table (9)
TABLE SHOWING PERCENTAGE OF AVERAGE WORK-IN-PROGRESS TO AVERAGE INVENTORY FOR THE PERIOD OF 2009-12
108
Table (10)
TABLE SHOWING THE RATIO OF FINISHED GOODS TO AVERAGE INVENTORY FOR THE PERIOD OF 2009-12
110
Table (11)
TABLE SHOWING COMPARISON OF SALES INVENTORY RELATIONSHIP FOR THE PERIOD OF 2009-12
112
Table(12)
TABLE SHOWING INVENTORY OF CURRENT ASSET RATIO FOR THE PERIOD OF 2009-12
114
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Table(13) TABLE SHOWING DAYS OF INVENTORY HOLDING 3 YEARS 2009-12 116
Table(14)
TABLE SHOWING COMPARISON OF ANNUAL INVENTORY PERIOD OF 2009-12
118
Table(15)
TABLE SHOWING DAYS OF OPERATING RATIO 3 YEARS 2009-12
120
Table(16)
TABLE SHOWING CALCULATION OF TOTAL INVENTORY 2009-12
122
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GRAPH NO
TITLE OF GRAPH
PAGE NO
Graph (1)
GRAPH SHOWING THE AVERAGE STOCK OF RAW MATERIALS 200912
93
Graph (2)
GRAPH SHOWING THE AVERAGE WORK-IN-PROGRESS FOR THE PERIOD OF 2009-2012
95
Graph (3)
GRAPH SHOWING THE AVERAGE FINISHED GOODS INVENTORY FOR A PERIOD OF 2009-20
97
Graph (4)
GRAPH SHOWING THE INVENTORY TO TOTAL ASSET RATIO FOR THE PERIOD OF 20092012
99
Graph (5)
GRAPH SHOWING THE ACID TEST RATIO FOR THE PERIOD OF 20092012
101
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Graph (6) GRAPH SHOWING THE CURRENT RATIO FOR THE PERIOD OF 200912 Graph (7) GRAPH SHOWING THE CURRENT ASSETS RATIO TO SALES RATIO FOR THE PERIOD OF 2009-12 105 103
Graph (8)
GRAPH SHOWING THE AVERAGE INVENTORY TO CURRENT ASSETS FOR THE PERIOD OF 200912
107
Graph (9)
GRAPH SHOWING PERCENTAGE OF AVERAGE WORK-INPROGRESS TO AVERAGE INVENTORY FOR THE PERIOD OF 2009-12
109
Graph (10)
GRAPH SHOWING THE RATIO OF FINISHED GOODS TO AVERAGE INVENTORY FOR THE PERIOD OF 2009-12
111
Graph(11)
GRAPH SHOWING COMPARISON OF SALES INVENTORY RELATIONSHIP FOR THE PERIOD OF 2009-12
113
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Graph(12) GRAPH SHOWING INVENTORY OF CURRENT ASSET RATIO FOR THE PERIOD OF 2009-12 115
Graph(13)
TABLE SHOWING DAYS OF INVENTORY HOLDING 3 YEARS 2009-12
117
Graph(14)
GRAPH SHOWING COMPARISON OF ANNUAL INVENTORY PERIOD OF 2009-12
119
Graph(15)
GRAPH SHOWING DAYS OF OPERATING RATIO 3 YEARS 2009-12
121
Graph(16)
GRAPH SHOWING CALCULATION OF TOTAL INVENTORY 2009-12
123
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CHAPTER- 1
INTRODUCTION TO INVENTORY MANAGEMENT
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INTRODUCTION
Finance: Finance is one of the major elements, which activates the overall growth of the economy. Finance is the nerve system of any business organization, just as circulation in human body to maintain life, finance is very essential to the business organization for smooth running of the business. Finance is classified into two namely: Public Finance. Private Finance. Public Finance:-
It deals with the requirements, receipts and disbursements of funds in the government institutions like states, local self government. Important of Finance:Finance is regarded as the life blood of an enterprise no business can be started without adequate amount of finance. Right from the very beginning finance is required even an existing concern may require further finance for making improvements or expanding the business. The importance of finance cannot be over emphasized. The important of corporate finance has arisen because of the fact that present day business activities are predominantly carried on company form of organization. Efficient management of every business enterprise is closely linked with efficient management of its finance.
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Finance functions Finance function is the most important of all business function. It remains a focus of all activities. It is not possible to substitute or eliminate this function because the business will close down in the absence of finance. The need for money is continuous. It starts with the sitting up of an enterprise and remains at all time. The development and expansion of business rather needs more commitment for funds. The funds have to be raised from various sources. The overall control of funds including costs. Advising the top management. Management of day to day transactions. Budgetary control.
Financial Management:Financial management is the specialized function directly associated with the top management. The significances of this function are not only seen in the line but also in the capacity of staff in the overall administration of a company. Definitions:According to Guttmann and Doug all, Financial management can be broadly defined as the activity concerned with the planning, raising controlling and administering the funds used in the business According to MR Howard and Opt Financial management may be defined as that area or set of administration functions in the organization which relate with
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arrangement of cash and credit so that the organization may have the means to carry out its objectives as satisfactory or possible. According to encyclopedia of social science Financial management deals with the financial problems of corporate enterprises. These problems include the financial aspects of the promotion of enterprises and there administration during early development, the accounting problems connected with the distinction between capital and income the administrative questions created by growth and expansion
and finally the financial adjustments required for the bolstering up or rehabilitation of a corporation which has come into financial difficulties Then the scope of the financial management is so wide as to cover the financial activities of a business enterprises right from its inception to its growth and expansion and in some case to its winding up also. Financial management usually deals with financial planning, acquisition funds used and allocation of funds and financial controls. Objectives of Financial Management:Financial management is concerned with procurement and use of fund. Its main aim is to use business funds in such a way that the firm value is maximized. There are various alternatives available for using business funds. Each alternative course has to be evaluated in detail. The decisions will have to take into consideration the commercial strategy of the business. Financial management provides a framework for selecting a proper course of action and deciding available commercial strategies. The main objectives
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of business are to maximize the owners economic welfare. These objectives can be achi8ved through the following. Specific objectives. Profit maximization. Wealth maximization. General objectives. Balance assets structure. Liquidity. Proper planning of funds. Efficiency. Scope of financial management: Estimating financial requirements. Deciding capital structure. Selecting a source of finance. Selecting a pattern of finance. Proper cash management. Implementing financial controls and proper use of surplus. Aims of financial management Acquiring sufficient funds. Proper utilization of funds.
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Increasing profitability. Maximizing firms value. Financial statement Accounting is the process of identifying, measuring and communicating economic information to permit informed judgment and decision by users of information. It involves recording, classifying and summarizing various business transactions. The end products of business transaction are the financial statements comprising primarily the position statement or the balance sheet and the income statement or the profit and loss accounts. This statement are the outcomes of summarizing process of accounting and are, therefore the sources of information on the basis of which conclusion are drawn about the profitability and the financial position of the concern. Financial statements evolved from system of accounting and its principals. Accounting is the process of identifying, measuring and communicating economic information to permit informed judgment and decisions by users information. It involves recording, classifying and summarizing various business transactions. Meaning of financial statement:Financial statement is the analysis of organized collection of financial data undertaken according to logical reports on the financial aspects of business form such as the operational result of the firm for a particular period of time. Financial statements, also called financial reports, are account balances arrayed in effective and meaningful orders. So that the facts and concepts they portray may be readily interpreted and used as bares for decisions by all people who are interested
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in the affairs of business on the bares information in their reports, progress to data, and decide upon the course of action to be taken in future Definition of financial statements According to John N Myer financial statements provide a summary of the accounts of a business enterprise, the balance sheet reflecting the assets, liability and capital as on a certain date and the income statement showing the results of operations during a certain period Financial statements are prepared as an end result of financial accounting and are the major sources of financial information of an enterprise. Objective of Financial statements:1. To provide reliable financial information about economic resources and obligations of a business firm. 2. To provide other needed information about changes in such economic resources and obligations. 3. To provide reliable information about changes in net resources (resources less obligations) arising out of business activities. 4. To provide financial information that assists in estimating the earnings potential of business. 5. To disclose, to the extent possible, other information related to the financial statements that is relevant to needs of the users of this statements.
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Types of Financial statements:1. A balance sheet. 2. An income statement. 3. A statement of changes in owners accounts. 4. A statement of changes in financial position. Limitations of Financial statements Financial statements are essentially interim reports. Lack of precision and definiteness. Lack of objectives judgment. Record only monetary facts. Historical in nature. Artificial view. Scope of manipulations. Inadequate information. Financial Statement Analysis Financial statement analysis is all about using accounting information to make business and investment decisions, financial statement analysis is designed for informed business persons, investors, creditors who can understand how to read, interpret and analyze financial statements. It focuses on techniques used by analyst, investors, managers and others to evaluate the financial position, operating performances and cash flow of business Financial statement analysis is an organized approach to extract relevant information from financial statements for making business. It enhances the chance
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for success in investing, lending and decision making by providing the back ground, tools and techniques that professionals use on day to day basis. Need for Financial Statement Analysis Financial Statement Analysis is used to identify the trends and relationship between financial statement items. Both internal management and external users (such as analysts, creditors and investors) of the financial statement needed to evaluate a companys profitability, liquidity and solvency. The most common methods used for financial statement analysis, common size statements, and ratio analysis. These methods include calculation and Comparisons of the results to historical company data, competitors, or industry average to determine the relative strength and performances of the company being analyzed.
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Chart showing the Objectives of financial statement analysis It investigates the relationship of primary data
It involves various steps to analyze
It involves the composition of current assets and current liabilities
It helps in decision making
It helps the magnitude and also conclusion
It helps the divided shares and bares market price
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INTRODUCTION TO INVENTORY MANAGEMENT Effective inventory management plays a crucial role in the smooth and efficient running of any organization reducing excess inventory and investing in the right in inventories leads to better customer service, better inventory turnover and a healthier bottom line. Managing working capital is synonymous with controlling inventories. Good inventory management is good finance management. Even actively and gainfully in the formulation of inventory policies designed to speed up turnover and maximum return on investment. An efficient management of inventory should ultimately result in the maximization of the owners wealth. The financial manager is actually a kind of a watch-dog over other functional areas. Broadly speaking the inventory management problem is one of the maintaining, for a given financial investment an adequate supply of something in orders to meet an accepted distribution can pattern of demand. Organizations more often than not have to tie up a need for large percentage of capital in raw materials and work in progress than in finished goods. The former not only represents too fold capital investment in finished goods but also takes longer to convert into revenue via the medium of sales. Inventory control is a science-based art of ensuring that enough inventory or stock in held by an organization to meet both its internal and external learned commitments economically. These can be disadvantages in holding either too much can too little inventory. Therefore, inventory control is primarily concerned with obtaining a correct balance between these two extremes. In fact, it is often said of inventory control
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that the variable theory leads the current practice to the put up to an education. This statement suggests that the precautionary measures should come up to the mathematical standards of the theories that the theorists should come down to the level of the precautionary. The very existence of inventory creates costs. Sometimes it is difficult to see what value is received from cost incurred. Inventory Management may be defined as the sum total of those activities which are necessary for the acquisition, storage, sale, and disposal or use of material. It is a subject which merits the attention of the top level management and influences the decisions of the planning and executive personnel.
INVENTORY MANAGEMENT
MEANING AND DEFINITION
ACCORDING TO JANNIS INVENTORY can be used to the stock on hand at a particular time at a particular type of raw materials, goods-in-process of manufacture, finished products, merchandise purchased for re-sale, and the like, tangible assets which can be seen, measured and countedIn connection with financial statements and accounting records, the reference may be to the amount assigned to the stock of goods by an enterprise at a particular time.
MEANING INVENTORY Inventories are goods held in stock by manufacturers or firms for future use or sales. Inventories comprise raw materials, packaging materials, general stores and supplies, machinery spare parts, components purchased or manufacturing for stock, work in process, and finished product.
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A STUDY ON INVENTORY MANAGEMENT INVENTORY MANAGEMENT

