CHAPTER 1

INTRODUCTION

MEANING AND NATURE OF INVENTORY:

Inventory can be referred to as sum of the value of raw materials fuels
and lubricants, spare parts, maintenance consumables, semi processed
materials and finished goods, stock at any given point of time.
In large companies inventory place a most significant part of the
current assets. The business has about 15 to 30% of inventories in total
assets.
Inventory is composed of assets that will be sold in feature in the
normal course of business operations. The assets which firms stores as
inventory is anticipation of need are raw materials, work in progress and
finished goods.

MEANING OF INVENTORY MANAGEMENT:

Inventory management consists of maintaining for a given financial
investment an adequate of something in order to meet and accepted pattern
of demand. Inventory considers control over costs of inventory on one hand
and handles the size of inventory on other hand.
Controlling investments in inventories constitute crucial part in
current assets.

An efficient inventory controlling system will decide,

What to purchase
When to purchase
How to purchase
Size of purchase
And from where to purchase (Suppliers)
The main purpose of inventory management is to ensure
1.

Required quantity of availability of raw materials

2.

Minimize the investments in inventories

3.

Maintain reasonable stock levels not excess or not under stocks.

INVENTORY CONTORL:
Inventory control is the system devised an adopted for controlling
investments in inventory.

It involves inventory planning and decision

making with regard to the quantity and time of purchase, fixation of stock
levels, maintenance of stock records and continuous stock taking.

OBJECTIVES OF INVENTORY CONTROL:

Inventory control includes not only of the physical stocks but also of
the funds invested on it.

That twin objectives of inventory control are,

1.

To maintain a balanced inventory.

2.

To keep the amount invested in inventory as low as possible

without hampering either flow of the production or deliveries of
finished goods.

To avoid both under stocking and over stocking of inventory.

To eliminate duplication in ordering or replenishing stocks.

This is possible with the help of centralized purchasing.

To ensure continues supply of materials, spares and finished

goods so that production should not suffer and any time and
customers demand should also be met.

To design proper structure for inventory management. Clear

cut accountability should be fixed at various levels of the
organizations.

To ensure right quality goods at reasonable prices. Suitable

quality standards will ensure proper quality of stocks.

The price

analysis, the cost analysis will ensure paying of proper prices.

To facilitate furnishing of data for short term and long term

planning and control of inventory.

NEED FOR INVENTORY MANAGEMENT:

In this competitive business world each and every business
organization need inventory management system for determining what to
order, when to order, where and how much to order so that purchasing and
storing costs are the lowest possible without affecting production and sales.
Thus, inventory management control incorporates the determination of the
optimum size of the inventory-how much to be order and when after taking
into consideration the minimum inventory cost.
The overall inventory management includes design and inventory
control organization with proper accountability establishing procedure for
inventory handling disposal of scrap, simplification, standardization and
codification of inventories, determining the size of inventory holdings,
maintaining record points and safety stocks, economic order quantity, ABC
analysis and VALUE analysis and finally framing an INVENTORY
MANUAL.

OBJECTIVE OF THE STUDY

The main objective of the project work is to study and analyze and
preparation INVENTORY MANAGEMENT in ZUARI Cement.,

The objectives are:

1.

Purchasing procedure of the inventories.

2.

Classification of inventories.

3.

Codification of inventories.

4.

Analyze the records of stock levels.

5.

Analyze the JIT system of ZUARI Cement.

6.

Analyze the two bin system.

7.

Analyze the inventory turnover ratio.

METHODOLOGY
To attain the objective of studying the inventory of ZUARI Cement
Industries Ltd. The information has been collected in two ways:
1. Primary data
2. Secondary data

Primary Data:
In Primary data the analysis of purchasing procedure, inventory data,
inventory turnover ratio, stock levels, ABC analysis, Two bin system, JIT
has made possible by the discussions with various administrative executives
and other concerned people of ZUARI Cement industries Ltd.

Secondary Data:
The Secondary data has been collected from annual reports of
organization, internet and books.

Methodology:
For analysis purpose I am used following techniques
1. ABC Analysis,
2. Ratio Analysis
3. EOQ Method etc

Companys competitors are Orient Cement, L&T, Ultratech and ACC

Cement Limitations:
1

The study period of 45 days as prescribed by university

The study is limited unto the date and information provided by

ZUARI Cement Industries Ltd and its annual reports

The report will not provide exact Budgetary System status and
position in ZUARI Cement Industries Ltd; it may vary from time to
time and situation to situation.

This report is not helpful in investing in ZUARI Cement either

through disinvestments or capital market.

The accounting procedure and other accounting principles are limited

by the company changes in them may vary the actual and budget
performance.

CHAPTER II

REVIEW OF LITERATURE

INVENTORY MANAGEMENT ZUARI

CEMENTINDUSTRIES
INTRODUCTION:
Every enterprise needs inventory for smooth running of its
activities. It serves as a link between the production and

distribution

process. The greater a time lag, the higher the requirement of inventory the
unforeseen fluctuation of inventory demand and supply of goods, fluctuating
inventory prices, necessitate the need for inventory management.
The investment inventory constitutes the most significant part of the
current assets inventory of the under taking. Thus it is very essential to have
a proper control and management of inventory.

Meaning and nature of inventory:

The general meaning of inventory is stock of goods or list of goods
inventory. In accounting language it means stock of finished goods. For
inventory manufacturing concern it includes raw materials, work in progress,
consumables finished goods and spares etc.
1.

Raw materials:
If forms a major input inventory in organization. The quantity
of raw materials required will be determined by the rate of consumption.

Work in Progress:
The work in progress is that stage of stocks, which are in
between raw materials and finished goods.

Consumables:
These are the material, which are needed to smoothen, the
process of production. These do not directly go into production, but act
as catalyst.

Finished Goods:
These are the goods, which are ready to sale for the consumers.
The stock of finished goods provides as buffer between production and
market.

Spares:
Spares also from a part of inventory. The stocking policies differ
from industry to industry.
Inventories cost account for nearly 55 percent of the cost of
production, as it is clear from an analysis of financial statements of large
number of private and public sector organizations. So, It essential to
establish suitable procedures for proper control of materials from the time of
purchase order placed with supplier until they have been consumed properly
and accounted for.

Definition:
The term inventory refers to assets, which will be sold in future in
the normal course of business operations. The assets, which the
firm stores as inventory in anticipation of need, are raw
materials, work-in-progress/process, and finished goods.

Inventory often constitutes a major element of a total working capital

and

hence

ft

has

been

correctly

observed,

'Good

inventory

management is good financial management.

I nventory control is a system, which ensures the provision of the

required quantity at the required time with the minimum amount of

capital.
Inventories

are the second

largest

asset

category

for

the

manufacturing firms next to plant and equipment.

Inventory

control

includes

scheduling,

the

requirements,

purchasing, receiving and inspecting, maintaining stock records and

stock control. Inventory control is a matter of coordination. A proper
material control helps in improving the input-output ratio.

Objective of inventory management:

The main objective of inventory management is operational
and financial. The operational object means availability of materials and
spares in sufficient quantities for undisturbed flow of production.

The

financial objective means investments in inventories should not remain idle

and minimum working capital should be locked in it.

THE OTHER OBJECTIVES ARE:

1) To ensure continues supply of inventories to the production.
2) To avoid over stocking and under stocking.
3) To maintain optimum level of investment in inventories.
4) To keep material cost under control, to keep low cost of production.
5) To eliminate duplication in ordering or replacing stocks.
6)

To minimize losses through, deterioration, pilferage, wastage and

damages.

7) Designing structures for good inventory management.

8) Perpetual inventory control of materials.

To ensure right quality of goods at reasonable prices. Analysis of

prices cost and value.

10) To facilitate data for short and long term planning and control of
inventory.

