1.

1 Objectives of the Study

The main objective of this study is to evaluate the efficiency of Inventory mana
gement in Balasore Alloys Limited (BAL) over a period of 5 years (2004-2005 to 2
007-2008). The specific objectives of the study are as under:
1) To find out the trend of inventory investment in Balasore Alloys Limited
.
2) To examine the management pattern of inventory.
3) To analyze closing stock position
4) To establish a relationship between total asset and inventory
5) To establish a relationship between current asset and inventory
6) To establish a relationship between total asset and current asset
7) To know standard consumption of raw material
8) To suggest some measures for improvement of inventory management practi
ces.

ORGANISATION STUDY
2.1INTRODUCTION
Balasore Alloys Limited(BAL), Balgopalpur, Balasore formerly Ispat A
lloys Limited, is a member of ISPAT group of companies owned by the Mr. P.K Mitt
al. It was incorporated in 1984 and started its commercial production in 1987.
2.2GENERAL PROFILE OF BALASORE ALLOY LTD
2.2.1MISSION
The mission of Balasore Alloys Limited in short BAL is as follows;
Managing our business with integrity and highest ethical standard
Acting in a socially responsible manner with particular emphasis on the
wellbeing of all stack holder and communities we serve.
Adopting new technology, initiative, continuous learning and innovation
for productive use of all resources.
Maintaining and developing a team of highly motivated trained profession
als.
Providing total customer support through continuing pursuit of technical
excellence, understanding of product quality, reliability and services.
Striving constantly self reliance and self-sufficiency in all operation.

2.2.2VISION
To be globally trusted supplier of Ferro-alloy as well as to create sustained va
lue addition for all stakeholders.

2.2.3STRATEGIC BUSINESS OBJECTIVE

To be among top fifteen manufacturer of Ferro-chrome in world by 2011.
 To achieve 10000 MT per month production level by may 2009.
To be most competitive Ferro-alloys producer by 2011 with reasonable pro
fitability.
To achieve TPM special award by2010.
To achieve zero customer complaint.

2.2.4 SWOT ANALYSIS

Strength
Positive work culture, skilled and motivated workforce and employee part
icipation.
Healthy IR, Union Recognition, Public Utility Service Status
Balance Score Card and Online PMS system
Focus on Training and Development.
Well Laid down policies and procedures ( Policy Manual/ SOPs)
Monthly Open House Meeting ( Trust/ Transparency)
Review of HR Policies by HRC on Monthly basis and corrective action plan
.
Finds a place in top ten quality supplier of Ferro Chrome in the world
Won the most prestigious CII award continuously during last two years.
Strong customer relation ship both in Domestic and abroad.
 Strongly competes in the market because of low cost of production.
Financial Management of the company touches the benchmark level.
Provides a very good platform for career growth of employees
Long term contracts
WEAKNESS
Quality variation in RM(Dolomite)
Discussion is going on with TISCO for increasing quality.
Non available of lumpy ore. (planned for procuring from Pakistan and Tur
key)
Space constraints for storage of material.
Deterioration and wastage of material.
OPPORTUNITY
Global souring of raw material
Acquiring mines
SAP implementation
Using Dhamara port for raw material transportation
Development of premises railway siding for bulk cheap and easy transport
ation
Using RFCD system(planed with it dept)
THREAT
Change in import and export policy
Volatility of coke and coal price hike
Unfavourable changes in taxation and duties
Highly unstable global petroleum prices and monopolistic behaviour of OP
EC.
2.2.5 BORD OF DIRECTOR
Balasore alloy is managed by board which comprises of directors with significan
t experience. A team of qualified and experienced personals assist the board in
carrying out day to day operations effectively. The list of present board of dir
ectors of the company is as per the table given bellow.
a) Mr. Promod Mittal, chairman
b) Er. R.K Jena, managing director
c) Mr.V.K mittal, director
d) Mr. R.N Pandey, independent director
e) Mr. S Mohapatra, independent director
f) Mr. S.K Pal, independent director
g) Dr. A.k Bhatachaya, independent director

2.2.6 AWARD AND RECOGNITION

The company receives the recognition in different field as follows:
India manufacturing excellence award -2007 (platinum award – 1st runner
up).
The company has owned the first position in productivity award for susta
ined level of high overall productivity by CII(ER)
The company has been conferred with a special inertia award 2007 for ene
rgy efficiency.
ISO 14000 certification from bureau of Indian standards.
Company’s chrome mines division accredited with ISO 9001:2000 certificat
ion by DNV

2.2.7 HISTORY OF BALASORE ALLOY

YEAR EVENTS
1984 - The company was incorporated on 1st May in Orissa. It was promoted by Isp
at Group headed by M.L. Mittal. The main objective of the company is to manufact
ure calcium silicide ferro silicon calcium carbide and all other ferrous and non
-ferrous metal based alloys.
1987 - Due to erratic power situation production of calcium silicide could not b
e taken up. Unstable power situation once again stalled the commencement of calc
ium slicide production.
- The company installed a second furnace and a captive power plant with a total
outlay of Rs 22.60 crores.
- The company along with an Indonesian firm set up a joint venture project for m
anufacture of Silicon Ferro Silicon and Ferro Chrome.
- 100 shares subscribed for by the signatories to the Memorandum of Association.
31 49 900 shares then issued at par of which the following shares reserved and
allotted:
- (i) 6 09 900 shares to Indian promoters directors etc.
- (ii) 4 50 000 shares to NRI promoters on repatriation basis and
- (iii) 3 00 000 shares to IPICOL Out of the remaining 17 90 000 shares the foll
owing shares were reserved for preferential allotment:
- (i) 89 500 shares to employees including Indian working directors and
- (ii) 35 800 shares to business associates of the Company. Out of (i) and (ii)
only 36 600 shares taken up.
- The balance 16 64 700 shares along with the unsubscribed portion of 88 700 sha
res out of the preferential quota were offered to the public during Sept. 1986.
- Additional 4 47 500 shares allotted to the public to retain oversubscription.
1989 - The company received a letter of intent for the setting up a third furnac
e at the existing site at Balgopalpur for the implementation of charge chrome/fe
rro chrome with a licensed capacity of 15 000 TPA.
- The company issued 45 45 454-14% secured fully convertible debentures of Rs. 2
20 each of which (i) 18 00 000 debentures were reserved for preferential allotme
nt to the existing equity shareholders of the company in the ratio of 50 debentu
res for every 100 equity shares (only 17 58 345 debentures were taken up);
- (ii) 1 36 000 debentures allotted to NRI (all were taken up);
- (iii) 13 63 636 debentures reserved for preferential allotment to the equity s
hareholders of Nippon Denro Ispat Ltd. and Ispat Profiles India Ltd. (all were t
aken up);
- (iv) 2 27 000 debentures reserved for UTI ICICI Insurance companies and Mutual
Funds (all were taken up); and
- (v) 2 27 273 debentures offered to the employees (including Indian working dir
ectors) of the Company (only 185 debentures were taken up).
- The balance of 7 91 545 debentures along with the 2 68 743 debentures not take
n up by employees and equity shareholders were offered to the Indian public (all
were taken up). Additional 2 04 544 debentures and 4 47 274 debentures were all
otted to the shareholders of Nippon Denro Ispat Ltd. Ispat Profiles India Ltd. a
nd Indian public respectively to retain oversubscription.
- Part-A of Rs. 60 has been converted into two equity shares of the face value o
f Rs. 10 at a premium of Rs. 20 per share at the end of 6 months from the date o
f allotment. Part-B of Rs. 160 will be converted into appropriate number of equi
ty shares of the face value of Rs. 10 at such premium as may be decided by the C
CI between a period of 18 months to 24 months from the date of allotment.
1990 - With the Government of India extending the scheme of broad-banding to bul
k ferro-alloys industry since January the company hoped to have a diversified pr
oduct mix within the existing licensed capacities.
- 1 00 00 544 No. of equity shares allotted due to the conversion of Part-A conv
ertible debentures.
1991 - The project was at an advanced stage of implementation and it was expecte
d to be commissioned in March/April.
- Another letter of intent was received for the setting up of an 100% Export Ori
ented Unit (EOU) at Dhenkanal in Orissa for the manufacture of charge chrome/hig
h carbon ferro-chrome with a licensed capacity of 75 000 TPA.
1992 - Profitability also improved due to optimum utilisation of company s resou
rces and adoption of various cost control measures.
- 352 82 219 shares allotted on conversion of pref. `B of debentures.
- The said furnaces are set up as Domestic unit in place of 100% EOU origin with
in build facility to produce other ferro alloys in addition to charge/ferro chr
ome to enable the company to market internationally 2 Nos. of imported DG sets o
f 5 MW each were commissioned.
1993 - The company successfully implemented the commissioning of two new furnace
s of 7.5 MVA capacity each at Balgopulpur.
1994 - The company undertook steps to increase captive power generation capacity
from 19 MW to 40 MW by installing two new imported D.G. Sets of 10.5 MW each at
Balgopalpur Orissa.
1996 - The Company has been conferred with various awards during the period unde
r review such as Regional Top Exporter Shield for 1994-95 from Engineering Expor
t Promotion council (Eastern Region) HRD First Prize for 1994 from CII. (Eastern
Region) and Best Exporter Award for 1994 from Directorate of Export Promotion C
ouncil Orissa.
- The Company has also received prestigious IS 14002/ISO 9002 accreditation from
 the Bureau of Indian Standards.
- The Company has successfully used PLCs for economic use of Resources like Powe
r and Raw Materials.
1997 - IAL is a leading manufacturer of silicon metal and ferro-silicon. Its pro
ducts are manufactured under technical collaboration with global leaders like Ni
ppon Denro Japan Danieli Italy Elkem Norway and Outokumpo Finland IAL has aggres
sively added capacities and diversified within the realms of the ferrous industr
y.
- IAL have suffered a similar fate of delayed project implementation for as long
as a decade.
1998 - Power generation capacity was increased by installing two new imported D
G sets of 10.5 MW each from MAN B & W Germany at its works at Balgopalpur Orissa
.
- The management of Ispat Alloys Ltd has declared an indefinite lockout followin
g violent incidents at the Balgopalpur factory premises in Balasore district of
Orissa.
- Ispat Alloys Ltd a subsidiary of the Mittals-promoted Ispat Industries Ltd.
1999 - Two leading manganese alloy producers -- Ispat Alloys and Maharashtra Ele
ktrosmelt -- have made losses during first quarter April/June.
2007 -Balasore Alloys Ltd has informed that Mr. Rabindra Kumar Jena Executive Di
rector of the Company has been elevated to and appointed as Joint Managing Direc
tor of the Company w.e.f. January 31 2007.
-Balasore Alloys Ltd has appointed Mr. Debadatta Sengupta as Director of the Com
pany w.e.f. January 31 2007.
2.2.8 MODERN MANAGEMENT
The company continuous to actively pursue its modern management initiatives in t
he area of
Six sigma
Total productive maintenance (TPM)
Activity based cost management
Total quality management
Performance management system
Just in time (JIT) in order to maximize performance efficiency and natur
e of burning desire to excel in each of this faculty.
These initiatives have efficiently assisted the company in rationalizing its wor
k force and in giving it enough experience to manage the operation efficiently t
hus enhancing the company’s global competitiveness and recognition eventually ca
tapulting the company into the higher echelons of modern management, in the proc
ess giving it a strong leadership position in the market.
2.2.9 PURCHASE SYSTEM OF BALASORE ALLOY
Balasore alloy purchase department do two type of purchase work. These are store
item and raw material item.
RAW METERIAL
Raw materials are the materials out of which finished product are made by an
y manufacturing process.
MEASURE RAW METERIAL ITEM
SL NO NAME OF THE RAW METERIALS PLACE
A. FLUXES
1 QUARTZ BARIPADA, ORISSA
2 DOLOMITE RAULKELA, RAJGANGPUR,ORISSA
3 MAGNESITE NAINITAL, US
4 BAUXITE JHARKHAND
5 MILLSCALE DHANKANAL, ORISSA
6 EC PASTE(INDEL, HIRAKUD) HIRAKUD ORISSA, BELGOWN
7 EC PASTE(INDEL,BELGAON)
8 EC PASTE(INDIA CARBON)
B REDUCTENTS
1 LAMC (10-20)MM-RAW MET DURGAPUR, WB
2 LAMC (20-70)NAYAN
3 LAMC –KTC
4 LAMC (10-40)STC
5 LAMC (10-40)MMTC ORISSA
6 ANTHRACITE COAL-NABA BHARAT
7 ANTHRACITE COAL-ROHIT
8 LAMC(10-70)KALIKA
9 LAMC(10-100)PRAVA
10 CIL COCK WB
C CHROME ORES
1 CR LUMP(38-40)S.MINERAL SUKINDA, (OWN PLANT)
2 TURKEY(40/80) IMPORTED
3 TURKEY (50%)
4 S.MINERAL(42-44) ORISSA
5 S.MINERAL(40-42)
6 FACOR LUMP +54 BHADRAK,ORISSA
7 BAL-CHIPS-MG ORISSA
8 BAL-CHIPS-HG/SHG
9 BAL-CHIP-SMS
10 WASHING POINT CHIPS (LG/MG/HG)
11 IKP FRIABLE LUMP
12 BAL PRESS BRQT-MG
13 BAL PRESS BRQT-SHG SUKINDA, (OWN PLANT)
14 BAL PRESS BRQT-HG SUKINDA, (OWN PLANT)
15 BAL PRESS BRQT-LG SUKINDA, (OWN PLANT)
16 CEMENT BRIQUETTE JHAR GRAM,WB
17 BAL PRESS BRQT-SMG
D BRIQUETTING REQUIREMENT
1 BAL CR FINES-MG
2 BAL CR FINES-HG
3 BAL CR FINES-SHG
4 BAL CR FINES-LG
5 LIME POWER JAMSEDPUR, JHARKHAND
6 MOLASSES JATANI ORISSA,ANDHRA PRADESH,BIHAR,KARNATAKA
7 CEMENT JHAR GRAM,WB
8 FURNACE OIL SOMNATHPUR ORISSA, HALDIAA WB
PURCHARE SYSTEM
According to production, production department decide, how much quantity
of raw material required fulfilling the production target.
Purchase department analyse in respect of stock at yard, minimum stock l
evel and requirement, how much quantity of raw material should be procure.

