SYNOPSIS Inventory management in kesoram cement

Name

: V.Sravankumar

Roll no

: 10J21E0038

Specialization

: Finance

Project topics

: Inventory management in kesoram cement

Project Guide

Head of the department

CONTENTS:

1. Introduction

2. Review of literature

3. Need of study

4. Objectives of the study

5. Limitations of the study

6. Research Methodology

7. Bibliography

INTRODUCTION TOINVENTORY MANAGEMENT

INVENTORY MANAGEMENT:

Inventories are the stock of products sold by a firm and the components that make up the product while the trading firms buy finished products on wholesale and sell them for profit, the manufacturing firms buy raw materials, process them, convert them into finished goods and sell yourself them.

The firm should maintain sufficient stock of finished goods to see that sales are made as and when demanded. Similarly stock of material should be maintained to have uninterrupted production activities. Inventories form a link between purchase and sales of a firm. As they represent assets, they require investment and thus involve commitment of firms financial resources. Excessive inventories disrupt the production/sales activity. Thus efficient and effective inventory management aims at maintaining just adequate stocks which are neither excessive nor inadequate.

Definition of Inventory Management: Inventory control may be defined as the systematic control over the procurement, storage & usage of materials so as to maintain an even flow of materials and avoiding at the same time excessive investment in inventories.

Material control covers 3 stages namely

1. Purchase of materials. 2. Storing of materials & 3. Issue of materials.

Inventory Management is the active control program which allows the management of sales, purchases and payments.

Inventory management is a very high complexed process that involves many variables such as purchase of raw materials, goods in process and storage of finished goods.

Nature of Inventory:

Manufacturing firms have 3 types of Inventories. They are:

1. Raw Material. 2. Work in Progress & 3. Finished Goods.

Manufacturing firms should always maintain stock of raw materials because they should be continuously supplied to production departments. If for any reason, there is shortage of materials, the production activity has to be stopped.

As production is a continuous process, there will be work-in-progress i.e., materials which are in process not yet completely converted into finished goods. This represents work-inprogress inventory. Similarly the firm should maintain stock of finished goods to sell them whenever they are demanded. I case of trading concerns, inventory comprises mostly finished goods.

Because of large size of inventories required to be maintained, considerable funds are to be invested in them. As maintaining inventories have financial implications, their efficient management becomes an essential part of financial management of a firm. The decision regarding the levels of inventories to be maintained are not taken only by the financial manager, but various others also are involved in it.

For example, sales manager desires to have huge stock of finished goods in order to meet customers demands instantaneously. Production Manager wants to have continuous supply of raw materials to see that production process runs smoothly without any interruption; purchase manager wants to maintain sufficient stock of raw materials to see that production departments demands are met on time. Though inventory is more directly related to production sales departments, financial manager has an active role to play in efficient management of inventories because of financial implication.

LITERATURE REVIEW

Alexander the Great and his father Phillip were noted for having greatly lightened the old baggage trains that had been the standby of earlier warriors, making soldiers carry their supplies on their own backs, allowing them to march further and faster than the Persians. A superpower is not measured by how many nuclear weapons it can build, but by how much it can manufacture and how fast it can ship stock to all parts of the world. Barcode scanners went into field use in 1974. By the 1980s the first inventory control computer programs that could run on a PC were starting to see use. In the Beginning I suppose inventory management was first invented by Adam when he named all the animals or Noah when he counted the clean and unclean beasts for the Ark. But for the sake of brevity, well jump ahead to modern times. Before the Industrial Revolution, merchants basically had to write down all of the products they sold every day. Then they had to order more products based on their hand-written notes and their gut feelings. This was an incredibly inefficient and inaccurate way of doing business. Merchants couldnt really account for stolen goods unless they did time-consuming physical counts on a regular basis. They also had trouble making sure they got the right number of products when orders came in because of sparse recordkeeping. But it was the best they could do. Hole-y Breakthrough, Batman! Luckily, in 1889 a man named Herman Hollerith invented the first punch card that could be read by machines. By feeding sheets of paper that have little holes in specific places, people could record complex data for a variety of purposes from census taking to clocking in and out of work. This was basically the precursor to computers that can read data in tiny microchips. And Holleriths company even went on to form the worlds first computer company, IBM.

Harvard University took Holleriths idea in the 1930s and created a punch card system for businesses. Companies could tell which products were being ordered and also record some inventory and sales data based on punch cards customers would fill out for catalog items. Unfortunately, Harvards order management system cost too much and was too slow to keep up with rising business challenges. The Best, Bar None In the 1960s, a group of retailers (mostly grocery stores, at first) got together and came up with a new method for tracking inventory: the modern barcode. There were several competing types of barcodes before they were standardized with the Universal Product Code (UPC) in 1974. Its still the most-used barcode in the United States today. As computers become more efficient and cheaper, UPCs grew in popularity. In the mid-1990s, companies started experimenting with inventory management software that would record data as products were scanned in and out of warehouses. The technology evolved into a comprehensive inventory management solution by the early 2000s. And now, even small and midsize businesses can find affordable inventory management software to meet their needs. Inventory management software has been decades (even hundreds of years) in the making. And now that its here, you should definitely take advantage of it to make sure your business doesnt become history. Sign up for an online inventory software demotoday.

