SUMMER TRAINING PROJECT REPORT

ON

INVENTORY MANAGEMENT IN EVEREST INDUSTRIES LTD

Submitted in partial fulfillment of the requirement for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION

Submitted by

TARUN SHARMA
M.B.A. FINAL YEAR

EXTERNAL GUIDE
Mr. Neeraj Kumar Verma Finance Head Everest Industries Ltd ROORKEE-247667 Uttarakhand

INTERNAL GUIDE
Miss. Neha Agarwal Lecturer, MBA Department COER (SM) ROORKEE -247 667 Uttarakhand

COER - SCHOOL OF MANAGEMENT

COLLEGE OF ENGINEERING ROORKEE
(UTTARAKHAND TECHNICAL UNIVERSITY, DEHRADUN)

SESSION 2009-2011

DECLARATION

I hereby declare that the study entitled INVENTORY MANAGEMENT is being submitted by me in the partial fulfillment of the requirement for the award of MASTERS IN BUSINESS ADMINISTRATION; by COER-SM is a record of my own work. The study was conducted at Finance Department, EVEREST LTD. The matter embodied in this project report has not been submitted to any other University or Institution for the award of degree this project is my original work and it has not been presented earlier in this manner. This information is purely of academic interest.

TARUN SHARMA

PREFACE
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On job training forms an integral part in the curriculum of MBA student who are required to undergo training in a reputed corporate house. It is designed to read life, business environment and situations. It helps students in applying there theoretical concepts to gain valuable insight of corporate culture and system.

I under took my training in Everest Industries Limited, Roorkee. Duration of my training was 19 July 2010 to 11 august 2010

During my training period, I spend my major time in understanding the function of various departments of Everest. And especially in Account Department. I did a project on Inventory Management.

This project report is a summary of all the functions and knowledge, I gathered during my training period.

TARUN SHARMA

ACKNOWLEDGEMENT

I would like to express my gratitude to MR. JAYRAM ATAVALE, HEAD (EVEREST LTD) for giving me an opportunity to do my training in the Finance Department at BHAGWANPUR PLANT. I would like to thanks MR. NEERAJ VERMA (ACCOUNTS HEAD) for providing relevant training in this field. I would like to acknowledge the invaluable contribution of Mr. MUKESH GOEL (A CCOUNT OFFICER)) and Mr. JAWAHAR SINGH (STORE HEAD) for their support which helped me in the completion of my project. I would also like to thank all the officers and staff members of EVEREST LTD who were directly and indirectly associated with my project for their encouragement throughout my training period. Last not the Least, my special thanks to Ms. NEHA AGARWAL faculty of my College who guided me during every thick and thin situation of my Training. I wish him great luck for future.

EXECUTIVE SUMMARY

As we scale the chronological ladder of time, we find a number of industries that have assumed significance in Indian economy. With the rapid globalization, this growth is likely to accelerate in future.

The purpose of the project was to find out effective means of Inventory management followed this path with focused strategies for improving corporate minimize the cost of inventories, minimize the holding days of inventories, and the maintain the flow of production. The project involved discussing the drivers of superior inventory management performance because it is a barometer for the underlying business behavior. The objective was to better assess the true potential of the company and its ability to achieve sustainable results from this potential.

The findings include that the company has enough potential if it leverages its resources to its fullest. By reengineering their internal process to increase the efficiency by inventory of the company can achieve significant results that will keep their shareholders happy.

The project has been of immense help for me. I, being a finance student, have got ample opportunities to understand the very fundamentals of commercial operations of the company. It also gave me an opportunity to understand about various macro-economic concepts, which affect the industry as well.

OBJECTIVES

Inventories constitute the principal items in the working capital of the majority of trading and industrial companies. In inventory, we include raw material, finish good, working in progress, supplies and other accessories. To maintain the continuity in the operations of business enterprise, a minimum stock of inventory is required. Management of inventory is designed to regulate the volume of investment in goods on hands, the types of goods carried in stock to meet the needs of production and sales while at the time, the investment in them is to kept at a reasonable level.

Further we can explore the objectives as -

y y y y y

To study and analyze the companys inventory system ABC Analysis Fast moving- Slow moving analysis To analyze the time period of inventory To analyze the cost of inventory

LIST OF CONTENTS

Contents

Page No.

