A Project Report on

INVENTORY MANAGEMENT

AT
KAKATIYA OVERSEAS PVT LTD
A Project report submitted to osmania
university
HYDERABAD

In partial fulfillment for the award of the

degree of
MASTER OF BUSINESS ADMINISTRATION

By

N.S AMBASA
(10908123)
Under the esteemed guidance of
(KEERTHI)

SRI INDU P.G COLLEGE

(Affiliated to osmania University)
Hyderabad

ACKNOWLEDGEMENT
I express my sincere gratitude to (G.Rama Rao) (Director) for
allowing to carry out this project in KAKATIYA OVERSEAS PVT
LTD.
I am also thankful to the employees of KAKTIYA OVERSEAS
PVT.LTD, for their kind cooperation in completion of my
project.
I express my sincere thanks to L.Swetha Reddy(Export
Executive) for her guidance in completion of my project.
I extend my heart-felt gratitude to Keerthi, sri indu pg college for
her valuable guidance in my project and the preparation of report and
making this work successful

I would like to thanks Mr SUNDARAM, Head of Department, SRI

INDU P.G COLLEGE for his valuable support.

DECLARATION

I here by declare that this Project Report titled INVENTORY

MANAGEMENT At KAKATIAYA OVERSEAS submitted
by me to the Department of Master of
Business Administration is a bonafide work done by me and
it is not submitted to any University or institution for the
award of any Degree or Diploma or published any time
before.

N.S
AMBASA
H.T.NO: 10908123
SRI INDU P.G COLLEGE
DATE:
PLACE:

(N.S AMBASA)

CERTIFICATION
This is to certify that the Project Report title Inventory
Management submitted in partial fulfilment for the award of
MBA Programme of Department of Business Management,
OU HYD, was carried out by Ms KEERTHI under my
guidance.

This has not been submitted to any other

University

or

Institution

for

the

award

of

degree/diploma/certificate.

Name and address of the Guide

Signature of the Guide

any

CHAPTERISATION:
Chapter 1: Industry profile
1.1 Introduction of industry profile
Chapter 2: Company and product profile
2.1 Introduction of company
Chapter 3: Project details
3.1 Introduction
3.2 Need for study
3.3 Benefits of study
3.4 Methodology & Data base
3.5 Objectives
Chapter4: Introduction to inventory management
4.1 Introduction
4.2 Inventory control & its impact on cost
4.3 Inventory corporate finance
4.4 Risks & costs of holding inventory
4.5 Inventory Accounting
4.6 Objectives of inventory management
4.7 Tools & techniques
4.8

System & overview

Chapter 5: Analysis and interpretation

5.0

Making ABC analysis

5.1

calculation of inventory

Chapter 6: Suggestions & conclusion

6.1

Findings & suggestion

6.2

Conclusion

6.3

bibliography

INDIAN STONE INDUSTRY PROFILE

INTRODUCTION
India has major resources of marble, granite, sandstone, Kotahstone,
quartzite & slate. Granite resources are largely in South India and Marble
deposits are largely in Western India (Rajasthan & Gujarat).
A variety of stone products like all types of marble, tile,
granite etc are available in the market. The beauty and opulence of natural
stone products have prevailed as the most sought after finish in any
building in crafting customized floors, walls, countertops, columns,
fireplaces and bathroom.
These stone products are available in polished as well as unpolished state.
These stone products come with various price ranges suiting every
individual's budget. They are available in different size, shape, type,
thickness etc. Some of these stone products are available in block, some in
slabs and some in tile. They are imported sometimes and sometimes locally
made. Stone products are strong and sturdy and can carry a lot of weight.
Natural stone products are mostly used in making and decorating building,
office, industry, organizations etc. These are also custom made as per the
requirement and specifications of the customer. They are used in
construction industries and in most of the industrial sectors.
The range of natural stones includes slate stone, sand stone, mosaic stone,
cobble & pebble, marble, granite, minerals and genuine, natural stones that
are not dyed, synthesized, stabilized or enhanced - just genuine cut and
polished gemstones, or pure rough gem material for your use.

Granite tile and marble flooring are excellent floor materials. Both marble
and granite tile are natural stone products, very durable and stain resistant.
Other options for floors include slate and terrazzo. All except for terrazzo
are installed like ceramic tile. Marble and granite tile exhibit a wide range
of stain resistance. Marble is more porous than granite.
Natural beauty, durability, resistance to heat and a sense of permanence are
the hallmarks of a granite tile. Granite is an important structural and
ornamental stone, and due to its high compressive strength and durability, it
is used for massive structural work. Fine-grained granite is employed for
ornamental and monumental work as well as for inscription purposes. It is
the hardest of structural natural stones. Granite tiles are quite literally, as
old as the earth, perfect for use in residential and commercial flooring
applications. Granite slabs are ideal for fabricating granite counter tops,
flooring, retaining walls and landscaping around a center fountain/pond.
A marble is a metamorphic rock formed by alteration of limestone or
dolomite, often irregularly colored by impurities and used especially in
architecture and sculpture. Marble tiles are suitable for bathrooms,
entryways and fireplaces, living & dining areas. Marble floor tiles are also
used for both interior and exterior flooring applications. Some of the
different colors of marble are white, red, black, mottled and banded, gray,
pink, and green. Marble flooring adds class to the home and gives it a feel
of luxury. The best thing about the marble floors is that, they lend a very
soothing cooling touch to the home.
The highest producer of stones
- Highest producer of dimensional stones in the world accounting for over
27% of the world stone production.
- 16.16 million tons of stone production in the year 1997-98 out of a total
world production of 61 million tons.
- Over 2 million people are employed in stone sector.
Indian Stone Production (In Thousand tons)
1991-92

199293

199394

199495

199596

1996-97 199798

Marble
1966
2244
2086
2627
3186
3712
3622
Granite
989
3073
3618
4460
4555
4550
4950
Sandstone 4411
4435
3978
3304
4562
5501
5461
Flaggy
620
996
823
1407
1760
1710
2118
Limestone
Slate
3
5
4
9
7
11
8
Total
7989
10753 10509 11807 14070 15484
16159
(Source: State Department of Mines & Geology and All India Granites &
Stones Association)
Marching towards global leadership
- Export of Stones - US $ 301 million (Rs.13,000 million) in 1997--98
- India ranks 3rd in world stone exports with a 10.8% share in 1997 (in
terms
of tonnage).
- India ranks 1st in Raw Siliceous product (Granite & Sandstone) exports.
- India ranks 5th in Raw Calcareous product (Marble & Flaggy Limestone)
exports.
- India ranks 9th in exports of finished stone products
The bulk (90%) of the Indian stone exports is by way rough granite and
marble blocks and only about 10% is by way of value added or branded
products. Indian stone industry and the Government have set a target of
raising this to 50% over the next 5 years.
The bulk of the Indian stones are produced in the Indian states of Rajasthan,
Tamilnadu, Karnataka and Andhra Pradesh. Rajasthan accounts for nearly
90% of all the marble produced and the other three states in Southern India
produce almost all the granite exported.

STATISTICAL OUTLOOK

Major Importers

India possesses enormous deposits of all types of natural dimensional

stones with a variety of properties

Marble
Granite
Kotahstone(Flaggylimesto

ne)

Sandstone
Slate

Dimensional blocks
Slabs and tiles
Monuments
Architectural and sculptured
pieces
- Moulded pieces
- Cobbles
and
pavement
stones
- StoneHandicrafts/Artifacts
-

MARBLE INDUSTRY
Indian marble is highly acclaimed in the international market. World
famous Taj mahal is testimony of exotic quality snow white marble from
Makrana region.
Availability: In districts of Nagaur, Udaipur, Banswara, Jaipur Sirohi,
Bhilwara, Ajmer, Bundi, Pali, Dungarpur,Chittorgarh, Jaisalmer and Sikar,
Rajsamand, Alwar .
Color & Pattern: Snow white, Creamish white, White with grayish/ black
bands and Wavy patterns, pink, pink with bluish bands, green, yellow,
black, multi-color etc.
Export varieties: Snow white - very fine-grained, green and pink. Indian
green is highly priced and is the most desired marble in demand the world
over.
Number of mining leases: About 3600
Marble Processing Capacity: Slabs - 1000 million sq.ft. p.a.
Tile - 300 million sq.ft. p.a.

Marble the pride of India

Practically inexhaustible marble deposits -over 1200 million tons
Splendid varieties of white, green, black, grey, pink, yellow
Physical and mechanical properties complying with international
standards
Amongst the top 5 countries in marble exports
A Vibrant Industry

Total Investment - over Rs.40,000 million (US $1,000 million)

About 4,000 mining leases
Block production 3.7 million tons in 1996-97
About 1,100 modern gangsaw units and 50 Automatic tiling plants
More than 5,000 trading companies
Employing about 1 million people
Fast developing modern mechanised quarries
Over 300 quarries using diamond wiresaw & chainsaw cutter quarrying
technology
Modern & well equipped factories with advanced Italian technology for
cutting, processing, polishing and handling
Marble slab & tile production: 1300 million sq. ft per annum
Impressive Marble Export
Increase of over 300% from US $ 9 million in 1992-93 to US $ 27
million in 1996-97
Excellent quality export varieties - Green, Onyx, Indo Italian, White and
Pink marble
High quality polished marble tiles & slabs and green & white marble
blocks correspond to demand in the foreign market
High export demand for marble handicrafts
Key marble export markets - USA, Canada, Japan, Singapore, UAE, EC
countries
Major Marble Centres of India

 Prominent marble quarrying and processing centres in India are:

Rajasthan
Udaipur-Rajsamand -Chittorgarh region
Makrana-Kishangarh region
Banswara - Dungarpur region
Abu region
Andhi (Jaipur) - Jhiri (Alwar) region
Jaisalmer region
Gujarat
Ambaji region
Makrana-Kishangarh region

GRANITE INDUSTRY

Granite
Ranks 1st in Raw Siliceous Exports in the world
Exports valued at 244 million dollars in 1997-98

 Widespread availability - Karnataka, Andhra Pradesh,

Tamilnadu, Orissa, Rajasthan, Utter Pradesh, Bihar, West
Bengal
Estimated Geological Reserves - Over 5,000 million cubic
metres
Important Quarrying & Processing Centres - Bangalore,
Bellary, Hospet, Chamrajnagar, Chennai, Hyderabad,
Warangal, Jhansi, Jalore, Pali, Barmer etc.
Magnificent Varieties - Merry Gold, Platinum White,
Mokalsar Green, Rosy Pink, Nagina Green, Tiger Skin,
Royal Gold, Jhansi Red, Galaxy Black, Kashmir White,
Paradiso, Cira Grey, Juparana, Absolute Black, New
Imperial Red, Raw Silk etc.
Availability:
In
districts
of
Barmer,
Jalore, Pali,
Sirohi, Alwar, Jaipur Jhunjhunu, Tonk, Ajmer, Bhilwara, Sikar
and Udaipur.
Color & Pattern: Pink, Grey, Green, Multi-color, Bluish
white, Red, Golden Cream, Paradiso Black, Banded with
wavy pattern, white with spots etc.
Export varieties: Rosy Pink, Golden Pearl, Chima Pink,
Anglo Grey, Royal Cream, Platinum white, Snow
white,
Tiger black, Imperial Pink, Mokalsar Green, Nagina Green,
Jalore Pink, Kharda Red, Blue Pearl, Paradiso Red, Brownish
Green, Jhunjhunu Red, Yellowish & Pink.
Number of mining leases:

665

Geological Reserves: 1128 million Cu. M.

