CONTENTS

o Chapter 1 o Introduction of the industry o Chapter 2 Objective of the study o Chapter 3 o Introduction of the topic o Chapter 4 Results and discussion o Chapter 5 Limitation & findings o Chapter 5 Conclusion References Annexure

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CHAPTER 1

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INDUSTRY PROFILE SRF Ltd., earlier called the Sriram Fibers, has evolved into a modern industrial major. Its roots go back to over a century, with the establishment of the parent company, DCM (Delhi Cloth Mills) in 1889. Since its inception in 1974, the company has been improving continuously and has made its mark in the industry. It is the market leader in its core businesses, namely industrial synthetics and Fluorochemicals. It also enjoys growing presence in light engineering products,engineering plastics packaging films and Pharma chemical business. The company was established in 1970, as Shri Ram Fibres Limited by DCM Limited as a wholly owned subsidiary. Its initial focus was on the manufacture of nylon cord fibres for tyres. Its first manufacturing plant was setup in Manali, near Chennai, in 1973. Over the years, the company diversified its product offerings into technical textiles, engineering plastics, chemicals and packaging films. In 1990, it changed its name to SRF Limited. In 1986, the company setup a joint-venture with Denso, SRF Nippondenso, for the manufacture of automotive components. This was later spun off as a separate company in 1993. Another subsidiary, SRF Finance, started in 1986, was sold to GE Capital in 1997. SRF also had a healthcare division which manufactured plastic optical lenses, which was spun off as a separate company in 1997. SRF Limited was listed in the 2011 Asia's Best under a Billion list by Forbes magazine. SRF today operates from nine plant locations in India and abroad and has attained market leadership position in many of the products it manufactures. SRFs relentless focus on TQM techniques has resulted in the company winning the prestigious Deming Application Prize in 2004 (the first nylon tire cord company outside Japan to be awarded this prize).

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SRF PURPOSE To be an inspired, caring organization To create extraordinary value for all To pursue excellence and customer loyalty To always meet tomorrow's challenges today "We Will Make Our Nation Proud By Being the Best at What We Do"

SRF VISION To be one of the most admired business organizations in India, deeply loved by its people, respected and sought after by its customers and shareholders. To be World Leader in at least one of its businesses with global operations and technology leadership. To be one of the most sought after employers in the country. A Company known for its people management skills. One that can unlock the talent hidden in each employee and inspire him or her to take on and accomplish extraordinary future challenges. To be a shining example of deep commitment and contribution to development of people and society.

SRF MISSION Enable customer satisfaction of a high level and a standard higher than that of competition. Provide good returns to our shareholders and other financial stakeholders. Continuously enhance the total quality of life of our employees and help them realize their potential. Contribute to the development of the society and the nation.

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SRF CORE BUSINESSES THE INDUSTRIAL SYNTHETICS BUSINESS, which manufactures Nylon Tyre Cord Fabric, and is the 7th largest producer of NTCF in the world and the largest in India. THE COATED FABRICS BUSINESS, which manufactures high quality fabrics used for non-tyre applications in the international and domestic market. THE BELTING FABRICS BUSINESS, which manufactures fabric used to make conveyor belts, and is the 2nd largest producer in the world and the largest in India. THE FLUOROCHEMICALS BUSINESS, which manufactures Refrigerant Gases and Choloromethanes, and is the largest producer in India with exports to more than 50 countries.

THE PACKAGING FILMS BUSINESS, which manufactures Biaxially Oriented Poly Ethylene Terephthalate (BOPET) also called Polyester (PET) Film, is predominantly used in Flexible Packaging Applications.

THE PHARMA CHEMICALS BUSINESS, which manufactures intermediates/ advanced intermediates and provides contract research, custom synthesis & contract manufacturing services to the Pharma Industry.

PROCUREMENT SOLUTIONS & SERVICES: Procurement of indirect materials requires organizations to identify and deal with countless suppliers based on imperfect knowledge, in a market that is highly disorganized. SRF eBIZ provides solutions & services to increase efficiencies in the procurement of these indirect items (also known as B & C category items).

THE ENGINEERING PLASTICS LIMITED caters to the Nylon engineering plastics requirements of companies in the automobiles, white goods, electrical goods, telecom cables, textile machinery, and electronics sectors. The brands which are famous are TUFNYL and TUFBET.

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THE FISHNET TWINES is a niche business where as leaders in the branded segment we sell fishnets, fishing lines, spindles, tapes, nylon belts and straps as well as velcrotapes to end users in India, Sri Lanka,Uganda and Nigeria.

SRF Ltd also has a wholly owned subsidiary SRF Overseas ltd at Jebel Ali, Dubaiand is engaged in manufacturing of Tyre Cord Fabric. This was the first overseas initiative of SRF Group.

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CHAPTER 2 OBJECTIVE OF THE STUDY

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OBJECTIVE OF THE STUDY

The project is designed to give an overview of Inventory Management. To determine the changes in the Inventory position of the company. To determine the increase or decrease in Inventory level. To determine the various ratios for analyzing the Inventory level of the company. To spot out strengths & weakness of business. To determine the absolute figures for the last two years

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CHAPTER 3 INTRODUCTION OF THE TOPIC

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THEORIES OF INVENTORY MANAGEMENT

Inventory Management

What do you mean by inventory?

Inventory is a list for goods and materials, or those goods and material themselves, held available in stock by a business.

Management of Inventories is with the primary objective of determining, controlling stock levels within the physical distribution function to balance the need for product availability against the need for minimizing stock holding and handling costs.