Inventory management is concerned with keeping enough product on had to avoid running out while at the same time maintaining a small enough inventory balance to allow for a reasonable return on investment.
THEORETICAL BACKGROUND OF THE STUDY

INVENTORY Inventory can be broadly defined as the stock of goods, commodities or other economic resources that has stored as reserved at any given period for future production or for meeting future demand. The term inventory may be divided into two classes:-
1.
DIRECT INVENTORY
Direct inventory include those item which plays a direct role in the manufacture and become an integral part of finished goods. Direct inventory can be classified into four groups.
a) I) II) III) b)
Raw materials in inventories provide for Economic bulk purchasing To enable production buffer against delays in transportation For seasonal fluctuations. Work in progress inventories
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i) ii) iii) iv) c) ii) iii) d) To enable economical lot production To cater the variety of products Replacement for wastages To maintain uniform production even though sales may vary i) For providing off-shelf delivery
To allow stabilization of the level of production For sales promotion i) Spare parts
2.
INDIRECT INVENTORIES
Indirect inventories include those items which are necessary for manufacturing but do not become component of the finished production, such as lubricants, grease oil, office materials, maintenance materials etc.
REMARK: organizations carry inventories for a number of the following reasons:
Smooth production Product availability Advantages of production of buying in large quantities Hedge against- long or uncertain lead time.
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TYPES OF INVENTORY
THERE ARE FIVE BASIC INVENTORY TYPES:
1.
Fluctuation
Fluctuation inventories have to be because sale and production times for the product cannot always be predicted accurately. There are fluctuations in demand and lead- times required to manufacture items. This requires reserve stocks, or safety representing the fluctuation inventories.
2.
ANTICIPATION
Anticipation inventories are built up in advance for a big selling season, a promotion or plant shut down period. Basically, anticipation inventories store men and machine hours for future need. 3. CYCLE
It is impossible and impractical to manufacture or purchase items of the same rate at which they will be sold. The items are therefore obtained in large quantities than are needed. This results in the lot size inventory.
4.
TRANSPORTATION
The transportation inventories exist because materials must be moved from one place to another. When transportation requires pretty long time, the items in transport represent the inventory and they exist solely because of transportation time.
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5. INVENTORY DECISIONS
There are two basic inventory decisions a manager must make as they attempt to accomplish the functions of inventory just received. These two decisions are made for every item in the inventory.
STEPS INVOLVED IN DEVELOPING AN INVENTORY MODEL

An inventory model is concerned with the two decisions; how much to order at one time and when to order so as to minimize total cost? For taking these two decisions respective of quantity and time, many inventory models have been developed. However, the basic steps which may be adopted in developing any inventory model are the same. The sequences of steps, which are usually involved an inventory model in an organizations, are as follows.
1.
Take the physical stock of all inventory items in an organization.
Classify the stock of items which are ascertained under step one, into various categories. Although there are several methods in which inventories may be classified as raw materials, work in progress, and finished goods etc. 2. Each of the above classification of inventory items may be further divided
into several groups. For e.g.: - consumable stores and maintenance spares can be divided further into the following groups.
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i) ii) iii) iv) v) vi) building materials hardware items lubricants and oils textiles and fibers electric spares stationery items etc.,
3.
Collect the annual usage value of item. List these in the order of descending
value of annual usage of the item. Use selection approach to inventory management. The selection approach requires classification inventory items under capital A, B, C categories. A category of items are managed by top level, B by middle and C by lower level management. Another classification of inventories is to identify the items on the basic of their degree of importance to the production process. This analysis is known as VED analysis. Items belonging to V category are vital, or critical to the production process. E class items are less critical but are classified as essential items while the rest of items are put under D or desirable category.
4. The A-B-C and V-E-D classification of inventories provide a basis for a selective control of inventories through formulation of suitable inventory policies for each category. 5. Decide about the inventory model to be developed. For e.g.:-Fixed order
quantity system may be developed for A class and high valued B class items, whereas, periodical view systems may be developed for low valued B CLASS ITEMS AND c class items.
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6. Collect data relevant for determining ordering cost, shortage cost inventory
carrying cost, inventory carrying cost etc. 7. Make an estimate of annual demand for each inventory item and their
prevailing market price.
8.
Estimate lead-time, safety stock and record level, if supply is not
instantaneous. Also decide about the service level to be provided to the customers. 9. Develop the inventory model.
10.
Review the position and make suitable changes depending upon the current
constraints.
MOTIVES FOR HOLDING INVENTORY

The question of managing inventories arises only when the company holds inventories. Maintaining inventories involves tying up of the companys funds and incurrence of storage and handling costs. Economists have established three motives for holding inventories: a transaction motive, a precautionary motive and a speculative motive. In addition, there may be a contractual reason for holding some inventories. Transactions motive emphasis the need to maintain inventories to facilitate
smooth production and sales operations. The transaction motive for holding inventory is to satisfy the expected level of actives of the firm. For example a pizza, restaurant receiving its next materials consignment on Monday starts the
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weekend with enough flour, salt, sauce, sausage and anchovies to make the number of pizzas anticipated to be ordered over the weekend. Precautionary Motive Necessities holding of inventories to guard against the
risk of unpredictable changes in demand supply forces and to provide a cushion in case the actual level of activity in different than anticipated again using a pizza restaurant as an example, in addition to holding enough inventory to make the expected number of pizza over the weekend, the restaurant may hold additional supplies as a precaution against demand being different than anticipated. If demand exceed expectations (either in total or for a particular ingredient)
sales will probably either be lost or if made. It is doubtful that many customers will accept a pie/topped with anchovies and pineapple as a substitute simply because the restaurant has run out of sausage and pepperoni. Speculative Motive Influences the decision to increase or reduce inventory
levels to take advantage of price fluctuations. The speculation motive for holding inventory might entice a firm to purchase a larger quantity of materials then normal in anticipation of making abnormal profile. An advance purchase of raw materials in inflationary times is one form of speculative behavior. A second reason for speculative inventory purchases may involve an anticipated change in a product. Contractual Requirements occasionally it may be necessary to carry a certain
level of inventory at meet a contractual agreement. Some manufactures require dealers to maintain a specified level of inventory in order to be the sole representative in a particular territory.
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A STUDY ON INVENTORY MANAGEMENT ADVANTAGES OF HOLDING INVENTORY

Quick Service Customer desires a prompt fulfillment of orders. A firm will have to make the goods available for sale. In the event of its not being able to offer quick service to customers, the latter are likely to get their order executed by cooperations.
Discounts a firm is in a position to take advantage of trade discounts by planning bulk orders with suppliers. A proper proportion will have to be maintained between the cost of maintain inventories and the discount that in likely to be gained.
Reduction in order costs each other increase certain costs. If the number of orders is reduced it is possible to economize on these costs or the procedure involving each other need not be repeated each time.
Efficient production Runs Inventories help a firm to make sufficiently long runs and there by achieve efficient production with an increase in the production run, it is possible to reduce the set-up cost of operations.
Protection against Shortages Adequate inventory protects a firm against the shortages that would result in production stoppages and considerable losses.
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A STUDY ON INVENTORY MANAGEMENT EFFECTS OF HOLDING LOW STOCKS

No Service Levels Often customer demand cannot be satisfied, leading to
immediate loss of business.
Increased production control costs an enterprise may have to rush special
production runs, re-organized schedules and in ordinate high level of chasing etc.
Increased Replenishment costs when operation with low stock levels,
average replenishment orders would be placed more frequently.
EFFECTS OF HOLDING HIGH STOCK

These results in: Increased Storage Costs. Increased capital investment, which reduces the capital available for other activities and projects. Increased risk obsolescence. Increased opportunities for obtaining purchase discounts by bulk ordering. Stable production programmers, which results in the maintains of a steady work force.
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A STUDY ON INVENTORY MANAGEMENT COST OF HOLDING INVENTORIES

The determination of inventory costs is essentially an income measurements problem, a means whereby there is a rational, orderly systematic interpretations of the effects on the economic progress of the company of expenditures involved in acquiring goods or in maintaining and operating productive facilities. Ability to quantify and develop rigors models of most managerial problems is dependent on the determination of the behavior of relevant costs. The practical application of such models is also dependent on ability to obtain the cost data. Relevant inventory costs which change with the level of inventory are listed below:
Ordering Costs : Every time an order in placed for stock replenishment, certain costs are involved:
1) Paper work Costs, typing and dispatching an order. 2) Follow-up costs-the follow-up required to ensure timely supplies include the travel cost for purchase follow-up, telephone, telex and postal bills. 3) Cost involved in receiving the order inspection checking, and handling to the stores. 4) Any set-up cost of machines if charged by the supplier, either directly indicated in quotations or assessed through quotations for various quantities. 5) The salaries and wages to the purchase departments are relevant for consideration of the purchasing function in came out at the same level with the existing staff. If the level of purchasing activity decreased significantly, obviously a transformed to other departments.
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There are certain costs which remain the same regardless of the size of the lot purchased or requisitioned. This would be true for the retailer ordering from the distributor, from the distributor ordering from the factory warehouse, for the factory warehouse ordering a new production run from the factory, and for the factory ordering raw materials from the vendors. These kinds of cost are called or set up costs if we are ordering to replenishment supplier at one stock point from another stock point, our interest is in the increment clerical costs of preparing orders, following up these orders, expediting them when necessary etc. We must take care low ever, to be sure that we obtain a true incremental cost of order preparation. It is not correct to derive the figure by simply dividing the total costs of the ordering operation by the average number of orders processed. A large segment of the total costs of the ordering function are fixed regardless of the number of orders issued there is however a variable components and this is the pertinent figure for use. Even then it may be difficult to determine satisfactorily the incremental cost which results from playing one more orders. Quantity discounts and handling and transport costs are other factors which vary with lot sizes When the order to be placed in the factory, then the equipment decision is in determining the size of the production run. In this instance the preparation costs are the incremental costs of planning production, writing production orders, setting up machines and controlling the flow of order through the factory. Material handling costs in the plant have an effect on production lot sizes in much the same way freight costs may affect purchase lot sizes.
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Beside the preparation costs of production, there are some other production costs which can have a direct bearing on inventory models, however. These are overtime premiums and the incremental costs of changing production levels, such as hiring, training and separation cost. Carrying Cost: Carrying costs constitute all the costs of holding items in inventory for a given period of time. They are expressed either in rupees per unit per period or as a storage and handling costs. o o o o o Storage and handling cost Obsolescence and deterioration costs Insurance Taxes The cost of the funds invested in inventories
Storage and handling costs include the cost of ware house spare. If a company owns the warehouse, this cost is equal to the value of the space in its next best alternative use (that is the opportunity cost) these cost also include depreciation on the inventory handling equipment such as conveyors and fork lift truths and the wages and salaries paid to warehouse workers and supervisors. Inventories are valuable only if they can be said obsolescence costs represent the decline in inventory value caused by technological or style changes that make the existing products less saleable. Deterioration costs represent the decline in value caused by changes in the physical quantity of the inventory such as spoilage and breakage.
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Another element of causing cost in the cost insuring the inventory against losses due to the fire, and natural disaster. In addition a company must pay any personal property taxes and business taxes required by local and state governments on the value of its inventories. The costs of funds invested in inventories are measured by the required rate of return on these funds. Because inventories investments are likely to be of average risk; the overall weighed cost of capital should be used measure the cost of these funds. If it is felt that inventories constitute an investments with either above average or below-average risk same adjustments in the weighted cost of capital may be necessary to account for this deference in risk. Some firms incorrectly use the rate of interest on borrowed funds to understate the true cost, because a given amount of lower-cost debt must be balanced with additional higher-cost equity financing. Inventory investment cost constitutes an opportunity cost in that it represents the return a firm forgoes as a result of deciding to invest its limited funds in inventories rather than in some other asset. Therefore for most inventory decisions, the appropriate opportunity cost in the firms weighted cost of capital. Like ordering costs, inventory carrying costs contain both fixed and variable components. Most carrying costs vary with the inventory level but a contain portion of them such as warehouse rent and depreciation on inventory handling equipment-are relatively fixed over the short run. Most as the simple inventory control models, such as the EOQ model, treat the entire carrying cost as variable.
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Stock out Costs: Stock out costs are incurred whenever a business is unable to fill orders because the demand for an item greater than the amount currently available in inventory. When a stock out in raw materials occurs, for example stock out costs include the expenses of placing special orders and expediting incoming orders, in addition to the costs of any resulting production delays. A stock out in work-inprogress inventory results in additional costs of rescheduling and speeding production within the plant, and it also may results in last production costs if work stoppages occur. Finally a stock out in finished goods inventory may result in the immediate loss of profits if customers decide to purchase the product from a competitor and in potential long-term losses if customer decide to order from other companies in the future.
SCOPE OF INVENTORY MANAGEMENT