NEED FOR INVENTORY CONTROL :

If a cost accounting system is to be effective there must be a
proper control of inventory and supplies form the time orders are
placed with suppliers until they have been effectively utilized in
production.

Materials are equivalent to cash and they make up an

important part of the total cost. It is essential that materials should be
properly safeguarded and correctly accounted. Proper control of
material can make a substantial contribution to the efficiency of a
business. The success of a business concern largely depends upon
efficient purchasing, storage, consumption and accounting.
In a large firm the planning and routing department is
responsible for arranging how and where the work is to be done and
issue instructions. It sets definite time schedules so that necessary
materials are delivered to the proper department in proper time not too
long before hand neither lest it should interfere with other work nor
after they are required as this result in idle time.
Business firm keep inventories for different purposes. Every
firm big or small trading or manufacturing has to maintain some
minimum level of inventories. Based on some motives the inventories
are maintained.
a.

Transaction motives:
Every firm has to maintain some level of inventory to meet

the day-to-day requirements of sales, production process, customer

demand etc. In this finished goods as well as raw material are kept as
inventories for smooth production process of the firm.

b.

Precautionary motive :
A firm should keep some inventory for unforeseen

circumstances also like loss due to natural calamities in a particular

area, strikes, lay outs etc so the firm must have some finished goods as
well as raw-materials to meet circumstances .

c.

Speculative motive:
The firm may be made to keep some inventory in order to

capitalize an opportunity to make profit due to price fluctuations.

REASONS AND BENEFITS OF INVENTORY:
The optimal level of maintaining inventory is a subjective matter
and depends upon the features of a particular firm,
(i)

Trading firm:
In case of a trading firm there may be several reasons for

holding inventories because of sales activities that should not be

interrupted. More over it is not always possible to procure the goods
whenever there is a sales opportunity as there is always a time gap
required between purchase and sale of goods. Thus trading concern
should have some stock of finished goods in order to undertake sales
activities independent of the procurement schedule.
Similarly, a firm may have several incentives being offered
in terms of quantity discounts or lower price etc by the supplier of
goods. There is trading concern inventory helps in a de-inking
between sales activity and also to capitalize a profit of opportunity

due to purchase made at a discount will result in lowering the total

cost resulting in higher profits for the firm.
(ii)

Manufacturing firm:
A manufacturing firm should have inventory of not only the

finished goods, but also of raw materials and work-in-progress for

following reasons.
(a )

Uninterrupted production schedule:

Every manufacturing firm must have sufficient stock of raw

materials in order to have the regular and uninterrupted production

schedule. If there is stock out of raw materials in order to have the
regular and uninterrupted production schedule. If there is stock out of
raw material at any stage of production process then the whole
production may come to a half. This may result in custom
dissatisfaction as the goods cannot be delivered in time more over the
fixed cost will continue to be incurred even if there is no production.

Further work-in-progress would let the production

process run smooth. In most of manufacturing concerns the
work in progress is a natural outcome of the production
schedule and it also helps in fulfilling when some sales orders,
even if the supply of raw-materials have stopped.

(b)

Independent sales activity :

Inventory of finished goods is required not only in trading

concern but manufacturing firms should also have sufficient stock of

finished goods. The production schedule is a time consuming process
and in most of the cases goods cannot be produced just after receiving
orders. Therefore, every firm has to maintain minimum level of
finished goods in order to deliver the goods as soon as the order is
received.

ESSENTIALS OF INVENTORY CONTROL :

The important requirements of Inventory control are:

The proper co-ordination among the departments involved

in buying, receiving, inspecting, ciorage, consuming and
accounting.

Centralization

of

purchasing

under

the

control

of

competent buyer whenever possible.

Proper scheduling of material requirements.

Proper classification of materials with codes, material

standardization and simplification.

The operation of a system of internal check to ensure that

all transactions involving materials and equipment are
checked by properly authorized and independent persons.

The storage of materials is well planned and kept in

properly. Planned and kept in properly designated location,
subject to adequate safeguard and supervision.

The operation of a system of perpetual inventory so that it

is possible to determine at any time, the amount and value
of each kind of material in stock.

A suitable method of valuation of materials is essential

because it affects the cost of jobs and the value of closing
stock of materials.

Objectives of Inventory Control:

The main objectives of inventory control are:
To maintain a large size of inventory for efficient and smooth
production and sales operation.
To maintain a minimum investment in inventories to maximize
profitability.
To ensure a continuous supply of raw materials to facilitate
uninterrupted production.
To maintain sufficient stocks of raw materials in periods of
short supply and anticipate price change.
Maintain sufficient finished goods inventory for smooth sales
operation and efficient customer service.
Minimize the carrying cost and time.
Control investment in inventories and keep it at an optimum
level.

Advantages of Inventory Control :

The following are suggested advantages:
Eliminates wastage in use of material,
It reduces the risk of loss from fraud and theft.
It helps in keeping perpetual inventory and other records to
facilitate the preparation of accurate material reports to
management,
To reduces the capital tied up in inventories,
It reduces cost of storage,
It furnishes quickly and accurately the value of materials used
in various department.
It prevents delays in production due to lack of materials by
supplying, proper quantities at the right time.

Disadvantages of Inventory Control:

Every firm has to maintain optimal level of inventories. It not
the following will be the result in form of losses.
Opportunity cost: Every firm has to maintain inventory for that
some investment is needed it is known as Opportunity cost and
handle the investment in inventory are more the funds are
blocks up with inventory.
Excessive inventories: It will lead to firm losses due to
excessive carrying costs and the risk of liquidity. It is also
referred as Danger level.

 Inadequate Inventory: it is another danger which results is

production

hold-up

and

failure

to

meet

delivery

commitments .In adequate raw materials and work -in -process

inventors will results in frequent production interruptions .It
finished goods are not sufficient customers may shifts to
competitors.
Danger due to physical decoration: It is one of the reasons with
the inventories due to maintaining stocks at high levels they
will be deteriorated due to passage of time, sometimes due to
mishandling or improper storage facilities.

Costs involved in inventory:

Every firms maintains inventory depending upon requirement
and other features of firm for holding such inventory some cost will be
incurred there are as follows:

(a)

Carrying Cost ;
This is the cost incurred in Keeping or maintaining an inventory

of one unit of raw materials, work-in -process or finished goods. Here

there are two basic cost involved .

(i)

Cost of storage :
It includes cost of storing one unit of raw materials by the firm.

This cost may be for the storage of materials. Like rent of spaces
occupied by stock, stock for security, cost of infrastructure, cost of
insurance, and cost of pilferage, warehousing costs, handling cost etc.

( ii)

Cost of financing :
This cost includes the cost of funds invested in the inventories

.It includes the required rate of return on the investments in inventory

in addition to storage cost etc. The Carrying cost include therefore
both real cost and opportunity cost associated with the funds invested
in the inventories.
The total carrying cost is entirely variable and rise in directly
proportion to the level of inventories carried.
Total carrying cost =(carrying Cost per unit) x (Average inventory)
( b)

Cost of ordering :
The cost of ordering includes the cost of acquisitions of

inventories. It is the cost of preparation and execution of an order

including cost of paper work and Communicating with the supplier.
The total ordering cost is inversely proportion to annual
inventory of firm. The ordering cost may have a fixed component,
which is not affected by the order size: and a variable component,
which changes with the order size.
Total Ordering Cost = (No. Of orders) x (cost per order).
(c)

Cost of stock out:

It is also called as Hidden cost. The stock out is the situation

when the firm is not having units of an item in stores but there is a

demand for that Item either for the customers or the production
department .The stock out refers to zero level inventory .So there is a
cost of stock out in the sense that the firm face a situation of lost sales
or back orders .The stock outs are quite often expensive. Even the
good will of firm also be effected due to customers dissatisfaction and
may lose business in case of finished goods, where as in raw materials
or work in process can cause the production process to stop and it is
expensive because employees will be paid for the time not spend in
producing goods.
The carrying cost and the ordering cost are opposite forces and
collectively. They determine the level of inventors in a firm.
Total cost =(cost of items purchased) +(Total Carrying and ordering
cost)

Valuation of Inventory:
The methods of valuing inventory are combination of the actual
cost and replacement cost plans. The chief advantage of the cost or
net realizable value rule is that it is conservative. Hence the
methods of Valuation of inventory are quite independent of system
of mincing.