Quality of Granite:
Hardness 6 to 7 on Moh's scale
Granite Processing Capacity:
Slabs - 1.5 million sq.m.
Tiles - 5.0 million sq.m.
Sandstone

In India sandstone is extensively used in residential houses,

office buildings, commercial complexes, hotels, restaurants
and special monuments. Artefacts made of stone - screens,
fountains, pedestals, columns, arches, balusters, railings have become popular. The present trend is to make these
stone carvings in the best possible manner with man and
machines. The recent example of the use of sandstone
screens and columns was the renovation of Leela Palace
Goa Resort in Goa, where the American architect decided to
remove the existing granite/marble columns and decor and
replace it with sandstone. Architects in Bahrain, Saudi
Arabia and U.S.A have extensively promoted items made of
sandstone. In the entire Middle East - Oman, Bahrain, UAE,
Saudi Arabia and Kuwait architects have used sandstone
carved materials in residential villas. Even the architects
from U.S.A. who are constructing villas in Saudi Arabia have
used sandstone carvings. Some architects from Riyadh are
very much fascinated with Indian sandstone architecture. In
their each and every new creation, some stone carvings are
used for their clients. They want century old stone art to be
revived today.

Widespread availability - Rajasthan & Madhya Pradesh

Important Quarrying & Processing Centres - Bharatpur,
Dholpur, Kota, Sawaimadhopur, Bundi, Chittorgarh,
Nimbhahera, Jodhpur, Bikaner, Jhalawar, Pali and
Jaisalmer
Impressive Colours & Patterns: Red, Buff, Beige, Pink,
Flaggy sandstone.
Splendid Varieties: Rainbow, Teak, Modak, Kher, Budh,
Bansi Pink, Mandana, Dholpur Red and Beige etc.
Estimated Geological Reserves: Over 1,000 million tons
Production in 1997-98: Over 5 million tons
Exports in 1997-98: US$ 2.5 million

FLAGGY LIMESTONE

Widespread availability - Rajasthan, Andhra Pradesh

Color & pattern - Greenish Blue, Pale Brown & Black
Important
Quarrying
&
Processing
Centres
Ramganjmandi, Modak, Cuddapah
Estimated Geological Reserves - Over 2,000 million tons
Production - Over 2 million tons
Important Export Varieties: Kota blue, Kota Brown Etc.
Occurrence: In districts of Kota, - Chittorgarh & Jhalawar.
Important centres are Ramganj, Mandi, Suket, Chechat,
Morak, Manpura
No. of Mining Leases:
130
Export Potential:
In Europe, USA, Canada, Japan and
Singapore.
SLATE

Occurrence: In districts of Alwar, Ajmer, Bharatpur, Tonk,

Sawai Madhopur, Pali, Udaipur, Churu, Chittorgarh.

However, slate deposits of Alwar district are of exportable

quality.
Color & Pattern: Greyish black, multicolour, Brown, Red
etc.
No. of mining leases: 32
Export markets: Holland, Germany, Australia, Japan and
Singapore.

FOCUS ON THE MAJOR CITY: RAJASTHAN

Rajasthan is the major producer of Marble in India. Granite
is produced in the states of Karnataka, Tamil Nadu, Andhra
Pradesh, Rajasthan, Madhya Pradesh, Orissa & Uttar
Pradesh.

Rajasthan's share in Indian Stone production

Mineral

% of India's
production

Marble

91%

Kotahstone
limestone)

(Flaggy

90%

Sandstone

90%

Slate

10%

Granite

2.2%

total

COMPANY PROFILE
HISTORY OF THE COMPANY:

Kakatiya Overseas was incorporated in 2002, and was promoted by

G.Rama Rao. It is a processors and exporters of natural stones.
ABOUT THE COMPANY:
Kakatiya overseas is one of the reputed Organization in Mining &
Processing of Non-metallic minerals..It is a renowned name in the field of
Quartz and Natural stones for its finest quality. They have The own rich
quarries spread across South-India with Administration Office at Hyderabad.
Kakatiyaoverseas having highly skilled manpower working as coordinated
units in the state-of-the-art factory equipped with the latest machinery for the
eco-friendly processing, produce highest quality products. There are
Successful vendors for many buyers across the world especially in SouthEast Asia, European and American Continents.
Kakatiya Overseas has carved a niche for itself for producing world class
natural stones. This company has grown into one of the countrys largest
corporate houses to the exporting quality granite in a wide spectrum finish to
customers world wide.
PLANT LOCATIONS:
#27, Road No.5
Indraprasthan Industrial Area,
Kota , Rajasthan
Narnaul Road,Kund-123102
Rewari, Haryana.
Plot No. 56, 57 , 58
Industrial Estate ,
Markapur , AP
Plot #247,IDA ,
OFFICE:
KAKATIYAOVERSEAS
127BKiranMansion,G-1
VengalaRaoNagar,Hyderabad

AP, India
LOCATION:
Kurnool Road,
Betamcherla-518599
Kurnool Dist,
Andra Pradesh,India.
OFFICE:
KAKATIYAOVERSEAS
127BKiranMansion,G-1
VengalaRaoNagar,Hyderabad
AP, India
BOARD OF DIRECTORS:
G.Rama Rao.
C.VINIL
BANKERS:
HDFC
ICICI.
COUNTRIES TO WHOM THEY EXPORT:
1. UK
2. BELGIUM
3. ITALY
4. MOROCCO
5. AUSTRALIA
6. ALGERIA
7. NETHER LANDS
8.UNITED STATES OF AMERICA.
9.Greece
10.France
11.UAE
OBJECTIVE:

Established with a commitment to serve Indias Ornamental Stone

IndustriesThat specialize in marbles, sandstones, slates, limestone,
quartzite etc.,
All/India Natural Stones and Stone Association (AIGSA) has been serving
Indias stoneand Allied Industries with a single track objective of our stone
industries i.e. Granites,Marbles, Sandstone, Slates, Limestones and
Ornamental Building Stones in anyform and its ancillaries Of Machinery
too, Equipment, anything directly related to the stone.
Welfare:
Welfare activities include canteens supplying subsidized meals,
transport facilities, to employees.
Quality:
Standards and quality assurance group (SQAG) at kakatiya overseas is
a corporate quality assurance service facility. While the individual business
groups have their own quality control/quality assurance sections, this
corporate facility caters to the common requirements.
Faculty for training personnel in product divisions on ISO awareness
and on internal quality audits, helping in developing their quality system
documentation, planning, conducting and managing internal quality audits
and reporting of audit results.

RECEIPT DOCUMENTS:

CSRV : certified stores receipt voucher, which is issued by the stores

personnel to bills section in order to classify the material into Raw materials,
stores and spares, consumable tools, packing material, subcontractors
services, and other operational expenses, based on the purchased order, the
bills section does the provisional valuation by using fixed percentages for
freight, insurance and other incidentals and with regard to customs duty the
percentages as per tariff are adopted and the following entry proposed.

FLOW OR RECEIPT DOCUMENT (CSV)

Receipt of work order from

Receipt stores.
Collection of data and
Material for inspection

Material
Inspection

Component Inspection report

Given to head office for
Comments.

Material handed over to

Receipt stores and shipped to
nearest port.

Strategies:

 Technical up gradation and R&D efforts.

Effective new markets and exports.
Gather delegation of authority and tuning up management information
system.
Diversification.

PRODUCT RANGE:
Natural stones being increasingly used by the construction industry is
gradually replacing marbles and ceramic products due to its high durability
and ability to give excellent garnish. Being a costly construction material ,
natural stones finds its Market in developing countries like Japan, Europe,
and USA. Italy is the major market In this industry.
Indian natural stones is well accepted in the international market
mainly because Of its better and uniform texture, grain and availability in
variety of colors. Indias Share in the international trade, estimated at about
RS.1000 Crores works out 1% And there is considerable potential for
increasing the volume of granite exports from India. While the export
potential for the slabs are satisfactory, the market for the Monuments is
relatively competitive.
The company offers a wide variety of Stone Products to all the customers
Quality Stones at Quantity rates. They have a team of experienced
professionals working throughout their locations looking after processing,
dressing, inspecting and shipment of natural stones.
The usage of stone has been an integral part of human civilization and has
played a pivotal role in shaping establishments. Continuing this tradition,
The Company, excel as a supplier & exporter of varieties of natural stones.
They have earned a respectable position in setting new heights in quality
products, customer satisfaction and on-schedule delivery of the products.

They supply and export a comprehensive range of high quality natural

stones such as sandstone, limestone,slate,granite and other construction and
building stones for discerning buyers around the globe.
The major advantages of dealing is, as appreciated by their
customers include faster inventory, less capital tied up in inventory & low
total life cycle cost. All these result in increased profitability on the part of
their customers.
They export of widely-acclaimed quality of different kinds of natural
stones, such as:
Slate Stones
Sandstone
Limestone
Granite
PRODUCT EXPORTED:
SAND STONE:
Sandstone is a Sedimentary Stone consisting usually of quartz, silica,
iron oxide and calcium carbonate. These stones are durable, weather, acid
and thermal resistant and have crushing strength. They come in many colors,
shades. Cobbles of Sandstones are also very popular.
Products available in Slabs, Tiles Blocks :
Dholpur Beige, Agra Red, Bansi Pink, Fossil, Panther, Tint Mint,
Rainbow, Chanderi Pink, Lalitpur Grey, Lalitpur Yellow (Camel Yellow),
Teakwood, Kandla Grey, Modak, Mandana, Raveena, Raj Green, Autumn
Brown.
General Sizes available Undersize (In cms):
Undersize :28 x 28, 42x42, 28 x 56, 56x56, 56x84, 56 x 112
Oversize : 30 x 30, 45x45, 30 x 60, 60x60, 60x90, 60 x 120
Thickness: 10-20 mm, 20-35 mm

Finish:
Natural Cleft both faces , One side Honed, Both sides Honed, Hand
Cut/Machine Cut/Gangsaw Cut, Polished, Mirror Finish, Calibrated,
Bullnosed, Rivetted.
LIMESTONE:
It is a sedimentary stone and mainly consists of Calcite. It has a smooth
granular surface, does not show much graining or crystalline structure and
varies in hardness. Some dense limestones can be polished. There are a
number of varieties of lime stone and besides flooring has many other
applications.
The common colors are blue, grey, black, brown, and green.
Products Available:
Kota Blue, Kota Brown, Cuddapah Black, Lime pink, Lime Green,
Shahbad Yellow.
Sizes available (In cms):30x30, 40x40, 30x60, 40x60, 60x60, 50 x50,
55x55,60x90 Flag stones.
Thickness: 10-22mm, 20-30 mm, Calibration in 12 mm.
Finish:
Natural Cleft both faces , One side Honed, Both sides Honed, Hand
Cut/Machine Cut/Gangsaw Cut, Polished, Mirror Finish, Calibrated.
Cobbles of limestones are very popular.
SLATE:
Slate is a fine grained metamorphic stone that is formed from clay,
sedimentary rock shell, and sometimes quartz. Characteristically the rock
may slit into relatively thinner slabs. Slates find application in interiors and
exteriors. It is extremely beautiful and more cost effective than most other
wall and floor coverings. It renders a very graceful, natural finish to any
building or home. The usual colours of slate are copper, gold, multicolor,
black, dark grey, greenish grey, copper and purplish grey. Sometimes colour
changes do occur due to weathering. The harder varieties of slate are used
for flooring. Slate mines are found in North and Southern part of India. They
look beautiful when used as a roofing slate.