The inventories from a pre-dominant part of the current assets and so they require maximum efficiency in the management for the successful management of the working capital. Since it is slightly different from other current assets 1. 2. 3. 4. 5. 6. 7. 8. 9. To determine the size of the inventory. To establish time frame, procedures and size of new orders. To ascertain the minimum, maximum and safety level. To coordinate the production and marketing policies with inventory policies. To provide sufficient storage facilities. To arrange for receipt of the stores. To design the various forms for recording these transactions. To assign responsibilities for carrying on the inventory control function. To prepare reports on the overall management of inventories.
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A STUDY ON INVENTORY MANAGEMENT OBJECTIVES OF INVENTORY MANAGEMENT

These are: 1. 2. To have stocks available as and when they are required. To utilize available storage space, but present stock levels from exceeding space availability. 3. To meet a High percentage of demand without heating excess stocks levels. In other words, Neither to over-stocks nor to run out is best policy. 4. 5. To maintain adequate accountability of inventory assets. To maintain the total value of replenishment work-load within the constraints of acceptable personnel complement. 6. 7. To keep all the expenditure within the budget authorization. To provide on item-by-item basic, for re-order points and order such quantity as would ensure that aggregate results conform to the constraints and objective of inventory control. 8. 9. To decide which items to stock and which items to procure on demand. To ensure an adequate supply of materials stores, spares etc, minimize stock outs and storages, and avoid costly interruption in operations. 10. To keep down investment in inventories, inventory carrying cost and obsolescence losses to the minimum. 11. 12. To facilitate purchasing economies. To eliminate duplication in ordering or in replenishing stocks by centralizing the stores from which purchase requisition emanate.
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13. To permit a better utilization of visible stocks by facilitating
interdepartmental transfer within a company. 14. To provide a check against losses of materials through carelessness of pilferage. 15. To facilitate cost accounting activities by providing a means for allocating material costs of products and department far comparison with other accounts. 16. To enable the management to make costs and consumption comparisons between operations and periods. 17. To serve as a means for the location and disposition of inactive and absolute items of stores. 18. To provide a perpetual inventory value and a consistent and reliable basis for the preparation of financial statement. 19. 20. 21. To contribute to the nations economic well-being To contribute to profitability. To bring down the inventory carrying cost which in considerable.
INVENTORY VALUATION
Many methods of material costing and inventory valuation have come into use among the most common methods of costing materials and valuing inventories are: 1. First In, First Out method (FIFO) Here the earliest acquired stock is assumed to be used first. The stock is assumed to be used first. The stock which is brought first is issued first. In other
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works the principle is that the materials are issued in this order and at the price of their original purchase. This method is claimed to the accurate for the reason that the materials are charged into production at actual cost in the order of receipt. The closing inventories are valued at the most recent price. If the closing in inventory balance includes material at several different prices, the problem of considerable clerical works is involved. This method assumes that the order, in which materials are received in the store, is the orders in which materials are issued front the stores. Hence the material which is issued first in priced on the basis of the cost of material received earliest. Soon and so forth. Advantages: The pricing of materials is perhaps consistent with the practice of issuing
oldest material first allowed in many manufacturing organization.
The value of materials is stock in fairly close to current cost.
Disadvantages: Issue of materials at different price complicates store accounting Comparing of job costs becomes difficult when similar jobs may be charged with different prices of the same materials. In a period of rising prices the charge to production in low. This trend to inflate reported profile, increase tax burden and push up dividends as a consequence the firm is sapped financially.
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2. Last in first out method (LIFO) This method is the opposite of the FIFO method. It assumes that the material which is purchased last to be issued at first. Hence, material issues are priced on the basis of the cost of the recent purchases. Advantages: The cost of production reflects the current cost of material better. In a period of rising prices, reported profiles are depressed, dividends are kept low and working capital is conserved.
Disadvantages: The issue of material at different prices complicates store account. Pricing of materials is not consistent with commonly followed practice of issuing the oldest material first. Comparison of job costs becomes difficult when similar jobs may be charged for the same material at different price. 3. Weighted average cost method: Under this method issues are priced at weighted average cost of materials in stock (the weights being proportional to quantities). To get a weighted cost figures, a new weighted average cost is calculated each times a delivery is received. Advantages: It leads to smooth out price fluctuation. It provides a fairly acceptable figure for stock value.
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Disadvantage: Disadvantage of this method may be medium, involved in calculating the
weighted average cost each time of new delivery in obtained.
4. Standard price (cost) method: Under this method a standard price is pre-determined when materials are purchased the stock account is debited with the standard price. The difference between the actual price and standard price is carried to a variance account. Material issued is charged as per the standard price. Advantages of this method: All material issues priced identically the possibility of jobs using the same
material being charged with different costs a problem with the FIFO or LIFO method does not exist. Stock accounting is fairly amplified there is no need for specific price
attributable to specific issue of materials.
Disadvantages: Determining the standard price may be somewhat difficult, particularly,
when price tend to increase somewhat unpredictable are characters by wide fluctuation. The issue of low variance should be heated may be thorny.
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5. Current price method: According to the method issues are priced at their replacement or realizable price at the time of issue Advantages: It discloses efficiency of buying Tenders based on production cost which reflect current price may be more
realistic.
Disadvantages: Determination of replacement/realizable price may sometimes be difficult. Comparison of job cost becomes difficult when similar jobs are charged for
same material at different prices. Since this method is not based on cost, confusion may arise.
6. Simple average method: Under the method material issues are valued at average price. It is calculated valued at average price of the materials in the stocks, from which the material to be priced could drawn by the number of prices used in that total. The issue price is determined as follows: Issue price = unit price of materials in stock Number of purchases
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This method works well if there is a little variation in the purchase prices the simple average is particularly useful in the following circumstances. Advantages: It is easy to calculate the price at which issues are to be made. A particular at a higher or lower rate does not disturb the price to a great extent because the particular difference in the price is averaged out. Simplicity is the greatest advantage of this method.
Disadvantages of the method are: Material cost does not represent actual cost price. When price fluctuate considerably, this method will give incorrect result. This method does not give regard to quantities of material held at cost price.
DIFFERENT CLASSIFICATION METHOD

CLASSIFACTION ABC [ Always better Control ] VED [ Vital essential and desirable ] The importance or criticality BASIS Value of items consumed
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FSN [ Fast moving and slow moving and non-moving ] HML [ High, Medium, low ] SDE [ Scarce, difficult, easy to obtain ] XYZ Value of items in storage Procurement difficulties Unit price of the material The pace at which material moves
ABC Classification: An ABC analysis offers an important solution to the problem of a scientific planning and control of inventories, and is an important technique of inventory management. It is based upon the value of different items constituting an inventory. It may be concerned with several items-raw materials, purchase and self fabricated component parts, sub-assemblies. Factory supplies, office supplies, tools, machinery and handling equipment items. An inventory may be differentiated on the basis of bulk, size, weight, usage, Value, durability, utility, availability, criticality etc and should be controlled with due weight age an ABC analysis is in the recognition of the principle that same items of inventory are more important than others. Thus items are classified under broad categories A, B, and C. The criteria for selective preference may differ from unit to unit. Considerations however is never the less given to their value, usage and criticality of these, the first two are not difficult of assessment because
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continue records for this purpose are generally available with business units. However as regards criticality or the relative significance of the items, no easy judgments can be passed; and this makes the process of evolution somewhat difficult. The ABC techniques enable an enterprise to keep its investment low and avoid stock-outs of critical items. Its objective is to reduce the minimum stock as well as the working stock. Item under class A constitute a small percentage of the total volume, but account for a large percentage of the product value of a unit. A large glossary of items entering a bulk of the total volume and accounting for an insignificant produce value is placed under class C items under class B constitute a moderate class which are higher substantial nor insignificant in relation to the product value of a unit. The value of items in class A may be significance as a result of: The usage being substantial, though the per unit cost of items may be small. The per unit cost of items being substantial though the usage may be small. Both per unit cost of items and usage being substantial. VED Classification: It applies largely to spare parts. The demand for spare parts demands on the performance of equipment of equipment. The vital spares should be stocked adequately. Essential parts may be stocked rather sparingly, for same risk can be taken in stocking such spares. Desirable spares may be dispensed with if the lead time for their procurement is low. It may be remembered that this classification is done by the technical department of an organization and that it will have to be combined with an earlier classification.
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FSN Classification: The FSN classification is mainly attempted on the basis of the consumption pattern. It is made on the basis of raw material has moved during the earlier periods and is often combined with the XYZ classification which is based a value of items in storage. The FSN classification helps in the timely prevention of obsolescence. HML Classification: This classification is made on the basis of the unit value of an item. Some items may be low value of an items while others may be high-value items The high, medium and low classification follows the same procedure as adopted in ABC analyses classification. Only difference is that in HML classification unit value is the criterion and not the annual consumption value. The items of inventory should be listed in descending orders of unit value and it is up to the management to fix limits for the three categories. The HML analysis is useful for keeping control consumption at departmental levels for deciding frequently of physical verification and for controlling purchase. SDE Classification: The SDE classification is made on the basis of scarcity of materials. The materials are classified on the basis of the nature of suppliers, the quality and continuity of supply, the lead time involved and the terms of payment the classical work involved and such other considerations. XYZ Classification: This is attempted on the basis of the value of items in storage. The purpose is to classify inventories and their uses at scheduled intervals.
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X items are those whose inventory values are high, while Z is those whose inventory values are low. This type of classification helps to identify those items which are extensively stocked. In conclusion it may be said that it is desirable to apply a selective control approach to the problems of controlling inventories. It is no use being rigid; nor is it worthwhile to adopt a universe approach for controlling all the items constituting the inventory. Such a course action, apart from being single-tracked, is wasteful and in effective. It is neither feasible (nor) desirable to maintain exhausting records of all kinds of inventories. Irrespective of their types and the investment tied up in them. The techniques of selective inventory control should serve as very useful weapons for the control of inventories and if properly utilized, should contribute significantly to the health of industrial, merchandising and other organizations.
OTHER INVENTORY CONTROL TECHNIQUES AND MODELS

