INTRODUCTION Inventories are maintained basically for the operational smoother which they can affect by uncoupling successive

of production, where as the monetary value of inventory serves as guide to indicate the size of the investment made to achieved this operational convenience. The material management department is expected to provide this operational convenience with a minimum possible investment in investors. Inventory control has been attracting the attention of managers India for a long time. Managing working capital is synonymous with controlling inventory. Good inventory management is good finance management. Even where funds are painful, the finance officer should be prepared. Managing the level of inventories fundamental to establishing a long term competitive advantage. Inventory and how it is managed is strongly related to the celerity of firms to obtain the necessary competitive edge to make money now and in the future. Inventory management policy has become a competitive weapon.

Inventory management may be defined as the sum total of those activities which are necessary for the acquisition, storage, sale and disposal or use of materials. It is a subject which the merits the attention of the top level management and influences the decision of the planning and Executive personnel. An inventory is a list or schedule of articles comprised in an estate, describing each article separately and precisely so as to show what the state consists of; it is well recognized assed assuming importance as asset management. Inventory is the total amount of goods and, or materials contained in a store of factory at any given time. Store owners need to know the precise number of items on their shelves and storage areas in order to place orders or control losses. Today the efficiently and state of method of inventory management because poor or Miss Management of inventory is harmful not only to the industry, but also to the country as a whole as it affect the economic, social and political environment of the country. Inventory is a stock of goods required by an organization for its successful operation. Inventory is classically defined as an idea resource of any kind having an economic value. Inventory makes a significant contribution to the operational efficiency and profitability of the enterprise, and so, it is very essential to reduce to amount of capital locked up in inventories; operating

efficiency of the industry can be optimized if inventories are handled properly and effectively. Hence the analysis of inventory management of the firm forms part of financial management. The present study is intended to explore the performance of inventories of KAMCO Ltd Athani for a period of 20062007 to 2010-2011.It is presumed that a discussion of published accounts of the company can give the essential requirement of data. However, the information need to completely pinpoints the efficiency or inefficiency due to their inherit limitations. 1.1 Scope and relevance of the study This study is conducted to analyze the performance of inventory system in KAMCO Ltd. In KAMCO Ltd, inventory management is complex activity. Changeable business scenario and economic realities of investments made in different inventory levels, there is a scope for further studies with respect to measuring the effectiveness of inventory management undertaken by the company. This study helps to obtain general view of the inventory management practices of KAMCO Ltd. The major area covered under this study is performance of inventory in the company that is whether it has improved, deteriorated or remains constant. 1.1 objective of the study

The objective of the study includes: 1. To ascertain the efficiency of KAMCO Ltd in the management of inventories. 2. To study the inventory control techniques and valuation method followed by the company. 3. To suggest the management to optimum level of inventory maintained for the efficient running of the company. 4. To suggest a minimum inventory in inventory to maximize profitability.

1.2 Methodology The study is partly descriptive and partly analytical. It is descriptive as regards the literature and analytical as regards the data collected and the data are collected from both primary and secondary sources. 1.3 Source of data 1. Primary data: The primary data was collected through unstructured interview and discussion with manager and staffs of KAMCO Ltd. 2. Secondary data: The study mainly based on the secondary data. Secondary data was collected from company websites, records, annual reports, journals, magazines, and balance sheet profit and loss account. 1.4 Period of study The period of study is 5 years from 2006to 2011. 1.5 Tools for analysis Tools used for the analysis and interpretations of inventory management are:-ABC analysis, VED analysis. 1.6 Chapter schemes This study is organized into six chapters namely introduction, review of literature, industry and company profile, theoretical analysis, data analysis and findings suggestions and conclusion.

Chapter-1 Introduction The first chapter is an introduction chapter. It deals with the general idea about inventory management, scope and relevance of inventory management, objective, methodology, period of study, tools used for analysis and interpretation and limitation of the study. Chapter II Review literature This chapter includes review of literature of various books, journals, magazines and project studies. Chapter III Industry and company profile This chapter includes Indian tiller industry company profile, product profile and organization chart of the KAMCO Ltd. Chapter IV Theoretical analysis of the study This chapter deals with the theoretical background of inventory management which includes meaning, nature, objective, components, benefits, and techniques used for measuring efficiency. Chapter V Data analysis

Data analysis consists of different techniques for evaluating the performance of inventory management.

Chapter VI Findings, suggestions, and conclusion. This chapter deals with important findings suggestions to strengthen the inventory management in the company and conclusion of the study. 1.7 Limitations of the study The study is not free from limitations. The important limitations are:
1. This study is mainly based on secondary data

which were collected from the company records. 2. The cost data is not available because it is confidential. 3. The study has been made only on the basis of selective inventory tools. 4. This study is limited to five years.

CHAPTER-II

REVIEW OFLITERATURE

REVIEW OF LITERATURE In any research studies, it is necessary to carry out a comprehensive literature survey to identify the research gaps and scope for conducting the study. So an attempt is made in this chapter to review some of the existing literature in the area of inventory management. Generally, research studies and articles are reviewed in this context. According to Websters dictionary
1

(1993), the

term inventory actually means a list of items with description and quantities of each. In manufacturing terms, in addition to manufacturing tools, equipment, raw materials, hardware and measurement instruments, which are the focus in this article, investments, also include component parts, work-in-progress and finished product or goods. Rajagopalan and malhorta
2

(2001) indicates

that while it appears that the general level of inventories has decreased across all industries since the 1960s it does not appear that the trend accelerated in the 1980s or there after, as JITs proponents might suggest.