1. OBJECTIVES OF STUDY 2. INTRODUCTION TO THE COMPANY - Company Profile - History - Products - Guiding Principles of Company - Board of Directors -Structure of the company 3. ANALYSIS 4. RESEARCH METHODOLOGY 5. FINDINGS 6. SUGGESIONS 7. CONCLUSION 8. BIBLIOGRAPHY

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41 42 43 44 45 46

INTRODUCTION

Everest Industries Limited provides you with the world-class building solutions to meet your construction requirements, in the Industrial, Commercial and Residential sectors. Historically, Everest has provided rural shelters by making corrugated roofing sheets available to farmers at a competitive price. The company is poised to capitalize on the opportunities in rural India where various housing and infrastructure initiatives are envisaged by the Government. Today, Everest offers a complete range of building solutions which includes Ceilings, Walls, Flooring, Cladding, Doors, Roofing and Pre-Engineered Steel Buildings. These are produced at Everest's state-of-the-art ISO: 14000 certified manufacturing facilities at Kymore, Nashik, Coimbatore, Kolkata and Roorkee. With over 4000 retail points spread across the nation together with the strength of over 1285 highly qualified and experienced engineers, designers and technicians, Everest provides you building solutions that successfully meet the highest standards of quality and durability. Trained manpower is our dedicated strength at Everest. Apart from continuous development of employee skills, the company is also committed to their welfare. After successfully catering to the Indian market, Everest Industries Limited has widened its horizons in the international arena. With consistent exports to Europe, Africa, Australia and Asia, Everest is all set to scale new heights and establish a strong foundation in the global market. Banking on its 75 years of experience and highly sophisticated technology, Everest assures you that all its products live up to its promise of Strength, Speed and Safety.

Production Facilities Bhagwanpur

Everest Industries has established a green field, ultra-modern manufacturing unit, spread over an area of 21 acres at Bhagwanpur, (Haridwar district), Roorkee (Uttrakhand) . The plant manufactures the following products - Roofing Sheets, Everest Fiber cement Boards, Pre Engineered Steel Buildings and Smart Steel Buildings. This plant has an installed capacity of 50,000 tones of Fiber Cement Boards, 40, 000 metric tons of steel fabrication products and 1lakh tones of roofing products per annum.

Vision
Everest will be the deepest penetrating housing and building solutions provider to deliver strength, speed and safety to its customers in all target market.

PRODUCTS y y y y y y y y Wall Solutions Ceiling Solutions Floor Solutions Chrysotile Asbestos Cement Corrugated (CBS) Roofing Sheets Solid Wall Panels Pre Engineered Steel Buildings Smart Steel Buildings Other Molded Goods (Accessories)

INITIATIVES y y y y Development of Green Belt Rain Water Harvesting Effluent Treatment Plant for 100% recycling of process effluents Energy Conservation

WELFARE AND SOCIAL ACTIVITIES y y y y y Occupational Health centre Canteen for employees/workmen Everest Ladies Club, Roorkee Community Development Trained for self employment for under privileged women- Tailoring and embroidering

Code of Conduct
The Board of Directors (hereinafter referred to as the "Board") of Everest Industries Limited (EIL) (hereinafter referred to as the "Company") has adopted the following Code of Business Conduct and Ethics (hereinafter referred to as the "Code") for the Board and Senior Management. A model code of conduct has been designed to put values into practice. This Code of Conduct isn't merely a set of rules for specific circumstances but an intentionally expansive statement of principles meant to inform all the actions of the Board of Directors and Senior Management. The Board and Senior Management should make an effort to study and understand these principles and do their best to apply them to any and all circumstances which may arise. All senior management employees should sign the acknowledgement form at the end of this Code and return the form to the HR Department that they have received, read and understood, and agreed to comply with the Code. The signed acknowledgement form shall be filed in each Officer's personal file.

Applicability of the Code

This Code applies to: (a) All the Directors of the Company. (b) All the Senior Management Employees of the Company, which would comprise all members of Management one level below the Executive Director, including all Functional, Works and Zonal heads. In terms of the Listing Agreement all the Board Members and the Senior Management employees should affirm compliance with the code on an annual basis. The Annual Report of the Company shall contain a declaration to this effect and signed by the Managing Director.

The Code 1. Conflict of Interest or Duty 1.1 The Board and Senior Management must be aware of potential conflict between (directly or indirectly): (a) On the one hand: 1. The interest of the Company 2. Their duties to the Company (b) On the other hand:

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1. Their personal or external business interests 2. Their duties to any third party 1.2 The Board and Senior Management must avoid placing themselves in a position that may lead to (a) An actual or a potential conflict of interest or duty. (b) A reasonable perception of an actual or potential conflict of interest or duty.

1.3 The Board and Senior Management must: (a) Fully and frankly inform the company of any personal or external business interest that may lead to: y y An actual or potential conflict of interest or duty. A reasonable perception of an actual or potential conflict of interest or duty.

(b) Obtain and follow independent legal advice to avoid and resolve any actual, potential or perceived conflict of interest of duty.

1.4 Each Director must: (a) Not participate when the Board considers any matter in which the Director has or may have a conflict of interest or duty: and (b) Comply with the Companies Act, 1956 and Listing Agreement provisions in relation to the disclosing material personal interests and restrictions on voting by Directors.

