A STUDY ON

INVENTORY MANAGEMENT
With reference to

ANDHRA PRADESH HEAVY MACHINERY AND ENGINEERING LIMITED A project report submitted in partial fulfilment of the requirement for award of
MASTER OF BUSINESS ADMINISTRATION Submitted By T. Chndra Babu (Regd.No10H71E0009)
Under the Esteemed of guidance of

Mrs. Vasavi Asst. Professor DEPARTMENT OF MANAGEMENT STUDIES

Devineni Venkata Ramana & Dr. Himasekhar

MIC COLLEGE OF TECHNOLOGY

Kanchikacharla 521180, Krishna District, Andhra Pradesh.

JAWAHARLAL NEHRU TECHNOLOGICAL UNIVERSITY KAKINADA 2010-2012

ACKNOWLEDGEMENT

The completion of this project makes me to recall with Gratitude several persons who have extended their co-operation in one way or the other in this venture. I am very much thankful to Mrs. Ranibhai, for his precious guidance and constant support in completing my project in ANDHRA PRADESH HEAVY MACHINERY AND ENGINEERING LIMITED, KONDA PALLI I express my sincere thanks to Dr. T. NAGESWARA RAO, M.B.A head of the Department of Management Studies. I am grateful to my project guide Mrs. Vasavi for permitting me to undertake this project. My sincere thanks to Madam Mrs. Vasavi M.B.A, Asst professor of M.B.A, department for his guidance & suggestions are during the course of study.

DECLARATION

I hereby declare that this project report entitled A STUDY ON INVENTORY MANAGEMENT WITH SPECIAL REFERENCE TO ANDHRA PRADESH HEAVY MACHINERY AND ENGINEERING LIMITED, KONDA PALLI. Has been prepared by me during the year 2010-2012 in partial fulfilment Of the requirement for the award of MASTER OF BUSINESS ADMINISTRATION By JAWAHARLAL NEHRU TECHNOLOGICAL UNIVERSITY KAKINADA. I also declare that this project is the result of my own effort and that it has been submitted to any university for the award of any other Degree or diploma.

Date

Signature of the student T. CHANDRA BABU

Place

(Regd. No.10H71E0009)

CONTENTS
CHAPTER-I
Introduction Theoretical framework

CHAPTER-II
Industry Profile Company Profile

CHAPTER-III Research Methodology CHAPTER-IV

Data analysis and interpretation

CHAPTER-V
Finding & suggestions Conclusion Bibliography

CHAPTER I
INTRODUCTION

INTRODUCTION
Finance is called The science of money. It studies the principles and the methods of obtaining control of money from those who have saved it, and of administering it by those into whose control it passes. Finance is a branch of Economics till 1890. Economics is defined as study of the efficient use of scarce resources. The decisions made by business firm in production, marketing, finance and personnel matters form the subject matters of economics. Finance is the process of conversion of accumulated funds to productive use. It is so intermingled with other economic forces that there is difficulty in appreciating the role it plays.

MEANING AND DEFINITION OF FINANCE: Howard and Uptron in his book introduction to Business Finance defined, as that administrative area or set of administrative function in an organization which relate with the arrangement of cash and credit so that the organization may have the means to carry out its objectives as satisfactorily as possible. In simple terms finance is defined as the activity concerned with the planning, raising, controlling and administering of the funds used in the business. Thus, finance is the activity concerned with the raising and administering of funds used in business.

MEANING AND DEFINITION OF FINANCIAL MANAGEMENT: Financial management is managerial activity which is concerned with the planning and controlling of the firms financial resources. An entity whose income exceeds its expenditure can lend or invest the excess income. On the other hand, an entity whose income is less than its expenditure can raise capital by borrowing or selling equity claims, decreasing its expenses, or increasing its income. The lender can find a borrower, a financial intermediary such as a bank, or buy notes or bonds in the bond market. The lender receives interest, the borrower pays a higher interest than the lender receives, and the financial intermediary earns the difference for arranging the loan. A bank aggregates the activities of many borrowers and lenders. A bank accepts deposits from lenders, on which it pays interest. The bank then lends these deposits to borrowers. Banks allow borrowers and lenders, of different sizes, to coordinate their activity.

Finance is used by individuals (personal finance), by governments (public finance), by businesses (corporate finance) and by a wide variety of other organizations, including schools and non-profit organizations. In general, the goals of each of the above activities are achieved through the use of appropriate financial instruments and methodologies, with consideration to their institutional setting. Finance is one of the most important aspects of business management and includes decisions related to the use and acquisition of funds for the enterprise.

DEFINITIONS: Howard and Upton define financial management as an application of general managerial principles to the area of financial decision-making. Weston and Brig hem define financial management as an area of financial decision making, harmonizing individual motives and enterprise goal. Financial management is concerned with the efficient use of an important economic resource, namely capital funds - Solomon Ezra & J. John Pringle. Financial management is the operational activity of a business that is responsible for obtaining and effectively utilizing the funds necessary for efficient business operations- J.L. Massie. Financial Management is concerned with managerial decisions that result in the acquisition and financing of long-term and short-term credits of the firm. As such it deals with the situations that require selection of specific assets (or combination of assets), the selection of specific liability (or combination of liabilities) as well as the problem of size and growth of an enterprise. The analysis of these decisions is based on the expected inflows and outflows of funds and their effects upon managerial objectives. - Phillippatus.

NATURE OF FINANCIAL MANAGEMENT: The nature of financial management refers to its relationship with related disciplines like economics and accounting and other subject matters. The area of financial management has undergone tremendous changes over time as regards its scope and functions. The finance

function assumes a lot of significance in the modern day s in view of the increased size of business operations and the growing complexities associated thereto.

OBJECTIVES OF FINANCIAL MANAGEMENT: Efficient financial management requires the existence of some objectives or goals because judgment as to whether or not a financial decision is efficient must be made in the light of some objective. Although various objectives are possible we assume two objectives of financial managements. These are: I. II. Profit Maximization Wealth Maximization.

I. Profit Maximization: It has traditionally been argued that the objective of a company is to earn profit; hence the objective of financial management is also profit maximization. This implies that the finance manager has to make his decisions in a manner so that the profits of the concern are maximized. Each alternative, therefore, is to be seen as to whether or not it gives maximum profit. However profit maximization cannot be the sole objective of a company. It is at best a limited objective. If profit is given undue importance, a number of problems can arise. There area) The term profit is Vague. It does not clarify what exactly it mean. It conveys a different meaning to different people. For example, profit may be in short term or long term period; it may be total profit or rate of profit etc. b) Profit maximization has to be attempted with a realization of risks involved. c) Profit Maximization as an objective does not take into account the time pattern of returns. d) Profit Maximization as an objective is too narrow.

II. Wealth Maximization: The readers would appreciate that a company, which has profit maximization as its objective, may adopt policies yielding exorbitant profits in the short run which are unhealthy for the growth, survival and overall interests of the business. A company may not undertake planned and prescribed shut-downs of the plant for maintenance, etc. for simply to maximize its profits in the short run. If this reduces the life of a plant say by five years, the company is ignoring maintenance only at its own peril although it may have greater profits in the short run. Hence, it is commonly agreed that the objective of a firm should be to maximize its value or wealth. According to Van Horne value of a firm is represented by the market price of the company common stock. Normally, this value is a function of two factors: a) The likely rate of earnings per share of the company: and b) The capitalization rate.

SCOPE AND SIGNIFICANCE OF FINANCIAL MANAGEMENT: Financial Management is essential in all types of organization wherever the funds are involved, whether profit oriented or non-profit oriented, in a centrally planned economy and also in a capitalist set-up. It is a must for private and public enterprises. If Financial Management of a company is bad, there is a danger of liquidation, even when the company makes high profits. Financial Management optimizes the output from the given input of funds. It attempts to use funds in the most productive manner. If proper financial management techniques are used, most of the enterprises can reduce their capital employed and improve their return on investment. The strength of the finance function determines the strength of other functions since production, marketing etc., are possible only with sound financial management. Financial Management plays crucial role in making the best use of resources. Financial Management today covers the entire gamut of activities and functions given below. The head of finance is considered to be important ally of the CEO in most organizations and performs a strategic role. His responsibilities include:
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a. Estimating the total requirements of funds for a given period. b. Raising funds through various sources, both national and international, keeping Mind the cost effectiveness; c. Investing the funds in both long term as well as short term capital needs; d. Funding day-to-day working capital requirements of business; e. Collecting on time from debtors and paying to creditors on time; f. Managing funds and treasury operations; g. Ensuring a satisfactory return to all the stake holders; h. Paying interest on borrowings; i. Repaying lenders on due dates; j. Maximizing the wealth of the shareholders over the long term. k. Interfacing with the capital markets; l. Awareness to all the latest developments in the financial markets; m. Increasing the firms competitive financial strength in the market & n. Adhering to the requirements of corporate governance. in

ROLE OF FINANCIAL MANAGEMENT: To participate in the process of putting funds to work within the business and to control Their productivity; and To identify the need for funds and select sources from which they may be obtained. The functions of financial management may be classified on the basis of liquidity, profitability and management.

1. LIQUIDITY: Liquidity is ascertained on the basis of three important considerations: a. Forecasting cash flows, that is, matching the inflows against cash outflows; b. Raising funds, that is, financial management will have to ascertain the sources from which funds may be raised and the time when these funds are needed; c. Managing the flow of internal funds, that is, keeping its accounts, with a number of Banks to ensure a high degree of liquidity with minimum external borrowing.

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1. PROFITABILITY: While ascertaining profitability, the following factors are taken into account: a. Cost control: expenditure in the different operational areas of an enterprise can be analyzed with the help of an appropriate cost accounting system to enable the financial manager to bring costs under control. b. Pricing: Pricing is of great significance in the companys marketing effort, image and sales level. The formulation of pricing policies should lead to profitability, keeping, of course, the image of the organization intact. c. Forecasting Future Profits: Expected profits are determined and evaluated. Profit levels have to be forecast from time to time in order to strengthen the organization. d. Measuring Cost of Capital: Each source of funds has a different cost of capital which must be measured because cost of capital is linked with profitability of an enterprise.

