A report on

INVENTORY TURNOVER ANALYSIS AT ITC PSPD

BY
SK KHAJA NAYAB RASOOL

1
 A REPORT ON
INVENTORY TURNOVER ANALYSIS AT ITC PSPD

BY
SK KHAJA NAYAB RASOOL
PGDM - 09244

A report submitted in partial fulfilment of

the requirements of
PGDM
(BATCH-XVII)

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TABLE OF CONTENTS

ACKNOWLEDGEMENT.....................................................................................................4

ABSTRACT...........................................................................................................................5

INTRODUCTION..................................................................................................................6

Need for the Study:............................................................................................................7

Objective of the Study:.......................................................................................................7

Scope of the Study:............................................................................................................7

RESEARCH METHODOLOGY...........................................................................................8

SOURCES AND DATA COLLECTION METHODS:........................................................9

Primary Data:.....................................................................................................................9

Secondary Data:.................................................................................................................9

LIMITATIONS:.................................................................................................................9

Theoretical Background.......................................................................................................10

Inventory turnover:...........................................................................................................12

Calculating Turnover:......................................................................................................12

DATA ANALYSIS & INTERPRETATION.......................................................................13

FINDINGS...........................................................................................................................45

CONCLUSION....................................................................................................................47

RECOMMENDATIONS.....................................................................................................48

BIBLIOGRAPHY:...............................................................................................................49

BIBLIOGRAPHY:

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 ACKNOWLEDGEMENT

I owe my profound acknowledgement to all the respected people who made this report
successful.

I am grateful, on the first hand to Vignana Jyothi Institute of Management, Bachupally for
giving me an opportunity to work on my study in their Institute. I would like to thank our
College Director Dr. Kamal Ghosh Ray for providing me this opportunity

I am also thankful to Prof. A Ramesh for providing me guidelines to complete my study

successfully.
I extend my thanks to the entire faculty for their necessary guidance.

I owe my sincere thanks to my marketing manager Mr Prabal Kumar without which the
report could not have been successful.

SK KHAJA NAYAB RASOOL

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 ABSTRACT

In today’s competitive business environment effective Inventory Management enables a

firm to deliver the products at the right time. However, it is important to maintain
appropriate amount of inventory of material as too high amounts of inventory indicates
more idle money blocked in the firm. In order to know how the inventory is effectively
managed by a firm, Inventory Turnover is the readily available tool.
ITC’s Paperboards and Specialty Papers Division is India’s largest and most
technologically advanced paper and paperboards business. The present study is done to
analyze the material flow of finished goods through Inventory Turnover Analysis. It gives
the basic idea how the material moves from point of manufacturing to the Customer.

The analysis is supported with the Primary and Secondary activities of Logistics. Primary
activities are those that are considered as core for the material flow and the secondary
activities are those that support the Primary activities.

There are certain blocks which prevent the free flow of the finished goods and have an
impact on the timely delivery of the product. Such factors are identified by this analysis so
as to minimize them and ensure free flow of the finished goods.
From the analysis it was found that demand pull of the product, In adequate Storage area
within the mill, Inventory Carrying policy of the company are the main causes that are
preventing free flow of material. So It was suggested to utilize the transit godowns
effectively and to reduce the Non conformance Product Quantities and conversion period
to ensure the free flow of materials.

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 INTRODUCTION

ITC PSPD is one of the major producers of wide varieties of Paper and Paper Board. The
company produces both Value Added Products as well as Recycled Boards. The demand
for the company’s product is increasing day by day because of the recyclable and non
polluting nature of paper.

The production process involves various operations which are inter dependent and must be
executed in a planned manner. In the finished goods material flow there exists certain
Primary and secondary activities. Primary activities include order processing, inventory
management and transportation. Secondary activities provide support to the primary
activities in the execution process.

In the present study mainly the finished goods material flow is analyzed by using
Inventory turnover as a tool. In the present study Inventory turnover is calculated by
considering the dispatches and stock details of the firm. This analysis enables the firm to
identify and eliminate the blockages in the free flow of material from the manufacturer to
the customer

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Need for the Study:

Inventory Management plays a vital role in the success of the business. Inventory turnover
is a measure used to analyze how long the product is taking to transfer from manufacturer
to consumer. Inventory turnover analyzes the movement of material in various sales
regions. This knowledge can provide the information like at what rate the material is
moving from manufacturer to customer and to identify the regions that are contributing
more or lagging in terms of inventory. The study also provides firms the information about
the regions on which the firm has to concentrate more in terms of sales.

Objective of the Study:

The main objective of the project is to study the material flow and warehousing of
Finished Goods through Inventory Turnover analysis within the mill and each sales region
of ITC PSPD Unit: Bhadrachalam..

Scope of the Study:

The study is based on the data collected from the mill from january2010 to June2010 only
and also studies the inventory turnover at ITC PSPD Unit: Bhadrachalam.

