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PART-A
GENERAL INTRODUCTION
There are four important components for running an industrial organization i.e.,
Men, machine, material and money. All these four components have to be employed in
an industry in order to make the manufacturing process to extract the finished products
and marketing it properly to get sales realization with profit.
This is nothing but a process of material procurement planning. The very purpose
of planning of procurement of material is to purchase the good quality material for a most
competitive lowest price. This will help the organization to undertake manufacturing
process most effectively with minimum or nil wastage.
Any unwanted stock leads to debt capital which cannot be appreciated as good
financial management. Hence, material and money are playing a vital role in the efficient
financial management.
This project is select to have detailed study about the “Financial Planning and
forecasting” which is the one of the important activity in any industrial organization to
reach the organization goal with out much effort. Because, inventory management has to
be definitely considered for the increase of profitability and reduce the unwanted
working capital investment in the process of manufacturing.
MPM Inventory Management
INDUSTRIAL PROFILE
The invention of paper
Written communication has been the center of civilization for centuries. Most of
our important records are on paper. Although written has been around for a long time,
paper hasn’t. infact, putting thoughts down in written form wasn’t easy or partial. Earlier
people discovered that they could make simple drawing on the walls of caves which was
a great place for recording thoughts, but wasn’t portable.
Imagine spending hours scratching a massage into a heavy clay table and then
having to transport it, that’s exactly what the Sumerians did around 4000 BC. Although
this form of written communication was not portable, is still wasn’t practical because of
its weight.
For centuries people tried to discover better surface on which to records their
thoughts. Almost everything imaginable was tried. Wood, stone, ceramics, cloth, bark,
mettle, silk, bamboo, and tree leaves were all used as a writing surface at one time or
another.
The word ‘paper’ is derive from the word “papyrus” which is plant found in
Egypt along the lower Nile River. About 5000 years ago, Egyptians created “sheets” of
papyrus by harvesting, peeling and slicing the plant into strips. The strips were then
layered, pounded together and smoothened to make a flat, uniform sheet.
The person credited with inventing paper is Chinese man named Ts’ai Lun. He
took the inner bark of a mulberry tree and bamboo fibers, mixed them with water, and
pounded them with a wooden tool. He then poured this mixer on to a flat piece of
coarsely woven cloth and the water drain though, leaving only the fibers on the cloth.
By the tenth century Arabians were substituting lines fiber for wood and bamboo,
creating a finer sheet of paper. Although paper was of fairly high quality now, the only
way to reproduce written work was by hand, painstaking process.
By 12th century paper making reached Europe. In 1448, Johannes Guttenberg, a
Germen, was credited with inventing printing press. ( it is believed that movable type was
actually invented hundreds of years earlier in Asia ). Book and other important
MPM Inventory Management
documents could now be reproduced quickly. This method of printing in large quantities
led to a rapid increase in the demand for paper.
State No of Mills
Andhra Pradesh 39
Assam 2
Bihar 7
Chathisghad 9
Gujarat 91
Haryana 17
Himachal Pradesh 7
Jammu and Kashmir 1
Jharkhand 2
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Karnataka 19
Kerala 13
Madhya Pradesh 27
Maharashtra 90
Nagaland 1
Orissa 6
Pond Cheri 7
Punjab 73
Rajasthan 70
Tamil Nadu 34
Uttar Pradesh 94
Uttaranchal 16
West Bengal 26
Total 594
The paper industry is cyclical in nature: its demand is linked to the level of
economic activity and the supply is influenced by domestic production and as well as
international trade in pulp and paper.
USA ( over 30% ), Western Europe (around 20%), and Japan (12-15%) account
for a major portion of the demand. Global demands add stagnated in 1990-93 at around
250MN TPA with showing down of economic growth. Per capital consumption actually
dropped 3-5% and with dropping demand capacities closed down. The recovery started
in 1993-94 with improvement economic outlook. In 1994-95 international pulp and paper
prices kept rising on the back of growing demand.
India’s per capital consumption is very low at 3 kg against a world average of
over 45 kgs, domestic industry has nearly 600 mills with an aggregate capacity of 3.8
MN tons per annum. Out of 600 mills, 30 are large wood/bamboo based mills, 80 are
agro based and rest are waste paper based. The effective capacity is about 2.6 million
tones as a lot of mills are sick. In the new s print segment total capacity is
around0.4million TPA (MTPA), of this 73% is dominated by four major players in the
public sector while the rest of the capacity is shared by 14 players.
Structure of paper industry based on Raw materials required for making paper.