A subsidiary ledger which is usually used to record the details of individual items of stock. Inventories can also be used to hold the details of other assets of a business. There are three types of inventory: Raw materials, work in process and finished goods. Raw materials are materials and components that are inputs in making final products. Work in process also called stock in process refers to goods in the intermediate stages of production finished goods consist of final products that are ready for sale .inventory represents the second largest asset category for manufacturing companies next only, to plant and equipment he proportion of inventory to total assets generally consists of 15 to 30 percentage.

Inventories is a list of goods available in stock at warehouses .it is also use for a list of contains of a household and for a list of testamentary purpose of the possession of someone who has died in accounting inventory consists as assets.

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Nature of Inventories Inventories are classified according to uses and point of entry in the alteration is as follows: Raw material Work in process goods, Finished goods & Spares and consumables.

Raw Materials Raw materials are those units that are converted in to finished production through manufacturing process. Raw material inventories are those units which have been purchased and stored for future. Under head of raw materials GNFC are maintained rock phosphates, liquid ammonia etc.

Work in Process goods

It is also called stock in process. It refers to goods in the intermediate stage of production. These inventories are semi finished products. It presents the products that need more work before they become finished product for sale. Finished goods

Finished goods consist of final products that are ready for sale. Finished goods are those completely manufacturing products which are ready for sale. Stock of material and work in process facilitate production, while stock of finished goods is required for smooth marketing operation. Thus inventories serves as a link between production and consumption of goods.

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Spares and consumables

Spares play an important part of inventories by themselves. Their consumption pattern defers from that of raw material, consumables and finished goods. They also even keep these items in a spare which is not easily available. There is the material which act as catalysis in the production process and are not directly found in to output. This enables the production process to function smoothly like - fuel, coil, oil, LSHS etc, are the example of the consumables.

Objective of the Inventory Management

The basic responsibility of the financial is to make sure the firms cash flows are managed efficiently. Efficient management of inventory should ultimately result in the maximization of the owners wealth. It was indicated that in order to minimizes cash requirements, inventory should be turned over as quickly as possible, avoiding stock-outs that might result in closing down the production line or lead to a loss of sales.

The main objective of inventory management consists of two parts.

1. To minimize investment in inventory. 2. To meet demand for the product by efficiently organizing the production and sales operations.

The firm should minimize investment in inventory implies that maintaining inventory involves costs, such that the smaller the inventory, the lower is the cost to the firm. But inventory also provide benefits to the extent that facilitate the smooth functioning of the firms.

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 Why Inventory Management?

An increased emphasis on liquidity has lead businessman to hold cash and securities in performance to inventories. Inventories are now often referred to as the grave yard of the business.

The surplus of the stock has been a principal guide of failure thus lead to change their view regarding holding of inventories and adopt scientific way of inventory holding. Following are factor that are following the view of scientific inventory control.

1. Size of Business

The increased size of business establishment has played an important role in modern large scale enterprise. Often it operates with small profit margin which can be eliminated by scientific inventories control method.

2. Wide variety and complexity

The wide variety and complexity in modern technology requires conscious inventory management. The larger the range of requirement, the greater the number of problem of investment, procurement, storage, holding, accounting, shortage and stock out deterioration etc.

3. Urgency in material requirements

The need and importance of inventories varies in different production with the ideal time, cost of men, machinery and urgency of requirement. But it is highly uneconomical to keep a secure and a rapid capital turnover and the most effective means of achieving these objectives is to control stores.

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 Factors Influencing Inventory Management Decision

There two types of factors. They are external and internal factor which influence decision making for inventory in an organization. The external factor arises from market conditions, credit availability and government regulation. The external factors are not controllable easily while internal factor are controllable with effective inventory management.

Following are the factors influence the inventory decision of an organization

1. Lead Time

Lead time can be defined as the period that elapses between the reorganization of a need and its fulfillment. Inventories have to take care of normal consumption during lead time because it increases the inventories and it will have to be increased correspondingly.

The time spent on each of these four stages will vary from item to item. Out of these administrative and inspection lead time are under control of purchase. Procurement lead time is the largest time. This should be taken care of while negotiating the order and supply detail.

2. Relevant Cost The inventory problem is one of the balancing costs, so that total cost is minimized. Their costs are:

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A.

Cost of Ordering

The activities that are carried out for fulfilling the need for material, which consume executive time, stationary and communication charges, these are the cost of ordering. B. Cost of Carrying out Inventories:

The moving factor to control inventory is the cost incurred by holding. It is the cost that is expressed as percentage of the average investment i.e. capital investment, spoilage insurance cost. . Material Control Techniques

The concept of material control techniques signifies the efficiency of any organization. The contingent upon having the right material of right quality at right quantity at the right time in following three areas:

1. Purchase Control 2. Storage Control 3. Warehouse Accounting

1. Purchase Control This is one of the basic functions of inventory management and forms a major part of it. It needs considerable expertise not only negotiating but also in the techniques of competitors and studying of economic trends in respect of materials to be purchased in large quantity to increase the profit.
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o Objectives of Purchasing:

1. To maintain continuity of production 2. To contribute to the competitiveness of the product 3. To contribute towards higher productivity 4. To increase profit 5. To contribute towards standardization, variety reduction, value analysis.