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 RESEARCH METHODOLOGY

The present study is an exclusive study on ITC Limited (PSPD) to meet the formulation
objectives. In the present study descriptive research method is used. Descriptive research is
also called Statistical Research. The main goal of this type of research is to describe the
data and characteristics about what is being studied. The idea behind this type of research
is to study frequencies, averages, and other statistical calculations. Although this research
is highly accurate, it does not gather the causes behind a situation. Descriptive research is
used to obtain information concerning the current status of the phenomena to describe
"what exists" with respect to variables or conditions in a situation.
The steps involved in this process are as given below:
• Statement of the problem
• Identification of information needed to solve the problem
• Selection or development of instruments for gathering the information
• Design of procedure for information collection
• Collection of information
• Analysis of information

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SOURCES AND DATA COLLECTION METHODS:
Primary Data: Data obtained by Direct interviews with officials of the company
Secondary Data: Online Database, Journals, Surveys
The collection of data or information is done through two principle sources.

Primary Data:
Primary data are those data which are collected a fresh and for the first time, and thus
happen to be original. The primary data are those, which consists of the data acquired
through schedules and interviews. Present study is supported by the data collected from the
managers through interviews.

Secondary Data:
The secondary data is that which is readily available. The data collected from books,
magazines, journal, newspaper, company copy, different capital schemes and other
published sources.
Present study is mainly based on the Secondary data collected from the mill.

Data Analysis Tool:

MS Excel is used as a tool in the study to analyze the data and to represent the data in the
graphical format.

LIMITATIONS:
1) The data mostly consists of secondary information.
2) Study is concentrated only on Material flow through inventory turnover aspect of
the company.
3) Study is limited only to the ITC PSPD Unit: Sarapaka

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 Theoretical Background

"Inventory" to many small business owners is one of the more visible and tangible aspects
of doing business. Raw materials, goods in process and finished goods all represent
various forms of inventory. In the same manner, merchandise stocks in a retail store
contribute to profits only when their sale puts money into the cash register.
In the sense, inventory refers to stocks of anything necessary to do business. These stocks
represent a large portion of the business investment and must be well managed in order to
get maximum profits. But even it is important to note that unless inventories are controlled,
they are unreliable, inefficient and costly.
Inventories are considered as “assets”
(a) held for sale in the ordinary course of business;
(b) in the process of production for such sale;
(c) in the form of materials or supplies to be consumed in the production process
or in the rendering of services”.
(The Institute of Chartered Accountants of India, Accounting Standard 2 (Revised),
Valuation of Inventories).
Successful Inventory Management:
Successful inventory management involves balancing the costs of inventory with the
benefits of inventory. Many small businesses fail to manage the costs of carrying
inventory, which include not only direct costs of storage, insurance and taxes, but also the
cost of money tied up in inventory.
The fine line between keeping too much inventory and not enough is not the manager's
only concern. Others include:

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 ➢ Maintaining a wide assortment of stock but not spreading the rapidly moving ones
too thin;
➢ Increasing inventory turnover but not sacrificing the service level;
➢ Keeping stock low but not sacrificing service or performance.
➢ Obtaining lower prices by making volume purchases but not ending up with slow-
moving inventory; and
➢ Having an adequate inventory on hand but not getting caught with obsolete item

Is Inventory carrying is a Boon or Bane?

It is important to know whether the inventory carrying is a boon or bane before knowing
the inventory turnover analysis.
It is said that when more amount of funds are invested in inventory it leads to more
blockage of working capital, as inventory acts as an idle resource unless it comes into use.
But in order to respond to the unexpected and uncertain customer demand it is necessary to
maintain some optimum levels of inventory. Thus in all cases inventory may not be
considered as a ban, it can act as a boon in certain situations also. This can be best
explained with the following example.

Consider a customer who requires 200 Tonnes of 70GSM Alfa zap Paper. If ITC is not
able to maintain this quantity as inventory, it has to lose the order from that particular
customer. As per the production Alfa zap will be produced in a particular run only. If the
customer requires the product in between he has to wait till the next run. In such situation
depending on the customer he may wait, if not he may get the product from other
manufacturer. But in order to maintain such quantities as inventory the company has to
incur some inventory cost. In this situation the contribution of the Alfa zap paper will be
more when compared with the inventory cost incurred by the company. Hence in such
cases it is better to maintain inventory instead of thinking about the inventory cost.
It is important to note that inventory of such products must be maintained which are fast
moving (having more demand), whose contribution is more and for which there are regular
customers.

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The degree of success in addressing these concerns is easier by using certain available
tools. For example, computing the inventory turnover ratio is a simple measure of
managerial performance. This value gives a rough guideline by which managers can set
goals and evaluate performance, but it must be realized that the turnover rate varies with
the function of inventory, the type of business and how the ratio is calculated (whether on
sales or cost of goods sold).

Inventory turnover:
Inventory Turnover is a prominent Key Performance Indicator in many businesses.
Inventory turnover reflects how frequently a company flushes inventory from its system
within a given financial reporting period. The measure can be computed for any type of
inventory materials and supplies which is used in manufacturing or service delivery, work
in progress (WIP), finished products, or all inventory combined. With the exception of
finished product inventory, the measure applies to service and manufacturing businesses.