1.5 Each Director must inform the Board: (a) Any existing Directorship or other office held by Director in another entity (b) Any proposed appointment as a Director or Senior Executive of another entity before accepting the appointment. 1.6 The Board and Senior Management must not exploit for their own personal gain the opportunities that are discovered through the use of corporate property, information or position unless the opportunity is disclosed fully in writing to the Company.

2. Compliance with laws, regulations, policies and procedures The Board and Senior Management must: (a) (b) (c) (d) Comply with the letter and spirit of any applicable law, rule or regulation. Comply with the Insider Trading Regulations as laid down by SEBI and the Company. Comply with policies and procedures of the Company. Encourage other officers and employees to do the same.
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3. Confidentiality 3.1 Any information acquired by the Board and Senior Management while performing their duties is confidential information of the Company and must be kept confidential. The Board and Senior Management must not disclose the information to a third party except where that disclosure is: (a) Authorized by the Board. (b) Required by law or regulatory body (including a relevant stock exchange). 3.2 The existence and details of any Board and Management information, discussions and decisions that are not publicly known and have not been approved by the Board for public release are confidential information of the Company and subject to paragraph 3.1.

4. Protection and Proper use of Company Assets 4.1 The Company expects each Director and Senior Management to use all reasonable endeavors to protect any Company Asset and to ensure its efficient use. 4.2 A Director or Senior Management may only use a Company Asset for legitimate business purposes approved by the Board. 4.3 Each Director and Senior Management must immediately report any suspected fraud or theft of a Company asset for investigation. 4.4 The Board, Senior Management and all employees must pay particular attention to information technology aspects such as data protection and data security.

5. Fair Dealing 5.1 The Company expects the Board and Senior Management to: (a) Deal fairly with employees, investors, customers, suppliers, competitors, auditors, lawyers, creditors or other advisors of the Company. (b) Encourage other employees and officers to do the same. 5.2 The Board and Senior Management must not take unfair advantage of any employee, customer, supplier, competitor, auditor, lawyer or other advisor of the Company, creditor through illegal conduct, manipulation, undue influence, concealment, abuse of confidential information, misrepresentation of material facts or any other unfair dealing practice. 5.3 The Board and Senior Management must promote a respectful work place, culture that is free of harassment, bias and discrimination of any kind.

6. Compensation from non-Company sources and Gifts 6.1 The Board and Senior Management should not accept compensation (in any form) for services performed for the Company from any source other than the Company.
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6.2 The Board and Senior Management may not offer, give or receive gifts from persons or entities who deal with the Company or its Holding Company, where any such gift is being made in order to influence the actions or where acceptance of the gifts could create the appearance of a conflict of interest.

7. Reporting of Illegal and unethical Behavior 7.1 The Board and Senior Management should promote ethical behavior and take steps to ensure that the Company: (a) Encourages employees to talk to supervisors, managers and other appropriate personnel when in doubt about the best course of action in a particular situation. (b) Encourages employees to report violations of laws, regulations or the Company's Code of Conduct to appropriate personnel. (c) Informs employees that the Company will not allow retaliation for reports made in good faith.

8. Violation and Compliance of the Code 8.1 The Board and Senior Management is required to help enforce this code as part of his/her job and also of his/her ethical responsibility. 8.2 Directors should communicate any suspected violations of this Code promptly to the Chairman of the Audit Committee. Senior Management should communicate any suspected violation of this Code to the Managing Director who in turn shall communicate it to the Chairman of the Audit Committee. 8.3 Violations will be investigated by the Board or by persons designated by the Board, and appropriate action will be taken in the event of any violations of the Code.

9. Waiver and Amendment of the Code 9.1 This Code is subject to modification at any time since the Company is committed to continuously reviewing and updating its policies and procedures in terms of extant guidelines and procedures laid down by different statutory authorities. 9.2 Any amendment/inclusion or waiver of any provision of this Code shall be approved by the Company's Board of Directors and must be promptly disclosed on the Company's website.

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COMPANYS BOARD OF DIRECTORS

Particulars M. L. Gupta Manish Sanghi A. V. Somani Sandeep Junnarkar Mohanlal Bhandari Y.S.Rao M. L. Narula Amitabh Das Mundhra

Designation Managing Director COO and Director Chairman

Category Executive

Qualifications B. Tech (Hons)

Expertise in specific functional areas Technical / General Management General Management Business Management Banking, Corporate, Exchange Control & Securities Laws Finance, Accounts & Taxation Manufacturing Operation General Management

Chief Operating B.E. (Mech.), Officer PGDM (IIM) Promoter Director Professional Independent Professional Independent Executive Director Non-Executive, Independent Non Executive, Independent M.Com, MBA

Director

LLB, Solicitor

Director Executive Director Director

B.Com, FCA B. Sc. - Mech. Engg.

