Inventory

INVENTORY MANAGEMENT
ALFRED HERBERT LIMITED
INTRODUCTION
PART A: ABOUT INDUSTRY THE NATURAL RUBBER INDUSTRY Natural rubber is derived from the latex of the Hevea brasiliensis tree. The tree is a native of South America and was brought to South-east Asia in the late 1800s. A Hevea brasiliensis tree reaches maturity after an average of seven years and is normally replaced when it is about thirty years. Natural rubber is an important global commodity, constituting 42% of total global rubber consumption in 2005. Global production is a massive 8.68 million tones with a global consumption of 8.72 million tones. Global production and consumption has increased 34.8% and 43.1% respectively in 2005 when compared to 1996 and the growth looks set to continue. The global natural rubber industry is largely export-based with exports of natural rubber comprising 72.7% of total global production at 6.31 million tones. The largest producers and exporters of natural rubber are Thailand, Indonesia and Malaysia (Figure 1). With these three countries accounting for 72.7% of total global production and 84.3% of total global exports, South-east Asia is at the heart of the global natural rubber industry. Key export markets for natural rubber are China, EU-25, US and Japan which account for 74.6% of total global imports in 2005 (Figure 2 and 3). These countries are also the largest consumers of natural rubber (Figure 4), in particular China which would account for a large part of the forecasted increase in consumption of 2.5% and 6.1% respectively for 2006 and 2007.
The primary participants in the natural rubber industry are the rubber plantations, natural rubber processors, traders and the end-users. Tire companies are by far the largest end-user of natural rubber. Of the tire companies, Bridgestone, Goodyear and Michelin are the largest, consuming around 1 million tones each. For investors who want to understand the natural rubber industry and its participants as well as the various supply and demand factors that determine the price of natural rubber, this publication will serve as an excellent starting point.
BRIEF HISTORY & INTRODUCTION OF RUBBER:
Rubber was known to the indigenous peoples of the Americas long before the arrival of European explorers. In 1525, Padre d'Anghieria reported that he had seen Mexican tribespeople playing with elastic balls. The first scientific study of rubber was undertaken by Charles de la Condamine, when he encountered it during his trip to Peru in 1735. A French engineer that Condamine met in Guiana, Fresnau studied rubber on its home ground, reaching the conclusion that this was nothing more than a "type of condensed resinous oil".
The first use for rubber was an eraser. It was Magellan, a descendent of the famous Portuguese navigator, who suggested this use. In England, Priestley popularized it to the extent that it became known as India Rubber. The word for rubber in Portuguese borracha - originated from one of the first applications for this product, when it was used to make jars replacing the leather borrachas that the Portuguese used to ship wine.
Returning to the works of Condamine, Macquer suggested that rubber could be used to produce flexible tubes. Since then, countless craftsmen have become involved with rubber; goldsmith Bernard, herbalist Winch, Grossart, Landolles and others. In 1820, British industrialist Nadier produced rubber threads and attempted to use them in . 2
clothing accessories. This was the time when America was seized by rubber fever, and the waterproof footwear used by the indigenous peoples became a success. Waterproof fabrics and snow-boots were produced in New England. In 1832, the Rosburg factory was set up. Unfortunately, cold weather affected goods made from non-vulcanized natural rubber, leaving them brittle and with a tendency to gum together if left in the sun, all discouraging consumers. After a long period attempting to develop a process to upgrade rubber qualities (such as including nitric acid) that almost ruined him, in 1840 Goodyear discovered vulcanization, quite by accident. An interesting fact: in 1815, a humble sawyer - Hancock - became one of the leading manufacturers in the UK. He had invented a rubber mattress and through an association with MacIntosh he produced the famous waterproof coat known as the "macintosh". Furthermore, he discovered how to cut, roll and press rubber on an industrial scale. He also noted the importance of heat during the pressing process, and built a machine for this purpose. MacIntosh discovered the use of benzene as a solvent, while Hancock discovered that prior chipping and heating were required in order to ensure that the rubber dissolved completely. Hancock also discovered how to manufacture elastic balls. Finally, in 1842, Hancock came into possession of vulcanized rubber produced by Goodyear, seeking and finding the secret of vulcanization that brought him a vast fortune. In 1845, R.W. Thomson invented the pneumatic tire, the inner tube and even the textured tread. In 1850 rubber toys were being made, as well as solid and hollow balls for golf and tennis. The invention of the velocpede by Michaux in 1869 led to the invention of solid rubber, followed by hollow rubber and finally the re-invention of the tire, because Thomson's invention had been forgotten. The physical properties of rubber were studied
INVENTORY MANAGEMENT By Payen, as well as Graham, Wiesner and Grard.
Finally, Bouchardt discovered how to polymerize isoprene between 1879 and 1882, obtaining products with properties similar to rubber. The first bicycle tire dates back to 1830, and in 1895 Michelin had the daring idea of adapting the tire to the automobile. Since then, rubber has held an outstanding position on the global market. As rubber is an important raw material that plays a leading role in modern civilization, chemists soon became curious to learn more about its composition in order to synthesize it. In the XIX century, work focused on this objective, soon discovering that rubber is an isoprene polymer. The Russians and the Germans broke fresh ground in their efforts to synthesize rubber. But the resulting products were unable to compete with natural rubber. It was only during World War I that Germany - pressured by circumstances - had to develop the industrialized version of this synthetic product. This was the springboard for the massive development of the synthetic rubber industry all over the world, producing elastomers. Natural Rubber Natural rubber is a solid product obtained through coagulating the latex produced by certain plants, particularly the Brazilian rubber-tree (Hevea Brasiliensis). This raw material is usually tapped from the rubber tree, which is native to Amazonia. Although there a large number of species that exude secretions similar to latex when the bark is cut, only a few produce sufficient quantities of a quality adequate for exploitation on economic bases. The history of natural rubber in Brazil is a tale that is just as exciting as the Gold Rush in the USA. For almost fifty years - during the second half of the XIX century through to the second decade of the XX century - natural rubber underpinned one of the most important development booms in Brazil. At that time, the Industrial Revolution was expanding rapidly as the world lived through a time of prosperity and discoveries that was reflected in all sectors. Automobiles, trams, telephones, electric light and other innovations changed the landscapes and customs of towns and cities. New markets opened up. This was the Belle poque period, whose splendor has been portrayed in literature and film for subsequent generations.
Thanks to its multiple applications, particularly in the expanding automobile industry, rubber produced from latex tapped from rubber-trees became a product in demand worldwide. And there was no lack of rubber-trees in the Brazilian Amazon. This brought a boom to Northern Brazil - which at that time was one of the poorest and leastinhabited parts of the country. Eager to work the rubber-groves of Amazonia, leading foreign banks and companies set up shop in the towns of Belm and Manaus. The capital of Amazonas State become the economic heart of Brazil. It was equipped with water and electricity supplies, in addition to telephones and large buildings such as the Amazonas Theater, still today a symbol of the wealth brought in by Brazil's rubber boom. Thousands of immigrants flowed in, mainly fleeing the drought that assailed Northeast
Brazil during the 1870s, invading the forest to tap the latex and turn it into rubber. The output of Amazonia reached 42,000 tons a year, with Brazil dominating the global natural rubber market. This euphoria lasted through to 1910, when the situation began to change: rubber exports began to appear on the market from British Colonies, and Brazil was unable to withstand this fierce competition. In 1876, the British smuggled out rubber-tree seeds from Amazonia to the Botanical Gardens in London. Through grafting, they developed more resistant varieties that were later sent to the Colonies in Asia where massive rubber plantations were established, particularly in Malaysia, Ceylon and Singapore. The difference between latex production techniques in Brazil and Asia was a significant factor in the development of this business, due to these plantations. While the rubber trees of Asia were set only four meters apart, it was sometimes necessary to walk miles between one tree and the next in Amazonia, limiting the amount of latex collected and increasing its price. Obviously, the well-organized plantations of the Far East resulted in a significant increase in productivity, making them more competitive. In Brazil, the Government was unwilling to change these methods. It believed that tapping these rubber trees would ensure the presence of Brazilians in the Amazon . 5
region, guaranteeing national sovereignty over this largely unpopulated area. It opted for geo-politics represented by human settlements instead of geo-economics that could have produced higher gains. This relative immobility cost Brazil dear; its exports shrank as they were unable to withstand the competition of Asian rubber, tapped at far lower prices. Consequently, production began to drop, bringing the decades of boom to an end for much of Northern Brazil. The companies that had set up shop in Manaus and Belm left in search of other more productive regions. The immigrants went home, and leading names in the world of the arts no longer performed at the Amazonas Theater. This golden age of opulence slipped into history. In the late 1920s, Brazil was still attempting to catch up this lost ground with the help of an unexpected partner: US industrialist Henry Ford, who had developed a new scheme - the production line - that was to change the face of industry for ever, and at that time accounted for 50% of the world's vehicle output. In order to loosen the grip of the British Colonies in Southeast Asia on the rubber market - the precious raw material for making tires - Ford planted no less than 70 million rubber tree seedlings in an area covering one million hectares in Para State. This ambitious project was soon christened Fordlndia by the local residents. It was designed to produce 300,000 tons of natural rubber a year, accounting for one half of global consumption. But the Ford Project succumbed to the hostile environment of the Amazon rainforest and was abandoned, posting huge losses. Within this context, Asia dominated global supplies of natural rubber with over 90% of the output. However, significant changes redistributed the production among the main competitors. Accounting for one-third of global output in 1985, Malaysia fell back due to
PART-B: ABOUTSUBJECT:
INRTODUCTION
Inventory analysis is one of the most popular topics in Production and Material Management. One reason is that almost all types of business organizations have inventory. For many firms inventory is the largest current asset. Inventory also includes partially finished products at different stages of a manufacturing process, raw materials and components, resources, finished products, labor or cash. The purpose of inventory is to meet customer demand, to avoid stock-out of material which may cause stoppage of production or even to hedge against strikes and lock-outs and to meet uncertainties in supply from vendors. Skillful inventory management can make a significant contribution to a firms profit. Inventory exists at all stages of the supply chain. The primary purpose of these inventories to buffer the uncertainty arising from demand process and supply. Inventory usually represents 20 to60 % of the total assets of manufacturing firms. Therefore, inventory management policies prove critical in determining the profits of such firms. Inventory control is a crucial aspect of successful management. The objectives of good service and efficient production must be met at minimum inventory levels.