In balance sheet closing stock is shown under current assets and

is also credited to manufacturing or trading accounts. The inventories
are valued on the basis as follows.

Cost of raw materials in stock may include freight charges

and carrying cost. But such cost should not exceed market
price,

Work -in -process is generally valued at cost, which includes

cost of materials, labor. And the proportionate factory
overhead, as it is reasonable according to degree of
completion,

Cost of finished goods wound normally to be total or full cost

it includes prime cost plus appropriate amount of the
overhead. Selling and distribution cost is deducted on the
other hand work in progress may be valued at work in
progress may be Valued at work cost, marginal cost, prime
cost or, even at direct materials.

ISSUE PRICING METHODS :

There are two categories:
(i)

Cost prices:

FIFO (First in First out)

LIFO (last in first out)

Specific price

Base stock price

HIFO (highest in first out)

(ii)

Derived from cost prices:

Simple average price

 Weighted average price

Periodic simple average price
Periodic weighted average price
Moving simple average price
Moving weighted average price
(iii) Notional prices:
Standard price
Inflated price
Re-use price
Replacement price

First in First out (FIFO):

This is the price paid for the material first taken into stock from
which the material to be priced could have been drawn.

Under this method stocks of materials may not be used up in

chronological order but for pricing purpose it is assumed that items
longest in stock are used up first. The method is most suitable for use
where in material is slow-moving and comparatively high unit cost.

Advantages:

Price is based on actual cost and not on basis of

approximations such as no profits or losses arises by reasons
of adopting this method.

The

resulting

stock

balance

generally

represents

fair

commercial valuation of stock.

It is based on traditional principles.

Disadvantages:

The number of calculations in the stores ledger involved

tends to be complicated with increase in clerical error.

The cost of consecutive similar jobs will differ if the price

changes suddenly,

In times of rising prices, the charge to production is unduly

low as the cost of replacing the material will be higher.

Last in first out (UFO )

This is the price paid for the material last taken into stock from
which the materials to be priced could have been drawn. This method
also ensure material being issued at the actual cost. Its use is based on
the principle that costs should be as closely as possible related to

current price level. Under this method production cost is calculated on

basis on replacement cost.

Advantages:

Production is charged at the most recent prices so that it is

based on the principle that cost should be related to current
price levels.

It obviates the necessity for continuously ascertaining the

replacement price.

Neither profit nor loss is usually made by using this method.

In the times of rising prices there is no wind fall profit as

would have been obtained under FIFO method.

Disadvantages:

Needs more clerical work.

Compassion among similar jobs is very difficult.

Stock valves relating to prices of the oldest cost on hand may

be entirely out of the current replacement prices .

Weighted average price:

This is the price which is calculated by dividing the total cost of
material in the stock from which the material to be priced have been
drawn, by the total quantity of material in the stock. This method
differs from all other methods because here issue prices are calculated

on receipts of materials and not on issue of materials. Thus as soon as

new lot is received a new price is calculated and issues are then taken.

Advantages:

This method is advantageous where the price varies widely as

its use even out the effect of these wide variations.

The basis of price calculations is a simple one involving only

the division of total amount of material in stock by quantity
in stock.

Calculation of new prices arises only when receipt of stocks

are received.

Stock records under this method give a fair indication of the

stock values, which can be used in financial analysis.

Disadvantages:
This method is completed than simple average because it takes
into consideration the total quantities and total costs in stock.

Profit or loss may be incurred as in simple average price,

As LIFO or FIFO this method calls for many calculations,

In order to calculate the accurate value of issues the average

price must normally be calculated to four to five decimal
places .

 Standard price:
It is the predetermination of fixed price on basis of a
specification of all factors affecting price like the quantity of materials
in hand and to be normally purchased and rate of discount compared
with existing price including or excluding freight and ware housing
expense.
A standard price for each material is set and the actual price paid
is compared with standard. It is paid exceeds the standard a loss will
be realized if not profit will be obtained.
Advantages:
This method is easy to operate.
Comparing the actual prices with the standard price will

determine the efficiency of purchase department.

The effect of price variations is eliminated from job costs.
It reduces classical costs by eliminating detailed cost

records.
In times of inflation or price fluctuations is very difficult to

fix a standard price.

This method also incurs a profit or loss on issues and

closing stock.

Inflated price :
This is the price, which includes a charge designed to cover the
cost of contingencies or related costs.

This price includes not only the cost involved in bringing the
material to the purchases premises but also the loss due to evaporation
and breakage etc. as well as carrying costs.

MATERIAL PURCHASING AND PURCHASING

PROCEDURE
Purchase of material is one of the important functions of material
management. At times more than 50% of the total product cost is material.
Functions of Purchase Department
1. Deciding the items to be purchased based on demand.
2. Selection of sources of supply.
3. Collection the price information.
4. Placing the ordered.
5. Follow-up the ordered.
6. Checking the invoices.
7. Maintenance of purchase records.
8. Maintenance of vendors relations.

PURCHASE PROCEDURE
Purchasing procedure start with the initiation of purchase requisitions
and ends with the receipt of materials in the stores.
CENTERIZED PURCHASING
It is most important and relevant to large organizations operating
deferent plants may or may not be located at different places. For a single
place organization decentralization might be feasible on a very limited place.
But where as M & M Ltd., is a multiple plants operating organization.

In Mahindra and Mahindra Centralized purchasing procedure is

following to purchase of materials.
Centralized purchasing avoids duplications of efforts and working at
cross purpose from one plant to another.

Centralized purchasing permits consolidation of order of materials

commonly used for two or more plants. The ultimately results in
greater buying power, favorable contracts and trade agreements.

Easier to maintain the quality of purchased parts / items through

centralized testing and inspection.

It is also possible to conduct

testing and inspection facilities.

Centralized purchasing permits to avail facilities like quantity

discounts and cash discounts thus its helps to reduce cost.

It is beneficial to vendor also in case the size of order constituted

major proportion of his total production capacity

TECHNIQUES OF INVENTORY MANAGEMENT :

Main problems in inventory management are to answer.

Are all items of inventory important if not what are items to

be given more importance?

What should be the size of the order for replenishment is

placed?

What should be the over level?

To answer these following techniques are used,

ABC Analysis
Economic Order Quantity
VED Analysis
RE-ORDER Level
Safety Stock
Just-in-time Inventory

ABC Analysis :
It is based on proposition that

Managerial items and efforts are scare and limited

Some items of inventory are more important than

others.

ABC ANALYSIS:
ABC analysis classifies various inventory into three sets or
groups of priority and allocates managerial efforts in proportion of the
priority the most important item are classified into class-A, those of
intermediate importance are classified as "class-B" and remaining
items are classified into class-C'.
The financial manager has to monitor the items belonging to
monitor the items belonging to different groups in that order of
priority and depending upon the consumptions.
The items with the highest value is given top priority and soon
and are more controlled then low value item. The re-rational limits are
as follows.
Category
A
B
C

% of Items
5-10
10-20
70-85

% of total materials
70-85
10-20
5-10

Procedure:

Items with the highest value is given top priority and soon.

There after cumulative totals of annual value of consumption

are expressed as percentage of total value of consumptions,

Then these percentage values are divided into three

categories.
ABC analysis helps in allocating managerial efforts in

proportion to importance of various items of inventory .