B.Sc. Elect. Engg. General Management Commercial, Administrative and Project Monitoring

Director

B.Com

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STRUCTURE OF THE COMPANY

Everest Industries Ltd. Act upon the rules and regulations of the companies Act, 1948. The company has well defined structure. It have the following departments:

1. HR/Personnel departments

2. Accounts departments

3. Purchase departments

4. Store department

5. Quality department

6. Shipping department

7. Sales& Excise department

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TOPIC AT A GLANCE
Inventory
Inventory constitutes the most significant part of current assets of a large majority of companies in India. On an average, inventories are approximately 60% of current assets in public limited co. India. Because of the large size of inventories maintained by the firms, a considerable amount of feuds is required to commited to them. It is therefore, absolutely imperative to mnage inventories efficiently and efficiently in the order to avoid unnecessary investment. A firm neglecting the management of inventories will jeopardize its long run profitability and may fail ultimately. It is possible for fore a company to reduce its level of inventories to a considerable degree e.g. 10 to 20%, without any adverse effects on production and sales, by using simple inventory planning and control techniques. The reduction in excessive inventories carries a favorable impact on the companys profitability.

Meaning of Inventory Management

Inventory is the physical stroke of goods maintained in organization for its smooth sunning. In accounting language it may mean stock of finish goods only. In a manufacturing concern, it may include raw material, WIP and stores etc. In the form of material or supplies to be consumed in the production process or in the rendering of services. In brief, inventory is unconsumed or unsoled goods purchased or manufactured.

Nature of Inventory Management

Inventories are stock or the products of a co. is manufacturing for sale and components that make up the product. The various forms in which inventories exist in a manufacturing co. are raw materials, work in progress and finish goods.

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Various Forms In Which Inventories Exist In A Manufacturing Company

1) Raw materials: Raw materials are those basic inputs that are converted into finished product through the manufacturing process. Raw materials inventories are those units which have been purchased and stored for future productions. 2) Work-in-process: Work-in-process inventories are semi-manufactured Products. They represent products that need more work before them and become finished products for sale. 3) Finished goods: Finished goods inventories are those completely manufactured products which are ready for sale. Stocks of raw materials and work-in-process facilitate production, while stock of finished goods is required for smooth marketing operations.

Raw Materials
Raw materials are those inputs that are converted into finished product though the manufacturing process. Raw materials inventories are those units which have been purchased and stored for future productions

Work in Progress
These inventories are semi manufactured products. They represent products that need more work before they finished products for sales.

Finished Goods
Finished goods inventories are those completely manufactured products which are ready for sale. Stock of raw material and work in progress facilities production. While stock of finished goods is required for smooth marketing operation. Thus, inventories serve as a link between the production and consumption of goods. The level of three kinds of inventories for a firm depends on the nature of the business. A manufacturing firm will have substantially high levels of all three kinds of inventories, with a retail or whole sale firm will have high and no raw material and work in progress inventories. Within manufacturing firms, there will be differences. Large heavy engineering companies produce long production cycle products, therefore they they carry large inventories. On the other hand, inventories of a consumer product company will not be large, because of short production
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cycle and fast turn over. Firms also maintain a forth kind of inventory, supplies or stores and spares.

Supplies
It include offices and plant cleaning materials like soap, brooms, oil, fuel ,light, bulbs etc. The material do not directly enter production, but are necessary for production process. Usually, these supplies are small part of the total inventories and do involve significant investment. Therefore, a sophisticated system of inventory control may be maintained for them.

Management of Inventories
Inventory constitute the principle item in the working capital of the majority of trading and industrial companies. In inventory, we include raw material, finished goods, work in progress, supplies and other accessories. To maintain the continuity in the operations of business enterprise a minimum stock of inventory required. However, the physical control of inventrory is the operating responsibility of stores superintendent and financial personnel have nothing to do about it but the financial control of these inventories in all line activity in which they comprise a substantial part of the current assets is a frequent problem in the management of working capital. Management of inventory is designed to regulate the volume of investment in goods an hand, the types of goods carried in stock to meet the needs of production, and sale while at the same time, the investment in them is to be kept at a reasonable level.

Concept of Inventory Management

The term inventory management is used in two ways unit control and value control. Production and purchase officials use this word in term unit control whereas in accounting this word is used in term of value control. As investment in inventory represents in many cases, one of the largest assets items of business enterprise particularly those engage in manufacturing, whole sale trade and retail trade. Sometime the cost of material used in production surpasses the wages and production overhead. Hence, the proper management and control of capital invested in the inventory should be the prime responsibility of accounting department because resources invested in inventory are not earning a return for the company. Rather, on the other hand, they are costing the firm money both in terms of capital cost being incurred and loss of opportunity income that is being foregone.