Strong demand from packaging segment will drive demand growth for industrial
paper. Establishment of new business area such as telecom and power will lead to
increasing literacy levels, thus improving low per capital consumption of paper (3.2 kgs
p.a). Besides rapid growth in population, enhanced literacy levels, growing quality
consciousness and changing consumer preferences will drive paper demand.
In view high capital costs, expansion of existing units and revivals of sick units
remain the practical option for capacity addition. Also, paper mills in India have to look
for ways to cut down costs to compete with imports.
International paper prices are not expected to prices are not expected to price
substantially over the short medium term. Domestic paper companies will thus continue
to reel under the pressure of reduced margins. However, a depreciating rupee will
marginally protect domestic companies from imports. Due to increased supply, some of
the companies have put their expansion plans on hold or have reduced their investment
opting for lesser capacity expansions.
Indian paper industry is classified broadly into two categories into two categories
paper and paper bonds then newsprint. The paper and paperboard segment constitutes of
cultural paper, industrial paper and special paper.
MPM Inventory Management
Paper industry in India has a long history with the first mill being commissioned
in 1832. The initial development and growth of paper industry till the early nineteenth
century was affected by the shortage of wood (soft wood) in the country. But in 1914, in
development of a process based on bamboo lead rapid growth of domestic industry. By
the end of sixties, the capacity for paper production lagged, demand and imports
increased to approximately 10% of the domestic demand. Most of the domestic
production was concentrated in the hands of a few large mills. By the late sixties, bamboo
as an input to paper industry came under short supply. Taking this into account, the
government of India started encouraging small units based on an agro residue and waste
paper in the seventies. Fiscal incentives were also offered. This lead to spurt in the
number of mills with small capacities.
But from the late eighties industry started facing an oversupply situation lower
price realization and plant closures. The downtrend continued till 1992, when demand
supply situation improved.
From 1993, step with the easing of the worldwide recession in the industry,
investments stated increasing. A booming capital market also helped in raising money for
new capacities. The industry was in a jolly mood up to 1996.
The increase in supply coupled with a worldwide recession has pushed the Indian
paper industry back into down trend. The global cycle was further affected by the Asian
crises, which has reduced demand considerably.
Since 1990 the paper industry in India, is following global cycle with periods of
over capacity leading to drop in paper prices, lower capacity utilization and slow down
in investments/capacity addition, followed by closure of mill, decreased in demand
supply gap and then back full circle to an increase in paper prices.
• Establishment of new business area such as telecom and power will lead to
increasing literacy levels, thus improving the low per capita consumption of paper
(3.2 KGS per annum). Besides rapid growth in population, enhanced literacy
levels, growing quality consciousness and changing consumer preferences will
drive paper demand.
• In view of the high capital costs, expansion of existing units and revival of sick
units remain the practical option for capacity additions. Also, paper mills in India
have to look for ways to cut down costs to compete with imports.
• International paper prices are not expected to rise substantially over the short-
medium term. Domestic paper companies will thus continue to reel under the
pressure of reduced margins. However, a depreciating rupee will marginally
protect domestic companies from imports. Due to increased supply, some of the
companies have put their expansion plans on hold or have reduced their
investment opting for lesser capacity expansions.
MPM Inventory Management
COMPANY PROFILE
Year Activity
1976 Major expansion to manufacture 75000T per annum news print and to increase
writing & printing paper production from 24000T per annum to 30000T
per annum.
1981 commercial production of newsprint started with self power generation of 25MW
1998 commencing of 90T/Hr SR boiler along with 3rd extraction cum back pressure
turbo generator (TG) of 16MW capacity, thus increasing the self power
generation capacity to 41MW
2002 expansion of effluent treatment plant with increased aeration capacity and
introduction of post Aeration treatment
VISION
“Mysore papers mill committed to deliver products and service
to satisfy the needs of customer.”
♦ To make continuous effort to improve quality by continuous training
♦ To actively involve people to contribute toward high productivity through
teamwork and innovation.
♦ To consciously work toward conversion of resources and minimization of
wastes of all forms.
MPM Inventory Management
MISION
♦ Creating a vibrant work culture
♦ Customer Satisfaction
♦ Consistent quality
♦ Competitive price.
♦ Enhancing productivity
• LOCATION : BHADRAVATHI(T),
SHIMOGA(D), KARNATAKA
QUALITY POLICY
AREA OF OPERATION
The regional office is situated at 16/5, Ali Asker Road, Bangalore. The
branches offices are situated at New Delhi, Mumbai, Kolkata and Chennai.
COMPETITOR:
c) Grades of paper
d) It is a private company.