2. MANAGEMENT: The financial manager will have to keep assets intact, for assets are resources which enable a firm to conduct its business. Asset management has assumed an important role in financial management. It is also necessary for the financial manager to ensure that sufficient funds are available for smooth conduct of the business. In this connection, it may be pointed out that management of funds has both liquidity and profitability aspects. Financial management is concerned with the many responsibilities which are thrust on it by a business failures, financial failures do positively lead to business failures.

The responsibility of financial management is enhanced because of this peculiar situation. Financial management may be divided into two broad areas of responsibilities, which are not by any means independent of each other. Each, however, may be regarded as a different kind of responsibility; and each necessitates very different considerations. These two areas are: The management of long-term funds, which is associated with plans for development and expansion and which involves land, buildings, machinery,

equipment, transport facilities, research project, and so on; The management of short-term funds, which is associated with the overall cycle of activities of an enterprise. These are the needs which may be described, as working capital needs.

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FUNCTIONS OF FINANCIAL MANAGEMENT: The modern approach to the financial management is concerned with the solution of major problems like investment financing and dividend decisions of the financial operations of a business enterprise. Thus, the functions of financial management can be broadly classified into three major decisions, namely:

(a) Investment decisions, (b) Financing decisions, (c) Dividend decisions.

The functions of financial management are briefly discussed as under:

1. INVESTMENT DECISION: The investment decision is concerned with the selection of assets in which funds will be invested by a firm. The assets of a business firm include long term assets (fixed assets) and short term assets (current assets). Long term assets will yield a return over a period of time in future whereas short term assets are those assets which are easily convertible into cash within an accounting period i.e. a year. The long term investment decision is known as capital budgeting and the short term investment decision is identified as working capital management. Capital Budgeting may be defined as long term planning for making and financing proposed capital outlay.

In other words Capital Budgeting means the long-range planning of allocation of funds among the various investment proposals. Another important element of capital budgeting decision is the analysis of risk and uncertainty. Since, the return on the investment proposals can be derived for a longer time in future, the capital budgeting decision should be evaluated in relation to the risk associated with it. On the other hand, the financial manager is also responsible for the efficient management of current assets i.e. working capital management. Working capital constitutes an integral part of financial management. The financial manager has to determine the degree of liquidity that a firm should possess. There is a conflict between profitability and liquidity of a firm. Working capital management refers to a Trade off between liquidity (Risk) and Profitability. Insufficiency of funds in current assets results liquidity and possessing of excessive funds in current assets reduces profits. Hence, the finance manager must achieve a
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proper trade off between liquidity and profitability. In order to achieve this objective, the financial manager must equip himself with sound techniques of managing the current assets like cash, receivables and inventories etc.

2. FINANCING DECISION: The second important decision is financing decision. The financing decision is concerned with capital mix, (financing mix) or capital structure of a firm. The term capital structure refers to the proportion of debt capital and equity share capital. Financing decision of a firm elates to the financing mix. This must be decided taking into account the cost of capital, risk and return to the shareholders. Employment of debt capital implies a higher return to the share holders and also the financial risk. There is a conflict between return and risk in the financing decisions of a firm. So, the financial manager has to bring a trade off between risk and return by maintaining a proper balance between debt capital and equity share capital. On the other hand, it is also the responsibility of the financial manager to determine an appropriate capital structure.

3. DIVIDEND DECISION: The third major decision is the dividend policy decision. Dividend policy decisions are concerned with the distribution of profits of a firm to the shareholders. How much of the profits should be paid as dividend? i.e. dividend pay-out ratio. The decision will depend upon the preferences of the shareholder, investment opportunities available within the firm and the opportunities for future expansion of the firm. The dividend payout ratio is to be determined in the light of the objectives of maximizing the market value of the share. The dividend decisions must be analyzed in relation to the financing decisions of the firm to determine the portion of retained earnings as a means of direct financing for the future expansions of the firm.

FUNCTIONAL AREAS OF FINANCIAL MANAGEMENT One of the most important functions of the financial manager is to ensure availability of adequate financing. Financial needs have to be assessed for different purposes. Money may be required for initial promotional expenses, fixed capital and working capital needs. Promotional expenditure includes expenditure incurred in the process of company formation. Fixed assets needs depend upon the nature of the business enterprise whether it is a
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manufacturing, non-manufacturing or merchandising enterprise. Current asset needs depend upon the size of the working capital required by an enterprise.

1) Determining the source of Funds 2) Financial Analysis 3) Optimum Capital Structure 4) C V P Analysis 5) Profit Planning and Control 6) Fixed Assets Management 7) Project Planning and evaluation 8) Capital Budgeting 9) Working Capital

10) Dividend Policies 11) Acquisitions and Mergers 12) Corporate taxation

1) DETERMINING SOURCES OF FUNDS: The financial manager has to choose sources of funds. He may issue different types of securities and debentures. He may borrow from a number of financial institutions and the public. When a firm is new and small and little known in financial circles, the financial manager faces a great challenge in raising funds. Even when he has a choice in selecting sources of funds, that choice should be exercised with great care and caution. A firm is committed to the lenders of finance and has to meet terms and conditions on which they offer credit. To be precise, the financial manager must definitely know what he is doing.

2) FINANCIAL ANALYSIS: It is the evaluation and interpretation of a firms financial position and operations, and involves a comparison and interpretation of accounting data. The financial manager has to interpret different statements. He has to use a large number of ratios to analyze the financial status and activities of his firm. He is required to measure its liquidity, determine its profitability, and assess overall performance in financial terms. This is often a challenging task, because he must understand importance of each one of these aspects to the firm; and he should be crystal clear in his mind about the purposes for which liquidity, profitability and performance are to be measured.
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3) OPTIMAL CAPITAL STRUCTURE: The financial manager has to establish an optimum capital structure and ensure the maximum rate of return on investment. The ratio between equity and other liabilities carrying fixed charges has to be defined. In the process, he has to consider the operating and financial leverages of his firm. The operating leverage exists because of operating expenses, while financial leverage exists because of the amount of debt involved in a firms capital structure. The financial manager should have adequate knowledge of different empirical studies on the optimum capital structure and find out whether, and to what extent, he can apply their findings to the advantage of the firm.

4) COST-VOLUME-PROFIT ANALYSIS: This is popularly known as the CVP relationship. For this purpose, fixed costs, variable costs and semi-variable costs have to be analyzed. Fixed costs are more or less constant for varying sales volumes. Variable costs vary according to sales volume. Semivariable costs are either fixed or variable in the short run. The financial manager has to ensure that the income for the firm will cover its variable costs, for there is no point in being in business, if this is not accomplished. Moreover, a firm will have to generate an adequate income to cover its fixed costs as well. The financial manager has to find out the break-evenpoint-that is, the point at which total costs are matched by total sales or total revenue. He has to try to shift the activity of the firm as far as possible from the break-even point to ensure companys survival against seasonal fluctuations. 18 5) PROFIT PLANNING AND CONTROL: Profit planning and control have assumed great importance in the financial activities of modern business. Economists have long considered the importance of profit maximization in influencing business decisions. Profit planning ensures attainment of stability and growth. In view of the fact that earnings are the most important measure of corporate performance, the profit test is constantly used to gauge success of a firms activities. Profit planning is an important responsibility of the financial manager. Profit is the surplus which accrues to a firm after its total expenses are deducted from its total revenue. It is necessary to determine profits properly, for they measure the economic viability of a business. The first element in profit is revenue or income. This revenue may be from sales or it may be operating revenue,

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investment income or income from other sources. The second element in profit calculation is expenditure.

This expenditure may include manufacturing costs, trading costs, selling costs, general administrative costs and finance costs. Profit planning and control is a dual function which enables management to determine costs it has incurred, and revenues it has earned, during a particular period, and provides shareholders and potential investors with information about the earning strength of the corporation. It should be remembered that though the measurement of profit is not the only step in the process of evaluating the success or failure of a company, it is nevertheless important and needs careful assessment and recognition of its relationship to the companys progress. Profit planning and control are important be, in actual practice, they are directly related to taxation. Moreover, they lay foundation of policies which determine dividend, and retention of profit and surplus of the company. Profit planning and control are an inescapable responsibility of the management. The break-even analysis and the CVP relationship are important tools of profit planning and control.

6) FIXED ASSETS MANAGEMENT: A firms fixed assets are land, building, machinery and equipment, furniture and such intangibles as patents, copyrights, goodwill, and so on. The acquisition of fixed assets involves capital expenditure decisions and long-term commitments of funds. These fixed assets are justified to the extent of their utility and / or their productive capacity. Because of this long-term commitment of funds, decisions governing their purchase, replacement, etc., should be taken with great care and caution. Often, these fixed assets are financed by issuing stock, debentures, long-term borrowings and deposits from public. When it is not worthwhile to purchase fixed assets, the financial manager may lease them and use assets on a rental basis. To facilitate replacement to fixed assets, appropriate depreciation on fixed assets has to be formulated. It is because of these facts that management decision on the acquisition of fixed assets is vital; if they are ill-designed they may lead to over-capitalization. Moreover, in view of the fact that fixed assets are maintained over a long period of time, the assets exposed to changes in their value, and these changes may adversely affect the position of a firm.

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7) PROJECT PLANNING AND EVALUATION: A substantial portion of the initial capital is sunk in long-term assets of a firm. The error of judgment in project planning and evaluation should be minimized. Decisions are taken on the basis of feasibility and project reports, containing analysis of economic, commercial, technical, financial and organizational viabilities. Essentiality of a project is ensured by technical analysis. The economic and commercial analysis study demand position for the product. The economy of size, choice of technology and availability of factors favouring a particular industrial site are all considerations which merit attention in technical analysis. Financial analysis is perhaps the most important and includes forecast of cash in-flows and total outlay which will keep down cost of capital and maximize rate of return on investment. The organizational and man-power analysis ensures that a firm will have the requisite manpower to run the project. In this connection, it should be remembered that a project is exposed to different types of uncertainties and risks. It is, therefore, necessary for a firm to gauge the sensitivity of the project to the world of uncertainties and risks and its capacity to withstand them. It would be unjustifiable to accept even the most profitable project if it is likely to be the riskiest.