After deciding the procurement quantity purchase department or procureme

nt committee decide from which supplier how much of raw material and which item
should be procure.
Issue of purchase order, transportation order accordingly.

Purchase order should is audited by internal auditor.

When material reaches in the yard, it is tested in the lab to decide the
supplied material is accepted or rejected.

STORE ITEM
Those item which is not directly use in production work, these are store item.
MEASURE STORE ITEM
STORE PURCHASE ITEM
NAME PLACE
1 DA FULL CYLINDER JAMSEDPUR, JAGPUR
2 LANCING PIPS KOLKATA
3 OXIGEN GAS JAMSEDPUR, JAGPUR
4 M.S ROUND ROURKELA
5 SODIUM SILICATE KOLKATA
6 HR SHEET JAMSEDPUR
7 LIQUID OXIGEN GAS KOLKATA
8 HIGH SPEED DISEL HALDIA
9 WELLDING ROD ANUGUL
10 GUNY BAG BHADRAK
11 JOMBO BAGS KOLKATA, BALASORE
12 HDPE BAGS KOLKATA, BALASORE
13 COTTON THREAD KOLKATA, BALASORE
PURCHASE SYSTEM
For purchasing of store item Balasore Alloy Company follow ICIS (integrated comp
uterised information system) system. Through this system company search, where a
re needed item found, through internet.
They follow some roll in purchase of store item. These are describing be
llow.
User department send an indent to purchase department, that what item th
ey required.
Then purchase committee make verification and give approval if it is pur
chase or not.
It is initialise by commercial department.
Purchase department make an enquiry through internet where this item is
found.
Vender sent there quotation to purchase department.
 Purchase department make a comparison and decide where to purchase.
Purchase department then negotiate with the vender.
Then company place order.

2.3BUSINESS PROFILE
Balasore Alloy Ltd. a measure player in the international Ferro-chrome market, h
as notched up an impressive growth of 435.59% in its net profit at RS. 3329.11 l
akes for the 15 months period ended 31st march, 2008, as compared with Rs.621.58
lacks recorded during the corresponding 15 months period ended 31st December, 2
006.
Turnover for the 15 month period ended 31st march 2008 increased by 55.53% to Rs
.53085.62 lakes as against Rs.34132.59 lakes during the corresponding 15 months
period ended 31st December 2006. Export turnover for the 15 month period ended 3
1st March 2008 increased by100%to Rs.40514.75 lakes as against Rs.20296.66 lakes
during the corresponding previous financial period. PBT for the 15 month period
ended 31st march 2008 registered a heavy growth of 352.97% at Rs.5116.83 lakes
as against Rs.1129.61 lakes registered in the corresponding previous financial y
ears. EPS jumped by 366.09% at Rs.5.36 per share for the 15 months period ended
31st march 2008 as compared to Rs.1.15 per share for the previous financial peri
od. (Face value per share =Rs.5/-)
The company has been able to sustain the momentum of its accelerated growth chie
fly on account of judicious product mix, improved capacity utilisation better re
alization and improved cost efficiencies, despite rising input cost and apprecia
ting rupee.

MEASURE CUSTOMER
JAPAN & KOREA
 Mitsui
Toyota tsusho corporation
Kinso corporation
Stemcor
Glencore
EUROPIAN UNION
Indo-german
Stemcore
Traxys
Arcelor mittal
CMM(consider metal marketing)
INDIA
Mukand
Jewels seamless limited
Chandan
Rathi ispat
Bhusan
Vardhman special
CHINA
Sino-trust corporation
Sindchem international corporation
Magotteaux
Tsingshan
Kovintrade
LATIN AMERICA
Pimasa
London metal company
INFRASTRUCTURE

RAW MATERIAL SUPPLY

Balasore alloy utilise chrome ore from captive mines. All raw materials transpor
ted up to the plant through road and rail.
MAN POWER
Balasore alloy enjoys an excellent blend of Techno-Commercial man power of 450 p
ersonnel coupled with cordial labour relationship.
FINISHED PRODUCT MOVEMENT
Packed in bags and transported by trucks up to port and debagged at port at the
time of shipment to avoid contamination, fines generation, spillage and shortage
of material.
QUALITY CONTROL

QUALITY ASSURANCE
Stringent Quality Assurance procedures are in place to ensure proper Raw Materia
l feeding, Process Control as well as quality of Finished Products.
Sophisticated Analytical equipment is used by experienced Chemists to ensure tha
t the desired quality standards of the customers are fulfilled.