Tamil Paper
• Dina malar
• Dinakaran
Shared
values
Skills Style
Staff
MPM Inventory Management
SKILLS:
In Mysore paper mills Ltd employees are to be recruited on the basis of their
Qualifications. Training facilities be provided to be both employees both internal and
external. There are 3 types of labours based on their skills they are
1) skilled labours
2) semi-skilled labours
3) un-skilled labours
STYLE:
STRATEGY:
The Mysore paper mill limited started on 1st April 1937 in the remote village of
Bhadravathi. There is no perfect mission statement in the MPM but the main aim of the
company will be producing good quality of paper and sugar to the public as well as
providing more number of employment and increase the standard of living of the people.
The Mysore paper mill company’s business philosophy is based of three core
values; they are operational excellence, Customer’s focus and product leadership.
The business strategy emphasizes the following
1. Increase their market shares.
2. Reduced cost of production.
MPM Inventory Management
3. Increase company performance.
4. Produce always quality product.
5. To meet social responsibilities.
6. Provide employment opportunity to the people of the area.
7. Meet the national and regional demand of paper and paperboard.
8. Reduce the import of news print from the foreign market.
9. Reduce the import of news print from the foreign market.
10. To manufacture and deal in all kinds of sugar and sugar products
11. To manufacture and deal in all kinds of sugar and sugar products
12. To cultivate and raise grass, timber, wood eucalypt.
13. To grow niligiri plant within the premises of the company. Which
Provide raw materials for the company at low cost.
SYSTEMS:
The system of the Mysore paper mills limited company clearly shows the
formal processes and procedures used to manage the organization, including the
control system, performance management measurement and reward systems,
planning budgeting and information system they follow the bottom to top
approach in decision making. That means first they collect the opinion of trade
unions based on that the top management take the decision which is better for
company.
STAFF:
MPM Inventory Management
Staff requirement is designed to ensure that those on board have the primary
focus as customer service with a high level of product and process knowledge and
operation excellence. Induction and training program are designed to conduct for
all employees at regular basis to ensure that these levels are continually enhanced
feed back for continuous improvement in solicited from all understood. Being a
dynamic organization susceptible and the changes are well understood.
At the first stage the company receives purchase order from its agents. They are
mentioning the product grade, quality, quantity etc.
The purchase department releases the raw materials to the pulp mill
3. Pulping Process:
In this pulping process the raw material pulping made in pulper with water. It will
undergo cleaning of pulp, refining and addition of required chemicals.
4. Production Process:
The pulps are passes to the paper machine and it passes through solid press water
removal. Then it passes through Dryer machine and it passed change calendar
machine next it passes to the online coating machine
5. Size Cutting:
Then passes to the size cutting machine in this machine they cutting the paper bands
according to the customer requirement
6. Finishing Yard:
The finished yard paper boards are passes to the stores or finishing yard.
7. Packaging:
The next step is packing. The workers pack the paperboards in bundles as orders.
8. Documentation:
9. Dispatching:
After documentation in proper ledger, the next process is dispatching the goods to
customers.
MPM Inventory Management
BRIEF EXPLANATION ABOUT THE ORGANIZATIONAL STRUCTURE OF
MPM:
The organizational structure of enterprises would depend upon its size, product
manufactured and its fictional divisions. The organizational structure may be flexible.
The company may change its structure according to the needs and suitability.
In MPM Ltd., the Board of directors is having the major position in the company.
The chairman is the chairman cum managing Director (CMD) of the company. He is held
responsible for formulating and implementing the policies, Procedures and rules with the
assistance of Board of Directors appointed by the Government and various financial
institutions. Different functional department heads like production, marketing finance,
and HRD & A etc., also assists him.
The Government appoints the General Manager of HRD & A. He always keeps
contact with all other functional departments for routine administration. He also keeps
direct contact with C.M.D. Each functional department heads are assisted by the
Assistant Managers. The Director of Production is in charge of some divisions’ viz.,
Material, Paper, Pulp, Sugar, Chemical etc., there is always co-ordination between all
functional departments through horizontal communication.
SHARE
HOLDERS
BOARD OF DIRECTORS
CHAIRMAN/MANAGING DIRECTOR
G.M.(Marketing) COMPANY
G.M.(Production) G.M. (H.R. D. & P) SECRETAR
Y
AGM.
AGM (PB)
AGM AGM
(MAINT)
(PROJ) (In
(HRD&P)
Change)
AGM
(FIN)
Sr. MANAGER Sr. MANAGER Sr. MANAGER
(Mktg) Sr. MANAGER
(CD) (NP)
(IA)
MANAGERS
DEPUTY MANAGERS
ASST.