Products Available
*North Indian Slates:
Himachal White,Himachal Green, Himachal Black, Kund Peacock,
Mau Multy, Khundrot,Jack Multy, Copper, Silver Grey, Zeera Green, Deoli
Green, Golden, Oceanic, Silver Shine, Shimla White Mica, Jack Black,
Multicolured, etc.
*South Indian Slates:
Sanjani, Indian Autumn, Vijay Gold, M Green , N Green, Taj Rose,
Black Rustic, Indian Autumn Rustic, Chocolate, Multi Grey, Multi Pink etc.
Sizes available (In cms): 30x30, 40x40, 60x30 due to characteristics of
product large sized slabs are not possible
GRANITE:
Granite is an Igneous Stone. It is primarily made of Quartz (35%), Feldspar
(45%) and Potassium. Usually has darker colors. Contains very little calcite,
if any. Provides a heavy crystalline and granular appearance with mineral
grains. It is very hard material and easier to maintain. There are different
types of granite depending on the percentage mix of quartz, mica and
felspar.
Products Available :
Over 34 different products in Slabs and Tiles . Tiles in Square size,
free lengths, odd sizes and foot strips. They can offer you Granite Vanity
Tops,Bar Tops,etc., in prefabricated, precut, ready to install. They have CNC
(Contouring) machine to do these jobs with perfection, which very few
processors have in India.
*Sizes available Slabs :
Min. Size 260x140 cms
Max Size 300x170 cms
Tiles: All sizes are available common being 305x305; 406x406; 457x457;
610x610.
Thickness Slabs : 20 mm, 30mm
Tiles: 10 mm, 12 mm, 15 mm 20 mm.

COMPANY TURNOVER :( SALES)

YEARS

TURNOVER (Lakhs)

2004
2005
2006
2007
2008

5514
6980
6986
10688
11580

LIMITATIONS:

1.Longer delivery and payment time frames

2.Exchange rate risk and exchange controls.
3.Limited and costly dispute settlement and legal recourse options.
4.Lack of information.
5.Integrity (the quality of honest ) of Exporter.
6.Abolition of interest rate subsidy.
7.Huge foreign indebtness.
8.Unstable government.
9.Limited time durations.
10. Lack of access with the customers.
11. Limited Availability of information due to security problem.
INVENTORY

MANAGEMENT

PROJECT

ANALYSIS

IN

KAKATIYA OVERSEAS:
Before, an analysis is attempted for assessing for inventory control
measures at kakatiya overseas; it is proposed to present a summary on
material documentation and procedure. The main objectives of inventory
accounting and valuation of inventories are:
1. Accurate and regular recording of all transactions in the books.
2. Proper valuation of material receipts, issues returns and books.
SYSTEMS OVERVIEW:

The following systems are being followed in kakatiya overseas and the
main features of the systems are as follows:
1. Receipt vouchers are prepared on receipt of material.
2. Issue vouchers are prepared for all issues of out of stores.
3. All receipts, issue and returns are recorded in priced stores ledger.
4. Stock transfer voucher (STV) are used for recording transfer of raw
materials from one division/group to another. Transfers are made at
weighted average prices.
5. Finished goods delivery notes (FGDN) are used for transferring
finished production in shop floor to finished goods (FG) stores.
6. Physical verification is carried out at 6 regular internals and
discrepancies are and reconciled and recorded.
7. Work-In-Progress (WIP) valuation is as per the accounting policy of
the company.
8. Finished goods valuation is as per the accounting policy of the
company.
MATERIAL DOCUMENTATION AND COST CONTROL:
The material accounting and cost accounting system have been
designed within frame work of account codes and accounting policies, which
would facilitate identifying direct elements of costs, such as direct material,
direct labour

and directly allocable expenses (such as expenses of

subcontracting)
Which are booked manually to the direct material? The following
documentation and system is being followed in kakatiya overseas
RECEIPT DOCUMENTS:

In this similar fashion, some other receipt documents and issued

documents are operated like:
1. CPRV (Cash purchase receipt voucher) for cash purchases receipt.
2.FGIN(finished goods issue note)the finished products particularly of
CG like hybrids , Networks and PCBs are consumed as raw materials in
other group for which a credit is given in the expenses of CG and stock of
that group is debited.
3. STV (Rs) stock transfer voucher: any stores useful for any group is
taken from other group from STV for which only stock accounts of the
divisions are operated.
4. MRNs (Material Return Note): The items lying unused at shop
floor after production activity is over are returned to stores under this
document.
Based on the documentation EDP generates the following printouts for
materials viz.
Priced stores ledger is brought out on monthly basis consisting on that
months receipts issues, balance stocks available values for raw materials,
stores and spares, consumable tools and packing materials.
Inventory is brought out on monthly basis comprising of material
codes is seriatim along with material , total value and also cumulative
receipts and cumulative consumption are indicated.
which are not moved for more than six months, are reported regularly
to the management for identification and necessary action. Further A, B, C,
D classified inventory report is also being submitted to group management
for their study and controlling purpose.

3.1 INTRODUCTION:
Inventory management is concerned with keeping enough products on
hand to avoid running out while at the same time maintaining a small
enough inventory balance at allow for a reasonable return on investment,
proper inventory management is important to the financial health of the
corporation, being out of stock forces customers to turn to competitors or
results in a loss of sales excessive level of inventory, however results in
large inventory carrying costs, including the cost of the capital tied up in
inventory where house fees insurance etc. The objective of the chapter is to
examine the impact of inventory on the financial decision making.
Inventories constitute the most significant part of current asserts of a
large majorities of companies in INDIA. On an average inventories are
approximately 60% of current asserts in public limited companies in INDIA.
Because of the large size of inventories maintained by firms, a considerable
amount of funds is required to be committed to them.
The investment in inventory is very high in most of the undertaking
engaged in manufacturing wholesale and retail trade. The amount of
investment is sometimes more in Inventory rather than in other assets.
In India a study of 29 major industries has revealed that the average
cost of materials is 64 paisa and the cost of labor and overheads is 36 paisa
of a rupee. About 90% of working capital is invested in inventories. The
main reason attributed for loss making is financial indiscipline in managing
the resources particularly in inventory management for an organization, the
product profitability considering standards and budgets is of paramount
importance needless to say that in this context, inventory management
assumes lot of significances.

The investment in inventory is very high in most of the undertaking

engaged in manufacturing wholesale and retail trade. The amount of
investment is sometimes more in Inventory rather than in other assets.
In India a study of 29 major industries has revealed that the average
cost of materials is 64 paisa and the cost of labor and overheads is 36 paisa
of a rupee. About 90% of working capital is invested in inventories. The
main reason attributed for loss making is financial indiscipline in managing
the resources particularly in inventory management for an organization, the
product profitability considering standards and budgets is of paramount
importance needless to say that in this context, inventory management
assumes lot of significances.
Hence, the inventory management determines and portrays the
following factors like what to purchase, how to purchase, from where to
purchase, where to store etc., will be critical factors. Hence forth it becomes
a crucial factor to undergo a detailed analysis to find an efficient system of
the inventory. As an attempt has been made to study the inventory
management with reference to KAKATIYA OVERSEAS.
DEFINITION:
The American production and inventory society defines:
Inventory management as the branch of business management
concerned with planning and controlling inventories. The role inventory
management is to maintain a desired stock level of specific products or
items.
.

Types of study:
RAW MATERIALS:
An inventory of raw materials allows separation of production scheduling
from arrival of basic inputs to the production process. Factories affecting the
amount the raw materials inventory include proximately to the suppliers
relationship with the suppliers, predictability of the production process, lead
time required to place on order, and transportability and perishability of raw
materials.
WORK IN PROCESS:
An inventory of partially completed units allows the separation of
different phases of the production process, the amount of work in process
inventory is in past a function of the type of product, the measurement
period and the nature of the product process.
FINISHED GOODS:
An inventory of finished allows separation of production from
selling , with a stock of finished merchandised on hand a firm can fill order
as they are received rather than depend upon the completion of production to
satisfy customer demands.

FUNCTIONS OF INVENTORY:
The functions of the firm such as purchase of raw materials
,processing, and having a finished goods available for sales, have a
sequential physical dependence maintenance of inventories allows the firm
to decouple those functions so that each can be planned, scheduled ,and
operated independently. For retail firms inventory provides customers with
selection choice and decouple the purchasing functions from the selling
functions.
3.2 NEEDS FOR THE STUDY:
To facilitate smooth production and sales operation (Transaction motive).
To guard against the risk of unpredictable changes in usage rate and
delivery time (Precautionary motive )
To guard against the risk of unpredictable changes in usage rate and
delivery time (Precautionary motive )
To take advantages of price fluctuations(Speculative motive)
3.3 BENEFITS OF THE STUDY:
To ensure a continues supply of raw material to facilitate
uninterrupted production.
To maintain sufficient stock of raw material in periods of short supply
and anticipate price changes.
To maintain sufficient finished goods inventory for smooth sales
operations and efficient customer service.

LIMITATIONS:
First there is a cost of information problem in keeping track of the
physical inventories of some goods
Second because of number of variables involved it is very difficult to
develop on accurate measure of inventory turnover.
The very nature of the organization places limitations on the
collection of the data and analysis thereof.
The accounting procedure and other accounting principles are limited
by the company changes in them may vary the inventory performance.

The study is limited up to the date and information provided by

KAKATIYA OVERSEAS and annual reports.

3.4 METHODOLOGY AND DATABASE:

For this project the collection of data is by various sources. mainly
primary
secondary

PRIMARY DATA:
The information collected directly without any reference in primary data in
the study it is mainly through concerned offers or staff member either
individually or collectively data includes

Conducting personal interview with officers of the company.

Individual observation inference.
From the people who are directly involved with the transaction of the firm.
SECONDARY DATA:
Study has been taken from secondary sources that is published annual
report of the editing, classifying and tabulation of the financial data for their.
PERIOD OF THE STUDY:
This study is confined for the period of approximately Three months
that is from January 2, 2009 to March 10, 2009.
REVIEW OF LITERATURE:
For this purpose, previous abstracts on inventory management,
periodicals, academic journals. Articles will be reviewed in this section.

STATISTICAL TOOL TO BE APPLIED:

Sampling statistical techniques like percentages, bar graphs, averages,
chi-squares, and z-test may be applied based on the data collected for the
study.

3.5 OBJECTIVES:
To maintain a large size of inventory of raw material and work in
progress for efficient and smooth production and of finished goods
for uninterrupted sales operations.
To maintain a minimum investment in inventory to minimize
profitability.
Study of maintain optimum level of inventory investment.
The primary goal is to minimize inventory investment while still
meeting the functional requirements.
SCOPE OF THE STUDY:
Work in progress arising under construction contracts including directly
related service contract.
Work in progress arranging in ordinary course of business of services
provides.