10

Chen, Frank and Wu level, there appears to

3 (

2003) indicates that, when significant decrease in

studying inventories on a firm level instead of an industry be inventories since 1980 however, Chen, Frank, and Wu focus on the economy as a whole. Addressing the utility of manufacturing inventory system in general, Voolman, Berry and Why Bark4 (1997) They noted that a key in management manufacturing issue is determining the inventory control systems performance. also indicated that industry performance is measured by such factures as inventory carrying costs and inventory turnover. Wagner and Whitin5 proposed the WW-model for the anticipated lot sizing problem and gave a corresponding polynomial-time algorithm. Newahartetal6 (1993) quantified the effects of inventory required for locating parts of the supply chain in different geographic areas by using a two- phased approach. Chaing and Gutierrez
7

(1996) analyzed a periodic

review inventory system in which there are two modes of re-supply, namely a regular mode and an emergency mode, within the framework of an order- up- to-inventory level. Hoshino
8

(1996) proposed two theoretical criteria

allowing for selection form fixed- size ordering policies and

11

the choice between the pull- type ordering and the pushtype ordering policies. Relph and Barrar
9

(2003) argued that excess

was important because there was evidence that even in well managed businesses a significant proportion of the inventory existed in excess any given time.

The

literature

dealing

with

inventory

management policies is very rich and has grown fast during the last year. Below, we classify these policies into two approaches according to the type of demand information. In the first approach, the policies suppose that there is no advance demand information and the decisions are made in real time using the inventory depletion. We call this approach standard inventory management approach. The second approach includes all the inventory management policies that assume the existence of advance demand information as firm or forecasts. Gross and Harris considers and supply Buzacott systems and with

Shanthikumar10

endogenous lead times due to congestion effects. They study the base stock policy through a detailed analysis based on queuing theory. Note that these works are

12

between the border of inventory management systems and production/inventory management. During the last years, with the development of information systems technology, been the literature on inventory inventory has oriented towards

management with advance demand information. The advance demand information can be given in the form of firm orders or forecasts. Karaesmen give a rich literature Review on advance demand information based inventory systems. There is also a body of related literature dealing with future demand information in the form of demand forecast. Health and Jackson and Graves
11

study

mono stage and multi stage inventory systems managed by an Adaptive Base stock policy in the presence of forecasts, and they used the MMFE model(Martingol Model of for caste Evolution) for the updates of the forecast vector. More recently, we propose a new forecast based inventory the management approach. model We on introduce the the concept of forecast uncertainty and we show the impact of forecast uncertainty inventory management system.

13

14

CHAPTER- III

INDUSTRY AND COMPANY PROFILE

INDUSTRY PROFILE

15

Life on earth is supported by the inches of earths crust, fulfilling the basic needs of food, shelter and clothing. Over 100 million Indian farmers and farm workers have been the backbone of Indians agriculture. In beginning, all crops are produced and prepared by human muscles. This was a time consuming and need a lot of labour work. Cost of production was very high. Indian agriculture has contributed significantly in

achieving self- sufficiency to avoid food shortage in our country. Rapid growth of agriculture is essential not only to achieve self reliance at national level but also for house hold food security. In order to achieve the objective of meet the farmers need, Indigenous Agro Machinery Units were to be set up, without resorting to imports undoubtedly posed a heavy burden on the nations exchange and were hardly suited to the local conditions. Thus out of the nations need, KAMCO was born in the year 1973, as a fully owned undertaking of Government of Kerala. In partial fulfillment of the PGDM programme, the trainee had undergone 30 days internship training at KAMCO.

16

Kerala being a consumer state it depends largely on agricultural products from the neighboring states. It has ting and small farmlands owned by private landowners. Even those available lands are not fully utilized for cultivation, owning to economic reasons. Traditional cools and cackles employed by the farmers. In the cultivation, there were no motorized or mechanized equipments available in the state. KAMCO was

adventurous enough to venture into this bleak scenario, and introduced its power tillers and other medium and small sized mechanical cods of cultivation. KAMCO is the one and only one industrial unit in the state which provides machineries to the farming segment as an aid to their cultivation being a monopoly; KAMCO controls the Kerala market in supplies of automated farming equipments other competitors are yet to step in to scene in the state. This industry is facing a great threat that the changing of agricultural economy in to an industrial economy.

Producers in the same industry in world market are:

1. KUBOTA POWER LTD, JAPAN. 2. SUNTEC LTD, SHENZHEN.

17

Producers in the same industry in the domestic market. 1. VST TILLERS LTD, Bangalore. 2. BULL AGRO IMPLEMENTS, Coimbatore 3. ASB GROUP INDIA, New Delhi. 4. SOVZA SIFANG AGRO ENG. PVT. LTD. Maharashtra 5. BANWAIT TRADE SERVICES, Punjab. INDIAN SCENARIO Farm mechanization helps in effective utilization of inputs to increase the productivity of land and labour.It helps in reducing the drudgery in farm operations. The early agricultural mechanization in India was greatly influenced by technological development in England. After the green revolution in 1960, farmers enabled to adopt mechanization inputs. The development of Power Thresher in 1960, with integrated Bhusa making attachments and aspiration blower was the major achievements of Indian Engineers.

18

These threshers are widely adopted by farmers. Demand for other farm machinery such as reapers and other harvesters increased. Even farmers with small holdings also use these equipments. The present trend in agricultural mechanizations is to use high capacity machines. With the modest beginning of manufacture of tractors in 1960s in with foreign collaboration, today the Indian farm machinery industries meet the bulk of mechanization inputs and also exports. These industries have adopted sophisticated production technologies, and some of them match international standards. The enabled scope of imported technology by organized sector and entry of foreign investor is likely to accelerate exports. Since cost of production of farm machinery in India is more competitive due to lower wages the importers from various countries will find Indian farm equipments more attractive. Indian products however shall need improvements in quality for giving major export growth for this mass production of critical and fast wearing components and their standardization would greatly help the industry. COMPANY PROFILE Kerala Agro Machinery Corporation Ltd,

popularly known as KAMCO was established in the year

19

1973 as a subsidiary of Kerala Agro Industry Corporation Ltd, subsequently become a fully owned government of Kerala undertaking at Athani, 25 Kms to North Kochi. It all began in 1958, when Dr.Rajendra Prasad the president of India was presented with a Kubola power Tiller by the Japanese. The machine helped to open up new avenues in farm mechanization for a country predominantly agrarian. It was realized that mechanization of farming operations would be one of the key to engineering a successful Green Revolution and reliable manufactured farming equipment become the need of the day. With these purpose KAMCO was set up in 1973.