SDF and GOLF Classifications: It should not be over looked that inventory levels are also dependent on the source a scarce item with a long lead time will have a higher safety stock for the same consumptions level. The SDF (scarce, difficult, easy to obtain) classification and the GOLF (Government, ordinary, local, foreign sources) classification are systems where classification is done on the basis of general availability and the source of suppliers.
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Economic Order Quantity Model (EOQ model): This model has been suggested by Douglas M.Lambert and James R.Stock. According to them. Economic order quantity is the quantity to buy (or) order for at one time that will achieve the lowest unit cost. It refers to size of order of an item at one time for which inventory costs are minimum it is also called least cost quantity The economic orders quantity (EOQ) is the order quantity for which the total cost of inventory ordering and carrying in minimum. In other words, economic order quantity or least cost quantity is that size of quantity for which ordering cost equal carrying cost. Ordering cost = cost of carrying quantity. E.O.Q = 2PD CV Where, P = ordering Cost (rupees per order) D = Annual demand in unit C = annual inventory carrying cost V = average cost of one unit of inventory, c is the carrying cost per unit. or 2PD C
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Economic Order Quantity Of function: The Economic order quantity can also be found out graphically. This above figure illustrates the EOQ function. In this figure costs carrying costs increase as the order size increases because on an average a larger inventory level will be maintained and ordering costs decline with increase in order size because larger orders size mean less number of orders. The behavior of total costs line is noticeable since it is a sum of two types of costs which behave differently with order size. The total costs decline in the first instance, but they start rising when the decrease in average ordering cost in more than offset by the increase in carrying costs. The economic orders quantity occurs at the profit in maximized at point.
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It should be noted that the total costs of inventory are fairly insensitive to moderate changes in order size. It may, therefore be appropriate economic orders range, not a point. To determine this range the order size may be change by some percentage and the impact on total costs may be studied. If the total costs do not change very significantly, the firm can change E.O.Q within the range without any loss. Just In Time (JIT) Inventory System: Manufacturing company has to maintain three classes of inventories raw materials work-in-process and finished goods. These inventories are designed to act as buffers so, that operations can proceed smoothly even if the suppliers are late with deliverers of the department is unable to operate for a short period because of breakdown or any other reason. However carrying of inventories results in costs in terms of storage, blocking of capital investment, insurance, etc. Such costs can be reduced/ minimized by keeping the inventories at the lowest possible level. JIT system basically aims to achieve this objective. JIT inventory system as its name suggests, means all inventories whether of raw materials work-in-process and finished goods are received in time. In order works raw materials are received just in time to go into production, and products are completed just in time to be shipped to customers. In a JIT environment the flow of goods is controlled by what is described as pull approach to the manufacture of products. The pull approach means at the final assembly of products and only that quantum of parts and materials is provided. The same signal is sent back through each preceding work-station so that a smooth flow of parts and materials is maintained with no inventory build-up at any point.
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The pull approach described above is different from push approach as used in case of conventional inventory system. In the latter case, inventories of parts and materials are built up and pushed forward to the next work -station. The result in blocking of funds and stock piling of parts which may not be used for days or even weeks together. Requirement of JIT System: The following are the key requirements for the successful operation of JIT inventory system. The company must have only few suppliers; suppliers must be found under long-term contracts and willing to make frequent deliveries in small lots. The company must develop a system of total quality control. TQC mean that no defects can be allowed over its parts and materials. Poor quality of goods or parts cannot be accepted since JIT inventory systems operate with almost no work in progress inventory, workers must be multi skilled in JIT environment. This is because in case of JIT system machine and equipment are arranged in small cells where several task can be performed in relation to a product. The workers assigned to these cells are expected to operate all the equipments which are there in the cells. Benefits of JIT System: The following are the benefits of JIT Systems: 1) Inventories of all types can be reduced significantly. This results in sharing of costs. 2) Storage space used for inventories can be made available for other made productive uses
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3) 4) Total quality control results in production of quality products Productivity of workers is increased and machine set-up time is decreased this all results in smooth flow of goods between workstations, decrease in total production time and maximization of the profits of the company.
Flexible Manufacturing System (FMS): The idea of continuous improvement, the central theme of JIT System, has led to the development of FMS for speeding up production. In case of this system too can made, machines within a company are grouped together, each such grouping is called a cell. These machines are controlled by a computer and they are programmed to change quickly from one production run to another. The basic feature of FMS is automated flow of materials to the cell and automated removal of finished items from the cell. In case several cells are linked together by means of an automatic material handling system and the flow of goods is controlled by a computer the system in termed as computer integrated manufacturing system (CIM) The working of FMS in conjunction with JIT inventory system results in substantial increase in through put i.e., process time required for converting raw materials into finished products. All these results in reducing inventories, improving quality and cutting delivery time. Hence, more and more progressive companies in Japan and USA are employing FMS concepts.
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A STUDY ON INVENTORY MANAGEMENT INDUSTRY PROFILE INTRODUCTION

The word hydraulics is derived from the Greek word for water (hydor). The term hydraulics originally covered the study of the physical behavior of water at rest and in motion. However, the meaning of hydraulics has been broadened to cover the physical behavior of all liquids, including the oils that are used in modern hydraulic systems The scientific study of water and other liquids, in particular their behavior under the influence of mechanical forces and their related uses in engineering...
STUDY OF HYDRAULICS In the contemporary industrial world, fluid power, particularly the hydraulics branch of it, is a magic world for energy transmission. The application of fluid power is causing many positive changes in the world around us. The application of hydraulic control and drive systems has resulted in new designs and improved efficiency for machines and installations. The use of fluid under pressure to transmit power and to control intricate motions is relatively modern and has had its greatest development in the past two or three decades. Industrial hydraulics is necessary it can move rapidly in one part of its length and slowly in another. No other medium combines the same degree of positive, accuracy, and flexibility, maintaining the ability to transmit a maximum of power in a minimum of bulk and weight.
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APPLICATIONS OF HYDRAULIC COMPONENTS AND SYSTEMS

Broadly, the hydraulic products from application angle are classified As under: Industrial Plastic Processing machinery Steel making and primary metal extraction industry Machine tool industry Others : cover in general, furnace equipment, rubber machinery, Textile machinery, general mechanical industry, etc.
Mobile hydraulics Agricultural tractors Earthmoving equipment Material handling equipment building and construction machinery, drilling rigs, commercial Vehicles, industrial tractors etc.
Aerospace application There are equipment and systems, e.g. transmission, rudder control, Which are used in aero planes, rockets and spaceships.
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Indian hydraulics industry The Indian hydraulic industry started in early sixties primarily with an objective of import substitution of some of the hydraulic products being used by the industry in various applications. Since most of the Indian industries have been set up, based upon the variety of technological sources, the range of their specifications is very wide. Due to this the range of products in the oil hydraulic industry is also quite wide resulting in a very small batch for each product. Therefore, difficult to specify a minimum economically viable capacity for the industry. While there has been a continued overall growth in the oil hydraulic products business due to large variety of specialized products to meet specific individual applications, volume growth in Individual products have been very low. With low volumes and high development costs concerning tooling, casting and forging, the industry has not been able to adopt modern production methods. Current production technology in use is largely dictated by production volumes, quality requirements and costs. Since the Indian industry has to manufacture a large variety of products with low volumes, the industry is not able to use the modern high production lines.
Size of Industry The production during 1994-95 of hydraulic components and systems directly manufactured by the organized sector units is estimated to be over 5, 50,000 units, which includes around 2, 65,000 Nos. of Gear Pumps manufactured for the Tractor Industry. The Industry covered under the study has total market demand in the year 1995-96 of about Rs. 595 crores, which includes an import Content of approximately Rs. 110 crores,
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This is approx. 26% of the total market Y in the past 3 years. While the growth of turnover figures, which show a steep rise of average over 18% per annum, the actual growth in terms of production has not increase beyond 6 to
Historical growth of industry

In terms of turnover, the Hydraulic Industry seems to have grown rapidly 7%. From the turnover figures, one may conclude that the domestic production has grown at a rate of 26% in terms of Sale Values but it is to be taken into consideration that almost 12% of this has been due to increase in prices which the manufacturers have been repeatedly undertaking due to rising cost of imported components resulting from depreciation of Indian Rupees against Dollar. INTERNATIONAL SCENARIO In connection with oil hydraulic technology, it is widely acknowledged that it is undergoing changes mostly determined by the user sector that have undergone revohitionary changes in their product designs in the recent years. According to present indications some of the changes in technology in respect of design, materials and manufacturing will be as under: Increased power/weight ratio Increased system pressures Extensive use of manifold systems avoiding extensive piping and relative leakage problems Reduced noise levels Increased use of proportional valve technology, interfacing with electronics and microprocessor systems.
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Chapter-2
Research Design of the Study
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A STUDY ON INVENTORY MANAGEMENT Introduction

The research design is the conceptual structure within which research is conducted. It constitutes the blue prints for the collection, measurement and analysis of data. A research design is a basic plan, which guides the data collection and analysis phases of the project. It is the frame work, which specifies the type of data collection procedure.
TITLE OF THE STUDY:

A study on inventory management and control at HYDRO CONTROL.
OBJECTIVES OF THE STUDY: To understand the concept of inventory management and control in HCHT Ltd. To identify the main reasons for the non-movement of inventory To study about the impact of change in inventory on the financial position of the company. To offers suggestions for improving the efficiency in inventory management.
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SCOPE OF THE STUDY: This project work involves the study of inventory control management in HCHT Ltd., Bangalore. It also analyses the capability of the division in maintaining the inventory control. Further the study will try to look on the procedure followed by them in holding inventory. In brief scope of this study is the operational jurisdiction inventory control management in HCHT Ltd., Bangalore.
DATA COLLECTION METHODS: To collect data for the project, A study on Inventory management and control at HCHT used both primary and secondary data collections methods.
DATA COLLECTION METHODS
PRIMARY DATA
SECONDARY DATA
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PRIMARY DATA: The data which are collected from the discussion with executives and stores officers. Primary data are that, which are collected freshly and for first and thus happens to be original in character. The methods of primary data collection are: Observation method Direct communication with material manager Inventory manuals
SECONDARY DATA: The data which have been collected from someone else and which have already been passed through statistical process. The secondary data sources are: Records of the company Text books
RESEARCH INSTRUMENTS: This phrases of the project deals with the various techniques adopted in gathering information. The data and information was mostly collected by visiting the organization several times during the course of study. This study required observation method which has both of direct and indirect in nature. The direct approach was adopted to gather as much information as
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possible, by interacting with person working in organization, such as stores manager, finance manager and personal manager etc.., This is the study entirely based on: Personal Interview Simple statistical analysis Published sources Records of RWF
STATEMENT OF THE PROBLEM: Effective management of inventory plays a vital role in any organization to attain its organizational goals. Cost reduction and cost control are the two important elements which determine the efficiency or in efficiency of any organization. Cost reduction on various aspects like managing of raw material, work-in-progress, and finished goods are very important parameters in this globalize and present competitive era. The objective of any inventory management programme is to determine an objective of any inventory management programme is to determine an optimum level of investment or under investment. We cannot expect to eliminate entirely the effect of inventory fluctuation because inventory fluctuation generally holds strategic position in the working capital i.e., it is mostly determined by the turnover of inventories. In this project an attempt had been made to study the management of inventories.
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LIMITATION OF THE STUDY: The time provided for the study was very limited i.e., 30 days. Due to the shortage of the time. I have not collected the full information, only overview of the methods of inventory management. The desire of company to maintain confidentially of some analysis of figures constant. The study on inventory management doesnt provide any suggestions to the technical up gradations of inventory process. Collection of data and analysis is restricted to HCHT at BANGALORE only.
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CHAPTER 3
PROFILE OF THE COMPANY
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A STUDY ON INVENTORY MANAGEMENT COMPANY PROFILE