Inventory Turnover is defined as

“The equation that equals the cost of goods sold divided by the average inventory.
Average inventory equals beginning inventory plus ending inventory divided by 2”.
A low turnover rate may indicate overstocking, obsolescence, or deficiencies in the
product line or marketing effort. However, in some instances a low rate may be
appropriate, such as where higher inventory levels occur in anticipation of rapidly rising
prices or shortages. A high turnover rate may indicate inadequate inventory levels, which
may lead to a loss in business.

The inventory turnover measure is a ratio of flow to average inventory. As such, it is

somewhat of an abstract concept. Because Inventory turnover is so extensively used as a
diagnostic tool, it is imperative that inventory turnover be calculated using appropriate and
valid techniques.

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Calculating Turnover:
Calculating inventory turnover does not appear to be complex. In this product flow for the
year is divided by the average inventory.
Inventory Turnover = Cost of Goods Sold / Average Value of Inventory
The key is that both product flow (money volumes, physical flow of units, measures of
sales) and average inventory must be accurately measured.

DATA ANALYSIS & INTERPRETATION

A Study of Material Flow &Warehousing Of Finished Goods through Inventory

Turnover Analysis:

Logistics can be classified into two types depending on the material flow:
a) Inbound Logistics which deals with the inside flow of the material
b) Outbound Logistics which deals with the out flow of the finished goods.

The study mainly concentrates on the material flow from point of manufacturing to
customer. Here the background of Logistics provides necessary information about the
material flow. As the study is about the material flow of finished goods only the outbound
logistics related issues are discussed here.

This study helps to identify all the blocks that prevent the free flow of material. It also
compares the designed and actual warehousing capacities of the mill. It helps to understand
how the material is flowing from the company to various sales region.

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The analysis is carried away in two parts:
a) By analyzing the material flow of finished goods within the mill:
In this part the analysis is done based on storage of material in warehouses with in the
mill. In this analysis the sheets and reels designed and actual storage capacities in the
warehouses are compared to know where there is actual jamming of the material is
occurring.

b) By analyzing the material flow of different regions through Inventory Turnover.

In this part of analysis the inventory turnover of each sales regions of the PSPD unit and
the over mill are calculated from January 2009 to July 2009. This analysis provides the
information to know how the company is able to maintain inventory for various region
and the regions which are contributing more for the Inventory Turnover.

Analysis of Material Flow of Finished Goods within the Mill

PM 123, 4 & 5 Reels Designed vs Storage Capacities:

PM 123,4&5 Reels Storage

Capacity (In Tonnes)
Month Designe Actual
d
Jan 9900 9355
Feb 9900 8379
Mar 9900 8133
Apr 9900 6659
May 9900 9395
Jun 9900 8600

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The Storage capacity available for PM 123, 4 & 5 Reels is 9900 MT. This storage area
includes
a) PM 123 Godown area which can store the reels of 800 MT

b) Old Coating Plant area which can store the reels of 1600 MT

c) PM 4 Godown area which can store the reels of 1000 MT

d) PM 5 Godown area which can store the reels of 500 MT

e) Laxmipuram Godown which can store the reels of 6000 MT

From the graph it can be observed that in the past 6months the company is handling PM
123, 4 &5 Reels without any problem as the Designed capacity of the storage area is able
to cater the required storage needs. When the ITC PSPD unit is not having the enough
storage area depending on the requirement the reels are shifted to the nearby Laxmipuram
Godown.
PM 6 Reel Storage Designed vs Actual Capacity:

PM 6 Reel Storage Capacity

(In Tonnes)
Month Designed Actual
Storage storage
Jan 2500 2615
Feb 2500 1962
Mar 2500 2070
Apr 2500 1901
May 2500 2025
Jun 2500 3074

The designed storage capacity of the PM 6 Godown is 2500MT. But the actual handled
material from the past 6 months is more than the available capacity. The excess material

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(an average quantity of 500MT) is due to the material produced during the stabilization
period. This excess quantity of material is handled by providing some temporary storage
area near the Godown. As the Machine production increases the required storage area will
be provided.
All the material produced in this machine is stored in the PM 6 Godown itself. But not sent
to any other Godown for storage.

PM 123 &5 Sheets storage Capacity:

PM 123 & 5 Sheets Storage

Capacity in Tonnes
Month Designed Actual
Jan 1100 1756
Feb 1100 1762
Mar 1100 1279
Apr 1100 1252
May 1100 1624
Jun 1100 1386

The Storage capacity available for PM 123& 5 sheets is 1100 MT. This storage area
includes
a) PM 123 Godown area which can store the sheets of 1000MT

b) PM 5 Godown area which can store the sheets of 100MT.

From the graph it can be observed that in PM 123 &5 storage area more quantities are to
be stored than the available capacities. The sheet orders of PM 5 are also sent to the
Finishing House 123 as there are no sufficient conversion capacity available in PM 5.
PM 4 Sheet Storage Designed vs Actual Capacities:
ASRS 1200T + PM4 200T

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 PM 4 Sheet Storage Capacity
(In Tonnes)
Mont Actual Designed
h storage Storage
Jan 1293 1400
Feb 1102 1400
Mar 1603 1400
Apr 1480 1400
May 1133 1400
Jun 1368 1400

The above graph shows the PM 4 Sheet storage Designed vs Actual capacities.
The Storage capacity available for PM 4 sheets is 1400 MT. This storage area includes
a) PM 4 Godown area which can store the sheets of 200MT

b) Automatic Storage and Retrieval System which can store the sheets of 1200MT.