KAMCO was established in 1973, to impart momentum to the agriculture scenario in India Modern mechanized farming techniques were required to make large scale cultivation profitable. Moreover independent India looked up on agriculture as the back bone of its economy. KAMCO started off setting up its first fully fledged plant in ATHANI were, KAMCO Power Tillers was manufactured KUBOTA, JAPAN. The product was warmly received by the agricultural community and has still relined its No: 1 position for over 3 decades. Other

20

products like Diesel Engines and Power reaper which were launched in course of time, also met huge success. Today KAMCO has four manufacturing plants in Kerala.
1. Athani - Started in 1973 for manufacturing of

Power Tillers.

2. Kalamassery started in 1975 to set up

production of diesel engines. 3. Kanjikode started in 1990 to set up production of Power tillers. 4. Mala began in 200 to meet the rising demand for Power Reapers. KAMCO an ISO 9001-2000 company has a full fledged research development using in addition to sophistical testing equipments for comprehensive quality control checks. KAMCO drives its power from a 567 strong proactive and flexible work force. Today KAMCO- Athani has three states of the cart plants in Kerala. Our pioneer plant at Athani, just 25Km from the port city of Kochi and 3 km from, international Airport, is the prime centre.

21

major

mile

stone

achievement

of

the

company is that KAMCO got the international quality Excellence Certificate under ISO 9002 in OCTOBER 1996. KAMCO is the 2nd public sector undertaking in Kerala getting this converted certificate and the only public sector undertaking that has got ISO- 9002 certification justifying the high standards of the products for their three units. From 15.03.2002 onwards KAMCO becomes an ISO 9001- 200 registered companies by KPMG quality registration certification. Vision Beyond KAMCO with over three decades of engineering excellence, stands as the No.1 power tiller manufacture in India not surprising, with four state of the art production plants an innovative R&D and stringent quality control systems rated as one of the best in the country. The technically competent, dedicated management and workforce will go on to ensure that KAMCO shall be the leader for several for years to come. accredited by the Dutch Council for

Mission

To be an innovative, resourceful and profitable company.

To meet customer requirements of quality, service and price constantly.

22

 To provide doing business with us easy and delightful to our customers. To provide a congenial and entrepreneurial work environment in which employees can respond to the needs of business and service, earn fair rewards and can be satisfied.

Objective of the company The objectives of the company are to

manufacture in India, either in collaboration with or otherwise import and trade agricultural machinery like Tractors, harvester, Power Tillers, Power Diesel Reapers, engines combine sets, The and Transplanter, Pump

Implements, Accessories and spares there to. objective also workshops/ repair shops to undertake repairs

include establishment of engineering

servicing of agricultural machinery or other machinery, equipment, implements and tools. Assembling unit was established in 1970 at Athani by M/s. Kerala Agro Industries Corporation for the assembly of Kubota Power Tillers in technical collaboration with M/s Kubota Ltd, Japan, the worlds leading manufacture of Power Tillers and other Agricultural machinery. On expiry of the collaboration, KAMCO manufactures power tillers with their own facilities. KAMCO Power Tillers have become the most sought after Power Tiller in India because of their quality and reliability. Product profile
23

Product and services Product list KAMCO manufactures and market mainly these products KAMCO POWER TILLER MODEL KMB 200 KAMCO Super DI power tiller KAMCO power reaper model KR 120 KAMCO stone cutter KSC 625 KAMCO Agria 602 DE POWER Tiller Quality systems and certifications ISO 9001- 2000 version Improvement in the systems and improved Comply with the requirement of customers and Improvement in the effectiveness of the Address customers, dealers, vendors, society

satisfaction. applicable statutory requirements. established quality system. employee and shareholders for their requirement and satisfaction.

24

Quality standards

Quality standards for every component have been established by the company. All components are subjected to close instructions and observation. Quality assurance departments equipped with all modern facility. The company got a standard room for calibration all measuring instrument. The companys is to equip its with all modern inspection and testing equipment and addition well as replacement. Quality policy Total customer satisfaction through quality product and services with improved technology and participation. Comply with requirements of customer and applicable statutory requirements. Performance details of the company KAMCOS plant in Athani is designed for manufacturing of KAMCO power tillers. It is one of the public sector companies which got the ISO certificate for the quality product. This one of the financially sound public organization. The company had carried over loss of 210 lacks up to march 1984. The company is running on profit for last 22 years continuously increasing its production turnover and profit year after year. KAMCO

25

has established three more units its internally generate units.