DEFINITIONS Obstacles facing companies in today hyper competitive global markets are seemingly more complex than ever to the point that managers must rethink many of the basic principles of good operations management and inventory control Robert Hayes
IMPORTANCE OF INVENTORY The term inventory refers to any resource that has a certain value, which can be used at future occasion when the demand arises. Alternatively inventory may be defined stock of items kept on hand by an organization to be used to meet customer demand. Virtually every type of organization maintains some form of inventory. A departmental stores or retail store carries inventories of all the retail items it sells, a family household maintain inventories of food, clothing, medical supplies, an automobile dealer maintains inventory of automobiles, a manufacturing firm maintains inventory of raw materials, bought-ought components, semi finished goods or work-in-progress items, finished goods, spare parts for maintenance of equipments and machinery, inventory of skilled labour, liquid funds such as cash and also inventory of plant and equipment.
In an organization, the importance of inventory can be recognized for the following reasons. Inventories represent resource acquired at a cost, there by locking up substantial working capital. Inventories allow for smooth flow of production process by ensuring that adequate supply of raw materials, components and manufactured items are available to the production lines.
FUNCTIONS OF INVENTORIES One reason organizations maintain inventory is that it is rarely possible to predict sales levels, production levels, and demand and usage patterns exactly. In such situations, inventory serves as a buffer against uncertain and fluctuating demand keeps a supply of items available in case items are needed by the organization or its customer. The many functions that perform can be summarized as follows: Smoothing out irregularities in supply : Inventories provide a buffer overcome the problem of uncertainties in supplies such as delayed deliveries and supply of short quantities by vendors as against the promised delivery schedule and quantities. Also, the customer demand for the goods may increase suddenly which affects the ability of the manufacturer to meet the customer demand. Buying or producing in lots of batches : When the demand for an item does not justify its continued production through-out the year, it is produced in batches or lots on an intermittent basis. During the time when the item is not being produced, demands are met from the inventory which is accumulated by batch production.
To meet seasonal or cyclical demand : Companies will produce items at a constant production rate more than the demand rate in order to meet the seasonal demand occurring at a later period for which the production capacity is insufficient. To take advantage of price discounts while buying items : A company will often purchase large amounts of inventory to take advantage of price discounts, as a hedge against anticipated price increase in the future. To maintain continuity to operations in production processes : Many companies find it necessary to maintain in-process inventories at different stages in manufacturing process to provide independence between operations and to work stoppages or delay and to continue production smoothly if there are temporary machine breakdowns or other work stoppages. The most important functions of inventory are; 1. To meet anticipated demand. 2. To smooth production requirements. 3. To decouple components of the production distribution system. 4. To protect against stock outs. 5. To take advantages of order cycles. 6. To take advantages of quantity discounts
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INVENTORY MANAGEMENT OBJECTIVES OF INVENTORY MANAGEME
Inventory control is highly significant function not only because inventories constitute substantial portion total current assets of a firm but also because it has to satisfy the following objectives. To minimize the financial investment in inventories . To maintain timely records of inventories of all items and to maintain the stock within desired limits. To provide scientific base for short-term and; long-term planning of inventory requirements. To standardize and centralize information on stock level and progress of stock issue. To allow flexibility in production scheduling. To provide a safeguard for variations in raw material delivery time or lead time. To reduce surplus stock. Inventory control aims at overcoming in raw material delivery.
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INVENTORY MANAGEMENT BENEFITS OF INVENTORY MANAGEMENT The few more benefits of inventory management
Ensure on adequate supply of items to the customer and avoids the shortage as for as possible at the minimum cost . Reduce the risk of loss due to the changes in price of items stocked at the time of making the stock. Take advantages of quality discounts on bulk purchases. Eliminate the possibility of duplicate ordering. Helps in maintaining economy by absorbing some of the fluctuations when the demand for an item fluctuates or in seasonal. The firm ensures smooth functioning of its various departments by maintaining reasonable stocks with the help of inventory control. Helps in minimizing the loss of due to deterioration, obsolescence, damages or pilferage of goods etc.
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MEASUREMENT OF THE EFFECTIVENESS OF INVENTORY MANAGEMENT
1.
Overall inventory Turnover ratio
Cost of goods sold Average inventory at cost
2.
Raw materials inventory Turnover ratio
= Annul consumption of raw materials Average raw materials inventory = Cost of manufacturer Average w-i-p inventory at cost = Cost of goods sold Avg finished goods inventory at cost = Raw materials inventory on hand Weekly consumption of raw materials = Raw materials on order Weekly consumption of raw materials = Finished gods inventory Weekly sale of finished goods = Avg raw materials inventory at cost Avg daily purchase of raw materials
3.
Work- in- process inventory Turnover ratio
4.
Finished goods inventory Turnover ratio
Weeks inventory of Raw materials on hand
Weeks raw materials On order
Weeks inventory of Finished goods on hand
Average age of raw Materials in inventory
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1.7 MATERIALS MEANING OF MATERIALS The term materials is generally used to refer to raw materials used in the process of production, semi-finished materials or products, components &spare parts, consumable stores or factory supplies such as oil, grease, soap, sand paper, cotton waste, rags, etc. MATERIALS CONTROL MEANING OF MATERIALS CONTROL: It is the systematic control over the planning, purchase, storage, use & accounting of materials to ensure that there is regular & adequate supply of requisite materials, & at the same time, there is not excessive investment on stocks of materials, & the wastage of materials during storage & use is reduced to the minimum . OBJECTIVES OF MATERIALS CONTROL 1. To make available the right quality materials. 2. To avoid over-stocking of materials. 3. To see that the materials are purchased at the advantageous prices. 4. To minimize the damage, wastage, & loss of materials during the storage. 5. To reduce the wastage, damage, & loss of materials in the course of production .
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ADVANTAGES OF MATERIALS CONTROL: 1. It avoids the unnecessary locking up of working capital on materials. 2. It reduces the cost of buying by determining the economy ordering quantities. 3. It reduces the cost of storage by avoiding unnecessary holding up of stocks. 4. It reduces the wastage in the use of materials. 5. It reduces the risk of loss materials from pilferage, theft damage, deterioration, etc. through proper storage.
Materials control has a number of aspects or steps. The various aspects of materials control are 1. Purchase control 2. Inventory control 3. Issue control 1. MEANING OF PURCHASE CONTROL Purchase control refers to control over the various aspects of purchase of materials, such as the cost, quality, quantity, delivery etc. connected with the purchase of materials.
PURCHASING DEPARTMENT . 15
It is the department which concerned with the procurement or the purchase of the right quality materials in right quantities at right prices from right sources,& getting there delivery at right places at right time. FUNCTIONS OF PURCHASING DEPARTMENT OR PURCHASING MANAGER: The main functions are 1) Preparation of purchase budget 2) Receiving of purchase requisition or indents from authorized persons 3) Processing of the purchase requisitions 4) Calling for tenders or quotations from suppliers 5) Selection of the most favorable supplier 6) Placing of purchase order 7) Follow-up of the purchase order placed 8) Approval of the purchase invoice 9) Receiving of materials ordered
It is the important aspect of purchase control. In small concerns, the work of receiving the materials ordered will be undertaken by the stores department.
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INVENTORY MANAGEMENT INVENTORY CONTROL MEANING
Inventory, stores or stock control is the physical control of items of the stocks & implementation of policies & principles relating thereto. FUNCTIONS OR DUTIES & RESPONSIBILITIES OF STORE KEEPING 1. The storekeeper has to make proper arrangements for the storage of materials. 2. He has to keep the room neat & tidy. 3. He should exercise proper control over his staff. 4. He should issue materials only against material requisitions from the authorized persons.
3) ISSUE CONTROL TECHNIQUES OF INVENTORY CONTROL 1. Setting up of stock levels or Fixation of stock levels 2. Determination of economic ordering quantity 3. ABC analysis of stock control 4. Perpetual inventory system
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INVENTORY MANAGEMENT 1. FIXATION OF STOCK LEVELS INTRODUCTION:
Materials or inventory control necessitates the maintenance of every item of material at such a level that there is neither over-stocking nor under-stocking. Over-stocking of materials is undesirable for the following reasons 1. Over-stocking of materials would lock up a large amount of working capital, which could be profitably utilized for some other purpose. 2. It would involve an increased cost of carrying, such as rent, insurance and handling charges. 3. It may result in loss due to heft, pilferage, etc. 4. It would result in deterioration in the quality of materials, as large stocks would lie for more time before they are consumed. 5. There may be financial loss on account of the subsequent fall in the market prices of the overstocked materials. 6. There is the risk of obsolescence, in the sense that the product for which the material is required may go out of fashion . Under-stocking of materials also is undesirable for the following reasons 1. It results in stock-outs and the consequent production hold-ups. 2. Failure to keep up delivery schedules results in the loss of customers. These two extremes (i.e., Over-stocking and under-stocking) can be avoided and the tow main objectives of materials and inventory control, viz., maintenance of every item of material as low as possible and the ensuring of the availability of the material as and when required for production can be achieved by proper planning and fixation inventory or stock levels.
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ALFRED HERBERT LIMITED QUANTITY
2. DETERMINATION OF ORDERING QUANTITY OR REORDERING
Ordering quantity or economic ordering quantity is the most economics or most favorable or ideal quantity of material to be ordered or purchased in each order at a time whenever fresh supply is required. The ordering quantity is, generally, determined after taking into account the costs of ordering and the costs of carrying inventory. A large order, no doubt, brings in more trade discount and results in reduction in transportation costs and reduction in ordering costs(i.e., the costs of inviting tenders, selection of quotations, placing of orders, receiving and inspection of materials and accounting and payment for materials). But it may result in overstocking and increase in carrying costs (i.e., the costs of holding material, such as cost of storage like rent, insurance and other storage charges, handling charges, interest on capital locked up in inventory, wastage and loss of materials, etc.). A small order may, on the other hand, contribute to low costs of carrying stocks. But it may result in increase in ordering costs, and there is also the danger of stock running short. So an ideal ordering quantity should be determined by balancing the costs of ordering against the costs of carrying stocks.