INVENTORY MANAGEMENT
4.1. INTRODUCTION:
The investment in inventory is very high in most of the undertakings
engaged in manufacturing, whole-sale and retail trade. The amount of
investment is sometime more in inventory than in other assets. In India, a
study of 29 major industries has revealed that the average cost of materials is
64 paisa and the cost of labour and overheads is 36 paisa in rupee. In
Industries like sugar, the raw materials cost is a s high as 68.75 percent of
the total of cost. About 90 percent part of working capital is invested in
inventories. It is necessary for every management to give proper attention to
inventory management. A proper planning of purchasing, handling, storing
and accounting should form a part of inventory management. An efficient
system of inventory management will determine (a) what to purchase (b)
how much to purchase (c) from where to purchase (d) where to store, etc.
There are conflicting interests of different departmental heads over the
issue of inventory. The finance manager will try to invest less in inventory
because for him it is an idle investment, whereas production manager will
emphasize to acquire more and more inventory as he does not want any
interruption in production due to shortage of inventory. The purpose of
inventory management is to keep the stocks in such a way that neither there
is over-stocking nor under-stocking. The over-stocking will mean a
reduction of liquidity and staring of other production processes; understocking, on the other hand, will result in stoppage of work. The investments
in inventory should be kept in reasonable limits.

 Every enterprises needs inventory for smooth running its activities. It

serves as a link between production and distribution processes. There
is, generally, at a time lag between the recognition of a need and its
fulfillment. The greater the time-lag, the higher the requirement for
inventory, the unforeseen fluctuations in demand and supply of goods
also necessitate the need for inventory. It also provides a cushion for
future price fluctuations.
The investment in inventories constitutes the most significant part of
current assets/working capital in most of the undertakings. Thus it is
very essentials to have proper control and management of inventories.
The purpose of inventory management is to ensure a variability of
materials in confident quantity as and when required and also to
minimize Investment in inventories.
Meaning and Nature of Inventory:
Supply of goods or materials on hand. In manufacturing, inventory
consists of raw materials, work-in-process, and finished goods. In
wholesaling and retailing, inventory is the stock of merchandise on hand. In
direct marketing, inventory may refer to direct-mail package components
that are available for mailing when needed. In the broadcast and print media
industry, inventory is the time or space available for mailing when needed.
In the broadcast and print media industry, inventory is the time or space
available for sale to advertisers. In magazine publishing, inventory is the
number of copies of each issue available for distribution.

An ample inventory ensures that sales will not be lost or deadlines

missed but can require a substantial cash investment in both material and
storage space. There are also risks associated excessive inventory, such as a
change in circumstances that reduces or eliminates demand for an item in
inventory or that renders the item obsolete or illegal, or the risk of loss due
to theft, fire, aging, and so forth. The costs and risks must be weighed
against the cost of lost sales and missed deadlines to determine the optimal
inventory level.
4.2 INVENTORY CONTROL AND ITS IMPACT ON COSTS:
Value wise inventory and consumption analysis are brought out on
quarterly basis indicating RM; SS, CT, PM are value at cost. A class items
which are 70%, B class items which are valuing 20% and C class items
which are valuing 10%. Of the total inventory are brought for verification of
internal audit. The stores verified C class items and to that extent certificate
4 is issued at the year end regarding the correctness. Physical balances are
verified with kardex and the difference is intimated to stores FAW of the
group by the internal audit.
FAW of the group verifies and gives the rectification in entries that is
shortage items values are charged of to physical inventory variation and the
excess quantities are adjusted in the inventory ledger after obtaining the
competent authorities approval.
This system enables control on the inventories and at the same time
costs on some are checked.

Materials issued to subcontractors are booked to consumptions as and

when issued through MIRS. A record is being maintained at subcontracts
section, park wise, job wise and description of materials and quantities
issued.
Impact of inventory on working capital
Inventories are a component of the firms working capital and, as
such, represent a current accounting cycle, which is normally one year.
A CURRENT ASSET: It as assumed that inventories

1.

will be converted to cash in the current accounting cycle, with is

normally one year.
LEVEL OF LIQUIDITY: inventories are viewed a

2.

source of near all cash. For most products, this description is accurate, at
the same time most firms hold some slow moving items that may not be
sold for a long time. With economic slows down or changes in the
markets for goods the prospects for sale of entire product lines
diminished. In these cases, the liquidity aspects of inventories become
highly important to the manager of working capital. At the minimum the
analyst must recognize that inventories are the least liquid of the current
assets.
3.

LIQUIDIRY LAGS: inventories are tied to the firms

pool of the working capital in a process that involves three specific lags.
Creation lags: It most cases, inventories are purchased on credit,
creating an account payable. When the raw materials are processed in the
factory, the case to pay production expenses is transferred at future times.
Whether manufactured or purchases, the firms will hold inventories for

some period before payment is made. This liquidity lag offers a benefit to
the firm.
Storage lags: once goods are available for resale, they will not be
immediately converted into cash. First the items must be sold. Evenly
when sale are moving briskly, affirm will hold inventory as a backup.
Thus the firm will usually pay suppliers, workers and overhead expenses
before the goods actually sold.
This lag represents a cost to the firm.
Sale lag: once goods have been sold, they normally do not create cash
immediately. Most sales occur on credit and become accounts receivable.
This lag also represents a cost to the firm.
4. CIRUCLATING ACTIVITY: inventories are in rotating pattern with
other current asset. They get converted into receivables which generate cash
is invested again in inventory to continue the operate cycle.
NEED TO HOLD INVENTORY
Maintaining inventories involves tying up of the companys funds and
incurrence of storage and handling costs. There are three are general motives
for holding inventories.
1.

Transactionary motive: every firm has to maintain some level of

inventory to meet the day-to-day requirements of sale, production
process, customer demand etc. transact nary motive makes the firm to
keep the inventory will provide smoothness to the operation of the firm.
A business firm exists for business transaction that requires stock of
goods and raw materials.

2.

Precautionary motive: a firm should keep some inventory for

unforeseen circumstances also. The firm must have inventory of raw
materials as will as finished goods for meeting any emergencies.

3.

Speculative motive: the firm may be empted to keep some

inventory in order to capitalize an opportunity to make profit e.g.,
sufficient level of inventory may help the firm to earn extra profit in case
expected shortage in the market.

MAIN PURPOSE OF INVENTORY

The purpose of holding inventories is to allow the firm to operate the
processes of purchasing, manufacturing and marking in its primary products.
The goal is to achieve efficient in are where costs are involved and to
achieve sales at competitive prices in the marking place.
1. Avoiding loss sales: without goods on hand that are ready to be sold
most firms would lose business. Some clusters are ready to wait,
particularly when an item must be made on order or is not widely
available from competitors. Affirm must be prepared to deliver goods
on demand. Shelf stock refers to items that are stored by the firm and
sold with little or no modification to the customers.
2. Gaining quantity discounts: inurn for making bulk purchases many
suppliers will reduce the of supplies and component parts. This
discount will reduce cost of goods sold and increase the profits
earned.
3. Reducing order cost: each time a firm place an order it incur certain
good that arrive must be accepted, inspected and counted. Later an

invoice must be processed and payment made. Each of these costs will
vary with the order placed. By placing fewer orders the firm will pay
less to process each order.
4. Achieving efficient production runs: each time a firm sets up
workers and machines produce an item startup cost are incurred.
These are the absorbed as production begins. The longer the run the
smaller the costs to begin producing the goods.
5. Reducing risk of production shortages: manufacturing firm
frequently produce goods with blunders or thousands of components.
If any these are missing entire production operation can be halted with
heavy expenses. To avoid starting a production run and then
discovering the shortage of vital raw material or other component, the
firm can maintain larger than inventories. Basically, inventory
management

is

concern

of

stores

management,

production

management is concerned. In case of raw material, the stores

management and production management is concerned. In case of
finished goods, production and sales management is concerned.
4.3 INVENTORY-CORPORATE FINANCE:
Value of a firms raw materials, work in process, supplies used in
operations, and finished goods. Since inventory value changes with price
fluctuations, it is important to know the method of valuation. There are a
number of inventory valuation methods; the most widely used are First In,
First out (FIFO) and Last In, First out (LIFO). Financial statements normally
indicate the basis of inventory valuation, generally the lower figure of either
cost price or current market price, which precludes potentially overstated

earnings and assets as the result of sharp increases in the price of raw
materials.
Personal finance;
List of all assets owned by an individual and the value of each, based on
cost, market value, or both. Such inventories are usually required for
property insurance purpose and are sometimes required with applications for
credit.
Securities:
Net long or short position of a dealer or specialist. Also, securities
bought and held by a dealer for later resale.
Inventory:
An inventory is a detailed, itemized list or record of goods and
materials in a companys possession. The main components of inventory,
wrote Transportation and Distribution contributors David Waller and
Barbara Rosenbaum, are cycle stock: the order quantity or lot size received
from the plant or vendor; in-transit stock: inventory in shipment from the
plant or vendor or between distribution centers; [and] safety stock: each
distribution centers inventory buffer against forecast error and lead time
variability.
Writing in production and Operations Management, Howard J. Weiss
and Mark E. Gershon observed that, historically, there have been two basic
inventory systems and the periodic review system. With continuous review
systems, the level of a companys inventory is monitored at all times. Under
these arrangements, business typically track inventory until it reaches a
predetermined point of low holdings, whereupon the company makes an
order (also of a generally predetermined level) to push its holdings back up

to a desirable level. Since the same amount is ordered on each occasion,

continuous review systems are sometimes also referred to as event-triggered
systems, fixed order size systems (FOSS), or economic order quantity
systems (EOQ) .Periodic review systems, on the other hand, check inventory
levels at fixed intervals rather than through continuous monitoring. These
periodic reviews (weekly, biweekly, or monthly checks are common) are
also known as time triggered systems, fixed order interval systems (FOIS),
or economic order interval systems (EOI).
The dictionary meaning of inventory is stock of goods, or a list of
goods. The word Inventory is understood differently by various authors. In
accounting language it may mean stock of finished goods only. In a
manufacturing concern, it may include raw material, work in process, etc. to
understand the exact meaning of the word, inventory we may study it from
usage side or from the side of point entry in the operations. Inventory
includes the following things:
Raw Material:
Unfinished goods used in the manufacture of a product. For example, a
steelmaker uses iron ore and other metals in producing steel. A publishing
company uses paper and ink to create books, newspapers, and magazines.
Raw materials are carried on a companys balance sheet as inventory in the
current assets section.
WIP (Work In-Progress):
Three-letter abbreviation with several meanings, as Described below:
Work in Progress- generally signifies a project that will not be settled
in one attempt, or even several. Sometimes as WIP List, synonymous
with a To-Do list.