2. Storage Control The control of materials when it is in storage is affected through what is known as the perpetual inventory. Thus two main functions of the perpetual inventory system have been studied which are

1. Receipt and Issue System, 2. Maintenance of Store Records

The use of inventory control technique also has been evaluated considering existing position of GNFC. 3. Warehousing System and Procedure The procedure comes into operation immediately on receipt of dispatched documents or dispatched intimation in the stores and covers on the activities i.e. clearance, delivery, inspection, stock charging and preservation, issue and return of materials by the ends after striking out balance from the stock card and delivery of the account department.

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 Inventory Management In GNFC:

GNFC is maintaining inventories successfully. There are total 1, 40,000 items in inventory whose total value is Rs.1 crore (approx.) Bifurcation of inventories percentage wise as shown below: TABLE NO: 5 Mechanical Spares Catalyst & chemical spares Electrical spares Instrumentation items Other miscellaneous items 57 % 12 % 11 % 10 % 10 %

In 57% Mechanical Spare, there are some insured items which are essential and cannot produce immediately. These items are not come into use daily. These items are very costly and carrying cost is also high.

Bifurcation of Inventories: DIAGRAM NO: 4

Mechanical Spares Catalyst & chemical spares Electrical spares Instrumentation items Other miscellaneous items

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GNFC maintain some inventories different ways like use of SAP system. COMPOSITION OF THE NET OPERATING CYCLE DIAGRAM NO: 5

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 Material Control Techniques in GNFC

To know the practical use of various inventory control techniques in GNFC following inventory control techniques were studied and evaluated which are:

1. Codification System

2. Classification of Inventory:

(a) ABC Classification (b) Determination of E.O.Q (c) FSN Classification (d) HML Classification (e) Zero Inventories

3. Determination of Inventories Level:

(a) Minimum Stock Level (b) Maximum Stock Level (c) Re-Order Level

4. Importance Substitution. 5. Supply Chain Management & Inventory Control.

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1. Codification System:

Codification system means assigning a unique code or name to each item based on its use, characteristics, importance and other features. It is the process of allocating a code after logical grouping and sub grouping considering material type and application.

Principles of Material Code:

There should be adequate provision for future expansion and there should be no duplication. One particular size and type should be at one place only. Description should be brief, very accurate, specification, part number; drawing number should be quoted whenever required. Unit of issue and receipts should be given and followed strictly. Code should be understandable by those who have to use it. It should be properly classified for section, classed and group. One unique code for each item represented by single code.

Advantages:

It enable systematic grouping of similar items together. It helps in avoiding duplication of items. Rationalized codification result in variety of reductions. Many firms have successfully reduced the number of items stock by them. It avoids confusion caused by the long and unwieldy description and accurately logically and logically identifies all items. It is the starting point for standardization
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 It lays the foundation for an efficient purchase organization by helping to from specialized commodity base purchase section. Since items are identified by source of supply, it is possible to bulk them together to take advantages of bulk discount.

Classification of Inventory

The Inventories having huge amount of use in the organization has to be controlled very strictly and low amount of use should be kept low control.

The main classification of Inventory is as under: (a) ABC classification (b) Economics Ordering Quantity (c) FSN classification (d) HML classification (e) Zero Inventories

(A) ABC Classification In most of the inventories a small proportion of items account for a very substantial usage and large proportion of items accounts for a very small usage. ABC analysis, based on this empirical reality, advocates in essence a selective approach to inventory control which calls for a greater concentration of efforts on inventory items accounting for the bulk of usage value. ABC classification is a basic analytical management tools which enable top management to direct their efforts where the result will be maximum. This technique properly knows as ALWAYS BETTER CONTROL has universal application in many areas of human endeavor. The techniques tires to analyze the distribution of any characteristic by money value of importance in order to determine its priority.

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TABLE NO: 6 Class Items value Number of items A Class 70% 10% B Class 20% 20% C Class 10% 70%

DIAGRAM NO: 6
Items value

A Class B Class C Class

(B) Economic Order Quantity: Order quantity is defined as the quantity or its rupee equivalent for which fresh order of as inventory item is placed. The decision regarding order quantity of various inventory items is of vital importance in the management of the inventory item of which total of two types of cost opposing each other will be the minimum at this level, the sum of all cost of on type is exactly equal to the sum of all the cost of the other type. Thus quantity is often referred to as economic order quantity, for the purchase. Purchase item and economic lot size for production item.

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DIAGRAM NO: 7

Determination of EOQ: The economic order quantity can be determined with the help of the following formula: EOQ=\|2AB/CI Where, A= annual usage in units. B= buying cost/ordering cost. C= carrying cost. I= inventory carrying cost.

Disposal of Non Moving Items Inventory Control Review Meeting Alternative Material Use Circulation of Non Moving / Slow Moving Items list.

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(C) FSN Analysis In GNFC FSN analysis carried for consumable items, which are used by multi users, FSN means fast moving (F), slow moving (S), non moving (N) items analysis. The norms established by GNFC for each items are as follows:

Fast Moving Items: GNFC has norms that fast moving items have the following: 1.It should have more than 5 issue transactions in a year. 2. There should be multi user. Slow Moving Items: GNFC has norms that slow moving items have the following; 1. Items should have transaction between 1 to 5 time in a year 2. There should be multi user. Non Moving Items: GNFC has norms that are non moving items have the following: Items have no issue transaction for last 3 years Items should have some quantity available in all the past three years. Actions taken for FSN Analysis:

Fast Moving Items: a. Close watch is required of users, availability of short notice, at time maximum withdrawals etc data are collected and enough care is taken while fixing level. b. Annual rate contract are made to avoid stock outs c. Frequency of review is more d. Frequent changes of level are made depending upon the importance of plant / equipments.
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 Slow Moving Items: a. For slow moving items, consumption pattern is studied. In some cases either the item are being used only in shutdown or by limited users only. While fixing level user weightage is given and it withdrawals. Normally these items are for specific users and levels can be kept low but user should give their requirement of abnormal requirement of shutdown etc. b. Frequency of review is less. Non Moving Items: a. Normally on closing of the financial year report are prepared for non moving items. This report is then circulated to all concerned users department and list will be sent to the stores disposal procedure.

b. Mean while users department study the use of equivalent material against other similar nature material requirement and give their comment. c. Accordingly excess material declared for disposal will disposed off.