Except in the month of March and April the available storage area is sufficient for
the storage of the Finished Product.

Transit Godowns Enabling Free flow of Finished Goods:

As discussed earlier in the warehousing section ITC PSPD is having two transit Godowns
at Hyderabad and Guntur. Whenever there is over load of material the product is
transmitted either to Hyderabad or Guntur depending on the destination of product where
the product has to be delivered.
Below table gives the details about the delivery of Finished goods in Various regions:

Region Direct to Transmit to

AP(HYD) Destination Vijayawada
CORPORATE &
Inter divisional Destination ****
NORTH Destination Hyderabad

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 EAST Destination Icha Puram
WEST Destination Mumbai
Bangalore,Siva
kasi & Kerala Destination Chennai
Export Port Visakapatam,Chennai

The material may be directly delivered to the customer’s destination or it may be

transmitted to a particular area in the respective zone and from there it will be delivered to
the customer.
For example if the material is to be sent to some customer in the South region, the
material will be sent to Guntur Godown and if the product is to be delivered to a customer
in north region it will be sent to the Hyderabad Godown. These two transmit Godowns
enables the company to avoid jamming of the material and helps in the free flow of the
material. There is an added advantage because of the locations of these transmit Godowns.
In order to deliver the materials from Bhadrachalam to the north or south regions the truck
must go via these locations only.
Dispatches from Bhadrachalam to Hyderabad:

Month Dispatches to
Hyderabad
Jan 690
Feb 288
Mar 342
Apr 670
May 636
Jun 520

The above graph shows the Dispatches from Bhadrachalam to Hyderabad transit Godown
from January 2010 to June 2010. High dispatches of 690Tonnes is noted in the month of
January and a low dispatches of 288Tonnes in February. The material is sent to Hyderabad

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depending on the storage facility at Bhadrachalam unit and delivery destination of the
product.

Dispatches from Bhadrachalam to Guntur:

Mont Dispatch
h es to
Guntur
Jan 2711
Feb 1955
Mar 2457
Apr 3159
May 2709
Jun 3511

The above graph shows the Dispatches from Bhadrachalam to Guntur transit Godown from
January 2010 to June 2010. Except in the February and March months the dispatches from
Bhadrachalam to Guntur are high. The highest dispatches from Bhadrachalam to Guntur
are 3511Tonnes in the month of June. The dispatches from Bhadrachalam to Guntur are
very high when compared with the dispatches from Bhadrachalam to Hyderabad.
Dispatches from Mill to Hyderabad & Guntur:

Month Dispatches from

BCM to
Hyderaba Guntu
d r
Jan 690 2711
Feb 288 1955
Mar 342 2457

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 Apr 670 3159
May 636 2709
Jun 520 3511

The above graph shows the combined trends of Dispatches from Bhadrachalam to
Hyderabad and Guntur from January 2010 to June 2010. On an average 3000 to
4000Tonnes of material is transmitted every month from Bhadrachalam to these Transit
Godowns. When there are more quantities of materials are to be stored than the available
Capacities in the mill the excess quantities are transmitted to these godowns. This is
clearly shown in the graphs. The low dispatches from Bhadrachalam to Hyderabad and
Guntur in February and March are the result of decrease in the stock levels of the mill in
the respective months.

Analysis of finished goods flow in the regions by using Inventory Turnover

The main analysis is to calculate the Inventory Turnover Ratio (ITOR) of different regions
in order to know the material flow in each region.

Inventory turnover ratio is one of the Accounting Liquidity ratios, a financial ratio. This
ratio measures the number of times, on average; the inventory is sold during the period. Its
purpose is to measure the liquidity of the inventory.
Inventory Turnover Equation
The formula for inventory turnover:

The formula for average inventory:

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Application in Business:

A low turnover rate may point to overstocking, obsolescence, or deficiencies in the

product line or marketing effort. However, in some instances a low rate may be appropriate
as where higher inventory levels occur in anticipation of rapidly rising prices or shortages.
A high turnover rate may indicate inadequate inventory levels, which may lead to a loss in
business.

It should be noted that some compilers of industry data use sales as the numerator instead
of cost of sales. Cost of sales yields a more realistic turnover ratio, but it is often necessary
to use sales for purposes of comparative analysis.
In the present analysis number of dispatches at the month end is considered instead of cost
of sales as the study mainly deals with the comparative analysis of performance of
different zones.

Inventory Turnover = Overall dispatches at the month end

Average inventory

The analysis is based on the Stock and Dispatches details of ITC PSPD from the month of
January 2010 to June2010.