 WIP as an asset means the portion of work that is complete but not
yet billed. WIP is a good or goods in various stages of completion
throughout the plant, including all material from raw material that has
been released for initial processing up to completely processed
material awaiting final inspection and acceptance as finished good
inventory.
Finished Goods:
These are the goods which are ready for the consumers. The stock of
finished goods provides a buffer between production and market. The
propose of maintaining inventory is to ensure proper supply of goods to
customers. In some concerns the production is undertaken on order basis, in
these concerns there will not be a need for finished goods. The need for
finished goods. The need for finished goods inventory will be more when
production is undertaken in general without waiting for specific orders.
Spares:
Spares also form a part of inventory. The consumption pattern of raw
materials. The stocking policies of spares are different from industry to
industry. Some industry like transport will require more spares than the other
concerns. The costly spare parts like engines, maintenance spares etc. are not
discarded after use, rather they are kept in ready position for furtherer use.
All decisions about spares are based on the financial cost of inventory on
such spares and the costs that may arise due to their non-availability.
Consumables:
These are the materials, which are needed to smoothen the process of
production. These materials do not enter directly into production but they act
as catalysts. Consumables may be classified according to their consumption

and critically. Generally, consumables stores do not create any supply

problem and form a small part of production cost. There can be instances
where these materials may account for much value than the materials. The
fuel oil may from a substantial part of the cost.
Cycle Inventory:
The portion of total inventory that varies directly with lot size is
called inventory. Determining how frequently to order, and in what quantity,
is called lot sizing. Two principles apply.
1. The lot size, Q, varies directly with the elapsed time (or cycle)
2. Between orders. If a lot is ordered every five weeks, the average
lot size must equal five weeks demand.
3. The longer the time between orders for a given item, the greater the
cycle inventory must be at the beginning of the interval, the cycle
inventory is at its maximum or Q. At the end of the interval, just
before a new lot arrives, cycle inventory drops to its minimum, or 0.
The average of these two extremes:
Average cycle inventory = Q + o
2

= Q
2

This formula is exact only when the demand rate is constant and uniform.
However, it does provide reasonably good estimate even when demand rates
are not constant. Factors other than the demand rate (e.g., scrap losses) also
may cause estimating errors when this simple formula is used.

Safety Stock Inventory:

To avoid customer service problems and the hidden cost of
unavailable components, companies hold safety stock. Safety stock
inventory protects against uncertainties in demand, lead time, and supply.
Safety stocks are desirable when suppliers fail to deliver the desired quantity
on the specified date with acceptable quality or when manufactured items
have significant amounts of scrap or rework. Safety stock inventory ensures
that operations are not disrupted when such problems occur, allowing
subsequent operations to continue.
To create safety stock, a firm places an order foe delivery earlier than
when the item is typically needed. The replenishment order therefore arrives
ahead of time, giving a cushion against uncertainty.
Purpose and Benefit of Holding Inventory:
Although holding inventories involves blocking of a firms fund and the
cost of storage and handling every business enterprises has to maintain a
certain level of inventories to facilitate uninterrupted production and smooth
running of business. In the absence of inventories a firm will have to make
purchases as soon as it receives orders. It will mean loss of time and delay in
execution of orders which sometimes may cause loss of customers and
business. Firms also need to maintain inventories to reduce ordering cost and
avail quantity discount, etc. generally speaking there are three main purpose
or motives of holding inventories:
I. The transaction motive which facilitates continuous production and timely
execution of sales orders.
II. The precautionary Motive which necessitates the holding of inventories
for meeting the unpredictable changes in demand and supplies of materials.

III. Speculative motive which induces to keep inventories for taking

advantages of price fluctuations, saving in re-ordering costs and quantity
discounts, etc.
4.4 RISKS AND COSTS OF HOLDING INVENTORIES:
The holding of inventories involves blocking of a firms funds and
incurrence of capital and other costs. It also exposes the firm to certain risks.
The various costs and risks involved in holding inventories are as below:
1. Capital costs:

Maintaining of inventories results in blocking of the

firms financial resources. The firm has, therefore, to arrange for

additional funds to meet the cost of inventories. The funds may be
arranged from own resources or from outsiders. But in both the
arranged from own resources or from outsiders. But in both the cases,
the firm incurs a cost. In the former case, there is an opportunity cost
of investment while in the later case, the firm has to pay inters tot the
outsider.
2. Storage and Handling costs: Holding of inventories also involves

costs on storage as well as handling of materials. The storage costs

include the rental of the go down, insurance charges, etc.
3. Risk of price decline: There is always a risk of reduction in the prices

of inventories by the suppliers in holding inventories. This may be due

to increased market supplies, competition or general depression in the
market.
4. Risk of Obsolescence: The inventories may become obsolete due to

improved technology, changes in requirements, change in customers

tastes, etc.

5. Risk Deterioration in Quality: The quality of the materials may also

deteriorate while the inventories are kept in stores.

Inventory and the Growing Company:
Most successful small companies find that as their economic fortunes
rise, so too do the complexity of inventory logistics. The increase in
inventory management is primarily due to two factors: 1) greater volume
and variety of product, and

2) increased allocation of company resources

(such as physical space and financial capital) to accommodate that growth

in inventory The transaction from seat-of the pants ordering policies and
little or no record keeping to a formal inventory system that includes specific
ordering policies and a formalized inventory record file is a difficult one for
most companies to make, stated Weiss and Gershon. It is but one of the
many sources of growing pains that emerging companys experience,
especially those in the fast-growing industries, such as fast food or high
technology. This transition requires the creation of new job functions to
identify the costs (holding, shortage) associated with inventory and to
implement the inventory analysis.
The inventory record file also must be maintained by someone, and,
on a periodic basis, it must be audited by someone. In addition, the transition
requires more coordination between different company functions. This
transition, they note, often leads into computerization of inventory
management. This can be a daunting prospect, particularly for companies
lacking employees with appropriate data management backgrounds.
Just In Time Inventory Control System:
Just-in-time production is a simple idea that may be difficult to
implement, wrote Gershon and Weiss. The basic concept is that finished

goods should be produced just in time for delivery, and raw materials should
be delivered just in time for production. When this occurs, materials or
goods never sit idle, which means that a minimum amount of money is tied
up in raw materials, semi finished goods . The just-in-time approach
calls for slashing production and purchase lot sizes and also buffer stocks-bit
incrementally, a little at a time, month after month, year after year. The result
is sustained productivity and quality improvement with greater flexibility
and delivery responsiveness. This production concept, which originated in
Japan and became immensely popular in American industries in the early
and mid-1990s, continues to be hailed by proponents as a viable alternative
for business looking for a competitive edge.
Setting an Inventory Strategy:
No single inventory strategy is equally effective for all businesses.
Indeed, there are many different factors that can impact the Usefulness of a
given inventory strategy, including positioning of inventory, rationalization,
segmentation, and continuous improvement efforts. Moreover, small
business in particular often faces financial and logistical limitations when
erecting their inventory systems. And of course, different industries have
different inventory needs. Consumer goods producers, for instance, need to
have well-balance inventories at the point of sale, while producers of
industrial and commercial products typically do not have clients that require
the same degree of delivery lead time.
When a company is faced with a need to establish or reevaluate its
inventory control systems, business experts often counsel their corporate
clients to engage in a practice commonly known as inventory segmenting
or inventory partitioning. The practice is in essence a breakdown and

review of total inventory by classifications, inventory stages (raw materials,

intermediate inventories, and finished products) sales and operations
groupings, and excess inventories. Proponents of this method of study say
that such segmentation break the companys total inventory into much more
manageable parts for analysis.
Key Considerations:
According to business experts, perhaps no factor is more important in
ensuring successful inventory management than regular analysis of policies,
practices, and results. Companies that hope to establish or maintain an
effective inventory system should make sure that they do the following on a
regular basis:
Regularly review product offerings, including the breadth of the
product line and the impact that peripheral products have on invent.
Ensure that inventory strategies are in place for each product and
reviewed on a regular basis.
Review transportation alternatives and their impact on inventory /
warehouse capacities.
Undertake periodic reviews to ensure that inventory is held at the
levels that best meets customer needs; this applies to all levels of
business, including raw materials, intermediate assembly, and finished
products.
Regularly canvas key employees for information that can inform
future inventory control plans.
Determine what level of service (lead time, etc.) is necessary to meet
the demands of customers.

 Establish and regularly review a system for effectively identifying and

managing excess or obsolete inventory, and determining why these
goods reached such status.
Devise a workable system wherein safety inventory stocks can be
reached and distributed on a timely basis when the company sees an
unexpected rise in product demand.
Calculate the impact of seasonal inventory fluctuations and
incorporate them into inventory fluctuations and incorporate them into
inventory management strategies.
Review the companys forecasting mechanisms and the volatility of
the marketplace, both of which can (and do) have a big impact on
inventory decisions.
Institute continuous improvement philosophy in inventory in
inventory management.
Make inventory management decisions that reflect a recognition that
inventory is deeply interrelated with many other areas of business
operation.
To summarize, inventory management system should be regularly
reviewed from top to bottom as an essential part of the annual strategic and
business and business planning processes.

Indeed, even cursory

examinations of inventory statistics can sometimes provide business owners

with valuable insights into the companys foundations. business consultants
and managers alike note that if an individual business has an inventory
turnover ratio that is low in relation to the average for the industry in which
it operates, or if it is low in comparison with the average ratio for the
business, it is pretty likely that the business is carrying a surplus of obsolete

or otherwise unsalable stock inventory. Conversely, they note that if a

business is experiencing unusually high inventory turnover when compared
with industry or business averages, then the company may be losing out on
sales because of a lack of adequate stock on hand. it will be helpful to
determine the turnover rate of each stock item so that you can evaluate how
will each is moving, noted the entrepreneur magazine small business
advisor. You may even want to base your inventory turnover on more
frequent periods than a year. For perishable items, calculating turnover
periods based on daily weekly or monthly periods may be necessary to
ensure the freshness of the product. This is especially important for foodservice operations.

4.5 INVENTORY ACCOUNTING:

The way in which a company accounts for its inventory can have a
dramatic affect on its financial statements. Inventory is a current asset on the
balance sheet. Therefore, the valuation of inventory directly affects the
inventory, total current asset, and total asset balances. Companies intend to
sell their inventory, and when they do, it increases the cost of goods sold,
which is often a significant expense on the income statement. Therefore,
how a company values its inventory will determine the cost of goods sold
amount, which in turn

affects gross profit (margin), net income before

taxes, taxes owned, and ultimately net income. It is clear, then, that a
companys inventory valuation approach can cause a ripple effect throughout
its financial picture.
One may think that inventory valuation is relatively simple. For a
retailer, inventory should be valued for what it cost to acquire that inventory.

When an inventory item is sold, the inventory account should be reduced

(credited) and cost of goods sold should be increased (debited) for each
inventory item. This works if a company is operating under the specific
identification method. That is, a company knows the cost of every individual
item that is sold. This method works well when the amount of inventory a
company has is limited and each inventory item is unique. Examples would
car dealerships, jewelers, and art galleries.
The specific identification method, however, is cumbersome in
situations where a company owns a great deal of inventory and each specific
inventory item is relatively indistinguishable from each other. As a result,
other inventory valuation methods have been developed. The best known of
these are the FIFO (first-in, first out) and LIFO (last-in, first-out) methods.
First in, first out (FIFO):
Method of accounting for inventory whereby, quite literally, the inventory
is assumed to be sold in the chronological order in which it was purchased.
For example, the following formula is used in computing the cost of goods
sold:
Under the FIFO method, inventory costs flow from the oldest purchases
forward, with beginning inventory as the starting point and ending inventory
representing the most recent purchases. The FIFO method contrasts with the
LIFO or last in, first out method, which is FIFO in reverse. The significance
of the difference becomes apparent when inflation or deflation affects
inventory prices. In an inflationary period, the FIFO method produces a
higher ending inventory, a lower cost of goods soled figure, and a higher
gross profit. LIFO, on the other hand, produces a lower ending inventory, a
higher cost of goods sold figure, and a lower reported profit.