HC hydraulic technology private limited (HCHT) is joint venture company between YUKEN INDIA LIMITED which is listed company in India and HYDRO CINTROL SPA ITALY. Hydro control is successful manufacturing company of hydraulic component for mobile application. Its inception took place in the year 1969 and it is existed since 1969. The head quarter is located in Italy in the Emilia region. Which is one of the most renowned industrial districts for production of hydraulic component in the world? The products produced by HCHT are backed by more than thirty five years of experience in design and development. The company has been incorporated in the year 2006, and started its commercial operation in the year 2007. Companys products are sold to different parts of the world like Europe countries, China and USA. The company is specialized in manufacturing the hydro control valves, where 50% of the produced is exported. HCHTs concentrates on its philosophy that is to assure the customer with high quality products and services. Each employee is responsible for un surpassed quality and is to ensure that the products meet and exceeds the customer expectation on every occasion. Working as a team the company strives for continuous improvement in all manufacturing process there by maximizing consistent superior quality at best value to the customer.
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HCHT is a well equipped workshop having all facilities for manufacturing of critical spares like valves, monoblocks, sectional valves, forl lift, back whole loader etc
Production plant dedicated for the Indian and neighboring countries market. The sharing of experience and the know how from the head quarter.
The Department of HCHT, Bangalore contributes in increasing production and productivity by reducing down time. Improving availability and increasing operational efficiency of the products.
HCHT provides prompt and efficient after sales services through branch offices everywhere in India. Hydro control conducts the continuous research of innovative solution, cost control and cost reduction through specific investment from quality supplier from low cost countries.
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HCHT BANGALORE.
HCHT VISION Hydro control envisions itself as the Specialist in the design and manufacturing of directional control valves for mobile machinery hydraulic circuit. The directional control valve is the most "critical" component in a mobile machine, because the customer cannot choose the suitable component before actually testing it on his machine. Our organization is customer focused: we want to provide solutions to our customers, not only products.
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HCHT is committed to build upon its strength and to take this to newer heights of achievement sand help HCHT in fulfilling its committed towards the nation. Mission Hydro control believes that innovation is the heart of our business a winning strategy that has been the key to our success. Hydro control can offer to mobile machinery manufactures rewarding technical partnership providing customized and innovative fluid power solution that can be designed, produced and delivered within short time span.
Code of Ethics
Hydro control requires that all directors, officers and employees of Hydro control, its subsidiaries and affiliates (Hydro control), abide by the fundamental principles of ethical behavior listed here in performing their duties. Obeying the Law We respect and obey the laws, rules and regulations applying to our businesses around the world. Integrity of Recording and Reporting our Financial Results We properly maintain accurate and complete financial and other business records, and communicate full, fair, accurate, timely and understandable financial results. In addition, we recognize that various officers and employees of Hydro control must meet these requirements for the content of reports to the Italy Securities and
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Exchange Commission, or similar agencies in other countries, and for the content of other public communications made by Hydro control. Respecting Human Rights We respect human rights and require our suppliers to do the same. Delivering Quality We are committed to producing quality products and services. Our business records and communications involving our products and services are truthful and accurate. Competing Ethically We gain competitive advantage through superior performance. We do not engage in unethical or illegal trade practices. Respecting Diversity and Fair Employment Practices Throughout the world we are committed to respecting a culturally diverse workforce through practices that provide equal access and fair treatment to all employees on the basis of merit. Protecting Our Assets We use Hydro control property, information and opportunities for Hydro controls business purposes and not for unauthorized use. We properly maintain the confidentiality of information entrusted to us by Hydro control or others. Offering/Accepting Gifts, Entertainment, Bribes or Kickbacks We do not offer or accept gifts or entertainment of substantial value. We do not offer or accept bribes or kickbacks. Selling to Governments We comply with the special laws, rules and regulations that relate to government contracts and relationships with government personnel.
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Political Contributions We do not make contributions on behalf of Hydro control to political candidates or parties even where lawful.
Reporting Ethical, Legal or Financial Integrity Concerns Any person may openly or anonymously report any ethical concern or any potential or actual legal or financial violation, including any fraud, accounting, auditing, tax or recordkeeping matter, to the Managing Director of Hydro control. For reports that are not made anonymously, confidentiality will be maintained to the extent possible while permitting an appropriate investigation.
Personal Responsibility Every officer, director and employee has the personal responsibility to read, know and comply with the principles contained in this Code of Ethics. Compliance with these principles is a condition of employment, and failure to comply will result in discipline up to and including termination. The Board of Directors shall determine, or designate appropriate Management personnel to determine, the actions to be taken in the event of violations of the Code of Ethics. Such actions shall be reasonably designed to deter wrongdoing and to promote accountability for adherence to the Code of Ethics.
QUALITY POLICIES OF HCHT
HCHT will Endeavour to meet high level of CUTOMER SATISFACTION by providing world class products and services through continual improvement of process and innovative services by total employee involvement.
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QUALITY CERTIFICATES
A Company of quality To assure the quality and reliability of its products, Hydro control has equipped itself since 1998 of a Quality System, certified in accordance to the UNI EN ISO 9001:2000 rules. Moreover, the company that cares for protection and respect of the environment is certified in accordance to UNI EN ISO 14001:2004, since 2003, assuring in this way, the respect and conformity to the existing environmental rules.
Certificated ISO 9001:2000.
Certificated ISO 14001:2004
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A STUDY ON INVENTORY MANAGEMENT Achievements and awards:

ISO 9001:2000 FOR QUALITY MAINTAINANCE ISO 14001:2004 for environmental protection. Successful implementation of kaizen system Successful implementation of TPM & TQM.
PRODUCT PROFILE Hydro control is a successful manufacture of hydraulic components for mobile application since 1969 with more than 5 million of operating products. The main products manufactured by HCHT are: Products MONOBLOCK VALVES Directional control valves with flow from 45 to 350 l/min. SECTIONAL VALVES Directional control valves with flow from 35 to 1.200 l/min.
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PROPORTIONAL VALVES Directional control valves with flow from 20 to 130 l/min. HYDRAULIC REMOTE CONTROLS Joysticks, foot pedals and supply units. SELECTOR VALVES 3-6 ways manual with and electrical control with flow from 30 to 350 l/min. LOAD HOLDING VALVES CARTRIDGES & MANIFOLDS Counterbalance valve and hose burst valve. ACCESSORI ELETTRONICI Joysticks and electronic boards (PVM).
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Monoblock valves Directional control valves with flow from 45 to 350 l/min.
HC-D2 45 l/min
HC-M45 45 l/min
HC-D10 55 l/min
HC-M50 50 l/min
HC-TR55 50 l/min
Hydro control's monoblock valves range is one of the widest and most complete in the whole industry.
New projects, innovations and technical improvement of the entire production range are constantly being added.
Sectional valves Directional control valves with flow from 35 to 1.200 l/min.
HC-D9 35 l/min
HC-D3 45 l/min
HC-D3M
HC-D4
55 l/min 80l/min
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HCDVS12 80 l/min
HC-D6 100 l/min
HC-D16 150 l/min HCD12
Sectional valves Directional control valves with flow from 35 to 1.200 l/min.
HC-D4 HC-D9 35 l/min HC-D3 HC-D3M 80 l/min 45 l/min 55 l/min
HCDVS12 80 l/min
HC-D6 100 l/min
HC-D16 150 l/min HC-D12
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Hydraulic remote controls Joysticks, foot pedals and supply units.
HC-RCX
HC-RCM
HC-RCB
HC-RCP
HC-RCF
HC-RCD
HC-RCS Applications
HC-RCT
Mini-excavators
Mini skid loaders
mini dumpers
Skid steer loaders
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Backhoe loaders
Wheeled loaders
Tractors
Boom mowers
Cranes and aerial platforms
Compactors,
hook and skip loaders
Forklifts Areas of operation: Hydro control Head quarters: Hydro control spa Osteria Grande castels. Pietro terme, Bologna Italy.
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Hydro control subsidiaries Hydro control Inc. USA. Hydro control Gmbh Germany. HC France Sas. France. HC China representative office China HC Hydraulic technologies Bangalore, India. Hydro control is more concern with the maintaining highest quality standards, right from the selection of raw material to processing and delivering of end products. The reason why hydro control equipments are much in foreign countries. Ownership pattern It is joint ownership between hydro control and yuken India...
Infrastructural facility Transportation facility Canteen facility Rest room Waiting room Medical benefit Latest technology
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FUTURE GROWTH AND PROSPECTUS:
Improvement in existing products of Hydro control and adopt latest technology. To attain market leadership. Introduction of new trade schemes to increase sales. Reduction in distribution expenses. Cost-reduction in all areas. Instant decision making in certain procurement activities. Timely introduction and implementation of market driven decisions. Ensuring effective internal control.
COMPETITORS INFORMATION: M/S. Walvoil Fluid Power India Pvt.Ltd ,
NO 23, Doddanekundi Industrial Area Mahadeva pura post Bangalore -560048
M/s. Bucher hydraulic pvt ltd
No 35, pace city 1, sector -37 Gurgoan -122001 India
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M/s HUSCO Hydraulic pvt ltd.
Plot A-4 Talengaon floriculture and industrial park Village ambi, navlakh umbhre Taj maval, talegaon dab hade Pune -410507 MCKENSYS 7S FRAME WORK Mc Kinsey and company framework provides a useful framework for analyzing the strategic attributes of an organization. Mc Kinsey counseling firm identified strategy as only one of 7s elements exhibited by the best-managed companies.
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MCKENSYS 7S 7s model is a tool for managerial analysis and action that provides a structure with which to consider a company as a whole. The 7s are a framework for analyzing organizations and their effectiveness. The 7s framework is Value Based Management (VBM) that describes how one can holistically and effectively organizes a company. The 7s are HARD Ss * Strategy * Structure * System
SOFT Ss * Style * Staff * Skill * Shared values
Strategy: The strategy in the 7S framework includes purposes, missions, objectives, goals and major action plans and policies of the company. Throughout the past decade, the corporate world has given close attention to the interplay between strategy and structure.
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By Strategy, we mean those actions that a company plans in response to or anticipation of changes in its external environment its customers, its competitors Strategy is actions, a company plans in response to or anticipation of changes in its external environment. THE STRATEGIES USED ARE QUALITY EMPHASIS. The implementation of the QMS at HCHT has resulted in improving the performance of overhauled sub-assemblies like; Valves, Sectional Valves, Mobile Blocks. Etc. continual Improvement in the effectiveness of our system performance and compliance with requirements to achieve total customer satisfaction and self-esteem through improved work culture.
Structure Structure refers to the organizational arrangements for performing tasks and activities. The structure could be give, functional, regional and product wise etc. An organizational structure is of the strategic management variables. It is the framework of reporting relationships note definitions and accountabilities that are intended to assist the firm in meeting its mission and objectives. Structure is basis for specialization and co-ordination influenced primarily by strategy and by organization size and diversity. Since HCHT is, following top- down approach structure that is the decision is taken by the top-level management of the company for analyzing and taking decision the top management will consult the lower level and functional level mangers.
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ORGANISATION STRUCTURE
HR
BOARD
FINANCE & CONTROL
MANAGING DIRECTORS
QA
MARKETING
OPERATION
ACCOUNTS
LOGISTICSTAXATION
QUALITY CONTROL
ORDER PROCESSING
MANUFACTURING
SUPPLY CHAIN MANAGEMENT
PROCESS ENGINEERING
PURCHASE
SUPPLIER DEPARTMENT
PLANNING
STORES
MACHINE SHOP
CORE SHOP
ASSEMBLY & TESTING
PLANT & MAINTAINANCE
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A STUDY ON INVENTORY MANAGEMENT FUNCTIONAL DEPARTMENTS OF HYDRO CONTROL