(D) HML Analysis This method is similarly to ABC classification but in this case instead of consumption value of items, medium value Items is considered. As the name implies the material are classification according to their unit price as high value Items and negotiate the price.

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As per the company rules:

The items having value greater than or equal to Rs. 1,00,000 are classified as high value Items. The items having individual value greater than or equal to Rs. 25,000 and below Rs. 1,00,000 is considered to be medium value items.

If the value is less than Rs. 25,000 then it is low value items. HML analysis value is done for electrical items, instrumentations and other items.

(E) Zero inventories:

GNFC is continuously maintaining the zero inventories of Raw Material like oil and gas. This is possible because the company has contracted with such suppliers to provide the material on demand on time.

Lubricants whose 200 liters, 50 to 70 drums are used whose supplier is IOC. GNFC has negotiated with IOC and provide it accommodation in plant which is known as IOC depot. The IOC keeps its stock there and when GNFC uses from it when it is needed lubricants only than it has to pay till that GNFC doesnt need to pay.

The inventory remaining at depot is called the inventory of IOC. On the behalf of IOC, GNFC had just taken care of it and for that IOC pays GNFC holding charges also. So the transaction cost of GNFC for lubricant is also reduced. GNFC is also trying for such a depot for bearing also. For gas also the company has contract with GAIL India ltd, for supply of gas as requires, lot of saving inventory and its relevant cost is observed due to this.
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 Determination of Inventory Level:

The inventory level concept consider store keeping as profit intensive service to production store keeping should contribute directly to profitability and be concerned with matter as flow, packing and dispatch.

In the same way that specification is relared to technical needs. so, general level of stock should be relared to the sales andf production policies of the company.

There are various levels of stock which are established by the GNFC are as follows:

(1) Minimum Level

(2) Maximum Stock Level

(3) Re-order Stock Level

(1) Minimum Level:

This is the level at which any future demands upon the bill will necessary withdrawals from the reserve stock.

The Minimum stock level is converted to meet exceptional conditions of Demand. Two months usage of material taken into considerations by the GNFC Ltd. As a minimum stock level.

(2) Maximum Stock Level:

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This is the Level above which the stock should not be permitted to rise. Eighteen months consumption of stocks taken into considerations by GNFC Ltd. As a Maximum stock level.

(3) Re-order Stock Level:

The Point of which the order has to be placed. The Re-order level may not always be numerically equal to the Economic Order Quantity. It should be regularly reviewed for paid moving items. For fast factors as change in demand, delivery times or variation in trend.

(D) Importance Substitution:

GNFC has successfully adopted & exercised these techniques. It has many items / materials which are imported from abroad. But now, GNFC has started to substitute the imported item by substituting these items / materials by finding domestic supplier for this product. GNFC is importing rock phosphate which is used as raw materials. Now GNFC has developed supplier on domestic market and made contract with him for supply of that raw material.

Procedure Followed: a. Items are selected b. It is checked for dimension as well as for material of construction. It is also if required check it with the help of metal analyzer to know exact material of construction. Drawings are developed

c. Local indigenous parties are developed to get it manufactured locally. d. Trials are taken after success it is stopped procuring from abroad
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(E) Supply Chain Management & Inventory Control: Supply chain management solve the purchasing problem by foregoing the short term benefit of competitive bidding in order to develop special long term relationship. In exchange the vendor coincides his production schedule and quantity standards to plant needs thus reducing uncertainty and hence the need for excess inventories. The release and scheduling process with the supplier consist of four steps:

a. Make a long term purchase commitment to supplier. b. Give supplier a monthly forecast for a rolling period of six month of production. c. Establishment with a supplier a monthly form release for the next month of production. d. Make an arrangement of supplier on the policy for changing delivery dates. Inventory Management and Inventory Control Practice:

In all the company they have all types of inventories. But the main important thing is when and how many times control of the inventories of all the companies is is required. So in GNFC control of all the inventories is mentioned as under: The company regularly held the meeting with an agenda of inventory controls. Meeting are held quarterly, semi quarterly or annually as per the need. The purpose is to see the loopholes and try to remove it. Brainstorming is to make control the problem of excess inventory. By arranges such meeting, all the concerned department are informed. The inventory level is maintained with storing department. These meeting are held as a part of constant performance review. The company maintained the space and planning for the particular department for example, suppose company has a Pipes and in production department it is required 500 pipes, but here already company has 200 pipes. So company now requires only 300 pipes and they purchase it. So in this way company arrange space and plan to maintain it.
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 Strength & Weakness of Inventory Management

Strength:

1. Well organized structure of Inventory Management 2. Well Defined Policies and Plans. 3. Good links with raw material requirements planning and monitoring with annual and monthly requirements plan. 4. Well Established vendor registration procedure.