ECONOMIC ORDER QUANTITY:

After various inventory items are classified on the basis of
the ABC analysis the management becomes aware of the type of
control that would be appropriate for each of the three categories of
the inventory items.

The determination of the appropriate quantity to be purchased

in each lot to replenish stock as a solution to the order quantity
problems necessitates resolution of conflicting goals. Buying in a
higher average inventory level will assure,

Smooth production / sale operation and.

Lower ordering or setup costs. But it will involve higher

carrying costs. On the other hand small orders would reduce
the carrying cost of inventory by reducing the average
inventory level but the ordering costs would increase, as there
is a likelihood of interruption in operations due to stock-outs.
A firm should not place either too high or small orders on the
basis of a tradeoff between benefits derived from the
availability of inventory and the cost of carrying that level of
inventory, appropriate or optimum level of order to be placed

should be determined. The optimum level of inventory is

popularly referred to as the economic order quantity or
economic lot size. It may be defined as that level of inventory
order that minimizes the total lost associated with inventory
management. It is based on some assumptions, which are
restrictive.

The firm knows with certainty the annual usage of a

particular item of inventory.

Rate at which the firm uses inventory is steady over

time.

The orders placed to replenish inventory stocks are

received at exactly that point in time when inventories
reach zero.

EOQ can be illustrated by

Trial and error approach,

Mathematical approach.

Trial and Error approach:

In this approach the procedure of procuring the inventory is

assumed the smaller the lot the lower is average inventory and vice
versa and high average inventory would involve high carrying costs.
This approach is used for determination of EOQ uses different
permutations and combinations of lots of inventory purchases so as to

find out the least ordering and carrying cost combinations. The
carrying cost and acquisition cost for different sizes of order to
purchase inventories are computed and the order size with lowest total
cost of inventory is EOQ .
Mathematical Approach:
The EOQ quantity can use a short-cut method calculated by
following
EOQ=
Where,
A = Annual usage of inventory
B = Buying cost per order
C = carrying cost per unit

Limitations:
While using EOQ it should be noted that it suffers from
shortcomings, which are mainly due to the restrictive nature of the
assumptions on which it is based.
The

important

limitation

is

assumption

of

constant

consumption usage and, the instant replenishment of inventory is of

doubtful validity
There may be unusual and unexpected demand for stocks to
meet such [contingencies the firm has to keen additional inventories
like safety stocks. Another weakness is to assume known annual
inventories is open to question and there is likelihood of a discrepancy

between the actual and expected demand leading to wrong estimate of

EOQ.

VED ANALYSIS :
Vital Essential and Desirable analysis is done mainly for
control of spare parts keeping in view of the criticality to
production.
Vital spares are spare the stock-out of which even for a short
time will stop production for quite some time. Essential spares are
spares the absence of which cannot be tolerated for more than a few
hours a day. Desirable spares are those, which are needed, but their
absence for even a week or so will lead to stoppage of production.

THE RE-ORDER LEVEL:

The reorder level can be determined as follows:
R = M+tu
R = Reorder level
M = Minimum level of inventory
T = Time gap / delivery time
U = Usage rate

the re-order level is the level of inventory at

which the fresh order for that item must be placed to procure fresh
supply. The re-order level depends upon

 Length of time between the placement of an order and receiving the

supply.
The usage rate of the item. The inventory is constantly being used
up. The rate at which the inventory is being used up. The rate
at which the inventory is being used up is called the usage rate.
The reorder level and inventory patterns have be shown as follows:
The figure shows that if the usage rate is constant, the orders are
made at even intervals for the same amounts each time and the
inventory goes to zero just before an order is received.

Safety Stock :
The safety stock protects firm from Trade- offs due to
unanticipated demand for the items level of inventory investment is
however increased by the amount of safety stock. Safety level is

ascertained in inventory as a part because there is always an

uncertainty involved in time lag usage rate or other factor.
Usually smaller the safety level greater the risk of stock-outs.
If stock-levels are predictable then there is a chance of stock out
occurring. However stock inflows and outflows are unpredictable
or lesser predictable it becomes to carry additional safety stock to
prevent unexpected stock outs so usage rate is estimated if cost is
low then no safety stock is needed.
JUST-IN-TIME INVENTORY:
The basic concept is that every firm should keep a minimum
level of inventory on hand, relying suppliers to furnish stock just in
time as and when required. JIT helps in emphasizing sufficient
levels of stocks to ensure that production will not be interrupted.
Although the large inventories may be bad idea due to heavy
carrying JIT is a modern approach to inventory management and
the goal is essentially to minimize such inventories and there by
maximizing the turnover.

JIT system significantly reduces inventory-carrying cost by

requiring that the raw materials be procured just in time to be placed
into production. Additionally the work in process inventory is
minimized by eliminating inventory is minimized by eliminating
inventory buffers between different production departments.
If JIT is to be implemented successfully there must be a high
degree of coordination and co-operation between the supplier and
manufacturer and among different production centers. JIT does not

appear to have any relation with EOQ however it is in fact alters some
of the assumptions of EOQ model. The average inventory level under
the EOQ model is defined as
Average inventory= 1/2 EOQ + safety level JIT attacks this
equation in two ways.

By reducing the ordering cost

By reducing the safety stock.

The basic philosophy in JIT is that the benefits, associated with

reducing inventory and delivery time to a bare minimum through
adjustment in the EOQ model; will more than offset the costs
associated with the increased possibility of stock-outs.

CHAPTER III
INDUSTRY PROFILE&COMPANY
PROFILE

INTRODUCTION OF CEMENT:
The basic need of human being is food clothing and shelter love
and affection /possession is on never ending process for a human being.

As the time passes on human beings their wants and wishes also
changed from ancient times to modern times and among them the living
pattern and construction works also have been changed from temporary
construction of house to permanent construction and the basic material used
in construction is Cement.
Cement the word derived from a Latin word CEMENTTUM means
stone chipping such as we used in roman.
Cement the word as per oxford, it is commonly used is any substance
applied for soft stocking things. But cement means is most vital and
important material for modern constructions. It is a material which sets and
hardness when mixed with water. Cement is basically used in construction as
a building agent. In ancient times clay bricks and stones have been used for
construction works.

The Romans were using a binding or a cementing material that would

harden and water. The first systematic effort was made by SMEATON
who undertook the execution of a new light house in 1756. He observed that
Production obtained by during lime stone was the best cementing material
for work under water.
The construction in lost centuries was with Lime that was the main
equipment used for construction work. The ancient constructions like
Tajmahal, Qutbminar, Mysore Palace, Red fort, Charmin etc., the evidence
of lime construction.

THE INDIAN CEMENT INDUSTRY:

By staring production in 1914 the story of India cement industry is
a stage of continuous of growth.
India is the fourth largest cement producer after China, Japan and
U.S.A. so far annual production and demand has been growing a pace at
roughly 68 million tons with an installed capacity of 82 million tons.
In 1914 as the foundation of stable cement Industry was laid as sun
above. It was Indian Cement Company at Porbandar in Gujarat. In 1920, the
cement marketing corporation was formed to promote the sale and
distribution of cement. A significant development was made in 1930 when
all manufacturers mergers together to form the Associated Cement Company
Limited.
Cement Industry is the major Industry it has taken rapid strides for a
modest beginning at porbandar in 1914 to the 1980s with over

understanding out of the 60 units, 14 units are in the public sectors

remaining units are in private sector.
Indian endowed with cement grade lime stones (90 Billion tons) and
coal (190 Billion tons). The basic raw material required for cement
manufacture and self sufficient in manufacturing cement making
machineries. During nineties it had a particular impressive expansion with a
growth rate of 10%.
The strength and vitality of cement Industry can be gouged by the
interest shown and support given by World Bank, considering the excellent
performance of the industry in utilizing loans and achieving the objectives
and targets. The World Bank is examining the feasibility of providing a third
line of credit for further upgrading Industry in varying areas, which will
make it global.
Therefore, India today totally installed capacity of over 30 million
tons, employing over a 100 thousand people directly and contributing
amount of rupees 8 billion to Indias GDP.