MANAGERS
MPM Inventory Management
FINANCE DEPARTMENT
CHIEF OF DIRECTOR
OF FINANCE
MANAGER OF
MANAGER OF MANAGER OF
CONTROL &
FINANCE IN SALES ESTABLISHMENT
BUDGET
MANAGER
MANAGER MAIN A/C
CORPORATE MANAGER B/P
COSTING
FINANCE
PRODUCTION PROCESS:
Chipper House:-
Chipper house is a place where the different types of wood are cut in to homogeneous
product to heterogeneous and uniform chips.
Raw Material is received in accordance with the production requirement & silo stock of
chips.
MPM Inventory Management
Chipping process:-
Different chippers are run for different raw materials. There are two types of chippers
namely disc chippers & drum chipper. There are two drum chippers used for bamboo &
four disc chippers used for hard wood.
Here the accepted chips are sent to the digestion and unaccepted chips are screened and
sent for re-processing.
The accepted chips are stored in silo and issued to digestion process whenever required.
Accounting:-
A record of all the above activities is kept in a systematic manner. Chipper house issues
chips to two streams of pulp mills’
SWOT analysis is a tool for auditing an organization and its environment. It is the
first stage of planning and helps marketers to focus and key issue. SWOT analysis it is an
effective way of analyzing the organization potential by identifying strength, weakness to
examine the opportunities and Threats which may affect the organization carrying out an
analysis using SWOT tool will be enough to reveal the changes which can be
implemented easily and gain results.
STRENGTH
WEAKNESS
OPPORTUNITIES
THREATS
As per the balance sheet and profit and loss account of the company there is
decreasing in sales of Rs 42490.72 lakhs in 2009 and RS.33,742.72 lakhs in 2010 and the
company is present academic year it has the loss of Rs. -7,722.56. But the Balance of (-)
loss brought forward from previous year shows that the company is going under loss.
The following statement will show the comparison between the previous years,
2009 and 2010. That will base on the balance sheet and the profit & loss account for the
previous year and current year.
( RS in Lakhs)
For the year ended For the year ended
PARTICULARS
31.03.2010 31.03.2009
A INCOME
33,742.7 42,490.7
Sales
2 2
761. 32,981.3 1,142.7 41,347.9
Less: Excise Duty & Cess
42 0 4 8
Other Income 1037.37 3132.59
Variation in stocks -2989.11 259.08
31,029.5 44,739.6
6 5
MPM Inventory Management
B. EXPENDITURE
8,139. 9,210
Raw Material Consumed
07 .67
3,415. 4,641
Chemical Consumed
27 .05
765 90
Stores Consumed
.40 3.47
712 1,047
Repair & Maintenance
.46 .18
10,150. 13,680
Power and Fuel
45 .67
1,645. 1,220
Labor charges
78 .40
8,470. 7,042
Employee Benefits
28 .33
1,222. 1,132
Administration and Other Expenses
55 .83
1,443. 78
Selling Expenses
65 8.17
Prior Period Adjustment (net) 68 36,033. 56 40,235.
.48 39 9.00 77
Profit for the year before Interest, 4,503.
C.
Depreciation & Taxation -5003.83 88
Interest 1,864.
D. 1708.86 19
Depreciation 994.
E. 1009.87 86
Taxation-Fringe Benefit Tax 11.
F. - 89
Net Profit for the year 1,632.
-7722.56 94
Add: Balance of Loss (-) brought
forward from previous year -3202.28 -4835.22
Balance of Loss (-) carried to Balance
Sheet -10924.86 -3202.28
MPM Inventory Management
SOURCE OF FUNDS
A. SHARE HOLDERS FUNDS
11,889 11,889
Capital .34 .34
55 12,444 59 12,479
Reserve and Surplus 4.76 .10 0.11 .45
B. LOAN FUNDS
4,331 11,323
Secured Loans .57 .58
16,917 21,248 11,717 23,040
Unsecured Loans .27 .84 .27 .85
33,692 35,520
Total A+B .94 .30
APPLICATION OF FUNDS
C. FIXED ASSETS
50,847. 50,574.
Gross Block 42 36
38,612. 37,660.
Less : Depreciation 96 02
12,234.4 12,914.3
NET BLOCK 6 4
590. 12,824.8 209. 13,123.
Capital Work-in Process 35 1 42 76
5,074.4 4,343.
D. CAPTIVE POWER PLANT ATIONS 8 29
62.3 62.4
E. INVESTMENTS 3 4
MPM Inventory Management
9,031. 5,961.
Current Liabilities 26 71
3,911. 3,378.
Provisions 62 53
12,942.8 4,806.4 9,340.2 14,291.1
8 6 4 4
22,768.0 31,820.
8 63
MISCELLANEOUS EXPENDITURE
( to the extent not written off or
G. adjusted )
497.