3. ABC ANALYSIS OF INVENTORY CONTROL OR ALWAYS BETTER CONTROL METHOD INTRODUCTION ABC analysis is one of the methods of materials or inventory control. It is relatively a new technique. ABC analysis is a system of materials and inventory control under which the materials in the store are classified into three categories, viz. (1) A category items (2) B category items and
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(3) C category items on the basis of their relative values, and varying degrees of control are exercised on these categories according to their relative values. Under the ABC analysis, the various items of materials in the stores are classified into three categories, viz. (1) A category items (2) B category items and (3) C category items, On the basis of their relative values. Materials which usually form a small percentage of the total number of stores, but account for a high percentage of the total valued of stores are grouped under A category items. (Generally, A category items comprise materials, which form about 5% to 10% of the total number of items, but represent about 70% to 85% of the total value of materials.) Materials the percentage number of which is more or less equal to the percentage value of the total value of materials are placed under B category items (Generally, B category items consist of materials which constitute about 10% to 20% of the total number or materials and account for about 10% to 20% of the total value of materials.) Materials, which constitute a large percentage of the total number of materials, but account for a small percentage of the total value of the materials, are grouped under C category items. (Generally, C category items include materials which represent about 70% to 85% of the total number of materials, but account for just 5% to 10% of the total value of materials.) In short, high value items of materials are placed under A category, medium value items are grouped under B category and low value items are placed under C category. A category items of materials are subject to greater degree of continuous control in matters of purchase, receipt, inspection, storage, usage, etc. as they account for a very high value of the total materials. B category items of materials, which are of relatively less value & are of secondary importance, are subject to normal control.
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C category items, which are of least value & importance, are subject to relatively less degree of control. 4. PERPETUAL INVENTORY SYSTEM OR AUTOMATIC INVENTORY SYSTEM INTRODUTION Perpetual inventory system is one of the methods of materials or inventory control. It facilitates inventory control by making available information about each item of stores in hand at any time & by ensuring that the balances of stores in hand shown by bin cards & stores ledger agree with the physical or actual balances of stores ascertained through physical checking.
MEANING OF PERPETUAL INVENTORY SYSTEM The term Inventory means a list of goods or stores in hand. The term perpetual means at all times or continuously. So, perpetual inventory system literally means a system of indicating, at all times, the balance of each item of store in hand. So in its broad sense, perpetual inventory system is a system which provides not only a perpetual or continuous records of stores received & issued & their book balances at any time, but also provides for perpetual or continuous stock taking for the ascertainment of the physical or perpetual or continuous stock taking for the ascertainment of the physical or actual balances of stores in hand & for their comparison with the book balances.
STEPS INVOLVED IN PERPETUAL INVENTORY SYSTEM
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Perpetual inventory system involves the following processes or steps 1. Maintenance of up-to-date bin cards. 2. Maintenance of up-to-date stores ledger. 3. Reconciliation of the bin card balances with stores ledger balances & the ascertainment of the correct book balances of stores. 4. Continuous stock taking for the ascertainment of the physical or actual balances of stores with their physical balances. 5. Adjustment of the discrepancies between the book balances & the physical balances of stores, if any.
PRICING OF MATERIAL ISSUE MEANING Materials issued to production have to be entered by the cost accounting department in the stores ledger not only in terms of quantity but also in terms of value. So, before making entries in the stores ledger, the cost accounting department must decide upon the value or price at which the materials are to be issued from the stores to production
STEPS INVOLVED IN PERPETUAL INVENTORY SYSTEM
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Perpetual inventory system involves the following processes or steps: 1. Maintenance of up-to-date stores ledger. 2. Reconciliation of the bin card balances with the stores ledger balances and the ascertainment of the correct book balances of stores. 3. Continuous stock taking for the ascertainment of the physical or actual balances of stores in hand, checking of the book balances of stores with their physical balances. 4. Adjustment of the discrepancies between the book balances and the physical balances of stores, if any. PRICING OF MATERIAL ISSUE MEANING OF PRICING OF MATERIAL ISSUES : Materials issued to production have to be entered by the cost accounting department in the stores ledger not only in terms of quantity but also in terms of value. So, before making entries in the stores ledger, the cost accounting department must decide upon the value or price at which the materials are to be issued from the stores to production. Deciding upon the price at which materials are to be issued (i.e., the material issue price) is called pricing of material issues. DIFFERENT METHODS OF PRICING MATERIALS ISSUES There are several methods of pricing issues of materials. The methods of pricing materials issues, with which we are concerned, as per our syllabus, are: 1. FIFO Method 2. LIFO Method 3. Simple Average Method 4. Weighted Average Method 1. FIFO METHOD(FIRST IN FIRST OUT
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INVENTORY MANAGEMENT FEATURES: The main features of this method are:
a) This method assumes that materials are issued to production in the order in which they are purchased, i.e., materials are first issued from the first or earliest consignment or lot till it is exhausted, then, from the second lot till its exhaustion, then, from the third lot and so on. Hence, this method is called First in First out Method or FIFO Method. b) The materials issued to production are charged at the actual cost price of the from which they are issued.
ADVANTAGES:
a) It is a logical method, as it assumes that materials purchased first are issued first, which is the normal procedure for the issue of materials. b) It is simple to understand and easy to operate, when purchases are quite few in number c) As stock in valued at the current purchase price under this method, the value of closing stock represents current market price . DRAWBACKS: This method suffers from a number of drawbacks. They are: a) Calculations become complicated when there are more purchases during a period. b) So also, calculations become difficult when prices fluctuate. c) Costs of materials charged to production are not related to current market prices.
SUITABILITY
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INVENTORY MANAGEMENT This method is suitable where
1. The materials purchased are bulky or heavy, & the unit prices of materials are more. 2. The purchases are quite few in number. 3. The materials issued can be easily identified as belonging to a particular purchased lot. 4. Suited for pricing materials, which have slow consumption, but high price. 5. Fit in the case of materials purchased for a competitive market, & not in the case of a concern doing jobs for customers specifications. 2. LIFO METHOD (LAST IN FIRST OUT) FEATURES a. This method assumes that materials are issued to production in the reverse order of purchases, i.e.; materials are first issued from the last lot, then, from the previous lot & so on. It is for this reason that this method is known as Last in First out Method or LIFO Method. b. The materials issued to production are charged at the actual cost price of the lot from which they are issued. ADVANTAGES The main advantages of this method are: 1. It is simple & easy to operate where purchases are quite few in number. 2. As materials are issued to production at actual cost under this method, the cost of materials issued is recovered from production, & there is no profit or loss on the issue of materials. 3. The material cost charged to production under this method keeps in line with the current market prices, as materials are charged at the recent prices.
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DISADVANTAGES 1. This method is not logical, as the issue of materials under this method does not conform to the normal practice of the issue of materials. 2. Calculations under this method become more difficult, when there are more purchases during the period. 3. When prices fluctuate, this method becomes complicated. SUITABILITY 1. The materials purchased are bulky & the unit prices of materials are high. 2. The purchases are quite few in number. 3. The materials issued can be easily identified as belonging to a particular purchased lot. 3. SIMPLE AVERAGE PRICE METHOD FEATURES 1. Under this method, materials issued to production are priced at the simple average price. 2. This method operates on the principle that, when materials are purchased in lots & put in store, their identity is lost, & so, issues should be made on the average price of all the lots in stores. 3. The simple average price is calculated by dividing the total of unit purchase prices of the various lots in stock at the time of issue by the number of lots in stock at the time of issue. ADVANTAGES 1. This method is simple to operate, in the sense that the issue price can be computed very easily.
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INVENTORY MANAGEMENT 2. It has smoothening effect on price fluctuations. 3. It facilitates better comparison of two similar jobs. DISADVANTAGES
1. It departs from the costing principle, in the sense that, under this method, materials used to production are charged not at their actual cost price, but at an average price. 2. The valuation of closing stock under this method is not correct. SUITABILITY The method may be suitable when purchases are numerous & prices fluctuate within narrow limits. But it is not generally regarded as good method. 4. WEIGHTED AVERAGE PRICE METHOD FEATURES 1. Under this method, materials issued to production are valued at the weighted average price. 2. This method takes into account not only the unit prices but also the quantities or lots for the purposes of the calculation of the average price to be used for the issue of materials. MERITS 1. It recovers the total cost of materials from total production. 2. Under this method, the closing stock represents fair value. 3. It evens out sharp fluctuations in prices of materials. 4. It is quite suitable for pricing of materials subject to wide price fluctuations. DEMERITS 1. As the issues are not priced at actual cost, there may be profit or loss on the issue of materials.
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2. Under this method, the closing stock does not represent current market value.
SUITABILITY This method is generally considered as the best for pricing compare to other. PRICING OF RETURNS INTRODUCTION The determination of the price at which materials returned from work order or production order to the stores is taken back is called pricing of returns. There are 2 important methods of pricing they are: FIRST METHOD Under this method, materials returned from the work order to the stores are priced or valued at their original issue price. SECOND METHOD Under this method, the materials returned from production order to stores are treated as a fresh or new purchase at the original issue price.
RESEARCH DESIGN
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INVENTORY MANAGEMENT 2.1 TITLE OF THE STUDY