Chemical: Balasore alloy has a well equipped laboratory with the modern faciliti
es for analysing the raw materials and the finished goods.
It carries out the analysis of chromium and silicon by wet method as per is 1559
-1961. Balasore alloys test method are standardised by analyzing the standard sa
mple like Japanese, euro & bsc. It uses leco-cs-300 for determination of carbon
and sulphur by calibrating with standard sample .it determines phosphorous by we
t method partially and by uv/vis spectrometer with colour developing (phosphomol
ybdate complex) by comparing standard sample. Balasore alloy uses aas-3110 for d
etermining rare elements. it has hollow cathode lamps for specific element. The
instrument is is celebrated by using standard sample.
Physical: At the time of handling the material to required size – both undersize
and oversize are tested using suitable screen and weighing scale. Further at th
e time of packing size fractions are tested at random.
Mining: Balasore alloy acquired about 100 hectares of chrome ore mines in Sukind
a valley in the state of Orissa. Mining operations have resulted in company’s se
lf sufficiency in meeting entire chrome ore requirement to produce Ferro chrome
on sustained basis.
FINANCE AND ACCOUNTING SECTION
Finance and accounting both play an important role in any business organisationa
l setup. The main function of any finance and accounting of an organisation are
funds management, cost monitoring, cost reduction and financial appraisal.
Money is a very scarce resource & is the most sought after commodity because all
of the transaction of the human society is settled in term of money. Money & fi
nance are of not one & the same things. Money store in vaults, or kept in shape
of gold bars, or an ornament is not finance. Money is a static value expressed
in currency of the country, where as, finance is an expression of dynamic functi
on of money. Depending upon the requirements and close monitoring of expenditure
Balasore alloy has formed the following section for smooth running of the finan
ce and accounts department and to maintain the liability position of the company
.
a) Bills payable section
b) Payroll section
c) Provident fund section
d) Cash office section
e) Finance section
f) Material section
g) Costing section
h) Bills receivable section
i) Book-keeping section

3.RESEARCH METHODOLOGY
3.1 REVIEW OF LITERATURE
This study is based on both secondary and primary data. While secondary data was
collected from the company annual reports, websites and various journals availa
ble through library work.
These are as follows websites are as follows
1. www.balasorealloy.com
2. www.outokumpu.com
3. D:\alloy\inventory\Inventory Accuracy article - white paper.mht
4. D:\alloy\inventory\The Aisle Width Decision Wide Aisles, Narrow Aisles (
NA), and Very Narrow Aisles (VNA).mht
5. D:\alloy\inventory\How effective is your Lift Truck Safety program.mht
LIST OF BOOKS
1. Inventory management (s. Chandra)
2. Production and operation management (S.N CHARY) TATA McGRAW HILL
3. FINANCIAL MANAGEMENT (I M PANDEY)VIKAS PUBLIGHING HOUSE PVT.LTD
4. MANAGEMENT ACCOUNTING (Shashi K. Gupta & R.K. Sharma) KALYANI PUBLISHERS
The primary data was collected by taking personal interviews as well as discussi
ons with senior and middle level executives. The researcher had also visited the
factory to collect information through personal observations.
3.2 Methodology and Data Base
After making a review the available literature and setting objectives in the pre
ceding paragraphs, an attempt is made to crystallize the whole work by way of ma
king a blue-print of the study. As such the research structure is designed as fo
llows:
The present piece of research work is analytical and explorative in nature. The
purpose of this research is to contribute towards a very important aspect of fin
ancial management known as inventory management with reference to Balasore Alloy
s Limited operating in the Ferro alloys sector.
 3. 3Period of the study
The study covers a four-year period starting from 2004-05 to 2007-08. The period
of study was restricted due to paucity of time
3.4Data Set
This study is based on both secondary and primary data. While secondary data was
collected from the company annual reports, websites and various journals availa
ble through library work; the primary data was collected by taking personal inte
rviews as well as discussions with senior and middle level executives. The resea
rcher had also visited the factory to collect information through personal obser
vations.
3.5Tools of Analysis
The collected data being tabulated was analyzed and interpreted with the help of
different financial ratios, percentage, average, trend analysis, and correlatio
n.

4. VIEW TO INVENTORY MANAGEMENT

4.1 INTRODUCTION
Inventories constitute the most significant part of current assets of a large
majority of companies in India. On an average, inventories are approximately 60%
of current asset in public limited companies in India. Because of the large siz
e of the inventories maintained by firm, a considerable amount of funds is requi
red to be committed for them. It is, therefore, absolutely imperative to manage
inventory efficiently and effectively in order to avoid unnecessary investment.
A firm neglecting the management of inventories will be jeopardising its long ru
n profitability and may fail ultimately. It is possible for the company to reduc
e its level of inventories to a considerable degree, e.g., 10 to 20 percent, wit
hout any adverse effect on production and sales, by using any simple inventory p
lanning and control techniques. The reduction of excessive inventories carries a
favourable impact on a company’s profitability.
4.2 What is inventory?
Inventories are resources of any kind having an economic value. An inv
entory consists of raw material, finished goods, work-in-progress, consumable an
d stores. Thus inventory control is all about planning and devising procedures t
o maintain an optimal level of these resources. 4.3What is inventory management?
Inventory management is primarily about specifying the size and placement o
f the stocked goods. Inventory management is required at different locations wit
hin a facility or within multiple locations of a supply network to protect the r
egular and planned course of production against the random disturbance of runnin
g out of materials or goods. The scope of inventory management also concerns the
fine lines between replenishment lead time, carrying costs of inventory, asset
management, inventory forecasting, inventory valuation, inventory visibility, fu
ture inventory price forecasting, physical inventory, available physical space f
or inventory, quality management, replenishment, returns and defective goods
and demand forecasting.

4.4Definition of inventory management

• Involves a retailer seeking to acquire and maintain a proper merchandise
assortment while ordering, shipping, handling, and related costs are kept in ch
eck.
• Systems and processes that identify inventory requirements, set targets,
provide replenishment techniques and report actual and projected inventory stat
us.
• Handles all functions related to the tracking and management of material
. This would include the monitoring of material moved into and out of stockroom
locations and the reconciling of the inventory balances. Also may include ABC an
alysis, lot tracking, cycle counting support etc.
• Management of the inventories, 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.
In business management, inventory consists of a list of goods and materials held
available in stock.
4.5 Need for inventory
Primarily inventory is held for transaction purpose.
In the field of production, an enterprise cannot ensure uninterrupted pr
oduction unless it maintains an adequate inventory for materials.
Inventory is also held as a precaution against a contingency for any inc
rease in lead time or consumption rate.
It largely guards against apprehensions of changes in price
4.6 Benefits:
4.6.1• Help reduce purchasing and inventory costs.
Connect inventory control, purchasing, and sales order processing with demand pl
anning and help reduce costs, improve cash flow, and help ensure that you have t
he right stock available when you need it.
4.6.2• Gain visibility into inventory processes.
Effectively balance availability with demand and track items and their possible
expiration dates throughout the supply chain to help minimize on-hand inventory
, optimize replenishment, and increase warehouse efficiency.
4.6.3• Improve customer satisfaction.
Make more accurate order promises and intelligent last-minute exceptions with ac
cess to up-to-date inventory information. Respond quickly and knowledgably to cu
stomer queries for improved customer service.
4.6.4• Reduce time to market.
With integrated order, inventory, and distribution processes, as well as item tr
acking capabilities, your business can reduce manual data entry and get your goo
ds to market fast.