8) CAPITAL BUDGETING: Capital budgeting decisions are most crucial; for they have long-term implications. They relate to judicious allocation of capital. Current funds have to be invested in long-term activities in anticipation of an expected flow of future benefits spread over a long period of time. Capital budgeting forecasts returns on proposed long-term investments and compares profitability of different investments and their cost of capital. It results in capital expenditure investment. The various proposal assets ranked on the basis of such criteria as urgency, liquidity, profitability and risk sensitivity. The financial analyzer should be thoroughly familiar with such financial techniques as pay back, internal rate of return, discounted cash flow and net present value among others because risk increases when investment is stretched over a long period of time. The financial analyst should be able to blend risk with returns so as to get current evaluation of potential investments.

9) WORKING CAPITAL MANAGEMENT: Working capital is rightly an adjunct of fixed capital investment. It is a financial lubricant which keeps business operations going. It is the life-blood of a firm. Cash, accounts receivable and inventory are the important components of working capital, which is rotating
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in its nature. Cash is the central reservoir of a firm and ensures liquidity. Accounts receivables and inventory form the principal utility of production and sales; they also represent liquid funds in the ultimate analysis. The financial manager should weigh the advantage of customer trade credit, such as increase in volume of sales, against limitations of costs and risks involved therein. He should match inventory trends with level of sales. The uncertainties of inventory planning should be dealt with in a rational manner. There are several costs and risks which are related to inventory management.

The risks are there when inventory is inadequate or in excess of requirements. The former may hold up production, while the latter would result in an unjustified locking up of funds and increase the cost of capital. Inventory management entails decisions about the timing and size of purchases purely on a cost basis. The financial manager should determine the economic order quantities after considering the relationships of different cost elements involved in purchases. Firms cannot avoid making investments in inventory because production and deliveries involve time lags and discontinuities. Moreover, the demand for sales may vary substantially. In the circumstances, safety levels of stocks should be maintained. Inventory management thus includes purchases management and material management as well as financial management. Its close association with financial management primarily arises out of the fact that it is a simple cash asset.

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THEORETICAL FRAM WORK

MEANING OF INVENTORY Every enterprise needs inventory for smooth running of its activities; it serves as a link between the recognition of a need and its fulfilment the greater the time lag. The higher the requirements for inventory, the unforeseen fluctuations in demand and supply of goods also necessitate the need for inventory. It also serves as a cushion for future prices fluctuations. The simple meaning of inventory is stock of goods or list of goods the word inventory is understood differently by various authors. In accounting language it means stock o finished goods only, for a manufacturing concern it includes raw-materials, work-inprogress, finished goods etc. Inventories constitute the most significant part of current assets. Many companies maintain 60% of current assets as inventories. Because of the large size of the inventories maintained by the firms, a considerable amount of funds is required to be committed to them. It is therefore absolutely imperative to manage inventories efficiently in order to avoid unnecessary investment. A firm neglecting the management of inventories will be failed in its long run profitability and may fail ultimately. It is possible for a company to reduce its level of inventories to a considerable degree within the range of 10 to 20% without any adverse effect by using simple inventory planning and control techniques. inventories has a favourable impact on the profitability of the firm. DEFINITION: Policies, procedures, and techniques employed in maintaining the optimum number or amount of each inventory item. The objective of inventory management is to provide uninterrupted production, sales, and/or customer-service levels at the minimum cost. Since, for many firms, inventory is the largest item in the current assets category, inventory problems can and do contribute to losses or even business failures. It is also called inventory control. See also inventory analysis. The reduction in excess

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OBJECTIVES OF INVENTORY MANAGEMENT: Minimize investment in inventories in order to maximize profits. In order to minimize carrying costs and ordering costs of inventory. To minimize obsolescence in stores. To avoid excess and inadequate stocks. To provide check against losses of materials. To meet the demand for products efficiently NATURE OF INVENTORIES: Inventories are the stock of the product a company is manufacturing for sale and components that make up the product. The various forms in which inventories may exist in a manufacturing company are: Raw materials Work-in-progress Finished goods

RAW MATERIALS: Raw materials are those basic inputs that are converted into finished product through the manufacturing process. Raw materials inventories are those units, which have been purchased and stored for future productions. A company should maintain adequate stock of a continuous supply to the factors for an uninterrupted production. If it is not possible for a company to produce raw materials whenever needed, a time lag exists between demand for materials and its supply. Also there will be some uncertainly on procuring raw materials in time on many occasions. WORK-IN-PROGRESS: The inventories are semi-finished products. They represent products that need more work before they become finished products for sale. Work in progress inventory builds up
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because of production cycle. Production cycle is the time span between introduction of rawmaterials and emergence of finished products at the completion of production cycle. Still, production cycle completes, stock of work in progress has to be maintained. Efficient firms constantly try to make production cycles smaller by improving their production techniques. FINISHED GOODS: Finished goods are the completely manufactured products, which are for sale. Stocks of raw materials and work in progress facilitate production, while stock of finished goods is required for smooth marketing operations. Stock of finished goods has to hold because production and sales are not instantaneous. A firm cannot produce immediately when

customers demand goods. Therefore to supply finished goods on a regular basis, their stock has to be maintained for sudden demand from customers. In case the firm sales are seasonal in nature, substantial finished goods should be kept to meet the peak demand. Failure to supply products to customers would mean loss to firms sales to competitors. The level of finished goods inventories would depend upon the co-ordination between sales and production as well as on production time. The levels of three kinds of inventories for a firm depend on the nature of business. A manufacturing firm will have substantially high levels of three kinds of inventories while a retail of wholesale firm will have a very high level of finished goods inventories and no raw materials or work in progress inventories. Within manufacturing firms there will be differences. INVENTORY DECISIONS: In an inventory control situation, there are three basic questions to be answered. They are: How much order? That is to say, what is the optimal quantity of an item should be ordered whenever an order is placed? When should the order be placed? How much safety stock should be kept? Thus, what quantity of an that

item in excess of the expected requirements should be held as buffer stock in anticipation of the variations in its demand and/or the time involved in acquiring fresh supplies.
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INVENTORY COSTS: In determining optimal inventory policy, the criterion most often is the cost function. The classical inventory analysis identifies four major cost components. Depending on the structure of an inventory situation, some or all of these are included in the objective function. 1. PURCHASE COSTS: This refers to nominal cost of inventory. It is the purchase price for the items that are bought outside sources, and the production cost if the items are produced within the organization. This may be constant per unit, or it may vary as the quantity purchased/ produced increases or decrease. Quite often, situation is found when it may be stipulated that, for example the unit price is rest 20 for an order unto 100 units and rest 19.50 if the order is for more than 100 units. If the unit cost is constant, it neither does nor affects the inventory control decisions because whether all the requirements are produced just once or whether they are obtained in instalments, the total amount of money involved would be the same. However we do consider the quantity discounts when they occur, because they effect these decisions. 2. ORDERING COSTS/ SET-UP COSTS: This category of costs is associated with the acquisition or ordering of inventory. Firms have to place orders with suppliers to replenish inventory of raw material. It includes costs associated with the processing and chasing of the purchase order, transformation, inspection for quality, expediting overdue orders and so on. The parallel of the ordering cost when units are produced within the organization and the cost of acquiring materials consists of clerical costs and costs of stationery. It is therefore called a set-up cost. The ordering cost is likely and taken to be independent of the order size. Therefore the unit ordering/setup cost declines as the purchase order/ production run increases in size. Ordering costs are costs involved in: Preparing a purchase order

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Receiving, inspecting and recording the goods received to ensure both quantity and quality.

3. CARRYING COSTS: They are involved in maintaining or carrying the inventory. It represents the cost that is associated with storing an item in inventory. Carrying costs are also known as holding cost or the Storage cost. The main components of this category of carrying costs are Storage cost i.e. tax, depreciation and maintenance of the building, utilities etc. Insurance of inventory against fire and theft deterioration in inventory because of pilferage, fire, technical obsolescence, style obsolescence etc. Serving costs such as labour for handling inventory, clerical and accounting costs. The opportunity cost of funds consists of expenses in raising funds (interest of capital) to finance the acquisition of inventory they would have earned a return. This is the

opportunity cost of funds or the financial cost. The carrying cost and the inventory size are positively related and move in same direction. carrying costs also increased and vice-versa. The sum of the order and carrying cost represents the total cost of the inventory. This is compared with the benefits arising out of inventory to determine the optimum level of inventory. 4. STOCK OUT COSTS: Stock out cost means the cost associated with not serving the customers. Stock outs imply shortages. If the stock out is internal (i.e. in the production system) it would imply that some production is lost, resulting in idle time for men and machines, or that the work is delayed which might attract some penalty. While if the stock out is external, it would result in a loss of potential sales and/or loss of customer good will. A shortage can evoke different reactions from customers. It would result in a back order or lost sales. In case of back order the sales are not lose, they are only delayed. When the new shipment arrives, a customer who was denied earlier would be immediately supplied the goods. But it would involve costs like expediting costs, packing and shipment costs. On the other hand, when the sales are lost forever, it is If the level of inventory increases, the

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difficult to assess the costs involved in terms of profit on potential sales lost, profit lost on whatever the customer would have bought in all future periods in case he decided not to turn to the organization for anything in future, a so forth. Such costs can be exorbitant indeed. INVENTORY CONTROL TECHNIQUIES

INVENORY CONTROL TECHNIQUES

Selective inventory control 1. ABC Analysis 2. XYZ Analysis 3. VED Analysis 4. FSN classification 5. SOS classification 6. SDE Analysis 7. HML Analysis INVENTRY CONTROL:

Inventory management techniques 1. EOQ (Economic order quqntity) 2. Ordering cost 3. Carrying cost 4. System of re- ordering

Inventory control renders to the process whereby the investment in materials and parts carried in stock is regulated within predetermined limits set in accordance with the inventory policy established by the management. The inventory control therefore forms established by the management. The inventory control therefore forms the basis of material control. The material control is activity oriented process whereas inventory control is the management process and the later is the firms step to be followed by the former. Inventory control refers to a planned method of purchasing and string the material at lowest possible cost without affecting the sales scheduled. Inventory control therefore, is a scientific method of determining what, when and how much to purchase and how much to have to stock for a given period of time.