A Project Report on A Study on inventory management by paper industry with Special reference to ALFRED HERBERT LIMITED (AHL),Bangalore, Karnataka. 2.2 STATEMENT OF THE PROBLEM. The management and control of inventory is a problem common to all organization in any sector of the economy. The problems of inventory do not confine themselves to profit making business firms. The same types of problems are encountered by social and non-profit organization too. Every business firm however big or small to maintain inventory as it constitutes an integral part of the working capital, it has been estimated that in general manufacturing industry an average of something like more than 60% of total working capital is spent on materials and components. Inventories require a significant investment not on to acquire them but also to hold them. The economic purchaser, storage, issues and control of inventory can make a significant contribution to profit margins thus it would be very interesting to throw light upon inventory management of company in order to point out the degree of efficiency with which funds are utilized in the major component of working capital, in order to study the effective of inventory management and control in a manufacturing organization AHL, had been chosen.
2.3 OBJECTIVES OF STUDY
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To identify methods of classification and codification of materials in. ALFRED HERBERT LIMITED To study the different categories of inventories in rubber machines and tyre machines manufacturing industry. To know the list of activities Processed by Stores Manager/Stores keeper in preparing Purchase requisition. To study the purchasing procedure in AHL. To study the inventory turnover in AHL. To study the storage system / setting of stock level of AHL. To also study the issuing procedure of inventory in AHL
SCOPE OF THE STUDY Inventory management is wide topic, which has number of functions, they are: Material planning Purchasing Materials receiving Stores control Materials handling Inventory control and disposal of scrap and surplus. Study was conducted in AHL to analyze the above-mentioned functions in brief and inventory control in detail. The study is conducted for one month and financial statements of last 3 years only analyzed.
LIMITATIONS OF THE STUDY
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a) The study includes only the collection of data through personal interviews with various managers and the findings are based on the premise that the respondents have given the information. b) Since this is an exploratory study the data had to be obtained from the available source only. c) As it is internal information it is very difficult to get the accurate data from the company. d) The study is conducted only for two months.
METHODOLOGY OF THE STUDY In order to achieve the aforesaid objectives, both primary and secondary data has been used. 1 Primary data , Which constitutes the main source of data was collected through the following ways. Personal interviews and discussions with managerial staff of various departments. Visited stores and observed how the inventories are stored, various types of inventories maintained receipt and inspection procedure etc... Primary data is the main source of data, which was collected through personal interviews and discussions with various managers and personal visit to different departments
2. Secondary data
31
Secondary data is the data collected from annual reports of the company records on materials management and companys brochures. The data so obtained was co-related with data obtained from secondary source and finally then inferences were drawn.
RESEARCH INSTRUMENT Analysis is done using the data obtained from the interview schedule from the various data generated by various departments of the company. Interpretation of the data has been done using ratio analysis, tables, graphs, charts and relevant facts.
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COMPANY PROFILE
INTRODUCTION Alfred Herbert (AHL) has been in business since 1919 and provided support to the Indian industry during its development stages as a major supplier of state-of-art machine tools and other industrial machinery from abroad. The manufacturing division was established in 1973 at Whitefield, near Bangalore, on11 acres of sylvan surroundings. In more than 10000 sq mtrs of workshop area many innovative machines for the rubber and tyre industry have been developed over the years including under license from M/s Krupp Elastomertechnik, besides high precison Jig Boring Machines to De Vlieg, USA designs. MANUFACTURED PRODUCTS RUBBER MACHINERY Today AHL produces a wide range of rubber focusing on the tyre and rubber industry including Tyre curing presses, Tyre building machines. and technology up gradation. Two Roll mills, tube presses, etc. The design department is constantly engaged in product improvement Strict adherence to quality standards, aggressive procurement policies to source the best bought outs, a well experienced management team and skilled manpower combine together to meet the exacting demands of its customers. Backed by a reputation of efficient after sales service and quick supply of spares, AHL forges ahead towards its goal of total customer satisfaction.
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INVENTORY MANAGEMENT HYDRAULICS
Besides catering to the rubber industry, AHL has diversified into Hydraulics and offers variety of systems to the automobile industry, related to hydraulic equipments. Its Hydraulics and Projects Division undertakes execution of specials, tailor made to suit customers requirements. It also supplies cabin tilting system to the leading truck manufacturers, manufacturers and fits tipper bodies for them. SUBCONTRACT AND RECONDITIONING Apart from the manufacture of industrial machinery AHL also undertakes various subcontract and reconditioning work for medium and heavy machineries and its customer include heavy engineering, automobile, aeronautical, defense and space industries, etc who rely on its reputation of accurate machining / assembly to quality standards at competitive costs. In addition it undertakes erection / assembly of structures, hydraulic as well as control systems. AGENCY PRODUCTS AHL has a wide network of sales offices manned by qualified and trained sales and service engineers to sell industrial machinery to a wide range of customers in India. AHL officers Rubber and Plastics machinery from its Principals M / s Krupp Elastomertechnik GmbH and Krauss-Maffei, Germany, Krupp offers the complete range of rubber processing and tyre manufacturing machinery for an entire plant. AHL also markets a wide range of industrial machinery and machine tools fro both domestic and international principals . An application Engineering cell extends pre and post sales support to its customers.
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INVENTORY MANAGEMENT OTHER MANUFACTURED PRODUCTS TWO ROLL MILLS
The Herbert two roll mills are suitable for processing rubber and plastics. They incorporate features covering every requirement of the rubber and plastic manufacturer and are designed for mixing, warming and sheeting of rubber and plastic compounds. INTERMIX The intermix has been designed keeping in mind problems of the rubber and plastic industries to give efficient high quality production at economical costs with reduced maintenance and higher standards of safety and general cleanliness. The features of the intermix ensure extreme versatility, longer working life, greater control of mixing technique and consistent quality throughout. TYRE CURING PRESSES (MECHINICAL) The tyre curing presses are offered 45, 48, 55, 65.5 and 75 sizes to cover the entire range of passenger car, truck and tractor tyre sizes. The machines are provided with double acting centre mechanisms to ensure accurate centering and shaping and curing of bias/ radial tyres. HYDRAULIC TYRE CURING PRESS State of the art twin platen hydraulically operated radial tyre curing presses built under license from Krupp Elastomertechnik gmbH Germany the world leaders in rubber and tyre processing machines.
35
These presses boast of cutting edge features of automatic press functions for loading, shaping, curing and stripping and unloading tyres. Suitable for curing passenger/ light truck radial tyres.
TYRE BUILDING MACHINE 59J Truck tyre building and TBM 2024 with tail stock arrangements are carefully designed and assembled to ensure accurate building of high quality tyres in the shortest possible time. The machine is ideal for building single bead, dual bead and first stage radial tyres . The machines are fully automated and electronically controlled to ensure quality of output and minimize dependence on the operators. There is in-built system check in the programme which prevents by pass of operators. The forming drum speed can be selected from high, intermediate and low speed ranges efficient tyre building operators. The standard model offered is for band method of tyre construction. Ply type construction is also possible.
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ORGANISATION CHART OF THE COMPANY
Managing Director
Executive Director
Directory of Marketing
General Manager of Finance
General Manager of Production
General Manager of Quality Control
Marketing Designer Marketing Manager
Accounting & Finance
Stores
Human Resource Management Purchase
Production Planning
Machine Shop
Assembling
37
QUALITY POLICY OF THE AHL We at AHL shall continue to be one of the leading rubbers and plastic processing machines manufacturing and are committed our quality management system to be derive customer satisfaction. QUALITY OBJECTIVES OF THE AHL Improve delivery performance. Reduce customer complaints. Reduce in House/ Rework. Delivery quality supplier base. Continual improvement through employee participation in future. Enhance customer satisfaction.
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PUCHASING PROCEDURE IN ALFRED HERBERT LIMITED. ALFRED HERBERT LIMITED has an effective purchase control, there is a specialized purchasing department. Purchasing department is the department which is concerned with the procurement or the purchase of right quality materials in the right quantities at right prices from right sources, and getting delivery at right places at right time.
ORGANIZATION CHART:
Director - Marketing and Strategic Planning ( Dept Head )
Manager - Materials (Section Head)
Secretary
Purchase Engineer. ( Raw Material)
Purchase Engineer. ( Semi finished products)
Purchase Engineer ( Bought out items Mechanical)
Purchase Engineer ( Bought out Electrical )
Purchase Engineer ( Bought out Imported items )
Purchase Assistant (Sundry items)
39
RESPONSIBILITY AND AUTHOSRITY: DIRECTOR MARKETING AND STRATEGIC PLANNING RESPONSIBILITY: Overall strategic planning for the organization. Marketing and Business development Identifying training needs to the personnel in marketing department. To liaison with customers and other external agencies. AUTHORITY:
To approve purchase orders To approve tenders, quotations etc related to marketing and sales function. Authority to decide all operational and commercial decision in the organization. MANAGER MATERIALS - SECTION HEAD RESPONSIBILITY:
Overall activities of purchasing functions Vendor registration and approval
40
To develop quality supplier base Ensure adherence to the product specification and requirements Ensuring and expediting work as per production plan Liaison with vendors and other agencies for purchasing activities To administer the component Stores and Raw Material Stores functions To ensure maintenance of forms, registers and relevant data related to purchasing & Stores activities To ensure maintenance of quality records of the purchasing & Stores activities. . To identify the training needs to the personnel in purchasing & Stores activities and impart on job training To ensure imparting on job training to the personnel in purchase functions as per training needs identifies
AUTHORITY
To approve document Approved supplier list To review the purchase orders before forwarding for approval by Director Marketing and Strategic planning.
41
PURCHASE ENGINEERS:(BOUGHT OUT ITEMS; RAW MATERIALS; ELECTRICAL) PURCHASE ASSISTANT : SUNDRY ITEMS. RESPONSIBILITY: For purchasing activities of respective areas of work allotted. For adherence to the product specification Expediting work as per production plan To maintain the forms, registers and relevant data related to purchasing activities. To maintain the quality records related to respective purchasing activities.
42
PURCHASING ACTIVITY FLOW CHART:

Receive List of parts ( LOP ) From Planning dept. Purchase section. Prepare Purchase Plan Send enquiry to supplier Receive quotation make comparative statement Select the supplier Make proposal Review and approve purchase orders and release Follow up the suppliers to Liaison receive / collect goods with relevant documents Receive documents MRN, QCInspection reports, R/w notes and Rejection notes etc. Ref: AHL/DM/PUR 6(P2) Liaison Accounts for advance payment Receive (1) Material shortage list from planning section for products. (2) MPR from
Store Make MRN
Documents QC Inspect Received items. Record results Clear MRN Liaison with supplier /shop /replacement / rectification
Rejected items
Accepted items
Liaison with Accounts for payment
43
Title
: Selection and approval of suppliers
Purpose: To define the activities applicable in selecting and approval of the suppliers for the purchasing processes Scope : This document is applicable for the purchase department Activities in the Quality management system. Procedure: Selection of Suppliers:
This procedure is established to ensure that the Purchased products conform to specified requirements given in the design out put documents used for reference.
The suppliers are evaluated and selected based on their ability to supply products and services in accordance with the organizations requirements / product requirements.
The supplier registration form (AHL/ PUR/ FORM/ 006) is used to evaluate the supplier capabilities. The suppliers are categorized as follows for the purpose of evaluation.
(1) Proven supplier:
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Suppliers who are in business with AHL presently and for the past one Year who have proved their capabilities to meet the specified requirements are taken as proven supplier and registered directly in the approved suppliers list.
(2) Monopoly supplier :-
Suppliers who monopolized their products in the market whose product Is adopted by AHL as a standard product to be incorporated into the final product. Example: Bearings, electrical items, etc.
(3) Prospective supplier.
Suppliers identified as new source for evaluation and approval upon which going to be the prospective supplier to the company are evaluated for their capabilities by registering the details in the registration form AHL / PUR / FORM / 006.
For those suppliers who have their Quality management system is certified to ISO 9001: 2000 standard and upon furnishing the details with the supporting documents to the registration form are considered for the trial order to assess their capabilities from the supplies made. On evaluating the supply and acceptance the supplier is registered in the list of approved suppliers.
Where required the suppliers capabilities are evaluated by visiting them to identify the actual status before placing a trial order on them to assess their capabilities from the supplies made.
45
Visiting the supplier for evaluation of the capabilities is carried out by the personnel from Quality Assurance department. Where required personnel from other functions are included based on the criticality and expertise required.
An approved suppliers list is prepared for reference with details for each type of product or categorized as required.
Temporary Approval:
A temporary approval from the Department Head is obtained for carrying out the purchasing activities applicable to emergency purchases, customer specified sources and one time purchase with those suppliers who are not registered and approved.
On completion of temporary approval and purchase from the supplier, the evaluation is carried out based on the acceptability of the items supplied followed by subsequent evaluation similar to registration of Prospective supplier as referred in point no. 6.4.1
Performance evaluation of supplier:
Performance evaluation of suppliers is carried out to rate their products and services for the continued suitability to be a supplier to the company in meeting the specified requirements.
This evaluation is carried out Purchase department. The acceptance criteria is base on the norms stated in the evaluation form AHL / PUR / FORM / 007. The analysis feed back given by Quality control is taken into account for the evaluation.
46
Those suppliers fall below the acceptance criteria are informed about their Status for continual improvement and those suppliers performance is found to be below average level are deleted from the approved suppliers list.
Records Records of the results of the evaluations and the necessary actions from the evaluations are maintained.
Title
: Purchasing information
Purpose : To define the information that is to be stated in the purchasing documents to the supplier. Scope : This document is applicable for the purchase section activities in the Quality management system.
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PURCHASE ORDER PROCEDURE:

Purchasing activities are carried out by placing a Purchase order to the supplier. For the products , the purchase order information are referred from the List of Parts (LOP) received from design and development section, or other communications from the design and development section as the case may be. For other type of purchase requirements the information is referred from the Indent received from other sections for the items needed by them. The indents are reviewed and approved by the respective department head prior to release to the purchase section.
PURCHASING INFORMATION The information as necessary are provided in the purchase orders are not limited to the following and is based on the products / activities to be carried out in meeting the requirements of the products.
Suppliers name and address Scope of supply on order Details specifications / grade / class / type / size Quantity/ unit and value Delivery requirements
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Test / Inspection requirements Requirements of approval of product / process / equipment Enclosure of Specification /drawing / standard Qualification of personnel Quality management system requirements Requirements related to verification by the organization or customer at the suppliers premises Method of product release Any other information as necessary to be included for specifying the requirements.
The requirements are reviewed by the section head of purchase function and approved by Director Marketing before communicating to the supplier
Title
: Offer for Verification of Purchased product
Purpose : To define the activities to be followed for verification of purchased products Scope : This document is applicable for the purchase section activities in the Quality management system.
49
PROCEDURE: PURCHASED PRODUCTS:

Purchased products like raw materials are received in Raw material stores based on the purchase order are recorded in the inward document Material Receipt Note and offered to Quality Control section for verification and disposal. Purchased products other than raw materials are received in Component StoresBased on the purchase order are recorded in the inward document Material Receipt Note and offered to Quality Control section for verification and disposal. The inspection status is recorded in the appropriate columns in the Material Receipt Note . QC section maintains the quality records related to the verification and disposal of the products for each MRN and communicate to purchase section as the case may be for corrective action.
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ORGANIZATION CHART COMPONENT STORE AND RAW MATERIAL STORE
Manager - Materials
( Dept Head )
COMPONENT STORE & RAWMATERIAL STORE ( Section Head )
COMPONENT STORE
RAWMATERIAL STORE
51
WORK MEN
PURCHASE ENGINEER (RAW MATERIAL) (Cutting Section Incharge)
CUTTING SECTION
WORK MEN
WORK MEN
MANAGER MATERIALS:
RESPONSIBILITY:
To administer the Component Stores and Raw Material Stores functions. To ensure adherence to the statutory and regulatory requirements To ensure maintenance of forms, registers and relevant data related to Stores activities To ensure maintenance of quality records of the Stores activities. To identify the training needs to the personnel in Stores activities To ensure imparting on job training to the personnel in stores as per training needs identified
AUTHORITY:
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To decide all matters on statutory and regulatory requirements related to stores function.
PURCHASE ENGINEER (RAW MATERIAL) : CUTTING SECTION INCHARGE
RESPONSIBILITY:
To administer the raw material preparation activities. To execute the material cutting according to the cutting list issued by planning department . To identify the shortage of materials as per cutting list and execute the material purchases.
COMPONENT STORE & RAW MATERIAL STORE - SECTION HEAD
RESPONSIBILITY: To administer the activities of Component Store and Raw Material store.
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To maintain the adherence to the statutory and regulatory requirements To maintain house keeping, identification and treaceability requirements in preservation of items in the component store & Raw material store To carry out the activity of unpacking, packing and delivery of items. To safe guard the stored materials from damages that invalidate the items from further use. To prepare necessary documents related to receipt and delivery of items including statutory and regulatory requirements. To liaison with external agencies related to component stores & Raw material stores activities.
To ensure the maintenance of forms, registers and relevant data related to component store & Raw material store activities. To ensure maintenance of quality records related to component store & Raw material store activities. To ensure identifying training needs to the personnel in component store & Raw material store. To ensure imparting on job training to personnel in component store & Raw material store as per the training needs identified.
AUTHORITY:
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To decide daily activities in the component store & Raw material store
ACTIVITY CHART COMPONENT STORE & RAW MATERIAL STORE RECEIPT OF MATERIALS FROM SUPPLIER AND VERIFICATION
Supplier
Componen t store & Raw
Planning dept. Issue of Raw material cutting list, Requisition for casting and forging Verify stock and enter RMR with drawl in stock card.
Verify and acknowledge receipt of materials as per supplier DC. Verify statutory documents Rejected materials Verify with Purchase order. Prepare MRN.
Issue of material to OSP / Machine shop / Fabrication according to RMR
Purchase dept Request for reacceptance review
Offer to QC for inspection and endorsement in MRN
Rejected materials send back to supplier with statutory documents in coordination with purchase dept. .
Accepted materials credit to stock and update stock card. 55
. . Retain first copy MRN by stores. Send copies to Purchase, Accounts and computer data entry section
ACTIVITY CHART COMPONENT STORE. RECEIPT AND ISSUE OF MATERIALS FROM ASSEMBLY SHOP.
Assembly Shop returned accepted materials credit to stock and update stock card.
COMPONENT
STORE.
Receive PDF from Assembly Shop
Verify stock and enter PDF with drawl
Offer to QC for verification and endorsement in Material return note
Issue materials to Assembly
Send copy of material issue on PDF to Planning dept and Accounts dept. ASSEMBLY SHOP
Excess drawn materials from Assembly shop through material return note .
56
Assembly Shop returned material found not acceptable for store stock
QC to raise rejection note for disposal by Raw material store.
RAW MATERIAL STORE
DATA ANALYSIS AND INTERPRETATION
TABLE-01 TABLE SHOWING THE CHANGES IN RAW MATERIALS FROM YEAR 2002-03 TO YEAR 2005-06. (Amount in Rs) PARTICULARS 2002-03 6,126,550 100 2003-04 10,401,271 169 2004-05 19,101,819 311 2005-06 36,095,616 589
Raw materials, Changes (%)
ANALYSIS: The above table shows the changes in Raw Materials for the year 2003-04 it was increased by 69%, in 2004-05 by 211%,and in 2005-06 by 489% as compared to the base year 2002-03 . INFERENCE:S
57
From the above table it can be inferred that the usage of Raw Material shows increasing trends. CHART-01 CHART SHOWING THE CHANGES IN RAW MATERIALS FROM YEAR 2002-03 TO YEAR 2005-06.
40,000,000 35,000,000 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 0 Raw materials, Changes (%) 1 100 2 169 3 311 4 589
6,126,55 10,401,2 19,101,8 36,095,6
58
TABLE-02
TABLE SHOWING THE CHANGES IN WORK-IN-PROGRESS FROM YEAR 2002-03 TO YEAR 2005-06. (Amount In Rs ) PARTICULARS Work-inprogress Changes (%) 2002-03 5,780,269 100 2003-04 15,052,232 260 2004-05 13,123,569 227 2005-06 45,579,336 788
ANALYSIS: The above table shows the changes in Work-in-progress for the year 2003-04 it was increased by 160%, in the year 2004-05 by 127 %, in the year 2005-06 it was high increased by 688% . INFERENCE: From the above table it can be inferred that the work in progress has fluctuated year by year and it is also showing variation trend.
59
CHART-02 CHART SHOWING THE CHANGES IN WORK-IN-PROGRESS FROM YEAR 2002-03 TO YEAR 2005-06.
800 700 600 500 400 300 200 100 0
Work-inprogress Changes (%)
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TABLE-03
TABLE SHOWING THE CHANGES IN STOCK IN TRADE FROM YEAR 2002-03 TO YEAR 2005-06. (Amount In Rs) PARTICULARS Stock in trade Changes (%) 2002-03 4,377,222 100 2003-04 4,377,222 100 2004-05 2,252,560 51 2005-06 2,252,560 51
ANALYSIS: The above table shows the changes in Stock in trade for the year 2002-03 and 2003-04 it was same 100%, in the year 2004-05 and 2005-06 it was suddenly decreased to both 51%.. . INFERENCE: From the above table it can be inferred that Stock in trade in the years 2004-05 and 2005-06 decreased against the first two years
61
CHART-03
CHART SHOWING THE CHANGES IN STOCK IN TRADE FROM YEAR 2002-03 TO YEAR 2005-06.
62
TABLE-04
TABLE SHOWING THE CHANGES IN LOOSE TOOLS FROM YEAR 2002-03 TO YEAR 2005-06. (Amount In Rs) PARTICULARS Loose tools Changes (%) 2002-03 304,849 100 2003-04 369,367 121 2004-05 552,121 181 2005-06 549,879 180
ANALYSIS: The above table shows the changes in Loose tools for the year 2003-04 it was increased by 21%, in 2004-05 by 81%, but in the year 2005-06 it was decreased to 80%.
. INFERENCE: From the above table it can inferred that loose tools has increased and it is showing decreased trend.
63
CHART-04 CHART SHOWING THE CHANGES IN LOOSE TOOLS FROM YEAR 2002-03 TO YEAR 2005-06.
600,000 500,000 400,000 300,000 200,000 100,000 0 Loose tools Changes (%)
TABLE-05
64
TABLE SHOWING THE CHANGES IN CASTINGS AND FORGINGS FROM YEAR 2002-03 TO YEAR 2004-05. (In Tones) PARTICULARS Castings forgings and 169 192 414 2002-03 2003-04 2004-05
Changes (%)
100
113
244
ANALYSIS: The above table shows the changes in castings and forgings for the year 200304 it was increased by 21%, in 2004-05 by 144%, but in the year it was inferred to.
INFERENCE: From the above table it can be inferred that the usage ok Castings and forgings shows increasing trends.
CHART-05 CHART SHOWING THE CHANGES IN CASTINGS AND FORGINGS FROM YEAR 2002-03 TO YEAR 2004-0 . 65
250 200 150 100 50 0 2002-03 2003-04 2004-05 Castings and forgings Changes (%)
TABLE-06
66
TABLE SHOWING THE CHANGES IN CONTROL PANNEL WITH FITTINGS FROM YEAR 2002-03 TO YEAR 2004-05 (In Tones) PARTICULARS Control panel with fittings 11 18 18 2002-03 2003-04 2004-05
Changes (%)
100
163
163
ANALYSIS: The above table shows changes in control panel with fittings for the year 2003-04 and 2004-05 it was increased by 63% in these two years . INFERENCE: For the above table it can be inferred that the usage of control with fittings it shows in the beginning it increased later it maintained equal.
CHART-06
67
CHART SHOWING THE CHANGES IN CONTROL PANNEL WITH FITTINGS FROM YEAR 2002-03 TO YEAR 2004-05.
TABLE-07
68
TABLE SHOWING THE CHANGES IN GEAR UNIT INSTRUMENT MOTORS FROM YEAR 2002-03 TO YEAR 2004-05.
(In tones) PARTICULARS Gear unit instrument motors 128 95 142 2002-03 2003-04 2004-05
Changes (%)
100
74
100
ANALYSIS: The above table shows changes in Gear unit and instrument motors for the year 200304 it was decreased to 74%, but in the year 2004-05 it was increased by 49%. . INFERENCE: For the above table it can be inferred that the usage of Gear unit and instrument motors it shows in the beginning it decreased in next year it increased..
CHART-O7 CHART SHOWING THE CHANGES IN GEAR UNIT INSTRUMENT MOTORS FROM YEAR 2002-03 TO YEAR 2004-05.
69
100 80 60 40 20 0 Gear unit instrument motors Changes (%)
TABLE-08
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TABLE SHOWING THE CHANGES IN ROTOR ASSEMBLY FROM YEAR 2002-03 TO YEAR 2004-05 (In Tones) PARTICULARS 2002-03 2003-04 2004-05
Rotor assembly Changes (%)
----------------------
4 100
8 200
ANALYSIS: The above table shows the changes in Rotor assembly for the year 2002-03 it was nil, in 2003-04 it was 100%, and in the year 2004-05 it increased by 100%. INFERENCE: For the above table it can be inferred that the usage of Rotor assembly shows increasing trend
CHART-08
71
CHART SHOWING THE CHANGES IN ROTOR ASSEMBLY FROM YEAR 2002-03 TO YEAR 2004-05.
TABLE: 09
THE TABLE SHOWING THE INVENTORY TURNOVER RATIO OF AHL.
72
(Amount in Rs ) INVENTORY YEAR COST OF GOODS AVERAGE SOLD 2002-2003 2003-2004 2004-2005 2005-2006 35,789,924 26,867,321 43,859,453 38,312,772 STOCK 16,588,890 30,200,092 35,030,069 84,476,591 TURNOVER RATIO 2.15 0.88 1.25 0.45
ANALYSIS: The cost of goods sold of the company in the years 2002-2003, 2003-2004, 2004-2005, 2005-2006, were 35,789924, 26,867,321, 43,859,453, and 38,312,772 respectively. The Average Stock of company in the year 2002-2003, 2003-2004, 2004-2005,20052006,were 16,588,890, 30,200,092, 35,030,069 and 84,476,591 respectively. The Stock Turn Over of the company in the year 2002-2003, 2003-2004, 2004-2005, 2005-2006, were 2.15, 0.88, 1.25 and 0.45 respectively. INFERENCE: The Cost of goods sold of the company has been varying from year to year 2005-2006. The cost of goods sold has been increased by 11%. The Average stock of finished goods of the company has been reduced by 10%. The Stock turnover ratio of the company has been increased to 10.76%. CHART-09 THE CHART SHOWING THE INVENTORY TURNOVER RATIO OF AHL.
73
SUMMARY OF FINDINGS AND CONCLUSION