4.7 FEATURES:
4.7.1 Inventory costing- Understand item costs throughout your warehouse and
production processes, including inventory, work-in-process (WIP), and cost of g
oods sold (COGS), to help efficiently manage sales and purchase prices and line
discounts with customers and vendors. Break down costs according to categories s
uch as materials, capacity, subcontracting, and overhead.
4.7.2 Automated Data Collection System (ADCS)
Help increase the accuracy and efficiency of your warehouse management—picking a
nd putting away of items, physical inventory counts, and moving items from bin t
o bin—with ADCS.
4.7.3 Radio frequency identification (RFID) enablement
Comply more easily with customer or supply chain mandates for RFID.
4.7.4 Order processing Provide customers with accurate item availability and del
iver on time with support for available-to-promise (ATP) and capable-to-promise
(CTP) insight.
4.7.5 Returns management Process returned inventory and account for additional c
osts. Automatically organize credit memos, replacement goods, returns to vendors
, and partial or combined return of shipments or receipts. Exact cost reversal h
elps increase inventory accuracy.
4.7.6 Item tracking Trace lot or serial numbers to quickly determine where items
were purchased, processed, or sold. Help eliminate waste due to expiration of g
oods with support for first expired/first out (FEFO) handling.
4.7.7 Item substitution Offer customers alternative items when those they want a
re out of stock, or if the alternatives can be provided less expensively with a
higher profit margin.
4.7.8 Item cross-references Identify what your customers want by cross-referenci
ng any customer code, internal code, or vendor code.
4.7.9 Internal pick/put-away Pick or put away items and debit or credit inventor
y records independently of purchase receipts, sales, or other source documents t
o help maintain accurate inventory records even when you access items for testin
g, display purposes, or other internal or operational needs.
4.7.10 Multiple locations and responsibility centres
Provide customers who request non-stock items with immediate quotes. Automatical
ly create non-stock items and process them in the same way you process stock ite
ms.
4.7.11 Location transfers Manage items individually per location. By grouping it
ems into stock keeping units, items can be described and managed individually pe
r location—including replenishment methods, safety stock, and costs.
4.7.12 Stock keeping units Handle inventory across multiple locations from one d
atabase to gain a complete, real-time business overview and create manageable co
st and profit centres.
4.7.13 Warehouse management system Help reduce costs through effective warehouse
processes such as directed pick and put-away and automatic bin replenishment.
4.7.14 Cycle counting Determine the counting frequency per item or stock keeping
unit to help increase inventory accuracy and meet shipping deadlines.
4.7.15 Business notifications Generate e-mail messages to alert your people, sup
pliers, or partners to changes in critical inventory levels, order status, or re
plenishment needs.
Purpose of Inventory Management
4.8 Inventory control
Inventory control is concerned with minimizing the total cost of inventory. In t
he U.K. the term often used is stock control. The three main factors in inventor
y control decision making process are:
• The cost of holding the stock (e.g., based on the interest rate).
• The cost of placing an order (e.g., for raw material stocks) or the set-
up cost of production.
• The cost of shortage, i.e., what is lost if the stock is insufficient to
meet all demand.
The third element is the most difficult to measure and is often handled by estab
lishing a "service level" policy, e. g, certain percentage of demand will be met
from stock without delay.
4.8.1The ABC Classification The ABC classification system is to grouping items a
ccording to annual sales volume, in an attempt to identify the small number of i
tems that will account for most of the sales volume and that are the most import
ant ones to control for effective inventory management.
4.8.2 Reorder Point: The inventory level R in which an order is placed where R =
D.L, D = demand rate (demand rate period (day, week, etc), and L = lead time.
4.8.3 Safety Stock: Remaining inventory between the times that an order is place
d and when new stock is received. If there are not enough inventories then a sho
rtage may occur.
Safety stock is a hedge against running out of inventory. It is an extra invento
ry to take care on unexpected events. It is often called buffer stock. The absen
ce of inventory is called a shortage.
Select quantity with the lowest Total Cost, including the cost of the it
ems purchased.
4.9 Some concepts About Inventories
Inventories considerably influence the profitability and liquidity of
the industrial units. It is therefore essential to have a clear-cut idea about t
he various aspects of inventories, which are as follows:
1. Inventory – a major cost component
2. Material – a fertile area for more research
3. Material – a limiting factor
4. Lead time influences on inventories
5. Productivity of inventories
4.9.1 INVENTORY – A MAJOR COST COMPONENT
An analysis of sales of some industrial undertakings during 2000-2001 gave the f
ollowing information:
Direct materials 60%
Labour 15%
Overheads and profit 25%
Total 100%
The above data shows that direct materials and indirect materials formin
g part of the overhead cost, constituting inventories, account for a large perce
ntage of the total cost. Inventories, therefore, offer the most important and fr
uitful area of cost reduction and increased profits.
The inventory problem is therefore one of balancing various costs so tha
t the total cost is minimized. These costs are:
(a) Cost of ordering
(b) Cost of holding or carrying inventory
(c) Under stocking cost
(d) Overstocking cost
The cost of ordering opposes the cost of carrying while the under stocking cost
opposes the overstocking cost. If these costs operate in the same direction, ins
tead of behaving in opposition, there will be no inventory problem. The cost of
ordering and the cost of carrying enable us to optimize on the number of orders
and the quantity of inventory to be ordered. The under stocking and overstocking
costs help an industrial unit to determine the service level that has to be mai
ntained by the inventory.
4.9.1.a. Cost of Ordering
An organization can meet its need for materials only after fulfilling certain ac
tivities. These activities consume executive and non-executive time, stationery
and communication charges, thus giving rise to the ordering cost. The cost of an
imported order is much higher than that of a cash purchase from the market. Thi
s is on account of the variation in the level of activities for different ranges
of items.
The ordering cost consists of several costs attributable to the followin
g factors.
1. Stationery, typing and dispatching of orders and issuance of reminders
2. Advertisements, tender forms, tender opening formalities, etc.
3. Follow-up costs. These constitute the travel costs, telephone and postal
bills.
4. Costs incurred by the goods received bay, inspection and handling
5. Rent and depreciation on the space and the equipment utilized by the con
cerned purchasing personnel
6. Salaries and all statutory payments to the purchasing personnel
7. Cost of source developments
8. Cost of entertaining suppliers
Thus the average ordering cost is:
Total costs incurred on all these heads during a year
Number of orders in that year

4.9.1.b. Cost of Holding or Carrying Inventory

One of the motivating factors to control inventory arises on account of its carr
ying cost. It comes to around 30 per cent of the total inventory cost in most of
the industrial undertakings, i.e. if the annual average inventory is valued at
Rs 100 lakh, then it will cost the company Rs 30 lakh to carry it.
Inventory carrying cost is usually expressed as a percentage of the aver
age investment in inventory. Capital cost, cost of storage and handling and dete
rioration and obsolescence costs are its main components.
4.9.1.c.Under stocking Cost
It is penalty that an undertaking has to pay on account of its inability to meet
the demand in time. The quantum of penalty depends on the nature of the demand.
In the cases where the demand is from a customer of the retail establishment, t
he shortage condition may result in a cost relatively small compared with the it
em cost. If, on the contrary, the demand arises in a manufacturing activity, the
penalty cost for shortage may be extremely high relative to the cost of the ite
m. This is because the entire manufacturing activity would necessarily have to w
ait for the item which is out of stock.
4.9.1.d. Overstocking cost
The overstocking cost arises on account of the opportunity lost when disinvestme
nt in inventories is postponed for a longer period than is necessary. In the cas
e of items which will ultimately be used, this cost be equated with the carrying
cost. For items which cannot be used after a certain period, this cost will be
the difference between the cost of the item and its salvage value.
As far as an organization is concerned, the situation of both overstocki
ng and under stocking is not at all desirable. Both shortages and surpluses prov
e costly and need to be balanced – one against the other. Arriving at the happy
medium between too much and too little is the essence of inventory management.
4.10 Tools and Techniques of Inventory Management
4.10.1 INTRODUCTION
The basic problem of inventory management is to strike a balance between the ope
rating efficiency and the cost of investment and other costs associated with lar
ge inventories, with the object of keeping the basic conflicts at the minimum wh
ile optimizing the inventory holding. The decisions as to which item to manufact
ure and when to keep inventories in balance, require the application of a wide r
ange of techniques ranging from simple graphical methods to more sophisticated a
nd complex quantitative techniques. Many of these techniques employ concepts and
tools of mathematics and statistics and make use of various control theories fr
om engineering and other fields. They are primarily aimed at helping to make bet
ter decisions and following a sound policy.
4.10.2INVENTORY MANAGEMENT TECHNIQUES
The various techniques applied for inventory management are as follows:
1. Selective inventory control
2. Setting of various stock levels
3. Systems of inventory control
4. Economic ordering quantity (EOQ)
5. Re-order point and safety stock
6. Application of computers to inventory management
7. Just-in-time inventory management
8. Materials requirement planning (MRP)
9. Inventory audit.

Selective Inventory Control

Effective inventory management requires the understanding and knowledge of the n
ature of inventories and to gain this under standing the following analysis and
classification techniques are available.
1. ABC analysis
2. HML analysis
3. XYZ analysis
4. VED analysis
5. FSN analysis
6. SDE analysis
7. GOLF analysis
8. SOS analysis
The motive behind these analyses and their classifications is to tackle the impo
rtant aspects more rigorously. Moreover, and equally critical analysis of all it
ems will be very expensive and will have a diffused effect regardless of priorit
ies. Table 5.1 shows the available classifications, their bases and their uses.
TABLE 5.1 Classifications of inventories
Technique Basis Main use
ABC
(Always Better Control)
HML
(High, Medium, Low)
XYZ
VED
(Vital, Essential,
Desirable)
FSN
(Fast moving, Slow moving Non-moving)
SDE
(Scarce, Difficult, Easy to obtain) Value of
Conception

Unit price of the material

Value of the items in storage
Criticality of the component

Consumption pattern of the components

Problems faced in procurement To control raw material, components and work-in

–progress inventories in the normal course of business
Mainly to control purchases

To review the inventories and their uses at scheduled intervals

To determine the stocking levels of spare parts

To control obsolescence

Lead time analysis and purchasing strategies

TABLE Classification of inventories (Contd.)

Technique Basis
Main use
GOLF (Government Ordinary, Local, Foreign source)
SOS (Seasonal, Off-Seasonal) Source of the material

Nature of supplies Procurement strategies

Procurement/holding strategies for seasonal items like agricultural products.

ABC analysis
The method of ABC classification for managing inventories has been currently ado
pted in most of the industrial units. Inventories of undertakings are classified
into various categories on the basis of their importance, namely their value an
d frequency of replenishment during a period. One category called group ‘A’ item
s, consists of only a small percentage of the total items handled but has a comb
ined value that constitutes a major or large portion of a total stock holding of
the concern. The second category consisting of group ‘B’ items is relatively le
ss important. The third category consisting of ‘C’ items is of least importance,
i.e. the group consists of very large number of items, the value of which is no
t very high.
The ABC analysis is a rational approach for determining the degree of control th
at should be exercised on each item in inventories. Obviously, the ‘A’ class ite
ms should be subjected to a strict management control under either continuous re
view or periodic review with short review cycles. The ‘C’ class items require li
ttle attention and can be relegated down the line for periodic review say, just
once a year. The control over ’B’ class items should be somewhere in between.
The ABC analysis follows the general principles of pare to (Wilfredo Pareto, Ita
ly, 1896) that “in any series of elements to be controlled, a selected small fra
ction in terms of the number of elements would always account for a large fracti
on in terms of effect”.
HML analysis
While the ABC classification is based on the annual consumption value of an item
, the basic criterion for HML classification is the unit value of an item. In th
is respect the HML classification is district from the ABC classification. On th
e basis of the unit value of an item, the materials arte further classified as h
igh-value materials, medium-value materials and low – value materials. In HML an
alysis, the items should be listed out in descending order of unit value and the
management may fix limits for determining the three categories. .
XYZ analysis
The XYZ analysis is based on the value of the inventory stored. The X items are
those whose values are high while the Z is those whose inventory values are low.
And the Y items are those which have moderate inventory stocks. This analysis,
therefore, helps to identify those few items which account for the large amount
of money locked up in stock and take steps for their liquidation/reduction.
Usually the XYZ analysis is made in conjunction with ABC analysis or HML analysi
s. The XYZ analysis can be combined with the ABC analysis as given below.