26

Mile stone

1973 KAMCO ltd was established as wholly owned 1986 KAMCO becomes a separate government of 1992- Second unit established at Kalamssery. 1995- Witness the setting up of third unit of KAMCO 1996- KAMCO won international Quality Excellence 2000- latest additional units were being started at 2002- KAMCO become an ISO 9001- 2000 registered

subsidiary of KAIC. Kerala undertaking.

at kanijikode. certification. Mala/ Thrissur District. company by quality registration Accredited by the Dutch Council for certification. Present Status of the Company Present status of the KAMCO is synonymous with service to the their precision and and quality is revolutionizing small marginal holding

throughout the country. Today KAMCO power tiller in the most sought after tillers in India, enjoying over 60% of the market value at national level. The company with its four plants at Athani, Kalamassery, Kanjikode, Mala units is confidently meeting the demands of KAMCO products in India and in aborad. The main markets for the power tiller are at West Bengal, Assm, Tripura.
27

Various Departments of KAMCO Purchase Department Stores Department Quality assurance Department Assembly department Human resource Development department Marketing Department System Department
Human Resource Managing Department

SWOT Analysis of the Organization Strengths 1. Good production facility. 2. Good incentive scheme. 3. Qualified and skilled labours. 4. Environment friendly. 5. Efficient management. 6. Strong and accepted products. 7. Reputed brand name and image. 8. Financially sound. 9. Good industrial relation. 10. Good working atmosphere. Weakness 1. Average age of workforce in the company is 54 years. 2. Legally depends on stow sates growth. 3. For the recruitments, time delay will come. 4. Lack of technical up gradation and automation.
28

5. Thrust on It application is not adequate. 6. Political interference. Opportunities 1. Dominating shares. 2. Good brand loyalty. 3. Government support. 4. Diversification programs. 5. Innovative and bring out new products to meet new needs. 6.Boom in the automobile industry and related engineering services. Threats 1. Government policies. 2. High competition from choice products. 3. Liberation privatization globalization. 4. Growth of private enterprise in the sector. 5. Charging the position head- through research.

29

CHAPTER-IV

THEORETICAL ANALSIS

30

THEORETICAL ANALYSIS Introduction Every enterprise needs inventory for smooth running of activities. It serves as a link between production and distribution process. There is generally, a time lag between the recognition of a need and its fulfillment greater the time-lag, the higher the requirements of inventory. The unforeseen fluctuation in demand and supply of goods also necessitate the need for inventory. It also provides a cushion for future price fluctuation. The investment in inventories constitutes the most significant part of current assets. So it is very essential to have proper control and management of inventories. The purpose of inventory management is to ensure availability of material in sufficient quantity as and when required also to minimize investment in inventories. 4.2 Meaning and nature of inventory The term inventory refers to the stock piles of the production which a firm is offering for sale and the components that make up the product. In other words,

31

inventory is composed of assets that will be solved influence in the normal course of business operations. The dictionary meaning of inventory is stock of goods or list of goods. Many understand the Word inventory as stock of goods. But, the general accepted meaning of the word of goods, in accounting language is the stock of finished goods only. In a manufacturing firm, however goods, raw material and stores. The collective name for all those items is inventory. The ICAI define inventory as tangible property held. For sale in the ordinary course of business, or In the process of production or sale, or For consumption in production of goods or service

for sale including maintenance, supplies and consuls other than spares. Inventory measured in terms of money constitutes an important element in the working capital of most business firm expected financial once. Their size and rate or turnover, there for influence greatly the size and rate of turnover of working capital and through them, the income and profit of a business. Thus inventory management is having considerable significance to all business firms. 4.3 Components of inventories

32

a)

Raw materials Raw materials from a major input into the

organization. They are required to carry out production activities uninterruptedly. The quantity of raw materials required will be determined by the rate of consumption and the time required for replenishing the supplies. b) Work in progress The work-in-progress is that stage of stocks which are in between raw materials and finished goods. The raw materials enter the process of manufacture but they are yet to attain a final shape of finished goods. c) Finished goods These are which are ready for delivery to the consumers. The stock of the finished goods provides buffer between production and market. The purpose of maintaining inventory is to ensure proper supply of goods to consumers. The need for finished goods inventory will be more when production is under taken in general without waiting for specific orders. d) Stores and spares These are materials which are needed to smooth the production process. These are not directly entering production but they are as catalysts. It is also know as supplies it includes office and plant clearing materials( Soap, Brooms) oil, fuel etc.

33

4.4 Benefit of holding inventories Although holding inventories involves blocking of a firms funds and the cost of storage and handling. Every business enterprise has to maintain a certain level of inventories to facilitate uninterrupted production and smooth running of business generally there are three main purpose or motives of holding inventories. i. The transaction motive Every firm has to maintain some level of inventory to meet the day- to- day requirements of sales, production process, customer demands etc. ii. The precautionary motive Firm should keep some inventories for unforeseen circumstances also. It helps to meet the unpredictable changes in demand and supplies of materials. iii. The speculative motive The firm may keep some inventory in order to capitalize an opportunity of making profit. 4.5 Inventory Management Inventories often constitute a major element of the total working capital and hence it has been correctly Observed, Good inventory management is Good financial management. Inventory management is concerned with keeping enough products on hand to avoid running out

34

while at the same time maintaining a small enough inventory balance to allow for a reasonable return on investment. Objective of Inventory Management

To ensure continuous supply of materials, spares and finished goods, so that production should not suffer at any time and the customers demand should also be met.

To avoid both over stocking and under stocking of inventory. To maintain investments in inventories at the optimum level as required by the operational and sales activities.

To keep material cost under control. So that they contribute in reducing cost production and overall costs. 4.6 Benefits of Holding Inventory Every business enterprise has to maintain a certain level of inventories to facilitate uninterrupted production and smooth running of business. In the absence of inventories a firm will have to make purchase as soon as it receives orders. It will mean loss of time land delays in execution of orders which sometimes may cause loss of customers and business. A firm also needs to maintain

35

inventories to reduce ordering costs and avail quantity discounts and so on. Generally speaking; there are three purposes or motives of holding inventories. a) Transaction motive Emphasis the need to maintain inventories to facilitate continuous production and timely execution of sales orders. b) Precautionary motive Necessitates holding of inventories to guard against the risk of unpredictable changes on demand and supply forces and other factors. c) Speculative motive Influence the decision to keep inventories for taking advantage of price fluctuations, savings in reducing costs quantity discounts and so on.