VRS Payments -- 37
H. Profit and loss Account 10924.86 3202.28
33,692.9 35,520.
TOTAL ( C to H ) 4 30
MPM Inventory Management
The above statements are shows the company current situation in the market as
well as the financial position that are all discussing below:-
2) Du point analysis
Some of the few methods we taking for interpretation of financial position of the
company.
2009 it was 2.53:1 but in the year 2010 it shows that 1.37:1 it shows that current assets is
more than current liabilities .
In 2009 it was 3.84:1 but in the year 2010 it shows that 2.28:1 it shows that gross profit
margin may reduced to nearly 3times.
In 2009 it was 7.53:1 but in the year 2010 it shows that 3.23:1 it shows that company is not
in a financial sound position.
MPM Inventory Management
LEARNING EXPERIENCE
In my Ten weeks of project work in Mysore Paper Mill Ltd., I studied and learnt
many things carried in the organization. This project work helped me in gaining more
knowledge about the work and production carried out in the organization.
There is a strict rules followed in HR department and attendance was taken daily
to check the regularity we were used to stay from morning 9.00 AM to evening 5.0 PM
daily and visit different departments daily accordingly to there schedule.
There was a good reaction and co-operation by the superiors and sub-ordinates in
the Mysore Paper Mill Ltd., . They helped me in collection the information regarding the
different departments and production process.
I got the clear picture about the organizational work carried on and how the work
in allotted and how it is carried out and duties and responsibilities of the employees in the
organization. I observed the work techniques that are studied in subject are implemented
in the organization like welfare facility, training techniques etc,.
Finally this project work gave me the clear idea about the working condition in
the organization which will help me in future days.
MPM Inventory Management
PART-B
1. INTRODUCTION:
Since the advent of modern industries, wealth has become more and more
identified with money. An increased emphasis on the liquidity has led businessman to
hold cash and securities in preference to inventories although the later have an inherent
convertibility not possessed by he other categories. These have been made a strong
tendency towards holding the means for purchase of goods rather than the goods
themselves. Large inventories are now viewed with alarm, where as in times no one
would ever have doubted that such were beneficial.
Every enterprises needs inventory for smooth running its activities. It serves as a
link between production and distribution processes. There is generally, a time lag
between the recognization of a need and its fulfillment. The grater the time-leg, the
higher the requirements for inventory. The unforeseen fluctuations in demand and supply
of goods also necessitate for inventories. It also provides a cushion for future price
fluctuations.
1. raw materials
2. work in progress
3. finished goods
4. Consumable stores and spares.
A. RAW MATERIALS:
They are the inputs of the final products. They are purchased by the firm
from others and are used in the production for converting into finished
components. The quantity of raw materials required will be determined by the rate
of consumption and the time required for replenishing the supplies. The factors
like the availability of raw materials and government regulations, etc. too affect
the stock of raw materials.
B. WORK IN PROGRESS:
This refers to the goods lying in the manufacturing process. they are
normally practically finished or semi-finished that are at various stages of production
in a multi-stage production process. The raw materials enter the process of
manufacture but they are yet to attain a final shape of finished goods. The quantum of
work-in-process depends upon the time taken in the manufacturing process. The
grater the time in manufacturing, the more will be the amount of work-in-process.
C. FINISHED GOODS:
These are the final or completed products which are ready for sale. The
stocks of finished goods provide a buffer between production and market. The
purpose of maintaining inventory is to ensure proper supply of goods to customer.
In some concerns the production is undertaken on order basis, in these concerns
there will not be a need for finished goods. The need of finished goods inventory
will be more when production is undertaking in general without waiting for
specific order. Work in production, while stock of finished goods is required for
smooth marketing operation. Thus inventory serve as a link between production
and consumption.
Inventory control has been attracting the attention of managers in India for
a long time. But with the credit squeeze measures announced by the government
of India and the consideration of the recommendations of the committee for
inventories top management is deeply a concern with developing suitable norms
for inventory control. In this inventory than the other categories.
The term ‘Inventory’ refers to the stock of raw-materials, spare parts and finished
products held by a business firm. It is the aggregate quantity of material resources and
goods that are idle at a given point of time. The resources may be of any type; for
example men, materials, machinery, money, when resources involved in materials or
goods in any stage of completion, inventory referred to as stock. Hence inventory refers
to the ‘stock’ that a business firm keeps to meet its future requirements of production and
sales.
Several authors have defined the term Inventory. The most popular of them are,
“The term Inventory includes, Raw materials, Work In Progress, finished packaging
spares and other stock in order to meet an unexpected demand or distribution in the
future.”
1.4 ANALYSIS:
Date and information collected are analyzed using statistical tools, graphs and
charts.