MILL:

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 MILL
MONTH STOCK DESPATCH ITOR
JAN 13391 27086 2.02
FEB 12839 28183 2.20
MAR 11659 34353 2.95
APR 11734 32307 2.75
MAY 12390 33950 2.88
JUNE 12246 35762 2.92
Avg 12376.50 31940.17 2.58

The mill has noted highest stock of 13552Tonnes in the month of January i.e., at the
beginning of the quarter and a lowest stock of 11875Tonnes in March. There is an overall
increase in the mill dispatches starting with 13552Tonnes in January and reaching to
40707Tonnes in the month of June which is a good sign. The mill has noted a highest
inventory turnover ratio of 3.38 in June which is the result of increased dispatches and the
lowest inventory turnover ratio of 2.12 in January which is the result of less number of
dispatches. The average inventory turnover ratio of the mill is 2.79.
Though there is a decrease in the Stock in the March the Inventory Turnover is high. This
indicates that the company has used most of its stock for dispatches.
AP (HYD):
AP(HYD)

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 MON STO DESPAT ITO
TH CK CH R
Jan 560 1800 3.21
Feb 609 2707 4.44
Mar 558 2621 4.70
Apr 686 2790 4.07
May 911 2732 3.00
Jun 784 2212 2.82
Avg 685 2477 3.71

In the AP (HYD) region highest stock (911Tonnes) is noted in the month of June and the
lowest stock (558/tones) in the month of March. The region has noted the highest
dispatches of 2790Tonnes in the month of April and lowest dispatches of 1800Tonnes in
the month of January. The region has noted a high inventory turnover ratio (4.70) in the
month of March and a low inventory turnover ratio of 2.82 in the month of June. There is a

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continuous increase in the inventory turnover ratio from January to March. The average
Inventory turnover ratio from January to June is 3.71.

It is to be noted that except in the month of January there is not much change in the
dispatches. But even in such situation there is an increase in the Inventory turnover ratio of
the region till March. This indicates that the company is dispatching most of the stock
which is maintained in the form of inventory.

BOLLARAM:

BOLLARAM
MONT STOC DESPAT ITO
H K CH R
JAN 3261 3023 0.93
FEB 3217 3450 1.07
MAR 2432 3404 1.40
APR 1949 3505 1.80
MAY 1911 3735 1.95
JUNE 1620 3989 2.46
Avg 2398.3 3517.67 1.60
3

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In the BOLLARAM region highest stock of 3261Tonnes is noted in the month of January
and the lowest stock of 1620tonnes in the month of June. The region has noted the highest
dispatches of 3989Tonnes in the month of June and lowest dispatches of 3023tonnes in the
month of January. The region has noted a high inventory turnover ratio (2.46) in the month
of June and a low inventory turnover ratio of 0.93 in the month of January. There is a
continuous increase in the inventory turnover ratio from January to June. The average
Inventory turnover ratio from January to June is 1.60.

The Bollaram unit runs in Auto replenishment mode. The base product is supplied from
the ITC PSPD Unit: Bhadrachalam. If the base product is not delivered to the Bollaram
unit as per the requirement all the resources at Bollaram remain idle and if excess
quantities are sent this board will remain idle in the unit. Hence the Paper board is
delivered in the required quantities.
CENTRAL:
CENTRAL
MONTH STOCK DISPATCHES ITOR
JAN 100 414 4.14
FEB 40 201 5.03
MAR 34 605 17.79
APR 78 427 5.47
MAY 208 427 2.05
JUNE 192 734 3.82
Avg 108.67 469.67 4.32

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In the CENTRAL region highest stock of 208Tonnes is noted in the month of May and the
lowest stock of 34tonnes in the month of March. The region has noted highest dispatches
of 734Tonnes in the month of June and lowest dispatches of 201tonnes in the month of
February. The region has noted a high inventory turnover ratio (17.79) in the month of
March and a low inventory turnover ratio of 2.05 in the month of May. The inventory
turnover ratio has shoot up in the month of March as most of the product produced is
dispatched in the same month.

The average Inventory turnover ratio from January to June is 4.32.There is more
inconsistency observed in the dispatches of the region which is also reflected in the
inventory turnover ratio of the region.

The highest inventory turnover in the month of March indicates that the company has
dispatched the quantities whatever has been produced in the same month. Again from the
month of March the stock level has been increased in order to meet the increased dispatch
requirements.

CORPORATE:

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 CORPORATE
MONT STOC DESPATC ITO
H K H R
JAN 4473 7499 1.68
FEB 3471 8324 2.40
MAR 3614 11155 3.09
APR 4179 9421 2.25
MAY 4086 9195 2.25
JUNE 3658 11284 3.08
Avg 3913 9480 2.42

In the CORPORATE region highest stock of 4473Tonnes is noted in the month of January
and the lowest stock of 3471tonnes in the month of February. The region has noted highest
dispatches of 11284Tonnes in the month of June and lowest dispatches of 7499tonnes in
the month of January. The region has noted a high inventory turnover ratio of 3.09 in the
month of March and a low inventory turnover ratio of 1.68 in the month of January. The
inventory turnover ratio has shoot up in the month of March. The average Inventory
turnover ratio from January to June is 2.42.

27
It is important to be noted that the inventory turnover is high in the month of March. This
is because of the customer’s anticipated product demand in the summer season. In this
region the delivered Paper/board are used in the Books and Cool drinks packing
respectively.