In accounting for the purchase and sale of securities for tax purposes,
FIFO is assumed by the IRS unless it is advised of the use of an alternative
method.
First in, first out (FIFO):
Method of inventory valuation that assumes merchandise is sold in the
order of its receipt. The first-price in is the first-price out. Hence cost of
sales is based on older dollars. Ending inventory is reflected at the most
recent prices. Assume the following data regarding inventory during the
year:
(LIFO) last-in, first-out:
On the other hand, is an accounting approach that assumes that the
most recently acquired items are the first one sold? Therefore, the inventory
that remains is always the oldest inventory. During economic periods in
which prices are rising, this inventory accounting method yields a lower
ending inventory, a higher cost of goods sold, a lower gross profit, and a
lower taxable income. The LIFO Method is preferred by many companies
because it has the effect of reducing a companys taxes, thus increasing cash
flow. However, these attributes of LIFO are only present in an inflationary
environment.
The other major advantage of LIFO is that it can have an income
smoothing effect. Again, assuming inflation and a company that is doing
well, one would expect inventory levels to expand. Therefore, a company is
purchasing inventory, but under LIFO, the majority of the cost of these
purchases will be on the income statement as part of cost of goods sold.
Thus, the most recent and most expensive purchases will increase cost of

goods sold, thus lowering net income before taxes, and hence net income.
Net income is still high, but it does not reach the levels that it would if the
company used the FIFO method.
Given the importance differences that exist between the various
inventory accounting methodologies, it is imperative that the inventory
footnote be read carefully in financial statements, for this part of the
document will inform the reader of the method of inventory valuation
chosen by a company. Assuming inflation, FIFO will result in higher net
income during growth periods and a higher and more realistic inventory
balance. In periods of growth, LIFO will result in lower net income and
lower income tax payments, thus enhancing a companys cash flow. During
periods of contraction, LIFO will result in higher income levels, but will also
undervalue inventory over time.
Small business owners weighing a switch to a LIFO inventory
valuation method should note that while making the change is a relatively
simple process (the company files IRS Form 970 with its tax return),
switching away from LIFO is not so easy. Once a company adopts the LIFO
method, it can not switch to FIFO without securing IRS approval.
Donating Excess Inventory:
In recent years, many small (and large) business have gained valuable
tax deductions by donating obsolete or excess inventory to

charitable

organizations, churches, and disaster relief efforts. The type of deduction

that can be claimed depends on the business structure of the donating
company. If youre organized as an S corporation (S Corporation with a
limited number of stockholders (35 or fewer) that elects not to be taxed as a
regular (C) corporation and meets certain other requirements Shareholders
include in their personal tax returns their pro Rata share of capital gains,

ordinary income, tax preference items, and so on. This form avoids
corporate Double Taxation while providing limited liability protection to
shareholders of a corporation.)

4.6 OBJECTIVES OF INVENTORY MANAGEMENT:

The main objective so inventory management are operation and
financial. The operational objective mean that the material and spares should
be available in sufficient quantity so that work is not disrupted for want of
inventory. The financial objective means that investments in inventories
should not remain idle and minimum working capital should be locked in it.
The objectives of inventory management are as follows:
To ensure continuous supply of materials, spares and finished goods
so that production should not suffer at any time and the customers
demand should also be met.
To avoid both over-stocking and under-stocking of inventory.
To maintain investment in inventories at the optimum level as
required by the operational and sales activities.
To keep material cost under control so that they contribute in reducing
cost of production and overall cost.
To eliminate duplication in ordering or replenishing stocks.
possible with the help of centralizing purchases.

This is

 To minimize losses through deterioration, pilferage, wastages and

damages.
To design proper organization for inventory management. Clear cut
accountability should be fixed at various levels of the organization.
To ensure perpetual inventory control so that materials shown in stock
ledgers should be fixed actually lying in the stores.
To ensure right quality goods at reasonable prices. Suitable quality
standard will ensure proper quality of stocks. The price analysis, the
cost analysis and value analysis will ensure payment of proper prices.
To facilitate furnishing of data for short term and long term planning
and control of inventory.
Material Control:
Most of the manufacturing concerns. The cost of raw materials
represents a major part of the total cost of production. Hence proper control
over material is necessary from the time the order is place with the supplier
till they are actually consumed. An efficient system of material control will
lead to significant reduction in production cost.
Material control may be defined as the Systematic control over the
procurement, storage and usage of materials so as to maintain an even flow
of materials and avoiding at the same time excessive investment in
inventories. Material control covers three stages namely.
Purchases of material
Storing of material
Issue of material

Objectives:
The objectives of material controls as follows:
1) To ensure regular and uninterrupted supply of materials i.e., to make
materials available as and when they are needed.
2) To keep investment in stock at a reasonable levels, so that there is no
loss of interest on capital.
3) To purchase the materials at a reasonable price without sacrificing the
quality of such materials.
4) To avoid abnormal wastage by exercising direct control.
5) To avoid the risk of spoilage and obsolescence of the materials by
fixing the maximum stock level.
Issue of Material Management:
As per major activity groups involved in material management in any
manufacturing organization.
Issue related to materials planning.
Issues related to purchase
Issues related to stores or inventory.
Issue related to material handling & display.
Issue Related to Material Planning:
Material Identification
Standardization

 Make or Buy
Coding & Classification
Quality specification
By providing samples or prototype.
By providing manufacturing operation specification.
By brand or trade name.
By specifying well accepted market grades.
By specifying testing producers relevant standards.
By specifying/ providing engineering drawing/blue prints.

4.7 TOOLS AND TECHNIQUES OF INVENTORY MANAGEMENT:

Effective inventory management requires an effective control system
for inventories. A proper inventory control not only helps in solving the
acute problem of liquidity but also increases profits and causes substantial
reduction in the working capital of the concern. The following are the
important tools and techniques of inventory management and control:
Determination of stock levels.
Determination of Safety Stocks.

 Selecting a proper system of Ordering for Inventory.

Determination of Economic Order Quantity.
A.B.C. Analysis.
Inventory Turnover Ratios (Conversion period)
Classification and Codification of Inventories.
Preparation of Inventory Reports.
Determination of stock levels.
Determination of safety stock levels.
Selecting a proper system of ordering for inventory.
Determination of economic order quantity (EOQ)
A.B.C. Analysis.

Determination of Stock Levels:

Carrying of too much and too little of inventories is determinate to the
firm. If the inventory level is too little, the firm will face frequent stock-outs
involving heavy ordering cost and if the inventory level is too high it will be
unnecessary tie-up of capital. Therefore, an optimum level of inventory
where cost is the minimum and at the same time their Id. No. stock-out,
which may result is loss of sale or stoppage of production. Various stock
levels are discussed as such.
Minimum Level:

This presents the quantity, which must be maintained in hands at all

times. If stock is less than the minimum level then the work will stop due to
shortages of materials.
Lead time:
A purchasing firm requires some time to process the order and time is
also required by the supplying firm to execute the order. The time taken in
processing the order and then executing it is known as lead-time. It is
essential some inventory during this period.
Rate of consumption:
It is the average consumption of materials in the factory. The rate of
consumption will be decided on the basis of past experience and production.
Nature of material:
The nature of materials also affects the minimum level. If material is
required only against special orders of the consumers then minimum stock
will not be required for such materials minimum stock level can be
calculated using the formula:
Minimum stock level = Re-order level (normal consumption*
normal re-order period).

Re-order level:
When the quantity of materials reaches at a certain figures then fresh
order is sent to get materials again. The order is sent before the materials
reach minimum stock level. Re-ordering level or ordering level is fixed

between minimum stock level and maximum stock level. The rate of
consumption, number of days required on any day is taken into account
while fixing reordering level. Re-ordering level is fixed with the following
formula;
Re- order level = maximum consumption * maximum re-order
period
Maximum level:
It is the quantity of materials beyond which a firm should not exceed
its stock. If the quantity exceeds maximum level limit then it will be overstocking. A firm should avoid over-stocking because it will result in high
materials costs. Over stocking will more blocking of more working capital,
more space for storing the materials, more wastage of materials and more
chances of losses from obsolescence. Maximum stock level will depend
upon following factors:
The maximum requirement of materials at any point of time.
The availability of space for storing the materials.
The rate of consumption of materials during lead-time.
The cost of maintaining the stores.
The possibility of fluctuation in prices.
Availability of materials. If the materials are available only during
seasons then they have to store for the rest of the period.
The possibility of change in fashion and production process will also
affect the maximum stock level.

The following formula may be used for calculating maximum stock level:
Maximum stock level = re-order level + re-ordering quantity
(minimum consumption * minimum re-ordering period).
Danger level:
It is the level beyond which material should not fall in any case. If
level arises then immediately steps should be taken to replenish the stock
even if more cost is incurred in arranging the materials. If materials. If
material is not arranged immediately then there is a possibility of stoppage
of work. Danger level is determined with the formula:
Danger level = consumption * maximum re- order period for emergency
purchases.
Average stock level:
The average stock level is calculated as such:
Average stock = minimum stock level + of re-order
quantity.
Determination of safety stock
The safety stock is a buffer to meet unanticipated increase in usage.
The usage of inventory cannot be perfectly forecasted. Ft fluctuates over a
period of time. The demand for materials may fluctuate and delivery of
inventory may also be delayed and in such a situation the firm can face a

problem of stock-out. The stock-out can prove costly by affecting the

smooth working of the concern. In order to protect against out of usage
fluctuations, firms usually some margin of safety stocks. The basic problem
is to determine the level of safety stocks. Two costs are involved in
determination of this stock. I.e. opportunity cost of stock outs and the
carrying costs. The stock-outs of raw material cause production as the firm
cannot provide stock-outs will occur resulting into the large opportunity
costs. On the other hand, the larger quantity of safety stocks involves higher
carrying costs.
Ordering system of inventory:
The basic problem of inventory is ton decide the re-order point. The
point indicates when an order should be placed. The re-order point is
determined with the help of these things

A.) Average consumption rate.

B.) Duration of lead time.
Economic order quantity, when the inventory is depicted to lead time
consumption, the order should be placed.
There are three prevalent system of ordering and a concern may use any one
of these;
Fixed order quantity system generally known as economic order
quantity (EOQ) systems.

 Fixed period order system of periodic re-ordering system or periodic

review system;
Single order and schedule part delivery system.

Economic order quantity (EOQ):

The quantity of material to be ordered at one time is known as
economic ordering quantity. This quantity is fixed in such a manner as to
minimize the cost of ordering and carrying the stock. Carrying cost is the
cost of holding the materials. The quantity to be ordered should be such
which minimizes the carrying and ordering costs. The order for the material
to be purchased should be large to earn more trade discount and to take
advantage of bulk transport, but at the same time it should not be tool large
to incur too heavy a payment on account of interest, storage and insurance
cost. If the price to be paid is stable, quantity to be ordered each time can be
ascertained by following formula:
Q = 2CO\I.
Where: q = quantity to be ordered.
C = consumption of the material concerned in units during a year
O = cost of placing and order including the cost of receving the goods i.e.
cost of getting an item into the firms inventory.
I = interest payment including variable cost of storing per unit per year i.e.,
holding costs of inventory.