NEED OF THE STUDY

One of the most important aspects of any business is inventory management. Those who have never worked in the business sector may not understand the importance of efficient inventory management.

But, the reality of it is if you don't have control of your inventory, you will be unable to ascertain you will have enough inventories on hand to handle the needs of your customers. Even worse than that--you will not have enough supplies on hand to produce the products you need to meet the needs of your customers.

It is important to keep in mind there are several different functions of inventory management: raw inventory, meaning the raw goods the company must keep on hand for production; work in progress inventory which includes any of the goods that are in the production process; and finished goods inventory or the products that are ready to ship to customers.

Without inventory management it would be difficult for any company to maintain control and be able to handle the needs of their customers. Whether you use a fulfillment companyor ship products yourself you need to know where your inventory is and where it's going. Unless you can meet the needs of your customers you will soon lose all of them to competitors who are able tomeet their requirements, no matter how stringent.

While inventory management has always been important, it has become more important over the past several decades. As the needs of companies increase, they must in turn increase demands on their suppliers. In order for suppliers to have the goods their customers need, it is necessary for them to maintain excellent and accurate inventory management.

The customers don't care if you have to manually count your inventory or have access to an automated system like the ones that fulfillment centers provide, the only thing that is of concern to customers is the ability of your company to have supplies on hand to take care of their needs

in a reasonable amount of time. When you are preparing to open a business you need to look at inventory management as part of your preliminary plans.

Before you even have customers you will need to plan for the maintenance of proper inventory levels. You will also need to maintain a system for increasing those levels as business dictates, and this requires the implementation of efficient and effective inventory management procedures. Without procedures in place to oversee inventory levels it will be quite easy to allow inventory levels to diminish to dangerous levels, levels that will prevent your company from meeting the supply and demand needs of your customers.

OBJECTIVE OF THE STUDY:

1) To ensure a continuous supply of raw material and supplies to facilitate uninterrupted production 2) To maintain sufficient stock of raw material in period of short supply and anticipate price charge 3) To maintain sufficient finished goods inventory for smooth sales operation and efficient customer services. 4) To minimize the carry cost and time. 5) To control investment in inventory and keep it an optimum level.

LIMITATIONS OF THE STUDY

The study has the following limitations; 1. The study is limited only for a period 5 years i.e., from 2003-04 or 2008-09. 2. The limitations of ratio analysis(ABC analysis, inventory turn over ratio, EOQ)can be applicable of the study. 3. There may be approximation in calculating ratios taking the figure from the annual reports. 4. The proper inventory management will increase the companys flexibility with the right time at the right place. 5. The effective inventory control methods can reduce but cannot eliminate business risk.

FORMULAS

ECONOMIC ORDER QUANTITY: EOQ= EOQ Where, A = Annual usage of inventory B = Buying cost per order C = carrying cost per unit THE RE-ORDER LEVEL: R = M+TU R = Reorder level M = Minimum level of inventory T = Time gap / delivery time U = Usage rate
2AB C

1)DETERMINATION OF STOCK LEVELS: a)MINIMUM STOCK LEVEL: Minimum Stock Level = Reordering level X100

Reorder level =

Maximum consumption during the period

Maximum period required for delivery

b)MAXIMUM STOCK LEVEL : Maximum level = Reorder Level + Reordering quantity Minimum consumption c)AVERAGE STOCK LEVEL : Average stock = minimum stock level + of re-order quantity

INVENTORY TURN OVER RATIO: 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

Cost of goods sold INVENTORY TURNOVER RATIO =-----------------------------Average inventory

INVENTORY HOLDING RATIO: 365 INVENTORY HOLDING RATIO=-----------------------------------------Inventory turnover ratio

RESEARCH METHODOLOGY

Research design or research methodology is the procedure of collecting, analyzing and interpreting the data to diagnose the problem and react to the opportunity in such a way where the costs can be minimized and the desired level of accuracy can be achieved to arrive at a particular conclusion. The methodology used in the study for the completion of the project and the fulfillment of the project objectives.

Sources of Data Collection:

The study basically depends on Primary data & Secondary data PRIMARY OBJECTIVE: In primary data the analysis of purchasing procedure, inventory data, inventory turn over ratio, stock levels, ABC analysis, two bin systems, jit has made possible by the discussion with various administrative executives and other concerned peoples of kesoram cement.

SECONDARY OBJECTIVE: The secondary data collected from Companies Annual Reports News Papers Information from Internet Company Offer Documents Different books.

BIBLIOGRAPHY

1). FINANCIAL MANAGEMENT BY L.M. PANDY, 8th Edition. 2). FINANCIAL MANAGEMENT BY PRASANNA CHANDRA, 5th Edition. 3). TOTAL QUALITY MANAGEMENT BY K.SRIDHARA BAI, 5 th Edition. 4). FINANCIAL ACCOUNTING & ANALYSIS, BY S.P. JAIN & K.L.N. NARANG,KALYANI PUBLISHERS

5) Websites
www.kesoramcement.com