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OBJECTIVES OF INVNETORY MANAGEMENT

The basis managerial objectives of inventory control are two-folds; first, the avoidance overinvestment or under-investment in inventories; and second, to provide the right quality of raw material to the production department at the right time. In brief, the objectives of inventory control may be summarized as follows:

A. Operating objectives: 1) 2) 3) 4) 5) 6) 7) Ensuring Availability of materials Avoidance of Abnormal Wastages Promotion of Manufacturing Efficiency Avoidance of Out of Stock Danger Better Services to Customer Highlighting Slow Moving and Obsolete of Material Designing Poorer Organization for Inventory Management

B. Financial Objectives:

1) Economy in Purchase 2) Reasonable Price 3) Optimum Investment and Economy in Use of Capital

Inventory management aims at optimum stock level inventroy manager aims at supporting a higher level of production or service with the same stock level, or supporting the same level of production or service with a lower stock level. Higher level of the stock results in higher carrying\g cost while lower level carries with it the risk of stock-out position involving shortage costs, material manager trades off between the two. Inventories represent investment of a firms funds. The objective of the inventory management should be the maximization of the value of the firm

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There are five types of costs which are relevant for inventory management: (a) Purchasing costs: Purchase cost consists of price paid to the suppliers and all expenses for bringing the material to store including freight, insurance and transportations cost. In case central excise duty is available, the same is deducted from the price paid to the supplier. (b) Ordering cost: Requisition, placing of order, transportation, and staff services. Ordering costs are fixed per order size increases. (c) Carrying Cost: Warehousing, handling, clerical and staff services, insurance and taxes. Carrying cost increases. (d) Stock Out cost (shortage cost): When the stock falls short of demand, it result in higher cost involved in crash procurement, less efficient and uneconomic production schedule, Customer dissatisfaction and loss of sales. (e) Quality cost: The quality of a product or service is its conformance with predetermined standards, cost of quality can be classified into; 1. 2. 3. 4. Cost of vendor development Inspection costs Costs of defective parts Cost of replacement products

No system of costing can be considered as complete without availability of all types of material in plant so that the production may not be held for want any material. Minimum quantity of each material is fixed to permit production to move on schedule. 1. 2. 3. 4. 5. 6. 7. 8. 9. Availability of material No excessive investment in materials Reasonable price Minimum price Minimum wastage No risk of spoilage and obsolescence Ready information about availability of material Misappropriation of material Right amount of payments to suppliers

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ELEMENTS OF INVENTORY There are three basic forms of inventory: (A) Stores inventory (B) Stores In (C) Production Inventory: 1. Stores inventory:
This mainly comprises: (a) Direct materials such as raw material in form of ferrous, non ferrous, insulating materials, castingforgings and components (b) Indirect materials: These are also known as general stores, Maintenance and operating supplies and the like it includes all the non product items regularly stocked by the company and either consumed in operation of the plant or office or needed to maintain its building and equipment. Stores In Transit: These are item which have been shipped or dispatched from vendor but not yet reached their destination in stores and not yet accounted for in the priced ledger. Production Inventory: Work In Progress Inventory: This includes all product materials on which the company has performed some manufacturing, processing or converting operation but which are not yet in finished form ready for sale. Finished goods inventory: these include completed the items of modules that are ready for sale. These may be located at a company plant or store for a branch for a commercial warehouse.

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INVENTORY CYCLE

MATERIALS PLANNING

MATERIALS PURCHASING & RECEVING

MATERIALS STORING

MATERIALS ISSUING

MATERIAL ACCOUNTING

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MATERAIAL PLANNING 1. 2. 3. 4. 5. 6. 7. Centralized purchasing or decentralized purchasing Classification and codification Standersation and simplification Types of stores i.e., centralized store or decentralized store Fixation of levels(re-order,minimum,maximum,danger,EOQ) Selective controls through ABC analysis,VED analysis Perpetual inventory system

MATERIALS PURCHASING & RECEIVING 1. 2. 3. 4. 5. 6. 7. 1.Asectenmaents requirements of materials Exploring of supply Calling quotations Preparing comparative statement of quotation Select one of them Receiving and inspecting materials Checking and passing of bills for payments

MATERIALS STORING 1. 2. 3. 4. Location and layout of stores Maintainers of stores records, bin cards and store ledger Perpetual inventory systems Calculation of inventory turnover ratio

MATERIALS ISSUING
1.