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THE NEEDS FOR INVENTORY CONTROL: The rewards of inventory control system cannot be over looked in the Indian context the idea behind this is Conserving valuable foreign exchange. Release of capital. Reduction in cost.

1. ABC ANALYSIS: The Analysis is a technique to analyze the items by their value and consumed more frequently and some may be less frequently and some are consumed rarely. Depending upon the rate of consumption and the value of the items are divided into three groups. A-Class Items: These are most costly and will have high usage value. They constitute 10% of items only but account for 70% of total annual consumption cost. A-class items only frequently but in small quantity. B-class Items: Items are will have medium usage value. They constitute nearly 20% of total items accounting for 20% of total inventory investment. C-class Items: Are called low usage value items. They constitute nearly 70% of items accounting only for 10% of capital investment in inventory. 2. XYZ ANALYSIS: XYZ analysis is based on the closing inventory value of different items. Items, whose inventory values are high, are classed as X-items, while those with low investment in them are termed as Z-items. Other items are the Y-items whose inventory value is neither too high nor too low. It can be easily visualized that the several types of analysis discussed are not mutually exclusive. For example ABC and XYZ analysis may be combined to classify and control depending on whether the items are AX, BY, CZ, AY of and so on. Similarly XYZ FSN combine classification exercise will help in timely prevention of obsolescence.

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3. VED ANALYSIS: In VED analysis, the items are classified on the basis of their criticality to the production process or other service. In the VED classification of materials, V stands for Vital items without which the production process would come to a standstill. E in the system denotes Essential items whose stock out would adversely affect the efficiency of the production system. Although the system would not altogether stop for want of these items, yet their noavailability might cause temporary losses in, or dislocation of production. The D items are the Desirable items are required but do not immediately cause a loss to production. The VED analysis is done mainly in respect of spare parts. 4. FSN ANALYSIS: Based on the consumption pattern of the items, the FSN classification calls for classification of items are F-Fast Moving, S-Slow Moving and N-Noon Moving goods. This speed classification helps in the arrangement of stocks in the stores and in determining the distribution and handing patterns. 5. S-OS ANALYSIS: S-OS analysis is based on the nature of supplies, where in S-represents the Seasonal items and OS represent the Off Seasonal items. This classification of items is done with the aim of determining proper procurement of strategies. 6. S-D-E ANALYSIS: This uses the criterion of the availability of the items. In this analysis S-stands for scarce items which are short in supply. D-refers to the difficult items meaning the items that might available in indigenous market but cannot procure easily. While E-represents easily available items even from local markets. 7. HML ANALYSIS: This is similar to the ABC analysis except that, in this analysis, the items are classified on the basis of unit value rather than value. The items are classified accordingly as
26

their cost per unit is H-high, M-medium and L-low. This type of Analysis is useful for keeping control over materials consumption at their department levels. ECONOMIC ORDER QUANTITY (EOQ): One of the inventory management problems to be resolved is how much inventory should be added when inventory is replenished. If the firm is buying raw materials, it has to decide lots to in which it has to be purchased on cash replenishment. If the firm is planning production as per schedule. These problems are called order quantity problem and task of the firm is to determine optimum inventory level involves two types of costs: 1. Ordering cost. 2. Carrying cost. The economic order quantity is that inventory level, which minimizes the total of ordering and carrying costs. 1. Ordering costs: The term ordering cost is used in case of raw materials (or supplies) and includes the entire costs of acquiring raw materials. They include costs incurred in the following activities. Requisitioning, purchasing, ordering, transport recieving, inspecting and storing (store placement), ordering cost increase in proportion to the number of orders placed the critical and staff costs, however, dont vary in proportion to the number orders placed, and one view is that so long as they are committed cost they need not to be revoked in computing ordering cost. 2. Carrying cost: Cost incurred for maintaining for given level of inventory are called carrying cast, they include storage, insurance, taxes, deterioration and obsolesces. Formula:

EOQ =

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System of Re-ordering Re order point = S (L) + F where S = Usage L = Lead time needed to obtain additional inventory when order is placed. R = Average quantity ordered F = Stock out acceptance facts The value of T the stock out acceptance facts depends on the stock out percentages rates applicable to the firms and the probability distribution of usage. If the usage rate has a poison distribution the value of F for various stocks out %. METHODS OF VALUATION: The government of India has given sufficient flexibility for companies to introduce scientifically developed methods of valuation of their stocks. In order to prevent malpractices, it has been stipulated that such methods must be studied and approved by the Board of Directors, and must be followed for a minimum prior of three years. The various methods of valuation available are given below. First in first out [FIFO] Last in first out [LIFO] Periodical Simple Average Method Normal cost/ Standard cost method Weighted average method Replacement price method

A. FIFO:
In this case it is assumed that the stores follow the principal that oldest stock issued first so that stock left out is from the later arrivals. Hence all issues are assumed to have come out from older stocks. These are valued at old price. The cumulative value of stock out will

28

give the net value of the existing stock. Under this method it is assumed that the materials or goods first received arc the first to be issued or sold. Thus according to this method, the inventory on a particular date is presumed to be composed of the items which were acquired most recently. Advantages: The FIFO method has the following advantages: It values stock nearer to current market prices since stock is presmed to be consisting The most recent purchases It is based on cost and therefore, no unrealized profit enters into the financial accounts of the company. The method is realistic since it takes into account the normal procedure of utilizing or selling those materials or goods which have been longest in stock. Disadvantages: The method suffers from the following disadvantages It involves complicated calculations and hence increase the possibility of clerical errors. Comparison between different jobs using the same type of materials becomes sometimes difficult. A job commenced a few minutes after another job may have to been an entirely different charge for material because the first job may have to bean a entirely different charge for materials because the first job completely exhausted the supply of materials of the particular lot.

The FIFO method of valuation of inventories is particularly suitable in the following circumstances The materials or goods are of a perishable nature. His frequency of purchases is not large. There are only moderate fluctuation in the prices of materials or Goods purchased Materials are easily identifiable as belonging to a particular Purchase lot.

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B. LIFO:
Here stores are issued from the last stock. This means issues have taken place from later arrivals. Hence all issued are valued as per the price of the latest arrivals to compute value of stock left in stores. This method is based on the assumption that last item of materials or goods purchased are the first to be issued or sold. Thus, according to this method, inventory consists of items purchased at the earliest cost. Advantages: This method has the following advantages, It takes into account the current market conditions while valuing materials issued to different jobs or calculating the cost of goods sold The method is based on cost and, therefore, no unrealized profit or loss is made on account of use of this method. The method is most suitable for materials which are of a bulky and non perishable type.

C. PERIODICAL SIMPLE AVERAGE:

In this case after each receipt of material, adding the cost of materials in hand with the cost of materials received and dividing the same by the total number of units calculate the average cost. This process is repeated every time new items are received. This average cost is used for computing the value of items issued and value of items remaining in the stock.

D. NORMAL COST / STANDARD COST METHOD:

This method is mostly used for items manufactured in house. Here the average of a certain lot is calculated and used as cost of items issued. Since this method is used for items manufactured, one can use standard costing method also for valuation of such stocks.

E. WEIGHTED AVERAGE METHOD:

This method is used when the quantity and prices of items vary widely from each purchase. In this case, the weighted average price is calculated for each item. This price is used for computing the value of items and those remaining in stock.

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F. REPLACEMENT PRICES METHOD:

This is a modern method developed by George Tarboro. However without application it is difficult to price each item. This has not yet become popular. FIFO, LIFO and Weighted Average methods are popular and acceptable to the government tax authorities. SELECTIVE INVENTORY CONTROL: APHMEL has to maintain several types of stores and spares inventories. It is not desirable to keep some degree of control on all items. The firm should pay maximum type of attention to those times whose value highest. They should therefore, classify inventories to which items should receive the most effect in controlling. DIFFERENT TYPES OF INVENTORY CONTROLS OF THERE USES:

Types of control ABC Also know always better control or pardons law.

Criteria Value of consumption To

Main use control raw materials

nothing to do with the components and work in perseveres unit value of item. in nominal course of business.

HML High, Medium, Low

Unit

price

of

the Mainly to control purchases.

materials this opposite of ABC or does not take consumption account

VED Vital, Essential, Desirable. SED Scarce, Difficult, and easy to obtain. G.O.L.F Gout, open market, Local and Foreign source.

Critically of the item.

To determine the sock levels of spare parts.

Purchasing

problems Leads time analysis and purchasing strategies.

regard to availability.

Source materials.

of

supply Procurement strategies.

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F.S.N.C Fast moving, slow moving, non- moving. S.OS Seasonal and Off seasonal

Consumption pattern of To control obsolence. the component.

Nature of supplies and Procurement and holding strategies seasonally. for seasonal items like agricultural products.

XYZ High, Medium, Low inventory value items.

Inventory value of items To review the inventories, their in sale. uses etc at scheduled intervals.

INVENTORY CONTROL: APHMEL has separate section called ICC through SAP system. The ICC will control the whole stock proceeding and the main objective is to minimize the orders on the bases of consumption pattern and its lead time. By SAP system ever thing will be disclosed in the company i.e. issuing and receipts and pricing orders of that on the basis of available material in the stirs and consumption during the year base on lead time they will approach purchase department. They minimum lead time of consumables is one month on the basis of safety stock. GOODS RECEIPTS NOTE: Cost center Auditing Requisition required Purchasing dept Quotation raised Goods purchased Here APHMEL is purchasing dept are divided in to 2 groups. These two groups are each troop deal with some items of range of items, who loads accountability and responsibility. When the order is made items are purchased stores A/c is field. Patria; A/c is credited.