SUMMARY OF FINDINGS
74
The study inventory management with respect to AHL has been carried with objectives of Different categories of inventories, activities processed by stores managers in preparing purchase requisition, purchasing procedures, inventory turn over ratios, storage system or setting of stock level and issuing procedure of inventory in ALFRED HERBERT LIMITED. The study was limited to one month and the required data has been taken from concerned authorities of AHL . The study reveals the following findings ; 1. The AHL is maintaining only O level of inventory system 2. They assured ISO 9001-2001 3. Purchasing takes place when company gets the orders. Purchasing Department is centralized and all the functions are carried on through one Department. The Purchasing Department has the power to place the Purchasing Order without refer to Government as in the case of other Government Undertaking 4. Storage system which is maintained by Bin Cards. A physical verification of all items of stores with a view to tally the balance with the stores records. The continuous verification of stock is done in a planned manner if all items of receipts and issues have been properly recorded in the Bin cards and stores ledger. The balances in quantity should normally tally with the physical verified balance. In ALFRED HERBERT LIMITED, Bin cards system has been following. By using Bin card system, they can easily identify the information about Inventories. 5. The received materials are inspected as per Standard Sampling Plan and furnished products are tested on hundred percent basis. No product is released for production without receiving inspection or verification.
75
6. The Inventory ratio of the company has been decreased over the years and hence there is more locking of funds in Inventories. The increase in inventory has increased demand for working capital, which is added burden to the company.
7. The Re-Order-Level method is used for consumables classifications. For O level inventory, Method is followed in ALFRED HERBERT LIMITED.
5.2
CONCLUSION: Inventory management is one of the basic functions of every business. An
average manufacturing organization in India has more than 60% of its current assets
76
invested in the inventories. Therefore, by following proper inventory management principles the company can certainly reduce the costs of inventory and can improve its bottom times. And thereby, becoming competitive with in turn will improve its market share. The operations of the company were adversely affected due to companys inability to meet the adverse market conditions during the year. The company with old machinery varying from 30 to 35 years without any investment on its modernization has the risk of its potential utilization with the usage of this old machinery without investment is a gradually increase in the input cost. The company should still improve in its production activities. Company sales should be increased proportionately. Government should grant permission to all Authorized managers to take innovative decisions and make improvement in companys development. Overall, the company is not improving their activities to survive in the market. ALFRED HERBERT LIMITED should improve in their performance to reach high position, so that many people can survive their lives.
RECOMMENDATIONS & SUGGESTIONS