TECHNOLOGY:
Cement

may

be

manufactured

employing

three

alternative

technologies.

The largely out molded well process technology.

The more modern dry process that requires only 19% coal
utilization.

The latest percallinator technology through which optimum

utilization may be achieved. Here the calcinatory or raw.

Material is partly or completed carried out before the feud enters the rotator
kin besides saving power, the adoption of this technology enable an increase
in installed capacity by 30-35%, the 30,000 tons per day plants being setup
in the country use this technology.

TECHNOLOGICAL CHANGES:
Continuous technological upgrading and assimilation of latest
technology has been going on in the cement industry. Presently 93% of the
total capacity in the industry is based on modern and environment friendly
dry process technology and only 7% of the capacity is based on old wet and
semi-dry process technology.

There is tremendous scope for waste heat recovery in cement plants

and there by reduction in emission level. One project for co-generation of
power utilizing waste heat in an Indian cement plant is being implemented
with Japanese assistance under Green Aid Plan. The induction of advanced
technology has helped the industry immensely to conserve energy and fuel
and to save materials substantially.
India is also producing different varieties of cement like Ordinary Portland
Cement (OPC), Portland Puzzling Cement (PPC), Portland Blast Furnace
Slag Cement (PBFS), Oil Well Cement, Rapid Hardening Portland Cement,
Sulphate Resisting Portland Cement, White Cement etc. production of these

varieties of cement conform to the BIS Specifications. Also, some cement

plants have set up dedicated jetties for promoting bulk transportation and
export.

TOTAL PRODUCTION:
The cement industry comprises of 125 large cement plants with an
installed capacity of 148.28 million tons and more than 300 mini cement
plants with an estimated capacity of 11.10 million tons per annum. The
Cement Corporation of India, which is a Central Public Sector Undertaking,
has 10 units. There are 10 large cement plants owned by various state
Governments. The total installed capacity in the country as a whole is
159.38 million tons.
Actual cement production in 2010-11 was 116.35 million tons as
against a production of 106.90 million tons in 2009-10, registering a growth
rate of 8.84%. Major players in cement production are Ambuja cement,
Aditya cement, J K Cement and L & T cement.
Apart from meeting the entire domestic demand, the industry is also
exporting cement and clinker. The export of cement during 2009-10 and
2011-12 was 5.14 million tons and 6.92 million tons respectively. Export
during April-May, 2012 was 1.35 million tons. Major exporters were Gujarat
Ambuja Cements Ltd. and L & T Ltd.

The planning commission for the formulation of X Five Year Plan

constituted a Working Group on Cement Industry for the development of
cement industry. The Working Group has identified following thrust areas
for improving demand for cement;

Further push to housing developments programs;

Promotion of concrete Highways and roads, and

Use of ready-mix concrete in large infrastructure projects.

Cement industry has been decontrolled from price and distribution on 1st
march 1989 and de-licensed on 25th July 1991. However, the performance
of the industry and prices of cement are monitored regularly. Being a key
infrastructure industry, the constraints faced by the
Actual cement production in 2010-11 was 116.35 million tons as
against a production of 106.90 million tons in 2009-10, registering a growth
rate of 8.84%. Major players in cement production are Ambuja cement,
Aditya cement, J K Cement and L & T cement.
Apart from meeting the entire domestic demand, the industry is also
exporting cement and clinker. The export of cement during 2009-10 and
2010-11 was 5.14 million tons and 6.92 million tons respectively. Export
during April-May, 2011 was 1.35 million tons. Major exporters were Gujarat
Ambuja Cements Ltd. and L & T Ltd.
The planning commission for the formulation of X Five Year Plan
constituted a Working Group on Cement Industry for the development of
cement industry. The Working Group has identified following thrust areas
for improving demand for cement;

Further push to housing developments programs;

Promotion of concrete Highways and roads, and

Use of ready-mix concrete in large infrastructure projects.

Cement industry has been decontrolled from price and distribution on 1st
march 1989 and de-licensed on 25th July 1991. However, the performance
of the industry and prices of cement are monitored regularly. Being a key
infrastructure industry, the constraints faced by the industry are reviewed
in the Infrastructure Coordination Committee meetings held in the
Cabinet Secretariat under the Chairmanship of Secretary (Coordination).
The 444 Committee on Infrastructure also reviews its performance.

DISTRIBUTION SYSTEM:
Distribution of cement was entirely under Government control until
1982. at present the Industry has to make an agreement towards the levy
quota which is to be sold compulsorily to the Government the rest of the
output or open market quota may be sold in the open market evolved
prices the output lifted by the Government is allocated state wise.

NEED AND IMPORTANCE:

In India we see rapid industrial development in the last few
centuries. Indian industry is growing at considerable ratio which reveals
India is a developing country. And there are different industrial sectors are
playing a vital role for the economys development. They are steel cement
SOF. Information Technology Medical Science etc.
One among them was CEMENT INDUSTRY which plays a vital
role for the countrys development. In India cement industry is growing
rationally and marketing is the king pin of all activities particularly to

thebusiness because of this changes in the external environment i.e., social,

political, legal, technical and international environment and changes in
marketing. There is increased in the salaries in all most in every market
leading to competition is aspects of price, promotion etc., which help to
increase the standard of living of people.
The manufacturers of Cement like ZUARI Cement, India limited,
Orient limited, Ultratech etc. are providing cement and they are distributing
cement through wide network of dealers.
ZUARI Cement is doing its business from decades and it is
continuously contributing to the national economy. In even Industry now a
days there is no special interest for particularly department like production
or manufacturing but know a days total quality management plays a vital
for the companys success.
Distribution channel which plays a vital role for the company success.
Distribution channels are link between the company and consumers.

Italcementi Group History:

Founded in 1864, Italcementi was quoted for the first time on the
stock markets, at the Milan Stock Exchange, in 1925, under the name of
Society Bergamasca per la Fabrication del Cement e Della Calce Idraulica
and has been operating since 1927 under the name of Italcementi Spa.

Zuari Cement is part of the Italcementi Group, the fifth largest cement
producer in the world and the biggest in the Mediterranean region. With net
sales over 6 billion Euros in 2012 and a capacity of 70 million tones.
Italcementi Group combines the expertise, know-how and culture of a
number of companies from more than 22 countries in 4 continents. This
includes an industrial network of 63 cement plants, 15 grinding centers, 5
terminals, 134 aggregates quarries and 613 concrete batching units. In India,
with its inherent strengths, Italcementi Group's Zuari Cement is committed
to give the building industry cement that is truly international.

A commitment to customer satisfaction has seen Zuari Cement

grow from a modest 0.5 million tone capacity in 1995 to 3.5 million tones
today. Zuari Cement is in the process of increasing this capacity to 6 million
tons by 2012 through setting up of a new 5500 tons per day clinker line at
Yerraguntla and a grinding center at Chennai. A captive power plant with a
capacity of 43 MW has already been set up at the Company's cement
manufacturing

facility

at

Sitapuram.

With a 6% market share in the south Indian cement market and sales
of about Euro 188 million in 2012, Zuari Cement has chalked out ambitious
plans for the future. This includes strengthening its presence in the
Maharashtra, Orissa and West Bengal markets. While technology is just one
of its strengths, there are many other factors that contribute equally to
Zuari's success. These include a high-level organization and decentralized
quality assurance teams to guarantee the full compliance with the customers'
expectations.