Economic order quantity is determined keeping in view the ordering costs

and carrying costs. With the interaction of these two costs, the economic
ordering costs
During a particular period are equal to carrying costs during that period and
total cost to order and carry is lowest.
There are many variations on the basic EOQ model. I have listed most
useful once below,
Quantity discount logic can programmed to work in conjunction with
the EOQ formula to determined optimum order quantity. Most systems will
require this additional programming.
Additional logic can be programmed to determine max quantities for
subject to spoilage or to prevent obsolescence on items reaching end of their
product life cycle.
When use in manufacturing to determine lost size where production
runs are very long and finished product is being released to stock and
consumed /sold through out the production run you may need to take into
account the ratio of production consumption to more accurately represent the
average inventory level.
Assumptions:
There are a number of assumptions that must be made with the EOQ.
These include:
Only one product is involved
Deterministic demand(demand is known with certainty)

 Constant demand (demand is stable throughout the year)

No quantity discounts.
Constant costs (no price increase or inflating)
While these assumptions would seem to make EOQ irrelevant for use
in a realistic situation, it is relevant for items that have independent
demand .this means that the demand for the items is not derived from
the demand for something else. For example, the demand for steering
wheels would be derived from the demand for automobiles but the
demand for purses is not derived from anything else; purses have
independent demand.
Inventory Turnover Ratio:
Every firm has to maintain a certain level of inventory of finished
goods so as to be able to meet the requirements of the business. But the level
of inventory should neither be too high nor too low. It is harmful to hold
more inventories for the following reasons.
It unnecessarily blocks capital which can otherwise be profitably
used somewhere else.
Over-stocking will require more go down space, so more rent will
be paid.
There are chances of obsolescence of stocks. Consumers will
prefer goods of latest design, etc.
Slow disposal of stacks will mean slow recovery of cash also
which will adversely affect liquidity.
There are chances of deterioration in quality if the stocks are held
for more periods.

 It wills there fore, be advisable to dispose off inventory as early as

possible. On the other hand, too low inventory may mean loss of
business opportunities. Thus, it is very essential to keep sufficient
stocks in business.
Inventory turnover ratio also known as stock velocity is normally
calculated as sales/ average inventory or cost of goods sold/ average
inventory. It would indicate whether inventory has been efficiently used or
not. The purpose is to see whether only the required minimum funds have
been locked up in inventory. Inventory turnover ratio indicates the number
of times the stock has been turned over during the period and evaluates the
efficiency with which a firm is able mange its inventory
Inventory turnover ratio is calculated to indicate whether inventories
have required minimum funds in inventory. The inventory turnover ratio also
known as stock velocity is normally calculated as sales/average inventory or
cost goods sold/ average inventory cost. Inventory conversion period may
also be calculated to find the average time taken for clearing the stock.
Inventory turnover ratio = cost of goods sold/ average inventory at cost
Inventory turnover ratio = net sales / average inventory.
And
Inventory conversion period = days in year / inventory turnover ratio.
Generally, the cost of goods sold may not be known from the
published financial statements. In such circumstances, the inventory
turnover ratio may be calculated by dividing net sales by average inventory
at cost. If average inventory at cost is not known then inventory at selling

price may be taken as denominator and where the opening inventory is not
known the closing inventory figure may be taken as the average inventory.
Inventory turnover ratio = net sales / average inventory at cost
Inventory Turnover ratio = Net sales/ Average inventory at selling cost.
Inventory Turnover ratio = Net sales / Inventory.
Inventory Conversion Period:
It may also be of interest to see average time taken for clearing the
stocks. This can be possible by calculating inventory conversion period. This
period is calculated by dividing the number of days by inventory turnover.

Inventory Reports:
From effective inventory control, the management should be kept
informed with the latest stock position of different items. This usually done
by information necessary for managerial action. On the basis of these reports
management takes corrective action wherever necessary.
Valuation of Inventory:
The value of materials has a direct bearing on the income of a
concern, so it is necessary that a method of pricing of materials should be
such that it gives a realistic value of stock the traditional method of valuing
materials cost price or market price which ever is less is no longer the only
method. If management is interested to show more profits then it can choose
such methods which will more stock of vice versa. To safe guard public

interest the government of India has instituted statutory controls to prevent

frequent change of material valuation methods. A concern will have to use a
particular valuation method for least three years and any changes there from
must be approved by the board.
The following methods of pricing material issues or generally used:
First in First out method (FIFO method)
Last in First out method(LIFO method)
Average price method
Weighted Average price method
Simple Average price method
Base stock method
Standard price method
Market price method

Average Cost Method:

In average cost method of pricing all materials in stock or so mixed
that a price based on all costs are formed. Average cost may be of two types.
Simple Average Method:
In this method the prices of all lots in stock are averaged and the
materials are issued on that average price. Though this is simple method of
pricing materials but particularly this method does not give good results. The
total cost of materials is not observed in this method.

Weighted Average Method:

In this method that the total cost of all materials is divided by the total
number of items in stock. The price calculated in this way has not been for
issue of materials up to the time a fresh purchase has not been made. After a
fresh purchase, the quantity will be added to earlier balance quantity and
material cost will be changed total cost. A fresh price is calculated by
dividing the changed total cost by the number of units in stock after the
purchase. A new price list calculated where even a fresh purchase is made.
Base Stock Method:
In this method some quantity of materials is assumed to be necessary
for keeping the concern going. The quantity is not issued unless otherwise
there is an emergency. This material which is not issued as is kept in stock is
known as base stock.

Standard Price Method:

The issue price of the materials is pre determined or estimated in this
method. The standard price is based on market conditions, usage rare,
handling facilities, storage facilities, etc. The materials are priced at standard
price irrespective of price for various purchases
Market Price Method:
In this method the prices charged to production are not costs incurred
on the materials but latest market prices. The market prices may either be

replacement prices or realizable prices. The replacement prices are used for
the materials which are kept in stock for use in production and realizable
prices are used for the goods kept for resale. The prices of issue for materials
are always the replacement prices.
4.8 SYSTEM OVERVIEW
Before analysis is attempted, it is proposed to present material
accounting practices along with documentation at kakatiya overseas.
The main objective of inventory accounting and valuation of
inventories are:
Accurate and regular recording of all transactions in the books.
Proper valuation of material receipts, issues, return and balances.
System Overview:
The following system is being followed in Kakatiya overseas, and the
main features of the system are as follows:
1. Receipt vouchers are prepared on receipt of materials.
2. Issues voucher are prepared for all issues of out of stores.
3. All receipts, issues and returns are recorded in priced stores ledger
(PSL).
4. Stock transfer voucher (STV) is used for recording transferring raw
materials from one division/ group to another. Transfers are made at
weighted average prices.
5. Finished goods delivery notes (FGDN) are used for transferring
finished production in shop floor to finished stores.

6. Physical verification is carried out at regular interval and

discrepancies and reconciles and recorded.
7. Finished goods, work in progress valuation is as per the accounting
policy of company.
Materials Documentation and Cost Controls:
The materials accounting and cost accounting system have been
designed the frame work of accounts codes and accounting policies which
would facilitate identifying direct elements of cost, such as direct material,
direct labour and directly allocable expenses (such as expenses of sub
contracting) which are booked manually to the direct material.
The following documentation and system is being followed in kakatiya
overseas:
Receipt documents:
Certified Stores Receipt Voucher (CSRV) : This is issued by stores
personnel to bills section to F&A wing in order to classify the material into
raw material stores and spares, consumable tools, packing materials, sub
contractors services, and other operational expenses. Based on the purchase
order, the bill section does the provisional valuation by using fixed
percentage for freight, insurance, and other incidental and regard to customs
duty the percentages as per tariff is adopted and purposed the following
entry:
Stock A/c Dr
To
Sundry Creditors A/c

Material code, quantity etc which is fed to EDP which calculates the value
based on monthly weight average method.
Based on MIR data the WIP is brought out by collating material analysis.
The direct material is booked job wise in WIP ledger and the same is
reconciled with financial records. Thus, the direct materials job wise may be
traced from WIP ledger.
In the similar fashion, some other receipt document and issue document are
operated like;

1. Cash purchases receipt voucher for cash purchases.

2. Finished goods issue note for the finished products
3. Stock transfer voucher for any stock transfer transactions.
4. Material return note for any materials being returned.
Based on the above documentations EDP generates the following prints
outs for material viz.
Priced stores ledger is brought out on monthly basis consisting of that
months receipts, issues, balance stock available with value and with
summary and cumulative receipts, issues and consumption values for
materials like raw materials, stores and spares, consumable tools and
packing materials.
Inventory is brought on monthly basis comprising of materials codes
in seriatim along with material description unit code. Quantity available as at
the end of the month rate of the material and total value and also indicating
cumulative receipts and cumulative consumption.

Job wise material analysis is brought out on monthly basis for those
jobs, for which materials have been consumed along with value and
description of the material in order to have monthly record of material used
for each job.
Inventory Control and its Impact on Cost:
Value wise inventory and consumption analysis are brought out on
quarterly basis indicating RM; SS, CT, PM are valued at cost. A class items
which are 70%, B class items which are valuing 20%, C class items are
verified by the stores and to the extent certificate are issued at the year end
regarding the correctness. Physical balance is verified with kardex and the
difference is intimated to stores. FAW(Farm workers) of the group verifies
and gives the rectification entries i.e., shortage items value are charges off to
physical inventory variation and the excess quantities are adjusted in the
inventory ledger after obtaining the component authoritys approval.
The system enables to control the inventories and at the same time
costs on some are controlled.

CHAPTER-V
DATA ANALYSIS AND
INTERPRETATION

ABC analysis:
The material is divided into a number of categories for adopting a
selective approach for material control. It is generally seen that in
manufacturing concern, a small percentage of items contribute a large
percentage of value of consumption and a large percentage of items of
materials contribute a small percentage of value. In between these two limits
there are some items which have almost equal percentage of value of
material. Under ABC analysis, all the materials are divided in to three
categories viz. A, B&C. past experience has shown that almost 10% of items
contribute to 70% of value of consumption and this category is called
category A. about 20% of the items contribute about 20% of value of
consumption and this is known as category B. category C covers about 70%
of items of material which contribute only 10% of value of consumption.
There may be some variation in different organizations and an adjustment
can be made in these percentages.

5.0 MAKING OF ABC ANALYSIS:

The entire procedure for making ABC analysis can be summarized in the
following steps:
Determine the number of units sold or used in the past 12-months
period.
Determine the unit-cot standard for each item.
Compute the annual consumption value (in rupees) of each consumed
item by multiplying annual consumption (of units) with the unit price.
Arrange these items in descending order of the usage value compute
above.

S.NO
1

DESCRIPTION
1Desert Black Limestone
600x600x2cm,Calibrated:Natural and Vibration
Surface:150sqms.
60x60x2cm ,honed,qty 700sqms.
Granite:black galaxy,800x800x2cm
Quantity:850sqm.

RATE

VALUE

50

850

50

850

15

945

30

3,150

119

77,376

101.90

1,366,784.70

8.8

250140

21.31

24,868.77

18.53

36,744.99

13.90

16,763.40

16.21

203,224.77

8.80

194,427.20

15.20

8,299.20

56

2,912

2
3
4
5

Slate:Peacock Slate,600x600x2cm
Natural/Calibrated:870sqm.
Black lime hand cut:900x900.25-35mm
Tandur yellow Natural and
Calibrated:400x600cms,2.5cm gauged-roman
pattern:edges:hand cut.
Kadapa Black Natural:400cmx500cm,free
lengthx2cm gauged;hand cut.850qty.