2. INTRODUCTION TO COMPANY:
Mysore paper mills Ltd., was established in the year 1937 as a government
company later on in 1947. This company has been converted in to public limited
company.
MPM Inventory Management
The king krishnaraja Wodeyar established this factory to solve unemployment
problem for the Badhravathians and for effective utilization of natural resources.
Inventories are stock of the product a company is manufacturing for sale and
components that make up the product. The various forms in which inventories exist in a
manufacturing company are raw materials, work in progress, and finished goods. An
inventory control system is to be engineered to achieve the basic purpose for which the
inventories are created. The fundamental objective of a good inventory control system is
to be able to determine, what, when, how much to order, how much to carry in stocks so
as to gain economy in purchasing. An inventory system provides the organizational
provides the organizational structure and the operating policies for maintaining and
controlling goods to be stocked.
* Inadequate inventories
MPM Inventory Management
2.3 SCOPE OF STUDY
The company’s procedure for stores will influence more on the level of inventory
of the company. So the study of purchase has vital role to understand the efficient system
of the company.
2.5 METHODOLOGY
The study had been conducted at Mysore paper mills limited Badhravathi.
a) Primary data
b) Secondary data
PRIMARY DATA:
The method which was adopted to collect the primary data was personal
interview.
For gathering secondary data various other source were used. They are:
• Different accounting records and annual reports and research report of the
company.
• Published books, magazines, news papers, journals, websites and published
annual reports of the company.
• Different records related to inventory were collected by stores department i.e.
material management stock maintenance.
1. The time constraint which the study has been conducted only for six weeks.
2. The expected delivery schedules may not be possible in some monopoly
items. The average level can be fixed after an in depth study.
3. Level of accuracy of results of research restricted to the accuracy level.
4. The ABC classifications were done for materials and some materials were
selected and studied. The study can be extended to other materials also on the
same lines.
3. REVIEW OF LITERATURE
In this chapter the whole analysis is divided in to three parts. They are
OBJECTIVE 1
The literary meaning of the word “inventory” is stock of goods. Every enterprise needs
inventory for smooth running of its activities. It serves as a link between production and
distribution process. The unforeseen fluctuation in demand and supply of goods also
necessitates the need for inventory. It also provides a cushion for future price
fluctuations.
Some of the turnover ratios that are used to know the efficiency of inventory
management in Mysore paper mills lit…, are as follows:
Inventory turnover ratio measures the velocity of conversion of stock into sales.
Usually, a high inventory turnover velocity indicates efficient management of inventory
because more frequently the stocks are sold; the lesser amount of money is required to
finance the inventory. A low inventory turnover ration indicates an inefficient
management of inventory. A very high turnover of inventory does not necessarily
implies higher profits. The profits may be low due to excessive cost incurred in replacing
stock in small lots, stock-out situations, selling inventories at very low prices etc.,
• Raw materials.
• Work-in-process.
• Finished goods.
The inventory turnover ratio was 3.43 in 2005 and it is decreased to 2.926 in
2009 because inventory consumed and production high but in the 2010 it is increase to
3.369 it is not good compared to previous year and also cost (cost of goods sold) is high.
It may also be of interest to see average time taken for clearing the stocks.
This can be possible by calculating the inventory conversion period. The conversion of
stocks was 106.41 days in 2005 but it is 124.74days in 2009 and it is short period taken to
conversion of stocks compared to previous years that is 108.34days in 2010 and it is good
to organization.
It is the ratio with which we can measure the efficiency with which the firm
converts raw materials in to work in progress. Materials consumed can be found out as
opening balance of raw materials plus purchase minus closing balance of raw materials.
MPM Inventory Management
Table 4.3 Raw material turn over ratio: (Rs in Lakhs)
This ratio indicates the relationship between the sales and raw materials.
In the year 2005 it was 4.266 and it is increase to 6.282 in 2007 there is strong
relationship between sales and raw materials but in 2010 it is decrease to 4.146 it shows
decrease the efficiency of the firm.
This ratio indicates the relationship between the sales and stores and
spares. In the year 2005 it was 9.869 and it is increased to 10.948 in the year 2009 and it
is decrease to 8.88 in 2010. so this origination is not using stores and spares properly so
it is effect to production decreases.
This ratio shows the relationship between the sales and stock in process. It
was 373.49 in the 2005 but it is decreased to 298.05 in the year 2009. But in the 2010 it is
increased to 357.78 it is not good to organization because stock in process turn over ratio
is should be decrease and stock in process could be increase so it is better to origination.