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CONTROAL TECHNIQES USED IN APHMEL: FSN analysis (fast, slow, non moving). ABC analysis JIT (Just in time) EOQ (Economic Order Quantity) MATERIAL GROUP DESCRIPTION IN APHMEL

Material code 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

Description Raw material Chemicals Dyes Work shop spares Plant and machinery Rubber tires/compiling Automobile spares Plant and machinery (unit-II) General items Chain pull blocs, hoists EDT, crane Electrical spares Furniture and fixers Tools Instrumentation Laboratory Fire fighting Pipes & fittings

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18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 ABC ANALYSIS:

Packing material Fuel Air compressor spares Wits & felts Bearings Medical Bolts & nuts Instrumentation Water, treatment plant spares Pulp mill spares Welding material Iron & steel Valves & spares Casting roads, shafts, bushes Pump spares/ gear box spares Oils & lubricants Paints/ brushes Building material Chains, sprockets, gears Belting

ABC Analysis is a technique of exercising selective control. Over inventory items. The technique is based on this assumption that a company should not exercise the degree of control on items which are less costly.

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The smaller numbers of high consumption value item are called an item. The medium consumption value items are B items. The largest number of least consumption items is C items classification. The 12000 items only 8000 items are analyzed into A-B-C classification. But this industry follows the techniques FNS analysis. APHMEL once up on an item this technique is using. But ABC Analysis is not applicable in APHMEL. JIT (JUST IN TIME INVENTORY): This was originally development by twitchy okno of Japan. Simply implies that the firm should maintain a minimum level of inventory and rely on supplies to provide parts and components just in time to meet its assembly requirements. The just in time inventory system while conceptually very appealing is difficult to implement because it involves a significant changes in the total production and management system. The JIT is the technique specially adopted by APHMEL for the fulfilment of requisition of spare parts through baring bank system. By this system there is no need to invest money o investor. The fulfilment will be within days of the need the data about the needs of spares are required for this technique. The data firm purchasing consumption, saving reordering is required. In out DPMI, there is a contract with ILC (irrevocable letter of credit) authorized dealer, who maintains some stock and fulfils the recruitment when every occurs by the APHMEL. EOQ (Economic order quantity) EOQ = where

A=Annual consumption O=Ordering cost C=carrying cost

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CHAPTER - II
INDUSTRY PROFILE & COMPANY PROFILE

36

INDUSTY PROFILE
INTRODUCTION:Engineering industry comprises of comical, civil, industrial and mechanical engineering divisions, where civil engineering division basically concerned with the activities like planning, construction, designing or manufactured of structure. The chemical industry is concerned with engineering activities like construction, design and operation of plants and machinery of chemical products like drugs, synthetic rubber etc. Electrical engineering primary deals with all engineering activities like manufacturing of devices for generation of electricity of designing devises for transmission of electricity. This electrical engineering division is also concerned with the designing and manufacturing of electronic devices including computers and its accessories. The mechanical engineering division specifically deals with designing and manufacturing of power plants, engines or related devises and the industrial engineering is principally concerned with the processing also comprise of fields like Aeronautical engineering where engineering supervision designing or aircraft, missiles etc. Performance of the engineering sector is linked to the performance of the end user industries for this sector. The user industries for engineering include power utilities, industrial majors (refining automotive and textiles), government (public investment) and retail consumers pumps and motors. Many factors contribute to growth of engineering sector in India. THE KEY GROWTH DRIVERS ARE: The growth of the key end user sector in India. For example, the domestic sales of automobiles have grown at the compounded annual growth rate of around 14 per cent over the past four year. Governments emphasis on power and construction sector has increased for the past few years and thus increasing the demand for capital goods. Further, India is being preferred by global manufacturing companies as an out sourcing destination due to its lower labour cost better designing capabilities. Engineering companies thus have a huge potential for direct exports and outsourcing.

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The combination of AABs global know-how and Indias highly qualified people enables the Indias subsidiary to produce world class products. The Indian subsidiary is a global factory or high voltage 72.5 KV circuit breakers, medium voltage outdoor circuit breakers and magnetic actuators. It also exports several other products including transformers. The Indian engineering industry is highly competitive with a number of players in each segment. A large number of multinational companies such as commons, ABB and Alfa level have also entered the industry. The intense competition has led to Indian players developing improved capabilities that have made them more competitive. HISTORY OF ENGINEERING: The Indian remaindering industry can be traced roughly to mud 19th centuries stating with waging building and structural activities. However, it developer in the real sense only after impedance it gained momentum after the adopting of props Mahanoy his model of heavy capital goods growth strategy in the second five year pan and subsequent pans. It also exporting engineering goods like. The country is currently producing power generation transmission and distribution equipment. Plant and machinery for steel. Chemical and fertilizers. Cement plants. Sugar. Paper machinery. Electrical and construction machinery. Machine tools railway rolling stock. Earth moving equipment. A large number of other industrial goods and consumer durables

GOVERNAMENT MEASURES: A welcome policy change towards giving a boost in the machine tools production was the inclusion of machine tools in appendix 1 of the industrial policy announced in April 1983. This is thrown open machine tools manufacturer or mort and fear companies provide the particular item is not reserved for small scale industries.
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In addition the important policy of 1983-1984 was designed to help machine tools production. The provision included. Those small scale units which export at least 25% of their put and improve proto types up to Rs.100000. All scheduled industries will be the facility of drawings and designs once in a year for neither value nor exceeding Rs.1000000. A technology development fund was created to cover foreign exchange requirement for import if balancing equipment technical know -how foreign consultancy services etc. All the steps are designed to encourage fresh invested expansion and modernization in the domestic machine tool industry. ENGINEERING THE SECOND INDUSTRIAL REVOLUTION: The second industrial revolution, symbolized by the advent of electricity and mass production, was drive by many branches of engineering, chemical and electrical engineering developed in the rise of chemical, electrical and telecommunication industries. Machine engineers tamed the peril off ocean exploration. Aeronautic engineering turned the ancient dream of flight into a travel convenience for ordinary people. INDIAN AUTOMOTIVE INDUSTRY OBJECTIVES ARE: Exalt the sector as a lever of industrial growth and employment and to achieve a high of addition in the country. Promote a globally competitive automotive industry and emerge as global source for auto components. Small, affordable passenger cars and a key center for manufacturing tractors and two wheelers in the world. Ensure a balanced transition to open trade at a minimal risk to the Indian economy and local industry. Conduce incessant modernization of the industry and facilitate indigenous design, research and development. Sector Indias software industry into automotive technology. Assist development of vehicles propelled by alternative energy sources.

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ABOUT HEAVY ENGINEERING INDUSTRY:HEAVY INDUSTRY: Heavy industry in India comprised of the heavy engineering industry, machine tool industry, heavy electrical industry, industrial machinery and auto industry. These industries provide goods and services for almost all sectors of the economy, including power, rail a road transport, the achieve building industry caters the requirements of equipment for basic industries such as steel ferrous metals, fertilizers, refineries, petrochemical, shipping, paper, cement, sugar, etc. PERFORMANCE OF INDUSTRY: The industrial sector recorded a growth of 9.2%(measure over and above the growth of industrial production)during the period April Nov 2009-10 over and above the growth of 11.6% achieved in 2008-09. Capital goods sector, which posted a robust growth of 17.4% in April Nov 2008-09, has maintained its growth momentum during the current year a well. According to the index of industrial production, capital goods sector posted a growth of 20.8% during April -Nov 2009-10 as compared to April-Nov 2008-09 are given in the table below. HEAVY ELECTRICAL INDUSTRY: Heavy electrical industry encompasses import industry sectors including power generation, transmission and distribution equipment. This also cover turbo generation, boilers, turbines, transformers, switchgears and relays, the performance this industry is closely linked to the power programmer of the country, the government of India has an ambitious mission of power for all 2012 as per working group on power of 11th pan, a capacity addition of 72000 MW is required. To reach transmission network and inter regional capacity to transmit power would be essential. The technology available in India is almost at par with that in the international market barring few areas of high voltage lines. However, items like CRGO steel and amorphous cores for low loss transformers are being imported. The present buoyancy in the India economy would creator demand for electrical products through industrial growth and general economic development. The power sector reforms will creature large business over power sector equipment manufacturers and service providers, in
40

the current favourable market scenario. The electrical industry can certainly look forward to growth. TURBINES AND GENERATOR SETS: The capacity established for manufacturer of various kinds of turbines. Such as steam and hydro turbines including industrial turbines, is more than 7000 MW per annum. Apart from BHEL which has largest installed capacity. There are other units in the private sector who are manufacturing turbines for power generation and industrial use. The manufacturing range of BHEL includes streams turbines, boilers, and generators up to 500 MW for utility and commercial steam cycle application and is capable of manufacturing steam turbines with super critical steam cycle paramours and matching generation up to 660 MW size, facilities are also available for 1000 MW unit size, BHEL has the capacity to manufactured gas turbines up to 260 MW. The A.C generators industry in India is adequately catering to the alternative power requirement of large and small industries, commercial establishment and domestic manufactures in India are capable of manufacturing A.C generator right form 0.5 KVA and above with specified voltage rationed the each part and import figures for the year 2006-07 were around RS.2100crore and Rs.3069 crore respectively. BOILERS: Boilers is a pressurized system in which water is vaporized to steam, the desire end product, but heat transferred form a source of higher temperature usually the products of combustion form burning fuels. Steam thus generated may be used directly a mechanical work, which in turn may be converted to electrical energy. Although other fluids are sometimes used for this purpose, water is by far the most common. BHEL is the largest manufacturer of boilers in their country accounting of around two thirds of market share. It has the capacity to manufacture differently types of boilers including spare thermal boilers, utility boilers and other industrial boilers. The export and import figures for the year 2007-08 were Rs.395crore and Rs.98core respectively. TRANSFORMERS: A transformer is a voltage changer. The health of transformer industry depends largely on the power generation and transmission sector. The major users of this industry are the state
41