4.7 Risk and Costs of Holding Inventories The holding of inventory involves blocking of a firms funds and incurrence of capital and other costs. It also exposes the firm to certain risks. The various costs and risks involved in holding inventories are:

36

1.

Capital Costs Maintaining of inventories results in blocking of a

firms financial resources. The has therefore to arrange for additional funds to meet the cost of inventories. The funds may be arranges from own resource or from outsiders. But in both the cases the firm incurs a cost. In the former case, there is an opportunity cost of investment while in the later case; the firm has to pay interest to the outsiders. 2. Storage and Handing Cost Holding of inventories also involves on storage as well as handling of materials. The storage costs include the rental of the godown, insurance charges and soon. 3. Risk of Price Decline There is always a risk of reduction in the prices of inventory by the suppliers in holding inventories. Thus may be due to increased market supplies, competition or general depression in the market.

4.

Risk of Obsolescence The inventories may become obsolete due to

improved technology, changes in requirements, and change in customers taste and so on.

37

5.

Risk of Deterioration Quality The quality of the materials may also deteriorate

while inventories are keep in the stores. 4.8 Criteria for Judging the Inventory System While the overall objective of the inventory system is to minimize the cost to the firm at the risk level acceptable to management, the more proximate criteria for judging the inventory system are: Comprehensibility Adaptability Timelines Comprehensibility Inventory systems range from the utterly simple to the widely complex. Irrespective of flow simple or complex a system is, regardless of whether it is automated or manual, it should be clearly understood by all affected parties. The system must be properly explained to al concerned so that its purpose, logic and rational are transparent. This generates enthusiasm for the system and enhances its credibility. Otherwise it is likely to be perceived as a mysterious black box of dubious value.

Adaptability

38

A certain degree of flexibility and adaptability must be designed in to the system to make it versatile. However, the system, the system must not provide for every possible and imaginable contingency. If it is developed with this, it is likely to be a complex monstrosity. Timelines Inventories may suffer loss in value on account of a variety of factors. The more common source of value decline are: Obsolescence caused by changes in the technology and shifts in consumer tastes. Physical deterioration with the passage of time. Price fluctuation because of inherent volatility of certain commodities. The inventory system should be capable of including timely action. It should provide adequate forewarning which trigger appropriate corrective steps.

39

CHAPTER-V

DATA ANALYSIS

40

DATA ANALYSIS AND INTERPPRETATION The data after collection has to be processed and analyzed in accordance with the outline laid for the purpose at the time of developing the research plan. This is essential for scientific study and for ensuring that all relevant data are collected for making comparison and analysis. It is mainly concentrated on computation and certain measures along with searching for pattern and relationship that exists among the data groups. MEASURES OF EFFECTIVENESS OF INVENTORY MANAGEMENT For monitoring the effectiveness of inventory management, it is helpful to look in to the following ratios and induces. 5.1 COMPONENTS OF INVENTORY Inventory could be raw materials, work in progress, finished goods and stores and spares. KAMCO being a manufacturing company, the following table gives the inventory components of the company as on 31.03.2010.

41

TABLE 5.1 Table showing components of inventory Components Raw material Work in Progress Finished goods Stores & spares Total inventory Rs.(lakhs) Percentage

42

5.2

INVENTORY TURNOVER RATIO Inventory turnover speed at which the inventory

will be converted into sales, there by contributing for the profits of the concern, when a remain constant, greater the turnover and inventory more will be efficiency of its management. This ratio reveals the number of times finished stock is turned over during a given accounting period. The higher the ratio, the better the performance of the company, for it has managed to operate with a relatively small average loading of funds. The high levels of inventory reflect dull business, over investment in inventory, which reduces the profitability of the business. Inventory Turnover Ratio = Net sales

Average Inventory Average inventory Opening stock +closing stock = 2

43

44

Table 5.2 Table showing inventory turnover

Inventor y Turnove r Ratio 4.01 4.39 5.07 5.60 5.46

Year

Net sales

Average Inventor y 1994.85 2078.32 1994.88 2146.47 24974.42

2005-06 2006-07 2007-08 2008-09 2009-10

8003.69 9121.74 10121.86 12028.49 136432.37

Figure 5.2 Figure showing inventory turnover

45

6 5 4 Ratio 3 2 1 0 2005-06 2006-07 2007-08 Year 2008-09 2009-10

Inference The graph shows that the inventory turnover ratio of KAMCO Ltd increasing higher the ratio better it is. A higher inventory turnover indicates efficient management of the inventory because the stocks are sold more frequently. In the 2007- 2008 the ratio was the lower position however during the last three the turnover ratio of KAMCO Ltd has increased. A lower turnover ratio is not desirable because it reveals the accumulation of absolute stock or the carrying of too much stock. In the year 2005- 2006 the ratio was higher position. However,

46

the ratio has decreased slightly in the year 2006-2007. But it is not considered as reasonable position 5.3 Inventory Conversion Period It refers to the average time taken for clearing out of the stocks. This period is calculated by dividing the number of days in a year by inventory turnover ratio. Inventory holding period =

365 Inventory turnover ratio Inventory turnover ratio =

Net Sales Average inventory Shorter the inventory conversion period, better it is because it indicates that the inventories are
47

turned over within a short period. A high conversion period means long time taken for clearing the stocks. Table 5.3 Table showing Inventory holding period ( Rs.in lakhs) No.of days In a year 365 365 365 365 365 Inventor y turnover 4.01 4.39 5.07 5.60 5.46 Holding period 91 83 72 65 66

year 2005-06 2006-07 2007-08 2008-09 2009-10

Figure 5.3 Figure Showing inventory holding Period

90 80 70 60 Days 50 40 30 20 10 0 2005-06 2006-07 2007-08 Year 2008-09 2009-10

48

Inference The above table shows the number of days needed for converting the raw materials. This graph means the company takes less time than earlier years for clearing the raw materials. In overall the raw materials conversion period is very reasonable. 5.4 Raw Materials, Work in Progress and Finished Goods Turnover Ratios The manufacturing firms inventory consists of two more components. (1) Raw materials (2) work in progress (3) finished goods. An analyst may also be interested in examining the effectiveness with the firm converts raw material into work in progress and work in progress into finished goods. That is, the analyst would like to know the levels of raw materials inventory and work in progress inventory held by the firm on an average. 1) Raw Materials Inventory Turnover This helps to examining the effectiveness with which the firm coverts raw materials in to work in progress. Raw material inventory turnover = Material consumed Average raw material consumed