Class of items
A B
C
X

Z
 Efforts to be made for reducing stocks to the Z category.
Efforts to be made for converting stocks to the Z category

-- Efforts to be made for converting stocks to the Y category.

--

Stock levels may be reviewed twice a year Steps to be taken for disposing
of the surplus stocks.

Control may be further tightened.

--

VED analysis
The VED analysis popularly known as Vital, Essential and Desirable analysis is u
sed primarily for the control of spare parts. On the basis of the critical natur
e or relative importance, spare parts may be classified into three categories, n
amely vital (V), ESSENTIAL (e) and desirable (D). The vital items have extreme c
riticality, the desirable items are not critical and the essential items fall so
mewhere in between the vital and desirable categories.
FSN analysis
When analysis is carried out on the basis of the rate of movement of materials i
n the stores or on the basis of consumption pattern of components, it is known a
s the FSN analysis. The three letters stand for fast-moving, slow –moving and no
n-moving. This classification comes in very handy when it is necessary to contro
l obsolescence. The demand for fast-moving items is generally high. Thus special
care should be taken in respect of these items, otherwise the production may be
interrupted due to the shortage of such materials. Inventories which have only
a low turnover are brought under the category of slow moving items. These items
are not issued at frequent intervals.
SDE analysis
The SED analysis is generally done on the basis of the problems faced in procure
ment of an item. These letters stand for Scarce items, those which are Difficult
to obtain and those which are fairly Easy to obtain.

GOLF analysis
The GOLF analysis is carried out mainly on the basis of the source of material.
GOLF stands for Government, Ordinary, Local, and Foreign. There are many importe
d items which are channelized through the State Trading Corporation, Metals Trad
ing Corporation, etc.
SOS analysis
The SOS analysis is making on the basis of the nature of supplies. As such it cl
assifies the items into two groups S (Seasonal) and OS (Off Seasonal). The analy
sis identifies items into (i) seasonal, but available only for a limited period,
(ii) seasonal, but available throughout the year; and (iii) off-seasonal items
whose quantity is determined on different considerations.
4.10.3 Systems of Inventory Control are:
(a) Perpetual inventory (Automatic inventory) system
(b) Double bin system
.1Perpetual inventory system
The control of inventories while in storage is affected through what is known as
the perpetual inventory. Thus the two main functions of the perpetual inventory
are recording store receipts and issues so as to determine at any time the stoc
k in hand, in terms of quantity or value, or both, without the need for a physic
al count of the stock.
Continuous verification of the physical stock with reference to the balance reco
rded in the stores records, at any frequency, as convenient to the management.

The perpetual inventory system consists of:

(i) Bin cards
(ii) Stores ledger
(iii) Continuous stock taking
1.1Bin cards
Bin cards are printed cards used for accounting the stock of material, in store
s. For every item of materials, separate bin cards are kept.
The details regarding the material such as the name of the material, the part nu
mber, the date of receipt ad issue, the reference number, the name of the suppli
er, the quantity received and issued, the value of the material,, the rate the b
alance quantity, etc. are recorder in the bin cards. The bin cards are kept in t
he bin serially according to part number of the component. At the end of the fin
ancial year the balance quantity in the bin cards is taken as the closing stock,
and it is valued at the rates noted in the bin cards.
Stores ledger- Like bin cards, a store ledger is maintained to record all the re
ceipts and issues in respect of materials with the difference that along with th
e quantities, the values are entered in the receipt, issue and balance columns.
Additional information as noted in the bin cards regarding the quantity on order
and the quantity reserved, together with their values may also be recorded in t
he stores ledger.
Continuous stock taking- The perpetual inventory system is not complete without
a systematic procedure for physical verification of the stores. The bin cards an
d the stores ledger record the balances, by but their correctness can be verifie
d by means of physical verification only.
There is a proper procedure for the physical verification of the stocks in most
of the industrial units. The excesses/shortages found in the verification are re
ported for action so as to reconcile the differences in stock.
Double bin system
The double bin system is a recently developed technique in certain industries in
respect of low consumption value items, i.e. items belonging to class ‘C’ in AB
C analysis. This system separates the stock of each item into two bins, one to s
tore the quantity equal to the minimum quantity and the other to store the remai
ning quantity. There are instructions not to use the quantity in the smaller por
tion as long as there is stock in the other portion. As soon as it becomes neces
sary to use the quantity marked as minimum, it is a signal to place new orders.
When the fresh order is received, the minimum quantity is segregated again.
The double bin system is ideal for items for which demand and lead time are fair
ly regular and established. It also avoids the necessity of taking physical inve
ntories as in the case of the perpetual inventory system. Since the storekeeper
k knows automatically when to initiate the replenishment action, this being the
time when he is forced to dip his hand into the minimum stock bin.
In the fixed order quantity or the double bin system, there is a built-in safety
provision in that the replenishment interval between two successive orders vari
es and hence adequate arrangements are required to take care of variations in th
e rate of demand. If the usage rate rises, the re-order level is reached earlier
than expected and hence the replenishment interval is shortened. On the other h
and, if the rate of usage goes down, the replenishment interval is lengthened. I
n either case the safety stock has to provide protection against variations in d
emand and lead time.

4.10.5 Economic Ordering Quantity (EOQ)

In the fixed order quantity system, the reorder quantity is the economic order q
uantity which is fixed in such a manner as would minimize the total variable cos
t of managing the inventory. The various components of this cost are as follows:
(a) Procurement cost (this includes administrative and provisioning costs)
(b) Storage cost (this includes carrying and handling costs, etc.)
(c) Stock out cost (this may be laid down by the management according to its
policy)

The appropriate term for economic order quantity appears to be economic lot siz
e , meaning thereby the quantity that should be accepted per occasion so as to m
ake the inventory procurement cost equal to the inventory carrying cost.
A company is said to be on a point of minimum cost wl1en its ordering cost is ju
st equal to the carrying cost. In other words, a company should neither store ex
cess quantity of material nor should it frequently place too many orders for the
same material. When the unit price is same regardless of the quantity purchased
, the following formula is used. Then it is found that the order quantity varies
in proportion to the square root of the demand. There are indices given on scie
ntific basis to help calculate the order quantity, keeping in view the position
cost of inventories, namely the set-up costs, the ordering costs and the carryin
g costs. This is known as Economic Order Quantity (EOQ) or Square Root Formula,
developed by.R.B. Wilson around the 1930s, which may be modified according to th
e individual requirement.
Where
Q=annual requirement in units
A=unit cost of pacing an order
C = annual carrying cost
D=optimum lot quantity or batch size.The formula for EOQ can be verified with re
ference to the following assumptions:
Suppose the cost of each article is one rupee. The annual demand is 40,000 units
. The cost of carrying inventory is 20 percent. The cost per order is Rs 10. Usi
ng the given formula, we have

=2000 units
Here the economic order quantity is 2000 units. Both the ordering cost and the a
verage inventory carrying cost are the same, i.e. Rs 200 each as shown in Table
5.4 when the economic order quantity is 2000 units. Moreover when both the order
ing cost and the inventory carrying cost are the same, the number of orders to b
e placed in a year is 20. thus the total cost becomes Rs 400 (i.e. ordering co
st Rs 200 + carrying cost Rs 200), which is the minimum (see Table 5.4).
The graphical presentation of the behavior f carrying and ordering costs is show
n in Figure 5.4 in the figure, EOQ units and costs have been plotted along x-axi
s and y-axis respectively. The inventory carrying cost line intersects the order
ing cost line at a point P where both the carrying cost and the ordering cost ar
e equal to Rs 200. thus the economic order quantity (EOQ) is 2000 units as shown
at the point Q in Figure 5.4.
Re-order Point and safety Stock
The computation of the re-order point is expressed in terms of the number of uni
ts used per day., multiplied by the lead time in days with adjustments to provid
e safety stock as will. Thus the formula to be followed is:
Re-order point = Average daily usage x Lead time in days + Safety stock
The various problems identified to be tackled in most of the industrial units in
India for the implementation of JIT are:
(a) Reduction of set-up times
(b) Kanban system
(c) Delivery (from vendor) of exact quantity as per exact schedule
(d) Preventive maintenance
(e) Group technology.
All these problems can be tackled only with a very serious planned effort. Worke
rs motivation and literacy need to be enhanced. These are important for reducin
g the set-up time and introducing the Kanban systems. Moreover, the involvement
and commitment of top management are needed to bring a drastic change in the wor
king environment and change of attitude in people. These changes are difficult b
ut possible. As there are wide differences in the operating environments of Japa
nese and Indian industries, the work environments in the industrial units in Ind
ia need to be improved before the implementation of JIT.

Materials Requirement Planning (MRP)

Most of the blue chip companies in India faced an acute cash crunch situation du
ring some periods of 1990s. Indian companies were, therefore, compelled to bring
efficiency in working capital management, which in turn resulted in better rece
ivables and inventory management. Table 5.6 shows the capital sensitivity vis-a-
vis profitability of some leading Indian companies, related to a period in 1990s
.
The American industries have been successful, simply because of the implementati
on of new management systems like MRP and JIT. The efficiency attained by the va
rious American industries after the successful introduction of MRP is clear from
Table 5.7.
The post-MRP achievements by the American firms are really worth emulating. In f
act, the US and other industrially developed countries have set a way for the re
st of the world to follow. The changes taking place on the Indian business scene
are also forcing the Indian industries to make full use of the MRP and other co
st effective systems.