elect city board and industries. The transformer industry in India has developed for over 50 years and has a well matured technology vase. It has the technology to manufacture wide range of power transformers, distribution a transformer and special transformer for welding traction and furnaces etc. energy efficient transformers with low losses and low noise level are also being developed to meet international requirement the expert and import figures for the year 2009 were Rs.2923crore and Rs.2523crore respectively. SWITCH GEAR AND CONTROL GEAR: Continuous power supply is requirement not only for industry but also for every other use of electricity. And control gears are indispensable both in manufacturing entire range of circuit breaker form bulk oil, minimum oil. Air blast, vacuum to sculpture hexafluoride as per standard specification. It is estimated that the present size of the switchgear market than Rs. 4000crore. The export and import figures for the year 2009-10 were Rs.1462crore and Rs.2322crore respective HEAVY ENGINEERING INDUSTRY TEXTILE MACHINERY: There over 600 units engaged in the manufacture of textile machineries, their components, Accessories and spares. And out if these about 100 unities are manufacturing the complete textile machinery. The range includes textile machinery required for sorting. Cording processing of yarns/fabrics and waving. The industry is gearing item to avail the export target of garment manufactures post multiform agreement (MFA). With a capital investment of Rs. 1500crore and installed capacity of Rs. 3050crore per annum. CEMENT MACHINERY: Cement plants based on dry processing and recalculation technology for capacities up to 7500 TPD are being manufactured in the country. Modern cement plants are designed for zero downtime. High product quality and better output with minimum.

42

Import/export figures for the industry are as under: (Rs. In crore) Year Import 2007-08 1259 2008-09 905 2009-10 2511

Energy consumed per unit of cement production etc. at present, there are 18 units in the organizes sector for the manufacture of completer cement plant machinery with an installed capacity of around Rs.699crore annum the industry is fully capable to meet the domestic demand. SUGAR MACHINERY: Domestic manufactures occupy predominant position in the global scenario and are capable of manufacturing from con dept of commissioning stager sugar pants of latest design for a capacity up to 10000 TCD (tones crushing per day) there are presently 27 units in the organized sector for the manufacture of complete sugar pants and components with an installed capacity if around Rs. 200crores per annum. RUBBER MACHINERY: There are at present 19 units in the organized sector for the manufacture of rubber machinery mainly required for tire tube industry. The range of equipments manufactured the county included inter-mixer, tire curing pressed tube splices bladder curing presses. Tube splices tire moulds tire building machinery. Torment services, bias cutters, rubber injection, moulding machine, bead wire etc. Import/export figures for the industry are as under: (Rs. in crore) Year Import Export 2007-08 36.75 46.15 2008-09 12.02 50.32 2009-10 34.79 98.16

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METERIALS HANDLING EQUIPMENT: The range of equipment manufactured includes crushing and screening plants. Cole/ore/ash handing plants and associated equipment such as stackers feeders etc. catering to the growing and rapidly changing needs of the core industries such ads coal, cement power, port, mining fertilizers and steel plants. There are 50 unities in the organized sector for the manufacture of material handling equipment. Besides, there are number of units operating in the small-scale sector. The industry is self sufficient in meeting domestic demand and is also capable of meeting global competition. Import/export figures for the industry are as under: (Rs. In crore) Year Import Export OLD FIELD EQUIPMENT: The petroleum industry in India is undergoing a major change. With the ongoing process of liberalization, the industry has been thrown open for private sector in all major areas of exploration. Production, refining and marketing, and this have resulted in increased demand for the oil field find related equipment. Domestic production covers manly the on-shore drilling equipment. Under of offshore drilling only offshore platforms and some other technological structure are being produced locally. The major producers of these equipments are BHEL, Meagan dock and Larsen &toubro. Import/export figures for the industry are as under: (Rs. In crore) Year Import Export 2007-08 638.20 300.47 2008-09 352.84 71.87 2009-10 411.73 72.51 Hindustan shipyard, 2007-08 261.44 80.16 2008-09 545.54 77.914 2009-10 1552.97 124.27

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METALLURGICAL MACHINERY: Metallurgical machinery includes equipment for mineral beneficiations are dressing size reduction tee plant equipments. Foundry 30 Indian public sectors aiming global heights equipment furnaces. At present there are 39 units in the organized sector engaged in the manufacture of various typed of metallurgical machinery. The existing production capacity into the county is sufficient to meet the demand of this equipment in the country. Indigenous manufacturers are in position to supply of the equipment for still pants e.g. blast footraces sinter plants. Coke ovens, tell melting shop equipment continuous casting equipment, rolling mills & finishing line. Import/export figures for the industry are as under: (Rs. In crore) Year Import Export 2007-08 454.40 370.70 2008-09 1200.65 535.04 2009-10 1843.27 643.68

MINING MACHINERY: The major mining equipment are long wall mining equipment, road header, side discharges loader(SDL), haulage winder ventilation fan, load haul dumper (LHD),coal cutter, conveyors, battery locos, pumps, friction prop, etc. at the present are 32manufactures the equipment of various types, out of these, 17 units manufacture underground mining equipment. Majority of the mining industry is being met by the indigenous manufactures. Import/export figures for the industry are as under: (Rs. In crore) Year Import Export 2007-08 39.01 1.55 2008-09 41.99 5.90 2009-10 76.71 48.47

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DAIRY MACHINERY: At present there are 16 units in the organized sector, both in private and public sector, manufacturing dairy machinery equipment such as evaporators, milk refrigerates and storage tanks, milk and cream deodorizers, centrifuges, clarifiers, agitators, homogenizers, spray dryers and heat exchangers, small scale units are also contributing to the indigenous production. The spray dryers, plate type heat exchanger and other core equipment on the equipment because the presence of a by micro crevices resulting from inadequate polish tends to be the incubation a breeding ground for the bacteria Import/export figures for the industry are as under: (Rs. In crore) Year Import Export 2007-08 21.05 8.08 2008-09 52.36 5.95 2009-10 68.97 10.27

MACHINE TOOLS: Machine tool industry is in a position to export general purpose and a standard, machine tool to even industrially advanced countries. During last four decades, the machine tool industry in India has established a sound base and there are around 160 machine tool manufacturers in the organized sector as also around 400 units in the small ancillary sector. The India industry has good design capability and the production of CNS machines has increased to about 4000 no. per annum. Indian machine tools are manufactured to the international standard of quality/ precision and reliability. A number of collaboration have also been approved for bringing in the latest technology in this field of modern machine tools and the industry is now exporting conventional as well as NC/CNC high-tech machine tools. In the field of R&D, central manufacturing technology institute, Bangalore has been doing research for more appropriate designed machine tools.

46

PERFORMANCE OF THE INDUSTRY FORTING THE LAST THERE YEARS IS TABULATED BELOW Year Production Import Export 2007-08 1089.04 1820.83 52.61 2008-09 1342.00 2899.00 50.00 2009-10 1719.00 4656.00 73.00

INTERNATIONAL COOPERATION: The department endeavours to promote international co operational in the field of heavy machineries, heavy industries, capital goods and auto sectors and keeps itself abreast with WTO matters, bilateral/ multilateral agreements and other issue concerning the department. To promote economic co-operation at international level, meetings are arranged at senior officers/ minister level. India has free trade agreements (FTA) with various organizations/ counties such as ASEAN, BIMSTEC, Singapore, Thailand and EU etc. the department protects the interests of concerned industries by suggesting the retention of relevant items in the negative list. Recently suggestions were made for retention negative list free trade area (FTA) with EU; ASEAN; India, Thailand FTA; and India-Singapore comprehensive economic agreement (CECA). The views on machinery and auto sector for the meeting of the meeting of committee on rules of origin (ROO) in WTO, Geneva have also been conveyed to the department of commerce. A formal indo-Czech joint working group (JWG) has been constituted in terms of protocol of indo-Czech joint committee meeting (JCM) of department of commerce and joint secretary, heavy industries as co-chairman of JWG from Indian side. A beginning has been made and heavy engineering corporation Ltd., Ranchi (HEC), has sought assistance from M/s Victories Heavy Machinery. Prague for submitting offer to Bokhara steel plant against their tender for manufacture and supply of 8 Nos. Ladle cars. HEC will also be participating in various tenders in India on the basis of technology and association of companies of Czech Republic via M/s Skoda machine tools, M/s TOS Varnsdorf and M/s Unexon, on case to case basis and their association will be sought before submitting the bids.
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ENGINEERING EXPORTS: The engineering industry has been making the export front from around Rs.21crore in 1966. The value of exports of engineering goods rose over Rs.105crore by the end of 60s and continued to show and encouraging trend during to 70s. In the period 1971-1975 the value of exports more and trebled and nearly doubled in the next 3 years 1982-83 Rs.1250crore was reached. The engineering industry has emerged with the leading foreign Exchange Earners of the country. Project Exports; Though Indian Projects are exports has been successful. It is felt that the level of exports dont match our capabilities. India has a vast pool of trained man power. The project exports full under the following three categories: Turnkey Projects. Engineering Contacts. Consultancy Service.

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COMPANY PROFILE
APHMEL stands for Andhra Pradesh Heavy Machinery and engineering Ltd. This is located Kondapalli a small village famous for toys and which is located on the back of river Krishna. Professionalism is the hallmark this company from the beginning. HISTIORY OF APHMEL: Andhra Pradesh Heavy machinery and engineering Ltd was incorporated in September 1976 with the main objective of designing developing and manufacturing the entire range of castings of all type and Heavy Industrial Machinery, Machines tools etc. The company becomes a government company on 8th Nov 1983. The factory was dedicated to the people by the Honorable chief minister of Andhra Pradesh Mr. N.T.Rama Rao. The production started in October 1983 with an installed of 3500 tons per annum at cost of 1395.69lakh. 1st phase for total outlay of 13601lakh is financed by IDBI ICFI Rs.507 LAKH Rs.200 LAKH Rs.100 LAKH

ICICI -

In addition to the equity capital of 485lakhs, machines were purchased from famous manufacturing like HMT (HINDUSTAN MACHINES AND TOOLS) and HEC (HINDUSTAN ENGINEERING COMPENY). LOCATION: APHMEL is located at kondapalli 23kms from Vijayawada the project site is rightly chooses in 2006 acre and with all infrastructure facilities and easily accessible by rail, road and adequate water facilities power supply.