This ratio determines the connection between inventories to working capital. It was 1.604
times in 2005 but it is decreased to1.112 times in 2009.but in 2010 it is increased to 2.20
so it is good to organization because the working capital consumption is decreases. (i.e
day to day transaction cost is decrease) so that indicates the organization is good at cost
reduction.
This ratio indicates the extent, which the investment in fixed assets contribution
was 1.97 times in the year 2005. And it has increased to 3.29 in 2009. But in 2010 it is
sudden changes (i.e. decreased) In fixed assets turn over ratio that is 2.76 because of huge
changes in sales so the fixed assets turn over ratio decreased.
ANNUAL PRODUCTION
The following table is shows about the annual production in Metric Tones in the MPM
YEAR PRODUCTION
2005-06 2654.32
2006-07 2784.51
2007-08 2889.51
2008-09 3060.32
2009-10 1797.35
MPM Inventory Management
Production activity can be show in the following graph it is easy to understand the
capacity of production of the paper in MPM.
OBJECTIVE2
ABC ANALYSIS
‘C’ items represent relatively least value and would be under simple control.
ABC analysis enables to exercise selective control when the materials manager is
confirmed with a large number of items. The significance of this analysis is that it spot
lights attention to be given in respect of the areas like.
• Loss
• Wastage
• Scrap
• Quality
• Price variance
• Usage variance
• Inventory turnover etc.
It also helps to determine safety stocks frequently of ordering preparing of
control statements sources from which material is to be procured etc. hence ABC
analysis is one of the best technique of inventory control.
Table 4.8 Consumption price Data of 20 Items of Mysore Paper Mills limited.
Table 4.9 Revised table with items arranged according to their respective ranks
It is the fixed quantity of material which is ordered when the stock comes down to a
reorder level, so that cost of purchasing is equal to cost of storage making the total
inventory cost minimum.
There are various ways of determining the EOQ, such as setting out a tabulation of cost
for various order quantities until the minimum cost is determined or by formula or by
using a graph. The most convenient way is the following formula:
The EOQ applied to Mysore paper mills ltd raw materials for 2 years. The
company’s EOW units will be varied in 2 year because of quantities issued to the
production department will be change the year after year. If the consumption rates will
increase the quantities of raw materials should also be increased for the production. The
every item in EOQ techniques presented in table will be used for paper production.
MPM Inventory Management
In 2008 the quantity should be minimum units 9503, when compare to year 2009
is units 10032. If the company is ordering as well as carrying cost will also increase every
year and these cost are different for different items in the company.
The ordering and carrying cost will be the main elements for the paper
manufacturing units. If the companies carrying cost will occurred by way of loss due to
pilferages, wastages and breakages in the sores and the ordering cost will occur by way of
transportation of items from one place to another place. Economic Ordering and
Quantity is shown in table 4.11.
VED ANALYSIS:
This classification is usually applied for spare parts to be stocked for maintenance
of machines and equipment based on the criticality of the spare parts. The stocking
policy is based on criticality of the items. The vital spare parts are those which can cause
stoppage of the plant if not available usually such spare parts are known as capital or
insurance spares.
The inventory policy is to keep at least one number of vital spares irrespective of its
value. Also spare parts be supplied by manufacturer are treated as
Vital spare, the stock of which even for as short time will stop production for
quite same time and where the cost of stock out is very high are known as
vital spares.
Essential spares, the absence for which cannot be tolerated for more than a
few hours a day and cost of low production is high and which are essential for
the production to continue are known as essential spares.
Desirable spares, those which are needed but their absence for even a will not
lead to stop spare of production.
Interpretation
From VED analysis Mysore paper mills limited (Here took major group of raw materials
for the analysis) It is clear the ‘V’ class item for vital usage of items. It constitute for
85.7% annual inventory consumption of total items of 40% and E class items that is
essential of usage of materials the total annual usage is 11.9% of total consumption 30%
and this class is called as medium class usage item and D class of usage items this
constitute 2.3% of total usage of item. This shown in Table 4.12.
MPM Inventory Management
Table 4.12 VED Usage Data on 10 Items
Items Usage
4 40 43200 85.7 V
3 30 6000 11.9 E
3 30 1180 2.3 D
HML ANALYSIS:
MPM Inventory Management
The high, medium and low classification follows the same procedure as if adopted in
ABC classification only difference is that in HML, the classification unit value is a
criteria and not the annual consumption value.
The items are inventory should be listed in the descending order of unit value and it is up
to the management to fix limits for three categories.
HML analysis is useful for keeping control or consumption at departmental levels for
deciding the frequency of the physical verification and for controlling purchase.