The MRP system

Materials requirement planning is a special technique used to plan the requireme
nts of materials for production. In other words, it is a
TABLE 5.6 Working capital sensitivity
Company 10% of working capital
(Rs in crore) Increase in profits due to reduction of 10% in working capital
(Rs in crore)
Reliance
ACC
Grasim MLM
Telco
Tisco
Bajaj Auto
BBLIL
HLL
ITC
L&T
Ashok Leyland
Century Textile
GSFC
Nalco
Videcon Int
BSES 39
42
163
76.8
160.4
209.3
105.2
30.2
40.3
115.1
143.1
117.3
74.2
63.0
60.3
84.1
52.0
78
8.4
32.6
15.4
32.1
41.9
21.1
6.1
8.1
23.1
28.6
23.5
14.8
12.6
12.1
16.8
10.4
Source: The Economic Times, Tuesday, 15 March, 1997, P.14.
TABLE 5.7A VERAGE OPERATING PERFORMANCE OF MRP (300 companies) in the USA
Operation Pre-MRP Post-MRP Future estimate
Inventory turnover ratio
Meeting delivery promises(%)
Inventory costs (%)
Number of expeditors
Delivery lead times (days) 4.5
73.9
52.3
10.8
55.6 15.2
88.6
44.0
5.1
41.7 22.0
99.6
39.2
2.1
31.8
Source: “Japanese Manufacturing Lessons for India” ASCI Journal of Management, V
ol. 19, No. 2 (March 19900), p. 117.
System of planning and scheduling the time-phased material requirements for prod
uction operations. It is geared towards meeting the end-item inputs and it updat
es the material requirements on a regular basis. The MRP system combines invento
ry control with production planning and works backwards from planned quantities
(Master Production Schedule) for determining the material requirements. Thus the
unique feature of the system is its continuous adjustment of material requireme
nts with the changes in production schedule.
The MRP system is not based on the averaging process as the EOQ model is, it act
ually determines how much is needed and when needed on the basis of a master pro
duction schedule.
MRP and EOQ Models
Material requirement planning is a simple system of calculating (arithmetically)
the requirement of the inputs at different points of time based on the plan or
schedule for the production of the finished goods, Firms usually deal with bunch
ed requirement of materials when they formulate plans to make assemblies out of
various components. Thus the requirement of raw materials depends on the require
ment of production of the finished product. However, it would be better if the f
irms know the production plan/schedule for the assembly of the finished product
so as to arrange all the raw materials that go into the finished products. This
is precisely what the materials requirement planning (MRP) attempts to do.- Unde
r the MRP system, the material requirements of inputs are derived on the basis o
f requirements or plan for production of the final products, It means that there
are no probabilities involved anywhere. Such a system will work well for materi
als that have no direct demand of their own, but have only a derived demand. The
se materials are called dependent demand items. On the contrary, as the finished
assembly has a direct demand of its own, it is known as an independent demand i
tem. Let us review the economic order quantity (EOQ) models. All of them assume
a uniform (or more or less uniform) pattern of consumption of materials, The EOQ
model answers the questions such as how much and when for optimal cost cons
ideration on the basis of average consumption. HovJever, some basic difficulty a
rises in some peculiar production situations on account of the averaging of the
consumption of materials. When a company deals with five different varieties of
soaps, five varieties of shampoos, another five of cleaning powders, the require
ment for many raw materials over time for these formulations does not fall in th
e smooth average consumption pattern. Figure 5.6 shows that in case the material
is stocked in accordance with EOQ a firm may have excess material in inventory
during the months of March, May- and September when

The firm does not need the material at all. Moreover, thefirm falls terribly sho
rt of the required material during the months of FEBRUARY, April and August. In
all respects, the EOQ model tries to answer the questions of ‘how much?’ and ‘wh
en to stock’. But this model fails miserably when encountered with an erratic re
quirement pattern for the material. Thus in many industries such erratic require
ment patterns are common, especially for dependent items.

CONCLUSION
Most of the industrial units in India have adopted certain efficient techniques
like ABC analysis, and perpetual inventory for controlling their inventories. Bu
t with the advent of electronic data processing, better selective inventory cont
rol measures are available, the adoption of which will lead to better control of
inventory at a reduced amount of investment. The just –in-time inventory contro
l technique can be implemented only after improving the work environment. The in
dustrial units do not strictly adhere to the control measures such as EOQ and fi
xing of material stock levels. So it results in high inventory costs.

4.11 INVENTORY RATIO

The impact of various inventory management techniques such as ABC analysis, perp
etual inventory, etc adopted in most of the industrial undertakings is not very
clear. An analysis of inventory ratio will clarify this point. These ratios prov
ide guidelines for planning and controlling of inventories of industrial units.
They also provide relative or comparative information about the performance of t
he inventory function.
The manufacturing firms generally have four kinds of inventories.
a) Stores and spars
b) Raw materials
c) Work-in-progress
d) Finished goods
Thus ratios useful to inventory management are:
1. inventory turnover ratio
2. store and spares inventory holding period
3. conversion period of work in progress
4. inventory as per percentage of current asset
5. inventory as percentage of total asset
6. inventory in term of months of production
7. number in days stock in hand ratio
8. return per rupee invested ratio
4.11.1 INVENTORY TURNOVER RATIO (ITR)
It is an important parameter used to evaluate the performance of the inventory f
unction, and expressed as:
Here the average stock indicates the yearly average (average of opening and clos
ing inventory), where the numerator of the ratio, i.e. the cost of sales means s
ale minus gross profit. Since inventories are valued in term of their cost, the
cost of sales rather then sales has been used in computing the turnover ratio.
The inventory turn over shows how quickly the inventory is turning into receivab
le/cash through sale. This ratio indicates the number of times the stock is turn
ed over on the average and must inventories is reflected in the number of time t
he firm’s average inventory is turned over during the year.
Inventory turnover has a direct relationship with the profit-earning capacity of
the firm. Generally, the higher the rate of inventory turnover, the larger the
amount of profit, the smaller the amount of work-in-capital tied up with invento
ry, and the more current the stock of merchandise. Each turn over adds to the vo
lume of profit. A low inventory turnover implies excessive inventory levels comp
ared to those warranted by production and sales activities, or a slow moving, or
obsolete inventory. A high level of sluggish inventory amount to unnecessary ti
e-up of funds is impairment of profits and increased cost. If the obsolete inven
tories have to be written off, this will adversely affect the working capital. A
nd liquidity position of the firm. Thus a higher turnover is better then a lower
turnover.
Ideally, the inventory should be 12 and 20 percent of the sales value. As such,
inventory turnover ratio should be within the range of 5.0-8.3, while it is also
opined that the same could be 9 as well. It is, therefore, recommended that the
inventory turnover ratio should be between 5 and 9.
Against the above background the inventory turnover ratio of the firm in India i
s an average of 1.0only. This situation suggests that inventory is most slow mov
ing component of current asset. Thus, most of the firm in India keep excessive s
tock of inventory. Excessive stocks are usually unproductive and represent an in
vestment with a low or zero rate of return.
Table 6.1 gives an insight into an average inventory turnover ratio of Japanese,
American and Indian industries in order to highlight the potential available fo
r cost reduction in Indian industries on account of inventories.
A low inventory turnover ratio implies excessive inventory levels compared to th
ose warranted by production and sales activities or indicates slow-moving invent
ories. A high level of sluggish inventories amounts to unnecessary tie-up of fun
ds which in turn result in more cost and finally, less profitability. An invento
ry turnover ratio of 45.5 by Japanese companies is commendable by any standard.
It means that the Japanese industries carry an average Inventory for 8 days at a
ny point of time while the Indian industries carry an average inventory for 48 d
ays. The American industries have also been able to reduce investment in invento
ries to a large extent.
TABLE inventory turn over ratio of Japanese, U.S and India automobile industrie
s
year Japan U.S
India
1950 3 3 1
1960 8 10.5 2
1975 21 10.5 3.7
1985 38 12 4.2
1990 44 20.3 7.5
1992 45.5 21 7.5
Source: consolidated from the data given in Chartered Finance Analyst (Hydrabad)
ASCI Journal of management and management accountant (1993), kolkata.

Of course, the inventory turnover ratio alone should not serve as the sole deter
minant of the liquidity of a firm’s inventories. More in-dept analysis, involvin
g a thorough item-by-item check on existing inventories, is necessary to fully a
ssess the liquidity of the inventory.
4.11.2 STORES AND SPARES INVENTORY HOLDING PERIOD
Stores and spares is a term which commonly covers all kinds of supplies necessar
y to keep the production equipments operating in order to turn out production to
the desired quantity and quality at the desire time. The lack of spares is ofte
n the one of the most serious bottlenecks in on interrupted production.
Stores and spares inventory constitute a large number of items, some of
them are most important and require longer period of time to procure while most
of them are not that important and require shorter periods of time to procure. I
n discriminate stocking of each and every item of stores and spares is not wise
because a huge amount of funds may unnecessarily get locked up in the component
of stores and spares. Thus the stock of components of stores and spares should b
e kept to a reasonable level.
Stores and spares inventory is the slowest moving among the four compone
nts of inventory. A close watch on the movement of this component of inventory a
nd its affective control can pay rich dividends to a firm. In most of the firms,
the stores and spares inventory occupies, on an average, about two-third of the
total inventory. Such huge amount of investment in the stores and spares .inven
tory affects both liquidity and profitability of firms.