Our History:
Strong foundations for a company of strength.
Zuari entered the Cement business in 1994 to operate the Texaco Cement
Plant. In 1995, Texacos Plant at Yerraguntla was taken over by Zuari and a
Cement Division was formed. The fledging unit came into its own in the
year 2010 when Zuari Industries entered into a Joint Venture with the
Italcementi Group, the 5th largest producer of Cement in the world, Zuari
Cement Limited was born. Zuari Cement took over Sri Vishnu Cement
Limited in 2007. Today, the Company is amongst the topmost cement

produces

in

South

India.

Zuari and Italcementi. The strength of two

Zuari Cement is one of the leading cement producers in South India. A fully
owned subsidiary of the Euro 6 billion Italcementi Group, Commitment to
customer satisfaction has seen Zuari Cement grow from a modest 0.5 million
tone capacity in 1995 to 3.5 million tones today. And earned a place among
the most reliable cement producers in the country.
Thanks to a careful plan of investments and take-overs of other cement
producers, the company expanded, quickly reaching a strong position on the
market and becoming the leading cement manufacturer in Italy.
After several acquisitions abroad, in 1992 Italcementi achieved important
international status with its take-over of Cements Franois, one of the main
global cement producers.
In 1997 Italcementi consolidated its verticalisation strategy with the
acquisition of Calcestruzzi, thus becoming Italian leader in the ready-mixed
concrete sector.
In March 1997, all the international companies of the Group gathered
under one single corporate identity.
Since 1998 Italcementi Group has been pursuing its internationalization
strategy by acquiring new cement works in Bulgaria, Kazakhstan, Thailand,
Morocco, India, Egypt and the United States.

Our Management:
While professional management and quality workforce ensure superior
results, the role played by the core management should not be discounted.
With their vision and experience, they make sure that Zuari Cement moves
in the right direction. Towards becoming one among the leading cement
producers in India.

Maurizio Caneppele
Managing Director
Curriculum vitae

Krishna Srivastava
Director Marketing
Ramesh Surya Narayana
Director Technical
Curriculum vitae
Emiliyan Andreev
Chief Financial Officer
Curriculum vitae
S.SURESH
Vice President HR & IR

With an annual production capacity of approximately 70

million tons of cement, Italcementi Group is the worlds fifth largest cement
producer.
The Parent Company, Italcementi S.p.A., is one of Italys 10
largest industrial companies and is included in S&P/MIB Index of the Italian
Stock Exchange.
Italcementi Groups companies combine the expertise, knowhow
and cultures of 22 countries in 4 Continents boasting an industrial network
of 63 cement plants, 13 grinding centers, 5 terminals, 125 aggregates
quarries and 614 concrete batching units.

In 2012 the Group had sales amounting

to almost 6 billion Euros.
Italcementi, founded in 1864, achieved important international status with
the

take-over

of

Cements

Francis

in

1992.

Following a period of re-organization and integration that culminates in the

adoption of a single corporate identity for all Group subsidiaries, the newlyborn Italcementi Group began to diversify geographically through a series of
acquisitions in emerging countries such as Bulgaria, Morocco, Kazakhstan,

Thailand and India, as well as operating in North America. As part of the

plan to further enhances its presence in the Mediterranean area, in 2010 the
Group boosted its investments in Egypt becoming the market leader.
In 2012 Italcementi acquired full control of the activities in India and
signed an agreement to strengthen its position in Kazakhstan while, in 2013,
it further strengthened its presence in Asia and the Middle East through the
operations in China, Kuwait, Saudi Arabia. In 2012 the Group signed a joint
venture in Libya to build a 4 million tons/year cement plant.
As a member of the World Business Council for Sustainable
Development (WBCSD) Italcementi Group has signed the Cement
Sustainability Initiatives Agenda for Action, the first formal commitment
that binds a number of world cement industry leaders to an action plan that
aims at satisfying present-day needs at the same time as safeguarding the
requirements of future generations.
To further confirm its commitment on these issues, the Group has
taken over the co-Chairmanship of the Cement Sustainability Initiative for
the period 2013-2012.

Our Products:
Cement for every kind of task
Zuari Cement manufactures and distributes its own main
product lines of cement .We aim to optimize production across all of our
markets, providing a complete solution for customer's needs at the lowest
possible cost, an approach we call strategic integration of activities.

Cement is made from a mixture of 80 percent limestone and 20

percent additives. These are crushed and ground to provide the "raw meal, a
pale, flour-like powder. Heated to around 1450 C (2642 F) in rotating
kilns, the meal undergoes complex chemical changes and is transformed
into clinker. Fine-grinding the clinker together with a small quantity of
gypsum produces cement. Adding other constituents at this stage produces
cements for specialized uses.

Blended Cements :
Zuari Blended Cement the eco-friendly, user-friendly cement :
Zuari Blended Cement has been developed in response to
todays need for environment-friendly products that are cost-effective,
durable and have minimal by-products.
Durability is a very important property in concrete. And
durability here means concrete that ensures the long life span of structures
like homes and residences that are lifetime investments.

Since distress

of concrete and early failure of structures is a common phenomenon,

research over a period of time helped develop various remedial measures
that improved durability and cost economics.

One of them being blended

Portland Cement, with complementary pozzolanic and cementations

materials like fly ash, blast furnace slag, etc. And Zuari Blended Cement is a
fine example of it.

Our

Products:

Portland Cement :
Zuari OPC is high quality cement prepared from the finest raw aterial.
Owing to optimum water demand, it contributes to a very low co-efficient of
permeability of the concrete prepared. This improves the density of the

concrete matrix and increases the durability of the concrete. Zuari OPC is
high performance cement far exceeding the coral requirement of BIS.
It is this very durability that translates into long - lasting
residential

and

commercial

constructions

of

wide

variety.

Zuaris edge With these unique advantages, Zuari Cement comes

to you in two grades - 43 Grade OPC and 53 Grade OPC.
Zuari OPC is high quality cement prepared from the finest raw
material. Owing to optimum water demand, it contributes to a very low coefficient of permeability of the concrete prepared. This improves the density
of the concrete matrix and increases the durability of the concrete. Zuari
OPC is high performance cement far exceeding the coda requirement of BIS.
It is this very durability that translates into long - lasting
residential and commercial constructions of a wide variety.
Zuari 43 & 53 Grade Ordinary Portland Cement (OPC) - Strong
cements for long-lasting constructions.

Higher compressive strength

Better soundness
Lesser consumption of cement for M-20 grade concrete and above
Faster deshuttering of form work
Reduced construction time
Primo Concrete Cement - Concrete Redefined

Primo - The success story:

In 2013 Zuari Cement launched its high-strength cement
under the brand name 'Primo Concrete Cement' in Bangalore City.
'Primo' improves the density of the concrete matrix and increases the
durability of the concrete, making it an immediate hit
among construction and infrastructure projects undertaken in and
around Bangalore. Recently Primo was also launched in Kochi and
Chennai. An extensive marketing and distribution network across
south India concretes Zuari Cement's success story.
New products, on the line of the extremely successful
'Primo' launch, will play a significant role in key markets.