49

THE FUNDS STRUCTURE OF APHMEL: Singareni collieries co Ltd Andhra paper industrial development corporation Ltd (APIDC) Private share OBJECTIVES OF APHMEL: APHMEL have to design, develop, manufacture and market Heavy industrial machinery, plant and equipment including components and spares and service of poorer, coal mining, steel chemical, petrol chemical, shipping and engineering industries etc. To utilize the capacities installed effectively. To maintain and develop technological leadership. To increase the profile of the through proper export. To develop the skills of the employees through proper training and development programs. To develop components managerial personal capable of meeting projects and growth objections of company. ADMINISTRATION: The administrations the company is under the on to of M.D with board of directors. It is public limited company and governed enterprise. APHMEL is large scale industry. Chairman form Singareni collieries co Ltd. Managing Director. BIFRS Special Director. IDBI Moninee Director. Director from SCCL. Director from Andhra Pradesh Development Corporation. Director from BHEL. Board of Directors from share holders. 60% 10% 30%

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ACHIEVEMENTS OF THE COMPANY: In 1991 the company received and aware for best machine produced with indigenous know how for splitting machine at internal leather trader fair and at madras. In 1992-93 the company bagged productivity award from ministry of labor from AP Government. In 1994 the company received in research and development from federation of A.P chamber of commerce and industry. In 1995 the company received an award of for District contribution towards increase production and productivity and maintenance of better industrial relation from labor department to A.P government. The company has been receiving awards every year for industrial and agricultural exhibition society, Vijayawada. The company has received internal quality award from bid makrid, Spain.

PRODUCT RANGE OF APHMEL: The company producing multi production the types of the product range are: 1. BULK METERIAL HANDLING EQUIPMENT All types conveyors. Various capacities of haulages. Sinking minces. Stackers and recliners. 2. MINING EQUIPMENT Road leader. Long wall rood system. Armoured face conveyors. Mining haulages. 3. CHEMICAL EQUIPMENT Pressure vessels. Heat exchangers. Detractors. Tanks.

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4. TEXTILE MACHINERY Silk- reeling machines. Re- reeling machines. 5. LEATHER MACHINERY Measuring machines. Splitting machines. Air-jet dusting machines. Vacuum dryer. Rotary auto spraying and dying machine. 6. POLLUTION CONTROL EQUIPMENT Electrostatic precipitators. Dusts collectors. Fabric filters. 7. GENERAL FABRICATION Wing mills. Dairy balers. Antenna mounts for SHAR center and VSS.

COMPETITORS: The competitors of APHMEL are: MC.KNALLY BHARAT. Kali material handling. ELECON. Hindustan. MANC (mining and Machinery Corporation). HEC (heavy Engineering Corporation). VOEST- alpine. Production plant.

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PRODUCTION PLANT: The production plant has 5 sections namely Heavy machine shop. Light machined shop. Fabrication. Assembly. Painting. FOREIGN COLLABORATION: The company has following foreign collaboration 1. M/s Environment elements corporation, USA for manufacturing of air pollution control equipment like electrostatic precipitation fabric and dusters collectors. 2. M/s Grave and co, USA for water pulling control equipment. 3. M/s Vests- alphine, Austria for the manufacture of road equipment. 4. M/s JJ Harvey, UK for embodying plants. 5. M/s Roberts Jenkins Ltd. UK for chemical equipment. 6. M/s Takraf, east Germany for scarps. 7. M/s Licencenintoring, USSR for long wall roof supporting system. CUSTOMERS: S.NO 1 Product Material equipment handling Cool India Ltd. Singareni collieries co.Ltd. Neyveli lignite corporation Ltd. Western coal field Ltd. Madras port trust. National mineral development com. Vizag steel project. 2 Size equipment deduction Bharat Heavy electrical Ltd. Customers

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Chemical equipment

BHEL, Bharat heavy plants & vessels nagarjuna fertilizers & chemical Ltd.

4 5

Silk reeling machine Leather machinery

Director sericulture of A.P Tamilnadu & Manipur. Panyam cement corporation of India Ltd. A.P pollution control board Ferro alloys corporate Ltd.

Pollution equipment

control Andhra state electricity board. Panyam cements. Cement corporation of India. Andhra Pradesh pollution control board. Ferro alloys corporation Ltd.

Road headers

Coal India Ltd. Singareni collieries co.Ltd. South eastern coal fields Ltd. North coal fields Ltd. Western coal fields Ltd.

General engineering

Visakhapatnam steel project. Vikram sarabai research center.

PROFILE OF HUMAN RESOURCE DEPARTMENT: The human resource department activity is insides hiring, training recruitment, selection, and performance appraisal. Recruitment: The department head shall inform the requirement of personal based availability of vacancies in his department to personal department with vice chairman and managing directors approval. The recruits were done by notification newspapers as well as by emolument exchange Vijayawada. Selection: In the industry the candidates selected for and by so many ways, in the respective of executive selection have been done by written test & viva.

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HUMAN RESOURCE ELEMENTS: Man power: The company at present in manned by 531 employees & they did not want or recruit any more. Salary and wage administration: The wage structure of the employees is governed by memorandum of settlement entry into between the management and the unions of the company. The wage revision is done once in every 4 years at the memorandum of understanding. The employees are dividing into officers/ supervisors and workers and among workmen there are 7 grades based on their cadre wages / salary are fixed. Welfare measures: The welfare of the workmen, canteen is running on a subsidiary rater mutually agreed and for the transportation buses and cars are run by the company. Safety measures: Personal protection equipment such as goggles, safety shoes, gloves, masks, aprons, pvs/rubber protective clothing car duffs etc and a safe environment are provided. Marketing Department: Marketing manager gets the information from assistant marketing manager and he is headed by sales representatives and salesmen. Marketing mix and advertising particulars of APHMEL shows the departments, Effective management of the marketing department is in the organization. Place: The channels of distribution from users to get its products to the pace of ingredients in the marketing mix in APHMEL it takes the orders from the customers directly and after production it delivers the produced products to the ordered customers according to their contract.

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Production Department: The production department includes the activities of machine maintenance, equality control, process planning, industrial engineering, fabrication, Heavy mining shop, light machine shop, civil maintains projects, and electrical maintenance tool room and assembles. Monthly they prepare the work in progress report production performance report on major hauls, rejection and reworks, annual reports, production/ dispatch/ stick statement. People involved in operation control are by manager, engineers, Asst. Engineers they require detailed report comparing actual performance of the product scheduled and highlighting area bottle necks occur. The company has reached its target production Rs.22crore by achieving turnover Rs.22.61crore of the previous years. FINANNICAL DEPARTMENT: Though initially the company approached the external sources for financial aid, now the financial status of the company is very sound and is being run only with self finance expecting for loans taken on hypothecation of machinery and stock from SBI, Vijayawada. The financial department is headed by the financial manager with the help of four account officers and others clerks of the department. The company follows cash in paid and these transactions are looked after by financial department with the help of marketing department. Philosophy of APHMEL: APHMEL has shown very good track record. The primary focus has been an engineer& technology. The future of marketing is somewhat depressed having come in focus in the recent past. The company philosophy is eagerly to provide the market technological and economical utility. APHMEL believe that the only indication for marketing technology is to provide.

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SWOT analysis of APHMEL: S-strengths 1. Quality of product 2. Corporate leadership 3. Committed labour 4. Good collaboration W- Weakness 1. Inadequate marketing strengths 2. Location of the plant which is coming in the way of recruitment high quality of managerial staff. O- Opportunities 1. Expanding engine, engineering base particularly in the public sector T- Threats 1. High turnover is leading to continuous up gradation of skills.

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CHAPTER III
RESEARCH METHODOLOGY

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OBJECTIVES OF THE STUDY: To study the inventory system at APHMEL. To determine and maintain optimum level of inventory management in Andhra Pradesh Heavy Machinery Engineering Ltd. To find out reasons for the problems and to evaluate possible ways for resolving the problem. To minimize the firms investment in inventories and to maximize profits. To study and analyze the various categories of inventory items in APHMEL. To offer suggestions for better inventory management in the organization. NEED OF THE STUDY: No firm can be maintained without inventory management, but the requirement of inventory differs from firm to firm. Inventory management is needed to every business enterprise because it indicates liquidity position of the firm. The problem of inventory management is one of the maintenance, with in a financial investment, an adequate supply of goods to meet an expected supply of demand pattern. Moreover inventory can be one of the indicators of the management

effectiveness on the material management front. Inventories in Indian industries constitute more then 60% of the current assets.

LIMITATIONS OF THE STUDY: The reliability of the study depends upon the information furnished by the officials. The time for the study is limited to 6 weeks only. The study is entirely based on the information given by the stores department, purchase department, production department and sales department of APHMEL.

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DATA COLLECTION: The date can be collected in two forms 1. Primary Data. 2. Secondary Data. PRIMARY DATA: The primary Data is also called as first in hand data. But it is not applicable for the study of financial management. SECONDARY DATA: The study is entirely based on the Data obtained from the officers, managers, and staff of APHMEL. Managers and supervisors of the organization have also been interviewed to elicit necessary information on the basis of non-structured schedules. And secondary was collected from the companys manuals and office records pertaining to production, marketing, financial position.

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CHAPTER-IV
DATA ANALYSIS & INTERPRITATION

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SIZE OF INVENTORY: The inventory depends on several factors such as sales volume, capacity of plant, availability of raw materials, fluctuations in price of raw-materials and finished goods, length of cycle etc generally progressive organization inventory levels continuously increase as increase sales and production. As already stated the prime objective of performance of production and sales are possible. Increase in size of inventory involves extra cost apart from adversely effecting profitability and liquidity. The size of networking capital is measured with the help of following ratio.