Human Recourse Department. (HRD). Production & Maintenance Department.( P & M ) Marketing Department. ( MKTG ) Finance A/c & Audit Department.(Finance) Material & Stores Department. Quality Control Department.
SYSTEM System refers to all the rules, regulations, and procedure both formal and informal that complement the Organizational Structure. Systems apply to many aspects of the firm The effective Day-to-day running of a business requires the speedy collection, collection, collation and flexible retrieval of information. 'Systems' in the 7s framework refer to all 'the rules, regulations, and procedures complement the organization structure.
Proper budget proposal from constituent department division/units and review & analysis of the same with historical situations. Enhancement of knowledge and skills of employers through training and development systems Computer systems to network most of the officers and give a push to computerization in all its officers.
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Under the accounting system, the financial statements have been prepared under the historical cost convention and that accrual basis of accounting is adopted except in few cases. Skills
Skills refer to the fact that employers have the skills needed to carry out the company strategy. Training and development ensuring people to know how to do their jobs and stay up to date with the latest techniques. People in an organization need various skills such as managerial, engineering, application Technology, science, etc, in the organizational content people also need Business skills, such as marketing, finance etc.
Technical skills Design skills Conceptual skills Human Resource skills
Waterman considers "Skills as one of the most crucial attributes or capabilities of an organization. The term "Skills" include those characteristics which most people use to described a company.
Takes greater HCHT pride in the experience it has gathered, the expertise it has developed and the skills it has honed especially in the planning, investigation, design, execution and effective operation of projects.
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HCHT has also shown its capability in handling capital expenditure of high magnitude.
A strong infrastructure coupled with modern technical and management concepts has helped HCHT meet the challenges of the rising demands of Hydraulic Equipment.
The highly skilled technocrats, administrators, supporting staff and dedicated workforce professionals joining hands to achieve the companys goal.
The skill levels of the workers are work oriented and they are specialized in their respective field of work. Most of the worker are well experiences and well trained.
Staff
Staff of human resource of an organization in referred as an important asset. So the persons to be selected for this should be carefully selected and appointed airtight place at right time. Various positions in the company require differing contributions and this has the implication that different people are needed to fit their various roles. Certain positions require people with special Skills other require special knowledge and also different types of personalities.
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Staffing is the process of acquiring human resources for the organization and assuring that they have the potential to contribute to the achievement of the organization's goal.
The total staff is 50. The staffs are educated, skilled & lead by professional at the line.
Manager, middle & top level executive. Subordinates have direct exposure t the job.
Expertise in one or more functional areas. Many have had experience of working in different units of. Which have enhanced their vision a dedicated staff from top to down below be a good aspect in HCHT
The people in organization are very dedicated and work towards the improvement of the organization. The skill levels of the workers are work oriented and they are specialized in their respective field of work most of the worker are well experiences and well trained.
RECRUITMENT, SELECTION AND PLACEMENT:
Recruitment & Selection process is done through central selection committee For this related company rules and regulation may apply.
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SALARY: 1. Salary list to prepared based on the attendance sheet of all the employees 2. The payment is usually done in first week of each month.
OTHER FACILITIES: Employees are provided with other facilities like provident fund, gratuity, Pension and leave encashment.
FRINGE BENEFITS: The fringe benefits provided by the corporation are: 1. Car facilities to the executive officers 2. Transportation facilities to the employees 3. Canteen facility
ROLE OF PERSONNEL MANAGER: The Personnel manager at the management level helps the management to emotions and analyzes the recruitment attraction & compensation of employees.
The other roles are: Control the activities in the management level in the organization. Looks after the grievances that might take place in the office. Directly reporting the issues & affairs to the top-level management.
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TECHNICAL DEPARTMENT:
OBJECTIVIES: To keep pace with the latest technologies To increase operating effectively and maximize efficiency, even while Increasing their capacity. To provide for better control and faster response to aid the increased System stability.
Style: Style has been observed in the organization that the behaviors of superior towards the subordinators in pleasant or hard. All firms develop a style and culture How things are done. This can relate to how people work together, how they dress, how they interact in the work situations etc. The important points are the individuals in the organization need to be feeler to the style, which is adopted in the organization for achieving the goal. Style is one of the seven levers, which top managers can use to bring about Organizational change. It is one of the so-called "soft" S's.
The style of the HYDRO CONTROL, Organization is according to the MC Kinsey framework, because evident through the patterns of actions taken by members of the top management team over a period.
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Constant up gradation of technical competence and systems, developing human resources capabilities, and empowerment are ways HCHT follows to achieves its objectives. Management initiative for improvement is through deputation to foreign Countries and career growth scheme to the employees. The corporation conducts in-house training and external training programs For the benefits of the employees and the company
SHARED VALUES: Values: Values refer to the institutional standards of behavior that strengthen commitment to the Vision, and guide strategy formulation and purposive action. The core values are shaped around the belief that enterprises exist to serve society. In terms of this belief, profit is a means rather than an end in itself a compensation to owners of capital linked to the effectiveness of contribution to society and the essential ingredient to sustain such enlarged societal contribution. Thus company has embraced an extended role of trusteeship that reaches beyond the Assets reflected in the balance sheet to encompass societal assets. An unwavering Commitment to integrity, ethical conduct, meritocracy, teamwork and abiding concern for Stakeholders are at the heart of your companys value system.
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Customer satisfaction Committed to total quality. Cost and time-consciousness. Innovation and creativity. Trust and team spirit. Respect for individuals. Integrity health and ethics
Shared values the central core frame work which gives rise to a certain spirit Among organizational members regarding "Who we are and where we are Headed". The spirit is permeating in the values, attitudes and philosophy of its Members. The corporate value defines the ideas and beliefs, which guide the Organizational operations. They lay down the foundation of the organizations Management philosophy and give rise to a particulars culture.
SWOT ANALYSIS STRENGTHS The factory is located in the heart of the city & has all infrastructure facilities. They require quick movement of raw materials & finished products. Due to its Proximity, habitation movement of men and material are easy. Known as quality supplier.
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A very good dealership network, which ensures that the products reach every Loop and corner.
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environment in the production of its quality products to the satisfaction of its customers. Cohesive management manufacturing as per customer requirement Provides excellent solution to the customer. company stable. Good industrial relations.
WEAKNESS Often not able to stand on the market fluctuation. High Over Head And Fixed Cost Global reach has not been as satisfactory as was expected. Old technology in certain production shops.
OPPETUNITY: Growing Market For Hydraulic Products Competitive environment calls for improvement and increase in productivity. Cutting costs by making use of new technology. There is opportunity to expand the operation throughout the world.
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THREATS: Presence of strong competitors. Govt interference may reduce growth potential. The current recession led to decrease in the market demand.
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CHAPTER 4
ANALYSIS AND INTERPRETATION
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ANALYSIS AND INTERPRETATION INVENTORY MANAGEMENT

Following are the analysis and finding which have been arrived at after the detailed study of inventory management practices of the firm ratios and calculations which were used to evaluate the efficiency of inventory management. They are as follows
THE ANALYSIS OF THE DATA COLLECTED FROM THE HCHT IS SHOWN AS FOLLOWS
AVERAGE STOCK OF RAW MATERIALS AND COMPONENTS
TABLE NO 1 TABLE SHOWING THE AVERAGE STOCK OF RAW MATERIALS AND COMPONENTS FOR A PERIOD OF 2009-2012 YEAR 2009-10 2010-11 2011-12 CALCULATIONS 66.855+62.377 2 62.377+ 88.702 2 93,549+186,215 2 AVERAGE STOCK 64.616 75.539 279.764
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CHART SHOWING AVERAGE STOCK OF RAW MATERIALS
AVERAGE STOCK(RS IN CRS)

300
279.764
250
200
150 AVERAGE STOCK(RS IN CRS) 100 64.616 50 75.539
0 2009-2010 2010-2011 2011-2012
INTERPRETATION The average stock of raw materials for the year 2009-10 is 64.616 and it increased to 75.539 in 2010-11. In the year 2011-12 it increased to 279.764.
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A STUDY ON INVENTORY MANAGEMENT AVERAGE WORK-IN-PROGRESS FORMULA:
TABLE NO 2
TABLE SHOWING THE AVERAGE WORK-IN-PROGRESS FOR A PERIOD OF 2009-2012
YEAR
CALCULATIONS
AVERAGE STOCK
2009-10
7,843,053+10,239,951 2
9,041,502
2010-11
10,239,951+22,566,996 2
16,403,473
2011-12
22,566,996+3,916,933 2
13,241,964
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CHART SHOWING AVERAGE WORKING IN PROGRESS
AVERAGE WORKING IN PROGRESS

18,000,000 16,403,473 16,000,000 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 0 2009-2010 2010-2011 2011-2012 9,041,502 13,241,964 AVERAGE WORKING IN PROGRESS
INTERPRETATION The average work-in-progress is as follows i.e. in the year 2009-2010 the ratio is 9,041,502 and it increased to 16,403,473 in the year 2010-2011. The ratio in the year 2011-2012 declined to 13,241,964.
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A STUDY ON INVENTORY MANAGEMENT AVERAGE FINISHED GOODS INVENTORY FORMULA:
TABLE NO 3
TABLE SHOWING THE AVERAGE FINISHED GOODS INVENTORY FOR A PERIOD OF 2009-2012 YEAR CALCULATIONS (RS IN CRS) 2009-10 10.857+16.549 2 2010-11 16.549+13.427 2 2011-12 13.427+18.588 2 16.007 14.988 AVERAGE STOCK (RS IN CRS) 13.703
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CHART SHOWING AVERAGE FINISHED GOODS INVENTORY
AVERAGE FINISHED GOODS

16.5 16 15.5 15 14.5 14 13.5 13 12.5 2009-2010 2010-2011 2011-2012 13.703 14.988 16.007
AVERAGE FINISHED GOODS
INTERPRETATION The average finished goods has been declined year after year i.e. in the year 200910 the ratio is 13.703 and in the tear 2010-11 the ratio increased to 14.988 and in the year 2011-12 the ratio is 16.007.
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A STUDY ON INVENTORY MANAGEMENT INVENTORY TO TOTAL ASSET RATIO