Materials requisition 2. Bills of materials 3. Material returned to stores 4. loss/surplus of materials

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MATERIALS ACCOUNTING

1. Receipts of materials 2. Issues of materials 3. losses/surplus of materials

INVENTORY CONRTOL AND MANAGEMENT TECHNIQUES

A) EOQ- Economic Order Quantity: It is an important technique of inventory control. It prescribes the size of the order at which the ordering cost and the size of the order at which the ordering cost and inventory carrying cost will be minimum. It refers to the size of the order which gives maximum economy in purchasing any item of raw material or ety

B) Determination of Stock Levels: i) Reorder Level- It is the level of material stock at which it is necessary to take the steps for procurement of further lots of materials.

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Reorder Level= Safety Stock + [Daily Usage Rate x Lead Time in Days] ii) Minimum Stock Level/ Buffer Stock Level/ Safety Stock Level: It is the lower limit below which the stock of any inventory should not be allowed to fall. iii) Maximum Stock Level: It represents the upper limit beyond which the the quantity of an inventory is not normally rise to ensure that unnecessary working capital is not blocked in stock. iv) Average Stock Level: It is the level at which neither the inventory is over the optimum level nor under the minimum level. v) Danger Level: It is the level fixed below minimum level. If the stock reaches this level, it indicates the need to take urgent action in respect of getting supply.

c) Selective Inventory Control Techniques:

i)

ABC Analysis: This technique assumes the basic principle of virtual few trivial many, which considering the inventory structure of any organization and is popularly known as always better control. According to this technique few items constitute (aprox.) 20% of total itema but 70% of total cost , these are under the classification A, few items constitute 30% of total items but 20% of total cost are under B and few constitute 55% of total items but their cost is 10% of total cost are under C category. VED- Vital Essential Desired: It is generally used for spare parts in this analysis the items are classified on the basis of critically to the production process or other services. In VED the classification of material is done on the basis of Vital, Essential, and Desired. The vital items are those without which the break down in production may take place, while Essential items are those without which production may be adversely effected, and the Desired items are those which are required but there no effect on production. Inventory Turnover Ratio: This ratio stablishes the relation between the values of the material consumed during a given period of time and the average amount of inventory carried during the period. Inventory Turnover Ratio= Value of material consumed during the period/Average Inventory Held during the Period. Where value of material consumed = Op. stock + purchase + Direct Exp. Closing Stock Avg. Inventory= Op. stock + Closing Stock/2

ii)

iii)

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(D) Perpetual Inventory system The perpetual inventory system as a system of records maintained by the controlling department, which reflects the physical movements of stock and their current balance. Bin cards and ledger help the management in maintaining this system as they make record of the physical movements of the stock on the receipts and issues of material and also reflect the balance in the stores . Avoidable Causes 1. Clerical mistakes 2. Pilferage and thefts 3. Short or over- issue of material. Unavoidable Causes 1. Actual balances may be less due to shrinkage and evaporations. 2. Actual balance may be more due to absorption of moisture. 3. Actual balances may be less due to breakdown of fire, e.t.c. 4. Material may be lost due to breaking up bulk material into smaller parts for issue. Advantage of Perpetual inventory system 1. It is possible to prepare periodical profit and loss, balance sheet. 2. The capital investment in stores can be kept under control because actual stock can be compared with the maximum and minimum levels. 3. Planning and production can be done according to the availability of the material in the store. 4. A system of internal check remaining production all the times because of Bin cards and store ledger. (E) FNSD Analysis FNSD analysis divides the items of stores into four categories in the descending order of importance of their usage rate stands for the fast moving items that are consumed in a short span of time . F stands for fast moving items during the production. N stands for normal moving items which are exhausted over a period of a year or so. S stand for the slow moving items which are not issued at frequent intervals and are exhausted over period of two year or more. D stands for the dead items and the consumptions of such items is almost nil. Items can be taken as obsolete items which have become outmode and have no further use for the purchase theywere purchased.
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F- Fast moving N- Normal moving S - Slow moving D- Dead item (F) JUST IN TIME PRODUCTION It is a management philosophy which aims at eliminating waste from every aspect of material and its related activities. The term JIT refers to producing only what is needed, in just the amount needed. JIT is defined as a Technique for the organization of workflows, to allow rapid, high quality, flexible production while minimizing manufacturing waste and stock level. More specifically JIT seeks to achieve the following goals: 1. Elimination of non-value added activities 2. Zero-inventory 3. Batch-size one 4. Zero-breakdown 5. A 100 % on time delivery service. (G) JUST IN TIME PURCHASING JIT purchasing demands working in close co-operations with vendors. Usually firms work with a few vendors and develop a kind of partnership with them. Firms enter into long term contracts with them and make them aware of the premium placed for on time delivery of high quality goods in the exact quantity required. Thus the responsibility for the checking quality and quantity is placed on vendors.