Stores and spares inventory turnover

The suggested norm for the stores and spares inventory holding period should be
between three and six months. But in most of the firms, the stores and spares ho
lding period is above the suggested norms. Thus the inference that can be drawn
is that there is an over investment in stores and spares on account of poor inve
ntory management. Long lead time’s procedural delays in procurement and uncertai
nty about availability, particularly of imported items are the main reasons whic
h compel the firm to have more stocks of stores and spares. Moreover, heavy init
ial purchases at the time of procurement of new machineries and subsequent purch
ases without proper assignment of the requirement are also responsible for such
huge investment in stores and spares.
4.11.3 CONVERSION PERIOD OF WORK-IN-PROGRESS (WIP)
Work-in-progress inventories represent product that need more work before they b
ecome finished product for sale. They are semi manufactured products. The longer
the production cycles, the grater the volume of work-in-progress and vice-versa
. It is calculated by dividing the WPI inventory by the cost of production and t
hen multiplying the result by 365.
The suggested norm is that the work-in-progress conversion period should
be less then 15 days. But this period is abnormally high in most of the firms.
This situation is the result of week inventory management and hence is liable to
affect the profitability of the firms.
4.11.4 Inventory as a percentage of current asset
The share of inventory in the current assets indicates how much liabilit
y of a firm is locked up in inventory. Inventory is generally ness liquid then o
ther current asset. As such the inventory is the most non-liquid current asset.

Inventory as a percentage of current asset

The quality and liquidity of current asset are largely dependent on the
composition of current asset. The lower the percentage of inventory to the curre
nt assets is the greater the liquidity of current assets and vice-versa. Thus a
low ratio is greater then high ratio asset
In the most of the firm in India, inventory on an average, occupies abou
t 50% of the total current assets. Such a high ratio reveals that the quality an
d liquidity of current asset are very low in various firms.
4.11.5Inventory as a percentage of total assets
Inventory is an important element in the asset structure of an industria
l under taking. As such, its share in the asset structure and the proportion if
the funds invested in inventory for operational activities of the undertaking sh
ould be examined.

Inventory to total asset

Studies have suggested that the ratio of inventory to total asset should
be concentrated in the 16 to 30 percentage range. As against this norm, t
he average ratio in India is 54.4 percentages. Thus, inventory alone occupies mo
re then half of the total assets in most of the firms.
4.11.6 INVENTORY IN TERM OF MONTHS’ COST OF PRODUCTION
The main yardstick used to measure the accuracy of the inventory is the month’s
value of the usage. For the purpose, the aggregate inventory is converted in to
month’s value of production, the stores and spares inventory to their month’s co
nsumption and the worked-in-progress is assessed in term month’s cost of product
ion.
Investment in inventory in term of months’ value of production is ascert
ain as follows

Depreciation is excluded from the cost of production as depreciation doe

s not involve case outflows.
The Tariff commission of India has suggested that the inventory in publi
c sector enterprises should not exceed 4 to 6 months’ value of production. Again
st this background, it is found that most of the firms maintain a large quantity
of inventory and thus a considerable overstocking exist therein. Overstocking i
s due to huge investment in store and spares. The management of most of the firm
s fear that it may not get spares in time for repair and upkeep of machineries,
which situation is likely to disturb the production schedule. All these are the
main reason for heavy accumulation of inventories.
NUMBER OF DAYS STOCK-IN-HAND RATIO
Number of days in stock-in-hand ratio =

The ratio measures the efficiency in selling the goods. The smaller the
number of day’s stock-in-hand, the higher the efficiency in inventory management
.
4.11.7RETURN PER RUPEE INVESTED RATIO

Return per rupee invested ratio is given by

The ratio shows efficiency in management of inventory in term of profitability.

The higher this ratio is the better the management.
CONCLUSION
The inventory turnover ratio is an important parameter used to evaluate
the performance of inventory management techniques. It has a direct relationship
with the profit-earning capacity of a firm.
Inventory as a percentage of current asset, inventory as a percent of to
tal asset and inventory in term of months’ value of production, are all importan
t parameter that reflect the adequacy or otherwise of the inventory holdings.
5. DATA ANALYSIS
5.1 COMPARISON BETWEEN TOTAL ASSETS TO CURRENT ASSETS

YEAR TOTAL ASSET CURRENTASSET PERCENTAGE

2005-06 5068566335 1122682462 22.15%
2006-07 5190874943 1445536182 27.85%
2007-08 5971879681 2148380616 35.97%
According to this table from 2005 to 2006 total asset is 5068566335 and current
asset is 1122682462 which are 22.15% of total asset. From 2006 to 2007 total ass
et position is 5190874943 and current asset is 1445536182 which are 27.85% of to
tal asset. From 2005 to 2006 and from 2006 to 2007 current asset increases 5.7%.
From 2007 to 2008 total asset is 5971879681 and current asset is 2148380616 whi
ch are 35.97% of total asset. If we compare 2006 to 2007 b/s and 2007 to 2008 b/
s current asset increase 8.12%.
From this above table we can know that current asset is very lower fro
m total asset. Every year when total asset is increases current asset also incre
ases.

5.2 COMPARISION BETWEEN TOTAL ASSETS TO INVENTORY

YEAR TOTAL ASSET INVENTORY PERCENTAGE
2005-06 5068566335 625717065 12.35%
2006-07 5190874943 759536657 14.63%
2007-08 5971879681 1168153161 19.56%
Total asset is divided into two parts, Such as fixed asset and current asset. In
ventory is a part of current asset and total asset.
In Balasore alloy from 05 to 06 total assets is 5068566335 out of that inventory
is 625717065 which is 12.35% of total asset. From 06 to 07 total assets is 519
0874943 out of that inventory is 759536657 which is 14.63% of total asset. From
07to 08 total assets is 5971879681 out of that inventory is 1168153161 which is
19.56% of total asset.
In Balasore alloy total asset is always in increasing mode. As well as i
nventory is always in an increasing mode.
5.3COMPARISON BETWEEN CURRENT ASSETS TO INVENTORY
YEAR CURRENTASSET INVENTORY PERCENTAGE
2005-06 1122682462 625717065 55.73%
2006-07 1445536182 759536657 52.54%
2007-08 2148380616 1168153161 54.37%
Inventory is a part of current asset. In Balasore alloy from 05 to 06 c
urrent assets is 1122682462 out of that inventory is 625717065 which is 55.73% o
f current asset. From 06 to 07 current assets is 1445536182 out of that invento
ry is 759536656 which is 52.54% of current asset. From 07to 08 current assets is
2148380616 out of that inventory is 1168153161 which is 54.37% of current asset
.
The current asset portion of Balasore alloy is always in increasing way.
Similarly inventory is also in increase in an increasing mode. Inventory is abo
ve 50% of current asset.

5.4 Current Ratio

Table 5.6
Current Ratio
Particulars 2004 2005 2006 2007 2008
Total Current Assets 3415.69 6024.35 8818.80 12955.91 16983.90
Total Current Liabilities 5419.69 8029.35 10824.8 14962.91 18991.90
Current Ratio 0.63 0.75 0.81 0.87 0.89
The current ratio is used to evaluate the liquidity, or ability to meet short t
erm debts. High current ratios are needed for companies that have difficulty bor
rowing on short term notice. The generally acceptable current ratio is 2:1 and t
he minimum acceptable ratio is 1:1

Analysis
The table above gives an overall picture of ability of Balasore Alloys Limited t
o meet its short tem obligations. It is found that out of five years of our stu
dy, the company is unable to meet the standard current ratio. However, the over
all liquidity position is improving from 0.63 in the year 2004 to 0.89 in the ye
ar 2008 gradually.
Interpretation
As the company is unable to maintain the minimum acceptable norm (1:1) of curren
t ratio over the period of study, it can be said that the liquidity position is
unsatisfactory in Balasore Alloys Ltd.
5.5 Quick Ratio
Sometimes a company could be carrying heavy inventory as part of its current ass
ets, which might be obsolete or slow moving. Thus eliminating inventory from cur
rent assets and then doing the liquidity test is measured by this ratio. The rat
io is regarded as an acid test of liquidity for a company. It expresses the true
working capital relationship of its cash, accounts receivables, prepaids and
notes receivables available to meet the company s current obligations.
Table 5.7
Quick Ratio
Particulars 2004 2005 2006 2007 2008
Quick Assets 1794.41 2449.67 4003.41 6127.23 7837.49
Total Current Liabilities 5419.69 8029.35 10824.80 14962.91
18991.90
Quick Ratio 0.33 0.31 0.37 0.41 0.41

From the table it is clear that though the quick ratio position is developing fr
om 0.33 to 0.41 over the period of our study, but it is far from satisfactory. N
one of the year reaches normal standard of 1:1.

5.6 Inventory turnover ratio

The inventory turnover ratio measures the number of times a company sells its in
ventory during the year. A high inventory turnover ratio indicated that the prod
uct is selling well and vice-versa. It is calculated as follows:
The table shows that in the year 2004 the company’s Inventory turnover Ratio wa
s 6.75, but gradually it deteriorated and reached at 2.46 in the year 2008. This
adverse trend of ITR may be attributed to the accumulation of inventory and slo
w sale of products due to global recessionary movement.