6
7
8

Limestone:Crme White Honed,280x280x2cm

gauged,qty:500cms and tandur grey
naturals:400cmx500cm,hand cut.
Tandur yellow Natural and Vibration
Machine:390x590cms:190x390cm.
5cm gauged-roman pattern;edges:handcut.

Limepink,320x140x4cm bullnose,qty:1750.
Lime green 400x600x25-35cm,qty:1000sqm.

10

Cudappah Natural Surface:200x200x4cm

11

Edges Machine Cut,qty:600cms.

Premium Quality Kashmir
White:505x505x20mm,qty:360tilesx8pallets and
belved and calibrated.

12

Absolute Black:505x505x20mm, qty:360tilesx8pallets

and belved and calibrated.

13

Cuddapah Black Limestone:half+tumbled in

vibration M/C;500X600X4cm,hand cut.

14

Green roofing stone:50x70x8-2.cm,edges hand

cut,70cm side,round corner on one 50 cm side.q

15

Sandstone Gurden items:rainbow

sphere,50cm,40cm,30cm.teak
sphere:50cm,40cm,30cm,qty450.

RANK

18.53

Rank

Description

CONSUMPTION
VALUE

630.02

CONSUMPTIO
CLASS

VALUE IN EAC
CLASS

Kadapa Black Natural:400cmx500cm,free

lengthx2cm gauged;hand cut.850qty
Limestone:Crme White Honed,280x280x2cm
gauged,qty:500cms and tandur grey
naturals:400cmx500cm,hand cut.

Premium Quality Kashmir

White:505x505x20mm,qty:360tilesx8pallets and
belved and calibrated.

1,366,784.70

250,140.00
A

2014576

1,55,753

17636

203,224.77
4

Absolute Black:505x505x20mm,
qty:360tilesx8pallets and belved and calibrated
194,427.20

5
6
7
8
9

Tandur yellow Natural and

Calibrated:400x600cms,2.5cm gauged-roman
pattern:edges:hand cut.
Limepink,320x140x4cm bullnose,qty:1750.
Lime green 400x600x25-35cm,qty:1000sqm.
Tandur yellow Natural and Vibration
Machine:390x590cms:190x390cm.
5cm gauged-roman pattern;edges:handcut.
Cudappah Natural Surface:200x200x4cm
Edges Machine Cut,qty:600cms.
Cuddapah Black Limestone:half+tumbled in
vibration M/C;500X600X4cm,hand cut.

77,376.00
36,744.99
24,868.77
16,763.40
8,299.20

10
11
12
13

Black lime hand cut:900x900.25-35mm

Green roofing stone:50x70x8-2.cm,edges hand
cut,70cm side,round corner on one 50 cm side.
Slate:Peacock Slate,600x600x2cm
Natural/Calibrated:870sqm.
1Desert Black Limestone
600x600x2cm,Calibrated:Natural and Vibration
Surface:150sqms.
60x60x2cm ,honed,qty 700sqms.
Granite:black galaxy,800x800x2cm
Quantity:850sqm.

14
15

3150.00
2912.00
945.00
850.00

850.00
Sandstone Gurden items:rainbow

sphere,50cm,40cm,30cm.teak
sphere:50cm,40cm,30cm,qty450.
630.02

TOTAL

CLASS NO.OF.ITEMS

21,87,966.05

PERCENTAGE
OF ITEMS

27

CONSUMPTION
VALUE

2,014,576.67

VALUE
PERCENTAGE

91%

27

1,55,753.16

6%

27

17,636.22

3%

ABC Classification of Items:

Graphical presentation:

5.1 Inventory, Materials, Sales and Production at a Glance.

20022003

20032002

20042003

20052004

20062005

20072006

20082009

Raw materials 5307

4735

5630

5267

1645

1616

1616

Work
progress

6193

8350

3877

4260

3372

3799

3233

Finished
goods

1059

1446

651

1183

946

649

634

Total

12559

14531

10158

10710

6622

6064

5247

Sundry
debtors

19865

16681

31344

42946

58073

79469

98870

Materials
consumed

26248

32701

49307

47247

72229

38917

47446

Net sales

47002

57115

89218

84177

72230

65188

91790

Gross sales

56875

67412

100056

93455

77067

70029

100590

Cost of
Production(-)
profit
Total

56671
1209

70315
1934

89218
8058

86935
13055

72781
5071

68046
5204

76112
19214

55462

62381

81160

73880

67710

61842

56897

particulars

RAW MATERIAL
Particulars

2002
2003

2003
2004

2004
2005

2005
2006

2006
2007

2007
2008

2008
2009

Raw material

5307

4735

5630

5267

2304

1616

1878

Material
Consumed(per
Month)
Monthly
Consumption(2)

26248
/12

32701/1 49307
2
/12

47247
/12

41979
/12

38917
/12

47447/
12

2187

2725

4108

3937

3939

3243

3954

2.43

1.74

1.37

1.34

o.66

0.50

0.47

No. of months
Raw material
Stock available
w.r.t. monthly
consumption(3)
=R.M/monthly
Consumption(1/2)

WORK IN PROGRESS:

Particulars

20022003
Work progress 6193

20032004
8350

20042005
3877

Cost of
production
(per month)
Monthly
consumption(2
)
No .of months
work in
progress held
in
Inventory=W.I
.P/M
Monthly
Consumption

55462/
12

62381/
12

4647
1.33

20052006
4260

20062007
3372

20072008
3799

20082009
3233

81160/1 73880/
2
12

67710/
12

62842/
12

56897
/12

5298

6763

6157

5643

5237

4741

1.61

0.57

0.69

0.6o

0.73

0.68

Graph presentation for work in progress:

FINISHED GOODS:
Particulars

2000
2001

2001
2002

2002
2003

2003
2004

2004
2005

2005
2006

2006
2007

Finished
goods

1059

1446

651

1183

946

945

649

Net sales

47002/12 57111/12 89218/12 84177/12 72231/12 65787/12 91791/12

Monthly
3917
Consumption
No. of
Months F.G
Held in
inventory

0.27

4760

7435

7015

6019

5482

7649

0.30

0.09

0.17

0.16

0.17

0.08

INTERPRETATION: the average F G stock held during the period of

study is 0.17

SUNDRY DEBTORS:
particulars

2000
2001

2001
2002

2002
2003

2003
2004

2004
2005

2005
2006

2006
2007

Sundry
debtors

19865

16681

31344

42946

36774

74468

98871

Gross sales

56875/12 67412/12 10056/12 93455/12 77067/12 70029/12 10059/12

Monthly
4740
consumption

5618

8338

7788

6422

5836

8383

No of month 4.19
Of sales

2.97

3.76

5.51

5.73

12.76

11.79

INTERPRETATION: the credit of the corporation is one month credit.

However the study revealed the organization has never maintained one
month credit the study of the project
For arriving no.of months gross working capital and each components
including raw material, work in progress, finished goods are co-related as
follows:
a. Raw material stocks are co-related to material
consumption
b. WIP is co-related to cost of production

Finished goods are co-related to net sales

INTERPRETATION ABC

The corporation held a maximum stock of Raw material in the year

2002-2003 and improved year by year and reached 0.73 months at the end of
2008-2009.
Work in-progress:
The corporation held a peak WIP during the year 2006-2007 and
around 0.68 months on a average every year during the next 4 year
Finished goods:
The average finished goods stocks held during the period of study is
0.20 month with peak finished goods stock of 0.30 months and lowest to
the turn of 0.16 months per month.
The ITR has increased from 6.70 in the year2003 to 2004 to 7.57 in
the year 2004 to 2005 which indicates that the inventory is managed in a
good manner.
The ITR (inventory turnover ratio) has increased from 4.09 to 6.07
from the year 2002-2003 to 2003-2004 which shows that the inventory is
efficiency managed.
In the similar ways thee ITR has increased from 7.57 in the year 20042005to 8.09in the year 2004-2005 which indicates that the inventory has
been managed efficiency n the year 2006-2007 has increased from 8.9211

5.2 CALCULATION OF INVENTORY TURNOVER RATIOS:

Inventory turnover ratio=Cost of goods sold/average inventory

Cost of goods sold=sales/gross profit.
Average inventory = (Opening stock+ closing stock)/2.
Particulars

2002-

2003-

2004-

2005-

2006-

2007-

2008-

2003

2004

2005

2006

2007

2008

2009

Sales(A)

56874.67 67411.65 100055.98 93455.40 77066.76 70029.03 100590

Gross

4564.18

9937.16

82683.22

78965.66 70139.75 6222.80

20702

profit(B)
Cost of

52310.49 57474.49 82683.22

78965.66 70139.75 63806.23 79888

13035.73 12559.82 14531.93

10158.94 10710.86 6622.64

7681

12559.85 14531.93 10158.94

10710.86 6622.64

7681.96

6855

12797.78 13545.88 12345.44

10434.9

8666.75

7152.30

7268

4.009

7.57

8.09

8.92

10.99

Goods
sold(C)(AB=C)
Inventory
opening
stock(D)
Closing
stock(E)
Average
inventory(F)
(D+E/2=F)
Inventory

4.24

turnover
ratio(C/F)
INVENTORY TURNOVER RATIO:
INTERPRETATION:

6.7

From the above calculation it is found that the inventory turnover has
gradually increased from 4.09 to 8.92 from the year 2000-2001 to 2006-2007
which is indicative of good inventory management.

Inventory conversion period

Years

Days in year/

No of days

Inventory turnover ratio

2002-2003

365/4.09

14.92

2003-2004

365/4.24

15.47

2004-2005

365/6.70

24.45

2005-2006

365/7.57

27.63

2006-2007

365/8.09

29.52

2007-2008

365/8.92

32.55

2008-2009

365/10.99

33.21

CHAPTER-VI
SUGGESTIONS,
CONCLUSIONS AND
BIBILIOGRAPHY

FINDINGS & SUGGESTIONS

 A-category of products must be taken care of properly as it forms a

major part and appropriate method of valuing the product must be
used.
The credit policy of the corporation is one month credit. However
the study revealed that the organization has never maintained one
month credit during the study of the project so my request is to
check on credit period
Keep check on creditors as it effects the working capital, which
may even leads to losses
Organization has to pay attention on the amount of% of raw
material on cost of production, which is high when compared to
earlier and slightly low when compared to ideal percentage.
Suggestion must be taken form all department of the organization
for proper different department in the organization
Under-stocking will results in stoppage of work the investment in
inventory management should be kept in reasonable limits.

CONCLUSIONS

 As KAKATIYA is a multi product organization catering to

different customers on divergent technologies the inventory
procurement for various ranges of product is quite high.
Inventory procurement is also based on and does not conform
to economic batch quantities leading to surplus inventories and
non moving inventories.
A preventive measure there should be a regular monitoring
mechanism at the stage of procurement, whether there is a
control exercised in purchasing materials in line with
estimates, to have a better control on the inventory levels.
A regular reporting system on inventory should be placed to
highlight on carrying cost and opportunity cost.
Organization needs to up grade of the technology, which in
turn increases effective utilization of material.
There is a regular physical verification for A and B class items
by internal audit department to highlight on non-moving inventories

BIBILIOGRAPHY

S.N.CHARY (2001), PRODUCTION AND OPERATION MANAGEMENT

CHUNAWALLA PATEL (2004), PRODUCTION AND OPERATION
MANAGEMENT
I.M.PANDEY (1999), FINANCIAL MANAGEMENT
Website Referenced
www.kakatiyayaoverseas.com
www.google.com