Ordering SystemsThe main problem in any ordering system is when to order and how much to order accordingly. Main methods used for overcoming these problems are:1. Reorder level system (ROL method): In this method, at first a recorder level is found out taking into consideration the lead-time and also the rate of consumption. To take care of any variation either in the lead-time or in the ratio of consumption of quantity known as a buffer stock or safety slick is provided. 2. Periodic ordering method:- The stocks received at fixed intervals of time and orders are placed either for a fixed quantity or a variable quantity.
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Determination of ordering cost: Ordering cost is the cost which will be incurred by concern because of initializing or placing order for the supply of materials. To find out the ordering cost, at first the following cost are determined for a particular year. 1. 2. 3. 4. 5. Suitable position of administrative staff lost who have been engaged in purchasing activities. Clerical cost. Depreciation on building furniture, and on office equipments. Post telegraphic cost and stationary expenditure. Travel and electricity expenditure.

After finding out the total expenditure of all the items, divide that particular amount by the total number of orders placed in that particular year, which will give the order cost in Rs. Determination of inventory carrying cost: Inventory carrying cost is the total expenditure incurred by the material management functions for carrying the inventory in stock. So find the inventory carrying cost at first the following expenditure for the particular year is fount out. 1) 2) 3) 4) 5) Suitable position of the administrative staff cost. Suitable position of the security cost & electrical cost. Maintenance and depreciation expenditure on building and furniture. Stationary, post, telegraph and electricity expenses. Obsolescence, Insurance and handling charges.

WHEN SHOULD THE FIRM PLACE AN ORDER TO REPLENISH INVENTORY?

The inventory level at which the firm places order to replenish inventory is called reorder point. It depends on (a) the lead time and (b) the usage rate. Under perfect certainty about the usage rate, the instantaneous delivery (i.e. zero lead time, the reorder point will be equal to:

Lead time =Usage rate +Safety stock.

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The firm should strike a trade-off between the marginal rate of return and marginal cost of funds to determine the level of safety stock. A firm, which carries a number of items in inventory, which differ in value, can follow a selective control system. A selective control system, such as the A-B-C analysis, classifies inventories in to three categories according to the value of item

A-Category consists of highest value items, B- Category consists of high value items, C-Category consists of lowest value items. More categories of inventories can also be created. Tight control may be applied for high-value items and relatively loose control for low-value items.

FUNCTION OF INVENTORY CONTROL Functions to be performed in the field of Inventory Control are :

1. 2. 3. 4. 5. 6. 7.

Setting up norms for carrying Inventory. Determining what items to be stocked. Setting rules for Inventory replenishments. Receiving, storing and issuing inventory items as needed. Maintaining records of inventory quantities and values. Identifying and deposing of slow-moving, non-moving, obsolete or damage inventories. Furnishing summary information on inventory position for control purposes.

In managing inventories, the firms objective should be in consonance with the shareholders, wealth maximization principle.To achieve this, the firm should determine the optimum level of inventory. Efficiently controlled inventories make the firm flexible. Inefficient Inventory control results in unbalanced inventory and inflexibility the firm may sometimes run out of stock and sometimes may pile up unnecessary Stocks. This increases the level of investment and makes the firm Unprofitable.

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A GLANCE AT EVERESTS INVENTORY CYCLE

STORES/WORKER/USER (INDENT)

PURCHASE DEPATMENT (P.O)

SUPPLIRES

MATERIAL RECEIVED REJECTED

MIN PREPARED (GRN)

GRN PREPARED (STORES REQUISITION SLIP)

STORES/ITEM MASTER/INVENTORY

STORES

USERS

VICE VERSA
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Indent- It is a type of purchase requisition slip prepared by the stores. It is a purchase order which discloses the quantity and quality of goods. Indent Includes1) 2) 3) 4) 5) Number of Items Quality Quantity Time Cost

The indent is prepared by1) User- Some time the order is placed by the user 2) Stores- On the basis of minimum level of stock, maximum level, reorder level and danger level. 3) Insurance spares- It is produced on the basis of urgency, without these items break down may occur. 4) Capital items- In this cases the indent is produced for the purpose of increasing the capacity of the plant.

y y y y y y y

After producing indent, it is verified or approved by the different authorities. Then it is issued to the purchase department. On the basis of the indent the purchase department verifies the demand, that either it is required or not. When verified and feels required the purchase department searches the suppliers and select. Among the selected suppliers the quotation are sent and received. On the basis of the quotation bargaining is done. And the cheapest and appropriate one is selected. Then follow up is compulsory to check the status of the order so that the material can be received on time which can escape the break down in production. After a particular period of time material is received and primarily an gate entry I done. MIN- Material Inward Note: The MIN ensures the quality and quantity of material, whether both te quantity and quality of the material is according to the order or not. On the basis of the inspection MIN is generated. It shows that either the good are acceptable or not. GRN- Goods Received Note: If the material is accepted then GRN is prepared. BIN: It is an alphanumeric code given to each items in the stores, which used to identify the stock and manage it according to the serial. These items are regularly used.
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NON BIN: These are those items which are not used regularly. These items do not have any code and stock does not shows these items. It includes rarely used items.