Table 5.9: Inventory Turnover Ratio

Particulars 2004 2005 2006 2007 2008
Cost of Goods Consumed 5740.61 9591.09 10287.96 12045.30 17248.54
Opening stock 574.6 1125.41 2588.67 4065.63 6128.58
Closing stock 1125.41 2588.67 4065.63 6128.58 7886.56
Average Stock 850.01 1857.04 3327.15 5097.11 7007.57
Inventory Turnover Ratio 6.75 5.16 3.09 2.36 2.46
ITR in Days 54.05 70.67 118.04 154.45 148.29

5.7 PRODUCTION POSITION OF BALASORE ALLOY

MONTH PRODUCTION QTY

NOV 08 7370.66
DEC 08 7197.46
JAN 09 7036.16
FEB 09 6722.72
MAR 09 6372.38
APR 09 6021.18
In this above table it is clear that from November 08 to April 09 the production
quantity of Balasore alloy LTD is decreases.
It can be shown by a graph as follows

5.8 COST OF PRODUCTION TREND

PARTICULARS % OF COST OF PRODUCTION
RAW MATERIAL 52
TRADED GOODS 2
POWER 17
MANPOWER 3
FACTORY OVERHAEDS 2
R&M 1
ADMINISTRATION 7
STROES & CONSUMABLES 2
OTHERS 14
TOTAL COST OF PRODUCTION 100
In this above table it is clear that raw material is more then half of other ite
m of cost of production.
It is defined bellow by a pie chart.
5.9 CLOSING INVENTORY POSITION FOR LAST SIX MONTHS
INVENTORY ANALYSIS FOR LAST SIX MONTHS
NAME OF MATERIAL NOV 08 DEC 08 JAN 09 FEB 09 MAR 09 APR 09
QTY (MT) QTY QTY QTY QTY QTY
QUARTZ 3034 2245 2036 1954 1863 1854
L A M COKE 5831 5542 4346 3491 3345 3117
C I L COKE 279 186 174 115 112 98
E.C.PASTE 172 154 147 134 123 112
DOLOMITE 4333 3412 2768 2215 1920 1426
ANTHR.COAL 2216 1938 1557 945 815 719
MILL SCALE 23 14 12 8 5 2
BAUXITE 23 19 19 14 11 7
MAGNASITE 230 187 165 115 83 74
MANGANESE ORE DUMP 110 110 110 110 110 110
HIGH MNO SLAG 10 10 10 10 10 10
ISPAT CHROME FINES 203139 195893 126868 118572 98503 78183
CHROME ORE LUMPS 2841 2364 1956 1526 912 803
ISPAT CHROME BRQT 11899 9584 8645 7325 6254 5412
TOTAL 234140 221658 148813 136534 114066 91929
From this above table we know that closing stock of raw material of Balasore all
oy is not constant except manganese ore dump and high MNO slag. The total raw ma
terial position of Balasore Alloy LTD is always in a decreasing mode shown by a
diagram bellow:

From is above diagram X axis stands for month and Y axis stands for unit in metr
ic tone.

Analysis
From the above diagram it is clear that Balasore Alloy Ltd. in November
08 to April 09 closing stock position is always in a decreasing mode. The raw ma
terial position is sloping down ward.

QUARTZ
From this above table in November 08 closing stock of quartz is 3034 MT
after that it decreases in a decreasing mode.
It can be shown through a diagram:
From is above diagram X axis stands for month and Y axis stands for unit in metr
ic tone.
Analysis
When production is decreases automatically consumption of goods is decre
ases. And purchase of material is decrease. So closing stock is decreases.

L A M COKE
From this above table in November 08 closing stock of lam cock is 3034 MT after
that it decreases in a decreasing mode.
.
It can be shown through a diagram.

From is above diagram X axis stands for month and Y axis stands for unit in metr
ic tone.
Analysis
When production is decreases automatically consumption of goods is decre
ases. And purchase of material is decrease. So closing stock is decreases.

C I L COKE
From this above table in November 08 closing stock of cil cock is 3034 MT after
that it decreases in a decreasing mode.
It can be shown through a diagram.

From is above diagram X axis stands for month and Y axis stands for unit in metr
ic tone.
Analysis
When production is decreases automatically consumption of goods is decre
ases. And purchase of material is decrease. So closing stock is decreases.

E.C.PASTE
From this above table in November 08 closing stock of e.c paste is 3034 MT after
that it decreases in a decreasing mode.
It can be shown through a diagram.
From is above diagram X axis stands for month and Y axis stands for unit in metr
ic tone.
Analysis
When production is decreases automatically consumption of goods is decre
ases. And purchase of material is decrease. So closing stock is decreases.

DOLOMITE
From this above table in November 08 closing stock of DOLOMITE
is 3034 MT after that it decreases in a decreasing mode.
It can be shown through a diagram.
From is above diagram X axis stands for month and Y axis stands for unit in metr
ic tone.
Analysis
When production is decreases automatically consumption of goods is decre
ases. And purchase of material is decrease. So closing stock is decreases.
ANTHR COAL
From this above table in November 08 closing stock of anthra coal
is 2216 MT after that it decreases in a decreasing mode.
It can be shown through a diagram.

From is above diagram X axis stands for month and Y axis stands for unit in metr
ic tone.
Analysis
When production is decreases automatically consumption of goods is decre
ases. And purchase of material is decrease. So closing stock is decreases.

MILL SCALE
From this above table in November 08 closing stock of mill scale
is 23 MT after that it decreases in a decreasing mode.
From is above diagram X axis stands for month and Y axis stands for unit in metr
ic tone.
Analysis
When production is decreases automatically consumption of goods is decre
ases. And purchase of material is decrease. So closing stock is decreases.
BAUXITE
From this above table in November 08 closing stock of bauxite
is 23 MT after that it decreases in a decreasing mode.
It can be shown through a diagram.

From is above diagram X axis stands for month and Y axis stands for unit in metr
ic tone.
Analysis
When production is decreases automatically consumption of goods is decre
ases. And purchase of material is decrease. So closing stock is decreases.

MAGNASITE
From this above table in November 08 closing stock of magnesite
is 230 MT after that it decreases in a decreasing mode.
It can be shown through a diagram:

From is above diagram X axis stands for month and Y axis stands for unit in metr
ic tone.
Analysis
When production is decreases automatically consumption of goods is decre
ases. And purchase of material is decrease. So closing stock is decreases.

MANGANESE ORE DUMP

From this above table we can know that MANGANESE ORE DUMP closing stock is same
for all month.
It can be shown through a diagram:
From is above diagram X axis stands for month and Y axis stands for unit in metr
ic tone.
Analysis
MANGANESE ORE DUMP use in Balasore alloy LTD is not continuously. From N
ovember to December they don’t use manganese ore dump. So its closing stock is c
onstant.

HIGH MNO SLAG

From this above table we can know that HIGH MNO SLAG closing stock is same for a
ll month.
It can be shown through a diagram
From is above diagram X axis stands for month and Y axis stands for unit in metr
ic tone.

Analysis
HIGH MNO SLAG use in Balasore alloy LTD is not continuously. From November to De
cember they don’t use HIGH MNO SLAG. So its closing stock is constant.

ISPAT CHROME FINES

From this above table in November 08 closing stock of ISPAT CHROME FINES is 2031
39 MT after that it decreases in a decreasing mode.
It can be shown through a diagram:
From is above diagram X axis stands for month and Y axis stands for unit in metr
ic tone.
Analysis
When production is decreases automatically consumption of goods
is decreases. And purchase of material is decrease. So closing stock is decrease
s.
.

CHROME ORE LUMPS

From this above table in November 08 closing stock of CHROME ore lumps is 203139
MT after that it decreases in a decreasing mode.
It can be shown through a diagram:
From is above diagram X axis stands for month and Y axis stands for unit in metr
ic tone.
Analysis
When production is decreases automatically consumption of goods is decre
ases. And purchase of material is decrease. So closing stock is decreases.

ISPAT CHROME BRQT

From this above table in November 08 closing stock of ISPAT CHROME brqt is 11899
MT after that it decreases in a decreasing mode.
It can be shown through a diagram
From is above diagram X axis stands for month and Y axis stands for unit in metr
ic tone.
Analysis
When production is decreases automatically consumption of goods is decre
ases. And purchase of material is decrease. So closing stock is decreases.
CONCLUSION
From this above analysis it is clear that in Balasore alloy they follow
just-in-time inventory management system. They have no ordering level, minimum s
tock level etc. for which the closing stock of raw material changes every month.
Due to rescission period the production of BAL decreases from November 08 to A
pril 09, for which inventory of BAL decreases.

5.10 STANDARD QUANTITY CONSUMPTION PER MONTH

ITEMS DEC JAN FEB MAR APR
MAY
LAMC 2585 2482 3613 3046 2379
5546
ANTHRACITE 1849 1311 834 1385 2060 2070
CIL COKE 126 156 101 157 139 169
EC PASTE 120 120 120 120 120 145
Quartz 2775 2775 2775 2288 2288 2288
Dolomite 2325 2325 2325 2177 1877 1877
Magnetite 157 224 225 225 225 225
Chrome Ore Lump 0 0 0 0 237 246
IAL BRQT 16445 16646 16299 16416 16613 16317
IAL CHIPS/FINES 2030 1990 2223 1884 1588 1792
CHROME ORE LUMPY 601 586 747 1062 0 0

From this above table we know that in every month for standard production the ra
w material quantity is changed. The standard production capacity of Balasore all
oy is 7500. In December LAMC is 2585, jan 2482, feb 3613, mar 3046, apr 2379 and
in may 5546. Like LAMC, anthracite, cil coke, EC paste, quartz, dolomite, magne
tite, chrome ore lump, IAL brqt, ial chips/fines, s.mineral, saranga are also ch
anged.
It can see by a graph bellow:

In this diagram X axis stands for month and Y axis stands for quantity in month.

Interpretation:
In this above graph it is clear that every month the standard consumptio
n of raw material changes. This change is made in every month.
Cause
Balasore alloy LTD produces 4 quality products. These are FeCr-58.5% P 0.04, FeC
r-56% P 0.03, and FeCr-60% P 0.04. For every quality of production of finished g
oods are changes according to customers demand. So every month the raw material
consumption position is changes.
6.CONCLUSION

6.1SUGGESTION
Balasore alloy LTD should maintain same level of closing stock for every
month.
They should maintain minimum stock level there fore the production can’t
stop in any situation.

6.2CONCLUSION
From the above research I know that the inventory management system
Of Balasore alloy LTD is very good.
They always follow just-in-time Purchase technique.
According to market situation they purchase materials and Produce their
finished product.
Their purchase technique of raw material, store and Spare are very nice.

After proper verification of everything they purchase their materials.

 They maintain their store very carefully
Their inventory investment is good. Every month they maintain inventory
more then 50% of current asset.