Primo Concrete Cement - Concrete Redefined:

Primo concrete cement is high quality cement
prepared from the finest raw material. Owing to optimum water
demand, it contributes to a very low co-efficient of permeability of the
concrete prepared. This improves the density of the concrete matrix
and increases the durability of the concrete. Primo is a high
performance cement far exceeding the codal requirement of IS 122691987. It is this very durability that translates into long-lasting
residential and commercial constructions of a wide variety, such as
dams, canals, highways, roads and flyovers.
Higher compressive strength
Better soundness
Lesser consumption of cement for M-20 Concrete grade

 and above
Faster deshuttering of form work
Reduced construction time

Locations:
CORPORATE OFFICE:
No. 1, 10th Main, Jeevanbhima Nagar,
Bangalore - 560 075
Tel: 080 - 41194408
Fax: 080 - 40302844/ 40302888
E-mail: zclmkt@zcltd.com,zclho@zcltd.com

Works: Sitapuram
P.O.Dondapadu
Nalgonda - 508 246
Andhra Pradesh
Tel: 08683 - 235107
Fax: 08683 - 235229
E-mail: svclspm@zcltd.com
Works: Krishna Nagar
P.O. Yerraguntla
Kadapa - 516 311
Andhra Pradesh
Tel: 08563 - 275104 / 275301

Fax: 08563 - 275164

E-mail: zclygl@zcltd.com

Italcementi Group:
Italcementi Group at a glance
With an annual production capacity of approximately 70 million
tons of cement, Italcementi Group is the worlds fifth largest cement
producer.
The Parent Company, Italcementi S.p.A., is one of Italys 10
largest industrial companies and is included in FTSE/MIB Index of the
Italian Stock Exchange.
Italcementi Groups companies combine the expertise,
knowhow and cultures of 22 countries in 4 Continents boasting an industrial
network of 59 cement plants, 15 grinding centers, 5 terminals, 373
concrete

batching

units

and

92

aggregates

quarries.

In 2012 the Group had sales amounting to over 5 billion Euros.

Italcementi, founded in 1864, achieved important international
status

with

the

take-over

of

Cements

Franais

in

1992.

Following a period of re-organization and integration that culminates in the

adoption of a single corporate identity for all Group subsidiaries, the newlyborn Italcementi Group began to diversify geographically through a series of
acquisitions in emerging countries such as Bulgaria, Morocco, Kazakhstan,
Thailand and India, as well as operating in North America. As part of the
plan to further

enhances its presence in the Mediterranean area, in 2010

the Group boosted its investments in Egypt becoming the market leader.
In 2011 Italcementi acquired full control of the activities in
India and signed an agreement to strengthen its position in Kazakhstan
while, in 2012, it further strengthened its presence in Asia and the Middle
East through the operations in China, Kuwait, Saudi Arabia.
As a member of the World Business Council for
Sustainable Development (WBCSD) Italcementi Group has signed the
Cement Sustainability Initiatives Agenda for Action, the first formal
commitment that binds a number of world cement industry leaders to an
action plan that aims at satisfying present-day needs at the same time as
safeguarding

the

requirements

of

future

generations.

To further confirm its commitment on these issues, the

Group has taken over the co-Chairmanship of the Cement Sustainability
Initiative for the period 2011-2012. Moreover, Italcementi has been included
in The Sustainability Yearbook 2012 the most comprehensive publication
on corporate sustainability released yearly by SAM (Sustainable Asset
Management).

CHAPTER IV

DATA ANALYSIS

DETERMINATION OF STOCK LEVELS

Carrying of to much and too little of inventories is determinate to the
firm. If the inventory level is too little, the firm will face frequent stock
outs involving heavy ordering cost and if the inventory level of inventory
where costs are the minimum and at the same time their ID.No.Stock-out,
which may result in loss of sale or stoppage of production.

Various stock

levels are discussed below.

MINIMUM STOCK LEVEL

This is the lower limit below which the stock of any item should not
normally be allowed to fall. This is also technically known as safety or
buffer stock.
The prime considerations in fixing the minimum stock level or safety
stocks are:
a.

Average rate of consumption.

b.

Lead time.

Minimum Stock Level = Reordering level - X

Lead-Time :
A purchasing firm requires some time to process the order and time is
also required by the supplying firm to execute the order. The time taken
processing the order and the executing it is known as lead-time.
essential to maintain some inventory during this period.

It is

Reorder Level :
Reorder level is fixed between the minimum and maximum levels. When
stock of a material reaches at this point, the store keeper should initiate
action for the purchase of material. The reorder level is slightly more than
minimum stock level to guard against
a. Abnormal usage
b. Abnormal delay in supply
Reorder level =

Maximum consumption X

Maximum

during the period

for delivery

period

required

MAXIMUM STOCK LEVEL :

Maximum stock level represents the upper limit beyond which the
quantity of any item is not normally allowed to rise. The main object of
establishing this limit is to ensure that unnecessary working capital is not
blocked in stores. Theoretically, maximum stock level is the sum total of
minimum stock level and economic order quantity.
Maximum level = Reorder Level + Reordering quantity Minimum
consumption

AVERAGE STOCK LEVEL:

The average stock level is calculated as such:
Average stock = minimum stock level + of re-order quantity.

DANGER LEVEL :
This is generally fixed below the minimum stock level. Normal stock
should not be below the minimum level. If it reaches the danger level at any
point of time, urgent action for replenishment of stock must be taken to
prevent stock out.

ESTIMATION OF STOCK LEVELS :

There are different techniques used in the calculation of the stock levels.
Reordering Quantity
Reordering Period

2500 units

4 5 weeks

Maximum usage

900 units

Normal usage

700 units

Minimum usage

500 units

Weekly usage :-

Reordering Level

Maximum

consumption

Maximum

Reordering Period
= 900 X 5 = 4500 units.
Ex :- Consider Load King for calculation purpose.
Calculated of the load king vehicle as 500 units.
Normal Daily consumption = 700 units
Normal Reorder period = 4.5 weeks
Reorder level
Minimum usage

= 4500 units
= 500 units

Minimum Reorder period= 4 weeks

Maximum Reorder period

= 5 weeks

MINIMUM STOCK LEVEL

=Reorder Level (Normal consumption X Normal Reorder Period)

4500 (700 X 4.5)

4500 3150

1350 Units

MAXIMUM STOCK LEVEL

=Reorder Level + Reorder Quantity (Minimum consumption X
Minimum Reorder Period)
=

4500 + 2500 (500 X 4)

7000 2001

5000 Units

AVERAGE STOCK LEVEL

=

Minimum stock + of Reordering Quantity.

500 + ( X 2500)

500 + 1250

1750 Units

Minimum Stock Level

= 1350 Units

Average Stock Level

= 1750 Units

Maximum Stock Level

= 5000 Units

INVENTORY TURN OVER RATIO

A Ratio which measures the number of times a firms average
inventory is sold during a year Kohler.
Computation of inventory turnover ratios for different items of
materials and comparison of the turnover ratios provide a useful guidance
for measuring inventory performance. A high turnover rate indicates that the
material in question is a fast moving one. A low turnover rate on the other
hand indicates over investments and looking up of working capital on
undesirable items.
Inventory or Stock turnover is measured in terms of the ratio of the
value of materials consumed to the average inventory during the period.

The ratio indicates the number of time the average inventory is consumed
and replenished by dividing number of days for which the average inventory
is held can be ascertained.
Comparing the number of days in the case of two different materials,
it is possible to known which is fast moving and which slow on that basis
attempt may be made to reduce the amount of capital locked up and prevent
over stocking of slow moving items.
Average Inventory

= Opening Stock + Closing Stock

2

Inventory turnover ratio

Material consumed

Average Inventory

Inventory turnover in number of days = Number of days in a year

Inventory turnover ratio

INVENTORY TURNOVER RATIO

Cost of goods sold
INVENTORY TURNOVER RATIO =-----------------------------Average inventory
(Rs in 000s)

Year
2008-09
2009-10
2010-11
2011-12

Cost of
sold
2563442
2210210
2163508
2484589

2012-13
2013-14

3044561
4120957

goods Average
inventory
358048
439610
528333
596074
697949
1008066

CHART ON INVENTORY TURNOVER RATIO

Ratio
7.76
5.03
4.09
4.17
4.36
4.09

Interpretation:
The inventory turnover ratio signifies the liquidity of the inventory.
A high inventory turnover ratio indicates brisk sales. The ratio is therefore a
measure to discover the possible trouble in the form of overstocking or
overvaluation. The stock position is known as the graveyard of the balance
sheet. If the sales are quick such a position would not arise unless the stocks
consists of un-saleable items. A low inventory ratio results in blocking of
funds in inventory which may ultimately result in heavy losses due to
inventory becoming obsolete or deteriorating in quality.