INVENTORIES THE COMPANY IS USING

1. Cement craft bags CPK 2. Aluminum hydrate 3. Silica 4. Gypsum 5. PVA fiber 6. Aluminum Powder 7. Betonies 8. Lime stone 9. Quick lime 10. Fly ash 11. Cotton Rack pulp 12. Soft wooden pulp 13. Vermiculites 14. Antispum 15. Diesel 16. Furnace Oil 17. Mould oil

The company is using a number of inventories but we will consider only few (10) of raw materials which are mainly used in production.

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ABC Classification
y Class A 5 15 % of unit 70 80 % of value

y Class B 30 % of units 15 % of value

y Class C 50 60 % of units 5 10 % of value

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CODES 1 2 3 4 5 6 7 8 9 10

UNIT COST (Rs) 60 350 30 80 30 20 10 320 510 20

ANNUAL USAGE 90 40 130 60 100 180 170 50 60 120

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CODE

TOTAL VALUE (lakes)

% OF TOTAL % OF TOTAL VALUE QUANTITY %CUMMULATIVE

9 8 2 1 4 3 6 5 10 7

30.6 16.0 14.0 5.4 4.8 3.9 3.6 3.0 2.4 1.7 85.4

3.59 1.87 1.64 0.63 0.56 0.46 0.42 0.35 0.28 0.20

6.0 5.0 4.0 9.0 6.0 10.0 18.0 13.0 12.0 17.0

6.0 11.0 15.0 24.0 30.0 40.0 58.0 71.0 83.0 100.0 C B A

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FSN Classification
y Fast moving materials are those materials whose movements are more while production. y Slow moving are those materials whose movements are less as compared with the fast moving. y Nonmoving are those materials whose movements are restricted throughout the production.

The Inventory has been classified into FSN:

y Heavy machinery y Tools y Automotive filter y Silicate refining

: N : F : N : S

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INVENTORY TURNOVER OF EVEREST

From the above chart we can see that the inventory turnover of Everest is increasing yearly

From the above chart we can see that the inventory turnover of Everest is increasing yearly

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TURNOVER OF EVEREST INDUSTRIES

In the above chat we can see that the turnover of Everest is increasing

year to year..

In the above chat we can see that the turnover of Everest is increasing year to year..

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DAYS OF HOLDING

From the above pie chart it is clearly understandable that the holding days of inventory are reducing year to year with a diminishing rate hence we can conclude that the cost of inventory is also reducing yearly. This indicates that the company is using effective strategy to bring down its inventory level which in itself decreases the cost of inventories

INTERPRETATION From the above pie chart it is clearly understandable that the holding days of inventory are reducing year to year with a diminishing rate hence we can conclude that the cost of inventory is also reducing yearly. This indicates that the company is using effective strategy to bring down its inventory level which in itself decreases the cost of inventories

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RESEARCH METHODOLOGY

The analysis of inventories according to the data available in the company. The data used in the analysis are secondary arranged: 1. By report of company 2. By internet 3. By supervisors Pie charts, bar-graph and tables are also used. The company is using a number of inventories but we will consider only few of raw materials which are mainly used in production.

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FINDINGS

If we see from the above table ( Data of the Company ) that the days of inventory holding in the year 2009-10 has come down to 19 days from 22 days in the year 2005-06. In spite of increase in turnover i.e. 596.36cr in 2009-10 from 525.36 in the year 2008-09 the days of inventory holding decreases. This indicates that the company is using effective strategy to bring down its inventory level. This makes very less investment in inventory.

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CONCLUSION
Investment on inventories to the minimum.

Idle time is minimized by avoiding stock outs and shortages.

Carrying cost is reduced.

Quality is being improved.

Profit is being improved as compared with the carrying cost.

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RECOMMENDATIONS

More man power is required. At least 2-3 people must be there for the distribution of material.

The time to updating of issuing and receiving is to be done.

The materials are to be stored in the particular racks.

The inventories should not be mixed or scattered.

The employees or the workers are not to be allowed to collect the material by themselves.

The space in the stores should be properly utilized.

The BIN must be allotted to each and every item, so as to keep the record of each and every item and

also increases the assets of the company in the books of account.

Scraps should not stored with the inventory in the store, which occupies the space of inventory and increases the task of managing the inventory.

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BIBLIOGRAPHY

 K.G. Gupta Financial Management Published by K.G. Publication Modinagar.  R.P. Rastogi Financial Management Edition 3rd.  Khan M Y & Jain P K., Financial Management Tata McGraw-Hill Publishing Company Limited, New Delhi, Edition 5th. Websites:  www.google.com  www.everestind.com

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