49

Material consumed = opening stock + purchases + closing stock Average raw materials inventory = Opening stock of raw materials +closing stock of raw materials 2 Higher the ratio better it is, because it shows that raw materials inventory is rapidly turned over. Table .5.4 Table showing the raw materials inventory turnover of KAMCO Ltd 2005- 2006 to 2009- 2010 (Rs. In Lakhs) Raw material Inventory turnover ratio 6.56 6.18 5.95 5.98 6.27

year 2005-06 2006-07 2007-08 2008-09 2009-10

Material consumed 5560.56 5694.85 6722.07 8390.07 9650.89

Average Raw material inventory 847.56 920.59 1129.49 1402.69 1538.80

Figure 5.4 Figure showing raw materials inventory turnover

50

6.7 6.6 6.5 6.4 6.3 6.2 6.1 6 5.9 5.8 5.7 5.6 2005-06 2006-07 2007-08 Year 2008-09 2009-10

Inference From the graph we can understand that the raw material inventory turnover ratio of KAMCO Ltd is very reasonable. Moreover, in every year this ratio lays in between 6to 7. This is because of the relation between materials consumed and the average inventory higher the ratio better it is. Because it shows the raw material inventory is rapidly turnover. Otherwise the raw materials will be stocked idle and it will affect the working capital of the company. 5.5 Raw Materials Conversion Period It refers to the average time taken for clearing out the raw materials in to work- in- progress. This period is calculated by dividing the number of days in a year by raw materials inventory turnover ratio. Raw materials Conversion period = 365 Raw material turnover ratio
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Ratio

Raw materials inventory Turnover ratio = inventory Raw Materials Conversion Period It refers to the average time taken for clearing out the raw materials in to work- in- progress. This period is calculated by dividing the number of days in a year by raw materials inventory turnover ratio. Raw materials Conversion period = turnover ratio 365 Raw material material consumed Average raw materials

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Raw materials inventory Turnover ratio inventory Shorter the raw materials inventory conversion period; the better it is because it indicates that the raw materials are turned over within a short period. A high conversion period means long time taken for clearing the raw materials. Table 5.5 Table showing raw material conversion period Raw material inventory Turnover ratio 6.56 6.17 5.95 5.98 6.27 = material consumed Average raw materials

year

Number of days in a year 365 365 365 365 365

Raw material Conversion period 55 59 61.34 61.03 58.21

2005-06 2006-07 2007-08 2008-09 2009-10

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Figure 5.5 Figure showing raw material holding period

62 61 60 59 58 57 56 55 54 53 52 51 2005-06 2006-07 2007-08 Year 2008-09 2009-10

Inference The above table shows the number of days needed for converting the raw material. In the year 05-06 the number of days required was 55 days. However 20062007 onwards it has increased in the 2009-2010 the number of days taken for conversion is 58 days and during this year company had fewer days for conversion compared to the 2008-2009 this means the company takes less time for clearing the raw materials. Sa compared to the conversion period of 2005-2006 the other three year shows and increasing in days of conversion period and last on e year shows decrease in days of conversion but in overall the raw material period
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Days

is very reasonable and moreover in every year this period lays in between 50 to 60 days.

5.6

Work in Progress Turnover Ratio Work in progress is that stage of stocks, which

are between raw materials and finished goods. Work in progress inventories are semi manufactured products. The quantum of work- in- progress depends up on the time taken in the manufacturing process. The larger the steps involved the production process, the larger the work- in progress inventory and vice versa. By shortening the production time, efficiency of the production process can be improved and the size of this type of inventory reduced. Work in - progress turnover ratio = progress Higher the ratio better it is because it shows that work in progress is rapidly turnover. Sales Work in-

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Table 5.6 Table showing Work in Progress Turnover Ratio ( Rs. In lakhs) Work in progress 298.48 338.99 353.76 425.55 538.84 Work in Progress Inventory Turnover ratio 26.58 26.90 28.61 28.26 253.19

year 2005-06 2006-07 2007-08 2008-09 2009-10

sales 8003.69 9121.74 10121.86 12028.49 136432.37

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Figure 5.6 Figure showing work- in progress turnover ratio

300 250 200 Ratio 150 100 50 0 2005-06 2006-07 2007-08 Year 2008-09 2009-10

Inference From the above graph, we can understand that the working progress inventory during the last five years. In the 2005-2006 year, the working progress turnover was 26.58 times, but in the next year 2006-2007 it decrease 23.61 times. More over in the next year 2007-2008 the ratio again increased to 25.79 times. Higher working capital turnover is better because it indicates the efficiency of the firm in progress turnover is high, it means the company is holding the work in progress for short period. In the year 2005-2006 the turnover was 26.58 times, that is the company took 13 days (365/26.58=13) for converting the work-in-progress into finished goods. But in the year 2006-2007 the turnover was 23.61times it means the company took 15 days for

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conversion presently the companies work in progress turnover is standing in a very good position.