Interpretation:
It is clear that H class items that is high value price items, constitute for 60.03% of annual
inventory consumption price, and M class item that is medium level value price that
constitute 31.19% of total annual price and L class items that is low price items constitute
8.78% T this shows in Table 4.14, Table 4.15 respectively.
peroxide
powder
Alum
Alum
2 20 56327 49.50 H
4 40 35783 31.44 M
MPM Inventory Management
4 40 21672 19.04 L
OBJECTIVE 3
The purchasing function occupies a vital and unique poison in the organization of
manufacturing industry. Because purchasing is one of the main functions in success of a
modern manufacturing concerns.
Mass production industries like Mysore paper mills ltd.., since they relay upon a
continuous flow of right materials, demand for an efficient purchasing division.
The company purchase department stands for following objectives, in order to achieve
competitive advantage in material procurement
FINDINGS:
Inventory control system: As per the study, raw material has increase
the efficiency of the inventory and drastically has reduced the
transportation cost.
The company should take in to account of existing stock level when it changes the
design or when it introduces new model otherwise absolute and non moving
stocks will increase due to frequent changes.
MPM Inventory Management
The employees are very rude behavior and they do not have courtesy to speak
with subordinates and trainees (visitors).
The Middle class employees are inefficiency and ineffectiveness towards work.
For making ABC analysis usually companies consider value and consumption. In
Mysore Paper Mill Ltd., they also consider the value and consumption of raw
materials. This is one of the best evaluations of ABC analysis in which the
company has developed.
The company is making open order for the whole year to the supplier and the
plants according to monthly schedule produce the inventories.
The stores should be according to the needs of the company this will provide
effective safe and good storage system.
RECOMMENDATION:
There is always a threat from the domestic players and a potential threat from the
MNC is for the MPM so it is desirable to contract effective barriers to reduce
competition.
MPM Inventory Management
The MPM should also concentrate on the diversification so as to ensure expansion
and to utilize the unexploited opportunities.
As the dealers are not satisfied by the margin offered by the company, it should
increase the margin for the dealers who have been utilized both for selling and
collecting marketing information.
The company should also target on the high customers who from the customer
base from the MNCs.
The company should invest on more on R&D to come up with new varieties of
paper in a cost effective manner.
The company has use various technologically advanced media such as the
internet, mobile, advertising and digital displays to promote its products apart
from the conventional media.
It should periodically contract its dealers and customer and should review its
performance.
SUGGESTIONS:
For making ABC analysis usually companies consider value and consumption. In
Mysore Paper Mill Ltd.., they also consider the value and consumption of the raw
materials. This is one of the best evaluation of ABC analysis in which the
company has developed.
The store should be moderate according to the needs of the company. This will
provide effective, safe and good storage system.
The company is making open order for the whole year to the supplier and the
plants according to monthly schedule produce the inventories.
The company should follow the first in first in first out method in issuing the
materials to the production department.
These materials issuing practices are doing well and have more contribution
towards effective material management. It helps a lot in achieving effective
inventory control over the materials in the company.
The Company which is give more concentrate on employees benefit for the
current year (i.e. the employees benefit which increased compared to previous
year) that has to be reduce.
The company which gives more cash discount on sales so this is not good for
organization.
Employers do not use any set of safety helmets and also. So it makes
compulsory use of safety helmets while doing the work which helps to the
efficiency and health of employees.
The company can consider by producing the other varieties of paper like cards,
drawing paper etc.
Excessive labor in certain department they should try to remove the labor.
CONCLUSION:
In Mysore paper mills ltd.., the purchase and stores department are handling
inventory inefficiently in the organization due to the problem of inadequate technology
and inexperienced employees. They are maintaining ancient method of books of accounts
and it carried high cost and there is no proper utilization of funds. The major factor which
is effect the whole organization that is conflict (agency cost) which is high.
The MPM ltd…, which is run good at production, apart from that the other over
heads (i.e. factory, office and administration, and selling and distribution expenses.) are
high. So the company should reduce the cost which helps to improve the organization.
5. ANNEXURE
Profit and loss account and Balance Sheet are shown below:
31st the profit and loss account for the year ended march 2010
(Rs. In lakhs)
Income 42490.72
32981.30 41347.98
Expenditure
MPM Inventory Management
Raw materials 8139.07 9210.67
consumed
(Rs. In Lakhs)
SOURCE OF FUNDS
12444.10 12479.45
B. LOAN FUNDS
21248.84 23040.85
APPLICATION OF FUNDS:
C. FIXED ASSETS
17749.34 23631.38
12942.8 9340.24
8
G. MISCELLANEOUS
EXPENDITURE
• VRS payment-note: 4.13 0.00 497.37
5. BIBLIOGRAPHY
WEBSITES:
www.mpm.co.in
www.mysorepapermill.co.in