This ratio indicates the portion of inventory consisting the total assets a high percentage indicates funds being locked in inventory not being liquid assets thus reflect on the liquidity position of the firm. FORMULA
TABLE 4
SHOWING THE INVENTORY TO TOTAL ASSET RATIO FOR THE PERIOD OF 2009-2012 YEAR INVENTORY(Rs in crores) Total Assets (Rs in crores) Ratio
2009-10 2010-11 2011-12
129 151 360
426 467 867
30 32 41
SOURCE: Annual reports of HCHT ltd Total Assets = Fixed assets + Current assets
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CHART SHOWING INVENTORY TO TOTAL ASSET RATIO
INVENTORY TO TOTAL ASSET RATIO

900 800 700 600 867
500
400 300 200 100 0
426
467
Inventory(Rs In crores)
Total Assets(Rs In Crores) 360

Ratio
129
30 2009-2010
151 32 2010-2011 41 2011-2012
INTERPRETATION The inventory to total assets ratios has been stated as follows i.e., in the 2009-10 it has increased from 30% to 32% in the year 2010-11 and again in the year 2011-12 it has increased to 41%.
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A STUDY ON INVENTORY MANAGEMENT ACID TEST RATIO

This ratio establishes relationship between quick or liquid assets and current liabilities. An asset is liquid is it can be converted into cash immediately or reasonable soon without a loss of value. In this context liquid asset means all current assets except inventory. This ratio indicates standard ratio= 1:1 FORMULA
TABLE 5
SHOWING THE ACID TEST RATIO FOR THE PERIOD OF 2009-2012 Year Liquid asset Current liabilities Ratio
2009-10
67,162,579
125,838,325
0.53
2010-11
110,134,780
181,207,821
0.61
2011-12
141,092,785
348,981,862
0.40
Source: Annual reports of HCHT ltd Liquid assets = Current assets inventories
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CHART SHOWING THE ACID TEST RATIO FOR THE PERIOD OF 2009-12
ACID TEST RATIO

350,000,000 300,000,000 250,000,000 200,000,000 150,000,000 100,000,000 50,000,000 0.53 0 2009-2010 2010-2011 2011-2012 0.61 0.4 181,207,821 125,838,325 141,092,785 110,134,780 348,981,862
Liquid asset
Current liabilities Ratio
67,162,579
INTERPRETATION The Acid ratio in the year 2009-10 is 0.53 times which has increased to 0.61 times in the year 2010-11 but where as in the year 2011-12 the ratio has decreased by 0.40 times.
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A STUDY ON INVENTORY MANAGEMENT CURRENT RATIO

The current ratio is calculated by dividing current assets current liabilities. Firms current assets consist of those resources which can be converted into each within a short period i.e., 12 months. The firms meet its entire payment obligation only from the currents. This ratio indicates the working capital position of the firm. Standard ratio= 2: 1 FORMULA
TABLE 6
SHOWING THE CURRENT RATIO FOR THE PERIOD OF 2009-12 YEAR Current assets Current liabilities 2009-10 2010-11 2011-12 129,539,328 198,837,051 276,877,139 125,838,325 181,207,821 348,981,862 1.03 1.08 0.79 Ratio
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CHART SHOWING CURRENT RATIO FOR THE PERIOD OF 2009-12
CURRENT RATIO
350,000,000 300,000,000 250,000,000 200,000,000 150,000,000 100,000,000 50,000,000 1.03 0 2009-2010 2010-2011 2011-2012 1.08 0.79 129,539,328 125,838,325 198,837,051 181,207,821 Liquid asset Current liabilities 348,981,862 276,877,139
Ratio
INTERPRETATION The current ratio clearly depicts that in the year 2009-10 is 1.03 times which is less than the standard i.e. 2:1 and in the year 2010-11 the current ratio increased to 1.08 times and again the ratio declined to 0.79 times in 2011-12.
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A STUDY ON INVENTORY MANAGEMENT CURRENT ASSETS TO SALES RATIO

This ratio shows the firms ability in generating sales from all financial resources committed to current assets and also helpful in understanding the firms efficiency in utilizing current assets, separately. FORMULA
TABLE 7
SHOWING THE CURRENT ASSETS RATIO TO SALES RATIO FOR THE PERIOD OF 2009-12 Year Current asset Sales Ratio
2009-10
129,539,328
103,542,746
1.25
2010-11
198,837,051
193,353,502
1.03
2011-12
276,877,139
326,321,855
0.85
Source: Annual reports of HCHT ltd.
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CHART SHOWING CURRENT ASSETS TO SALES RATIO
CURRENT ASSETS TO SALES RATIO S TO SALES RATIO

350,000,000 300,000,000 250,000,000 200,000,000 150,000,000 100,000,000 129,539,328 103,542,746 326,321,855 276,877,139 198,837,051
193,353,502
Current asset Sales Ratio
50,000,000
1.25 0 2009-2010 2010-2011 2011-2012 1.03 0.85
INTERPRETATION Current assets to sales ratio has been declined year after year i.e., in the 2009-10 the ratio has reduced from 1.25% to 1.08% in the year 2010-11 and again in the year 2011-12 the ratio reduced to 0.85%.
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A STUDY ON INVENTORY MANAGEMENT PERCENTAGE OF AVERAGE INVENTORY TO CURRENT ASSETS

Thos indicates the position of inventory constituting current assets. This ratio is expressed as follows:
FORMULA
TABLE 8
SHOWING THE AVERAGE INVENTORY TO CURRENT ASSETS FOR THE PERIOD OF 2009-12 Year Average inventory 2009-10 64,615,892 129,539,328 49.88 Current Asset Ratio
2010-11
75,539,510
198,837,051
37.99
2011-12
112,243,312.5
276,877,139
40.54
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CHART SHOWING PERCENTAGE OF AVERAGE INVENTORY TO CURRENT ASSETS
RATIO
300000000 276877139
250000000 198837051
200000000
Average inventory 150000000 129539328 Current assets
112243312.5
100000000 75539540
Ratio
64615892
50000000 49.88 0 2009-10
37.99 2010-11
40.54 2011-12
INTERPRETATION The percentage of average inventory to current assets is fluctuating year after year i.e., in the year 09-10 the ratio is 49.88% and which is reduced to 37.99% in the year 10-11. But where as in the year 11-12 the ratio increased to 40.54%.
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PERCENTAGE OF AVERAGE WORK-IN-PROGRESS INVENTORY TO AVERAGE INVENTORY This ratio indicates percentage of average working progress inventory to average inventory. This ratio is expressed as follows: FORMULA
TABLE 9
SHOWING PERCENTAGE OF AVERAGE WORK-IN-PROGRESS TO AVERAGE INVENTORY FOR THE PERIOD OF 2009-12
Year
Average w-i-p
Average inventory
Ratio
2009-10 2010-11 2011-12
9,041,502 16,403,473.5 13,241,964.5
64,615,892 75,539,510 112,243,312.5
41.21 36.26 32.92
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CHART SHOWING PERCENTAGE OF AVERAGE WORK-INPROGRESS TO AVERAGE INVENTORY
AVG INVENTORY TO AVG W-I-P

120,000,000 112243312.5
100,000,000 75539540 64615892 60,000,000 Average w-i-p Avereage inventory Ratio 40,000,000 16,403,473.50 9,041,502 41.21 0 2009-10 2010-11 2011-12 36.26
80,000,000
20,000,000
13,241,964.50
32.92
INTERPRETATION The percentage of average work-in-progress to average inventory shows slightly decreases in the ratio. In the year 09-10 the ratio is 41.21% and in the year 10-11 the ratio is 36.26 but, in the year 11-12 to 32.92.
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PERCENTAGE OF FINISHED GOODS TO AVERAGE INVENTORY This ratio indicates percentage of finished goods to average inventory. This ratio is expressed as follows: FORMULA
TABLE SHOWING FINISHED GOODS TO AVERAGE INVENTORY
TABLE 10
Year Average finished goods inventory(Rs in crores) 2009-10 13.703 64,615,892 19.93 Average inventory Ratio
2010-11
75.539
75,539,510
20.22
2011-12
279.764
112,243,312.5
11.31
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CHART SHOWING PERCENTAGE OF FINISHED GOODS TO AVERAGE INVENTORY FOR THE PERIOD OF 2009-12
FINISHED GOODS TO AVG INVENTORY

120000000 112,243,312.50
100000000 75,539,510 64,615,892 60000000
80000000
Average finished goods inventory(Rs in crores) Avereage inventory Ratio
40000000
20000000
13.703
0
19.93
75.539
20.22
279.764
11.31
2009-10
2010-11
2011-12
INTERPRETATION The percentage of finished goods to average inventory is fluctuating as follows i.e., in the year 2009-10the ratio is 19.93% and which has shown increment in the year 10-11 to 20.22% and again the ratio declined to 11.31% in the year 11-12.
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A STUDY ON INVENTORY MANAGEMENT COMPARISON OF SALES TO INVENTORY RELATIONSHIP

Relationship between sales to inventory over 5 years can be analyzed using inventory turnover ratio.
Table showing comparison of sales inventory relationship
TABLE 11
Year
Annual sales
Annual inventory Inventory turnover ratio
2009-10
103,542,746
129,231,784
0.80
2010-11
193,353,502
151,079,020
1.28
2011-12
326,321,855
224,486,625
1.45
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CHART SHOWING COMPARISON OF SALES TO INVENTORY RELATIONSHIP
ANNUAL SALES
350,000,000 300,000,000 250,000,000 200,000,000 150,000,000 100,000,000 50,000,000 0.8 0 2009-10 2010-11 2011-12 1.28 1.45 129,231,784 103,542,746 193,353,502 151,079,020 224,486,625 Annual sales Annual inventory Inventory turnover ratio 326,321,855
INTERPRETATION This relationship shows the efficiency of inventory management and also the adequacy of inventory turnover to be very less in the year 2009-10 & it has been increasing year by year after 2009 until the year 2012.Higher the turnover, higher the benefit for the company. But in case of this company, it has been satisfactory in the year 2009-12 with an average turnover of 1.45 times. Before 2009-12 the inventory turnover ratio was pretty satisfactory. This indicates an increased storage facility of inventory in the unit. It is found that the inventory turnover ratio low in the year 2009-10 & then after it had increased in the year 2011-2012.
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INVENTORY OF TOTAL CURRENT ASSET RATIO