5.7

Work in- Progress Conversion Period It refers to the average time taken for

clearing out the work- in progress. This period is calculated by dividing the number of days in a year by work in progress turnover ratio. Work in progress conversion Period = Sales Work in progress turnover ratio Work in progress turnover ratio = Work- in progress Shorter the work-in progress conversion period, the better it is because it indicates that the work in progress are turned over with in a short period. A high conversion period means long time taken for clearing the work- in progress. Table 5.7 Table showing work-in-progress conversion period Work- inProgress Turnover ratio 26.81 26.90 Work in Progress Conversion period 13.61 13.56 sales

year 2005-06 2006-07

Number of Days in a year 365 365

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2007-08 2008-09 2009-10

365 365 365

28.61 28.26 253.19

12.75 12.9 1.44

Figure 5.7 Figure showing work-in-progress conversion period

16 14 12 10 Days 8 6 4 2 0 2005-06 2006-07 2007-08 Year 2008-09 2009-10

Inference The above table shows the number of days needed for converting the work-in-progress into finished goods. We can analyze that the company has maintained the work-in-progress conversion period stable in all years except in the year 2009-2010. In the year the period has increased as compared to other years. This means the company took more time in clearing the work-in-progress. But during for all years the conversion period was very low. That means the company took very less time for clearing the work-in-progress. So the company is maintaining a good work-in-progress conversion period.

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5.8

Finished Goods Inventories Turnover It indicates the rate speed at which the

finished goods inventories are sold. Finished goods turnover helps to know how many times finished goods are help in stock during a given period. Finished goods Inventories turnover = sold Average finished goods inventory Cost of goods sold = cost of production + opening stock of finished goods closing stock of Finished goods Higher the ratio better it is because it shows that finished goods inventory is rapidly turnover. cost of goods

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Table 5.8 Table showing finished Goods Inventories Turnover ( Rs in lakhs) year Cost of goods Average Finished goods inventory 766.53 748.97 423.94 20220.17 2568.31 Finished Inventory Turnover ratio 4.24 10.77 13.92 4.56 4.63

2005-06 2006-07 2007-08 2008-09 2009-10

3251.07 8071.12 5902.47 9221.24 9922.85

Figure 5.8 Figure showing finished Goods Inventories Turnover

16 14 12 10 Ratio 8 6 4 2 0 2005-06 2006-07 2007-08 year 2008-09 2009-10

Inference finished goods inventories

It indicates rate of speed at which the are solved, is that the inventory become turned over during a given period. In the year 2009-2010 the finished goods are easily sold by during previous year it shows a decreasing in trend.

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5.9

Finished Goods Conversion Period It refers to the average time taken for clearing

out the finished goods. This period is calculated by dividing the number of days in a year by finished goods turnover ratio. Finished goods holding period Finished goods holding period = Number of days in a year (365 days) Finished goods Inventory Turnover Ratio Table 5.9 Table showing finished goods conversion period No.of years in A year 365 365 365 365 365 Finished goods turnover 4.24 10.77 13.92 4.56 4.63 Finished goods conversion period 86 33 26 80 74

year 2005-06 2006-07 2007-08 2008-09 2009-10

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Figure 5.9 Figure showing finished goods conversion period

100 90 80 70 60 Days 50 40 30 20 10 0 2005-06 2006-07 Year 2007-08 2008-09 2009-10

Inference

From the graph, we can analyze the number of days required for converting the finished goods. In the year 2005-06 the number of days required was 86. That means company took long period for conversion of finished goods. However 06-07 the was decreased that means company took less time for conversion of finished goods. In the year 2007-08 company took 26 days for conversion of finished goods. After that in the year 200809 the period was increased but in the year 2009-10 the finished goods conversion period decreased 74 days. The company finished goods are stocked idly.

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Table 5.10 Table showing Raw materials and Stores Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Figure 5.10 Figure showing Raw materials and Stores
1800 1600 1400 1200 Rupees 1000 800 600 400 200 0 2005-2006 2006-2007 2007-2008 Year 2008-2009 2009-2010

Raw materials and stores 838.85 856.26 984.91 1274.05 1531.34

Inference Raw materials inventory show an increasing trend. It helps to maintain frequent production.

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INVENTORY METHODS ABC analysis underline very important principle vital few trivial many. It also known as always better control or the alphabetical approach based on the concept of selection of inventory. This is modern method of inventory control. It based on the principle of management by exception is business should not exercise same degree of control on all items. Statics reveal that just a handful of items account for bulk of the annual expenditure on materials. These few items called a items and therefore hold the key of business. Other items known as B and C items are numerous in number but their contribution is less significant. A class item has higher percentage of value and smaller percentage of consumption. This means 10% of the total item accounts for 75% of the total money spend on materials. These items require detailed and right control and need to be stocked in similar quantities. They attract utmost attention. Some senior executives should be made responsible of regular reviewing of these items. B class items carry 205 of the total items and represent 20% of the total expenditure on the materials. Control on these need not be as detailed and as rigid as applied to A class items.

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Class items are numerous is that 70% of the total items, inexpensive and occupy 10% of the total value and hence do not require close control.

In case it is warranted to hold higher inventory due to commercial/ manufacturing reasons approval from divisional head/ MD is taken while clearing purchase proposal. Minimum stock level of all critical components, which affect the production, is fixed as per list approved by divisional head are maintained by HOD. Purchase department takes appropriate actions in order to maintain this minimum stock level. The following are the ABC analysis of different products.