The increase in inventory turnover with the decrease in Stock in March and June indicates
that most of the material whatever that is produced is delivered in the same month.

ANALYSIS OF KEY CUSTOMERS IN CORPORATE ZONE:

TETRA PAK:
TETRA PAK
Mont Stock Dispatche IT
h s R
Jan 1677 1147 0.6
8
Feb 1381 1247 0.9
0
Mar 1159 1541 1.3
3
Apr 1474 1093 0.7
4
May 1604 1303 0.8
1
Jun 1677 877 0.5
2
Avg 1495.3 1201.33 0.8
3 0
Tetra Pak is the one of the premier customers of the corporate zone. The contribution from
the customer is more as the Tetra Pak is a value added product.

28
By observing the stock and dispatches it can be predicted that almost in all the months
except in March the company is holding more stock in the name of Tetra Pak. Except in
the month of March in all other months the inventory turnover ratio is below 1. The high
Inventory turnover ratio of 1.33 has lead to an increase in the Inventory turnover ratio of
the corporate zone. The highest inventory turnover in the month of March is due to the
increased dispatches. As the product Tetra Pak is used as a packing material for milk and
cool drinks which has more demand in the summer, the same has been reflected in the
dispatches of this particular product.

GPI:
GPI
Month Stoc Dispatche ITO
k s R
Jan 301 656 2.18
Feb 393 702 1.79
Mar 339 616 1.82
Apr 338 456 1.35
May 353 293 0.83
Jun 283 568 2.01
Avg 334.5 548.5 1.64

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It can be observed that though there is not much change in the stock levels, the dispatches
gradually decreased which resulted in the decrease in the Inventory turnover ratio. The
Inventory turnover ratio has gradually decreased to 0.83 in the month of May and again
increased to 2.01 in
ESPB
June.
Month Stock Dispatches ITOR
Jan 1680 4015 2.39 The Inventory turnover
Feb 1211 4777 3.94 ratio of 1.82 showed an
Mar 1345 4320 3.21
Apr 1250 3205 2.56 impact on the increase in
May 914 2852 3.12 inventory turnover ratio
Jun 836 4454 5.33
Avg 1206 3937.17 3.26 of the CORPORATE
zone.

There is not much change in the stock levels of the zone except in the month of June. But
the customer has noted a low inventory turnover in the month of May which is due to the
decreased dispatches than the stock maintained for the customer .This has occurred
because of the customer using most of the stock levels without giving new orders.

ESPB:

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ESPB is one of the major customers in the corporate region. On an average ITC PSPD
maintains an inventory of 1000-1500tonnes on this particular customer. ESPB has noted a
highest stock of 1680tonnes in the month of January and the lowest stock of 836tonnes in
June. It has the highest dispatches of 4777tonnes in February and the lowest dispatches of
2852 in May. ESPB has noted the highest inventory turnover ratio of 5.33 in June. This is
because of the increased dispatches and decreased stock levels.

ESPB has more demand in the summer season hence there is an increase in the dispatches
and decrease in the stock levels. In the month of March and April the material which is
delivered in January and February are used. Hence there is a decrease in the Inventory
Turnover in the March and April.

EXPORT:

In the EXPORT region highest stock of 784Tonnes is noted in the month of April and the
lowest stock of 429tonnes in the month of January. The region has noted highest

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dispatches of 4422Tonnes in the month of May and lowest dispatches of 1523tonnes in the
month of February.

EXPORT
MONT STOC DESPATC ITO
H K H R
JAN 429 1569 3.66
FEB 471 1523 3.23
MAR 734 2962 4.04
APR 784 2888 3.68
MAY 744 4422 5.94
JUNE 763 4106 5.38
Avg 654.17 2911.67 4.45

The region has noted a high inventory turnover ratio of 5.94 in the month of May and a
low inventory turnover ratio of 3.23 in the month of February. The inventory turnover ratio
has shoot up in the month of March. The average Inventory turnover ratio from January to
June is 4.49.

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From the month of March to June there is not much change in the stock levels. But even in
such situations the company has dispatched nearly 3000Tonnes in March and April and
nearly 4000Tonnes in May and June. This indicates that the company is delivering the
board by manufacturing in the same month.

EAST:

EAST
MON STOC DESPAT ITO
TH K CH R
JAN 497 1005 2.02
FEB 503 1219 2.42
MAR 450 1380 3.07
APR 505 1563 3.10
MAY 585 1621 2.77
JUNE 593 1344 2.27
Avg 522.17 1355.33 2.61

For the EAST region highest stock of 593Tonnes is noted in the month of June and the
lowest stock of 450tonnes in the month of March. The region has noted highest dispatches
of 1621Tonnes in the month of May and lowest dispatches of 1005tonnes in the month of
January. Thus there us a gradual increase in the dispatches of the EAST region from the

33
month of January to May. The region has noted a high inventory turnover ratio of 3.10 in
the month of April and a low inventory turnover ratio of 2.02 in the month of January. The
inventory turnover ratio has shoot up in the month of March. The average Inventory
turnover ratio from January to June is 2.61.