The inventory to total current asset ratio shows the store of inventory in the total current asset requirement of the firm:
TABLE SHOWING INVENTORY OF CURRENT ASSET RATIO
TABLE 12
Year
Annual inventory Total current asset
Inventory to current asset ratio (%)
2009-10
129,231,784
129,539,328
99.76
2010-11
151,079,020
198,837,051
75.98
2011-12
224,486,625
276,877,139
81.08
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CHART SHOWING INVENTORY OF TOTAL CURRENT ASSET RATIO
ANNUAL INVENTORY
300,000,000 250,000,000 200,000,000 150,000,000 129,231,784 129,539,328 100,000,000 50,000,000 99.76 0 2009-10 2010-11 2011-12 75.98 81.08 198,837,051 Annual inventory 276,877,139 224,486,625
151,079,020
Total current asset Inventory to current asset ratio (%)
INTERPRETATION Almost % of the current assets constitutes the inventory of the company. This ratio shows the importance of controlling the inventory of the firm in day-to-day management because the increase in the inventory can increase pressure on the total current asset requirement of the company.
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COMPOSITION OF NUMBER OF DAYS OF INVENTORY HOLDING (DIH).
Table showing days of inventory holding 3 years.
TABLE 13
Rs.In Crores
Year
Inventory
Sales
Days of holding inventory
2009-2010
129,231,784
103,542,746
455.56
2010-2011
151,079,020
193,353,502
285.20
2011-2012
224,486,625
326,321,855
346.72
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CHART SHOWING COMPOSITION OF NUMBER OF DAYS OF INVENTORY HOLDING
INVENTORY HOLDING
350,000,000 300,000,000 250,000,000 200,000,000 150,000,000 129,231,784 103,542,746 193,353,502 151,079,020
326,321,855
224,486,625 Inventory Sales Days of holding inventory
100,000,000
50,000,000 455.56 0 2009-10 2010-11 2011-12 285.2 346.72
INTERPRETATION The days of holding inventory were very high on 2009-10. It was more than one half year, however it started decreasing, and it went down as low as 285.2 days in the year 2010-2011.
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COMPARISON OF ANNUAL INVENTORY TO DEBTORS Relationship between annual inventories to debtors over 5 years can be analyzed using inventory turnover ratio.
Table showing comparison of annual inventory period TABLE 14
Year
Annual Inventory Debtors
Ratio
2009-2010
129,231,784
29,603,071
4.365
2010-2011
151,079,020
61,182,040
2.469
2011-2012
224,486,625
NIL
NIL
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CHART SHOWING ANNUAL INVENTORY TO DEBTORS RATIO
ANNUAL INVENTORY
350,000,000 300,000,000 250,000,000 200,000,000 150,000,000 129,231,784 103,542,746 100,000,000 193,353,502 151,079,020 224,486,625 Inventory 326,321,855
Sales
Days of holding inventory
50,000,000
455.56 0 2009-10 2010-11 2011-12 285.2 346.72
INTERPRETATION The percentage of Annual inventory to the Debtors is showing a decreasing trend which is evident from the table that it was 4.365 % in 2009-10 and in the year of 2010-11 it is decreased to 2.465% and in 2011-2012 it is nil.
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A STUDY ON INVENTORY MANAGEMENT EXPENSE RATIO
EXPENSE RATIO
Table showing days of operating ratio 3 years TABLE 15
Year
Materials consumed
Net Sales
Expense Ratio
2009-2010
61,588,692
103,542,756
54.48
2010-2011
101,038,017
193,353,502
52.25
2011-2012
186,214,869
NIL
NIL
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CHART SHOWING EXPENSE RATIO
EXPENSE RATIO
200,000,000 180,000,000 160,000,000 140,000,000 120,000,000 100,000,000 80,000,000 60,000,000 40,000,000 20,000,000 54.48 2009-2010 52.25 2010-2011 0 0 61,588,692 103,542,756 101,038,017 Materials consumed Net Sales Expense Ratio 193,353,502 186,214,869
0
2011-2012
INTERPRETATION The percentage of expense ratio is showing its increase trend in the year 2009-2010 54.48%,in the year 2010-2011 it has decreased to 52.25%,and in the year 20112012 it is NIL.
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A STUDY ON INVENTORY MANAGEMENT GROWTH OF TOTAL INVENTORY
TABLE SHOWING GROWTH OF TOTAL INVENTORY TABLE 16 Year Annual inventory Growth
2009-10
129,231,784
25.60%
2010-11
151,079,020
29.93%
2011-12
224,486,625
44.47%
TOTAL
504,797,429
100%
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CHART SHOWING GROWTH OF TOTAL INVENTORY
GROWTH OF TOTAL INVENTORY

600,000,000 504,797,429 500,000,000
400,000,000
300,000,000 Annual inventory
224,486,625
200,000,000 129,231,784 100,000,000 25.60% 0 29.93% 44.47% 100% 151,079,020
Growth
2009-2010
2010-2011
2011-2012
TOTAL
INTERPRETATION The percentage of Annual inventory to the total growth is showing a increasing trend which is evident from the table that it is 25.06% in 2009-10 and in the year of 2010-11 it was 29.93% and it increased to 44.47% in 2011-12.
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CHAPTER 5
FINDINGS
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FINDINGS
The average stock of raw materials is increasing year by year i.e. from 20092012 the maximum is in 2012. The work in progress is fluctuating year by year therefore it is showing the work is not performed constantly and it was maximum in 2010-2011. It is found the study that the inventories are composed of raw materials, work in progress and finished products. The total inventory is showing a growing trend from the past 3 years. The level of the finished goods is increasing year by year resulting in lack of storage space. The company fixes the salary depending upon the time period for which an employee works. There is a tendency to assume that A class items are all expensive and C class items are low cost. That may or not be true and the assumption that old result in serious losses. The objective of inventory management is to contribute profitability to the company. Presently factor influencing inventory are lead time and materials planning. From the packages preference test conducted, it is found that majority of the respondents prefer materials requirement planning on their past experience. Corporate awareness of not getting inventory is loss for the company. There is a very good relationship between employees. It has been always attaching its customers by enhancing the quality of its products.
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The industry is following the method of FIFO for getting the raw materials from the warehouse. The basis of classification of inventory is through ABC method only. Finished goods are valued at lower of cost or net realizable value.
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A STUDY ON INVENTORY MANAGEMENT SUGGESIONS

The company should reduce its stock so that it does not occupy. Unnecessary space and lead to breakages or wastages. Active disposal of goods that are surplus, absolute or dormant inventory. Change in design to maximize the use of 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 factor that influence inventory. It should not follow a same technique for a long time like FIFO like it is doing from the last 3 years. It should also adopt different techniques also. To keep minimum level of inventory for making available stock as and when it is required. Material resource planning also to be introduced for the purpose of efficient planning and availability of resources. Estimate lead time safety stock and reorder level, if supply is not instantaneous also decided about the level to be provided to customer. Give importance to time lines for judging the inventory system. The company has to give importance to research & development. As the company is facing a shift competition from foreign investors and MNCs, it has to work hard to withstand in competition. Company should get adjusted to fluctuations in prices.
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A STUDY ON INVENTORY MANAGEMENT CONCLUSION

In HCHT Ltd., rate of inventory represents a very significant proportion of total assets. Hence the importance of inventory management cannot be over emphasized. There is a considerable scope of improving management in HCHT Ltd., We can say that there should be efficient Fund flow management in the organization, it should overcome the adverse conditions and minimize its losses and protect the firm from facing the condition of liquidity. In tomorrows economy world will belong to those who are open to creative, imaginative and are flexible to changes, open minded, they have strength of taking risk and an innovative spirit. These entire characteristics can lead the company to a successful path. Based on this study, major findings are that from the overall finance point of view, company is performing well. This study indicates that in order to improve better HCHT has to take more effective and sound measures. Though this study may be of academic in nature but it may serve a starting point for the managerial action plans towards enhancing not only the operational efficiency but also will prove a great help in understanding and determining appropriate strategic plans to bring various important financial ratios to the level of industry standards.
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CHAPTER 7 APPENDICES & ANNXURE
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BIBLIOGRAPHY 1. Shashi k Gupta, Sharma R K and Neeti Gupta (2006),Financial Management- kalyani publishers, New Delhi. 2. APPANIAH AND REDDY (2008),Management accounting, theory, problems and solutions-2nd edition, Himalaya publishing house, Mumbai. 3. Annual reports of HCHT LTD Bangalore plant 2009-2012 4. 5. 6. www.hydro control.com Engineers of the industry www.management paradise.com
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A STUDY ON INVENTORY MANAGEMENT

DATA ANALYSIS AND INTERPRETATION

SUMMARY AND FINDINGS

SUGGESTIONS AND CONCLUSIONS

7. APPENDIX AND ANNXURE INDIAN ACADEMY

A STUDY ON INVENTORY MANAGEMENT

TABLE NO Table (1)

TABLE SHOWING THE AVERAGE WORK-IN-PROGRESS FOR THE PERIOD OF 2009-2012

TABLE SHOWING THE CURRENT RATIO FOR THE PERIOD OF 2009-12

A STUDY ON INVENTORY MANAGEMENT

A STUDY ON INVENTORY MANAGEMENT

TABLE SHOWING COMPARISON OF ANNUAL INVENTORY PERIOD OF 2009-12

TABLE SHOWING DAYS OF OPERATING RATIO 3 YEARS 2009-12

TABLE SHOWING CALCULATION OF TOTAL INVENTORY 2009-12

A STUDY ON INVENTORY MANAGEMENT

GRAPH SHOWING THE AVERAGE STOCK OF RAW MATERIALS 200912

GRAPH SHOWING THE AVERAGE WORK-IN-PROGRESS FOR THE PERIOD OF 2009-2012

A STUDY ON INVENTORY MANAGEMENT

A STUDY ON INVENTORY MANAGEMENT

TABLE SHOWING DAYS OF INVENTORY HOLDING 3 YEARS 2009-12

GRAPH SHOWING COMPARISON OF ANNUAL INVENTORY PERIOD OF 2009-12

GRAPH SHOWING DAYS OF OPERATING RATIO 3 YEARS 2009-12

GRAPH SHOWING CALCULATION OF TOTAL INVENTORY 2009-12

A STUDY ON INVENTORY MANAGEMENT

INTRODUCTION TO INVENTORY MANAGEMENT

A STUDY ON INVENTORY MANAGEMENT

A STUDY ON INVENTORY MANAGEMENT

A STUDY ON INVENTORY MANAGEMENT

A STUDY ON INVENTORY MANAGEMENT

A STUDY ON INVENTORY MANAGEMENT

A STUDY ON INVENTORY MANAGEMENT

A STUDY ON INVENTORY MANAGEMENT

A STUDY ON INVENTORY MANAGEMENT

A STUDY ON INVENTORY MANAGEMENT

It involves various steps to analyze

It involves the composition of current assets and current liabilities

It helps in decision making

It helps the magnitude and also conclusion

It helps the divided shares and bares market price

A STUDY ON INVENTORY MANAGEMENT

A STUDY ON INVENTORY MANAGEMENT

A STUDY ON INVENTORY MANAGEMENT INVENTORY MANAGEMENT

THEORETICAL BACKGROUND OF THE STUDY

A STUDY ON INVENTORY MANAGEMENT

REMARK: organizations carry inventories for a number of the following reasons:

A STUDY ON INVENTORY MANAGEMENT

A STUDY ON INVENTORY MANAGEMENT

STEPS INVOLVED IN DEVELOPING AN INVENTORY MODEL

Take the physical stock of all inventory items in an organization.

A STUDY ON INVENTORY MANAGEMENT

A STUDY ON INVENTORY MANAGEMENT

prevailing market price.

Estimate lead-time, safety stock and record level, if supply is not

MOTIVES FOR HOLDING INVENTORY

A STUDY ON INVENTORY MANAGEMENT

A STUDY ON INVENTORY MANAGEMENT ADVANTAGES OF HOLDING INVENTORY

A STUDY ON INVENTORY MANAGEMENT EFFECTS OF HOLDING LOW STOCKS

immediate loss of business.

Increased production control costs an enterprise may have to rush special

Increased Replenishment costs when operation with low stock levels,

average replenishment orders would be placed more frequently.

EFFECTS OF HOLDING HIGH STOCK

A STUDY ON INVENTORY MANAGEMENT COST OF HOLDING INVENTORIES