1 The company has to pay adequate attention to production policy & review it constantly. Because inventory not only affected the working capital but also profitability.
77
INVENTORY MANAGEMENT 2
By providing facilities such as fringe benefits, medical benefits etc. to the employees in turn it motivates them to work, more efficient & effectively which increase productivity.
By providing facilities such as fringe benefits, medical benefits etc. to the employees in turn it motivates them to work, more efficient & effectively which increase productivity.
The profitability of the company is decreased this is mainly due to decrease in the sales so the company has to value the measures to increase the sales & perform well in decrease of cost.
The company has to maintain the Sampling Plan in inventory control.
BIBILIOGRAPHY
BOOKS: Sl, . Author name Tittles of the Publisher Year of 78
INVENTORY MANAGEMENT No 01 book Production Management 02 03 V.K,Kapoor Gagan Deep Sharma, Mandeep Mahendru Operations Research Production & Operations Management
ALFRED HERBERT LIMITED publication 2004
K. Shridhara Bhat
Himalaya Publishing House Sultan Chand & Sons Kalyani publishers
2001 2007
OTHER SOURCES

Company Broachers Annual reports Past reports
Web sites
www.rubberindustry.com
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INVENTORY MANAGEMENT

ALFRED HERBERT LIMITED

ALFRED HERBERT LIMITED

BRIEF HISTORY & INTRODUCTION OF RUBBER:

ALFRED HERBERT LIMITED

INVENTORY MANAGEMENT By Payen, as well as Graham, Wiesner and Grard.

ALFRED HERBERT LIMITED

ALFRED HERBERT LIMITED

ALFRED HERBERT LIMITED

ALFRED HERBERT LIMITED

ALFRED HERBERT LIMITED

ALFRED HERBERT LIMITED

ALFRED HERBERT LIMITED

INVENTORY MANAGEMENT OBJECTIVES OF INVENTORY MANAGEME

ALFRED HERBERT LIMITED

ALFRED HERBERT LIMITED

ALFRED HERBERT LIMITED

MEASUREMENT OF THE EFFECTIVENESS OF INVENTORY MANAGEMENT

Overall inventory Turnover ratio

Cost of goods sold Average inventory at cost

Raw materials inventory Turnover ratio

Work- in- process inventory Turnover ratio

Finished goods inventory Turnover ratio

Weeks inventory of Raw materials on hand

Weeks raw materials On order

Weeks inventory of Finished goods on hand

Average age of raw Materials in inventory

ALFRED HERBERT LIMITED

ALFRED HERBERT LIMITED

ALFRED HERBERT LIMITED

INVENTORY MANAGEMENT INVENTORY CONTROL MEANING

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INVENTORY MANAGEMENT 1. FIXATION OF STOCK LEVELS INTRODUCTION:

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2. DETERMINATION OF ORDERING QUANTITY OR REORDERING

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STEPS INVOLVED IN PERPETUAL INVENTORY SYSTEM

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STEPS INVOLVED IN PERPETUAL INVENTORY SYSTEM

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INVENTORY MANAGEMENT FEATURES: The main features of this method are:

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INVENTORY MANAGEMENT This method is suitable where

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INVENTORY MANAGEMENT 2.1 TITLE OF THE STUDY

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2.3 OBJECTIVES OF STUDY

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LIMITATIONS OF THE STUDY

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INVENTORY MANAGEMENT HYDRAULICS

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INVENTORY MANAGEMENT OTHER MANUFACTURED PRODUCTS TWO ROLL MILLS

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ORGANISATION CHART OF THE COMPANY