Weakness:

1. Non moving items inventory is high. It approx 15% need more clarity and policy plan. 2. Disposal activity resulats are not satisfactory.

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CHAPTER 3 RESULTS & DISCUSSION

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RESEARCH METHODOLOGY Research methodology is a way to systematically solve the research problem. It deals with the objective of a research study, the method of defining the research problem, the type of hypothesis formulated, the type of data collected, method used for data collecting and analyzing the data etc. The methodology includes collection of primary and secondary data. TYPE OF RESEARCH DESCRIPTIVE RESEARCH The study follows descriptive research method. Descriptive studies aims at portraying accurately the characteristics of a particular group or situation. Descriptive research is concerned with describing the characteristics of a particular individual or a group. Here the researcher attempts to present the existing facts by collecting data. 5.2 RESEARCH DESIGN A research design is a basis of framework, which provides guidelines for the rest of research process. It is the map of blueprint according to which, the research is to be conducted. The research design specifies the method of study. Research design is prepared after formulating the research problem. 5.3 SOURCES OF DATA Data are the raw materials in which marketing research works. The task of data collection begins after research problem has been defined and research design chalked out. Data collected are classified : Data were collected from the companys annual publications, memorandums of settlements, newspapers, journals, websites, and from library books

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DATA INTERPRETATION AND ITS ANALYSIS

Valuation of Inventories:

A. At Plant: Stores & Spares (including coal) = At weighted average cost. Raw Materials, Finished Goods & Work in Process = At Lower of Cost or Net Realizable Value. Annual cost is computed on full absorption costing method including material cost and conversion costs. Fertilizers of Sub-standard Quality = At Lower of Cost or Net Realizable Value as estimated by the Company. Annual cost is computed on full absorption costing method including material cost and conversion costs.

B. At Field: Finished Goods = At Lower of Cost or Net Realizable Value. Annual cost is computed on full absorption costing method including material cost and conversion costs. Costs of field stocks include freight to the destination. Fertilizers of Sub-standard Quality = At Lower Costs or Net Realizable Value as estimated by the Company. Note: Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs necessary to make the sale.

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 Analysis of Inventory Management

The total inventory management of the company includes the raw materials inventory, work in process inventory, finished goods inventory. The total inventory of the company in 2009-2010 is Rs. 40503.38 lacks. GNFC has total of approx. 214683 different types of inventories. TABLE NO: 7 (in lakhs) Particulars Total 2005-2006 26957.87 2006-2007 38846.52 2007-2008 38599.79 2008-2009 43075.71 2009-2010 40503.38

The above graph shows the total inventory management of the company various parts GRAPH NO: 1

50000 45000 40000 35000 30000 25000 20000 15000 10000 5000 0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Stores & Spares Raw Materials Work in Process Finished Goods Total

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The report includes different parts of analysis of the inventory management which follows: 1. Analysis of the composition of inventory. 2. Effects of the various inventory ratios. 3. Study of the different inventory management techniques 4. Find out the inventory management and control practice at GNFC 5. The analysis of the report is divided into main four parts, which are

is as

A. Under composition of inventory B. Various inventory ratios C. Techniques of inventory D. Control of inventory Analysis of inventory management Inventory conversion period is very closely related to the inventory management. Inventory conversion is the part of the net operating cycle. 1. Raw material conversion period 2. Work in process conversion period 3. Finished goods conversion period.

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DIAGRAM NO: 8

NET OPERATING CYCLE

GROSS OPERAING CYCLE

PAYABLE DIFFERED PERIOD DEBTOR CONVERSION PERIOD

INVENTORY CONVERSION PERIOD

RAW MATERIAL CONVERSION PERIOD FINISHED GOODS CONVERSION PERIOD WORK IN PROCESS CONVERSION PERIOD

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Raw Material Conversion Period: Average Raw material Inventory ______________________________ Raw material consumption period TABLE NO: 8 (in lakhs) Particulars Average R.M. Inventory R.M. Consumption per day R.M. Conversion Period 2005-2006 4041.72 214.72 19 days 2006-2007 5274.76 294.78 18 days 2007-2008 5522.4 341.99 16 days 2008-2009 6090.595 343.39 18 days 2009-2010 8270.05 346.56 24 days GRAPH NO: 2
30 25 20 15 10 5 0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Raw Material Conversion Period

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 Interpretation:

Raw material conversion period is the time period between receiving the raw material and sending them for production. It is the period of stocking the raw materials for usage. So higher the ratio lower will be the profit. In the above chart raw material conversion period lies between 15 to 19 days for the last five years. In 2004-2005 it is 15 days which is lowest and so it is good for the company. But in 2005-2006 it is 19 times which is not good for the company because higher the ratio the lower will be the profit. In 2008-2009 the ratio is 18 times which is also very high and so not good for the company. So company should try to reduce it.

Work in Process Conversion Period: Average WIP Inventory ____________________ Cost of Production TABLE NO: 9

(in lakhs) Particulars Average W.I.P Inventory Cost of Production per day W.I.P Conversion Period 2005-06 2422.75 319.38 8 days 2006-07 1793.74 398.08 5 days 2007-08 2031.60 461.47 4 days 2008-09 2707.93 507.88 5 days 2009-10 1110.41 498.04 2 days

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GRAPH NO: 3
9 8 7 6 5 4 3 2 1 0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Work in Process Conversion Period

Interpretation:

Work-in-progress conversion period is the time period when the raw materials are received for production and the time for their dispatch. The higher the ratio the lower will be the profitability. In 2007-2008 the ratio is 4 days which is too low and so it is good for the company. But in 2005-2006 the ratio is 8 days which is too high. But in 2008-2009 the ratio is 5 days which is low and so good for the company. But as we have not compared it with other companies any decision cant be taken.