Size of inventory=

YEAR

INVWNTORY

TOTAL CURRENT ASSETS

SIZE OF INVENTORY

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

16,54,66,255 17,32,69,583 17,48,98,297 13,70,49,297 19,01,07,766

31,19,47,258 53% 33,23,47,258 52% 35,60,77,916 49% 42,00,53,145 33% 49,92,10,399 38%

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size of inventoruy
60% 50%

40%

30%

size of inventoruy

20%

10%

0% 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Interpretation: In the above table and the figure shows the size of inventory in the selected enterprise during the period 2005 to 2010. It is the evident from the table that inventory constituted the most important element of total current assets in this study as it is found on an average around 38% of the total current assets. It is observed from the table that the size of inventory in APHMEL has gradually decreased. But in 2010 the size of the inventory was increased by 5%.

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INVENTORY TURNOVER RATIO: The list of all varieties of stocks with the company is treated as stocks. This relationship expresses the frequency with which average level of the inventory is turned over through operations. If the ratio is high it means that stock is converted into sale as short span of time. It will lead to good profits for the company. If the inventory is moving quickly then the short term solvency of the company is also in very good condition. The inventory turnover ratio can be used as valuable measure of selling efficiency and inventory quality of the company. The turnover ratio is measured with the help of the following ratio.

Inventory turnover ratio =

The result of this ratio as applied to APHMEL YEAR NET SALES AVERAGE INVENTORY 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 64,53,21,456 51,96,78,976 59,35,72,350 61,10,11,598 58,74,19,904 38,15,73,354 31,47,53,053 34,67,16,322 41,80,19,205 35,83,22,602 16.9 16.5 17.1 14.6 16.3 RATIO (TIMES)

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RATIO (TIMES)
17.5 17 16.5 16 15.5 15 14.5 14 13.5 13 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 RATIO (TIMES)

Interpretation: From the above table it is observed that the inventory turnover ratio has been increased to some extent and then it is decreased. it has decreased from 16.9 times to 17.6 times from the year 2005-06 to 2008-09, and increased to 16.3 times in the year 2009-10. If the inventory turnover ratio is higher the operating cycle becomes faster and finally it will lead to higher profits to the company.

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DAYS OF INVENTORY HOLDING: The reciprocal of inventory turnover ratio gives average inventory holding in % term. When the number of days in a year is divided by inventory turnover, we obtain days of inventory holdings. The size of the days of inventory holding is measured with the help of the following ratio.

Days of inventory holding = The result of this ratio as applied to APHMEL

YEAR

NO. OF DAYS IN A YEAR

INVENTORY TURNOVER RATIO 16.9 16.5 17.1 14.6 16.3

PERIOD(DAYS)

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

365 365 365 365 365

22 22 21 25 22

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PERIOD(DAYS)
25 24 23 22 21 20 19 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 PERIOD(DAYS)

Interpretation: From the above table the trend of inventory holding period of the company. It is understand that the days of inventory holding has gradually decreased from 2005 to 2008 and it is increased in 2009 and again decreased in 2010 because the inventory turnover ratio increases than the days of the inventory holding decreases and vice- versa. It indicates the improvement in the management efficiency in converting their inventories into sales as fast as possible

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INVENTORY CONVERSION PERIOD: It is the time period to convert raw materials into finished goods. It can be calculated as Inventory Conversion Period = The result of the ratio as applied to APHMEL:

YEAR 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

INVENTORY 16,54,66,255 17,32,69,583 17,48,98,297 13,70,49,297 19,01,07,766

SALES 64,53,21,456 51,96,78,976 59,35,72,350 61,10,11,598 58,74,19,904

ICP = 1/SALES * 360 94 days 119 days 104 days 79 days 118 days

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ICP = 1/SALES * 360

120

100

80 ICP = 1/SALES * 360

60

40

20

0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Interpretation: The above table shows the I.C.P. where it was low that is 94 in the year 2005-06 and is high that is 119 in the year 2006-07. Then it declines 2007-08 & 2008-09 & increased in 2009-10.

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PERCENTAGE OF FINISHED GOODS IN INVENTORY: A firm cant produce immediately when customers demand goods. Therefore to supply finished goods on a regular basis, their stock has to be maintained for sudden demand from customers. In case firm sales are seasonal in nature, substantial finished goods should be kept to meet the peak demand.

% of finished goods in inventory =

YEAR

INVENTORY

FINISHED GOODS

% OF FG IN INV = FG/I*100

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

16,54,66,255 17,32,69,583 17,48,98,297 13,70,49,297 19,01,07,766

34,58,699 19,50,000 42,61,924 21,10,680 0

2% 1% 2% 2% 0

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% OF Fg IN INV = FG/I*100
3%

2%

2% % OF Fg IN INV = FG/I*100 1%

1%

0% 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Interpretation: From the above table it is observed that the % finished goods in inventory remains constant for the periods 2005-2009 except the period 2006-07, in this period it was only 1% & in the year 2009-2010 these are no finished goods that is 0% of finished goods in 2009-10 is 0.

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PERCENTAGE OF RAW MATERIALS IN INVENTORY: Raw materials are those basic inputs that are converted into finished product through the manufacturing process. Raw material inventories are those units which have been purchased & stored for future productions a company should maintain adequate stock of continuous supply to the factors for an uninterrupted production.

% of Raw Materials in inventory =

YEAR

INVENTORY

RAW MATERIALS

% OF RM IN INV= RM/INV*100

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

16,54,66,255 17,32,69,583 17,48,98,297 13,70,49,297 19,01,07,766

3,84,41,561 3,50,16,549 7,77,73,697 3,87,92,952 5,86,76,482

23% 20% 44% 28% 31%

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% OF RM IN I = RM/I*100
45% 40% 35% 30% 25% % OF RM IN I = RM/I*100 20% 15% 10% 5% 0% 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Interpretation: The percentage of raw materials in inventory decreased to 20% during the year 2007. And the percentage of raw materials has to inventory show as increasing trend in 2008. It declined in 2009 & again increased in 2010.

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GROSS OPERATING CYCLE: The firms gross operating cycle can be determined as inventory period and conversion period ICP: It is the time period to convert raw materials into finished goods. It can be calculated as Inventory conversion period = DCP: Debtors conversion period is the average time taken to convert debtors into cash. DCP represents the average collection period. Debtors conversion period = Note: credit sales are assumed as net sales. ICP: The result of the ratio as applied to APHMEL: YEAR 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 INVENTORY 16,54,66,255 17,32,69,583 17,48,98,297 13,70,49,297 19,01,07,766 SALES 64,53,21,456 51,96,78,976 59,35,72,350 61,10,11,598 58,74,19,904 ICP = I/SALES*360 94 days 119 days 104 days 79 days 118 days

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DCP: The result of the ratio as applied to APHMEL: YEAR 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 INVENTORY 12,34,79,272 13,53,24,571 15,40,05,019 15,24,44,290 20,92,98,090 SALES 64,53,21,456 51,96,78,976 59,35,72,350 61,10,11,598 58,74,19,904 DCP = D/Cr.SALES*360 69 days 94 days 94 days 90 days 128 days

Gross operating cycle: (GOC) YEAR 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 ICP 94 days 119 days 104 days 79 days 118 days DCP 69 days 94 days 94 days 90 days 128 days GOC = ICP +DCP 163 days 213 days 198 days 169 days 246 days

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GOC = ICP +DCP

250

200

150 GOC = ICP +DCP 100

50

0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Interpretation: Gross operating cycle in APHMEL is initially increased from 163 days to 213 days during the period 2005-07, and later it starts decline from 213 to 169 days during the period 2007-09 increased from 169 to 246 days during period 2009-10.

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CHAPTER V
FINDINGS & SUGESSTIONS

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FINDINGS: o The size of inventory is showing declined till 2009. There is an increase of 5% in 2010. It power that the organization is increased of stock level in terms of inventory. o Inventory turnover ratio is showing an increased trend. It enables the organization is increasing sales in relation to production. o The size of the days of inventory holding is reduced to some extent and it had been increased in 2009. And in 2009 the organization is unsuccessful in handling the inventory but the size of the days of inventory holding is reduced in 2010. It proves that the organization is successful in handling the inventory in 2010. o Inventory conversion period is increased it proves that the organization must concentration on introduction of sophisticated technology for production. o The percentage of finished goods is 0. It proves that the organization have in adequate maintenance of stock level in terms of inventory. o The percentage raw materials in inventory also show an increasing trend. It proves that the organization have adequate maintenance of stock level in terms of inventory. o GOC is initially increased from 163 days 213 days during the period 2005-2007 later it starts decline from 213 to 169 days during the period 2007-2009. It increased from 169 to 246 days during the period 2009-2010 proves that the organization had concentrate on the things like inventory management and sales.

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SUGESSTIONS: o There is no particular method has been followed for valuing the particular type of inventories. The company has to introduce proper methods for valuing the inventories. o The valuation of inventories is entirely based on both manual and computer valuation. o Most of the times inventory is not sufficient at the time of production. The company has to maintain adequate level of inventory. o Bin cards are maintained in APHMEL to know the location of stock, its current stock available, the issues of receipts of materials etc. o The company should introduce stock verification system for all the materials. o The company should introduce some of the major inventory classification XYZ for better control of the inventory. o As a whole the inventory management in the company is good. If proves that the stores department and production department is performing efficiently in the organization.

CONCLUSIONS: It is important to study the size of inventory management of any enterprise. It decides the need for the owing attention in the management of this component. The composition of current assets is dominated by inventory. Some of the inventories are ordered on the basis of minimum stock reorder level. As a whole the financial position of the company is good it proves the management efficiency in the organization.

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BIBILOGRAPHY: 1. Financial management 2. Financial management 3. Financial management : : : KHAN & JAIN IM PANDAY PRASANNA CHANDRA

Journals: Booklets and other publication on the progress of APHMEL

WEBLLIOGRAPHY: www.google.co.in www.wikipedia.com www.inventorymanagement.com www.finacialexpress.com

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