Though there is not much increase in the stock levels the inventory turnover has increased
till the month of April. There is a decrease in the stock levels in the month of March still
the Inventory turnover is 3.07. This indicates that the stock maintained in the form of
inventory is used in the particular month.

NORTH:
NORTH
MONT STOC DESPAT ITO
H K CH R
JAN 540 2265 4.19
FEB 633 1586 2.51
MAR 562 2774 4.94
APR 533 2409 4.52
MAY 700 2149 3.07
JUNE 621 2489 4.01
Avg 598.16 2278.67 3.81
67

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For the NORTH region highest stock of 700Tonnes is noted in the month of May and the
lowest stock of 533tonnes in the month of April. The region has noted highest dispatches
of 2774Tonnes in the month of March and lowest dispatches of 1586tonnes in the month of
February.
The region has noted a high inventory turnover ratio of 4.94 in the month of March and a
low inventory turnover ratio of 2.51 in the month of February. The inventory turnover ratio
has shoot up in the month of March. The average Inventory turnover ratio from January to
June is 3.81.There is a much inconsistency observed in the Inventory turnover of the North
region, when compared with other regions. In the month of March the stock has been
reduced from 633tonnes to 562tonnes but still the month has noted a high inventory
turnover in March. This shows that most of the material that is stored in the form of
Inventory is delivered.
SOUTH:
SOUTH
MONTH STOCK DESPATCH ITOR
Jan 672 3039 4.52
Feb 791 2977 3.76
Mar 678 3733 5.51
Apr 726 4052 5.58
May 950 3514 3.70
Jun 906 4354 4.81
Avg 787.17 3611.50 4.59

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For the SOUTH region highest stock of 950Tonnes is noted in the month of May and the
lowest stock of 672tonnes in the month of January. The region has noted highest
dispatches of 4354Tonnes in the month of June and lowest dispatches of 2977tonnes in the
month of February. The region has noted a high inventory turnover ratio of 5.63 in the
month of June and a low inventory turnover ratio of 3.70 in the month of May. The
inventory turnover ratio has shoot up in the month of March. The average Inventory
turnover ratio from January to June is 4.65.Highest Inventory turnover ratio is noted at the
end of first quarter and the ending of second quarter.

The Highest Inventory Turnover of 5.58 in the April month is due to the increased
Dispatches and Stock levels. This shows that some more material is added to the stock in
order to achieve the dispatches of 4052tonnes.

WEST:
WEST
MONTH STOCK DISPATCHES ITOR
Jan 1993 4903 2.46
Feb 2097 5585 2.66
Mar 1860 6437 3.46
Apr 1818 6049 3.33
May 2005 7307 3.64
Jun 1657 6440 3.89
Avg 1905.00 6120.17 3.24

For the WEST region highest stock of 2097Tonnes is noted in the month of February and
the lowest stock of 1657tonnes in the month of June. The region has noted highest
dispatches of 7307Tonnes in the month of May and lowest dispatches of 4903tonnes in the
month of January.

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The region has noted a high inventory turnover ratio of 3.89 in the month of June because
of the high dispatches and low stock levels and a low inventory turnover ratio of 2.46 in
the month of January.

The inventory turnover ratio has shoot up in the month of March. The average Inventory
turnover ratio from January to June is 3.24.Highest Inventory turnover ratio is noted at the
end of first quarter and the end of second quarter.

Region Wise Average Inventory Turnover Ratio:

REGION ITOR
MILL 2.58
AP (HYD) 2.12
BOLLARAM 1.6
CENTRAL 4.32
CORPORAT 2.42
E
EXPORT 4.45
EAST 2.69
NORTH 3.81
SOUTH 4.65
WEST 3.24

From the Graph it can be observed that the South ,Export and Central are the major
contributors of the Inventory Turnover and the Bollaram,AP (Hyderabad) and Corporate
regions laggers for the Inventory Turnover. The company is maintaining more inventory
for the southeren region to meet the demand. As the Bollaram unit maintains inventory in
auto replinishmentmode it has noted a very low inventory turnover.

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The above graph represents the inventory turnover of various regions in comparison with
the mill inventory turnover. Most of the regions have noted a high inventory turnover in
the month of March. As March is the ending of the financial year the company has cleared
most of its inventory in the month of March.

FINDINGS

In the study the following factors are found that prevent the free flow of the material.

Barriers to the Flow of Finished Goods:

The Finished Goods which are produced must flow through various stages in order to
reach the customer. Once the Base product Jumbo reel is produced it must be converted
into reel/sheet form as per the customer’s requirement, properly packed and stored. So that
it can be delivered to the customer at right time. There are some barriers that are observed
which prevent the free flow of Finished Goods which are discussed below:

a) Demand Pull of the Product:

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The usage of Paper/ Board as packing material is increasing because of its added
advantages like cheaper cost when compared with other packing material and also it its eco
friendly nature. This is creating a demand pull for the product. In order to meet the
customer’s demand the company has to produce higher quantities. As per the demand the
company must also concentrate on the free material flow from one stage to the other.

b) Improvement in the production:

The production levels of a machine can be increased by increasing its speed and by using
technical advancements. In order to meet the increasing demand of the product the
company may use all the available resources effectively and increase the production levels.
Accordingly the company has to update its conversion facilities and other storage
capacities.

c) Adequacy of storage area within the mill:

Though the company is able to produce the product in higher quantities by improving the
production levels to meet the demand, it must also have the adequate storage area available
within the mill. If the storage area is not adequate as per the production levels the free flow
of the material will be prevented.

d) Thru put of the Product:

This is related to the forms of the product i.e., reel or sheet order. If the company is
continuously producing either reel/sheet orders this may prevent the free flow of the
material as it increases the load on the conversion section.

e) Non moving goods due to commercial issues:

There are some situations in which the flow of finished goods is stopped due to the
commercial issues which are related to the payment of the product. In these cases, the
customer will give the order but may not be able to pay the amount on time.

f) Inventory carrying Policy of the company:

As per the Inventory carrying policy of the company it will maintain the inventory for
Corporate and Interdivisional customers. Depending on the account and ordered quantity
the company is ready to provide staggered dispatch facility.
g) Logistic Issues:

There are two types of Logistic issues which act as barriers to the material flow of Finished
Goods.
Seasonality Issues:

39
In certain seasons the company may not get the required number of trucks because of the
seasonality Issues. For example in the summer season most of the trucks are diverted to
transport the Mangoes, as there will be a higher demand for the mangoes in summer
season.

Availability Issues:

These are the issues arise when a particular transporter is unable to provide the required
trucks as per the transportation requirements of the company.

a) Order size to Truck load issues:

It is obvious that all the customers may not give orders of higher quantities. There are
certain customers who require Paper/ Board in small quantities. In such situations the
company cannot provide a separate truck for such a small quantities. So the company will
see to that this order quantity is transported along with some other customer’s quantity
which has to be delivered at the same destination. These issues also prevent the free flow
of material.

b) Non Conformance Product and Uncovered material:

Non conformance Products also occupy some space in the warehouse till they get
clearance and thus prevent the free flow of material.
Uncovered Material is the product for which there are no orders given. Whenever the
company gets some order it will produce 10% more quantity as a rule of thumb in order to
face the Quality Rejections and Conversion Losses. Thus the Uncovered material lie idle in
the Godown as inventory till gets some order.

CONCLUSION

From the study it can be concluded that there are certain Primary and Secondary activities
of logistics on which the company has to concentrate in order to ensure the free flow of
finished goods. As all the activities from production to delivery of the product are inter

40
-dependent and each show a cascading effect on the other, the company must plan and
execute the activities without any deviation.

Companies must concentrate on the Non -Conformance Products and Uncovered materials
as they create blockage of material in the ware house. Companies must maintain optimum
levels of inventory as more levels of inventory will block more amounts funds and fewer
inventories will affect the timely delivery of the product.

Inventory turnover is a very useful to find the material from the mill to the various regions
and to identify the contributors and lagers for the inventory. Firms must synchronize the
Primary and Secondary activities of Logistics in order to remove the blocks that prevent
free flow of material.

RECOMMENDATIONS

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✔ From the analysis of Finished Goods Material flow within the mill it is observed that at
ITC PSPD there is some problem in the storage of sheets in PM 123 &5 area where the
available storage area capacity is less than the required storage area. Hence the company is
producing the Manufactured for Sheeting (MFS) base product and sending this MFS base
for outside sheeting. These converters can also convert the MFS base as per the customer
requirements. But still there is some free flow of the material. This problem can be
overcome by providing separate areas and bay for Work in Progress (WIP) goods. This
will enable the free flow of the material.
✔ Normally a period of 10days is given for the sheet orders for conversion. If this period can
be reduced by a day or two there will be free flow of the material.
✔ In storage of the material reels are stacked vertically. But the sheets take more storage area
when compared with the reels. So it is preferable to clear the sheet orders as early as
possible.
✔ Effective utilization of Transit Godowns at Hyderabad and Guntur is one of the way to
ensure the free flow of the material.
✔ The free flow of the material can be achieved by reducing the quantities of Non
Conformance Product and Uncovered material. Quick clearance of this material will
provide some storage space for the products which are maintained in the form of
inventory.
✔ There is a project going on presently in the company in order to achieve the On Time In
Full status in the company. ITC PSPD unit is planning to dispatch the goods in First In
First Out (FIFO) method. But this method cannot be employed in case of staggered
dispatches.

✔ In case of staggered dispatches if the conversion needs can be meet as per the delivery date
they can be diverted and sheeted later. This is one way to ensure free flow of material by
synchronizing the conversion activities with the delivery requirements.

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BIBLIOGRAPHY:

1) Books:

Krishna K Havaldar , Vasant M Cavale ,“Sales and distribution Management” Mc Graw

Hill Publications, First edition, 2007.

Philip Kotler ,“ Marketing Management” Mc Graw Hills Publications , 14th edition,2007

Internal Records of ITC Ltd, PSPD.

2)Webliography

www.bhadra.net

www.itcpspd.com

www.itcportal.com

http://en.wikipedia.org/wiki/Logistics

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