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Finished Goods Conversion Period: Average finished goods Inventory ______________________________ Costs of goods sold TABLE NO: 10

(In lakhs) Particulars Average Finished Inventory Cost of Goods Sold Finished Period Goods Conversion 2005-06 4351.265 70.81 61 days 2006-07 8795.65 84.71 103 days 2007-08 11532.51 188.63 61 days 2008-09 10332.275 81.05 127 days 2009-10 7251.50 39.632 182 days

GRAPH NO: 4
200 180 160 140 120 100 80 60 40 20 0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Finished Goods Conversion Period

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 Interpretation:

Finished goods conversion period is the time of storage of finished goods in the warehouse until they are sold. The higher the ratio the low will be the profit. If we store the huge stock in warehouse then we are losing the opportunity cost. In 2004-2005 the ratio is 35 days which increased by 6 days i.e. 41 days in 2005-2006 which is not good. But in 2006-2007 the ratio is 114 days which indicates that huge stock in laying at the godown and so the company is losing its profit and so the profit in that year is very low. But in 2008-2009 it is 86 days which is too high and not good for the company. But as we are not aware about other companies in this industry any comment about it is not appropriate.

Inventory Conversion Period TABLE NO: 11

Particulars R.M. Conversion Period W.I.P. Conversion Period F.G. Conversion Period Inventory Period

2005-06 19 days 8 days 61 days

2006-07 18 days 5 days 103 days 126 days

2007-08 16 days 4 days 61 days 81 days

2008-09 18 days 5 days 127 days 150 days

2009-10 24 days 2 days 182 days 208 days

Conversion 88 days

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GRAPH NO: 5

250 200 150 100 50 0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Inventory Conversion Period

Interpretation:

Inventory conversion period indicates in how much days our inventory gets converted. In this ratio we will consider the entire inventory ratio. We will consider all type of inventories i.e. raw materials, work in process and finished goods. The higher the ratio the higher will be the profitability. In 2006-2007 the ratio is 137 days which shows that in this year huge amount of profit the company has earned. So in this year the profit is very high as compared to other year. But in 2008-2009 the ratio is 109 days which is very huge because the finished goods conversion period is huge. And so the profit also increased by approx Rs. 15000 (in lacks).

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 Various Inventory Ratios:

A. B. C. D.

Total Investment in Inventory Total Inventory Turnover Ratio Work in Process Turnover Ratio Finished Goods Turnover Ratio

A. Total Investment in Inventory: TABLE NO: 12 Particulars Inventory 2005-2006 26957.87 2006-2007 38846.52 2007-2008 38599.79 2008-2009 43075.71 2009-2010 40503.38 lakhs) (in

GRAPH NO: 6

50000 40000 30000 20000 10000 0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Total Investment in Inventory

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 Interpretation:

The above chart indicates the amount of inventory with the company. The lower the amount the higher will be the profit but higher the amount the lower will be profit. There is inverse relation between profit and inventory. From the above chart it can be seen that in 20082009 the amount of inventory is Rs. 43089 (in lakhs) due to which the profit also reduced and so the profit is low in 208-2009.

B. Total Inventory Turnover Ratio:

Total inventory turnover ratio is concerned with the cost of goods sold and average inventory. Total inventory turnover ratio is shows how many times inventory is replaced during the year symbolically,

Costs of goods sold (sales) ________________________ Average Inventory

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TABLE NO: 13

Particulars Inventory Turnover Ratio

2005-2006 6.92 times

2006-2007 7.5 times

2007-2008 7.95 times

2008-2009 6.63 times

2009-2010 5.96 times (in lakhs)

9 8 7 6 5 4 3 2 1 0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Inventory Turnover Ratio

GRAPH NO: 7 Interpretation:

Inventories represent stocks of readymade goods or raw materials that are needed to be kept in order to be able to meet the orders of clients. The higher the ratio the higher will be the profit and lower the ratio lower will be the profit. In GNFC the inventory turnover ratio for the year 2008-2009 is 6.63 times which is lowest and resulted into low profitability. The highest ratio is found in 2007-2008 which is 7.95 times and it is very good for the company. But any decision cant be taken for it because we have just compared the data of past five years of GNFC only and not of four to five other companies ratios which are coming under this industry.
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C. Work in Process Turnover Ratio:

Work in process turnover ratio is concerned with the cost of goods sold and average work in process inventory. Work in process turnover ratio shows how many times work in process inventory is replaced during the year. Symbolically, Cost of production ___________________ Average WIP Inventory TABLE NO: 14

(in lakhs) Particulars Work in Process Turnover Ratio 2005-2006 75 times 2006-2007 137 times 2007-2008 152 times 2008-2009 99 times 2009-2010 224 times

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GRAPH NO: 8
250 200 150 100 50 0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Work in Process Turnover Ratio

Interpretation:

Work in process indicates the stock withdrawn from warehouse and are yet to get converted into finished stock. The higher the ratio the higher will be the management efficiency. In 2007-2008 the ratio is approx 152 times which shows good profitability for the company. But it reduced to 99 times in 2008-2009 which shows decrease in profitability, company is taking more time to produce finished goods which is not good for the company.