INVENTORY HOLDING RATIO

365
INVENTORY HOLDING RATIO=--------------Inventory turnover ratio
(Rs in 000s)
Year
Days
Inventory turn- Inventory
over ratio
holding ratio
2008-09
365
7.16
51
2009-10
365
5.03
73
2010-11
365
4.09
89
2011-12
365
4.17
88
2012-13
365
4.36
84
2013-14
365
4.09
89

Interpretation:
Inventory holding days express the No. of days it takes for the stock
to get converted into sales.

It is called stock conversion period. It is

calculated as above. It means that 51 days period of time it took to convert

from stock sales in 2008-09, 73 days in 2009-10, 89 days in 2010-11, 88 days in
2011-12, 84 days in 2012-13 and 89 days in 2013-2014.

INVENTORY ANALYSIS AT KESORAM

Year

Inventory

2008-09
2009-10
2010-11
2011-12
2012-13
2013-14

495036
561630
630518
765380
1250752
1312456

(Rs in 000s)
Current assets
% in inventory
&CA
909946
54.40
1078274
52.09
1500977
42.01
1688733
45.32
2307604
54.20
2504689
55.23

Interpretation :
It shows the relationship between inventory & Current assets.
The inventory position in ZUARI Cement has to level of inventories as
compare to current assets in the increasing trend it has found that the current
assets level has increased year by year and the inventory being part of it has
also increased. It fluctuates certain intervals. This is due to increase in
liquidity involving Cash and Bank balances.

YEARS

2014

2013

2012

2011

2010

2009

Opening Inventory
(Rs. In Lakhs)

49970

45675

46904

55253

51554

43697

Closing Inventory
(Rs. In Lakhs)

75983

49970

45675

46904

55253

51554

INVENTORY TURNOVER RATIO

YEARS

INVENTORY
CONSUMED
(Rupees
in
Lakhs)

March 2014

459537.10

March 2013

335286.52

March 2012

250021.84

March 2011

211723.1

March 2010

235858.13

March 2009

221023.23

AVERAGE
INVENTORY
(Rupees
in
Lakhs)
49970 + 75983
2
= 62976.5
45675 + 49970
2
= 47822.5
46904 + 45675
2
= 46389.5
55253 + 46904
2
= 51078.5
51554 + 55253
2
= 53403.5
53697 + 51554
2
= 47625.5

INVENTORY
TURNOVER
RATIO
459537.10
62976.5
= 7.296
335286.52
47822.5
= 7.01
250021.84
46389.5
= 5.389
211723.1
51078.5
= 4.145
235858.13
53403.5
= 4.416
221023.23
47625.5
= 4.64

INVENTORY
TURNOVER
IN NUMBER
OF DAYS
365..
7.296
= 50.027
366..
7.01
= 52.21
365..
5.389
= 67.73
365..
4.24
= 88.05
365..
4.41
= 82.65
366..
4.64
= 78.87

INERPRETATION:
A high turnover ratio indicates that the material in question is a fast
moving one and also a low amount of stocks are replacing stocks in large
number of installment. In the year 2014,2013,2012, the stock turnover ratio
is gradually decreasing and the inventory faced a bad position in these three
years. And from 2009,2010,2011, the stock turnover ratio continuously
increased from 5.38 to 7.296 and the inventory in number of days is low.
This position indicates that the stocks are fast moving and get converted in
to sales quickly.

CEMENT PRODUCTION AND DISPATCH

MARCH 31ST 2014

CEMENT PRODUCTION
(QUANTITY
IN
MIL.TONNES)
25,797

CEMENT
DISPATCH
(QUANTITY
IN
MIL.TONNES )
25,416

MARCH 31ST 2013

34,186

33,766

MARCH 31ST 2012

33,630

33,885

YEAR

INERPRETATION:
The inflow of raw materials and dispatch of finished goods from
the organization is in good position. In march 31 st 2014 the difference
between the vehicle production and dispatched is 381 and in march 31 st 2011
the close stock in the go down is also dispatched from the organization and
as well as in the year 2013 31st march the stored vehicles are dispatched
from the company. This indicates that the consuming storage cost is very
low and risk related to preservation of the stock is very less.

CHAPTER 6

FINDINGS AND
SUGGESTIONS

FINDINGS
The inventory turnover ratio signifies the liquidity of
the inventory. A high inventory turnover ratio indicates
brisk sales.

51 days period of time it took to convert from stock

sales in 2008-09, 73 days in 2009-10, 89 days in 2010-11, 88
days in 2011-12, 84 days in 2012-13 and 89 days in 20132012.

A high turnover ratio indicates that the material in

question is a fast moving one and also a low amount of
stocks are replacing stocks in large number of
installment. In the year 2014,2013,2012, the stock
turnover ratio is gradually decreasing and the inventory
faced a bad position in these three years.

And from 2009,2010,2011, the stock turnover ratio

continuously increased from 5.38 to 7.296 and the
inventory in number of days is low.

SUGGESTIONS :
On the personnel interaction with the financial department as well as
with the primary and secondary datas the following are the conditions and
suggestions arrived. They are:
The analysis is carried out for a period of five years i.e., 2008-09to 2013-2012 is not sufficient to conclude the Inventory position of
the company as we have taken up to study for a period of 6 weeks is
too less still we strived out best in exploiting the present inventory
position of the company.
Inventory valuation is followed in weighted average method based
on cost concept of the project costing is undertaken.
The inventory is different items of production; hence A-B-C
analysis and Two Bin System are followed.
Some items are found to be slow and non-moving. The slowmoving items are spare and consumable goods; hence whenever
necessity arises these items are being used. Non-moving items are
also found in the inventory.
The reasons for Non-moving of Inventory from stores are studied.
Due to MOQ (Minimum Order Quantity) clause these items
procured extra than the requirement.
Raw material turnover ratio was low in the year 2008-4 which was not
a good sign in the earlier. The ratio is higher in the year 2013-14
which is 9.09 which signifies a good sign.
The high inventory ratio indicates efficiency of the firms inventory

management.
The material consumption was also increasing simultaneously with
sales.
The companys efficiency in turning its inventory is increasing. The
companys utilization of inventory in generating sales is good. The
yearly holding of all types of inventory is decreasing. This is positive
trend.
The overall inventory position of the company is satisfactory.

CONCLUSION:
To days business scenario inventory management is becoming
very crucial part of the organization.

The system of inventory

management in Zuari is very effective. The organization is basically

and assembling unit and thus inventory place a most significant role in
the decision making process. From the various calculations and figures
relating to inventory management it is clear that the inventory
classification of A items are maintain for 1 3 days, as a result it
reduce investment in raw material, reducing the lead time and also the
large quantity discount because the stock are kept for 1 3 days.
In the classification of ABC items XYZ procedure is following in
Zuari Plant has launched the different type of KANBAN card system for
class C items.
Class A & B items are consider under the just in time philosophy
as the procurement time has been reduced up to greater extent by the
proper co-ordination of buyer and supplier.
There is great improvement in the inventory turnover ratio from 3
years. It is increased from 5.38 to 7.296% this position indicates that
the stocks are fast moving and get converted into sales quickly in Zuari

CHAPTER 7

BIBLIOGRAPHY

BIBILOGRAPHY:

Cost Accounting

Cost Accounting

V.K. Saxena
C.D. Vashist
S.P. Iyenger

Cost Accounting

S.N. Maheshwari

Financial
Management

Khan & Jain

Cost Management
Accounting

R.P. Thrivadi

Websites :
www.google.com
www.yahoofinance.com
www.zuaricements.com
www.birlacements.com