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ABC ANALYSIS OF TRILLER, REAPER AND ENGINE In cost A value items is the 755 of the total coat and 20% and 5% is the B and C value respectively. But in the case of number wise calculation C value item give more importance because they have lot of numbers in machinery. The following are some of the items under R, B and C. TRILLER A VALUE Fuel tank Flywheel Fuel pumps Central Chain REAPER: Main gear box Cutter assembly Rear Frame ENGINE Cylinder frame Radiator Fly Wheel Crank Shaft

B VALUE Machine components Balance Weight First Shaft Gear

C VALUE Washers Bolts Nuts

Chain case Star wheel Bommet

Drive Shaft3 Sprocket 20T Nuts

MBC Cover MB Case Cam gear Mash

Oil filter Fan shaft Head stud RC cover

The ABC classification system is to grouping items into annual issue value, (in terms of

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money), in an attempt to identify the small number of items that will account for most of the issue value and that are the most important ones to control for effective inventory management, the emphasis is on putting effort where it will have the most effect. A) First of all, collect data of the inventory and calculate the consumption or sale value. For a stores, maintaining inventory, this shall be quantity issued multiplied by unit rate of an item. TABLE 5.11 Table showing ABC analysis 1 Sl.N o 1 2 3 4 5 6 7 8 9 10 (Qty issued) 10 10 12 5 2 100 80 12 22 6

Item Lever C Fitting metal UW cover Spring retainer OS cover Connecting rod nut Bolt m**100 BV assembly Reverse shaft belt Arm shaft

Unit Rate 9.15 12.72 14.11 19.38 26.27 4.72 4.00 15.52 14.18 35.00

B) Now, arrange all the consumption values in ascending or descending order of values. Let us arrange the values in ascending order (starting with lowest consumption value item to highest consumption value item)

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c) Create next column and start adding to the cumulative total of consumption value, starting form the top and finishing with the last item as given in the table below. Table 5.12 Table Showing ABC analysis 2 Consum ption value 91.50 127.20 169.32 96.90 52.54 472.00 320.00 186.24 311.96 210 Value in Ascendin g order 52.54 91.50 96.90 127.20 169.32 186.24 210 311.96 320.00 472.00 Cumulati ve value 52.54 144.04 240.94 368.14 537.46 723.70 933.70 1254.66 1565.66 2037.66 Item Os cover Lever C Spring retainer Fitting metal Uw cover Bv assembly Arm Shaft Reverse Shaft brush Boltm8*100 Connecting rod nut Clas s C C C C C C C B A A

From the last column it is clearly evident that the bottom of 20% of items (6 and 7) consume together nearly 70% of value, upper 70% (1,2,3,4,5,8 and 10) items consume only 20% of value and the remaining 10% items (9) consume 10% of value. Respectively, these are a, b and c classes of items. From the analysis of all the materials it has been it has been found out that the company follows the following composition.

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Table 5.13 Table showing ABC analysis 3 Classe s Percentag e of total A B C items 10 20 70 Percenta ge of value items 70 20 10 Above Rs.5000 Rs. 3000 to Rs. 5000 Below Rs.3000 Total cost of materials

Interpretation The higher control is established for the class items, which contributes more to the expense of the inventories. This is considered as the most important among the other two classes without the class item the production is interrupted. Hence, these high value items are closely controlled and monitored by the company. About 20% of items contribute B class items, which are more numerous but present smaller amount of money. They require lesser control than the A class items. Category C c class items covers only 10% of value which require only lesser monitoring and controlling. This classification can be done any time during a financial year but since control is to be exercised, this exercise is usually done by the company at the end of the
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financial year. So that suitable policies followed. VED ANALYSIS:

are for A, B, and

C class items for then next financial year and are really

VED- Vital Essential and Desirable analysis issued primarily for control of spare parts spares can be divided into 3 categories vital essential or desirable keeping in view the critically to production. Vital items are important items which are o be kept as stand by to avoid break down. These items are very costly in nature. Example The over hauling it. Essential items are those whose absence tolerated for more than a few hours or a day. expenses on lost production due to the absence of such items are usually high. Desirable items are those spares which are needed but their absence so will lead to stoppage of production. VED ANALYSIS Classes V E D Number of items 50 30 18 Prices 6500 2500 1000 Percenta ge 51% 30% 18% for even a week or

INTERPRETATION: From the above table it shows that 50items of cost Rs. 6500 is under Vital, 30 items cost Rs. 2500 is under Essential and 18 items of Rs 1000 is given as Desirable

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CHAPTER VI FINDINGS, SUGGESTIONS, AND CONCLUSION

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FINDINGS

The study was under taken mainly to evaluate the efficiency of inventory management in KAMCO Ltd. The major findings of the study are the following.
1.

On analyzing the inventory turnover ratio of KAMCO

Ltd, it is decreasing year after year. Higher inventory turnover ratio is better for the concern average inventory ratio for the company for 5 years is 4.91 times. 2.

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SUGGESTIONS From the above study, it is clear that KAMCO Ltd, gives more care in managing the inventories, the company can improve their performance and profitability more and more. The following are the suggestions for further improvement. If the company gives more attention to improve the inventory, can increase the profitability.

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 The raw material inventory turnover of KAMCO Ltd is moving in a good position. There fore, the company should try to maintain this turnover in future. Working progress turnover ratio KAMCO Ltd, shows a fluctuating trend in during the five years. Therefore, the company should try to make better and stable ratio position in future. If the company tries to reduce the finished goods conversion period, company can increase the sale volume and thereby they can earn more profits. In addition, the company can avoid cost of storage.

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CONCLUSION KERALA AGRO MACHINERY CORPORATION LTD, being the prime supplier of agricultural products is traditionally enjoying the market leadership. However the liberalization policy has increased the competition and result of competition, profit has become skin-deep. In this study, an attempt is made to provide an idea about the way on which the decision can be taken to plan the field of inventory for better program. The analysis and interpretation of inventory management shows that the inventory position of KAMCO Ltd is quite satisfactory. In

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the last year, the companys sales turnover is high, but the inventory conversion period has increased and net profit is comparatively higher than the previous years. Though the analysis it can be concluded that though the company is progressing, there are so many problems in the industry like competitors with low cost machine, increasing the cost of raw material and so on. For this KAMCO Ltd, should try to utilize its strength to overcome its weakness and take advantage of opportunities by avoiding threats.

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