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D. Finished Goods Turnover Ratio:

Finished goods turnover ratio is concerned with the cost of goods sold and average finished goods inventory. Finished goods turnover ratio indicates how many times finished goods are replaced during the year. Symbolically,

Costs of goods sold ____________________________ Average finished goods inventory

TABLE NO: 15

(in lakhs) Particulars Finished Goods Turnover Ratio 2005-2006 42 times 2006-2007 28 times 2007-2008 26 times 2008-2009 26 times 2009-2010 34 times

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GRAPH NO: 9

45 40 35 30 25 20 15 10 5 0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Finished Goods Turnover Ratio

Interpretation:

Finished goods turnover ratio indicates how much time finished goods gets turnover. The higher the ratio the more will be the sales and vice versa. But after it subsequently reduces and lasts to 26 times in 2008-2009 which is not a good sign for the company. It shows that company is holding huge stock at warehouse.

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CHAPTER 4 LIMITATION & FINDINGS

Page 50

LIMITATION OF STUDY

Time period of 6 weeks in such big company like GNFC is very small to carry out a bigger project like inventory management. Companys employees dont provide enough data for the study. All the data are collected was secondary in nature so loopholes if any would carried forward in the study.

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FINDINGS

Research Findings:

The study of inventory management at GNFC is conducted to know the various techniques followed by company to control the inventory management of the company.

In the company the total inventory conversion period for the year 2009-2010 which is 208 days Inventory turnover ratio in the year 2007-2008 (7.95 times) is high. Raw material turnover ratio is lowest in 2009-2010 since last five years i.e. 30 times, Work in process turnover ratio is very high in 2009-2010 which is 224 times. Finished goods turnover ratio is very high in 2005-2006 which is 42 times

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CHAPTER 5 CONCLUSION

Page 53

CONCLUSION
Raw Material Conversion Period for the company is increased by 6 days in 2009-2010 as compared to previous year is not a good sign. Finished Goods Conversion Period in 2009-2010 is highest which 182 days which has increased by 55 days as compared to previous year should be reduced. Since its beginning the company has to incur loss due to damage of machine E-501 and due to which they had loss of production. So they have to keep this machine in stock. Most of the employees in the organization are not aware about how to use SAP software.

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BIBLIOGRAPHY

Books

I. M. Pandey, Financial Management, Vikas Publishing Pvt, Ltd, (9th Edition) Pg no: 524, 525, 624 to 639. Websites

http://www.gnfc.in/aboutus/finance.html http://www.google.com http://www.gnvfc.com http://www.fertilizers1.com/institutions.html http://www.moneycontrol.com/gnfc/financials.html Other Materials

Annual report of the company Balance Sheet

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ANNEXURES BALANCE SHEET AND PROFIT AND LOSS A/C

Profit & Loss account of SRF Pvt. Ltd. Mar '10

------------------- in Rs. Cr. ------------------Mar '09 Mar '08 Mar '07 Mar '06

12 mths

12 mths

12 mths

12 mths

12 mths

Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses 1,379.56 359.25 196.83 73.95 1,634.15 376.32 221.31 93.26 1,986.76 341.60 189.29 79.15 1,530.60 268.96 168.87 71.14 1,075.95 263.04 133.05 52.82 2,712.78 98.41 2,614.37 -1.39 -97.20 2,515.78 3,062.28 140.50 2,921.78 35.05 3.63 2,960.46 3,653.44 220.19 3,433.25 44.02 -13.75 3,463.52 2,956.67 217.40 2,739.27 35.90 50.77 2,825.94 2,281.33 133.76 2,147.57 34.98 3.42 2,185.97

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Selling and Admin Expenses Miscellaneous Expenses Preoperative Exp Capitalised Total Expenses

119.66 26.31 0.00 2,155.56 Mar '10

114.37 20.09 0.00 2,459.50 Mar '09

146.84 21.95 0.00 2,765.59 Mar '08

148.63 21.45 0.00 2,209.65 Mar '07

125.52 12.15 0.00 1,662.53 Mar '06

12 mths

12 mths

12 mths

12 mths

12 mths

Operating Profit PBDIT Interest PBDT Depreciation Other Written Off Profit Before Tax Extra-ordinary items PBT (Post Extra-ord Items) Tax Reported Net Profit Total Value Addition Preference Dividend

361.61 360.22 25.46 334.76 116.96 0.00 217.80 2.09 219.89 96.05 123.84 776.00 0.00

465.91 500.96 28.46 472.50 119.73 0.00 352.77 0.91 353.68 126.19 227.52 825.34 0.00

653.91 697.93 14.15 683.78 110.52 0.00 573.26 2.99 576.25 203.37 372.88 778.83 0.00

580.39 616.29 18.12 598.17 109.57 1.30 487.30 9.88 497.18 170.72 326.47 679.04 0.00

488.46 523.44 37.10 486.34 88.59 1.43 396.32 50.24 446.56 151.85 294.72 586.58 0.00

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Equity Dividend Corporate Dividend Tax Per share data (annualised) Shares in issue (lakhs) Earning Per Share (Rs) Equity Dividend (%) Book Value (Rs)

50.51 8.39

50.51 8.58

66.05 11.23

66.05 11.23

62.25 8.73

1,554.19 7.97 32.50 133.77

1,554.19 14.64 32.50 129.59

1,554.19 23.99 42.50 118.76

1,554.19 21.01 42.50 101.06

1,464.76 20.12 42.50 80.37

Source : Dion Global Solutions Limited Explore GNFC connections

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Balance Sheet of SRF Pvt. Ltd. Mar '10

------------------- in Rs. Cr. ------------------Mar '09 Mar '08 Mar '07 Mar '06

12 mths

12 mths

12 mths

12 mths

12 mths

Sources Of Funds Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Networth Secured Loans Unsecured Loans Total Debt Total Liabilities 155.42 155.42 0.00 0.00 1,923.63 0.00 2,079.05 290.01 265.05 555.06 2,634.11 Mar '10 155.44 155.44 0.00 0.00 1,858.68 0.00 2,014.12 102.85 253.05 355.90 2,370.02 Mar '09 155.44 155.44 0.00 0.00 1,690.26 0.00 1,845.70 310.46 3.05 313.51 2,159.21 Mar '08 155.44 155.44 0.00 0.00 1,415.19 0.00 1,570.63 348.36 3.22 351.58 1,922.21 Mar '07 146.48 146.48 0.00 0.00 1,030.81 0.00 1,177.29 267.61 4.75 272.36 1,449.65 Mar '06

12 mths

12 mths

12 mths

12 mths

12 mths

Page 59

Application Of Funds Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Fixed Deposits Total CA, Loans & Advances Deffered Credit Current Liabilities Provisions Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Assets 3,084.25 1,914.90 1,169.35 1,029.80 89.51 405.03 16.68 40.61 462.32 1,379.21 282.78 2,124.31 0.00 536.73 1,242.15 1,778.88 345.43 0.00 2,634.09 3,028.00 1,798.51 1,229.49 419.67 332.63 430.76 288.72 52.02 771.50 1,246.18 3.40 2,021.08 0.00 500.66 1,132.19 1,632.85 388.23 0.00 2,370.02 2,750.53 1,680.30 1,070.23 259.21 330.44 386.00 389.68 75.38 851.06 296.90 76.04 1,224.00 0.00 588.71 135.95 724.66 499.34 0.00 2,159.22 2,677.29 1,570.96 1,106.33 28.75 148.50 388.47 605.28 29.35 1,023.10 294.43 101.13 1,418.66 0.00 682.79 97.24 780.03 638.63 0.00 1,922.21 2,137.89 1,286.79 851.10 48.63 218.20 269.58 430.12 30.00 729.70 621.18 25.02 1,375.90 0.00 450.61 594.56 1,045.17 330.73 0.99 1,449.65

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Contingent Liabilities Book Value (Rs)

1,102.17 133.77

440.04 129.59

73.98 118.76

98.94 101.06

111.15 80.37

Source : Dion Global Solutions Limited Explore GNFC connections

Particulars Opening Raw materials Closing Raw materials Raw materials consumption Opening Work in Process Closing Work in Process Manufacturing expenses Opening Finished goods Closing Finished goods Purchase of Finished goods Distribution & other expenses

2005-2006 2803.82 5279.61 77297.37 1838.22 3007.29 116146.61 4764.67 3937.86 24667.73 12870.76

2006-2007 5279.61 5269.92 105123.23 3007.29 580.18 148964.9 3937.86 13653.44 40212.52 15313.18

2007-2008 5269.92 5774.87 123118.41 580.18 3447.03 177802.22 13653.44 9411.58 65054.77 17751.56

2008-2009 5774.87 6406.32 123605.5 3447.03 1968.82 181360 9411.58 11252.97 30641.17 17427.51

2009-2010 6406.32 10133.78 124761.39 1968.82 252.00 177580.75 11252.97 3250.04 6264.59 23140.49

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Total Inventory Turnover

Particulars Cost of goods sold Average Inventory Sales Gross Profit Opening Inventory

2005-2006 183477.88 26516.65 228133.38 44655.5 26957.87

2006-2007 246727.93 32902.2 295666.61 48938.68 38846.52

2007-2008 308082.7 38723.16 365344.17 57621.47 38599.79

2008-2009 270857.57 40837.75 306228.02 35370.45 43075.71

2009-2010 249289.07 41789.545 271277.75 21988.68 40503.38

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Work in Process Turnover

Particulars Sales Gross Profit Opening Work in Process Closing Work in Process Particulars Cost of goods sold Average Inventory

2005-2006 228133.38 44655.5 1838.22 3007.29 2005-2006 183477.88 2422.75

2006-2007 295666.61 48938.68 3007.29 580.18 2006-2007 246727.93 1793.74

2007-2008 365344.17 57621.47 580.18 3447.03 2007-2008 308082.7 2013.6

2008-2009 306228.02 35370.45 3447.03 1968.82 2008-2009 270857.57 2722.93

2009-2010 271277.75 21988.68 1968.82 252.00 2009-2010 249289.07 1110.41

Finished Goods Turnover Particulars Sales Gross Profit Opening Finished Goods Closing Finished Goods Particulars Cost of Goods Sold Average Inventory 2005-2006 228133.38 44655.5 4764.67 3937.86 2005-2006 183477.88 4351.27 2006-2007 295666.61 48938.68 3937.86 13653.44 2006-2007 246727.93 8795.65 2007-2008 365344.17 57621.47 13653.44 9411.58 2007-2008 308082.7 11532.51 2008-2009 306228.02 35370.45 9411.58 11252.97 2008-2009 270857.57 10332.28 2009-2010 271277.75 21988.68 11252.97 3250.04 2009-2010 249289.07 7251.505

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